<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 September 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.
CLASS OUTSTANDING AS OF OCTOBER 31, 1999
----- ----------------------------------
Common 6,143,548
Transitional Small Business Disclosure Format (Check one): Yes No X
---- ----
<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 September 30, 1999
(Unaudited) and December 31, 1998. 3
Consolidated Statements of Operations for the Three and
Nine Months Ended September 30, 1999 and
September 30, 1998 (Unaudited). 4
Consolidated Statement of Stockholders' Deficit for the
Nine Months Ended September 30, 1999 (Unaudited). 5
Consolidated Statements of Cash Flows for the Nine Months
Ended September 30, 1999 and September 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 9
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 15
SIGNATURES 16
</TABLE>
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
HYMEDIX, INC. AND SUBSIDIARY
Consolidated Balance Sheets
ASSETS
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
------------- ------------
(Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 296,932 $ 25,336
Restricted cash 139,447 0
Accounts receivable 13,549 217
License, royalty and distribution receivable 0 40,000
Note receivable from related party 87,289 46,640
Inventories, net 193,504 162,546
Other current assets 37,868 16,814
------------ ------------
Total current assets 768,589 291,553
PROPERTY AND EQUIPMENT, NET 987 5,255
PATENTS, NET 38,497 62,077
SECURITY DEPOSIT 59,040 59,040
------------ ------------
Total assets $ 867,113 $ 417,925
============ ============
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Notes payable $ 3,946,979 $ 4,046,979
Accounts payable and accrued expenses 2,896,848 3,656,599
Accrued legal judgment and settlement 417,500 367,500
Deferred revenue 40,430 0
Customer deposits 874,000 0
------------ ------------
Total current liabilities 8,175,757 8,071,078
------------ ------------
ACCRUED LEGAL SETTLEMENT 150,000 200,000
------------ ------------
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
and outstanding in 1999 and 1998 respectively 6,144 5,713
Additional paid-in capital 15,650,343 15,646,474
Accumulated deficit (21,645,703) (22,035,912)
Subscription receivable (1,500,000) (1,500,000)
------------ ------------
Total stockholders' deficit (7,458,644) (7,853,153)
------------ ------------
Total liabilities and stockholders' deficit $ 867,113 $ 417,925
============ ============
</TABLE>
The accompanying notes to interim consolidated financial statements are
an integral part of these consolidated financial statements.
<PAGE>
HYMEDIX, INC. AND SUBSIDIARY
Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------ --------------------------
1999 1998 1999 1998
-------- --------- -------- --------
<S> <C> <C> <C> <C>
REVENUES:
Net product sales $ 61,595 $ 480,293 $ 578,092 $ 1,092,516
License, royalty & distribution fees 67,313 63,996 203,267 176,141
Research and development contracts 36,250 53,750 108,750 206,250
----------- ----------- ----------- -----------
Total revenues 165,158 598,039 890,109 1,474,907
----------- ----------- ----------- -----------
COSTS AND EXPENSES:
Cost of sales 3,383 129,164 152,965 352,677
Selling, general and administrative 468,774 293,571 997,427 831,386
Research and development 139,916 102,731 360,608 337,273
Reversal of legal judgement 0 0 0 (438,464)
----------- ----------- ----------- -----------
Total costs and expenses 612,073 525,466 1,511,000 1,082,872
----------- ----------- ----------- -----------
(Loss) income from operations (446,915) 72,573 (620,891) 392,035
----------- ----------- ----------- -----------
OTHER INCOME (EXPENSE):
Realized gain (loss) on sale of investments 0 16,808 0 (6,561)
Interest expense (74,655) (74,437) (224,549) (168,254)
Gain on settlement 950,000 0 950,000 0
Other income 1,289 321 285,649 424
----------- ----------- ----------- -----------
Total other income (expense), net 876,634 (57,308) 1,011,100 (174,391)
----------- ----------- ----------- -----------
Net income $ 429,719 $ 15,265 $ 390,209 $ 217,644
=========== =========== =========== ===========
BASIC INCOME PER
COMMON SHARE: $ 0.06 $ 0.00 $ 0.04 $ 0.02
=========== =========== =========== ===========
DILUTED INCOME PER
COMMON SHARE: $ 0.06 $ 0.00 $ 0.04 $ 0.02
=========== =========== =========== ===========
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING 6,143,548 5,713,500 6,001,774 5,713,500
=========== =========== =========== ===========
DILUTED WEIGHTED AVERAGE
COMMON SHARES OUTSTANDING 6,143,548 5,713,500 6,001,774 5,713,500
=========== =========== =========== ===========
</TABLE>
The accompanying notes to interim consolidated financial statements are
an integral part of these consolidated financial statements.
<PAGE>
HYMEDIX, INC. AND SUBSIDIARY
Consolidated Statement of Stockholders' Deficit
For The Nine Months Ended September 30, 1999
(Unaudited)
<TABLE>
<CAPTION>
8% Senior
Convertible Additional
Comprehensive Preferred Preferred Common Paid-in
Income Stock Stock Stock Capital
------ ----- ----- ----- -------
<S> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1998 $30,570 $2 $5,713 $15,646,474
Comprehensive Income:
Net Income $390,209
Common stock issued for
the exercise of warrants 431 3,869
--------
Comprehensive Income $390,209
======== ------- -- ------ -----------
BALANCE AT SEPTEMBER 30, 1999 $30,570 $2 $6,144 $15,650,343
======= == ====== ===========
</TABLE>
<TABLE>
<CAPTION>
Total
Stock-
Accumulated Subscription holders'
Deficit Receivable Deficit
------- ---------- -------
<S> <C> <C> <C>
BALANCE AT DECEMBER 31, 1998 $(22,035,912) $(1,500,000) $(7,853,153)
Comprehensive Income:
Net Income 390,209 390,209
Common stock issued for
the exercise of warrants 4,300
Comprehensive Income
------------ ----------- -----------
BALANCE AT SEPTEMBER 30, 1999 $(21,645,703) $(1,500,000) $(7,458,644)
============ =========== ===========
</TABLE>
The accompanying notes to interim consolidated financial statements are
an integral part of these consolidated financial statements.
<PAGE>
HYMEDIX, INC. AND SUBSIDIARY
Consolidated Statements Of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
-----------------------
1999 1998
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 390,209 $ 217,644
--------- ---------
Adjustments to reconcile net income to net cash provided by (used
in) operating activities:
Depreciation and amortization 27,848 41,562
Realized loss on sale of investments 0 6,561
(Increase) decrease in:
Accounts receivable (13,332) (60,106)
License, royalty and distribution
receivable 40,000 0
Note receivable from related party (40,649) 0
Inventories, net (30,958) 88,131
Other current assets (21,054) (49,993)
Increase (decrease) in:
Accounts payable and accrued expenses (759,751) 4,020
Accrued legal judgement 0 (438,464)
Deferred revenue 40,430 31,250
Customer deposits 874,000 0
--------- ---------
Total adjustments 116,534 (377,039)
--------- ---------
Net cash provided by (used in)
operating activities 506,743 (159,395)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of investments 0 152,439
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of warrants 4,300 0
Increase in restricted cash (139,447) 0
Principal repayment of notes payable (100,000) (20,617)
--------- ---------
Net cash used in financing activities (235,147) (20,617)
--------- ---------
Net increase (decrease) in cash and cash equivalents 271,596 (27,573)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 25,336 51,381
--------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 296,932 $ 23,808
========= =========
</TABLE>
The accompanying notes to interim consolidated financial statements are
an integral part of these consolidated financial statements.
<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 30, 1999 and December 31, 1998 and the
results of operations and cash flows for the nine months ended September
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. GAIN ON SETTLEMENT
Gain on settlement represents prior rent that has been forgiven by the
Company's ex-landlord.
4. OTHER INCOME
Substantially all of the other income recorded for the nine months ended
September 30, 1999 relates to the collection of a receivable previously
written off by the Company in a prior year.
5. 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 Company's account was frozen by the bank. A settlement was
reached between the Company, the secured bondholders, and the creditor and
the cash in the account was released by the bank in October 1999.
<PAGE>
6. CUSTOMER DEPOSITS
During the third quarter of 1999, an agreement was signed between the
Company and one of the Company's major customer to assign all patent rights
of the Company with respect to intraocular lenses to the customer. A
large portion of the proceeds received were deferred due to the Company's
failure to obtain a release of such patent rights from the secured
bondholders.
7. 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 Nine Months Ended
September 30, September 30,
--------------------- ---------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Numerator:
Net income less preferred dividends
of $34,361 for the three month periods
and $103,084 for the nine month periods $ 395,358 $ (19,096) $ 287,125 $ 114,560
--------- --------- --------- ---------
Denominator:
Weighted average common
shares outstanding 6,143,548 5,713,500 6,001,774 5,713,500
--------- --------- --------- ---------
BASIC INCOME PER
COMMON SHARE $ 0.06 $ 0.00 $ 0.04 $ 0.02
========= ========= ========= =========
Numerator:
Net income less preferred dividends
of $34,361 for the three month periods
and $103,084 for the nine month periods $ 395,358 $ (19,096) $ 287,125 $ 114,560
--------- --------- --------- ---------
Denominator:
Weighted average common
shares outstanding 6,143,548 5,713,500 6,001,774 5,713,500
--------- --------- --------- ---------
DILUTED INCOME PER
COMMON SHARE $ 0.06 $ 0.00 $ 0.04 $ 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 nine months and the
three months ended September 30, 1999 and 1998, respectively. As of September
30, 1999, the Company had stock options outstanding to purchase 262,705 shares
of common stock that were not included in the computation of diluted income per
share because to do so would be antidilutive.
<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 nine months ended
September 30, 1999 were $165,158 and $890,109, respectively, versus $598,039
and $1,474,907 for the same periods in 1998; a decrease of 72.4% and 39.6%,
respectively. The revenue decrease in net product sales resulted from a
$408,162 decrease in net sales of hydrogels, a $9,330 decrease in BIONIQ
domestic sales and a $1,206 decrease in BIONIQ export sales during the three
months ended September 30, 1999 compared to the same period of 1998. The
decrease in net product sales of $514,424 for the nine months ended September
30, 1999 compared to the same period of the previous year was due to a
$556,977 decrease in sales of hydrogels, and a $8,488 decrease in domestic
sales of BIONIQ products, offset by a $51,041 increase in sales of skin care
products to overseas customers.
Revenue from license, royalty and distribution fees increased $3,317 and
$27,126 respectively, during the three and nine months ended September 30,
1999 from the prior year period, primarily as a result of increases in
royalties contributed by a major pharmaceutical company for the Company's
patent rights with respect to intraocular lenses. Research and development
revenue decreased 32.6% and 47.3% to $36,250 and $108,750
<PAGE>
respectively, for the three and nine months ended September 30, 1999 from the
same period of 1998.
COSTS AND EXPENSES
Cost of sales for the three months and nine months ended September 30, 1999
were $3,383 and $152,965, respectively, versus $129,164 and $352,677 for the
same periods in 1998, a decrease of 97.4% and 56.6%, respectively. The
decrease for the three and nine months ended September 30, 1999 was
attributable to lower sales, higher margin, and the settlement of a disputed
invoice with one of the Company's manufacturers. Selling, general and
administrative expenses increased 59.7% and 20.0% to $468,774 and $997,427
respectively, for the three months and nine months ended September 30, 1999
from the same period of 1998.
The increase was principally due to increased legal fees and staff expense. The
research and development costs for the three months and nine months ended
September 30, 1999 were $139,916 and $360,608, respectively, as compared to
$102,731 and $337,273 for the same periods in 1998, an increase of 36.2% and
6.9%, respectively. The increase for the three and nine months ended September
30, 1999 was primarily due to royalty expenses and 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 INCOME (EXPENSE)
Total other income (expense), net for the three months and nine months ended
September 30, 1999 were income of $876,634 and $1,011,100, respectively,
versus an expense of $57,308 and $174,391 for the same period in 1998. An
increase of $933,942 and $1,185,491, respectively. The increase in income for
the three months ended September 30, 1999 was mainly due to a gain on the
settlement for prior rent that has been forgiven by the Company's
ex-landlord, offset by the realized gain on sales of investments in 1998
resulting from the increased value of certain common stock that the Company
acquired through a manufacturing and distribution rights agreement. The
increase for the nine months ended September 30, 1999 was mainly attributable
to the gain on the settlement described above, and a $285,649 collection of a
receivable previously written off by the Company in a prior year, offset by a
$56,295 increase in interest expense from the previous year due to the
reversal of interest accrued on a legal judgment reversed during the first
quarter of 1998.
As a result of the increased other income, increased costs and expenses, and
decreased revenue described above for the three months ended September 30, 1999
as compared to the same period of the prior year, the Company recorded net
income of $429,719 for the three months ended September 30, 1999, compared to
the net income of $15,265 for the same period of 1998. As a result of the
reversal of the legal judgment during the first quarter of 1998, increased other
income, decreased revenue and decreased costs and expenses for the nine months
ended September 30, 1999 as compared to the same period of the prior year, the
Company recorded net income of $390,209 for the nine months ended September 30,
1999 as compared to $217,644 for the same period in 1998.
<PAGE>
LIQUIDITY, CAPITAL RESOURCES AND CHANGES IN FINANCIAL CONDITION
The Company had $296,932 in cash and cash equivalents on hand on September
30, 1999 versus $25,336 on December 31, 1998. The working capital deficit of
$(7,407,168) on September 30, 1999 represents a decrease of $372,357 from the
previous year-end deficit level of $(7,779,525). The decrease in working
capital deficit was primarily attributable to the net income recorded in the
nine-month period ended September 30, 1999, as a result of the increase in
other income and the decrease in revenue, costs and expenses described above.
The Company's two term loans, advanced to the Company by licensees pursuant to
license agreements, in the outstanding balance amounts of $1,500,000 and
$900,000, 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, 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.
<PAGE>
In June of 1997, the Company received a payment of a $100,000 refundable
deposit from a potential distributor with whom the Company has reached an
agreement in principle regarding certain aspects of the Company's consumer
skin care business. The Company has agreed to grant the distributor an option
to negotiate an agreement with the Company with respect to the Company's skin
care products in certain territories or to match the terms of any such
agreement that the Company may negotiate with a third party, on a
right-of-first refusal basis. This option 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 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. On July 5, 1999 the Company settled the
judgment with the Plaintiff for a reduced amount and restructured the debt
into installment payments to be made over 48 months.
An individual filed a complaint against the Company alleging that the Company
owed him eight percent of all monies invested in the Company as a result of
his contacts. The complaint alleged that the Company owed him approximately
$5,000,000 and warrants to purchase the Company's common stock. In December
1998, a settlement agreement was signed by the individual, the Company and
First Taiwan and its affiliates. The Company agreed to pay the individual
$200,000 plus interest over a thirty-six month period commencing January 1,
2000. If the Company or the other parties to this litigation default on any
of the terms of the settlement agreement, the individual is entitled to enter
a judgment against the Company and other parties to the litigation in the
amount of $2,000,000, provided that the individual gives written notice of
the default and it is not cured within sixty days.
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 Company's operations in 2000,
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.
<PAGE>
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 end 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
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
<PAGE>
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.
<PAGE>
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.
<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 15, 1999 By: /s/ Charles K. Kliment
---------------------------------------
Charles K. Kliment
President (Principal Executive Officer)
Date: November 15, 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
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