-----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, Bt4B2u5XYTs6I2KDuee266QQ+DCJ22kuny1Tt35/MUBCpVTE6RqesxmvTBni3deP D4ouc57zByVEhP2UuedATg== 0000914317-04-004132.txt : 20041115 0000914317-04-004132.hdr.sgml : 20041115 20041115164805 ACCESSION NUMBER: 0000914317-04-004132 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20040930 FILED AS OF DATE: 20041115 DATE AS OF CHANGE: 20041115 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: 041146131 BUSINESS ADDRESS: STREET 1: 35 INDUSTRIAL PKWY CITY: SOMERVILLE STATE: NJ ZIP: 08876 BUSINESS PHONE: 9085262828 MAIL ADDRESS: STREET 1: 35 INDUSTRIAL PKWY CITY: BRANCHBURG STATE: NJ ZIP: 08876-3518 10QSB 1 form10qsb-64108_hydromer.txt 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 September 30, 2004 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 08876-3424 - ------------------------------------------ -------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (908) 722-5000 -------------------------- 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 September 30, 2004 ----- --------------------------------- Common 4,602,987 HYDROMER, INC. INDEX TO FORM 10-QSB September 30, 2004
Page No. Part I - Financial Information Consolidated Financial Statements Balance Sheets - September 30, 2004 & June 30, 2004....................... 2 Statements of Income for the three months ended September 30, 2004 and 2003........................................... 3 Statements of Cash Flows for the three months ended September 30, 2004 and 2003........................................... 4 Notes to Financial Statements............................................. 5 Management's Discussion and Analysis of the Financial Condition and Results of Operation.............................................. 6 Part II - Other Information....................................................... 7 EXHIBIT INDEX Exhibit No. Description of Exhibit - ----------- ---------------------- 31.1 SEC Section 302 Certification - CEO certification..................... 9 31.2 SEC Section 302 Certification - CFO certification..................... 10 99.1 Certification of Manfred F. Dyck, Chief Executive Officer, pursuant to 18 U.S.C. Section 1350 ..................................... 11 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
September 30, June 30, 2004 2004 UNAUDITED AUDITED Assets Current Assets: Cash and cash equivalents ..................................................... $ 185,882 $ 142,476 Trade receivables less allowance for doubtful accounts of $17,614 as of September 30, 2004 and $10,727 as of June 30, 2004 ...................... 1,488,223 1,715,309 Inventory ..................................................................... 890,526 808,989 Prepaid expenses .............................................................. 90,557 124,799 Deferred tax asset ............................................................ 162,467 141,798 Other ......................................................................... 12,520 32,638 - ------------------------------------------------------------------------------------------------------------------- Total Current Assets ............................................................... 2,830,175 2,966,009 Property and equipment, net ........................................................ 3,044,488 2,921,560 Intangible Assets, net ............................................................. 728,788 676,291 Goodwill, net ...................................................................... 238,172 238,172 - ------------------------------------------------------------------------------------------------------------------- Total Assets ....................................................................... $ 6,841,623 $ 6,802,032 =================================================================================================================== Liabilities and Stockholders' Equity Current Liabilities: Accounts payable .............................................................. $ 486,006 $ 524,917 Short-term borrowings ......................................................... 366,099 131,010 Accrued expenses .............................................................. 140,350 246,019 Bonus payable ................................................................. 187,635 187,635 Current portion of deferred revenue ........................................... 51,000 26,000 Current portion of mortgage payable ........................................... 92,841 91,507 Income tax payable ............................................................ 23,658 88,317 - ------------------------------------------------------------------------------------------------------------------- Total Current Liabilities .......................................................... 1,347,589 1,295,405 Deferred tax liability ............................................................. 203,222 191,500 Long-term portion of deferred revenue .............................................. 122,500 104,000 Long-term portion of mortgage payable .............................................. 1,340,294 1,363,723 - ------------------------------------------------------------------------------------------------------------------- Total Liabilities .................................................................. 3,013,605 2,954,628 - ------------------------------------------------------------------------------------------------------------------- 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; as of September 30, 2004, 4,613,904 shares issued and 4,602,987 shares outstanding; as of June 30, 2004, 4,608,904 shares issued and 4,597,987 shares outstanding .............................................. 3,619,615 3,615,615 Contributed capital ........................................................... 577,750 577,750 Accumulated deficit ........................................................... (363,207) (339,821) Treasury stock, 10,917 common shares at cost .................................. (6,140) (6,140) - ------------------------------------------------------------------------------------------------------------------- Total Stockholders' Equity ......................................................... 3,828,018 3,847,404 - ------------------------------------------------------------------------------------------------------------------- Total Liabilities and Stockholders' Equity ......................................... $ 6,841,623 $ 6,802,032 ===================================================================================================================
2 HYDROMER, INC. and CONSOLIDATED SUBSIDIARY CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended September 30, 2004 2003 - -------------------------------------------------------------- -------------------------- Revenues Sale of products ........................................ $ 1,071,163 $ 975,251 Service revenues ........................................ 281,629 106,641 Royalties, options and licenses ......................... 593,538 557,973 - -------------------------------------------------------------- -------------------------- Total Revenues ...................................... 1,946,330 1,639,865 - -------------------------------------------------------------- -------------------------- Expenses Cost of Sales ....................................... 698,758 587,815 Operating Expenses .................................. 1,277,784 1,011,670 Other Expenses ...................................... 21,780 30,738 (Income Tax Benefit)/Provision for Income Taxes ..... (28,606) 259 - -------------------------------------------------------------- -------------------------- Total Expenses ...................................... 1,969,716 1,630,482 - -------------------------------------------------------------- -------------------------- Net (Loss) Income ................................... $ (23,386) $ 9,383 ============================================================== ========================== (Loss) Earnings Per Common Share .................... $ (0.01) $ 0.00 Weighted Average Number of Common Shares Outstanding ........................... 4,597,987 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
Three Months Ended September 30, 2004 2003 UNAUDITED UNAUDITED - ------------------------------------------------------------------------------------------------------------------ Cash Flows From Operating Activities: Net (Loss) Income ................................................................ $ (23,386) $ 9,383 Adjustments to reconcile net (loss) income to net cash provided by (used for) operating activities Depreciation and amortization .................................................. 48,724 45,032 Deferred income taxes .......................................................... (8,947) -- Changes in Assets and Liabilities Trade receivables ............................................................ 227,086 105,826 Inventory .................................................................... (81,537) (46,362) Prepaid expenses ............................................................. 34,242 5,182 Patents and Trademark ........................................................ (52,497) (10,691) Other assets ................................................................. 20,118 (4,604) Accounts payable and accrued liabilities ..................................... (101,080) 76,043 Income taxes payable ......................................................... (64,659) 4,019 - ------------------------------------------------------------------------------------------------------------------ Net Cash (Used for) Provided by Operating Activities ..................... (1,936) 183,828 - ------------------------------------------------------------------------------------------------------------------ Cash Flows From Investing Activities: Cash purchases of property and equipment ......................................... (171,652) (60,163) - ------------------------------------------------------------------------------------------------------------------ Net Cash Used for Investing Activities ................................... (171,652) (60,163) - ------------------------------------------------------------------------------------------------------------------ Cash Flows From Financing Activities: Net borrowings against Line of Credit .......................................... 235,089 (55,063) Repayment of long-term borrowings .............................................. (22,095) (24,848) Proceeds from the issuance of common stock ..................................... 4,000 -- - ------------------------------------------------------------------------------------------------------------------ Net Cash Provided by (Used for) Financing Activities ............................ 216,994 (79,911) - ------------------------------------------------------------------------------------------------------------------ Net Increase in Cash and Cash Equivalents: ............................................ 43,406 43,754 Cash and Cash Equivalents at Beginning of Period ...................................... 142,476 97,676 - ------------------------------------------------------------------------------------------------------------------ Cash and Cash Equivalents at End of Period ............................................ $ 185,882 $ 141,430 ==================================================================================================================
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 year's 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. Corporate Overhead is excluded from the business segments as to not distort the contribution of each segment. The results for the three months ended September 30, by segment are:
Polymer Medical Corporate Research Products Overhead Total ----------------------------------------------------------- 2004 Revenues ...................................... $ 1,211,899 $ 734,431 $ 1,946,330 Expenses ...................................... (873,192) (812,105) $ (313,025) (1,998,322) - ------------------------------------------------------------------------------------------------------------- Earnings (Loss) before Income Taxes ...... $ 338,707 $ (77,674) $ (313,025) $ (51,992) =========== =========== =========== =========== - ------------------------------------------------------------------------------------------------------------- 2003 Revenues ...................................... $ 965,613 $ 674,252 $ 1,639,865 Expenses ...................................... (659,629) (682,257) $ (288,337) (1,630,223) - ------------------------------------------------------------------------------------------------------------- Earnings (Loss) before Income Taxes ...... $ 305,984 $ (8,005) $ (288,337) $ 9,642 =========== =========== =========== ===========
The prior period segment information has been restated to conform to the current year presentation. Geographic revenues were as follows for the three months ended September 30, 2004 2003 ---- ---- Domestic 80% 83% Foreign 20% 17% Subsequent Event - ---------------- On November 11, 2004, the Company was granted a loan covenant waiver on its first mortgage loan relating to a ratio covenant. The ratio was not met due to the non-cash $252,000 goodwill impairment charge. The waiver, which allows the Company to exclude such non-recurring charge from the calculation, would allow the Company to meet its required ratio. 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 September 30, 2004 were $1,946,330 as compared to $1,639,865 for the same period last year or an 18.7% increase. Revenues are comprised of the sale of Products and Services and Royalty, Options and License payments. Product sales and services were $1,352,792 for the quarter ended September 30, 2004 as compared to $1,081,892 for the same period last year, an increase of 25.0%. Stronger sales in our contract coating, R&D Services and Cosmetics product lines this year contributed to the increase. Royalty, license and option revenues from patented products were $593,538 for the quarter up 6.4% from the $557,973 the same period a year ago. As of September 30, 2004, our open sales order book was approximately $1,300,000, which represents orders that are for delivery during the remainder of the current fiscal year. Some of these orders are subject to cancellation but the Company is of the opinion that no substantial cancellations will occur. Our open order book excludes though, future orders that would come up during the normal course of business for immediate delivery also during this fiscal year. Total Expenses for the quarter ending September 30, 2004 was $1,969,716 as compared with $1,630,482 the year before, or an increase of 20.8%. The Company's Cost of Goods Sold was $698,758 for the quarter ended September 30, 2004 as compared with $587,815 the year prior, an increase of 18.9%. There was a higher cost of goods sold corresponding to the increase in products and services revenues. Operating expenses was $1,277,784 for the quarter ended September 30, 2004 as compared with $1,011,670 the year before, an increase of $266,114 or 26.3%. The addition of four scientists and one QC manager since March 1, 2004, as part of the Company's investment for the future, resulted in an increase of $73,000 in higher base of personnel costs. In addition, during this quarter, the Company expended an additional $35,000 in litigation costs in its continued infringement claim against a former licensee and other parties. Interest expense for the three months ended September 30, 2004 and September 30, 2003 were $24,208 and $30,760, respectively, lower this period as a result of the lower interest rates, one from the refinance of the first mortgage, and from the amortization of the mortgage balances. There was an Income Tax Benefit for the quarter ended September 30, 2004 due to the pre-tax loss this quarter (a net income tax benefit of $13,606) as well as from an accrual to actual adjustment (of $15,000) to our income tax provision relating to the fiscal year ended June 30, 2004 period. This income tax provision true-up relates to the finalization of our fiscal 2004 taxes with additional recognition of R&D tax credits. A Net Loss of $23,386 ($0.01 per share) is reported for the quarter ended September 30, 2004 as compared to Net Income of $9,383 ($0.00 per share) the year before. Our long-term investment in additional staffing, primarily in research and development and engineering services, increased operating expenses in the current period for planned returns in the near future. 6 Financial Condition - ------------------- Working capital decreased $188,018 during the three months ended September 30, 2004. 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 used $1,936 for the three month period ended September 30, 2004. The Net loss adjusted for non-cash expenses, provided for $16,391 in net cash. $281,446 in cash provided by Accounts Receivables prepaid expenses, and other assets, was reduced by $299,773 in uses for accounts payable, accrued liabilities, inventories, income taxes and patent expenses. Investing activities used $171,652 on capital expenditures and financing activities provided $216,994 during the three months ended September 30, 2004. Capital expenditures (the adding of new production capabilities and facilities to meet current demand as well as expanding our QA laboratories and general building maintenance & improvements) were the Company's investing activities this period. The Company manages its working capital and other cash requirements through utilization of its available short-term borrowings - a revolving Line of Credit. During the three months ending September 30, 2004, the Company borrowed, net of repayments, $235,089 from the Line-of-Credit. Disclosure Controls and Procedures - ---------------------------------- The evaluation of the Company's Internal Controls Environment 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, and 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 operates entirely from its sole location at 35 Industrial Parkway in Branchburg, New Jersey, an owned facility 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 - A Form 8-K was filed during the quarter ending September 30, 2004 reporting the Company's announcement of earnings for the fiscal year ending June 30, 2004. 7 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: November 11, 2004 8 EX-31.1 2 ex31-1.txt EXHIBIT 31.1 ------------ 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: November 11, 2004 /s/ Manfred F. Dyck - ---------------------------------- Manfred F. Dyck, President and CEO 9 EX-31.2 3 ex31-2.txt EXHIBIT 31.2 ------------ 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: November 11, 2004 /s/ Robert Y. Lee - ------------------------------ Robert Y. Lee, Vice President of Finance and CFO 10 EX-99.1 4 ex99-1.txt 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 10-QSB for the quarter ended September 30, 2004 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: November 11, 2004 By: /s/ Manfred F. Dyck --------------------------------- Manfred F. Dyck Chairman, President and Chief Executive Officer 11 EX-99.2 5 ex99-2.txt EXHIBIT 99.2 ------------ CERTIFICATION OF CHIEF FINANCIAL 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 10-QSB for the quarter ended September 30, 2004 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: November 11, 2004 By: /s/ Robert Y. Lee --------------------------------- Robert Y. Lee Chief Financial Officer and Vice President of Finance 12 -----END PRIVACY-ENHANCED MESSAGE-----