hydiform10qsb12312007.htm
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 December 31, 2007
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
December 31, 2007
|
|
Common
|
|
4,772,318
|
HYDROMER,
INC.
INDEX
TO
FORM 10-QSB
December
31, 2007
|
|
Page
No.
|
Part
I - Financial Information
|
|
|
|
|
|
#
1 Consolidated Financial Statements
|
|
|
|
|
|
Balance
Sheets - December 31, 2007 & June 30, 2007
|
|
2
|
|
|
|
Statements
of
Income for the three months and six months ended
|
|
|
December
31, 2007
and 2006
|
|
3
|
|
|
|
Statements
of
Cash Flows for the six months ended
|
|
|
December
31, 2007
and 2006
|
|
4
|
|
|
|
Notes
to Financial Statements
|
|
5
|
|
|
|
#
2 Management's Discussion and Analysis of the Financial
Conditionand Results of Operations
|
|
6
|
|
|
|
#
3 Controls and Procedures
|
|
7
|
|
|
|
|
|
|
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
|
|
|
11
|
|
|
|
|
Part
I – Financial Information
Item
# 1
HYDROMER,
INC. and CONSOLIDATED SUBSIDIARY
CONSOLIDATED
BALANCE SHEETS
|
|
December
31,
2007
UNAUDITED
|
|
|
June
30,
2007
AUDITED
|
|
Assets
|
|
|
|
|
|
|
Current
Assets:
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$ |
172,695 |
|
|
$ |
146,338 |
|
Trade
receivables less allowance for doubtful accounts of $67,644 as
of
December
31, 2007
and $62,044 as of June 30, 2007
|
|
|
932,458 |
|
|
|
1,121,752 |
|
Inventory
|
|
|
910,320 |
|
|
|
956,711 |
|
Prepaid
expenses
|
|
|
80,608 |
|
|
|
120,448 |
|
Deferred
tax asset
|
|
|
8,976 |
|
|
|
8,976 |
|
Other
|
|
|
1,468 |
|
|
|
13,484 |
|
Total
Current Assets
|
|
|
2,106,525 |
|
|
|
2,367,709 |
|
|
|
|
|
|
|
|
|
|
Property
and equipment, net
|
|
|
3,338,735 |
|
|
|
3,295,992 |
|
Deferred
tax asset, non-current
|
|
|
657,949 |
|
|
|
609,730 |
|
Intangible
assets, net
|
|
|
926,613 |
|
|
|
910,303 |
|
Total
Assets
|
|
$ |
7,029,822 |
|
|
$ |
7,183,734 |
|
|
|
|
|
|
|
|
|
|
Liabilities
and Stockholders’ Equity
|
|
|
|
|
|
|
|
|
Current
Liabilities:
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$ |
441,973 |
|
|
$ |
537,338 |
|
Short-term
borrowings
|
|
|
461,626 |
|
|
|
514,096 |
|
Accrued
expenses
|
|
|
295,086 |
|
|
|
358,301 |
|
Current
portion of capital lease
|
|
|
15,961 |
|
|
|
- |
|
Current
portion of deferred revenue
|
|
|
108,481 |
|
|
|
32,215 |
|
Current
portion of mortgage payable
|
|
|
222,537 |
|
|
|
215,394 |
|
Income
tax payable
|
|
|
6,284 |
|
|
|
9,160 |
|
Total
Current Liabilities
|
|
|
1,551,948 |
|
|
|
1,666,504 |
|
Deferred
tax liability
|
|
|
261,958 |
|
|
|
261,958 |
|
Long-term
portion of capital lease
|
|
|
47,786 |
|
|
|
- |
|
Long-term
portion of deferred revenue
|
|
|
48,570 |
|
|
|
62,978 |
|
Long-term
portion of mortgage payable
|
|
|
1,764,947 |
|
|
|
1,878,040 |
|
Total
Liabilities
|
|
|
3,675,209 |
|
|
|
3,869,480 |
|
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, 2007
and
4,698,825 shares issued and 4,687,908 shares outstanding as June
30,
2007
|
|
|
3,721,815 |
|
|
|
3,643,815 |
|
Contributed
capital
|
|
|
633,150 |
|
|
|
633,150 |
|
Accumulated
deficit
|
|
|
(994,212 |
) |
|
|
(956,571 |
) |
Treasury
stock, 10,917 common shares at cost
|
|
|
(6,140 |
) |
|
|
(6,140 |
) |
Total
Stockholders’ Equity
|
|
|
3,354,613 |
|
|
|
3,314,254 |
|
Total
Liabilities and Stockholders’ Equity
|
|
$ |
7,029,822 |
|
|
$ |
7,183,734 |
|
HYDROMER,
INC. and CONSOLIDATED SUBSIDIARY
CONSOLIDATED
STATEMENTS OF INCOME
|
|
Three
Months Ended
December
31,
|
|
|
Six
Months Ended
December
31,
|
|
|
|
2007
UNAUDITED
|
|
|
2006
UNAUDITED
|
|
|
2007
UNAUDITED
|
|
|
2006
UNAUDITED
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
Sale
of products
|
|
$ |
943,558 |
|
|
$ |
1,316,130 |
|
|
$ |
2,139,261 |
|
|
$ |
2,524,330 |
|
Service
revenues
|
|
|
413,094 |
|
|
|
361,422 |
|
|
|
784,319 |
|
|
|
729,902 |
|
Royalties
and Contract Revenues
|
|
|
401,874 |
|
|
|
406,335 |
|
|
|
794,159 |
|
|
|
857,428 |
|
Total
Revenues
|
|
|
1,758,526 |
|
|
|
2,083,887 |
|
|
|
3,717,739 |
|
|
|
4,111,660 |
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of Sales
|
|
|
707,317 |
|
|
|
748,658 |
|
|
|
1,510,808 |
|
|
|
1,596,243 |
|
Operating
Expenses
|
|
|
1,134,681 |
|
|
|
1,188,063 |
|
|
|
2,208,887 |
|
|
|
2,544,942 |
|
Other
Expenses / (Income)
|
|
|
38,197 |
|
|
|
44,398 |
|
|
|
81,040 |
|
|
|
87,518 |
|
(Benefit
from) Provision for from Income Taxes
|
|
|
(35,354 |
) |
|
|
40,079 |
|
|
|
(45,354 |
) |
|
|
(28,897 |
) |
Total
Expenses
|
|
|
1,844,841 |
|
|
|
2,021,198 |
|
|
|
3,755,381 |
|
|
|
4,199,806 |
|
Net
(Loss) Income
|
|
$ |
(86,315 |
) |
|
$ |
62,689 |
|
|
$ |
(37,642 |
) |
|
$ |
(88,146 |
) |
(Loss)
Earnings Per Common Share
|
|
$
|
(0.02
|
).
|
|
$
|
0.01
.
|
|
|
$
|
(0.01
|
)
|
|
$
|
(0.02
|
)
|
Weighted
Average Number of Common
Shares Outstanding
|
|
|
4,747,984 |
|
|
|
4,644,164 |
|
|
|
4,725,337 |
|
|
|
4,644,164 |
|
The
effects of the common stock equivalents on diluted earnings per
share
are
not included as their effect would be anti-dilutive.
The
diluted earnings per
share for the three months ended December 31, 2006
is
$0.01 per
share
based
on the effect of 164,000 dilutive shares (stock
options)
HYDROMER,
INC. and CONSOLIDATED SUBSIDIARY
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
|
Six
Months Ended
December
31
|
|
|
|
2007
UNAUDITED
|
|
|
2006
UNAUDITED
|
|
Cash
Flows From Operating Activities:
|
|
|
|
|
|
|
Net
Loss
|
|
$ |
(37,642 |
) |
|
$ |
(88,146 |
) |
Adjustments
to reconcile net loss to net cash provided by (used for) operating
activities
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
209,622 |
|
|
|
197,909 |
|
Deferred
income taxes
|
|
|
(48,219 |
) |
|
|
(28,897 |
) |
Changes
in Assets and Liabilities:
|
|
|
|
|
|
|
|
|
Trade
receivables
|
|
|
189,294 |
|
|
|
215,955 |
|
Inventory
|
|
|
46,391 |
|
|
|
78,359 |
|
Prepaid
expenses
|
|
|
39,840 |
|
|
|
50,212 |
|
Other
assets
|
|
|
12,016 |
|
|
|
14,479 |
|
Accounts
payable and accrued
liabilities
|
|
|
(158,579 |
) |
|
|
(127,433 |
) |
Deferred
income
|
|
|
61,858 |
|
|
|
(115,790 |
) |
Income
taxes
payable
|
|
|
(2,876 |
) |
|
|
36,735 |
|
Net
Cash Provided by Operating Activities
|
|
|
311,705 |
|
|
|
233,383 |
|
|
|
|
|
|
|
|
|
|
Cash
Flows From Investing Activities:
|
|
|
|
|
|
|
|
|
Cash
purchases of property and equipment
|
|
|
(98,248 |
) |
|
|
(44,728 |
) |
Cash
payments on patents and trademarks
|
|
|
(106,680 |
) |
|
|
(136,910 |
) |
Net
Cash Used for Investing Activities
|
|
|
(204,928 |
) |
|
|
(181,638 |
) |
|
|
|
|
|
|
|
|
|
Cash
Flows From Financing Activities:
|
|
|
|
|
|
|
|
|
Net
borrowings against Line of Credit
|
|
|
(52,470 |
) |
|
|
(124,720 |
) |
Repayment
of long-term borrowings
|
|
|
(105,950 |
) |
|
|
(99,268 |
) |
Proceeds
from the issuance of common stock
|
|
|
78,000 |
|
|
|
- |
|
Net
Cash Used for Financing Activities
|
|
|
(80,420 |
) |
|
|
(223,988 |
) |
|
|
|
|
|
|
|
|
|
Net
Increase (Decrease) in Cash and Cash Equivalents:
|
|
|
26,357 |
|
|
|
(172,243 |
) |
Cash
and Cash Equivalents at Beginning of Period
|
|
|
146,338 |
|
|
|
434,865 |
|
Cash
and Cash Equivalents at End of Period
|
|
$ |
172,695 |
|
|
$ |
262,622 |
|
|
|
|
|
|
|
|
|
|
Supplemental
Non-Cash Investing & Financing Activites:
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.
Subsequent
Events:
In
January 2008, the Company renewed its Line of Credit facility to a final
maturity of September 30, 2008. The renewed credit facility,
effective at $575,000, will have the line reduced $12,500 each month beginning
March 1, 2008 and carries a rate of LIBOR + 3.75%. The rate of the
Company's Line of Credit facility at December 31, 2007 was 7.63% (LIBOR +
3.00%).
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
|
|
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 |
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$ |
2,231,934 |
|
|
$ |
1,879,726 |
|
|
|
|
|
|
$ |
4,111,660 |
|
Expenses
|
|
|
(1,850,442 |
)
|
|
|
(1,637,221 |
)
|
|
$ |
(741,040 |
)
|
|
|
(4,228,703 |
)
|
Pre-tax
Income (Loss)
|
|
$ |
381,492 |
|
|
$ |
242,505 |
|
|
$ |
(741,040 |
)
|
|
$ |
(117,043 |
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Geographic
revenues were as follows for the six months ended December 31,
|
2007
|
2006
|
Domestic
|
82%
|
86%
|
Foreign
|
18%
|
14%
|
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, 2007 were $1,758,526, down
15.6% from the $2,083,887 for the same period last year. Revenues for
the six months ended December 31, 2007 were $3,717,793, or 9.6% lower than
the
$4,111,660 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 $1,356,652 for the quarter ended December 31, 2007
as
compared to $1,677,552 for the same period the year before, a decrease of
$320,900 or 19.1%. The quarter’s revenues the year before included
the periodic revenues from T-Hexx Dry private label orders (which for this
fiscal year, was included in the quarter ended September 30,
2007.) For the six months ended December 31, 2007, product sales and
services were $2,923,580, down 10.2% (or $330,652) from the $3,254,232 the
year
before. Delayed 2007 sales into January 2008 (approximately $80,000
in delayed sales due to toll manufacturing delays, or for one order, awaiting
prepayment) was further compounded by an inventory call the year before in
2006
of $162,000 (one of our medical device customers moved production from our
facilities to their foreign site; along with this permanent reduction in
revenues is a corresponding reduction to our production costs) resulted in
the
total revenue decrease.
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 December 31,
2007, Royalty and Contract revenues were $401,874, down $4,461 or 1.1% from
the
$406,335 the same period a year ago. Royalty and Contract revenues
were $794,159 and $857,428 for the six month periods ended December 31, 2007
and
2006, respectively. Included in the 2006 period were the final
amortization of a technology transfer agreement and a standstill agreement
aggregating $52,500.
As
of
December 31, 2007, our open sales order book was approximately
$1,360,000. Although some of the sales orders can be cancelled prior
to production, the Company is of the opinion that no substantial cancellations
will occur. Excluded from the open sales order book are future orders
that call for immediate or very short-term delivery. As an example,
the open sales amount for Contract Coating Services at December 31, 2007
was approximately $156,000. Contract Coating Services revenues for
January 2008 was $193,000 while open sales at the end of January 2008 was
$139,000.
Total
Expenses for the quarter ended December 31, 2007 were $1,844,841 as compared
with $2,021,198 the year before, an 8.7% decrease. For the six months
ended December 31, 2007 (fiscal 2008), total Expenses were $3,755,381 as
compared with $4,199,806 the same period the year before, or lower by
10.6%.
The
Company’s Cost of Goods Sold was $707,317 for the quarter ended December 31,
2007 as compared with $748,658 the year prior, lower by 5.5%. On a
year-to-date basis, Cost of Goods Sold was $1,510,808 for fiscal 2008 as
compared with $1,596,243 in fiscal 2007, $85,435 or 5.4% lower. Lower
product sales, in part due to the elimination of a medical device product line
in fiscal 2007 (transferred to the customer’s internal facilities), reduced
manufacturing labor while we continued to supply coating
formulations. This cost reduction was offset by overtime and
increased staffing to meet customer demand for our contract coating services
while equipment was being built to further automate the process in anticipation
of future cost reductions.
Operating
expenses were $1,134,681 for the quarter ended December 31, 2007 as compared
with $1,188,063 the year before, down $53,383 or 4.5%. For the six
months ended December 31, 2007, Operating expenses were $2,208,887 as compared
with $2,544,942 the year before, down $336,055 or 13.2%. Lower
staffing levels reduced salaries expense during the current period as compared
with the corresponding period a year ago.
Interest
expense, interest income and other income are included in Other
Expenses. Interest expense for the six months ended December 31, 2007
and December 31, 2006 were $87,348 and $96,492, respectively, down from a lower
utilization of the line-of-credit facility. Interest income for the
six months ended December 31, 2007 and December 31, 2006 were $1,358 and $8,945,
respectively, lower from a decrease in investable funds during the
period.
A
net
loss of $86,315 ($0.02 per share) is reported for the quarter ended December
31,
2007 as compared to net income of $62,689 ($0.01 per share) the year
before. For the six months ended December 31, 2007, a net loss of
$37,642 ($0.01 per share) is reported as compared to a net loss of $88,146
($0.02 per share) the year before.
Despite
$393,921 in lower revenues this fiscal year-to-date, $162,000 from the transfer
of production to our customer’s facilities and having at least $80,000 delayed
into January 2008, cost reductions, primarily reduced staffing levels, and
a
higher Income Tax Benefit, resulted in an improved bottom line
result. Included in the current period’s Operating Expenses are
re-investment expenditures of the Company: research and development and the
amortization of patent expenditures costs which can provide for future
returns. For the six months ended December 31, 2007, these
re-investment expenditures accounted for approximately $557,000 or 25.2% of
the
operating expenses. Research developments in our antimicrobial
technologies, patent pending, from a few years ago are creating extreme current
interest after being introduced a few years ago. Our more recent
developments are in the areas of thrombogenicity and cell mitosis, for use
in the cardiovascular and neurovascular fields. These patent
pending developments are still under evaluation. Planned
in vivo (animal) studies on our
cardiovascular stent coatings have been delayed due to the allocation of
research resources towards the potentially revenue generating anti-microbial
projects.
Financial
Condition
Working
capital decreased $146,628 during the six months ended December 31,
2007.
Net
operating activities provided $311,705 for the six month period ended December
31, 2007.
The
net
loss as adjusted for non-cash expenses, provided $123,762 in
cash. The collections of accounts receivables and amounts in advance,
provided for a $251,152 source of cash.
Investing
activities used $204,928 and financing activities used $80,420 during the six
months ended December 31, 2007.
During
the six months, the Company expended $161,995 on capital expenditures including
equipment of $63,747 acquired via a capital lease, and $106,680 into its patent
estate. The Company repaid $52,470 towards its revolving line of
credit and $105,950 to its long-term borrowings. Common stock was
issued for $78,000 during the current period.
Following
the restructuring program a few years ago in which the new developments in
the
areas of anti-thrombogenicity and anti-cell mitosis arose, adding to the legacy
lubricious coatings and hydrogels and more recent anti-microbial technologies,
the Company is able to streamline its operations and reduce costs without a
major impact to ongoing revenues. This enabled to Company to improve
its financial position, however continued new revenue streams from paid R&D
projects or new customers or product lines or from higher volumes in addition
to
available financing credit in the interim is imperative to the continued success
of the Company.
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 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:
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b)
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Reports
on form 8-K – There were no Form 8-K’s filed during the quarter ending
December 31, 2007.
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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 |
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Robert
Y.
Lee
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Chief
Financial
Officer
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DATE:
February 13, 2008
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