UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1999
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________________ To ________________
Commission file number 0-11997
CARRINGTON LABORATORIES, INC.
(Exact name of registrant as specified in its charter)
Texas 75-1435663
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
2001 Walnut Hill Lane, Irving, Texas 75038
(Address of principal executive offices and Zip Code)
972-518-1300
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes X No
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the
Securities Exchange Act of 1934 subsequent to the distribution of
securities under a plan confirmed by a court.
Yes No
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes
of common stock as of the latest practicable date. 9,357,564 shares of
Common Stock, $.01 par value, were outstanding at May 11, 1999.
<PAGE>
INDEX
Page
------
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements 3
Condensed Consolidated Balance Sheets
at March 31, 1999 (unaudited) and
December 31, 1998 3
Condensed Consolidated Statements of
Operations for the three months ended
March 31, 1999 and 1998 (unaudited) 4
Condensed Consolidated Statements of
Cash Flows for the three months ended
March 31, 1999 and 1998 (unaudited) 5
Notes to Condensed Consolidated
Financial Statements (unaudited) 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 8
Item 3. Quantitative and Qualitative Disclosures
About Market Risk 13
Part II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 14
Signatures
Index to Exhibits
<PAGE>
<TABLE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
Condensed Consolidated Balance Sheets
(Dollar amounts in 000's)
December 31, March 31,
1998 1999
------- -------
(unaudited)
<S> <C> <C>
Assets
Cash and cash equivalents $ 3,931 $ 3,406
Accounts receivable, net 2,961 3,186
Inventories 4,969 4,086
Prepaid expenses 739 1,059
------- -------
Total current assets 12,600 11,737
Property, plant and equipment, net 11,050 10,952
Other assets 597 662
------- -------
Total assets $ 24,247 $ 23,351
======= =======
Liabilities and Shareholders' Investment
Accounts payable $ 1,369 $ 1,260
Accrued liabilities 1,515 1,683
------- -------
Total current liabilities 2,884 2,943
Shareholders' investment:
Common stock 94 94
Capital in excess of par 51,736 51,787
Deficit (30,467) (31,473)
------- -------
Total shareholders' investment 21,363 20,408
------- -------
Total liabilities and
shareholders' investment $ 24,247 $ 23,351
======= =======
The accompanying notes are an integral part of these statements.
</TABLE>
<PAGE>
<TABLE>
Condensed Consolidated Statements of Operations (unaudited)
(Dollar amounts and shares in 000's, except per share amounts)
Three Months Ended
March 31,
1998 1999
------- -------
<S> <C> <C>
Net sales $ 5,788 $ 6,898
Costs and expenses:
Cost of sales 2,580 3,611
Selling, general and administrative 2,504 2,551
Research and development 442 598
Research and development,
clinical trials 157 1,173
Interest, net (57) (30)
------- -------
Income (loss) from operations
before income taxes 162 (1,005)
Provision for income taxes 10 -
------- -------
Net income (loss) $ 152 $ (1,005)
======= =======
Net income (loss) per share -
basic and diluted $ 0.02 $ (.11)
======= =======
The accompanying notes are an integral part of these statements.
</TABLE>
<PAGE>
<TABLE>
Condensed Consolidated Statements of Cash Flows (unaudited)
(Dollar amounts in 000's)
Three Months Ended
March 31,
1998 1999
------- --------
<S> <C> <C>
Cash flows from operating activities
Net income (loss) $ 152 $ (1,005)
Adjustments to reconcile net income
(loss) to net cash provided (used) by
operating activities:
Depreciation and amortization 285 254
Provision for inventory obsolescence 184 125
Changes in assets and liabilities:
Receivables, net 625 (225)
Inventories (278) 758
Prepaid expenses (230) (320)
Other assets 24 (65)
Accounts payable and accrued
liabilities (673) 58
------- --------
Net cash provided (used) by
operating activities 89 (420)
Cash flows from investing activities:
Purchases of property, plant
and equipment (320) (156)
------- --------
Net cash used by investing activities (320) (156)
Cash flows from financing activities:
Issuances of common stock 24 51
Debt payments (8) -
------- --------
Net cash provided by financing
activities 16 51
------- --------
Net decrease in cash
and cash equivalents (215) (525)
Cash and cash equivalents,
beginning of period 4,023 3,931
------- --------
Cash and cash equivalents, end of period $ 3,808 $ 3,406
======= ========
Supplemental disclosure of cash flow
information
Cash paid during the period for interest $ 1 $ -
Cash paid during the period for
federal, state and local income taxes 42 -
The accompanying notes are an integral part of these statements.
</TABLE>
<PAGE>
Notes to Condensed Consolidated Financial Statements (unaudited)
(1) Condensed Consolidated Financial Statements:
The condensed consolidated balance sheet as of March 31, 1999, the
condensed consolidated statements of operations for the three month
periods ended March 31, 1998 and 1999 and the condensed consolidated
statements of cash flows for the three month periods ended March 31, 1998
and 1999 have been prepared by the Company without audit. In the opinion
of management, all adjustments (which include all normal recurring
adjustments) necessary to present fairly the consolidated financial
position, results of operations and cash flows at March 31, 1999 and for
all periods presented have been made. Certain information and footnote
disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been
condensed or omitted. These condensed consolidated financial statements
should be read in conjunction with the audited financial statements and
notes thereto included in the Company's annual report to shareholders or
Form 10-K for the year ended December 31, 1998.
(2) Net Income Per Share:
Basic net income (loss) available to common shareholders per share was
computed by dividing net income (loss) by the weighted average number of
common shares outstanding of 9,306,000 and 9,351,000 at March 31, 1998
and 1999, respectively.
In calculating the diluted net income (loss) per share for the first
quarter of 1999, no effect was given to options or warrants. The effect
of including these securities would have been antidilutive of the
Company's net loss for the period. Total dilutive securities were
insignificant in the first quarter of 1998 and had no impact on net
income.
(3) Reportable Segments:
The Company operates in two reportable segments: human and veterinary
products sold through its wound care division and Caraloe, Inc., a
consumer products subsidiary, which sells bulk ingredients, consumer
beverages, and nutritional and skin care products.
The Company evaluates performance and allocates resources based on profit
or loss from operations before income taxes.
<PAGE>
Corporate Income (Loss) Before Income Taxes set forth in the following
table includes research and development expenses which were related to
the development of pharmaceutical products not associated with the
reporting segments. Assets which are used in more than one segment are
reported in the segment where the predominant use occurs. The Company's
production facility in Costa Rica, which provides bulk ingredients for
all segments, and total cash for the Company are included in the
Corporate Assets figure. Reportable Segments (in thousands)
<TABLE>
Wound Caraloe,
Care Inc. Corporate Total
<S> <C> <C> <C> <C>
March 31, 1998
--------------------------------------------------------------------------
Sales to unaffiliated customers $ 3,980 $ 1,808 $ - $ 5,788
Income (loss) before income taxes 273 410 (521) 162
Identifiable assets 14,618 1,881 9,158 25,657
Capital expenditures 25 9 286 320
Depreciation and amortization 150 - 135 285
March 31, 1999
Sales to unaffiliated customers $ 3,969 $ 3,009 $ - $ 6,898
Income (loss) before income taxes 78 457 (1,540) (1,005)
Identifiable assets 13,647 1,315 8,389 23,351
Capital expenditures 97 - 59 156
Depreciation and amortization 176 - 78 254
</TABLE>
(4) Income Taxes:
The tax effects of temporary differences have given rise to deferred tax
assets. At December 31, 1998 and March 31, 1999, the Company provided a
valuation allowance against the entire deferred tax asset due to the
uncertainty as to the realization of the asset. At December 31, 1998,
the Company had net operating loss carryforwards of approximately
$35,930,000 for federal income tax purposes, which expire beginning in
1999, and research and development tax credit carryforwards of
approximately $839,000, which expire beginning in 1999, all of which are
available to offset federal income taxes due in future periods. The
entire benefit from the first quarter 1999 loss was offset by an increase
in the valuation allowance.
<PAGE>
(5) Commitments and Contingencies:
In February 1995, the Company entered into a commitment to purchase $2.5
million of freeze-dried products from its principal supplier over a 66
month period ending in August 2000. The commitment, which also provides
for monthly minimum purchases, is required to be supported to the extent
of 60% of the remaining commitment by a letter of credit from a bank or a
pledged certificate of deposit. Through March 31, 1999, the Company has
purchased $636,000 of products pursuant to this commitment and made
prepayments of $426,000 toward future deliveries under the commitment.
Although management believes that new products which the Company is
actively marketing additional products to be developed and outsourcing
a portion of its freeze-drying requirements to this supplier will result
in no losses pursuant to this commitment, the Company could incur
significant losses if it is not able to meet the minimum purchase
commitments.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Background
The Company is a research-based biopharmaceutical, medical device, raw
materials and nutraceutical company engaged in the development,
manufacturing and marketing of naturally-derived complex carbohydrate and
other natural product therapeutics for the treatment of major illnesses,
the dressing and management of wounds and nutritional supplements. The
Company is comprised of two business segments. See Note (3) to the
condensed consolidated financial statements for financial information
about these business segments. The Company sells, using a network of
distributors, prescription and nonprescription human and veterinary
products through its wound and skin care division and consumer and bulk
raw material products through its consumer products subsidiary, Caraloe,
Inc. The Company's research and product portfolio are based primarily on
complex carbohydrates isolated from the Aloe vera L. plant.
Liquidity and Capital Resources
At December 31, 1998 and March 31, 1999 the Company held cash and cash
equivalents of $3,931,000 and $3,406,000, respectively. The decrease in
cash of $525,000 is primarily attributable to significant cash outlays
for the commencement of the Aliminase[TM] clinical trials.
The Company has invested in inventory to support sales of bulk products
by Caraloe to Mannatech, Inc. Receivables from this customer totaled
$990,000 as of March 31, 1999. As of April 30, 1999, $572,000 of the
above balance had been collected.
<PAGE>
In February 1999, the Company received a letter from Aloe Commodities
International, Inc. ("ACI") offering a program to repurchase the
Company's 600,000 shares of ACI stock at $1.00 per share, which is the
price the Company paid for the shares. The shares would be repurchased
over a 24 month period ending in March 2001. As of May 14, 1999, ACI had
made the first three purchases, totalling $40,000, according to the
schedule. The Company had fully reserved the entire amount of the
$600,000 investment in ACI as of December 31, 1998. Based upon the first
three purchases being made on a timely basis, the Company is optimistic
that the remaining shares will be purchased according to the schedule.
However, because of the financial condition of ACI, there is no assurance
that the remaining shares will be repurchased.
As of March 31, 1999, the Company had no material capital commitments
other than its leases, agreements with suppliers, and contracts related
to a Phase III trial. The Company has reformulated its proprietary
product Aliminase[TM] and has re-entered the clinic with a Phase III
trial. The Company signed an agreement with a contract research
organization on January 25, 1999 in the amount of approximately $3.1
million to perform the Phase III clinical trial, and initial patient
dosing began on April 7, 1999. Payments under this agreement were
$718,000 for the three months ended March 31, 1999.
In February 1995, the Company entered into a supply agreement with its
supplier of freeze-dried products. The agreement required that the
Company establish a letter of credit equal to 60% of the minimum purchase
commitment of $2,500,000, but allowed for the amount of the letter of
credit to be reduced by 60% of the purchases made under the agreement.
The supplier currently produces the CarraSorb[TM] M Freeze Dried Gel and
the Carrington[TM] (Aphthous Ulcer) Patch for the Company. Both of these
products represent new technology and are still in the early phase of
marketing. The Company had approximately $387,000 of CarraSorb[TM] M and
Carrington[TM] (Aphthous Ulcer) Patch inventory on hand as of March 31,
1999.
The supply agreement also requires the Company to make minimum monthly
purchases of $30,000. In February 1998, the supply agreement was amended
to allow for unmet monthly minimum purchase amounts to be met by
prepayments, to be applied to future purchases under the agreement, which
allows the Company to keep inventory at levels appropriate for sales
demand. Current sales of both items are lower than the minimum purchase
requirement, but the Company believes that as licensing, acceptance and
demand for the new technology increase, demand will exceed the aggregate
minimum purchase requirement. As of March 31, 1999, the Company had made
payment for purchased products and prepayments totaling approximately
$1,062,000 to this supplier. The Company is in full compliance with the
agreement and, as of May 14, 1999, had the available resources to meet
all future minimum purchase requirements. There is, however, no
assurance that the Company will be able to sell all of the products it is
required to purchase from this supplier. If and to the extent that the
Company makes prepayments under the agreement but does not apply those
prepayments to pay for products that it can sell, such prepayments would
eventually have to be charged against the Company's earnings.
In November 1997, the Company entered into an agreement with Comerica
Bank-Texas for a $3,000,000 line of credit, secured by accounts
receivable and inventory. This credit facility will be used for
operating needs, as required, and to secure the letter of credit
described above.
<PAGE>
In November 1995, the Company signed a licensing agreement with a
supplier of calcium alginates and other wound care products. Under the
agreement, the Company has exclusive marketing rights for ten years to
advanced calcium alginate products for North and South America and the
People's Republic of China. Under the agreement, the Company made an
up-front payment to the supplier of $500,000 in November 1995, and in
July 1997 and October 1997, additional payments of $166,000 and $167,000,
respectively, were paid to this supplier upon delivery of CarraSmart[TM]
Hydrocolloid, a new product launched in the third quarter of 1997. These
payments resulted in increasing the prepaid assets of the Company. As of
March 31, 1999, the net book value of this agreement was $498,000.
As the result of a sharp increase in sales of raw materials processed at
the Company's processing facility in Costa Rica the Company's demand for
Aloe vera leaves has exceeded and continues to exceed both the current
and the normal production capacity of its farm. It has therefore been
necessary for the Company to purchase Aloe vera leaves from other sources
at costs that are significantly higher than the cost of leaves produced
on its own farm.
In March 1998, the Company, with four other investors, formed Aloe and
Herbs International, Inc., a Panamanian corporation, ("Aloe & Herbs"),
with the sole intent of acquiring a 5,000-acre tract of land in Costa
Rica to be used for the production of Aloe vera leaves to be sold to the
Company at competitive, local market rates. This would allow the Company
to save approximately 50% on the per-kilogram cost of leaves as compared
to the cost of importing leaves from other Central and South American
countries. Aloe & Herbs subsequently formed a wholly-owned subsidiary,
Rancho Aloe (C.R.), S.A., a Costa Rica ("Rancho Aloe"), corporation,
which acquired the land in March 1998. Regular shipments of leaves from
Rancho Aloe to the Company were made starting in April 1999.
The Company believes that its available cash resources and expected cash
flows from operations will provide the funds necessary to finance its
current operations and the current Phase III clinical trial for
Aliminase[TM]. However, the Company does not expect that its current
cash resources will be sufficient to finance future major clinical
studies and costs of filing new drug applications necessary to develop
its products to their full commercial potential. Additional funds,
therefore, may have to be raised through equity offerings, borrowings,
licensing arrangements or other means, and there is no assurance that the
Company will be able to obtain such funds on satisfactory terms when they
are needed.
The Company is subject to regulation by numerous governmental authorities
in the United States and other countries. Certain of the Company's
proposed products will require governmental approval prior to commercial
use. The approval process applicable to prescription pharmaceutical
products usually takes several years and typically requires substantial
expenditures. The Company and any licensees may encounter significant
delays or excessive costs in their respective efforts to secure necessary
approvals. Future United States or foreign legislative or administrative
acts could also prevent or delay regulatory approval of the Company's or
any licensees' products. Failure to obtain requisite governmental
approvals or failure to obtain approvals of the scope requested could
delay or preclude the Company or any licensees from marketing their
products, or could limit the commercial use of the products, and thereby
have a material adverse effect on the Company's liquidity and financial
condition.
<PAGE>
Impact of Inflation
The Company does not believe that inflation has had a material impact on
its results of operations.
First Quarter of 1999 Compared With First Quarter of 1998
Net sales were $6,898,000 in the first quarter of 1999, compared with
$5,788,000 in the first quarter of 1998, an increase of $1,110,000, or
19.2%. Caraloe, Inc., the Company's consumer products subsidiary,
increased sales from $1,808,000, to $3,009,000 or 66.0%. Caraloe sales
to Mannatech, Inc., which are primarily Manapol[R] powder, increased from
$1,170,000 in the first quarter of 1998 to $2,726,000 in the first
quarter of 1999.
Sales of the Company's wound and skin care products decreased $91,000
from $3,980,000 to $3,889,000, or 2.3%. The decrease in wound care sales
was primarily due to generally soft conditions in the wound care market
created by changes in government reimbursement programs, the closing of
home health care units, the impact of managed care, and consolidation of
distributors.
Cost of sales increased from $2,580,000 to $3,611,000, or 40.0%. As a
percentage of sales, cost of sales increased from 44.6% in the first
quarter of 1998 to 52.3% in the first quarter of 1999. This was due to
the weighted impact of increased sales of Caraloe's products, which have
a lower gross margin than the Company's wound and skin care products.
Selling, general and administrative expenses remained consistent,
increasing from $2,504,000 in the first quarter of 1998 to $2,551,000 in
1999.
Research and development ("R&D") expenses increased to $1,771,000 from
$599,000 primarily due to the Phase III clinical trial for the Company's
Aliminase[TM] product.
Net interest income of $30,000 in the first quarter of 1999 was
comparable to the $57,000 of net interest income in the first quarter of
1998.
Net loss for the first quarter of 1999 was $1,005,000. Net income,
excluding clinical trial expenses, for the quarter was $168,000 versus
net income of $152,000 for the first quarter of 1998. This was due
primarily to reductions in selling expenses and research expenditures
that exceeded the decrease in sales volume. Assuming dilution, net loss
per share was $0.11 in the first quarter of 1999, or $0.02 per share
excluding clinical trial expenses, compared to net income per share of
$0.02 during the same period in 1998.
<PAGE>
Year 2000 Issues
Like many other organizations, the Company faces the prospect of what
will happen to computers and other microprocessor-controlled equipment
using two digit data fields when they encounter dates beyond 1999, as
they may recognize the "00" of the year 2000 as the year 1900. This
phenomenon, known as the Year 2000 or Y2K issue, may impact the Company
in some manner, although the extent of any impact cannot be fully
determined at this time. The Company has undertaken considerable efforts
to assess its situation in areas that are determinable at this time.
With respect to information technology systems, the Company has
historically followed a policy of purchasing or licensing commercially
available computer software packages for use in operating its business.
These packages are typically maintained by their developers, and newer
releases of the packages are periodically made available to the users of
the packages for purchase or license or as part of annual maintenance
programs. The Company typically installs these packages with little or
no custom modification to the programs contained therein. Accordingly,
the Company expects to incur little, if any, cost for custom-developed
software. The Company's primary business application software used in
its Costa Rica facility was found during 1998 not to be ready for the
Year 2000, and the Company subsequently acquired a newer release of the
software package which is Y2K-ready. This upgrade will be installed
during the second quarter of 1999. The cost incurred to date to replace
or upgrade software packages are approximately $30,000.
With respect to non-information technology systems, the Company has
initiated efforts to assess its exposure due to the Y2K impact on the
portions of its production and laboratory equipment which are
microprocessor-controlled. The Company has determined that there are no
significant pieces of equipment in its U.S. facilities that are not Year
2000-ready. The identified non-conforming equipment will be upgraded or
replaced at an estimated cost of $20,000, and the target date for
completing this task is the second quarter of 1999. A Y2K review of the
manufacturing and laboratory equipment in the Company's Costa Rica
facility should be completed early in the second quarter of 1999.
Remedial action required, if any, would be targeted for completion by the
end of the second quarter of 1999.
<PAGE>
With respect to third parties, the Company has undertaken to assess the
potential impact to its operations of its vendors and customers not being
prepared for the Year 2000 impact on their systems. The Company surveyed
all of its vendors from whom the Company made purchases totaling $5,000
or more in a recent 12-month period. To date, the Company has received
responses from approximately 83% of the vendors surveyed, and the
majority of vendors responding indicated that they were addressing the
issue but were not yet fully ready. The Company made specific oral
inquiries of local U.S. utility companies (electric, gas, water and
telephone), each of which indicated it has made significant strides
toward readiness but is not yet fully ready. Because of the material
effect that the failure of any one of these utilities, particularly the
electric company, to provide service to the Company as a result of Year
2000 unreadiness could have on the Company, and because of the uncertain
responses that these utility companies have provided, the Company cannot
provide assurance that its operations will not be materially affected by
the Year 2000 issue, nor can it quantify the impact that a failure of one
of these utilities to provide service would cause. The Company has met
with representatives of the Costa Rica utility company providing service
to its facility in Costa Rica, who indicated that the utility's
operational equipment, much of which is older analog equipment, has not
been tested, but is backed up by redundant manual/mechanical systems.
Newer digital equipment is being certified as Y2K compliant as installed.
The Company also met with officials of the National Bank of Costa Rica,
who presented a detailed plan for Y2K compliance and testing. The bank
officials indicated that approximately 80-90% of their systems have been
tested and found compliant.
The most reasonably likely worst case scenario for the Company is a
disruption in power to its manufacturing plants, as discussed above. As
part of its contingency plan for dealing with these material
uncertainties, the Company has initiated an inventory program designed to
have several months of inventory of its core wound care and raw material
products on hand by the end of the third quarter of 1999. The cost of
this inventory program is estimated not to exceed $500,000.
<PAGE>
The Company will also be sending a similar survey to its significant
customers in the second quarter of 1999 in order to assess their Y2K
readiness. The disruption in a customer's business due to this issue
could also have a negative impact on the Company's sales and
profitability, although the impact to the Company cannot be determined at
this time.
The costs of the Company's Y2K remediation programs are being funded with
cash flows from operations and are not expected to exceed $100,000,
excluding inventory buildup. Some of these costs relate solely to the
upgrade of existing functionality. In total, these costs are not
expected to be substantially different from the normal recurring costs of
systems and equipment upgrades and therefore are not expected to have a
material adverse effect on the Company's overall results of operations or
cash flows.
<PAGE>
Forward Looking Statements
All statements other than statements of historical fact contained in this
report, including but not limited to statements in this "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
(and similar statements contained in the Notes to Consolidated Financial
Statements) concerning the Company's financial position, liquidity,
capital resources and results of operations, its prospects for the future
and other matters, are forward-looking statements. Forward-looking
statements in this report generally include or are accompanied by words
such as "anticipate", "believe", "estimate", "expect", "intend" or words
of similar import. Such forward-looking statements include, but are not
limited to, statements regarding the Company's plan or ability to achieve
growth in demand for or sales of products, to reduce expenses and
manufacturing costs and increase gross margin on existing sales, to
initiate, continue or complete clinical and other research programs, to
obtain financing when it is needed, to fund its operations from revenue
and other available cash resources, to enter into licensing agreements,
to develop and market new products and increase sales of existing
products, to obtain government approval to market new products, to sell
all of the freeze-dried, calcium alginate and certain other wound care
products that it is required to purchase under its existing agreements
with the suppliers of those products, to purchase sufficient supplies of
Aloe vera leaves at reasonable prices, and to properly assess its
situation with respect to Y2K issues and avoid any material adverse
effects of the Y2K problem, as well as various other matters.
Although the Company believes that the expectations reflected in its
forward-looking statements are reasonable, no assurance can be given that
such expectations will prove correct. Factors that could cause the
Company's results to differ materially from the results discussed in such
forward-looking statements include but are not limited to the
possibilities that the Company may be unable to obtain the funds needed
to carry out large scale clinical trials and other research and
development projects, that the results of the Company's clinical trials
may not be sufficiently positive to warrant continued development and
marketing of the products tested, that new products may not receive
required approvals by the appropriate government agencies or may not meet
with adequate customer acceptance, that the Company may not be able to
obtain financing when needed, that the Company may not be able to obtain
appropriate licensing agreements for products that it wishes to market or
products that it needs assistance in developing, that the Company's
efforts to improve its sales and reduce its costs may not be sufficient
to enable it to fund its operating costs from revenues and available cash
resources, that one or more of the customers that the Company expects to
purchase significant quantities of products from the Company or Caraloe
may fail to do so, that competitive pressures may require the Company to
lower the prices of or increase the discounts on its products, that the
Company's sales of products it is contractually obligated to purchase
from suppliers may not be sufficient to enable and justify its
fulfillment of those contractual purchase obligations, that other parties
who owe the Company substantial amounts of money may be unable to pay
what they owe the Company, that the Company may suffer adverse effects
from Y2K problems affecting the Company or its vendors (including utility
companies) or customers, and that the Company may be unable to produce or
obtain, or may have to pay excessive prices for, the raw materials or
products it needs.
<PAGE>
All forward-looking statements in this report are expressly qualified in
their entirety by the cautionary statements in the two immediately
preceding paragraphs.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
The Company's exposure to market risk from changes in foreign currency
exchange rates and the supply and prices of Aloe vera leaves has not
changed materially from its exposure at December 31, 1998, as described
in the Company's Form 10-K Annual Report for the year then ended.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit Description
No.
10.1 Supply Agreement between Caraloe, Inc. and For Your
Health, Inc. dated March 5, 1999.
10.2 Trademark License Agreement between Caraloe, Inc. and
For Your Health, Inc., dated March 5, 1999.
10.3 Letter dated February 25, 1999 from Aloe Commodities,
Inc. to Carrington Laboratories, Inc.
27.1 Financial Data Schedule
(b) Reports on Form 8-K:
No reports on Form 8-K were filed by the Company during the
quarter ended March 31, 1999.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CARRINGTON LABORATORIES, INC.
(Registrant)
Date: May 17, 1999 By: /s/ Carlton E. Turner
------------------ ------------------------
Carlton E. Turner,
President and C.E.O.
(principal executive
officer)
Date: May 17, 1999 By: /s/ Robert W. Schnitzius
------------------ -----------------------
Robert W. Schnitzius,
Chief Financial Officer
(principal financial and
accounting officer)
<PAGE>
INDEX TO EXHIBITS
Item Description
No.
10.1 Supply Agreement between Caraloe, Inc. and For Your
Health, Inc. dated March 5, 1999.
10.2 Trademark License Agreement between Caraloe, Inc. and For
Your Health, Inc., dated March 5, 1999.
10.3 Letter dated February 25, 1999 from Aloe Commodities,
Inc.to Carrington Laboratories, Inc.
27.1 Financial Data Schedule
EXHIBIT 10.1
SUPPLY AGREEMENT
THIS SUPPLY AGREEMENT (this "Agreement") effective as of March 5,
1999, is by and between CARALOE, INC., a Texas corporation ("Seller"),
and FOR YOUR HEALTH, INC., a Washington Corporation ("Buyer"),
WITNESSETH:
WHEREAS, Seller desires to sell to Buyer, and Buyer desires to
purchase from Seller, bulk aloe vera mucilaginous polysaccharide
(hereinafter referred to under the product name of "Manapol[R] Powder")
in the quantities, at the price, and upon the terms and conditions
hereinafter set forth; and
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements contained herein, the parties hereto agree as
follows:
1. Term. The term of this Agreement shall commence on March 5,
1999, and shall end at midnight on March 4, 2001 unless further extended
or sooner terminated as provided herein (such term, as extended, herein
called the "Term"). The Term (including each one-year extension of the
Term) shall be extended automatically for an additional one-year period,
provided that, at least thirty (30) days prior to the end of the Term,
Seller and Buyer mutually agree in writing on the quantity and price of
Manapol[R] Powder to be sold by Seller and purchased by Buyer hereunder
during such additional one-year period. At least sixty (60) days prior
to the end of the Term, Seller and Buyer shall commence good faith
negotiations to determine and agree upon such quantity and price for such
additional one-year period. If the parties are unable to so agree on
such quantity and price, this Agreement shall terminate effective at the
end of the current Term. Nothing contained in this Paragraph 1 shall be
deemed to (i) obligate the parties to agree upon such quantity and price,
(ii) obligate a party to negotiate with the other party regarding such
quantity and price if such other party is then in breach of or in default
under this Agreement or (iii) limit the rights to the parties under
Paragraph 8 hereof.
2. Territory. Buyer is permitted to market agreed upon products
containing Manapol[R] Powder in the United States. The use of the
Manapol[R] Powder trademark is, however, covered by the separate
Trademark licensing agreement entered into by the parties hereto.
3. Purchase License. Buyer agrees that all Manapol[R] Powder
purchased by it hereunder shall be used only as an additive in human or
animal health food products manufactured by or for Buyer that are
intended for sale to the ultimate consumer in the United States. Such
food products are herein called "Buyer Products".
<PAGE>
4. Quality. Seller warrants to Buyer that all Manapol[R] Powder
sold by Seller pursuant to this Agreement will conform to the quality
specifications set forth in Exhibit A to this Agreement. EXCEPT AS
PROVIDED IN THIS PARAGRAPH 4, THERE ARE NO WARRANTIES OR REPRESENTATIONS
OF ANY KIND, EXPRESS OR IMPLIED, INCLUDING BUT NOT LIMITED TO WARRANTIES
OF MERCHANTABILITY, FITNESS AND FITNESS FOR A PARTICULAR PURPOSE, MADE
WITH RESPECT TO THE MANAPOL[R] POWDER TO BE SOLD HEREUNDER, AND NONE
SHALL BE IMPLIED BY LAW.
5. Deliveries. Buyer shall instruct Seller from time to time
during the Term, by placing a purchase order with Seller reasonably in
advance of the date Buyer desires Manapol[R] Powder to be delivered to it
hereunder, (i) as to the quantities of Manapol[R] Powder to be delivered
to Buyer, (ii) as to the specific date of delivery, (iii) as to the
specific location of delivery and (iv) as to the carrier or particular
type of carrier for such delivery. During the Term, Buyer shall provide
Seller (a) on a yearly basis a nonbinding forecast of Buyer's minimum and
maximum aggregate delivery requirements for Manapol[R] Powder for such
period, and (b) on a quarterly basis a forecast acceptable to Seller
(which shall be binding on Buyer) of Buyer's minimum and maximum delivery
requirements for Manapol[R] Powder for each month of the next three (3)
month period. The quantities of Manapol[R] Powder ordered by Buyer
pursuant to this Agreement from time to time shall be spaced in a
reasonable manner, and Buyer shall order such quantities in accordance
with Buyer's binding forecasts. In no event shall Seller be required to
deliver to Buyer in any three-month period a quantity of Manapol[R]
Powder in excess of 125% of the maximum delivery requirement for such
period set forth in the binding forecast for such period accepted by
Seller. Deliveries of Manapol[R] Powder shall be made by Seller under
normal trade conditions in the usual and customary manner being utilized
by Seller at the time and location of the particular delivery. The
Manapol[R] Powder delivered to Buyer hereunder shall be packaged in
suitable containers to be determined by the Seller. All deliveries of
Manapol[R] Powder to Buyer hereunder shall be made by Seller F.O.B. at
the facilities of Seller or its affiliates.
6. Price. All Manapol[R] Powder to be purchased by Buyer under
this Agreement shall be purchased by it, at a price as outlined in
Exhibit B. All prices listed in Exhibit B may be changed by the Seller
at any time, provided that the Seller shall provide the Buyer with thirty
(30) days written notice in advance of all such price changes. Buyer
shall bear all freight, insurance and similar costs, and all sales taxes,
with respect to such purchases. The purchase price of Manapol[R] Powder,
together with all related freight, insurance and similar costs, and sales
taxes, shall be paid by Buyer to Seller within thirty (30) days after the
date of invoice.
7. Confidentiality. In the performance of Seller's obligations
pursuant to this Agreement, Buyer may acquire from Seller or its
affiliates technical, commercial, operating or other proprietary
information relative to the business or operations of Seller or its
affiliates (the "Confidential Information"). Buyer shall maintain the
confidentiality, and take all necessary precautions to safeguard the
secrecy, of any and all Confidential Information it may acquire from
Seller or its affiliates. Buyer shall not use any of such Confidential
Information for its own benefit or for the benefit of anyone else. Buyer
shall not publicly disclose the existence of this Agreement or the terms
hereof without the prior written consent of Seller.
<PAGE>
8. Force Majeure. Seller shall not have any liability hereunder
if it shall be prevented from performing any of its obligations hereunder
by reason of any factor beyond its control, including, without
limitation, fire, explosion, accident, riot, flood, drought, storm,
earthquake, lightning, frost, civil commotion, sabotage, vandalism,
smoke, hail, embargo, act of God or the public enemy, other casualty,
strike or lockout, or interference, prohibition or restriction imposed by
any government or any officer or agent thereof ("Force Majeure"), and
Seller's obligations, so far as may be necessary, shall be suspended
during the period of such Force Majeure and shall be cancelled in respect
of such quantities of Manapol[R] Powder as would have been sold hereunder
but for such suspension. Seller shall give to Buyer prompt notice of any
such Force Majeure, the date of commencement thereof and its probable
duration and shall give a further notice in like manner upon the
termination thereof. Each party hereto shall endeavor with due diligence
to resume compliance with its obligations hereunder at the earliest date
and shall do all that it reasonably can to overcome or mitigate the
effects of any such Force Majeure upon its obligations under this
Agreement.
9. Rights Upon Default.
(a) Seller's Rights Upon Default. If Buyer (i) fails to purchase
the quantities of Manapol[R] Powder specified for purchase by Buyer
hereunder, (ii) fails to make a payment hereunder when due or (iii)
otherwise breaches any term of this Agreement, and such failure or breach
is not cured to Seller's reasonable satisfaction within five (5) days (in
the case of a failure to make a payment) or thirty (30) days (in any
other case) after receipt of notice thereof by Buyer, or if Buyer fails
to perform or observe any covenant or condition on its part to be
performed when required to be performed or observed, and such failure
continues after the applicable grace period, if any, specified in the
Agreement, Seller may refuse to make further deliveries hereunder and may
terminate this Agreement upon notice to Buyer and, in addition, shall
have such other rights and remedies, including the right to recover
damages, as are available to Seller under applicable law or otherwise.
If Buyer becomes bankrupt or insolvent, or if a petition in bankruptcy is
filed by or against it, or if a receiver is appointed for it or its
properties, Seller may refuse to make further deliveries hereunder and
may terminate this Agreement upon notice to Buyer, without prejudice to
any rights of Seller existing hereunder or under applicable law or
otherwise. Any subsequent shipment of Manapol[R] Powder by Seller after
a failure by Buyer to make any payment hereunder, or after any other
default by Buyer hereunder, shall not constitute a waiver of any rights
of Seller arising out of such prior default; nor shall Seller's failure
to insist upon strict performance of any provision of this Agreement be
deemed a waiver by Seller of any of its rights or remedies hereunder or
under applicable law or a waiver by Seller of any subsequent default by
Buyer in the performance of or compliance with any of the terms of this
Agreement.
<PAGE>
(b) Buyer's Rights Upon Default. If Seller fails in any material
respect to perform its obligations hereunder, and such failure is not
cured to Buyer's reasonable satisfaction within 30 days after receipt of
notice thereof by Seller, Buyer shall have the right to refuse to accept
further deliveries hereunder and to terminate this Agreement upon notice
to Seller and, in addition, shall have such other rights and remedies,
including the right to recover damages, as are available to Buyer under
applicable law or otherwise. Any subsequent acceptance of delivery of
Manapol[R] Powder by Buyer after any default by Seller under this
Agreement shall not constitute a waiver of any rights of Buyer arising
out of such prior default; nor shall Buyer's failure to insist upon
strict performance of any provision of this Agreement be deemed a waiver
by Buyer of any of its rights or remedies hereunder or under applicable
law or a waiver by Buyer of any subsequent default by Seller in the
performance of or compliance with any of the terms of this Agreement.
10. Disclaimer and Indemnity. Buyer shall assume all financial and
other obligations for Buyer Products, and Seller shall not incur any
liability or responsibility to Buyer or to third parties arising out of
or connected in any manner with Buyer Products. In no event shall Seller
be liable for lost profits, special damages, consequential damages or
contingent liabilities arising out of or connected in any manner with
this Agreement or Buyer Products. Buyer shall defend, indemnify and hold
harmless Seller and its affiliates, and their respective officers,
directors, employees and agents, from and against all claims,
liabilities, demands, damages, expenses and losses (including reasonable
attorneys' fees and expenses) arising out of or connected with (i) any
manufacture, use, sale or other disposition of Buyer Products, or any
other products of Buyer, by Buyer or any other party and (ii) any breach
by Buyer of any of its obligations under this Agreement.
11. Equitable Relief. A breach by Buyer of the provisions of
Paragraph 3(b) shall cause Seller to suffer irreparable harm and, in such
event, Seller shall be entitled, as a matter of right, to a restraining
order and other injunctive relief from any court of competent
jurisdiction, restraining any further violation thereof by Buyer, its
officers, agents, servants, employees and those persons in active concert
or participation with them. The right to a restraining order or other
injunctive relief shall be supplemental to any other right or remedy
Seller may have, including, without limitation, the recovery of damages
for the breach of such provisions or of any other provisions of this
Agreement.
12. Survival. The expiration or termination of the Term shall not
impair the rights or obligations of either party hereto which shall have
accrued hereunder prior to such expiration or termination. The
provisions of Paragraphs 3, 7, 9, 10 and 11 hereof, and the rights and
obligations of the parties thereunder, shall survive the expiration or
termination of the Term.
13. Governing Law. This Agreement shall be governed by, and
construed and enforced in accordance with, the laws of the State of
Texas.
<PAGE>
14. Succession. Neither party hereto may assign or otherwise
transfer this Agreement or any of its rights or obligations hereunder
(including, without limitation, by merger or consolidation) without the
prior written consent of the other party; provided, however, that Seller
may assign any of its rights or obligations hereunder to any affiliate of
Seller. Subject to the immediately preceding sentence, this Agreement
shall be binding upon and inure to the benefit of the parties hereto and
their respective successors and assigns.
15. Entire Agreement. This Agreement constitute the entire
agreement between the parties hereto relating to the matters covered
hereby The terms of this Agreement shall prevail over any inconsistent
terms contained in any purchase order issued by Buyer and acknowledgment
or acceptance thereof issued by Seller. No modification, waiver or
discharge of this Agreement or any of its terms shall be binding unless
in writing and signed by the party against which the modification, waiver
or discharge is sought to be enforced. This Agreement is separate from
and unrelated to any other agreement between the parties hereto and has
been entered into for separate and independent consideration, the
sufficiency of which is hereby acknowledged by the parties.
16. Notices. All notices and other communications with respect to
this Agreement shall be in writing and shall be deemed to have been duly
given when delivered personally or when duly deposited in the mails,
first class mail, postage prepaid, to the address set forth below, or
such other address hereafter specified in like manner by one party to the
other:
If to Seller: Caraloe, Inc.
2001 Walnut Hill Lane
Irving, Texas 75038
Attention: President
If to Buyer: For Your Health, Inc.
13758 Lake Cityway, N.E.
Seattle, WA 98125
Attention: Mr. Raymond Suen
17. Interpretation. In the event that any provision of this
Agreement is illegal, invalid or unenforceable as written but may be
rendered legal, valid and enforceable by limitation thereof, then such
provision shall be deemed to be legal, valid and enforceable to the
maximum extent permitted by applicable law. The illegality, invalidity
or unenforceability in its entirety of any provision hereof will not
affect the legality, validity or enforceability of the remaining
provisions of this Agreement.
18. No Inconsistent Actions. Each party hereto agrees that it will
not voluntarily undertake any action or course of action inconsistent
with the provisions or intent of this Agreement and, subject to the
provisions of Paragraph 8 hereof, will promptly do all acts and take all
measures as may be appropriate to comply with the terms, conditions and
provisions of this Agreement.
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed by their duly authorized officers as of the day and year first
above written.
CARALOE, INC.
By: /s/ Bill Pine
General Manager
FOR YOUR HEALTH, INC.
By: /s/ Raymond M. Suen
President
<PAGE>
EXHIBIT A
FOR YOUR HEALTH, INC.
MANAPOL[R] POWDER PRODUCT SPECIFICATION
PRODUCT DESCRIPTION
PRODUCT: Manapol[R] Powder
CODE: C-200
SOURCE: Aloe barbadensis Miller
USES: The pure, stabilized Manapol[R] Powder is suitable for use
in pharmaceutical and beverage formulations
SPECIFICATION SHEET
Test Specification Method
-------------------------------------------------------------------
Appearance Fine white to beige
powder
Complex > = $30 HPLC(SEC)
Carbohydrates
(wt. %)
Water, wt.% < = 14% TGA
Residue on Ignition < = 16% TGA
wt.%
Microbiological Meets USP Standard USP
Purity
Fiber, wt.% < = 60% TGA
Solubility approx. 240 Gel Point CARN
Gelization
pH Not Adjusted CARN
Fiber Enriched CARN
Viscosity (cP) approx. 40 CARN
4 mg/ml solution
Total Acid Value approx 0.7 CARN
(As Malic Acid)
<PAGE>
EXHIBIT B
FOR YOUR HEALTH, INC.
PRICING SCHEDULE
FOR MANAPOL[R] POWDER
Quantity Prices
1 to 25 kg $1,600.00 / kg
26 to 50 kg $1,500.00 / kg
51 to 100 kg $1,400.00 / kg
Terms are Net 30 days with approved credit F.O.B., Irving, Texas
All pricing is subject to change with 30 days written notice.
EXHIBIT 10.2
TRADEMARK LICENSE AGREEMENT
THIS TRADEMARK LICENSE AGREEMENT ("Agreement"), effective as of
March 5, 1999, is made by and between CARALOE, INC. ("Licensor"), a Texas
corporation, having its principal place of business at 2001 Walnut Hill
Lane, Irving, Texas 75038, and FOR YOUR HEALTH, INC., ("Licensee"), a
Washington Corporation, having its principal place of business at 13758
Lake City Way, N.E., Seattle, WA 98125.
W I T N E S S E T H:
WHEREAS, simultaneously with the execution of this Agreement,
Licensor and Licensee are entering into an non-exclusive Supply Agreement
of even date herewith (the "Supply Agreement") for the sale by Licensor
and purchase by Licensee of bulk aloe vera mucilaginous polysaccharide
(hereinafter referred to under the product name of "Manapol[R] Powder")
to be used in product or products manufactured by Licensee (the
"Manufactured Products");
WHEREAS, Carrington Laboratories, Inc., a Texas corporation
("Carrington"), claims the ownership of the trademark MANAPOL[R] Powder
(the "Mark") and has granted to Licensor a license to use the Mark and to
license others to use it on an exclusive and/or a non-exclusive basis;
WHEREAS, Licensee is desirous of obtaining from Licensor, and
Licensor is willing to grant to Licensee, a license to use the product
name Manapol[R] Powder (the "Mark") in connection with the advertising
and sale of the Manufactured Products subject to the terms, conditions
and restrictions set forth herein; and
WHEREAS, Licensor and Licensee are mutually desirous of insuring the
consistent quality of all products sold in connection with the Mark;
NOW, THEREFORE, in consideration of premises, the mutual covenants,
promises and agreement set forth herein, and other good and valuable
consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereby covenant, promise and agree as follows:
Article 1
LICENSE
1.1 Terms and Conditions. Licensor hereby grants to Licensee the
non-transferable right and license to use the Mark in connection with the
labeling, advertising and sale of Manufactured Products manufactured and
sold by Licensee during the term of this Agreement. During the term of
this Agreement, Licensee shall have the non-exclusive right to use the
Mark in connection with Manufactured Products containing Manapol[R]
Powder that are intended for sale to the ultimate consumer in the United
States.
1.2 License Coterminous With Supply Agreement. The license granted
by this Agreement shall run coterminously with the Supply Agreement, and
any actions or events which shall operate to extend or terminate the
Supply Agreement shall automatically extend or terminate this Agreement
simultaneously.
<PAGE>
1.3 Sublicenses. Licensee shall not have the right to grant
sublicenses without the written permission of Licensor with respect to
the license granted herein; however, Licensee may engage a third party or
parties to make and affix labels for the Manufactured Products in
compliance with Articles 2,3, and 4 hereof, and/or to distribute and sell
the Manufactured Products in compliance with the terms and conditions of
this Agreement. Licensee shall be expressly obligated to ensure full
compliance with all terms and conditions of this Agreement.
Article 2
CERTAIN OBLIGATIONS OF LICENSEE AND LICENSOR
2.1 Representations by Licensee. Licensee shall not represent in
any manner that it owns any right, title or interest in or to the Mark.
Licensee acknowledges that its use of the Mark shall inure to the benefit
of Licensor and shall not create in Licensee's favor any right, title or
interest in or to the Mark.
2.2 Discontinuation of Use of Mark. Upon the expiration or
termination of this Agreement, Licensee will cease and desist from all
use of the Mark in any manner and will not adopt or use, without
Licensor's prior written consent, any word or mark which is confusingly
or deceptively similar to the Mark, except that Licensee may continue to
use the Mark under the terms and conditions of this Agreement in
connection with any remaining supplies of Manapol[R] Powder purchased by
Licensee from Licensor until such supplies are exhausted.
2.3 FDA Compliance of Products. All products on which the Mark is
used by Licensee shall be manufactured, packaged, labeled, advertised,
marketed and sold in compliance with the Federal Food, Drug and Cosmetic
Act and the rules and regulations promulgated thereunder, as amended from
time to time.
2.4 Inspection. Upon reasonable notice, Licensor reserves the
right to inspect Licensee's products bearing the Mark and Licensee's
manufacturing facilities at all reasonable times to insure Licensee's
compliance with this Agreement.
2.5 Use of Trademark. Licensee shall not use the Mark except as
specifically set forth herein. Without limiting the generality of the
preceding sentence, Licensee shall not use the Mark in connection with
the sale or advertising of any products other than the Manufactured
Products. Any use of the trademark, "Manapol[R] Powder" pursuant to this
agreement is non-exclusive. Whenever the Licensee uses the trademark,
"Manapol[R] Powder", it shall also indicate that such name is the
registered trademark of Licensor and shall take all reasonable measures
to assure that there is no confusion of ownership of the mark or the
substance which it identifies, the same being the proprietary property of
the Licensee.
<PAGE>
Article 3
MANUFACTURING AND SALE
3.1 Manufacturing Facilities. All manufacturing of the
Manufactured Products shall be done in the Licensee's own facilities or
qualified contract manufacturing facilities.
3.2 Combination With Other Products. Licensee shall not combine
Manapol[R] Powder with any product or substance in any manner which
would violate any laws, rules or regulations of any state, federal or
other governmental body. Licensee shall not combine Manapol[R] Powder
with any other substance in a Manufactured Product that is to be
advertised or sold for use or consumption by humans or animals if the
approval of the U.S. Food and Drug Administration (the "FDA") or the U.S.
Department of Agriculture ("USDA") for such use or consumption is
required and has not been obtained.
3.3 Compliance by Third Parties. Licensee shall take all steps
reasonably necessary to ensure that its distributors and any other
parties to whom it sells any of the Manufactured Products for resale do
not relabel, repackage, advertise, sell or attempt to sell Manapol[R]
Powder or any of the Manufactured Products in a manner that would
violate this Agreement if done by Licensee.
3.4 Manapol[R] Powder Content. The amount of Manapol[R] Powder to
be contained in each of the Manufactured Products shall be no less than
fifteen milligrams (15 mgs) per ounce. The parties shall meet once each
year to determine and agree upon the Manapol[R] Powder content for
existing and proposed Manufactured Products.
Article 4
LABELS AND ADVERTISING
4.1 FDA Compliance of Labels and Advertising. All labels and
advertising relating to the Manufactured Products offered in connection
with the Mark must strictly comply with all applicable rules and
regulations of the FDA.
4.2 Mandatory Requirements. Licensee shall cause all labels,
packaging, advertising and promotional materials used by it in
advertising, marketing and selling any product manufactured by or on
behalf of Licensee that contains Manapol[R] Powder to contain (I) the
Mark, (ii) a statement setting forth the concentration of Manapol[R]
Powder contained in such product, and (iii) the following legend:
Manapol[R] Powder is a registered trademark of Caraloe, Inc.
4.3 Claims by Licensee. Licensee hereby agrees not to make, or
permit any of its employees, agents or distributors to make, any claims
of any properties or results relating to Manapol[R] Powder or any
Manufactured Product which would violate any applicable law.
<PAGE>
4.4 FDA or USDA Approval of Claims. If Licensee desires to seek
FDA or USDA approval as to any specific claims with respect to Manapol[R]
Powder or any Manufactured Product, Licensee hereby agrees to (I) notify
Licensor of the claims and the application prior to filing and (ii) to
keep Licensor informed as to the progress of the application, including
but not limited to sending Licensor copies of all communications or
notices to or from the FDA or USDA, as applicable.
4.5 Right to Approve Labels, etc. If Licensor so requests,
Licensee shall not use any label, advertisement or marketing material
that contains the Mark unless such label, advertisement or marketing
material has first been submitted to and approved by Licensor. Licensor
shall not unreasonably withhold its approval of any such label,
advertisement or marketing material.
Article 5
ROYALTY
5.1 Licensee agrees to pay to Licensor a royalty of $0.15 per unit
of Manufactured Product produced by or for the Licensee.
5.2 Within seven (7) days after the end of each calendar month
Licensee shall provide Licensor with a written report listing
the quantities of Manufactured Product produced during that month.
Accompanying each such report shall be sufficient evidence, such as
vendors invoices, batch records, or other such evidence of production, to
substantiate the quantities included in the report.
5.3 All royalties for Manufactured Product produced in a month
shall be due and payable within thirty (30) days of the end of such
month.
5.4 All payments hereunder are to be paid in U.S. currency at the
address set forth at the beginning of the Agreement.
Article 6
NEGATION OF WARRANTIES, DISCLAIMER AND INDEMNITY
6.1 Negation of Warranties, etc. Nothing in this Agreement shall
be construed or interpreted as:
(a) a warranty or representation by Licensor that any product made,
used, sold or otherwise disposed of under the license granted in this
Agreement is or will be free of infringement or the like of the rights of
third parties; or
(b) an obligation by Licensor to bring or prosecute actions or
suits against third parties for infringement or the like of the Mark or
of any registration that may subsequently be granted for such Mark; or
(c) granting by implication, estoppel or otherwise any licenses or
rights other than those expressly granted hereunder.
<PAGE>
6.2 Disclaimer. LICENSOR MAKES NO REPRESENTATIONS, EXTENDS NO
WARRANTIES OF ANY KIND, EITHER EXPRESS OR IMPLIED, INCLUDING BUT NOT
LIMITED TO WARRANTIES OF MERCHANTABILITY, FITNESS AND FITNESS FOR A
PARTICULAR PURPOSE, AND ASSUMES NO RESPONSIBILITIES WHATSOEVER WITH
RESPECT TO THE USE, SALE OR OTHER DISPOSITION BY LICENSEE OR ITS
CUSTOMERS, VENDEES OR OTHER TRANSFEREES, WITH RESPECT TO THE MARK OR ANY
PRODUCTS MADE OR SOLD BY LICENSEE. THE FOREGOING NOTWITHSTANDING, SELLER
DOES REPRESENT THAT THE MANAPOL[R] POWDER DOES MEET THE SPECIFICATIONS
OUTLINED ON EXHIBIT A AND THAT IT IS A FOOD SUPPLEMENT UNDER THE FDA
RULES AND REGULATIONS.
6.3 Liability of Licensee for Products. Licensee shall assume all
financial and other obligations for the Manufactured Products made for it
or sold by it under this Agreement and Licensor shall not incur any
liability or responsibility to Licensee or to third parties arising out
of or connected in any manner with Licensee's products made or sold
pursuant to this Agreement. In no event shall Licensor be liable for
lost profits, special damages, consequential damages or contingent
liabilities arising out of or connected in any manner with this Agreement
or the Manufactured Products made for Licensee or sold by Licensee under
this Agreement.
6.4 Indemnity of Licensor. Licensee agrees to defend, indemnify
and hold Licensor, its officers, directors, employees and agents,
harmless against all claims, liabilities, demands, damages, expenses or
losses arising out of or connected with (a) the wrongful or negligent use
by Licensee of the Mark or (b) any use, sale or other disposition of
Licensee's products by Licensee or by any other party.
6.5 Negation of Trademark Warranty. Licensee acknowledges that
Licensor makes no warranty, express or implied, with respect to its
ownership of any rights relating to the Mark.
Article 7
TERM AND TERMINATION
7.1 Term. Unless terminated earlier as provided for herein, this
Agreement shall remain in full force and effect for a three (3) year
period ending at midnight on March 4, 2002. This Agreement may be
extended or renewed as provided in Section 1.2, or otherwise by the
written agreement of the parties.
7.2 Breach of Agreement. Except as provided otherwise in Section
7.3, if either party breaches any material provision of this Agreement
and fails to cure the breach within thirty (30) days after receipt of
written notice from the nonbreaching party specifying the breach, then
the nonbreaching party may terminate this Agreement upon written notice
to the breaching party, which right of termination shall be in addition
to, and not in lieu of, all other rights and remedies the nonbreaching
party may have against the breaching party under this Agreement, at law
or in equity. Failure by Licensor to give notice of termination with
respect to any such failure shall not be deemed a waiver of its right at
a later date to give such notice if such failure continues or again
occurs, or if another failure occurs. A breach by either party of a
material provision of the Supply Agreement shall be deemed a breach by
such party of a material provision of this Agreement.
<PAGE>
7.3 Immediate Termination. Licensor may immediately terminate this
Agreement, upon written notice to Licensee, upon the occurrence of any
one or more of the following events: (i) Licensee breaches any provision
of Articles 2, 3, or 4; (ii) Licensee fails to purchase and/or to pay for
the quantities of Manapol[R] Powder that it is obligated to purchase and
pay for under the Supply Agreement in accordance with the terms thereof;
(iii) Licensee voluntarily seeks protection under any federal or state
bankruptcy or insolvency laws; (iv) a petition for bankruptcy or the
appointment of a receiver is filed against Licensee and is not dismissed
within thirty (30) days thereafter; (v) Licensee makes any assignment for
the benefit of its creditors; or (vi) Licensee ceases doing business.
7.4 Survival of Provisions. In the event of termination,
cancellation or expiration of this Agreement for any reason, Sections
2.2, 6.1, 6.2, 6.3, 6.4, 6.5 and 8.1 hereof shall survive such
termination, cancellation or expiration and remain in full force and
effect.
Article 8
MISCELLANEOUS
8.1 Equitable Relief. A breach or default by Licensee of any of
the provisions of Articles 2, 3 and 4 hereof shall cause Licensor to
suffer irreparable harm and, in such event, Licensor shall be entitled,
as a matter of right, to a restraining order and other injunctive relief
from any court of competent jurisdiction, restraining any further
violation thereof by Licensee, its officers, agents, servants, employees
and those persons in active concert or participation with them. The
right to a restraining order or other injunctive relief shall be
supplemental to any other right or remedy Licensor may have, including,
without limitation, the recovery of damages for the breach or default of
any of the terms of this Agreement.
8.2 Amendment. This Agreement may be changed, modified, or amended
only by an instrument in writing duly executed by each of the parties
hereto.
8.3 Entire Agreement. This Agreement constitutes the full and
complete agreement of the parties hereto and supersedes any and all prior
understandings, whether written or oral, with respect to the subject
matter hereof.
8.4 No Waiver. The failure of either party to insist upon strict
performance of any obligation hereunder by the other party, irrespective
of the length of time for which such failure continues, shall not be a
waiver of its right to demand strict compliance in the future. No
consent or waiver, express or implied, by either party to or of any
breach or default in the performance of any obligation hereunder by the
other party shall constitute a consent or waiver to or of any other
breach or default in the performance of the same or any other obligation
hereunder.
<PAGE>
8.5 Notices. All notices required or permitted to be made or
given pursuant to this Agreement shall be in writing and shall be
considered as properly given or made when personally delivered or when
duly deposited in the mails, first class mail, postage prepaid, or when
transmitted by prepaid telegram, and addressed to the applicable address
first above written or to such other address as the addressee shall have
theretofore specified in a written notice to the notifying party.
8.6 Assignment. This Agreement or any of the rights or obligations
created herein may be assigned, in whole or in part, by Licensor.
However, this Agreement is personal to Licensee, and Licensee may not
assign this Agreement or any of its rights, duties or obligations under
this Agreement to any third party without Licensor's prior written
consent, and any attempted assignment by Licensee not in accordance with
this Section 8.6 shall be void.
8.7 Relationship of Parties. Nothing contained herein shall be
construed to create or constitute any employment, agency, partnership or
joint venture arrangement by and between the parties, and neither of them
has the power or authority, express or implied, to obligate or bind the
other in any manner whatsoever.
8.8 Remedies Cumulative. Unless otherwise expressly provided
herein, the rights and remedies hereunder are in addition to, and not in
limitation of, any other rights and remedies, at law or in equity, and
the exercise or one right or remedy will not be deemed a waiver of any
other right or remedy.
8.9 Successors and Assigns. The provisions of this Agreement shall
be binding upon and inure to the benefit of the parties and their
respective successors and assigns, provided, however, that the foregoing
shall not be deemed to expand or otherwise affect the limitations on
assignment and delegation set forth in Section 8.6 hereof, and except as
otherwise expressly provided in this Agreement, no other person or
business entity is intended to or shall have any right or interest under
this Agreement.
8.10 Governing Law. This Agreement shall be governed by and
interpreted, construed and enforced in accordance with the laws of the
State of Texas, excluding, however, any conflicts of law rules that would
require the application of the laws of any other state or country.
<PAGE>
8.11 Headings. The headings used in this Agreement are for
convenience of reference only and shall not be used to interpret this
Agreement.
8.12 Counterparts. This Agreement may be executed in multiple
counterparts, each of which shall be deemed an original and all of which
will constitute but one and the same instrument.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
by their duly authorized representatives as of the date first above
written.
CARALOE, INC.
By: /s/ Bill Pine
General Manager
FOR YOUR HEALTH, INC.
By: /s/ Raymond M. Suen
President
EXHIBIT 10.3
February 25, 1999
Dr. Carlton Turner
Carrington Laboratories
2001 Walnut Hill Lane
Irving, TX 75038
Dear Dr. Turner:
To better meet the mutual objections of both Carrington Labs and Aloe
Commodities International, Inc. we hereby offer a buy back program for
the 600,000 shares of Aloe Commodities International, Inc. stock
currently being held by Carrington Labs.
1999 Schedule
-------------
Date Amount By Quarter
---- ------- ----------
3/25/99 $10,000 10,000
4/20/99 $15,000
5/15/99 $15,000 45,000
6/15/99 $15,000
3rd Qtr $50,000 50,000
4th Qtr $75,000 75,000
Total 180,000
2000 Schedule
-------------
1st Qtr $75,000 75,000
2nd Qtr $75,000 75,000
3rd Qtr $75,000 75,000
4th Qtr $75,000 75,000
Total 300,000
2001 Schedule
-------------
1st Qtr $120,000
Total 600,000
L. Scott McKnight
President & CEO
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted
from (1) Statements of Balance Sheets, (2) Statements of
Operations and (3) Statements of Cash Flows, and is qualified
in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 3,406
<SECURITIES> 0
<RECEIVABLES> 3,460
<ALLOWANCES> 274
<INVENTORY> 4,086
<CURRENT-ASSETS> 11,737
<PP&E> 20,580
<DEPRECIATION> 9,628
<TOTAL-ASSETS> 23,351
<CURRENT-LIABILITIES> 2,943
<BONDS> 0
0
0
<COMMON> 94
<OTHER-SE> 20,314
<TOTAL-LIABILITY-AND-EQUITY> 23,351
<SALES> 6,868
<TOTAL-REVENUES> 6,898
<CGS> 3,611
<TOTAL-COSTS> 4,322
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (1,005)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,005)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,005)
<EPS-PRIMARY> (0.11)
<EPS-DILUTED> (0.11)
</TABLE>
