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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, 2001
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 18, 2002, was $21,112,810. (This figure was
computed on the basis of the closing price of such stock on the NASDAQ
National Market on March 18, 2002, 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:
9,833,713 shares of Common Stock, par value $.01 per share, were outstanding
on March 18, 2002.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's proxy statement for its annual meeting of
shareholders to be held on May 16, 2002 are incorporated by reference into
Part III hereof, to the extent indicated herein.
PART I
ITEM 1. BUSINESS.
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General
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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 Twelve 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 also 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.
The Company maintains control of certain national pricing agreements which
cover hospitals, alternate care facilities, home health care agencies and
cancer centers. These agreements allow Medline representatives to make
presentations in member facilities throughout the country.
The Company has several distribution and licensing agreements for the sale
of its products into international markets. The Company also sells wound
care products into international markets on a non-contract, purchase order
basis. 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], a product fully
licensed by the United States Department of Agriculture ("USDA") as an
adjuvant therapy for certain cancers in dogs and cats. In addition, the
Company markets several wound and skin care products to the veterinary
market.
In 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 domestic health and
nutritional products markets through health food stores and over the
Internet at www.AloeVera.com and into international markets on a non-
contract, purchase order basis. 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 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 1999,
2000 and 2001, sales of Manapol[R] powder to this customer represented 41%,
38% and 30%, respectively, of the Company's total consolidated net sales.
Research and Development
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General
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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 $5,300,000, $3,602,000 and $2,442,000 on
research and development in fiscal 1999, 2000 and 2001, respectively. Of
the total expenditures for 1999, $2,866,000 reflect clinical trial costs
associated with the Phase III trial in ulcerative colitis, which also
accounted for approximately $623,000 of the 2000 expenditures. Basic
research funding was decreased in 2001 by 18%.
The Company's Research and Development group moved in August 2001 to its new
laboratory facilities and began restructuring to better accomplish company
goals to support current business. See "Item 2 Properties". The group was
divided into two sections with the basic research and discovery personnel
focusing on drug delivery and neutropenia while the remainder of personnel
were organized to support business activities associated with wound care,
nutriceuticals and contract manufacturing.
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. In 2002, 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 1998, a new and unique complex carbohydrate (CR1013) was isolated from
Aloe vera L. Basic proof of concept research is continuing on this
material, which includes both pharmacology and toxicology studies. Selected
studies have been completed through sponsored research at Texas A&M and
Southern Research Institute. Pilot scale production has been accomplished
and studies to refine the process are ongoing. The technology has varied
utility, but the primary focus of research is in the area of drug delivery.
Three patents covering this invention have been issued to the Company with
two patents pending. The composition and process patent was issued in 1999.
The Company formed DelSite Biotechnologies, Inc., a wholly owned subsidiary,
in October 2001 as a vehicle to further the development of CR1013.
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. Proof of concept studies to
better understand the mechanism of action and product dose effects were
completed in 2001. Further development opportunities are being explored and
evaluated.
Human Clinical Studies
----------------------
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. A 20 patient trial of a new formulation for the
product was completed in 2001. This trial evaluated the effectiveness and
duration of effect of Carrington[R] Oral Wound Rinse. All patients in the
trial reported that they experienced pain relief immediately upon use of the
product and 80% reported the duration of relief was 4-6 hours.
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", also known as dry socket) in patients treated with
Gelfoam[R] soaked with an antibiotic or SaliCeptTM Patches was conducted in
2000. A retrospective evaluation was performed of 587 records of Gelfoam[R]
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]. The study
results were filed with the FDA and the Company was granted clearance by the
agency in the fourth quarter 2001 to market the patch as a 510(k) device for
management of AO.
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 Wounds Marketed
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 Wounds Oral Surgery Marketed
Injectable
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Human
Neutropenia Neutropenia associated Discovery
with 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 known as Aloe vera L. Through patented processes, the Company
obtains several bulk freeze-dried aloe extracts from the central portion of
the Aloe vera L. leaf known as the gel. A basic bulk mannan, Acemannan
Hydrogel[TM], is used as an ingredient in certain of the Company's
proprietary wound and skin care products.
The Company owns a 405-acre farm in the Guanacaste province of northwest
Costa Rica which currently has approximately 113 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 Costa Rica at prices
comparable to the cost of acquiring leaves from the Company's farm. The
Company has entered into several supply agreements with local suppliers near
the Company's factory. The Company anticipates that the local suppliers
will be able to meet all of its requirements for leaves in 2002.
The Company has a 24% 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 per kilogram of leaves supplied,
with the final price payable to Rancho Aloe based upon the yield of the
final product.
In September 1999, the Company 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 lease was automatically renewed in
2001 for an additional year. The Company also pays a monthly fee for the
maintenance of the plot.
As of December 31, 2001, Rancho Aloe was providing an average of 74% 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" for further information regarding the Company's
relationship with Aloe & Herbs.
Manufacturing
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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.
Competition
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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. A patent was also issued in South
Korea. Applications are pending in Canada and Japan.
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 received the grant of two U.S. patents (Patent No. 6,274,548
issued August 14, 2001, and Patent No. 6,313,103 issued November 6, 2001)
associated with the use of pectins for purification, stabilization and
delivery of certain growth factors. Other U.S. PCT applications on Aloe
Pectin are pending. A U.S. patent application on growth factor and protease
enzyme is also pending.
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.
In addition, applications for the registration marks ISG[TM], APEC[TM],
GELSITE[TM] and ORAPATCH[TM] are pending in the U.S.
Employees
---------
As of January 31, 2002, the Company employed 181 persons, of whom 32 were
engaged in the operation and maintenance of its Irving, Texas processing
plant, 105 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, 105 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, 2001, 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.
Warehouse, Distribution and Laboratory Facility. 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 relocated those functions to this newly-
leased facility in the third quarter of 2001.
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. The processing plant became
operational in 1993.
ITEM 3.LEGAL PROCEEDINGS.
On September 12, 2000, Nutraceutical Solutions, Inc., a company formed in
March 2000 (the "Plaintiff"), filed a lawsuit (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.
The suit was settled during 2001.
As reported in the Company's Form 10-Q Quarterly Report for the quarter
ended March 31, 2001, on April 3, 2001, Arthur Singer, a former employee of
the Company (the "Plaintiff"), filed a lawsuit in the United States District
Court for the Eastern District of New York, Long Island Division. The suit
alleges multiple causes of action against the Company and its chief
executive officer (the "Defendants") and seeks to recover damages in excess
of $4,000,000, plus legal fees and expenses. The Plaintiff, who was
formerly employed by the Company as a sales representative, alleges among
other things that the Company failed to pay the full amount of commissions
owed to him; that the Defendants breached an alleged contract of employment
with him; that the Company deprived him of the opportunity to exercise
vested stock options, prevented some of his unvested stock options from
vesting and caused all of his options to expire earlier than they otherwise
would have; and that the Defendants misrepresented that the Company intended
to retain him as an employee, fraudulently induced him to remain in its
employ and breached an implied covenant of fair dealing.
On May 31, 2001, the Defendants filed a motion seeking to have the complaint
dismissed or to have the case transferred to Texas. On August 28, 2001, the
Defendants' motion to transfer was granted, and the case was transferred to
the United States District Court for the Northern District of Texas, Dallas
Division, as Case No. 01-CV-1776. The Company believes that the Plaintiff's
claims are without merit and intends to defend the lawsuit vigorously.
On June 22, 2001, a lawsuit was filed by Swiss-American Products, Inc. ("The
Plaintiff") against G. Scott Vogel and the Company in the 193rd Judicial
District Court of Dallas County, Texas. The suit alleges, among other
things, that Mr. Vogel, the Company's former Vice President, Operations,
improperly obtained proprietary information of Swiss-American Products, Inc.
from a former employer that manufactured products under contract for
Plaintiff, and used that information on behalf of the Company, in breach of
certain common law duties and a confidentiality agreement between his former
employer and Plaintiff. The suit further alleges that Mr. Vogel and the
Company ("Defendants") conspired to unlawfully disclose, convert and
misappropriate Plaintiff's trade secrets.
The suit seeks temporary and permanent injunctive relief, including a
permanent injunction prohibiting Defendants from disclosing or using to
Plaintiff's disadvantage any confidential proprietary information belonging
to Plaintiff which Mr. Vogel allegedly obtained from his former employer, or
from developing or marketing products based on Plaintiff's formulas or other
information allegedly taken from Mr. Vogel's former employer. The suit also
seeks to recover damages in an unspecified amount from Defendants.
Defendants have filed a motion for sanctions against Plaintiff and its
counsel for filing an affidavit containing statements that Defendants
believe to be false and misleading and for making claims and seeking
injunctive relief based in part on those statements. In addition, the
Company has filed a counterclaim against Plaintiff, seeking to recover
actual and exemplary damages for wrongful injunction and also seeking a
declaratory judgment confirming the Company's right to manufacture for a
third party a wound cleanser that is similar to a wound cleanser that
Plaintiff has previously provided to that party.
Following a hearing on July 30, 2001, the trial court entered an order
setting the case for trial on July 30, 2002 and granting a temporary
injunction that prohibits Defendants from (i) disclosing or using any of
Plaintiff's confidential, proprietary or trade secret information; (ii)
developing or marketing a wound cleanser product that is the same or
substantially the same as reflected in a formula that is at issue in the
lawsuit (although this prohibition expressly does not apply to products
actively manufactured and sold by the Company before January 1, 2001 using
the exact same formula then in effect); and (iii) destroying, concealing,
altering, removing or disposing of any documents, files, computer data or
other things relating to Plaintiff or Mr. Vogel's former employer, or
containing or referring to trade secrets or confidential or proprietary
information of Plaintiff or Mr. Vogel's former employer.
The Company believes that Plaintiff's claims are without merit and intends
to vigorously defend against those claims and pursue its counterclaim and
motion for sanctions.
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 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
Fiscal 2001 High Low
----------- ---- ----
First Quarter $1.38 $1.03
Second Quarter 1.68 1.00
Third Quarter 1.40 0.88
Fourth Quarter 1.13 0.84
At March 18, 2002, there were 983 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 18,
2002, 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, 2001, is derived from the consolidated
financial statements of the Company, of which the Statements 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) 1997 1998 1999 2000 2001
------------------------------------------------------------------------------
OPERATIONS STATEMENT INFORMATION:
Revenuue:
Net sales $23,559 $23,625 $28,128 $22,833 $15,115
Royalty income - - - 270 2,479
------ ------ ------ ------ ------
Total revenue 23,559 23,625 28,128 23,103 17,594
Costs and expenses:
Cost of sales 9,530 10,870 13,640 12,782 9,803
Selling, general and
administrative 10,814 10,254 10,346 10,162 5,016
Research and development 3,006 2,589 2,434 2,979 2,442
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 (37) (233) (105) (80) (32)
Other income - - (62) (110) (13)
------ ------ ------ ------ ------
Income (loss) before income taxes 246 (1,605) (2,033) (3,476) 378
Provision for income taxes 20 10 - - -
------ ------ ------ ------ ------
Net income (loss) 226 (1,615) (2,033) (3,476) 378
Dividends and income attributed
to preferred shareholders (70) - - - -
------ ------ ------ ------ ------
Net income (loss) available to
common shareholders $ 156 $(1,615) $(2,033) $(3,476) $ 378
====== ====== ====== ====== ======
Net income (loss) per common share
- basic and diluted(1) $ 0.02 $ (0.17) $ (0.22) $ (0.36) $ 0.04
====== ====== ====== ====== ======
Weighted average shares used in
per share computations 8,953 9,320 9,376 9,545 9,743
BALANCE SHEET INFORMATION
(as of December 31):
Working capital $ 9,484 $ 9,716 $ 7,911 $ 6,275 $ 7,440
Total assets 25,796 24,247 23,493 20,702 21,217
Total shareholders' investment $22,826 $21,363 $19,504 $16,440 $16,929
(1) For a description of the calculation of basic and diluted net income
(loss) per share, see Note Eleven 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 Twelve 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, 2001 and 2000, the Company held cash and cash equivalents of
$3,454,000 and $3,200,000, respectively, an increase of $254,000. Net cash
provided by operating activities in 2001 was $1,275,000, as compared to cash
provided by operating activities in 2000 of $217,000. The Company received
$3,375,000 in 2001 under its licensing agreement with Medline. See Part I
for discussions regarding agreements with Medline. Significant cash
outflows during 2001 included a $1,132,000 investment in property and
equipment. Customers with significant accounts receivable balances at the
end of 2001 included Mannatech, Inc. ($337,000) and Medline Industries
($863,000), and of these amounts, $1,150,000 has been collected as of March
7, 2002.
As of December 31, 2001, 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 2001, the Company received payments totaling
$37,000 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 $450,000 of Aloe vera L. leaves from Rancho
Aloe 2001. The Company's interest in Aloe & Herbs at December 31, 2001 is
approximately 24%.
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, 2001 to fund operating needs.
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.
Management has identified the following accounting policies as critical.
Our accounting policies are more fully described in Footnote 2 of the
Financial Statements. The preparation of consolidated financial statements
requires the Company to make estimates and judgments that affect the
reported amounts of assets, liabilities, revenues and expenses, and related
disclosure of contingent assets and liabilities. On an on-going basis, the
Company evaluates its estimates, including those related to revenues,
product returns, bad debts and inventories. The Company bases its estimates
on historical experience and on various other assumptions that are believed
to be reasonable under the circumstances, the results of which form the
basis for making judgments about the carrying values of assets and
liabilities that are not readily apparent from other sources. Actual
results may differ from these estimates under different assumptions or
conditions.
The Company believes the following critical accounting policies affect its
more significant judgments and estimates used in the preparation of its
consolidated financial statements. The Company records estimated reductions
to revenue for incentive offerings including promotions and other volume-
based incentives as well as estimates for returns based upon recent history.
If market conditions were to decline or inventory was in danger of expiring
or becoming obsolete, the Company may take actions to increase customer
incentive offerings possibly resulting in an incremental reduction of
revenue at the time the incentive is offered. Additionally, if demand for
the Company's product were to drop, the Company's distributors may request
return of product for credit causing a need to re-evaluate and possibly
increase the reserve for product returns. The Company maintains allowances
for doubtful accounts for estimated losses resulting from the inability of
its customers to make required payments. If the financial condition of the
Company's customers were to deteriorate, resulting in an impairment of their
ability to make payments, additional allowances may be required. The Company
writes down its inventory for estimated obsolescence or unmarketable
inventory equal to the difference between the cost of inventory and the
estimated market value based upon assumptions about future demand and market
conditions. If actual market conditions are less favorable than those
projected by management, additional inventory write-downs may be required.
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 2001 Compared to Fiscal 2000
-----------------------------------
Total revenues were $17,594,000 in 2001, compared with $23,103,000 in 2000.
Total sales of the Company's wound and skin care products in 2001 were
$7,921,000 as compared to $11,971,000 in 2000. The decrease in wound and
skin care revenue was primarily effected by the distribution agreement with
Medline which significantly lowered the Company's selling prices for these
products in exchange for Medline assuming all of the selling, marketing and
distribution activities and the related costs, and paying the Company a
royalty. The Company recorded royalty income of $2.5 million in 2001
related to this agreement. Partially offsetting this revenue reduction due
to pricing was a 10% increase in unit volume in 2001 as compared to 2000.
The Company also sells products to international distributors, primarily in
Europe, and Central and South America. Total international sales in 2001
were $1,315,000 as compared to $1,343,000 in 2000. Included in the 2001
amount were sales of $386,000 of wound care products, which was a decrease
of $153,000 from 2000.
Sales of the Company's oral technology products increased from $68,000 in
2000 to $129,000 in 2001 because of significantly increased 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.
Of the 2001 total Caraloe sales, $5,367,000 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 has been extended and expires in August 2003. Sales
to this customer decreased from $8,794,000 in 2000 to $5,192,000 in 2001.
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 are sold directly to
health and nutrition stores and broker/distributors. They are also sold
through the Company's Internet sites. Sales of these products in 2000 and
2001 totaled $446,000 and $538,000, respectively.
Caraloe also continued to develop its contract manufacturing business during
2001. Caraloe manufactures a variety of products that can be filled using
the Company's current equipment including gels, creams, lotions and drinks.
Total contract manufacturing sales in 2001 were $1,144,000 compared with
$779,000 in 2000.
Cost of sales decreased from $12,782,000 in 2000 to $9,803,000 in 2001, or
23.3%. As a percentage of sales, cost of sales increased from 55.3% to
55.7%. The increase in the cost of goods sold percentage was largely
attributable to lower wound care pricing as a result of the distribution
agreement with Medline. Offsetting this was a change in product mix caused
by the decline in lower margin Manapol[R] sales as well as increased
efficiency in the operation of the Company's manufacturing plant in the
United States.
Selling, general and administrative expenses ("SG&A") decreased to
$5,016,000 from $10,162,000, or 50.6%. Included in this decrease was a
$4,550,000 reduction in selling and marketing expenses for wound care
products directly related to the Medline Agreement and Medline's acquisition
of the Company's sales force that existed on December 1, 2000.
Additionally, the Company took advantage of the reduced administrative
burdens of supporting the sales force by reducing costs in all departments
affected by the reduction in sales personnel.
Research and development ("R&D") expenses decreased to $2,442,000 in 2001
from $3,602,000 in 2000, or 32.2%. This decrease was primarily the result
of a reduction of $623,000 in expenditures for the unsuccessful
Aliminase[TM] clinical trial as well as refocusing efforts and priorities
within the department. The Company continued its efforts in basic research
during 2001, 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 total R&D activities during 2001 were various small
clinical trials designed to collect data in support of the Company's
products.
Net interest income of $32,000 was realized in 2001 versus $80,000 in 2000,
with the variance primarily due to lower interest rates in 2001.
There was no provision for income taxes in 2001 due to the Company's
utilization of net operating loss carryforwards. The Company has provided a
valuation allowance against all deferred tax asset balances at December 31,
2001 and 2000 due to uncertainty regarding realization of the asset.
The Company's net income for 2001 was $378,000, versus a net loss of
$3,476,000 for 2000. The 2001 net income was due to the operating
efficiencies occurring as a result of the distribution agreement with
Medline Industries, lower production costs as well as increased unit sales
in 2001 of the Company's wound and skin care products. 2001 results
benefited from a one time gain of $200,000 from adjustments to state tax
liabilities booked in prior periods. The loss in 2000 was primarily
attributable to lower selling prices for wound care products and lower
volumes of Manapol[R] sales, high selling and marketing costs for wound care
products and final costs for the Aliminase Clinical Trial. The net income
per share was $0.04 in 2001, compared to a net loss per share of $0.36 in
2000.
Fiscal 2000 Compared to Fiscal 1999
-----------------------------------
Total revenues 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 $11,971,000 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 recorded $208,000 in
royalty income related to the distribution agreement with Medline Industries
in 2000.
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.
The Company's oral technology line included products for the management of
oral mucositis/stomatitis and oral lesions and ulcers. Sales of these
products decreased from $374,000 in 1999 to $68,000 in 2000 because of
significantly lower sales of the product to an international customer.
Sales of the Company's veterinary products increased from $47,000 in 1999 to
$130,000 in 2000.
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 a
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.
Caraloe launched its new AloeCeuticals[R] line of immune-enhancing dietary
supplements containing Manapol[R] in July 1999, which are available in
liquid, capsule and tablet forms. 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. Products manufactured include gels and creams utilizing customer-
developed formulas. 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. ("OFD") and thus established a reserve of $1,042,000
to cover its estimated liability to. 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.
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 $0.36 in 2000, compared to a net loss
per share of $0.22 in 1999.
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; 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 Plaintiffs
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 40% of
cost of sales for the year ended December 31, 2001. 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 2001, the exchange rate from U.S.
Dollars to Costa Rica Colones increased by 7% to 341 at December 31, 2001.
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
$64,200 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 7.5% of sales for 2001.
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 2002 annual meeting of shareholders, which will be filed pursuant to
Regulation 14A within 120 days after the Company's fiscal year ended
December 31, 2001.
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
2002 annual meeting of shareholders, which will be filed pursuant to
Regulation 14A within 120 days after the Company's fiscal year ended
December 31, 2001.
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 2002 annual meeting of
shareholders, which will be filed pursuant to Regulation 14A within 120 days
after the Company's fiscal year ended December 31, 2001.
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 2002 annual meeting of shareholders, which will be filed
pursuant to Regulation 14A within 120 days after the Company's fiscal year
ended December 31, 2001.
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-11 for a list of all exhibits to this report.
(b) Reports on Form 8-K.
The Company filed a Form 8-K Report dated March 20, 2002 to
report certain amendments to its Employee Stock Purchase Plan.
CARRINGTON LABORATORIES, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES
Consolidated Financial Statements of the Company:
Consolidated Balance Sheets --
December 31, 2000 and 2001 F - 2
Consolidated Statements of Operations -- years ended
December 31, 1999, 2000 and 2001 F - 3
Consolidated Statements of Shareholders' Investment
-- years ended December 31, 1999, 2000 and 2001 F - 4
Consolidated Statements of Cash Flows -- years ended
December 31, 1999, 2000 and 2001 F - 5
Notes to Consolidated Financial Statements F - 6
Financial Statement Schedule
Valuation and Qualifying Accounts F - 16
Report of Ernst & Young LLP, Independent Auditors F - 17
Consolidated Balance Sheets
(Amounts in thousands, except share and per share amounts)
December 31,
2000 2001
------- -------
ASSETS:
Current Assets:
Cash and cash equivalents $ 3,200 $ 3,454
Accounts receivable, net of allowance
for doubtful accounts of $98 and
$100 in 2000 and 2001, respectively 2,181 1,622
Inventories 4,723 5,338
Prepaid expenses 183 189
------- -------
Total current assets 10,287 10,603
Property, plant and equipment, net 10,322 10,404
Other assets 93 210
------- -------
Total assets $ 20,702 $ 21,217
======= =======
LIABILITIES AND SHAREHOLDERS' INVESTMENT:
Current Liabilities:
Note payable $ 763 $ 763
Accounts payable 1,764 1,099
Accrued liabilities 1,068 884
Deferred revenue 417 417
------- -------
Total current liabilities 4,012 3,163
Deferred revenue, long-term 250 1,125
Commitments and contingencies
SHAREHOLDERS' INVESTMENT:
Common stock, $.01 par value, 30,000,000 shares
authorized, 9,659,087 and 9,809,087 shares
issued and outstanding at December 31,
2000 and 2001, respectively 97 98
Capital in excess of par value 52,319 52,429
Deficit (35,976) (35,598)
------- -------
Total shareholders' investment 16,440 16,929
------- -------
Total liabilities and shareholders' investment $ 20,702 $ 21,217
======= =======
The accompanying notes are an integral part of these balance sheets.
Consolidated Statements of Operations
(Amounts in thousands, except per share amounts)
Years Ended December 31,
-----------------------------
1999 2000 2001
------ ------ ------
Revenue:
Net sales $28,128 $22,833 $15,115
Royalty Income - 270 2,479
------ ------ ------
Total Revenue 28,128 23,103 17,594
Costs and expenses:
Cost of sales 13,640 12,782 9,803
Selling, general and administrative 10,346 10,162 5,016
Research and development 2,434 2,979 2,442
Research and development, Aliminase[TM]
clinical trial expenses 2,866 623 -
Charges related to Oregon Freeze Dry, Inc. 1,042 223 -
Interest income, net (105) (80) (32)
Other income (62) (110) (13)
------ ------ ------
Net income (loss) before income taxes (2,033) (3,476) 378
Provision for income taxes - - -
------ ------ ------
Net income (loss) $(2,033) $(3,476) $ 378
====== ====== ======
Net income (loss) per share - basic and
diluted $ (0.22) $ (0.36) $ 0.04
====== ====== ======
The accompanying notes are an integral part of these statements.
Consolidated Statements of Shareholders' Investment
For the Years Ended December 31, 1999, 2000 and 2001
(Amounts in thousands)
Capital in Total
Excess of Shareholders'
Common Stock Par Value Deficit Investment
------------ --------- ------- ----------
Shares Amount
----------------------------------------------------------------------------
Balance,
January 1, 1999 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
Issuance of common stock for
employee stock purchase
plan 150 1 110 - 111
Net Income - - - 378 378
----- --- ------ ------- ------
Balance
December 31, 2001 9,809 $ 98 $52,429 $(35,598) $16,929
===== === ====== ======= ======
The accompanying notes are an integral part of these statements.
Consolidated Statements of Cash Flows
(Amounts in thousands)
Years Ended December 31,
1999 2000 2001
------ ------ ------
Cash flows from operating activities:
Net income (loss) $(2,033) $(3,476) $ 378
Adjustments to reconcile net income (loss)
to net cash provided by (used in)
operating activities:
Depreciation and amortization 1,028 1,043 1,050
Loss on disposal of assets - 65 -
Charge related to Oregon Freeze Dry, Inc. 1,042 223 -
Provision for inventory obsolescence - 316 91
Changes in operating assets and liabilities:
Accounts receivable, net (729) 1,508 559
Inventories (215) 294 (706)
Prepaid expenses (177) 390 (6)
Other assets (11) 515 (117)
Accounts payable and accrued liabilities 206 (1,328) (849)
Deferred revenue - 667 875
------ ------ ------
Net cash provided by (used in)
operating activities (889) 217 1,275
Cash flows from investing activities:
Purchases of property, plant and equipment (963) (445) (1,132)
------ ------ ------
Net cash used in investing activities (963) (445) (1,132)
Cash flows from financing activities:
Issuances of common stock 174 412 111
Proceeds of short-term debt 200 563 -
------ ------ ------
Net cash provided by financing
activities 374 975 111
------ ------ ------
Net increase (decrease) in cash and cash
equivalents (1,478) 747 254
Cash and cash equivalents at beginning of year 3,931 2,453 3,200
------ ------ ------
Cash and cash equivalents at end of year $ 2,453 $ 3,200 $ 3,454
====== ====== ======
Supplemental Disclosure of Cash Flow
Information
Cash paid during the year for interest $ 7 $ 40 $ 58
Cash paid during the year for income taxes - - -
The accompanying notes are an integral part of these statements.
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. 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 that began December 1, 2000. The agreement provides that Carrington
will continue to manufacture its existing line of Products and sell them to
Medline at 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 began on December 1, 2000. 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.
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 formed a subsidiary, DelSite Biotechnologies, Inc., in October
2001 as a vehicle to further the development of CR1013, a complex
carbohydrate that the Company is developing for use as a drug delivery
system.
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 other producers in Costa Rica.
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.
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. The Company uses the liability method of accounting
for income taxes. Under this method, deferred income taxes are recorded to
reflect the tax consequences of differences between the tax basis of assets
and liabilities and the financial reporting basis. Valuation allowances are
provided against net deferred tax assets when it is more likely than not,
based on available evidence, that assets may not be realized.
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 1999, 2000 or 2001.
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 Financial
Accounting Standards Board ("FASB") Statement No. 123, "Accounting for
Stock-Based Compensation" (see Note Seven).
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 accounting principles generally accepted 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.
RECLASSIFICATIONS. Certain prior year amounts have been reclassified to
conform to the current year presentation.
RECENT ACCOUNTING PRONOUNCEMENTS. In August 2001, the FASB issued Statement
No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets,"
which addresses the financial accounting and reporting for the impairment or
disposal of long-lived assets and supercedes FASB Statement No. 121
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of," and the accounting and reporting provisions of
Accounting Principles Board Opinion No. 30, "Reporting the Results of
Operations for a Disposal of a Segment of a Business." The Company will
adopt Statement No. 144 as of January 1, 2002 and does not expect the
adoption of this statement will have a significant impact on the Company's
financial position or results of operations.
NOTE THREE. INVENTORIES
The following summarizes the components of inventory at December 31, 2000
and 2001, in thousands:
2000 2001
------------------------------------------------------------------
Raw materials and supplies $1,768 $2,041
Work-in-process 878 910
Finished goods 2,077 2,387
------------------------------------------------------------------
Total $4,723 $5,338
------------------------------------------------------------------
The inventory balances are net of $441,000 and $516,000 of reserves for
obsolete and slow moving inventory at December 31, 2000 and 2001,
respectively.
NOTE FOUR. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of the following at December 31,
2000 and 2001, in thousands:
Estimated
2000 2001 Useful Lives
------------------------------------------------------------------
Land and improvements $1,389 $1,391
Buildings and improvements 8,889 8,618 7 to 25 years
Furniture and fixtures 589 603 4 to 8 years
Machinery and equipment 6,982 7,800 3 to 10 years
Leasehold improvements 214 783 1 to 3 years
Equipment under capital leases 114 114 4 years
------------------------------------------------------------------
Total 18,177 19,309
Less accumulated depreciation
and amortization 7,855 8,905
------------------------------------------------------------------
Property, plant and
equipment, net $10,322 $10,404
====== ======
The Company's net investment in property, plant and equipment in Costa Rica
at December 31, 2000 and 2001 was $4,251,000 and $3,847,000, respectively.
NOTE FIVE. ACCRUED LIABILITIES
The following summarizes significant components of accrued liabilities at
December 31, 2000 and 2001, in thousands:
2000 2001
------------------------------------------------------------------
Accrued payroll $ 440 $270
Accrued Insurance 91 81
Accrued taxes 249 230
Accrued Professional Fees - 70
Other 288 233
------------------------------------------------------------------
Total $1,068 $884
------------------------------------------------------------------
NOTE SIX. LINE OF CREDIT
The Company has an agreement with a bank for a $3 million line of credit,
collateralized by accounts receivable and inventory. The interest rate is
equal to the bank's prime rate (4.75% at December 31, 2001). As of December
31, 2001 there was $763,000 outstanding on the credit line and the Company
had $1,437,000 credit available for operations.
NOTE SEVEN. 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 15%
or more of the Company's common stock. The rights expire in 2011 and may be
redeemed at any time at the option of the Board of Directors for $.001 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 1,000,000 shares of common stock
was reserved for purchase under this Plan. As of December 31, 2001, a total
of 475,000 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, 1999 and 2001 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, 2001, options
to purchase 12,000 shares were available for future grants under the plan.
The following summarizes stock option activity for each of the three years
in the period ended December 31, 2001 (shares in thousands):
Weighted
Average
Exercise
Shares Price Per Share Price
-------------------------------------------------------------------
Balance, January 1, 1999 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
Granted 345 $ 1.05 to $ 1.37 $ 1.17
Lapsed or canceled (215) $ 1.25 to $27.00 $ 3.94
-------------------------------------------------------------------
Balance, December 31, 2001 1,373 $ 1.05 to $28.75 $ 3.11
-------------------------------------------------------------------
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
-------------------------------------------------------------------
Options exercisable at
December 31, 2001 902 $ 1.31 to $28.75 $ 3.78
-------------------------------------------------------------------
The following table summarizes information about stock options outstanding
at December 31, 2001:
Options Outstanding Options Exercisable
------------------------------ -------------------
Weighted
Average Weighted Weighted
Remaining Average Average
Range of Contractual Exercise Exercise
Exercise Prices Shares Life Price Shares Price
---------------------------------------------------------------------
$1.05 to $ 5.25 1,259 6.95 years $2.86 788 $3.06
6.00 to 28.75 114 4.93 years 8.71 114 8.71
-------------- ----- ---------- ----- --- -----
$1.05 $28.75 1,373 6.78 years $3.78 902 $3.78
============== ===== ========== ===== === =====
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 FASB Statement No. 123,
"Accounting for Stock-Based Compensation" ("SFAS 123"), the Company's net
income (loss) and diluted net income (loss) per share would have been the
following pro forma amounts:
-------------------------------------------------------------------
1999 2000 2001
-------------------------------------------------------------------
Net income (loss) (in thousands):
As reported $(2,033) $(3,476) $ 378
Pro forma (3,485) (4,650) (83)
Diluted net income (loss)
per share:
As reported $ (0.22) $ (0.36) $ 0.04
Pro forma (0.37) (0.49) (0.01)
-------------------------------------------------------------------
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 1999, 2000, and 2001,
respectively: risk-free interest rates of 6.00%, 5.99% and 5.09%; expected
dividend yields of 0%; expected volatility of 74.0%, 89.3% and 89.7% and
expected lives of 10 years. The weighted average fair values of options
granted were $0.64, $1.37 and $1.03 in 1999, 2000, and 2001, 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 years in the period ending December 31, 2001
(shares in thousands):
Weighted
Average
Shares Price Per Share Exercise
Price
----------------------------------------------------------------
Balance, January 1, 1999 65 $ 3.50 to $20.13 $ 6.24
----------------------------------------------------------------
Balance, December 31, 1999 65 $ 3.50 to $20.13 $ 6.24
Lapsed or canceled (10) $ 3.50 to $20.13 $ 6.24
----------------------------------------------------------------
Balance, December 31, 2000 55 $ 3.50 to $20.13 $ 5.01
----------------------------------------------------------------
Balance, December 31, 2001 55 $ 3.50 to $20.13 $ 5.01
----------------------------------------------------------------
Warrants exercisable at
December 31, 2001 55 $ 3.50 to $20.13 $ 5.01
----------------------------------------------------------------
Warrants outstanding at December 31, 2001 had a weighted average remaining
contractual life of 2.38 years.
COMMON STOCK RESERVED At December 31, 2001 the Company had reserved a total
of 1,966,000 common shares for future issuance relating to the employee
stock purchase plan, stock option plan and stock warrants disclosed above.
NOTE EIGHT. COMMITMENTS AND CONTINGENCIES
The Company conducts a significant portion of its operations from an office/
warehouse/distribution facility under an operating lease that expires in
2011. In addition, the Company leases certain office equipment under
operating leases that expire over periods up to 2003. The Company's
commitments under noncancellable operating leases as of December 31, 2001
were as follows, in thousands:
Years Ending December 31,
-------------------------------------------------------------------
2002 $ 586
2003 562
2004 523
2005 523
2006 523
Thereafter 2,881
-------------------------------------------------------------------
Total minimum lease payments $5,598
-------------------------------------------------------------------
Total rental expense under operating leases was $455,000, $661,000 and
$663,000 for the years ended December 31, 1999, 2000 and 2001, respectively.
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. 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 established a reserve of
$1,042,000 for estimated losses under this contract. In the second quarter
of 2000, this reserve was increased by $223,000.
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.
The Company had outstanding a letter of credit in the amount of $800,000
which is used as security on the Company's distribution and research
facility.
NOTE NINE. INCOME TAXES
The tax effects of temporary differences that gave rise to deferred tax
assets and deferred tax liabilities at December 31, 2000 and 2001 were as
follows, in thousands:
2000 2001
---------------------------------------------------------------
Net operating loss carryforward $14,699 $ 12,965
Research and development
and other credits 661 478
Property, plant and equipment 282 340
Patents 270 -
Inventory 368 394
Other, net (257) 78
Bad debt reserve 467 452
Deferred income 227 524
ACI Stock Valuation 204 204
Accrued liability - 89
Less - Valuation allowance (16,921) (15,524)
------ -------
$ 0 $ 0
====== =======
The Company has provided a valuation allowance against the entire net
deferred tax asset at December 31, 2000 and 2001 due to the uncertainty as
to the realization of the asset.
The provision (benefit) for income taxes for the three years in the period
ended December 31, 2001 was offset by changes in the valuation reserve. For
the years ended December 31, 1999 and 2000, the benefit which would be
expected for losses incurred in each year was offset by increases in the
valuation reserve.
At December 31, 2001, the Company had net operating loss carryforwards of
approximately $38.7 million for federal income tax purposes, which begin to
expire in 2002, and research and development tax credit carryforwards of
approximately $478,000, which begin to expire in 2002, all of which are
available to offset federal income taxes due in future periods. A $2.6
million net operating loss carryforward expired during the year ended
December 31, 2001. 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 TEN. 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. Owens & Minor accounted for 9% and 10% of the
Company's net sales in 1999 and 2000, respectively. Sales to Mannatech,
Inc., accounted for 41%, 38%, and 30% of the Company's net sales in 1999,
2000, and 2001, respectively. Accounts receivable from Mannatech
represented 21% of gross accounts receivable at December 31, 2001. Sales to
Medline Industries, Inc., accounted for 35% of the Company's sales during
2001. Accounts receivable from Medline represented 53% of the Company's
gross accounts receivable at December 31, 2001. 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 ELEVEN. NET INCOME (LOSS) PER SHARE
Basic net income (loss) available to common shareholders per share was
computed by dividing net income (loss) available to common shareholders by
the weighted average number of common shares outstanding of 9,376,000,
9,545,000 and 9,743,000 in 1999, 2000 and 2001, respectively.
In calculating the diluted net loss available to common shareholders per
share for the three years ended 2001, no effect was given to options or
warrants, because the effect of including these securities would have been
antidilutive.
NOTE TWELVE. 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
----------------------------------------------------------------
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
----------------------------------------------------------------
2001
----------------------------------------------------------------
Sales to unaffiliated
customers $10,400 $7,194 $ - $17,594
Income(loss) before
income taxes 1,333 1,121 (2,076) 378
Identifiable assets 12,481 1,420 7,316 21,217
Capital expenditures - - 1,132 1,132
Depreciation and
amortization 586 - 464 1,050
----------------------------------------------------------------
NOTE THIRTEEN. RELATED PARTY TRANSACTIONS
At December 31, 2001, the Company had a 24% interest in a company which was
formed in 1998 to acquire and develop a 5,000 acre tract of land in Costa
Rica to be used for the production of Aloe vera L. leaves, the Company's
primary raw material. The Company's initial investment was written-off in
1998 and no additional investments have been made or are expected to be
made. The Company is accounting for its investment on the cost basis. The
Company purchases Aloe vera L. leaves from this company at prices the
Company believes are competitive with other sources. Such purchases totaled
$364,000, $417,000 and $450,000 in 1999, 2000 and 2001, respectively.
NOTE FOURTEEN. UNAUDITED SELECTED QUARTERLY FINANCIAL DATA
The unaudited selected quarterly financial data below reflect the fiscal
years ended December 31, 2000 and 2001, respectively.
(Amounts in thousands, except shares and per share amounts)
--------------------------------------------------------------------------
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) (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
--------------------------------------------------------------------------
2001 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
--------------------------------------------------------------------------
Net sales $4,657 $4,330 $4,381 $4,226
Gross profit 2,000 1,866 2,040 1,885
Net income 226 60 77 15(2)
Diluted income per
share $0.02 $0.01 $0.01 $0.00
Weighted average
common shares 9,728,000 9,734,000 9,747,000 9,809,000
(1) After a charge of $223,000 for OFD as described in Note Eight.
(2) The fourth-quarter results benefited from a one-time gain of $326,000,
partially reversing a charge taken earlier in the year as a pricing
reserve related to a strategic sales and marketing partnership.
Fourth-quarter and full-year results benefited from a one-time gain of
$200,000 from adjustments to state tax liabilities booked in prior
periods.
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
--------------------------------------------------------------------------
1999
--------------------------------------------------------------------------
Bad debt reserve $ 922 $ 107 $ - $ 725 $ 304
Inventory reserve 525 - - 95 430
Rebates 404 2,058 - 2,122 340
Reserve for 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
Reserve for 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 -
--------------------------------------------------------------------------
2001
--------------------------------------------------------------------------
Bad debt reserve $ 98 $ 55 $ - $ 53 $ 100
Inventory reserve 441 91 - 16 516
Rebates 272 - - 272 -
Reserve for ACI
and Aloe & Herbs
non-current notes and
investments included
in other assets 1,265 - - 45 1,220
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, 2001 and 2000 and the
related consolidated statements of operations, shareholders' investment and
cash flows for each of the three years in the period ended December 31,
2001. 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, 2001 and 2000, and the consolidated results of their operations and
their cash flows for each of the three years in the period ended December
31, 2001 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 19, 2002
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 25, 2002 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 25, 2002
Carlton E. Turner, Ph.D., Executive Officer and
D.Sc. Director
(principal executive
officer)
/s/ Robert W. Schnitzius Chief Financial Officer March 25, 2002
Robert W. Schnitzius (principal financial and
accounting officer)
/s/ R. Dale Bowerman Director March 25, 2002
R. Dale Bowerman
/s/ George DeMott Director March 25, 2002
George DeMott
/s/ Thomas J. Marquez Director March 25, 2002
Thomas J. Marquez
/s/ Selvi Vescovi Director March 25, 2002
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).
Exhibit Sequentially
Number Exhibit Numbered Page
------ ------------------------------------------------------ -------------
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).
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).
Exhibit Sequentially
Number Exhibit Numbered Page
------ ------------------------------------------------------ -------------
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).
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).
Exhibit Sequentially
Number Exhibit Numbered Page
------ ------------------------------------------------------ -------------
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).
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).
Exhibit Sequentially
Number Exhibit Numbered Page
------ ------------------------------------------------------ -------------
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).
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).
Exhibit Sequentially
Number Exhibit Numbered Page
------ ------------------------------------------------------ -------------
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).
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
10.84 Lease Agreement dated January 22, 2001 between
Plazamerica, Inc and Carrington Laboratories, Inc.
10.85+ Employee Stock Purchase Plan of Carrington
Laboratories, Inc., as amended through May 17, 2001
(incorporated by reference to Exhibit 10.1 to
Carrington's Quarterly Report on Form 10-Q for the
quarter ended June 30, 2001).
10.86+ 1995 Stock Option Plan of Carrington Laboratories,
Inc., as amended and Restated Effective January 15,
1998 and further amended through May 17, 2001
(incorporated by reference to Exhibit 10.2 to
Carrington's Quarterly Report on Form 10-Q for the
quarter ended June 30, 2001).
Exhibit Sequentially
Number Exhibit Numbered Page
------ ------------------------------------------------------ -------------
10.87+ Employee Stock Purchase Plan of Carrington
Laboratories, Inc., as amended through November 15,
2001 (incorporated by reference to Exhibit 10.87, filed
on Carrington's Form 8-K on March 20, 2002).
21.1* Subsidiaries of Carrington.
23.1* Consent of Independent Auditors
* Filed herewith.
+ Management contract or compensatory plan.