<PAGE> 1
U. S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE
QUARTERLY PERIOD ENDED MARCH 31, 1997
Commission File No. 0-24676
CARACO PHARMACEUTICAL LABORATORIES, LTD.
(Exact name of registrant as specified in its charter)
MICHIGAN 38-2505723
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
1150 ELIJAH MC COY DRIVE, DETROIT, MICHIGAN 48202
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (313) 871-8400
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 [ ]
Common Stock outstanding at May 9, 1997: 7,842,106 shares
The Exhibit Index is located on page 13
----
The total number of pages is 16
-----
<PAGE> 2
CARACO PHARMACEUTICAL LABORATORIES, LTD.
BALANCE SHEET
MARCH 31, 1997
- --------------------------------------------------------------------------------
ASSETS
<TABLE>
<S> <C>
CURRENT ASSETS
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 57,378
Accounts receivable, net of allowance of $20,000 . . . . . . . . . . . . . . . . . . 94,361
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 279,067
Prepaid expenses and deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . 213,605
-----------
TOTAL CURRENT ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 644,411
-----------
PROPERTY, PLANT AND EQUIPMENT - AT COST
Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 197,305
Building and improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,682,724
Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,573,278
Furniture and fixtures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 156,909
-----------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,610,216
Less accumulated depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,379,590
-----------
PROPERTY, PLANT AND EQUIPMENT, NET . . . . . . . . . . . . . . . . . . . . . . . . . . 8,230,626
-----------
MARKETABLE SECURITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82,000
-----------
TOTAL ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 8,957,037
===========
</TABLE>
See accompanying notes.
<PAGE> 3
- --------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' DEFICIT
<TABLE>
<S> <C>
CURRENT LIABILITIES
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,368,824
Short-term demand notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,040,000
Current portion of long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . 8,880,000
Accrued expenses:
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 176,800
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 760,424
-----------
TOTAL LIABILITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,226,048
-----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' DEFICIT
Preferred stock - no par value; authorized 5,000,000 shares;
issued and outstanding, 285,714 Series A shares . . . . . . . . . . . . . . . . . 1,000,000
Common stock, no par value, authorized 20,000,000 shares;
issued and outstanding, 7,842,106 shares . . . . . . . . . . . . . . . . . . . . . 19,646,974
Subscription receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (14,087)
Deficit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (24,901,898)
-----------
TOTAL STOCKHOLDERS' DEFICIT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (4,269,011)
-----------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT . . . . . . . . . . . . . . . . . . . . . . $ 8,957,037
===========
</TABLE>
See accompanying notes.
<PAGE> 4
CARACO PHARMACEUTICAL LABORATORIES, LTD.
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED MARCH 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Three Months Ended March 31,
--------------------------------
1 9 9 7 1 9 9 6
------------ ------------
<S> <C> <C>
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 256,588 $ 450,342
Cost of goods sold . . . . . . . . . . . . . . . . . . . . . . . . 419,791 508,163
------------ ------------
GROSS LOSS . . . . . . . . . . . . . . . . . . . . . . . . . . . . (163,203) (57,821)
------------ ------------
Selling, general and administrative expenses . . . . . . . . . . . 412,960 527,494
Research and development costs . . . . . . . . . . . . . . . . . . 371,962 458,074
------------ ------------
OPERATING LOSS . . . . . . . . . . . . . . . . . . . . . . . . . . (948,125) (1,043,389)
------------ ------------
OTHER INCOME (EXPENSE)
Interest income . . . . . . . . . . . . . . . . . . . . . . . . - 1,825
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . (207,477) (164,527)
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 1,023
------------ ------------
OTHER EXPENSE - NET . . . . . . . . . . . . . . . . . . . . . . . . (207,477) (161,679)
------------ ------------
NET LOSS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $(1,155,602) $(1,205,068)
============ ============
Net loss per common share . . . . . . . . . . . . . . . . . . . . . $(.15) $ (.17)
============ ============
Weighted average number of
common shares outstanding . . . . . . . . . . . . . . . . . . . . 7,842,106 7,007,600
============ ============
</TABLE>
See accompanying notes.
<PAGE> 5
CARACO PHARMACEUTICAL LABORATORIES, LTD.
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
DEFICIT
ACCUMULATED
PREFERRED STOCK COMMON STOCK DURING THE
------------------------ -------------------------- SUBSCRIPTION DEVELOPMENT
SHARES AMOUNT SHARES AMOUNT RECEIVABLE STAGE
--------- ---------- ----------- ------------ ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1995 . . $ 285,714 $1,000,000 $5,046,420 $13,379,338 $ -- $(14,138,982)
Issuance of common stock . . . -- -- 1,809,387 4,110,063 (14,087) --
Contribution of
administrative expenses by
Chairman Emeritus . . . . . . -- -- -- 56,000 -- --
Net loss . . . . . . . . . . . -- -- -- -- -- (4,093,382)
Unrealized loss on
marketable securities . . . . -- -- -- -- -- --
--------- ---------- ---------- ----------- ---------- --------------
Balance at December 31, 1995 . . 285,714 1,000,000 6,855,807 17,545,401 (14,087) (18,232,364)
Issuance of common stock . . . -- -- 986,299 2,101,573 -- --
Writedown of marketable
securities for decline in
value considered to be
other than temporary . . . . . -- -- -- -- -- --
Net loss . . . . . . . . . . . -- -- -- -- -- (5,498,932)
--------- ---------- ---------- ----------- ---------- -------------
Balance at December 31, 1996 . . 285,714 1,000,000 7,842,106 19,646,974 (14,087) (23,731,296)
Preferred dividend . . . . . . -- -- -- -- -- (15,000)
Net loss . . . . . . . . . . . -- -- -- -- -- (1,155,602)
--------- ---------- ---------- ----------- ---------- -------------
Balance at March 31, 1997 . . . $ 285,714 $1,000,000 $7,842,106 $19,646,974 $(14,087) $(24,901,898)
========= ========== ========== =========== ========== =============
<CAPTION>
UNREALIZED
LOSS ON
MARKETABLE
SECURITIES TOTAL
------------ ---------
<S> <C> <C>
Balance at January 1, 1995 . . $ -- $ 240,356
Issuance of common stock . . . -- 4,095,976
Contribution of
administrative expenses by
Chairman Emeritus . . . . . . -- 56,000
Net loss . . . . . . . . . . . -- (4,093,382)
Unrealized loss on
marketable securities . . . . (160,924) (160,924)
---------- -----------
(160,924) 138,026
Balance at December 31, 1995 . . -- 2,101,573
Issuance of common stock . . .
Writedown of marketable
securities for decline in
value considered to be 160,924 160,924
other than temporary . . . . .
Net loss . . . . . . . . . . . -- (5,498,932)
---------- -----------
Balance at December 31, 1996 . . -- (3,098,409)
Preferred dividend . . . . . . -- (15,000)
Net loss . . . . . . . . . . . -- (1,155,602)
---------- -----------
Balance at March 31, 1997 . . . $ -- $ (4,269,011)
========== ============
</TABLE>
See accompanying notes.
<PAGE> 6
CARACO PHARMACEUTICAL LABORATORIES, LTD.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
--------------------------------
1 9 9 7 1 9 9 6
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . $(1,155,602) $(1,205,068)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation . . . . . . . . . . . . . . . . . . . . . . . . 121,950 128,100
Changes in operating assets and liabilities
which provided (used) cash:
Accounts receivable . . . . . . . . . . . . . . . . . . . 2,980 225,572
Inventories . . . . . . . . . . . . . . . . . . . . . . . 11,198 91,336
Prepaid expenses and deposits . . . . . . . . . . . . . . (9,988) 42,278
Accounts payable . . . . . . . . . . . . . . . . . . . . . (192,936) 239,585
Accrued expenses . . . . . . . . . . . . . . . . . . . . . 181,750 150,208
------------ ------------
NET CASH USED IN OPERATING ACTIVITIES . . . . . . . . . . . . . (1,040,648) (327,989)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment . . . . . . . . . . (2,395) (56,539)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock . . . . . . . . . . . . - 251,173
Net short-term borrowings . . . . . . . . . . . . . . . . . . 1,085,000 -
------------ ------------
NET CASH PROVIDED BY FINANCING ACTIVITIES . . . . . . . . . . . 1,085,000 251,173
------------ ------------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS . . . . . . . . . . . . . . . . . . . . 41,957 (133,355)
Cash and cash equivalents, beginning of period . . . . . . . . 15,421 332,264
------------ ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD . . . . . . . . . . . $ 57,378 $ 198,909
============ ============
Supplemental disclosures of cash flows information:
Cash paid for interest . . . . . . . . . . . . . . . . . . . . - -
============ ============
</TABLE>
See accompanying notes.
<PAGE> 7
1. BASIS OF PRESENTATION
The balance sheet as of March 31, 1997 and the related statements of
operations, stockholders equity and cash flows for the three months ended
March 31, 1997 and 1996 are unaudited. In the opinion of management, all
adjustments necessary for a fair presentation of such financial statements
has been included. Such adjustments consisted of only normal recurring
items. Interim results are not necessarily indicative of results for the
full year.
The financial statements as of March 31, 1997 and for the three months
ended March 31, 1997 and 1996 should be read in conjunction with the
financial statements and notes thereto included in the Company's Annual
Report on Form 10-KSB for the year ended December 31, 1996.
The accounting policies followed by the Company with respect to the
unaudited interim financial statements are consistent with those stated in
the 1996 Caraco Pharmaceutical Laboratories, Ltd. Annual Report on Form
10-KSB.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern, which contemplates the
realization of assets and the satisfaction of liabilities in the normal
course of business.
The Corporation has not currently achieved sales necessary to support
operations. The Corporation has, as of March 31, 1997, stockholders'
deficit of $4,269,011 and working capital deficit of $12,581,637.
Realization of a major portion of the assets is dependent upon the
Corporation's ability to meet its future financing requirements and the
success of future operations, the outcome of which cannot be determined at
this time. These and other factors, including being in default of the debt
agreement with the Economic Development Corporation (EDC) of the City of
Detroit, raise substantial doubt about the Corporation's ability to
continue as a going concern in the absence of sufficient additional funds
and the achievement of profitable operations. The accompanying financial
statements do not include any adjustments relating to the recoverability
and classification of asset carrying amounts or the amount of liabilities
that might be necessary should the Corporation be unable to continue as a
going concern.
Management's plans with regard to these matters include:
- An attempt to raise up to $7,500,000 in gross proceeds from the sale of
its common stock (see below). If the Corporation is unable to raise
approximately $7,500,000 it may have an adverse effect on the
Corporation's ability to execute its business plan through 1997. There
can be no assurance that adequate capital can be obtained.
- Continued development of strategic alliances with other drug
manufacturers whereby the Corporation will, subject to approval of
ANDA's, manufacture on behalf of the participating entity for a fee (cash
or common shares - see below) or, manufacture on its own behalf and pay
the participating entity a royalty based on sales.
<PAGE> 8
1. BASIS OF PRESENTATION (CONTINUED)
On July 11, 1996, the Corporation and an Indian specialty pharmaceutical
company, Sun Pharmaceutical Industries Ltd. ("Sun Pharma") announced that
they had signed two non-binding letters of intent pursuant to which Sun
Pharma would make an initial investment in Caraco common stock and sell it
certain rights for a number of generic pharmaceuticals products. As
revised in the most recent proposal, it is contemplated that a) in exchange
for 5,300,000 shares of Caraco common stock Sun Pharma will invest
$7,500,000 to be received by the Corporation over a period of one year in
four installments, b) the number of products to be sold to the Corporation
by Sun Pharma is 25 over a period of five years in exchange for 544,000
shares of Caraco common stock to be issued for each product and c) two
current Caraco shareholder directors will each contribute to the
Corporation the equivalent of up to $500,000 in cash or in shares of Caraco
common stock, not to exceed 250,000 shares each. Consummation of this
transaction is subject to certain conditions, including completion of Sun
Pharma's due diligence, clearance from various agencies in the Indian
government, approval of any EDC modification of debt to Caraco, and
negotiation and execution of definitive documents. Negotiations are
continuing at this time.
If the completion of the agreement with Sun Pharma does not occur and the
Corporation does not receive the anticipated equity capital, it is expected
that the Corporation would immediately commence bankruptcy proceedings
pursuant to Chapter 7 of the Federal Bankruptcy Code of 1978, as amended.
2. LOSS FROM DEFALCATION
During the year ended December 31, 1994, the Corporation determined that
approximately $514,000 of Corporation funds had been misappropriated by the
Corporation's former controller, a son of the Corporation's former Chairman
Emeritus. The misappropriations occurred during the period from January
through June of 1994. The Corporation's former Chairman Emeritus
reimbursed the Corporation the $514,000. In connection with this matter,
approximately $56,000 in certain legal and other expenses incurred by the
Corporation in conducting an investigation into this matter were paid
directly by the former Chairman Emeritus from his personal funds.
The Corporation has made filings about this matter with the Securities and
Exchange Commission (SEC). The SEC is currently conducting an
investigation into the matter. On November 1, 1996, the Corporation,
through its legal counsel, was notified by the SEC that its Enforcement
Division has tentatively decided not to recommend that the commission
authorize an enforcement action against the Corporation. The SEC further
advised that it nevertheless was possible that an action against the
Corporation may ultimately result from the investigation. The SEC's
investigation had revealed that the defalcation which was reported October
18, 1994 had also occurred in 1993, as well as in the first half of 1994,
and that the 1993 defalcation had totaled at least an additional $300,000.
It is also possible that the Commission might institute an enforcement
proceeding against one or more former employee(s) of the Corporation who
are no longer associated with the Corporation.
3. SHORT-TERM DEMAND NOTES
The Corporation has borrowed an additional $1,085,000 during the period
ending March 31, 1997 from two (2) shareholder directors and Sun Pharma.
The notes accrue interest at 10%, are secured by specific assets of the
Corporation and are due on demand or on the one year anniversary of the
closing date.
<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Sales
Net sales for the periods ended March 31, 1997 and 1996 were
$256,588 and $450,342, respectively. The decrease of 43% in sales
is directly attributable to market conditions, which forced the
Corporation to lower the price of Nifedipine to remain competitive.
It is anticipated that the current depressed level of sales will
continue for the indefinite future.
The Corporation also anticipates increased sales volume from three
(3) ANDAs currently in various stages of the FDA approval process.
The first of these ANDAs, which was approved December 1996, is
expected to contribute sales in the second quarter of 1997. The
Corporation continues to search for strategic alternatives to
improve its financial condition and product line.
Cost of Sales
Cost of sales for the periods ended March 31, 1997 and 1996 were
$419,791 or 163.6% of sales and $508,163 or 112.8% of sales,
respectively. The increased percentage in cost of sales was a
direct result of significantly lower sales and manufacturing
volumes due to the Corporation's inability to purchase raw
materials and bulk product from its suppliers leaving the
Corporation unable to maintain adequate levels of customer service.
As a result, sales were not adequate to absorb the Corporation's
fixed production costs.
General and Administrative
Selling, general and administrative expenses for the periods ended
March 31, 1997 and 1996 were $412,960 and $527,494, respectively.
The decrease of 22% is directly related to the Corporation's cost
containment program implemented in 1995 in response to the
Corporation's losses and industry trends. The Corporation
continues to implement measures to further reduce costs and improve
operating efficiencies. In addition, a wage and hiring freeze has
continued during the current period which has resulted in an
approximate 30% reduction in the Corporation's employees.
Research and Development
Product development expenses for the periods ended March 31, 1997
and 1996 were $371,962 and $458,074, respectively, demonstrating
Caraco's continued commitment to new product development as a means
to increase and diversify its product offering despite the
Corporation's current financial condition. The Corporation plans
to continue to expand product development activities as its
resources permit as it believes such efforts are vital to expanding
the Corporation's product line and generating future products. In
December 1996, the Corporation was notified of an ANDA approval for
a product submitted to the FDA. This product is now in the early
stages of market development. While there can be no guarantee the
Corporation anticipates FDA approval of an additional two products
in 1997.
Results of Operations
Operating losses for the periods ended March 31, 1997 and 1996 were
$1,155,602 and $1,205,068, respectively. The operating loss is
directly related to net sales which were inadequate to absorb the
fixed costs of the Corporation's operational expenses.
<PAGE> 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
A number of uncertainties exist that may influence the
Corporation's future operating results, including general economic
conditions, changes in conditions affecting the pharmaceutical
industry primarily related to generic drug competition, the
Corporation's success in developing and market acceptance of new
products, manufacturing performance, availability and price
fluctuations of raw materials, FDA regulations and other factors.
Interest Expense
Interest expense, which is incurred primarily in connection with
the Corporation's mortgage obligation to the Economic Development
Corporation of Detroit, was $207,477 and $164,527 for the periods
ended March 31, 1997 and 1996, respectively. The increase in
interest expense relates to short-term loans from three (3)
shareholder directors and Sun Pharma used to finance the
Corporation's short-term cash requirements.
Liquidity and Capital Resources
At March 31, 1997, the Corporation's working capital deficit was
$12,581,637. The deficit in working capital is directly attributed
to the Corporation's continued losses from operations and the
reclassification of the entire EDC loan as current, resulting from
being in technical default. The Corporation is negotiating with
the EDC to modify the terms of the loan and bring it current.
Management estimates that, at its currently planned and anticipated
level of operations, the Corporation will experience continued
operating losses in 1997, and accordingly, will require
approximately $7,500,000 of additional funds to execute its
business expansion plan and fund continuing operations on a going
forward basis.
The Corporation has no material commitments for capital
expenditures.
On July 11, 1996, the Corporation and an Indian specialty company,
Sun Pharmaceutical Industries, Ltd. ("Sun Pharma") announced that
they had signed two non-binding letters of intent pursuant to which
Sun Parma would make an initial investment in Caraco common stock
and sell it certain rights for a number of generic pharmaceutical
products. As revised in the most recent proposal, it is
contemplated that (a) Sun Pharma will invest $7,500,000 to be
received by the Corporation over a period of one year in four
installments, (b) the number of products to be sold to the
Corporation by Sun Pharma is 25 over a period of five years in
exchange for 544,000 shares of Caraco common stock to be issued for
each product and (c) two current Caraco shareholder directors will
each contribute to the Corporation up to $500,000 in cash or common
stock of Caraco, not to exceed 250,000 shares. The price will be
determined at the midpoint of the bid and ask price at the closing
on the day of contribution. This transaction is subject to certain
conditions, including completion of Sun Pharma's due diligence,
clearance of various agencies in the Indian government, approval of
any EDC modification of debt to the Corporation, and negotiation
and execution of definitive documents. Negotiations are ongoing at
this time.
If the completion of the agreement with Sun Pharma does not occur
and the Corporation does not receive the anticipated equity
capital, it is expected that the Corporation would immediately
commence bankruptcy proceedings pursuant to Chapter 7 of the
Federal Bankruptcy Code of 1978, as amended.
<PAGE> 11
There is no assurance that the foregoing funds will be made
available to the Corporation timely or on financially satisfactory
terms; or that any of the Corporation's ANDAs will be approved by
the FDA within time parameters anticipated by management or at all,
or that the Corporation will be able to manufacture in commercial
quantities and sell profitably any product resulting from FDA
approval of an ANDA filed by the Corporation. To the extent that
capital requirements should exceed available capital, the
Corporation will be required to reduce its research and development
activity, reduce personnel and delay capital expenditures while
continuing to seek alternative sources of financing for its
business. There is no assurance that alternative sources of
financing will be available.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not Applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
The Corporation continues to sustain substantial operating losses,
and its ability to continue as a going concern is dependent on
raising additional funds and achieving profitable operations. The
Corporation is currently in default on its loan from the Economic
Development Corporation of Detroit ("EDC"), and is negotiating with
the EDC to modify the terms of the Loan. The EDC made a proposal
to the Corporation which terminated on March 17, 1997 and was
subject to various conditions which the Corporation could not
satisfy. Among other things, the proposal included a deferral of
payments on the loan for the period March 1996 through January 1999
designed to aid the Corporation in achieving adequate cash flow
during the next few years to assure Caraco's ability to both fund
its current operations and continue to develop products into the
marketplace. Monthly payments were to resume in February 1999 or
sooner should the Corporation reach profitability levels of
$750,000 in any quarter through March 31, 1998 and a level of
$500,000 in the quarters ended June 30, 1998 and September 30,
1998. When payments were to be resumed, they would include a
portion of the deferral which would be apportioned over the
remaining term of the Loan. Among other conditions, the offer was
dependent on the Corporation entering into definitive agreements
with Sun Pharmaceutical Industries Ltd., an Indian based company
("Sun Pharma"), for the contribution by Sun Pharma of $7.5 million
in equity to the Corporation and on the sale by Sun Pharma to the
Corporation of up to five ANDA products each year for five
consecutive years. The Corporation is continuing to negotiate with
the EDC, however, there is no assurance that a modification
agreement between the EDC and the Corporation will be consummated
or will be consummated pursuant to the terms of the above
referenced proposal. If no agreement is consummated, the EDC may
exercise all of the remedies available to it including foreclosure
on the Corporation's operating facility and certain equipment.
<PAGE> 12
Sun Pharma and the Corporation entered into two non-binding letters
of intents in July 1996 pursuant to which Sun Pharma would make an
initial cash investment in Caraco Common Stock and pursuant to
which Sun Pharma would sell Caraco up to 25 generic pharmaceutical
products for shares of Caraco Common Stock. Sun Pharma and the
Corporation are currently negotiating proposed agreements which,
among other things, would provide that Sun Pharma invest $7,500,000
over a period of one year in four installments and that Sun Pharma
sell up to 25 generic pharmaceutical products (either ANDA's or
DESI's with three (3) DESI's equal to one (1) ANDA) over a period
of 60 months in exchange for 544,000 shares of Common Stock for
each ANDA and 181,133 for each DESI. The proposed agreement is
conditioned, among other things, on two current shareholder
directors contributing an aggregate of $1,000,000 in cash or Caraco
Common Stock (up to a maximum of an aggregate of 500,000 shares of
Caraco Common Stock), approval from Indian governmental agencies,
approval of any EDC modification of the loan to Caraco, and the
execution of definitive agreements.
On April 21, 1997 Sun Pharma received approval, conditional upon
completion of the EDC agreement, to proceed with the transaction
from the Reserve Bank of India (the "RBI"). Once the agreement has
been completed with the EDC, Sun Pharma will provide the RBI with
the final documents at which time Sun Pharma should receive final
approval to execute the definitive agreements.
There is no assurance that agreements between Sun Pharma and the
Corporation will be consummated or will be consummated pursuant to
the terms of the above referenced proposals. If no agreements are
consummated, it is anticipated that the Corporation could
immediately commence bankruptcy proceedings under Chapter 7 of the
Federal Bankruptcy Code of 1978, as amended.
ITEM 6. EXHIBITS AND REPORTS
a. The following exhibit is filed as part of this report and is
attached hereto:
EXHIBIT 27 - Financial Data Schedule
b. There were no Form 8-K's filed during the first quarter of 1997.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Company has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CARACO PHARMACEUTICAL LABORATORIES, LTD.
By: /s/ Allan J. Hammer
--------------------------------------
Allan J. Hammer
Chief Financial Officer (Principal
Accounting Officer and a duly
authorized signatory of the Company)
DATED: May 14, 1997
<PAGE> 13
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT TABLE
NUMBER EXHIBIT PAGE
- -----------------------------------------------------------------
<S> <C> <C>
27 Financial Data Schedule 14
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 57,378
<SECURITIES> 82,000
<RECEIVABLES> 114,361
<ALLOWANCES> (20,000)
<INVENTORY> 279,067
<CURRENT-ASSETS> 644,411
<PP&E> 10,610,216
<DEPRECIATION> (2,379,590)
<TOTAL-ASSETS> 8,957,037
<CURRENT-LIABILITIES> 13,226,048
<BONDS> 0
0
1,000,000
<COMMON> 19,646,974
<OTHER-SE> (24,915,985)
<TOTAL-LIABILITY-AND-EQUITY> 8,957,037
<SALES> 256,588
<TOTAL-REVENUES> 256,588
<CGS> 419,791
<TOTAL-COSTS> 419,791
<OTHER-EXPENSES> 784,922
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (207,477)
<INCOME-PRETAX> (1,155,602)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,155,602)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,155,602)
<EPS-PRIMARY> (.15)
<EPS-DILUTED> 0
</TABLE>
