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U.S. SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For fiscal year ended April 30, 2003

Commission File Number 0-20424

Hi-Tech Pharmacal Co., Inc.

(Name of small business issuer in its charter)

369 Bayview Avenue, Amityville, New York 11701

(Address of principal executive offices) (Zip Code)

(631) 789-8228

Issuer’s telephone number

Securities registered under Section 12(b) of the Exchange Act:

None

Securities registered under Section 12(g) of the Exchange Act:

Common Stock, $.01 par value

(Title of Class)

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 if disclosure of delinquent filers, pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  ¨

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act):    Yes  ¨    No  x

The registrant’s revenues for its most recent fiscal year ended April 30, 2003 were $47,446,000.

The aggregate market value of the voting stock held by non-affiliates of the registrant as of October 31, 2002, the last business day of the Registrant’s most recently completed second fiscal quarter was $45,522,000, based upon the closing price of the common stock on that date, as reported by NASDAQ. Shares of common stock known to be owned by directors and executive officers of the registrant subject to Section 16 of the Securities Exchange Act of 1934 are not included in the computation. No determination has been made that such persons are “affiliates” within the meaning of Rule 12b-2 under the Exchange Act. The number of shares of common stock of the registrant outstanding as of July 24, 2003 was 8,353,476.

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HI-TECH PHARMACAL CO., INC.

INDEX TO FORM 10-K

FOR THE YEAR ENDED APRIL 30, 2003

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FORWARD LOOKING STATEMENTS

This Annual Report on Form 10-K and certain information incorporated herein by reference contains forward-looking statements within the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995. All statements included or incorporated by reference in this Annual Report on Form 10-K, other than statements that are purely historical, are forward-looking statements. Words such as “anticipates,” “expects,” “intends,” “plans,” “believes,” “seeks,” “estimates” and similar expressions also identify forward-looking statements. Forward-looking statements are not guarantees of future performance and are subject to risks and uncertainties that could cause actual results to differ materially from the results contemplated by the forward-looking statements. Forward-looking statements in this Annual Report on Form 10-K include, without limitation, statements regarding operating results, product development, marketing initiatives, business plans and anticipated trends. The forward-looking statements in this Annual Report on Form 10-K are based on information available to the Company on the date hereof. The Company assumes no obligation to update any forward-looking statements. Readers are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date of this Annual Report on Form 10-K.

PART I

General

Hi-Tech Pharmacal Co., Inc. (the “Company”), a Delaware corporation incorporated in April 1983, is a growing specialty manufacturer and marketer of prescription, over-the-counter and nutritional products.

The Company sells its products in two primary markets: 1) generic pharmaceuticals and 2) branded products. The Company markets its generic pharmaceuticals primarily under the Hi-Tech name. The Company also markets a line of branded products primarily for people with diabetes, including Diabetic Tussin^®, DiabetiDerm^®, DiabetiSweet^® and Multi-betic^®. In addition, the Company markets other niche, over-the-counter brands to the general healthcare marketplace under such brands as Kosher Care^® and Nasal Ease^®.

The Company’s primary business is the manufacture of liquid, cream and ointment pharmaceutical formulations. The Company also specializes in the manufacture of products in its state of the art sterile facility capable of producing ophthalmic, otic and inhalation products.

The Company’s customers include chain drug stores, drug wholesalers, managed care purchasing organizations, certain Federal government agencies, generic distributors, mass merchandisers, hospitals and mail-order pharmacies. Some of the Company’s key customers include Walgreens, CVS, Cardinal Distribution L.P., Bergen-Brunswig, Eckerds, K-Mart, McKesson, Rugby Labs, a Division of Watson Pharmaceuticals, and Wal-Mart. The Company produces a wide range of products for various disease states, including asthma, bronchial disorders, dermatological disorders, allergies, pain, stomach, oral care and neurological disorders and other conditions.

The Company currently markets more than 70 products to approximately 100 customers. For the fiscal year ended April 30, 2003 the Company’s sales breakdown was as follows: 86% generic manufacturing and 14% branded products. The Steri-Med Division (sterile products) contributed approximately $3.4 million, which is included in generic manufacturing, of which 88% was from the sales of two albuterol inhalation products.

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The Company’s Health Care Products Division (“HCP”) is a leading marketer of branded products that include over-the-counter and nutritional, as well as prescription, products primarily for people with diabetes. In fiscal 2003, HCP introduced three products: Multi-betic^®, a daily multi-vitamin and mineral supplement formula; DiabetiDerm^® Foot Rejuvenating Cream; and Diabetic Tussin^® Sore Throat Spray. These products supplement the Company’s existing products, including its flagship brand Diabetic Tussin^® which is available in several formulations, including DM, Maximum Strength, EX, Allergy and Cough Drops. The Company also markets Diabetic Tussin-C^®, a prescription formulation for severe coughs, through a joint venture with TEAMM Pharmaceuticals.

HCP also markets DiabetiSweet^®, a unique sugar substitute which is aspartame free and heat stable for baking and cooking. DiabeticSweet^® has become HCP’s number two selling product after Diabetic Tussin^®. The Company plans to introduce at least five new products for people with diabetes in fiscal 2004. The Company most recently introduced DiabetiTrim^® Shakes, a formula to provide the essential nutrients to help diabetics stay fit and maintain a healthy lifestyle.

HCP will continue to aggressively develop and market new items for the diabetic market. There are estimated to be more than 16 million diabetics in the United States alone, of which 10 million are already diagnosed and 800,000 new cases are diagnosed per year. There are more than 100 million cases worldwide. The Company is confident that it can maintain its leadership position in the area of improving the lifestyle of people with diabetes and will continue its penetration of this market.

HCP also continues to market its Kosher Care^® brand of products, as well as Nasal Ease^®.

The Company has received Abbreviated New Drug Application (“ANDA”) approvals for 27 products. Most recently, in February, 2003, the Company received approval from the Food and Drug Administration (“FDA”) to market its 15mg/5ml Prednisolone Syrup, the generic equivalent of Muro’s Prelone^® and, in March 2003 the Company received approval from the FDA to market its EQ 5mg base/5ml Prednisolone Sodium Phosphate Oral Solution, the generic equivalent of Celltech’s Pediapred^® Sodium Phosphate Oral Solution, intended for the treatment of endocrine, rheumatic and dermatological disorders and allergic states in adults and children. In September 2002, the Company received ANDA approval to market Timolol Maleate Opthalmic Solution 0.5%, the generic equivalent of Merck’s Timoptic^® Opthalmic Solution 0.5%, the Company’s first sterile ophthalmic approval, and in June 2002, the Company received ANDA approval to market Fluoxetine Oral Solution 20mg/5ml, the generic equivalent of Eli Lilly’s Prozac^® Oral Solution.

The following table sets forth the principal products marketed by the Company and the names of certain national brands with which these products compete. All of the products listed below are marketed under the Company’s brand names H-T^™ or RX Choice^™ or through its HCP Division and in certain cases under private label.

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Research and Product Development

The Company’s research and development activities consist of new generic drug product development efforts and manufacturing process improvements. New product activities are primarily directed at conducting research studies to develop generic drug formulations, reviewing and testing such formulations for therapeutic equivalence to brand name products and development of unique products for its Health Care Products Division. Additionally, the Company co-develops products through arrangements with other companies. New generic product approvals are obtained from the FDA through the ANDA process, which requires the Company to demonstrate bioequivalence to a reference brand product. Generic products are generally introduced to the marketplace at the expiration of patent protection for the brand product or at the end of a period of non-patent market exclusivity. However, if an ANDA applicant is first to file an ANDA containing a certification of invalidity, non-infringement or unenforceability related to a patent listed with respect to a reference drug product, that generic equivalent may be able to be marketed prior to the expiration of patent protection for the brand product. Such certification, commonly referred to as a Paragraph IV certification, results in a period of generic marketing exclusivity.

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This exclusivity lasts for 180 days during which the FDA cannot grant final approval to any other generic equivalent. To date, the Company has not filed for a Paragraph IV certification but may in the future.

The Company’s product development strategies depend in part upon its ability to formulate and develop such generic drug products for which, in some cases, patent protection is expiring or has already expired and to obtain FDA approval using the ANDA procedure for the manufacture and sale of such products.

The completion of a prospective product’s formulation, testing and FDA approval generally takes several years. Development activities for each generic product could begin several years in advance of the patent expiration date, which may include bioequivalency studies which are a significant cost of such ANDA submissions. Consequently, the Company is presently selecting and will continue to select and develop drugs it expects to market several years in the future. The ANDA approval process is generally less time-consuming and complex than the New Drug Application (“NDA”) approval process. It does not require new preclinical and clinical studies because it relies on the studies establishing safety and efficacy conducted for the drug previously approved through the NDA process. The ANDA process does, however, occasionally, require one or more bioequivalency studies to show that the ANDA drug is bioequivalent to the previously approved drug. Bioequivalence compares the bioavailability of one drug product with that of the referenced brand formulation containing the same active ingredient. When established, bioequivalency confirms that the rate of absorption and levels of concentration in the bloodstream of a formulation of the previously approved drug and the generic drug are equivalent. Bioavailability indicates the rate and extent of absorption and levels of concentration of a drug product in the bloodstream needed to produce the same therapeutic effect. Over the next few years, patent protection on a large number of brand drugs is expected to expire. These patent expirations should provide additional generic product opportunities.

The Company intends to concentrate its generic product development activities on brand products with significant US sales as well as niche, specialized or growing markets, such as liquid forms, sterile products and semi-solids, in areas that offer significant opportunities and other competitive advantages. In February 2003, the Company received approval from the FDA to market its 15mg/5ml Prednisolone Syrup, the generic equivalent of Muro’s Prelone^®, and in March 2003, the Company received approval from the FDA to market its EQ 5mg base/5ml Prednisolone Sodium Phosphate Oral Solution, the generic equivalent of Celltech’s Pediapred^® Sodium Phosphate Oral Solution, intended for the treatment of endocrine, rheumatic and dermatological disorders and allergic states in adults and children. In September 2002, the Company received ANDA approval to market Timolol Maleate Opthalmic Solution 0.5%, the generic equivalent of Merck’s Timoptic^® Opthalmic Solution 0.5%, the Company’s first sterile ophthalmic approval, and in June 2002, the Company received approval from the FDA to market Fluoxetine Oral Solution 20mg/5ml, the generic equivalent of Eli Lilly’s Prozac^® Oral Solution.

For the fiscal years ended April 30, 2003 and 2002, total research and development expenditures were $2,095,000 and $1,747,000, respectively. The Company has six products currently submitted to the FDA for approval and has another 15 products in various stages of development, which belong to different therapeutic categories and if and when approved by the FDA, may represent a large potential market for the Company. The Company continues to place increasing emphasis on its R&D activities.

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The Company’s research and development strategy focuses on the following product development areas:

All applications for FDA approval must contain information relating to product formulation, raw material suppliers, stability, manufacturing processes, packaging, labeling and quality control. Information to support the bioequivalence of generic drug products or the safety and effectiveness of new drug products for their intended use is also required to be submitted. The Company files ANDAs when approval is sought to market a generic equivalent of a drug product previously approved under an NDA. One requirement for FDA approval of ANDAs is that the Company’s manufacturing procedures and operations conform to FDA requirements and guidelines, generally referred to as current Good Manufacturing Practices (“cGMP”). The requirements for FDA approval encompass all aspects of the production process, including validation and record keeping, and involve changing and evolving standards.

The Company has the approval of the Drug Enforcement Agency (“DEA”) to sell certain generic pharmaceutical products containing narcotics. The Company is currently manufacturing 6 preparations containing narcotics. In order to manufacture and sell products containing narcotics, the Company has implemented stringent security precautions to insure that the narcotics are accounted for and properly stored. The Company is currently developing other products that contain narcotics.

The Company’s Steri-Med Division is manufacturing sterile ophthalmic, otic and inhalation products. The manufacture of ophthalmic, otic, and other products requires a sterile environment, validation of the manufacturing process and special equipment and trained personnel. The Company is currently producing 6 different products in its sterile facility. The Company intends to use the ANDA procedure to obtain FDA approval for the manufacture of additional products in this facility. The Company currently manufactures over-the-counter eye drops, eye wash and artificial tears and 2 sterile Albuterol inhalation products previously approved by the FDA, as well as an FDA approved product for a pharmaceutical company.

Customers and Marketing

The Company markets its products to chain drug stores, drug wholesalers, managed care purchasing organizations, certain Federal government agencies, generic distributors, mass merchandisers, hospitals and mail order pharmacies. The Company sells its generic products to over 100 active accounts located throughout the United States. For the fiscal year ended April 30, 2003, Walgreens and Cardinal Distribution L.P. accounted for

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net sales of approximately 14% and 11%, respectively. These customers represented approximately 23% of the outstanding trade receivables at April 30, 2003. The Company’s top ten customers accounted for 64% and 53% of the Company’s total sales for each of the fiscal years ended April 30, 2003 and 2002, respectively. If any of the Company’s top five customers discontinues or substantially reduces its purchases from the Company, it may have a material adverse effect on the Company’s business and financial condition. The Company believes, however, that it has good relationships with its customers.

The Company utilizes its state of the art facilities and laboratories to offer contract manufacturing services that include research and development programs, to its existing as well as potential customers.

Consistent with industry practice, the Company has a return policy that allows its customers to return product within a specified period of the expiration date. The Company has arrangements with certain indirect customers to establish contract pricing for certain products. The indirect customer then independently selects a wholesaler from which to actually purchase the products at these contracted prices. The Company provides a chargeback credit to its wholesale customers for the difference between its invoice price to the wholesaler and the indirect customer’s contract price.

The Company’s Health Care Products Division (“HCP”) currently markets over the counter, nutritional and cosmetic products for the diabetic consumer. The Company’s products are Diabetic Tussin^® , its flagship brand available in several formulations, including Diabetic Tussin^® DM, Maximum Strength, EX, and Allergy Formula and Cough Drops and Diabetic Tussin^® Sore Throat Spray. The Company’s Diabetic Tussin^® DM is the best selling sugar free over-the-counter cough medication in the United States. HCP also markets dermatological moisturizers under the brand name DiabetiDerm^®, which include DiabetiDerm^® Cream and Lotion and DiabetiDerm^® Foot Rejuvenating Cream. HCP’s DiabetiSweet^® is a unique aspartame free heat stable sugar substitute formulated for use in baking and cooking. In fiscal 2003, HCP launched Multi-betic^®, a daily multi-vitamin and mineral supplement formula, DiabetiDerm^® Foot Rejuvenating Cream, and Diabetic Tussin^® Sore Throat Spray. The Company recently introduced DiabetiTrim^®, a nutritional shake, and intends to introduce at least 5 new products in fiscal 2004.

HCP also markets several other niche over-the-counter brands, including Nasal Ease^®, a nasal moisturizer which contains zinc, and Kosher Care^®—a line of over-the-counter products certified as Kosher. HCP intends to continue its focus on introducing branded over-the-counter formulations targeted to the diabetic market as well as other niche markets. HCP markets its branded prescription product, Diabetic Tussin^®-C, a formulation for severe coughs by prescription only. This product is being detailed to physicians through a joint venture with TEAMM Pharmaceuticals. Products sold through the Health Care Products Division accounted for approximately 14% and 18% of the Company’s total sales for fiscal 2003 and fiscal 2002, respectively.

The Company markets its products using various marketing strategies, which include professional and consumer sampling programs, telemarketing efforts, coupon promotions and more contemporary packaging to improve point-of-purchase impact, media, and trade and consumer journal advertising. The Company has expanded its marketing strategy with programs

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to include marketing ventures with several companies selling popular non-competing diabetic medications, pharmacy programs and via the Internet using a website. As part of its marketing strategy, the Company places increasing emphasis on the Internet which it views as a very efficient tool in educating and reaching out to millions of people with diabetes. The Company’s website is registered under the domain name diabeticproducts.com and is linked to other diabetic based websites. HCP currently employs 9 full time employees in sales and marketing and 2 independent commission sales representative organizations. The Company has also developed a telemarketing effort which targets diabetes educators and pharmacists.

The Company is focused on growth, will continue to develop new branded and generic products, and also will devise new marketing strategies to penetrate its markets. In order to maximize its growth and shareholder value, the Company is seeking to complement this internal effort by acquiring products for future marketing, as well as licensing rights to proprietary products and technologies for development and commercialization. The Company will place increasing emphasis on establishing co-development and co-marketing agreements with strategic partners.

Manufacturing

The Company’s manufacturing facilities are designed to be flexible in order to allow the low cost production of a variety of products of different dosages, sizes, packagings and quantities while maintaining a high level of quality and customer service. This flexible production capability allows the Company to adjust on-line production in order to meet customer requirements.

Facilities

The Company is operating from five buildings on one site in Amityville, New York totaling approximately 141,000 square feet.

Building 1 - This 40,000 sq. ft. facility is dedicated to liquid and semi-solid production which consists of a compounding facility, 7 high speed filling lines and raw material warehousing space and pharmacy.

Building 2 - This 21,500 sq. ft. facility consists of narcotic manufacturing and cream and ointment filling, quality control and microbiology laboratories and the Company’s Steri-Med Unit for sterile manufacturing with 2 high speed sterile liquid filling lines and 1 high speed sterile ointment filling line.

Building 3 - This 21,500 sq. ft. facility is used for research and development laboratories and warehousing of components.

Building 4 - This 50,000 sq. ft. facility is used for warehousing space and as a distribution center.

Building 5 - This 8,000 sq. ft. facility is used for administrative offices.

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The Company believes the current facilities will be adequate for the next several years.

Raw Materials

The Company’s raw materials are generally readily available from multiple suppliers, and the Company is generally not dependent upon any single supplier for its needs, with the exception of certain products. However, in some cases, the raw materials used to manufacture pharmaceutical products are only available from a single FDA-approved supplier. Even when more than one supplier exists, the Company may elect to list, and in some cases has only listed, one supplier in its applications with the FDA. Any change in a supplier not previously approved must then be submitted through a formal approval process with the FDA.

The Company believes it has good, cooperative working relationships with its suppliers and is not experiencing any difficulty in obtaining its raw materials. If a supplier were unable to supply the Company, the Company believes it could locate an alternative supplier. However, any change in suppliers of a raw material could cause significant delays and cost increases in the manufacture of such product.

Competition

The market for generic pharmaceuticals is highly competitive. The Company’s direct competition consists of numerous generic drug manufacturers, many of which have greater financial and other resources than the Company. If one or more other generic pharmaceutical manufacturers significantly reduce their prices in an effort to gain market share, the Company’s profitability or market position could be adversely affected. Competition is based principally on price, quality of products, customer service, reputation and marketing support.

Government Regulation

The Company’s products and facilities are subject to regulation by a number of Federal and state governmental agencies. The FDA, in particular, maintains oversight of the Company’s manufacturing process as well as the distribution of the Company’s products. Facilities, procedures, operations and/or testing of products are subject to periodic inspection by the FDA, the Drug Enforcement Agency and other authorities. In addition, the FDA conducts pre-approval and post-approval reviews and plant inspections to determine whether the Company’s systems and processes are in compliance with cGMP and other FDA regulations. Certain of the Company’s suppliers are subject to similar regulations and periodic inspections. The Company has had several FDA inspections including its most recent which took place from December 12, 2002 through December 23, 2002. The Company believes the issues cited during the inspection were adequately addressed by the Company. Most recently, in February 2003, the Company received approval from the FDA to market its 15mg/5ml Prednisolone Syrup, the generic equivalent of Muro’s Prelone^® Syrup and in March 2003 the Company received approval from the FDA to market its EQ 5mg base/5ml Prednisolone Sodium Phosphate Oral Solution, the generic equivalent of Celltech’s Pediapred^® Sodium Phosphate Oral Solution, intended for the treatment of endocrine, rheumatic and dermatological disorders and allergic states in adults and children. In September, 2002 the Company received an approval to market Timolol Maleate Opthalmic Solution 0.5%, the generic equivalent of Merck’s Timoptic^® Opthalmic Solution 0.5%, the Company’s first sterile ophthalmic approval, and in June 2002 the Company received ANDA approval to market Fluoxetine Oral Solution 20 mg/5 ml, the generic equivalent of Eli Lilly’s Prozac^® Oral Solution.

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Although many of the products currently manufactured and marketed by the Company do not require prior specific approval of the FDA, certain products which the Company currently markets and intends to market under its product development program require prior FDA approval using the ANDA procedure prior to being marketed. The Company currently has pending submissions for FDA approval of 6 generic products and has 27 approved products.

An ANDA can be filed for a drug which is the equivalent of a product previously approved by the FDA. Under the ANDA procedure, applicants are required to demonstrate through studies that, among other things, the drug product is chemically equivalent to the previously approved drug, that its facilities and personnel meet standards for the manufacture of such product, and that its production procedures will consistently adhere to FDA quality standards, and, in certain cases, the applicant is required to demonstrate the bioequivalency of its product (the rate and extent of absorption of a drug’s active ingredient and/or its availability at the site of drug action). The ANDA process is abbreviated in that the FDA waives the requirement of conducting complete preclinical and clinical studies and, instead, relies on bioequivalence studies.

A sponsor of an NDA is required to identify in its application any patent that claims the drug or a use of the drug, which is the subject of the application. Upon NDA approval, the FDA lists the approved drug product and these patents in the Orange Book. Any applicant who files an ANDA seeking approval of a generic equivalent version of a referenced brand drug before expiration of the referenced patent(s) must certify to the FDA that the listed patent is either not infringed or that it is invalid or unenforceable (a Paragraph IV certification). If the holder of the NDA sues claiming infringement, the FDA may not approve the ANDA application until a court decision favorable to the ANDA applicant has been rendered or the expiration of a 30-month litigation period. The Company has not utilized the Paragraph IV certification process but may in the future.

In addition to patent exclusivity, the holder of the NDA for the listed drug may be entitled to a period of non-patent, market exclusivity, during which the FDA cannot approve an application for a bioequivalent product. If the listed drug is a new chemical entity, the FDA may not accept an ANDA for a bioequivalent product for up to five years following approval of the NDA for the new chemical entity. If it is not a new chemical entity but the holder of the NDA conducted clinical trials essential to approval of the NDA or a supplement thereto, the FDA may not approve an ANDA for a bioequivalent product before expiration of three years. Certain other periods of exclusivity may be available if the listed drug is indicated for treatment of a rare disease or is studied for pediatric indications.

The FDA has extensive enforcement powers, including the power to seize noncomplying products, to seek court action to prohibit their sale and to seek criminal penalties for noncomplying manufacturers. Although it has no statutory power to force the recall of products, the FDA usually accomplishes a recall as a result of the threat of judicially imposed seizure, injunction and/or criminal penalties.

The Company is also subject to regulation by the DEA, which regulates the sale of pharmaceutical products that contain narcotics. The Company has received DEA approval and is manufacturing and selling 6 products containing narcotics.

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The DEA also has extensive enforcement powers, including the power to seize and prohibit the manufacture and sale of noncomplying products.

Medicaid, Medicare and other reimbursement legislation or programs govern reimbursement levels and require all pharmaceutical manufacturers to rebate a percentage of their revenues arising from Medicaid-reimbursed drug sales to individual states. The required rebate is currently 11% of the average manufacturer’s price for sales of Medicaid-reimbursed products marketed under ANDAs. The Company believes that Federal or state governments may continue to enact measures aimed at reducing the cost of drugs to the public. For example, the extension of prescription drug coverage to all Medicare recipients has gained significant political support.

Seasonality

The Company experiences seasonal variations in the demand for its cough and cold products. Therefore, no one quarter’s performance can be used to indicate the full year results. The Company’s revenues are typically lower during the first and fourth quarters of its fiscal year. The Company expects this seasonality to continue in the future.

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 the 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. Actual results could differ from those estimates. Our estimates for sales returns and allowances, the useful lives of property and equipment and the realization of deferred tax assets represent a significant portion of the estimates made by management.

Sales are recorded as products are shipped. Estimates are made for sales returns and 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 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.

Environment

The Company believes that its operations comply in all material respects with applicable laws and regulations concerning the environment. While it is impossible to predict accurately the future costs associated with environmental compliance and