<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 December 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 52-1067519
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) 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.
12,195,891 common shares were outstanding as of February 9, 1996.
<PAGE>2
PHARMAKINETICS LABORATORIES, INC.
FORM 10-Q
INDEX
Page No.
PART 1. FINANCIAL INFORMATION
ITEM 1. Financial Statements
Statements of Operations for the three
and six months ended December 31, 1995
and 1994 (unaudited) 3
Balance Sheets at December 31, 1995
(unaudited) and June 30, 1995 4
Statements of Cash Flows for the six
months ended December 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 6. Exhibits and Reports on Form 8-K 9
Signatures 10
-2-
<PAGE>3
PART I. Financial Information
ITEM 1. Financial Statements
PHARMAKINETICS LABORATORIES, INC.
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
December 31, December 31,
----------------------- -----------------------
1995 1994 1995 1994
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Contract revenue $2,106,538 $2,471,110 $4,828,098 $5,071,736
Cost of contracts 1,278,938 1,346,077 3,191,577 3,080,112
---------- ---------- ---------- ----------
Gross profit 827,600 1,125,033 1,636,521 1,991,624
General and
administrative expenses 513,914 560,265 1,085,316 1,147,989
Research and
development expenses 99,895 47,053 196,280 101,196
---------- ---------- ---------- ----------
Earnings
from operations 213,791 517,715 354,925 742,439
Interest expense (60,899) (64,761) (121,059) (128,372)
Interest income 12,015 10,831 21,469 21,972
Gain (loss) on disposal
of equipment 10,376 - (2,172) -
Loss on sale
of investments - (101,479) - (101,479)
Write-down
of investments - (46,750) - (46,750)
---------- ---------- ---------- ----------
Earnings
before income taxes 175,283 315,556 253,163 487,810
Income taxes - - - -
---------- ---------- ---------- ----------
Net earnings $ 175,283 $ 315,556 $ 253,163 $ 487,810
========== ========== ========== ==========
Net earnings per share $0.01 $0.03 $0.02 $0.04
========== ========== ========== ==========
Weighted average
shares outstanding 12,284,338 12,612,389 12,320,027 12,631,049
========== ========== ========== ==========
- --------------------------------------------------------------------------
See notes to financial statements.
</TABLE>
-3-
<PAGE>4
PHARMAKINETICS LABORATORIES, INC.
BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
December 31, June 30,
1995 1995
----------- -----------
<S> <C> <C>
ASSETS
Current Assets:
Cash and equivalents $ 720,692 $ 1,044,782
Restricted cash and equivalents 39,099 39,036
Accounts receivable, net 895,121 774,684
Refundable income taxes 29,364 29,364
Contracts in process 976,711 695,359
Prepaid expenses 196,732 63,681
----------- -----------
Total Current Assets 2,857,719 2,646,906
Property, plant and equipment, net 3,690,712 3,848,020
Other assets 58,422 58,422
----------- -----------
Total Assets $ 6,606,853 $ 6,553,348
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued expenses $ 974,404 $ 1,378,495
Deposits on contracts in process 1,427,907 1,133,547
Current portion of long-term debt 217,146 198,338
----------- -----------
Total Current Liabilities 2,619,457 2,710,380
Other liabilities 120,375 116,150
Long-term debt 1,844,999 1,957,959
----------- -----------
Total Liabilities 4,584,831 4,784,489
----------- -----------
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 shares 12,196 12,196
Additional paid-in capital 12,013,701 12,013,701
Accumulated deficit (10,003,875) (10,257,038)
----------- -----------
Total Stockholders' Equity 2,022,022 1,768,859
----------- -----------
Total Liabilities and
Stockholders' Equity $ 6,606,853 $ 6,553,348
=========== ===========
- ---------------------------------------------------------------------
See notes to financial statements.
</TABLE>
-4-
<PAGE>5
PHARMAKINETICS LABORATORIES, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
December 31,
--------------------
1995 1994
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 253,163 $ 487,810
Adjustments to reconcile net earnings
to net cash from operating activities:
Depreciation and amortization 191,486 146,011
Loss of sale of equipment 2,172 -
Loss on sale of investments - 101,479
Write-down of investments - 46,750
Changes in operating assets
and liabilities:
Accounts receivable (102,437) (241,583)
Contracts in process (281,352) (502,051)
Prepaid expenses and other assets (133,051) (106,542)
Accounts payable and accrued expenses (395,362) 387,610
Accrued non-recurring expenses - (19,167)
Deposit on contracts in process 294,360 227,104
Other liabilities - (164,532)
--------- ---------
Net cash provided (used) by operating activities (171,021) 362,889
--------- ---------
Cash flows from investing activities:
Payment for purchase of property and equipment (74,833) (475,780)
Proceeds from sale of equipment 68,400 -
Proceeds from sale of investment - 38,947
--------- ---------
Net cash used by investing activities (6,433) (436,833)
--------- ---------
Cash flows from financing activities:
Payment for capital lease obligations (52,421) -
Payment on long-term debt (94,152) (101,127)
--------- ---------
Net cash used by financing activities (146,573) (101,127)
--------- ----------
Decrease in cash and equivalents (324,027) (175,071)
Cash and equivalents, beginning of period 1,083,818 1,074,582
--------- ---------
Cash and equivalents, end of period $ 759,791 $ 899,511
========= =========
Non-Cash Transactions:
Fixed assets acquired through capital leases $ 47,917 $ 26,670
Proceeds receivable on sale of equipment $ 18,000 $ -
Proceeds receivable on sale of investment $ - $ 8,800
Cash Paid for Interest: $ 236,558 $ 109,901
- ----------------------------------------------------------------------
See notes to financial statements.
</TABLE>
-5-
<PAGE>6
PHARMAKINETICS LABORATORIES, INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
BASIS OF PRESENTATION
The statements of operations for the three and six months ended
December 31, 1995, and 1994, the balance sheet as of December 31,
1995, and the statements of cash flows for the six months ended
December 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 December 31, 1995, and for all periods presented, have been
made. The balance sheet at June 30, 1995, 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 1995 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 $119,144 and $246,910 was recorded for the three and six
month periods ended December 31, 1995, respectively, compared to
$148,728 and $379,775 for the same periods of the prior year. The
results of operations for the periods ended December 31, 1995, are not
necessarily indicative of the operating results for the full year.
ACCOUNTING STANDARD ISSUED
During 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock Based Compensation", which is generally effective for fiscal
years beginning after December 15, 1995. The Company expects to adopt
the pro-forma note disclosure of the Statement.
ACCOUNTING ESTIMATES
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual amounts
could differ from these estimates.
-6-
<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 $2,106,538 and $4,828,098 for the three
and six month periods ended December 31, 1995, represent decreases of
14.8% and 4.8%, respectively, compared to $2,471,110 and $5,071,736
for the same periods of the prior year. Included in the Company's
revenue is license fee income of $119,144 and $246,910 for the three
and six month periods ended December 31, 1995, compared to $148,728
and $379,775 for the same periods of the prior year. License fee
income, based on clients' sales of approved drugs, will continue
through the expiration of the license fee agreements, the first of
which will expire during fiscal 1998.
The decrease in revenue for the three and six months ended
December 31, 1995, primarily resulted from a decline in the amount of
license fee income the Company is receiving and from the Company's
July 1995 decision to discontinue its offering of stability and
dissolution services. Stability and dissolution services had
represented 7.8% and 5.8% of revenues in the three and six month
periods ended December 31, 1994. Operating revenues from continued
lines of service decreased 6.7% and increased 3.7% for the three and
six month periods ended December 31, 1995, respectively. These
changes are driven primarily by the status of current contracts and
estimated dates for completion.
The Company's gross profit decreased 26.4% and 17.8% to $827,600
and $1,636,521 for the three and six month periods ended December 31,
1995, compared to $1,125,033 and $1,991,624, respectively, for the
same periods of the prior year. Gross profit as a percentage of
revenue decreased to 39.3% and 33.9%, for the three and six month
periods ended December 31, 1995, a 6.2% and 5.4% decrease,
respectively, compared to the same periods of the prior year. The
decrease in gross margin primarily resulted from the Company's
December 1994 reversal of $232,719 in accruals for unemployment
insurance contributions assessed on study participant wages. The
Company had received a favorable determination to its long standing
legal action against the State of Maryland. Absent this reversal in
the prior periods, gross profit as a percentage of revenue would have
been 36.1% and 34.7% for the three and six month periods ended
December 31, 1994. Additionally, the decline in license fee income
has negatively impacted gross margin.
General and administrative expenses decreased 8.3% and 5.5%, to
$513,914 and $1,085,316, for the three and six month periods ended
December 31, 1995, from $560,265 and $1,147,989 for the same periods
in the prior year, respectively. The Company carefully evaluated its
cost structure in the quarter ended September 30, 1995, and took
-7-
<PAGE>8
actions to decrease costs on an on-going basis. In addition to
eliminating the stability services group, other positions throughout
the Company were eliminated in order to reduce costs. As a part of
these efforts, the Company sold equipment and realized a gain of
$10,376 in the current period, but a loss for the six month period
ended December 31, 1995, of $2,172.
Research and development expenses increased 112.3% and 94.0% in
the three and six month periods ended December 31, 1995, compared to
the same periods in the prior year. The Company has continued to
invest in its research and development effort in the current periods
in an effort to bring new analytical methods on-line to meet client
demands.
No provision for income taxes has been recorded. The Company has
available unused operating loss and business tax credit carryforwards.
LIQUIDITY AND CAPITAL RESOURCES
The reduction in the cash balances of the Company of $324,027 for
the six months ended December 31, 1995, is primarily attributable to
changes in the operating accounts of the Company. Accounts payable
and accrued expenses have diminished significantly due to payments
made on a current basis. 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 term note has
certain financial ratio and cash flow covenants with which the Company
is currently in compliance. However, no assurance can be given that
the results of future operations will allow the Company to remain in
compliance. At December 31, 1995, the Company had working capital of
$238,262, compared to a deficiency of $63,474 at June 30, 1995. At
December 31, 1995, the Company had available $720,692 in current
operating cash to meet the needs of its business and $39,099 for the
remaining administrative fees related to the Company's Amended Plan of
Reorganization, confirmed on April 1, 1993. The Company also has
available a $500,000 line of credit through its primary secured
lender, which was unused as of December 31, 1995. Total Stockholders'
Equity at December 31, 1995, was $2,022,022, compared to $1,768,859 at
June 30, 1995. The increase is attributable to net income of
$253,163.
At December 31, 1995, the Company reported an increase in its
contracts in process account which has contributed to the decrease in
revenue for the quarter. Deposits on contracts in process increased
26.0% indicating an increase in contracted studies. Changes in these
account balances affect the Company's backlog, which will be utilized
to generate future revenue.
-8-
<PAGE>9
PART II. OTHER INFORMATION
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 December 31, 1995.
-9-
<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
February 14, 1996 /s/James K. Leslie
Date James K. Leslie
President and
Chief Executive Officer
February 14, 1996 /s/Taryn L. Kunkel
Date Taryn L. Kunkel
Vice-President and
Chief Financial Officer
-10-
EXHIBIT 11
STATEMENT RE: COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
For the Three Months Ended December 31,
1995 1994
--------------------- ---------------------
Fully Fully
Primary Diluted Primary Diluted
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Weighted Average
Shares Outstanding:
Common Stock 12,195,891 12,195,891 12,395,891 12,395,891
Shares Available
Under Options 88,447 88,447 216,498 288,218
---------- ---------- ---------- ----------
Weighted Average Common
and Common Equivalent
Shares Outstanding 12,284,338 12,284,338 12,612,389 12,684,109
========== ========== ========== ==========
Net Income $175,283 $175,283 $315,556 $315,556
========== ========== ========== ==========
Earnings per Share $0.01 $0.01 $0.03 $0.02
========== ========== ========== ==========
For the Six Months Ended December 31,
1995 1994
--------------------- ---------------------
Fully Fully
Primary Diluted Primary Diluted
---------- ---------- ---------- ----------
Weighted Average
Shares Outstanding:
Common Stock 12,195,891 12,195,891 12,395,891 12,395,891
Shares Available
Under Options 124,136 124,136 235,158 263,739
---------- ---------- ---------- ----------
Weighted Average Common
and Common Equivalent
Shares Outstanding 12,320,027 12,320,027 12,631,049 12,659,630
========== ========== ========== ==========
Net Income $253,163 $253,163 $487,810 $487,810
========== ========== ========== ==========
Earnings per Share $0.02 $0.02 $0.04 $0.04
========== ========== ========== ==========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from SEC
Form 10Q and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-END> DEC-31-1995
<CASH> 759,791
<SECURITIES> 0
<RECEIVABLES> 895,121
<ALLOWANCES> 0
<INVENTORY> 976,711
<CURRENT-ASSETS> 2,857,719
<PP&E> 4,908,688
<DEPRECIATION> 1,217,976
<TOTAL-ASSETS> 6,606,853
<CURRENT-LIABILITIES> 2,619,457
<BONDS> 0
<COMMON> 12,196
0
0
<OTHER-SE> 2,009,826
<TOTAL-LIABILITY-AND-EQUITY> 6,606,853
<SALES> 4,828,098
<TOTAL-REVENUES> 4,849,567
<CGS> 3,191,577
<TOTAL-COSTS> 4,473,173
<OTHER-EXPENSES> 2,172
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 121,059
<INCOME-PRETAX> 253,163
<INCOME-TAX> 0
<INCOME-CONTINUING> 253,163
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 253,163
<EPS-PRIMARY> .02
<EPS-DILUTED> .02
</TABLE>
