<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 October 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 December 14, 2000.
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--October 31, 2000 and April 30, 2000.
Condensed statements of operations--Three month and six month periods
ended October 31, 2000 and 1999.
Condensed statements of cash flows--Six month periods ended October 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
2
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PART I. ITEM 1
HI-TECH PHARMACAL CO., INC.
CONDENSED BALANCE SHEETS (unaudited)
<TABLE>
<CAPTION>
October 31, April 30,
2000 2000
---------------------- -------------------
(unaudited) (From Audited
Financial
Statements)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 3,476,000 5,181,000
Accounts receivable, less allowances of $270,000 at October 31, 2000 and
$240,000 at April 30, 2000 5,813,000 4,798,000
Inventories 5,702,000 4,922,000
Prepaid taxes 487,000 704,000
Prepaid expenses and other receivables 563,000 599,000
----------------- -----------------
TOTAL CURRENT ASSETS 16,041,000 16,204,000
PROPERTY, PLANT AND EQUIPMENT -net 9,107,000 9,360,000
OTHER ASSETS 262,000 265,000
----------------- -----------------
TOTAL ASSETS $ 25,410,000 25,829,000
================= =================
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Current Portion - Long-term debt $ 447,000 447,000
Accounts payable and accrued expenses 4,176,000 5,081,000
----------------- -----------------
TOTAL CURRENT LIABILITIES 4,623,000 5,528,000
LONG-TERM DEBT 333,000 556,000
DEFERRED TAXES 1,006,000 1,006,000
----------------- -----------------
TOTAL LIABILITIES 5,962,000 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 October 31, 2000 and April 30, 2000 45,000 45,000
Additional capital 8,634,000 8,634,000
Retained earnings 11,437,000 10,657,000
Treasury stock, 161,400 and 144,300 shares of common stock, at cost on
October 31, 2000 and April 30, 2000 (668,000) (597,000)
----------------- -----------------
TOTAL SHAREHOLDERS' EQUITY 19,448,000 18,739,000
----------------- -----------------
LIABILITIES AND SHAREHOLDERS' EQUITY $ 25,410,000 25,829,000
================= =================
</TABLE>
See notes to condensed financial statements
3
<PAGE>
HI-TECH PHARMACAL CO., INC.
CONDENSED STATEMENTS OF OPERATIONS (unaudited)
<TABLE>
<CAPTION>
Three months ended Six months ended
October 31, October 31,
------------------------------- ---------------------------------
2000 1999 2000 1999
--------------- ------------- -------------- --------------
<S> <C> <C> <C> <C>
Net sales $7,870,000 6,736,000 12,893,000 11,463,000
Cost of goods sold 4,579,000 3,642,000 7,373,000 6,373,000
--------------- -------------- -------------- --------------
Gross profit 3,291,000 3,094,000 5,520,000 5,090,000
Selling, general, administrative expenses 2,159,000 2,112,000 3,710,000 3,487,000
Research & product development costs 410,000 344,000 789,000 635,000
Contract research (income) (78,000) (143,000) (158,000) (171,000)
Interest expense 27,000 31,000 64,000 62,000
Interest (income) and other (70,000) (71,000) (163,000) (161,000)
--------------- -------------- -------------- --------------
Total 2,448,000 2,273,000 4,242,000 3,852,000
INCOME BEFORE INCOME TAXES 843,000 821,000 1,278,000 1,238,000
Provision for income taxes 334,000 308,000 498,000 464,000
--------------- -------------- -------------- --------------
NET EARNINGS $509,000 $513,000 780,000 774,000
=============== ============== ============== ==============
Basic and diluted net earnings per common share $ 0.12 $ 0.12 0.18 0.17
=============== ============== ============== ==============
Weighted average common shares outstanding - basic
income per share 4,369,000 4,399,000 4,374,000 4,416,000
Effect of potential common shares 38,000 44,000 36,000 38,000
--------------- -------------- -------------- --------------
Weighted average common shares outstanding - diluted
income per share 4,407,000 4,443,000 4,410,000 4,454,000
=============== ============== ============== ==============
</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>
Six months ended
October 31,
-----------------------------------------
2000 1999
----------------- -----------------
<S> <C> <C>
CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES $ (988,000) 1,516,000
CASH FLOWS FROM FINANCING ACTIVITIES
Mortgaged property - repayments (95,000) (95,000)
Repayments of equipment debt (128,000) (128,000)
Purchase of common stock (71,000) (214,000)
----------------- -----------------
CASH (USED IN) FINANCING ACTIVITIES (294,000) (437,000)
CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES
Purchases of property, plant and equipment (427,000) (947,000)
Other assets 4,000 (31,000)
----------------- -----------------
CASH (USED IN) INVESTING ACTIVITIES (423,000) (978,000)
NET INCREASE (DECREASE) IN CASH (1,705,000) 101,000
Cash at beginning of the period 5,181,000 4,204,000
----------------- -----------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 3,476,000 $4,305,000
================= =================
Supplemental disclosures of cash flow information:
Interest $ 41,000 57,000
Income taxes $ 643,000 29,000
</TABLE>
See notes to condensed financial statements
5
<PAGE>
HI-TECH PHARMACAL CO., INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
October 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 six month period ended October 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 agreement for
$6,000,000. For the six months ended October 31, 2000 there was no borrowings
under the agreement. Loans under the agreement 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)
October 31, 2000
<TABLE>
<CAPTION>
INVENTORIES
The components of inventory consist of the following:
October 31, April 30,
2000 2000
---------------- --------------
<S> <C> <C>
Raw materials $ 2,946,000 2,746,000
Finished products and work in process 2,756,000 2,176,000
---------------- ---------------
$ 5,702,000 4,922,000
================ ===============
FIXED ASSETS
The components of net plant and equipment consist of the following:
October 31, April 30,
2000 2000
---------------- ---------------
Land and Building $ 5,557,000 5,446,000
Machinery and equipment 11,425,000 11,125,000
Transportation equipment 13,000 13,000
Computer equipment 593,000 586,000
Furniture and fixtures 302,000 294,000
---------------- ---------------
17,890,000 17,464,000
Accumulated depreciation and amortization 8,783,000 8,104,000
---------------- ---------------
TOTAL FIXED ASSETS $ 9,107,000 9,360,000
================ ===============
</TABLE>
7
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HI-TECH PHARMACAL CO., INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
October 31, 2000
ACCOUNTS PAYABLE AND ACCRUED EXPENSES
The components of accounts payable and accrued expenses consist of the
following:
October 31, April 30,
2000 2000
--------------- -----------------
Accounts payable $ 2,706,000 3,335,000
Accrued expenses 1,470,000 1,746,000
--------------- -----------------
$ 4,176,000 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.
During the three months ended October 31, 2000 the Company incurred a charge of
$308,000 for the withdrawal from the market of products containing
phenylpropanolamine, ("PPA"). This resulted from the Food and Drug
Administration's public health advisory concerning the risk of hemorrhagic
stroke associated with the use of products containing this active ingredient.
This charge was partially offset by the receipt of $159,000 resulting from
litigation against certain bulk vitamin manufacturers and was recorded as a cost
of sales.
In September 2000, the FDA issued to the Company its Form 483, "Inspectional
Observations", for its inspection of the Company's facilities. The Company has
submitted 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 10% of the gross sales during
the quarters ended October 31, 2000 and 1999. CVS/Pharmacy accounted in the
aggregate for approximately 13% of the gross sales during the quarter ended
October 31, 2000. At October 31, 2000, CVS and Watson Pharmaceutical's
receivables were 15% and 11%, respectively, of the total outstanding trade
receivables.
In February 2000 the Company renewed its working capital credit agreement for
$6,000,000. For the six months ended October 31, 2000 there was no borrowings
under the agreement. Loans under the agreement 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 October 31, 2000 the Company had purchased
161,400 shares at a cost of $668,000.
8
<PAGE>
ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
October 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, regulatory matters, 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 six months ended October 31, 2000 net sales increased by $1,430,000, or
13%, compared to the fiscal 1999 respective period. Total six months net sales
were $12,893,000 for the period ended October 31, 2000. For the three months
ended October 31, 2000 net sales increased by $1,134,000, or 17%, compared to
the fiscal 1999 respective period. Total three months net sales were $7,870,000
for the period ended October 31, 2000. CVS accounted for approximately 13% of
the gross shipments during the quarter ended October 31, 2000. Watson
Pharmaceuticals (formerly Rugby Laboratories) accounted for approximately10% of
the shipments during the quarters ended October 31, 2000 and 1999. At October
31, 2000, CVS and Watson Pharmaceutical's receivables were 15% and 11%,
respectively, of the total outstanding trade receivables.
Health Care Products division for the three months ended October 31, 2000 and
1999 had gross sales of $2,063,000 and $1,934,000, respectively. Health Care
Products division for the six months ended October 31, 2000 and 1999 had sales
of $2,922,000 and $3,023,000, respectively.
Cost of sales, as a percentage of net sales, increased from 55.6% to 57.2% for
the six months ended October 31, 2000 compared to the six months ended October
31, 1999 and increased from 54.1% to 58.2% for the three months ended October
31, 2000 compared to the three months ended October 31, 1999. During the three
months ended October 31, 2000 this increase was principally the result of a
charge of $308,000 for the withdrawal from the market of products containing
phenylpropanolamine, ("PPA"). This resulted from the Food and Drug
Administration's public health advisory concerning the risk of hemorrhagic
stroke associated with the use of products containing this active ingredient.
This charge was partially offset by the receipt of $159,000 resulting from
litigation against certain bulk vitamin manufacturers.
Research and product development costs for the three months ended October 31,
2000 increased $66,000, or 19.2%, and Contract research income decreased $65,000
compared to the fiscal 1999 respective period.
9
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
(continued)
Selling, general and administrative expenses, as a percentage of net sales,
decreased to 27.4% from 31.4% for the respective three month period ended
October 31, 2000 and 1999. This was the result of increased sales while expense
levels increased only 2%.
Net income for the three months ended October 31, 2000 and 1999 was $509,000 and
$513,000 respectively, an decrease of $4,000, because of the factors noted
above. Net income for the six months ended October 31, 2000 and 1999 was
$780,000 and $774,000, respectively, an increase of $6,000, because of the
factors noted above.
LIQUIDITY AND CAPITAL RESOURCES
The Company's operations are financed principally by cash flow from operations.
During the October 31, 2000 period, working capital increased to $11,418,000
from $10,676,000 at April 30, 2000. During the quarter ended October 31, 2000
the Company invested $ 427,000 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 its inspection of the Company's facilities. The Company has
submitted 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 executed a new $6,000,000 working capital credit
agreement with the same lender with the same basic terms. 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 October 31, 2000 the Company had purchased
161,400 shares at a cost of $668,000.
10
<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
An annual meeting of security holders was held on November 16, 2000. The
Company solicited proxies and 3, 896,082 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 3,819,987 76,095
David S. Seltzer 3,702,582 193,500
Reuben Seltzer 3,819,587 76,495
Martin M. Goldwyn 3,824,082 72,000
Yashar Hirshaut, M.D. 3,824,082 72,000
(ii) Ratification of the appointment of Richard A. Eisner & Company LLP as
---------------------------------------------------------------------
the Company's independent auditors for the fiscal year ending April
---------------------------------------------------------------------
30, 2001
--------
For Against Abstain
---------------- ---------- -------
3,831,432 23,800 40,850
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 December 14, 2000
By:/s/ David Seltzer
----------------------------------
David Seltzer
(President and Chief Executive Officer)
Date December 14, 2000
By:/s/ Arthur S. Goldberg
----------------------------------
Arthur S. Goldberg
(Vice President - Finance and Chief Accounting Officer)
11
