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, 1998 .
----------------------------
[ ] 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 Small Business Issuer 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)
Issuer's telephone number, including area code: (732) 274-2288
---------------
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act 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 issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding as of October 31, 1998
----- ----------------------------------
Common Stock, $.001 par value 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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<S> <C>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of September 30, 1998
(Unaudited) and December 31, 1997. 3
Consolidated Statements of Operations for the Three and
Nine Months Ended September 30, 1998 and
September 30, 1997 (Unaudited). 4
Consolidated Statement of Stockholders' Deficit for the
Nine Months Ended September 30, 1998 (Unaudited). 5
Consolidated Statements of Cash Flows for the Nine Months
Ended September 30, 1998 and September 30, 1997
(Unaudited). 6
Notes to Interim Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
PART II - OTHER INFORMATION
Item 3. Defaults Upon Senior Securities 13
Item 6. Exhibits and Reports on Form 8-K 13
SIGNATURES 14
</TABLE>
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<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
HYMEDIX, INC. AND SUBSIDIARY
Consolidated Balance Sheets
ASSETS
------
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
------------- ------------
(Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 23,808 $ 51,381
Accounts receivable 286,755 226,649
Inventories, net 147,615 235,746
Other current assets 104,985 54,992
-------------- ----------------
Total current assets 563,163 568,768
INVESTMENTS 0 105,469
PROPERTY AND EQUIPMENT, NET 10,308 28,290
PATENTS, NET 69,937 93,517
-------------- ----------------
Total assets $ 643,408 $ 796,044
============== ================
LIABILITIES AND STOCKHOLDERS' DEFICIT
-------------------------------------
CURRENT LIABILITIES:
Notes payable $ 4,046,979 $ 4,067,596
Accounts payable and accrued expenses 3,345,289 3,341,269
Accrued legal judgment 367,500 805,964
Deferred revenue 31,250 0
Liabilities related to discontinued line of business 59,222 59,222
-------------- ----------------
Total current liabilities 7,850,240 8,274,051
-------------- ----------------
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, 3,000 shares authorized,
150 shares 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
Unrealized loss from available for sale investments 0 53,531
Accumulated deficit (21,385,291) (21,602,935)
Subscription receivable (1,500,000) (1,500,000)
-------------- ----------------
Total stockholders' deficit (7,206,832) (7,478,007)
-------------- ----------------
Total liabilities and stockholders' deficit $ 643,408 $ 796,044
============== ================
</TABLE>
The accompanying notes to interim consolidated financial statements are an
integral part of these statements.
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<PAGE>
HYMEDIX, INC. AND SUBSIDIARY
Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------ --------------------------
1998 1997 1998 1997
------------------------ --------------------------
REVENUES:
<S> <C> <C> <C> <C>
Net product sales $ 480,293 $ 267,568 $ 1,092,516 $ 586,867
License, royalty & distribution fees 63,996 12,500 176,141 187,500
Research and development contracts 53,750 61,250 206,250 223,750
------------ ------------ ------------ ------------
Total revenues 598,039 341,318 1,474,907 998,117
------------ ------------ ------------ ------------
COSTS AND EXPENSES:
Cost of sales 129,164 156,961 352,677 340,879
Selling, general and administrative 293,571 312,280 831,386 1,025,840
Research and development 102,731 98,854 337,273 375,126
Reversal of legal judgement 0 0 (438,464) 0
------------ ------------ -------------- ------------
Total costs and expenses 525,466 568,095 1,082,872 1,741,845
------------ ------------ ------------ ------------
Income (loss) from operations 72,573 (226,777) 392,035 (743,728)
------------ ------------ ------------ ------------
OTHER (EXPENSE) INCOME:
Realized gain (loss) on sale of investments 16,808 0 (6,561) 0
Interest expense (74,437) (83,705) (168,254) (250,587)
Interest income 321 0 424 598
------------ ------------ ------------ ------------
Total other expense, net (57,308) (83,705) (174,391) (249,989)
------------ ------------ ------------ ------------
Net income (loss) $ 15,265 $ (310,482) $ 217,644 $ (993,717)
============ ============ ============ ============
BASIC INCOME (LOSS) PER
COMMON SHARE: $ 0.00 $ (0.06) $ 0.02 $ (0.19)
============ ============ ============ ============
DILUTED INCOME (LOSS) PER
COMMON SHARE: $ 0.00 $ (0.06) $ 0.02 $ (0.19)
============ ============ ============ ============
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING 5,713,500 5,713,500 5,713,500 5,713,500
============ ============ ============ ============
DILUTED 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 statements.
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<PAGE>
HYMEDIX, INC. AND SUBSIDIARY
Consolidated Statement of Stockholders' Deficit
For The Nine Months Ended September 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
8% Senior
Convertible
Comprehen- Preferred Preferred Common
sive Income Stock Stock Stock
----------- ----- ----- -----
<S> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1997 $30,570 $2 $5,713
Comprehensive income:
Net income $217,644
Unrealized gain on available
for sale investments 53,531
--------
Comprehensive income $271,175
========
------- -- ------
BALANCE AT SEPTEMBER 30, 1998 $30,570 $2 $5,713
======= == ======
</TABLE>
<TABLE>
<CAPTION>
Unrealized
Gain/(Loss)
From Total
Additional Available Stock-
Paid-in Accumulated Subscription For Sale holders'
Capital Deficit Receivable Investments Deficit
------- ------- ---------- ----------- -------
<S> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1997 $15,642,174 $(21,602,935) $(1,500,000) $(53,531) $(7,478,007)
Comprehensive income:
Net income 217,644 217,644
Unrealized gain on available
for sale investments 53,531 53,531
Comprehensive income
------------ ------------ ----------- -------- -----------
BALANCE AT SEPTEMBER 30, 1998 $15,642,174 $(21,385,291) $(1,500,000) $ 0 $(7,206,832)
============ ============ =========== ======== ===========
</TABLE>
The accompanying notes to interim consolidated financial statements are an
integral part of these statements.
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<PAGE>
HYMEDIX, INC. AND SUBSIDIARY
Consolidated Statements Of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
--------------------------------
1998 1997
--------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 217,644 $ (993,717)
-------------- ----------------
Adjustments to reconcile net income (loss) to net cash used in
operating activities:
Depreciation and amortization 41,562 88,749
Realized loss on sale of investments 6,561 0
(Increase) decrease in:
Accounts receivable (60,106) (112,304)
Inventories, net 88,131 94,007
Other current assets (49,993) (3,842)
Increase (decrease) in:
Accounts payable and accrued expenses 4,020 571,072
Accrued legal judgement (438,464) 0
Deferred revenue 31,250 31,250
-------------- ----------------
Total adjustments (377,039) 668,932
-------------- ----------------
Net cash used in operating activities (159,395) (324,785)
---------------- -----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of investments 152,439 0
-------------- ----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of notes payable 0 99,570
Restricted cash 0 225,600
Principal repayment of notes payable (20,617) 0
-------------- ----------------
Net cash (used in) provided by financing activities (20,617) 325,170
-------------- ----------------
Net (decrease) increase in cash and cash equivalents (27,573) 385
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 51,381 42,562
-------------- ----------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 23,808 $ 42,947
============== ================
</TABLE>
The accompanying notes to interim consolidated financial statements are an
integral part of these statements.
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<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 September
1998 and December 31, 1997 and the results of operations and cash
flows for the nine months ended September 30, 1998 and 1997. The
results of operations for interim periods are not necessarily
indicative of the results to be expected for an entire fiscal year.
3. COMPREHENSIVE INCOME
In June 1997, the Financial Accounting Standards Board issued
SFAS No. 130, "Reporting Comprehensive Income" ("SFAS 130"). SFAS 130
requires the display of comprehensive income and its components in the
financial statements. The Company adopted SFAS 130 on January 1, 1998.
Comprehensive income includes net income and unrealized gain (loss) on
available for sale investments for the periods ended September 30,
1998 as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, 1998 September 30, 1998
------------------ ------------------
<S> <C>
Net income $ 15,265 $ 217,644
Unrealized gain (loss) on
available for sale investments (6,200) 53,531
------------ --------------
Comprehensive Income $ 9,065 $ 271,175
============ ==============
</TABLE>
The accompanying notes to interim consolidated financial statements are an
integral part of these statements.
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<PAGE>
4. EARNINGS PER SHARE
In the fourth quarter of 1997, the Company adopted Statement of
Financial Accounting Standards No. 128, "Earnings Per Share," (SFAS 128),
which requires presentation in the consolidated statements of operations of
both basic and diluted earnings per share. The computation of both basic
and diluted earnings per share were as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------------- ----------------------------
1998 1997 1998 1997
-------------- ------------- --------------- ------------
<S> <C> <C> <C> <C>
Numerator:
Net income (loss) less preferred dividends
of $34,361 for the three month periods
and $103,084 for the nine month periods $ (19,096) $ (344,843) $ 114,560 $ (1,096,801)
------------- ------------- ------------- -------------
Denominator:
Weighted average common
shares outstanding 5,713,500 5,713,500 5,713,500 5,713,500
------------- ------------ ------------- ------------
BASIC INCOME (LOSS) PER
COMMON SHARE $ 0.00 $ (0.06) $ 0.02 $ (0.19)
============= ============ ============= ============
Numerator:
Net income (loss) less preferred dividends
of $34,361 for the three month periods
and $103,084 for the nine month periods $ (19,096) $ (344,843) $ 114,560 $ (1,096,801)
------------- ------------ -------------- -------------
Denominator:
Weighted average common
shares outstanding 5,713,500 5,713,500 5,713,500 5,713,500
------------- ------------ ------------- ------------
DILUTED INCOME (LOSS) PER
COMMON SHARE $ 0.00 $ (0.06) $ 0.02 $ (0.19)
============= ============= ============= ============
</TABLE>
None of the common shares issuable under the Company's stock option plan, upon
conversion of the preferred stock and convertible bonds or through the
outstanding warrants were included in the above earnings per share calculations
because their inclusion would be anti dilutive for both the nine months and the
three months ended September 30, 1998 and 1997, respectively.
The accompanying notes to interim consolidated financial statements are an
integral part of these statements.
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<PAGE>
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 Kingston Technologies, Inc.
Results of Operations
Revenues
The Company's total revenues for the three months and nine months ended
September 30, 1998 were $598,039 and $1,474,907, respectively, versus $341,318
and $998,117 for the same periods in 1997; an increase of 75.2% and 47.8%,
respectively. The revenue increase in net product sales resulted from a $227,681
increase in net sales of hydrogels, a $7,915 increase in BIONIQ domestic sales
offset by a $22,871 decrease in BIONIQ export sales during the three months
ended September 30, 1998 compared to the same period of 1997. The increase in
net product sales of $505,649 for the nine months ended September 30, 1998
compared to the same period of the previous year was due to $525,658 increase in
sales of hydrogels offset by a $1,844 decrease in sales of skin care products to
overseas customers, a $17,989 decrease in domestic sales of BIONIQ products, and
a $176 in reduced sales of wound gels.
Revenue from royalty and research and development contracts increased
$43,996 during the three months ended September 30, 1998 from the prior year
period, primarily the result of $51,496 increase in royalties contributed by a
major pharmaceutical company and a $7,500 decrease in development agreements.
Royalty and research and development revenues decreased $28,859 for the nine
months ended September 30, 1998 from the same period of 1997 primarily the
result of a $150,000 milestone payment that was received in January 1997 under a
licensing agreement which was later terminated at the end of 1997, offset by a
$138,641 increase in royalties and a $17,500 decrease in research and
development revenues for the nine months ended September 30, 1998.
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<PAGE>
Costs and Expenses
Cost of sales for the three months and nine months ended September 30,
1998 were $129,164 and $352,677, respectively, versus $156,961 and $340,879 for
the same periods in 1997, a decrease of 17.7% and an increase of 3.5%,
respectively. The decrease for the three months ended September 30, 1998 was
attributable to the product mix and lower costs due to revisions in the standard
costs of certain products whereas the increase for the nine months ended
September 30, 1998 from the same period of the prior year was in proportion to
the 86.2% increase in net product sales offset by the lower costs due to
revisions in the standard costs of certain products and product mix. Selling,
general and administrative expenses decreased 6.0% and 19.0% to $293,571 and
$831,386 respectively, for the three months and nine months ended September 30,
1998 from the same period of 1997. The decrease was principally due to a
reduction in premises and staff expenses. The research and development costs for
the three months and nine months ended September 30, 1998 were $102,731 and
$337,273, respectively, as compared to $98,854 and $375,126 for the same periods
in 1997, an increase of 3.9% and a decrease of 10.1%, respectively. The increase
for the three months ended September 30, 1998 was primarily due to increased
costs of the research and development staff and the decrease for the nine
months ended September 30, 1998 was attributable to the termination of the
license agreement with S.K.Y. Polymers, Inc. offset by increased costs of the
research and development staff.
Legal Judgment
During the first quarter of 1998, a legal judgment that was previously
accrued for was partially reversed on appeal. Based upon the appeal, the Company
reversed $438,464 of the accrued legal judgment along with the related accrued
interest charges.
Other (Expense) Income
Total other expense, net for the three months and nine months ended
September 30, 1998 was $57,308 and $174,391, respectively, versus $83,705 and
$249,989 for the same periods in 1997, decrease of $26,397 and $75,598,
respectively. The decrease for the three months ended September 30, 1998 was
mainly due to a decrease in debt principal outstanding and the realized gain on
sales of investments resulting from the increase value of certain common stock
that the Company acquired through a manufacturing and distribution rights
agreement, and the decrease for the nine months ended September 30, 1998 was
mainly attributable to the reversal of interest accrued on a legal judgment
reversed during the first quarter of 1998, and a decrease in debt principal
outstanding, offset by the realized loss on sales of investments resulting from
the decrease value of the above common stock.
As a result of the increased revenues and decreased costs and expenses
described above for the three months ended September 30, 1998 as compared to the
same period of the prior year, the Company recorded net income of $15,265 for
the three months ended September 30, 1998, compared to the net loss of $310,482
for the same period of 1997. As a result of the reversal of the legal
judgment during the first quarter of 1998, decreased costs and expenses for the
nine months ended September 30, 1998 as compared to the same period of the prior
year and the increased revenues for the nine months ended September 30, 1998
versus the prior year, the Company recorded net income of $217,644 for the nine
months ended September 30, 1998 as compared to the net loss of $993,717 for the
same period in 1997.
Liquidity, Capital Resources and Changes in Financial Condition
The Company had $23,808 in cash and cash equivalents on hand on September
30, 1998 versus $51,381 on December 31, 1997. The working capital deficit of
$(7,287,077) on September 30, 1998 represents a decrease of $418,206 from the
previous year-end deficit level of $(7,705,283). The decrease in working capital
deficit was primarily attributable to the net income recorded in the nine-month
period ended September 30, 1998, as a result of the reversal of a legal judgment
during the first quarter of 1998.
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<PAGE>
The Company's two term loans, advanced to the Company by licensees
pursuant to license agreements, in the principal amounts of $1,500,000 and
$1,000,000, respectively, each have been classified as current liabilities as
they are in technical default as a result of certain interest payments that have
not been made.
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 (after being extended) on March
31, 1998. The Company is negotiating to extend the due date of the bond. 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 approximately $981,000 (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 (after being extended) on March 31, 1998. The
Company is negotiating to extend the due date of the bond. 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.
Both the June Bonds and the September Bond are structured in such a way as
to permit the Company, subject to certain terms and conditions, including
approval of the Bondholders (as thereinafter defined), to make withdrawals from
a special account (the "Special Account") up to the principal amount of the
bonds on a periodic basis and to require the Company to reduce the amount
withdrawn with respect to the Special Account by making payments into the
Special Account. As of September 30, 1998, the Company had made various
withdrawals from and repayments to the Special Account.
Pursuant to a Security Agreement dated as of August 8, 1996, by and among
the Company and the Bondholder Representative (as defined therein), in order to
induce the Purchasers and Su Chen Huang (collectively, the "Bondholders") to
approve future withdrawals by the Company from the Special Account, the Company
granted to the Bondholder Representative, for the ratable benefit of the
Bondholders, a security interest in all of the Company's assets and properties.
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 expires 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 this distributor. This option is subject to negotiation
and execution of a definitive agreement regarding this matter.
Management believes that the Company will have adequate resources to
finance its operations in 1998. On April 29, 1998 the appellate court reversed
$438,464 of the legal judgment against the Company but affirmed the remaining
$367,500 against the Company. If the Plaintiff moves to collect on the judgment,
the Company must attempt to finance both its operations and satisfaction of the
judgment. Management believes this will be difficult. In addition, the Company's
secured convertible bonds are both past due, and while the Company is managing
to make some payments on past due interest and principal, there is no assurance
that sufficient funds will be available to the Company to service these debts
and to continue its operations. Management plans to continue to seek and
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<PAGE>
evaluate financing alternatives for the Company. In the event that cash flow
from operations and the anticipated proceeds from the financing, if any, are not
sufficient to fund the Company's operations in 1998, there is no assurance that
other sources of funds will be available to the Company.
Year 2000 Compliance
As of September 30, 1998, the Company has not assessed whether or not the
systems that are currently in place are Year 2000 compliant. The Company is
currently discussing Year 2000 readiness with its supply and service vendors.
The Company intends to continue to assess its exposure to Year 2000
noncompliance. However, management believes that the cost and time to install a
new system would not be substantial. The Company believes that Year 2000 issues
will not pose significant operational problems for the Company's systems. The
Company currently does not have any contingency plan in the event Year 2000
compliance cannot be achieved in a timely manner.
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 forward-looking statements, as
well as statements about the sufficiency of the Company's capital resources and
future revenues, 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 are 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 and 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.
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<PAGE>
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.
PART II - OTHER INFORMATION
Item 3. Defaults Upon Senior Securities.
The information regarding the default of certain senior securities of
the Company is stated in Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations -- Liquidity and
Capital Resources and is incorporated herein by reference.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
None
(b) Reports on Form 8-K.
None.
- 13 -
<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 16, 1998 By: /s/ Charles K. Kliment
---------------------------------
Charles K. Kliment
President (Principal Executive Officer)
Date: November 16, 1998 By: /s/ William G. Gridley, jr.
-----------------------------
William G. Gridley, jr.
Chairman, Chief Financial Officer,
(Secretary, Treasurer, Principal
Financial Officer and Principal
Accounting Officer), Director
- 14 -
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