ITEM 1. BUSINESS. -------- General ------- Carrington Laboratories, Inc. ("Carrington" or the "Company") is a research- based biopharmaceutical, medical device and raw materials and nutraceutical company engaged in the development, manufacturing and marketing of naturally-derived complex carbohydrates and other natural product therapeutics for the treatment of major illnesses, the dressing and management of wounds and nutritional supplements. The Company is comprised of two business segments. See Note Twelve to the consolidated financial statements in this Annual Report for financial information about these business divisions. The Company sells prescription and nonprescription human and veterinary products through its Medical Services Division and consumer and bulk raw material products through its consumer products subsidiary, Caraloe, Inc. The Company's research and product portfolio are based primarily on complex carbohydrates isolated from the Aloe vera L. plant.
The Company was incorporated in Texas in 1973 as Ava Cosmetics, Inc. In 1986, the Company sold the direct sales business it was then operating and changed its name to Carrington Laboratories, Inc.
Medical Services Division -------------------------
Carrington's Medical Services Division offers a comprehensive line of wound management products to hospitals, alternate care facilities, cancer centers and the home health care market. The Company's products are designed to provide patients with the highest quality of care. Carrington products are used in a wide range of acute and chronic wounds, for skin conditions and incontinence care. The primary marketing emphasis for Carrington's wound and skin care products is directed toward hospitals, nursing homes, alternate care facilities, cancer centers, home health care providers and managed care organizations. The wound and skin care product lines are being promoted primarily to physicians and specialty nurses, e.g., enterostomal therapists.
In response to changing market conditions, the Company decided during 2000 to redirect the distribution of its Medical Services products from multiple distributors to a single, sole-source distributor. As a result of this decision, the Company entered into an exclusive Distributor and License Agreement effective December 1, 2000 with Medline Industries, Inc. ("Medline"). Medline is now responsible for all sales and marketing and distribution efforts for Carrington's wound and skin care product lines. The Company also has a Supply Agreement with Medline that allows the Company to manufacture specific products where the Company can meet or reduce Medline's current purchase price.
The Company maintains control of certain national pricing agreements which cover hospitals, alternate care facilities, home health care agencies and cancer centers. These agreements allow Medline representatives to make presentations in member facilities throughout the country.
The Company has several distribution and licensing agreements for the sale of its products into international markets. The Company also sells wound care products into international markets on a non-contract, purchase order basis. Opportunities in the growing Internet market are also addressed through the Company's websites, www.carringtonlabs.com. and www.woundcare.com.
The Company also markets Acemannan Immunostimulant[TM], a product fully licensed by the United States Department of Agriculture ("USDA") as an adjuvant therapy for certain cancers in dogs and cats. In addition, the Company markets several wound and skin care products to the veterinary market.
In 1996, the Company signed an agreement with Farnam Companies, Inc., a leading veterinary marketing company, to promote and sell the CarraVet[R] product line, including Acemannan Immunostimulant[TM]. The CarraVet[R] product line currently consists of four products.
Consumer Health ---------------
Caraloe, Inc., a subsidiary of the Company ("Caraloe"), markets or licenses consumer products and bulk raw materials utilizing the Company's patented complex carbohydrate technology into the consumer health and nutritional products markets. Caraloe's premier product is Manapol[R] powder, a bulk raw material rich in complex carbohydrates. Manapol[R] powder is marketed to manufacturers of nutritional products who desire quality complex carbohydrate ingredients for their finished products. Caraloe also markets finished products containing Manapol[R] powder into domestic health and nutritional products markets through health food stores and over the Internet at www.AloeVera.com and into international markets on a non- contract, purchase order basis. In the fourth quarter of 2000, Caraloe introduced a new raw material, Hydrapol[TM], for use by cosmetic manufacturers. Caraloe also offers contract manufacturing services to the nutritional and skin care market.
In 1997, Caraloe signed a non-exclusive supply agreement with a major customer to supply Manapol[R] powder. This agreement was renewed through July 2002 and contains monthly minimum purchase requirements. During 1999, 2000 and 2001, sales of Manapol[R] powder to this customer represented 41%, 38% and 30%, respectively, of the Company's total consolidated net sales.
Research and Development ------------------------ General -------
Carrington has developed proprietary processes for obtaining materials from Aloe vera L. The Company intends to seek approval of the Food and Drug Administration (the "FDA") and other regulatory agencies to sell products containing materials obtained from Aloe vera L. in the United States and in foreign countries. For a more comprehensive listing of the type, indication and status of products currently under development by the Company, see "Research and Development -- Summary" below. The regulatory approval process, both domestically and internationally, can be protracted and expensive, and there is no assurance that the Company will obtain approval to sell its products for any treatment or use (see "Governmental Regulation" below).
The Company expended approximately $5,300,000, $3,602,000 and $2,442,000 on research and development in fiscal 1999, 2000 and 2001, respectively. Of the total expenditures for 1999, $2,866,000 reflect clinical trial costs associated with the Phase III trial in ulcerative colitis, which also accounted for approximately $623,000 of the 2000 expenditures. Basic research funding was decreased in 2001 by 18%.
The Company's Research and Development group moved in August 2001 to its new laboratory facilities and began restructuring to better accomplish company goals to support current business. See "Item 2
ITEM 2. PROPERTIES.
The Company believes that all its farming property, manufacturing and laboratory facilities, as described below, and material farm, manufacturing and laboratory equipment are in satisfactory condition and are adequate for the purposes for which they are used, although the farm is not adequate to supply all of the Company's needs for Aloe vera L. leaves. (See "Management's Discussion and Analysis of Financial Condition and Results of Operations" for more information regarding the Company's arrangements to purchase Aloe vera L. leaves.)
Walnut Hill Facility. The Company's corporate headquarters and principal U.S. manufacturing facility occupy all of the 35,000 square foot office and manufacturing building (the "Walnut Hill Facility"), which is situated on an approximately 6.6 acre tract of land located in the Las Colinas area of Irving, Texas. The Company owns the land and the building. The manufacturing operations occupy approximately 19,000 square feet of the facility, and administrative offices occupy approximately 16,000 square feet.
Warehouse, Distribution and Laboratory Facility. The Company has leased a 51,200 square foot building in close proximity to the Walnut Hill facility for a ten-year term to house its Research and Development Department, Quality Assurance and Quality Control Department and Warehouse and Distribution Center. The Company relocated those functions to this newly- leased facility in the third quarter of 2001.
Costa Rica Facility. The Company owns approximately 405 acres of land in the Guanacaste province of northwest Costa Rica. This land is being used for the farming of Aloe vera L. plants and for a processing plant to produce bulk pharmaceutical and injectable mannans and freeze-dried extracts from Aloe vera L. used in the Company's operations. The processing plant became operational in 1993.
ITEM 3.
ITEM 3.LEGAL PROCEEDINGS.
On September 12, 2000, Nutraceutical Solutions, Inc., a company formed in March 2000 (the "Plaintiff"), filed a lawsuit (in the 28th Judicial District Court of Nueces County, Texas) against the Company and one of its employees (the "Defendants") alleging numerous causes of action relating to the Company's manufacturing and marketing of a product known as B-Complete[TM]. The Plaintiff alleges, among other things, that the Defendants began to market B-Complete[TM], which the Plaintiff alleges is identical to a product it acquired in May 2000 as part of its purchase of assets from a separate company in bankruptcy proceedings and infringes intellectual property rights that the Plaintiff acquired as part of the asset purchase.
The suit was settled during 2001.
As reported in the Company's Form 10-Q Quarterly Report for the quarter ended March 31, 2001, on April 3, 2001, Arthur Singer, a former employee of the Company (the "Plaintiff"), filed a lawsuit in the United States District Court for the Eastern District of New York, Long Island Division. The suit alleges multiple causes of action against the Company and its chief executive officer (the "Defendants") and seeks to recover damages in excess of $4,000,000, plus legal fees and expenses. The Plaintiff, who was formerly employed by the Company as a sales representative, alleges among other things that the Company failed to pay the full amount of commissions owed to him; that the Defendants breached an alleged contract of employment with him; that the Company deprived him of the opportunity to exercise vested stock options, prevented some of his unvested stock options from vesting and caused all of his options to expire earlier than they otherwise would have; and that the Defendants misrepresented that the Company intended to retain him as an employee, fraudulently induced him to remain in its employ and breached an implied covenant of fair dealing.
On May 31, 2001, the Defendants filed a motion seeking to have the complaint dismissed or to have the case transferred to Texas. On August 28, 2001, the Defendants' motion to transfer was granted, and the case was transferred to the United States District Court for the Northern District of Texas, Dallas Division, as Case No. 01-CV-1776. The Company believes that the Plaintiff's claims are without merit and intends to defend the lawsuit vigorously.
On June 22, 2001, a lawsuit was filed by Swiss-American Products, Inc. ("The Plaintiff") against G. Scott Vogel and the Company in the 193rd Judicial District Court of Dallas County, Texas. The suit alleges, among other things, that Mr. Vogel, the Company's former Vice President, Operations, improperly obtained proprietary information of Swiss-American Products, Inc. from a former employer that manufactured products under contract for Plaintiff, and used that information on behalf of the Company, in breach of certain common law duties and a confidentiality agreement between his former employer and Plaintiff. The suit further alleges that Mr. Vogel and the Company ("Defendants") conspired to unlawfully disclose, convert and misappropriate Plaintiff's trade secrets.
The suit seeks temporary and permanent injunctive relief, including a permanent injunction prohibiting Defendants from disclosing or using to Plaintiff's disadvantage any confidential proprietary information belonging to Plaintiff which Mr. Vogel allegedly obtained from his former employer, or from developing or marketing products based on Plaintiff's formulas or other information allegedly taken from Mr. Vogel's former employer. The suit also seeks to recover damages in an unspecified amount from Defendants.
Defendants have filed a motion for sanctions against Plaintiff and its counsel for filing an affidavit containing statements that Defendants believe to be false and misleading and for making claims and seeking injunctive relief based in part on those statements. In addition, the Company has filed a counterclaim against Plaintiff, seeking to recover actual and exemplary damages for wrongful injunction and also seeking a declaratory judgment confirming the Company's right to manufacture for a third party a wound cleanser that is similar to a wound cleanser that Plaintiff has previously provided to that party.
Following a hearing on July 30, 2001, the trial court entered an order setting the case for trial on July 30, 2002 and granting a temporary injunction that prohibits Defendants from (i) disclosing or using any of Plaintiff's confidential, proprietary or trade secret information; (ii) developing or marketing a wound cleanser product that is the same or substantially the same as reflected in a formula that is at issue in the lawsuit (although this prohibition expressly does not apply to products actively manufactured and sold by the Company before January 1, 2001 using the exact same formula then in effect); and (iii) destroying, concealing, altering, removing or disposing of any documents, files, computer data or other things relating to Plaintiff or Mr. Vogel's former employer, or containing or referring to trade secrets or confidential or proprietary information of Plaintiff or Mr. Vogel's former employer.
The Company believes that Plaintiff's claims are without merit and intends to vigorously defend against those claims and pursue its counterclaim and motion for sanctions.
ITEM 4.
ITEM 4.SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The Company did not submit any matter to a vote of security holders during the fourth quarter of the fiscal year covered by this Annual Report.
PART II
ITEM 5.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Common Stock of the Company is traded on the NASDAQ National Market under the symbol "CARN." The following table sets forth the high and low sales prices per share of the Common Stock for each of the periods indicated.
Fiscal 2000 High Low ----------- ---- ---- First Quarter $9.75 $2.00
Second Quarter 3.56 1.72
Third Quarter 2.38 1.63
Fourth Quarter 1.63 1.00
Fiscal 2001 High Low ----------- ---- ---- First Quarter $1.38 $1.03
Second Quarter 1.68 1.00
Third Quarter 1.40 0.88
Fourth Quarter 1.13 0.84
At March 18, 2002, there were 983 holders of record (including brokerage firms) of Common Stock.
The Company has not paid any cash dividends on the Common Stock and presently intends to retain all earnings for use in its operations. Any decision by the Board of Directors of the Company to pay cash dividends in the future will depend upon, among other factors, the Company's earnings, financial condition and capital requirements.
At a meeting on March 22, 2001, the Board of Directors authorized the repurchase of up to 1,000,000 shares, or approximately 10.3%, of the Company's outstanding Common Stock, dependent on market conditions. Under the authorization, purchases of Common Stock may be made on the open market or through privately negotiated transactions at such times and prices as are determined jointly by the Chairman of the Board and the President of the Company. The Board authorized the repurchase program based on its belief that the Company's stock is undervalued in light of the Company's future prospects and that it would be in the best interest of the Company and its shareholders to repurchase some of its outstanding shares. As of March 18, 2002, the Company had not repurchased any of its outstanding Common Stock.
ITEM 6.
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA.
The selected consolidated financial data below should be read in conjunction with the consolidated financial statements of the Company and notes thereto and "Item 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
Background ---------- The Company is a research-based biopharmaceutical, medical device, raw materials and nutraceutical company engaged in the development, manufacturing and marketing of naturally-derived complex carbohydrates and other natural product therapeutics for the treatment of major illnesses, the dressing and management of wounds and nutritional supplements. The Company is comprised of two business segments. See Note Twelve to the consolidated financial statements for financial information about these business segments. The Company sells prescription and nonprescription human and veterinary products through its Medical Services Division and consumer and bulk raw material products through its consumer products subsidiary, Caraloe, Inc. The Company's research and product portfolio are based primarily on complex carbohydrates isolated from the Aloe vera L. plant.
Liquidity and Capital Resources ------------------------------- At December 31, 2001 and 2000, the Company held cash and cash equivalents of $3,454,000 and $3,200,000, respectively, an increase of $254,000. Net cash provided by operating activities in 2001 was $1,275,000, as compared to cash provided by operating activities in 2000 of $217,000. The Company received $3,375,000 in 2001 under its licensing agreement with Medline. See Part I for discussions regarding agreements with Medline. Significant cash outflows during 2001 included a $1,132,000 investment in property and equipment. Customers with significant accounts receivable balances at the end of 2001 included Mannatech, Inc. ($337,000) and Medline Industries ($863,000), and of these amounts, $1,150,000 has been collected as of March 7, 2002.
As of December 31, 2001, the Company had no material capital commitments other than its leases and agreements with suppliers. In March 1998, the Company, with four other investors, formed Aloe and Herbs International Inc., a Panamanian corporation, with the sole intent of acquiring a 5,000- acre tract of land in Costa Rica to be used for the production of Aloe vera L. leaves to be sold to the Company at competitive, local market rates. This would allow the Company to save approximately 50% on the per-kilogram cost of leaves as compared to the cost of importing leaves from other Central and South American countries. Aloe & Herbs subsequently formed a wholly-owned subsidiary, Rancho Aloe (C.R.), S.A., a Costa Rica corporation, which acquired the land in April 1998. The Company provided a cash advance of $187,000, which is evidenced by a note receivable, due in installments, with payments being made monthly based upon farm production.
The Company also advanced $300,000 to Aloe & Herbs in November 1998 for the acquisition of an irrigation system to improve production on the farm and allow harvesting of leaves year-round. The Company was also granted a five- year warrant to purchase 300,000 shares of common stock of Aloe & Herbs. In the fourth quarter of 1998, the Company fully reserved all amounts owed to it by Aloe & Herbs, in the total amount of $487,000, due to the start-up nature of the business. In 2001, the Company received payments totaling $37,000 from Aloe & Herbs against the amount due. The first shipment of leaves from Rancho Aloe to the Company was made in March 1999 and the Company purchased a total of $450,000 of Aloe vera L. leaves from Rancho Aloe 2001. The Company's interest in Aloe & Herbs at December 31, 2001 is approximately 24%.
In November 1997, the Company entered into an agreement with Comerica Bank- Texas for a $3,000,000 line of credit, secured by accounts receivable and inventory. This credit facility had an outstanding balance of $763,000 at December 31, 2001 to fund operating needs.
The Company believes that its available cash resources and expected cash flows from operations will provide the funds necessary to finance its current operations. However, the Company does not expect that its current cash resources will be sufficient to finance future major clinical studies and costs of filing new drug applications necessary to develop its products to their full commercial potential. Additional funds, therefore, may need to be raised through equity offerings, borrowings, licensing arrangements or other means, and there is no assurance that the Company will be able to obtain such funds on satisfactory terms when they are needed.
The Board of Directors recently authorized the Company to repurchase up to one million shares of its outstanding Common Stock. See "Market for Registrant's Common Equity and Related Stockholder Matters" above. The Company believes it has the financial resources necessary to repurchase shares from time to time pursuant to the Board's repurchase authorization.
Management has identified the following accounting policies as critical. Our accounting policies are more fully described in Footnote 2 of the Financial Statements. The preparation of consolidated financial statements requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, the Company evaluates its estimates, including those related to revenues, product returns, bad debts and inventories. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
The Company believes the following critical accounting policies affect its more significant judgments and estimates used in the preparation of its consolidated financial statements. The Company records estimated reductions to revenue for incentive offerings including promotions and other volume- based incentives as well as estimates for returns based upon recent history. If market conditions were to decline or inventory was in danger of expiring or becoming obsolete, the Company may take actions to increase customer incentive offerings possibly resulting in an incremental reduction of revenue at the time the incentive is offered. Additionally, if demand for the Company's product were to drop, the Company's distributors may request return of product for credit causing a need to re-evaluate and possibly increase the reserve for product returns. The Company maintains allowances for doubtful accounts for estimated losses resulting from the inability of its customers to make required payments. If the financial condition of the Company's customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required. The Company writes down its inventory for estimated obsolescence or unmarketable inventory equal to the difference between the cost of inventory and the estimated market value based upon assumptions about future demand and market conditions. If actual market conditions are less favorable than those projected by management, additional inventory write-downs may be required.
The Company is subject to regulation by numerous governmental authorities in the United States and other countries. Certain of the Company's proposed products will require governmental approval prior to commercial use. The approval process applicable to prescription pharmaceutical products usually takes several years and typically requires substantial expenditures. The Company and any licensees may encounter significant delays or excessive costs in their respective efforts to secure necessary approvals. Future United States or foreign legislative or administrative acts could also prevent or delay regulatory approval of the Company's or any licensees' products. Failure to obtain requisite governmental approvals or failure to obtain approvals of the scope requested could delay or preclude the Company or any licensees from marketing their products, or could limit the commercial use of the products, and thereby have a material adverse effect on the Company's liquidity and financial condition.
Impact of Inflation ------------------- The Company does not believe that inflation has had a material impact on its results of operations.
Fiscal 2001 Compared to Fiscal 2000 ----------------------------------- Total revenues were $17,594,000 in 2001, compared with $23,103,000 in 2000. Total sales of the Company's wound and skin care products in 2001 were $7,921,000 as compared to $11,971,000 in 2000. The decrease in wound and skin care revenue was primarily effected by the distribution agreement with Medline which significantly lowered the Company's selling prices for these products in exchange for Medline assuming all of the selling, marketing and distribution activities and the related costs, and paying the Company a royalty. The Company recorded royalty income of $2.5 million in 2001 related to this agreement. Partially offsetting this revenue reduction due to pricing was a 10% increase in unit volume in 2001 as compared to 2000. The Company also sells products to international distributors, primarily in Europe, and Central and South America. Total international sales in 2001 were $1,315,000 as compared to $1,343,000 in 2000. Included in the 2001 amount were sales of $386,000 of wound care products, which was a decrease of $153,000 from 2000.
Sales of the Company's oral technology products increased from $68,000 in 2000 to $129,000 in 2001 because of significantly increased sales of the product to an international customer. Included in this line are products for the management of oral mucositis/stomatitis and oral lesions and ulcers.
Of the 2001 total Caraloe sales, $5,367,000 was related to the sale of bulk Manapol[R] powder. Caraloe currently sells bulk Manapol[R] powder to a major customer under a three-year, non-exclusive supply and licensing agreement. The current agreement has been extended and expires in August 2003. Sales to this customer decreased from $8,794,000 in 2000 to $5,192,000 in 2001.
In July 1999, Caraloe launched its new AloeCeuticals[R] line of immune- enhancing dietary supplements containing Manapol[R], which are available in liquid, capsule and tablet forms. These products are sold directly to health and nutrition stores and broker/distributors. They are also sold through the Company's Internet sites. Sales of these products in 2000 and 2001 totaled $446,000 and $538,000, respectively.
Caraloe also continued to develop its contract manufacturing business during 2001. Caraloe manufactures a variety of products that can be filled using the Company's current equipment including gels, creams, lotions and drinks. Total contract manufacturing sales in 2001 were $1,144,000 compared with $779,000 in 2000.
Cost of sales decreased from $12,782,000 in 2000 to $9,803,000 in 2001, or 23.3%. As a percentage of sales, cost of sales increased from 55.3% to 55.7%. The increase in the cost of goods sold percentage was largely attributable to lower wound care pricing as a result of the distribution agreement with Medline. Offsetting this was a change in product mix caused by the decline in lower margin Manapol[R] sales as well as increased efficiency in the operation of the Company's manufacturing plant in the United States.
Selling, general and administrative expenses ("SG&A") decreased to $5,016,000 from $10,162,000, or 50.6%. Included in this decrease was a $4,550,000 reduction in selling and marketing expenses for wound care products directly related to the Medline Agreement and Medline's acquisition of the Company's sales force that existed on December 1, 2000. Additionally, the Company took advantage of the reduced administrative burdens of supporting the sales force by reducing costs in all departments affected by the reduction in sales personnel.
Research and development ("R&D") expenses decreased to $2,442,000 in 2001 from $3,602,000 in 2000, or 32.2%. This decrease was primarily the result of a reduction of $623,000 in expenditures for the unsuccessful Aliminase[TM] clinical trial as well as refocusing efforts and priorities within the department. The Company continued its efforts in basic research during 2001, including work on a new and unique complex carbohydrate (CR1013) which has potential near-term utility in the area of drug delivery. Also included in total R&D activities during 2001 were various small clinical trials designed to collect data in support of the Company's products.
Net interest income of $32,000 was realized in 2001 versus $80,000 in 2000, with the variance primarily due to lower interest rates in 2001.
There was no provision for income taxes in 2001 due to the Company's utilization of net operating loss carryforwards. The Company has provided a valuation allowance against all deferred tax asset balances at December 31, 2001 and 2000 due to uncertainty regarding realization of the asset.
The Company's net income for 2001 was $378,000, versus a net loss of $3,476,000 for 2000. The 2001 net income was due to the operating efficiencies occurring as a result of the distribution agreement with Medline Industries, lower production costs as well as increased unit sales in 2001 of the Company's wound and skin care products. 2001 results benefited from a one time gain of $200,000 from adjustments to state tax liabilities booked in prior periods. The loss in 2000 was primarily attributable to lower selling prices for wound care products and lower volumes of Manapol[R] sales, high selling and marketing costs for wound care products and final costs for the Aliminase Clinical Trial. The net income per share was $0.04 in 2001, compared to a net loss per share of $0.36 in 2000.
Fiscal 2000 Compared to Fiscal 1999 ----------------------------------- Total revenues were $23,103,000 in 2000, compared with $28,128,000 in 1999. Sales of Manapol[R] by Caraloe in the form of raw materials and consumer nutritional products, decreased 14.7%, from $12,739,000 in 1999 to $10,862,000 in 2000. Total sales of the Company's wound and skin care products in 2000 were $11,971,000 as compared to $15,389,000 in 1999, primarily due to a significant reduction in pricing to maintain market competitiveness. While wound care sales declined 21.9% versus the prior year, unit volumes declined only 5%. The Company recorded $208,000 in royalty income related to the distribution agreement with Medline Industries in 2000.
Total international sales in 2000 were $1,343,000 as compared to $1,423,000 in 1999. Included in the 2000 amount were sales of $539,000 of wound care products, which was a decrease of $621,000 from 1999.
The Company's oral technology line included products for the management of oral mucositis/stomatitis and oral lesions and ulcers. Sales of these products decreased from $374,000 in 1999 to $68,000 in 2000 because of significantly lower sales of the product to an international customer. Sales of the Company's veterinary products increased from $47,000 in 1999 to $130,000 in 2000.
Of the 2000 total Manapol[R] sales, $9,470,000 was related to the sale of bulk Manapol[R] powder. Caraloe currently sells bulk Manapol[R] powder to a major customer under a three-year, non-exclusive supply and licensing agreement. The current agreement, expires in August 2002. Sales to this customer decreased from $11,422,000 in 1999 to $8,794,000 in 2000.
Caraloe launched its new AloeCeuticals[R] line of immune-enhancing dietary supplements containing Manapol[R] in July 1999, which are available in liquid, capsule and tablet forms. Sales of these products in 1999 and 2000 totaled $131,000 and $446,000, respectively.
Caraloe also continued to develop its contract manufacturing business during 2000. Products manufactured include gels and creams utilizing customer- developed formulas. In September 1999, Caraloe began to produce nutritional beverages for a direct sales company selling nutritional products through a multi-level sales organization. Total contract manufacturing sales in 2000 under the agreements with these customers were $779,000 compared with $292,000 in 1999.
Cost of sales decreased from $13,640,000 in 1999 to $12,782,000 in 2000, or 6.3%. As a percentage of sales, cost of sales increased from 48.5% to 55.3%. The increase in the cost of goods sold percentage was largely attributable to lower sales as a result of product mix and downward pricing pressures.
Selling, general and administrative expenses ("SG&A") decreased to $10,162,000 from $10,364,000, or 1.9%. Partially offsetting the decrease was an increase in the selling and marketing expenses for Caraloe products of $296,000. This increase primarily represented the costs for increased advertising and marketing support of the AloeCeuticals[R] brand of Manapol[R] immune enhancing products. The decrease in SG&A costs as compared to 1999 is partially attributable to lower costs associated with the provisions of the contract with Medline Industries, whereby the wound and skin care sales force was transferred to Medline effective December 1, 2000. Additionally, distribution costs were lower by $115,000 in 2000 compared to 1999. This was due to slightly lower volumes and improved freight rates.
Research and development ("R&D") expenses decreased to $3,602,000 in 2000 from $5,300,000 in 1999, or 32.0%. This decrease was primarily the result of a reduction of $2,243,000 in expenditures for the unsuccessful Aliminase[TM] clinical trial offset by an increase in basic research costs of approximately $550,000. The Company continued its efforts in basic research during 2000, including work on a new and unique complex carbohydrate (CR1013) which has potential near-term utility in the area of drug delivery. Also included in the total R&D activities during 2000 were various small clinical trials designed to collect data in support of the Company's products.
In the fourth quarter of 1999, the Company determined that it could no longer satisfy the minimum purchase requirements of its agreement with Oregon Freeze Dry, Inc. ("OFD") and thus established a reserve of $1,042,000 to cover its estimated liability to. The Company increased the reserve by $223,000 in the second quarter of 2000.
Net interest income of $80,000 was realized in 2000, versus $105,000 in 1999, with the variance primarily due to higher amounts drawn on the line of credit.
There was no provision for income taxes in 2000. A tax benefit was not recognized in 2000 due to the Company's recording an offsetting deferred tax asset valuation allowance. The Company has provided a valuation allowance against all deferred tax asset balances at December 31, 2000 and 1999 due to uncertainty regarding realization of the asset.
The Company's net loss for 2000 was $3,476,000, versus a net loss of $2,033,000 for 1999. The loss in 2000 is primarily attributable to lower selling prices for wound care products and lower volumes of Manapol[R] sales. The 1999 loss was due to the $2,866,000 in costs related to the Aliminase[TM] Clinical Trial and the $1,042,000 reserve for the OFD contract. The net loss per share was $0.36 in 2000, compared to a net loss per share of $0.22 in 1999.
Forward Looking Statements -------------------------- All statements other than statements of historical fact contained in this report, including but not limited to statements in this Management's Discussion and Analysis of Financial Condition and Results of Operations (and similar statements contained in the Notes to Consolidated Financial Statements) concerning the Company's financial position, liquidity, capital resources and results of operations, its prospects for the future and other matters, are forward-looking statements. Forward-looking statements in this report generally include or are accompanied by words such as "anticipate", "believe", "estimate", "expect", "intend", "will", "would", "should" or words of similar import. Such forward-looking statements include, but are not limited to, statements regarding the ability of local suppliers of Aloe vera L. leaves in Costa Rica to supply the Company's need for leaves; the condition, capacity and adequacy of the Company's manufacturing and laboratory facilities and equipment; the adequacy of the protection that the Company's patents provide to the conduct of its business operations; the adequacy of the Company's protection of its trade secrets and unpatented proprietary know-how; the Company's belief that the claims of the Plaintiffs identified under Item 3 of Part I of this report are without merit; the adequacy of the Company's cash resources and cash flow from operations to finance its current operations; and the Company's intention, plan or ability to repurchase shares of its outstanding Common Stock, to initiate, continue or complete clinical and other research programs, to obtain financing when it is needed, to fund its operations from revenue and other available cash resources, to enter into licensing agreements, to develop and market new products and increase sales of existing products, to obtain government approval to market new products, to file additional patent applications, to rely on trade secrets, unpatented proprietary know-how and technological innovation, to reach satisfactory resolutions of its disputes with third parties, to reach a satisfactory agreement with its supplier of freeze-dried products, to acquire sufficient quantities of Aloe vera L. leaves from local suppliers at significant savings, to collect the amounts owed to it by its distributors, customers and other third parties, and to use its tax loss carryforwards before they expire, as well as various other matters.
Although the Company believes that the expectations reflected in its forward-looking statements are reasonable, no assurance can be given that such expectations will prove correct. Factors that could cause the Company's results to differ materially from the results discussed in such forward-looking statements include but are not limited to the possibilities that the Company may be unable to obtain the funds needed to carry out large scale clinical trials and other research and development projects, that the results of the Company's clinical trials may not be sufficiently positive to warrant continued development and marketing of the products tested, that new products may not receive required approvals by the appropriate government agencies or may not meet with adequate customer acceptance, that the Company may not be able to obtain financing when needed, that the Company may not be able to obtain appropriate licensing agreements for products that it wishes to market or products that it needs assistance in developing, that the Company's efforts to improve its sales and reduce its costs may not be sufficient to enable it to fund its operating costs from revenues and available cash resources, that one or more of the customers that the Company expects to purchase significant quantities of products from the Company or Caraloe may fail to do so, that competitive pressures may require the Company to lower the prices of or increase the discounts on its products, that the Company's sales of products it is contractually obligated to purchase from suppliers may not be sufficient to enable and justify its fulfillment of those contractual purchase obligations, that other parties who owe the Company substantial amounts of money may be unable to pay what they owe the Company, that the Company's patents may not provide the Company with adequate protection, that the Company's manufacturing facilities may be inadequate to meet demand, that the Company's distributors may be unable to market the Company's products successfully, that the Company may not be able to resolve its disputes with third parties in a satisfactory manner, that the Company may be unable to reach a satisfactory agreement with its supplier of freeze-dried products or with other important suppliers, that the Company may not be able to use its tax loss carryforwards before they expire, that the Company may not have sufficient financial resources necessary to repurchase shares of its outstanding Common Stock, and that the Company may be unable to produce or obtain, or may have to pay excessive prices for, the raw materials or products it needs.
All forward-looking statements in this report are expressly qualified in their entirety by the cautionary statements in the two immediately preceding paragraphs.
ITEM 7A.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Foreign Currency ---------------- The Company's manufacturing operation in Costa Rica accounted for 40% of cost of sales for the year ended December 31, 2001. As a result, the Company's financial results could be significantly affected by factors such as changes in foreign currency exchange rates or economic conditions in Costa Rica. When the U.S. Dollar strengthens against the Costa Rica Colon, the cost of sales decreases. During 2001, the exchange rate from U.S. Dollars to Costa Rica Colones increased by 7% to 341 at December 31, 2001. The effect of an additional 10% strengthening in the value of the U.S. Dollar relative to the Costa Rica Colones would result in an increase of $64,200 in gross profit. The Company's sensitivity analysis of the effects of changes in foreign currency rates does not factor in a potential change in sales levels or local currency prices.
Sales of products to foreign markets comprised 7.5% of sales for 2001. These sales are generally denominated in U.S. Dollars. The Company does not believe that changes in foreign currency exchange rates or weak economic conditions in foreign markets in which the Company distributes its products would have a significant effect on operating results. If sales to foreign markets increase in future periods, the effects could become significant.
For quantitative and qualitative disclosures about market risk related to the supply of Aloe vera L. leaves, see "Business."
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The response to Item 8 is submitted as a separate section of this Form 10-K. See Item 14.
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
There were no changes in or disagreements with the Company's independent public accountants on accounting matters or financial disclosure during 1999, 2000 or 2001 (to the date of filing of this report).
PART III
ITEM 10.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information required by Item 10 of Form 10-K is hereby incorporated by reference from the information appearing under the captions "Election of Directors," "Executive Officers" and "Section 16(a) Beneficial Ownership Reporting Compliance" in the Company's definitive Proxy Statement relating to its 2002 annual meeting of shareholders, which will be filed pursuant to Regulation 14A within 120 days after the Company's fiscal year ended December 31, 2001.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION.
The information required by Item 11 of Form 10-K is hereby incorporated by reference from the information appearing under the caption "Executive Compensation" in the Company's definitive Proxy Statement relating to its 2002 annual meeting of shareholders, which will be filed pursuant to Regulation 14A within 120 days after the Company's fiscal year ended December 31, 2001.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information required by Item 12 of Form 10-K is hereby incorporated by reference from the information appearing under the captions "Security Ownership of Management" and "Principal Shareholders" in the Company's definitive Proxy Statement relating to its 2002 annual meeting of shareholders, which will be filed pursuant to Regulation 14A within 120 days after the Company's fiscal year ended December 31, 2001.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information, if any, required by Item 13 of Form 10-K is hereby incorporated by reference from the information appearing under the caption "Certain Transactions", if any, in the Company's definitive Proxy Statement relating to its 2002 annual meeting of shareholders, which will be filed pursuant to Regulation 14A within 120 days after the Company's fiscal year ended December 31, 2001.
PART IV
ITEM 14.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a)(1) Financial Statements.
Reference is made to the index on page for a list of all financial statements filed as a part of this Annual Report.
(2) Financial Statement Schedules.
Reference is made to the index on page for a list of one financial statement schedule filed as a part of this Annual Report.
(3) Exhibits.
Reference is made to the Index to Exhibits on pages E-1 through E-11 for a list of all exhibits to this report.
(b) Reports on Form 8-K.
The Company filed a Form 8-K Report dated March 20, 2002 to report certain amendments to its Employee Stock Purchase Plan.
CARRINGTON LABORATORIES, INC. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES
Consolidated Financial Statements of the Company:
Consolidated Balance Sheets -- December 31, 2000 and 2001 F - 2
Consolidated Statements of Operations -- years ended December 31, 1999, 2000 and 2001 F - 3
Consolidated Statements of Shareholders' Investment -- years ended December 31, 1999, 2000 and 2001 F - 4
Consolidated Statements of Cash Flows -- years ended December 31, 1999, 2000 and 2001 F - 5
Notes to Consolidated Financial Statements F - 6
Financial Statement Schedule Valuation and Qualifying Accounts F - 16
Report of Ernst & Young LLP, Independent Auditors F - 17
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE ONE. BUSINESS
Carrington Laboratories, Inc. (the "Company") is a research-based biopharmaceutical, medical device, raw materials and nutraceutical company engaged in the development, manufacturing and marketing of naturally-derived complex carbohydrates and other natural product therapeutics for the treatment of major illnesses, the dressing and management of wounds and nutritional supplements.
The Company's Medical Services Division offers a comprehensive line of human wound management products to hospitals, nursing homes, alternative care facilities and the home health care market and also offers vaccines and wound and skin care products to the veterinary market. The Company and Medline Industries, Inc. ("Medline") entered into a Distributor and License Agreement dated November 3, 2000, under which the Company granted to Medline the exclusive right, subject to certain limited exceptions, to distribute all of the Company's wound and skin care products (the "Products") in the United States, Canada, Puerto Rico and the Virgin Islands for a term of five years that began December 1, 2000. The agreement provides that Carrington will continue to manufacture its existing line of Products and sell them to Medline at specified prices. The prices, which are generally firm for the first two years of the contract term, are thereafter subject to adjustment not more than once each year to reflect increases in manufacturing cost.
The agreement also grants Medline a nonexclusive license to use certain of the Company's trademarks in connection with the marketing of the Products. In addition, it permits Medline, if it so elects, to use those trademarks in connection with the marketing of various Medline products and other products not manufactured by the Company (collectively, "Other Products").
The agreement requires Medline to pay the Company a base royalty totaling $12,500,000 in quarterly installments that began on December 1, 2000. In addition to the base royalty, if Medline elects to market any of the Other Products under any of the Company's trademarks, Medline must pay the Company a royalty of between one percent and five percent of Medline's aggregate annual net sales of the Products and the Other Products, depending on the amount of the net sales, except that the royalty on certain high volume commodity products will be two percent.
Caraloe, Inc., a subsidiary, markets or licenses consumer products and bulk raw material products. Principal sales of Caraloe, Inc., are bulk raw material products which are sold to United States manufacturers who include the high quality extracts from Aloe vera L. in their finished products.
The Company formed a subsidiary, DelSite Biotechnologies, Inc., in October 2001 as a vehicle to further the development of CR1013, a complex carbohydrate that the Company is developing for use as a drug delivery system.
The Company's products are produced at its plants in Irving, Texas and Costa Rica. A portion of the Aloe vera L. leaves used for manufacturing the Company's products are grown on a Company-owned farm in Costa Rica. The remaining leaves are purchased from other producers in Costa Rica.
NOTE TWO. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION. The consolidated financial statements include the accounts of Carrington Laboratories, Inc., and its subsidiaries, all of which are wholly owned. All intercompany accounts and transactions have been eliminated in consolidation.
CASH EQUIVALENTS. The Company's policy is that all highly liquid investments purchased with a maturity of three months or less at date of acquisition are considered to be cash equivalents unless otherwise restricted.
INVENTORY. Inventories are recorded at the lower of cost (first-in, first- out) or market.
PROPERTY, PLANT AND EQUIPMENT. Property, plant and equipment are recorded at cost less accumulated depreciation. Land improvements, buildings and improvements, furniture and fixtures and machinery and equipment are depreciated on the straight-line method over their estimated useful lives. Leasehold improvements and equipment under capital leases are amortized over the terms of the respective leases.
LONG-LIVED ASSETS. The Company regularly reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amounts of the assets may not be recoverable. Recoverability is based on whether the carrying amount of the asset exceeds the current and anticipated undiscounted cash flows related to the asset.
TRANSLATION OF FOREIGN CURRENCIES. The functional currency for international operations (primarily Costa Rica) is the U.S. Dollar. Accordingly, such foreign entities translate monetary assets and liabilities at year-end exchange rates, while non-monetary items are translated at historical rates. Revenue and expense accounts are translated at the average rates in effect during the year, except for depreciation and amortization, which are translated at historical rates. Translation adjustments and transaction gains or losses are recognized in the consolidated statement of operations in the year of occurrence.
REVENUE RECOGNITION. The Company recognizes revenue when title to the goods transfers and collectibility is reasonably assured. For the majority of the Company's sales, this occurs at the time of shipment.
DEFERRED REVENUE. Deferred revenue is related to the licensing and royalty agreement with Medline Industries. Royalties and licensing fees are amortized on a straight-line basis with amounts received in excess of amounts amortized reflected in the financial statements as deferred revenue.
FEDERAL INCOME TAXES. The Company uses the liability method of accounting for income taxes. Under this method, deferred income taxes are recorded to reflect the tax consequences of differences between the tax basis of assets and liabilities and the financial reporting basis. Valuation allowances are provided against net deferred tax assets when it is more likely than not, based on available evidence, that assets may not be realized.
RESEARCH AND DEVELOPMENT. Research and development costs are expensed as incurred. Certain laboratory and test equipment determined to have alternative future uses in other research and development activities has been capitalized and is depreciated as research and development expense over the life of the equipment.
ADVERTISING. Advertising expense is charged to operations in the year in which such costs are incurred. Advertising expense has not been significant for 1999, 2000 or 2001.
STOCK-BASED COMPENSATION. The Company has elected to follow APB Opinion No. 25, "Accounting for Stock Issued to Employees," in the primary financial statements and to provide supplementary disclosures required by Financial Accounting Standards Board ("FASB") Statement No. 123, "Accounting for Stock-Based Compensation" (see Note Seven).
NET INCOME (LOSS) PER SHARE. Basic net income (loss) per share is based on the weighted average number of shares of common stock outstanding during the year and excludes any dilutive effects of options, warrants and convertible securities. Diluted net income (loss) per share includes the effects of options, warrants and convertible securities unless the effect is antidilutive.
USE OF ESTIMATES. The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
RECLASSIFICATIONS. Certain prior year amounts have been reclassified to conform to the current year presentation.
RECENT ACCOUNTING PRONOUNCEMENTS. In August 2001, the FASB issued Statement No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," which addresses the financial accounting and reporting for the impairment or disposal of long-lived assets and supercedes FASB Statement No. 121 "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of," and the accounting and reporting provisions of Accounting Principles Board Opinion No. 30, "Reporting the Results of Operations for a Disposal of a Segment of a Business." The Company will adopt Statement No. 144 as of January 1, 2002 and does not expect the adoption of this statement will have a significant impact on the Company's financial position or results of operations.
NOTE THREE. INVENTORIES
The following summarizes the components of inventory at December 31, 2000 and 2001, in thousands:
2000 2001 ------------------------------------------------------------------ Raw materials and supplies $1,768 $2,041 Work-in-process 878 910 Finished goods 2,077 2,387 ------------------------------------------------------------------ Total $4,723 $5,338 ------------------------------------------------------------------
The inventory balances are net of $441,000 and $516,000 of reserves for obsolete and slow moving inventory at December 31, 2000 and 2001, respectively.
NOTE FOUR. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of the following at December 31, 2000 and 2001, in thousands: Estimated 2000 2001 Useful Lives ------------------------------------------------------------------ Land and improvements $1,389 $1,391 Buildings and improvements 8,889 8,618 7 to 25 years Furniture and fixtures 589 603 4 to 8 years Machinery and equipment 6,982 7,800 3 to 10 years Leasehold improvements 214 783 1 to 3 years Equipment under capital leases 114 114 4 years ------------------------------------------------------------------ Total 18,177 19,309 Less accumulated depreciation and amortization 7,855 8,905 ------------------------------------------------------------------ Property, plant and equipment, net $10,322 $10,404 ====== ======
The Company's net investment in property, plant and equipment in Costa Rica at December 31, 2000 and 2001 was $4,251,000 and $3,847,000, respectively.
NOTE FIVE. ACCRUED LIABILITIES
The following summarizes significant components of accrued liabilities at December 31, 2000 and 2001, in thousands:
2000 2001 ------------------------------------------------------------------ Accrued payroll $ 440 $270 Accrued Insurance 91 81 Accrued taxes 249 230 Accrued Professional Fees - 70 Other 288 233 ------------------------------------------------------------------ Total $1,068 $884 ------------------------------------------------------------------
NOTE SIX. LINE OF CREDIT
The Company has an agreement with a bank for a $3 million line of credit, collateralized by accounts receivable and inventory. The interest rate is equal to the bank's prime rate (4.75% at December 31, 2001). As of December 31, 2001 there was $763,000 outstanding on the credit line and the Company had $1,437,000 credit available for operations.
NOTE SEVEN. COMMON STOCK
SHARE PURCHASE RIGHTS PLAN The Company has a share purchase rights plan which provides, among other rights, for the purchase of common stock by certain existing common stockholders at significantly discounted amounts in the event a person or group acquires or announces the intent to acquire 15% or more of the Company's common stock. The rights expire in 2011 and may be redeemed at any time at the option of the Board of Directors for $.001 per right.
EMPLOYEE STOCK PURCHASE PLAN. The Company has an Employee Stock Purchase Plan under which employees may purchase common stock at a price equal to the lesser of 85% of the market price of the Company's common stock on the last business day preceding the enrollment date (defined as January 1, April 1, July 1 or October 1 of any plan year) or 85% of the market price on the last business day of each month. A maximum of 1,000,000 shares of common stock was reserved for purchase under this Plan. As of December 31, 2001, a total of 475,000 shares had been purchased by employees at prices ranging from $0.85 to $29.54 per share.
STOCK OPTIONS. The Company has an incentive stock option plan which was approved by the shareholders in 1995 under which incentive stock options and nonqualified stock options may be granted to employees, consultants and non- employee directors. Options are granted at a price no less than the market value of the shares on the date of the grant, except for incentive options to employees who own more than 10% of the total voting power of the Company's common stock, which must be granted at a price no less than 110% of the market value. Employee options are normally granted for terms of 10 years. Options granted prior to December 1998 normally vested at the rate of 25% per year beginning on the first anniversary of the grant date. Options granted in or subsequent to December 1998 normally vest at the rate of 33-1/3% per year beginning on the first anniversary of the grant date, but certain options granted in December 1998, 1999 and 2001 were 25%, 50% or 100% vested on the grant date, with the remainder of each option vesting in equal installments on the first, second and third anniversaries of the grant date. Options to non-employee directors have terms of four years and are 100% vested on the grant date. The Company has reserved 1,500,000 shares of common stock for issuance under this plan. As of December 31, 2001, options to purchase 12,000 shares were available for future grants under the plan.
The following summarizes stock option activity for each of the three years in the period ended December 31, 2001 (shares in thousands):
Weighted Average Exercise Shares Price Per Share Price ------------------------------------------------------------------- Balance, January 1, 1999 1,388 $ 2.50 to $28.75 $ 4.58 Granted 345 $ 2.06 to $ 3.63 $ 2.41 Lapsed or canceled (316) $ 2.50 to $27.00 $ 4.71 Exercised (10) $ 2.50 to $ 2.50 $ 2.50 ------------------------------------------------------------------- Balance, December 31, 1999 1,407 $ 2.06 to $28.75 $ 4.05 Granted 263 $ 1.31 to $ 2.03 $ 1.35 Lapsed or canceled (333) $ 2.06 to $28.75 $ 3.35 Exercised (94) $ 2.50 to $ 4.81 $ 2.58 ------------------------------------------------------------------- Balance, December 31, 2000 1,243 $ 1.31 to $28.75 $ 3.78 Granted 345 $ 1.05 to $ 1.37 $ 1.17 Lapsed or canceled (215) $ 1.25 to $27.00 $ 3.94 ------------------------------------------------------------------- Balance, December 31, 2001 1,373 $ 1.05 to $28.75 $ 3.11 ------------------------------------------------------------------- Options exercisable at December 31, 1999 553 $ 2.50 to $28.75 $ 4.68 ------------------------------------------------------------------- Options exercisable at December 31, 2000 605 $ 2.03 to $28.75 $ 4.86 ------------------------------------------------------------------- Options exercisable at December 31, 2001 902 $ 1.31 to $28.75 $ 3.78 -------------------------------------------------------------------
The following table summarizes information about stock options outstanding at December 31, 2001:
Options Outstanding Options Exercisable ------------------------------ ------------------- Weighted Average Weighted Weighted Remaining Average Average Range of Contractual Exercise Exercise Exercise Prices Shares Life Price Shares Price --------------------------------------------------------------------- $1.05 to $ 5.25 1,259 6.95 years $2.86 788 $3.06 6.00 to 28.75 114 4.93 years 8.71 114 8.71 -------------- ----- ---------- ----- --- ----- $1.05 $28.75 1,373 6.78 years $3.78 902 $3.78 ============== ===== ========== ===== === =====
The Company accounts for employee stock-based compensation under APB Opinion No. 25, under which no compensation cost has been recognized. Had compensation cost been determined based on the fair value of options at their grant dates consistent with the method of FASB Statement No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"), the Company's net income (loss) and diluted net income (loss) per share would have been the following pro forma amounts:
------------------------------------------------------------------- 1999 2000 2001 ------------------------------------------------------------------- Net income (loss) (in thousands): As reported $(2,033) $(3,476) $ 378 Pro forma (3,485) (4,650) (83)
Diluted net income (loss) per share: As reported $ (0.22) $ (0.36) $ 0.04 Pro forma (0.37) (0.49) (0.01) -------------------------------------------------------------------
The fair value of each option granted was estimated on the date of the grant using the Black-Scholes option pricing model with the following weighted- average assumptions used for grants to employees in 1999, 2000, and 2001, respectively: risk-free interest rates of 6.00%, 5.99% and 5.09%; expected dividend yields of 0%; expected volatility of 74.0%, 89.3% and 89.7% and expected lives of 10 years. The weighted average fair values of options granted were $0.64, $1.37 and $1.03 in 1999, 2000, and 2001, respectively.
STOCK WARRANTS. From time to time, the Company has granted warrants to purchase common stock to the Company's research consultants and other persons rendering services to the Company. The exercise price of such warrants was normally the market price or in excess of the market price of the common stock at date of issuance. The following summarizes warrant activity for each of the years in the period ending December 31, 2001 (shares in thousands): Weighted Average Shares Price Per Share Exercise Price ---------------------------------------------------------------- Balance, January 1, 1999 65 $ 3.50 to $20.13 $ 6.24 ---------------------------------------------------------------- Balance, December 31, 1999 65 $ 3.50 to $20.13 $ 6.24 Lapsed or canceled (10) $ 3.50 to $20.13 $ 6.24 ---------------------------------------------------------------- Balance, December 31, 2000 55 $ 3.50 to $20.13 $ 5.01 ---------------------------------------------------------------- Balance, December 31, 2001 55 $ 3.50 to $20.13 $ 5.01 ---------------------------------------------------------------- Warrants exercisable at December 31, 2001 55 $ 3.50 to $20.13 $ 5.01 ----------------------------------------------------------------
Warrants outstanding at December 31, 2001 had a weighted average remaining contractual life of 2.38 years.
COMMON STOCK RESERVED At December 31, 2001 the Company had reserved a total of 1,966,000 common shares for future issuance relating to the employee stock purchase plan, stock option plan and stock warrants disclosed above.
NOTE EIGHT. COMMITMENTS AND CONTINGENCIES
The Company conducts a significant portion of its operations from an office/ warehouse/distribution facility under an operating lease that expires in 2011. In addition, the Company leases certain office equipment under operating leases that expire over periods up to 2003. The Company's commitments under noncancellable operating leases as of December 31, 2001 were as follows, in thousands:
Years Ending December 31, ------------------------------------------------------------------- 2002 $ 586 2003 562 2004 523 2005 523 2006 523 Thereafter 2,881 ------------------------------------------------------------------- Total minimum lease payments $5,598 -------------------------------------------------------------------
Total rental expense under operating leases was $455,000, $661,000 and $663,000 for the years ended December 31, 1999, 2000 and 2001, respectively.
In February 1995, the Company entered into a commitment to purchase $2.5 million of freeze-dried products from Oregon Freeze Dry, Inc. ("OFD") over a 66-month period ending in August 2000. In the fourth quarter of 1999, the Company determined that it could no longer satisfy the minimum purchase requirements of the agreement and thus the Company established a reserve of $1,042,000 for estimated losses under this contract. In the second quarter of 2000, this reserve was increased by $223,000.
From time to time in the normal course of business, the Company is party to various matters involving claims or possible litigation. Management believes the ultimate resolution of these matters will not have a material adverse effect on the Company's financial position or results of operations.
The Company had outstanding a letter of credit in the amount of $800,000 which is used as security on the Company's distribution and research facility.
NOTE NINE. INCOME TAXES
The tax effects of temporary differences that gave rise to deferred tax assets and deferred tax liabilities at December 31, 2000 and 2001 were as follows, in thousands:
2000 2001 --------------------------------------------------------------- Net operating loss carryforward $14,699 $ 12,965 Research and development and other credits 661 478 Property, plant and equipment 282 340 Patents 270 - Inventory 368 394 Other, net (257) 78 Bad debt reserve 467 452 Deferred income 227 524 ACI Stock Valuation 204 204 Accrued liability - 89 Less - Valuation allowance (16,921) (15,524) ------ ------- $ 0 $ 0 ====== =======
The Company has provided a valuation allowance against the entire net deferred tax asset at December 31, 2000 and 2001 due to the uncertainty as to the realization of the asset.
The provision (benefit) for income taxes for the three years in the period ended December 31, 2001 was offset by changes in the valuation reserve. For the years ended December 31, 1999 and 2000, the benefit which would be expected for losses incurred in each year was offset by increases in the valuation reserve.
At December 31, 2001, the Company had net operating loss carryforwards of approximately $38.7 million for federal income tax purposes, which begin to expire in 2002, and research and development tax credit carryforwards of approximately $478,000, which begin to expire in 2002, all of which are available to offset federal income taxes due in future periods. A $2.6 million net operating loss carryforward expired during the year ended December 31, 2001. Additionally, $87,000 in research and development tax credits expired in 2000. The Company has approximately $28,000 in alternative minimum tax credits which do not expire.
NOTE TEN. CONCENTRATIONS OF CREDIT RISK
Financial instruments that potentially expose the Company to concentrations of credit risk consist primarily of trade accounts receivable. The Company's customers are not concentrated in any specific geographic region but are concentrated in the health care industry. Significant sales were made to three customers. Owens & Minor accounted for 9% and 10% of the Company's net sales in 1999 and 2000, respectively. Sales to Mannatech, Inc., accounted for 41%, 38%, and 30% of the Company's net sales in 1999, 2000, and 2001, respectively. Accounts receivable from Mannatech represented 21% of gross accounts receivable at December 31, 2001. Sales to Medline Industries, Inc., accounted for 35% of the Company's sales during 2001. Accounts receivable from Medline represented 53% of the Company's gross accounts receivable at December 31, 2001. The Company performs ongoing credit evaluations of its customers' financial condition and establishes an allowance for doubtful accounts based on factors surrounding the credit risk of specific customers and historical trends and other information.
NOTE ELEVEN. NET INCOME (LOSS) PER SHARE
Basic net income (loss) available to common shareholders per share was computed by dividing net income (loss) available to common shareholders by the weighted average number of common shares outstanding of 9,376,000, 9,545,000 and 9,743,000 in 1999, 2000 and 2001, respectively.
In calculating the diluted net loss available to common shareholders per share for the three years ended 2001, no effect was given to options or warrants, because the effect of including these securities would have been antidilutive.
NOTE TWELVE. REPORTABLE SEGMENTS
The Company operates in two reportable segments: human and veterinary products sold through its Medical Services Division and Caraloe, Inc., a consumer products subsidiary, which sells bulk raw materials, consumer beverages and nutritional and skin care products.
The Company evaluates performance and allocates resources based on profit or loss from operations before income taxes. The accounting policies of the reportable segments are the same as those described in the Summary of Significant Accounting Policies (Note Two).
Corporate income (loss) before income taxes set forth in the following table includes research and development expenses which were related to the development of pharmaceutical products not associated with the reporting segments. Assets which are used in more than one segment are reported in the segment where the predominant use occurs. The Company's production facility in Costa Rica, which provides bulk ingredients for all segments, and total cash for the Company are included in the Corporate Assets figure.
Reportable Segments (in thousands)
Medical Caraloe, Services Inc. Corporate Total ---------------------------------------------------------------- ---------------------------------------------------------------- Sales to unaffiliated customers $12,241 $10,862 $ - $23,103 Income(loss) before income taxes (2,421) 2,007 (3,062) (3,476) Identifiable assets 11,530 1,782 7,390 20,702 Capital expenditures 246 - 199 445 Depreciation and amortization 590 - 453 1,043 ---------------------------------------------------------------- ---------------------------------------------------------------- Sales to unaffiliated customers $10,400 $7,194 $ - $17,594 Income(loss) before income taxes 1,333 1,121 (2,076) 378 Identifiable assets 12,481 1,420 7,316 21,217 Capital expenditures - - 1,132 1,132 Depreciation and amortization 586 - 464 1,050 ----------------------------------------------------------------
NOTE THIRTEEN. RELATED PARTY TRANSACTIONS
At December 31, 2001, the Company had a 24% interest in a company which was formed in 1998 to acquire and develop a 5,000 acre tract of land in Costa Rica to be used for the production of Aloe vera L. leaves, the Company's primary raw material. The Company's initial investment was written-off in 1998 and no additional investments have been made or are expected to be made. The Company is accounting for its investment on the cost basis. The Company purchases Aloe vera L. leaves from this company at prices the Company believes are competitive with other sources. Such purchases totaled $364,000, $417,000 and $450,000 in 1999, 2000 and 2001, respectively.
NOTE FOURTEEN. UNAUDITED SELECTED QUARTERLY FINANCIAL DATA
The unaudited selected quarterly financial data below reflect the fiscal years ended December 31, 2000 and 2001, respectively.
(Amounts in thousands, except shares and per share amounts)
-------------------------------------------------------------------------- 2000 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter --------------------------------------------------------------------------
Net sales $7,125 $5,463 $4,997 $5,518 Gross profit 3,495 2,849 1,759 2,218 Net loss (529) (679) (1,228)(1) (1,040) Loss per share $(0.06) $(0.07) $(0.13) $(0.11) Weighted average common shares 9,427,000 9,589,000 9,614,000 9,633,000
-------------------------------------------------------------------------- 2001 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter --------------------------------------------------------------------------
Net sales $4,657 $4,330 $4,381 $4,226 Gross profit 2,000 1,866 2,040 1,885 Net income 226 60 77 15(2) Diluted income per share $0.02 $0.01 $0.01 $0.00 Weighted average common shares 9,728,000 9,734,000 9,747,000 9,809,000
(1) After a charge of $223,000 for OFD as described in Note Eight.
(2) The fourth-quarter results benefited from a one-time gain of $326,000, partially reversing a charge taken earlier in the year as a pricing reserve related to a strategic sales and marketing partnership. Fourth-quarter and full-year results benefited from a one-time gain of $200,000 from adjustments to state tax liabilities booked in prior periods.
Financial Statement Schedule Valuation and Qualifying Accounts (In thousands)
Description Additions ---------------- Balance Charged Charged at to to Balance Beginning Cost and Other at End of Period Expenses Accounts Deductions of Period -------------------------------------------------------------------------- -------------------------------------------------------------------------- Bad debt reserve $ 922 $ 107 $ - $ 725 $ 304 Inventory reserve 525 - - 95 430 Rebates 404 2,058 - 2,122 340 Reserve for ACI and Aloe & Herbs non-current notes and investments included in other assets 1,350 - - 58 1,292 Oregon Freeze Dry, Inc. - 1,042 343 - 699
-------------------------------------------------------------------------- -------------------------------------------------------------------------- Bad debt reserve $ 304 $ 116 $ - $ 322 $ 98 Inventory reserve 430 316 - 304 441 Rebates 340 4,508 - 4,576 272 Reserve for ACI and Aloe & Herbs non-current notes and investments included in other assets 1,292 - - 27 1,265 Oregon Freeze Dry, Inc. 699 223 - 922 - -------------------------------------------------------------------------- -------------------------------------------------------------------------- Bad debt reserve $ 98 $ 55 $ - $ 53 $ 100 Inventory reserve 441 91 - 16 516 Rebates 272 - - 272 - Reserve for ACI and Aloe & Herbs non-current notes and investments included in other assets 1,265 - - 45 1,220
REPORT OF INDEPENDENT AUDITORS
Shareholders and Board of Directors Carrington Laboratories, Inc.
We have audited the accompanying consolidated balance sheets of Carrington Laboratories, Inc. and subsidiaries as of December 31, 2001 and 2000 and the related consolidated statements of operations, shareholders' investment and cash flows for each of the three years in the period ended December 31, 2001. Our audits also included the financial statement schedule listed in the Index at item 14(a) for the same periods. These financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Carrington Laboratories, Inc. and subsidiaries as of December 31, 2001 and 2000, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 2001 in conformity with accounting principles generally accepted in the United States. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.
Ernst & Young LLP
Dallas, Texas February 19, 2002
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
CARRINGTON LABORATORIES, INC.
Date: March 25, 2002 By:/s/ Carlton E. Turner Carlton E. Turner, Ph.D.,D.Sc. President
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Signatures Title Date ------------------------- ----------------------------- --------------
/s/ Carlton E. Turner President, Chief March 25, 2002 Carlton E. Turner, Ph.D., Executive Officer and D.Sc. Director (principal executive officer)
/s/ Robert W. Schnitzius Chief Financial Officer March 25, 2002 Robert W. Schnitzius (principal financial and accounting officer)
/s/ R. Dale Bowerman Director March 25, 2002 R. Dale Bowerman
/s/ George DeMott Director March 25, 2002 George DeMott
/s/ Thomas J. Marquez Director March 25, 2002 Thomas J. Marquez
/s/ Selvi Vescovi Director March 25, 2002 Selvi Vescovi
INDEX TO EXHIBITS
Exhibit Sequentially Number Exhibit Numbered Page ------ ------------------------------------------------------ ------------- 3.1 Restated Articles of Incorporation of Carrington Laboratories, Inc. (incorporated by reference to Exhibit 3.1 to Carrington's 1999 Annual Report on Form 10-K).
3.2 Statement of Change of Registered Office and Registered Agent of Carrington Laboratories, Inc. (incorporated by reference to Exhibit 3.2 to Carrington's 1999 Annual Report on Form 10-K).
3.3 Statement of Resolution Establishing Series D Preferred Stock of Carrington Laboratories, Inc. (incorporated by reference to Exhibit 3.3 to Carrington's 1999 Annual Report on Form 10-K).
3.4 Bylaws of Carrington Laboratories, Inc., as amended through March 3, 1998 (incorporated herein by reference to Exhibit 3.8 to Carrington's 1997 Annual Report on Form 10-K).
4.1 Form of certificate for Common Stock of Carrington Laboratories, Inc. (incorporated herein by reference to Exhibit 4.5 to Carrington's Registration Statement on Form S-3 (No. 33-57360) filed with the Securities and Exchange Commission on January 25, 1993).
4.2 Rights Agreement dated as of September 19, 1991 between Carrington Laboratories, Inc. and Ameritrust Company National Association (incorporated by reference to Exhibit 4.2 to Carrington's 1999 Annual Report on Form 10-K).
4.3 Amendment No. 1 to Rights Agreement dated October 21, 1998 (incorporated herein by reference to Exhibit 4 to the Company's Form 8-A/A Post-Effective Amendment No. 1).
10.1+ Retirement and Consulting Agreement dated August 14, 1997 between Carrington Laboratories, Inc. and David Shand (incorporated herein by reference to Exhibit 4.1 to Carrington's quarterly report on Form 10-Q for the quarter ended September 30, 1997).
Exhibit Sequentially Number Exhibit Numbered Page ------ ------------------------------------------------------ ------------- 10.2+ First Amendment to Retirement and Consulting Agreement dated September 30, 1997 between Carrington Laboratories, Inc. and David G. Shand (incorporated herein by reference to Exhibit 4.2 to Carrington's quarterly report on Form 10-Q for the quarter ended September 30, 1997).
10.3 Contract Research Agreement dated as of August 8, 1991 between Carrington Laboratories, Inc. and Texas Agriculture Experimental Station, as agent for the Texas A&M University System (incorporated herein by reference to Exhibit 10.55 to Carrington's 1991 Annual Report on Form 10-K).
10.4 Lease Agreement dated as of August 30, 1991 between Carrington Laboratories, Inc. and Western Atlas International, Inc. (incorporated by reference to Exhibit 10.4 to Carrington's 1999 Annual Report on Form 10-K).
10.5 First Lease Amendment dated April 16, 1992 between Carrington laboratories, Inc. and Western Atlas International, Inc. (incorporated by reference to Exhibit 10.5 to Carrington's 1999 Annual Report on Form 10-K).
10.6 Second Lease Amendment dated September 23, 1993 between Carrington Laboratories, Inc. and Western Atlas International, Inc. (incorporated by reference to Exhibit 10.6 to Carrington's 1999 Annual Report on Form 10-K).
10.7 Third Lease Amendment dated December 1, 1994 between Carrington Laboratories, Inc. and Western Atlas International, Inc. (incorporated by reference to Exhibit 10.7 to Carrington's 1999 Annual Report on Form 10-K).
10.8 Fourth Lease Amendment dated August 31, 1999 between Western Atlas International, Inc. and Carrington Laboratories, Inc. (incorporated by reference to Exhibit 10.8 to Carrington's 1999 Annual Report on Form 10-K).
10.9 + Employee Stock Purchase Plan of Carrington Laboratories, Inc., as amended through June 15, 1995 (incorporated by reference to Exhibit 10.9 to Carrington's 1999 Annual Report on Form 10-K).
Exhibit Sequentially Number Exhibit Numbered Page ------ ------------------------------------------------------ ------------- 10.10 Common Stock Purchase Warrant dated September 14, 1993 issued by Carrington Laboratories, Inc. to E. Don Lovelace (incorporated by reference to Exhibit 10.10 to Carrington's 1999 Annual Report on Form 10- K).
10.11 Common Stock Purchase Warrant dated September 14, 1993, issued by Carrington Laboratories, Inc., to Jerry L. Lovelace (incorporated by reference to Exhibit 10.11 to Carrington's 1999 Annual Report on Form 10-K).
10.12 Lease Agreement dated June 15, 1994 between DFW Nine, a California limited partnership, and Carrington Laboratories, Inc. (incorporated by reference to Exhibit 10.12 to Carrington's 1999 Annual Report on Form 10-K).
10.13 Lease Amendment dated August 23, 1994 amending Lease Agreement listed as Exhibit 10.12 (incorporated by reference to Exhibit 10.13 to Carrington's 1999 Annual Report on Form 10-K).
10.14 Production Contract dated February 13, 1995 between Carrington Laboratories, Inc. and Oregon Freeze Dry, Inc. (incorporated by reference to Exhibit 10.14 to Carrington's 1999 Annual Report on Form 10-K).
10.15 Modification Number One dated February 19, 1996 to the Production Contract dated February 13, 1995 between Carrington Laboratories, Inc. and Oregon Freeze Dry, Inc. (incorporated by reference to Exhibit 10.15 to Carrington's 1999 Annual Report on Form 10-K).
10.16 Modification Number Two dated November 11, 1996 to the Production Contract dated February 13, 1995 between Carrington Laboratories, Inc. and Oregon Freeze Dry, Inc. (incorporated by reference to Exhibit 10.16 to Carrington's 1999 Annual Report on Form 10-K).
10.17 Modification Number Three to the Production Contract dated February 13, 1995 between Carrington Laboratories, Inc. and Oregon Freeze Dry, Inc. (incorporated herein by reference to Exhibit 10.89 to Carrington's 1998 Annual Report on Form 10-K).
Exhibit Sequentially Number Exhibit Numbered Page ------ ------------------------------------------------------ ------------- 10.18+ 1995 Management Compensation Plan (incorporated herein by reference to Exhibit 4.1 to Form S-8 Registration Statement No. 33-64403 filed with the Commission on November 17, 1995).
10.19 Trademark License Agreement dated August 14, 1997 between Caraloe, Inc. and Mannatech, Inc. (incorporated herein by reference to Exhibit 10.2 to Carrington's quarterly report on Form 10-Q for the quarter ended September 30, 1997).
10.20 Supply Agreement dated August 14, 1997 between Caraloe, Inc. and Mannatech, Inc.(incorporated herein by reference to Exhibit 10.3 to Carrington's quarterly report on Form 10-Q for the quarter ended September 30, 1997).
10.21 Letter of Agreement dated January 12, 2000 extending Trademark License Agreement and Supply Agreement between Caraloe, Inc. and Mannatech, Inc. (incorporated by reference to Exhibit 10.21 to Carrington's 1999 Annual Report on Form 10-K).
10.22 Trademark License and Product Supply Agreement dated July 22, 1997 between Caraloe, Inc., and Nu Skin International, Inc. (incorporated herein by reference to Exhibit 10.1 to Carrington's quarterly report on Form 10-Q for the quarter ended September 30, 1997).
10.23 Non-exclusive Sales and Distribution Agreement dated August 22, 1995 between Innovative Technologies Limited and Carrington Laboratories, Inc. (incorporated herein by reference to Exhibit 10.6 to Carrington's Third Quarter 1995 Report on Form 10-Q).
10.24 Supplemental Agreement dated October 16, 1995 to Non- exclusive Sales and Distribution Agreement between Innovative Technologies Limited and Carrington Laboratories, Inc.(incorporated herein by reference to Exhibit 10.7 to Carrington's Third Quarter 1995 Report on Form 10-Q).
10.25 Product Development and Exclusive Distribution Agreement dated November 10, 1995 between Innovative Technologies Limited and Carrington Laboratories, Inc.(incorporated herein by reference to Exhibit 10.8 to Carrington's Third Quarter 1995 Report on Form 10- Q).
Exhibit Sequentially Number Exhibit Numbered Page ------ ------------------------------------------------------ ------------- 10.26 Form of Stock Purchase Agreement dated April 5, 1995 between Carrington Laboratories, Inc. and persons named in Annex I thereto (incorporated herein by reference to Exhibit 2.1 to Carrington's Registration Statement 33-60833 on Form S-3).
10.27 Form of Registration Rights Agreement dated June 20, 1995 between Carrington Laboratories, Inc. and persons named in Annex I thereto (incorporated herein by reference to Exhibit 2.2 to Carrington's Registration Statement 33-60833 on Form S-3).
10.28 Supply and Distribution Agreement dated March 22, 1996 between Farnam Companies, Inc. and Carrington Laboratories, Inc. (incorporated herein by reference to Exhibit 10.76 to Carrington's 1995 Annual Report on Form 10-K).
10.29 Distribution Agreement dated March 1, 1996 between Carrington Laboratories, Inc. and Ching Hwa Pharmaceutical Co., Ltd. (incorporated herein by reference to Exhibit 10.1 to Carrington's First Quarter 1996 Report on Form 10-Q).
10.30+ Carrington Laboratories, Inc. 1995 Stock Option Plan, As Amended and Restated Effective January 15, 1998 (incorporated herein by reference to Exhibit 10.3 to Carrington's Quarterly Report on Form 10-Q for the quarter ended March 31, 1998).
10.31+ Form of Nonqualified Stock Option Agreement with Outside Director, relating to the Registrant's 1995 Stock Option Plan, as amended (incorporated herein by reference to Exhibit 10.3 to Carrington's Quarterly Report on Form 10-Q for the quarter ended June 30, 1998).
10.32+ Form of Incentive Stock Option Agreement for Employees (incorporated herein by reference to Exhibit 4.4 to Carrington's Second Quarter 1996 Report on Form 10-Q).
10.33 Sales Distribution Agreement dated September 30, 1996 between Faulding Pharmaceuticals Laboratories and Carrington Laboratories, Inc.(incorporated herein by reference to Exhibit 10.1 to Carrington's Third Quarter 1996 Report on Form 10-Q).
Exhibit Sequentially Number Exhibit Numbered Page ------ ------------------------------------------------------ ------------- 10.34 Amendment Number One to Sales Distribution Agreement dated January 12, 1998 between Carrington Laboratories, Inc., and Faulding Pharmaceuticals/ David Bull Laboratories (incorporated herein by reference to Exhibit 10.75 to Carrington's 1997 Annual Report on Form 10-K).
10.35 Sales Distribution Agreement dated December 1, 1996 between Suco International Corp. and Carrington Laboratories, Inc. (incorporated by reference to Exhibit 10.54 to Carrington's 1996 Annual Report on Form 10-K).
10.36 Sales Distribution Agreement dated December 20, 1996 between Recordati, S.P.A. and Carrington Laboratories, Inc. and Carrington Laboratories Belgium N.V.(incorporated by reference to Exhibit 10.55 to Carrington's 1996 Annual Report on Form 10- K).
10.37 Nonexclusive Distribution Agreement dated November 15, 1996 between Polymedica Industries, Inc. and Carrington Laboratories, Inc. (incorporated by reference to Exhibit 10.56 to Carrington's 1996 Annual Report on Form 10-K).
10.38 Sales Distribution Agreement dated December 24, 1996 between Gamida-Medequip Ltd. and Carrington Laboratories, Inc. (incorporated by reference to Exhibit 10.57 to Carrington's 1996 Annual Report on Form 10-K).
10.39 Sales Distribution Agreement dated December 24, 1996 between Gamida For Life BV and Carrington Laboratories, Inc. (incorporated by reference to Exhibit 10.58 to Carrington's 1996 Annual Report on Form 10-K).
10.40 Sales Distribution Agreement dated December 4, 1996 between Darrow Laboratorios S/A and Carrington Laboratories, Inc. (incorporated by reference to Exhibit 10.59 to Carrington's 1996 Annual Report on Form 10-K).
Exhibit Sequentially Number Exhibit Numbered Page ------ ------------------------------------------------------ ------------- 10.41 Independent Sales Representative Agreement dated June 1, 1998 between Meares Medical Sales Associates and Carrington Laboratories, Inc. (incorporated by reference to Exhibit 10.41 to Carrington's 1999 Annual Report on Form 10-K).
10.42 Supply Agreement dated February 13, 1997 between Aloe Commodities International, Inc. and Caraloe, Inc. (incorporated by reference to Exhibit 10.63 to Carrington's 1996 Annual Report on Form 10-K).
10.43 Trademark License Agreement dated March 1, 1997 between Light Resources Unlimited and Carrington Laboratories, Inc. (incorporated by reference to Exhibit 10.64 to Carrington's 1996 Annual Report on Form 10-K).
10.44 Supply Agreement dated February 13, 1997 between Light Resources Unlimited and Caraloe, Inc. (incorporated by reference to Exhibit 10.65 to Carrington's 1996 Annual Report on Form 10-K).
10.45 Sales Distribution Agreement dated December 27, 1996 between Penta Farmaceutica, S.A. and Carrington Laboratories, Inc. (incorporated by reference to Exhibit 10.66 to Carrington's 1996 Annual Report on Form 10-K).
10.46 Sales Distribution Agreement dated November 1, 1995 between Laboratories PiSA S.A. DE C.V. and Carrington Laboratories, Inc. (incorporated by reference to Exhibit 10.70 to Carrington's 1996 Annual Report on Form 10-K).
10.47 Sales Distribution Agreement dated January 1, 1998 between Carrington Laboratories, Inc. and Carrington Laboratories Belgium N.V. and Henry Schein U.K. Holdings, Ltd., (incorporated herein by reference to Exhibit 10.1 to Carrington's Quarterly Report on Form 10-Q for the quarter ended March 31, 1998).
10.48 Sales Distribution Agreement dated January 5, 1998 between Carrington Laboratories, Inc. and Carrington Laboratories Belgium N.V. and Saude 2000 (incorporated herein by reference to Exhibit 10.2 to Carrington's Quarterly Report on Form 10-Q for the quarter ended March 31, 1998).
Exhibit Sequentially Number Exhibit Numbered Page ------ ------------------------------------------------------ ------------- 10.49 Sales Distribution Agreement dated March 27, 1998 between Carrington Laboratories, Inc. and Carrington Laboratories Belgium N.V. and Hemopharm GmbH (incorporated herein by reference to Exhibit 10.4 to Carrington's Quarterly Report on Form 10-Q for the quarter ended March 31, 1998).
10.50 Sales Distribution Agreement dated March 27, 1998 between Carrington Laboratories, Inc. and Carrington Laboratories Belgium N.V. and Vincula International Trade Company (incorporated herein by reference to Exhibit 10.5 to Carrington's Quarterly Report on Form 10-Q for the quarter ended March 31, 1998).
10.51 Agency and Sales Distribution Agreement dated April 13, 1998 between Carrington Laboratories, Inc. and Carrington Laboratories Belgium N.V. and Egyptian American Medical Industries, Inc. (incorporated herein by reference to Exhibit 10.1 to Carrington's Quarterly Report on Form 10-Q for the quarter ended June 30, 1998).
10.52 Sales Distribution Agreement dated April 24, 1998 between Carrington Laboratories, Inc. and Carrington Laboratories Belgium N.V. and CSC Pharmaceuticals Ltd. Dublin (incorporated herein by reference to Exhibit 10.2 to Carrington's Quarterly Report on Form 10-Q for the quarter ended June 30, 1998).
10.53 Amendment Number One dated May 27, 1999 to the Sales Distribution Agreement dated April 17, 1998 between Carrington Laboratories, Inc. and Carrington Laboratories, Belgium, NV and CSC Pharmaceuticals, Ltd., Dublin (incorporated herein by reference to Exhibit 10.5 to Carrington's Quarterly Report on Form 10-Q for the quarter ended June 30, 1999).
10.54 Promissory Note of Aloe Commodities International, Inc.,dated June 17, 1998, payable to the order of the Registrant in the principal amount of $200,000 (incorporated herein by reference to Exhibit 10.4 to Carrington's Quarterly Report on Form 10-Q for the quarter ended June 30, 1998).
10.55 Letter agreements dated September 30, 1998 and November 4, 1998 between Aloe Commodities International, Inc. and the Registrant amending due date of Promissory Note dated June 17, 1998 from Aloe Commodities International, Inc. to the Registrant (incorporated herein by reference to Exhibit 10.2 to Carrington's Quarterly Report on Form 10-Q for the quarter ended September 30, 1998).
Exhibit Sequentially Number Exhibit Numbered Page ------ ------------------------------------------------------ ------------- 10.56 Letter Agreement dated February 4, 1999 between Aloe Commodities International, Inc. and the Registrant amending due date of Promissory Note dated June 17, 1998 from Aloe Commodities International, Inc. to the Registrant (incorporated herein by reference to Exhibit 10.98 to Carrington's 1998 Annual Report on Form 10-K).
10.57 Promissory Note dated July 1, 1998 of Rancho Aloe, (C.R.) S.A. payable to the order of the Registrant in the principal amount of $186,655.00 (incorporated herein by reference to Exhibit 10.1 to Carrington's Quarterly Report on Form 10-Q for the quarter ended September 30, 1998).
10.58 Wound and Skin Care Purchase Agreement dated August 27, 1998 between American Association for Homes & Services for the Aging and Carrington Laboratories, Inc. (incorporated herein by reference to Exhibit 10.2 to Carrington's Quarterly Report on Form 10-Q for the quarter ended September 30, 1998).
10.59 Purchase Agreement dated October 1, 1998 between Vencor, Inc. and Carrington Laboratories, Inc. (incorporated herein by reference to Exhibit 10.3 to Carrington's Quarterly Report on Form 10-Q for the quarter ended September 30, 1998).
10.60 Supply Agreement dated October 12, 1998 between Caraloe, Inc. and One Family, Inc. (incorporated herein by reference to Exhibit 10.90 to Carrington's 1998 Annual Report on Form 10-K).
10.61 Trademark License Agreement dated October 12, 1998 between Caraloe, Inc. and One Family, Inc. (incorporated herein by reference to Exhibit 10.91 to Carrington's 1998 Annual Report on Form 10-K).
10.62 Promissory Note of Aloe & Herbs International, Inc. dated November 23, 1998 payable to the order of the Registrant in the principal amount of $300,000 (incorporated herein by reference to Exhibit 10.92 to Carrington's 1998 Annual Report on Form 10-K).
Exhibit Sequentially Number Exhibit Numbered Page ------ ------------------------------------------------------ ------------- 10.63 Supply Agreement dated December 3, 1998 between Caraloe, Inc. and Eventus International, Inc. (incorporated herein by reference to Exhibit 10.93 to Carrington's 1998 Annual Report on Form 10-K).
10.64 Trademark License Agreement dated December 3, 1998 between Caraloe, Inc. and Eventus International, Inc. (incorporated herein by reference to Exhibit 10.94 to Carrington's 1998 Annual Report on Form 10-K).
10.65 Amendment Number One dated December 3, 1998 to Supply Agreement between Caraloe, Inc. and Eventus International, Inc. (incorporated herein by reference to Exhibit 10.95 to Carrington's 1998 Annual Report on Form 10-K).
10.66 Clinical Services Agreement dated January 25, 1999 between Carrington Laboratories, Inc. and PPD Pharmaco, Inc. (incorporated herein by reference to Exhibit 10.96 to Carrington's 1998 Annual Report on Form 10-K).
10.67 Common Stock Purchase Warrant dated November 23, 1998, issued by Aloe and Herbs International, Inc. to Carrington Laboratories, Inc. (incorporated herein by reference to Exhibit 10.99 to Carrington's 1998 Annual Report on Form 10-K).
10.68 Supply Agreement dated March 5, 1999 between Caraloe, Inc. and For Your Health, Inc. (incorporated herein by reference to Exhibit 10.1 to Carrington's Quarterly Report on Form 10-Q for the quarter ended March 31, 1999).
10.69 Trademark License Agreement dated March 5, 1999 between Caraloe, Inc. and For Your Health, Inc. (incorporated herein by reference to Exhibit 10.1 to Carrington's Quarterly Report on Form 10-Q for the quarter ended March 31, 1999).
10.70 Letter dated February 25, 1999 from Aloe Commodities, Inc. to Carrington Laboratories, Inc. (incorporated herein by reference to Exhibit 10.1 to Carrington's Quarterly Report on Form 10-Q for the quarter ended March 31, 1999).
Exhibit Sequentially Number Exhibit Numbered Page ------ ------------------------------------------------------ ------------- 10.71 Exclusive Sales Representative Agreement dated April 13, 1999, between Caraloe, Inc. and Classic Distributing Company (incorporated herein by reference to Exhibit 10.1 to Carrington's Quarterly Report on Form 10-Q for the quarter ended June 30, 1999).
10.72 Exclusive Sales Representative Agreement dated April 13, 1999, between Caraloe, Inc. and Glenn Corporation (incorporated herein by reference to Exhibit 10.1 to Carrington's Quarterly Report on Form 10-Q for the quarter ended June 30, 1999).
10.73 Terms Sheet for Lease of Rancho Aloe Farm Land to Sabila Industrial dated April 20, 1999 (incorporated herein by reference to Exhibit 10.1 to Carrington's Quarterly Report on Form 10-Q for the quarter ended June 30, 1999).
10.74 Terms Sheet for Maintenance of Sabila Industrial Plants on Leased Land dated April 20, 1999 (incorporated herein by reference to Exhibit 10.1 to Carrington's Quarterly Report on Form 10-Q for the quarter ended June 30, 1999).
10.75 Exclusive Sales and Trademark Agreement dated June 11, 1999, between Caraloe, Inc. and Nutra Vine (incorporated herein by reference to Exhibit 10.1 to Carrington's Quarterly Report on Form 10-Q for the quarter ended September 30, 1999).
10.76 Lease Agreement dated September 23, 1999 between Rancho Aloe and Sabila Industrial, S.A. (incorporated herein by reference to Exhibit 10.1 to Carrington's Quarterly Report on Form 10-Q for the quarter ended September 30, 1999).
10.77 Letter Agreement dated September 29, 1999 between Aloe Commodities International, Inc. and Carrington Laboratories, Inc. (incorporated herein by reference to Exhibit 10.1 to Carrington's Quarterly Report on Form 10-Q for the quarter ended September 30, 1999).
10.78 Sales Distribution Agreement dated October 26, 1999. between Carrington Laboratories, Inc. and E-Wha International, Inc. (incorporated by reference to Exhibit 10.78 to Carrington's 1999 Annual Report on Form 10-K).
Exhibit Sequentially Number Exhibit Numbered Page ------ ------------------------------------------------------ ------------- 10.79 Amendment Number Two dated February 14, 2000 to the Sales Distribution Agreement dated April 17, 1998 between Carrington Laboratories, Inc. and Carrington Laboratories, Belgium, NV and CSC Pharmaceuticals, Ltd. Dublin (incorporated by reference to Exhibit 10.79 to Carrington's 1999 Annual Report on Form 10- K).
10.80 Supplier Agreement dated August 6, 1999 between Novation, LLC and Carrington Laboratories, Inc. MS 91022 (incorporated by reference to Exhibit 10.80 to Carrington's 1999 Annual Report on Form 10-K).
10.81 Supplier Agreement dated August 6, 1999 between Novation, LLC and Carrington Laboratories, Inc. MS 91032 (incorporated by reference to Exhibit 10.81 to Carrington's 1999 Annual Report on Form 10-K).
10.82 Distributor and License Agreement dated November 3, 2000 between Carrington Laboratories, Inc. and Medline Industries, Inc. (Exhibits A, B and C to this agreement have been excluded pursuant to a request for confidential treatment submitted by the registrant to the Securities and Exchange Commission)(incorporated by reference to Exhibit 10.82 to Carrington's 1999 Annual Report on Form 10- K).
10.83 Supply Agreement dated November 3, 2000 between Carrington Laboratories, Inc. and Medline Industries, Inc. (Exhibit A to this agreement has been excluded pursuant to a request for confidential treatment submitted by the registrant to the Securities and Exchange Commission, (incorporated by reference to
10.84 Lease Agreement dated January 22, 2001 between Plazamerica, Inc and Carrington Laboratories, Inc.
10.85+ Employee Stock Purchase Plan of Carrington Laboratories, Inc., as amended through May 17, 2001 (incorporated by reference to Exhibit 10.1 to Carrington's Quarterly Report on Form 10-Q for the quarter ended June 30, 2001).
10.86+ 1995 Stock Option Plan of Carrington Laboratories, Inc., as amended and Restated Effective January 15, 1998 and further amended through May 17, 2001 (incorporated by reference to Exhibit 10.2 to Carrington's Quarterly Report on Form 10-Q for the quarter ended June 30, 2001).
Exhibit Sequentially Number Exhibit Numbered Page ------ ------------------------------------------------------ ------------- 10.87+ Employee Stock Purchase Plan of Carrington Laboratories, Inc., as amended through November 15, 2001 (incorporated by reference to Exhibit 10.87, filed on Carrington's Form 8-K on March 20, 2002).
21.1* Subsidiaries of Carrington.
23.1* Consent of Independent Auditors
* Filed herewith. + Management contract or compensatory plan.