=============================================================================
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 DECEMBER 31,
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 February 11, 2000, there were 13,206,128 shares of the issuer's common
stock, $.001 par value, outstanding.
Page 1 of 23 pages
Exhibit Index on Page 15
INDEX
Page No.
--------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of
December 31, 1999 (unaudited) and
June 30, 1999...........................................3
Consolidated Statements of Operations
for the three and six months ended
December 31, 1999 and 1998 (unaudited)..................4
Consolidated Statements of Cash Flows
for the six months ended December 31, 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 - 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
PART I. FINANCIAL INFORMATION
ITEM I. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
LANNETT COMPANY, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
ASSETS 12/31/99 06/30/99
- ------ ---------- --------
<S> <C> <C>
CURRENT ASSETS:
Cash $ 600 $ 117,004
Trade accounts receivable (net of allowance
of $108,000 and $165,000) 1,396,621 1,602,603
Inventories 3,064,500 2,624,378
Prepaid expenses 41,334 68,736
------------ ------------
Total current assets 4,503,055 4,412,721
------------ ------------
PROPERTY, PLANT AND EQUIPMENT 7,191,917 6,880,291
Less accumulated depreciation (2,371,575) (2,063,543)
------------ ------------
4,820,342 4,816,748
------------ ------------
RESTRICTED CASH 2,479,188 2,584,321
OTHER ASSETS 288,113 308,542
DEFERRED TAX ASSET 645,216 545,216
------------ ------------
Total assets $ 12,735,914 $ 12,667,548
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY/(DEFICIENCY)
CURRENT LIABILITIES:
Line of credit $ 1,745,153 $ --
Accounts payable 670,147 797,018
Deferred interest payable - shareholder (including -- 385,659
convertible deferred interest payable of
$0 and $385,659)
Accrued expenses 211,434 340,785
Convertible note payable - shareholder -- 2,000,000
Current portion of long-term debt 667,750 658,368
------------ ------------
Total current liabilities 3,294,484 4,181,830
------------ ------------
LONG-TERM DEBT, LESS CURRENT PORTION 4,963,953 5,297,917
------------ ------------
LINE OF CREDIT -- 1,322,000
------------ ------------
LINE OF CREDIT - SHAREHOLDER 4,225,000 4,225,000
------------ ------------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY/(DEFICIENCY):
Common stock -
authorized 50,000,000 shares par value $.001:
issued and outstanding, 13,206,128 and
5,206,128 shares 13,206 5,206
Additional paid-in capital 2,312,575 320,575
Accumulated deficit (2,073,304) (2,684,980)
------------ ------------
Total shareholders' equity/(deficiency) 252,477 (2,359,199)
------------ ------------
Total liabilities and shareholders'
equity/deficiency $ 12,735,914 $ 12,667,548
============ ============
<FN>
See notes to consolidated financial statements
</TABLE>
3
<TABLE>
<CAPTION>
LANNETT COMPANY, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
FOR THE THREE MONTHS ENDED FOR THE SIX MONTHS ENDED
-------------------------- ------------------------
12/31/99 12/31/98 12/31/99 12/31/98
-------- -------- -------- --------
<S> <C> <C> <C> <C>
NET SALES $ 3,138,722 $ 3,070,512 $ 5,855,915 $ 5,103,997
COST OF SALES 2,143,912 1,860,271 3,992,190 3,190,605
------------ ------------ ------------ ------------
Gross profit 994,810 1,210,241 1,863,725 1,913,392
RESEARCH AND DEVELOPMENT EXPENSES 136,438 168,555 266,501 330,151
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 374,714 305,150 674,969 558,540
------------ ------------ ------------ ------------
Operating profit 483,658 736,536 922,255 1,024,701
------------ ------------ ------------ ------------
OTHER INCOME (EXPENSES), NET
Interest income 22,057 -- 53,492 --
Interest expense (223,981) (192,637) (456,271) (422,385)
------------ ------------ ------------ ------------
(201,924) (192,637) (402,779) (422,385)
------------ ------------ ------------ ------------
NET INCOME BEFORE TAXES $ 281,734 $ 543,899 $ 519,476 $ 602,316
------------ ------------ ------------ ------------
INCOME TAX (BENEFIT)/EXPENSE $ (99,700) $ 40,000 $ (92,200) $ 40,000
NET INCOME $ 381,434 $ 503,899 $ 611,676 $ 562,316
============ ============ ============ ============
BASIC INCOME PER SHARE $ .06 $ .10 $ .11 $ .11
DILUTED INCOME PER SHARE $ .03 $ .03 $ .05 $ .04
BASIC WEIGHTED AVERAGE
NUMBER OF SHARES 6,075,693 5,206,128 5,640,910 5,206,128
DILUTED WEIGHTED AVERAGE
NUMBER OF SHARES 13,206,128 15,722,097 13,206,128 15,722,097
<FN>
See notes to the consolidated financial statements
</TABLE>
4
<TABLE>
<CAPTION>
LANNETT COMPANY, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
FOR THE SIX MONTHS ENDED
------------------------
12/31/99 12/31/98
-------- --------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 611,676 $ 562,316
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 329,009 251,855
Deferred tax benefit (100,000)
Changes in assets and liabilities which provided/(used) cash:
Trade accounts receivable 205,982 (695,038)
Inventories (440,122) (251,814)
Prepaid expenses 27,402 120,114
Other assets (548)
Accounts payable (126,871) 101,333
Accrued expenses (129,351) (53,870)
--------- ---------
Net cash provided by operating activities 377,177 291,620
--------- ---------
INVESTING ACTIVITIES:
Purchases of property, plant and equipment (311,626) (679,190)
Restricted cash equivalents for purchase of plant and equipment 105,133
--------- ---------
Net cash used in investing activities (206,493) (679,190)
--------- ---------
FINANCING ACTIVITIES:
Borrowings under line of credit - shareholder -- 300,000
Net borrowings under line of credit 423,153 250,000
Borrowings of deferred interest - shareholder 256,724
Repayments of deferred interest - shareholder (385,659)
Repayments of debt (324,582) (179,125)
--------- ---------
Net cash (used in)/provided by financing activities (287,088) 370,875
--------- ---------
NET (DECREASE) INCREASE IN CASH (116,404) (16,695)
CASH, BEGINNING OF YEAR 117,004 16,695
--------- ---------
CASH, END OF PERIOD $ 600 $ 0
========= =========
<FN>
See notes to the consolidated financial statements
</TABLE>
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 and six months ended December 31,
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.
Note 3. Inventories
Inventories consist of the following:
December 31, June 30,
1999 1999
------------ --------
(unaudited)
Raw materials $ 886,161 $ 643,052
Work-in-process 968,071 1,011,640
Finished goods 870,899 661,055
Packaging supplies 339,369 308,631
---------- ----------
$3,064,500 $2,624,378
========== ==========
6
Note 4. Income Taxes
The provision for state income taxes for the six months ended December
31, 1999 was $300. The provision for federal income taxes for the six months
ended December 31, 1999 of approximately $202,000 was eliminated by the
utilization of federal net operating loss carryforwards, with the exception
of $7,500. Additionally, as of December 31, 1999, the Company reduced its
valuation allowance (related to federal net operating loss carryforwards) by
$302,000. This adjustment, along with the aforementioned utilization of loss
carryforwards, increased the net deferred tax asset on the Company's balance
sheet to $645,216 at December 31, 1999.
Note 5. Related Party Transactions
The Company had sales of approximately $4,476,000 and $1,812,000 during
the six months ended December 31, 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 $1,063,000 and $408,000 at December 31, 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 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 1999, and any Current Reports on
Form 8-K filed by the corporation.
Results of Operations -Three months ended December 31, 1999 compared
with three months ended December 31, 1998.
Net sales for the three months ended December 31, 1999 ("Second
Quarter Fiscal 2000") increased by 2.2% to $3,138,722 from net sales of
$3,070,512 in the three months ended December 31, 1998 ("Second Quarter
Fiscal 1999). Sales increased during Second 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 $1,244,000 from Second Quarter
Fiscal 1999 to Second Quarter Fiscal 2000. Prescription sales decreased by
approximately $1,170,000 from Second Quarter Fiscal 1999 to Second Quarter
Fiscal 2000.
Cost of sales increased by 15.2% to $2,143,912 in Second Quarter
Fiscal 2000 from $1,860,271 in Second Quarter Fiscal 1999. The cost of sales
increase is due to the increase in unit sales from the Second Quarter Fiscal
1999 to the Second Quarter Fiscal 2000. Due to competitive pricing erosion,
the increase in cost of sales from the Second Quarter Fiscal 1999 to the
Second Quarter Fiscal 2000 was significantly higher than the increase in
sales from the Second Quarter Fiscal 1999 to the Second Quarter Fiscal 2000.
Gross profit margins for Second Quarter Fiscal 2000 and Second Quarter Fiscal
1999 were 31.7% and 39.4%, respectively. The decrease in the gross profit
percentage is due to changes in the product sales mix, and the competitive
pricing erosion which decreased unit sale prices.
Selling, general and administrative expenses increased by 22.8% to
$374,714 in Second Quarter Fiscal 2000 from $305,150 in Second Quarter Fiscal
1999. This increase is due to rising costs related to certain administrative
functions, such as employee benefits and professional fees, and higher
depreciation expense.
As a result of the foregoing, the Company reported an operating
profit of $483,658 for Second Quarter Fiscal 2000, as compared to an
operating profit of $736,536 for Second Quarter Fiscal 1999.
The Company's interest expense increased to $223,981 in Second
Quarter Fiscal 2000 from $192,637 in Second Quarter Fiscal 1999, primarily
due to increased borrowings on the Company's lines of credit and term loans.
See Liquidity and Capital Resources below.
8
The Company reported net income of $381,434 for Second Quarter
Fiscal 2000, $0.06 basic income per share, $0.03 on a diluted basis, compared
to net income of $503,899 for Second Quarter Fiscal 1999, $0.10 basic income
per share, $0.03 on a diluted basis.
Results of Operations -Six months ended December 31, 1999 compared with Six
months ended December 31, 1998.
Net sales for the six months ended December 31, 1999 increased by
14.7% to $5,855,915 from net sales of $5,103,997 for the six months ended
December 31, 1998. Sales increased 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 $2,556,000 from the six months ended December 31, 1998 to the
six months ended December 31, 1999. Prescription sales decreased by
approximately $1,783,000 from the six months ended December 31, 1998 to the
six months ended December 31, 1999.
Cost of sales increased by 25.1%, to $3,992,190 for the six months
ended December 31, 1999 from $3,190,605 for the six months ended December 31,
1998. The cost of sales increase is due to the increase in unit sales from
the six months ended December 31, 1998 to the six months ended December 31,
1999. Due to competitive pricing erosion, the increase in cost of sales from
the six months ended December 31, 1998 to the six months ended December 31,
1999 was higher than the increase in sales from the six months ended December
31, 1998 to the six months ended December 31, 1999. Gross profit margins for
the six months ended December 31, 1999 and the six months ended December 31,
1998 were 31.8% and 37.5%, respectively. The decrease in the gross profit
percentage is due to changes in the product sales mix, and the competitive
pricing erosion which decreased unit sale prices.
Selling, general and administrative expenses increased by 20.8% to
$674,969 for the six months ended December 31, 1999 from $558,540 for the six
months ended December 31, 1998. This increase is due to rising costs related
to certain administrative functions, such as employee benefits and
professional fees, and higher depreciation expense.
As a result of the foregoing, the Company reported an operating
profit of $922,255 for the six months ended December 31, 1999, as compared to
an operating profit of $1,024,701 for the six months ended December 31, 1998.
The Company's interest expense increased to $456,271 for the six
months ended December 31, 1999 from $422,385 for the six months ended
December 31, 1998, primarily due to increased borrowings on the Company's
lines of credit and term loans. See Liquidity and Capital Resources below.
The Company reported net income of $611,676 for the six months ended
December 31, 1999, $0.11 basic income per share, $0.05 on a diluted basis,
compared to net income of $562,316 for the six months ended December 31,
1998, $0.11 basic income per share, $0.04 on a diluted basis.
Liquidity and Capital Resources -
Net cash provided by operating activities of $377,177 during the six
months ended December 31, 1999 was attributable to net income of $611,676 as
adjusted for the effects of non-cash items of $229,009 and changes in
operating assets and liabilities totaling ($463,508).
The Company expended $311,626 for property, plant and equipment
during the six months ended December 31, 1999. The Company has budgeted for
$750,000 in capital expenditures in Fiscal 2000. The anticipated capital
expenditure requirements are necessary to support the growth of the Company's
OTC product line and
9
contract manufacturing, and to support new product introductions. As of
December 31, 1999, approximately $2,479,000 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"). The principal balance on the Shareholder Line of Credit was
extended to October 1, 2001. At December 31, 1999, interest accrued to date
was paid in full. At December 31, 1999, the Company had $4,225,000
outstanding and $25,000 available under the Shareholder Line of Credit.
The Company also had a convertible debenture made available to it by
William Farber, a principal shareholder and Chairman of the Board of
Directors. The maturity date of the shareholder debenture was December 23,
1999. On December 22, 1999, William Farber elected to convert the debenture
into shares of common stock of the Company. The shareholder debenture and
accrued interest was convertible at the rate of 4,000 shares of common stock
for each $1,000 of outstanding indebtedness. The principal balance on the
debenture at the time of conversion was $2,000,000, and the interest on the
debenture was paid to date; therefore the transaction converted the
$2,000,000 of indebtedness to 8,000,000 shares of the Company's common stock.
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 December 31,
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 by a bank to secure payment of the Authority
Loan and a portion of the related accrued interest. At December 31, 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 December 31,
1999, the Company had $1,931,703 outstanding on the bonds, of which $667,750
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 December 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 December 31, 1999, the
Company had $1,745,153 outstanding and $254,847 available under the line of
credit.
10
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 December 31, 1999, are sufficient to finance its level of 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 December 31, 1999 eight additional products are under
development. Four of these products are being developed and manufactured for
other companies, while the other four 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. Two additional products represent previously approved Abbreviated
New Drug Applications ("ANDA") that the Company is planning to reintroduce.
The remaining item represents a new product, which the Company is planning to
introduce. 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
The Year 2000 issue relates to limitations in computer systems and
applications that may prevent proper recognition of the Year 2000. The
potential full effect, if any, of the Year 2000 issue on the company and its
business partners will not be fully determinable until later. If problems
related to the Year 2000 arise (e.g. with significant suppliers, changes in
demand, etc.) within the company or entities with which the company conducts
business, the company's revenues and financial condition could be adversely
impacted.
11
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
ITEM 5. OTHER INFORMATION
None
12
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 filed two reports on Form 8-K during the Quarter ended
December 31, 1999. On December 17, 1999 the Company filed Form 8-K
notification to Deloitte & Touche LLP that the Company had elected
not to utilize the services of Deloitte & Touche LLP in connection
with the audit of the Company's Fiscal 2000 financial statements.
On December 29, 1999 the Company filed Form 8-K notification that
it has engaged Grant Thornton LLP as the Company's new independent
accountant to audit the Company's financial statements as of June
30, 2000 and for the year then ended.
13
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: February 11, 2000 By: / s / Larry Dalesandro
----------------
Larry Dalesandro
Chief Operating Officer
14
<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")
10(j) Amendment #9 to Loan Agreement Incorporated by reference to Exhibit 10(j) to
dated December 30, 1998 the Annual Report on Form 10-KSB f/y/e June 30,
1999 ("1999 Form 10-KSB")
15
<CAPTION>
Exhibit
Number Description Method of Filing Page
------- ----------- ---------------- ----
<S> <C> <C> <C>
10(k) Amendment #10 to Loan Agreement Filed Herewith 22
dated December 31, 1999
10(l) 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(m) 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(n) 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(o) 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(p) 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(q) 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(r) 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(s) 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(t) 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(u) 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")
16
<CAPTION>
Exhibit
Number Description Method of Filing Page
------- ----------- ---------------- ----
<S> <C> <C> <C>
10(v) 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(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
March 20, 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
March 20, 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
May 23, 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 September
24, 1997.
10(aa) 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(ab) 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(ac) 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(ad) 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(ae) Line of Credit Note dated March Incorporated by reference to Exhibit 10(ad) to
11, 1999 the Annual Report on 1999 Form 10-KSB
17
<CAPTION>
Exhibit
Number Description Method of Filing Page
------- ----------- ---------------- ----
<S> <C> <C> <C>
10(ae) Taxable Variable Rate Incorporated by reference to Exhibit 10(ae) to
Demand/Fixed Rate Revenue Bonds, the Annual Report on 1999 Form 10-KSB
Series of 1999
10(ag) Philadelphia Authority for Incorporated by reference to Exhibit 10(af) to
Industrial Development the Annual Report on 1999 Form 10-KSB
Tax-Exempt Variable Rate
Demand/Fixed Revenue Bonds
(Lannett Company, Inc. Project)
Series of 1999
10(ah) Reimbursement and Agreements Incorporated by reference to Exhibit 10(ag) to
supporting bond issues the Annual Report on 1999 Form 10-KSB
10(ai) Amendment No. 1 to Reimbursement Incorporated by reference to Exhibit 10(i) to
Agreement and Waiver the Annual Report on 1999 Form 10-KSB
10(aj) Employment Agreement between the Incorporated by reference to Exhibit 10(ah) to
Company and Vlad Mikijanic the Annual Report on 1994 Form 10-KSB
10(ak) Supply Agreement dated January Incorporated by reference to Exhibit 10(ad) to
14, 1997 the Annual Report on 1998 Form 10-KSB
10(al) Supply Agreement dated January Incorporated by reference to Exhibit 10(ae) to
17, 1997 the Annual Report on 1998 Form 10-KSB
10(am) Supply Agreement dated January Incorporated by reference to Exhibit 10(af) to
17, 1997 the Annual Report on 1998 Form 10-KSB
10(an) Supply Agreement dated February Incorporated by reference to Exhibit 10(ag) to
11, 1997 the Annual Report on 1998 Form 10-KSB
10(ao) 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 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 23
</TABLE>
18
Exhibit 10(k)
Amendment #10 to Loan Agreement
Dated December 31, 1999
William Farber
32640 Whatley
Franklin, Michigan 48025
December 31, 1999
Mr. Larry Dalesandro
Lannett Company, Inc.
9000 State Road
Philadelphia, Pennsylvania 19136
Re: Loan Agreement between William Farber ("Lender") and Lannett
Company, Inc., a Delaware Corporation ("Borrower") dated August 30, 1991, as
amended by Amendment #1 to Loan Agreement dated as of March 15, 1993, and by
letter agreements dated August 1, 1994, May 15, 1995, December 31, 1995, June
30, 1996, November 1, 1996, September 9, 1997, June 30, 1998, December 30,
1998 and December 31, 1999.
Dear Larry:
This letter confirms that the Maturity Date for the Revolving Credit Loan (as
defined in the Loan Agreement) is extended to October 1, 2001.
Very Truly Yours
By: /s/ William Farber
William Farber
AGREED TO AND ACCEPTED:
LANNETT COMPANY, INC.
By:/s/ Larry Dalesando
---------------
Larry Dalesandro, Chief Operating Officer
Exhibit 11
Computation of Per Share Earning
Lannett Company, Inc and Subsidiary
STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
Three months ended December 31
1999 1999 1998 1998
---- ---- ---- ----
Net Income Shares Net Income Shares
<S> <C> <C> <C> <C>
Basic earnings per share factors $ 381,434 6,075,693 $ 503,899 5,206,128
Effect of potentially dilutive
option plans and debentures:
Interest on debentures 40,932 $ 30,360
Conversion on debentures 7,130,435 10,512,000
Employee stock options -- 3,969
---------- --------- ---------- ---------
Diluted earnings per share factors $ 422,366 13,206,128 $ 534,259 15,722,097
---------- ---------- ---------- ----------
Basic earnings per share $ 0.06 $ 0.10
Diluted earnings per share $ 0.03 $ 0.03
</TABLE>
Options to purchase 180,000 shares, 5,200 shares, 4,000 shares and 150,950
shares of common stock at $1.38 per share, $3.78 per share, $4.38 per share
and $1.13 per share, respectively, were outstanding at December 31, 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.
Lannett Company, Inc and Subsidiary
STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
Six months ended December 31
1999 1999 1998 1998
---- ---- ---- ----
Net Income Shares Net Income Shares
<S> <C> <C> <C> <C>
Basic earnings per share factors $ 611,676 5,640,910 $ 562,316 5,206,128
Effect of potentially dilutive
option plans and debentures:
Interest on debentures 86,301 $ 60,720
Conversion on debentures 7,565,218 10,512,000
Employee stock options 3,969
---------- ---------- ---------- ----------
Diluted earnings per share factors $ 697,977 13,206,128 $ 623,036 15,722,097
---------- ---------- ---------- ----------
Basic earnings per share $ 0.11 $ 0.11
Diluted earnings per share $ 0.05 $ 0.04
</TABLE>
Options to purchase 180,000 shares, 5,200 shares, 4,000 shares and 150,950
shares of common stock at $1.38 per share, $3.78 per share, $4.38 per share
and $1.13 per share, respectively, were outstanding at December 31, 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>
