<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED: MARCH 31, 1998
[ ] 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: 0-11647
HYCOR BIOMEDICAL INC.
---------------------
(Exact name of registrant as specified in its charter)
Delaware 58-143178
------------------------------- -------------------
(State or other jurisdiction of (I. R. S. Employer
incorporation or organization) Identification No.)
18800 Von Karman Avenue, Irvine, California 92612-1517
------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (714) 440-2000
--------------
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. Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Class Outstanding at April 30, 1998
- ---------------------------- -----------------------------
Common Stock, $.01 Par Value 7,200,003
<PAGE> 2
PART I. FINANCIAL INFORMATION
ITEM I. FINANCIAL STATEMENTS
HYCOR BIOMEDICAL INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
ASSETS 1998 1997
----------- -----------
CURRENT ASSETS: (unaudited)
<S> <C> <C>
Cash and cash equivalents $ 614,033 $ 814,908
Investments 1,281,701 1,490,192
Accounts receivable, net of allowance for
doubtful accounts of $126,957 and $120,684 3,344,685 3,312,857
Income tax receivable 857,683 713,251
Inventories (Note 2) 3,596,588 3,772,777
Prepaid expenses and other current assets 508,438 562,879
Deferred income tax benefit 1,012,094 1,012,541
----------- -----------
Total current assets 11,215,222 11,679,405
----------- -----------
PROPERTY AND EQUIPMENT, at cost 12,754,102 12,602,155
Less accumulated depreciation (7,709,801) (7,358,809)
----------- -----------
5,044,301 5,243,346
----------- -----------
GOODWILL AND OTHER INTANGIBLES, net of
amortization of $1,175,613 and $1,101,528 4,269,719 4,363,971
DEFERRED INCOME TAX BENEFIT 854,162 854,000
OTHER ASSETS 128,551 160,174
----------- -----------
Total assets $21,511,955 $22,300,896
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 912,510 $ 1,247,642
Accrued liabilities 606,494 774,177
Accrued payroll expenses 551,498 613,698
Current portion - debt (Notes 4 & 5) 619,793 611,159
----------- -----------
Total current liabilites 2,690,295 3,246,676
----------- -----------
Long-Term Debt (Notes 4 & 5) 2,261,026 2,240,240
----------- -----------
Total Liabilities 4,951,321 5,486,916
----------- -----------
STOCKHOLDERS' EQUITY:
Common stock 72,000 71,570
Paid-in capital 12,322,005 12,271,207
Retained earnings 4,787,373 4,978,890
Accumulated other comprehensive income (loss) (620,744) (507,687)
----------- -----------
Total stockholders' equity 16,560,634 16,813,980
----------- -----------
Total liabilities and stockholders' equity $21,511,955 $22,300,896
=========== ===========
</TABLE>
Page 2
<PAGE> 3
HYCOR BIOMEDICAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
----------------------------
1998 1997
---------- ----------
<S> <C> <C>
NET SALES $4,691,907 $4,582,669
COST OF SALES 2,320,419 2,184,742
---------- ----------
Gross profit 2,371,488 2,397,927
---------- ----------
OPERATING EXPENSES
Selling, general and administrative 2,077,464 2,030,502
Research and development 626,045 659,382
---------- ----------
2,703,509 2,689,884
---------- ----------
OPERATING (LOSS) (332,021) (291,957)
INTEREST EXPENSE (45,081) --
INTEREST INCOME 27,977 73,297
GAIN (LOSS) ON FOREIGN CURRENCY TRANSACTIONS (4,976) 2,186
---------- ----------
LOSS BEFORE PROVISION (BENEFIT) FOR INCOME TAXES (354,101) (216,474)
BENEFIT FOR INCOME TAXES (162,584) (72,681)
---------- ----------
NET LOSS $ (191,517) $ (143,793)
========== ==========
BASIC AND DILUTED EARNINGS PER SHARE $ (0.03) $ (0.02)
========== ==========
AVE. COMMON SHARES OUTSTANDING 7,177,604 7,269,077
</TABLE>
Page 3
<PAGE> 4
HYCOR BIOMEDICAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1998 1997
CASH FLOWS FROM OPERATING ACTIVITIES: --------- ---------
<S> <C> <C>
Net income (loss) $(191,517) $(143,793)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation and amortization 454,026 401,778
Deferred income tax provision (7,091) (59,847)
Gain on foreign currency transactions -- (2,186)
Change in assets and liabilities, net of
effects of foreign currency adjustments
Accounts receivable (34,570) 402,708
Income tax receivable (144,648) (19,922)
Inventories 161,698 284,502
Prepaid expenses and other current assets 50,921 (66,485)
Accounts payable (332,725) (53,762)
Accrued liabilities (166,851) (165,069)
Accrued payroll expenses (61,298) (58,644)
---------- ---------
Total adjustments (80,538) 663,073
---------- ---------
Net cash provided by (used in) operating
activities (272,055) 519,280
---------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of investments 205,247 499,248
Purchases of intangible assets (12,469) (18,109)
Direct costs of acquisition (6,250) (31,696)
Purchases of property, plant and equipment (209,452) (504,965)
Proceeds from sale of property and equipment 1,000 35,402
Proceeds from collection of notes receivable 23,734 12,086
---------- ---------
Net cash provided by (used in) investing
activities 1,810 (8,034)
---------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt 48,716 --
Principal payments on long-term debt (22,372) --
Proceeds from issuance of common stock 51,229 40,604
Purchases of Hycor common stock -- (443,851)
---------- ---------
Net cash provided by (used in) financing
activities 77,573 (403,247)
---------- ---------
EFFECT OF EXCHANGE RATE CHANGES ON CASH (8,203) (103,980)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (200,875) 4,019
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 814,908 631,404
---------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 614,033 $ 635,423
========== =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year - interest $ 50,680 --
- income taxes $ 4,532 $ 6,402
</TABLE>
Page 4
<PAGE> 5
HYCOR BIOMEDICAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998
1. BASIS OF PRESENTATION
In the opinion of the Company, the accompanying unaudited financial
statements include all adjustments necessary to present fairly the
financial position as of March 31, 1998 and December 31, 1997, the results
of operations and the cash flows for the three-month periods ended March
31, 1998 and 1997.
These statements have been prepared pursuant to the rules and
regulations of the Securities and Exchange Commission and do not include
all the information and note disclosures required by generally accepted
accounting principles for complete financial statements and may be subject
to year-end adjustments.
The consolidated financial statements should be read in conjunction
with the consolidated financial statements and notes thereto included in
the Company's 1997 annual report on Form 10-K as filed with the Securities
and Exchange Commission. Certain items in the 1997 consolidated financial
statements have been reclassified to conform with the 1998 presentation.
The results of operations for any interim period are not necessarily
indicative of results to be expected for the full year.
Basic earnings per share is computed by dividing net income by the
weighted-average number of shares outstanding. Common stock equivalents
have been excluded from the calculation of diluted EPS in loss periods as
the impact is anti-dilutive.
2. INVENTORIES
Inventories are valued at the lower of cost (first-in, first-out
method) or market. Cost includes material, direct labor and manufacturing
overhead. Inventories at March 31, 1998 and December 31, 1997 consist of:
<TABLE>
<CAPTION>
3/31/98 12/31/97
---------- ----------
<S> <C> <C>
Raw materials $1,033,007 $1,141,205
Work in process 1,416,975 1,280,960
Finished goods 1,146,606 1,350,612
---------- ----------
$3,596,588 $3,772,777
========== ==========
</TABLE>
Page 5
<PAGE> 6
3. COMPREHENSIVE INCOME (LOSS)
In June of 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standard No. 130 "Reporting
Comprehensive Income." The statement, which the company adopted in the
first quarter of 1998, establishes standards for reporting and displaying
comprehensive income and its components in a full set of general-purpose
financial statements. Comprehensive income is summarized as follows:
Statement of Comprehensive Income (Loss)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
------------------------
1998 1997
--------- ---------
<S> <C> <C>
Net loss $(191,517) $(143,793)
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments (116,483) (305,487)
Unrealized gains (losses) on securities 3,426 (24,960)
---------- ---------
Other comprehensive income (loss) (113,057) (330,447)
--------- ---------
Comprehensive Income (loss) $(304,574) $(474,240)
========= =========
</TABLE>
Disclosure of Related Tax Effects
Quarter Ended March 31, 1998
<TABLE>
<CAPTION>
Before - Tax Tax (Expense) Net-of-Tax
Amount or Benefit Amount
------------ ------------ ----------
<S> <C> <C> <C>
Foreign currency translation adjustments $(116,483) -- $(116,483)
Unrealized holding gains arising during 5,582 2,177 3,405
period
Less: reclassification adjustments for
gains realized in net income (35) (14) (21)
--------- ------ ---------
Net unrealized gains 5,617 2,191 3,426
--------- ------ ---------
Other comprehensive income (loss) $(110,866) $2,191 $(113,057)
========= ====== =========
</TABLE>
The Company does not provide for U.S. income taxes on foreign currency
translation adjustments because it does not provide for such taxes on
undistributed earnings of foreign subsidiaries.
Page 6
<PAGE> 7
Disclosure of Accumulated Other Comprehensive Income (Loss) Balances
<TABLE>
<CAPTION>
Accumulated
Foreign Unrealized Other
Currency Gains on Comprehensive
Items Securities Income (loss)
--------- ---------- -------------
<S> <C> <C> <C>
Beginning balance 12/31/97 $(507,804) $ 117 $(507,687)
Current period change (116,483) 3,426 (113,057)
--------- ------ ---------
Ending balance 3/31/98 $(624,287) $3,543 $(620,744)
========= ====== =========
</TABLE>
4. ACQUISITION
On July 21, 1997, the Company acquired from unrelated third parties
all of the outstanding stock of Cogent Diagnostics Limited ("Cogent") for
approximately $1,453,000 in cash and $1,574,000 in three year notes to the
seller group.
The acquisition was accounted for using the purchase method of
accounting, and Cogent's operating results have been included in the
accompanying consolidated statements of operations from the date of
acquisition. Cogent is based in Edinburgh, Scotland and develops,
manufactures and markets a broad line of test kits for diagnosis of
autoimmune disease.
5. LONG TERM DEBT
The Company has a line of credit which provides for borrowings up
to $2,000,000 and expires in July, 1999. The loan is collateralized by the
Company's accounts receivable, inventories, and property, plant and
equipment. At March 31, 1998, $1,000,000 was outstanding. Advances under
the line bear interest at the prime rate or at LIBOR plus 2%, payable
monthly, with the principal due at maturity. At March 31, 1998 the
Company's interest rate was 8.25%.
The Company has outstanding notes in the amount of $1,574,000.
These notes were issued to the seller group in executing the acquisition
of Cogent Diagnostics LTD (Cogent). Interest on the notes accrues at a
rate of 6.85% and is payable quarterly. Principal payments are due in
three equal annual installments commencing in July, 1998. In addition, one
of the Company's foreign subsidiaries has long term debt, payable to
financial institutions, aggregating $277,000 with weighted average
interest rate of approximately 9%.
Page 7
<PAGE> 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Except for historical information contained herein, the matters
discussed in this report are forward-looking statements which involve risk and
uncertainties that could cause actual results to differ materially from the
results anticipated in the forward looking statements. These risks and
uncertainties include, but are not limited to, economic, competitive,
governmental and technological factors affecting the Company's operations,
markets, products, services and prices and other factors discussed in the
Company's filings with the Securities and Exchange Commission.
On September 30, 1996, the Company formed Hycor Biomedical SAS ("Hycor
SAS") as a wholly owned subsidiary. Located in Paris, France, Hycor SAS markets
allergy diagnostic products in France. Hycor SAS commenced direct commercial
activities during the quarter ended September 30, 1997.
On July 21, 1997, the Company acquired from unrelated third parties all
of the outstanding stock of Cogent Diagnostics Limited ("Cogent") for
approximately $1,453,000 in cash and $1,574,000 in three year notes to the
seller group. The acquisition was accounted for using the purchase method of
accounting, and Cogent's operating results have been included in the
accompanying consolidated statements of operations from the date of acquisition.
Cogent is based in Edinburgh, Scotland and develops, manufactures and markets a
broad line of test kits for diagnosis of autoimmune disease.
The Company has adequate working capital and sources of capital to
carry on its current business and to meet its existing capital requirements. The
Company increased its working capital $92,198 as of March 31, 1998, compared to
December 31, 1997 primarily as a result of normal operations.
The Company's principal capital commitments are for lease payments
under non-cancelable operating leases and note payments related to the
acquisition of Cogent. Additionally, the HY-TEC(TM) business requires the
purchase of instruments which in many cases are placed in use in laboratories of
the Company's direct customers and paid for over an agreed contract period by
the purchase of test reagents. This "reagent rental" sales program, common to
the diagnostic market, creates negative cash flows in the initial years. Working
capital, operating results, and the available line of credit are expected to be
sufficient to satisfy these commitments and the needs of operations for the
foreseeable future.
During the three-month period ended March 31, 1998, sales decreased 2%,
compared to the same period last year. Revenue declines were due primarily to
the loss of sales resulting from the 1995 Restructuring Plan and the related
discontinued product lines. Revenues in the first quarter of 1997 from
discontinued products were $319,000. In addition, in periods when the U.S.
dollar is strengthening, the effect of the translation of the financial
statements of the consolidated foreign affiliates is that of lower sales, cost,
and net income. The stronger U.S. dollar in the first quarter 1998 when compared
to the corresponding 1997 period resulted in lower reported sales of
approximately 2%.
Page 8
<PAGE> 9
Gross profit as a percentage of product sales decreased for the
three-month period ended March 31, 1998 from approximately 52% to 51% due
primarily to the reduction in sales and continued pricing pressures from our
customers.
Selling, general and administrative expenses for the three-month period
ended March 31, 1998 have increased approximately 2% over the prior year period.
The cost increase is primarily due to the inclusion of both Cogent and Hycor SAS
in the current quarter results.
There were no significant changes in research and development spending
levels for the three-month period ended March 31, 1998 over the prior year
period (a reduction of approximately $33,000 or 5%). All programs continue to
focus on the HY-TEC equipment platform and related tests and assays.
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit 27 : Financial Data Schedule
(b) Reports on Form 8K : None
SIGNATURE
---------
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.
HYCOR BIOMEDICAL INC.
---------------------
Date: May 12, 1998 By: /s/ Armando Correa
-----------------------------------
Armando Correa, Director of Finance
(Mr. Correa is the Principal
Accounting Officer and has been
duly authorized to sign on behalf
of the registrant.)
Page 9
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM UNAUDITED
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AS OF AND FOR THE THREE MONTHS ENDED
MARCH 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 1998.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 614,033
<SECURITIES> 1,281,701
<RECEIVABLES> 3,471,642
<ALLOWANCES> 126,957
<INVENTORY> 3,596,588
<CURRENT-ASSETS> 11,215,222
<PP&E> 12,754,102
<DEPRECIATION> 7,709,801
<TOTAL-ASSETS> 21,511,955
<CURRENT-LIABILITIES> 2,690,295
<BONDS> 0
0
0
<COMMON> 72,000
<OTHER-SE> 16,488,634
<TOTAL-LIABILITY-AND-EQUITY> 21,511,955
<SALES> 4,691,907
<TOTAL-REVENUES> 4,691,907
<CGS> 2,320,419
<TOTAL-COSTS> 2,320,419
<OTHER-EXPENSES> 2,703,509
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 45,081
<INCOME-PRETAX> (354,101)
<INCOME-TAX> (162,584)
<INCOME-CONTINUING> (191,517)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (191,517)
<EPS-PRIMARY> (0.03)
<EPS-DILUTED> (0.03)
</TABLE>
