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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D) OF
THE SECURITIES AND EXCHANGE ACT OF 1934
For the Quarter Ended September 30, 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)
374 Starke Road, Carlstadt, New Jersey 07072
(Address of principal executive offices)
(201) 896-0100
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 November 29, 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:
Page
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Item 1
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Consolidated Balance Sheets at September 30, 1999 (Unaudited)
and June 30, 1999 .................................................. 3
Consolidated Statements of Operations (Unaudited) for the three months
ended September 30, 1999 and 1998 .................................. 4
Consolidated Statements of Cash Flows (Unaudited) for the three months
ended September, 1999 and 1998 ..................................... 5
Notes to Unaudited Consolidated Financial Statements ................. 6
Item 2
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Management's Discussion and Analysis of Financial Condition and
Results of Operations .............................................. 7-9
Part II - Other Information .............................................. 10
Signatures ........................................................... 11
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INFU-TECH, INC.
Consolidated Balance Sheets
(Dollars in thousands, except for share amounts)
<TABLE>
<CAPTION>
September 30, June 30,
1999 1999
---- ----
(Unaudited) (Audited)
Restated
(Note 3)
ASSETS
<S> <C> <C>
Cash and cash equivalents .................................................... $ 163 $ 258
Accounts receivable, net of allowances for uncollectible accounts
of $1,972 and $1,845 ...................................................... 7,587 7,799
Accounts receivable from affiliates .......................................... 482 340
Inventories .................................................................. 512 541
Deferred income taxes ........................................................ 539 539
Prepaid expenses and other current assets .................................... 288 381
-------- --------
Total current assets .................................................. 9,571 9,858
Property and equipment, at cost, net of accumulated depreciation
of $666 and $636 .......................................................... 362 317
Goodwill, net ................................................................ 107 110
Receivables from affiliates, non current ..................................... 2,981 3,063
Other assets ................................................................. 269 450
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Total assets .......................................................... $ 13,290 $ 13,798
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LIABILITIES AND STOCKHOLDERS' EQUITY
Short term debt .............................................................. $ 904 $ 746
Accounts payable ............................................................. 7,168 7,192
Accrued payroll and related expenses ......................................... 584 222
Other current liabilities .................................................... 441 440
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Total current liabilities ............................................. 9,097 8,600
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 ......................................................... 1,105 2,110
Treasury stock, at cost; 39,300 shares .................................... (73) (73)
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Total stockholders' equity ............................................. 4,193 5,198
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Commitments and contingencies
Total liabilities and stockholders' equity ............................. $ 13,290 $ 13,798
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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 September 30,
--------------------------------
1999 1998
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(Unaudited)
Restated
(Note 3)
Revenues ......................................... $ 4,826 $ 5,725
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Costs and expenses:
Medical and nutritional product ............. 3,376 3,255
Personnel ................................... 1,430 1,574
Selling, general and administrative ......... 729 738
Provision for uncollectible accounts ........ 127 77
Management fees to majority shareholder ..... 70 92
Depreciation and amortization ............... 33 26
Other expense (income), net ................. 66 (50)
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5,831 5,712
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(Loss) Income before income taxes ................ (1,005) 13
Provision for income taxes ....................... -- 5
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Net (Loss) income ........................... $ (1,005) $ 8
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Earnings per Share:
Basic ..................................... (0.31) 0.05
Diluted ................................... (0.31) 0.05
Basic weighted average number of common shares ... 3,262,571 3,262,571
Diluted weighted average number of common shares . 3,262,571 3,298,600
See accompanying consolidated financial statements
4
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INFU-TECH, INC.
Consolidated Statements of Cash Flows
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended September,
-----------------------------
1999 1998
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(Unaudited)
Restated
(Note 3)
<S> <C> <C>
Operating activities:
Net (loss) income ......................................... $(1,005) $ 8
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Depreciation expense ................................ 30 22
Amortization of goodwill ............................ 3 4
Provision for uncollectible accounts ................ 127 77
Increase (decrease) in cash due to changes in:
Accounts receivable ............................... 85 (331)
Accounts receivable from affiliates ............... (142) 27
Inventories ....................................... 29 395
Prepaid expenses and other current assets ......... 93 (183)
Receivables from affiliates, non-current .......... 82 (61)
Other assets ...................................... 181 25
Taxes payable ..................................... -- 5
Accounts payable .................................. (24) (332)
Accrued payroll and related ....................... 362 331
Other current liabilities ......................... 1 58
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Net cash (used in) provided by operating activities ..... (178) 45
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Investing activities:
Expenditures for property and equipment ................... (75) --
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Net cash (used in) provided by investing activities ... (75) --
Financing activities:
Net proceeds from short term debt ......................... 158 --
Payment of capital lease obligations ...................... -- (20)
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Net cash provided (used in) financing activities ...... 158 (20)
Net (decrease in) increase cash and cash equivalents ......... (95) 25
Cash and cash equivalents, beginning of period ............... 258 163
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Cash and cash equivalents, end of period ..................... $ 163 $ 188
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</TABLE>
See accompanying notes to consolidated financial statements
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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 infusion therapy and
specialty pharmaceuticals 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. Shortly the Company will launch
its disease management and specialty pharmaceutical programs on the
internet. The site is named Smartmeds.com at URL www.Smartmeds.com and
will include an online pharmacy featuring specialty pharmaceuticals,
medical products, healthcare and disease management information and
patient interaction with medical professionals. The Company is 58%
owned by Kuala Healthcare, Inc. ("KUAL") formerly Continental Health
Affiliates, Inc. ("CHA"), a public company. The minority 42% of the
Company's equity is publicly traded.
The Company is subject to certain risks and uncertainties as a result
of changes that could occur in the healthcare industry, including
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 accruals, necessary for a fair
presentation have been included. Operating results for the three month
period ended September, 1999, are not necessarily indicative of the
results that may be expected for the full year ending June 30, 2000.
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,
1999.
3. Restatement
The consolidated financial statement have been restated to reflect a
number of adjustments that should have been recorded in the three
months ended September 30, 1999.
The adjustments to the income statement include an increase in the
provision for uncollectible accounts due to a deterioration of the
Company's accounts receivable aging. In addition there was an increase
in interest expense for late tax filings and accounts payable. An
increase in selling, general, and administrative expense for accrued
expenses was recorded. A decrease in interest income from an
intercompany receivable was also changed due to a decrease in interest
rate.
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INFU-TECH, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
The effect of these adjustments on net income (loss) are as follows
(dollars in thousands):
Original Restated
10Q Filing 10Q/A
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Medical and nutritional product ........ 3,354 3,376
Selling, general and administrative .... 692 729
Provision for uncollectible accounts ... 52 127
Depreciation and amortization .......... 22 33
Interest expense ....................... 22 126
Interest Income ........................ (88) (60)
The adjustments to the balance sheet include a decrease in accounts receivable
due to the increase in the allowance for uncollectible accounts. Prepaid
expenses decreased due to a write off of a prepaid insurance balance. Accounts
payable increased due to the associated interest charged on overdue balances.
The overall effect of these restated items is an additional loss of ($278,000)
or ($0.09) per share.
The affect of restatement on the balance sheet is as follows (dollars in
thousands):
Original Restated
10Q Filing 10Q/A
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Accounts Receivable .......................... 7,762 7,587
Accounts Receivable from Affiliates - Current. 510 482
Prepaid, Expenses ............................ 325 288
Property and Equipment ....................... 373 362
Accounts Payable ............................. 7,066 7,168
Other Current Liabilities .................... 416 441
Retained Earnings ............................ 1,383 1,105
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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 September 30, 1999 Compared with Three Months Ended September
30, 1998
Total revenues decreased by $899,000, or 15.7%, from $5,725,000 to $4,826,000.
The decrease was due to discontinuing relationships with managed care
organizations that did not meet profitability standards.
The Company is currently in the process of negotiating revised terms for its
contract with Genzyme, which will allow the Company to distribute Cerezyme at
more acceptable profit levels. If it cannot accomplish this, the Company may
have to discontinue selling Ceredase and Cerezyme.
Cost of medical and nutritional products sold to patients and other customers
increased $121,000 or 3.7%, from $3,255,000 in 1998 to $3,376,000 in 1999. As a
percentage of total revenues, medical and nutritional product costs increased
from 56.9% in 1998 to 70% in 1999. The increase in the medical and nutritional
product costs as a percentage of sales is attributable to the change in the
product mix sold and margin reductions from operating in a managed care
environment.
Total personnel costs decreased by $144,000 or 9.2% from $1,574,000 in 1998 to
$1,430,000 in 1999 due to reorganization of the corporate office and the
Company's largest clinical office.
Selling, general and administrative expenses decreased by $9,000, or 1.2% from
$738,000 in 1998 to $729,000 in 1999 due to a reduction in clinical and pharmacy
costs as a result of lower revenues. This decrease was partially offset by
development costs associated with the e commerce business.
The provision for uncollectible accounts increased to $127,000 from $77,000 in
1998.
Management fees to Kuala Healthcare, Inc., ("KUAL") of $70,000 in 1999 and
$92,000 in 1998 were approximately 1.6% of revenues in both years.
Depreciation expense increased from $22,000 in 1998 to $30,000 in 1999 due to
property and equipment additions. Amortization expense of $4,000 was recognized
in both periods.
Other expense (income) of $66,000 in 1999 and ($50,000) in 1998 consisted of
interest expense of $133,000, partially offset by interest income of $67,000 and
net interest income of $(50,000) in 1998.
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 Company has accrued interest
associated with the late tax filings.
The net (loss) in 1999 was ($1,005,000) or ($0.31) per share compared to net
income in 1998 of $8,000 or $0.05 per share due to decreased sales and higher
cost of goods due to the product mix sold. The Company continues to consolidate
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INFU-TECH, INC.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
its operation and reduce its clinical costs as the Company increases its
specialty pharmaceutical revenue. Net (loss) before taxes for the quarter ended
September 30, 1999 was ($1,005,000) compared to net income of $13,000 for the
comparable quarter last year.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 1999, the Company had total assets of $13.3 million, working
capital of $0.5 million and a net worth of $4.2 million. Its liabilities
consisted primarily 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. As of September 30, 1999 the amount due on this line was
$904,000. The Company has not entered into any other borrowing agreements.
At September 30, 1999, the balance in net accounts receivable for Infu-Tech was
2% lower than the balance at June 30, 1999 attributed to lower revenues.
Infu-Tech's outstanding accounts receivable have increased from 136 days' sales
at June 30, 1999 to 178 days' sales at September 30, 1999.
Among the nursing homes with which the Company does business are five facilities
which are owned or managed by subsidiaries of Kuala Healthcare, Inc . At
September 30, 1999, the Company's net accounts receivable from the nursing homes
currently owned and operated by KUAL approximated $2.1 million. KUAL or its
subsidiaries owes an additional $1.3 million for interest and other related
items. KUAL has agreed to pay back the $3.5 million balance, plus interest at 7%
in twenty quarterly installments beginning in January, 2000. Due to the
deterioration of Kuala's financial condition KUAL has given the company a
security interest in 1,500,000 shares of the Company's common stock that it owns
to secure that obligation. Payments may be in cash or with Infu-Tech's common
stock owned by KUAL. Although the total balance owed by KUAL did not increase
during the quarter, the current portion increased by $142,000 while the
non-current portion was reduced by this amount.
The Company will discontinue servicing third party payers who do not pay on a
timely basis and continues an aggressive collection program for accounts
receivable.
Year 2000 Compliance
The Company recently completed the purchase of a new hardware and software
system. The total cost of the new system which the Company has been told is Year
2000 Compliant, is estimated at $400,000 and will be funded through a capital
lease agreement obtained by the Company.
The Company began implementing the new system in October. 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. The Company is taking steps that it believes to be
reasonable and prudent to assess the Year 2000 readiness, and believes that it
will be on schedule to replace, test and implement the new software and
equipment required to be Year 2000 compliant.
Management believes that the most significant risk to the Company for the Year
2000 problem is the effect such issues may have on third party payors, such as
Medicare. News reports have indicated that various agencies of the federal
government are having difficulty becoming Year 2000 compliant before the Year
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INFU-TECH, INC.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
2000. The Company has not yet undertaken quantification of the effects of such
non compliance or to determine whether such quantification is even possible. The
Company has communicated with its third party payors to identify and, to the
extent possible, to resolve issues involving the Year 2000 problem. However, the
Company has limited or no control over the actions of these third party payors.
A slow down in payments because of Year 2000 problems experienced by third party
payers could have a serious impact on the Company.
Another area of potential risk is with certain patient service equipment items
that have microprocessors with data functionality that could malfunction in the
Year 2000. Although Infu-Tech has found that the majority of such
microprocessors include duration time clocks and not date time clocks,
management has initiated formal communications with its suppliers to obtain
assurance that the equipment they supply is Year 2000 compliant.
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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, 1999.
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
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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: November 7, 2000 /s/ JACK ROSEN
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Jack Rosen
Chairman and Director
(Chief Executive Officer)
Date: November 7, 2000 /s/ FREDERICK W. SCHMIDT
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Frederick W. Schmidt
Chief Financial Officer
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