<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, 2000
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 6, 2000: 20,084,618 shares
The total number of pages is 14
--
<PAGE> 2
CARACO PHARMACEUTICAL LABORATORIES LTD.
BALANCE SHEET
<TABLE>
<CAPTION>
PARTICULARS MARCH
31 2000
ASSETS AMOUNT (USD)
<S> <C>
CURRENT ASSETS
Cash and cash equivalents $ 396,261
Accounts receivables, net of allowances of $145,000 605,212
Inventories 1,343,934
Prepaid expenses and deposits 59,260
TOTAL CURRENT ASSETS 2,404,667
PROPERTY, PLANT AND EQUIPMENT - AT COST
Land 197,305
Building and improvements 6,756,649
Equipment 4,235,592
Furniture and fixtures 179,211
Total 11,368,757
Less: accumulated depreciation 4,009,154
NET PROPERTY, PLANT & EQUIPMENT 7,359,603
TOTAL ASSETS $ 9,764,270
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Accounts payable $ 1,112,590
Accounts payable, Sun Pharma 274,148
Accrued expenses 317,364
Accrued interest 3,097,410
Current portion of long-term debt - EDC 7,980,000
Current portion of long-term debt - Stockholders 1,465,000
TOTAL CURRENT LIABILITIES 14,246,512
LONG-TERM LIABILITIES
Notes payable to stockholders 8,150,000
Preferred stock dividends payable 195,000
TOTAL LONG-TERM LIABILITIES 8,345,000
TOTAL LIABILITIES 22,591,512
STOCKHOLDERS' DEFICIT
Preferred stock, no par value, authorized 5,000,000 shares; 1,000,000
issued and outstanding, 285,714 Series A shares
Common stock, no par value, authorized 30,000,000 shares; 31,232,465
issued and outstanding, 18,556,295 shares
Preferred stock dividends (195,000)
Accumulated deficit (44,864,707)
TOTAL STOCKHOLDERS' DEFICIT (12,827,242)
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 9,764,270
</TABLE>
SEE ACCOMPANYING NOTES
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<PAGE> 3
CARACO PHARMACEUTICAL LABORATORIES, LTD.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PARTICULARS THREE MONTHS ENDED
MARCH
2000 1999
---- ----
<S> <C> <C>
Net Sales $ 782,236 $ 879,446
Cost of goods sold 802,198 858,857
GROSS PROFIT (DIFFERENTIAL) (19,962) 20,589
Selling, general & administrative expenses 529,540 471,179
Research & development costs 739,054 1,169,649
OPERATING LOSS (1,288,556) (1,620,239)
Other income (expense)
Interest expense (364,518) (206,621)
Interest income 9,496 5,483
OTHER EXPENSE - NET (355,022) (201,138)
NET LOSS $ (1,643,578) $ (1,821,377)
NET LOSS PER BASIC AND DILUTED COMMON SHARE $ (0.09) $ (0.10)
</TABLE>
SEE ACCOMPANYING NOTES
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<PAGE> 4
CARACO PHARMACEUTICAL LABORATORIES, LTD.
STATEMENTS OF SHAREHOLDERS' DEFICIT AS AT MARCH 31, 2000
<TABLE>
<CAPTION>
COMMON
STOCK PREFERRED
PREFERRED STOCK COMMON STOCK SUBSCRIPTION STOCK
SHARES AMOUNT SHARES AMOUNT RECEIVABLE DIVIDENDS
<S> <C> <C> <C> <C> <C> <C>
Balance at
January 1, 1999 285,714 $ 1,000,000 14,528,000 $ 29,025,840 $ (120,000)
Preferred dividend (15,000)
Issuances of common stock 1,650,695 365,000
Retirement of Common Stock
Net loss
Balance at March 31, 1999 285,714 $ 1,000,000 16,178,695 $ 29,390,840 $ - $ (135,000)
Balance at
January 1, 2000 285,714 1,000,000 18,556,295 31,232,465 - (180,000)
Preferred dividend (15,000)
Net loss
Balance at March 31, 2000 285,714 $ 1,000,000 18,556,295 $ 31,232,465 $ - $ (195,000)
<CAPTION>
ACCUMULATED
DEFICIT TOTAL
<S> <C> <C>
Balance at
January 1, 1999 $ (33,481,145) $ (3,575,305)
Preferred dividend (15,000)
Issuances of common stock 365,000
Retirement of Common Stock
Net loss (1,821,377) (1,821,377)
Balance at March 31, 1999 $ (35,302,522) $ (5,046,682)
Balance at
January 1, 2000 (43,221,129) $ 11,168,664)
Preferred dividend - (15,000)
Net loss (1,643,578) (1,643,578)
Balance at March 31, 2000 $ (44,864,707) $(12,827,242)
</TABLE>
SEE ACCOMPANYING NOTES
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<PAGE> 5
CARACO PHARMACEUTICAL LABORATORIES, LTD.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PARTICULARS 1ST QUARTER ENDED MARCH 31,
2000 1999
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (1,643,578) $ (1,821,377)
Adjustments to reconcile net loss to
net cash used in operating activities
Depreciation 144,601 150,000
Non cash interest expense 365,360
Changes in operating assets and liabilities
which provided (used) cash:
Accounts receivable (241,024) (2,385)
Inventories 361,158 (132,758)
Prepaid expenses and deposits 18,075 55,915
Accounts payable (144,395) 561,524
Accrued expenses 41,533 157,370
NET CASH USED IN OPERATING ACTIVITIES (1,098,270) (1,031,711)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment (50,988) (97,525)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuances of common stock - 365,000
Proceeds from short-term debt 2,000,000 450,000
Payments on long-term debt to EDC (900,000)
NET CASH PROVIDED FROM FINANCING ACTIVITIES 1,100,000 815,000
NET (DECREASE) IN CASH AND CASH EQUIVALENTS (49,258) (314,236)
Cash and cash equivalents, beginning of period 445,519 823,576
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 396,261 $ 509,340
</TABLE>
SEE ACCOMPANYING NOTES
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<PAGE> 6
CARACO PHARMACEUTICAL LABORATORIES LTD.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
1. BASIS OF PRESENTATION
The balance sheet as of March 31, 2000 and the related statements of operations,
stockholders' deficit and cash flows for the three months ended March 31, 2000
and 1999 are unaudited. In the opinion of management, all adjustments necessary
for a fair presentation of such financial statements have been included. Such
adjustments consisted only of normal recurring items. Interim results are not
necessarily indicative of results for the full year.
The financial statements as of March 31, 2000 and for the three months ended
March 31, 2000 and 1999 should be read in conjunction with the financial
statements and notes thereto included in the Corporation's Annual Report on Form
10-KSB for the year ended December 31, 1999.
The accounting policies followed by the Corporation with respect to the
unaudited interim financial statements are consistent with those stated in the
1999 Caraco Pharmaceutical Laboratories, Ltd., Annual Report on Form 10-KSB.
The accompanying financial statements have been prepared assuming that the
Corporation 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 and an Indian specialty pharmaceutical company, Sun
Pharmaceutical Industries, Ltd. ("Sun Pharma") completed an agreement, in 1997,
whereby Sun Pharma has invested $7,500,000 into common stock of the Corporation,
and is required to exchange the formula for 25 products over a period of five
years to the Corporation in exchange for 544,000 shares of Caraco common stock
to be issued for each product (181,333 shares, for each DESI (Drug Efficacy
Study Implementation) product). At December 31, 1999, Sun Pharma has delivered
the formula for 6 products, and holds approximately 48% of the outstanding
common stock of the Corporation.
The Corporation has never achieved sales necessary to support operations. The
Corporation has, as of March 31, 2000, a stockholders' deficit of $12,827,242.
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.
Management's plan with regard to improving profitability, cash flows and
operations include infusion of additional funding from Sun Pharma and obtaining
additional bank lines of credit. Management's plan for 2000 includes:
- - Focusing on compliance with FDA regulations.
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<PAGE> 7
- - Focusing on research and development with their staff of 8 scientists.
Additionally, continued support from Sun Pharma having 26 researchers
working in India supporting Caraco's research and development efforts.
These personnel have a proven background in pharmaceutical development.
- - The research and development team has already established
bio-equivalence of nine ANDA products, out of which five have been
filed with the FDA for approval. Further, seven DESI products have been
developed and are being marketed. The team is presently working on 21
products which are in different stages of development including the
products mentioned above. There is no assurance, however, that any of
these products will be developed and marketed. The Corporation expects
to complete the development of four to six products each year.
- - The Corporation intends to increase the width and depth of product
portfolio to serve the customers effectively.
- - With the increase in the number of products, as well as anticipated
volume increases for existing products, it is expected that
manufacturing capacity utilization will improve, resulting in better
cost absorption and improved margins.
- - The Corporation is committed to continuing R&D efforts and expects to
spend approximately the same in 2000 as in 1999.
- - The Corporation will strive to enhance customer reach and achieve
customer satisfaction through reliable product deliveries.
- - The Corporation is presently evaluating alliances with leading
companies for manufacturing and marketing of new pharmaceutical
products.
2. COMPUTATION OF LOSS PER SHARE
Loss per share is computed using the weighted average number of common shares
outstanding during each period and considers a dual presentation and
reconciliation of "basic" and "diluted" per share amounts. Diluted reflects the
potential dilution of all common stock equivalents. Since the assumed exercise
of common stock options and warrants and the assumed conversion of preferred
stock and convertible stockholder notes into common stock would be antidilutive,
such exercise is not assumed for purposes of determining diluted loss per share.
Accordingly, diluted and basic per share amounts are equal in each period.
The weighted average number of common shares outstanding (basic and diluted) for
the period ended March 31, 2000 and March 31, 1999 were 18,556,295 and
15,857,929, respectively.
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<PAGE> 8
3. MORTGAGE NOTE
EDC Loan
Debt at March 31, 2000 consists of a note payable to the Economic Development
Corporation (EDC) of the City of Detroit, related to funds advanced to the
Corporation pursuant to a Development and Loan Agreement (the "Agreement") dated
August 10, 1990 as amended. The note is collateralized by a first mortgage,
effectively, on all of the Corporation's property and equipment purchased
pursuant to the Agreement.
Effective April 2, 1993, and subsequently on August 5, 1997, the Corporation and
the EDC of the City of Detroit restructured the Agreement discussed above. The
amendment included the deferral of scheduled principal and interest payments
until February 1, 1999, at which time additional deferred principal and interest
due under the terms of the original agreement were required in amounts
sufficient to amortize the total deferred amount through July 2002. Additionally
the amendment included a reduction in the stipulated interest rate from the
inception of the loan through 1993 from 10% to 8.5%. The interest rates from
1994 through July 2002 vary from 5% to 6.3%, as described in the amendments
(effective rate of 5.93% at December 31, 1999.)
As a condition of the deferral, the EDC was provided additional security on all
the Corporation's existing equipment and the Corporation agreed to comply with
several additional financial and operating covenant which include, limiting
capital expenditures made without the consent of the EDC to under $2,000,000
during the deferral period, and abstaining from share redemption during the
payment deferral period.
During 1999, the Corporation had not made any of the scheduled payments related
to the agreement. The Corporation is currently renegotiating the repayment terms
with the EDC. During the first quarter of 2000 the Corporation made payments of
$900,000 to the EDC. Such payments have not brought the Corporation current in
its obligations to the EDC, and such payments were made without prejudice to the
rights of the EDC to exercise all remedies available to the EDC for failure to
make the scheduled payments. While the terms of the restructured loan are being
negotiated, the Corporation intends to continue to make payments to the EDC,
again without prejudice to the rights of the EDC. Upon a final agreement of the
restructured terms of the loan, of which there can be no assurance, the
Corporation expects to then commence making the requisite agreed upon payments.
-8-
<PAGE> 9
4. STOCKHOLDER NOTES PAYABLE
<TABLE>
<S> <C>
Stockholder Notes Payable
Stockholder notes payable consist of the following obligations as of March 31:
1999
10% Promissory note payable to Sun Pharma, principal balance payable in full in
October 2003, with interest payable semi-annually, subject to the provisions of
an Inter-Creditor agreement. $ 5,300,000
10% line of credit payable to Sun Pharma, which matures no later than December
2001. 2,000,000
10% Promissory notes payable to two stockholder directors, with principal which
was due August 1999 and is subject to the provisions of an Inter-Creditor
agreement. These notes were converted into 1,376,000 common shares of the
Corporation on April 1, 2000. 1,290,000
10% Promissory note payable to Sun Pharma Global, Inc., a wholly-owned
subsidiary of Sun Pharma, subject to the provisions of an Inter-Creditor
agreement. 850,000
10% Promissory note payable to stockholder director, payable in quarterly
installments of $25,000 through 2000, with a final payment due December 2000 in
the form of common shares of the Corporation equal to $100,000. 175,000
----------
Total shareholder notes payable 9,615,000
Less amounts due within one year 1,465,000
----------
Shareholder notes due after one year $8,150,000
==========
</TABLE>
Notes payable to Sun Pharma and Sun Pharma Global, Inc. are subordinated to the
EDC loan, these parties currently have no intent of demanding payment within the
upcoming year; therefore, such notes have been classified as long-term.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF PLAN OF OPERATIONS
Sales
Net sales for the periods ended March 31, 2000 and 1999 were $782,236 and
$879,446 respectively. The decrease of 11% is directly attributable to
nonavailabilty of contract manufacturing. The contract manufacturing revenue
during the first quarter of 1999 amounted to approximately $200,000 as against
no contract manufacturing revenue during that quarter of 2000. Caraco product
sales increased from $673,446 in 1999 to $782,236 during first quarter 2000
amounting to a 16% increase.
-9-
<PAGE> 10
Gross Profit (Differential)
The Corporation posted a gross loss of $19,962 for the first three months of
2000 as against the gross profit of $20,589 for the corresponding period of
1999. The decrease in margin was a direct result of non availability of contract
manufacturing business resulting in lower capacity utilization.
Selling, General and Administrative Expenses (SG&A)
Selling, general and administrative expenses for the periods ended March 31,
2000 and March 31, 1999 were $529,540 and $471,179 respectively, representing an
increase of 12%. The increase in SG&A relates to severance compensation paid to
employees and consulting costs related to regulatory compliance.
Research and Development Expenses
Research and Development expenses of $739,054 for the first quarter ended March
31, 2000 were lower by 37%, when compared with $1,169,649 incurred during the
corresponding quarter of 1999. The substantial decrease was mainly due to
rescheduling of bioequivalance studies.
As a result of ongoing research and development efforts and products received
from Sun Pharma the Corporation presently has submitted five (5) ANDAs to the
U.S. Federal Drug Administration for approval and has completed three (3)
bio-equivalence studies awaiting the expiration of exclusivity for submission.
In addition, four (4) more products are in advanced stages of development. All
together the Corporation has twenty-one (21) products under development.
Interest Expense
Interest expense, which is incurred primarily in connection with the
Corporation's mortgage obligation to the EDC and note payable to stockholders
was $364,518 and $206,621 for periods ended March 31, 2000 and 1999,
respectively.
Results of Operations
Operating net losses for the periods ended March 31, 2000 and 1999 were
$1,643,578 and $1,821,377 respectively. The operating losses are directly
related to (1) net sales, which were inadequate to absorb the fixed costs of the
Corporation's operational expenses and (2) research and development spending.
-10-
<PAGE> 11
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, obtaining additional financing, government restrictions on sale of
certain products, obtaining FDA approvals, development by competitors of new or
superior products or new technology for production of products or the entry into
the market of new competitors and other risks identified from time to time in
the Corporation's reports and registration statements filed with the Securities
and Exchange Commission.
Liquidity and Capital Resources
At March 31, 2000, the Corporation had negative working capital of $11,841,845
compared with a negative working capital of $975,653 for the corresponding
quarter of 1999. The increase in negative working capital for the quarter ended
March 31, 2000 was mainly due to the ongoing negotiations with the EDC to
restructure debt repayments which has resulted in the entire amount of the EDC
debt and related accrued interest to be classified as current.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
The Company is currently in default of debt with the Economic Development
Corporation of the City of Detroit.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
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<PAGE> 12
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 2000.
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
hereunto duly authorized.
CARACO PHARMACEUTICAL LABORATORIES, LTD.
By: /s/ Narendra N. Borkar
--------------------------------------
Narendra N. Borkar
Chief Executive Officer (A duly
authorized signatory of the Company)
DATED: May 12, 2000
-12-
<PAGE> 13
EXHIBIT INDEX
EXHIBIT TABLE
NUMBER EXHIBIT PAGE
- --------------------------------------------------------------------------------
27 Financial Data Schedule 14
-13-
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 396,261
<SECURITIES> 0
<RECEIVABLES> 605,212
<ALLOWANCES> 145,000
<INVENTORY> 1,343,934
<CURRENT-ASSETS> 2,404,667
<PP&E> 11,368,757
<DEPRECIATION> 4,009,154
<TOTAL-ASSETS> 9,764,270
<CURRENT-LIABILITIES> 14,246,512
<BONDS> 0
0
1,000,000
<COMMON> 31,232,465
<OTHER-SE> (44,864,707)
<TOTAL-LIABILITY-AND-EQUITY> 9,764,270
<SALES> 782,236
<TOTAL-REVENUES> 782,236
<CGS> 802,198
<TOTAL-COSTS> 802,198
<OTHER-EXPENSES> (1,288,556)
<LOSS-PROVISION> 107,000
<INTEREST-EXPENSE> (355,022)
<INCOME-PRETAX> (1,643,578)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,643,578)
<EPS-BASIC> (0.09)
<EPS-DILUTED> (0.09)
</TABLE>