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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, 1998
Commission file number: 0-21006
INFU-TECH, INC.
(Exact name of registrant as specified in its charter)
Delaware 22-3127689
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
910 Sylvan Avenue
Englewood Cliffs, N.J. 07632
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (201) 567-4600
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act: Common Stock,
par value $.01
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES X NO ____
---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
As of September 22, 1998 the aggregate market value of the voting stock held by
non-affiliates of the registrant was $4,873,999.
As of September 22, 1998, 3,262,571 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, 1998.
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TABLE OF CONTENTS
<TABLE>
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Part I
Page
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Item 1. Business.................................................. 3-9
Item 2. Properties................................................ 9
Item 3. Legal Proceedings......................................... 10
Item 4. Submission of Matters to a Vote of Security Holders ...... 10
Part II
Item 5. Market Information........................................ 10
Item 6. Selected Consolidated Financial Data...................... 11
Item 7. Management's Discussion and Analysis of Consolidated
Financial Condition and Results of Operations............. 12-15
Item 8. Consolidated Financial Statements and Supplementary Data.. 16
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosures...................... 16
Part III ............................................................. 17
Part IV
Item 14. Exhibits, Consolidated Financial Statements, Financial
Statement Schedules, and Reports on Form 8-K............ 18
Signatures .................................................................... Last Page
</TABLE>
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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 Kuala Healthcare, Inc. ("KUAL") in 1982. KUAL 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 three 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 Disease
Management unit continues to focus on developing comprehensive preventive
treatment programs for patients with chronic conditions, such as asthma,
diabetes, congestive heart failure and sickle cell.
The Company's sales and marketing efforts are primarily directed
towards Managed Care. The Company has over 65 agreements with Managed Care
covering over 19 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.
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 1998, the Company renewed its non-exclusive distribution agreement
with Genzyme Corporation for Ceredase(Registered) enzyme and
Cerezyme(Trademark), 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.
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The following table sets forth the percentages of the Company's
revenues, by service unit, from the various therapies, products and services.
<TABLE>
<CAPTION>
Year ended Year ended Year ended
June 30, 1996 June 30, 1997 June 30, 1998
------------------------------- ------------------------------- -------------------------------
Intravenous Contract Total Intravenous Contract Total Intravenous Contract Total
Infusion Services Revenues Infusion Services Revenues Infusion Services Revenues
----------- -------- -------- ----------- -------- -------- ----------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Enteral Nutrition % 72% 20% 3% 71% 20% 4% 77% 19%
Antibiotic 30% - 23% 27% - 20% 19% - 15%
TPN 7% - 5% 5% - 4% 6% - 4%
Orthotics - 1% - - - - - - -
Immune Globulin 8% - 6% 10% - 7% 9% - 7%
Ceredase/Cerezyme 27% - 20% 32% - 24% 41% - 33%
Wound Care - 2% 1% - 1% - - - -
Other 25% 25% 25% 23% 28% 25% 21% 23% 22%
----- ----- ----- ----- ----- ----- ----- ----- -----
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
4
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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 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.
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.
These include, in addition to enteral feeding, parenteral feeding,
medical/surgical products, wound care products, urological products and other
supplies.
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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'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. 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. The Company actively
pursues the residents or guarantors for this payment, and where necessary uses
legal action. Inability to collect the 20% co-insurance portion of bills largely
contributes to the Company's provision for uncollectible accounts.
The Company also bills private payors (primarily private insurance
companies, self-insured employers, health maintenance organizations and managed
care systems), which generally pay for services and products based upon
contracted rates or "reasonable and customary" charges. The Company's billing
specialists 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.
The following table details the sources of payments to the Company
during the twelve months ended June 30, 1998:
Home Contract Total
Infusion Services Revenues
-------- -------- --------
Medicare........... 3% 88% 20%
Private Pay........ 91% 12% 75%
Medicaid........... 6% - 5%
-------- ------- -------
100% 100% 100%
======== ======= =======
6
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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, 1998, the sales force included
approximately 3 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(Registered) enzyme and Cerezyme(Trademark), 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
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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.
Consolidated billing proposed to start July 1, 1998 has been delayed
until January 2000. The Company believes that it will not be adversely effected
by this as it has plans in place to continue its relationship with long term
care facilities as a supplier and biller of products.
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Executive Officers of the Company
The following is a list of executive officers of the Company as of June
30, 1998, 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, 52
President, Chief Executive Officer
Joseph Rosen Vice President, Assistant Secretary 47
and Director
Pritpal Virdee Executive Vice President; President Intrx 38
Medical, Inc.
Roy Smolarz Executive Vice President and General Counsel 47
Israel Ingberman Secretary, Director 52
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 and Director 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.
Roy Smolarz became Executive Vice President and General Counsel of the
Company and of KUAL in March 1998. From December 1992 until March 1998, he was
affiliated with Coopers & Lybrand, a public accounting and financial services
firm and was a managing director of Coopers & Lybrand Securities LLC. For more
than seven years prior to that, he was a corporate vice president and corporate
counsel of Paine Webber Incorporated, an investment banking firm. He is a member
of the New York and New Jersey Bars and is a Certified Public Accountant.
Employees
As of June 30, 1998, the Company had approximately 128 employees. Of
these employees, two were in executive capacities (in addition to executives of
KUAL who rendered services to the Company), approximately 9 were in sales or
service capacities, approximately 57 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
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pharmacy, the Memphis, Boston, Philadelphia and Fort Lauderdale, Florida
pharmacies, the infusion suites and the warehouse total $35,874 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.
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, 1998.
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 1996
and 1997 and through June 30, 1998 were as follows:
High Low
---- ---
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
Third Quarter 4 5/16 3 1/8
Fourth Quarter 6 5/8 2 7/8
1998:
First Quarter 6 3/8 5 3/8
Second Quarter 7 1/2 5 1/2
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 KUAL, which was its sole stockholder. From 1989
through 1992, the Company paid KUAL dividends totaling $9,866,000, as well as
management fees totaling $1,258,000 and tax payments totaling $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 KUAL owns 58% of the stock of the Company, and all the
Company's directors are also directors of KUAL the Company's directors may be
influenced by KUAL'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, 1998, there were 41 holders of record of the
Company's Common Stock.
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Item 6. Selected Financial Data.
The following table sets forth selected financial data of the Company
and should be read in conjunction with the consolidated financial statements as
of June 30, 1998, 1997 and 1996 and the related notes, included elsewhere in
this Report.
<TABLE>
<CAPTION>
Six Months Years Ended
Years Ended June 30, Ended June 30, December 31,
-------------------------------- -------------- ------------
1998 1997 1996 1995 1994
--------- --------- -------- --------- -------
<S> <C> <C> <C> <C> <C>
Revenues................................... $ 26,466 $ 26,003 $ 24,638 $ 10,601 $ 16,289
Income (loss) before income taxes.......... 345 1,615 1,465 (849) (1,123)
Provision (benefit) for income taxes....... 149 662 270 -- (220)
Net income (loss).......................... $ 196 $ 953 $ 1,195 $ (849) $ (903)
Income (loss) per share
Basic (1)............................. $ .06 $ .30 $ .38 $ .27 $ (.28)
Diluted (2)........................... $ .06 $ .29 $ .38 $ .27 $ (.28)
<CAPTION>
Six Months Years Ended
Years Ended June 30, Ended June 30, December 31,
-------------------------------- -------------- ------------
1998 1997 1996 1995 1994
--------- --------- -------- --------- -------
<S> <C> <C> <C> <C> <C>
Accounts receivable........................ $ 8,075 $ 7,302 $ 5,669 $ 3,608 $ 3,552
Total assets............................... 12,123 11,618 9,484 7,414 7,586
Working capital............................ 4,618 5,044 4,696 3,571 4,454
Total assets............................... 6,334 6,101 4,976 3,770 4,619
</TABLE>
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(1) Based on 3,125,666, 3,192,797, and 3,168,037 shares outstanding in June
30, 1998, 1997, and 1996, 3,160,974 shares outstanding in 1995 and
3,181,509 shares outstanding in 1994 3,200,000 shares outstanding in
1993.
(2) Based on 3,328, 213; 3,231,706; 3, 210,407 shares outstanding at June 30,
1998, 1997 and 1996, 3,170, 366 shares outstanding in 1995 and 3,196,824
shares outstanding in 1994, 3,215,315 shares outstanding in 1993.
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Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Results of Operations
Twelve Months Ended June 30, 1998 Compared with Twelve Months Ended June 30,
1997.
Total revenues increased by $463,000, or 2% from $26,003,000 in 1997 to
$26,466,000 in 1998, primarily due to a $1,410,000, or 7% increase in home
infusion division revenues. This increase in revenues is offset by decreased
therapy days and lower pricing from managed care.
Costs of medical and nutritional products sold to patients and other customers
increased by $1,347,000 or 9% from $13,514,000 in 1997 to $14,861,000 in 1998.
As a percentage of total revenues, medical and nutritional product costs
increased from 51% in 1997 to 56% in 1998. This increase in product costs as a
percentage of sales is partially attributable to the increased pricing pressures
from certain vendors and the Company's need to secure immunoglobulin products
which due to a national shortage are only available at a premium price. These
products were needed to provide continued treatment for existing patients.
Total personnel costs decreased by $47,000, from $7,205,000 in 1997 to 7,158,000
in 1998, primarily attributable to the reorganization of the contract service
division as well as creating efficiencies within the nursing and pharmacy
operations.
Selling, general and administrative expenses in 1998 decreased by $162,000, or
5% from $3,488,000 in 1997 to $3,326,000 in 1998, due to non-recurring
investment costs in 1997 and more effective use of existing resources leading to
elimination of certain positions.
During 1998 the Company instituted new procedures related to accounts
receivable. The Company reorganized their billing and collection functions to
monitor activity by branch, by insurance carrier and a document control function
was established to monitor and follow up on outstanding documentation required
to bill. As a result in 1998, a total of $752,000 was released from the reserve
for uncollectible accounts compared to a total of $1,366,000 in 1997 because
such reserves where no longer considered necessary.
Management fees to KUAL of $423,000 in 1998 and $416,000 in 1997 were 1.6% of
revenues in both years.
Depreciation and amortization expense increased from $139,000 in 1997 to
$152,000 in 1998 due to property and equipment additions.
Other income, net of $152,000 in 1998 and $178,000 in 1997 consisted of write
offs of accounts payable in 1998, and in 1997 write offs of accounts payable and
$72,000 amortization of a $628,000 payment received by the Company in 1992 as
consideration for the Company's releasing the buyer of KUAL's former Home
Nursing Division from an agreement not to sell infusion therapy services in
California, Arizona or Tennessee for a period of five years.
The net income in 1998 was $196,000, or $.06 (basic) per share compared to a net
income in 1997 of $953,000, or $.30 (basic) per share. Income before taxes for
the twelve months ended June 30, 1998 was $345,000 compared to $1,615,000 for
the comparable prior period.
12
<PAGE>
Management's Discussion and Analysis of Financial Condition and 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 Human 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 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 in the
statement of operations for the year of $196,000 compared to a charge of
$1,269,000 in the prior year.
Management fees to KUAL of $416,000 in 1997 and $394,000 in 1996 were 1.6% of
revenues in both years.
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.
13
<PAGE>
Management's Discussion and Analysis of Financial Condition and Results of
Operations.
Other income, net of $178,000 in 1997 and $115,000 in 1996 consisted of $72,000
in 1997 and $126,000 in 1996 of amortization of a $628,000 payment received by
the Company in 1992 as consideration for the Company's releasing the buyer of
KUAL's former Home Nursing Division from an agreement not to sell infusion
therapy services and KUAL'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
past payables no longer deemed payable. Interest expense offsets the other
income in both years.
The net income in 1997 was $953,000, or $.30 (basic) per share compared to a net
income in 1996 of $1,195,000, or $.38 (basic) per share. Income before taxes for
the twelve months ended 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
carry forwards in 1996, a full tax charge in 1997 results in net income of
$953,000 compared to $1,195,000 for 1996.
Liquidity and Capital Resources
As of June 30, 1998, the Company had total assets of $12.1 million, working
capital of $3.5 million and a net worth of $6.3 million. 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, 1998, the balance in net accounts receivable for the Company was
$6.9 million compared to $6.4 million, the balance at June 30, 1997, due to
write-offs of old balances. The result of this reduced the Company's accounts
receivable from 102 days sales outstanding ("DSO") at June 30, 1997 to 96 DSO at
year end. The 96 DSO compares favorably to an industry average of 125 days. The
96 DSO is a result of continuing delays in claim processing experienced by
managed care companies and Medicare.
Among the nursing homes with which the Company did business in 1998 were five
facilities which were owned or managed by KUAL. Through June 30, 1998 the
Company's sales to those nursing homes totaled $437,000 for the twelve month
period. At June 30, 1998, the Company's net receivable from those nursing homes
totaled $1,545,000. During the twelve months ended June 30, 1998, the Company
realized revenues of $230,000 or 4.7% of the Company's total contract services
revenues, from the sale of products and services to residents of those nursing
homes, with the balance of revenues earned by the Infusion division.
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.
Year 2000
Infu-Tech has developed a task force to research a solution to the Year 2000
System Compliance. To date the Infu-Tech task force has identified the programs
that will be effected by the Year 2000 System Compliance issue and the
procedures that are required to meet the demands for this business.
14
<PAGE>
Management's Discussion and Analysis of Financial Condition and Results of
Operations.
Currently the Infu-Tech task force has explored many options to resolve the Year
2000 System Compliance issues. These options included the purchase of a new
hardware and software system or migrating to AS400/OS400 platforms which would
be an upgrade to the existing hardware currently utilized by the Company. The
cost of this upgrade is approximately $50,000.
A proposal is being requested to upgrade the hardware and software. The upgrade
of a new system will cost approximately $400,000. Infu-Tech is exploring a
number of lease options for this upgrade. Once a decision is reached a detailed
plan will be implemented for training, installation of hardware and the new
software. All systems being considered are Year 2000 compliant.
As with any implementation of a new computer system there are risks such as
delays in down loading existing files, software that might require debugging,
upgrading or training difficulties.
Should a new system not be feasible for implementation over the next six months,
Infu-Tech will make a decision for the upgrade of the current hardware and
software as previously discussed. This upgrade has been reviewed and is
adaptable at the previously discussed cost.
It is expected that a final decision will be made on the Year 2000 System
Compliance by the first quarter of 1999.
15
<PAGE>
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
Not applicable.
16
<PAGE>
PART III
Part III Items 10 through 13 to be filed by October 29, 1998 as part of
definitive proxy statement.
17
<PAGE>
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 C.H.A.. (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.
(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).
18
<PAGE>
INFU-TECH, INC.
CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1998, 1997 and 1996
(With Independent Auditor's Report Thereon)
<PAGE>
INFU-TECH INC.
Index to Consolidated Financial Statements and
Financial Statement Schedule
Page
1. Consolidated Financial Statements:
Independent Auditors' Report........................................F - 3
Balance Sheets
June 30, 1998 and 1997........................................ F - 4
Statements of Operations:
Years Ended June 30, 1998, 1997 and 1996.......................F - 5
Statements of Stockholders' Equity:
Years Ended June 30, 1998, 1997 and 1996.......................F - 6
Statements of Cash Flows:
Years Ended June 30, 1998, 1997 and 1996.............F - 7 - F - 8
Notes to Consolidated Financial Statements..................F - 9 - F- 18
2. Financial Statement Schedule:
Valuation and Qualifying Accounts...................................S - 1
Other schedules are omitted because of the absence of conditions under which
they are required or because the required information is given in the
consolidated financial statements or notes thereto.
<PAGE>
Independent Auditor's Report
The Board of Directors and Stockholders
Infu-Tech, Inc.
We have audited the consolidated financial statements of Infu-Tech, Inc. and
subsidiaries as listed in the accompanying index. In connection with our audits
of the consolidated financial statements, we have also audited the financial
statement schedule as listed in the accompanying index. These consolidated
financial statements and financial statement schedule 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, 1998 and 1997 and the results of their operations
and their cash flows for each of the years in the three-year period ended June
30, 1998, 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.
KPMG Peat Marwick, LLP
September 28, 1998
F - 3
<PAGE>
INFU-TECH, INC.
Consolidated Balance Sheets
(Dollars in thousands)
<TABLE>
<CAPTION>
June 30,
------------------------
1998 1997
---- ----
<S> <C> <C>
ASSETS
Cash and cash equivalents............................................. $ 163 $ 512
Accounts receivable, net of allowances for uncollectible
accounts of $1,578 and $1,995................................... 6,530 6,088
Accounts receivable from affiliates .................................. 437 300
Inventories........................................................... 1,452 1,654
Deferred income taxes................................................. 551 702
Prepaid expenses and other current assets............................. 165 365
------------- -------------
Total current assets....................................... 9,298 9,621
Property and equipment, at cost, net of accumulated
depreciation of $552 and $450................................... 370 244
Goodwill, net......................................................... 125 139
Receivables from affiliates, non-current.............................. 2,189 1,491
Other assets.......................................................... 140 123
------------- -------------
Total assets............................................... $ 12,122 $ 11,618
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable...................................................... $ 5,057 $ 4,288
Accrued payroll and related expenses.................................. 435 499
Income taxes payable.................................................. 194 449
Other current liabilities............................................. 110 281
------------- -------------
Total current liabilities.................................. 5,796 5,517
Stockholders' Equity:
Common stock, $.01 par value; 5,000,000 shares authorized;
3,258,092 (1998) and 3,192,797 (1997) issued 33 32
Additional paid-in capital...................................... 3,128 3,100
Retained earnings............................................... 3,238 3,042
Treasury stock, at cost; 39,300 shares.......................... (73) (73)
------------- -------------
Total stockholders' equity................................. 6,326 6,101
------------- -------------
Commitments and Contingencies
Total liabilities and stockholders' equity...................... $ 12,122 $ 11,618
============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
F - 4
<PAGE>
INFU-TECH, INC.
Consolidated Statements of Operations
(Dollars in thousands)
<TABLE>
<CAPTION>
Years Ended June 30,
--------------------------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Revenues.......................................... $ 26,466 $ 26,003 $ 24,638
------------- ------------- -------------
Costs and Expenses:
Medical and nutritional product............. 14,861 13,514 11,920
Personnel................................... 7,158 7,205 6,818
Selling, general and administrative......... 3,326 3,488 2,779
Provision for uncollectible accounts........ 353 (196) 1,269
Management fees to majority shareholder..... 423 416 394
Depreciation and amortization............... 152 139 108
Other income, net........................... (152) (178) (115)
------------- ------------- -------------
26,121 24,388 23,173
------------- ------------- -------------
Income before income taxes........................ 345 1,615 1,465
Provision for income taxes........................ 149 662 270
------------- ------------- -------------
Net income ................................. $ 196 $ 953 $ 1,195
============= ============= =============
Earnings per share
Basic....................................... $ 0.06 $ 0.30 $ 0.38
------------- ------------- -------------
Diluted..................................... $ 0.06 $ 0.29 $ 0.37
------------- ------------- -------------
Basic weighted average number of common
shares..................................... 3,215,666 3,192,797 3,168,037
------------- ------------- -------------
Diluted weighted average number of common
shares...................................... 3,328,213 3,231,706 3,210,407
============= ============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
F - 5
<PAGE>
INFU-TECH, INC.
Consolidated Statements of Stockholders' Equity
Years Ended June 30, 1998, 1997 and 1996
(Dollars in thousands)
<TABLE>
<CAPTION>
Additional Total
Common Paid-in Retained Treasury Stockholders'
Capital Earnings Stock Equity
------ ------- -------- ----- ------
<S> <C> <C> <C> <C> <C>
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
========= ========== ========== ========== =========
Net income............................ -- -- 196 -- 196
Warrants issued....................... -- -- -- -- --
Stock issued.......................... -- -- -- -- --
Exercise of options................... 1 28 -- -- 29
--------- ---------- ---------- ---------- ---------
Balance, June 30, 1998................ $ 33 $ 3,128 $ 3,238 $ (73) $ 6,326
========= ========== ========== =========== =========
</TABLE>
See accompanying notes to consolidated financial statements.
F - 6
<PAGE>
INFU-TECH, INC.
Consolidated Statements of Cash Flows
(Dollars in thousands)
<TABLE>
<CAPTION>
Years Ended June 30,
----------------------------------------
1998 1997 1996
---- ---- -----
<S> <C> <C> <C>
Operating activities:
Net income ....................................... $ 196 $ 953 $ 1,195
Adjustments to reconcile net income to
net cash provided by (used in) operating
activities:
Amortization expense.......................... 35 7 --
Depreciation expense.......................... 117 132 108
Warrants issued............................... -- 44 --
Provision for uncollectible accounts.......... 353 (196) 1,269
Amortization of deferred income............... -- (72) (126)
Provision for deferred income taxes........... 151 172 195
Increase (decrease) from changes in:
Accounts receivable........................... (809) (1,104) (2,835)
Accounts receivable from affiliates........... (137) (88) (83)
Inventories................................... 202 (8) (192)
Prepaid expenses and other current assets..... 200 (160) 307
Receivables from affiliates, non-current...... (698) (678) (412)
Other assets.................................. (17) (31) (40)
Taxes payable................................. (255) 374 --
Accounts payable.............................. 769 1,509 437
Accrued payroll and related expenses.......... (64) 96 (4)
Other current liabilities..................... (75) (802) 404
---------- ----------- ----------
Net cash provided by (used in) operating
activities.................................... (32) 148 223
----------- ---------- ----------
Investing activities:
Expenditures for property and equipment........... (243) (69) (19)
Acquisition of Universal Home Infusion............ -- (190) --
----------- ---------- ----------
Net cash used in investing activities............. (243) (259) (19)
Financing activities:
Payment of capital lease obligation............... (103) (96) (70)
Exercise of options............................... 29 28 11
---------- ---------- ----------
Net cash used in financing activities......... (74) (68) (59)
---------- ---------- ----------
Net increase (decrease) in cash and cash
equivalents....................................... (349) (179) 145
Cash and cash equivalents, beginning of
the year.......................................... 512 691 546
---------- ---------- ----------
Cash and cash equivalents, end of the year.......... $ 163 $ 512 $ 691
---------- ---------- ---------
</TABLE>
(Continued on next page)
F - 7
<PAGE>
INFU-TECH, INC.
Notes to Consolidated Financial Statements
(Dollars in thousands except per share amounts)
(Continued from previous page)
<TABLE>
<CAPTION>
Years Ended June 30,
-----------------------------
1998 1997 1996
---------- --------- --------
<S> <C> <C> <C>
Supplemental disclosures of cash flow data:
Income taxes paid.................................. $ 154 $ 110 $ 7
========== ========= ========
Non cash investing and financing activity:
Property and equipment obtained under
capital lease obligation....................... $ -- $ -- $ 223
========== ========= ========
Stock issued in connection with Acquisition.......... $ -- $ 100 $ --
========== ========= ========
</TABLE>
See accompanying notes to consolidated financial statements.
F - 8
<PAGE>
INFU-TECH, INC.
Notes to Consolidated Financial Statements
(Dollars in thousands except per share amounts)
June 30, 1998, 1997 and 1996
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 Kuala Healthcare, Inc. ("KUAL"),
formerly Continental Health Affiliates, Inc., 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 25% (1998), 24% (1997), and
25% (1996) 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. Certain of the Company's
revenues are earned based upon fixed monthly payments for each member of a
particular health plan. The Company monitors its costs for services
provided under this agreement to insure that they are appropriately
matched with the revenues earned.
F - 9
<PAGE>
INFU-TECH, INC.
Notes to Consolidated Financial Statements
(Dollars in thousands except per share amounts)
June 30, 1998, 1997 and 1996
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
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, Earnings Per Share
("EPS"), which is effective for both interim and annual periods ending
after 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.
Basic and diluted earnings per share is based on the net income for the
relevant period divided by the weighted average number of shares issued
and outstanding during the period. For purposes of the diluted earnings
per share calculation, the exercise or conversion of all dilutive
potential common shares is included, for the years ended June 30, 1998,
1997 and 1996. As of June 30, 1998, the Company had 3,328,213 dilutive
potential common shares outstanding.
Employee Stock Options
The Company accounts for its stock option plans in accordance with the
provisions of the Accounting Principles Board's Opinion No. 25 (APB 25),
"Accounting for Stock Issued to Employees and Related Interpretations."
Effective July 1, 1996 the Company adopted the Financial Accounting
Standards Board's Statement of Financial Accounting Standard No. 123 (SFAS
123), "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 cost.
Reclassifications
Certain amounts in the prior years financial statements have been
reclassified to conform to the 1998 presentation.
F - 10
<PAGE>
INFU-TECH, INC.
Notes to Consolidated Financial Statements
(Dollars in thousands except per share amounts)
June 30, 1998, 1997 and 1996
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 at issue price of $6. per share. 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. KUAL, 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, 1998, the Company had purchased 39,300 of its common shares at an
aggregate cost of $73.
During the fiscal year ended June 30, 1997, 125,000 warrants were issued
to financial consultants to the Company. The cost of the warrants in 1997
has been calculated at $44 and charged to expense. 100,000 of the warrants
are two year warrants, with 33,334 shares at an exercise price of $3.50,
33,334 shares at an exercise price of $4.50, and 33,333 shares with an
exercise price of $5.00. The remaining 25,000 two year warrants have an
exercise price of $6.96.
In connection with the acquisition of Universal Home Infusion, the Company
issued 24,000 shares during fiscal 1997.
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.
F - 11
<PAGE>
INFU-TECH, INC.
Notes to Consolidated Financial Statements
(Dollars in thousands except per share amounts)
June 30, 1998, 1997 and 1996
Stock option transactions for the years ended June 30, 1998, 1997 and 1996
are summarized as follows:
<TABLE>
<CAPTION>
Weighted average
Number Option Price
of shares Per Share
--------- ----------------
<S> <C> <C>
Outstanding, June 30, 1995 . . . . . . . . . . . . . . . . . 178,250 $4.57
Granted 60,100 $2.60
Cancelled (17,300) $2.64
Exercised (12,750) $1.21
----------
Outstanding, June 30, 1996 . . . . . . . . . . . . . . . . . 208,300 $4.37
Granted 461,744 $4.16
Cancelled (41,400) $4.71
Exercised (10,750) $2.46
----------
Outstanding, June 30, 1997 . . . . . . . . . . . . . . . . . 617,894 $4.24
Granted 213,500 $5.23
Cancelled (77,800) $3.92
Exercised (8,900) $3.27
------------
Outstanding, June 30, 1998 . . . . . . . . . . . . . . . . . 744,694 $4.59
============
</TABLE>
Options to purchase 136,562 shares were available for grant at June 30,
1998 under the 1996 Plan.
The following table summarizes information about stock options
outstanding at June 30, 1998:
<TABLE>
<CAPTION>
Number Weighted Weighted Number Weighted
Range of Outstanding Average Remaining Average Exercisable at Average
Exercise Prices at 6/30/98 Contractual Life Years Exercise Price 6/30/98 Exercise Price
--------------- ----------- ---------------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
$1.00 - $3.13 56,450 7.2 $2.38 56,450 $2.38
$3.38 - $4.13 138,576 8.8 $3.69 113,076 $4.51
$4.25 200,000 8.6 $4.25 200,000 $4.25
$4.50 - $5.88 193,668 9.5 $5.10 178,668 $5.53
$6.00 - $7.00 156,000 7.0 $6.25 110,000 $8.86
----------- -------- --------- ----------- ---------
744,694 8.5 $4.65 658,194 $5.25
=========== ======== ========= =========== =========
</TABLE>
F - 12
<PAGE>
INFU-TECH, INC.
Notes to Consolidated Financial Statements
(Dollars in thousands except per share amounts)
June 30, 1998, 1997 and 1996
The Company has computed, the pro forma weighted average fair value per
option granted under the stock option plan to be $4.11, $3.41 and $2.10
for 1998, 1997 and 1996 respectively. The computations were made using
the Black-Scholes model, as prescribed by SFAS No. 123, with the
following weighted average assumptions for grants as follows:
<TABLE>
<CAPTION>
Years Ended June 30,
-----------------------------------------
1998 1997 1996
-----------------------------------------
<S> <C> <C> <C>
Risk-free interest rate................... 4.2% 4.9% 5.1%
Expected dividend yield................... 0% 0% 0%
Expected term until exercise (years)..... 8.2 8.5 5.4
Expected volatility....................... 60.79% 68.61% 84.68%
</TABLE>
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:
<TABLE>
<CAPTION>
Years Ended June 30,
-----------------------------------------
1998 1997 1996
-----------------------------------------
<S> <C> <C> <C>
Net Income:
As reported............................ $ 196 $ 953 $ 1,195
Pro forma.............................. (265) 277 1,121
Net Income per share:
Basic as reported...................... $ .06 $ .30 $ .38
Basic pro forma........................ (.08) .09 .35
Net Income per share:
Diluted as reported. . . . . . . . . . . $ .06 $ .29 $ .37
Diluted pro forma. . . . . . . . . . . . (.09) .09 .35
</TABLE>
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 2002.
The leases generally require the Company to pay all costs of maintaining
the leased properties.
F - 13
<PAGE>
INFU-TECH, INC.
Notes to Consolidated Financial Statements
(Dollars in thousands except per share amounts)
June 30, 1998, 1997 and 1996
The following is a schedule of future minimum annual rental payments
required under operating leases as of June 30, 1998:
Year ending
June 30, Facilities Equipment Total
----------- ---------- --------- -----
1999........................... 379 58 437
2000........................... 102 43 145
2001........................... 86 16 102
2002........................... 7 3 10
---------- ------- -----
$ 574 $ 120 $ 694
========== ======= =====
Rent expense was $425, $550 and $441 in 1998, 1997 and 1996,
respectively.
Employment Commitments
The Company has an employment agreement with its Chairman of the Board,
who is also Chairman of the Board and President of KUAL, through July
2000. He renders part-time services to the Company for a salary of $150
per year. Pursuant to this employment agreement, a bonus provision exists
which is based upon an increase in the market capitalization of the
Company exceeding the 1995 base year. As of June 30, 1998, a bonus
payable of $108 has been accrued related to this provision. No amount was
earned in the prior periods.
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 $10,000 which is subject to annual
renewal. The Company has not recorded any related loss liabilities as of
June 30, 1998.
6. Transactions with Affiliates
The Company provides nutritional and other supplies and infusion therapy
services to nursing homes owned or managed by KUAL and derived revenues
from sales to those nursing homes of $437 in 1998, $564 in 1997 and $524
in 1996. Included in accounts receivable from affiliates are amounts due
from nursing homes owned or managed by KUAL of $437 and $300 at June 30,
1998, and 1997, respectively.
Included in personnel costs in 1998, 1997 and 1996, respectively, are
charges of $332, $746 and $867 from subsidiaries of KUAL for contracted
nursing services.
A management and non-competition agreement (the "Agreement") between the
Company and KUAL extended to September 30, 2000 prohibits the Company
from lending money to (or borrowing money from) KUAL.
Pursuant to the Agreement, KUAL provides services to the Company, which
includes, among others,
F - 14
<PAGE>
INFU-TECH, INC.
Notes to Consolidated Financial Statements
(Dollars in thousands except per share amounts)
June 30, 1998, 1997 and 1996
the services of KUAL's senior executive management. A management fee
equal to 1.6% of revenues is charged by KUAL 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 and 1996 the Company was charged $27 and $14, 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 KUAL, one of whom is the Company's Chairman of
the Board.
Included in receivables from affiliates non-current are $2,189 and
$1,491, in 1998 and 1997, respectively, that arose from the sales of
nutritional and other products and services to other wholly owned
subsidiaries of KUAL. These receivables are results of the Company
engaging in bulk purchases for discount and are expected to be paid in
the near future.
7. Income Taxes
Through December 31, 1992, the Company was included in the consolidated
Federal income tax return of KUAL. Income taxes were computed on a
separate return basis. Pursuant to a tax sharing arrangement between the
Company and KUAL, the Company's income tax provision payable to KUAL 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.
F - 15
<PAGE>
INFU-TECH, INC.
Notes to Consolidated Financial Statements
(Dollars in thousands except per share amounts)
June 30, 1998, 1997 and 1996
The provision (benefit) for income taxes consists of the following:
<TABLE>
<CAPTION>
Years Ended June 30,
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Current
Federal.............................. $ -- $ 386 $ 70
State................................ -- 90 5
----------- ----------- ----------
Deferred:
Federal.............................. 124 143 165
State................................ 25 29 30
Other................................ -- -- --
----------- ----------- ----------
149 172 195
----------- ----------- ----------
$ 149 $ 662 $ 270
=========== =========== ==========
</TABLE>
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>
Years Ended June 30,
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Federal income tax provision
(benefit) at statutory rate............... 117 $ 550 $ 498
State income tax provision,
net of Federal income tax
benefit .............................. 25 112 88
Increase (decrease) in valuation
allowance................................... -- -- (316)
Other - net..................................... 7 -- --
------- --------- --------
$ 149 $ 662 $ 270
======= ========= ========
</TABLE>
F - 16
<PAGE>
INFU-TECH, INC.
Notes to Consolidated Financial Statements
(Dollars in thousands except per share amounts)
June 30, 1998, 1997 and 1996
The tax effects of temporary differences that give rise to significant
portions of the deferred income tax assets are as follows:
<TABLE>
<CAPTION>
June 30,
1998 1997
---- ----
<S> <C> <C>
Net deferred income tax assets:
Allowances for uncollectible accounts
receivable..................................... $ 647 $ 818
Net operating tax loss carryforwards............. 94 --
Compensated absences, principally due
to accrual for financial purposes.............. 37 46
Deferred income.................................. -- --
Other - net ................................... 38 103
--------- --------
Sub-total ................................... 816 967
Valuation allowance.............................. (265) (265)
---------- --------
Net deferred income tax assets................... $ 551 $ 702
========= ========
</TABLE>
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 1998 for another year. Under this
agreement, accounts payable to the drug manufacturer ($1,210 at June
30, 1998) are secured by the Company's inventories of the drug ($118
at June 30, 1998) and related Accounts Receivable ($1,121 at June 30,
1998).
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, 1998, the Company had gross receivables from the Federal
Government (Medicare) of approximately $2,725.
F-17
<PAGE>
INFU-TECH, INC.
Notes to Consolidated Financial Statements
(Dollars in thousands except per share amounts)
June 30, 1998, 1997 and 1996
10. Estimated Fair Value of Financial Instruments
The estimated fair value of financial instruments has been determined
based upon available market information and appropriate valuation
methodologies. However, considerable judgement is necessarily required
in interpreting market data to develop the estimates of fair value.
Accordingly, the estimates presented herein are not necessarily
indicative of the amounts that the Company might realize in a current
market exchange. The use of different market assumptions and or
estimation methodologies may have a material effect on the estimated
fair value.
The carrying amounts of cash and cash equivalents, accounts
receivable, amounts due from affiliates, accounts payable and accrued
expenses are reasonable estimates of their fair values.
F-18
<PAGE>
Schedule II
INFU-TECH, INC.
Valuation and Qualifying Accounts
(Dollars in thousands)
June 30, 1998, 1997 and 1996
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
-------- -------- -------- -------- --------
Additions
------------------------
Balance at Charged to Balance
beginning cost and at end
Description of period expenses Other Deductions (a) of period
----------- ---------- ---------- ----- ------------- ---------
<S> <C> <C> <C> <C> <C>
Allowance for
uncollectible
accounts:
1998......................$ 1,995 $ 353 $ --- $ 770 $ 1,578
===== ====== ======== ======= =====
1997......................$ 2,456 $ (196) $ 513 $ 778 $ 1,995
===== ====== ======= ====== =====
1996......................$ 2,136 $ 1,269 $ --- $ 949 $ 2,456
===== ===== ======== ====== =====
</TABLE>
(a) Uncollectible accounts charged off during the year, net of recoveries.
S - 1
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Company has duly caused this Report to be signed on its behalf
by the undersigned, thereunto duly authorized.
INFU-TECH, INC.
Date: October 7,1998 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.
/s/ Jack Rosen Chairman of the Board, Director
- ----------------------------------- (Principal Executive Officer)
Jack Rosen
/s/ Roy Smolarz Executive Vice President (Principal x
- ----------------------------------- Officer)
Roy Smolarz
/s/ Allison Allen Principal Accounting Officer
- -----------------------------------
Allison Allen
/s/ Joseph Rosen Director
- -----------------------------------
Joseph Rosen
/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>
Exhibit 21
INFU-TECH, INC.
AND 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)
