U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 1997.
--------------
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______________ to ______________.
Commission file number 0-19827
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HYMEDIX, INC.
(Exact name of registrant, as specified in its charter)
Delaware 22-3279252
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2245 Route 130, Dayton, New Jersey 08810
(Address of principal executive offices, including zip code)
Registrant's telephone number, including area code: (908) 274-2288
--------------
Check whether the registrant (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 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
--- ---
State the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date.
Class Outstanding as of April 30, 1997
----- --------------------------------
Common 5,713,500
Transitional Small Business Disclosure Format (Check one): Yes No X
--- ---
1
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HYMEDIX, INC.
INDEX
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Page No.
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of March 31, 1997
and December 31, 1996. 3
Consolidated Statements of Operations for the
Three Months Ended March 31, 1997 and March 31, 1996. 4
Consolidated Statements of Cash Flows for the
Three Months Ended March 31, 1997 and March 31, 1996. 5
Notes to Consolidated Interim Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 10
SIGNATURES 11
2
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
HYMEDIX, INC. AND SUBSIDIARY
Consolidated Balance Sheets
ASSETS
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
-------- --------
(Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash $ 110,783 $ 42,562
Restricted cash 0 225,600
Accounts receivable 45,310 57,316
Inventories 385,285 408,296
Prepaid expenses and other current assets 42,808 38,523
--------------- ---------------
Total current assets 584,186 772,297
PROPERTY AND EQUIPMENT, NET 93,455 115,178
PATENTS, NET 117,097 124,957
OTHER ASSETS 168,000 168,000
--------------- ---------------
Total assets $ 962,738 $ 1,180,432
=============== ===============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
- ----------------------------------------------
CURRENT LIABILITIES:
Notes payable $ 4,163,413 $ 4,162,843
Accounts payable and accrued expenses 2,479,645 2,400,271
Accrued legal judgment 805,964 805,964
Deferred revenue 93,750 0
Liabilities related to discontinued operation 59,222 59,222
--------------- ---------------
Total current liabilities 7,601,994 7,428,300
--------------- ---------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY (DEFICIT):
8% Senior Convertible Preferred Stock, $3.00 par value,
800,000 shares authorized, 10,190 shares issued and
outstanding 30,570 30,570
Preferred Stock, $.01 par value, 150 shares authorized,
issued and outstanding 2 2
Common Stock, $.001 par value, 20,000,000 shares
authorized, 5,713,500 shares issued and outstanding 5,713 5,713
Additional paid-in capital 15,642,174 15,642,174
Accumulated deficit (20,817,715) (20,426,327)
Subscription receivable (1,500,000) (1,500,000)
---------------- ----------------
Total stockholders' equity (deficit) (6,639,256) (6,247,868)
---------------- ----------------
Total liabilities and stockholders' equity (deficit) $ 962,738 $ 1,180,432
================ ================
</TABLE>
3
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HYMEDIX, INC. AND SUBSIDIARY
Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
--------------------------
1997 1996
-------- --------
<S> <C> <C>
REVENUES:
Net product sales $ 99,033 $ 445,735
License, royalty and distribution fees 162,500 150,000
Research and development contracts 31,250 103,750
--------------- ---------------
Total revenues 292,783 699,485
--------------- ---------------
COSTS AND EXPENSES:
Cost of sales 40,959 224,712
Selling, general and administrative 413,404 525,330
Research and development 161,113 171,227
--------------- ---------------
Total costs and expenses 615,476 921,269
--------------- ---------------
Loss from operations (322,693) (221,784)
--------------- ---------------
INTEREST (EXPENSE) INCOME
Interest expense (69,290) (49,824)
Interest income 595 514
----------- ---------------
Total interest expense, net (68,695) (49,310)
----------- ---------------
Net loss $ (391,388) $ (271,094)
--------------- ---------------
NET LOSS PER COMMON SHARE $ (0.07) $ (0.05)
=============== ===============
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING 5,713,500 5,713,500
=============== ===============
</TABLE>
4
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HYMEDIX, INC. AND SUBSIDIARY
Consolidated Statements Of Cash Flows (Note 1)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
--------------------------
1997 1996
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
(Net loss) $ (391,388) $ (271,094)
-------------- -------------
Adjustments to reconcile net loss to net
cash used by operating activities:
Depreciation and amortization 29,583 30,711
(Increase) decrease in:
Accounts receivable 12,006 (107,683)
Inventories 23,011 65,397
Other current assets (4,285) (2,623)
Increase (decrease) in:
Accounts payable and accrued expenses 79,374 66,654
Deferred revenue 93,750 31,250
-------------- -------------
Total adjustments 233,439 83,706
-------------- -------------
Net cash used by operating activities (157,949) (187,388)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of notes payable 570 150,000
Restricted cash 225,600 0
Stock offering and merger costs 0 6,873
-------------- -------------
Net cash provided by financing activities 226,170 156,873
-------------- -------------
Net increase (decrease) in cash 68,221 (30,515)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 42,562 183,026
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CASH AND CASH EQUIVALENTS, END OF PERIOD $ 110,783 $ 152,511
============== =============
</TABLE>
5
<PAGE>
HYMEDIX, INC. AND SUBSIDIARY
Notes to Interim Consolidated Financial Statements
1. MERGER AND REINCORPORATION
HYMEDIX, Inc. (the "Company") was incorporated in Delaware on December
20, 1993, as a wholly-owned subsidiary of Servtex International Inc. (the
"Predecessor"). On February 23, 1994, the Predecessor merged with and into
HYMEDIX, Inc., and, concurrently, a wholly-owned subsidiary of the Predecessor
was merged with and into HYMEDIX International, Inc. ("HYMEDIX International"),
a privately-held Delaware corporation, which resulted in HYMEDIX International
becoming a wholly-owned subsidiary of HYMEDIX, Inc. HYMEDIX International was
incorporated in October, 1985 under the name Kingston Technologies, Inc.
The unaudited consolidated financial statements have been prepared
based upon financial statements of HYMEDIX, Inc. and its wholly owned
subsidiary, HYMEDIX International, Inc.
2. INTERIM FINANCIAL STATEMENTS
In the opinion of management, the accompanying financial statements of
the Company reflect all adjustments, consisting of normal recurring accruals,
necessary to present fairly, in all material respects, the Company's financial
position as of March 31, 1997 and December 31, 1996 and the results of
operations for the three months ended March 31, 1997 and 1996. The results of
operations for interim periods are not necessarily indicative of the results to
be expected for an entire fiscal year.
3. EARNINGS PER SHARE
On March 31, 1997, the Financial Accounting Standards Board issued SFAS
No. 128, "Earnings Per Share" ("Statement 128"). Statement 128 is effective for
fiscal years ending after December 15, 1997, and, when adopted, it will require
restatement of prior years' earnings per share. If the Company had adopted
Statement 128 for the period ending March 31, 1997, there would have been no
effect on net loss per common share, on either the basic or diluted basis.
6
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Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
This report contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. Actual results could differ materially from those
projected in the forward-looking statements as a result of the risk factors set
forth below. The industry in which the Company competes is characterized by
rapid changes in technology and frequent new product introductions. The Company
believes that its long-term growth depends largely on its ability to continue to
enhance existing products and to introduce new products and technologies that
meet the continually changing requirements of customers. While the Company has
devoted significant resources to the development of new products and
technologies, there can be no assurance that it can continue to introduce new
products and technologies on a timely basis or that certain of its products and
technologies will not be rendered noncompetitive or obsolete by its competitors.
Overview
HYMEDIX, Inc. ("HYMEDIX") was incorporated in Delaware on December 20,
1993 as a wholly-owned subsidiary of Servtex International Inc. (the
"Predecessor"). On February 23, 1994, the Predecessor merged with and into
HYMEDIX, Inc. and, concurrently, a wholly-owned subsidiary of the Predecessor
was merged with and into HYMEDIX International, Inc. ("HYMEDIX International")
which resulted in HYMEDIX International becoming a wholly-owned subsidiary of
HYMEDIX. As used in this Form 10-QSB, unless the context otherwise requires, the
term "Company" collectively means HYMEDIX, HYMEDIX International and their
respective predecessors. HYMEDIX International was incorporated in October, 1985
under the Kingston Technologies, Inc.
Results of Operations
Revenues
The Company's total revenues for the three months ended March 31, 1997
were $292,783 versus $699,485 for the same period in 1996, a decrease of 58.1%.
For the three months ended March 31, 1997, the decreased revenues over the same
period in 1996 came mainly from (1) decreased sales of $346,702 as a result of
decreases in both domestic and overseas sales of skin care products and in wound
care products; (2) a decrease of $72,500 in research and development contract
revenues; offset by (3) a royalty fee of $12,500 collected from LIPO Chemical.
Costs and Expenses
Cost of sales for the three months ended March 31, 1997 was $40,959
versus $224,712 for the same period in 1996, a decrease of $183,753 or 81.8%.
The decrease for the three months ended March 31, 1997 was attributable to the
77.8% decrease in net product sales coupled with a higher gross margin in
HYPAN(R) hydrogel sales due to reduced sales discount. Selling, general and
administrative expenses decreased 21.3% to $413,404 for the three ended months
March 31, 1997 from $525,330 for the same period of 1996. The decrease was
principally due to lower legal expenses incurred for the defense of two lawsuits
previously filed against the Company. The research and development costs for the
three months ended March 31, 1997 were $161,113, as compared to $171,227 for the
same period in 1996, a decrease of 5.9%, resulting mainly from lower outside
consulting costs and decreased medical insurance expenses.
Interest Expense, Net
Total interest expense, net, increased to $68,695 for the three months
ended March 31, 1997 from $49,310 for the same period in 1996, mainly
attributable to interest accrued for the convertible bonds.
As a result of the decreased costs and expenses described above for the
three months ended March 31, 1997 as compared to the same period of the prior
year and the decreased revenues described above for the same period of 1997
versus the prior year, the Company incurred a net loss of $391,388 for the three
months ended March 31, 1997 as compared to the net loss of $271,094 for the same
period in 1996.
Liquidity, Capital Resources and Changes in Financial Condition
The Company had $110,783 in cash and cash equivalents on hand on March
31, 1997 versus $42,562 on December 31, 1996. The working capital deficit of
$(7,017,808) on March 31, 1997 represents an increase of $361,805 from the
previous year-end deficit level of $(6,656,003). The increase in working
7
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capital deficit was primarily attributable to the net loss incurred in the
three-month period ended March 31, 1997.
During the first quarter of 1996, the Company issued a convertible bond
in the principal amount of $150,000 (the "September Bond") pursuant to a
Convertible Bond Purchase Agreement effective March 5, 1996, by and among the
Company, HYMEDIX International and Su Chen Huang. The September Bond bears
interest at a rate of 7% per annum and matures on September 5, 1997. The
September Bond is convertible in whole at any time prior to payment or
prepayment into one hundred fifty thousand (150,000) shares of common stock of
the Company. Interest on the September Bond is payable at maturity or upon
prepayment or conversion thereof.
In April of 1996, the Company issued convertible bonds in the aggregate
principal amount of $1,000,000 (the "June Bonds") pursuant to a Convertible Bond
Purchase Agreement effective February 27, 1996, by and among the Company,
HYMEDIX International, First Taiwan Investment and Development, Inc. and the
Purchasers (as defined therein). The June Bonds bear interest at a rate of 7%
per annum and mature on June 1, 1997. The June Bonds are convertible in whole or
in part at any time prior to payment or prepayment into one thousand (1,000)
shares of common stock for the Company for each one thousand dollars ($1,000) of
principal amount outstanding. Interest on the June Bonds is payable at maturity
or upon prepayment or conversion thereof. The June Bonds may be subject to
mandatory prepayment by the Company under certain circumstances. The Company is
currently working to extend the maturity date on the June Bonds.
The Company is currently in discussions with potential investors to
receive additional financing for the Company's operations in 1997, and
management continues to seek other financing alternatives for the Company. While
the Company is appealing the $805,964 judgment rendered against it in 1996, it
is possible that the Company will lose that appeal or that the plaintiff will
assert his claim against the Company prior to adjudication of the appeal. In
either event or in the event that proceeds from the financing alternatives are
not sufficient to finance the Company's operations in 1997, there is no
assurance that sufficient funds will be available to the Company to continue its
operations.
Risk Factors and Cautionary Statements
When used in this Form 10-QSB and in future filings by the Company with
the Securities and Exchange Commission, in the Company's press releases and in
oral statements made with the approval of an authorized executive officer, the
words or phrases "will likely result", "are expected to", "will continue", "is
anticipated", "estimate", "project", or similar expressions are intended to
identify "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. Such statements are subject to certain
risks and uncertainties, including those discussed under this caption "Risk
Factors and Cautionary Statements," that could cause actual results to differ
materially from historical earnings and those presently anticipated or
projected. The Company wishes to caution readers not to place undue reliance on
any such forward-looking statements, which speak only as of the date made, and
wishes to advise readers that the factors listed below could cause the Company's
actual results for future periods to differ materially from any opinions or
statements expressed with respect to future periods in any current statements.
The Company will NOT undertake and specifically declines any obligation
to publicly release the result of any revisions which may be made to any
forward-looking statements to reflect events or circumstances after the date of
such statements or to reflect the occurrence of anticipated or unanticipated
events.
8
<PAGE>
o The Company's revenues and income are derived primarily from the
development and commercialization of medical and skin care products. The medical
and skin care products industries is highly competitive. Such competition could
negatively impact the Company's market share and therefore reduce the Company's
revenues and income.
o Competition may also result in a reduction of average unit prices
paid for the Company's products. This, in turn, could reduce the percentage of
profit margin available to the Company for its product sales.
o The Company's future operating results are dependent on its ability
to develop, produce and market new and innovative products and technologies, and
to successfully enter into favorable licensing and distribution relationships.
There are numerous risks inherent in this complex process, including rapid
technological change and the requirement that the Company develop procedures to
bring to market in a timely fashion new products and services that meet
customers' needs.
o Historically, the Company's operating results have varied from fiscal
period to fiscal period; accordingly, the Company's financial results in any
particular fiscal period are not necessarily indicative of results for future
periods.
o The Company may offer a broad variety of products and technologies to
customers around the world. Changes in the mix of products and technologies
comprising revenues could cause actual operating results to vary from those
expected.
o The Company's success is partly dependent on its ability to
successfully predict and adjust production capacity to meet demand, which is
partly dependent upon the ability of external suppliers to deliver components
and materials at reasonable prices and in a timely matter; capacity or supply
constraints, as well as purchase commitments, could adversely affect future
operating results.
o The Company offers its products and technologies directly and through
indirect distribution channels. Changes in the financial condition of, or the
Company's relationship with, distributors, licensees and other indirect channel
partners, could cause actual operating results to vary from those expected.
o The Company does business and continues to seek to develop business
on a worldwide basis. Global and/or regional economic factors and potential
changes in laws and regulations affecting the Company's business, including
without limitation, currency exchange rate fluctuations, changes in monetary
policy and tariffs, and federal, state and international laws regulating its
products, could impact the Company's financial condition or future results of
operations.
o The market price of the Company's securities could be subject to
fluctuations in response to quarter to quarter variations in operating results,
market conditions in the medical and skin care products industry, as well as
general economic conditions and other factors external to the Company.
o As described above, a judgement was rendered against the Company in
the amount of $805,964 in connection with a legal proceeding to which the
Company was a party. Although the Company has filed a notice of appeal in this
matter, there can be no assurances that the Company will be successful in such
appeal or that the plaintiff will not move to collect on the judgment prior to
adjudication of the appeal. If the appeal is unsuccessful or if the plaintiff
move to collect on the judgment, it could have a materially adverse effect on
the Company's financial condition and future operating results.
9
<PAGE>
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
---------
None
(b) Reports on Form 8-K.
--------------------
None.
10
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SIGNATURES
In accordance with 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.
HYMEDIX, INC.
(Registrant)
Date: May 14, 1997 By: /s/ Joseph Y. Peng
--------------------------------------------
Joseph Y. Peng
President (Principal Executive Officer),
Treasurer
Date: May 14, 1997 By: /s/ William G. Gridley, jr.
--------------------------------------------
William G. Gridley, jr.
Chief Financial Officer (Principal Financial
Officer and Principal Accounting Officer)
Secretary, Director
11
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<EXCHANGE-RATE> 1
<CASH> 110,783
<SECURITIES> 0
<RECEIVABLES> 45,310
<ALLOWANCES> 0
<INVENTORY> 385,285
<CURRENT-ASSETS> 584,186
<PP&E> 838,569
<DEPRECIATION> 745,114
<TOTAL-ASSETS> 962,738
<CURRENT-LIABILITIES> 7,601,994
<BONDS> 1,131,570
0
30,572
<COMMON> 5,713
<OTHER-SE> (6,675,541)
<TOTAL-LIABILITY-AND-EQUITY> 962,738
<SALES> 99,033
<TOTAL-REVENUES> 292,783
<CGS> 40,959
<TOTAL-COSTS> 615,476
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 69,290
<INCOME-PRETAX> (391,388)
<INCOME-TAX> 0
<INCOME-CONTINUING> (391,388)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (391,388)
<EPS-PRIMARY> (.07)
<EPS-DILUTED> (.07)
</TABLE>
