<PAGE>1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 0-11580.
PHARMAKINETICS LABORATORIES, INC.
(Exact name of registrant as specified in its charter)
MARYLAND
(State or other jurisdiction of incorporation or organization)
52-1067519
(I.R.S. Employer Identification No.)
302 WEST FAYETTE STREET
BALTIMORE, MARYLAND 21201
(Address of principal executive offices)
(Zip Code)
(410)385-4500
(Registrant's telephone number, including area code)
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 ___
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all
documents and reports required to be filed by Sections 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 ___
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest practicable
date. 12,395,891 common shares were outstanding as of May 5,
1995.
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PHARMAKINETICS LABORATORIES, INC.
FORM 10-Q
INDEX
Page No.
--------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Statements of Operations for the three and
nine months ended March 31, 1995 and 1994
(unaudited).......................................... 3
Balance Sheets at March 31, 1995 (unaudited)
and June 30, 1994 ................................... 4
Statements of Cash Flows for the nine months
ended March 31, 1995 and 1994 (unaudited) ........... 5
Notes to Financial Statements (unaudited) ........... 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations ................. 7
PART II. OTHER INFORMATION
Item 1. Legal Proceedings ................................... 9
Item 5. Other Information ................................... 9
Item 6. Exhibits and Reports on Form 8-K .................... 9
Signatures ................................................... 10
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<PAGE>3
PART I. Financial Information
Item 1. Financial Statements
PHARMAKINETICS LABORATORIES, INC.
STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended Nine Months Ended
March 31, March 31,
1995 1994 1995 1994
--------- --------- --------- ---------
Contract revenue $2,600,672 $1,725,947 $7,672,407 $6,720,591
Cost of contracts 1,817,754 1,238,406 4,897,866 4,449,745
--------- --------- --------- ---------
Gross profit 782,918 487,541 2,774,541 2,270,846
General & administrative expenses 507,791 569,759 1,655,780 1,673,977
Research & development expenses 156,377 50,950 257,573 167,537
--------- --------- --------- ---------
Earnings (loss) from operations 118,750 (133,168) 861,188 429,332
Interest expense (65,440) (63,992) (193,812) (201,799)
Interest income 11,619 11,028 33,592 30,542
Loss on sale of investments - - (101,479) -
Write-down of investments - - (46,750) -
--------- --------- --------- ---------
Earnings (loss) before income
taxes 64,929 (186,132) 552,739 258,075
Provision for (benefit of) income
taxes 585 - 585 (5,000)
--------- --------- --------- ---------
Net earnings (loss) $ 64,344 $ (186,132) $ 552,154 $ 263,075
========= ========= ========= =========
Net earnings (loss) per share $ 0.01 $ (0.02) $ 0.04 $ 0.02
========= ========= ========= =========
Weighted average shares
outstanding 12,588,014 12,377,224 12,613,901 12,792,087
SEE NOTES TO FINANCIAL STATEMENTS.
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PHARMAKINETICS LABORATORIES, INC.
BALANCE SHEETS
(Unaudited)
March 31, June 30,
1995 1994
---------- ----------
ASSETS
Current Assets:
Cash and equivalents $ 648,712 $ 1,067,348
Restricted cash and equivalents 39,002 7,234
Accounts receivable, net 1,277,424 804,579
Contracts in process 953,006 518,969
Prepaid expenses 118,515 49,588
---------- ----------
Total Current Assets $ 3,036,659 $ 2,447,718
Property, plant and equipment, net 3,916,536 3,538,092
Other assets 58,422 177,318
---------- ----------
Total Assets $ 7,011,617 $ 6,163,128
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued expenses $ 1,450,553 $ 1,154,498
Accrued non-recurring expenses 35,675 78,607
Deposits on contracts in process 935,249 755,175
Current portion of long-term debt 164,228 196,806
---------- ----------
Total Current Liabilities 2,585,705 2,185,086
Other liabilities 131,130 204,729
Long-term debt 2,101,596 2,232,644
---------- ----------
Total Liabilities 4,818,431 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 12,095,891 shares 12,096 12,096
Common stock subscribed, 300,000 shares 300 300
Additional paid-in-capital 12,113,501 12,113,501
Accumulated deficit (9,832,711) (10,384,865)
---------- ----------
2,293,186 1,741,032
Less: Investment valuation allowance - (99,080)
Less: Note receivable for common stock subscribed (100,000) (101,283)
---------- ----------
Total Stockholders' Equity 2,193,186 1,540,669
---------- ----------
Total Liabilities and Stockholders' Equity $ 7,011,617 $ 6,163,128
========== ==========
SEE NOTES TO FINANCIAL STATEMENTS.
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PHARMAKINETICS LABORATORIES, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended
March 31,
1995 1994
--------- ---------
Cash flows from operating activities:
Net earnings $ 552,154 $ 263,075
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization 235,066 139,707
Loss on sale of investments 101,479 -
Write-down of investments 46,750 -
Changes in operating assets and liabilities:
Accounts receivable (472,845) (75,399)
Contracts in process (434,037) (25,637)
Prepaid expenses and other assets (68,927) (43,246)
Refundable income taxes - (5,000)
Accounts payable and accrued expenses 296,056 (124,198)
Accrued non-recurring expenses (42,932) (49,583)
Deposits on contracts in process 180,074 75,775
Other liabilities (73,599) -
--------- ---------
Net cash provided by operating activities 319,239 155,494
--------- ---------
Cash flows from investing activities:
Payment for purchase of property and equipment (612,227) (595,930)
Proceeds from sale of investment 69,746 -
--------- ---------
Net cash (used) by investing activities (542,481) (595,930)
--------- ---------
Cash flows from financing activities:
Payment on long-term debt (163,626) (83,168)
Proceeds from exercise of stock options - 70,000
--------- ---------
Net cash (used) by financing activities (163,626) (13,168)
--------- ---------
(Decrease) in cash and equivalents (386,868) (453,604)
Cash and equivalents, beginning of period 1,074,582 1,533,125
--------- ---------
Cash and equivalents, end of period $ 687,714 $1,079,521
========= =========
Non-Cash Transactions:
Investment valuation allowance $ - $ 89,172
Cash Paid for Interest: $ 170,784 $ 153,655
SEE NOTES TO FINANCIAL STATEMENTS.
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PHARMAKINETICS LABORATORIES, INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
Basis of Presentation
The statements of operations for the three and nine months ended March
31, 1995, and 1994, the balance sheet as of March 31, 1995, and the
statements of cash flows for the nine months ended March 31, 1995, and 1994,
have been prepared by the Company without audit. In the opinion of
management, all adjustments necessary to present fairly the financial
position, results of operations and cash flows at March 31, 1995, and for
all periods presented, have been made. The balance sheet at June 30, 1994,
has been derived from the audited financial statements as of that date.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted. It is suggested that
these condensed financial statements be read in conjunction with the
financial statements and notes thereto included in the Company's fiscal 1994
Form 10-K.
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. License fee income of $140,879 and $520,654 was
recorded for the three and nine month periods ended March 31, 1995,
respectively, compared to $217,797 and $665,801 for the same periods of the
prior year. The results of operations for the periods ended March 31, 1995,
are not necessarily indicative of the operating results for the full year.
Other Assets
At September 30, 1994, the Company held 158,528 shares of TSI Corporation
common stock which it had received from the sale of its German subsidiary at a
cost of $1,400,000. The Company wrote down the value of the stock by
$574,664 and $607,360 at June 30, 1993, and 1992, respectively. Effective
October 1, 1994, TSI Corporation merged with Genzyme Transgenics Corporation
(NASDAQ: GZTC), resulting in conversion of the TSI common stock to Genzyme
Transgenics common stock at a 5 to 1 conversion rate. The Company converted
its TSI holdings for 31,705 shares of Genzyme Transgenics Corporation common
stock.
During the quarter ended December 31, 1994, the Company liquidated
21,705 shares of its Genzyme Transgenics holdings at $2.20 per share,
resulting in a realized loss to the Company of $101,479. Also during the
quarter, the Company recorded a write down in the value of its remaining
investment in Genzyme Transgenics to $2.20 per share, resulting in an
unrealized loss on its investment of $46,750. In January 1995, the Company
liquidated its remaining investment of 10,000 shares at $2.20 per share.
Stockholders' Equity
The President and Chief Executive Officer of the Company 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. The note, due April 14, 1996, which bears interest
at 6%, and the accumulated interest on the note, have been classified as a
reduction to stockholders' equity.
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<PAGE>7
PART I.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations
The Company's revenue of $2,600,672 and $7,672,407 for the three and
nine month periods ended March 31, 1995, represents an increase of 51% and
14% for the three and nine month periods, respectively, compared to
$1,725,947 and $6,720,591 for the same periods in the prior year. Included
in the Company's revenue is license fee income of $140,879 and $520,654 for
the three and nine month periods ended March 31, 1995, compared to $217,797
and $665,801, for the same periods of the prior year. The Company will
continue to receive license fee income based on certain clients' future
sales of the drugs subject to licensing agreements. The increase in revenue,
for the current periods presented, demonstrates continued growth in volume
from quarter to quarter. The Company has diversified its services, added
new clients and continues to explore new markets for its services.
The Company's gross profit increased 61% and 22% to $782,918 and
$2,774,541 for the three and nine month periods ended March 31, 1995,
compared to $487,541 and $2,270,846, respectively, for the same periods of
the prior year. Gross profit as a percentage of revenue increased to 30%
and 36% for the three and nine month periods ended March 31, 1995, a 2%
increase for each of the periods, compared to the same periods of the prior
year. The year-to-date increase in gross margin is primarily attributable
to the Company's December reversal of $232,719 in reserves for unemployment
insurance contributions assessed on study participant wages during the
period January 1, 1991, through September 30, 1994. The Company received a
favorable determination to its long standing legal pursuit from Maryland's
Board of Appeals for the Department of Economic and Employment Development
in December 1994. The decision reached by the Board of Appeals states that
the study participants utilized by the Company are independent contractors
and therefore not subject to unemployment insurance. The on-going impact
has been and will continue to be reduced unemployment costs for the Company.
Absent this reversal in the current nine month period, gross profit as a
percentage of revenue would have been 33%.
General and administrative expenses decreased 11% and 1%, to $507,791
and $1,655,780, for the three and nine month periods ended March 31, 1995,
respectively, compared to $569,759 and $1,673,977. The fluctuations in
general and administrative expenses from period to period primarily relate
to the timing of expenditures for marketing and corporate resources.
Research and development expenses increased 207% and 54%, respectively, in
the three and nine month periods ended March 31, 1995, to $156,377 and
$257,573. The Company has invested heavily in its research and development
effort in the current quarter in an effort to bring new analytical methods
on-line to meet client demands.
Liquidity and Capital Resources
The reduction in the cash balances of the Company of $386,868 for the
nine months ended March 31, 1995, is primarily attributable to management's
decision to utilize cash provided by operations to purchase equipment and
furniture and to make contractual and discretionary payments on long-term
debt. 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. At March 31, 1995, the Company had working capital of $450,954,
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<PAGE>8
compared to June 30, 1994, working capital of $262,632. At March 31, 1995,
the Company had available $648,712 in current operating cash to meet the needs
of its business and $39,002 for the remaining administrative fees related to
the Company's Amended Plan of Reorganization, confirmed on April 1, 1993.
The Company also has available through May 1995, a $500,000 line of credit
through its primary secured lender, which was unused as of March 31, 1995.
Total Stockholders' Equity at March 31, 1995, was $2,193,186, compared to
$1,540,669 at June 30, 1994. The increase is primarily attributable to net
income of $552,154.
During the quarter ended March 31, 1995, the Company entered into
negotiations with its primary secured creditor to restructure its term note
and line of credit. Under new agreements, expected to be executed in May
1995, the Company will have reduced interest obligations and a committed
credit facility through November 1996.
During the quarter ended December 31, 1994, the Company liquidated
21,705 shares of its Genzyme Transgenics holdings at $2.20 per share, net,
generating proceeds of $47,747 and a realized loss to the Company of
$101,479. Also during the quarter, the Company recorded a write down in the
value of its remaining investment in Genzyme Transgenics to $2.20 per share,
resulting in an unrealized loss on its investment of $46,750. In January
1995, the Company liquidated its remaining investment of 10,000 shares at
$2.20 per share.
At March 31, 1995, the Company reported increases in its project related
account balances; contracts in process and deposits on contracts in process.
Increases in these account balances have contributed to an increase in the
Company's backlog, which will be utilized to generate future revenue.
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<PAGE>9
PART II. Other Information
Item 1. Legal Proceedings
On April 13, 1995, the Circuit Court for Baltimore City issued an Order
dismissing the suit of Northern Insurance Company of New York v.
PharmaKinetics Laboratories, Inc., et al. The Circuit Court had previously
stayed all discovery in the case until conclusion of the Wilkins Litigation.
The Wilkins matter was concluded in favor of the prior dismissal of claims as
to PharmaKinetics in the quarter ended September 1994.
Item 5. Other Information
The Company's Board of Directors has elected Mr. Thomas F. Kearns to
serve as a director of the Company, effective April 24, 1995. Mr. Kearns
served in various senior management positions with Bear Stearns,
Incorporated, for over fifteen years, until February 1987, at which time he
was serving as a senior partner in the New York office. He has served since
1983 as a director of Biomet International (NASDAQ:BMET). Mr. Kearns is
also a director of OSIRIS, a privately held biotechnology company; and he is
a trustee of the University of North Carolina Endowment Fund.
PART II.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit 11: Computation of Earnings per Share
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended
March 31, 1995.
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<PAGE>10
SIGNATURES
Pursuant to the requirements 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.
Registrant
May 11, 1995 /s/V. Brewster Jones
Date V. Brewster Jones
President and
Chief Executive Officer
May 11, 1995 /s/Taryn L. Kunkel
Date Taryn L. Kunkel
Vice-President and
Chief Financial Officer
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EXHIBIT 11
STATEMENT RE: COMPUTATION OF EARNINGS PER SHARE
For the Three Months Ended March 31,
1995 1994
Primary Fully Diluted Primary Fully Diluted
---------- ---------- ---------- ----------
Weighted Average Shares
Outstanding:
Common Stock 12,395,891 12,395,891 12,377,224 12,377,224
Shares Available
Under Options 192,123 192,123 - -
---------- --------- --------- ---------
Weighted Average Common
and Common Equivalent
Shares Outstanding 12,588,014 12,588,014 12,377,224 12,377,224
========== ========== ========== ==========
Net Income (Loss) $64,344 $64,344 ($186,132) ($186,132)
========== ========== ========== =========
Earnings (Loss) per Share $0.01 $0.01 ($0.02) ($0.02)
========== ========== ========== =========
For the Nine Months Ended March 31,
1995 1994
Primary Fully Diluted Primary Fully Diluted
---------- ---------- ---------- ----------
Weighted Average Shares
Outstanding:
Common Stock 12,395,891 12,395,891 12,336,037 12,336,037
Shares Available
Under Options 218,010 218,010 456,050 493,694
---------- ---------- ---------- ----------
Weighted Average Common
and Common Equivalent
Shares Outstanding 12,613,901 12,613,901 12,792,087 12,829,731
========== ========== ========== ==========
Net Income $552,154 $552,154 $263,075 $263,075
========== ========== ========== ==========
Earnings per Share $0.04 $0.04 $0.02 $0.02
========== ========== ========== ==========
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from
SEC Form 10-Q and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1995
<PERIOD-END> MAR-31-1995
<CASH> 687,714
<SECURITIES> 0
<RECEIVABLES> 1,277,424
<ALLOWANCES> 0
<INVENTORY> 953,006
<CURRENT-ASSETS> 3,036,659
<PP&E> 5,681,344
<DEPRECIATION> 1,764,808
<TOTAL-ASSETS> 7,011,617
<CURRENT-LIABILITIES> 2,585,705
<BONDS> 0
<COMMON> 12,396
0
0
<OTHER-SE> 2,180,790
<TOTAL-LIABILITY-AND-EQUITY> 7,011,617
<SALES> 7,672,407
<TOTAL-REVENUES> 7,705,999
<CGS> 4,897,866
<TOTAL-COSTS> 6,811,219
<OTHER-EXPENSES> 148,229
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 193,812
<INCOME-PRETAX> 552,739
<INCOME-TAX> 585
<INCOME-CONTINUING> 552,154
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 552,154
<EPS-PRIMARY> .04
<EPS-DILUTED> .04
</TABLE>
