SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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Form 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT
OF 1934 [FEE REQUIRED]
For the fiscal year ended March 31, 1995
Commission file number 1-8867
Biocraft Laboratories, Inc.
(Exact name of registrant as specified in charter)
Delaware 22-1734359
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
18-01 River Road, Fair Lawn, New Jersey 07410
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (201) 703-0400
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of exchange on which registered
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Common Stock, par value $.01 New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
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___
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of the voting stock of the registrant held by
non-affiliates was approximately $101,950,000 as of June 22, 1995. The
computation includes as affiliates Harold Snyder, Beatrice Snyder, Beryl L.
Snyder, Brian S. Snyder and Jay T. Snyder, who are described in Item 12,
Security Ownership of Certain Beneficial Owners and Management, below, without
prejudice to a determination that such persons are non-affiliates of the
registrant for any other purpose under the Securities Act of 1933 or the
Securities Exchange of 1934.
Indicate the number of shares outstanding of each of the issuer's classes
of common stock as of June 22, 1995.
Common Stock, par value $.01 14,166,127 shares
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the proxy statement for the Annual Meeting of Shareholders to
be held August 14, 1995 are incorporated by reference in Part III.
Index to Financial Statements and Schedules - Page F-1
Index to Exhibits - Page I-1
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FORM 10-K ANNUAL REPORT
PART I
ITEM 1. BUSINESS
GENERAL
Biocraft Laboratories, Inc. (the "Company") manufactures and markets
various dosages of generic drugs. Generic drugs are the chemical and therapeutic
equivalents of brand name drugs which generally have gained market acceptance
while under patent protection. Although subject to strict Food and Drug
Administration ("FDA") standards, generic drugs are sold under their chemical
(generic) names, typically at prices substantially below those of their brand
name equivalents.
Sales of generic drugs have increased significantly in recent years, due in
part to greater awareness and acceptance of generic drugs by physicians,
pharmacists and the public. Among the factors which have contributed to this
increased awareness and acceptance are the modification of state laws to permit
pharmacists to substitute generic drugs for brand name drugs (where authorized
or not expressly prohibited by the prescribing physician), and the publication
by the FDA of a list of therapeutic equivalent drugs which provides
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physicians and pharmacists with the names of generic drug alternatives. In
addition, since generic drugs are typically sold at prices significantly below
the price of brand name drugs, the prescribing of generic drugs has been
encouraged, and in many cases required, by various government agencies and by
many private health programs as a cost-saving measure in the purchase of, or
reimbursement for, prescription drugs.
PRODUCTS AND PRODUCT DEVELOPMENT
The Company presently manufactures various dosages of 23 prescription
drugs, and one prescription veterinary drug constituting an aggregate of 68
products. Governmental approvals were required and obtained for each of these
products. The Company's products are sold in various oral dosage forms,
including compressed tablets, two-piece hard-shell capsules, powders for oral
solution or suspension and liquids. As of March 31, 1995, the Company was
awaiting FDA approvals to market 14 generic drugs constituting 29 products. The
Company intends to submit to the FDA applications to approve five new generic
drugs constituting a variety of products during fiscal 1996. See "Government
Regulation."
The 24 drugs manufactured by the Company can be divided into 11 categories.
The number of products in each category is shown in parentheses.
1. Penicillin and Semi-Synthetic Penicillin Drugs (19): These antibiotic
drugs include Penicillin V Potassium and the semi-synthetic penicillin drugs
Amoxicillin, Ampicillin, Cloxacillin, Dicloxacillin and Oxacillin.
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2. Cephalosporin Drugs (10): These antibiotic drugs are Cephradine and
Cephalexin.
3. Other Antibiotic Drugs (6): These drugs are Cinoxacin, Clindamycin,
Minocycline HCl, Neomycin and Nystatin.
4. Analgesic Drug (3): This drug is Ketoprofen.
5. Anti-Infective Drugs (5): These drugs are Trimethoprim and a combination
of Sulfamethoxazole and Trimethoprim.
6. Anti-Depressant Drugs (8): These drugs are Amitriptyline Hydrochloride
and Imipramine Hydrochloride.
7. Bronchial Dilator Drugs (5): These drugs are Albuterol and
Metaproterenol.
8. Cardiovascular Drug (2): This drug is Disopyramide Phosphate.
9. Gastrointestinal Drug (3): This drug is Metoclopramide.
10. Anti-Spasmodic Drug (2): This drug is Baclofen.
11. Veterinary Drug (5): The drug in this category is Amoxicillin, an
antibiotic sold under the registered trademark "Biomox."
In July 1994 the Company entered into an agreement with FDA resolving
outstanding regulatory issues with respect to dosage form facilities. Based on
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the agreement, the Company suspended shipments of powder for Oral Suspension of
Amoxicillin and Nystatin Oral Suspension. Previously, on its own initiative, the
Company had stopped manufacturing the Oral Suspension of Ampicillin and
Amiloride HCl Hydrochlorothiazide Tablets. The agreement requires expert
certifications to be submitted to and approved by FDA prior to resumption of
shipments. The Company resumed shipment of the Oral Suspension of Amoxicillin in
September 1994 and FDA is currently reviewing expert certifications for
Nystatin. See Legal Proceedings.
The Company manufactures the active ingredients it uses in its
semi-synthetic penicillin drugs at its Waldwick, New Jersey facility and bulk
form Cephalexin at its Mexico, Missouri facility. In March 1994, the Company
received FDA approval to manufacture bulk form Amoxicillin and Ampicillin in its
plant in Missouri. Such active ingredients are from time to time sold in bulk
form, generally in small amounts. Chemical intermediates also manufactured in
the Company's Mexico, Missouri facility are used in the Company's production of
certain antibiotics and are also periodically sold to third parties.
The Company entered into a three-year supply agreement with Eli Lilly and
Company, effective January 1, 1995. The agreement calls for Biocraft to supply
Eli Lilly and Company with a product manufactured at Biocraft's Missouri
facility. Biocraft expects this arrangement will result in Biocraft doubling its
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production of that product. The contract also calls for Lilly to supply Biocraft
with substantial quantities of a raw material at a fixed exchange ratio.
The Company's research and development generally consists of activities
related to new generic drug product development, clinical studies for generic
and non-generic drugs and research for developing new bulk manufacturing
processes. In the fiscal years ended March 31, 1993, 1994 and 1995, total
research and development expenditures were approximately $8,662,000, $9,923,000
and $11,110,000, respectively.
The Company's primary product development strategies are to manufacture and
sell in generic form antibiotic drugs for which the Company can maintain certain
cost controls by manufacturing the chemical intermediates and/or active
ingredients in bulk. Generally, the Company also selects non-antibiotic drugs
for which the Company anticipates initially limited competition due to such
factors as extensive FDA approval requirements, complexity of manufacture or
limited availability of raw materials. In all cases, the Company seeks to obtain
FDA approval to market a new generic drug product by, or shortly after, the
patent expiration date of the equivalent brand name drug in order to be among
the first generic drug companies to offer a generic equivalent at a
substantially lower price. Since the development of a generic drug product,
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including its formulation, testing and FDA approval, generally takes
approximately three to four years, development activities for a product may
begin several years in advance of the patent expiration date of the brand name
drug equivalent. Consequently, the Company is presently selecting drugs it
expects to market several years in the future.
The Company is developing certain drugs which the FDA has determined
require clinical studies in order to obtain approval of a generic equivalent.
Completion of these clinical studies involves larger numbers of subjects and
longer periods of time and results in greater expenditures than do
bioequivalency studies which are required for most generic drugs. The Company is
currently awaiting FDA approval of one such drug, Sucralfate, an ulcer
medication.
The Company is considering developing, manufacturing and selling drugs
which require New Drug Applications. The process of obtaining FDA approval of
these types of drugs typically requires greater expenditures by the Company than
approval of most generic drugs and often takes many years to complete. To market
these drugs, it will be necessary to familiarize physicians, pharmacists and the
public with the effects of such drugs. Since the Company has no experience in
this type of marketing, no assurance can be given that the Company will have the
ability itself, or that it will be able to make arrangements with others, to
market these drugs in such manner.
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MARKETING AND CUSTOMERS
The Company sells its products primarily through 16 salaried employees.
Sales of drugs in dosage forms are made primarily to distributors, drug
wholesalers, drugstore chains, mass merchandisers, other drug manufacturers,
health care institutions and government agencies. More than half of the
Company's gross sales of drugs in dosage form is made under its own label and
the balance is made under customers' labels; however, in all cases the Company
is named on the label as the manufacturer.
The Company sells dosage form products to approximately 300 customers. No
single customer accounted for more than 10% of total net sales in fiscal 1993,
1994 or 1995.
In fiscal 1993, 1994 and 1995, sales of cephalosporins constituted
approximately 24%, 27% and 30%, respectively, of total gross sales. For the
fiscal years ended March 31, 1993, 1994 and 1995, penicillin and semi-synthetic
penicillin drugs accounted for approximately 33%, 36% and 36%, respectively, of
total gross sales.
A key element of the Company's marketing strategy is to attempt to maintain
sufficient inventories of products in order to meet the Company's goal of
filling customer orders within a one to four week period. This strategy requires
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a substantial amount of working capital to maintain inventories at a level
sufficient to meet anticipated demand.
COMPETITION
The Company competes in varying degrees with numerous foreign and domestic
companies in the health care industry, including other manufacturers of generic
drugs (among which are several major pharmaceutical companies) and manufacturers
of brand name drugs. Many of the Company's competitors have greater financial
and other resources and are, therefore, able to expend more effort than the
Company in areas such as marketing and product development.
The principal competitive factors in the generic pharmaceutical market are
the ability to introduce generic versions of brand name drugs promptly after
patent expiration, price, quality and customer service.
RAW MATERIALS
The principal raw materials of the Company's business are active
ingredients for non-penicillin drugs and bulk pharmaceutical chemicals. The bulk
pharmaceutical chemicals are used to manufacture bulk form antibiotics. Both
types of raw materials are generally available from multiple sources.
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Because the FDA requires specification of raw material suppliers in
applications for approval of drug products, if raw materials from a specified
supplier were to become unavailable, the required FDA approval of a new supplier
could cause a delay in the manufacture of the drug involved.
EMPLOYEES
As of April 1, 1995, the Company had approximately 800 full-time employees.
Approximately 150 administrative and professional personnel are engaged, at
least part of their time, in product development of bulk and finished dosage
form products, including market research, product selection and formulation,
process development, and in seeking FDA approvals of new products. Approximately
280 employees are represented by a local collective bargaining unit whose
agreement with the Company expires on June 1, 1997, with annual wage reopeners.
Management believes that its relations with employees are satisfactory.
GOVERNMENT REGULATION
All pharmaceutical manufacturers are subject to extensive regulation by the
federal government, principally by the FDA, and to a lesser extent by state and
local governments. The Federal Food, Drug and Cosmetic Act, the Controlled
Substances Act and other federal statutes and regulations govern or influence
the testing, manufacture, safety, labeling, storage, record keeping, approval,
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pricing, advertising and promotion of the Company's products. Noncompliance with
applicable requirements can result in fines, recall and seizure of product,
total or partial suspension of production, delays in receiving approval of new
drug applications, refusal to enter into government supply contracts and
criminal prosecution. The FDA also has the authority to revoke approvals of
drugs.
FDA approval is required before each dosage form of any new drug can be
marketed. All applications for FDA approval must contain information relating to
bioequivalency, product formulation, stability, manufacturing processes,
packaging, labeling and quality control. Validation of manufacturing processes
is also generally required before a Company may market new products. There are
generally two types of applications currently used to obtain FDA approval of a
new drug.
1. New Drug Application ("NDA"). Generally, with respect to drugs with
active ingredients not previously approved by the FDA, a prospective
manufacturer must conduct and submit to the FDA complete clinical studies to
prove that drug's safety and efficacy. An NDA may also be submitted for a drug
with a previously approved active ingredient if the abbreviated procedure
discussed below is not available.
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2. Abbreviated New Drug Application ("ANDA"). Under the ANDA procedure,
which applies to most previously approved drugs, the FDA waives the requirement
of conducting complete clinical studies of safety and efficacy and instead
requires data illustrating that the generic drug formulation is bioequivalent to
a previously approved drug. "Bioequivalence" indicates that the rate of
absorption and the levels of concentration of a generic drug in the body needed
to produce a therapeutic effect are substantially equivalent to those of the
previously approved drug. In certain cases, however, the FDA may require
clinical studies in order to show generic equivalence to a previously approved
drug.
Although antibiotic and veterinary drugs are classified separately for
purposes of FDA approval, the procedure for such drugs conforms substantially to
the NDA/ANDA procedures.
None of the products currently marketed by the Company, other than
veterinary drugs, have required a full NDA or the equivalent application.
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Under the Federal Drug Price Competition and Patent Restoration Act of 1984
(the "Drug Price Act"), the effective date of approval of most generic drugs
will ordinarily be delayed until the expiration of patents covering the product
or until a court has determined the patent to be invalid or not infringed. If a
manufacturer files an ANDA certifying that it believes a patent is invalid or
not infringed and successfully defends itself in patent litigation, it may
receive exclusive marketing rights for the generic version of the product for a
period of 180 days. These provisions do not apply to antibiotics.
The Drug Price Act also created new statutory protections for brand name
drugs. Under certain circumstances the term of a product or use patent can be
extended for up to five years or provide an exclusivity period of two to ten
years.
The Generic Drug Enforcement Act of 1992 was enacted in May 1992 as a
result of findings of corruption in the FDA's process of approving generic
drugs. The law establishes procedures to bar individuals who have been convicted
of certain crimes from working for companies that manufacture or distribute such
products and delays the review and approval of ANDAs submitted by or with the
assistance of debarred individuals. The law also provides, under certain
circumstances, for debarment of corporations and "high managerial agents" as
defined in the Act, withdrawal of approvals of ANDAs and civil penalties for
both individuals and corporations. The Company does not expect the law to have a
material impact on the review or approval of the Company's ANDAs.
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Among the requirements for new drug approvals is the requirement that the
prospective manufacturer's methods conform to the FDA's current good
manufacturing practices standards ("cGMP Regulations"). The cGMP Regulations
must be followed at all times during which the approved drug is manufactured. In
seeking to comply with the standards set forth in these regulations, the Company
must continue to expend time, money and effort in the areas of production and
quality control in order to achieve compliance. Failure to so comply risks
possible FDA action such as the suspension of manufacturing, withdrawal of ANDAs
or the seizure of drug products. See Legal Proceedings.
In November 1990, Congress passed, as part of the Omnibus Budget
Reconciliation Act of 1990, The Medicaid Prudent Purchasing Act (the "Medicaid
Rebate Act"). The Medicaid Rebate Act, with respect to generic pharmaceuticals,
requires all manufacturers whose products are covered by the Medicaid Program,
to rebate to each state a percentage (currently 11% in the case of products sold
by the Company) of the manufacturer's average net sales price, for all products
dispensed by pharmacists pursuant to Medicaid. Additional rules, which apply
with respect to non-generic pharmaceuticals, are not currently applicable to the
Company. In addition, several states, including New Jersey, New York,
California, Pennsylvania, Washington and Connecticut, have enacted supplemental
rebates and/or similar legislation with respect to programs other than Medicaid.
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The Company also is governed by federal, state and local laws of general
applicability, such as laws regulating working conditions. In addition, the
Company is subject, as are manufacturers generally, to various federal, state
and local environmental protection laws and regulations, including those
governing the discharge of materials into the environment. Compliance with such
environmental provisions is not expected to have a material effect on the
earnings, cash requirements or competitive position of the Company in the
foreseeable future. See "Legal Proceedings" with respect to certain pending
environmental matters.
ITEM 2. PROPERTIES
The executive offices and production, laboratory and warehouse facilities
of the Company occupy an aggregate of approximately 347,000 square feet in seven
facilities. The Company's principal executive offices, its 49,000 square foot
warehouse and distribution center are located in Fair Lawn, New Jersey.
Penicillin and semi-synthetic penicillin dosage form production operations
and a quality control laboratory are located in the Company's plant of
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approximately 37,000 square feet in Elmwood Park, New Jersey, approximately 4
miles from the executive offices. The Company's plant in Paterson, New Jersey,
one mile from the Elmwood Park facility, is approximately 48,000 square feet and
is used for the manufacture of dosage form products other than penicillins and
cephalosporins. Dosage form cephalosporin drug products are produced at the
Company's 56,000 square foot facility located in Fairfield, New Jersey,
approximately 15 miles from the executive offices. It also contains a quality
control laboratory.
The Company manufactures the active ingredients used in its semi-synthetic
penicillin drugs at its plant of approximately 15,000 square feet in Waldwick,
New Jersey, approximately 5 miles from the executive offices. The Waldwick plant
also houses the Company's laboratories for microbiology, quality control for
bulk form penicillin manufacturing and research and development for bulk form
antibiotics. Raw materials and finished inventory for the Waldwick plant are
stored in a warehouse of approximately 17,000 square feet which is adjacent to
the Waldwick plant.
The Company's facility in Mexico, Missouri manufactures pharmaceutical
intermediates and bulk antibiotics. The plant is approximately 125,000 square
feet and contains manufacturing, laboratory, office and warehouse facilities. In
addition, the complex includes a solvent recovery facility and a waste disposal
plant.
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All of the above property is owned by the Company. Management believes that
the Company's facilities are suitable for its requirements. These facilities
have additional capacity for expansion of production of existing and new
products. The Company owns substantially all of its manufacturing equipment and
believes that such equipment is well maintained and suitable for its
requirements.
ITEM 3. LEGAL PROCEEDINGS
In February 1986, Hoffmann-LaRoche, Inc. (Roche) obtained a declaratory
judgment that the Company was not entitled to withhold royalties under a license
for the right to manufacture and sell a patented drug, which patent expired in
June 1988. In February 1994 this matter was settled by the Company and the case
was dismissed. The Company paid Hoffmann-LaRoche, Inc. $250,000.
In September 1980, the Company entered into an administrative consent order
with the New Jersey Department of Environmental Protection (DEP) pursuant to
which the Company agreed to among other things, monitor and take certain action
to remediate contamination of the groundwater beneath the Company's Waldwick,
New Jersey plant by use of microbiological decontamination wells which were
installed in fiscal 1981. This order has been modified to include action to be
taken to monitor and, if necessary remediate, possible contamination of the
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groundwater below the property adjacent to the Waldwick facility. The Company
does not expect the continued cost of this remediation to be material.
On June 8, 1989, the United States Environmental Protection Agency (EPA)
notified the Company that it was a potentially responsible party (PRP) along
with other generators of industrial waste, the site owners and operators, and
transporters of wastes to the site, for the alleged release of hazardous
substances from a waste management site in Elkton, Maryland, known as the
"Spectron Site." The Company has participated with other PRPs in investigating
and remediating the site under a Consent Order entered into with EPA in August
1989. As of March 31, 1995, the Company has paid to the PRP group approximately
$224,000, all of which was paid in previous years, for its share of clean-up
costs, based on volumetric allocation of waste shipments to the Spectron Site.
On March 19, 1990, EPA sent another letter to the Company notifying it of
potential liability for planned additional remedial work at the Spectron Site.
This additional remedial work arises from alleged releases of hazardous
substances at the Spectron Site during the period of 1968 to 1982, known as the
Galaxy Period. The Company has decided to join with other PRPs in the
negotiation of a Consent Order with EPA for the additional remedial work related
to the Galaxy Period.
The Company is also one of more than 400 defendants in an action entitled
"Transtech Industries, Inc. et al v. A & Z Septic Clean, et al" pending in the
federal district court for New Jersey, regarding hazardous waste allegedly
shipped to the Kin-Buc Landfill in New Jersey; has been notified by the North
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Carolina Department of Environment, Health and Natural Resources that it
believes that the Company was one of approximately 1,500 entities that caused
hazardous material to be shipped to a waste treatment facility previously
operated by the Seaboard Chemical Corporation at Jamestown, North Carolina; and
is one of more than 900 entities notified that it has shipped hazardous waste to
a site in Caldwell County, North Carolina.
Between November 23 and November 29, 1993, five separate actions were
commenced in the United States District Court for the District of New Jersey
against the Company and Harold Snyder, Beatrice Snyder, Beryl L. Snyder, Brian
S. Snyder and Jay T. Snyder, all of whom are officers and directors of the
Company, and Steven J. Sklar, who is an officer of the Company, purporting to
allege securities fraud and common law claims on behalf of purchasers of the
Company's stock. Thereafter, pursuant to an Order of the Court, the five actions
were consolidated under the caption In re Biocraft Laboratories, Inc. Securities
Litigation, and a Consolidated and Amended Class Action Complaint (the
"Complaint") was served on March 8, 1994. The Complaint purports to allege
securities fraud claims under Sections 10 (b) and 20 of the Securities Exchange
Act of 1934, 15 U.S.C. ss.ss. 78(b) and 78t, and SEC Rule 10b-5, 17 C.F.R.
ss.240.10b-5, as well as claims for common law fraud and negligent
misrepresentation, based on alleged misrepresentations and omissions in the
Company's publicly filed statements and press releases regarding the Company's
compliance with the FDA concerning the Company's manufacture of its products.
Plaintiffs seek compensatory and punitive damages in an unspecified amount, as
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well as attorneys' fees and other costs of the lawsuit. In May 1994, the Company
moved to dismiss the Complaint on the grounds that, among other things, it fails
to state a claim upon which relief can be granted. In March 1995 the Court
denied defendants' motion to dismiss.
The Company has not received any new drug approvals since June 1993. As
previously reported, in July 1994 the Company entered into an agreement with FDA
to resolve outstanding regulatory issues with respect to its dosage form
facilities. The agreement requires the Company, among other things, to obtain
and submit to FDA expert certifications of procedures used in the manufacturing
and testing of products. The Company believes it has provided FDA with the
submissions, including expert certifications required under the agreement
through June 19, 1995. The Company understands that FDA has not yet completed
its review of all of these submissions. Although the Company cannot predict
whether FDA will ultimately find these submissions acceptable, the Company has
been working closely with FDA to resolve any outstanding issues. In May 1995 FDA
completed an inspection of the Company's dosage form facilities. A satisfactory
inspection is necessary to obtain new product approvals. Based on the
inspection, expert certifications and actions by the Company during the past
year, the Company believes that it has all of the systems and procedures in
place to obtain new drug approvals. Although FDA employees communicated their
observations that substantial improvements in systems and procedures were
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achieved, no assurance can be given at this time that FDA will find the results
of the inspection satisfactory.
In May 1995 an action was brought against the Company, two other generic
manufacturers and a bulk pharmaceutical supplier by Eli Lilly and Company
("Lilly") in the U.S. District Court for the Southern District of Indiana for
infringement of two patents related to Cefaclor, an antibiotic. The case relates
to two process patents which expire on July 3, 1996. Lilly has filed for a
preliminary injunction against all four defendants. Although the Company has
filed an application for approval of this product with FDA, approval has not
yet been received.
See also Note 11 of "Notes to Consolidated Financial Statements".
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
Not applicable.
EXECUTIVE OFFICERS OF THE COMPANY
Name Position Age
---- -------- ---
Harold Snyder Chairman, Chief Executive Officer 73
and President
Beatrice Snyder Senior Vice President and 71
Secretary
Harmon Aronson Vice President - 52
Quality Management
Melvin Kaufman Vice President - Operations 56
Gerald Moskowitz Vice President - Sales 65
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Steven J. Sklar Vice President, Treasurer and 38
Chief Financial Officer
Brian S. Snyder Vice President and Controller 36
Jay T. Snyder Vice President - 36
Research and Product Development
Beryl L. Snyder Vice President, Assistant 38
Secretary and General Counsel
Joy Bloodsaw Associate Vice President - 50
Purchasing
Harvey Richards Associate Vice President - 62
Regulatory Affairs
McKee Moore Associate Vice President - Sales 42
George Svokos Associate Vice President - 37
Missouri Operations
HAROLD SNYDER has been President of the Company since 1964 and in 1985 was
elected Chairman and Chief Executive Officer. Prior to founding the Company in
1964, Mr. Snyder held various managerial and technical positions in the
pharmaceutical industry.
BEATRICE SNYDER has been Secretary of the Company since 1964, and was
elected to the office of Senior Vice President in 1985.
HARMON ARONSON has been Manager of the Company's non-penicillin production
since 1979. He was Vice President - Non-Penicillin Dosage Operations since 1985.
In 1994 he was elected the Company's Vice President - Quality Management.
MELVIN KAUFMAN was Chief Operations Manager of the Company from July 1983
to January 1985 and was subsequently elected the Company's Vice President -
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Antibiotic Operations. In 1994 he was elected Vice President - Operations. From
1980 to July 1983 he served as Director of Bulk Manufacturing of Wyeth
Laboratories, Inc., a manufacturer of pharmaceuticals and a subsidiary of
American Home Products Corp.
GERALD MOSKOWITZ has been Sales Manager of the Company since 1965 and in
1985 was elected the Company's Vice President - Sales.
STEVEN J. SKLAR has been Chief Financial Officer since July, 1990. He was
elected the Company's Vice President and Treasurer in December 1989. Prior to
joining the Company he was a partner at Botein Hays & Sklar, and through that
firm, rendered professional services to the Company from 1984 through 1989. From
1985 to 1987 he was a full-time member of the faculty of New York University
School of Law and he continues to teach there periodically.
BRIAN S. SNYDER was elected the Company's Vice President and Controller in
May 1990. He has been the Company's Controller since 1983. From 1977 to 1983 he
held various sales and production positions with the Company.
JAY T. SNYDER was elected the Company's Vice President - Research and
Product Development in May 1990. He has been Director of Product Development
since 1988. From 1982 to 1988 he was plant manager of the Company's penicillin
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dosage form facility and from 1977 to 1982 held various production positions
with the Company.
BERYL L. SNYDER was elected the Company's Assistant Secretary in August,
1993. She has been Vice President since May 1990 and General Counsel to the
Company since 1984.
JOY BLOODSAW has been with the Company since 1982 and has been Director of
Purchasing since 1985. On August 19, 1992 she was elected the Company's
Associate Vice President - Purchasing.
HARVEY RICHARDS has been responsible for Regulatory Affairs at the Company
since 1968 and on April 15, 1993 was elected the Company's Associate Vice
President - Regulatory Affairs.
MCKEE MOORE was elected Associate Vice President - Sales in April, 1994. He
had been employed with the Company as Chief Sales Representative since 1991.
Prior to this time, he was employed by Geneva Generics.
GEORGE SVOKOS was elected the Company's Associate Vice President -
Missouri Operations in January 1995. He has been with the Company since 1980. He
was Assistant Plant Manager at the Waldwick, New Jersey bulk production plant.
He was Project Manager and subsequently Plant Manager at the Mexico, Missouri
bulk production facility.
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Harold Snyder and Beatrice Snyder are husband and wife. Beryl L. Snyder,
Brian S. Snyder and Jay T. Snyder are the children of Harold and Beatrice
Snyder.
Officers of the Company are elected by the directors for a term of one year
and hold office until their respective successors are elected and qualified.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock is traded on the New York Stock Exchange under
the symbol "BCL". Set forth, for the periods indicated, are the high and low
sale prices for the Common Stock on the New York Stock Exchange.
1994 FISCAL YEAR HIGH LOW
First Quarter............................... $26.50 $15.75
Second Quarter.............................. 35.00 26.13
Third Quarter............................... 37.63 18.88
Fourth Quarter.............................. 21.75 14.75
1995 FISCAL YEAR
First Quarter............................... $18.13 $13.63
Second Quarter.............................. 17.13 11.75
Third Quarter............................... 19.25 14.88
Fourth Quarter.............................. 19.25 15.25
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There were 889 holders of record of the Company's Common Stock on June 22,
1995.
On August 8, 1994 the Company declared its sixth consecutive annual cash
dividend of $.10 per share on its Common Stock, which was paid on November 22,
1994. The Company's fifth annual cash dividend of $.10 per share on its Common
Stock was paid on November 18, 1993. The payment of dividends is subject to the
discretion of the Board of Directors and will be dependent upon many factors,
including the Company's earnings, its capital needs and its general financial
condition.
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected financial data of the Company for
the five years ended March 31, 1995, 1994, 1993, 1992 and 1991. The selected
financial data for, and as of the end of, each of the years in the five year
period ended March 31, 1995 are derived from the audited financial statements of
the Company. Selected financial data should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the audited financial statements as of March 31, 1995 and 1994
and for each of the years in the three year period ended March 31, 1995 and
related notes thereto included elsewhere in this Form 10-K.
25
<PAGE>
<TABLE>
<CAPTION>
Years ended March 31,
-------------------------------------------------------------
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA
(in thousands, except per share data)
Operating revenue ......................... $140,896 $143,356 $126,148 $92,268 $83,505
Total revenue ............................. 141,373 143,886 126,638 92,774 85,084
Research and development .................. 11,110 9,923 8,662 8,755 6,056
Net earnings (loss) ....................... (2,395) 6,105* 5,856 (6,740) 3,708
Net earnings (loss) per share ............. (0.17) 0.43* 0.42 (0.48) 0.27
Cash dividends per share .................. 0.10 0.10 0.10 0.10 0.10
Weighted average number of
shares outstanding ...................... 14,147 14,160 14,086 14,018 13,983
*Includes $30 (less than $.01 per share) cumulative effect of change in method of accounting for income taxes.
BALANCE SHEET DATA
(in thousands, at year end)
Working capital $60,177 $63,256 $60,642 $60,032 $62,919
Total assets 172,945 168,073 170,147 164,252 157,378
Long-term obligations
less current portion 50,800 48,582 52,255 56,405 45,109
Stockholders' equity 93,981 97,292 91,867 86,320 93,286
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The following table sets forth the Company's unaudited quarterly operating
results for the fiscal years ended March 31, 1994 and 1995.
<TABLE>
<CAPTION>
(In thousands, except per share data)
Three Months Ended
--------------------------------------------------------------------------------
June 30, Sept.30, Dec.31, Mar.31, June 30, Sept.30, Dec.31, Mar.31,
1993 1993 1993 1994 1994 1994 1994 1995
------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales ............. $35,823 $36,235 $36,605 $34,486 $31,158 $39,055 $32,678 $37,903
Gross profit .......... 8,082 9,091 8,656 7,680 5,473 7,170 4,891 7,551
Net earnings (loss) ... 1,943* 2,017 1,438 707 (894) 71 (1,710) 138
Earnings (loss)
per share ........... 0.14* 0.14 0.10 0.05 (0.06) .01 (0.12) .01
</TABLE>
*Includes $30 (less than $.01 per share) cumulative effect of change in method
of accounting for income taxes. Net earnings for the quarter before the
cumulative effect of this accounting change were $1,913 ($.14 per share).
26
<PAGE>
The following table sets forth as a percentage of net sales certain items
appearing in the Company's consolidated statements of operations as well as the
percentage change in the dollar amount of these items as compared to the prior
period.
Period to Period
Percentage of Sales Increase (Decrease)
------------------- -------------------
Years Ended March 31, 1994 1995
-------------------------- vs. vs.
1993 1994 1995 1993 1994
---- ---- ---- ---- ----
Net sales .................. 100.0% 100.0% 100.0% 26.5% (1.6)%
Other operating income ..... 11.5 0.1 0.1 (98.4) (50.7)
Interest, dividend and
other income ............. 0.4 0.4 0.3 8.2 (10.0)
----- ----- -----
Total revenue .............. 111.9 100.5 100.4 13.6 (1.7)
----- ----- -----
Cost of sales .............. 78.8 76.6 82.2 23.0 5.5
Research and development ... 7.7 6.9 7.9 14.6 2.0
Selling, general and
administrative ........... 13.0 7.9 0.3 (22.7) 27.8
Interest expense ........... 4.4 3.2 3.0 (9.0) (8.5)
----- ----- -----
Total costs and expenses ... 103.9 94.6 103.4 15.3 7.4
----- ----- -----
Earnings (loss) before
income taxes (benefit)
and cumulative effect of
accounting change ........ 8.0 5.9 (3.0) (7.6) NM
Income taxes (benefit) ..... 2.8 1.6 (1.2) (28.0) NM
----- ----- -----
Net earnings (loss) before
cumulative effect of
accounting change ........ 5.2 4.3 (1.8) 3.7 NM
Cumulative effect of
change in method of
accounting for income
taxes .................... -- 0.0 -- NM NM
----- ----- -----
Net earnings (loss) ....... 5.2 4.3 (1.8) 4.3 NM
===== ===== =====
27
<PAGE>
NET SALES
Net sales declined by $2.4 million (1.6%) in the fiscal year ended March
31, 1995, after rising by $30 million (26%) in fiscal 1994. The fiscal 1995
decrease was attributable to reduced sales volume of Ketoprofen, introduced by
the Company in December 1992, as well as a decrease in net selling prices of
various products, including Ketoprofen. These decreases were partially offset by
increased sales volume on several products, principally Cephalexin. The increase
in fiscal 1994 resulted primarily from increased sales volume of Amoxicillin and
Cephalexin products including Amoxicillin chewable tablets introduced by the
Company in fiscal 1993. Increases of that magnitude are unlikely without further
product approvals from the Food and Drug Administration (FDA). New drug
approvals have been delayed pending resolution of issues under discussion with
the FDA (see Note 11 of notes to consolidated financial statements).
28
<PAGE>
GROSS PROFIT
Gross profit margins were 18% in fiscal 1995, 23% in fiscal 1994 and 21% in
fiscal 1993. The increase in fiscal 1994 resulted primarily from higher gross
profit margins associated with the Company's newly introduced products. Although
the Company initially obtains higher sales prices for new products, intensified
competition typically forces the Company to lower its sales price and reduce its
profit margin. As mentioned above, in fiscal 1995 sales of Ketoprofen, a
relatively new product for the Company on which the Company continues to
maintain a high profit margin, fell significantly resulting in a lower overall
gross profit margin.
As announced in December, 1994, the Company signed a three-year supply
agreement with Eli Lilly and Company. The agreement became effective January 1,
1995 and calls for the Company to supply Lilly with a product manufactured at
its Missouri facility. The Company expects this arrangement to double its
production of that product. The contract also calls for Lilly to supply the
Company with substantial quantities of a raw material at a fixed exchange ratio.
As a result of this contract, the Company anticipates improved gross profit
margins in fiscal 1996.
RESEARCH AND DEVELOPMENT EXPENSES
Research and development expenditures increased by approximately $1.2
million and $1.3 million in fiscal 1995 and 1994, respectively, compared to the
29
<PAGE>
corresponding prior periods. The increases resulted primarily from increased
activity and costs in connection with the development and approval process for
new generic drugs, as well as increased costs associated with FDA regulatory
requirements affecting new generic drugs.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses increased by approximately
$3.1 million in fiscal 1995 after decreasing by approximately $3.3 million in
fiscal 1994 compared to the corresponding prior period. The increase in fiscal
1995 was primarily attributable to costs incurred in connection with the
resolution of regulatory matters with the FDA referred to above, as well as
costs incurred in connection with exploring strategic options to enhance the
value of the Company to its shareholders, including discussions regarding a
possible sale of the Company. The decrease in fiscal 1994 was primarily due to
decreased costs in connection with the manufacture of Cefixime (see "Other
Operating Income").
OTHER OPERATING INCOME
Other operating income decreased by approximately $100,000 and $12.8
million in fiscal 1995 and 1994, respectively, compared to the corresponding
prior periods. The decrease in fiscal 1994 was due to the expiration of the
Company's agreement with American Cyanamid Company (Cyanamid) under an agreement
30
<PAGE>
which provided for the Company's exclusive manufacturing of Cefixime for
Cyanamid at the Company's Fairfield facility. The agreement expired on January
31, 1993.
NON-OPERATING INCOME AND INTEREST EXPENSE
Interest, dividend and other non-operating income was approximately
$500,000 in each of fiscal 1995, 1994 and 1993.
Interest expense decreased by approximately $400,000 and $500,000 in fiscal
1995 and 1994, respectively, compared to the corresponding prior periods. The
decrease in fiscal 1995 resulted primarily from the remarketing, in September
1994, of the Company's $30 million bond. The decrease in fiscal 1994 was due to
reduced rates, during most of the fiscal year, on the Company's credit
facilities, as well as reduced long-term debt.
PROVISION FOR INCOME TAXES
The Company's effective tax rate/benefit was 42% in fiscal 1995. The rate
fell to 28% in fiscal 1994, from 36% in fiscal 1993. In fiscal 1995, the Company
incurred a loss for income tax as well as financial accounting purposes and the
Company's tax exempt income and tax credits therefore increased rather than
decreased its income tax rate/benefit. The lower tax rate in fiscal 1994
resulted primarily from increased research and development credits as a result
of the retroactive reinstatement by Congress of this tax credit. In addition,
31
<PAGE>
adjustments relating to the conclusion of tax examinations for the fiscal years
ended in 1987 through 1990 contributed to the lower rate. These items more than
offset the increase in deferred tax liability as a result of the increase in the
statutory tax rate to 35%. In April 1993, the Company adopted FASB Statement No.
109, "Accounting for Income Taxes." The cumulative effect of the change in
accounting method increased net earnings by $30,000 or less than $.01 per share
for the 1994 fiscal year.
NET EARNINGS (LOSS)
For the various reasons noted above, the Company incurred a net loss in
fiscal 1995. The ratios of net earnings to net sales and net earnings to
operating revenue, decreased from 5.2% and 4.6%, respectively, in fiscal 1993 to
4.3% (for both ratios) in fiscal 1994.
LIQUIDITY AND CAPITAL RESOURCES
Net cash from operating activities was approximately $6.9 million in fiscal
1995. Funds were primarily used to finance $10 million of capital expenditures.
In addition, the Company paid a $1.4 million dividend. As a result, cash and
cash equivalents decreased by approximately $3.3 million during fiscal 1995. The
32
<PAGE>
Company maintained $60 million of working capital and a current ratio of 3.7:1
as of March 31, 1995, compared to $63 million of working capital and a current
ratio of 4.7:1 as of March 31, 1994. The Company's inventory fell by $1.7
million, and continues to include approximately $5 million of costs, principally
raw materials, for which the Company is awaiting FDA approval. Such approvals
have been delayed pending resolution of issues under discussion with FDA (see
Note 11 of notes to consolidated financial statements). In the opinion of
management, such inventory's fair market value equals or exceeds its cost.
The Company had total long-term obligations at March 31, 1995 of $56
million compared to $54 million at March 31, 1994, and its long-term obligations
as a percentage of total capitalization increased to 37% at March 31, 1995
compared to 36% at March 31, 1994.
Most of the Company's long-term obligations are comprised of its $30
million bond ($27.8 million outstanding as of March 31, 1995) issued in
September 1989 in connection with the construction of its facility in Mexico,
Missouri. The bonds, due September 1, 2004, were issued by the Missouri Economic
Development, Export and Infrastructure Board and are secured by a Letter of
Credit issued by the Bank of Tokyo, Ltd., New York Agency. The Letter of Credit
33
<PAGE>
agreement provides for a mortgage on the Mexico, Missouri facility. Principal
amortization installments are in varying amounts, with an initial payment of
$2.2 million made in fiscal 1995. The Company remarketed the bonds in September
1994 resulting in reduced interest expense in the second half of fiscal 1995.
In addition to the bonds, the Company has a $10 million revolving credit
line ($9 million outstanding as of March 31, 1995) with NatWest Bank N.A.
(NatWest), as well as a $2 million unsecured term loan and a $2 million
mortgage. The Company also has a $10 million revolving credit line with Commerce
Bank National Association (Commerce Bank) and had $7.75 million outstanding as
of March 31, 1995.
The Company's other outstanding long-term obligations include (i) $363,000
in connection with 15-year New Jersey Economic Development Authority Revenue
bonds (NJEDA bonds) issued in December 1983, used to finance the Company's
Paterson, New Jersey plant and which is secured by a mortgage on that plant and
the Company's Elmwood Park plant; (ii) a $210,000 term loan agreement with the
Missouri Department of Economic Development (MODED) and the City of Mexico,
payable in 40 equal quarterly installments of $10,000 beginning September 1,
1990; and (iii) $7.5 million ($6.6 million present value) due pursuant to a 1990
litigation settlement agreement. (See Note 5 of notes to consolidated financial
statements.)
34
<PAGE>
The credit facilities with NatWest and Commerce Bank, as well as the Letter
of Credit Agreement with Bank of Tokyo and the NJEDA bonds require, among other
matters, that the Company maintain certain financial covenants. The Company is
in compliance with all required financial covenants.
The Company currently has no other significant long-term commitments and
anticipates that it can satisfy its fiscal 1996 operating requirements and
capital expenditure needs from its existing credit facilities as well as from
internally generated funds.
OTHER
Effective April 1, 1994, the Company adopted FASB Statement No. 115,
"Accounting for Certain Investments in Debt and Equity Securities." The change
in accounting method increased stockholders' equity as of April 1, 1994 by
approximately $87,000 (net of $53,000 of deferred income taxes) to reflect the
net unrealized holding gains on securities classified as available-for-sale
previously carried at the lower of amortized cost or market. In accordance with
the Statement, prior period financial statements were not restated. During
fiscal 1995, securities accounting for substantially all of the unrealized gain
as of April 1, 1994 were sold and the gain was recognized.
35
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Financial Statements of the Company as of March 31, 1995 and 1994, and
for each of the three years in the period ended March 31, 1995, related notes
thereto and the financial statement schedule are included herein at pages F-1 to
F-18. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations" for selected quarterly financial data.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
Not Applicable
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
ITEM 11. EXECUTIVE COMPENSATION
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
36
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Items 10, 11, 12 and 13 have been omitted because on or before July 29,
1995, Registrant will file with the Commission pursuant to Regulation 14A a
definitive proxy statement. The information called for by these items is set
forth in that proxy statement and is incorporated herein by reference.
The information called for by Item 10 with respect to executive officers of
the Registrant appears following Item 4 under Part I of this Report.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1 and 2 Financial statements and financial statement schedules -
see index on page F-1.
3. Exhibits - see index on page I-1, I-2 and I-3.
(b) Not applicable
37
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
BIOCRAFT LABORATORIES, INC.
Date: June 27, 1995 /s/Harold Snyder
--------------------------
(Harold Snyder)
Chairman, President and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ Harold Snyder Director, Chairman of June 27, 1995
- ----------------------- the Board, President
Harold Snyder and Chief Executive
Officer (principal
executive officer)
/s/ Beatrice Snyder Senior Vice President, June 27, 1995
- ----------------------- Secretary and Director
Beatrice Snyder
/s/ Brian S. Snyder Vice President, June 27, 1995
- ----------------------- Controller and Director
Brian S. Snyder
/s/ Jay T. Snyder Vice President - Research June 27, 1995
- ----------------------- & Product Development
Jay T. Snyder and Director
/s/ Beryl L. Snyder Vice President, June 27, 1995
- ----------------------- General Counsel,
Beryl L. Snyder Assistant Secretary
and Director
/s/ Steven J. Sklar Vice President,
- ----------------------- Treasurer and
Steven J. Sklar Chief Financial Officer June 27, 1995
38
<PAGE>
/s/ Gerard Klein Director June 27, 1995
- -----------------------
Gerard Klein
/s/ James J. Rahal,Jr. Director June 27, 1995
- -----------------------
James J.Rahal,Jr.M.D.
/s/ Madelon DeVoe Talley Director June 27, 1995
- -----------------------
Madelon DeVoe Talley
/s/ G. Harold Welch Director June 22, 1995
- -----------------------
G. Harold Welch, Jr.
39
<PAGE>
BIOCRAFT LABORATORIES, INC.
Index to Financial Statements and Schedules
Page
Number
------
Auditors' Report ....................................................... F-2
Financial Statements:
Consolidated Balance Sheets - March 31, 1995 and 1994 ............ F-3
Consolidated Statements of Operations - Years ended
March 31, 1995, 1994 and 1993 .................................. F-4
Consolidated Statements of Cash Flows -
Years ended March 31, 1995, 1994 and 1993 ...................... F-5
Consolidated Statements of Stockholders' Equity -
Years ended March 31, 1995, 1994 and 1993 ...................... F-6
Notes to Financial Statements ..................................... F-7
Financial Statement Schedules:
II Valuation and Qualifying Accounts ............................ F-18
All other schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission are not
required under the related instructions or are inapplicable, and therefore have
been omitted.
F-1
<PAGE>
BIOCRAFT LABORATORIES, INC.
INDEPENDENT AUDITORS' REPORT
Ernst & Young LLP
The Board of Directors and Stockholders
Biocraft Laboratories, Inc.
We have audited the accompanying consolidated balance sheets of Biocraft
Laboratories, Inc. as of March 31, 1995 and 1994, and the related consolidated
statements of operations, stockholders' equity, and cash flows for each of the
three years in the period ended March 31, 1995. Our audit also included the
financial statement schedule listed in the Index at Item 14(a). These financial
statements and schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Biocraft
Laboratories, Inc. at March 31, 1995 and 1994, and the consolidated results of
their operations and their cash flows for each of the three years in the period
ended March 31, 1995 in conformity with generally accepted accounting
principles. Also, in our opinion, the related financial statement schedule, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
As discussed in Note 1 to the financial statements, effective April 1,
1993, the Company changed its method of accounting for income taxes
Ernst & Young LLP
Hackensack, New Jersey
June 19, 1995
F-2
<PAGE>
BIOCRAFT LABORATORIES, INC.
CONSOLIDATED BALANCE SHEETS
March 31, 1995 and 1994
<TABLE>
<CAPTION>
1995 1994
---- ----
(In thousands)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents ................................................ $ 2,744 $ 6,020
Marketable securities .................................................... 635 733
Receivables
Trade ............................................................... 26,044 21,094
Income taxes ........................................................ 650 214
Other ............................................................... 171 159
Inventories..................................................................... 48,731 50,407
Other current assets ........................................................... 3,353 1,557
-------- --------
Total current assets ................................................ 82,328 80,184
-------- --------
Property and equipment, net .................................................... 89,780 87,028
Other assets and deferred charges .............................................. 837 861
-------- --------
$172,945 $168,073
======== ========
Liabilities and Stockholders' Equity
Current liabilities:
Current installments of long-term obligations ............................ $ 4,967 $ 5,566
Accounts payable-trade ................................................... 12,875 8,369
Accrued expenses ......................................................... 4,309 2,993
-------- --------
Total current liabilities ........................................... 22,151 16,928
-------- --------
Long-term obligations, excluding current installments .......................... 50,800 48,582
Deferred income taxes .......................................................... 6,013 5,271
Stockholders' equity:
Preferred stock, $1.00 par value. Authorized 2,000,000
shares; none issued ................................................. -- --
Common stock, $.01 par value. Authorized 30,000,000
shares; issued 14,223,547 in 1995 and 14,189,365 in 1994 ............. 142 142
Additional paid-in capital ............................................... 43,456 42,242
Retained earnings ........................................................ 52,102 55,910
Unrealized gains on securities ........................................... 7
Less deductions for treasury stock and employee stock plans ............. (1,726) (1,002)
-------- --------
Net stockholders' equity ............................................ 93,981 97,292
-------- --------
Commitments and contingencies
$172,945 $168,073
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
BIOCRAFT LABORATORIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
Years ended March 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
1995 1994 1993
---------- ---------- ----------
(In thousands, except per share data)
<S> <C> <C> <C>
Revenue:
Net sales ............................................................... $ 140,794 $ 143,149 $ 113,176
Other operating income .................................................. 102 207 12,972
Interest, dividend and other income ..................................... 477 530 490
---------- ---------- ----------
Total revenue ...................................................... 141,373 143,886 126,638
---------- ---------- ----------
Costs and expenses:
Cost of sales ........................................................... 115,709 109,640 89,171
Research and development ................................................ 11,110 9,923 8,662
Selling, general and administrative ..................................... 14,524 11,362 14,702
Interest expense ........................................................ 4,160 4,546 4,997
---------- ---------- ----------
Total costs and expenses ........................................... 145,503 135,471 117,532
---------- ---------- ----------
Earnings (loss) before income taxes and cumulative
effect of change in method of accounting for
income taxes ............................................................ (4,130) 8,415 9,106
Income taxes (benefit) ........................................................ (1,735) 2,340 3,250
---------- ---------- ----------
Earnings (loss) before cumulative effect of change in
method of accounting for income taxes ................................... (2,395) 6,075 5,856
Cumulative effect as of April 1, 1993 of change in
method of accounting for income taxes ................................... -- 30 --
---------- ---------- ----------
Net earnings (loss) ........................................................... ($ 2,395) $ 6,105 $ 5,856
========== ========== ==========
Earnings (loss) per share:
Earnings (loss) before cumulative effect of change in
method of accounting for income taxes ................................... ($ 0.17) $ 0.43 $ 0.42
Cumulative effect of accounting change ........................................ -- -- --
---------- ---------- ----------
Net earnings (loss) ........................................................... ($ 0.17) $ 0.43 $ 0.42
========== ========== ==========
Weighted average number of shares outstanding ................................. 14,147 14,160 14,086
========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
BIOCRAFT LABORATORIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended March 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
1995 1994 1993
--------- --------- ---------
(in thousands)
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings (loss) ........................................................... ($ 2,395) $ 6,105 $ 5,856
Adjustments to reconcile net earnings to net cash provided by (used in)
operating activities:
Depreciation and amortization ............................................ 7,322 6,647 6,030
Imputed and non cash interest expense .................................... 746 832 850
Non cash compensation .................................................... 421 403 137
Equity in net loss (earnings) of affiliates .............................. 49 (39) 23
Deferred income taxes .................................................... (1,298) (399) 406
Cumulative effect of accounting change ................................... -- (30) --
Gain on sale of marketable securities .................................... (131) -- --
(Gain) loss on sale of fixed assets ...................................... (8) 1 19
Changes in assets and liabilities:
Trade receivables ................................................... (4,950) (300) (9,084)
Income taxes receivable/payable ..................................... (436) (1,779) 5,697
Inventories ......................................................... 1,676 (7,920) 3,955
Accounts payable-trade .............................................. 4,506 (3,075) 542
Accrued expenses .................................................... 1,316 (594) (249)
Other assets ........................................................ 115 104 (412)
--------- --------- ---------
Net cash provided by (used in) operating activities .................. 6,933 (44) 13,770
--------- --------- ---------
Cash flows from investing activities:
Capital expenditures ........................................................... (10,041) (6,365) (7,099)
Proceeds from sale of fixed assets ............................................. 8 6 4
Additions to marketable securities ............................................. -- -- (366)
Dispositions of marketable securities .......................................... 234 -- --
--------- --------- ---------
Net cash used in investing activities ..................................... (9,799) (6,359) (7,461)
--------- --------- ---------
Cash flows from financing activities:
Proceeds from long-term obligations ............................................ 6,500 8,750 8,600
Payments of long-term obligations .............................................. (5,566) (12,529) (11,246)
Dividends paid ($.10 per share) ................................................ (1,413) (1,412) (1,405)
Issuance of common stock ....................................................... 54 126 869
Transactions related to stock plans ............................................ 15 202 27
--------- --------- ---------
Net cash used in financing activities ..................................... (410) (4,863) (3,155)
--------- --------- ---------
Net (decrease) increase in cash and cash equivalents ...................... (3,276) (11,266) 3,154
Cash and cash equivalents at beginning of year ....................................... 6,020 17,286 14,132
--------- --------- ---------
Cash and cash equivalents at end of year ............................................. $ 2,744 $ 6,020 $ 17,286
========= ========= =========
Supplemental cash flow information:
Noncash financial and investing activities:
Increase in marketable securities ............................................ -- -- $ (72)
Decrease in trade receivables ................................................ -- -- 72
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
BIOCRAFT LABORATORIES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years ended March 31, 1995, 1994 and 1993
In thousands, except per share data
<TABLE>
<CAPTION>
Stock Purchase
Plans
------------------ Total
Common Stock Treasury Stock Additional Unrealized Deferred Notes stock-
-------------- -------------- paid-in Retained gains on compen- receiv- holders'
Shares Amount Shares Amount capital earnings securities sation able equity
------ ------ ------ ------ ------- -------- ---------- ------ ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at April 1, 1992 $14,104 $ 141 (57) $ (818) $ 40,289 $ 46,766 $ (52) $ (6) $86,320
Transactions related to
employee stock plans,
including tax benefits 5 311 (88) 4 227
Shares issued under
stockholder
purchase plan 45 1 868 869
Net earnings 5,856 5,856
Dividends ($.10/share) (1,405) (1,405)
------ ------ ------ ------ ------- -------- ------ ------ -------
Balance at March 31, 1993 14,154 142 (57) (818) 41,468 51,217 (140) (2) 91,867
Transactions related to
employee and director
stock plans, including
tax benefits 35 (1) 772 (43) 2 730
Shares issued under
stockholder
purchase plan 2 2
Net earnings 6,105 6,105
Dividends ($.10/share) (1,412) (1,412)
------ ------ ------ ------ ------- -------- ------ ------ -------
Balance at March 31, 1994 14,189 142 (57) (819) 42,242 55,910 (183) -- 97,292
Transactions related to
employee stock plans 34 (1) (7) 1,208 (618) (99) 484
Shares issued under
stockholder
purchase plan 6 6
Unrealized gains on
securities $ 7 7
Net loss (2,395) (2,395)
Dividends ($.10/share) (1,413) (1,413)
------ ------ ------ ------ ------- -------- ----- ------ ------ -------
Balance at March 31, 1995 14,223 $ 142 (58) $ (826) $ 43,456 $ 52,102 $ 7 $ (801) $ (99) $93,981
====== ====== ====== ====== ======= ======== ===== ====== ====== =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1) Summary of Significant Accounting Policies
(a) Principles of Consolidation
The consolidated financial statements include the accounts of Biocraft
Laboratories, Inc. (the Company) and its wholly owned subsidiaries.
The equity method of accounting is used for investments in which the
Company owns at least a 20% interest, including the Company's 25% interest in
Delmarva Laboratories, Inc. (Delmarva). Delmarva is a distributor of veterinary
pharmaceutical products, including products produced by the Company.
(b) Inventories
Inventories are stated at the lower of cost (last-in, first-out (LIFO)) or
market and include appropriate elements of material, labor and manufacturing
overhead.
(c) Depreciation and Amortization
Depreciation and amortization of property and equipment are provided for
under the straight-line method based on estimated useful lives as follows:
Buildings and improvements 15 to 40 years
Machinery and equipment 3 to 10 years
Expenditures for major renewals and betterments to property and equipment
are capitalized and expenditures for maintenance and repairs are charged to
operations as incurred. When assets are retired or otherwise disposed of, their
cost and related accumulated depreciation are eliminated from the accounts. Any
resulting gain or loss is reflected in operations.
(d) Income Taxes
Effective April 1, 1993, the Company adopted FASB Statement No.109,
"Accounting for Income Taxes" (Statement 109). Under Statement 109, deferred tax
assets and liabilities are determined based on differences between financial
reporting and tax bases of assets and liabilities and are measured using the
enacted tax rates and laws that will be in effect when the differences are
expected to reverse. As permitted by Statement 109, the Company elected not to
restate the financial statements of any prior years. The cumulative effect of
the change in accounting method increased net earnings by $30,000 or less than
$.01 per share for the 1994 fiscal year.
(e) Trade Receivables
Trade receivables for the fiscal years ended March 31, 1995 and 1994 are
shown net of an allowance for uncollectible accounts of $450,000 and $240,000,
respectively.
F-7
<PAGE>
(f) Concentration of Credit Risk
The Company is engaged in the manufacture and sale of generic
pharmaceutical products. The Company's manufacturing plants are located in New
Jersey and Missouri. Its products are sold throughout the United States. The
Company performs ongoing credit evaluation of its customers' financial condition
and, generally, requires no collateral from its customers.
(g) Earnings (Loss) Per Share
Earnings (loss) per share is the Company's primary earnings (loss) per
share using the treasury stock method based on the weighted average number of
common shares as well as common share equivalents (stock options) to the extent
dilutive, outstanding during each year. Fully-diluted earnings (loss) per share
for each year are not presented because the amounts would not differ from the
amounts of primary earnings (loss) per share.
2) Cash Equivalents and Marketable Securities
Cash equivalents consist of those securities with maturities of three
months or less when purchased. Interest and dividend income realized from the
aggregate of all investments were approximately $500,000 during each of fiscal
1995, 1994 and 1993.
Effective April 1, 1994 the Company adopted FASB Statement No. 115,
"Accounting for Certain Investments in Debt and Equity Securities." The change
in accounting method increased stockholders' equity as of April 1, 1994 by
approximately $87,000 (net of $53,000 of deferred income taxes) to reflect the
net unrealized holding gains on securities classified as available-for-sale
previously carried at the lower of amortized cost or market. At March 31, 1994,
investments were stated at lower of cost or market. In accordance with the
Statement, prior period financial statements were not restated.
3) Inventories
Inventories at March 31 consist of:
1995 1994
--------- ---------
(In thousands)
Finished goods $ 7,461 $ 9,478
Work in process 19,219 19,498
Raw materials and supplies 17,731 18,821
--------- ---------
44,411 47,797
Excess of LIFO over FIFO 4,320 2,610
--------- ---------
$ 48,731 $ 50,407
========= =========
F-8
<PAGE>
As noted above, at March 31, 1995 and 1994, the LIFO cost of inventories
exceeded current cost by approximately $4.3 million and $2.6 million,
respectively. Allocation of the LIFO reserve among the components of inventory
is impractical. As of March 31, 1995 and 1994, inventories include approximately
$5.0 million and $4.6 million, respectively, of inventory costs, principally raw
materials, relating to products for which the Company is awaiting regulatory
approval.
4) Property and Equipment
A summary of property and equipment, at cost, follows:
March 31,
--------
1995 1994
---------- ----------
(In thousands)
Land $ 1,508 $ 1,508
Buildings and improvements 69,905 67,944
Machinery and equipment 59,576 51,937
Construction in progress 364 33
---------- ----------
131,353 121,422
Less accumulated depreciation 41,573 34,394
---------- ----------
$ 89,780 $ 87,028
========== ==========
5) Long-term Obligations
A summary of long-term obligations follows:
March 31,
--------
1995 1994
------- -------
(In thousands)
NatWest mortgage due in 1997 $ 1,980 $ 2,700
Unsecured NatWest term loan and credit line 11,000 10,000
Unsecured Commerce Bank credit line 7,750 3,250
Bonds due in 2004 27,800 30,000
MODED loan due 2000 210 250
Mortgage due in 1999 363 459
Other 6,664 7,489
------- -------
55,767 54,148
Less current installments 4,967 5,566
------- -------
$50,800 $48,582
======= =======
In November 1992, the Company secured a $3.6 million five year term loan
from NatWest Bank NA (NatWest), which is secured by a mortgage on the Company's
Fair Lawn, NJ property and its warehouse in Waldwick, NJ. Principal on the
F-9
<PAGE>
mortgage is payable in 20 equal quarterly installments of $180,000 which
commenced in February, 1993.
In March 1992, the Company secured a $10 million revolving credit line and
a $5 million five year term loan from NatWest. Under the credit line, as amended
and extended, NatWest agreed to advance up to $10 million through July 1996.
Principal on the term loan is payable in 20 equal quarterly installments of
$250,000 which began on May 15, 1992.
Interest on the NatWest credit line as well as the term loans is based on
market indices selected by the Company. As of March 31, 1995, the Company had
outstanding $9 million under the credit line at a rate of 7.44%, the rate on the
mortgage was 7.50%, and the rate on the term loan was 7.44%.
The Company also has a revolving credit line from Commerce Bank National
Association (Commerce Bank). Under the credit line, as amended and extended,
Commerce Bank agreed to advance up to $10 million through April 1996. Interest
on the loan is based on market indices selected by the Company when it borrows
under the credit line. As of March, 31, 1995, the Company had outstanding $7.75
million at an interest rate of 7.43% with respect to $6 million and 7.55% with
respect to $1.75 million.
Both unused lines of credit are subject to a bank commitment fee in an
amount equal to .25% per annum.
In September 1989, the Company completed a $30 million financing for its
Mexico, Missouri facility. The project was funded primarily from the proceeds of
bonds due in September 2004 issued by the Missouri Economic Development, Export
and Infrastructure Board and secured by a Letter of Credit issued by the Bank of
Tokyo, Ltd., New York Agency (Bank of Tokyo). The Letter of Credit agreement
provides for a mortgage on the Mexico, Missouri facility. The bonds bear
interest, at the Company's election, from time to time, at a variable or fixed
rate. As of March 31, 1995, the interest rate was 6.4%. In addition, the Company
pays an annual fee of approximately .80% per annum for the letter of credit and
other fees to the underwriters and trustee. Principal amortization installments
are in varying amounts which commenced in fiscal 1995.
In May 1990, the Company entered into a $400,000 term loan agreement with
the Missouri Department of Economic Development (MODED) and the City of Mexico.
This loan is payable in 40 equal quarterly installments of $10,000 beginning
September 1, 1990. Such term loan bears simple interest equal to $20,000 in the
aggregate over the term of the loan, payable in 10 equal installments. The loan
is collateralized by certain machinery and equipment at the Company's Mexico,
Missouri plant subject to the senior security interest in favor of the Bank of
Tokyo.
The mortgage obligation due in 1999 relates to proceeds realized from New
Jersey Economic Development Authority Revenue bonds ("NJEDA bonds") used to
finance the Company's Paterson, New Jersey plant facility which was purchased
from its principal officers/stockholders. Such mortgage is payable in monthly
principal installments of approximately $8,000 to January 1999, plus interest at
a rate of 75% of Valley National Bank's prime rate (an interest rate of 6.75% at
March 31, 1995). The mortgage obligation is secured by the Company's Elmwood
Park and Paterson facilities.
The credit facilities with NatWest and Commerce Bank, as well as the Letter
of Credit Agreement with Bank of Tokyo and the NJEDA bonds require, among other
matters, that the Company meet certain financial covenants. The Company is in
compliance with all such covenants.
The net book value of property and equipment pledged at March 31, 1995
under the aforementioned bond and mortgage obligations aggregated approximately
$65 million.
F-10
<PAGE>
Long-term bond and bank principal payments of each revolving credit line,
in each of the next five years ending March 31, 2000, are as follows:
1996-$3,467,000; 1997-$20,318,000; 1998-$2,623,000; 1999 - $2,113,000; and 2000
- - $2,240,000.
The Company believes that the fair value of its long-term bond and bank
obligations approximates the carrying value included in the financial
statements.
Other long-term obligations are primarily the present value of the
remaining payments due in connection with a litigation settlement reached in
March 1990 concerning a patent on a particular form of Cefadroxil Monohydrate.
Required annual payments are $1.5 million in fiscal 1996 and $3 million in both
fiscal 1997 and 1998.
Interest paid in the years ended March 31, 1995, 1994 and 1993 aggregated
$3.6 million, $3.7 million and $4.1 million, respectively.
6) Transactions with Related Parties
Certain officers/stockholders of the Company are also principal
stockholders of Groundwater Decontamination Systems, Inc. (GDS). GDS has granted
the Company a non-exclusive license to use certain of GDS's patented processes
presently employed in the Company's decontamination efforts at its Waldwick
plant. The license (terminable by the Company on 45 days' notice) provides for a
royalty of $120,000 increasing annually by the percentage increase in the
consumer price index during the preceding year.
Royalties paid to GDS and charged to operations for the years ended March
31, 1995, 1994 and 1993 amounted to $9,000, $12,000 and $9,000, respectively.
The balance of royalties under this license have been waived by GDS for each of
these years.
Certain officers/stockholders are the principal stockholders of HS Realty
Company, Inc. (HS Realty), a company that owns property adjacent to the
Company's Waldwick plant. The Company has agreed with HS Realty to extend to
such property the groundwater decontamination work currently being done at the
Waldwick plant. The agreement also provides that the Company will be entitled to
recover its expenses of performing such work from the profits, if any, from the
future sale or lease of the property.
The Company had a five-year employment agreement with its President, who is
also a principal stockholder, which expired in March 1995. The agreement
provided for annual compensation at the rate of $500,000 per annum during the
first year of the term, increasing annually thereafter by the greater of 10% or
the percentage increase in the consumer price index during the preceding year.
The President waived any increase in compensation for each year of his
employment agreement.
The Company owns a 25% interest in Delmarva, a distributor of veterinary
pharmaceutical products (see Note 1). During fiscal 1995, 1994 and 1993, the
Company recognized income (losses) of ($13,000), $39,000 and ($23,000),
respectively, its proportionate share of Delmarva's net income or loss. The
Company also had approximately $3.4 million, $4.5 million and $2.3 million of
sales to Delmarva and earned exclusive distribution fees from Delmarva of
approximately $132,000, $121,000 and $111,000 in fiscal 1995, 1994 and 1993,
respectively. As of March 31, 1995 and 1994, accounts receivable from Delmarva
totalled $483,000 and $662,000, respectively.
A member of the Company's Board of Directors serves as President of B.V.
Chemie Pharmacie Holland (C.P.H.). The Company purchased from or through such
firm bulk pharmaceutical chemicals for approximately $7.3 million, $8.4 million
and $10.6 million in the fiscal years ended March 31, 1995, 1994 and 1993,
respectively.
F-11
<PAGE>
7) Income Taxes
The Company adopted Statement 109, "Accounting for Income Taxes," as of
April 1, 1993, which changes its method of accounting for income taxes from the
deferred method (Accounting Principles Board Opinion No. 11-APB 11) to an asset
and liability approach. Income taxes for fiscal 1993 are measured under APB 11.
Statement 109 requires recognition of deferred tax liabilities and assets
for the estimated future tax consequences attributable to temporary differences.
Such temporary differences exist when the tax basis differs from the financial
reporting amount of assets or liabilities. All tax liabilities and tax assets
are measured using current tax law and applicable rates.
Statement 109 further requires adjustment of tax balances to reflect
enacted changes in tax law or rates in the period of enactment. Accordingly,
fiscal 1994 results include increased tax expense resulting from the enactment
of the Omnibus Budget Reconciliation Act of 1993 (the Tax Act) in August. The
Tax Act increased the statutory corporate income tax rate one percent (to 35
percent) and made other changes including a retroactive reinstatement of the
research and development credit.
The components of income tax expense (benefit) follow:
Years ended March 31,
---------------------
1995 1994 1993
------- ------- -------
(In thousands)
Federal:
Current $ (525) $ 1,498 $ 1,965
Deferred (948) 542 895
State (substantially all deferred) (262) 300 390
------- ------- -------
$(1,735) $ 2,340 $ 3,250
======= ======= =======
F-12
<PAGE>
The computed "expected" tax expense (benefit) is based upon Federal
statutory rates of 35% in fiscal 1995 and 1994 and 34% in fiscal 1993. Items
that determine the effective rate of the provision for income taxes follow:
Years ended March 31,
---------------------
1995 1994 1993
---- ---- ----
(In thousands)
Computed federal expected tax
expense (benefit) $(1,445) $ 2,945 $ 3,096
State taxes (benefit), net
of federal income taxes (170) 200 258
Credit related to research activities (400) (639) (70)
Charitable contribution expiration 200 -- --
Change in enacted tax rates 30 190 --
Tax settlement -- (293) --
Other, net 50 (63) (34)
------- ------- -------
$(1,735) $ 2,340 $ 3,250
======= ======= =======
Effective Tax Rate 42% 28% 36%
======= ======= =======
Temporary differences which give rise to the net deferred tax liability as
of March 31, 1995 and 1994 are as follows:
1995 1994
---- ----
(In thousands)
Deferred Tax Liabilities:
Property and equipment $ 11,500 $ 10,300
Other 38 1,118
-------- --------
Total deferred tax liabilities 11,538 11,418
Deferred Tax Assets:
AMT credit carryforward $ 3,863 $ 4,393
Research and development credit carryforward 1,340 295
Federal net operating loss carryforward 1,208 --
Charitable contribution deduction carryforward 231 406
State tax loss carryforwards, net of federal taxes 609 354
Inventory related adjustments 930 843
Other 385 945
-------- --------
Total deferred tax assets 8,566 7,236
-------- --------
Net deferred tax liabilities 2,972 4,182
Amounts included in other current assets 3,131 1,089
-------- --------
Deferred income taxes $ 6,103 $ 5,271
======== ========
F-13
<PAGE>
The alternative minimum tax (AMT) credit carryforwards do not expire; the
research and development credit carryforwards expire in 2006 through 2010; the
federal net operating loss expires in 2010; the charitable contribution
deduction carryforwards expire in 1997 through 2000 and the state net operating
loss carryforwards expire in 1999 through 2002. The principal sources of
deferred taxes for the year ended March 31, 1993 were: litigation settlements
(additional taxable income of $800,000); depreciation (lower taxable income of
$7 million); a tax credit carryforward of $70,000 and an alternative minimum tax
liability of $2 million. Income tax benefits related to employee and director
stock plans credited directly to stockholders' equity totalled $105,000 and
$63,000 in fiscal 1994 and 1993, respectively.
Income taxes paid in the years ended 1994 and 1993 aggregated approximately
$4.4 million and $950,000, respectively. No taxes were paid in fiscal 1995 and a
refundable carryback of approximately $500,000 was generated with respect to the
fiscal 1995 results.
8) Common Stock, Profit-sharing and Pension Plans
In January 1985, the Company adopted an incentive stock option plan (option
plan) and a restricted stock purchase plan (purchase plan) pursuant to which
300,000 shares of common stock under each plan had been reserved for issuance to
eligible employees. The exercise price of a stock option under the option plan
could not be less than the fair market value of the common stock at the date of
grant, unless designated as a non-qualified stock option by the Board of
Directors; the purchase price under the purchase plan could not be less than 10%
of the fair market value of the common stock at the date of grant.
Option transactions during the fiscal years ended March 31, 1995, 1994 and
1993 are shown below:
1995 1994 1993
-------- -------- --------
Outstanding at beginning of year 37,575 24,300 13,000
Granted 139,475 33,350 18,000
Exercised (2,025) (17,775) (5,300)
Forfeited (2,175) (2,300) (1,400)
-------- -------- --------
Outstanding at end of year 172,850 37,575 24,300
======== ======== ========
Exercisable at end of year 60,975 9,200 2,900
======== ======== ========
Average Exercise Price $ 8.96 $ 4.96 $ 4.57
======== ======== ========
During fiscal 1995, 1994 and 1993, options were granted at an exercise
price of $10.00, $5.00 and $5.00 per share, respectively. Options were exercised
in fiscal 1995, 1994 and 1993 at an average exercise price of $5.00, $4.50 and
$4.26 per share, respectively. The options forfeited had an average per share
exercise price of $10.00, $5.00 and $3.86 in fiscal 1995, 1994 and 1993,
respectively.
Amortization of deferred compensation related to such options charged to
operations in the years ended March 31, 1995, 1994 and 1993 was $344,000,
$325,000 and $137,000, respectively. At March 31, 1995, an aggregate of 143,000
shares of the Company's common stock was issued under the purchase plan,
including approximately 32,000 shares issued during 1995, at a price of $5.00
per share. The Company subsequently repurchased 1,425 shares at an average cost
of $4.58 per share in fiscal 1995. The difference between the fair market value
F-14
<PAGE>
and the purchase price of shares purchased under the purchase plan is charged to
operations over the vesting periods. Amortization of such deferred compensation
charged to operations in each of the years ended March 31, 1995 and 1994 was
approximately $78,000.
In fiscal 1990, the Company adopted the Directors' Stock Option Plan
(directors' plan) pursuant to which 150,000 shares of common stock have been
reserved for issuance to directors of the Company who are not Company employees
at an option price equal to the value of such shares on the date of grant.
During fiscal 1994, a total of 8,000 options were exercised by directors at an
exercise price of $15.50 per share. As of March 31, 1995, options to purchase
17,000 shares under the directors' plan were outstanding, of which options to
purchase 15,000 shares were currently exercisable at option prices ranging from
approximately $15 to $18 per share.
The Company has a qualified profit-sharing plan covering eligible non-union
employees except certain employees hired in Missouri. The plan provides for an
annual contribution as determined by the Company; such contribution is not to
exceed the amount deductible as expense in accordance with the Internal Revenue
Code. Profit-sharing plan contributions charged to operations for the years
ended March 31, 1995, 1994 and 1993 amounted to approximately $1.4 million, $1.3
million and $1.1 million, respectively.
In October 1987, the Company adopted the Biocraft Money Purchase Pension
Plan which provides for a mandatory employer contribution of 3% of annual
compensation, excluding bonuses and overtime. Contributions to such plan charged
to operations for the years ended March 31, 1995, 1994 and 1993 amounted to
approximately $417,000, $384,000 and $316,000, respectively. At the same time,
the Company also adopted the Employees' 401(k) Savings Plan which provides for
voluntary employee salary deferrals. Employer matching of $.50 for each dollar
contributed up to a maximum match of 2% of compensation is provided for those
employees who do not participate in the profit-sharing plan. Matching
contributions to the 401(k) Plan charged to operations amounted to $39,000,
$34,000 and $20,000 in fiscal 1995, 1994 and 1993, respectively. Both plans are
provided for non-union employees.
Pension contributions to a multi-employer plan in accordance with various
union agreements were $334,000, $351,000 and $370,000 in 1995, 1994 and 1993,
respectively.
9) Litigation Settlement
In February 1986, Hoffmann-LaRoche, Inc. (Roche) obtained a declatory
judgement that the Company was not entitled to withhold royalties under a
license for the right to manufacture and sell a patented drug, which patent
expired in June 1988. In February 1994 this matter was settled by the Company
and the case was dismissed. The Company paid Roche $250,000.
In May 1992 the Company settled its litigation with Merck & Co., Inc.
(Merck) regarding Merck's patent for Amiloride Hydrochloride with
Hydrochlorothiazide, which patent was found invalid. The parties agreed to the
dismissal of the Company's claim for damages and to release each other from all
claims arising from the litigation and Merck paid the Company $1.3 million,
which amount was included in the Company's other operating income in fiscal
1993. There was no admission of liability by Merck.
F-15
<PAGE>
10) Segment Information and Other Matters
The Company operates in one industry segment (generic pharmaceutical
products). Although the Company's net sales included both finished dosage form
products and bulk material, sales of bulk material constituted less than 2% of
the Company's total sales for each of the fiscal years ended March 31, 1995,
1994 and 1993. No one customer accounted for 10% or more of net sales for the
fiscal years ended in 1995, 1994 and 1993.
11) Contingencies
At March 31, 1995, the Company was involved in certain litigation and other
claims related to its operations.
In September 1980, the Company entered into an administrative consent order
with the New Jersey Department of Environmental Protection (DEP) pursuant to
which the Company agreed to among other things, monitor and take certain action
to remediate contamination of the groundwater beneath the Company's Waldwick,
New Jersey plant by use of microbiological decontamination wells which were
installed in fiscal 1981. This order has been modified to include action to be
taken to monitor and, if necessary, remediate possible contamination of the
groundwater below the property adjacent to the Waldwick facility. The Company
does not expect the continued cost of this remediation to be material.
On June 8, 1989, the United States Environmental Protection Agency (EPA)
notified the company that it was a potentially responsible party (PRP) along
with other generators of industrial waste, the site owners and operators, and
transporters of wastes to the site, for the alleged releases of hazardous
substances from a waste management site in Elkton, Maryland, known as the
"Spectron Site." The Company has participated with other PRPs in investigating
and remediating the site under a Consent Order entered into with EPA in August
1989. As of March 31, 1995, the Company has paid approximately $224,000 to the
PRP group, all of which was paid prior to fiscal 1995, for its share of clean-up
costs, based on volumetric allocation of waste shipments to the Spectron Site.
On March 19, 1990, EPA sent another letter to the Company notifying it of
potential liability for planned additional remedial work at the Spectron Site.
The additional remedial work arises from alleged releases of hazardous
substances at the Spectron Site during the period of 1968 to 1982, known as the
Galaxy Period. The Company has decided to join with other PRPs in the
negotiation of a Consent Order with EPA for the additional remedial work related
to the Galaxy Period.
The Company is one of over 400 defendants in an action entitled "Transtech
Industries, Inc. et al v. A & Z Septic Clean, et al" pending in the federal
district court for New Jersey, regarding hazardous waste allegedly shipped to
the Kin-Buc Landfill in New Jersey; has been notified by the North Carolina
Department of Environment, Health and Natural Resources that it believes that
the Company was one of approximately 1,500 entities that caused hazardous
material to be shipped to a waste treatment facility previously operated by the
Seaboard Chemical Corporation at Jamestown, North Carolina; and is one of more
than 900 entities notified that it has shipped hazardous waste to a site in
Caldwell County, North Carolina. It is not possible to predict with any level of
certainty the Company's potential exposure with respect to the aforementioned
matters. However, considering the number of potentially responsible parties,
many of which are substantial corporations, and the Company's small proportion
of the total volume of waste sent to the sites in question, the Company believes
F-16
<PAGE>
that its portion of such liability, if any (including any site clean-up costs),
is not likely to be material to the Company.
In November 1993, a class action was commenced in the United States
District Court for the District of New Jersey against the Company and certain
officers of the Company. The action alleges misrepresentations and omissions in
the Company's publicly filed statements and press releases regarding the
Company's compliance with the FDA concerning the Company's manufacture of its
products. Plaintiffs seek compensatory and punitive damages in an unspecified
amount, as well as attorney's fees and other costs of the lawsuit.
The Company has not received any new drug approvals since June 1993. As
previously reported, in July 1994 the Company entered into an agreement with FDA
to resolve outstanding regulatory issues with respect to its dosage form
facilities. The agreement requires the Company, among other things, to obtain
and submit to FDA expert certifications of procedures used in the manufacturing
and testing of products. The Company believes it has provided FDA with the
submissions, including expert certifications required under the agreement
through June 19, 1995. The Company understands that FDA has not yet completed
its review of all of these submissions. Although the Company cannot predict
whether FDA will ultimately find these submissions acceptable, the Company has
been working closely with FDA to resolve any outstanding issues. In May 1995 FDA
completed an inspection of the Company's dosage form facilities. A satisfactory
inspection is necessary to obtain new product approvals. Based on the
inspection, expert certifications and actions by the Company during the past
year, the Company believes that it has all of the systems and procedures in
place to obtain new drug approvals. Although FDA employees communicated their
observations that substantial improvements in systems and procedures were
achieved, no assurance can be given at this time that FDA will find the results
of the inspection satisfactory.
In addition, the Company is also a party to other litigation incidental to
its business. In management's opinion, after consulting legal counsel, it is
unlikely that the ultimate resolution of such litigation and the matters
discussed above will have a material adverse effect on the Company's
consolidated financial position.
F-17
<PAGE>
Schedule II
BIOCRAFT LABORATORIES, INC.
Valuation and Qualifying Accounts
Years ended March 31, 1995, 1994 and 1993
(In thousands)
Balance at Additions Balance at
beginning charged to end
Description of period operations Deductions of period
- ----------- ---------- ---------- ---------- ---------
Against trade receivables -
Year ended March 31, 1995
Allowance for doubtful
accounts $240 $ 231 $ 21 (A) $450
Allowance for cash
discounts 390 2,180 2,100 470
---- ------ ------ ----
$630 $2,411 $2,121 $920
==== ====== ====== ====
Year ended March 31, 1994
Allowance for doubtful
accounts $230 $ 48 $ 38 (A) $240
Allowance for cash
discounts 300 2,062 1,972 390
---- ------ ------ ----
$530 $2,110 $2,010 $630
==== ====== ====== ====
Year ended March 31, 1993
Allowance for doubtful
accounts $260 $ 44 $ 74 (A) $230
Allowance for cash
discounts $170 $1,394 1,264 300
---- ------ ------ ----
$430 $1,438 $1,338 $530
==== ====== ====== ====
- ----------
(A) Accounts written off.
F-18
<PAGE>
EXHIBIT INDEX
Number Page
- ------ ----
3.1 Certificate of Incorporation and Certificate of Amendment --
of Certificate of Incorporation filed as Exhibit 3.1 to
Annual Report on Form 10-K for fiscal year ended March 31,
1987, which is incorporated herein by reference.
3.2 By-Laws, as amended, filed as Exhibit 3.2 to Annual Report --
on Form 10-K for fiscal year ended March 31, 1987, which is
incorporated herein by reference.
4 Specimen Certificate of Common Stock filed as Exhibit 4 to --
Annual Report on Form 10-K for fiscal year ended March 31,
1985, which is incorporated herein by reference.
10.1 Employees' Profit Sharing Plan filed as Exhibit 10.1 to --
Registration Statement No. 2-95660 on Form S-1, which is
incorporated herein by reference.
10.2 Biocraft Laboratories, Inc. Money Purchase Plan, filed as --
Exhibit 10.2 to Annual Report on Form 10-K for fiscal year
ended March 31, 1988, which is incorporated herein by
reference.
10.3 Biocraft Laboratories, Inc. 401(K) Savings Plan, filed as --
Exhibit 10.3 to Annual Report on Form 10-K for fiscal year
ended March 31, 1985, which is incorporated herein by
reference.
10.4 1985 Incentive Stock Option Plan, as amended, which is --
incorporated herein by reference.
10.5 Restricted Stock Purchase Plan, as amended, which is --
incorporated herein by reference.
10.6 $3,650,000 New Jersey Economic Development Authority Bond --
Financing Agreement dated December 16, 1983 filed as Exhibit
10.4 to Registration Statement No. 2-95660 on Form S-1,
which is incorporated herein by reference.
10.7 Mortgages and related Note dated December 16, 1983 from --
Harold and Beatrice Snyder to the New Jersey Economic
Development Authority filed as Exhibit 10.5 to Registration
Statement No. 2-95660 on Form S-1, which is incorporated
herein by reference.
I-1
<PAGE>
EXHIBIT INDEX (cont'd)
Number Page
- ------ ----
10.8 Amendment to Bond Agreement and related Consent and Waiver --
filed as Exhibit 10.6 to Registration Statement No. 33-5744
on Form S-1, which is incorporated herein by reference.
10.9 Assumption Agreement dated April 30, 1985 between Biocraft --
Laboratories, Inc. and Harold Snyder and Beatrice Snyder
filed as Exhibit 10.7 to Registration Statement No. 33-5744
on Form S-1, which is incorporated herein by reference.
10.10 License Agreement dated January 31, 1985 between Biocraft --
Laboratories, Inc. and Groundwater Decontamination Systems,
Inc. filed as Exhibit 10.9 to Registration Statement No.
2-95660 on Form S-1, which is incorporated herein by
reference.
10.11 Indenture of Trust and Loan Agreement among Missouri --
Economic Development, Export and Infrastructure Board, as
Issuer, The Merchants Bank, as Trustee, and Biocraft
Laboratories, Inc. as Borrower, filed as Exhibit 1 to Form
8K, dated September 28, 1989, which is incorporated herein
by reference.
10.12 Letter of Credit Agreement, dated as of September 1, 1989, --
by and between Biocraft Laboratories, Inc. and The Bank of
Tokyo, Ltd., New York Agency, filed as Exhibit 2 to Form
8-K, dated September 28, 1989, which is incorporated herein
by reference.
10.13 Pledge and Security Agreement, dated as of September 1, --
1989, between Biocraft Laboratories, Inc. and The Bank of
Tokyo, Ltd., New York Agency, filed as Exhibit 3 to Form
8-K, dated September 28, 1989, which is incorporated herein
by reference.
10.14 Remarketing Agreement, dated as of September 1, 1989, by and --
between Biocraft Laboratories, Inc., the Borrower, and
Prudential-Bache Securities, Inc., the Remarketing Agent,
filed as Exhibit 4 to Form 8-K, dated September 28, 1989,
which is incorporated herein by reference.
10.15 Missouri Economic Development, Export and Infrastructure --
Board Bond Purchase Agreement, dated September 14, 1989,
filed as Exhibit 5 to Form 8-K, dated September 28, 1989,
which is incorporated herein by reference.
I-2
<PAGE>
EXHIBIT INDEX (cont'd)
Number Page
- ------ ----
10.16 Deed of Trust, Security Agreement and Assignment of Leases, --
dated as of September 1, 1989, from Biocraft Laboratories,
Inc., the Grantor, to Mark M. Budzinski, as trustee, and The
Bank of Tokyo, Ltd., New York Agency, as beneficiary, filed
as Exhibit 6 to Form 8-K, dated September 28, 1989, which is
incorporated herein by reference.
10.17 Employment Agreement dated March 26, 1990 between Biocraft --
Laboratories, Inc. and Harold Snyder, filed as Exhibit 10.21
to Form 10-K for the year ended March 31, 1990, which is
incorporated herein by reference.
10.18 Biocraft Laboratories, Inc. 1989 Directors' Stock Option --
Plan, filed as Exhibit 10.22 to Form 10-K for the year ended
March 31, 1990, which is incorporated herein by reference.
10.19 Revolving Credit and Term Loan Agreement, dated as of March --
27, 1991 between Biocraft Laboratories, Inc. and Commerce
Bank of Kansas City, N.A., filed as Exhibit 10.22 to Form
10-K for the year ended March 31, 1991, which is
incorporated herein be reference.
10.20 Loan Agreement, dated as of March 20, 1992, between Biocraft --
Laboratories, Inc. and National Westminster Bank NJ, which
is incorporated herein by reference.
10.21 Mortgage and Secured Term Loan Agreement, dated November 16, --
1992, between Biocraft Laboratories, Inc. and National
Westminster Bank NJ, which is incorporated herein by
reference.
10.22 Amended and Restated Revolving Credit and Term Loan --
Agreement, dated September 30, 1993, between Biocraft
Laboratories, Inc. and Commerce Bank of St.Louis, National
Association.
23.1 Consent of Ernst & Young LLP I-4
99.1 Form of Consent Decree of Permanent Injunction, dated as of --
July, 1994, filed as Exhibit 99.2 to Form 8-K, dated July
21, 1994, which is incorporated herein by reference.
I-3
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement
(Form S-8 No. 33-67060) pertaining to the Biocraft Laboratories, Inc. 1985
Incentive Stock Option Plan, 1989 Directors' Stock Option Plan and Restricted
Stock Purchase Plan and in the Registration Statement (Form S-3 No. 33-42706)
pertaining to the Dividend Reinvestment and Stock Purchase Plan of our report
dated June 19, 1995, with respect to the consolidated financial statements and
schedule of Biocraft Laboratories, Inc. included in this Annual Report (Form
10-K) for the year ending March 31, 1995.
ERNST & YOUNG LLP
Hackensack, New Jersey
June 26, 1995
I-4
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