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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
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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, 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 PKWY, 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
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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 MARCH 31, 1999
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Common Stock 4,598,904
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HYDROMER, INC.
INDEX TO FORM 10-QSB
March 31, 1999
Page No.
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Part I - Financial Information
Condensed Financial Statements
Balance Sheets - March 31, 1999 & June 30, 1998................. 2-3
Statements of Operations for the three & nine month period
March 31, 1999 and 1998......................................... 4
Statements of Cash Flows for the nine months ended
March 31, 1999 and 1998......................................... 5
Notes to Financial Statements................................... 6
Management's Discussion and Analysis of the Financial Condition
and Results of Operation........................................ 7-8
Part II - Other Information............................................ 9-10
1
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HYDROMER, INC.
BALANCE SHEETS
UNAUDITED AUDITED
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MAR 31, '99 JUN 30, '98
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ASSETS
CURRENT ASSETS
CASH AND CASH EQUIVALENTS $1,363,641 $ 783,475
TRADE RECEIVABLES LESS ALLOWANCE
FOR DOUBTFUL ACCOUNTS
OF $8,831 FOR BOTH PERIODS 603,647 497,579
PREPAIDS 116,113 71,708
DEPOSITS 11,375 11,375
OTHER RECEIVABLES 57,953 29,108
DEFERRED TAXES - ST 0 236,235
EMPLOYEE ADVANCES 0 1,600
INVENTORY 219,051 176,130
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TOTAL CURRENT ASSETS 2,371,780 1,807,211
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PROPERTY AND EQUIPMENT, NET
BUILDING 784,428 752,453
LAND 472,410 472,410
EQUIPMENT 281,800 256,852
FURNITURE AND FIXTURES 41,023 36,787
LEASEHOLD IMPROVEMENTS 60,228 66,708
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TOTAL PROPERTY AND EQUIPMENT, NET 1,639,889 1,585,209
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OTHER ASSETS
ACQUISITION COSTS 33,247 18,015
PATENTS 164,368 82,102
TRADEMARKS 548 0
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TOTAL OTHER ASSETS 198,163 100,117
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TOTAL ASSETS $4,209,832 $3,492,537
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2
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HYDROMER, INC.
BALANCE SHEETS
UNAUDITED AUDITED
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MAR 31, '99 JUN 30, '98
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LIABILITIES & EQUITY
LIABILITIES
CURRENT LIABILITIES
ACCOUNTS PAYABLE $ 53,742 $ 89,405
INCOME TAXES PAYABLE 93,049 0
MORTGAGE PAYABLE - ST 56,667 56,667
ST LEASE ACCRUAL 115,500 115,500
401(K) LIABILITY 7,672 0
ACCRUED BONUSES PAYABLE 0 119,590
ACCRUED EMPLOYEE COSTS 32,742 48,916
ACCRUED EXPENSES 25,000 17,084
PAYROLL LIABILITIES 15,134 0
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TOTAL CURRENT LIABILITIES 399,506 447,162
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LONG TERM LIABILITIES
LT LEASE ACCRUAL 140,566 224,906
LT MORTGAGE PAYABLE 750,834 793,333
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TOTAL LONG TERM LIABILITIES 891,400 1,018,239
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TOTAL LIABILITIES 1,290,906 1,465,401
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EQUITY
COMMON STOCK - NO PAR VALUE, AUTHORIZED
6,000,000 SHARES, ISSUED 2,922,708 2,922,708
AND OUTSTANDING, 4,598,904
CONTRIBUTED CAPITAL 1,317,160 577,750
CASH DIVIDENDS PAID (262,735) (131,367)
ACCUMULATED DEFICIT (1,052,066) (1,335,815)
TREASURY STOCK (6,140) (6,140)
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TOTAL EQUITY 2,918,927 2,027,136
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TOTAL LIABILITIES & EQUITY $ 4,209,832 $ 3,492,537
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3
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HYDROMER, INC.
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
MARCH 31, MARCH 31,
1999 1998 1999 1998
UNAUDITED UNAUDITED UNAUDITED UNAUDITED
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REVENUES:
<S> <C> <C> <C> <C>
ROYALTIES, OPTIONS AND LICENSE FEES $ 430,992 $ 397,037 $ 1,158,422 $ 1,093,099
PRODUCT SALES 283,974 235,919 912,685 702,362
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TOTAL REVENUES 714,966 632,956 2,071,107 1,795,461
COST OF GOODS SOLD 42,625 62,436 190,559 166,447
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GROSS PROFIT 672,341 570,520 1,880,548 1,629,014
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TOTAL SELLING, R&D AND G&A EXPENSES 506,204 500,852 1,385,694 1,256,426
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OPERATING INCOME 166,137 69,668 494,854 372,588
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OTHER INCOME (EXPENSE)
INTEREST INCOME 9,611 8,284 25,791 25,138
OTHER INCOME 0 0 328 0
OTHER TAX BENEFIT 0 81,641 0 81,641
INTEREST EXPENSE (16,515) 0 (48,528) 0
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INCOME BEFORE PROVISION FOR INCOME TAXES 159,233 159,593 472,445 479,367
INCOME TAXES 63,558 63,745 188,695 144,458
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NET INCOME $ 95,675 $ 95,848 $ 283,750 $ 334,909
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Income per share $ 0.02 $ 0.02 $ 0.06 $ 0.08
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Weighted average of common shares outstanding 4,455,557 4,378,904 4,403,918 4,378,904
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</TABLE>
4
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HYDROMER, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
March 31,
UNAUDITED UNAUDITED
1999 1998
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OPERATING ACTIVITIES
<S> <C> <C>
NET INCOME $ 283,750 $ 334,909
ADJUSTMENTS TO RECONCILE NET INCOME
TO NET CASH (USED IN) OPERATIONS:
DEPRECIATION AND AMORTIZATION 72,836 47,798
ACCOUNTS RECEIVABLE - TRADE (106,069) (84,421)
PREPAID EXPENSES (44,405) (41,959)
DEFERRED TAX ASSET 236,235 141,172
OTHER ASSETS (27,245) (11,477)
INVENTORY (42,921) 9,625
ACCOUNTS PAYABLE AND ACCRUED EXPENSES (140,706) (37,189)
INCOME TAXES PAYABLE 93,049 (5,298)
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NET CASH PROVIDED BY OPERATING ACTIVITIES 324,524 353,160
INVESTING ACTIVITIES
CASH PURCHASES OF PROPERTY AND EQUIPMENT (127,516) (147,393)
ACQUISITION COSTS (15,230) 0
PATENTS (82,266) 0
TRADEMARKS (548) 0
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NET CASH USED IN INVESTING ACTIVITIES (225,560) (147,393)
FINANCING ACTIVITIES
LT LEASE ACCRUAL (84,340) 0
LT MORTGAGE PAYABLE (42,499) 0
CASH DIVIDENDS PAID (131,368) (131,368)
CAPITAL CONTRIBUTION 739,410 0
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NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 481,203 (131,368)
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NET CASH INCREASE FOR PERIOD 580,167 74,399
CASH AT BEGINNING OF PERIOD 783,474 716,045
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CASH AT END OF PERIOD $ 1,363,641 $ 790,444
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</TABLE>
5
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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.
6
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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 MARCH 31, 1999 WERE $714,966, UP 13.0% OVER THE
SAME PERIOD LAST YEAR. YEAR-TO-DATE MARCH 31, 1999, REVENUES WERE $2,071,107, UP
15.4% OVER THE SAME PERIOD LAST YEAR.
Product sales were up 20% for the quarter and 30% for the 9 month period.
o Product sales were strong especially in new technology sales and
Hydromer coatings reflecting our push to get new products to market.
Anti-fogs and condensation control products are behind last year due
to the timing of orders from clients.
Royalties, licenses and technical transfer revenues were up 9% for the
current quarter and up 16% for the 9 months ended March 31, 1999.
o Royalties, options and license fees are ahead of last year by 16%
reflecting the continued increase in sales of our licensees.
Additionally, one of the Company's patents expired in March 1998 and
volume increases by the remaining licensees have made up the shortfall
from the expired patent.
GROSS PROFIT WAS $672,341 FOR THE QUARTER ENDED 03/31/99, UP 17.8% OVER THE SAME
PERIOD LAST YEAR. YEAR-TO-DATE, GROSS PROFIT IS $1,880,548, UP 15.4% OVER LAST
YEAR.
Direct costs continue under last year as a percentage of product sales as
the Company moves towards larger lot sizes and away from smaller batches.
SELLING, R&D AND GENERAL AND ADMINISTRATIVE COSTS WERE $5,352 MORE THAN THE SAME
QUARTER LAST YEAR AND 10.3% MORE THAN THE 9 MONTH PERIOD ENDED 03/31/98.
This increase reflects the added costs associated with the new facility as
well as increased professional fees associated with agreements and
contracts the company is pursuing.
EARNINGS BEFORE INTEREST AND TAXES IS UP 138.5% FOR THE QUARTER AND 32.8%
YEAR-TO-DATE THROUGH MARCH 31, 1999.
PRETAX INCOME IS DOWN .2% FOR THE QUARTER AND DOWN 1.4% YEAR-TO-DATE.
This decrease is due to the interest burden associated with the new
facility.
INCOME TAXES WERE $63,558 FOR THE QUARTER ENDED 03/31/99 VS. $63,745 FOR THE
SAME PERIOD LAST YEAR. YEAR-TO-DATE, TAXES ARE UP 30.6% OVER LAST YEAR.
7
<PAGE>
Last year's taxes were favorably offset by tax credits due to the
overpayment of taxes in FY 1997. In addition, the company had carry-forward
losses that it reflected the tax effect of on last year's statements.
NET INCOME WAS $95,675 FOR THE QUARTER ENDED MARCH 31, 1999 VERSUS $95,848 FOR
THE SAME PERIOD LAST YEAR. YEAR TO DATE, EARNINGS FOR THE 9 MONTHS ENDED MARCH
31, 1999 WERE $283,750 VS. $334,909 FOR THE SAME PERIOD LAST YEAR.
EARNINGS PER SHARE WAS $0.02 FOR THE CURRENT QUARTER AGAINST $0.02 FOR THE SAME
PERIOD LAST YEAR. YEAR-TO-DATE, EPS IS $0.06 FOR THE 9 MONTH PERIOD AGAINST
$0.08 FOR THE SAME PERIOD LAST YEAR.
FINANCIAL CONDITION
WORKING CAPITAL INCREASED BY $612,228 FOR THE 9 MONTHS BETWEEN JUNE 30, 1998 AND
MARCH 31, 1999 WHICH WAS DUE TO THE CAPITAL INFUSION OF CR BARD, INC., OF
$880,000 LESS WORKING CAPITAL FOR THE QUARTER.
THE COMPANY BELIEVES THAT FUTURE REVENUES WILL PROVIDE SUFFICIENT CASH FLOW TO
MAINTAIN OPERATIONS AT CURRENT LEVELS.
8
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Item 5 - Other Information
Offer to exchange cash for stock
On May 13, 1999, the Company announced that it reached an agreement with the
Board of Directors of Biosearch Medical Products, Inc. to exchange $0.20 for
each outstanding share of Biosearch common stock and options. The transaction is
expected to cost the company approximately $550,000.
State of Y2K preparedness
In 1998, the Company formed a Y2K committee of its President and three
Vice-Presidents. The committee has determined:
1. The contents of the previous disclosure remain accurate.
2. Re-affirm that the design of all the Company's products do not contain
any characteristics that will be affected by the Y2K issue.
As to its operations, the Company is still evaluating its suppliers and vendors
for any potential business interruption against a worst case scenario of:
1. Loss of power for 14 days, brownouts for 14 days
2. Loss of gas for 23 days after 5 days
3. Disruption in transportation for 30 days
4. Banking failures for 4 weeks
It is anticipated that the costs associated with preparation for the above
business will not have a material effect on the financial statements.
Additionally, the Company anticipates being able to supply its customers with
sufficient products prior to Dec 1, 1999 to cover their needs beyond April 1,
2000.
Should any of the above business interruptions occur beyond 4/1/2001, there will
be a material effect on the Company's financial statements.
9
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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 March 31, 1999
10
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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
---------------------------
Kenneth P. Brice
Vice President -
Finance & Administration
Chief Financial Officer
DATE: May 13, 1999
11
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-09-1999
<PERIOD-END> MAR-31-1999
<CASH> 1,363
<SECURITIES> 0
<RECEIVABLES> 604
<ALLOWANCES> 9
<INVENTORY> 219
<CURRENT-ASSETS> 2,372
<PP&E> 1,640
<DEPRECIATION> 0
<TOTAL-ASSETS> 4,210
<CURRENT-LIABILITIES> 400
<BONDS> 0
0
0
<COMMON> 2,923
<OTHER-SE> (4)
<TOTAL-LIABILITY-AND-EQUITY> 4,210
<SALES> 2,071
<TOTAL-REVENUES> 2,071
<CGS> 191
<TOTAL-COSTS> 1,386
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 48
<INCOME-PRETAX> 472
<INCOME-TAX> 189
<INCOME-CONTINUING> 284
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 284
<EPS-PRIMARY> .06
<EPS-DILUTED> .06
</TABLE>
