<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: June 30, 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 58-1437178
- ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
7272 Chapman Avenue, Garden Grove, California 92841
---------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (714) 933-3000
--------------
18800 Von Karman Avenue, Irvine, California 92612-1517
------------------------------------------------------
(Former address of principal executive offices) (Zip Code)
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 July 31, 1998
- ---------------------------- ----------------------------
Common Stock, $.01 Par Value 7,252,999
<PAGE> 2
PART I. FINANCIAL INFORMATION
ITEM I. FINANCIAL STATEMENTS
HYCOR BIOMEDICAL INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
----------- -----------
(unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 918,398 $ 814,908
Investments 1,276,327 1,490,192
Accounts receivable, net of allowance for
doubtful accounts of $142,017 and $120,684 3,228,960 3,312,857
Income tax receivable 935,668 713,251
Inventories (Note 2) 3,826,983 3,772,777
Prepaid expenses and other current assets 455,708 562,879
Deferred income tax benefit 1,116,727 1,012,541
----------- -----------
Total current assets 11,758,771 11,679,405
----------- -----------
PROPERTY AND EQUIPMENT, at cost 13,276,822 12,602,155
Less accumulated depreciation (8,071,955) (7,358,809)
----------- -----------
5,204,867 5,243,346
----------- -----------
GOODWILL AND OTHER INTANGIBLES, net of
amortization of $1,258,361 and $1,101,528 4,232,994 4,363,971
DEFERRED INCOME TAX BENEFIT 854,162 854,000
OTHER ASSETS 118,998 160,174
----------- -----------
Total assets $22,169,792 $22,300,896
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 1,576,837 $ 1,247,642
Accrued liabilities 669,056 774,177
Accrued payroll expenses 607,233 613,698
Current portion - debt (Notes 4 & 5) 617,605 611,159
----------- -----------
Total current liabilites 3,470,731 3,246,676
----------- -----------
Long-Term Debt (Notes 4 & 5) 2,238,558 2,240,240
----------- -----------
Total Liabilities 5,709,289 5,486,916
----------- -----------
STOCKHOLDERS' EQUITY:
Common stock 72,303 71,570
Paid-in capital 12,357,461 12,271,207
Retained earnings 4,559,023 4,978,890
Accumulated other comprehensive income (loss) (528,284) (507,687)
----------- -----------
Total stockholders' equity 16,460,503 16,813,980
----------- -----------
Total liabilities and stockholders' equity $22,169,792 $22,300,896
=========== ===========
</TABLE>
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HYCOR BIOMEDICAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------------- ----------------------------
1998 1997 1998 1997
---------- ----------- ---------- ----------
<S> <C> <C> <C> <C>
NET SALES $4,652,058 $4,864,543 $9,343,965 $9,447,212
COST OF SALES 2,296,496 2,091,667 4,616,915 4,276,409
---------- ---------- ---------- ----------
Gross profit 2,355,562 2,772,876 4,727,050 5,170,803
---------- ---------- ---------- ----------
OPERATING EXPENSES
Selling, general and administrative 2,178,640 2,244,792 4,256,104 4,275,294
Research and development 560,615 678,116 1,186,660 1,337,498
---------- ---------- ---------- ----------
2,739,255 2,922,908 5,442,764 5,612,792
---------- ---------- ---------- ----------
OPERATING INCOME (LOSS) (383,693) (150,032) (715,714) (441,989)
INTEREST EXPENSE 46,302 -- 91,383 --
INTEREST INCOME 29,396 70,845 57,373 144,142
FOREIGN EXCHANGE G/(L) (2,097) (4,184) (7,073) (1,998)
---------- ---------- ---------- ----------
INCOME (LOSS) BEFORE PROVISION
(BENEFIT) FOR INCOME TAXES (402,696) (83,371) (756,797) (299,845)
PROVISION (BENEFIT) FOR INCOME TAXES (174,346) (29,797) (336,930) (102,478)
---------- ---------- ---------- ----------
NET INCOME (LOSS) $ (228,350) $ (53,574) $ (419,867) $ (197,367)
========== ========== ========== ==========
NET INCOME (LOSS) PER SHARE $ (0.03) $ (0.01) $ (0.06) $ (0.03)
========== ========== ========== ==========
AVE. COMMON SHARES OUTSTANDING 7,206,948 7,137,623 7,188,727 7,149,937
</TABLE>
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HYCOR BIOMEDICAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
1998 1997
--------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $(419,867) $ (197,367)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization 891,998 789,624
Deferred income tax provision (116,238) (129,575)
(Gain) Loss on foreign currency transactions -- 1,998
(Gain) Loss on sales of assets -- 36,127
Change in assets and liabilities, net of
effects of foreign currency adjustments
Accounts receivable 73,127 (57,740)
Income tax receivable (222,428) 21,411
Inventories (54,493) 114,089
Prepaid expenses and other current assets 112,688 (34,156)
Accounts payable 327,184 (235,292)
Accrued liabilities (106,276) (197,224)
Accrued payroll expenses (6,039) 174,293
---------- ----------
Total adjustments 899,523 483,555
---------- ----------
Net cash provided by (used in) operating
activities 479,656 286,188
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of investments 205,247 1,415,105
Purchases of intangible assets (22,911) (23,462)
Direct costs of acquisition (12,850) (164,478)
Purchases of property, plant and equipment (688,090) (881,530)
Proceeds from sale of property and equipment 1,100 54,453
Proceeds from collection of notes receivable 48,010 18,523
---------- ----------
Net cash provided by (used in) investing
activities (469,494) 418,611
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt 46,718 --
Principal payments on long-term debt (44,468) --
Proceeds from issuance of common stock 86,988 40,604
Purchases of Hycor common stock -- (467,580)
---------- ----------
Net cash provided by (used in) financing
activities 89,238 (426,976)
---------- ----------
EFFECT OF EXCHANGE RATE CHANGES ON CASH 4,090 (24,605)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 103,490 253,218
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 814,908 631,404
---------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 918,398 $ 884,622
========== =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year - interest $ 102,334 $ --
- income taxes $ 8,483 $ 13,106
</TABLE>
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HYCOR BIOMEDICAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 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 June 30, 1998 and December 31, 1997, the results
of operations and the cash flows for the three and six-month periods ended
June 30, 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 June 30, 1998 and December 31, 1997 consist of:
6/30/98 12/31/97
---------- ----------
Raw materials $1,067,761 $1,141,205
Work in process 1,336,545 1,280,960
Finished goods 1,422,677 1,350,612
---------- ----------
$3,826,983 $3,772,777
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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
June 30,
-------------------------------------------
1998 1997
------------------- ------------------
<S> <C> <C>
Net loss $(228,350) $ (53,574)
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments 92,860 (152,131)
Unrealized gains (losses) on securities (342) 36,225
------------------- ------------------
Other comprehensive income (loss) 92,518 (115,906)
------------------- ------------------
Comprehensive Income (loss) $(135,832) $(169,480)
=================== ==================
</TABLE>
Statement of Comprehensive Income (Loss)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
-------------------------------------------
1998 1997
------------------- ------------------
<S> <C> <C>
Net loss $(419,867) $(197,367)
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments (23,623) (457,618)
Unrealized gains (losses) on securities 3,026 11,265
------------------- ------------------
Other comprehensive income (loss) (20,597) (446,353)
------------------- ------------------
Comprehensive Income (loss) $(440,464) $(643,720)
=================== ==================
</TABLE>
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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 June 30, 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 June 30, 1998 the
Company's interest rate was 7.80%.
The line of credit contains restrictive covenants, the most
significant of which relate to the maintenance of minimum tangible net
worth, debt-to-tangible net worth requirements and liquid assets plus
accounts receivable-to-current liabilities requirements. At June 30, 1998,
the Company was in compliance with such covenants.
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%.
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.
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<PAGE> 8
The year 2000 issue is the result of computer programs being written using
two digits rather than four to define the applicable year. The Company is
currently engaged in a comprehensive project to upgrade its information,
technology, and manufacturing computer software to programs that will
consistently and properly recognize the year 2000. Many of the Company's systems
include new hardware and packaged software recently purchased from vendors who
have represented that these systems are already Year 2000 compliant. The Company
is in the process of obtaining assurances from vendors that timely updates will
be made available to make all remaining purchased software Year 2000 compliant,
and the Company expects to complete the project in early 1999. Management
believes that the year 2000 issue will not pose significant operational problems
or have a material adverse impact on the Company's financial position or results
of operations.
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 decreased its working capital $144,689 as of June 30, 1998, compared to
December 31, 1997 primarily from the investment in facility modifications
necessary to consolidate the Irvine, California administrative office into the
Garden Grove, California facility. This move was completed in July 1998. The
Irvine facility was sub-leased for the remainder of the lease term with no
material net impact to operating results.
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 and six-month periods ended June 30, 1998, sales
decreased 4% and 1%, respectively, compared to the same periods last year. The
revenue decline for the quarter was due primarily to the delay in the launch of
the new HY-TEC 288 instrument system which was expected during the second
quarter. In addition, in periods when the U.S. dollar is strengthening, the
effect of the translation of the financial statements of the consolidated
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foreign affiliates is that of lower sales, higher costs on U.S. sourced raw
materials, and lower net income. The stronger U.S. dollar in the three and
six-month periods when compared to the corresponding 1997 periods resulted in
lower reported sales of approximately 1% in both periods.
Gross profit as a percentage of product sales decreased for the three and
six-month periods from approximately 57% to 51% and 55% to 51%, respectively,
compared to the same periods last year. The decrease in gross profit percentage
is due primarily to the Company's aggressive product pricing strategy.
Selling, general and administrative expenses decreased approximately 3%
for the second quarter and were basically unchanged year-to-date when compared
to the same periods last year.
Research and development costs for the three and six-month periods
decreased approximately 17% and 11%, respectively, compared to the same periods
last year. The decrease in research and development is primarily due to the
completion of several projects related to the HY-TEC 288 instrument system as it
approaches its commercial launch.
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On June 10, 1998, Hycor Biomedical Inc. held its Annual Meeting of
Stockholders. At such meeting, the following seven persons were elected as
directors of the Company to serve until the Annual Meeting of Stockholders in
1999 and until their successors are elected and qualified.
The tabulation of the votes cast for the election of the directors was as
follows:
<TABLE>
<CAPTION>
Nominee Votes For Votes Withheld
- ------- --------- --------------
<S> <C> <C>
Richard D. Hamill 5,417,036 1,081,816
Samual D. Anderson 5,531,997 966,855
David S. Gordon 5,481,204 1,080,648
Reginald P. Jones 5,530,920 967,932
James R. Phelps 5,531,955 966,897
Richard E. Schmidt 6,343,697 155,155
David A. Thompson 6,345,390 153,462
</TABLE>
ITEM 5. OTHER INFORMATION
On July 17, 1998, J. David Tholen assumed the duties of President and
Chief Executive Officer of the Company replacing Dr. Richard D. Hamill who has
chosen to retire. Also effective on July 17, 1998, Samual D. Anderson was
elected to serve as Chairman of the Board. Dr. Hamill has resigned from the
Board of Directors but will be available as needed for consultation.
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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: August 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.)
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EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
------- -----------
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM UNAUDITED
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AS OF AND FOR THE SIX MONTHS ENDED
JUNE 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 1998
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 918,398
<SECURITIES> 1,276,327
<RECEIVABLES> 3,370,977
<ALLOWANCES> 142,017
<INVENTORY> 3,826,983
<CURRENT-ASSETS> 11,758,771
<PP&E> 13,276,822
<DEPRECIATION> (8,071,955)
<TOTAL-ASSETS> 22,169,792
<CURRENT-LIABILITIES> 3,470,731
<BONDS> 0
0
0
<COMMON> 72,303
<OTHER-SE> 16,460,503
<TOTAL-LIABILITY-AND-EQUITY> 22,169,792
<SALES> 9,343,965
<TOTAL-REVENUES> 9,343,965
<CGS> 4,616,915
<TOTAL-COSTS> 4,616,915
<OTHER-EXPENSES> 5,442,764
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 91,383
<INCOME-PRETAX> (756,797)
<INCOME-TAX> (336,930)
<INCOME-CONTINUING> (419,867)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (419,867)
<EPS-PRIMARY> (0.06)
<EPS-DILUTED> (0.06)
</TABLE>
