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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION  FORM 10-K (Mark One) [X]
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
 For the fiscal year ended: December 31, 2003 [   ]
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from to Commission File Number: 0-11647 HYCOR BIOMEDICAL INC. 
 Delaware
    
    58-1437178(State or other jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    Identification No.)
 7272 Chapman Avenue, Garden Grove, California 92841 
 Registrants telephone number, including area code (714) 933-3000 Securities registered pursuant to Section 12(b) of the Act:None Securities registered pursuant to Section 12(g) of the Act: Common Stock, $.01 par value 
 Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [   ]




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Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not 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] Indicate by check mark whether the registrant is an accelerated filer (as
identified in Rule 12b-2 of the Act). Yes [   ] No [X] As of June 30, 2003, the last business day of the registrants most
recently completed second fiscal quarter, aggregate market value of the voting
stock held by non-affiliates of the registrant (based on the closing sale price
of such stock on such date) was $33,045,051. The number of shares of common stock of the registrant outstanding at
March 15, 2004 was 8,114,222. 2




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TABLE OF CONTENTS  PART IItem 1. BusinessItem 2. PropertiesItem 3. Legal ProceedingsItem 4. Submission of Matters to a Vote of Security HoldersPART IIItem 5. Market for Registrants Common Equity and Related Stockholder MattersItem 6. Selected Financial DataItem 7. Managements Discussion and Analysis of Financial Condition and Results of OperationsItem 7a. Quantitative and Qualitative Disclosures about Market RiskItem 8. Financial Statements and Supplementary DataINDEPENDENT AUDITORS REPORTCONSOLIDATED BALANCE SHEETSCONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOMECONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITYCONSOLIDATED STATEMENTS OF CASH FLOWSNOTES TO CONSOLIDATED FINANCIAL STATEMENTSItem 9A. Controls and ProceduresPART IIIItem 10. Directors and Executive Officers of the RegistrantItem 11. Executive CompensationItem 12. Security Ownership of Certain Beneficial Owners and ManagementItem 13. Certain Relationships and Related TransactionsItem 14. Principal Accountant Fees and ServicesPART IVItem 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-KSIGNATURESExhibit IndexEXHIBIT 21EXHIBIT 23EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32.1EXHIBIT 32.2    Table of Contents  
 PART I 
 Item 1. Business General Hycor Biomedical Inc. (Hycor or the Company) is engaged in the
research, development, manufacturing, and marketing of medical diagnostic
products throughout the United States and many foreign countries. The Company operates two wholly owned subsidiaries, Hycor Biomedical GmbH
(Hycor GmbH), located in Kassel, Germany and Hycor Biomedical, LTD (Hycor
Ltd.), formally known as Cogent Diagnostics Limited, located in Edinburgh,
Scotland. Hycor GmbH primarily packages and distributes allergy diagnostic
products in Europe. Hycor Ltd. develops, manufactures and markets a broad line
of test kits for the diagnosis of autoimmune disease. Merger Agreement On July 24, 2003, the Company announced the execution of an Agreement and
Plan of Reorganization (the Merger Agreement) by and among Stratagene, a
Delaware corporation, SHC Acquisition Sub, Inc., a Delaware corporation and a
wholly owned subsidiary of Stratagene, and the Company. Pursuant to the Merger
Agreement, Stratagene would acquire all of the outstanding shares of the
Company through a merger between SHC Acquisition Sub and the Company. The
Company will survive the merger as a wholly owned subsidiary of Stratagene.
Pursuant to the Merger Agreement, the Companys stockholders would receive a
fixed exchange ratio of 0.6158 Stratagene shares in exchange for each share of
the Company, plus cash for any fractional shares. The closing of the
transaction is subject to closing conditions, including, but not limited to,
the parties obtaining the necessary regulatory and shareholder approvals. The
Company expects that the proposed transaction will be recognized as a tax-free
reorganization. Stratagene has filed a registration statement on Form S-4 (No. 333-109420)
related to the proposed transaction. Once the SEC declares the Form S-4
effective, it will be mailed along with the proxy to the shareholders of Hycor. Products The Company engages in business activity in only one operating segment
that entails the development, manufacture, and sale of medical diagnostic
products with a focus on allergy and autoimmune testing and urinalysis
products. While the Company offers a wide range of items for sale, many are
manufactured at common production facilities. The KOVATM Microscopic Urinalysis System is the Companys largest product
line accounting for approximately 47%, 52%, and 56% of net sales for 2003,
2002, and 2001, respectively. The KOVA System provides laboratories with the
capability to perform uniform and reliable microscopic analyses of urine
specimens. It is composed of plastic collection containers, tubes and
pipettes, patented microscopic slides, and human urine-based control materials. 3




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The Companys Clinical Immunology product lines consist of Allergy and
Autoimmune diagnostic products. The Companys Allergy diagnostic product line, which accounted for
approximately 40%, 35%, and 29% of revenues for 2003, 2002, and 2001,
respectively, is a complete line of RIA (radioimmunoassay) and EIA
(enzymatic immunoassay) procedures to test for specific allergies to more
than 1000 different allergens such as grasses, weeds, trees, epidermals (i.e.
animal hair), dust, dust mites, molds, and foods; general screening tests are
also available. Unlike the traditional prick puncture and intradermal testing
methods of diagnosing allergies, the Companys products permit a physician to
diagnose allergies by testing a sample of the patients blood for the presence
of the specific IgE or IgG antibody, which reacts with the corresponding
allergen. This method has many advantages over the traditional methods of
allergy diagnosis, not the least of which is patient comfort. The Companys Autoimmune diagnostic product line, which accounted for
approximately 9%, 8%, and 9% of revenues in 2003, 2002, and 2001, respectively,
includes tests utilized for the diagnosis and monitoring of autoimmune
disorders such as rheumatoid arthritis and systemic lupus erythematosus among
others. Autoimmune diseases may be systemic or organ-specific and the need for
this type of diagnostic testing is expected to increase as the population ages
and primary care physicians are educated about autoimmune diseases. The
Companys tests are based on enzyme immunoassay technology in a microplate
format. Unlike traditional methods like immunofluorescence, which requires a
dedicated and highly trained technologist to read slides manually through a
microscope one at a time, the Companys products can be automated either on the
Companys HYTEC instruments or on general microplate processors. The Companys Allergy and Autoimmune product lines also include the HYTEC
480 and HYTEC 288 automated diagnostic systems that provide clinical
laboratories with significant productivity improvement capabilities. The
HYTEC systems include the instruments, software, and test reagents necessary
to perform allergy and autoimmune testing. The Company places a large
percentage of the HYTEC systems on a reagent rental basis. A reagent
rental transaction, common to the diagnostic market, involves the placement of
an instrument in the laboratories of customers that pay for the system over an
agreed contract period through the purchase of test reagents. The Companys
HYTEC reagent rental program is similar in that instruments are typically
placed in use with direct customers and paid for over an agreed contract period
through the purchase of test reagents, but also includes the sale of some
instruments to distributors and direct customers. The typical contract period
for the HYTEC reagent rental is between 3 to 5 years. The instruments that
are sold to distributors are sold with a minimal gross profit to assist them
with their instrument placements, on the expectation that the Company will earn
a profit on the subsequent sales of reagents necessary to operate the
instrument. Sales and Marketing Clinical laboratories and certain specialty physicians are primary users
of the Companys products. In the United States, the Companys product lines
are generally sold through both independent and clinical laboratory
distributors. The majority of sales in the United States are to Cardinal
Health Corporation (formerly Allegiance Healthcare Corporation) and Fisher
Scientific, two 4




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major U.S. distributors. The allergy product line is sold
directly to the end user through the Companys direct sales force. In foreign countries the Companys products are sold primarily through a
network of independent distributors. The Company sells its allergy and
autoimmune products to the German and U.K. market through a direct sales force. Export sales (all to unaffiliated customers) accounted for approximately
$1,906,000, $1,774,000, and $1,730,000 in 2003, 2002, and 2001, respectively,
which represents approximately 10% of total consolidated sales for each year.
The primary geographical area was Europe, which, including sales by the Company
and its foreign subsidiaries, accounted for sales of $5,792,000, $5,754,000,
and $5,036,000 in 2003, 2002, and 2001, respectively. (See Note 11 to the
Consolidated Financial Statements.) The Companys two largest distributors, Cardinal Health Corporation and
Fisher Scientific, each accounted for 14% of net product sales in 2003; 18% and
16% of net product sales in 2002; and 22% and 13% of net product sales in 2001,
respectively. A loss of one or both of these distributors or a decision by a
significant customer to substantially decrease or delay purchases from the
Company or the Companys inability to collect receivables from these customers
could have a material adverse effect on the Companys financial condition and
results of operations. However, there are other national, regional, and
foreign clinical laboratory products distributors, as well as the Companys
sales force that could market the Companys products. The Company did not have a significant backlog of orders at December 31,
2003 and December 31, 2002. Because of the short time between order receipt
and expected delivery, the Company, consistent with industry practice, carries
a large inventory to meet the expected flow of orders. Backlog is not a
significant factor in the Companys business. The Companys business is not considered seasonal in nature but is
slightly affected in the third quarter by the general slowdown in Europe during
the traditional vacation months. Raw Materials Although a substantial amount of the Companys total purchases for raw
materials and finished products were from a limited number of suppliers during
the last fiscal year, a number of alternative sources are available to the
Company should they be required. Research and Development The Company maintains an ongoing research and development effort. The
purpose of this effort is to evaluate new technologies, improve the Companys
current product lines, and develop new products. Current projects in progress
are focused on programs to support and enhance the HYTEC diagnostic system.
In addition during 2003, the Company entered into development agreements with
Bayer Healthcare LLC and Beckman Coulter, Inc. to adapt its autoimmune tests to
their automated immunoassay system. The Company expects to begin sales of
products in late 2004. 5




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Total research and development expenditures were approximately $2,169,000,
$1,846,000, and $1,940,000 for 2003, 2002, and 2001, respectively. Government Regulations The Company is indirectly affected by government regulations directed
towards containing the cost of medical services and limiting the amount of
reimbursement to service providers. These types of regulations, which are
applicable to both domestic and international markets, will tend to limit
growth rates in the Companys target markets. The Companys products,
including the HYTEC automated diagnostic system, are designed to provide a
cost effective solution to service providers, thereby aiding in the cost
containment efforts. However, the Company cannot predict the long-term affect
on revenue growth resulting from these regulations. The Company is registered as a manufacturer of medical devices and a
licensed biological manufacturer with the Food and Drug Administration (FDA).
To comply with FDA requirements, the Company must manufacture its products in
conformance with the FDAs medical device Good Manufacturing Practice
regulations. The Companys existing products are also subject to certain
pre-market notification requirements of the FDA. The receipt, use, and disposal of radioactive materials are subject to
licensing requirements of the Nuclear Regulatory Commission (NRC). The
Company holds a radioactive materials license from the NRC for its radioactive
labeling activities and its facilities are inspected periodically by the NRC. The Company would be adversely affected if it were unable to maintain its
governmental licenses or continue to comply with applicable federal and state
regulations, but the Company does not expect this to occur. The Company cannot
predict whether future changes in government regulations might substantially
increase compliance costs, adversely affect the time required to develop and
introduce products, or limit or preclude the sale of its new products. Compliance with federal, state, and local regulations relating to
environmental matters is not expected to have a material effect upon capital
expenditures, earnings, or the competitive position of the Company. Competition The Companys product lines have several different competitors. The KOVA
Microscopic Urinalysis System has significant competition from at least two
national diagnostic product manufacturing and distribution companies that
market supplies that perform similar functions. Management believes that the
Company is the leading supplier of standardized microscopic urinalysis systems. Pharmacia, Inc. and Diagnostic Product Corporation have products that
compete with the Companys allergy diagnostic products. A substantial number of the Companys competitors are larger and have
greater resources than the Company. The Company competes on the basis of
price, promotion, quality of products, 6




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design of product, strength of the
Companys relationship with dealers, and other methods relevant to the
business. Patents The Company has maintained an aggressive patent policy and currently holds
a number of domestic and foreign patents. While these patents offer some
protection to its product lines and related technology, management believes
that continued improvements to the product lines are more important for the
protection of its market position. The most recent patent was issued in April
1999. Employees As of February 20, 2004, the Company had approximately 147 employees.
None of the employees are covered by collective bargaining agreements and
management believes that the Companys relations with its employees are
satisfactory. 
 Item 2. Properties At December 31, 2003, the Company had three separate facilities.  1)
    
    The Companys corporate headquarters, principal administrative, and
manufacturing facility is located in a leased 76,000 square foot
two-story freestanding facility at 7272 Chapman Avenue, Garden Grove,
California. The lease has a ten-year term ending December 31, 2007.
The Company has the option to extend the lease term for an additional
five-year period.2)
    
    The Company leases a 12,900 square foot freestanding building located
at Otto-Hahn Straße 16, 34123 Kassel, Germany. The lease has a ten-year
term ending March 31, 2005. The Company has the option to extend the
term of the lease for an additional five years. The Company uses this
facility for the packaging, warehousing, distribution, and
administrative functions of its wholly owned subsidiary, Hycor
Biomedical GmbH.3)
    
    The Company leases the 7000 square foot ground floor of a two-story
building located at Pentlands Science Park, Bush Loan Penicuik, EH26 OPL
Scotland. The lease has a five-year term ending September 30, 2006.
The Company has the option to extend the term of the lease for an
additional five years. The Company uses this facility for the
laboratory, manufacturing, warehousing, distribution, and administrative
functions of its wholly owned subsidiary, Hycor Biomedical Ltd. In managements opinion, in general, its plant and equipment are
adequately maintained, in good operating condition and adequate for the
Companys present needs. The Company upgrades and modernizes its facilities
and equipment and expands its facilities as necessary to meet customer and
regulatory requirements. 7




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Item 3. Legal Proceedings To the best of managements knowledge, there are no material pending legal
proceedings. However, on occasion there may exist immaterial routine
litigation that is incidental to the normal operations of the business to which
the Company is a party or to which the Companys property is subject. 
 Item 4. Submission of Matters to a Vote of Security Holders During the fourth quarter of the fiscal year ended December 31, 2003,
there were no matters submitted to a vote of security holders. 
 PART II 
 Item 5. Market for Registrants Common Equity and Related Stockholder Matters Market Price of Common Stock Hycor Biomedical Inc.s common stock trades on The Nasdaq Stock Market
under the symbol HYBD. The following table sets forth the range of high and
low trading prices for the common stock for the periods indicated as reported.
The prices do not include retail markups, markdowns, or commissions. Year Ended
    
    High
    
    LowDecember 31,
20021st Quarter
    
    
    7.16
    
    
    
    2.002nd Quarter
    
    
    4.14
    
    
    
    1.603rd Quarter
    
    
    3.86
    
    
    
    1.564th Quarter
    
    
    2.70
    
    
    
    1.20December 31, 20031st Quarter
    
    
    2.78
    
    
    
    1.942nd Quarter
    
    
    5.04
    
    
    
    2.003rd Quarter
    
    
    6.50
    
    
    
    4.054th Quarter
    
    
    5.50
    
    
    
    3.15
 There were 866 shareholders of record as of March 15, 2004. No dividends
have been paid to stockholders since the Company was founded and the Company
has no current intentions of paying cash dividends in the foreseeable future.
The Companys bank line of credit also precludes the payment of dividends. 8




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Item 6. Selected Financial Data (Dollars in thousands, except per share amounts) 2003(c)
    
    2002
    
    2001(a)
    
    2000
    
    1999Operating ResultsNet sales
    
    $
    19,757
    
    
    $
    18,591
    
    
    $
    17,313
    
    
    $
    17,382
    
    
    $
    18,775Operating income
    
    $
    591
    
    
    $
    1,217
    
    
    $
    121
    
    
    $
    1,031
    
    
    $
    26Net income
    
    $
    2,162
    
    
    $
    1,257
    
    
    $
    43
    
    
    $
    981
    
    
    $
    249Basic earnings per share
    
    $
    0.27
    
    
    $
    0.16
    
    
    $
    0.01
    
    
    $
    0.13
    
    
    $
    0.03Diluted earnings per share
    
    $
    0.26
    
    
    $
    0.15
    
    
    $
    0.01
    
    
    $
    0.12
    
    
    $
    0.03Financial PositionWorking capital
    
    $
    12,548
    
    
    $
    11,740
    
    
    $
    8,929
    
    
    $
    7,232
    
    
    $
    5,679Net property and equipment
    
    $
    2,080
    
    
    $
    2,278
    
    
    $
    2,562
    
    
    $
    3,082
    
    
    $
    3,560Total assets
    
    $
    18,632
    
    
    $
    16,295
    
    
    $
    14,477
    
    
    $
    14,868
    
    
    $
    15,039Long-term debt (b)
    
    $
    
    
    
    $
    1,002
    
    
    $
    1,029
    
    
    $
    1,084
    
    
    $
    1,674Total Stockholders Equity
    
    $
    16,212
    
    
    $
    13,263
    
    
    $
    11,749
    
    
    $
    11,469
    
    
    $
    10,542
  a)
    
    2001 results include the $723,000 write-off of goodwill related to
the acquisition of Melja Diagnostik, GmbH.b)
    
    Includes long-term and current portion of the Companys debts for all
periods presented.c)
    
    2003 results include the $1,359,000 income tax benefit for the
reversal of the valuation allowance against the Companys domestic
deferred tax assets and $688,000 in expenses related to the Companys
merger with Stratagene. 9




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Item 7.
Managements Discussion and Analysis of Financial Condition and Results of Operations The following discussion should be read in conjunction with the
consolidated financial statements and notes thereto. Execution of Agreement On July 24, 2003, the Company announced the execution of an Agreement and
Plan of Reorganization (the Merger Agreement) by and among Stratagene, a
Delaware corporation, SHC Acquisition Sub, Inc., a Delaware corporation and a
wholly owned subsidiary of Stratagene, and the Company. Pursuant to the Merger
Agreement, Stratagene would acquire all of the outstanding shares of the
Company through a merger between SHC Acquisition Sub and the Company. Pursuant
to the Merger Agreement, the Companys stockholders would receive a fixed
exchange ratio of 0.6158 Stratagene shares in exchange for each share of the
Company, plus cash for any fractional shares. The closing of the transaction
is subject to closing conditions, including, but not limited to, the parties
obtaining the necessary regulatory and shareholder approvals. The Company
expects that the proposed transaction will be recognized as a tax-free
reorganization. Stratagene has filed a registration statement on Form S-4 (No. 333-109420)
related to the proposed transaction. Once the SEC declares the Form S-4
effective, it will be mailed along with the proxy to the shareholders of Hycor. If the proposed transaction is completed, the combined company would offer
diagnostic products and life sciences research tool product lines to the global
academic, pharmaceutical, and clinical and government laboratory markets. The
Company is expected to be impacted by merger-related costs of approximately
$3.7 million, consisting of severance payments, investment banking fees,
professional fees and other miscellaneous expenses, of which the Company has
incurred approximately $688,000 as of December 31, 2003 and the balance is
expected to be recognized in the first and second quarter of 2004. Significant Accounting Policies The Companys consolidated financial statements are prepared in accordance
with accounting principles generally accepted in the United States of America,
and management is required to make certain estimates, judgments and assumptions
that affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the periods presented. The significant accounting policies which the Company
believes are the most critical to aid in fully understanding and evaluating its
reported financial results include the following: Revenue Recognition Revenues from product sales are recognized at the time of shipment and
passage of title. Revenues from customers under distributorship agreements are
also recognized at the time of shipment and passage of title. The Company
offers customers the right to return products only if the products are shipped
in error, are damaged or in the event of product failure. While such returns
have historically not been significant, the Company cannot guarantee that it
will continue to experience the 10




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same return rates that it has in the past. Any
significant increase in product failure rates and the resulting credit returns
could have a material adverse impact on the Companys operating results for the
period or periods in which such returns materialize. Accounts Receivable The Company performs ongoing credit evaluations of its customers and
adjusts credit limits based upon payment history and the customers current
creditworthiness. The Company continuously monitors collections and payments
from customers and maintains a provision for estimated credit losses based upon
historical experience and any specific customer collection issues that have
been identified. The Companys credit losses have historically been within
expectations and the provisions established. However, the inability of one of
the Companys significant customers to pay amounts owed could have a material
adverse impact on the Companys operating results. Inventories Inventories are valued at the lower of the actual cost to purchase and/or
manufacture the inventory or the current estimated market value of the
inventory. The Company regularly reviews inventory quantities on hand and
records a provision for excess and obsolete inventory on specifically
identified items based primarily on an estimated forecast of product demand and
production requirements. The Companys losses from disposal of excessive and
obsolete inventories have historically been within expectations and the
provisions established. However, the Companys estimates of future product
demand may prove to be inaccurate, in which case the Company may have
understated or overstated the provision required for excess and obsolete
inventory. In addition, rapid technological change or new product development
could result in an increase in the amount of obsolete inventory quantities on
hand. In the future, if the Companys inventory is determined to be
overvalued, it would be required to recognize such costs in its cost of goods
sold at the time of such determination. Likewise, if the Companys inventory is
determined to be undervalued, it may have over-reported its costs of goods sold
in previous periods and would be required to recognize such additional
operating income at the time of sale. Additionally, the Companys manufacturing costs and inventory carrying
costs are dependent on managements accurate estimates of customer demand for
the Companys products. A significant increase in the demand for the Companys
products could result in a short-term increase in the cost of inventory
purchases, while a significant decrease in demand could result in an increase
in the amount of excess inventory quantities on hand and increase the expense
of storing and maintaining the inventory until it is sold. Therefore, although
management makes every effort to ensure the accuracy of its forecasts of future
product demand, any significant unanticipated changes in demand or
technological developments could have a significant impact on the value of the
Companys inventory and its reported operating results. Deferred Taxes The Companys deferred taxes relate primarily to prior operating losses
and R&D tax credits that are available to offset future income taxes. Deferred
taxes are also recognized for differences between the financial statement
carrying amounts and the tax bases of assets and liabilities. The Company
evaluates a variety of factors in determining the amount of deferred income
assets to be recognized pursuant to Statement of Financial Accounting Standards
No. 109, Accounting for Income Taxes. During 2003, the Company reversed the
valuation allowance on a portion of its deferred assets. To the extent that it
becomes more likely than not that the deferred assets, which 11




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continue to have a
valuation allowance, would be realized, the Company would be required to
reverse all or a portion of the remaining valuation allowance. Reducing the
amount of valuation allowance would have the affect of reducing the Companys
effective tax rate and have a positive impact on net income in the period of
change. To the extent it becomes more likely than not that the net deferred
tax asset recorded by the
Company will not be realized, the Company would be required to increase
its valuation allowance by recording an additional income tax provision. (See
Note 7 to the Consolidated Financial Statements.) Warranties All products are guaranteed to perform pursuant to Company policy for each
product type when stored and used as directed. Warranty is limited to
replacement of defective product returned at no cost to the customer. While
the Companys warranty costs have historically not been significant, the
Company cannot guarantee that it will continue to experience the same warranty
return rates that it has in the past. A significant increase in product return
rates could have a material adverse impact on operating results for the period
or periods in which such returns materialize. Impairment Charges In 1994, the Company acquired Melja Diagnostik, GmbH and recorded total
goodwill resulting from the acquisition of approximately $1,900,000.
Significant changes in both German reimbursement rates and the value of the
U.S. dollar versus the Euro have caused declining operating results. In the
fourth quarter of 2001, the goodwill related to this acquisition was determined
to be impaired. As a result of this impairment, the Company recorded a noncash
pretax charge of $723,000 relating to Melja Diagnostik, GmbH goodwill. This
write-down eliminates all goodwill related to this acquisition. The goodwill
remaining on the balance sheet at December 31, 2003 amounts to approximately
$156,000 and relates to the acquisition of Cogent Diagnostics Limited in 1997.
(See Notes 9 and 12 to the Consolidated Financial Statements.) Results of Operations 2003 Compared to 2002Overall, 2003 net sales increased $1,166,524 or 6.3% when
compared to 2002. Sales in the Urinalysis product line decreased by
approximately $396,000 or 4.1% when compared to 2002. The Urinalysis product
line is sold primarily to distributors and sales trends are subject to their
inventory management policies. The Company was aware that its two largest
distributors in the United States had reduced inventory levels at year-end. Sales in
the clinical immunology product line increased approximately $1,589,000 or
19.9% when compared to 2002. This increase was primarily the result of
increased sales in the Allergy product line due to increased volumes with
pre-existing accounts of approximately $844,000 and increasing activity from
new accounts of approximately $396,000 for 2003, when compared to 2002. (See
Note 11 to the Consolidated Financial Statements.) Sales in the year 2003 were also affected by the weakening dollar
resulting in a positive foreign exchange impact to foreign sales of
approximately 13.4%. This resulted in an increase to consolidated reported
sales of approximately $682,000 or 3.5% when compared to 2002. Additionally,
continued pressures in the health care industry for cost controls affect the
Companys revenue and the Company anticipates that these pricing pressures will
continue in the future. During 2003, the Company did not experience any
significant pricing changes for its products. 12




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Gross profit as a percentage of sales increased to 54.5% in 2003 from
53.4% in 2002 due primarily to changes in the product sales mix. Selling,
general and administrative expenses increased $1,157,034 or
16.9% in 2003 over 2002 (40.6% of net sales in 2003 versus 36.9% of net sales
in 2002). This increase was due primarily to expenses related to the merger
negotiations of approximately $688,000 and to increases in sales support
costs related to field sales activities in the United States market of approximately
$244,000. In addition, during 2003, an unfavorable foreign exchange impact
caused an increase in reported expenses of approximately $220,000. Research and development costs increased $323,168 or 17.5% (11.0% of net
sales in 2003 versus 9.9% of net sales in 2002) primarily due to increased
expenses in 2003 for ongoing development projects with the Companys allergy
product line, expenses associated with the Companys agreement with Bayer
Diagnostics and recruitment expenses. In addition, included in 2002 were
non-recurring severance costs related to the termination of a senior member of
management of approximately $189,000. Operating income decreased $625,713 or 51.4% in 2003 when compared to
2002. This decrease was due primarily to expenses related to the merger
negotiations of approximately $688,000. Interest income decreased $9,684 or 5.6% in 2003 over the prior year
primarily as a result of the sale and transfer of approximately $2,255,000 in
long-term bonds to money market accounts with lower interest rates. Interest
expense decreased approximately $36,341 or 87.6% in 2003 from the prior year
due to the payment of the long-term debt balances early in the first quarter of
2003. The tax provision for the 12 months ended December 31, 2003 reflects the
provision for federal, state and foreign liabilities. The Companys effective
tax rate differs from the statutory rate primarily due to a foreign tax rate
differential and a reversal of approximately $1,786,000 of its $2,695,000
valuation allowance on its deferred tax assets. The reversal of the valuation
allowance resulted in an income tax benefit of approximately $1,329,000 in 2003
compared to income tax expense of approximately 193,000 in 2002. This reversal
is the result of the Companys recent sustained history of U.S. operating
profitability and the determination by management that the future realization
of the U.S. net deferred tax assets was judged to be more likely than not.
Without the benefit of the valuation allowance reversal the Companys effective
tax rate would have been approximately 6.4% in 2003 compared to 13.3% in 2002.
(See Note 7 to the Consolidated Financial Statements.) 2002 Compared to 2001Overall, 2002 net sales increased $1,277,883 or 7.4% when
compared to 2001. Sales of Urinalysis and Clinical Immunology product lines
increased $1,444,000 or 8.9% compared to 2001, while sales of other products
decreased $166,000 or 14.5% over the same period. The increase in sales was
primarily the result of increased sales in the Allergy product line due to
increased volumes with pre-existing long-term accounts and increasing
purchasing activity from additional HYTEC placements in clinical laboratories
within the last 12 months. (See Note 11 to the Consolidated Financial Statements.) 13




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##### Table of Contents



Sales in the year 2002 were also affected by the weakening dollar
resulting in a positive foreign exchange impact to foreign sales of
approximately 4.8%. This resulted in an increase to consolidated reported
sales of approximately $223,000 or 1.2% when compared to 2001. Additionally,
continued pressures in the health care industry for cost controls affect the
Companys revenue and the Company anticipates that these pricing pressures will
continue in the future. Gross profit as a percentage of sales decreased to 53.4% in 2002 from
55.2% in 2001 due primarily to changes in the product sales mix with a higher
percentage of sales coming from our allergy products, which typically have
lower margins than urinalysis products. Selling,
general and administrative expenses increased $87,000 or 1.3% in
2002 over 2001 (36.9% of net sales in 2002 versus 39.1% of net sales in 2001).
Spending in 2002 remained relatively flat
compared to 2001. However an unfavorable foreign exchange impact caused
an increase of approximately $86,000. In addition, the implementation of SFAS
No. 142, Goodwill and Other Intangible Assets, had a favorable impact of
approximately $132,000 from the elimination of goodwill amortization in 2002. Research and development costs decreased $94,501 or 4.9% (9.9% of net
sales in 2002 versus 11.2% of net sales in 2001) primarily due to a reduced
number of research and development projects as compared to the prior year. Interest
income increased $32,288 or 22.9% in 2002 over the prior year due
to increased average monthly balances in cash and investments during the year
partially offset by lower average interest rates. Interest expense decreased
$12,852 or 23.7% in 2002 from the prior year due to declining interest rates in
2002. The tax provision for the 12 months ended December 31, 2002 reflects the
provision for federal, state and foreign liabilities. The Companys effective
tax rate differs from the statutory rate primarily due to a foreign tax rate
differential and a reduction in the valuation allowance due to the utilization
of net operating loss carryforwards. (See Note 7 to the Consolidated Financial
Statements.) Financial Condition and Liquidity The
Companys working capital increased approximately $808,000 from
$11,740,000 at December 31, 2002 to $12,548,000 at December 31, 2003, primarily
as a result of profitable operations offset by the payment of the outstanding
balance of $1,000,000 on the Companys line of credit in January 2003. The
reduction in inventory levels of approximately $461,000 was offset by the increase in current
deferred tax assets of approximately $437,000. This deferred tax asset was created as a
result of the reversal of the valuation allowance on a portion of the deferred
tax assets. (See Note 7 to the Consolidated Financial Statements.) Total capital expenditures during fiscal 2003 and fiscal 2002 were
approximately $586,000 and $609,000, respectively. Capital spending during
fiscal 2003 and fiscal 2002 included approximately $250,000 and $300,000 for
reagent rental equipment, respectively, and $200,000 in each year for tooling
and test equipment utilized in the Companys manufacturing and research and
development areas. For fiscal 2004, the Company currently anticipates capital
spending on property and equipment to be in the range of $500,000 to $600,000. 14




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The Company reduced its allowance for doubtful accounts by $24,000 and
$93,000 in 2003 and 2002, respectively. Hycors routine reserve analysis,
based on a specific account review and calculated percentage review, determined
that the accounts receivable reserve required these downward adjustments. During 2003, cash provided by investing activities increased over 2002
because the Company sold investments with an aggregate book value of $2,225,790
for total cash proceeds of $2,292,595 resulting in a net realized gain of
$66,805. During 2002, the Company sold investments with an aggregate book
value of $911,986 for total cash proceeds of $908,547, resulting in a net
realized loss of $3,439. The Companys principle capital commitments are for lease payments under
non-cancelable operating leases. Additionally, the HYTEC business requires
the purchase of instruments, which in many cases are placed in use in
laboratories of the Companys direct customers and paid for over an agreed
contract period through the purchase of test reagents. This reagent rental
sales program, common to the diagnostic market, creates negative cash flows in
the initial years. The Company has a line of credit that provides for borrowings of up to
$2,000,000 and expires on July 1, 2004. The line of credit is collateralized
by the Companys accounts receivable, inventories, and property and equipment.
At December 31, 2003, the Company had no outstanding advances under the line of
credit and does not expect to renew it. Advances under the line of credit bear
interest at the prime rate or at LIBOR plus 2% (3.17% as of
December 31, 2003), payable
monthly, with the principal due at maturity. During 2003, the applicable
outstanding interest rate was 3.87%. The line of credit contains restrictive
covenants, the most significant of which relate to the maintenance of minimum
tangible net worth, debt-to-tangible net worth requirements and liquid assets
plus accounts receivable-to-current liabilities requirements. At December 31,
2003, the Company was in compliance with such covenants. In addition, in the normal course of operations, the Company enters into
purchase obligations with various vendors and suppliers of various key raw
materials and other goods and services through purchase orders or other
documentation. Such obligations are generally outstanding for periods less
than a year and are settled by cash payments upon delivery of goods and
services. The purchase commitments covered by these various key raw materials
and other goods and services aggregate approximately $696,000 for 2004. The following table summarizes the approximate future minimum payments
under the above contractual obligations at December 31, 2003: Payment Due by PeriodLess than
    
    13
    
    45
    
    After 5Capital Commitments
    
    Total
    
    1 Year
    
    Years
    
    Years
    
    YearsOperating Leases
    
    $
    2,841,000
    
    
    $
    861,000
    
    
    $
    1,407,000
    
    
    $
    573,000
    
    
    
    The Supply Agreement
    
    
    162,000
    
    
    
    162,000Other Purchase Commitments
    
    
    696,000
    
    
    
    696,000
    
    
    
    
    
    
    
    
    
    
    
    Total Capital Commitments
    
    $
    3,699,000
    
    
    $
    1,719,000
    
    
    $
    1,407,000
    
    
    $
    573,000
    
    
    
    
 15




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In the past, the Company has generally funded our capital expenditures and
working capital requirements with cash flows from operations and funds
available to us under the line of credit. The Company expects to fund future
capital expenditures and working capital needs with cash flows from operations. In October 2002, the Board of Directors authorized the repurchase of up to
an aggregate of 1,000,000 shares of the Companys outstanding common stock. As
of December 31, 2003, 11,500 shares of the Companys common stock had been
purchased at an average cost of $1.77 per share for a total of $20,404. The
following schedule summarizes the Companys repurchase program: Year Ended December 31,2003
    
    2002Average
    
    
    
    
    
    AverageShares
    
    Cost Per
    
    Shares
    
    Cost PerRepurchased
    
    Share
    
    Repurchased
    
    ShareAuthority Announced in
October 2002
    
    
    
    
    
    
    
    
    
    
    11,500
    
    
    $
    1.77Total
    
    
    
    
    
    
    
    
    
    
    11,500
    
    
    $
    1.77
 Indemnification and Guarantees The Company has entered into employment contracts with each of the
Companys five officers. These contracts generally provide for severance
benefits if the officer is terminated by the Company for convenience or by the
officer for substantial cause. In addition, in order to assure that the
officers would continue to provide independent leadership consistent with the
Companys best interests in the event of an actual or threatened change in
control of the Company, the contracts also generally provide four of the
officers with certain protections in the event of such a change in control.
Two of the contracts provide certain benefits in the event of a change of
control only and two of the contracts provide certain benefits in the event of
a change of control and the occurrence of other specified contingencies. Such
obligations are not included in the table of contractual obligations set forth
above. In the event the proposed transaction with Stratagene Holding
Corporation is completed, the Company will incur severance obligations of
approximately $1.5 million that are included in the expected merger related
costs disclosed above under the heading Execution of Agreement. New Accounting Pronouncements Information regarding recent accounting pronouncements is contained in
Note 2 to the Consolidated Financial Statements for the year ended December 31,
2003, which note is incorporated herein by this reference and is included as
part of Item 8., Financial Statements and Supplementary Data, to this Form
10-K. RISK FACTORS This report contains forward-looking statements that involve risks and
uncertainties. The Companys actual results could differ materially from those
discussed in these statements. Factors that could contribute to these
differences include those discussed below and elsewhere in this annual 16




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report.
The cautionary statements made in this annual report should be read as being
applicable to all forward-looking statements wherever they appear. The
Companys operations are subject to a variety of risks and uncertainties, and
the following risk factors are not to be considered a definitive list of all
risks associated with its operations. Dependence On Distributors And Limited Direct Sales Resources The Company relies upon third-party distributors, as well as its own sales
force, to distribute its products. If the Company loses one or more of these
distributors and cannot arrange suitable alternatives, its business could be
adversely affected. The Company currently has limited resources in direct
sales, and in the marketing and distribution of its products. Competition Many of the Companys competitors in its current and target markets,
particularly allergy diagnostic products, have superior technology, greater
financial, operational, sales and marketing, and research and development
resources than the Company does. Ability To Secure And Maintain Intellectual Property Protection The Company will be able to protect its proprietary rights from
unauthorized use by third parties only to the extent that the Companys
technologies are protected by valid and enforceable patents or are effectively
maintained as trade secrets. The patent positions of medical diagnostic
companies, including the Companys patent positions, can be highly uncertain
and involve complex legal and factual questions and, therefore, enforceability
cannot be predicted with certainty. The medical diagnostic product industry is
characterized by extensive litigation regarding patents and other intellectual
property rights because of the uncertainty in the breadth of patent coverage
for inventions, technologies and products for medical diagnostic product
inventions. Impact Of Foreign Currency Fluctuations In 2003, the Company derived approximately 26% of its sales from its
foreign operations. Sales and expenses of the Companys foreign operations are
conducted in local currency. As a result, the Company is exposed to market
risk related to interest rates and foreign currency exchange rate fluctuations.
The Company recognizes foreign currency gains or losses arising from its
operations in the period incurred. As a result, currency fluctuations between
the U.S. dollar and the currencies in which the Company does business could
adversely affect its results of operations. In addition, approximately 9.6% of the Companys net sales in 2003 were
exported from the United States. Several of the international markets in which
the Company sells its products have experienced a strengthening in their
currencies in the last year. The Companys foreign customers for these export
sales currently pay for the Companys products with U.S. dollars. The
weakening of the U.S. dollar as compared to the local currencies effectively
decreased the cost of the Companys products to these customers. If the U.S.
dollar were to strengthen against these currencies, it would effectively
increase the cost of the Companys products in the foreign countries and make
them less attractive to such customers. Accordingly, changes in exchange
rates, and in particular a strengthening U.S. dollar, may negatively impact
future sales and gross margins. The Company cannot predict the effects of exchange rate fluctuations upon
its future operating results because of the number of currencies involved, the
variability of currency exposures and the potential volatility of currency
exchange rates. 17




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##### Table of Contents



Fluctuations In Quarterly Results Of Operations The Companys quarterly revenue and operating results have fluctuated in
the past and are likely to do so in the future. These fluctuations could cause
the Companys stock price to fluctuate significantly or decline. Use Of Hazardous Materials The Companys research and development processes involve the controlled
use of hazardous materials, including chemical, radioactive and biological
materials. The Companys operations also generate potentially hazardous waste.
Federal, state, local and foreign laws and regulations govern the use,
manufacture, storage, handling and disposal of these materials. The Company
cannot eliminate entirely the risk of contamination or the discharge of
hazardous materials and any resultant injury from these materials. In
addition, compliance with applicable environmental laws and regulations may be
costly, and current or future environmental regulations may impair the
Companys research, development or production efforts. Dependence On Key Personnel Due to the specialized nature of the Companys business, it is highly
dependent on the continued service of its executive officers and other key
management, scientific and technical personnel. The loss of any of these
persons would adversely affect the Companys business. The Companys success
will also depend in large part upon its ability to continue to attract, retain
and motivate qualified scientific and technical personnel with advanced degrees
and technical research and manufacturing skills. The competition for qualified
personnel is intense. If the Company cannot attract, retain and motivate such
qualified personnel, its business will be adversely affected. 
 Item 7a. Quantitative and Qualitative Disclosures about Market Risk The Companys financial instruments include cash and cash equivalents and
investments. At December 31, 2003, the carrying values of the Companys
financial instruments approximated their fair values based on current market
prices and rates. The Company is exposed to a number of market risks in the ordinary course
of business. These risks, which include foreign currency exchange risk and
interest rate risk, arise in the normal course of business rather than from
trading. Aside from the operations of the Companys subsidiaries in Germany
and Scotland, it does not transact business in foreign currencies. At the
present time, the Company does not have any hedging programs in place and it is
not trading in any financial or derivative instruments. Foreign Currency The Companys international sales expose it to foreign currency risk in
the ordinary course of its business. Approximately 26% of the Companys net
sales in fiscal 2003 were generated by the Companys foreign subsidiaries
(Foreign Subs). The financial position and results of operations of the
Foreign Subs are measured using the local currency as the functional currency.
The Foreign Subs sell product in various European currencies that are collected
at future dates and purchase raw materials and finished goods in both U.S.
dollars and other European currencies. Accordingly, the Company is exposed to
transaction gains and losses that could result from changes in foreign currency 18




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##### Table of Contents



exchange rates. Realized gains and losses from foreign currency transactions
are included in operations as incurred. For financial reporting purposes, the Foreign Subs statements of
operations are translated from the local currency into U.S. dollars at the
exchange rates in effect during the reporting period. When the local currency
strengthens compared to the U.S. dollar, there is a positive effect on the
Foreign Subs sales as reported in the Companys Consolidated Financial
Statements. Conversely, when the U.S. dollar strengthens, there is a negative
effect. In fiscal 2003, the net impact to the Companys reported sales from
the effect of exchange rate fluctuations from 2002 was an increase of
approximately $682,000. In 2002, the net impact of the Companys reported
sales from the effect of the exchange rate fluctuations was an increase of
approximately $223,000. Assets and liabilities of the subsidiaries are translated at the exchange
rate in effect at each year-end. Translation adjustments arising from
differences in exchange rates from period to period are included in the
accumulated other comprehensive loss account in stockholders equity. At
December 31,
2003, the accumulated other comprehensive loss was approximately
($407,000), which included the cumulative effect of foreign currency
translation adjustments of approximately ($419,000). Certain countries in which the Company operates adopted the Euro as a
legal currency effective January 1, 1999. Euro notes and coins came into
circulation after a three-year transition period on January 1, 2002. The
Company has not experienced any significant operational disruptions to date due
to the Euro conversion and does not currently expect the continued
implementation of the Euro to cause any significant operational disruptions. Interest Rates Advances under the Companys line of credit bear interest at the prime
rate or at LIBOR plus 2% (3.17% as of December 31, 2003). During 2003, the applicable
outstanding interest rate was 3.87%. At December 31, 2003, the Company had no
outstanding advances under the line of credit. The Companys cash and equivalents are generally invested in money market
accounts and short-term debt instruments of highly rated credit issuers. The
Company limits the amount of credit exposure to any one issuer and seeks to
improve the safety and likelihood of preservation of its invested funds by
limiting default risk and market risk. Based on the Companys short-term
investment portfolio at December 31, 2003, the Company believes that a 10% rise
or fall in interest rates would result in an increase or decrease in its
interest income for the year of approximately $2,000. The Companys interest income on longer-term investments is dependent on
the interest rate attributable primarily to the debt securities purchased by
the Company. Since the Company generally holds these securities to maturity,
changes in interest rates are not expected to have a material impact on the
value of the Companys portfolio. During 2003, in anticipation of the expenses
associated with the expected merger with Stratagene, the Company sold
investments with an aggregate book value of approximately $2,226,000. 19




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##### Table of Contents



Item 8. Financial Statements and Supplementary Data The following documents are filed as part of this report: Page NumberIndependent Auditors Report
    
    
    21Consolidated Balance Sheets as of
December 31, 2003 and 2002
    
    
    22-23Consolidated Statements of Income and
Comprehensive Income for the years
ended December 31, 2003, 2002 and 2001
    
    
    24Consolidated Statements of Stockholders
Equity for the years ended December 31,
2003, 2002 and 2001
    
    
    25Consolidated Statements of Cash Flows
for the years ended December 31,
2003, 2002 and 2001
    
    
    26-27Notes to Consolidated Financial Statements
for the years ended December 31,
2003, 2002 and 2001
    
    
    28-41
 20




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##### Table of Contents



INDEPENDENT AUDITORS REPORT The Board of Directors and Stockholders
Hycor Biomedical Inc.
Garden Grove, California We have audited the accompanying consolidated balance sheets of Hycor
Biomedical Inc. and subsidiaries (the Company) as of December 31, 2003 and
2002, and the related consolidated statements of income and comprehensive
income, stockholders equity, and cash flows for each of the three years in the
period ended December 31, 2003. Our audits also included the financial
statement schedule listed in the index at Item 15(a)(2). These financial
statements and financial statement schedule are the responsibility of the
Companys management. Our responsibility is to express an opinion on these
financial statements and financial statement schedule based on our audits. We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes 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, such consolidated financial statements present fairly, in all
material respects, the financial position of Hycor Biomedical Inc. and
subsidiaries as of December 31, 2003 and 2002, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 2003 in conformity with accounting principles generally accepted
in the United States of America. Also, in our opinion, the related financial
statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly, in all material respects, the
information set forth therein. As discussed in Note 9 to the
consolidated financial statements, in 2002 the Company changed
its method of accounting for goodwill and intangible assets. /s/ Deloitte & Touche LLP Costa Mesa, California
March 26, 2004 21




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##### Table of Contents



HYCOR BIOMEDICAL INC. AND SUBSIDIARIES 
 CONSOLIDATED BALANCE SHEETS DECEMBER 31, 2003 AND 2002 ASSETS
    
    2003
    
    2002CURRENT ASSETS:Cash and cash equivalents
    
    $
    4,928,995
    
    
    $
    1,667,181Investments
    
    
    1,692,486
    
    
    
    3,791,188Accounts receivable, net of allowance for
doubtful accounts of $66,583 (2003) and
$90,598 (2002)
    
    
    2,916,963
    
    
    
    2,785,556Inventories
    
    
    4,780,861
    
    
    
    5,241,984Prepaid expenses and other current assets
    
    
    211,550
    
    
    
    286,268Deferred income taxes
    
    
    436,708
    
    
    
    Total current assets
    
    
    14,967,563
    
    
    
    13,772,177PROPERTY AND EQUIPMENT, at cost:Leasehold improvements
    
    
    1,962,452
    
    
    
    1,924,424Machinery and equipment
    
    
    6,761,003
    
    
    
    6,040,007Furniture, fixtures and office equipment
    
    
    1,997,852
    
    
    
    1,931,15810,721,307
    
    
    
    9,895,589Accumulated depreciation and amortization
    
    
    (8,641,716
    )
    
    
    (7,617,573
    )Property and equipment, net
    
    
    2,079,591
    
    
    
    2,278,016GOODWILL
    
    
    156,338
    
    
    
    156,338DEFERRED INCOME TAXES
    
    
    1,349,151
    
    
    
    INTANGIBLES AND OTHER ASSETS, net of
accumulated amortization of $238,408 (2003) and $293,463 (2002)
    
    
    79,786
    
    
    
    88,392Total assets
    
    $
    18,632,429
    
    
    $
    16,294,923
 See notes to consolidated financial statements 22




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##### Table of Contents



HYCOR BIOMEDICAL INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS DECEMBER 31, 2003 AND 2002 LIABILITIES AND STOCKHOLDERS EQUITY
    
    2003
    
    2002CURRENT LIABILITIES:Accounts payable
    
    $
    583,952
    
    
    $
    461,317Accrued liabilities
    
    
    598,703
    
    
    
    587,524Accrued payroll expenses
    
    
    968,489
    
    
    
    890,349Current portion of long-term debt
    
    
    
    
    
    
    2,028Accrued income taxes
    
    
    268,913
    
    
    
    90,672Total current liabilities
    
    
    2,420,057
    
    
    
    2,031,890Long-term
debtnet of current portion
    
    
    
    
    
    
    1,000,000Total liabilities
    
    
    2,420,057
    
    
    
    3,031,890COMMITMENTS AND CONTINGENCIES (Note 10)STOCKHOLDERS EQUITY:Preferred stock, $0.01 par value;
authorized  3,000,000 shares;
none outstanding
    
    
    
    
    
    
    Common stock, $0.01 par value;
authorized  20,000,000 shares;
issued and outstanding: 8,109,222
shares in 2003 and 8,049,068 shares in 2002
    
    
    81,092
    
    
    
    80,491Paid-in capital
    
    
    13,466,669
    
    
    
    12,908,133Retained earnings
    
    
    3,071,863
    
    
    
    909,492Accumulated other comprehensive loss
    
    
    (407,252
    )
    
    
    (635,083
    )Total stockholders equity
    
    
    16,212,372
    
    
    
    13,263,033Total liabilities and stockholders equity
    
    $
    18,632,429
    
    
    $
    16,294,923
 See notes to consolidated financial statements 23




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##### Table of Contents



HYCOR BIOMEDICAL INC. AND SUBSIDIARIES 
 CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001 2003
    
    2002
    
    2001NET SALES
    
    $
    19,757,033
    
    
    $
    18,590,509
    
    
    $
    17,312,626COST OF SALES
    
    
    8,981,751
    
    
    
    8,669,716
    
    
    
    7,757,372Gross profit
    
    
    10,775,282
    
    
    
    9,920,793
    
    
    
    9,555,254OPERATING EXPENSES:Selling, general, and administrative
    
    
    8,015,382
    
    
    
    6,858,348
    
    
    
    6,771,526Research and development
    
    
    2,168,874
    
    
    
    1,845,706
    
    
    
    1,940,207Impairment loss on long-lived assets
    
    
    
    
    
    
    
    
    
    
    722,773Total operating expenses
    
    
    10,184,256
    
    
    
    8,704,054
    
    
    
    9,434,506OPERATING INCOME
    
    
    591,026
    
    
    
    1,216,739
    
    
    
    120,748INTEREST EXPENSE
    
    
    (5,139
    )
    
    
    (41,480
    )
    
    
    (54,332
    )INTEREST INCOME
    
    
    163,470
    
    
    
    173,154
    
    
    
    140,866GAIN (LOSS) FROM SALE OF INVESTMENTS
    
    
    66,805
    
    
    
    (3,439
    )
    
    
    (8,766
    )GAIN (LOSS) ON FOREIGN CURRENCY TRANSACTIONS
    
    
    17,209
    
    
    
    104,754
    
    
    
    (87,247
    )INCOME BEFORE INCOME TAX
PROVISION
    
    
    833,371
    
    
    
    1,449,728
    
    
    
    111,269INCOME TAX
(BENEFIT) PROVISION
    
    
    (1,329,000
    )
    
    
    193,000
    
    
    
    68,000NET INCOME
    
    $
    2,162,371
    
    
    $
    1,256,728
    
    
    $
    43,269BASIC EARNINGS PER SHARE
    
    $
    0.27
    
    
    $
    0.16
    
    
    $
    0.01DILUTED EARNINGS PER SHARE
    
    $
    0.26
    
    
    $
    0.15
    
    
    $
    0.01CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOMENET INCOME
    
    $
    2,162,371
    
    
    $
    1,256,728
    
    
    $
    43,269OTHER COMPREHENSIVE INCOME, NET OF TAXForeign currency translation adjustments
    
    
    293,247
    
    
    
    196,193
    
    
    
    (74,027
    )Unrealized (losses) gains on securities
    
    
    (8,630
    )
    
    
    8,745
    
    
    
    81,223Plus: reclassification adjustment for (gains) losses included in
net income
    
    
    (56,786
    )
    
    
    3,222
    
    
    
    8,149OTHER COMPREHENSIVE INCOME, NET OF TAX
    
    
    227,831
    
    
    
    208,160
    
    
    
    15,345COMPREHENSIVE INCOME
    
    $
    2,390,202
    
    
    $
    1,464,888
    
    
    $
    58,614
 See notes to consolidated financial statements 24




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##### Table of Contents



HYCOR BIOMEDICAL INC. AND SUBSIDIARIES 
 
 Common Stock
    
    
    
    
    
    RetainedEarnings
    
    AccumulatedOtherNumber of
    
    Par
    
    Paid-in
    
    (Accumulated
    
    ComprehensiveShares
    
    Value
    
    Capital
    
    Deficit)
    
    Income (Loss)
    
    TotalBALANCE AT JANUARY 1, 2001
    
    
    7,738,858
    
    
    $
    77,389
    
    
    $
    12,640,536
    
    
    $
    (390,505
    )
    
    $
    (858,588
    )
    
    $
    11,468,832ISSUANCE OF COMMON STOCK,
UNDER EMPLOYEE BENEFIT
PLANS
    
    
    171,275
    
    
    
    1,712
    
    
    
    219,643
    
    
    
    
    
    
    
    
    
    
    
    221,355EXERCISE OF COMMON STOCK
WARRANTS
    
    
    108,064
    
    
    
    1,081
    
    
    
    (1,081
    )
    
    
    
    
    
    
    
    
    
    
    NET INCOME
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    43,269
    
    
    
    
    
    
    
    43,269OTHER COMPREHENSIVE INCOME
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    15,345
    
    
    
    15,345BALANCE AT DECEMBER 31, 2001
    
    
    8,018,197
    
    
    
    80,182
    
    
    
    12,859,098
    
    
    
    (347,236
    )
    
    
    (843,243
    )
    
    
    11,748,801ISSUANCE OF COMMON STOCK,
UNDER EMPLOYEE BENEFIT
PLANS
    
    
    42,371
    
    
    
    424
    
    
    
    69,324
    
    
    
    
    
    
    
    
    
    
    
    69,748COMMON STOCK PURCHASED
(Note 6)
    
    
    (11,500
    )
    
    
    (115
    )
    
    
    (20,289
    )
    
    
    
    
    
    
    
    
    
    
    (20,404
    )NET INCOME
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,256,728
    
    
    
    
    
    
    
    1,256,728OTHER COMPREHENSIVE INCOME
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    208,160
    
    
    
    208,160BALANCE AT
DECEMBER 31, 2002
    
    
    8,049,068
    
    
    
    80,491
    
    
    
    12,908,133
    
    
    
    909,492
    
    
    
    (635,083
    )
    
    
    13,263,033ISSUANCE OF COMMON STOCK,
UNDER EMPLOYEE BENEFIT
PLANS
    
    
    60,154
    
    
    
    601
    
    
    
    131,177
    
    
    
    
    
    
    
    
    
    
    
    131,778REVERSAL OF DEFERRED INCOME
TAX VALUATION ALLOWANCE
    
    
    
    
    
    
    
    
    
    
    427,359
    
    
    
    
    
    
    
    
    
    
    
    427,359NET INCOME
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,162,371
    
    
    
    
    
    
    
    2,162,371OTHER COMPREHENSIVE INCOME
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    227,831
    
    
    
    227,831BALANCE AT DECEMBER 31, 2003
    
    
    8,109,222
    
    
    $
    81,092
    
    
    $
    13,466,669
    
    
    $
    3,071,863
    
    
    $
    (407,252
    )
    
    $
    16,212,372
 See notes to consolidated financial statements 25




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##### Table of Contents



HYCOR BIOMEDICAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001 2003
    
    2002
    
    2001CASH FLOWS FROM OPERATING ACTIVITIES:Net income
    
    $
    2,162,371
    
    
    $
    1,256,728
    
    
    $
    43,269Adjustments to reconcile net income to net cash provided by
operating activities:Depreciation and amortization
    
    
    894,440
    
    
    
    949,296
    
    
    
    1,126,280Impairment loss on long-lived assets
    
    
    
    
    
    
    
    
    
    
    722,773Deferred income tax provision
    
    
    (1,358,500
    )
    
    
    
    
    
    
    20,788Provision for doubtful accounts receivable
    
    
    (1,017
    )
    
    
    (25,423
    )
    
    
    101,924Provision for excess and obsolete inventories
    
    
    77,221
    
    
    
    125,857
    
    
    
    270,040(Gain) loss on sales of investments
    
    
    (66,805
    )
    
    
    3,439
    
    
    
    8,766Change in
assets and liabilitiesnet of
foreign currency adjustments:Accounts receivable
    
    
    5,365
    
    
    
    (40,898
    )
    
    
    472,683Inventories
    
    
    553,599
    
    
    
    533,193
    
    
    
    (1,344,016
    )Prepaid expenses and other current assets
    
    
    88,497
    
    
    
    (52,305
    )
    
    
    80,304Accounts payable
    
    
    105,522
    
    
    
    15,062
    
    
    
    (147,520
    )Accrued liabilities
    
    
    (8,606
    )
    
    
    92,224
    
    
    
    (199,289
    )Accrued payroll expenses
    
    
    64,236
    
    
    
    196,780
    
    
    
    (309,232
    )Income taxes payable
    
    
    178,840
    
    
    
    (22,546
    )
    
    
    58,323Total adjustments
    
    
    532,792
    
    
    
    1,774,679
    
    
    
    861,824Net cash provided by operating activities
    
    
    2,695,163
    
    
    
    3,031,407
    
    
    
    905,093CASH FLOWS FROM INVESTING ACTIVITIES:Purchases of investments
    
    
    (232,753
    )
    
    
    (2,973,920
    )
    
    
    (264,375
    )Proceeds from sales of investments
    
    
    2,292,595
    
    
    
    908,547
    
    
    
    253,745Purchases of property and equipment
    
    
    (585,757
    )
    
    
    (608,720
    )
    
    
    (467,811
    )Purchases of intangible assets
    
    
    
    
    
    
    (575
    )
    
    
    (7,684
    )Proceeds from sales of property and equipment
    
    
    
    
    
    
    25,243
    
    
    
    450Net cash provided by (used in) investing activities
    
    
    1,474,085
    
    
    
    (2,649,425
    )
    
    
    (485,675
    )CASH FLOWS FROM FINANCING ACTIVITIES:Principal payments on long-term debt
    
    
    (1,002,028
    )
    
    
    (26,692
    )
    
    
    (54,147
    )Proceeds from issuance of common stock under employee
stock purchase plans
    
    
    131,778
    
    
    
    69,748
    
    
    
    221,355Purchases of Hycor common stock
    
    
    
    
    
    
    (20,404
    )
    
    
    Net cash (used in) provided by financing activities
    
    
    (870,250
    )
    
    
    22,652
    
    
    
    167,208EFFECT OF EXCHANGE RATE CHANGES ON CASH
    
    
    (37,184
    )
    
    
    (91,787
    )
    
    
    72,944INCREASE IN CASH AND CASH EQUIVALENTS
    
    
    3,261,814
    
    
    
    312,847
    
    
    
    659,570CASH AND
CASH EQUIVALENTSBeginning of year
    
    
    1,667,181
    
    
    
    1,354,334
    
    
    
    694,764CASH AND
CASH EQUIVALENTSEnd of year
    
    $
    4,928,995
    
    
    $
    1,667,181
    
    
    $
    1,354,334
 See notes to consolidated financial statements 26




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##### Table of Contents



HYCOR BIOMEDICAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001 2003
    
    2002
    
    2001SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION-Cash paid during the year   interest
    
    $
    3,954
    
    
    $
    41,502
    
    
    $
    76,992 income taxes
    
    $
    25,215
    
    
    $
    263,309
    
    
    $
    35,116
 See notes to consolidated financial statements 27




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##### Table of Contents



HYCOR BIOMEDICAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2003, 2002 and 2001 NOTE 1: DESCRIPTION OF BUSINESS Description of BusinessHycor Biomedical Inc. (Hycor or the Company) is
engaged in developing, manufacturing and marketing medical diagnostic
products. The Companys products are primarily used in the clinical laboratory
and specialty physician markets in the United States and Europe. The majority
of sales are through independent and clinical laboratory distributors. NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of PresentationThe consolidated financial statements have been prepared
in accordance with accounting principles generally accepted in the United
States of America and include the accounts of Hycor Biomedical Inc. and its
wholly owned subsidiaries. All intercompany amounts and transactions have been
eliminated in consolidation. Foreign CurrencyThe financial position and results of operations of the
Companys foreign subsidiaries are measured using the local currency as the
functional currency. Assets and liabilities of the subsidiaries are translated
at the exchange rate in effect at each year-end. Income statement accounts are
translated at the average rate of exchange prevailing during the year.
Translation adjustments arising from differences in exchange rates from period
to period are included in the accumulated other comprehensive loss account in
stockholders equity. Realized gains or losses from foreign currency
transactions are included in operations as incurred. Cash EquivalentsCash equivalents are deemed to be highly liquid investments
with an original maturity of three months or less. InvestmentsThe Company accounts for investments pursuant to Statement of
Financial Accounting Standards (SFAS) No. 115, Accounting for Certain
Investments in Debt and Equity Securities. At December 31, 2003 and 2002,
marketable debt securities have been categorized as available for sale and, as
a result, are stated at fair value. Marketable debt securities available for
current operations are classified in the consolidated balance sheet as current assets.
Unrealized holding gains and losses are included as a component of accumulated
other comprehensive income (loss), net of tax, until realized. Credit RiskMost of the Companys business activity is with medical products
distributors that are primarily located in the United States and Europe. The
Company grants normal trade credit to customers without requiring collateral or
other security. The Company maintains reserves for potential credit losses,
and those losses have been within managements expectations. InventoriesInventories are valued at the lower of the actual cost to purchase
and/or manufacture the inventory or the current estimated market value of the
inventory. The Company regularly reviews inventory quantities on hand and
records a provision for excess and obsolete inventory on specifically
identified items based primarily on an estimated forecast of product demand and
production requirements. The Companys losses from disposal of excessive and
obsolete inventories have historically been within expectations and the
provisions established. 28




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##### Table of Contents



Long-Lived AssetsIn the normal course of business, the Company acquires
tangible and intangible
assets. The Company periodically evaluates the recoverability of the carrying
amount of its long-lived assets (including property and equipment, goodwill and
other intangible assets) whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be fully recoverable. Impairment
is assessed when the undiscounted future cash flows estimated to be derived
from an asset are less than its carrying amount. Impairments are recognized in
operating earnings. The Company uses its best judgment based on the most
current facts and circumstances surrounding its business when applying these
impairment rules to determine the timing of the impairment test, the
undiscounted cash flows used to assess impairments, and the fair value of a
potentially impaired asset. Changes in assumptions used could have a
significant impact on the Companys assessment of recoverability. Numerous factors, including changes in the Companys business, industry
segment, and global economy, could significantly impact managements decision
to retain, dispose of, or idle certain of its long-lived assets. No impairment
existed as of December 31, 2003. Property and EquipmentProperty and equipment are recorded at cost.
Depreciation is computed using the straight-line method over the assets
estimated useful lives that range from 3 to 20 years. Leasehold improvements
are amortized over the life of the lease. Maintenance, repairs and minor
renewals are charged to expense as incurred. Additions and improvements are
capitalized. Goodwill and Other Intangible AssetsGoodwill represents the excess of purchase
price over the fair market value of tangible and identifiable intangible assets
resulting from business acquisitions. Other intangible assets include patents,
trademarks, and license fees that are recorded at cost. In
June 2001, the Financial Accounting Standard Board  (FASB)
issued SFAS No. 142, Goodwill and Other Intangible Assets. Under SFAS No.
142, acquired intangible assets must be separately identified. Goodwill and
other intangible assets with indefinite lives are not amortized, but are
reviewed at least annually for impairment. Acquired intangible assets with
definite lives are amortized over their individual useful lives. In accordance
with SFAS No. 142, the goodwill and other intangible assets with indefinite
lives that were being amortized over 10 years follow the non-amortization
approach beginning January 1, 2002. Patents and other intangible assets are
amortized using the straight-line method over periods ranging from 6 to 17
years (See Notes 9 and 12.) Other AssetsOther assets consist primarily of long-term deposits. Comprehensive IncomeComponents of comprehensive income are reported in the
financial statements in the period in which they are recognized. The
components of comprehensive income for the Company include net income, foreign
currency translation adjustments and unrealized gains or losses on marketable
securities. The components of accumulated other comprehensive income, net of
taxes, are as follows: Year Ended December 31,2003
    
    2002Unrealized gain on investments
    
    $
    12,147
    
    
    $
    77,563Equity adjustment from
foreign currency translation
    
    
    (419,399
    )
    
    
    (712,646
    )$
    (407,252
    )
    
    $
    (635,083
    )
 29




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##### Table of Contents



Stock-Based CompensationThe Company accounts for stock-based awards to
employees using the intrinsic value method in accordance with APB Opinion No.
25, Accounting for Stock Issued to Employees. SFAS No. 123,
 Accounting for Stock-Based Compensation, requires the
disclosure of pro forma net income (loss) and net income (loss) per share had
the Company adopted the fair value method. Under SFAS No. 123, the fair value
of stock-based awards to employees is calculated through the use of option
pricing models, even though such models were developed to estimate the fair
value of freely tradable, fully transferable options without vesting
restrictions, which significantly differ from the Companys stock option
awards. These models also require subjective assumptions, including future
stock price volatility and expected time to exercise, which greatly affect the
calculated values. The Companys calculations were made using the
Black-Scholes option-pricing model with the following weighted-average
assumptions: expected life, 72 months; stock volatility, 83% in 2003, 88% in
2002 and 93% in 2001; risk-free interest rates, 3.0% in 2003, 2.8% in 2002
and 5.0% in 2001; and no dividends during the expected term. The Companys
calculations are based on a single option valuation approach, and forfeitures
are recognized as they occur. If the computed fair values of the 2003, 2002
and 2001 awards had been amortized to expense over the vesting period of the
awards, pro forma net income (loss) would have been as follows: 2003
    
    2002
    
    2001Net income as reported
    
    $
    2,162,371
    
    
    $
    1,256,728
    
    
    $
    43,269Stock-based
compensation expensenet of
tax effect
    
    
    210,503
    
    
    
    194,451
    
    
    
    125,379Pro forma net income (loss)
    
    $
    1,951,868
    
    
    $
    1,062,277
    
    
    $
    (82,110
    )Pro forma basic income (loss) per share
    
    $
    0.24
    
    
    $
    0.13
    
    
    $
    (0.01
    )Pro forma diluted income (loss) per share
    
    $
    0.23
    
    
    $
    0.13
    
    
    $
    (0.01
    )
 Income TaxesThe Company accounts for income taxes pursuant to SFAS No. 109,
Accounting for Income Taxes. Accordingly, 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 operating losses
that are available to offset future taxable income and tax credits that are
available to offset future income taxes. 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 also are recognized for differences
between the bases of assets and liabilities for financial and tax reporting
purposes. A valuation allowance reduces deferred tax assets when it is more
likely than not that some portion or all of the deferred tax assets will not
be realized. Revenue RecognitionRevenues from product sales are recognized at the time of
shipment and passage of title. Revenues from customers under distributorship
agreements are also recognized at the time of shipment and passage of title.
No consignment sales, rights of return or other such special terms are in
effect. Earnings Per Share(EPS) Basic EPS is based on the weighted-average number of
shares outstanding during the periods, while diluted EPS additionally includes
the dilutive effect of the Companys outstanding options and warrants computed
using the treasury stock method. The number of shares used in computing
EPS is as follows: 30




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##### Table of Contents



2003
    
    2002
    
    2001Weighted-average number
of shares outstanding
    
    
    8,072,329
    
    
    
    8,034,785
    
    
    
    7,936,392Common stock equivalents
    
    
    392,662
    
    
    
    299,760
    
    
    
    314,5108,464,991
    
    
    
    8,334,545
    
    
    
    8,250,902
 For the years ended December 31, 2003, 2002 and 2001, options outstanding
totaling 962,000 shares, 960,125 shares and 621,875 shares, respectively, were
excluded from the calculations of earnings per common share, as their effect
would have been antidilutive. Use of EstimatesThe preparation of financial statements in conformity with
 accounting principles generally accepted in the United States of
America 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. ReclassificationsCertain items in the 2002 and 2001 consolidated financial
statements have been reclassified to conform to the 2003 presentation. New Accounting Pronouncements
In December 2003, the Securities and Exchange
Commission released Staff Accounting Bulletin (SAB)
No. 104,Revenue Recognition, which supersedes SAB
No. 101, Revenue Recognition in Financial
Statements. SAB No. 104 clarifies existing guidance regarding revenues for
contracts which contain multiple deliverables to make it consistent with
Emerging Issues Task Force (EITF) No. 00-21, Accounting for Revenue
Arrangements with Multiple Deliverables. The adoption of SAB No. 104 did not have
a material impact on the Companys revenue recognition policies, nor its
financial position or results of operations. In January 2003, the FASB issued Interpretation (FIN) No. 46,
Consolidation of Variable Interest Entities and in December 2003, issued
Interpretation No. 46 (revised December 2003) Consolidation of Variable
Interest Entities  An Interpretation of APB No. 51. In general, a variable
interest entity is a corporation, partnership, trust, or any other legal
structure used for business purposes that either (a) does not have equity
investors with voting rights, or (b) has equity investors that do not provide
sufficient financial resources for the entity to support its activities. FIN
No. 46 requires certain variable interest entities to be consolidated by the
primary beneficiary of the entity if the investors in the entity do not have
the characteristics of a controlling financial interest or do not have
sufficient equity at risk for the entity to finance its activities without
additional subordinated financial support from other parties. FIN
No. 46 (R)
clarifies the application of Accounting Research Bulletin (ARB) No. 51,
Consolidated Financial Statements, to certain entities in which equity
investors do not have the characteristics of a controlling financial interest
or do not have sufficient equity at risk for the entity to finance its
activities without subordinated financial support from other parties. The
consolidation requirements of FIN No. 46 apply immediately to variable interest
entities created after January 31, 2003. The consolidation requirements apply
to older entities in the first fiscal year or interim period beginning after
June 15, 2003. Certain of the disclosure requirements apply in all financial
statements issued after January 31, 2003, regardless of when the variable
interest entity was established. FIN No. 46 (R) applies immediately to variable
interest entities created after 31




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##### Table of Contents



December 31, 2003, and to variable interest
entities in which an enterprise obtains an interest after that date. It applies
no later than the first reporting period ending after December 15, 2004, to
variable interest entities in which an enterprise holds a variable interest
(other than special purpose) that it acquired before January 1, 2004. FIN No.
46 (R) applies to public enterprises as of the beginning of the applicable
interim or annual period. The Company believes that the adoption of FIN No. 46
and FIN No. 46 (R) will not have a material impact
on its financial position or results of operations because the Company has
no variable interest entities. In May 2003, the FASB issued SFAS No. 150, Accounting for Certain
Instruments with Characteristics of Both Liabilities and Equity,
which establishes standards for how an issuer classifies and measures certain
financial instruments with characteristics of both liabilities and
equity. SFAS No. 150 requires that an issuer classify a financial instrument that is within its
scope, which may have previously been reported as equity, as a liability (or an
asset in some circumstances). This statement is effective for financial
instruments entered into or modified after May 31, 2003, and otherwise is
effective at the beginning of the first interim period beginning after June 15,
2003 for public companies. In October 2003, the FASB indefinitely deferred
implementation of paragraphs 9 and 10 of SFAS No. 150 regarding parent company
treatment of minority interest for certain limited life entities. The adoption
of SFAS No. 150 did not have a significant impact on the
Companys Consolidated financial
statements. NOTE 3: INVESTMENTS Investments consist principally of corporate debt securities, categorized
as available for sale, with scheduled maturities all within one to six years.
As of December 31, 2003, such investments cost and fair value were $1,678,196
and $1,692,486, respectively. As of December 31, 2002, the cost and fair value
were $3,705,007 and $3,791,188, respectively. Gross unrealized holding gains included in accumulated other comprehensive
income at December 31, 2003 and 2002 were $14,290 and $106,960, offset by
unrealized holding losses of $0 and $20,779, respectively. For the purpose of
determining gross realized gains and losses, the cost of securities sold is
based on specific identification. During 2003, the Company sold investments
with an aggregate book value of $2,225,790 for total cash proceeds of
$2,292,595, resulting in a net realized gain of $66,805. During 2002, the
Company sold investments with an aggregate book value of $911,986 for total
cash proceeds of $908,547, resulting in a net realized loss of $3,439. NOTE 4: INVENTORIES Inventories at December 31, 2003 and 2002 consisted of: 2003
    
    2002Raw materials
    
    $
    1,203,645
    
    
    $
    1,232,950Work-in-process
    
    
    1,878,449
    
    
    
    2,109,407Finished goods
    
    
    1,698,767
    
    
    
    1,899,627$
    4,780,861
    
    
    $
    5,241,984
 32




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##### Table of Contents



NOTE 5: LONG-TERM DEBT The Company has available a $2,000,000 line of credit with a maturity date
of July 1, 2004. Advances under the line of credit are collateralized by the
Companys accounts receivable, inventories, and property and equipment and bear
interest at the prime rate or at LIBOR plus 2% (3.17% as of December
31, 2003). The line of credit contains restrictive covenants, the most significant of
which relate to the maintenance of minimum tangible net worth, debt-to-tangible
net worth requirements, and liquid assets
plus accounts receivable-to-current liabilities requirements. At December
31, 2003, the Company was in compliance with such covenants. During the quarter
ended March 31, 2003, the Company paid the outstanding balance of $1,000,000 on
this line of credit and did not have any amounts outstanding during the
remainder of fiscal 2003. The Company does not expect to renew the line of
credit. NOTE 6: STOCKHOLDERS EQUITY In October 2002, the Board of Directors authorized the repurchase of up to
an aggregate of 1,000,000 shares of the Companys outstanding common stock. As
of December 31, 2003, 11,500 shares of the Companys common stock had been
purchased at an average cost of $1.77 per share for a total of $20,404. NOTE 7: INCOME TAXES The Companys income before income tax provision was subject to taxes in
the following jurisdictions for the following periods: 2003
    
    2002
    
    2001United States
    
    $
    489,226
    
    
    $
    464,136
    
    
    $
    1,261,303Foreign
    
    
    344,145
    
    
    
    985,592
    
    
    
    (1,150,034
    )$
    833,371
    
    
    $
    1,449,728
    
    
    $
    111,269
 33




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##### Table of Contents



The income tax provision
consists of the following at December 31: 2003
    
    2002
    
    2001Current:Federal
    
    $
    329,000
    
    
    $
    167,000
    
    
    $
    35,000State
    
    
    112,000
    
    
    
    16,000
    
    
    
    13,000Foreign
    
    
    16,000
    
    
    
    10,000
    
    
    
    20,000Subtotal
    
    
    457,000
    
    
    
    193,000
    
    
    
    68,000Deferred:Federal
    
    
    498,000
    
    
    
    (428,000
    )
    
    
    624,000State
    
    
    193,000
    
    
    
    (24,000
    )
    
    
    (106,000
    )Foreign
    
    
    117,000
    
    
    
    304,000
    
    
    
    (390,000
    )Change in valuation allowance
    
    
    (2,594,000
    )
    
    
    148,000
    
    
    
    (128,000
    )Subtotal
    
    
    (1,786,000
    )
    
    
    
    
    
    
    Total
    
    $
    (1,329,000
    )
    
    $
    193,000
    
    
    $
    68,000
 A reconciliation of the Companys effective tax rate compared to the
federal statutory tax rate is as follows: 2003
    
    2002
    
    2001Provision computed at federal
statutory rate
    
    $
    284,000
    
    
    $
    493,000
    
    
    $
    38,000Increase (decrease) resulting from:State
taxesnet
    
    
    (240,000
    )
    
    
    11,000
    
    
    
    9,000Research and development credits
    
    
    (28,000
    )
    
    
    (23,000
    )
    
    
    (60,000
    )Intangibles
    
    
    1,000
    
    
    
    3,000
    
    
    
    11,000Meals and entertainment
    
    
    12,000
    
    
    
    7,000
    
    
    
    8,000Foreign rate differential
    
    
    (124,000
    )
    
    
    (174,000
    )
    
    
    Other
    
    
    
    
    
    
    
    
    
    
    13,000Valuation allowance
    
    
    (1,234,000
    )
    
    
    (124,000
    )
    
    
    49,000$
    (1,329,000
    )
    
    $
    193,000
    
    
    $
    68,000
 34




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##### Table of Contents



The components of the Companys deferred income tax benefit as of
December 31, 2003 and 2002 are as follows: 2003
    
    2002Allowance for doubtful accounts
    
    $
    8,000
    
    
    $
    22,000Inventory reserves
    
    
    332,000
    
    
    
    409,000Depreciation
    
    
    138,000
    
    
    
    108,000Accrued payroll
    
    
    76,000
    
    
    
    59,000Tax credits
    
    
    594,000
    
    
    
    966,000Net operating loss carryforwards
    
    
    1,218,000
    
    
    
    1,465,000Deferred state taxes
    
    
    (153,000
    )
    
    
    6,000Unrealized foreign exchange gain
    
    
    
    
    
    
    (65,000
    )Research and development Amortization
    
    
    303,000
    
    
    
    346,000Foreign goodwill and organization cost amortization
    
    
    61,000
    
    
    
    73,000Other
    
    
    118,000
    
    
    
    114,000Subtotal
    
    
    2,695,000
    
    
    
    3,503,000Valuation allowance
    
    
    (909,000
    )
    
    
    (3,503,000
    )Total
    
    $
    1,786,000
    
    
    $
    
 In the quarter ended December 31, 2003, the Company reversed $1,786,000
of its $2,695,000 valuation allowance on its deferred tax assets. The
remaining valuation allowance of $909,000 relates to gross foreign net
operating loss carryforwards of approximately $2.7 million, for which the
Company has determined that a valuation allowance is required due to
circumstances that lead management to believe that the realization of this
deferred tax asset is not likely. Based on the nature of the underlying
deferred tax assets, the reversal of the valuation allowance resulted in an
increase to additional paid-in capital of $427,000 and a net income tax
benefit of $1,359,000. This reversal is the result of the Companys recent
sustained history of U.S. operating profitability and the determination by
management that the future realization of the U.S. net deferred tax assets
was judged to be more likely than not. The Company exercises significant
judgment relating to the projection of future taxable income to determine the
recoverability of any tax assets recorded on the balance sheet. If judgments
regarding recoverability of deferred tax assets are not accurate, the Company
could be required to record additional reserves against deferred tax assets
in future periods. As of December 31, 2003, the Company has approximately $830,000 of federal
net operating loss carryforwards. Utilization of a portion of the federal net
operating losses has been limited, due to a change in ownership, to
approximately $100,000 per year by Internal Revenue Code Section 382, with the
remainder beginning to expire in 2008. In addition, the Company has foreign
net operating loss carryforwards of approximately $2.7 million, which have no
expiration. 35




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##### Table of Contents



NOTE 8: EMPLOYEE BENEFIT PLANS Stock Option PlansOn
February 23, 2001, the Board of Directors adopted the
Hycor Biomedical Inc. 2001 Incentive Stock Option Plan (2001 ISOP) under
which up to 1,000,000 shares could be issued upon exercise of options granted
under the plan. At December 31, 2003, the Company had reserved 1,668,000 shares of common
stock for issuance to employees and directors under the 2001 ISOP and two
predecessor stock option plans. Options are generally granted at fair market
value and become exercisable over a four-year period. These options generally
expire 10 years from the date of grant. At December 31, 2003, all plans were
stockholder approved and 706,000 shares were available for grant. Option activity under the plans is as follows: Weighted-AverageNumber of
    
    ExerciseShares
    
    PriceOutstanding, January 1, 2001
    
    
    782,875
    
    
    $
    2.93Granted (weighted-average fair value of $5.63)
    
    
    60,000
    
    
    
    7.19Exercised
    
    
    (190,375
    )
    
    
    2.66Canceled
    
    
    (34,125
    )
    
    
    3.32Outstanding,
December 31, 2001 (342,375 options
exercisable at a weighted-average price
of $3.46)
    
    
    618,375
    
    
    
    3.40Granted (weighted-average fair value of $1.53)
    
    
    453,000
    
    
    
    2.07Exercised
    
    
    (7,750
    )
    
    
    1.61Canceled
    
    
    (103,500
    )
    
    
    4.93Outstanding, December 31, 2002 (436,625
options exercisable at a weighted-average price
of $2.68)
    
    
    960,125
    
    
    
    2.62Granted (weighted-average fair value of $2.38)
    
    
    48,000
    
    
    
    3.31Exercised
    
    
    (17,625
    )
    
    
    1.62Canceled
    
    
    (28,500
    )
    
    
    4.58Outstanding, December 31, 2003
    
    
    962,000
    
    
    $
    2.61
 36




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##### Table of Contents



Additional information regarding options outstanding as of December 31, 2003
is as follows: Options Outstanding
    
    Options ExercisableWeighted-Avg.
    
    Weighted-
    
    
    
    
    
    Weighted-Remaining
    
    Avg.
    
    
    
    
    
    Avg.Range of
    
    Number
    
    Contractual Life
    
    Exercise
    
    Number
    
    ExerciseExercise Prices
    
    Outstanding
    
    (Yrs)
    
    Price
    
    Exercisable
    
    Price$
    1.00 to 1.94
    
    
    267,250
    
    
    
    4.9
    
    
    $
    1.61
    
    
    
    252,250
    
    
    $
    1.602.00 to 2.35
    
    
    481,250
    
    
    
    7.9
    
    
    
    2.02
    
    
    
    150,500
    
    
    
    2.003.00 to 4.69
    
    
    137,500
    
    
    
    5.0
    
    
    
    4.29
    
    
    
    91,000
    
    
    
    4.446.13 to
7.65
    
    
    76,000
    
    
    
    7.0
    
    
    
    6.89
    
    
    
    54,000
    
    
    
    6.77$
    1.00 to 7.65
    
    
    962,000
    
    
    
    6.6
    
    
    $
    2.61
    
    
    
    547,750
    
    
    $
    2.69
 Stock Purchase PlanThe Company has reserved 207,181 shares of its common stock
for issuance to employees under two employee stock purchase plans. The plans
allow eligible employees to have salary withholdings to purchase shares of
common stock at a price equal to 85% of the lower of the market value of the
stock at the beginning or end of each three month offer period, whichever is
less, subject to an annual limitation. The Companys 1988 Employee Stock Purchase Plan terminated during the year
2001 and there are no shares reserved for future issuance under this plan.
Stock issued under this plan was 7,255 shares at a weighted-average price of
$1.49 in 2001. On February 25, 2000, the Board of Directors adopted the Hycor Biomedical
Inc. 2000 Employee Stock Purchase Plan (2000 ESPP) under which up to 300,000
shares could be sold to the employees. The Company has 207,181 shares reserved
for future issuance under its 2000 ESPP. Stock issued under this plan was
42,529, 34,621 and 11,373 shares in 2003, 2002 and 2001 at the weighted-average
price of $2.43, $1.66 and $4.25, respectively. 401(k) PlanThe Company has established a profit sharing plan under Internal
Revenue Code Section 401(k). The 401(k) plan allows employees to contribute up
to 15% of their salary to the plan. The Company matches 50% of the first 2% of
an employees contribution and 100% of the next 1% of contribution.
Compensation expense related to these plans was $169,774, $159,807 and
$166,382 in 2003, 2002 and 2001, respectively. NOTE 9: GOODWILL AND INTANGIBLE ASSETS Effective
January 1, 2002, the Company adopted SFAS No. 142, Goodwill and
Other Intangible Assets. As a result of adopting SFAS No. 142, the Companys
goodwill and certain intangible assets are no longer amortized, but are subject
to an annual impairment test. In accordance with SFAS No. 142, there were no
impairments or impairment indicators present and no loss was recorded during
the year ended December 31, 2003. 37




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The following sets forth the intangible assets by major asset class: December 31, 2003
    
    December 31, 2002Useful
    
    
    
    
    
    
    
    
    
    Net
    
    
    
    
    
    
    
    
    
    NetLife
    
    
    
    
    
    Accumulated
    
    Book
    
    
    
    
    
    Accumulated
    
    Book(Years)
    
    Gross
    
    Amortization
    
    Value
    
    Gross
    
    Amortization
    
    ValueNON-AMORTIZINGGoodwill
    
    
    
    
    
    $
    156,338
    
    
    
    
    
    
    $
    156,338
    
    
    $
    156,338
    
    
    
    
    
    
    $
    156,338AMORTIZINGPatents and other
    
    
    (6-17
    )
    
    $
    143,213
    
    
    $
    99,606
    
    
    $
    43,607
    
    
    $
    206,873
    
    
    $
    154,660
    
    
    $
    52,213
 Aggregate amortization expense on intangible assets was approximately
$8,484 and $15,127 for the years ended December 31, 2003 and 2002,
respectively. Amortization expense in each of the next five fiscal years is
expected to be incurred as follows: Year
    
    Amount2004
    
    $
    9,2202005
    
    
    7,5442006
    
    
    6,9722007
    
    
    6,6932008
    
    
    4,793Thereafter
    
    
    8,385$
    43,607
 The following summarizes what net income would have been had the
non-amortization provisions of SFAS No. 142 been adopted over the entire
reporting period, adjusted for taxes: Year Ended December 31,2003
    
    2002
    
    2001Reported net income
    
    $
    2,162,371
    
    
    $
    1,256,728
    
    
    $
    43,269Goodwill amortization
    
    
    
    
    
    
    
    
    
    
    131,979Adjusted net income
    
    $
    2,162,371
    
    
    $
    1,256,728
    
    
    $
    175,248Basic earnings per share:Reported net income
    
    $
    0.27
    
    
    $
    0.16
    
    
    $
    0.01Goodwill amortization
    
    
    
    
    
    
    
    
    
    
    0.01Adjusted basic earnings per share
    
    $
    0.27
    
    
    $
    0.16
    
    
    $
    0.02Diluted earnings per share:Reported net income
    
    $
    0.26
    
    
    $
    0.15
    
    
    $
    0.01Goodwill amortization
    
    
    
    
    
    
    
    
    
    
    0.01Adjusted diluted earnings per share
    
    $
    0.26
    
    
    $
    0.15
    
    
    $
    0.02
 38




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NOTE 10: COMMITMENTS AND CONTINGENCIES Operating LeasesThe Company leases office, laboratory, and warehouse space and
laboratory equipment under non-cancelable operating leases. Rental expense
under operating leases for the years ended December 31, 2003, 2002 and 2001
was approximately $838,000, $768,000 and $736,000, respectively. Future annual minimum lease payments under the noncancelable operating
leases as of December 31, 2003 are as follows: Year
    
    Amount2004
    
    $
    861,0002005
    
    
    740,0002006
    
    
    667,0002007
    
    
    573,000$
    2,841,000
 Indemnification and GuaranteesThe Company has entered into employment
contracts with each of the Companys officers. These contracts generally
provide for severance benefits if the officer is terminated by the Company for
convenience or by the officer for substantial cause. In addition, in order to
assure that the officers would continue to provide independent leadership
consistent with the Companys best interests in the event of an actual or
threatened change in control of the Company, the contracts also generally
provide for certain protections in the event of such a change in control.
These protections include the extension of employment contracts and the payment
of certain severance benefits upon the termination of employment following a
change in control. Other CommitmentsThe Company has entered into a product manufacturing and
sales agreement (the Supply Agreement) with an equipment manufacturer located
in Europe to supply HYTEC instruments. At December 31, 2003, the approximate
future minimum payment under the Supply Agreement is $162,000 during 2004. In addition, in the normal course of operations, the Company enters into
purchase obligations with various vendors and suppliers of various key raw
materials and other goods and services through purchase orders or other
documentation. Such obligations are generally outstanding for periods less
than a year and are settled by cash payments upon delivery of goods and
services. The purchase commitments covered by these various key raw materials
and other goods and services aggregate approximately $696,000 as of December
31, 2003. NOTE 11: SEGMENT INFORMATION The Company engages in business activity in only one operating segment
that entails the development, manufacture and sale of medical diagnostic
products with a focus on clinical immunology testing and urinalysis products.
While the Company offers a wide range of items for sale, most are manufactured
at common production facilities. In addition, the Companys products 39




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##### Table of Contents



are
marketed through a common sales organization and are sold to a similar customer
base made up primarily of clinical laboratories and specialty physician
offices. The Company sells its products primarily through distributors. Sales to
the Companys two largest distributors each accounted for 14% of net product
sales each in 2003; 18% and 16% in 2002;
and 22% and 13% in 2001. The account receivable balances for these two
distributors were approximately $430,000 and $237,000 in 2003 and $414,000 and
$528,000 in 2002, respectively. A decision by a significant customer to
substantially decrease or delay purchases from the Company or the Companys
inability to collect receivables from these customers could have a material
adverse effect on the Companys financial condition and results of operations. In addition to its U.S. operations, the Company has subsidiaries
in Scotland and Germany. Information about the Companys products and
operations in different geographic locations is shown below. (In Thousands)Revenues by product line:
    
    2003
    
    %
    
    2002
    
    %
    
    2001
    
    %Urinalysis
    
    $
    9,238
    
    
    
    47
    %
    
    $
    9,634
    
    
    
    52
    %
    
    $
    9,607
    
    
    
    55
    %Clinical immunology
    
    
    9,565
    
    
    
    48
    %
    
    
    7,977
    
    
    
    43
    %
    
    
    6,560
    
    
    
    38
    %Other
    
    
    954
    
    
    
    5
    %
    
    
    980
    
    
    
    5
    %
    
    
    1,146
    
    
    
    7
    %$
    19,757
    
    
    
    100
    %
    
    $
    18,591
    
    
    
    100
    %
    
    $
    17,313
    
    
    
    100
    %
 Geographical Information:
    
    2003
    
    %
    
    2002
    
    %
    
    2001
    
    %Revenues (a)United States
    
    $
    14,675
    
    
    
    74
    %
    
    $
    13,928
    
    
    
    75
    %
    
    $
    13,147
    
    
    
    76
    %Foreign:Germany
    
    
    3,217
    
    
    
    16
    %
    
    
    3,002
    
    
    
    16
    %
    
    
    2,443
    
    
    
    14
    %Scotland
    
    
    1,865
    
    
    
    10
    %
    
    
    1,661
    
    
    
    9
    %
    
    
    1,723
    
    
    
    10
    %Subtotal-Foreign
    
    
    5,082
    
    
    
    26
    %
    
    
    4,663
    
    
    
    25
    %
    
    
    4,166
    
    
    
    24
    %Total Revenues
    
    $
    19,757
    
    
    
    100
    %
    
    $
    18,591
    
    
    
    100
    %
    
    $
    17,313
    
    
    
    100
    %
  (a)
    
    = Revenues are allocated to countries based on the source of the product. Long-lived assets (net):
    
    2003
    
    2002United States
    
    $
    1,892
    
    
    $
    2,054Foreign:Germany
    
    
    266
    
    
    
    344Other Europe
    
    
    158
    
    
    
    125Subtotal-Foreign
    
    
    424
    
    
    
    469Total Long-Lived Assets
    
    $
    2,316
    
    
    $
    2,523
 Deferred tax assets:
    
    2003
    
    2002United States
    
    $
    1,786
    
    
    $
    2,477Foreign:Germany
    
    
    964
    
    
    
    1,083Other Europe
    
    
    (55
    )
    
    
    (57
    )Subtotal-Foreign
    
    
    909
    
    
    
    1,026
 40




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##### Table of Contents



Deferred tax assets:
    
    2003
    
    2002Subtotal
    
    
    2,695
    
    
    
    3,503Valuation allowance
    
    
    (909
    )
    
    
    (3,503
    )Total deferred tax assets
    
    $
    1,786
    
    
    $
    
 NOTE 12: IMPAIRMENT LOSS ON LONG-LIVED ASSETS In 1994, the Company acquired Melja Diagnostik, GmbH and recorded total
goodwill resulting
from the acquisition of approximately $1,900,000. Significant changes in
both German medical testing reimbursement rates and the value of the U.S.
dollar versus the Euro have caused declining operating results. In the fourth
quarter of 2001, the goodwill related to this acquisition was determined to be
impaired. Impairment of goodwill was determined based on the Companys
expected inability to generate positive future operating cash flows to support
the recorded value of goodwill. The Company recorded a non-cash charge of
$723,000 that eliminates all remaining goodwill related to this acquisition. NOTE 13: SELECTED QUARTERLY DATA (UNAUDITED) Summarized
quarterly financial data for fiscal year 2003 is as follows: Year Ended December 31, 2003 First
    
    Second
    
    Third
    
    FourthQuarter
    
    Quarter
    
    Quarter
    
    QuarterNet sales
    
    $
    4,877,566
    
    
    $
    4,980,793
    
    
    $
    4,969,469
    
    
    $
    4,929,205Gross profit
    
    
    2,544,849
    
    
    
    2,763,052
    
    
    
    2,741,078
    
    
    
    2,726,303Net income
    
    
    331,138
    
    
    
    217,014
    
    
    
    73,355
    
    
    
    1,540,864Basic net income per share
    
    
    0.04
    
    
    
    0.03
    
    
    
    0.01
    
    
    
    0.19Diluted net income per share
    
    
    0.04
    
    
    
    0.03
    
    
    
    0.01
    
    
    
    0.18
 Summarized
quarterly financial data for fiscal year 2002 is as follows: Year Ended December 31, 2002 First
    
    Second
    
    Third
    
    FourthQuarter
    
    Quarter
    
    Quarter
    
    QuarterNet sales
    
    $
    4,571,509
    
    
    $
    4,694,184
    
    
    $
    4,508,657
    
    
    $
    4,816,159Gross profit
    
    
    2,346,472
    
    
    
    2,558,009
    
    
    
    2,424,845
    
    
    
    2,591,467Net income
    
    
    252,584
    
    
    
    408,343
    
    
    
    331,858
    
    
    
    263,943Basic net income per share
    
    
    0.03
    
    
    
    0.05
    
    
    
    0.04
    
    
    
    0.03Diluted net income per share
    
    
    0.03
    
    
    
    0.05
    
    
    
    0.04
    
    
    
    0.03
 
 Item 9A. Controls and Procedures Within the 90 days prior to the date of this report, the Companys
management, including its Chief Executive Officer and Chief Financial Officer,
have conducted an evaluation of the effectiveness of the Companys disclosure
controls and procedures pursuant to Exchange Act Rule 13a-15(e). Based on that
evaluation, the Chief Executive Officer and Chief Financial Officer concluded
that the Companys disclosure controls and procedures are effective in ensuring
timely collection and evaluation of all information potentially subject to
disclosure in the Companys periodic filings with the Securities and Exchange
Commission. 41




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PART III 
 Item 10. Directors and Executive Officers of the Registrant DIRECTORS YearFirst
    
    Principal Occupation and Other InformationName
    
    Elected
    
    Concerning NomineeSamuel D. Anderson
Age 68
    
    
    1987
    
    
    Chairman of the Board since July 1998,
Hycor Biomedical Inc.; general business
consultant since May 1991.J. David Tholen
Age 59
    
    
    1998
    
    
    President and Chief Executive Officer
since July 1998, Executive Vice President
from January 1998 until July 1998, Hycor
Biomedical Inc.; general business
consultant from December 1996 until
January 1998; President and Chief
Executive Officer, Murex International (a
medical diagnostic company) from June 1994
until December 1996.David S. Gordon
Age 62
    
    
    1981
    
    
    Practicing Physician, Hematology and
Oncology (a private medical practice)
since April 2002; General business
consultant since March 1999; Senior Vice
President, Medical Affairs, from April
1997 to March 1999, Aronex
Pharmaceuticals, Inc. (a pharmaceutical
company).Reginald P. Jones
Age 57
    
    
    1986
    
    
    Senior Vice President since January 1988,
Chief Financial Officer since May 1985,
Secretary since June 1985, Treasurer since
January 1982, Hycor Biomedical Inc.James R. Phelps
Age 65
    
    
    1984
    
    
    Partner, Hyman, Phelps and McNamara, P.C.
(a law firm) since January 1980.Richard E. Schmidt
Age 72
    
    
    1996
    
    
    Chairman from September 1991 to February
1998, Chief Executive Officer and
President from September 1991 until June
1996, Newport Corporation (a precision
research equipment company).
 The Company has established an Audit Committee consisting of Messrs.
Schmidt (Chair), Anderson and Gordon, and a Compensation Committee consisting
of Messrs. Anderson (Chair) and Phelps. The Companys Board of Directors has
determined that Mr. Schmidt is an audit committee financial expert within the
meaning given that term by Item 401(h)(2)of Regulation S-K and that Mr. Schmidt
is independent within the meaning given to that term by Item 7(d)(3)(iv) of
Schedule 14A under the Exchange Act. 42




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##### Table of Contents



Compensation of Directors All non-employee directors receive an annual retainer of $9,000 and a fee
of $1,000 for each Board Meeting attended and $500 for each Audit and
Compensation Committee Meeting attended for services as directors of Hycor.
Non-employee directors are reimbursed for reasonable travel expenses incurred
in connection with each meeting attended. Each non-employee director is eligible to receive stock options under
Hycors Nonqualified Stock Option Plan for Non-Employee Directors (the
Director Plan), a non-discretionary formula stock option plan. Each director
who is a non-employee director and who holds office immediately after Hycors
Annual Meeting of stockholders receives an option to purchase 6,000 shares of
Common Stock. The
Director Plan also provides an automatic one-time only grant of an option
to purchase 4,000 shares of Common Stock to new non-employee directors on the
date such director first assumes the duties of a director. The price per share
at which an option may be exercised is the fair market value per share on the
date the option is granted, and each option granted shall vest pro rata over a
three-year period. EXECUTIVE OFFICERS The following table identifies, and contains certain information
concerning, Hycors executive officers of the date of this Proxy Statement.
Executive officers are appointed by and serve at the pleasure of the Board of
Directors, subject to the relevant terms of their employment agreements. Name
    
    Age
    
    Information Concerning OfficerJ. David Tholen
    
    
    59
    
    
    President and Chief Executive Officer since
July 1998, Executive Vice President from
January 1998 until July 1998, Hycor Biomedical
Inc.; general business consultant from December
1996 until January 1998; President and Chief
Executive Officer, Murex International (a
medical diagnostic company) from June 1994
until December 1996.Reginald P. Jones
    
    
    57
    
    
    Senior Vice President since January 1988, Chief
Financial Officer since May 1985, Secretary
since June 1985, Treasurer since January 1982.Nelson F. Thune
    
    
    58
    
    
    Senior Vice President, Operations and Planning
since February 1991, Vice President, Operations
from January 1985 to February 1991.Mary Jo Deal
    
    
    48
    
    
    Senior Vice President, Marketing and Sales
since April 2000, Vice President, Marketing
from September 1997 to March 2000, Director of
Marketing from September 1995 to August 1997David Davoudzadeh
    
    
    59
    
    
    Vice President, Research and Development since
November 2002; Director, Reagent Development
Department Microgenics/Apogen Corporation from
January 2000 to November 2002; Manager, DNA
Synthesis Group, Roche from November 1998 until
November 1999; Manager, Organic Chemistry,
Boehringer Mannheim Corporation from March 1994
to November 1998.
 43




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##### Table of Contents



Code of Ethics The Company has not yet adopted a code of ethics that applies to its
principal executive officer, principal financial officer, principal accounting
officer or controller, or persons performing similar functions. The Company is
in the process of preparing and adopting a code of ethics, which will be posted
on its corporate website. Section 16(a) Beneficial Ownership Reporting Compliance Section 16(a) of the Securities Exchange Act of 1934 requires Hycors
directors and executive officers, and persons who own more than 10% of a
registered class of Hycors equity securities, to file with the SEC initial
reports of ownership and reports of changes in ownership of Common Stock and
other equity securities of Hycor. Officers, directors and greater than 10%
stockholders are required by
SEC regulation to furnish Hycor with copies of all Section 16(a) forms
they file. To Hycors knowledge, based solely on review of the copies of such reports
furnished to Hycor and written representations that no other reports were
required during the fiscal year ended December 31, 2003, Hycors officers,
directors, and greater than 10% beneficial owners complied with all Section
16(a) filing requirements. 
 Item 11. Executive Compensation Summary of Cash and Certain Other Compensation The following table sets forth information concerning compensation paid or
accrued by Hycor to or on behalf of the named executive officers for services
in all capacities to Hycor during Hycors last completed fiscal year. Summary Compensation Table Long-TermCompensationAwards, Securities,
    
    All OtherName and Principal
    
    
    
    
    
    Salary
    
    
    
    
    
    Underlying
    
    CompensationPosition
    
    Year
    
    ($) (2)
    
    Bonus ($)
    
    Options/SARs (#)
    
    ($) (3)J. David Tholen
    
    
    2003
    
    
    
    255,131
    
    
    
    51,026
    
    
    
    -0-
    
    
    
    6,770President and CEO
    
    
    2002
    
    
    
    245,358
    
    
    
    71,129
    
    
    
    110,000
    
    
    
    5,7532001
    
    
    
    235,955
    
    
    
    27,612
    
    
    
    -0-
    
    
    
    5,324Reginald P. Jones
    
    
    2003
    
    
    
    237,083
    
    
    
    47,417
    
    
    
    -0-
    
    
    
    6,796Senior Vice President
    
    
    2002
    
    
    
    227,993
    
    
    
    119,920
    
    
    
    80,000
    
    
    
    5,978and CFO
    
    
    2001
    
    
    
    219,253
    
    
    
    25,657
    
    
    
    -0-
    
    
    
    5,364Nelson F. Thune
    
    
    2003
    
    
    
    208,201
    
    
    
    41,640
    
    
    
    -0-
    
    
    
    6,770Senior Vice President,
    
    
    2002
    
    
    
    200,229
    
    
    
    58,046
    
    
    
    60,000
    
    
    
    6,082Operations & Planning
    
    
    2001
    
    
    
    192,567
    
    
    
    22,534
    
    
    
    -0-
    
    
    
    4,739Mary Jo Deal
    
    
    2003
    
    
    
    198,699
    
    
    
    39,740
    
    
    
    -0-
    
    
    
    6,646Senior Vice President,
    
    
    2002
    
    
    
    191,079
    
    
    
    55,394
    
    
    
    60,000
    
    
    
    5,753Marketing & Sales
    
    
    2001
    
    
    
    183,768
    
    
    
    21,505
    
    
    
    -0-
    
    
    
    5,338David Davoudzadeh (4)
    
    
    2003
    
    
    
    170,000
    
    
    
    34,000
    
    
    
    -0-
    
    
    
    1,600Vice President,
    
    
    2002
    
    
    
    19,942
    
    
    
    -0-
    
    
    
    20,000
    
    
    
    -0-Research & Development
 44




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##### Table of Contents



Footnotes to Summary Compensation Table  (1)
    
    None of the named individuals received perquisites or other personal
benefits in excess of the lesser of $50,000 or 10% of the total of his
reported annual salary and bonus.(2)
    
    Includes employee deferrals under Hycors Incentive Profit Sharing Plan,
a deferred compensation plan under Section 401(k) of the Internal Revenue
Code (the 401(k) Plan).(3)
    
    Hycor contributions under the 401(k) Plan.(4)
    
    Dr. Davoudzadeh joined the Company on November 15, 2002. Stock Options  The Company did not grant any stock options or stock appreciation rights during
the last fiscal year
to the named officers. Options/SAR Exercises in Last Fiscal Year And
Fiscal Year-End Option Values Number of SecuritiesShares
    
    
    
    
    
    Underlying Unexercised
    
    Value of UnexercisedAcquired
    
    Value
    
    Options/SARs
    
    In-the-Money Options/SARson
    
    Realized
    
    at Fiscal Year-End (#)
    
    at Fiscal Year-End ($)(2)Name
    
    Exercise
    
    ($)(1)
    
    Exercisable/Unexercisable
    
    Exercisable/UnexercisableJ.D.Tholen
    
    
    -0-
    
    
    
    -0-
    
    
    
    105,550
    
    
    
    82,500
    
    
    
    220,174
    
    
    
    156,750R.P.Jones
    
    
    -0-
    
    
    
    -0-
    
    
    
    55,500
    
    
    
    60,000
    
    
    
    118,585
    
    
    
    114,000N.F.Thune
    
    
    -0-
    
    
    
    -0-
    
    
    
    39,700
    
    
    
    45,000
    
    
    
    84,569
    
    
    
    85,500M.J.Deal
    
    
    -0-
    
    
    
    -0-
    
    
    
    30,500
    
    
    
    45,000
    
    
    
    63,445
    
    
    
    85,500D.Davoudzadeh
    
    
    -0-
    
    
    
    -0-
    
    
    
    5,000
    
    
    
    15,000
    
    
    
    10,950
    
    
    
    32,850
  (1)
    
    Calculated based upon the market value of the Common Stock at the
exercise date minus
the option exercise price.  (2)
    
    Calculated based upon the closing price of Common Stock at December 31,
2003, minus
the option exercise price. Employment Agreements Hycor is a party to employment agreements with Messrs. Tholen, Jones,
Thune, and Davoudzadeh and Ms. Deal, described below. Mr. Tholen is employed as President and Chief Executive Officer of Hycor
pursuant to an employment agreement, which commenced April 1, 2002, and
provides for an annual base salary of $245,400. The agreement automatically
renews for successive one-year terms unless written notice of either partys
intention not to renew is given at least three months prior to expiration of
the term. In addition, under the terms of the agreement, in the event of a
change in control of Hycor, Mr. Tholen will be entitled to receive a payment in
an amount equal to 300% of his current base salary and most 45




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##### Table of Contents



recent bonus. A
change in control of Hycor would be deemed to occur if any person is or becomes
the beneficial owner, directly or indirectly, of securities of Hycor
representing 25% or more of the combined voting power of Hycors then
outstanding securities or if specified changes in the composition of Hycors
Board of Directors occurs. Hycor can also terminate the agreement at any time
without cause by paying Mr. Tholen a lump severance benefit equal to twelve
months base salary or the remaining term of the agreement at the time of
termination, whichever is less. The agreement also provides for certain
payments upon Mr. Tholens death or incapacity. Mr. Jones is employed as Senior Vice President of Hycor pursuant to his
employment agreement, which commenced on June 20, 1997 and amended on April 1,
2000, and provides for an annual base salary of $184,100. The agreement
automatically renews for successive one-year terms unless written notice of
either partys intention not to renew is given at least three months prior to
expiration of the term. In addition, under the terms of the agreement, in the
event of a change in control of Hycor, Mr. Jones will be entitled to receive a
payment in an amount equal to 300% of the average of the annual base salary
plus bonuses paid to Jones for the prior three years. A change in control of
Hycor would be deemed to occur if any person is or becomes the beneficial
owner, directly or indirectly, of securities of Hycor representing 25% or more
of the combined voting power of Hycors then outstanding securities or if
specified changes in the composition of Hycors Board of Directors occurs.
Hycor can also terminate the agreement at any time without cause by paying
Mr. Jones a lump severance benefit equal to twelve months base salary or the
remaining term of the agreement at the time of termination, whichever is less.
The agreement also provides for certain payments upon Mr. Jones death or
incapacity. Hycor entered into three-year employment agreements with Mr. Thune and Ms.
Deal under which each is employed as a Vice President of Hycor. These
agreements, which commenced June 20, 1997 for Mr. Thune and September 1, 1997
for Ms. Deal, provide for base salaries of $161,700 and $120,000 per annum,
respectively. Each agreement automatically renews for successive one-year terms
unless written notice of either partys intention not to renew is given at
least three months prior to expiration of the term. In addition, under the
terms of the agreement, in the event of the termination of employment (other
than on account of death or for cause as defined in the agreement), or election
to resign with good cause (as defined in the agreement), within two years after
a change in control of Hycor, Mr. Thune or Ms. Deal will be entitled to receive
severance pay in an amount equal to 200% of the average of the annual base
salary plus bonuses paid the prior three years. Such amount would be in
addition to any other amounts otherwise payable under any benefit plans of
Hycor. A change in control of Hycor would be deemed to occur if any person is
or becomes the beneficial owner, directly or indirectly, of securities of Hycor
representing 25% or more of the combined voting power of Hycors then
outstanding securities or if specified changes in the composition of Hycors
Board of Directors occurs. Hycor can also terminate the agreement at any time
without cause by paying a lump severance benefit equal to twelve months base
salary at the time of termination. The agreement also provides for certain
payments upon death or incapacity. Hycor entered into a two-year employment agreement with Dr. David
Davoudzadeh under which he is employed as a Vice President of Hycor. This
agreement, which commenced on November 15, 2002 provides for a base salary of
$170,000. Hycor can also terminate the agreement at any time without cause
by paying Dr. Davoudzadeh a lump severance benefit equal to six months base
salary or the remaining term of the agreement at the time of termination,
whichever is less. The agreement also provides for certain payments upon Dr.
Davoudzadehs death or incapacity. 46




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##### Table of Contents



Item 12. Security Ownership of Certain Beneficial Owners and Management Stock Ownership of Management and Certain Beneficial Owners The following table sets forth certain information with respect to shares
of Common Stock of Hycor beneficially owned by (1) all persons known to Hycor
to own beneficially more than 5% of Hycors Common Stock; (2) each person who
is a director or a nominee for director; (3) the chief executive officer and
the four other most highly paid executive officers (the named officers); and
(4) all directors and executive officers of Hycor as a group. The persons
named hold sole voting and investment power with respect to the shares shown
opposite their respective names, unless otherwise indicated in the footnotes.
The information with respect to each person specified is as supplied or
confirmed by such person. 47




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##### Table of Contents



Shares of Common StockBeneficially Owned as
    
    Percent ofName
    
    of March 15, 2004 (1)(7)
    
    Class (1)J. David Tholen
    
    
    354,948
    
    
    
    4.3Reginald P. Jones
    
    
    299,496
    (2)
    
    
    3.7Nelson F. Thune
    
    
    219,969
    (3)
    
    
    2.7Mary Jo Deal
    
    
    85,565
    (4)
    
    
    1.1David Davoudzadeh
    
    
    12,050
    
    
    
    *Samuel D. Anderson
    
    
    76,300
    
    
    
    *David S. Gordon
    
    
    266,071
    (5)
    
    
    3.3James R. Phelps
    
    
    84,215
    
    
    
    1.0Richard E. Schmidt
    
    
    40,000
    
    
    
    *All executive officers and
directors as a group
(9 persons)
    
    
    1,438,614
    (6)
    
    
    16.7
 Footnotes  *
    
    Indicates less than one percent.(1)
    
    Includes shares subject to stock options which the following have the
right to acquire within sixty days of March 15, 2004; Mr. Tholen, 133,050
shares; Mr. Jones, 75,500 shares; Mr. Thune, 54,700 shares; Ms. Deal,
45,500 shares; Mr. Anderson, 48,000 shares; Dr. Gordon, 48,000 shares; Mr.
Phelps, 48,000 shares; Mr. Schmidt, 40,000 shares; and all executive
officers and directors as a group, 497,750 shares.(2)
    
    Includes 220,201 shares held by R. P. Jones and J. Jones as Trustees for
the Jones Family Trust; and 3,795 shares held by Hycors 401(k) Plan.(3)
    
    Includes 3,452 shares held by Hycors 401(k) Plan.(4)
    
    Includes 245 shares held by Hycors 401(k) Plan.(5)
    
    Includes 9,857 shares held by Dr. Gordons wife.(6)
    
    Includes 7,492 shares held by Hycors 401(k) Plan.(7)
    
    Under the terms of Hycors 401(k) Plan, a committee of three persons has
the power to direct the trustee to vote all shares held pursuant to the
401(k) Plan. 48




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##### Table of Contents



Securities Authorized for Issuance Under Equity Compensation Plans Information about the Companys equity compensation plans at December 31, 2003
was as follows: Number ofShares to be
    
    Weighted
    
    Number ofIssued Upon
    
    Average
    
    SharesExercise of
    
    Exercise Price
    
    RemainingOutstanding
    
    of Outstanding
    
    Available forOptions
    
    Options
    
    Future IssuanceEquity Compensation
Plans Approved by
Shareholders (1)
    
    
    962,000
    
    
    $
    2.61
    
    
    
    706,000
    (2)Equity Compensation
Plans Not Approved
by Shareholders
    
    
    Total
    
    
    962,000
    
    
    
    
    
    
    
    706,000
  (1)
    
    Consists of the following plans: 1992 Incentive Stock Option Plan,
1992 Nonqualified Stock
Option Plan for Non-Employee Directors, 2001 Incentive Stock Option
Plan, 2000 Employee
Stock Purchase Plan.  (2)
    
    Includes 207,181 shares reserved for issuance under the 2000 Employee
Stock Purchase Plan. 
 Item 13. Certain Relationships and Related Transactions None 
 Item 14. Principal Accountant Fees and Services Independent Public Accountants In addition to audit services, Deloitte & Touche LLP also provided certain
non-audit services to us during the fiscal year ended December 31, 2003. The
Audit Committee has considered and concluded that the provision of these
additional services is compatible with maintaining the independence of Deloitte
& Touche LLP. Audit Fees. The aggregate fees billed for professional services rendered
by Deloitte & Touche LLP for (1) the audit of the Companys financial
statements as of and for the fiscal year ended December 31, 2003 and (2) the
review of the financial statements included in the Companys Form 10-Q filings
for fiscal 2003 were $119,650. The aggregate fees billed for professional
services rendered by Deloitte & Touche LLP for (1) the audit of the Companys
financial statements as of and for the fiscal year ended December 31, 2002 and
(2) the review of the financial statements included in the Companys Form 10-Q
filings for fiscal 2002 were $116,150. Audit-Related Fees. The aggregate fees billed in fiscal 2003 and 2002 for
assurance and related services rendered by Deloitte & Touche LLP that are
reasonably related to the performance of the audit or review of the Companys
financial statements were $46,245 and $16,431, respectively. Services rendered
in this category consisted of (i) financial accounting and reporting
consultations, and (ii) participation in board and audit committee meetings and
(iii) assurance services on specific transactions. 49




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##### Table of Contents



Tax Fees. The aggregate fees billed in fiscal 2003 and 2002 for
professional services rendered by Deloitte & Touche LLP for tax compliance, tax
advice and tax planning were $38,000 and $33,110, respectively. All Other Fees. There were no fees billed in fiscal 2003 and 2002 for
products and services provided by Deloitte & Touche LLP, other than services
reported above. Pre-Approval Policies and Procedures. The Audit Committee has adopted
policies which provide that our independent auditors may only provide those
audit and non-audit services that have been pre-approved by the Audit
Committee, subject, with respect to non-audit services, to a de minimis
exception (discussed below) and to the following additional requirements: (1)
such services must not be prohibited under applicable federal securities rules
and regulations, and (2) the Audit Committee must make a determination that
such services would be consistent with the principles that the independent
auditors should not audit its own work, function as part of management, act as
an advocate or our company, or be a promoter of the Companys stock or other
financial interests. The chairman of the Audit Committee has the authority to
grant pre-approvals of permitted non-audit services between meetings, provided
that any such pre-approval must be presented to the full Audit Committee at its
next scheduled meeting. During fiscal 2003, all of the non-audit services provided by Deloitte &
Touche LLP were pre-approved by the Audit Committee. Accordingly, the Audit
Committee did not rely on the de minimis exception noted above. This exception
waives the pre-approval requirements for non-audit services if certain
conditions are satisfied, including, among others, that such services are
promptly brought to the attention of and approved by the Audit Committee prior
to the completion of the audit. 50




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##### Table of Contents



PART IV 
 Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K (a) The following documents are filed as part of this report.  1.
    
    Financial Statements Page NumberIndependent Auditors Report
    
    
    21Consolidated Balance Sheets as of
December 31, 2003 and 2002
    
    
    22-23Consolidated Statements of Income and
Comprehensive Income for the years
ended December 31, 2003, 2002 and 2001
    
    
    24Consolidated Statements of Stockholders
Equity for the years ended December 31,
2003, 2002 and 2001
    
    
    25Consolidated Statements of Cash Flows
for the years ended December 31,
2003, 2002, and 2001
    
    
    26-27Notes to Consolidated Financial Statements
for the years ended December 31,
2003, 2002 and 2001
    
    
    28-41
  2.
    
    Financial Statement Schedule  The following financial schedule is filed as part of this Report: Schedule
    
    
    
    PageNumber
    
    Description
    
    NumberII
    
    Valuation and Qualifying
Accounts
    
    S-1
  Schedules other than those listed above have been omitted because
they are not applicable or the required information is included in
the financial statements or
notes thereto.  3.
    
    Exhibits  The Exhibit Index on page 47 of this Annual Report on Form 10-K
lists the exhibits that are filed as part of this report.  (b)
    
    Reports on Form 8-K  None 51




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##### Table of Contents



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. Hycor Biomedical Inc.
(Registrant)Date:  3/28/04
    By:
    /s/ J. David TholenJ. David TholenPresident and Chief Executive Officer Pursuant to the requirements of the Securities 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. Date:  3/28/04
    By:
    /s/ J. David TholenJ. David TholenPresident and Chief Executive Officer Date:  3/28/04
    By:
    /s/ Samuel D. AndersonSamuel D. AndersonChairman Date:  3/28/04
    By:
    /s/ David S. GordonDavid S. GordonDirector Date:  3/28/04
    By:
    /s/ Reginald P. JonesReginald P. JonesSenior Vice President, Chief Financial

Officer Date:  3/28/04
    By:
    /s/ James R. PhelpsJames R. PhelpsDirector Date:  3/28/04
    By:
    /s/ Richard E. SchmidtRichard E. SchmidtDirector Date:  3/28/04
    By:
    /s/ Armando CorreaArmando CorreaDirector, Finance and

Principal Accounting Officer 52




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##### Table of Contents



Schedule II HYCOR BIOMEDICAL INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001 Balance at
    
    Charged toBeginning
    
    Costs and
    
    
    
    
    
    Balance atof Year
    
    Expenses
    
    Deductions
    
    End of YearAllowance for doubtful
accounts receivable2001
    
    $
    138,208
    
    
    $
    101,924
    
    
    $
    56,104
    
    
    $
    184,0282002
    
    
    184,028
    
    
    
    (25,423
    )
    
    
    68,007
    
    
    
    90,5982003
    
    
    90,598
    
    
    
    (1,017
    )
    
    
    22,998
    
    
    
    66,583Allowance for excess, obsolete
 and short-dated inventories2001
    
    $
    1,085,912
    
    
    $
    270,040
    
    
    $
    162,682
    
    
    $
    1,193,2702002
    
    
    1,193,270
    
    
    
    125,857
    
    
    
    252,941
    
    
    
    1,066,1862003
    
    
    1,066,186
    
    
    
    77,221
    
    
    
    301,131
    
    
    
    842,276
 S-1 53




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##### Table of Contents



Exhibit Index 3(1).
    
    Restated Certificate of Incorporation of Hycor
Biomedical Inc., previously filed with the Secretary of State
of Delaware on December 29, 1993, previously filed as Exhibit
3(1). to the Companys Annual Report on Form 10-K for the
fiscal year ended December 31, 1993, and incorporated herein by
reference.3(2).
    
    By-Laws of Hycor Biomedical Inc. as amended,
previously filed as Exhibit 3(2). to the Companys Annual
Report on Form 10-K for the fiscal year ended December 31,
1991, and incorporated herein by reference.
 Material Contracts  Relating to Management Compensation Plans or
Arrangements 10(1).
    Employment Agreement of J. David Tholen, dated June 12, 2002,
previously filed as Exhibit 10(2). to the Companys 10-Q for
June 2002, and incorporated herein by reference.10(2).
    Employment Agreement of Mary Jo Deal, dated September 1,
1997, previously filed as Exhibit 10(2). to the Companys 10-Q
for September 1997, and incorporated herein by reference.10(3).
    Employment Agreement of Reginald P. Jones, dated April 30,
2000, previously filed as Exhibit 10(3). to the Companys
Annual Report on Form 10-K for the fiscal year ended December
31, 2000, and incorporated herein by reference.10(4).
    Employment Agreement of Nelson F. Thune, dated June 20, 1997,
previously filed as Exhibit 10(5). to the Companys 10-Q for
September 1997, and incorporated herein by reference.10(5).
    Employment Agreement of David Davoudzadeh dated October 22,
2002,previously filed as Exhibit 10(5) to the Companys Annual
Report on Form 10-K for the fiscal year ended December 31,
2002, and incorporated herein by reference.10(6).
    1992 Incentive Stock Option Plan, previously filed as Exhibit
4(1). to the Companys Registration Statement on Form S-8 (No.
33-63800), and incorporated herein by reference.10(7).
    Nonqualified Stock Option Plan for Non-Employee Directors,
previously filed as Exhibit 4(1). to the Companys Registration
Statement on Form S-8 (No. 33-63798), and incorporated herein
by reference.10(8).
    Nonqualified Stock Option Plan for Non-Employee Directors, as
amended, previously filed as Exhibit 4(1). to the Companys
Registration Statement on Form S-8 (No. 333-45102), and
incorporated herein by reference.
 54




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##### Table of Contents



10(9).
    
    2000 Employee Stock Purchase Plan, previously filed as
Exhibit 4(1). to the Companys Registration Statement on
Form S-8 (No. 333-45110), and incorporated herein
by reference.10(10).
    
    2001 Incentive Stock Option Plan, previously filed as
Exhibit 10(13). to the Companys Annual Report on Form 10-K for
the fiscal year ended December 31, 2001, and incorporated
herein by reference.
 Other Material Contracts 10(11).
    
    Lease Agreement for the Companys Garden Grove, California
facility dated December 1, 1990, previously filed as Exhibit
10(8). to the Companys Annual Report on Form 10-K for the
fiscal year ended December 31, 1991, and incorporated herein by
reference.10(12).
    
    Lease agreement for the Companys Kassel, Germany facility,
dated January 13, 1994, previously filed as Exhibit 10(26). to
the Companys Annual Report on 10-K for fiscal year ended
December 31, 1994, and incorporated herein by reference.10(13).
    
    Business Loan Agreement between Hycor Biomedical Inc. and
United California Bank, dated May 7, 2002, previously filed as
Exhibit 10.1 to the Companys 10-Q for June 30, 2002, and
incorporated herein by reference.10(14).
    
    Lease agreement for the Companys Bush Loan, Penicuik,
Scotland facility, dated April 1, 1997, previously filed as
Exhibit 10(1). to the Companys 10-Q for June 30, 2003, and
incorporated herein by reference.21.
    
    Subsidiaries of Hycor Biomedical Inc.23.
    
    Consent of Deloitte & Touche LLP, dated March 26,
2004.31(1).
    
    Certification of CEO pursuant to Rules 13a-15(e) and
15d-15(e), as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.31(2).
    
    Certification of CFO pursuant to Rules 13a-15(e) and
15d-15(e), as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.32(1).*
    
    Certification of CEO pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.32(2).*
    
    Certification of CFO pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
 * This certification shall not be deemed filed for purposes of Section 18 of
the Securities Exchange Act of 1934, or otherwise subject to the liability of
that section, nor shall it be deemed to be incorporated by reference into any
filing under the Securities Act of 1933 or the Securities Exchange Act of 1934. 55