<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, 1999
[_] 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 (IRS Employer Identification No.)
of 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 - 4,526,000 shares as of September 10, 1999.
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--July 31, 1999 and
April 30, 1999.
Condensed statements of operations--Three month
periods ended July 31, 1999 and 1998.
Condensed statements of cash flows--Three month
periods ended July 31, 1999 and 1998.
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
<PAGE>
PART I. ITEM 1
HI-TECH PHARMACAL CO., INC.
CONDENSED BALANCE SHEETS (unaudited)
<TABLE>
<CAPTION>
July 31, April 30,
1999 1999
------------- -------------
(unaudited) (From Audited
Financial
Statements)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 4,013,000 4,204,000
Accounts receivable, less allowances of
$320,000 at July 31, 1999 and $305,000 at April 30, 1999 3,574,000 4,214,000
Inventories 5,023,000 4,285,000
Prepaid taxes 669,000 669,000
Prepaid expenses and other receivables 536,000 429,000
------------- -------------
TOTAL CURRENT ASSETS 13,815,000 13,801,000
PROPERTY, PLANT AND EQUIPMENT -net 9,246,000 9,204,000
OTHER ASSETS 205,000 205,000
------------- -------------
TOTAL ASSETS $ 23,266,000 23,210,000
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Current Portion - Long-term debt $ 447,000 447,000
Accounts payable and accrued expenses 3,443,000 3,415,000
------------- -------------
TOTAL CURRENT LIABILITIES 3,890,000 3,862,000
LONG-TERM DEBT 892,000 1,003,000
DEFERRED TAXES 1,038,000 1,038,000
------------- -------------
TOTAL LIABILITIES 5,820,000 5,903,000
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
4,526,000 at July 31, 1999 and April 30, 1999 45,000 45,000
Additional capital 8,634,000 8,634,000
Retained earnings 9,226,000 8,965,000
Treasury stock, 111,300 and 82,700 shares
of common stock, at cost on July 31, 1999
and April 30, 1999 (459,000) (337,000)
------------- -------------
TOTAL SHAREHOLDERS' EQUITY 17,446,000 17,307,000
------------- -------------
LIABILITIES AND SHAREHOLDERS' EQUITY $ 23,266,000 23,210,000
============= =============
</TABLE>
See notes to condensed financial statements
3
<PAGE>
HI-TECH PHARMACAL CO., INC.
CONDENSED STATEMENTS OF OPERATIONS (unaudited)
<TABLE>
<CAPTION>
Three months ended
July 31,
----------------------------------
1999 1998
-------------- --------------
<S> <C> <C>
Net sales $ 4,727,000 4,387,000
Cost of goods sold 2,731,000 2,650,000
-------------- --------------
Gross profit 1,996,000 1,737,000
Selling, general, and administrative
expense 1,375,000 1,215,000
Research & product development costs 291,000 256,000
Contract research (income) (28,000) (116,000)
Interest expense 31,000 65,000
Interest and other (income) (90,000) (40,000)
-------------- --------------
Total 1,579,000 1,380,000
INCOME BEFORE INCOME TAXES 417,000 357,000
Provision for income taxes 156,000 140,000
-------------- --------------
NET INCOME $ 261,000 217,000
============== ==============
Basic and diluted income per share $ 0.06 0.05
============== ==============
Weighted average common shares
outstanding - basic 4,434,000 4,513,000
Effect of potential common shares 36,000 96,000
-------------- --------------
Weighted average common shares
outstanding - diluted 4,470,000 4,609,000
============== ==============
</TABLE>
See notes to condensed financial statements
4
<PAGE>
HI-TECH PHARMACAL CO., INC.
CONDENSED STATEMENTS OF CASH FLOWS (unaudited)
<TABLE>
<CAPTION>
Three months Ended
July 31,
---------------------------------
1999 1998
------------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES $ 424,000 656,000
CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES
Notes payable - bank - 815,000
Mortgaged property - repayments (47,000) (47,000)
Repayments of equipment debt (64,000) (64,000)
Purchase of common stock (122,000) -
------------- -------------
CASH FROM (USED IN) FINANCING ACTIVITIES (233,000) 704,000
CASH FLOWS USED IN INVESTING ACTIVITIES
Purchases of property, plant and
equipment and other assets (382,000) (386,000)
------------- -------------
CASH USED IN INVESTING ACTIVITIES (382,000) (386,000)
NET INCREASE (DECREASE) IN CASH (191,000) 974,000
Cash at beginning of the period 4,204,000 2,604,000
------------- -------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 4,013,000 3,578,000
============= =============
Supplemental disclosures of cash flow information:
Interest $ 33,000 50,000
Income taxes $ 30,000 -
</TABLE>
See notes to condensed financial statements
5
<PAGE>
HI-TECH PHARMACAL CO., INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
July 31, 1999
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 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, 1999
are not necessarily indicative of the results that may be expected for the year
ended April 30, 2000. For further information, refer to the financial
statements and footnotes thereto for the year ended April 30, 1999 on Form 10-
KSB.
The financial statements include the accounts of the Company and its wholly
owned subsidiary, Rose Laboratories Inc. ("Rose") through September 1, 1998,
when the Company sold Rose. 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
In a prior year 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. EPS amounts for fiscal periods prior to adoption of SFAS 128 have
been restated to conform to the requirements of SFAS No. 128.
Employees' stock options outstanding to purchase shares of the Company's Common
Stock were 388,000 for the three month period ended July 31, 1999, and 197,000
for the three month period ended July 31, 1998 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
<PAGE>
HI-TECH PHARMACAL CO., INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
July 31, 1999
WORKING CAPITAL REVOLVING LOAN
On June 1, 1999 the Company's working capital credit line expired. The Company
expects to execute a new agreement with the same lender with the same basic
terms. At April 25, 1999 the rate was 6.7% and the balance outstanding was
paid. Borrowings under the line were limited to 80% of eligible receivables and
were collateralized by inventory, accounts receivable and all other assets. The
agreement contained covenants with respect to working capital, net worth and
certain ratios, as well as other covenants and prohibited the payment of cash
dividends.
INVENTORIES
The components of inventory consist of the following:
July 31, April 30,
1999 1999
------------ ------------
Raw materials $ 2,869,000 2,481,000
Finished products and work in process 2,154,000 1,804,000
------------ ------------
$ 5,023,000 4,285,000
============ ============
FIXED ASSETS
The components of net plant and equipment consist of the
following:
July 31, April 30,
1999 1999
------------ ------------
Land and Building $ 4,821,000 4,936,000
Machinery and equipment 10,801,000 10,325,000
Transportation equipment 13,000 13,000
Computer equipment 446,000 428,000
Furniture and fixtures 269,000 266,000
------------ ------------
16,350,000 15,968,000
Depreciation and amortization 7,104,000 6,764,000
------------ ------------
TOTAL FIXED ASSETS $ 9,246,000 9,204,000
============ ============
7
<PAGE>
HI-TECH PHARMACAL CO., INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
July 31, 1999
ACCOUNTS PAYABLE AND ACCRUED EXPENSES
The components of accounts payable and accrued expenses consist of the
following:
July 31, April 30,
1999 1999
------------ ------------
Accounts payable $ 2,024,000 2,104,000
Accrued expenses 1,419,000 1,311,000
------------ ------------
$ 3,443,000 3,415,000
============ ============
CONTINGENCIES AND OTHER MATTERS
In March 1999, the Food & Drug Administration, ("FDA") completed and issued
Form 483, "Inspectional Observations", for their inspection of the Company's
facilities. On March 31, 1999, the Company responded to these observations. In
July 1999 the FDA issued a "Warning Letter" which indicated certain areas of
particular concern. The Company is currently formulating a Corrective Action
Plan as a result of the Warning Letter. The plan may include the hiring of
additional personnel in certain areas of the Company's operations which would
result in additional overhead expense. The Company believes that such
additional expense will not have a material adverse affect on the Company's
operations or financial condition.
Zenith Goldline Laboratories, an Ivax company, accounted in the aggregate for
approximately 13% of the gross sales during the quarter ended July 31, 1999. In
addition, the Company had gross sales to Bergen Brunswig Corporation and Watson
Pharmaceuticals (formerly Rugby Laboratories) which accounted for approximately
10% and 11%, respectively, of the gross sales during the quarter ended July 31,
1999.
The Company has a net investment of approximately $137,000 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. In August 1999 the Company increased the stock buy-back program to an
aggregate of $1,000,000. As of July 31, 1999 the Company had purchased 111,300
shares at a cost of $459,000.
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.
SUBSEQUENT EVENTS
As of September 1, 1999, the Company acquired 17,300 additional treasury shares
at a cost of $65,000.
8
<PAGE>
ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
July 31, 1999
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 statements.
RESULTS OF OPERATIONS
For the three months ended July 31, 1999 net sales increased by $340,000, or 8%
compared to the fiscal 1999 respective period. Total net sales were $4,727,000
for the three months period ended July 31, 1999. Zenith Goldline Laboratories,
an Ivax company, accounted for approximately 13% of the gross sales during the
quarter ended July 31, 1999. In addition, the Company had gross sales to Bergen
Brunswig Corporation and Watson Pharmaceuticals (formerly Rugby Laboratories)
which accounted for approximately 10% and 11%, respectively, of the gross sales
during the quarter ended July 31, 1999. These three customers represented
approximately 33% of the outstanding trade receivables at July 31, 1999.
The Company's Health Care Products division, for the three months ended July
31, 1999, had gross sales of $959,000, which was greater than the fiscal 1999
respective period sales of $433,000. Rose Laboratories' products shipped for
the three months ended July 31, 1999 from Amityville, NY, were $93,000 as
compared to $340,000 shipped from Madison, Ct for the three months ended July
31, 1998.
Cost of sales, as a percentage of net sales, decreased from 60.4% to 57.8% for
the three months ended July 31, 1999 compared to the three months ended July
31, 1998. This decrease was principally the result of the mix of products
produced or sold.
Contract research income decreased $88,000 and research and product development
costs for the three months ended July 31, 1999 increased $35,000 or 14%
compared to the fiscal 1999 respective period, as a result of the completion of
fewer research projects.
Selling, general and administrative expenses, as a percentage of net sales,
increased for the three months ended July 31, 1999 to 29% from 28% for the
fiscal 1999 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, 1999 and 1998 was $261,000 and
$217,000, respectively, an increase of $44,000, 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, 1999 period, working capital decreased to $9,925,000 from
$9,939,000 at April 30, 1999. During the quarter ended July 31, 1999 the
Company invested $ 382,000 in fixed assets.
On June 1, 1999 the Company's working capital credit line expired. The Company
expects to execute a new agreement with the same lender with the same basic
terms. At April 25, 1999 the rate was 6.7% and the balance outstanding was
paid. Borrowings under the line were limited to 80% of eligible receivables and
were collateralized by inventory, accounts receivable and all other assets. The
agreement contained covenants with respect to working capital, net worth and
certain ratios, as well as other covenants and prohibited the payment of cash
dividends.
In March 1999, the Food & Drug Administration, ("FDA") completed and issued
Form 483, "Inspectional Observations", for their inspection of the Company's
facilities. On March 31, 1999, the Company responded to these observations. In
July 1999 the FDA issued a "Warning Letter" which indicated certain areas of
particular concern. The Company is currently formulating a Corrective Action
Plan as a result of the Warning Letter. The plan may include the hiring of
additional personnel in certain areas of the Company's operations which would
result in additional overhead expense. The Company believes that such
additional expense will not have a material adverse affect on the Company's
operations or financial condition.
The Company has a net investment of approximately $137,000 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. In August 1999 the Company increased the stock buy-back program to an
aggregate of $1,000,000. As of July 31, 1999 the Company had purchased 111,300
shares at a cost of $459,000. As of September 1, 1999, the Company had acquired
17,300 additional treasury shares at a cost of $65,000.
10
<PAGE>
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 has assessed 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 Company estimates that the
cost of resolving the Year 2000 issues will be less than $250,000 not including
internal staff. Costs associated with new hardware and software are expected to
be capitalized and amortized consistent with the Company's accounting policies.
Consulting and other costs will be expensed as incurred. All Year 2000 costs
will be paid in cash generated from the Company's operations. 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 has addressed 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 has developed contingency plans for an alternate source of supply.
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.
11
<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) 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 10, 1999
By: /s/ David Seltzer
------------------------------------------
David Seltzer
(President and Chief Executive Officer)
Date September 10, 1999
By: /s/ Arthur S. Goldberg
------------------------------------------
Arthur S. Goldberg
(Vice President - Finance and Chief Accounting Officer)
12
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> APR-30-2000
<PERIOD-START> MAY-01-1999
<PERIOD-END> JUL-31-1999
<CASH> 4,013
<SECURITIES> 0
<RECEIVABLES> 3,894
<ALLOWANCES> (320)
<INVENTORY> 5,023
<CURRENT-ASSETS> 1,205
<PP&E> 16,350
<DEPRECIATION> (7,104)
<TOTAL-ASSETS> 23,266
<CURRENT-LIABILITIES> 3,890
<BONDS> 0
0
0
<COMMON> 45
<OTHER-SE> 17,401
<TOTAL-LIABILITY-AND-EQUITY> 23,266
<SALES> 4,727
<TOTAL-REVENUES> 4,727
<CGS> 2,731
<TOTAL-COSTS> 4,279
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 31
<INCOME-PRETAX> 417
<INCOME-TAX> 156
<INCOME-CONTINUING> 261
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 261
<EPS-BASIC> 0.06
<EPS-DILUTED> 0.06
</TABLE>