0000950124-01-503555.txt : 20011019 0000950124-01-503555.hdr.sgml : 20011019 ACCESSION NUMBER: 0000950124-01-503555 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20010930 FILED AS OF DATE: 20011015 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CARACO PHARMACEUTICAL LABORATORIES LTD CENTRAL INDEX KEY: 0000887708 STANDARD INDUSTRIAL CLASSIFICATION: PHARMACEUTICAL PREPARATIONS [2834] IRS NUMBER: 382505723 STATE OF INCORPORATION: MI FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB SEC ACT: 1934 Act SEC FILE NUMBER: 000-24676 FILM NUMBER: 1759054 BUSINESS ADDRESS: STREET 1: 1150 ELIJAH MCCOY DR CITY: DETROIT STATE: MI ZIP: 48202 BUSINESS PHONE: 3138718400 MAIL ADDRESS: STREET 1: 1150 ELIJAH MCCOY DRIVE CITY: DETROIT STATE: MI ZIP: 48202 10QSB 1 k65473e10qsb.txt FORM 10-QSB U. S. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-QSB QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED September 30, 2001 Commission File No. 0-24676 CARACO PHARMACEUTICAL LABORATORIES, LTD. (Exact name of registrant as specified in its charter) MICHIGAN 38-2505723 (State or other jurisdiction of (IRS Employer incorporation or organization) Identification No.) 1150 ELIJAH MC COY DRIVE, DETROIT, MICHIGAN 48202 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (313) 871-8400 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 of 1934 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 [ ] Common Stock outstanding at October 15, 2001: 21,173,818 shares CARACO PHARMACEUTICAL LABORATORIES LTD. BALANCE SHEET
SEPTEMBER 30, 2001 ASSETS Current assets Cash and cash equivalents $ 80,684 Accounts receivables, net of allowances of $157,000 1,193,399 Inventories 1,924,218 Prepaid expenses and deposits 228,491 ------------- TOTAL CURRENT ASSETS 3,426,792 ------------- PROPERTY, PLANT AND EQUIPMENT - AT COST Land 197,305 Building and improvements 6,798,807 Equipment 4,400,247 Furniture and fixtures 207,750 Total 11,604,109 Less: accumulated depreciation 4,821,637 ------------- NET PROPERTY, PLANT & EQUIPMENT 6,782,472 ------------- ------------- TOTAL ASSETS $ 10,209,264 ============= LIABILITIES AND STOCKHOLDERS' DEFICIT CURRENT LIABILITIES Accounts payable - Others $ 920,953 Accounts Payable - Sun Pharma 556,520 Short term borrowings 75,000 Accrued expenses 404,455 Accrued interest 4,042,430 Current portion of long-term debt - EDC 5,680,000 ------------- TOTAL CURRENT LIABILITIES 11,679,358 ------------- LONG-TERM LIABILITIES Notes payable to stockholders 6,250,000 Loans payable to Financial Institutions 14,300,000 Preferred stock dividends payable 285,000 ------------- TOTAL LONG-TERM LIABILITIES 20,835,000 ------------- ------------- TOTAL LIABILITIES 32,514,358 ------------- STOCKHOLDERS' DEFICIT Preferred stock, no par value, authorized 5,000,000 shares; 1,000,000 issued and outstanding, 285,714 Series A shares Common stock, no par value, authorized 30,000,000 shares; 32,955,600 issued and outstanding, 21,173,818 shares Preferred stock dividends (285,000) Accumulated deficit (55,975,694) ------------- TOTAL STOCKHOLDERS' DEFICIT (22,305,094) ------------- ------------- TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 10,209,264 =============
SEE ACCOMPANYING NOTES CARACO PHARMACEUTICAL LABORATORIES, LTD. STATEMENTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER, 30 2001 2000 ---- ---- Net Sales $ 3,372,686 $ 1,924,709 Cost of goods sold 2,904,191 1,915,793 --------------------------------------------- GROSS PROFIT 468,495 8,916 Selling, general & administrative expenses 2,155,051 2,092,508 Research & development costs 1,934,456 2,189,408 --------------------------------------------- OPERATING LOSS (3,621,012) (4,273,000) --------------------------------------------- Other income (expense) Interest expense (1,524,843) (1,202,276) Interest income 14,000 29,411 OTHER EXPENSE - NET (1,510,843) (1,172,865) --------------------------------------------- NET LOSS $ (5,131,857) $ (5,445,865) ============================================= --------------------------------------------- NET LOSS PER BASIC AND DILUTED COMMON SHARE $ (0.24) $ (0.28) =============================================
SEE ACCOMPANYING NOTES CARACO PHARMACEUTICAL LABORATORIES, LTD. STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 2001 2000 CASH FLOWS FROM OPERATING ACTIVITIES Net loss $ (5,131,857) $ (5,445,864) Adjustments to reconcile net loss to net cash used in operating activities Depreciation 382,650 427,468 Non cash interest expense 601,419 693,124 Common Shares issued for product transfer - 8,667 Common Shares issued for interest expense - 86,000 Common Shares issued for compensation - 17,495 Changes in operating assets and liabilities which provided (used) cash: Accounts receivable (726,953) (169,019) Inventories (512,297) 229,747 Prepaid expenses and deposits (165,107) (19,700) Accounts payable 725,474 (590,990) Accrued expenses (8,522) 165,327 ---------------------------------------------------- NET CASH USED IN OPERATING ACTIVITIES (4,835,194) (4,597,746) ---------------------------------------------------- CASH FLOWS USED IN INVESTING ACTIVITIES Purchases of property, plant and equipment (70,890) (79,988) ---------------------------------------------------- CASH FLOWS PROVIDED BY FINANCING ACTIVITIES Proceeds from Long Term Debt 5,450,000 7,375,000 Proceeds from short-term debt 300,000 (225,000) Payments on EDC debt (900,000) (2,100,000) Payment to Shareholder (50,000) - ---------------------------------------------------- NET CASH PROVIDED BY FINANCING ACTIVITIES 4,800,000 5,050,000 ---------------------------------------------------- NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS (106,084) 372,266 Cash and cash equivalents, beginning of period 186,768 445,519 ---------------------------------------------------- CASH AND CASH EQUIVALENTS, END OF PERIOD $ 80,684 $ 817,784 ====================================================
SEE ACCOMPANYING NOTES CARACO PHARMACEUTICAL LABORATORIES, LTD. STATEMENTS OF SHAREHOLDERS' DEFICIT FOR THE PERIOD ENDED SEPTEMBER 30, 2001 AND SEPTEMBER 30, 2001
PREFERRED PREFERRED STOCK COMMON STOCK STOCK ACCUMULATED SHARES AMOUNT SHARES AMOUNT DIVIDENDS DEFICIT TOTAL Balance at January 1, 2000 285,714 $ 1,000,000 18,556,295 $ 31,232,465 $ (180,000) $ (43,221,129) $ (11,168,664) Preferred dividend (45,000) (45,000) Issuance of common stocks 1,528,323 1,502,162 1,502,162 Net loss (5,445,864) (5,445,864) ------------------------------------------------------------------------------------------------- Balance at September 30, 2000 285,714 $ 1,000,000 20,084,618 $ 32,734,627 $ (225,000) $ (48,666,993) $ (15,157,366) ================================================================================================= Balance at January 1, 2001 285,714 1,000,000 21,173,818 32,955,600 (240,000) (50,843,837) $ (17,128,237) Preferred dividend (45,000) - (45,000) Net loss (5,131,857) (5,131,857) ------------------------------------------------------------------------------------------------- Balance at September 30, 2001 285,714 $ 1,000,000 21,173,818 $ 32,955,600 $ (285,000) $ (55,975,694) $ (22,305,094) =================================================================================================
See accompanying notes CARACO PHARMACEUTICAL LABORATORIES LTD. NOTES TO FINANCIAL STATEMENTS (UNAUDITED) 1. BASIS OF PRESENTATION The balance sheet as of September 30, 2001 and the related statements of operations, stockholders' deficit and cash flows for the nine months ended September 30, 2001 and 2000 are unaudited. In the opinion of management, all adjustments necessary for a fair presentation of such financial statements have been included. Such adjustments consisted only of normal recurring items. Interim results are not necessarily indicative of results for the full year. The financial statements as of September 30, 2001 and for the nine months ended September 30, 2001 and 2000 should be read in conjunction with the financial statements and notes thereto included in the Corporation's Annual Report on Form 10-KSB for the year ended December 31, 2000. The accounting policies followed by the Corporation with respect to the unaudited interim financial statements are consistent with those stated in the 2000 Caraco Pharmaceutical Laboratories, Ltd., Annual Report on Form 10-KSB. The accompanying financial statements have been prepared assuming that the Corporation will continue as a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. ORGANIZATION AND NATURE OF BUSINESS Caraco Pharmaceutical Laboratories, Ltd. ("Caraco" or the "Corporation") was established to develop, manufacture and market generic prescription and over-the-counter pharmaceuticals in the United States. The process of developing a line of proprietary drugs requires approvals by the Food and Drug Administration (FDA) of Abbreviated New Drug Applications (ANDA). While ANDA build-ups have proceeded, the Corporation has generated limited sales revenue. As reported in the form 10-KSB for 2000 and the forms 10-QSB for the current fiscal year, Sun Pharmaceuticals Industries Limited (Sun Pharma) of India is a major stockholder in the Corporation and currently holds approximately 48% of the outstanding common stock. Sun has transferred the technology for 10 ANDA products and 2 DESI products to the Corporation to date against which the Corporation has issued common stock for 8 ANDA and 2 DESI products to Sun Pharma. The Corporation has never achieved sales necessary to support operations. The Corporation has, as of September 30, 2001, a stockholders' deficit of $22,305,094. Realization of a major portion of the assets is dependent upon the Corporation's ability to meet its future financing requirements and the success of future operations, the outcome of which cannot be determined at the present time. The Corporation underwent FDA inspections during March and April of 2001 and is in substantial compliance with cGMP. The Corporation did receive an FDA 483 but does not believe the observations are material. Subsequent to the inspection of the facility, the FDA has granted its approval of three ANDA products. Management plans for generating operating profits include: - Continued focus on compliance with FDA regulations. - Renewed focus on research and development. Continued support from Sun Pharma having researchers working in India supporting Caraco's research and development efforts. These personnel have a proven background in pharmaceutical development. - The research and development team has developed and submitted 10 ANDA products of which the FDA has approved 3 and the rest are awaiting FDA approvals. One of the 10 ANDA's was submitted to the FDA during the current quarter. Further, two additional products are in the advanced stages of development and will be filed for ANDA approval with the FDA upon successful completion of bio-equivalent studies. The Corporation intends to complete the development of four to six products each year. - The Corporation intends to increase the width and depth of its product portfolio to serve customers effectively. With the approvals of three of the products during the fiscal year and commencement of manufacture and marketing of 2 of these products during the later part of the third quarter, this objective has been given an additional impetus. - With the increase in the number of products, as well as anticipated volume increases for existing products, it is expected that manufacturing capacity utilization will improve, resulting in better-cost absorption and improved margins. - The Corporation will strive to enhance customer reach and achieve customer satisfaction through reliable product deliveries. 2. COMPUTATION OF LOSS PER SHARE Loss per share is computed using the weighted average number of common shares outstanding during each period and considers a dual presentation and reconciliation of "basic" and "diluted" per share amounts. Diluted reflects the potential dilution of all common stock equivalents. Since the assumed exercise of common stock options and warrants and the assumed conversion of preferred stock and convertible stockholder notes into common stock would be antidilutive, such exercise is not assumed for purposes of determining diluted loss per share. Accordingly, diluted and basic per share amounts are equal in each period. The weighted average number of common shares outstanding (basic and diluted) for the periods ended September 30, 2001 and September 30, 2000 were 21,173,022 and 19,521,258 respectively. 3. MORTGAGE NOTE EDC Loan Debt at September 30, 2001 includes a note payable to the Economic Development Corporation (EDC) of the City of Detroit, related to funds advanced to the Corporation pursuant to a Development and Loan Agreement (the "Agreement") dated August 10, 1990 as amended. The note is collateralized by a first mortgage, effectively, on all of the Corporation's property and equipment purchased pursuant to the Agreement. Effective April 2, 1993, and subsequently on August 5, 1997, the Corporation and the EDC of the City of Detroit restructured the Agreement discussed above. The amendments included the deferral of scheduled principal and interest payments until February 1, 1999, at which time additional deferred principal and interest due under the terms of the original agreement were required in amounts sufficient to amortize the total deferred amount through July 2002. Additionally, the amendment included a reduction in the stipulated interest rate from the inception of the loan through 1993 from 10% to 8.5%. The interest rates from 1994 through July 2002 vary from 5% to 6.3% as described in the amendments (effective rate 5.93% at September 30, 2001). As a condition of the deferral, the EDC was provided additional security on all the Corporation's existing equipment and the Corporation is required to comply with several additional financial and operating covenants which include, limiting capital expenditures made without the consent of the EDC to under $2 million during the deferral period, and abstaining from share redemption during the payment deferral period. The Corporation is currently renegotiating the repayment terms with the EDC. Through September 2001, the Corporation has made payments of $3,200,000 to the EDC ($300,000 each in the first, second and third quarters of 2001). All payments on the EDC loan to date have been applied against the principal balance for financial statements purposes. The Corporation continues to accrue interest at stipulated rates. If the debt is renegotiated, some amount may be required to be reclassified between accrued interest and principal. Such payments have not brought the Corporation current in its obligation to the EDC, and all such payments were made without prejudice to the rights of the EDC to exercise all remedies available to the EDC for failure to make the scheduled payments. While the terms of the restructured loan are being negotiated, the Corporation intends to continue to make payments to the EDC, again without prejudice to the rights of the EDC. Upon a final agreement of the final restructured terms of the loan, of which there can be no assurance, the Corporation expects to then commence making the requisite agreed upon payments. 4. STOCKHOLDER NOTES PAYABLE Stockholder Notes Payable Stockholder notes payable consist of the following obligations as of September 30, 2001: 10% Promissory note payable to Sun Pharma, principal balance $5,300,000 payable in full in October 2003, with interest payable semi-annually. 10% promissory note payable to Sun Pharma Global, Inc., a $550,000 wholly owned subsidiary of Sun Pharma. Loan from Sun Pharma (terms under negotiation) $400,000 ---------- Shareholders Notes and loan $6,250,000 ========== Notes payable to and the loan from Sun Pharma and Sun Pharma Global, Inc. are subordinated to the EDC loan. Sun Pharma and Sun Global currently have no intention of demanding payment within the upcoming year; therefore, such notes and loan have been classified as long term. 5. TERM LOAN FROM ICICI BANK The Corporation had obtained a term loan of $5 million from ICICI Bank of India with the support of Sun Pharma. This term loan has been used to finance research and development activities, upgrade facilities, repay loans and meet working capital requirements. The Corporation, as of September 30, 2001, has received proceeds in the amount of $5 million with interest payments due quarterly. Quarterly principal payments are scheduled, to be made from December 2003 through September 2005. 6. TERM LOAN FROM BANK OF NOVA SCOTIA The Corporation has obtained a term loan of $10 million from the Bank of Nova Scotia with the support of Sun Pharma. This term loan has been used to finance research and development activities, upgrade facilities, repay loans and meet working capital requirements. The Corporation as of September 30, 2001 has received proceeds in the amount of $9.3 million with interest payments due quarterly. Semi-annual principal payments are scheduled to be made from February 2004 through September 2005. 7. SHORT TERM BORROWINGS Short-term borrowings consist of unsecured draws on a temporary credit facility from Taurus Financial Services Limited with interest charged at 10%. Principal and interest payments are payable on demand. 8. COMMON STOCK ISSUANCES During the fiscal year 2001 the Corporation issued 1,200 shares of its common stock to its non-employee directors for participation in meetings of the Board and/or its committees. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF PLAN OF OPERATIONS Sales The sales for the three months ended September 30, 2001 and 2000 are $1,505,356 and $569,277, respectively, reflecting an increase of almost 165%. This is due to the increased production and marketing of the Corporation's existing products following the achievement of substantial compliance with cGMPs. Net sales for the nine months ended September 30, 2001 and 2000 were $3,372,686 and $1,924,709 respectively. While this represents a 75.2% increase over the previous year due to increased production and marketing of the Corporation's existing products, it is still at a low level, which the Corporation hopes to enhance through increased focus on new product introductions, increase in production of existing products and new drug development. Late in the quarter, the Corporation began the manufacture and marketing of 2 of the 3 FDA approved products. Although the sales of these products are only a small part of the gross sales during the quarter, the Corporation expects increased sales from these products over the near future. Gross Profit The Corporation has posted a gross profit of $440,523 and $31,866 during the three months ended September 30, 2001 and 2000, respectively. The Corporation posted a gross profit of $468,495 for the first nine months of 2001, compared to a gross profit of $8,916 during the same period of 2000. The improvement is mainly due to higher sales volumes in the current period as compared to that during the corresponding period of 2000. Selling, General and Administrative Expenses (SG&A) Selling, general and administrative expenses for the nine months ended September 30, 2001 and September 30, 2000 were $2,155,051 and $2,092,508, respectively, representing a nominal increase of about 3%. Research and Development Expenses (R&D) Research and development expenses of $1,934,456 for the period ended September 30, 2001 were lower by 11.6%, when compared with $2,189,408 incurred during the corresponding period of 2000. Interest Expense Interest expense, which is incurred primarily in connection with the Corporation's mortgage obligation to the EDC, interest on notes payable to Sun Pharma and Sun Global as well as a term loans granted to the Corporation by ICICI Bank and the Bank of Nova Scotia, and guaranteed by Sun Pharma was $1,524,843 and $1,202,276, for periods ended September 30, 2001 and 2000, respectively. This increase is primarily the result of higher borrowing levels. Results of Operations The net losses for the three months ended September 30, 2001 and 2000 are $1,525,074 and $1,937,140, respectively. Net losses for the period ended September 30, 2001 and 2000 were $5,131,857 and $5,445,865, respectively. The operating losses are directly related to (1) net sales, which were inadequate to absorb the fixed costs of the Corporation's operational expenses and (2) the impact of research and development spending. The losses are lower in the current three month and nine month periods as compared to the previous respective periods primarily due to higher sales volumes and better cost absorption due to enhanced sales, despite higher interest expense. A number of uncertainties exist that may influence the Corporation's future operating results, including general economic conditions, changes in conditions affecting the pharmaceutical industry primarily related to generic drug competition, obtaining additional financing, government restrictions on sale of certain products, obtaining new FDA approvals, development by competitors of new or superior products or new technology for production of products or the entry into the market of new competitors. Liquidity and Capital Resources At September 30, 2001, the Corporation had negative working capital of $8,252,566 compared with a negative working capital of $8,713,103 at the corresponding period of 2000. The negative working capital for the period ended September 30, 2001 and September 30, 2000 were mainly due to the classification of the entire balance of the EDC debt and related accrued interest as current until the anticipated renegotiation of the of the repayment terms is completed. To enable the Corporation to fund its research and development activities, repay certain term loans and fund working capital needs Sun Pharma has become a security guarantor for a credit line of $5 million from ICICI Bank of India and $10 million from Bank of Nova Scotia. As of September 30, 2001 the Corporation has received $5,000,000 from ICICI Bank of India and $9,300,000 from Bank of Nova Scotia through these credit facilities. Further, Sun Pharma continues to support the Corporation in its activities and is trying to negotiate and assist the Corporation raise additional funds required for the financial needs of the Corporation. PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS None ITEM 2. CHANGES IN SECURITIES None ITEM 3. DEFAULTS UPON SENIOR SECURITIES Although the Corporation has made payments of $3,200,000 to date to the EDC ($300,000 each during the first, second and third quarters of 2001), such payments have not brought the Corporation current in its obligation to the EDC, and all such payments were made without prejudice to the rights of the EDC to exercise all remedies available to the EDC for failure to make the scheduled payments. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None ITEM 5. OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS a. There are no exhibits to be filed as part of this report. b. There were no Form 8-Ks filed during the third quarter of 2001. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. CARACO PHARMACEUTICAL LABORATORIES, LTD. By: S/d Narendra N. Borkar ----------------------------------------- Narendra N. Borkar Chief Executive Officer and Chief Financial Officer DATED: October 15, 2001