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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934.
For the fiscal year ended June 30, 2000
Commission file number: 0-21006
INFU-TECH, INC.
(Exact name of registrant as specified in its charter)
Delaware 22-3127689
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
374 Starke Road 07072
Carlstadt, N.J. (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code: (201) 896-0100
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act: Common Stock,
par value $.01
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES NO /X/
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
As of September 28, 2000 the aggregate market value of the voting stock held by
non-affiliates of the registrant was $10.3 million.
As of September 28, 2000, 3,364,021 shares of the registrant's common stock were
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of definitive proxy statement to be filed not later than October 28,
2000.
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TABLE OF CONTENTS
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Part I
Page
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Item 1. Business.................................................................. 3-11
Item 2. Properties................................................................ 11
Item 3. Legal Proceedings......................................................... 12
Item 4. Submission of Matters to a Vote of
Security Holders...................................................... 12
Part II
Item 5. Market Information........................................................ 13
Item 6. Selected Consolidated Financial Data...................................... 14
Item 7. Management's Discussion and Analysis of
Consolidated Financial Condition and Results
of Operations......................................................... 15-17
Item 7A. Quantitative and Qualitative Disclosures
About Market Risk..................................................... 17
Item 8. Consolidated Financial Statements and
Supplementary Data.................................................... 18
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosures............................... 18
Part III ........................................................................................... 19
Part IV
Item 14. Exhibits, Consolidated Financial Statements, Financial
Statement Schedules, and Reports on Form 8-K.......................... 20
Signatures.......................................................................................... Last Page
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PART I
Item 1. Business.
General
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. It has
recently launched an Internet website, Smartmeds.com, through which it plans to
offer health management applications.
Smartmeds
In March, 2000 the Company formed 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 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 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.
Medical Services
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.
Key elements of the Company's strategy include: (i) expanding the number of
chronic diseases served, and (ii) increasing its number of payor contracts.
Further, through Smartmeds, it will create wireless applications for disease
management.
The Contract Services unit provides medical products and services, including
enteral nutrition therapy, intravenous infusion therapy, urological products and
wound care products, to residents in long term care facilities.
The Company's sales and marketing efforts are primarily directed towards managed
care. The Company has over 70 agreements with managed care companies, which have
over 20 million members, to provide infusion therapy and specialty
pharmaceuticals. The agreements with managed care companies vary from preferred
provider relationships to being one of several providers. Reimbursement is
generally on a per diem basis.
The Company's continued marketing efforts directed at managed care companies
bring significant opportunity to promote new programs like Disease Management
through existing relationships. The Company is now expanding its marketing of
specialty pharmaceuticals to its customer base. Specialty pharmaceuticals
include Cerezyme for Gauchers patients, Synagis for prevention of serious
respiratory diseases in pediatric patients, growth hormone drugs and other
injectable drugs.
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The following table sets forth the percentages of the Company's revenues, by
service unit, from the various therapies, products and services.
<TABLE>
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Year ended Year ended Year ended
June 30, 1998 June 30, 1999 June 30, 2000
------------- ------------- -------------
Intravenous Contract Total Intravenous Contract Total Intravenous Contract Total
Infusion Services Revenues Infusion Services Revenues Infusion Services Revenues
-------- -------- -------- -------- -------- -------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Enteral Nutrition ... 4% 77% 19% 5% 75% 21% 6% 81% 16%
Antibiotic .......... 19% -- 15% 17% -- 13% 10% -- 8%
TPN ................. 6% -- 4% 4% -- 3% 3% -- 3%
Immune Globulin ..... 9% -- 7% 13% -- 10% 18% -- 15%
Ceredase/Cerezyme ... 41% -- 33% 45% -- 35% 36% -- 31%
Wound Care .......... -- -- -- -- -- -- -- -- --
Other ............... 21% 23% 22% 16% 25% 18% 27% 19% 27%
--- --- --- --- --- --- --- --- ---
100% 100% 100% 100% 100% 100% 100% 100% 100%
=== === === === === === === === ===
</TABLE>
Overview of the Home Health Care Industry
One of the major factors contributing to the growth of home health care has been
the use of alternate site health care to contain the rising costs of health
care. Consumers of all types, including governmental bodies, managed care
organizations, insurance companies and private payors are recognizing the
savings that can be realized by offering care in the home as opposed to
institutional settings. In addition, an aging population and patients'
preferences for receiving health care in the comfort of the home, combined with
advances in medical technology making the delivery of sophisticated treatments
in the home a reality, are contributing to the continued growth of the home
health care industry.
Managed care organizations have become important factors in the home health
market and have exerted pricing pressure on the providers of home health care
services. Such pressure has negatively impacted the profit margins of home
health care producers. In addition, as the managed care organizations continue
to grow, they may show a preference to deal only with those home health care
service providers who can offer a comprehensive range of services throughout the
managed care organizations' areas of operations. In response, what once was a
very fragmented health care industry is undergoing a wave of consolidation.
During recent years, a number of companies have been offering on-line access to
pharmaceutical products. On-line pharmacies are particularly useful in providing
medications for chronic diseases both intravenous, as well as orals, which will
help grow the market opportunity.
Specialty Pharmaceuticals
Specialty pharmaceuticals are drugs that are used on a recurring basis to treat
certain chronic and potentially life threatening diseases, are administered
through intravenous and injection; and require temperature control or other
specialized handling as part of their distribution process. The Company provides
services that address the needs of patients with the following diseases,
Gaucher's disease, Hemophilia, Multiple Sclerosis, Crohn's disease, respiratory
diseases in pediatric patients and growth hormone disorders.
Intravenous Infusion Therapy
The Company's infusion therapy principally involves the intravenous
administration of nutrients, antibiotics or other medications to patients in
their homes, often as a continuation of treatment initiated in the hospital. The
Company believes the primary factors contributing to the growth of the
non-hospital infusion therapy market have been health care cost containment
pressures, incentives by third party payors to use home care, rapid growth of
the elderly population and increased acceptance of home infusion therapy by the
medical community and patients. Additionally, the number of therapies that can
be administered safely outside the hospital has increased significantly in
recent years because of technological innovations such as more sophisticated
portable infusion control devices, implantable injection ports, new vascular
access devices and advances in drug therapy. Consequently, more infections and
diseases that would otherwise have required patients to be hospitalized are now
treated without hospitalization.
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Before accepting a patient for infusion therapy, the Company consults with the
physician or clinician and hospital personnel in assessing the patient's
specific medical needs and suitability for home infusion therapy. This process
includes an assessment of the patient's physical condition as well as social
factors such as the stability of the patient's home life and the availability of
family members or others who can assist in the administration of the patient's
infusion therapy. Once the patient is accepted for therapy, the Company provides
training and education to the patient and his family or others relating to
proper infusion techniques, care and use of equipment, care of infusion sites,
and other aspects of the patient's infusion therapy. Infusion therapy equipment,
consisting primarily of poles and pumps, is owned or leased by the Company and
provided to patients along with other services.
Throughout the course of treatment, all prescribed drugs and solutions are
delivered directly to the patient's home or to an Infu-Tech credentialed
subacute care facility. In approximately 90% of the cases, the Company's own
pharmacies provide the prescribed drugs, solutions and supplies. Due to
geography, patients who cannot be adequately serviced through a Company-owned
pharmacy are covered by one of two satellite pharmacies. The Company maintains
contact with the patient and the patient's physician in order to monitor and,
when directed by the physician, refine the patient's plan of care. The Company's
nursing and pharmacy services are available on-call 24 hours a day for
consultation, home visits and special prescription needs.
A registered nurse clinical-coordinator follows each case and monitors the
therapy with the patient, the nurses assigned to the case and the patient's
physician. Billing information is coordinated at a central billing department
which bills the appropriate payor and tracks payments.
The Company arranges with nursing homes and other subacute facilities to supply
infusion and other subacute therapies to patients admitted on a short-term
basis.
Contract Services
Since 1990, the Contract Services unit has offered an expanding number of
products to patients in nursing homes and other health care institutions, and it
expects to offer additional products, embodying advances in health care
technology, in the future. On the other hand, changes in reimbursement
regulations or interpretations have led the Contract Services unit to reduce
sales of some products in the past and may do so in the future.
Products and services are provided through arrangements with the long term care
facilities for specific residents' use. Generally, the Company bills a third
party payor, principally Medicare, on behalf of the individual resident. The
resident is responsible for any charges that are not paid by third party payors.
A majority of the products and services the Company provided to residents of
long term care facilities involved enteral nutrition therapy. The Company
markets a variety of products when they are eligible for reimbursement under
Medicare and other programs. These include, in addition to enteral feeding,
parenteral feeding, medical/surgical products, wound care products, urological
products and other supplies.
As part of providing its products and services to residents in long term care
facilities, the Company handles the procedures for obtaining reimbursement from
Medicare and other third party payors for these products and services.
The Company's sales representatives call upon long term care facilities within
their respective geographical territories to review the medical status of the
facilities' residents in order to determine the needs of individuals for the
products and services provided by the Company. Since most of the residents
participate in the Medicare program, the representatives review insurance
coverage and the appropriateness of the products and services under Medicare
reimbursement regulations. The sales representatives are responsible for
processing the paperwork for billing by the central billing department.
Orders for products and services are processed through the customer service
department at the Company's corporate offices in Carlstadt, New Jersey and
shipped from the Company's Carlstadt warehouse. The Company primarily uses its
own trucks for local (New York-New Jersey) deliveries and common carriers for
deliveries outside the local area.
Reimbursement for Services
The Company is reimbursed for its products and services by Medicare, Medicaid,
private payors (private insurance companies, self-insured employers, health
maintenance organizations, other managed care systems and patients) and other
third party sources. Prior to accepting a patient, the Company's reimbursement
specialists determine the availability and amount of third party coverage and,
thereafter, the Company processes all payment claims on behalf of the patient.
5
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Most of the Company's contract services revenues result from Medicare
reimbursement. The Company has more than fifteen years' experience in billing
Medicare. Medicare provides reimbursement for 80% of the amounts shown on fee
schedules it has developed. The remaining 20% co-insurance portion is not paid
by Medicare, although in most cases, Medicaid reimburses the remaining 20% for
"medically indigent" patients; in other cases, the Company bills other third
party payors or patients responsible for co-insurance reimbursement. The Company
often has difficulty collecting the 20% co-insurance portion of charges for
Medicare-eligible items, particularly when there is no third party reimbursement
and these sums must be collected directly from residents. The Company actively
pursues the residents or guarantors for this payment, and where necessary uses
legal action. Inability to collect the 20% co-insurance portion of bills
contributes to the Company's provision for uncollectible accounts.
The Company also bills private payors (primarily private insurance companies,
self-insured employers, health maintenance organizations and managed care
systems), which generally pay for services and products based upon contracted
rates or "reasonable and customary" charges. The Company's billing specialists
also work closely with these payors to maximize reimbursement. Private payors
have been increasingly concerned about cost containment and often seek to
negotiate lower rates directly with providers, including the Company.
The following table details the sources of payments to the Company during the
twelve months ended June 30, 2000:
Home
Infusion/
Specialty Contract Total
Pharmaceuticals Services Revenues
--------------- -------- --------
Medicare...................... 3% 80% 20%
Private Pay................... 91% 2% 75%
Medicaid...................... 6% 18% 5%
--- --- ---
100% 100% 100%
=== === ===
Sales and Marketing
The Company's principal sources of patient referrals are health maintenance
organizations, physicians, hospital discharge planners, other hospital
officials, nursing homes, insurance companies and other managed care systems.
The Company's products and services are marketed through its sales force and
clinicians. The Company's sales force is responsible for establishing and
maintaining referral sources. As of June 30, 2000, the sales force included one
sales representative, who reports to a regional manager, and five employees who
have both sales and clinical responsibilities. Sales employees receive a base
salary plus commissions based on revenues. The Company conducts regular sales
training programs, intended to enable its sales force to generate more revenue
from current and new sources of patient referrals and to assist sales employees
in targeting and developing new revenue sources. The Company has also begun
marketing its products and services online through its subsidiary Smartmeds.com
at URL www.Smartmeds.com. The site features specialty pharmaceuticals, medical
products, health care and disease management information and patient interaction
with medical professionals.
The "Infu-Tech" trademark is registered and is established in the areas in which
the Company does business.
Suppliers
The Company purchases drugs and other materials and leases equipment from many
suppliers. The Company believes there are alternative sources for virtually all
the supplies and equipment it requires except Cerezyme. The Company has a
distribution agreement with Genzyme. The Company is attempting to negotiate new
terms which will enable it to distribute those products at an adequate profit
level. If it cannot do that, the Company may have to discontinue selling
Cerezyme.
We focus on a limited number of complex and expensive drugs that serve small
patient populations.
Our agreements with these suppliers are short-term and cancelable by either
party without cause.
6
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Competition
The segments of the health care market in which the Company operates are highly
competitive and are becoming more competitive. In each of its lines of business
there are relatively few barriers to entry, a limited number of national
providers, as many of the large national providers have recently merged, and
numerous regional and local providers. The principal competitors for sales to
residents in long term care facilities are local providers of health care
products and the operators of the facilities themselves. All of the drugs,
supplies and services that we provide are also available from our competitors.
Our current competitors include other specialty pharmacy distributors; specialty
pharmacy divisions of wholesale drug distributors; pharmacy benefit management
companies; home infusion therapy companies; and other alternative site
healthcare providers.
Many of our competitors have substantially greater resources and more
established operations and infrastructure than we have. We are particularly at
risk from any of our significant suppliers deciding to pursue its own
distribution and services and not outsource these needs to companies like us. A
significant factor in effective competition will be an ability to maintain and
expand relationships with managed care companies, pharmacy benefit managers and
other payors who can effectively determine the pharmacy source for their
enrollees.
The competitive factors most important in the Company's lines of business are
quality of care and service, on-time delivery, reputation with referring health
care professionals, ease of doing business with the provider, ability to develop
and maintain the confidence of potential sources of patient referrals and price
of service. Infusion therapy is being affected by increasing availability of
oral medications which were previously only available as intravenous infusion
drugs. Some competitors in the Company's lines of business have also attempted
to enhance sales by entering into joint ventures or other financial
relationships with potential referral sources. Increasingly stringent, and
increasingly enforced, laws prohibiting remuneration between health care
providers have reduced these arrangements as a competitive factor. The Company
believes that it competes effectively in each of its service areas with respect
to all of the above factors. Some of the Company's current and potential
competitors have or may obtain significantly greater financial and marketing
resources than the Company. It is likely that the Company will encounter
increased competition in the future, which could limit the Company's ability to
maintain or increase its market share and could adversely affect the Company's
operating results. Other types of health care providers, including hospitals,
physician groups and home health agencies, have entered, and may continue to
enter, the Company's lines of business.
Potential Liability and Insurance
Participants in the health care market are subject to lawsuits based upon
alleged malpractice, product liability, negligence or similar legal theories,
many of which involve large claims and significant defense costs. The Company
could be subject to such suits. However, to date the Company has not been
subject to a significant lawsuit by a purchaser of its products or services. The
Company maintains general liability insurance, including insurance against
professional and products liability, with excess coverage limits of $10 million.
The Company's general insurance policy provides coverage on an "occurrence"
basis and is subject to annual renewal. A successful claim against the Company
in excess of the applicable insurance coverage could have a material adverse
effect upon the Company's business and results of operations. Claims against the
Company, regardless of their merit or eventual outcome, also may have a material
adverse effect upon the Company's reputation. There can be no assurance that the
coverage limits of the Company's insurance policies will be adequate. While the
Company has been able to obtain liability insurance in the past, such insurance
varies in cost, is difficult to obtain and may not be available in the future on
acceptable terms or at all.
Government Regulation
Health care is an industry subject to extensive regulation and frequent
regulatory change. Changes in the law or new interpretations of existing law can
have a dramatic effect on permissible activities, the relative cost associated
with doing business and the amount of reimbursement by government and third
party payors, such as Medicare and Medicaid. Charges under government programs
are also subject to audit. A reduction in coverage or payment rates by third
party payors, or significant audit adjustments, could have a material adverse
effect on the Company's business and results of operations.
7
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The Federal government and each of the states in which the Company currently
operates regulate some aspects of the Company's business. In particular, the
operations of the Company's branch locations are subject to Federal and state
laws. The Company's operations also are subject to state laws governing
pharmacies, nursing services and certain types of home health agency activities.
Certain of the Company's employees are subject to state laws and regulations
governing the ethics and professional practices of people providing various
therapies, pharmacy and nursing. Certificates of need, permits or licenses may
be required for certain business activities and may be restricted or otherwise
difficult to obtain. The Company believes it and its employees have all
certificates of need, permits and licenses which are required for the business
currently being conducted by the Company. The failure to obtain, renew or
maintain any of the required regulatory approvals or licenses could adversely
affect the Company's business.
Pharmacies and pharmacists must obtain state licenses to operate or dispense
drugs. Pharmacies must also obtain licenses in some states to operate and
provide goods and services to residents of those states. If we are unable to
maintain our licenses or states place burdensome restrictions or limitations on
non-resident pharmacies, this could limit or affect our ability to operate in
some states which could adversely impact our business and results of operations.
There are Federal laws which generally prohibit any remuneration in return for
the referral of Medicare or Medicaid patients, and prohibit the referral of any
Medicare or Medicaid patient by a health care practitioner to a provider in
which the practitioner has an ownership or financial interest. In addition, the
Federal government and several states in which the Company operates have laws
that prohibit financial arrangement, certain direct or indirect payments or
fee-splitting arrangements between health care providers. Increased attention
has been paid recently to enforcement of these laws and regulations. Possible
sanctions for failure to comply with these laws and regulations include
exclusion from government programs, loss of license and civil and criminal
penalties.
The Department of Health and Human Services recently proposed regulations
implementing the Administrative Simplification provision of the Health Insurance
Portability Accountability Act concerning maintenance, transmission and security
of electronic health information, particularly individually identifiable
information. The new regulations, when enacted will require development and
implementation of security and transaction standards for all electronic health
information and impose significant use and disclosure obligations on entities
that send or receive individually identifiable electronic health information.
Failure to comply with these regulations, or wrongful disclosure of confidential
patient information could result in the imposition of administrative or criminal
sanctions, including exclusion from the Medicare and state Medicaid programs.
Prospective payment which was introduced January 1, 1999 and redefined
reimbursement for nursing homes from Medicare may have an effect on the
Company's potential to gain new business for its Contract Services division.
However, to date it has not had an impact on our business.
Risk Factors
We and our businesses are subject to a number of very substantial risks,
including the following:
o Reliance on development of biopharmaceutical products.
Our business is highly dependent on biopharmaceutical companies'
development of drugs of the type we provide and their ability to educate
doctors and others about the benefits of those drugs. We could be hurt by
anything, including changes in the Federal Drug Administration approval
process or governmental restrictions on prices of drugs, which would reduce
or delay biopharmaceutical companies development or marketing of drugs we
can provide.
o Reliance on relationships with Genzyme.
Although there are multiple sources for most of the supplies and equipment
we require, we obtain a significant portion of our revenues by distributing
Cerezyme, a treatment for Gaucher's disease manufactured by Genzyme
Corporation, under a distribution agreement with Genzyme. We have for some
time been attempting to negotiate new terms with Genzyme including a higher
distribution fee. If we cannot do that, we may have to discontinue selling
Cerezyme. That would materially reduce our revenues, but would not
necessarily adversely affect our net operating results.
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o Relationship conflict with affiliate.
Kuala Healthcare, Inc. (KUAL) owns 52% of the stock of the Company, and the
Company's directors excluding Mr. Glickman are also directors of Kuala. The
Company's directors may be influenced by Kuala's cash needs in deciding
whether the Company should declare dividends.
o Competition
The segments of the health care market in which we operate are highly
competitive and are becoming more competitive. In each of our lines of
business, there are relatively few barriers to entry. Our competitors
include some national providers, which have been acquiring regional and
local providers. However, our principal competitors, particularly for sales
to residents in long term care facilities, are local providers of health
care products and the operators of the facilities themselves. We would face
a particular problem if our suppliers decided to pursue their own
distribution, rather than outsourcing their needs to companies like us.
Also, Infusion Therapy is being affected by increasing availability in oral
form of medications which previously were available only by intravenous
infusion.
o We could be substantially harmed by health care cost containment efforts.
A substantial portion of our revenues come from governmental and
non-governmental third-party payors. They have been under great pressure to
contain costs. We have been, and may continue to be, materially and
adversely affected by cost containment trends within the health care
industry. We also have been, and may continue to be, substantially affected
by financial difficulties suffered by non-governmental payors, such as
managed care organizations and private physician practices.
o Our cash flows are substantially affected by payment delays.
Even at instances in which we are able to charge what we believe are
adequate prices, we have encountered substantial delays in receiving
payments from third party payors. Our outstanding accounts receivable have
increased from 158 days' sales at June 30, 1999 to 180 days' sales at June
30, 2000. The long time it takes us to get paid imposes severe strains on
our cash resources and has required us to delay payments to our suppliers.
This has, among other things, impaired our relationships with some of our
suppliers.
o Our business will suffer if we lose relationships with managed care
organizations and other third party payors.
We are highly dependent on reimbursement from managed care organizations
and other non-governmental payors. Many organizations seek to limit the
number of providers that supply drugs to their members. They sometimes
require that we and our competitors bid for contracts. Failure to maintain
our relationships with significant managed care organizations or similar
third party payors could seriously impair our business and results of
operations.
o Possible Liability.
Participants in the health care market are subject to lawsuits based upon
alleged malpractice, product liability, negligence or similar legal
theories, many of which involve large claims and significant defense costs.
To date we have not been subject to a significant lawsuit by a purchaser of
our products or services, but we could be. We maintain insurance against
professional and product liability with excess coverage limits of
$10,000,000. However, a successful claim substantially in excess of that
amount could have a materially adverse effect upon us. Further, our
insurance policy is subject to annual renewal, and it may not be possible
to obtain liability insurance in the future on acceptable terms or at all.
Also, claims against us, regardless of their merit or eventual outcome, may
have a material adverse effect upon our reputation.
o Impacts of government regulation.
The health care industry is subject to extensive regulation and frequent
regulatory changes. Changes in the law or new interpretations of existing
law can have a dramatic effect on what we can do, our cost of doing
business and the amount of reimbursement we receive from governmental third
party payors, such as Medicare and Medicaid. Also, we could be hurt by
interpretations of what the appropriate charges are under government
programs which affect audits of what we charge.
9
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We may need certificates of need, permits or licenses for some of our
activities, and they may be restricted or otherwise difficult to obtain. We
believe we have all the certificates of need, permits and licenses which
are required for our current business. However, failure to obtain, renew or
maintain required regulatory approvals or licenses could adversely affect
us.
Federal laws prohibit remuneration in return for the referral of Medicare
or Medicaid patients. In addition, the Federal government and several
states have laws that prohibit fee splitting arrangements between health
care providers. Increased attention has been paid recently to enforcement
of these laws and regulations. Possible sanctions for failure to comply
with them include exclusion from government programs, loss of license and
civil and criminal penalties. Because we try hard to comply with these laws
and regulations, we believe we benefit from them, rather than being hurt by
them. Nonetheless, we could be materially injured if we unintentionally
violate them.
Our SmartMeds.com activities could be significantly affected by recently
proposed regulations implementing the Administrative Simplification
provision of The Health Insurance Portability and Accountability Act
concerning maintenance, transmission and security of electronic health
information, particularly about identifiable individuals. Failure to comply
with these regulations could result in administrative or criminal
sanctions, including exclusion from the Medicare and Medicaid programs.
The prospective payment system, which was introduced in January 1999 and
redefined reimbursement for nursing homes under Medicare, could affect our
ability to gain new business for our Contract Services Division, although
it does not seem to have done so to date.
o A number of factors could affect the development of Smartmeds.com.
Our ability to develop Smartmeds.com and its wireless applications will be
affected by a number of factors, including:
- The acceptance of the Internet and wireless devices as means for
accessing health services.
- The ability of our business development and sales personnel
effectively to sell our electronic services.
- The willingness of managed care organizations, clinical research
organizations and other health care providers to use our Internet and
wireless services.
- The willingness of users to provide personal health information for us
to use in rendering Internet or wireless health care services.
- Changes in government regulations regarding privacy of health
information.
- Our need to rely on technology companies to develop and maintain the
applications we will be offering.
- The ability of wireless carriers to provide coverage that allows
information to be received any time and any place.
o Possible liability resulting from our Smartmeds activities.
We will be obtaining content, commerce information and personal health
information from third parties. When we integrate and distribute this
information over the Internet and wireless devices, we may become liable
for the data that is transmitted as well as the timely delivery of the
data. Smartmeds expects to require users to sign a disclaimer which
acknowledges that Smartmeds' services will be only a supplement to their
health routine and that we will not be responsible for users' compliance
with medication programs and other health requirements. Nonetheless, we may
be subject to claims if information we provide is inaccurate (whether or
not that is our fault) or if information does not reach users in a timely
manner.
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o We have only very limited access to capital.
In order to implement our growth strategy, we will need substantial capital
resources, including access to short-term and long-term indebtedness.
Currently, we have only a $1.5 million working capital line, and our
operating results during the past several years may make it difficult for
us to raise additional financing through banks, in public markets or
otherwise.
Executive Officers of the Company
The following is a list of executive officers of the Company, together with a
brief description of the business experience for the last five years of the
officers who are not directors. A brief description of the business experience
of officers who are directors is included in Item 10, "Directors".
Name Office Age
---- ------ ---
Jack Rosen Chairman of the Board of Directors, 54
Chief Executive Officer
Daniel Rosen President 26
Joseph Rosen Vice President, Assistant Secretary 49
and Director
Frederick Schmidt Chief Financial Officer 54
Israel Ingberman Secretary, Director 54
Daniel Rosen joined the company as President in August of 2000. Prior to that he
had served as the Director of Business Development and Commerce at the Walt
Disney Internet Group. While at The Walt Disney Internet Group, Rosen created
and implemented business plans and online strategies, negotiating distribution,
commerce and content partnerships for properties including ABCNEWS.com,
ESPN.com, Disney.com, Family.com and Go.com. Rosen is a graduate of Harvard
University. His father, Jack Rosen, is the Chairman of the Board of Infu-Tech.
Frederick Schmidt joined the company as Chief Financial Officer in October 1999.
Prior to that he held positions as Chief Financial Officer of Programmers
Paradise, Kroll Associates, Hark Environmental, and Controller of McKinsey & Co.
Schmidt has an MBA in Finance and a BS and MS in Chemical Engineering.
Employees
As of June 30, 2000, the Company had approximately 98 employees. Of these
employees, four were in executive capacities (in addition to executives of Kuala
Healthcare, Inc. who render services to the Company), 6 were in sales or service
capacities, five of which also had clinical responsibilities, approximately 48
were in clinical or pharmaceutical capacities and the remainder were
administrative or distribution personnel. The Company's employees are not
currently represented by a labor union or other labor organization. The Company
believes that its employee relations are good.
Item 2. Properties.
The Company maintains corporate offices in Carlstadt, New Jersey and it leases
three branch offices for its branch operations. Offices provide a home base for
salespeople, clinicians and administrative and technical personnel, as well as
storage for the Company's inventory of equipment and supplies. In addition, the
Company maintains pharmacies in Memphis, Tennessee, and Woburn, Massachusetts
and a warehouse in Carlstadt, New Jersey. The Company's pharmacy previously
located in Moonachie, New Jersey is in the process of being relocated to
Carlstadt, New Jersey. Lease payments for the corporate office, three branch
offices, the central pharmacy, the Memphis and Woburn pharmacies, and the
warehouses total $27,520 per month. In communities which cannot be serviced from
a Company office, staffing and administration is handled by a representative
residing in the area. The Company believes its facilities are adequate for its
current needs.
11
<PAGE>
Item 3. Legal Proceedings.
The Company is subject to legal proceedings and claims which arise in the
ordinary course of its business. The Company does not believe any litigation to
which it is a party is likely to have a material adverse effect upon its
financial condition or results of operations.
Item 4. Submission of Matters to a Vote of Security Holders.
No matters were submitted to the vote of security holders during the year ended
June 30, 2000.
12
<PAGE>
PART II
Item 5. Market for the Registrant's Common Stock and Related Security Matters.
The high and low last sale prices of the Company Stock reported on the NASDAQ
National Market System with regard to each calendar quarter during 1999 and
through June 30, 2000 were as follows:
High Low
1999:
First Quarter 4.25 1.312
Second Quarter 1.50 .562
Third Quarter 1.68 . 75
Fourth Quarter 2.125 1.00
2000:
First Quarter 20.25 2.75
Second Quarter 8.00 2.00
The Company has not paid any dividends on its Common Stock since shares were
sold to the public in December 1992. Any decision by the Company's Board of
Directors to pay dividends on its Common Stock in the future will be based upon
the Company's earnings, cash flow, capital needs and available funds, and any
other factors the Company's directors deem relevant. Because Kuala Healthcare,
Inc. owns 52% of the stock of the Company, and the Company's directors excluding
Mr. Glickman are also directors of Kuala, the Company's directors may be
influenced by Kuala's cash needs in deciding whether the Company should declare
dividends. Under Delaware law, the Company is only permitted to pay dividends
out of accumulated surplus or the current or prior year's net profits.
As of September 30, 2000, there were 41 holders of record of the Company's
Common Stock.
13
<PAGE>
Item 6. Selected Financial Data.
The following table sets forth selected financial data of the Company and should
be read in conjunction with the consolidated financial statements as of June 30,
2000 and 1999 and for each of the years in the three year period ended June 30,
2000 and the related notes, included elsewhere in this Report.
<TABLE>
<CAPTION>
Years Ended June 30,
--------------------
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Revenues ......................................... $18,653 $25,486 $26,466 $26,003 $24,638
(Loss) income before income taxes ................ (3,419) (1,162) 345 1,615 1,465
(Benefit) provision for income taxes ............. (24) (34) 149 662 270
Net (loss) income ................................ $(3,395) $(1,128) $196 $953 $1,195
(Loss) income per share
Basic (1) ................................ $(1.01) $(.35) $.06 $.30 $.38
Diluted (2) .............................. $(1.01) $(.35) $.06 $.29 $.38
</TABLE>
<TABLE>
<CAPTION>
June 30,
--------
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Accounts receivable (net) ........................ $6,415 $7,799 $6,530 $7,302 $5,669
Total assets ..................................... 11,850 13,798 12,122 11,618
Working capital .................................. (694) 1,258 3,502 5,044 4,696
Total stockholders' equity ....................... 2,339 5,198 6,326 6,101 4,976
</TABLE>
-----------------------
(1) Based on 3,355,221, 3,262,571, 3,125,666, 3,192,797, and 3,168,037 shares
outstanding in the years ended in June 30, 2000, 1999, 1998, 1997 and 1996.
(2) Based on 3,355,221, 3,262,571, 3,328,213, 3,231,706, 3,210,407 diluted
shares outstanding in the years ended in June 30, 2000, 1999, 1998, 1997 and
1996.
14
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Results of Operations
Twelve Months Ended June 30, 2000 Compared with Twelve Months Ended
June 30, 1999.
Total revenues decreased by $6,833,000, or 26.8% from $25,486,000 in 1999 to
$18,653,000 in 2000, primarily due to a decrease in Cerezyme revenues. In
addition, the Company exited from contractual arrangements that were not meeting
profitability standards. The Company is currently in the process of attempting
to negotiate revised terms for its contract with Genzyme, including a higher
distribution fee. If it cannot accomplish this, the Company may have to
discontinue selling Cerezyme.
Costs of medical and nutritional products sold to patients and other customers
decreased by $4,156,000 or 26.2% from $15,855,000 in 1999 to $11,699,000 in
2000. As a percentage of total revenues, medical and nutritional product costs
remained relatively consistent from 1999 to 2000.
Total personnel costs decreased by $1,166,000 or 19.4% from $6,008,000 in 1999
to $4,842,000 in 2000, primarily due to a change in the business mix to include
more sales of specialty pharmaceuticals which require less nursing and pharmacy
time and to the closing of the Philadelphia pharmacy operations.
Selling, general and administrative expenses in 2000 decreased by $483,000, or
14.4% from $3,355,000 in 1999 to $2,872,000 in 2000. The main reasons for the
reduction were the closing of a facility and a reduction in general and
administrative costs associated with lower personnel.
Management fees to Kuala Healthcare, Inc. of $288,000 in 2000 and $390,000 in
1999 were approximately 1.6% of revenues in both years.
After an in-depth management review of the aging of it's accounts receivable,
the Company increased its allowance for uncollectible accounts by $1,514,000 due
to a slow down in collections in the home health care industry.
Depreciation and amortization expense increased from $84,000 in 1999 to $221,000
in 2000 due to the purchase of computer equipment.
Other expenses (income) of $386,000 in 2000 and ($7,000) in 1999 consisted of
interest income of $222,000, interest expense of $608,000, including $318,000 of
interest to Genzyme and net interest income of $7,000 in 1999.
The net loss in 2000 was $3,395,000 or $1.01 (diluted) per share compared to a
net loss in 1999 of $1,128,000, or $.35 (diluted) per share. The loss before
taxes for the twelve months ended June 30, 2000 was $3,419,000 compared to
$1,162,000 for the comparable prior period. The change was due primarily to a
lower volume of business.
A number of Federal and State income tax returns for previous years were not
filed when due. All prior year returns will be completed and filed shortly. The
Company believes no Federal taxes are due. There are several claims for
penalties and interest associated with late filings, which have been, or will be
appealed.
Twelve Months Ended June 30, 1999 Compared with Twelve Months Ended
June 30, 1998.
Total revenues decreased by $980,000, or 3.7%, from $26,466,000 in 1998 to
$25,486,000 in 1999, primarily due to a decrease in contract services division
revenues. The decrease in infusion revenues is due to the decrease in Cerezyme
revenues. 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 Cerezyme.
15
<PAGE>
Management's Discussion and Analysis of Financial Condition and Results of
Operations.
Costs of medical and nutritional products sold to patients and other customers
increased by $994,000 or 6.7% from $14,861,000 in 1998 to $15,855,000 in 1999.
As a percentage of total revenues, medical and nutritional product costs
increased from 56% in 1998 to 62% in 1999. The business mix of the Company has
changed to reflect more sales of specialty pharmaceuticals like Cerezyme and
Synagis. These products have a higher cost of sales compared to other company
products.
Total personnel costs decreased by $1,150,000, or 16% from $7,158,000 in 1998 to
$6,008,000 in 1999, primarily due to the realization of efficiencies within the
nursing and pharmacy operations due to the change in the business mix reflecting
more sales of the specialty pharmaceuticals which require less nursing and
pharmacy time and the closing of the Florida Pharmacy operations.
Selling, general and administrative expenses in 1999 increased by $29,000, or 1%
from $3,326,000 in 1998 to $3,356,000 in 1999.
Management fees to Kuala of $390,000 in 1999 and $423,000 in 1998 were 1.6% of
revenues in both years.
After a management review of its existing policies and procedures for estimating
collectability of its accounts receivable, the Company increased its provision
for uncollectable accounts by $610,000. The Company did this because of
difficulties experienced in collecting payments from managed care organizations.
Depreciation and amortization expense decreased from $152,000 in 1998 to $84,000
in 1999 due to retirement of property and equipment.
Other income, expense of ($7,000) in 1999 and $152,000 in 1998 consisted of
interest payments in 1999 and write offs of accounts payable in 1998.
The net (loss) in 1999 was ($1,129,000), or ($.35) (basic) per share compared to
net income in 1998 of $196,000, or $.06 (basic) per share. The (loss) before
taxes for the twelve months ended June 30, 1999 was ($1,163,000) compared to
$345,000 for the comparable prior period. The change was due to a decrease in
revenue, an increase in the cost of medical and nutritional products and higher
provision for uncollectable accounts.
Liquidity and Capital Resources
As of June 30, 2000, the Company had total assets of $11.8 million, working
capital of $(0.7) million and a net worth of $2.3 million. The Company has a
$1.5 million line of credit with Heller Healthcare Financial secured by certain
accounts receivable. As of June 30, 2000, the outstanding loan was $972,000. As
of June 30, 2000 the Company was in default on its loan agreement. The Company's
stockholder equity was $2.3 million versus the $4.0 million requirement. In
addition, the Company had accounts payable greater than 120 days old. The
Company has obtained a waiver from Heller to alleviate the default. After giving
effect to this waiver, the Company is in compliance with the loan covenants. The
agreement with Heller expires on January 1, 2001. The Company is in the process
of renegotiating its agreement with Heller and also exploring alternative
borrowing alternatives.
At June 30, 2000, the Company's net accounts receivable were $6.4 million
compared to $7.8 million, at June 30, 1999. The Company's accounts receivable
from 158 days sales outstanding ("DSO") at June 30, 1999 to 180 DSO at year end.
The 180 DSO is a result of slowed payments from managed care companies.
At June 30, 1999 the Company was owed $2.0 million by five subsidiaries of Kuala
Healthcare, Inc., the Company's 52% 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 Kuala. At June 30, 2000, the Company's net
receivable from those nursing homes increased to $2.2 million due to accrued
interest. In addition, Kuala owes $1.4 million to the Company for Kuala's share
of common expenses paid on behalf of Kuala by the Company.
16
<PAGE>
Management's Discussion and Analysis of Financial Condition and Results of
Operations.
KUAL has 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 also gave 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 Kuala. As of
June 30, 2000 the Company had received $75,000 of the $431,000 from KUAL
required under the agreement. The balance of the amount due in the fiscal year
ended June 30, 2000 was paid subsequently. In September 2000 KUALA's
subsidiaries which operates three of the five nursing home subsidiaries
commenced proceedings under Chapter 11 of the Bankruptcy Code. However, the
Chapter 11 proceedings does not affect Kuala's obligations under the agreement.
The Company no longer sells products to the nursing homes of KUALA's (but does
sell products and services to residents in them).
The Company incurred a $3.4 million loss for 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. Although
the Company had net working capital of $(0.7) million at June 30, 2000, its
current assets included $6.4 million of net accounts receivable. 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.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
In the normal course of business, the Company is exposed to market risks
relating to fluctuations in interest rates.
Interest Rate Risk
As the Company seeks asset based lending financing to maintain its ongoing
operations and sustain its growth, it is exposed to interest rate risk.
Borrowings under the Company's $1.5 million loan and security facility with
Heller Healthcare Financial are sensitive to changes in interest rates as such
borrowings bear interest at one and one half percent above the "Prime Rate of
Interest."
17
<PAGE>
Item 8. Consolidated Financial Statements and Supplementary Data.
The consolidated financial statements required by this item appear beginning at
page F-1.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosures
Not applicable.
Item 10f. Exhibits
Exhibits
The following exhibits are filed with this Report or incorporated
by reference:
3(a) Certificate of Incorporation (1)
3(b) Certificate of Amendment of Certificate of Incorporation (1)
3(C) By-laws (1)
4(a) Specimen of Common Stock Certificate(2)
4(b) Form of Representative's Warrant(1)
10(a) Management and Non-Competition Agreement between Infu-Tech,
Inc. and C.H.A. (1)
10(c) Infu-Tech 1992 Stock Option Plan.(1)
10(d) Distribution Agreement between Infu-Tech, Inc. and Genzyme
Corporation dated November 11, 1994.(3)
10(e) Infu-Tech 1996 Key Employees and Key Personnel Stock Option
Plan. (4)
10(f) Heller Healthcare Financial Loan And Security Agreement. To
be filed by amendment.
21 List of Subsidiaries.
--------------------
(1) Incorporated by reference to Registration Statement File No. 33-50122.
(2) Incorporated by reference to Report on Form 10-K for the year ended
December 31, 1992.
(3) Incorporated by reference to Report on Form 10-K for the year ended
December 31, 1994.
(4) Incorporated by reference to definitive proxy statement dated June
1996.
(b) Reports on Form 8-K filed during the year ended June 30, 1999.
(c) The exhibits to this Report are listed in Item 14(a)(3).
(d) The financial statement schedule required by Regulation S-K which is
excluded from the Annual Report to Stockholders by Rule 14a-3(b)(1) is
listed in Item 14(a)(2).
18
<PAGE>
PART III
Part III Items 10 through 13 are incorporated by reference to a definitive
statement to be filed not later than October 28, 2000.
19
<PAGE>
PART IV
Item 14. Exhibits, Financial Statements, Schedule, and Reports on Form 8-K.
(a) Documents filed as part of this Report.
1. Financial Statements
Listed on Index to Consolidated Financial Statements and Financial
Statement Schedule.
2. Financial Statement Schedules
Listed on Index to Consolidated Financial Statements and Financial
Statement Schedule.
3. Exhibits
The following exhibits are filed with this Report or incorporated
by reference:
3(a) Certificate of Incorporation (1)
3(b) Certificate of Amendment of Certificate of Incorporation (1)
3(C) By-laws (1)
4(a) Specimen of Common Stock Certificate(2)
4(b) Form of Representative's Warrant(1)
10(a) Management and Non-Competition Agreement between Infu-Tech,
Inc. and C.H.A. (1)
10(c) Infu-Tech 1992 Stock Option Plan.(1)
10(d) Distribution Agreement between Infu-Tech, Inc. and Genzyme
Corporation dated November 11, 1994.(3)
10(e) Infu-Tech 1996 Key Employees and Key Personnel Stock Option
Plan. (4)
10(f) Heller Healthcare Financial Loan And Security Agreement. To
be filed by amendment.
21 List of Subsidiaries.
--------------------
(1) Incorporated by reference to Registration Statement File No. 33-50122.
(2) Incorporated by reference to Report on Form 10-K for the year ended
December 31, 1992.
(3) Incorporated by reference to Report on Form 10-K for the year ended
December 31, 1994.
(4) Incorporated by reference to definitive proxy statement dated June
1996.
(b) Reports on Form 8-K filed during the year ended June 30, 1999.
(c) The exhibits to this Report are listed in Item 14(a)(3).
(d) The financial statement schedule required by Regulation S-K which is
excluded from the Annual Report to Stockholders by Rule 14a-3(b)(1) is
listed in Item 14(a)(2).
20
<PAGE>
INFU-TECH, INC.
CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2000, 1999 and 1998
(With Independent Auditors' Report Thereon)
<PAGE>
INFU-TECH INC.
Index to Consolidated Financial Statements and
Financial Statement Schedule
Page
1. Consolidated Financial Statements:
Independent Auditors' Report................................F - 3
Balance Sheets
June 30, 2000 and 1999..............................F - 4
Statements of Operations:
Years Ended June 30, 2000, 1999 and 1998............F - 5
Statements of Stockholders' Equity:
Years Ended June 30, 2000, 1999 and 1998............F - 6
Statements of Cash Flows:
Years Ended June 30, 2000, 1999 and 1998.. F - 7-F - 8
Notes to Consolidated Financial Statements........ F - 9-F - 19
2. Financial Statement Schedule:
Valuation and Qualifying Accounts...........................S - 1
Other schedules are omitted because of the absence of conditions under which
they are required or because the required information is given in the
consolidated financial statements or notes thereto.
<PAGE>
Independent Auditors' Report
The Board of Directors and Stockholders
Infu-Tech, Inc.:
We have audited the consolidated financial statements of Infu-Tech, Inc. and
subsidiaries as listed in the accompanying index. In connection with our audits
of the consolidated financial statements, we also have audited the financial
statement schedule as listed in the accompanying index. These consolidated
financial statements and financial statement schedule are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
consolidated financial statements and financial statement schedule based on our
audits.
We conducted our audits in accordance with the auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Infu-Tech, Inc. and
subsidiaries as of June 30, 2000 and 1999 and the results of their operations
and their cash flows for each of the years in the three-year period ended June
30, 2000, in conformity with accounting principles generally accepted in the
United States of America. Also, in our opinion, the related financial statement
schedule, when considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly, in all material respects, the
information set forth therein.
October 13, 2000
F - 3
<PAGE>
INFU-TECH, INC.
Consolidated Balance Sheets
(Dollars in thousands)
(Except Per Share Data)
<TABLE>
<CAPTION>
June 30,
--------
2000 1999
---- ----
<S> <C> <C>
ASSETS
Cash ....................................................................................... $128 $258
Accounts receivable, net of allowances for uncollectible
accounts of $2,746 and $1,845 .................................................... 6,415 7,799
Accounts receivable from affiliates ........................................................ 1,077 340
Inventories ................................................................................ 310 541
Deferred income taxes ...................................................................... 566 539
Prepaid expenses and other current assets .................................................. 146 381
------- -------
Total current assets ..................................................... 8,642 9,858
Property and equipment, at cost, net of accumulated
depreciation of $843 and $636 .................................................... 508 317
Goodwill, net .............................................................................. 96 110
Accounts receivables from affiliates, non-current .......................................... 2,493 3,063
Other assets ............................................................................... 111 450
------- -------
Total assets ............................................................. $11,850 $13,798
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Short-term debt ............................................................................ $972 $746
Accounts payable ........................................................................... 7,482 7,192
Accrued payroll and related expenses ....................................................... 376 222
Short-term obligation under capital lease .................................................. 121 --
Other current liabilities .................................................................. 385 440
------- -------
Total current liabilities ................................................ 9,336 8,600
Long-term obligation under capital lease ................................................... 175 --
Total liabilities ........................................................ 9,511 8,600
Stockholders' Equity:
Common stock, $.01 par value; 5,000,000 shares authorized;
3,355,221 (2000) and 3,262,571 (1999) issued ............................. 34 33
Additional paid-in capital ....................................................... 3,663 3,128
Retained earnings ................................................................ (1,285) 2,110
Treasury stock, at cost; 39,300 shares ........................................... (73) (73)
------- -------
Total stockholders' equity ............................................... 2,339 5,198
------- -------
Commitments and contingencies
Total liabilities and stockholders' equity ....................................... $11,850 $13,798
======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
F - 4
<PAGE>
INFU-TECH, INC.
Consolidated Statements of Operations
(Dollars in thousands)
(Except Share and Per Share Data)
<TABLE>
<CAPTION>
Years Ended June 30,
--------------------
2000 1999 1998
---- ---- ----
<S> <C> <C> <C>
Revenues ........................................................................ $18,653 $25,486 $26,466
--------- --------- ---------
Costs and Expenses:
Medical and nutritional product ...................................... 11,699 15,855 14,861
Personnel ............................................................ 4,842 6,008 7,158
Compensation expense - administrative ................................ 250 -- --
Selling, general and administrative .................................. 2,872 3,355 3,326
Provision for uncollectible accounts ................................. 1,514 963 353
Management fees to majority shareholder .............................. 288 390 423
Interest expense ..................................................... 318 -- --
Depreciation and amortization ........................................ 221 84 152
Other expense (income), net .......................................... 68 (7) (152)
--------- --------- ---------
22,072 26,648 26,121
--------- --------- ---------
(Loss) income before income taxes ............................................... (3,419) (1,162) 345
Income tax (benefit) provision .................................................. (24) (34) 149
--------- --------- ---------
Net (loss) income .................................................... $(3,395) $(1,128) $196
========= ========= =========
(Loss) earnings per share
Basic ................................................................ $(1.01) $(0.35) $0.06
--------- --------- ---------
Diluted .............................................................. $(1.01) $(0.35) $0.06
--------- --------- ---------
Basic weighted average number of common
shares .............................................................. 3,355,221 3,262,571 3,215,666
--------- --------- ---------
Diluted weighted average number of common
shares ............................................................... 3,355,221 3,262,571 3,328,213
========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
F - 5
<PAGE>
INFU-TECH, INC.
Consolidated Statements of Stockholders' Equity
Years Ended June 30, 2000, 1999 and 1998
(Dollars in thousands)
<TABLE>
<CAPTION>
Additional Total
Common Paid-in Retained Treasury Stockholders'
Capital Earnings Stock Equity
------- -------- ----- ------
<S> <C> <C> <C> <C> <C>
Balance, June 30, 1997 ....................... $32 $3,100 $3,042 $(73) $6,101
Net income ................................... -- -- 196 -- 196
Warrants issued .............................. -- -- -- -- --
Stock issued ................................. -- -- -- -- --
Exercise of options .......................... 1 28 -- -- 29
--- ------ -------- ----- ------
Balance, June 30, 1998 ....................... $33 $3,128 $3,238 $(73) $6,326
=== ====== ======== ===== ======
Net loss ..................................... -- -- (1,128) -- (1,128)
Warrants issued .............................. -- -- -- -- --
Stock issued ................................. -- -- -- -- --
Exercise of options .......................... -- -- -- -- --
--- ------ -------- ----- ------
Balance, June 30, 1999 ....................... $33 $3,128 $2,110 $(73) $5,198
=== ====== ======== ===== ======
Net loss ..................................... -- -- (3,395) -- (3,395)
Exercise of options .......................... 1 535 -- -- 536
--- ------ -------- ----- ------
Balance, June 30, 2000 ....................... $34 $3,663 $(1,285) $(73) $2,339
=== ====== ======== ===== ======
</TABLE>
See accompanying notes to consolidated financial statements.
F - 6
<PAGE>
INFU-TECH, INC.
Consolidated Statements of Cash Flows
(Dollars in thousands)
<TABLE>
<CAPTION>
Years Ended June 30,
--------------------
2000 1999 1998
---- ---- ----
<S> <C> <C> <C>
Operating activities:
Net (loss) income .................................................................... $(3,395) $(1,128) $ 196
Adjustments to reconcile net (loss)/income to net cash used in by operating
activities:
Amortization expense ......................................................... 14 15 35
Depreciation expense ......................................................... 207 69 117
Provision for uncollectible accounts ......................................... 1,514 963 353
Provision for deferred income taxes .......................................... (24) 12 151
Increase (decrease) from changes in:
Accounts receivable .......................................................... (130) (2,232) (809)
Accounts receivable from affiliates .......................................... (737) 97 (137)
Inventories .................................................................. 231 911 202
Prepaid expenses and other current assets .................................... 235 (216) 200
Receivables from affiliates, non-current ..................................... 570 (874) (698)
Other assets ................................................................. 339 (310) (17)
Taxes payable ................................................................ -- (194) (255)
Accounts payable ............................................................. 290 2,135 769
Accrued payroll and related expenses ......................................... 151 (213) (64)
Other current liabilities .................................................... (55) 358 (75)
----- ------- -------
Net cash used in by operating
activities ................................................................... (790) (607) (32)
----- ------- -------
Investing activities:
expenditures for property and equipment .............................................. (398) (16) (243)
Financing activities:
Net proceeds from short-term debt .................................................... 226 746 --
Payment of capital lease obligation .................................................. 296 (28) (103)
Proceeds from exercise of options .................................................... 536 -- 29
----- ------- -------
Net cash provided by (used in)
financing activities ....................................................... 1,058 718 (74)
----- ------- -------
</TABLE>
(Continued on next page)
F-7
<PAGE>
INFU-TECH, INC.
Consolidated Statements of Cash Flows
(Dollars in thousands)
(Continued from previous page)
<TABLE>
<CAPTION>
Years Ended June 30,
--------------------
2000 1999 1998
---- ---- ----
<S> <C> <C> <C>
Net increase (decrease) in cash and cash
equivalents ......................................................... (130) 95 (349)
Cash and cash equivalents, beginning of
the year ............................................................ 258 163 512
----- ----- -----
Cash and cash equivalents, end of the year .............................. $ 128 $ 258 $ 163
===== ===== =====
Supplemental disclosures of cash flow data:
Income tax paid ..................................................... $ -- $ -- $ 154
===== ===== =====
Interest paid ....................................................... $ 182 $ 81 $ --
===== ===== =====
</TABLE>
F - 8
<PAGE>
INFU-TECH, INC.
Notes to Consolidated Financial Statements
(Dollars in thousands except per share amounts)
June 30, 2000, 1999 and 1998
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. It has recently launched an Internet website,
Smartmeds.com, through which it intends to provide health management
applications through wireless devices such as cellular phones, PDA's and
pagers. The Company is 52% owned by Kuala Healthcare, Inc. (KUAL) formerly
Continental Health Affiliates, Inc. The remaining 48% of the Company's
equity is publicly traded.
The Company is subject to certain risks and uncertainties as a result of
changes that could occur in the healthcare industry, including Medicare and
Medicaid reimbursement rates.
Liquidity
The Company experienced a $3,395 loss 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.
2. Significant Accounting Policies
Basis of Consolidation
The accompanying financial statements include all wholly owned
subsidiaries. Intercompany transactions are eliminated in consolidation.
Accounting Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that effect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reported period. Actual results could differ from those
estimates.
Cash and Cash Equivalents
The Company classifies all highly liquid investments with maturities of
three months or less when purchased as cash equivalents.
Revenue Recognition
Revenue is reported at the net amounts estimated to be realized from
patients, third party payors and others for services rendered. The Company
receives payments for services to eligible patients under Medicare and
various state Medicaid programs. Approximately 25% of total revenues were
derived from such medical assistance programs in each of the three years
ended June 30th, 1998, 1999, and 2000. Revenues under these programs are
based upon government approved rates which are subject to audit. In the
opinion of management, retroactive adjustments, if any, would not be
material to the Company's financial position or results of operations.
Certain of the Company's revenues are earned based upon fixed monthly
payments for each member of a particular health plan. The Company monitors
its costs for services provided under this agreement to insure that they
are appropriately matched with the revenues earned.
F-9
<PAGE>
INFU-TECH, INC.
Notes to Consolidated Financial Statements
(Dollars in thousands except per share amounts)
June 30, 2000, 1999 and 1998
Inventories
Inventories, which consist of medical and nutritional products, are valued
at the lower of cost (first-in, first-out method) or market.
Property and Equipment
Property and equipment, which consists primarily of equipment, furniture
and fixtures, computer equipment and leasehold improvements, is depreciated
using the straight-line method at rates that charge the cost of the assets
over the periods of expected use. The range of useful lives is primarily
three to five years.
Income Taxes
Income taxes are provided for on a liability method whereby deferred tax
assets are recognized for deductible temporary differences and operating
loss carry forwards and deferred tax liabilities are recognized for taxable
temporary differences. Temporary differences are the differences between
the reported amounts of assets and liabilities and their tax bases.
Deferred tax assets are reduced by a valuation allowance when, in the
opinion of management, it is more likely than not that some portion or all
of the deferred tax assets will not be realized. Deferred tax assets and
liabilities are adjusted for the effects of changes in tax laws and rates
on the date of enactment.
Earnings Per Share
Basic and diluted earnings per share is based on the net income for the
relevant period divided by the weighted average number of shares issued and
outstanding during the period. For purposes of the diluted earnings per
share calculation, the exercise or conversion of all dilutive potential
common shares is included, for the year ended June 30, 1998. There is no
dilutive effect on common shares due to losses incurred for the years ended
June 30, 2000, and 1999.
Employee Stock Options
The Company accounts for its stock option plans in accordance with the
provisions of the Accounting Principles Board's Opinion No. 25 (APB 25),
"Accounting for Stock Issued to Employees" and related interpretations.
Effective July 1, 1996 the Company adopted the Financial Accounting
Standards Board's Statement of Financial Accounting Standard No. 123 (SFAS
123), "Accounting for Stock Based Compensation." Accordingly, the Company
has elected to provide pro forma disclosures as required by SFAS 123.
Treasury Stock
Shares of common stock held in treasury are accounted for at cost.
F - 10
<PAGE>
INFU-TECH, INC.
Notes to Consolidated Financial Statements
(Dollars in thousands except per share amounts)
June 30, 2000, 1999 and 1998
3. Stockholders' Equity
In June 1994, the Board of Directors authorized the Company to repurchase
up to 200,000 shares of its common stock in the open market. Through June
30, 2000, the Company had purchased 39,300 of its common shares at an
aggregate cost of $73.
The Company has a stock option plan (the "Plan") under which it is
authorized to grant stock options to designated employees, officers and
directors of the Company. The Plan, as amended, authorizes grant of stock
options up to a maximum of 500,000 shares of common stock. Options may not
be granted at a price that is less than 100% of fair market value on the
date of the grant (110% of fair market value for persons owning 10% or more
of Infu-Tech common stock). Options become exercisable 12 months after the
date of the grant and are exercisable until ten years from the date of
grant.
Stock option transactions for the years ended June 30, 2000, 1999 and 1998
are summarized as follows:
Weighted average
Number Option Price
of shares Per Share
--------- ---------
Outstanding, June 30, 1997 ....... 617,894 $4.24
Granted .......................... 213,500 $5.23
Canceled ......................... (77,800) $3.92
Exercised ........................ (8,900) $3.27
--------
Outstanding, June 30, 1998 ....... 744,694 $4.59
Granted .......................... 64,000 $2.84
Canceled ......................... (178,252) $4.50
Exercised ........................ -- $ --
-------- -----
Outstanding, June 30, 1999 ....... 630,442 $4.50
Granted .......................... 173,700 $1.76
Canceled ......................... (101,292) $4.34
Exercised ........................ (92,650) $3.34
-------- -----
Outstanding, June 30, 2000 ....... 610,200 $3.93
F-11
<PAGE>
INFU-TECH, INC.
Notes to Consolidated Financial Statements
(Dollars in thousands except per share amounts)
June 30, 2000, 1999 and 1998
Options to purchase 98,862 shares were available for grant at June 30, 2000
under the Plan.
The following table summarizes information about stock options outstanding at
June 30, 2000:
<TABLE>
<CAPTION>
Number Weighted Weighted Number Weighted
Range of Outstanding Average Remaining Average Exercisable at Average
Exercise Prices at 6/30/00 Contractual Life Years Exercise Price 6/30/00 Exercise Price
--------------- ---------- ---------------------- -------------- ------- --------------
<S> <C> <C> <C> <C> <C>
$1.00 - $3.13 201,350 7.2 $1.89 42,400 $8.96
$3.38 - $4.13 32,750 6.3 $3.71 32,750 $3.71
$4.25 171,000 6.3 $4.25 171,000 $4.25
$4.50 - $5.88 100,100 7.6 $5.38 100,100 $5.38
$6.00 - $7.00 105,000 3.9 $6.00 105,000 $6.00
------- --- ----- ------- -----
610,200 6.4 $3.93 451,250 $5.31
======= === ===== ======= =====
</TABLE>
In February, 2000, an advisory board was formed for Smartmeds.com. Each member
was granted 5,000 options for the purchase of Infu-Tech stock with the exception
of one member who was issued 10,000 options.
In April, 2000 the Company caused Smartmeds.com to adopt a stock option plan
under which it may grant employees and directors options to purchase up to
750,000 shares of Smartmeds.com common stock. The Company issued 250,000 options
of Smartmeds.com to the Chairman and 30,000 shares to each of the board members.
The terms of the options are for 10 years. The options may, but need not, be
converted beginning not sooner than one year after the grant date, April 18,
2000. The options are exercisable at $1 per share and are convertible into
shares of the Company based upon the price of the Company's common stock on the
date of grant.
F - 12
<PAGE>
INFU-TECH, INC.
Notes to Consolidated Financial Statements
(Dollars in thousands except per share amounts)
June 30, 2000, 1999 and 1998
The Company has computed, the pro forma weighted average fair value per
option granted under the Plan to be $1.46, $2.64, and $4.11 for 2000, 1999
and 1998 respectively. The computations were made using the Black-Scholes
model, as prescribed by SFAS No. 123, with the following weighted average
assumptions for grants as follows:
<TABLE>
<CAPTION>
Years Ended June 30,
--------------------
2000 1999 1998
------------------------------------
<S> <C> <C> <C>
Risk-free interest rate.................... 5.5% 5.5% 4.2%
Expected dividend yield.................... 0% 0% 0%
Expected term until exercise (years) 10 10 8.2
Expected volatility........................ 235% 106% 60.79%
</TABLE>
If the Company had accounted for these plans in accordance with the fair
value method of SFAS No. 123, the Company's net income (loss) and net
income (loss) per share would have decreased as reflected in the following
pro forma amounts:
<TABLE>
<CAPTION>
Years Ended June 30,
--------------------
2000 1999 1998
--------------------------------------
<S> <C> <C> <C>
(Loss) Net Income:
As reported.................... $(3,395) $(1,128) $196
Pro forma...................... (3,648) (1,297) (265)
Net (Loss) Income per share:
Basic as reported.............. $(1.01) $(.35) $.06
Basic pro forma................ (1.09) (.40) (.08)
Net (Loss) Income per share:
Diluted as reported.......... $(1.01) $(.35) $.06
Diluted pro forma............ (1.09) (.40) (.09)
</TABLE>
The pro forma effects on net (loss) income may not be representative of
future years since compensation costs are primarily attributed to the year
of grant as vesting is within one year.
4. Debt
Infu-Tech has a working capital line of credit available totaling $1,500 at
June 30, 2000. The amount of credit available from the line of credit to
the Company is based on the billing and collection activity. This line is
secured by certain accounts receivable balances the Company maintains. At
June 30, 2000 the balance on this credit facility was $972.
The term of this agreement is for a two year period expiring January 1,
2001 with the option to renew at one year periods. During the year the
company experienced a weighted average interest rate of 13.5%. As of June
30, 2000 the Company was in default on its loan agreement. The Company's
stockholder equity was $2.3 million versus the $4.0 million requirement. In
addition, the Company has accounts payable greater than 120 days old. The
Company has obtained a waiver from Heller to alleviate the default. After
giving effect to this waiver, the Company is in compliance with the loan
covenants. The agreement with Heller expires on January 1, 2001. The
Company is in the process of renegotiating its agreement with Heller and
also exploring alternative borrowing alternatives.
F - 13
<PAGE>
INFU-TECH, INC.
Notes to Consolidated Financial Statements
(Dollars in thousands except per share amounts)
June 30, 2000, 1999 and 1998
5. Commitments and Contingencies
Operating Lease Commitments
The Company is obligated under various operating leases for facilities and
equipment with initial terms expiring at various dates through 2003. The
leases generally require the Company to pay all costs of maintaining the
leased properties.
The following is a schedule of future minimum annual rental payments
required under operating leases as of June 30, 2000:
Year ending
June 30, Facilities Equipment Total
-------- ---------- --------- -----
2001...................... 314 20 334
2002...................... 279 6 285
2003...................... 56 1 57
-- -- ----
$649 $27 $676
==== === ====
Rent expense was $392, $394 and $425 in 2000, 1999 and 1998, respectively.
Capital Lease Commitments
The Company has entered into a capital lease commencing on October, 1999
for computer equipment at interest rates of 16.75%. At June 30, 2000, the
Company had a capital lease obligation of $296, of which $121 is the
current portion shown in current liabilities.
Year ending
June 30, Equipment
-------- ---------
2001..................... 162
2002..................... 162
2003..................... 40
--
$364
====
The above payments include interest of $68.
Employment Commitments
The Company has an employment agreement with its Chairman of the Board, who
is also Chairman of the Board and President of KUAL, which expired in July
2000. Although the employment agreement has not been formally extended, he
continues to provide services as Chairman of the Board. He renders
part-time services to the Company for a salary of $150 per year. Pursuant
to this employment agreement, a bonus provision exists which is based upon
an increase in the market capitalization of the Company exceeding the 1995
base year. As of June 30, 1998 a bonus payable of $108 was accrued relating
to this provision. No bonus was earned in 1999 or 2000.
F-14
<PAGE>
INFU-TECH, INC.
Notes to Consolidated Financial Statements
(Dollars in thousands except per share amounts)
June 30, 2000, 1999 and 1998
Contingencies
There is no significant litigation pending against the Company, nor is the
Company aware of any threatened litigation, which may have a material
adverse affect upon the Company.
Participants in the health care market are subject to lawsuits based upon
alleged negligence or similar legal theories. The Company currently has in
force general liability insurance, including professional and product
liability, with coverage limits of $10,000 which is subject to annual
renewal. The Company has not recorded any related loss liabilities as of
June 30, 2000.
6. Transactions with Affiliates
The Company provides nutritional and other supplies to patients who are
insured by third parties and prior to June 30, 1999, provided infusion
therapy services to nursing homes owned or managed by KUAL and derived
revenues from sales to those nursing homes, plus interest charged on their
outstanding balances, of $226 (interest only) in 2000, $477 in 1999 and
$437 in 1998.
Included in personnel costs in 1998, respectively, are charges of $332 from
subsidiaries of KUAL for contracted nursing services. There were no costs
incurred in 1999 and 2000.
F-15
<PAGE>
INFU-TECH, INC.
Notes to Consolidated Financial Statements
(Dollars in thousands except per share amounts)
June 30, 2000, 1999 and 1998
A management and non-competition agreement (the "Agreement") between the
Company and KUAL expired on September 30, 2000.
Pursuant to the Agreement, KUAL provides services to the Company, which
includes, among others, the services of KUAL's senior executive management.
A management fee equal to 1.6% of revenues is charged by KUAL to the
Company for these services.
Receivables from affiliates non-current and current are $3,570 and $3,403,
in 2000 and 1999, respectively, that arose from the sales of nutritional
and other products and services to wholly owned subsidiaries of KUAL,
interest on the outstanding balance, and KUAL's share of common expenses
paid on behalf of KUAL by the company.
KUAL has 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 also gave 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 Kuala. As of June 30, 2000 the Company had received $75,000 of the
$431,000 due from Kuala required under the agreement. The balance of the
amount due in the fiscal year ended June 30, 2000 was subsequently paid.
F - 16
<PAGE>
INFU-TECH, INC.
Notes to Consolidated Financial Statements
(Dollars in thousands except per share amounts)
June 30, 2000, 1999 and 1998
The (benefit) provision for income taxes consists of the following:
Years Ended June 30,
--------------------
2000 1999 1998
-------------------------------------
Current
Federal .................. $ 3 $ (38) $ --
State .................... 1 (8) --
----- ----- -----
$ 4 $ (46) $ --
Deferred:
Federal .................. (23) 11 124
State .................... (5) 1 25
----- ----- -----
$ (28) $ 12 $ 149
----- ----- -----
$ (24) $ (34) $ 149
===== ===== =====
The following table reconciles the Federal income tax provision computed at
statutory Federal income tax rates to the total (benefit) provision for
income taxes shown above:
Years Ended June 30,
--------------------
2000 1999 1998
---------------------------------
Federal income tax (benefit)
provision at statutory rate ... $(1,163) $ (395) $ 117
State income tax provision,
net of Federal income tax
benefit ....................... -- (81) 25
Increase (decrease) in valuation
allowance ..................... 785 10 --
Other nondeductible expenses ......... 10 9 --
Other - net .......................... 342 423 7
------- ------- -------
$ (24) $ (34) $ 149
======= ======= =======
F - 17
<PAGE>
INFU-TECH, INC.
Notes to Consolidated Financial Statements
(Dollars in thousands except per share amounts)
June 30, 2000, 1999 and 1998
The tax effects of temporary differences that give rise to significant
portions of the deferred income tax assets are as follows:
June 30,
--------
2000 1999
---- ----
Net deferred income tax assets:
Allowances for uncollectible accounts
receivable............................ $ 1,126 $756
Net operating tax loss carry forwards..... 529 --
Compensated absences, principally due
to accrual for financial purposes..... 21 30
Other - net............................... (50) 28
-------- --
Sub-total................................. 1,626 814
Valuation allowance....................... (1,060) (275)
-------- ----
Net deferred income tax assets............ $ 566 $539
======== ====
A number of Federal and State income tax returns for previous years were
not filed when due. The Company has completed and filed a portion of those
outstanding returns and the remainder are expected to be filed shortly. The
Company believes no Federal taxes are due. There are several claims for
penalties and interest associated with late filings which are being
appealed.
A valuation allowance is provided when it is more likely than not that some
portion or all of the deferred tax assets will not be realized. The net
change in the total valuation allowance for the years ended June 30, 2000
and 1999 was an increase of $785,000 and $10,000, respectively. The tax
benefit assumed using the Federal statutory rate of 34% has been reduced to
an actual benefit of zero as of June 30, 2000 due principally to the
aforementioned valuation allowance.
7. Distribution Agreement
In November 1994, the Company entered into a distribution agreement with a
drug manufacturer under which the Company provides a specific home infusion
therapy utilizing the manufacturer's drug. This agreement was renewed in
January 1998 for another year. Under this agreement, accounts payable to
the drug manufacturer ($4.6 million at June 30, 2000) are secured by the
Company's inventories of the drug (none at June 30, 2000) and related
Accounts Receivable ($1,138 at June 30, 2000).
8. Business and Credit Concentrations
The Company generally does not require collateral or other security in
extending credit to patients, however, it routinely obtains assignment of
(or is otherwise entitled to receive) patients' benefits payable under
their health insurance programs, plans or policies (e.g. Medicare,
Medicaid, Blue Cross, health maintenance organizations, and commercial
insurance policies).
At June 30, 2000, and June 30, 1999 the Company had gross receivables from
the Federal Government (Medicare) of approximately $3,844, and $3,349
respectively.
F-18
<PAGE>
INFU-TECH, INC.
Notes to Consolidated Financial Statements
(Dollars in thousands except per share amounts)
June 30, 2000, 1999 and 1998
9. Estimated Fair Value of Financial Instruments
The estimated fair value of financial instruments has been determined based
upon available market information and appropriate valuation methodologies.
However, considerable judgement is necessarily required in interpreting
market data to develop the estimates of fair value. Accordingly, the
estimates presented herein are not necessarily indicative of the amounts
that the Company might realize in a current market exchange. The use of
different market assumptions and or estimation methodologies may have a
material effect on the estimated fair value.
The carrying amounts of cash and cash equivalents, accounts receivable,
amounts due from affiliates, short term debt, accounts payable and accrued
expenses are reasonable estimates of their fair values.
10. Fourth Quarter Adjustments
As a result of a deterioration of the aging of accounts receivable, the
Company performed a detailed review of the balances and focused efforts on
collection during the 4th quarter. As a result of this review,
approximately $1,348,000 of additional bad debt expense was recorded in the
4th quarter. In addition, the Company recorded a $250,000 compensation
expense associated with the exercise and granting of non employee stock
options. The Company also accrued $318,000 of interest associated with
purchases.
F-19
<PAGE>
Schedule II
INFU-TECH, INC.
Valuation and Qualifying Accounts
(Dollars in thousands)
June 30, 2000, 1999 and 1998
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
-------- -------- -------- -------- --------
Additions
Balance at Charged to Balance
beginning cost and at end
Description of period expenses Other Deductions(a) of period
----------- --------- -------- ----- ------------- ---------
<S> <C> <C> <C> <C> <C>
Allowance for
uncollectible
accounts:
2000 .................... $1,845 $1,514 $-- $613 $2,746
====== ====== === ==== ======
1999..................... $1,578 $963 $-- $696 $1,845
====== ==== === ==== ======
1998..................... $1,995 $353 $-- $770 $1,578
====== ==== === ==== ======
</TABLE>
(a) Uncollectible accounts charged off during the year, net of recoveries.
S - 1
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Company has duly caused this Report to be signed on its behalf
by the undersigned, thereunto duly authorized.
INFU-TECH, INC.
Date: October 13, 2000 By: /s/ JACK ROSEN
---------------- ----------------
Jack Rosen
Chairman of the Board
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the Company
in the capacities and on the dates indicated.
/s/ Jack Rosen Chairman of the Board, Director (Principal
----------------------------- Executive Officer)
Jack Rosen
/s/ Frederick Schmidt Principal Financial Officer
-----------------------------
Frederick Schmidt
/s/ Stephen Saposnik Principal Accounting Officer
-----------------------------
Stephen Saposnik
/s/ Joseph Rosen Director
-----------------------------
Joseph Rosen
/s/ Israel Ingberman Director
-----------------------------
Israel Ingberman
/s/ Joseph M. Giglio Director
-----------------------------
Joseph M. Giglio
/s/ Bruce Slovin Director
-----------------------------
Bruce Slovin
