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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, 1998.
/ / 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 6, 1998, there were 5,206,128 shares of the issuer's common
stock, $.001 par value, outstanding.
Page 1 of 20 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, 1998 (unaudited) and
June 30, 1998....................................... 3
Consolidated Statements of Operations
for the three months ended September 30, 1998
and 1997 (unaudited)................................ 4
Consolidated Statements of Cash Flows
for the three months ended September 30, 1998
and 1997 (unaudited)................................ 5
Notes to Consolidated Financial
Statements (unaudited).......................... 6 - 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations....................................... 8 - 11
PART II. OTHER INFORMATION
Item 1. Legal Proceedings...................................... 12
Item 2. Changes in Securities and Use of Proceeds.............. 12
Item 3. Defaults upon Senior Securities........................ 12
Item 4. Submission of Matters to a Vote of Security Holders.... 12
Item 5. Other Information...................................... 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
(UNAUDITED)
ASSETS 09/30/98 06/30/98
- ------ -------- --------
<S> <C> <C>
CURRENT ASSETS:
Cash $ 0 $ 16,695
Trade accounts receivable
(net of allowance of $65,000 and $50,000) 1,824,224 1,357,131
Inventories 2,249,515 2,071,946
Prepaid expenses 77,896 67,304
----------- -----------
Total current assets 4,151,635 3,513,076
----------- -----------
PROPERTY, PLANT AND EQUIPMENT 6,175,693 5,811,863
Less accumulated depreciation (1,617,550) (1,502,199)
----------- -----------
4,558,143 4,309,664
----------- -----------
OTHER ASSETS 44,211 143,864
DEFERRED TAX ASSET 150,000 150,000
----------- -----------
Total assets $ 8,903,989 $ 8,116,604
=========== ===========
LIABILITIES AND SHAREHOLDERS' DEFICIENCY
CURRENT LIABILITIES:
Line of credit $ 1,500,000 $ 1,250,000
Accounts payable 674,755 631,249
Deferred interest payable - shareholder (including
convertible deferred interest payable of
$444,750 and $262,250) 1,294,083 749,357
Accrued expenses 257,533 180,941
Current portion of long-term debt 854,743 863,207
----------- -----------
Total current liabilities 4,581,114 3,674,754
----------- -----------
LONG-TERM DEBT, LESS CURRENT PORTION 1,277,324 1,357,548
----------- -----------
LINE OF CREDIT AND DEFERRED INTEREST - SHAREHOLDER 4,517,313 4,477,889
----------- -----------
CONVERTIBLE NOTE PAYABLE AND DEFERRED INTEREST -
SHAREHOLDER, LESS CURRENT PORTION 2,137,250 2,273,750
----------- -----------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' DEFICIENCY:
Common stock -
authorized 50,000,000 shares par value $.001:
issued and outstanding, 5,206,128 shares 5,206 5,206
Additional paid-in capital 320,575 320,575
Accumulated deficit (3,934,793) (3,993,118)
----------- -----------
Total shareholders' deficiency (3,609,212) (3,667,337)
----------- -----------
Total liabilities and shareholders' deficiency $ 8,903,989 $ 8,116,604
=========== ===========
<FN>
See notes to consolidated financial statements
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
LANNETT COMPANY, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
FOR THE THREE MONTHS ENDED
--------------------------
9/30/98 9/30/97
------- -------
<S> <C> <C>
NET SALES $ 2,033,485 $ 2,437,864
COST OF SALES 1,330,333 1,520,641
----------- -----------
Gross profit 703,152 917,223
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES 415,439 362,755
----------- -----------
Operating profit 287,713 554,468
----------- -----------
OTHER INCOME (EXPENSES), NET:
Other Income -- 5,397
Interest expense, including $147,650
and $144,450 to shareholder (229,388) (193,155)
----------- -----------
(229,388) (187,758)
----------- -----------
NET INCOME $ 58,325 $ 366,710
=========== ===========
BASIC EARNINGS PER COMMON SHARE $ 0.01 $ 0.07
DILUTED EARNINGS PER COMMON SHARE $ 0.007 $ 0.03
<FN>
See notes to the consolidated financial statements
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
LANNETT COMPANY, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
FOR THE THREE MONTHS ENDED
--------------------------
09/30/98 09/30/97
-------- --------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 58,325 $ 366,710
Adjustments to reconcile net income to net cash
(used in) provided by operating activities:
Depreciation and amortization 116,344 64,619
Changes in assets and liabilities which provided (used) cash:
Trade accounts receivable (467,093) (466,706)
Inventories (177,569) (29,069)
Prepaid expenses and other assets 88,068 9,508
Accounts payable 43,506 23,394
Deferred interest payable - shareholder 76,592 (23,462)
Accrued interest 147,650 144,774
--------- ---------
Net cash (used in ) provided by operating activities (114,177) 89,768
--------- ---------
INVESTING ACTIVITIES:
Purchases of property, plant and equipment (363,830) (507,541)
--------- ---------
Net cash used in investing activities (363,830) (507,541)
--------- ---------
FINANCING ACTIVITIES:
Borrowings under line of credit - shareholder 300,000 50,000
Borrowings under line of credit 250,000 --
Repayments of debt (88,688) (26,881)
Proceeds from debt 400,000
--------- ---------
Net cash provided by financing activities 461,312 423,119
--------- ---------
NET (DECREASE) INCREASE IN CASH (16,695) 5,346
CASH, BEGINNING OF YEAR 16,695 15,509
--------- ---------
CASH, END OF PERIOD $ 0 $ 20,855
========= =========
<FN>
See notes to the consolidated financial statements
</TABLE>
5
<PAGE>
LANNETT COMPANY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note 1. Consolidated Financial Statements
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, 1998
and 1997 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, 1998.
Note 2. New Accounting Standards
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 130, Reporting Comprehensive
Income. This statement establishes standards for the reporting and display of
comprehensive income and its components in a full set of financial
statements. This standard is effective for fiscal years beginning after
December 15, 1997. The Company adopted SFAS No. 130 effective July 1, 1998.
There was no effect of implementing this standard, as comprehensive income is
the same as net income.
In March 1998, the AICPA issued Statement of Position ("SOP") 98-1.
Accounting For the Costs of Computer Software Developed or Obtained for
Internal Use. The SOP is effective for fiscal years beginning after December
15, 1998. The SOP will require the capitalization of certain costs incurred
after the date of adoption in connection with developing or obtaining
software for internal use. The Company has not yet assessed what the impact
of the SOP will be on the Company's future earnings or financial position.
Note 3. Inventories
Inventories consist of the following:
<TABLE>
<CAPTION>
September 30, June 30,
1998 1998
------------ --------
(unaudited)
<S> <C> <C>
Raw materials $ 725,357 $ 652,825
Work-in-process 718,575 406,442
Finished goods 571,028 778,246
Packaging supplies 234,555 234,433
----------- -----------
$ 2,249,515 $ 2,071,946
=========== ===========
</TABLE>
6
<PAGE>
Note 4. Income Taxes
The provision for income taxes for the three months ended September 30, 1998
and 1997 was eliminated by the utilization of federal and state net operating
loss carryforwards.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
Results of Operations.
In addition to historical information, this Form 10-QSB contains
forward-looking information. The forward-looking information contained herein
is subject to certain risks and uncertainties that could cause actual results
to differ materially from those projected in the forward-looking statements.
Important factors that might cause such a difference include, but are not
limited to, those discussed in the following section entitled "Management's
Discussion and Analysis of Results of Operations and Financial Condition."
Readers are cautioned not to place undue reliance on these forward-looking
statements, which reflect management's analysis only as of the date of this
Form 10-QSB. The Company undertakes no obligation to publicly revise or
update these forward-looking statements to reflect events or circumstances
which arise later. Readers should carefully review the risk factors described
in other documents the Corporation files from time to time with the
Securities and Exchange Commission, including the Annual report on Form
10-KSB filed by the Corporation in Fiscal 1998, and any Current Reports on
Form 8-K filed by the corporation.
Results of Operations - First Quarter Fiscal 1999 to First
Quarter Fiscal 1998.
Net sales for the three months ended September 1998 ("First Quarter
Fiscal 1999") decreased by 17% to $2,033,485 from net sales of $2,437,864 in
the three months ended September 1997 ("First Quarter Fiscal 1998). Sales
decreased during First Quarter Fiscal 1999 mainly due to increased
competition for the Company's product line. The Company's private label
supply agreements accounted for approximately $1.4 million and $1.8 million
of First Quarter Fiscal 1999 and 1998 net sales, respectively.
Cost of sales decreased by 13%, to $1,330,333 in First Quarter Fiscal
1999 from $1,520,641 in First Quarter Fiscal 1998. The cost of sales
percentage decrease was substantially less than the percentage decrease in
First Quarter Fiscal 1999 sales over First Quarter Fiscal 1998 sales
primarily due to the increase in production and quality assurance personnel
costs. These costs increased as a result of the growth of the Company
experienced during Fiscal 1998 and anticipated growth for Fiscal 1999. Cost
of sales for the private label supply agreements is consistent with the
overall cost of sales except for discounts allowed. Gross profit margins for
First Quarter Fiscal 1999 and First Quarter Fiscal 1998 were 35% and 38%,
respectively. The decrease in the gross profit percentage is primarily due to
the increase in production and quality assurance costs in anticipation of
increased sales volumes.
Selling, general and administrative expenses increased by 15% to
$415,439 in First Quarter Fiscal 1999 from $362,755 in First Quarter Fiscal
1998. This increase is due to increases in research and development costs for
an expanded product line and increases in various administration costs as a
result of the growth of the Company experienced during Fiscal 1998 and
anticipated growth for Fiscal 1999.
As a result of the foregoing, the Company reported an operating
profit of $287,713 for First Quarter Fiscal 1999, as compared to an operating
profit of $554,468 for First Quarter Fiscal 1998.
The Company's interest expense increased to $229,388 in Fiscal First
Quarter Fiscal 1999 from $193,155 in First Quarter Fiscal 1998 primarily due
to increased borrowings on the Company's lines of credit and term loans. See
Liquidity and Capital Resources below.
8
<PAGE>
The Company reported net income of $58,325 for First Quarter Fiscal
1999, $0.01 basic income per share, $0.007 on a diluted basis, compared to
net income of $366,710 for First Quarter Fiscal 1998, $0.07 basic income per
share, $0.03 on a diluted basis.
Liquidity and Capital Resources -
The Company used $114,177 and generated $89,768 of cash in
operations during First Quarter Fiscal 1999 and 1998, respectively. Net cash
used in operations increased from First Quarter Fiscal 1999 to First Quarter
Fiscal 1998 as a result of lower net income. Accounts receivable increased as
a result of increased sales levels during the latter part of First Quarter
Fiscal 1999 due to customer quarterly buy-ins. Inventory levels increased to
support anticipated continued increases in sales and production levels. Other
assets decreased due to equipment received for which deposits had previously
been made. Accrued liabilities increased as a result of an increase in the
payroll accrual. Accrued interest increased as a result of the Company
continuing to defer interest payments on the shareholder debt.
The Company expended $363,830 for property, plant and equipment
during First Quarter Fiscal 1999 compared to $507,541 expended during First
Quarter Fiscal, 1998, The Company has budgeted for $650,000 in capital
expenditures in Fiscal 1999 and is currently negotiating to obtain the
necessary financing.
Net cash provided by financing activities increased to $461,312
during First Quarter Fiscal 1999 from $423,119 provided by financing
activities during First Quarter Fiscal 1998. This increase in cash provided
by financing activities was primarily used to finance capital expenditures
and working capital requirements.
As a result of the foregoing, the Company experienced a $16,695
decrease in cash available from the beginning to the end of First Quarter
Fiscal 1999, resulting in $0 cash available at the end of First Quarter
Fiscal 1999.
Except as set forth in this report, the Company is not aware of any
known trends, events or uncertainties that have or are reasonably likely to
have a material adverse impact on the Company's net sales or income from
continuing operations.
At September 30, 1998 the outstanding amount of the Company's
indebtedness (other than trade payables and accrued expenses) is $11.6
million, including $7.9 million owed to a majority shareholder. The estimated
required principal and interest payments on the bank term loans is
approximately $750,000 for the fiscal year ended June 30, 1999. The
shareholder debt does not require any payments during Fiscal 1999. Management
expects to have sufficient operating cashflow during Fiscal 1999 to make the
required monthly principal and interest payments.
Management currently believes the balances available under the
Company's existing lines of credit and working capital generated by increased
sales activity will be adequate to fund the Company's working capital
requirements under current sales conditions. The introduction of new
products, increased research and development activities, increased sales from
contract manufacturing and anticipated capital expenditures, will result in
the Company having to increase its lines of credit to provide the necessary
working capital and capital expenditure financing to support the Company's
growth. The Company has received local approval for a $6,500,000 industrial
development revenue bond. Funding is expected to be available during the
Quarter ended December 31, 1998. The proceeds are to be used to refinance
existing term debt, repay deferred shareholder interest, and to provide
additional financing for capital expenditures. The increase in capital
expenditures and anticipated additional capital expenditure requirements are
necessary to support the growth from the contract manufacturing and private
label supply agreements, and to support new product introductions. However
there can be no assurance that any of the above will occur.
9
<PAGE>
Except as set forth in this report, the Company is not aware of any
trends, events or uncertainties that have or are reasonably likely to have a
material adverse impact on the Company's short-term or long-term liquidity or
financial condition.
Prospects for the Future
As of September 30, 1998 ten additional products are under
development. Four of these products are being developed and manufactured for
other companies, while the other six products are being developed as part of
the Lannett product line. One of the Lannett products has been redeveloped
and submitted to the Federal Drug Administration ("FDA") for supplemental
approval. Four additional products represent previously approved Abbreviated
New Drug Applications ("ANDA") that the Company is planning to reintroduce.
The remaining one product represent a new product introduction, which has
completed a bio-study and has been submitted to the FDA for review. Since the
Company has no control over the FDA review process, management is unable to
anticipate with certainty when it will commence producing and shipping
additional products.
Year 2000
As in the case with most other businesses, the Company is in the process of
evaluating and addressing Year 2000 compliance of both its information
technology systems and its non-information technology systems (collectively
referred to as "Systems"). Such Year 200 compliance efforts are designed to
identify, address, and resolve issues that may be created by programs written
to run on microprocessors which reference years as two digit fields rather
than four. Any such programs may recognize a date using "00" as the year 1900
rather than 2000. If this situation occurs, the potential exists for System
failure or miscalculations by computer programs.
The Company continues to make progress in achieving Year 2000 compliance and
is on schedule to be fully compliant by the end of Fiscal Year 1999. Nearly
all of the Company's business systems were purchased as Commercial Off The-
Shelf (COTS) Software and non-programmable electronic systems, which reduces
the need for internal workforce dedication to software redesign. The Company
has not hired any external consultants or incurred any additional costs thus
far in its Year 2000 compliance efforts, other than the employment of an
Management Information Systems Supervisor whose job function includes the
Year 2000 compliance effort. The Company's use of its own information
technology personnel to make the business systems Year 2000 compliant may
delay some other strategic information systems development and implementation
which would have otherwise benefited the Company in various ways and to
varying extents. The Company does not believe that it will be at a
competitive disadvantage as a result of these delays.
The inventory phase of all business, manufacturing, quality control and plant
systems has been completed and the assessment phase of such systems is nearly
complete. Results to date are encouraging The Company believes that some
costs will be incurred to make certain quality control systems Year 2000
compliant but those costs should not be material as the equipment was slated
to be replaced in Fiscal year 1999. As of September 30, 1998 the Company had
incurred approximately $20,000 relating to remediation of the Year 2000
issue. The Company estimates that it will have total expenditures for
remediation of approximately $50,000 in Fiscal Year 1999 and $25,000 in
Fiscal Year 2000. The future remediation costs to be incurred are based on
management's best estimates, which were derived using assumptions of future
events including the continued availability of resources and the reliability
of third party modification plans. There can be no assurance that this
estimate will be achieved and actual results may be materially different.
The Company continues to make inquiries of its vendors, professional
advisors, customers and other constituents whose Year 2000 compliance is
important to its ongoing business. Based on limited preliminary information
received by the Company, no significant issues have been disclosed. In the
event that any of the Company's
10
<PAGE>
significant suppliers, customers or the FDA do not successfully achieve Year
2000 compliance on a timely basis, the Company's business and operations
could be materially adversely affected. The Company currently does not have
any contingency plans due to the nature of limited supplier availability in
the pharmaceutical industry. However it recognizes the need to develop
contingency plans and expects to have these plans secured, where applicable
by the end of Fiscal 1999.
The Company is aware of the potential for claims against it and other
companies for damages for products and services that were not Year 2000
compliant. Since the Company is neither a hardware manufacturer nor a
software manufacturer developer, the Company believes that any such claims
against it will be without merit.
While the Company does not believe that the Year 2000 matters discussed above
will have a material impact on its business, financial condition or results
of operations, it is uncertain whether or to what extent the Company may be
affected by such matters.
11
<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 the development,
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.
Employee Claim. A claim of retaliatory discrimination has been filed
by a former employee with the Pennsylvania Human Relations Commission
("PHRC"). The Company has denied liability in this matter, which is being
investigated by the PHRC pursuant to its normal procedures. Management
believes that the outcome will not have a material adverse impact on the
financial position of the Company.
A claim of sexual harassment and retaliation also has been filed
against the Company by another former employee. The claim was cross-filed
with the PHRC and with the Equal Employment Opportunity Commission. which
already has closed its file on the charge. The Company has filed an answer
with the PHRC denying the charge, and the PHRC is investigating the claim
pursuant to its normal procedures. Management believes that the outcome of
this charge also will not have a material adverse impact on the financial
position of the Company.
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. Prior litigation established that the Company's
pro rata share of any liability is less than one-tenth of one percent. The
Company was represented in many of these actions by the insurance company
with which the Company maintained coverage during the time period that
damages were alleged to have occurred. The insurance company denied coverage
of actions filed after January 1, 1992. With respect to these actions, the
Company paid nominal damages or stipulated to its pro rata share of any
liability. The Company has either settled or is currently defending over 500
such claims. The Company persuaded its insurance carriers to resume defense
and indemnification of most DES claims, has recovered from its carriers some
of the amounts the Company previously expended in these cases, and is
negotiating with its carriers for recovery of the balance of such amounts.
Management believes that the outcome will not have a material adverse impact
on the financial position of the Company.
ITEM 2. CHANGE IN SECURITIES AND USE OF PROCEEDS
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
12
<PAGE>
ITEM 5. OTHER INFORMATION
None
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 First
Quarter Fiscal 1999.
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 6, 1998 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 Common Incorporated by reference to Exhibit 4(a) to -
Stock 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 August 30, Incorporated by reference to the Annual Report -
1991 between the Company and on Form 10-K f/y/e June 30, 1991
William Farber
10(b) Amendment #1 to Loan Agreement Incorporated by reference to Exhibit 10(b) to -
dated March 15, 1993 the Annual Report on Form 10-KSB f/y/e June 30,
1993 ("1993 Form 10-K")
10(c) Amendment #2 to Loan Agreement Incorporated by reference to Exhibit 10(c) to -
dated August 1, 1994 the Annual Report on Form 10-KSB f/y/e June 30,
1994 ("1994 Form 10-K")
10(d) Amendment #3 to Loan Agreement Incorporated by reference to Exhibit 10(d) to -
dated May 15, 1995 the Annual Report on Form 10-KSB f/y/e June 30,
1995 ("1995 Form 10-K")
10(e) Amendment #4 to Loan Agreement Incorporated by reference to Exhibit 10(e) to -
dated December 31, 1995 the Annual Report on Form 10-KSB f/y/e June 30,
1996 ("1996 Form 10-K")
10(f) Amendment #5 to Loan Agreement Incorporated by reference to Exhibit 10(f) to -
dated June 30, 1996 the Annual Report on Form 10-KSB f/y/e June 30,
1996 ("1996 Form 10-K")
10(g) Amendment #6 to Loan Agreement Incorporated by reference to Exhibit 10(g) to
dated November 1, 1996 the Annual Report on Form 10-KSB f/y/e June
30, 1997 ("1997 Form 10-KSB")
10(h) Amendment #7 to Loan Agreement Incorporated by reference to Exhibit 10(h) to
dated September 9, 1997 the Annual Report on 1997 Form 10-KSB
10(i) Amendment #8 to Loan Agreement Incorporated by reference to Exhibit 10(i) to
dated June 30, 1998 the Annual Report on Form 10-KSB f/y/e June
30, 1998 ("1998 Form 10-KSB")
15
<PAGE>
<CAPTION>
Exhibit
Number Description Method of Filing Page
------ ----------- ---------------- ----
<S> <C> <C> <C>
10(j) Loan Agreement dated May 4, 1993 Incorporated by reference to Exhibit 10(c) to -
between the Company and Meridian the 1993 Form 10-K
Bank
10(k) Amendment to Loan Documents Incorporated by reference to Exhibit 10(e) to -
between the Company and Meridian the Annual Report on Form 10-KSB f/y/e June 30,
Bank dated as of December 8, 1993 1994 ("1994 Form 10-K")
10(l) Letter Agreement between the Incorporated by reference to Exhibit 10(f) to -
Company and Meridian Bank dated the Annual Report on Form 10-KSB f/y/e June 30,
December 21, 1993 1994 ("1994 Form 10-K")
10(m) Third Amendment to Loan Incorporated by reference to Exhibit 10(g) to -
Agreement dated as of June 9, the Annual Report on Form 10-KSB f/y/e June 30,
1994 1994 ("1994 Form 10-K")
10(n) Fourth Amendment to Loan Incorporated by reference to Exhibit 10(i) to -
Documents between the Company the Annual Report on Form 10-KSB f/y/e June 30,
and Meridian Bank as of October 1995 ("1995 Form 10-K")
27, 1994
10(o) Letter Agreement between the Incorporated by reference to Exhibit 10(j) to -
Company and Meridian Bank dated the Annual Report on Form 10-KSB f/y/e June 30,
October 27, 1994 1995 ("1995 Form 10-K")
10(p) Letter Agreement between the Incorporated by reference to Exhibit 10(k) to -
Company and Meridian Bank dated the Annual Report on Form 10-KSB f/y/e June 30,
July 10, 1995 1995 ("1995 Form 10-K")
10(q) Amendment to Security Agreement Incorporated by reference to Exhibit 10(l) to -
between the Company and Meridian the Annual Report on Form 10-KSB f/y/e June 30,
Bank dated as of July 31, 1995 1995 ("1995 Form 10-K")
10(r) Line of Credit Note dated July Incorporated by reference to Exhibit 10(m) to -
31, 1995 the Annual Report on Form 10-KSB f/y/e June 30,
1995 ("1995 Form 10-K")
10(s) Fifth Amendment to Loan Incorporated by reference to Exhibit 10(n) to -
Agreement dated July 31, 1995 the Annual Report on Form 10-KSB f/y/e June 30,
1995 ("1995 Form 10-K")
10(t) Amendment to Loan agreement Incorporated by reference to Exhibit 10(q) to -
between the Company and Meridian the Annual Report on Form 10-KSB f/y/e June 30,
Bank, dated March 5, 1996. 1996 ("1996 Form 10-K")
10(u) Amendment to Loan Incorporated by reference to Exhibit 10(h) to
16
<PAGE>
<CAPTION>
Exhibit
Number Description Method of Filing Page
------ ----------- ---------------- ----
<S> <C> <C> <C>
agreement between the Company and the Annual Report on 1997 Form 10-KSB
Corestates Bank, dated March 20,
1997.
10(v) Amendment to Loan agreement Incorporated by reference to Exhibit 10(h) to
between the Company and the Annual Report on 1997 Form 10-KSB
Corestates Bank, dated March 20,
1997.
10(w) Amendment to Loan agreement Incorporated by reference to Exhibit 10(h) to
between the Company and the Annual Report on 1997 Form 10-KSB
Corestates Bank, dated May 23,
1997.
10(x) Amendment to Loan agreement Incorporated by reference to Exhibit 10(h) to
between the Company and the Annual Report on 1997 Form 10-KSB
Corestates Bank, dated September
24, 1997.
10(y) Amendment to Loan agreement Incorporated by reference to Exhibit 10(h) to
between the Company and the Annual Report on 1997 Form 10-KSB
Corestates Bank, dated December
10, 1997.
10(z) Amendment to Loan agreement Incorporated by reference to Exhibit 10(h) to
between the Company and the Annual Report on 1997 Form 10-KSB
Corestates Bank, dated December
10, 1997.
10(aa) Amendment to Loan agreement Incorporated by reference to Exhibit 10(aa) to
between the Company and the Annual Report on 1998 Form 10-KSB
Corestates Bank, dated June 11,
1998.
10(ab) Amendment to Loan agreement Incorporated by reference to Exhibit 10(ab) to
between the Company and the Annual Report on 1998 Form 10-KSB
Corestates Bank, dated June 1998.
10(ac) Employment agreement Incorporated by reference to Exhibit 10(i) to
between the Company and the Annual Report on Form 10-KSB f/y/e
Vlad Mikijanic June 30, 1994 ("1994 Form 10-K")
10(ad) Supply Agreement dated January Incorporated by reference to Exhibit 10(ad) to
14, 1997 the Annual Report on 1998 Form 10-KSB
17
<PAGE>
<CAPTION>
Exhibit
Number Description Method of Filing Page
------ ----------- ---------------- ----
<S> <C> <C> <C>
10(ae) Supply Agreement dated January Incorporated by reference to Exhibit 10(ae) to
17, 1997 the Annual Report on 1998 Form 10-KSB
10(af) Supply Agreement dated January Incorporated by reference to Exhibit 10(af) to
17, 1997 the Annual Report on 1998 Form 10-KSB
10(ag) Supply Agreement dated February Incorporated by reference to Exhibit 10(ag) to
11, 1997 the Annual Report on 1998 Form 10-KSB
10(ah) Supply Agreement dated May 27, Incorporated by reference to Exhibit 10(ah) to
1997 the Annual Report on 1998 Form 10-KSB
11 Computation of Per Share Earnings Filed Herewith
22 Subsidiaries of the Company Incorporated by reference to the Annual Report -
on Form 10-K f/y/e June 30, 1990
23(a) Consent of Grant Thornton Incorporated by reference to Exhibit 23(a) to
the Annual Report on 1998 Form 10-KSB
23(b) Consent of Deloitte & Touche Incorporated by reference to Exhibit 23(B) to
the Annual Report on 1998 Form 10-KSB
27 Financial Data Schedule Filed Herewith -
</TABLE>
18
Exhibit 11
Computation of Per Share Earnings
19
<PAGE>
<TABLE>
<CAPTION>
Lannett Company, Inc and Subsidiary
STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
Period ended Sept 30
1998 1998 1997 1997
------------------------------------------------------------------------
Net Income Shares Net Income Shares
<S> <C> <C> <C> <C>
Basic earnings per share factors $ 58,325 5,206,128 $ 366,710 5,206,128
Effect of potentially dilutive
option plans and debentures:
Interest on debentures $ 46,000 $ 46,000
Conversion on debentures 10,328,000 9,824,000
Employee stock options 43,486
------------------------------------------------------------------------
Diluted earnings per share factors $104,325 15,577,614 $ 412,710 15,030,128
------- ---------- -------- ----------
Basic earnings per share $ 0.01 $ 0.07
Diluted earnings per share $ 0.007 $ 0.03
</TABLE>
20
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM THE BALANCE SHEETS AND STATEMENTS OF
OPERATIONS 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-30-1998
<PERIOD-END> SEP-30-1998
<CASH> $ 0
<SECURITIES> 0
<RECEIVABLES> 1,889,224
<ALLOWANCES> (65,000)
<INVENTORY> 2,249,515
<CURRENT-ASSETS> 4,151,635
<PP&E> 6,175,693
<DEPRECIATION> (1,617,550)
<TOTAL-ASSETS> 8,903,989
<CURRENT-LIABILITIES> 4,581,114
<BONDS> 7,931,887
<COMMON> 5,206
0
0
<OTHER-SE> 320,575
<TOTAL-LIABILITY-AND-EQUITY> 8,903,989
<SALES> 2,033,485
<TOTAL-REVENUES> 2,033,485
<CGS> 1,330,333
<TOTAL-COSTS> 1,745,772
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 229,388
<INCOME-PRETAX> 58,325
<INCOME-TAX> 0
<INCOME-CONTINUING> 58,325
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 58,325
<EPS-PRIMARY> 0.01
<EPS-DILUTED> 0.007
</TABLE>
