<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 JANUARY 31, 1998
[ ] 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 mployer 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 March 10, 1998.
Transitional Small Business Disclosure Format: Yes ; No X
--- ---
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INDEX
HI-TECH PHARMACAL CO., INC.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed balance sheets--JANUARY 31, 1998 AND
APRIL 30, 1997.
Condensed statements of operations--THREE MONTH AND NINE MONTH
PERIODS ENDED JANUARY 31, 1998 AND 1997.
Condensed statements of cash flows--NINE MONTH
PERIODS ENDED JANUARY 31, 1998 AND 1997.
Notes to condensed financial statements.
Item 2. Management's Discussion and Analysis of Financial
Condition or Plan of Operation
PART II. OTHER INFORMATION
Item 1. Legal proceedings
Item 2. Changes in securities and use of proceeds
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
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PART I. ITEM 1
HI-TECH PHARMACAL CO., INC.
CONDENSED BALANCE SHEETS (UNAUDITED)
JANUARY 31, APRIL 30,
1998 1997
----------- -----------
(unaudited) (From Audited
Financial
Statements)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 3,003,000 1,985,000
Accounts receivable, less allowances of
$250,000 at January 31, 1998 and $160,000
at April 30, 1997 3,937,000 4,034,000
Inventories 4,464,000 4,014,000
Prepaid expenses and other receivables 412,000 548,000
----------- -----------
TOTAL CURRENT ASSETS 11,816,000 10,581,000
PROPERTY, PLANT AND EQUIPMENT -NET 9,696,000 10,106,000
OTHER ASSETS 172,000 119,000
----------- -----------
TOTAL ASSETS $21,684,000 20,806,000
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Notes Payable: Bank $ 815,000 815,000
Current Portion - Long-term debt 462,000 529,000
Accounts payable and accrued expenses 3,598,000 3,325,000
----------- -----------
TOTAL CURRENT LIABILITIES 4,875,000 4,669,000
LONG-TERM DEBT 1,562,000 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 January 31, 1998
and 4,526,000 at April 30, 1997 45,000 45,000
Additional capital 8,604,000 8,604,000
Retained earnings 6,409,000 5,352,000
Treasury stock, 13,500 shares of common
stock, at cost (51,000) -
----------- -----------
TOTAL SHAREHOLDERS' EQUITY 15,007,000 14,001,000
----------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY $21,684,000 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 NINE MONTHS ENDED
JANUARY 31, JANUARY 31,
---------------------- -----------------------
1998 1997 1998 1997
---------- --------- ---------- ----------
<S> <C> <C> <C> <C>
NET SALES $6,046,000 5,753,000 16,568,000 15,184,000
Cost of goods sold 3,396,000 3,340,000 10,051,000 10,112,000
---------- --------- ---------- ----------
GROSS PROFIT 2,650,000 2,413,000 6,517,000 5,072,000
Selling, general and administrative
expenses 1,614,000 1,574,000 4,062,000 3,811,000
Research & product development costs 317,000 338,000 732,000 819,000
Contract research (income) (102,000) - (144,000) (107,000)
Interest expense 63,000 94,000 207,000 248,000
Interest (income) (23,000) (17,000) (62,000) (38,000)
---------- --------- ---------- ----------
Total 1,869,000 1,989,000 4,795,000 4,733,000
INCOME BEFORE INCOME TAXES 781,000 424,000 1,722,000 339,000
Provision for income taxes 308,000 169,000 665,000 135,000
---------- --------- ---------- ----------
NET EARNINGS $ 473,000 255,000 1,057,000 204,000
========== ========= ========== ==========
BASIC EARNINGS PER SHARE $0.10 0.06 0.23 0.05
========== ========= ========== ==========
DILUTED EARNINGS PER SHARE $0.10 0.06 0.23 0.04
========== ========= ========== ==========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
- BASIC EARNINGS PER SHARE 4,526,717 4,525,475 4,516,641 4,526,303
EFFECT OF POTENTIAL COMMON SHARES 56,906 5,287 48,317 96,778
---------- --------- ---------- ----------
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING - DILUTED
EARNINGS PER SHARE 4,583,623 4,530,762 4,564,958 4,623,081
========== ========= ========== ==========
</TABLE>
SEE NOTES TO CONDENSED FINANCIAL STATEMENTS
4
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HI-TECH PHARMACAL CO., INC.
CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
NINE MONTHS ENDED
JANUARY 31,
----------------------
1998 1997
---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES $2,057,000 1,071,000
CASH FLOWS USED IN FINANCING ACTIVITIES
Mortgaged property - repayments (142,000) (142,000)
Repayments of equipment debt (259,000) (264,000)
Issuance (purchase) of common stock (51,000) 14,000
Loans from stockholders - (64,000)
---------- ----------
CASH USED IN FINANCING ACTIVITIES (452,000) (456,000)
CASH FLOWS USED INVESTING ACTIVITIES
Purchases of property, plant and
equipment (534,000) (716,000)
Other assets (53,000) (34,000)
---------- ----------
CASH USED IN INVESTING ACTIVITIES (587,000) (750,000)
NET INCREASE (DECREASE) IN CASH 1,018,000 (135,000)
Cash at beginning of the period 1,985,000 1,746,000
---------- ----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $3,003,000 1,611,000
========== ==========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest $ 202,000 228,000
Income taxes $ 394,000 -
SEE NOTES TO CONDENSED FINANCIAL STATEMENTS
5
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HI-TECH PHARMACAL CO., INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
JANUARY 31, 1998
BASIS OF PRESENTATION
The accompanying unaudited interim 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. The
preparation of the Company's consolidated financial statements in conformity
with generally accepted principles necessarily 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 balance
sheet dates and the reported amounts of revenues and expense during the
reporting periods. Actual results could differ from these estimates and
assumptions. Operating results for the three month period and nine month period
ended January 31, 1998 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 PER SHARE
During the fiscal quarter ended January 31, 1998, the Company adopted Statement
of Financial Accounting Standards ("SFAS") No. 128, "Earnings per Share (EPS),"
which replaced the previously reported primary and fully diluted EPS with basic
and diluted EPS. Unlike primary EPS, basic EPS excludes any dilutive effects of
options, warrants and convertible securities. Diluted EPS is similar to the
previously reported fully diluted EPS. All EPS amounts for all fiscal periods
have been presented and, where necessary, restated to conform to the
requirements of SFAS No. 128.
Employees' stock options outstanding to purchase shares of the Company's Common
Stock were approximately 284,150 for the three and nine month periods ended
January 31, 1998, and approximately 345,150 and 206,100 for the three and nine
month periods ended January 31, 1997, respectively, and were not included in the
computation of diluted EPS because the options' exercise price was greater than
the average market price of the shares of common stock.
6
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HI-TECH PHARMACAL CO., INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
JANUARY 31, 1998
INVENTORIES
The components of inventory consist of the following:
JANUARY 31, APRIL 30,
1998 1997
---------- ---------
Raw materials $2,500,000 2,507,000
Finished products and work in process 1,964,000 1,507,000
---------- ---------
$4,464,000 4,014,000
========== =========
FIXED ASSETS
The components of net plant and equipment consist of the
following:
JANUARY 31, APRIL 30,
1998 1997
----------- ---------
Land and Building $ 4,629,000 4,564,000
Machinery and equipment 9,638,000 9,180,000
Transportation equipment 13,000 13,000
Computer equipment 363,000 354,000
Furniture and fixtures 144,000 142,000
----------- ---------
14,787,000 14,253,000
Depreciation and amortization 5,091,000 4,147,000
----------- ---------
TOTAL FIXED ASSETS $ 9,696,000 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 January 31, 1998.
7
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HI-TECH PHARMACAL CO., INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
JANUARY 31, 1998
ACCOUNTS PAYABLE AND ACCRUED EXPENSES
The components of accounts payable and accrued expenses consist of
the following:
JANUARY 31, APRIL 30,
1998 1997
------------ ----------
Accounts payable $2,314,000 2,384,000
Accrued expenses 1,284,000 941,000
----------- ----------
$3,598,000 3,325,000
=========== ==========
CONTINGENCIES AND OTHER MATTERS
Rugby Laboratories accounted for approximately 22.2% of the shipments during the
quarter, an increase from 21.0% for the respective quarter in fiscal 1997.
Goldline Laboratories accounted for approximately 10.0% of the shipments during
the quarter, an increase from 8.5% for the quarter ended January 31, 1997. These
customers represented approximately 36% of the outstanding trade receivables at
January 31, 1998.
The Company has a net investment of approximately $80,000 in a joint venture for
the marketing and development of a nutritional supplement. Mr. Reuben Seltzer, a
director of the Company has an interest in the joint venture. Mr Reuben Seltzer
is the son of Mr. Bernard Seltzer, Chairman of the Board and Chief Executive
Officer of the Company.
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 January 31, 1998 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.
8
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HI-TECH PHARMACAL CO., INC.
ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
JANUARY 31, 1998
With the exception of the historical information contained in this Form 10QSB,
the matters described herein may include "forward-looking statements" within the
meaning of the Private Securities Reform Act of 1995. Such forward-looking
statements are subject to risks, uncertainties and other factors which could
cause actual results to materially differ from those projected or implied. These
risks include, but are not limited to, the ability of the Company to grow
internally or by acquisition, and to integrate acquired businesses, changing
industry and competitive conditions, and other risks outside the Company's
control referred to in its registration statement and periodic reports filed
with the Securities and Exchange Commission. The Company disclaims any
obligation to update any forward-looking statement.
RESULTS OF OPERATIONS
For the three months ended January 31, 1998 net sales were $6,046,000, an
increase of $ 293,000, or 5.1%, compared to the fiscal 1997 respective period.
Rugby Laboratories accounted for approximately 22.2% of the shipments during the
quarter, an increase from 21.0% for the respective quarter in fiscal 1997.
Goldline Laboratories accounted for approximately 10.0% of the shipments during
the quarter, an increase from 8.5% for the quarter ended January 31, 1997. These
customers represented approximately 36% of the outstanding trade receivables at
January 31, 1998. For the nine months ended January 31, 1998 net sales increased
by $1,384,000, or 9.1%, compared to the fiscal 1997 respective period. Total
nine month net sales were $16,568,000 for the period ended January 31, 1998.
The Company's Health Care Products division had sales of $1,379,000 and
$1,344,000, respectively, for the three months ended January 31, 1998 and 1997.
Rose Laboratories had sales for the three months ended January 31, 1998 and
1997, respectively, of $232,000 and $356,000.
The Company's Health Care Products division had sales for the nine months ended
January 31, 1998 and 1997 of $3,308,000 and $2,419,000, respectively. Rose
Laboratories had sales for the nine months ended January 31, 1998 and 1997 of
$766,000 and $806,000, respectively.
Cost of sales, as a percentage of net sales, decreased from 66.6% to 60.7% for
the nine months ended January 31, 1998 compared to the nine months ended January
31, 1997 and decreased from 58.1% to 56.2% for the three months ended January
31, 1998 compared to the three months ended January 31, 1997 . During the nine
months ended January 31, 1998 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 January 31,
1998 decreased $21,000, or 6.2%, compared to the fiscal 1997 respective period.
Selling, general and administrative expenses, as a percentage of net sales,
decreased to 26.7% from 27.4% for the respective three month period ended
January 31, 1998 and 1997.
Net income for the three months ended January 31, 1998 and 1997 was $473,000 and
$255,000, respectively, an increase of $218,000, because of the factors noted
above. Net income for the nine months ended January 31, 1998 and 1997 was
$1,057,000 and $204,000, respectively, an increase of $853,000, because of the
factors noted above.
9
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
JANUARY 31, 1998 (CONTINUED)
LIQUIDITY AND CAPITAL RESOURCES
The Company's operations are financed principally by cash flow from operations.
During the period ended January 31, 1998, working capital increased to
$ 6,941,000 from $ 5,912,000 at April 30, 1997. During the nine months ended
January 31, 1998 the Company invested $534,000 in fixed assets.
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 January 31, 1998.
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 January 31, 1998 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.
YEAR 2000 COMPLIANCE
The Company relies significantly on computer technology throughout its business
to effectively carry out its day-to-day operations. As the millennium
approaches, the Company is assessing all of its computer systems to ensure that
they are "Year 2000" compliant. In this process the Company may replace or
upgrade certain systems which are not Year 2000 compliant, in order to meet its
internal needs and those of its customers. The Company expects its Year 2000
project to be completed on a timely basis. However, there can be no assurance
that the systems of other companies on which the Company may rely also will be
timely converted or that such failure to convert by another company would not
have an adverse effect on the Company's systems. The cost to the Company of such
changes are difficult to estimate but are not expected to have a material
financial impact. Actual results could differ materially from the Company's
expectations due to unanticipated technological difficulties, vendor delays, and
vendor cost overruns.
10
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
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
Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K
None
11
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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 March 10, 1998
By:
/s/ Bernard Seltzer
- -----------------------------
Bernard Seltzer,
(President and Chief Executive Officer)
Date March 10, 1998
By:
/s/ Arthur S. Goldberg
- -----------------------------
Arthur S. Goldberg
(Vice President - Finance and Chief Accounting Officer)
12
<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> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> APR-30-1998
<PERIOD-START> NOV-01-1997
<PERIOD-END> JAN-31-1998
<CASH> 3,003
<SECURITIES> 0
<RECEIVABLES> 4,187
<ALLOWANCES> (250)
<INVENTORY> 4,464
<CURRENT-ASSETS> 412
<PP&E> 14,787
<DEPRECIATION> (5,091)
<TOTAL-ASSETS> 21,684
<CURRENT-LIABILITIES> 4,875
<BONDS> 0
0
0
<COMMON> 45
<OTHER-SE> 14,962
<TOTAL-LIABILITY-AND-EQUITY> 21,684
<SALES> 6,046
<TOTAL-REVENUES> 6,171
<CGS> 3,396
<TOTAL-COSTS> 5,327
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 63
<INCOME-PRETAX> 781
<INCOME-TAX> 308
<INCOME-CONTINUING> 473
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 473
<EPS-PRIMARY> $0.10
<EPS-DILUTED> $0.10
</TABLE>
