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, 1997
Commission file number: 0-21006
INFU-TECH, INC.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
22-3127689
(I.R.S. Employer
Identification No.)
910 Sylvan Avenue
Englewood Cliffs, N.J.
(Address of principal executive offices)
07632
(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. [ ]
As of September 22, 1997 the aggregate market value of the voting stock held by
non-affiliates of the registrant was $4,318,436.
As of September 22,1997, 3,249,692 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
29, 1997.
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, urological products and wound
care products, to residents in long term care facilities.
The Company's sales and marketing efforts are primarily directed towards
Managed Care. The Company has over 58 agreements with Managed Care covering over
17 million members to provide infusion therapy and other home health services.
The agreements with Managed Care vary from preferred provider relationships to
being one of several providers. Reimbursement is generally on a per diem basis.
In June 1997, the Company established a Disease Management Services
Division, which will focus on developing comprehensive preventive treatment
programs for patients with chronic conditions, such as asthma, diabetes and
congestive heart failure.
The Company's continued marketing efforts directed at managed care
companies bring significant opportunity to drive new programs like Disease
Management through existing relationships.
In 1997, the Company renewed its non-exclusive distribution agreement
with Genzyme Corporation for Ceredase(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.
The following table sets forth the percentages of the Company's
revenues, by service unit, from the various therapies, products and services.
<PAGE>
<TABLE>
<CAPTION>
Six months ended Year ended Year ended
June 30, 1995 June 30, 1996 June 30, 1997
--------------------------------------------------------------------------
IntravenouContract Total IntravenouContract Total IntravenouContract Total
Infusion ServicesRevenues Infusion ServicesRevenues Infusion ServicesRevenues
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Enteral Nutrition 4% 68% 24% 3% 72% 20% 3% 71% 20%
Antibiotic 32% - 22% 30% - 23% 27% - 20%
TPN 7% - 5% 7% - 5% 5% - 4%
Orthotics - 3% 1% - 1% - - - -
Immune Globulin 9% - 6% 8% - 6% 10% - 7%
Ceredase/Cerezyme 26% - 18% 27% - 20% 32% - 24%
Wound Care - 8% 2% - 2% 1% - 1% -
Other 22% 21% 22% 25% 25% 25% 23% 28% 25%
100% 100% 100% 100% 100% 100% 100% 100% 100%
==== ==== ==== ==== ==== ==== ==== ==== ====
</TABLE>
Overview of the Home Health Care Industry
One of the major factors contributing to the rapid growth of home health
care has been the use of alternate site health care to contain the rising costs
of health care. Consumers of all types, including governmental bodies, managed
care organizations, insurance companies and private payors are recognizing the
savings that can be realized by offering care in the home as opposed to
institutional settings. In addition, an aging population and patients'
preferences for receiving health care in the comfort of the home, combine with
advances in medical technology making the delivery of sophisticated treatments
in the home a reality, are all contributing to the continued growth of the home
health care industry.
Managed care organizations are becoming important players in the home
health market and have exerted pricing pressure on the providers of home health
care services. Such pressure has negatively impacted the profit margins of home
health care producers. In addition, as the managed care organizations continue
to grow, they may show a preference to deal only with those home health care
service providers who can offer a comprehensive range of services throughout
such managed care organization's area of operations. In response, what once was
a very fragmented industry is undergoing a wave of consolidation.
With the development of additional oral medications to replace
medications that are administered intravenously, there has been a decrease in
the demand for home infusion therapies. Providers of oral pharmaceuticals are
servicing an increasing number of patients who previously required infusion
therapies.
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 17 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 home 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
<PAGE>
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 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 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. However, starting July 1, 1998,
suppliers will not be directly reimbursed by Medicare for providing services to
residents of skilled nursing facilities ("SNF's"). Rather, the Company will bill
the SNF's for services provided and the SNF's themselves will bill Medicare.
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, wound care
products, urological products and other supplies.
As part of providing its products and services to residents 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.
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 fourteen 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 residents. Inability to collect
the 20% co-insurance portion of bills is the principal reason for the Company's
provision for uncollectible accounts.
Starting July 1, 1998 suppliers will not be directly reimbursed by
Medicare for providing services to residents in skilled nursing facilities (see
Government Regulation).
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 also work closely with these payors to maximize reimbursement.
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, 1997:
<TABLE>
<CAPTION>
Home Contract Total
Infusion Services Revenues
<S> <C> <C> <C>
Medicare............................ 4% 87% 25%
Private Pay......................... 93% 13% 73%
Medicaid............................ 3% - 2%
---- ---- ----
100% 100% 100%
==== ==== ====
</TABLE>
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, 1997, the sales force included
approximately 13 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 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.
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 residents 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 have 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 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, could 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.
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.
The Balanced Budget Act, passed into law in August 1997, will impact the
billing process for the Company's contract services division. Commencing July 1,
1998 suppliers will not be directly reimbursed by Medicare for providing
services to residents in skilled nursing facilities ("SNF's"). The Act provides
that Medicare Part B items like parenteral and enteral nutrition are to be
provided by the SNF's for residents whose SNF care is covered by Medicare, and
further provides that payment by Medicare for Part B items supplied to SNF's
residents is to be made only to the SNF's. The Company, in turn, will have to
contract with the SNF's to provide, and be paid for, the products services
provided.
Executive Officers of the Company
The following is a list of executive officers of the Company as of June
30, 1997, 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, 51
President, Chief Executive Officer
Joseph Rosen Vice President, Assistant Secretary 46
and Director
S. Colin Neill Vice President, Chief Financial Officer 51
Michael Elfenbein Vice President and Chief Operating Officer 52
Pritpal Virdee Executive Vice President; President Intrx 38
Medical, Inc.
Benjamin Geizhals Vice President, Assistant Secretary and 48
General Counsel
Israel Ingberman Secretary, Director 51
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 publicly traded 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 publicly traded 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.
Michael Elfenbein joined the Company in June 1997 as Vice President,
Chief Operating Officer. From 1996-1997, he was Vice Chairman of Hemo Biologics
International, Inc., a specialty blood products company. From 1993-1996 he was
President and principal of J.M. Investments, a private medical services and real
estate investment company. From 1990 he was Senior Executive Vice President and
Chief Operating Officer of Home Intensive Care, Inc. a national infusion therapy
and dialysis services provider, until its acquisition by National Medical Care,
a subsidiary of W.R. Grace in 1993.
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 USA, a
leading medical products and pharmaceutical company. Prior to that, he had
worked as General Manager of Fresenius Pharma U.K.
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.
Employees
As of June 30, 1997, the Company had approximately 112 employees. Of
these employees, three were in executive capacities (in addition to executives
of CHA who rendered services to the Company), approximately 19 were in sales or
service capacities, approximately 46 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 five 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, Philadelphia, Pennsylvania and Fort Lauderdale, Florida.
Lease payments for the corporate office, five branch offices, the central
pharmacy, the Memphis, Boston, Philadelphia and Fort Lauderdale, Florida
pharmacies, the infusion suites and the warehouse total $34,026 per month. 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 fully paid and satisfied its previously-announced
settlement with the Office of Inspector General of the U.S. Department of Health
and Human Services.
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, 1997, except a proposal for the adoption of the 1996 Key
Employees and Key Personnel Stock Option Plan which proposal was approved at the
Shareholder's meeting on January 15, 1997.
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 1995
and 1996 and through June 30, 1997 were as follows:
High Low
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
Third Quarter..........5 1/4 3 5/8
Fourth Quarter.........4 3/8 3 3/8
1997:
First Quarter..........5 3/4 3 1/2
Second Quarter.........4 5/8 3 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 totaling $9,866,000, as well as
management fees totalling $1,258,000 and tax payments totalling $1,555,000. Any
decision by the Company's Board of Directors to pay dividends on its Common
Stock in the future will be based upon the Company's earnings, cash flow,
capital needs and available funds, and any other factors the Company's directors
deem relevant. Because CHA owns 58% of the stock of the Company, and all the
Company's directors are also directors of CHA, the Company's directors may be
influenced by CHA's cash needs in deciding whether the Company should declare
dividends. Under Delaware law, the Company is only permitted to pay dividends
out of accumulated surplus or the current or prior year's net profits.
As of September 22, 1997, there were 54 holders of record of the
Company's Common Stock.
Item 6. Selected Financial Data.
The following table sets forth selected financial data of the Company
and should be read in conjunction with the consolidated financial statements as
of June 30, 1997 and 1996, the six months ended June 30, 1995 and the year ended
December 31, 1994 and the related notes, included elsewhere in this Report.
<TABLE>
<CAPTION>
Year Ended Year Ended Six Months Year Ended
June 30, June 30, Ended June 30, December 31,
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
(In thousands, except per share)
<S> <C> <C> <C> <C> <C>
Revenues ........................$ 26,003 $ 24,638 $ 10,601 $ 16,289 $ 17,011
- ------ - ------ - ------ - ------ - ------
Income (loss) before income taxes
and cumulative effect of
accounting change.............. 1,615 1,465 (849) (1,123) 775
Provision (benefit) for income taxes 662 270 -- (220) 310
--- --- --- ---- ---
Income (loss) before cumulative effect
of accounting change........... 953 1,195 (849) (903) 465
Cumulative effect of change in
accounting for income taxes.... -- -- -- -- 1,071
--- --- --- --- -----
Net income (loss)................ $ 953 $ 1,195 $ (849) $ (903) $ 1,536
=== = ===== = ===== = ==== = =====
Income (loss) per share (1)
Income (loss) before cumulative
effect of accounting change..$ .30 $ .38 $ (.27) $ (.28) $ .15
Cumulative effect of change in
accounting for income taxes.... -- -- -- -- .33
--- --- --- --- ---
Net income (loss)................$ .30$ .38 $ (.27) $ (.28) $ .48
= ==== ==== = ==== = ==== = ===
</TABLE>
<TABLE>
<CAPTION>
June 30, June 30, June 30, December 31,
1997 1996 1995 1994 1993
Balance Sheet Data
(In thousands)
<S> <C> <C> <C> <C> <C>
Accounts receivable .............$ 7,302 $ 5,669 $ 3,608 $ 3,552 $ 2,507
Total assets..................... 11,618 9,484 7,414 7,586 8,124
Working capital.................. 5,044 4,696 3,571 4,454 5,695
Total stockholders' equity....... 6,101 4,976 3,770 4,619 5,595
- -------------------------
(1) Based on 3,192,797, 3,168,037 and 3,160,974 shares outstanding at June 30, 1997, 1996 and 1995, 3,181,509
shares outstanding in 1994 and 3,200,000 shares outstanding in 1993.
</TABLE>
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Results of Operations
Twelve Months Ended June 30, 1997 Compared with Twelve Months Ended June 30,
1996.
Total revenues increased by $1,365,000, or 6% from $24,638,000 in 1996 to
$26,003,000 in 1997, primarily due to a $913,000, or 4% increase in home
infusion division revenues. This increase is primarily attributed to a 3%
increase in the number of patients serviced, although these patients experienced
shorter terms of therapy and pricing negotiated with managed care companies was
discounted.
Costs of medical and nutritional products sold to patients and other
customers increased by $1,594,000 or 13% from $11,920,000 in 1996 to $13,514,000
in 1997. As a percentage of total revenues, medical and nutritional product
costs increased from 48% in 1996 to 52% in 1997. The increase in the nutritional
product costs as a percentage of sales is partially attributable to the
increased pricing pressures from certain vendors.
Total personnel costs increased by $387,000, or 6% from $6,818,000 in 1996
to 7,205,000 in 1997, primarily attributable to higher nursing and pharmacy
costs incurred to support the 3% increase in home infusion patients serviced,
increasing geographical coverage through sales force expansion, and the opening
of a Florida pharmacy.
Selling, general and administrative expenses increased by $709,000, or 26%
from $2,779,000 in 1996 to $3,488,000 in 1997. The increase is largely
attributable to investment banking retainer fees in connection with a proposed
acquisition, engagement of an investor relations firm, costs connected with the
development of a disease state management program and distribution cost
increases. In addition, the opening of a Florida pharmacy and start up costs
associated with the Humana Health Plans capitation contract in Illinois added to
the increase in selling, general and administrative expenses.
Beginning in the quarter ending March 31, 1997, the Company reviewed its
allowance for uncollectible accounts in light of the Company's changed payor
mix. The Company's business focus is on managed care relationships which now
account for 73% of its payor mix. The managed care relationships are generally
governed by contracts which provide for payment within defined terms. The
Company's collection experience for these contracts has been good and greatly
improved from the historical collection experience upon which the allowance for
uncollectible accounts had been established. As a result of this review, a total
of $1,366,000 before taxes was released from the reserve for uncollectible
accounts during the year, resulting in a credit to the provision for the year of
$196,000 compared to a charge of $1,269,000 in the prior year. Based on this
analysis the Company expects a lower provision rate to be charged against sales
going forward.
Management fees to Continental Health Affiliates, Inc. and subsidiaries
("CHA") of $416,000 in 1997 and $394,000 in 1996 were 1.6% of revenues in both
periods.
Depreciation and amortization expense increased from $108,000 in 1996 to
$139,000 in 1997 due to property and equipment additions involving infusion pump
purchases, as well as amortization recognized during the current year.
Other income, net of $178,000 in 1997 and $115,000 in 1996 consisted of and
$72,000 in 1997 and $126,000 of amortization in 1996 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. The amortization of
this non-compete agreement was completed in the period ended March 31, 1997.
Accounts payable of $126,000 was also written off during the year relating to
prior periods. Interest expense offsets the other income in both years.
The net income in 1997 was $953,000, or $.30 per share compared to a net income
in 1996 of $1,195,000, or $.38 per share. Income before taxes for the twelve
months ending June 30, 1997 was $1,615,000 compared to $1,465,000 for the
comparable prior period. As the Company utilized its net operating loss
carryforwards in the prior year, a full tax charge in the current year results
in net income of $953,000 compared to $1,195,000 for the comparable period last
year.
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 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 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.
Liquidity and Capital Resources
As of June 30, 1997, the Company had total assets of $11.6 million, working
capital of $5.0 million and a net worth of $6.1 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, 1997, the balance in net accounts receivable for Infu-Tech was
31% higher than the balance at June 30, 1996. Net third party accounts
receivable increased by $1,444,000 during the year, mostly due to a reduction of
the allowance account. Infu-Tech's net accounts receivable has increased from 84
days sales at June 30, 1996 to 102 days sales at June 30, 1997 largely because
of the reduction in the allowance for uncollectible accounts. The DSO is
calculated on net accounts receivable. While Medicare payments continue to be
slow due to changes in reimbursement policies, and while managed care companies
have experienced delays in processing payments due to higher volume of claims
and/or systems conversions, the Company's collection rates have been strong.
Among the nursing homes with which the Company did business in 1997 were
seven facilities which were owned or managed by CHA. Through June 30, 1997 the
Company's sales from those nursing homes totaled $564,000 for the twelve month
period. At June 30, 1997, the company's net accounts receivable from those
nursing homes totaled $1,214,000. During the twelve months ended June 30, 1997,
the Company realized revenues of $428,000 or 7.1% of the Company's total
contract services revenues, from the sale of products and services to residents
of those nursing homes.
Since the Company has no borrowings, management believes that the Company
is in a favorable position to secure financing, if needed. Based upon
preliminary informal discussions with potential lenders, the Company believes
that it would be able to secure adequate financing to cover its cash
requirements for the foreseeable future.
Recently Issued Accounting Standards
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, Earnings Per Share ("EPS"), which is
effective as of December 31, 1997. This standard changes the way companies
compute EPS to require all companies to show "basic" and "dilutive" EPS and is
to be retroactively applied, including each 1997 interim quarter. The statement
is not expected to have a material effect on the calculation of EPS.
In July 1996, the Emerging Issues Task Force of the Financial Accounting
Standards Board reached a consensus on Issue 96-14, Accounting for the Costs
Associated with Modifying Computer Software for the year 2000, which provides
that costs associated with modifying computer software for the year 2000 be
expensed as incurred. The Company is assessing the extent of the necessary
modifications to its computer software.
Item 8. Consolidated Financial Statements and Supplementary Data.
The consolidated financial statements and supplementary data required by
this item appear beginning at page F-1.
Item 9.Changes in and Disagreements with Accountants on Accounting and Financial
Disclosures
None.
PART III
Part III Items 10 through 13 to be filed by October 29, 1997 as part of
definitive proxy statement.
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
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)
10(e) Infu-Tech 1996 Key Employees and Key Personnel Stock Option Plan.
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).
<PAGE>
Infu-Tech Inc.
Index to Consolidated Financial Statements and
Financial Statement Schedule
1. Consolidated Financial Statements:
Independent Auditors' Report
Balance Sheets
June 30, 1997 and 1996
Statements of Operations:
Years Ended June 30, 1997, 1996 and Six Month Period Ended
June 30, 1995 and Year Ended December 31, 1994
Years Ended June 30, 1997, 1996 and Unaudited 1995
Statements of Stockholders' Equity:
Years Ended June 30, 1997, 1996 and Six Month Period Ended
June 30, 1995 and Year Ended December 31, 1994
Statements of Cash Flows:
Years Ended June 30, 1997, 1996 and Six Months En
June 30, 1995 and Year Ended December 31, 1994
Notes to Consolidated Financial Statements
2. Financial Statement Schedule:
Valuation and Qualifying Accounts
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.
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 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, 1997 and 1996 and the results of their operations
and their cash flows for the years ended June 30, 1997 and 1996, the six-month
period ended June 30, 1995 and the year 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, presents fairly, in all
material respects, the information set forth therein.
September 26, 1997
New York, New York
<PAGE>
<TABLE>
<CAPTION>
INFU-TECH, INC.
Consolidated Balance Sheets
(Dollars in thousands)
Years Ended June 30,
1997 1996
---- ----
ASSETS
<S> <C> <C>
Cash and cash equivalents...................................$ 512 $ 691
Accounts receivable, net of allowances for uncollectible
accounts of $1,995 and $2,456.......................... 6,088 4,644
Accounts receivable from affiliates ........................ 1,214 1,025
Inventories................................................. 1,654 1,646
Deferred income taxes....................................... 702 822
Prepaid expenses and other current assets................... 365 205
--- ---
Total current assets............................... 10,535 9,033
Property and equipment, at cost, net of accumulated
depreciation of $450 and $320.......................... 244 307
Deferred income taxes....................................... 0 52
Goodwill, net............................................... 139 - 0 -
Other assets................................................ 700 92
--- --
Total assets.......................................$ 11,618 $ 9,484
= ====== = =====
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable............................................$ 4,288 $ 2,779
Accrued payroll and related expenses........................ 499 403
Income taxes payable........................................ 449 75
Other current liabilities................................... 255 1,080
--- -----
Total current liabilities.......................... 5,491 4,337
Capital lease obligation.................................... 26 99
Deferred income............................................. - 0 - 72
----- --
Total liabilities.................................. 5,517 4,508
Stockholders' Equity:
Common stock, $.01 par value; 5,000,000 shares authorized;
3,192,797 issued................................... 32 32
Additional paid-in capital............................. 3,100 2,928
Retained earnings...................................... 3,042 2,089
Treasury stock, at cost; 39,300 shares................. (73) (73)
--- ---
Total stockholders' equity......................... 6,101 4,976
----- -----
Commitments and Contingencies
Total liabilities and stockholders' equity.............$ 11,618 $ 9,484
= ====== = =====
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
INFU-TECH, INC.
Consolidated Statements of Operations
(Dollars in thousands)
Six Month
Years Ended Period Ended Year Ended
June 30, June 30, June 30, December 31,
1997 1996 1995 1994
<S> <C> <C> <C> <C>
Revenues....................................$ 26,003 $ 24,638 $ 10,601 $ 16,289
- ------ --------- --------- ------
Costs and Expenses:
Medical and nutritional product........ 13,514 11,920 5,566 7,072
Personnel.............................. 7,205 6,818 3,584 6,268
Selling, general and administrative.... 3,488 2,779 1,466 2,998
Provision for uncollectible accounts... (196) 1,269 664 917
Management fees to majority shareholder 416 394 170 261
Depreciation and amortization.......... 139 108 66 58
Other income, net (178) (115) (66) (162)
--------- -------- -------- --------
24,388 23,173 11,450 17,412
--------- -------- -------- --------
Income (loss) before income taxes........... 1,615 1,465 (849) (1,123)
Provision (benefit) for income taxes........ 662 270 -- (220)
--------- -------- -------- --------
Net income (loss)...................... $ 953 $ 1,195 $ (849) $ (903)
========= ======== ======== =======
Earnings (loss) per share.................. $ 0.30 $ 0.38 $ (0.27) (0.28)
========== ======== ======= ========
Weighted average number of shares........... 3,192,797 3,168,037 3,160,974 3,181,509
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
INFU-TECH, INC.
Consolidated Statements of Operations
(Dollars in thousands)
Years Ended June 30,
1997 1996 1995
---- ---- ----
(Unaudited)
<S> <C> <C> <C>
Revenues......................................... $ 26,003 $ 24,638 $ 19,854
--------- --------- --------
Costs and Expenses:
Medical and nutritional product............. 13,514 11,920 9,620
Personnel................................... 7,205 6,818 6,990
Selling, general and administrative......... 3,488 2,779 3,072
Provision for uncollectible accounts........ (196) 1,269 1,096
Management fees to majority shareholder..... 416 394 318
Depreciation and amortization............... 139 108 98
Other income, net........................... (178) (115) (140)
-------- --------- -------
24,388 23,173 21,054
-------- --------- -------
Income before income taxes....................... 1,615 1,465 (1,200)
Provision for income taxes....................... 662 270 96
-------- --------- -------
Net income (loss)....................... $ 953 $ 1,195 $ (1,296)
=== ========= ========
Income (loss) per share.......................... $ 0.30 $ 0.38 $ (0.41)
======== ========= =========
Weighted average number of shares................ 3,192,797 3,168,037 3,162,783
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
INFU-TECH, INC.
Consolidated Statements of Stockholders' Equity
Years Ended June 30, 1997, 1996 and the Six Month Period
ended June 30, 1995 and Year ended December 31, 1994
(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, 1994....... $ 32 $ 2,917 $ 2,646 $ -- $ 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
Net income..................... -- -- 953 -- 953
Warrants issued................ -- 44 -- -- 44
Stock issued................... -- 100 -- -- 100
Exercise of options............ -- 28 -- -- 28
--- -- --- --- --
Balance, June 30, 1997......... $ 32 $ 3,100 $ 3,042 $(73) $ 6,101
== ===== ===== === =====
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
INFU-TECH, INC.
Consolidated Statements of Cash Flows
(Dollars in thousands)
Six Month
Year End Year End Period Ended Year End
June 30, 1997 June 30, 1996 June 30, 1995December 31, 1994
<S> <C> <C> <C> <C>
Operating activities:
Net income (loss)..........................$ 953 $ 1,195 $ (849) $ (903)
Adjustments to reconcile net income
(loss) to net cash used in by
operating activities:
Amortization expense................... 7 -- -- --
Depreciation expense................... 132 108 66 58
Warrants issued........................ 44 -- -- --
Provision for uncollectible accounts... (196) 1,269 664 917
Amortization of deferred income........ (72) (126) (63) (126)
Provision for deferred income taxes.... 172 195 -- --
Increase (decrease) from changes in:
Accounts receivable.................... (1,104) (2,835) (574) (1,735)
Accounts receivable from affiliates ... (189) (495) (146) (227)
Inventories............................ (8) (192) (279) (115)
Prepaid expenses and other current assets (160) 307 (53) (330)
Other assets........................... (608) (40) -- (9)
Taxes payable.......................... 374 -- -- --
Accounts payable....................... 1,509 437 660 613
Accrued payroll and related............ 96 (4) 5 6
Other current liabilities.............. (802) 404 42 (96)
---- --- -- ---
Net cash provided by (used in) operating
activities............................. 148 223 (527) (1,947)
--- --- ---- ------
Investing activities:
Expenditures for property and equipment.... (69) (19) (14) (98)
Acquisition of Universal Home Infusion..... (190) -- -- --
---- --- --- --
Net cash used in investing activities...... (259) (19) (14) (98)
Financing activities:
Purchase of treasury stock................. -- -- - (73)
Payment of capital lease obligation........ (96) (70) (9) (1)
Exercise of options........................ 28 11 -- --
-- -- --- --
Net cash used in financing activities.. (68) (59) (9) (74)
--- --- -- ---
Net increase (decrease) in cash and cash
equivalents................................ (179) 145 (550) (2,119)
Cash and cash equivalents, beginning of
the period................................. 691 546 1,096 3,215
--- --- ----- -----
Cash and cash equivalents, end of the period$ 512 $ 691 $ 546 $ 1,096
Supplemental disclosures of cash flow data:
Income taxes paid..........................$ 110 $ 7 $ 3 $ 55
= === = = = = = ==
Non cash investing and financing activity:
Property and equipment obtained under
capital lease obligation...............$ -- $ 223 $ -- $ --
Stock issued................................$ 100 $ -- $ -- $ --
= === = === = === = ==
See accompanying notes to consolidated financial statements.
</TABLE>
INFU-TECH, INC.
Notes to Consolidated Financial Statements (Dollars in thousands)
June 30, 1997 and 1996, 1995 and December 31, 1994
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 residents in long-term care
facilities. The Company is 58% owned by Continental Health Affiliates, Inc.
("CHA"), a public company.
The minority 42% 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 12% (1997), 25% (1996), 32%
(June 1995) and 44% (1994) 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.
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.Earnings per common share assuming dilution were not materially
different from the primary accounts.
Employee Stock Option
The Company accounts for its stock option plans in accordance with the
provisions of the accounting Pirnciples Boards Opinion No. 25 (APB 25),
"Accounting for Stock Issued to Employees." Effective July 1, 1996 the
company adopted the Financial Accounting Standards Board's Statement of
Financial Accounting Standards No. 123 (SFAS13), "Accounting for Stock
Based Compensation." accordingly, the company has elected to provide pro
forma disclosures as required by SFAS 123.
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 1997 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 was amortized to other income over five
years.
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 five years.
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, 1997, the Company had purchased 39,300 of its common shares at an
aggregate cost of $73.
During the year, 125,000 warrants were issued to non exclusive finanical
consultants to the Company. The cost of the warrants has been claculated at
$44 and charged to expense. 100,000 of the warrants are two year warrants,
with 33,334 share at our exercise price of $3.50, 33,333 shares at our
exercise price of $4.50, and 33,333 shares with our exercise price of
$5.00. The remaining 25,000 two year warrants have our exercise price
$6.96.
In connection with the acquisition of Universal Home Infusion, the company
issued 24,000 shares.
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.
In January 1997, the Company adopted the 1996 Key Employees and Key
Personnel Stock Option Plan which replaced the 1992 Plan. The Plan
authorized 500,000 shares and the conditions are essentially the same as
the 1992 Plan.
Stock option transactions for the years ended June 30, 1997 and 1996, six
months ended June 30, 1995 and of the year ended December 31, 1994 are
summarized as follows:
<TABLE>
<CAPTION>
Weighted average
Number Option Price
of shares Per Share
<S> <C> <C>
Outstanding, December 31, 1993............... 122,200 $5.92
Granted ..................................... 49,750 $1.89
Cancelled.................................... (7,200) $3.89
Exercised ................................... (100) $1.00
---------
Outstanding, December 31, 1994 164,650 $4.79
Granted ..................................... 22,000 $1.71
Cancelled.................................... (8,400) $1.75
Exercised.................................... - $0.00
--
Outstanding, June 30, 1995................... 178,250 $4.57
Granted ..................................... 60,100 $2.60
Cancelled.................................... (30,050) $2.64
Exercised.................................... (12,750) $1.21
-------
Outstanding, June 30, 1996................... 208,300 $4.37
Granted...................................... 336,242 $4.16
Cancelled.................................... (52,150) $4.25
Exercised.................................... - $0.00
--
Outstanding, June 30, 1997................... 492,392 $4.24
=======
Options to purchase 362,656 shares were available for grant at June 30,
1997 under the 1996 Plan.
</TABLE>
The following table summarizes information about stock options outstanding
at June 30, 1997:
<TABLE>
<CAPTION>
Number Weighted Weighted Number Weighted
Range of Outstanding Average Remaining Average Exercisable at Average
Exercise Prices at 6/30/97 Contractual LifeExercise Price 6/30/97 Exercise Price
(Years)
<S> <C> <C> <C> <C> <C>
$1.00 - $2.25 41,700 7.9 $1.96 41,700 $1.96
$2.875 - $4.19 158,242 9.2 $3.86 86,500 $5.10
$4.25 200,000 9.4 $4.25 200,000 $4.25
$4.44 - $6.13 92,450 5.8 $5.89 92,450 $5.89
------ --- ----- ------ -----
492,392 8.5 $4.24 420,650 $4.96
======= === ===== ======= =====
</TABLE>
The Company has computed, pro forma disclosure purposes, the value of all
options granted under the stock option plan to be $3.41 and $2.10 for 1997
and 1996. The computations were made using the CPA model, as prescribed by
SFAS No. 123, with the following weighted average assumptions for grants in
1997 and 1996:
1997 1996
---- ----
Risk-free interest rate................. 4.9% 5.1%
Expected dividend yield................. 0% 0%
Expected life term until exercise (years) 8.5 5.4
Expected volatility..................... 68.61% 84.68%
If the Company had accounted for these plans in accordance with SFAS No.
123, the Company's net income and net income per share would have decreased
as reflected in the following pro forma amounts:
Year Ended June 30,
1997 1996
---- ----
Net income:
As reported............$ 953 $ 1,195
Pro forma.............. 277 1,121
Net income per share:
As reported............$ .30 $ .38
Pro forma.............. .09 .35
The pro forma effects on net income may not be representative of future
years since compensation costs are primarily attributed to the year of
grant as vesting is within one year.
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, 1997:
Year ending
June 30, Facilities Equipment Total
1998 ..................... 375 9 384
1999 ..................... 208 6 214
2000 ..................... 45 5 50
2001 ..................... 24 1 25
2002 ..................... -- -- --
--- ------- ------
.....................$ 652 $ 21 $ 673
= === ===== ====
Rent expense was $550, $441, $201, and $385 in 1997, 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,
1997, the Company had a capital lease obligation of $131 of which the
current portion of $105 was included in other current liabilities.
Future minimum lease payments due under these obligations are for the
years ending June 30, are $115 (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 July 2000. He renders part-time services to the Company for
a salary of $150 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, 1997.
6. Transactions with Affiliates
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 $564 in 1997, $524 in 1996, $266 from
January 1995 to June 1995 and $358 in 1994. Included in accounts
receivable are amounts from nursing homes owned or managed by CHA of
$1,214, $1,025, $530 and $384 at June 30, 1997, 1996 and 1995 and December
31, 1994, respectively.
Included in personnel costs in 1997, 1996, 1995 and 1994, respectively,
are charges of $746, $867, $453 and $550 from subsidiaries of CHA for
contracted nursing services.
Included in selling, general and administrative expenses is rent expense
to CHA of $39 in 1994 and $72 in 1993.
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 totaled $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 extended to September 30, 2000
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 1997, 1996, 1995 and 1994 the Company was charged $27, $14, $17 and
$37, 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.
Included in selling, general and administrative expenses in 1996 is rent
expense of $116 for office space leased from an entity then owned by
principal stockholders of CHA, one of whom is the Company's Chairman of
the Board.
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 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 This venture has terminated. There
were no such activities in 1997. During 1996, 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 and
December 31, 1994 were $0, $7, $6, respectively, due from MedTech.
Included in other assets is $587,000 due from affiliates that arose in the
course of business transactions between the entities.
7. Income Taxes
Through December 31, 1992, the Company was included in the consolidated
Federal income tax return of CHA. Income taxes were computed on a separate
return basis. Pursuant to a tax sharing arrangement between the Company and
CHA, the Company's income tax provision payable to CHA was calculated as if
the Company filed its own Federal income tax return, except that in
computing the Company's tax liability, the Company did not take into
account the effects of timing differences.
Commencing in 1993, the Company began filing its own Federal income tax
return.
The provision (benefit) for income taxes consists of the following:
<TABLE>
<CAPTION>
Year Year Six Months Year
Ended Ended Ended Ended
June 30, June 30, June 30, December 31,
1997 1996 1995 1994
<S> <C> <C> <C> <C>
Current
Federal ........................$ 400 $ 70 $ -- $ (225)
State ........................ 90 5 -- 5
-- - --- -
Deferred:
Federal ........................ 143 165 -- --
State ........................ 29 30 -- --
Other ........................ -- --
--- --
172 195 -- --
--- --- --- --
$ 662 $ 270 $ -- $ (220)
= === = === = === = ====
</TABLE>
The Company had recorded a Federal and state income tax payable of $621 at
June 30, 1997 and taxes payable of $75 in June 30, 1996.
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:
<TABLE>
<CAPTION>
Year Year Six Months Year
Ended Ended Ended Ended
June 30, June 30, June 30, December 31,
1997 1996 1995 1994
<S> <C> <C> <C> <C>
Federal income tax provision
(benefit) at statutory rate......... 550 $ 498 $ (297) $ (393)
State income tax provision,
net of Federal income tax
benefit ........................ 112 88 (51) (67)
Increase (decrease) in valuation
allowance ........................ -- (316) 339 242
Other - net ........................ -- -- 9 (2)
--- --- --- ---
........................$ 662 $ 270 $ -- $ (220)
= === = === = === = ====
The tax effects of temporary differences that give rise to significant
portions of the deferred income tax assets are as follows:
</TABLE>
<TABLE>
<CAPTION>
Year Year Six Months Year
Ended Ended Ended Ended
June 30, June 30, June 30, December 31,
1997 1996 1995 1994
<S> <C> <C> <C> <C>
Net deferred income tax assets:
Allowances for uncollectible accounts
receivable...............................$ 818 $ 1,007 $ 876 $ 780
Net operating tax loss carryforwards....... -- -- 603 340
Compensated absences, principally due......
to accrual for financial purposes........ 46 35 41 51
Deferred income............................ -- 30 81 107
Other - net ............................... 103 67 49 33
--- -- -- --
Sub-total ............................... 967 1,397 1,650 1,311
Valuation allowance........................ (265) (265) (581) (242)
---- ---- ---- ----
Net deferred income tax assets.............$ 702 $ 874 $1,069 $ 1,069
= === = === ====== = =====
</TABLE>
The Company has utilized all of its net operating tax loss
carryforwards for Federal income tax purposes.
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. This agreement was
renewed in January 1997 for another year. Under this agreement, accounts
payable to the drug manufacturer ($1,649 at June 30, 1997) are secured by
the Company's inventories of the drug ($471 at June 30, 1997) and related
accounts receivable ($1,113 at June 30, 1997).
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, 1997, the Company had gross receivables from the Federal
Government (Medicare) of approximately $2,524.
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 cash and cash equivalents, accounts payable and
accrued expenses are reasonable estimates of their fair values.
11. Fourth Quarter Adjustments
Inventory
The Company recorded an inventory adjustment during the fourth quarter of
fiscal 1997. A gross amount of $450 before taxes was recorded as a
decrease to inventory with a corresponding increase to medical and
nutritional product costs. The adjustment arose as a result of a physical
inventory conducted on June 30, 1997. The Company conducted quarterly
physical inventory counts during the year. No significant differences
arose during these quarterly physical counts.
Reserve for Uncollectible Accounts
Beginning in the quarter ending March 31, 1997, the company reviewed its
allowance for uncollectible accounts in light of the company's changed
payor mix. The Company's business focus is on managed care relationships
which now account for 73% of its payor mix. The managed care relationships
are generally governed by contracts which provide for payment within
defined terms. The Company's collection experience for these contracts has
been good and greatly improved from the historical collection experience
upon which the allowance for uncollectible accounts had been established.
As a result of this review, a total of $1,366 before taxes was ($348 in the
quarter ending March 31, 1997, and a further $1,018 in the fourth quarter
of fiscal 1997) was released from the reserve for uncollectible accounts
during the year, resulting in a credit to the provision for the year of
$196 compared to a charge of $1,269 in the prior year. Based on this
analysis the Company expects a lower provision rate to be charged against
sales going forward.
<PAGE>
<TABLE>
<CAPTION>
INFU-TECH, INC.
Valuation and Qualifying Accounts
(Dollars in thousands)
<S> <C> <C> <C> <C>
Column A Column B Column C Column D Column E
- -------- -------- -------- -------- --------
Additions
Balance at Charged to Balance
beginning cost and at end
Description of period expenses Other Deductions (a) of period
Allowance for
uncollectible
accounts:
1997 (June).............$ 2,456 $ (196) $ 513 $ 778 $ 1,995
===== ====== ======= ====== =====
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
===== ====== ========= ===== =====
(a) Uncollectible accounts charged off during the year, net of recoveries.
</TABLE>
<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 29, 1997 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
/s/ JACK ROSEN Chairman of the Board,
Jack Rosen Director (Principal
Executive Officer)
/s/ JOSEPH ROSEN Director
Joseph Rosen
/s/ COLIN NEILL Vice President and
S. Colin Neill Chief Financial Officer
/s/ ISRAEL INGBERMAN Director
Israel Ingberman
/s/ JOSEPH M. GIGLIO Director
Joseph M. Giglio
/s/ CARL D. GLICKMAN Director
Carl D. Glickman
/s/ BRUCE SLOVIN Director
Bruce Slovin
<PAGE>
ITEM 14
Exhibit 10(e)
INFU-TECH, INC.
1996 KEY EMPLOYEES AND KEY PERSONNEL STOCK OPTION PLAN
December 16, 1996
1. Purpose of the Plan
The purpose of this 1996 Stock Option Plan (the "Plan") is to further the
growth of Infu-Tech, Inc. (the "Company") by offering directors and key
employees of the Company upon whom the Company largely depends for the
successful conduct of its business an incentive to continue in the employ, or to
be directors, of the Company, and to increase the interest of those directors
and employees in the Company's success through ownership of its common stock.
2. Definitions.
Whenever used in this Plan, the following terms will have the meaning set
forth below:
(a) "Code" means the Internal Revenue Code of 1986, as amended.
(b) "Committee" means the committee referred to in Sections 4 and 5.
(c) "Employee" means any person employed by the Company (including, without
limitation, directors).
(d) "Fair Market Value" means the mean of the high and low prices at which
the Stock is reported to have traded in the principal market (whether an
interdealer quotation system or consolidated trading on a stock exchange) in
which the Stock is traded, or if there is no trade on a particular date, the
Fair Market Value will mean the mean of the low asked and high bid prices in
that market on that date.
(e) "Granting Date" means the date on which the Option is made effective by
the Committee.
(f) "Incentive Stock Option" means any Option that at the time of the grant
is an incentive stock option as that term is defined in Section 422A of the
Code.
(g) "Involuntary Termination of Employment" means a Termination of
Employment for a reason other than death, Retirement, Total Disability,
voluntary resignation with the written consent of the Company or Termination of
Employment for Cause.
(h) "Non-Qualified Option" means any Option that is not an Incentive Stock
Option.
(i) "Option" means any option granted by the Committee under the Plan.
(j) "Retirement" means a Termination of Employment by reason of an
Employee's retirement, other than by reason of Total Disability, at a time when
the Employee's years of service with the Company plus his chronological age
equals sixty-five or more.
(k) "Stock" means the common stock, par value $.01 per share, of Infu-Tech.
(l) "Subsidiary" means any "subsidiary corporation" of Infu-Tech, Inc., as
that term is defined in Section 425(f) of the Code.
(m) "Termination of Employment" means (i) as to an employee, the time when
the employee-employer relationship between the employee and the Company ceases
to exist for any reason, including, but not limited to, a termination by
resignation, discharge, death, Total Disability or Retirement, and (ii) as to a
director, the time the person ceases to be a director of the Company.
(n) "Termination of Employment for Cause" means an Involuntary Termination
of Employment by reason of an Employee's (i) repeated failure or refusal to
perform the duties and responsibilities of his position; (ii) dishonesty
affecting the Company; (iii) drunkenness or use of illegal drugs which
interferes with his performance and continues after warning, or (iv) material
breach of loyalty to the Company. All determinations of whether or not a
Termination of Employment is "For Cause" will be made by the Committee on the
basis of such evidence as the Committee deems necessary or desirable.
(o) "Total Disability" means inability of an Employee, by reason of
physical condition or mental illness or accident, to perform substantially all
the duties of the position at which the Employee was employed by the Company
when the disability commenced. All determinations as to the date and extent of
disability of any Employee will be made by the Committee on the basis of such
evidence as the Committee deems necessary or desirable.
3. Effective Date of the Plan.
The effective date of the Plan will be December 16, 1996.
4. Administration of the Plan.
The Board of Directors of Infu-Tech or such committee as the Board may
designate will implement the provisions of the Plan, be responsible for the
administration of the Plan and grant Options under the Plan. However, only the
Board of Directors may grant options to officers or directors. The Board of
Directors or the committee which performs the functions described in the first
sentence of this Paragraph is referred to in this Plan as the "Committee."
Subject to the express provisions of the Plan, the Committee will also have full
authority to interpret the Plan, to prescribe, amend and rescind rules and
regulations relating to it and to make all other determinations it deems
necessary or advisable in administering the Plan. All actions taken and
decisions made by the Committee under the Plan will be binding and conclusive on
all Employees eligible to participate in this Plan and on their legal
representatives and beneficiaries. Unless the Board of Directors is the
Committee, the Committee may not amend the Plan. No member of the Committee will
be liable for any act or omission in connection with the administration of the
Plan unless it is attributable to that member's willful misconduct.
5. The Committee.
The Committee will consist of not less than three members of the Board of
Directors of the Company. If the Committee is not the Board of Directors, (i)
the Committee will hold its meetings at such times and places as it determines
and will maintain written minutes of its meetings, (ii) a majority of the
Committee's members present in person will constitute a quorum of the Committee,
(iii) all determinations of the Committee will be made by the majority vote of
its members, (iv) the members of the Committee may participate in a meeting of
the Committee by conference telephone or similar communications equipment by
means of which all members participating in the meeting can hear each other, and
participation in a meeting in that manner will constitute presence in person at
the meeting, and (v) any decision or determination reduced to writing and signed
by all the members of the Committee will be as effective as if it had been made
by a majority vote if its members at a meeting which is duly called and held.
6. Stock Subject to the Plan.
The maximum number of shares of Stock may be issued upon exercise of
Options granted under the Plan is 500,000 shares, subject to adjustment as
provided in Section 8 of this Plan. The maximum number of shares of Stock which
may be issued to directors of the Company (whether or not Employees) upon
exercise of Options granted under the Plan is 250,000 shares, subject to
adjustment as provided in Section 8. Upon the exercise of any Option, the
Company will be deemed to have issued the number of shares to which the Option
relates. If any Option expires, terminates or is cancelled for any reason
without having been exercised in full, the number of shares of Stock to which
the Option related which were not issued upon exercise of the Option will again
be available for issuance under the Plan.
7. Stock Options.
(a) Time of Granting of Options. The effective date of the grant of an
Option will be the date specified by the Committee in its determination or
designation relating to the award of that Option.
(b) Eligibility/Grant Options. No Option will be exercisable unless the
optionee has (i) been in the employ of the Company for twelve full months, and
(ii) been in the employ of the Company for six full months from the Granting
Date to the time of exercise of an Option (except for such exercises of an
Option after termination of employment as are permitted under Paragraphs 7(f),
7(g) and 7(h)). Except as provided in the preceding sentence, the Committee will
have full authority to determine the individuals to whom and the time or times
at which Options will be granted, the number of shares of Stock subject to each
Option, the term of the, Option, the terms under which the Option may be
exercised (which may include provisions regarding the earliest time or times
when the Option may be exercised as to some or all the Stock to which it
relates), the Option exercise price per share, whether the Option will be an
Incentive Stock Option or a Non-Qualified Option, and the other terms and
provisions of the Option. Options granted under this Plan may have dissimilar
terms and conditions.
(c) Exercise Price/Payment. Except as provided in Section 8, the exercise
price of each Option will be determined by the Committee, but will not be less
than 100% of the Fair Market Value of the Stock on the Granting Date of that
Option. At the time of exercise of an Option, the person exercising the Option
will tender payment to Infu-Tech of the entire exercise price with regard to the
shares of Stock to be purchased by certified check or, alternatively, by
tendering stock of Infu-Tech with a Fair Market Value equal to the amount of the
exercise price on the date of tender. The Company may not extend credit, or
guarantee the extension of credit, to any person for the purpose of enabling
that person to exercise an Option.
(d) Term of Options; Terms of Exercise. The term of each Option will be
determined by the Committee, but will not be longer than ten years from the
Granting Date, and, in the case of an Employee who, at the time the Option is
granted, owns more than 10% of the total combined voting power of all classes of
stock of Infu-Tech, will not be longer than five years from the Granting Date.
An Employee will exercise an Option by giving written notice of exercise to
Infu-Tech at its principal executive office, to the attention of the Secretary,
accompanied by full payment of the exercise price or tender of Stock as provided
in Section 7(c). The date Infu-Tech receives the written notice of exercise
accompanied by payment of the exercise price of this Plan will be the date on
which the Option is exercised. As soon as practicable after the date on which an
Option is exercised, Infu-Tech will deliver to the Employee a certificate or
certificates for the number of shares of Stock purchased by the exercise,
registered in the name of the Employee.
(e) Nontransferability of Options. During the lifetime of the holder of an
Option, the Option by its terms may be exercised only by the holder or his
guardian or legal representative. An Option may not be assigned, pledged or
hypothecated in any way, may not be subject to execution, and may not be
transferred otherwise than by will or the laws of descent and distribution. Any
attempt at assignment, transfer, pledge, hypothecation or other disposition of
an Option contrary to the provisions of the Plan, and a levy of any attachment
or similar process upon any Option, will be null and void.
(f) Retirement/Involuntary Termination of Employment of Holder of Option.
In the event of Termination of Employment of an Employee to whom an Option has
been granted by reason of his Retirement (other than for Total Disability), or
Involuntary Termination of Employment, the Option will expire at the end of the
three-month period immediately following the date of the Termination of
Employment, or on such earlier date as is the expiration of the term specified
in the Option.
(g) Total Disability of Holder of Option. In the event of Termination of
Employment of an Employee to whom an Option has been granted by reason of the
Employee's Total Disability, the Employees Option will expire at the end of the
twelve-month period following the date of the Termination of Employment, or such
earlier date as is the expiration of the term specified in the Option.
(h) Death of Holder of Option. In the event of Termination of Employment of
an Employee to whom an Option has been granted by reason of his death, or if a
former Employee dies before all the Options granted to the former Employee have
expired, that person's outstanding Options may be exercised by the person's
personal representatives, or by the persons to whom the right to exercise the
Options has passed by will or through the laws of descent and distribution,
during the twelve-month period immediately following the date of death, or until
such earlier date as is the expiration of the term specified in the Option.
(i) Termination of employment of Holder of Option. In the event of
Termination of Employment of an Employee to whom an Option has been granted for
any reason other than his Retirement, Involuntary Termination of Employment,
Total Disability or death, all that Employee's Options will terminate when the
Termination of Employment occurs.
(j) Liquidation. If the Company is to be liquidated or dissolved, then the
time at which all Options then outstanding may be exercised will be accelerated
and all those Options will become exercisable in full ten days before the
effective time (the "Effective Time") of the liquidation or dissolution or such
earlier time as may be fixed by the Board ("Effective Time"), and Options not
exercised by the Effective Time will automatically be cancelled and be of no
further force or effect. Nothing in this Subsection (j), however, will extend
the term specified in an Option.
(k) Incentive Stock Options. No Incentive Stock Option may be granted to a
director who is not an Employee. No Incentive Stock Option may be granted after
ten years from the earlier of the date the Plan is adopted by the Board, or the
date the Plan is approved by the stockholders of the Company. Incentive Stock
Options may not be granted to any Employee who, at the time the Option is
granted, owns more than ten percent of the total combined voting power of all
classes of stock of Infu-Tech, unless (i) the purchase price of the Stock under
the Incentive Stock Option is at least 110 percent of the Fair Market Value of
the Stock on the Granting Date and (ii) the Incentive Stock Option by its terms
is not exercisable after the expiration of five years from the Granting Date.
The aggregate Fair Market Value (determined at the time an Incentive Stock
Option is granted) of the Stock with respect to which Incentive Stock Options
are first exercisable by an Employee during any calendar year (under this Plan
and any other incentive stock option plan of the Company) will not exceed
$100,000.
(l) Option Grant Agreement. Promptly after an Option is granted to an
Employee or a director, the Company will send the Employee or director an
agreement setting forth the terms and conditions of the grant. Each Option
granted must be clearly identified as either a Non-Qualified Option or an
Incentive Stock Option. In the case of an Incentive Stock Option, the agreement
will contain such terms and provisions as the Committee may determine to be
necessary or desirable in order to qualify the Option as an incentive stock
option in accordance with Section 422A of the Code or any successor to that
Section.
8. Recapitalization, Reorganization or Other Corporate Event.
If Infu-Tech, through a stock dividend, a stock split or a share
combination, changes its issued stock into a number of shares which is 10% or
more greater or less than it was prior to the change, then immediately after the
record date for the change, the number of shares of Stock subject to each
outstanding Option, and the maximum number of shares of Stock which may be
issued in total, and which may be issued to directors of the Company, on
exercise of Options issued under the Plan will be increased proportionately in
the case of a stock dividend or stock split, or decreased proportionately in the
case of a combination of shares to prevent dilution or enlargement of rights
(but without any obligation to issue fractional shares), and the purchase price
of each share of Stock subject to each immediately after the change will be the
same as the total purchase price of all the Stock subject to the Option
immediately before the change.
If because of one or more recapitalizations, reorganizations or other
corporate events, the holders of the outstanding Stock receive something other
than shares of Stock, upon exercise of an Option the holder of the Option will
receive what the holder would have owned if the holder had exercised the Option
immediately before the first such corporate event and not disposed of anything
the holder received as a result of the corporate event.
9. Rights of Employee.
(a) Stockholder. An Employee will have no rights as a stockholder by reason
of having been granted an Option. Upon the exercise of an Option, the Employee
will have no rights as a stockholder until the issuance of Stock to the Employee
has been recorded in the books of Infu-Tech.
(b) Employment. Nothing in the Plan or in the grant of an Option will
confer upon any Employee the right to continue in the employ of the Company or
will interfere with or restrict in any way the rights of the Company to
discharge any Employee at any time for any reason whatsoever, with or without
cause.
10. Laws and Regulations.
The obligation of the Company to issue shares of Stock upon exercise of
Options will be subject to:
(a) the condition that counsel for the Company is satisfied that the sale
and delivery will be in compliance with the Securities Act of 1933, as amended,
and all other applicable laws, rules or regulations; and
(b) the condition that the shares of Stock reserved for issuance under the
Plan have been authorized for listing on any securities exchange or exchanges on
which the Stock is listed.
11. Withholding of Taxes.
In order to satisfy the withholding tax obligations imposed by any level of
government, the Company may in its discretion (i) withhold shares of Stock
purchased by exercise of an Option, (ii) require payment by the Employee of a
sum equal to any sum which must be withheld (and, if the Stock has not been
issued, refuse to issue Stock on exercise of an Option until the Employee pays
that sum), or (iii) deduct the sum which must be withheld from one or more
installments of compensation payable to the Employee. If an Employee makes an
election under Section 83(b) of the Code in connection with the exercise of an
Option, the Employee will immediately notify the Company of that election. In
the case of an Incentive Stock Option, an Employee who disposes of shares of
Stock acquired through exercise of an Option either (a) within two years after
the Granting Date of the Incentive Stock Option or (b) within one year after the
issuance of the Stock to the Employee, will notify the Company of the
disposition and the amount realized upon the disposition.
12. Amendment of the Plan.
The Board of Directors may at any time and from time to time modify or
amend the Plan in any respect to be effective as of the date determined by the
Board; provided, however, that without the approval of the stockholders of
Infu-Tech the Board will not (i) except as provided in Section 8 of this Plan,
increase the maximum number of shares of Stock which may be issued under the
Plan in total or which may be issued to directors of the Company; (ii) change
the categories of Employees eligible to receive Options; (iii) extend the period
during which Options may be exercised; (iv) change the provisions fixing the
minimum option price; or (v) change the provisions as to termination of Options.
No modification or amendment of the Plan may adversely affect the rights of a
holder of an outstanding Option without the holder's consent.
13. Termination of the Plan.
The Board of Director's may at any time suspend or terminate the Plan,
provided that no such action may adversely affect the rights of a holder of an
outstanding Option without the holder's consent.
The Plan will automatically terminate if it is not approved by the
stockholders of Infu-Tech within one year after its effective date. Any Option
granted before this Plan is approved by the stockholders of Infu-Tech will (i)
be subject to the stockholders of Infu-Tech approving this Plan within one year
after its effective date, and (ii) not be exercisable until this Plan is
approved by the stockholders of Infu-Tech.
EXHIBIT 21
INFU-TECH, INC. AND SUBSIDIARIES
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 Illinois, Inc. (a Illinois corporation).
4) Infu-Tech of Massachusetts, Inc. (a Massachusetts corporation).
5) Infu-Tech of New York, Inc. (a New York corporation).
6) Infu-Tech of Tennessee, Inc. (a Tennessee corporation).
7) Intrx Medical, Inc. (a New Jersey corporation).
<PAGE>
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