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 September 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 October 31, 1997
----- ----------------------------------
Common 5,713,500
Transitional Small Business Disclosure Format (Check one): Yes No X
----- -----
<PAGE>
HYMEDIX, INC. AND SUBSIDIARY
INDEX
<TABLE>
<CAPTION>
Page No.
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of September 30, 1997 (Unaudited)
and December 31, 1996. 3
Consolidated Statements of Operations for the
Three Months and Nine Months Ended
September 30, 1997 and September 30, 1996 (Unaudited). 4
Consolidated Statements of Cash Flows for the
Three and Nine Months Ended September 30, 1997
and September 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 6
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 10
SIGNATURES 11
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
HYMEDIX, INC. AND SUBSIDIARY
Consolidated Balance Sheets
ASSETS
------
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
------------- ------------
(Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash $ 42,947 $ 42,562
Restricted cash 0 225,600
Accounts receivable 169,620 57,316
Inventories 314,289 408,296
Prepaid expenses and other current assets 42,365 38,523
--------------- ----------------
Total current assets 569,221 772,297
PROPERTY AND EQUIPMENT, NET 50,009 115,178
PATENTS, NET 101,377 124,957
OTHER ASSETS 168,000 168,000
--------------- ----------------
Total assets $ 888,607 $ 1,180,432
=============== ================
LIABILITIES AND STOCKHOLDERS' DEFICIT
-------------------------------------
CURRENT LIABILITIES:
Notes payable $ 4,262,413 $ 4,162,843
Accounts payable and accrued expenses 2,971,343 2,400,271
Accrued legal judgment 805,964 805,964
Deferred revenue 31,250 0
Liabilities related to discontinued operation 59,222 59,222
--------------- ----------------
Total current liabilities 8,130,192 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 (21,420,044) (20,426,327)
Subscription receivable (1,500,000) (1,500,000)
---------------- -----------------
Total stockholders' deficit (7,241,585) (6,247,868)
---------------- -----------------
Total liabilities and stockholders' deficit $ 888,607 $ 1,180,432
================ =================
</TABLE>
The accompanying notes to interim consolidated financial statements are an
integral part of these financial statements.
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HYMEDIX, INC. AND SUBSIDIARY
Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------------- ----------------------------
1997 1996 1997 1996
------------- ------------- ------------- ------------
<S> <C> <C> <C> <C>
REVENUES:
Net product sales $ 267,568 $ 267,174 $ 586,867 $ 770,881
License, royalty & distribution fees 12,500 512,500 187,500 687,500
Research and development contracts 61,250 83,750 223,750 231,250
------------- ------------ ------------ ------------
Total revenues 341,318 863,424 998,117 1,689,631
------------- ------------ ------------ ------------
COSTS AND EXPENSES:
Cost of sales 156,961 107,690 340,879 369,226
Selling, general and administrative 312,280 461,087 1,025,840 1,544,150
Research and development 98,854 160,381 375,126 495,441
Legal judgement 0 0 0 805,964
------------- ------------ ------------ ------------
Total costs and expenses 568,095 729,158 1,741,845 3,214,781
------------- ------------ ------------ -------------
Income (loss) from operations (226,777) 134,266 (743,728) (1,525,150)
------------- ------------ ------------ -------------
INTEREST (EXPENSE) INCOME:
Interest expense (83,705) (63,854) (250,587) (180,020)
Interest income 0 2,281 598 4,971
------------- ------------ ------------ ------------
Total interest expense, net (83,705) (61,573) (249,989) (175,049)
------------- ------------ ------------ ------------
Net income (loss) $ (310,482) $ 72,693 $ (993,717) $ (1,700,199)
============= ============ ============ ============
NET INCOME (LOSS) PER
COMMON SHARE: $ (0.05) $ 0.01 $ (0.17) $ (0.30)
============= ============= ============= ============
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.
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<PAGE>
HYMEDIX, INC. AND SUBSIDIARY
Consolidated Statements Of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
---------------------------
1997 1996
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(993,717) $(1,700,199)
--------- -----------
Adjustments to reconcile net loss to net
cash used by operating activities:
Depreciation and amortization 88,749 92,486
(Increase) decrease in:
Accounts receivable (112,304) (36,931)
Inventories 94,007 67,762
Other current assets (3,842) (6,353)
Increase (decrease) in:
Accounts payable and accrued expenses 571,072 209,966
Accrued legal judgement 0 805,964
Deferred revenue 31,250 (56,250)
--------- -----------
Total adjustments 668,931 1,076,644
--------- -----------
Net cash used by operating activities (324,785) (623,555)
--------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of notes payable 99,570 522,200
Restricted cash 225,600 0
--------- -----------
Net cash provided by financing activities 325,170 522,200
--------- -----------
Net increase (decrease) in cash 385 (101,355)
CASH, BEGINNING OF PERIOD 42,562 183,026
--------- -----------
CASH, END OF PERIOD $ 42,947 $ 81,671
========= ===========
</TABLE>
The accompanying notes to interim consolidated financial statements are an
integral part of these financial statements.
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HYMEDIX, INC. AND SUBSIDIARY
Notes to Interim Consolidated Financial Statements
1. INTERIM FINANCIAL STATEMENTS
In the opinion of management, the accompanying financial
statements reflect all adjustments, consisting of normal recurring accruals,
necessary to present fairly, in all material respects, the consolidated
financial position of HYMEDIX, Inc. and its wholly owned subsidiary, HYMEDIX
International, Inc. as of September 30, 1997 and December 31, 1996 and the
results of their operations for the three and nine months ended September 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 September 30, 1997, there would have
been no effect on net loss per common share, on either the basic or diluted
basis.
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 name of Kingston Technologies, Inc.
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<PAGE>
Results of Operations
Revenues
The Company's total revenues for the three months and nine months ended
September 30, 1997 were $341,318 and $998,117, respectively, versus $863,424 and
$1,689,631 for the same periods in 1996; decreases of 60.5% and 40.9%,
respectively. The revenue increase in net product sales resulted from a $54,836
increase in net sales of hydrogels to LIPO Chemicals, Inc., offset by a $35,418
decrease in BIONIQ domestic sales and a $19,024 decrease in BIONIQ export sales
during the three months ended September 30, 1997 compared to the same period of
1996. The decrease in net product sales of $184,014 for the nine months ended
September 30, 1997 compared to the same period of the previous year was due to
$204,900 decrease in domestic sales of BIONIQ products, $161,062 decrease in
sales of skin care products to overseas customers and $30,024 in reduced sales
of wound gels offset by an increase of $211,972 in sales of hydrogels to LIPO
Chemicals, Inc.
Income from license and research and development contracts decreased
$522,500 during the three months ended September 30, 1997 from the prior year
period, resulting from a $500,000 decrease in license fee resulting from a
one-time milestone payment received in July 1996 and a drop of $22,500 in
research and development contract income.
Research and development contract revenues decreased $7,500 for the
nine months ended September 30, 1997 from the same period in 1996.
Costs and Expenses
Cost of sales for the three months and nine months ended September 30,
1997 were $156,961 and $340,879, respectively, versus $107,690 and $369,226 for
the same periods in 1996, an increase of 45.8% and a decrease of 7.7%,
respectively. The increase for the three months ended September 30, 1997
resulted mainly from a $42,219 write-off of obsolete BIONIQ inventory; whereas
the decrease for the nine months ended September 30, 1997 from the same period
of the prior year was in proportion to the decrease in net product sales coupled
with the $42,219 BIONIQ inventory write-off. Selling, general and administrative
expenses decreased 32.3% and 33.6% to $312,280 and $1,025,840 respectively, for
the three months and nine months ended September 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 nine
months ended September 30, 1997 were $98,854 and $375,126, respectively, as
compared to $160,381 and $495,441 for the same periods in 1996, a decrease of
38.4% and 24.3%. The decrease was principally due to decreased costs of the
research and development staff.
Interest Expense, Net
Total net interest expense for the three months and nine months ended
September 30, 1997 was $83,705 and $249,989, respectively, versus $61,573 and
$175,049 for the same periods in 1996; increases of $22,132 and $74,940,
respectively. The increases are attributable principally to interest accrued for
the legal judgment of $805,964 and for the convertible bonds in the aggregate
principal amount outstanding of $1,131,570.
As a result of the decreased costs and expenses described above for the
nine months ended September 30, 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 net losses of $310,482 for the three
months ended September 30, 1997, versus net income of $72,693 for the same
period of 1996. For the nine months ended September 30, 1997, the Company
incurred lower net losses of $993,717 than the net losses of $1,700,199 of the
prior year period.
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Liquidity, Capital Resources and Changes in Financial Condition
The Company had $42,947 in cash on hand on September 30, 1997 versus
$42,562 on December 31, 1996. The working capital deficit of $(7,560,971) on
September 30, 1997 represents an increase of $904,968 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 nine-month period ended
September 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 matured on September 5, 1997. The
September Bond is convertible in whole at any time prior to payment
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
conversion thereof. Repayment of the principal and accrued interest on the
September Bond has not been made by the Company.
In April of 1996, the Company issued convertible bonds in the aggregate
principal amount of $981,570 (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 into one thousand (1,000)
shares of common stock of the Company for each one thousand dollars ($1,000) of
principal amount outstanding. Interest on the June Bonds is payable at maturity
or upon conversion thereof. Repayment of the principal and accrued interest on
the June Bonds has not been made by the Company.
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 product 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 negotiations with one of its significant
licensees. Such negotiations may result in a substantial reduction of future
milestone payments due from the licensee to the Company in exchange for a
significant reduction in the rights granted to the licensee under the license.
The Company is currently in discussions with potential investors to
receive additional financing for the Company's operations, 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, 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
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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.
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<PAGE>
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.
PART II - OTHER INFORMATION
Item 3. Defaults Upon Senior Securities.
As described above, the Company issued the September Bond in the
prinicipal amount of $150,000 during the first quarter of 1996. The September
Bond bears interest at a rate of 7% per annum and matured on September 5, 1997.
The Company has not paid the principal and accrued interest due on the September
Bond and the total amount due as of November 14, 1997 is $167,836.
As described above, the Company issued the June Bonds in the aggregate
principal amount of $981,570 in April of 1996. The June Bonds bear interest at a
rate of 7% per annum and matured on June 1, 1997. The Company has not paid the
principal and accrued interest due on the June Bonds and the total amount due as
of November 14, 1997 is $1,116,148.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
27. Financial Data Schedule
(b) Reports on Form 8-K.
None.
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<PAGE>
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: November 14, 1997 By: /s/ Joseph Y. Peng
--------------------
Joseph Y. Peng
President (Principal Executive Officer),
Treasurer
Date: November 14, 1997 By: /s/ William G. Gridley, jr.
-----------------------------
William G. Gridley, jr.
Chief Financial Officer (Principal Financial
Officer and Principal Accounting Officer)
Secretary, Director
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<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000880634
<NAME> HYMEDIX, INC.
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-1-1997
<PERIOD-END> SEP-30-1997
<EXCHANGE-RATE> 1
<CASH> 42,947
<SECURITIES> 0
<RECEIVABLES> 169,620
<ALLOWANCES> 0
<INVENTORY> 314,289
<CURRENT-ASSETS> 569,221
<PP&E> 838,569
<DEPRECIATION> 788,560
<TOTAL-ASSETS> 888,607
<CURRENT-LIABILITIES> 8,130,192
<BONDS> 1,131,570
0
30,572
<COMMON> 5,713
<OTHER-SE> (7,277,870)
<TOTAL-LIABILITY-AND-EQUITY> 888,607
<SALES> 267,568
<TOTAL-REVENUES> 341,318
<CGS> 156,961
<TOTAL-COSTS> 568,075
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 83,705
<INCOME-PRETAX> (310,482)
<INCOME-TAX> 0
<INCOME-CONTINUING> (310,482)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (310,482)
<EPS-PRIMARY> (.05)
<EPS-DILUTED> (.05)
</TABLE>
