UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
/X/ Quarterly Report Pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934
For the Quarterly Period Ended: JUNE 30, 2004
or
/ / Transition Report Pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934
For the Period from __________ to __________
Commission File Number: 0-6333
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HYDRON TECHNOLOGIES, INC.
-------------------------
(Exact name of Registrant as specified in its charter)
New York 13-1574215
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(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
2201 West Sample Road, Building 9, Suite 7B
Pompano Beach, FL 33073 (954) 861-6400
----------------------- --------------
(Address of Principal Executive Offices) (Registrant's telephone number)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the Registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. X Yes _ No.
Number of shares of common stock outstanding as of August 1, 2004: 9,260,136
TABLE OF CONTENTS ............................................................ PAGE
Part I. Financial Information
-----------------------------
Item 1. Financial Statements (Unaudited)
Condensed Balance Sheets-- June 30, 2004 and ...................... 3
December 31, 2003
Condensed Statement of Operations-- Three and six months ended .... 4
June 30, 2004 and 2003
Condensed Statement of Cash Flows-- Six months ended .............. 5
June 30, 2004 and 2003
Notes to Condensed Financial Statements ........................... 6
Item 2. Management's Discussion and Analysis of Financial Condition .......... 9
and Results of Operations
Item 4. Controls and Procedures .............................................. 17
Part II. Other Information
--------------------------
Item 6. Exhibits and Reports on Form 8-K ..................................... 18
Signatures ........................................................ 19
Certification of Chief Officers Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002 and Item 307 of Regulation S-K 20
Certification Pursuant to 18 U.S.C., Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 23
2
HYDRON TECHNOLOGIES, INC.
CONDENSED BALANCE SHEETS
JUNE 30, 2004 DECEMBER 31, 2003
(UNAUDITED) (Note)
---------------------- --------------------
ASSETS
Current assets
Cash and cash equivalents $ 633,850 $ 964,723
Trade accounts receivable 26,274 10,191
Inventories 524,752 520,032
Prepaid expenses and other current assets 49,423 34,422
---------------------- --------------------
Total current assets 1,234,299 1,529,368
Property and equipment, less accumulated
depreciation of $206,461 and $204,361 at
2004 and 2003, respectively 15,541 17,641
Deposits 19,587 19,587
Deferred product costs, less accumulated
amortization of $148,186 and $133,186 at
2004 and 2003, respectively 166,230 176,491
---------------------- --------------------
Total Assets $ 1,435,657 $ 1,743,087
====================== ====================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable $ 123,413 $ 42,229
Loans payable 2,873 4,803
Royalties payable 150,256 127,437
Deferred revenues 94,597 165,164
Accrued liabilities 244,956 234,954
---------------------- --------------------
Total current liabilities 616,095 574,587
Commitments and contingencies - -
Shareholders' equity
Preferred stock - $.01 par value
5,000,000 shares authorized; no shares issued
or outstanding - -
Common stock - $.01 par value
30,000,000 shares authorized; 9,320,336 shares
issued; and 9,260,136 shares outstanding
at 2004 and 2003, respectively 93,203 93,203
Additional paid-in capital 21,086,237 21,086,237
Accumulated deficit (19,920,720) (19,571,782)
Treasury stock, at cost; 60,200 shares (439,158) (439,158)
---------------------- --------------------
Total Shareholders' equity 819,562 1,168,500
---------------------- --------------------
Total liabilities and shareholders equity $ 1,435,657 $ 1,743,087
====================== ====================
Note: The balance sheet at December 31, 2003 has been derived from the
audited financial statements at that date but does not include all of
the information and footnotes required by generally accepted
accounting principles for complete financial statements.
SEE ACCOMPANYING NOTES TO CONDENSED FINANCIAL STATEMENTS
3
HYDRON TECHNOLOGIES, INC.
CONDENSED BALANCE SHEETS
(Unaudited)
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
2004 2003 2004 2003
--------------- -------------- --------------- ---------------
Note Note
Net sales $336,098 $ 321,591 $ 722,230 $ 635,217
Cost of sales 145,822 120,594 303,452 236,953
--------------- -------------- --------------- ---------------
Gross profits 190,276 200,997 418,778 398,264
Expenses
Royalty expense 10,852 - 22,819 -
Research and development 56,698 27,766 121,443 44,946
Selling, general & administration 298,984 281,359 608,014 619,776
Depreciation & amortization 8,550 49,770 17,100 99,540
--------------- -------------- --------------- ---------------
Total expenses 375,084 358,895 769,376 764,262
--------------- -------------- --------------- ---------------
Operating loss (184,808) (157,898) (350,598) (365,998)
Interest income - net of interest expense 842 223 1,661 611
--------------- -------------- --------------- ---------------
Loss before income taxes (183,966) (157,675) (348,937) (365,387)
Income taxes expense - - - -
---------------
--------------- -------------- --------------- ---------------
Net loss $ (183,966) $ (157,675) $ (348,937) $ (365,387)
=============== ============== =============== ===============
Basic and diluted loss per share
Net loss per common share $ (0.02) $ (0.02) $ (0.04) $ (0.05)
=============== ============== =============== ===============
Weighted average shares
outstanding (basic and diluted) 9,260,136 7,050,136 9,260,136 7,050,136
=============== ============== =============== ===============
Note: Shipping and handling billings and costs have been reclassified from
Selling, general, & administration to Net sales and Cost of sales,
respectively. These reclassifications have no effect on reported Net
income.
SEE ACCOMPANYING NOTES TO CONDENSED FINANCIAL STATEMENTS
4
HYDRON TECHNOLOGIES, INC.
CONDENSED STATEMENT OF CASH FLOWS
(Unaudited)
SIX MONTHS ENDED JUNE 30,
2004 2003
------------------- -----------------
OPERATING ACTIVITIES
Net loss $ (348,937) $ (365,387)
Adjustments to reconcile net loss to
net cash used by operating activities
Depreciation and amortization 17,100 99,540
Change in operating assets and liabilities
Trade accounts receivables (16,083) 40,000
Inventories (4,720) 69,141
Prepaid expenses and other current assets (15,001) 12,385
Deposits - -
Accounts payable 81,183 (99,549)
Royalties payable 22,819 -
Deferred revenues (70,567) 7,088
Accrued liabilities 10,003 30,460
------------------- -----------------
Net cash used in operating activities (324,203) (206,322)
INVESTING ACTIVITIES
Capital expenditures, net - (5,838)
Deferred product costs (4,740) (6,480)
------------------- -----------------
Net cash used in investing activities (4,740) (12,318)
FINANCING ACTIVITIES
Net cash used for repayment of loans payable (1,930) -
------------------- -----------------
Net decrease in cash and cash equivalents (330,873) (218,640)
Cash and cash equivalents at beginning of period 964,723 291,136
------------------- -----------------
Cash and cash equivalents at end of period $ 633,850 $ 72,496
=================== =================
SEE ACCOMPANYING NOTES TO CONDENSED FINANCIAL STATEMENTS
5
HYDRON TECHNOLOGIES, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE A -- BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q and Article 10 of Regulation
S-X. Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. In the opinion of Management of Hydron Technologies, Inc. (the
"Company"), all adjustments (consisting of normal recurring adjustments)
considered necessary for a fair presentation have been included. Operating
results for the three and six month periods ended June 30, 2004 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 2004. For further information, refer to the financial statements
and footnotes included in the Company's Annual Report on Form 10-K for the year
ended December 31, 2003.
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 amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
NOTE B - INVENTORIES
Inventories consist of the following:
JUNE 30, December 31,
2004 2003
---------------------- ---------------------
Finished goods $ 88,535 $ 90,443
Raw materials and components 436,217 429,589
---------------------- ---------------------
$ 524,752 $ 520,032
====================== =====================
NOTE C - DISTRIBUTION
The majority of the Company's products are currently sold in the
United States through Hydron direct marketing channels (proprietary Catalog and
the World Wide Web site). The Company also sells its products to private label
customers and, to a lesser extent, television retailers and internationally
through salons and doctors offices.
6
HYDRON TECHNOLOGIES, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE D - EARNINGS PER SHARE
Effective January 1, 2004, the Company granted options to purchase
100,000 shares of common stock for $.659 to consultants. These options vest over
12 months.
Options and warrants to purchase 4,577,500 shares of common stock
were outstanding at June 30, 2004, but were not included in the computation of
diluted earnings per share because the effect would be anti-dilutive.
The Board of Directors has approved the issuance of an additional
1,033,500 options, subject to the approval of a stock option plan amendment at
the next shareholders' meeting. These options have not been reflected in June
30, 2004 calculations since there are insufficient options available without the
shareholders' actions.
There were no options granted to employees during the three months
ended June 30, 2004 that would require adjustments to the pro forma information
regarding net income and earnings per share required by FASB Statement No. 123,
and it is unchanged from that reflected in the Company's Annual Report on Form
10-K for the year ended December 31, 2003.
NOTE E - ACCRUED LIABILITIES
Accrued liabilities represent expenses that apply to the reported period and
have not been billed by the provider or paid by the Company. Accrued liabilities
consisted of the following:
JUNE 30, December 31,
2004 2003
----------------- -----------------
Dividends payable $ 83,163 $ 83,163
Director fees payable 71,014 65,012
Professional fees 29,390 24,712
Other 61,389 62,067
----------------- -----------------
$ 244,956 $ 234,954
================= =================
NOTE F - GOING CONCERN
The accompanying condensed financial statements were prepared
assuming that the Company will continue as a going concern. This basis of
accounting contemplates the recovery of the Company's assets and the
satisfaction of its liabilities in the normal course of operations. The
Company's ultimate ability to attain profitable operations is
7
HYDRON TECHNOLOGIES, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE F - GOING CONCERN (CONTINUED)
dependent upon obtaining additional financing or achieving a level of sales
adequate to support its cost structure.
Accordingly, there are no assurances that the Company will be
successful in achieving the above plans, or that such plans, if consummated,
will enable the Company to obtain profitable operations or continue as a going
concern.
8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
BUSINESS
Hydron Technologies, Inc. continues to shift its primary focus to
conducting research and development into products and medical applications
utilizing its patented tissue oxygenation technology. In November 2003 Hydron
received a US patent for its method of oxygenating skin and tissue topically,
using microbubbles of pure oxygen averaging one micron in diameter, suspended in
fluid. The super-oxygenation technology delivers pure oxygen through the skin to
tissue depths considered therapeutic for wound healing and the maintenance of
tissue viability. A topically applied oxygenated skin treatment could have
numerous applications in wound healing and anti-aging skincare treatments.
Research and development efforts to date have included clinical
testing, in-vitro bacteriological testing, micro-bubble size analysis, packaging
prototypes, and stability testing. Following its successful pre-clinical test at
the University of Massachusetts Medical School, Department of Thoracic Surgery,
the Company commissioned a clinical test on healthy human subjects. This
clinical test produced an average increase in subcutaneous tissue oxygenation of
54%. Management believes that these tests provided the first-ever evidence that
subcutaneous tissue could be oxygenated from the outside in.
On November 14, 2003, Hydron completed a non-brokered private
placement to accredited investors, raising $1.1 million, to accelerate its
research and development program surrounding this oxygenation technology. The
Company has also added expert clinical and regulatory consultants and is
pursuing approval from the FDA to allow the use of its oxygenation technology
for a number of medical applications.
The Company also markets a broad range of consumer and oral health
care products using a moisture-attracting ingredient (the "Hydron(R) polymer"),
and a topical delivery system for active ingredients including pharmaceuticals.
The Company holds U.S. and international patents on, what Management believes
is, the only known cosmetically acceptable method to suspend the Hydron polymer
in a stable emulsion for use in personal care/cosmetic products. Additional
patents have been applied for relating to a self-adjusting pH formulation for
skincare and acne. The Company is developing other personal care/cosmetic
products for consumers using its patented technology and would, when
appropriate, seek licensing arrangements with third parties, or develop and
market proprietary products through its own efforts.
RESULTS OF OPERATIONS
Total net sales for the three months ended June 30, 2004 were
$336,098, an increase of $14,504 or 4.5% from net sales of $321,591 for the
three months ended June 30, 2003. Skin care products net sales for the three
months ended June 30, 2004 were $300,958, an increase of $14,770 or 5.2% from
sales of $286,188 for the three months ended June 30, 2003. Professional
products net sales for the three months ended June 30, 2004 were $2,174, a
decrease of $234 or 9.7% from sales of $2,408 for the three months ended June
30, 2003. Shipping and handling revenues for the three months ended June 30,
2004 were $32,966, a decrease of $68 or 0.2% from shipping and handling revenues
of $33,034 in the three months ended June 30, 2003.
9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
For the six months ended June 30, 2004, total net sales were
$722,230, an increase of $87,013 or 13.7% from net sales of $635,217 for the six
months ended June 30, 2003. Skin care products net sales for the six months
ended June 30, 2004 were $655,215, an increase of $98,707 or 17.7% from sales of
$556,508 for the six months ended June 30 2003. Professional products' net sales
for the six months ended June 30, 2004 were $2,174, a decrease of $2,314 or
51.6% from sales of $4,488 for the six months ended June 30, 2003. Shipping and
handling revenues for the six months ended June 30, 2004 were $63,016, a
decrease of $6,983 or 10.0% from shipping and handling revenues of $69,999 in
the six months ended June 30, 2003.
Skin care products sales consist primarily of catalog sales and
private label sales. During the three months ended June 30, 2004, direct
marketing catalog sales decreased by $56,254 or 20.8% from $270,063 for the
three months ended June 30, 2003 to $213,809. Private label sales for the three
months ended June 30, 2004 were $87,150, an increase of $71,025 or 440.5% from
private label sales of $16,125 for the same period last year. These sales tend
to fluctuate from quarter to quarter as purchase orders for individual items
cover more than one year's supply. Purchase orders are received only
approximately four to six times a year for the seven items in the line.
For the six months ended June 30, 2004, direct marketing catalog
sales decreased by $94,701 or 17.5% from $540,383 last year to $445,682 this
year. Private label sales for the six months were $209,532, an increase of
$193,407 from private label sales of $16,125 for the same period last year. As
stated above, these private label sales tend to fluctuate significantly from
quarter to quarter.
Historically, over 98% of the Company's products are sold in the
United States. The Company sells skin care products in Australia and dental
products in Spain and Canada. These sales are not material at this time and
represented 0.5% and 0.2% of total net sales for the three months ended June 30,
2004 and 2003, respectively. For the six months ended June 30, sales outside the
United States represented 0.5% and 0.3% of total sales for 2004 and 2003,
respectively.
Cost of sales was $145,822 for the three months ended June 30, 2004,
an increase of $25,228 or 20.9% from cost of sales of $120,594 for the three
months ended June 30, 2003. Cost of sales was 43.4% of total sales the three
months ended June 30, 2004 compared to 37.5% for the three months ended June 30,
2003. The increase in cost of sales percentage reflects the impact of this
period's private label sales, that included unusually high product cost (79.7%
of sales), versus the product cost of catalog sales (16.9% of catalog sales.)
Shipping and handling costs for the second quarter of 2004 were $35,207, a
decrease of $3,727 or 9.6% from shipping and handling costs of $38,934 for the
same period in 2003. This decrease reflects the 20.7% decline in catalog sales
plus savings realized by performing more of the shipping and handling tasks in
house.
10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
For the six months ended June 30, 2004 cost of sales was $303,452, an
increase of $66,499 or 28.1% from cost of sales of $236,953 for the three months
ended June 30, 2003. Cost of sales was 42.0% of total sales for the three months
ended June 30, 2004 compared to 37.3% for the three months ended June 30, 2003.
The increase in cost of sales percentage reflects the impact of this period's
private label sales as stated above. Shipping and handling costs for the six
months were $67,939, a decrease of $21,780 or 24.3% from shipping and handling
costs of $89,719 for the same period in 2003. This decrease reflects the 17.5%
decline in catalog sales plus savings realized by performing more of the
shipping and handling tasks in house.
The Company's overall gross profit margin decreased to 56.6% of net
sales for the three months ended June 30, 2004 versus 62.5% for the three months
ended June 30, 2003. This is due primarily to the lower margin private label
sales and, to a lesser degree the costs discussed above. For the six month ended
June 30, 2004 the overall gross profit margin decreased similarly to 58.0% of
net sales versus 62.7% for the same period in 2003.
Royalty expenses for the three months ended June 30, 2004 were
$10,852. There were no royalty expenses for the first quarter of 2003. For the
six months ended June 30, 2004, royalty expenses were $22,819. No accrued
royalty expenses were required in 2003 as the definition of applicable products
was changed creating a surplus accrual. That surplus has now been exhausted and
the expense reflects the royalties due on sales for the period.
Research and development ("R&D") expenses reflect the Company's
efforts to identify new product opportunities, obtain regulatory approval,
develop and package the products for commercial sale, perform appropriate
efficacy and safety tests, and conduct consumer panel studies and focus groups.
R&D expenses for the three months ended June 30, 2004 were $56,698, an increase
of $28,932 or 104.2% over R&D expenses of $27,766 for the three months ended
June 30, 2003. This increase is principally due to the Company's R&D work on its
new oxygenation technology. For the six months ended June 30, 2004 R&D expenses
were $121,443, an increase of $76,497 or 170.2% over R&D expenses of $44,946 for
the same period last year. The amount of R&D expenses per year will continue to
increase as the oxygenation technology moves through the FDA approval process
and the Company expands its research behind this technology.
Selling, general, and administrative ("SG&A") expenses for the three
months ended June 30, 2004 were $298,984, representing an increase of $17,625 or
6.3% from SG&A expenses of $281,359 for the three months ended June 30, 2003.
Employment expense was $136,580 for the three months ended June 30, 2004, an
increase of $5,782 or 4.4% from $130,798 for the three months ended June 30,
2003. This increase reflects the rise in benefit costs. All other expenses were
$162,404 for the three months ended June 30, 2004, an increase of $11,843 or
7.9% from $150,561 for the three months ended June 30, 2003. For the six months
ended June 30, 2004 selling, general, and administrative expenses were $608,014,
a decrease of $11,762 or 1.9% from $619,776 for the same period last year.
11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
Depreciation and amortization expense was $8,550 for the three months
ended June 30, 2004, a decrease of $41,220 or 82.8% from $49,770 for the three
months ended June 30, 2003. For the six months ended June 30, 2004 depreciation
and amortization were $17,100, a decrease of $82,440 or 82.8% from $99,540 for
the same period last year. The decrease was due primarily to intangible assets
becoming fully amortized by mid-2003. Fully amortized intangible assets of
$5,370,000 were written off in 2003.
Net interest income was $842 for the three months ended June 30, 2004
compared to net interest income of $223 for the three months ended June 30,
2003. The Company maintains a conservative investment strategy with respect to
its cash balances, deriving investment income primarily from U.S. Treasury
securities.
The Company had a net loss of $183,966, representing an increase of
$26,291 or 16.7% for the three months ended June 30, 2004 from the net loss of
$157,675 for the three months ended June 30, 2003, a result primarily of the
factors discussed above.
For the six months ended June 30, 2004, the company had a net loss of
$348,937, a decrease of $16,450 or 4.5% from net loss of $365,387 for the six
months ended June 30, 2003. The decrease in the net loss is a result primarily
of the factors discussed above.
LIQUIDITY AND FINANCIAL RESOURCES
The Company anticipates that present working capital balances and
internally generated funds will not be sufficient to meet its working capital
needs for the next twelve months. The development of the Company's oxygenation
technology will depend on its ability to raise capital on commercially
reasonable terms. The Company's working capital was approximately $618,204 as of
June 30, 2004, including cash and cash equivalents of approximately $633,850.
Cash used by operating activities for the six months ended June 30, 2004 was
$324,203. Net funds used for investing activities were $4,740 and financing
activities were $1,930 for the six months ended June 30, 2004.
The Company does not have any material debt, long-term capital
leases, or long-term operating leases. The lease on the current office facility
expires August 31, 2005. There are no capital expenditures under construction
and no long-term commitments other than royalty payments under an agreement with
GP Strategies Corporation (See note 5 to the Financial Statements included in
the Company's Form 10-K dated December 31, 2003). The Company does not have any
lines of credit. There are no purchase order commitments that exceed 90 days.
12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
The Company completed a non-brokered private placement of 1,750,000
Units at $.20 per Unit ($350,000), on December 10, 2002 to several accredited
investors. Each Unit is comprised of one share of common stock and one
three-year option to buy one additional common share at $.20. As of December 31,
2003 all 1,750,000 options are outstanding.
On November 14, 2003, the Company completed a non-brokered private
placement of 2,210,000 Units at $.50 per Unit ($1,105,000) to accredited
investors. Each Unit is comprised of one share of Common Stock and one five-year
warrant to buy one additional common share at $1.00. As of December 31, 2003,
all 2,210,000 warrants are outstanding.
The Company has registered these outstanding shares and the 4,581,500
underlying shares of outstanding warrants and options with the Securities and
Exchange Commission as required by the November 14, 2003 private placement
agreement. The warrants/options are a future source of capital for the Company
and could generate up to $2,560,000 if they are exercised.
The Company's independent accountants issued a "going concern"
opinion since the Company has incurred significant losses over the past five
years and generates a negative cash flow on a monthly basis. The ability of the
Company to continue as a going concern is dependent upon increasing sales,
managing operating expenses, and obtaining additional equity financing.
Management's plan includes the following elements:
o Obtaining FDA approval of the Company's oxygenation technology in
marketing segments which are attractive to today's investor;
o Effectively applying the Company's existing resources to achieve
objectives that will attract the interest of new investors and
strategic partners;
o Advancing the oxygenation technology in the medical segment so as
to stimulate the interest of investors and strategic partners;
o Entering into joint ventures with strategic partners that can provide
complimentary products, distribution, and manufacturing capabilities;
o Expanding the product line of existing private label customers, thus
leveraging the Hydron polymer technology across multiple product
lines;
o Developing new skin care products for new private label customers
utilizing Hydron's proprietary expertise to expand our product base;
13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
o Licensing proprietary and possibly patentable technologies, including
skin and tissue oxygenation, and the pH adjusting system for skin
care and acne ingredient delivery, where appropriate to third party
companies;
o Continuing emphasis on catalog sales, including sales made over
the internet, since these sales have higher profit margins;
o Increasing use of direct marketing techniques to reach new and
current consumers such as print promotions mailed to targeted
consumers, Web site specials, promotions to other Web site customers,
and direct E-mail promotions to new customers;
o Adding new revenue streams through expanded international
distribution achieved through the use of distribution agreements with
foreign and international distributors;
o Developing, acquiring, and marketing new product lines based on
proprietary technologies that appeal to aging baby boomers as well as
to a younger generation;
o Continuing to develop proprietary technology that the Company
believes will improve its long-term success in the skin care
business, such as the acne ingredient delivery system. The Company's
super-oxygenated fluid and composition technology should facilitate
significant advances in skin care products and open application and
licensing opportunities beyond the skin care category;
o Entering into marketing, licensing, and distribution agreements with
third parties, which have greater financial and distribution
resources than those of the Company and that can enhance the
Company's product introductions with appropriate national marketing
support programs.
There can be no assurances that Management's Plan will be successful
and the Company's actual results could differ materially. No estimate has been
made should Management's plan be unsuccessful.
14
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
The statements contained in this Report on Form 10-Q that are not
purely historical are forward-looking statements within the meaning of Section
27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act
of 1934, including statements regarding the Company's expectations, hopes,
intentions, beliefs, or strategies regarding the future, including, without
limitation, its plans regarding distribution and marketing of its products and
the development, acquisition, and marketing of new products. Forward-looking
statements include the Company's liquidity, anticipated cash needs and
availability, and the anticipated expense levels under the heading "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
Each forward-looking statement reflects the Company's current view of
future events and is subject to risks, uncertainties, and other factors that
could cause actual results to differ materially from any results expressed or
implied by its forward-looking statements. Important factors that could cause
actual results to differ materially from the results expressed or implied by any
forward-looking statements include:
o The volatility of the price of the Company's common stock;
o The Company's ability to fund future growth;
o The Company's ability to be profitable;
o The Company's ability to attract and retain qualified personnel;
o General economic conditions in the medical and cosmetic markets;
o Market demand for and acceptance of the Company's products;
o Legal claims against the Company, including, but not limited to claims
of patent infringement;
o The Company's ability to protect its intellectual property;
o Defects in the Company's products;
o The Company's obligation to indemnify certain customers;
o The Company's dependence on contract manufacturers and suppliers;
15
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
o The Company's dependence on a small number of customers for private
label revenue;
o The Company's ability to develop and maintain relationships with key
vendors;
o New regulations and legislation;
o General economic and business conditions;
o Other risks and uncertainties disclosed in the Company's Annual Report
on Form 10-K for the year ended December 31, 2003 and in the Company's
other filings with the SEC.
All subsequent forward-looking statements relating to the matters
described in this document and attributable to the Company or to persons acting
on its behalf are expressly qualified in their entirety by such factors. The
Company has no obligation to publicly update or revise these forward-looking
statements to reflect new information, future events, or otherwise, except as
required by applicable federal securities laws, and the Company cautions you not
to place undue reliance on these forward-looking statements.
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ITEM 4. CONTROLS AND PROCEDURES
As of the end of this period, The Company carried out an evaluation,
under the supervision and with the participation of Management, including its
Chief Operating Officer and Chief Financial Officer, of the effectiveness of the
design and operation of its disclosure controls and procedures pursuant to
Exchange Act Rule 13a-14. Based upon that evaluation, the Chief Operating
Officer and Chief Financial Officer concluded that the Company's disclosure
controls and procedures are effective to timely alert them to material
information required to be included in the Company's Securities Exchange Act of
1934 filings.
There have been no significant changes in the Company's internal
controls or in other factors that could significantly affect internal controls
subsequent to the date that the Company carried out its evaluation.
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PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
31.1 Certification of Chief Executive Officer pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002 and Item 307 of Regulation S-K (filed
herewith).
31.2 Certification of Chief Operating Officer pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002 and Item 307 of Regulation S-K (filed
herewith).
31.3 Certification of Chief Financial Officer pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002 and Item 307 of Regulation S-K (filed
herewith).
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 (filed herewith).
32.2 Certification of Chief Operating Officer Pursuant to 18 U.S.C.,
Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002 (filed herewith).
32.3 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 (filed herewith).
(b) Reports on Form 8-K:
None.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HYDRON TECHNOLOGIES, INC.
/s/: William A. Lauby
---------------------
William A. Lauby
Chief Financial Officer and
Principal Accounting Officer
Dated: August 13, 2004
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