U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 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
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: (732) 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 July 31, 1997
----------------------------------------------------------------------
Common 5,713,500
Transitional Small Business Disclosure Format (Check one): Yes No X
---
Page 1 of 13
<PAGE>
HYMEDIX, INC. AND SUBSIDIARY
INDEX
<TABLE>
<CAPTION>
Page No.
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<S> <C>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of June 30, 1997 (Unaudited)
and December 31, 1996. 3
Consolidated Statements of Operations for the Three and
Six Months Ended June 30, 1997 and June 30, 1996 (Unaudited). 4
Consolidated Statements of Cash Flows for the Three and
Six Months Ended June 30, 1997 and June 30, 1996 (Unaudited). 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
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Page 2 of 13
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
HYMEDIX, INC. AND SUBSIDIARY
Consolidated Balance Sheets
ASSETS
------
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
----------------------------------
(Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash $ 54,676 $ 42,562
Restricted cash 0 225,600
Accounts receivable 173,192 57,316
Inventories 366,796 408,296
Prepaid expenses and other current assets 31,617 38,523
----------------------------------
Total current assets 626,281 772,297
PROPERTY AND EQUIPMENT, NET 71,732 115,178
PATENTS, NET 109,237 124,957
OTHER ASSETS 168,000 168,000
----------------------------------
Total assets $ 975,250 $ 1,180,432
--================================
LIABILITIES AND STOCKHOLDERS' DEFICIT
-------------------------------------
CURRENT LIABILITIES:
Notes payable $ 4,263,413 $ 4,162,843
Accounts payable and accrued expenses 2,715,253 2,400,271
Accrued legal judgment 805,964 805,964
Deferred revenue 62,500 0
Liabilities related to discontinued operation 59,222 59,222
----------------------------------
Total current liabilities 7,906,352 7,428,300
----------------------------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' 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 (21,109,561) (20,426,327)
Subscription receivable (1,500,000) (1,500,000)
----------------------------------
Total stockholders' deficit (6,931,102) (6,247,868)
----------------------------------
Total liabilities and stockholders' deficit $ 975,250 $ 1,180,432
==================================
</TABLE>
The accompanying notes to interim consolidated financial statements are an
integral part of these financial statements.
Page 3 of 13
<PAGE>
HYMEDIX, INC. AND SUBSIDIARY
Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
-----------------------------------------------------------
1997 1996 1997 1996
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
REVENUES:
Net product sales $ 220,266 $ 57,972 $ 319,299 $ 503,707
License, royalty & distribution fees 12,500 25,000 175,000 175,000
Research and development contracts 131,250 43,750 162,500 147,500
--------------------------------------------------------------
Total revenues 364,016 126,722 656,799 826,207
--------------------------------------------------------------
COSTS AND EXPENSES:
Cost of sales 142,959 36,824 183,918 261,536
Selling, general and administrative 300,156 557,733 713,560 1,083,063
Research and development 115,159 163,833 276,272 335,060
Legal judgement 0 805,964 0 805,964
--------------------------------------------------------------
Total costs and expenses 558,274 1,564,354 1,173,750 2,485,623
--------------------------------------------------------------
Loss from operations (194,258) (1,437,632) (516,951) (1,659,416)
------------- -------------- ------------- -------------
INTEREST (EXPENSE) INCOME:
Interest expense (97,592) (66,342) (166,882) (116,166)
Interest income 4 2,176 599 2,690
--------------------------------------------------------------
Total interest expense, net (97,588) (64,166) (166,283) (113,476)
------------- -------------- ------------- -------------
Net loss $ (291,846) $ (1,501,798) $ (683,234) $(1,772,892)
============= ============== ============= =============
NET LOSS PER COMMON SHARE: $ (0.05) $ (0.26) $ (0.12) $ (0.31)
============= ============== ============= =============
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING 5,713,500 5,713,500 5,713,500 5,713,500
==============================================================
</TABLE>
The accompanying notes to interim consolidated financial statements are an
integral part of these financial statements.
Page 4 of 13
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HYMEDIX, INC. AND SUBSIDIARY
Consolidated Statements Of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
----------------------------------
1997 1996
----------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (683,234) $(1,772,892)
----------- ------------
Adjustments to reconcile net loss to net
cash used by operating activities:
Depreciation and amortization 59,166 61,422
(Increase) decrease in:
Accounts receivable (115,876) (21,502)
Inventories 41,500 (962)
Other current assets 6,906 12,318
Increase (decrease) in:
Accounts payable and accrued expenses 314,982 151,442
Accrued legal judgement 0 805,964
Deferred revenue 62,500 (12,500)
----------------------------------
Total adjustments 369,178 996,182
----------------------------------
Net cash used by operating activities (314,056) (776,710)
----------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of notes payable 100,570 737,100
Restricted cash 225,600 0
----------------------------------
Net cash provided by financing activities 326,170 737,100
----------------------------------
Net increase (decrease) in cash 12,114 (39,610)
CASH, BEGINNING OF PERIOD 42,562 183,026
----------------------------------
CASH, END OF PERIOD $ 54,676 $ 143,416
==================================
</TABLE>
The accompanying notes to interim consolidated financial statements are an
integral part of these financial statements.
Page 5 of 13
<PAGE>
HYMEDIX, INC. AND SUBSIDIARY
Notes to Interim Consolidated Financial Statements
1. INTERIM FINANCIAL STATEMENTS
The unaudited consolidated financial statements have been prepared
based upon financial statements of HYMEDIX, Inc. and its wholly owned
subsidiary, HYMEDIX International, Inc.
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 June 30, 1997 and December 31, 1996 and the results of operations
for the three and six months ended June 30, 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.
2. 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 June 30, 1997, there would have been no
effect on net loss per common share, on either the basic or diluted basis.
Page 6 of 13
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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 and six months ended
June 30, 1997 were $364,016 and $656,799, respectively, versus $126,722 and
$826,207 for the same periods in 1996; an increase of 187.3% and a decrease of
20.5%, respectively. The revenue increase in net product sales resulted from a
$201,194 increase in net sales of hydrogels to LIPO Chemicals, Inc., an $18,857
increase in BIONIQ export sales offset by a $37,950 decrease in BIONIQ domestic
sales and a $19,807 decrease in wound gels sales to the medical market during
the three months ended June 30, 1997 compared to the same period of 1996. The
decrease in net product sales of $184,408 for the six months ended June 30, 1997
compared to the same period of the previous year was due to $169,482 decrease in
domestic sales of BIONIQ products, $142,038 decrease in sales of skin care
products to overseas customers and $30,024 in reduced sales of wound gels offset
by an increase of $157,136 in sales of hydrogels to LIPO Chemicals, Inc.
Income from royalty and research and development contracts increased
approximately $75,000 during the three months ended June 30, 1997 from the prior
year period, resulting from an $87,500 increase contributed by two development
agreements reached with two major pharmaceutical product companies and a drop of
$12,500 in royalty receipt. Royalty, option fee and research and development
revenues increased $15,000 for the six months ended June 30, 1997 from the same
period of 1996.
Costs and Expenses
Cost of sales for the three months and six months ended June 30, 1997
were $142,959 and $183,918, respectively, versus $36,824 and $261,536 for the
same periods in 1996, an increase of 288.2% and a decrease of 29.68%
respectively. The increase for the three months ended June 30, 1997 was in
proportion to the increase in net product sales; whereas the decrease for the
six months ended June 30, 1997 from the same period of the prior year resulted
from a change in product mix with reduced sales in higher margin skin care
products and increased sales and improved margin in hydrogel chemicals. Selling,
general and administrative expenses decreased 46.2% and 34.1% to $300,156 and
$713,560 respectively, for the three months and six months ended June 30, 1997
from the same period of 1996. The decrease was principally due to a reduction in
legal and staff expenses. The research and development costs for the three
months and six months ended June 30, 1997 were $115,159 and $276,272,
respectively, as compared to $163,833 and $335,060 for the same periods in 1996;
a decrease of 29.7% and 17.5%, respectively. The decrease was principally due to
decreased costs of the research and development staff.
Page 7 of 13
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Interest Expense, Net
Total net interest expense for the three months and six months ended
June 30, 1997 was $97,588 and $166,283, respectively, versus $64,166 and
$113,476 for the same periods in 1996; increases of $33,422 and $52,807,
respectively. The increases are attributable to interest accrued for the
convertible bonds in the aggregate principal amount of $1,131,570 outstanding.
As a result of the decreased costs and expenses described above for the
six months ended June 30, 1997 as compared to the same period of the prior year
and the increased revenues described above for the same period of 1997 versus
the prior year, the Company incurred lower net losses of $291,846 for the three
months ended June 30, 1997, than the net losses of $1,501,798 for the same
period of 1996. For the six months ended June 30, 1997, the Company incurred
lower net losses of $683,234 than the net losses of $1,772,892 of the prior year
period.
Liquidity, Capital Resources and Changes in Financial Condition
The Company had $54,676 in cash on hand on June 30, 1997 versus $42,562
on December 31, 1996. The working capital deficit of $(7,280,071) on June 30,
1997 represents an increase of $624,068 from the previous year-end deficit level
of $(6,656,003). The increase in working capital deficit was primarily
attributable to the net loss incurred in the six-month period ended June 30,
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 will mature 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 matured 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 Company is working to extend this
maturity date on the June Bonds.
In June of 1997, the Company received a payment of a $100,000 refundable
deposit from a potential distributor with whom the Company has reached an
agreement in principle regarding certain aspects of the Company's consumer skin
care business. The Company has agreed to grant the distributor an option to
negotiate an agreement with the Company with respect to the Company's skin care
products in certain territories or to match the terms of any such agreement that
the Company may negotiate with a third party, on a right-of-first refusal basis.
This option would expire on the earlier of June 30, 2001 or the date on which
the Company reaches any such third party agreement. The $100,000 deposit would
be refundable to the distributor in the event any such third party agreement is
consummated or creditable against amounts payable under any definitive
agreement between the Company and the distributor. This option is subject to
negotiation and execution of a definitive agreement regarding this matter.
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.
Page 8 of 13
<PAGE>
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.
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 mentioned above, a judgment 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.
Page 9 of 13
<PAGE>
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
---------
27 Financial Data Schedule.
(b) Reports on Form 8-K.
--------------------
None.
Page 10 of 13
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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: August 14, 1997 By: /s/ Joseph Y. Peng
--------------------------------------------
Joseph Y. Peng
President (Principal Executive Officer),
Treasurer
Date: August 14, 1997 By: /s/ William G. Gridley, jr.
--------------------------------------------
William G. Gridley, jr.
Chief Financial Officer (Principal Financial
Officer and Principal Accounting Officer)
Secretary, Director
Page 11 of 13
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TABLE OF EXHIBITS
Exhibit No. Page Number
- ----------- -----------
27 Financial Data Schedule 13
Page 12 of 13
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000880634
<NAME> Hymedix, Inc.
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> APR-01-1997
<PERIOD-END> JUN-30-1997
<EXCHANGE-RATE> 1
<CASH> 54,676
<SECURITIES> 0
<RECEIVABLES> 173,192
<ALLOWANCES> 0
<INVENTORY> 366,796
<CURRENT-ASSETS> 626,281
<PP&E> 838,569
<DEPRECIATION> 766,837
<TOTAL-ASSETS> 975,250
<CURRENT-LIABILITIES> 7,906,352
<BONDS> 1,131,570
0
30,572
<COMMON> 5,713
<OTHER-SE> (6,967,387)
<TOTAL-LIABILITY-AND-EQUITY> 975,250
<SALES> 220,266
<TOTAL-REVENUES> 364,016
<CGS> 142,959
<TOTAL-COSTS> 558,274
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 97,592
<INCOME-PRETAX> (291,846)
<INCOME-TAX> 0
<INCOME-CONTINUING> (291,846)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (291,846)
<EPS-PRIMARY> (.05)
<EPS-DILUTED> (.05)
</TABLE>
