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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: SEPTEMBER 30, 1997
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
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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 October 31, 1997
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Common Stock, $.01 Par Value 7,131,467
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PART I. FINANCIAL INFORMATION
ITEM I. FINANCIAL STATEMENTS
HYCOR BIOMEDICAL INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
September 30, December 31,
ASSETS 1997 1996
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CURRENT ASSETS: (unaudited)
Cash and cash equivalents $ 662,565 $ 631,404
Investments 2,009,066 4,732,585
Accounts receivable, net of allowance for
doubtful accounts of $76,934 and $101,191 3,057,000 3,028,689
Income tax receivable 527,989 409,242
Inventories (Note 2) 4,306,588 3,922,543
Prepaid expenses and other current assets 535,768 602,533
Deferred income tax benefit 881,570 491,000
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Total current assets 11,980,546 13,817,996
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PROPERTY AND EQUIPMENT, at cost 12,543,636 11,437,612
Less accumulated depreciation (7,397,883) (6,529,718)
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5,145,753 4,907,894
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GOODWILL AND OTHER INTANGIBLES, net of
amortization of $1,035,509 and $870,110 (Note 3) 4,377,614 4,368,658
DEFERRED INCOME TAX BENEFIT 854,162 854,000
OTHER ASSETS 180,061 329,373
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Total assets $ 22,538,136 $ 24,277,921
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LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 990,634 $ 1,053,400
Accrued liabilities 691,549 726,474
Accrued payroll expenses 674,484 580,089
Current portion - long-term debt (Notes 3 & 4) 753,164 --
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Total current liabilites 3,109,831 2,359,963
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Long-Term Debt (Notes 3 & 4) 2,158,427 --
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Total Liabilities 5,268,258 2,359,963
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STOCKHOLDERS' EQUITY:
Common stock 71,219 72,181
Paid-in capital 12,212,177 12,605,636
Retained earnings 5,423,867 9,232,541
Accumulated foreign currency translation adjustments (439,747) 31,275
Unrealized losses on investments, net of tax benefit 2,362 (23,675)
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Total stockholders' equity 17,269,878 21,917,958
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Total liabilities and stockholders' equity $ 22,538,136 $ 24,277,921
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HYCOR BIOMEDICAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
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1997 1996 1997 1996
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NET SALES $ 4,679,354 $ 4,736,927 $ 14,126,566 $ 15,215,194
COST OF SALES 2,207,826 2,254,307 6,484,235 6,866,042
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Gross profit 2,471,528 2,482,620 7,642,331 8,349,152
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OPERATING EXPENSES
Selling, general and administrative 2,263,600 2,096,017 6,538,894 6,602,541
Research and development 775,042 734,118 2,112,540 2,080,032
Acquired in-process research and development (Note 3) 3,300,000 -- 3,300,000 --
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6,338,642 2,830,135 11,951,434 8,682,573
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OPERATING INCOME (LOSS) (3,867,114) (347,515) (4,309,103) (333,421)
INTEREST EXPENSE (Note 4) 38,311 -- 38,472 --
INTEREST INCOME 51,103 93,141 195,406 310,476
FOREIGN EXCHANGE G/(L) (4,326) 12,622 (6,324) 24,296
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INCOME (LOSS) BEFORE PROVISION
(BENEFIT) FOR INCOME TAXES (3,858,648) (241,752) (4,158,493) 1,351
PROVISION (BENEFIT) FOR INCOME TAXES (247,342) (110,696) (349,818) (14,020)
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NET INCOME (LOSS) $(3,611,306) $ (131,056) $ (3,808,675) $ 15,371
=========== ============ ============ ============
NET INCOME (LOSS) PER SHARE $ (0.50) $ (0.02) $ (0.53) $ 0.0
=========== ============ ============ ============
AVE. COMMON SHARES OUTSTANDING 7,148,077 7,698,527 7,169,388 7,817,794
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HYCOR BIOMEDICAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
Nine Months Ended
September 30,
1997 1996
CASH FLOWS FROM OPERATING ACTIVITIES: ------------ -----------
Net income (loss) $(3,808,675) $ 15,371
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 1,209,702 1,417,804
Deferred income tax provision (273,829) (205,654)
(Gain) Loss on foreign currency transactions 6,324 (24,296)
(Gain) Loss on sale of assets 68,950 (1,024)
Acquired In-Process R&D 3,300,000 --
Change in assets and liabilities, net of effects of
foreign currency adjustments
Accounts receivable 434,521 596,040
Income tax receivable (120,199) 101,591
Inventories (255,882) (242,571)
Prepaid expenses and other current assets 416,031 255,441
Accounts payable (759,411) (133,525)
Accrued liabilities (631,181) (651,751)
Accrued payroll expenses 88,787 (415,319)
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Total adjustments 3,483,813 696,736
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Net cash provided by (used in) operating activities (324,862) 712,107
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CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of investments 2,689,537 1,044,298
Purchases of intangible assets (187,656) (8,799)
Purchases of property, plant and equipment (1,311,709) (1,134,651)
Business acquisitions, net of cash acquired (3,386,169) --
Direct costs of acquisition (224,646) --
Proceeds from sale of property and equipment 60,453 --
Proceeds from collection of notes receivable 179,667 20,133
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Net cash provided by (used in) investing activities (2,180,523) (79,019)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt 2,813,821 --
Principal payments on long-term debt (7,648) --
Proceeds from issuance of common stock 73,159 130,204
Purchases of Hycor common stock (467,580) (1,666,273)
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Net cash provided by (used in) financing activities 2,411,752 (1,536,069)
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EFFECT OF EXCHANGE RATE CHANGES ON CASH 124,794 7,755
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 31,161 (895,226)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 631,404 1,033,459
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CASH AND CASH EQUIVALENTS, END OF PERIOD $ 662,565 $ 138,233
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SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year - interest 17,927 --
- income taxes $ 58,553 $ 239,103
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HYCOR BIOMEDICAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 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 September 30, 1997 and December 31, 1996, the
results of operations and the cash flows for the three and nine-month
periods ended September 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 September 30, 1997 and December 31, 1996 consist
of:
9/30/97 12/31/96
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Raw materials $1,038,928 $ 870,887
Work in process 1,533,692 1,216,066
Finished goods 1,733,968 1,835,590
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$4,306,588 $3,922,543
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3. ACQUISITION
On July 21, 1997, the Company acquired from unrelated third parties
all of the outstanding stock of Cogent Diagnostics Limited ("Cogent") for
approximately $1,453,000 in cash and $1,574,000 in three year notes to the
seller group which are secured by individual Shares Pledge agreements
wherein an aggregate of 85,499 shares of Cogent stock are pledged as
security for the debt. The shares pledged as security against the three
year notes represent approximately 95% of the total outstanding shares of
Cogent. The cash portion of the Cogent acquisition was partially financed
through bank borrowings of $1,000,000. The Company also incurred direct
costs of approximately $220,000 related to the acquisition.
The Company obtained an independent valuation of the net assets
acquired in the purchase transaction which resulted in the allocation of
the purchase price to $254,000 of identified assets, $3,300,000 of
acquired in-process research and development, and $148,000 of goodwill.
The purchase price allocated to in-process research and development was
charged to the Company's current operations. The portion of the purchase
price allocated to goodwill is being amortized over 20 years on a straight
line basis.
The acquisition was accounted for using the purchase method of
accounting, and Cogent's operating results have been included in the
accompanying consolidated statements of operations from the date of
acquisition. Cogent is based in Edinburgh, Scotland and develops,
manufactures and markets a broad line of test kits for diagnosis of
autoimmune disease.
4. LONG TERM DEBT
In July 1997,the Company entered into a business loan agreement
("Agreement") with Tokai Bank establishing a two year secured line of
credit of $2,000,000. 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 for the
Cogent acquisition and related costs.
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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 September 30, 1996, the Company formed Hycor Biomedical SAS ("Hycor
SAS") as a wholly owned subsidiary. Located in Paris, France, Hycor SAS will
market allergy diagnostic products in France. Hycor SAS commenced direct
commercial activities during the quarter ended September 30, 1997. Pre-tax
losses, including start-up costs, for the quarter for this subsidiary were
approximately $138,000.
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 has adequate working capital and sources of capital to carry
on its current business and to meet its existing capital requirements. The
Company decreased its working capital $2,587,318 as of September 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 ($1,312,000), the Company's stock repurchase program
($468,000), and the acquisition of Cogent. 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 for
the Cogent acquisition and related costs. As of September 30, 1997, there was $1
million outstanding.
During the three and nine-month periods ended September 30, 1997, sales
decreased 1% and 7%, 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 $606,000 for the quarter and $2,265,000 for the
nine-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 third quarter 1997 and the nine 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 increased for the quarter
from approximately 52% to 53% and decreased from approximately 55% to 54% for
the same period year-to-date due primarily to the addition of Cogent offset by
the impact of the strengthening U.S. dollar.
Selling, general and administrative expenses have increased approximately
8% for the quarter and decreased approximately 1% for the same period
year-to-date. The cost increases for the quarter are primarily due to the
inclusion in 1997 third quarter results of both Cogent and Hycor SAS. The
decrease in the year-to-date period 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 three and nine-month periods ended
September 30, 1997 have increased approximately 6% and 2%, respectively,
compared to the same periods last year. This increase is due primarily to the
inclusion of Cogent in 1997 results.
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
Material Contracts Relating to Management Compensation Plans or
Arrangements:
Exhibit 10.1 Employment Agreement of Richard D. Hamill
Exhibit 10.2 Employment Agreement of Mary J. Deal
Exhibit 10.3 Employment Agreement of Reginald P. Jones
Exhibit 10.4 Employment Agreement of Thomas M. Li
Exhibit 10.5 Employment Agreement of Nelson F. Thune
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: November 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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10.1 Employment Agreement of Richard D. Hamill 10-18
10.2 Employment Agreement of Mary J. Deal 19-26
10.3 Employment Agreement of Reginald P. Jones 27-34
10.4 Employment Agreement of Thomas M. Li 35-42
10.5 Employment Agreement of Nelson F. Thune 43-50
27 Financial Data Schedule 51
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