SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D. C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 2009
Commission File Number 0-10683
HYDROMER, INC.
_________________________________________________________________
(Exact name of registrant as specified in its charter)
New Jersey 22-2303576
__________________________________________________________________________
(State of incorporation) (I.R.S. Employer
Identification No.)
35 Industrial Parkway, Branchburg, New Jersey 08876-3424
____________________________________________________________________________
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (908) 722-5000
_________________________
Securities registered pursuant to Section 12 (b) of the Act: None
Securities registered pursuant to Section 12 (g) of the Act:
Common Stock Without Par Value
______________________________
(Title of class)
Check whether the issuer (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 report(s) and (2) has been subject to such filing
requirements for the past 90 days. Yes (X) No( )
Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B is not contained in this form, and no disclosure
will be contained, to the best of registrant's knowledge, in definitive proxy
or information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K (X)
The aggregate market value of the voting stock held by non-affiliates
of the Registrant at September 1, 2009 was approximately $1,325,730.
The number of shares of Registrant's Common Stock outstanding on
September 1, 2009 was 4,772,318.
Portions of the Audited Financials Statements for the year ended June
30, 2009 are incorporated by reference in Part II of this report. Portions of
the Proxy Statement of Registrant dated September 18, 2009 are incorporated by
reference in Part III of this report.
PART I
Item 1. BUSINESS
General
Hydromer, Inc (the "Company") is a bio-polymer research and development company
organized as a New Jersey Corporation in 1980 for the purposes of developing
polymeric complexes for commercial use in the medical, commercial, cosmetics
and animal health markets.
Until September 1982, approximately 99% of the outstanding common stock,
without par value (the 'Common Stock"), of the Company, was owned by Biosearch
Medical Products Inc. ("BMPI"), which in turn was controlled by Manfred Dyck,
who is the Company's current Chief Executive Officer, Director and the Chairman
of the Board. On September 16, 1982, BMPI distributed its shareholdings in the
Company pro rata to the holders of its common stock. In connection with this
distribution, the Company granted to BMPI an exclusive, worldwide perpetual,
royalty-free license for the use of Hydromer technology in connection with the
development, manufacture and marketing of biomedical devices for enteral
feeding applications. On February 4, 2000, the Company acquired all
outstanding stock of BMPI for $0.20 per share, and now manages BMPI as a
subsidiary.
The Company owns several process and applications patents for Hydromer(R)
coatings ("Hydromer"). These polymers become extremely lubricious (slippery)
when wet. Techniques have been developed for grafting or applying this
substance onto a broad variety of materials, including other polymers like
polyurethane, polyvinyl chloride, and silicone elastomers, ceramics and metals.
The Company has also been issued patents for permanent anti-fog materials,
hydrophilic polyurethane foams, hydrophilic polyurethane blends, hydrophilic
polyvinylbutyral alloys, several biocompatible hydrogels and an anti-bacterial
medical material. The Company continues to actively evaluate other new market
opportunities for its polymer technology specifically in neurology and
cardiology.
The Company also owns various trademarks, including AQUADAPT(R), a medical
hydrogel; AQUAMERE(R), a water resistant film former product with cosmetic
applications; AQUATRIX(R), a cosmetic hydrogel; Dermaseal(R), a dermal barrier
film product for the prevention of contact dermatitis; DRAGONHYDE(TM), a hoof
bath concentrate; Sea-Slide(R), a coating for watercraft hulls; and T-HEXX(R), a
barrier teat dip product for the prevention of mastitis in dairy animals.
The Company's patents are typically broad based, having a multitude of
different applications across various industries. Accordingly, the Company
currently operates in the medical, commercial, cosmetics and animal health
markets.
MEDICAL
From its inception in 1980 to mid-1984, the Company was primarily engaged in
R&D activities related to Hydromer coatings used on medical devices. Since
then and until the acquisition of BMPI, the Company's business in the medical
field consisted of the sale of lubricious coatings and the licensing of its
lubricious coating technologies. With the acquisition of BMPI in February 2000,
the Company now offers a horizontally integrated breadth of services including
medical device manufacturing, contract coating, equipment building and design,
and R&D servicing.
The Company continues to focus on its coatings technologies as the nucleus of
its participation in the medical field, including added developments of
radio-opaque, biostatic/anti-microbial and more recently, cell anti-mitosis and
anti-thrombogenic coatings. As of June 30, 2009, the Company has three
non-provisional patents pending, one on a non-leaching anti-microbial coating,
and two on anti-microbial medical hydrogels for body cavities.
HYDROMER Coatings: Lubricious / Anti-microbial / Anti-thrombogenic /
Cell mitosis / Radio-opaque
When treated with a Hydromer lubricious polymer, a medical device becomes very
slippery when wet, allowing for easy insertion into any orifice of the body, in
penetration of the skin or for device-on-device (i.e. guidewire-catheter) use.
Hydromer coatings are permanently bonded to the device unlike silicone
lubricants, which must be applied after each use and are often left behind in
the bloodstream and body cavities. Hydromer coatings can also be coated on
complex surfaces and on the inside walls of devices, unlike the treatments by
major competition. The Company believes that the polymer-water interface of
its Hydromer coatings provides surface lubricity superior to the quality of
other currently marketed silicone-based lubricants to treat medical devices.
Drugs and other substances can be readily incorporated into Hydromer, both in a
bound and unbounded fashion, allowing for controlled release from the device
for therapeutic purposes or the creation of permanent biocidal or biostatic
surfaces (anti-microbial coatings).
Certain Hydromer coatings have been shown in numerous studies to reduce the
risk of thrombogenesis or clot formation on devices. Such anti-thrombogenic
coatings can be applied to cardiovascular stents, oxygenators, blood warmers,
hemodialysis equipment, intravenous catheters and much more.
In 2006, the Company introduced new technology on its cell anti-mitosis
coatings which decreases cell proliferation and cell adhesion and prevents
platelet adhesion. This coating appears to have the attributes needed for a
cardiovascular stent to combat restenosis and late stage thrombosis. In vitro
(lab) studies have yielded positive results. Leveraging on this new
technology, the Company developed a coating that promotes cell proliferation.
The Company was awarded a patent on its radio-opaque coatings in 2003.
Hydromer's radio-opaque coatings enhances the visibility of a variety of
substrates, including, but not limited to, stents and PTCA balloons.
Stand-still and License Agreements
A portion of the Company's revenues is derived from stand-still and license
agreements (see 'Patents and Trademarks" section). Stand-still agreements
provide customers the right for a finite period of time (i) to use the Hydromer
process to determine whether the customer's products lend themselves to
treatment with the process and (ii) to test market such products. The
stand-still agreements can also provide the customers the right to subsequently
enter into a license agreement with the Company and to market the product(s)
treated with Hydromer, which typically provides the Company an initial flat
fee, followed by periodic royalty payments based on sales.
The Company has previously reported license agreements in effect and expiring
relating to applications of the Hydromer as follows: Annual Report on Form 10-K
for the fiscal years ended June 30, 1983 through 1996 and Form 10-KSB for
fiscal years ended 1997 through 2008.
Supply and Support Agreements
In order to avail our customers to a continued material source or of technical
support on our products, certain supply or support agreements may be entered
into. Depending on the specific requirements of each agreement, the Company
would provide continued support in terms of product availability or technical
know-how, some including the escrow of formulas or data with independent agents.
As of June 30, 2009, the Company has license or supply and support agreements
with nineteen companies covering the application or availability of Hydromer
coatings to the following devices:
angioplasty balloon catheters,
biliary and pancreatic stents
central venous catheters,
embolization delivery devices,
enteral feeding products,
guidewires,
guiding and umbilical catheters
infusion microcatheters,
inter/intra-ocular lenses,
certain urological devices, and
certain vascular devices .
The Company is actively seeking new licensing opportunities and/or supply and
support agreements.
Hydrogels, Drug Delivery, Wound Dressing
Applications of the Company's Hydrogels are being developed for wound care,
implants, drug delivery, burn care, conductive hydrogel electrodes, ultrasonic
couplants and cosmetic uses for several customers. The Company is also
identifying strategic partners to offer hydrogel coating services to clients
who do not have rolled goods coating capability and to license Hydrogel
technology for cosmetic and medical use, including drug release.
The Company's hydrogel technology offers biocompatibility, flexibility, and
ease of use and processing. It also allows for the stabilization of
biomolecules, cell cultures, drugs and other active substances without
potentially damaging external energy sources. It is absorbent, inherently
self-adhesive but peels away cleanly and is naturally soothing. Other than our
bio-adhesives and medical coatings, which are one part systems, to form the gel
entails simply to mix the two parts together - no heat, no chemical cross
linkers nor expensive high energy processing is required. Many competitive
technologies are much more process intensive and require external energy to
crosslink. The Company believes these products are synergistic to our existing
hydrogel technologies, and offer further opportunities in electrodes and
internal and topical actives delivery. The Company has a pilot coating machine
to facilitate the commercialization of its hydrogel technologies. The Company
is exploring other medical and dental as well as cosmetic applications for this
technology.
Aquadapt is the Company's hydrophilic polyurethane foam technology. The
Company has 510K notices to the FDA for medical use applications in the U.S.
The Company also has a patent on its chitosan-PVP hydrogel technology as well
as patents granted in 2000 and 2002 on polyaldehyde hydrogels.
Following two years of development and human clinical studies, one of the
Company's Hydrogel technologies is ready for market once "freedom to market"
(legal clearance of non-blocking patents) is cleared. The Company anticipates
such to occur during fiscal 2010.
OEM Medical Devices
Through its ISO 13485:2003 certified and FDA registered Biosearch Medical
Products subsidiary, the Company offers 510K/CE marked medical devices. The
current product portfolio includes: bipolar coagulation probes; placement
catheters, biliary stents; jejunal and enteral feeding accessories; guidewires;
biofeedback devices for fecal and urinary incontinence; and other endoscopic
accessories. The Company also contract manufactures products for several large
multi-national marketers of medical devices on an OEM basis. Under current
development are umbilical vessel and CVC/dialysis catheters. In 2009, the
Company sold its bipolar coagulation probe and biliary stent product lines to
Merit Medical System, Inc.
HYDROMER Coating Services
The acquisition of BMPI in 2000 allowed for the Company to realize another
venue of revenues: Coating Services. Utilizing the acquired medical device
manufacturing know how and by applying its coatings technologies, the Company
began offering coating services, in which the Company coats third party devices
with its Hydromer coatings. The Company's knowledge in coatings technologies
allows it to coat various types of material, such as silicone, stainless steel,
Pebax and polypropylene cost effectively, whereas some of the competition is
unable to. Global clients are using this service in the urology, cardiology
and neurovascular markets.
The Company continues to expand its activity in coating services and is
actively seeking new opportunities to provide contract development, coating and
manufacturing services to the medical, commercial and personal care industry,
utilizing its Hydromer and Anti-Fog coating technology and expertise. The
Company further continues to believe that these services will enable a broader
range of customers to use our materials in market on accelerated timelines in a
more cost effective manner.
R&D and Engineering Services
The medical device market continues to undergo a shift toward consolidation by
very large multi-national players with small, entrepreneurial start-up
companies looking to exploit niche opportunities or unique device designs. The
Company's experience and knowledge can significantly speed development,
assessment and market readiness for our clients, large and small, through its
research and development and engineering services.
For example, for medical devices such as coronary stents and brain catheters,
the Company can develop the coatings, including drug eluting coatings,
establish the manufacturing and QA protocols, design and build the coating
equipment, start up scale prototype production and eventually transfer the
process assisting the customer in the transition.
The Company believes that offering prototyping, process development and
small-medium scale coating/ manufacturing services is fundamental to the
expansion of the Hydromer coatings business, and a strategic imperative.
The Company will endeavor to become a "one stop" supplier of high performance
coatings and services.
The Company also has anti-microbial testing capabilities in-house to perform
crucial first developments on the performance of colonization control medical
coatings, cosmetic intermediates and mastitis control products in the T-HEXX
Animal Healthcare division (see Animal Health).
INDUSTRIAL/COMMERCIAL
Hydromer Anti-Fog/Condensation Control is an optical coating which prevents the
accumulation of vision-obscuring condensation under high humidity conditions.
The Company is selling this material to manufacturers of greenhouse panels,
refrigerator freezer doors, industrial and medical safety and swim goggles,
aircraft windows, automotive headlight assemblies and gauge and meter
manufacturers in the U.S. and internationally, including China. Food grade
Anti-Fog coatings, formulated with materials that are generally recognized as
safe for food contact as confirmed by independent laboratory extraction
testing, are under evaluation by various parties.
The Company also offers a Sea-Slide coating that reduces friction between hull
and water, and can be used over most anti-fouling paints. Independent testing
has confirmed that this technology significantly improves fuel economy and the
hull speed of watercraft. Sea-Slide products are marketed through HammerHead
Products, Inc., via an exclusive distribution agreement.
COSMETICS
The Aquamere series of the Company's cosmetic intermediaries are sold to major
cosmetic companies worldwide for use in hair dyes, hair conditioners, mascaras,
eye shadows, sunscreens and body lotions. They are currently in test for use
in shampoos, hair styling aids, OTC dermal drug delivery and topical
disinfectants. The Aquamere series of cosmetic polymer solutions, introduced
in 1988, are both aqueous and hydro-alcoholic based systems. They are also
offered with cationic and silicone grafted modifications. Formulations have
also been developed internally utilizing this technology and are being offered
for sale as turnkey products to smaller marketers of personal care products.
The Company's Dermaseal line, a patented film-forming hydrogel technology, is
currently being sold to major cosmetic companies as a base for foundations and
other skin care products. It is also being tested for use in broader skin
care, cosmetic and OTC drug delivery. Dermaseal is the registered trademark
for barrier film compositions, patented in fiscal 2000 along with the method
for preventing contact dermatitis. Clinical testing has demonstrated that
these compositions protect the user from the effects of contact with poison
ivy, oak or sumac plant allergens. Technical testing has also demonstrated
protection from latex proteins, nickel and other contact allergens.
In 2006, the Company added a unique anti-microbial polymer to its product line.
When used for beauty cosmetics, contamination and infections can be reduced.
Changes in the regulatory environment, including that of the European
requirements of REACH: Registration, Evaluation and Authorisation of Chemicals,
can adversely impact the marketability of existing cosmetics and other products.
It is the Company's intention to meet any changes to regulatory requirements,
including that of reformulating where necessary.
ANIMAL HEALTH
In Fiscal Year 1999, the Company's polymer technology was used to launch the
Company's entry into the Animal Health field to combat clinical and
sub-clinical mastitis, a problem that costs U.S. Dairy farmers an estimated $2
billion per year. Marketed under the T-HEXX brand, initially through U.S.
licensees, the T-HEXX Barrier Dips and Sprays offer dairy farmers exceptional
value and unsurpassed protection as the first no-drip and water resistant
barrier products on the market preventing environmental water containing
mastitis-causing organisms, including mycoplasma, from reaching the teat
surface. The Company has received three patents for its unique barrier teat
dip compositions with an application on a fourth patent pending.
The annual U.S. market for barrier teat dips is estimated to be $100-130
million at the farm level. The T-HEXX Barrier products contain protocol-proven
active ingredients that kill mastitis-causing bacteria within 30 seconds of
contact while continuing to remain active up to 12 hours later. T-HEXX
Barriers are superior performers in its niche market, while priced comparably
or less than barrier dip products manufactured by the leading sanitary chemical
companies in the world. Our products are compatible with existing mechanical
equipment and milking procedures and most importantly, are easily removed using
traditional pre-milking methods. Based on field tests, our product has been
demonstrated to stay on the cow teat better than the competition, protecting
the cow during the complete 8-12 hour milking cycle.
In fiscal 2002, the Company launched a complementary product, T-HEXX DRY
External Teat Protection Sealant, to protect cows during the non-lactation
("dry cow") period. T-HEXX DRY is used as a non-irritating low-cost sealant
during the dry-off and the critical pre-calving period where it is estimated
that over 50% of new mastitis cases are believed to start. T-HEXX DRY is the
first dry cow dip product with an anti-microbial that remains on the teat for
3-7 days. Clinical studies show that T-HEXX DRY is impervious to National
Mastitis Council (NMC) recognized mastitis-causing organisms for seven days,
yet is comparably priced to existing dry cow teat sealants that does not offer
such protection. Our product is suggested to be used on cows just prior to
their release to the dry cow pen, in conjunction with existing antibiotic
therapy or internal teat sealants. In fiscal 2004, two customers launched our
Dry product under their private-label name, reflecting the strength of our
product.
In fiscal 2009, the Company launched a T-HEXX DRY external teat sealant for
organic dairies: T-HEXX DRY Green-S with natural actives. The Company also
launched a new product line T-HEXX Syrup concentrated post-milking barrier teat
dips which requires just a blending with water: reducing logistics and shipping
costs to our customers while maintaining the superior performance that existing
T-HEXX products provide.
Patent pending and under field studies by a customer, is a teat plug, which
when launched, would allow the Company (directly and/or indirectly) to provide
complete protection against mastitis for the entire bovine working cycle.
The Company has invested significantly in clinical research, patents,
promotion, vendor partnerships and advertising via print media, trade shows and
the Internet to support this business and continues to do so. Under
development are various new products, including non-barrier dips and sprays and
a hoof bath concentrate. These are in various stages of clinical or field
studies and customer evaluation. A new focus on international distribution has
been made in late fiscal 2009, including a dedicated product manager as well as
increased customer calls and promotions planned. Legal action was initiated
against a former licensee and other parties in fiscal 2004 on the basis of
infringement of the Company's patented technology. Settlement was made in
early calendar 2006 with all parties, authenticating both the validity of the
technology as well as ownership of such.
Products
Coating solutions for use on medical devices, cosmetic intermediaries,
hydrogels and teat barrier dips/sprays are manufactured and sold by the Company
to its licensees and others. The Company is selling anti-fog solutions to
manufacturers of greenhouse panels, refrigerator freezer doors, swim goggles,
industrial safety equipment, aircraft windows and meter covers, both in the
U.S. and foreign countries. The Company also sells OEM medical devices through
its Biosearch Medical Products subsidiary.
The Company has no long-term contracts with any of its suppliers and believes
that there are adequate alternative sources of supply available for all raw
materials that it currently uses.
Dependence Upon Customers
The Company derives its revenues from two primary business segments: (1)
polymer research and the products derived there from, and (2) the sales of
medical products. During the fiscal year ended June 30, 2009 and June 30,
2008, Johnson & Johnson's Cordis Division was a significant customer to the
Company. For the fiscal year ended June 30, 2008, Cook Endoscopy, was also a
major customer.
Product sales and/or royalty payments and support fees from these customers
accounted for 10% and 24% of the Company's total revenues for the years ended
June 30, 2009 and June 30, 2008, respectively.
Potential Applications
The Company continues to explore other applications of the complexing
capabilities of polymeric substances, such as anti-microbial agents.
The Company currently is working on further applications of its patented
technologies to existing products of other companies, including cosmetics,
wound dressings, personal care and a wide variety of medical devices, including
vascular stents. Some of these products and applications are in the
preliminary development stage and are subject to substantial further
development before their feasibility can be verified.
On the basis of its market analyses, as well as laboratory and in-vitro testing
of certain applications of Hydromer, the Company believes that Hydromer's
potential product applications, classified with reference to salient Hydromer
characteristics, are as follows:
1. Low Coefficient of Friction. Hydromer is a hydrophilic coating which when
contacted by water becomes extremely lubricious. The Company believes that
this unique feature would prove beneficial to any medical device that is
inserted into the body. Medical products that would so benefit include:
urinary products - urethral catheters, stents and urinary drainage systems;
rectal products - enemas, rectal tubes, examination gloves and proctoscopy
devices (disposable);
nasal/oral products - suction catheters, oxygen catheters and endotracheal
tubes;
cardiovascular and related products - grafts, cardiac assist catheters
heart-lung tubing, stents.
2. Ability to be Complexed with Other Functional Chemicals. The Hydromer
hydrophilic polymer coating can be complexed with other chemicals. For
example, Hydromer coating complexed with iodine forms an effective
anti-microbial barrier. The Company believes that this unique feature would
lend itself to application on a wide variety of currently marketed medical
products, including vascular stents, Foley catheters, wound drains, wart and
corn dressings, burn dressings, intravenous catheters, surgical dressings and
adhesive bandages. One of the Company's patents in the coating area, issued in
April 2000, involves the covalent bonding of infection resistant materials into
the coating, providing a non-leaching, anti-infective surface. The Company was
also granted a patent in July 2003 for covalently bonded radio-opaque polymeric
compositions to improve the radio-opacity of materials without needing high
solid loading, metal plating or ion implantation for applications like stents
and vascular catheters.
3. Cross-link Density Can be Controlled. The Hydromer hydrophilic polymer
coating, through controlled cross-linking, has been further developed into a
special anti-fog coating. Such a coating is (a) resistant to fogging under a
wide range of temperature/humidity conditions; (b) transparent and has
heat/light stability; (c) long lasting, i.e., will not chip or peel and offers
more scratch resistance than do most commercial plastics; (d) inert to most
commercial glass cleaners; (e) less prone to static dirt pickup; and (f)
applicable by dip, spray or roll coating. This anti-fog product has use on
greenhouse panels, refrigerator freezer doors, sports goggles, windows, mirrors
and other products, either by direct application or by coating of an adhesive
backed film.
Research and Development
The Company's research and development activities presently are, and during the
next year are expected to be devoted primarily to the development and
enhancement of the products described above and to the design and development
of new products, either for its own account, jointly with another company or
strictly as a sub-contractor. The Company sponsors all of such activities from
its own internal funding or through charges to the contracting company. The
major portion of R&D expenses was applied toward salaries and other expenses of
personnel employed on a regular basis in such work.
Competition
The Company considers the most significant competitive factors in its market
for its patented coatings to be product capability and performance (including
reliability and ease of use), in addition to price and terms of purchase.
The Company currently owns ten process and applications patents for Hydromer
coatings (see "Patents and Trademarks"). Although the medical products market
is highly competitive, the Company does not believe that there is any other
product available which performs functions significantly better in terms of
lubricity, complexing capabilities, durability and cost.
While management believes the Company has a strong position in the market for
medical device coatings in which it competes, and that its hydrophilic foam,
anti-fog coatings and hydrogel products are technologically superior to other
products in the market, there can be no assurance that alternatives, with
similar properties and applications, could not be developed by other companies.
The Company is aware that there are other similar technologies available and/or
being developed by others. The industry in which the Company competes is
characterized by rapid technological advances and includes competitors that
possess significantly greater financial resources and research and
manufacturing capabilities, larger marketing and sales staffs and longer
established relationships with customers than the Company does, at present or
will for the foreseeable future.
Marketing
The Company markets its products and services through five principal means:
1. Commercialization of its existing technologies: The Company intends to
expand its efforts to market its current technology to the medical, industrial,
personal care and animal health markets. The Company has expanded its
capabilities to prototype and manufacture for customers to demonstrate the
value of Hydromer technology. The Company will also seek opportunities to
apply its technology in new applications where the technology will offer a
benefit. Further, the Company will seek customers for technologies that have
been developed but are not currently generating revenue, capitalize on the
technology that has been created through its R&D efforts and to expand the
application of current technologies.
2. Sale of Development Services: The Company intends to continue moving its
effort away from straight technology licensing and toward contract product
development, contract manufacturing and coating services (see "5. Coating
Services"). The Company has significant expertise in polymer development and
applications. By exhibiting at an increased number of trade shows in the
medical device fields, the Company expects to generate interest in its
technology and products, with a view toward acting as an outside product
development arm and development supplier for companies in these fields.
3. Joint Development: The Company will continue to seek joint development
programs, co-marketing programs and other business arrangements with potential
partners.
4. Licensing: The Company will continue its endeavors to license its
technology to current market leaders in the medical device, pharmaceutical and
other fields, whereby the Company will grant exclusive or non-exclusive rights
for the Hydromer coating treatment of existing or new products, and the
development of specific products utilizing its foam and hydrogel technology
under its patents. In return, the Company generally would earn royalties based
on sales of such treated or new products. Such licenses will usually be very
narrow. The activities leading to the consummation of a license agreement
normally are lengthy and require establishing a scientific dialogue with
potential customers, treating samples supplied by that customer with Hydromer
coatings, determining if the treatment is feasible and cost effective, testing
the coated products in a laboratory and then negotiating a mutually acceptable
option agreement. An stand-still fee may be paid by the customer which would
give the customer exclusive rights to use the Hydromer treatment on the
specified product for a defined time period. During such period, the customer
can test market the coated product and/or determine its ability to treat the
product in its own manufacturing process. If the customer determines that the
subject product should be treated with Hydromer coating on a commercial basis,
it may either perform the Hydromer coating treatment itself under a license
agreement with the Company, through the Company's Contract Coating unit or it
may have a third party perform the Hydromer coating treatment.
5. Coating Services: The Company will serve the customer who needs products
coated with lubricious or anti-fog coatings in production runs that are
economically feasible without substantial investments in fixturing and
automation. Typically this would be prototypes or runs of low volume, high
value products. Higher volume products could be accommodated if they were
physically small and did not require extensive fixturing or because for
technical reasons they could not be automated and were of high enough value to
warrant the added cost. The Company will pursue large volume projects if they
fall within a technical area where the Company has particular expertise.
Business segments in Coating Services which are of particular interest include
medical devices (catheters and guidewires) and transparencies (lenses, face
shields). Contacts will be pursued in conjunction with marketing of Hydromer
coatings, at trade shows, in mass mailings and advertisement in appropriate
trade publications. The Company is continually upgrading its advertising copy
and promotional literature as needed to graphically highlight the properties
and advantages of its technologies.
The same marketing tools (traditional means of tradeshow contacts, mass
mailings, advertising, promotional activities, etc.) as well as alternative
methods (such as the Internet) are used by the Company in its focus of
expanding sales globally to the medical, commercial, personal care and
animal health community.
Patents and Trademarks
Management believes that the protection afforded by the Hydromer patents will
be a significant factor in the Company's ability to market its products.
Anticipating patent expiration, the Company has focused on licensing and
developing products based upon its newer technologies.
As an example, one U.S. patent that contributed approximately $2,100,000 in
annual royalties from four licensees expired on May 6, 2005. Although the
Company had a new patent on superior technology available, the Company was
successful in reaching supply and/or support agreements with the four former
licensees recovering an approximate $1,500,000 annually. These new
supply/support agreements have varying terms and cancellation provisions.
It is the Company's practice to replace any discontinuances of income stream
with other sources, including new product revenues, new service revenues and
other license or contract revenues.
As of June 30, 2009, the Company has 10 U.S. patents, three U.S. applications
and various foreign counterparts. The Company's existing patents covers
hydrophilic coatings and foams, hydrophilic polymer blends, anti-bacterial
medical and cosmetic materials, non-leaching biostatic coatings, barrier film
and barrier teat dip compositions and its method for preventing contact
dermatitis, permanent anti-fogs, Chitosan gels and others.
The Company owns the registered trademarks "Aquadapt", "Aquamere", "Aquatrix",
"Dermaseal", "Hydromer", "Sea-Slide" and "T-HEXX" and the common law mark of
"Dragonhyde" in the United States and other countries.
Employees
As of June 30, 2009, the Company and its subsidiary had seventy-three active
full-time employees. The Chief Executive Officer is Manfred F. Dyck, who is
also Chairman of the Board. The Company does not have a collective bargaining
agreement with any of its employees and considers its relationship with its
employees to be very good.
Government Regulations
The uses of the Company's medical, agricultural and cosmetic products come
under the jurisdiction of the FDA, as well as other federal, state and local
agencies, and similar agencies in other countries.
In connection with the Company's license agreements, it is generally the
obligation of the licensee to conform to any required FDA pre-market
notification or other regulations. To the Company's knowledge, all such
licensees who are marketing licensed products are in such compliance. The
Company expects to market additional applications of Hydromer to existing
products, or products introduced by it, which may be subject to such FDA
approval and/or foreign regulatory agencies' procedures as proof of safety and
effectiveness of the applications or products, or adherence to prescribed
design standards. There can be no assurance that such approvals would be
forthcoming or of compliance with such standards. Any such failure to obtain
approvals or non-compliance might have a significant adverse effect on the
Company. However, the Company intends to make every effort to obtain all
necessary approvals and to comply with such standards, and in the case of its
licensed applications, to require the licensees to obtain such approvals.
The Company manufactures and contract coats medical products through its
Biosearch Medical Products subsidiary ("Biosearch"), whose activities come
under the jurisdiction of the FDA. It is the policy of the Company to use the
FDA regulations as guidelines during manufacturing of Hydromer coatings.
The Company is also subject to federal and state regulations dealing with
occupational health and safety and environmental protection. It is the policy
of the Company to comply with these regulations and be responsive to its
obligations to its employees and the public.
The Company's electronically filed reports are available at www.sec.gov.
The executive officers of the Company are as follows:
The executive officers of the Company are as follows:
Age as of
Name Position with Company Aug 31, 2009
Manfred F. Dyck - Chairman of the Board,
Chief Executive Officer and President 74
Martin C. Dyck - Executive Vice-President,
Operations and President Biosearch
Medical Products subsidiary 47
Rainer Gruening - Vice-President,
Intellectual Property 66
John Konar - Vice-President, Quality Assurance
and Director of Human Resources 60
Robert Y. Lee - Vice-President, Finance,
Chief Financial Officer and Treasurer 43
Robert J. Moravsik - Senior Vice-President,
General Counsel and Secretary 66
Manfred F. Dyck has been Chairman of the Board of the Company since
June 1983 and a Director of the Company since its inception. Mr. Dyck served
as Chief Executive Officer of the Company from its inception until October
1986, and as of August 1989, reassumed the duties of Chief Executive Officer.
Mr. Dyck was President of Biosearch Medical Products Inc. from 1975 until 1998
and a Director of Biosearch Medical Products Inc. from 1975 until 2000.
Martin C. Dyck has been Executive Vice-President, Operations since June
of 2001. He was previously Vice-President of Operations since February 2000
when the Company purchased Biosearch Medical Products. Mr. Dyck has been
President of Biosearch since 1998, a position which he still maintains. Mr.
Dyck has been employed by Biosearch since 1986 and has served in various
capacities including Director of New Product Development, where he developed
several new medical devices and authored six FDA 510(k) pre-market submissions.
After becoming President of Biosearch in 1998, Mr. Dyck changed the focus of
Biosearch to become a contract medical coatings service provider using
proprietary technology unique to Biosearch.
Rainer Gruening joined the Company as Vice-President of Research and
Development in June 2001, and in May 2006 became VP of Intellectual Property.
With a Ph.D. in Chemistry from the University of Marburg in Germany, his
background includes service with Bayer AG/Deutsche Solvay Werke, Troy, G+G
International and AM Cosmetics in areas including international regulatory
affairs, coatings technology and anti-microbials. Mr. Gruening authored and/or
co-authored 17 patents and 35 publications on synthesis and formulation of
anti-microbials for paint and coatings, cosmetics, personal care products,
medical coatings, adhesives, marine anti-fouling and metal working fluids and
developed dossiers, safety assessments and GMP documentation. Additionally, he
implemented FDA/CTFA, European and Japanese compliance requirements for raw
materials and formulation restrictions.
John Konar has been the Vice-President of Quality Assurance since
February 2004 and Director of Human Resources since February 2000. Mr. Konar
joined Biosearch in 1986 and served as the Director of Human Resources with
Biosearch from 1996 until its acquisition by the Company in 2000, when he then
assumed responsibilities for both companies. He also served, with Biosearch,
as the Director of Sales from 1996 until 2000, Director of QA from 1998 until
2004 when promoted to VP of QA, and Director of Manufacturing from 2000 to
2001.
Robert Y. Lee joined the Company in the capacities of Vice-President of
Finance, Chief Financial Officer and Treasurer in June 2001. He earned a MBA
in Finance and International Business, and a Bachelors of Science in Accounting
and Information Systems, both from New York University's Stern School of
Business. His professional experience includes tenure in the Emerging Business
Group of the New York office of Coopers & Lybrand (currently Pricewaterhouse
Coopers), the Bristol Myers Squibb Internal Auditing group, ASARCO's Southern
Peru Copper Corporation, now Southern Copper Corporation, part of Grupo Mexico,
and Citigroup.
Robert J. Moravsik has been Senior Vice-President, General Counsel and
Secretary since February 2000. He holds a B.S. in Aerospace Engineering, an
M.S. in Computer Science and a Doctorate in Law. He was Vice-President and
General Counsel since April 1998. He also serves in the same capacity for
Biosearch Medical Products, Inc. an affiliated company since 1987. Prior to
that, he was Vice-President and General Counsel to Fisher Stevens, Inc., a
subsidiary of the Bureau of National Affairs. He is an attorney admitted in
the states of New Jersey and New York.
Item 2. PROPERTIES
In June 1998, the Company purchased the building and land at 35 Industrial
Parkway, Branchburg, NJ from Biosearch Medical Products, then an affiliated
party. The facility, currently its sole facility, is secured by a mortgage
through a bank. See the financial statements included herein for the terms of
the agreement.
In 2002, the Company completed its 10,400 square feet expansion at its primary
location of 35 Industrial Parkway. This allowed the Company to consolidate
certain manufacturing and quality assurance functions operations formerly
located on leased space.
The expanded facility will be adequate for the Company's operations for the
foreseeable future.
Item 3. LEGAL PROCEEDINGS
Not applicable.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
PART II
Item 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Prior to January 9, 1986, the Company's Common Stock was traded in the
over-the-counter market on the National Association of Securities Dealer's
Automated Quotation System (NASDAQ) under the symbol "HYDI". Subsequent to
January 9, 1986, reporting of trading was transferred to the National Daily
Quotation Service (commonly known as the "Pink Sheets"). For the past
twenty-three years, trading in the Company's stock has been limited.
On February 13, 2002 the Company became a listed security on the Boston
Stock Exchange ("BSE") under the trading symbol "HDO" until the BSE ceased
trading activities in 2007. Hydromer remains listed as "HYDI" on the OTC
reporting services.
The Company's common stock traded at prices ranging between $0.25 and
$2.50 in the fiscal year 2009 and between $0.51 and $2.25 in the fiscal year
2008. These prices may not include retail mark-ups or mark-downs or any
commission to the broker dealer.
The approximate number of holders of record of the Common Stock on
September 1, 2009 was 220. There are approximately 600 individual shareholders
of the common stock.
Item 6. MANAGEMENT DISCUSSION AND ANALYSIS
The below discussion analyzes major factors and trends regarding the
results of operations and the financial condition of the Company as of June 30,
2009, and its results of operations for the prior fiscal period. It should be
read in conjunction with the Financial Statements and Notes thereto.
Revenues for the year ended June 30, 2009 were $7,752,007 as compared to
$8,010,324 for the same period last year, a decrease of $258,317 (3.2%).
Product sales and services revenues were $6,518,424 for the 2009 fiscal year as
compared to $6,422,557 the prior fiscal year, a 1.5% increase or $95,867.
License royalties and contract payments were $1,233,583 in fiscal 2009, down
22.3% from fiscal 2008's results of $1,587,767.
Management Comment: The global economic down turn unfavorably impacted our
non-medical product lines (industrial, cosmetics and animal health). The net
increase in medical product sales (chemical coating sales and medical devices)
though, was not sufficient to offset the non-medical product lines. Sales
growth in medical coating sales resulted in part from the transition conversion
from contract coating services to chemical sales [and license/support fees].
The sale of two medical device product lines and its subsequent negotiated
transfer price agreement (Hydromer provided medical devices at a reduced
transfer price to the purchaser of the product lines), reduced sales income
by approximately $210,000. Third party sterilizer delays and parts
availability issues further reduced medical device sales in fiscal 2009.
In the aggregate, contact coating services income remained flat between
the years. However, a customer began its conversion from procuring coating
services from the Company to purchasing chemical coatings for their own
application servicing. The 2009 fiscal year includes the overlap of purchases
to the sum of approximately $200,000 where the customer began purchasing
chemical coatings during the transition while phasing down the contract
servicing.
A non-recurring (not annual) R&D project contributed $276,000 in
services revenues for the fiscal 2009 year accounted for the majority of the
services revenues increase.
A major customer cancelled their $100,000 per month Supply and Support
Agreement effective December 31, 2008. A new agreement, guaranteed for fifteen
months with renewal options at $35,000 per month, was entered into effective
January 1, 2009. Under the new agreement, the customer no longer had exclusive
rights to the technology.
Total Expenses for the year ended June 30, 2009 were $7,248,790, an improvement
of 7.5% or $584,068 lower than the 2008 fiscal year results of $7,832,858.
Cost of Goods Sold was $3,193,773 for fiscal 2009 as compared to
$3,044,157 for fiscal 2008. Operating expenses were $4,943,366 and $4,622,893,
for the years ended June 30, 2009 and 2008, respectively. Other Expenses added
$223,886 to expenses for fiscal 2009 as compared with $152,553 for fiscal 2008.
Income Taxes were $181,113 in fiscal 2009 compared with $13,255 in fiscal 2008.
Reducing expenses in fiscal 2009 was the one time Gain from Sale of Assets of
$1,293,348.
Management Comment: Higher sterilization activity following the third party
sterilizer issues added approximately $110,000 in other Cost of Goods Sold
costs during the fiscal 2009 year. The transfer price agreement associated
with the sale of two medical device product lines reduced margins (increased
Cost of Sales as a % of Product sales).
Following a one-year salary reduction (2006-7) and no salary increase since
then for the executive management team, a one-time bonus was approved by the
Board of Directors following the sale of assets for $1,600,000. In total,
$125,000 in bonuses was awarded. During fiscal 2009, $167,252 of capitalized
patent costs were written off. This compares with $126,420 in patent
write-offs the year before. Such charge-offs occur when the related discounted
future cash flows of a patent is deemed to be below its current carrying value.
At times, certain patent groups will continue to be maintained and supported
although they have been written off (costs charged directly to expense and no
longer capitalized and amortized over future years). In addition, fiscal 2009
included higher marketing expenses, including an added international trade
show, for the introduction and promotion of new T-HEXX Animal Health products
and higher Occupancy costs, including higher utilities costs and property taxes
from a reassessment.
The Company's Operating Expenses includes "re-investment" costs: Research &
Development expenditures (primarily salaries and benefits) and funding to its
patent estate. To a degree, such "re-investment' costs could be eliminated on
a current basis, however, such action would be significantly detrimental to the
future growth of the organization. That said, the Company's investment into
Research and Development was $883,616 and $790,006 for the years ended June 30,
2009 and 2008, respectively, or 17.9% and 17.1% of total Operating Expenses.
Amortization [expense] of the patent estate was $197,104 and $190,765 for the
years ended June 30, 2009 and 2008, respectively (4.1% of total Operating
Expenses for both periods).
A provision for Income Taxes of $181,113 in fiscal 2009 is compared with Income
Taxes of $13,255 for the year ended June 30, 2008. There was $564,000 in
Income Taxes as a result of the Gain on sale of Assets which was reduced from
the realization and utilization of tax credits (NOL's and R&D tax credits),
some of which had valuation allowances applied against it in previous years.
Net Income of $503,217 is reported for the 2009 fiscal year compared with a Net
Income of $177,466 for the 2008 fiscal year.
Net Income of $503,217 or $0.11 per share is reported for fiscal 2009 as
compared with $177,466 or $0.04 per share for fiscal 2008.
Management Comment: The sale of product lines yielded a one-time gain of
$729,348 after taxes. The unforecasted cancellation of the $100,000 per month
Supply and Support Fees, replaced with a $35,000 per month agreement, impacted
pre-tax income by $390,000. Other non-recurring items (revenues from R&D
project, higher sterilization usage, management bonus, write-offs of patent
expenses) also impacted the earnings of fiscal 2009.
Liquidity and Capital Resources
Working Capital as of June 30, 2009 was $2,992,698 up $2,159,221 from $833,477
the prior year.
Working Capital generated from operations and the sale of product lines (net of
income taxes), with add-backs for depreciation and amortization expense and
non-cash charges (write-down of patent costs, write-off of equipment and
deferred taxes), during the 2009 fiscal year, was used to fund capital
expenditures and the patent estate. Part of the funds from the cash-out
mortgage refinance was used to pay-off and close the Line-of-Credit facility.
The replacement of 10-year term mortgages with a 25-year term further
contributed to working capital.
Management Comment: During the fiscal 2009 year, the Company began its endeavor
to strategically strengthen the organization: both financially as well as
operationally. Included to date was the mortgage refinance and sale of product
lines. These actions strengthened the Company's financial position (generated
cash, reduced inventory levels / holding costs, swapped out a short-term
revolving line-of-credit facility with a long-term loan and reduced monthly
debt servicing levels; all leading to a much improved liquidity position) as
well as leading to a more focused organization (the sold product lines were
more labor intensive as well as having higher raw materials and other
requirements (such as outside sterilization) than the goal).
The sold product lines (sales price represents the discounted stream of future
earnings) along with a $65,000 per month cash reduction (net effect of the
cancelled Supply and Support Agreement with the subsequent replacement) leaves
future years at a disadvantage to start. Based on the Company's recent actions
though, it has a strong relative cash position and liquidity to meet required
debt servicing and capital expenditures along with any shortfall to start.
The Company has entered into many new Supply and/or Support Agreements during
the past few years and continues to do more, as well as having new Contract
Coatings agreements, engineering services and new T-HEXX customers in the
pipeline to add to other revenues from technologies currently under evaluation.
We look to have such "newer" revenues replace the lost revenues.
Item 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
For information concerning this item, see pages F-1 through F-8 of the
"Audited Financial Statements for the year ended June 30, 2009," which
information is incorporated herein by reference.
Item 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
Item 8a. DISCLOSURE CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of management,
including the Chief Executive Officer and President and the Chief Financial
Officer, we evaluated the effectiveness of the design and operation of the
disclosure controls and procedures (as such term is defined in Rule 13a-15(e)
under the Securities and Exchange Act of 1934 (the "Exchange Act")).
Disclosure controls and procedures are the controls and other procedures that
we designed to ensure that we record, process, summarize and report in a timely
manner the information we must disclose in reports that we file with or submit
to the Securities and Exchange Commission under the Exchange Act. Based on
this evaluation, our Chief Executive Officer and Chief Financial Officer
concluded that, our disclosure controls and procedures were effective as of the
end of the period covered by this report.
Changes in Internal Control over Financial Reporting
There were no changes to our Company's internal control over financial
reporting that occurred during the period that has materially affected, or is
reasonably likely to materially affect the Company's internal control over
financial reporting.
Management's Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate
internal control over financial reporting. This internal control system was
designed to provide reasonable assurance to the Company's management and Board
of Directors regarding the preparation and fair presentation of published
financial statements.
All internal control systems, no matter how well designed, have inherent
limitations. Therefore, even those systems determined to be effective can
provide only reasonable assurance with respect to financial statement
preparation and presentation.
Management assessed the effectiveness of the Company's internal control over
financial reporting as of June 30, 2009. In making this assessment, we used
the criteria set forth by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO) in Internal Control-Integrated Framework.
Based on our assessment, we believe that, as of June 30, 2009, the Company's
internal control over financial reporting is effective based on those criteria.
There are two deficiencies, which are not required to be disclosed but to which
management has elected to disclose, within the Company's internal control over
financial reporting:
Segregation of Duties (control deficiency)
Due to the size of the Company, there is a lack of a proper segregation of
duties, including that of the Chief Financial Officer.
Reporting Controls over Inventory (significant deficiency)
The Company lacks a perpetual inventory system to adequately account for
inventory transactions and to report inventory, leading it to be reasonably
possible that financial statements are misstated during interim periods. Full
physical inventory counts are conducted at year-end allowing for any
misstatement to be inconsequential. The sale of two product lines in February
2009 reduced inventory levels by approximately 40% from year-end 2008 to
year-end 2009, further reducing the risk levels.
This annual report does not include an attestation report of the Company's
independent registered public accounting firm regarding internal control over
financial reporting. Management's report was not subject to attestation
pursuant to temporary rules of the Securities and Exchange Commission.
PART III
Item 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
For information concerning this item, see "Item 1. Business - Executive
Officers" and pages 3 through 11 in the Proxy Statement filed with respect to
the 2009 Annual Meeting of Shareholders (the 'Proxy Statement"), which
information is incorporated herein by reference.
Item 10. EXECUTIVE COMPENSATION
For information concerning this item, see page 9 of the Proxy Statement, which
information is incorporated herein by reference.
Item 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
For information concerning this item, see page 10 of the Proxy Statement, which
information is incorporated herein by reference.
Item 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During the past fiscal year, there have been no related party transactions.
PART IV
Item 13. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. Financial Statements:
The financial statements of the Company incorporated by reference in this Report
are listed in the attached Index to the Financial Statements and Supplementary
Data.
(a) 2. Financial Statement Schedules:
The financial statement schedules of the Company filed in this Report are listed
in the attached Index to Financial Statements and Supplementary Data.
(a) 3. Exhibits (not included)
The exhibits required to be filed as part of this Report are listed in the
attached Index to Exhibits.
(b) Current Reports on Form 8-K:
The Company filed seven Form 8-K's during the year ended June 30, 2009.
Each 8-K reported press releases issued by the Company: (1) Entering into Supply
and Support Agreement for Stent Placement Catheters, (2) Announcing the T-HEXX
Animal Health Division going "Green", (3) Entering into the Taiwanese Market,
(4) Entering into the Chinese Market, (5) Cancellation of a Supply and Support
Agreement, (6) the Sale of Product Lines, and (7) the Entering of a replacement
Supply and Support Agreement.
POWER OF ATTORNEY
The Company and each person whose signature appears below hereby appoint
Manfred F. Dyck and Robert Y. Lee as attorneys-in-fact with full power of
substitution, severally, to execute in the name and on behalf of the registrant
and each such person, individually and in each capacity stated below, one or
more amendments to the annual report which amendments may make such changes in
the report as the attorney-in-fact acting deems appropriate and to file any such
amendment to the report with the Securities and Exchange Commission.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
HYDROMER, INC.
/s/ Manfred F. Dyck /s/ Robert Y. Lee
Manfred F. Dyck Robert Y. Lee
President, Principal Executive Officer, Chief Accounting Officer
Chairman of the Board of Directors
August 19, 2009 August 19, 2009
Pursuant to the requirements of the Securities and Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated:
/s/ Manfred F. Dyck /s/ Ursula M. Dyck
Manfred F. Dyck Ursula M. Dyck
President, Principal Executive Officer, Director
Chairman of the Board of Directors
August 19, 2009 August 20, 2009
/s/ Robert H. Bea /s/ Maxwell Borow
Robert H. Bea Maxwell Borow, MD
Director Director
August 19, 2009 August 19, 2009
/s/ Dieter Heinemann /s/ Frederick L. Perl
Dieter Heinemann Frederick L. Perl, MD
Director Director
August 21, 2009 August 19, 2009
/s/ Michael F. Ryan /s/ George A. Ziets
Michael F. Ryan, PhD George A. Ziets
Director Director
August 19, 2009 August 19, 2009
INDEX TO 2009 10-K CERTIFICATIONS
Exhibit No. Description
31.1 Certification of Manfred F. Dyck, Chief Executive Officer,
pursuant to Securities Exchange Act Rule 13a-14(a).
31.2 Certification of Robert Y. Lee, Chief Financial Officer,
pursuant to Securities Exchange Act Rule 13a-14(a).
32.1 Certification pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002,
signed by Manfred F. Dyck, Chief Executive Officer of
Hydromer, Inc.
32.2 Certification pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002,
signed by Robert Y. Lee, Chief Financial Officer of Hydromer,
Inc.
EXHIBIT 31.1
HYDROMER, INC.
SARBANES-OXLEY ACT SECTION 302(a) CERTIFICATION
I, Manfred F. Dyck, certify that:
1. I have reviewed this annual report on Form 10-K of Hydromer, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement
of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered
by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows
of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer, Robert Y. Lee, and I are
responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e))
and internal control over financial reporting (as defined in Exchange
Act Rules 13a-15(f) and 15d-15(f) for the registrant and have:
a. Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our supervision,
to ensure that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us by others
within those entities, particularly during the period in which this
report is being prepared;
b. Designed such internal controls over financial reporting, or caused such
internal controls over financial reporting to be designed under our
supervision, to provide reasonable assurances regarding the reliability
of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting
principles;
c. Evaluated the effectiveness of the registrant's disclosure controls and
procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this report based on such evaluation; and
d. Disclosed in this report any change in the registrant's internal control
over financial reporting that occurred during the registrant's most
recent fiscal quarter (the registrant's fourth fiscal quarter in the
case of an annual report) that has materially affected, or is reasonably
likely to materially affect, the registrant's internal control over
financial reporting; and
5. The registrant's other certifying officer(s) and I have disclosed, based
on our most recent evaluation of internal control over financial
reporting, to the registrant's auditors and the audit committee of the
registrant's board of directors (or persons performing the equivalent
functions):
a. All significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to
record, process, summarize and report financial information; and
b. Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
control over financial reporting.
Date: September 15, 2009
By: /s/ Manfred F. Dyck
Manfred F. Dyck
Chairman and Chief Executive Officer
EXHIBIT 31.2
HYDROMER, INC.
SARBANES-OXLEY ACT SECTION 302(a) CERTIFICATION
I, Robert Y. Lee, certify that:
1. I have reviewed this annual report on Form 10-K of Hydromer, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement
of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered
by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows
of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer, Manfred F. Dyck, and I are
responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e))
and internal control over financial reporting (as defined in Exchange
Act Rules 13a-15(f) and 15d-15(f) for the registrant and have:
a. Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our supervision,
to ensure that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us by others
within those entities, particularly during the period in which this
report is being prepared;
b. Designed such internal controls over financial reporting, or caused such
internal controls over financial reporting to be designed under our
supervision, to provide reasonable assurances regarding the reliability
of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting
principles;
c. Evaluated the effectiveness of the registrant's disclosure controls and
procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this report based on such evaluation; and
d. Disclosed in this report any change in the registrant's internal control
over financial reporting that occurred during the registrant's most
recent fiscal quarter (the registrant's fourth fiscal quarter in the
case of an annual report) that has materially affected, or is reasonably
likely to materially affect, the registrant's internal control over
financial reporting; and
5. The registrant's other certifying officer(s) and I have disclosed, based
on our most recent evaluation of internal control over financial
reporting, to the registrant's auditors and the audit committee of the
registrant's board of directors (or persons performing the equivalent
functions):
a. All significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to
record, process, summarize and report financial information; and
b. Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
control over financial reporting.
Date: September 15, 2009
By: /s/ Robert Y. Lee
Robert Y. Lee
Vice President, Chief Financial Officer
EXHIBIT 32.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
pursuant to
18 U.S.C. SECTION 1350,
as adopted pursuant to
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
I, Manfred F. Dyck, certify, pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Annual
Report of Hydromer, Inc. on Form 10-K for the fiscal year ended June 30, 2009
fully complies with the requirements of Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 and that information contained in such Annual Report on
Form 10-K fairly presents in all material respects the financial condition and
results of operations of Hydromer, Inc.
Date: September 15, 2009 By: /s/ Manfred F. Dyck
Manfred F. Dyck
Chairman and Chief Executive Officer
________________________________________
EXHIBIT 32.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER
pursuant to
18 U.S.C. SECTION 1350,
as adopted pursuant to
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
I, Robert Y. Lee, certify, pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Annual
Report of Hydromer, Inc. on Form 10-K for the fiscal year ended June 30, 2009
fully complies with the requirements of Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 and that information contained in such Annual Report on
Form 10-K fairly presents in all material respects the financial condition and
results of operations of Hydromer, Inc.
Date: September 15, 2009 By: /s/ Robert Y. Lee
Robert Y. Lee
Vice President, Chief Financial Officer
Hydromer, Inc. & Subsidiary
Consolidated Financial Statements
June 30, 2009 and 2008
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and
Stockholders of Hydromer Inc. & Subsidiary
We have audited the accompanying consolidated balance sheets of Hydromer Inc. &
Subsidiary as of June 30, 2009 and 2008, and the related statements of income,
stockholders' equity, and cash flows for each of the years in the two-year
period ended June 30, 2009. Hydromer Inc. & Subsidiary's management is
responsible for these financial statements. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. The company is not
required to have, nor were we engaged to perform, an audit of its internal
control over financial reporting. Our audit included consideration of internal
controls over financial reporting as a basis for designing audit procedures that
are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the company's internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Hydromer Inc. & Subsidiary as
of June 30, 2009 and 2008, and the results of its operations and its cash flows
for each of the years in the two-year period ended June 30, 2009 in conformity
with accounting principles generally accepted in the United States of America.
Rosenberg Rich Baker Berman & Company
Bridgewater, New Jersey
September 17, 2009
Hydromer, Inc. & Subsidiary
Index to the Consolidated Financial Statements
June 30, 2009 and 2008
Page
Financial Statements
Consolidated Balance Sheets F-1
Consolidated Statements of Income F-2
Consolidated Statements of Stockholders' Equity F-2
Consolidated Statements of Cash Flows F-3
Notes to the Consolidated Financial Statements F-4 to F-13
Hydromer, Inc. & Subsidiary
Consolidated Balance Sheets
June 30,
2009 2008
------------------------------------
Assets
Current Assets:
Cash and cash equivalents $ 1,585,765 $ 108,403
Short-term investments 450,000 -
Trade receivables less
allowance for doubtful 1,058,978 1,100,388
accounts of $57,741 and
$79,790 as of June 30, 2009
and 2008, respectively
Inventory 615,849 1,022,660
Prepaid expenses 204,280 149,726
Deferred tax asset 8,976 8,976
Other 8,968 7,147
-------------------------------------------------------------------------
Total Current Assets 3,932,816 2,397,300
-------------------------------------------------------------------------
Property and equipment, net 3,135,017 3,339,270
Deferred tax asset, non-current 521,986 620,157
Intangible Assets, net 740,426 820,858
-------------------------------------------------------------------------
Total Assets $ 8,330,245 $ 7,177,585
-------------------------------------------------------------------------
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable $ 380,838 $ 595,412
Short-term borrowings - 289,973
Accrued expenses 341,088 345,480
Current portion of Capital Leases 14,473 13,095
Current portion of deferred revenue 82,132 88,051
Current portion of mortgage payable 45,696 230,160
Income tax payable 75,891 1,652
-------------------------------------------------------------------------
Total Current Liabilities 940,118 1,563,823
-------------------------------------------------------------------------
Deferred tax liability 285,858 281,398
Long-term portion of Capital Leases 50,258 65,310
Long-term portion of deferred 161,019 49,461
revenue
Long-term portion of mortgage 2,820,055 1,647,873
payable
-------------------------------------------------------------------------
Total Liabilities 4,257,308 3,607,865
-------------------------------------------------------------------------
Contingencies - -
Stockholders' Equity
Preferred stock - no par value,
authorized 1,000,000 shares, - -
no shares issued and outstanding
Common stock - no par value, authorized
15,000,000 shares; 4,783,235 shares
issued and 4,772,318 shares
outstanding as of June 30, 2008
and 2009 3,721,815 3,721,815
Contributed capital 633,150 633,150
Accumulated deficit (275,888) (779,105)
Treasury stock, 10,917 common (6,140) (6,140)
shares at cost
-------------------------------------------------------------------------
Total Stockholders' Equity 4,072,937 3,569,720
-------------------------------------------------------------------------
Total Liabilities and Stockholders' $ 8,330,245 $ 7,177,585
Equity
-------------------------------------------------------------------------
See notes to the consolidated financial statements
F - 1
Hydromer, Inc. & Subsidiary
Consolidated Statements of Income
Year Ended June 30,
2009 2008
------------------------------------------------------------------------------
Revenues
Sale of products $ 4,390,321 $ 4,667,992
Service revenues 2,128,103 1,754,565
Royalties and Contract Revenues 1,233,583 1,587,767
------------------------------------------------------------------------------
Total Revenues 7,752,007 8,010,324
------------------------------------------------------------------------------
Expenses
Cost of Sales 3,193,773 3,044,157
Operating Expenses 4,943,366 4,622,893
Other Expenses, net 223,886 152,553
Gain from Sale of Assets (1,293,348) -
Provision for Income Taxes 181,113 13,255
------------------------------------------------------------------------------
Total Expenses 7,248,790 7,832,858
------------------------------------------------------------------------------
Net Income $ 503,217 $ 177,466
------------------------------------------------------------------------------
Earnings Per Common Share $ 0.11 $ 0.04
Weighted Average Number of 4,772,318 4,748,699
Common Shares Outstanding
There was no impact to earnings per share from dilutive securities
under the treasury stock method of computing dilutive earnings per share.
See notes to the consolidated financial statements.
Hydromer, Inc. & Subsidiary
Consolidated Statements of Stockholders' Equity
================================================================================
Common Stock Contributed Accumulated
-----------------------
Shares Amount Capital Deficit
----------- ---------- --------- -----------
4,698,825 $ 3,643,815 $ 633,150 $ (956,571)
Balance June 30, 2007
Exercise of Stock Options 54,410 18,000
Stock Subscription 30,000 60,000
Net Income 177,466
----------- ---------- --------- -----------
4,783,235 $ 3,721,815 $ 633,150 $ (779,105)
Balance June 30, 2008
Net Income 503,217
----------- ---------- --------- -----------
Balance June 30, 2009 4,783,235 $ 3,721,815 $ 633,150 $ (275,888)
=========== ========== ========= ===========
================================================================================
Hydromer, Inc. & Subsidiary
Consolidated Statements of Stockholders' Equity Con't.
===============================================================================
Treasury Stock
-------------------------
Shares Amount Total
---------- ----------- -----------------
---------- -----------
Balance June 30, 2007 10,917 $ (6,140) $ 3,314,254
Exercise of Stock Options 18,000
Stock Subscription 60,000
Net Income 177,466
---------- ----------- -----------------
10,917 $ (6,140) $ 3,569,720
Balance June 30, 2008
Net Income 503,217
---------- ----------- -----------------
Balance June 30, 2009 10,917 $ (6,140) $ 4,072,937
========== =========== =================
===============================================================================
See notes to the consolidated financial statements.
F - 2
Hydromer, Inc. & Subsidiary
Consolidated Statements of Cash Flows
Year Ended June 30,
2009 2008
------------------------------------------------------------------------------
Cash Flows From Operating Activities:
Net Income $ 503,217 $ 177,466
Adjustments to reconcile net income
to net cash provided by operating
activities:
Gain from the Sale of Product Lines (1,293,348) -
Depreciation and amortization 475,010 434,055
Impairment of Intangibles 167,252 126,420
Loss on Disposal of Fixed Assets 62,368 -
Deferred income taxes 175,631 9,013
Changes in Assets and Liabilities
Trade receivables 41,410 21,364
Inventory 150,159 (65,949)
Prepaid expenses (54,554) (29,278)
Other assets (1,821) 6,337
Accounts payable and accrued
liabilities (218,966) 45,253
Deferred revenues 105,639 42,319
Income taxes payable 1,239 (7,508)
------------------------------------------------------------------------------
Net Cash Provided by Operating
Activities 113,236 759,492
------------------------------------------------------------------------------
Cash Flows From Investing Activities:
Cash purchases of property and equipment (163,697) (208,801)
Cash payments on Patents and Trademarks (319,922) (227,102)
Sale of Product Lines 1,600,000 -
Cash purchases of short-term investments (450,000) -
------------------------------------------------------------------------------
Net Cash Provided By (Used
for) Investing Activities 666,381 (435,903)
------------------------------------------------------------------------------
Cash Flows From Financing Activities:
Net payments against Line of Credit (289,973) (224,123)
Repayment of long-term borrowings (1,912,282) (215,401)
New long-term borrowings 2,900,000 -
Proceeds from the issuance of common stock - 78,000
------------------------------------------------------------------------------
Net Cash Provided By (Used 697,745 (361,524)
for) Financing Activities
------------------------------------------------------------------------------
Net Increase (Decrease) in Cash and Cash
Equivalents: 1,477,362 (37,935)
Cash and Cash Equivalents at Beginning of
Period 108,403 146,338
------------------------------------------------------------------------------
Cash and Cash Equivalents at End of Period $ 1,585,765 $ 108,403
------------------------------------------------------------------------------
Cash paid during the year for:
Interest $ 191,511 $ 169,847
Income taxes $ 3,694 $ 9,338
See notes to the consolidated financial statements.
F - 3
Hydromer, Inc. & Subsidiary
Notes to the Consolidated Financial Statements
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
Hydromer, Inc. & Subsidiary (the "Company") is a bio-polymer research
and development company based in Branchburg, New Jersey. The Company develops
polymer complexes for commercial markets in both the United States and abroad
for the medical, cosmetics, animal health and industrial fields. The Company
obtains patent rights on certain products from which royalty revenues are
received. Its wholly owned subsidiary, Biosearch Medical Products, Inc., a
U.S. based corporation, is an OEM manufacturer for various medical products
companies as well as the manufacturer of its own line of endoscopic products
sold to hospitals, domestically and internationally, through a network of
dealers. The Company also offers R&D, engineering and contract coating
services in its array of capabilities.
Principles of Consolidation
The consolidated financial statements include the accounts of Hydromer,
Inc. and its wholly owned subsidiary. All significant intercompany balances
and transactions have been eliminated.
Cash and Cash Equivalents
Cash and cash equivalents consist of investments with original maturities of
three months or less.
Short-Term Investments
Short-term investments consist of investments other than cash and cash
equivalents with original maturities of greater than three months and less than
one year. Short-term investments as of June 30, 2009, comprising of bank CD's
with interest rates ranging from 2.35% to 2.6%, were $450,000. There were no
short-term investments as of June 30, 2008.
Accounts Receivables
Accounts receivable are uncollateralized, non-interest-bearing customer
obligations due under normal trade terms requiring payment typically within 30
days from the invoice date, or in the case of royalties or contract payments
(see Revenue Recognition), usually 45 days from the end of a calendar quarter.
Trade accounts receivable are stated at the amount billed to the customer;
royalties and contract revenues are estimated until reported by the
licensee/contractual party. Payments of accounts receivable are allocated to
the specific invoices identified on the customer's remittance advice or, if
unspecified, are applied to the oldest unpaid invoices. The carrying amount of
accounts receivable is reduced by a valuation allowance that reflects the
Company's best estimate of the amounts that may not be collected. This estimate
is based on reviews of all balances in excess of 90 days past due from the
invoice date. Based on this assessment of current credit worthiness, the Company
estimates the portion, if any, of the balance that will not be collected.
Management also considers the need for additional general reserves and reviews
its valuation allowance on a quarterly basis.
Fair Value Measurements
Effective July 1, 2008, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 157, Fair Value Measurements. In February
2008, the Financial Accounting Standards Board (the "FASB") issued Staff
Position ("FSP") No. 157-1 to exclude SFAS No. 13, Accounting for Leases and
its related interpretive accounting pronouncements that address leasing
transactions, from the scope of SFAS No. 157. In February 2008, the FASB also
issued FSP No. 157-2, Effective Date of FASB Statement 157, which provides a
one year deferral of the effective date of SFAS No. 157 for non-financial assets
and non-financial liabilities, except those that are recognized or disclosed in
the financial statements at fair value at least annually. Therefore, the Company
has adopted the provision of SFAS No. 157 with respect to its financial assets
and liabilities only. For the portion of SFAS No. 157 that has been deferred,
the Company is currently evaluating the effects that SFAS No. 157 will have on
its financial statements. SFAS No. 157 defines fair value, establishes a
framework for measuring fair value under generally accepted accounting
principles and enhances disclosures about fair value measurements. Fair value is
defined under SFAS No. 157 as the exchange price that would be received for an
asset or paid to transfer a liability (an exit price) in the principal or the
most advantageous market for an asset or liability in an orderly transaction
between participants on the measurement date. Valuation techniques used to
measure fair value under SFAS No. 157 must maximize the use of observable inputs
and minimize the use of unobservable inputs. The standard describes a fair
value hierarchy based on the levels of inputs, of which the first two are
considered observable and the last unobservable, that may be used to measure
fair value which are the following:
F - 4
- Level 1 - Quoted prices in active markets for identical assets or
liabilities.
- Level 2 - Inputs other than Level 1 that are observable, either directly
or indirectly, such as quoted prices for similar assets or liabilities; quoted
prices in markets that are not active; or other inputs that are observable or
corroborated by observable market data or substantially the full term of the
assets or liabilities.
- Level 3 - Unobservable inputs that are supported by little or no market
activity and that are significant to the value of the assets or liabilities
Effective July 1, 2008, the Company could have adopted SFAS No. 159, The
Fair Value Option for Financial Assets and Financial Liabilities. SFAS No. 159
allows an entity the irrevocable option to elect fair value for the initial and
subsequent measurement for specified financial assets and liabilities on a
contract-by contract basis. The Company did not elect to adopt the fair value
option under this pronouncement.
Inventories
Inventories are valued at the lower of cost, determined by the first-in,
first-out method, or market and include appropriate amounts of labor and
overhead.
Depreciation
The cost of property and equipment, which includes a reasonable portion of
labor costs for equipment built in-house, is depreciated on a straight-line
method over the estimated useful lives of the assets: 5-10 years for machinery
and equipment, 3-5 years for furniture and office equipment and 40 years for the
building. When assets are retired or otherwise disposed of, the cost and related
accumulated depreciation are removed from the accounts, and any resulting gain
or loss is reflected in income for the period. Repairs and maintenance which do
not extend the useful lives of the related assets are expensed as incurred.
Patents
Registration and maintenance costs associated with the filing and
registration of patents are prepaid and amortized over its remaining life of the
patent, not to exceed 20 years. Costs associated with patents which are not
approved or abandoned are expensed in the period in which such patents are not
approved or abandoned. The annual maintenance fees associated with existing
patents are expensed off over 12 months and are included in Prepaid Expenses.
The Research and Development costs associated with the patented technology are
expensed as incurred and are not capitalized.
Long-Lived Assets
The Company assesses long-lived assets for impairment as required under
SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets.
The Company reviews for impairment whenever events or circumstances indicate
that the carrying amount of these assets may not be recoverable. The Company
assesses these assets for impairment based on estimated future cash flows from
these assets.
Revenue Recognition
Revenues from product and services sales are recognized at the time of
shipment or services rendered provided that collection of the resulting
receivable is probable. Revenues from royalties are recognized upon the sale of
certain products by licensees with whom the Company has licensing agreements.
Contract Revenues, which includes payments from Stand Still, Supply or Support
agreements that are typically based on time frames, are recognized in the
periods to which it pertains. Deferred revenues are recorded when agreements
call for payment ahead of when the amounts are earned.
Shipping and Handling Charges
The Company includes costs of shipping and handling billed to customers in
Revenues and the related expense of shipping and handling costs in Cost of
Sales.
Advertising
Advertising costs are expensed as incurred except for tangible assets, such
as printed advertising materials, which are expensed as consumed. Advertising
expense was $50,519 and $16,804 for the years ended June 30, 2009 and 2008,
respectively, higher during fiscal 2009 due to the promotion of the Company's
new T-HEXX Animal Health products, including that of exhibiting at an additional
trade show.
Research and Development
Research and development costs, primarily employee salaries and benefits,
are charged to operations when incurred and are included in operating expenses.
The amounts charged to expense for the years ended June 30, 2009 and 2008 were
approximately $883,616 and $790,006, respectively.
F - 5
Stock Based Compensation
The Company accounts for stock and stock options issued for services and
compensation to employees under SFAS No. 123(r). For non-employees, the fair
market value of the Company's stock on the date of stock issuance or
option/grant is used. The Company determined the fair market value of the
options issued under the Black-Scholes Pricing Model. Under the provisions of
SFAS No. 123(r), share-based compensation cost is measured at the grant date,
based on the fair value of the award, and is recognized as an expense over the
employee's requisite service period (generally the vesting period of the equity
grant). There were no such stock option grants issued during the years ended
June 30, 2009 and June 30, 2008.
Income Taxes
Income taxes are provided for the tax effects of transactions reported in
the financial statements and consist of taxes currently due plus deferred taxes
related primarily to differences between the bases of assets and liabilities for
financial and income tax reporting. The deferred tax assets and liabilities
represent the future tax return consequences of those differences, which will
either be taxable or deductible when the assets and liabilities are recovered or
settled. Deferred taxes are also recognized for operating losses that are
available to offset future federal and state income taxes. Any interest charges
on underpayment or other assessments are recorded as interest expense. Any
penalties are recorded in Operating Expenses.
Effective January 1, 2007, the Company adopted the provisions of FASB
Interpretation No. 48 ("FIN 48"), Accounting for Uncertainty in Income Taxes -
an interpretation of SFAS No. 109. The implementation of FIN 48 had no impact
on the Company's financial statements as the Company has not recognized any
uncertain income tax.
Earnings Per Share
Earnings per share, in accordance with the provisions of SFAS No. 128,
Earnings Per Share, is computed by dividing net income by the weighted average
number of common stock shares outstanding during the period.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Reclassification
Certain amounts previously reported have been reclassified to conform to
the 2009 presentation.
2. CONCENTRATION OF CREDIT AND BUSINESS RISK
The Company is exposed to additional credit and business risks due to its
concentration of activity with certain parties. For example, at times
throughout the year, the Company may maintain certain bank accounts in excess of
FDIC insured limits.
In addition, the Company provides credit in the normal course of business to
customers. Ongoing credit evaluations of its customers are performed, and
allowances for doubtful accounts are based on factors surrounding the credit
risk of specific customers, historical trends and other information.
For the year ended June 30, 2009, the Company collected Contract Revenues
totaling 10% of its total revenues from one customer, Cordis Neurovascular
Systems. The outstanding accounts receivable from Cordis Neurovascular at June
30, 2009 was $35,000.
During the fiscal year ended June 30, 2008, Cordis Neurovascular Systems
accounted for 15% of the Company's total revenues. There was no outstanding
accounts receivable from Cordis Neurovascular at June 30, 2008.
3. FAIR VALUE
In accordance with SFAS No. 157, the following table represents the Company's
fair value hierarchy for its financial assets and liabilities measured at fair
value on a recurring basis as of June 30, 2009:
F - 6
----------------- ----------- ----------- ----------- ------------
Level 1 Level 2 Level 3 Total
Assets
Investments $ 450,000 $ 450,000
Total Assets $ 450,000 - - $ 450,000
Liabilities - n/a - - - -
----------------- ----------- ----------- ----------- ------------
Some of the Company's financial instruments are not measured at fair value on a
recurring basis but are recorded at amounts that approximate fair value due to
their liquid or short-term nature, such as cash and cash equivalents,
receivables and payables.
4. INVENTORY
Inventory consists of:
------------------------------------------------------------
June 30,
2009 2008
Finished goods $ 97,746 $ 349,581
Work in process 246,002 277,847
Raw materials 272,101 395,232
----------- -----------
$ 615,849 $ 1,022,660
=========== ===========
------------------------------------------------------------
5. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
-------------------------------------------------------------
June 30,
2009 2008
Land $ 472,410 $ 472,410
Building 2,223,011 2,188,603
Machinery and equipment 3,968,307 4,188,868
Equipment under capital leases 87,120 87,120
Furniture and fixtures 552,228 552,143
------------- -------------
7,303,076 7,489,144
Less: Accumulated
depreciation and amortization (4,152,299) (4,144,573)
Accumulated
depreciation on capital leases (15,760) (5,301)
------------ ------------
Property and Equipment, net $ 3,135,017 $ 3,339,270
============ ============
-------------------------------------------------------------
Depreciation expense, including that on assets under capitalized leases,
charged to operations, was $241,908 and $243,928 for the years ended June 30,
2009 and 2008, respectively. During the year ended June 30, 2009, approximately
$263,000 in equipment (approximately $213,000 in accumulated depreciation) was
sold as part of the product lines sold to Merit Medical Systems, Inc (see
Footnote 14). In addition, approximately $62,000 of equipment was abandoned in
the same year.
6. INTANGIBLE ASSETS
Intangible Assets, including prepaid Patent Costs included in Prepaid Expenses,
are comprised of the following:
------------------------------------------------------------
June 30,
2009 2008
Patents $ 1,255,486 $ 1,288,870
Trademarks 21,860 78,502
Less: Accumulated amortization (465,333) (497,821)
----------- -----------
Intangible Assets, net $ 812,013 $ 869,551
=========== ===========
------------------------------------------------------------
F - 7
During the years ended June 30, 2009 and June 30, 2008, $167,252 and
$126,420, respectively of Patent Costs were deemed impaired and charged off to
Operating Expenses as the discounted future cash flows relating to these patents
were deemed below that of its carrying value. For some of the patents, the
Company continues to maintain and support the patents despite their carrying
value having been written off. In addition, during the year of June 30, 2009,
$72,955 of fully amortized trademark costs have been written off as the periods
to which it covers have expired.
Future amortization of the Intangible Assets, as of June 30, 2009, are as
follows:
----------------------------------------------------
Year ending June 30,
2010 $ 119,059
2011 76,796
2012 76,116
2013 75,241
2014 70,407
Thereafter 394,394
--------
$ 812,013
========
----------------------------------------------------
Amortization expense for the years ended June 30, 2009 and 2008 were
$233,102 and $190,765, respectively.
7. LEASES
The Company acquired equipment under long-term leases. For financial
reporting purposes, the present value of the minimum lease payments has been
capitalized.
Future payments under these capital lease arrangements, which includes
$17,727 in finance charges, are as follows:
---------------------------------------------------
Year ending June 30,
2010 $ 20,506
2011 20,506
2012 20,506
2013 17,777
---------
$ 79,295
=========
---------------------------------------------------
8. LONG-TERM DEBT AND CREDIT FACILITY
As of June 30, 2009, the Company's facility was financed by a twenty-five
year mortgage note bearing a five year fixed interest rate of 6.75%, and then
reset every five years at 2.75% over the then New York Federal Home Loan Bank
5/20 Amortizing Advance Rate. The mortgage is secured by the real estate and
improvements, and all rents from leases subsequently entered into, amortized
with monthly payments. As of June 30, 2009, the book value of the real estate
and improvements was $2,238,567. An appraisal was conducted in July 2008
reflected a market value of $4,250,000.
The mortgage, for $2,900,000, refinanced two ten-year mortgages and provided
for an additional $1.1 million in cash for use in repaying its maturing
Line-of-Credit facility and as additional working capital.
The Company's revolving line of credit agreement, which as of June 30, 2008,
allowed for borrowings of up to its limit of $525,000. The line was secured by
all trade receivables and inventories bearing interest, payable monthly, at
LIBOR plus 3.75%. The line matured on September 30, 2008 and was repaid and
closed out using proceeds from the $2.9 million mortgage refinance. The
outstanding balance of the line of credit was $289,973 on June 30, 2008.
F - 8
Long-term debt is comprised of the following:
-------------------------------------------------------------
June 30,
2009 2008
------------ -------------
Mortgage note $ 2,865,751 $ 338,720
Second Mortgage Loan - 1,539,313
Less: Current Maturities (45,696) (230,160)
------------ -------------
Long-term Debt,
Net of Current Maturities $ 2,820,055 $ 1,647,873
============ ============
--------------------------------------------------------------
Maturities of the long-term debt are as follows:
--------------------------------------------
Year ending June 30, As of June
30, 2009
2010 $ 45,696
2011 48,800
2012 51,720
2013 55,899
2014 59,847
Thereafter 2,603,789
------------
$ 2,865,751
============
--------------------------------------------
As of June 30, 2009, the Company was in compliance with the loan covenants of
its mortgage.
9. INCOME TAXES
The income tax provision (benefit) is comprised of the following:
---------------------------------------------------------------
Federal State Total
--------- --------- ----------
Year Ended June 30, 2009
Current $ 59,540 $ 16,351 $ 75,891
Deferred 194,000 (88,778) 105,222
--------- --------- ----------
$ 253,540 $ (72,427) $ 181,113
========= ========= ==========
Year Ended June 30, 2008
Current $ - $ 4,160 $ 4,160
Deferred (23,123) 32,218 9,095
--------- --------- ----------
$ (23,123) $ 36,378 $ 13,255
========= ========= ==========
---------------------------------------------------------------
F - 9
The Company's deferred tax asset and liability as presented in the Company's
financial statements are comprised of the following:
------------------------------------------------------------
June 30,
2009 2008
Deferred Tax Asset
Net Operating Losses $ 225,749 $ 219,700
Adjustment of Goodwill 196,069 196,069
Research & Development Credits 405,213 520,970
Valuation allowance (296,069) (307,606)
---------- ----------
Total Deferred Tax Assets 530,962 629,133
========== ==========
Deferred Tax Liability
Depreciation (285,858) (281,398)
---------- ----------
Total Deferred Tax Liability $ (285,858) $ (281,398)
========== ==========
------------------------------------------------------------
Deferred taxes are recognized for temporary differences between the bases
of assets and liabilities for financial statement and income tax purposes. The
differences relate primarily to depreciable assets (using accelerated
depreciation methods for income tax purposes). The Company's adjustment to
Goodwill in 2004 and 2006 created a deferred tax asset, which although has an
indefinite life, has been fully reserved for as realization of its benefit is
unlikely.
The Company has net operating loss carry forwards of approximately $244,155
and $1,585,958 for Federal and State tax purposes respectively. These net
operating loss carry forwards may be used to reduce federal and state taxable
income and tax liabilities in future years and expire in various years through
June 30, 2028 and June 30, 2016 for Federal and State tax purposes,
respectively. In addition, the Company has Research and Development Tax Credits
of approximately $234,063 and $171,150 for Federal and State tax purposes,
respectively, which expires in various years through June 30, 2029 and June 30,
2016, respectively.
The Company's provision for income taxes differs from applying the statutory
U.S. federal income tax rate to the income before income taxes. The primary
differences result from providing for state income taxes, generation of
allowable tax credits and from deducting certain expenses for financial
statement purposes but not for federal income tax purposes.
A reconciliation between taxes computed at the federal statutory rate and
the consolidated effective tax rate follows:
--------------------------------------------------------
June 30,
2009 2008
Federal statutory tax rate 34.0 % 34.0 %
State income tax - net of
federal tax benefit (0.8) 13.9
R & D credits (4.5) (71.6)
Adjustment in valuation
allowance - 20.2
Permanent and other
differences (2.2) 10.5
---- -----
26.5 % 7.0 %
==== ===
-------------------------------------------------------
10. STOCK OPTIONS AND AWARDS
On February 22, 2000 the Board of Directors approved an option plan that
granted each director 2,000 fully vested options for each meeting attended,
awarded at the annual meeting at the 5-day market price average.
F - 10
Open options under this plan awarded to the Board of Directors are as
follows:
----------------- -------- --------- ------------- ----------
Issuance
Options Exercise Expiration Options
Date Issued Price Date Exercised
Nov 17, 2004 56,000 $2.10 Nov 17, 2009 -
Nov 16, 2005 62,000 $0.95 Nov 16, 2010 -
Nov 15, 2006 50,000 $1.18 Nov 15, 2011 -
----------------- -------- -------- -------------- ----------
During the 2008 fiscal year, 15,000 fully vested five year options, at a
$3.00 exercise price, were granted as part of a Stock Subscription.
There were no other stock option issuances during the 2008 or 2009 fiscal
year.
A summary of activity under the plan for the years ending June 30, 2008 and
2009 are as follows:
-------------------------------------------------------
Common Stock Options Outstanding
Weighted Average
Shares Exercise Price
Balance, June 30, 2007 290,000 $ 1.12
Granted under Stock
Subscription 15,000 3.00
Exercised (60,000) 0.45
Cancelled (10,000) 0.45
--------- -------
Balance, June 30, 2008 235,000 $ 1.44
Cancelled (52,000) 1.10
--------- -------
Balance, June 30, 2009 183,000 $ 1.53
------------------------------------------------------
The intrinsic value of the options exercised during the fiscal year ended June
30, 2008 was $60,000.
Following is a summary of the status of options outstanding as of June 30, 2009:
------------------------------------------------------------------------------
Outstanding Options Exercisable Options
Weighted
Average Weighted Weighted
Exercise Remaining Average Average
Price Contractual Exercise Exercise
Range Number Life Price Number Price
----- ------ ---- ----- ------ -----
$0.95 - $1.45 112,000 1.8 years $1.05 112,000 $1.05
$1.46 - $2.48 56,000 0.4 years $2.10 56,000 $2.10
$2.49 - $3.00 15,000 3.1 years $3.00 15,000 $3.00
-------- --------- ----- ------- -----
183,000 1.5 years $1.53 183,000 $1.53
------------------------------------------------------------------------------
As the stock price of the Company's stock on June 30, 2009 was higher than the
exercise prices of the outstanding and exercisable options, there was no
intrinsic value of the options.
11. RETIREMENT PLAN
The Company sponsors a qualified 401(k) plan covering substantially all full
time employees under which eligible employees can defer a portion of their
annual compensation. The Company determines annually, the amount of matching
contributions, which previously was 25% on 6% of the employees' salary. There
were no Company matching contribution made to the plan during the fiscal years
ended June 30, 2008 or June 30, 2009.
F - 11
12. INDUSTRY SEGMENT INFORMATION
The Company operates two primary business segments: (1) Polymer Research and
(2) Medical Products.
Products included in the polymer research segment are Aquadapt(R),
Aquamere(R), Aquatrix(R), Dermaseal(R), Hydromer(R) Anti-Fog/Condensation
Control Coatings, Hydromer(R) Lubricious Coatings, Sea-Slide(R) and T-HEXX(R)
Barrier Dips and Sprays. Research and Development services and all of the
Company's royalties and contract revenues are reported in this segment.
The medical products segment includes an OEM product line of bipolar
coagulation probes, placement catheters, bilary stents, jejunal and enteral
feeding accessories, guidewires, biofeedback devices for fecal and urinary
incontinence and other endoscopic accessories. The bipolar coagulation probes
and bilary stents product lines were sold in fiscal 2009. During the transition
period while the acquirer establishes their production lines, the Company
continues to manufacture these products for their behalf at a pre-determined
transfer price. Service revenues, including coating services and engineering
services, are included in this segment.
Due to the multitude of products offered and the product gross margins, the
Company does not track sales contribution by products.
The Company operates globally in its segments with several large customers
that are important to their operating results. One such customer accounted for
14% and 20% of the polymer research segment sales for the 2009 and 2008 fiscal
years, respectively. For the medical products segment, the top three customers
accounted for 65% and 66% of that segment's 2009 and 2008 sales, respectively.
The Company evaluates the segments by revenues, total expenses and earnings
before income taxes. The Company's assets are not reviewed by business segment.
The accounting policies of these segments are described in the summary of
significant accounting policies.
Corporate Overhead, primarily the salaries and fringes of senior
management, support services (Accounting, Legal, Human Resources and Purchasing)
and other shared services (Building maintenance and warehousing), is reflected
separately from the results of the business segments in the following:
---------- -- ------------- -- ------------- -- --------------- -- -------------
Polymer Medical Corporate
Research Products Overhead Total
------------- ------------- --------------- -------------
Year Ended June 30, 2009
Revenue $ 4,405,662 $ 3,346,345 $ 7,752,007
Expenses (3,596,822) (1,887,180) $ (1,583,675) (7,067,677)
Earnings (Loss)
before Income
Taxes $ 808,840 $ 1,459,165 $ (1,583,675) $ 684,330
Year Ended June 30, 2008
Revenue $ 4,399,344 $ 3,610,980 $ 8,010,324
Expenses (3,262,739) (3,053,191) $ (1,503,673) (7,819,603)
Earnings (Loss)
before Income
Taxes $ 1,136,605 $ 557,789 $ (1,503,673) $ 190,721
---------- -- ------------- -- ------------- -- --------------- -- -------------
Included under the Polymer Research segment was the non-cash impairment of
intangible assets of $167,252 and $126,420 for fiscal 2009 and 2008,
respectively.
Included under the Medical Products segment was the sale of product lines
for $1,600,000 (reducing expenses) in fiscal 2009.
Geographic revenues were as follows for the years ended June 30,
2009 2008
Domestic 83% 81%
Foreign 17% 19%
F - 12
13. EARNINGS PER SHARE
The following table sets forth the computation of earnings per share:
------------------------------------------------------------------------
2009 2008
----------- -----------
Numerator:
Net income $ 503,217 $ 177,466
Denominator:
Denominator for basic earnings per share
- weighted average shares outstanding 4,772,318 4,748,699
Effect of dilutive securities - Stock Options
- 18,083
Denominator for dilutive earnings per share
under the treasury stock method
- weighted average shares outstanding
4,772,318 4,766,782
Basic Earnings per share $ 0.11 $ 0.04
Dilutive Earnings per share $ 0.11 $ 0.04
------------------------------------------------------------------------
Common stock equivalents for the year ended June 30, 2009 was not included
in computing diluted earnings per share as their effect would have been
anti-dilutive.
14. SALE OF PRODUCT LINES
On February 20, 2009, Biosearch Medical Products, Inc. ("BMPI") sold the
Endoscopic Bipolar Coagulation probe and Biliary Stent business to Merit Medical
Systems, Inc ("Merit") for $1,600,000 in cash. The sale included inventory and
equipment related to that business and also calls for the assignment of existing
BMPI/customer supply agreements to Merit and a seven year non-compete provision.
A separate supply agreement for Hydromer(R) hydrophilic coating solution
used on those products was also entered between the parties. Until the earlier
of when Merit is ready to independently manufacture the products or September
30, 2009, the Company will continue manufacturing the products solely for Merit,
at an agreed upon transfer price. The product lines sold were part of the
"Medical Products" segment (see Footnote 12) in which operations and cash flows
could not be broken down further. Hence, along with the continued
manufacturing for Merit, this transaction does not meet the criteria of
discontinued operations in accordance with paragraphs 41-44 of SFAS No. 144. The
gain on sale of the product lines is reflected separately on the Consolidated
Statement of Income.
15. CONTINGENCIES
Royalty revenues and support fees recorded by the Company are based on the
sales of products as reported by the Company's customers, which has the risk of
being under- or over-reported. To minimize such risks, the Company's management
utilizes its knowledge and understanding of the customer's business, the market
and other pertinent factors in assessing the validity of reported royalties or
support fees. In addition, the Company may have a right to audit the amounts
reported.
The Company has not received any claims by its customers for possible
overpayment of royalties or support fees.
INDEX TO EXHIBITS
3.a Certificate of Incorporation of the Company, as amended to date
3.b By-Laws of the Company, as amended to date
10.a Minutes of Meeting of the Board of Directors of the Company held
on March 5, 1981 with respect to stock options granted to Manfred F. Dyck
(Incorporated by reference to Exhibit 10.i to the Registration Statement).
10.b Agreement dated August 11, 1981 between Horizon Concepts, Inc.,
and the Company (Incorporated by reference to Exhibit 10.c to the Registration
Statement).
F - 13
10.c Agreement dated January 27, 1982 between Reliable Pharmaceutical
Company, Inc. and the Company (Incorporated by reference to Exhibit 10.d to the
Registration Statement).
10.d License Agreement dated July 14, 1982 between Biosearch Medical
Products Inc. and the Company (Incorporated by reference to Exhibit 10.g to the
Registration Statement).
10.e Management Services Agreement dated July 14, 1982 between
Biosearch Medical Products Inc. and the Company (Incorporated by reference to
Exhibit 10.h to the Registration Statement).
10.f Amendment dated October 7, 1982 to Agreement dated January 27,
1982 between Reliable Pharmaceutical Company, Inc. and the Company, together
with letter dated October 14, 1982 from Reliable Pharmaceutical Company, Inc. to
the Company (Incorporated by reference to Exhibit 10.f to the 1983 Annual
Report).
10.g Hydromer Coating agreement dated February 11, 1983 between
Pacesetter Systems, Inc. and the Company (Incorporated by reference to Exhibit
10.g to the 1983 Annual Report).
10.h Lease Agreement dated April 5, 1983 between Salem Realty and the
Company (Incorporated by reference to Exhibit 10.h to the 1983 Annual Report).
10.i License Agreement dated April 25, 1983 between CardioSearch Inc.
and the Company (Incorporated by reference to Exhibit 10.i to the 1983 Annual
Report).
10.j Trademark License Agreement dated April 25, 1983 between
CardioSearch Inc. and the Company (Incorporated by reference to Exhibit 10.j to
the 1983 Annual Report).
10.k Agreement dated August 31, 1983 between Becton, Dickinson &
Company and the Company (Incorporated by reference to Exhibit 10.l to the 1983
Annual Report).
10.l Current Report on Form 8-K filed May 30, 1986
10.m Hydromer Coating License Agreement dated September 30, 1984
between Axiom Medical, Inc. and the Company (Incorporated by reference to
Exhibit 10.m to the 1984 Annual Report).
10.n 1982 Stock Option Plan of the Company (Incorporated by reference
to Exhibit 10.m to the 1983 Annual Report).
10.o Amendment dated June 26, 1984 to Agreement dated August 3, 1983
between Becton, Dickinson & Company and the Company (Incorporated by reference
to Exhibit 10.o to the 1984 Annual Report).
10.p License Agreement dated July 31, 1984 between Kendall Company and
the Company (Incorporated by reference to Exhibit 10.p to the 1984 Annual
Report).
10.q License Agreement dated March 1, 1985 between Van-Tec Inc. and the
Company and Letter of Amendment thereto dated June 13, 1985 (Incorporated by
reference to Exhibit 10.o to the 1985 Annual Report).
10.r Telex dated June 24, 1985 terminating License Agreement with
CardioSearch Inc. (Incorporated by reference to Exhibit 10.p to the 1984 Annual
Report).
10.s Amendment dated as of December 31, 1984 to Management Services
Agreement dated July 14, 1982 between Biosearch Medical Products Inc. and the
Company (Incorporated by reference to Exhibit 10.q to the 1985 Annual
Report).
10.t Lease Renewal Agreement dated April 15, 1985 between Salem Realty
and the Company (Incorporated by reference to Exhibit 10.r to the 1985 Annual
Report).
10.u Lease Agreement dated December 4, 1984 between Biosearch Medical
Products Inc. and the Company (Incorporated by reference to Exhibit 10.s to the
1985 Annual Report).
10.v License Agreement dated April 11, 1986 between Axiom Medical, Inc.
and the Company (Incorporated by reference to Exhibit 10.i to the 1986 Annual
Report).
10.w License Agreement dated September 13, 1985 between U.S. Viggo and
the Company (Incorporated by reference to Exhibit 10.c to the 1986 Annual
Report).
10.x License Agreement dated March 27, 1986 between Wilkinson Sword
Limited and the Company (Incorporated by reference to Exhibit 10.f of the 1986
Annual Report).
10.y Lease Renewal Agreement dated April 15, 1987 between Salem Realty
and the Company (Incorporated by reference to Exhibit 10.y to the 1987 Annual
Report).
10.z License Agreement dated April 30, 1986 between HPK International
and the Company (Incorporated by reference to Exhibit 10.j to the 1986 Annual
Report).
10.aa License Agreement dated August 1, 1986 between Film Specialties,
Inc. and the Company (Incorporated by reference to Exhibit 10.aa to the 1987
Annual Report).
10.ab Lease Renewal Agreement dated April 15, 1988 between Salem Realty
and the Company (Incorporated by reference to Exhibit 10.ab to the 1988 Annual
Report).
10.ac License Agreement dated June 30, 1987 between Richards Medical
Company and the Company (Incorporated by reference to Exhibit 10.ac to the 1988
Annual Report).
10.ad License Agreement dated December 1, 1987 between Mallinckrodt,
Inc. and the Company (Incorporated by reference to Exhibit 10.ad to the 1988
Annual Report).
10.ae Option Agreement dated January 28, 1988 between Cordis
Corporation and the Company (Incorporated by reference to Exhibit 10.ae to the
1988 Annual Report).
10.af Lease Agreement dated April 15, 1988 between Biosearch Medical
Products Inc. and the Company (Incorporated by reference to Exhibit 10.ag of the
1988 Annual Report).
10.ag Letters dated June 11, 1987 and September 22, 1987 to U.S. Viggo,
Inc. modifying License Agreement dated September 13, 1985, to cover only central
venous catheters (Incorporated by reference to Exhibit 10.ag to the 1988 Annual
Report).
10.ah Lease Renewal Agreement dated April 15, 1989 between Salem Realty
and the Company (Incorporated by reference to Exhibit 10.ah to the 1989 Annual
Report).
10.ai Amendment dated October 1, 1988 to License Agreement dated
September 13, 1985, between U.S. Viggo and the Company (Incorporated by
reference to Exhibit 10.ai to the 1989 Annual Report).
10.aj License Agreement dated October 20, 1988 between Cordis Corp. and
the Company (Incorporated by reference to Exhibit 10.aj to the 1989 Annual
Report).
10.ak License Agreement dated March 31, 1989 between Cathlab Corp. and
the Company (Incorporated by reference to Exhibit 10.ak to the 1989 Annual
Report).
10.al Amendment dated December 1, 1988 to License Agreement dated
August 1, 1986 between Film Specialties, Inc. and the Company (Incorporated by
reference to Exhibit 10.al to the 1989 Annual Report).
10.am Finders Agreement dated August 20, 1987 between Phoenix Chemical,
Inc. and the Company (Incorporated by reference to Exhibit 10.am to the 1989
Annual Report).
10.an License Agreement dated September 10, 1989 between the Stent
Division of Schneider and the Company (Incorporated by reference to Exhibit
10.an to the 1990 Annual Report).
10.ao License Agreement dated March 30, 1990 between Cosmo Ikko Company
and the Company (Incorporated by reference to Exhibit 10.ao to the 1990 Annual
Report).
10.ap License Agreement dated April 12, 1990 between Interventional
Therapeutics, Inc. and the Company and amendment dated May 7, 1990 to the
Agreement dated April 12, 1990 between Interventional Therapeutics, Inc. and the
Company (Incorporated by reference to Exhibit 10.ap to the 1990 Annual Report).
10.aq Amended License Agreement dated January 1, 1990 between the
Wilkinson Sword group of companies and the Company (Incorporated by reference to
Exhibit 10.aq the 1990 Annual Report).
10.ar Lease Agreement dated April 15, 1990 between Salem Realty and the
Company (Incorporated by reference to Exhibit 10.ar to the 1990 Annual Report).
10.as Amendment to the Agreement dated July 31, 1984 between Kendall
Company and the Company (Incorporated by reference to Exhibit 10.as to the 1990
Annual Report).
10.at License Agreement dated January 11, 1991 between Biosearch
Medical Products Inc. and the Company (Incorporated by reference to Exhibit
10.at to the 1991 Annual Report).
10.au License Agreement dated May 16, 1991 between I E Sensors and the
Company (Incorporated by reference to Exhibit 10.au to the 1991 Annual Report).
10.av Lease Renewal Agreement dated April 15, 1991 between Salem Realty
and The Company (Incorporated by reference to Exhibit 10.av to the 1991 Annual
Report).
10.aw License Agreement dated July 25, 1991 between Johnson & Johnson
Orthopaedics and the Company (Incorporated by reference to Exhibit 10.aw to the
1992 Annual Report).
10.ax License Agreement dated August 19, 1991 between Navarre
Laboratories Ltd. and the Company (Incorporated by reference to Exhibit 10.ax to
the 1992 Annual Report).
10.ay Amended License Agreement dated September 15, 1991 between Boston
Scientific Corp. and the Company (Incorporated by reference to Exhibit 10.ay to
the 1992 Annual Report).
10.az Option/License Agreement dated September 23, 1991 between Elan
Corp. PLC and the Company (Incorporated by reference to Exhibit 10.az to the
1992 Annual Report).
10.ba Lease Agreement dated November 1, 1991 between Morton Street
Realty and the Company (Incorporated by reference to Exhibit 10.ba to the 1992
Annual Report).
10.bb License Agreement dated August 17, 1992 between SCIMED Peripheral
Interventions, division of SCIMED Life Systems, Inc. and the Company.
(Incorporated by reference to Exhibit 10.bb to the 1993 Annual Report).
10.bc License Agreement dated March 9, 1993 between Arrow
International, Inc. and the Company. (Incorporated by reference to Exhibit 10.bc
to the 1993 Annual Report).
10.bd License Agreement dated April 28, 1993 between St. Jude Medical,
Inc. and the Company. (Incorporated by reference to Exhibit 10.bd to the 1993
Annual Report).
10.be License Agreement dated November 11, 1993 between Katoh Hatsujyo
Kaisha, Ltd. and the Company. (Incorporated by reference to Exhibit 10.be to the
1994 Annual Report).
10.bf Lease Agreement dated June 9, 1995 between Salem Realty and the
Company (Incorporated by reference to Exhibit 10.bf to the 1995 Annual Report).
10.bg Amendment dated September 20, 1995 to License Agreement dated
April 28, 1993 between St. Jude Medical, Inc. and the Company. (Incorporated by
reference to Exhibit 10.bg to the 1996 Annual Report).
10.bh License Agreement dated April 12, 1990 between Interventional
Therapeutics and the Company was terminated effective December 22, 1995.
(Incorporated by reference to Exhibit 10.bh to the 1996 Annual Report).
10.bi License Agreement dated May 16, 1991 between I E Sensors and the
Company was terminated effective December 31, 1995. (Incorporated by reference
to Exhibit 10.bi to the 1996 Annual Report).
10.bj Consented to the assignment of license agreement dated April 28,
1993 between St. Jude Medical, Inc. and the Company to CR Bard dated January 18,
1996. (Incorporated by reference to Exhibit 10.bj to the 1996 Annual Report).
10.bk License Agreement dated April 30, 1986 between HPK International
and the Company was terminated effective February 19, 1996. (Incorporated by
reference to Exhibit 10.bk to the 1996 Annual Report).
10.bl License Agreement dated June 6, 1996 between Biosearch Medical
Products Inc. and the Company. (Incorporated by reference to Exhibit 10.bl to
the 1996 Annual Report).
10.bm License Agreement dated August 1, 1996 between Biosearch Medical
Products Inc. and the Company.
10.bn Amended License Agreement dated September 4, 1996 between SCIMED
(Boston Scientific Corporation) and the Company.
10.bo License Agreement dated January 6, 1997 between Sherwood Davis &
Geck and the Company.
10.bp Use permit for certain designated area dated May 4, 1997 between
Biosearch Medical Products Inc. and the Company
10.bq Contract of sale between Biosearch Medical Products and the
Company for the sale of 35 Industrial Parkway dated 3/31/98
10.br Note and mortgage with PNC Bank dated 6/12/98
10.bs 3 year lease agreement with Biosearch Medical Products dated
6/12/98 for 35 Industrial Parkway
10.bt License of technology, supply and stock purchase agreement with
C.R.Bard dated 2/25/99
10.bu Trademark and technology license agreement with AST dated 3/9/99
10.bv License of two gel patents from Ridge Scientific dated 11/1/98
10.bw License and Supply agreement with Gallini SRL dated 6/28/00
10.bx Standstill agreement with license option with IMED Pharma Inc.
dated 3/30/00
10.by License of technology with Symbiotech Medical Inc. dated 3/28/00
10.bz License and supply agreement with TP Orthodontics Inc. dated
3/30/00
10.ca License Agreement dated July 1, 2000 between Becton Dickinson and
Company, Inc. and the Company.
10.cb License Agreement dated January 1, 2001 between LHS Limited and
LHS Holding Limited, English dba KLEENCARE and the Company.
10.cc License Agreement dated April 17, 2001 between Tyco Healthcare
Group LP and the Company.
10.cd Construction Contract dated April 19, 2001 between REDCO
Engineering & Construction Corp and the Company.
10.ce Service Agreement dated April 23, 2001 between Tyco Healthcare
Group LP and the Company.
10.cf Loan Agreement dated June 7, 2001 between New Millenium Bank and
the Company.
10.cg By-Laws Articles of Incorporation.
10.ch Loan Agreement dated June 30, 2005 between Wachovia Bank, N.A.
and the Company.
24. Power of Attorney (see "Power of Attorney" in the Annual Report on
Form 10-K).
31.1 Certification of Manfred F. Dyck, Chief Executive Officer,
pursuant to Securities Exchange Act Rule 13a-14(a).
31.2 Certification of Robert Y. Lee, Chief Financial Officer,
pursuant to Securities Exchange Act Rule 13a-14(a).
32.1 Certification pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, signed by Manfred F.
Dyck, Chief Executive Officer of Hydromer, Inc.
32.2 Certification pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, signed by Robert Y.
Lee, Chief Financial Officer of Hydromer, Inc.
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