hydiform10q09302008.htm
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON
D.C. 20549
FORM
10-Q
QUARTERLY
REPORT UNDER SECTION 13 OR 15 (d)
OF THE
SECURITIES EXCHANGE ACT OF 1934
For the
quarter ended September 30, 2008
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.)
|
|
|
|
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|
35 Industrial Pkwy,
Branchburg, New Jersey
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08876-3424
|
(Address
of principal executive offices)
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|
(Zip
Code)
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|
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|
Registrant's
telephone number, including area code:
|
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(908)
722-5000
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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)
Indicate by check mark whether the
registrant (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 by check mark whether the
registrant is a large accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company.
Large
accelerated filer ¨ Accelerated
filer ¨ Non-accelerated
filer ¨ Smaller
reporting company x
Indicate by check mark whether the
registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Act).
Yes ¨ No x
|
Class
|
|
Outstanding at
September 30, 2008
|
|
Common
|
|
4,772,318
|
HYDROMER,
INC.
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|
INDEX
TO FORM 10-Q
|
September
30, 2008
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Page
No.
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Part
I - Financial Information
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#
1 Consolidated Financial Statements
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Balance
Sheets - September 30, 2008 & June 30, 2008
|
2
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|
Statements of
Income for the three months ended September
30, 2008 and 2007
|
3
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|
|
|
|
Statements of
Cash Flows for the three months ended September
30, 2008 and 2007
|
4
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|
|
|
|
Notes
to Financial Statements
|
5
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|
|
|
|
#
2 Management's Discussion and Analysis of the Financial
Condition and
Results of Operations
|
6
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|
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|
#
3 Controls and Procedures
|
7
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Part
II - Other Information
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|
#
1 Legal Proceedings
|
N/A
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|
#
2 Change in Securities
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N/A
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|
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|
#
3 Default of Senior Securities
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N/A
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|
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|
|
#
4 Submission of Motion to Vote of Security
Holders
|
N/A
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#
5 Other Information
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N/A
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#
6 Exhibits and Reports on form 8-K
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7
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EXHIBIT
INDEX
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Exhibit
No.
|
Description of
Exhibit
|
|
33.1
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|
9
|
|
|
|
33.2
|
|
10
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|
|
|
99.1
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11
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|
|
|
99.2
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|
11
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|
Part
I – Financial Information
Item
# 1
HYDROMER,
INC. and CONSOLIDATED SUBSIDIARY
CONSOLIDATED
BALANCE SHEETS
|
|
September
30,
|
|
|
June
30,
|
|
|
|
2008
|
|
|
2008
|
|
|
|
UNAUDITED
|
|
|
AUDITED
|
|
Assets
|
|
|
|
|
|
|
Current
Assets:
|
|
|
|
|
|
|
Cash and cash
equivalents
|
|
$ |
642,645 |
|
|
$ |
108,403 |
|
Trade receivables
less allowance for doubtful accounts of $43,744 and $79,790 as of
September 30, 2008
and
June 30, 2008, respectively
|
|
|
1,124,045 |
|
|
|
1,100,388 |
|
Inventory
|
|
|
1,044,232 |
|
|
|
1,022,660 |
|
Prepaid
expenses
|
|
|
150,814 |
|
|
|
149,726 |
|
Deferred tax
asset
|
|
|
8,976 |
|
|
|
8,976 |
|
Other
|
|
|
8,671 |
|
|
|
7,147 |
|
Total
Current Assets
|
|
|
2,979,383 |
|
|
|
2,397,300 |
|
|
|
|
|
|
|
|
|
|
Property
and equipment, net
|
|
|
3,320,646 |
|
|
|
3,339,270 |
|
Deferred
tax asset, non-current
|
|
|
618,505 |
|
|
|
620,157 |
|
Intangible
assets, net
|
|
|
884,198 |
|
|
|
820,858 |
|
Total
Assets
|
|
$ |
7,802,732 |
|
|
$ |
7,177,585 |
|
|
|
|
|
|
|
|
|
|
Liabilities
and Stockholders’ Equity
|
|
|
|
|
|
|
|
|
Current
Liabilities:
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$ |
519,118 |
|
|
$ |
595,412 |
|
Short-term
borrowings
|
|
|
- |
|
|
|
289,973 |
|
Accrued
expenses
|
|
|
244,959 |
|
|
|
345,480 |
|
Current portion of
capital lease
|
|
|
13,294 |
|
|
|
13,095 |
|
Current portion of
deferred revenue
|
|
|
115,718 |
|
|
|
88,051 |
|
Current portion of
mortgage payable
|
|
|
43,332 |
|
|
|
230,160 |
|
Income tax
payable
|
|
|
7,680 |
|
|
|
1,652 |
|
Total
Current Liabilities
|
|
|
944,101 |
|
|
|
1,563,823 |
|
Deferred
tax liability
|
|
|
281,398 |
|
|
|
281,398 |
|
Long-term
portion of capital lease
|
|
|
61,879 |
|
|
|
65,310 |
|
Long-term
portion of deferred revenue
|
|
|
48,923 |
|
|
|
49,461 |
|
Long-term
portion of mortgage payable
|
|
|
2,854,399 |
|
|
|
1,647,873 |
|
Total
Liabilities
|
|
|
4,190,700 |
|
|
|
3,607,865 |
|
|
|
|
|
|
|
|
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|
Stockholders’
Equity
|
|
|
|
|
|
|
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|
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; 4,783,235 shares issued and
4,772,318
shares
outstanding as of September
30, 2008 and June 30, 2008
|
|
|
3,721,815 |
|
|
|
3,721,815 |
|
Contributed
capital
|
|
|
633,150 |
|
|
|
633,150 |
|
Accumulated
deficit
|
|
|
(736,793 |
) |
|
|
(779,105 |
) |
Treasury stock,
10,917 common shares at cost
|
|
|
(6,140 |
) |
|
|
(6,140 |
) |
Total
Stockholders’ Equity
|
|
|
3,612,032 |
|
|
|
3,569,720 |
|
Total
Liabilities and Stockholders’ Equity
|
|
$ |
7,802,732 |
|
|
$ |
7,177,585 |
|
|
|
|
|
|
|
|
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|
HYDROMER,
INC. and CONSOLIDATED SUBSIDIARY
CONSOLIDATED
STATEMENTS OF INCOME
|
|
Three
Months Ended
September
30,
|
|
|
|
2008
UNAUDITED
|
|
|
2007
UNAUDITED
|
|
Revenues
|
|
|
|
|
|
|
Sale
of products
|
|
$ |
1,118,068 |
|
|
$ |
1,195,703 |
|
Service
revenues
|
|
|
514,326 |
|
|
|
371,225 |
|
Royalties
and contract revenues
|
|
|
403,575 |
|
|
|
392,285 |
|
Total
Revenues
|
|
|
2,035,969 |
|
|
|
1,959,213 |
|
Expenses
|
|
|
|
|
|
|
|
|
Cost
of Sales
|
|
|
792,318 |
|
|
|
803,491 |
|
Operating
Expenses
|
|
|
1,153,014 |
|
|
|
1,074,207 |
|
Other
Expenses
|
|
|
40,651 |
|
|
|
42,842 |
|
Provision
for (Benefit from) Income Taxes
|
|
|
7,680 |
|
|
|
(10,000 |
) |
Total
Expenses
|
|
|
1,993,663 |
|
|
|
1,910,540 |
|
|
|
|
|
|
|
|
|
|
Net
Income
|
|
$ |
42,306 |
|
|
$ |
48,673 |
|
|
|
|
|
|
|
|
|
|
Earnings
Per Common Share
|
|
$ |
0.01 |
|
|
$ |
0.01 |
|
Diluted
Earnings Per Common Share
|
|
|
0.01 |
|
|
|
0.01 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
Average Number of
Common
Shares Outstanding
Common
Shares Outstanding assuming dilution
|
|
|
4,772,318
4,886,318 |
|
|
|
4,702,365
4,936,365
|
|
HYDROMER,
INC. and CONSOLIDATED SUBSIDIARY
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
|
Three
months Ended
September
30,
|
|
|
|
2008
UNAUDITED
|
|
|
2007
UNAUDITED
|
|
Cash
Flows From Operating Activities:
|
|
|
|
|
|
|
Net
Income
|
|
$ |
42,306 |
|
|
$ |
48,673 |
|
Adjustments
to reconcile net income to net cash (used for) provided by operating
activities
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
107,475 |
|
|
|
95,256 |
|
Deferred
income taxes
|
|
|
1,652 |
|
|
|
(10,000 |
) |
Changes
in Assets and Liabilities:
|
|
|
|
|
|
|
|
|
Trade receivables
|
|
|
(23,657 |
) |
|
|
144,139 |
|
Inventory
|
|
|
(21,572 |
) |
|
|
49,340 |
|
Prepaid expenses
|
|
|
(1,088 |
) |
|
|
35,176 |
|
Other assets
|
|
|
(1,524 |
) |
|
|
13,230 |
|
Accounts payable and accrued
liabilities
|
|
|
(176,809 |
) |
|
|
(213,315 |
) |
Deferred income
|
|
|
27,129 |
|
|
|
33,746 |
|
Income taxes
payable
|
|
|
6,028 |
|
|
|
- |
|
Net
Cash (Used for) Provided by Operating Activities
|
|
|
(40,060
|
)
|
|
|
196,245
|
|
|
|
|
|
|
|
|
|
|
Cash
Flows From Investing Activities:
|
|
|
|
|
|
|
|
|
Cash
purchases of property and equipment
|
|
|
(46,611 |
) |
|
|
(45,589 |
) |
Cash
payments on patents and trademarks
|
|
|
(108,812 |
) |
|
|
(32,112 |
) |
Net
Cash Used for Investing Activities
|
|
|
(155,423
|
)
|
|
|
(77,701
|
)
|
|
|
|
|
|
|
|
|
|
Cash
Flows From Financing Activities:
|
|
|
|
|
|
|
|
|
Net repayments
towards Line of Credit
|
|
|
(289,973 |
) |
|
|
(33,564 |
) |
Proceeds
from long-term borrowings
|
|
|
2,900,000 |
|
|
|
- |
|
Repayment
of long-term borrowings
|
|
|
(1,880,302 |
) |
|
|
(52,365 |
) |
Proceeds
from the issuance of common stock
|
|
|
- |
|
|
|
60,000 |
|
Net
Cash Provided by (Used for) Financing Activities
|
|
|
729,725
|
|
|
|
(25,929
|
)
|
|
|
|
|
|
|
|
|
|
Net
Increase in Cash and Cash Equivalents:
|
|
|
534,242 |
|
|
|
92,615 |
|
Cash
and Cash Equivalents at Beginning of Period
|
|
|
108,403 |
|
|
|
146,338 |
|
Cash
and Cash Equivalents at End of Period
|
|
$ |
642,645 |
|
|
$ |
238,953 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental
Non-Cash Investing & Financing Activities:
Equipment acquired under Capital
Lease
|
|
$
|
- |
|
|
$
|
63,747
|
|
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.
Long-Term Debt And Credit
Facility:
On
September 4, 2008, the Company refinanced it mortgages, tapping into its
available equity to borrow an additional $1.1 million in order to provide it
with the required funds to repay its maturing Line-of-Credit facility and to
provide for additional working capital. The Line-of-Credit facility
was repaid and closed out in September 2008.
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
Research
|
|
|
Medical
Products
|
|
|
Corporate
Overhead
|
|
|
Total
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$ |
1,211,423 |
|
|
$ |
824,546 |
|
|
|
|
|
$ |
2,035,969 |
|
Expenses
|
|
|
(796,297 |
) |
|
|
(783,640 |
) |
|
$ |
(406,046 |
) |
|
|
(1,985,983 |
) |
Pre-tax
Income (Loss)
|
|
$ |
415,126 |
|
|
$ |
40,906 |
|
|
$ |
(406,046 |
) |
|
$ |
49,986 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$ |
1,175,964
|
|
|
$ |
783,249
|
|
|
|
|
|
|
$ |
1,959,213 |
|
Expenses
|
|
|
(852,872 |
) |
|
|
(694,823 |
) |
|
$ |
(372,845 |
) |
|
|
(1,920,540 |
) |
Pre-tax
Income (Loss)
|
|
$ |
323,092 |
|
|
$ |
88,426 |
|
|
$ |
(372,845 |
) |
|
$ |
38,673 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Geographic
revenues were as follows for the three months ended September 30,
|
|
|
2008
|
|
|
2007
|
|
|
Domestic
|
|
|
82 |
% |
|
|
80 |
% |
|
Foreign
|
|
|
18 |
% |
|
|
20 |
% |
Item
#2
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, 2008 were $2,035,969,
3.9% higher than the $1,959,213 for the same period the previous
year. Revenues are comprised of the sale of Products and Services and
Royalty and Contract payments.
Product
sales and services were $1,632,394 for the quarter ended September 30, 2008 as
compared to $1,566,928 for the same period the year before, an increase of
$65,466 or 4.2%. Continued growth in the T-HEXX Animal Health
business line along with the increase in demand of contract coating services,
cosmetic intermediaries and other research and development services offset the
delayed Biosearch OEM medical device product sales, arising from processing
delays by our outside sterilizer during the fiscal 2009 quarter (ending
September 30, 2008), were the primary contributors. The sterilization
issues have been corrected as reflected by October 2008 medical device sales of
$224,012 as compared with the prior three month sales of $437,955 (for the July
to September 2008 period).
Royalty
and Contract revenues include royalties received and the periodic recurring
payments from license, option and other agreements for other than product and
services. Included in Royalty and Contract revenues are revenues from
support and supply agreements. For the quarter ended September 30,
2008, Royalty and Contract revenues were $403,575, or $11,290 better (2.9%) than
the $392,285 the same period a year ago.
Total
Expenses for the quarter ended September 30, 2008 were $1,993,663 as compared
with $1,910,539 the year before, a 4.4% increase.
The
Company’s Cost of Goods Sold was $792,318 for the quarter ended September 30,
2008 as compared with $803,491 the year prior, lower by 1.4%, primarily from
lower material costs due to the lower product revenues.
Operating
expenses were $1,153,014 for the quarter ended September 30, 2008 as compared
with $1,074,207 the year before, up $78,807 or 7.3%. Higher staffing
costs, an increase in property taxes and utilities costs, along with the
marketing plan on its new T-HEXX Animal product lines introduced, accounted for
the higher operating expenses during the current quarter.
Interest
expense, interest income and other income are included in Other
Expenses. Interest expense for the three months ended September 30,
2008 and September 30, 2007 were $46,074 and $44,912,
respectively. The mortgage refinance (additional borrowings) and
expensing of the previous mortgage loans’ origination fees, increased Other
Expenses while offset by the lower utilization, and eventual payoff, and lower
interest rates, of the line-of-credit facility.
Net
income of $42,306 ($0.01 per share) is reported for the quarter ended September
30, 2008 as compared to $48,673 ($0.01 per share) the year before.
Although
revenues were slightly higher (3.9% or $76,756), higher operating expenses in
employee costs, utilities, property taxes and advertising on the new T-HEXX
Animal Healthcare product lines and the change from a tax benefit during the
previous year to a tax provision in the current year resulted in the variance to
net income. For the three months ended September 30, 2008,
re-investment expenditures of Research and Development and patents expenditures
accounted for approximately $270,603 or 23.5% of the operating
expenses.
Financial
Condition
Working
capital increased $1,201,805 during the three months ended September 30,
2008.
Net
operating activities used $40,060 in cash for the three month period ended
September 30, 2008.
Net
income as adjusted for non-cash expenses, provided $151,433 in
cash. Increases to accounts receivables and inventories and the
repayment of accounts payable and lower accrued expenses during the three month
period used $222,038 in cash.
Investing
activities used $155,423 and financing activities provided $729,725 during the
three months ended September 30, 2008.
During
the three months, the Company expended $46,611 on capital expenditures and
$108,812 into its patent estate. The Company closed its revolving
line of credit (payoff of $289,973) with funds from its mortgage refinance,
where net proceeds of $1,046,796 was realized after paying off the pre-existing
mortgages and related fees.
With its
line of credit facility not renewing, the Company refinanced its mortgage
availing itself to the funds to repay the line of credit as well as providing
for additional working capital. Such working capital needs includes
longer term requirements: capital equipment and patent
expenditures. With its recent and not so recent product developments,
including anti-microbial, anti-thrombogenic and cell adhesion/proliferation
technologies and its new T-HEXX Animal Health “Green” products, all under
various stages of evaluation by clients, capital is required to cover current
expenditures and for further new development projects until revenue streams from
these projects come online. As the Company has historically been
self-funded (with minimal outside investment), funding for future growth is
typically generated from operations and financing activities.
Item
# 3
Disclosure Controls and
Procedures
Evaluation
of Disclosure Controls and Procedures
Under the supervision and with the
participation of management, including the Chief Executive Officer and President
and the Chief Financial Officer, we evaluated the effectiveness of the design
and operation of the disclosure controls and procedures (as such term is defined
in Rule 13a-15(e) under the Securities and Exchange Act of 1934 (the “Exchange
Act”)). Disclosure controls and procedures are the controls and other
procedures that we designed to ensure that we record, process, summarize and
report in a timely manner the information we must disclose in reports that we
file with or submit to the Securities and Exchange Commission under the Exchange
Act. Based on this evaluation, our Chief Executive Officer and Chief
Financial Officer concluded that, our disclosure controls and procedures were
effective as of the end of the period covered by this report.
Changes
in Internal Control over Financial Reporting
There were no changes to our Company’s
internal control over financial reporting that occurred during the period that
has materially affected, or is reasonably likely to materially affect the
Company’s internal control over financial reporting.
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 a mortgage through
a bank.
The existing facility will be adequate
for the Company’s operations for the foreseeable future.
Item # 6. Exhibits
and Reports on form 8-K:
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b)
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Reports
on form 8-K – The Company filed two Form 8-K’s during the quarter ending
September 30, 2008. Each 8-K reported press releases
issued by the Company: one announcing a Coating Services and Supply
Agreement; and the other announcing that its T-HEXX® Animal Health
Division Goes “GREEN”.
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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.
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HYDROMER,
INC.
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/s/
Robert Y. Lee, VP
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Robert
Y. Lee
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Chief
Financial Officer
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DATE:
November 14, 2008
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