1 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, 1996 [ ] 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. - ------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Delaware 58-1437178 - -------------------------------------------- ------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 18800 Von Karman Avenue, Irvine, California 92715-1517 - -------------------------------------------- ------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (714) 440-2000 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 30, 1996 ----- ----------------------------- Common Stock, $.01 Par Value 7,704,291 2 PART I. FINANCIAL INFORMATION ITEM I. FINANCIAL STATEMENTS HYCOR BIOMEDICAL INC. CONDENSED CONSOLIDATED BALANCE SHEETS March 31, December 31, ASSETS 1996 1995 ---------- ------------ (unaudited) CURRENT ASSETS: Cash and cash equivalents $ 453,199 $ 1,033,459 Investments 6,277,035 6,365,995 Accounts Receivable, net of allowance for doubtful accounts of $158,261 and $136,604 3,583,824 3,679,419 Inventories (Note 2) 3,700,940 3,948,564 Prepaid expenses and other current assets 618,291 685,399 Deferred income tax benefit 1,222,951 1,138,000 ----------- ----------- Total current assets 15,856,240 16,850,836 ----------- ----------- PROPERTY AND EQUIPMENT, at cost 10,680,275 10,469,775 Less accumulated depreciation (5,944,263) (5,742,459) ----------- ----------- 4,736,012 4,727,316 ----------- ----------- GOODWILL AND OTHER INTANGIBLES, net of amortization of $1,088,214 and $1,015,082 4,588,554 4,773,904 DEFERRED INCOME TAX BENEFIT 877,000 877,000 OTHER ASSETS 334,739 346,316 ----------- ----------- Total assets $26,392,545 $27,575,372 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable 833,566 982,646 Accrued liabilities 806,255 1,252,718 Accrued payroll expenses 575,877 1,000,542 Accrued income taxes 7,929 - ----------- ----------- Total current liabilitIes 2,223,627 3,235,906 ----------- ----------- STOCKHOLDERS' EQUITY: Common stock 77,343 77,303 Paid-in capital 14,675,381 14,806,686 Retained earnings 9,270,352 9,215,989 Foreign currency translation adjustments 205,979 254,445 Unrealized losses on investments, net (60,137) (14,957) ----------- ----------- Total stockholders' equity 24,168,918 24,339,466 ----------- ----------- Total liabilities and stockholders' equity $26,392,545 $27,575,372 =========== =========== Page 2 3 HYCOR BIOMEDICAL INC. CONDENSED CONSOLIDATED STATEMENTS OF INCOME (unaudited) Three Months Ended March 31, --------------------------- 1996 1995 ---------- ---------- NET SALES $5,306,880 $6,492,935 COST OF SALES 2,464,355 2,895,013 ---------- ---------- Gross profit 2,842,525 3,597,922 ---------- ---------- OPERATING EXPENSES Selling, general and administrative 2,157,897 2,334,275 Research and development 700,427 634,560 ---------- ---------- 2,858,324 2,968,835 ---------- ---------- OPERATING INCOME (LOSS) (15,799) 629,087 INTEREST INCOME, net 113,375 60,726 GAIN ON FOREIGN CURRENCY TRANSACTIONS 12,679 231,327 ---------- ---------- INCOME BEFORE TAXES 110,255 921,140 PROVISION FOR INCOME TAXES 42,167 371,617 ---------- ---------- NET INCOME $ 68,088 $ 549,523 ========== ========== NET INCOME PER SHARE $ .01 $ .07 AVERAGE COMMON SHARES OUTSTANDING 7,936,863 8,283,922 Page 3 4 HYCOR BIOMEDICAL INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) Three Months Ended March 31, --------------------------- 1996 1995 ---------- ---------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 68,088 $ 549,524 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 496,566 568,727 Deferred income tax provision (63,744) 42,017 Gain on foreign currency transactions (12,679) (231,327) Change in assets and liabilities, net of effects of foreign currency adjustments Accounts receivable 85,620 (57,228) Inventories 235,841 40,688 Prepaid expenses and other current assets 76,979 133,816 Accounts payable (142,577) (385,257) Accrued liabilities (855,261) (511,087) Accrued income taxes 55,701 (590,519) ---------- ---------- Total adjustments (123,554) (990,170) ---------- ---------- Net cash provided by (used in) operating activities (55,466) (440,646) ---------- ---------- CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from sales of investments - 336,808 Purchases of intangible assets - (20,567) Purchases of property, plant and equipment (430,362) (207,555) Proceeds from collection of notes receivable 1,527 6,734 ---------- ---------- Net cash provided by (used in) investing activities (428,835) 115,420 ---------- ---------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issuance of common stock 74,880 191,370 Purchases of Hycor common stock (206,145) - ---------- ---------- Net cash provided by (used in) financing activities (131,265) 191,370 ---------- ---------- EFFECT OF EXCHANGE RATE CHANGES ON CASH 35,306 189,426 INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (580,260) 55,570 CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 1,033,459 1,366,956 ---------- ---------- CASH AND CASH EQUIVALENTS, END OF PERIOD $ 453,199 $1,422,526 ========== ========== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid during the year - interest - - - income taxes 82,587 965,863 Page 4 5 HYCOR BIOMEDICAL INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS March 31, 1996 1. BASIS OF PRESENTATION In the opinion of the Company, the accompanying financial statements contain adjustments necessary to present fairly the financial position as of March 31, 1996 and December 31, 1995, the results of operations and the cash flows for the three-month periods ended March 31, 1996 and 1995. The results of operations for any interim period are not necessarily indicative of results for the full year. 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 generally accepted accounting principles for complete financial statements and may be subject to year-end adjustments. The financial information contained in this report reflects all adjustments which, in the opinion of management, are necessary for a fair statement of the results of the interim periods. All adjustments are of a normal recurring nature except for those costs described in the following Item 2. "Management's Discussion and Analysis of Financial Condition and Results of Operations." The consolidated financial statements include the accounts of Hycor Biomedical Inc. and its wholly-owned subsidiaries. All material intercompany amounts and transactions have been eliminated. Reference is made to the audited financial statements and related notes included in the Company's Annual Report on Form 10-K for the year ended December 31, 1995. Certain items in the 1995 consolidated financial statements have been reclassified to conform with the 1996 presentation. Net income per share is based upon the weighted average number of shares outstanding during the periods plus common stock equivalents relating to warrants and options. The number of common stock equivalents relating to options and warrants is determined using the treasury stock method. Common stock equivalents are not included when their effect is antidilutive. Fully diluted net income per share approximates primary net income per share in each period. Page 5 6 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, 1996 and December 31, 1995 consist of: 3/31/96 12/31/95 ----------- ----------- Raw materials $ 1,311,786 $ 1,325,973 Work in process 1,584,987 1,787,292 Finished goods 2,825,934 2,774,801 Allowance for discontinued product lines and excess, obsolete and short-dated inventories (2,021,767) (1,939,502) ----------- ----------- $ 3,700,940 $ 3,948,564 =========== =========== 3. FOREIGN CURRENCY Realized gains or losses from foreign currency transactions are included in operations as incurred and relate to intercompany balances amounting to approximately $980,000 between Hycor and its German subsidiary. The Company has hedged the majority of this foreign currency exchange rate position. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Except for historical information contained herein, the matters discussed in this report are forward-looking statements which involve risk and uncertainties, including but not limited to economic, competitive, governmental and technological factors affecting the Company's operations, markets, products, services and prices and other factors discussed in the Company's filings with the Securities and Exchange Commission. RESTRUCTURING PLAN On July 27, 1995, the Company announced plans for a major restructuring designed to focus operations on high potential clinical immunology segments which management believes to have the greatest potential for future growth. The Restructuring Plan (the "Plan"), which was finalized in the fourth quarter of 1995, included the discontinuation of several product lines, the closure of the Company's New Jersey facility, and the disposition or relocation of certain fixed assets. Page 6 7 The total revenues related to the divested or discontinued product lines accounted for approximately 31%, 36%, and 45% of the Company's total revenues in 1995, 1994 and 1993, respectively. Although the Company believes that the sales growth resulting from the focused efforts in the clinical immunology markets will more than offset the decrease in revenues resulting from the restructuring, this is not expected to occur until after 1996. The Company therefore expects that 1996 revenues will show a decline from 1995. In addition to expected declines in total revenues, increased investment in marketing and research and development provided for in the Plan will cause increased expense levels in 1996 over 1995. FINANCIAL CONDITION The Company increased its working capital $18,000 as of March 31, 1996, compared to December 31, 1995. This increase was primarily a result of normal operations. The Company expects to be able to fund operations from current working capital and profits generated from operations. Cash and cash equivalents, marketable securities and receivables fluctuate throughout the year based upon the sales of products through distributors and the timing of the distributors related payments to the Company. These fluctuations do not have a significant seasonal component. The Company's principal capital commitments are for lease payments under non-cancelable operating leases and leasehold improvements. Working capital and operating profits are anticipated to be sufficient to satisfy these commitments. The Company is continuing to evaluate for acquisition additional product lines and companies in the medical diagnostics field. The Company could use sources other than cash from operations, such as issuance of debt or equity securities, to finance any such acquisition. If such an acquisition were completed, the Company's operating results and financial condition could change significantly in future periods. RESULTS OF OPERATIONS During the three-month period ended March 31, 1996, sales decreased 18%, compared to the same period last year and gross profit as a percentage of product sales for the three-month period decreased from approximately 55% to 54%. These decreases Page 7 8 were caused primarily by the discontinuation of several product lines as part of the Plan. Selling, general and administrative expenses for the three-month period ended March 31, 1996 have decreased approximately 8% over the prior year period. This decrease is primarily due to the impact on expenses resulting from the sale of Meridian, partially offset by costs related to the implementation of the Plan which includes expanding marketing and R&D programs. Research and development expenses for the three-month period ended March 31, 1996 have increased approximately 10% over the prior year period as the Company increased its investment in new product development in the areas of clinical immunology. PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K (a) Exhibits: Exhibit 27 - Financial Data Schedule (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, 1996 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.) Page 8