UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: September 30, 2001
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________________ to __________________
Commission File Number: 0-11647
HYCOR BIOMEDICAL INC.
Delaware | 58-1437178 | |
(State or other jurisdiction of incorporation or organization) | (I. R. S. Employer Identification No.) |
7272 Chapman Avenue, Garden Grove, California 92841
Registrant’s telephone number, including area code (714) 933-3000
No Change
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 reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
Class | Outstanding at October 19, 2001 | |
Common Stock, $.01 Par Value | 8,002,225 |
PART I. FINANCIAL INFORMATION
ITEM I. FINANCIAL STATEMENTS
HYCOR BIOMEDICAL INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
September 30, | December 31, | |||||||||||
2001 | 2000 | |||||||||||
(unaudited) | ||||||||||||
CURRENT ASSETS: | ||||||||||||
Cash and cash equivalents | $ | 990,926 | $ | 694,764 | ||||||||
Investments | 1,734,979 | 1,616,587 | ||||||||||
Accounts receivable, net of allowance for doubtful accounts of $175,688 (2001) and $138,208 (2000) | 2,561,752 | 3,215,869 | ||||||||||
Inventories (Note 2) | 5,364,760 | 4,719,050 | ||||||||||
Prepaid expenses and other current assets | 318,340 | 355,712 | ||||||||||
Total current assets | 10,970,757 | 10,601,982 | ||||||||||
PROPERTY AND EQUIPMENT, at cost | 10,660,097 | 10,341,305 | ||||||||||
Less accumulated depreciation | (7,884,863 | ) | (7,259,584 | ) | ||||||||
Property and equipment, net | 2,775,234 | 3,081,721 | ||||||||||
GOODWILL AND OTHER INTANGIBLE ASSETS, net of accumulated amortization of $1,080,959 (2001) and $1,020,728 (2000) | 1,001,097 | 1,147,987 | ||||||||||
OTHER ASSETS | 36,180 | 36,180 | ||||||||||
Total assets | $ | 14,783,268 | $ | 14,867,870 | ||||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||||||
CURRENT LIABILITIES: | ||||||||||||
Accounts payable | $ | 550,852 | $ | 584,629 | ||||||||
Accrued liabilities | 641,847 | 735,678 | ||||||||||
Accrued payroll expenses | 538,642 | 995,122 | ||||||||||
Current portion of long-term debt (Note 3) | 1,028,725 | 1,054,684 | ||||||||||
Total current liabilities | 2,760,066 | 3,370,113 | ||||||||||
Long-term debt (Note 3) | 11,273 | 28,925 | ||||||||||
Total liabilities | 2,771,339 | 3,399,038 | ||||||||||
STOCKHOLDERS’ EQUITY: | ||||||||||||
Common stock | 80,022 | 77,389 | ||||||||||
Paid-in capital | 12,824,377 | 12,640,536 | ||||||||||
Accumulated earnings (deficit) | 69,872 | (390,505 | ) | |||||||||
Accumulated other comprehensive loss | (962,342 | ) | (858,588 | ) | ||||||||
Total stockholders’ equity | 12,011,929 | 11,468,832 | ||||||||||
Total liabilities and stockholders’ equity | $ | 14,783,268 | $ | 14,867,870 | ||||||||
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HYCOR BIOMEDICAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE OPERATIONS
(unaudited)
Three Months Ended | Nine Months Ended | |||||||||||||||||||||||
September 30, | September 30, | |||||||||||||||||||||||
2001 | 2000 | 2001 | 2000 | |||||||||||||||||||||
NET SALES | $ | 4,113,133 | $ | 4,080,968 | $ | 12,623,212 | $ | 13,012,545 | ||||||||||||||||
COST OF SALES | 1,829,940 | 1,735,928 | 5,590,464 | 5,688,078 | ||||||||||||||||||||
Gross profit | 2,283,193 | 2,345,040 | 7,032,748 | 7,324,467 | ||||||||||||||||||||
OPERATING EXPENSES: | ||||||||||||||||||||||||
Selling, general, and administrative | 1,698,484 | 1,574,656 | 5,034,489 | 5,135,055 | ||||||||||||||||||||
Research and development | 426,203 | 462,163 | 1,477,109 | 1,344,385 | ||||||||||||||||||||
Total operating expenses | 2,124,687 | 2,036,819 | 6,511,598 | 6,479,440 | ||||||||||||||||||||
OPERATING INCOME | 158,506 | 308,221 | 521,150 | 845,027 | ||||||||||||||||||||
INTEREST EXPENSE | 14,159 | 26,823 | 43,276 | 75,464 | ||||||||||||||||||||
INTEREST INCOME | 31,477 | 56,661 | 99,930 | 139,205 | ||||||||||||||||||||
GAIN (LOSS) ON FOREIGN CURRENCY TRANSACTIONS | 22,308 | 13,761 | 1,461 | (28,536 | ) | |||||||||||||||||||
INCOME BEFORE INCOME TAX PROVISION | 198,132 | 351,820 | 579,265 | 880,232 | ||||||||||||||||||||
INCOME TAX PROVISION | 51,191 | 32,876 | 118,888 | 71,436 | ||||||||||||||||||||
NET INCOME | $ | 146,941 | $ | 318,944 | $ | 460,377 | $ | 808,796 | ||||||||||||||||
BASIC EARNINGS PER SHARE | $ | 0.02 | $ | 0.04 | $ | 0.06 | $ | 0.11 | ||||||||||||||||
DILUTED EARNINGS PER SHARE | $ | 0.02 | $ | 0.04 | $ | 0.06 | $ | 0.10 | ||||||||||||||||
AVERAGE COMMON SHARES OUTSTANDING: | ||||||||||||||||||||||||
Basic | 7,985,828 | 7,531,062 | 7,913,314 | 7,422,228 | ||||||||||||||||||||
Diluted | 8,249,279 | 8,101,832 | 8,193,197 | 7,953,738 | ||||||||||||||||||||
CONSOLIDATED STATEMENTS OF COMPREHENSIVE OPERATIONS | ||||||||||||||||||||||||
Net Income | $ | 146,941 | $ | 318,944 | $ | 460,377 | $ | 808,796 | ||||||||||||||||
OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX | ||||||||||||||||||||||||
Foreign currency translation adjustments | 34,471 | (276,623 | ) | (219,073 | ) | (380,348 | ) | |||||||||||||||||
Unrealized gains (losses) on securities | 43,146 | 12,139 | 115,319 | (6,919 | ) | |||||||||||||||||||
OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX | 77,617 | (264,484 | ) | (103,754 | ) | (387,267 | ) | |||||||||||||||||
COMPREHENSIVE INCOME | $ | 224,558 | $ | 54,460 | $ | 356,623 | $ | 421,529 | ||||||||||||||||
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HYCOR BIOMEDICAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
September 30, | September 30, | |||||||||||
2001 | 2000 | |||||||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||||||
Net income | $ | 460,377 | $ | 808,796 | ||||||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||||||
Depreciation and amortization | 843,033 | 874,358 | ||||||||||
Provision for doubtful accounts receivable | 53,764 | 102,365 | ||||||||||
Provision for excess and obsolete inventories | 17,443 | 331,223 | ||||||||||
Gain on sales of assets | — | (14,306 | ) | |||||||||
Change in assets and liabilities, net of effects of foreign currency adjustments: | ||||||||||||
Accounts receivable | 572,805 | (262,263 | ) | |||||||||
Inventories | (693,176 | ) | (720,860 | ) | ||||||||
Prepaid expenses and other current assets | 12,712 | 13,357 | ||||||||||
Accounts payable | (25,554 | ) | (112,737 | ) | ||||||||
Accrued liabilities | 22,320 | (335,601 | ) | |||||||||
Accrued payroll expenses | (454,966 | ) | 404,113 | |||||||||
Total adjustments | 348,381 | 279,649 | ||||||||||
Net cash provided by operating activities | 808,758 | 1,088,445 | ||||||||||
CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||||||
Purchases of investments | — | (1,158,934 | ) | |||||||||
Proceeds from sales of investments | 20,000 | 1,076,000 | ||||||||||
Purchases of property, plant and equipment | (431,372 | ) | (682,491 | ) | ||||||||
Other | (6,355 | ) | 37,215 | |||||||||
Net cash used in investing activities | (417,727 | ) | (728,210 | ) | ||||||||
CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||||||
Principal payments on long-term debt | (42,031 | ) | (570,770 | ) | ||||||||
Proceeds from issuance of common stock | 72,707 | 159,968 | ||||||||||
Net cash provided by (used in) financing activities | 30,676 | (410,802 | ) | |||||||||
EFFECT OF EXCHANGE RATE CHANGES ON CASH | (125,545 | ) | 70,569 | |||||||||
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS | 296,162 | 20,002 | ||||||||||
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD | 694,764 | 551,295 | ||||||||||
CASH AND CASH EQUIVALENTS, END OF PERIOD | $ | 990,926 | $ | 571,297 | ||||||||
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION | ||||||||||||
Cash paid during the period — interest | $ | 63,095 | $ | 95,902 | ||||||||
— income taxes | $ | 32,161 | $ | 72,018 |
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HYCOR BIOMEDICAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2001
1. Basis of Presentation
In the opinion of the Company, the accompanying unaudited consolidated financial statements include all adjustments necessary to present fairly the financial position as of September 30, 2001 and December 31, 2000, the results of operations and the cash flows for the three and nine-month periods ended September 30, 2001 and 2000. | |
These statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission and do not include all the information and note disclosures required by accounting principles generally accepted in the United States of America for complete financial statements and may be subject to year-end adjustments. | |
The consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s 2000 annual report on Form 10-K as filed with the Securities and Exchange Commission. Certain items in the 2000 consolidated financial statements have been reclassified to conform to the 2001 presentation. | |
The results of operations for any interim period are not necessarily indicative of results to be expected for the full year. | |
Basic earnings per share is computed by dividing net income by the weighted-average number of shares outstanding, while diluted EPS additionally includes the dilutive effect of the Company’s outstanding options and warrants computed using the treasury stock method. |
2. Inventories
Inventories are valued at the lower of cost (first-in, first-out method) or market. Cost includes material, direct labor, and manufacturing overhead. Inventories at September 30, 2001 and December 31, 2000 consist of: |
9/30/01 | 12/31/00 | |||||||
Raw materials | $ | 1,566,051 | $ | 1,128,822 | ||||
Work in process | 1,687,374 | 2,181,753 | ||||||
Finished goods | 2,111,335 | 1,408,475 | ||||||
$ | 5,364,760 | $ | 4,719,050 | |||||
3. Long Term Debt
The Company has a line of credit that provides for borrowings up to $2,000,000 that expires on July 31, 2003. The loan is collateralized by the Company’s accounts receivable, inventories, and property, plant, and equipment. At September 30, 2001, $1,000,000 was outstanding. Advances under the line bear interest at the prime rate or at LIBOR plus 2% (5.7% at September 30, 2001). |
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The line of credit contains restrictive covenants, the most significant of which relate to the maintenance of minimum tangible net worth, debt-to-tangible net worth requirements, and liquid assets plus accounts receivable-to-current liabilities requirements. At September 30, 2001, the Company was in compliance with such covenants. | |
In addition, the Company and one of its foreign subsidiaries has long-term debt, payable to financial institutions, aggregating approximately $40,000 at September 30, 2001 with weighted average interest rate of approximately 9.3%. |
4. New Accounting Pronouncements
In June 2001 the Financial Accounting Standards Board approved Statement of Financial Accounting Standard No. 141, “Business Combinations,” and SFAS No. 142, “Goodwill and Other Intangible Assets.” SFAS No. 141 prospectively prohibits the pooling of interest method of accounting for business combinations initiated after June 30, 2001. SFAS No. 142 requires companies to cease amortizing goodwill that existed at June 30, 2001 on December 31, 2001. Any goodwill resulting from acquisitions completed after June 30, 2001 will not be amortized. SFAS No. 142 also establishes a new method of testing goodwill for impairment on an annual basis or on an interim basis if an event occurs or circumstances change that would reduce the fair value of a reporting unit below its carrying value. These standards will be adopted in fiscal 2002. The Company is currently evaluating the impact that these standards will have on its financial statements. |
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
General
This Section and this entire report contain forward-looking statements and include assumptions concerning the Company’s operations, future results and prospects. These forward-looking statements are based on current expectations and are subject to a number of risks, uncertainties, and other factors. In connection with the Private Securities Litigation Reform Act of 1995, the Company provides the following cautionary statements identifying important factors which, among other things, could cause the actual results and events to differ materially from those set forth in or implied by the forward-looking statements and related assumptions contained in this Section and in this entire Report.
Such factors include, but are not limited to, product demand and market acceptance risks; the effect of economic conditions; the impact of competitive products and pricing; product development; commercialization and technological difficulties; capacity and supply constraints or difficulties; availability of capital resources; general business and economic conditions, including currency risks based on the relative strength or weakness of the U.S. dollar, euro conversions, and changes in government laws and regulations, including taxes.
Liquidity
The Company has adequate working capital and sources of capital to carry on its current business and to meet its existing and expected future capital requirements. As of September 30, 2001, the Company increased its working capital approximately $979,000 when compared to December 31, 2000, as a result of normal operations.
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The Company’s principal capital commitments are to support the HY-TEC business, which requires the purchase of instruments. In many cases, the instruments are placed in use in laboratories of the Company’s direct customers and paid for over an agreed contract period by the purchase of test reagents. This “reagent rental” sales program, common to the diagnostic market, creates negative cash flows in the initial years. The Company has entered into a long-term product manufacturing and sales agreement to purchase certain minimum levels of HY-TEC instruments. Working capital, operating results, and the available line of credit are expected to be sufficient to satisfy this commitment and the needs of operations for the foreseeable future.
Results of Operations
During the three-month period ended September 30, 2001, sales increased approximately $32,000 or 0.8%, compared to the same period last year. During the nine-month period ended September 30, 2001, sales decreased approximately $389,000 or 3.0%, compared to the same period last year. The decrease in sales is primarily due to the sale of our hematology product line in September 2000 and the impact of foreign currency translations. In periods when the U.S. dollar is strengthening, the translation impact on the financial statements of the consolidated foreign affiliates is that of lower sales, costs, and net income. The stronger U.S. dollar in the three and nine-month periods ended September 30, 2001, resulted in lower reported sales of approximately $23,000 or 0.6% and $171,000 or 1.4%, respectively. Continued pressures in the health care industry for cost controls affect the Company’s revenue and the Company anticipates that these pricing pressures will continue in the future.
Gross profit as a percentage of product sales decreased for the three and nine-month periods ended September 30, 2001 from approximately 57.5% to 55.5% and 56.3% to 55.7%, respectively, compared to the same periods last year. This decrease was due primarily to changes in the product mix.
Selling, general and administrative expenses increased for the three-month period ended September 30, 2001, approximately $123,000 or 7.9% and decreased for the nine-month period approximately $101,000 or 2.0%, when compared to the same periods last year. The increase for the three-month period versus the prior year was due primarily to the affect from a favorable settlement on a fully reserved collection dispute in the third quarter of 2000. The decrease for the nine-month period was primarily the result of non-recurring expenses in 2000, and a favorable year-to-date foreign exchange impact.
Research and development costs decreased for the three-month period ended September 30, 2001, approximately $36,000 or 7.8% and increased for the nine-month period, approximately $133,000 or 9.9%, when compared to the same periods last year. The decrease for the three-month period was primarily due to the completion of several projects, while the increase for the nine-month period was due to continuing developmental efforts on the HY-TEC product line.
7
Effective with the fourth quarter of 1998, the Company adopted a position wherein a 100% valuation allowance was taken against all deferred tax assets. The tax provision for the three and nine-month periods ended September 30, 2001 and September 30, 2000 reflects the provision for estimated federal, state, and foreign liabilities that are not offset by net operating loss carry-forwards.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Reports on Form 8K: None
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
HYCOR BIOMEDICAL INC. | ||||
Date: November 13, 2001 | By: | /s/ Armando Correa Armando Correa, Director of Finance (Mr. Correa is the Principal Accounting Officer and has been duly authorized to sign on behalf of the registrant.) |
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