U.S. Securities and Exchange Commission
Washington, D.C. 20549
Form 10-Q
[x] QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended October 31, 2001
[ ] TRANSITION REPORT UNDER 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 small business issuer as specified in its charter)
_____________Delaware___________________________________112638720___________
(State or other jurisdiction of incorporation or organization)
(IRS Employer Identification No.)
369 Bayview Avenue, Amityville, New York 11701
(Address of principal executive offices)
_________________631 789-8228__________________
(Issuer's telephone number)
____________________________Not applicable__________________________________
(Former name, former address and former fiscal year, if changed since
last report)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15 (d) of the Exchange Act During the past 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 xx No
--------- ---------
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13, or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court.
Yes No
-------- --------
APPLICABLE ONLY TO CORPORATE ISSUERS
State 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 - 4,683,000 shares of December 14, 2001.
Transitional Small Business Disclosure Format: Yes ; No x
--- ---
INDEX
HI-TECH PHARMACAL CO.,INC.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed balance sheets--October 31, 2001 and
April 30, 2001.
Condensed statements of operations--Three month and six month
periods ended October 31, 2001 and 2000.
Condensed statements of cash flows--Six month periods ended October
31, 2001 and 2000.
Notes to condensed financial statements.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
PART II. OTHER INFORMATION
Item 1. Legal proceedings
Item 2. Changes in securities and use of proceeds
Item 3. Defaults upon senior securities
Item 4. Submission of matters to a vote of security holders
Item 5. Other information
Item 6. Exhibits and Reports on Form 8-K
PART I. ITEM 1
2
HI-TECH PHARMACAL CO., INC.
CONDENSED BALANCE SHEETS
October 31, April 30,
2001 2001
--------------- ---------------
(unaudited) (From Audited
Financial
Statements)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 8,869,000 7,144,000
Accounts receivable, less allowances of $240,000 at October 31,
2001 and at April 30, 2001 4,575,000 4,435,000
Inventories 5,787,000 5,487,000
Deferred taxes 437,000 437,000
Prepaid expenses and other receivables 555,000 708,000
--------------- ---------------
TOTAL CURRENT ASSETS 20,223,000 18,211,000
PROPERTY, PLANT AND EQUIPMENT -net 8,939,000 8,960,000
OTHER ASSETS 278,000 339,000
--------------- ---------------
TOTAL ASSETS $ 29,440,000 27,510,000
=============== ===============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Current Portion - Long-term debt $ 206,000 340,000
Accounts payable and accrued expenses 4,540,000 4,776,000
--------------- ---------------
TOTAL CURRENT LIABILITIES 4,746,000 5,116,000
LONG-TERM DEBT 127,000 217,000
DEFERRED TAXES 1,197,000 1,197,000
--------------- ---------------
TOTAL LIABILITIES 6,070,000 6,530,000
SHAREHOLDERS' EQUITY
Preferred stock, par value $ .01 per share; authorized 3,000,000
shares, none issued - -
Common stock, par value $ .01 per share; authorized 10,000,000
shares, issued 4,669,000 at October 31, 2001 and 4,527,000 at
April 30, 2001 47,000 45,000
Additional capital 9,717,000 8,688,000
Retained earnings 14,407,000 13,048,000
Treasury stock, 194,700 shares of common stock, at cost on
October 31, 2001 and April 30, 2001 (801,000) (801,000)
--------------- ---------------
TOTAL SHAREHOLDERS' EQUITY 23,370,000 20,980,000
--------------- ---------------
LIABILITIES AND SHAREHOLDERS' EQUITY $ 29,440,000 27,510,000
=============== ===============
See notes to condensed financial statements
3
HI-TECH PHARMACAL CO., INC.
CONDENSED STATEMENTS OF OPERATIONS (unaudited)
Three months ended Six months ended
October 31, October 31,
-------------------------- --------------------------
2001 2000 2001 2000
----------- ----------- ----------- -----------
Net sales $ 8,454,000 7,870,000 14,347,000 12,893,000
Cost of goods sold 4,621,000 4,579,000 7,771,000 7,373,000
----------- ----------- ----------- -----------
Gross profit 3,833,000 3,291,000 6,576,000 5,520,000
Selling, general, administrative expenses 2,062,000 2,159,000 3,850,000 3,710,000
Research & product development costs 375,000 410,000 807,000 789,000
Contract research (income) (28,000) (78,000) (233,000) (158,000)
Interest expense 15,000 27,000 33,000 64,000
Interest (income) and other (32,000) (70,000) (110,000) (163,000)
----------- ----------- ----------- -----------
Total 2,392,000 2,448,000 4,347,000 4,242,000
INCOME BEFORE INCOME TAXES 1,446,000 843,000 2,229,000 1,278,000
Provision for income taxes 563,000 334,000 870,000 498,000
----------- ----------- ----------- -----------
NET EARNINGS $ 878,000 509,000 1,359,000 780,000
=========== =========== =========== ===========
Basic net earnings per common share $ 0.20 0.12 0.31 0.18
=========== =========== =========== ===========
Diluted net earnings per common share $ 0.18 0.12 0.28 0.18
=========== =========== =========== ===========
Weighted average common shares
outstanding - basic 4,462,000 4,369,000 4,408,000 4,374,000
Effect of potential common shares 452,000 38,000 426,000 36,000
----------- ----------- ----------- -----------
Weighted average common shares
outstanding - diluted 4,914,000 4,407,000 4,834,000 4,410,000
=========== =========== =========== ===========
See notes to condensed financial statements
4
HI-TECH PHARMACAL CO., INC.
CONDENSED STATEMENTS OF CASH FLOWS (unaudited)
Six months ended
October 31,
---------------------------
2001 2000
------------ ------------
CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES $ 1,880,000 (988,000)
CASH FLOWS FROM FINANCING ACTIVITIES
Mortgaged property - repayments (95,000) (95,000)
Repayments of equipment debt (129,000) (128,000)
Issuance (Purchase) of common stock 653,000 (71,000)
----------- -----------
CASH FROM (USED IN) FINANCING ACTIVITIES 429,000 (294,000)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property, plant and equipment (670,000) (427,000)
Proceeds - sale of equipment 25,000 --
Other assets 61,000 4,000
----------- -----------
CASH (USED IN) INVESTING ACTIVITIES (584,000) (423,000)
NET INCREASE (DECREASE) IN CASH 1,725,000 (1,705,000)
Cash at beginning of the period 7,144,000 5,181,000
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 8,869,000 $ 3,476,000
=========== ===========
Supplemental disclosures of cash flow information:
Interest $ 17,000 41,000
Income taxes $ 1,126,000 643,000
See notes to condensed financial statements
5
HI-TECH PHARMACAL CO., INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
October 31, 2001
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 six month periods ended October
31, 2001 are not necessarily indicative of the results that may be expected for
the year ended April 30, 2002. For further information, refer to the financial
statements and footnotes thereto for the year ended April 30, 2001 on Form
10-KSB.
CONTRACT RESEARCH INCOME
Contract research income is recognized as work is completed and as billable
costs are incurred. In some cases, contract research income is based on
attainment of certain designated milestones.
NET EARNINGS PER SHARE
Net income per common share is computed based on the weighted average number of
common shares outstanding for basic earnings per share and on the weighted
average number of common shares and share equivalents (stock options)
outstanding for diluted earnings per share.
WORKING CAPITAL REVOLVING LOAN
In February 2000 the Company renewed its working capital credit agreement for
$6,000,000. For the six months ended October 31, 2001 there was no borrowing
under the agreement. Loans under the agreement are collateralized by inventory,
accounts receivable and other assets. The agreement contains covenants with
respect to working capital, net worth and certain ratios, as well as other
covenants and prohibits the payment of cash dividends.
6
HI-TECH PHARMACAL CO., INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
October 31, 2001
INVENTORIES
The components of inventory consist of the following:
October 31, April 30,
2001 2001
----------- -----------
Raw materials $ 3,631,000 3,373,000
Finished products and work in process 2,156,000 2,114,000
----------- -----------
$ 5,787,000 5,487,000
=========== ===========
FIXED ASSETS
The components of net plant and equipment consist of the following:
October 31, April 30,
2001 2001
----------- -----------
Land and Building $ 5,892,000 5,773,000
Machinery and equipment 11,732,000 11,588,000
Transportation equipment 13,000 13,000
Computer equipment 721,000 639,000
Furniture and fixtures 330,000 324,000
----------- -----------
18,688,000 18,337,000
Accumulated depreciation and amortization 9,749,000 9,377,000
----------- -----------
TOTAL FIXED ASSETS $ 8,939,000 8,960,000
=========== ===========
7
HI-TECH PHARMACAL CO., INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
October 31, 2001
ACCOUNTS PAYABLE AND ACCRUED EXPENSES
The components of accounts payable and accrued expenses consist of the
following:
October 31, April 30,
2001 2001
----------- ---------
Accounts payable $ 2,813,000 2,313,000
Accrued expenses 1,727,000 2,463,000
----------- ---------
$ 4,540,000 4,776,000
=========== =========
CONTINGENCIES AND OTHER MATTERS
The Company's products and facilities are subject to regulation by a number of
Federal and State governmental agencies. The Food & Drug Administration,
("FDA"), in particular, maintains oversight of the formulation, manufacture,
distribution, packaging and labeling of all of the Company's products.
During the quarter ended October 31, 2001, the Company's significant customers
were: Cardinal Distribution L.P.,which accounted for approximately 17% of the
gross sales; Watson Pharmaceuticals (formerly Rugby Laboratories) which
accounted for approximately 9% of the gross sales; CVS/Pharmacy which accounted
for approximately 11% of the gross sales. At October 31, 2001, these customers'
trade receivables were approximately 4%, 9% and 14%, respectively, of the total.
The Company believes that a significant portion of the three months sales
increase resulted from the events of September 11, 2001.
In February 2000 the Company renewed its working capital credit agreement for
$6,000,000. For the six months ended October 31, 2001 there was no borrowing
under the agreement. Loans under the agreement are collateralized by inventory,
accounts receivable and other assets. The agreement contains covenants with
respect to working capital, net worth and certain ratios, as well as other
covenants and prohibits the payment of cash dividends.
The Company has a net investment of approximately $154,000 in a joint venture
for the marketing and development of a nutritional supplement. In addition, the
Company has guaranteed $1,500,000 of revolving debt of this joint venture to its
commercial lender. Mr. Reuben Seltzer, a director of the Company, has an
interest in the joint venture. Mr. Reuben Seltzer is the son of Mr. Bernard
Seltzer, Chairman of the Board of the Company.
In May 1997, the Company announced a stock buy-back program under which the
Board of Directors authorized the purchase of up to $500,000 of its common
stock. In August 1999 the Company increased the stock buy-back program to an
aggregate of $1,000,000. As of October 31, 2001 the Company had purchased
194,700 shares at a cost of $801,000.
8
ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
October 31, 2001
With the exception of the historical information contained in this Form 10-Q,
the matters described herein may include "forward-looking statements" within the
meaning of the Private Securities Reform Act of 1995. Such forward-looking
statements are subject to risks, uncertainties and other factors which could
cause actual results to materially differ from those projected or implied. These
risks include, but are not limited to, regulatory matters, the ability of the
Company to grow internally or by acquisition, and to integrate acquired
businesses, changing industry and competitive conditions, and other risks
outside the Company's control referred to in its registration statement and
periodic reports filed with the Securities and Exchange Commission. The Company
disclaims any obligation to update any forward-looking statements.
RESULTS OF OPERATIONS
For the six months ended October 31, 2001 net sales increased by $1,454,000, or
11%, compared to the fiscal 2001 respective period. Total six months net sales
were $14,347,000 for the period ended October 31, 2001. For the three months
ended October 31, 2001 net sales increased by $584,000, or 7%, compared to the
fiscal 2001 respective period. Total three months net sales were $8,454,000 for
the period ended October 31, 2001. During the quarter ended October 31, 2001,
the Company's significant customers were: Cardinal Distribution L.P.,which
accounted for approximately 17% of the gross sales; Watson Pharmaceuticals
(formerly Rugby Laboratories) which accounted for approximately 9% of the gross
sales; CVS/Pharmacy which accounted for approximately 11% of the gross sales. At
October 31, 2001, trade receivables were approximately 4%, 9% and 14%,
respectively, of the total. The Company believes that a significant portion of
the three months sales increase resulted from the events of September 11, 2001.
Health Care Products division for the three months ended October 31, 2001 and
2000 had gross sales of $2,013,000 and $2,063,000, respectively. Health Care
Products division for the six months ended October 31, 2001 and 2000 had sales
of $3,090,000 and $2,922,000, respectively.
Cost of sales, as a percentage of net sales, decreased from 57.2% to 54.2% for
the six months ended October 31, 2001 compared to the six months ended October
31, 2000 and decreased from 58.2% to 54.7% for the three months ended October
31, 2001 compared to the three months ended October 31, 2000. Primarily, a
higher proportion of revenues from certain higher gross profit products
influenced the results favorably. The Company continues to have a source for the
associated raw materials used in the manufacture of these products. If one or
more other generic pharmaceutical manufacturers significantly reduce their
prices in an effort to gain market share, the Company's profitability could be
adversely affected.
Research and product development costs for the three months ended October 31,
2001 decreased $35,000, or 8.5%, and Contract research income decreased $50,000
compared to the fiscal 2001 respective period.
9
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
(continued)
Selling, general and administrative expenses, as a percentage of net sales,
decreased to 24.4% from 27.4% for the respective three month period ended
October 31, 2001 and 2000. This was the result of lower advertising and
consulting expenses.
Net income for the three months ended October 31, 2001 and 2000 was $878,000 and
$509,000 respectively, an increase of $369,000, or 72%, because of the factors
noted above. Net income for the six months ended October 31, 2001 and 2000 was
$1,359,000 and $780,000, respectively, an increase of $579,000, or 74%, because
of the factors noted above.
LIQUIDITY AND CAPITAL RESOURCES
The Company's operations are financed principally by cash flow from operations.
During the October 31, 2001 period, working capital increased to $15,480,000
from $13,095,000 at April 30, 2001. During the quarter ended October 31, 2001
the Company invested $ 670,000 in fixed assets.
The Company's products and facilities are subject to regulation by a number of
Federal and State governmental agencies. The Food & Drug Administration,
("FDA"), in particular, maintains oversight of the formulation, manufacture,
distribution, packaging and labeling of all of the Company's products.
In February 2000 the Company executed a new $6,000,000 working capital credit
agreement with the same lender with the same basic terms. Borrowing under the
line are collateralized by inventory, accounts receivable and other assets. The
agreement contains covenants with respect to working capital, net worth and
certain ratios, as well as other covenants and prohibits the payment of cash
dividends.
The Company has a net investment of approximately $154,000 in a joint venture
for the marketing and development of a nutritional supplement. In addition, the
Company has guaranteed $1,500,000 of revolving debt of this joint venture to its
commercial lender. Mr. Reuben Seltzer, a director of the Company, has an
interest in the joint venture. Mr Reuben Seltzer is the son of Mr. Bernard
Seltzer, Chairman of the Board of the Company.
In May 1997, the Company announced a stock buy-back program under which the
Board of Directors authorized the purchase of up to $500,000 of its common
stock. In August 1999 the Company increased the stock buy-back program to an
aggregate of $1,000,000. As of October 31, 2001 the Company had purchased
194,700 shares at a cost of $801,000.
10
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES
None
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 28, 2001. The
Company solicited proxies and 4, 380,109 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
--------------------- --------- ---------
Bernard Seltzer 4,348,709 31,400
David S. Seltzer 4,348,709 31,400
Reuben Seltzer 4,352,109 28,000
Martin M. Goldwyn 4,354,609 25,500
Yashar Hirshaut,M.D. 4,354,609 25,500
(ii) Ratification of the appointment of Richard A. Eisner & Company LLP,
-------------------------------------------------------------------
as the Company's independent auditors for the fiscal year ending
----------------------------------------------------------------
April 30, 2002
--------------
For Against Abstain
----------- ------- -------
4,310,996 4,695 64,418
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
None
(b) Reports on Form 8-K
A report on Form 8-K was filed on October 26, 2001
SIGNATURES
In accordance with the requirements of the Exchange Act, 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 December 14, 2001
By: /s/ DAVID SELTZER
- --------------------------------------
David Seltzer
(President and Chief Executive Officer)
Date December 14, 2001
By: /s/ ARTHUR S. GOLDBERG
- --------------------------------------
Arthur S. Goldberg
(Vice President - Finance and Chief Accounting Officer)
11