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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 September 30, 2000
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 6, 2000 the Registrant had outstanding 3,364,021 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 September 30, 2000 (Unaudited)
and June 30, 2000......................................................................... 3
Consolidated Statements of Operations (Unaudited) for the three months
ended September 30, 2000 and 1999......................................................... 4
Consolidated Statements of Cash Flows (Unaudited) for the three months
ended September 30, 2000 and 1999......................................................... 5
Notes to Unaudited Consolidated Financial Statements........................................ 6 - 7
Item 2
Management"s Discussion and Analysis of Financial Condition and
Results of Operations..................................................................... 8 - 10
Item 3
Market Risks ............................................................................. 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>
September 30, June 30,
2000 2000
-------- --------
(Unaudited) (Audited)
ASSETS
<S> <C> <C>
Cash and cash equivalents ........................................................ $ 117 $ 128
Accounts receivable, net of allowances for uncollectible accounts
of $2,846 and $2,746 .......................................................... 6,694 6,415
Accounts receivable from affiliates .............................................. 1,071 1,077
Inventories ...................................................................... 271 310
Prepaid expenses and other current assets ........................................ 87 146
-------- --------
Total current assets ...................................................... 8,240 8,076
Property and equipment, at cost, net of accumulated depreciation
of $907 and $843 .............................................................. 444 508
Goodwill, net .................................................................... 92 96
Receivables from affiliates, non current ......................................... 2,157 2,493
Other assets ..................................................................... 119 111
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Total assets .............................................................. $ 11,052 $ 11,284
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LIABILITIES AND STOCKHOLDERS" EQUITY
Short term debt .................................................................. $ 1,034 $ 972
Accounts payable ................................................................. 7,741 7,482
Accrued payroll and related expenses ............................................. 470 368
Short-term obligation under capital lease ........................................ 149 121
Other current liabilities ........................................................ 495 385
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Total current liabilities ................................................. 9,889 9,328
Long-term obligation under capital lease ......................................... 147 175
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Total liabilities ......................................................... 10,036 9,503
Stockholders" equity:
Common stock, $.01 par value; 5,000,000 shares authorized; 3,364,021 issued at
September 30, 2000 and 3,355,221 at June 30, 2000 ........................... 34 34
Additional paid-in capital .................................................... 3,810 3,519
(Accumulated deficit) retained earnings ....................................... (2,755) (1,699)
Treasury stock, at cost; 39,300 shares ........................................ (73) (73)
-------- --------
Total stockholders" equity ................................................ 1,016 1,781
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Commitments and contingencies
Total liabilities and stockholders" equity ................................ $ 11,052 $ 11,284
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</TABLE>
See accompanying notes to consolidated financial statements
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INFU-TECH, INC.
Consolidated Statements of Operations
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended September 30,
2000 1999
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(Unaudited)
<S> <C> <C>
Revenues ........................................ $ 3,036 $ 4,826
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Costs and expenses:
Medical and nutritional product ............ 2,000 3,376
Personnel .................................. 975 1,430
Selling, general and administrative ........ 823 729
Provision for uncollectible accounts ....... 100 127
Management fees to principal shareholder.... 49 70
Depreciation and amortization .............. 67 33
Interest expense ........................... 159 126
Other income, net .......................... (81) (60)
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4,092 5,831
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(Loss) Income before income taxes ............... (1,056) (1,005)
Provision for income taxes ...................... -- --
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Net (Loss) income .......................... $(1,056) $(1,005)
======= =======
Earnings per Share:
Basic...................................... (0.31) (0.31)
Diluted................................... (0.31) (0.31)
Basic weighted average number of common shares... 3,364,021 3,262,571
Diluted weighted average number of common shares 3,364,021 3,262,571
</TABLE>
See accompanying consolidated financial statements
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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,
2000 1999
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(Unaudited)
Operating activities:
<S> <C> <C>
Net (loss) income ................................................... $(1,056) $(1,005)
Adjustments to reconcile net (loss) to net cash provided by (used in)
operating activities:
Depreciation expense .......................................... 63 30
Amortization of goodwill ...................................... 4 3
Provision for uncollectible accounts .......................... 100 127
Stock based compensation expense .............................. 275 --
Increase (decrease) in cash due to changes in:
Accounts receivable ........................................ (379) 85
Accounts receivable from affiliates ......................... 6 (142)
Inventories ................................................. 38 29
Prepaid expenses and other current assets ................... 59 93
Receivables from affiliates, non-current .................... 336 82
Other assets ........................................... (5) 181
Accounts payable ............................................ 258 (24)
Accrued payroll and related ................................. 102 362
Other current liabilities ................................... 109 1
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Net cash (used in) provided by operating activities ............... (90) (178)
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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 ................................... 62 158
Proceeds from exercise of options ................................... 17 --
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Net cash provided (used in) financing activities ................ 79 158
Net decrease, increase in cash and cash equivalents .................... (11) (95)
Cash and cash equivalents, beginning of period ......................... 128 258
------- -------
Cash and cash equivalents, end of period ............................... $ 117 $ 163
======= =======
</TABLE>
See accompanying notes to consolidated financial statements
5
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INFU-TECH, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
1. The Company
Infu-Tech, Inc. (the "Company") provides specialty pharmaceuticals,
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, nursing homes and
subacute care facilities. In March 2000, the Company formed a
subsidiary, Smartmeds.com, Inc. ("Smartmeds").
In March 2000, the Company launched Smartmeds.com through which it
intends to provide health management applications through wireless
devices such as cellular phones, PDA's and pagers. These applications
may include medication reminders, targeted news, and prescription
refills for people with chronic diseases. Smartmeds will pursue
contracts with managed care organizations, clinical research
organizations and other healthcare providers. Smartmeds.com, Inc. may
generate revenue from advertising, subscriber fees, wireless fees and
increased Infu-Tech sales of specialty pharmaceuticals. Due to the
evolving wireless market, the type of transactions in which
Smartmeds.com, Inc. engages and the way they are structured is likely
to vary significantly. The Company launched its Internet health
commerce site via its website Smartmeds.com.
The Company's traditional services are organized into two units. The
specialty pharmaceutical unit provides specialty pharmaceutical and
related services for patients with certain chronic diseases. It
provides services that address the needs of patients with the following
diseases: Gaucher Disease, a hereditary liver enzyme deficiency;
hemophilia, a hereditary bleeding disorder; cardiac diseases; sickle
cell disorders; respiratory diseases in pediatric patients; and growth
hormone disorders. The Company also 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, injectable products and a variety of other
therapies.
The Company is 49% owned by Kuala Healthcare, Inc. ("KUAL") formerly
Continental Health Affiliates, Inc. ("CHA"). The remaining 51% 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.
Liquidity
The Company incurred a ($1,056,000) loss in the three months ended
September 30, 2000 after having incurred a ($3,809,000) loss in the
year ended June 30, 2000, and is experiencing a slowdown in payments
from several managed care organizations which have affected its ability
to pay its suppliers on a timely basis. The Company has extended its
payment terms with some of its suppliers while also executing a plan to
pursue collection of its accounts receivable, consolidate its
operations, and reduce operating costs. A number of factors could
contribute to the Company suspending its operations including:
o Company is put in default by its lender,
o Company is not successful in obtaining additional capital,
o Company does not receive cash payments from Kuala,
o Company continues to incur significant losses.
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As of September 30, 2000 the Company's current liabilities exceeded its
current assets by $1,649,000. The Company has a $1.5 million line of
credit with Heller Healthcare ("Heller") secured by certain accounts
receivable. As of September 30, 2000, the outstanding loan was $1.0
million, the maximum available based on billing and collection
activity. The Company's stockholder equity was $1.0 million versus the
$4.0 million requirement from Heller. In addition, the Company had
accounts payable greater than 120 days old. The Company has obtained a
waiver from Heller to alleviate these events of default. The waiver
requires that stockholders' equity be no less than $900,000 through
June 30, 2001. On November 3, 2000 the Company renewed the agreement
with Heller which expires on December 31, 2001. The Company is
exploring additional borrowing alternatives. As indicated in the
Company's independent auditors' report on the June 30, 2000 financial
statements, these factors raise substantial doubt about the Company's
ability to continue as a going concern. The consolidated financial
statements do not include any adjustments that might result from the
outcome of this uncertainty. The continuation of the Company as a going
concern is dependent upon its ability to obtain additional financing
and generate revenues with gross margins sufficient to produce
operating profit.
KUAL and certain of its subsidiaries have agreed to pay back the June
30, 1999 $3.4 million total receivable balance, plus interest at 7% in
twenty quarterly installments beginning in January, 2000. KUAL
guarantees the amount due to the Company by the KUAL subsidiaries. KUAL
has given the Company a mortgage on land owned by a wholly owned
subsidiary of KUAL and a security interest in 1,500,000 shares of the
Company's common stock that it owns to secure that obligation. Under
certain circumstances KUAL may substitute the collateral as defined in
the agreement or may reduce the Infu-Tech shares pledged as security.
However, in no event may the remaining Infu-Tech shares be valued at
less than 150% of the outstanding receivable balance at the date of the
reduction. Payments may be in cash or with Infu-Tech's common stock
owned by KUAL. If cash payments are not made when due, KUAL may sell
company stock to satisfy the debt. The July 2000, payment of $0.2
million was made in October 2000. The October payment has not been made
but is expected to be paid shortly. KUAL and its subsidiaries are
experiencing significant financial difficulties. In September 2000,
three of KUAL's five nursing home subsidiaries commenced proceedings
under Chapter 11 of the Bankruptcy Code. However, the Chapter 11
proceedings do not affect KUAL's obligations under the agreement. The
Company no longer sells products to KUAL's nursing homes (but does sell
products and services to residents in them).
Management has taken action and is formulating plans to strengthen the
Company's working capital position and generate sufficient cash to meet
its operating needs through June 30, 2001 and beyond. The Company is
attempting to increase revenue by providing wireless services through
the use of its recently launched web-site. Also, negotiations are in
process with its primary vendor Genzyme to convert the amounts owed
them ($4,780,000) to a long term payment schedule and increase the
margins resulting from future Genzyme sales. Further, the Company is
negotiating for additional financing with several lenders. No assurance
can be made that management will be successful in achieving its plan.
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 30, 2000, are not necessarily indicative of the
results that may be expected for the full year ending June 30, 2001.
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,
2000.
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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, 2000 Compared with Three Months Ended
September 30, 1999
Total revenues decreased by $1,790,000, or 37%, from $4,826,000 to $3,036,000.
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
decreased $1,376,000 or 41%, from $3,376,000 in 1999 to $2,000,000 in 2000. As a
percentage of total revenues, medical and nutritional product costs decreased
from 70% in 1999 to 66% in 2000. The decrease in the medical and nutritional
product costs as a percentage of sales is attributable to the change in the
product mix sold.
Total personnel costs decreased by $455,000 or 31.8% from $1,430,000 in 1999 to
$975,000 in 2000 due to reorganization of the corporate office and the Company's
largest clinical office.
Selling, general and administrative expenses increased by $94,000, or 13% from
$729,000 in 1999 to $823,000 in 2000 due to a $275,000 compensation expense for
non-employee stock options, partially offset by 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 decreased to $100,000 in 2000 from
$127,000 in 1999 due to a reduction in revenue.
Management fees to Kuala Healthcare, Inc., ("KUAL") of $49,000 in 2000 and
$70,000 in 1999 were approximately 1.6% of revenues in both years.
Depreciation expense increased from $30,000 in 1999 to $63,000 in 2000 due to
property and equipment additions. Amortization expense of $4,000 was recognized
in both periods.
Interest expense of $159,000 in 2000 and $126,000 in 1999 consisted of interest
related to the Company's outstanding line of credit, interest on overdue
accounts payable, and interest associated with late filings of tax returns.
Other income of ($81,000) in 2000 and ($60,000) in 1999 consisted of interest
income from the outstanding KUAL receivable balance.
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. Interest associated by these late
filings has been accrued by the Company.
The net (loss) in 2000 was ($1,056,000) or ($0.31) per basic share compared to
net loss in 1999 of ($1,005,000) or ($0.31) per basic share which is the effect
of the items described above. The Company
8
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continues to consolidate its operations and reduce its clinical costs as the
Company increases its specialty pharmaceutical focus.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 2000, the Company had total assets of $11.0 million, a
working capital deficit of ($1.6) million and a net worth of $1.0 million. The
Company has a $1.5 million line of credit with Heller Healthcare ("Heller")
secured by certain accounts receivable. As of September 30, 2000, the
outstanding loan was $1.0 million, the maximum available based on billing and
collection activity. The Company's stockholder equity was $1.0 million versus
the $4.0 million requirement from Heller. In addition, the Company had accounts
payable greater than 120 days old. The Company has obtained a waiver from Heller
to alleviate these events of default. The waiver requires that stockholders'
equity be no less than $900,000 through June 30, 2001. On November 3, 2000 the
Company renewed the agreement with Heller which expires on December 31, 2001.
The Company is exploring additional borrowing alternatives. The continuation of
the Company as a going concern is dependent upon its ability to obtain
additional financing and generate revenues with gross margins sufficient to
produce an operating profit. Additionally, the Company's independent auditors
have indicated there is substantial doubt about the Company's ability to
continue as a going concern in their report on the June 30, 2000 financial
statements.
Management has taken action and is formulating plans to strengthen the Company's
working capital position and generate sufficient cash to meet its operating
needs through June 30, 2001 and beyond. The Company is attempting to increase
revenue by providing wireless services through the use of its recently launched
web-site. Also, negotiations are in process with it's primary vendor Genzyme to
convert the amounts owed them at September 30, 2000 ($4,780,000) to a long term
payment schedule and increase the margins resulting from future Genzyme sales.
Further, the Company is negotiating for additional financing with several
lenders. No assurance can be made that the management will be successful in
achieving its plan.
At September 30, 2000, the Company's net accounts receivable were $6.7 million
compared to $6.4 million at June 30, 2000. Infu-Tech's outstanding gross
accounts receivables have increased from 178 days' sales outstanding at June 30,
2000 to 206 days' sales at September 30, 2000. The increase in days' sales
outstanding is a result of a continued slow down in payments from managed care
organizations.
At June 30, 1999 the Company was owed $2.0 million by five subsidiaries of KUAL,
the Company's 49% stockholder which owns or operates nursing homes. No business
was conducted by the Company in 2000 with any of the five facilities owned or
managed by KUAL. In addition, KUAL owed $1.4 million to the Company for KUAL's
share of common expenses paid on behalf of KUAL by the Company.
KUAL and certain of its subsidiaries have agreed to pay back the June 30, 1999
$3.4 million total receivable balance, plus interest at 7% in twenty quarterly
installments beginning in January, 2000. KUAL guarantees the amount due to the
Company by the KUAL subsidiaries. KUAL has given the Company a mortgage on land
owned by a wholly owned subsidiary of KUAL and a security interest in 1,500,000
shares of the Company's common stock that it owns to secure that obligation.
Under certain circumstances KUAL may substitute the collateral as defined in the
agreement or may reduce the Infu-Tech shares pledged as security. However, in no
event may the remaining Infu-Tech shares be valued at less than 150% of the
outstanding receivable balance at the date of the reduction. Payments may be in
cash or with Infu-Tech's common stock owned by KUAL. If cash payments are not
made when due, KUAL may sell company stock to satisfy the debt. The July 2000,
payment of $0.2 million was made in October 2000. The October payment has not
been made but is expected to be paid shortly. KUAL and its subsidiaries are
experiencing significant financial difficulties. In September 2000, three of
KUAL's five nursing home subsidiaries commenced proceedings under Chapter 11 of
the Bankruptcy Code. However, the Chapter 11 proceedings do not affect KUAL's
obligations under the agreement. The Company no longer sells products to KUAL's
nursing homes (but does sell products and services to residents in them).
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The Company incurred a ($1.1) million loss for the quarter ended September 30,
2000 and is experiencing a slowdown in payments from several managed care
organizations which have affected its ability to pay its suppliers on a timely
basis. The Company had a net working capital deficit of ($1.6) million at
September 30, 2000. The Company has extended its payment terms with some of its
suppliers and is on COD terms with some suppliers. It is executing a plan to
pursue collection of its accounts receivable, consolidate its operations, and
reduce operating costs.
3. Market Risks
There have been no significant changes in market risks since June 30, 2000.
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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, 2000.
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 14, 2000 /S/ JACK ROSEN
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Jack Rosen
Chairman and Director
(Chief Executive Officer)
Date: November 14, 2000 /S/ FREDERICK W. SCHMIDT
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Frederick W. Schmidt
Chief Financial Officer
