<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 JULY 31, 1998
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the transition period from to
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Commission file number 0-20424
HI-TECH PHARMACAL CO., INC.
(Exact name of small business issuer as specified in its charter)
Delaware 112638720
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(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
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(Issuer's telephone number)
Not applicable
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(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
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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
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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 - 4,526,000 shares as of September 14, 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--JULY 31, 1998 AND
APRIL 30, 1998.
Condensed statements of operations--THREE MONTH
PERIODS ENDED JULY 31, 1998 AND 1997.
Condensed statements of cash flows--THREE MONTH
PERIODS ENDED JULY 31, 1998 AND 1997.
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 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)
<TABLE>
<CAPTION>
JULY 31, APRIL 30,
1998 1998
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(unaudited) (From Audited
Financial
Statements)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 3,578,000 2,604,000
Accounts receivable, less allowances of
$241,000 at July 31, 1998 and $226,000
at April 30, 1998 2,948,000 4,133,000
Inventories 5,427,000 4,683,000
Prepaid expenses and other receivables 310,000 458,000
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TOTAL CURRENT ASSETS 12,263,000 11,878,000
PROPERTY, PLANT AND EQUIPMENT -NET 9,593,000 9,537,000
OTHER ASSETS 207,000 207,000
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TOTAL ASSETS $22,063,000 21,622,000
=========== =============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Notes Payable: Bank $ 815,000 -
Current Portion - Long-term debt 447,000 447,000
Accounts payable and accrued expenses 2,630,000 3,110,000
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TOTAL CURRENT LIABILITIES 3,891,000 3,557,000
LONG-TERM DEBT 1,339,000 1,450,000
DEFERRED TAXES 930,000 930,000
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 July 31, 1998 and
April 30, 1998 45,000 45,000
Additional capital 8,604,000 8,604,000
Retained earnings 7,304,000 7,087,000
Treasury stock, 13,500 shares of common
stock, at cost (51,000) (51,000)
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TOTAL SHAREHOLDERS' EQUITY 15,902,000 15,685,000
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LIABILITIES AND SHAREHOLDERS' EQUITY $22,063,000 21,622,000
=========== =============
</TABLE>
SEE NOTES TO CONDENSED FINANCIAL STATEMENTS
3
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<TABLE>
<CAPTION>
HI-TECH PHARMACAL CO., INC.
CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)
THREE MONTHS ENDED
JULY 31,
----------------------
1998 1997
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<S> <C> <C>
NET SALES $4,387,000 4,708,000
Cost of goods sold 2,650,000 3,205,000
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GROSS PROFIT 1,737,000 1,503,000
Selling, general, and administrative 1,215,000 1,040,000
expense
Research & product development costs 256,000 179,000
Contract research (income) (116,000) (1,000)
Interest expense 65,000 74,000
Interest and other (income) (40,000) (21,000)
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Total 1,380,000 1,271,000
INCOME BEFORE INCOME TAXES 357,000 232,000
Provision for income taxes 140,000 87,000
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NET INCOME $ 217,000 145,000
========== =========
BASIC AND DILUTED INCOME PER SHARE $0.05 0.03
========== =========
Weighted average common shares 4,513,000 4,523,000
outstanding - basic income per share
Effect of potential common shares 96,000 8,000
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Weighted average common shares
outstanding - diluted income per share 4,609,000 4,531,000
========== =========
</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>
THREE MONTHS ENDED
JULY 31,
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1998 1997
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES $ 656,000 472,000
CASH FLOWS FROM FINANCING ACTIVITIES
Notes payable - bank 815,000 -
Mortgaged property - repayments (47,000) (47,000)
Repayments of equipment debt (64,000) (87,000)
Purchase of common stock - (51,000)
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CASH FROM FINANCING ACTIVITIES 704,000 (185,000)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property, plant and
equipment and other assets (386,000) (350,000)
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CASH USED IN INVESTING ACTIVITIES (386,000) (350,000)
NET INCREASE (DECREASE) IN CASH 974,000 (63,000)
Cash at beginning of the period 2,604,000 1,985,000
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CASH AND CASH EQUIVALENTS AT END OF PERIOD $3,578,000 1,922,000
=========== ==========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest $ 50,000 70,000
Income taxes $ - 50,000
</TABLE>
SEE NOTES TO CONDENSED FINANCIAL STATEMENTS
5
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HI-TECH PHARMACAL CO., INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
JULY 31, 1998
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. 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 ended July 31, 1998
are not necessarily indicative of the results that may be expected for the year
ended April 30, 1999. For further information, refer to the financial statements
and footnotes thereto for the year ended April 30, 1998 on Form 10-KSB.
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 197,000 for the three month period ended July 31, 1998,
and approximately 355,000 for the three month period ended July 31, 1997 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)
JULY 31, 1998
WORKING CAPITAL REVOLVING LOAN
The Company has a working capital credit line of $5,000,000 with a bank which
expires in June 1999 and bears interest at the libor rate plus 175 basis
points, 7.47% at July 31, 1998.
INVENTORIES
The components of inventory consist of the following:
JULY 31, APRIL 30,
1998 1998
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Raw materials $3,169,000 2,654,000
Finished products and work in process 2,258,000 2,029,000
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$5,427,000 4,683,000
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FIXED ASSETS
The components of net plant and equipment consist of the
following:
JULY 31, APRIL 30,
1998 1998
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Land and Building $ 4,705,000 4,638,000
Machinery and equipment 10,036,000 9,755,000
Transportation equipment 13,000 13,000
Computer equipment 398,000 375,000
Furniture and fixtures 180,000 165,000
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15,332,000 14,946,000
Depreciation and amortization 5,739,000 5,409,000
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TOTAL FIXED ASSETS $ 9,593,000 9,537,000
=========== ==========
7
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HI-TECH PHARMACAL CO., INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
JULY 31, 1998
ACCOUNTS PAYABLE AND ACCRUED EXPENSES
The components of accounts payable and accrued expenses consist of
the
following:
JULY 31, APRIL 30,
1998 1998
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Accounts payable $2,002,000 2,157,000
Accrued expenses 628,000 953,000
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$2,630,000 3,110,000
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CONTINGENCIES AND OTHER MATTERS
Zenith Goldline Laboratories, an Ivax company, accounted in the aggregate for
approximately 10% of the gross sales during the quarter ended July 31, 1998. In
addition, the Company had gross sales to Bergen Brunswig Corporation and Watson
Pharmaceuticals (Rugby Laboratories) which accounted for approximately 11% and
14%, respectively, of the gross sales during the quarter ended July 31, 1998.
The Company has a net investment of approximately $132,000 in a joint venture
for the marketing and development of a nutritional supplement. In addition, the
Company has guaranteed $1,500,000 of revolving debt of this joint venture to its
commercial lender. 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 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 July 31, 1998 the Company had purchased 13,500 shares at a cost of
$51,000.
SUBSEQUENT EVENTS
On September 1, 1998, the Company sold to the management of Rose Laboratories,
Inc., ("Rose"), inventory used to make certain Rose products and the name "Rose
Laboratories, Inc". In addition, the parties executed Royalty, Confidentiality
and Non-Compete agreements. The Company received $200,000 for the inventory and
transferred the equipment and the production of certain Rose products to its
plant in Amityville, NY. The management of Rose Laboratories resigned and
terminated the lease for the plant in Madison, Ct. As a result of the sale, the
Company will no longer have a presence in Connecticut or produce or market
certain products and will not use the name Rose Laboratories, Inc.
As of September 10, 1998, the Company had acquired approximately 24,000
additional treasury shares at a cost of $105,000.
8
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ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
JULY 31, 1998
With the exception of the historical information contained in this Form 10-QSB,
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 July 31, 1998 net sales decreased by $ 321,000 , or
7% compared to the fiscal 1998 respective period. Total net sales were
$4,387,000 for the three months period ended July 31, 1998. Zenith Goldline
Laboratories, an Ivax company, accounted for approximately 10% of the gross
sales during the quarter ended July 31, 1998. In addition, the Company had
gross sales to Bergen Brunswig Corporation and Watson Pharmaceuticals, (Rugby
Laboratories) which accounted for approximately 11% and 14%, respectively, of
the gross sales during the quarter ended July 31, 1998. These customers
represented approximately 41% of the outstanding trade receivables at July 31,
1998.
The Company's Health Care Products division, for the three months ended July 31,
1998, had gross sales of $456,000, which was lower than the fiscal 1998 sales of
$806,000. Rose Laboratory's products shipped for the three months ended July 31,
1998 from Amityville, NY. were $340,000 as compared to $281,000 shipped from
Madison Ct. for the three months ended July 31, 1997.
Cost of sales, as a percentage of net sales, decreased from 68.1% to 60.4% for
the three months ended July 31, 1998 compared to the three months ended July 31,
1997. This decrease was principally the result of the mix of products produced
or sold.
Contract research income increased $115,000 and research and product development
costs for the three months ended July 31, 1998 increased $77,000 or 43%
compared to the fiscal 1998 respective period, as a result of more research
projects.
Selling, general and administrative expenses, as a percentage of net sales,
increased for the three months ended July 31,1998 to 28% from 22% for the
fiscal 1998 respective period. Such percentage increase resulted from increased
selling expenses from additional sales personnel and increased advertising
activities.
Net income for the three months ended July 31, 1998 and 1997 was $217,000 and
$145,000, respectively, an increase of $72,000, because of the factors noted
above.
9
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
(CONTINUED)
LIQUIDITY AND CAPITAL RESOURCES
The Company's operations are financed principally by cash flow from operations.
During the July 31, 1998 period, working capital increased to $8,371,000 from
$ 8,321,000 at April 30, 1998. During the quarter ended July 31, 1998 the
Company invested $ 386,000 in fixed assets.
The Company has a working capital credit line with a bank of $5,000,000 which
expires in June 1999 and bears interest at the libor rate plus 175 basis points,
7.47% at July 31, 1998.
The Company has a net investment of approximately $132,000 in a joint venture
for the marketing and development of a nutritional supplement. In addition, the
Company has guaranteed $1,500,000 of revolving debt of this joint venture to its
commercial lender. 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 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 April 30, 1998 the Company had purchased 13,500 shares at a cost of
$51,000. As of September 10, 1998, the Company had acquired approximately 24,000
additional treasury shares for a cost of $105,000.
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. With respect to its internal business systems, the Company is
working with third-party vendors of such systems to ensure that Year 2000
compliance either exists or will be achieved via vendor supplied upgrades in a
timely manner. Furthermore, that Company is addressing the potential impact to
the Company of non-compliance by any of its key suppliers or clients. The
Company's programs include communications with the Company's significant vendors
to determine the extent to which the Company is vulnerable to any failures by
them to address the Year 2000 issue. On a case by case basis, where the Company
determines that it may be at a material adverse risk due to non-compliance by
any of its key vendors, the Company may develop contingency plans for an
alternate source of supply. The Company may incur internal costs as well as
consulting and other expenses related to the Year 2000 problem. Actual results
could differ materially from the Company's expectations due to unanticipated
technological difficulties, vendor delays, and vendor cost overruns.
The Company's management believes that its financial resources, operating
revenue and credit line will be sufficient to meet its expected working capital
requirements.
10
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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) Exhibits
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 September 14, 1998
By:/s/ David Seltzer
-------------------------------------------
David Seltzer,
(President and Chief Executive Officer)
Date September 14, 1998
By:/s/ Arthur S. Goldberg
-------------------------------------------
Arthur S. Goldberg
(Vice President - Finance and Chief Accounting Officer)
11
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<PERIOD-END> JUL-31-1998
<CASH> 3578
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<RECEIVABLES> 3189
<ALLOWANCES> (241)
<INVENTORY> 5427
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0
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