Carrington Laboratories, Inc. Reports Second Quarter 2006 Results

IRVING, Texas, Aug. 3 /PRNewswire-FirstCall/ -- Carrington Laboratories, Inc. reported revenue for the quarter ended June 30, 2006 of $6.5 million, compared to record revenue of $8.3 million in the year-ago period. The 21.7 percent decrease was due largely to declines in bulk raw material sales and a $513,000 decline in royalty revenue, which were partially offset by growth in the Company’s other core businesses.

While bulk raw materials sales for the quarter just ended dropped $2.1 million to $1.2 million, revenue from all other consumer services product lines grew 46.5 percent to $2.8 million. Medical services revenue decreased 17.2 percent, the result of decreased royalty revenue. Product sales in this segment increased 2.6 percent to $2.1 million.

Net loss for the second quarter of 2006, which included $1.0 million of net corporate funding for drug delivery research and development activities conducted by the Company’s wholly-owned subsidiary DelSite Biotechnologies, Inc., was $2.2 million, or 20 cents per basic and diluted share. Pro-forma loss for the quarter, before funding of DelSite, was $1.2 million as compared to $1.0 million pro-forma profit in the prior year period. In the prior year period, the Company reported net income of $87,000, or 1 cent per basic and diluted share, after funding of DelSite.

“We are pleased with the growth in our finished products groups and in the outlook for the balance of the year for these product categories,” said Carlton E. Turner, Ph.D., Carrington’s chief executive officer. “DelSite’s drug delivery technologies are gaining broader clinical interest with a recent presentation at the 33rd Annual Meeting of the Controlled Release Society in Vienna, Austria. In October 2006, DelSite will return to Vienna for a presentation at the International Conference on Influenza Vaccines for the World. Additionally, we are preparing for the start of a flu vaccine (egg-based produced antigen) study in humans with our nasal delivery technology.”

Dr. Turner said the Company is negotiating private label manufacturing of several new skin care products, additional nutritional products, and specification modifications to rebuild bulk raw material sales to a major customer. “I am pleased with our solid, intrinsic growth, and I am encouraged by the early progress being made in building our international and bulk raw materials order flow,” he noted.

Revenue for the six months ended June 30, 2006 totaled $14.0 million vs. $16.5 million in the prior year period. Net loss for the six months just ended, which includes DelSite funding, was $3.7 million, or 34 cents per basic and diluted share, compared to a net profit of $7,000 a year ago.

Conference Call Today

Investors are invited to listen to today’s conference call at 4:30 p.m. Eastern, 3:30 p.m. Central, by dialing 866-578-5784 in the US or 617-213-8056 internationally. The pass code is 78076780. The call is also being web cast by CCBN and can be accessed at Carrington’s web site at http://www.carringtonlabs.com. A replay of the call will be available a few hours after the call concludes by dialing 888-286-8010 in the US and 617-801-6888 internationally. The pass code for the replay is 53489314.

The web cast is also being distributed through the Thomson StreetEvents Network to both institutional and individual investors. Individual investors can listen to the call at http://www.fulldisclosure.com, Thomson/CCBN’s individual investor portal, powered by StreetEvents. Institutional investors can access the call via Thomson’s password-protected event management site, StreetEvents (http://www.streetevents.com).

About Carrington

Carrington Laboratories, Inc. is an ISO 9001-certified, research-based, biopharmaceutical and consumer products company currently utilizing naturally- occurring complex carbohydrates to manufacture and market products for mucositis, radiation dermatitis, wound and oral care, as well as to manufacture and market the nutraceutical raw material Manapol(R) and cosmetic raw material Hydrapol(TM). Carrington also manufactures and markets consumer products and manufactures quality products for other companies. Manufacturing operations comply with cGMP standards. Carrington’s DelSite Biotechnologies subsidiary is developing its proprietary GelSite(R) technology designed to provide controlled release of peptide and protein-based drugs. Carrington’s technology is protected by more than 130 patents in 26 countries. Select products carry the CE mark, recognized by more than 20 countries around the world. For more information, visit http://www.carringtonlabs.com.

About DelSite

DelSite Biotechnologies, Inc. was formed based on discoveries at Carrington Laboratories, Inc., and is a wholly-owned subsidiary of Carrington. DelSite Biotechnologies is a drug delivery and biotechnology company established to provide the pharmaceutical and biotechnology industries with novel delivery solutions for vaccines and therapeutic agents. For more information, visit http://www.delsite.com.

Non-GAAP Financial Information

This press release contains the non-generally accepted accounting principle financial measure of Pro forma profit and loss which is defined as net income or loss excluding net DelSite expenses. The amounts included in the calculation of this measure are computed in accordance with generally accepted accounting principles (GAAP). We believe this measure is useful to investors because it may provide users of this financial information with a meaningful measure of the Company’s profitability before funding the research and development activities of its DelSite subsidiary. Pro forma profit and loss is not a measure of financial performance under GAAP and thus should not be considered in isolation. Furthermore, it should not be seen as a substitute for metrics prepared in accordance with GAAP. Our reconciliation of this measure to net income or loss is included in the following tables.

CARRINGTON LABORATORIES, INC. Condensed Consolidated Statements of Operations (unaudited) (in thousands, except per share amounts) Three Months Ended Six Months Ended June 30, June 30, 2006 2005 2006 2005 Revenue: Medical Services $2,112 $2,058 $4,223 $4,112 Royalty income 104 617 208 1,235 Medical Services, total 2,216 2,675 4,431 5,347 Consumer Services 3,956 5,166 8,884 10,367 Grant income, DelSite 352 496 695 806 Total revenues 6,524 8,337 14,010 16,520 Cost and expenses: Cost of product sales 5,043 4,718 10,643 9,590 Selling, general and administrative 1,918 1,915 3,767 3,757 Research and development 162 188 366 453 Research and development - DelSite 1,325 1,415 2,481 2,734 Other income (9) (53) (17) (133) Interest expense, net 240 38 457 82 Net income (loss) before income taxes (2,155) 116 (3,687) 37 Provision for income taxes - 29 - 30 Net income (loss) $(2,155) $87 $(3,687) $7 Net income (loss) per common share - Basic and diluted $(0.20) $0.01 $(0.34) $- Weighted average shares outstanding - Basic 10,836 10,751 10,823 10,741 Weighted average shares outstanding - Diluted 10,836 11,242 10,823 11,361 Reconciliation of Non-GAAP Financial Measures: Net income (loss): $(2,155) $87 $(3,687) $7 Less: DelSite grant income 352 496 695 806 Plus: DelSite expenses 1,325 1,415 2,481 2,734 Pro forma profit (loss) before DelSite $(1,182) $1,006 $(1,901) $1,935 CARRINGTON LABORATORIES, INC Condensed Consolidated Balance Sheets (in thousands) June 30, December 31, 2006 2005 (unaudited) (audited) ASSETS: Current Assets: Cash and cash equivalents $3,320 $6,262 Accounts receivable, net 2,150 2,679 Inventories, net 4,435 4,705 Prepaid expenses 426 392 Total current assets 10,331 14,038 Property, plant and equipment, net 6,483 6,755 Customer relationships, net 296 392 Other assets, net 691 804 Total assets $17,801 $21,989 LIABILITIES AND SHAREHOLDERS’ EQUITY: Current Liabilities: Line of credit $1,811 $1,812 Accounts payable 1,672 2,092 Accrued liabilities 1,420 1,585 Current portion of long-term debt and capital lease obligations 176 188 Deferred revenue 1,125 1,386 Total current liabilities $6,204 $7,063 Long-term debt and capital lease obligations, net of debt discount 3,570 3,418 Commitments and contingencies - - Shareholders’ Equity: Common stock 109 108 Capital in excess of par value 57,390 57,185 Accumulated deficit (49,469) (45,782) Treasury stock at cost (3) (3) Total shareholders’ equity 8,027 11,508 Total liabilities and shareholders’ equity $17,801 $21,989

Certain statements in this release concerning Carrington may be forward-looking, including statements regarding the outlook for the Company’s Consumer Services Division, the Company’s anticipated human clinical trials for it’s intranasal delivery system for influenza and negotiations regarding the Company’s private label manufacturing activities. Actual events will be dependent upon a number of factors and risks including, but not limited to: subsequent changes in plans by the Company’s management; delays or problems in formulation, manufacturing, distribution, production and/or launch of new finished products; changes in the regulatory process; changes in market trends; and a number of other factors and risks described from time to time in the Company’s filings with the Securities & Exchange Commission, including the Form 10-K, filed March 31, 2006.

Carrington Laboratories, Inc.

CONTACT: Carlton E. Turner, Chief Executive Officer, of CarringtonLaboratories, Inc., +1-972-518-1300

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