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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: SEPTEMBER 30, 2000
[ ] 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.
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(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
Delaware 58-1437178
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(State or other jurisdiction of (I. R. S. Employer
incorporation or organization) Identification No.)
</TABLE>
7272 Chapman Avenue, Garden Grove, California 92841
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (714) 933-3000
No Change
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(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.
<TABLE>
<CAPTION>
Class Outstanding at October 27, 2000
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<S> <C>
Common Stock, $.01 Par Value 7,712,786
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PART I. FINANCIAL INFORMATION
ITEM I. FINANCIAL STATEMENTS
HYCOR BIOMEDICAL INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
ASSETS 2000 1999
------------ ------------
CURRENT ASSETS: (unaudited)
<S> <C> <C>
Cash and cash equivalents $ 571,297 $ 551,295
Investments 1,829,095 1,757,599
Accounts receivable, net of allowance for
doubtful accounts of $84,300 (2000) and $335,000 (1999) 3,210,401 3,203,180
Inventories (Note 2) 4,506,389 4,269,301
Prepaid expenses and other current assets 285,939 306,769
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Total current assets 10,403,121 10,088,144
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PROPERTY AND EQUIPMENT, at cost 10,640,160 10,589,353
Less accumulated depreciation (7,269,054) (7,028,894)
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3,371,106 3,560,459
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GOODWILL AND OTHER INTANGIBLE ASSETS, net of
accumulated amortization of $942,500 (2000) and $915,600 (1999) 1,122,841 1,329,861
OTHER ASSETS 36,180 60,598
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Total assets $ 14,933,248 $ 15,039,062
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 630,543 $ 776,844
Accrued liabilities 962,810 1,314,547
Accrued payroll expenses 1,119,242 731,755
Current portion of long-term debt (Note 3) 1,056,824 1,586,341
------------ ------------
Total current liabilities 3,769,419 4,409,487
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Long-term debt (Note 3) 40,146 87,389
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Total liabilities 3,809,565 4,496,876
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STOCKHOLDERS' EQUITY:
Common stock 77,128 73,487
Paid-in capital 12,700,332 12,544,005
Accumulated deficit (563,137) (1,371,933)
Accumulated other comprehensive loss (1,090,640) (703,373)
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Total stockholders' equity 11,123,683 10,542,186
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Total liabilities and stockholders' equity $ 14,933,248 $ 15,039,062
============ ============
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HYCOR BIOMEDICAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------------------- --------------------------------
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
NET SALES $ 4,080,968 $ 4,352,865 $ 13,012,545 $ 13,755,699
COST OF SALES 1,735,928 2,093,887 5,688,078 6,715,112
------------ ------------ ------------ ------------
Gross profit 2,345,040 2,258,978 7,324,467 7,040,587
------------ ------------ ------------ ------------
OPERATING EXPENSES:
Selling, general, and administrative 1,574,656 1,731,643 5,135,055 5,513,624
Research and development 462,163 629,052 1,344,385 1,745,128
------------ ------------ ------------ ------------
2,036,819 2,360,695 6,479,440 7,258,752
------------ ------------ ------------ ------------
OPERATING INCOME (LOSS) 308,221 (101,717) 845,027 (218,165)
INTEREST EXPENSE 26,823 25,585 75,464 94,919
INTEREST INCOME 56,661 21,471 139,205 69,628
GAIN (LOSS) ON FOREIGN CURRENCY TRANSACTIONS 13,761 (15,638) (28,536) (17,217)
GAIN ON SALES OF PATENTS -- 320,864 -- 320,864
------------ ------------ ------------ ------------
INCOME BEFORE INCOME TAX PROVISION 351,820 199,395 880,232 60,191
INCOME TAX PROVISION 32,876 -- 71,436 14,000
------------ ------------ ------------ ------------
NET INCOME $ 318,944 $ 199,395 $ 808,796 $ 46,191
============ ============ ============ ============
BASIC EARNINGS PER SHARE $ 0.04 $ 0.03 $ 0.11 $ 0.01
============ ============ ============ ============
DILUTED EARNINGS PER SHARE $ 0.04 $ 0.03 $ 0.10 $ 0.01
============ ============ ============ ============
AVERAGE COMMON SHARES OUTSTANDING:
Basic 7,531,062 7,302,263 7,422,228 7,289,845
============ ============ ============ ============
Diluted 8,101,832 7,311,417 7,953,738 7,297,139
============ ============ ============ ============
CONSOLIDATED STATEMENTS OF COMPREHENSIVE
INCOME (LOSS)
Net Income $ 318,944 $ 199,395 $ 808,796 $ 46,191
OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX
Foreign currency translation adjustments (276,623) 149,240 (380,348) (338,930)
Unrealized gains/(losses) on securities 12,139 (1,281) (6,919) (3,911)
------------ ------------ ------------ ------------
OTHER COMPREHENSIVE (LOSS) INCOME, NET OF TAX (264,484) 147,959 (387,267) (342,841)
------------ ------------ ------------ ------------
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<TABLE>
<S> <C> <C> <C> <C>
COMPREHENSIVE INCOME (LOSS) $ 54,460 $ 347,354 $ 421,529 $ (296,650)
============ ============ ============ ============
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HYCOR BIOMEDICAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
September 30, September 30,
2000 1999
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 808,796 $ 46,191
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 874,358 1,006,233
Provision for doubtful accounts receivable 102,365 92,200
Provision for excess and obsolete inventories 331,223 1,054,959
Gain on sales of assets (14,306) (823,603)
Change in assets and liabilities, net of effects of foreign currency
adjustments
Accounts receivable (262,263) (347,023)
Inventories (720,860) (1,058,715)
Prepaid expenses and other current assets 13,357 152,747
Accounts payable (112,737) (211,664)
Accrued liabilities (335,601) (42,656)
Accrued payroll expenses 404,113 329,335
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Total adjustments 279,649 151,813
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Net cash provided by operating activities 1,088,445 198,004
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CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of investments (1,158,934) --
Proceeds from sales of investments 1,076,000 950,000
Purchases of intangible assets (12,858) (25,878)
Purchases of property, plant and equipment (682,491) (467,939)
Proceeds from sale of property, plant, and equipment 14,691 1,052,500
Proceeds from collection of notes receivable 35,382 45,090
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Net cash (used in) provided by investing activities (728,210) 1,553,773
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CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on long-term debt (570,770) (668,423)
Proceeds from issuance of common stock 159,968 27,427
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Net cash used in financing activities (410,802) (640,996)
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EFFECT OF EXCHANGE RATE CHANGES ON CASH 70,569 249
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INCREASE IN CASH AND CASH EQUIVALENTS 20,002 1,111,030
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 551,295 655,716
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CASH AND CASH EQUIVALENTS, END OF PERIOD $ 571,297 $ 1,766,746
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION-
Cash paid during the year - interest $ 95,902 $ 112,001
- income taxes $ 72,018 $ 16,906
</TABLE>
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HYCOR BIOMEDICAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
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 September 30, 2000 and December 31, 1999,
the results of operations and the cash flows for the three and
nine-month periods ended September 30, 2000 and 1999.
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.
The consolidated financial statements should be read in
conjunction with the consolidated financial statements and notes thereto
included in the Company's 1999 annual report on Form 10-K as filed with
the Securities and Exchange Commission. Certain items in the 1999
consolidated financial statements have been reclassified to conform to
the 2000 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, while diluted EPS
additionally includes the dilutive effect of the Company's outstanding
options and warrants computed using the treasury stock method.
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 September 30, 2000 and December
31, 1999 consist of:
<TABLE>
<CAPTION>
9/30/00 12/31/99
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<S> <C> <C>
Raw materials $1,035,015 $ 868,876
Work in process 2,109,855 1,392,527
Finished goods 1,361,519 2,007,898
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$4,506,389 $4,269,301
========== ==========
</TABLE>
3. LONG TERM DEBT
The Company has a line of credit that provides for borrowings up
to $2,000,000 and expires on July 31, 2001. The loan is collateralized
by the Company's accounts receivable, inventories, and property, plant,
and equipment. At September 30, 2000, $1,000,000 was outstanding.
Advances under the line bear interest at the prime rate or at LIBOR plus
2% (8.8% at September 30, 2000).
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,
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and liquid assets plus accounts receivable-to-current liabilities
requirements. At September 30, 2000, the Company was in compliance with
such covenants.
The Company and one of its foreign subsidiaries has long-term
debt, payable to financial institutions, aggregating approximately
$97,000 at September 30, 2000 with weighted average interest rate of
approximately 9%.
4. NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB issued SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities" ("SFAS No. 133"), which
the Company is required to adopt in 2001. This statement, as amended,
establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contacts for hedging activities. As of September 30, 2000, the Company
had no derivative instruments nor was it engaged in hedging activities,
but it will continue to evaluate the effects of adopting SFAS No. 133.
In December 1999, the Securities and Exchange Commission
released Staff Accounting Bulletin No. 101 ("SAB 101"), which provides
the staff's view in applying generally accepted accounting principles to
revenue recognition issues. SAB 101, as amended by SAB 101A and SAB
101B, is required to be implemented during the Company's fourth quarter
of fiscal 2000. The Company is in compliance with the requirements of
SAB 101 and does not anticipate that its consolidated financial
statements will be affected.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
This Section and this entire 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 changes in government laws and regulations, including taxes.
While the Company has returned to profitability it still needs
additional sales and marketing resources. To help in managing the opportunities
ahead of us, the Company engaged the services of investment banking firm
Prudential Vector Healthcare Group to act as an intermediary in negotiations
involving the Company and potential strategic partnerships or
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M&A opportunities. Prudential Vector Healthcare Group, a unit of Prudential
Securities Incorporated, is one of the largest investment banking groups focused
exclusively on the healthcare industry.
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. As of September 30, 2000 the Company increased its working capital
approximately $955,000 when compared to December 31, 1999, 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 that 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 and nine-month periods ended September 30, 2000, sales
decreased approximately $272,000 or 6.3% and $743,000 or 5.4%, respectively,
compared to the same periods last year. In periods when the U.S. dollar is
strengthening, the translation impact on the financial statements of the
consolidated foreign affiliates is that of lower sales, costs, and net income.
The stronger U.S. dollar in the three and nine-month periods ended September 30,
2000 resulted in lower reported sales of approximately $168,000 or 4.1% and
$368,000 or 2.8%, respectively, when compared to the corresponding 1999 periods.
In addition, a new reimbursement system in Germany has affected our customers
there and resulted in what we expect to be a temporary decrease in sales. Also,
continued cost control pressures in the health care industry affect the
Company's revenue. The Company anticipates that these pricing pressures will
continue in the future.
Gross profit as a percentage of product sales increased for the three
and nine-month periods ended September 30, 2000 from approximately 51.9% to
57.5% and 51.2% to 56.3%, respectively, compared to the same periods last year.
This increase was due primarily to changes in the product mix and improved
manufacturing efficiencies.
Selling, general and administrative expenses decreased for the three and
nine-month periods ended September 30, 2000 approximately $157,000 or 9.1% and
$379,000 or 6.9%, respectively, compared to the same periods last year. The
reductions are due primarily as a result of restructuring the European sales and
marketing organization. Additional decreases are the result of non-recurring
expenses during 1999.
Research and development costs decreased for the three and nine-month
periods ended September 30, 2000 approximately $167,000 or 26.5% and $401,000 or
23.0%, respectively, when compared to the same periods last year. This decrease
is primarily due to the completion of several projects related to the HY-TEC 288
instrument system and related diagnostic tests.
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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 for the three and nine-month periods ended September
30, 2000 reflects the provision for estimated federal and state tax liabilities
that are not offset by operating losses.
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: November 13, 2000 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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