-----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, MgeGlmJWjBHc5F8/hdX+opLN/zrbT2mIzq8mtDyIE0C/xzpuPRN++89kkovRNM1u dbQ1HaZxbuuPAt4cWG2bSw== 0000950110-98-000641.txt : 19980518 0000950110-98-000641.hdr.sgml : 19980518 ACCESSION NUMBER: 0000950110-98-000641 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980331 FILED AS OF DATE: 19980515 SROS: NASD 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: SEC FILE NUMBER: 000-10683 FILM NUMBER: 98624689 BUSINESS ADDRESS: STREET 1: 35 COLUMBIA RD CITY: BRANCHBURG STATE: NJ ZIP: 08876 BUSINESS PHONE: 9085262828 MAIL ADDRESS: STREET 1: 35 COLUMBIA CITY: BRANCHBURG STATE: NJ ZIP: 08876-3518 10QSB 1 FORM 10-QSB ================================================================================ 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 three months ended March 31, 1998 Commission File Number 0-10683 HYDROMER, INC. ------------------------------------------------------ (Exact name of registrant as specified in its charter) New Jersey 22-2303576 - ------------------------ ------------- (State of incorporation) (IRS Employer Identification No.) 35 Columbia Road, 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, 1998 - ------------ ----------------------------- Common Stock 4,378,904 HYDROMER, INC. INDEX TO FORM 10-QSB March 31, 1998 Page No. Part 1 - Financial Information Condensed Financial Statements Balance Sheets - March 31, 1998 & June 30, 1997 ..................... 2 Statements of Operations for the three & nine month period March 31, 1998 and 1997 ............................................. 3 Statements of Cash Flows for the nine months ended March 31, 1998 and 1997 ............................................. 4 Notes to Financial Statements ....................................... 5 Management's Discussion and Analysis of the Financial Condition and Results of Operation .......................................... 6-7 Part II - Other Information ............................................... 8 1 HYDROMER, INC. BALANCE SHEETS
March 31, June 30, (UNAUDITED) (AUDITED) 1998 1997 - -------------------------------------------------------------------------------------------------------------------- ASSETS Current Assets: Cash and cash equivalents ................................................. $ 790,444 $ 716,045 Trade receivables less allowance for doubtful accounts of $8,831 and $8,831, respectively .................................................. 515,571 431,150 Other receivables ......................................................... 14,069 -- Inventory ................................................................. 139,128 148,753 Prepaid expenses .......................................................... 119,526 77,567 Deferred tax1 asset ....................................................... 100,000 100,000 - -------------------------------------------------------------------------------------------------------------------- Total Current Assets ........................................................... 1,678,738 1,473,515 Property and Equipment, net .................................................... 371,340 271,743 Deferred Tax Asset ............................................................. 121,684 262,856 Other Assets ................................................................... 9,376 11,968 - -------------------------------------------------------------------------------------------------------------------- $ 2,181,138 $ 2,020,082 =================================================================================================================== LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Accounts payable .......................................................... $ 68,439 $ 29,213 Accrued expenses .......................................................... 91,263 167,678 Income tax payable ........................................................ 34,925 40,223 - -------------------------------------------------------------------------------------------------------------------- Total Current Liabilities ...................................................... 194,627 237,114 - -------------------------------------------------------------------------------------------------------------------- Stockholders' Equity Common stock - no par value, authorized 6,000,000 shares, issued and outstanding, 4,378,904 shares ..................................... 2,922,708 2,922,708 Contributed capital ...................................................... 577,750 577,750 Accumulated deficit ....................................................... (1,376,439) (1,711,350) Cash Dividends paid ....................................................... (131,368) -- Treasury stock, 10,917 common shares at cost .............................. (6,140) (6,140) - -------------------------------------------------------------------------------------------------------------------- Total Stockholders' Equity ..................................................... 1,986,511 1,782,968 - -------------------------------------------------------------------------------------------------------------------- $ 2,181,138 $ 2,020,082 ===================================================================================================================
2 HYDROMER, INC. STATEMENTS OF INCOME
Three Months Ended Nine Months Ended March 31, March 31, 1997 1997 1998 UNAUDITED 1998 UNAUDITED UNAUDITED RESTATED UNAUDITED RESTATED - ----------------------------------------------------------------------------------------------------------------------- REVENUES: Product sales and services .................. $ 135,918 $ 194,523 $ 427,078 $ 535,399 Royalties, options and licenses Fees ........ 497,038 289,338 1,368,383 954,081 - ----------------------------------------------------------------------------------------------------------------------- 632,956 483,861 1,795,461 1,489,480 Cost of Product Sales ............................ 62,436 58,517 166,447 177,627 - ----------------------------------------------------------------------------------------------------------------------- Gross profit .............................. 570,520 425,344 1,629,014 1,311,853 Selling, General and Administrative .............. 500,852 358,858 1,256,426 1,005,110 - ----------------------------------------------------------------------------------------------------------------------- Operating Income .......................... 69,668 66,486 372,588 306,743 Interest Income .................................. 8,284 2,949 25,138 7,403 Other tax expense (benefit) ...................... (81,641) 29,040 (81,641) 87,037 Other Income - ----------------------------------------------------------------------------------------------------------------------- Income before provision for income taxes .. 159,593 40,395 479,367 227,109 Provision for Income Taxes Expense (Benefit) ..... 63,745 (8,921) 144,458 (27,800) - ----------------------------------------------------------------------------------------------------------------------- Net Income ................................ $ 95,848 $ 49,316 $ 334,909 $ 254,909 ======================================================================================================================= Income Per Common Share ................... $ 0.022 $ 0.011 $ 0.077 $ 0.058 ======================================================================================================================= Weighted Average Common Shares Outstanding ....... 4,378,904 4,367,987 4,378,904 4,367,987 =======================================================================================================================
3 HYDROMER, INC. STATEMENTS OF CASH FLOWS
Nine Months Ended March 31, 1998 1997 UNAUDITED UNAUDITED - ----------------------------------------------------------------------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net Income ......................................................... $ 334,909 $ 254,909 Adjustments to reconcile net income (loss) to net cash (used in) operating activities Depreciation and amortization .................................... 47,798 29,304 Gain on sale of securities ....................................... -- -- Changes in Assets and Liabilities Trade receivables .............................................. (84,421) (117,686) Inventory ...................................................... 9,625 13,690 Prepaid expenses ............................................... (41,959) (31,739) Deferred tax asset ............................................. 141,172 (158,438) Other assets ................................................... (11,477) 37 Accounts payable and accrued liabilities ....................... (37,189) 215,416 Income taxes payable ........................................... (5,298) 33,111 - ----------------------------------------------------------------------------------------------------- Net Cash from Operating Activities ......................... 353,160 238,604 - ----------------------------------------------------------------------------------------------------- CASH FLOWS FROM INVESTING ACTIVITIES: Cash purchases of property and equipment ........................... (147,393) (19,918) - ----------------------------------------------------------------------------------------------------- Net Cash Used in Investing Activities ..................... (147,393) (19,918) - ----------------------------------------------------------------------------------------------------- Cash Dividends Paid ..................................................... (131,368) -- - ----------------------------------------------------------------------------------------------------- Net Increase (Decrease) in Cash and Cash Equivalents .................... 74,399 218,686 Cash and Cash Equivalents at Beginning of Year .......................... 716,045 167,900 - ----------------------------------------------------------------------------------------------------- Cash and Cash Equivalents at End of Quarter ............................. $ 790,444 $ 386,586 =====================================================================================================
4 HYDROMER, INC. Notes to Financial Statements The company has filed a restated annual form 10K-SB and accordingly, has restated the financial results for the quarter ended 03/31/97 on this 10QSB. The prior period Financial Statements have been restated to reflect the under reporting of royalty receivables from a licensee. The restatement affected royalty revenues and as a result the restatement was significant enough to classify the company as a personal holding company requiring a significant tax accrual at year-end, a portion of which was also restated in this quarter. On August 14, 1997 the Company entered into an agreement with a consulting firm whereby the firm will help create a business plan and assist the Company to get listed on a regional stock exchange. Hydromer is obligated for payment of a $2,500 monthly fee to the firm, cancelable anytime. Additionally, upon certain criteria being met, the firm is entitled to 150,000 warrants to purchase the Company's common stock at $0.1875. Mr. Brice, Vice-President and CFO of the Company is a partner in the firm. 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. 5 MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of Operations Revenues for the quarter ended March 31, 1998 were $632,956, up 31% from the same period last year. For the 9 months ended March 31, 1998, revenues were up 20.5% to $1,795,461 over the same period last year. This increase is revenues are attributable to increased use of the Company's technology through license agreements with its clients. This increase in usage equates to increased royalty income, which was up 71.8% for the quarter and 43.4% for the nine months ended March 31, 1998. Gross profit for the quarter was $570,520 vs. $425,344 for the same period last year or an increase of 34.1% and $1,629,014 for the nine months ended March 31, 1998 vs. $1,311,853 for the same period last year or an increase of 24.2%. This increase again is related to the increase in royalties, options and license fees from the use of the Company's technologies in over 15 licensing agreements. Operating costs (SG&A and Research and Development) were $500,852 for the quarter, up $141,994 or 40% over the same period last year and $1,256,426 for the 9 month period, up $251,316 or 25.0% over last year. This increase in costs is attributable to the Company's expanding service to its clients. Employee costs, especially R&D, are up to support the new technologies being developed and provide improved customer service to clients. Lab costs are up over last year to react to the expanding curiosity of our prospects and their associated needs for samples and prototypes. Finally, new costs associated with the Company's expansion into coating services are up over last year as well. Net income for the quarter ended March 31, 1998 was $95,848, up 94.4% over the same period last year. Earnings per share were $0.022 for the quarter compared to $0.011 for the same period last year. For the 9 months ended March 31, 1998, the Company reported earnings of $334,909 or $0.08 per common share, up 31.0% over the same period last year for both earnings and earnings per share. The Company recorded a net tax refund in the amount of $81,641 in the current quarter representing a reimbursement for taxes paid as a personal holding company. An amendment was filed claiming that certain contracts do not meet the test of passive income and accordingly, were not included in calculating the revenue split between passive and other. The IRS agreed and returned the portion of taxes paid plus interest. 6 Financial Condition Working capital increased by $247,710 to $1,484,111 at March 31, 1998 from $1,236,401 at June 30, 1997. This increase includes a dividend paid to shareholders in the amount of $131,368. Excluding the dividend paid, working capital increased $370,427 for the nine months ended March 31, 1998. The Company believes that future revenues will provide a sufficient cash flow to maintain operations at current levels. 7 PART II - Other Information Item 5. Other Information On March 23, 1998 U.S. Patent 4,119,094 expired. 13 licenses included this patent. In some cases other patents were also included with license. The Company has decided to reprice its coating solutions to offset part of the royalty costs. The Company is actively trying to replace this loss in revenue by selling the solutions to companies on an exclusive non-marketing basis, on a non-exclusive basis or as straight product sales. Additionally, the Company is introducing newer, patented technologies to these clients to replace their existing production coating. Although the full impact is not known, the Company feels it will not have a material impact once the replacement sales are made. SUBSEQUENT EVENT - See related party transactions On April 16, 1998, the Board of Directors approved a cash dividend of $0.03 per share payable to the Company's shareholders as September 1, 1998. RELATED PARTY TRANSACTION On May 8, 1998, the Company approved a commitment letter from a Commercial Bank to buy a facility that is owned by Biosearch Medical Products, Inc., ("Biosearch") of which Manfred F. Dyck is President and CEO as well as a significant shareholder. The facility is located at 35 Industrial Parkway, Somerville, NJ and includes labs, offices space and warehouse space. Biosearch, as part of the lease agreement with Hydromer, has a prepaid lease for 3 years. The facility has an appraised value of $1,370,000. The purchase price of the building and land is $1,195,000, which includes $345,000 in prepaid rental, credited to Biosearch. Under the terms of the commitment, the bank will finance a mortgage of $850,000. The remaining liability will be booked as deferred rent and amortized over the life of the lease. The mortgage carries a fixed interest rate at approximately prime which will be determined at date of closing. Hydromer will occupy approximately 35% of the facility and will move its R&D and administrative functions to the new facility. Its existing facility will be expanded for manufacturing and compounding as well as continue to house Quality Assurance and Quality Control. 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, 1998. 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/ ----------------------- Kenneth P. Brice Vice President - Finance & Administration Chief Financial Officer DATE: May 12, 1998 EX-27 2 FDS
5 9-MOS JUN-30-1998 MAR-31-1998 298,335 0 279,368 0 158,587 846,476 694,755 (479,487) 1,133,120 65,522 0 0 0 2,922,708 (1,855,110) 1,067,598 142,023 407,023 47,908 258,276 89,620 0 0 13,786 0 13,786 0 0 0 13,786 .003 0
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