<PAGE>1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended JUNE 30, 1995
Commission file number 0-11580
PHARMAKINETICS LABORATORIES, INC.
(Exact Name of Registrant as Specified in its Charter)
MARYLAND 52-1067519
(State of Incorporation) (I.R.S. Employer Identification No.)
302 WEST FAYETTE STREET, BALTIMORE, MARYLAND 21201
(Address of Principal Executive Offices)
Registrant's Telephone Number, Including Area Code (410) 385-4500
Securities registered pursuant to Section 12(b) of the Act:
NONE
(Title of each class)
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $.001 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-K 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-K or any
amendment to this Form 10-K [ ].
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a
plan confirmed by a Court. Yes ___X___ No ______
As of August 7, 1995, 12,195,891 shares of Common Stock of PharmaKinetics
Laboratories, Inc. were outstanding and the aggregate market value of Common
Stock (based upon the average bid and asked prices as reported on the NASD
OTC Bulletin Board on that date) held by non-affiliates was $5,890,505.
List hereunder the following documents if incorporated by reference and the
part of the Form 10-K into which the document is incorporated: NONE.
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PART I
ITEM 1. BUSINESS
PharmaKinetics Laboratories, Inc. (the "Company") is a contract research
organization ("CRO") serving the pharmaceutical industry. The Company
performs biopharmaceutic services including clinical evaluation and
analytical chemistry services with respect to prescription and non-
prescription products. Its principal markets are in the United States and
Canada. New pharmaceutical products must undergo extensive testing and
regulatory review to determine their relative safety and effectiveness.
Companies seeking approval for these products are responsible for performing
and analyzing the results of clinical and analytical tests (also referred to
as studies or trials). As a result of the Company's history of serving the
generic drug industry, a significant portion of its testing has involved
bioavailability and bioequivalency studies of their pharmaceutical products.
Through July 31, 1995, the Company also conducted testing with respect to
chemical stability and dissolution characteristics of pharmaceutical
compounds. These tests were designed to evaluate the effects of various
environmental factors that may influence shelf-life and absorption.
In recent years, pharmaceutical companies have begun to outsource
clinical and analytical research to CROs. The Company believes world-wide
research being outsourced to CRO's is approximately $2 to 3 billion. The
Company believes that certain industry trends have lead pharmaceutical
companies to increase outsourcing of research for prescription and non-
prescription products. These trends include the increased emphasis on
finding new proprietary products, the desire by manufacturers to expedite
their research, and the drive to contain costs.
On November 19, 1990, the Company filed a voluntary petition in the
United States Bankruptcy Court in the District of Maryland seeking to
reorganize under Chapter 11 of the Federal Bankruptcy Code. The Company
confirmed its Amended Plan of Reorganization on April 1, 1993. The Plan
became effective May 10, 1993.
BIOPHARMACEUTICS
CLINICAL EVALUATION SERVICES
The Company offers complete services for the design, management, and
performance of clinical evaluation studies - human trials on a limited scale
to assess safety and to test efficacy. A major portion of the Company's
clinical operations involve the testing of pharmaceutical products to
determine bioavailability and bioequivalency.
Bioavailability testing determines the rate and extent to which an
active drug ingredient is absorbed from a drug product and becomes available
at the site of drug action in the human body. Typically, the determination
of bioavailability is performed through the collection and laboratory
analysis of blood, urine or other specimens. However, for certain drug
products which are not absorbed or are minimally absorbed, for example
ointments and creams, the determination of bioavailability must be performed
using special procedures and equipment. Drug manufacturers are required to
include information obtained from human testing in detailed laboratory and
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clinical studies, as part of applications for approval to market certain new
drug products, submitted to regulatory authorities, such as the United States
Food and Drug Administration ("FDA"). Bioavailability data is also used to
evaluate the adequacy of proposed labeling recommendations regarding dosage
and administration of a drug product, to define its profile in order to
evaluate product reformulations or changes in recommended dosage strength or
dosage regimens, and to evaluate and substantiate controlled release claims.
Bioequivalency testing determines comparative bioavailability of similar
generic and brand name drugs. The FDA has established bioequivalency
requirements for certain drug products or classes of drug products which are
intended to be interchangeable. As a result, bioequivalency data is required
in the case of new formulations of certain drug products developed by generic
pharmaceutical manufacturers for marketing upon expiration of patents on
brand name drugs previously found to be safe and effective. Bioequivalency
testing is also required for certain drug products in the case of new
formulations or new dosage forms intended to be used by the manufacturer
which obtained the original approval.
The clinical portions of bioavailability and bioequivalency studies are
conducted pursuant to testing plans, called protocols, which are designed to
reflect the specific characteristics of the active drug ingredients being
tested. The Company employs experts in medicine, pharmacology, analytical
chemistry, statistical analysis and data processing to design, evaluate and
execute protocols according to current scientific standards and governmental
regulatory requirements.
Protocols for the Company's clinical studies are either written by the
Company's staff or provided by the client. Once developed, a protocol is
submitted for approval to the Company's Institutional Review Board, which
independently evaluates and, if necessary, requests revision of the protocol
in order to safeguard the rights and welfare of the human subjects. The
current Institutional Review Board consists of one affiliated (non-voting)
individual and ten non-affiliated (voting) individuals, four of whom are
medical doctors (one of these serving as chairman), one pharmacologist, one
clergy, and four representatives of the community.
For each clinical study the Company uses volunteer study participants.
The availability of sufficient numbers of qualified and willing study
participants has at times been, and could in the future be, a limitation on
the Company's business. The Company currently is recruiting from two
metropolitan areas.
Each prospective participant is screened at a Company facility and
examined by a physician or physician's assistant employed by the Company.
Prior to the commencement of a study, the Company's Medical Director or
another qualified individual meets with the study participants to explain the
purpose of the study and the fact that research is involved, the procedures
to be followed and the expected duration of the testing, and to provide them
with other information, including a description of any foreseeable risks or
discomforts deemed relevant, to enable them to make an informed decision as
to whether or not they want to participate in the study. A written consent
form approved by the Company's Institutional Review Board for each study,
acknowledging such disclosures, is signed by each participant prior to
testing.
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Study participants usually arrive at the Company's controlled
environment facility the night before testing is to begin. To maximize
reliability of the test data, all study participants are immediately placed
on a strictly supervised schedule in which all of their activities, including
eating, drinking, sleeping, recreation and type of clothing, are tightly
regulated. Testing, which can last for as long as four weeks, includes
physical observation by medical personnel and a strict schedule of collecting
blood, urine and other specimens which are subjected to drug analysis in the
Company's analytical chemistry laboratory or by other arrangements of the
client.
ANALYTICAL CHEMISTRY SERVICES
Laboratory analysis determines the amount of drug , which can be as
small as several parts per billion, present in each of the hundreds of
biological specimens generated by a given study. Analysts extract the drug
and metabolites (compounds into which a drug is broken down inside the body)
from a specimen using a mixture of solvents or a specific extraction column.
Extracted samples are then processed by the Company's analytical
instrumentation, including high performance liquid chromatography, and gas
chromatography interfaced with various methods of detection, including mass
spectrometry. These instruments separate the drug and metabolites from any
other remaining substances and have the ability to detect and quantify as
little as billionths of a gram of material. This process of extraction and
detection is called an assay method. Each drug requires the development of a
unique assay method, the accuracy and precision of which must be documented
according to current scientific standards to meet FDA requirements. The
Company's research and development group develops and validates these unique
assay methods.
The results of these assays are entered into computers maintained by the
Company to statistically analyze the outcome to show the concentration of
drug in the blood over time and to determine whether the product being
evaluated is equivalent to the already marketed product or other reference
material. A detailed report on the results of the analysis is prepared by
Company scientists and submitted to the client requesting the test.
Following the system used by the FDA for granting approval to market new drug
products, the pharmaceutical manufacturer may use the report to support
either a New Drug Application ("NDA") or, in the case of generic drugs, an
Abbreviated New Drug Application ("ANDA"). In the event that the study shows
any inequivalencies, it may provide the basis for additional development work
and further bioequivalence studies or the manufacturer may discontinue its
NDA or ANDA application.
Through July 31, 1995, the Company also offered a complete range of
stability services for finished dosage form pharmaceuticals. The services
were discontinued because they did not fit strategically with the Company's
base business. The testing program was managed in compliance with applicable
Good Laboratory Practice ("GLP") and Current Good Manufacturing Practice
("CGMP") regulations. These tests were designed to evaluate the effects of
various environmental factors that may influence shelf life and absorption of
a pharmaceutical product. Services included method development and
validation, program design and management, assay of active ingredients and
impurities, content uniformity, in-vitro drug release profiles, rate of
disintegration and dissolution, and variable temperature and humidity
storage.
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LIABILITY EXPOSURE
The Company itself does not maintain professional malpractice insurance
related to its testing procedures as its medical personnel are required to
carry such insurance, either through the Company or directly, and the Company
is not a provider of medical care and related services. The Company
maintains a general liability policy which provides coverage with a limit of
$1,000,000 for each occurrence, an umbrella liability policy which has a
limit of $5,000,000 for each occurrence, and a workmen's compensation
liability policy which provides coverage of $1,000,000.
The Company's contractual agreements for biopharmaceutic testing require
the manufacturer of the drug being tested to assume liability for product
claims resulting from the testing performed by the Company unless the
injuries or damages are a result of the Company's negligence, or the tests
are not performed in accordance with the agreed procedures. A judgment
against the Company for which a pharmaceutical manufacturer is not required
to indemnify the Company and which is in excess of any applicable workmen's
compensation, umbrella or general liability insurance coverage and/or any
applicable malpractice insurance covering an independently contracted
physician could have a material adverse effect on the Company's business.
The Company believes that such exposure is made less likely by the fact that
safety and toxicity studies have generally been performed by itself or others
before the Company commences clinical testing.
The Company is involved in two hazardous waste suits for which the
Company is responsible for contributing to the clean-up costs at the sites.
To date, the Company has incurred expenses of approximately $10,000 relative
to these claims. See Part 1, Item 3 hereof, "Legal Proceedings", for a
summary of the Company's legal proceedings.
GOVERNMENT REGULATIONS, INVESTIGATIONS AND LEGISLATION
The Company's services are conducted for pharmaceutical companies to
support their applications for approval to market new "branded" or
bioequivalent generic drug products. These companies, and therefore the
Company, are subject to extensive regulation by government authorities.
Regulatory proceedings which adversely affect the Company's clients have
affected and could continue to adversely affect the Company's business. The
repeal or significant alteration of some or all of the laws or regulations
requiring testing of the type performed by the Company could have a material
adverse effect on the Company's business. However, regulatory changes which
require additional or more complex testing to be performed in support of the
drug approval process could significantly enhance the Company's business.
Management believes that legislation and regulation, on balance, have a
favorable impact on the demand for its services by providing sponsors and
manufacturers of new drugs with additional requirements which increase the
need for outsourcing.
In August 1990, the Company's outside counsel received a letter from the
United States Attorney for the District of Maryland stating that the Company
and its former Chief Scientific Officer were named as targets in a federal
grand jury investigation of the generic drug industry. On May 22, 1991, the
Company announced a plea agreement with the United States Attorney's Office
of the District Court of Maryland and the Office of Consumer Litigation of
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the Department of Justice. Under this agreement, the Company agreed to plead
guilty to one count alleging obstruction of justice of an investigation by
the Food and Drug Administration and agreed to pay a fine of $200,000. See
Note G of Notes to Financial Statements included under Part II, Item 8
hereof.
The Company is subject to regulation and inspection by the Baltimore
City Health Department (for the Maryland State Department of Health and
Mental Hygiene), the Center for Disease Control of the United States
Department of Health and Human Services and other state and local agencies
where the Company's facility is located. The Company has not experienced any
significant problems to date in complying with the applicable requirements of
such agencies and does not believe that any existing or proposed regulations
will require material capital expenditures or changes in its method of
operation. Management believes that the Company is acting in accordance with
all applicable federal, state and local laws.
COMPETITION
The Company competes primarily against other CROs, and pharmaceutical
companies' own in-house research departments. A lack of reliable data on the
industry leaders and comparable companies, as most are privately owned or are
operating units of large publicly owned corporations, makes accurate
comparisons difficult.
The Company believes there is no single dominant independent testing
laboratory in biopharmaceutics at this time. The CRO industry is fragmented,
with approximately twenty "full-service" CRO's and many small specialty
providers. Some of the larger competitors have substantially greater capital
and other resources, are more diversified, and have broader experience than
the Company.
From the Company's experience, clients choose a CRO based on its
reputation and capabilities for quality and value. The Company believes that
it is among the leading CROs in those areas in which it competes.
CUSTOMERS
For the year ended June 30, 1995, one customer contributed in excess of
10% of revenue from operations, accounting for 11% of revenue from
operations. For the year ended June 30, 1994, two customers each contributed
in excess of 10% of revenue from operations, which in aggregate accounted for
41.5% of revenue from operations. For the year ended June 30, 1993, four
customers accounted for 70% of revenues from operations.
The nature of the Company's services and recurring business with major
clients contributes to having several clients whose business accounts for ten
percent or more in a fiscal year. From year to year, the specific clients
may change.
BACKLOG
The Company maintains a backlog of its business, representing studies
underway in-house, for which revenue has not yet been recognized, and studies
that have been awarded to the Company by its various clients. At June 30,
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1995, the backlog was approximately $4.6 million.
EMPLOYEES
At July 31, 1995, the Company had 105 full-time employees and 58 part-
time employees, including 2 physicians and 14 scientists with advanced
degrees. The Company does not have collective bargaining agreements with any
of its employees and considers its employee relations to be satisfactory.
ITEM 2. PROPERTIES
The Company substantially completed the renovation of its headquarters
and research and testing facility during fiscal year 1988. This seven-story
building located in Baltimore, Maryland has a consolidated analytical
chemistry laboratory, a controlled live-in clinical facility with a 120-bed
capacity, and corporate-wide information and data management systems. The
facility is comprised of approximately 142,000 gross square feet. The
Company has available 25,000 gross square feet of unfinished space within the
facility to meet its potential expansion needs.
Substantially all of the Company's assets, including its facility,
collateralize the Company's borrowing agreements with NationsBank, N.A. (see
Note G to the Financial Statements).
See Note D to the Financial Statements for additional information
regarding the Company's property, plant and equipment.
ITEM 3. LEGAL PROCEEDINGS
(a) Reorganization Proceedings under Chapter 11 of the Bankruptcy
Code
On November 19, 1990, PharmaKinetics Laboratories, Inc. (the "Company")
filed a voluntary petition (Case No. 90-5-5020-JS) under Chapter 11 of the
United States Bankruptcy Code (the "Code") with the United States Bankruptcy
Court for the District of Maryland (the "Bankruptcy Court").
The Company was operated as a debtor-in-possession under the Code, which
protected it from its creditors pending reorganization under the jurisdiction
of the Bankruptcy Court. As a debtor-in-possession, the Company was
authorized to operate its business, but could not engage in transactions
outside the ordinary course of business without approval, after notice and
hearing, of the Bankruptcy Court.
On April 1, 1993, the Company confirmed its Amended Plan of
Reorganization (the "Plan") in the United States Bankruptcy Court. The Plan
became effective on May 10, 1993. The Plan provided for satisfaction of $8.3
million in secured claims of the then Maryland National Bank, which was later
acquired by NationsBank, N.A. (the "Bank") by cash payments of approximately
$5.9 million and by a term note of approximately $2.4 million. Other terms
provided the Company with $500,000 of working capital and a $500,000 line of
credit from the Bank. The claims of unsecured creditors were satisfied by an
initial cash payment of approximately $833,000 and the issuance of
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approximately 1.6 million shares of the Company's common stock, subject to an
agreement for the subsequent controlled sale of such shares.
(b) Other Legal Proceedings
On August 20, 1990, the Company was notified that it had been named as a
contributor of hazardous waste at the Industrial Solvents and Chemical
Company ("ISCC") Site in Newberry Township, Pennsylvania by the Pennsylvania
Department of Environmental Resources ("PADER"). PADER has identified
approximately 1,000 persons and companies that are believed to be responsible
persons under the Pennsylvania Hazardous Sites Cleanup Act ("HSCA") with
respect to the release or threatened release of hazardous substances from the
ISCC Site. Under the HSCA, the approximately 1,000 parties identified are
strictly liable for the reasonable and necessary costs of interim and
remedial response actions, natural resource damages, and the costs associated
with health risk assessment. A group of Potentially Responsible Parties
("PRPs") was formed in an effort to discharge through a collective action any
responsibilities the PRPs may have under HSCA with respect to the site. To
date, more than 500 PRPs have joined the PRP Group, including the Company.
The PRP Group has retained a private investigator, an allocation consultant
and technical consultants to investigate and to advise with regard to any
alleged connection of the named parties to the site. Management believes
that the Company may be responsible for contributing approximately 880
gallons of waste during the 1981 through 1989 time frame in question, out of
an estimated total of 250,000 gallons. The Company has entered into a De
Minimis Settlement Agreement as offered by the ISCC Site Primarily
Responsible Parties Steering Committee. The Settlement allowed the Company
to shift its responsibilities to the larger contributors by agreeing to
submit a cash payment of approximately $9,000. In the opinion of management,
after consultation with legal counsel, the Company does not anticipate
additional liabilities with regard to this claim.
On October 12, 1992, the Company was notified that it had been named as
a contributor of hazardous waste at the Aqua-Tech Environmental, Inc. site,
located in Greer, South Carolina, by the United States Environmental
Protection Agency. The EPA has identified approximately 600 entities that
shipped wastes to the site between 1987 and 1991. The Company has been
initially classified as a minor Potentially Responsible Party. There are
approximately 1,000 other parties believed to have shipped wastes to the site
prior to 1987. The major PRP's are cooperating in ongoing cleanup activities
at the Site. Management believes that the Company is responsible for
contributing approximately one gallon of waste during the 1987 to 1991 time
frame. The Company has entered into a Group Removal Action Buyout Agreement,
by agreeing to submit a cash payment of $1,000, which includes the removal
and treatment or disposal of all waste present on the surface of the
Aqua-Tech site as of May 1992. The work covered by the Removal Action does
not include any remediation of soil, groundwater, or subsurface contaminants.
Subsequent to June 30, 1995, the Company received a final buy-out option for
clean-up costs at this site. The amount requested by the Aqua-Tech PRP Group
is $3,000.
See "Government Regulations, Investigations and Legislation" under Part
I, Item 1 of this Report regarding the criminal plea and fine resulting from
the federal grand jury investigation in which the Company and its former
Chief Scientific Officer had been identified as targets.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
NONE
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
Since the inception of the Company's bankruptcy filing on November 19,
1990, the Company's stock was allowed to continue trading on the NASDAQ
National Market System on an exception basis. A hearing was held December
17, 1991, to determine the Company's eligibility to continue to trade under
an exception to the capital and surplus requirement. The Company was
notified on December 19, 1991, that the request for continued exception was
denied. The Company's stock, then trading under the symbol PKLBQ, was
delisted from the National Stock Market effective December 20, 1991. The
Company's Common Stock is currently traded in the over-the-counter market and
is quoted on the NASD OTC Bulletin Board (OTCBB: PKLB).
The following table sets forth the high and low bid prices of the Common
Stock for the fiscal periods indicated and as reported by NASD through the
NASD OTC Bulletin Board.
------1995------- ------1994-------
Quarter High Low High Low
-------- -------- -------- --------
First $ 3/4 $ 5/16 $ 1 $ 5/16
Second 11/16 7/32 1 1/16 5/8
Third 9/16 1/4 1 1/8 3/4
Fourth 7/16 1/8 1 1/16 5/16
The approximate number of shareholders of record at June 30, 1995, was
1,163.
The Company has not declared a dividend on its Common Stock since its
inception and has no intention of doing so in the foreseeable future.
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ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Years ended June 30,
---------------------------------------------------------
1995 1994 1993 1992 1991
---------- ---------- ---------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Contract revenue $9,893,762 $8,847,674 $8,718,246 $12,811,911 $16,227,055
Earnings (loss):
Before
extraordinary item $127,827 $204,851 ($197,947) $3,543,745 ($10,432,989)
Extraordinary item - - $107,016 - -
Net earnings (loss) $127,827 $204,851 ($90,931) $3,543,745 ($10,432,989)
Earnings (loss)
per share:
Before
extraordinary item $0.01 $0.02 ($0.02) $0.32 ($1.03)
Extraordinary item - - $0.01 - -
Net earnings (loss)
per share $0.01 $0.02 ($0.01) $0.32 ($1.03)
Weighted average
shares outstanding 12,598,102 12,780,687 10,719,615 10,984,253 10,085,314
Total assets $6,553,348 $6,163,128 $6,198,151 $9,580,388 $15,300,160
Working capital
(deficiency) ($63,474) $262,632 $831,114 $3,235,788 ($904,533)
Long-term
liabilities $2,074,109 $2,437,373 $2,866,072 $7,296,205 $13,894,652
Stockholders'
equity $1,768,859 $1,540,669 $1,364,898 ($198,858) ($3,718,183)
(deficiency
in assets)
- --------------------------------------------------------------------------------
<FN>
Notes to Selected Financial Data:
The Company has not declared a dividend on common stock since inception.
During the fiscal year ended June 30, 1991, the Company recorded actual and
accrued expenses of $200,000 for expenses associated with certain non-recurring
events and $6,724,613 for expenses associated with the reorganization of the
Company under the Bankruptcy Code.
During the fiscal year ended June 30, 1992, the Company adjusted certain of its
accruals for professional fees related to the bankruptcy proceedings, interest
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recorded for amounts due Maryland National Bank, which was later acquired by
NationsBank, N.A. and certain other accrued expenses aggregating $1,181,931.
In addition, the Company recorded additional expenses of $376,200 associated
with the rejection of various leased equipment.
Fiscal years 1992 and 1991 included contract revenue for the Company's German
subsidiary, which was sold effective March 31, 1992. The balance sheets for
1991 include the German subsidiary's account balances.
During the fiscal year ended June 30, 1993, the Company recorded $68,000 for
expenses associated with the reorganization of the Company under the Bankruptcy
Code and debt forgiveness of $107,016, which was recorded as an extraordinary
item.
</FN>
</TABLE>
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
GENERAL
PharmaKinetics Laboratories, Inc. ("the Company") is a leading contract
research organization ("CRO") providing drug development services to
pharmaceutical firms. As of June 30, 1995, the operations of the Company
consisted of biopharmaceutic services, including design, development and
implementation of the clinical protocol, management and analysis of
laboratory and statistical data, compilation of reports and consultation on
regulatory affairs. Since the Company's inception in 1976, the Company has
assisted pharmaceutical clients with over 1,000 submissions for approval to
the United States Food and Drug Administration ("FDA"), as well as
submissions to the Canadian Health Protection Branch ("HPB").
In August 1990, a federal grand jury investigating the generic drug
industry notified the Company and its former Chief Scientific Officer that
they were named as targets of the investigation. On May 22, 1991, the
Company announced a plea agreement, relating to the participation of its
former Chief Scientific Officer in the obstruction of an investigation by the
Food and Drug Administration, with the United States Attorney's Office of the
District Court of Maryland and the Office of Consumer Litigation of the
Department of Justice. The Company agreed to plead guilty to one count
alleging obstruction of justice of an investigation and agreed to pay a fine
of $200,000. The fine is paid at $40,000 per year with interest at 6.39%.
The Company is not presently a target of any investigations nor is it
involved in investigations of other firms or individuals.
The Company filed for voluntary protection under Chapter 11 of the
United States Bankruptcy Code on November 19, 1990. On April 1, 1993, the
Company confirmed its Amended Plan of Reorganization (the "Plan") in the
United States Bankruptcy Court. The Plan was effected May 10, 1993, and
provided for satisfaction of $8.3 million in secured claims of Maryland
National Bank, which was later acquired by NationsBank, N.A., (the "Bank") by
cash payments of approximately $5.9 million and by a term note of
approximately $2.4 million. Other terms provided the Company with $500,000
of working capital and a $500,000 line of credit from the Bank. The claims
of unsecured creditors were satisfied by an initial cash payment of
approximately $833,000 and the issuance of approximately 1.6 million shares
of the Company's common stock, subject to an agreement for the subsequent
controlled sale of such shares.
As of June 30, 1995, the Company was involved in two hazardous waste
suits for which the Company is responsible for contributing to the clean-up
costs at the involved sites. One of these cases has since been settled at a
cost of $3,000. See Part I, Item 3 hereof, "Legal Proceedings", for a
summary of the Company's legal proceedings. In the opinion of management,
after consultation with legal counsel, the remaining action will be resolved
with no material adverse effect on the financial position of the Company.
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<TABLE>
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, items in the
Statements of Operations as percentages of total revenues and the
increase (decrease) by each item as a percentage of the amount for the
previous period:
<CAPTION>
Percentage of Period to Period
Total Revenues Change
---------------------- -----------------------
1995 1994 1993
Years ended June 30, Compared to
----------------------
1995 1994 1993 1994 1993 1992
- ---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Contract Revenue
U.S. 93.5% 89.9% 91.5% 16.3% (0.3)% 45.3%
Germany - - - - - (100.0)
License fee 6.5 10.1 8.5 (27.7) 21.0 (14.0)
----- ----- ----- ----- ----- -----
Total 100.0 100.0 100.0 11.8 1.5 (32.0)
Cost of contracts 68.9 67.9 69.2 13.4 (0.5) (39.5)
----- ----- ----- ----- ----- -----
Gross margin 31.1 32.1 30.8 8.4 5.9 (5.5)
Research and development 4.2 2.5 0.9 92.8 175.5 1,079.8
General and administrative 22.2 25.0 23.2 (0.7) 9.2 (40.3)
----- ----- ----- ----- ----- -----
Operating income(loss) 4.7 4.6 6.7 12.6 (28.9) 203.1
Interest expense (2.6) (3.0) (2.9) (3.2) 5.7 (70.5)
Interest income 0.4 0.6 0.2 (23.3) 188.3 -
Gain on sale of investments - - - - - (100.0)
Loss on sale of investments (1.0) - - 100.0 - -
Loss on sale of subsidiary - - - - - 100.0
Write-down of investments (0.5) - (6.6) 100.0 (100.0) (5.4)
----- ----- ----- ----- ----- -----
Earnings (loss) before
reorganization items,
income taxes and
extraordinary item 1.0 2.2 (2.6) (50.4) 187.2 (108.5)
Reorganization item - - 0.2 - (100.0) (97.9)
----- ----- ----- ----- ----- -----
Earnings (loss) before
taxes and extraordinary
item 1.0 2.2 (2.4) (50.4) 195.1 (105.8)
Income taxes (0.3) (0.1) (0.1) (475.6) 58.8 (124.3)
----- ----- ----- ----- ----- -----
Earnings (loss) before
extraordinary item 1.3 2.3 (2.3) (37.6) 203.5 (105.6)
Extraordinary item - - 1.2 - (100.0) -
----- ----- ----- ----- ----- -----
Net earnings (loss) 1.3% 2.3% (1.1)% (37.6)% 325.3% (102.6)%
===== ===== ===== ===== ===== =====
</TABLE>
12
<PAGE>14
1995 COMPARED TO 1994
Total revenue increased 11.8% from $8.8 million in 1994 to $9.9 million
in 1995. The increase was primarily attributable to the Company's increased
marketing efforts, which produced an increase in the overall volume of
business for the fiscal year. During 1995, the Company diversified its
services, added new clients and successfully penetrated new markets for its
services. Operating revenue increased 16.3% for 1995, compared to 1994.
License fee income of $647,000 was recorded in fiscal 1995, compared to
$896,000 in fiscal 1994. The Company continued to receive income pursuant to
license fee agreements that it has with two of its clients based on sales of
their drug products. The Company will continue to receive license fee income
based on the client's future sales of the approved drugs through the
expiration of the license fee agreements, the first of which is set to expire
in fiscal 1998.
The Company's gross margin increased 8.4% from $2.8 million in 1994 to
$3.1 million in 1995. As a percentage of revenue, the Company's gross margin
decreased from 32.1% in 1994 to 31.1% in 1995, on an 11.8% increase in
overall revenue. The decrease in gross margin primarily resulted from fourth
quarter productivity deficiency, particularly in the laboratory, causing
increases in costs and delays in shipments. In addition, an inability to
resolve a major technical problem in the laboratory resulted in a failure to
complete two studies and produced non-recovery of substantial investments in
research and development. The increase in expense associated with these
difficulties was offset by the Company's December reversal of $232,719 in
accrued expenses for unemployment insurance assessments on study participant
compensation during the period January 1, 1991 through September 30, 1994.
In December 1994, the Company received a favorable ruling from Maryland's
Board of Appeals that study participants utilized by the Company are not
subject to unemployment insurance. The on-going impact of this ruling has
been and will continue to be reduced unemployment costs for the Company.
Absent this reversal in the current year, gross profit as a percentage of
revenue would have been 28.8%.
General and administrative expenses totalled $2.2 million for 1994 and
1995, with a decrease of .7% from 1994 to 1995. As a percentage of revenue,
general and administrative expenses were 22.2% in 1995 compared to 25.0% in
1994. Fluctuations in general and administrative spending primarily relate
to the timing of expenditures for marketing and corporate purchases and the
release of $35,000 in accrued expenses for legal fees related to matters
concluded in fiscal 1995.
The Company increased its research and development spending by 92.8%
from $218,000 in 1994 to $420,000 in 1995. Of the amount invested in the
Company's research and development efforts for 1995, approximately $145,000
was expended in an unsuccessful effort to develop a new assay for one of the
Company's major clients. The Company has implemented procedures to minimize
the likelihood that a similar assay development problem will recur.
Interest expense decreased 3.2% from $266,000 in 1994 to $257,000 in
1995. The decrease is primarily attributable to decreases in the Company's
interest bearing obligations. In addition, the Company negotiated improved
terms with NationsBank, N.A. in May 1995, reducing the rate of interest on
its term note payable to the Bank from the Bank's prime rate plus 2% to the
13
<PAGE>15
Bank's prime rate plus 1/2%. On a discretionary basis, the Company has made
and expects to continue to make escalated principal payments relative to its
term note payable to the Bank.
A benefit of income taxes of $29,000 was recorded in fiscal 1995 to
reflect a reduction in the Company's tax liability from 1992. At June 30,
1995, the Company had tax loss carryforwards of approximately $4,511,000,
expiring in 2006 through 2009, and general business credits of approximately
$1,404,000, expiring during the period 1999 through 2009.
1994 COMPARED TO 1993
Total revenue increased 1.5% from $8.7 million in 1993 to $8.8 million
in 1994. The increase was primarily attributable to increases in license fee
income received by the Company in fiscal 1994. Operating revenue continued
to show growth through December 1993, at which time revenues decreased as a
result of the receipt of a Warning Letter from the FDA in late December 1993.
The letter stated that the Company had violated certain FDA regulations
during studies conducted in 1990 and 1991. The concerns expressed by the FDA
were quickly addressed. Overall, operating revenue decreased .3% for 1994
compared to 1993. License fee income increased from $740,000 in 1993 to
$896,000 in 1994 or 21.0%. The Company continued to receive this income
pursuant to two license fee agreements with two of its clients based on
certain client product sales.
The Company's gross margin increased 5.9% from $2.7 million in 1993 to
$2.8 million in 1994. As a percentage of revenue, the Company's gross margin
increased from 30.8% in 1993 to 32.1% in 1994 on a 1.5% increase in overall
revenue. The increase in gross margin resulted from moderate decreases in
fixed operating expenses primarily through the expiration of certain
operating leases for equipment, offset by additional staffing necessary to
meet client demands.
General and administrative expenses increased 9.2% from $2.0 million in
1993 to $2.2 million in 1994. As a percentage of revenue, general and
administrative expenses were 23.2% in 1993 compared to 25.0% in 1994. The
increase in spending is due to expenditures for sales and marketing.
The Company increased its research and development spending by 175.5%
from $79,000 in 1993 to $218,000 in 1994. For the second year in a row, part
of the Company's research and development efforts were generated through the
Company's participation in the Maryland Industrial Partnerships program. The
overall purpose of the Company's participation in the program is to develop
and validate bioanalytical assays. The award is the result of a joint
application with the Pharmacokinetics-Biopharmaceutics Lab, School of
Pharmacy, University of Maryland at Baltimore, to conduct specific research
for the Company. The results of this project will contribute to the
Company's ability to test new drugs in support of market approvals by the
Food and Drug Administration.
Interest expense increased in fiscal 1994 by 5.7% or $14,000 compared to
1993. The increase is due to increases in the contractual rates of interest
due under the Company's term note and increases in the amount of interest
accrued on restructured debt related to one of the Company's operating leases
14
<PAGE>16
scheduled to expire in February 1996. On a discretionary basis, the Company
has made and expects to continue to make escalated principal payments
relative to its term note payable to the bank.
A benefit of income taxes of $5,000 was recorded in fiscal 1994 to
reflect a reduction in the Company's tax liability from 1992. At June 30,
1994, the Company had tax loss carryforwards of $4,060,000, expiring in 2006
through 2009, and general business credits of $1,378,000 expiring during the
period 1999 through 2009.
1993 COMPARED TO 1992
Total revenue decreased 32% from $12.8 million in 1992 to $8.7 million.
The decrease was primarily attributable to the sale of IBR, the Company's
former German subsidiary, on March 31, 1992. Results of operations for 1992
reflect nine months of operations for IBR. Revenue in the U.S. increased 37%
from $6.3 million in fiscal 1992 to $8.7 million in fiscal 1993 as a result
of expansion in biopharmaceutic and stability and dissolution services.
License fee income decreased from $860,000 to $740,000 or 14%. The Company
received this income pursuant to two license fee agreements with two of its
clients based on certain client product sales.
The Company's gross margin decreased 5.5% from $2.8 million in 1992 to
$2.7 million in 1993. As a percentage of revenue the Company's gross margin
increased from 22.1% in 1992 to 30.8% in 1993 on a decrease in overall
revenue levels. The fiscal 1993 margin percentage was favorably impacted by
the Company completing its restructuring and emerging from bankruptcy with
reduced liabilities and operating expense levels.
General and administrative expenses have decreased 40.3% from $3.4
million in 1992 to $2.0 million in 1993. The reduction was due in part to
the inclusion of IBR for nine months of fiscal 1992, offset by an increase of
$117,000 or 6.1% in general and administrative expenses for U.S. operations.
For domestic operations, general and administrative expenses were 30.0% of
revenue in 1992 compared to 23.2% in 1993. The increase is attributable, in
part, to an increase in the benefit rate charges incurred by the Company, an
average salary adjustment of 4% effected January 1, 1993, and the Company's
efforts to position itself for future growth through increased marketing
efforts and the addition of staff.
Interest expense decreased in 1993 by 70.5% or $602,000 compared to
1992. IBR is included for nine months of fiscal 1992. The U.S. operations
experienced a decrease in interest expense of $333,000 or 57.0% from 1992 to
1993. The reduction is due to decreased contractual rates of interest and
the reduction of debt in fiscal 1993 as a result of the Company's
restructuring under Chapter 11.
Proceeds from the Company's sale of IBR in fiscal 1992 included $1.4
million (158,528 shares) in common stock of the purchaser, TSI Corporation.
At June 30, 1992, the Company had recorded a loss on the carrying value of
its investment in TSI Corporation of $607,000. At June 30, 1993, the Company
recorded an additional loss on the carrying value of its investment of
$575,000. The quoted market value of the stock at June 30, 1992, was $5.00
per share and at June 30, 1993, was $1.375 per share.
15
<PAGE>17
During fiscal 1993, the Company recorded an additional $68,000 of
reorganization expenses related to concluding the Company's bankruptcy
proceedings. The amount represents costs to satisfy certain administrative
expenses and legal fees necessary to effect the Plan of Reorganization. The
$107,000 of debt forgiveness resulting from the emergence from bankruptcy has
been reflected as an extraordinary item.
A benefit of income taxes of $12,000 was recorded in fiscal 1993 to
reflect a reduction in the Company's tax liability for fiscal 1992. At June
30, 1993, the Company had tax loss carryforwards of $3,874,000, expiring in
2000 through 2004, and general business credits of $1,362,000, expiring
during the period 2006 through 2008.
LIQUIDITY AND CAPITAL RESOURCES
On June 30, 1995, the Company had cash and equivalents of $1,084,000
compared to $1,075,000 at June 30, 1994. The nominal increase in cash is the
result of cash generated from operations and the sale of the Company's
investments in Genzyme Transgenics, offset by payments on long-term debt and
the purchase of equipment for utilization in the Company's operating units.
The Company invested $626,000 in capital equipment purchases, $411,000 of
which was paid in cash with the remaining $215,000 financed through capital
leases. The capital leases have terms expiring through 1998. The Company
made payments of $273,000 on its long-term debt obligations during fiscal
1995. On a discretionary basis, the Company has made and expects to continue
to make escalated principal payments relative to its term note payable to the
bank.
The Company's primary source of funds is cash flow from operations. The
Company has available a $500,000 line of credit from NationsBank, N.A. which
has not been drawn upon.
During the fiscal year ended June 30, 1995, the Company liquidated its
holdings in Genzyme Transgenics Corporation. The Company recorded a loss on
the sale of investments of $101,479 and a write-down of investments of
$46,750. The Company's holdings, 31,705 shares, were sold for approximately
$2.20 per share, generating proceeds of $69,747. The Company had carried the
investment at $217,976, net of an investment valuation allowance of $99,080
at June 30, 1994.
As of June 30, 1995, the Company's stockholders' equity totalled
$1,769,000 compared to $1,541,000 at June 30, 1994. The Company had a
deficiency in working capital of $63,000 at June 30, 1995, compared to
working capital of $263,000 at June 30, 1994. The decrease in the Company's
working capital position reflects the Company's investment in equipment and
increases in client deposits for contracted work, which are recorded as
current liabilities.
16
<PAGE>18
REPORT OF INDEPENDENT ACCOUNTANTS
To the Directors and Stockholders of
PharmaKinetics Laboratories, Inc.
We have audited the financial statements of PharmaKinetics Laboratories,
Inc. listed in the index on page 36 of this Form 10-K. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based
on our audits.
We concluded 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 PharmaKinetics
Laboratories, Inc. as of June 30, 1995 and 1994, and the results of its
operations and its cash flows for each of the three years in the period ended
June 30, 1995, in conformity with generally accepted accounting principles.
/s/Coopers and Lybrand L.L.P.
Coopers and Lybrand L.L.P.
Baltimore, Maryland
August 9, 1995
17
<PAGE>19
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
PHARMAKINETICS LABORATORIES, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Years ended June 30,
------------------------------------
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
Contract revenue $9,893,762 $8,847,674 $8,718,246
Cost of contracts 6,813,576 6,006,185 6,035,649
---------- ---------- ----------
Gross profit 3,080,186 2,841,489 2,682,597
General and administrative expenses 2,198,050 2,213,188 2,025,875
Research and development expenses 420,049 217,861 79,071
---------- ---------- ----------
Earnings from operations 462,087 410,440 577,651
Interest expense (257,018) (265,591) (251,184)
Interest income 42,207 55,002 19,080
Loss on sale of investments (101,479) - -
Write-down of investments (46,750) - (574,664)
---------- ---------- ----------
Earnings (loss) before reorganization
items, income taxes and
extraordinary item 99,047 199,851 (229,117)
Reorganization Items:
Professional fees accrued - - (68,000)
Interest income - - 87,040
---------- ---------- ----------
Total reorganization items - - 19,040
---------- ---------- ----------
Earnings (loss) before income
taxes and extraordinary items 99,047 199,851 (210,077)
Benefit of income taxes (28,780) (5,000) (12,130)
---------- ---------- ----------
Earnings (loss) before
extraordinary item 127,827 204,851 (197,947)
Extraordinary item: debt forgiveness - - 107,016
---------- ---------- ----------
Net earnings (loss) $127,827 $204,851 ($90,931)
========== ========== ==========
Earnings (loss) per share:
Before extraordinary item $0.01 $0.02 ($0.02)
Extraordinary item - - 0.01
---------- ---------- ----------
Net earnings (loss) per share $0.01 $0.02 ($0.01)
========== ========== ==========
Weighted average
shares outstanding 12,598,102 12,780,687 10,719,615
========== ========== ==========
- ---------------------------------------------------------------------
See Notes to financial statements.
</TABLE>
18
<PAGE>20
PHARMAKINETICS LABORATORIES, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
June 30,
----------------------------
1995 1994
------------- -------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and equivalents $1,044,782 $1,067,348
Restricted cash and equivalents 39,036 7,234
Accounts receivable, net 774,684 804,579
Refundable income taxes 29,364 -
Contracts in process 695,359 518,969
Prepaid expenses 63,681 49,588
------------ ------------
Total Current Assets 2,646,906 2,447,718
Property, plant and equipment, net 3,848,020 3,538,092
Other assets 58,422 177,318
------------ ------------
Total Assets $6,553,348 $6,163,128
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued expenses $1,378,495 $1,233,105
Deposits on contracts in process 1,133,547 755,175
Current portion of long-term debt 198,338 196,806
------------ ------------
Total Current Liabilities 2,710,380 2,185,086
Other liabilities 116,150 204,729
Long-term debt 1,957,959 2,232,644
------------ ------------
Total Liabilities 4,784,489 4,622,459
------------ ------------
Commitments and Contingent Liabilities
Stockholders' Equity:
Preferred stock, no par value; 1,500,000
shares authorized and unissued - -
Common stock, $.001 par value; authorized,
25,000,000 shares; issued 12,195,891 and
12,095,891 shares, respectively 12,196 12,096
Common stock subscribed, 300,000 shares - 300
Additional paid-in-capital 12,013,701 12,113,501
Accumulated deficit (10,257,038) (10,384,865)
------------ ------------
1,768,859 1,741,032
Less: Investment valuation allowance - (99,080)
Less: Note receivable for common stock subscribed - (101,283)
------------ ------------
Total Stockholders' Equity 1,768,859 1,540,669
------------ ------------
Total Liabilities and Stockholders' Equity $6,553,348 $6,163,128
============ ============
- ------------------------------------------------------------------------------
See Notes to Financial Statements.
</TABLE> 19
<PAGE>21
PHARMAKINETICS LABORATORIES, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Years ended June 30,
----------------------------------------
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
COMMON STOCK
Balance, beginning of year $12,396 $12,316 $10,358
Stock issued - - 1,578
Stock subscribed (cancelled) (200) - 300
Exercise of stock options - 80 80
------------ ------------ ------------
Balance, end of year 12,196 12,396 12,316
------------ ------------ ------------
ADDITIONAL PAID-IN CAPITAL
Balance, beginning of year 12,113,501 12,043,581 10,289,569
Stock issued - - 1,579,192
Stock subscription cancelled (99,800) - -
Exercise of stock options - 69,920 174,820
------------ ------------ ------------
Balance, end of year 12,013,701 12,113,501 12,043,581
------------ ------------ ------------
ACCUMULATED DEFICIT
Balance, beginning of year (10,384,865) (10,589,716) (10,498,785)
Net earnings (loss) 127,827 204,851 (90,931)
------------ ------------ ------------
Balance, end of year (10,257,038) (10,384,865) (10,589,716)
------------ ------------ ------------
NOTE RECEIVABLE ON
COMMON STOCK SUBSCRIBED
Balance, beginning of year (101,283) (101,283) -
Note (issued) cancelled 100,000 - (100,000)
Interest accrued (6,000) (6,000) (1,283)
Interest paid 6,000 6,000 -
Interest receivable 1,283 - -
------------ ------------ ------------
Balance, end of year - (101,283) (101,283)
------------ ------------ ------------
INVESTMENT
VALUATION ALLOWANCE - (99,080) -
------------ ------------ ------------
TOTAL STOCKHOLDERS' EQUITY $1,768,859 $1,540,669 $1,364,898
============ ============ ============
- ---------------------------------------------------------------------
See Notes to Financial Statements.
</TABLE>
20
<PAGE>22
PHARMAKINETICS LABORATORIES, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years ended June 30,
----------------------------------
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings (loss) $127,827 $204,851 ($90,931)
Adjustments to reconcile net earnings
to net cash from operating activities:
Depreciation and amortization 312,875 188,437 117,425
Provision for (recovery of)
doubtful accounts (9,450) (27,262) 21,975
Forgiveness of debt - - (107,016)
Gain on sale of equipment (1,315) - -
Loss on sale of investments 101,479 - -
Write-down of investments 46,750 - 574,664
Changes in operating assets and liabilities:
Accounts receivable 40,628 (105,939) (97,224)
Contracts in process (176,390) (7,652) 181,694
Prepaid expenses and other current assets (14,093) 32,887 (23,580)
Refundable income taxes (29,364) - -
Other assets - (3,650) 16,287
Accounts payable and accrued expenses 61,935 (109,097) (360,105)
Deposits on contracts in process 378,372 372,640 (170,540)
Liabilities subject to compromise - - (1,621,700)
Other liabilities (204,729) (229,061) 50,271
---------- ---------- ----------
Net cash provided (used) by
operating activities 634,525 316,154 (1,508,780)
---------- ---------- ----------
Cash flows from investing activities:
Payment for purchase of
property and equipment (410,885) (599,421) (231,156)
Proceeds from sale of equipment 4,300 - -
Proceeds from sale of investments 69,747 - -
---------- ---------- ----------
Net cash used by investing activities (336,838) (599,421) (231,156)
---------- ---------- ----------
Cash flows from financing activities:
Payment on long-term debt (273,153) (245,276) (1,172,933)
Payment for capital lease obligations (15,298) - -
Proceeds from exercise of stock options - 70,000 75,200
---------- ---------- ----------
Net cash used by financing activities (288,451) (175,276) (1,097,733)
---------- ---------- ----------
Increase (decrease) in cash and equivalents 9,236 (458,543) (2,837,669)
Cash and equivalents, beginning of year 1,074,582 1,533,125 4,370,794
---------- ---------- ----------
Cash and equivalents, end of year $1,083,818 $1,074,582 $1,533,125
========== ========== ==========
21
<PAGE>23
Years ended June 30,
----------------------------------
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
Supplemental Schedule of
Non-Cash Transactions
Fixed assets acquired
through capital leases $214,903 - -
Issuance of stock in lieu of fees
and cash compensation - - $16,800
Issuance of stock pursuant to
Plan of Reorganization - - $1,563,970
Issuance of stock subscription - - $100,000
Conversion of liabilities to
long-term debt - - $2,400,000
Conversion of accounts payable to debt - - $187,659
Investment valuation allowance - $99,080 -
- ------------------------------------------------------------------------------
See notes to financial statements.
</TABLE>
22
<PAGE>24
PHARMAKINETICS LABORATORIES, INC.
NOTES TO FINANCIAL STATEMENTS
A. BASIS OF PRESENTATION AND CHAPTER 11 BANKRUPTCY PROCEEDINGS
The Company operates principally in one industry segment, the testing
and related research of pharmaceutical products. Contract revenue includes
revenue from operations and from licensing technologies under special
agreements whereby the Company receives license fees based upon the clients'
actual product sales. At June 30, 1995, the Company has two license fee
agreements from which the Company is receiving license fee income. Based
upon actual client sales, license fee income of $647,308, $895,656, and
$740,110 was recorded during fiscal years ending June 30, 1995, 1994, and
1993, respectively. The Company will continue to receive license fee income
based on the clients' future sales of the approved drugs.
On November 19, 1990, PharmaKinetics Laboratories, Inc., (the
"Company"), filed a voluntary petition in the United States Bankruptcy Court
in the District of Maryland seeking to reorganize under Chapter 11 of the
Federal Bankruptcy Code. The Company confirmed its Amended Plan of
Reorganization (the "Plan") on April 1, 1993. The Plan became effective May
10, 1993.
The Plan provided for settlement of $8.3 million in secured claims of
the then Maryland National Bank, which was later acquired by NationsBank,
N.A., (the "Bank") by cash payments of approximately $5.9 million and by a
term note of approximately $2.4 million. Other terms provided the Company
with $500,000 of working capital and a $500,000 line of credit from the Bank.
The claims of unsecured creditors were satisfied by an initial cash payment
of approximately $833,000 and the issuance of approximately 1.6 million
shares of the Company's common stock, subject to an agreement for the
subsequent controlled sale of such shares. Through June 30, 1995, the
creditors have liquidated 240,000 shares of stock.
B. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
REVENUE RECOGNITION
Revenues associated with testing services, which are short-term in
duration, are earned and recognized upon completion of all required clinical
and laboratory analysis. Projected losses on contracts are provided for in
their entirety when known.
Operating revenue attributable to the performance of long-term testing
is recorded by contract by determining the status of work performed to date
in relation to total services to be provided. Revenues under fixed-rate
contracts included a proration of the earnings expected to be realized on the
contract based upon the ratio of costs incurred to estimated total costs.
For the year ended June 30, 1995, one customer contributed in excess of
10% of revenue from operations, accounting for 11% of revenue from
operations. For the year ended June 30, 1994, two customers each contributed
in excess of 10% of revenue from operations, which in aggregate accounted for
23
<PAGE>25
41% of revenue from operations. For the year ended June 30, 1993, four
customers accounted for 70% of revenues from operations.
CONTRACTS IN PROCESS AND DEPOSITS ON CONTRACTS
Contracts in process include direct and indirect costs related to
contract performance. Deposits on contracts represent interim payments.
Upon completion of contracts, the customer is billed for the total contract
amount less any deposits or interim payments.
EARNINGS (LOSS) PER SHARE
Earnings (loss) per share is determined by dividing net earnings by the
weighted average number of common stock and common stock equivalent shares
outstanding. Outstanding stock options granted under the Company's stock
option plans and other grants outside of the Company's plans are considered
common stock equivalents for the purpose of earnings per share data; however,
they are excluded from fiscal 1993 computations because the effect of their
inclusion would be anti-dilutive.
CASH AND EQUIVALENTS
Cash equivalents consist of highly liquid investments with an original
maturity of ninety days or less.
Restricted cash at June 30, 1995, and 1994, of $39,036 and $7,234,
respectively, represents the amounts held in escrow pending resolution of
disputed claims and payment of post-confirmation administrative claims.
CONCENTRATION OF CREDIT RISK
The Company is subject to credit risk related to cash balances with
financial institutions in excess of insured amounts. The risk is mitigated
by the fact that, at the close of each business day, excess funds are placed
in an overnight investment account which is collateralized by government
securities held by the financial institutions.
INVESTMENTS
The Company's investments are recorded at cost. Declines in the market
value of investments considered to be temporary are reflected as a valuation
allowance in the equity section of the balance sheet. Declines considered to
be other than temporary are reflected as write-downs in the Statements of
Operations (See Note E).
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost with the exception of
the Company's headquarters building which at June 30, 1991, was written down
to its then estimated net realizable value. Depreciation is computed using
the straight-line method over the estimated useful lives of the related
assets.
24
<PAGE>26
C. ACCOUNTS RECEIVABLE
Accounts receivable at June 30, 1995 and 1994, are shown net of an
allowance for doubtful accounts of $0 and $14,513, respectively.
D. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment, at June 30, is summarized as follows:
1995 1994
----------- -----------
Land $ 200,000 $ 200,000
Building and improvements 2,850,402 2,848,582
Furniture and equipment 2,640,434 2,020,537
----------- -----------
5,690,836 5,069,119
Less: accumulated depreciation (1,842,816) (1,531,027)
----------- -----------
$ 3,848,020 $ 3,538,092
=========== ===========
Assets held under capital lease, furniture and equipment, at June 30,
1995, were $214,903.
E. OTHER ASSETS
At June 30, 1994, the Company held 158,528 shares of common stock of TSI
Corporation (NASDAQ:TSIN) with a carrying value of $118,896. The carrying
value of the stock was determined by the quoted market value of the stock on
June 30, 1994, which was $0.75 per share. The Company, which received the
stock from the 1992 sale of its German subsidiary at a cost of $1,400,000,
wrote the stock down by $574,664 and $607,360 at June 30, 1993 and 1992,
respectively.
At June 30, 1994, the market value of the TSI stock was less than the
adjusted cost basis of $217,976. The difference of $99,080 was recorded as
an investment valuation allowance (a non-cash transaction) and was reflected
in the Stockholders' Equity section of the balance sheet. TSI Corporation
was acquired by Genzyme Transgenics (NASDAQ: GZTC) in a stock swap
arrangement which closed in the fall of 1994. Subsequent to the closing, the
Company liquidated its holdings in Genzyme Transgenics, 31,705 shares,
generating proceeds of $69,747 and a realized loss of $148,229.
F. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
At June 30, accounts payable and accrued expenses consisted of the
following:
1995 1994
----------- -----------
Trade accounts payable $ 812,075 $ 503,741
Accrued payroll and related expenses 105,800 415,769
Other accrued expenses 460,620 313,595
----------- -----------
$ 1,378,495 $ 1,233,105
=========== ===========
25
<PAGE>27
G. DEBT
At June 30, long-term debt consists of the following:
1995 1994
----------- -----------
Note payable to bank $ 2,066,297 $ 2,249,450
Property taxes 50,000 100,000
Plea agreement fine 40,000 80,000
----------- -----------
2,156,297 2,429,450
Less: current portion (198,338) (196,806)
----------- -----------
$ 1,957,959 $ 2,232,644
=========== ===========
The Company holds a $2.4 million note payable to NationsBank, N.A. and a
$500,000 working capital borrowing facility. Terms of the note and credit
facility provide for interest at the Bank's prime rate (9% at June 30, 1995)
plus 1/2%. The note has a five year amortization schedule with equal monthly
payments of $25,000. In May 1998, the Company will have the option to pay
the remaining principal balance over a three year period or to refinance the
note. The borrowing agreements are collateralized by substantially all of
the Company's assets, place restrictions on borrowings and investments, and
require maintenance of specified amounts of working capital, net worth and
cash flow ratios.
In fiscal 1994, the Company reached an agreement with the City of
Baltimore to finance past due real and personal property taxes related to
1990 and 1991. The final payment is due in June 1996.
In fiscal 1991, the Company agreed to plead guilty to one count alleging
obstruction of justice of an investigation by the Food and Drug
Administration and agreed to pay a fine of $200,000. The fine is payable in
$40,000 installments each year with an interest rate of 6.39%.
Cash payments for interest were $248,148, $241,096, and $191,755, in
fiscal 1995, 1994, and 1993, respectively.
The long-term debt matures as follows:
Year ending June 30,
1996 $ 198,338
1997 119,091
1998 192,052
1999 531,708
2000 584,479
and beyond 530,629
------------
$ 2,156,297
============
26
<PAGE>28
On a discretionary basis, the Company has made and expects to continue
to make escalated principal payments relative to its term note payable to the
bank.
H. INCOME TAXES
The Company's benefit from income taxes results from the current
utilization of alternative minimum tax credits.
Deferred tax balances are comprised of the following:
Year ended June 30,
--------------------------
1995 1994
----------- -----------
Deferred tax assets:
Fixed assets and accelerated depreciation $ 656,461 $ 820,310
Basis difference of investments - 460,989
Accrued liabilities deductible once paid 44,216 61,010
Net operating loss carryforwards 1,759,123 1,583,295
Alternative minimum tax credit 3,506 32,870
General business credits 1,403,536 1,377,846
Other - 5,660
----------- -----------
Total deferred tax assets 3,866,842 4,341,980
Less: valuation allowance (3,866,842) (4,341,980)
----------- -----------
Deferred income taxes per balance sheet $ - $ -
=========== ===========
At June 30, 1995, the Company had tax loss carryforwards of
approximately $4,511,000, expiring in 2006 through 2009, and general business
credits of approximately $1,404,000, expiring during the period 1999 through
2009.
The principal differences between the actual effective tax rate and the
statutory federal tax rates are as follows:
Year ended June 30,
-----------------------------
1995 1994 1993
------- ------- -------
Statutory rate 34.0 % 34.0 % (34.0)%
State income taxes -
net of federal benefit 4.9 4.9 (4.9)
Alternative minimum tax credits (29.0) (2.5) -
Loss carryforwards (38.9) (38.9) 32.4
------ ------ ------
Effective rate (29.0)% (2.5)% (6.5)%
====== ====== ======
27
<PAGE>29
I. COMMITMENTS AND CONTINGENT LIABILITIES
LEASES
The Company has entered into operating leases for certain equipment used
in its day-to-day operations. These leases expire in fiscal 1996 and have
minimum rental obligations of $268,000.
Lease expense for all operating leases, including leases with terms of
less than one year, amounted to $106,000, $261,000 and $596,000 for the years
ended June 30, 1995, 1994 and 1993, respectively.
The Company has entered into capital lease arrangements for the purchase
of furniture and equipment in the amount of $214,903. The current and long-
term portions of the capital lease obligations are in accounts payable and
accrued expenses and other liabilities, respectively. The future expected
payout of these capital leases is as follows:
Year ended June 30,
1996 $ 86,410
1997 74,785
1998 54,145
less: interest portion (30,703)
---------
$ 184,637
=========
J. STOCKHOLDERS' EQUITY
The Company issued 1,563,970 shares of Common Stock for the benefit of
its unsecured creditors on May 10, 1993. The issuance was made pursuant to
the Company's Amended Plan of Reorganization.
The Company's former President and Chief Executive Officer exercised a
right to purchase 300,000 shares of Common Stock at a price of $0.50 per
share on April 15, 1993. The Company received $50,000 in cash and a note
receivable for $100,000, due April 14, 1996. The note, and 200,000 shares of
common stock previously issued, were cancelled effective June 30, 1995. At
June 30, 1994, the note, which provided for interest at 6%, was classified as
a reduction of stockholders' equity.
In May 1992, the Company granted 14,000 shares of Common Stock to four
outside directors as partial payment for Directors' fees for fiscal 1993.
The shares of stock were granted in lieu of a total of $16,800 in cash
compensation. The shares were valued at $1.20 as of the date of grant.
K. EMPLOYEE STOCK OWNERSHIP AND STOCK OPTION PLANS
The Company has an Incentive Stock Option Plan for key employees which
provides for issuance of up to 1,700,000 shares of common stock to employees.
The Company also has a Non-qualified Stock Option Plan for key employees and
has reserved 568,000 shares of Common Stock under the plan. In addition, the
28
<PAGE>30
Company grants options to its outside directors. Options are granted at fair
market value on the date of grant and vest over periods of up to five years.
A summary of option activity follows:
Shares Under Option
--------------------------------
1995 1994 1993
--------- --------- ---------
Balance, beginning of year
($0.28 - $5.25 per share) 988,467 1,038,433 1,169,900
Exercised ($0.315 - $0.875) - (80,000) (380,000)
Granted ($0.44 - $1.0625) 155,900 89,500 289,000
Cancelled ($0.625 - $3.75) (63,300) (59,466) (40,467)
--------- --------- ---------
Balance, end of year
($0.28 - $5.25 per share) 1,081,067 988,467 1,038,433
========= ========= =========
Options exercisable at June 30, 1995, were 792,660. Options exercised
to date total 710,012. Of the options exercised to date, 200,000 shares were
returned to the Company and cancelled when a note receivable for common stock
subscribed was cancelled effective June 30, 1995.
As of June 30, 1995, the Company has reserved 1,922,588 shares of
Common Stock for future issuance under authorized options and grants.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
NONE
29
<PAGE>31
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The directors and executive officers of the Company and their ages,
positions and years of service are as follows:
DIRECTORS
Name, Age , and Year
in which first
Elected a Director Business Experience
- ------------------- -------------------
Michael D. Dunn Chairman of the Board and President of WADCO
50 (1985) Services Inns, Inc., a hotel/motel operator,
since January 1987; President of Kimed Health
Systems, Inc. since August 1993; President of
American Allied Capital Corporation from 1989 to
1995; Chairman and Chief Executive Officer of
Westworld Community Healthcare, Inc. a provider
of healthcare services to rural communities,
from June 1982 to December 1986.
Thomas F. Kearns, Jr. Retired from Bear Stearns, Inc. in 1987;
57 (1995) Director of Biomet International and OSIRIS, a
privately held biotechnology company; Trustee
of the University of North Carolina Foundation
and Endowment Fund.
James K. Leslie President and Chief Executive Officer of
50 (1995) PharmaKinetics Laboratories, Inc. since July
1995; Executive Vice President and Chief
Operating Officer since June 1995; President
and Chief Executive Officer of BioFin, a start
up biotechnology company from July 1993 to June
1995; President and Chief Executive Officer of
SICPA Industries of America from 1991 to 1992;
and President and Chief Operating Officer of
Ecogen, Inc. from 1988 - 1990.
Richard P. Sullivan Chief Executive Officer of the J.L. Wickham,
62 (1988) Co., Inc., since January 1993; President, Vice
Chairman of Ferris, Baker Watts, Inc., a
regional investment banking firm, from 1988 to
1994; Chief Executive Officer of a predecessor
of that firm from June 1988 until November 1988,
and Senior Vice President of such predecessor
firm from January 1987 until June 1988.
Roger C. Thies Director of Hyman, Phelps and McNamara, P.C.
51 (1991) representing a broad range of clients on legal
issues concerning food, drug, medical devices,
and cosmetic law and legislation since 1988;
Vice President and general Counsel of G.D.
Searle, managing all of the company's legal
matters from 1986 to 1988.
30
<PAGE>32
The Board of Directors has an Audit Committee and a Compensation
Committee, each consisting of all directors who are not employees of the
Company. The Board of Directors does not have a nominating committee.
Directors, who are not employees of the Company, received a monthly retainer
of $1,366.67 and reimbursement of expenses for attendance at meetings
during fiscal 1995.
Mr. Dunn serves as Chairman of the Audit Committee. The functions of
the Committee include review of the scope of audits and the results of such
audits; review of accounting policies and adequacy of internal controls;
review of the fees paid to, and the scope of services provided by, the
independent auditors; and recommending selection of the independent auditors.
Mr. Sullivan serves as Chairman of the Compensation Committee. The
Committee considers and makes recommendations to the Board of Directors with
respect to matters relating to executive compensation, and considers and
recommends grants under the Company's stock option plans.
During the fiscal year ended June 30, 1995, the Board of Directors met
nine times, the Compensation Committee met five times and the Audit
Committee met twice. Each director attended all of the meetings of the
Board of Directors and committees of the Board on which he served, except:
one director who was absent from one Compensation Committee meeting.
EXECUTIVE OFFICERS
Position with the Company Employed Officer
Name Age and principal occupation Since Since
- --------------- --- -------------------------- -------- -------
Christopher H.
Hendy, Ph.D. 35 Vice President Clinical Evaluation 1993 1993
Services since December 1993;
Director of Clinical Research of
ICON Clinical Research from February
1993 to December 1993; Managing
Director of Harris Labs Ltd from
April 1991 to February 1993; and
Manager of European Project
Management of Otsuka
Pharmaceutical Co., Ltd from
April 1988 to April 1991.
V. Brewster Jones 50 President and Chief Executive Officer 1990 1990
from October 1990 to July 1995; Chief (1)
Operating Officer of PharmaKinetics'
United States businesses from June
1990 to October 1990; Founder/Director,
President and Chief Operating Officer
of The Compucare Company, Reston,
Virginia, a computer technology services
company in the healthcare industry; and
Division President of Baxter Healthcare
Corporation from June 1985 to December
1987.
31
<PAGE>33
Position with the Company Employed Officer
Name Age and principal occupation Since Since
- --------------- --- -------------------------- -------- -------
Taryn L. Kunkel 34 Vice President, Chief Financial 1990 1991
Officer and Treasurer since
February 1991; Controller since
November 1990 and Director of
Financial Analysis since July 1990.
Elizabeth A.
Lane, Ph.D. 50 Vice President Biopharmaceutics 1988 1992
and Regulatory Affairs since May
1992; Director of Pharmacokinetics
and Regulatory Affairs from
September 1988 to May 1992.
James K. Leslie 50 President and Chief Executive 1995 1995
Officer since July 1995; (1)
Executive Vice President and
Chief Operating Officer since
June 1995; President and Chief
Executive Officer of BioFin, a
start up biotechnology company
from July 1993 to June 1995;
President and Chief Executive
Officer of SICPA Industries of
America from 1991 to 1992; and
President and Chief Operating
Officer of Ecogen, Inc. from
1988 - 1990.
Roger H.
Meacham, Jr.
Ph.D. 53 Vice President Analytical Laboratory 1995 1995
Services since July 1995; Director (2)
of the Pharmaceutical Chemistry
Division of Hazleton Laboratories,
a CRO specializing in drug development,
from 1992 to 1995; and Director of
Drug Disposition at Rhone-Poulenc Rorer
from 1985 to 1992.
Max L. Mendelsohn 62 Vice President Business Development 1991 1991
from September 1991 to May 1995; (3)
President of Barre National from
1970 to 1991.
Leon Shargel, 53 Vice President since March 1995; 1995 1995
Ph.D. Director of Biochemistry and (4)
Pharmacokinetics at Forest
Laboratories, a pharmaceutical
manufacturer, from 1993 to 1994;
and Director of Pharmacokinetics
at Chelsea Laboratories from 1991
to 1993.
32
<PAGE>34
(1) Mr. Jones resigned from the Company effective July 24, 1995. Mr.
Leslie was promoted to the position of President and Chief
Executive Officer as of that date.
(2) Dr. Meacham joined the Company on July 3, 1995.
(3) Mr. Mendelsohn was an officer of the Company through April 1995.
His employment with the Company ended in August 1995.
(4) In May 1995, Dr. Shargel purchased 500 shares of the Company's
common stock. This event was not timely reported on Forms 4 or
5 Pursuant to Section 16(a) of the Exchange Act. A Form 4 was
subsequently filed.
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth, for the Company's last three fiscal
years, the cash compensation paid or accrued by the Company, as well as
certain other compensation paid or accrued for those years, to its Chief
Executive Officer and other executive officers whose remuneration exceeded
$100,000 for the fiscal year ended June 30, 1995.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Annual Compensation Long-Term
Compensation
---------------------------- ----------------
Other
Name and Fiscal Salary Bonus Annual Options
Principal Position Year ($) ($) Comp.($)(1) (#)
- ------------------ ------ ------ ------ ------ --------
<S> <C> <C> <C> <C> <C>
Christopher H.
Hendy, Ph.D. 1995 102,000 - 6,000 10,000
Vice President 1994 54,000(2) - 2,700 70,000
V. Brewster Jones 1995 150,000(3) - 8,400 -
President, CEO, 1994 147,000 - 7,200 -
Director and 1993 140,000 12,500 7,200 90,000
Secretary
James K. Leslie 1995 4,700(3) - 230 120,000
Executive
Vice President
and Chief Operating
Officer
Max L. Mendelsohn 1995 96,000(4) - 5,300 -
Vice President 1994 103,000 - 6,000 -
Business Development 1993 100,000 5,250 2,400 20,000
<FN>
(1) Other Annual Compensation includes personal benefits provided by
the Company.
(2) Dr. Hendy joined the Company in December 1993. Dr. Hendy's
annual salary for fiscal 1994 was $100,000.
33
<PAGE>35
(3) Mr. Jones resigned from the Company effective July 24, 1995.
Mr. Leslie joined the Company on June 19, 1995. He was promoted
to the positions of President and Chief Executive Officer upon
Mr. Jones' resignation. His annual salary is $124,000, plus
other compensation of $6,000. In addition, Mr. Leslie was
granted 100,000 Incentive Stock Options on July 24, 1995.
(4) Mr. Mendelsohn was an officer of the Company through April 1995.
His annual salary was $105,000, plus other compensation of
$6,000. Subsequent to April, Mr. Mendelsohn's salary was
$50,000.
</FN>
</TABLE>
EMPLOYMENT AGREEMENTS
The Company had an employment agreement with Mr. Jones, which expired
upon his resignation from the Company on July 24, 1995. As a part of his
departure arrangement, Mr. Jones has been granted an extension of time,
through July 1998, in which to exercise the 260,000 options in which he was
vested at June 30, 1995, and the note receivable previously outstanding, in
the amount of $100,000, has been cancelled effective June 30, 1995. Mr.
Jones is returning to the Company the 200,000 shares of common stock to have
been purchased with the note. Interest on the note was due and payable
through June 30, 1995.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information as of June 30, 1995,
regarding stock ownership of management and owners of 5% or more of the
Company's Common Stock:
<TABLE>
<CAPTION>
Beneficial Ownership
Number of Percent of
Name & Address Shares Owned Shares Owned
- -------------- ------------ ------------
<S> <C> <C>
Judith Hardardt, Nominee for 1,323,970 10.9%
Official Creditors Committee(1) of
PharmaKinetics Laboratories, Inc.
(Case No. 90-5-5020-JS, Chapter 11)
Delaware Group Trend Fund 740,740 6.1%
One Commerce Square
Philadelphia, PA 19103
Michael D. Dunn 121,843 1.0%
Christopher H. Hendy Ph.D. 23,333 (3) (4)
34
<PAGE>36
Beneficial Ownership
Number of Percent of
Name & Address Shares Owned Shares Owned
- -------------- ------------ ------------
<S> <C> <C>
V. Brewster Jones 429,992 (2)(3) 3.5%
Thomas F. Kearns 39,078 (4)
James K. Leslie 20,000 (4)
Max L. Mendelsohn 156,667 (3) 1.3%
Richard P. Sullivan 58,500 (3) (4)
Roger C. Thies 14,600 (3) (4)
All directors and officers
as a group (11 persons) 1,018,513 (3) 7.9%
<FN>
(1) The Creditors Committee possesses and is entitled to exercise
the vote of the shares pursuant to the terms of a Stockholder
Agreement relative to the Company's Amended Plan of
Reorganization (the "Plan") confirmed April 1, 1993, and made
effective May 10, 1993. The Stockholder Agreement expires
on the earlier of May 10, 1998, or consummation of the Plan.
(2) Of the total shares, 50,000 shares are held in the name of Mr.
Jones' wife, of which Mr. Jones claims beneficial ownership;
and 30,000 shares are beneficially owned by Mr. Jones with his
wife.
(3) Includes shares of stock which directors and officers have
exercisable rights to acquire as of or within 60 days of June
30, 1995, through the exercise of options, in the amount of
260,000 shares for Mr. Jones; 23,333 shares for Dr. Hendy;
156,667 for Mr. Mendelsohn (who was an officer through April
1995), 10,000 for Mr. Sullivan; 14,600 for Mr. Thies and 618,600
for all directors and officers as a group.
(4) Less than 1%.
</FN>
</TABLE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
NONE
35
<PAGE>37
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K
Page(s)
(a) 1. FINANCIAL STATEMENTS
Report of Independent Accountants 17
Statements of operations for each of the three years
in the period ended June 30, 1995 18
Balance sheets at June 30, 1995 and 1994 19
Statements of stockholders' equity for each of the
three years in the period ended June 30, 1995 20
Statements of cash flows for each of the three years
in the period ended June 30, 1995 21
Notes to financial statements 23
2. FINANCIAL STATEMENT SCHEDULES
Schedules are omitted because they are not applicable, not
required, or because the required information is included in the
financial statements or notes thereto.
3. EXHIBITS
See Exhibit Index.
(b) REPORTS ON FORM 8-K
No reports of Form 8-K were filed during the quarter ended June
30, 1995.
36
<PAGE>38
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.
PHARMAKINETICS LABORATORIES, INC.
Date: September 29, 1995 /s/James K. Leslie
------------------ ------------------
James K. Leslie,
Principal Executive
Officer and Director
Date: September 29, 1995 /s/Taryn L. Kunkel
------------------ ------------------
Taryn L. Kunkel,
Principal Financial
Officer and Principal
Accounting Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated:
Date: September 29, 1995 /s/Michael D. Dunn
------------------ -------------------
Michael D. Dunn,
Director
Date: September 29, 1995 /s/Thomas F. Kearns
------------------ --------------------
Thomas F. Kearns,
Director
Date: September 29, 1995 /s/Richard P. Sullivan
------------------ ----------------------
Richard P. Sullivan,
Director
Date: September 29, 1995 /s/Roger C. Thies
------------------ ------------------
Roger C. Thies,
Director
37
<PAGE>39
EXHIBIT INDEX
Exhibit No.
2. Disclosure Statement (incorporated by reference to Exhibit 2 of
the Company's 8-K filing on April 6, 1993).
3. (a) Articles of Incorporation as amended (incorporated by
reference to Exhibit 3(a) to the Company's Annual Report on
Form 10-K for the fiscal year ended June 30, 1993).
(b) Bylaws, as amended (incorporated by reference to Exhibit
3(b) to the Company's Annual Report on Form 10-K for the
fiscal year ended June 30, 1989).
10. Material Contracts
(a) PharmaKinetics Laboratories, Inc. Incentive Stock Option
Plan (incorporated by reference to Registration Statement on
Form S-8, Nos. 33-51840 and 33-57616).
(b) PharmaKinetics Laboratories, Inc. Nonqualified Employee
Stock Option Plan (incorporated by reference to registration
Statement on Form S-8, No. 33-51838).
(c) Employment Agreement between the Company and V. Brewster
Jones (incorporated by reference to Exhibit 10 (c) to the
Company's Annual Report on Form 10-K for the fiscal year
ended June 30, 1991).
(d) Loan documents dated May 13, 1993, between Maryland National
Bank and PharmaKinetics Laboratories, Inc. (incorporated by
reference to Exhibit 10(d) to the Company's Annual Report on
Form 10-K for the fiscal year ended June 30, 1993).
(i) Amended and Restated Insurance Agreement
(ii) Partnership/Joint Venture Borrowing Authority
(iii) Unconditional Guaranty of Payment
(iv) Security Agreement
(v) Commercial Promissory Note
(vi) Collateral Pledge Agreement
(vii) Note
(viii) Indemnity Deed of Trust
(ix) Indemnity Deed of Trust
(x) Financing Statement
(xi) Loan Agreement
(e) First Amendment to Loan Agreement, dated May 11, 1995,
between NationsBank, N.A. and PharmaKinetics Laboratories,
Inc. (filed herewith).
(f) First Commercial Promissory Note Modification Agreement
dated May 11, 1995, between NationsBank, N.A. and
PharmaKinetics Laboratories, Inc. (filed herewith).
38
<PAGE>40
(g) First Note Modification Agreement dated May 11, 1995,
between NationsBank, N.A. and PharmaKinetics Laboratories,
Inc. (filed herewith).
11. Computations of net earnings (loss) per common share (reference
Item 6 filed herewith).
21. List of subsidiaries of registrant (filed herewith).
27. Financial Data Schedule (filed herewith).
99. Court Order approving Debtor's Amended Plan of reorganization
(incorporated by reference to the Company's 8-K filing on April
6, 1993).
39
<PAGE>1
EXHIBIT 10: (e),(f) and (g)
MATERIAL CONTRACTS
FIRST AMENDMENT
TO
LOAN AGREEMENT
THIS FIRST AMENDMENT TO LOAN AGREEMENT (this "Agreement") is
made as of the 11th day of May, 1995, by PHARMAKINETICS
LABORATORIES, INC., a corporation organized and existing under
the laws of the State of Maryland (the "Obligor"), and
NATIONSBANK, N.A., a national banking association (formerly known
as "Nationsbank of Virginia, N.A." and successor by merger to
NationsBank, N.A. which was formerly known as "NationsBank of
Maryland N.A." and successor by merger to Maryland National Bank
(the Bank")).
RECITALS
A. The Obligor and the Bank entered into a Loan Agreement
dated May 13, 1993 (the same, as amended, modified, substituted,
extended, and renewed from time to time, the "Loan Agreement").
The Loan Agreement provides for some of the agreements between
the Obligor and the Bank with respect to the "Loans" (as defined
in the Loan Agreement), including revolving credit facility in an
amount not to exceed $500,000 and term facilities in an original
principal amount of $2,400,000.
B. The Obligor has requested that the Bank amend the
interest rates under the Loans and amend certain other conditions
and covenants under the Loan Agreement.
C. The Bank is willing to agree to the Obligor's request on
the condition, among others, that this Agreement be executed.
AGREEMENTS
NOW, THEREFORE, in consideration of the premises and for
other good and valuable consideration, receipt of which is hereby
acknowledged, the Obligor and the Bank agree as follows:
1. The Obligor and the Bank agree that the Recitals above
are a part of this Agreement. Unless otherwise expressly defined
in this Agreement, terms defined in the Loan Agreement shall have
the same meaning under this Agreement.
2. The Obligor and the Bank agree that on the date hereof
the aggregate outstanding principal balance under the Revolving
Credit Note (subject to change for returned items and other
adjustments made in the ordinary course of business) is $ 0 and
under the Term Note is $2,080,680.60.
<PAGE>2
3. The Loan Agreement is hereby amended as follows:
(a) The section headed "Definitions" is hereby deleted
and the following is substituted in its place and therefor is the
following:
"Definitions. Except as specifically otherwise defined
herein, all forms shall have the meanings ascribed to them
by generally accepted accounting principles.
"Business Day" means any day other than a Saturday, Sunday
or other day on which commercial banks in Maryland are
authorized or required to close.
"Confirmed Amended Plan of Reorganization" shall mean the
Amended Plan of Reorganization confirmed on April 1, 1993 In
Re: PharmaKinetics Laboratories, Inc. (Case No. 90-5-5020-
JS (Chapter 11) in the United States Bankruptcy Court for
the District of Maryland)).
"Eligible Receivable" and "Eligible Receivables" mean, at
any time of determination thereof, the collective reference
each account of the Obligor which conforms and continues to
conform to the following criteria to the satisfaction of the
Bank: (a) the account arose in the ordinary course of the
Obligor's business from services performed by the Obligor,
and such services have been satisfactorily completed and
accepted by the appropriate account debtor; (b) the account
is based upon an enforceable order or contract, written or
oral, for services performed, and the same were shipped,
held, or performed in accordance with such order or
contract; (c) the title of the Obligor to the account is not
subject to any prior assignment, claim, Lien, or security
interest, except Liens created by the account debtors in
connection with their interests in the goods, and the
Obligor otherwise has the full and unqualified right and
power to assign and grant a security interest in it to the
Bank as security and collateral for the payment of the
Obligations; (d) the amount shown on the books of the
Obligor and on any invoice, certificate, schedule or
statement delivered to the Bank is owing to the Obligor and
no deposit or partial payment has been received unless
reflected with that delivery; (e) except for amounts
received by the Obligor in the ordinary course for services
to be performed, the account is not subject to any claim of
reduction, counterclaim, setoff, recoupment, or other
defense in law or equity, or any claim for credits,
allowances, or adjustments by the account debtor for
unsatisfactory services, or, except for amounts received by
the Obligor in the ordinary course for services to be
performed, for any other reason; (f) the account debtor has
not returned or refused to retain, or otherwise notified the
Obligor of any dispute concerning, or claimed nonconformity
of, any of their services from the sale of or progress
<PAGE>3
billings with respect to, which the account arose; (g) the
account is not outstanding more than seventy-five (75) days
from the date of the invoice therefor, or is a royalty
receivable, not outstanding more than seventy-five (75) days
from the due date; (h) the account is not owing by any
Account Debtor for which the Lender has deemed fifty percent
(50%) or more of such Account Debtor's other accounts (or
any portion thereof) due to the Borrower to be non-Eligible
Receivables; (i) the account does not arise out of a
contract with, or order from, an account debtor that, by its
terms, forbids or makes void or unenforceable the assignment
by the Obligor to the Bank of the account arising with
respect thereto; (j) the account debtor is not an affiliate
of the Obligor; (k) the account debtor is not incorporated
in or primarily conducting business in any jurisdiction
located outside of the United States of America or Canada;
(l) the account debtor is not governmental authority,
agency or instrumentality, domestic or foreign; (m) except
for amounts received by the Obligor in the ordinary course
for services to be performed, the Obligor is not indebted in
any manner to the account debtor, except for customary
credits, adjustments and/or discounts given to an account
debtor by the Obligor in the ordinary course of its
business, except for amounts received by the Obligor in the
ordinary course for services to be performed, and (n) the
Bank in the exercise of its sole and absolute discretion has
not deemed the account ineligible because of uncertainty as
to the creditworthiness of the account debtor or because the
Bank otherwise considers the collateral value thereof to the
Bank to be impaired or its ability to realize such value to
be insecure. In the event of any dispute, under the
foregoing criteria, as to whether an account is, or has
ceased to be, an Eligible Receivable, the decision of the
Bank in the exercise of its sole and absolute discretion
shall control. "Borrowing Base" means the sum of eighty
percent (80%) of Eligible Receivables."
"Lien" means any mortgage, deed of trust, deed to secure
debt, grant, pledge, security interest, assignment,
encumbrance, judgement, lien, hypothecation, provision in
any instrument or other document for confession of
judgement, cognovit or other similar right or remedy, claim
or charge of any kind, whether perfected or unperfected,
avoidable or unavoidable, including, without limitation, any
conditional sale or other title retention agreement, any
lease in the nature thereof, and the filing of or agreement
to give any financing statement under the Uniform Commercial
Code of any jurisdiction, excluding the precautionary filing
of any financial statement by any lessor in a true lease
transaction, by any bailor in a true bailment transaction or
by any consigner in a true consignment transaction under the
Uniform Commercial Code of any jurisdiction or the agreement
to give any financing statement by any lessee in a true
lease transaction, by any bailee in a true bailment
transaction or by any consignee in a true consignment
transaction.
<PAGE>4
"Loan" or "Loans" means collectively any and all loans and
other financial accommodations (including, without
limitation, letters of credit) heretofore or hereafter made
by the Bank to the Obligor.
(b) The heading "Loan Procedures for Revolving Line of
Credit" is hereby deleted in its entirety.
(c) The section "Loans Upon Request to Obligor" is hereby
deleted in its entirety and substituted in its place therefor is
the following:
The Revolving Loan.
1. Subject to and upon the provisions of this
Agreement, the Bank establishes a revolving credit facility
in favor of the Obligor (the "Revolving Loan"). The
outstanding principal balance of the Revolving Loan shall at
no time exceed the lesser of (i) $500,000 or (ii) the
Borrowing Base. The Bank's obligation to make advances
under the Revolving Loan shall terminate on November 30,
1996 (the Revolving Credit Termination Date"), and following
a Default or an Event of Default under this Agreement, may
be limited, suspended or terminated at the Bank's sole and
absolute discretion exercised from time to time.
2. The Obligor's obligation to repay the advances of
the Revolving Loan shall be evidenced by a promissory note
dated the same date as this Agreement (as amended, modified,
restated, substituted, extended and renewed at any time and
from time to time, the "Revolving Credit Note") in
substantially the form attached to this Agreement as EXHIBIT
A-2 and in the aggregate principal amount of $500,000 having
a maturity date, repayment terms and interest rate as set
forth in the Revolving Credit Note. Subject to the terms
and conditions of this Agreement, sums borrowed under the
Revolving Loan and repaid may be readvanced.
3. The Obligor may borrow under the Revolving Loan on
any Business Day. Advances under the Revolving Loan shall
be deposited to the Obligor's demand deposit account with
the Bank or shall be otherwise applied as directed by the
Obligor, which direction the Bank may require to be in
writing. No later than 10:00 am (Baltimore time) on the
date of the requested borrowing, the Obligor shall give the
Bank oral or written notice and (if requested by the Bank)
the purpose of the requested borrowing. Any oral loan
notice shall be confirmed in writing by the Obligor within
three (3) Business Days after the making of the requested
Revolving Loan.
4. The proceeds of the Revolving Loan shall be used
solely to pay the Obligor's business expenses incurred in
the ordinary course of the Obligor's business.
<PAGE>5
(d) On Page 7 of the Loan Agreement, the section "Financial
Statements" is hereby deleted in its entirety and substituted in
its place therefor is the following:
"Financial Statements". Maintain at all times a system of
accounting satisfactory to the Bank and will furnish to the
Bank at such time or times as specified by the Bank such
financial statements as may be required by the Bank,
including, but not limited to:
1. Annual audited 10-K Report of the Obligor within
one hundred twenty (120) days of the Obligor's fiscal year
end.
2. Annual projected financial statements of the
Obligor (including profit and loss, balance sheet, and cash
flow statements) prepared in-house, not less than thirty
(30) days prior to the Obligor's fiscal year end.
3. Monthly operating statements prepared in-house
within thirty (30) days of month end.
4. Quarterly 10-Q Statement, certified by the Chief
Financial Officer of the Obligor, within forty-five (45)
days of each quarter end.
5. Annual Tax Return of PKLB Limited Partnership
within one hundred twenty (120) days of its filing.
6. Quarterly A/R agings and Obligor's Certificates
within forty-five (45) days of each quarter end.
7. With each quarterly financial statement, a detailed
computation of each financial covenant in this Agreement
which is applicable for the period reported, all as prepared
and certified by a Responsible Officer of the Borrower and
accompanied by a certificate of that officer stating whether
any event has occurred which constitutes a Default or an
Event of Default hereunder, and, if so, stating the facts
with respect thereto.
(e) On Page 9, the section "Cash Flow Coverage" is
hereby deleted in its entirety and substituted in its place
therefor is the following:
"Cash Flow Ratio". Maintain on a rolling four quarter
basis, measured quarterly, a cash flow ratio of not less
than:
Quarter Ending Ratio
3/31/95 through 6/30/95 1.25 to 1.0
<PAGE>6
6/30/95 and thereafter 1.10 to 1.0
Cash flow ratio is defined as earnings (including non-
operating income) before interest, taxes, depreciation, and
amortization, divided by all contracted principal and
interest payments, exclusive of operation leases, and,
commencing with fiscal year-ending 1995 and for each period
thereafter, all non-financed capital expenditures.
(f) On Page 10, the section "Net Worth" is hereby
deleted in its entirely and substituted in its place therefor is
the following:
"Net Worth. Maintain on a quarterly basis a net worth of
not less than $800,000.00. "Net worth" for this purpose
shall mean the Obligor's equity less intangible assets and
the value of the investment in TSI Escrowed Stock and TSI
Non-Escrowed Stock as defined in the Confirmed Amended Plan
of Reorganization."
(g) On Page 12, the Section "Lease Obligations" is
hereby deleted in its entirety and substituted in its place
therefore is the following:
"Lease Obligations. Enter into any new Leases of real or
personal property in one twelve (12) month period which
exceed in the aggregate an equivalent purchase price of
$500,000.00."
(h) On Page 12, the section "Capital Expenditures" is
hereby deleted in its entirety.
4. The Obligor hereby covenants and agrees as follows:
The following section is hereby added to the Obligor's
covenants and Agreements:
Deposits. The Obligor shall maintain with the Bank a
depository relationship of not less than $100,000 at all
times.
Minimum Payments. The Obligor agrees that in the event the
Obligor pays less than $100,000 to the Bank in any fiscal
year, the Obligor shall pay to the Bank, within 30 days
after the end of the fiscal year, the difference between
$100,000 and the amount paid in such fiscal year.
5. The agreements of the Bank under this Agreement are
subject to the following terms and conditions, time being of the
essence:
The Bank, at its own expense, shall have received an
evaluation in form and substance satisfactory to the Bank by an
<PAGE>7
independent appraiser satisfactory to the Bank, which evaluation
shall show that the maximum principal amounts of the Loans shall
not exceed 80% of the value of the real estate securing the
Obligations.
6. Notwithstanding the provisions of the Section of the
Loan Agreement headed "MIDFA" Insurance," the Bank agrees to pay
the next premium on the MIDFA insurance and each premium
thereafter.
7. The Obligor hereby issues, ratifies and confirms the
representations, warranties and covenants contained in the Loan
Agreement, as amended hereby. The Obligor agrees that this
Agreement is not intended to and shall not cause a novation with
respect to any or all of the Obligations.
8. The Obligor acknowledges and warrants that the Bank has
acted in good faith and has conducted in a commercially
reasonable manner its relationships with the Obligor in
connection with this Agreement and generally in connection with
the Loan Agreement and the Obligations, the Obligor hereby
waiving and releasing any claims to the contrary.
9. The Obligor shall pay at the time this Agreement is
executed and delivered all fees, including the Bank's one-half of
one percent (1/2%) of outstanding balance facility fee,
commissions, costs, charges, taxes and other expenses incurred by
the Bank and its counsel in connection with this Agreement,
including, but not limited to, reasonable fees and expenses of
the Bank's counsel and all recording fees, taxes and charges.
10. This Agreement may be executed in any number of
duplicate originals or counterparts, each of such duplicate
originals or counterparts shall be deemed to be an original and
all taken together shall constitute but one and the same
instrument. The Obligor agrees that the Bank may rely on a
telecopy of any signature of any Obligor. The Bank agrees that
the Obligor may rely on a telecopy of this Agreement executed by
the Bank.
<PAGE>8
IN WITNESS WHEREOF, the Obligor and the Bank have executed this
Agreement under seal as of the date and year first written above.
ATTEST: PHARMAKINETICS LABORATORIES, INC.
/s/Taryn L. Kunkel By:/s/ V. Brewster Jones(SEAL)
V. Brewster Jones
President and Chief
Executive Officer
WITNESS: NATIONSBANK, N.A.
/s/Nancy Schlissler By:/s/ James. W. Kirschner
Name: James W. Kirschner
Title: Vice President
AGREEMENT OF GUARANTOR
The undersigned is the "Guarantor" under a Guaranty of Payment
Agreement, dated May 13, 1993 (as amended, modified, substituted,
extended and renewed from time to time, the "Guaranty"), in favor
of the foregoing Bank. In order to induce the Bank to enter into
the foregoing Agreement, the undersigned (a) consents to the
transactions contemplated by, and agreements made by the Obligor
under, the foregoing Agreement, and (b) ratifies, confirms and
reissues the terms, conditions, promises, covenants, grants,
assignments, security agreements, agreements, representations,
warranties and provisions contained in the Guaranty. Without
limiting the foregoing, the undersigned acknowledges and agrees
that the Obligations (defined in the Loan Agreement) include,
without limitation, the amendments described in the foregoing
Agreement and that the Obligations are covered by the Guaranty.
<PAGE>9
WITNESS signature and seal of the undersigned as of the date of
the Agreement.
PKLB LIMITED PARTNERSHIP
By: PharmaKinetics
Laboratories, Inc.,
General Partner
/s/ Taryn L. Kunkel By:/s/ V. Brewster Jones
V. Brewster Jones
President and Chief
Executive Officer
<PAGE>10
FIRST COMMERCIAL PROMISSORY NOTE MODIFICATION AGREEMENT
THIS FIRST COMMERCIAL PROMISSORY NOTE MODIFICATION AGREEMENT
is made this 11th day of May, 1995, by and between PHARMAKINETICS
LABORATORIES, INC., a corporation organized under the laws of the
State of Maryland (the "Borrower") and NATIONSBANK, N.A.,
formerly known as NATIONSBANK OF MARYLAND, N.A., successor by
merger to MARYLAND NATIONAL BANK, a national banking association
(the "Lender").
WHEREAS, by that certain Commercial Promissory Note dated
May 13, 1993 (the "Note") the Borrower become indebted to the
Lender in an amount not to exceed $500,000 (the "Revolving Credit
Committed Amount") under a revolving line of credit made by the
Lender to the Borrower pursuant to that certain Loan Agreement
dated May 13, 1993 (as amended, modified, substituted, extended,
and renewed from time to time, the "Loan Agreement"); and
WHEREAS, the Lender and the Borrower have agreed to decrease
the per annum rate of interest as hereinafter more fully set
forth.
NOW, THEREFORE, THIS AGREEMENT WITNESSETH:
That in consideration of the premises and other good and
valuable consideration, the receipt and sufficiency of which is
hereby acknowledged, the Lender and the Borrower covenant and
agree as follows:
1. The Borrower acknowledges that the present principal
balance of the Note is due and owing, subject to the terms of the
repayment hereinafter set forth, without defense, recoupment,
counterclaim or offset.
2. The terms, provisions and covenants of the Note are in
all other respects hereby ratified and confirmed and remain in
full force and effect.
3. The Note is hereby amended at the section headed
"Interest Rate" by decreasing the rate of interest under that
section from the Bank's Prime Rate (as that term is defined in
the Note) plus two percent (2%) to the Bank's Prime Rate. The
Prime Rate does not necessarily represent the lowest rate of
interest charged by the Bank to borrowers.
4. It is expressly agreed that the indebtedness evidenced
by the Note has not been extinguished or discharged hereby. The
Borrower and the Lender agree that the execution of this
Agreement is not intended to and shall not cause or result in a
novation with regard to the Note.
<PAGE>11
WITNESS the signatures and seal of the Borrower and the Lender
the day and year first above written.
WITNESS OR ATTEST: PHARMAKINETICS LABORATORIES, INC.
/s/ Taryn L. Kunkel By:/s/ V. Brewster Jones(SEAL)
V. Brewster Jones
President and
Chief Executive Officer
WITNESS: NATIONSBANK, N.A.
/s/ Nancy Schlissler By:/s/ James W. Kirschner(SEAL)
James W. Kirschner
Vice President
GUARANTOR ACKNOWLEDGEMENT AND AGREEMENT
The undersigned respectively guaranteed to the Lender all of the
Obligations (as defined in the Loan Agreement), including without
limitation, the per annum rate of interest (as defined in the
annexed First Commercial Promissory Note Modification Agreement)
and hereby covenants and agrees with the Lender that the
execution of the foregoing First Commercial Promissory Note
Modification Agreement of even date herewith and the transactions
described therein and contemplated thereby do not and shall not
in any manner affect its obligations and liabilities under its
guaranty dated May 13, 1993 (as amended, modified, restated,
substituted, extended and renewed at any time and from time to
time, the "Guaranty"), and that the Guaranty is hereby ratified
and confirmed and remains in full force and effect.
Dated effective as of this 11th day of May, 1995.
WITNESS: PKLB Limited Partnership
By: PharmaKinetics Laboratories, Inc.
General Partner
/s/ Taryn L. Kunkel /s/ V. Brewster Jones(SEAL)
V. Brewster Jones
President
Chief Executive Officer
<PAGE>12
FIRST NOTE MODIFICATION AGREEMENT
THIS FIRST NOTE MODIFICATION AGREEMENT is made this 11th day
of May, 1995, by and between PHARMAKINETICS LABORATORIES, INC., a
corporation organized under the laws of the State of Maryland
(the "Borrower") and NATIONSBANK, N.A., formerly known as
NATIONSBANK OF MARYLAND , N.A., successor by merger to MARYLAND
NATIONAL BANK, a national banking association (the "Lender").
WHEREAS, by that certain Note dated May 13, 1993 (the
"Note") the Borrower became indebted to the Lender in an amount
not to exceed $2,400,000 (the "Term Loan Amount") under a line of
credit made by the Lender to the Borrower pursuant to that
certain Loan Agreement dated May 13, 1993 (as amended, modified,
substituted, extended, and renewed from time to time, the "Loan
Agreement"); and
WHEREAS, the Lender and the Borrower have agreed to amend
the per annum rate of interest as hereinafter more fully set
forth.
NOW, THEREFORE, THIS AGREEMENT WITNESSETH:
That in consideration of the premises and other good and
valuable consideration, the receipt and sufficiency of which is
hereby acknowledged, the Lender and the Borrower covenant and
agree as follows:
1. The Borrower acknowledges that the present principal
balance of the Note is $2,080,680.60 and is due and owing,
subject to the terms of repayment hereinafter set forth, without
defense, recoupment, counterclaim or offset.
2. The Note is hereby amended at the section headed
"Interest Rate" by decreasing the rate of interest under that
section from the Bank's Prime Rate (as that term is defined in
the Note) plus two percent (2%) to the Bank's Prime Rate plus
one-half (1/2%). The Prime Rate does not necessarily represent
the lowest rate of interest charged by the Bank to borrowers.
3. The terms, provisions and covenants of the Note are in
all other respects hereby ratified and confirmed and remain in
full force and effect.
4. It is expressly agreed that the indebtedness evidenced
by the Note has not been extinguished or discharged hereby. The
Borrower and the Lender agree that the execution of this
Agreement is not intended to and shall not cause or result in a
novation with regard to the Note.
<PAGE>13
WITNESS the signatures and seals of the Borrower and the Lender
the day and year first above written.
WITNESS OR ATTEST: PHARMAKINETICS LABORATORIES, INC.
/s/ Taryn L. Kunkel By:/s/ V. Brewster Jones(SEAL)
V. Brewster Jones
President and
Chief Executive Officer
WITNESS: NATIONSBANK, N.A.
/s/ Nancy Schlissler By:/s/ James W. Kirschner(SEAL)
James W. Kirschner
Vice President
GUARANTOR ACKNOWLEDGEMENT AND AGREEMENT
The undersigned respectively guaranteed to the Lender all of the
Obligations (as defined in the Loan Agreement), including without
limitation, the per annum rate of interest (as defined in the
annexed First Note Modification Agreement) and hereby covenants
and agrees with the Lender that the execution of the foregoing
First Note Modification Agreement of even date herewith and the
transactions described therein and contemplated thereby do not
and shall not in any manner affect its obligations and
liabilities under its respective guaranty dated May 13, 1993 (the
"Guaranty"), and that the Guaranty is hereby ratified and
confirmed and remains in full force and effect.
Dated effective as of this 11th day of May, 1995.
WITNESS: PKLB LIMITED PARTNERSHIP
By: PharmaKinetics Laboratories, Inc.
General Partner
/s/ Taryn L. Kunkel By:/s/ V. Brewster Jones(SEAL)
V. Brewster Jones
President and
Chief Executive Officer
EXHIBIT 11
<TABLE>
STATEMENT RE: COMPUTATION OF EARNINGS PER SHARE
<CAPTION>
For the Twelve Months Ended June 30,
-------------------------------------------------------------------------
1995 1994 1993
----------------------- --------------------- -----------------------
Fully Fully Fully
Primary Diluted Primary Diluted Primary Diluted
---------- ---------- --------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Weighted average
shares outstanding:
Common Stock 12,395,891 12,395,891 12,350,959 12,350,959 10,719,615 10,719,615
Shares available
under options 202,211 202,211 429,728 429,728 - -
---------- ---------- ---------- ---------- ---------- ----------
Weighted average
common and common
equivalent shares
outstanding 12,598,102 12,598,102 12,780,687 12,780,687 10,719,615 10,719,615
========== ========== ========== ========== ========== ==========
Net income (loss)
before extraordinary
items $127,827 $127,827 $204,851 $204,851 ($197,947) ($197,947)
========== ========== ========== ========== ========== =========
Earnings per share
before extraordinary
items $0.01 $0.01 $0.02 $0.02 ($0.02) ($0.02)
========== ========== ========== ========== ========== =========
Net income (loss) $127,827 $127,827 $204,851 $204,851 ($90,931) ($90,931)
========== ========== ========== ========== ========== =========
Earnings per share $0.01 $0.01 $0.02 $0.02 ($0.01) ($0.01)
========== ========== ========== ========== ========== ==========
</TABLE>
<PAGE>1
EXHIBIT 21
LIST OF SUBSIDIARIES OF REGISTRANT
Baltimore Center for Clinical Studies
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule conatins summary financial information extracted from
SEC Form 10-K and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1995
<PERIOD-END> JUN-30-1995
<CASH> 1,083,818
<SECURITIES> 0
<RECEIVABLES> 774,684
<ALLOWANCES> 0
<INVENTORY> 695,359
<CURRENT-ASSETS> 2,646,906
<PP&E> 5,690,836
<DEPRECIATION> 1,842,816
<TOTAL-ASSETS> 6,553,348
<CURRENT-LIABILITIES> 2,710,380
<BONDS> 0
<COMMON> 12,196
0
0
<OTHER-SE> 1,756,663
<TOTAL-LIABILITY-AND-EQUITY> 6,553,348
<SALES> 9,893,762
<TOTAL-REVENUES> 9,935,969
<CGS> 6,813,576
<TOTAL-COSTS> 9,431,675
<OTHER-EXPENSES> 148,229
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 257,018
<INCOME-PRETAX> 99,047
<INCOME-TAX> (28,780)
<INCOME-CONTINUING> 127,827
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 127,827
<EPS-PRIMARY> .01
<EPS-DILUTED> .01
</TABLE>
