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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the fiscal year ended December 31, 2000
Commission File Number 0-11997
Carrington Laboratories, Inc.
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(Exact name of Registrant as specified in its charter)
Texas 75-1435663
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(State of Incorporation) (IRS Employer ID No.)
2001 Walnut Hill Lane, Irving, Texas 75038
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(Address of principal executive offices)
Registrant's telephone number, including area code: (972) 518-1300
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of exchange on which registered
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock ($.01 par value)
(Title of class)
Preferred Share Purchase Rights
(Title of class)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [ X ] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of the Registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K. [ ]
The aggregate market value of the Common Stock held by non-affiliates
of the Registrant on March 26, 2001, was $9,205,000. (This figure was
computed on the basis of the closing price of such stock on the NASDAQ
National Market on March 26 2001, using the aggregate number of shares held
on that date by, or in nominee name for, shareholders who are not officers,
directors or record holders of 10% or more of the Registrant's outstanding
voting stock. The characterization of such officers, directors and 10%
shareholders as affiliates is for purposes of this computation only and
should not be construed as an admission for any other purpose that any of
such persons are, in fact, affiliates of the Registrant.)
Indicate the number of shares outstanding of each of the Registrant's
classes of common stock, as of the latest practicable date:
9,734,087 shares of Common Stock, par value $.01 per share, were outstanding
on March 26, 2001.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's proxy statement for its annual meeting of
shareholders to be held on May 17, 2001 are incorporated by reference into
Part III hereof, to the extent indicated herein.
PART I
ITEM 1. BUSINESS.
General
Carrington Laboratories, Inc. ("Carrington" or the "Company") is a research-
based biopharmaceutical, medical device and raw materials and nutraceutical
company engaged in the development, manufacturing and marketing of
naturally-derived complex carbohydrates and other natural product
therapeutics for the treatment of major illnesses, the dressing and
management of wounds and nutritional supplements. The Company is comprised
of two business segments. See Note Thirteen to the consolidated financial
statements in this Annual Report for financial information about these
business divisions. The Company sells prescription and nonprescription
human and veterinary products through its Medical Services Division and
consumer and bulk raw material products through its consumer products
subsidiary, Caraloe, Inc. The Company's research and product portfolio are
based primarily on complex carbohydrates isolated from the Aloe vera L.
plant.
The Company was incorporated in Texas in 1973 as Ava Cosmetics, Inc. In
1986, the Company sold the direct sales business it was then operating and
changed its name to Carrington Laboratories, Inc.
Medical Services Division
Carrington's Medical Services Division offers a comprehensive line of wound
management products to hospitals, alternate care facilities, cancer centers
and the home health care market. The Company's products are designed to
provide patients with the highest quality of care. Carrington products are
used in a wide range of acute and chronic wounds, for skin conditions and
incontinence care. The primary marketing emphasis for Carrington's wound
and skin care products is directed toward hospitals, nursing homes,
alternate care facilities, cancer centers, home health care providers and
managed care organizations. The wound and skin care product lines are being
promoted primarily to physicians and specialty nurses, e.g., enterostomal
therapists.
In response to changing market conditions, the Company decided during 2000
to redirect the distribution of its Medical Services products from multiple
distributors to a single, sole-source distributor. As a result of this
decision, the Company entered into an exclusive Distributor and License
Agreement effective December 1, 2000 with Medline Industries, Inc.
("Medline"). Medline is now responsible for all sales and marketing and
distribution efforts for Carrington's wound and skin care product lines.
The Company has a Supply Agreement with Medline that allows the Company to
manufacture specific products where the Company can meet or reduce Medline's
current purchase price.
Medline currently has 45 employees solely dedicated to Carrington/Medline
advanced wound care products, 38 home care representatives, 298 general line
representatives and 4 Wound Care Specialists (Enterostomal Therapist)
engaged in the sales and marketing of Medline/Carrington products. In
addition to this field sales force, Medline employs 71 telemarketers, who
focus on alternative care facilities and the home health care market, and 62
employees in customer service.
Prior to the agreement with Medline, the Company sold its products primarily
through a network of distributors. Two of the largest distributors in the
hospital market are McKesson HBOC/General Medical("McKesson"), and Owens &
Minor. During fiscal 1998, 1999 and 2000, sales of wound and skin care
products to McKesson represented 11%, 5% and 6%, respectively, of the
Company's total net sales. Sales to Owens & Minor represented 10%, 9% and
10%, respectively, of total net sales during the same periods.
The Company maintains control of over 200 national pricing agreements which
cover hospitals, alternate care facilities, home health care agencies and
cancer centers. These pricing agreements allow Medline representatives to
make presentations in member facilities throughout the country.
In February 2000, the Company announced the extension of its existing
purchase agreement with the Veterans Administration ("VA") for wound and
skin cleansers. In March 2000, the Company received the award of a new
purchase agreement with the VA for its amorphous hydrogel products. The
agreements are for a period of two years and all are sole-source contracts.
The Company also announced in March 2000 that it was awarded two non-
exclusive national contracts with Novation, a supply cost management company
which serves the purchasing needs of over 6,600 health care organizations
nationwide. One agreement is for wound care products and the other for
incontinence and skin care products. Both agreements are for three-year
periods, effective May 1, 2000.
The Company has several distribution and licensing agreements for the sale
of its products into international markets. In 2000, total international
sales of wound care products were $539,000. The Company also sells wound
care products into international markets on a non-contract, purchase order
basis. In 2000, total non-contract, international wound care sales were
$417,000 and included sales into Argentina, Colombia, Puerto Rico,
Costa Rica and the United Arab Emirates. Opportunities in the growing
Internet market are also addressed through the Company's websites,
www.carringtonlabs.com. and www.woundcare.com.
The Company also markets Acemannan Immunostimulant[TM] , an adjuvant therapy
for certain cancers in dogs and cats, and several wound and skin care
products to the veterinary market. Acemannan Immunostimulant[TM] was
conditionally approved by the United States Department of Agriculture
("USDA") in November 1991, for use in conjunction with surgery in the
treatment of canine and feline fibrosarcoma, a form of soft tissue cancer
that affects dogs and cats. A conditional approval means that the Company
can market the product in limited areas but additional work must be done.
The "conditional" status of the license was removed in July 2000 with the
product receiving full license.
In March 1996, the Company signed an agreement with Farnam Companies, Inc.,
a leading veterinary marketing company, to promote and sell the CarraVet[R]
product line, including Acemannan Immunostimulant[TM]. The CarraVet[R]
product line currently consists of four products.
Consumer Health
Caraloe, Inc., a subsidiary of the Company ("Caraloe"), markets or licenses
consumer products and bulk raw materials utilizing the Company's patented
complex carbohydrate technology into the consumer health and nutritional
products markets. Caraloe's premier product is Manapol[R] powder, a bulk
raw material rich in complex carbohydrates. Manapol[R] powder is marketed
to manufacturers of nutritional products who desire quality complex
carbohydrate ingredients for their finished products. Caraloe also markets
finished products containing Manapol[R] powder into the health and
nutritional products markets through health food stores and over the
Internet at www.AloeVera.com. In the fourth quarter of 2000, Caraloe
introduced a new raw material, Hydrapol[TM], for use by cosmetic
manufacturers. Caraloe also offers contract manufacturing services to the
nutritional and skin care market.
In August 1997, Caraloe signed a non-exclusive supply agreement with a major
customer to supply Manapol[R] powder. This agreement was renewed through
July 2002 and contains monthly minimum purchase requirements. During 1998,
1999 and 2000, sales of Manapol[R] powder to this customer represented 23%,
41% and 38%, respectively, of the Company's total consolidated net sales.
Subsequent to December 31, 2000, the Company agreed to a modification in the
contract requirements that resulted in lower minimum purchase requirements
for this customer.
Caraloe also sells products into international markets on a non-contract,
purchase order basis. In 2000, total international sales for Caraloe were
$804,000.
Research and Development
General
Carrington has developed proprietary processes for obtaining materials from
Aloe vera L. The Company intends to seek approval of the Food and Drug
Administration (the "FDA") and other regulatory agencies to sell products
containing materials obtained from Aloe vera L. in the United States and in
foreign countries. For a more comprehensive listing of the type, indication
and status of products currently under development by the Company, see
"Research and Development -- Summary" below. The regulatory approval
process, both domestically and internationally, can be protracted and
expensive, and there is no assurance that the Company will obtain approval
to sell its products for any treatment or use (see "Governmental Regulation"
below).
The Company expended approximately $2,589,000, $5,300,000 and $3,602,000 on
research and development in fiscal 1998, 1999 and 2000, respectively.
Expenditures for 1999 increased 105% over 1998 as a result of returning to
the clinic for the Phase III trial in ulcerative colitis, which accounted
for approximately 17.3% of the 2000 expenditures.
Following completion of the clinical trial in March 2000 with a non-
significant result, the Company's Research and Development group refocused
its efforts toward current business support and the establishment of new
opportunities for the Company through a strong basic research program to
advance product leads for the future, primarily in the areas of drug
delivery and neutropenia.
Basic and Preclinical Research
The Company believes that its products' functionality and/or pharmacological
activity make them potential candidates for further development as
pharmaceutical or therapeutic agents. The Company's preclinical efforts
will continue to focus on supporting existing business through developing
"proof of concept" data for potential pharmaceutical partners. There is no
assurance, however, that the Company will be successful in its efforts.
The Company sponsors a research and development laboratory at Texas A&M
University in association with the College of Veterinary Medicine to expand
preclinical research in various product applications and mechanisms of
action. Pursuant to this arrangement, the Company has access to leading
authorities in immunology and cell biology, as well as facilities and
equipment to engage in experimentation and analysis at the basic research
level.
In 1991, the USDA granted the Company conditional approval to market an
injectable form of a complex carbohydrate as an aid to surgery in the
treatment of canine and feline fibrosarcoma, a form of soft tissue cancer,
under the name Acemannan Immunostimulant[TM]. The product was conditionally
approved based on safety and efficacy studies. The Company was successful
in meeting USDA's requirements for removal of the conditional status, and an
unrestricted license was issued in July 2000.
In 1998, a new and unique complex carbohydrate (CR1013) was isolated from
Aloe vera L. Basic "proof of concept" research is continuing on this
material. Pilot scale production has been accomplished. The technology has
varied utility, but the primary focus of research is in the area of drug
delivery. Two patent applications covering this invention have been filed.
The composition and process patent was issued in 1999.
Basic research studies also continued at the University of Nebraska
evaluating the ability of one of the Company's research products to reverse
the neutropenia effects of radiation treatment. Further proof of concept
studies are planned in 2001 to better understand the mechanism of action and
product dose effects.
In 1999, the Company, in conjunction with Baylor College of Dentistry,
completed a series of ex vivo studies evaluating the adherence of
Carrington's Oral Wound Rinse to epithelial cells and keratin associated
with the mouth in support of a pain reduction claim for the product.
Studies continued in 2000 and showed that a fluorescent labeled Acemannan
Hydrogel[TM] compounded into the Oral Wound Rinse adheres to both keratin
and epithelial cells, demonstrating the coating and protecting effects of
the product.
Human Clinical Studies
Evaluation of Aliminase[TM] in the Treatment of Ulcerative Colitis. In late
1996, the Company placed on hold its testing of Aliminase[TM]oral capsules
for the treatment of ulcerative colitis. The Company reformulated the
product into a single unit dose powder for reconstitution. The Company
initiated a Phase III trial of the new dosage form in April 1999 and
completed the study in March 2000. No significant differences were found to
support a therapeutic drug effect. The program has been discontinued.
Evaluation of RadiaGel[TM] for Pain Associated with Radiation-Induced
Dermatitis. RadiaGel[TM] is cleared to market for relief of pain and the
management of radiation-induced skin reactions. In 2000, a multi-center
post-marketing study of 40 patients was conducted to determine the
effectiveness of topical application of the gel on skin pain for patients
undergoing external beam radiation therapy. After one or more days of use
of the product, all evaluable patients reported significant improvements in
their skin pain severity. Most of the patients indicated that the skin pain
was better after use of the product, and all reported that the gel was
better or much better than similar products they previously used to treat
their skin pain.
Evaluation of Carrington[R] Oral Wound Rinse for Pain Associated with
Mucositis. In March 1997, the FDA cleared Carrington to market an Oral
Wound Rinse for the management and relief of pain associated with mucositis
and all types of oral wounds. Two market studies evaluating patient
acceptance and pain relief associated with use of the product were completed
in August 1999. In these trials, which involved 28 patients, 93% reported
some pain relief associated with the use of the product. A multi-center
post-marketing study of 40 additional patients is in progress to further
determine the effectiveness of Oral Wound Rinse on pain associated with
mucositis induced by radiation or chemotherapy.
Evaluation of Carrington[R] Oral Wound Rinse for Prevention of Mucositis
In 2000, the Company co-sponsored a pilot study of 30 patients in a placebo-
controlled, double-blind trial of Carrington[R] Oral Wound Rinse for the
prevention of radiation-induced mucositis. The trial results were not
significant between groups in prevention of mucositis.
Evaluation of Manapol[R] on the Reduction of Cholesterol Levels in
Volunteers.
In a study conducted in 2000, twenty-three patients with moderate
hypercholesterolemia were given either 160 mg or 320 mg of Manapol[R]
Classic daily for 6 weeks. Manapol[R] produced a favorable effect on blood
lipids, particularly in reducing LDL levels among non-diabetic subjects
after 3 weeks of using either 160 mg (decrease of 9.8%)or 320 mg (decrease
of 7.8%).
Evaluation of the SaliCept[TM] Oral Patch for Reduction in the Incidence of
Dry Socket.
An independent study conducted in 2000 that compared the incidence of
alveolar osteitis (AO:dry socket) in patients treated with Gelfoam[R] soaked
with an antibiotic or SaliCept[TM] Patches. A retrospective evaluation was
performed of 587 records of GelfoamR treated patients compared to a
prospective trial of 608 patients treated with SaliCept[TM] Patches. The
SaliCept[TM] Patch significantly reduced the incidence of AO when compared
to the antibiotic-soaked Gelfoam[R].
Research and Development Summary
The following table outlines the status of the products and potential
indications of the Company's products developed, planned or under
development. There is no assurance of successful development, completion or
regulatory approval of any product not yet on the market.
PRODUCTS AND POTENTIAL INDICATIONS DEVELOPED,
PLANNED OR UNDER DEVELOPMENT
PRODUCT OR POTENTIAL
POTENTIAL INDICATION MARKET APPLICATIONS STATUS
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Topical
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Dressings Pressure and Vascular Ulcers Marketed
Dressings Diabetic Ulcers, Surgical Marketed
Wounds
Cleansers Wounds Marketed
Anti-fungal Cutaneous Fungal Infection Marketed
Hydrocolloids Wounds Marketed
Alginates Wounds Marketed
Oral
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Human
Pain Reduction Mucositis Marketed
Dental
Pain Reduction Aphthous Ulcers, Oral Wounds Marketed
Post Extraction Oral Surgery Clinical
Wounds
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Injectable
Human Neutropenia associated with Preclinical
Neutropenia cancer
CR1013 Drug delivery Preclinical
Veterinary
Adjunct for cancer Fibrosarcoma Marketed
Licensing Strategy
The Company expects that prescription pharmaceutical products containing
certain defined drug substances will require a substantial degree of
development effort and expense. Before governmental approval to market any
such product is obtained, the Company may license these products for certain
indications to other pharmaceutical companies in the United States or
foreign countries and require such licensees to undertake the steps
necessary to obtain marketing approval in a particular country or for
specific indications.
Similarly, the Company intends to license third parties to market products
containing defined chemical entities for certain human indications when it
lacks the expertise or financial resources to market such products
effectively. If the Company is unable to enter into such agreements, it may
undertake marketing the products itself for such indications. The Company's
ability to market these products for specific indications will depend
largely on its financial condition at the time and the results of related
clinical trials. There is no assurance that the Company will be able to
enter into any license agreements with third parties or that, if such
license agreements are concluded, they will contribute to the Company's
overall profits.
Raw Materials and Processing
The principal raw material used by the Company in its operations is the leaf
of the plant Aloe barbadensis Miller, popularly known as Aloe vera L.
Through patented processes, the Company produces bulk pharmaceutical mannans
and freeze-dried aloe extract from the central portion of the Aloe vera L.
leaf known as the gel. A basic bulk mannan (acemannan), in the form of a
hydrogel, is used as an ingredient in certain of the Company's wound and
skin care products.
The Company owns a 405-acre farm in the Guanacaste province of northwest
Costa Rica which currently has approximately 148 acres planted with Aloe
vera L. The Company is currently performing a land reclamation project on
the farm to increase productive acreage. Currently, the Company's need for
leaves exceeds the supply of harvestable leaves from the Company's farm,
requiring the purchase of leaves from other sources in Central and South
America at considerably higher prices. Due to economic and political
instability in the Central American region, the supply of imported leaves
cannot be guaranteed. The Company has entered into several supply
agreements with local suppliers near the Company's farm. The Company
anticipates that the local suppliers will be able to meet substantially all
of its requirements for leaves in 2001. This should result in a reduction
in the overall cost for leaves and a greater certainty of supply. A 10%
increase in Aloe vera L. leaf prices from other sources would result in a 1%
decrease in the Company's gross profit. The Company's sensitivity analysis
of the effects of changes in leaf prices does not factor in a potential
change in sales levels or a change in the percentage of leaves purchased
from other sources. The Company has been exploring other options to obtain
leaves to meet its projected requirements at lower costs.
The Company has a 31% ownership interest in Aloe and Herbs International,
Inc., ("Aloe & Herbs"), a Panamanian corporation formed for the purpose of
establishing an Aloe vera L. farm in Costa Rica. The Company has a leaf
supply agreement with Rancho Aloe, S.A., a wholly owned subsidiary of Aloe &
Herbs, which has a 5,000 acre farm in close proximity to the Company's farm.
The agreement calls for a nominal price of $0.18 per kilogram of leaves
supplied. The final price payable to Rancho Aloe is based upon the yield of
the final product. Under the yield adjustment formula, the price for leaves
can vary from $0.17 to $0.20.
In September 1999, the Company has leased approximately 17.6 acres of land
from Rancho Aloe for one year with provisions for automatic renewal in one-
year increments unless terminated by the Company or Rancho Aloe, and planted
its own Aloe vera L. plants on the leased plot due to the lack of additional
productive land on its own farm. The Company renewed the lease in 2000 for
an additional year. The Company also pays a monthly fee for the maintenance
of the plot.
As of December 31, 2000, Rancho Aloe was providing an average of 38% of the
Company's monthly requirement of leaves. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources" and Note Six to the consolidated financial statements for
further information regarding the Company's relationship with Aloe & Herbs.
Manufacturing
Since 1995, the Company's wound and skin care product manufacturing facility
has been located in the Company's headquarters in Irving, Texas. The
Company believes that this manufacturing facility has sufficient capacity to
provide for the present line of products and to accommodate new products and
sales growth. Final packaging of certain of the Company's wound care
products is completed by outside vendors. The Company's calcium alginates,
films, hydrocolloids, foam dressings, gel sheets, tablets, capsules, and
freeze-dried products are being provided by third parties.
All of the Company's bulk pharmaceutical products and freeze-dried Aloe vera
L. extracts are produced in its processing plant in Costa Rica. This
facility has the ability to supply the bulk aloe raw materials requirements
of the Company's current product lines and bulk material contracts for the
foreseeable future. A process improvement program was initiated in late
1998 and continued through 1999 to further meet requirements for a "product
by process."
Competition
Research and Development. The biopharmaceutical field is expected to
continue to undergo rapid and significant technological change. Potential
competitors in the United States are numerous and include pharmaceutical,
chemical and biotechnology companies. Many of these companies have
substantially greater capital resources, research and development staffs,
facilities and expertise (in areas including research and development,
manufacturing, testing, obtaining regulatory approvals and marketing) than
the Company. This competition can be expected to become more intense as
commercial applications for biotechnology and pharmaceutical products
increase. Some of these companies may be better able than the Company to
develop, refine, manufacture and market products which have application to
the same indications as the Company is exploring. The Company understands
that certain of these competitors are in the process of conducting human
clinical trials of, or have filed applications with government agencies for
approval to market, certain products that will compete with the Company's
products, both in its present wound care market and in markets associated
with products the Company currently has under development.
Medical Services Division and Caraloe, Inc. The Company competes against
many companies that sell products which are competitive with the Company's
products, with many of its competitors using very aggressive marketing
efforts. Many of the Company's competitors are substantially larger than
the Company in terms of sales and distribution networks and have
substantially greater financial and other resources. The Company's ability
to compete against these companies will depend in part on the expansion of
the marketing network for its products. The Company believes that the
principal competitive factors in the marketing of its products are their
quality, and that they are naturally based and competitively priced.
Governmental Regulation
The production and marketing of the Company's products, and the Company's
research and development activities, are subject to regulation for safety,
efficacy and quality by numerous governmental authorities in the United
States and other countries. In the United States, drug devices for human
use are subject to rigorous FDA regulation. The Federal Food, Drug and
Cosmetic Act, as amended (the "FFDC Act"), the regulations promulgated
thereunder, and other federal and state statutes and regulations govern,
among other things, the testing, manufacture, safety, effectiveness,
labeling, storage, record keeping, approval, advertising and promotion of
the Company's products. For marketing outside the United States, the
Company is subject to foreign regulatory requirements governing human
clinical trials and marketing approval for drugs and devices. The
requirements governing the conduct of clinical trials, product licensing,
pricing and reimbursement may vary widely from country to country.
Food and Drug Administration. The contents, labeling and advertising of
many of the Company's products are regulated by the FDA. The Company is
required to obtain FDA approval before it can study or market any proposed
prescription drugs and may be required to obtain such approval for proposed
nonprescription products. This procedure involves extensive clinical
research, and separate FDA approvals are required at various stages of
product development. The approval process requires, among other things,
presentation of substantial evidence to the FDA, based on clinical studies,
as to the safety and efficacy of the proposed product.
After approval, manufacturers must continue to expend time, money and effort
in production and quality control to assure continual compliance with the
current Good Manufacturing Practices regulations. Also, under the new
program for harmonization between Europe and the U.S. and the ISO 9001
Certification Program, a company can, under certain circumstances after
application, have a new drug approved under a process known as
centralization rather than having to go through a country-by-country
approval in the European Union.
Certain of the Company's wound and skin care products are registered with
the FDA as "devices" pursuant to the regulations under Section 510(k) of the
FFDC Act. A device is a product used for a particular medical purpose, such
as to cover a wound, with respect to which no pharmacological claim can be
made. A device which is "substantially equivalent" to another device
existing in the market prior to May 1976 can be registered with the FDA
under Section 510(k) and marketed without further testing. A device which
is not "substantially equivalent" is subject to an FDA approval process
similar to that required for a new drug, beginning with an Investigational
Device Exemption and culminating in a Premarket Approval. The Company has
sought and obtained all its device approvals under Section 510(k). The
Company currently markets seven (7) products which require a prescription as
medical devices.
Other Regulatory Authorities. The Company's advertising and sales practices
are subject to regulation by the Federal Trade Commission (the "FTC"), the
FDA and state agencies. The Company's processing and manufacturing plants
are subject to federal, state and foreign laws and to regulation by the
Bureau of Alcohol, Tobacco and Firearms of the Department of the Treasury
and by the Environmental Protection Agency (the "EPA"), as well as the FDA
and USDA.
The Company believes that it is in substantial compliance with all
applicable laws and regulations relating to its operations, but there is no
assurance that such laws and regulations will not be changed. Any such
change may have a material adverse effect on the Company's operations.
The manufacturing, processing, formulating, packaging, labeling and
advertising of products of the Company's subsidiary, Caraloe, are also
subject to regulation by one or more federal agencies, including the FDA,
the FTC, the USDA and the EPA. These activities are also regulated by
various agencies of the states, localities and foreign countries to which
Caraloe's products are distributed and in which Caraloe's products are sold.
The FDA, in particular, regulates the formulation, manufacture and labeling
of vitamin and other nutritional supplements.
The Dietary Supplement Health and Education Act of 1994 ("DSHEA") revised
the provisions of the FFDC Act concerning the composition and labeling of
dietary supplements and, in the judgment of the Company, is favorable to the
dietary supplement industry. The legislation created a new statutory class
of "dietary supplement" which includes vitamins, minerals, herbs, amino
acids and other dietary substances for human use to supplement the diet.
DSHEA grandfathered, with certain limitations, dietary ingredients on the
market before October 15, 1994. A dietary supplement which contains a new
dietary ingredient, one not on the market before October 15, 1994, requires
evidence of a history of use or other evidence of safety establishing that
it will reasonably be expected to be safe. The majority of the products
marketed by Caraloe are classified as dietary supplements under DSHEA.
Both foods and dietary supplements are subject to the Nutrition Labeling and
Education Act of 1990 (the "NLEA"), which prohibits the use of any health
claim for foods, including dietary supplements, unless the health claim is
supported by significant scientific agreement and is either pre-approved by
the FDA or the subject of substantial government scientific publications and
a notification to the FDA. To date, the FDA has approved the use of only
limited health claims for dietary supplements. However, among other things,
DSHEA amended, for dietary supplements, the NLEA by providing that
"statements of nutritional support" may be used in labeling for dietary
supplements without FDA preapproval if certain requirements, including
prominent disclosure on the label of the lack of FDA review of the relevant
statement, possession by the marketer of substantiating evidence for the
statement and post-use notification to the FDA, are met. Such statements
may describe how particular nutritional supplements affect the structure,
function or general well-being of the body (e.g., "promotes cardiovascular
health").
Advertising and label claims for dietary supplements and conventional foods
have been regulated by state and federal authorities under a number of
disparate regulatory schemes. There can be no assurance that a state will
not interpret claims presumptively valid under federal law as illegal under
that state's regulations, or that future FDA regulations or FTC decisions
will not restrict the permissible scope of such claims.
Governmental regulations in foreign countries where Caraloe plans to
commence or expand sales may prevent or delay entry into the market or
prevent or delay the introduction, or require the reformulation, of certain
of Caraloe's products. Compliance with such foreign governmental
regulations is generally the responsibility of Caraloe's distributors for
those countries. These distributors are independent contractors over which
Caraloe has limited control.
As a result of Caraloe's efforts to comply with applicable statutes and
regulations, Caraloe has from time to time reformulated, eliminated or
relabeled certain of its products and revised certain provisions of its
sales and marketing program. Caraloe cannot predict the nature of any
future laws, regulations, interpretations or applications, nor can it
determine what effect additional governmental regulations or administrative
orders, when and if promulgated, would have on its business in the future.
They could, however, require the reformulation of certain products to meet
new standards, the recall or discontinuance of certain products not capable
of reformulation, additional record keeping, expanded documentation of the
properties of certain products, expanded or different labeling, and/or
scientific substantiation. Any or all of such requirements could have a
material adverse effect on the Company's results of operations and financial
condition.
Compliance with the provisions of national, state and local environmental
laws and regulations has not had a material adverse effect upon the capital
expenditures, earnings, financial position, liquidity or competitive
position of the Company.
Patents and Proprietary Rights
As is industry practice, the Company has a policy of using patents,
trademarks and trade secrets to protect the results of its research and
development activities and, to the extent it may be necessary or advisable,
to exclude others from appropriating the Company's proprietary technology.
The Company's policy is to protect aggressively its proprietary technology
by seeking and enforcing patents in a worldwide program.
The Company has obtained patents or filed patent applications in the United
States and approximately 26 other countries in three series regarding the
compositions of acetylated mannan derivatives, the processes by which they
are produced and the methods of their use. The first series of patent
applications, relating to the compositions of acetylated mannan derivatives
and certain basic processes of their production, was filed in a chain of
United States patent applications and its counterparts in the other 26
countries. The first United States patent application in this first series,
covering the composition claims of acetylated mannan derivatives, matured
into United States Patent No. 4,735,935 (the "935 Patent"), which was issued
on April 5, 1988. United States Patent No. 4,917,890 (the "890 Patent") was
issued on April 17, 1990 from a divisional application to the 935 Patent.
This divisional application pertains to most of the remaining claims in the
original application not covered by the 935 Patent. The 890 Patent
generally relates to the basic processes of producing acetylated mannan
derivatives, to certain specific examples of such processes and to
certain formulations of acetylated mannan derivatives. Two other divisional
applications covering the remaining claims not covered by the 890 Patent
matured into patents, the first on September 25, 1990, as United States
Patent No. 4,959,214, and the second on October 30, 1990, as United States
Patent No. 4,966,892. Foreign patents that are counterparts to the
foregoing United States patents have been granted in some of the member
states of the European Economic Community and several other countries.
The second series of patent applications related to preferred processes for
the production of acetylated mannan derivatives. One of them matured into
United States Patent No. 4,851,224, which was issued on July 25, 1989. This
patent is the subject of a Patent Cooperation Treaty application and
national foreign applications in several countries. An additional United
States patent based on the second series was issued on September 18, 1990,
as United States Patent No. 4,957,907.
The third series of patent applications, relating to the uses of acetylated
mannan derivatives, was filed subsequent to the second series. Three of
them matured into United States Patent Nos. 5,106,616, issued on April 21,
1992, 5,118,673, issued on June 2, 1992, and 5,308,838, issued on May 3,
1994. The Company has filed a number of divisional applications to these
patents, each dealing with specific uses of acetylated mannan derivatives.
Patent Cooperation Treaty applications based on the parent United States
applications have been filed designating a number of foreign countries where
the applications are pending. In addition, the Company has also obtained a
patent in the United States relating to a wound cleanser, U.S. Patent
No. 5,284,833, issued on February 8, 1994.
The Company has obtained a patent in the United States relating to a
therapeutic device made from freeze-dried complex carbohydrate hydrogel
(U.S. Patent No. 5,409,703, issued on April 25, 1995). A Patent Cooperation
Treaty application based on the parent United States application has been
filed designating a number of foreign countries where the applications are
pending.
The Company has obtained patents in the United States (U.S. Patent No.
5,760,102, issued on June 2, 1998) and Taiwan (Taiwan Patent No. 89390,
issued on August 21, 1997) related to the uses of a denture adhesive and
also a patent in the United States relating to methods for the prevention
and treatment of infections in animals (U.S. Patent No. 5,703,060, issued on
December 30, 1997).
The Company obtained a patent in the United States (U.S. Patent
No.5,902,796, issued on May 11, 1999) related to the process for obtaining
bioactive material from Aloe vera L.
The Company obtained an additional patent in the United States (U.S. Patent
No. 5,929,051, issued on July 27, 1999) related to the composition and
process for a new complex carbohydrate (pectin) isolated from Aloe vera L.
Also obtained was a United States patent (U.S. Patent No. 5,925,357, issued
on July 20, 1999) related to the process for a new Aloe vera L. product that
maintains the complex carbohydrates with the addition of other substances
normally provided by "Whole Leaf Aloe."
Additionally, the Company obtained a Japanese letters-patent (Patent No.
2888249, having a Patent Registration Date of February 19, 1999) for the use
of acemannan (a) in a vaccine product; (b) in enhancing natural kill cell
activity and in enhancing specific tumor cell lysis by white cells and/or
antibodies; (c) in correcting malabsorption and mucosal cell maturation
syndromes in man or animals; and (d) in reducing symptoms associated with
multiple sclerosis.
The Company also received the grant of European Patent Application under No.
0611304, having the date of publication and mention of the grant of the
patent of September 15, 1999. This European Letters Patent claims the use
of acetylated mannan for the regulation of blood cholesterol levels and for
the removal of plaque in blood vessels.
In addition, the Company obtained an Australian Patent (Patent No. 718631,
having an Accepted Journal Date of April 20, 2000) on Uses of Denture
Adhesive Containing Aloe Extract. On June 20, 2000 Singapore granted the
Company a patent on Bioactive Factors of Aloe Vera Plants (P-No. 51748).
The Company has filed and intends to file patent applications with respect
to subsequent developments and improvements when it believes such protection
is in the best interest of the Company. Although the scope of protection
which ultimately may be afforded by the patents and patent applications of
the Company is difficult to quantify, the Company believes its patents will
afford adequate protection to conduct the business operations of the
Company. However, there can be no assurance that (i) any additional patents
will be issued to the Company in any or all appropriate jurisdictions, (ii)
litigation will not be commenced seeking to challenge the Company's patent
protection or such challenges will not be successful, (iii) processes or
products of the Company do not or will not infringe upon the patents of
third parties or (iv) the scope of patents issued to the Company will
successfully prevent third parties from developing similar and competitive
products. It is not possible to predict how any patent litigation will
affect the Company's efforts to develop, manufacture or market its products.
The Company also relies upon, and intends to continue to rely upon, trade
secrets, unpatented proprietary know-how and continuing technological
innovation to develop and maintain its competitive position. The Company
typically enters into confidentiality agreements with its scientific
consultants, and the Company's key employees have entered into agreements
with the Company requiring that they forbear from disclosing confidential
information of the Company and assign to the Company all rights in any
inventions made while in the Company's employ relating to the Company's
activities. Accordingly, the Company believes that its valuable trade
secrets and unpatented proprietary know-how are adequately protected.
The technology applicable to the Company's products is developing rapidly.
A substantial number of patents have been issued to other biopharmaceutical
companies. In addition, competitors have filed applications for, or have
been issued, patents and may obtain additional patents and proprietary
rights relating to products or processes competitive with those of the
Company. To the Company's knowledge, acetylated mannan derivatives do not
infringe any valid, enforceable United States patents. A number of patents
have been issued to others with respect to various extracts of the Aloe vera
L. plant and their uses and formulations, particularly in respect to skin
care and cosmetic uses. While the Company is not aware of any existing
patents which conflict with its current and planned business activities,
there can be no assurance that holders of such other Aloe vera L.-based
patents will not claim that particular formulations and uses of acetylated
mannan derivatives in combination with other ingredients or compounds
infringe, in some respect, on these other patents. In addition, others may
have filed patent applications and may have been issued patents relating to
products and technologies potentially useful to the Company or necessary to
commercialize its products or achieve their business goals. There is no
assurance that the Company will be able to obtain licenses of such patents
on acceptable terms.
The Company has given the trade name Carrasyn[R] to certain of its products
containing acetylated mannans. The Company has filed a selected series of
domestic and foreign trademark applications for the marks Manapol[R] powder,
Carrisyn[R], Carrasyn[R], and CarraGauze[R]. Further, the Company has
registered the trademark AVMP[R] Powder and the trade name Carrington[R] in
the United States. In 1999, the Company obtained four additional registered
trademarks in Brazil. The Company believes that its trademarks and trade
names are valuable assets.
In June 2000, the Company obtained registration in the United States of its
mark
AloeCeuticals[R] for its skin care products.
Employees
As of January 31, 2001, the Company employed 270 persons, of whom 29 were
engaged in the operation and maintenance of its Irving, Texas processing
plant, 194 were employed at the Company's facility in Costa Rica and the
remainder were executive, research, quality assurance, manufacturing,
administrative, sales, and clerical personnel. Of the total number of
employees, 75 were located in Texas, 194 in Costa Rica and one in Puerto
Rico. The Company considers relations with its employees to be good. The
employees are not represented by a labor union.
Financing
In November 1997, the Company entered into a financing arrangement with
Comerica Bank-Texas ("Comerica"). The agreement was composed of a
$3,000,000 line of credit structured as a demand note without a stated
maturity date and with an interest rate equal to the Comerica prime rate.
The line of credit is collateralized by the Company's accounts receivable
and inventory. This credit facility is used for operating needs, as
required. As of December 31, 2000, there was a $763,000 balance owed to
Comerica under the terms of the financing agreement.
ITEM 2. PROPERTIES.
The Company believes that all its farming property, manufacturing and
laboratory facilities, as described below, and material farm, manufacturing
and laboratory equipment are in satisfactory condition and are adequate for
the purposes for which they are used, although the farm is not adequate to
supply all of the Company's needs for Aloe vera L. leaves. (See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" for more information regarding the Company's arrangements to
purchase Aloe vera L. leaves.)
Walnut Hill Facility. The Company's corporate headquarters and principal
U.S. manufacturing facility occupy all of the 35,000 square foot office and
manufacturing building (the "Walnut Hill Facility"), which is situated
on an approximately 6.6 acre tract of land located in the Las Colinas
area of Irving, Texas. The Company owns the land and the building. The
manufacturing operations occupy approximately 19,000 square feet of the
facility, and administrative offices occupy approximately 16,000 square
feet.
Laboratory Facility. The Company leases 24,000 square feet of office,
manufacturing and laboratory space (the "Laboratory Facility") in Irving,
Texas pursuant to a lease that expires in July 2001. The Company's in-house
research and development and quality assurance activities are conducted at
the Laboratory Facility as well as the production of the injectable dosage
forms of Acemannan Immunostimulant[TM]. The Company has leased a 51,200
square foot building in close proximity to the Walnut Hill facility for a
ten-year term to house its Research and Development Department, Quality
Assurance and Quality Control Department and Warehouse and Distribution
Center. The Company plans to relocate those functions to this newly-leased
facility in the third quarter of 2001.
Warehouse and Distribution Facility. Since September 1994, the Company's
warehouse and distribution center has been located in a 35,050 square foot
facility that the Company leases in Irving, Texas, near the Walnut Hill
Facility. The warehouse and distribution center occupies approximately
27,000 square feet of the leased facility, and the remaining space is used
for offices. The lease expires in October 2001. Prior to the expiration of
the lease, the Warehouse and Distribution Center will be moved into the
newly-leased facility described under "Properties B Laboratory Facility"
above.
Costa Rica Facility. The Company owns approximately 405 acres of land in
the Guanacaste province of northwest Costa Rica. This land is being used
for the farming of Aloe vera L. plants and for a processing plant to produce
bulk pharmaceutical and injectable mannans and freeze-dried extracts from
Aloe vera L. used in the Company's operations. Construction of the
processing plant was completed during the second quarter of 1993, and the
plant became operational in June 1993. In 1994, the Company upgraded the
production plant to further meet regulatory requirements for the production
of bulk materials. This project was completed in the fourth quarter of
1994. In order to meet demand for new products, a new compounding area and
high-speed filling line were constructed as an addition to the Costa Rica
facility during 1998. Also, other new equipment was installed in 1999 to
improve production.
ITEM 3. LEGAL PROCEEDINGS.
The Company marketed a line of wound care products for the treatment of
radiation induced dermatitis using the name RadiaCare[TM]. On October 16,
2000, the Company received notice from attorneys for Bionix Development
Corporation ("Bionix") claiming that Bionix is the owner of a registered
trademark for RadiaCare covering certain radiation therapy equipment,
alleging that the Company's use of its RadiaCare[TM] mark constitutes
trademark infringement, and demanding that the Company cease using that
mark. The Company has ceased using the mark and will continue to market
the products without using the name RadiaCare. The Company and Bionix are
currently attempting to negotiate an amicable resolution of this dispute.
On September 12, 2000, Nutraceutical Solutions, Inc., a company formed in
March 2000 (the "Plaintiff") filed a lawsuit (Cause No. 00-4973-A in the
28th Judicial District Court of Nueces County, Texas) against the Company
and one of its employees (the "Defendants") alleging numerous causes of
action relating to the Company's manufacturing and marketing of a product
known as B-Complete[TM]. The Plaintiff alleges, among other things, that
the Defendants began to market B-Complete[TM], which the Plaintiff alleges
is identical to a product it acquired in May 2000 as part of its purchase of
assets from a separate company in bankruptcy proceedings and infringes
intellectual property rights that the Plaintiff acquired as part of the
asset purchase.
In addition to seeking to recover unspecified damages from the Defendants,
the lawsuit sought a temporary restraining order and temporary and permanent
injunctions prohibiting the Defendants from selling, distributing or
marketing B-Complete[TM] and from contacting the existing clientele of
Plaintiff, whose first sale of the product it acquired occurred in June
2000. A temporary restraining order to that effect was served on the
Defendants on September 14, 2000, and was lifted by an Agreed Order
Dissolving Temporary Restraining Order which was signed December 12, 2000.
In a hearing held March 15, 2001, most causes of action aganist the Company
were dismissed.
The Company believes the Plaintiff's remaining causes of action are without
merit and intends to defend the lawsuit vigorously.
ITEM 4.SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The Company did not submit any matter to a vote of security holders during
the fourth quarter of the fiscal year covered by this Annual Report.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
The Common Stock of the Company is traded on the NASDAQ National Market
under the symbol "CARN." The following table sets forth the high and low
sales prices per share of the Common Stock for each of the periods
indicated.
Fiscal 1999 High Low
----------- ---- ----
First Quarter $4.25 $2.13
Second Quarter 3.19 2.50
Third Quarter 3.00 1.81
Fourth Quarter 2.75 1.50
Fiscal 2000 High Low
----------- ---- ----
First Quarter $9.75 $2.00
Second Quarter 3.56 1.72
Third Quarter 2.38 1.63
Fourth Quarter 1.63 1.00
At March 26, 2001, there were 960 holders of record (including brokerage
firms) of Common Stock.
The Company has not paid any cash dividends on the Common Stock and
presently intends to retain all earnings for use in its operations. Any
decision by the Board of Directors of the Company to pay cash dividends in
the future will depend upon, among other factors, the Company's earnings,
financial condition and capital requirements.
At a meeting on March 22, 2001, the Board of Directors authorized the
repurchase of up to 1,000,000 shares, or approximately 10.3%. of the
Company's outstanding Common Stock, dependent on market conditions. Under
the authorization, purchases of Common Stock may be made on the open market
or through privately negotiated transactions at such times and prices as are
determined jointly by the Chairman of the Board and the President of the
Company. The Board authorized the repurchase program based on its belief
that the Company's stock is undervalued in light of the Company's future
prospects and that it would be in the best interest of the Company and its
shareholders to repurchase some of its outstanding shares. As of March 30,
2001, the Company had not repurchased any of its outstanding Common Stock
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA.
The selected consolidated financial data below should be read in conjunction
with the consolidated financial statements of the Company and notes thereto
and "Item 7, Management's Discussion and Analysis of Financial Condition and
Results of Operations." The selected consolidated financial information for
the five years ended December 31, 2000, is derived from the consolidated
financial statements of the Company, of which the Statements for year 1996
were audited by Arthur Andersen LLP, independent public accountants, and the
Statements for years 1997 through 2000 have been audited by Ernst & Young
LLP, independent public accountants.
Years ended December 31,
(Dollars and numbers of shares in ------------------------------------------
thousands except per share amounts) 1996 1997 1998 1999 2000
-------------------------------------------------------------------------------
OPERATIONS STATEMENT INFORMATION:
Net sales $21,286 $23,559 $23,625 $28,128 $23,103
Costs and expenses:
Cost of sales 10,327 9,530 10,870 13,640 12,782
Selling, general and
administrative 10,771 10,814 10,254 10,346 10,162
Research and development 3,762 3,006 2,589 2,434 2,979
Research and development,
Aliminase[TM] clinical
trial expenses 2,165 - - 2,866 623
Charges related to ACI and
Aloe & Herbs - - 1,750 - -
Charges related to Oregon
Freeze Dry, Inc. - - - 1,042 223
Interest income, net (304) (37) (233) (105) (80)
Other income - - - (62) (110)
------ ------ ------ ------ ------
Income (loss) before income taxes (5,435) 246 (1,605) (2,033) (3,476)
Provision for income taxes 88 20 10 - -
------ ------ ------ ------ ------
Net income (loss) (5,523) 226 (1,615) (2,033) (3,476)
Dividends and income attributed
to preferred shareholders (1,023) (70) - - -
------ ------ ------ ------ ------
Net income (loss) available to
common shareholders $(6,546) $ 156 $(1,615) $(2,033) $(3,476)
====== ====== ====== ====== ======
Net income (loss) per common
share - basic and diluted(1) $ (0.74) $ 0.02 $ (0.17) $ (0.22) $ (0.36)
====== ====== ====== ====== ======
Weighted average shares used in
per share computations 8,798 8,953 9,320 9,376 9,545
BALANCE SHEET INFORMATION
(as of December 31):
Working capital $13,910 $ 9,484 $ 9,716 $ 7,911 $ 6,275
Total assets 31,202 25,796 24,247 23,493 20,702
Total shareholders' investment $27,757 $22,826 $21,363 $19,504 $16,440
(1) For a description of the calculation of basic and diluted net income
(loss) per share, see Note Twelve to the consolidated financial
statements.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
Background
The Company is a research-based biopharmaceutical, medical device, raw
materials and nutraceutical company engaged in the development,
manufacturing and marketing of naturally-derived complex carbohydrates and
other natural product therapeutics for the treatment of major illnesses, the
dressing and management of wounds and nutritional supplements. The Company
is comprised of two business segments. See Note Thirteen to the
consolidated financial statements for financial information about these
business segments. The Company sells prescription and nonprescription human
and veterinary products through its Medical Services Division and consumer
and bulk raw material products through its consumer products subsidiary,
Caraloe, Inc. The Company's research and product portfolio are based
primarily on complex carbohydrates isolated from the Aloe vera L. plant.
Liquidity and Capital Resources
At December 31, 2000 and 1999, the Company held cash and cash equivalents of
$3,200,000 and $2,453,000, respectively, an increase of $747,000. Net cash
provided by operating activities in 2000 was $217,000, as compared to cash
used in operating activities in 1999 of $889,000. The Company received the
first $875,000 installment under its licensing agreement with Medline in the
fourth quarter of 2000. See Part I for discussions regarding agreements
with Medline. Significant cash outflows during 2000 included investments
in property and equipment of $445,000 and expenses related to the
Aliminase[TM] clinical trial of $623,000. Customers with significant
accounts receivable balances at the end of 2000 included Mannatech, Inc.
($665,500), Allegiance Health Care ($191,000), Owens & Minor ($202,000) and
Medline Industries ($124,000), and of these amounts, $1,145,000 has been
collected as of March 8, 2001.
As of December 31, 2000, the Company had no material capital commitments
other than its leases and agreements with suppliers. In March 1998, the
Company, with four other investors, formed Aloe and Herbs International
Inc., a Panamanian corporation, with the sole intent of acquiring a 5,000-
acre tract of land in Costa Rica to be used for the production of Aloe vera
L. leaves to be sold to the Company at competitive, local market rates.
This would allow the Company to save approximately 50% on the per-kilogram
cost of leaves as compared to the cost of importing leaves from other
Central and South American countries. Aloe & Herbs subsequently formed a
wholly-owned subsidiary, Rancho Aloe (C.R.), S.A., a Costa Rica corporation,
which acquired the land in April 1998. The Company provided a cash advance
of $187,000, which is evidenced by a note receivable, due in installments,
with payments being made monthly based upon farm production.
The Company also advanced $300,000 to Aloe & Herbs in November 1998
for the acquisition of an irrigation system to improve production on the
farm and allow harvesting of leaves year-round. The Company was also
granted a five-year warrant to purchase 300,000 shares of common stock of
Aloe & Herbs. In the fourth quarter of 1998, the Company fully reserved all
amounts owed to it by Aloe & Herbs, in the total amount of $487,000, due to
the start-up nature of the business. In 2000, the Company received payments
totaling $27,000 from Aloe & Herbs against the amount due. The first
shipment of leaves from Rancho Aloe to the Company was made in March 1999
and the Company purchased a total of $417,000 of Aloe vera L. leaves from
Rancho Aloe 2000. The Company's interest in Aloe & Herbs at December 31,
2000 is approximately 31%.
In November 1997, the Company entered into an agreement with Comerica Bank-
Texas for a $3,000,000 line of credit, secured by accounts receivable and
inventory. This credit facility had an outstanding balance of $763,000 at
December 31, 2000 to fund operating needs.
In February 1995, the Company entered into a supply agreement with Oregon
Freeze Dry, Inc. ("OFD"), its supplier of freeze-dried products. The
agreement contained a minimum purchase commitment of $2,500,000. The
agreement expired in August 2000. The Company established a reserve of
$1,042,000 in 1999 and increased the reserve by $223,000 in the second
quarter of 2000 to cover its liability to OFD under the agreement. The
Company is currently negotiating with OFD regarding purchase arrangements
beyond the term of the agreement, but no agreement has been finalized as of
March 31, 2001.
The Company believes that its available cash resources and expected cash
flows from operations will provide the funds necessary to finance its
current operations. However, the Company does not expect that its current
cash resources will be sufficient to finance future major clinical studies
and costs of filing new drug applications necessary to develop its products
to their full commercial potential. Additional funds, therefore, may need
to be raised through equity offerings, borrowings, licensing arrangements or
other means, and there is no assurance that the Company will be able to
obtain such funds on satisfactory terms when they are needed.
The Board of Directors recently authorized the Company to repurchase up to
one million shares of its outstanding Common Stock. See "Market for
Registrant's Common Equity and Related Stockholder Matters" above. The
Company believes it has the financial resources necessary to repurchase
shares from time to time pursuant to the Board's repurchase authorization.
The Company is subject to regulation by numerous governmental authorities in
the United States and other countries. Certain of the Company's proposed
products will require governmental approval prior to commercial use. The
approval process applicable to prescription pharmaceutical products usually
takes several years and typically requires substantial expenditures. The
Company and any licensees may encounter significant delays or excessive
costs in their respective efforts to secure necessary approvals. Future
United States or foreign legislative or administrative acts could also
prevent or delay regulatory approval of the Company's or any licensees'
products. Failure to obtain requisite governmental approvals or failure to
obtain approvals of the scope requested could delay or preclude the Company
or any licensees from marketing their products, or could limit the
commercial use of the products, and thereby have a material adverse effect
on the Company's liquidity and financial condition.
Impact of Inflation
The Company does not believe that inflation has had a material impact on its
results of operations.
Fiscal 2000 Compared to Fiscal 1999
Net sales were $23,103,000 in 2000, compared with $28,128,000 in 1999.
Sales of Manapol[R] by Caraloe in the form of raw materials and consumer
nutritional products, decreased 14.7%, from $12,739,000 in 1999 to
$10,862,000 in 2000. Total sales of the Company's wound and skin care
products in 2000 were $12,241,000 as compared to $15,389,000 in 1999,
primarily due to a significant reduction in pricing to maintain market
competitiveness. While wound care sales declined 21.9% versus the prior
year, unit volumes declined only 5%.
The Company's wound and skin care products are marketed domestically to
hospitals, nursing homes, home health care agencies and acute care
providers. This market has continued to be very competitive and price
sensitive as a result of pressures to control health care costs and has
become increasingly commodity oriented. In addition, the market is heavily
influenced by government reimbursement programs. The home health care
segment of the market again experienced significant turmoil in 2000 as many
of the Company's customers either went out of business or purchased
commodity products. This had a negative impact on the Company's wound care
sales to that segment. Nursing homes were also impacted by government
regulations in 1999, as government-mandated reimbursement changes due to go
into effect in January 1999 were postponed until late year 2000. Many
nursing home facilities and the dealers who supply them postponed buying
decisions and liquidated inventory in anticipation of the regulations taking
effect. In response to these market trends, the Company pursued a strategy
to move its wound care line of products toward value-added specialty
products which focus more on product performance rather than price alone,
such as the Radia[TM] line of products for the management of the side
effects of cancer therapy.
The Company also sells its wound care products to international
distributors, primarily in Italy, Australia, Singapore, Mexico and
Argentina, with lesser sales to a number of Central and South American
countries. Total international sales in 2000 were $1,343,000 as compared
to $1,423,000 in 1999. Included in the 2000 amount were sales of $539,000
of wound care products, which was a decrease of $621,000 from 1999.
Sales of the Company's oral technology products decreased from $374,000 in
1999 to $68,000 in 2000 because of significantly lower sales of the product
to an international customer. Included in this line are products for the
management of oral mucositis/stomatitis and oral lesions and ulcers. Sales
of the Company's veterinary products increased from $47,000 in 1999 to
$130,000 in 2000. These products were marketed on behalf of the Company in
2000 by Farnam Companies, Inc., a leading marketer of veterinary products.
Of the 2000 total Manapol[R] sales, $9,470,000 was related to the sale of
bulk Manapol[R] powder. Caraloe currently sells bulk Manapol[R] powder to
one major customer under a three-year, non-exclusive supply and licensing
agreement. The current agreement, expires in August 2002. Sales to this
customer decreased from $11,422,000 in 1999 to $8,794,000 in 2000.
Subsequent to December 31, 2000, the Company has agreed to a modification in
the contract requirements that reduced minimum purchase requirements by this
customer.
In July 1999, Caraloe launched its new AloeCeuticals[R] line of immune-
enhancing dietary supplements containing Manapol[R], which are available in
liquid, capsule and tablet forms. These products will be sold directly to
health and nutrition stores or through broker/distributors. They will also
be sold through the Company's Internet sites. Sales of these products in
1999 and 2000 totaled $131,000 and $446,000, respectively.
Caraloe also continued to develop its contract manufacturing business during
2000. In September 1998, Caraloe began to manufacture products on a
contract manufacturing basis for a direct sales company selling skin care
products through licensed professionals. Products manufactured include gels
and creams utilizing formulas developed by this customer. In September
1999, Caraloe began to produce nutritional beverages for a direct sales
company selling nutritional products through a multi-level sales
organization. Total contract manufacturing sales in 2000 under the
agreements with these customers were $779,000 compared with $292,000 in
1999.
Cost of sales decreased from $13,640,000 in 1999 to $12,782,000 in 2000, or
6.3%. As a percentage of sales, cost of sales increased from 48.5% to
55.3%. The increase in the cost of goods sold percentage was largely
attributable to lower sales as a result of product mix and downward pricing
pressures.
Selling, general and administrative expenses ("SG&A") decreased to
$10,162,000 from $10,364,000, or 1.9%. Partially offsetting the decrease
was an increase in the selling and marketing expenses for Caraloe products
of $296,000. This increase primarily represented the costs for increased
advertising and marketing support of the AloeCeuticals[R] brand of
Manapol[R] immune enhancing products. The decrease in SG&A costs as
compared to 1999 is partially attributable to lower costs associated with
the provisions of the contract with Medline Industries, whereby the wound
and skin care sales force was transferred to Medline effective December 1,
2000. Additionally, distribution costs were lower by $115,000 in 2000
compared to 1999. This was due to slightly lower volumes and improved
freight rates.
Research and development ("R&D") expenses decreased to $3,602,000 in 2000
from $5,300,000 in 1999, or 32.0%. This decrease was primarily the result
of a reduction of $2,243,000 in expenditures for the unsuccessful
Aliminase[TM] clinical trial offset by an increase in basic research
costs of approximately $550,000. The Company continued its efforts in
basic research during 2000, including work on a new and unique complex
carbohydrate (CR1013) which has potential near-term utility in the area of
drug delivery. Also included in the total R&D activities during 2000 were
various small clinical trials designed to collect data in support of the
Company's products.
In the fourth quarter of 1999, the Company determined that it could no
longer satisfy the minimum purchase requirements of its agreement with
Oregon Freeze Dry, Inc. and thus established a reserve of $1,042,000 to
cover its estimated liability to OFD. The Company increased the reserve by
$223,000 in the second quarter of 2000.
Net interest income of $80,000 was realized in 2000, versus $105,000 in
1999, with the variance primarily due to higher amounts drawn on the line of
credit.
Royalty income of $208,000 related to the licensing agreement with Medline
is included in other income for 2000.
There was no provision for income taxes in 2000. A tax benefit was not
recognized in 2000 due to the Company's recording an offsetting deferred tax
asset valuation allowance. The Company has provided a valuation allowance
against all deferred tax asset balances at December 31, 2000 and 1999 due to
uncertainty regarding realization of the asset.
The Company's net loss for 2000 was $3,476,000, versus a net loss of
$2,033,000 for 1999. The loss in 2000 is primarily attributable to lower
selling prices for wound care products and lower volumes of Manapol[R]
sales. The 1999 loss was due to the $2,866,000 in costs related to the
Aliminase[TM] Clinical Trial and the $1,042,000 reserve for the OFD
contract. The net loss per share was $.36 in 2000, compared to a net loss
per share of $.22 in 1999.
Fiscal 1999 Compared to Fiscal 1998
Net sales were $28,128,000 in 1999, compared with $23,625,000 in 1998.
Sales of Manapol[R] by Caraloe in the form of raw materials and consumer
nutritional products, increased 77.3%, from $7,187,000 in 1998 to
$12,739,000 in 1999. This increase in Caraloe sales was offset by a
decrease in wound care sales of 6.4%. Total sales of the Company's wound
and skin care products in 1999 were $15,389,000 as compared to $16,438,000
in 1998.
Of the 1999 total Manapol[R] sales, $11,982,000 was related to the sale of
bulk Manapol[R] powder. Caraloe currently sells bulk Manapol[R] powder to
a major customer under a three-year, non-exclusive supply and licensing
agreement. The current agreement, which expires in August 2002. Sales to
this customer increased from $5,508,000 in 1998 to $11,422,000 in 1999.
Sales of the Company's oral technology products increased from $278,000 in
1998 to $374,000 in 1999. Included in this line are products for the
management of oral mucositis/stomatitis and oral lesions and ulcers. Sales
of the Company's veterinary products decreased from $146,000 in 1998 to
$47,000 in 1999. These products were marketed on behalf of the Company in
1999 by Farnam Companies, Inc., a leading marketer of veterinary products.
Cost of sales increased from $10,870,000 to $13,640,000, or 25.5%. As a
percentage of sales, cost of sales increased from 46.0% to 48.5%. The
increase in cost of goods sold was largely attributable to product mix, as
sales in 1999 of Caraloe products were a greater percentage of total sales
than in 1998, 45.3% as compared to 30.4%. Caraloe products have
historically had a higher cost as a percentage of sales than wound care
products.
Selling, general and administrative expenses increased to $10,346,000 from
$10,254,000, or .9%. Selling expenses related to wound care sales in
1999 were trimmed by $354,000 from the 1998 level as the Company
reduced expenditures in response to changing market conditions. Partially
offsetting the decrease was an increase of $297,000 in the selling
and marketing expenses for Caraloe products. This increase primarily
represented the costs for the development of marketing materials supporting
the launch of the AloeCeuticals[R] brand of Manapol[R] immune enhancing
products.
Research and development expenses increased to $5,300,000 from $2,589,000,
or 104.7%. This increase was primarily the result of the expenditure of
$2,866,000 for the unsuccessful Aliminase[TM] clinical trial. The Company
continued its efforts in basic research during 1999 and also included in the
total R&D activities during 1999 were various small clinical trials designed
to collect data in support of the Company's products.
In the fourth quarter of 1999, the Company determined that it could no
longer satisfy the minimum purchase requirements of its agreement with
Oregon Freeze Dry, Inc. and thus established a reserve of $1,042,000 to
cover its estimated liability to OFD.
In 1998, the Company established a reserve of $1,250,000 against its
investment in and notes and accounts receivable from Aloe Commodities
International, Inc. ("ACI"). In December 1999, ACI transferred to the
Company 700,000 shares of Aloe & Herbs common stock, previously pledged by
ACI to secure one of its notes to the Company, in satisfaction of the
balance of $695,000 of principal and interest owed on that note. In 2000,
ACI transferred 200,000 shares in Aloe & Herbs to the Company's complete
satisfaction of another note. In 1998, the Company also established a
reserve of $500,000 against its loans to Aloe & Herbs. During 1999, the
Company received $18,000 in repayment of these loans and established a
repayment program with Aloe & Herbs for the repayment of the entire debt.
See Note Six to the consolidated financial statements for additional
discussion of the ACI and Aloe & Herbs transactions.
Net interest income of $105,000 was realized in 1999, versus $233,000 in
1998, with the variance primarily due to lower cash balances in 1999.
There was no provision for income taxes in 1999 as compared to $10,000 in
1998. A tax benefit was not recognized in 1999 due to the Company's
recording an offsetting deferred tax asset valuation allowance. The Company
has provided a valuation allowance against all deferred tax asset balances
at December 31, 1999 and 1998 due to uncertainty regarding realization of
the asset.
The Company's net loss for 1999 was $2,033,000, versus a net loss of
$1,615,000 for 1998. The 1999 net loss was primarily due to the $2,866,000
of costs for the Aliminase[TM] clinical trial plus the effect of reserving
$1,042,000 for the OFD contract. The 1998 net loss was primarily due to the
$1,750,000 in charges related to ACI and Aloe & Herbs. The net loss per
share was $.22 in 1999, compared to a net loss per share of $.17 in 1998.
Excluding the clinical trial expenses in 1999 and reserves in 1999 and 1998,
the net income for 1999 was $1.9 million, or $.20 per share, as compared to
a net income in 1998 of $135,000, or $.01 per share.
Forward Looking Statements
All statements other than statements of historical fact contained in this
report, including but not limited to statements in this Management's
Discussion and Analysis of Financial Condition and Results of Operations
(and similar statements contained in the Notes to Consolidated Financial
Statements) concerning the Company's financial position, liquidity, capital
resources and results of operations, its prospects for the future and other
matters, are forward-looking statements. Forward-looking statements in this
report generally include or are accompanied by words such as "anticipate",
"believe", "estimate", "expect", "intend", "will", "would", "should" or
words of similar import. Such forward-looking statements include, but are
not limited to, statements regarding the ability of local suppliers of Aloe
vera L. leaves in Costa Rica to supply the Company's need for leaves at a
lower cost and with a greater certainty of supply; the condition, capacity
and adequacy of the Company's manufacturing and laboratory facilities and
equipment; the adequacy of the protection that the Company's patents provide
to the conduct of its business operations; the adequacy of the Company's
protection of its trade secrets and unpatented proprietary know-how; the
Company's belief that the claims of the Plaintiff identified under Item 3 of
Part I of this report are without merit; the adequacy of the Company's cash
resources and cash flow from operations to finance its current operations;
and the Company's intention, plan or ability to repurchase shares of
its outstanding common stock, to initiate, continue or complete clinical
and other research programs, to obtain financing when it is needed, to
fund its operations from revenue and other available cash resources, to
enter into licensing agreements, to develop and market new products and
increase sales of existing products, to obtain government approval to
market new products, to file additional patent applications, to rely
on trade secrets, unpatented proprietary know-how and technological
innovation, to reach satisfactory resolutions of its disputes with third
parties, to reach a satisfactory agreement with its supplier of freeze-dried
products, to acquire sufficient quantities of Aloe vera L. leaves from local
suppliers at significant savings, to collect the amounts owed to it by its
distributors, customers and other third parties, and to use its tax loss
carryforwards before they expire, as well as various other matters.
Although the Company believes that the expectations reflected in its
forward-looking statements are reasonable, no assurance can be given that
such expectations will prove correct. Factors that could cause the
Company's results to differ materially from the results discussed in such
forward-looking statements include but are not limited to the possibilities
that the Company may be unable to obtain the funds needed to carry out large
scale clinical trials and other research and development projects, that the
results of the Company's clinical trials may not be sufficiently positive to
warrant continued development and marketing of the products tested, that new
products may not receive required approvals by the appropriate government
agencies or may not meet with adequate customer acceptance, that the Company
may not be able to obtain financing when needed, that the Company may not be
able to obtain appropriate licensing agreements for products that it wishes
to market or products that it needs assistance in developing, that the
Company's efforts to improve its sales and reduce its costs may not be
sufficient to enable it to fund its operating costs from revenues and
available cash resources, that one or more of the customers that the Company
expects to purchase significant quantities of products from the Company or
Caraloe may fail to do so, that competitive pressures may require the
Company to lower the prices of or increase the discounts on its products,
that the Company's sales of products it is contractually obligated to
purchase from suppliers may not be sufficient to enable and justify its
fulfillment of those contractual purchase obligations, that other parties
who owe the Company substantial amounts of money may be unable to pay what
they owe the Company, that the Company's patents may not provide the Company
with adequate protection, that the Company's manufacturing facilities may be
inadequate to meet demand, that the Company's distributors may be unable to
market the Company's products successfully, that the Company may not be able
to resolve its disputes with third parties in a satisfactory manner, that
the Company may be unable to reach a satisfactory agreement with its
supplier of freeze-dried products or with other important suppliers, that
the Company may not be able to use its tax loss carryforwards before
they expire, that the Company may not have sufficient financial resources
necessary to repurchase shares of its outstanding common stock, and that the
Company may be unable to produce or obtain, or may have to pay excessive
prices for, the raw materials or products it needs.
All forward-looking statements in this report are expressly qualified in
their entirety by the cautionary statements in the two immediately preceding
paragraphs.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Foreign Currency
The Company's manufacturing operation in Costa Rica accounted for 52% of
cost of sales for the year ended December 31, 2000. As a result, the
Company's financial results could be significantly affected by factors such
as changes in foreign currency exchange rates or economic conditions in
Costa Rica. When the U.S. Dollar strengthens against the Costa Rica Colon,
the cost of sales decreases. During 2000, the exchange rate from U.S.
Dollars to Costa Rica Colones increased by 6% to 318 at December 31, 2000.
The effect of an additional 10% strengthening in the value of the U.S.
Dollar relative to the Costa Rica Colones would result in an increase of
$333,000 in gross profit. The Company's sensitivity analysis of the effects
of changes in foreign currency rates does not factor in a potential change
in sales levels or local currency prices.
Sales of products to foreign markets comprised 6% of sales for 2000. These
sales are generally denominated in U.S. Dollars. The Company does not
believe that changes in foreign currency exchange rates or weak economic
conditions in foreign markets in which the Company distributes its products
would have a significant effect on operating results. If sales to foreign
markets increase in future periods, the effects could become significant.
For quantitative and qualitative disclosures about market risk related to
the supply of Aloe vera L. leaves, see "Business."
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The response to Item 8 is submitted as a separate section of this Form 10-K.
See Item 14.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
There were no changes in or disagreements with the Company's independent
public accountants on accounting matters or financial disclosure during
1999, 2000 or 2001 (to the date of filing of this report).
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information required by Item 10 of Form 10-K is hereby incorporated by
reference from the information appearing under the captions "Election of
Directors," "Executive Officers" and "Section 16(a) Beneficial Ownership
Reporting Compliance" in the Company's definitive Proxy Statement relating
to its 2001 annual meeting of shareholders, which will be filed pursuant to
Regulation 14A within 120 days after the Company's fiscal year ended
December 31, 2000.
ITEM 11. EXECUTIVE COMPENSATION.
The information required by Item 11 of Form 10-K is hereby incorporated by
reference from the information appearing under the caption "Executive
Compensation" in the Company's definitive Proxy Statement relating to its
2001 annual meeting of shareholders, which will be filed pursuant to
Regulation 14A within 120 days after the Company's fiscal year ended
December 31, 2000.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information required by Item 12 of Form 10-K is hereby incorporated by
reference from the information appearing under the captions "Security
Ownership of Management" and "Principal Shareholders" in the Company's
definitive Proxy Statement relating to its 2001 annual meeting of
shareholders, which will be filed pursuant to Regulation 14A within 120 days
after the Company's fiscal year ended December 31, 2000.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information, if any, required by Item 13 of Form 10-K is hereby
incorporated by reference from the information appearing under the caption
"Certain Transactions", if any, in the Company's definitive Proxy Statement
relating to its 2001 annual meeting of shareholders, which will be filed
pursuant to Regulation 14A within 120 days after the Company's fiscal year
ended December 31, 2000.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a)(1) Financial Statements.
Reference is made to the index on page F-1 for a list of all
financial statements filed as a part of this Annual Report.
(2) Financial Statement Schedules.
Reference is made to the index on page F-1 for a list of one
financial statement schedule filed as a part of this Annual
Report.
(3) Exhibits.
Reference is made to the Index to Exhibits on pages E-1 through E-
9 for a list of all exhibits to this report.
(b) Reports on Form 8-K.
The Company filed no reports on Form 8-K during the last quarter
of its fiscal year ended December 31, 2000.
CARRINGTON LABORATORIES, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES
Consolidated Financial Statements of the Company:
Consolidated Balance Sheets --
December 31, 1999 and 2000 F - 2
Consolidated Statements of Operations -- years ended
December 31, 1998, 1999 and 2000 F - 3
Consolidated Statements of Shareholders' Investment --
years ended December 31, 1998, 1999 and 2000 F - 4
Consolidated Statements of Cash Flows -- years ended
December 31, 1998, 1999 and 2000 F - 5
Notes to Consolidated Financial Statements F - 6
Financial Statement Schedule
Valuation and Qualifying Accounts F - 18
Report of Ernst & Young LLP, Independent Public F - 19
Accountants
Consolidated Balance Sheets
(Amounts in thousands, except share amounts)
December 31,
1999 2000
------- -------
ASSETS:
Current Assets:
Cash and cash equivalents $ 2,453 $ 3,200
Accounts receivable, net of allowance
for doubtful accounts of $304 and
$98 in 1999 and 2000, respectively 3,690 2,181
Inventories 5,184 4,723
Prepaid expenses 573 183
------- -------
Total current assets 11,900 10,287
Property, plant and equipment, net 10,985 10,322
Other assets 608 93
------- -------
Total assets $ 23,493 $ 20,702
======= =======
LIABILITIES AND SHAREHOLDERS' INVESTMENT
Current Liabilities:
Note payable $ 200 $ 763
Accounts payable 1,871 1,764
Accrued liabilities 1,918 1,068
Deferred revenue - 417
------- -------
Total current liabilities 3,989 4,012
Deferred revenue, long-term - 250
Commitments and contingencies
SHAREHOLDERS' INVESTMENT:
Common stock, $.01 par value, 30,000,000 shares
authorized, 9,395,064 and 9,659,087 shares
issued and outstanding at December 31,
1999 and 2000, respectively 94 97
Capital in excess of par value 51,910 52,319
Deficit (32,500) (35,976)
------- -------
Total shareholders' investment 19,504 16,440
------- -------
Total liabilities and shareholders' investment $ 23,493 $ 20,702
======= =======
The accompanying notes are an integral part of these balance sheets.
F-2
Consolidated Statements of Operations
(Amounts in thousands, except per share amounts)
Years Ended December 31,
-------------------------------
1998 1999 2000
------ ------ ------
Net sales $23,625 $28,128 $23,103
Costs and expenses:
Cost of sales 10,870 13,640 12,782
Selling, general and administrative 10,254 10,346 10,162
Research and development 2,589 2,434 2,979
Research and development, Aliminase[TM]
clinical trial expenses - 2,866 623
Charges related to ACI and Aloe & Herbs 1,750 - -
Charges related to Oregon Freeze Dry, Inc. - 1,042 223
Interest income, net (233) (105) (80)
Other income - (62) (110)
------ ------ ------
Loss before income taxes (1,605) (2,033) (3,476)
Provision for income taxes 10 - -
------ ------ ------
Net loss $(1,615) $(2,033) $(3,476)
====== ====== ======
Net loss per share - basic and diluted $ (0.17) $ (0.22) $ (0.36)
====== ====== ======
The accompanying notes are an integral part of these statements.
F-3
Consolidated Statements of Shareholders' Investment
For the Years Ended December 31, 1998, 1999 and 2000
(Amounts in thousands)
Capital in Total
Excess of Shareholders'
Common Stock Par Value Deficit Investment
------------ --------- ------- ----------
Shares Amount
----------------------------------------------------------------------------
Balance,
January 1, 1998 9,306 $ 93 $51,585 $(28,852) $22,826
Issuance of common stock for
employee stock purchase
plan 44 1 151 - 152
Issuance of common stock for
stock option plan - - - - -
Net loss - - - (1,615) (1,615)
----------------------------------------------------------------------------
Balance,
December 31, 1998 9,350 94 51,736 (30,467) 21,363
Issuance of common stock for
employee stock purchase
plan 35 - 149 - 149
Issuance of common stock for
stock option plan 10 - 25 - 25
Net loss - - - (2,033) (2,033)
----------------------------------------------------------------------------
Balance,
December 31, 1999 9,395 94 51,910 (32,500) 19,504
Issuance of common stock for
employee stock purchase
plan 170 2 173 - 175
Issuance of common stock for
stock option plan 94 1 236 - 237
Net loss - - - (3,476) (3,476)
----------------------------------------------------------------------------
Balance,
December 31, 2000 9,659 $ 97 $52,319 $(35,976) $16,440
===== === ====== ======= ======
The accompanying notes are an integral part of these statements.
F-4
Consolidated Statements of Cash Flows
(Amounts in thousands)
Years Ended December 31,
---------------------------
1998 1999 2000
------ ------ ------
Cash flows provided by (used in)
operating activities:
Net loss $(1,615) $(2,033) $(3,476)
Adjustments to reconcile loss
to net cash provided by (used in)
operating activities:
Depreciation and amortization 1,043 1,028 1,043
Loss on disposal of assets - - 65
Charge related to ACI investment 600 - -
Charge related to Oregon Freeze Dry, Inc. - 1,042 223
Provision for inventory obsolescence 53 - 316
Changes in operating assets and liabilities:
Accounts receivable, net 129 (729) 1,508
Inventories (19) (215) 294
Prepaid expenses (411) (177) 390
Other assets 1,340 (11) 515
Accounts payable and accrued liabilities (55) 206 (1,328)
Deferred revenue - - 667
------ ------ ------
Net cash provided by (used in)
operating activities 1,065 (889) 217
Cash flows used in investing activities:
Purchases of property, plant and equipment (1,278) (963) (445)
------ ------ ------
Net cash used in investing activities (1,278) (963) (445)
Cash flows provided by financing activities:
Issuances of common stock 152 174 412
Retirement of preferred stock - - -
Proceeds of short-term debt - 200 563
Principal payments of capital lease
obligations (31) - -
------ ------ ------
Net cash provided by financing
activities 121 374 975
------ ------ ------
Net increase (decrease) in cash and cash
equivalents (92) (1,478) 747
Cash and cash equivalents at beginning of year 4,023 3,931 2,453
------ ------ ------
Cash and cash equivalents at end of year $ 3,931 $ 2,453 $ 3,200
====== ====== ======
Supplemental Disclosure of Cash Flow
Information
Cash paid during the year for interest $ 3 $ 7 $ 40
Cash paid during the year for income taxes 44 - -
The accompanying notes are an integral part of these statements.
F-5
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE ONE. BUSINESS
Carrington Laboratories, Inc. (the "Company") is a research-based
biopharmaceutical, medical device, raw materials and nutraceutical company
engaged in the development, manufacturing and marketing of naturally-derived
complex carbohydrates and other natural product therapeutics for the
treatment of major illnesses, the dressing and management of wounds and
nutritional supplements.
The Company's Medical Services Division offers a comprehensive line of human
wound management products to hospitals, nursing homes, alternative care
facilities and the home health care market and also offers vaccines and
wound and skin care products to the veterinary market. Sales are primarily
in the United States through a network of distributors (see Medline
Agreement below).
Caraloe, Inc., a subsidiary, markets or licenses consumer products and bulk
raw material products. Principal sales of Caraloe, Inc., are bulk raw
material products which are sold to United States manufacturers who include
the high quality extracts from Aloe vera L. in their finished products.
The Company's products are produced at its plants in Irving, Texas and Costa
Rica. A portion of the Aloe vera L. leaves used for manufacturing the
Company's products are grown on a Company-owned farm in Costa Rica. The
remaining leaves are purchased from producers in Costa Rica, Mexico,
Venezuela and Central America.
The Company and Medline Industries, Inc. ("Medline") entered into a
Distributor and License Agreement dated November 3, 2000, under which the
Company granted to Medline the exclusive right, subject to certain limited
exceptions, to distribute all of the Company's wound and skin care products
(the "Products") in the United States, Canada, Puerto Rico and the Virgin
Islands for a term of five years beginning December 1, 2000. The agreement
provides that Carrington will continue to manufacture its existing line of
Products and sell them to Medline at the specified prices. The prices,
which are generally firm for the first two years of the contract term, are
thereafter subject to adjustment not more than once each year to reflect
increases in manufacturing cost.
The agreement also grants Medline a nonexclusive license to use certain of
the Company's trademarks in connection with the marketing of the Products.
In addition, it permits Medline, if it so elects, to use those trademarks in
connection with the marketing of various Medline products and other products
not manufactured by the Company (collectively, "Other Products").
The agreement requires Medline to pay the Company a base royalty totaling
$12,500,000 in quarterly installments that begin on December 1, 2000. The
quarterly installments are $875,000 each during the first year of the term
and decline annually thereafter. In addition to the base royalty, if
Medline elects to market any of the Other Products under any of the
Company's trademarks, Medline must pay the Company a royalty of between one
percent and five percent of Medline's aggregate annual net sales of the
Products and the Other Products, depending on the amount of the net sales,
except that the royalty on certain high volume commodity products will be
two percent.
The agreement also calls for Medline to offer employment to such members of
the Company's sales staff as Medline determines.
NOTE TWO. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION. The consolidated financial statements
include the accounts of Carrington Laboratories, Inc., and its subsidiaries,
all of which are wholly owned. All intercompany accounts and transactions
have been eliminated in consolidation.
CASH EQUIVALENTS. The Company's policy is that all highly liquid
investments purchased with a maturity of three months or less at date of
acquisition are considered to be cash equivalents unless otherwise
restricted.
INVENTORY. Inventories are recorded at the lower of cost (first-in, first-
out) or market.
PROPERTY, PLANT AND EQUIPMENT. Property, plant and equipment are recorded
at cost less accumulated depreciation. Land improvements, buildings and
improvements, furniture and fixtures and machinery and equipment are
depreciated on the straight-line method over their estimated useful lives.
Leasehold improvements and equipment under capital leases are amortized over
the terms of the respective leases.
LONG-LIVED ASSETS. The Company regularly reviews long-lived assets for
impairment whenever events or changes in circumstances indicate that the
carrying amounts of the assets may not be recoverable. Recoverability is
based on whether the carrying amount of the asset exceeds the current and
anticipated undiscounted cash flows related to the asset.
TRANSLATION OF FOREIGN CURRENCIES. The functional currency for international
operations (primarily Costa Rica) is the U.S. Dollar. Accordingly, such
foreign entities translate monetary assets and liabilities at year-end
exchange rates, while non-monetary items are translated at historical rates.
Revenue and expense accounts are translated at the average rates in effect
during the year, except for depreciation and amortization, which are
translated at historical rates. Translation adjustments and transaction
gains or losses are recognized in the consolidated statement of operations
in the year of occurrence.
REVENUE RECOGNITION. The Company recognizes revenue when title to the goods
transfers and collectibility is reasonably assured. For the majority of the
Company's sales, this occurs at the time of shipment. The Company has
rebate arrangements with certain distributors. These rebates are estimated
and recorded at the time of sale.
DEFERRED REVENUE. Deferred revenue is related to the licensing and royalty
agreement with Medline Industries. Royalties and licensing fees are
amortized on a straight-line basis with amounts received in excess of
amounts amortized reflected in the financial statements as deferred revenue.
FEDERAL INCOME TAXES. Deferred income taxes reflect the tax effect of
temporary differences between the amount of assets and liabilities
recognized for financial reporting and tax purposes. These deferred taxes
are measured by applying currently enacted tax laws. The effect on deferred
income tax assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date. Valuation allowances
are provided against net deferred tax assets when realization is not
reasonably assured.
RESEARCH AND DEVELOPMENT. Research and development costs are expensed as
incurred. Certain laboratory and test equipment determined to have
alternative future uses in other research and development activities has
been capitalized and is depreciated as research and development expense over
the life of the equipment.
ADVERTISING. Advertising expense is charged to operations in the year
in which such costs are incurred. Advertising expense has not been
significant for 1998, 1999 or 2000.
STOCK-BASED COMPENSATION. The Company has elected to follow APB Opinion No.
25, "Accounting for Stock Issued to Employees", in the primary financial
statements and to provide supplementary disclosures required by FASB
Statement No. 123, "Accounting for Stock-Based Compensation" (see Note
Eight).
NET INCOME (LOSS) PER SHARE. Basic net income (loss) per share is based on
the weighted average number of shares of common stock outstanding during the
year and excludes any dilutive effects of options, warrants and convertible
securities. Diluted net income (loss) per share includes the effects of
options, warrants and convertible securities unless the effect is
antidilutive.
USE OF ESTIMATES. The preparation of financial statements in conformity
with generally accepted accounting principles in the United States requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
NOTE THREE. INVENTORIES
The following summarizes the components of inventory at December 31, 1999
and 2000, in thousands:
1999 2000
------------------------------------------------------------------
Raw materials and supplies $2,011 1,768
Work-in-process 673 878
Finished goods 2,500 2,077
------------------------------------------------------------------
Total $5,184 $4,723
------------------------------------------------------------------
The inventory balances are net of $430,000 and $441,000 of reserves for
obsolete and slow moving inventory at December 31, 1999 and 2000,
respectively.
NOTE FOUR. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of the following at December 31,
1999 and 2000, in thousands:
Estimated
1999 2000 Useful Lives
------------------------------------------------------------------
Land and improvements $ 1,389 $1,389
Buildings and improvements 8,692 8,889 7 to 25 years
Furniture and fixtures 873 589 4 to 8 years
Machinery and equipment 9,505 6,982 3 to 10 years
Leasehold improvements 349 214 1 to 3 years
Equipment under capital leases 150 114 4 years
------------------------------------------------------------------
Total 20,958 18,177
Less accumulated depreciation
and amortization 9,973 7,855
------------------------------------------------------------------
Property, plant and
equipment, net $10,985 $10,322
====== ======
The Company's net investment in property, plant and equipment in Costa Rica
at December 31, 1999 and 2000 was $4,518,000 and $4,251,000, respectively.
NOTE FIVE. ACCRUED LIABILITIES
The following summarizes significant components of accrued liabilities at
December 31, 1999 and 2000, in thousands:
1999 2000
------------------------------------------------------------------
Accrued payroll $ 231 $ 440
Accrued sales commissions 36 16
Accrued taxes 200 249
Oregon Freeze Dry Reserve (see Note Nine) 698 -
Other 753 363
------------------------------------------------------------------
Total $1,918 $1,068
------------------------------------------------------------------
NOTE SIX. CHARGES RELATED TO ACI AND ALOE & HERBS
The Company had reserved approximately $0.1 million at December 31, 1997 to
cover potential exposures on approximately $1.1 million of investment in and
notes and accounts receivable from ACI. In 1998, the Company increased the
reserves against its investment and notes and accounts receivable balances
related to Aloe Commodities International, Inc., ("ACI") by approximately
$1.2 million to fully reserve all amounts related to ACI. During 1999, ACI
paid $40,000 on its obligations to the Company. Additionally, in 1999, ACI
assigned 700,000 shares in Aloe & Herbs in repayment of $695,000 of
principal and interest on its obligations to the Company. In 2000, ACI
assigned an additional 200,000 shares in Aloe & Herbs in repayment of the
remaining $200,000 obligation to the Company.
Beginning in 1998, the Company invested a total of approximately $0.5
million in Aloe & Herbs International Inc., a Panamanian corporation, and
its subsidiary Rancho Aloe (collectively "Aloe & Herbs"), an aloe farm close
to the Company's existing farm in Costa Rica. The Company obtained a 19.3%
equity interest in Aloe & Herbs in return for agreeing to provide farming
expertise, working capital and Aloe vera L. plants. The Company's ownership
interest in Aloe & Herbs was increased to approximately 31% through the
assignment of shares by ACI. The Company accounts for its investment in the
Common Stock of Aloe & Herbs under the equity method, however, as of
December 31, 2000 Aloe & Herbs had not generated net income, and thus the
investment is carried at zero.
Aloe & Herbs faced substantial capital requirements during 1999 and 2000 for
debt payments, ongoing investments in aloe plants and other general start-up
costs. Consequently, in 1998 the Company fully reserved the $0.5 million in
notes and accounts receivable due from Aloe & Herbs due to the risk and
uncertainty of Aloe & Herbs' ability to repay the amounts due the Company.
Aloe & Herbs successfully met the third party debt obligations that it owed
in 1999, and is currently seeking to refinance its remaining third party
debt obligation. The Company received repayments of $18,000 and $27,000
during 1999 and 2000, respectively, recorded as other income, for amounts
due from Rancho Aloe and has established a repayment program with Aloe &
Herbs for the repayment of the entire debt.
NOTE SEVEN. LINE OF CREDIT
The Company has an agreement with a bank for a $3 million line of credit,
collateralized by accounts receivable and inventory. This credit facility
is available for operating needs. The interest rate is equal to the bank's
prime rate (9.5% at December 31, 2000). As of December 31, 2000 there was
$763,000 outstanding on the credit line. There was $200,000 drawn on the
line of credit at December 31, 1999.
NOTE EIGHT. COMMON STOCK
SHARE PURCHASE RIGHTS PLAN The Company has a share purchase rights plan
which provides, among other rights, for the purchase of common stock by
certain existing common stockholders at significantly discounted amounts in
the event a person or group acquires or announces the intent to acquire 20%
or more of the Company's common stock. The rights expire in 2001 and may be
redeemed at any time at the option of the Board of Directors for $.01 per
right.
EMPLOYEE STOCK PURCHASE PLAN The Company has an Employee Stock Purchase
Plan under which employees may purchase common stock at a price equal to the
lesser of 85% of the market price of the Company's common stock on the last
business day preceding the enrollment date (defined as January 1, April 1,
July 1 or October 1 of any plan year) or 85% of the market price on the last
business day of each month. A maximum of 500,000 shares of common stock was
reserved for purchase under this Plan. As of December 31, 2000, a total of
344,000 shares had been purchased by employees at prices ranging from $0.85
to $29.54 per share.
STOCK OPTIONS The Company has an incentive stock option plan which was
approved by the shareholders in 1995 under which incentive stock options and
nonqualified stock options may be granted to employees, consultants and non-
employee directors. Options are granted at a price no less than the market
value of the shares on the date of the grant, except for incentive options
to employees who own more than 10% of the total voting power of the
Company's common stock, which must be granted at a price no less than 110%
of the market value. Employee options are normally granted for terms of 10
years. Options granted prior to December 1998 normally vested at the rate
of 25% per year beginning on the first anniversary of the grant date.
Options granted in or subsequent to December 1998 normally vest at the rate
of 33-1/3% per year beginning on the first anniversary of the grant date,
but certain options granted in December 1998 and 1999 were 25%, 50% or 100%
vested on the grant date, with the remainder of each option vesting in equal
installments on the first, second and third anniversaries of the grant date.
Options to non-employee directors have terms of four years and are 100%
vested on the grant date. The Company has reserved 1,500,000 shares of
common stock for issuance under this plan. As of December 31, 2000, options
to purchase 195,000 shares were available for future grants under the plan.
The following summarizes stock option activity for each of the three years
ended December 31, 1998, 1999 and 2000 (shares in thousands):
Weighted
Average
Exercise
Shares Price Per Share Price
-------------------------------------------------------------------
Balance, January 1, 1998 959 $ 5.31 to $47.75 $15.19
Granted 678 $ 2.50 to $13.13 $ 3.26
Lapsed or canceled (249) $ 4.63 to $35.25 $11.02
-------------------------------------------------------------------
Balance, December 31, 1998 1,388 $ 2.50 to $28.75 $ 4.58
Granted 345 $ 2.06 to $ 3.63 $ 2.41
Lapsed or canceled (316) $ 2.50 to $27.00 $ 4.71
Exercised (10) $ 2.50 to $ 2.50 $ 2.50
-------------------------------------------------------------------
Balance, December 31, 1999 1,407 $ 2.06 to $28.75 $ 4.05
Granted 263 $ 1.31 to $ 2.03 $1.35
Lapsed or canceled (333) $ 2.06 to $28.75 $3.35
Exercised (94) $ 2.50 to $ 4.81 $2.58
-------------------------------------------------------------------
Balance, December 31, 2000 1,243 $ 1.31 to $28.75 $3.78
-------------------------------------------------------------------
Options exercisable at
December 31, 1998 417 $ 2.50 to $28.75 $ 5.71
-------------------------------------------------------------------
Options exercisable at
December 31, 1999 553 $ 2.50 to $28.75 $ 4.68
-------------------------------------------------------------------
Options exercisable at
December 31, 2000 605 $ 2.03 to $28.75 $ 4.86
-------------------------------------------------------------------
The following table summarizes information about stock options outstanding
at December 31, 2000:
Options Outstanding Options Exercisable
------------------------------ -------------------
Weighted
Average Weighted Weighted
Remaining Average Average
Range of Contractual Exercise Exercise
Exercise Prices Shares Life Price Shares Price
---------------------------------------------------------------------
$1.31 $ 5.25 1,102 7.13 years $3.13 487 $3.78
6.00 28.75 141 5.64 8.85 118 9.29
-------------- ----- ---------- ----- --- -----
$1.31 $28.75 1,243 6.96 years $3.78 605 $4.86
============== ===== ========== ===== === =====
The Company accounts for employee stock-based compensation under APB Opinion
No. 25, under which no compensation cost has been recognized. Had
compensation cost been determined based on the fair value of options at
their grant dates consistent with the method of Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation"
("SFAS 123"), the Company's net loss and diluted net loss available to
common shareholders per share would have been the following pro forma
amounts:
-------------------------------------------------------------------
1998 1999 2000
-------------------------------------------------------------------
Net loss (in thousands):
As reported $(1,615) $(2,033) $(3,476)
Pro forma (2,670) (3,485) (4,650)
Diluted net loss available to
common shareholders per share:
As reported $ (0.17) $ (0.22) $ (0.36)
Pro forma (0.29) (0.37) (0.49)
-------------------------------------------------------------------
Because the SFAS 123 method of accounting has not been applied to options
granted prior to January 1, 1995, the pro forma compensation cost may not be
representative of the pro forma cost to be expected in future years.
The fair value of each option granted was estimated on the date of the grant
using the Black-Scholes option pricing model with the following weighted-
average assumptions used for grants to employees in 1998, 1999, and 2000,
respectively: risk-free interest rates of 5.38%, 6.00% and 5.99%, expected
volatility of 79.3%, 74.0% and 89.3% and expected lives of 2.4, 2.9 and 3.0
years. The Company used the following weighted-average assumptions for
grants to directors in 1998, 1999 and 2000: expected dividend yields of 0%
and expected lives of 4.0 years. The weighted average fair values of
options granted were $1.05, $0.64 and $1.37 in 1998, 1999, and 2000,
respectively.
STOCK WARRANTS From time to time, the Company has granted warrants to
purchase common stock to the Company's research consultants and other
persons rendering services to the Company. The exercise price of such
warrants was normally the market price or in excess of the market price of
the common stock at date of issuance. The following summarizes warrant
activity for each of the periods ending December 31, 1998, 1999, and 2000
(shares in thousands):
Weighted
Average
Shares Price Per Share Exercise
Price
----------------------------------------------------------------
Balance, January 1, 1998 51 $ 9.75 to $20.13 $15.03
Lapsed or canceled (10) $ 9.75 $ 9.75
----------------------------------------------------------------
Balance, December 31, 1998 41 $13.00 to $20.13 $16.32
Issued 50 $ 3.50 $ 3.50
Lapsed or canceled (26) $16.00 to $19.75 $16.87
----------------------------------------------------------------
Balance, December 31, 1999 65 $ 3.50 to $20.13 $ 6.24
Lapsed or canceled (10) $13.00 $13.00
----------------------------------------------------------------
Balance, December 31, 2000 55 $ 3.50 to $20.13 $ 5.01
----------------------------------------------------------------
Warrants exercisable at
December 31, 2000 55 $ 3.50 to $20.13 $ 5.01
----------------------------------------------------------------
Warrants outstanding at December 31, 2000 had a weighted average remaining
contractual life of 3.8 years.
COMMON STOCK RESERVED At December 31, 2000 the Company had reserved a
total of 1,649,095 common shares for future issuance relating to the
employee stock purchase plan, stock option plan and stock warrants disclosed
above.
NOTE NINE. COMMITMENTS AND CONTINGENCIES
The Company conducts a significant portion of its operations from an office/
warehouse/distribution facility and an office/laboratory facility under
operating leases that expire in 2001. In addition, the Company leases
certain office equipment under operating leases that expire over the next
three years. The Company's commitments under noncancellable operating
leases as of December 31, 2000 were as follows, in thousands:
Years Ending December 31,
-------------------------------------------------------------------
2001 $ 73
2002 63
2003 60
-------------------------------------------------------------------
Total minimum lease payments $196
-------------------------------------------------------------------
Total rental expense under operating leases was $451,000, $455,000 and
$661,000 for the years ended December 31, 1998, 1999 and 2000, respectively.
On January 22, 2001, the Company signed a lease that is effective June 15,
2001 for distribution, quality control, and research facilities that the
Company will combine during 2001 in a single building. Rentals under this
lease range from $20,800 to $54,000 per month. The lease period is ten
years.
In February 1995, the Company entered into a commitment to purchase $2.5
million of freeze-dried products from Oregon Freeze Dry, Inc. ("OFD") over a
66-month period ending in August 2000. The Company has made purchases
pursuant to this commitment of $245,000, $95,000 and $54,000 in 1997, 1998
and 1999, respectively. At December 31, 1999, the Company had made
prepayments of $672,000 toward future deliveries under the commitment.
In the fourth quarter of 1999, the Company determined that it could no
longer satisfy the minimum purchase requirements of the agreement and thus
the Company has established a reserve of $1,042,000 for estimated losses
under this contract. Of this amount, $698,000 is recorded in accrued
liabilities and $344,000 offsets the aforementioned prepayments in the 1999
Balance Sheet. In the second quarter of 2000, this reserve was increased by
$223,000. The Company is currently negotiating with OFD to extend the
production agreement.
From time to time in the normal course of business, the Company is party to
various matters involving claims or possible litigation. Management
believes the ultimate resolution of these matters will not have a material
adverse effect on the Company's financial position or results of operations.
NOTE TEN. INCOME TAXES
The tax effects of temporary differences that gave rise to deferred tax
assets and deferred tax liabilities at December 31, 1999 and 2000 were as
follows, in thousands:
1999 2000
---------------------------------------------------------------
Net operating loss carryforward $14,090 $14,699
Research and development
and other credits 748 661
Property, plant and equipment 307 282
Patents 270 270
Inventory 368 368
Other, net 600 197
Bad debt reserve 549 467
Royalty Income - Medline 0 (227)
ACI Stock Valuation 204 204
Oregon Freeze Dry reserve 354 -
Less - Valuation allowance (17,286) (16,921)
---------------------------------------------------------------
$ 0 $ 0
====== ======
The Company has provided a valuation allowance against the entire deferred
tax asset at December 31, 1999 and 2000 due to the uncertainty as to the
realization of the asset.
The provisions for income taxes for the years ended December 31, 1998, 1999
and 2000 consisted of a $10,000 provision in 1998. The benefit which would
be expected for losses incurred in each year was offset by increases in the
valuation reserve.
At December 31, 2000, the Company had net operating loss carryforwards of
approximately $41.4 million for federal income tax purposes, which begin to
expire in 2001, and research and development tax credit carryforwards of
approximately $660,000, which begin to expire in 2001, all of which are
available to offset federal income taxes due in future periods. A $6
million net operating loss carryforward expired during the year ended
December 31, 2000. Additionally, $87,000 in research and development tax
credits expired in 2000. The Company has approximately $28,000 in
alternative minimum tax credits which do not expire.
NOTE ELEVEN. CONCENTRATIONS OF CREDIT RISK
Financial instruments that potentially expose the Company to concentrations
of credit risk consist primarily of trade accounts receivable. The
Company's customers are not concentrated in any specific geographic region
but are concentrated in the health care industry. Significant sales were
made to three customers. McKesson HBOC/General Medical accounted for 11%,
5% and 6% and Owens & Minor accounted for 10%, 9% and 10% of the Company's
net sales in 1998, 1999 and 2000, respectively. Sales to Mannatech, Inc.,
accounted for 23%, 41% and 38% of the Company's net sales in 1998, 1999 and
2000, respectively. Accounts receivable from Mannatech represented 30% of
gross accounts receivable at December 31, 2000. The Company performs
ongoing credit evaluations of its customers' financial condition and
establishes an allowance for doubtful accounts based on factors surrounding
the credit risk of specific customers and historical trends and other
information.
NOTE TWELVE. NET LOSS PER SHARE
Basic net loss available to common shareholders per share was computed by
dividing net loss available to common shareholders by the weighted average
number of common shares outstanding of 9,320,000, 9,376,000 and 9,545,000 in
1998, 1999 and 2000, respectively.
In calculating the diluted net loss available to common shareholders per
share for the three years ended 2000, no effect was given to options or
warrants, because the effect of including these securities would have been
antidilutive.
NOTE THIRTEEN. REPORTABLE SEGMENTS
The Company operates in two reportable segments: human and veterinary
products sold through its Medical Services Division and Caraloe, Inc., a
consumer products subsidiary, which sells bulk raw materials, consumer
beverages and nutritional and skin care products.
The Company evaluates performance and allocates resources based on profit or
loss from operations before income taxes. The accounting policies of the
reportable segments are the same as those described in the Summary of
Significant Accounting Policies (Note Two).
Corporate income (loss) before income taxes set forth in the following table
includes research and development expenses which were related to the
development of pharmaceutical products not associated with the reporting
segments. Assets which are used in more than one segment are reported in
the segment where the predominant use occurs. The Company's production
facility in Costa Rica, which provides bulk ingredients for all segments,
and total cash for the Company are included in the Corporate Assets figure.
Reportable Segments (in thousands)
Medical Caraloe,
Services Inc. Corporate Total
----------------------------------------------------------------
1999
----------------------------------------------------------------
Sales to unaffiliated
customers $15,389 $12,739 $ - $28,128
Income(loss) before
income taxes (775) 3,247 (4,505) (2,033)
Identifiable assets 12,623 2,019 8,851 23,493
Capital expenditures 405 - 558 963
Depreciation and
amortization 679 - 349 1,028
----------------------------------------------------------------
2000
----------------------------------------------------------------
Sales to unaffiliated
customers $12,241 $10,862 $ - $23,103
Income(loss) before
income taxes (2,421) 2,007 (3,062) (3,476)
Identifiable assets 11,530 1,782 7,390 20,702
Capital expenditures 246 - 199 445
Depreciation and
amortization 590 - 453 1,043
----------------------------------------------------------------
NOTE FOURTEEN. UNAUDITED SELECTED QUARTERLY FINANCIAL DATA
The unaudited selected quarterly financial data below reflect the fiscal
years ended December 31, 1999 and 2000, respectively.
(Amounts in thousands, except shares and per share amounts)
--------------------------------------------------------------------------
1999 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
--------------------------------------------------------------------------
Net sales $ 6,898 $ 6,750 $ 7,224 $ 7,256
Gross profit 3,287 3,380 3,949 3,872
Net income (loss) (1,005) (394) 145 (779)(1)
Diluted income (loss)
per share $ (0.11) $ (0.04) $ 0.02 $ (0.08)
Weighted average
common shares 9,351,000 9,358,000 9,368,000 9,424,000
--------------------------------------------------------------------------
2000 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
--------------------------------------------------------------------------
Net sales $ 7,125 $ 5,463 $ 4,997 $ 5,518
Gross profit 3,495 2,849 1,759 2,218
Net loss (529) (679) (1,228) (1,040)
Loss per share $ (0.06) $ (0.07) $ (0.13) $ (0.11)
Weighted average
common shares 9,427,000 9,589,000 9,614,000 9,633,000
(1) After a charge of $1,042,000 for OFD as described in Note Nine.
Financial Statement Schedule
Valuation and Qualifying Accounts
(In thousands)
Description Additions
----------------
Balance Charged Charged
at to to Balance
Beginning Cost and Other at End
of Period Expenses Accounts Deductions of Period
--------------------------------------------------------------------------
1998
--------------------------------------------------------------------------
Bad debt reserve $ 478 $ 564 $ - $ 120 $ 922
Inventory reserve 516 53 - 44 525
Rebates 342 3,499 - 3,437 404
ACI and Aloe & Herbs
non-current notes and
investments included
in other assets - 1,350 - - 1,350
--------------------------------------------------------------------------
1999
--------------------------------------------------------------------------
Bad debt reserve $ 922 $ 107 $ - $ 725 $ 304
Inventory reserve 525 - - 95 430
Rebates 404 2,058 - 2,122 340
ACI and Aloe & Herbs
non-current notes and
investments included
in other assets 1,350 - - 58 1,292
Oregon Freeze Dry, Inc. - 1,042 343 - 699
--------------------------------------------------------------------------
2000
--------------------------------------------------------------------------
Bad debt reserve $ 304 $ 116 $ - $ 322 $ 98
Inventory reserve 430 316 - 304 441
Rebates 340 4,508 - 4,576 272
ACI and Aloe & Herbs
non-current notes and
investments included
in other assets 1,292 - - 27 1,265
Oregon Freeze Dry, Inc. 699 223 - 922 -
REPORT OF INDEPENDENT AUDITORS
Shareholders and Board of Directors
Carrington Laboratories, Inc.
We have audited the accompanying consolidated balance sheets of Carrington
Laboratories, Inc. and subsidiaries as of December 31, 2000 and 1999 and the
related consolidated statements of operations, shareholders' investment and
cash flows for each of the three years in the period ended December 31,
2000. Our audits also included the financial statement schedule listed in
the Index at item 14(a) for the same periods. These financial statements
and schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedule based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial
position of Carrington Laboratories, Inc. and subsidiaries as of December
31, 2000 and 1999, and the consolidated results of their operations and
their cash flows for each of the three years in the period ended December
31, 2000 in conformity with accounting principles generally accepted in the
United States. Also, in our opinion, the related financial statement
schedule, when considered in relation to the basic financial statements
taken as a whole, presents fairly in all material respects the information
set forth therein.
Ernst & Young LLP
Dallas, Texas
February 20, 2001
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
CARRINGTON LABORATORIES, INC.
Date: March 30, 2001 By:/s/ Carlton E. Turner
Carlton E. Turner, Ph.D.,D.Sc. President
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Signatures Title Date
------------------------- ----------------------------- --------------
/s/ Carlton E. Turner President, Chief March 30, 2001
Carlton E. Turner, Ph.D., Executive Officer and
D.Sc. Director
(principal executive
officer)
/s/ Robert W. Schnitzius Chief Financial Officer March 30, 2001
Robert W. Schnitzius (principal financial and
accounting officer)
/s/ R. Dale Bowerman Director March 30, 2001
R. Dale Bowerman
/s/ George DeMott Director March 30, 2001
George DeMott
/s/ Robert A. Fildes, Ph.D. Director March 30, 2001
Robert A. Fildes, Ph.D.
/s/ Thomas J. Marquez Director March 30, 2001
Thomas J. Marquez
/s/ Selvi Vescovi Director March 30, 2001
Selvi Vescovi
INDEX TO EXHIBITS
Exhibit Sequentially
Number Exhibit Numbered Page
------ --------------------------------------------------- -------------
3.1 Restated Articles of Incorporation of Carrington
Laboratories, Inc. (incorporated by reference to
Exhibit 3.1 to Carrington's 1999 Annual Report on
Form 10-K).
3.2 Statement of Change of Registered Office and
Registered Agent of Carrington Laboratories, Inc.
(incorporated by reference to Exhibit 3.2 to
Carrington's 1999 Annual Report on Form 10-K).
3.3 Statement of Resolution Establishing Series D
Preferred Stock of Carrington Laboratories, Inc.
(incorporated by reference to Exhibit 3.3 to
Carrington's 1999 Annual Report on Form 10-K).
3.4 Bylaws of Carrington Laboratories, Inc., as amended
through March 3, 1998 (incorporated herein by
reference to Exhibit 3.8 to Carrington's 1997
Annual Report on Form 10-K).
4.1 Form of certificate for Common Stock of Carrington
Laboratories, Inc. (incorporated herein by
reference to Exhibit 4.5 to Carrington's
Registration Statement on Form S-3 (No. 33-57360)
filed with the Securities and Exchange Commission
on January 25, 1993).
4.2 Rights Agreement dated as of September 19, 1991
between Carrington Laboratories, Inc. and
Ameritrust Company National Association
(incorporated by reference to Exhibit 4.2 to
Carrington's 1999 Annual Report on Form 10-K).
4.3 Amendment No. 1 to Rights Agreement dated October
21, 1998 (incorporated herein by reference to
Exhibit 4 to the Company's Form 8-A/A Post-
Effective Amendment No. 1).
10.1+ Retirement and Consulting Agreement dated August
14, 1997 between Carrington Laboratories, Inc. and
David Shand (incorporated herein by reference to
Exhibit 4.1 to Carrington's quarterly report on
Form 10-Q for the quarter ended September 30,
1997).
Exhibit Sequentially
Number Exhibit Numbered Page
------ --------------------------------------------------- -------------
10.2+ First Amendment to Retirement and Consulting
Agreement dated September 30, 1997 between
Carrington Laboratories, Inc. and David G. Shand
(incorporated herein by reference to Exhibit 4.2 to
Carrington's quarterly report on Form 10-Q for the
quarter ended September 30, 1997).
10.3 Contract Research Agreement dated as of August 8,
1991 between Carrington Laboratories, Inc. and
Texas Agriculture Experimental Station, as agent
for the Texas A&M University System (incorporated
herein by reference to Exhibit 10.55 to
Carrington's 1991 Annual Report on Form 10-K).
10.4 Lease Agreement dated as of August 30, 1991 between
Carrington Laboratories, Inc. and Western Atlas
International, Inc. (incorporated by reference to
Exhibit 10.4 to Carrington's 1999 Annual Report on
Form 10-K).
10.5 First Lease Amendment dated April 16, 1992 between
Carrington laboratories, Inc. and Western Atlas
International, Inc. (incorporated by reference to
Exhibit 10.5 to Carrington's 1999 Annual Report on
Form 10-K).
10.6 Second Lease Amendment dated September 23, 1993
between Carrington Laboratories, Inc. and Western
Atlas International, Inc. (incorporated by
reference to Exhibit 10.6 to Carrington's 1999
Annual Report on Form 10-K).
10.7 Third Lease Amendment dated December 1, 1994
between Carrington Laboratories, Inc. and Western
Atlas International, Inc. (incorporated by
reference to Exhibit 10.7 to Carrington's 1999
Annual Report on Form 10-K).
10.8 Fourth Lease Amendment dated August 31, 1999
between Western Atlas International, Inc. and
Carrington Laboratories, Inc. (incorporated by
reference to Exhibit 10.8 to Carrington's 1999
Annual Report on Form 10-K).
10.9+ Employee Stock Purchase Plan of Carrington
Laboratories, Inc., as amended through June 15,
1995 (incorporated by reference to Exhibit 10.9 to
Carrington's 1999 Annual Report on Form 10-K).
Exhibit Sequentially
Number Exhibit Numbered Page
------ --------------------------------------------------- -------------
10.10 Common Stock Purchase Warrant dated September 14,
1993 issued by Carrington Laboratories, Inc. to E.
Don Lovelace (incorporated by reference to Exhibit
10.10 to Carrington's 1999 Annual Report on Form
10-K).
10.11 Common Stock Purchase Warrant dated September 14,
1993, issued by Carrington Laboratories, Inc., to
Jerry L. Lovelace (incorporated by reference to
Exhibit 10.11 to Carrington's 1999 Annual Report on
Form 10-K).
10.12 Lease Agreement dated June 15, 1994 between DFW
Nine, a California limited partnership, and
Carrington Laboratories, Inc. (incorporated by
reference to Exhibit 10.12 to Carrington's 1999
Annual Report on Form 10-K).
10.13 Lease Amendment dated August 23, 1994 amending
Lease Agreement listed as Exhibit 10.12
(incorporated by reference to Exhibit 10.13 to
Carrington's 1999 Annual Report on Form 10-K).
10.14 Production Contract dated February 13, 1995 between
Carrington Laboratories, Inc. and Oregon Freeze
Dry, Inc. (incorporated by reference to Exhibit
10.14 to Carrington's 1999 Annual Report on Form
10-K).
10.15 Modification Number One dated February 19, 1996 to
the Production Contract dated February 13, 1995
between Carrington Laboratories, Inc. and Oregon
Freeze Dry, Inc. (incorporated by reference to
Exhibit 10.15 to Carrington's 1999 Annual Report on
Form 10-K).
10.16 Modification Number Two dated November 11, 1996 to
the Production Contract dated February 13, 1995
between Carrington Laboratories, Inc. and Oregon
Freeze Dry, Inc. (incorporated by reference to
Exhibit 10.16 to Carrington's 1999 Annual Report on
Form 10-K).
10.17 Modification Number Three to the Production
Contract dated February 13, 1995 between Carrington
Laboratories, Inc. and Oregon Freeze Dry, Inc.
(incorporated herein by reference to Exhibit 10.89
to Carrington's 1998 Annual Report on Form 10-K).
Exhibit Sequentially
Number Exhibit Numbered Page
------ --------------------------------------------------- -------------
10.18+ 1995 Management Compensation Plan (incorporated
herein by reference to Exhibit 4.1 to Form S-8
Registration Statement No. 33-64403 filed with the
Commission on November 17, 1995).
10.19 Trademark License Agreement dated August 14, 1997
between Caraloe, Inc. and Mannatech, Inc.
(incorporated herein by reference to Exhibit 10.2
to Carrington's quarterly report on Form 10-Q for
the quarter ended September 30, 1997).
10.20 Supply Agreement dated August 14, 1997 between
Caraloe, Inc. and Mannatech, Inc.(incorporated
herein by reference to Exhibit 10.3 to Carrington's
quarterly report on Form 10-Q for the quarter ended
September 30, 1997).
10.21 Letter of Agreement dated January 12, 2000
extending Trademark License Agreement and Supply
Agreement between Caraloe, Inc. and Mannatech, Inc.
(incorporated by reference to Exhibit 10.21 to
Carrington's 1999 Annual Report on Form 10-K).
10.22 Trademark License and Product Supply Agreement
dated July 22, 1997 between Caraloe, Inc., and Nu
Skin International, Inc. (incorporated herein by
reference to Exhibit 10.1 to Carrington's quarterly
report on Form 10-Q for the quarter ended September
30, 1997).
10.23 Non-exclusive Sales and Distribution Agreement
dated August 22, 1995 between Innovative
Technologies Limited and Carrington Laboratories,
Inc. (incorporated herein by reference to Exhibit
10.6 to Carrington's Third Quarter 1995 Report on
Form 10-Q).
10.24 Supplemental Agreement dated October 16, 1995 to
Non-exclusive Sales and Distribution Agreement
between Innovative Technologies Limited and
Carrington Laboratories, Inc.(incorporated herein
by reference to Exhibit 10.7 to Carrington's Third
Quarter 1995 Report on Form 10-Q).
10.25 Product Development and Exclusive Distribution
Agreement dated November 10, 1995 between
Innovative Technologies Limited and Carrington
Laboratories, Inc.(incorporated herein by reference
to Exhibit 10.8 to Carrington's Third Quarter 1995
Report on Form 10-Q).
Exhibit Sequentially
Number Exhibit Numbered Page
------ --------------------------------------------------- -------------
10.26 Form of Stock Purchase Agreement dated April 5,
1995 between Carrington Laboratories, Inc. and
persons named in Annex I thereto (incorporated
herein by reference to Exhibit 2.1 to Carrington's
Registration Statement 33-60833 on Form S-3).
10.27 Form of Registration Rights Agreement dated June
20, 1995 between Carrington Laboratories, Inc. and
persons named in Annex I thereto (incorporated
herein by reference to Exhibit 2.2 to Carrington's
Registration Statement 33-60833 on Form S-3).
10.28 Supply and Distribution Agreement dated March 22,
1996 between Farnam Companies, Inc. and Carrington
Laboratories, Inc. (incorporated herein by
reference to Exhibit 10.76 to Carrington's 1995
Annual Report on Form 10-K).
10.29 Distribution Agreement dated March 1, 1996 between
Carrington Laboratories, Inc. and Ching Hwa
Pharmaceutical Co., Ltd. (incorporated herein by
reference to Exhibit 10.1 to Carrington's First
Quarter 1996 Report on Form 10-Q).
10.30+ Carrington Laboratories, Inc. 1995 Stock Option
Plan, As Amended and Restated Effective January 15,
1998 (incorporated herein by reference to Exhibit
10.3 to Carrington's Quarterly Report on Form 10-Q
for the quarter ended March 31, 1998).
10.31+ Form of Nonqualified Stock Option Agreement with
Outside Director, relating to the Registrant's 1995
Stock Option Plan, as amended (incorporated herein
by reference to Exhibit 10.3 to Carrington's
Quarterly Report on Form 10-Q for the quarter ended
June 30, 1998).
10.32+ Form of Incentive Stock Option Agreement for
Employees (incorporated herein by reference to
Exhibit 4.4 to Carrington's Second Quarter 1996
Report on Form 10-Q).
10.33 Sales Distribution Agreement dated September 30,
1996 between Faulding Pharmaceuticals Laboratories
and Carrington Laboratories, Inc.(incorporated
herein by reference to Exhibit 10.1 to Carrington's
Third Quarter 1996 Report on Form 10-Q).
Exhibit Sequentially
Number Exhibit Numbered Page
------ --------------------------------------------------- -------------
10.34 Amendment Number One to Sales Distribution
Agreement dated January 12, 1998 between Carrington
Laboratories, Inc., and Faulding
Pharmaceuticals/David Bull Laboratories
(incorporated herein by reference to Exhibit 10.75
to Carrington's 1997 Annual Report on Form 10-K).
10.35 Sales Distribution Agreement dated December 1, 1996
between Suco International Corp. and Carrington
Laboratories, Inc. (incorporated by reference to
Exhibit 10.54 to Carrington's 1996 Annual Report on
Form 10-K).
10.36 Sales Distribution Agreement dated December 20,
1996 between Recordati, S.P.A. and Carrington
Laboratories, Inc. and Carrington Laboratories
Belgium N.V.(incorporated by reference to Exhibit
10.55 to Carrington's 1996 Annual Report on Form
10-K).
10.37 Nonexclusive Distribution Agreement dated November
15, 1996 between Polymedica Industries, Inc. and
Carrington Laboratories, Inc. (incorporated by
reference to Exhibit 10.56 to Carrington's 1996
Annual Report on Form 10-K).
10.38 Sales Distribution Agreement dated December 24,
1996 between Gamida-Medequip Ltd. and Carrington
Laboratories, Inc. (incorporated by reference to
Exhibit 10.57 to Carrington's 1996 Annual Report on
Form 10-K).
10.39 Sales Distribution Agreement dated December 24,
1996 between Gamida For Life BV and Carrington
Laboratories, Inc. (incorporated by reference to
Exhibit 10.58 to Carrington's 1996 Annual Report on
Form 10-K).
10.40 Sales Distribution Agreement dated December 4, 1996
between Darrow Laboratorios S/A and Carrington
Laboratories, Inc. (incorporated by reference to
Exhibit 10.59 to Carrington's 1996 Annual Report on
Form 10-K).
10.41 Independent Sales Representative Agreement dated
June 1, 1998 between Meares Medical Sales
Associates and Carrington Laboratories, Inc.
(incorporated by reference to Exhibit 10.41 to
Carrington's 1999 Annual Report on Form 10-K).
Exhibit Sequentially
Number Exhibit Numbered Page
------ --------------------------------------------------- -------------
10.42 Supply Agreement dated February 13, 1997 between
Aloe Commodities International, Inc. and Caraloe,
Inc. (incorporated by reference to Exhibit 10.63 to
Carrington's 1996 Annual Report on Form 10-K).
10.43 Trademark License Agreement dated March 1, 1997
between Light Resources Unlimited and Carrington
Laboratories, Inc. (incorporated by reference to
Exhibit 10.64 to Carrington's 1996 Annual Report on
Form 10-K).
10.44 Supply Agreement dated February 13, 1997 between
Light Resources Unlimited and Caraloe, Inc.
(incorporated by reference to Exhibit 10.65 to
Carrington's 1996 Annual Report on Form 10-K).
10.45 Sales Distribution Agreement dated December 27,
1996 between Penta Farmaceutica, S.A. and
Carrington Laboratories, Inc. (incorporated by
reference to Exhibit 10.66 to Carrington's 1996
Annual Report on Form 10-K).
10.46 Sales Distribution Agreement dated November 1, 1995
between Laboratories PiSA S.A. DE C.V. and
Carrington Laboratories, Inc. (incorporated by
reference to Exhibit 10.70 to Carrington's 1996
Annual Report on Form 10-K).
10.47 Sales Distribution Agreement dated January 1, 1998
between Carrington Laboratories, Inc. and
Carrington Laboratories Belgium N.V. and Henry
Schein U.K. Holdings, Ltd., (incorporated herein by
reference to Exhibit 10.1 to Carrington's Quarterly
Report on Form 10-Q for the quarter ended March 31,
1998).
10.48 Sales Distribution Agreement dated January 5, 1998
between Carrington Laboratories, Inc. and
Carrington Laboratories Belgium N.V. and Saude 2000
(incorporated herein by reference to Exhibit 10.2
to Carrington's Quarterly Report on Form 10-Q for
the quarter ended March 31, 1998).
10.49 Sales Distribution Agreement dated March 27, 1998
between Carrington Laboratories, Inc. and
Carrington Laboratories Belgium N.V. and Hemopharm
GmbH (incorporated herein by reference to Exhibit
10.4 to Carrington's Quarterly Report on Form 10-Q
for the quarter ended March 31, 1998).
Exhibit Sequentially
Number Exhibit Numbered Page
------ --------------------------------------------------- -------------
10.50 Sales Distribution Agreement dated March 27, 1998
between Carrington Laboratories, Inc. and
Carrington Laboratories Belgium N.V. and Vincula
International Trade Company (incorporated herein by
reference to Exhibit 10.5 to Carrington's Quarterly
Report on Form 10-Q for the quarter ended March 31,
1998).
10.51 Agency and Sales Distribution Agreement dated April
13, 1998 between Carrington Laboratories, Inc. and
Carrington Laboratories Belgium N.V. and Egyptian
American Medical Industries, Inc. (incorporated
herein by reference to Exhibit 10.1 to Carrington's
Quarterly Report on Form 10-Q for the quarter ended
June 30, 1998).
10.52 Sales Distribution Agreement dated April 24, 1998
between Carrington Laboratories, Inc. and
Carrington Laboratories Belgium N.V. and CSC
Pharmaceuticals Ltd. Dublin (incorporated herein by
reference to Exhibit 10.2 to Carrington's Quarterly
Report on Form 10-Q for the quarter ended June 30,
1998).
10.53 Amendment Number One dated May 27, 1999 to the
Sales Distribution Agreement dated April 17, 1998
between Carrington Laboratories, Inc. and
Carrington Laboratories, Belgium, NV and CSC
Pharmaceuticals, Ltd., Dublin (incorporated herein
by reference to Exhibit 10.5 to Carrington's
Quarterly Report on Form 10-Q for the quarter ended
June 30, 1999).
10.54 Promissory Note of Aloe Commodities International,
Inc.,dated June 17, 1998, payable to the order of
the Registrant in the principal amount of $200,000
(incorporated herein by reference to Exhibit 10.4
to Carrington's Quarterly Report on Form 10-Q for
the quarter ended June 30, 1998).
10.55 Letter agreements dated September 30, 1998 and
November 4, 1998 between Aloe Commodities
International, Inc. and the Registrant amending due
date of Promissory Note dated June 17, 1998 from
Aloe Commodities International, Inc. to the
Registrant (incorporated herein by reference to
Exhibit 10.2 to Carrington's Quarterly Report on
Form 10-Q for the quarter ended September 30,
1998).
Exhibit Sequentially
Number Exhibit Numbered Page
------ --------------------------------------------------- -------------
10.56 Letter Agreement dated February 4, 1999 between
Aloe Commodities International, Inc. and the
Registrant amending due date of Promissory Note
dated June 17, 1998 from Aloe Commodities
International, Inc. to the Registrant (incorporated
herein by reference to Exhibit 10.98 to
Carrington's 1998 Annual Report on Form 10-K).
10.57 Promissory Note dated July 1, 1998 of Rancho Aloe,
(C.R.) S.A. payable to the order of the Registrant
in the principal amount of $186,655.00
(incorporated herein by reference to Exhibit 10.1
to Carrington's Quarterly Report on Form 10-Q for
the quarter ended September 30, 1998).
10.58 Wound and Skin Care Purchase Agreement dated August
27, 1998 between American Association for Homes &
Services for the Aging and Carrington Laboratories,
Inc. (incorporated herein by reference to Exhibit
10.2 to Carrington's Quarterly Report on Form 10-Q
for the quarter ended September 30, 1998).
10.59 Purchase Agreement dated October 1, 1998 between
Vencor, Inc. and Carrington Laboratories, Inc.
(incorporated herein by reference to Exhibit 10.3
to Carrington's Quarterly Report on Form 10-Q for
the quarter ended September 30, 1998).
10.60 Supply Agreement dated October 12, 1998 between
Caraloe, Inc. and One Family, Inc. (incorporated
herein by reference to Exhibit 10.90 to
Carrington's 1998 Annual Report on Form 10-K).
10.61 Trademark License Agreement dated October 12, 1998
between Caraloe, Inc. and One Family, Inc.
(incorporated herein by reference to Exhibit 10.91
to Carrington's 1998 Annual Report on Form 10-K).
10.62 Promissory Note of Aloe & Herbs International, Inc.
dated November 23, 1998 payable to the order of the
Registrant in the principal amount of $300,000
(incorporated herein by reference to Exhibit 10.92
to Carrington's 1998 Annual Report on Form 10-K).
10.63 Supply Agreement dated December 3, 1998 between
Caraloe, Inc. and Eventus International, Inc.
(incorporated herein by reference to Exhibit 10.93
to Carrington's 1998 Annual Report on Form 10-K).
Exhibit Sequentially
Number Exhibit Numbered Page
------ --------------------------------------------------- -------------
10.64 Trademark License Agreement dated December 3, 1998
between Caraloe, Inc. and Eventus International,
Inc. (incorporated herein by reference to Exhibit
10.94 to Carrington's 1998 Annual Report on Form
10-K).
10.65 Amendment Number One dated December 3, 1998 to
Supply Agreement between Caraloe, Inc. and Eventus
International, Inc. (incorporated herein by
reference to Exhibit 10.95 to Carrington's 1998
Annual Report on Form 10-K).
10.66 Clinical Services Agreement dated January 25, 1999
between Carrington Laboratories, Inc. and PPD
Pharmaco, Inc. (incorporated herein by reference to
Exhibit 10.96 to Carrington's 1998 Annual Report on
Form 10-K).
10.67 Common Stock Purchase Warrant dated November 23,
1998, issued by Aloe and Herbs International, Inc.
to Carrington Laboratories, Inc. (incorporated
herein by reference to Exhibit 10.99 to
Carrington's 1998 Annual Report on Form 10-K).
10.68 Supply Agreement dated March 5, 1999 between
Caraloe, Inc. and For Your Health, Inc.
(incorporated herein by reference to Exhibit 10.1
to Carrington's Quarterly Report on Form 10-Q for
the quarter ended March 31, 1999).
10.69 Trademark License Agreement dated March 5, 1999
between Caraloe, Inc. and For Your Health, Inc.
(incorporated herein by reference to Exhibit 10.1
to Carrington's Quarterly Report on Form 10-Q for
the quarter ended March 31, 1999).
10.70 Letter dated February 25, 1999 from Aloe
Commodities, Inc. to Carrington Laboratories, Inc.
(incorporated herein by reference to Exhibit 10.1
to Carrington's Quarterly Report on Form 10-Q for
the quarter ended March 31, 1999).
10.71 Exclusive Sales Representative Agreement dated
April 13, 1999, between Caraloe, Inc. and Classic
Distributing Company (incorporated herein by
reference to Exhibit 10.1 to Carrington's Quarterly
Report on Form 10-Q for the quarter ended June 30,
1999).
Exhibit Sequentially
Number Exhibit Numbered Page
------ --------------------------------------------------- -------------
10.72 Exclusive Sales Representative Agreement dated
April 13, 1999, between Caraloe, Inc. and Glenn
Corporation (incorporated herein by reference to
Exhibit 10.1 to Carrington's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1999).
10.73 Terms Sheet for Lease of Rancho Aloe Farm Land to
Sabila Industrial dated April 20, 1999
(incorporated herein by reference to Exhibit 10.1
to Carrington's Quarterly Report on Form 10-Q for
the quarter ended June 30, 1999).
10.74 Terms Sheet for Maintenance of Sabila Industrial
Plants on Leased Land dated April 20, 1999
(incorporated herein by reference to Exhibit 10.1
to Carrington's Quarterly Report on Form 10-Q for
the quarter ended June 30, 1999).
10.75 Exclusive Sales and Trademark Agreement dated June
11, 1999, between Caraloe, Inc. and Nutra Vine
(incorporated herein by reference to Exhibit 10.1
to Carrington's Quarterly Report on Form 10-Q for
the quarter ended September 30, 1999).
10.76 Lease Agreement dated September 23, 1999 between
Rancho Aloe and Sabila Industrial, S.A.
(incorporated herein by reference to Exhibit 10.1
to Carrington's Quarterly Report on Form 10-Q for
the quarter ended September 30, 1999).
10.77 Letter Agreement dated September 29, 1999 between
Aloe Commodities International, Inc. and Carrington
Laboratories, Inc. (incorporated herein by
reference to Exhibit 10.1 to Carrington's Quarterly
Report on Form 10-Q for the quarter ended September
30, 1999).
10.78 Sales Distribution Agreement dated October 26,
1999. between Carrington Laboratories, Inc. and E-
Wha International, Inc. (incorporated by reference
to Exhibit 10.78 to Carrington's 1999 Annual Report
on Form 10-K).
10.79 Amendment Number Two dated February 14, 2000 to the
Sales Distribution Agreement dated April 17, 1998
between Carrington Laboratories, Inc. and
Carrington Laboratories, Belgium, NV and CSC
Pharmaceuticals, Ltd. Dublin (incorporated by
reference to Exhibit 10.79 to Carrington's 1999
Annual Report on Form 10-K).
Exhibit Sequentially
Number Exhibit Numbered Page
------ --------------------------------------------------- -------------
10.80 Supplier Agreement dated August 6, 1999 between
Novation, LLC and Carrington Laboratories, Inc. MS
91022 (incorporated by reference to Exhibit 10.80
to Carrington's 1999 Annual Report on Form 10-K).
10.81 Supplier Agreement dated August 6, 1999 between
Novation, LLC and Carrington Laboratories, Inc. MS
91032 (incorporated by reference to Exhibit 10.81
to Carrington's 1999 Annual Report on Form 10-K).
10.82 Distributor and License Agreement dated November 3,
2000 between Carrington Laboratories, Inc. and
Medline Industries, Inc. (Exhibits A, B and C to
this agreement have been excluded pursuant to a
request for confidential treatment submitted by the
registrant to the Securities and Exchange
Commission)(incorporated by reference to Exhibit
10.82 to Carrington's 1999 Annual Report on Form
10-K).
10.83 Supply Agreement dated November 3, 2000 between
Carrington Laboratories, Inc. and Medline
Industries, Inc. (Exhibit A to this agreement has
been excluded pursuant to a request for
confidential treatment submitted by the registrant
to the Securities and Exchange Commission,
(incorporated by reference to Exhibit 10.83 to
Carrington's 1999 Annual Report on Form 10-K).
10.84* Lease Agreement dated January 22, 2001 between
Plazamerica, Inc and Carrington Laboratories, Inc.
21.1* Subsidiaries of Carrington.
23.1* Consent of Independent Auditors
* Filed herewith.
+ Management contract or compensatory plan.