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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended: March 31, 2003
[_] 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 1-11352
ABLE LABORATORIES, INC.
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(Exact name of registrant as specified in its charter)
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(Former name, former address and former fiscal year,
if changed since last report)
DELAWARE 04-3029787
- ------------------------------- -------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
6 Hollywood Court
South Plainfield, NJ 07080
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(908) 754-2253
(ISSUER'S TELEPHONE NUMBER)
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 filed such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [_]
Indicate by checkmark whether the registrant is an accelerated filer (as defined
in Rule 12b-2 of the Exchange Act). Yes [_] No [X]
As of April 30, 2003, there were 13,180,472 outstanding shares of common stock,
$.01 par value per share.
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ABLE LABORATORIES, INC.
FORM 10-Q
QUARTERLY REPORT
MARCH 31, 2003
TABLE OF CONTENTS
Facing Page................................................................... 1
Table of Contents............................................................. 2
PART I. FINANCIAL INFORMATION(*)
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets.............................. 3
Condensed Consolidated Statements of Income........................ 4
Condensed Consolidated Statements of Changes in
Stockholders' Equity ............................................ 5
Condensed Consolidated Statements of Cash Flows.................... 6
Notes to Unaudited Condensed Consolidated Financial Statements..... 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations..........................................11
Item 4. Controls and Procedures............................................14
PART II. OTHER INFORMATION
Item 1. Legal Proceedings..................................................15
Item 2. Changes in Securities..............................................15
Item 5. Other Information..................................................15
Item 6. Exhibits and Reports on Form 8-K...................................15
SIGNATURES ...................................................................17
CERTIFICATIONS................................................................18
(*) The financial information at December 31, 2002 has been derived from the
audited financial statements at that date and should be read in
conjunction therewith. All other financial statements are unaudited.
-2-
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ABLE LABORATORIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
ASSETS
March 31, December 31,
2003 2002
------------ ------------
Current assets:
Cash and cash equivalents $ 1,519,936 $ 1,801,127
Accounts receivable, net of allowances of $10,669,331
and $13,054,246 10,798,135 7,873,526
Inventory 14,109,477 12,903,939
Deferred income tax asset 2,915,000 2,915,000
Prepaid expenses and other current assets 47,178 123,104
------------ ------------
Total current assets 29,389,726 25,616,696
------------ ------------
Property and equipment, net 11,380,305 9,932,523
------------ ------------
Other assets:
Debt financing costs, net of accumulated amortization 164,606 168,206
Cash deposits with bond trustee 634,988 517,262
Deferred income tax asset 14,211,500 14,725,000
Deposits and other assets 165,498 168,414
------------ ------------
Total other assets 15,176,592 15,578,882
------------ ------------
$ 55,946,623 $ 51,128,101
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable and current portion of long-term debt $ 1,030,000 $ 617,012
Accounts payable 6,860,251 6,896,359
Accrued expenses 969,729 2,839,612
------------ ------------
Total current liabilities 8,859,980 10,352,983
Long-term debt, less current portion 11,384,126 6,083,343
------------ ------------
Total liabilities 20,244,106 16,436,326
------------ ------------
Stockholders' equity:
Preferred stock, $.01 par value, 10,000,000 shares
authorized, 44,740 and 53,150 shares of Series Q
outstanding (liquidation value $4,474,000 and
$5,315,000) 448 532
Common stock, $.01 par value, 25,000,000 shares
authorized, 13,061,288 and 12,554,206 shares
issued and outstanding 130,613 125,542
Additional paid-in capital 82,336,180 82,423,790
Accumulated deficit (46,699,449) (47,783,489)
Unearned stock-based compensation (65,275) (74,600)
------------ ------------
Total stockholders' equity 35,702,517 34,691,775
------------ ------------
$ 55,946,623 $ 51,128,101
============ ============
See accompanying notes to unaudited condensed consolidated financial statements.
-3-
ABLE LABORATORIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended
------------------------------
March 31, March 31,
2003 2002
------------ ------------
Sales, net $ 15,000,065 $ 9,303,991
Cost of sales 8,451,653 5,014,832
------------ ------------
Gross profit 6,548,412 4,289,159
------------ ------------
Operating expenses:
Selling, general and administrative 2,414,968 1,544,919
Research and development 2,126,612 1,020,063
------------ ------------
Total operating expenses 4,541,580 2,564,982
------------ ------------
Operating income 2,006,832 1,724,177
------------ ------------
Other income (expense):
Interest and financing expense (201,323) (80,307)
Miscellaneous income (expense), net (10,469) 58,852
------------ ------------
Other income (expense), net (211,792) (21,455)
------------ ------------
Income before income taxes 1,795,040 1,702,722
Provision for income taxes 711,000 --
------------ ------------
Net income 1,084,040 1,702,722
Dividends on preferred stock 102,474 126,870
------------ ------------
Net income applicable to common stockholders $ 981,566 $ 1,575,852
============ ============
Net income per share:
Basic $ 0.08 $ 0.14
============ ============
Diluted $ 0.06 $ 0.10
============ ============
Weighted average shares outstanding:
Basic 12,762,868 11,396,803
============ ============
Diluted 17,144,389 16,413,884
============ ============
See accompanying notes to unaudited condensed consolidated financial statements.
-4-
ABLE LABORATORIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF
CHANGES IN STOCKHOLDERS' EQUITY
Three Months Ended March 31, 2003 and 2002
(Unaudited)
Preferred Stock Common Stock Additional Unearned
----------------------- ----------------------- Paid-in Accumulated Stock-Based
Shares Amount Shares Amount Capital Deficit Compensation Total
---------- ---------- ---------- ---------- ------------ ------------ ------------ ------------
Balance at
December 31, 2001 67,910 $ 679 11,301,976 $ 113,020 $ 80,011,072 $(71,229,429) $ -- $ 8,895,342
Stock options and
warrants exercised -- -- 76,260 763 8,237 -- -- 9,000
Conversion of
preferred stock (6,760) (67) 96,556 965 (898) -- -- --
Dividends on
preferred stock -- -- -- -- (122,300) -- -- (122,300)
Net income -- -- -- -- -- 1,702,722 -- 1,702,722
---------- ---------- ---------- ---------- ------------ ------------ ------------ ------------
Balance at
March 31, 2002 61,150 $ 612 11,474,792 $ 114,748 $ 79,896,111 $(69,526,707) $ -- $ 10,484,764
========== ========== ========== ========== ============ ============ ============ ============
Balance at
December 31, 2002 53,150 $ 532 12,554,206 $ 125,542 $ 82,423,790 $(47,783,489) $ (74,600) $ 34,691,775
Stock options and
warrants exercised -- -- 13,404 134 6,117 -- -- 6,251
Conversion of
preferred stock (8,410) (84) 493,678 4,937 (4,853) -- -- --
Dividends on
preferred stock -- -- -- -- (102,474) -- -- (102,474)
Amortization of
unearned stock-based
compensation -- -- -- -- -- -- 9,325 9,325
Tax benefit on
stock options -- -- -- -- 13,600 -- -- 13,600
Net income -- -- -- -- -- 1,084,040 -- 1,084,040
---------- ---------- ---------- ---------- ------------ ------------ ------------ ------------
Balance at
March 31, 2003 44,740 $ 448 13,061,288 $ 130,613 $ 82,336,180 $(46,699,449) $ (65,275) $ 35,702,517
========== ========== ========== ========== ============ ============ ============ ============
See accompanying notes to unaudited condensed consolidated financial statements
-5-
ABLE LABORATORIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended
------------------------------
March 31, March 31,
2003 2002
------------ ------------
Cash flows from operating activities:
Net income $ 1,084,040 $ 1,702,722
Adjustments to reconcile net income to net
cash provided by (used for) operating activities:
Deferred income tax expense 524,100 --
State tax benefit for stock options 3,000 --
Amortization of unearned compensation 9,325 --
Depreciation and amortization 489,401 140,876
(Increase) decrease in operating assets:
Accounts receivable (2,924,609) 3,186,461
Inventory (1,205,538) (989,024)
Prepaid expenses and other current assets 75,926 338,875
Deposits and other assets (114,810) (82,949)
Increase (decrease) in operating liabilities:
Accounts payable and accrued expenses (1,770,268) 384,479
------------ ------------
Net cash provided by (used for) operating activities (3,829,433) 4,681,440
------------ ------------
Cash flows from investing activities:
Purchase of property and equipment (1,888,068) (1,318,361)
------------ ------------
Net cash (used for) investing activities (1,888,068) (1,318,361)
------------ ------------
Cash flows from financing activities:
Net proceeds from stock warrants and options 6,251 9,000
Net proceeds from debt obligations 5,753,255 --
Repayment of debt obligations (85,000) (391,307)
Preferred stock dividends paid (238,196) --
------------ ------------
Net cash provided by (used for) financing activities 5,436,310 (382,307)
------------ ------------
Net change in cash and cash equivalents (281,191) 2,980,772
Cash and cash equivalents at beginning of period 1,801,127 1,155,266
------------ ------------
Cash and cash equivalents at end of period $ 1,519,936 $ 4,136,038
============ ============
Supplemental cash flow information:
Interest paid $ 152,208 $ 106,943
Income taxes paid $ 380,000 $ --
See accompanying notes to unaudited condensed consolidated financial statements.
-6-
ABLE LABORATORIES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS AND BASIS OF PRESENTATION
The consolidated financial statements include the accounts of Able
Laboratories, Inc. (the "Company" or "Able") which is engaged in the manufacture
of generic pharmaceuticals and its inactive wholly-owned subsidiary, Monroe
Subsidiary, Inc. Monroe Subsidiary, Inc. was dissolved on September 30, 2002.
All significant inter-company balances and transactions have been eliminated in
consolidation.
The results of operations for the periods reported are not necessarily
indicative of those that may be expected for a full year. In the opinion of
management, all adjustments (consisting only of normal recurring adjustments)
which are necessary for a fair statement of operating results for the interim
periods presented have been made.
The financial information included in this report has been prepared in
conformance with the accounting policies reflected in the financial statements
included in the Company's Annual Report on From 10-K for the year ended December
31, 2002 filed with the Securities and Exchange Commission.
REVERSE STOCK SPLIT
On May 29, 2002, our stockholders approved a 1-for-15 reverse stock split
of our common stock. The reverse stock split became effective on June 3, 2002.
All common stock information presented herein has been retroactively restated to
reflect the reverse stock split.
USE OF ESTIMATES
In preparing consolidated financial statements in conformity with
generally accepted accounting principles, management is required to make
estimates and assumptions that affect the reported amounts of revenue and
expenses during the reporting period. Material estimates that are particularly
susceptible to significant change in the near term relate to the carrying values
of receivables, including allowances for chargebacks, rebates and returns,
inventory, investment in RxBazaar securities and the valuation of equity
instruments issued by the Company. Actual results could differ from those
estimates.
STOCK-BASED COMPENSATION
Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting
for Stock-Based Compensation" encourages all entities to adopt a fair value
based method of accounting for employee stock compensation plans, whereby
compensation cost is measured at the grant date based on the value of the award
and is recognized over the service period, which is usually the vesting period.
However, it also allows an entity to continue to measure compensation cost for
those plans using the intrinsic value based method of accounting prescribed by
APB Opinion No. 25, "Accounting for Stock Issued to Employees," whereby
compensation cost is the excess, if any, of the quoted market price of the stock
at the grant date (or other measurement date) over the amount an employee must
pay to acquire the stock. Stock options issued under the Company's stock option
plans generally have no intrinsic value at the grant date, and under Opinion No.
25 no compensation cost is recognized for them. The Company does not plan to
adopt the fair value accounting model for stock-based employee compensation
under SFAS No. 123.
-7-
The Company has one stock-based compensation plan and stock options
issued outside of the plan. The Company applies APB Opinion No. 25 and related
Interpretations in accounting for stock options issued to employees and
directors. Had compensation cost for the Company's stock options issued to
employees and directors been determined based on the fair value at the grant
dates consistent with SFAS No. 123, the Company's net income and net income per
share would have been adjusted to the pro forma amounts indicated below:
THREE MONTHS ENDED
MARCH 31,
-----------------------------
2003 2002
------------ ------------
Net income as reported $ 1,084,040 $ 1,702,722
Add stock-based compensation under APB No. 25 9,325 --
Deduct stock-based employee compensation under SFAS No. 123 (123,790) (58,465)
------------ ------------
Pro forma net income 969,575 1,644,257
Less dividends on preferred stock 102,474 126,870
------------ ------------
Net income applicable to common stockholders $ 867,101 $ 1,517,387
============ ============
Net income per share:
Basic - as reported $ 0.08 $ 0.14
============ ============
Basic - Pro forma $ 0.07 $ 0.13
============ ============
Diluted - as reported $ 0.06 $ 0.10
============ ============
Diluted - Pro forma $ 0.06 $ 0.10
============ ============
EARNINGS PER SHARE
Basic earnings per share represents income available to common stock
divided by the weighted-average number of common shares outstanding during the
period. Diluted earnings per share reflects additional common shares that would
have been outstanding if dilutive potential common shares had been issued, as
well as any adjustment to income that would result from the assumed issuance.
The net income applicable to common stockholders has been adjusted for
the stated dividends on convertible preferred stock.
2. INVENTORY
Inventory consists of the following:
MARCH 31, DECEMBER 31,
2003 2002
------------ ------------
Raw materials $ 10,259,935 $ 8,623,114
Work-in-progress 1,828,063 1,549,239
Finished goods 2,021,479 2,731,586
------------ ------------
$ 14,109,477 $ 12,903,939
============ ============
-8-
3. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
MARCH 31, DECEMBER 31,
2003 2002
------------ ------------
Machinery and equipment $ 7,654,135 $ 6,962,823
Furniture, fixtures and computers 1,090,735 869,227
Leasehold improvements 5,001,378 4,190,768
Construction in process 585,917 421,279
------------ ------------
14,332,165 12,444,097
Less accumulated depreciation and amortization (2,951,860) (2,511,574)
------------ ------------
$ 11,380,305 $ 9,932,523
============ ============
4. DEBT
Debt consists of the following:
MARCH 31, DECEMBER 31,
2003 2002
------------ ------------
NJEDA bonds $ 1,790,000 $ 1,790,000
Equipment loans 4,558,333 2,890,078
Revolving credit agreement 4,000,000 --
Unsecured notes payable, net of discount 2,065,793 2,020,277
------------ ------------
Total 12,414,126 6,700,355
Less current portion 1,030,000 617,012
------------ ------------
Long-term debt $ 11,384,126 $ 6,083,343
============ ============
In October 2002, we entered into a $4,000,000 non-restoring equipment
loan agreement with a commercial bank. On February 24, 2003, we entered into a
new $4,000,000 revolving credit agreement and increased the equipment loan to
$5,800,000 by amending the existing loan agreement. As of March 31, 2003, we
have drawn down $4,000,000 under the revolving credit agreement and $4,700,000
under the equipment loan.
The equipment loan and revolver are secured by substantially all of the
Company's assets including accounts receivable, inventory, furniture, fixtures,
equipment and intellectual property. The loan is subject to certain financial
covenants, including a fixed charge coverage ratio, a leverage ratio and a
current ratio. We were in compliance with these covenants at March 31, 2003. The
equipment loan bears interest at LIBOR plus 2.5% and currently requires monthly
principal payments of $78,333. The revolving loan currently bears interest at
LIBOR plus 1.5% based upon the Company's current leverage ratio, requires no
monthly principal payments and matures June 2005.
In early April 2003, we increased the amount available under our
revolving credit facility from $4,000,000 to $5,900,000. There were no other
material changes to the terms of the revolving credit facility at that time. In
addition, later in April we increased the amounts available under our revolving
credit facility from $5,900,000 to $10,000,000 and increased the amounts
available under our non-restoring equipment loan facility from $5,800,000 to
$10,000,000. All material terms under both the loan agreements remain unchanged.
-9-
5. PREFERRED STOCK
The Series Q carries an 8% dividend and is convertible to common stock at
approximately 58.7 shares of common stock for each share of Series Q. The
outstanding 44,740 shares of Series Q are convertible into 2,626,291 shares of
common stock.
-10-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
INTRODUCTION
The following information should be read in conjunction with the
consolidated financial statements and notes thereto in Part I, Item 1 of this
Quarterly Report and with Management's Discussion and Analysis of Financial
Condition and Results of Operations contained in the Company's Annual Report on
Form 10-K for the year ended December 31, 2002.
CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS
We do not provide forecasts of our future financial performance. However,
from time to time, information provided by us or statements made by our
employees may contain "forward-looking" information that involves risks and
uncertainties. In particular, statements contained in this Form 10-Q which are
not historical facts constitute forward-looking statements and are made under
the safe harbor provisions of the Private Securities Litigation Reform Act of
1995. Forward-looking statements involve substantial risks and uncertainties.
You can identify these statements by forward-looking words such as "may",
"will", "expect", "anticipate", "believe", "estimate", "continue", and similar
words. You should read statements that contain these words carefully because
they: (1) discuss our future expectations; (2) contain projections of our future
operating results or financial condition; or (3) state other "forward-looking"
information. Various factors listed below, as well as any cautionary language in
this report, provide examples of risks, uncertainties and events that may cause
actual results to be materially different than the expectations described in our
forward-looking statements. You should be aware that the occurrence of any of
the events described in these risk factors and elsewhere in this Form 10-Q could
materially and adversely affect our business. All forward-looking statements
included in this Form 10-Q are based on information available to the Company on
the date hereof, and we assume no obligation to update any such forward-looking
statements.
Each forward-looking statement should be read in conjunction with the
consolidated financial statements and notes thereto in Part I, Item 1, of this
Quarterly Report and with the information contained in Item 2, including, but
not limited to, the factors set forth below, together with Management's
Discussion and Analysis of Financial Condition and Results of Operations
contained in the Company's Annual Report on Form 10-K for the year ended
December 31, 2002, including, but not limited to, the section therein entitled
"Certain Factors That May Affect Future Results."
In addition to the risks and uncertainties posed generally by the generic
drug industry, we face the following risks and uncertainties:
o we may have difficulty managing our growth;
o we depend on a number of key personnel;
o we face intense competition from other manufacturers of generic drugs;
o we are obligated to issue a large number of shares of common stock at
prices lower than market value;
o conversion of outstanding shares of convertible preferred stock may
reduce the market price of our outstanding common stock;
o the value of our common stock has fluctuated widely in the past and
investors could lose money on their investments in our stock;
-11-
o we may face product liability for which we are not adequately insured;
and
o intense regulation by government agencies may delay our efforts to
commercialize our proposed drug products.
Because of the foregoing and other factors, we may experience material
fluctuations in our future operating results on a quarterly or annual basis
which could materially adversely affect our business, financial condition,
operating results and stock price.
OVERVIEW
We develop, manufacture and sell generic drugs. In 1996 we acquired our
generic drug development and manufacturing business. In 1997 and 1998,
respectively, we acquired Superior Pharmaceutical Company and Generic
Distributors, Inc., our former distribution operations.
Generic drug development, manufacturing and distribution is a highly
competitive business and there are several companies with substantially greater
resources that compete with us. After careful analysis, we decided to divest our
distribution operations and continue only as a generic drug development and
manufacturing company. We sold the assets of Generic Distributors, Inc. on
December 29, 2000 and sold Superior Pharmaceutical Company on February 23, 2001.
In the section of this Report entitled "Certain Factors That May Affect
Future Results," we have described several risk factors which we believe are
significant. We consider each of these risks specific to us, although some are
industry or sector related issues which could also impact to some degree other
businesses in our market sector. You should give very careful consideration to
these risks when you evaluate the Company.
CRITICAL ACCOUNTING POLICIES
Our significant accounting policies are more fully described in Note 1 to
our condensed consolidated financial statements included in this Quarterly
Report and in Note 1 to our consolidated financial statements included in our
Annual Report on Form 10-K for the year ended December 31, 2002 filed with the
Securities and Exchange Commission. Certain of our accounting policies are
particularly important to the portrayal of our financial position and results of
operations and require the application of significant judgment by our
management. As a result, these policies are subject to an inherent degree of
uncertainty. In applying these policies, our management makes estimates and
judgments that affect the reported amounts of assets, liabilities, revenues and
expenses and related disclosures. We base our estimates and judgments on our
historical experience, the terms of existing contracts, our observance of trends
in the industry, information that we obtain from our customers and outside
sources, and on various other assumptions that we believe to be reasonable and
appropriate under the circumstances, the results of which form the basis for
making judgments about the carrying values of assets and liabilities that are
not readily apparent from other sources. Actual results may differ from these
estimates under different assumptions or conditions.
Our significant accounting policies, including inventory valuation,
revenue recognition, accounts receivable allowances for chargebacks, rebates,
and similar items, and income taxes are each discussed in more detail in our
Annual Report on Form 10-K. We have reviewed and determined that those policies
remain our critical accounting policies for the three months ended March 31,
2003. We did not make any changes in those policies during the period.
-12-
RESULTS OF OPERATIONS -- THREE MONTHS ENDED MARCH 31, 2003 COMPARED TO THREE
MONTHS ENDED MARCH 31, 2002
Sales for the three months ended March 31, 2003 increased by $5,696,074,
or 61.2%, primarily due to higher demand, to $15,000,065 compared to $9,303,991
for the three months ended March 31, 2002. During the three months ended March
31, 2003, we had 18 FDA approved product families, in 37 different strengths,
available for sale compared to 13 FDA approved product families in 22 different
strengths, available for sale as of March 31, 2002.
Cost of sales was $8,451,653, or 56.3% of sales for the three months
ended March 31, 2003, compared to $5,014,832, or 53.9% of sales, for the three
months ended March 31, 2002. The decrease in our gross profit margin to 43.7%
from 46.1% is primarily attributable to sub-optimal utilization of the Company's
manufacturing capacity. As part of our capacity expansion, the Company's
manufacturing facility underwent substantial reconfiguration resulting in
downtime and unabsorbed labor costs and other overhead. All current
manufacturing upgrades, relocations and additional equipment installations are
now complete, allowing the Company to resume normal manufacturing operations.
Selling, general and administrative expenses for the three months ended
March 31, 2003 were $2,414,968, compared to $1,544,919 for the three months
ended March 31, 2002. The increase of $870,049 is primarily due to increases in
salaries and benefits, advertising and trade show expenses, investor relations,
and professional fees of approximately $247,000, $281,000, $158,000, and
$114,000, respectively.
Research and development expenses for the three months ended March 31,
2003 were $2,126,612, compared to $1,020,063 for the three months ended March
31, 2002. All of these expenses relate to research which is currently being
conducted to develop generic drugs. Costs of biostudies conducted by independent
contract research organizations for the three months ended March 31, 2003 and
2002 were approximately $387,000 and $380,000, respectively. We received FDA
approval for four new products during the three months ended March 31, 2003. In
April 2003, we received two approvals from the FDA. As of April 30, 2003, we had
thirteen new products pending approval with the FDA and will be increasing our
research and development activities for additional products over the next
several months.
Our operating income for the three months ended March 31, 2003 increased
by $282,655 to $2,006,832, compared to $1,724,177 for the three months ended
March 31, 2002. This improvement is primarily due to an increase in our sales
volume, which was offset by our increased investment in research and development
expenses.
Interest and financing expenses for the three months ended March 31, 2003
were $201,323, compared to $80,307 for the three months ended March 31, 2002.
Interest expense increased as a result of new loan agreements entered into to
finance our investment in plant improvements and equipment, and our increased
need for working capital to support our growth.
Income tax expense for the three months ended March 31, 2003 was $711,000
or $0.04 per diluted share compared to no provision for income taxes in the
prior period. Our effective tax rate for the three months ended March 31, 2003
was 39.6%. Our income tax expense is primarily a non-cash expense. We do not
expect to pay federal income tax, other than the alternative minimum tax, until
we fully utilize our net operating loss carryforwards.
We recorded net income of $1,084,040 for the three months ended March 31,
2003, compared to net income of $1,702,722 for the three months ended March 31,
2002. We recorded net income applicable to common stock of $981,566 or $0.08 per
share, for the three months ended March 31, 2003, compared to net income
applicable to common stock of $1,575,852 or $0.14 per share for the three months
ended March 31, 2002. Diluted earnings per share were $0.06 for the three months
ended March 31, 2003, compared to diluted earnings per share of $0.10 for the
three months ended March 31, 2002.
-13-
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 2003, we had working capital of $20,529,746 compared to
working capital of $15,263,713 at December 31, 2002. Cash was $1,519,936 as of
March 31, 2003, compared to $1,801,127 at December 31, 2002. The $5,266,033
increase in working capital is primarily due to our net income of $1,084,040 for
the three months ended March 31, 2003 and our new long-term financing agreements
offset by our additional investment of $1,888,068 in property and equipment. We
expect to make additional investments of approximately $400,000 in property and
equipment in the next quarter and to purchase $670,000 in outstanding New Jersey
Economic Development Authority Industrial Development Revenue Bonds pursuant to
a tender offer initiated in April 2003. Significant changes in our working
capital components include an increase of $1,205,538 in inventory to support our
sales growth and an increase of $2,924,609 in accounts receivable. As part of
our capacity expansion, the Company's manufacturing facility underwent
substantial reconfiguration resulting in downtime and unabsorbed labor and other
overhead costs as well as a disruption of our manufacturing schedule. These
changes, coupled with routine regulatory agency review, resulted in an increase
in accounts receivable because a substantial portion of our production and sales
occurred late in the quarter. The accounts receivable allowance includes
allowances for customer chargebacks, rebates, other pricing adjustments and
doubtful accounts. Processing of certain allowances may occur after collection
of the original receivable. In addition, we recently secured an increase to our
non-restoring equipment loan facility to $10 million and in our revolving credit
facility to $10 million.
We expect to fund our working capital needs from operations and from
amounts available under our secured working capital facility. If we need
additional working capital to fund future expansion, we will seek an increase in
our line of credit or other debt financing before selling additional equity
securities, although there is no guarantee that we will be able to secure such
financing.
ITEM 4. CONTROLS AND PROCEDURES
"Disclosure controls and procedures" are controls and other procedures
designed to ensure that we timely record, process, summarize and report the
information that we are required to disclose in the reports that we file or
submit with the SEC. These include controls and procedures designed to ensure
that such information is accumulated and communicated to our management,
including our Chief Executive Officer and Chief Financial Officer, as
appropriate to allow timely decisions regarding required disclosure.
As required under the Sarbanes-Oxley Act of 2002, our Chief Executive
Officer and Chief Financial Officer conducted a review of our disclosure
controls and procedures as of a date within 90 days of the date of this report.
They concluded, as of the evaluation date, that our disclosure controls and
procedures are effective. We have made no significant changes since the
evaluation date to our internal controls relating to accounting and financial
reporting.
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
We are involved in certain legal proceedings from time to time incidental
to our normal business activities. While the outcome of any such proceedings
cannot be accurately predicted, we do not believe the ultimate resolution of any
existing matters should have a material adverse effect on our financial position
or results of operations.
ITEM 2. CHANGES IN SECURITIES
(a) Not applicable
(b) Not applicable
(c) Sales of Unregistered Securities. During the quarter ended March 31,
2003, we issued an aggregate of 10,637 shares of common stock upon exercise of
warrants. These issuances were pursuant to one or more exemptions from the
registration requirements of the Securities Act of 1933, as amended, including
the exemptions under Section 3(a)(9) and 4(2) thereof. We used all of the net
cash proceeds raised by the sale of unregistered securities for working capital.
ITEM 5. OTHER INFORMATION
Our Chief Executive Officer and Chief Financial Officer have furnished to
the Securities and Exchange Commission the certification with respect to this
Report that is required by Section 906 of the Sarbanes-Oxley Act of 2002.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) List of Exhibits
----------------
The following exhibits, required by Item 601 of Regulation S-K are filed
as part of this Quarterly Report on Form 10-Q. Exhibit numbers, where
applicable, in the left column correspond to those of Item 601 of Regulation
S-K.
EXHIBIT
NO. ITEM
- ------- ----
3.1 Restated Certificate of Incorporation (filed as Exhibit 3a to the
Company's Report on Form 10-Q for the Quarter ended June 30, 1998, as
amended on September 14, 1998, and incorporated herein by reference).
3.2 Certificate of Amendment of Certificate of Incorporation dated May
31, 2000 (filed as Exhibit 3.2 to the Company's Report on Form 10-QSB
for the quarter ended June 30, 2000 and incorporated herein by
reference).
3.3 Amended and Restated By-Laws dated as of May 26, 2000 (filed as
Exhibit 3.3 to the Company's Report on Form 10-QSB for the quarter
ended June 30, 2000 and incorporated herein by reference).
-15-
3.4 Certificate of Designations, Preferences and Rights of Series Q
Preferred Stock of Able Laboratories, Inc. (filed as Exhibit 4.1 to
the Company's Current Report on Form 8-K filed August 31, 2001 and
incorporated by reference).
3.5 Certificate of Amendment of Certificate of Incorporation dated May 9,
2001 (filed as Exhibit 3.3 to the Company's Report on Form 10-Q for
the quarter ended June 30, 2001 and incorporated herein by
reference).
3.6 Certificate of Ownership and Merger dated May 18, 2001 (filed as
Exhibit 99.1 to the Company's Current Report on Form 8-K dated May
18, 2001 and incorporated herein by reference).
3.7 Certificate of Amendment of Certificate of Incorporation dated May
31, 2002 (filed as Exhibit 3.7 to the Company's Report on Form 10-Q
for the quarter ended June 30, 2002, and incorporated herein by
reference).
10.1 First Amendment to Credit Agreement between the Company and Citizens
Bank of Massachusetts dated February 21, 2003.
10.2 Revolving Credit Note dated February 21, 2003.
10.3 Amended and Restated Master Note dated February 21, 2003.
10.4 Security Agreement between the Company and Citizens Bank of
Massachusetts dated February 21, 2003.
10.5 Second Amendment to Credit Agreement between the Company and Citizens
Bank of Massachusetts dated April 10, 2003 (filed as Exhibit 99.1 to
the Company's Current Report on Form 8-K on April 15, 2003, and
incorporated herein by reference).
10.6 Amended and Restated Revolving Credit Note dated April 10, 2003
(filed as Exhibit 99.2 to the Company's Current Report on Form 8-K on
April 15, 2003, and incorporated herein by reference).
10.7 Third Amendment to Credit Agreement between the Company and Citizens
Bank of Massachusetts dated April 30, 2003.
10.8 Amended and Restated Master Note dated April 30, 2003.
10.9 Amended and Restated Revolving Credit Note dated April 30, 2003.
(b) Reports on Form 8-K
-------------------
On January 16, 2003, we filed a Form 8-K relating to a limited recall of
one of our products and on February 24, 2003, we filed an 8-K relating to the
completion of additional debt financing.
-16-
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.
ABLE LABORATORIES, INC.
Dated: May 14, 2003 By: /s/ Dhananjay G. Wadekar
--------------------------
Dhananjay G. Wadekar
Chief Executive Officer
By: /s/ Robert Weinstein
--------------------------
Robert Weinstein
Chief Financial Officer
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CERTIFICATIONS
I, Dhananjay G. Wadekar, Chief Executive Officer of Able Laboratories, Inc.,
certify that:
1. I have reviewed this quarterly report on Form 10-Q of Able 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 officers 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 (the "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 officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing 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 officers 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.
Date: May 14, 2003 /s/ Dhananjay G. Wadekar
------------------------
Dhananjay G. Wadekar
Chief Executive Officer
-18-
CERTIFICATIONS
I, Robert Weinstein, Chief Financial Officer of Able Laboratories, Inc., certify
that:
1. I have reviewed this quarterly report on Form 10-Q of Able 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 officers 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 (the "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 officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing 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 officers 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.
Date: May 14, 2003 /s/ Robert Weinstein
-----------------------
Robert Weinstein
Chief Financial Officer
-19-
EXHIBIT INDEX
EXHIBIT
NO. ITEM
------- ----
10.1 First Amendment to Credit Agreement between the Company and Citizens
Bank of Massachusetts dated February 21, 2003.
10.2 Revolving Credit Note dated February 21, 2003.
10.3 Amended and Restated Master Note dated February 21, 2003.
10.4 Security Agreement between the Company and Citizens Bank of
Massachusetts dated February 21, 2003.
10.5 Second Amendment to Credit Agreement between the Company and Citizens
Bank of Massachusetts dated April 10, 2003 (filed as Exhibit 99.1 to
the Company's Current Report on Form 8-K on April 15, 2003, and
incorporated herein by reference).
10.6 Amended and Restated Revolving Credit Note dated April 10, 2003
(filed as Exhibit 99.2 to the Company's Current Report on Form 8-K on
April 15, 2003, and incorporated herein by reference).
10.7 Third Amendment to Credit Agreement between the Company and Citizens
Bank of Massachusetts dated April 30, 2003.
10.8 Amended and Restated Master Note dated April 30, 2003.
10.9 Amended and Restated Revolving Credit Note dated April 30, 2003.
-20-