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: SEPTEMBER 30, 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 October 31, 1996 ----- ------------------------------- Common Stock, $.01 Par Value 7,390,078 2 PART I. FINANCIAL INFORMATION ITEM I. FINANCIAL STATEMENTS HYCOR BIOMEDICAL INC. CONDENSED CONSOLIDATED BALANCE SHEETS September 30, December 31, ASSETS 1996 1995 ------------- ------------ CURRENT ASSETS: (unaudited) Cash and cash equivalents $ 138,233 $ 1,033,459 Investments 5,200,477 6,365,995 Accounts Receivable, net of allowance for doubtful accounts of $207,390 and $136,604 3,045,780 3,679,419 Inventories (Note 2) 4,162,256 3,948,564 Prepaid expenses and other current assets 439,707 685,399 Deferred income tax benefit 1,219,224 1,138,000 ----------- ----------- Total current assets 14,205,677 16,850,836 ----------- ----------- PROPERTY AND EQUIPMENT, at cost 11,297,909 10,469,775 Less accumulated depreciation (6,615,392) (5,742,459) ----------- ----------- 4,682,517 4,727,316 ----------- ----------- GOODWILL AND OTHER INTANGIBLES, net of amortization of $807,555 and $1,015,082 4,394,830 4,773,904 DEFERRED INCOME TAX BENEFIT 877,000 877,000 OTHER ASSETS 332,044 346,316 ----------- ----------- Total assets $24,492,068 $27,575,372 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable $ 835,983 $ 982,646 Accrued liabilities 582,794 1,252,718 Accrued payroll expenses 583,688 1,000,542 Accrued income taxes (96,408) - ----------- ----------- Total current liabilities 1,906,057 3,235,906 ----------- ----------- STOCKHOLDERS' EQUITY: Common stock 74,206 77,303 Paid-in capital 13,273,714 14,806,686 Retained earnings 9,231,360 9,215,989 Foreign currency translation adjustments 61,039 254,445 Unrealized losses on investments, net (54,308) (14,957) ----------- ----------- Total stockholders' equity 22,586,011 24,339,466 ----------- ----------- Total liabilities and stockholders' equity $24,492,068 $27,575,372 =========== =========== Page 2 3 HYCOR BIOMEDICAL INC. CONDENSED CONSOLIDATED STATEMENTS OF INCOME (unaudited) Three Months Ended Nine Months Ended September 30, September 30, ----------------------------- ---------------------------- 1996 1995 1996 1995 -------- -------- -------- -------- NET SALES $4,736,927 $5,680,775 $15,215,194 $18,938,102 COST OF SALES 2,254,307 2,607,538 6,866,042 8,432,542 ---------- ---------- ----------- ----------- Gross profit 2,482,620 3,073,237 8,349,152 10,505,560 ---------- ---------- ----------- ----------- OPERATING EXPENSES Selling, general and administrative 2,096,017 2,348,314 6,602,541 7,018,422 Research and development 734,118 595,837 2,080,032 1,757,882 ---------- ---------- ----------- ----------- 2,830,135 2,944,151 8,682,573 8,776,304 ---------- ---------- ----------- ----------- OPERATING INCOME (LOSS) (347,515) 129,086 (333,421) 1,729,256 INTEREST INCOME, net 93,141 93,199 310,476 208,573 FOREIGN EXCHANGE G/(L) 12,622 29,199 24,296 182,236 ---------- ---------- ----------- ----------- INCOME (LOSS) BEFORE TAXES (241,752) 251,484 1,351 2,120,065 INCOME TAX PROVISION (BENEFIT) (110,696) 103,389 (14,020) 850,366 ---------- ---------- ----------- ----------- NET INCOME (LOSS) $ (131,056) $ 148,095 $ 15,371 $ 1,269,699 ========== ========== =========== =========== NET INCOME (LOSS) PER SHARE $ (.02) $ .02 $ .00 $ .15 ========== ========== =========== =========== AVE. COMMON SHARES OUTSTANDING 7,698,527 8,286,333 7,817,794 8,315,209 Page 3 4 HYCOR BIOMEDICAL INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) Nine Months Ended September 30, 1996 1995 CASH FLOWS FROM OPERATING ACTIVITIES: -------------- -------------- Net income $ 15,371 $1,269,699 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 1,417,804 1,752,700 Deferred income tax provision (205,654) 135,745 Gain on foreign currency transactions (24,296) (182,236) (Gain) Loss on sale of assets (1,024) - Change in assets and liabilities, net of effects of foreign currency adjustments Accounts receivable 611,951 618,400 Inventories (242,571) (193,607) Prepaid expenses and other current assets 255,441 178,732 Accounts payable (133,525) (409,629) Accrued liabilities (651,751) 8,188 Accrued payroll expenses (415,319) (14,872) Accrued income taxes 101,591 592,640 ----------- ---------- Total adjustments 712,647 2,486,061 ----------- ---------- Net cash provided by (used in) operating activities 728,018 3,755,760 ----------- ---------- CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from sales of investments 1,044,298 310,650 Purchases of intangible assets (8,799) (42,266) Purchases of property, plant and equipment (1,134,651) (987,014) Proceeds from collection of notes receivable 4,222 20,620 ----------- ---------- Net cash provided by (used in) investing activities (94,930) (698,010) ----------- ---------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issuance of common stock 130,204 245,746 Purchases of Hycor common stock (1,666,273) (713,673) ----------- ---------- Net cash provided by (used in) financing activities (1,536,069) (467,927) ----------- ---------- EFFECT OF EXCHANGE RATE CHANGES ON CASH 7,755 233,583 INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (895,226) 2,823,406 CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 1,033,459 1,404,262 ----------- ---------- CASH AND CASH EQUIVALENTS, END OF PERIOD $ 138,233 $4,227,668 =========== ========== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid during the year - interest - - - income taxes $ 239,103 $1,461,771 Page 4 5 HYCOR BIOMEDICAL INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS September 30, 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 September 30, 1996 and December 31, 1995, the results of operations and the cash flows for the three and nine-month periods ended September 30, 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 September 30, 1996 and December 31, 1995 consist of: 9/30/96 12/31/95 ------- -------- Raw materials $1,258,261 $1,325,973 Work in process 1,732,004 1,787,292 Finished goods 2,555,500 2,774,801 Allowance for discontinued product lines and excess, obsolete and short-dated (1,383,509) (1,939,502) inventories ---------- ---------- $4,162,256 $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 $1,412,000 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. 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. Page 6 7 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 decreased its working capital $1,315,000 as of September 30, 1996, compared to December 31, 1995. This decrease was primarily a result of capital utilized in the stock repurchase program, offset by increases from 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 and nine-month periods ended September 30, 1996, sales decreased 17% and 20%, respectively, compared to the same period last year, primarily due to the discontinuation of several product lines as part of the Plan. Gross profit as a percentage of product sales decreased for the quarter from approximately 54% to 52% and remained at 55% for the same period year-to-date. Selling, general and administrative expenses for the three and nine-month periods ended September 30, 1996 have decreased approximately 11% and 6% over the prior year periods. This decrease is primarily due to the impact on expenses resulting from the sale of Meridian, partially offset by costs page 7 8 related to the implementation of the Plan which includes expanding marketing and R&D programs. Research and development expenses for the three and nine-month periods ended September 30, 1996 have increased approximately 23% and 18%, respectively, over the prior year periods 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: November 14, 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