-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Fhr6BnIS+bgDkGBt3lAUtSwOfhTc3Gy4XIvSoGVPWFHFYHKNIjmyJrHWXDKiv/l+ YckCmSr5z3euaCbT174bPw== 0000704432-03-000004.txt : 20030513 0000704432-03-000004.hdr.sgml : 20030513 20030513140337 ACCESSION NUMBER: 0000704432-03-000004 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20030331 FILED AS OF DATE: 20030513 FILER: COMPANY DATA: COMPANY CONFORMED NAME: HYDROMER INC CENTRAL INDEX KEY: 0000704432 STANDARD INDUSTRIAL CLASSIFICATION: PATENT OWNERS & LESSORS [6794] IRS NUMBER: 222303576 STATE OF INCORPORATION: NJ FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10QSB SEC ACT: 1934 Act SEC FILE NUMBER: 001-31238 FILM NUMBER: 03694972 BUSINESS ADDRESS: STREET 1: 35 INDUSTRIAL PKWY CITY: SOMERVILLE STATE: NJ ZIP: 08876 BUSINESS PHONE: 9085262828 MAIL ADDRESS: STREET 1: 35 INDUSTRIAL PKWY CITY: SOMERVILLE STATE: NJ ZIP: 08876-3518 10QSB 1 hyqmar03.txt HYDROMER 3/31/2003 SECURITIES AND EXCHANGE COMMISSION WASHINGTON D.C. 20549 FORM 10-QSB QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarter ended March 31, 2003 Commission File Number 0-10683 HYDROMER, INC. ---------------------------------------------------- (Exact name of registrant as specified in its charter) New Jersey 22-2303576 -------------------------------------------------------------------------- (State of incorporation) (I.R.S. Employer Identification No.) 35 Industrial Pkwy, Branchburg, New Jersey 08876-3518 -------------------------------------------- --------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (908) 526-2828 Securities registered pursuant to Section 12 (b) of the Act: None Securities registered pursuant to Section 12 (g) of the Act: Common Stock Without Par Value ------------------------------ (Title of class) Check whether the issuer (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such report(s), and (2) has been subject to such filing requirements for the past 90 days. Yes (X) No ( ) Indicate the number of shares outstanding or each of the issuer's classes of Common Stock as of the close of the period covered by this report. Class Outstanding at March 31, 2003 - --------------------------------------------------------------------------- Common 4,587,987 HYDROMER, INC. INDEX TO FORM 10-QSB March 31, 2003 Page No. Part I - Financial Information Consolidated Financial Statements Balance Sheets - March 31, 2003 & June 30, 2002................. 2 Statements of Income for the three months and nine months ended March 31, 2003 and 2002........................................ 3 Statements of Cash Flows for the nine months ended March 31, 2003 and 2002........................................ 4 Notes to Financial Statements................................... 5 Management's Discussion and Analysis of the Financial Condition and Results of Operation....................................... 6 Part II - Other Information............................................. 8 EXHIBIT INDEX Exhibit No. Description of Exhibit - ----------- ------------------------------------------------------------ 33.1 SEC Section 302 Certification - CEO certification........... 10 33.2 SEC Section 302 Certification - CFO certification........... 11 99.1 Certification of Manfred F. Dyck, Chief Executive Officer, pursuant to 18 U.S. C. Section 1350 ..........................12 99.2 Certification of Robert Y. lee, Chief Financial Officer, pursuant to 18 U.S. C. Section 1350 ..........................12 -1- HYDROMER, INC. and CONSOLIDATED SUBSIDIARY CONSOLIDATED BALANCE SHEETS March 31, June 30, 2003 2002 UNAUDITED AUDITED Assets Current Assets: Cash and cash equivalents........... $ 124,929 $ 111,148 Trade receivables less allowance for doubtful accounts of $18,962 as of March 31, 2003 and $5,303 as of June 30, 2002...................... 1,126,689 1,131,427 Inventory........................... 1,000,870 972,580 Prepaid expenses ................... 129,285 127,733 Deferred tax asset.................. 251,293 306,360 Other............................... 4,638 11,100 --------- --------- Total Current Assets.................. 2,637,704 2,660,348 Property and equipment, net........... 2,747,026 2,786,521 Patents, net.......................... 539,937 488,173 Trademarks............................ 37,729 42,411 Goodwill, net......................... 490,172 490,172 --------- --------- Total Assets $6,452,568 $6,467,625 ========= ========= Liabilities and Stockholders' Equity Current Liabilities: Accounts payable.................... $ 455,705 $ 580,614 Short-term borrowings............... 496,433 500,000 Accrued expenses ................... 233,096 194,065 Current portion of mortgage payable. 77,917 77,917 Income tax payable.................. 23,320 - --------- --------- Total Current Liabilities 1,286,471 1,352,596 --------- --------- Deferred tax Liability................ 106,500 98,500 Long-term portion of mortgage payable. 1,488,274 1,541,784 --------- --------- Total Liabilities 2,881,245 2,992,880 --------- --------- Stockholders' Equity Preferred stock - no par value, authorized 1,000,000 shares, no shares issued and outstanding - - Common stock - no par value, authorized 15,000,000 shares, issued 4,598,904 shares and outstanding, 4,587,987 shares.............................. 3,608,118 3,608,118 Contributed capital.................. 577,750 577,750 Accumulated deficit.................. (608,405) (704,983) Treasury stock, 10,917 common shares at cost............................. (6,140) (6,140) --------- --------- Total Stockholders' Equity 3,571,323 3,474,745 --------- --------- Total Liabilities and Stockholders' Equity $6,452,568 $6,467,625 ========= ========= -2- HYDROMER, INC. and CONSOLIDATED SUBSIDIARY CONSOLIDATED STATEMENTS OF INCOME Three Months Ended Nine Months Ended March 31, March 31, 2003 2002 2003 2002 UNAUDITED UNAUDITED UNAUDITED UNAUDITED - ------------------------------------------------------------------------------ Revenues Product sales and services..... $1,164,076 $1,029,524 $3,011,714 $2,526,488 Royalties, options and licenses...................... 518,108 457,306 1,601,609 1,663,548 -------------------------------------------- Total Revenues.................. 1,682,184 1,486,830 4,613,323 4,190,036 Cost of Sales................... 569,146 574,194 1,551,154 1,411,496 -------------------------------------------- Gross Profit.................... 1,113,038 912,636 3,062,169 2,778,540 Operating expenses.............. 997,006 945,588 2,785,386 2,833,596 -------------------------------------------- Operating Income (Loss)......... 116,032 (32,952) 276,783 (55,056) Interest Income................. 44 598 220 3,271 Interest Expense................ (36,815) (30,339) (94,532) (62,771) Other Income.................... - 1,500 694 1,500 -------------------------------------------- Income (Loss) before provision for income taxes 79,261 (61,193) 183,165 (113,056) Provision for (Benefit from) Income Taxes................... 42,110 (3,959) 86,587 (73,920) -------------------------------------------- Net Income (Loss)............... $ 37,151 $ (57,234) $ 96,578 $ (39,136) ============================================ Earnings (Loss) Per Common Share.......................... $ 0.01 $ (0.01) $ 0.02 $ (0.01) ============================================ Weighted Average Number of Common Shares Outstanding...... 4,587,987 4,587,987 4,587,987 4,587,987 ============================================ The effects of the common stock equivalents on diluted earnings per share are not included as they have no impact. -3- HYDROMER, INC. and CONSOLIDATED SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS Nine Months Ended March 31, 2003 2002 UNAUDITED UNAUDITED Cash Flows From Operating Activities: Net Income......................... $ 96,578 $ (39,136) Adjustments to reconcile net income to net cash provided by (used for) operating activities Depreciation and amortization..... 132,517 125,664 Deferred income taxes............. 63,067 (66,230) Gain from the sale of Property, Plant and Equipment.............. - (1,500) Changes in Assets and Liabilities Trade receivables................ 4,738 218,103 Inventory........................ (28,290) (233,105) Prepaid expenses................. (1,552) 26,416 Patents and Trademark............ (47,082) (97,809) Other assets..................... 6,462 2,984 Accounts payable and accrued liabilities..................... (85,877) (11,516) Income taxes payable............. 23,320 1,741 --------- -------- Net Cash Provided by (Used for) Operating Activities............. 163,881 (74,388) --------- -------- Cash Flows From Investing Activities: Cash purchases of property and equipment......................... (93,022) (819,870) Proceeds from the sale of Property, Plant and Equipment............... - 1,500 -------- -------- Net Cash Used for Investing Activities....................... (93,022) (818,370) -------- -------- Cash Flows From Financing Activities: Net borrowings against Line of Credit............................ (3,567) 200,018 Proceeds from borrowings........... - 753,700 Repayment of borrowings............ (53,511) (42,500) -------- -------- Net Cash (Used for) Provided by Financing Activities............. (57,078) 911,218 -------- -------- Net Increase in Cash and Cash Equivalents: 13,781 18,460 Cash and Cash Equivalents at Beginning of Period............................ 111,148 74,189 -------- -------- Cash and Cash Equivalents at End of Period............................... $ 124,929 $ 92,649 ======== ======== -4- HYDROMER, INC. and CONSOLIDATED SUBSIDIARY Notes to Consolidated Financial Statements In the opinion of management, the accompanying unaudited financial statements include all adjustments (consisting of only normal adjustments) necessary for a fair presentation of the results for the interim periods. Certain reclassifications have been made to the previous years results to present comparable financial statements. Segment Reporting: The Company operates two primary business segments. The Company evaluates the segments by revenues, total expenses and earnings before taxes. The results for the nine months ended March 31, by segment are: Polymer Research Medical Products Total ------------------------------------------------ 2003 Revenues................ $ 3,012,389 $ 1,600,934 $ 4,613,323 Expenses................ 2,610,545 1,819,613 4,430,158 ----------------------------------------------- Earnings (Loss) before Income Taxes........... $ 401,844 $ (218,679) $ 183,165 =============================================== 2002 Revenues................ $ 2,601,527 $ 1,588,509 $ 4,190,036 Expenses................ 2,526,633 1,776,459 4,303,092 ----------------------------------------------- Earnings (Loss) before Income Taxes........... $ 74,894 $ (187,950) $ (113,056) =============================================== Geographic revenues were as follows for the nine months ended March 31, 2003 2002 ------ ------ Domestic 80% 80% Foreign 20% 20% -5- MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of Operations The Company's revenues for the quarter ended March 31, 2003 were $1,682,184 as compared to $1,486,830 for the same period last year or an increase of 13.1%. Revenues for the nine month period ending March 31, 2003 were $4,613,323 as compared to $4,190,036 for the same period last year, an increase of 10.1%. Revenue is comprised of Royalty, Options and License payments and the sale of Products and Services. Royalty, license and option revenues from patented products were $518,108 for the quarter as compared with $457,306 the same period a year ago. For the nine months ended March 31st, royalty, license and option revenues were $1,601,609 for the current year, down $61,939 from the year before. Included in the results of the nine months ended March 31, 2002 was a one- time option payment of $75,000. Product sales and services were $1,164,076 for the quarter ended March 31, 2003 as compared to $1,029,524 for the same period last year. For the nine months ended March 31, 2003 product sales and services were $3,011,714 as compared with $2,526,488 the year prior, a healthy 19.2% increase. Growth in our T-HEXX(r) and Cosmetics product lines were the significant factors to the increase. We believe that our product sales and services revenues will continue to grow based on continued penetration of market share for our various product lines due to market awareness and new product developments. We also believe that our royalty, license and option revenues will grow from our current projects, including those based on our recent patent applications. For the three months ended March 31, 2003, the Company's gross profit was $1,113,038. This compares with $912,636 the same period last year, or an increase of 22.0%. For the nine months ended March 31, 2003, gross profits was $3,062,169 as compared with $2,778,540 the same period the year before, a strong increase of 10.2%. The Company's Cost of Goods Sold was $569,146 for the quarter ended March 31, 2003 as compared with $574,194 the year prior. For the nine months ended March 31, 2003, Cost of Goods Sold was $1,551,154 as compared with $1,411,496 the same period the year before. The increase in the current year-to-date product sales resulted in the higher cost of goods sold. Royalty, option and license income is included in gross profit at 100%. For the quarter ending March 31, 2003, the Company is reporting Operating income of $116,032 as compared with an Operating loss of $32,952 the year before. On a year-to-date basis, we have Operating income of $276,783 this year as compared with an Operating loss of $55,056 the year prior. Operating expenses was $997,006 for the quarter ended March 31, 2003 as compared with $945,588 the year before. For the nine months ended March 31, 2003, Operating expenses were $2,785,386 compared with $2,833,596 the year before. Reductions to our overhead, including savings attributable to our facility consolidation (offset by higher mortgage interest expense) provided for the lower operating expenses. In the prior year, lower sales from delayed shipments and production issues, which reduced our year-to-date sales and gross profits, and the one-time write-off of $29,220 in patent expenses, which related to outdated technology, created the operating loss. -6- Income before Income Taxes was $79,261 for the current quarter as compared with a Loss before Taxes of $61,193 the year before. For the nine months, the Income before Income Taxes was $183,165 as compared with a Loss before taxes of $113,056 the same period a year ago. The growth in our sales, particularly in our higher margin product lines, and the lower operating expenses (including lower facilities rental costs which was offset partially by higher mortgage interest expense) resulted in the increase in pre-tax income. Net Income of $37,151 is reported for the quarter ended March 31, 2003 as compared to a Net loss of $57,234 the year before. For the nine months, we have Net Income of $96,578 this year as compared to a Net Loss of $39,136 the prior year. For the nine months ended March 31, 2003, an Income tax provision of $86,587 is recorded as compared to a benefit of $73,920 the year before. The prior year's tax benefit was primarily derived from the recognition of Net Operating Losses ("NOL's") and earned Research & Development tax credits. There were earnings of $0.01 per share this quarter and $0.02 per share for the year-to-date. This compares with a loss of $0.01 per share the respective quarter and year-to-date a year ago. This year we had stronger sales combined with lower operating expenses as compared with delayed shipments and production issues the year before. We expect to continue to see revenue growth with minimal to moderate increases to our operating expenses. Financial Condition Working capital increased $43,481 during the nine months ended March 31, 2003. Management believes that its current working capital and available line of credit, along with expected income and expense streams, are sufficient to maintain its current level of operations. Net operating activities provided for $163,881 for the nine month period ended March 31, 2003. Net income adjusted for non-cash expenses, provided $292,162 in net cash. Working capital requirements used $128,281 in net cash. During the period, the collection of our receivables was converted back into inventories, which was then sold or is as work in progress. Accounts payable and accrued liabilities were reduced while we our continued investment into our patent estate, utilizing cash resources. Investing activities used $93,022 on capital expenditures and financing activities used $57,078 during the nine months ended March 31, 2003. Capital expenditures (production equipment, R&D equipment and upgraded networking systems) were the Company's investing activities this year. One of the Company's loan financial covenants on the first mortgage loan from PNC Bank remains open. The Company is continuing on working to resolve the "No additional indebtedness without prior approval" covenant, although PNC Bank has indicated that they do not plan to pursue any remedies available under the mortgage note. The balance of the PNC mortgage loan is approximately 25% of the value of the property to which it relates and the Company has been able to meet all of its debt servicing. -7- Disclosure Controls and Procedures The previous evaluation of the Company's Internal Controls Environment performed on August 23, 2002 concluded that it was effective for the safeguarding of assets and in ensuring that management is presented material information regarding the organization. The evaluation also determined that there are areas that could be improved upon, however, the controls and procedures in place were appropriate for the type and size of the Company. The Company has again reviewed its Internal Controls Environment during the prior 90 days. The Company has implemented steps to improve inventory control and on increasing the accuracy of inventory standard costs. Overall, it has been determined that there have been no significant changes in internal controls or in other factors that could significantly affect the financial statements. PART II - Other Information The Company currently operates entirely from its owned facility in Branchburg, New Jersey since the beginning of the 2002 calendar year. Prior to that, a portion of the Company's manufacturing and quality assurance functions were located at 35 Columbia Road, also in Branchburg, New Jersey. The Columbia Road facility was under a lease with a party not affiliated with the Company. The Company's facility, located at 35 Industrial Parkway, Branchburg, NJ was expanded in 2001 allowing it to consolidate all of its operations into one location. The facility is secured by mortgages through banks. The existing facility will be adequate for the Company's operations for the foreseeable future. Item 6. Exhibits and Reports on form 8-K: a) Exhibits - none b) Reports on form 8-K - There were no reports on Form 8-K filed for the quarter ending March 31, 2003 -8- SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on his behalf by the undersigned thereunto duly authorized. HYDROMER, INC. /s/ Robert Y. Lee ------------------- Robert Y. Lee Chief Financial Officer DATE: May 13, 2003 -9- EXHIBIT 33.1 I, Manfred F. Dyck, certify that: 1. I have reviewed this quarterly report on Form 10-QSB of Hydromer, Inc.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officer, Mr. Robert Y. Lee and I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officer, Mr. Robert Y. Lee and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officer, Mr. Robert Y. Lee and I have indicated in this quarterly report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: May 13, 2003 /s/ Manfred F. Dyck - ---------------------------------- Manfred F. Dyck, President and CEO -10- EXHIBIT 33.2 I, Robert Y. Lee, certify that: 1. I have reviewed this quarterly report on Form 10-QSB of Hydromer, Inc.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officer, Mr. Manfred F. Dyck and I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officer, Mr. Manfred F. Dyck and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officer, Mr. Manfred F. Dyck and I have indicated in this quarterly report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: May 13, 2003 /s/ Robert Y. Lee - ------------------------------------------------ Robert Y. Lee, Vice President of Finance and CFO -11- EXHIBIT 99.1 ------------ CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 I, Manfred F. Dyck, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Quarterly Report of Hydromer, Inc. on Form 10QSB for the quarter ended March 31, 2003 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in such report fairly presents in all material respects the financial condition and results of operations of Hydromer, Inc. Date: May 13, 2003 By: /s/ Manfred F. Dyck ------------------- Manfred F. Dyck Chairman, President and Chief Executive Officer EXHIBIT 99.2 ------------ CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 I, Robert Y. Lee, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Quarterly Report of Hydromer, Inc. on Form 10QSB for the quarter ended March 31, 2003 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in such report fairly presents in all material respects the financial condition and results of operations of Hydromer, Inc. Date: May 13, 2003 By: /s/ Robert Y. Lee --------------------- Robert Y. Lee Chief Financial Officer and Vice President of Finance -12- -----END PRIVACY-ENHANCED MESSAGE-----