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FORM 10-Q QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q SB
[X] QUARTERLY REPORT PER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
1934 for the period ended MARCH 31, 2000
OR
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from
__________________to_________________.
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 or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
35 INDUSTRIAL PARKWAY, SOMERVILLE, NEW JERSEY 08876-3518
- --------------------------------------------- --------------
(Address of principal executive offices) (Zip Code + 4)
Registrant's telephone number, including area code: (908) 526-2828
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Indicate by check mark whether the registrant (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 reports), and (2) has been subject to such filing
requirements for the past 90 days.
[X] YES [ ] No
Indicate the number of shares outstanding of each of the issuers classes of
Common Stock, as of the close of the period covered by this report.
OUTSTANDING AT
CLASS MARCH 31, 2000
--------------- -----------------
Common Stock,
without par value 4,598,904
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<PAGE>
HYDROMER INC.
INDEX TO FORM 10-Q SB
MARCH 31, 2000
PAGE NO.
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PART I - FINANCIAL INFORMATION
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Consolidated Balance Sheet at March 31, 2000 (unaudited)
and June 30, 1999. 3 - 4
Consolidated Statements of Operations (unaudited)
for the three month periods and six month periods ended
March 31, 2000 and March 31, 1999. 5
Consolidated Statements of Cash Flows (unaudited)
for the nine month periods ended
March 31, 2000 and March 31, 1999. 6
Notes to (unaudited) Condensed
Financial Statements. 7
Management's Discussion and Analysis of the Financial
Condition and the Results of Operations. 8 - 9
PART II - OTHER INFORMATION
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Signatures. 10
2
<PAGE>
PART I
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ITEM I - FINANCIAL STATEMENTS
HYDROMER INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
MARCH 31 JUNE 30
2000 1999(1)
-------- -------
UNAUDITED
CURRENT ASSETS:
Cash and cash equivalents $ 284,269 $1,270,295
Trade receivables 837,793 770,647
Inventories (note 2) 485,981 210,065
Other assets 202,500 91,393
------------ ----------
TOTAL CURRENT ASSETS 1,810,543 2,342,400
PROPERTY, PLANT AND EQUIPMENT, (NET) 1,815,554 1,681,458
OTHER ASSETS 733,137 221,327
----------- ----------
TOTAL ASSETS $ 4,359,234 $4,245,185
=========== ==========
(1) - Derived from audited financial statements.
(continued)
3
<PAGE>
HYDROMER INC.
CONSOLIDATED BALANCE SHEETS
(CONTINUED)
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
MARCH 31 JUNE 30
2000 1999(1)
-------- -------
UNAUDITED
CURRENT LIABILITIES:
Accounts payable $ 358,271 $ 145,062
Current portion of long term debt 56,667 56,667
Current portion of deferred rental income -- 115,500
Income tax payable -- 35,000
Accrued liabilities 137,942 120,566
------------ ----------
TOTAL CURRENT LIABILITIES 552,880 472,795
LONG-TERM LIABILITIES:
Deferred tax liability 92,769 24,786
Long term debt 694,167 736,639
Long term portion of deferred rental income -- 112,453
------------ ----------
TOTAL LONG TERM LIABILITIES 786,936 873,878
TOTAL LIABILITIES 1,339,816 1,346,685
SHAREHOLDERS' EQUITY:
Common stock, no par value; 6,000,000
shares authorized; issued 4,598,904
at December 31, 1999, and at June 30, 1999. 3,608,118 3,608,118
Contributed capital 577,750 577,750
Accumulated deficit (1,022,343) (1,281,228)
Cash dividends paid (137,967) --
Treasury stock, at cost; 7,920 shares
at June 30, 1999 and at December 31, 1998. (6,140) (6,140)
------------ ----------
TOTAL SHAREHOLDERS' EQUITY 3,019,418 2,898,500
TOTAL LIABILITIES AND STOCKHOLDERS EQUITY $ 4,359,234 $4,245,185
(1) - Derived from audited financial statements.
4
<PAGE>
HYDROMER INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
UNAUDITED
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
MARCH 31 MARCH 31
-------------------------- -------------------------
2000 1999 2000 1999
------------ ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues, net $ 1,036,735 $ 714,966 $ 2,504,349 $ 2,071,107
Cost of goods sold 218,140 42,625 349,250 190,559
----------- ----------- ----------- -----------
Gross profit 818,595 672,341 2,155,099 1,880,548
Selling, R & D and general and
administrative costs 739,150 506,204 1,801,605 1,385,694
----------- ----------- ----------- -----------
Operating income 79,445 166,137 353,494 494,854
Interest income 10,774 9,611 41,695 25,791
Interest expense (16,058) (16,515) (47,842) (48,528)
Other, net 429 -- 332 328
----------- ----------- ----------- -----------
Income before tax provision 74,590 159,233 347,679 472,445
Income Taxes -- 63,558 88,794 188,695
----------- ----------- ----------- -----------
Net income 74,590 95,675 258,885 283,750
=========== =========== ========== ===========
NET INCOME/(LOSS) PER COMMON SHARE $ .01 $ .02 $ .06 $ .06
=========== =========== ========== ===========
WEIGHTED AVERAGE NUMBER
OF COMMON SHARES 4,598,904 4,455,557 4,598,904 4,403,918
=========== =========== ========== ===========
</TABLE>
See accompanying notes to
unaudited condensed financial statements
5
<PAGE>
HYDROMER INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
UNAUDITED
NINE MONTHS ENDED
MARCH 31
--------------------------
2000 1999
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 258,885 $ 283,750
Adjustments to reconcile net income to net
cash used in operating activities:
Depreciation and amortization 85,870 72,836
Sub total 85,870 72,836
----------- -----------
CHANGES IN ASSETS AND LIABILITIES:
Accounts receivable-trade (67,146) (106,069)
Prepaid expenses (111,107) (44,405)
Deferred tax asset 67,983 236,235
Other assets (9,909) (27,245)
Inventory (275,916) (42,921)
Accounts payable and accr. expenses 115,086 (140,706)
Income tax payable (35,000) 93,049
----------- -----------
Net cash provided by opearting activities 28,746 324,524
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (148,985) (127,516)
Acquisition costs (497,725) (15,230)
Patents (46,288) (82,266)
Trademarks (19,882) (548)
Net cash used by investing activities (721,880) (225,560)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
LT lease accrual (112,453) (84,340)
LT mortgage payable (42,472) (42,499)
Cash dividends paid (137,967) (131,368)
Capital contribution 739,410
Net cash used in financing activities (292,892) 481,203
----------- -----------
Net cash increase/(decrease) for period (986,026) 580,167
----------- -----------
Cash at beginning of period 1,270,295 783,475
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Cash at end of period $ 284,269 $ 1,363,641
=========== ===========
See accompanying notes to
unaudited condensed financial statements
6
<PAGE>
HYDROMER INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED
1. BASIS OF PRESENTATION
The accounting policies followed by the Company are set forth in Note 1 of
Notes to Condensed Financial Statements in the 1999 Annual Report on Form
10-KSB.
In the opinion of the management of the Company, the accompanying
consolidated financial statements contain only normal and recurring adjustments
necessary for the fair presentation of the Company's financial position as of
March 31, 2000 and the results of operations for the three month periods and
nine month periods ended March 31, 2000 and March 31, 1999 and the statement of
cash flows for the nine month periods ended March 31, 2000 and March 31, 1999.
The results of operations for the three month periods and nine month
periods ended March 31, 2000 are not necessarily indicative of the results to be
expected for a succeeding quarter or for the full year.
7
<PAGE>
HYDROMER INC.
ITEM 2. MANAGEMENT DISCUSSION AND ANALYSIS OF THE FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Revenues for the quarter ended March 31, 2000 were $1,035,695 up 44.9% over
the same period last year. Year-to-date March 31,2000, revenues were $2,504,349,
up 21% over the same period last year. Total revenues this quarter now include
OEM device sales from the newly acquired Biosearch Medical Products (BMP)
subsidiary of $272,894 for February and March, 2000, the first two months since
acquisition. Excluding revenue from the new subsidiary, total revenues were
$763,800 for this quarter versus $714,966 for the same period last year, or up
6.8%. Uncertainty over Y2K resulted in some customers temporarily curtailing
orders through mid February, leaving some residual softness in sales seen in the
second quarter. Limited international T-HEXX distribution has begun and we
expect continued growth, offsetting slower than expected growth in the US
through our primary licensee, who had difficulty expanding distribution due to
cash flow. The Company exercised it's option to convert the T-HEXX license to a
non-exclusive , and is continuing to negotiate with additional parties to expand
the T-HEXX product line both domestically and internationally. Royalties and
license revenues were up significantly, reflecting the continued increase using
our technology by licensees.
Gross profit was $814,040 for the quarter ended March 31,2000, up 21.7%
over the same period last year. Year-to-date, gross profit is $2,155,099, up
14.6% over the same period last year. Direct costs continue to decline as a
percent of sales as the Company moves toward larger lot sizes and away from
smaller, inefficient batches as customer sales using our technology and
chemicals increases. In addition, BMP operations contributed $156,574 in gross
profit in February and March, 2000. Excluding this contribution, gross profits
were up 2% this quarter versus the same period last year.
Selling, R & D and General and Administration costs were $739,150, up
$232,946 or 46% from the same period last year and $1,801,605, up $415,911 or
30% from the nine month period ended March 31,1999. The increase reflects the
added costs associated with the new facility, increased sales, marketing and
technical staff to support the new Strategic Business Unit structure.
Additionally, certain one time expenses were related to Y2K. The staff added
from the Biosearch acquisition also added significant costs. The Company
incurred significantly higher expense year to date in outside testing to support
the development of new products now in the marketplace and others being staged
for launch.
Earnings before Interest and Taxes was $74,035, down $85,198 or 53.5% for
the quarter and $347,679, down $124,766 or 26.4% year to date versus last year.
BMP operations during February and March 2000 resulted in a net loss of $38,970.
Excluding the loss from BMP, Hydromer EBIT was down $45,256 for the quarter
versus same period last year and down $46,642 for the past nine months versus
the same period last year. The decrease in EBIT from Hydromer operations ex-BMP
is due to increased SG&A to drive future growth of the Company.
8
<PAGE>
HYDROMER INC.
ITEM 2. MANAGEMENT DISCUSSION AND ANALYSIS OF THE FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS (cont'd)
Net income was $74,035 for the quarter ended March 31,2000 versus $95,675
reported for the same period last year. Yaer to date, earnings for the nine
months ended March 31,2000 were $260,057 versus $283,750 for the same period
last year. Earnings per share were $0.01 for the current quarter against $0.02
for the same period last year. Year to date, earnings per share is flat at $0.06
for the past nine months against $0.06 for the same period in 1999. BMP
operations resulted in a loss of $38,970 during February and March 2000.
Excluding this loss, Hydromer net income was $103,290 for this quarter and
$299,027 year to date. The Company is examining all facets of it's operation to
improve costs without disrupting revenue growth.
LIQUIDITY AND CAPITAL RESOURCES
The Company's operating activities generated $28,746 in cash during the
first nine months ended March 31,2000. Investing activities used $721,880 and
financing activities used $292,892. Overall cash flow decreased by $986,026 for
the nine months ended March 31, 2000.
The major causes for the reduction of cash flow were in investing
activities where the Company used $497,725 for the Biosearch Medical Products
acquisition, $148,985 for capital purchases and $66,170 for patents and
trademarks. Financing activities used $292,892 during the nine months and this
was due primarily due to the cash dividends paid which amounted to $137,967,
payments against the mortgage principal on the Company's facility amounting to
$42,472 and the reduction of the long term lease accrual of $112,453 due to the
merger. Operating activities generated $28,746, however major cuases were
Increases in accounts receivable amounting to $67,146, prepaid expenses
$111,107, inventories $275,916 and decreases in income tax payable of $35,000
offset by increases in accounts payable and prepaid expenses of $115,086,
deferred taxes $67,983 , depreciation, a non cash item amounting to $85,870 and
net income of $258,885.
Management believes that future revenues will provide sufficient cash flow
to maintain operations at current levels.
9
<PAGE>
PART II - OTHER INFORMATION
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HYDROMER INC.
Dated: May 15, 2000 /s/ MANFRED F. DYCK
-----------------------------------------------
Manfred F. Dyck
President and Principal
Executive Officer and Director
Dated: May 15, 2000 /s/ ROBERT C. KELLER
-----------------------------------------------
Robert C. Keller
Treasurer
Chief Financial and Accounting Officer
10
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 284,269
<SECURITIES> 0
<RECEIVABLES> 837,793
<ALLOWANCES> 0
<INVENTORY> 485,981
<CURRENT-ASSETS> 1,810,543
<PP&E> 4,650,261
<DEPRECIATION> 2,834,707
<TOTAL-ASSETS> 4,359,234
<CURRENT-LIABILITIES> 552,800
<BONDS> 0
0
0
<COMMON> 3,608,118
<OTHER-SE> (588,700)
<TOTAL-LIABILITY-AND-EQUITY> 4,359,234
<SALES> 1,036,735
<TOTAL-REVENUES> 1,036,735
<CGS> 218,140
<TOTAL-COSTS> 218,140
<OTHER-EXPENSES> 739,150
<LOSS-PROVISION> 74,590
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 74,590
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 74,590
<EPS-BASIC> 0.01
<EPS-DILUTED> 0.01
</TABLE>
