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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, 2004
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
-----------------------------------------------------
(Address of principal executive offices and Zip Code)
972-518-1300
-----------------------------------------------------
(Registrant's telephone number, including area code)
(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 [ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [ X ]
The number of shares of the registrant's common stock outstanding as of
November 5, 2004 was 10,667,350.
INDEX
Page
----
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
at September 30, 2004 (unaudited) and
December 31, 2003 3
Condensed Consolidated Statements of
Operations for the three and nine months
ended September 30, 2004 and 2003 (unaudited) 4
Condensed Consolidated Statements
of Cash Flows for the nine months
ended September 30, 2004 and 2003 (unaudited) 6
Notes to Condensed Consolidated Financial
Statements (unaudited) 7
Item 2. Management's Discussion and Analysis of 12
Financial Condition and Results of
Operations
Item 3. Quantitative and Qualitative Disclosures 18
About Market Risk
Item 4. Controls and Procedures 19
Part II. OTHER INFORMATION
Item 1. Legal Proceedings 19
Item 2. Unregistered Sales of Equity Securities
and Use of Proceeds 21
Item 6. Exhibits 21
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Carrington Laboratories, Inc.
Condensed Consolidated Balance Sheets
(Amounts in thousands)
September 30, December 31,
2004 2003
------ ------
(unaudited)
ASSETS:
Current Assets:
Cash and cash equivalents $ 3,165 $ 1,920
Accounts receivable, net 2,110 3,098
Inventories, net 4,769 5,960
Prepaid expenses 449 253
------ ------
Total current assets 10,493 11,231
Property, plant and equipment, net 11,154 10,538
Customer relationships, net 632 777
Other assets, net 197 238
------ ------
Total assets $22,476 $22,784
====== ======
LIABILITIES AND SHAREHOLDERS' EQUITY:
Current Liabilities:
Line of credit $ 1,587 $ 1,587
Accounts payable 1,237 2,037
Accrued liabilities 1,306 1,604
Current portion of long-term debt and
capital lease obligations 1,180 1,104
Deferred revenue 2,690 1,880
------ ------
Total current liabilities 8,000 8,212
Long-term debt and capital lease obligations 1,420 1,953
SHAREHOLDERS' EQUITY:
Common stock 107 104
Capital in excess of par value 53,611 53,000
Accumulated deficit (40,659) (40,482)
Treasury stock at cost (3) (3)
------ ------
Total shareholders' equity 13,056 12,619
------ ------
Total liabilities and shareholders' equity $22,476 $22,784
====== ======
The accompanying notes are an integral part of these statements.
Carrington Laboratories, Inc.
Condensed Consolidated Statements of Operations (unaudited)
(Dollar amounts and shares in thousands, except per share amounts)
Three Months Ended
September 30,
2004 2003
------ ------
Revenue:
Net product sales $ 6,991 $ 6,915
Royalty income 617 617
Grant income, DelSite 121 -
------ ------
Total revenue 7,729 7,532
Cost of sales 4,391 5,035
------ ------
Gross margin 3,338 2,497
Expenses:
Selling, general and administrative 1,929 2,046
Research and development 256 288
Research and development-DelSite 997 623
Other income - (56)
Interest expense, net 52 62
------ ------
Income (loss) before income taxes 104 (466)
Provision for income taxes - -
------ ------
Net income (loss) $ 104 $ (466)
====== ======
Basic and diluted earnings (loss) per share $ 0.01 $ (0.05)
Basic average shares outstanding 10,656 10,141
Diluted average shares outstanding 11,507 10,141
The accompanying notes are an integral part of these statements.
Carrington Laboratories, Inc.
Condensed Consolidated Statements of Operations (unaudited)
(Dollar amounts and shares in thousands, except per share amounts)
Nine Months Ended
September 30,
2004 2003
------ ------
Revenue:
Net product sales $ 20,898 $20,545
Royalty income 1,852 1,853
Grant income, DelSite 310 -
------ ------
Total revenue 23,060 22,398
Cost of sales 13,778 14,256
------ ------
Gross margin 9,282 8,142
Expenses:
Selling, general and administrative 5,867 5,891
Research and development 710 665
Research and development-DelSite 2,762 1,962
Other income (37) (124)
Interest expense, net 157 174
------ ------
Income (loss) before income taxes (177) (426)
Provision for income taxes - -
------ ------
Net income (loss) $ (177) $ (426)
====== ======
Basic and diluted earnings (loss) per share $ (0.02) $ (0.04)
Basic and diluted average shares outstanding 10,559 10,054
The accompanying notes are an integral part of these statements.
Carrington Laboratories, Inc.
Condensed Consolidated Statements of Cash Flows (unaudited)
(Dollar amounts in thousands)
Nine Months Ended
September 30,
2004 2003
------ ------
Cash flows used in operating activities
Net income (loss) $ (177) $ (426)
Adjustments to reconcile net income (loss)
to net cash used in operating activities:
Provision for bad debts 22 75
Provision for inventory obsolescence 135 200
Depreciation and amortization 1,009 991
Changes in assets and liabilities:
Receivables 966 (1,865)
Inventories 1,056 (1,863)
Prepaid expenses (196) 119
Other assets 41 48
Accounts payable and accrued liabilities (1,099) 673
Deferred revenue 810 88
------ ------
Net cash provided by (used in) operating
activities 2,567 (1,960)
------ ------
Investing activities:
Purchases of property, plant and equipment (1,479) (1,392)
------ ------
Net cash used in investing activities (1,479) (1,392)
Financing activities:
Proceeds from debt issuance 350 1,500
Principal payments on debt and capital lease
obligations (807) (442)
Issuances of common stock 614 322
------ ------
Net cash provided by financing activities 157 1,380
------ ------
Net increase (decrease) in cash and cash equivalents 1,245 (1,972)
Cash and cash equivalents, beginning of period 1,920 3,636
------ ------
Cash and cash equivalents, end of period $ 3,165 $ 1,664
====== ======
Cash paid during the period for interest $ 157 $ 174
Cash paid during the period for federal, state
and local income taxes 8 32
Assets acquired under capital leases - 182
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, 2004, the
condensed consolidated statements of operations for the three and nine month
periods ended September 30, 2004 and 2003 and the condensed consolidated
statements of cash flows for the nine month periods ended September 30, 2004
and 2003 of Carrington Laboratories, Inc., (the "Company") 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 for all periods presented have been made. Certain
information and footnote disclosures normally included in financial
statements prepared in accordance with accounting principles generally
accepted in the United States of America 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, 2003. Certain prior year amounts have been reclassified
to conform with the 2004 presentation.
(2) Stock-Based Compensation:
The Company accounts for employee stock options in accordance with
Accounting Principles Board Opinion No. 25 (APB 25), Accounting for Stock
Issued to Employees and Financial Accounting Standards Board Interpretation
No. 44, Accounting for Certain Transactions involving Stock Compensation, an
interpretation of APB Opinion No. 25. Under APB 25, the Company recognizes
no compensation expense related to employee or director stock options when
options are granted with exercise prices at the quoted market price of the
stock on the date of grant.
The Company has adopted the disclosure-only provisions of Statement of
Financial Accounting Standards No. 123 (FAS 123), Accounting for Stock-Based
Compensation and Statement of Financial Accounting Standards No. 148 (FAS
148), Accounting for Stock-Based Compensation - Transition and Disclosure -
An Amendment of FASB Statement No. 123. Under the provisions of FAS 123,
pro forma compensation expense related to options issued to employees is
disclosed based on the fair value of options on the grant date.
The following table (in thousands except per share data) illustrates the
effect on net income (loss) if the Company had applied the fair value
recognition provision of FAS 123 to stock based compensation:
----------------------------------------------------------------------------
Three Months Ended Nine Months Ended
September 30, September 30,
2004 2003 2004 2003
----------------------------------------------------------------------------
Net income (loss) (in thousands):
As reported $ 104 $ (466) $ (177) $ (426)
Less: Stock-based compensation
expense determined under
fair value-based method (100) (110) (1,050) (330)
------ ------ ------ ------
Pro forma net income (loss) $ 4 $ (576) $(1,227) $ (756)
====== ====== ====== ======
Net income (loss) per share:
As reported $ 0.01 $ (0.05) $ (0.02) $ (0.04)
Pro forma $ - $ (0.05) $ (0.12) $ (0.08)
Because options vest over a period of several years and additional awards
are generally made each year, the pro forma information presented above is
not necessarily indicative of the effects on reported or pro forma net
earnings or losses for future years.
(3) Net Income (Loss) Per Share:
Basic Earnings Per Share ("EPS") calculations are based on the weighted-
average number of common shares outstanding during the period, while diluted
EPS calculations are calculated using the weighted-average number of common
shares and dilutive common share equivalents outstanding during each period.
The Company's average closing price for the period is used to calculate the
dilution of stock options in its EPS calculation.
The following data shows the amounts used in computing EPS and their effect
on the weighted-average number of common shares and dilutive common share
equivalents for the three months ended September 30, 2004 and 2003. At
September 30, 2004, 775,475 common stock options were excluded from the
diluted EPS calculation, as their effect was antidilutive. At September 30,
2003, 1,494,312 common stock options and 50,000 warrants were excluded from
the diluted EPS calculation, as their effect was antidilutive. The amounts
are rounded to the nearest thousand, except per share amounts.
For the three months ended For the three months ended
September 30, 2004 September 30, 2003
------------------------------------ ------------------------------------
Income Shares Per share Income Shares Per share
(Numerator) (Denominator) amount (Numerator) (Denominator) amount
Basic EPS:
----------
Net income (loss)
available to
common shareholders $ 104 10,656 $ 0.01 $ (466) 10,141 $ (0.05)
Effect of dilutive
securities:
Stock Options 0 851 0.00 0 0 0.00
----- ------ ------ ------ ------ ------
Diluted EPS:
------------
Net income (loss)
available to
common shareholders
plus assumed
conversions $ 104 11,507 $ 0.01 $ (466) 10,141 $ (0.05)
===== ====== ====== ====== ====== ======
The following data shows the amounts used in computing EPS and their effect
on the weighted-average number of common shares and dilutive common share
equivalents for the nine months ended September 30, 2004 and 2003. At
September 30, 2004, 1,626,664 common stock options were excluded from the
diluted EPS calculation as their effect was antidilutive. At September 30,
2003, 1,494,312 common stock options and 50,000 warrants were excluded from
the diluted EPS calculation, as their effect was antidilutive. The amounts
are rounded to the nearest thousand, except per share amounts. Total
options and warrants outstanding as of September 30, 2004 and 2003 were
1,626,664, and 1,544,312, respectively.
For the nine months ended For the nine months ended
September 30, 2004 September 30, 2003
------------------------------------ ------------------------------------
Income Shares Per share Income Shares Per share
(Numerator) (Denominator) amount (Numerator) (Denominator) amount
Basic EPS:
----------
Net income (loss)
available to
common shareholders $ (177) 10,559 $ (0.02) $ (426) 10,054 $ (0.04)
Effect of dilutive
securities:
Stock Options 0 0 0.00 0 0 0.00
----- ------ ------ ------ ------ ------
Diluted EPS:
------------
Net income (loss)
available to
common shareholders
plus assumed
conversions $ (177) 10,559 $ (0.02) $ (426) 10,054 $ (0.04)
===== ====== ====== ====== ====== ======
(4) Concentration 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 and personal care industry. Significant
sales, defined as amounts in excess of ten percent (10%) of revenue, were
made to two customers. Sales to Natural Alternatives International, Inc.,
("Natural Alternatives") a customer in the Consumer Services Division,
accounted for 42% and 45% of the Company's total revenue during the
quarter ended September 30, 2004 and 2003, respectively. Sales to Medline
Industries, Inc., ("Medline") a customer in the Medical Services Division,
accounted for 31% and 32% of the Company's total revenue during the quarter
ended September 30, 2004 and 2003, respectively.
Customers with significant receivable balances as of September 30, 2004,
defined as amounts in excess of ten percent (10%) of gross receivables
included Natural Alternatives, ($660,000) and Medline ($887,000). Of these
amounts, $1,238,000 has been collected as of November 5, 2004.
(5) Inventories:
The following summarizes the components of inventory (in thousands):
September 30, December 31,
2004 2003
------ ------
Raw materials and supplies $ 2,512 $ 3,009
Work-in-process 676 638
Finished goods 2,413 3,048
Less obsolescence reserve (832) (735)
------ ------
Total $ 4,769 $ 5,960
====== ======
(6) Debt:
In March 2003, the Company received a loan of $500,000 from Bancredito, a
Costa Rica bank, with interest and principal to be repaid in monthly
installments over eight years. The interest rate on the loan is the U.S.
Prime Rate (4.75%) plus 2.0%. The loan is secured by a mortgage on an
unused, 164-acre parcel of land owned by the Company in Costa Rica plus a
lien on specified oral patch production equipment. The proceeds of the loan
were used in the Company's operations. As of September 30, 2004, there was
$432,000 outstanding on the loan.
In July 2003, the Company received a loan of $1.0 million from Comerica
Bank-Texas ("Comerica") under a variable rate installment note with interest
and principal to be repaid in monthly installments over five years. The
interest rate on the loan is the U.S. Prime Rate (4.75%) plus 0.5%. The
loan is collateralized by the Company's accounts receivable and inventory
and by a lien on the Company's production facility in Irving, Texas. The
proceeds of the loan are being used in the Company's operations. As of
September 30, 2004, there was $767,000 outstanding on the loan.
The Company also has a $3.0 million line of credit with Comerica structured
as a demand note without a stated maturity date and with an interest rate
equal to the Comerica prime rate (4.75%) plus 0.5%. The line of credit is
collateralized by the Company's accounts receivable and inventory and by a
first lien on the Company's production facility and is used for operating
needs, as required. As of September 30, 2004, there was $1,587,000
outstanding on the credit line with $813,000 credit available for
operations, net of outstanding letters of credit of $600,000.
Effective July 1, 2004, the Company and Comerica negotiated an amendment to
the Company's credit facilities, which, among other things, redefined the
covenants that require the Company to maintain certain financial ratios. As
a result of the amendment, the Company is now, and as of September 30, 2004
was, in compliance with all of the covenant provisions. The new covenants
and the Company's position at September 30, 2004 are as follows:
Covenant Covenant Requirement Company's Position
-------- -------------------- ------------------
Total Net Worth $11,300,000 $12,380,000
Current Ratio 1.60 1.89
Liquidity Ratio 1.75 2.24
The Total Net Worth covenant amount will escalate up to $12,200,000 by
December 31, 2004 and maintain at that level until maturity. The Current
Ratio and the Liquidity Ratio covenant amount will remain at the same fixed
amount until maturity of the loan. Both of the credit facilities with
Comerica are cross-collateralized and cross-defaulted.
In September 2004, the Company received a loan of $350,000 from Bancredito,
a Costa Rica bank, with interest and principal to be repaid in monthly
installments over eight years. The interest rate on the loan is the
U.S. Prime Rate (4.75%) plus 2.5%. The loan is secured by certain of
the Company's equipment. The proceeds of the loan are being used in
the Company's operations. As of September 30, 2004, there was $347,000
outstanding on the loan.
Pursuant to the 2000 Distributor and License Agreement with Medline, the
Company is to receive $12.5 million in base royalties over a five-year
period ending November 30, 2005. In December 2002, the Company received an
advance on future royalty payments due from Medline of $2.0 million, which
was recorded in the Company's financial statements as a loan to be repaid in
quarterly installments through September 2005. The interest rate on the
loan is 6.5%. As of September 30, 2004, there was $769,000 outstanding on
the advance.
(7) Income Taxes:
The tax effects of temporary differences including net operating loss
carryforwards have given rise to net deferred tax assets. At September 30,
2004 and December 31, 2003, the Company provided a valuation allowance
against the entire balance of deferred tax asset due to the uncertainty as
to the realization of the asset. At December 31, 2003, the Company had net
operating loss carryforwards of approximately $43.6 million for federal
income tax purposes, which began expiring in 2003, and research and
development tax credit carryforwards of approximately $386,000, which began
expiring in 2003, all of which are available to offset federal income taxes
due in current and future periods. For the three-month and nine-month
periods ended September 30, 2004 and 2003, the Company recognized no benefit
for income taxes.
(8) Contingencies:
From time to time in the normal course of business, the Company is a 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.
(9) Commitments:
In December 2002, the Company purchased certain assets of the Custom
Division of Creative Beauty Innovations, Inc. ("CBI"). As part of the
purchase price for the acquired assets, for the five-year period ending in
December 2007, the Company agreed to pay CBI an amount equal to 9.0909% of
the Company's net sales up to $6.6 million per year and 8.5% of the
Company's net sales over $6.6 million per year of CBI products to
CBI's transferred customers. The Company recorded royalty expense of
approximately $71,000 related to the sale of CBI products to CBI's
transferred customers in the quarter ended September 30, 2004.
On May 3, 2004, the Company retained Redington, Inc. to provide certain
investor relations services. In addition to cash payments for their
consulting services, Redington was also granted a non-qualified stock option
to purchase 150,000 shares of the Company's Common Stock at a price of $4.15
per share, the closing price on that date. The options are exercisable
based upon the attainment of certain sustained share price levels during a
defined period of time.
(10) Reportable Segments:
The Company operates in three reportable segments: 1) Medical Services
Division, which sells human and veterinary medical products through
distributors and provides manufacturing services to customers in medical
products markets; 2) Consumer Services Division, which provides bulk raw
materials, finished products and manufacturing services to customers in the
cosmetic and nutraceutical markets and 3) DelSite Biotechnologies, Inc.
("DelSite"), a research and development subsidiary responsible for the
development of the Company's proprietary GelSite[R] technology for
controlled release and delivery of bioactive pharmaceutical ingredients.
Prior to January 1, 2004, the Company reported its results in two segments:
Medical Services Division and Caraloe, Inc. The Caraloe activities have
been renamed the Consumer Services Division. In addition, due to the
growing significance of DelSite's operations, in 2004 the Company began
reporting DelSite as a separate segment. DelSite was previously reported as
part of the corporate operations category.
The Company evaluates performance and allocates resources based on profit or
loss from operations before income taxes.
Assets which are used in more than one segment are reported in the segment
where the predominant use occurs. Total cash for the Company is included in
the Corporate Assets figure.
Reportable Segments (in thousands)
Medical Consumer
Services Services DelSite Corporate Total
----------------------------------------------------------------------------
Quarter ended
September 30, 2004
Revenues from unaffiliated
customers $ 2,542 $ 5,066 $ 121 $ - $ 7,729
Income (loss) before
income taxes (584) 1,564 (876) - 104
Identifiable assets 7,279 10,364 1,021 3,812 22,476
Capital expenditures - 50 617 - 667
Depreciation and
amortization 89 209 51 - 349
Quarter ended
September 30, 2003
Revenues from unaffiliated
customers $ 2,852 $ 4,680 $ - $ - $ 7,532
Income (loss) before
income taxes (787) 943 (622) - (466)
Identifiable assets 9,575 11,942 279 2,121 23,917
Capital expenditures - 301 - - 301
Depreciation and
amortization 105 225 47 - 377
Nine months ended
September 30, 2004
Revenues from unaffiliated
customers $ 7,942 $14,808 $ 310 $ - $23,060
Income (loss) before
income taxes (1,621) 3,896 (2,452) - (177)
Capital expenditures - 170 1,309 - 1,479
Depreciation and
amortization 259 648 102 - 1,009
Nine months ended
September 30, 2003
Revenues from unaffiliated
customers $ 8,163 $14,235 $ - $ - $22,398
Income (loss) before
income taxes (1,351) 2,887 (1,962) - (426)
Capital expenditures 291 919 182 - 1,392
Depreciation and
amortization 263 638 90 - 991
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
operates in three reportable segments: 1) Medical Services Division, which
sells human and veterinary medical products through distributors and
provides manufacturing services to customers in medical products markets; 2)
Consumer Services Division, which provides bulk raw materials, finished
products and manufacturing services to customers in the cosmetic and
nutraceutical markets and 3) DelSite, a research and development subsidiary
responsible for the development of the Company's proprietary GelSite[R]
technology for controlled release and delivery of bioactive pharmaceutical
ingredients.
Prior to January 1, 2004, the Company reported its results in two segments:
Medical Services Division and Caraloe, Inc. The Caraloe activities have
been renamed the Consumer Services Division. In addition, due to the
growing significance of DelSite's operations, the Company has decided to
report DelSite as a separate segment. DelSite was previously reported as
part of the corporate operations category.
Products sold through the Medical Services Division include hydrogels, wound
cleansers, hydrocolloids, advanced wound covering products, incontinence-
care products and two lines of condition-specific products. Many products
sold through this division contain the Company's proprietary, medical-grade
raw material, Acemannan Hydrogel[TM]. The Company regularly engages in
development projects to create line extensions and other new products for
this category. Products sold through the Consumer Services Division include
Manapol[R] and other proprietary and non-proprietary raw materials sold to
nutraceutical and cosmetic customers; nutritional products sold under the
AloeCeuticals[R] brand; skin care products sold under the Snow and Sun[TM]
brand and private-labeled products manufactured to customer specifications,
including powders, creams, liquids, gels, lotions, drinks, tablets and
capsules for various customers.
Prior to 1996, the Company generated most of its revenues from product sales
in its Medical Services Division. In 1996, the Company launched its line of
raw materials, including Manapol[R] powder, through its Consumer Services
Division. In 2000, the Company entered into a Distributor and License
Agreement with Medline granting Medline exclusive rights to distribute the
Company's wound care products in the US. In 2001, the Company created its
specialty manufacturing group to provide services to cosmetic, nutraceutical
and medical markets. In December 2002, the Company acquired the assets of
the custom division of CBI, which substantially increased revenues for the
Consumer Services Division. In 2003 approximately 29% of the Company's
revenues were generated through product sales and royalties in its Medical
Services Division and 71% through sales of products and services in its
Consumer Services Division. Since 2001, significant sales, defined as
amounts in excess of ten percent (10%) of revenue, were made to two
customers: Natural Alternatives and Medline.
Sales to Natural Alternatives, a customer in the Consumer Services Division,
accounted for 42% and 45% of the Company's total revenue during the quarter
ended September 30, 2004 and 2003, respectively. Sales to Natural
Alternatives are governed by a joint supply agreement with Natural
Alternatives and Mannatech, Inc. ("Mannatech"). Due to the nature of the
product and the Company's relationship with Natural Alternatives and
Mannatech, the Company expects this supply agreement will be renewed prior
to its expiration at the end of November 2004. Sales to Medline, a customer
in the Medical Services Division, accounted for 31% and 32% of the Company's
total revenue during the quarter ended September 30, 2004 and 2003,
respectively. Effective April 9, 2004, the Company entered into an amendment
to the Distributor and License Agreement which, among other things, extended
the term of the Distributor and License Agreement and the accompanying
Supply Agreement through November 30, 2008.
The Company's wholly-owned subsidiary, 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[R]
technology for controlled release and delivery of bioactive pharmaceutical
ingredients. The Company's Gelsite[R] polymer technology is the basis for
the GelVac[TM] Nasal Powder vaccine delivery system, a novel polysaccharide
that turns from a powder to a gel upon contact with the nasal fluids,
resulting in controlled release and increased nasal residence time of
vaccine antigens. Additional revenues to the Company arise from time to
time through research grants awarded to DelSite.
In March 2004 DelSite received a Small Business Innovation Research (SBIR)
grant award of up to $888,000 over a two-year period. The grant will fund
additional development of GelVac[TM], DelSite's intranasal vaccine delivery
platform technology. In October 2004 DelSite received notification of a
$6 million grant over a three-year period from the National Institute of
Allergy and Infectious Diseases. The $6 million grant is to fund the
development of an inactivated influenza nasal powder vaccine against the
H5N1 strain, commonly known as bird flu, utilizing the Company's proprietary
GelVac[TM] delivery system. The grant was awarded under a biodefense and
SARS product development initiative and will fund a three-year preclinical
program.
LIQUIDITY AND CAPITAL RESOURCES
Cash at September 30, 2004 was $3,165,000 versus $1,920,000 at December 31,
2003. The increase in cash was primarily due to a $1,056,000 reduction in
inventory levels, a $966,000 reduction in accounts receivable, the receipt
of $350,000 in loan proceeds, the receipt of $1,250,000 from Medline as an
advance payment of royalties in consideration of the extended term of the
Distributor and License Agreement and proceeds from stock option exercises
and employee purchases of shares of $614,000. These cash receipts were
partially offset by the Company's investment of $1,479,000 in capital
expenditures to acquire operating assets, reduced debt and capital lease
obligations of $807,000 and reduced accounts payable and accrued liabilities
of $1,099,000.
In July 2003, the Company received a loan of $1.0 million from Comerica
under a variable rate installment note with interest and principal to be
repaid in monthly installments over five years. The interest rate on the
loan is the U.S. Prime Rate (4.75%) plus 0.5%. The loan is collateralized
by the Company's accounts receivable and inventory and by a first lien on
the Company's production facility in Irving, TX. The proceeds of the loan
are being used in the Company's operations. As of September 30, 2004, there
was $767,000 outstanding on the loan.
The Company also has a line of credit with Comerica that provides for
borrowings of up to $3.0 million based on the level of qualified accounts
receivable and inventory. The line of credit is collateralized by accounts
receivable and inventory. Borrowings under the line of credit bear interest
at Comerica's prime rate (4.75%) plus 0.5%. Effective July 1, 2004, the
Company and Comerica negotiated an amendment to the Company's credit
facilities, which, among other things, redefined the covenants that require
the Company to maintain certain financial ratios. As a result of the
amendment, the Company is now, and as of September 30, 2004 was, in
compliance with all of the covenant provisions. The new covenants and the
Company's position at September 30, 2004 are as follows:
Covenant Covenant Requirement Company's Position
-------- -------------------- ------------------
Total Net Worth $11,300,000 $12,380,000
Current Ratio 1.60 1.89
Liquidity Ratio 1.75 2.24
The Total Net Worth covenant amount will escalate up to $12,200,000 by
December 31, 2004 and maintain at that level until maturity. The Current
Ratio and the Liquidity Ratio covenant amount will remain at the same fixed
amount until maturity of the loan. Both of the credit facilities with
Comerica are cross-collateralized and cross-defaulted. As of September 30,
2004, there was $1,587,000 outstanding on the credit line with $813,000
credit available for operations, net of outstanding letters of credit of
$600,000.
In March 2003, the Company received a loan of $500,000 from Bancredito, a
Costa Rica bank, with interest and principal to be repaid in monthly
installments over eight years. The interest rate on the loan is the U.S.
Prime Rate (4.75%) plus 2.0%. The loan is secured by a mortgage on an
unused, 164-acre parcel of land owned by the Company in Costa Rica plus a
lien on specified oral patch production equipment. The proceeds of the loan
were used in the Company's operations. As of September 30, 2004, there was
$432,000 outstanding on the loan.
In September 2004, the Company received a loan of $350,000 from Bancredito,
a Costa Rica bank, with interest and principal to be repaid in monthly
installments over eight years. The interest rate on the loan is the
U.S. Prime Rate (4.75%) plus 2.5%. The loan is secured by certain of
the Company's equipment. The proceeds of the loan are being used in the
Company's operations. As of September 30, 2004, there was $347,000
outstanding on the loan.
Pursuant to the Distributor and License Agreement with Medline, the Company
is to receive $12.5 million in base royalties over a five-year period ending
November 30, 2005. Effective April 9, 2004, the Company entered into an
Amendment (the "Amendment") to the Distributor and License Agreement. The
Amendment modified certain provisions contained in the Distributor and
License Agreement and the Supply Agreement. Among other things, the
Amendment extends the term of the Distributor and License Agreement and the
term of the Supply Agreement through November 30, 2008, and subject to
certain refund rights more specifically described in the Amendment, provides
that the Company will receive an additional $1.25 million of royalties, to
be paid upon the signing of the Amendment, in consideration of the extended
term of the Distributor and License Agreement. The Company received the
funds on April 21, 2004. The Company continues to recognize royalty income
under this agreement, as amended, on a straight-line basis. At September
30, 2004, the Company had received $2.6 million more in royalties than it
had recognized in income, which is recorded as deferred revenue on the
balance sheet. Royalties to be received subsequent to September 30, 2004
total $1.5 million. In December 2002, the Company received an advance on
future royalty payments due from Medline of $2.0 million which was recorded
in the Company's financial statements as a loan to be repaid in quarterly
installments through September 2005. The advance bears interest at 6.5% and
is being repaid by reducing each quarterly royalty payment due from Medline
by approximately $200,000. As of September 30, 2004, there was $769,000
outstanding on the advance.
The Company anticipates capital expenditures in 2004 of approximately $1.9
million. The Company has spent $1,479,000 in the first nine months of 2004
and anticipates spending $421,000 in the remaining three months of the year.
The expenditures will primarily be comprised of production and laboratory
equipment and facility modifications.
Presently, the Company's debt/equity ratio is 0.72 to 1. Debt includes all
current liabilities and long-term debt. Based on its current estimates,
management believes that the Company has the capacity to incur additional
debt, and, in 2005, the Company may seek additional financing to be used as
working capital. The Company anticipates that such borrowings, together
with the expected cash flows from operations and licensing agreements and
expected revenues from the Company's existing government grant programs
related to DelSite, will provide the funds necessary to finance its current
operations, including expected levels of research and development for at
least the next twelve months. 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. Management believes that each of the enumerated
financing avenues is presently available to the Company. However, there
is no assurance that the Company will be able to obtain such funds on
satisfactory terms when they are needed.
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 in Costa Rica
at prices comparable to the cost of acquiring leaves from the Company's
farm. From time to time the Company also imports leaves from other Latin
American countries at prices comparable to those in the local market. The
Company anticipates that the suppliers it currently uses will be able to
meet all of its requirements for leaves for the foreseeable future.
Since March 1998, the Company has been a minority 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.
RESULTS OF OPERATIONS
Quarter ended September 30, 2004 compared to quarter ended September 30, 2003
Revenue for the quarter ended September 30, 2004 increased 2.6%, or
$197,000, to $7,729,000 as compared to $7,532,000 during the quarter ended
September 30, 2003. Consumer Services revenue during the third quarter of
2004 increased 8.2%, or $386,000, to $5,066,000 versus $4,680,000 for the
same quarter last year. The increase in Consumer Services revenue is
primarily attributable to increased raw material sales of $655,000, which
resulted from increased demand from Natural Alternatives. This increase was
partially offset by decreased sales of cosmetic products of $219,000, which
was primarily attributable to lower cosmetic product demand.
Medical Services revenue during the quarter ended September 30, 2004
decreased 10.9%, or $310,000, to $2,542,000 as compared to $2,852,000 during
the quarter ended September 30, 2003. The decrease in Medical Services
revenue was attributable to decreased demand from Medline.
Grant revenue in the amount of $121,000 was generated from a Small Business
Innovation Research biodefense grant to DelSite. The total amount of the
grant awarded was up to $888,000 over a two-year period beginning in March
of 2004, depending on actual expenses for approved research. The grant will
fund additional development of GelVac[TM], DelSite's intranasal vaccine
delivery platform technology.
Gross margin was $3,338,000 during the quarter ended September 30, 2004 as
compared to $2,497,000 during the quarter ended September 30, 2003, an
increase of 33.7%. Gross margin as a percentage of revenue grew to 43.2%
during the third quarter of 2004 from 33.1% during the same quarter last
year. The increase in gross margin was primarily attributable to a
favorable shift in the mix of products sold and lower manufacturing
variances of $381,000, primarily due to higher production volumes in the
United States.
Selling, general and administrative expenses during the quarter ended
September 30, 2004 decreased $117,000 to $1,929,000 as compared to
$2,046,000 during the quarter ended September 30, 2003. This decrease was
primarily due to lower legal expenses associated with defending the Company
against claims made by Swiss American Products, Inc. and Arthur Singer.
Product-support research and development during the quarter ended September
30, 2004 decreased to $256,000 as compared to $288,000 during the quarter
ended September 30, 2003. The Company continues to focus the efforts of
this group on product development in support of its manufacturing business.
DelSite expenses during the quarter ended September 30, 2004 increased
$374,000 or 60.0% to $997,000 as compared to $623,000 during the quarter
ended September 30, 2003, as product development efforts for injectible and
intranasal delivery platforms continued and business development efforts
increased.
Net interest expense during the quarter ended September 30, 2004 decreased
$10,000 from the quarter ended September 30, 2003 to $52,000, as a result
of lower debt balances.
Net income for the third quarter of 2004 was $104,000 as compared to net
loss of $466,000 for the same quarter last year, an increase of $570,000
based on the factors described above. Earnings per share for the third
quarter 2004 were $0.01 compared to a loss per share of $0.05 for the third
quarter of 2003.
Nine months ended September 30, 2004 compared to nine months ended September
30, 2003
Revenue for the nine months ended September 30, 2004 increased $662,000, or
3.0%, to $23,060,000 as compared to $22,398,000 for the nine months ended
September 30, 2003. Consumer Services revenue for the nine months ended
September 30, 2004 increased $573,000, or 4.0%, to $14,808,000 as compared
to $14,235,000 for the nine months ended September 30, 2003. The increase
in Consumer Services revenue was primarily due to increased raw material
sales of $2,032,000 to Natural Alternatives. This was partially offset by
decreased sales of cosmetic products of $507,000, attributable to lower
cosmetic product demand, and decreased specialty manufacturing sales of
$952,000, which was primarily attributable to decreased sales to a major
customer.
Medical Services revenue during the nine months ended September 30, 2004
decreased $221,000, or 2.7%, to $7,942,000 as compared to $8,163,000 for the
nine months ended September 30, 2003. The decrease in Medical Services
revenue was attributable to decreased demand from Medline.
Gross margin for the nine months ended September 30, 2004 increased
$1,140,000, or 14.0%, to $9,282,000 as compared to $8,142,000 for the nine
months ended September 30, 2003. Gross margin as a percentage of revenue
increased to 40.3% for the nine months ended September 30, 2004 from 36.3%
for the nine months ended September 30, 2003. The increase in gross margin
was attributable to a shift in the mix of products toward higher margin
product sales and lower manufacturing variances of $258,000 that was
primarily attributable to higher production volumes in the United States.
Selling, general and administrative expenses for the nine months ended
September 30, 2004 decreased $24,000, or 0.4%, to $5,867,000 as compared to
$5,891,000 for the nine months ended September 30, 2003.
Product-support research and development for the nine months ended September
30, 2004 increased to $710,000 as compared to $665,000 for the nine months
ended September 30, 2003 primarily due to additional formulation development
activities as the Company pursues new customers. The Company continues to
focus the efforts of this group on product development in support of
its manufacturing business. DelSite expenses for the nine months ended
September 30, 2004 increased $800,000, or 40.8%, to $2,762,000 as compared
to $1,962,000 for the nine months ended September 30, 2003 as product
development efforts for injectible and intranasal delivery platforms
continued and business development efforts increased.
Net interest expense for the nine months ended September 30, 2004 decreased
$17,000 to $157,000 as compared to $174,000 for the nine months ended
September 30, 2003, primarily due to lower debt balances.
Net loss for the nine months ended September 30, 2004 decreased $249,000 to
$177,000 from a net loss of $426,000 for the nine months ended September 30,
2003. The decrease is primarily due to the factors described above. Loss
per share for the nine months ended September 30, 2004 was $0.02 as compared
to a loss per share of $0.04 for the nine months ended September 30, 2003.
OTHER ITEMS
Governmental Regulation
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 pharmaceutical products and therapeutic
agents 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.
Cautionary Statements for the Purposes of the "Safe Harbor" Provisions for
"Forward-Looking Statements"
Certain statements contained in this report are "forward-looking statements"
within the meaning of Section 27A of the Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. Such
statements are subject to risks, uncertainties and other factors, which
could cause actual results to differ materially from future results
expressed or implied by such forward-looking statements. Potential risks
and uncertainties include, but are not limited to, 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;
the Company's intention, plan or ability to repurchase shares of its
outstanding Common Stock; the Company's ability to obtain the quantity or
quality of raw materials it needs; and the impact of governmental
regulations. For further information about the risks, uncertainties and
other factors that could cause the Company's results to differ materially
from the results indicated by such forward-looking statements, refer to the
Company's Annual Report on Form 10-K for the year ended December 31, 2003.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Fluctuations in interest rates on any variable rate debt instruments, which
are tied to the prime rate, would affect the Company's earnings and cash
flows but would not affect the fair market value of the variable rate debt.
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, 2003, as described in
the Company's Annual Report on Form 10-K for the year then ended. See also,
"Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources."
Item 4. Controls and Procedures
The Company's management under the supervision and with the participation of
its principal executive officer and principal financial officer, evaluated
the effectiveness of the Company's disclosure controls and procedures as of
the end of the period covered by this report. Based on that evaluation, its
principal executive officer and principal financial officer concluded that
the Company's disclosure controls and procedures as of the end of the period
covered by this report have been designed and are functioning effectively to
provide reasonable assurance that the information required to be disclosed
by the Company in reports filed under the Securities Exchange Act of 1934 is
recorded, processed, summarized and reported within the time periods
specified in the SEC's rules and forms. We believe that a controls system,
no matter how well designed and operated, cannot provide absolute assurance
that the objectives of the controls system are met, and no evaluation of
controls can provide absolute assurance that all control issues and
instances of fraud, if any, within a company have been detected. There have
been no changes in the Company's internal control over financial reporting
during its most recent fiscal quarter that have materially affected, or are
reasonably likely to materially affect our internal control over financial
reporting.
Part II OTHER INFORMATION
Item 1. Legal Proceedings
On April 3, 2001, Arthur Singer, a former employee of the Company (the
"Plaintiff"), filed a lawsuit entitled Arthur Singer vs. Carrington
Laboratories, Inc. and Carlton Turner, CV-01-2084 in the United States
District Court for the Eastern District of New York, Long Island Division,
alleging multiple causes of action against the Company and its chief
executive officer (the "Defendants") and seeking damages in excess of $4.0
million, plus legal fees and expenses. The Plaintiff, who was formerly
employed by the Company as a sales representative, alleged in substance 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 some 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 alleged covenants 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 Defendants and Plaintiff then both filed motions for summary judgment.
On October 3, 2003, the court denied the Plaintiffs motion for summary
judgment and granted Defendants motion for summary judgment for all
complaints except three, the alleged damages for which total approximately
$56,000.
On January 5, 2004, a jury trial was held to settle the remaining claims,
with the jury finding for the Plaintiff on one claim, awarding $28,162, plus
interest, for unpaid commissions, and finding for the Defendants on a second
claim. The judge dismissed the third claim at the end of testimony, citing
lack of sufficient evidence to support the Plaintiff's claim. The court
awarded no legal fees or expenses to the Plaintiff. Total judgment was for
approximately $35,000, which was recorded as of the period ended December
31, 2003.
On June 23, 2004, the United States District Court denied the Plaintiff's
appeal for reasonable legal fees. On July 7, 2004, the Plaintiff filed a
motion of appeal with the Fifth Circuit Court regarding all judgments
entered by the District Court.
On June 22, 2001, a lawsuit styled Swiss-American Products, Inc. v. G. Scott
Vogel and Carrington Laboratories Inc., Cause No. 01-5163-A, was filed in
the 193rd Judicial District Court of Dallas County, Texas. On June 25,
2001, the Company was served with this lawsuit, an Ex Parte Temporary
Restraining Order, and an Order Appointing Independent Third Party Expert
Pursuant to Temporary Restraining Order. 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.
("Plaintiff") 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 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.
Following a hearing on July 30, 2001, the trial court entered an order
setting the case for trial on July 30, 2002 and granted 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.
A trial was held on October 7, 2003. Three days into the proceeding a
mistrial was declared due to juror misconduct. The trial judge subsequently
ordered the two parties to mediate the suit and such mediation was held on
May 17, 2004. Despite the efforts of the mediator, the parties were unable
to reach a settlement. Although a trial date had been set for June 1, 2004,
the court later moved the trial start date to September 21, 2004.
Due to the Court's striking of the economic damage model provided by the
Plaintiff's expert witness, a motion for continuance was filed and accepted
by the Court postponing the trial start date until June 21, 2005.
The Company believes that Plaintiff's claims are without merit and intends
to vigorously defend against those claims.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
(c) EQUITY SECURITIES REPURCHASE PROGRAM
In March 2001, the Board of Directors authorized the Company to repurchase
up to one million shares of its outstanding Common Stock. The Company
believes it has the financial resources necessary to repurchase shares from
time to time pursuant to the Board's repurchase authorization. The Company
did not repurchase any shares of its outstanding Common Stock during the
quarter ended September 30, 2004.
Item 6. Exhibits
10.1 Certificate of Pledge between Sabila Industrial, S.A., a
Costa Rica Corporation and wholly-owned subsidiary of
Carrington Laboratories, Inc. and Banco Credito Agricola
de Cartago dated August 6, 2004. (portions of this
exhibit have been omitted pursuant to a request for
confidential treatment)
32.1 Rule 13a-14(a)/15d-14(a) Certification.
32.2 Rule 13a-14(a)/15d-14(a) Certification.
32.3 Section 1350 Certification.
32.4 Section 1350 Certification.
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 11, 2004 By: /s/ Carlton E. Turner
-----------------------------
Carlton E. Turner,
President and
Chief Executive Officer
(principal executive officer)
Date: November 11, 2004 By: /s/ Robert W. Schnitzius
-----------------------------
Robert W. Schnitzius,
Vice President and
Chief Financial Officer
(principal financial and
accounting officer)
INDEX TO EXHIBITS
Item Description
No.
10.1 Certificate of Pledge between Sabila Industrial, S.A., a Costa
Rica Corporation and wholly-owned subsidiary of Carrington
Laboratories, Inc. and Banco Credito Agricola de Cartago dated
August 6, 2004. (portions of this exhibit have been omitted
pursuant to a request for confidential treatment)
31.1 CEO Certification of SEC Reports Pursuant to Rule 13a-14(a)/15d-
14(a), as adopted Pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.
31.2 CFO Certification of SEC Reports Pursuant to Rule 13a-14(a)/15d-
14(a), as adopted Pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.
32.1 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.
32.2 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.