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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D) OF
THE SECURITIES AND EXCHANGE ACT OF 1934
For the Quarter Ended March 31, 1999
Commission File Number 0-21006
INFU-TECH, INC.
(Exact name of registrant as specified in its charter)
Delaware 22-3127689
(State of other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
910 Sylvan Avenue, Englewood Cliffs, NJ 07632
(Address of principal executive offices)
(201) 567-4600
Registrant's telephone number, including area code
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 short 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
--- ---
As of May 7, 1999 the Registrant had outstanding 3,262,571 shares of
its $.01 par value Common Stock.
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INFU-TECH, INC.
Index
<TABLE>
<CAPTION>
Part I - Financial Information:
Page
----
<S> <C>
Item 1
Consolidated Balance Sheets at March 31, 1999 (Unaudited)
and June 30, 1998......................................................................... 3
Consolidated Statements of Operations (Unaudited) for the three months
ended March 31, 1999 and 1998............................................................. 4
Consolidated Statements of Operations (Unaudited) for the nine months
ended March 31, 1999 and 1998............................................................. 5
Consolidated Statements of Cash Flows (Unaudited) for the nine months
ended March 31, 1999 and 1998............................................................. 6
Notes to Unaudited Consolidated Financial Statements........................................ 7
Item 2
Management's Discussion and Analysis of Financial Condition and
Results of Operations.....................................................................8 - 10
Part II - Other Information.......................................................................... 11
Signatures.................................................................................. 12
</TABLE>
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INFU-TECH, INC.
Consolidated Balance Sheets
(Dollars in thousands, except for share amounts)
<TABLE>
<CAPTION>
March 31, June 30,
1999 1998
---- ----
(Unaudited) (Audited)
ASSETS
<S> <C> <C>
Cash and cash equivalents............................................................... $ 229 $ 163
Accounts receivable, net of allowances for uncollectible accounts
of $1,837 and $1,578. ............................................................... 10,931 6,530
Accounts receivable from affiliates..................................................... 5 437
Inventories............................................................................. 1,242 1,452
Deferred income taxes................................................................... 551 551
Prepaid expenses and other current assets............................................... 704 165
-------- --------
Total current assets............................................................. 13,662 9,298
Property and equipment, at cost, net of accumulated depreciation
of $619 and $552..................................................................... 324 370
Goodwill, net .......................................................................... 114 125
Receivables from affiliates, non current (Net of allowance for uncollectable
amounts of $58 and $58).............................................................. 2,729 2,189
Other assets............................................................................ 116 140
-------- --------
Total assets..................................................................... $ 16,945 $ 12,122
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable........................................................................ $ 8,460 $ 5,057
Accrued payroll and related expenses.................................................... 802 435
Income taxes payable.................................................................... 200 194
Other current liabilities............................................................... 1,155 110
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Total current liabilities........................................................ 10,617 5,796
Stockholders' equity:
Common stock, $.01 par value; 5,000,000 shares authorized; 3,262,571 issued.......... 33 33
Additional paid-in capital........................................................... 3,128 3,128
Retained earnings.................................................................... 3,240 3,238
Treasury stock, at cost; 39,300 shares............................................... (73) (73)
-------- --------
Total stockholders' equity....................................................... 6,328 6,326
-------- --------
Commitments and contingencies
Total liabilities and stockholders' equity....................................... $ 16,945 $ 12,122
======== ========
</TABLE>
See accompanying notes to consolidated financial statements
3
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INFU-TECH, INC.
Consolidated Statements of Operations
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
1999 1998
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(Unaudited)
<S> <C> <C>
Revenues......................................................................... $ 6,546 $ 6,272
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Costs and expenses:
Medical and nutritional product............................................. 4,200 3,337
Personnel................................................................... 1,585 1,769
Selling, general and administrative......................................... 699 795
Provision for uncollectible accounts........................................ 70 (2)
Management fees to majority shareholder .................................... 105 100
Depreciation and amortization............................................... 26 31
Other expense (income), net................................................. (37) (21)
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6,648 6,009
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Income (loss) before income taxes................................................ (102) 263
Provision for income taxes....................................................... (59) 108
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Net income (loss) .......................................................... $ (43) $ 155
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Earnings per Share:
Basic....................................................................... (0.01) 0.05
Diluted..................................................................... (0.01) 0.05
Basic weighted average number of common shares..................................... 3,262,571 3,218,792
Diluted weighted average number of common shares .................................. 3,262,571 3,390,704
</TABLE>
See accompanying consolidated financial statements
4
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INFU-TECH, INC.
Consolidated Statements of Operations
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
Nine Months Ended March 31,
---------------------------
1999 1998
---- ----
(Unaudited)
<S> <C> <C>
Revenues........................................................................... $ 18,834 $ 19,974
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Costs and expenses:
Medical and nutritional product............................................... 11,532 10,638
Personnel..................................................................... 4,559 5,321
Selling, general and administrative........................................... 2,113 2,606
Provision for uncollectible accounts.......................................... 259 168
Management fees to majority shareholder ...................................... 301 320
Depreciation and amortization................................................. 78 87
Other expense (income), net................................................... (41) 17
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18,801 19,157
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Income (loss) before income taxes.................................................. 33 817
Provision for income taxes......................................................... 31 335
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Net income (loss) ............................................................ $ 2 $ 482
========= ===========
Earnings per share:
Basic ........................................................................ (0.00) 0.15
Diluted....................................................................... (0.00) 0.15
Basic weighted average number of common shares..................................... 3,262,571 3,214,569
Diluted weighted average number of common shares................................... 3,262,571 3,285,599
</TABLE>
See accompanying consolidated financial statements
5
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INFU-TECH, INC.
Consolidated Statements of Cash Flows
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
Nine Months Ended March 31,
---------------------------
1999 1998
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(Unaudited)
<S> <C> <C>
Operating activities:
Net income (loss) ............................................................... $ 2 $ 482
Adjustments to reconcile net income to net cash provided by (used in)
operating activities:
Depreciation expense....................................................... 67 76
Amortization of goodwill................................................... 11 11
Provision for uncollectible accounts....................................... 259 168
Increase (decrease) in cash due to changes in:
Accounts receivable........................................................ (4,660) (313)
Accounts receivable from affiliates ....................................... (108) (220)
Inventories................................................................ 210 (210)
Prepaid expenses and other current assets.................................. (560) (266)
Other assets.......................................................... 24 (163)
Taxes payable.............................................................. 6 79
Accounts payable........................................................... 3,403 57
Accrued payroll and related................................................ 367 380
Other current liabilities.................................................. 1,045 (98)
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Net cash used in operating activities............................................ 66 (17)
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Investing activities:
Expenditures for property and equipment.......................................... -- (201)
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Net cash provided by (used in) investing activities.......................... -- (201)
Financing activities:
Exercise of options ............................................................. -- 28
Payment of capital lease obligations............................................. -- (80)
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Net cash used in financing activities............................................ -- (52)
Net increase (decrease in) cash and cash equivalents................................ 66 (270)
Cash and cash equivalents, beginning of period...................................... 163 512
--------- ---------
Cash and cash equivalents, end of period............................................ $ 229 $ 242
========= =========
Supplemental disclosure of cash flow data:
Income taxes paid................................................................ $ -- $ 153
</TABLE>
See accompanying notes to consolidated financial statements
6
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INFU-TECH, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
1. The Company
Infu-Tech, Inc. (the "Company") is a provider of clinical services and
products to the non-hospital based health care market. This includes a
broad range of complete home infusion therapy services including total
parenteral nutrition therapy, antibiotic therapy and other therapies to
patients at home and enteral nutrition infusion therapy and other medical
services and products provided primarily to patients in long- term care
facilities. The Company is 57% owned by Kuala Healthcare, Inc. ("KUAL")
formerly Continental Health Affiliates, Inc. ("CHA"), a public company. The
minority 43% 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 pricing
pressure from managed care, Medicare and Medicaid.
2. Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles
for interim financial information and pursuant to the instructions to Form
10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all
of the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management,
all adjustments, consisting of normal recurring accrual adjustments,
considered necessary for a fair presentation have been included. Operating
results for the nine month period ended March 31, 1999, are not necessarily
indicative of the results that may be expected for the year ended June 30,
1999.
These financial statements and notes should be read in conjunction with the
Company's audited financial statements and notes thereto included in the
Company's Annual Report of Form 10-K for the year ended June 30, 1998.
3. Earnings Per Share
Options excluded from the computation of diluted earnings per share because
the exercise price is above the average market price for the period, and
therefore the options do not have a dilutive effect, were as follows:
1999 1998
---- ----
Options excluded for the 3 month period
ending March 31,.................................. 157,500 157,500
Options excluded for the 9 month period
ending March 31,.................................. 302,834 302,834
7
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INFU-TECH, INC.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following discussion should be read in conjunction with the Condensed
Consolidated Financial Statements and Notes thereto.
RESULTS OF OPERATIONS
Three Months ended March 31, 1999 Compared with Three Months Ended March 31,
1998
Total revenues increased by $274,000, or 4.3%, from $6,272,000 to $6,546,000.
Home infusion revenues increased by $274,000 due to increased sales of specialty
pharmaceutical products such as Synagis and Cerezyme.
Cost of medical and nutritional products sold to patients and other customers
increased $863,000 or 26%, from $3,337,000 in 1998 to $4,200,000 in 1999. As a
percentage of total revenues, medical and nutritional product costs were 53% in
1998 as compared to 64% in 1999. The increase in the medical and nutritional
product costs as a percentage of sales is attributable to increased revenues of
specialty pharmaceuticals like Cerezyme and Synagis (which are high priced
products with gross margins which are less than company average), and margin
reductions from operating in a managed care environment.
Total personnel costs decreased by $184,000 or 10.6% from $1,769,000 in 1998 to
$1,585,000 in 1999 due to reorganization of the corporate office and the closing
down of the Florida operation.
Selling, general and administrative expenses decreased by $96,000, or 12% from
$795,000 in 1998 to $699,000 in 1999 due to increased efficiencies in the
clinical and pharmacy operations.
The provision for uncollectible accounts was 1.1% of revenues in the period 1999
and 1.7% of revenues in 1998.
Management fees to Kuala Healthcare, Inc., ("KUAL") of $105,000 in 1999 and
$100,000 in 1998 were 1.6% of revenues in both years.
Depreciation expense decreased from $27,000 in 1998 to $22,000 in 1999 due to
property and equipment retirements. Amortization expense of $4,000 was
recognized in both periods.
Other expense, net, of $33,000 consisted primarily of interest charged on
accounts receivables over normal contract terms, offset by interest charges on
the credit line and an expense of $42,000 associated with the assessment of
Federal and State tax penalties and related interest. The Company has filed
appeals from the imposition of these penalties in this regard.
There are Federal and State income tax returns for previous years which were not
filed when due. The Company has completed a substantial portion of those
outstanding Federal and State income tax returns for previous years. It is
contemplated that all prior year returns will be completed and filed shortly.The
Company believes no additional Federal taxes are due. The Company presently has
outstanding penalties and interest associated with late filings which are
currently in the process of being appealed.
The net income (loss) in 1999 was ($43,000) or ($0.01) per share compared to net
income in 1998 of $155,000 or $0.05 per share. Income (loss) before taxes for
the quarter ended March 31, 1999 was ($102,000) compared to $263,000 for the
comparable quarter last year.
8
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INFU-TECH, INC.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
RESULTS OF OPERATIONS
Nine Months ended March 31,1999 Compared with Nine Months Ended March 31, 1998
Total revenues decreased $1,140,000, or 6%, from $19,974,000 in 1998 to
$18,834,000 in 1999, primarily due to decreased reimbursement from managed care
companies, exiting non-profitable managed care contracts and loss of Medicare
reimbursable business in the long term care market due to prospective payment
system (PPS). This was partially offset by increase in the sales of specialty
pharmaceuticals such as Cerezyme and Synagis.
Costs of medical and nutritional products sold to patients and other customers
increased $894,000 or 8%, from $10,638,000 in 1998 to $11,532,000 in 1999. As a
percentage of total revenues, medical and nutritional product costs increased
from 53% in 1998 to 61% in 1999. The increase in the medical and nutritional
product costs as a percentage of sales is attributable to increased revenues
associated with Cerezyme and Synagis sales (which are higher priced products
with gross margins less than company average), and margin reductions from
operating in a managed care environment.
Total personnel costs decreased by $762,000, or 14% from $5,321,000 in 1998 to
$4,559,000 in 1999, primarily attributable to lower nursing and pharmacy costs,
and reductions in personnel in the contract services division.
Selling, general and administrative expenses decreased by $493,000, or 19% from
$2,606,000 in 1998 to $2,133,000 in 1999. The decrease is attributable to
increased efficiencies in the operations area.
The provision for uncollectible accounts was 1.3% of revenues in 1999 and was 1%
in 1998.
Management fees to Kuala Healthcare, Inc. ("KUAL") of $301,000 in 1999 and
$320,000 in 1998 were 1.6% of revenues in both periods.
Depreciation expense decreased from $76,000 in 1998 to $67,000 in 1999 due to
property and equipment retirements. Amortization expense of $11,000 was
recognized in 1999 and $11,000 in 1998.
Other income, of $42,000 consisted primarily of interest charged on accounts
receivables over normal contract terms, offset by interest charges on the credit
line and an expense of $127,000 associated with the assessment of Federal and
State tax penalties and related interest. The Company has filed appeals in this
regard.
There are Federal and State income tax returns for previous years which were not
filed when due. The Company has completed a substantial portion of those
outstanding Federal and State income tax returns for previous years. It is
contemplated that all prior year returns will be completed and filed shortly.The
Company believes no additional Federal taxes are due. The Company presently has
outstanding penalties and interest associated with late filings which are
currently in the process of being appealed.
The net income in 1999 was $2,000, or $0.00 per share compared to a net income
in 1998 of $482,000 or $0.15 per share. Net income before taxes for the nine
months ending March 31, 1999 was $33,000 compared to $817,000 for the comparable
prior period.
9
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INFU-TECH, INC.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 1999, the Company had total assets of $16.9 million, working
capital of $3.0 million and a net worth of $6.3 million. Its liabilities
consisted almost entirely of accounts payable and other operating obligations.
On December 31, 1998, the Company closed on an Accounts Receivable Financing,
providing for borrowing by the Company and its subsidiaries on a continuing and
revolving basis, secured by eligible accounts receivable, in an amount not to
exceed $1,500,000. The Company has not entered into any other borrowing
agreements.
At March 31, 1999, the balance in net accounts receivable for Infu-Tech was 60%
higher than the balance at June 30, 1998 attributed to higher revenues.
Infu-Tech's net accounts receivable has increased from 105 days sales at June
30, 1998 to 155 days sales at March 31, 1999. Accounts receivable increased from
the previous quarter and June 30, 1998 due to increased sales but slower
collection of the specialty pharmaceuticals Synagis and Cerezyme in the last
quarter. Accounts receivable also increased because of slowed payments from
Medicare and managed care.
Accounts payable increased attributable significantly to increased sales of
approximately $3.4 million in the last quarter for Synagis and Cerezyme. These
products are higher cost and carry more favorable payment terms.
Among the nursing homes with which the Company does business are five facilities
which are owned or managed by subsidiaries of Kuala Healthcare, Inc . Through
March 31, 1999, the Company's sales to those nursing homes totaled approximately
$140,000 for the nine month period. Over the last six months, the Company has
made those sales on a C.O.D. basis. Furthermore, the Company has reclassified to
noncurrent a portion of existing related accounts receivable. At March 31, 1999,
the Company's net accounts receivable from the nursing homes currently owned and
operated by KUAL approximated $1.5 million. KUAL owes an additional $1.2 million
for interest and other related items. During this period, the Company continued
to have significant sales to patients in those facilities which are paid for by
the residents or third parties.
Year 2000 Compliance
Infu-Tech will finalize its decision as to a new IS processing and General
Ledger system by May 31, 1999. Once the vendor selection process is complete the
training and implementation of the new system will begin July 1, 1999. The
expected cost of this system enhancement is approximately $500,000. The
financing of this system is in place.The new system will be Year 2000 compliant.
10
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INFU-TECH, INC.
Part II - Other Information
Item 1. Legal Proceedings
Presently, there are no pending material legal
proceedings other than as reported in the Company's Form
10-K for the year ended June 30, 1998.
Item 2. Changes in Securities
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
None
11
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INFU-TECH, INC.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
Infu-Tech, Inc.
Date: May 17, 1999 /S/ JACK ROSEN
------------------ ---------------
Jack Rosen
Chairman and Director
(Chief Executive Officer)
Date: May 17, 1999 /S/ STEPHEN SAPOSNIK
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Stephen Saposnik
Principal Accounting Officer
12
