<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, 1996
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 May 6, 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 nine months ended March 31, 1996
and 1995 (unaudited) 3
Balance Sheets at March 31, 1996
(unaudited) and June 30, 1995 4
Statements of Cash Flows for the nine
months ended March 31, 1996 and 1995
(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 8
Signatures 9
-2-
<PAGE>3
PHARMAKINETICS LABORATORIES, INC.
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
March 31, March 31,
---------------------- ----------------------
1996 1995 1996 1995
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Contract revenue $2,927,814 $2,600,672 $7,755,912 $7,672,407
Cost of contracts 2,015,301 1,817,754 5,206,879 4,897,866
---------- ---------- ---------- ---------
Gross profit 912,513 782,918 2,549,033 2,774,541
General and
administrative expenses 609,529 507,791 1,694,845 1,655,780
Research and
development expenses 115,487 156,377 311,766 257,573
---------- ---------- ---------- ----------
Earnings from operations 187,497 118,750 542,422 861,188
Interest expense (49,524) (65,440) (170,583) (193,812)
Interest income 9,661 11,619 31,130 33,592
Gain (loss) on disposal
of equipment - - (2,172) -
Loss on sale
of investments - - - (101,479)
Write-down
of investments - - - (46,750)
---------- ---------- ---------- ----------
Earnings
before income taxes $ 147,634 $ 64,929 $ 400,797 $ 552,739
Income taxes - (585) - (585)
---------- ---------- ---------- ----------
Net earnings $ 147,634 $ 64,344 $ 400,797 $ 552,154
========== ========== ========== ==========
Net earnings per share $ 0.01 $ 0.01 $ 0.03 $ 0.04
========== ========== ========== ==========
Weighted average
shares outstanding 12,286,407 12,588,014 12,307,943 12,613,901
========== ========== ========== ==========
- -------------------------------------------------------------------------
See notes to financial statements.
</TABLE>
-3-
<PAGE>4
PHARMAKINETICS LABORATORIES, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, June 30,
1996 1995
----------- -----------
(unaudited)
<S> <C> <C>
ASSETS
Current Assets:
Cash and equivalents $ 964,004 $ 1,044,782
Restricted cash and equivalents 39,135 39,036
Accounts receivable, net 949,732 774,684
Refundable income taxes 29,364 29,364
Contracts in process 667,058 695,359
Prepaid expenses 153,387 63,681
----------- -----------
Total Current Assets 2,802,680 2,646,906
Property, plant and equipment, net 3,951,177 3,848,020
Other assets 58,422 58,422
----------- -----------
Total Assets $ 6,812,279 $ 6,553,348
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued expenses $ 1,158,649 $ 1,378,495
Deposits on contracts in process 1,398,767 1,133,547
Current portion of long-term debt 229,243 198,338
----------- -----------
Total Current Liabilities 2,786,659 2,710,380
Other liabilities 100,277 116,150
Long-term debt 1,755,687 1,957,959
----------- -----------
Total Liabilities 4,642,623 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 (9,856,241) (10,257,038)
----------- -----------
Total Stockholders' Equity 2,169,656 1,768,859
----------- -----------
Total Liabilities and Stockholders' Equity $ 6,812,279 $ 6,553,348
=========== ===========
- -------------------------------------------------------------------------
See notes to financial statements.
</TABLE>
-4-
<PAGE>5
PHARMAKINETICS LABORATORIES, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
March 31,
----------------------
1996 1995
---------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 400,797 $ 552,154
Adjustments to reconcile net earnings to
net cash from operating activities:
Depreciation and amortization 303,313 235,066
Loss on 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 (175,048) (472,845)
Contracts in process 28,301 (434,037)
Prepaid expenses and other assets (89,706) (68,927)
Accounts payable and accrued expenses (463,912) 271,609
Accrued non-recurring expenses - (42,932)
Deposits on contracts in process 265,220 180,074
Other liabilities (15,873) (73,599)
---------- ----------
Net cash provided by operating activities 255,264 294,792
---------- ----------
Cash flows from investing activities:
Payment for purchase of property and equipment (147,875) (585,557)
Proceeds from sale of equipment 86,400 -
Proceeds from sale of investment - 69,746
---------- ----------
Net cash used by investing activities (61,475) (515,811)
---------- ----------
Cash flows from financing activities:
Payment for capital lease obligations (103,101) (2,223)
Payment on long-term debt (171,367) (163,626)
---------- ----------
Net cash used by financing activities (274,468) (165,849)
========== ==========
Decrease in cash and equivalents (80,679) (386,868)
Cash and equivalents, beginning of period 1,083,818 1,074,582
---------- ----------
Cash and equivalents, end of period $1,003,139 $ 687,714
========== ==========
Non-cash Transactions:
Fixed assets acquired through capital leases $ 347,167 $ 26,670
Supplemental Cash Flow Information:
Cash paid for interest $ 305,424 $ 170,784
- ---------------------------------------------------------------------------
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 nine months ended March
31, 1996, and 1995, the balance sheet as of March 31, 1996, and the
statements of cash flows for the nine months ended March 31, 1996, and
1995, 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, 1996, 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 $111,036 and $357,946
was recorded for the three and nine month periods ended March 31, 1996,
respectively, compared to $140,879 and $520,654 for the same periods of the
prior year. The results of operations for the periods ended March 31,
1996, 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 $2,927,814 and $7,755,912 for the three and
nine month periods ended March 31, 1996, represent increases of 12.6% and
1.1%, respectively, compared to $2,600,672 and $7,672,407 for the same
periods of the prior year. Included in the Company's revenue is license
fee income of $111,036 and $357,946 for the three and nine month periods
ended March 31, 1996, compared to $140,879 and $520,654 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 increase in revenue for the three and nine months ended March 31,
1996, primarily resulted from an increase in revenue from operations of
14.5% and 3.4% for the three and nine month periods ended March 31, 1996,
compared to the same periods of the prior year. The Company has continued
to diversify its services, add new clients and explore new markets for its
services. The revenue growth reported in current periods, demonstrates
continued growth in volume from period to period, despite the Company's
decision, in July 1995, to discontinue its offering of stability and
dissolution services.
The Company's gross profit increased 16.6% for the three month period
ended March 31, 1996 to $912,513, and decreased 8.1% in the nine month
period ended March 31, 1996, to $2,549,033, compared to the same periods of
the prior year. Gross profit as a percentage of revenue increased to 31.2%
for the three month period ended March 31, 1996, and decreased to 32.9% for
the nine month period ended March 31, 1996, compared to the same periods of
the prior year, representing a 1.1% increase and a 3.3% decrease,
respectively. The decrease in gross profit for the nine month period
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 period, gross profit as a percentage of revenue would
have been 33.1% for the nine month period ended March 31, 1995, essentially
equal to this year. Additionally, the decline in license fee income has
negatively impacted gross profit.
General and administrative expenses increased 20.0% and 2.4%, to
$609,529 and $1,694,845, for the three and nine month periods ended March
31, 1996, from $507,791 and $1,655,780 for the same periods in the prior
year, respectively. General and administrative expenses increased during
the period ended March 31, 1996 due to increased compensation and related
expenses associated with the growth of the Company's administrative staff
and certain non-recurring business development costs.
-7-
<PAGE>8
Research and development expenses decreased 26.1% in the three month
period ended March 31, 1996, and increased 21.0% in the nine month period
ended March 31, 1996, 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. The Company re-directed certain personnel to revenue
generating activities in an effort to meet client demands in the current
period.
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 $80,679 for the
nine months ended March 31, 1996, is primarily attributable to payments for
capital lease obligations and 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. 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 March 31, 1996, the Company had working capital of $16,021,
compared to a deficiency of $63,474 at June 30, 1995. At March 31, 1996,
the Company had available $964,004 in current operating cash to meet the
needs of its business and $39,135 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 March 31, 1996. Total
Stockholders' Equity at March 31, 1996, was $2,169,656, compared to
$1,768,859 at June 30, 1995. The increase is attributable to net income of
$400,797.
At March 31, 1996, the Company reported an increase in deposits on
contracts in process of 23.4% indicating an increase in contracted studies.
Changes in this account balance and contracts in process, which decreased
4.1%, affect the Company's backlog, which will be utilized to generate
future revenue.
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 March 31, 1996.
-8-
<PAGE>9
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 13, 1996 /s/James K. Leslie
- ------------ ------------------
Date James K. Leslie
President and
Chief Executive Officer
May 13, 1996 /s/Taryn L. Kunkel
- ------------ ------------------
Date Taryn L. Kunkel
Vice-President and
Chief Financial Officer
-9-
EXHIBIT 11
STATEMENT RE: COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
For the Three Months Ended March 31,
1996 1995
---------------------- ----------------------
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 90,516 90,516 192,123 192,123
---------- ---------- ---------- ----------
Weighted Average Common
and Common Equivalent
Shares Outstanding 12,286,407 12,286,407 12,588,014 12,588,014
========== ========== ========== ==========
Net Income $147,634 $147,634 $64,344 $64,344
========== ========== ========== ==========
Earnings per Share $0.01 $0.01 $0.01 $0.01
========== ========== ========== ==========
For the Nine Months Ended March 31,
1996 1995
---------------------- ----------------------
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 112,052 112,052 218,010 218,010
---------- ---------- ---------- ----------
Weighted Average Common
and Common Equivalent
Shares Outstanding 12,307,943 12,307,943 12,613,901 12,613,901
========== ========== ========== ==========
Net Income $400,797 $400,797 $552,154 $552,154
========== ========== ========== ==========
Earnings per Share $0.03 $0.03 $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> 9-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-END> MAR-31-1996
<CASH> 1,003,139
<SECURITIES> 0
<RECEIVABLES> 949,732
<ALLOWANCES> 0
<INVENTORY> 667,058
<CURRENT-ASSETS> 2,802,680
<PP&E> 5,280,981
<DEPRECIATION> 1,329,804
<TOTAL-ASSETS> 6,812,279
<CURRENT-LIABILITIES> 2,786,659
<BONDS> 0
<COMMON> 12,196
0
0
<OTHER-SE> 2,157,460
<TOTAL-LIABILITY-AND-EQUITY> 6,812,279
<SALES> 7,755,912
<TOTAL-REVENUES> 7,787,042
<CGS> 5,206,879
<TOTAL-COSTS> 7,213,490
<OTHER-EXPENSES> 2,172
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 170,583
<INCOME-PRETAX> 400,797
<INCOME-TAX> 0
<INCOME-CONTINUING> 400,797
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 400,797
<EPS-PRIMARY> .03
<EPS-DILUTED> .03
</TABLE>
