<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, 2000
[ ] 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 incorporation or organization)(IRS Employer
Identification No.)
369 Bayview Avenue, Amityville, New York 11701
(Address of principal executive offices)
_________________631 789-8228__________________
(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 11, 2000.
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, 2000 and
April 30, 2000.
Condensed statements of operations--Three month
periods ended July 31, 2000 and 1999.
Condensed statements of cash flows--Three month
periods ended July 31, 2000 and 1999.
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
PART I. ITEM 1
2
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HI-TECH PHARMACAL CO., INC.
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
July 31, April 30,
2000 2000
--------------- -------------
(unaudited) (From Audited
Financial
Statements)
ASSETS
CURRENT ASSETS
<S> <C> <C>
Cash and cash equivalents $ 4,798,000 5,181,000
Accounts receivable, less allowances of $255,000 at July 31,2000
and $240,000 at April 30, 2000 3,138,000 4,798,000
Inventories 6,336,000 4,922,000
Prepaid taxes 542,000 704,000
Prepaid expenses and other receivables 704,000 599,000
--------------- -------------
TOTAL CURRENT ASSETS 15,518,000 16,204,000
PROPERTY, PLANT AND EQUIPMENT -net 9,141,000 9,360,000
OTHER ASSETS 261,000 265,000
--------------- -------------
TOTAL ASSETS $24,920,000 25,829,000
=============== =============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Current Portion - Long-term debt $ 447,000 447,000
Accounts payable and accrued expenses 4,034,000 5,081,000
--------------- -------------
TOTAL CURRENT LIABILITIES 4,481,000 5,528,000
LONG-TERM DEBT 445,000 556,000
DEFERRED TAXES 1,006,000 1,006,000
--------------- -------------
TOTAL LIABILITIES 5,932,000 7,090,000
SHAREHOLDERS' EQUITY
Preferred stock, par value $ .01 per share; authorized 3,000,000
shares, none issued - -
Common stock, par value $ .01 per share; authorized 10,000,000
shares, issued 4,526,000 at July 31, 2000 and April 30, 2000 45,000 45,000
Additional paid-in capital 8,634,000 8,634,000
Retained earnings 10,928,000 10,657,000
Treasury stock, 149,900 and 144,300 shares of common stock, at
cost on July 31, 2000 and April 30, 2000 (619,000) (597,000)
--------------- -------------
TOTAL SHAREHOLDERS' EQUITY 18,988,000 18,739,000
--------------- -------------
LIABILITIES AND SHAREHOLDERS' EQUITY $24,920,000 25,829,000
=============== =============
</TABLE>
See notes to condensed financial statements
3
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HI-TECH PHARMACAL CO., INC.
CONDENSED STATEMENTS OF OPERATIONS (unaudited)
Three months ended
July 31,
----------------------
2000 1999
---------- ----------
Net sales $5,023,000 4,727,000
Cost of goods sold 2,794,000 2,731,000
---------- ----------
Gross profit 2,229,000 1,996,000
Selling, general, and administrative expense 1,551,000 1,375,000
Research & product development costs 379,000 291,000
Contract research (income) (80,000) (28,000)
Interest expense 37,000 31,000
Interest and other (income) (93,000) (90,000)
---------- ----------
Total 1,794,000 1,579,000
INCOME BEFORE INCOME TAXES 435,000 417,000
Provision for income taxes 164,000 156,000
---------- ----------
NET INCOME $ 271,000 261,000
========== ==========
Basic and diluted income per share $0.06 0.06
========== ==========
Weighted average common shares outstanding - basic 4,378,000 4,434,000
Effect of potential common shares 36,000 36,000
---------- ----------
Weighted average common shares outstanding - diluted 4,414,000 4,470,000
========== ==========
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,
-------------------------
2000 1999
------------ ----------
<S> <C> <C>
CASH FLOWS (USED IN) PROVIDED BY OPERATING ACTIVITIES $ (129,000) 424,000
CASH FLOWS (USED IN) FINANCING ACTIVITIES
Mortgaged property - repayments (47,000) (47,000)
Repayments of equipment debt (64,000) (64,000)
Purchase of common stock (22,000) (122,000)
------------ ----------
CASH (USED IN) FINANCING ACTIVITIES (133,000) (233,000)
CASH FLOWS (USED IN) INVESTING ACTIVITIES
Purchases of property, plant and equipment and other assets (121,000) (382,000)
------------ ----------
CASH (USED IN) INVESTING ACTIVITIES (121,000) (382,000)
NET (DECREASE) IN CASH (383,000) (191,000)
Cash at beginning of the period 5,181,000 4,204,000
------------ ----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $4,798,000 $4,013,000
============ ==========
Supplemental disclosures of cash flow information:
Interest $ 37,000 $ 33,000
Income taxes $ 641,000 $ 30,000
</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, 2000
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, 2000
are not necessarily indicative of the results that may be expected for the year
ended April 30, 2001. For further information, refer to the financial statements
and footnotes thereto for the year ended April 30, 2000 on Form 10-KSB.
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 income per common share is computed based on the weighted average number of
common shares outstanding for basic earnings per share and on the weighted
average number of common shares and share equivalents (stock options)
outstanding for diluted earnings per share.
WORKING CAPITAL REVOLVING LOAN
In February 2000 the Company renewed its working capital credit line at
$6,000,000. At July 31, 2000 the rate for borrowings was 8.12% and there was no
balance outstanding. Borrowings under the line are collateralized by inventory,
accounts receivable and other assets. The agreement contains covenants with
respect to working capital, net worth and certain ratios, as well as other
covenants and prohibits the payment of cash dividends.
6
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HI-TECH PHARMACAL CO., INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
July 31, 2000
INVENTORIES
The components of inventory consist of the following:
July 31, April 30,
2000 2000
---------- ----------
Raw materials $3,400,000 2,746,000
Finished products and work in process 2,936,000 2,176,000
---------- ----------
$6,336,000 4,922,000
========== ==========
FIXED ASSETS
The components of net plant and equipment consist of the following:
July 31, April 30,
2000 2000
---------- ----------
Land and Building $ 5,492,000 5,446,000
Machinery and equipment 11,189,000 11,125,000
Transportation equipment 13,000 13,000
Computer equipment 593,000 586,000
Furniture and fixtures 298,000 294,000
----------- ----------
17,585,000 17,464,000
Accumulated depreciation and amortization 8,444,000 8,104,000
----------- ----------
TOTAL FIXED ASSETS $ 9,141,000 9,360,000
=========== ==========
7
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HI-TECH PHARMACAL CO., INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
July 31, 2000
ACCOUNTS PAYABLE AND ACCRUED EXPENSES
The components of accounts payable and accrued expenses consist of the
following:
July 31, April 30,
2000 2000
----------- -----------
Accounts payable $2,626,000 3,335,000
Accrued expenses 1,408,000 1,746,000
----------- -----------
$4,034,000 5,081,000
=========== ===========
CONTINGENCIES AND OTHER MATTERS
The Company's products and facilities are subject to regulation by a number of
Federal and State governmental agencies. The Food & Drug Administration,
("FDA"), in particular, maintains oversight of the formulation, manufacture,
distribution, packaging and labeling of all of the Company's products.
In September 2000, the FDA issued to the Company its Form 483, "Inspectional
Observations", for their inspection of the Company's facilities. The Company is
preparing its response to these observations. In July 1999 the FDA issued a
"Warning Letter" which indicated certain areas of particular concern. The
Company has implemented a Corrective Action Plan as a result of the Warning
Letter. The plan includes the hiring of additional personnel in certain areas of
the Company's operations which has resulted in additional overhead expense.
The Company had gross sales to Watson Pharmaceuticals (formerly Rugby
Laboratories) which accounted for approximately 17% and 10% of the gross sales
during the quarters ended July 31, 2000 and 1999 respectively. Zenith Goldline
Laboratories, an Ivax company, accounted in the aggregate for approximately 13%
of the gross sales during the quarter ended July 31, 1999. At July 31, 2000,
Watson Pharmaceutical's receivables were 22% of the total outstanding.
The Company has a net investment of approximately $143,000 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, 2000 the Company had purchased 149,900
shares at a cost of $619,000.
8
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ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
July 31, 2000
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, 2000 net sales increased by $296,000, or 6%
compared to the fiscal 2000 respective period. Total net sales were $5,023,000
for the three month period ended July 31, 2000. The Company had gross sales
to Watson Pharmaceuticals (formerly Rugby Laboratories) which accounted for
approximately 17% and 10% of the gross sales during the quarters ended July 31,
2000 and 1999, respectively. Zenith Goldline Laboratories, an Ivax company,
accounted in the aggregate for approximately 13% of the gross sales during the
quarter ended July 31, 1999. At July 31, 2000, Watson Pharmaceutical's
receivables were 22% of the total outstanding.
The Company's Health Care Products division, for the three months ended July 31,
2000, had gross sales of $859,000, which was $100,000 less than the fiscal 2000
respective period sales of $959,000.
Cost of sales, as a percentage of net sales, decreased from 57.8% to 55.6% for
the three months ended July 31, 2000 compared to the three months ended July 31,
1999. This decrease was principally the result of the mix of products produced
or sold.
Contract research income increased $52,000 and research and product development
costs for the three months ended July 31, 2000 increased $88,000 or 30%
compared to the fiscal 2000 respective period, as a result of the completion of
more research projects.
Selling, general and administrative expenses, as a percentage of net sales,
increased for the three months ended July 31, 2000 to 31% from 29% for the
fiscal 2000 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, 2000 and 1999 was $271,000 and
$261,000, respectively, an increase of $ 10,000, 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, 2000 period, working capital increased to $11,037,000 from
$10,676,000 at April 30, 2000. During the quarter ended July 31, 2000 the
Company invested $ 121,000 in fixed assets.
The Company's products and facilities are subject to regulation by a number of
Federal and State governmental agencies. The Food & Drug Administration,
("FDA"), in particular, maintains oversight of the formulation, manufacture,
distribution, packaging and labeling of all of the Company's products.
In September 2000, the FDA issued to the Company its Form 483, "Inspectional
Observations", for their inspection of the Company's facilities. The Company is
preparing its response to these observations. In July 1999 the FDA issued a
"Warning Letter" which indicated certain areas of particular concern. The
Company has implemented a Corrective Action Plan as a result of the Warning
Letter. The plan includes the hiring of additional personnel in certain areas of
the Company's operations which has resulted in additional overhead expense.
In February 2000 the Company renewed its working capital credit line at
$6,000,000. At July 31, 2000 the rate of borrowings was 8.12% and there was no
balance outstanding. Borrowings under the line are collateralized by inventory,
accounts receivable and other assets. The agreement contains covenants with
respect to working capital, net worth and certain ratios, as well as other
covenants and prohibits the payment of cash dividends.
The Company has a net investment of approximately $143,000 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, 2000 the Company had purchased 149,900
shares at a cost of $619,000.
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 11, 2000
By:/s/ David Seltzer
___________________________________________
David Seltzer
(President and Chief Executive Officer)
Date September 11, 2000
By:/s/ Arthur S. Goldberg
________________________________________
Arthur S. Goldberg
(Vice President - Finance and Chief Accounting Officer)
11
