<PAGE>
U.S. Securities and Exchange Commission
Washington, D.C. 20549
Form 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended OCTOBER 31, 1997
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the transition period from____________to_____________
Commission file number 0-20424
HI-TECH PHARMACAL CO., INC.
(Exact name of small business issuer as specified in its charter)
______________________Delaware__________________________112638720___________
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
369 Bayview Avenue, Amityville, New York 11701
(Address of principal executive offices)
_________________516 789-8228__________________
(Issuer's telephone number)
___________________________Not applicable_____________________________
(Former name, former address and former fiscal year, if changed since last
report)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15 (d) of the Exchange Act during the past 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 XX NO
_______ _______
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court.
Yes______ No_____
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date:
Common Stock, $.01 Par Value - 4,513,000 shares as of December 11, 1997.
Transitional Small Business Disclosure Format: Yes No X
___ ___
<PAGE>
INDEX
HI-TECH PHARMACAL CO.,INC.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed balance sheets--OCTOBER 31, 1997 AND
APRIL 30, 1997.
Condensed statements of operations--THREE MONTH AND SIX MONTH
PERIODS ENDED OCTOBER 31, 1997 AND 1996.
Condensed statements of cash flows--SIX MONTH
PERIODS ENDED OCTOBER 31, 1997 AND 1996.
Notes to condensed financial statements.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
PART II. OTHER INFORMATION
Item 1. Legal proceedings
Item 2. Changes in securities
Item 3. Defaults upon senior securities
Item 4. Submission of matters to a vote of security holders
Item 5. Other information
Item 6. Exhibits and Reports on Form 8-K
2
<PAGE>
PART I. ITEM 1
HI-TECH PHARMACAL CO., INC.
CONDENSED BALANCE SHEETS
OCTOBER 31, APRIL 30,
1997 1997
------------ ------------
(unaudited) (From Audited
Financial
Statements)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 1,899,000 1,985,000
Accounts receivable, less allowances of
$190,000 at October 31, 1997 and $160,000
at April 30, 1997 4,061,000 4,034,000
Inventories 4,464,000 4,014,000
Prepaid expenses and other receivables 372,000 548,000
------------ ----------
TOTAL CURRENT ASSETS 10,796,000 10,581,000
PROPERTY, PLANT AND EQUIPMENT -NET 9,969,000 10,106,000
OTHER ASSETS 198,000 119,000
------------ ----------
TOTAL ASSETS $20,963,000 20,806,000
============ ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Notes Payable: Bank $ 815,000 815,000
Current Portion - Long-term debt 484,000 529,000
Accounts payable and accrued expenses 3,217,000 3,325,000
------------ ----------
TOTAL CURRENT LIABILITIES 4,516,000 4,669,000
LONG-TERM DEBT 1,673,000 1,896,000
Deferred taxes 240,000 240,000
SHAREHOLDERS' EQUITY
Preferred stock, par value $ .01 per share; - -
authorized 3,000,000 shares
Common stock, par value $ .01 per share;
authorized 10,000,000 shares, issued and
outstanding 4,526,000 at October 31, 1997
and 4,526,000 at April 30, 1997 45,000 45,000
Additional capital 8,604,000 8,604,000
Retained earnings 5,936,000 5,352,000
Treasury stock, 13,500 shares of common
stock, at cost (51,000) -
------------ ----------
TOTAL SHAREHOLDERS' EQUITY 14,534,000 14,001,000
------------ ----------
LIABILITIES AND SHAREHOLDERS' EQUITY $20,963,000 20,806,000
============ ==========
SEE NOTES TO CONDENSED FINANCIAL STATEMENTS
3
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HI-TECH PHARMACAL CO., INC.
CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
OCTOBER 31, OCTOBER 31,
-------------------------- -----------------------------
1997 1996 1997 1996
------------- ----------- ------------ ---------------
<S> <C> <C> <C> <C>
NET SALES $5,814,000 5,276,000 10,522,000 9,431,000
Cost of goods sold 3,450,000 3,751,000 6,655,000 6,772,000
------------- ----------- ----------- --------------
GROSS PROFIT 2,364,000 1,525,000 3,867,000 2,659,000
Selling, general,
administrative expenses 1,408,000 1,270,000 2,448,000 2,237,000
Research & product
development costs 236,000 242,000 415,000 481,000
Contract research (income) (41,000) (63,000) (42,000) (107,000)
Interest expense 70,000 68,000 144,000 154,000
Interest (income) (18,000) (8,000) (39,000) (21,000)
------------- ---------- ---------- --------------
Total 1,655,000 1,509,000 2,926,000 2,744,000
INCOME (LOSS) BEFORE INCOME TAXES 709,000 16,000 941,000 (85,000)
Provision (benefit) for
income taxes 270,000 6,000 357,000 (34,000)
------------- ---------- ---------- --------------
NET EARNINGS (LOSS) $ 439,000 10,000 584,000 (51,000)
============= ========== ========== ==============
Net earnings (loss)
per common share 0.10 0.00 0.13 (0.01)
============= ========== ========== ==============
Weighted average number of
shares outstanding 4,596,000 4,476,000 4,574,000 4,474,000
============= ========== ========== ==============
</TABLE>
See notes to condensed financial statements
4
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HI-TECH PHARMACAL CO., INC.
CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
SIX MONTHS ENDED
OCTOBER 31,
--------------------------
1997 1996
---------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES $ 804,000 210,000
CASH FLOWS USED IN FINANCING ACTIVITIES
Mortgaged property - repayments (95,000) (95,000)
Repayments of equipment debt (173,000) (176,000)
Issuance (purchase) of common stock (51,000) 14,000
Loans from stockholders - (48,000)
---------- -----------
CASH USED IN FINANCING ACTIVITIES (319,000) (305,000)
CASH FLOWS USED INVESTING ACTIVITIES
Purchases of property, plant and (492,000) (407,000)
equipment
Other assets (79,000) (35,000)
CASH USED IN INVESTING ACTIVITIES (571,000) (442,000)
NET (DECREASE) IN CASH (86,000) (537,000)
Cash at beginning of the period 1,985,000 1,746,000
---------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $1,899,000 1,209,000
========== ===========
Supplemental disclosures of cash flow information:
Interest $ 137,000 124,000
Income taxes $ 50,000 82,000
See notes to condensed financial statements
5
<PAGE>
HI-TECH PHARMACAL CO., INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
October 31, 1997
BASIS OF PRESENTATION
The accompanying unaudited condensed financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-QSB and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three month period and six month period
ended October 31, 1997 are not necessarily indicative of the results that may be
expected for the year ending April 30, 1998. For further information, refer to
the financial statements and footnotes thereto for the year ended April 30, 1997
on Form 10K-SB.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company and
its wholly owned subsidiary, Rose Laboratories Inc. In consolidation, all
significant intercompany transactions and balances have been eliminated.
CONTRACT RESEARCH INCOME
Contract research income is recognized as work is completed and as billable
costs are incurred. In some cases, contract research income is based on
attainment of certain designated milestones.
NET EARNINGS (LOSS) PER SHARE
Net earnings (loss) per share is computed based on the weighted average number
of common shares and equivalents outstanding for each period. The effect of
outstanding options and warrants is computed, if dilutive, using the "treasury
stock" method.
INVENTORIES
The components of inventory consist of the following:
OCTOBER 31, APRIL 30,
1997 1997
------------ ----------
Raw materials $2,625,000 2,507,000
Finished products and work in process 1,839,000 1,507,000
------------ ----------
$4,464,000 4,014,000
============ ==========
6
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HI-TECH PHARMACAL CO., INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
October 31, 1997
FIXED ASSETS
The components of net plant and equipment consist of the following:
OCTOBER 31, APRIL 30,
1997 1997
------------ -----------
Land and Building $ 4,609,000 4,564,000
Machinery and equipment 9,615,000 9,180,000
Transportation equipment 13,000 13,000
Computer equipment 359,000 354,000
Furniture and fixtures 149,000 142,000
------------ -----------
14,745,000 14,253,000
Depreciation and amortization 4,776,000 4,147,000
------------ -----------
TOTAL FIXED ASSETS $ 9,969,000 10,106,000
============ ===========
WORKING CAPITAL REVOLVING LOAN
The Company has a working capital credit line with a bank of $3,000,000 which
expires in April 1998 and bears interest at the libor rate plus 175 basis
points, 7.49% at October 31, 1997.
ACCOUNTS PAYABLE AND ACCRUED EXPENSES
The components of accounts payable and accrued expenses consist of the
following:
OCTOBER 31, APRIL 30,
1997 1997
------------ -------------
Accounts payable $1,719,000 2,384,000
Accrued expenses 1,498,000 941,000
------------ -------------
$3,217,000 3,325,000
============ =============
7
<PAGE>
HI-TECH PHARMACAL CO., INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
October 31, 1997
CONTINGENCIES AND OTHER MATTERS
Rugby Laboratories accounted for approximately 15.9% of the shipments during the
quarter, a decrease from 16.9% for the respective quarter in fiscal 1997.
Goldline Laboratories accounted for approximately 10.7% of the shipments during
the quarter, a decrease from 17.0% for the quarter ended October 31, 1996. These
customers represented approximately 28% of the outstanding trade receivables at
October 31, 1997.
The Company has invested approximately $80,000, in a joint venture for the
marketing and development of a nutritional supplement. Reuben Seltzer, a
director of the Company has an interest in the joint venture.
In May 1997, the Company announced a stock buy-back program under which the
Board of Directors authorized the purchase of up to $500,000 of its common
stock. As of October 31, 1997 the Company had purchased 13,500 shares at a cost
of $51,000.
LEASED FACILITY
On July 18, 1996, the Company executed a lease for a 50,000 square foot building
in Amityville, New York. The lease commenced on August 1, 1996 and expires
January 31, 2003. The initial annual base rent is $157,000 and is payable in
monthly installments of $13,125. The Company is responsible for all operating
costs of this facility and has the option to purchase the premises at the end of
the lease for $1,300,000.
ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
October 31, 1997
RESULTS OF OPERATIONS
For the six months ended October 31, 1997 net sales increased by $1,091,000, or
11.6% compared to the fiscal 1997 respective period. Total six months net sales
were $10,522,000 for the period ended October 31, 1997. For the three months
ended October 31, 1997 net sales increased by $ 538,000, or 10.2%, compared to
the fiscal 1997 respective period. Total three months net sales were $5,814,000
for the period ended October 31, 1997. Rugby Laboratories accounted for
approximately 15.9% of the shipments during the quarter, a decrease from 16.9 %
for the respective quarter in fiscal 1997. Goldline Laboratories accounted for
approximately 10.7% of the shipments during the quarter, a decrease from 17.0%
for the quarter ended October 31, 1996. These customers represented
approximately 28% of the outstanding trade receivables at October 31, 1997.
Health Care Products division for the three months ended October 31, 1997 and
1996 had sales of $1,139,000 and $910,000, respectively. Rose Laboratories had
sales of $293,000 and $256,000, respectively, for the three months ended October
31, 1997 and 1996.
Health Care Products division for the six months ended October 31, 1997 and 1996
had sales of $1,945,000 and $1,074,000, respectively. Rose Laboratories had
sales of $573,000 and $450,000, respectively, for the six months ended October
31, 1997 and 1996.
8
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
October 31, 1997 (continued)
Cost of sales, as a percentage of net sales, decreased from 71.8% to 63.2% for
the six months ended October 31, 1997 compared to the six months ended October
31, 1996 and decreased from 71.1% to 59.3% for the three months ended October
31, 1997 compared to the three months ended October 31, 1996. During the six
months ended October 31, 1997 this decrease was principally the result of a
change in product mix and lower per unit labor and overhead costs.
Research and product development costs for the three months ended October 31,
1997 decreased $6,000, or 2.5%, compared to the fiscal 1997 respective period.
Selling, general and administrative expenses, as a percentage of net sales,
increased the to 24.2% from 24.1% for the respective three month period ended
October 31, 1997 and 1996.
Net income for the three months ended October 31, 1997 and 1996 was $439,000
and $10,000 respectively, an increase of $429,000, because of the factors noted
above. Net income (loss) for the six months ended October 31, 1997 and 1996 was
$584,000 and $(51,000), respectively, an increase of $635,000, because of the
factors noted above.
LIQUIDITY AND CAPITAL RESOURCES
The Company's operations are financed principally by cash flow from operations.
During the period ended October 31, 1997, working capital increased to
$6,280,000 from $ 5,912,000 at April 30, 1997. During the six months ended
October 31, 1997 the Company invested $492,000 in fixed assets.
The Company has constructed a sterile manufacturing facility for the purpose of
manufacturing ophthalmic and otic products. This facility and the required
systems and procedures were completed in the last three months of 1996. Although
the Company has not previously manufactured sterile products, the Company
believes that it will be able to operate this facility profitably over the long
term. However, the Company will incur additional expense over the start-up
period.
The Company has a working capital credit line with a bank of $3,000,000 which
expires in April 1998 and bears interest at the libor rate plus 175 basis
points, 7.49% at October 31, 1997.
In May 1997, the Company announced a stock buy-back program under which the
Board of Directors authorized the purchase of up to $500,000 of its common
stock. As of October 31, 1997 the Company had purchased 13,500 shares at a cost
of $51,000.
The Company's management believes that its financial resources, operating
revenue and credit line will be sufficient to meet its expected working capital
requirements.
Statements in this report that are not descriptions of historical facts may be
forward-looking statements that are made pursuant to the Safe Harbor provisions
of the Private Securities Litigation Reform Act of 1995. Such statements involve
various risks and uncertainties. Actual results could differ materially from
those currently anticipated.
9
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
An annual meeting of security holders was held on November 25, 1997.
The Company solicited proxies and 4,037,259 shares were present in person
and by proxy.
Set forth is the number of votes cast for, against or withheld as to
each item voted upon.
(i) Election of Directors For Withhold
--------------------- --------- ---------
Bernard Seltzer 4,022,629 14,630
David S. Seltzer 4,022,729 14,530
Reuben Seltzer 4,022,729 14,530
Martin M. Goldwyn 4,022,629 14,630
Yashar Hirshaut,M.D. 4,022,629 14,630
(ii) Ratification of the appointment of Richard A. Eisner &
------------------------------------------------------
Company LLP as the Company's independent auditors for the
---------------------------------------------------------
fiscal year ending April 30, 1998
---------------------------------
For Against Abstain
--------- --------- -------
4,017,479 12,230 7,550
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
None
Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K
None
10
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant has
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
HI-TECH PHARMACAL CO.,INC.
(Registrant)
Date December 10, 1997
By:
/s/ Bernard Seltzer
___________________________________________
Bernard Seltzer,
(President and Chief Executive Officer)
Date December 10, 1997
By:
/s/ Arthur S. Goldberg
__________________________________________
Arthur S. Goldberg
(Vice President - Finance and Chief Accounting Officer)
11
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HI-TECH PHARMACAL CO., INC.
COMPUTATION OF NET INCOME PER COMMON SHARE
Schedule 11
Three months Six months
Ended Ended
October 31,1997 October 31, 1997
--------------- ----------------
Primary
-------
Net income................................ $ 439,000 584,000
========== =========
Weighted average number of
shares outstanding: 4,513,000 4,518,000
Shares issuable upon exercise of
dilutive stock options and warrants
net of shares assumed to be
repurchased (at the average
market price for the period)
from exercise proceeds................. 83,000 56,000
---------- ---------
Shares used for computation............... 4,596,000 4,574,000
========== =========
Primary net income
per common share $ .10 .13
========== =========
Fully Diluted
-------------
Net income................................ $ 439,000 584,000
========== =========
Weighted average number of
shares outstanding: 4,513,000 4,518,000
Shares issuable upon exercise of
dilutive stock options and warrants-
net of shares assumed to be
repurchased (at average market
price for the period)
from exercise proceeds................ 83,000 56,000
---------- ---------
Shares used for computation.... 4,596,000 4,574,000
========== ==========
Fully diluted net
income per common share (a) $ .10 .13
========== ==========
(a) Not presented because dilution from primary net income per common share
amount is less than 3%.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
FORM 10-QSB AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> APR-30-1998
<PERIOD-START> AUG-01-1998
<PERIOD-END> OCT-31-1997
<CASH> 1899
<SECURITIES> 0
<RECEIVABLES> 4251
<ALLOWANCES> (190)
<INVENTORY> 4464
<CURRENT-ASSETS> 372
<PP&E> 14745
<DEPRECIATION> (4776)
<TOTAL-ASSETS> 20963
<CURRENT-LIABILITIES> 4516
<BONDS> 0
0
0
<COMMON> 45
<OTHER-SE> 14489
<TOTAL-LIABILITY-AND-EQUITY> 20963
<SALES> 5814
<TOTAL-REVENUES> 5832
<CGS> 3450
<TOTAL-COSTS> 5053
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 70
<INCOME-PRETAX> 709
<INCOME-TAX> 270
<INCOME-CONTINUING> 439
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 439
<EPS-PRIMARY> $0.10
<EPS-DILUTED> $0.10
</TABLE>
