<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, 1999
-----------------
[ ] 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
----------------
No Change
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
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, 1999
---------------------------- -----------------------------
Common Stock, $.01 Par Value 7,283,456
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PART I. FINANCIAL INFORMATION
ITEM I. FINANCIAL STATEMENTS
HYCOR BIOMEDICAL INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
ASSETS 1999 1998
------------ ------------
CURRENT ASSETS: (unaudited)
<S> <C> <C>
Cash and cash equivalents $ 234,359 $ 655,716
Investments 1,260,870 1,266,935
Accounts receivable, net of allowance for
doubtful accounts of $264,446 and $211,482 3,260,600 3,022,618
Inventories (Note 2) 4,171,979 4,268,949
Prepaid expenses and other current assets 343,264 424,597
------------ ------------
Total current assets 9,271,072 9,638,815
------------ ------------
PROPERTY AND EQUIPMENT, at cost 10,428,236 10,522,457
Less accumulated depreciation (6,394,706) (6,283,497)
------------ ------------
4,033,530 4,238,960
------------ ------------
GOODWILL AND OTHER INTANGIBLES, net of
amortization of $875,489 and $858,678 1,885,299 2,012,348
OTHER ASSETS 82,214 92,586
------------ ------------
Total assets $ 15,272,115 $ 15,982,709
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 804,475 $ 1,101,879
Accrued liabilities 1,256,581 1,321,329
Accrued payroll expenses 505,956 377,609
Current portion - debt (Note 3) 1,739,171 1,826,706
------------ ------------
Total current liabilities 4,306,183 4,627,523
------------ ------------
Long-Term Debt (Note 3) 657,946 678,491
------------ ------------
Total Liabilities 4,964,129 5,306,014
------------ ------------
STOCKHOLDERS' EQUITY:
Common stock 72,835 72,835
Paid-in capital 12,420,520 12,420,520
Accumulated deficit (1,677,750) (1,621,204)
Accumulated other comprehensive loss (507,619) (195,456)
------------ ------------
Total stockholders' equity 10,307,986 10,676,695
------------ ------------
Total liabilities and stockholders' equity $ 15,272,115 $ 15,982,709
============ ============
</TABLE>
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HYCOR BIOMEDICAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-------------------------------
1999 1998
----------- -----------
<S> <C> <C>
NET SALES $ 4,761,727 $ 4,691,907
COST OF SALES 2,383,388 2,320,419
----------- -----------
Gross profit 2,378,339 2,371,488
----------- -----------
OPERATING EXPENSES
Selling, general and administrative 1,882,953 2,077,464
Research and development 538,597 626,045
----------- -----------
2,421,550 2,703,509
----------- -----------
OPERATING LOSS (43,211) (332,021)
INTEREST EXPENSE (34,289) (45,081)
INTEREST INCOME 26,796 27,977
GAIN (LOSS) ON FOREIGN CURRENCY TRANSACTIONS 6,158 (4,976)
----------- -----------
LOSS BEFORE INCOME TAX PROVISION (BENEFIT) (44,546) (354,101)
INCOME TAX PROVISION (BENEFIT) 12,000 (162,584)
----------- -----------
NET LOSS $ (56,546) $ (191,517)
=========== ===========
BASIC AND DILUTED EARNINGS PER SHARE $ (0.01) $ (0.03)
=========== ===========
AVE. COMMON SHARES OUTSTANDING 7,283,456 7,171,304
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
NET LOSS $ (56,546) $ (191,517)
OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX
Foreign currency translation adjustments (311,407) (116,483)
Unrealized gains (losses) on securities:
Unrealized gains (losses) on securities (756) 3,098
Plus: reclassification adjustment for losses included in net income 0 328
----------- -----------
OTHER COMPREHENSIVE LOSS, NET OF TAX (312,163) (113,057)
COMPREHENSIVE LOSS $ (368,709) $ (304,574)
=========== ===========
</TABLE>
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HYCOR BIOMEDICAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1999 1998
---------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (56,546) $(191,517)
Adjustments to reconcile net loss to net cash provided by (used in) operating
activities:
Depreciation and amortization 338,640 454,026
Provision for doubtful accounts receivable 47,130 12,306
Deferred income tax provision -- (7,091)
Change in assets and liabilities, net of effects of
foreign currency adjustments
Accounts receivable (335,562) (46,876)
Income tax receivable -- (144,648)
Inventories 33,107 161,698
Prepaid expenses and other current assets 74,380 50,921
Accounts payable (284,710) (332,725)
Accrued liabilities (53,949) (166,851)
Accrued payroll expenses 135,606 (61,298)
--------- ---------
Total adjustments (45,358) (80,538)
--------- ---------
Net cash used in operating activities (101,904) (272,055)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of investments -- 205,247
Purchases of intangible assets (15,522) (12,469)
Direct costs of acquisition -- (6,250)
Purchases of property, plant and equipment (210,646) (209,452)
Proceeds from sale of property and equipment -- 1,000
Proceeds from collection of notes receivable 14,735 23,734
--------- ---------
Net cash provided by (used in) investing activities (211,433) 1,810
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt -- 48,716
Principal payments on long-term debt (102,691) (22,372)
Proceeds from issuance of common stock -- 51,229
--------- ---------
Net cash provided by (used in) financing activities (102,691) 77,573
--------- ---------
EFFECT OF EXCHANGE RATE CHANGES ON CASH (5,329) (8,203)
DECREASE IN CASH AND CASH EQUIVALENTS (421,357) (200,875)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 655,716 814,908
--------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 234,359 $ 614,033
========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year - interest $ 38,842 $ 50,680
- income taxes $ 14,446 $ 4,532
</TABLE>
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HYCOR BIOMEDICAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999
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, 1999 and December 31, 1998, the
results of operations and the cash flows for the three-month periods
ended March 31, 1999 and 1998.
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 1998 annual report on Form 10-K as filed with
the Securities and Exchange Commission. Certain items in the 1998
consolidated financial statements have been reclassified to conform with
the 1999 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, 1999 and December 31,
1998 consist of:
<TABLE>
<CAPTION>
3/31/99 12/31/98
---------- ----------
<S> <C> <C>
Raw materials $1,056,009 $1,040,529
Work in process 1,413,690 1,420,231
Finished goods 1,702,280 1,808,189
---------- ----------
$4,171,979 $4,268,949
========== ==========
</TABLE>
3. 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, 1999, $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, 1999, the
Company's interest rate was 7.26%. The Company intends upon renewing its
line of credit on substantially consistent terms with the bank upon
maturity of the line in July 1999.
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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 March 31,
1999, the Company was in compliance with such covenants.
The Company has outstanding notes in the amount of $1,190,000.
These notes were issued to the seller group in executing the acquisition
of Cogent Diagnostics LTD in July 1997. Interest on the notes accrues at
a rate of 6.85% and is payable quarterly. Principal payments are due in
three equal annual installments which commenced in July, 1998. In
addition, the Company and one of the Company's foreign subsidiaries has
long term debt, payable to financial institutions, aggregating $207,000
with weighted average interest rate of approximately 9%.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
This Section and this entire Annual Report contain forward-looking
statements and include assumptions concerning the Company's operations, future
results and prospects. These forward-looking statements are based on current
expectations and are subject to a number of risks, uncertainties, and other
factors. In connection with the Private Securities Litigation Reform Act of
1995, the Company provides the following cautionary statements identifying
important factors which, among other things, could cause the actual results and
events to differ materially from those set forth in or implied by the
forward-looking statements and related assumptions contained in this Section and
in this entire Report.
Such factors include, but are not limited to, product demand and market
acceptance risks; the effect of economic conditions; the impact of competitive
products and pricing; product development; commercialization and technological
difficulties; capacity and supply constraints or difficulties; availability of
capital resources; general business and economic conditions, including currency
risks based on the relative strength or weakness of the U.S. dollar, euro
conversions, and Year 2000 issues; and changes in government laws and
regulations, including taxes.
YEAR 2000 READINESS DISCLOSURE
The Year 2000 issue is the result of computer programs being written
using two digits rather than four to define the applicable year. If the computer
systems cannot distinguish between the year 1900 and the year 2000, system
failures or other computer errors could result. The potential for failures and
errors spans all aspects of our business, including information technology
("IT") systems: computer hardware and software, voice and data networks;
non-information technology ("Non-IT") related systems: copiers and fax machines,
security and building infrastructure support systems; third party
considerations; and products.
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State of Readiness The Company has appointed a Year 2000 Corporate
Compliance Team, which has prepared a compliance program for the Company and is
responsible for coordinating and inspecting compliance activities in all
business units. The compliance program requires all business units and locations
to inventory potentially affected systems and products, assess risk, take any
required corrective actions, test and certify compliance. In addition, the
Company is in the process of identifying, prioritizing, and communicating with
critical suppliers, distributors, and customers to determine the extent to which
the Company may be vulnerable in the event those parties fail to properly
identify and remediate their own Year 2000 issues. Detailed evaluations of the
most critical third parties have been initiated through questionnaires,
interviews, and other available means. The Company intends to monitor the
progress made by those parties, test critical system interfaces, and formulate
appropriate contingency and business continuation plans to address third-party
issues identified through its evaluations and assessments.
Based upon its identification and assessment efforts to date, the
Company presently 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. However, certain of its computer
equipment, software and non-information technology related equipment will
require replacement or modification. System upgrades completed to date include
the Company's information systems primary operating software and hardware; the
primary business applications which include the manufacturing, inventory, and
billing modules; and certain Non-IT applications such as the telephone
switchboard system and the internal communications network. Upgrades currently
in process are the general ledger, fixed asset, and payroll administration
applications.
The Company presently believes that its planned modifications or
replacements of certain existing computer equipment and software will be
completed on a timely basis so as to avoid any of the potential Year
2000-related disruptions or malfunctions of its computer equipment and software
that it has identified. In addition, in the ordinary course of business, the
Company periodically replaces computer equipment and software, and in so doing,
seeks to acquire only Year 2000 compliant software and hardware.
Costs The Company will primarily use internal resources to reprogram
or replace, test and implement its IT and non-IT systems for Year 2000
modifications. The Company does not separately track the internal costs incurred
on the Year 2000 project. Such costs are principally payroll and related costs
for its internal IT personnel. The total cost of the Year 2000 project,
excluding these internal costs, is estimated at $100,000 and is being funded
through operating cash flows.
Risks The company currently believes that the most reasonably likely
worst case scenario with respect to the Year 2000 issue is the failure of a
supplier, including utility suppliers, to become Year 2000 compliant, which
could result in the temporary interruption of the supply of necessary products
or services to a manufacturing facility. This could result in interruptions in
production for a period of time, which in turn could result in potential lost
sales and profits. Additionally, marketing and administrative expense could
increase if automated functions would need to be performed manually.
Additionally, many of the Company's customers are directly or indirectly
dependent on insurance or entitlement
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programs for reimbursement on products or services provided. The Company's cash
flow could be adversely impacted as a result of its customer's experiencing a
slow down of reimbursements due to a failure on the part of the insurance
carriers or entitlement program administrators to become Year 2000 compliant.
The costs of the Year 2000 project and the dates on which the company
believes it will complete the Year 2000 modifications and testing are based on
management's best estimates, which were derived utilizing numerous assumptions
regarding future events, including the continued availability of certain
resources, third party modification plans, and other factors. However, there can
be no guarantee that these estimates will be achieved, and actual results could
differ materially from those currently anticipated. Examples of factors that
might cause such material differences include, but are not limited to, the
availability and cost of personnel trained in this area, the ability to locate
and correct all relevant computer codes and embedded technology, and similar
uncertainties. In addition, there can be no guarantee that the systems or
products of other entities, or that a failure to convert by another company, or
a conversion that is incompatible with the company's systems, would not have a
material adverse effect on the company.
Contingency Plans The Company's Guidelines require that contingency
plans be developed and validated in the event that any critical system cannot be
corrected and certified before the system's failure date. These plans could
include, but are not limited to, material banking, use of alternate suppliers,
and development of alternate means to process orders. The Company expects to
have its contingency plans in place by October 31, 1999. In addition, the
Company is forming a rapid response team as part of its IT group that will
respond to any operational problems during the Year 2000 date change period.
LIQUIDITY
The Company has adequate working capital and sources of capital to carry
on its current business and to meet its existing and expected future capital
requirements. The Company increased its working capital $46,000 as of March 31,
1999, compared to December 31, 1998 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 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.
RESULTS OF OPERATIONS
During the three-month period ended March 31, 1999, sales increased
approximately $70,000 or 2% compared to the same period last year. Sales of
discontinued and non-core products decreased $194,000 or 35% while sales of core
clinical immunology product lines increased $264,000 or 6% compared to the same
period last year. The non-core products accounted for approximately 8% of sales
in the three months ended March 31,1999 versus 12% in the same period last year.
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Gross profit as a percentage of product sales decreased for the
three-month period from 51% to 50% compared to the same period last year. The
decrease in gross profit percentage is due primarily to the effects of HY-TEC
instrument sales to our distributor partners, which generate a very low gross
margin. Instrument sales accounted for approximately 4% of sales in the three
months ended March 31,1999 versus 2% in the same period last year.
Selling, general and administrative expenses decreased approximately
$195,000 or 9% when compared to the same period last year. This decrease was
primarily due to cost containment efforts which included the consolidation of
the Irvine operation into the Company's Garden Grove facility. The Irvine
facility closure resulted in a savings of approximately $84,000 from reduced
rent and related expenses. Headcount reduction, postponement in filling certain
open positions, and other cost containment efforts reduced expenses by a further
$111,000.
Research and development costs decreased approximately $87,000 or 14%
compared to the same period 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 approached its commercial launch.
Effective with the fourth quarter of 1998, the Company adopted a
position wherein a 100% valuation allowance was taken against all deferred tax
assets. The tax provision of $12,000 for the three months ended March 31, 1999
reflects the provision for estimated tax liabilities with no deferred tax
benefit recognized against the net operating loss for the quarter.
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, 1999 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
------- -----------
27.1 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS AS OF AND FOR THE THREE MONTHS
ENDED MARCH 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 1999.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 234,359
<SECURITIES> 1,260,870
<RECEIVABLES> 3,525,046
<ALLOWANCES> 264,446
<INVENTORY> 4,171,979
<CURRENT-ASSETS> 9,271,072
<PP&E> 10,428,236
<DEPRECIATION> 6,394,706
<TOTAL-ASSETS> 15,272,115
<CURRENT-LIABILITIES> 4,306,183
<BONDS> 0
0
0
<COMMON> 72,835
<OTHER-SE> 10,235,151
<TOTAL-LIABILITY-AND-EQUITY> 15,272,115
<SALES> 4,761,727
<TOTAL-REVENUES> 4,761,727
<CGS> 2,383,388
<TOTAL-COSTS> 2,383,388
<OTHER-EXPENSES> 2,421,550
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 34,289
<INCOME-PRETAX> (44,546)
<INCOME-TAX> 12,000
<INCOME-CONTINUING> (56,546)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (56,546)
<EPS-PRIMARY> (0.01)
<EPS-DILUTED> (0.01)
</TABLE>
