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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
x QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES AND
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2002.
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ____________ TO
____________.
COMMISSION FILE NO. 0-9036
LANNETT COMPANY, INC.
(EXACT NAME OF SMALL BUSINESS ISSUER AS SPECIFIED IN ITS CHARTER)
STATE OF DELAWARE 23-0787-699
(STATE OF INCORPORATION) (I.R.S. EMPLOYER I.D. NO.)
9000 STATE ROAD
PHILADELPHIA, PA 19136
(215) 333-9000
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES AND TELEPHONE NUMBER)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
YES X NO
----- ----
As of October 29, 2002, there were 13,270,603 shares of the issuer's common
stock, $.001 par value, outstanding.
Page 1 of 18 pages
Exhibit Index on Page 15
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INDEX
PAGE NO.
--------
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
Consolidated Balance Sheets as of
September 30, 2002 (unaudited) and
June 30, 2002............................................................................. 3
Consolidated Statements of Income
for the three months ended September 30, 2002
and 2001 (unaudited)...................................................................... 4
Consolidated Statements of Cash Flows
for the three months ended September 30, 2002
and 2001 (unaudited)...................................................................... 5
Notes to Consolidated Financial
Statements (unaudited)................................................................ 6 - 7
ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations............................................................................. 8 - 11
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings............................................................................ 11
ITEM 2. Changes in Securities and Use of Proceeds.................................................... 12
ITEM 3. Defaults upon Senior Securities.............................................................. 12
ITEM 4. Submission of Matters to a Vote of Security Holders.......................................... 12
ITEM 5. Other Information............................................................................ 12
ITEM 6. Exhibits and Reports on Form 8-K............................................................. 14
2
PART I. FINANCIAL INFORMATION
ITEM I. FINANCIAL STATEMENTS
LANNETT COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
ASSETS 9/30/02 6/30/02
------ -------- -------
CURRENT ASSETS:
Cash $ 1,883,312 $ --
Trade accounts receivable (net of allowances
of $128,000 and $42,000) 5,408,863 4,465,885
Inventories 4,994,808 4,937,207
Prepaid expenses 243,306 106,170
Restricted cash 244,532 --
Deferred tax asset 300,368 300,368
------------ ------------
Total current assets 13,075,189 9,809,630
------------ ------------
PROPERTY, PLANT AND EQUIPMENT 10,728,830 10,144,968
Less accumulated depreciation (3,863,935) (3,616,044)
------------ ------------
6,864,895 6,528,924
------------ ------------
OTHER ASSETS 600,934 369,949
------------ ------------
Total assets $ 20,541,018 $ 16,708,503
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Line of Credit $ -- $ 202,688
Current portion of long-term debt 596,517 596,517
Accounts payable 1,259,157 733,984
Accrued expenses 693,182 657,891
Income taxes payable 1,640,573 726,552
------------ ------------
Total current liabilities 4,189,429 2,917,632
------------ ------------
LONG-TERM DEBT, LESS CURRENT PORTION 3,343,740 3,343,333
------------ ------------
DEFERRED TAX LIABILITY 681,489 681,489
------------ ------------
TOTAL LIABILITIES 8,214,658 6,942,454
------------ ------------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Common stock -
authorized 50,000,000 shares par value $.001:
issued and outstanding, 13,270,603 shares 13,271 13,263
Additional paid-in capital 2,375,542 2,366,892
Retained earnings 9,937,547 7,385,894
------------ ------------
Total shareholders' equity 12,326,360 9,766,049
------------ ------------
Total liabilities and shareholders' equity $ 20,541,018 $ 16,708,503
============ ============
See notes to consolidated financial statements
3
LANNETT COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
FOR THE THREE MONTHS ENDED
--------------------------
9/30/02 9/30/01
------- -------
NET SALES $ 9,126,656 $ 4,072,832
COST OF SALES 3,836,110 1,546,444
------------ ------------
Gross profit 5,290,546 2,526,388
RESEARCH AND DEVELOPMENT EXPENSES 456,811 346,804
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 893,525 665,304
------------ ------------
Operating profit 3,940,210 1,514,280
------------ ------------
OTHER INCOME (EXPENSE):
Interest income-restricted -- 11,903
Interest expense, including $0 and $70,792 to shareholder (23,940) (121,298)
------------ ------------
(23,940) (109,395)
------------ ------------
NET INCOME BEFORE TAXES 3,916,270 1,404,885
------------ ------------
INCOME TAXES 1,364,617 491,710
------------ ------------
NET INCOME $ 2,551,653 $ 913,175
============ ============
BASIC INCOME PER SHARE $ 0.19 $ 0.07
============ ============
DILUTED INCOME PER SHARE $ 0.19 $ 0.07
============ ============
BASIC WEIGHTED AVERAGE
NUMBER OF SHARES 13,270,603 13,206,128
============ ============
DILUTED WEIGHTED AVERAGE
NUMBER OF SHARES 13,359,254 13,245,769
============ ============
See notes to consolidated financial statements
4
LANNETT COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
FOR THE THREE MONTHS ENDED
--------------------------
9/30/02 9/30/01
------- -------
OPERATING ACTIVITIES:
Net income $ 2,551,653 $ 913,175
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 258,474 196,474
Deferred income tax expense -- 491,710
Changes in assets and liabilities which provided/(used) cash:
Trade accounts receivable (942,978) 1,716,221
Inventories (57,601) 15,677
Prepaid expenses and other assets (137,136) (83,801)
Accounts payable 525,173 (416,151)
Accrued expenses 35,291 (32,219)
Income taxes payable 914,021 --
----------- -----------
Net cash provided by operating activities 3,146,897 2,801,086
----------- -----------
INVESTING ACTIVITIES:
Purchases of property, plant and equipment (583,862) (539,835)
Deposits paid on machinery and equipment not placed in service (241,568) --
----------- -----------
Net cash used in investing activities (825,430) (539,835)
----------- -----------
FINANCING ACTIVITIES:
Net repayments under line of credit (202,688) (1,187,868)
Net repayments under line of credit-shareholder -- (1,250,000)
Repayments of debt (244,125) (122,207)
Proceeds from debt, net of restricted cash -- 298,824
Proceeds from issuance of stock 8,658 --
----------- -----------
Net cash used in financing activities (438,155) (2,261,251)
----------- -----------
NET INCREASE IN CASH 1,883,312 --
CASH, BEGINNING OF PERIOD -- --
----------- -----------
CASH, END OF PERIOD $ 1,883,312 $ --
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest paid during period $ 23,940 $ 135,344
Income taxes paid during period $ 450,596 $ 16,790
See notes to consolidated financial statements
5
LANNETT COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1. CONSOLIDATED FINANCIAL STATEMENTS
In the opinion of management, the accompanying unaudited consolidated
financial statements contain all adjustments (consisting of only normal
recurring adjustments) necessary to present fairly the financial position
and the results of operations and cash flows.
The results of operations for the three months ended September 30, 2002 and
2001 are not necessarily indicative of results for the full year.
While the Company believes that the disclosures presented are adequate to
make the information not misleading, it is suggested that these consolidated
financial statements be read in conjunction with the consolidated financial
statements and the notes included in the Company's Annual Report on Form
10-KSB for the year ended June 30, 2002.
NOTE 2. NEW ACCOUNTING STANDARDS
On July 20, 2001, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) 141, Business Combinations,
and SFAS 142, Goodwill and Intangible Assets. SFAS 141 is effective for all
business combinations completed after June 30, 2001. SFAS 142 is effective for
fiscal years beginning after December 15, 2001; however, certain provisions of
this Statement apply to goodwill and other intangible assets acquired between
July 1, 2001 and the effective date of SFAS 142. Major provisions of these
Statements and their effective dates for the Company are as follows:
- all business combinations initiated after June 30, 2001 must use the
purchase method of accounting. The pooling of interest method of accounting
is prohibited except for transactions initiated before July 1, 2001.
- intangible assets acquired in a business combination must be recorded
separately from goodwill if they arise from contractual or other legal
rights or are separable from the acquired entity and can be sold,
transferred, licensed, rented or exchanged, either individually or as part
of a related contract, asset or liability
- goodwill, as well as intangible assets with indefinite lives, acquired
after June 30, 2001, will not be amortized. Effective July 1, 2002, all
previously recognized goodwill and intangible assets with indefinite lives
will no longer be subject to amortization.
- Effective July 1, 2002, goodwill and intangible assets with indefinite
lives will be tested for impairment annually and whenever there is an
impairment indicator
- all acquired goodwill must be assigned to reporting units for purposes of
impairment testing and segment reporting.
Management's assessment is that these Statements did not have a material impact
on the Company's financial position or results of operations.
In August 2001, the FASB issued SFAS 143, Accounting for Asset Retirement
Obligations. SFAS 143 applies to all entities, including rate-regulated
entities, that have legal obligations associated with the retirement of a
tangible long-
6
lived asset that results from acquisition, construction or development and (or)
normal operations of the long-lived asset. The application of this Statement is
not limited to certain specialized industries, such as the extractive or nuclear
industries. This Statement also applies, for example, to a company that operates
a manufacturing facility and has a legal obligation to dismantle the
manufacturing plant and restore the underlying land when it cease operation of
that plant. A liability for an asset retirement obligation should be recognized
if the obligation meets the definition of a liability and can be reasonably
estimated. The initial recording should be at fair value. SFAS 143 is effective
for financial statements issued for fiscal years beginning after June 15, 2002,
with earlier application encouraged. The provisions of the Statement do not have
a material impact on the financial condition or results of operations of the
Company.
In August 2001, the FASB issued SFAS 144, Accounting for the Impairment or
Disposal of Long-Lived Assets. SFAS No. 144 retains the existing requirements to
recognize and measure the impairment of long-lived assets to be held and used or
to be disposed of by sale. However, SFAS 144 makes changes to the scope and
certain measurement requirements of existing accounting guidance. SFAS 144 also
changes the requirements relating to reporting the effects of a disposal or
discontinuation of a segment of a business. SFAS 144 is effective for financial
statements issued for fiscal years beginning after December 15, 2001 and interim
periods within those fiscal years. The adoption of this statement does not have
a significant impact on the financial condition or results of operations of the
Company.
In April 2002, FASB issued SFAS 145, Rescission of FASB Statements No. 4, 44 and
64, Amendment of FASB No. 13, and Technical Corrections. SFAS No. 145 changes
the accounting principles governing extraordinary items by clarifying and, to
some extent, modifying the existing definition and criteria, specifying
disclosure for extraordinary items and specifying disclosure requirements for
other unusual or infrequently occurring events and transactions that are not
extraordinary items. SFAS 145 is effective for financial statements issued for
fiscal years beginning after June 15, 2002, with early adoption encouraged. The
adoption of this statement does not have a significant impact on the financial
condition or results of operations of the Company.
In July 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities" (SFAS 146). SFAS 146 requires companies to
recognize costs associated with exit or disposal activities when they are
incurred rather than at the date of a commitment to an exit or disposal plan.
SFAS 146 is effective prospectively for exit and disposal activities initiated
after December 31, 2002. As the provisions of SFAS 146 are to be applied
prospectively after adoption date, the Company cannot determine the potential
effects that the adoption of SFAS 146 will have on its consolidated financial
statements.
NOTE 3. INVENTORIES
Inventories consist of the following:
September 30, June 30,
2002 2002
------------- -------------
(unaudited)
Raw materials $ 2,736,569 $ 2,479,344
Work-in-process 633,524 691,346
Finished goods 1,407,817 1,560,029
Packaging supplies 216,898 206,488
------------- -------------
$ 4,994,808 $ 4,937,207
============= =============
7
NOTE 4. INCOME TAXES
The provision for federal and state income taxes for the three months ended
September 30, 2002 and 2001 was $1,364,617 and $491,710, respectively.
NOTE 5. RELATED PARTY TRANSACTIONS
The Company had sales of approximately $27,000 and $37,000 during the three
months ended September 30, 2002 and 2001, respectively, to a distributor (the
"related party") in which the owner is a relative of the Chairman of the Board
of Directors and principal shareholder of the Company. The Company also incurred
sales commissions payable to the related party of approximately $65,000 during
each of the three months ended September 30, 2002 and 2001. Accounts receivable
includes amounts due from the related party of approximately $24,000 and $59,000
at September 30, 2002 and June 30, 2002, respectively. Accrued expenses includes
amounts due to the related party of approximately $12,000 and $8,000 at
September 30, 2002 and June 30, 2002, respectively. In the Company's opinion,
the terms of these transactions were not more favorable than would have been
from a non-related party.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
RESULTS OF OPERATIONS.
In addition to historical information, this Form 10-QSB contains
forward-looking information. The forward-looking information contained herein is
subject to certain risks and uncertainties that could cause actual results to
differ materially from those projected in the forward-looking statements.
Important factors that might cause such a difference include, but are not
limited to, those discussed in the following section entitled "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
Readers are cautioned not to place undue reliance on these forward-looking
statements, which reflect management's analysis only as of the date of this Form
10-QSB. The Company undertakes no obligation to publicly revise or update these
forward-looking statements to reflect events or circumstances which arise later.
Readers should carefully review the risk factors described in other documents
the Corporation files from time to time with the Securities and Exchange
Commission, including the Annual report on Form 10-KSB filed by the Corporation
in Fiscal 2002, and any Current Reports on Form 8-K filed by the corporation.
RESULTS OF OPERATIONS -THREE MONTHS ENDED SEPTEMBER 30, 2002 COMPARED
WITH THREE MONTHS ENDED SEPTEMBER 30, 2001.
Net sales for the three months ended September 30, 2002 ("First Quarter
Fiscal 2003") increased by 124% to $9,126,656 from net sales of $4,072,832 for
the three months ended September 30, 2001 ("First Quarter Fiscal 2002"). Sales
increased during First Quarter Fiscal 2003 as a result of higher sales of the
Company's prescription (Rx) line of products, including Butalbital, Aspirin,
Caffeine with Codeine Capsules, which was first marketed in December 2001, and
Digoxin Tablets, which was first marketed in September 2002. Additionally, sales
increased
8
due to improved marketing activities, new customer accounts, favorable market
conditions, increased unit sales, and increased unit revenues on a portion of
the Company's niche line of products. The increase in Rx sales was offset by a
decrease in over-the-counter (OTC) product sales, due to increased competition.
Rx sales increased by approximately $5,386,000 from First Quarter Fiscal 2002 to
First Quarter Fiscal 2002. OTC product sales decreased by approximately $332,000
from First Quarter Fiscal 2002 to First Quarter Fiscal 2003.
Cost of sales increased by 148%, to $3,836,110 in First Quarter Fiscal
2003 from $1,546,444 in First Quarter Fiscal 2002. The cost of sales increase is
due to an increase in direct variable costs and certain indirect overhead costs
as a result of the increase in sales volume, and related production activities.
These costs include raw materials, labor and benefit expenses, and depreciation
expense. Gross profit margins for First Quarter Fiscal 2003 and First Quarter
Fiscal 2002 were 58% and 62%, respectively. The decrease in the gross profit
percentage is due to increased raw material costs and the product sales mix.
Research and development expenses increased by 32% to $456,811 in First
Quarter Fiscal 2003 from $346,804 in First Quarter Fiscal 2002. This increase is
a result of an increase in the cost of materials related to the development and
formulation of new products not yet approved by the FDA.
Selling, general and administrative expenses increased by 34% to
$893,525 in First Quarter Fiscal 2003 from $665,304 in First Quarter Fiscal
2002. This increase is a result increased payroll and benefit expenses due to
the hiring of additional administrative employees, and higher professional
services fees, partially offset by a decrease in commission expenses due to the
Company's reduction of fees related to sales brokerage contracts.
As a result of the foregoing, the Company increased its operating
profit to $3,940,210 for First Quarter Fiscal 2003, from $1,514,280 for First
Quarter Fiscal 2002.
The Company's interest expense decreased to $23,940 in First Quarter
Fiscal 2003 from $121,298 in First Quarter Fiscal 2002 as a result of principal
repayments and reduced interest rates. See Liquidity and Capital Resources
below.
The Company's income tax expense increased from $491,710 in First
Quarter Fiscal 2002 to $1,364,617 in First Quarter Fiscal 2003 as a result of
the increase in taxable income.
The Company reported net income of $2,551,653 for First Quarter Fiscal
2003, or $0.19 basic and diluted income per share, compared to net income of
$913,175 for First Quarter Fiscal 2002, or $0.07 basic and diluted income per
share.
LIQUIDITY AND CAPITAL RESOURCES -
Net cash provided by operating activities of $3,146,897 for First
Quarter Fiscal 2003 was attributable to net income of $2,551,653, as adjusted
for the effects of non-cash items of $258,474 and net changes in operating
assets and liabilities totaling $336,770. Significant changes in operating
assets and liabilities are comprised of: (i) an increase in accounts receivable
of $942,978 due to increased sales, (ii) a increase in accounts payable of
$525,173 due to increased operational expenses, inventory carrying levels and
capital equipment purchases and (iii) an increase in income taxes payable of
$914,021 due to higher taxable income and the accrual of the related income
taxes, which will be paid when the Company's estimated tax filings and income
tax returns are due.
9
The net cash used in investing activities of $825,430 for First Quarter
Fiscal 2003 was attributable to $583,862 expended for equipment and building
additions and $241,568 in deposits paid for equipment not yet received or placed
in service, or building additions not yet completed. The Company's anticipated
budget for capital expenditures in Fiscal 2003 is approximately $1,700,000. The
anticipated additional capital expenditure requirements will support the
Company's growth related to new product introductions and increased production
output due to expected higher sales levels. As of September 30, 2002, none of
the financing proceeds received from the bonds issued during Fiscal 1999 were
available for future capital expenditures; however approximately $452,000 was
paid by the Company prior to September 30, 2002 for production equipment
expected to arrive, or be placed in service during the Fiscal Year 2003. This
balance is included in Other Assets at September 30, 2002.
The Company has a $4,250,000 revolving line of credit from a
shareholder who is also the Chairman of the Board ("Shareholder Line of
Credit"). At September 30, 2002, the Company has no amount outstanding and
$4,250,000 available under this line of credit. The maturity date on the
Shareholder Line of Credit was extended to December 1, 2002. There was no
accrued interest at September 30, 2002 and June 30, 2002.
In April 1999, the Company entered into a loan agreement (the
"Agreement") with a governmental authority (the "Authority") to finance future
construction and growth projects of the Company. The Authority has issued
$3,700,000 (the "Authority Loan") in tax-exempt variable rate demand and fixed
rate revenue bonds to provide the funds to finance such growth projects pursuant
to a trust indenture ("the "Trust Indenture"). A portion of the Company's
proceeds from the bonds was used to pay for bond issuance costs of approximately
$170,000. The remainder of the proceeds was deposited into a money market
account, which is restricted to future plant and equipment needs of the Company
as specified in the Agreement. The Trust Indenture requires the Company to repay
the Authority Loan through installment payments beginning in May 2003 and
continuing through May 2014, the year the bonds mature. At September 30, 2002,
the Company has $3,700,000 outstanding on the Authority Loan, of which $356,260
is classified as currently due. The remainder is classified as a long-term
liability. In April 1999, an irrevocable letter of credit of $3,770,000 was
issued by a bank to secure payment of the Authority Loan and a portion of the
related accrued interest. At September 30, 2002, no portion of the letter of
credit has been utilized.
In April 1999, the Company authorized and directed the issuance of
$2,300,000 in taxable variable rate demand and fixed rate revenue bonds pursuant
to a trust indenture between the Company and a bank as trustee. From the
proceeds of the bonds, $750,000 was utilized to pay deferred interest owed to
Mr. Farber, the Chairman of the Board of Directors and Chief Executive Officer
of the Company, and approximately $1,440,000 was paid to a bank to refinance a
mortgage term loan and equipment term loans. The remainder of the proceeds was
used to pay bond issuance costs of approximately $109,000. The Trust Indenture
requires the Company to repay the bonds through installment payments beginning
in June 1999 and continuing through May 2003, the year the bonds mature. At
September 30, 2002, the Company has $240,257 outstanding on the bonds, all of
which is classified as currently due. In April 1999, an irrevocable letter of
credit of approximately $1,690,000 was issued by a bank to secure payment of the
bonds and a portion of the related accrued interest. At September 30, 2002, no
portion of the letter of credit has been utilized.
The Company has a $2,000,000 line of credit from a bank. The line of
credit was renewed and extended to November 30, 2002, at which time the Company
expects to renew and extend the due date. The line of credit is limited to 80%
of qualified accounts receivable and 50% of qualified inventory. At September
30, 2002, the Company had $0 outstanding and $2,000,000 available under the line
of credit.
The Company believes that cash generated from its operations, its cash
reserves and the balances available under the Company's existing loans and lines
of credit as of September 30, 2002, are sufficient to finance its level
operations and currently anticipated capital expenditures.
10
Except as set forth in this report, the Company is not aware of any
trends, events or uncertainties that have or are reasonably likely to have a
material adverse impact on the Company's short-term or long-term liquidity or
financial condition.
PROSPECTS FOR THE FUTURE
As of September 30, 2002, there are several new products under
development. Five of these products have been redeveloped and submitted to the
Food and Drug Administration ("FDA") for supplemental approval. The remainder of
the products in development represent either previously approved Abbreviated New
Drug Applications ("ANDA's") which the Company is planning to reintroduce, or
new formulations which the Company will submit ANDA's for FDA approval. The
Company has also begun solicitation of quotes from outside contract development
companies to supplement the Company's internal research and development efforts.
Since the Company has no control over the FDA review process, management is
unable to anticipate whether or when it will be able to begin producing and
shipping additional products.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Regulatory Proceedings. The Company is engaged in an industry which is subject
to considerable government regulation relating to the development, manufacturing
and marketing of pharmaceutical products. Accordingly, incidental to its
business, the Company periodically responds to inquiries or engages in
administrative and judicial proceedings involving regulatory authorities,
particularly the FDA and the Drug Enforcement Agency.
Employee Claims. A claim of retaliatory discrimination has been filed by a
former employee with the Pennsylvania Human Relations Commission ("PHRC"), and
the Equal Employment Opportunity Commission ("EEOC"). The Company has denied
liability in this matter. The PHRC has made a determination that the complaint
against the Company should be dismissed because the facts do not establish
probable cause of the allegations of discrimination. The matter is still pending
before the EEOC. At this time, management is unable to estimate a range of loss,
if any, related to this action. However, management believes that the outcome
will not have a material adverse impact on the financial position of the
Company.
Additionally, two separate claims of discrimination have been filed
against the Company with the PHRC and the EEOC. The Company was notified of the
Complaints in June 2001 and July 2001, respectively. The Company has filed
answers with the PHRC and EEOC denying the allegations. The PHRC and the EEOC
are investigating the claims pursuant to their normal procedures. At this time,
management is unable to estimate a
11
range of loss, if any, related to these actions. However, management believes
that the outcomes will not have a material adverse impact on the financial
position of the Company.
DES Cases. The Company is currently engaged in several civil actions as a
co-defendant with many other manufacturers of Diethylstilbestrol ("DES"), a
synthetic hormone. Prior litigation established that the Company's pro rata
share of any liability is less than one-tenth of one percent. The Company was
represented in many of these actions by the insurance company with which the
Company maintained coverage during the time period that damages were alleged to
have occurred. The insurance company denied coverage of actions filed after
January 1, 1992. With respect to these actions, the Company paid nominal damages
or stipulated to its pro rata share of any liability. The Company has either
settled or is currently defending over 500 such claims. At this time, management
is unable to estimate a range of loss, if any, related to these actions.
However, management believes that the outcomes will not have a material adverse
impact on the financial position of the Company.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
NONE
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
NONE
ITEM 5. OTHER INFORMATION
NONE
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) A list of the exhibits required by Item 601 of Regulation S-B to be
filed as a part of this Form 10-QSB is shown on the Exhibit Index
filed herewith.
(b) The Company did not file any reports on Form 8-K during First Quarter
Fiscal 2003.
12
SIGNATURE
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
LANNETT COMPANY, INC.
Dated: November 11, 2002 By: / s / Larry Dalesandro
-----------------
Larry Dalesandro
Chief Operating Officer
By: / s / William Farber
--------------
William Farber
Chairman of the Board and
Chief Executive Officer
I, Larry Dalesandro, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Lannett
Company, Inc.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;
13
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors:
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial date and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicted in
this quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: November 11, 2002
/s/Larry Dalesandro
-------------------
Chief Operating Officer
I, William Farber, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Lannett
Company, Inc.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;
14
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors:
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial date and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicted in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: November 11, 2002
/s/William Farber
-----------------
Chief Executive Officer
15
EXHIBIT INDEX
11 Computation of Per Share Earnings Filed Herewith 16
99.1 Certification Pursuant to 18 Filed Herewith 17
USC Section 1350
16