<PAGE>   1
                    U. S. SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                              --------------------

                                   FORM 10-KSB
              ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934

                   FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000

                 FOR THE TRANSITION PERIOD FROM       TO

                           COMMISSION FILE NO. 0-24676

                              ---------------------

                    CARACO PHARMACEUTICAL LABORATORIES, LTD.
             (Exact name of registrant as specified in its charter)

           MICHIGAN                                     38-2505723
    (State of Incorporation)                (I.R.S. Employer Identification No.)

                   1150 ELIJAH MCCOY DRIVE, DETROIT, MI 48202
                     (Address of principal executive office)

                                 (313) 871-8400
                         (Registrant's telephone number)

                              --------------------

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE EXCHANGE ACT:  None

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE EXCHANGE ACT:

                           Common Stock, No Par Value
                                (Title of Class)

INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED
TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING
THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS
REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING
REQUIREMENTS FOR THE PAST 90 DAYS. YES X        NO
                                      ---         ---

INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO ITEM 405
OF REGULATION S-B IS NOT CONTAINED HEREIN, AND WILL NOT BE CONTAINED, TO THE
BEST OF REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR INFORMATION STATEMENTS
INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-KSB OR ANY AMENDMENTS TO
THIS FORM 10-KSB. [ X]

STATE ISSUER'S REVENUES FOR ITS MOST RECENT FISCAL YEAR:  $2,377,546

STATE THE AGGREGATE MARKET VALUE OF THE VOTING STOCK HELD BY NON-AFFILIATES
COMPUTED BY REFERENCE TO THE PRICE AT WHICH THE STOCK WAS SOLD, OR THE AVERAGE
BID AND ASKED PRICES OF SUCH STOCK, AS OF A SPECIFIED DATE WITHIN 60 DAYS PRIOR
TO THE DATE OF THE FILING.

                                   $4,219,659
            (BASED UPON THE AVERAGE BID-ASK PRICE OF THE REGISTRANT'S
           COMMON SHARES ON THE OTC BULLETIN BOARD ON MARCH 27, 2000)

INDICATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE REGISTRANT'S CLASSES OF
COMMON STOCK, AS OF THE LATEST PRACTICABLE DATE.

      AS OF MARCH 27, 2001, THERE WERE 21,173,818 COMMON SHARES OUTSTANDING

                      Documents Incorporated By Reference:

         Portions of the definitive Proxy Statement dated April 29, 2001, in
connection with the Annual Meeting of Stockholders to be held on June 4, 2001,
are incorporated by reference into Part III.


<PAGE>   2
                    CARACO PHARMACEUTICAL LABORATORIES, LTD.
                                   FORM 10-KSB

                                     PART I

ITEM 1. DESCRIPTION OF BUSINESS.

Caraco Pharmaceutical Laboratories, Ltd. ("Caraco" or the "Corporation") is a
corporation organized under Michigan law in 1984, to engage in the business of
developing, manufacturing and marketing generic drugs for the ethical
(prescription) and over-the-counter (non-prescription or "OTC") markets.

A generic drug is a pharmaceutical product which is the chemical and therapeutic
equivalent of a brand-name drug as to which the patent and/or market exclusivity
has expired. Generics are well accepted for substitution of brand products as
they sell at a discount to the branded product's price and for their equivalence
in quality and bioavailability.

A significant source of funding for the Corporation has been from private
placement offerings and loans, including a loan from the Economic Development
Corporation of the City of Detroit (the "EDC"), which, pursuant to Section 108
of the Housing and Community Development Act of 1974, loaned approximately $9.1
million to the Corporation in accordance with a Development and Loan Agreement
dated August 10, 1990 (the "EDC Agreement"), and amended on March 1, 1994 and
August 5, 1997 (the "Amended EDC Agreement"). (See "Current Status of
Corporation" and the "EDC Financing" below). In 1997, the Corporation and an
Indian specialty pharmaceutical company, Sun Pharmaceutical Industries Ltd.
("Sun Pharma") completed an agreement whereby in exchange for 5,300,000 shares
of Caraco common stock, Sun Pharma invested $7.5 million into the Corporation.
Sun Pharma also agreed to provide the Corporation with products in exchange for
shares of Common Stock. (See "Sun Pharmaceutical Industries Ltd." below.). Sun
Pharma and its affiliates have also loaned and/or assisted Caraco in obtaining
loans from third parties (See "Current Status of Corporation" below).

CURRENT STATUS OF CORPORATION

The Corporation continues to sustain substantial operating losses, and its
ability to continue as a going concern is dependent on raising additional funds
and achieving profitable operations (See "Item 6. Management's Discussion and
Analysis of Financial Condition and Results of Operations"). Debt at December
31, 2000 includes a note payable to the EDC in the amount of $6,580,000 related
to funds advanced to the Corporation pursuant to the EDC Agreement. The Amended
EDC Agreement included deferral of scheduled principal and interest payments for
the period April 1996 to January 1999 until February 1999 to aid the Corporation
in achieving adequate cash flows to assure Caraco's ability to fund its current
operations and continue to develop products. (See "EDC Financing" below.) The
Corporation is currently renegotiating the repayment schedule with the EDC and,
as such, has not made any of the scheduled payments. During 2000 while it has
been renegotiating with the EDC, the Corporation has paid $2.3 million to the
EDC. Such payments have not brought the Corporation current in its obligations
to the EDC, and such payments were made without prejudice to the rights of the
EDC to exercise all remedies available to the EDC for failure to make the
scheduled payments. While the terms of the restructured loan




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are being renegotiated, the Corporation intends to continue to make payments to
the EDC, again without prejudice to the rights of the EDC. Upon a final
agreement of the restructured terms of the loan, of which there can be no
assurance, the Corporation shall then commence making the requested restructured
payments. As of February 28, 2001, the Corporation is indebted to the EDC in the
amount of $6,280,000 plus accrued interest.

As disclosed above, Sun Pharma had, as of December 31, 1998, remitted a total of
$7.5 million to the Corporation for the purchase of common shares. On October
15, 1998 Sun Pharma also made a loan to the Corporation up to $5.3 million at an
annual interest rate of 10% (which loan was amended to provide Sun Pharma with a
security interest). The loan matures and is due and payable on the earlier of
October 15, 2003. Prior to this, an affiliate of Sun Pharma made a loan to the
Corporation of $650,000 at an annual interest rate of 10%. During 2000, Sun
Pharma assisted Caraco in obtaining line of credit loans from ICICI Bank Limited
and The Bank of Nova Scotia, each in the amount of up to $5.0 million. The
Corporation has utilized, during 2000, $5 million from ICICI Bank Limited and
$3.85 million from The Bank of Nova Scotia. In March 2001, the Bank of Nova
Scotia increased its existing unsecured $5.0 million credit facility to Caraco
by an additional $5.0 million to be used for general corporate purposes. The
amounts borrowed (up to $10 million) under the Bank of Nova Scotia credit
facility must be repaid in four semi-annual installments on February 4, 2004,
August 24, 2004, February 24, 2005 and August 25, 2005. The loan may not be
prepaid until August 24, 2003. Interest is at LIBOR plus 30 basis points, and is
payable at one, two, three or six months periods at Corporation's option. Caraco
intends to continue to seek adequate financing to fund the foregoing objectives
and current operations.

OVERVIEW OF THE GENERIC DRUG INDUSTRY

Sales of generic drugs have increased in recent years because of a number of
factors including (i) modification of state laws to permit or require
substitution of generic drugs by pharmacists; (ii) enactment of Abbreviated New
Drug Applications (ANDAs) procedures for obtaining Food and Drug Administration
("FDA") approval to manufacture generic prescription drugs; (iii) changes in
governmental and third-party payor health care reimbursement policies to
encourage cost containment; (iv) increased acceptance of generic drugs by
physicians, pharmacists and consumers; and (v) the increasing number of formerly
patented drugs which have become available to generic competition. Moreover,
every year branded drugs with significant sales volumes come off-patent.

CARACO'S PRODUCTS AND PRODUCT STRATEGY

Caraco's present product portfolio includes 13 products in 20 strengths in 34
package sizes. Of these 13 products, four have been temporarily discontinued
until the Corporation successfully completes the next FDA inspection.

The Corporation has submitted nine ANDA's to the FDA for approval.

During 2000, Sun Pharma's dedicated development laboratory in Bombay was
actively working on multiple ANDA submissions in connection with its agreement
with the Corporation. (See "Sun Pharmaceutical Laboratories Ltd." below.) To
date, Sun Pharma has facilitated the transfer of technology to Caraco with


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respect to 10 products. To date, including the transfer of technology by Sun
Pharma, the Corporation has 21 products in various stages of active development.
There is no assurance, however, that any of these products will be marketed.

HEXAL-PHARMA GMBH & CO., KG

The Corporation and Hexal-Pharma GmbH & Co., KG, a German pharmaceutical company
and its United States affiliate (together, "Hexal") entered into an agreement
dated as of October 1, 1993, pursuant to which Hexal has agreed to convey to the
Corporation the formulations, technology, manufacturing processes and know-how,
and other relevant information, and to pay for the bioequivalency studies
required for the preparation of ANDAs for each of two specified generic drugs
(the "Products"). Hexal will receive royalties on the yearly sales of each
Product. The Corporation filed an ANDA in March 1995, in which it received
approval from the FDA in December 1996. The product, Metoprolol Tartrate, was
introduced in 1997. (See "Caraco's Products and Product Strategy".) Hexal has
decided not to proceed with the development of the second product.

In addition, the Corporation has granted to Hexal, for each Product (i) a
Sign-Up Option to purchase 100,000 shares of Common Stock at $3.50 a share; and
(ii) a Product Option to purchase shares at an exercise price of $1 3/8 as of
December 10, 1996, per share. These options may be exercised and payment for
shares may be made only out of royalties (and any interest earned on the
royalties while held by the Corporation) payable to Hexal for sales of the
related product.

The Agreement provides that the Corporation will hold all royalties until
receipt of Hexal's written instructions either to pay the royalties in cash or
to apply the royalties held to the exercise of the related options. While a
Sign-Up Option remains unexercised, the Corporation will accrue the amount of
royalties attributable to the related Product. If Hexal shall fail to deliver to
the Corporation, within 36 months after a given year's royalties on sales of
that Product become payable, its written instructions to apply those funds to
the exercise of the related Sign-Up Option, the number of shares subject to that
option shall be reduced by that many number of shares which the accrued
royalties paid in cash could have purchased. Thereafter, each year's royalties
for sales of a Product will be held by the Corporation for a maximum of five
years, during which period Hexal may direct that the royalties be paid to it in
cash or applied to the exercise of the related Product Option. Any royalties
paid in cash to Hexal may not thereafter be applied to the exercise of a Sign-Up
or a Product Option.

CLONMEL CHEMICALS CO., LTD. (IRELAND)

On October 22, 1993, the Corporation entered into an agreement with Clonmel
Chemicals Co., Ltd. ("Clonmel"), pursuant to which Clonmel provided to the
Corporation, with respect to each of two generic pharmaceutical products,
formulations that have been previously tested, the formulation and manufacturing
methods, in process controls, finished product specifications, analytical
methods and stability data required for the Corporation to manufacture its own
bio-batches (sample batches of the product in amounts necessary for testing on
humans) for use in the preparation and filing with the FDA of ANDAs with respect
to these products. Pursuant to the agreement, Caraco must bear all costs of
developing the products and filing the ANDAs and must pay Clonmel $10,000 on
delivery of complete files containing the foregoing data, another




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<PAGE>   5

$20,000 on completion of a successful bioequivalency study (which study will be
at Caraco's expense), and a final $20,000 upon receipt of FDA approval of the
related ANDA. Clonmel has granted the Corporation the exclusive right to
manufacture and market these products in the United States, including its
territories and Puerto Rico, and in Canada; and the Corporation has agreed to
pay royalties to Clonmel on net sales (as defined) of these products for five
years from the date on which the marketing of the respective product commences.
The formulations were delivered to the Corporation in 1994 and a bioequivalency
study of one of the products was conducted and an ANDA was filed in January
1997. The second product is not currently being pursued due to changing market
conditions and technical issues. There can be no assurance that the Corporation
will receive FDA approval of the ANDA which has been filed or when FDA approval
will be forthcoming; nor that the Corporation will be able to manufacture and
sell the product profitably

SUN PHARMACEUTICAL INDUSTRIES LTD.

In 1997, Sun Pharma and the Corporation entered into an agreement pursuant to
which, during a five year period, Sun Pharma shall sell to Caraco the right to
develop, manufacture and sell 25 generic pharmaceutical products, (provided that
any product which is a DESI (drug efficiency study implementation) product only
counts as 1/3 of a product), in exchange for 544,000 shares of Caraco Common
Stock for each product (181,333 shares, for each DESI product). To date, Sun
Pharma has facilitated the transfer of technology to Caraco with respect to 10
products. As of December 31, 2000 Sun Pharma has been issued 4,714,682 shares
for eight (8) ANDAs and two (2) DESI products.

In connection therewith Sun Pharma has invested in a dedicated development
laboratory employing 26 scientists (PhDs, pharmacy graduates, analytical
chemists and regulatory professionals) in Bombay, India, to facilitate speedy
development of new products and smooth technology transfer. (See also "Caraco's
Products and Product Strategy".)

EDC FINANCING

Pursuant to Section 108 of the Housing and Community Development Act of 1974,
the EDC loaned approximately $9.1 million to the Corporation in 1990 in
accordance with the EDC Agreement. These funds were used to pay the direct costs
of acquiring land and constructing thereon the Corporation's pharmaceutical
manufacturing facility and executive offices. (See Item 2. "Description of
Property", "Current Status of Corporation", "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "Note 5 of Notes
to Financial Statements".)

On March 1, 1994, the EDC Agreement was amended to extend the maturity date to
July 1, 2002. On August 5, 1997, the Corporation and EDC restructured the
Corporation's loan from the EDC, pursuant to a Second Note and Modification
Agreement ("Modification Agreement"), in connection with the Corporation's
default on such loan. Among other things, the Modification Agreement modified
the previous note then in effect (the "Note") to provide that the regularly
scheduled monthly payments which would otherwise be due and payable during the
period from April 1, 1996 through and including January 1, 1999 (the "Deferred
Payments") would be deferred until February 1, 1999. On February 1, 1999, Caraco
was required to resume making regularly scheduled monthly payments of principal
and interest, together with additional payments of principal and interest in an
amount sufficient to amortize the total amount of: (i) the Deferred Payments,
and



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(ii) accrue interest on that portion of the currently outstanding indebtedness
that would have been amortized by the Deferred Payments, commencing on the date
when due under the terms of the original loan agreement, at the rate set forth
in the note over a period of 42 consecutive months commencing on February 1,
1999 and ending on July 1, 2002 ("Additional Payments"). In the event, however,
that with respect to the first quarter of operation in which Caraco's operating
income before federal income taxes plus depreciation exceeds $500,000 on the
first day of the six months succeeding such quarter, the regularly scheduled
payment required to be made shall resume and the Additional Payments shall
commence, provided, however, that the Additional Payments shall be reduced to
the amount necessary to amortize the total of the sums set forth in (i) and (ii)
above over a 42 month period commencing on the first day of the six months
succeeding such quarter. During the month of December 1998 the Corporation
approached the EDC regarding reconsideration of the repayment terms. The
Corporation is currently renegotiating the repayment schedule with the EDC and,
as such, has not made any of the scheduled payments. During 2000 while it has
been renegotiating with the EDC, the Corporation has paid $2.3 million to the
EDC. Such payments have not brought the Corporation current in its obligations
to the EDC, and such payments were made without prejudice to the rights of the
EDC to exercise all remedies available to the EDC for failure to make the
scheduled payments. The Corporation intends to continue to make payments to the
EDC again without prejudice to the rights of the EDC. Upon a final agreement of
the restructured terms of the loan, of which there can be no assurance , the
Corporation shall then commence making the requested restructured payments. As
of February 28, 2001, the Corporation is indebted to the EDC in the amount of
$6,280,000 plus accrued interest.

The mortgage is a first priority mortgage lien against the property and may not
be subordinated to the lien on any other mortgage or encumbrance except as
otherwise provided in the Modification Agreement. In addition, Caraco has
granted EDC a continuing security interest in all of its assets, accounts,
equipment, proceeds thereof, ANDAs and in the products to be provided by Sun to
Caraco under its agreement with Caraco. See "Sun Pharmaceutical Industries
Limited" above. In addition to other covenants, Caraco has agreed that its
capital expenditures will not exceed $2 million without the consent of the EDC
and it will not redeem any of its outstanding shares, pay any dividends with
respect to its outstanding common shares or merge or consolidate with any other
corporation or other entity without the prior written consent of the EDC.

MARKETING

The Corporation's marketing objective has been to create a distribution system
by which to obtain access to a wide range of purchasers of generic
pharmaceutical products. Internally, this requires at least a minimum sales
force (see "Sales" below); externally, it requires forging relationships, often
contractual in nature, with wholesalers, distributors, governmental agencies,
and buying groups, among others. Management is aware that, despite any success
in creating these distribution links, sales volume will remain low until the
Corporation can offer a broader range of products needed by drug purchasers in
significant amounts. In anticipation of its ability, through strategic alliances
and its own internal product development efforts to broaden its product line, it
has been putting distribution links in place.

Drug wholesalers, with an estimated 75% of the drug market, comprise a strategic
link in the pharmacy distribution chain. They are used by drug manufacturers
because they are a cost effective means of reaching thousands of drug purchasers
and are used by most drug purchasers because they constitute a reasonably local,
stocking source for hundreds or thousands of products from multiple
manufacturers.



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<PAGE>   7

The top five drug wholesalers in 2000 accounted for over $100 billion in sales.
Caraco's product line is now represented in these top drug wholesalers; McKesson
Drug, Bergen Brunswig, Cardinal, Ameri Source and Bindley. Caraco's products are
now stocked by many other drug wholesalers, partly as a result of the
Corporation's arrangements discussed below with buying groups.

Federal and state agencies purchase a large amount of generic pharmaceutical
products. All of the Corporation's products are now listed for purchase at
prices bid by the Corporation in the Federal Supply Schedule, the Federal Bureau
of Prisons Prime Vendor Program, the Veterans Administration Prime Vendor
Program, the Department of Defense and by various state agencies.

A large number of buying groups of retail pharmacists, hospitals, nursing homes
and other regional or functionally similar categories of drug purchasers use
their members' combined purchasing power to induce drug manufacturers or other
vendors to submit bid prices at which their members may individually purchase
products through designated wholesalers. The Corporation as part of its ongoing
marketing efforts, is pursuing arrangements with additional wholesalers and
expanding its sales network of buying groups, wholesalers, hospitals and
hospital chains, nursing and retirement home groups, state and federal
government agencies, and retail pharmacies. As and if the Corporation's
financial resources permit the increase in personnel, these efforts will be
expanded as discussed below.

SALES AND CUSTOMERS

Presently, Caraco has only a small in-house sales organization. In time as new
products are added to the existing product line, management plans to expand its
customer sales effort through adding additional sales personnel and/or
contracting with an independent sales and marketing firm.

Shipments to one wholesale customer accounted for approximately 17% and 15% of
net sales in 2000 and 1999, respectively. Balances due from this customer
represented approximately 9% and 10% of accounts receivable at December 31, 2000
and 1999, respectively.

Shipments to another wholesale customer accounted for approximately 8% and 11%
of net sales in 2000 and 1999, respectively. Balances due from this customer
represented approximately 8% and 3% of accounts receivable at December 31, 2000
and 1999, respectively.

RESEARCH AND DEVELOPMENT

The development of new prescription ANDA products, including formulation,
stability testing and the FDA approval process, averages from two to five years.
A drug is "bioequivalent" to a brand-name drug if the rate and extent of
absorption of the drug are not significantly different from those of the
brand-name drug. Although the Corporation performs its own stability testing
bioequivalence is done through independent testing laboratories.



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An outline of research and development expenses incurred directly by Caraco for
2000 and 1999 follows (000's):

<TABLE>
<CAPTION>
                                                  2000              1999

<S>                                             <C>               <C>
              Employee Costs                    $  576            $  726
              Raw Materials/Supplies               138               584
              Bioequivalency Studies               644             1,065
              Laboratory Expenses                  120               228
              Other                              1,596             1,925
                                                ------            ------
                  TOTAL                         $3,074            $4,528
                                                ======            ======
</TABLE>


The R&D expenses shown above do not include the cost of the products transferred
by Sun to Caraco in 2000 and 1999 of $220,864 and $1,804,667, respectively

REGULATION

The research and development, manufacture and marketing of the Corporation's
products are subject to extensive regulation by the FDA and by other federal,
state and local entities, which regulate, among other things, research and
development activities and the testing, manufacture, labeling, storage, record
keeping, advertising and promotion of pharmaceutical products.

The Federal Food, Drug and Cosmetic Act, the Public Health Services Act, the
Controlled Substances Act and other federal statutes and regulations govern or
influence the Corporation's business. Noncompliance with applicable requirements
can result in fines and other judicially imposed sanctions, including product
seizures, injunction actions and criminal prosecutions. In addition,
administrative remedies can involve voluntary recall of products, and the total
or partial suspension of products as well as the refusal of the government to
approve pending applications or supplements to approved applications. The FDA
also has the authority to withdraw approval of drugs in accordance with
statutory due process procedures.

FDA approval is required before any dosage form of any new unapproved drug,
including a generic equivalent of a previously approved drug, can be marketed.
All applications for FDA approval must contain information relating to product
formulation, stability, manufacturing processes, packaging, labeling and quality
control. To obtain FDA approval for an unapproved new drug, a prospective
manufacturer must also demonstrate compliance with the FDA's current good
manufacturing practices ("cGMP") regulations as well as provide substantial
evidence of safety and efficacy of the drug product. Compliance with cGMP's is
required at all times during the manufacture and processing of drugs. Such
compliance requires considerable Corporation time and resources in the areas of
production and quality control.

There are generally two types of applications that would be used to obtain FDA
approval for pharmaceutical products:

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        New Drug Application ("NDA"). Generally, the NDA procedure is required
        for drugs with active ingredients and/or with a dosage form, dosage
        strength or delivery system of an active ingredient not previously
        approved by the FDA. Caraco does not expect to submit an NDA in the
        foreseeable future.


        Abbreviated New Drug Application ("ANDA"). The Waxman-Hatch Act
        established a statutory procedure for submission of ANDAs to the FDA
        covering generic equivalents of previously approved brand-name drugs.
        Under the ANDA procedure, an applicant is not required to submit
        complete reports of preclinical and clinical studies of safety and
        efficacy, but instead is required to provide bioavailability data
        illustrating that the generic drug formulation is bioequivalent to a
        previously approved drug. Bioavailability measures the rate and extent
        of absorption of a drug's active ingredient and its availability at the
        site of drug action, typically measured through blood levels. A generic
        drug is bioequivalent to the previously approved drug if the rate and
        extent of absorption of the generic drug are not significantly different
        from that of the previously approved brand-name drug.

The FDA may deny an ANDA if applicable regulatory criteria are not satisfied.
Product approvals may be withdrawn by the FDA if compliance with regulatory
standards is not maintained or if new evidence demonstrating that the drug is
unsafe or lacks efficacy for its intended uses becomes known after the product
reaches the market.

FDA policy and its stringent requirements have increased the time and expense
involved in obtaining ANDA approvals and in complying with FDA's cGMP standards.
The ANDA filing and approval process takes approximately two to five years. FDA
approval is required before each dosage form of any new drug can be marketed.
Applications for FDA approval must contain information relating to
bioequivalency, product formulation, raw material suppliers, stability,
manufacturing processes, packaging, labeling and quality control. FDA procedures
require full-scale manufacturing equipment to be used to produce test batches
for FDA approval. Validation of manufacturing processes by the FDA also is
required before a company can market new products. The FDA conducts pre-approval
and post-approval reviews and plant inspections to enforce these rules.
Supplemental filings are required for approval to transfer products from one
manufacturing site to another and may be under review for a year or more. In
addition, certain products may only be approved for transfer once new
bioequivalency studies are conducted.

The Generic Drug Enforcement Act of 1992 establishes penalties for wrongdoing in
connection with the development or submission of an ANDA by authorizing the FDA
to permanently or temporarily bar companies or individuals from submitting or
assisting in the submission of an ANDA, and to temporarily deny approval and
suspend applications to market off-patent drugs. The FDA has authority to
withdraw approval of an ANDA under certain circumstances and to seek civil
penalties. The FDA can also significantly delay the approval of a pending ANDA
under certain circumstances and to seek civil penalties. The FDA can also
significantly delay the approval of a pending ANDA under its "Fraud, Untrue
Statements of Material Facts, Bribery, and Illegal Gratuities Policy."
Manufacturers of drugs must also comply with the FDA's cGMP standards or risk
sanctions such as the suspension of manufacturing or the seizure of drug
products and the FDA's refusal to approve additional ANDAs.



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<PAGE>   10

The Drug Enforcement Agency ("DEA") conducts inspections bi-annually. The
Corporation underwent an FDA inspection during 1999, at which time it received
an FDA483 (List of Observations). The Corporation responded to those
observations and met with the Detroit District Director of the FDA. During the
1st quarter of 2000, the FDA conducted another inspection. The Corporation
received another FDA 483, to which the Corporation responded in June 2000. In
July 2000, the Corporation received a warning letter from the FDA relating to
deviations and/or deficiencies in the cGMPs. The area of concern relate to
record-keeping systems, testing standards, staff training and proficiency and
quality systems.

In response to the FDA 483s and warning letter, the Corporation retained the
services of a FDA compliance-consulting firm in 1999 to help it address the cGMP
compliance issues and develop the implementation plan to respond to the noted
deficiencies and/or deviations. The Corporation has responded to the FDA
indicating the corrective measures and plan to rectify the deviations and
deficiencies referred to above. The Corporation is attempting to overcome the
shortcomings and comply with applicable regulatory requirements. During the week
of March 19, 2001, the FDA commenced its anticipated inspection of the
Corporation. However, there is no assurance that when the FDA completes its
inspection, it will make a determination that the Corporation has satisfied the
applicable deviations and/or deficiencies in the GMPs. Until it does, among
other things, the FDA will not confirm any approvals of the pending ANDAs. If
the Corporation should fail to maintain full compliance, it may be the target of
any of the range of enforcement remedies available to the government described
above.

Each domestic drug product manufacturing establishment must be registered with
the FDA. Establishments handling controlled substances must be licensed by the
DEA.

The Corporation is also subject to regulation under other federal, state and
local regulations regarding work place safety, environmental protection and
hazardous substance controls, among others. Specifically, the Corporation is
licensed by the Michigan Board of Pharmacy as a manufacturer and wholesaler of
prescription drugs and as a distributor of controlled substances. It is also
licensed by the Michigan Liquor Control Commission to use alcohol in the
manufacture of drugs.

The Corporation believes that it is in compliance with environmental laws.

SUPPLIERS AND MATERIALS

The principal components used in the Corporation's business are active and
inactive pharmaceutical ingredients and certain packaging materials. Many of
these components are available only from sole source suppliers. Development and
approval of the Corporation's pharmaceuticals are dependent upon the
Corporation's ability to procure active ingredients and certain packaging
materials from FDA approved sources. Because the FDA approval process requires
manufacturers to specify their proposed suppliers of active ingredients and
certain packaging materials in their applications, FDA approval of a new
supplier would be required if active ingredients or such packaging materials
were no longer available from the specified supplier. The Corporation has been,
and continues to be, active in identifying and validating alternative suppliers
for its active ingredients.



                                      -10-
<PAGE>   11

Although to date no significant difficulty has been encountered in obtaining
components required for products and sources of supply are considered adequate,
there can be no assurance that the Corporation will continue to be able to
obtain components as required.

COMPETITION

The market for generic drugs is highly competitive. There is intense competition
in the generic drug industry in the United States which is eroding price and
profit margins. The Corporation competes with numerous pharmaceutical
manufacturers, including both generic and brand-name manufacturers, many of
which have been in business for a longer period of time than the Corporation,
have a greater number of products on the market and have considerably greater
financial, technical, research, manufacturing, marketing and other resources.

The principal competitive factor in the generic pharmaceutical market is the
ability to be the first company, or among the first companies, to introduce a
generic product after the related patent expires. Other competitive factors
include price, quality, methods of distribution, reputation, customer service
(including maintenance of inventories for timely delivery) and breadth of
product line. Approvals for new products may have a synergistic effect on a
company's entire product line since orders for new products are frequently
accompanied by, or bring about, orders for other products available from the
same source. The Corporation believes that price is a significant competitive
factor, particularly as the number of generic entrants with respect to a
particular product increases. As competition from other manufacturers
intensifies, selling prices typically decline.

EMPLOYEES

As of December 31, 2000, the Corporation had 58 full-time employees, of which 13
are engaged in research and development, 9 in quality assurance, 2 in quality
control, 6 in administration, 3 in sales and marketing, 3 in materials
management, 3 in facility management, and 19 in manufacturing. Most of the
Corporation's scientific and engineering employees have had prior experience
with pharmaceutical or medical products companies. All of the hourly employees
of materials management, facility management and manufacturing are represented
by a union.

PRODUCT LIABILITY AND INSURANCE

The Corporation currently has in force general and product liability insurance,
with coverage limits of $5 million per incident and in the aggregate. The
Corporation's insurance policies provide coverage on a claim made basis and are
subject to annual renewal. Such insurance may not be available in the future on
acceptable terms or at all. There can be no assurance that the coverage limits
of such policies will be adequate to cover the Corporation's liabilities, should
they occur.

ITEM 2. DESCRIPTION OF PROPERTY.

The Corporation's 70,611 square foot facility, which was designed and
constructed to the Corporation's specifications and completed in 1992, contains
its production, packaging, research and corporate office. It is




                                      -11-
<PAGE>   12
on a four acre site acquired by the Corporation from the EDC of the City of
Detroit pursuant to a mortgage loan. (See "EDC Financing" above.) This
manufacturing facility has a special building and systems design, with each
processing area equipped with independent zone and air handling units to provide
temperature and humidity control to each room. These air handling units are
designed to prevent product cross contamination through the use of pre-filter
and final HEPA filter banks. All processing air quarters are maintained in a
negative pressure mode using laminar airflow design. This system of airflow
provides a measurable control of air borne particulate entrapment in each room.


Environmental segregation of individual rooms within a particular zone is
accomplished by the use of duct HEPA filter booster fan units that facilitate
the isolation and confinement of room activities. These special dynamics provide
an added dimension and flexibility in product selection and processing
techniques. The design allows all processing areas, with a modest capital
addition, to be equipped with purified breathing air systems to facilitate the
use of custom handling and control as product requirements warrant. That capital
addition will not be made until consummation of a strategic alliance, with
specific product requirements, which would make such addition financially sound.

ITEM 3. LEGAL PROCEEDINGS.

The Corporation is not a party to any litigation which, individually or in the
aggregate, is believed to be material to the Corporation's business.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

The Corporation did not submit any matters to a vote of security holders in the
fourth quarter of the fiscal year, through the solicitation of proxies or
otherwise.

                                     PART II

ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

The following table sets forth the high and low bid information for the
Corporation's Common Stock for each full quarter from January 1, 1999 through
December 31, 2000, as disclosed on the OTC Bulletin Board. The quotations
reflect inter-dealer prices without retail mark-up, mark-down or commission and
may not represent actual transactions.

<TABLE>
       PERIOD                                         HIGH BID       LOW BID
       ------                                         ---- ---       --- ---

<S>                                                   <C>            <C>
       Quarter Ended March 31, 1999                     1.375           .50
       Quarter Ended June 30, 1999                      1.375          1.00
       Quarter Ended September 30, 1999                 1.3125          .625
       Quarter Ended December 31, 1999                  1.00            .625
       Quarter Ended March 31, 2000                     1.125           .6875
       Quarter Ended June 30, 2000                       .9375          .3281
</TABLE>




                                      -12-
<PAGE>   13



<TABLE>
<S>                                                      <C>            <C>
       Quarter Ended September 30, 2000                  .5469          .2656
       Quarter Ended December 31, 2000                   .4844          .2031
</TABLE>

       As of March 15, 2001 there were approximately 177 holders of the
Corporation's Common Stock.

       During the year ended December 31, 2000, the Corporation issued 1,105,333
shares to Sun Pharma pursuant to an agreement under which Sun Pharma agreed to
sell to the Corporation the right to develop, manufacture and sell 25 generic
pharmaceutical products. (See Item 1 - "Sun Pharmaceutical Industries, Ltd."
below.) The shares of common stock were issued pursuant to exemptions from
registration under Section 4(2), Section 4(6) and Regulation D under the
Securities Act of 1933.

During 2000, certain nonemployee directors of the Corporation earned 1,200
shares of common stock for attending board meetings. The shares of common stock
were issued January 2001 pursuant to exemptions from registration under Section
4(2), Section 4(5) and Regulation D under the Securities Act of 1933.

DIVIDEND POLICY

The Corporation has not declared or paid any dividends and does not intend to
declare or pay any dividends in the foreseeable future. The Corporation intends
to employ all available funds in the development of its business. The
Corporation's Series A Preferred Stock contains provisions restricting the
payment of dividends to the holders of the Common Stock unless the holders of
the Series A Preferred Stock have been paid the dividends to which they are
entitled. Dividends have been accrued, but not paid, on the Series A Preferred
Stock on a cumulative basis since January 1, 1997. In addition the loan
agreement with the EDC includes a covenant restricting the payment of dividends
during the Deferral Period (see "EDC Financing").

ITEM 6.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF PLAN OF OPERATIONS

The following discussion and analysis provides information that the management
believes is relevant to an understanding of the Corporation's results of
operations and financial condition. The discussion should be read in conjunction
with the financial statements and notes thereto.

The discussion in the section contains forward-looking statements within the
meaning of Section 21E of the Securities Exchange Act of 1934. The
forward-looking statements include statements regarding the intent, belief and
current expectations of the Corporation and its management. Such forward-looking
statements are not guarantees of the future performance of the Corporation, and
involve a number of risks and uncertainties. Actual results could differ
materially from those indicated by such forward-looking statements. Among the
important factors that could cause actual results to differ materially from
those indicated by such forward-looking statements are: (i) that the information
is of a preliminary nature and may be subject to further adjustment; (ii)
variations in quantity results; (iii) success in obtaining additional financing;
(iv) success in amending the EDC Agreement; (v) governmental restrictions on the
sale of certain products; (vi) obtaining FDA approvals; (vii) successful
manufacturing and marketing of commercially viable products on a timely basis;
(viii) dependence on key personnel; (ix) development by competitors of new or
superior products or new technology for the production of products or the entry
into the market of new competitors; (x) integrity and reliability of the
Corporation's data; (xi) success in attaining full compliance with regard to
regulatory




                                      -13-
<PAGE>   14

and cGMP compliance as envisaged by the FDA in its observation in form 483 and
warning letter to the Corporation and (xii) other risks identified from time to
time in the Corporation's reports and registration statements filed with the
Securities and Exchange Commission.

OVERVIEW

The Corporation has historically experienced limited sales, operating losses and
cash-flow difficulties. During 2000, Sun Pharma assisted Caraco in obtaining
loans from ICICI Bank Limited and the Bank of Nova Scotia of $5 million each.
Out of these loans, the Corporation utilized $5 million from ICICI Bank Limited
and $3.85 million from Bank of Nova Scotia during 2000. The loans were primarily
utilized by the Corporation to fund the operations, research and development of
new products and finance the FDA compliance activities (see below) by the
Corporation.


The Corporation had an inspection by the FDA in February 2000. Upon completion
of the inspection in March 2000, the FDA issued an FDA 483 to the Corporation
relating to deficiencies and/or deviations in cGMP's. Subsequently in July 2000,
the FDA issued a warning letter to the Corporation for cGMP deficiencies and/or
deviations. Management directed its entire focus towards FDA compliance during
the year 2000. A substantial portion of the resources of the Corporation were
diverted towards regulatory compliance with a planned slowdown in Research and
Development as well as production activities.


While taking corrective measures for the observations made by the FDA, the
Corporation initiated steps to emphasize the pharmaceutical compliance culture
at all levels of the organization.


The management of the Corporation has taken the following measures:

    -    Retained a reputed consulting group to advise, train and audit the
         operations for compliance.
    -    Recruited 3 highly educated and experienced individuals to head the
         Quality Control, Quality Assurance and Regulatory departments.
    -    Recruited experienced personnel in manufacturing, Quality Control and
         Quality Assurance to monitor and control compliance.
    -    Intensive training of organizational personnel in cGMPs.
    -    Invested funds in upgrading the plant and machinery to further improve
         the operations and production capacities.
    -    Thorough review and revision of procedures and systems for increasing
         reliability of operations and compliance.

This emphasis on FDA compliance is to continue until such time that the
compliance culture is well embedded in the entire organization. The management
of the Corporation believes that its emphasis on compliance benefits the
Corporation in the short and long run.


The planned slowdown of research and development in the Corporation has not
affected the research and development of new products at Sun Pharma in India.
Their developmental activities continue. Assuming the Corporation comes into
compliance with cGMP and receives the approval of the FDA, the Corporation


                                      -14-
<PAGE>   15

intends to continue its compliance efforts, refocus on Research and Development
and production and have any new products and technology developed by Sun Pharma,
transferred to the Corporation for further development and submission to FDA.

As a result of ongoing research and development efforts and products received
from Sun Pharma, the Corporation presently has submitted nine (9) ANDAs to the
U.S. Food and Drug Administration for approval. Further, the Corporation has
three (3) products in advanced stages of development. Altogether the Corporation
has twenty-one (21) products under development, including the products mentioned
above. The FDA will approve no ANDAs and technology unless the Corporation comes
into compliance with cGMP.

NET SALES

Net sales for the year's 2000 and 1999 were $2,377,546 and $2,895,022,
respectively. This decrease can be mainly attributed to absence of contract
manufacturing activity, the discontinuance of one of its products (see "Cost of
Sales" below), the temporary suspension of production of four other products,
and the increased resources of the Corporation shifting from production to FDA
compliance, which is separately commented upon above and below. The management
is committed to, and personnel have been directed to focus on FDA compliance.

COST OF SALES

While net sales reduced by 17% in 2000 compared to 1999, the Cost of Sales
levels for 2000 and 1999 were $2,678,900 and $3,091,245 respectively or 112.6%
and 107% of sales for the two years. This percentage increase can be mainly
attributed to absence of contract manufacturing activity and the increased
resources of the Corporation shifting from production to FDA compliance, which
is separately commented upon above and below. Also, due to lower production
during the year 2000 the plant continued to be underutilized, which increased
the cost of sales. In addition, the FDA announced the voluntary discontinuance
of manufacturing and marketing of products containing Phenyl Propanalomine (PPA)
in November 2000. One of the Corporation's products had this ingredient.
Management announced immediate discontinuance of the manufacture and marketing
of the product. The raw materials and finished goods relating to this product
have been written off during the year 2000.

GROSS PROFIT (DIFFERENTIAL)

The Corporation posted a gross profit differential of $301,354 during 2000 as
compared to $196,223 in 1999. This increase can be mainly attributed to absence
of contract manufacturing activity, the increased resources of the Corporation
shifting from production to FDA compliance and the discontinuance and/or
temporary suspension by the Corporation of certain production.


RESULTS OF OPERATIONS

Net losses for the years 2000 and 1999 were $7,622,708 and $9,739,984,
respectively. The net losses were principally related to inadequacy of sales
volume to absorb fixed operating costs, research and development costs, and
costs incurred by the Corporation relating to compliance matters and lower
production. Also, recruitment of senior level personnel during the year in key
positions of Directors of Quality Control and




                                      -15-
<PAGE>   16

Quality Assurance, which were a part of the compliance measures, had an impact
on the losses. The Corporation intends to recruit more personnel in other areas
during the coming few months of the next year in continuance of the compliance
measures.


SELLING, GENERAL AND ADMINISTRATIVE EXPENSES (SG&A)

Selling, general and administrative expenses for the years 2000 and 1999 were
$2,508,737 and $2,159,116, respectively, representing an increase of almost 17%
over the previous year. The increase in SG&A is mainly due to the expenses
incurred for FDA compliance, including the retention of an FDA consulting firm
as well as recruitment of senior level personnel in key positions in the
Corporation described above.


RESEARCH AND DEVELOPMENT EXPENSES

Research and Development expenses were $3,295,435 for 2000 as compared to
$6,332,390 in 1999. The R&D expenses incurred directly by the Corporation during
the years 2000 and 1999 are $3.074 million and $4.528 million, respectively. As
a result of lower product transfers in 2000 (2 ANDA product transfers) as
compared to 8 in 1999 (6 ANDA products and 2 DESI products), the costs for the
transfer are significantly lower, and hence the R&D costs are lower. The other
reason for the lower R&D expenses is also due to shift of focus of the
organization towards compliance.


The Corporation is currently working on three ANDAs for submission to the FDA
during 2001. As of December 2000 the Corporation has submitted nine ANDAs to the
FDA for approval. In addition, Sun Pharma continues its efforts to develop new
products for the Corporation in India. There is no assurance that
bio-equivalence studies of the three ANDAs will be successful, the products will
receive FDA approval or that the products will be commercially successful.
Moreover, until the Corporation satisfies certain FDA cGMP compliance matters,
the FDA will not approve any of the pending ANDAs. See "FDA Compliance" below.

INTEREST INCOME

Interest income for 2000 and 1999 was $38,010 and $ 32,764 respectively. This
income was generated from short-term interest earning deposits.


INTEREST EXPENSE

Interest expense was $1,555,192 and $1,085,019 for 2000 and 1999, respectively.
This is incurred primarily in connection with the Corporation's mortgage
obligation to the EDC, interest on notes payable to Sun Pharma and Sun Global as
well as a new lines of credit granted to the Corporation through the assistance
of Sun Pharma by ICICI Bank and the Bank of Nova Scotia.



                                      -16-
<PAGE>   17


FDA COMPLIANCE

The Corporation underwent an FDA inspection during 1999, at which time it
received an FDA 483 (List of Observations). The Corporation responded to those
observations and met with the Detroit District Director of the FDA. During the
1st quarter of 2000, the FDA conducted another inspection. The Corporation
received another FDA 483, to which the Corporation responded in June 2000. In
July 2000, the Corporation received a warning letter from the FDA relating to
deviations and/or deficiencies in the cGMPs. The areas of concern relate to
record-keeping systems, testing standards, staff training and proficiency and
quality systems.

In response to the FDA 483s and warning letter, the Corporation retained the
services of a FDA compliance-consulting firm in 2000 to help it address the cGMP
compliance issues and develop the implementation plan to respond to the noted
deficiencies and/or deviations. The Corporation has responded to the FDA
indicating the corrective measures and plan to rectify the deviations and
deficiencies referred to above. Failure to rectify the deficiencies and/or
deviations may result in enforcement action by the FDA. The Corporation is
attempting to overcome the shortcomings and comply with applicable regulatory
requirements. During the week of March 19, 2001, the FDA commenced its
anticipated inspection of the Corporation. However, there is no assurance that
when the FDA completes its inspection, it will make a determination that the
Corporation has satisfied the applicable deviations and/or deficiencies in the
GMPs. Until it does, among other things, the FDA will not confirm any approvals
of the pending ANDAs.

As discussed above, the Corporation is continuing to commit its resources
towards FDA compliance.


LIQUIDITY AND CAPITAL RESOURCES

At December 31, 2000, the Corporation had negative working capital of $9,107,469
compared with a negative working capital of $12,291,880 of the corresponding
date of 1999. The negative working capital for the year ended December 31, 2000
was mainly due to the classification of the EDC debt and related accrued
interest as current.



To enable the Corporation to fund its research and development activities,
repayment of term loans and the increased working capital needs, Sun Pharma has
assisted the Corporation in obtaining credit lines of $5 million each with ICICI
Bank of India and Bank of Nova Scotia. As of December 31, 2000 the Corporation
has received $5,000,000 from ICICI Bank and $3,850,000 through these credit
facilities.


As reported in 1999, satisfaction of loans of $1,290,000 from shareholder
directors plus the accrued interest thereon has been accomplished by issuing
them shares in lieu of cash and thus has had no impact on cash requirements
during 2000.


Further, Sun Pharma continues to support the Corporation in its activities and
is trying to negotiate and help the Corporation raise additional funds required
for the financial needs of the Corporation. In this connection,





                                      -17-
<PAGE>   18
in March 2001, Sun Pharma assisted Caraco in obtaining from the Bank of Nova
Scotia an increase of its existing unsecured $5.0 million credit facility by an
additional $5.0 million.


FUTURE OUTLOOK

The management's plan for improving profitability, cash flow positions and
operations include infusion of further additional funding from Sun Pharma and
obtaining additional lines of credit through Sun Pharma's commitment.

The management's plans for the year 2001 include:

    -    Continued focus on FDA compliance.
    -    Continued Research and Development from Sun Pharma's Bombay-based R&D
         center to support the Corporation's R&D activity.
    -    Focus on R&D for three ANDAs for submission to the FDA by year-end 2001
    -    Increase the width and depth of the product portfolio to service
         customers.
    -    Improvements in the sales volumes, better capacity utilizations,
         better-cost absorptions and improved margins due to the improved
         product portfolios and product mixes.
    -    Improvements in the customer reach and satisfaction through reliable
         product deliveries.

ITEM 7.  FINANCIAL STATEMENTS

The financial statements included in this report are set forth on the Index to
Financial Statements included in this report.

ITEM 8.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
         FINANCIAL DISCLOSURE.

None.

                                    PART III

ITEM 9.  DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
         COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT.

The information with respect to directors and executive officers of the
Corporation is included in the Corporation's definitive Proxy Statement under
the sections "Information About Nominees and Incumbent Directors", "Committees
and Meetings of Directors", Executive Officers and "Section 16(a) Beneficial
Ownership Reporting Compliance", which are incorporated herein by reference.

ITEM 10. EXECUTIVE COMPENSATION.

The information regarding executive compensation is included in the
Corporation's definitive Proxy Statement under the section "Compensation of
Executive Officers", which is incorporated herein by reference.



                                      -18-
<PAGE>   19

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

The information with respect to the security ownership of certain beneficial
owners and management is included in the Corporation's definitive Proxy
Statement under the sections "Security Ownership of Certain Beneficial Owners"
and "Security Ownership of Management and Directors", which are incorporated
herein by reference.

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

The information with respect to certain relationships and related transactions
are included in the Corporation's definitive Proxy Statement under the Section
"Transactions of Directors and Executive Officers with Caraco", which is
incorporated herein by reference.

ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.

(a) Exhibits

3.01     Registrant's Amended and Restated Articles of Incorporation, as
         amended. (2)

3.02     Registrant's Amended and Restated Bylaws. (2)

3.03     Certificate of Amendment to the Articles of Incorporation filed
         February 13, 1997. (4)

10.01    Development and Loan Agreement, dated August 10, 1990, between
         Registrant and The Economic Development Corporation of the City of
         Detroit; First Amendment thereto, dated December 3, 1990; Second
         Amendment thereto, dated April 2, 1993; and supplemental letter, dated
         October 26, 1993 and agreement. (1)

10.02    Amended and Restated Section 108 Guaranty Agreement, dated as of August
         10, 1990, of C. Arnold Curry and Cara Jean Curry in favor of the
         Economic Development Corporation of the City of Detroit. .(1)

10.03    Registrant's Amended and Restated Purchase Money Promissory Note, dated
         as of August 10, 1990, in the principal amount of $157,500, to the
         order of the Economic Development Corporation of the City of Detroit.
         (1)

10.04    Registrant's Amended and Restated Section 108 Note, dated August 10,
         1990 in the principal amount of $9,000,000, payable to The Economic
         Development Corporation of the City of Detroit. (1)

10.05    Amended and Restated Purchase Money Mortgage, dated as of August 10,
         1990, between Registrant as mortgagor and The Economic Development
         Corporation of the City of Detroit. (1)

                                      -19-
<PAGE>   20

10.06    Agreement, dated as of October 1, 1993, among Registrant, Hexal-Pharma
         GmbH & Co., KG, and Hexal Pharmaceuticals, Inc. (1)

10.07    Agreement, dated October 20, 1993, between Registrant and Clonmel
         Chemicals Co., Ltd. (1)

10.08    Form of 1993 Stock Option Plan. (1)

10.09    Employment Agreement, dated October 22, 1993, with Robert Kurkiewicz.
         (1)

10.10    Warrant Purchase Agreement dated November 30, 1994, with Jay F. Joliat.
         (2)

10.11    Series A Preferred Stock Purchase Agreement dated November 30, 1994,
         with Jay F. Joliat. (2)

10.12    Joint venture agreement dated on March 11, 1996, with Sun
         Pharmaceutical Industries, Inc. (3)

10.13    Secured Promissory Note dated December 23, 1996 with Sun Pharma Global,
         Inc. (4)

10.14    Security Agreement dated December 23, 1996 with Sun Pharma Global Inc.
         (4)

10.15    Stock Purchase Agreement by and between Caraco Pharmaceutical
         Laboratories, Ltd. and Sun Pharmaceutical Industries, Ltd. dated as of
         April 23, 1997. (5)

10.16    Products Agreement by and between Caraco Pharmaceutical Laboratories,
         Ltd. and Sun Pharmaceutical Industries, Ltd. dated a s of April 23,
         1997. (5)

10.17    Registration Rights Agreement dated as April 1997. (5)

10.18    Stock Pledge Agreement dated as July 28, 1997. (5)

10.19    Second Note and Mortgage Modification Agreement. (6)

10.20    Amendment to Employment Agreement of Robert Kurkiewicz dated as of
         April 1, 1997. (5)

10.21    Employment Agreement dated September 22, 1998 with Narendra N. Borkar.
         (7)

10.22    1999 Equity Participation Plan. (8)

10.23    Agreement between ICICI Bank and the Corporation for the term loan of
         $5 million. (9)

10.24    Term Sheet between Bank of Nova Scotia and the Corporation for the term
         loan of $10 million.+
----------
 + Filed herewith



                                      -20-
<PAGE>   21

(1)      Incorporated by reference from Exhibits to Registrant's Registration
         Statement on Form SB-2, as amended, which was originally filed on
         November 5, 1993 as Commission File No. 33-71398C.

(2)      Incorporated by reference from Exhibits to Registrant's Form 10-KSB
         which was originally filed on or about March 30, 1995 as Commission
         File no. 0-24676.

(3)      Incorporated by reference from Exhibits to Registrant's Form 10-KSB
         which was originally filed on or about March 30, 1996 as Commission
         File no. 0-24676. (4) Incorporated by reference from Exhibits to
         Registrant's Form 10-KSB which was originally filed on or about March
         30, 1997, as Commission File No. 0-24676.

(5)      Incorporated by reference from Exhibits to Registrant's Form 10-QSB
         dated as of August 13, 1997.

(6)      Incorporated by reference from Exhibits to Registrant's Form 10-KSB
         which was originally field on or about March 30, 1998, as Commission
         File No. 0-24676.

(7)      Incorporated by reference from Exhibits to Registrant's Form 10-QSB
         dated as of November 13, 1998.

(8)      Incorporated by reference from Exhibit A to Registrant's Proxy
         Statement dated April 28, 1999.

(9)      Incorporated by reference from Exhibits to Registrant's Form 10-QSB for
         the quarter ended June 30, 2000.

(b)      Reports on Form 8-K

         None.






                                      -21-
<PAGE>   22

                                   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 on the 30th day of March,
2001

                            CARACO PHARMACEUTICAL LABORATORIES, LTD.


                            By: /s/Narendra N. Borkar
                               Narendra N. Borkar
                               Chief Executive Officer

Pursuant to the requirements of the Securities Act of 1934, this report has been
signed below by the following persons in the capacities and on the date
indicated above.


/s/Narendra N. Borkar         Director and Chief Executive Officer (Principal
Narendra N. Borkar            Executive Officer and Principal Financial Officer)


/s/Dilip Shanghvi             Chairman of the Board
Dilip  Shanghvi

/s/Sailesh T. Desai           Director
Sailesh T. Desai


/s/David A. Hagelstein        Director
David A. Hagelstein


/s/Phyllis Harrison-Ross      Director
Phyllis Harrison-Ross


/s/Jay F. Joliat              Director
Jay F. Joliat


/s/Sudhir Valia               Director
Sudhir Valia







                                      S-1
<PAGE>   23
                    CARACO PHARMACEUTICAL LABORATORIES, LTD.

                          INDEX TO FINANCIAL STATEMENTS


--------------------------------------------------------------------------------

                              FINANCIAL STATEMENTS


INDEPENDENT AUDITORS' REPORT

Balance Sheet - December 31, 2000

Statements of Operations for the Years Ended December 31, 2000 and 1999

Statements of Stockholders' Deficit for the Years Ended December 31, 2000 and
1999

Statements of Cash Flows for the Years Ended December 31, 2000 and 1999

Notes to Financial Statements









<PAGE>   24

                          INDEPENDENT AUDITORS' REPORT



Stockholders and Board of Directors
Caraco Pharmaceutical Laboratories, Ltd.
Detroit, Michigan


We have audited the accompanying balance sheet of Caraco Pharmaceutical
Laboratories, Ltd. (a Michigan corporation) as of December 31, 2000, and the
related statements of operations, stockholders' deficit and cash flows for the
years ended December 31, 2000 and 1999. These financial statements are the
responsibility of the Corporation's management. Our responsibility is to express
an opinion on these financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. 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 financial statements referred to above present fairly, in
all material respects, the financial position of Caraco Pharmaceutical
Laboratories, Ltd. as of December 31, 2000 and the results of its operations and
its cash flows for the years ended December 31, 2000 and 1999 in conformity with
generally accepted accounting principles.

The accompanying financial statements have been prepared assuming the
Corporation will continue as a going concern. As described in Note 1 to the
financial statements, conditions exist that raise substantial doubt about the
Corporation's ability to continue as a going concern. Management's plans in
regard to these matters are also described in Note 1. The financial statements
do not include any adjustments that might result from the outcome of this
uncertainty.


                                              REHMANN ROBSON, P.C.


Farmington Hills, Michigan
February 23, 2001





                                       F-1

<PAGE>   25

                    CARACO PHARMACEUTICAL LABORATORIES, LTD.

                                  BALANCE SHEET

-------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                          ASSETS                 DECEMBER 31
                                                                    2 0 0 0
                                                                 -----------
CURRENT ASSETS
<S>                                                             <C>
     Cash and cash equivalents                                  $   186,768
     Accounts receivable, net of allowances of $157,000             466,446
     Inventories                                                  1,411,921
     Prepaid expenses and deposits                                   63,384
                                                                -----------

TOTAL CURRENT ASSETS                                              2,128,519
                                                                -----------

PROPERTY, PLANT AND EQUIPMENT - AT COST
     Land                                                           197,305
     Buildings and improvements                                   6,784,027
     Equipment                                                    4,356,478
     Furniture and fixtures                                         195,410
                                                                -----------

     Total                                                       11,533,220
     Less accumulated depreciation                                4,438,987
                                                                -----------

NET PROPERTY, PLANT AND EQUIPMENT                                 7,094,233
                                                                -----------














TOTAL ASSETS                                                    $ 9,222,752
                                                                ===========
</TABLE>






The accompanying notes are an integral part of these financial statements.



                                       F-2
<PAGE>   26






--------------------------------------------------------------------------------



<TABLE>
<CAPTION>
                           LIABILITIES AND STOCKHOLDERS' DEFICIT                 DECEMBER 31
                                                                                   2 0 0 0
                                                                                -------------
CURRENT LIABILITIES
<S>                                                                             <C>
     Accounts payable                                                           $    561,102
     Accounts payable, Sun Pharma                                                    355,897
     Accrued expenses                                                                247,978
     Short-term borrowings                                                            75,000
     Notes payable to stockholders, current portion                                   50,000
     EDC loan payable                                                              6,580,000
     Accrued interest                                                              3,441,011
                                                                                -------------

TOTAL CURRENT LIABILITIES                                                         11,310,988
                                                                                -------------

LONG-TERM LIABILITIES
     Notes payable to stockholders                                                 5,950,000
     Loans payable to financial institutions                                       8,850,000
     Preferred stock dividends payable                                               240,000
                                                                                -------------

TOTAL LONG-TERM LIABILITIES                                                       15,040,000
                                                                                -------------

TOTAL LIABILITIES                                                                 26,350,988
                                                                                -------------

COMMITMENTS AND CONTINGENCIES (NOTES 5 AND 11)

STOCKHOLDERS' DEFICIT
     Preferred stock, no par value; authorized 5,000,000 shares,
       issued and outstanding 285,714 Series A shares                              1,000,000
     Common stock, no par value; authorized 30,000,000 shares,
       issued and outstanding 21,172,618 shares                                   32,955,601
     Preferred stock dividends                                                      (240,000)
     Accumulated deficit                                                         (50,843,837)
                                                                                -------------

TOTAL STOCKHOLDERS' DEFICIT                                                      (17,128,236)
                                                                                -------------

TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT                                     $  9,222,752
                                                                                =============
</TABLE>







                                       F-3
<PAGE>   27


                    CARACO PHARMACEUTICAL LABORATORIES, LTD.

                            STATEMENTS OF OPERATIONS

-------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                    YEAR ENDED DECEMBER 31
                                               ------------------------------
                                                  2 0 0 0          1 9 9 9
                                               --------------   -------------
<S>                                            <C>              <C>
Net sales                                      $   2,377,546    $  2,895,022

Cost of goods sold                                 2,678,900       3,091,245
                                               --------------   -------------

GROSS PROFIT DIFFERENTIAL                           (301,354)       (196,223)

Selling, general and administrative expenses       2,508,737       2,159,116
Research and development costs                     3,295,435       6,332,390
                                               --------------   -------------

OPERATING LOSS                                    (6,105,526)     (8,687,729)
                                               --------------   -------------

OTHER INCOME (EXPENSE)
     Interest expense                             (1,555,192)     (1,085,019)
     Interest income                                  38,010          32,764
                                               --------------   -------------

OTHER EXPENSE - NET                               (1,517,182)     (1,052,255)
                                               --------------   -------------

NET LOSS                                       $  (7,622,708)   $ (9,739,984)
                                               ==============   =============

Net loss per basic and diluted common share    $       (0.39)   $      (0.58)
                                               ==============   =============
</TABLE>

















The accompanying notes are an integral part of these financial statements.

                                       F-4
<PAGE>   28

                    CARACO PHARMACEUTICAL LABORATORIES, LTD.

                       STATEMENTS OF STOCKHOLDERS' DEFICIT

-------------------------------------------------------------------------------


<TABLE>
<CAPTION>
                                                                              PREFERRED

                            PREFERRED STOCK              COMMON STOCK            STOCK      ACCUMULATED
                         ----------------------   --------------------------
                           SHARES       AMOUNT      SHARES         AMOUNT       DIVIDENDS     DEFICIT          TOTAL
                         ---------  -----------   -----------  -------------  -----------  --------------  --------------
<S>                     <C>       <C>           <C>           <C>           <C>          <C>              <C>

Balances at
  January 1, 1999         285,714   $ 1,000,000   14,528,000    $29,025,840   $ (120,000)  $ (33,481,145)   $ (3,575,305)
Preferred stock dividends       -            -             -              -      (60,000)              -         (60,000)
Issuances of shares via
  private placements            -            -       412,362        396,000            -               -         396,000
Shares issued to directors
  in lieu of compensation       -            -         2,600          2,959            -               -           2,959
Shares issued to employees
  in lieu of compensation       -            -         4,000          3,000            -               -           3,000
Issuance of shares to
  Sun Pharma                    -            -     3,609,333      1,804,666            -               -       1,804,666
Net loss                        -            -             -              -            -      (9,739,984)     (9,739,984)
                         ---------  -----------   -----------  -------------  -----------  --------------  --------------

Balances at
  December 31, 1999       285,714    1,000,000    18,556,295     31,232,465     (180,000)    (43,221,129)    (11,168,664)
Preferred stock dividends                                  -              -      (60,000)              -         (60,000)
Shares issued for expenses      -            -       120,990        103,496            -               -         103,496
Shares issued for
  retirement of debt            -            -     1,390,000      1,390,000            -               -       1,390,000
Issuance of shares
  to Sun Pharma                 -            -     1,105,333        229,640            -               -         229,640
Net loss                        -            -             -              -            -      (7,622,708)     (7,622,708)
                         ---------  -----------   -----------  -------------  -----------  --------------  --------------

Balances at
  December 31, 2000       285,714   $ 1,000,000   21,172,618    $32,955,601   $ (240,000)  $ (50,843,837)  $ (17,128,236)
                         =========  ===========   ===========  =============  ===========  ==============  ==============
</TABLE>











The accompanying notes are an integral part of these financial statements.







                                       F-5
<PAGE>   29


                    CARACO PHARMACEUTICAL LABORATORIES, LTD.

                            STATEMENTS OF CASH FLOWS

--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                       YEAR ENDED DECEMBER 31
                                                                   -------------------------------
                                                                      2 0 0 0          1 9 9 9
                                                                   --------------   --------------
<S>                                                                 <C>              <C>
CASH FLOWS FROM OPERATING ACTIVITIES
     Net loss                                                       $ (7,622,708)    $ (9,739,984)
     Adjustments to reconcile net loss to
       net cash used in operating activities
        Depreciation                                                     574,442          576,182
        Common shares issued for interest expense                         86,000          119,043
        Common shares issued for product formula                         229,640        1,804,666
        Common shares issued for compensation                             17,496            5,959
        Changes in operating assets and liabilities
          which provided (used) cash:
           Accounts receivable                                          (102,258)         109,002
           Inventories                                                   293,171         (435,549)
           Prepaid expenses and deposits                                  13,951           (7,603)
           Accounts payable                                             (614,134)         682,817
           Accrued expenses and interest                                 681,108        1,196,858
                                                                   --------------   --------------
NET CASH USED IN OPERATING ACTIVITIES                                 (6,443,292)      (5,688,609)
                                                                   --------------   --------------
CASH FLOWS USED IN INVESTING ACTIVITIES
     Purchases of property, plant and equipment                         (215,459)        (360,448)
                                                                   --------------   --------------
CASH FLOWS FROM FINANCING ACTIVITIES
     Proceeds from bank term loans                                     8,850,000                -
     Net short-term borrowings                                            75,000                -
     Net (repayments) borrowings on loans from stockholders             (225,000)       5,275,000
     Repayment of EDC loan                                            (2,300,000)               -
     Proceeds from issuances of common stock                                   -          396,000
                                                                   --------------   --------------
NET CASH PROVIDED BY FINANCING ACTIVITIES                              6,400,000        5,671,000
                                                                   --------------   --------------
NET DECREASE IN CASH AND CASH EQUIVALENTS                               (258,751)        (378,057)
Cash and cash equivalents, beginning of year                             445,519          823,576
                                                                   --------------   --------------
CASH AND CASH EQUIVALENTS, END OF YEAR                                 $ 186,768        $ 445,519
                                                                   ==============   ==============
</TABLE>






The accompanying notes are an integral part of these financial statements.

                                       F-6
<PAGE>   30

                    CARACO PHARMACEUTICAL LABORATORIES, LTD.

                          NOTES TO FINANCIAL STATEMENTS


--------------------------------------------------------------------------------

1.       ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

         Organization and Nature of Business

         Caraco Pharmaceutical Laboratories, Ltd. ("Caraco" or the
         "Corporation") was established to develop, manufacture and market
         generic prescription and over-the-counter pharmaceuticals in the United
         States. The process of developing a line of proprietary drugs requires
         approvals by the Food and Drug Administration (FDA) of Abbreviated New
         Drug Applications (ANDA). While ANDA build-ups have proceeded, the
         Corporation has generated limited sales revenue through December 31,
         2000.

         A significant source of funding for the Corporation has been from
         private placement offerings, stockholder and financial institution
         loans and from the Economic Development Corporation of the City of
         Detroit (the "EDC"), which loaned approximately $9.1 million to the
         Corporation in accordance with a Development and Loan Agreement dated
         August 10, 1990 (see Note 5). During 2000, the Corporation also
         obtained term loans for $10 million from two foreign banks, of which
         $8,850,000 has been borrowed at December 31, 2000.

         The Corporation and an Indian specialty pharmaceutical company, Sun
         Pharmaceutical Industries, Ltd. ("Sun Pharma") completed an agreement,
         in 1997, whereby Sun Pharma has invested $7,500,000 into common stock
         of the Corporation, and is required to exchange the formula for 25
         products over a period of five years to the Corporation in exchange for
         544,000 shares of Caraco common stock to be issued for each product
         (181,333 shares, for each DESI (Drug Efficacy Study Implementation)
         product). At December 31, 2000, Sun Pharma has delivered the formula
         for 10 products, and holds approximately 48% of the outstanding common
         stock of the Corporation.

         The Corporation is subject to certain risks associated with companies
         in the generic pharmaceutical industry. Profitable operations are
         dependent on the Corporation's ability to market its products at
         reasonable profit margins. In addition to achieving profitable
         operations, the future success of the Corporation will depend, in part,
         on its continuing ability to attract and retain key employees, obtain
         timely approvals of its Abbreviated New Drug Applications, develop new
         products and continue to raise in the near term the necessary funds to
         keep the Corporation in business.

         Net sales in 1999 included approximately $195,000 related to contracted
         manufacturing activities. No contract manufacturing activities occurred
         during 2000.

         Going Concern

         The accompanying financial statements have been prepared assuming that
         the Corporation will continue as a going concern, which contemplates
         the realization of assets and the satisfaction of liabilities in the
         normal course of business.



                                       F-7
<PAGE>   31




                    CARACO PHARMACEUTICAL LABORATORIES, LTD.

                          NOTES TO FINANCIAL STATEMENTS


--------------------------------------------------------------------------------


         The Corporation has never achieved sales necessary to support
         operations. The Corporation has, as of December 31, 2000, a
         stockholders' deficit of $17,128,236. Realization of a major portion of
         the assets is dependent upon the Corporation's ability to meet its
         future financing requirements and the success of future operations, the
         outcome of which cannot be determined at this time. These factors raise
         substantial doubt about the Corporation's ability to continue as a
         going concern in the absence of sufficient additional funds and the
         achievement of profitable operations. The accompanying financial
         statements do not include any adjustments relating to the
         recoverability and classification of asset carrying amounts or the
         amount of liabilities that might be necessary should the Corporation be
         unable to continue as a going concern.

         Management's plan with regard to improving profitability, cash flows
         and operations include infusion of additional funding from Sun Pharma
         and obtaining additional bank lines of credit. Management's plan for
         2001 includes:

         -        Continued focus on FDA compliance.
         -        Continued research and development with Sun Pharma in India
                  supporting Caraco's research and development efforts.
         -        The Corporation expects to focus on the research and
                  development for three (3) ANDA products with an anticipated
                  submission to the FDA by year end.
         -        The Corporation intends to increase the width and depth of
                  product portfolio to serve the customers effectively.
         -        With the increase in the number of products, as well as
                  anticipated volume increases for existing products, it is
                  expected that manufacturing capacity utilization will improve,
                  resulting in better cost absorption and improved margins.
         -        The Corporation will strive to enhance customer reach and
                  achieve customer satisfaction through reliable product
                  deliveries.

         Use of Estimates

         The preparation of financial statements in conformity with generally
         accepted accounting principles requires management to make estimates
         and assumptions that affect the reported amounts of assets and
         liabilities and disclosure of contingent 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.



                                       F-8
<PAGE>   32

                    CARACO PHARMACEUTICAL LABORATORIES, LTD.

                          NOTES TO FINANCIAL STATEMENTS


--------------------------------------------------------------------------------


         Cash and Cash Equivalents

         The Corporation considers all highly liquid debt instruments purchased
         with original maturities of three months or less to be cash
         equivalents. The Corporation from time to time may have cash balances
         which exceed federally insured limits.

         Revenue Recognition

         Sales are recognized upon the shipment of product with allowances
         provided for returns and price adjustments in the normal course of
         business based primarily upon actual historical results. Amounts billed
         by the Corporation, if any, in advance of performance in connection
         with contracts to render certain manufacturing or research and
         development services are deferred and then recognized upon performance
         of services.

         Inventories

         Inventories are stated at the lower of cost determined by the first in,
         first-out method, or market.

         Loss Per Share

         Loss per share is computed using the weighted average number of common
         shares outstanding during each year and considers a dual presentation
         and reconciliation of "basic" and "diluted" per share amounts. Diluted
         reflects the potential dilution of all common stock equivalents.

         At December 31, 2000 and 1999, options to purchase 2,486,155 and
         2,569,355 shares, respectively, were excluded from the computation of
         earnings per share because the options' exercise prices were greater
         than the average market price of the common shares. A reconciliation of
         the denominators used in the basic and diluted share calculation
         follows for the years ended December 31:

<TABLE>
<CAPTION>
                                                              2 0 0 0            1 9 9 9
                                                           ---------------    --------------
<S>                                                        <C>                <C>
        Denominator:
           Weighted average shares outstanding, basic          19,755,021       16,725,271
           Incremental shares from assumed exercise
             of options                                                 -           76,861
                                                           ---------------    --------------


        Weighted average shares outstanding, diluted           19,755,021       16,802,132
                                                           ===============    ==============
</TABLE>


         Property, Plant and Equipment and Depreciation

         Depreciation is computed using the straight line method over the
         estimated useful lives of the related assets, which range from 5 to 40
         years. Management annually reviews these assets for impairment and
         reasonably believes the carrying value of these assets will be
         recovered through cash flow from operations, assuming the Corporation
         is successful in continuing to operate as a going concern.



                                       F-9
<PAGE>   33


                    CARACO PHARMACEUTICAL LABORATORIES, LTD.

                          NOTES TO FINANCIAL STATEMENTS


--------------------------------------------------------------------------------

         Federal Income Taxes

         Deferred income tax assets and liabilities are determined based on the
         difference between the financial statement and federal income tax basis
         of assets and liabilities as measured by the enacted tax rates which
         will be in effect when these differences reverse. The principal
         difference between assets and liabilities for financial statement and
         federal income tax return purposes is attributable to differing
         depreciation methods and tax net operating losses.

         Research and Development Costs

         Research and development costs are charged to expense as incurred.

         Fair Values of Financial Instruments

         The carrying values of cash equivalents, accounts receivable, and
         accounts payable approximate their values due to the short-term
         maturities of these financial instruments. The carrying amounts of
         short-term borrowings, notes payable to stockholders, and loans payable
         approximate their fair values because the interest rates are
         representative of, or change with, market rates.

         The Corporation does not believe it is practicable to estimate the fair
         value of its note payable to the Economic Development Corporation of
         the City of Detroit. Management believes the cost to do so would exceed
         the benefits, particularly since such information is not needed to
         manage the business. Further, management does not believe that
         comparable financing would currently be available on similar terms.

         Common Stock Issued to Directors

         Common stock is issued from time to time in lieu of cash for directors
         fees, and is recorded as compensation expense at the fair value on the
         date of issuance.

         Common Stock Issued to Sun Pharma

         Common stock is issued to Sun Pharma in exchange for the formula for
         products delivered to the Corporation. Shares are recorded as research
         and development costs at the fair value on the date of issuance.


2.       SUPPLEMENTAL CASH FLOWS INFORMATION

         Non-cash Investing and Financing Activities

         The Corporation issued 1,476,000 shares of common stock during 2000 in
         exchange for the satisfaction of $1,390,000 principal and accrued
         interest on loans from stockholders. Interest expense satisfied in
         exchange for these shares was $86,000.




                                      F-10
<PAGE>   34

                    CARACO PHARMACEUTICAL LABORATORIES, LTD.

                          NOTES TO FINANCIAL STATEMENTS


--------------------------------------------------------------------------------


         Other Cash Flows Information

         Cash paid for interest for the years ended December 31, 2000 and 1999
         was approximately $760,000 and $0, respectively.


3.       ALLOWANCES FOR DOUBTFUL ACCOUNTS RECEIVABLE

         The Corporation sells its products using customary trade terms; the
         resulting accounts receivable are unsecured. Accounts receivable and
         related allowances, as of December 31, 2000, are summarized as follows:

<TABLE>
<S>                                                        <C>
Accounts receivable                                        $      623,446
                                                           ---------------
Allowances:
  Doubtful accounts                                                 6,000
  Sales returns and allowances                                     20,000
  Price adjustments                                               131,000
                                                           ---------------
Total allowances                                                  157,000
                                                           ---------------
Accounts receivable, net of allowances                     $      466,446
                                                           ===============
</TABLE>


4.       INVENTORIES

         Inventories consist of the following amounts at December 31, 2000:

<TABLE>
<S>                                                        <C>
Raw materials                                              $      889,742
Work in process                                                   417,391
Finished goods                                                    104,788
                                                           ---------------
Total                                                      $    1,411,921
                                                           ===============
</TABLE>

         The principal components used in the Corporation's business are active
         and inactive pharmaceutical ingredients and certain packaging
         materials. Many of these components are available only from sole source
         suppliers, most of whom must be FDA approved. Qualification of a new
         supplier could serve to delay the manufacture of the drug involved.

         During 2000 and 1999, the Corporation purchased approximately $707,000
         and $397,000, respectively, of its raw materials from Sun Pharma.

         The Corporation also purchased approximately $25,800 of raw materials
         from an entity owned by a shareholder during 2000.





                                      F-11
<PAGE>   35

                    CARACO PHARMACEUTICAL LABORATORIES, LTD.

                          NOTES TO FINANCIAL STATEMENTS


--------------------------------------------------------------------------------


5.       DEBT (INCLUDING RELATED PARTIES)

         Short-term Borrowings

         Short-term borrowings consist of unsecured draws on a credit facility
         from Trans Financial Service Limited with interest charged at 10%.
         Principal and interest payments are payable on demand.

         EDC Loan

         Debt at December 31, 2000 includes a note payable to the Economic
         Development Corporation (EDC) of the City of Detroit (classified as a
         current obligation of $6,580,000 at December 31, 2000), related to
         funds advanced to the Corporation pursuant to a Development and Loan
         Agreement (the "Agreement") dated August 10, 1990 as amended. The note
         is collateralized by a first mortgage, effectively, on all of the
         Corporation's property and equipment purchased pursuant to the
         Agreement.

         Effective April 2, 1993, and subsequently on August 5, 1997, the
         Corporation and the EDC of the City of Detroit restructured the
         Agreement discussed above. The amendment included the deferral of
         scheduled principal and interest payments until February 1, 1999, at
         which time additional deferred principal and interest due under the
         terms of the original agreement were required in amounts sufficient to
         amortize the total deferred amount through July 2002. Additionally the
         amendment included a reduction in the stipulated interest rate from the
         inception of the loan through 1993 from 10% to 8.5%. The interest rates
         from 1994 through July 2002 vary from 5% to 6.3%, as described in the
         amendments (effective rate of 6.17% at December 31, 2000).

         As a condition of the deferral, the EDC was provided additional
         security on all the Corporation's existing equipment and the
         Corporation agreed to comply with several additional financial and
         operating covenants which include, limiting capital expenditures made
         without the consent of the EDC to under $2,000,000 during the deferral
         period, and abstaining from share redemption during the payment
         deferral period.

         During December of 1998, the Corporation approached the EDC regarding
         renegotiation of the repayment terms. The Corporation is currently
         renegotiating the repayment schedule with the EDC and, as such, has not
         made any of the scheduled payments.

         During 2000, the Corporation has made $2,300,000 of payments to the
         EDC. All payments on the EDC loan to date have been applied against the
         principal balance for financial statements purposes. The Corporation
         continues to accrue interest at stipulated rates. Upon the
         renegotiation of the debt, some amount may be required to be
         reclassified between accrued interest and principal. Such payments have
         not brought the Corporation current in its obligations to the EDC, and
         such payments were made without prejudice to the rights of the EDC to
         exercise all remedies available to the EDC for failure to make the
         scheduled payments. While the terms of





                                      F-12
<PAGE>   36

                    CARACO PHARMACEUTICAL LABORATORIES, LTD.

                          NOTES TO FINANCIAL STATEMENTS


--------------------------------------------------------------------------------


         the restructured loan are being negotiated, the Corporation intends to
         continue to make payments to the EDC, again without prejudice to the
         rights of the EDC. Upon a final agreement of the restructured terms of
         the loan, of which there can be no assurance, the Corporation expects
         to then commence making the requisite agreed upon payments.

         Stockholder Notes Payable

         Stockholder notes payable consist of the following obligations as of
         December 31, 2000:

<TABLE>
<S>                                                                                        <C>
                  Promissory note payable to Sun Pharma with the entire
                  principal balance due October 2003. Interest is charged at 10%
                  and is payable in semi-annual installments.                              $    5,300,000

                  Promissory note payable to Sun Pharma Global, Inc., a
                  wholly-owned subsidiary of Sun Pharma with interest charged at
                  10%.                                                                            650,000

                  Promissory note payable to stockholder director, with interest
                  charged at 10%, principal payments are payable in
                  installments, with a final payment due March 1, 2001.                            50,000
                                                                                           --------------

                  Total shareholder notes payable                                               6,000,000

                  Less amounts due within one year                                                 50,000
                                                                                          ---------------

                  Stockholder notes due after one year                                    $     5,950,000
                                                                                          ===============
</TABLE>


         Notes payable to Sun Pharma and Sun Pharma Global, Inc. are
         subordinated to the EDC loan, these parties currently have no intent of
         demanding payment within the upcoming year; therefore, such notes have
         been classified as long-term.

         Interest incurred on stockholder notes amounted to $697,363 and
         $477,212 in 2000 and 1999, respectively.




                                      F-13
<PAGE>   37


                    CARACO PHARMACEUTICAL LABORATORIES, LTD.

                          NOTES TO FINANCIAL STATEMENTS


--------------------------------------------------------------------------------



         Loans Payable

         Loans payable consist of the following obligations as of December 31,
2000:

<TABLE>
<S>                                                                                     <C>

                  Term loan payable to ICICI Bank of India, with quarterly
                  principal payments of $625,000 commencing on December 31, 2003
                  and ending on September 30, 2005. Interest is adjusted
                  semi-annually and is charged at the LIBOR rate plus 140 basis
                  points (effective rate of 7.9% at December 31, 2000), and is
                  due in quarterly installments.                                         $     5,000,000

                  $5 million term loan payable to Bank of Nova Scotia,
                  with semi-annual principal payments of $1,250,000 commencing
                  in February 2004 and ending in September 2005.  Interest is
                  charged at the LIBOR rate plus 30 basis points (effective
                  rate of 6.8% at December 31, 2000), and is due in quarterly
                  installments. An additional annual fee is charged, on the
                  average outstanding balance at the LIBOR rate plus 125 basis
                  points.                                                                      3,850,000
                                                                                        -----------------

                  Total loans payable                                                    $     8,850,000
                                                                                        =================
</TABLE>

         The Corporation incurred approximately $62,500 in bank fees as
         stipulated in the Bank of Nova Scotia term loan. The Corporation also
         incurred syndication fees of approximately $21,000 securing these term
         loans, which are guaranteed by Sun Pharma. These fees have been paid on
         Caraco's behalf by Sun Pharma and as of December 31, 2000 approximately
         $62,500 remains payable to Sun Pharma and is included in accounts
         payable due to Sun Pharma.


6.       INCOME TAXES

         At December 31, 2000 a deferred income tax asset and related valuation
         allowance, attributable primarily to the net operating loss
         carryforwards (calculated using a 34% tax rate) of approximately
         $15,400,000 has been established. Changes in the valuation allowance
         were approximately $1,900,000 and $3,300,000 in 2000 and 1999,
         respectively

         At December 31, 2000, net operating loss carryforwards of approximately
         $45,000,000 are available to offset future federal taxable income, if
         any, through future years. The Corporation's ability to utilize the net
         operating loss carryforwards may be limited due to ownership changes.




                                      F-14
<PAGE>   38
                    CARACO PHARMACEUTICAL LABORATORIES, LTD.

                          NOTES TO FINANCIAL STATEMENTS


--------------------------------------------------------------------------------




7.       STOCKHOLDERS' DEFICIT

         Private Placement

         In connection with private placement offerings in 1999, the Corporation
         sold 412,362 shares of common stock netting $396,000. The shares were
         sold at prices ranging from $0.88 to $1.00 per share.

         Other Common Stock Issuances (Also See Note 2)

         During 2000 and 1999, the Corporation issued 1,105,333 and 3,609,333
         shares of common stock, respectively, to Sun Pharma in exchange for the
         formula for eight ANDA and two DESI products delivered to Caraco. Such
         shares have been recorded as research and development expense, and have
         been included in the calculation of the weighted average number of
         common shares outstanding in the year the respective formula was
         delivered.

         During 2000, the Corporation issued 34,990 shares to an investor
         relations firm in exchange for services rendered. The Corporation
         recorded compensation expense of $17,496 based on the fair value of
         such shares on their issuance dates.

         In connection with an employment agreement entered into in 1998 with
         its Chief Executive Officer, the Corporation awarded a common stock
         bonus of 50,000 shares. Compensation expense of $3,000 was recorded
         during 1999 based on the fair value per share on the date of issuance.

         During 1999, the Corporation issued 2,600 shares of common stock to
         non-employee directors in exchange for services rendered. The
         Corporation recorded compensation expense of $2,959 in 1999 based on
         the fair values of such shares on their issuance dates.

         Preferred Stock

         The Corporation has authorized 5,000,000 shares of preferred stock
         which are issuable in series with the terms and amounts set at the
         Board of Directors discretion.

         Each share of preferred stock is nonvoting and is convertible, at the
         option of the holder, into one share of common stock through January 1,
         2004. The preferred shares require annual dividends of $.21 per share
         on a cumulative basis. Accrued dividends on preferred stock at December
         31, 2000 were $240,000. It is not expected that such dividends will be
         paid in 2001 and, accordingly, the related liability is not classified
         as current obligation on the accompanying balance sheet.





                                      F-15
<PAGE>   39
                    CARACO PHARMACEUTICAL LABORATORIES, LTD.

                          NOTES TO FINANCIAL STATEMENTS


--------------------------------------------------------------------------------


8.       COMMON STOCK OPTIONS AND WARRANTS

         Stock Option Plans

         The Corporation maintains the 1999 Plan and the 1993 Stock Option Plan
         in which the Corporation may grant options to employees and
         non-employee-directors for the purchase of up to 3,450,000 shares of
         common stock. The exercise price of options granted may not be less
         than the fair value of the common stock on the date of grant. Options
         granted under this plan vest in annual installments, from the date of
         grant, over a five year period, and expire within six years from the
         date of the grant. Activity with respect to these options is summarized
         as follows:

<TABLE>
<CAPTION>
                                                    2 0 0 0                    1 9 9 9
                                          --------------------------  --------------------------
                                                          Weighted                    Weighted
                                                          Average                     Average
                                                          Exercise                    Exercise
                                           Shares          Price       Shares          Price
                                          ----------  --------------  ----------  --------------
<S>                                       <C>         <C>             <C>         <C>
Outstanding, beginning of year             546,469     $       1.88    406,721     $       2.15
Granted                                          -                -    200,000             1.15
Terminated                                (136,138)            3.38    (60,252)            1.24
                                          ----------  --------------  ----------  --------------
Outstanding, end of year                   410,331     $       1.51    549,469     $       1.88
                                          ==========  ==============  ==========  ==============
Options exercisable, end of year           174,881     $       2.06    187,700     $       3.25
                                          ==========  ==============  ==========  ==============
</TABLE>

         Options at December 31, 2000

<TABLE>
<CAPTION>
                                         Options Outstanding                  Options Exercisable
                                  ------------------------------------       ----------------------
                                               Remaining
                                              Contractual   Exercise                       Exercise
Range of Exercise Prices           Shares       Life *       Price *           Shares      Price *
---------------------------       ----------  ------------  ----------       -----------   --------
<S>                               <C>         <C>           <C>              <C>           <C>
   $0.94 to $1.00                   118,375    3.4 years       $ 0.94            47,725     $ 0.94
   $1.01 to $2.00                   242,000    3.7 years         1.21            78,400       1.31
   $2.01 to $3.00                     6,000    1.7 years         2.50             4,800       2.50
   $3.01 to $4.00                    20,000    1.1 years         4.00            20,000       4.00
   $4.01 to $5.00                    23,956    0.7 years         5.00            23,956       5.00
                                  ----------  ------------  ----------       -----------   --------
Total                               410,331    3.3 years       $ 1.51           174,881     $ 2.06
                                  ==========  ============  ==========       ===========   ========
</TABLE>

                      *Weighted average





                                      F-16
<PAGE>   40

                    CARACO PHARMACEUTICAL LABORATORIES, LTD.

                          NOTES TO FINANCIAL STATEMENTS


--------------------------------------------------------------------------------




         Other Common Stock Option Agreements

         The Corporation has issued other stock options outside of the 1999 and
         1993 Plans. These stock options have been issued with various vesting
         schedules and expire at various dates through October 2006. Activity
         with respect to these options is summarized as follows:

<TABLE>
<CAPTION>
                                               2 0 0 0                    1 9 9 9
                                     ---------------------------  -----------------------------
                                                      Weighted                      Weighted
                                                       Average                       Average
                                                      Exercise                      Exercise
                                      Shares            Price        Shares           Price
                                     ------------  -------------  -------------  --------------
<S>                                  <C>           <C>            <C>            <C>
Outstanding, beginning of year        2,450,824     $      2.00     2,550,824    $         3.38
Granted                                       -               -       600,000              1.40
Terminated                             (375,000)           1.42      (700,000)            (6.50)
                                     ------------  -------------  -------------  --------------
Outstanding, end of year              2,075,824     $      2.11     2,450,824    $         2.00
                                     ============  =============  =============  ===============

Options exercisable, end of year      1,985,824     $      2.18     2,330,824    $         2.07
                                     ============  =============  =============  ===============
</TABLE>

         Options at December 31, 2000

<TABLE>
<CAPTION>

                                         Options Outstanding                  Options Exercisable
                                --------------------------------------      -----------------------
                                               Remaining
                                              Contractual   Exercise                       Exercise
Range of Exercise Prices          Shares        Life *       Price *          Shares       Price *
-----------------------------   ------------  ------------  ----------      ------------   --------
<S>                             <C>           <C>           <C>             <C>            <C>
   $0.66 to $1.00                   250,000     3.8 years      $ 0.75           160,000     $ 0.80
   $1.01 to $2.00                   799,158     3.5 years        1.48           799,158       1.48
   $2.01 to $3.00                   666,666     5.3 years        2.63           666,666       2.63
   $3.01 to $4.00                   360,000     2.9 years        3.50           360,000       3.50
                                ------------  ------------  ----------      ------------   --------
Total                             2,075,824     4.0 years      $ 2.11         1,985,824     $ 2.18
                                ============  ============  ==========      ============   ========
</TABLE>

                      *Weighted average

         The Corporation follows the disclosure aspects of Statement of
         Financial Accounting Standards (SFAS) No. 123, "Accounting for
         Stock-Based Compensation". The Corporation continues to apply
         Accounting Principles Board (APB) Opinion No. 25 in accounting for its
         plans and, accordingly, no compensation cost has been recognized in the
         financial statements for its outstanding stock options. Had stock
         compensation expense been determined pursuant to the methodology
         provided in SFAS No. 123, using the Black-Scholes option pricing model,
         the following weighted average assumptions for grants in 1999 would
         have been employed: expected volatility of 95%, risk free interest rate
         of 5.5%, and expected lives of 6 years. The proforma effect on
         operations would have been an increase in the 1999 net loss of
         $304,000.

         Strategic Alliance Stock Option Arrangement

         Pursuant to a strategic alliance formalized by an agreement for the
         acquisition of certain technology with a third-party pharmaceutical
         company ("Hexal"), the Corporation granted to Hexal, for each product
         (i) a "sign-up" option to purchase 100,000 shares of the Corporation's
         common stock at a price of $3.50 per share and (ii) a "Product" option
         to purchase shares at an exercise price of $1.375 as of December 10,
         1996, per share, as defined, upon the filing of an




                                      F-17
<PAGE>   41

                    CARACO PHARMACEUTICAL LABORATORIES, LTD.

                          NOTES TO FINANCIAL STATEMENTS


--------------------------------------------------------------------------------


         ANDA related to each of the two specified generic drugs. Such options
         may be exercised and payment for shares may be made only out of
         royalties payable by the Corporation to Hexal for sales, if any, of the
         related products. Hexal subsequently decided to proceed with the
         development of only one product. To date, there have been limited sales
         of the introduced product, but no options have been exercised. At
         December 31, 2000, royalties payable to Hexal, which are included in
         accrued expenses amount to approximately $157,000.


9.       RELATED PARTY LEASES

         The Corporation entered into two non-cancelable operating leases during
         2000, with Sun Pharma, to lease production machinery. The leases each
         require quarterly rental payments of $4,245 and expire during 2005.

         Net rental expense on these operating leases was $21,225 for the year
         ended December 31, 2000.

         The following is a schedule of annual future minimum lease payments
         required under the operating leases with remaining non-cancelable lease
         terms in excess of one year as of December 31:

<TABLE>
<S>                                                 <C>
                2001                                $      33,960
                2002                                       33,960
                2003                                       33,960
                2004                                       33,960
                2005                                       12,735
                                                    --------------
                Total minimum payments due          $     148,575
                                                    ==============
</TABLE>


         The Corporation has additionally paid Sun Pharma approximately $33,500
         during 2000 for various parts needed to operate production machinery.


10.      MAJOR CUSTOMERS

         Shipments to one wholesale customer accounted for approximately 17% and
         15% of net sales in 2000 and 1999, respectively. Balances due from this
         customer represented approximately 9% and 10% of accounts receivable at
         December 31, 2000 and 1999, respectively.

         Shipments to another wholesale customer accounted for approximately 8%
         and 11% of net sales in 2000 and 1999, respectively. Balances due from
         this customer represented approximately 8% and 3% of accounts
         receivable at December 31, 2000 and 1999, respectively.





                                      F-18
<PAGE>   42

                    CARACO PHARMACEUTICAL LABORATORIES, LTD.

                          NOTES TO FINANCIAL STATEMENTS


--------------------------------------------------------------------------------




11.      OTHER MATTERS

         The Corporation is involved in routine litigation incidental to its
         business. Management believes the resolution of these matters will not
         materially affect the financial statements.


12.      SUBSEQUENT EVENT

         The Corporation, in March 2001, increased its existing unsecured $5
         million facility with the Bank of Nova Scotia by an additional $5
         million. Proceeds of $1,000,000 were received during March 2001 on this
         additional amount.



                                    * * * * *







                                      F-19
<PAGE>   43

                                  EXHIBIT INDEX


3.01     Registrant's Amended and Restated Articles of Incorporation, as
         amended. (2)

3.02     Registrant's Amended and Restated Bylaws. (2)

3.03     Certificate of Amendment to the Articles of Incorporation filed
         February 13, 1997. (4)

10.01    Development and Loan Agreement, dated August 10, 1990, between
         Registrant and The Economic Development Corporation of the City of
         Detroit; First Amendment thereto, dated December 3, 1990; Second
         Amendment thereto, dated April 2, 1993; and supplemental letter, dated
         October 26, 1993 and agreement. (1)

10.02    Amended and Restated Section 108 Guaranty Agreement, dated as of August
         10, 1990, of C. Arnold Curry and Cara Jean Curry in favor of the
         Economic Development Corporation of the City of Detroit. .(1)

10.03    Registrant's Amended and Restated Purchase Money Promissory Note, dated
         as of August 10, 1990, in the principal amount of $157,500, to the
         order of the Economic Development Corporation of the City of Detroit.
         (1)

10.04    Registrant's Amended and Restated Section 108 Note, dated August 10,
         1990 in the principal amount of $9,000,000, payable to The Economic
         Development Corporation of the City of Detroit. (1)

10.05    Amended and Restated Purchase Money Mortgage, dated as of August 10,
         1990, between Registrant as mortgagor and The Economic Development
         Corporation of the City of Detroit. (1)

10.06    Agreement, dated as of October 1, 1993, among Registrant, Hexal-Pharma
         GmbH & Co., KG, and Hexal Pharmaceuticals, Inc. (1)

10.07    Agreement, dated October 20, 1993, between Registrant and Clonmel
         Chemicals Co., Ltd. (1)

10.08    Form of 1993 Stock Option Plan. (1)

10.09    Employment Agreement, dated October 22, 1993, with Robert Kurkiewicz.
         (1)

10.10    Warrant Purchase Agreement dated November 30, 1994, with Jay F. Joliat.
         (2)

10.11    Series A Preferred Stock Purchase Agreement dated November 30, 1994,
         with Jay F. Joliat. (2)

10.12    Joint venture agreement dated on March 11, 1996, with Sun
         Pharmaceutical Industries, Inc. (3)




<PAGE>   44

10.13    Secured Promissory Note dated December 23, 1996 with Sun Pharma Global,
         Inc. (4)

10.14    Security Agreement dated December 23, 1996 with Sun Pharma Global Inc.
         (4)

10.15    Stock Purchase Agreement by and between Caraco Pharmaceutical
         Laboratories, Ltd. and Sun Pharmaceutical Industries, Ltd. dated as of
         April 23, 1997. (5)

10.16    Products Agreement by and between Caraco Pharmaceutical Laboratories,
         Ltd. and Sun Pharmaceutical Industries, Ltd. dated a s of April 23,
         1997. (5)

10.17    Registration Rights Agreement dated as April 1997. (5)

10.18    Stock Pledge Agreement dated as July 28, 1997. (5)

10.19    Second Note and Mortgage Modification Agreement. (6)

10.20    Amendment to Employment Agreement of Robert Kurkiewicz dated as of
         April 1, 1997. (5)

10.21    Employment Agreement dated September 22, 1998 with Narendra N. Borkar.
         (7)

10.22    1999 Equity Participation Plan. (8)

10.23    Agreement between ICICI Bank and the Corporation for the term loan of
         $5 million. (9)

10.24    Term Sheet between Bank of Nova Scotia and the Corporation for the term
         loan of $10 million. +

----------
+         Filed herewith



                                      -24-