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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, 1999.
/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 October 21, 1999, there were 5,206,128 shares of the issuer's common
stock, $.001 par value, outstanding.
Page 1 of 21 pages
Exhibit Index on Page 16
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INDEX
Page No.
--------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of
September 30, 1999 (unaudited) and
June 30, 1999...............................................3
Consolidated Statements of Income
for the three months ended September 30, 1999
and 1998 (unaudited)........................................4
Consolidated Statements of Cash Flows
for the three months ended September 30, 1999
and 1998 (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 - 12
PART II. OTHER INFORMATION
Item 1. Legal Proceedings..........................................13
Item 2. Changes in Securities and Use of Proceeds..................13
Item 3. Defaults upon Senior Securities............................13
Item 4. Submission of Matters to a Vote of Security Holders........13
Item 5. Other Information..........................................14
Item 6. Exhibits and Reports on Form 8-K...........................14
2
PART I. FINANCIAL INFORMATION
ITEM I. FINANCIAL STATEMENTS
LANNETT COMPANY, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
ASSETS 9/30/99 6/30/99
------- -------
CURRENT ASSETS:
Cash $ 0 $ 117,004
Trade accounts receivable (net
of allowance of $140,000 and $165,000) 1,392,364 1,602,603
Inventories 2,983,369 2,624,378
Prepaid expenses 69,645 68,736
------------ ------------
Total current assets 4,445,378 4,412,721
------------ ------------
PROPERTY, PLANT AND EQUIPMENT 6,994,026 6,880,291
Less accumulated depreciation (2,216,014) (2,063,543)
------------ ------------
4,778,012 4,816,748
------------ ------------
RESTRICTED CASH EQUIVALENTS 2,613,379 2,584,321
OTHER ASSETS 302,333 308,542
DEFERRED TAX ASSET 545,216 545,216
------------ ------------
Total assets $ 12,684,318 $ 12,667,548
============ ============
LIABILITIES AND SHAREHOLDERS' DEFICIENCY
CURRENT LIABILITIES:
Accounts payable 825,147 797,018
Convertible deferred interest
payable - shareholder 158,056 385,659
Accrued expenses 356,074 340,785
Convertible note payable - shareholder 2,000,000 2,000,000
Current portion of long-term debt 681,663 658,368
------------ ------------
Total current liabilities 4,020,940 4,181,830
------------ ------------
LONG-TERM DEBT, LESS CURRENT PORTION 5,112,698 5,297,917
------------ ------------
LINE OF CREDIT 1,454,637 1,322,000
------------ ------------
LINE OF CREDIT - SHAREHOLDER 4,225,000 4,225,000
------------ ------------
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 (2,454,738) (2,684,980)
------------ ------------
Total shareholders' deficiency (2,128,957) (2,359,199)
------------ ------------
Total liabilities and
shareholders' deficiency $ 12,684,318 $ 12,667,548
============ ============
See notes to consolidated financial statements
3
LANNETT COMPANY, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
FOR THE THREE MONTHS ENDED
--------------------------
9/30/99 9/30/98
------- -------
NET SALES $ 2,717,193 $ 2,033,485
COST OF SALES 1,848,278 1,330,333
----------- -----------
Gross profit 868,915 703,152
RESEARCH AND DEVELOPMENT EXPENSES 130,063 161,596
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 300,255 253,843
----------- -----------
Operating profit 438,597 287,713
----------- -----------
OTHER INCOME (EXPENSE):
Interest income-restricted 31,436 0
Interest expense, including $140,217 and
$147,650 to shareholder (232,291) (229,388)
----------- -----------
(200,855) (229,388)
----------- -----------
NET INCOME BEFORE TAXES 237,742 58,325
----------- -----------
TAXES 7,500 0
----------- -----------
NET INCOME $ 230,242 $ 58,325
=========== ===========
BASIC INCOME PER SHARE $ .04 $ .01
=========== ===========
DILUTED INCOME PER SHARE $ .02 $ .007
=========== ===========
BASIC WEIGHTED AVERAGE
NUMBER OF SHARES 5,206,128 5,206,128
=========== ===========
DILUTED WEIGHTED AVERAGE
NUMBER OF SHARES 13,838,758 15,577,614
=========== ===========
See notes to consolidated financial statements
4
LANNETT COMPANY, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
FOR THE THREE MONTHS ENDED
--------------------------
9/30/99 9/30/98
------- -------
OPERATING ACTIVITIES:
Net income $ 230,242 $ 58,325
Adjustments to reconcile net
income to net cash provided by/
(used in) operating activities:
Depreciation and amortization 160,366 116,344
Changes in assets and liabilities which
provided/(used) cash:
Trade accounts receivable 210,239 (467,093)
Inventories (358,991) (177,569)
Prepaid expenses (909) 88,068
Other assets (1,686) 0
Accounts payable 28,129 43,506
Accrued expenses 15,289 147,650
----------- ---------
Net cash provided by/(used
in) operating activities 282,679 (190,769)
----------- ---------
INVESTING ACTIVITIES:
Purchases of property, plant and equipment (113,735) (363,830)
Restricted cash equivalents for purchase
of plant and equipment (29,058) 0
----------- ---------
Net cash used in investing activities (142,793) (363,830)
----------- ---------
FINANCING ACTIVITIES:
Borrowings under line of credit - shareholder 0 300,000
Borrowings under line of credit 3,368,637 250,000
Repayments under line of credit (3,236,000) 0
Borrowings of deferred interest - shareholder 0 76,592
Repayments of deferred interest - shareholder (227,603) 0
Repayments of debt (161,924) (88,688)
Proceeds from debt 0 0
----------- ---------
Net cash provided by/(used
in) financing activities (256,890) 537,904
----------- ---------
NET DECREASE IN CASH (117,004) (16,695)
CASH, BEGINNING OF YEAR 117,004 16,695
----------- ---------
CASH, END OF PERIOD $ 0 $ 0
=========== =========
See notes to consolidated financial statements
5
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, 1999
and 1998 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, 1999.
Note 2. New Accounting Standards
In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 133, Accounting for
Derivative Instruments and Hedging Activities. This statement establishes
accounting and reporting standards for derivative instruments, including
certain derivative instruments embedded in other contracts (collectively
referred to as derivatives), and for hedging activities. It requires that an
entity recognize all derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at fair value.
This statement, as amended by SFAS No. 137, Accounting for Derivative
Instruments and Hedging Activities--Deferral of the Effective Date of FASB
Statement No. 133, is effective for all fiscal quarters of fiscal years
beginning after June 15, 2000. The Company is in the process of analyzing the
impact of adopting SFAS No. 133 will have on its consolidated financial
position and results of operations when such statement is adopted.
6
Note 3. Inventories
Inventories consist of the following:
September 30, June 30,
1999 1999
------------ -------
(unaudited)
Raw materials $ 913,526 $ 643,052
Work-in-process 768,775 1,011,640
Finished goods 1,004,608 661,055
Packaging supplies 296,460 308,631
---------- ----------
$2,983,369 $2,624,378
========== ==========
Note 4. Income Taxes
There has been no provision made for state income taxes for the three
months ended September 30, 1999. The provision for federal income taxes for
the three months ended September 30, 1999 was eliminated by the utilization
of federal net operating loss carryforwards, with the exception of $7,500.
Note 5. Related Party Transactions
The Company had sales of approximately $2,017,000 and $515,000 during
the three months ended September 30, 1999 and 1998, respectively, to a
distributor (the "related party") in which the owner is a relative of the
Chairman of the Board of Directors and principal shareholder of the Company.
Accounts receivable includes amounts due from the related party of
approximately $667,000 and $408,000 at September 30, 1999 and June 30, 1999,
respectively.
7
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 Financial Condition and Results of Operations."
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 1999, and any Current Reports on
Form 8-K filed by the corporation.
Results of Operations -Three months ended September 30, 1999
compared with three months ended September 30, 1998.
Net sales for the three months ended September 30, 1999 ("First
Quarter Fiscal 2000") increased by 33.6% to $2,717,193 from net sales of
$2,033,485 for the three months ended September 30, 1998 ("First Quarter
Fiscal 1999"). Sales increased during First Quarter Fiscal 2000 due to
increased sales of the Company's Over-The-Counter ("OTC") product line,
offset partially by a decrease in sales of the Company's prescription
products. OTC sales increased by approximately $1.3 million from First
Quarter Fiscal 1999 to First Quarter Fiscal 2000. Prescription sales
decreased by approximately $600,000 from First Quarter Fiscal 1999 to First
Quarter Fiscal 2000.
Cost of sales increased by 38.9%, to $1,848,278 in First Quarter
Fiscal 2000 from $1,330,333 in First Quarter Fiscal 1999. The cost of sales
increase is due to the increase in sales from the First Quarter Fiscal 1999
to the First Quarter Fiscal 2000, and lower margins due to changes in the
product sales mix. Gross profit margins for First Quarter Fiscal 2000 and
First Quarter Fiscal 1999 were 32.0% and 34.6%, respectively. The decrease in
the gross profit percentage is primarily due to changes in the product sales
mix.
Selling, general and administrative expenses increased by 18.3% to
$300,255 in First Quarter Fiscal 2000 from $253,843 in First Quarter Fiscal
1999. This increase is due to increases in various administrative costs as a
result of the growth of the Company from the First Quarter Fiscal 1999 to the
First Quarter Fiscal 2000.
As a result of the foregoing, the Company reported an operating
profit of $438,597 for First Quarter Fiscal 2000, as compared to an operating
profit of $287,713 for First Quarter Fiscal 1999.
The Company's interest expense was $232,291 in First Quarter
Fiscal 2000 and remained relatively constant, as compared to $229,388 in
First Quarter Fiscal 1999. Interest income increased from $0 in First Quarter
Fiscal 1999 to $31,436 in First Quarter Fiscal 2000 as a result of interest
earned on the restricted cash loan proceeds received in the Fourth Quarter
Fiscal 1999.
8
The Company reported net income of $230,242 for First Quarter
Fiscal 2000, $0.04 basic income per share, $0.02 on a diluted basis, compared
to net income of $58,325 for First Quarter Fiscal 1999, $0.01 basic income
per share, $0.007 on a diluted basis.
Liquidity and Capital Resources -
Net cash provided by operating activities of $282,679 during First
Quarter Fiscal 2000 was attributable to net income of $230,242 as adjusted
for the effects of non-cash items of $160,366 and changes in operating assets
and liabilities totaling ($107,929).
The net cash used in investing activities consisted of $142,793
expended during First Quarter Fiscal 2000 primarily for machinery and
equipment. The Company has budgeted for $750,000 in capital expenditures in
Fiscal 2000. The anticipated capital expenditure requirements are necessary
to support the growth from the Company's OTC product line, contract
manufacturing and private label supply agreements, and to support new product
introductions. As of September 30, 1999, approximately $2,600,000 from the
proceeds of the bonds issued during Fiscal 1999 was available in financing
restricted for certain future capital expenditures.
The Company has a financing facility made available to it by
William Farber, a principal shareholder and Chairman of the Board of
Directors which consists of a $4,250,000 revolving line of credit
("Shareholder Line of Credit") and a $2,000,000 convertible debenture
("Shareholder Debenture").
The principal balance on the Shareholder Line of Credit is due
October 1, 2000. At September 30, 1999, interest accrued to date was paid in
full. At September 30, 1999, the Company had $4,225,000 outstanding and
$25,000 available under the Shareholder Line of Credit.
The maturity date of the Shareholder Debenture is December 23,
1999. The Shareholder Debenture and accrued interest 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. The present intent
of the principal shareholder is to convert the debenture and related accrued
interest into shares of common stock prior to December 23, 1999. At September
30, 1999, the current outstanding indebtedness represented by the Shareholder
Debenture and the related accrued interest is approximately $2,158,000.
Deferred interest from July 1, 1997 to June 30, 1998 is payable in six equal
monthly installments, commencing July 15, 1999 and continuing on the
fifteenth day of each month thereafter. Deferred interest from July 1, 1998
to June 30, 1999 is payable in twelve equal monthly installments, commencing
July 15, 1999 and continuing on the fifteenth day of each month thereafter
with the balance due December 23, 1999. At September 30, 1999, accrued
interest was approximately $158,000, and is classified as currently due.
In April 1999, the Company entered into a loan agreement (the
"Agreement") with a governmental authority (the "Authority") to finance
future construction and growth projects of the Company. The Authority has
issued $3,700,000 in tax-exempt variable rate demand and fixed rate revenue
bonds to provide the funds to finance such growth projects pursuant to a
trust indenture (the "Trust Indenture"). A portion of the Company's proceeds
from the bonds was used to pay for bond issuance costs of approximately
$170,000. The remainder of the proceeds were deposited into a money market
account, which is restricted to future plant and equipment needs of the
Company as specified in the Agreement. The Agreement requires the Company to
repay the Authority loan through installment payments beginning in May 2003
and continuing through May 2014, the year the bonds mature. At September 30,
1999, the Company had $3,700,000 outstanding on the Authority loan, which is
classified as a long-term liability. In April 1999, an irrevocable letter of
credit of $3,770,000 was issued
9
by a bank to secure payment of the Authority Loan and a portion of the
related accrued interest. At September 30, 1999, no portion of the letter of
credit has been utilized.
In April 1999, the Company authorized and directed the issuance of
$2,300,000 in taxable variable rate demand and fixed rate revenue bonds
pursuant to a trust indenture between the Company and a bank as trustee (the
"Trust Indenture"). From the proceeds of the bonds, $750,000 was utilized to
pay deferred interest owed to the principal shareholder of the Company and
approximately $1,440,000 was paid to a bank to refinance a mortgage term loan
and equipment term loans. The remainder of the proceeds was used to pay bond
issuance costs of approximately $109,000. The Trust Indenture requires the
Company to repay the bonds through installment payments beginning in May 2000
and continuing through May 2003, the year the bonds mature. At September 30,
1999, the Company had $2,094,361 outstanding on the bonds, of which $681,663
is classified as currently due. In April 1999, an irrevocable letter of
credit of approximately $2,349,000 was issued by a bank to secure payment of
the bonds and a portion of the related accrued interest. At September 30,
1999 no portion of the letter of credit has been utilized.
The Company has a $2,000,000 line of credit from a bank. The line
of credit is due October 31, 2000, at which time the Company expects to renew
and extend the due date. The line of credit is limited to 80% of qualified
accounts receivable and 50% of qualified inventory. At September 30, 1999,
the Company had $1,454,637 outstanding and $545,363 available under the line
of credit.
The Company believes that cash generated from its operations and
the balances available under the Company's existing loans and lines of credit
as of September 30, 1999, are sufficient to finance its level operations and
currently anticipated capital expenditures.
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, 1999, six additional products are under
development. Three of these products are being developed and manufactured for
other companies; and the other three products are being developed as part of
the Lannett product line. The Lannett products represent previously approved
Abbreviated New Drug Applications ("ANDA") that the Company is planning to
reintroduce. 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.
1-
Year 2000
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 2000
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.
In 1997, the Company established a Year 2000 project team to address
outstanding Year 2000 issues. The team has focused its efforts on the
following areas: (1) Information systems hardware and software, (2)
Manufacturing and distribution equipment, (3) Quality control and testing
equipment, (4) Facilities and infrastructure, and (5) Third-party
relationships.
The Year 2000 program consists of five stages: Awareness, Inventory,
Assessment, Correction & Testing, and Implementation & Contingency Planning.
Phase I--Awareness--involves educating the personnel and management of the
Company about the Year 2000 Problem and how it can affect them. Phase
II--Inventory--involves identifying and ranking all of the components of the
Company's systems, equipment and suppliers that may be vulnerable to the Year
2000 Problem. Phase III--Assessment--involves identifying the Year 2000
readiness and options regarding the items inventoried in Phase II. Phase
IV--Correction & Testing--involves obtaining replacements or identifying
remediation strategies for non-compliant systems as well as testing those
solutions in a non-productive environment. Phase V--Implementation &
Contingency Planning--involves implementing the solutions obtained in Phase
IV and developing contingencies for the most reasonably likely worst case
scenarios.
As of September 30, 1999 the Company had incurred approximately $46,000
relating to remediation of the Year 2000 issue. The Company estimates that it
will have total expenditures for remediation of approximately $30,000 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 Information systems hardware and software area of the project is
completed. The manufacturing and distribution equipment area of the project
is completed. The Quality Control and testing equipment area of the project
has completed Phases I through IV. Phase V involves the implementation of a
new laboratory data collection system to replace the current non-compliant
system. The Phase V implementation will be completed by December 31, 1999.
The Facilities and infrastructure area of the project is completed.
The Third-party relationship area of the project has completed Phases I
through IV. Phase V contingency planning has been developed and will be
updated through the end of December 31, 1999.
11
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 the limited information received
by the Company, no significant issues have been disclosed. The Company has
identified that a significant disruption in the product supply chain
represents the most reasonably likely worst case Year 2000 scenario.
Potential sources of risk include (1) the inability of principal suppliers or
logistics providers to be Year 2000 ready, which could result in delays in
product deliveries from such suppliers, and (2) disruption of the
distribution channel, including ports, transportation vendors, and the
Company's own distribution center as a result of a general failure of systems
and necessary infrastructure such as electric supply. The Company is
preparing plans that could include adjusting raw material and finished goods
levels around an assumed period of disruption to the supply chain to reduce
the impact of significant failure.
The Company is aware of the potential for claims against it and other
companies for damages for products and services that are not Year 2000
compliant.
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.
12
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. Management believes that the outcome will not have a material
adverse impact on the financial position of the Company.
ITEM 2. CHANGES 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
13
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 2000.
14
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: October 21, 1999 By: / s / Jeffrey M. Moshal
------------------------
Jeffrey M. Moshal
Chief Operating Officer
By: / s / William Farber
------------------------
William Farber
Chairman of the Board
15
<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 Stock Incorporated by reference to Exhibit 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 August 30, 1991 Incorporated by reference to the Annual Report on Form -
between the Company and William Farber 10-K f/y/e June 30, 1991
10(b) Amendment #1 to Loan Agreement dated Incorporated by reference to Exhibit 10(b) to the Annual -
March 15, 1993 Report on Form 10-KSB f/y/e June 30, 1993 ("1993 Form
10-K")
10(c) Amendment #2 to Loan Agreement dated Incorporated by reference to Exhibit 10(c) to the Annual -
August 1, 1994 Report on Form 10-KSB f/y/e June 30, 1994 ("1994 Form
10-K")
10(d) Amendment #3 to Loan Agreement dated Incorporated by reference to Exhibit 10(d) to the Annual -
May 15, 1995 Report on Form 10-KSB f/y/e June 30, 1995 ("1995 Form
10-K")
10(e) Amendment #4 to Loan Agreement dated Incorporated by reference to Exhibit 10(e) to the Annual -
December 31, 1995 Report on Form 10-KSB f/y/e June 30, 1996 ("1996 Form
10-K")
10(f) Amendment #5 to Loan Agreement dated Incorporated by reference to Exhibit 10(f) to the Annual -
June 30, 1996 Report on Form 10-KSB f/y/e June 30, 1996 ("1996 Form
10-K")
10(g) Amendment #6 to Loan Agreement dated Incorporated by reference to Exhibit 10(g) to the Annual
November 1, 1996 Report on Form 10-KSB f/y/e June 30, 1997 ("1997 Form
10-KSB")
10(h) Amendment #7 to Loan Agreement dated Incorporated by reference to Exhibit 10(h) to the Annual
September 9, 1997 Report on 1997 Form 10-KSB
10(i) Amendment #8 to Loan Agreement dated Incorporated by reference to Exhibit 10(i) to the Annual
June 30, 1998 Report on Form 10-KSB f/y/e June 30, 1998 ("1998 Form
10-KSB")
16
Exhibit
Number Description Method of Filing Page
------ ----------- ---------------- ----
10(j) Amendment #9 to Loan Agreement dated Incorporated by reference to Exhibit 10(j) to the Annual
December 30, 1998 Report on Form 10-KSB f/y/e June 30, 1999 ("1999 Form
10-KSB")
10(k) Loan Agreement dated May 4, 1993 Incorporated by reference to Exhibit 10(c) to the 1993 -
between the Company and Meridian Bank Form 10-K
10(l) Amendment to Loan Documents between Incorporated by reference to Exhibit 10(e) to the Annual -
the Company and Meridian Bank dated as Report on Form 10-KSB f/y/e June 30, 1994 ("1994 Form
of December 8, 1993 10-K")
10(m) Letter Agreement between the Company Incorporated by reference to Exhibit 10(f) to the Annual -
and Meridian Bank dated December 21, Report on Form 10-KSB f/y/e June 30, 1994 ("1994 Form
1993 10-K")
10(n) Third Amendment to Loan Agreement Incorporated by reference to Exhibit 10(g) to the Annual -
dated as of June 9, 1994 Report on Form 10-KSB f/y/e June 30, 1994 ("1994 Form
10-K")
10(o) Fourth Amendment to Loan Documents Incorporated by reference to Exhibit 10(i) to the Annual -
between the Company and Meridian Bank Report on Form 10-KSB f/y/e June 30, 1995 ("1995 Form
as of October 27, 1994 10-K")
10(p) Letter Agreement between the Company Incorporated by reference to Exhibit 10(j) to the Annual -
and Meridian Bank dated October 27, Report on Form 10-KSB f/y/e June 30, 1995 ("1995 Form
1994 10-K")
10(q) Letter Agreement between the Company Incorporated by reference to Exhibit 10(k) to the Annual -
and Meridian Bank dated July 10, 1995 Report on Form 10-KSB f/y/e June 30, 1995 ("1995 Form
10-K")
10(r) Amendment to Security Agreement Incorporated by reference to Exhibit 10(l) to
between the Company and Meridian Bank the Annual Report on Form 10-KSB f/y/e
dated as of July 31, 1995 June 30, 1995 ("1995 Form 10-K")
10(s) Line of Credit Note dated July 31, 1995 Incorporated by reference to Exhibit 10(m) to the Annual -
Report on Form 10-KSB f/y/e June 30, 1995 ("1995 Form
10-K")
10(t) Fifth Amendment to Loan Agreement Incorporated by reference to Exhibit 10(n) to the Annual -
dated July 31, 1995 Report on Form 10-KSB f/y/e June 30, 1995 ("1995 Form
10-K")
10(u) Amendment to Loan agreement between Incorporated by reference to Exhibit 10(q) to the Annual -
the Company and Meridian Bank, dated Report on Form 10-KSB f/y/e June 30, 1996 ("1996 Form
March 5, 1996. 10-K")
17
Exhibit
Number Description Method of Filing Page
------ ----------- ---------------- ----
10(v) Amendment to Loan agreement between Incorporated by reference to Exhibit 10(h) to the Annual
the Company and Corestates Bank, dated Report on 1997 Form 10-KSB
March 20, 1997.
10(w) Amendment to Loan agreement between Incorporated by reference to Exhibit 10(h) to the Annual
the Company and Corestates Bank, dated Report on 1997 Form 10-KSB
March 20, 1997.
10(x) Amendment to Loan agreement between Incorporated by reference to Exhibit 10(h) to the Annual
the Company and Corestates Bank, dated Report on 1997 Form 10-KSB
May 23, 1997.
10(y) Amendment to Loan agreement between Incorporated by reference to Exhibit 10(h) to the Annual
the Company and Corestates Bank, dated Report on 1997 Form 10-KSB
September 24, 1997.
10(z) Amendment to Loan agreement between Incorporated by reference to Exhibit 10(h) to the Annual
the Company and Corestates Bank, dated Report on 1997 Form 10-KSB
December 10, 1997.
10(aa) Amendment to Loan agreement between Incorporated by reference to Exhibit 10(h) to the Annual
the Company and Corestates Bank, dated Report on 1997 Form 10-KSB
December 10, 1997.
10(ab) Amendment to Loan agreement between Incorporated by reference to Exhibit 10(aa) to the Annual
the Company and Corestates Bank, dated Report on 1998 Form 10-KSB
June 11, 1998.
10(ac) Amendment to Loan agreement between Incorporated by reference to Exhibit 10(ab) to the Annual
the Company and Corestates Bank, dated Report on 1998 Form 10-KSB
June 1998.
10(ad) Line of Credit Note dated March 11, Incorporated by reference to Exhibit 10(ad) to the Annual
1999 Report on 1999 Form 10-KSB
10(ae) Taxable Variable Rate Demand/Fixed Incorporated by reference to Exhibit 10(ae) to the Annual
Rate Revenue Bonds, Series of 1999 Report on 1999 Form 10-KSB
18
Exhibit
Number Description Method of Filing Page
------ ----------- ---------------- ----
10(af) Philadelphia Authority for Industrial Incorporated by reference to Exhibit 10(af) to the Annual
Development Tax-Exempt Variable Rate Report on 1999 Form 10-KSB
Demand/Fixed Revenue Bonds (Lannett
Company, Inc. Project) Series of 1999
10(ag) Reimbursement and Agreements Incorporated by reference to Exhibit 10(ag) to the Annual
supporting bond issues Report on 1999 Form 10-KSB
10(ah) Amendment No. 1 to Reimbursement Incorporated by reference to Exhibit 10(i) to the Annual
Agreement and Waiver Report on 1999 Form 10-KSB
10(ai) Employment Agreement between the Incorporated by reference to Exhibit 10(ah) to the Annual
Company and Vlad Mikijanic Report on 1994 Form 10-KSB
10(aj) Supply Agreement dated January 14, 1997 Incorporated by reference to Exhibit 10(ad) to the Annual
Report on 1998 Form 10-KSB
10(ak) Supply Agreement dated January 17, 1997 Incorporated by reference to Exhibit 10(ae) to the Annual
Report on 1998 Form 10-KSB
10(al) Supply Agreement dated January 17, 1997 Incorporated by reference to Exhibit 10(af) to the Annual
Report on 1998 Form 10-KSB
10(am) Supply Agreement dated February 11, Incorporated by reference to Exhibit 10(ag) to the Annual
1997 Report on 1998 Form 10-KSB
10(an) Supply Agreement dated May 27, 1997 Incorporated by reference to Exhibit 10(ah) to the Annual
Report on 1998 Form 10-KSB
11 Computation of Per Share Earnings Filed Herewith 20
22 Subsidiaries of the Company Incorporated by reference to the Annual Report on Form
10-K f/y/e June 30, 1990
23(b) Consent of Deloitte & Touche Incorporated by reference to Exhibit 23(B) to the Annual
Report on 1999 Form 10-KSB
27 Financial Data Schedule Filed Herewith 21
</TABLE>
19
Exhibit 11
Computation of Per Share Earnings
Lannett Company, Inc and Subsidiary
<TABLE>
<CAPTION>
STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
Three months ended September 30
------------------------------------------
1999 1999 1998 1998
---- ---- ---- ----
Net Income Shares Net Income Shares
<S> <C> <C> <C> <C>
Basic earnings per share factors $ 230,242 5,206,128 $ 58,325 5,206,128
Effect of potentially dilutive
option plans and debentures:
Interest on debentures $ 45,370 $ 46,000
Conversion on debentures 8,632,630 10,328,000
Employee stock options -- 43,486
---------- ----------- -------- ----------
Diluted earnings per share factors $ 275,612 13,838,758 $104,325 15,577,614
---------- ----------- -------- ----------
Basic earnings per share $ 0.04 $ 0.01
Diluted earnings per share $ 0.02 $ 0.007
</TABLE>
Options to purchase 180,000 shares, 5,200 shares and 4,000 shares of common
stock at $1.38 per share, $3.78 per share and $4.38 per share, respectively,
were outstanding at September 30, 1999, but were not included in the
computation of diluted earnings per share because to do so would be
antidilutive.
These securities could potentially be dilutive in the future.
<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> SEP-30-1999
<PERIOD-END> JUN-30-2000
<CASH> $ 0
<SECURITIES> 0
<RECEIVABLES> 1,392,364
<ALLOWANCES> 140,000
<INVENTORY> 2,983,369
<CURRENT-ASSETS> 4,445,378
<PP&E> 6,994,026
<DEPRECIATION> 2,216,014
<TOTAL-ASSETS> 12,684,318
<CURRENT-LIABILITIES> 4,020,940
<BONDS> 10,792,335
<COMMON> 5,206
0
0
<OTHER-SE> 320,575
<TOTAL-LIABILITY-AND-EQUITY> 12,684,318
<SALES> 2,717,193
<TOTAL-REVENUES> 2,717,193
<CGS> 1,848,278
<TOTAL-COSTS> 2,278,596
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 232,291
<INCOME-PRETAX> 237,742
<INCOME-TAX> 7,500
<INCOME-CONTINUING> 230,242
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 230,242
<EPS-BASIC> 0.04
<EPS-DILUTED> 0.02
</TABLE>
