================================================================================
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.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
NEW JERSEY 22-2303576
----------------------- -------------------
State of incorporation) (IRS Employer
Identification No.)
35 INDUSTRIAL PKWY, SOMERVILLE, NEW JERSEY 08876-3518
------------------------------------------ ----------
(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
------------------------------
(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, 1999
- ------------ ---------------------------------
Common Stock 4,598,904
================================================================================
<PAGE>
HYDROMER, INC.
INDEX TO FORM 10-QSB
September 30, 1999
Page No.
Part 1 - Financial Information
Condensed Financial Statements
Balance Sheets - September 30, 1999 & June 30, 1999.............2
Statements of Income for the three months ended
September 30, 1999 and 1998.....................................3
Statements of Cash Flows for the three months ended
September 30, 1999 and 1998.....................................4
Notes to Financial Statements...................................5
Management's Discussion and Analysis of the Financial
Condition and Results of Operation..............................6
Part II - Other Information...............................................7
<PAGE>
HYDROMER, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, June 30,
(UNAUDITED) (AUDITED)
1999 1999
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents .......................................... $ 969,322 $ 1,270,295
Trade receivables less allowance for doubtful accounts of $8,831 for
both periods ..................................................... 882,135 770,647
Inventory .......................................................... 217,670 210,065
Other .............................................................. 11,375 11,375
Prepaid expenses ................................................... 82,370 80,018
Deferred tax asset ................................................. 2,957 0
- --------------------------------------------------------------------------------------------------------
Total Current Assets ................................................. 2,165,829 2,342,400
Property and Equipment, net .......................................... 1,702,045 1,681,458
Other Assets ......................................................... 258,104 221,327
- --------------------------------------------------------------------------------------------------------
$ 4,125,978 $ 4,245,185
========================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable ................................................... $ 137,887 $ 145,062
Accrued expenses ................................................... 85,206 120,566
Current portion of mortgage payable ................................ 56,667 56,667
Current portion of deferred rental income .......................... 115,500 115,500
Income tax payable ................................................. 0 35,000
- --------------------------------------------------------------------------------------------------------
Total Current Liabilities 395,260 472,795
- --------------------------------------------------------------------------------------------------------
Deferred Tax Liability ............................................... 62,768 24,786
Long-term portion of mortgage payable ................................ 722,500 736,669
Long-term portion of deferred rental income .......................... 84,340 112,453
- --------------------------------------------------------------------------------------------------------
Total Liabilities 1,264,868 1,346,685
- --------------------------------------------------------------------------------------------------------
Stockholders' Equity
Common stock - no par value, authorized 6,000,000 shares, issued
and outstanding, 4,587,987 shares ................................ 3,608,118 3,608,118
Contributed capital ................................................ 577,750 577,750
Accumulated deficit ................................................ (1,180,651) (1,281,228)
Cash Dividends paid ................................................ (137,967) 0
Treasury stock, 10,917 common shares at cost ....................... (6,140) (6,140)
- --------------------------------------------------------------------------------------------------------
Total Stockholders' Equity 2,861,110 2,898,500
- --------------------------------------------------------------------------------------------------------
$ 4,125,978 $ 4,245,185
========================================================================================================
</TABLE>
2
<PAGE>
HYDROMER, INC.
STATEMENTS OF INCOME
Three Months Ended
September 30,
------------------------------
1999 1998
UNAUDITED UNAUDITED
- --------------------------------------------------------------------------------
REVENUES:
Product sales and services .................. $ 319,233 $ 278,760
Royalties, options and licenses Fees ........ 424,254 338,180
- --------------------------------------------------------------------------------
743,487 616,940
Cost of Product Sales ......................... 70,048 62,194
- --------------------------------------------------------------------------------
Gross profit ................................ 673,439 554,746
Selling, General and Administrative ........... 522,319 432,957
- --------------------------------------------------------------------------------
Operating Income ............................ 151,120 121,789
Interest Income ............................... 16,845 9,457
Interest Expense .............................. 16,293 15,204
Other Income .................................. 328 328
- --------------------------------------------------------------------------------
Income before provisIon for income taxes ..... 152,000 116,370
Provision for Income Taxes Expense ............ 51,794 46,650
- --------------------------------------------------------------------------------
Net Income .................................. $ 100,206 $ 69,720
================================================================================
Income Per Common Share ..................... $ 0.022 $ 0.016
================================================================================
Dividends paid, per share ................... $ 0.03 $ 0.003
================================================================================
Weighted Average Common Shares Outstanding .... 4,598,904 4,367,987
================================================================================
3
<PAGE>
HYDROMER, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three Months Ended
September 30,
----------------------------------
1999 1998
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income ..................................................... $ 100,206 $ 69,720
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation and amortization .............................. 28,412 26,594
Deferred rental income ..................................... (28,113) (28,113)
Changes in Assets and Liabilities
Trade receivables ........................................ (111,488) (2,693)
Inventory ................................................ (7,605) (2,499)
Prepaid expenses ......................................... (2,351) (30,270)
Deferred tax asset ....................................... 38,000 36,008
Other assets ............................................. (36,778) (22,656)
Accounts payable and accrued liabilities ................. (42,166) (97,710)
Income taxes payable ..................................... (37,956) 10,641
- ---------------------------------------------------------------------------------------------------------------
Net Cash (Used in) Operating Activities ................ (99,839) (55,145)
- ---------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash purchases of property and equipment ....................... (49,000) (27,858)
- ---------------------------------------------------------------------------------------------------------------
Net Cash Provided by (Used in) Investing Activities .... (49,000) (27,858)
- ---------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
- ---------------------------------------------------------------------------------------------------------------
Cash dividends paid (137,967) (131,367)
- ---------------------------------------------------------------------------------------------------------------
Repayment of borrowings (14,167) (14,167)
- ---------------------------------------------------------------------------------------------------------------
Net Cash Provided by (Used in) Financing Activities .... (152,134) (145,534)
- ---------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS: ............ (300,973) (214,370)
Cash and Cash Equivalents at Beginning of Year ................... 1,270,295 783,475
- ---------------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents at End of Year ......................... $ 969,322 $ 569,105
===============================================================================================================
</TABLE>
4
<PAGE>
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, 1999 were $743,487 as
compared to $616,940 for the same period last year, or an increase of 20.5%.
Revenue is comprised of:
Royalty revenue from patented products grew to $424,254 up 25.5% over the
same period last year. There are 11 clients who use our patented
technologies on their products including the two new licenses signed last
year. This growth is attributed to the client's increased sales of their
products including out T-HEXX(R) product. No new licensees were added
during this quarter. The company is currently testing other products with
potential clients that have exclusive and non-exclusive licensing
opportunities.
Product sales and technology sales were $319,233 for the quarter ended
September 30, 1999 as compared to $278,760 for the same period last year,
an increase of 14.5%. Actual product sales are up 14.3%. Use fees from
clients using the Company's technology are up 15.7%.
The Company's gross profit was up 21.4% to $673,439 from $554,746 for the same
period last year.
Gross Profit percentage on sales was 90.6% for the quarter ended September
30, 1999 as opposed to 90.0% for the same period last year. This increase
is due to the increase in technology sales reported which carry no
associated direct costs.
Royalty income is included in gross profit at 100%.
Operating income for the period ending September 30, 1999 increased 23.2% to
$151,120 from $122,702 recorded for the same period last year.
SG&A expenses increased $89,362 or 20.6% to $522,319, in the quarter
ended September 30, 1999, up from $432,957 for the same period last year.
This increase is attributable, in part to the increase in R & D expense
($18,000) due to the outside testing costs related to new technologies
including T-HEXX(R) claims support work, and employee costs ($65,978)
reflecting the increased level of management and technical resources added
to grow the Company's business into new SBU structure.
Income before taxes was $152,000, up 30.6% from prior year's results of $116,370
for the same quarter last year.
Net income was $100,206 for the quarter ended 9/30/99, an increase of 41.9% over
$70,633 recorded for the quarter ended 9/30/98.
Earnings per share were $0.022 for the quarter, up 37.5% over the $0.016
recorded the same period last year.
6
<PAGE>
Financial Condition
Working capital decreased $300,973 for the quarter, which includes a dividend
payment of $137,967, which was paid to shareholders in September 1999. Excluding
the dividend payment, working capital decreased $163,004 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.
Net operating activities used $99,839 during the quarter. The major factors
contributing to the usage were increases in accounts receivable of $111,488;
other assets of $36,778; deferred rental income of $28,113; decreases in
accounts payable and accrued liabilities of $42,166; income taxes payable of
$37,956 offset by increases in deferred tax assets of $38,000; depreciation and
amortization amounting to $28,412 and net income for the quarter of $100,206. A
large portion of accounts receivable is made up of royalty income which is
accrued monthly and paid quarterly by licensees. Payments normally are paid in
the beginning of the following quarter. Balances due on federal and state taxes
were paid during the first quarter along with requests for extensions to file.
Estimated taxes on current year's income are accrued each month and deferred
until fiscal year end.
Investing activities used $49,000 on capital expenditures during the first
quarter and financing activities used $14,167 to pay down the Company's mortgage
debt and paid $137,967 in dividends to its shareholders during the first
quarter.
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.
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/ ROBERT C. KELLER
----------------------------
Robert C. Keller
Principal Accounting Officer
DATE: November 15, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-START> JUL-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 969,322
<SECURITIES> 0
<RECEIVABLES> 882,135
<ALLOWANCES> 0
<INVENTORY> 217,670
<CURRENT-ASSETS> 2,165,829
<PP&E> 2,303,191
<DEPRECIATION> 601,146
<TOTAL-ASSETS> 4,125,978
<CURRENT-LIABILITIES> 395,260
<BONDS> 0
0
0
<COMMON> 3,608,118
<OTHER-SE> (747,008)
<TOTAL-LIABILITY-AND-EQUITY> 4,125,978
<SALES> 743,487
<TOTAL-REVENUES> 743,487
<CGS> 70,048
<TOTAL-COSTS> 70,048
<OTHER-EXPENSES> 522,319
<LOSS-PROVISION> 151,120
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 152,000
<INCOME-TAX> 51,794
<INCOME-CONTINUING> 100,206
<DISCONTINUED> 0
<EXTRAORDINARY> 100,206
<CHANGES> 0
<NET-INCOME> 100,206
<EPS-BASIC> .02
<EPS-DILUTED> .02
</TABLE>
