United States
Securities and Exchange Commission
Washington, D.C. 20549
Form 10-Q
x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended January 31, 2009
OR
¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number 0-20424
Hi-Tech Pharmacal Co., Inc.
(Exact name of registrant as specified in its charter)
| | |
Delaware | | 11-2638720 |
(State or other jurisdiction of incorporation or organization) | | (IRS Employer Identification No.) |
369 Bayview Avenue, Amityville, New York 11701
(Address of principal executive offices) (zip code)
631 789-8228
(Registrant’s telephone number including area code)
Not applicable
(Former name, former address and former fiscal year, if changed since last report)
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 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 x No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “accelerated filer”, “large accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer ¨ Accelerated filer x Non-accelerated filer ¨ Smaller reporting company ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.): Yes ¨ No x
Indicate the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practicable date: Common Stock, $.01 Par Value — 11,161,000 shares outstanding as March 9, 2009
INDEX
HI-TECH PHARMACAL CO., INC.
PART I. ITEM 1.
HI-TECH PHARMACAL CO., INC.
CONDENSED BALANCE SHEETS
| | | | | | | | |
| | January 31, 2009 | | | April 30, 2008 | |
| | (unaudited) | | | | |
ASSETS | | | | | | | | |
CURRENT ASSETS | | | | | | | | |
Cash and cash equivalents | | $ | 21,499,000 | | | $ | 11,722,000 | |
Accounts receivable, less allowance for doubtful accounts | | | 22,563,000 | | | | 17,604,000 | |
Inventory | | | 19,086,000 | | | | 18,024,000 | |
Refundable and prepaid income taxes | | | 2,526,000 | | | | 2,566,000 | |
Deferred income taxes | | | 3,939,000 | | | | 2,607,000 | |
Prepaid expenses and other receivables | | | 3,167,000 | | | | 2,569,000 | |
| | | | | | | | |
TOTAL CURRENT ASSETS | | $ | 72,780,000 | | | $ | 55,092,000 | |
Property and equipment—net | | | 18,131,000 | | | | 17,048,000 | |
Investment in marketable securities, non-current | | | — | | | | 2,545,000 | |
Intangible assets—net | | | 9,317,000 | | | | 9,660,000 | |
Investment in Neuro-Hitech | | | 198,000 | | | | 248,000 | |
Other assets | | | 413,000 | | | | 419,000 | |
| | | | | | | | |
TOTAL ASSETS | | $ | 100,839,000 | | | $ | 85,012,000 | |
| | | | | | | | |
LIABILITIES AND STOCKHOLDERS’ EQUITY | | | | | | | | |
CURRENT LIABILITIES | | | | | | | | |
Accounts payable | | $ | 6,034,000 | | | $ | 4,773,000 | |
Accrued expenses | | | 8,829,000 | | | | 4,444,000 | |
Income taxes payable | | | 4,845,000 | | | | — | |
Current portion long term debt | | $ | 176,000 | | | | | |
| | | | | | | | |
TOTAL CURRENT LIABILITIES | | $ | 19,884,000 | | | $ | 9,217,000 | |
Long term debt | | $ | 277,000 | | | | | |
Deferred income taxes | | | 448,000 | | | | 630,000 | |
| | | | | | | | |
TOTAL LIABILITIES | | $ | 20,609,000 | | | $ | 9,847,000 | |
| | | | | | | | |
STOCKHOLDERS’ EQUITY | | | | | | | | |
Preferred stock, par value $.01 per share; authorized 3,000,000 shares, none issued | | | | | | | | |
Common stock, par value $.01 per share; authorized 50,000,000 shares, issued 13,617,000 at January 31, 2009 and 13,603,000 at April 30, 2008, respectively | | | 136,000 | | | | 136,000 | |
Additional paid-in capital | | | 56,946,000 | | | | 54,829,000 | |
Retained earnings | | | 46,182,000 | | | | 41,487,000 | |
Accumulated other comprehensive income, net of tax | | | (34,000 | ) | | | 64,000 | |
Treasury stock, 2,456,000 and 2,202,000 shares of common stock, at cost on January 31, 2009 and April 30, 2008, respectively | | | (23,000,000 | ) | | | (21,351,000 | ) |
| | | | | | | | |
TOTAL STOCKHOLDERS’ EQUITY | | $ | 80,230,000 | | | $ | 75,165,000 | |
| | | | | | | | |
LIABILITIES AND STOCKHOLDERS’ EQUITY | | $ | 100,839,000 | | | $ | 85,012,000 | |
| | | | | | | | |
See notes to condensed financial statements
3
HI-TECH PHARMACAL CO., INC.
CONDENSED STATEMENTS OF OPERATIONS
(unaudited)
| | | | | | | | | | | | | | | | |
| | Three months ended January 31, | | | Nine months ended January 31, | |
| 2009 | | | 2008 | | | 2009 | | | 2008 | |
NET SALES | | $ | 29,420,000 | | | $ | 15,075,000 | | | $ | 70,336,000 | | | $ | 41,047,000 | |
Cost of goods sold | | | 15,604,000 | | | | 10,057,000 | | | | 38,570,000 | | | | 28,262,000 | |
| | | | | | | | | | | | | | | | |
GROSS PROFIT | | | 13,816,000 | | | | 5,018,000 | | | | 31,766,000 | | | | 12,785,000 | |
| | | | | | | | | | | | | | | | |
Selling, general and administrative expenses | | | 9,261,000 | | | | 5,855,000 | | | | 22,659,000 | | | | 17,124,000 | |
Research and product development costs | | | 1,790,000 | | | | 1,432,000 | | | | 5,479,000 | | | | 4,227,000 | |
Royalty and contract research income | | | (159,000 | ) | | | | | | | (273,000 | ) | | | | |
Interest expense | | | 12,000 | | | | 8,000 | | | | 29,000 | | | | 17,000 | |
Interest income and other | | | (548,000 | ) | | | (197,000 | ) | | | (4,234,000 | ) | | | (841,000 | ) |
| | | | | | | | | | | | | | | | |
TOTAL | | $ | 10,356,000 | | | $ | 7,098,000 | | | $ | 23,660,000 | | | $ | 20,527,000 | |
| | | | | | | | | | | | | | | | |
Income (loss) before income tax expense (benefit) | | | 3,460,000 | | | | (2,080,000 | ) | | | 8,106,000 | | | | (7,742,000 | ) |
Income tax expense (benefit) | | | 1,389,000 | | | | (536,000 | ) | | | 3,411,000 | | | | (2,367,000 | ) |
| | | | | | | | | | | | | | | | |
NET INCOME (LOSS) | | $ | 2,071,000 | | | $ | (1,544,000 | ) | | $ | 4,695,000 | | | $ | (5,375,000 | ) |
| | | | | | | | | | | | | | | | |
BASIC INCOME (LOSS) PER SHARE | | $ | 0.19 | | | $ | (0.14 | ) | | $ | 0.41 | | | $ | (0.47 | ) |
DILUTED INCOME (LOSS) PER SHARE | | $ | 0.18 | | | $ | (0.14 | ) | | $ | 0.40 | | | $ | (0.47 | ) |
| | | | | | | | | | | | | | | | |
Weighted average common shares outstanding—basic | | | 11,180,000 | | | | 11,335,000 | | | | 11,328,000 | | | | 11,379,000 | |
Effect of potential common shares | | | 330,000 | | | | | | | | 432,000 | | | | | |
| | | | | | | | | | | | | | | | |
Weighted average common shares outstanding—diluted | | | 11,510,000 | | | | 11,335,000 | | | | 11,760,000 | | | | 11,379,000 | |
| | | | | | | | | | | | | | | | |
See notes to condensed financial statements
4
HI-TECH PHARMACAL CO., INC.
CONDENSED STATEMENTS OF CASH FLOWS
(unaudited)
| | | | | | | | |
| | Nine months ended January 31, | |
| 2009 | | | 2008 | |
NET CASH FLOWS PROVIDED BY (USED IN) OPERATING ACTIVITIES | | | 7,905,000 | | | $ | (8,238,000 | ) |
| | | | | | | | |
CASH FLOWS PROVIDED BY INVESTING ACTIVITIES: | | | | | | | | |
Purchases of property, plant and equipment | | | (2,201,000 | ) | | | (1,914,000 | ) |
Sale of marketable securities, net | | | 3,045,000 | | | | 18,070,000 | |
Proceeds from the sale of intangible assets | | | 3,235,000 | | | | | |
Purchase of intangible assets | | | (500,000 | ) | | | | |
Purchase of Midlothian Laboratories | | | | | | | (6,022,000 | ) |
| | | | | | | | |
NET CASH PROVIDED BY INVESTING ACTIVITIES | | $ | 3,579,000 | | | $ | 10,134,000 | |
| | | | | | | | |
CASH FLOWS USED IN FINANCING ACTIVITIES: | | | | | | | | |
Issuance of common stock and exercise of options | | | 37,000 | | | | 427,000 | |
Payment of long term debt | | | (95,000 | ) | | | | |
Purchase of treasury stock | | | (1,649,000 | ) | | | (1,617,000 | ) |
| | | | | | | | |
NET CASH USED IN FINANCING ACTIVITIES | | $ | (1,707,000 | ) | | $ | (1,190,000 | ) |
| | | | | | | | |
NET INCREASE IN CASH AND CASH EQUIVALENTS | | | 9,777,000 | | | | 706,000 | |
Cash and cash equivalents at beginning of the period | | | 11,722,000 | | | | 9,198,000 | |
| | | | | | | | |
CASH AND CASH EQUIVALENTS AT END OF PERIOD | | $ | 21,499,000 | | | $ | 9,904,000 | |
| | | | | | | | |
Supplemental and non cash disclosures of cash flow information: | | | | | | | | |
Interest paid | | $ | 29,000 | | | $ | 17,000 | |
Loan for purchase of computer software | | $ | 548,000 | | | $ | — | |
See notes to condensed financial statements
5
HI-TECH PHARMACAL CO., INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(unaudited)
January 31, 2009
1. BASIS OF PRESENTATION:
The accompanying unaudited condensed financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. The preparation of the Company’s financial statements in conformity with generally accepted accounting principles necessarily requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the balance sheet dates and the reported amounts of revenues and expense during the reporting periods. Actual results could differ from these estimates and assumptions. Operating results for the three and nine month periods ended January 31, 2009 are not necessarily indicative of the results that may be expected for the year ending April 30, 2009. For further information, refer to the financial statements and footnotes thereto for the year ended April 30, 2008 in the Company’s Annual Report on Form 10-K.
2. BUSINESS:
Hi-Tech Pharmacal Co., Inc. (the “Company” or “Hi-Tech”) manufactures and sells prescription and over-the-counter generic drugs, in liquid and semi-solid dosage forms. The Company markets its products in the United States through distributors, retail drug and mass-merchandise chains and mail order companies. Revenue is seasonal and usually peaks between September and March of each year, since a significant portion of the Company’s products are pharmaceutical preparations acting on the human respiratory system.
The following table presents sales data for the Company by division:
| | | | | | |
| | Nine months ended January 31, 2009 | | Nine months ended January 31, 2008 |
Hi-Tech Generics | | $ | 56,588,000 | | $ | 32,038,000 |
Health Care Products | | | 7,798,000 | | | 6,972,000 |
Midlothian | | | 5,950,000 | | | 1,338,000 |
Naprelan® | | | — | | | 699,000 |
| | | | | | |
Total | | $ | 70,336,000 | | $ | 41,047,000 |
| | | | | | |
3. REVENUE RECOGNITION:
Revenue is recognized for product sales upon shipment and passing of risk to the customer and when estimates of discounts, rebates, promotional adjustments, price adjustments, returns, chargebacks, and other potential adjustments are reasonably determinable, collection is reasonably assured and the Company has no further performance obligations. These estimates are presented in the financial statements as reductions to net revenues and accounts receivable. The Company has estimated sales returns, allowances and discounts. Contract research income is recognized as work is completed and as billable costs are incurred. In certain cases, contract research income is based on attainment of designated milestones. Advance payments may be received to fund certain development costs.
4. NET INCOME (LOSS) PER SHARE:
Basic income (loss) per common share is computed based on the weighted average number of common shares outstanding and on the weighted average number of common shares and share equivalents (stock options) outstanding for diluted earnings (loss) per share. The weighted average number of shares outstanding used in the computation of basic and diluted net earnings (loss) per share does not include the effect of potentially outstanding common stock whose effect would have been antidilutive. Such outstanding potential shares consisted of options totaling 2,463,000 and 1,906,000 shares at January 31, 2009 and 2008, respectively.
6
5. MARKETABLE SECURITIES:
The Company invested in auction rate securities (ARS) consisting primarily of municipal securities that were held as investments available-for-sale. After the initial issuance of these securities, the interest rate was reset periodically. The Company invested in ARS that reset as to interest rate every 7 to 35 days and were carried at fair value. The Company had determined that auction rate securities should be classified as investments because the “stated” or “contractual” maturities are generally 20 to 30 years. Classification of marketable securities as current or non-current is dependent upon management’s intended holding period, the security’s maturity date and liquidity considerations based on market conditions. If management intends to hold the securities for longer than one year as of the balance sheet date, they are classified as non-current. During January and February of 2008, two of the auction rate securities failed to auction due to sell orders exceeding buy orders. Liquidity for these auction-rate securities is typically provided by an auction process that resets the applicable interest rate at pre-determined intervals. The Company sold one of these securities at a loss of approximately $500,000 in July 2008. This decrease in the value of the security was fully reserved for at April 30, 2008. The remaining securities were liquidated in September 2008 at their par value. In December 2008, the Company received a reimbursement from the seller of the security, Bank of America of approximately $500,000 for the ARS sold by the Company at loss. This amount is included in interest income and other in the Company’s statement of operations as of January 31, 2009.
The balance sheet classification and schedule of maturities (current and non-current) is as follows:
| | | | | | | | |
| | January 31, 2009 | | April 30, 2008 | | Maturity Date |
Non-current marketable securities | | $ | 0 | | $ | 2,545,000 | | 2039-2042 |
| | | | | | | | |
Total marketable securities | | $ | 0 | | $ | 2,545,000 | | |
| | | | | | | | |
On May 1, 2008, the Company adopted Statement of Financial Accounting Standard No. 157 (“SFAS 157”), Fair Value Measurements. The adoption of SFAS 157 did not have a material impact on the Company’s financial position and the results of operations.
SFAS 157 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. This standard is now the single source in generally accepted accounting principles for the definition of fair value, except for the fair value of leased property as defined in SFAS 13. SFAS 157 establishes a fair value hierarchy that distinguishes between (1) market participant assumptions developed based on market data obtained from independent sources (observable inputs), (2) assumptions that are other than quoted prices which are either directly or indirectly observable for the asset or liability through correlation with market data and (3) an entity’s own assumptions about market participant assumptions developed based on the best information available in the circumstances (unobservable inputs). The fair value hierarchy consists of three broad levels, which gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3).
The three levels of the fair value hierarchy under SFAS 157 are described below:
| • | | Level 1—Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities. |
| • | | Level 2—Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly, including quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; inputs other than quoted prices that are observable for the asset or liability (e.g., interest rates); and inputs that are derived principally from or corroborated by observable market data by correlation or other means. |
| • | | Level 3—Inputs that are both significant to the fair value measurement and unobservable. |
The Company’s investment in Neuro-HiTech is valued at the unadjusted quoted price in the active market as of January 31, 2009.
The auction rate securities held at year end were valued using discounted cash flows. The auction rate securities were backed by U.S. municipal securities as underlying assets, future cash flows are estimated based on the terms of the securities underlying the auction rate security and discounted at an estimated discount rate in order to estimate the current fair value. The key assumptions that impact the ARS valuations are estimated prepayments and re-financings, estimated fail rate coupons (i.e., the rate paid in the event of auction failure, which varies according to the current credit rating of the issuer), and the discount rate used to calculate the present value of projected cash flows. The discount rate used for the auction rate security is based on rates observed for straight issuances of other municipal securities. In order to arrive at the appropriate discount rate, these observed rates were adjusted upwards to factor in the specifics of the ARS structure being valued, such as callability, and the illiquidity in the ARS market.
7
6. INVENTORY:
The components of inventory consist of the following:
| | | | | | |
| | January 31, 2009 | | April 30, 2008 |
Raw materials | | $ | 12,615,000 | | $ | 12,126,000 |
Finished products and work in process | | | 6,471,000 | | | 5,898,000 |
| | | | | | |
TOTAL INVENTORY | | $ | 19,086,000 | | $ | 18,024,000 |
| | | | | | |
7. PROPERTY AND EQUIPMENT:
The components of property and equipment consist of the following:
| | | | | | |
| | January 31, 2009 | | April 30, 2008 |
Land and building | | $ | 13,744,000 | | $ | 13,478,000 |
Machinery and equipment | | | 21,730,000 | | | 20,368,000 |
Transportation equipment | | | 37,000 | | | 37,000 |
Computer equipment | | | 3,639,000 | | | 2,528,000 |
Furniture and fixtures | | | 1,099,000 | | | 1,090,000 |
| | | | | | |
| | $ | 40,249,000 | | $ | 37,501,000 |
Accumulated depreciation and amortization | | | 22,118,000 | | | 20,453,000 |
| | | | | | |
TOTAL PROPERTY AND EQUIPMENT | | $ | 18,131,000 | | $ | 17,048,000 |
| | | | | | |
The Company incurred depreciation expense of $1,665,000 and $1,625,000 for the nine months ended January 31, 2009 and January 31, 2008, respectively. Depreciation expense for the three months ended January 31, 2009 and January 31, 2008 was $542,000 and $508,000, respectively.
8. INTANGIBLE ASSETS:
The components of net intangible assets are as follows:
| | | | | | | | |
| | January 31, 2009 | | April 30, 2008 | | Amortization Period |
Midlothian intangible asset | | $ | 4,082,000 | | $ | 4,437,000 | | 3-10 years |
Zostrix® intangible assets, net | | | 3,682,000 | | | 4,058,000 | | 3-11.5 years |
Vosol® and Vosol® HC intangible assets | | | 630,000 | | | 682,000 | | 10 years |
Other license agreements, net | | | 923,000 | | | 483,000 | | 10 years |
| | | | | | | | |
TOTAL INTANGIBLE ASSETS | | $ | 9,317,000 | | $ | 9,660,000 | | |
| | | | | | | | |
Intangible assets are stated at cost and amortized using the straight line method over the expected useful lives of the product rights. Amortization expense of the intangible assets for the nine months ended January 31, 2009 and January 31, 2008 was $844,000 and $448,000, respectively. Amortization expense for the three months ended January 31, 2009 and January 31, 2008 was $279,000 and $178,000, respectively. Amortization is included in selling, general and administrative expenses for all periods presented. The Company amortizes intangible assets when the related products begin to sell. Some of the intangible assets have not yet begun amortization. The Company tests for impairment of intangible assets when events or circumstances indicate that the carrying value of the assets may not be recoverable.
8
Business acquisition:
On December 28, 2007, the Company acquired the assets of Midlothian Laboratories, LLC for $5.0 million in an all-cash transaction. Additionally, Hi-Tech paid approximately $0.9 million for inventory and will pay potentially up to $1.0 million in performance incentives tied to future Midlothian product sales through December 31, 2008, and the approval of an ANDA. Under the terms of the acquisition Hi-Tech received rights to Midlothian’s current product line, consisting of prescription nutritional supplements including pre-natal vitamins and several cough and cold formulations, and future ANDA and non-ANDA products that are in development.
In connection with the acquisition of Midlothian Laboratories, LLC, the Company has a contingent liability in amounts up to $1,000,000 under certain events and milestones. The first payment of $500,000 was to be paid by March 15, 2009 if net sales of Midlothian equaled or exceeded $10,000,000 for calendar 2009. Net sales for the period totaled approximately $9,800,000. The Company does not believe that it is liable for this payment. Therefore, the Company has not recorded the liability since the milestone was not met. The second contingent payment of $500,000 is due if the Company is first to market with an ANDA that Midlothian had in development at the time of acquisition. To date, this product has not been approved, so the milestone has not been met.
Intangible assets with a an estimated fair value of $4,596,000 were also recognized in the acquisition of certain assets of Midlothian Laboratories, LLC. These assets, consisting of licenses and a covenant not to compete, have estimated lives of approximately 3 to 10 years. Any excess purchase price over the fair value of assets acquired is recorded as goodwill. The acquisition of Midlothian Laboratories, LLC has been recorded based on an independent appraisal of the fair value of the intangible assets acquired. Any contingent consideration will be recorded pursuant to paragraph 26 of SFAS 141, “Business Combinations.”
9. COMMON STOCK:
The Company’s Board of Directors, over several years, has authorized the repurchase of $23,000,000 of the Company’s common stock. Pursuant to the terms of a Rule 10b5-1 stock repurchase plan, the repurchases of the Company’s common stock may be made from time to time in the open market or in private transactions as market conditions dictate. To date the Company has purchased 2,456,000 shares for $23,000,000. During the three and nine months ended January 31, 2009, the Company repurchased 160,000 and 254,000 shares of the Company’s common stock for $988,000 and $1,649,000, respectively. The Company has reached the total amount authorized under the stock repurchase plan.
10. FREIGHT EXPENSE:
Freight costs are included in selling, general, and administrative expense.
11. STOCK-BASED COMPENSATION:
The Company accounts for stock based compensation in accordance with the provisions of Financial Accounting Standards Board (“FASB”) Statement of Financial Accounting Standards (“SFAS”) No. 123(R), “Share-Based Payments.” Under the provisions of SFAS No. 123(R), stock-based compensation is measured at the grant date, based on the calculated fair value of the award, and is recognized as an expense over the requisite employee service period (generally the vesting period of the grant). The Company’s employee stock options are incentive stock options and, therefore, there is no tax deferred benefit associated with recording the stock-based compensation.
The Company recognized stock-based compensation for awards issued under the Company’s Stock Option Plans in the following line items in the Condensed Statement of Operations:
| | | | | | |
| | Nine months ended January 31, 2009 | | Nine months ended January 31, 2008 |
Cost of sales | | $ | 418,000 | | $ | 451,000 |
Selling, general and administrative expenses | | | 1,512,000 | | | 1,558,000 |
Research and product development costs | | | 150,000 | | | 167,000 |
| | | | | | |
Stock-based compensation expense | | $ | 2,080,000 | | $ | 2,176,000 |
| | | | | | |
Stock-based compensation expense resulted in a decrease of $0.18 in basic and $0.17 in diluted net income per share for the nine months ended January 31, 2009 and an increase of $0.19 in basic and diluted net loss per share for the nine months ended January 31, 2008.
| | | | | | |
| | Three months ended January 31, 2009 | | Three months ended January 31, 2008 |
Cost of sales | | $ | 147,000 | | $ | 144,000 |
Selling, general and administrative expenses | | | 530,000 | | | 503,000 |
Research and product development costs | | | 53,000 | | | 54,000 |
| | | | | | |
Stock-based compensation expense | | $ | 730,000 | | $ | 701,000 |
| | | | | | |
Stock-based compensation expense resulted in a decrease of $0.07 in basic and $0.06 in diluted net income per share for the three months ended January 31, 2009 and an increase of $0.06 in basic and diluted net loss per share for the three months ended January 31, 2008.
9
SFAS No. 123 (R) requires the use of a valuation model to calculate the fair value of stock-based awards. The Company has elected to use the Black-Scholes option-pricing model, which incorporates various assumptions including volatility, expected life, and interest rate. The expected volatility is based on the historical volatility of the Company’s common stock. The interest rates for periods within the contractual life of the award are based on the U.S. Treasury yield on the date of each option grant.
The following weighted average assumptions were used for stock options granted during the three and nine month periods ended January 31, 2009 and January 31, 2008.
| | | | | | | | | | | | | | | | |
| | Three months ended January 31, | | | Nine months ended January 31, | |
| | 2009 | | | 2008 | | | 2009 | | | 2008 | |
Dividend yield | | | None | | | | None | | | | None | | | | None | |
Expected volatility | | | 55 | % | | | 52 | % | | | 55 | % | | | 52 | % |
Risk-free interest rate | | | 2.12 | % | | | 4.04 | % | | | 2.12 | % | | | 3.37 | % |
Expected term | | | 5.0 | | | | 5.0 | | | | 5.0 | | | | 5.0 | |
Weighted average fair value per share at grant date | | $ | 2.86 | | | $ | 5.04 | | | $ | 2.97 | | | $ | 5.05 | |
All options granted through January 31, 2009 had exercise prices equal to the fair market value of the stock on the date of grant, a contractual term of ten years and a vesting period of four years. In accordance with SFAS No. 123(R), the Company adjusts share-based compensation on a quarterly basis for changes to the estimate of expected equity award forfeitures based on actual forfeiture experience. The effect of adjusting the forfeiture rate for all expense amortization after May 1, 2006 is recognized in the period the forfeiture estimate is changed. As of January 31, 2009, the weighted average forfeiture rate was 8% and the effect of forfeiture adjustments for the three and nine months ended January 31, 2009 was insignificant. In September 2008, the Company granted 25,000 options under the employee plan at an exercise price of $9.70. The Company granted 304,000 options under the employee plan and 60,000 under the director plan at an exercise price of $5.83 during the three months ended January 31, 2009. The Company granted 248,000 options to employees and 71,000 to directors during the three months ended Janurary 31, 2008.
The intrinsic value of options exercised for the 1992 Stock Option Plan and the 1994 Stock Option Plan was $102,000 and $1,363,000 for the nine month periods ended January 31, 2009 and January 31, 2008, respectively. As of January 31, 2009, $4,170,000 of total unrecognized compensation cost related to stock options for both plans is expected to be recognized over a weighted average period of 2.4 years.
12. PRODUCT DIVESTITURE:
On July 11, 2008, the Company sold the related rights to Brometane, a cough and cold product, for $3,500,000, of which $1,000,000 was paid at closing, and $2,500,000 is due in installment payments over a period of nine months. The Company received payments of $500,000 on October 30, 2008 and January 30, 2009. The receivable relating to the sale was $1,500,000 as of January 31, 2009. The Company will also receive royalties on net sales of the product through December 2010. The Company recognized a gain of $3,500,000 on this transaction in the first quarter of fiscal 2009. The gain is included in Interest income and other on the Condensed Statement of Operations.
13. INCOME TAXES:
The Company estimated its effective tax rate to be approximately 42% for the year ended April 30, 2009. On May 1, 2007, the Company adopted the provisions of FASB Interpretation No. 48,Accounting for Uncertainty in Income Taxes—an interpretation of FASB Statement No. 109,(“FIN 48”). FIN 48 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48 requires that the Company determine whether the benefits of tax positions are more likely than not of being sustained upon audit based on the technical merits of the tax position. For tax positions that are more likely than not of being sustained upon audit, the Company recognizes in the financial statements the largest amount of the benefit that is greater than 50% likely of being realized upon ultimate settlement. For tax positions that are not more likely than not of being sustained upon audit, the Company does not recognize any portion of the benefit in the financial statements. Upon the adoption of FIN 48, the Company analyzed filing positions in all of the federal and state jurisdictions where the Company is required to file income tax returns, as well as all open tax years in these jurisdictions. The Company is no longer subject to U.S. federal, state or local income tax examination for years ended prior to April 30, 2003. The Company is currently under examination by the Internal Revenue Service for the taxable years ending April 30, 2004, 2005, 2006 and 2007. In connection with the adoption of FIN 48, the Company has elected an accounting policy to classify interest and penalties related to unrecognized tax benefits as interest expense. The Company has reserved $162,000 as a result of the implementation of FIN 48. There was no change in FIN 48 liability during the period ended January 31, 2009.
14. CONTINGENCIES AND OTHER MATTERS:
[1]Government regulation:
The Company’s products and facilities are subject to regulation by a number of Federal and State governmental agencies. The Food and Drug Administration (“FDA”), in particular, maintains oversight of the formulation, manufacture, distribution, packaging and labeling of all of the Company’s products. The Drug Enforcement Administration (“DEA”) maintains oversight over the Company’s products that are considered controlled substances.
The Company has been contacted by the U. S. Department of Justice, representing the Drug Enforcement Administration (“DEA”), concerning alleged regulatory violations of the Controlled Substances Act (“Act”). DEA has alleged that the Company failed to maintain and/or file certain required records and reports and that one of the Company’s facilities failed to maintain the appropriate DEA registration. The alleged recordkeeping and reporting violations could result in civil penalties. The Company is continuing discussions with the U. S. Department of Justice and DEA to resolve this matter. The Company has independently taken action to improve its DEA regulatory compliance program. The Company has no estimate at this time of its potential exposure and cannot, at this time, predict the outcome of this matter.
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[2]Legal Proceedings:
On September 3, 2008, the Company filed a motion for expedited preliminary injunctive relief in connection with the complaint filed by the Company on August 28, 2008 in the U.S. District Court for the District of Columbia against the U.S. Food and Drug Administration (FDA). The Company was seeking declaratory, injunctive, and other relief related to the Company’s Abbreviated New Drug Application (ANDA) for dorzolamide and timolol opthalmic solution, the generic for Merck’s Cosopt®. On October 10, 2008, the Court denied the Company’s motion for preliminary injunctive relief, ruling that the Court wanted to wait until FDA rendered a decision on the matter before the Court would intervene. On October 28, 2008, FDA ruled that the Company was not entitled to 180-day exclusivity. That same date, FDA approved the Company’s and Apotex’s respective ANDAs for the drug. On November 6, 2008, FDA also approved Sandoz’s ANDA. On November 7, 2008, the Company filed a Motion with the Court seeking a preliminary injunction, a permanent injunction, and a declaratory judgment. The motion was denied on December 10, 2008.
On January 30, 2007, Michael Chittenden and Marcy L. Chittenden filed a complaint against Arnold H. Zukow, M.D. et al and the Company, Case No. BC346212, in the Los Angeles Superior Court in the state of California, alleging wrongful death of plaintiffs’ daughter as a result of her being negligently and improperly treated and prescribed the prescription drug, Phenergan (Promethazine HCI) with Phenylepherine and codeine, which the Company does not manufacture. The complaint was later amended when the Company was added as a new defendant based on a prescription being filled for Promethazine with Codeine immediately prior to the daughter’s death. The Company’s defense costs, after its deductible, were covered under its product liability policy which has a $10 million limit for defense costs and liability. A mediation was held on November 10, 2008. Releases were executed and a Request for Dismissal was filed with the court on January 8, 2009.
In Coria Laboratories, Ltd. v. Hi-Tech Pharmacal Co., Inc., C.A. 07-CV-0734 (XR) (W.D. Tex.), filed on September 10, 2007, plaintiff Coria has asserted claims for false advertising, unfair competition and common law misappropriation against defendant Hi-Tech, based on Hi-Tech’s marketing and sale of Salicylic Acid 6% Cream and Salicylic Acid 6% Lotion. Coria seeks both compensatory and punitive damages and requests an injunction to preclude Hi-Tech from marketing its salicylic acid products in the manner objected to by Coria. Hi-Tech denies all liability under any of Coria’s claims. The parties have conducted some discovery and the Court has set a July 2009 trial date. Hi-Tech has no estimate at this time of its potential exposure in the event of a finding of liability in this matter. The Company believes it has meritorious defenses to the allegations in the complaint.
[3]Related Party Transactions:
The Company has entered into a consulting agreement with Reuben Seltzer, a director and the brother of David Seltzer, President of the Company, for a term of two years for the development of corporate strategy and other duties. Mr. Seltzer will receive a consulting fee of $300,000 per year, a discretionary bonus during each year of the term in the sole discretion of the Company’s Compensation Committee, and options to purchase 25,000 shares of the Company’s common stock in accordance with the Company’s Amended and Restated Stock Option Plan. The Company granted 25,000 options to Mr. Seltzer in September 2008 at an exercise price of $9.70 which represented the market value of the stock on the date of the grant.
[4]Contingent Purchase Price:
In connection with the acquisition of Midlothian Laboratories, LLC, the Company has a contingent liability in amounts up to $1,000,000 under certain events and milestones. The first payment of $500,000 was to be paid by March 15, 2009 if net sales of Midlothian equaled or exceeded $10,000,000 for calendar 2009. Net sales for the period totaled approximately $9,800,000; which includes certain estimates of chargebacks, rebates, discounts and allowances. The Company does not believe that it is liable for this payment. Therefore the Company has not recorded the liability since the milestone was not met. The second contingent payment of $500,000 is due if the Company is first to market with an ANDA that Midlothian had in development at the time of acquisition. To date, this product has not been approved, so the milestone has not been met.
[5]Royalty Payment:
The Company incurred a royalty expense during the three months ended January 31, 2009 of $2.5 million based on gross profits on sales of Dorzolamide with Timolol ophthalmic solution since the launch on October 28, 2008. The Company did not accrue any expense in the period ended October 31, 2008, because, after discussion with counsel, the Company concluded that the agreement between the Company and its partner did not legally require the Company to pay royalties to the partner in the event the Company did not receive 180 day exclusivity on such product, which it did not. On November 7, 2008 the Company filed a motion to grant a 180 day exclusivity period which the Court denied on December 10, 2008. The Company disputed its requirement to pay such royalty to its partner, but, after discussion with counsel, the Company decided to make such royalty payments in order to avoid prolonged and costly litigation with an uncertain outcome and to maintain its business relationship with the partner. The Company will continue to pay this royalty as long as the profitability on the product exceeds certain thresholds.
15. RECENT ACCOUNTING PRONOUNCEMENTS:
On October 10, 2008, the FASB issued FSP FAS 157-3, “Determining the Fair Value of a Financial Asset in a Market That Is Not Active.” The FSP was effective upon issuance, including periods for which financial statements have not been issued. The FSP clarified the application of SFAS 157 in an inactive market and provided an illustrative example to demonstrate how the fair value of a financial asset is determined when the market for that financial asset is inactive. The adoption of this FSP did not have a material impact on the Company’s financial position and the results of operations.
In December 2007, the EITF issued EITF Issue No. 07-1 (“EITF 07-1”),Accounting for Collaborative Arrangements.EITF 07-1 affects entities that participate in collaborative arrangements for the development and commercialization of intellectual property. The EITF affirmed the tentative conclusions reached on (1) what constitutes a collaborative arrangement, (2) how the parties should present costs and revenues in their respective income statements, (3) how the parties should present cost-sharing payments, profit-sharing payments, or both in their respective income statements, and (4) disclosure in the annual financial statements of the partners.
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EITF 07-1 should be applied as a change in accounting principle through retrospective application to all periods presented for collaborative arrangements existing as of the date of adoption. EITF 07-1 is effective for financial statements issued for fiscal years beginning after December 15, 2007. The adoption of EITF 07-1 did not have an impact on the Company’s financial statements.
In June 2007, the FASB ratified the consensus reached by the Emerging Issues Task Force on Issue No. 07-3, Accounting for Advance Payments for Goods or Services Received for Use in Future Research and Development Activities (“Issue 07-3”), which is effective for fiscal years beginning after December 15, 2007 and is applied prospectively for new contracts entered into on or after the effective date. Issue 07-3 addresses nonrefundable advance payments for goods or services for use in future research and development activities. Issue 07-3 will require that these payments that will be used or rendered for future research and development activities be deferred and capitalized and recognized as an expense as the related goods are delivered or the related services are performed. If an entity does not expect the goods to be delivered or the services to be rendered the capitalized advance payments should be expensed. The adoption of Issue 07-3 did not have an impact on the Company’s financial statements.
16. COMPREHENSIVE INCOME:
In accordance with SFAS No. 130, “Reporting Comprehensive Income,” the Company is required to report all changes in equity during a period, except those resulting from investment by owners and distribution to owners, for the period in which they are recognized. Comprehensive income is the total of net income and all other non-owner changes in equity (or other comprehensive income) such as unrealized gains/losses on securities classified as available for sale.
The Company’s investment in Neuro-Hitech, Inc., a marketable security valued pursuant to SFAS 115, is classified as available for sale and measured at fair value with the adjustment to fair value and changes therein recorded in accumulated other comprehensive income. At January 31, 2009, the Company owned 1,526,922 shares of Neuro-Hitech with a market value of $0.13 per share.
| | | | | | | | | | | | |
| | Three months ended January 31, | | | Nine months ended January 31, | |
| 2009 | | | 2008 | | | 2009 | | | 2008 | |
Net income (loss) | | 2,071,000 | | | (1,544,000 | ) | | 4,695,000 | | | (5,375,000 | ) |
Other comprehensive loss | | (10,000 | ) | | (3,093,000 | ) | | (98,000 | ) | | (4,285,000 | ) |
| | | | | | | | | | | | |
Comprehensive income (loss) | | 2,061,000 | | | (4,637,000 | ) | | 4,597,000 | | | (9,660,000 | ) |
| | | | | | | | | | | | |
17. SIGNIFICANT CUSTOMERS AND CONCENTRATION OF CREDIT RISK:
For the nine months ended January 31, 2009, three customers, Cardinal Health, McKesson and AmerisourceBergen, accounted for net sales of approximately 14%, 14% and 13%, respectively. These customers represented approximately 50% of accounts receivable at January 31, 2009. For the nine months ended January 31, 2008, the Company’s significant customer was McKesson with 16% of net sales. At January 31, 2008, trade receivables from McKesson were approximately 33% of total receivables.
For the three months ended January 31, 2009, two customers, AmerisourceBergen and McKesson accounted for net sales of approximately 16% and 13%, respectively. At January 31, 2009, trade receivables from AmerisourceBergen and McKesson were approximately 32% of total receivables. During the three months ended January 31, 2008, the Company’s significant customers were McKesson with 19% of net sales and Cardinal with 12% of net sales. At January 31, 2008 trade receivables from McKesson and Cardinal were approximately 46% of total receivables.
The Company maintains cash and cash equivalents primarily with major financial institutions. Such amounts exceed FDIC limits.
18. PRO FORMA FINANCIAL STATEMENTS:
The results of Midlothian Laboratories LLC have been included in the statements of operations since the date of acquisition. Unaudited pro forma results of operations for the three and nine months ended January 31, 2009 are included below. Such pro forma information assumes that the above acquisition had occurred as of May 1, 2007, and net sales is presented in accordance with our accounting policies. This summary is not necessarily indicative of what our result of operations would have been had Midlothian Laboratories LLC been acquired on May 1, 2007, nor does it purport to represent results of operations for any future periods.
| | | | | | | | |
| | Three Months Ended January 31, 2008 (unaudited) | | | Nine Months Ended January 31, 2008 (unaudited) | |
Net sales | | $ | 16,104,000 | | | $ | 45,633,000 | |
| | | | | | | | |
Net loss | | $ | (1,507,000 | ) | | $ | (4,530,000 | ) |
| | | | | | | | |
Weighted average numbers of Shares Outstanding—Basic and Diluted | | | | | | | | |
Loss per share Basic and Diluted | | $ | (0.13 | ) | | $ | (0.40 | ) |
19. LONG TERM DEBT:
In June 2008 and August 2008, the Company entered into two loan agreements totaling $548,000, in connection with the purchase of new software. The loans bear interest at a rate of 7.15% and 8.25%, respectively, and are payable in monthly installments over a three year period.
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20. SUBSEQUENT EVENTS:
On February 27, 2009 Hi-Tech Pharmacal Co., Inc. (the “Company”) entered into an asset purchase agreement (the “Agreement”) with E. Claiborne Robins Company, Inc. d/b/a ECR Pharmaceuticals, a Virginia corporation (“ECR”) and Davis S. Caskey (“Caskey”) to purchase substantially all of the assets and business of ECR for a purchase price of $5,138,082, of which $1 million was payable at closing and $4,138,082 is payable by two promissory notes due within eight months after closing. These notes may be adjusted to reflect adjustments to the minimum working capital purchased.
In addition to the purchase price, in the event net sales are in excess of $10 million during the three (3) successive twelve month periods following the closing, the Company will pay ECR an amount equal to seven (7%) percent of net sales. The total amount payable during any twelve month period will not exceed $1,683,333.33. In the event the Company’s gross profits with respect to the ECR products in any of the three (3) successive twelve month periods following closing exceed $9 million, the Company will make additional payments to ECR as follows: (i) in the event the Company’s gross profit in any twelve month period is greater than $9 million but less than $11 million, the Company will pay ECR the sum of $541,667. In the event the Company’s gross profit in any twelve month period is $11 million or more, the Company will pay to ECR the sum of $833,333. In no event will the Company pay in excess of $4 million for the net sales and gross profit earnouts.
The purchased assets include (i) all compounds marketed under the brands Dexpak 6 Day, Dexpak 10 Day and 13 Day, Lodrane 12D, Lodrane 24, Lodrane 24D, Lodrane D Suspension, Bupap, Anaplex, Pneumotussin, Panalgesic and Nasatab; inventory; product packaging and supplies; intellectual property; machinery, equipment, office furniture, fixtures and leasehold improvements; accounts receivable and prepaid expenses; rights under assumed contracts; the business as a going concern and the goodwill associated therewith.
The Agreement contains customary representations, warranties and covenants. The Agreement also provides for mutual indemnification obligations.
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ITEM 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
This Report on Form 10-Q and certain information incorporated herein by reference contain forward-looking statements which are not historical facts made pursuant to the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are not promises or guarantees and investors are cautioned that all forward-looking statements involve risks and uncertainties, including but not limited to the impact of competitive products and pricing, product demand and market acceptance, new product development, the regulatory environment, including without limitation, reliance on key strategic alliances, availability of raw materials, fluctuations in operating results and other risks detailed from time to time in the Company’s filings with the Securities and Exchange Commission. These statements are based on management’s current expectations and are naturally subject to uncertainty and changes in circumstances. We caution you not to place undue reliance upon any such forward-looking statements which speak only as of the date made. Hi-Tech is under no obligation to, and expressly disclaims any such obligation to, update or alter its forward-looking statements, whether as a result of new information, future events or otherwise.
RESULTS OF OPERATIONS FOR THREE MONTHS ENDED JANUARY 31, 2009 AND 2008
Revenue
| | | | | | | | | | | | |
| | January 31, 2009 | | January 31, 2008 | | Change | | % Change | |
Hi-Tech Generics | | $ | 24,518,000 | | $ | 11,130,000 | | $ | 13,388,000 | | 120 | % |
Health Care Products | | $ | 2,639,000 | | $ | 2,607,000 | | $ | 32,000 | | 1 | % |
Midlothian | | $ | 2,263,000 | | $ | 1,338,000 | | $ | 925,000 | | 69 | % |
| | | | | | | | | | | | |
Total | | $ | 29,420,000 | | $ | 15,075,000 | | $ | 14,345,000 | | 95 | % |
| | | | | | | | | | | | |
Net sales of Hi-Tech generic pharmaceutical products, which includes some private label contract manufacturing, increased due to new product launches including Dorzolamide with Timolol ophthalmic solution, Dorzolamide ophthalmic solution, Fluticasone propionate nasal spray, Hydrocodone Bitartrate and Homatropine Methylbromide Syrup, and Calcipotriene solution. These increases were partially offset by decreases in sales of cough and flu products. Net sales of Dorzolamide with Timolol ophthalmic solution were approximately $6,300,000.
Sales for the Health Care Products division, which markets the Company’s branded products, were essentially unchanged as sales of the newly launched Zostrix® Neuropathy Cream and Nasal Ease® offset declines of in-line products.
In December 2007, Hi-Tech acquired the assets of Midlothian Laboratories, a company which markets and distributes generic products in the cough and cold and prescription vitamin markets. The 2008 period represents one month of sales, while the 2009 period represents a full three months of sales.
Cost of Sales
| | | | | | | | | | | | |
| | January 31, 2009 | | | January 31, 2008 | |
| $ | | % of sales | | | $ | | % of sales | |
Cost of Sales | | $ | 15,604,000 | | 53 | % | | $ | 10,057,000 | | 67 | % |
The decrease in cost of sales as a percentage of net sales is due to sales of newly launched products, in particular Dorzolamide with Timolol ophthalmic solution and Hydrocodone Bitartrate and Homatropine Methylbromide Syrup. Additionally, Midlothian Laboratories has higher gross margins than Hi-Tech’s core generic business, therefore, increased sales from the Midlothian division contributed to the higher gross margin. As additional competitors come into the market and begin selling Dorzolamide products, the Company anticipates a potential decline in the sales price and gross profit margin for such products.
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Expense (Income) Items
| | | | | | | | | | | | | | | |
| | January 31, 2009 | | | January 31, 2008 | | | Change | | | % Change | |
Selling, general and administrative expense | | $ | 9,261,000 | | | $ | 5,855,000 | | | $ | 3,406,000 | | | 58 | % |
Research and product development costs | | $ | 1,790,000 | | | $ | 1,432,000 | | | $ | 358,000 | | | 25 | % |
Royalty and contract research income | | $ | (159,000 | ) | | $ | 0 | | | $ | (159,000 | ) | | N/A | |
Interest expense | | $ | 12,000 | | | $ | 8,000 | | | $ | 4,000 | | | 50 | % |
Interest (income) and other | | $ | (548,000 | ) | | $ | (197,000 | ) | | $ | (351,000 | ) | | 178 | % |
Provision for income tax (benefit)/expense | | $ | 1,389,000 | | | $ | (536,000 | ) | | $ | 1,925,000 | | | (359 | )% |
Increases in selling, general and administrative expenses are primarily due to the royalty paid to a partner on the Dorzolamide with Timolol ophthalmic solution. The Company incurred a royalty expense during the three months ended January 31, 2009 of $2.5 million based on gross profits on sales of dorzolamide with timolol ophthalmic solution since the launch on October 28, 2008. The Company did not accrue any expense in the period ended October 31, 2008, because, after discussion with counsel, the Company concluded that the agreement between the Company and its partner did not legally require the Company to pay royalties to the partner in the event the Company did not receive 180 day exclusivity on such product, which it did not. On November 7, 2008 the Company filed a motion to grant a 180 day exclusivity period which the Court denied on December 10, 2008. The Company disputed its requirement to pay such royalty to its partner, but, after discussion with counsel, the Company decided to make such royalty payments in order to avoid prolonged and costly litigation with an uncertain outcome and to maintain its business relationship with the partner. The Company will continue to pay this royalty as long as the profitability on the product exceeds certain thresholds.
Additional increases in the selling, general and administrative expenses include expenses of the recently acquired Midlothian division, increases in compensation expense and the amortization of intangibles relating to that acquisition.
The increase in expenditures for research and development were driven by increased expenditures on externally developed projects.
Royalty and contract research income include royalties relating to Brometane, a cough and cold product which the Company divested in July 2008 and income received from outside parties for research performed by the Company.
Other income includes a reimbursement from the seller, of $500,000, for a loss realized in the prior year, from the sale of an auction rate security. Interest income decreased in fiscal 2009, because the Company had lower average cash and investment balances and the investments were held in accounts which paid lower rates of interest.
The Company recorded a provision for income taxes amounting to 42% of income before income taxes for the three months ended January 31, 2009, compared to a benefit amounting to 26% of the loss before income taxes for the three months ended January 31, 2008. The difference in the effective tax rate is mainly due to changes period over period in permanent differences that have a larger percentage impact on the current period provision.
Income Analysis
| | | | | | | | | | | | | | |
| | January 31, 2009 | | January 31, 2008 | | | Change | | | % Change | |
Net Income (Loss) | | $ | 2,071,000 | | $ | (1,544,000 | ) | | $ | 3,615,000 | | | N/A | |
Basic Earnings (Loss) Per Share | | $ | 0.19 | | $ | (0.14 | ) | | $ | 0.33 | | | N/A | |
Diluted Earnings (Loss) Per Share | | $ | 0.18 | | $ | (0.14 | ) | | $ | 0.32 | | | N/A | |
Weighted Average Common Shares Outstanding, Basic | | | 11,180,000 | | | 11,335,000 | | | | (155,000 | ) | | (1 | )% |
Effect of Potential Common Shares | | | 330,000 | | | 0 | | | | 330,000 | | | N/A | |
Weighted Average Common Shares Outstanding, Diluted | | | 11,510,000 | | | 11,335,000 | | | | 175,000 | | | 2 | % |
Shares outstanding were not diluted by options in the January 31, 2008 period, because the effect would have been antidilutive. Additionally, the Company repurchased 160,000 shares of common stock during the three months ended January 31, 2009.
RESULTS OF OPERATIONS FOR NINE MONTHS ENDED JANUARY 31, 2009 AND 2008
Revenue
| | | | | | | | | | | | | |
| | January 31, 2009 | | January 31, 2008 | | Change | | | % Change | |
Hi-Tech Generics | | $ | 56,588,000 | | $ | 32,038,000 | | $ | 24,550,000 | | | 77 | % |
Health Care Products | | $ | 7,798,000 | | $ | 6,972,000 | | $ | 826,000 | | | 12 | % |
Midlothian | | $ | 5,950,000 | | $ | 1,338,000 | | $ | 4,612,000 | | | 345 | % |
Naprelan® | | | | | $ | 699,000 | | $ | (699,000 | ) | | N/A | |
| | | | | | | | | | | | | |
Total | | $ | 70,336,000 | | $ | 41,047,000 | | $ | 29,289,000 | | | 71 | % |
| | | | | | | | | | | | | |
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Net sales of Hi-Tech generic pharmaceutical products, which includes some private label contract manufacturing, increased due to new product launches including Dorzolamide with Timolol ophthalmic solution, Dorzolamide ophthalmic solution, Fluticasone propionate nasal spray, Hydrocodone Bitartrate and Homatropine Methylbromide Syrup, Ciclopirox topical solution, and Calcipotriene solution. These increases were partially offset by decreases in sales of cough and flu products. Sales of Dorzolamide with Timolol were approximately $11,700,000.
Sales for the Health Care Products division, which markets the Company’s branded products, increased due to sales of the newly launched Zostrix® Neuropathy Cream and Nasal Ease®. These increases were partially offset by decreases in sales of various products in the diabetes line.
In December 2007, Hi-Tech acquired the assets of Midlothian Laboratories, a company which markets and distributes generic products in the cough and cold and prescription vitamin markets. In April 2007, Hi-Tech divested Naprelan®. Sales of Naprelan® in the prior year represent inventory sold as part of the divestiture.
Cost of Sales
| | | | | | | | | | | | |
| | January 31, 2009 | | | January 31, 2008 | |
| $ | | % of sales | | | $ | | % of sales | |
Cost of Sales | | $ | 38,570,000 | | 55 | % | | $ | 28,262,000 | | 69 | % |
The decrease in cost of sales as a percentage of net sales is due to sales of newly launched products, in particular Dorzolamide with Timolol ophthalmic solution, Hydrocodone Bitartrate and Homatropine Methylbromide Syrup. Additionally, Midlothian Laboratories has higher gross margins than Hi-Tech’s core generic business so increased sales of that division contributed to higher gross margins. The prior period also contained sales of Naprelan® at cost as part of an agreement to sell that product. As additional competitors come into the market and begin selling Dorzolamide products, the Company anticipates a potential decline in the sales price and gross profit margin for such products.
Expense (Income) Items
| | | | | | | | | | | | | | | |
| | January 31, 2009 | | | January 31, 2008 | | | Change | | | % Change | |
Selling, general and administrative expense | | $ | 22,659,000 | | | $ | 17,124,000 | | | $ | 5,535,000 | | | 32 | % |
Research and product development costs | | $ | 5,479,000 | | | $ | 4,227,000 | | | $ | 1,252,000 | | | 30 | % |
Royalty and contract research income | | $ | (273,000 | ) | | $ | 0 | | | $ | (273,000 | ) | | N/A | |
Interest expense | | $ | 29,000 | | | $ | 17,000 | | | $ | 12,000 | | | 71 | % |
Interest (income) and other | | $ | (4,234,000 | ) | | $ | (841,000 | ) | | $ | (3,393,000 | ) | | 403 | % |
Provision for income tax expense/(benefit) | | $ | 3,411,000 | | | $ | (2,367,000 | ) | | | 5,778,000 | | | (244 | )% |
Increases in selling, general and administrative expenses are primarily due to the royalty paid to a partner on the Dorzolamide with Timolol ophthalmic solution. The Company incurred a royalty expense during the three months ended January 31, 2009 of $2.5 million based on gross profits on sales of Dorzolamide with timolol ophthalmic solution since the launch on October 28, 2008. The Company did not accrue any expense in the period ended October 31, 2008, because, after discussion with counsel, the Company concluded that the agreement between the Company and its partner did not legally require the Company to pay royalties to the partner in the event the Company did not receive 180 day exclusivity on such product, which it did not. On November 7, 2008 the Company filed a motion to grant a 180 day exclusivity period which the Court denied on December 10, 2008. The Company disputed its requirement to pay such royalty to its partner, but, after discussion with counsel, the Company decided to make such royalty payments in order to avoid prolonged and costly litigation with an uncertain outcome and to maintain its business relationship with the partner. The Company will continue to pay this royalty as long as the profitability on the product exceeds certain thresholds.
Additional increases in the selling, general and administrative expenses include expenses of the recently acquired Midlothian division, increases in compensation expense and the amortization of intangibles relating to that acquisition.
The increase in expenditures for research and development were driven by increased expenditures on externally developed projects.
Royalty and contract research income include royalties relating to Brometane, a cough and cold product which the Company divested in July 2008 and income received from outside parties for research performed by the Company.
Other income includes a reimbursement from the seller, of $500,000, for a loss realized in the prior year, from the sale of an auction rate security. Also, included in other (income) expense is the $3,500,000 gain on the sale of the related rights to Brometane®, a cough and cold product which the Company divested in July 2008. Interest income decreased in fiscal 2009, because the Company had lower average cash and investment balances and the investments were held in accounts which paid lower rates of interest.
The Company recorded a provision for income taxes amounting to 42% of income before income taxes for the nine months ended January 31, 2009, compared to a benefit amounting to 31% of loss before income taxes for the nine months ended January 31, 2008. The difference in the effective tax rate is mainly due to changes period over period in permanent differences that have a larger percentage impact on the current period provision. Additionally, the change is due to the timing difference of the tax deduction relating to the FAS 123R expense.
16
Income Analysis
| | | | | | | | | | | | | | |
| | January 31, 2009 | | January 31, 2008 | | | Change | | | % Change | |
Net Income (Loss) | | $ | 4,695,000 | | $ | (5,375,000 | ) | | $ | 10,070,000 | | | N/A | |
Basic Earnings (Loss) Per Share | | $ | 0.41 | | $ | (0.47 | ) | | $ | 0.88 | | | N/A | |
Diluted Earnings (Loss) Per Share | | $ | 0.40 | | $ | (0.47 | ) | | $ | 0.87 | | | N/A | |
Weighted Average Common Shares Outstanding, Basic | | | 11,328,000 | | | 11,379,000 | | | | (51,000 | ) | | (0 | )% |
Effect of Potential Common Shares | | | 432,000 | | | 0 | | | | 432,000 | | | N/A | |
Weighted Average Common Shares Outstanding, Diluted | | | 11,760,000 | | | 11,379,000 | | | | 381,000 | | | 3 | % |
Shares outstanding were not diluted by options for the nine months ending January 31, 2009, because the effect would have been antidilutive. Additionally, the Company repurchased 254,000 shares of common stock this fiscal year.
LIQUIDITY AND CAPITAL RESOURCES
The Company’s operations are historically financed principally by cash flow from operations. At January 31, 2009 and April 30, 2008, working capital was approximately $52,896,000 and $45,875,000, respectively, an increase of $7,021,000 during the nine months ended January 31, 2009.
Cash from operating activities was approximately $7,905,000 which is primarily due to earnings. Cash flows provided by investing activities were $3,579,000 and were principally the result of sales of intangible assets and marketable securities offset, in part, by purchases of fixed assets.
Cash used in financing activities of $1,707,000 was principally due to the acquisition of treasury stock.
The Company believes that its financial resources consisting of current working capital and anticipated future operating revenue will be sufficient to enable it to meet its working capital requirements for at least the next 12 months.
The Company is currently negotiating a new credit facility which would increase liquidity to the Company; however, there can be no assurance that a new credit facility will be obtained.
RECENT ACCOUNTING PRONOUNCEMENTS
On October 10, 2008, the FASB issued FSP FAS 157-3, “Determining the Fair Value of a Financial Asset in a Market That Is Not Active.” The FSP was effective upon issuance, including periods for which financial statements have not been issued. The FSP clarified the application of SFAS 157 in an inactive market and provided an illustrative example to demonstrate how the fair value of a financial asset is determined when the market for that financial asset is inactive. The adoption of this FSP did not have a material impact on the Company’s financial position and the results of operations.
In December 2007, the EITF issued EITF Issue No. 07-1 (“EITF 07-1”),Accounting for Collaborative Arrangements.EITF 07-1 affects entities that participate in collaborative arrangements for the development and commercialization of intellectual property. The EITF affirmed the tentative conclusions reached on (1) what constitutes a collaborative arrangement, (2) how the parties should present costs and revenues in their respective income statements, (3) how the parties should present cost-sharing payments, profit-sharing payments, or both in their respective income statements, and (4) disclosure in the annual financial statements of the partners. EITF 07-1 should be applied as a change in accounting principle through retrospective application to all periods presented for collaborative arrangements existing as of the date of adoption. EITF 07-1 is effective for financial statements issued for fiscal years beginning after December 15, 2007. The adoption of EITF 07-1 did not have an impact on the Company’s financial position and the results of operations.
In June 2007, the FASB ratified the consensus reached by the Emerging Issues Task Force on Issue No. 07-3, Accounting for Advance Payments for Goods or Services Received for Use in Future Research and Development Activities (“Issue 07-3”), which is effective for fiscal years beginning after December 15, 2007 and is applied prospectively for new contracts entered into on or after the effective date. Issue 07-3 addresses nonrefundable advance payments for goods or services for use in future research and development activities. Issue 07-3 will require that these payments that will be used or rendered for future research and development activities be deferred and capitalized and recognized as an expense as the related goods are delivered or the related services are performed. If an entity does not expect the goods to be delivered or the services to be rendered the capitalized advance payments should be expensed. The adoption of Issue 07-03 did not have an impact on the Company’s financial position and the results of operations.
SEASONALITY
Historically, the months of September through March account for a greater portion of the Company’s sales than the other months of the fiscal year. However, this sales pattern can vary significantly depending on the cough, cold and flu season. Accordingly, period-to-period comparisons within the same fiscal year are not necessarily meaningful and should not be relied on as indicative of future results.
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CRITICAL ACCOUNTING POLICIES
In preparing financial statements in conformity with generally accepted accounting principles in the United States of America, we are required to make estimates and assumptions that affect reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and revenues and expenses for the reporting period covered thereby. As a result, these estimates are subject to an inherent degree of uncertainty. We base our estimates and judgments on our historical experience, the terms of existing contracts, our observance of trends in the industry, information that we obtain from our customers and outside sources, and on various assumptions that we believe to be reasonable and appropriate under the circumstances, the results of which form the basis for making judgments which impact our reported operating results and the carrying values of assets and liabilities. These assumptions include but are not limited to the percentage of new products which may have chargebacks and the percentage of items which will be subject to price decreases. Actual results may differ from these estimates.
Revenue recognition and accounts receivable, adjustments for returns and price adjustments, allowance for doubtful accounts and carrying value of inventory represent significant estimates made by management.
Revenue Recognition and Accounts Receivable: Revenue is recognized for product sales upon shipment and when risk is passed to the customer and when estimates of discounts, rebates, promotional adjustments, price adjustments, returns, chargebacks, and other potential adjustments are reasonably determinable, collection is reasonably assured and the Company has no further performance obligations. These estimates are presented in the financial statements as reductions to net revenues and accounts receivable. Estimated sales returns, allowances and discounts are provided for in determining net sales. Contract research income is recognized as work is completed and billable costs are incurred. In certain cases, contract research income is based on attainment of designated milestones.
Adjustments for Returns and Price Adjustments: Our product revenues are typically subject to agreements with customers allowing chargebacks, rebates, rights of return, pricing adjustments and other allowances. Based on our agreements and contracts with our customers, we calculate adjustments for these items when we recognize revenue and we book the adjustments against accounts receivable and revenue. Chargebacks, primarily from wholesalers, are the most significant of these items. Chargebacks result from arrangements we have with retail customers establishing prices for products for which the end user independently selects a wholesaler from which to purchase. A chargeback represents the difference between our invoice price to the wholesaler, which is typically stated at wholesale acquisition cost, and the end customer’s contract price, which is lower. We credit the wholesaler for purchases by end customers at the lower price. Therefore, we record these chargebacks at the time we recognize revenue in connection with our sales to wholesalers.
The reserve for chargebacks is computed by analyzing the number of units sold for the past twenty-four months and the number of units sold through to retailers. The difference represents the inventory which could potentially have chargebacks due to wholesalers. This inventory is multiplied by the historical percentage of units that are charged back and by the price adjustment per unit to arrive at the chargeback accrual. This calculation is performed by product by customer. The Company currently obtains wholesaler inventory data for the wholesalers which represent approximately 95% of our chargeback activity. This data is used to verify the information calculated in the chargeback accrual.
The calculated amount of chargebacks could be affected by other factors such as:
| • | | A change in retail customer mix |
| • | | A change in negotiated terms with retailers |
| • | | Product sales mix at the wholesaler |
| • | | Retail inventory levels |
| • | | Changes in Wholesale Acquisition Cost (WAC) |
The Company continually monitors the chargeback activity and adjusts the provisions for chargebacks when we believe that the actual chargebacks will differ from our original provisions.
Consistent with industry practice, the Company maintains a return policy that allows our customers to return product within a specified period. The Company’s estimate for returns is based upon its historical experience with actual returns. While such experience has allowed for reasonable estimation in the past, history may not always be an accurate indicator of future returns. The Company continually monitors its estimates for returns and makes adjustments when it believes that actual product returns may differ from the established accruals.
Included in the adjustment for sales allowances and returns is a reserve for credits taken by our customers for rebates, return authorizations and other.
Sales discounts are granted for prompt payment. The reserve for sales discounts is based on invoices outstanding and assumes that 100% of available discounts will be taken.
Price adjustments, including shelf stock adjustments, are credits issued from time to time to reflect decreases in the selling prices of our products which our customer has remaining in its inventory at the time of the price reduction. Decreases in our selling prices are discretionary decisions made by us to reflect market conditions. Amounts recorded for estimated price adjustments are based upon specified terms with direct customers, estimated launch dates of competing products, estimated declines in market price and inventory held by the customer. The Company analyzes this on a case by case basis and makes adjustments to reserves as necessary.
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The Company adequately reserves for chargebacks, discounts, allowances and returns in the period in which the sales take place. No material amounts included in the provision for chargebacks and the provision for sales discounts recorded in the current period relate to sales made in the prior periods. The current provision for sales allowances and returns includes reserves for items sold in the current period, while the ending balance includes reserves for items sold in the current and prior periods. The Company has substantially and consistently used the same estimating methods. We have refined the methods as new data became available. There have been no material differences between the estimates applied and actual results.
The Company determines amounts that are material to the financial statements in consideration of all relevant circumstances including quantitative and qualitative factors. Among the items considered is the impact on individual financial statement classification, operating income and footnote disclosures and the degree of precision that is attainable in estimating judgmental items.
The following table presents the roll forward of each significant estimate as of January 31, 2009 and January 31, 2008 and for the nine months then ended, respectively.
| | | | | | | | | |
For the nine months ended January 31, 2009 | | Beginning Balance May 1 | | Current Provision | | Actual Credits in Current Period | | Ending Balance January 31 |
Chargebacks | | $ | 2,668,000 | | 24,987,000 | | 24,495,000 | | 3,160,000 |
Sales Discounts | | | 440,000 | | 2,556,000 | | 2,423,000 | | 573,000 |
Sales Allowances & Returns | | | 5,357,000 | | 22,059,000 | | 15,405,000 | | 12,011,000 |
| | | | | | | | | |
Total Adjustment for Returns & Price Allowances | | $ | 8,465,000 | | 49,602,000 | | 42,323,000 | | 15,744,000 |
| | | | | | | | | |
| | | | |
For the nine months ended January 31, 2008 | | | | | | | | |
Chargebacks | | $ | 3,509,000 | | 18,572,000 | | 19,212,000 | | 2,869,000 |
Sales Discounts | | | 257,000 | | 1,631,000 | | 1,509,000 | | 379,000 |
Sales Allowances & Returns | | | 5,520,000 | | 10,792,000 | | 10,235,000 | | 6,077,000 |
| | | | | | | | | |
Total Adjustment for Returns & Price Allowances | | $ | 9,286,000 | | 30,995,000 | | 30,956,000 | | 9,325,000 |
| | | | | | | | | |
Allowance for Doubtful Accounts: We have historically provided credit terms to customers in accordance with what management views as industry norms. Financial terms for credit-approved customers are generally on either a net 30 or 60 day basis, though most customers are entitled to a prompt payment discount. Management periodically and regularly reviews customer account activity in order to assess the adequacy of allowances for doubtful accounts, considering factors such as economic conditions and each customer’s payment history and creditworthiness. If the financial condition of our customers were to deteriorate, or if they were otherwise unable to make payments in accordance with management’s expectations, we would have to increase our allowance for doubtful accounts.
Inventories: We state inventories at the lower of average cost or market, with cost being determined based upon the average method. In evaluating whether inventory is to be stated at cost or market, management considers such factors as the amount of inventory on hand, estimated time required to sell existing inventory and expected market conditions, including levels of competition. We establish reserves for slow-moving and obsolete inventories based upon our historical experience, product expiration dates and management’s assessment of current product demand.
Intangible Assets: The Company’s intangible assets consist primarily of acquired product rights. Intangible assets are stated at cost and amortized using the straight line method over the expected useful lives of the product rights. We regularly review the appropriateness of the useful lives assigned to our product rights taking into consideration potential future changes in the markets for our products. The Company reviews each intangible asset with finite useful lives for impairment by comparing the undiscounted cash flows of each asset to the respective carrying value. The Company performs this impairment testing when events occur or circumstances change that would more likely than not reduce the undiscounted cash flows of the asset below its carrying value.
CONTRACTUAL OBLIGATIONS AND OFF-BALANCE SHEET ARRANGEMENTS
As part of our ongoing business, we do not participate in transactions that generate relationships with unconsolidated entities or financial partnerships which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. As of January 31, 2009 we are not involved in any material unconsolidated transactions.
The Company’s Midlothian division signed a lease for a 12,000 square foot facility in Montgomery, AL with the lease starting on December 1, 2008.
The Company entered into two lease obligations to partially finance a new computer system.
The Company entered into a Supply and Distribution Agreement in connection with the development and distribution of a product. In connection with the agreement, the Company paid $300,000 for the exclusive distribution rights to the product. The Company is required to pay a net profit share after the launch of the product. The agreement requires an additional payment of $300,000 representing an advance on net profit share on future product sales.
Subject to the information and qualifications included in the above paragraphs, the table below sets forth the Company’s enforceable and legally binding future commitments and obligations relating to all contracts that we are likely to continue regardless of the fact that the contracts may be terminated. Some of the figures included in this table are based on management’s estimate and assumptions about these obligations, including their duration, the possibility of renewal, anticipated actions by third parties, and other factors. Because these estimates and assumptions are necessarily subjective, the obligations we will actually pay in future periods may vary from those reflected in the table:
| | | | | | | | | | | | | |
| | Payments due by April 30, |
Contractual Obligations | | 2009 | | 2010 | | 2011 | | 2012 | | 2013 | | 2014 |
Montgomery, AL lease | | $ | 38,000 | | 92,000 | | 92,000 | | 92,000 | | 92,000 | | 54,000 |
Software lease (principal and interest) | | | 51,000 | | 204,000 | | 204,000 | | 37,000 | | | | |
Supply and distribution agreement | | | 300,000 | | | | | | | | | | |
| | | | | | | | | | | | | |
Total | | $ | 389,000 | | 296,000 | | 296,000 | | 129,000 | | 92,000 | | 54,000 |
| | | | | | | | | | | | | |
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ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
The Company invests in U.S. treasury notes, government asset backed securities and corporate bonds, all of which are exposed to interest rate fluctuations. The interest earned on these investments may vary based on fluctuations in the market interest rate.
The Company had invested in auction rate securities (ARS) consisting primarily of municipal securities that were held as investments available-for-sale. After the initial issuance of these securities, the interest rate is reset periodically. The Company invested in ARS that reset as to interest rate every 7 to 35 days and were carried at fair value. During January and February of 2008, two of the auction rate securities failed to auction due to sell orders exceeding buy orders. Liquidity for these auction-rate securities is typically provided by an auction process that resets the applicable interest rate at pre-determined intervals. The Company sold one of these securities at a loss of approximately $500,000 in July 2008. The decrease in the value of the security was fully reserved for at April 30, 2008. The remaining securities were liquidated in September 2008 at their par value. In December 2008, the Company received a reimbursement from Bank of America of approximately $500,000 for the ARS sold by the Company at a loss.
ITEM 4. | CONTROLS AND PROCEDURES |
Under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, the Company has evaluated the effectiveness of the design and operation of its disclosure controls and procedures within 90 days of the filing date of this quarterly report, and, based on their evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that these disclosure controls and procedures are effective. There were no significant changes in our internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation.
PART II. OTHER INFORMATION
The disclosure under Note 14, Contingencies and Other Matters, Legal Proceedings included in Part I of this report is incorporated in this Part II, Item 1 by reference.
Not applicable
ITEM 1B. | UNRESOLVED STAFF COMMENTS |
On March 6, 2009, the Company received a comment letter from the staff of the Division of Corporation Finance of the SEC. The comments from the staff were issued with respect to its review of our Form 10-K for the year ended April 30, 2008. The comments covered information included in Item 1. Business, Item 1A. Risk Factors, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations and Item 11. Executive Compensation.
The Staff asked for a response by March 20, 2009. As of the date of the filing of this Form 10-Q, the Company has not submitted a response and, therefore, these comments remain unresolved.
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ITEM 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS |
| | | | | | | | | |
Period | | Total Number of Shares Purchased | | Average Price per Share | | Total Number of Shares Purchased as Part of Publicly Announced Plans | | Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans (1) |
11/01/08 – 11/30/08 | | 160,000 | | $ | 6.18 | | 160,000 | | 0 |
12/01/08 – 12/31/08 | | 0 | | | 0 | | 0 | | 0 |
1/01/09 – 1/31/09 | | 0 | | | 0 | | 0 | | 0 |
(1) | The Company’s Board of Directors has authorized $23,000,000 to repurchase the Company’s common stock. Pursuant to the terms of a Rule 10b5-1 stock repurchase plan, these repurchases may be made from time to time in the open market or in private transactions as market conditions dictate. To date the Company has purchased 2,456,000 shares for $23,000,000. |
ITEM 3. | DEFAULTS UPON SENIOR SECURITIES |
None
ITEM 4. | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS |
An annual meeting of security holders was held on November 13, 2008. The Company solicited proxies and shares were present in person and by proxy.
Set forth is the number of votes cast for, against or withheld as to each item voted upon.
| | | | | | |
(i) | | Election of Directors | | For | | Withhold |
| David S. Seltzer | | 8,847,053 | | 104,546 |
| Reuben Seltzer | | 8,802,911 | | 148,688 |
| Martin M. Goldwyn | | 8,806,725 | | 144,874 |
| Yashar Hirshaut, M.D. | | 8,849,888 | | 101,711 |
| Anthony J. Puglisi | | 8,792,913 | | 158,686 |
| Bruce W. Simpson | | 8,358,272 | | 593,327 |
| Jack van Hulst | | 8,358,672 | | 592,927 |
(ii) Ratification of the appointment of Eisner LLP as the Company’s independent auditors for the fiscal year ending April 30, 2009.
| | | | |
For | | Against | | Abstain |
8,853,960 | | 61,741 | | 35,898 |
None
(a) Exhibits
| | |
10.1 | | Asset Purchase Agreement dated February 27, 2009 by and among Hi-Tech Pharmacal Co., Inc., E. Claiborne Robins Company, Inc. d/b/a ECR Pharmaceuticals and Davis S. Caskey |
| |
31.1 | | Rule 13A-14(a)/15D-14(a) Certification |
| |
31.2 | | Rule 13A-14(a)/15D-14(a) Certification |
| |
32 | | Certification of Officers Pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2003 |
| |
99.1 | | Hi-Tech Pharmacal Co., Inc., Press Release dated March 11, 2009 |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
HI-TECH PHARMACAL CO., INC.
(Registrant)
| | | | | | | | |
| | | | | | Date: March 12, 2009 |
| | | | |
By: | | /S/ DAVID S. SELTZER | | | | | | |
| | David S. Seltzer | | | | | | |
| | (President and Chief Executive Officer) | | | | | | |
| | | | | | Date: March 12, 2009 |
| | | | |
By: | | /S/ WILLIAM PETERS | | | | | | |
| | William Peters | | | | | | |
| | (Vice President and Chief Financial Officer) | | | | | | |
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