<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934.
For the fiscal year ended June 30, 1996
Commission file number: 0-21006
INFU-TECH, INC.
(Exact name of registrant as specified in its charter)
Delaware 22-3127689
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
910 Sylvan Avenue
Englewood Cliffs, N.J. 07632
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (201) 567-4600
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act: Common Stock, par
value $.01
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 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 X NO ___
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
As of September 26, 1996 the aggregate market value of the voting stock held by
non-affiliates of the registrant was $5,136,688.
As of September 26, 1996, 3,214,600 shares of the registrant's common stock were
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of definitive proxy statement to be filed not later than October 30,
1996.
<PAGE>
PART I
Item 1. Business.
General
Infu-Tech, Inc. (the "Company") provides infusion therapy
(i.e., administration of nutrients, antibiotics and other medications either
intravenously or through feeding tubes) and other medical products to patients
in their homes, Infu-Tech's ambulatory IV suites, nursing homes and subacute
care facilities. It was incorporated in 1988 as the continuation of a business
begun by Continental Health Affiliates, Inc. ("CHA") in 1982. CHA was one of the
early marketers of equipment and nutrients for infusion therapy and was one of
the first to market equipment and formulations for intravenous infusion of
nutrients and medication outside hospitals. On December 31, 1992, the Company
completed the initial public offering of its common stock.
In November 1995, the Company changed its fiscal year to end
on June 30 of each year from December 31. Therefore, unless otherwise noted,
references to a year are to the fiscal year-ending June 30.
The Company is organized into two service units. The
Intravenous Infusion unit provides a broad range of home, ambulatory and
subacute infusion therapy services, including intravenous total parenteral
nutrition therapy, antibiotic therapy, enteral nutrition therapy, chemotherapy,
chronic pain management therapy, hydration therapy and a variety of other
therapies. The Contract Services unit provides medical products and services,
including enteral nutrition therapy, intravenous infusion therapy, orthotic
products, urological products and wound care products, to patients in long term
care facilities.
Since 1993, the Company has focused on selling products and
services through managed health care providers. During 1996, the Company entered
into new agreements to provide infusion therapy to members of 19 health
maintenance organizations, increasing the total number with which the Company
has agreements to 52 managed care companies with approximately 15 million
members. The Company's marketing efforts directed at managed care companies
resulted in a 38% increase in the number of home infusion patients serviced and
a 42% increase in home infusion revenues as of June 1996 compared to June 1995.
The agreements with managed care companies are generally on a per diem basis and
typically provide that the Company is one, but not the only, provider of
infusion therapy, and in some cases other products, to members of the plans.
In 1994, the Company entered into a one-year renewable
non-exclusive distribution agreement with Genzyme Corporation for Cederase(R)
enzyme and Cerezyme(TM), which are the only products approved by the FDA as
therapy for patients with Gaucher's disease. Genzyme estimates that there are
between 2,000 and 2,500 Gaucher patients in the United States who require
treatment with those drugs. Cost of the therapy normally ranges from
approximately $150,000 to $250,000 per year per patient. Because of this high
cost, the Company's percentage mark-up is relatively small.
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The following table sets forth the percentages of the
Company's revenues, by service unit, from the various therapies, products and
services.
<TABLE>
<CAPTION>
Year ended Six months ended Year ended
December 31, 1994 June 30, 1995 June 30, 1996
--------------------------------- --------------------------------- ---------------------------------
Intravenous Contract Total Intravenous Contract Total Intravenous Contract Total
Infusion Services Revenues Infusion Services Revenues Infusion Services Revenues
----------- -------- -------- ----------- -------- -------- ----------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Enteral Nutrition 5% 65% 33% 4% 68% 24% 3% 72% 20%
Antibiotic 38% -- 20% 32% -- 22% 30% -- 23%
TPN 11% -- 6% 7% -- 5% 7% -- 5%
Orthotics -- 6% 3% -- 3% 1% -- 1% --
Immune Globulin 11% -- 6% 9% -- 6% 8% -- 6%
Ceredase/Cerezyme 10% -- 5% 26% -- 18% 27% -- 20%
Wound Care -- 8% 4% -- 8% 2% -- 2% 1%
Other 25% 21% 23% 22% 21% 22% 25% 25% 25%
--- --- --- --- --- --- --- --- ---
100% 100% 100% 100% 100% 100% 100% 100% 100%
=== === === === === === === === ===
</TABLE>
Intravenous Infusion Therapy
Intravenous infusion therapy principally involves the
intravenous administration of nutrients, antibiotics or other medications to
patients in their homes, in Infu-Tech ambulatory suites, or in Infu-Tech
credentialed subacute facilities, often as a continuation of treatment initiated
in the hospital. The national non-hospital infusion therapy market has grown to
over $4 billion since its inception approximately 16 years ago. The Company
believes the primary factors contributing to the rapid growth of the
non-hospital infusion therapy market have been health care cost containment
pressures, incentives by third party payors to use home care, rapid growth of
the elderly population and increased acceptance of home infusion therapy by the
medical community and patients. Additionally, the number of therapies that can
be administered safely outside the hospital has increased significantly in
recent years because of technological innovations such as more sophisticated
portable infusion control devices, implantable injection ports, new vascular
access devices and advances in drug therapy. Consequently, more infections and
diseases that would otherwise have required patients to be hospitalized are now
considered treatable without hospitalization.
Before accepting a patient for infusion therapy, the Company
consults with the physician or clinician and hospital personnel in assessing the
patient's specific medical needs and suitability for infusion therapy. This
assessment process includes an analysis of the patient's physical condition as
well as social factors such as the stability of the patient's home life and the
availability of family members or others who can assist in the administration of
the patient's infusion therapy. Once the patient is accepted for therapy, the
Company provides training and education to the patient and his family or others
relating to proper infusion techniques, care and use of equipment, care of
infusion sites, and other aspects of the patient's infusion therapy. Infusion
therapy equipment, consisting primarily of poles and pumps, is owned or leased
by the Company and provided to patients along with other services.
Throughout the course of treatment, all prescribed drugs and
solutions are delivered directly to the patient's home or to an Infu-Tech
credentialed subacute care facility. In approximately 90% of the cases, the
Company's own pharmacies provide the prescribed drugs, solutions and supplies.
Due to geography, patients who cannot be adequately serviced through a
Company-owned pharmacy are covered by one of six satellite pharmacies. The
Company maintains contact with the patient and the patient's physician in order
to monitor and, when directed by the physician, refine the patient's plan of
care. The Company's nursing and pharmacy services are available on-call 24 hours
a day for consultation, home
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visits and special prescription needs.
A registered nurse clinical-coordinator follows each case and
monitors the therapy with the patient, the nurses assigned to the case and the
patient's physician. Billing information is coordinated at a central billing
department which bills the appropriate payor, in most cases private insurance
companies and tracks payments.
During 1994, the Company began also to provide infusion
therapy services in ambulatory infusion suites attached to Company pharmacies,
where patients receive infusion therapy on an out-patient basis. In addition,
the Company began arranging with nursing homes and other subacute facilities to
have patients admitted on a short term basis to receive infusion and other
subacute therapies.
Contract Services
Since late 1990, the Contract Services unit has expanded the
number of products it offers to nursing homes and other health care
institutions, and it expects to offer additional products, embodying advances in
health care technology, in the future. On the other hand, changes in
reimbursement regulations or interpretations have led the Contract Services unit
to reduce sales of products in the past and may do so in the future.
The Company's contract services involve the distribution of
products and services to residents in long term care facilities. Products and
services are provided through arrangements with the long term care facilities
for specific residents' use. Generally, the Company bills a third party payor,
principally Medicare, on behalf of the individual resident. Until late 1990, a
large majority of the products and services the Company provided to residents of
long term care facilities involved enteral nutrition therapy. Beginning in late
1990, the Company began marketing other products to residents of long term care
facilities in circumstances in which these products are eligible for
reimbursement under Medicare and other programs. Because of this shift, and a
recent willingness of some long term care facilities to permit residents to
receive intravenous therapies in the facilities (which increases the facilities'
revenues), rather than transferring the residents to hospitals for these
treatments, the products and services the Company provides through its contract
services unit now include, in addition to enteral feeding, parenteral feeding,
medical/surgical products, orthotic products, wound care products, urological
products and other supplies.
As part of providing its products and services to patients in
long term care facilities, the Company handles the procedures for obtaining
reimbursement from Medicare and other third party payors for these products and
services. The Company believes that in a number of instances the Company's
ability to manage billing of third party payors is a significant factor in long
term care facilities' decisions to retain the Company to provide products and
services to their residents.
The Company's sales representatives call upon long term care
facilities within their respective geographical territories to review the
medical status of the facilities' residents in order to determine the needs of
individuals for the products and services provided by the Company. Since most of
the residents participate in the Medicare program, the representatives review
insurance coverage and the appropriateness of the products and services under
Medicare reimbursement regulations. The sales representatives are responsible
for processing the paperwork for billing by the central billing department.
Orders for products and services are processed through the
customer service department at the Company's corporate offices in Englewood
Cliffs and shipped from the Company's Moonachie, New Jersey warehouse. The
Company primarily uses its own trucks for local (New York-New Jersey) deliveries
and common carriers for deliveries outside the local area.
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Reimbursement for Services
The Company is reimbursed for its products and services by
Medicare, Medicaid, private payors (private insurance companies, self-insured
employers, health maintenance organizations, other managed care systems and
patients) and other third party sources. Prior to accepting a patient, the
Company's reimbursement specialists determine the availability and amount of
third party coverage and, thereafter, the Company processes all payment claims
on behalf of the patient.
Most of the Company's contract services revenues result from
Medicare reimbursement. The Company has more than thirteen years' experience in
billing Medicare. It believes this experience provides it with an advantage over
some of its competitors. Medicare provides reimbursement for 80% of the amounts
shown on fee schedules it has developed. The remaining 20% co-insurance portion
is not paid by Medicare, although in most cases, Medicaid reimburses the
remaining 20% for "medically indigent" patients; in other cases, the Company
bills other third party payors or patients responsible for co-insurance
reimbursement. The Company often has difficulty collecting the 20% co-insurance
portion of charges for Medicare-eligible items, particularly when there is no
third party reimbursement and these sums must be collected directly from
patients. Inability to collect the 20% co-insurance portion of bills is the
principal reason for the Company's provision for uncollectible accounts.
The Company also bills private payors (primarily private
insurance companies, self-insured employers, health maintenance organizations
and managed care systems), which generally pay for services and products based
upon contracted rates or "reasonable and customary" charges. The Company's
billing specialists work closely with these payors to maximize reimbursement in
the shortest possible time. Private payors have been increasingly concerned
about cost containment and often seek to negotiate lower rates directly with
providers, including the Company. While these efforts tend to reduce profit
margins, the Company has for several years been able to operate in this
environment.
The following table details the sources of payments to the
Company during the twelve months ended June 30, 1996:
Home Contract Total
Infusion Services Revenues
-------- -------- --------
Medicare 5% 82% 23%
Private Pay 93% 18% 75%
Medicaid 2% -- 2%
--- --- ---
100% 100% 100%
=== === ===
Sales and Marketing
The Company's principal sources of patient referrals are
health maintenance organizations, physicians, hospital discharge planners, other
hospital officials, nursing homes, insurance companies and other managed care
systems. The Company's products and services are marketed through its sales
force and clinicians. The Company's sales force is responsible for establishing
and maintaining referral sources. As of June 30, 1996, the sales force included
approximately 9 full time sales employees and approximately 6 sales and service
representatives, who report to their respective regional managers. Sales
employees receive a base salary plus commissions based on revenues. The Company
conducts regular sales training programs, intended to enable its sales force to
generate more revenue from current and new sources of patient referrals and to
assist sales employees in targeting and developing new revenue sources.
The "Infu-Tech" trademark is registered and is established in
the areas in which the Company
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does business.
Suppliers
The Company purchases drugs and other materials and leases
equipment from many suppliers. The Company has not experienced difficulty in
purchasing supplies or leasing equipment. The Company believes there are
alternative sources for virtually all the supplies and equipment it requires,
other than Ceredase(R) enzyme and Cerezyme(TM), which are only available from
one supplier, Genzyme Corp. The Company has a distribution agreement with
Genzyme which automatically renews for one year terms unless cancelled at the
end of a term on 90 days prior notice. The agreement may also be terminated at
any time on 60 days notice. Ceredase(R) enzyme, which was approved by the FDA
for the treatment of Gaucher's disease in 1991, is produced from human placental
tissue and can only be produced in limited amounts. Cerezyme(TM), a synthetic
form of Ceredase(R) enzyme which was approved by the FDA in April 1994, was
developed to ease the supply constraints of Ceredase(R) enzyme.
Potential Liability and Insurance
Participants in the health care market are subject to lawsuits
based upon alleged negligence or similar legal theories, many of which involve
large claims and significant defense costs. The Company could be subject to such
suits. However, to date the Company has not been subject to a significant
lawsuit by a purchaser of its products or services. The Company maintains
general liability insurance, including insurance against professional and
products liability, with coverage limits of $10 million. The Company's insurance
policy provides coverage on an "occurrence" basis and is subject to annual
renewal. A successful claim against the Company in excess of the applicable
insurance coverage could have a material adverse effect upon the Company's
business and results of operations. Claims against the Company, regardless of
their merit or eventual outcome, also may have a material adverse effect upon
the Company's reputation. There can be no assurance that the coverage limits of
the Company's insurance policies will be adequate. While the Company has been
able to obtain liability insurance in the past, such insurance varies in cost,
is difficult to obtain and may not be available in the future on acceptable
terms or at all.
Competition
The segments of the health care market in which the Company
operates are highly competitive. In each of its lines of business there are
relatively few barriers to entry, a limited number of national providers, as
many of the large national providers have recently merged, and numerous regional
and local providers. The principal competitors for sales to patients in long
term care facilities are local providers of health care products and the
operators of the facilities themselves.
The competitive factors most important in the Company's lines
of business are quality of care and service, on-time delivery, reputation with
referring health care professionals, ease of doing business with the provider,
ability to develop and maintain the confidence of potential sources of patient
referrals and price of service. Some competitors in the Company's lines of
business have also attempted to enhance sales by entering into joint ventures or
other financial relationships with potential referral sources. Increasingly
stringent, and increasingly enforced, laws prohibiting remuneration between
health care providers has reduced these arrangements as a competitive factor.
The Company believes that it competes effectively in each of its service areas
with respect to all of the above factors. Some of the Company's current and
potential competitors have or may obtain significantly greater financial and
marketing resources than the Company. It is likely that the Company will
encounter increased competition in the future, which could limit the Company's
ability to maintain or increase its market share and could
6
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adversely affect the Company's operating results. Other types of health care
providers, including hospitals, physician groups and home health agencies, have
entered, and may continue to enter, the Company's lines of business.
Government Regulation
Health care is an industry subject to extensive regulation and
frequent regulatory change. Changes in the law or new interpretations of
existing law can have a dramatic effect on permissible activities, the relative
cost associated with doing business and the amount of reimbursement by
government and third party payors, such as Medicare and Medicaid. Charges under
government programs are also subject to audit. A reduction in coverage or
payment rates by third party payors, or significant audit adjustments, can have
a material adverse effect on the Company's business and results of operations.
The Federal government and each of the states in which the
Company currently operates regulate some aspects of the Company's business. In
particular, the operations of the Company's branch locations are subject to
Federal and state laws. The Company's operations also are subject to state laws
governing pharmacies, nursing services and certain types of home health agency
activities. Certain of the Company's employees are subject to state laws and
regulations governing the ethics and professional practice of people providing
various therapies, pharmacy and nursing. Certificates of need, permits or
licenses may be required for certain business activities and may be restricted
or otherwise difficult to obtain. The Company believes it and its employees have
all certificates of need, permits and licenses which are required for the
business currently being conducted by the Company. The failure to obtain, renew
or maintain any of the required regulatory approvals or licenses could adversely
affect the Company's business and could prevent the location involved from
offering products and services to patients.
There are Federal laws which generally prohibit any
remuneration in return for the referral of Medicare or Medicaid patients, and
prohibit the referral of any Medicare or Medicaid patient by a health care
practitioner to a provider with which the practitioner has an ownership or
financial interest. In addition, the Federal government and several states in
which the Company operates have laws that prohibit financial arrangements,
certain direct or indirect payments or fee-splitting arrangements between health
care providers. The Company maintains an internal regulatory compliance review
program and uses in-house counsel to monitor compliance with all such laws and
regulations. Increased attention has been paid recently to enforcement of these
laws and regulations. Possible sanctions for failure to comply with these laws
and regulations include exclusion from government programs, loss of license and
civil and criminal penalties.
Executive Officers of the Company
The following is a list of executive officers of the Company
as of September 26, 1996, together with a brief description of the business
experience for the last five years of the officers who are not directors. A
brief description of the business experience of officers who are directors is
included in Item 10, "Directors".
Name Office Age
- ---- ------ ---
Jack Rosen Chairman of the Board of Directors, 50
President, Chief Executive Officer
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Michael Pennessi Executive Vice President 47
Joseph Rosen Vice President, Assistant Secretary 45
and Director
S. Colin Neill Vice President, Chief Financial Officer 50
Richard S. Gordon Executive Vice President 39
Pritpal Virdee Executive Vice President; President Intrx 37
Medical, Inc.
Benjamin Geizhals Vice President, Assistant Secretary and 47
General Counsel
Israel Ingberman Secretary, Director 50
Michael Pennessi has been Executive Vice President of the
Company since June 1996, concentrating on developing new managed care accounts.
He served as President of the Company from February 1993 to June 1996. From 1990
to 1992, he was employed by Hoffman La Roche as Vice President-Sales and
Marketing of Roche Professional Service Centers. Prior to that Mr. Pennessi was
Vice President of Operations of Telemed, Inc. and Vice President of Contracts
for Foster Medical Corporation.
S. Colin Neill has been Vice President and Chief Financial
Officer of the Company and CHA since July 1996. Prior to that Mr. Neill was
Acting Vice President/Finance, Secretary, Treasurer and Chief Financial Officer
of Pharmos Corporation, a publicly traded biopharmaceutical company from March
1995 to July 1996. Prior to joining Pharmos, Mr. Neill worked as a financial
consultant. From October 1992 until December 1993, Mr. Neill was Vice President
- - Finance of BTR, Inc., a British diversified manufacturing company. From
January 1991 to October 1992, he worked as a financial consultant. From 1986
through January 1991, Mr. Neill served as Vice President - Financial Services of
BOC Group, Inc., a British industrial gases and health care company. He is a
certified public accountant and worked at Arthur Andersen & Co. for four years
followed by eight years with Price Waterhouse.
Richard S. Gordon joined the Company in March 1994 as
Executive Vice President. He also has served as an Executive Vice President of
CHA since August 1994. From 1989 until 1994, he served as Director of Policy and
Planning for Governor Evan Bayh of Indiana, focusing on healthcare,
telecommunications, education and economic development policy.
Benjamin Geizhals has been employed by CHA as Vice President,
Assistant Secretary and General Counsel since 1987. He has served as General
Counsel to the Company since its inception. In June 1994, he became a Vice
President and Assistant Secretary of the Company. From October 1995 to June
1996, while the office of Chief Financial Officer was vacant, he performed
certain functions of that office.
Pritpal Virdee has served as Executive Vice President of the
Company and as President of Intrx Medical, Inc., a subsidiary of the Company,
since February 1993. From 1989 to 1992, he served as President of Fresenius
Pharma U.K. Prior to that, he had worked as General Manager of Fresenius Pharma
U.K.
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Employees
As of June 30, 1996, the Company had approximately 113
employees. Of these employees, four were in executive capacities (in addition to
executives of CHA who rendered services to the Company), approximately 15 were
in sales or service capacities, approximately 70 were in clinical or
pharmaceutical capacities and the remainder were administrative or distribution
personnel. The Company's employees are not currently represented by a labor
union or other labor organization. The Company believes that its employee
relations are good.
Item 2. Properties.
The Company maintains corporate offices in Englewood Cliffs,
New Jersey and it leases six branch offices for its branch operations. Offices
provide a home base for salespeople, clinicians and administrative and technical
personnel, as well as storage for excess equipment and supplies. In addition,
the Company maintains a central pharmacy and a warehouse in Moonachie, New
Jersey and pharmacies and ambulatory infusion suites in Memphis, Tennessee,
Boston, Massachusetts and Philadelphia, Pennsylvania. The lease payments for the
six branch offices, the central pharmacy, the Memphis, Boston and Philadelphia
pharmacies, the infusion suites and the warehouse total $20,912 per month,
payable to unrelated parties. The Company pays rent of $9,627 per month for
corporate office space to an entity owned by the principal stockholders of CHA,
one of whom is the Company's Chairman of the Board and President. The Company
believes that this rent is at or below the market rate for comparable space in
the area. In communities which cannot be serviced from a Company office,
staffing and administration is handled by a representative residing in the area.
The Company believes its facilities are adequate for its current needs.
Item 3. Legal Proceedings.
The Company is subject to legal proceedings and claims which
arise in the ordinary course of its business. The Company does not believe any
litigation to which it is a party is likely to have a material adverse effect
upon its financial condition or results of operations.
The Company has resolved the matter involving reimbursement of
alleged overpayments from Medicare.
Item 4. Submission of Matters to a Vote of Security Holders.
No matters were submitted to the vote of security holders
during the year ended June 30, 1996.
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PART II
Item 5. Market for the Registrant's
Common Stock and Related Security Matters.
The high and low last sale prices of the Company Stock
reported on the NASDAQ National Market System with regard to each calendar
quarter during 1994 and 1995 and through June 30, 1996 were as follows:
High Low
---- ---
1994:
First Quarter 3 15/16 2 1/8
Second Quarter 2 1/2 1 1/4
Third Quarter 1 11/16 1 3/8
Fourth Quarter 2 3/8 1 7/8
1995:
First Quarter 2 1 5/8
Second Quarter 2 5/16 1 5/16
Third Quarter 4 5/8 2 1/4
Fourth Quarter 3 1/2 2 7/8
1996:
First Quarter 3 3/4 3
Second Quarter 5 1/4 4 1/4
The Company has not paid any dividends on its Common Stock
since shares were sold to the public in December 1992. Prior to that, all the
Company's available cash was retained by CHA, which was its sole stockholder.
From 1989 through 1992, the Company paid CHA dividends totalling $9,866,000, as
well as management fees totalling $1,258,000 and tax payments totalling
$1,555,000. Any decision by the Company's Board of Directors to pay dividends on
its Common Stock in the future will be based upon the Company's earnings, cash
flow, capital needs and available funds, and any other factors the Company's
directors deem relevant. Because CHA owns 59% of the stock of the Company, and
all the Company's directors are also directors of CHA, the Company's directors
may be influenced by CHA's cash needs in deciding whether the Company should
declare dividends. Under Delaware law, the Company is only permitted to pay
dividends out of accumulated surplus or the current or prior year's net profits.
As of September 26, 1996, there were 51 holders of record of
the Company's Common Stock.
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Item 6. Selected Financial Data.
The following table sets forth selected financial data of the
Company and should be read in conjunction with the consolidated financial
statements as of June 30, 1996 and 1995, December 31, 1994 and 1993 and for each
of the three years in the period ended December 31, 1994, and the related notes,
included elsewhere in this Report.
<TABLE>
<CAPTION>
Six Months
Year Ended Ended
June 30, June 30, Year Ended December 31,
1996 1995 1994 1993 1992
(thousands, except per share) -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Revenues $ 24,638 $ 10,601 $ 16,289 $ 17,011 $ 19,687
-------- -------- -------- -------- --------
Income (loss) before income taxes and
cumulative effect of accounting change 1,465 (849) (1,123) 775 2,020
Provision (benefit) for income taxes 270 -- (220) 310 808
-------- -------- -------- -------- --------
Income (loss) before cumulative effect
of accounting change 1,195 (849) (903) 465 1,212
Cumulative effect of change in accounting
for income taxes -- -- -- 1,071 --
-------- -------- -------- -------- --------
Net income (loss) $ 1,195 $ (849) $ (903) $ 1,536 $ 1,212
======== ======== ======== ======== ========
Income (loss) per share (1)
Income (loss) before cumulative effect of
accounting change $ .38 $ (.27) $ (.28) $ .15 $ .47
Cumulative effect of change in accounting
for income taxes -- -- -- .33 --
-------- -------- -------- -------- --------
Net income (loss) $ .38 $ (.27) $ (.28) $ .48 $ .47
======== ======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
As of As of
BALANCE SHEET DATA June 30, June 30, As of December 31,
(thousands) 1996 1995 1994 1993 1992
-------- -------- ------ ------ ------
<S> <C> <C> <C> <C> <C>
Accounts receivable (net) $5,669 $3,608 $3,552 $2,507 $2,676
Total assets 9,484 7,414 7,586 8,124 7,538
Working capital 4,696 3,571 4,454 5,695 4,446
Total stockholders' equity 4,976 3,770 4,619 5,595 4,059
</TABLE>
- ---------------
(1) Based on 3,168,037 and 3,160,974 shares outstanding at June 30, 1996 and
1995, 3,181,509 shares outstanding in 1994, 3,200,000 shares outstanding in
1993 and 2,600,000 shares outstanding in 1992. This gives effect to a stock
split on July 23, 1992 which increased the outstanding Common Stock from
1,000 shares to 2,600,000 shares.
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations.
Results of Operations
Twelve Months Ended June 30, 1996 Compared with Unaudited Twelve Months Ended
June 30, 1995.
Total revenues increased by $4,784,000, or 24%, from
$19,854,000 in 1995 to $24,638,000 in 1996, primarily due to a $5,482,000, or
42%, increase in home infusion division revenues which was
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caused by a 38% increase in the number of patients serviced and an improved
therapy pricing mix.
Costs of medical and nutritional products sold to patients and
other customers increased by $2,300,000, or 24%, from $9,620,000 in 1995 to
$11,920,000 in 1996. As a percentage of total revenues, medical and nutritional
product costs were 48% in both years.
Total personnel costs decreased by $172,000, or 2%, from
$6,990,000 in 1995 to $6,818,000 in 1996, primarily attributed to reductions in
sales and administrative personnel. These decreases were partially offset by
higher nursing and pharmacy costs incurred to support the 38% increase in home
infusion patients serviced.
Selling, general and administrative expenses decreased by
$293,000, or 10%, from $3,072,000 in 1995 to $2,779,000 in 1996, primarily as a
result of reductions in professional fees and selling-related travel, which
offset increases in distribution costs incurred to support the 38% increase in
home infusion patients serviced.
The provision for uncollectible accounts was 5% of revenues in
both years.
Management fees to Continental Health Affiliates, Inc. and
subsidiaries ("CHA") of $394,000 in 1996 and $318,000 in 1995 were 1.6% of
revenues in both years.
Depreciation expense increased from $98,000 in 1995 to
$108,000 due to property and equipment additions partially offset by
retirements.
Other income of $115,000 in 1996 and $140,000 in 1995
consisted of $126,000 of amortization in both years of a $628,000 payment
received by the Company in 1992 as consideration for the Company's releasing the
buyer of CHA's former Home Nursing Division from an agreement not to sell
infusion therapy services and CHA's agreeing not to provide nursing services in
California, Arizona or Tennessee for a period of five years. Other income was
reduced by interest expense of $11,000 in 1996 and increased net interest income
of $15,000 in 1995.
The provision for income taxes in 1995 was an offset to a
prior benefit taken in the beginning of the year. The provision for income taxes
in 1996 reflects use of a portion of the Company's net operating loss
carryforwards.
The net income in 1996 was $1,195,000, or $.38 per share,
compared with a net loss in 1995 of $1,296,000, or $.41 per share. The
improvement in net income was primarily attributable to the 24% increase in
revenues.
Six Months Ended June 30, 1995 Compared with Unaudited Six Months Ended
June 30, 1994
Total revenues during the first six months of 1995 increased
by $3,565,000, or 51%, from $7,036,000 in 1994 to $10,601,000 in 1995, primarily
due to a $3,800,000, or 110%, increase in home infusion division revenues. This
increase is partially attributed to a 75% increase in the number of patients
serviced. Most of the additional home infusion patients were obtained through
marketing efforts directed at managed care companies. These patients are
normally serviced under agreements with significant price discounts or under
other arrangements which substantially reduce prices. The increase in home
infusion revenues was also affected by the Company's beginning to provide in
early 1994
12
<PAGE>
Ceredase(R) enzyme and Cerezyme(TM) infusion therapy ("Ceredase(R)") to patients
with Gaucher's disease. Sales of Ceredase(R) in the 1995 period were $1,945,000,
compared to $175,000 in the same period of 1994. Ceredase(R) is a very high
priced drug therapy (approximately $20,000 per month per patient), but due to
its high product cost per revenue dollar, it has a very low gross profit margin
percentage.
Costs of medical and nutritional products sold to patients and
other customers increased by $2,548,000, or 84%, from $3,018,000 in 1994 to
$5,566,000 in 1995. As a percentage of total revenues, medical and nutritional
product costs increased from 43% in 1994 to 53% in 1995. The increase is
primarily attributed to the lower home infusion pricing and the Ceredase(R)
sales discussed above.
Total personnel costs increased by $722,000, or 25%, from
$2,862,000 in 1994 to $3,584,000 in 1995, primarily due to higher nursing costs
incurred to support the 75% increase in home infusion patients serviced and
pharmacy payroll costs increased due to new pharmacy operations and the increase
in home infusion patients serviced.
Selling, general and administrative expenses increased by
$74,000, or 5%, from $1,392,000 in 1994 to $1,466,000 in 1995, primarily due to
higher distribution costs incurred to support the 75% increase in home infusion
patients serviced.
The provision for uncollectible accounts was 6% of revenues in
1995 and 7% of revenues in 1994.
Management fees to CHA of $170,000 in 1995 and $113,000 in
1994 were 1.6% of revenues in both years.
Depreciation expense increased from $26,000 in 1994 to $66,000
in 1995 due to property and equipment additions.
Other income of $66,000 in 1995 and $88,000 in 1994 consisted
in both years of $63,000 of amortization of a $628,000 payment received by the
Company in 1992 as consideration for the Company's releasing the buyer of CHA's
former Home Nursing Division from an agreement not to sell infusion therapy
services and CHA's agreeing not to provide nursing services in California,
Arizona or Tennessee for a period of five years, as well as net interest income
of $3,000 in 1995 and $25,000 in 1994.
The benefit for income taxes in 1994 was 41% of the loss
before income taxes. No tax benefit was recorded in 1995 related to 1995
operating losses due to the uncertainty of recognizing the benefit of these
operating losses. In the opinion of management, the Company anticipates taxable
income in the future to the extent necessary to recover the deferred tax assets
recorded at June 30, 1995.
The net loss in the six months ended June 30, 1995 was
$849,000, or $.27 per share, compared to the net loss in the first six months of
1994 of $456,000, or $.14 per share. Even though revenues increased by 51% in
1995 compared to 1994, the net loss increased, primarily due to the 84% increase
in medical and nutritional product costs and the 25% increase in personnel
costs. In addition, 1994 included a $316,000 benefit for income taxes.
1994 Compared with 1993
Total revenues decreased by $722,000, or 4%, to $16,289,000 in
1994 from $17,011,000 in
13
<PAGE>
1993. The decrease was the result principally of major declines in revenues from
orthotic products and enteral therapy, partially offset by increases in home
infusion revenues, including revenues from infusion therapy to patients with
Gaucher's disease. Orthotic product revenues declined by $2,429,000, or 85%, due
to changes in Medicare reimbursement determinations, effective January 1, 1994,
which made certain orthotic products no longer eligible for reimbursement under
Medicare. In addition, contract services enteral therapy revenues declined
$1,471,000, or 23%, due to a decrease in enteral patients, which is primarily
attributed to an increasing number of nursing home operators providing enteral
therapy services themselves. Home infusion division revenues increased
$2,162,000, or 32%, primarily attributed to a 40% increase in the number of
patients serviced. Most of the additional home infusion patients were obtained
through successful marketing efforts directed at managed care companies. These
patients are normally serviced under agreements with significant price discounts
or under other arrangements which substantially reduce prices. The increase in
home infusion revenues is also affected by the Company's beginning to provide in
1994 Ceredase(R) enzyme and Cerezyme(TM) infusion therapy ("Ceredase(R)") to
patients with Gaucher's disease. Sales of Ceredase(R) in 1994 were approximately
$880,000. Ceredase(R) is a very high priced drug therapy (approximately $20,000
per month per patient), but due to its high product cost per revenue dollar, it
has a very low gross profit margin percentage. In addition, 1994 revenues
included approximately $523,000 related to ostomy irrigation sets which were
sold in 1992, which were not recorded as revenues at that time due to the
uncertainty of reimbursement.
Costs of medical and nutritional products sold to patients and
other customers increased by $172,000, or 2%, from $6,900,000 in 1993 to
$7,072,000 in 1994. As a percentage of total revenues, medical and nutritional
product costs increased from 41% in 1993 to 43% in 1994, and excluding the
aforementioned ostomy revenue recognized in 1994, costs increased to 45%. The
increase is primarily attributed to the lower home infusion pricing and the
Ceredase(R) sales discussed above.
Total personnel costs increased by $995,000, or 19%, from
$5,273,000 in 1993 to $6,268,000 in 1994, primarily attributed to the hiring of
additional marketing and sales personnel as part of the strategy to aggressively
pursue managed care contracts, as well as to implement recently signed managed
care contracts. In addition, nursing costs increased to support the 40% increase
in home infusion volume and pharmacy payroll costs increased due to new pharmacy
operations and the higher home infusion volume.
Selling, general and administrative expenses increased by
$102,000 from $2,896,000 in 1993 to $2,998,000 in 1994, primarily due to higher
professional fees and general cost increases. These increases were partially
offset by lower contract pharmacy mixing fees resulting from the conversion of
contract pharmacies to company operated pharmacies.
The provision for uncollectible accounts was 6% of revenues in
both years.
Management fees to CHA of $261,000 in 1994 and $272,000 in
1993 were 1.6% of revenues in both years.
Depreciation expense increased from $48,000 in 1993 to $58,000
in 1994 due to property and equipment additions.
Other income of $162,000 in 1994 and $193,000 in 1993
consisted of $126,000 of amortization in both years of a $628,000 payment
received by the Company in 1992 as consideration for the Company's releasing the
buyer of CHA's former Home Nursing Division from an agreement not to sell
infusion therapy services and CHA's agreeing not to provide nursing services in
California, Arizona or Tennessee for a period of five years, as well as interest
income of $36,000 in 1994 and $67,000 in 1993
14
<PAGE>
earned on the unused portion of the net proceeds of the Company's December 1992
initial public offering.
The benefit for income taxes in 1994 primarily consists of the
Federal income tax refund receivable which the Company expects to receive in
1995. The provision for income taxes in 1993 was 40% of income before income
taxes and cumulative effect of accounting change.
Primarily as a result of the decline in revenues and the
increase in salaries and related expenses and medical and nutritional product
costs, there was a net loss in 1994 of $903,000, or $.28 per share, compared to
income before the cumulative effect of a change in accounting for income taxes
of $465,000, or $.15 per share, in 1993. In 1993, after the cumulative effect of
the accounting change, net income was $1,536,000, or $.48 per share.
Liquidity and Capital Resources
As of June 30, 1996, the Company had total assets of $9.5
million and a net worth of $5.0 million. Its liabilities consisted almost
entirely of accounts payable and other operating obligations. The Company had no
borrowings and its primary capital requirements have been for investment in
working capital, principally accounts receivable and inventories.
At June 30, 1996, the balance in net accounts receivable for
Infu-Tech was 57% higher than the balance at June 30, 1995. Net third party
accounts receivable increased by $1,566,000 during the year, partly due to
increased sales levels. Infu-Tech's overall outstanding net accounts receivable
has increased from 59 days' sales at June 30, 1995 to 84 days' sales at June 30,
1996, primarily as a result of a slow-down in payments from Medicare and managed
care companies. Medicare payments have been delayed due to changes in
reimbursement policies, while managed care companies have experienced delays in
processing payments due to a higher volume of claims. As a result, Infu-Tech has
experienced increased delays in having its claims processed as well as an
increase in the number of initial claims rejected. This is an industry-wide
problem and Infu-Tech believes that claims processing will improve and the days'
sales outstanding of accounts receivable will decrease as these problems are
resolved. Accounts receivable from related parties increased by $495,000 to
$1,025,000.
Inventories include an adjustment made during the fourth
quarter of fiscal year 1996. A gross amount of $388,000 before tax was recorded
as an increase to inventory with a corresponding reduction to medical and
product costs. The adjustment arose because the Company did not conduct physical
inventory counts during the year. Procedures have been instituted to conduct
regular quarter end counts.
As of June 30, 1996, the Company's working capital was $4.7
million, substantially higher than the $3.6 million at June 30, 1995.
Recently Issued Accounting Standards
In March 1995, the Financial Accounting Standards Board
("FASB") issued Statement of Financial Accounting Standard ("SFAS") No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of," which will become effective on July 1, 1996 for the Company.
SFAS No. 121 establishes accounting standards for the impairment of long-lived
assets, certain identifiable intangibles and goodwill related to those assets to
be held and used and for long-lived assets and certain identifiable intangibles
to be disposed of. The effect of the adoption of SFAS No. 121
15
<PAGE>
has not been determined by the Company.
In October 1995, the FASB issued SFAS No. 123, "Accounting for
Stock-Based Compensation." This statement establishes an alternative method of
accounting for stock-based compensation awarded to employees such as the stock
options the Company grants to employees. SFAS No. 123 provides for the
recognition of compensation expense based on the fair value of the stock-based
award. The standard allows companies to continue to measure compensation cost in
accordance with Accounting Principles Board Opinion ("APB") No. 25, "Accounting
for Stock Issued to Employees." Companies electing to retain this method must
make pro forma disclosures of net income and earnings per share as if the fair
value based method had been applied. The Company plans to continue to use APB
No. 25, which does not require the Company to record compensation expense for
the stock options it awards to employees. In 1997, the Company will disclose the
pro forma effect of the fair value method on 1996 and 1997 net income and
earnings per share.
Item 8. Financial Statements and Supplementary Data.
The consolidated financial statements and supplementary data
required by this item appear beginning at page F-1.
Item 9. Disagreements on Accounting and Financial Disclosure.
None.
PART IV
Item 14. Exhibits, Financial Statements, Schedule, and Reports on Form 8-K.
(a) Documents filed as part of this Report.
1. Financial Statements
Listed on Index to Consolidated Financial Statements and Financial
Statement Schedule.
2. Financial Statement Schedules
Listed on Index to Consolidated Financial Statements and Financial
Statement Schedule.
3. Exhibits
The following exhibits are filed with this Report or incorporated by
reference:
3(a) Certificate of Incorporation (1)
3(b) Certificate of Amendment of Certificate of Incorporation (1)
3(c) By-laws (1)
4(a) Specimen of Common Stock Certificate (2)
4(b) Form of Representative's Warrant (1)
10(a) Joint Venture Agreement dated January 1992 between Medline
Industries, Inc. and Intrx
16
<PAGE>
Medical, Inc. (1)
10(b) Management and Non-Competition Agreement between Infu-Tech, Inc.
and CHA. (1)
10(c) Infu-Tech 1992 Stock Option Plan. (1)
10(d) Distribution Agreement between Infu-Tech, Inc. and Genzyme
Corporation dated November 11, 1994. (3)
21 List of Subsidiaries.
- ---------------
(1) Incorporated by reference to Registration Statement File No. 33-50122.
(2) Incorporated by reference to Report on Form 10-K for the year ended December
31, 1992.
(3) Incorporated by reference to Report on Form 10-K for the year ended December
31, 1994.
(b) Reports on Form 8-K filed during the six months ended June 30, 1995: None.
(c) The exhibits to this Report are listed in Item 14(a)(3).
(d) The financial statement schedule required by Regulation S-K which is
excluded from the Annual Report to Stockholders by Rule 14a-3(b)(1) is
listed in Item 14(a)(2).
17
<PAGE>
INFU-TECH, INC.
CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1996 and 1995 and December 31, 1994 and 1993
(With Independent Auditors' Report Thereon)
<PAGE>
INFU-TECH, INC.
Index to Consolidated Financial Statements and
Financial Statement Schedule
Page
1. CONSOLIDATED FINANCIAL STATEMENTS: ----
Independent Auditors' Report .............................................. F-1
Balance Sheets:
June 30, 1996 and 1995 .............................................. F-2
Statements of Operations:
Year ended June 30, 1996 and,
Six month period ended June 30, 1995 and
Years ended December 31, 1994 and 1993......................... F-3
Years ended June 30, 1996 and unaudited 1995 ........................ F-4
Statements of Stockholders' Equity:
Year ended June 30, 1996 and,
Six month period ended June 30, 1995 and
Years ended December 31, 1994 and 1993......................... F-5
Statements of Cash Flows:
Year ended June 30, 1996 and,
Six month period ended June 30, 1995 and
Years ended December 31, 1994 and 1993 ........................ F-6
Notes to Consolidated Financial Statements ................................ F-7
2. FINANCIAL STATEMENT SCHEDULE:
II Valuation and Qualifying Accounts .......................... S-1
Other schedules are omitted because of the absence of conditions under which
they are required or because the required information is given in the
consolidated financial statements or notes thereto.
<PAGE>
Independent Auditors' Report
The Board of Directors and Stockholders
Infu-Tech, Inc.
We have audited the consolidated financial statements of Infu-Tech, Inc. and
subsidiaries as listed in the accompanying index. In connection with our audits
of the consolidated financial statements, we also have audited the financial
statement schedule as listed in the accompanying index. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements and financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Infu-Tech, Inc. and
subsidiaries as of June 30, 1996 and 1995 and the results of their operations
and their cash flows for the year ended June 30, 1996, the six-month period
ended June 30, 1995 and each of the years in the two year period ended December
31, 1994 in conformity with generally accepted accounting principles. Also, in
our opinion, the related financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as a whole,
present fairly, in all material respects, the information set forth therein.
As discussed in note 7 to the consolidated financial statements, the Company
changed its method of accounting for income taxes in 1993 to adopt the Financial
Accounting Standards Board's Statement of Financial Accounting Standards No.
109. "Accounting for Income Taxes."
KPMG Peat Marwick LLP
New York, New York
September 27, 1996
F-1
<PAGE>
INFU-TECH, INC.
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
==================================================================================================
June 30,
----------------------------
Assets 1996 1995
------ ----------- -----------
<S> <C> <C>
Cash and cash equivalents $691 $546
Accounts receivable, net of allowances for uncollectible
accounts of $2,456 and $2,136 4,644 3,078
Accounts receivable from related parties 1,025 530
Inventories 1,646 1,454
Deferred income taxes 822 849
Prepaid expenses and other current assets 205 512
----------- -----------
Total current assets 9,033 6,969
Property and equipment, at cost, net of accumulated
depreciation of $320 and $212 307 173
Deferred income taxes 52 220
Other assets 92 52
----------- -----------
Total assets $9,484 $7,414
=========== ===========
Liabilities and Stockholders' Equity
------------------------------------
Accounts payable $2,779 $2,342
Accrued payroll and related expenses 403 407
Other current liabilities 1,155 649
----------- -----------
Total current liabilities 4,337 3,398
Capital lease obligation 99 48
Deferred income 72 198
----------- -----------
Total liabilities 4,508 3,644
Stockholders' equity:
Common stock, $.01 par value; 5,000,000 shares authorized;
3,213,500 issued 32 32
Additional paid-in capital 2,928 2,917
Retained earnings 2,089 894
Treasury stock, at cost; 39,300 shares (73) (73)
----------- -----------
Total stockholders' equity 4,976 3,770
----------- -----------
Commitments and contingencies
Total liabilities and stockholders' equity $9,484 $7,414
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-2
<PAGE>
INFU-TECH, INC.
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands)
===================================================================================================================
Six month
Year ended period ended Years ended
June 30, June 30, December 31,
1996 1995 1994 1993
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues $24,638 $10,601 $16,289 $17,011
----------- ----------- ----------- -----------
Costs and expenses:
Medical and nutritional product 11,920 5,566 7,072 6,900
Personnel 5,951 3,131 5,718 5,273
Personnel from related parties 867 453 550 --
Selling, general and administrative 2,779 1,466 2,998 2,896
Provision for uncollectible accounts 1,269 664 917 1,040
Management fees to majority shareholder 394 170 261 272
Depreciation 108 66 58 48
Other income,net (115) (66) (162) (193)
----------- ----------- ----------- -----------
23,173 11,450 17,412 16,236
----------- ----------- ----------- -----------
Income (loss) before income taxes 1,465 (849) (1,123) 775
Provision (benefit) for income taxes 270 -- (220) 310
----------- ----------- ----------- -----------
Income (loss) before cumulative effect of
accounting change 1,195 (849) (903) 465
Cumulative effect of change in accounting
for income taxes -- -- -- 1,071
----------- ----------- ----------- -----------
Net income (loss) $1,195 ($849) ($903) $1,536
=========== =========== =========== ===========
Earnings (loss) per share:
Income (loss) before cumulative effect
of accounting change $0.38 ($0.27) ($0.28) $0.15
Cumulative effect of change in accounting
for income taxes -- -- -- 0.33
----------- ----------- ----------- -----------
Net income (loss) $0.38 ($0.27) ($0.28) $0.48
=========== =========== =========== ===========
Weighted average number of shares 3,168,037 3,160,974 3,181,509 3,200,000
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
INFU-TECH, INC.
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands)
===============================================================================
Years Ended June 30,
----------------------------
1996 1995
----------- -----------
(Audited) (Unaudited)
<S> <C> <C>
Revenues $24,638 $19,854
----------- -----------
Costs and expenses:
Medical and nutritional product 11,920 9,620
Personnel 6,818 6,990
Selling, general and administrative 2,779 3,072
Provision for uncollectible accounts 1,269 1,096
Management fees to majority shareholder 394 318
Depreciation 108 98
Other income,net (115) (140)
----------- -----------
23,173 21,054
----------- -----------
Income (loss) before income taxes 1,465 (1,200)
Provision for income taxes 270 96
----------- -----------
Net income (loss) $1,195 ($1,296)
=========== ===========
Income (loss) per share $0.38 ($0.41)
=========== ===========
Weighted average number of shares 3,168,037 3,162,783
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
INFU-TECH, INC.
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Year ended June 30, 1996, six month period ended June 30, 1995
and years ended December 31, 1994 and 1993
(Dollars in thousands)
==================================================================================================================
Additional Total
Common Paid-in Retained Treasury Stockholders'
Stock Capital Earnings Stock Equity
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1993 32 2,917 1,110 -- 4,059
Net income -- -- 1,536 -- 1,536
------------ ------------ ------------ ------------ ------------
Balance, December 31, 1993 32 2,917 2,646 0 5,595
Net loss -- -- (903) -- (903)
Purchase of 39,300 shares
of treasury stock -- -- -- (73) (73)
------------ ------------ ------------ ------------ ------------
Balance, December 31, 1994 32 2,917 1,743 (73) 4,619
Net loss -- -- (849) -- (849)
------------ ------------ ------------ ------------ ------------
Balance, June 30, 1995 32 2,917 894 (73) 3,770
Net income -- -- 1,195 -- 1,195
Exercise of options -- 11 -- -- 11
------------ ------------ ------------ ------------ ------------
Balance, June 30, 1996 $32 $2,928 $2,089 ($73) $4,976
============ ============ ============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
INFU-TECH, INC.
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
================================================================================================================================
Six month
Year ended period ended Years ended
June 30, June 30, December 31,
1996 1995 1994 1993
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Operating activities:
Net income (loss) $1,195 ($849) ($903) $1,536
Adjustments to reconcile net income (loss) to net cash
used in by operating activities:
Depreciation expense 108 66 58 48
Provision for uncollectible accounts 1,269 664 917 1,040
Amortization of deferred income (126) (63) (126) (126)
Provision for deferred income taxes 195 -- -- 2
Cumulative effect of accounting change -- -- -- (1,071)
Increase (decrease) from changes in:
Accounts receivable (2,835) (574) (1,735) (758)
Accounts receivable from related parties (495) (146) (227) (113)
Inventories (192) (279) (115) (45)
Prepaid expenses and other current assets 307 (53) (330) (63)
Due from CHA -- -- -- 110
Other assets (40) -- (9) (2)
Accounts payable 437 660 613 (496)
Accrued payroll and related (4) 5 6 (194)
Other current liabilities 404 42 (96) (134)
----------- ----------- ----------- -----------
Net cash provided by (used in) operating activities 223 (527) (1,947) (266)
----------- ----------- ----------- -----------
Investing activities:
Expenditures for property and equipment (19) (14) (98) (64)
----------- ----------- ----------- -----------
Financing activities:
Purchase of treasury stock -- -- (73) --
Payment of capital lease obligation (70) (9) (1) --
Exercise of option 11 -- -- --
----------- ----------- ----------- -----------
Net cash used in financing activities (59) (9) (74) --
----------- ----------- ----------- -----------
Net increase (decrease) in cash and cash equivalents 145 (550) (2,119) (330)
Cash and cash equivalents, beginning of the period 546 1,096 3,215 3,545
----------- ----------- ----------- -----------
Cash and cash equivalents, end of the period $691 $546 $1,096 $3,215
=========== =========== =========== ===========
Supplemental disclosures of cash flow data:
Income taxes paid $7 $3 $55 $285
=========== =========== =========== ===========
Non cash investing and financing activity:
Property and equipment obtained under capital
lease obligation $223 $ -- $ -- $ --
=========== =========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements
F-6
<PAGE>
INFU-TECH, INC.
Notes to Consolidated Financial Statements (Dollars in thousands)
June 30, 1996 and 1995, and December 31, 1994 and 1993
- --------------------------------------------------------------------------------
1. The Company
Infu-Tech, Inc. (the "Company") is a provider of clinical services and
products to the non-hospital based health care market. This includes a broad
range of complete home infusion therapy services including total parenteral
nutrition therapy, antibiotic therapy and other therapies to patients at home
and enteral nutrition infusion therapy and other medical services and
products provided primarily to patients in long-term care facilities. The
Company is 59% owned by Continental Health Affiliates, Inc. ("CHA"), a public
company. The minority 41% of the Company's equity is publicly traded.
The Company is subject to certain risks and uncertainties as a result of
changes that could occur in the healthcare industry, including medicare and
medicaid reimbursement rates.
2. Significant Accounting Policies
Basis of consolidation
The accompanying financial statements include all wholly owned subsidiaries.
Intercompany transactions are eliminated in consolidation.
Accounting estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that effect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reported period.
Actual results could differ from those estimates.
Cash and cash equivalents
The Company classifies all highly liquid investments with maturities of three
months or less when purchased as cash equivalents.
Revenue Recognition
Revenue is reported at the net amounts estimated to be realized from
patients, third party payors and others for services rendered. The Company
receives payments for services to eligible patients under Medicare and
various state Medicaid programs. Approximately 25% (1996), 32% (June 1995),
44% (1994) and 59% (1993) of total revenues were derived from such medical
assistance programs. Revenues under these programs are based upon government
approved rates which are subject to audit. In the opinion of management,
retroactive adjustments, if any, would not be material to the Company's
financial position or results of operations.
Inventories
Inventories, which consist of medical and nutritional products, are valued at
the lower of cost (first-in, first-out method) or market.
F-7
<PAGE>
INFU-TECH, INC.
Notes to Consolidated Financial Statements (Dollars in thousands)
June 30, 1996 and 1995, and December 31, 1994 and 1993
- --------------------------------------------------------------------------------
Property and Equipment
Property and equipment, which consists primarily of equipment, furniture and
fixtures, and leasehold improvements, is depreciated using the straight-line
method at rates that charge the cost of the assets over the periods of
expected use. The range of useful lives is primarily three to five years.
Income Taxes
Income taxes are provided for on a liability method whereby deferred tax
assets are recognized for deductible temporary differences and operating loss
carry forwards and deferred tax liabilities are recognized for taxable
temporary differences. Temporary differences are the differences between the
reported amounts of assets and liabilities and their tax bases. Deferred tax
assets are reduced by a valuation allowance when, in the opinion of
management, it is more likely than not that some portion or all of the
deferred tax assets will not be realized. Deferred tax assets and liabilities
are adjusted for the effects of changes in tax laws and rates on the date of
enactment.
Earnings Per Share
Earnings per share is computed based upon the weighted average number of
common shares and common share equivalents outstanding during each year.
Common share equivalents reflect the dilutive effect of stock options and
warrants. The weighted average number of shares used in computing earnings
per share total 3,168,037 (1996) 3,160,974 (June 1995), 3,181,509 (1994) and
3,200,000 (1993).
New accounting principle
In October 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 123 "Accounting for Stock-based
Compensation", which the Company will adopt in fiscal year 1997. The Company
intends to adopt this statement through disclosure in the notes to the
financial statements.
Treasury stock
Shares of common stock held in treasury are accounted for at par value with
any difference between cost and par included in paid-in capital in excess of
par value.
Reclassifications
Certain amounts in the prior years financial statements have been
reclassified to conform to the 1996 presentation.
3. Deferred Income
In February 1992, the Company received $628 in consideration of its agreement
not to compete with Hospital Staffing Services, Inc. ("HSSI") in providing
nursing services in California, Arizona and Tennessee for a period of five
years and the termination of a non-competition provision which had barred
HSSI from providing infusion therapy services. The $628 was recorded as
deferred income and is being amortized to other income over five years.
F-8
<PAGE>
INFU-TECH, INC.
Notes to Consolidated Financial Statements (Dollars in thousands)
June 30, 1996 and 1995, and December 31, 1994 and 1993
- --------------------------------------------------------------------------------
4. Stockholders' Equity
On December 31, 1992, the Company completed an initial public offering of its
common stock. The Company sold 600,000 newly issued shares and received net
proceeds of $2,923. The excess of net proceeds received over the par value of
the newly issued shares was credited to additional paid-in capital. CHA,
which owned 100% of the outstanding common stock of the Company prior to the
offering, sold 730,000 shares which reduced its ownership of the Company to
59%. In connection with the initial public offering, the representative of
the underwriters was issued warrants to purchase up to 60,000 shares of the
Company's common stock at 125% of the initial public offering price, for a
period of four years.
In July 1992, the Company adopted a stock option plan (the "Infu-Tech Plan")
under which it is authorized to grant stock options to designated employees,
officers and directors of the Company. The Plan authorized grant of stock
options up to a maximum of 150,000 shares of common stock. In 1994, the
maximum number of shares which may be granted under the Plan was increased to
300,000 shares of common stock. Options may not be granted at a price that is
less than 100% of fair market value on the date of the grant (110% of fair
market value for persons owning 10% or more of Infu-Tech common stock).
Options become exercisable 12 months after the date of the grant and are
exercisable until ten years from the date of grant.
Stock option transactions for the year ended June 30, 1996, six months ended
June 30, 1995 and of the year ended December 31, 1994 are summarized as
follows:
Number Option Price
of shares Per Share
--------- -------------
Outstanding, December 31, 1993 122,200 $5.00 - $6.13
Granted 49,750 $1.00 - $4.50
Cancelled (7,300) $1.00 - $5.375
-------
Outstanding, December 31, 1994 164,650 $1.00 - $6.13
Granted 22,000 $1.59 - $1.95
Cancelled (8,400) $1.00 - $5.125
-------
Outstanding, June 30, 1995 178,250 $1.00 - $6.13
Granted 60,100 $2.25 - $3.44
Cancelled (30,050) $1.00 - $5.69
-------
Outstanding, June 30, 1996 208,300 $1.00 - $6.13
=======
At June 30, 1996, options to purchase 190,300 shares were exercisable at
prices ranging from $1.00 to $6.13 per share.
In June 1994, the Board of Directors authorized the Company to repurchase up
to 200,000 shares of its common stock in the open market. Through June 30,
1996, the Company had purchased 39,300 of its common shares at an aggregate
cost of $73.
F-9
<PAGE>
INFU-TECH, INC.
Notes to Consolidated Financial Statements (Dollars in thousands)
June 30, 1996 and 1995, and December 31, 1994 and 1993
- --------------------------------------------------------------------------------
5. Commitments and Contingencies
Operating Lease Commitments
The Company is obligated under various operating leases for facilities and
equipment with initial terms expiring at various dates through 2001. The
leases generally require the Company to pay all costs of maintaining the
leased properties.
The following is a schedule of future minimum annual rental payments required
under operating leases as of June 30, 1996:
Year ending
June 30, Facilities Equipment Total
----------- ---------- --------- -----
1997 $338 $ 38 $376
1998 222 3 225
1999 177 -- 177
2000 25 -- 25
2001 24 -- 24
---- ---- ----
$786 $ 41 $827
==== ==== ====
Rent expense was $441, $201, and $385 in 1996, June 1995 and 1994,
respectively.
Capital Lease Obligation
The Company has entered into a capital lease for infusion equipment at
implicit interest rates ranging between 9 3/4% and 18 1/2%. At June 30, 1996,
the Company had a capital lease obligation of $227, of which the current
portion of $128 was included in other current liabilities.
Future minimum lease payments due under these obligations are for the years
ending June 30, are $128 (1997); $71 (1998) and $28 (1999).
Employment Commitments
The Company extended an employment agreement with its Chairman of the Board,
who is also Chairman of the Board and President of CHA, for three years
through August 1998. He renders part-time services to the Company for a
salary of $100 per year.
Contingencies
There is no significant litigation pending against the Company, nor is the
Company aware of any threatened litigation, which may have a material adverse
affect upon the Company.
Participants in the health care market are subject to lawsuits based upon
alleged negligence or similar legal theories. The Company currently has in
force general liability insurance, including professional and product
liability, with coverage limits of $10 million, which is subject to annual
renewal. The Company has not recorded any related loss liabilities as of June
30, 1996.
F-10
<PAGE>
INFU-TECH, INC.
Notes to Consolidated Financial Statements (Dollars in thousands)
June 30, 1996 and 1995, and December 31, 1994 and 1993
- --------------------------------------------------------------------------------
6. Related Party Transactions
The Company provides nutritional and other supplies and infusion therapy
services to nursing homes owned or managed by CHA and derived revenues from
sales to those nursing homes of $524 in 1996, $266 from January 1995 to June
1995, $358 in 1994 and $313 in 1993. Included in accounts receivable are
amounts from nursing homes owned or managed by CHA of $1,025, $530, $384 and
$157 at June 30, 1996 and 1995, December 31, 1994 and 1993, respectively.
Included in personnel costs in 1996, 1995 and 1994, respectively, are charges
of $867, $453 and $550 from subsidiaries of CHA for contracted nursing
services.
Included in selling, general and administrative expenses is rent expense of
116 in 1996 and 58 in 1995 to an entity owned by the principal stockholders
of CHA and to CHA of $39 in 1994 and $72 in 1993.
Included in medical and nutritional product costs are charges from nursing
homes owned by CHA of $42 in 1996. Included in accounts payable are amounts
due to these nursing homes of $103 at June 30, 1996.
The Company paid cash dividends to CHA of $2,405 in 1992. From July 1, 1992
through December 31, 1992, cash dividends paid by the Company to CHA were
limited to the Company's net income during that period. Any amounts paid to
CHA during this period in excess of the Company's net income were treated as
a noninterest-bearing advance to CHA (which totalled $569), of which all but
$110 was repaid on December 31, 1992. The balance was settled in early 1993.
A management and non-competition agreement (the "Agreement") between the
Company and CHA expiring September 30, 1997 prohibits the Company from
lending money to (or borrowing money from) CHA subsequent to December 31,
1992.
Pursuant to the Agreement, CHA provides services to the Company, which
includes, among others, the services of CHA's senior executive management. A
management fee equal to 1.6% of revenues is charged by CHA to the Company for
these services. The Company estimates that had it provided such services for
itself, its costs would have been at least that amount.
In 1996, June 1995, 1994 and 1993, the Company was charged $14, $17, $37 and
$5, respectively, by a corporation owned by the Company's Chairman of the
Board for use of an airplane owned by that corporation. The Company believes
the rates it was charged for use of that airplane were lower than those which
would have been available from an independent charter company for use of a
similar airplane.
In January 1992, the Company and Medline Industries, Inc. ("Medline") entered
into a joint venture, MedTech Uro Services ("MedTech"). This joint venture
was established as part of the settlement of a lawsuit against CHA by
Medline. In accordance with the joint venture
F-11
<PAGE>
INFU-TECH, INC.
Notes to Consolidated Financial Statements (Dollars in thousands)
June 30, 1996 and 1995, and December 31, 1994 and 1993
- --------------------------------------------------------------------------------
agreement, the Company is paid to provide sales and marketing services to
MedTech. In addition, the Company will share in the net profits of MedTech to
the extent they exceed approximately $200 per year over each of four years.
The Company's participation in MedTech allows it to market urological,
tracheostomy and other services in conjunction with its marketing of contract
services to residents of long-term care facilities. During 1996, June 1995,
1994 and 1993, the Company recorded revenues under this agreement of $9, $45,
$139 and $204, respectively, which included $9 in 1996 and $45 in 1995 as its
share of net profits. Included in accounts receivable at June 30, 1996 and
1995, December 31, 1994 and 1993 were $0, $7, $6 and $29, respectively, due
from MedTech.
7. Income Taxes
Through December 31, 1992, the Company was included in the consolidated
Federal income tax return of CHA. Income taxes were computed on a separate
return basis. Pursuant to a tax sharing arrangement between the Company and
CHA, the Company's income tax provision payable to CHA was calculated as if
the Company filed its own Federal income tax return, except that in computing
the Company's tax liability, the Company did not take into account the
effects of timing differences.
Commencing in 1993, the Company began filing its own Federal income tax
return.
Effective January 1, 1993, the Company adopted Statement 109 and accordingly
had recognized a benefit of $1,071 to record the cumulative effect of the
change in accounting for income taxes in the consolidated statement of
operations for 1993.
The provision (benefit) for income taxes consists of the following:
Six
Year months Years Ended
ended ended December 31,
June 30, June 30, ------------
1996 1995 1994 1993
-------- -------- ----- -----
Current:
Federal $ 70 $-- $(225) $ 233
State 5 -- 5 75
----- ----- ----- -----
75 -- (220) 308
----- ----- ----- -----
Deferred:
Federal 165 -- -- (27)
State 30 -- -- --
Other -- -- -- 29
----- ----- ----- -----
195 -- -- 2
----- ----- ----- -----
$ 270 $-- $(220) $ 310
===== ===== ===== =====
The Company had recorded a Federal and state income tax payable of $75 which
is included in other current liabilities in the accompanying June 30, 1996
consolidated balance sheet and
F-12
<PAGE>
INFU-TECH, INC.
Notes to Consolidated Financial Statements (Dollars in thousands)
June 30, 1996 and 1995, and December 31, 1994 and 1993
- --------------------------------------------------------------------------------
a refund receivable of $225, which is included in prepaid expenses and other
current assets in the accompanying June 30, 1995 consolidated balance sheet.
The following table reconciles the Federal income tax provision computed at
statutory Federal income tax rates to the total provision (benefit) for
income taxes shown above:
Six
Year months Years ended
ended ended December 31,
June 30, June 30, ------------
1996 1995 1994 1993
-------- -------- ----- -----
Federal income tax provision
(benefit) at statutory rate $ 498 $(297) $(393) $ 271
State income tax provision,
net of Federal income tax benefit 88 (51) (67) 49
Increase (decrease) in valuation
allowance (316) 339 242 --
Other - net -- 9 (2) (10)
----- ----- ----- -----
$ 270 $ -- $(220) $ 310
===== ===== ===== =====
The tax effects of temporary differences that give rise to significant
portions of the deferred income tax assets are as follows:
Six
Year months
ended ended
June 30, June 30, Dec 31,
1996 1995 1994
-------- -------- -------
Net deferred income tax assets:
Allowances for uncollectible
accounts receivable $ 1,007 $ 876 $ 780
Net operating tax loss carryforwards -- 603 340
Compensated absences, principally
due to accrual for financial
reporting purposes 35 41 51
Deferred income 30 81 107
Other - net 67 49 33
------- ------- -------
Sub-total 1,139 1,650 1,311
Valuation allowance (265) (581) (242)
------- ------- -------
Net deferred income tax assets $ 874 $ 1,069 $ 1,069
======= ======= =======
The Company has historically been profitable and anticipates taxable income
in 1996 and future years. In the opinion of management, based on the above,
the Company will realize the net deferred income tax assets.
The Company has utilized all of its net operating tax loss carryforwards for
Federal income tax purposes.
F-13
<PAGE>
INFU-TECH, INC.
Notes to Consolidated Financial Statements (Dollars in thousands)
June 30, 1996 and 1995, and December 31, 1994 and 1993
- --------------------------------------------------------------------------------
8. Distribution Agreement
In November 1994, the Company entered into a distribution agreement with a
drug manufacturer under which the Company provides a specific home infusion
therapy utilizing the manufacturer's drug. Under this agreement, accounts
payable to the drug manufacturer ($1,396 at June 30, 1996) are secured by
the Company's inventories of the drug ($606 at June 30, 1996) as well as any
accounts receivable ($901 at June 30, 1996) arising from the sale of this
drug.
9. Business and Credit Concentrations
The Company generally does not require collateral or other security in
extending credit to patients, however, it routinely obtains assignment of
(or is otherwise entitled to receive) patients' benefits payable under their
health insurance programs, plans or policies (e.g. Medicare, Medicaid, Blue
Cross, health maintenance organizations, and commercial insurance policies).
At June 30, 1996, the Company had gross receivables from the Federal
Government (Medicare) of approximately $2,585.
10. Estimated Fair Value of Financial Instruments
The estimated fair value of financial instruments has been determined based
upon available market information and appropriate valuation methodologies.
However, considerable judgement is necessarily required in interpreting
market data to develop the estimates of fair value. Accordingly, the
estimates presented herein are not necessarily indicative of the amounts
that the Company might realize in a current market exchange. The use of
different market assumptions and or estimation methodologies may have a
material effect on the estimated fair value.
The carrying amounts of short term financial instruments are reasonable
estimates of their fair values.
11. Fourth Quarter Adjustment
The Company recorded an inventory adjustment during the fourth quarter of
fiscal year 1996. A gross amount of $388 before tax was recorded as an
increase to inventory with a corresponding reduction to medical and
nutritional product costs. The adjustment arose as a result of a physical
inventory conducted on June 30, 1996. Because the Company did not conduct
physical inventory counts during the year, it is not possible to determine
whether or not the adjustment impacted any of the previously filed quarterly
results.
F-14
<PAGE>
Schedule II
INFU-TECH, INC.
Valuation and Qualifying Accounts (Dollars in thousands)
- --------------------------------------------------------------------------------
Column A Column B Column C Column D Column E
- -------- -------- -------- -------- --------
Additions
------------------
Balance at Charged to Balance
beginning cost and Deductions at end
Description of period expenses Other (a) of period
- ----------- ---------- ---------- ----- ---------- ---------
Allowance for
uncollectible
accounts:
1996 (June) $2,136 $1,269 $-- $ 949 $2,456
====== ====== ===== ====== ======
1995 (June) $1,903 $ 664 $-- $ 431 $2,136
====== ====== ===== ====== ======
1994 (December) $2,090 $ 917 $-- $1,104 $1,903
====== ====== ===== ====== ======
1993 (December) $1,972 $1,040 $-- $ 922 $2,090
====== ====== ===== ====== ======
(a) Uncollectible accounts charged off during the year, net of recoveries.
S-1
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Company has duly caused this Report to be
signed on its behalf by the undersigned, thereunto duly authorized.
INFU-TECH, INC.
Date: September 30, 1996 By: /s/ JACK ROSEN
Jack Rosen
Chairman of the Board
Pursuant to the requirements of the Securities Exchange Act of
1934, this Report has been signed below by the following persons on behalf of
the Company in the capacities and on the dates indicated.
Name Title Date
- ----------------------- --------------------------- ------------------
/s/ JACK ROSEN Chairman of the Board, September 30, 1996
Jack Rosen Director (Principal
Executive Officer)
/s/ JOSEPH ROSEN Director September 30, 1996
Joseph Rosen
/s/ BENJAMIN GEIZHALS Vice President, Assistant September 30, 1996
Benjamin Geizhals Secretary and General Counsel
(Principal Financial Officer)
/s/ ALISON KURUS ALLEN Principal Accounting September 30, 1996
Alison Kurus Allen Officer
/s/ ISRAEL INGBERMAN Director September 30, 1996
Israel Ingberman
/s/ JOSEPH M. GIGLIO Director September 30, 1996
Joseph M. Giglio
/s/ Carl D. Glickman Director September 30, 1996
Carl D. Glickman
/s/ Bruce Slovin Director September 30, 1996
Bruce Slovin
<PAGE>
INFU-TECH, INC.
AND SUBSIDIARIES
Exhibit 21
List of Subsidiaries
The following are the subsidiaries of Infu-Tech, Inc. ("Infu-Tech" or the
"Company").
A) Infu-Tech, Inc. (a Delaware corporation).
1) Infu-Tech, Inc. (a New Jersey corporation) (formerly Temporary Nursing
Services, Inc.).
2) Infu-Tech of Florida, Inc. (a Florida corporation).
3) Infu-Tech of Massachusetts, Inc. (a Massachusetts corporation).
4) Infu-Tech of New York, Inc. (a New York corporation).
5) Infu-Tech of Tennessee, Inc. (a Tennessee corporation).
6) Intrx Medical, Inc. (a New Jersey corporation).
