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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 December 31, 1998
Commission File Number 0-21006
INFU-TECH, INC.
(Exact name of registrant as specified in its charter)
Delaware 22-3127689
(State of other jurisdiction (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 No X
As of February 5, 1999 the Registrant had outstanding 3,262,571 shares of
its $.01 par value Common Stock.
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INFU-TECH, INC.
Index
Part I - Financial Information:
<TABLE>
<CAPTION>
Page
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<S> <C> <C>
Item 1
Consolidated Balance Sheets at December 31, 1998 (Unaudited)
and June 30, 1998......................................................................... 3
Consolidated Statements of Operations (Unaudited) for the three months
ended December 31, 1998 and 1997.......................................................... 4
Consolidated Statements of Operations (Unaudited) for the six months
ended December 31, 1998 and 1997.......................................................... 5
Consolidated Statements of Cash Flows (Unaudited) for the six months
ended December 31, 1998 and 1997.......................................................... 6
Notes to Unaudited Consolidated Financial Statements........................................ 7 - 8
Item 2
Management's Discussion and Analysis of Financial Condition and
Results of Operations..................................................................... 9 - 10
Part II - Other Information........................................................................... 11
Signatures.................................................................................. 12
</TABLE>
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INFU-TECH, INC.
Consolidated Balance Sheets
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
December 31, June 30,
1998 1998
---- ----
(Unaudited) (Audited)
ASSETS
<S> <C> <C>
Cash and cash equivalents ........................................................ $ 56 $ 163
Accounts receivable, net of allowances for uncollectible accounts
of $1,529 and $1,578 .......................................................... 8,806 6,530
Accounts receivable from related parties ......................................... 5 437
Inventories ...................................................................... 1,070 1,452
Deferred income taxes ............................................................ 551 551
Prepaid expenses and other current assets ........................................ 431 165
-------- --------
Total current assets ...................................................... 10,919 9,298
Property and equipment, at cost, net of accumulated depreciation
of $611 and $566 .............................................................. 334 370
Goodwill, net .................................................................... 117 125
Receivable from affiliates non-current (net of allowance for uncollectible amounts
of $58 and $0) ................................................................ 2,504 2,189
Other assets ..................................................................... 116 140
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Total assets .............................................................. $ 13,990 $ 12,122
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LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable ................................................................. $ 6,882 $ 5,057
Accrued payroll and related expenses ............................................. 478 435
Income taxes payable ............................................................. 259 194
Other current liabilities ........................................................ -- 110
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Total current liabilities ................................................. 7,619 5,796
Commitments and contingencies
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 ............................................................. 3,283 3,238
Treasury stock, at cost; 39,300 shares ........................................ (73) (73)
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Total stockholders' equity ................................................ 6,371 6,326
-------- --------
Commitments and contingencies
Total liabilities and stockholders' equity ................................ $ 13,990 $ 12,122
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</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)
Three Months Ended December 31,
1998 1997
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(Unaudited)
Revenues ....................................... $ 6,563 $ 6,978
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Costs and expenses:
Medical and nutritional product ........... 4,077 3,730
Personnel ................................. 1,400 1,764
Selling, general and administrative ....... 676 900
Provision for uncollectible accounts ...... 112 99
Management fees to majority shareholder ... 105 112
Depreciation and amortization ............. 26 31
Other expense (income), net ............... 45 60
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6,441 6,696
Income before income taxes ..................... 122 282
Provision for income taxes ..................... 85 115
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Net income ................................ $ 37 $ 167
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Earnings per Share:
Basic ................................... .01 .05
Diluted ................................. .01 .05
Basic weighted average number of common shares . 3,262,571 3,212,764
Diluted weighted average number of common shares 3,280,571 3,288,410
See accompanying consolidated financial statements
4
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INFU-TECH, INC.
Consolidated Statements of Operations
(Dollars in thousands, except per share amounts)
Six Months Ended December 31,
-----------------------------
1998 1997
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(Unaudited)
Revenues ....................................... $ 12,288 $ 13,702
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Costs and expenses:
Medical and nutritional product ........... 7,332 7,301
Personnel ................................. 2,974 3,552
Selling, general and administrative ....... 1,414 1,811
Provision for uncollectible accounts ...... 189 170
Management fees to majority shareholder ... 196 220
Depreciation and amortization ............... 52 56
Other expense (income), net ............... (4) 38
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12,153 13,148
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Income before income taxes ..................... 135 554
Provision for income taxes ..................... 90 227
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Net income ................................ $ 45 $ 327
=========== ===========
Earnings per share:
Basic ..................................... .01 .10
Diluted ................................... .01 .10
Basic weighted average number of common shares . 3,262,571 3,212,764
Diluted weighted average number of common shares 3,271,571 3,254,458
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>
Six Months Ended December 31,
-----------------------------
1998 1997
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(Unaudited)
<S> <C> <C>
Operating activities:
Net income ....................................................................... $ 45 $ 327
Adjustments to reconcile net income to net cash provided by (used in)
operating activities:
Depreciation expense ....................................................... 44 49
Amortization of goodwill ................................................... 8 7
Provision for uncollectible accounts ....................................... 189 170
Increase (decrease) in cash due to changes in:
Accounts receivable ...................................................... (2,473) (599)
Accounts receivable from affiliates ...................................... 117 (95)
Inventories .............................................................. 382 109
Prepaid expenses and other current assets ................................ (266) (145)
Other assets ............................................................. 24 155
Taxes payable ............................................................ 65 (26)
Accounts payable ......................................................... 1,825 (133)
Accrued payroll and related .............................................. 43 74
Other current liabilities ................................................ (75) (82)
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Net cash (used in) provided by operating activities .......................... (72) (189)
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Investing activities:
Expenditures for property and equipment .......................................... (8) (167)
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Net cash used in investing activities ........................................ (8) (167)
Financing activities:
Exercise of options .............................................................. -- 7
Payment of capital lease obligations ............................................. (27) (61)
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Net cash used in financing activities ........................................ (27) (54)
Net increase (decrease) in cash and cash equivalents ................................ (107) (410)
Cash and cash equivalents, beginning of period ...................................... 163 512
------- -------
Cash and cash equivalents, end of period ............................................ $ 56 $ 102
======= =======
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 NASDAQ 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 six month period ended December 31, 1998, 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.
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, included in the quarterly
report and with the Company's Annual Report on Form 10-K for the year ended June
30, 1998.
RESULTS OF OPERATIONS
Three Months ended December 31, 1998 Compared with Three Months Ended December
31, 1997
Total revenues decreased by $415,000, or 6%, from $6,978,000 to $6,563,000. This
decrease in revenues is significantly attributed to the exiting of certain
non-profitable managed care contracts.
Cost of medical and nutritional products sold to patients and other customers
increased $347,000 or 9%, from $3,730,000 in 1997 to $4,077,000 in 1998. As a
percentage of total revenues, medical and nutritional product costs were 62% in
1998 as compared to 53% in 1997. The increase in the medical and nutritional
product costs as a percentage of sales is attributable to increased revenues
associated with Ceredase and Synagis (however which are high priced products
with gross margins which are less than the Company average), and margin
reductions from operating in a managed care environment.
Total personnel costs decreased by $364,000 or 21% from $1,764,000 in 1997 to
$1,400,000 in the 1998 period, primarily due to a reduction of personnel in
branch and corporate operations.
Selling, general and administrative expenses decreased by $224,000, or 25% from
$900,000 in 1997 to $676,000 in 1998. The decrease is attributable to increased
operating efficiencies in the 1998 period and the closing of the Florida
operations.
The provision for uncollectible accounts was 1.7 % of revenues in the period
1998 and 1.4 % of revenues in 1997.
Management fees to Kuala Healthcare, Inc., ("KUAL") were $105,000 in 1998 and
$112,000 in 1997 which were 1.6% of revenues in both years.
The net income in 1998 was $37,000 or $.01 cents per share compared to net
income in 1997 of $167,000 or $.05 cents per share. The decrease is primarily
attributed to the decrease in revenue and increased cost of medical and
nutritional products sold. Income before taxes for the quarter ended December
31, 1998 was $122,000 compared to $282,000 for the comparable prior period. The
quarter ended December 31, 1998 included $115,000 in sales revenue and income
resulting from nursing activities which took place during the first quarter.
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
Six Months ended December 31,1998 Compared with Six Months Ended December 31,
1997
Total revenues decreased by $1,414,000, or 11%, from $13,702,000 in 1997 to
$1,228,800 in 1998, primarily due to a decrease in the contract service division
revenues, exiting non profitable contracts and offset by increases in Synagis
and Ceredase sales..
Costs of medical and nutritional products sold to patients and other customers
remained the same for both the periods. As a percentage of total revenues,
medical and nutritional product costs increased from 53% in 1997 to 60% in 1998.
The increase in the medical and nutritional product costs as a percentage of
sales is attributable to increased revenues associated with Cerezyme and
Synagis.
Total personnel costs decreased by $570,000, or 16% from $3,552,000 in 1997 to
$2,974,000 in 1998, primarily due to efficiencies in the nursing and pharmacy
operations.
Selling, general and administrative expenses decreased by $397,000, or 22% from
$1,811,000 in 1997 to $1,414,000 in 1998. The decrease is largely attributable
to increased operating efficiencies in the period.
The provision for uncollectible accounts was 1.5% of revenues in 1998 and 1.2%
of revenues in 1997.
Management fees to Kuala Healthcare, Inc. ("KUAL") were 1.6% of revenues in both
periods.
Depreciation expense decreased from $49,000 in 1997 to $44,000 in 1998 due to
property and equipment retirements. Amortization expense of $8,000 was
recognized during the current year.
Other income of $4,000 in 1998 was offset by an expense of $85,000 associated
with the assessment of Federal and State tax penalties and related interest. The
Company has filed appeals in this regard.
There remain outstanding Federal and State income tax returns for previous years
which are presently being completed. The Company believes that no additional
Federal taxes are due. The Company has other state tax liabilities and claims
presently outstanding.
Other expense net of $38,000 in 1997 consisted of prior period consulting
charges and interest expense offset by write offs of accounts payable.
The net income for the 1998 period in 1998 was $45,000, or $.01 per share
compared to a net income in the 1997 period of $327,000 or $.10 per share.
Income before taxes for the six months ending December 31, 1998 was $135,000
compared to $554,000 for the comparable prior period.
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 1998, the Company had total assets of $14 million, working
capital of $3.3 million and a net worth of $6.4 million. Its liabilities
consisted almost entirely of accounts payable and other operating obligations.
Prior to December 31, 1998 the Company had no borrowings and its primary capital
requirements have been for investment in working capital, principally accounts
receivable and inventories. However, on December 31, 1998, the Company closed on
an Accounts Receivable Financing, providing for borrowing by
9
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INFU-TECH, INC.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
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.
At December 31, 1998, the balance in net accounts receivable for Infu-Tech was
35 % higher than the balance at June 30, 1998 attributed to higher revenues.
Infu-Tech's net accounts receivable has increased from 102 days sales at June
30, 1998 to 137 days sales at December 31, 1998. Accounts receivable increased
from the previous quarter and June 30th due to increased sales of the specialty
pharmaceuticals Synagis and Cerezyme in the last two months of the current
quarter. Accounts receivable also increased because of slowed payments from
Medicare and managed care.
Accounts payable increased attributable significantly to increased sales of
approximately $1.1 million in the last two months of the current 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 Kuala Healthcare, Inc . Through December 31, 1998,
the Company's sales to those nursing homes totaled approximately $130,000 for
the six month period. During the quarter ended December 31, 1998, 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
December 31, 1998, the Company's net accounts receivable from those nursing
homes approximated $1.5 million.
Year 2000 Compliance
Infu-Tech will finalize its decision as to a new IS processing and General
Ledger system by March 31, 1999. Once the vendor selection process is complete
the training and implementation of the new system will begin within 30 days.
It is expected that by the end of the Company's fiscal year June 1999 that a
majority of the processing will be completed on the new system. The expected
cost of this system enhancement is approximately $500,000. Discussion on the
financing of this system has taken place with preliminary commitments 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: February 22, 1999 /S/ JACK ROSEN
-------------------------- --------------------------------
Jack Rosen
Chairman and Director
(Chief Executive Officer)
Date: February 22, 1999 /S/ JOSEPH ROSEN
-------------------------- --------------------------------
Joseph Rosen
Vice President
Interim Principal Accounting Officer
12
