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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
x QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES AND
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30,
1996.
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
AND EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ____________
TO ____________.
Commission File No. 0-9036
LANNETT COMPANY, INC.
(Exact Name of Small Business Issuer as Specified in its Charter)
State of Delaware 23-0787-699
(State of Incorporation) (I.R.S. Employer I.D. No.)
9000 State Road
Philadelphia, PA 19136
(215) 333-9000
(Address of principal executive offices and telephone number)
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 _______
As of November 7, 1996, there were 5,206,128 shares of the issuer's common
stock, $.001 par value, outstanding.
Page 1 of 17 pages
Exhibit Index on Page 15
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<PAGE>
INDEX
Page No.
--------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of
September 30, 1996 (unaudited) and
June 30, 1996....................................... 3
Consolidated Statements of Operations
for the three months ended September 30, 1996
and 1995 (unaudited)................................ 4
Consolidated Statements of Cash Flows
for the three months ended September 30, 1996
and 1995 (unaudited)................................ 5
Notes to Consolidated Financial
Statements (unaudited).............................. 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations............................................ 8
PART II. OTHER INFORMATION
Item 1. Legal Proceedings..................................... 13
Item 6. Exhibits and Reports on Form 8-K...................... 13
2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM I. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
LANNETT COMPANY, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
09/30/96 06/30/96
-------- --------
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash $ -- $ 25,258
Trade accounts receivable 519,672 892,081
Inventories 998,612 874,219
Prepaid expenses 45,672 46,395
----------- -----------
Total current assets 1,563,956 1,837,953
----------- -----------
PROPERTY, PLANT AND EQUIPMENT
Land 33,414 33,414
Building and improvements 1,406,627 1,406,627
Machinery and equipment 1,324,549 1,317,458
Furniture and fixtures 64,511 64,511
----------- -----------
2,829,101 2,822,010
Less accumulated depreciation (1,010,635) (961,738)
----------- -----------
Net 1,818,466 1,860,272
----------- -----------
OTHER ASSETS 27,324 7,958
----------- -----------
Total assets $ 3,409,746 $ 3,706,183
=========== ===========
LIABILITIES AND SHAREHOLDERS' DEFICIENCY
CURRENT LIABILITIES
Line of credit $ 548,092 $ 548,092
Current maturities of long-term debt 61,356 61,356
Accounts payable 243,833 260,591
Accrued interest payable - shareholder 454,570 325,827
Accrued liabilities 68,200 136,357
----------- -----------
Total current liabilities 1,376,051 1,332,223
----------- -----------
LONG-TERM DEBT, LESS CURRENT MATURITIES 412,952 426,285
----------- -----------
NOTE PAYABLE AND ACCRUED INTEREST - SHAREHOLDER 2,094,792 2,123,500
----------- -----------
LINE OF CREDIT AND ACCRUED INTEREST - SHAREHOLDER 3,674,040 3,727,894
----------- -----------
SHAREHOLDERS' DEFICIENCY
Common stock
Authorized: 50,000,000 shares, par value $.001;
5,206,128 shares
issued and outstanding 5,206 5,206
Additional paid-in capital 320,575 320,575
Accumulated deficit (4,473,870) (4,229,500)
----------- -----------
Total shareholders' deficiency (4,148,089) (3,903,719)
----------- -----------
Total liabilities and shareholders' deficiency $ 3,409,746 $ 3,706,183
=========== ===========
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
LANNETT COMPANY, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
FOR THE THREE MONTHS ENDED
--------------------------
9/30/96 9/30/95
------- -------
<S> <C> <C>
NET SALES $ 651,361 $ 933,782
COST OF SALES 421,827 429,437
----------- ------------
Gross profit 229,534 504,345
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES 314,480 264,519
----------- ------------
Operating (loss) profit (84,946) 239,826
----------- ------------
OTHER EXPENSES, NET
Other (3,188) 5,436
Interest expense (156,236) (153,374)
----------- ------------
(159,424) (147,938)
----------- ------------
NET (LOSS) INCOME $ (244,370) $ 91,888
=========== ============
PRIMARY (LOSS) INCOME PER SHARE $ (0.05) $ 0.02
FULLY DILUTED INCOME PER SHARE $ -- $ 0.01
PRIMARY WEIGHTED AVERAGE NUMBER OF SHARES 5,206,128 5,206,128
FULLY DILUTED WEIGHTED AVERAGE
NUMBER OF SHARES -- 13,206,128
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
LANNETT COMPANY, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
FOR THE THREE MONTHS ENDED
--------------------------
09/30/96 09/30/95
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) income $(244,370) $ 91,888
Adjustments to reconcile net (loss) income to net cash
(used in) provided by operating activities
Depreciation and amortization 49,530 49,967
Decrease / (increase) in trade accounts receivable 372,409 (109,273)
(Increase) in inventories (124,393) (16,370)
(Increase) / decrease in prepaid expenses and other assets (19,276) 235
(Decrease) / increase in accounts payable (16,758) 18,361
(Decrease) in accrued liabilities (68,157) (77,002)
Increase in accrued interest 46,181 48,096
--------- ---------
Net cash (used in) provided by operating activities (4,834) 5,902
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property, plant and equipment (7,091) (85,470)
--------- ---------
Net cash used in investing activities (7,091) (85,470)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Net Borrowings under lines of credit -- 67,047
Repayments of debt (13,333) (14,333)
--------- ---------
Net cash (used in) provided by financing activities (13,333) 52,714
--------- ---------
NET (DECREASE) IN CASH (25,258) (26,854)
CASH AT BEGINNING OF PERIOD 25,258 38,975
--------- ---------
CASH AT END OF PERIOD $ 0 $ 12,121
========= =========
</TABLE>
5
<PAGE>
LANNETT COMPANY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note 1.
In the opinion of management, the accompanying unaudited consolidated
financial statements contain all adjustments (consisting of only normal
recurring adjustments) necessary to present fairly the financial position
and the results of operations and cash flows.
The results of operations for the three months ended September 30, 1996 and
1995 are not necessarily indicative of results for the full year.
While the Company believes that the disclosures presented are adequate to
make the information not misleading, it is suggested that these
consolidated financial statements be read in conjunction with the
consolidated financial statements and the notes included in the Company's
Annual Report on Form 10-KSB for the year ended June 30, 1996.
Note 2.
Primary per share data is based on the weighted average number of common
shares outstanding of 5,206,128 for the periods ending September 30, 1996
and 1995. Fully diluted per share data includes shares issuable pursuant to
currently exercisable options and a convertible debenture.
Note 3.
Inventories consist of the following:
<TABLE>
<CAPTION>
September 30, June 30,
1996 1996
------------- --------
(unaudited)
<S> <C> <C>
Raw materials $ 327,427 $ 309,051
Work-in-process 292,031 253,887
Finished goods 318,651 260,816
Packaging supplies 60,503 50,465
----------- -----------
$ 998,612 $ 874,219
=========== ===========
</TABLE>
Note 4.
The Company uses the liability method specified by SFAS No. 109,
"Accounting for Income Taxes." Deferred tax assets and liabilities are
determined based on the difference between the financial statement and tax
basis of assets and liabilities as measured by the enacted tax rates which
will be in effect when these differences reverse. Deferred tax expense is
the result of changes in deferred tax assets and liabilities. The principal
types of differences between assets and liabilities for financial statement
and tax return purposes are net operating loss carryforwards and
accumulated depreciation. A deferred tax asset is recorded for net
operating losses being carried forward for tax purposes. At September 30,
1996, the net deferred tax asset has been reduced to zero by a valuation
allowance.
6
<PAGE>
The Company's deferred tax asset as of June 30, 1996 consists of the
following:
<TABLE>
<S> <C>
Net operating loss carryforward $ 2,083,750
Tax depreciation over book depreciation (137,058)
Vacation payable 7,509
Other 2,520
-----------
1,956,721
Valuation allowance (1,956,721)
-----------
$ --
===========
</TABLE>
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
Results of Operations.
Three months ended September 30, 1996 compared with three months ended
September 30, 1995
Net sales for the three months ended September 30, 1996 (First Quarter
1997) decreased by 30.2% to $651,361 from net sales of $933,782 for the three
months ended September 30, 1995 (First Quarter 1996). The Company's net sales
during First Quarter 1997 were derived from the sale of Primidone, a generic
version of Wyeth Ayerst's Mysoline(R), an anti-convulsant; Butalbital Compound
Capsules ("BCC"), a generic version of Sandoz's Fiorinal(R); Dicyclomine
Hydrochloride USP, 10mg Capsules ("Dicyclomine"), a generic version of Marion
Merrell Dow's Bentyl(R), an antispasmodic and anticholinergic agent, and
Prednisone 5mg and Prednisone 20mg, both of which are steroidal
anti-inflammatory agents, which the Company began manufacturing and
distributing in June 1996. The Company's net sales during First Quarter 1996
were derived from the sale of BCC, Primidone and Dicyclomine. Sales decreased
during First Quarter 1997 due to increased competition and due to more
competitive pricing.
Cost of sales decreased by 1.8%, to $421,827 in First Quarter 1997
from $429,437 in First Quarter 1996. Cost of sales decreased less than the
percentage decrease in sales from First Quarter 1997 to First Quarter
1996, due to a large portion of cost of sales being fixed costs and due to the
introduction in the Last Quarter of Fiscal 1996 of Prednisone 5mg and
Prednisone 20mg which have higher raw material and manufacturing costs in
comparison to the Company's other products. Gross profit margins for First
Quarter 1997 and First Quarter 1996 were 35.2% and 54.0%, respectively.
The decrease in the gross profit percentage is primarily due to the decrease
in sales during First Quarter 1997 and as a result of fixed costs being
absorbed during this period. In addition the Company introduced Prednisone
5mg and Prednisone 20mg during the quarter ended June 30, 1996, which
have lower gross profit margins.
Selling, general and administrative expenses increased by 18.9%, to
$314,480 in First Quarter 1997 from $264,519 in First Quarter 1996. The
increase is primarily due to increased Research and Development costs due to a
biostudy being performed on one of the Company's planned product
introductions.
The Company reported an operating loss of $(84,946) for First Quarter
1997, as compared to an operating profit of $239,826 for First Quarter 1996.
The Company's interest expense increased to $156,236 in First Quarter
1997 from $153,374 in First Quarter 1996 primarily due to increased borrowings
on the Company's lines of credit. See Liquidity and Capital Resources below.
During Fiscal 1995 the Company had provided for Pennsylvania corporate
income tax of approximately 11% of taxable income. Due to tax law changes, the
Company could not utilize its net operating loss carry forward deduction for
Pennsylvania corporate income tax during Fiscal 1995. The 1993 Pennsylvania
Tax Act reactivated the net operating loss carryforward deduction for taxable
fiscal years after 1995, therefore, no provision for Pennsylvania corporate
income tax was made during First Quarter 1997.
8
<PAGE>
The Company reported a net loss of $244,370 for First Quarter 1997, or
($.05) per share, compared to net income of $91,888 or $0.02 per share, $.01
on a fully diluted basis, for First Quarter 1996.
Liquidity and Capital Resources
The Company used ($4,834) and generated $5,902 of cash in operations
during First Quarter 1997 and First Quarter 1996, respectively. Net cash used
in operations increased from First Quarter 1996 to First Quarter 1997 due to
lower net income in First Quarter 1997 and an increase in inventory as a
result of new product introductions and due to the Company maintaining
higher inventory levels of its current products to allow for increased
research and development activities. Accounts receivable decreased as a
result of the the lower sales levels in First Quarter 1997. Accrued
liabilities decreased due to the costs of a biostudy accrued at June 30,
1996 being paid during First Quarter 1997 and as a result of lower legal
fees being incurred in First Quarter 1997.
The Company expended $7,091 for property, plant and equipment during
First Quarter 1997 compared to $85,470 expended during First Quarter 1996.
The Company expended approximately $136,000 for fixed assets during second
quarter Fiscal 1997. The Company has not made any additional material fixed
asset purchase commitments, but has budgeted up to $500,000 for capital
expenditures in Fiscal 1997.
Net cash used in financing activities increased to ($13,333) during
First Quarter 1997 from $52,714 provided by financing activities during First
Quarter 1996 due to the Company repaying a portion of it's credit facilities
during First Quarter 1997.
As a result of the foregoing, the Company experienced a $25,258
decrease in cash available from the beginning to the end of First Quarter 1997,
resulting in a zero cash balance at the end of the First Quarter 1997.
Except as set forth herein, the Company is not aware of any known
trends, events or uncertainties that have or are reasonably likely to have a
material impact on the Company's net sales or income from continuing
operations.
From Fiscal 1987 through Fiscal 1994, the Company incurred operating
losses and suffered cash flow restraints. The Company obtained the needed
capital to renovate its manufacturing facility, to acquire new equipment,
to remove hazardous waste materials, to retain new management and to
provide working capital, primarily from a financing facility made
available to the Company by William Farber, a principal shareholder and
Chairman of the Board of Directors, in August 1991. This investment has
resulted in an operating profit for the Company for the Fiscal years 1996 and
1995.
This financing facility originally consisted of a $2,000,000 revolving
line of credit and a $2,000,000 9% convertible debenture. The revolving line
of credit and the debenture are secured by substantially all of the Company's
assets and are subordinated to the bank lines of credit and mortgage term loan
payable. In March 1993, at the Company's request, William Farber increased the
aggregate credit available under the revolving line of credit to $3,500,000.
The Company requested the additional financing to provide working capital
while the Company reformulated products and obtained supplemental approvals
from the FDA.
The line of credit bears interest at the prime rate published by
Michigan National Bank plus 1% per annum.
9
<PAGE>
The principal is due July 1, 1998. Accrued interest through June 30, 1994
is payable in twenty-four equal monthly installments, commencing
August 15, 1994 and continuing on the fifteenth day of each month
thereafter until paid in full. Accrued interest from April 1, 1995 to
June 30, 1996 is payable in twenty-four equal monthly installments,
commencing August 15, 1996 and continuing on the fifteenth day of
each month thereafter until paid in full. Accrued interest from July 1,
1996 to June 30, 1997 is payable in twenty-four equal monthly installments,
commencing August 15, 1997 and continuing on the fifteenth day of each month
thereafter, until paid in full. Interest accrued on the outstanding principal
balance from and after July 1, 1997 shall be due and payable quarterly, in
arrears, commencing October 1, 1997 and continuing on the first day of each
January, April, July and October thereafter until paid in full. The
outstanding principle balance of the Revolving Credit Loan, together with
accrued interest, shall be due and payable in full on the Due Date. At
September 30, 1996 accrued interest was approximately $468,000 of which
$174,000 is included in the long-term outstanding balance. At September 30,
1996, $294,000 was classified as currently due.
The debenture bears interest at 9% per annum. The debenture is due
December 23, 1998 and is convertible at any time prior to payment in full at
the conversion rate of 4,000 shares of common stock for each $1,000 of
outstanding indebtedness (adjusted for the Company's 4 for 1 stock splits in
April 1992 and March 1993). Accrued interest through June 30, 1994 is payable
in twenty-four equal monthly installments, commencing August 15, 1994 and
continuing on the fifteenth day of each month thereafter until paid in full.
Accrued interest from April 1, 1995 to June 30, 1996 is payable in twenty-four
equal monthly installments, commencing August 15, 1996 and continuing on the
fifteenth day of each month thereafter until paid in full. Accrued interest
from July 1, 1996 to June 30, 1997 is payable in twenty-four equal monthly
installments, commencing August 15, 1997 and continuing on the fifteenth day
of each month thereafter, until paid in full. Interest accrued on the
outstanding principal balance from and after July 1, 1997 shall be due and
payable quarterly, in arrears, commencing October 1, 1997 and continuing on
the first day of each January, April, July and October thereafter until paid
in full. The outstanding principal balance of this Debenture, together with
accrued interest, shall be due and payable in full on the due Date. At
September 30, 1996 accrued interest was approximately $255,000, of which
$95,000 is included in the long-term outstanding balance. At September 30,
1996 $160,000 was classified as currently due.
At September 30, 1996, there was no additional borrowing capacity
available under the revolving line of credit. Management expects to have
sufficient operating income during Fiscal 1997 to make the required monthly
interest payments.
In May 1993, the Company obtained from a bank a $500,000 mortgage term
loan which provides for monthly principal installments of approximately $2,800
plus interest at 9.25% per annum. A final balloon payment of $302,778 is due
in May 2000. The Company also obtained from a bank a $500,000 line of credit
which bears interest at prime plus 1.5% per annum. The line of credit is
limited to 80% of qualified accounts receivable. At September 30, 1996, no
funds were available under the line of credit. Both loans are secured by
substantially all of the Company's assets and the mortgage term loan is
guaranteed by Mr. Farber, who has subordinated his loans to the Company to
those of the bank. The bank's lien against the Company's realty is to be
released on payment in full of the mortgage term loan.
On July 31, 1995, the Company secured a $300,000 bank revolving line
of credit for equipment financing, expiring October 31, 1996. Advances are
limited to 80% of equipment costs. On April 1, 1996,
10
<PAGE>
$93,881 of borrowings under this line was converted into a secured term loan
payable in forty-eight equal monthly installments. This line of credit bears
interest at prime plus 1.5%. At September 30, 1996, $158,000 was available to
the Company under the revolving line of credit for equipment financing. The
line of credit is collateralized by all of the Company's present and future
equipment. It is also cross-collateralized with the bank mortgage term loan
payable and the line of credit.
Management currently believes the balances available under the
Company's existing lines of credit, and working capital generated by
anticipated increased sales activity, will be adequate to fund the
Company's working capital requirements under current sales conditions.
The introduction of new products with high raw material costs, and
increased research and development activities may result in the Company
having to increase its lines of credit to provide the working capital
to support the increased levels of sales and increased research and
development activities. The Company is currently negotiating to increase
its borrowing capacity under the shareholder line of credit.
Except as set forth herein, the Company is not aware of any known
trends, events or uncertainties that have or are reasonably likely to have a
material impact on the Company's short-term or long-term liquidity or
financial condition.
Prospects for the Future
As of September 30, 1996, the Company was manufacturing and marketing
five products, BCC, Primidone, Dicyclomine, Prednisone 5mg and Prednisone
20mg. Twelve additional products are under development at this time; three
of these products have been redeveloped and submitted to the FDA for
supplemental approval; seven others are currently in various stages of
development, revalidation or preparation for submission to the agency, and two
represent new product introductions as part of the Company's commitment to a
research and development program, of which one is currently involved in a
biostudy for submission. Lannett is aggressively pursuing alternative product
lines designed to complement the Company's existing products. In addition to
research and development undertakings, the Company is actively pursuing
contract manufacturing and contract packaging. Subsequent to the year ended
June 30, 1996, the Company received approval from the FDA for Acetazolamide
USP 250mg tablets, a carbonic anhydrase inhibitor, the generic version of
Lederle Laboratories, Diamox(R), used in the treatment of some types of
convulsive disorders (epilepsy), certain types of glaucoma, and in the
treatment of cardiac edema. The Company is currently in the process of
obtaining a new raw material source for this
11
<PAGE>
product. Lannett is also pursuing key strategic alliances to jointly market
its current product base. Since the Company has no control over the FDA review
process, management is unable to anticipate with certainty when it will
commence production and begin shipping of additional products.
12
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Regulatory Proceedings.
The Company is engaged in an industry which is subject to considerable
government regulation relating to developing, manufacturing and marketing
of pharmaceutical products. Accordingly, incidental to its business, the
Company periodically responds to inquiries or engages in administrative and
judicial proceedings involving regulatory authorities, particularly the FDA
and the Drug Enforcement Agency.
DES Cases.
The Company is currently engaged in several civil actions as a co-defendant
with many other manufacturers of Diethylstilbestrol ("DES"), a synthetic
hormone. For a discussion of these cases, see the Company's Annual Report
on Form 10-KSB for the Fiscal Year Ended June 30, 1996.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) A list of the exhibits required by Item 601 of Regulation S-B to be
filed as a part of this Form 10-QSB is shown on the Exhibit Index
filed herewith.
(b) The Company did not file any reports on Form 8-K during the last
quarter of the fiscal year covered by this report.
13
<PAGE>
SIGNATURE
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
LANNETT COMPANY, INC.
Dated: November 12, 1996 By: / s / Jeffrey M. Moshal
-----------------------
Jeffrey M. Moshal
Vice President - Finance and Treasurer
14
<PAGE>
<TABLE>
<CAPTION>
Exhibit Index
Exhibit
Number Description Method of Filing Page
- ------- ----------- ---------------- ----
<S> <C> <C> <C>
3(a) Articles of Incorporation Incorporated by reference to the Proxy -
Statement filed with respect to the
Annual Meeting of Shareholders held on
December 6, 1991 (the "1991 Proxy
Statement").
3(b) By-Laws, as amended Incorporated by reference to the 1991 -
Proxy Statement.
4(a) Specimen Certificate for Incorporated by reference to Exhibit -
Common Stock 4(a) to Form 8 dated April 23, 1993
(Amendment No. 3 to Form 10-K f/y/e
June 30, 1992) ("Form 8")
10(a) Loan Agreement dated Incorporated by reference to the -
August 30, 1991 between Annual Report on Form 10-K f/y/e June
the Company and William 30, 1991
Farber
10(b) Amendment #1 to Loan Incorporated by reference to Exhibit -
Agreement dated March 15, 10(b) to the Annual Report on Form
1993 10-KSB f/y/e June 30, 1993 ("1993 Form
10-K")
10(c) Amendment #2 to Loan Incorporated by reference to Exhibit -
Agreement dated August 1, 10(c) to the Annual Report on Form
1994 10-KSB f/y/e June 30, 1994 ("1994 Form
10-K")
10(d) Amendment #3 to Loan Incorporated by reference to Exhibit -
Agreement dated May 15, 10(d) to the Annual Report on Form
1995 10-KSB f/y/e June 30, 1995 ("1995 Form
10-K")
10(e) Amendment #4 to Loan Incorporated by reference to Exhibit -
Agreement dated December 10(e) to the Annual Report on Form
31, 1995 10-KSB f/y/e June 30, 1996 ("1996 Form
10-K")
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description Method of Filing Page
- ------- ----------- ---------------- ----
<S> <C> <C> <C>
10(f) Amendment #5 to Loan Incorporated by reference to Exhibit -
Agreement dated June 30, 10(f) to the Annual Report on Form
1996 10-KSB f/y/e June 30, 1996 ("1996 Form
10-K")
10(g) Loan Agreement dated May Incorporated by reference to Exhibit -
4, 1993 between the 10(c) to the 1993 Form 10-K
Company and Meridian Bank
10(h) Amendment to Loan Incorporated by reference to Exhibit -
Documents between the 10(e) to the Annual Report on Form
Company and Meridian Bank 10-KSB f/y/e June 30, 1994 ("1994 Form
dated as of December 8, 10-K")
1993
10(i) Letter Agreement between Incorporated by reference to Exhibit -
the Company and Meridian 10(f) to the Annual Report on Form
Bank dated December 21, 10-KSB f/y/e June 30, 1994 ("1994 Form
1993 10-K")
10(j) Third Amendment to Loan Incorporated by reference to Exhibit -
Agreement dated as of June 10(g) to the Annual Report on Form
9, 1994 10-KSB f/y/e June 30, 1994 ("1994 Form
10-K")
10(k) Fourth Amendment to Loan Incorporated by reference to Exhibit -
Documents between the 10(i) to the Annual Report on Form
Company and Meridian Bank 10-KSB f/y/e June 30, 1995 ("1995 Form
as of October 27, 1994 10-K")
10(l) Letter Agreement between Incorporated by reference to Exhibit -
the Company and Meridian 10(j) to the Annual Report on Form
Bank dated October 27, 1994 10-KSB f/y/e June 30, 1995 ("1995 Form
10-K")
10(m) Letter Agreement between Incorporated by reference to Exhibit -
the Company and Meridian 10(k) to the Annual Report on Form
Bank dated July 10, 1995 10-KSB f/y/e June 30, 1995 ("1995 Form
10-K")
10(n) Amendment to Security Incorporated by reference to Exhibit -
Agreement between the 10(l) to the Annual Report on Form 10-
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description Method of Filing Page
- ------- ----------- ---------------- ----
<S> <C> <C> <C>
Company and Meridian Bank KSB f/y/e June 30, 1995 ("1995 Form
dated as of July 31, 1995 10-K")
10(o) Line of Credit Note dated Incorporated by reference to Exhibit -
July 31, 1995 10(m) to the Annual Report on Form
10-KSB f/y/e June 30, 1995 ("1995 Form
10-K")
10(p) Fifth Amendment to Loan Incorporated by reference to Exhibit -
Agreement dated July 31, 10(n) to the Annual Report on Form
1995 10-KSB f/y/e June 30, 1995 ("1995 Form
10-K")
10(q) Amendment to Loan Incorporated by reference to Exhibit -
agreement between the 10(q) to the Annual Report on Form
Company and Meridian Bank, 10-KSB f/y/e June 30, 1996 ("1996 Form
dated March 5, 1996. 10-K")
10(r) Employment agreement Incorporated by reference to Exhibit
between the Company and 10(i) to the Annual Report on Form
Vlad Mikijanic 10-KSB f/y/e June 30, 1994 ("1994 Form
10-K")
11 Computation of Per Share Incorporated by reference to Exhibit -
Earnings 11 to the Annual Report on Form 10-KSB
f/y/e June 30, 1996 ("1996 Form 10-K")
22 Subsidiaries of the Incorporated by reference to the -
Company Annual Report on Form 10-K f/y/e June
30, 1990
23 Consent of Grant Thornton Incorporated by reference to Exhibit -
23 to the Annual Report on Form 10-KSB
f/y/e June 30, 1996 ("1996 Form 10-K")
</TABLE>
17
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM THE BALANCE SHEETS AND STATEMENTS OF EARNINGS
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> SEP-30-1996
<CASH> $ 0
<SECURITIES> 0
<RECEIVABLES> 528,672
<ALLOWANCES> 9,000
<INVENTORY> 998,612
<CURRENT-ASSETS> 1,563,956
<PP&E> 2,829,101
<DEPRECIATION> 1,010,635
<TOTAL-ASSETS> 3,409,746
<CURRENT-LIABILITIES> 1,376,051
<BONDS> 6,181,784
<COMMON> 5,206
0
0
<OTHER-SE> (4,153,295)
<TOTAL-LIABILITY-AND-EQUITY> 3,409,746
<SALES> 651,361
<TOTAL-REVENUES> 651,361
<CGS> 421,827
<TOTAL-COSTS> 736,307
<OTHER-EXPENSES> (3,188)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 156,236
<INCOME-PRETAX> (244,370)
<INCOME-TAX> 0
<INCOME-CONTINUING> (244,370)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (244,370)
<EPS-PRIMARY> (0.05)
<EPS-DILUTED> 0.00
</TABLE>
