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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: March 31, 2002 |
[ ] | 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
(Address of principal executive offices) (Zip Code)
Registrant’s telephone number, including area code (714) 933-3000
No Change
(Former name, former address and former fiscal year, if changed since last report)
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 April 19, 2002 | |
Common Stock, $.01 Par Value | 8,027,932 |
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PART I. FINANCIAL INFORMATION
ITEM I. FINANCIAL STATEMENTS
HYCOR BIOMEDICAL INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 31, | December 31, | |||||||||||
ASSETS | 2002 | 2001 | ||||||||||
CURRENT ASSETS: | (unaudited) | |||||||||||
Cash and cash equivalents | $ | 1,679,041 | $ | 1,354,334 | ||||||||
Investments | 1,688,145 | 1,728,236 | ||||||||||
Accounts receivable, net of allowance for doubtful accounts of $190,732 (2002) and $184,028 (2001) | 2,681,643 | 2,600,097 | ||||||||||
Inventories (Note 2) | 5,366,782 | 5,742,068 | ||||||||||
Prepaid expenses and other current assets | 320,773 | 230,393 | ||||||||||
Total current assets | 11,736,384 | 11,655,128 | ||||||||||
PROPERTY AND EQUIPMENT, at cost | 9,848,001 | 9,742,863 | ||||||||||
Less accumulated depreciation | (7,365,403 | ) | (7,180,582 | ) | ||||||||
Property and equipment, net | 2,482,598 | 2,562,281 | ||||||||||
GOODWILL | 156,338 | 156,338 | ||||||||||
INTANGIBLES AND OTHER ASSETS, net of Accumulated amortization of $141,551 (2002) and $139,553 (2001) | 101,379 | 102,945 | ||||||||||
Total assets | $ | 14,476,699 | $ | 14,476,692 | ||||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||||||
CURRENT LIABILITIES: | ||||||||||||
Accounts payable | $ | 408,127 | $ | 427,881 | ||||||||
Accrued liabilities | 654,017 | 588,898 | ||||||||||
Accrued payroll expenses | 486,425 | 682,608 | ||||||||||
Current debt (Note 3) | 1,017,912 | 1,026,476 | ||||||||||
Total current liabilities | 2,566,481 | 2,725,863 | ||||||||||
Long-term debt (Note 3) | — | 2,028 | ||||||||||
Total Liabilities | 2,566,481 | 2,727,891 | ||||||||||
STOCKHOLDERS’ EQUITY: | ||||||||||||
Common stock | 80,279 | 80,182 | ||||||||||
Paid-in capital | 12,876,485 | 12,859,098 | ||||||||||
Accumulated deficit | (94,652 | ) | (347,236 | ) | ||||||||
Accumulated other comprehensive loss | (951,894 | ) | (843,243 | ) | ||||||||
Total stockholders’ equity | 11,910,218 | 11,748,801 | ||||||||||
Total liabilities and stockholders’ equity | $ | 14,476,699 | $ | 14,476,692 | ||||||||
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HYCOR BIOMEDICAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
Three Months Ended | |||||||||||
March 31, | |||||||||||
2002 | 2001 | ||||||||||
NET SALES | $ | 4,571,509 | $ | 4,362,777 | |||||||
COST OF SALES | 2,225,037 | 2,004,790 | |||||||||
Gross profit | 2,346,472 | 2,357,987 | |||||||||
OPERATING EXPENSES: | |||||||||||
Selling, general, and administrative | 1,483,951 | 1,618,401 | |||||||||
Research and development | 584,533 | 566,887 | |||||||||
Total operating expenses | 2,068,484 | 2,185,288 | |||||||||
OPERATING INCOME | 277,988 | 172,699 | |||||||||
INTEREST EXPENSE | (10,475 | ) | (15,654 | ) | |||||||
INTEREST INCOME | 33,045 | 37,001 | |||||||||
LOSS ON FOREIGN CURRENCY TRANSACTIONS | (4,230 | ) | (9,724 | ) | |||||||
INCOME BEFORE INCOME TAX PROVISION | 296,328 | 184,322 | |||||||||
INCOME TAX PROVISION | 43,744 | 36,652 | |||||||||
NET INCOME | $ | 252,584 | $ | 147,670 | |||||||
BASIC EARNINGS PER SHARE | $ | 0.03 | $ | 0.02 | |||||||
DILUTED EARNINGS PER SHARE | $ | 0.03 | $ | 0.02 | |||||||
AVERAGE COMMON SHARES OUTSTANDING: | |||||||||||
Basic | 8,024,687 | 7,814,111 | |||||||||
Diluted | 8,229,876 | 8,254,947 | |||||||||
CONSOLIDATED STATEMENTS OF COMPREHENSIVE OPERATIONS | |||||||||||
Net Income | $ | 252,584 | $ | 147,670 | |||||||
OTHER COMPREHENSIVE LOSS, NET OF TAX | |||||||||||
Foreign currency translation adjustments | (56,461 | ) | (194,543 | ) | |||||||
Unrealized (losses) gains on securities | (56,382 | ) | 57,172 | ||||||||
Plus: reclassification adjustment for losses included in net income | 4,192 | — | |||||||||
OTHER COMPREHENSIVE LOSS, NET OF TAX | (108,651 | ) | (137,371 | ) | |||||||
COMPREHENSIVE INCOME | $ | 143,933 | $ | 10,299 | |||||||
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HYCOR BIOMEDICAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
Three Months Ended | ||||||||||||
March 31, | ||||||||||||
2002 | 2001 | |||||||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||||||
Net income | $ | 252,584 | $ | 147,670 | ||||||||
Adjustments to reconcile net income to net cash provided by (used in) operating activities: | ||||||||||||
Depreciation and amortization | 225,043 | 278,342 | ||||||||||
Provision for doubtful accounts receivable | 5,413 | 15,399 | ||||||||||
Provision for excess and obsolete inventories | 122,490 | 62,490 | ||||||||||
Loss on sales of investments | 4,521 | — | ||||||||||
Change in assets and liabilities, net of effects of foreign currency adjustments | ||||||||||||
Accounts receivable | (104,108 | ) | (465,974 | ) | ||||||||
Inventories | 229,198 | (268,544 | ) | |||||||||
Prepaid expenses and other current assets | (87,406 | ) | 16,968 | |||||||||
Accounts payable | (16,881 | ) | 56,185 | |||||||||
Accrued liabilities | 68,044 | 131,196 | ||||||||||
Accrued payroll expenses | (194,522 | ) | (311,994 | ) | ||||||||
Total adjustments | 251,792 | (485,932 | ) | |||||||||
Net cash provided by (used in) operating activities | 504,376 | (338,262 | ) | |||||||||
CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||||||
Purchases of investments | (298,700 | ) | — | |||||||||
Proceeds from sales of investments | 276,895 | 20,000 | ||||||||||
Purchases of property and equipment | (153,723 | ) | (72,860 | ) | ||||||||
Other | (453 | ) | (881 | ) | ||||||||
Net cash used in investing activities | (175,981 | ) | (53,741 | ) | ||||||||
CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||||||
Principal payments on long-term debt | (10,285 | ) | (15,027 | ) | ||||||||
Proceeds from issuance of common stock | 17,484 | 8,478 | ||||||||||
Net cash provided by (used in) financing activities | 7,199 | (6,549 | ) | |||||||||
EFFECT OF EXCHANGE RATE CHANGES ON CASH | (10,887 | ) | 878 | |||||||||
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS | 324,707 | (397,674 | ) | |||||||||
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD | 1,354,334 | 694,764 | ||||||||||
CASH AND CASH EQUIVALENTS, END OF PERIOD | $ | 1,679,041 | $ | 297,090 | ||||||||
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION- | ||||||||||||
Cash paid during the period — interest | $ | 10,596 | $ | 23,667 | ||||||||
— income taxes | $ | 30,383 | $ | 9,495 |
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HYCOR BIOMEDICAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2002
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 of the Company as of March 31, 2002 and December 31, 2001, the results of its operations and the cash flows for the three-month periods ended March 31, 2002 and 2001. |
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. |
These consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s 2001 annual report on Form 10-K as filed with the Securities and Exchange Commission. Certain items in the 2001 consolidated financial statements have been reclassified to conform to the 2002 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 March 31, 2002 and December 31, 2001 consist of: |
3/31/02 | 12/31/01 | |||||||
Raw materials | $ | 1,490,650 | $ | 1,572,660 | ||||
Work in process | 1,788,572 | 1,899,628 | ||||||
Finished goods | 2,087,560 | 2,269,780 | ||||||
$ | 5,366,782 | $ | 5,742,068 | |||||
3. Long Term Debt
The Company has a line of credit that provides for borrowings up to $2,000,000 and expires on July 31, 2003. The loan is collateralized by the Company’s accounts receivable, inventories, and property and equipment. At March 31, 2002, $1,000,000 was outstanding. |
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Advances under the line bear interest at the prime rate or at LIBOR plus 2% (4% at March 31, 2002). |
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 March 31, 2002, the Company was in compliance with such covenants. |
4. New Accounting Pronouncements
In June 2001, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets (“SFAS 142”). SFAS 142 addresses the financial accounting and reporting for acquired goodwill and other intangible assets. Under SFAS 142, the Company is no longer required to amortize goodwill and other intangible assets with indefinite lives but will be required to subject these assets to periodic testing for impairment. SFAS 142 supersedes APB Opinion No. 17, Intangible Assets, effective for fiscal years beginning after December 15, 2001. The Company adopted SFAS 142 effective December 31, 2001 and such adoption did not have a material impact on the Company’s consolidated financial statements. |
Statement of Financial Accounting Standards No. 143, Accounting for Obligations Associated with the Retirement of Long-Lived Assets (“SFAS 143”) was issued by the FASB in August 2001. SFAS 143 establishes accounting standards for the recognition and measurement of an asset retirement obligation and its associated asset retirement cost. It also provides accounting guidance for legal obligations associated with the retirement of tangible long-lived assets. SFAS 143 is effective for fiscal years beginning after June 15, 2002, with early adoption permitted. The Company adopted SFAS 143 effective December 31, 2001 and such adoption did not have a material impact on the Company’s consolidated financial statements. |
The FASB issued Statement of Financial Accounting standards No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets (“SFAS 144”) in October 2001. SFAS 144 establishes a single accounting model for the impairment or disposal of long-lived assets and new standards for reporting discontinued operations. SFAS 144 superseded Statement of Financial Accounting Standards No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of and APB Opinion No. 30, Reporting the Results of Operations — Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions. The provisions of SFAS 144 are effective in fiscal years beginning after December 15, 2001 and, in general, are to be applied prospectively. The Company adopted SFAS 144 effective December 31, 2001 and such adoption did not have a material impact on the Company’s consolidated financial statements. |
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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.
New Accounting Pronouncements
See Item 1, Notes to Consolidated Financial Statements.
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 March 31, 2002 the Company increased its working capital $240,638 when compared to December 31, 2001, as a result of normal operations.
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 March 31, 2002, sales increased approximately $209,000 or 4.8% compared to the same period last year. Sales of urinalysis and clinical immunology product lines increased $263,000 or 6.5%, while sales of other products decreased $54,000 or 18.8%, when compared to the same period last year. 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. Sales in the first quarter 2002 were
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affected by the strengthening dollar resulting in a negative foreign currency translation impact to foreign sales of approximately 3.8% and to consolidated reported sales of approximately $39,000 or 1.0% when compared to 2001. 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 three-month period ended March 31, 2002 to approximately 51.3% from 54.0% for the same period last year. This decrease was due primarily to changes in the product mix.
Selling, general and administrative expenses decreased approximately $134,000 or 8.3% when compared to the same period last year. This decrease is due primarily to reductions in staff due to current transaction levels and a favorable foreign exchange impact of approximately $39,000.
Research and development costs increased approximately $18,000 or 3.1% when compared to the same period last year. This increase is due to continuing developmental efforts on the HY-TEC product line.
The Company currently has a 100% valuation allowance against net deferred tax assets. The tax provision for the three-month periods ended March 31, 2002 and March 31, 2001 reflects the provision for estimated federal, state, and foreign liabilities that are not offset by net operating loss carry-forwards.
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PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit: Exhibit 3.2: Bylaws of Hycor Biomedical Inc.
(b) 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: May 13, 2002 | 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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Exhibit List
Exhibit No. | Name of Exhibit | |||
3.2 | Bylaws of Hycor Biomedical Inc. |
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