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, 2000
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) (I.R.S. 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 September 30, 2000
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4,598,904
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HYDROMER, INC.
INDEX TO FORM 10-QSB
September 30, 2000
Page No.
Part 1 - Financial Information
Condensed Financial Statements
Balance Sheets - September 30, 2000 & June 30, 2000.............2
Statements of Income for the three months ended
September 30, 2000 and 1999.....................................3
Statements of Cash Flows for the three months ended
September 30, 2000 and 1999.....................................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
1
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HYDROMER, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, June 30,
(UNAUDITED) (AUDITED)
2000 2000
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<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents ............................... $ 79,024 $ 18,239
Trade receivables less allowance for doubtful accounts
of $10,404 for both periods ........................... 898,375 1,000,239
Inventory ............................................... 601,131 485,835
Other ................................................... 73,748 33,574
Prepaid expenses ........................................ 127,750 131,264
Deferred tax asset ...................................... 0 0
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Total Current Assets ...................................... 1,780,028 1,669,151
Property and Equipment, net ............................... 1,887,556 1,801,180
Patents, net .............................................. 286,676 245,277
Trademarks ................................................ 39,723 37,661
Other ..................................................... 0
Goodwill, net ............................................. 492,147 505,338
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.......................................................... $ 4,486,130 $ 4,258,607
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable ........................................ $ 536,552 $ 470,294
Accrued expenses ........................................ 130,779 113,226
Current portion of mortgage payable ..................... 56,667 56,667
Other ................................................... 0 0
Income tax payable ...................................... 20,595 10,160
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Total Current Liabilities ................................. 744,593 650,347
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Deferred Tax Liability .................................... 67,118 36,769
Long-term portion of mortgage payable ..................... 665,833 680,000
Long-term portion of deferred rental income ............... 0 0
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Total Liabilities ......................................... 1,477,544 1,367,116
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Stockholders' Equity
Common stock - no par value, authorized 6,000,000 shares,
issued and outstanding, 4,598,904 shares .............. 3,608,118 3,608,118
Contributed capital ..................................... 577,750 577,750
Accumulated deficit ..................................... (1,171,142) (1,288,237)
Cash Dividends paid ..................................... 0 0
Treasury stock, 10,917 common shares at cost ............ (6,140) (6,140)
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Total Stockholders' Equity ................................ 3,008,586 2,891,491
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.......................................................... $ 4,486,130 $ 4,258,607
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</TABLE>
2
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HYDROMER, INC.
STATEMENTS OF INCOME
Three Months Ended
September 30,
2000 1999
UNAUDITED UNAUDITED
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REVENUES:
Product sales and services .................... $ 813,729 $ 319,233
Royalties, options and licenses Fees .......... 467,790 424,254
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1,281,519 743,487
Cost of Product Sales ........................... 295,207 70,048
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Gross profit ................................ 986,312 673,439
Selling, General and Administrative ............. 815,201 522,319
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Operating Income ............................ 171,111 151,120
Interest Income ................................. 2,039 16,845
Interest Expense ................................ 15,220 16,293
Other Income .................................... 100 328
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Income before provison for income taxes ..... 158,030 152,000
Provision for Income Taxes Expense .............. 40,935 51,794
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Net Income .................................. $ 117,095 $ 100,206
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Income Per Common Share ..................... $ 0.026 $ 0.022
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Dividends paid, per share ................... $ 0.00 $ 0.03
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Weighted Average Common Shares Outstanding ...... 4,598,904 4,598,904
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3
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HYDROMER, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three Months Ended
September 30,
2000 1999
UNAUDITED UNAUDITED
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income ................................................... $ 117,095 $ 100,206
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation and amortization ............................ 22,278 28,412
Deferred rental income ................................... 0 (28,113)
Changes in Assets and Liabilities
Trade receivables ...................................... 101,864 (111,488)
Inventory .............................................. (115,296) (7,605)
Prepaid expenses ....................................... 3,514 (2,351)
Deferred tax asset ..................................... 0 38,000
Other assets ........................................... (83,635) (36,778)
Accounts payable and accrued liabilities ............... 114,160 (42,166)
Income taxes payable ................................... 10,435 (37,956)
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Net Cash Provided by (Used in) Operating Activities .. 170,415 (99,839)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Cash purchases of property and equipment ..................... (108,654) (49,000)
Cash paid for goodwill and assets of Biosearch ............... 13,191
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Net Cash Provided by (Used in) Investing Activities . (95,463) (49,000)
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CASH FLOWS FROM FINANCING ACTIVITIES:
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Cash dividends paid .......................................... 0 (137,967)
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Repayment of borrowings ...................................... (14,167) (14,167)
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Net Cash Provided by (Used in) Financing Activities .. (14,167) (152,134)
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NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS: .......... 60,785 (300,973)
Cash and Cash Equivalents at Beginning of Year ................. 18,239 1,270,295
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Cash and Cash Equivalents at End of Period ..................... $ 79,024 $ 969,322
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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
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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, 2000 were $1,281,519
as compared to $743,487 for the same period last year, or an increase of 72.4%.
Revenue is comprised of:
Royalty revenue from patented products grew to $467,790 up 10.3% over the
same period last year. There are 13 clients who use our patented/know how
technologies on their products including the three new licenses signed last
year. This growth is attributed to client's increased sales of their
products including our T-HEXX(R) products. One new licensee was added this
quarter, North Country Dairy for our T-HEXX(R) products. The Company has
also started selling T-HEXX(R) products in Europe ex-US and is seeking to
build a network of regional distributors. Symbiotech also executed their
milestone payment to retain their exclusive development rights to the new
radio-opaque coating technology for stents. The company is currently
collaborating with potential clients for exclusive and non-exclusive
licensing opportunities.
Product sales and technology sales were $813,729 for the quarter ended
September 30, 2000 as compared to $319,233 for the same period last year,
an increase of 155%. This increase includes $465,348 for the quarter ending
September 30, 2000 in revenue through the Biosearch Medical Products
subsidiary, which saw an increase of $94,663 in revenue or 25.6% growth
versus the same period last year.
The Company's gross profit was up 46.5% to $ 986,312 from $673,439 for the same
period last year.
Gross Profit for the Biosearch subsidiary, included in the Company total
for the quarter ending September 30, 2000 was $222,225 versus $52,442 for
the same period last year. The Gross Profit on a combined basis for the
same period last year was $725,881, resulting in a net increase of 36% or
$260,431 on a combined basis versus the same period last fiscal year. The
Gross Profit percentage on sales was 77% for the quarter ended September
30, 1999 as opposed to 90.6% for the same period last year. This decrease
reflects the increase in product sales related to the Biosearch subsidiary
versus the largely royalty based revenues of the Hydromer operations.
Royalty income is included in gross profit at 100%.
Operating income of the combined operation for the period ending September 30,
2000 increased 13.2% to $171,120 from $151,120 recorded by Hydromer on a
stand-alone basis for the same period last year.
The net operating profit on a combined basis last fiscal year for the
quarter ending September 30, 1999 was $985, with the operating loss of
$150,125 recorded by Biosearch for that period. SG&A expenses increased
$89,218 or 12.3% to $814,056 on a combined basis, in the quarter ended
September 30, 2000, up from $724,838 for the same period last year when
combined. This increase is attributable, in part to the increased level of
management and technical, and operations resources added to grow the
Company's business into new SBU structure.
Income before taxes was $158,030 on a combined operations basis, up 4% from
prior year's results of $152,000 for the same quarter last year for Hydromer on
a stand-alone basis, and up $156,155 on a combined basis versus the same period
last year.
Biosearch Medical Products recorded a loss of $150,125 in the same period
last year. On a combined basis, Income before taxes was $1875 for the same
period last year. Management's continuing efforts to eliminate redundancies
in the combined operations, to control costs, in addition to the growing
revenues are having a positive effect on the bottom line of the combined
operation.
6
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Net income was $117,095 on a combined basis for the quarter ended 9/30/00, an
increase of 16.9% over $100,206 recorded for the quarter ended 9/30/99 for
Hydromer on a stand-alone basis.
Biosearch Medical Products recorded a loss of $150,125 in the same period
last year. On a combined basis, there was a net loss of $49,919 for the
same period last year. Net income is up $167,014 versus the same period
last fiscal year for the combined operation.
Earnings per share were $0.026 for the quarter on a combined basis, up 17.7%
over the $0.022 recorded the same period last year by Hydromer on a stand-alone
basis.
Based on a combined operating loss of $49,919 for the quarter ending
9/30/99, this equates to a loss of $0.01 per share on a combined basis for
the same period last year, or a net improvement of $0.036 on a combined
basis.
7
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Financial Condition
Working capital increased $60,785 for the quarter ended September 30, 2000.
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 added $170,415 during the quarter.
The major factors contributing to the increase in cash were decreases in
accounts receivable of $101,864; prepaid expenses of $3,514; depreciation
of $22,278 ( a non-cash item); net income of $117,095 and increases in
accounts payable and accrued liabilities of $114,160; income taxes payable
of $10,435 offset by increases in other assets of $83,635; and inventory of
$115,296. 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 $95,463 on capital expenditures during the first
quarter and financing activities used $14,167 to pay down the Company's
mortgage.
The Company made capital purchases amounting to $108,654, while goodwill
declined during the quarter by $13,191.
8
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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, 2000
9
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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/ ROBERT C. KELLER
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Robert C. Keller
Principal Accounting Officer
DATE: November 13, 2000
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