<PAGE>
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 June 30, 1999 .
------------------------------
/ / 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.
<TABLE>
<CAPTION>
Class Outstanding as of July 31, 1999
----- -------------------------------
<S> <C>
Common 6,143,548
</TABLE>
Transitional Small Business Disclosure Format (Check one): Yes No X
--- ---
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<PAGE>
HYMEDIX, INC. AND SUBSIDIARY
INDEX
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of June 30, 1999 (Unaudited)
and December 31, 1998 3
Consolidated Statements of Operations for the Three and
Six Months Ended June 30, 1999 and June 30, 1998 (Unaudited) 4
Consolidated Statement of Stockholders' Deficit for the
Six Months Ended June 30, 1999 5
Consolidated Statements of Cash Flows for the Six Months
Ended June 30, 1999 and June 30, 1998 (Unaudited) 6
Notes to Interim Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 12
SIGNATURES 13
</TABLE>
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<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
HYMEDIX, INC. AND SUBSIDIARY
Consolidated Balance Sheets
<TABLE>
<CAPTION>
ASSETS
June 30, December 31,
1999 1998
------------ ------------
(Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 34,127 $ 25,336
Restricted cash 139,521 0
Accounts receivable 69,465 217
License, royalty and distribution receivable 110,000 40,000
Note receivable from related party 86,000 46,640
Inventories, net 169,743 162,546
Other current assets 20,585 16,814
------------ ------------
Total current assets 629,441 291,553
PROPERTY AND EQUIPMENT, NET 1,212 5,255
PATENTS, NET 46,357 62,077
SECURITY DEPOSIT 59,040 59,040
------------ ------------
Total assets $ 736,050 $ 417,925
------------ ------------
------------ ------------
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Notes payable $ 4,046,979 $ 4,046,979
Accounts payable and accrued expenses 3,926,834 3,656,599
Accrued legal judgment and settlement 367,500 367,500
Deferred revenue 83,100 0
------------ ------------
Total current liabilities 8,424,413 8,071,078
------------ ------------
ACCRUED LEGAL SETTLEMENT 200,000 200,000
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, 6,143,548 and 5,713,500 shares issued 6,144 5,713
and outstanding in 1999 and 1998 respectively
Additional paid-in capital 15,650,343 15,646,474
Accumulated deficit (22,075,422) (22,035,912)
Subscription receivable (1,500,000) (1,500,000)
------------ ------------
Total stockholders' deficit (7,888,363) (7,853,153)
------------ ------------
Total liabilities and stockholders' deficit $ 736,050 $ 417,925
------------ ------------
------------ ------------
</TABLE>
The accompanying notes to interim consolidated financial statements are an
integral part of these consolidated financial statements.
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<PAGE>
HYMEDIX, INC. AND SUBSIDIARY
Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
-----------------------------------------------------------------
1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
REVENUES:
Net product sales $ 268,635 $ 243,175 $ 516,497 $ 612,223
License, royalty & distribution fees 70,000 58,095 135,954 112,145
Research and development contracts 31,250 58,750 72,500 152,500
----------- ----------- ----------- -----------
Total revenues 369,885 360,020 724,951 876,868
----------- ----------- ----------- -----------
COSTS AND EXPENSES:
Cost of sales 62,966 49,399 149,582 223,513
Selling, general and administrative 246,497 276,550 528,653 537,815
Research and development 108,202 113,212 220,692 234,542
Reversal of legal judgement 0 0 0 (438,464)
----------- ----------- ----------- -----------
Total costs and expenses 417,665 439,161 898,927 557,406
----------- ----------- ----------- -----------
(Loss) income from operations (47,780) (79,141) (173,976) 319,462
----------- ----------- ----------- -----------
OTHER INCOME (EXPENSE):
Realized loss on sale of investments 0 (23,369) 0 (23,369)
Interest expense (75,045) (74,242) (149,894) (93,817)
Interest income 0 93 0 103
Other income 160,000 0 284,360 0
----------- ----------- ----------- -----------
Total other income (expense), net 84,955 (97,518) 134,466 (117,083)
----------- ----------- ----------- -----------
Net income (loss) $ 37,175 $ (176,659) $ (39,510) $ 202,379
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
BASIC INCOME (LOSS) PER
COMMON SHARE: $ (0.00) $ (0.04) $ (0.02) $ 0.02
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
DILUTED INCOME (LOSS) PER
COMMON SHARE: $ (0.00) $ (0.04) $ (0.02) $ 0.02
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING 6,143,548 5,713,500 5,928,524 5,713,500
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
DILUTED WEIGHTED AVERAGE
COMMON SHARES OUTSTANDING 6,143,548 5,713,500 5,928,524 5,713,500
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
The accompanying notes to interim consolidated financial statements are an
integral part of these consolidated financial statements.
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<PAGE>
HYMEDIX, INC. AND SUBSIDIARY
Consolidated Statement of Stockholders' Deficit
For The Six Months Ended June 30, 1999
(Unaudited)
<TABLE>
<CAPTION>
8% Senior Total
Convertible Additional Stock-
Comprehensive Preferred Preferred Common Paid-in Accumulated Subscription holders'
Loss Stock Stock Stock Capital Deficit Receivable Deficit
------------- --------- -------- ------ --------- ----------- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1998 $30,570 $2 $5,713 $15,646,474 $(22,035,912) $(1,500,000) $(7,853,153)
Comprehensive loss:
First and Second Quarter 1999:
Net loss $(39,510) (39,510) (39,510)
Common stock issued for warrants 431 3,869 4,300
--------
Comprehensive loss $(39,510)
--------
------- -- ------ ----------- ------------ ----------- ----------
BALANCE AT JUNE 30, 1999 $30,570 $2 $6,144 $15,650,343 $(22,075,422) $(1,500,000) $7,888,363
------- -- ------ ----------- ------------ ----------- ----------
</TABLE>
The accompanying notes to interim consolidated financial statements are an
integral part of this consolidated financial statement.
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<PAGE>
HYMEDIX, INC. AND SUBSIDIARY
Consolidated Statements Of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
-------------------------
1999 1998
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) Income $ (39,510) $ 202,379
--------- ---------
Adjustments to reconcile net (loss) income to net cash provided
by (used in) operating activities:
Depreciation and amortization 19,763 27,225
Realized loss on sale of investments 0 23,369
(Increase) decrease in:
Accounts receivable (69,248) 128,471
License, royalty and distribution
receivable (70,000) 0
Note receivable from related party (39,360) 0
Inventories, net (7,197) 38,759
Other current assets (3,771) 14,778
Increase (decrease) in:
Accounts payable and accrued expenses 270,235 (72,560)
Accrued legal judgement 0 (438,464)
Deferred revenue 83,100 62,500
--------- ---------
Total adjustments 183,522 (215,922)
--------- ---------
Net cash provided by (used in)
operating activities 144,012 (13,543)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of investments 0 60,631
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of warrants 4,300 0
Increase in restricted cash (139,521) 0
Principal repayment of notes payable 0 (20,617)
--------- ---------
Net cash provided by (used in) financing activities (135,221) (20,617)
--------- ---------
Net increase in cash and cash equivalents 8,791 26,471
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 25,336 51,381
--------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 34,127 $ 77,852
--------- ---------
--------- ---------
</TABLE>
The accompanying notes to interim consolidated financial statements are an
integral part of these consolidated financial statements.
-6-
<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.
Certain prior year amounts have been reclassified to conform to the
current year financial statement presentation.
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 June 30, 1999 and December 31, 1998 and the results
of operations and cash flows for the six months ended June 30, 1999 and 1998.
The results of operations for interim periods are not necessarily indicative
of the results to be expected for an entire fiscal year.
3. OTHER INCOME
Substantially all of the other income recorded in 1999 and 1998
relates to the collection of a receivable previously written off by the
Company in a prior year.
4. RESTRICTED CASH
During the second quarter of 1999, a court levy was served against
the Company due to a legal judgment previously entered against the Company,
and the cash in the account was frozen by the bank. A settlement was
reached with the creditor and the account freeze can be removed in a
few months.
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<PAGE>
5. EARNINGS PER SHARE
The Company has 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 Six Months Ended
June 30, June 30,
--------------------------------------------------------------
1999 1998 1999 1998
---------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
Numerator:
Net income (loss) less preferred dividends
of $34,361 for the three month periods
and $68,723 for the six month periods $ 2,814 $ (211,020) $ (108,233) $ 133,656
---------- ----------- ----------- ----------
Denominator:
Weighted average common
shares outstanding 6,143,548 5,713,500 5,928,524 5,713,500
---------- ----------- ----------- ----------
BASIC INCOME (LOSS) PER
COMMON SHARE $ 0.00 $ (0.04) $ (0.02) $ 0.02
---------- ----------- ----------- ----------
---------- ----------- ----------- ----------
Numerator:
Net income (loss) less preferred dividends
of $34,361 for the three month periods
and $68,723 for the six month periods $ 2,814 $ (211,020) $ (108,233) $ 133,656
---------- ----------- ----------- ----------
Denominator:
Weighted average common
shares outstanding 6,143,548 5,713,500 5,928,524 5,713,500
---------- ----------- ----------- ----------
DILUTED INCOME (LOSS) PER
COMMON SHARE $ 0.00 $ (0.04) $ (0.02) $ 0.02
---------- ----------- ----------- ----------
---------- ----------- ----------- ----------
</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 six months and the
three months ended June 30, 1999 and 1998, respectively.
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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
Kingston Technologies, Inc.
RESULTS OF OPERATIONS
REVENUES
The Company's total revenues for the three months and six months ended June
30, 1999 were $369,885 and $724,951, respectively, versus $360,020 and $876,868
for the same periods in 1998; an increase of 2.7% and a decrease of 17.3%,
respectively. The revenue increase in net product sales resulted from a $45,697
increase in net sales of hydrogels and a $2,044 increase in BIONIQ domestic
sales, offset by a $22,281 decrease in BIONIQ export sales during the three
months ended June 30, 1999, compared to the same period of 1998. The decrease in
net product sales of $95,726 for the six months ended June 30, 1999 compared to
the same period of the previous year was due to a decrease of $148,814 in sales
of hydrogels (primarily occurring in the first three months of the period)
offset by a $52,246 increase in BIONIQ export sales, and an $842 increase in
domestic sales of BIONIQ products.
Revenue from royalty and research and development contracts decreased
$15,595 during the three months ended June 30, 1999, compared to the prior year
period, primarily as the result of an increase of $11,905 royalties contributed
by a major pharmaceutical company and a $27,500 decrease in development
agreements. Royalty and research and development revenues decreased $56,191 for
the six months ended June 30, 1999 from the same period of 1998 primarily the
result of an increase of $23,809 in royalties and a decrease of $80,000 in
development agreements.
COSTS AND EXPENSES
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<PAGE>
Cost of sales for the three months and six months ended June 30, 1999 were
$62,966 and $149,582, respectively, versus $49,399 and $223,513 for the same
periods in 1998, an increase of 27.5% and a decrease of 33.1%, respectively. The
increase for the three months ended June 30, 1999 was in proportion to the 10.5%
increase in net product sales and product mix whereas the decrease for the six
months ended June 30, 1999 from the same period of the prior year was
attributable to lower sales, the lower costs due to revisions in the standard
costs of certain products and product mix. Selling, general and administrative
expenses decreased 10.9% and 1.7% to $246,497 and $528,653 respectively, for the
three months and six months ended June 30, 1999 from the same period of 1998.
The decrease was principally due to a reduction in equipment lease, patent and
depreciation expenses. The research and development costs for the three months
and six months ended June 30, 1999 were $108,202 and $220,692, respectively, as
compared to $113,212 and $234,542 for the same periods in 1998, a decrease of
4.4% and 5.9%, respectively, resulting from decreased 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 INCOME (EXPENSE)
Total other income, for the three months and six months ended June 30, 1999
was $84,955 and $134,466, respectively, versus an expense of $97,518 and
$117,083 for the same periods in 1998, increase of $182,473 and $251,549,
respectively. The increase in other income for the six months ended June 30,
1999 was mainly attributable to a $284,360 collection of a receivable previously
written off by the Company in a prior year, offset by a $56,077 increase in
interest expense from the previous year, which primarily results from the
reversal of approximately $48,000 of interest accrued on a legal judgment
reversed during the first quarter of 1998, and offset by the realized loss on
sales of investments resulting from the decrease value of certain common stock
in 1998 that the Company acquired through a manufacturing and distribution
rights agreement.
As a result of the decreased costs and increased revenues described above
for the three months ended June 30, 1999 as compared to the same period of the
prior year, the Company recorded income of $37,175 for the three months ended
June 30, 1999, versus a net loss of $176,659 for the same period of 1998. As a
result of the reversal of the legal judgment during the first quarter of 1998,
decreased costs and expenses for the six months ended June 30, 1999 as compared
to the same period of the prior year, the Company incurred a net loss of $39,510
for the six months ended June 30, 1999 as compared to the net income of $202,379
for the same period in 1998.
LIQUIDITY, CAPITAL RESOURCES AND CHANGES IN FINANCIAL CONDITION
The Company had $34,127 in cash and cash equivalents on hand on June 30,
1999 versus $25,336 on December 31, 1998. The working capital deficit of
$(7,794,972) on June 30, 1999 represents an increase of $15,447 from the
previous year-end deficit level of $(7,779,525). The increase in working capital
deficit was primarily attributable to the net loss incurred in the six-month
period ended June 30, 1999.
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.
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<PAGE>
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 June 30, 1999, 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 even any such third party agreement is
consummated or creditable against amount 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 1999. 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
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
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<PAGE>
Company's operations in 1999, there is no assurance that other sources of funds
will be available to the Company.
YEAR 2000 COMPLIANCE
The Company's current information and computer systems will be affected by
the Year 2000 issue ("Y2K"), which refers to the inability of computerized
systems to process dates beyond December 31, 1999. The Company is formulating a
Y2K Plan to address the Company's Y2K issues. Based on its current assessments
from the Y2K Plan, the Company does not expect at present that it will
experience a disruption of its operations as a result of the change to the new
millennium.
Based upon a preliminary review of systems, the Company estimates that the
total cost of achieving Y2K readiness for the Company's internal systems and
equipment will be less than $10,000. Since no significant issues have arisen
based on the Company's preliminary assessments, the Company has not yet
developed a contingency plan to address any material Y2K issues. A contingency
plan, if required, will be developed immediately upon completion of the
Company's assessment.
The Company is assessing the state of readiness of its major suppliers and
customers through written inquiry and evaluation of responses. The Company
intends to follow up with those suppliers or customers that indicate material
problems. Alternate suppliers or service providers will be identified for those
whose responses indicate an unusually high risk of a Y2K problem. The Company's
evaluation of business processes that are not related to information systems,
and the development of contingency plans where such evaluation identifies a high
risk of a Y2K problem should be completed by the third quarter of 1999. The main
risks associated with the Y2K problem are the uncertainties as to whether the
Company's suppliers can continue to perform their services for the Company
uninterrupted by the Y2K event, and whether the Company's non-retail customers
can continue to operate their business uninterrupted by the Y2K event. Although
the state of readiness of the Company's suppliers and customers will be
monitored and evaluated, and contingency plans will be developed, no assurances
can be given as to the eventual state of readiness of the Company's suppliers
and/or customers. Nor can any assurances be given as to eventual effectiveness
of the Company's contingency plans.
While the Company continues to believe that the Y2K matters discussed above
will not have a materially adverse impact on the Company's business, financial
condition or results of operations, it is not possible to determine with
certainty whether or to what extent the Company may be affected. The Company has
not developed a reasonably likely worst case scenario with respect to Y2K
problems the Company may encounter.
The preceding discussion contains forward-looking information within the
meaning of Section 21E of the Exchange Act. This disclosure is also subject to
protection under the Year 2000 Information and Readiness Disclosure Act of 1998,
Public Law 105-271, as a "Year 2000 Statement" and "Year 2000 Readiness
Disclosure" as defined therein. Actual results may differ materially from such
projected information due to changes tin the underlying assumptions.
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
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<PAGE>
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.
- 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.
- 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.
- 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.
- 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.
- 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.
- 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.
- 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.
- 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.
- 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.
-13-
<PAGE>
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.
-14-
<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: August 13, 1999 By: /s/ Charles K. Kliment
---------------------------------------
Charles K. Kliment
President (Principal Executive Officer)
Date: August 13, 1999 By: /s/ William G. Gridley, Jr.
---------------------------------------
William G. Gridley, Jr.
Chairman, Chief Financial Officer,
(Secretary, Treasurer, Principal
Financial Officer and Principal
Accounting Officer), Director
-15-
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<PERIOD-END> JUN-30-1999
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