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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
( x ) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2002
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______________ To _______________
Commission file number 0-11997
CARRINGTON LABORATORIES, INC.
(Exact name of registrant as specified in its charter)
Texas 75-1435663
------------------------------- ---------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
2001 Walnut Hill Lane, Irving, Texas 75038
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(Address of principal executive offices and Zip Code)
972-518-1300
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(Registrant's telephone number, including area code)
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(Former name, former address and former fiscal year,
if changed since last report)
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 [ ]
The number of shares of the registrant's common stock outstanding as of
November 11, 2002 was 9,951,959.
INDEX
Page
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Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
at September 30, 2002 (unaudited) and
December 31, 2001 3
Condensed Consolidated Statements of
Operations for the three months ended
September 30, 2002 and 2001 (unaudited) 4
Condensed Consolidated Statements of
Operations for the nine months ended
September 30, 2002 and 2001 (unaudited) 5
Condensed Consolidated Statements
of Cash Flows for the nine months
ended September 30, 2002 and 2001 (unaudited) 6
Notes to Condensed Consolidated Financial
Statements (unaudited) 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 9
Item 3. Quantitative and Qualitative Disclosures
About Market Risk 13
Item 4. Controls and Procedures. 13
Part II. OTHER INFORMATION
Item 5. Other Information 13
Item 6. Exhibits and Reports on Form 8-K 14
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
(Dollar amounts in 000's)
December 31, September 30,
2001 2002
------ ------
(unaudited)
Assets
Cash and cash equivalents $ 3,454 $ 2,424
Accounts receivable, net 1,622 2,124
Inventories 5,338 4,321
Prepaid expenses 189 501
------ ------
Total current assets 10,603 9,370
Property, plant and equipment, net 10,404 10,100
Other assets 210 157
------ ------
Total assets $21,217 $19,627
====== ======
Liabilities and Stockholders' Equity
Notes payable $ 763 $ 763
Accounts payable 1,099 1,168
Accrued liabilities 884 1,048
Deferred revenue 417 417
------ ------
Total current liabilities 3,163 3,396
Capital lease obligation - 137
Deferred revenue 1,125 1,500
Stockholders' equity:
Common stock 98 99
Capital in excess of par value 52,429 52,535
Accumulated deficit (35,598) (38,040)
------ ------
Total stockholders' equity 16,929 14,594
------ ------
Total liabilities and stockholders' equity $21,217 $19,627
====== ======
The accompanying notes are an integral part of these statements.
Condensed Consolidated Statements of Operations (unaudited)
(Dollar amounts and shares in 000's, except per share amounts)
Three Months Ended
September 30,
2001 2002
------ ------
Revenues:
Net product sales $ 3,774 $ 4,476
Royalty income 607 617
------ ------
Total revenues 4,381 5,093
Cost of sales 2,341 3,051
------ ------
Gross margin 2,040 2,042
Selling, general and administrative 1,368 1,457
Research and development-basic 611 530
Research and development-DelSite - 586
Other expense (income) (3) -
Interest expense (income), net (13) 10
------ ------
Income (loss) before income taxes 77 (541)
Income taxes 0 0
------ ------
Net income (loss) $ 77 $ (541)
====== ======
Basic and diluted earnings (loss)
per share $ 0.01 $ (0.05)
====== ======
Basic and diluted average shares
outstanding 9,747 9,908
The accompanying notes are an integral part of these statements.
Condensed Consolidated Statements of Operations (unaudited)
(Dollar amounts and shares in 000's, except per share amounts)
Nine Months Ended
September 30,
2001 2002
------ ------
Revenues:
Net product sales $11,502 $11,326
Royalty income 1,866 1,853
------ ------
Total revenues 13,368 13,179
Cost of sales 7,462 8,520
------ ------
Gross margin 5,906 4,659
Selling, general and administrative 3,802 4,409
Research and development-basic 1,799 1,371
Research and development-DelSite - 1,273
Other expense (income) (29) 21
Interest expense (income), net (29) 27
------ ------
Income (loss) before income taxes 363 (2,442)
Income taxes 0 0
------ ------
Net income (loss) $ 363 $(2,442)
====== ======
Basic and diluted earnings (loss)
per share $ 0.04 $ (0.25)
====== ======
Basic and diluted average shares
outstanding 9,747 9,870
The accompanying notes are an integral part of these statements.
Condensed Consolidated Statements of Operations (unaudited)
(Dollar amounts and shares in 000's, except per share amounts)
Nine Months Ended
September 30,
2001 2002
------ ------
Cash flows provided by (used in) operating activities
Net income (loss) $ 363 $(2,442)
Adjustments to reconcile net loss to
net cash provided by (used in)
operating activities:
Depreciation and amortization 772 847
Provision for inventory obsolescence 135 45
Changes in assets and liabilities:
Receivables, net 1,128 (502)
Inventories (992) 972
Prepaid expenses (372) (312)
Other assets (100) 53
Accounts payable and accrued liabilities (1,073) 233
Deferred revenue 750 512
------ ------
Net cash provided by (used in) by operating
activities 611 (594)
Cash flows used in investing activities:
Purchases of property, plant
and equipment (674) (543)
------ ------
Net cash used in by investing activities (674) (543)
Cash flows provided by financing activities:
Issuances of common stock 77 107
------ ------
Net cash provided by financing activities 77 107
------ ------
Net increase (decrease) in cash
and cash equivalents 14 (1,030)
Cash and cash equivalents, beginning
of period 3,200 3,454
------ ------
Cash and cash equivalents, end
of period $ 3,214 $ 2,424
====== ======
Supplemental disclosure of cash flow
information
Cash paid during the period for
interest $ 47 $ 46
Cash paid during the period for
federal, state and local income taxes $ 18 $ 53
The accompanying notes are an integral part of these statements.
Notes to Condensed Consolidated Financial Statements (unaudited)
(1) Condensed Consolidated Financial Statements:
The condensed consolidated balance sheet as of September 30, 2002, the
condensed consolidated statements of operations for the three and nine month
periods ended September 30, 2001 and 2002 and the condensed consolidated
statements of cash flows for the nine month periods ended September 30, 2001
and 2002 have been prepared by the Company without audit, pursuant to the
rules and regulations of the Securities and Exchange Commission. In the
opinion of management, all adjustments (which include all normal recurring
adjustments) necessary to present fairly the consolidated financial
position, results of operations and cash flows at September 30, 2002 and for
all periods presented have been made. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or
omitted. These condensed consolidated financial statements should be read
in conjunction with the audited financial statements and notes thereto
included in the Company's annual report to shareholders on Form 10-K for the
year ended December 31, 2001.
(2) Earnings Per Share
Basic earnings per common share is computed by dividing net income by the
weighted average number of common shares outstanding during the period.
When the effects are not anti-dilutive, diluted earnings per common share is
computed by dividing net income by the weighted average number of shares
outstanding and the impact of all dilutive potential common shares,
primarily stock options. The dilutive impact of stock options is determined
by applying the "treasury stock" method.
(3) Reportable Segments:
The Company operates in two reportable segments: its Medical Services
Division, which sells human and veterinary products, and Caraloe, Inc., a
consumer products subsidiary, which sells bulk raw materials, consumer
beverages, and nutritional and skin care products, and also provides
services for the development and manufacture of nutritional, cosmetic and
medical products on a contract basis through its contract manufacturing
group.
The Company evaluates performance and allocates resources based on profit or
loss from operations before income taxes.
Corporate Losses Before Income Taxes set forth in the following table
include 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 both segments,
and total cash for the Company are included in the Corporate Assets figure.
Reportable Segments (in thousands)
----------------------------------------------------------------------------
Quarter Ended Medical Caraloe,
September 30, 2001 Products Inc. Corporate Total
----------------------------------------------------------------------------
Revenues to unaffiliated
customers $ 2,725 $ 1,656 $ - $ 4,381
Income (loss) before
income taxes 382 212 (517) 77
Identifiable assets 11,796 1,221 7,802 20,819
Capital expenditures - - 301 301
Depreciation and
amortization 146 - 120 266
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Quarter Ended Medical Caraloe,
September 30, 2002 Products Inc. Corporate Total
----------------------------------------------------------------------------
Revenues to unaffiliated
customers $ 2,136 $ 2,957 $ - $ 5,093
Income (loss) before
income taxes (126) 364 (779) (541)
Identifiable assets 9,845 2,951 6,831 19,627
Capital expenditures - - 404 404
Depreciation and
amortization 157 - 127 284
----------------------------------------------------------------------------
Nine Months Ended Medical Caraloe,
September 30, 2001 Products Inc. Corporate Total
----------------------------------------------------------------------------
Revenues to unaffiliated
customers $ 7,810 $ 5,558 $ - $13,368
Income (loss) before
income taxes 873 1,017 (1,527) 363
Capital expenditures - - 674 674
Depreciation and
amortization 431 - 341 772
----------------------------------------------------------------------------
Nine Months Ended Medical Caraloe,
September 30, 2002 Products Inc. Corporate Total
----------------------------------------------------------------------------
Revenues to unaffiliated
customers $ 6,663 $ 6,516 $ - $13,179
Income (loss) before
income taxes (355) (229) (1,858) (2,442)
Capital expenditures - - 543 543
Depreciation and
amortization 475 - 372 847
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(4) Income Taxes:
The tax effects of temporary differences including net operating loss
carryforwards have given rise to net deferred tax assets. At December 31,
2001, and September 30, 2002, the Company provided a valuation allowance
against the entire deferred tax asset due to the uncertainty as to the
realization of the asset. At December 31, 2001, the Company had net
operating loss carryforwards of approximately $42,230,000 for federal income
tax purposes, which began expiring in 2002, and research and development tax
credit carryforwards of approximately $748,000, which began expiring in
2002, all of which are available to offset federal income taxes due in
future periods.
(5) Contingencies:
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.
Item 2. 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 (3) to the unaudited
condensed consolidated financial statements for financial information about
these business segments. The Company sells, using a network of
distributors, prescription and nonprescription human and veterinary products
through its Medical Services Division, and consumer and bulk raw material
products and product development and manufacturing services through its
subsidiary, Caraloe, Inc. The Company's research and product portfolio are
based primarily on complex carbohydrates isolated from the Aloe vera L.
plant.
On October 22, 2001, the Company incorporated, a wholly-owned subsidiary
named DelSite Biotechnologies, Inc. ("DelSite"). DelSite operates
independently from the Company's research and development program and is
responsible for the research, development and marketing of the Company's
proprietary GelSite[TM] technology for controlled release and delivery of
bioactive pharmaceutical ingredients.
Liquidity and Capital Resources:
At December 31, 2001 and September 30, 2002, the Company held cash and cash
equivalents of $3,454,000 and $2,424,000, respectively. The decrease in
cash of $1,030,000 is primarily due to operating losses, increases in
accounts receivable and prepaid expenses which were partially offset by
lower inventory balances.
Receivables from three customers totaled $1,580,000 as of September 30,
2002. As of November 7, 2002, a total of $1,380,000 had been collected of
this amount.
Pursuant to the Distributor and License Agreement with Medline Industries,
Inc., ("Medline") the Company is to receive $12,500,000 in base royalties
over a five-year period ending November 30, 2005. The Company is
recognizing royalty income under this agreement on a straight-line basis.
At September 30, 2002, the Company had received $1,917,000 more in royalties
than it had recognized in income.
As of September 30, 2002, the Company had no material capital commitments.
The Company has a $3,000,000 line of credit with Comerica Bank-Texas,
collateralized by the Company's accounts receivable and inventory. As of
September 30, 2002, $763,000 was outstanding under this credit facility.
This credit facility is also used to secure an $800,000 letter of credit to
guarantee rental payments on a lease signed in January 2001 and a $100,000
letter of credit to guarantee rental payments on a lease signed in January
2002.
As a result of the current level of sales of raw materials produced at the
Company's processing facility in Costa Rica, the Company's demand for Aloe
vera L. leaves has exceeded and continues to exceed both the current and the
normal production capacity of its farm. It has therefore been necessary for
the Company to purchase Aloe vera L. leaves from other sources.
Since March 1998, the Company has been an investor in Aloe and Herbs
International, Inc., a Panamanian corporation ("Aloe & Herbs"), the owner of
Rancho Aloe (C.R.), S.A., a Costa Rican corporation, which produces Aloe
vera L. leaves and sells them to the Company at competitive, local market
rates.
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 clinical studies and costs of
filing new drug applications necessary to develop its products to their full
commercial potential. Additional funds, therefore, may have 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.
In March 2001, the Board of Directors authorized the Company to repurchase
up to one million shares of its outstanding Common Stock. As of September
30, 2002, the Company had not repurchased any shares of its Common Stock
under this program. As of November 8, 2002, the Company has repurchased a
total of 2,400 shares of its Common Stock under this program, as the result
of a repurchase transaction subsequent to the end of the third quarter. The
Company believes it has the financial resources necessary to repurchase
shares from time to time pursuant to the Board's repurchase authorization.
Regulation
The Company is subject to regulation by numerous governmental authorities in
the United States and other countries. Some 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.
Third quarter of 2002 compared with third quarter of 2001
Revenue of $5,093,000 for the third quarter 2002 was approximately $712,000,
or 16.3%, greater than revenue of $4,381,000 for the third quarter 2001.
Caraloe, Inc. revenue of $2,957,000 for the third quarter of 2002 was
approximately $1,301,000, or 78.6%, greater than revenue of $1,656,000 for
the third quarter 2001. The Caraloe revenue increase was attributable to
increased raw material sales of $966,000 and an increase in contract
manufacturing revenue of $334,000. Two customers accounted for
approximately 97.5% and 90.6% of Caraloe, Inc. raw material sales of
$2,178,000 and $1,212,000 for the third quarter, 2002 and 2001,
respectively. Medical products revenue of $2,136,000 for the third quarter
2002 was approximately $589,000, or 21.6%, less than revenue of $2,725,000
for the third quarter 2001 due to decreased orders from the Company's
exclusive distributor.
The gross margin of $2,042,000 for the third quarter 2002 was approximately
equal to the gross margin of $2,040,000 for the third quarter 2003. Gross
margin as a percentage of sales decreased to 40.1% for the third quarter
2002 from 46.6% for the third quarter 2001. The decrease is primarily
attributable to the mix of products sold shifting toward lower margin
contract manufactured products.
Selling, general and administrative expenses of $1,457,000 for the third
quarter 2002 were approximately $89,000 or 6.5% greater than selling,
general and administrative expenses of $1,368,000 for the third quarter
2001.
Basic research and development of $530,000 for the third quarter 2002 was
approximately $81,000, or 13.3%, less than basic research and development of
$611,000 for the third quarter 2001 as the Company focused efforts on
product development in support of contract manufacturing. The Company
recorded DelSite research and development costs of $586,000 for the third
quarter 2002 to develop Gelsite[TM] for the delivery of proteins and
peptides and to improve processes for the manufacture of Gelsite[TM].
The Company recorded net interest expense of $10,000 for the third quarter
2002 as compared to net interest income of $13,000 for the third quarter
2001.
Net loss for the third quarter 2002 was $541,000, compared with net income
of $77,000 for the third quarter 2001. Loss per share for third quarter
2002 was $0.01 compared to loss per share of $0.05 for the third quarter,
2001.
Nine months ended September 30, 2002 and September 30, 2001
Revenue of $13,179,000 for the first nine months of 2002 was approximately
$189,000, or 1.4%, less than revenue of $13,368,000 for the first nine
months of 2001. Caraloe, Inc. revenue of $6,516,000 for the first nine
months of 2002 was approximately $958,000, or 17.2%, greater than revenue of
$5,558,000 for the first nine months of 2001. The increase of $958,000 was
primarily attributable to an increase in contract manufacturing revenue.
Two customers accounted for approximately 98.3% and 94.4% of Caraloe, Inc.
raw material sales of $4,462,000 and $4,398,000 for the first nine months
of, 2002 and 2001, respectively. Medical products revenue of $6,663,000 for
the first nine months of 2002 was approximately $1,147,000, or 14.7%, less
than revenue of $7,810,000 for the first nine months of 2001 due to
decreased orders from the Company's exclusive distributor.
The gross margin of $4,659,000 for the first nine months of 2002 was
approximately $1,247,000, or 21.1%, less than the gross margin of $5,906,000
for the first nine months of 2001. Gross margin as a percentage of sales
decreased to 35.4% for the first nine months of 2002 from 44.2% for the
first nine months of 2001. The decrease is primarily attributable to the
mix of products sold shifting toward lower margin contract manufactured
products.
General and administrative expenses of $4,409,000 for the first nine months
of 2002 were approximately $607,000, or 16.0%, greater than general and
administrative expenses of $3,802,000 for the first nine months of 2001.
The increase was primarily attributable to the addition of new personnel,
including the President of Caraloe in July, 2001, expenses for expanded
distribution facilities in anticipation of obtaining new contract
manufacturing business, expenses for the creation of DelSite and additional
development expenses.
Basic research and development of $1,371,000 for the first nine months of
2002 was approximately $428,000, or 23.8%, less than basic research and
development of $1,799,000 for the first nine months of 2001 as the Company
focused efforts on product development in support of contract manufacturing.
The Company recorded DelSite research and development costs of $1,273,000
for the first nine months of 2002 to develop Gelsite[TM] for the delivery of
proteins and peptides and to improve processes for the manufacture of
Gelsite[TM].
The Company recorded net interest expense of $27,000 for the first nine
months of 2002 as compared to net interest income of $29,000 for the first
nine months of 2001.
Net loss for the first nine months of 2002 was $2,442,000, compared with net
income of $363,000 for the first nine months of 2001. Loss per share for
the first nine months of 2002 was $0.25 compared to earnings per share of
$.04 for the first nine months of 2001.
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 Condensed Consolidated
Financial Statements) concerning the Company's financial position,
liquidity, capital resources and results of operations, its prospects for
the future and other matters, and also including statements made in Part II
of this report, 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 the
Company and/or DelSite to obtain sufficient funds to finance DelSite's
proposed activities; the ability of DelSite to successfully exploit the
Company's new drug delivery technology; 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.
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 indicated by such
forward-looking statements include but are not limited to the possibilities
that the Company may be unable to obtain the quantity or quality of Aloe
vera L. leaves it needs from Rancho Aloe, that the claims of parties with
whom the Company is involved in litigation may not be without merit and the
Company may be unable to resolve its disputes with third parties in a
satisfactory manner, that the Company's cash resources and cash flow from
operations may not be adequate to finance its current operations, that the
Company and or DelSite 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 and or DelSite may not be able to obtain
financing when needed, that the Company and or DelSite 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
may not be able 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 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 be unable
to reach satisfactory agreements with its 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 when it is
desirable to do so, or 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 3. Quantitative and Qualitative Disclosures About Market Risk.
The Company's exposure to market risk from changes in foreign currency
exchange rates and the supply and prices of Aloe vera L. leaves has not
changed materially from its exposure at December 31, 2001, as described in
the Company's Annual Report on Form 10-K for the year then ended. See also,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
Item 4. Controls and Procedures
Within 90 days prior to the filing date of this report, under the
supervision and with the participation of our management, including the
Chief Executive Officer and Chief Financial Officer, an evaluation was
performed of the effectiveness of the design and operation of our disclosure
controls and procedures. Based on this evaluation, our management,
including the Chief Executive Officer and Chief Financial Officer, concluded
that our disclosure controls and procedures are adequately designed to
ensure that the information that we are required to disclose in this report
has been accumulated and communicated to our management, including our Chief
Executive Officer and Chief Financial Officer, as appropriate, to allow
timely decisions regarding such required disclosure. There have been no
significant changes in our internal controls or in other factors that could
significantly affect those controls subsequent to the date of our last
evaluation.
Part II OTHER INFORMATION
Item 5. Other Information
In accordance with Section 10A(i)(2) of the Securities Exchange Act of 1934,
as added by Section 202 of the Sarbanes-Oxley Act of 2002, the Company is
responsible for disclosing any non-audit services approved by the Company's
Audit Committee (the "Committee") to be performed by Ernst & Young
LLP("E&Y"), the Company's external auditor. Non-audit services are defined
in the Act as services other than those provided in connection with an audit
or a review of the financial statements of the Company. On October 10, 2002,
the Committee approved the engagement of E&Y for analytical and due
diligence support for business development efforts, with fees not to exceed
$30,000.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
---------
99.1 CEO Certification of SEC Reports Pursuant to 18 U.S.C.
Section 1350, As Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
99.2 CFO Certification of SEC Reports Pursuant to 18 U.S.C.
Section 1350, As Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
(b) Reports on Form 8-K:
--------------------
The Company did not file any reports on Form 8-K during the
quarter ended September 30, 2002.
SIGNATURES
Pursuant to the requirements 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.
(Registrant)
Date: November 13, 2002 By: /s/ Carlton E. Turner
----------------------------
Carlton E. Turner,
President and C.E.O.
(principal executive officer)
Date: November 13, 2002 By: /s/ Robert W. Schnitzius
----------------------------
Robert W. Schnitzius,
Chief Financial Officer
(principal financial and
accounting officer)
CERTIFICATION
I, Carlton E. Turner, President and Chief Executive Officer of
Carrington Laboratories, Inc., certify that:
1. I have reviewed this quarterly report on Form 10-Q of Carrington
Laboratories, Inc.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under
which such statements were made, not misleading with respect to the period
covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) Designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this quarterly report is being
prepared;
b) Evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the filing date
of this quarterly report ("Evaluation Date"); and
c) Presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of the registrant's board of directors (or persons fulfilling the
equivalent function):
a) All significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have identified for
the registrant's auditors any material weaknesses in internal controls; and
b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
Dated: November 13, 2002 /s/ Carlton E. Turner
-----------------------------------
Carlton E. Turner,
President & Chief Executive Officer
(principal executive officer)
CERTIFICATION
I, Robert W. Schnitzius, Chief Financial Officer of Carrington
Laboratories, Inc., certify that:
1. I have reviewed this quarterly report on Form 10-Q of Carrington
Laboratories, Inc.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under
which such statements were made, not misleading with respect to the period
covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. he registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) Designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this quarterly report is being
prepared;
b) Evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the filing date
of this quarterly report ("Evaluation Date"); and
c) Presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of the registrant's board of directors (or persons fulfilling the
equivalent function):
a) All significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have identified for
the registrant's auditors any material weaknesses in internal controls; and
b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
Dated: November 13, 2002 /s/ Robert W. Schnitzius
-----------------------------------
Robert W. Schnitzius
Chief Financial Officer
(principal financial and accounting officer)
INDEX TO EXHIBITS
Item Description
No.
99.1 CEO Certification of SEC Reports Pursuant to 18 U.S.C. Section
1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002
99.2 CFO Certification of SEC Reports Pursuant to 18 U.S.C. Section
1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002