hydiform10q12312008.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 December 31, 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.)
|
|
|
|
|
|
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)
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 December 31,
2008
Common 4,772,318
HYDROMER,
INC.
INDEX TO
FORM 10-Q
December
31, 2008
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|
Page
No.
|
Part
I - Financial Information |
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|
|
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|
#
1 Consolidated Financial Statements
|
|
|
|
|
|
Balance
Sheets - December 31, 2008 & June 30, 2008
|
|
2
|
|
|
|
Statements of
Income for the three months and six months ended December 31, 2008 and
2007
|
|
3
|
|
|
|
Statements of
Cash Flows for the six months ended December 31, 2008 and
2007
|
|
4
|
|
|
|
Notes
to Financial Statements
|
|
5
|
|
|
|
#
2 Management's Discussion and Analysis of the Financial
Condition and
Results of Operations
|
|
6
|
|
|
|
#
3 Controls and Procedures
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|
7
|
|
|
|
|
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|
Part
II - Other Information |
|
|
|
|
|
#
1 Legal Proceedings
|
|
N/A
|
|
|
|
#
2 Change in Securities
|
|
N/A
|
|
|
|
#
3 Default of Senior Securities
|
|
N/A
|
|
|
|
#
4 Submission of Motion to Vote of Security
Holders
|
|
N/A
|
|
|
|
#
5 Other Information
|
|
N/A
|
|
|
|
#
6 Exhibits and Reports on form 8-K
|
|
7
|
EXHIBIT
INDEX
Exhibit
No.
|
Description of
Exhibit
|
|
33.1
|
|
9
|
|
|
|
33.2
|
|
10
|
|
|
|
99.1
|
|
11
|
|
|
|
99.2
|
|
12
|
Part
I – Financial Information
Item
# 1
HYDROMER,
INC. and CONSOLIDATED SUBSIDIARY
CONSOLIDATED
BALANCE SHEETS
|
|
December
31,
|
|
|
June
30,
|
|
|
|
2008
|
|
|
2008
|
|
|
|
UNAUDITED
|
|
|
AUDITED
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
Assets:
|
|
|
|
|
|
|
Cash and cash
equivalents
|
|
$ |
1,040,045 |
|
|
$ |
108,403 |
|
Trade receivables
less allowance for doubtful accounts of $59,647 and $79,790
as of December 31, 2008 and
June
30, 2008, respectively
|
|
|
1,037,321 |
|
|
|
1,100,388 |
|
Inventory
|
|
|
860,188 |
|
|
|
1,022,660 |
|
Prepaid
expenses
|
|
|
147,937 |
|
|
|
149,726 |
|
Deferred tax
asset
|
|
|
8,976 |
|
|
|
8,976 |
|
Other
|
|
|
9,291 |
|
|
|
7,147 |
|
Total
Current Assets
|
|
|
3,103,758 |
|
|
|
2,397,300 |
|
|
|
|
|
|
|
|
|
|
Property
and equipment, net
|
|
|
3,299,805 |
|
|
|
3,339,270 |
|
Deferred
tax asset, non-current
|
|
|
596,105 |
|
|
|
620,157 |
|
Intangible
assets, net
|
|
|
861,120 |
|
|
|
820,858 |
|
Total
Assets
|
|
$ |
7,860,808 |
|
|
$ |
7,177,585 |
|
|
|
|
|
|
|
|
|
|
Liabilities
and Stockholders’ Equity
|
|
|
|
|
|
|
|
|
Current
Liabilities:
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$ |
496,536 |
|
|
$ |
595,412 |
|
Short-term
borrowings
|
|
|
- |
|
|
|
289,973 |
|
Accrued
expenses
|
|
|
305,673 |
|
|
|
345,480 |
|
Current portion of
capital lease
|
|
|
13,493 |
|
|
|
13,095 |
|
Current portion of
deferred revenue
|
|
|
124,218 |
|
|
|
88,051 |
|
Current portion of
mortgage payable
|
|
|
44,320 |
|
|
|
230,160 |
|
Income tax
payable
|
|
|
4,560 |
|
|
|
1,652 |
|
Total
Current Liabilities
|
|
|
988,800 |
|
|
|
1,563,823 |
|
Deferred
tax liability
|
|
|
281,398 |
|
|
|
281,398 |
|
Long-term
portion of capital lease
|
|
|
58,216 |
|
|
|
65,310 |
|
Long-term
portion of deferred revenue
|
|
|
39,219 |
|
|
|
49,461 |
|
Long-term
portion of mortgage payable
|
|
|
2,844,456 |
|
|
|
1,647,873 |
|
Total
Liabilities
|
|
|
4,212,089 |
|
|
|
3,607,865 |
|
|
|
|
|
|
|
|
|
|
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; 4,783,235 shares
issued and 4,772,318 shares outstanding
as of
December 31, 2008 and June 30, 2008
|
|
|
3,721,815 |
|
|
|
3,721,815 |
|
Contributed
capital
|
|
|
633,150 |
|
|
|
633,150 |
|
Accumulated
deficit
|
|
|
(700,106 |
) |
|
|
(779,105 |
) |
Treasury stock,
10,917 common shares at cost
|
|
|
(6,140 |
) |
|
|
(6,140 |
) |
Total
Stockholders’ Equity
|
|
|
3,648,719 |
|
|
|
3,569,720 |
|
Total
Liabilities and Stockholders’ Equity
|
|
$ |
7,860,808 |
|
|
$ |
7,177,585 |
|
HYDROMER,
INC. and CONSOLIDATED SUBSIDIARY
CONSOLIDATED
STATEMENTS OF INCOME
|
|
Three
Months Ended
|
|
|
Six
months Ended
|
|
|
|
December
31,
|
|
|
December
31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
UNAUDITED
|
|
|
UNAUDITED
|
|
|
UNAUDITED
|
|
|
UNAUDITED
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
Sale of
products
|
|
$ |
1,235,533 |
|
|
$ |
943,558 |
|
|
$ |
2,353,601 |
|
|
$ |
2,139,261 |
|
Service
revenues
|
|
|
497,750 |
|
|
|
413,094 |
|
|
|
1,012,076 |
|
|
|
784,319 |
|
Royalties and
Contract Revenues
|
|
|
416,418 |
|
|
|
401,874 |
|
|
|
819,993 |
|
|
|
794,159 |
|
Total
Revenues
|
|
|
2,149,701 |
|
|
|
1,758,526 |
|
|
|
4,185,670 |
|
|
|
3,717,739 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of
Sales
|
|
|
854,238 |
|
|
|
707,317 |
|
|
|
1,646,556 |
|
|
|
1,510,808 |
|
Operating
Expenses
|
|
|
1,191,534 |
|
|
|
1,134,681 |
|
|
|
2,344,548 |
|
|
|
2,208,887 |
|
Other
Expenses
|
|
|
46,916 |
|
|
|
38,197 |
|
|
|
87,567 |
|
|
|
81,040 |
|
Provision for
(Benefit from) Income Taxes
|
|
|
20,320 |
|
|
|
(35,354 |
) |
|
|
28,000 |
|
|
|
(45,354 |
) |
Total
Expenses
|
|
|
2,113,008 |
|
|
|
1,844,841 |
|
|
|
4,106,671 |
|
|
|
3,755,381 |
|
Net
Income (Loss)
|
|
$ |
36,693 |
|
|
$ |
(86,315 |
) |
|
$ |
78,999 |
|
|
$ |
(37,642 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(Loss) Per Common Share
|
|
$ |
0.01 |
|
|
$ |
(0.02 |
) |
|
$ |
0.02 |
|
|
$ |
(0.01 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
Average Number of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
Shares Outstanding
|
|
|
4,772,318 |
|
|
|
4,747,984 |
|
|
|
4,772,318 |
|
|
|
4,725,337 |
|
Common
Shares Outstanding assuming dilution
|
|
|
4,773,655 |
|
|
|
n/a |
|
|
|
4,772,986 |
|
|
|
n/a |
|
The
effects of the common stock equivalents on diluted earnings per share for the
2007 periods
are
not included as their effect would be anti-dilutive.
For 2008,
there was no impact to earnings per share from dilutive securities.
HYDROMER,
INC. and CONSOLIDATED SUBSIDIARY
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
|
Six
months Ended
December
31,
|
|
|
|
2008
UNAUDITED
|
|
|
2007
UNAUDITED
|
|
Cash
Flows From Operating Activities:
|
|
|
|
|
|
|
Net
Income (Loss)
|
|
$ |
78,999 |
|
|
$ |
(37,642 |
) |
Adjustments
to reconcile net income (loss) to net cash provided by operating
activities
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
207,339 |
|
|
|
209,622 |
|
Charge-off
of Patent Costs
|
|
|
63,242 |
|
|
|
- |
|
Deferred
income taxes
|
|
|
24,052 |
|
|
|
(48,219 |
) |
Changes
in Assets and Liabilities:
|
|
|
|
|
|
|
|
|
Trade receivables
|
|
|
63,067 |
|
|
|
189,294 |
|
Inventory
|
|
|
162,472 |
|
|
|
46,391 |
|
Prepaid expenses
|
|
|
1,789 |
|
|
|
39,840 |
|
Other assets
|
|
|
(2,144 |
) |
|
|
12,016 |
|
Accounts payable and accrued
liabilities
|
|
|
(138,683 |
) |
|
|
(158,579 |
) |
Deferred income
|
|
|
25,925 |
|
|
|
61,858 |
|
Income taxes
payable
|
|
|
2,908 |
|
|
|
(2,876 |
) |
Net
Cash Provided by Operating Activities
|
|
|
488,966 |
|
|
|
311,705 |
|
|
|
|
|
|
|
|
|
|
Cash
Flows From Investing Activities:
|
|
|
|
|
|
|
|
|
Cash
purchases of property and equipment
|
|
|
(92,292 |
) |
|
|
(98,248 |
) |
Cash
payments on patents and trademarks
|
|
|
(185,802 |
) |
|
|
(106,680 |
) |
Net
Cash Used for Investing Activities
|
|
|
(278,094 |
) |
|
|
(204,928 |
) |
|
|
|
|
|
|
|
|
|
Cash
Flows From Financing Activities:
|
|
|
|
|
|
|
|
|
Net
borrowings against Line of Credit
|
|
|
(289,973 |
) |
|
|
(52,470 |
) |
Repayment
of long-term borrowings
|
|
|
(1,889,257 |
) |
|
|
(105,950 |
) |
New
long-term borrowings
|
|
|
2,900,000 |
|
|
|
- |
|
Proceeds
from the issuance of common stock
|
|
|
- |
|
|
|
78,000 |
|
Net
Cash Provided by (Used for) Financing Activities
|
|
|
720,770 |
|
|
|
(80,420 |
) |
|
|
|
|
|
|
|
|
|
Net
Increase in Cash and Cash Equivalents:
|
|
|
931,642 |
|
|
|
26,357 |
|
Cash
and Cash Equivalents at Beginning of Period
|
|
|
108,403 |
|
|
|
146,338 |
|
Cash
and Cash Equivalents at End of Period
|
|
$ |
1,040,045 |
|
|
$ |
172,695 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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.
Subsequent
Event:
A Supply
and Support Agreement providing for revenues of $100,000 per month was cancelled
by the customer in January 2009.
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 six months ended December 31, by segment are:
|
|
Polymer
Research
|
|
|
Medical
Products
|
|
|
Corporate
Overhead
|
|
|
Total
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$ |
2,419,215 |
|
|
$ |
1,766,455 |
|
|
|
|
|
$ |
4,185,670 |
|
Expenses
|
|
|
(1,748,483 |
) |
|
|
(1,542,106 |
) |
|
$ |
(788,082 |
) |
|
|
(4,078,671 |
) |
Pre-tax
Income (Loss)
|
|
$ |
670,732 |
|
|
$ |
224,349 |
|
|
$ |
(788,082 |
) |
|
$ |
106,999 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$ |
2,102,470 |
|
|
$ |
1,615,269 |
|
|
|
|
|
|
$ |
3,717,739 |
|
Expenses
|
|
|
(1,620,718 |
) |
|
|
(1,392,965 |
) |
|
$ |
(787,052 |
) |
|
|
(3,800,735 |
) |
Pre-tax
Income (Loss)
|
|
$ |
481,752 |
|
|
$ |
222,304 |
|
|
$ |
(787,052 |
) |
|
$ |
(82,996 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Geographic
revenues were as follows for the six months ended December 31,
|
|
2008
|
2007
|
|
Domestic
|
83%
|
82%
|
|
Foreign
|
17%
|
18%
|
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 December 31, 2008 were $2,149,701,
22.2% higher than the $1,758,526 for the same period the previous
year. Revenues for the six months ended December 31, 2008 were
$4,185,670 or 12.6% higher than the $3,717,739 in the corresponding period a
year ago. Revenues are comprised of the sale of Products and Services
and Royalty and Contract payments.
Product
sales and services were $1,733,283 for the quarter ended December 31, 2008 as
compared to $1,356,652 for the same period the year before, a 27.8% increase or
$376,631. For the six months ended December 31, 2008, product sales
and services were $3,365,677, 15.1% or $442,097 higher than the $2,923,580 the
year before. There was growth of all product line sales over the
prior year, particularly in Medical Coatings (in part from a customer stock up),
the T-HEXX Animal Health line and the Cosmetics product
line. Contract coating services continues to grow (accounts for 2/3
of the service revenue increase) and a new funded R&D project accounted for
the remainder of the Services Revenues increase for the current fiscal
year.
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. Some of the royalties and support fees
are based on the net sales of the final item (to which the Hydromer technology
is applied to) and are subject to the reporting of our customers. For
the quarter ended December 31, 2008, Royalty and Contract revenues were
$416,418, comparable to the $401,874 the same period a year
ago. Royalty and Contract revenues were $819,993 and $794,159 for the
six month periods ended December 31, 2008 and 2007, respectively.
As of
December 31, 2008, our open sales order book was approximately
$1,498,000. Although some of the sales orders can be cancelled prior
to production, the Company is of the opinion that no substantial cancellations
will occur.
Total
Expenses for the quarter ended December 31, 2008 were $2,113,008 as compared
with $1,844,841 the year before, a 14.5% increase. For the six months
ended December 31, 2008, Total Expenses were $4,106,671 as compared with
$3,755,381 the same period the year before, or higher by 9.4%.
The
Company’s Cost of Goods Sold was $854,238 for the quarter ended December 31,
2008 as compared with $707,317 the year prior, higher by 20.8%. On a
year-to-date basis, Cost of Goods Sold was $1,646,556 for fiscal 2008 as
compared with $1,510,808 in fiscal 2007, $135,748 or 9.0% higher. The
increase in Cost of Goods Sold is due to the increase in product and service
sales.
Operating
expenses were $1,191,534 for the quarter ended December 31, 2008 as compared
with $1,134,681 the year before, up $56,853 or 5.0%. For the six
months ended December 31, 2008, Operating expenses were $2,344,548 as compared
with $2,208,887 the year before, up $135,661 or 6.1%. During the
quarter ended December 31, 2008, the Company wrote-off $63,242 in patent
application costs. In addition, increases in utilities costs and
property taxes due to a reassessment of the property value, along with increased
marketing expenses related to the introduction of the new T-HEXX products, plus
an added trade show, increased Operating expenses this fiscal year.
Interest
expense, interest income and other income are included in Other
Expenses. Interest expense for the six months ended December 31, 2008
and December 31, 2007 were $100,005 and $87,348, respectively, up due to the
mortgage refinance in September 2008 which provided the Company an additional $1
million in cash, used in part to payoff and close the line-of-credit
facility.
Net
income of $36,693 ($0.01 per share) is reported for the quarter ended December
31, 2008 as compared to a loss of $86,315 ($0.02 per share) the year
before. For the six months ended December 31, 2008, net income of
$78,999 ($0.02 per share) is reported as compared to a net loss of $37,642
($0.01 per share) the year before.
A drop in
revenues during the quarter ended December 31, 2007 (including lost revenues
from the transfer of production of a product line to our customer’s facilities)
led to the year-to-date loss in fiscal 2008. With revenue growth, we
are reporting $0.02 earnings per share this fiscal year-to-date. The
current fiscal year’s results includes the effect of a patent
write-off.
Re-investment
expenditures of Research and development and patents expenditures accounted for
approximately $393,764 or 16.8% of the operating expenses.
Financial
Condition
Working
capital increased $1,281,481 during the six months ended December 31,
2008.
Net
operating activities provided $488,966 for the six month period ended December
31, 2008.
Net
income as adjusted for non-cash expenses, provided $373,632 in
cash. The collections of accounts receivables and in-advances
(deferred income), change in deferred income taxes, and reduction to inventories
less the repayment of accounts payable and accrued liabilities provided an
additional $112,781 source of cash.
Investing
activities used $278,094 and financing activities provided $720,770 during the
six months ended December 31, 2008.
During
the six months, the Company expended $92,292 on capital expenditures and
$185,802 into its patent estate. The Company also paid down $289,973
to close its revolving line of credit and $1,824,386 against its ten-year
mortgages by refinancing into a $2,900,000 twenty-five year
mortgage.
Based
upon the notice of non-renewal of the Company’s line-of-credit at its maturity
in September 2008, the Company refinanced its mortgage allowing for the
resources required for payoff of the line-of-credit and for additional
liquidity. The new mortgage, effective September 2008, provided for
$1,046,796 in cash for such and was a twenty-five year loan compared to the
previous mortgages which were ten-year loans. As of December 31,
2008, the Company had $1,040,045 in cash and cash equivalents, compared with
$108,403 as of June 30, 2008. Also as of June 30, 2008, outstanding
on the line-of-credit was $289,973 ($351,672 at payoff). In summary,
the Company was able to eliminate the short-term borrowing balance
(line-of-credit), while maintaining the cash taken out from the refinance from
cash generated from its operations. The January 2009
cancellation of the $100,000 per month Supply and Support Agreement does
strongly impact our cash flows. The Company would need to “bridge”
the lost revenues, through revenue growth, some through its recent developments
and agreements, including the new T-HEXX products introduced in late
2008.
Item
# 3
Disclosure Controls and
Procedures
As of the period covered by this
report, the Company carried out an evaluation, under the supervision and with
the participation of our management, including the Chief Executive Officer and
President and the Chief Financial Officer, of the effectiveness of the design
and operation of the disclosure controls and procedures.
Based
upon this evaluation, our Chief Executive Officer and Chief Financial Officer
concluded that, our disclosure controls and procedures were effective and that
there were no changes to our Company’s internal control over financial reporting
that have materially affected, or is reasonably likely to materially affect the
Company’s internal control over financial reporting during the period covered by
the Company’s quarterly report.
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
December 31, 2008. Both 8-K reported press releases
issued by the Company regarding the entering of Sales Representation
Agreements to represent Hydromer and negotiate medical coating services
and royalty/fee based license agreements in China and Taiwan on its
behalf.
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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:
February 17, 2009
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