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

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.

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 %

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

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.

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.

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.

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 . . .