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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 September 30, 1998
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 INDUSTRIAL PARKWAY, SOMERVILLE, 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
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 September 30, 1998
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Common Stock 4,367,987
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HYDROMER, INC.
INDEX TO FORM 10-QSB
September 30, 1998
Page No.
Part 1 - Financial Information
Condensed Financial Statements
Balance Sheets - September 30, 1998 & June 30, 1998 ................. 2
Statements of Income for the three months ended
September 30, 1998 and 1997 ....................................... 3
Statements of Cash Flows for the three months ended
September 30, 1998 and 1997 ....................................... 4
Notes to Financial Statements ....................................... 5
Management's Discussion and Analysis of the Financial Condition
and Results of Operation .......................................... 6
Part II - Other Information ............................................... 8
1
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HYDROMER, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, June 30,
(UNAUDITED) (AUDITED)
1998 1998
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<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents ................................................. $ 569,105 $ 783,475
Trade receivables less allowance for doubtful accounts of $8,831 for
both periods........................................................... 500,271 497,579
Inventory ................................................................. 178,630 176,131
Other ..................................................................... 38,047 42,083
Prepaid expenses .......................................................... 101,979 71,708
Deferred tax asset ........................................................ 200,227 236,235
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Total Current Assets ........................................................... 1,588,259 1,807,211
Property and Equipment, net .................................................... 1,586,471 1,585,209
Other Assets ................................................................... 126,809 100,117
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$ 3,301,539 $ 3,492,537
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable .......................................................... $ 116,468 $ 42,563
Accrued expenses .......................................................... 60,818 232,432
Current portion of mortgage payable ....................................... 56,667 56,667
Current portion of deferred rental income ................................. 115,500 115,500
Income tax payable ........................................................ 10,641 0
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Total Current Liabilities ...................................................... 360,094 447,162
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Long-term portion of mortgage payable .......................................... 779,167 793,333
Long-term portion of deferred rental income .................................... 196,793 224,906
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Total Liabilities 1,336,053 1,465,401
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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 ....................................................... (1,397,464) (1,467,182)
Cash Dividends paid ....................................................... (131,368) --
Treasury stock, 10,917 common shares at cost .............................. (6,140) (6,140)
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Total Stockholders' Equity ..................................................... 1,965,486 2,027,136
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$ 3,301,539 $ 3,492,537
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</TABLE>
2
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HYDROMER, INC.
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Three Months Ended
September 30,
1998 1997
UNAUDITED UNAUDITED
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<S> <C> <C>
REVENUES:
Product sales and services .................. $ 278,760 $ 198,335
Royalties, options and licenses Fees ........ 338,180 307,770
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616,940 506,105
Cost of Product Sales ............................ 62,194 58,814
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Gross profit .............................. 554,746 447,291
Selling, General and Administrative .............. 432,957 349,927
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Operating Income .......................... 121,789 97,364
Interest Income .................................. 9,457 7,421
Interest Expense .......... ...................... 15,204 --
Other Income ..................................... 328 --
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Income before provision for income taxes .. 116,370 104,785
Provision for Income Taxes Expense ............... 46,650 41,851
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Net Income ................................ $ 69,720 $ 62,934
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Income Per Common Share ................... $ 0.016 $ 0.015
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Dividends paid, per share ................. $ 0.03 $ 0.030
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Weighted Average Common Shares Outstanding ....... 4,367,987 4,367,987
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</TABLE>
3
<PAGE>
HYDROMER, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three Months Ended
September 30,
1998 1997
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income ......................................................... $ 69,720 $ 62,934
Adjustments to reconcile net income to net cash provided by
operating activities
Depreciation and amortization .................................... 26,594 11,572
Gain on sale of securities ....................................... -- --
Changes in Assets and Liabilities
Trade receivables .............................................. (2,693) 10,433
Inventory ...................................................... (2,499) (1,662)
Prepaid expenses ............................................... (30,270) (41,454)
Deferred tax asset ............................................. 36,008 32,421
Other assets ................................................... (22,656) 622
Accounts payable and accrued liabilities ....................... (97,710) (110,834)
Mortgages and deferred rent payable ............................ (42,280) --
Income taxes payable ........................................... 10,641 (30,793)
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Net Cash (Used in) Operating Activities .................... (55,145) (66,581)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Cash dividends paid ................................................ (131,367) (131,368)
Cash purchases of property and equipment ........................... (27,858) (13,212)
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Net Cash Provided by (Used in) Investing Activities ....... (159,225) (144,580)
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Net Increase (Decrease) in Cash and Cash Equivalents .................... (214,370) (211,161)
Cash and Cash Equivalents at Beginning of Year .......................... 783,475 716,045
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Cash and Cash Equivalents at End of Year... ............................. $ 569,105 $ 504,884
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</TABLE>
4
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HYDROMER, INC.
Notes to Financial Statements
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
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
The Company's revenues for the quarter ended September 30, 1998 were $616,940 as
compared to $506,105 for the same period last year, or an increase of 21.9%.
Revenue is comprised of:
Royalty revenue from patented products grew to $338,180 up 9.9% over the
same period last year. There are 23 clients who use our patented
technologies on their products and this growth is purely from our client's
increased sales of their products. No new licensees were aadded during this
quarter. The company is currently testing other products that have
exclusive and non-exclusive licensing opportunities.
Product sales and technology sales were $278,760 for the quarter ended
September 20, 1998 as compared to $198,335 for the same period last year,
an increase of 40.6%. This increase is attributable, for the most part, to
the increase in sales to two clients who are paying a use fee for the
technology. Actual sales of product were down 21% over the same period
last year. This decrease was anticipated as many clients accelerated
their orders in the fourth quarter of last year.
The Company's gross profit was up 24.0% to $554,746 from $447,291 for the same
period last year.
Gross Profit percentage on sales was 90.0% for the quarter ended September
30, 1998 as opposed to 88.3% for the same period last year. This increase
is due to the increase in sales reported for technology sales which
carry no associated direct costs.
Royalty income is included in gross profit at 100%.
SG&A expenses increased $83,030 or 23.7% to $432,957, in the quarter ended
September 30, 1998, up from $349,927 for the same period last year.
This increase is attributable, in part to the increase in depreciation
expense ($13,000) due to the upgrade of the company's systems and employee
costs ($66,018) reflecting the increased level of management and technical
resources.
Earnings before taxes were $116,370 up 11.1% from prior year's results of
$104,785 for the same quarter.
Net earnings were $69,720 for the quarter ended 9/30/98, an increase of 10.8%
over the quarter ended 9/30/98.
Earnings per share were $0.016 for the quarter, up 10.8% over the same period
last year.
6
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Financial Condition
Working capital decreased by $131,884 for the quarter, which includes a dividend
payment of $131,367, which was paid to shareholders in September 1998.
Excluding the dividend payment, working capital was flat for the quarter.
Management believes that its current working capital, along with expected
income and expense streams, are sufficient to maintain its current level of
operations.
7
<PAGE>
PART II - Other Information
The Company currently has two facilities located in New Jersey. The
manufacturing and quality assurance functions of the Company are located at 35
Columbia Road, Branchburg, New Jersey. The Company signed a five year lease with
a party not affiliated with the Company for the Columbia Rd facility.
In June 1998, the company purchased the building and land at 35 Industrial
Parkway for expansion. The new facility is secured by a mortgage with a bank and
is partially occupied by Biosearch Medical Products, Inc., the prior owner of
the facility and an affiliated party. The Company has moved its Research and
Development as well as its administrative staff to the new facility. See the
financial statements included herein for the terms of the agreements.
The facilities will be adequate for the Company's operations for the
foreseeable future.
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 September 30, 1997
8
<PAGE>
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/ KEN BRICE
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Ken Brice
Vice President
Finance & Administration
Chief Financial Officer
DATE: October 27, 1998
9
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<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-END> JUN-30-1999
<CASH> 569
<SECURITIES> 0
<RECEIVABLES> 500
<ALLOWANCES> 9
<INVENTORY> 179
<CURRENT-ASSETS> 1,588
<PP&E> 1,586
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<SALES> 617
<TOTAL-REVENUES> 617
<CGS> 62
<TOTAL-COSTS> 433
<OTHER-EXPENSES> (10)
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<INTEREST-EXPENSE> 15
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<EPS-PRIMARY> .016
<EPS-DILUTED> .016
</TABLE>
