<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, 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 - 4,459,717 shares as of March 11, 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--January 31, 1999 and
April 30, 1998.
Condensed statements of operations--Three month and nine month
periods ended January 31, 1999 and 1998.
Condensed statements of cash flows--Nine month
periods ended January 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
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,
1999 1998
------------- -------------
(unaudited) (From Audited
Financial
Statements)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 4,249,000 2,604,000
Accounts receivable, less allowances of
$354,000 at January 31, 1999 and $226,000
at April 30, 1998 4,514,000 4,133,000
Inventories 4,626,000 4,683,000
Prepaid expenses and other receivables 484,000 458,000
------------- -------------
TOTAL CURRENT ASSETS 13,873,000 11,878,000
PROPERTY, PLANT AND EQUIPMENT -net 9,171,000 9,537,000
OTHER ASSETS 195,000 207,000
------------- -------------
TOTAL ASSETS $23,239,000 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 3,208,000 3,110,000
------------- -------------
TOTAL CURRENT LIABILITIES 4,470,000 3,557,000
LONG-TERM DEBT 1,115,000 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 January 31, 1999
and April 30, 1998 45,000 45,000
Additional capital 8,604,000 8,604,000
Retained earnings 8,316,000 7,087,000
Treasury stock, 57,300 and 13,500 shares of
common stock, at cost January 31, 1999 and
April 30, 1998 (241,000) (51,000)
------------- -------------
TOTAL SHAREHOLDERS' EQUITY 16,724,000 15,685,000
------------- -------------
LIABILITIES AND SHAREHOLDERS' EQUITY $23,239,000 21,622,000
============= =============
</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,
---------------------- --------------------------------
1999 1998 1999 1998
----------- --------- ------------- ------------
<S> <C> <C> <C> <C>
Net sales $6,593,000 6,046,000 16,985,000 16,568,000
Cost of goods sold 3,518,000 3,396,000 9,649,000 10,051,000
----------- --------- ------------- ------------
Gross profit 3,075,000 2,650,000 7,336,000 6,517,000
Selling, general, administrative
expenses 1,957,000 1,614,000 4,724,000 4,062,000
Research & product development costs 279,000 317,000 810,000 732,000
Contract research (income) (31,000) (102,000) (294,000) (144,000)
Interest expense 55,000 63,000 179,000 207,000
Interest (income) (28,000) (23,000) (112,000) (62,000)
----------- --------- ------------- ------------
Total 2,232,000 1,869,000 5,307,000 4,795,000
INCOME BEFORE INCOME TAXES 843,000 781,000 2,029,000 1,722,000
Provision for income taxes 300,000 308,000 800,000 665,000
----------- --------- ------------- ------------
NET EARNINGS $ 543,000 473,000 1,229,000 1,057,000
=========== ========= ============= ============
Basic and diluted net earnings
per common share $0.12 0.10 0.27 0.23
=========== ========= ============= ============
Weighted average common shares
outstanding - basic income per share 4,477,747 4,526,717 4,495,718 4,516,641
Effect of potential common shares 14,179 56,906 43,596 48,317
----------- --------- ------------- ------------
Weighted average common shares
outstanding - diluted income per
share 4,491,926 4,583,623 4,539,314 4,564,958
=========== ========= ============= ============
</TABLE>
See notes to condensed financial statements
4
<PAGE>
HI-TECH PHARMACAL CO., INC.
CONDENSED STATEMENTS OF CASH FLOWS (unaudited)
<TABLE>
<CAPTION>
Nine months ended
January 31,
-----------------------
1999 1998
----------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES $1,978,000 2,057,000
CASH FLOWS USED IN FINANCING ACTIVITIES
Working capital bank loan 815,000 -
Mortgaged property - repayments (95,000) (142,000)
Repayments of equipment debt (240,000) (259,000)
Purchase of common stock (190,000) (51,000)
----------- ----------
CASH PROVIDED BY (USED IN) FINANCING 290,000 (452,000)
ACTIVITIES
CASH FLOWS USED IN INVESTING ACTIVITIES
Purchases of property, plant and (623,000) (534,000)
equipment
Other assets - (53,000)
----------- ----------
CASH USED IN INVESTING ACTIVITIES (623,000) (587,000)
NET INCREASE IN CASH 1,645,000 1,018,000
Cash at beginning of the period 2,604,000 1,985,000
----------- ----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $4,249,000 3,003,000
=========== ==========
Supplemental disclosures of cash flow information:
Interest $ 173,000 202,000
Income taxes $ 400,000 394,000
</TABLE>
See notes to condensed financial statements
5
<PAGE>
HI-TECH PHARMACAL CO., INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
January 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 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 and nine month periods ended
January 31, 1999 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.
Certain employees' stock options outstanding which 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 the Company's Common Stock. The number
of such shares was approximately 417,000 for the nine month period ended January
31, 1999, and approximately 284,000 for the nine month period ended January 31,
1998.
6
<PAGE>
HI-TECH PHARMACAL CO., INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
January 31, 1999
INVENTORIES
The components of inventory consist of the following:
January 31, April 30,
1999 1998
----------- ----------
Raw materials $2,496,000 2,654,000
Finished products and work in process 2,130,000 2,029,000
----------- ----------
$4,626,000 4,683,000
=========== ==========
FIXED ASSETS
The components of net plant and equipment consist of the
following:
January 31, April 30,
1999 1998
----------- ----------
Land and Building $ 4,713,000 4,638,000
Machinery and equipment 10,199,000 9,755,000
Transportation equipment 13,000 13,000
Computer equipment 420,000 375,000
Furniture and fixtures 224,000 165,000
----------- ----------
15,569,000 14,946,000
Depreciation and amortization 6,398,000 5,409,000
----------- ----------
TOTAL FIXED ASSETS $ 9,171,000 9,537,000
=========== ==========
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, 6.97% at January 31, 1999.
7
<PAGE>
HI-TECH PHARMACAL CO., INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
January 31, 1999
ACCOUNTS PAYABLE AND ACCRUED EXPENSES
The components of accounts payable and accrued expenses consist of
the following:
January 31, April 30,
1999 1998
---------- ----------
Accounts payable $2,140,000 2,157,000
Accrued expenses 1,068,000 953,000
$3,208,000 3,110,000
========== =========
CONTINGENCIES AND OTHER MATTERS
Bergen Brunswig accounted for approximately 6.6% of the shipments during the
quarter, an increase from 4.6% for the respective quarter in fiscal 1998. Rugby
Laboratories accounted for approximately 13.9% of the shipments during the
quarter, a decrease from 22.2% for the respective quarter in fiscal 1998.
Goldline Laboratories accounted for approximately 7.9% of the shipments during
the quarter, a decrease from 10.0% for the quarter ended January 31, 1998. These
customers represented approximately 28% of the outstanding trade receivables at
January 31, 1999.
The Company has invested approximately $210,000 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 January 31, 1999 the Company had purchased 57,300 shares at a cost
of $241,000.
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
relocated certain equipment and inventory for 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 no longer has a presence in Connecticut, no longer
produces, or markets certain products and uses the name Rose Laboratories, Inc.
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
<PAGE>
ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
January 31, 1999
RESULTS OF OPERATIONS
For the nine months ended January 31, 1999 net sales increased by $417,000, or
2.5%, compared to the fiscal 1998 respective period. Total nine months net sales
were $16,985,000 for the period ended January 31, 1999. For the three months
ended January 31, 1999 net sales increased by $ 547,000, or 9.0%, compared to
the fiscal 1998 respective period. Total three months net sales were $6,593,000
for the period ended January 31, 1999. Bergen Brunswig accounted for
approximately 6.6% of the shipments during the quarter, an increase from 4.6%
for the respective quarter in fiscal 1998. Rugby Laboratories accounted for
approximately 13.9% of the shipments during the quarter, a decrease from 22.2%
for the respective quarter in fiscal 1998. Goldline Laboratories accounted for
approximately 7.9% of the shipments during the quarter, a decrease from 10.0%
for the quarter ended January 31, 1998. These customers represented
approximately 28% of the outstanding trade receivables at January 31, 1999.
Health Care Products division for the three months ended January 31, 1999 and
1998 had sales of $1,643,000 and $1,398,000, respectively. Rose Laboratories had
sales of $86,000 and $280,000, respectively, for the three months ended January
31, 1999 and 1998.
Health Care Products division for the nine months ended January 31, 1999 and
1998 had sales of $3,594,000 and $3,343,000, respectively. Rose Laboratories had
sales of $341,000 and $853,000, respectively, for the nine months ended January
31, 1999 and 1998. This decrease is due to $493,000 of product shipped from
Amityville which previously would have been shipped by Rose.
Cost of sales, as a percentage of net sales, decreased from 60.7% to 56.8% for
the nine months ended January 31, 1999 compared to the nine months ended January
31, 1998 and decreased from 56.2% to 53.4% for the three months ended January
31, 1999 compared to the three months ended January 31, 1998. During the nine
months ended January 31, 1999 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,
1999 decreased $38,000, or 12.0%, and contract research income decreased $71,000
compared to the fiscal 1998 respective period.
Selling, general and administrative expenses, as a percentage of net sales,
increased to 29.7% from 26.7% for the respective three month period ended
January 31, 1999 and 1998. This was the result of increased expenditures for
advertising and marketing.
Net income for the three months ended January 31, 1999 and 1998 was $543,000 and
$473,000, respectively, an increase of $70,000, because of the factors noted
above. Net income for the nine months ended January 31, 1999 and 1998 was
$1,229,000 and $1,057,000, respectively, an increase of $172,000, because of the
factors noted above.
9
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
January 31, 1999 (continued)
LIQUIDITY AND CAPITAL RESOURCES
The Company's operations are financed principally by cash flow from operations.
During the period ended January 31, 1999, working capital increased to
$9,403,000 from $8,321,000 at April 30, 1998. During the nine months ended
January 31, 1999 the Company invested $623,000 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,
6.97% at January 31, 1999.
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, 1999 the Company had purchased 57,000 shares at a cost
of $241,000.
YEAR 2000 COMPLIANCE
The Company relies 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. Management of the Company has initiated an enterprise-wide program to
prepare the Company's computer systems and applications for the Year 2000, as
well as to identify any other Year 2000 operational issues. 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.
The Company is inventorying all of its non-EDP systems and applications and is
currently assessing the impact of the Year 2000 on them. The Company does not
anticipate that the costs to rectify any Year 2000 issues as they relate to non-
EDP systems and applications will have a material impact on the Company's
operations or financial condition. The Company is addressing the potential
impact to the Company of non-compliance by any of its key suppliers or clients.
The Company's program includes 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. The Company is currently
reviewing their responses and preparing follow-up requests where needed. The
Company is expected to complete its contingency plan with respect to its key
vendors by the end of September 1999. 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 will develop contingency plans for an
alternate source of supply.
10
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
January 31, 1999 (continued)
The Company is in the process of developing a plan to address Year 2000 issues
as they relate to our customers. Non-EDP costs to the Company, excluding costs
due to unanticipated third party Year 2000 problems, will principally consist of
internal staff costs, which are not expected to be material.
The Company will 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 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. The Company is expected to substantially complete its
Year 2000 program by the end of September 1999. The cost of the Company's Year
2000 program and the dates herein are based upon management's best estimates,
which were derived utilizing numerous assumptions of future events, many of
which are beyond the Company's control.
The failure to correct a material Year 2000 problem could result in an
interruption in certain normal business activities or operations of the Company.
Such interruptions could materially and adversely affect the Company's financial
condition, results of operations and cash flows. Based upon current plans and
assumptions, the Company does not expect that the Year 2000 problem will have an
adverse impact on the Company as a whole. Due to the general uncertainty
inherent in the Year 2000 problem, however, there can be no assurance that all
Year 2000 problems will be anticipated and corrected in a timely basis or that
no material disruption to the Company's operations will occur.
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.
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
None
Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K
None
12
<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 March 11, 1999
By:
/s/ David Seltzer
___________________________________________
David Seltzer,
(President and Chief Executive Officer)
Date March 11, 1999
By:
/s/ Arthur S. Goldberg
__________________________________________
Arthur S. Goldberg
(Vice President - Finance and Chief Accounting Officer)
13
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> APR-30-1999
<PERIOD-START> MAY-01-1998
<PERIOD-END> JAN-31-1999
<CASH> 4249
<SECURITIES> 0
<RECEIVABLES> 4868
<ALLOWANCES> (354)
<INVENTORY> 4626
<CURRENT-ASSETS> 484
<PP&E> 15569
<DEPRECIATION> (6398)
<TOTAL-ASSETS> 23239
<CURRENT-LIABILITIES> 4470
<BONDS> 0
0
0
<COMMON> 45
<OTHER-SE> 16679
<TOTAL-LIABILITY-AND-EQUITY> 23239
<SALES> 16985
<TOTAL-REVENUES> 16985
<CGS> 9649
<TOTAL-COSTS> 14777
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 179
<INCOME-PRETAX> 2029
<INCOME-TAX> 800
<INCOME-CONTINUING> 1229
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1229
<EPS-PRIMARY> 0.27
<EPS-DILUTED> 0.27
</TABLE>
