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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: JUNE 30, 1997
[ ] 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.
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(Exact name of registrant as specified in its charter)
Delaware 58-1437178
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(State or other jurisdiction of (I. R. S. Employer
incorporation or organization) Identification No.)
18800 Von Karman Avenue, Irvine, California 92612-1517
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (714) 440-2000
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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 July 31, 1997
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Common Stock, $.01 Par Value 7,121,876
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PART I. FINANCIAL INFORMATION
ITEM I. FINANCIAL STATEMENTS
HYCOR BIOMEDICAL INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
June 30, December 31,
ASSETS 1997 1996
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(unaudited)
CURRENT ASSETS:
Cash and cash equivalents $ 884,622 $ 631,404
Investments 3,284,172 4,732,585
Accounts receivable, net of allowance for
doubtful accounts of $57,071 and $101,191 3,105,822 3,028,689
Income tax receivable 387,140 409,242
Inventories (Note 2) 3,750,810 3,922,543
Prepaid expenses and other current assets 499,995 602,533
Deferred income tax benefit 615,504 491,000
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Total current assets 12,528,065 13,817,996
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PROPERTY AND EQUIPMENT, at cost 11,920,877 11,437,612
Less accumulated depreciation (6,987,518) (6,529,718)
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4,933,359 4,907,894
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GOODWILL AND OTHER INTANGIBLES, net of
amortization of $975,322 and $870,110 4,233,618 4,368,658
DEFERRED INCOME TAX BENEFIT 854,162 854,000
OTHER ASSETS 375,886 329,373
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Total assets $22,925,090 $24,277,921
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LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 807,995 $ 1,053,400
Accrued liabilities 520,723 726,474
Accrued payroll expenses 749,110 580,089
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Total current liabilites 2,077,828 2,359,963
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STOCKHOLDERS' EQUITY:
Common stock 71,031 72,181
Paid-in capital 12,179,810 12,605,636
Retained earnings 9,035,174 9,232,541
Accumulated foreign currency translation adjustments (426,343) 31,275
Unrealized losses on investments, net of tax benefit (12,410) (23,675)
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Total stockholders' equity 20,847,262 21,917,958
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Total liabilities and
stockholders' equity $22,925,090 $24,277,921
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HYCOR BIOMEDICAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
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1997 1996 1997 1996
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NET SALES $ 4,864,543 $ 5,171,387 $ 9,447,212 $10,478,267
COST OF SALES 2,091,667 2,147,380 4,276,409 4,611,735
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Gross profit 2,772,876 3,024,007 5,170,803 5,866,532
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OPERATING EXPENSES
Selling, general and administrative 2,244,792 2,348,627 4,275,294 4,506,524
Research and development 678,116 645,487 1,337,498 1,345,914
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2,922,908 2,994,114 5,612,792 5,852,438
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OPERATING INCOME (LOSS) (150,032) 29,893 (441,989) 14,094
INTEREST INCOME, net 70,845 103,960 144,142 217,335
FOREIGN EXCHANGE G/(L) (4,184) (1,005) (1,998) 11,674
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INCOME (LOSS) BEFORE PROVISION
(BENEFIT) FOR INCOME TAXES (83,371) 132,848 (299,845) 243,103
PROVISION (BENEFIT) FOR INCOME TAXES (29,797) 54,508 (102,478) 96,675
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NET INCOME (LOSS) $ (53,574) $ 78,340 $ (197,367) $ 146,428
============ ============ ============ =============
NET INCOME (LOSS) PER SHARE $ (0.01) $ 0.01 $ (0.03) $ 0.02
============ ============ ============ =============
AVE. COMMON SHARES OUTSTANDING 7,137,623 7,852,399 7,149,937 7,886,020
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HYCOR BIOMEDICAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
Six Months Ended
June 30,
1997 1996
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (197,367) $ 146,428
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 789,624 946,036
Deferred income tax provision (129,575) (87,650)
(Gain) Loss on foreign currency transactions 1,998 (11,674)
(Gain) Loss on sale of assets 36,127 11,456
Change in assets and liabilities, net of effects of
foreign currency adjustments
Accounts receivable (57,740) 846,612
Income tax receivable 21,411 10,856
Inventories 114,089 (18,622)
Prepaid expenses and other current assets (34,156) 243,017
Accounts payable (235,292) (412,128)
Accrued liabilities (197,224) (664,873)
Accrued payroll expenses 174,293 (243,284)
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Total adjustments 483,555 619,746
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Net cash provided by (used in) operating activities 286,188 766,174
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CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of investments 1,415,105 984,298
Purchases of intangible assets (23,462) (4,173)
Purchases of property, plant and equipment (881,530) (857,207)
Direct costs of acquisition (164,478) -
Proceeds from sale of property and equipment 54,453 -
Proceeds from collection of notes receivable 18,523 13,133
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Net cash provided by (used in) investing activities 418,611 136,051
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CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock 40,604 76,440
Purchases of Hycor common stock (467,580) (844,722)
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Net cash provided by (used in) financing activities (426,976) (768,282)
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EFFECT OF EXCHANGE RATE CHANGES ON CASH (24,605) 9,131
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 253,218 143,074
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 631,404 1,033,459
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CASH AND CASH EQUIVALENTS, END OF PERIOD $ 884,622 $ 1,176,533
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SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year - interest - -
- income taxes $ 13,106 $ 204,409
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HYCOR BIOMEDICAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997
1. BASIS OF PRESENTATION
In the opinion of the Company, the accompanying unaudited
financial statements include all adjustments necessary to present fairly
the financial position as of June 30, 1997 and December 31, 1996, the
results of operations and the cash flows for the three and six-month
periods ended June 30, 1997 and 1996.
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 consolidated financial statements should be read in
conjunction with the consolidated financial statements and notes thereto
included in the Company's 1996 annual report on Form 10-K as filed with
the Securities and Exchange Commission. Certain items in the 1996
consolidated financial statements have been reclassified to conform with
the 1997 presentation.
The results of operations for any interim period are not
necessarily indicative of results to be expected for the full year.
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.
In December 1997, the Company will be required to adopt Statement of
Financial Accounting Standard No. 128, "Earnings per share." The
provisions of this statement will require a change in the method of
calculating earnings per share which will result in an insignificant
difference from currently reported earnings per share.
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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 June 30, 1997 and December 31,
1996 consist of:
6/30/97 12/31/96
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Raw materials $ 838,846 $ 870,887
Work in process 1,125,623 1,216,066
Finished goods 1,786,341 1,835,590
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$3,750,810 $3,922,543
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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.
On July 21, 1997, the Company acquired from unrelated third parties all
of the outstanding stock of Cogent Diagnostics Limited ("Cogent"). Cogent is
based in Edinburgh, Scotland. Cogent develops, manufactures and markets a broad
line of test kits for diagnosis of autoimmune disease. Cogent sales for its
most recent fiscal year were approximately $1,400,000.
The Company decreased its working capital $1,008,000 as of June 30, 1997,
compared to December 31, 1996. This decrease was primarily a result of the
increased investment in PP&E, predominately related to the placement of
HY-TEC(TM) Instruments ($882,000), and the Company's stock repurchase program
($468,000). In July 1997, the Company entered into a business loan agreement
("Agreement") with Tokai Bank establishing a two year secured line of credit of
$2,000,0000. The agreement provides that the Company can borrow at a
predetermined spread over the London Inter-Bank Offered Rate (LIBOR). The
primary purpose of the agreement was to provide financing of the Cogent
acquisition and related costs. A copy of the business loan agreement is attached
to this form 10-Q as an exhibit and incorporated herein.
During the three and six-month periods ended June 30, 1997, sales
decreased 6% and 10%, respectively, compared to the same periods last year.
Revenue declines were due primarily to the loss of sales resulting from the 1995
Restructuring Plan and the related discontinued product lines. Revenues in 1996
from discontinued products were $774,000 for the quarter and $1,659,000 for the
six-month period. In addition, in periods when the U.S. dollar is strengthening,
the effect of the translation of the financial statements of the consolidated
foreign affiliates is that of lower sales, cost, and net income. The stronger
U.S. dollar in the second quarter 1997 and the six months 1997 when compared to
the corresponding 1996 periods resulted in lower reported sales of approximately
3% in both periods.
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Gross profit as a percentage of product sales decreased for the three and
six-month periods from approximately 58% to 57% and 56% to 55%, respectively,
compared to the same periods last year. The decrease in gross profit percentage
is due primarily to aggressive pricing in the allergy product line as well as
lower sales volumes.
Selling, general and administrative expenses for the three and six-month
periods ended June 30, 1997 have decreased approximately 4% and 5%,
respectively, compared to the same periods last year. This decrease is primarily
due to reduced expense levels at the Company's German subsidiary resulting from
the completion, in 1996, of certain contractual obligations arising from the
acquisition.
Research and development costs for the quarter increased approximately 5%
over the prior year period as the Company increased its investment in new
product development. Year-to-date expenses have decreased approximately 1% from
the prior year period due to the completion of several projects during the first
quarter of this year.
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On May 29, 1997, Hycor Biomedical Inc. held its Annual Meeting of
Stockholders. At such meeting, the following seven persons were elected as
directors of the Company to serve until the Annual Meeting of Stockholders in
1998 and until their successors are elected and qualified.
The tabulation of the votes cast for the election of the directors was
as follows:
Nominee Votes For Votes Withheld
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Richard D. Hamill 6,040,651 272,492
Samual D. Anderson 6,153,958 159,185
David S. Gordon 6,153,128 160,015
Reginald P. Jones 6,152,400 160,743
James R. Phelps 6,154,100 159,043
Richard E. Schmidt 6,150,937 162,206
David A. Thompson 6,153,786 159,357
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits: Exhibit 10.01: Business Loan Agreement between Hycor
Biomedical Inc. and Tokai Bank of
California.
Exhibit 27: Financial Data Schedule
(b) Reports on Form 8K: None
SIGNATURE
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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.
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Date: August 14, 1997 By: /s/ Armando Correa
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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
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Exhibit No. Name of Exhibit Page Number
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10.01 Business Loan Agreement between
Hycor Biomedical Inc. and Tokai
Bank of California 10-27
27. Financial Data Schedule 28
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