-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, TKAh1w0kgwGElzmVcBh2inYBa2R4uXAJuL7E4wGl8FmDTcLbKBI/XOWKXO39aj+k 1cddHc1yAeuebungCpzF3A== 0000889697-00-000025.txt : 20000215 0000889697-00-000025.hdr.sgml : 20000215 ACCESSION NUMBER: 0000889697-00-000025 CONFORMED SUBMISSION TYPE: 10QSB/A PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000214 FILER: COMPANY DATA: COMPANY CONFORMED NAME: LANNETT CO INC CENTRAL INDEX KEY: 0000057725 STANDARD INDUSTRIAL CLASSIFICATION: PHARMACEUTICAL PREPARATIONS [2834] IRS NUMBER: 230787699 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10QSB/A SEC ACT: SEC FILE NUMBER: 000-09036 FILM NUMBER: 542500 BUSINESS ADDRESS: STREET 1: 9000 STATE RD CITY: PHILADELPHIA STATE: PA ZIP: 19136 BUSINESS PHONE: 2153339000 MAIL ADDRESS: STREET 1: 9000 STATE ROAD STREET 2: 9000 STATE ROAD CITY: PHLADELPHIA STATE: PA ZIP: 19136 FORMER COMPANY: FORMER CONFORMED NAME: NETHERLANDS SECURITIES INC DATE OF NAME CHANGE: 19660629 10QSB/A 1 ============================================================================= UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-QSB/A x QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 1999. o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ____________ TO ____________. Commission File No. 0-9036 LANNETT COMPANY, INC. (Exact Name of Small Business Issuer as Specified in its Charter) State of Delaware 23-0787-699 (State of Incorporation) (I.R.S. Employer I.D. No.) 9000 State Road Philadelphia, PA 19136 (215) 333-9000 (Address of principal executive offices and telephone number) Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes __x__ No _____ As of February 11, 2000, there were 13,206,128 shares of the issuer's common stock, $.001 par value, outstanding. Page 1 of 23 pages Exhibit Index on Page 15 INDEX Page No. -------- PART I. FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Balance Sheets as of December 31, 1999 (unaudited) and June 30, 1999...........................................3 Consolidated Statements of Operations for the three and six months ended December 31, 1999 and 1998 (unaudited)..................4 Consolidated Statements of Cash Flows for the six months ended December 31, 1999 and 1998 (unaudited)....................................5 Notes to Consolidated Financial Statements (unaudited)..............................6 - 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.........................................8 - 11 PART II. OTHER INFORMATION Item 1. Legal Proceedings......................................12 Item 2. Changes in Securities and Use of Proceeds..............12 Item 3. Defaults upon Senior Securities........................12 Item 4. Submission of Matters to a Vote of Security Holders.......................................12 Item 5. Other Information......................................13 Item 6. Exhibits and Reports on Form 8-K.......................13 2 PART I. FINANCIAL INFORMATION ITEM I. FINANCIAL STATEMENTS
LANNETT COMPANY, INC. AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS (UNAUDITED) ASSETS 12/31/99 06/30/99 - ------ ---------- -------- CURRENT ASSETS: Cash $ 600 $ 117,004 Trade accounts receivable (net of allowance of $108,000 and $165,000) 1,396,621 1,602,603 Inventories 3,064,500 2,624,378 Prepaid expenses 41,334 68,736 ------------ ------------ Total current assets 4,503,055 4,412,721 ------------ ------------ PROPERTY, PLANT AND EQUIPMENT 7,191,917 6,880,291 Less accumulated depreciation (2,371,575) (2,063,543) ------------ ------------ 4,820,342 4,816,748 ------------ ------------ RESTRICTED CASH 2,479,188 2,584,321 OTHER ASSETS 288,113 308,542 DEFERRED TAX ASSET 645,216 545,216 ------------ ------------ Total assets $ 12,735,914 $ 12,667,548 ============ ============ LIABILITIES AND SHAREHOLDERS' EQUITY/(DEFICIENCY) CURRENT LIABILITIES: Line of credit $ 1,745,153 $ -- Accounts payable 670,147 797,018 Deferred interest payable - shareholder (including -- 385,659 convertible deferred interest payable of $0 and $385,659) Accrued expenses 211,434 340,785 Convertible note payable - shareholder -- 2,000,000 Current portion of long-term debt 667,750 658,368 ------------ ------------ Total current liabilities 3,294,484 4,181,830 ------------ ------------ LONG-TERM DEBT, LESS CURRENT PORTION 4,963,953 5,297,917 ------------ ------------ LINE OF CREDIT -- 1,322,000 ------------ ------------ LINE OF CREDIT - SHAREHOLDER 4,225,000 4,225,000 ------------ ------------ COMMITMENTS AND CONTINGENCIES SHAREHOLDERS' EQUITY/(DEFICIENCY): Common stock - authorized 50,000,000 shares par value $.001: issued and outstanding, 13,206,128 and 5,206,128 shares 13,206 5,206 Additional paid-in capital 2,312,575 320,575 Accumulated deficit (2,073,304) (2,684,980) ------------ ------------ Total shareholders' equity/(deficiency) 252,477 (2,359,199) ------------ ------------ Total liabilities and shareholders' equity/deficiency $ 12,735,914 $ 12,667,548 ============ ============ See notes to consolidated financial statements
3
LANNETT COMPANY, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) FOR THE THREE MONTHS ENDED FOR THE SIX MONTHS ENDED -------------------------- ------------------------ 12/31/99 12/31/98 12/31/99 12/31/98 -------- -------- -------- -------- NET SALES $ 3,138,722 $ 3,070,512 $ 5,855,915 $ 5,103,997 COST OF SALES 2,143,912 1,860,271 3,992,190 3,190,605 ------------ ------------ ------------ ------------ Gross profit 994,810 1,210,241 1,863,725 1,913,392 RESEARCH AND DEVELOPMENT EXPENSES 136,438 168,555 266,501 330,151 SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 374,714 305,150 674,969 558,540 ------------ ------------ ------------ ------------ Operating profit 483,658 736,536 922,255 1,024,701 ------------ ------------ ------------ ------------ OTHER INCOME (EXPENSES), NET Interest income 22,057 -- 53,492 -- Interest expense (223,981) (192,637) (456,271) (422,385) ------------ ------------ ------------ ------------ (201,924) (192,637) (402,779) (422,385) ------------ ------------ ------------ ------------ NET INCOME BEFORE TAXES $ 281,734 $ 543,899 $ 519,476 $ 602,316 ------------ ------------ ------------ ------------ INCOME TAX (BENEFIT)/EXPENSE $ (99,700) $ 40,000 $ (92,200) $ 40,000 NET INCOME $ 381,434 $ 503,899 $ 611,676 $ 562,316 ============ ============ ============ ============ BASIC INCOME PER SHARE $ .06 $ .10 $ .11 $ .11 DILUTED INCOME PER SHARE $ .03 $ .03 $ .05 $ .04 BASIC WEIGHTED AVERAGE NUMBER OF SHARES 6,075,693 5,206,128 5,640,910 5,206,128 DILUTED WEIGHTED AVERAGE NUMBER OF SHARES 13,206,128 15,722,097 13,206,128 15,722,097 See notes to the consolidated financial statements
4
LANNETT COMPANY, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) FOR THE SIX MONTHS ENDED ------------------------ 12/31/99 12/31/98 -------- -------- OPERATING ACTIVITIES: Net income $ 611,676 $ 562,316 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 329,009 251,855 Deferred tax benefit (100,000) Changes in assets and liabilities which provided/(used) cash: Trade accounts receivable 205,982 (695,038) Inventories (440,122) (251,814) Prepaid expenses 27,402 120,114 Other assets (548) Accounts payable (126,871) 101,333 Accrued expenses (129,351) (53,870) --------- --------- Net cash provided by operating activities 377,177 291,620 --------- --------- INVESTING ACTIVITIES: Purchases of property, plant and equipment (311,626) (679,190) Restricted cash equivalents for purchase of plant and equipment 105,133 --------- --------- Net cash used in investing activities (206,493) (679,190) --------- --------- FINANCING ACTIVITIES: Borrowings under line of credit - shareholder -- 300,000 Net borrowings under line of credit 423,153 250,000 Borrowings of deferred interest - shareholder 256,724 Repayments of deferred interest - shareholder (385,659) Repayments of debt (324,582) (179,125) --------- --------- Net cash (used in)/provided by financing activities (287,088) 370,875 --------- --------- NET (DECREASE) INCREASE IN CASH (116,404) (16,695) CASH, BEGINNING OF YEAR 117,004 16,695 --------- --------- CASH, END OF PERIOD $ 600 $ 0 ========= ========= See notes to the consolidated financial statements
5 LANNETT COMPANY, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) Note 1. Consolidated Financial Statements In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments (consisting of only normal recurring adjustments) necessary to present fairly the financial position and the results of operations and cash flows. The results of operations for the three and six months ended December 31, 1999 and 1998 are not necessarily indicative of results for the full year. While the Company believes that the disclosures presented are adequate to make the information not misleading, it is suggested that these consolidated financial statements be read in conjunction with the consolidated financial statements and the notes included in the Company's Annual Report on Form 10-KSB for the year ended June 30, 1999. Note 2. New Accounting Standards In June 1998, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 133, Accounting for Derivative Instruments and Hedging Activities. This statement establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts (collectively referred to as derivatives), and for hedging activities. It requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. This statement, as amended by SFAS No. 137, Accounting for Derivative Instruments and Hedging Activities--Deferral of the Effective Date of FASB Statement No. 133, is effective for all fiscal quarters of fiscal years beginning after June 15, 2000. The Company is in the process of analyzing the impact of adopting SFAS No. 133 will have on its consolidated financial position and results of operations when such statement is adopted. Note 3. Inventories Inventories consist of the following: December 31, June 30, 1999 1999 ------------ -------- (unaudited) Raw materials $ 886,161 $ 643,052 Work-in-process 968,071 1,011,640 Finished goods 870,899 661,055 Packaging supplies 339,369 308,631 ---------- ---------- $3,064,500 $2,624,378 ========== ========== 6 Note 4. Income Taxes The provision for state income taxes for the six months ended December 31, 1999 was $300. The provision for federal income taxes for the six months ended December 31, 1999 of approximately $202,000 was eliminated by the utilization of federal net operating loss carryforwards, with the exception of $7,500. Additionally, as of December 31, 1999, the Company reduced its valuation allowance (related to federal net operating loss carryforwards) by $302,000. This adjustment, along with the aforementioned utilization of loss carryforwards, increased the net deferred tax asset on the Company's balance sheet to $645,216 at December 31, 1999. Note 5. Related Party Transactions The Company had sales of approximately $4,476,000 and $1,812,000 during the six months ended December 31, 1999 and 1998, respectively, to a distributor (the "related party") in which the owner is a relative of the Chairman of the Board of Directors and principal shareholder of the Company. Accounts receivable includes amounts due from the related party of approximately $1,063,000 and $408,000 at December 31, 1999 and June 30, 1999, respectively. 7 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. Results of Operations. In addition to historical information, this Form 10-QSB contains forward-looking information. The forward-looking information contained herein is subject to certain risks and uncertainties that could cause actual results to differ materially from those projected in the forward-looking statements. Important factors that might cause such a difference include, but are not limited to, those discussed in the following section entitled "Management's Discussion and Analysis of Results of Operations and Financial Condition." Readers are cautioned not to place undue reliance on these forward-looking statements, which reflect management's analysis only as of the date of this Form 10-QSB. The Company undertakes no obligation to publicly revise or update these forward-looking statements to reflect events or circumstances which arise later. Readers should carefully review the risk factors described in other documents the Corporation files from time to time with the Securities and Exchange Commission, including the Annual report on Form 10-KSB filed by the Corporation in Fiscal 1999, and any Current Reports on Form 8-K filed by the corporation. Results of Operations -Three months ended December 31, 1999 compared with three months ended December 31, 1998. Net sales for the three months ended December 31, 1999 ("Second Quarter Fiscal 2000") increased by 2.2% to $3,138,722 from net sales of $3,070,512 in the three months ended December 31, 1998 ("Second Quarter Fiscal 1999). Sales increased during Second Quarter Fiscal 2000 due to increased sales of the Company's Over-The-Counter ("OTC") product line, offset partially by a decrease in sales of the Company's prescription products. OTC sales increased by approximately $1,244,000 from Second Quarter Fiscal 1999 to Second Quarter Fiscal 2000. Prescription sales decreased by approximately $1,170,000 from Second Quarter Fiscal 1999 to Second Quarter Fiscal 2000. Cost of sales increased by 15.2% to $2,143,912 in Second Quarter Fiscal 2000 from $1,860,271 in Second Quarter Fiscal 1999. The cost of sales increase is due to the increase in unit sales from the Second Quarter Fiscal 1999 to the Second Quarter Fiscal 2000. Due to competitive pricing erosion, the increase in cost of sales from the Second Quarter Fiscal 1999 to the Second Quarter Fiscal 2000 was significantly higher than the increase in sales from the Second Quarter Fiscal 1999 to the Second Quarter Fiscal 2000. Gross profit margins for Second Quarter Fiscal 2000 and Second Quarter Fiscal 1999 were 31.7% and 39.4%, respectively. The decrease in the gross profit percentage is due to changes in the product sales mix, and the competitive pricing erosion which decreased unit sale prices. Selling, general and administrative expenses increased by 22.8% to $374,714 in Second Quarter Fiscal 2000 from $305,150 in Second Quarter Fiscal 1999. This increase is due to rising costs related to certain administrative functions, such as employee benefits and professional fees, and higher depreciation expense. As a result of the foregoing, the Company reported an operating profit of $483,658 for Second Quarter Fiscal 2000, as compared to an operating profit of $736,536 for Second Quarter Fiscal 1999. The Company's interest expense increased to $223,981 in Second Quarter Fiscal 2000 from $192,637 in Second Quarter Fiscal 1999, primarily due to increased borrowings on the Company's lines of credit and term loans. See Liquidity and Capital Resources below. 8 The Company reported net income of $381,434 for Second Quarter Fiscal 2000, $0.06 basic income per share, $0.03 on a diluted basis, compared to net income of $503,899 for Second Quarter Fiscal 1999, $0.10 basic income per share, $0.03 on a diluted basis. Results of Operations -Six months ended December 31, 1999 compared with Six months ended December 31, 1998. Net sales for the six months ended December 31, 1999 increased by 14.7% to $5,855,915 from net sales of $5,103,997 for the six months ended December 31, 1998. Sales increased due to increased sales of the Company's Over-The-Counter ("OTC") product line, offset partially by a decrease in sales of the Company's prescription products. OTC sales increased by approximately $2,556,000 from the six months ended December 31, 1998 to the six months ended December 31, 1999. Prescription sales decreased by approximately $1,783,000 from the six months ended December 31, 1998 to the six months ended December 31, 1999. Cost of sales increased by 25.1%, to $3,992,190 for the six months ended December 31, 1999 from $3,190,605 for the six months ended December 31, 1998. The cost of sales increase is due to the increase in unit sales from the six months ended December 31, 1998 to the six months ended December 31, 1999. Due to competitive pricing erosion, the increase in cost of sales from the six months ended December 31, 1998 to the six months ended December 31, 1999 was higher than the increase in sales from the six months ended December 31, 1998 to the six months ended December 31, 1999. Gross profit margins for the six months ended December 31, 1999 and the six months ended December 31, 1998 were 31.8% and 37.5%, respectively. The decrease in the gross profit percentage is due to changes in the product sales mix, and the competitive pricing erosion which decreased unit sale prices. Selling, general and administrative expenses increased by 20.8% to $674,969 for the six months ended December 31, 1999 from $558,540 for the six months ended December 31, 1998. This increase is due to rising costs related to certain administrative functions, such as employee benefits and professional fees, and higher depreciation expense. As a result of the foregoing, the Company reported an operating profit of $922,255 for the six months ended December 31, 1999, as compared to an operating profit of $1,024,701 for the six months ended December 31, 1998. The Company's interest expense increased to $456,271 for the six months ended December 31, 1999 from $422,385 for the six months ended December 31, 1998, primarily due to increased borrowings on the Company's lines of credit and term loans. See Liquidity and Capital Resources below. The Company reported net income of $611,676 for the six months ended December 31, 1999, $0.11 basic income per share, $0.05 on a diluted basis, compared to net income of $562,316 for the six months ended December 31, 1998, $0.11 basic income per share, $0.04 on a diluted basis. Liquidity and Capital Resources - Net cash provided by operating activities of $377,177 during the six months ended December 31, 1999 was attributable to net income of $611,676 as adjusted for the effects of non-cash items of $229,009 and changes in operating assets and liabilities totaling ($463,508). The Company expended $311,626 for property, plant and equipment during the six months ended December 31, 1999. The Company has budgeted for $750,000 in capital expenditures in Fiscal 2000. The anticipated capital expenditure requirements are necessary to support the growth of the Company's OTC product line and 9 contract manufacturing, and to support new product introductions. As of December 31, 1999, approximately $2,479,000 from the proceeds of the bonds issued during Fiscal 1999 was available in financing restricted for certain future capital expenditures. The Company has a financing facility made available to it by William Farber, a principal shareholder and Chairman of the Board of Directors which consists of a $4,250,000 revolving line of credit ("Shareholder Line of Credit"). The principal balance on the Shareholder Line of Credit was extended to October 1, 2001. At December 31, 1999, interest accrued to date was paid in full. At December 31, 1999, the Company had $4,225,000 outstanding and $25,000 available under the Shareholder Line of Credit. The Company also had a convertible debenture made available to it by William Farber, a principal shareholder and Chairman of the Board of Directors. The maturity date of the shareholder debenture was December 23, 1999. On December 22, 1999, William Farber elected to convert the debenture into shares of common stock of the Company. The shareholder debenture and accrued interest was convertible at the rate of 4,000 shares of common stock for each $1,000 of outstanding indebtedness. The principal balance on the debenture at the time of conversion was $2,000,000, and the interest on the debenture was paid to date; therefore the transaction converted the $2,000,000 of indebtedness to 8,000,000 shares of the Company's common stock. In April 1999, the Company entered into a loan agreement (the "Agreement") with a governmental authority (the "Authority") to finance future construction and growth projects of the Company. The Authority has issued $3,700,000 in tax-exempt variable rate demand and fixed rate revenue bonds to provide the funds to finance such growth projects pursuant to a trust indenture (the "Trust Indenture"). A portion of the Company's proceeds from the bonds was used to pay for bond issuance costs of approximately $170,000. The remainder of the proceeds were deposited into a money market account, which is restricted to future plant and equipment needs of the Company as specified in the Agreement. The Agreement requires the Company to repay the Authority loan through installment payments beginning in May 2003 and continuing through May 2014, the year the bonds mature. At December 31, 1999, the Company had $3,700,000 outstanding on the Authority loan, which is classified as a long-term liability. In April 1999, an irrevocable letter of credit of $3,770,000 was issued by a bank to secure payment of the Authority Loan and a portion of the related accrued interest. At December 31, 1999, no portion of the letter of credit has been utilized. In April 1999, the Company authorized and directed the issuance of $2,300,000 in taxable variable rate demand and fixed rate revenue bonds pursuant to a trust indenture between the Company and a bank as trustee (the "Trust Indenture"). From the proceeds of the bonds, $750,000 was utilized to pay deferred interest owed to the principal shareholder of the Company and approximately $1,440,000 was paid to a bank to refinance a mortgage term loan and equipment term loans. The remainder of the proceeds was used to pay bond issuance costs of approximately $109,000. The Trust Indenture requires the Company to repay the bonds through installment payments beginning in May 2000 and continuing through May 2003, the year the bonds mature. At December 31, 1999, the Company had $1,931,703 outstanding on the bonds, of which $667,750 is classified as currently due. In April 1999, an irrevocable letter of credit of approximately $2,349,000 was issued by a bank to secure payment of the bonds and a portion of the related accrued interest. At December 30, 1999 no portion of the letter of credit has been utilized. The Company has a $2,000,000 line of credit from a bank. The line of credit is due October 31, 2000, at which time the Company expects to renew and extend the due date. The line of credit is limited to 80% of qualified accounts receivable and 50% of qualified inventory. At December 31, 1999, the Company had $1,745,153 outstanding and $254,847 available under the line of credit. 10 The Company believes that cash generated from its operations and the balances available under the Company's existing loans and lines of credit as of December 31, 1999, are sufficient to finance its level of operations and currently anticipated capital expenditures. Except as set forth in this report, the Company is not aware of any trends, events or uncertainties that have or are reasonably likely to have a material adverse impact on the Company's short-term or long-term liquidity or financial condition. Prospects for the Future As of December 31, 1999 eight additional products are under development. Four of these products are being developed and manufactured for other companies, while the other four products are being developed as part of the Lannett product line. One of the Lannett products has been redeveloped and submitted to the Federal Drug Administration ("FDA") for supplemental approval. Two additional products represent previously approved Abbreviated New Drug Applications ("ANDA") that the Company is planning to reintroduce. The remaining item represents a new product, which the Company is planning to introduce. Since the Company has no control over the FDA review process, management is unable to anticipate with certainty when it will commence producing and shipping additional products. Year 2000 The Year 2000 issue relates to limitations in computer systems and applications that may prevent proper recognition of the Year 2000. The potential full effect, if any, of the Year 2000 issue on the company and its business partners will not be fully determinable until later. If problems related to the Year 2000 arise (e.g. with significant suppliers, changes in demand, etc.) within the company or entities with which the company conducts business, the company's revenues and financial condition could be adversely impacted. 11 PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS Regulatory Proceedings. The Company is engaged in an industry which is subject to considerable government regulation relating to the development, manufacturing and marketing of pharmaceutical products. Accordingly, incidental to its business, the Company periodically responds to inquiries or engages in administrative and judicial proceedings involving regulatory authorities, particularly the FDA and the Drug Enforcement Agency. Employee Claim. A claim of retaliatory discrimination has been filed by a former employee with the Pennsylvania Human Relations Commission ("PHRC"). The Company has denied liability in this matter, which is being investigated by the PHRC pursuant to its normal procedures. Management believes that the outcome will not have a material adverse impact on the financial position of the Company. A claim of sexual harassment and retaliation also has been filed against the Company by another former employee. The claim was cross-filed with the PHRC and with the Equal Employment Opportunity Commission. which already has closed its file on the charge. The Company has filed an answer with the PHRC denying the charge, and the PHRC is investigating the claim pursuant to its normal procedures. Management believes that the outcome of this charge also will not have a material adverse impact on the financial position of the Company. DES Cases. The Company is currently engaged in several civil actions as a co-defendant with many other manufacturers of Diethylstilbestrol ("DES"), a synthetic hormone. Prior litigation established that the Company's pro rata share of any liability is less than one-tenth of one percent. The Company was represented in many of these actions by the insurance company with which the Company maintained coverage during the time period that damages were alleged to have occurred. The insurance company denied coverage of actions filed after January 1, 1992. With respect to these actions, the Company paid nominal damages or stipulated to its pro rata share of any liability. The Company has either settled or is currently defending over 500 such claims. Management believes that the outcome will not have a material adverse impact on the financial position of the Company. ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS None ITEM 3. DEFAULTS UPON SENIOR SECURITIES None ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None ITEM 5. OTHER INFORMATION None 12 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) A list of the exhibits required by Item 601 of Regulation S-B to be filed as a part of this Form 10-QSB is shown on the Exhibit Index filed herewith. (b) The Company filed two reports on Form 8-K during the Quarter ended December 31, 1999. On December 17, 1999 the Company filed Form 8-K notification to Deloitte & Touche LLP that the Company had elected not to utilize the services of Deloitte & Touche LLP in connection with the audit of the Company's Fiscal 2000 financial statements. On December 29, 1999 the Company filed Form 8-K notification that it has engaged Grant Thornton LLP as the Company's new independent accountant to audit the Company's financial statements as of June 30, 2000 and for the year then ended. 13 SIGNATURE In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. LANNETT COMPANY, INC. Dated: February 11, 2000 By: / s / Larry Dalesandro ---------------- Larry Dalesandro Chief Operating Officer 14
Exhibit Index Exhibit Number Description Method of Filing Page ------- ----------- ---------------- ---- 3(a) Articles of Incorporation Incorporated by reference to the Proxy Statement - filed with respect to the Annual Meeting of Shareholders held on December 6, 1991 (the "1991 Proxy Statement"). 3(b) By-Laws, as amended Incorporated by reference to the 1991 Proxy - Statement. 4(a) Specimen Certificate for Common Incorporated by reference to Exhibit 4(a) to - Stock Form 8 dated April 23, 1993 (Amendment No. 3 to Form 10-K f/y/e June 30, 1992) ("Form 8") 10(a) Loan Agreement dated August 30, Incorporated by reference to the Annual Report - 1991 between the Company and on Form 10-K f/y/e June 30, 1991 William Farber 10(b) Amendment #1 to Loan Agreement Incorporated by reference to Exhibit 10(b) to - dated March 15, 1993 the Annual Report on Form 10-KSB f/y/e June 30, 1993 ("1993 Form 10-K") 10(c) Amendment #2 to Loan Agreement Incorporated by reference to Exhibit 10(c) to - dated August 1, 1994 the Annual Report on Form 10-KSB f/y/e June 30, 1994 ("1994 Form 10-K") 10(d) Amendment #3 to Loan Agreement Incorporated by reference to Exhibit 10(d) to - dated May 15, 1995 the Annual Report on Form 10-KSB f/y/e June 30, 1995 ("1995 Form 10-K") 10(e) Amendment #4 to Loan Agreement Incorporated by reference to Exhibit 10(e) to - dated December 31, 1995 the Annual Report on Form 10-KSB f/y/e June 30, 1996 ("1996 Form 10-K") 10(f) Amendment #5 to Loan Agreement Incorporated by reference to Exhibit 10(f) to - dated June 30, 1996 the Annual Report on Form 10-KSB f/y/e June 30, 1996 ("1996 Form 10-K") 10(g) Amendment #6 to Loan Agreement Incorporated by reference to Exhibit 10(g) to dated November 1, 1996 the Annual Report on Form 10-KSB f/y/e June 30, 1997 ("1997 Form 10-KSB") 10(h) Amendment #7 to Loan Agreement Incorporated by reference to Exhibit 10(h) to dated September 9, 1997 the Annual Report on 1997 Form 10-KSB 10(i) Amendment #8 to Loan Agreement Incorporated by reference to Exhibit 10(i) to dated June 30, 1998 the Annual Report on Form 10-KSB f/y/e June 30, 1998 ("1998 Form 10-KSB") 10(j) Amendment #9 to Loan Agreement Incorporated by reference to Exhibit 10(j) to dated December 30, 1998 the Annual Report on Form 10-KSB f/y/e June 30, 1999 ("1999 Form 10-KSB") 15 Exhibit Number Description Method of Filing Page ------- ----------- ---------------- ---- 10(k) Amendment #10 to Loan Agreement Filed Herewith 22 dated December 31, 1999 10(l) Loan Agreement dated May 4, 1993 Incorporated by reference to Exhibit 10(c) to - between the Company and Meridian the 1993 Form 10-K Bank 10(m) Amendment to Loan Documents Incorporated by reference to Exhibit 10(e) to - between the Company and Meridian the Annual Report on Form 10-KSB f/y/e June 30, Bank dated as of December 8, 1993 1994 ("1994 Form 10-K") 10(n) Letter Agreement between the Incorporated by reference to Exhibit 10(f) to - Company and Meridian Bank dated the Annual Report on Form 10-KSB f/y/e June 30, December 21, 1993 1994 ("1994 Form 10-K") 10(o) Third Amendment to Loan Incorporated by reference to Exhibit 10(g) to - Agreement dated as of June 9, the Annual Report on Form 10-KSB f/y/e June 30, 1994 1994 ("1994 Form 10-K") 10(p) Fourth Amendment to Loan Incorporated by reference to Exhibit 10(i) to - Documents between the Company the Annual Report on Form 10-KSB f/y/e June 30, and Meridian Bank as of October 1995 ("1995 Form 10-K") 27, 1994 10(q) Letter Agreement between the Incorporated by reference to Exhibit 10(j) to - Company and Meridian Bank dated the Annual Report on Form 10-KSB f/y/e June 30, October 27, 1994 1995 ("1995 Form 10-K") 10(r) Letter Agreement between the Incorporated by reference to Exhibit 10(k) to - Company and Meridian Bank dated the Annual Report on Form 10-KSB f/y/e June 30, July 10, 1995 1995 ("1995 Form 10-K") 10(s) Amendment to Security Agreement Incorporated by reference to Exhibit 10(l) to - between the Company and Meridian the Annual Report on Form 10-KSB f/y/e June 30, Bank dated as of July 31, 1995 1995 ("1995 Form 10-K") 10(t) Line of Credit Note dated July Incorporated by reference to Exhibit 10(m) to - 31, 1995 the Annual Report on Form 10-KSB f/y/e June 30, 1995 ("1995 Form 10-K") 10(u) Fifth Amendment to Loan Incorporated by reference to Exhibit 10(n) to - Agreement dated July 31, 1995 the Annual Report on Form 10-KSB f/y/e June 30, 1995 ("1995 Form 10-K") 16 Exhibit Number Description Method of Filing Page ------- ----------- ---------------- ---- 10(v) Amendment to Loan agreement Incorporated by reference to Exhibit 10(q) to - between the Company and Meridian the Annual Report on Form 10-KSB f/y/e June 30, Bank, dated March 5, 1996. 1996 ("1996 Form 10-K") 10(w) Amendment to Loan agreement Incorporated by reference to Exhibit 10(h) to between the Company and the Annual Report on 1997 Form 10-KSB Corestates Bank, dated March 20, 1997. 10(x) Amendment to Loan agreement Incorporated by reference to Exhibit 10(h) to between the Company and the Annual Report on 1997 Form 10-KSB Corestates Bank, dated March 20, 1997. 10(y) Amendment to Loan agreement Incorporated by reference to Exhibit 10(h) to between the Company and the Annual Report on 1997 Form 10-KSB Corestates Bank, dated May 23, 1997. 10(z) Amendment to Loan agreement Incorporated by reference to Exhibit 10(h) to between the Company and the Annual Report on 1997 Form 10-KSB Corestates Bank, dated September 24, 1997. 10(aa) Amendment to Loan agreement Incorporated by reference to Exhibit 10(h) to between the Company and the Annual Report on 1997 Form 10-KSB Corestates Bank, dated December 10, 1997. 10(ab) Amendment to Loan agreement Incorporated by reference to Exhibit 10(h) to between the Company and the Annual Report on 1997 Form 10-KSB Corestates Bank, dated December 10, 1997. 10(ac) Amendment to Loan agreement Incorporated by reference to Exhibit 10(aa) to between the Company and the Annual Report on 1998 Form 10-KSB Corestates Bank, dated June 11, 1998. 10(ad) Amendment to Loan agreement Incorporated by reference to Exhibit 10(ab) to between the Company and the Annual Report on 1998 Form 10-KSB Corestates Bank, dated June 1998. 10(ae) Line of Credit Note dated March Incorporated by reference to Exhibit 10(ad) to 11, 1999 the Annual Report on 1999 Form 10-KSB 17 Exhibit Number Description Method of Filing Page ------- ----------- ---------------- ---- 10(ae) Taxable Variable Rate Incorporated by reference to Exhibit 10(ae) to Demand/Fixed Rate Revenue Bonds, the Annual Report on 1999 Form 10-KSB Series of 1999 10(ag) Philadelphia Authority for Incorporated by reference to Exhibit 10(af) to Industrial Development the Annual Report on 1999 Form 10-KSB Tax-Exempt Variable Rate Demand/Fixed Revenue Bonds (Lannett Company, Inc. Project) Series of 1999 10(ah) Reimbursement and Agreements Incorporated by reference to Exhibit 10(ag) to supporting bond issues the Annual Report on 1999 Form 10-KSB 10(ai) Amendment No. 1 to Reimbursement Incorporated by reference to Exhibit 10(i) to Agreement and Waiver the Annual Report on 1999 Form 10-KSB 10(aj) Employment Agreement between the Incorporated by reference to Exhibit 10(ah) to Company and Vlad Mikijanic the Annual Report on 1994 Form 10-KSB 10(ak) Supply Agreement dated January Incorporated by reference to Exhibit 10(ad) to 14, 1997 the Annual Report on 1998 Form 10-KSB 10(al) Supply Agreement dated January Incorporated by reference to Exhibit 10(ae) to 17, 1997 the Annual Report on 1998 Form 10-KSB 10(am) Supply Agreement dated January Incorporated by reference to Exhibit 10(af) to 17, 1997 the Annual Report on 1998 Form 10-KSB 10(an) Supply Agreement dated February Incorporated by reference to Exhibit 10(ag) to 11, 1997 the Annual Report on 1998 Form 10-KSB 10(ao) Supply Agreement dated May 27, Incorporated by reference to Exhibit 10(ah) to 1997 the Annual Report on 1998 Form 10-KSB 11 Computation of Per Share Earnings Filed Herewith 20 22 Subsidiaries of the Company Incorporated by reference to the Annual Report on Form 10-K f/y/e June 30, 1990 23(b) Consent of Deloitte & Touche Incorporated by reference to Exhibit 23(B) to the Annual Report on 1999 Form 10-KSB 27 Financial Data Schedule Filed Herewith 23
18 EX-10.K 2 Exhibit 10(k) Amendment #10 to Loan Agreement Dated December 31, 1999 William Farber 32640 Whatley Franklin, Michigan 48025 December 31, 1999 Mr. Larry Dalesandro Lannett Company, Inc. 9000 State Road Philadelphia, Pennsylvania 19136 Re: Loan Agreement between William Farber ("Lender") and Lannett Company, Inc., a Delaware Corporation ("Borrower") dated August 30, 1991, as amended by Amendment #1 to Loan Agreement dated as of March 15, 1993, and by letter agreements dated August 1, 1994, May 15, 1995, December 31, 1995, June 30, 1996, November 1, 1996, September 9, 1997, June 30, 1998, December 30, 1998 and December 31, 1999. Dear Larry: This letter confirms that the Maturity Date for the Revolving Credit Loan (as defined in the Loan Agreement) is extended to October 1, 2001. Very Truly Yours By: /s/ William Farber William Farber AGREED TO AND ACCEPTED: LANNETT COMPANY, INC. By:/s/ Larry Dalesando --------------- Larry Dalesandro, Chief Operating Officer EX-11 3 Exhibit 11 Computation of Per Share Earning Lannett Company, Inc and Subsidiary STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
Three months ended December 31 1999 1999 1998 1998 ---- ---- ---- ---- Net Income Shares Net Income Shares Basic earnings per share factors $ 381,434 6,075,693 $ 503,899 5,206,128 Effect of potentially dilutive option plans and debentures: Interest on debentures 40,932 $ 30,360 Conversion on debentures 7,130,435 10,512,000 Employee stock options -- 3,969 ---------- --------- ---------- --------- Diluted earnings per share factors $ 422,366 13,206,128 $ 534,259 15,722,097 ---------- ---------- ---------- ---------- Basic earnings per share $ 0.06 $ 0.10 Diluted earnings per share $ 0.03 $ 0.03
Options to purchase 180,000 shares, 5,200 shares, 4,000 shares and 150,950 shares of common stock at $1.38 per share, $3.78 per share, $4.38 per share and $1.13 per share, respectively, were outstanding at December 31, 1999, but were not included in the computation of diluted earnings per share because to do so would be antidilutive. These securities could potentially be dilutive in the future. Lannett Company, Inc and Subsidiary STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
Six months ended December 31 1999 1999 1998 1998 ---- ---- ---- ---- Net Income Shares Net Income Shares Basic earnings per share factors $ 611,676 5,640,910 $ 562,316 5,206,128 Effect of potentially dilutive option plans and debentures: Interest on debentures 86,301 $ 60,720 Conversion on debentures 7,565,218 10,512,000 Employee stock options 3,969 ---------- ---------- ---------- ---------- Diluted earnings per share factors $ 697,977 13,206,128 $ 623,036 15,722,097 ---------- ---------- ---------- ---------- Basic earnings per share $ 0.11 $ 0.11 Diluted earnings per share $ 0.05 $ 0.04
Options to purchase 180,000 shares, 5,200 shares, 4,000 shares and 150,950 shares of common stock at $1.38 per share, $3.78 per share, $4.38 per share and $1.13 per share, respectively, were outstanding at December 31, 1999, but were not included in the computation of diluted earnings per share because to do so would be antidilutive. These securities could potentially be dilutive in the future. EX-27 4
5 THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE SHEETS AND STATEMENTS OF OPERATIONS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1 6-MOS JUN-30-2000 DEC-31-1999 $ 600 0 1,396,621 108,000 3,064,500 4,503,055 7,191,917 2,371,575 12,735,914 7,519,484 4,963,593 13,206 0 0 239,271 12,735,914 5,855,915 5,855,915 3,992,190 4,933,660 0 0 456,271 519,476 (92,200) 611,676 0 0 0 611,676 0.05 0.05
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