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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D. C. 20549
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the three months ended December 31, 1997
Commission File Number 0-10683
HYDROMER, INC.
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(Exact name of registrant as specified in its charter)
NEW JERSEY 22-2303576
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(State of incorporation) (IRS Employer
Identification No.)
35 COLUMBIA ROAD, BRANCHBURG, NEW JERSEY 08876-3518
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (908) 526-2828
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Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK WITHOUT PAR VALUE
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(Title of class)
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to file
such report(s,) and (2) has been subject to such filing requirements for the
past 90 days. Yes (X) No( )
Indicate the number of shares outstanding or each of the issuer's classes of
Common Stock as of the close of the period covered by this report.
CLASS OUTSTANDING AT DECEMBER 31, 1997
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Common Stock 4,378,904
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1
1
HYDROMER, INC.
INDEX TO FORM 10-QSB
December 31, 1997
Page No.
Part 1 - Financial Information
Condensed Financial Statements
Balance Sheets - December 31, 1997 & June 30, 1997 ................ 2
Statements of Operations for the three & six month period
December 31, 1997 and 1996 ...................................... 3
Statements of Cash Flows for the six months ended
December 31, 1997 and 1996 ...................................... 4
Notes to Financial Statements ..................................... 5
Management's Discussion and Analysis of the Financial Condition
and Results of Operation ........................................ 6-7
Part II - Other Information ............................................... 8
1
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<TABLE>
HYDROMER, INC.
BALANCE SHEETS
<CAPTION>
December 31, June 30,
(UNAUDITED) (AUDITED)
1997 1997
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<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents ...................................... $ 645,605 $ 716,045
Trade receivables less allowance for doubtful accounts of
$8,831 and $8,831, respectively ............................. 532,957 431,150
Other receivables .............................................. 31,189 --
Inventory ...................................................... 140,850 148,753
Prepaid expenses ............................................... 116,180 77,567
Deferred tax asset ............................................. 100,000 100,000
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Total Current Assets ............................................... 1,566,781 1,473,515
Property and Equipment, net ........................................ 287,826 271,743
Deferred Tax Asset ................................................. 171,064 262,856
Other Assets ....................................................... 9,376 11,968
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$ 2,035,047 $ 2,020,082
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable ............................................... $ 44,021 $ 29,213
Accrued expenses ............................................... 79,805 167,678
Income tax payable ............................................. 20,562 40,223
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Total Current Liabilities .......................................... 144,388 237,114
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Stockholders' Equity
Common stock - no par value, authorized 6,000,000 shares,
issued and outstanding, 4,378,904 shares ..................... 2,922,708 2,922,708
Contributed capital ............................................ 577,750 577,750
Accumulated deficit ............................................ (1,472,291) (1,711,350)
Cash Dividends paid ............................................ (131,368) --
Treasury stock, 10,917 common shares at cost ................... (6,140) (6,140)
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Total Stockholders' Equity ......................................... 1,890,659 1,782,968
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$ 2,035,047 $ 2,020,082
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</TABLE>
2
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<TABLE>
HYDROMER, INC.
STATEMENTS OF INCOME
<CAPTION>
Three Months Ended Six Months Ended
December 31, December 31,
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1997 1996 1997 1996
UNAUDITED UNAUDITED UNAUDITED UNAUDITED
RESTATED RESTATED
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<S> <C> <C> <C> <C>
REVENUES:
Product sales and services ............... $ 137,774 $ 142,023 $ 291,160 $ 340,876
Royalties, options and licenses Fees ..... 518,625 335,000 871,345 664,743
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656,399 477,023 1,162,505 1,005,619
Cost of Product Sales ........................ 45,197 47,908 104,011 119,110
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Gross profit ........................... 611,202 429,115 1,058,494 886,509
Selling, General and Administrative .......... 405,646 258,276 755,573 450,300
Research and Development ..................... -- 89,620 -- 195,952
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Operating Income ....................... 205,556 81,219 302,921 240,257
Interest Income .............................. 9,434 2,556 16,854 4,454
Other tax expense (benefit) .................. -- 5,692 -- (58,008)
Other Income ................................. -- 11 (2) 11
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Income before provision for income taxes 214,990 89,478 319,773 186,714
Provision for Income Taxes Expense (Benefit) . 38,863 6,621 80,714 (18,879)
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Net Income ............................. $ 176,127 $ 82,857 $ 239,059 $ 205,593
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Income Per Common Share ................ $ 0.04 $ 0.02 $ 0.06 $ 0.05
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Weighted Average Common Shares Outstanding ... 4,378,904 4,367,987 4,378,904 4,367,987
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</TABLE>
3
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<TABLE>
HYDROMER, INC.
STATEMENTS OF CASH FLOWS
<CAPTION>
Six Months Ended
December 31,
-----------------------
1997 1996
UNAUDITED UNAUDITED
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income ......................................................... $ 239,059 $ 205,593
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization .................................... 25,172 19,280
Gain on sale of securities ....................................... -- --
Changes in Assets and Liabilities
Trade receivables .............................................. (101,801) (103,097)
Inventory ...................................................... 7,903 12,773
Prepaid expenses ............................................... (38,613) (3,676)
Deferred tax asset ............................................. 91,792 (40,904)
Other assets ................................................... (28,597) (254)
Accounts payable and accrued liabilities ....................... (73,065) 69,621
Income taxes payable ........................................... (19,661) (16,867)
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Net Cash from Operating Activities .......................... 102,189 142,469
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CASH FLOWS FROM INVESTING ACTIVITIES:
Cash purchases of property and equipment ........................... (41,261) (12,034)
Cash proceeds received from sale of marketable investment securities -- (1,000,000)
Cash purchases of marketable investment securities ................. -- 1,000,000
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Net Cash Used in Investing Activities ....................... (41,255) (12,034)
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Cash Dividends Paid .................................................... (131,368) --
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Net (Decrease) Increase in Cash and Cash Equivalents ................... (70,440) 130,435
Cash and Cash Equivalents at Beginning of Year ......................... 716,045 167,900
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Cash and Cash Equivalents at End of Quarter ............................ $ 645,605 $ 298,335
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</TABLE>
4
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HYDROMER, INC.
Notes to Financial Statements
The company has filed a restated annual form 10K-SB and accordingly, has
restated the financial results for the quarter ended 12/31/96 on this 10QSB. The
prior period Financial Statements have been restated to reflect the under
reporting of royalty receivables from a licensee. The restatement affected
royalty revenues and as a result the restatement was significant enough to
classify the company as a personal holding company requiring a significant tax
accrual at year-end, a portion of which was also restated in this quarter.
On August 14, 1997 the Company entered into an agreement with CFO, a consulting
firm whereby the firm will help create a business plan and assist the Company to
get listed on a regional stock exchange. Hydromer is obligated for payment of a
$2,500 monthly fee to the firm, cancelable anytime. Additionally, upon certain
criteria being met, the firm is entitled to 150,000 warrants of the Company's
common stock at an agreed upon price. Mr. Brice is a partner in the firm.
In the opinion of management, the accompanying unaudited financial statements
include all adjustments (consisting of only normal adjustments) necessary for a
fair presentation of the results for the interim periods.
5
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Revenues for the quarter ended December 31, 1997 were $656,399, up 38% from the
same period last year. For the 6 months ended December 31, 1997, revenues were
up 16% to $1,162,505 over the same period last year. This increase in revenues
is attributable to increased use of the Company's technology through license
agreements with its clients. This increase in usage equates to increased royalty
income which was up 55% for the quarter and 31% for the six months ended
December 31, 1997.
Gross profit for the quarter was $611,202 vs. $429,115 for the same period last
year or an increase of 42% and $1,058,494 for the 6 months ended December 31,
1997 vs. $886,509 for the same period last year or an increase of 19%. This
increase is again related to the increase in royalties, options and license fees
from the use of the Company's technologies in over 15 licensing agreements.
Operating Costs (SG&A and Research and Development) were $404,646 for the
quarter, up $56,750 or 16% over the same period last year and $755,573 for the 6
month period, up $109.321 or 17% over last year. This increase in costs is
attributable to the Company's expanding services to its clients. Employee costs,
especially R&D, are up to support the new technologies being developed and
provide improved customer services to clients. Lab costs are up over last year
to react to the expanding needs for samples and prototypes as more clients are
aware of the company's products and services. Finally, new costs associated with
the Company's expansion into coating services are up over last year.
Net income for the quarter ended December 31, 1997 was $176,127, up 113% over
the same period last year. Earnings per share were $0.04 for the quarter as
compared to $0.02 for the same period last year. For the six months ended
December 31, 1997, the company reported earnings of $239,059 or $0.06 per common
share, up 16% over the same period last year for both earnings and EPS.
6
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Financial Condition
Working capital increased by $107,691 to $1,890,659 at December 31, 1997 from
$1,782,968 at June 30, 1997. This increase includes a dividend paid to
shareholders in the amount of $131,368. Excluding the dividend paid, working
capital increased $239,059 for the six months ended December 31, 1997. The
Company believes that future revenues will provide a sufficient cash flow to
maintain operations at current levels.
7
<PAGE>
PART II - Other Information
Item 6. Exhibits and Reports on form 8-K:
a) Exhibits - none
b) Reports on Form 8-K - There were no reports on Form 8-K filed for the
quarter ending December 31, 1997
8
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on his behalf by the
undersigned thereunto duly authorized.
HYDROMER, INC.
/s/ KENNETH P. BRICE
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Kenneth P. Brice
Vice President -
Finance & Administration
Chief Financial Officer
DATE: February 5, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-END> DEC-31-1997
<CASH> 546
<SECURITIES> 0
<RECEIVABLES> 533
<ALLOWANCES> 9
<INVENTORY> 141
<CURRENT-ASSETS> 1,567
<PP&E> 288
<DEPRECIATION> 0
<TOTAL-ASSETS> 2,035
<CURRENT-LIABILITIES> 144
<BONDS> 0
0
0
<COMMON> 2,923
<OTHER-SE> (1,032)
<TOTAL-LIABILITY-AND-EQUITY> 2,035
<SALES> 1,163
<TOTAL-REVENUES> 1,163
<CGS> 104
<TOTAL-COSTS> 756
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (17)
<INCOME-PRETAX> 320
<INCOME-TAX> 81
<INCOME-CONTINUING> 239
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 239
<EPS-PRIMARY> 0.06
<EPS-DILUTED> 0.06
</TABLE>
