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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
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 DECEMBER 31, 1998
- ------------ --------------------------------
Common Stock 4,378,904
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<PAGE>
HYDROMER, INC.
INDEX TO FORM 10-QSB
December 31, 1998
Page No.
Part 1 - Financial Information
Condensed Financial Statements
Balance Sheets - December 31, 1998 & June 30, 1998..................... 2-3
Statements of Operations for the three & six month period
December 31, 1998 and 1997............................................. 4
Statements of Cash Flows for the six months ended
December 31, 1998 and 1997............................................. 5
Notes to Financial Statements.......................................... 6
Management's Discussion and Analysis of the Financial Condition
and Results of Operation............................................... 7-9
Part II - Other
Information............................................................ 10
1
<PAGE>
HYDROMER, INC.
BALANCE SHEETS
BALANCE SHEETS
<TABLE>
<CAPTION>
Unaudited Audited
------------------------------------
Dec 31, '98 Jun 30, '98
------------- -------------
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 500,491 $ 783,475
Trade receivables less allowance for doubtful accounts
of $8,831 for both periods 633,496 497,579
Prepaids 116,713 71,708
Deposits 11,375 11,375
Other Receivables 29,108 29,108
Deferred Taxes - St 139,287 236,235
Employee Advances 0 1,600
Inventory 170,475 176,130
---------- ----------
Total Current Assets 1,600,945 1,807,211
---------- ----------
Property and Equipment, net
Building 780,612 752,453
Land 472,410 472,410
Equipment 288,639 256,852
Furniture and Fixtures 41,892 36,787
Leasehold Improvements 61,438 66,708
---------- ----------
Total Property and Equipment, net 1,644,991 1,585,209
---------- ----------
Other Assets
Acquisition Costs 27,750 18,015
Patents 145,475 82,102
Trademarks 490 0
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Total Other Assets 173,715 100,117
---------- ----------
TOTAL ASSETS $3,419,651 $3,492,537
========== ==========
2
<PAGE>
HYDROMER, INC.
BALANCE SHEETS--(Continued)
<CAPTION>
Unaudited Audited
-----------------------------------
Dec 31, '98 Jun 30, '98
------------ ------------
<S> <C> <C>
LIABILITIES & EQUITY
Liabilities
Current Liabilities
Accounts Payable $ 116,142 $ 89,404
NJ Income Taxes Payable 28,189 0
Mortgage Payable - St 56,667 56,667
ST Lease Accrual 115,500 115,500
401(K) Liability 2,328 0
Accrued Bonuses Payable 0 119,591
Accrued Employee Costs 49,469 48,916
Accrued Expenses 19,000 17,086
Payroll Liabilities 14,836 0
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Total Current Liabilities 402,125 447,163
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Long Term Liabilities
Lt Lease Accrual 168,680 224,906
Lt Mortgage Payable 765,000 793,333
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Total Long Term Liabilities 933,680 1,018,239
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Total Liabilities 1,335,810 1,465,402
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Equity
Common Stock - No Par Value, Authorized 6,000,000 Shares, Issued 2,922,708 2,922,708
and Outstanding, 4,378,904
Contributed Capital 577,750 577,750
Cash Dividends Paid (262,735) (131,368)
Accumulated Deficit (1,147,741) (1,335,817)
Treasury Stock (6,140) (6,140)
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Total Equity 2,083,842 2,027,133
---------- ----------
Total Liabilities & Equity $3,419,651 $3,492,535
========== ==========
</TABLE>
3
<PAGE>
HYDROMER, INC.
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
DECEMBER 31, DECEMBER 31,
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1998 1997 1998 1997
------------------------------ ------------------------------
Unaudited Unaudited Unaudited Unaudited
<S> <C> <C> <C> <C>
Revenues:
Royalties, options and license fees $ 514,471 $ 518,625 $ 1,006,107 $ 871,345
Product Sales 224,730 137,774 350,035 291,160
----------- ----------- ----------- -----------
Total Revenues 739,201 656,399 1,356,142 1,162,505
Total COGS 85,783 45,197 147,935 104,011
----------- ----------- ----------- -----------
Gross Profit 653,418 611,202 1,208,206 1,058,494
----------- ----------- ----------- -----------
Total Selling, R&D and G&A Expenses 446,532 405,646 879,489 755,573
----------- ----------- ----------- -----------
Operating Income 206,885 205,556 328,718 302,921
Interest Income 6,723 9,434 16,180 16,852
Other Income 0 -- 328 --
Interest Expense (16,808) -- (32,012) --
----------- ----------- ----------- -----------
Income before provision for income taxes 196,800 214,990 313,214 319,773
Income Taxes 78,487 38,863 125,137 80,714
----------- ----------- ----------- -----------
Net Income $ 118,314 $ 176,127 $ 188,077 $ 239,059
=========== =========== =========== ===========
Income Per Share $ 0.03 $ 0.04 $ 0.04 $ 0.05
=========== =========== =========== ===========
Weighted average of common shares outstanding 4,367,987 4,367,987 4,367,987 4,367,987
----------- ----------- ----------- -----------
</TABLE>
4
<PAGE>
HYDROMER, INC.
STATEMENTS OF CASH FLOWS
Six Months Ended
December 31,
-----------------------
Unaudited Unaudited
1998 1997
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OPERATING ACTIVITIES
Net Income $ 188,077 $ 239,059
Adjustments to reconcile Net Income
to net cash (used in) operations:
Depreciation and amortization 50,209 25,172
Accounts Receivable - trade (135,919) (101,801)
Prepaid Expenses (45,005) (38,613)
Deferred Tax Asset 96,948 91,792
Other Assets 1,600 (28,597)
Inventory 5,656 7,903
Accounts payable and accrued expenses (73,226) (73,065)
Income taxes payable 28,189 (19,661)
--------- ---------
Net Cash provided by Operating Activities 116,529 102,189
INVESTING ACTIVITIES
Cash purchases of property and equipment (109,991) (41,262)
Acquisition Costs (9,735) 0
Patents (63,373) 0
Trademarks (490) 0
--------- ---------
Net Cash Provided by Investing Activities (183,589) (41,262)
FINANCING ACTIVITIES
LT Lease Accrual (56,226) 0
LT Mortgage Payable (28,333) 0
Cash Dividends Paid (131,367) (131,367)
--------- ---------
Net cash provided by Financing Activities (215,926) (131,367)
--------- ---------
Net Cash Increase (Decrease) for Period (282,984) (70,440)
Cash At Beginning of Period 783,475 716,045
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Cash At End of Period $ 500,491 $ 645,605
========= =========
5
<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.
6
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
- ---------------------
REVENUES FOR THE QUARTER ENDED DECEMBER 31, 1998 WERE $739,201, UP 12.6% OVER
THE SAME PERIOD LAST YEAR. YEAR-TO-DATE DECEMBER 31, 1998, REVENUES WERE
$1,356,142, UP 16.7% OVER THE SAME PERIOD LAST YEAR.
Product sales were up 63.1% for the quarter and 20.2% for the 6 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 down .8% for the
current quarter and up 15.5% for the 6 months ended December 31, 1998.
o Royalties, options and license fees are ahead of last year by
15.5% 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 $653,418 FOR THE QUARTER ENDED 12/31/98, UP 6.9% OVER THE SAME
PERIOD LAST YEAR. YEAR-TO-DATE, GROSS PROFIT IS $1,208,207, UP 14.1% OVER LAST
YEAR.
Direct costs continue under last year as a % 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 $40,886 MORE THAN THE
SAME QUARTER LAST YEAR AND 16.4% MORE THAN THE 6 MONTH PERIOD ENDED 12/31/97.
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 0.6% FOR THE QUARTER AND 8.5%
YEAR-TO-DATE THROUGH DECEMBER 31, 1998.
PRETAX INCOME IS DOWN 8.5% OVER LAST QUARTER AND DOWN 2.1% YEAR-TO-DATE.
This decrease is due to the interest burden associated with the new
facility.
INCOME TAXES WERE $78,487 FOR THE QUARTER ENDED 12/31/98 VS. $38,863 FOR THE
SAME PERIOD LAST YEAR. YEAR-TO-DATE, TAXES ARE UP 55.0% 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 $118,314 FOR THE QUARTER ENDED DECEMBER 31, 1998 VRS $176,127 FOR
THE SAME PERIOD LAST YEAR. YEAR TO DATE, EARNINGS FOR THE 6 MONTHS ENDED
DECEMBER 31, 1998 WERE $188,077 VS. $239,059 FOR THE SAME PERIOD LAST YEAR.
EARNINGS PER SHARE WAS $0.03 FOR THE CURRENT QUARTER AGAINST $0.04 FOR THE SAME
PERIOD LAST YEAR. YEAR-TO-DATE, EPS IS $0.04 FOR THE 6 MONTH PERIOD AGAINST
$0.05 FOR THE SAME PERIOD.
8
<PAGE>
Financial Condition
- -------------------
Working capital decreased by $134,494 for the 6 months between June 30, 1998 and
December 30, 1998 which included $131,367 in a cash dividend paid in September
1998. Without the cash dividend, the Company's working capital was flat for the
period. The Company believes that future revenues will provide sufficient cash
flow to maintain operations at current levels.
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
<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, 1998
10
<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/ KENNETH P. BRICE
---------------------------
Kenneth P. Brice
Vice President -
Finance & Administration
Chief Financial Officer
DATE: February 12, 1999
11
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-END> DEC-31-1998
<CASH> 500,491
<SECURITIES> 0
<RECEIVABLES> 633,496
<ALLOWANCES> 8,831
<INVENTORY> 170,475
<CURRENT-ASSETS> 1,600,945
<PP&E> 1,644,991
<DEPRECIATION> 0
<TOTAL-ASSETS> 3,419,651
<CURRENT-LIABILITIES> 402,125
<BONDS> 0
0
0
<COMMON> 2,922,705
<OTHER-SE> (838,862)
<TOTAL-LIABILITY-AND-EQUITY> 3,419,651
<SALES> 1,356,142
<TOTAL-REVENUES> 1,356,142
<CGS> 147,935
<TOTAL-COSTS> 879,489
<OTHER-EXPENSES> 15,504
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 32,012
<INCOME-PRETAX> 313,214
<INCOME-TAX> 125,137
<INCOME-CONTINUING> 188,077
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 188,077
<EPS-PRIMARY> .04
<EPS-DILUTED> .04
</TABLE>
