<PAGE>
U.S. Securities and Exchange Commission
Washington, D.C. 20549
Form 10-QSB
[x] QUARTERLY REPORT PURSUANT SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended JANUARY 31, 1997
[ ] TRANSITION REPORT PURSUANT 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 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 - 4,475,707 shares as of March 13, 1997.
<PAGE>
INDEX
HI-TECH PHARMACAL CO.,INC.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed balance sheets--JANUARY 31, 1997 AND
APRIL 30, 1996.
Condensed statements of operations--THREE MONTH AND NINE MONTH
PERIODS ENDED JANUARY 31, 1997 AND 1996.
Condensed statements of cash flows--NINE MONTH
PERIODS ENDED JANUARY 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
<TABLE>
<CAPTION>
JANUARY 31, APRIL 30,
1997 1996
-------------- --------------
(unaudited) (From Audited
Financial
Statements)
ASSETS
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 1,611,000 1,746,000
Accounts receivable, less allowances of 4,391,000 3,699,000
$205,000 at January 31, 1997 and $160,000
at April 30, 1996
Inventories 3,492,000 3,646,000
Income taxes receivable 155,000 207,000
Prepaid expenses and other receivables 362,000 272,000
----------- -----------
TOTAL CURRENT ASSETS 10,011,000 9,570,000
PROPERTY, PLANT AND EQUIPMENT -NET 10,388,000 10,598,000
OTHER ASSETS 100,000 66,000
----------- -----------
TOTAL ASSETS $20,499,000 20,234,000
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Notes Payable: Bank $ 815,000 815,000
Current Portion - Long-term debt 537,000 599,000
Accounts payable and accrued expenses 3,509,000 2,992,000
----------- -----------
TOTAL CURRENT LIABILITIES 4,861,000 4,406,000
LONG-TERM DEBT 2,019,000 2,427,000
Deferred taxes 230,000 230,000
SHAREHOLDERS' EQUITY
Preferred stock, par value $ .01 per share; - -
authorized 3,000,000 shares
Common stock, par value $ .01 per share; 45,000 45,000
authorized 10,000,000 shares, issued and
outstanding 4,476,000 at January 31, 1997
and 4,472,000 at April 30, 1996
Additional capital 8,605,000 8,591,000
Retained earnings 4,739,000 4,535,000
----------- -----------
TOTAL SHAREHOLDERS' EQUITY 13,389,000 13,171,000
----------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY $20,499,000 20,234,000
=========== ===========
</TABLE>
SEE NOTES TO CONDENSED FINANCIAL STATEMENTS
3
<PAGE>
HI-TECH PHARMACAL CO., INC.
CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
JANUARY 31, JANUARY 31,
-------------------------------------------------
1997 1996 1997 1996
----------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
NET SALES $5,753,000 5,045,000 15,184,000 14,345,000
Cost of goods sold 3,340,000 2,968,000 10,112,000 8,403,000
----------- ---------- ----------- -----------
GROSS PROFIT 2,413,000 2,077,000 5,072,000 5,942,000
Selling, general, 1,574,000 1,142,000 3,811,000 3,208,000
administrative expenses
Research & product 338,000 149,000 819,000 445,000
development costs
Contract research (income) 0 (130,000) (107,000) (243,000)
Interest expense 94,000 7,000 248,000 61,000
Interest (income) (17,000) (14,000) (38,000) (54,000)
----------- ---------- ----------- -----------
Total 1,989,000 1,154,000 4,733,000 3,417,000
INCOME BEFORE INCOME TAXES 424,000 923,000 339,000 2,525,000
Provision for income taxes 169,000 365,000 135,000 997,000
----------- ---------- ----------- -----------
NET EARNINGS $ 255,000 558,000 204,000 1,528,000
=========== ========== =========== ===========
NET EARNINGS
PER COMMON SHARE 0.06 0.12 0.04 0.34
=========== ========== =========== ===========
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING 4,541,000 4,607,000 4,586,000 4,546,000
=========== ========== =========== ===========
</TABLE>
SEE NOTES TO CONDENSED FINANCIAL STATEMENTS
4
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HI-TECH PHARMACAL CO., INC.
CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION> NINE MONTHS ENDED
JANUARY 31,
-----------------------
1997 1996
---------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES $1,071,000 1,065,000
CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES
Mortgaged property - repayments (142,000) (142,000)
Repayments of equipment debt (264,000) (327,000)
Issuance of common stock 14,000 568,000
Loans from shareholders (64,000) -
---------- ----------
CASH FROM (USED IN) FINANCING ACTIVITIES (456,000) 99,000
CASH FLOWS USED IN INVESTING ACTIVITIES
Purchases of property, plant and (716,000) (1,341,000)
equipment
Other assets (34,000) (7,000)
---------- ----------
CASH USED IN INVESTING ACTIVITIES (750,000) (1,348,000)
NET DECREASE IN CASH (135,000) (184,000)
Cash at beginning of the period 1,746,000 1,781,000
---------- ----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $1,611,000 1,597,000
========== ==========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest $ 228,000 305,000
Income taxes - 673,000
</TABLE>
SEE NOTES TO CONDENSED FINANCIAL STATEMENTS
5
<PAGE>
HI-TECH PHARMACAL CO., INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
JANUARY 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 nine month
period ended January 31, 1997 are not necessarily indicative of the results that
may be expected for the year ending April 30, 1997. For further information,
refer to the financial statements and footnotes thereto for the year ended April
30, 1996 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 PER SHARE
Net earnings 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:
<TABLE>
<CAPTION>
JANUARY 31, APRIL 30,
1997 1996
----------- ----------
<S> <C> <C>
Raw materials $2,592,000 2,380,000
Finished products and work in process 900,000 1,266,000
---------- ---------
$3,492,000 3,646,000
========== =========
</TABLE>
6
<PAGE>
HI-TECH PHARMACAL CO., INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
JANUARY 31, 1997
FIXED ASSETS
The components of net plant and equipment consist of the
following:
<TABLE>
<CAPTION>
JANUARY 31, APRIL 30,
1997 1996
------------- ----------
<S> <C> <C>
Land and Building $ 4,572,000 4,342,000
Machinery and equipment 9,154,000 8,751,000
Transportation equipment 13,000 13,000
Computer equipment 346,000 305,000
Furniture and fixtures 138,000 96,000
----------- ----------
14,223,000 13,507,000
Depreciation and amortization 3,835,000 2,909,000
----------- ----------
TOTAL FIXED ASSETS $10,388,000 10,598,000
=========== ==========
</TABLE>
WORKING CAPITAL REVOLVING LOAN
The Company had a working capital credit line with a bank in the amount of
$2,000,000 which expired in January 1997 bearing interest at the bank's prime
interest rate, 8.25%, at January 31, 1997. The Company believes that such credit
line will be extended and is negotiating such extension.
7
<PAGE>
HI-TECH PHARMACAL CO., INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
JANUARY 31, 1997
ACCOUNTS PAYABLE AND ACCRUED EXPENSES
The components of accounts payable and accrued expenses consist of
the following:
<TABLE>
<CAPTION>
JANUARY 31, APRIL 30,
1996 1996
------------ -----------
<S> <C> <C>
Accounts payable $2,748,000 2,269,000
Accrued expenses 761,000 723,000
------------- -----------
$3,509,000 2,992,000
============= ===========
</TABLE>
CONTINGENCIES AND OTHER MATTERS
Rugby Laboratories, the Company's largest customer, accounted for approximately
21% of the shipments during the quarter, a decrease from approximately 27% for
the respective quarter in fiscal 1996. Goldline Laboratories accounted for less
than 10% of the shipments during the quarter and for the respective quarter
ended January 31, 1996. These customers represented approximately 43% of the
outstanding trade receivables at January 31, 1997.
ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
JANUARY 31, 1997
For the nine months ended January 31, 1997 net sales increased by $ 839,000, or
5.8% compared to the fiscal 1996 respective period. Total nine months net sales
were $15,184,000 for the period ended January 31, 1997. For the three months
ended January 31, 1997 net sales increased by $ 708,000 or 14% compared to the
fiscal 1996 respective period. Total three months net sales were $5,753,000 for
the period ended January 31, 1997. Rugby Laboratories, the Company's largest
customer, accounted for approximately 21% of the shipments during the quarter,
as compared to 27% for the respective quarter in fiscal 1996. Goldline
Laboratories accounted for less than 10% of the shipments during the quarter.
These customers represented approximately 43% of the outstanding trade
receivables at January 31, 1997.
Health Care Products division for the three months ended January 31, 1997 and
1996 had shipments of $1,344,000 and $860,000, respectively. Rose Laboratories
had sales of $356,000 and $318,000, respectively, for the three months ended
January 31, 1997 and 1996.
Health Care Products division for the nine months ended January 31, 1997 and
1996 had sales of $2,419,000 and $2,205,000, respectively. Rose Laboratories had
sales of $806,000 and $1,006,000, respectively, for the nine months ended
January 31, 1997 and 1996.
8
<PAGE>
Cost of sales, as a percentage of net sales, decreased from 58.8% to 58.1% for
the three months ended January 31, 1997 compared to the three months ended
January 31, 1996 and increased from 58.6% to 66.6% for the nine months ended
January 31, 1997 compared to the nine months ended January 31, 1996. The
decrease for the three months ended January 31, 1997 was principally the result
of changes in the product mix of sales consisting of Health Care products as
compared to Hi-Tech private label products. During the nine months ended January
31, 1997 this increase was principally the result of the costs in excess of
revenues associated with the sterile manufacturing facility including Labor
$383,000; Depreciation $310,000; Factory supplies and expense $195,000. The
Company will incur additional expense over the initial start-up period and in
the future as the unit volume manufactured increases such unit excess costs will
diminish.
Research and product development costs for the three months ended January 31,
1997 increased $189,000 or 126.8% compared to the fiscal 1996 respective
period, as a result of the Company's efforts to develop new products.
Selling, general and administrative expenses, as a percentage of net sales,
increased for the three months to 27.3% from 22.6%. Such percentage increased
principally from increased freight and commission expenses which vary with
customer mix and shipment size.
Net income for the three months ended January 31, 1997 and 1996 was $255,000
and $558,000, respectively, a decrease of $303,000, because of the factors noted
above. Net income for the nine months ended January 31, 1997 and 1996 was
$204,000 and $1,528,000, respectively, a decrease of $1,324,000, because of the
factors noted above.
MANAGEMENT'S DISCUSSION AND ANALYSIS - LIQUIDITY AND CAPITAL RESOURCES
The Company's operations are financed principally by cash flow from operations.
During the period ended January 31, 1997, working capital decreased to
$5,150,000 from $ 5,164,000 at April 30, 1996. During the nine months ended
January 31, 1997 the Company invested $716,000 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 Fiscal 1996.
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
initial start-up period.
The Company had a working capital credit line with a bank of $2,000,000 which
expired in January 1997 bearing interest at the bank's prime interest rate,
8.25%, at January 31, 1997. The Company believes that such credit line will be
extended.
The Company's management believes that its financial resources, operating
revenue and credit line when renewed 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 subject to 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
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K
None
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant has
duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
HI-TECH PHARMACAL CO.,INC.
(REGISTRANT)
Date March 14, 1997
By:
/s/ Bernard Seltzer
- ----------------------
Bernard Seltzer
(President and Chief Executive Officer)
Date March 14, 1997
By:
/s/ Arthur S. Goldberg
- ----------------------
Arthur S. Goldberg
(Vice President - Finance and Chief Accounting Officer)
10
<PAGE>
HI-TECH PHARMACAL CO., INC.
COMPUTATION OF NET INCOME PER COMMON SHARE
Schedule 11
Three months Nine months
Ended Ended
January 31, 1997 January 31, 1997
---------------- ----------------
Primary
-------
Net income......................... $ 255,000 204,000
=========== ===========
Weighted average number of
shares outstanding: 4,476,000 4,476,000
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......... 14,000 59,000
Contingent shares - Dr. Rose acquisition 51,000 51,000
----------- -----------
Shares used for computation...... 4,541,000 4,586,000
=========== ===========
Primary net income
per common share $ .06 .04
=========== ===========
Fully Diluted
-------------
Net income......................... $ 255,000 $ 204,000
=========== ===========
Weighted average number of
shares outstanding: 4,476,000 4,476,000
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......... 14,000 59,000
Contingent shares - Dr. Rose acquisition 51,000 51,000
----------- -----------
Shares used for computation...... 4,541,000 4,586,000
=========== ===========
Fully diluted net
income per common share (a) $ .06 $ .04
=========== ===========
(a) Not presented because dilution from primary net income per common share
amount is less than 3%.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> APR-30-1997
<PERIOD-START> NOV-01-1996
<PERIOD-END> JAN-31-1997
<CASH> 1611
<SECURITIES> 0
<RECEIVABLES> 4596
<ALLOWANCES> (205)
<INVENTORY> 3492
<CURRENT-ASSETS> 10011
<PP&E> 14223
<DEPRECIATION> (3835)
<TOTAL-ASSETS> 20499
<CURRENT-LIABILITIES> 4861
<BONDS> 0
0
0
<COMMON> 45
<OTHER-SE> 13344
<TOTAL-LIABILITY-AND-EQUITY> 20499
<SALES> 5753
<TOTAL-REVENUES> 5753
<CGS> 3340
<TOTAL-COSTS> 1895
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 94
<INCOME-PRETAX> 424
<INCOME-TAX> 169
<INCOME-CONTINUING> 255
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 255
<EPS-PRIMARY> 0.06
<EPS-DILUTED> 0.06
</TABLE>
