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, 2000 [ ] 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.) 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 24, 2000 - ---------------------------- ----------------------------- Common Stock, $.01 Par Value 7,387,628 2 PART I. FINANCIAL INFORMATION ITEM I. FINANCIAL STATEMENTS HYCOR BIOMEDICAL INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS March 31, December 31, ASSETS 2000 1999 ------------ ------------ (unaudited) CURRENT ASSETS: Cash and cash equivalents $ 546,209 $ 551,295 Investments 1,756,587 1,757,599 Accounts receivable, net of allowance for doubtful accounts of $291,600 (2000) and $335,000 (1999) 3,184,310 3,203,180 Inventories (Note 2) 4,203,321 4,269,301 Prepaid expenses and other current assets 334,502 306,769 ------------ ------------ Total current assets 10,024,929 10,088,144 ------------ ------------ PROPERTY AND EQUIPMENT, at cost 10,676,753 10,589,353 Less accumulated depreciation (7,127,401) (7,028,894) ------------ ------------ 3,549,352 3,560,459 ------------ ------------ GOODWILL AND OTHER INTANGIBLE ASSETS, net of accumulated amortization of $940,100 (2000) and $915,600 (1999) 1,255,606 1,329,861 OTHER ASSETS 60,598 60,598 ------------ ------------ Total assets $ 14,890,485 $ 15,039,062 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable $ 812,357 $ 776,844 Accrued liabilities 1,154,800 1,314,547 Accrued payroll expenses 598,815 731,755 Current portion of long-term debt (Note 3) 1,584,465 1,586,341 ------------ ------------ Total current liabilities 4,150,437 4,409,487 ------------ ------------ Long-term debt (Note 3) 71,354 87,389 ------------ ------------ Total Liabilities 4,221,791 4,496,876 ------------ ------------ STOCKHOLDERS' EQUITY: Common stock 73,783 73,487 Paid-in capital 12,579,299 12,544,005 Accumulated deficit (1,104,762) (1,371,933) Accumulated other comprehensive loss (879,626) (703,373) ------------ ------------ Total stockholders' equity 10,668,694 10,542,186 ------------ ------------ Total liabilities and stockholders' equity $ 14,890,485 $ 15,039,062 ============ ============ Page 2 3 HYCOR BIOMEDICAL INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited) Three Months Ended March 31, ------------------------------- 2000 1999 ----------- ----------- NET SALES $ 4,628,095 $ 4,761,727 COST OF SALES 2,144,184 2,383,388 ----------- ----------- Gross profit 2,483,911 2,378,339 ----------- ----------- OPERATING EXPENSES: Selling, general, and administrative 1,732,177 1,882,953 Research and development 438,304 538,597 ----------- ----------- 2,170,481 2,421,550 ----------- ----------- OPERATING INCOME (LOSS) 313,430 (43,211) INTEREST EXPENSE (23,392) (34,289) INTEREST INCOME 36,858 26,796 (LOSS) GAIN ON FOREIGN CURRENCY TRANSACTIONS (38,080) 6,158 ----------- ----------- INCOME (LOSS) BEFORE INCOME TAX PROVISION 288,816 (44,546) INCOME TAX PROVISION 21,645 12,000 ----------- ----------- NET INCOME (LOSS) $ 267,171 $ (56,546) =========== =========== BASIC EARNINGS (LOSS) PER SHARE $ 0.04 $ (0.01) =========== =========== DILUTED EARNINGS (LOSS) PER SHARE $ 0.03 $ (0.01) =========== =========== AVERAGE COMMON SHARES OUTSTANDING: Basic 7,348,677 7,283,456 =========== =========== Diluted 8,051,360 7,283,456 =========== =========== CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) Net Income (Loss) $ 267,171 $ (56,546) OTHER COMPREHENSIVE LOSS, NET OF TAX Foreign currency translation adjustments (160,996) (311,407) Unrealized losses on securities (15,257) (756) ----------- ----------- OTHER COMPREHENSIVE LOSS, NET OF TAX (176,253) (312,163) ----------- ----------- COMPREHENSIVE INCOME (LOSS) $ 90,918 $ (368,709) =========== =========== Page 3 4 HYCOR BIOMEDICAL INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) March 31, March 31, 2000 1999 --------- --------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $ 267,171 $ (56,546) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization 296,681 338,640 Provision for doubtful accounts receivable 16,338 47,130 Provision for excess and obsolete inventories 201,740 366,678 Change in assets and liabilities, net of effects of foreign currency adjustments Accounts receivable (44,666) (335,562) Inventories (194,449) (333,571) Prepaid expenses and other current assets (20,468) 74,380 Accounts payable 52,354 (284,710) Accrued liabilities (158,517) (53,949) Accrued payroll expenses (126,385) 135,606 --------- --------- Total adjustments 22,628 (45,358) --------- --------- Net cash provided by (used in) operating activities 289,799 (101,904) --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of investments (824,503) -- Proceeds from sales of investments 800,000 -- Purchases of intangible assets (9,221) (15,522) Purchases of property, plant and equipment (283,705) (210,646) Proceeds from collection of notes receivable 10,278 14,735 --------- --------- Net cash used in investing activities (307,151) (211,433) --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES: Principal payments on long-term debt (18,058) (102,691) Proceeds from issuance of common stock 35,590 -- --------- --------- Net cash provided by (used in) financing activities 17,532 (102,691) --------- --------- EFFECT OF EXCHANGE RATE CHANGES ON CASH (5,266) (5,329) --------- --------- DECREASE IN CASH AND CASH EQUIVALENTS (5,086) (421,357) CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 551,295 655,716 --------- --------- CASH AND CASH EQUIVALENTS, END OF PERIOD $ 546,209 $ 234,359 ========= ========= SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION- Cash paid during the year - interest $ 31,563 $ 38,842 - income taxes $ 49,644 $ 14,446 Page 4 5 HYCOR BIOMEDICAL INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2000 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 March 31, 2000 and December 31, 1999, the results of operations and the cash flows for the three-month periods ended March 31, 2000 and 1999. 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 1999 annual report on Form 10-K as filed with the Securities and Exchange Commission. Certain items in the 1999 consolidated financial statements have been reclassified to conform to the 2000 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. Common stock equivalents have been excluded from the calculation of diluted EPS in loss periods as the impact is anti-dilutive. 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, 2000 and December 31, 1999 consist of: 3/31/00 12/31/99 ---------- ---------- Raw materials $ 957,316 $ 868,876 Work in process 1,526,619 1,392,527 Finished goods 1,719,387 2,007,898 ---------- ---------- $4,203,321 $4,269,301 ========== ========== 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, 2001. The loan is collateralized by the Company's accounts receivable, inventories, and property, plant, and equipment. At March 31, 2000, $1,000,000 was outstanding. Advances under the line bear interest at the prime rate or at LIBOR plus 2% (8.39% at March 31, 2000). Page 5 6 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, 2000, the Company was in compliance with such covenants. The Company has outstanding notes in the amount of $525,000. These notes were issued to the seller group in executing the acquisition of Cogent Diagnostics LTD in July 1997. Interest on the notes accrues at a rate of 6.85% and is payable quarterly. The principal balance of the note is due in July 2000. In addition, the Company and one of its foreign subsidiaries has long-term debt, payable to financial institutions, aggregating approximately $131,000 with weighted average interest rate of approximately 9%. 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. 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, 2000 the Company increased its working capital $195,800 when compared to December 31, 1999, as a result of normal operations. The Company's principal capital commitments are for lease payments under non-cancelable operating leases and note payments related to the acquisition of Cogent. Additionally, the HY-TEC(TM) business requires the purchase of instruments that in many cases 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. Page 6 7 RESULTS OF OPERATIONS During the three-month period ended March 31, 2000, sales decreased approximately $134,000 or 2.8% 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. The stronger U.S. dollar in the first quarter 2000 when compared to the corresponding 1999 period resulted in lower reported sales of approximately $93,000 or 2%. Additionally, sales of our non-core product lines decreased $43,000 or 11.8% compared to the same period last year. Continued cost control pressures in the health care industry also affect the Company's revenue. The Company anticipates that these pricing pressures will continue in the future. Gross profit as a percentage of product sales increased for three-month period ended March 31, 2000 from approximately 50.0% to 53.7% compared to the same period last year. This increase was due primarily to changes in the product mix and improved manufacturing efficiencies. Selling, general and administrative expenses decreased approximately $151,000 or 8% when compared to the same period last year. Approximately $90,000 of this reduction is a result of restructuring the European sales and marketing organization. The remaining decrease is a result of non-recurring expenses during 1999. Research and development costs decreased approximately $100,000 or 19% when compared to the same period last year. This decrease is primarily due to the completion of several projects related to the HY-TEC 288 instrument system and related diagnostic tests. Effective with the fourth quarter of 1998, the Company adopted a position wherein a 100% valuation allowance was taken against all deferred tax assets. The tax provision for the three-month periods ended March 31, 2000 and March 31, 1999 of $21,645 and $12,000, respectively, reflects the provision for estimated state tax liabilities that are not offset by operating losses. Page 7 8 PART II. OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibit 27 -- Financial Data Schedule (b) Reports on Form 8-K -- 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 12, 2000 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 9 EXHIBIT INDEX Exhibit Number Description - ------ ----------- 27 Financial Data Schedule