887708--6/14/2006--CARACO_PHARMACEUTICAL_LABORATORIES

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{product, liability, claim}

{customer, product, revenue}

{product, candidate, development}

{property, intellectual, protect}

{regulation, government, change}

{personnel, key, retain}

{tax, income, asset}

{product, market, service}

Risks Related to Our Business If we are unable to successfully develop or commercialize new products, our operating results will suffer. Our gross profit may fluctuate from period to period depending upon our product sales mix including new launches, our product pricing, customer class of trade, and our costs for active ingredients. An unaffiliated third party may make a claim for royalties which could have a material adverse effect on our results of operations. If brand pharmaceutical companies are successful in limiting the use of generics through litigation, legislature and regulatory efforts, our sales of generic products may suffer. Third parties may claim that we infringe their proprietary rights and may prevent us from manufacturing and selling some of our products. Our policies regarding returns and chargebacks by wholesalers may reduce our revenues in future fiscal periods. The loss of our key personnel could cause our business to suffer. Extensive industry regulation has had, and will continue to have, a significant impact on our business, especially our product development, manufacturing and distribution capabilities. Sales of our products may continue to be adversely affected by the continuing consolidation of the distribution network and the concentration of customers. Even if we are able to obtain regulatory approvals for our new pharmaceutical products, the success of those products is dependent upon market acceptance. Levels of market acceptance for our new products could be impacted by several factors, including: From time to time a relatively small group of products could represent a significant portion of our sales and if the products sales of these product decline unexpectedly it could have a negative material effect on our business and could cause our market value of our common stock to decline. Our competitors may be able to develop products and processes competitive with or superior to our own for many reasons, including that they may have: Our reporting and payment obligations under Medicaid and other governmental programs are complex and may change periodically based upon new guidelines provided those agencies. Sun Global could determine not to assist us in our research and development and Sun Pharma could cease supplying support and raw materials A significant portion of our net sales are from the sales of a limited number of customers. Should we lose a particular contract with a customer or the customer is acquired by a non-customer, our sales and operational results could face a significant decline. Our product liability insurance may not be enough to mitigate risk associated with our products We manufacture our product line predominately from one FDA approved facility. There is a possibility that our production could be negatively impacted by a closure of this facility

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887708--6/14/2006--CARACO_PHARMACEUTICAL_LABORATORIES_LTD