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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 DECEMBER 31, 1999.
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 DECEMBER 31, 1999
--------------- -----------------
Common Stock,
without par value 4,598,904
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<PAGE>
HYDROMER INC.
INDEX TO FORM 10-Q SB
DECEMBER 31, 1999
PAGE NO.
--------
PART I - FINANCIAL INFORMATION
---------------------
Condensed Balance Sheet at December 31, 1999 (unaudited)
and June 30, 1999. ........................................... 3 - 4
Condensed Statements of Operations (unaudited)
for the three month periods and six month periods ended
December 31, 1999 and December 31, 1998. .................... 5
Condensed Statements of Cash Flows (unaudited)
for the six month periods ended
December 31, 1999 and December 31, 1998. .................... 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
-----------------
Signatures .................................................. 10
2
<PAGE>
PART I
------
ITEM I - FINANCIAL STATEMENTS
HYDROMER INC.
CONDENSED BALANCE SHEETS
ASSETS
------
DECEMBER 31 JUNE 30
1999 1999(1)
----------- -------
UNAUDITED
CURRENT ASSETS:
Cash and cash equivalents .............. $1,052,583 $1,270,295
Trade receivables ...................... 756,858 770,647
Inventories (note 2) ................... 223,927 210,065
Other assets ........................... 108,345 91,393
---------- ----------
TOTAL CURRENT ASSETS ................... 2,141,713 2,342,400
PROPERTY, PLANT AND EQUIPMENT, (NET) ......... 1,753,787 1,681,458
OTHER ASSETS ................................. 282,663 231,327
---------- ----------
TOTAL ASSETS ........................... $4,178,163 $4,245,185
========== ==========
(1) - Derived from audited financial statements.
(continued)
3
<PAGE>
HYDROMER INC.
CONDENSED BALANCE SHEETS
(CONTINUED)
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
DECEMBER 31 JUNE 30
1999 1999(1)
------------ -----------
UNAUDITED
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable .................................................. $ 129,821 $ 145,062
Current portion of long term debt ................................. 56,667 56,667
Current portion of deferred rental income ......................... 115,500 115,500
Income tax payable ................................................ 4,043 35,000
Accrued liabilities ............................................... 51,301 120,566
----------- -----------
TOTAL CURRENT LIABILITIES ......................................... 357,332 472,795
LONG-TERM LIABILITIES:
Deferred tax liability ............................................ 92,769 24,786
Long term debt .................................................... 708,333 736,639
Long term portion of deferred rental income ....................... 56,227 112,453
----------- -----------
TOTAL LONG TERM LIABILITIES ....................................... 857,329 873,878
TOTAL LIABILITIES ................................................. 1,214,661 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 ............................................... (1,078,259) (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 ........................................ 2,963,502 2,898,500
TOTAL LIABILITIES AND STOCKHOLDERS EQUITY ............................... $4,178,163 $4,245,185
</TABLE>
(1) - Derived from audited financial statements.
4
<PAGE>
HYDROMER INC.
CONDENSED STATEMENTS OF OPERATIONS
UNAUDITED
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
DECEMBER 31 DECEMBER 31
---------------------- ------------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues, net ................ $724,127 $739,201 $1,467,614 $1,356,142
Cost of goods sold ........... 61,062 85,783 131,110 147,935
-------- -------- ---------- ----------
Gross profit ................. 663,065 653,418 1,336,504 1,208,206
Selling, R & D and general and
administrative costs ..... 540,136 446,532 1,062,455 879,489
-------- -------- ---------- -----------
Operating income ............. 122,929 206,885 274,049 328,718
Interest income .......... 14,076 6,723 30,921 16,180
Interest expense ......... (15,661) (16,808) (31,784) (32,012)
Other, net ............... (255) -- (97) 328
-------- -------- ---------- ----------
Income before tax provision .. 121,089 196,800 273,089 313,214
Income Taxes ............. 37,000 78,487 88,794 125,137
-------- -------- ---------- ----------
Net income ................... 84,089 118,314 184,295 188,077
======== ======== ========== ==========
NET INCOME/(LOSS) PER COMMON
SHARE ....................... $ .02 $ .03 $ .04 $ .04
-------- -------- -------- --------
WEIGHTED AVERAGE NUMBER
OF COMMON SHARES ............ 4,598,904 4,367,987 4,598,904 4,367,987
========= ========= ========= =========
</TABLE>
See accompanying notes to
unaudited condensed financial statements
5
<PAGE>
HYDROMER INC.
CONDENSED STATEMENTS OF CASH FLOWS
UNAUDITED
<TABLE>
<CAPTION>
SIX MONTHS ENDED
DECEMBER 31
---------------------------
1999 1998
----------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ............................................. $ 184,295 $ 188,077
Adjustments to reconcile net income to net
cash used in operating activities:
Depreciation and amortization ...................... 56,875 50,209
Sub total .................................. 56,875 50,209
---------- ---------
CHANGES IN ASSETS AND LIABILITIES:
Accounts receivable-trade .......................... 32,092 (135,919)
Prepaid expenses ................................... (16,952)
Deferred tax asset ................................. 68.000 96,948
Other assets ....................................... -- 1,600
Inventory .......................................... (13,862) 5,656
Accounts payable and accr. expenses ................ (84,137) (73,226)
Income tax payable ................................. (30,956) 28,189
---------- ---------
Net cash provided by operating activities .............. 195,355 116,529
---------- ---------
Cash flows from investing activities:
Capital expenditures ............................... (129,203) (109,991)
Acquisition costs .................................. (14,344) (9,735)
Patents ............................................ (26,061) (63,373)
Trademarks ......................................... (20,932) (490)
Net cash used by investing activities .............. (190,540) (183,589)
---------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
LT lease accrual ................................... (56,226) (56,226)
LT mortgage payable ................................ (28,333) (28,333)
Cash dividends paid ................................ (137,967) (137,967)
Net cash used in financing activities .............. (222,527) (215,926)
---------- ---------
Net cash increase/(decrease) for period ................ (217,712) (282,984)
---------- ---------
Cash at beginning of period ............................ 1,270,295 783,475
---------- ---------
Cash at end of period .................................. $1,052,583 $ 500,491
========== =========
</TABLE>
See accompanying notes to
unaudited condensed financial statements
6
<PAGE>
HYDROMER INC.
NOTES TO CONDENSED 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 condensed
financial statements contain only normal and recurring adjustments necessary for
the fair presentation of the Company's financial position as of December 31,
1999 and the results of operations for the three month periods and six month
periods ended December 31, 1999 and December 31, 1998 and the statement of cash
flows for the six month periods ended December 31, 1999 and December 31, 1998.
The results of operations for the three month periods and six month periods
ended December 31, 1999 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
REVENUES FOR THE QUARTER ENDED DECEMBER 31, 1999 WERE $724,127, DOWN 2% OVER THE
SAME PERIOD LAST YEAR. YEAR-TO-DATE DECEMBER 31, 1999, REVENUES WERE $1,467,614,
UP 8.2% OVER THE SAME PERIOD LAST YEAR.
Product sales were flat for the quarter and for the 6 month period versus
year ago. Sales in Anti-fogs and condensation control products are still
soft due to continued delays in qualifying new products at our customers.
Sales of T-HEXX(R) concentrate have been delayed as building a
distribution and sales network with established vendors has taken longer
than anticipated. The company is negotiating with additional parties to
expand the T-HEXX product line globally. Uncertainty over Y2K resulted is
some other customers temporarily curtailing orders. Revenues for the early
third quarter show a significant rebound as Y2K was a non-event. Royalties
and licenses revenues were up significantly, reflecting the continued
increase in sales using our technology by licensees.
GROSS PROFIT WAS $663,065 FOR THE QUARTER ENDED 12/31/99, UP 1.5% OVER THE SAME
PERIOD LAST YEAR. YEAR-TO-DATE, GROSS PROFIT IS $1,336,504 UP 10.6% OVER THE
SAME PERIOD LAST YEAR.
Direct costs continue to decline as a % of product sales as the Company
moves towards larger lot sizes and away from smaller, inefficient batches
as customer sales using our technology and chemicals increases.
SELLING, R&D AND GENERAL AND ADMINISTRATIVE COSTS WERE $94,840 MORE THAN THE
SAME QUARTER LAST YEAR AND $182,966 MORE THAN THE 6-MONTH PERIOD ENDED 12/31/98.
This 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, one-time expenses were
caused related to Y2K. The company also incurred significantly higher
expense in outside clinical testing to support the development of new
products now in the marketplace and others being staged for launch.
EARNINGS BEFORE INTEREST AND TAXES ARE DOWN $75,714 FOR THE QUARTER AND$40,125
YEAR-TO- DATE THROUGH DECEMBER 31, 1999.
The decrease in EBIT is due to increased SG&A to drive future growth of
the company.
NET INCOME WAS $84,089 FOR THE QUARTER ENDED DECEMBER 31, 1999 VS $ 118,314
REPORTED FOR THE SAME PERIOD LAST YEAR. YEAR TO DATE, EARNINGS FOR THE 6 MONTHS
ENDED DECEMBER 31, 1999 WERE $184,295 VS. $188,077 FOR THE SAME PERIOD LAST
YEAR. EARNINGS PER SHARE WERE $0.02 FOR THE CURRENT QUARTER AGAINST $0.03 FOR
THE SAME PERIOD LAST YEAR. YEAR-TO- DATE, EPS IS FLAT $0.04 FOR THE PAST 6 MONTH
PERIOD AGAINST $0.04 FOR THE SAME PERIOD IN FISCAL 1998.
8
<PAGE>
HYDROMER INC.
ITEM 2. MANAGEMENT DISCUSSION AND ANALYSIS OF THE FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
The Company's operating activities generated $195,445 in cash during the
first six months of 1999. Investing activities used $190,630 for the same period
in 1999 while financing activities used $222,527. Overall cash flow decreased by
$217,712 for the six months ended December 31, 1999
The Company believes that future revenues will provide sufficient cash
flow to maintain operations at current levels.
SUBSEQUENT EVENT
On February 3, 2000 the Company announced that it had completed all
formalities involved in the purchase of the stock of Biosearch Medical Products,
Inc. On February 2, 2000 the stockholders of Biosearch Medical Products, Inc.
voted in favor of exchanging their shares for $.20 per share. The Company's
Board of Directors have concluded that all conditions of the exchange have been
met and authorized the filing of a Certificate of Exchange with the State of New
Jersey. The certificates held by the former Biosearch stockholders are now
evidence of the right to receive $.20 per share and the Company will contact
these certificate holders and request they send in the certificates in exchange
for the payment.
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: February 14, 2000 /s/ MANFRED F. DYCK
------------------------------
President and Principal
Executive Officer and Director
Dated: February 14, 2000 /s/ ROBERT C. KELLER
------------------------------
Robert C. Keller
Chief Accounting Officer
10
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-START> OCT-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 1,052,583
<SECURITIES> 0
<RECEIVABLES> 756,858
<ALLOWANCES> 0
<INVENTORY> 223,927
<CURRENT-ASSETS> 2,141,713
<PP&E> 2,383,395
<DEPRECIATION> 629,608
<TOTAL-ASSETS> 4,178,163
<CURRENT-LIABILITIES> 357,332
<BONDS> 0
0
0
<COMMON> 3,608,118
<OTHER-SE> (644,616)
<TOTAL-LIABILITY-AND-EQUITY> 4,178,163
<SALES> 724,127
<TOTAL-REVENUES> 724,127
<CGS> 61,062
<TOTAL-COSTS> 61,062
<OTHER-EXPENSES> 540,136
<LOSS-PROVISION> 122,929
<INTEREST-EXPENSE> (15,661)
<INCOME-PRETAX> 121,089
<INCOME-TAX> 37,000
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 84,089
<EPS-BASIC> 0.02
<EPS-DILUTED> 0.02
</TABLE>
