HI TECH PHARMACAL CO INC - 10-Q Quarterly Report

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 January 31, 2003

o	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 x

No o

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 o

No o

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— 7,240,711 shares outstanding as of March 17, 2003.

Transitional Small Business Disclosure Format:

Yes o

No x

INDEX

HI-TECH PHARMACAL CO., INC.

PART I. FINANCIAL INFORMATION

	Item 1.	Financial Statements (Unaudited)

		Condensed balance sheets—January 31, 2003 and April 30, 2002

		Condensed statements of operations—Three month and nine month periods ended January 31, 2003 and 2002

		Condensed statements of cash flows—Nine month periods ended January 31, 2003 and 2002

		Notes to condensed financial statements

	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations

	Item 4.	Controls and Procedures

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

HI-TECH PHARMACAL CO., INC.

CONDENSED BALANCE SHEETS

		January 31, 2003			April 30, 2002

			(unaudited)			(From Audited Financial Statements)
ASSETS
CURRENT ASSETS
	Cash and cash equivalents	$	12,178,000			10,487,000
	Accounts receivable, less allowances of $340,000 and $270,000 at January 31, 2003 and at April 30, 2002		8,969,000			5,550,000
	Inventories		6,299,000			6,020,000
	Prepaid Taxes		1,197,000			464,000
	Deferred taxes		514,000			514,000
	Prepaid expenses and other receivables		763,000			648,000

TOTAL CURRENT ASSETS		$	29,920,000			23,683,000
Property, plant and equipment—net			9,719,000			9,004,000
Other assets			491,000			385,000

TOTAL ASSETS		$	40,130,000			33,072,000

LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES
	Current Portion—Long-term debt	$	91,000			155,000
	Accounts payable and accrued expenses		7,405,000			5,591,000

TOTAL CURRENT LIABILITIES		$	7,496,000			5,746,000
Long-term debt			3,000			62,000
Deferred Taxes			1,153,000			1,153,000

TOTAL LIABILITIES		$	8,652,000			6,961,000

STOCKHOLDERS’ EQUITY (1)
	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 7,239,000 at January 31, 2003 and 7,093,500 at April 30, 2002		72,000			71,000
	Additional capital		11,190,000			10,280,000
	Retained earnings		21,017,000			16,561,000
	Treasury stock, 292,050 shares of common stock, at cost on January 31, 2003 and April 30, 2002		(801,000	)		(801,000	)

TOTAL STOCKHOLDERS’ EQUITY		$	31,478,000			26,111,000

LIABILITIES AND STOCKHOLDERS’ EQUITY		$	40,130,000			33,072,000

(1) The number of shares outstanding, per share amounts, common stock and additional capital for prior periods has been adjusted to reflect a three for two stock split distributed in January 2003.

See notes to condensed financial statements

HI-TECH PHARMACAL CO., INC.

CONDENSED STATEMENTS OF OPERATIONS (unaudited)

	Three months ended January 31,						Nine months ended January 31,

	2003			2002			2003			2002

NET SALES	$	15,913,000			9,341,000			36,507,000			23,688,000
Cost of goods sold		8,250,000			4,567,000			18,152,000			12,338,000

GROSS PROFIT		7,663,000			4,774,000			18,355,000			11,350,000
Selling, general and administrative expenses		4,114,000			2,867,000			10,020,000			6,717,000
Research & product development costs		555,000			451,000			1,470,000			1,258,000
Contract research income		—			(110,000	)		(122,000	)		(343,000	)
Interest expense		8,000			10,000			25,000			43,000
Interest income and other		(84,000	)		(39,000	)		(167,000	)		(149,000	)

TOTAL		4,593,000			3,179,000			11,226,000			7,526,000

Income before provision for income taxes		3,070,000			1,595,000			7,129,000			3,824,000
Provision for income taxes		1,159,000			586,000			2,673,000			1,456,000

NET INCOME	$	1,911,000			1,009,000			4,456,000			2,368,000

BASIC EARNINGS PER SHARE (1)	$	.28			0.15			.65			0.36

DILUTED EARNINGS PER SHARE (1)	$	.24			0.13			.58			0.32

Weighted average common shares outstanding—basic		6,886,000			6,750,000			6,852,000			6,657,000
Effect of potential common shares		1,061,000			724,000			845,000			662,000

Weighted average common shares outstanding—diluted		7,947,000			7,474,000			7,697,000			7,319,000

(1) The number of shares outstanding and per share amounts for prior periods has been adjusted to reflect a three for two stock split distributed in January 2003.

See notes to condensed financial statements

HI-TECH PHARMACAL CO., INC.

CONDENSED STATEMENTS OF CASH FLOWS (unaudited)

			Nine months ended January 31,

			2003			2002

CASH FLOWS FROM OPERATING ACTIVITIES			$	2,608,000			2,891,000

CASH FLOWS FROM FINANCING ACTIVITIES
	Mortgaged property—repayments			(123,000	)		(143,000	)
	Repayments of equipment debt			—			(150,000	)
	Issuance of common stock—exercise of options			911,000			889,000

CASH FROM FINANCING ACTIVITIES			$	788,000			596,000

CASH FLOWS FROM INVESTING ACTIVITIES
	Purchases of property, plant and equipment			(1,705,000	)		(1,064,000	)
	Proceeds—sale of equipment			—			(8,000	)

CASH USED IN INVESTING ACTIVITIES			$	(1,705,000	)		(1,072,000	)
NET INCREASE IN CASH			$	1,691,000			2,415,000
Cash and cash equivalents at beginning of the period				10,487,000			7,144,000

CASH AND CASH EQUIVALENTS AT END OF PERIOD			$	12,178,000			9,559,000

Supplemental disclosures of cash flow information:
		Cash paid for:	$	6,000			17,000
		Interest
		Income taxes	$	2,974,000			1,132,000

See notes to condensed financial statements

HI-TECH PHARMACAL CO., INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

January 31, 2003

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, 2003 are not necessarily indicative of the results that may be expected for the year ended April 30, 2003. For further information, refer to the financial statements and footnotes thereto for the year ended April 30, 2002 on Form 10-K.

REVENUE RECOGNITION

Sales are recorded as products are shipped. Estimates are made for sales returns, allowances and discounts. Additional conditions for recognition of revenue are that collection of sales proceeds is reasonably assured and the Company has no further performance obligations. Contract research

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