<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, 1996 Commission file number 0-11580
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PHARMAKINETICS LABORATORIES, INC.
---------------------------------
(Exact Name of Registrant as Specified in its Charter)
MARYLAND 52-1067519
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(State of Incorporation) (I.R.S. Employer Identification No.)
302 WEST FAYETTE STREET
BALTIMORE, MARYLAND 21201
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(Address of Principal Executive Offices)
Registrant's Telephone Number, Including Area Code (410) 385-4500
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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 23, 1996, 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 OTC Bulletin Board on that date) held by non-
affiliates was $6,850,599.
Portions of the registrant's proxy statement for its 1996 annual meeting
of stockholders are incorporated into Part III of this report.
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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 pharmaceutical products.
In recent years, pharmaceutical companies have begun to outsource
clinical and analytical research to CROs. The Company believes world-
wide research being outsourced annually to CROs is approximately $2 to 3
billion. The Company believes that certain industry trends have led
pharmaceutical companies to increase outsourcing of research for
prescription and non-prescription products. These trends include the
increased emphasis on finding new proprietary products, getting these
products to market as expeditiously as possible, and the desire to
contain costs.
On May 23, 1996, the United States Bankruptcy Court in the District
of Maryland approved the Company's Application for Final Decree, thus
closing the bankruptcy case that commenced in 1990.
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 the efficacy of
pharmaceutical products. A major portion of the Company's clinical
operations involve the testing of generic 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 clinical studies as part of
applications for approval to market certain new drug products, submitted
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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 compares the 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
revisions 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.
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
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approved by the Company's Institutional Review Board for each study,
acknowledging such disclosures, is signed by each participant prior to
initiation of the study.
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 present in each
of the hundreds of biological specimens generated by a given study.
Chemists 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 show the concentration of drug in the blood over time
and to determine statistically 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.
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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, 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.
GOVERNMENT REGULATION
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.
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
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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. The CRO
industry is highly fragmented, with approximately twenty "full service"
CROs and many small specialty providers. In recent years, several large
full service CROs have emerged some of which have substantially greater
capital and other resources, are better known and have more experienced
personnel than the Company. The recent trend towards industry
consolidation is likely to result in heightened competition among the
larger CROs. The Company competes in a specialty niche segment of the
overall market where total size and "full service" are less important
competitive factors than in the overall CRO industry. Clients choose to
use the Company, or a direct competitor, on the basis of reputation for
quality of the service provided, the ability to schedule the specific
study in a time frame which meets the client's needs, scientific and
technical capability and the price of the services performed. The
Company believes it competes favorably in these areas.
CUSTOMERS
For the year ended June 30, 1996, one customer contributed in
excess of 10% of contract revenue, accounting for 27% of contract
revenue. For the year ended June 30, 1995, one customer contributed in
excess of 10% of contract revenue, accounting for 11% of contract
revenue. For the year ended June 30, 1994, two customers each
contributed in excess of 10% of contract revenue, which in aggregate
accounted for 41% of contract revenue.
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.
While an individual client may represent a significant percent of
revenues, these revenues are the result of the sum of a number of
different contracts during the year. While the complete loss of a
significant client could have a material adverse effect on the Company,
the termination or loss of any one contract would typically not have a
material adverse effect.
EXPORT SALES
The Company conducts studies for a number of companies outside of
the United States, primarily in Canada and Europe, in addition to many
domestic companies. This work is billed and paid in U.S. dollars, so
there is no currency exchange risk to the Company. The Company has
recognized revenue of $3,301,000, $2,208,000 and $2,327,000, for the
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periods ended June 30, 1996, 1995 and 1994, respectively, from its
clients outside of the United States.
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 but have yet to begin. At June 30, 1996, the backlog
was approximately $4.0 million. At June 30, 1995, the Company's backlog
was approximately $4.6 million. The Company expects to recognize
revenue from studies represented in the June 30, 1996 backlog during
fiscal 1997.
EMPLOYEES
At July 31, 1996, the Company had 105 full-time employees and 61
part-time employees, including 5 physicians and 12 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.
EXECUTIVE OFFICERS
Position with the Company Employed Officer
Name Age and principal occupation Since Since
- ---- --- ------------------------ ----- -----
Christopher H.
Hendy, Ph.D. 36 Vice President Clinical 1993 1993
Evaluation Services since (5)
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 51 President and Chief Executive 1990 1990
Officer from October 1990 to (1)
July 1995; Chief 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
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Position with the Company Employed Officer
Name Age and principal occupation Since Since
- ---- --- ------------------------ ----- -----
V. Brewster Jones healthcare industry; and
(continued) Division President of Baxter
Healthcare Corporation from
June 1985 to December 1987.
Taryn L. Kunkel 35 Vice President, Chief 1990 1991
Financial Officer and
Treasurer since February 1991;
Controller from November 1990
to February 1991; and Director
of Financial Analysis from
July 1990 to November 1990.
Elizabeth A.
Lane, Ph.D. 51 Vice President 1988 1992
Biopharmaceutics and Regulatory
Affairs since May 1992;
Director of Pharmacokinetics
and Regulatory Affairs from
September 1988 to May 1992.
James K. Leslie 51 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. 54 Vice President Analytical 1995 1995
Laboratory Services since (2)
July 1995; Director 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.
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Position with the Company Employed Officer
Name Age and principal occupation Since Since
- ---- --- ------------------------ ----- -----
Leon
Shargel, Ph.D. 54 Vice President since March 1995 1995
1995; Director of (3)
Biochemistry and
Pharmacokinetics at Forest
Laboratories, a pharmaceutical
manufacturer, from 1993 to
1994; and Director of
Pharmacokinetics at Chelsea
Laboratories from 1991 to 1993.
James M.
Wilkinson II, Ph.D. 44 Vice President Analytical 1996 1996
Laboratory Services since (4)
July 1996; Associate
Director, Pharmaco
International, Inc.
Analytical Laboratory
Division from December 1992
to June 1996.
(1) Mr. Jones resigned from the Company effective July 1995. Mr.
Leslie was promoted to the position of President and Chief
Executive Officer as of that date.
(2) Dr. Meacham joined the Company in July 1995. His employment with
the Company ended in December 1995.
(3) Dr. Shargel's employment with the Company ended in October 1995.
(4) Dr. Wilkinson joined the Company on July 1, 1996.
(5) Dr. Hendy resigned his position with the Company effective
September 27, 1996.
ITEM 2. PROPERTIES
The Company is headquartered in a seven-story building located in
Baltimore, Maryland. The building 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 E to the Financial Statements).
See Note C to the Financial Statements for additional information
regarding the Company's property, plant and equipment.
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ITEM 3. LEGAL PROCEEDINGS
(a) Reorganization Proceedings under Chapter 11 of the
Bankruptcy Code
On November 19, 1990, PharmaKinetics Laboratories, Inc. filed a
voluntary petition (Case No. 90-5-5020-JS) 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 Company received an order approving
its Application for Final Decree on May 23, 1996. Therefore, the
bankruptcy case is closed.
(b) Other Legal Proceedings
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"). In September
1995, the Company entered into a final Removal Action Allocation and a
DeMinimus Settlement and Indemnification Agreement. The Agreement
enabled each identified generator to end its liability for all
transaction costs and clean-up costs, including Removal Action Costs,
the cost of the remedial investigation/feasibility study, and the cost
of the final remedy at the Site. The Agreement also covers claims for
costs by governmental agencies, including EPA and South Carolina
Department of Health and Environmental Control. On September 12, 1995,
the Company remitted the requested $3,000 to satisfy the final buy-out
option for clean-up costs at this site.
In June 1996, the Company paid the final installment of a fine
imposed under a plea agreement with the United States Attorney's Office
of the District Court of Maryland and the Office of Consumer Litigation
of the Department of Justice, resulting from a 1990 federal grand jury
investigation of the generic drug industry, in which the Company and its
Chief Scientific Officer were named as targets (see Note E to the
Financial Statements).
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
The Company's Common Stock is currently traded in the
over-the-counter market and is quoted on the OTC Bulletin Board (OTCBB:
PKLB).
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The following table sets forth the high and low bid prices of the
Common Stock for the fiscal periods indicated and as reported through
the OTC Bulletin Board.
Year Ended Year Ended
June 30, 1996 June 30, 1995
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Quarter High Low High Low
- ------- ---- --- ---- ---
First $ 9/16 $ 11/32 $ 3/4 $ 5/16
Second 15/32 1/4 11/16 7/32
Third 7/16 11/32 9/16 1/4
Fourth 1/2 11/32 7/16 1/8
Such quotations reflect inter-dealer prices, without retail mark-
up, mark-down or commission and may not represent actual transactions.
The approximate number of shareholders of record at August 23,
1996, was 1,160.
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. Notwithstanding the Company's dividend policy, the Company's
borrowing agreement with its primary lender restricts the Company from
declaring or paying a dividend if such dividend would cause the Company
to default under any of the covenants contained in the borrowing
agreement.
ITEM 6: SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Years ended June 30,
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1996 1995 1994 1993 1992
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Revenues $10,962,160 $ 9,893,762 $ 8,847,674 $ 8,718,246 $12,811,911
Earnings (loss):
Before extraordinary item $778,895 $127,827 $204,851 $(197,947)$ 3,543,745
Extraordinary item - - - $ 107,016 -
Net earnings (loss) $778,895 $127,827 $204,851 $ (90,931)$ 3,543,745
Earnings (loss) per share:
Before extraordinary item $ 0.06 $ 0.01 $ 0.02 $(0.02) $ 0.32
Extraordinary item - - - 0.01 -
Net earnings (loss) per share $ 0.06 $ 0.01 $ 0.02 $(0.01) $ 0.32
Weighted average
shares outstanding 12,319,646 12,598,102 12,780,687 10,719,615 10,984,253
Total assets $ 6,622,959 $ 6,553,348 $ 6,163,128 $ 6,198,151 $ 9,580,388
Working capital (deficiency)$ 411,498 $ (63,474)$ 262,632 $ 831,114 $ 3,235,788
Long-term liabilities $ 1,784,876 $ 2,074,109 $ 2,437,373 $ 2,866,072 $ 7,296,205
Stockholders' equity
(deficiency in assets) $ 2,547,754 $ 1,768,859 $ 1,540,669 $ 1,364,898 $ (198,858)
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- -------------------------------------------------------------------------
Notes to Selected Financial Data:
The Company has not declared a dividend on common stock since
inception.
During the fiscal year ended June 30, 1992, the Company adjusted
certain of its accruals for professional fees related to the bankruptcy
proceedings, interest 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 year 1992 included contract revenue for the Company's German
subsidiary, which was sold effective March 31, 1992.
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.
</TABLE>
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, 1996, 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. The nature of the Company's services
and recurring business with major clients contributes to having several
clients whose business accounts for 10% or more in a fiscal year. From
year to year, the specific clients may change. 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").
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:
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<TABLE>
Percentage of Period to Period
Total Revenues Change
-------------- -------------------
1996 1995 1994
Years ended June 30, Compared to
1996 1995 1994 1995 1994 1993
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Contract revenue 95.5% 93.5% 89.9% 13.2% 16.3% (0.3)%
License fee 4.5 6.5 10.1 (23.8) (27.7) 21.0
----- ----- ----- ----- ----- -----
Total 100.0 100.0 100.0 10.8 11.8 1.5
Cost of contracts 66.5 68.9 67.9 7.0 13.4 (0.5)
----- ----- ----- ----- ----- -----
Gross margin 33.5 31.1 32.1 19.2 8.4 5.9
Research
and development 3.6 4.2 2.5 (5.5) 92.8 175.5
General
and administrative 20.9 22.2 25.0 4.3 (0.7) 9.2
----- ----- ----- ----- ----- -----
Operating income 9.0 4.7 4.6 112.7 12.6 (28.9)
Interest expense (2.0) (2.6) (3.0) (13.2) (3.2) 5.7
Interest income 0.4 0.4 0.6 (3.5) (23.3) 188.3
Loss on disposal
of equipment (0.2) - - - - -
Loss on sale
of investments - (1.0) - (100.0) 100.0 -
Write-down
of investments - (0.5) - (100.0) 100.0 (100.0)
----- ----- ----- ----- ----- -----
Earnings before
income taxes 7.1 1.0 2.2 690.9 (50.4) 187.2
Reorganization item - - - - - (100.0)
----- ----- ----- ----- ----- -----
Earnings before taxes 7.1 1.0 2.2 690.9 (50.4) 195.1
Income taxes - (0.3) (0.1) 115.4 (475.6) 58.8
Extraordinary item - - - - - (100.0)
----- ----- ----- ----- ----- -----
Net earnings 7.1% 1.3% 2.3% 509.3% (37.6)%325.3%
===== ===== ===== ===== ===== =====
</TABLE>
1996 COMPARED TO 1995
Total revenue increased 10.8% from $9.9 million in fiscal 1995 to
$11.0 million in fiscal 1996. The increase was primarily attributable to
the Company's increased marketing efforts and timely completion of
several studies in the fourth quarter of fiscal 1996. During fiscal
1996, the Company continued to expand its client list, diversify its
services and perform multiple studies for several of its clients.
Contract revenue increased 13.2% for fiscal 1996, compared to fiscal
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1995. Revenue growth in the current fiscal year demonstrates
continued growth in volume, despite the Company's decision in July 1995
to discontinue its offering of Stability and Dissolution services.
License fee income of $493,000 was recorded in fiscal 1996, compared
to $647,000 in fiscal 1995. License fee income, based on clients' sales
of approved drugs, will continue through the expiration of the two
current license fee agreements, the first of which will expire during
fiscal 1998 and the second of which will expire in fiscal 2000. In
addition, the Company has a license fee agreement with another of its
clients which recently received approval from the FDA to manufacture and
market Sucralfate Tablets. The client expects to commence shipments
after the completion of validation studies. Once marketing is begun, the
Company expects to receive payments for a minimum of eight years from the
date of approval. No assurance can be given of the time when such
payments will begin or the amount of such payments.
The Company's gross margin increased 19.2% from $3.1 million in
fiscal 1995 to $3.7 million in fiscal 1996. As a percentage of revenue,
the Company's gross margin increased from 31.1% in fiscal 1995 to 33.5%
in fiscal 1996, on a 10.8% increase in total revenue. The increase in
gross margin, despite a significant reduction in license fee income, is
attributed to increased productivity, timely completion of studies and
increased study shipments, particularly in the fourth quarter. Fiscal
1995 also reflected a reversal of $232,719 in accrued expenses for
unemployment insurance assessments on study participant compensation.
Absent this reversal in fiscal 1995, gross profit as a percentage of
revenue would have been 28.8%.
General and administrative expenses totalled $2.3 million for fiscal
1996, compared to $2.2 million in fiscal 1995, representing a 4.3%
increase. As a percentage of revenue, general and administrative
expenses were 20.9% in fiscal 1996 and 22.2% in fiscal 1995. General and
administrative expenses increased due to the increased compensation and
related expenses associated with the growth of the Company's
administrative staff and certain non-recurring business development
costs.
Research and development expenses decreased 5.5% from $420,000 in
fiscal 1995 to $397,000 in fiscal 1996. The Company has continued to
invest in its research and development effort in 1996 in an effort to
bring new analytical methods on-line to meet client demands. The Company
re-directed certain personnel to revenue generating activities throughout
the year in an effort to meet client demands.
Interest expense decreased 13.2% from $257,000 in fiscal 1995 to
$223,000 in fiscal 1996. The decrease is primarily attributable to
decreases in the Company's interest bearing obligations. In addition,
the rate of interest on the Company's long-term debt has been favorably
impacted by reductions in the prime rate of interest of NationsBank,
N.A., 8.25% at June 30, 1996, compared to 9.00% at June 30, 1995. The
Company has also made and expects to continue to make accelerated
principal payments relative to its term note payable to the Bank.
-13-
</PAGE>
<PAGE>15
During fiscal year 1996, the Company sold idle equipment from its
Stability and Dissolution services group. The sale of the equipment
generated proceeds of $71,400 and a net loss of $17,172.
Income tax expense of $4,400 was recorded in fiscal 1996. The tax
arises from the impact of the Alternative Minimum Tax. At June 30, 1996,
the Company had tax loss carryforwards of approximately $3,885,000,
expiring in 2006 through 2009, and general business credits of
approximately $1,432,500, expiring during the period 1999 through 2009.
1995 COMPARED TO 1994
Total revenue increased 11.8% from $8.8 million in fiscal 1994 to
$9.9 million in fiscal 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 fiscal 1995,
the Company diversified its services, added new clients and successfully
penetrated new markets for its services. Contract revenue increased
16.3% for fiscal 1995, compared to fiscal 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's gross margin increased 8.4% from $2.8 million in
fiscal 1994 to $3.1 million in fiscal 1995. As a percentage of revenue,
the Company's gross margin decreased from 32.1% in fiscal 1994 to 31.1%
in fiscal 1995, on an 11.8% increase in overall revenue. The decrease in
gross margin primarily resulted from fourth quarter production
inefficiencies, 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 resulted in non-recovery of substantial
investments in research and development. The increase in expense
associated with these difficulties was partially 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 fiscal 1995, gross profit as a percentage of revenue
would have been 28.8%.
General and administrative expenses totalled $2.2 million for fiscal
1994 and fiscal 1995. As a percentage of revenue, general and
administrative expenses were 22.2% in fiscal 1995 compared to 25.0% in
fiscal 1994.
The Company increased its research and development spending by 92.8%
from $218,000 in fiscal 1994 to $420,000 in fiscal 1995. Of the amount
-14-
</PAGE>
<PAGE>16
invested in the Company's research and development efforts for fiscal
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
implemented procedures to minimize the likelihood that a similar assay
development problem will recur.
Interest expense decreased 3.2% from $266,000 in fiscal 1994 to
$257,000 in fiscal 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 Bank's prime rate plus 1/2%.
The benefit from income taxes of $29,000 was recorded in fiscal 1995
to reflect a reduction in the Company's tax liability. 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.
LIQUIDITY AND CAPITAL RESOURCES
On June 30, 1996, the Company had cash and equivalents of $990,000
compared to $1,084,000 at June 30, 1995. The decrease in cash is the
result of contractual and discretionary payments on long-term debt and
capital lease obligations and the purchase of equipment for utilization
in the Company's operating units, offset by cash generated by operating
activities. The Company invested $512,000 in capital equipment
purchases, $165,000 of which was paid in cash with the remaining $347,000
financed through capital leases. The capital leases have terms expiring
through fiscal 1999. The Company made payments of $304,000 on its long-
term debt obligations during fiscal 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 NationsBank, N.A.
The Company's primary source of funds is cash flow from operations.
The Company also has available a $500,000 line of credit from
NationsBank, N.A. which has not been drawn upon.
As of June 30, 1996, the Company's stockholders' equity totalled
$2,548,000 compared to $1,769,000 at June 30, 1995. The Company had
working capital of $411,000 at June 30, 1996, compared to a deficiency in
working capital of $63,000 at June 30, 1995. The increase in working
capital reflects the increase in accounts receivable generated by
accelerated study completion in the quarter ended June 30, 1996.
The Company is currently seeking financing for a state-of-the-art
laboratory instrument to be delivered to the Company in the first quarter
of fiscal 1997. The amount to be financed totals $410,000.
-15-
</PAGE>
<PAGE>17
REPORT OF INDEPENDENT ACCOUNTANTS
-----
To the Directors and Stockholders of
PharmaKinetics Laboratories, Inc.
We have audited the financial statements and financial statement
schedule of PharmaKinetics Laboratories, Inc. listed in the index on page
28 of this Form 10-K. These financial statements and financial statement
schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for
our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of
PharmaKinetics Laboratories, Inc. as of June 30, 1996 and 1995, and the
results of its operations and its cash flows for each of the three years
in the period ended June 30, 1996, in conformity with generally accepted
accounting principles. In addition, in our opinion, the financial
statement schedule referred to above, when considered in relation to the
basic financial statements taken as a whole, presents fairly, in all
material respects, the information required to be included therein.
COOPERS AND LYBRAND L.L.P.
Baltimore, Maryland
August 14, 1996
-16-
</PAGE>
<PAGE>18
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
<TABLE>
PHARMAKINETICS LABORATORIES, INC.
STATEMENTS OF OPERATIONS
Years ended June 30,
-----------------------------------------
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Revenues $10,962,160 $ 9,893,762 $ 8,847,674
Cost of contracts 7,289,138 6,813,576 6,006,185
----------- ----------- -----------
Gross profit 3,673,022 3,080,186 2,841,489
General and
administrative expenses 2,293,504 2,198,050 2,213,188
Research and
development expenses 396,741 420,049 217,861
----------- ----------- -----------
Earnings from operations 982,777 462,087 410,440
Interest expense (223,028) (257,018) (265,591)
Interest income 40,748 42,207 55,002
Loss on sale of equipment (17,172) - -
Loss on sale of investments - (101,479) -
Write-down of investments - (46,750) -
----------- ----------- -----------
Earnings
before income taxes 783,325 99,047 199,851
Provision for
(benefit of) income taxes 4,430 (28,780) (5,000)
----------- ----------- -----------
Net earnings $ 778,895 $ 127,827 $ 204,851
=========== =========== ===========
Net earnings per share $ 0.06 $ 0.01 $ 0.02
=========== =========== ===========
Weighted average
shares outstanding 12,319,646 12,598,102 12,780,687
=========== =========== ===========
- ------------------------------------------------------------------------
See notes to financial statements.
</TABLE>
-17-
</PAGE>
<PAGE>19
<TABLE>
PHARMAKINETICS LABORATORIES, INC.
BALANCE SHEETS
June 30,
-------------------------
1996 1995
----------- -----------
<S> <C> <C>
ASSETS
Current Assets:
Cash and equivalents $ 955,526 $ 1,044,782
Restricted cash and equivalents 34,875 39,036
Accounts receivable 1,248,293 774,684
Refundable income taxes - 29,364
Contracts in process 336,930 695,359
Prepaid expenses 126,203 63,681
----------- -----------
Total Current Assets 2,701,827 2,646,906
Property, plant and equipment, net 3,862,710 3,848,020
Other assets 58,422 58,422
----------- -----------
Total Assets $ 6,622,959 $ 6,553,348
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued expenses $ 1,213,403 $ 1,378,495
Deposits on contracts in process 933,310 1,133,547
Current portion of long-term debt 143,616 198,338
----------- -----------
Total Current Liabilities 2,290,329 2,710,380
Other liabilities 76,459 116,150
Long-term debt 1,708,417 1,957,959
----------- -----------
Total Liabilities 4,075,205 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 and
outstanding, 12,195,891 shares 12,196 12,196
Additional paid-in capital 12,013,701 12,013,701
Accumulated deficit (9,478,143) (10,257,038)
----------- -----------
Total Stockholders' Equity 2,547,754 1,768,859
----------- -----------
Total Liabilities
and Stockholders' Equity $ 6,622,959 $ 6,553,348
=========== ===========
- -----------------------------------------------------------------------
See notes to financial statements.
</TABLE>
-18-
</PAGE>
<PAGE>20
<TABLE>
PHARMAKINETICS LABORATORIES, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
Years ended June 30,
-------------------------------------
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
COMMON STOCK
Balance, beginning of year $ 12,196 $ 12,396 $ 12,316
Stock cancelled - (200) -
Exercise of stock options - - 80
----------- ----------- -----------
Balance, end of year 12,196 12,196 12,396
----------- ----------- -----------
(Shares outstanding: 12,195,891,
12,195,891 and 12,395,891, at
June 30, 1996, 1995 and 1994,
respectively).
ADDITIONAL PAID-IN CAPITAL
Balance, beginning of year 12,013,701 12,113,501 12,043,581
Stock subscription cancelled - (99,800) -
Exercise of stock options - - 69,920
----------- ----------- -----------
Balance, end of year 12,013,701 12,013,701 12,113,501
----------- ----------- -----------
ACCUMULATED DEFICIT
Balance, beginning of year (10,257,038) (10,384,865) (10,589,716)
Net earnings 778,895 127,827 204,851
----------- ----------- -----------
Balance, end of year (9,478,143) (10,257,038) (10,384,865)
----------- ----------- -----------
NOTE RECEIVABLE ON
COMMON STOCK SUBSCRIBED
Balance, beginning of year - (101,283) (101,283)
Note cancelled - 100,000 -
Interest accrued - (6,000) (6,000)
Interest paid - 6,000 6,000
Interest received - 1,283 -
----------- ----------- -----------
Balance, end of year - - (101,283)
----------- ----------- -----------
INVESTMENT VALUATION ALLOWANCE - - (99,080)
----------- ----------- -----------
TOTAL STOCKHOLDERS' EQUITY $ 2,547,754 $ 1,768,859 $ 1,540,669
=========== =========== ===========
- ------------------------------------------------------------------------
See notes to financial statements.
</TABLE>
-19-
</PAGE>
<PAGE>21
<TABLE>
PHARMAKINETICS LABORATORIES, INC.
STATEMENTS OF CASH FLOWS
Years ended June 30,
--------------------------------
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net Earnings $ 778,895 $ 127,827 $ 204,851
Adjustments to reconcile net earnings
to net cash from operating activities:
Depreciation and amortization 405,703 312,875 188,437
Recovery of doubtful accounts - (9,450) (27,262)
(Gain)loss on sale of equipment 17,172 (1,315) -
Loss on disposal of equipment 2,676 - -
Loss on sale of investments - 101,479 -
Write-down of investments - 46,750 -
Changes in operating assets and liabilities:
Accounts receivable (473,609) 40,628 (105,939)
Contracts in process 358,429 (176,390) (7,652)
Prepaid expenses (62,522) (14,093) 32,887
Refundable income taxes 29,364 (29,364) -
Other assets - - (3,650)
Accounts payable and accrued expenses (327,781) 61,935 (109,097)
Deposits on contracts in process (200,237) 378,372 372,640
Other liabilities - (204,729) (229,061)
---------- ---------- ----------
Net cash provided by operating activities 528,090 634,525 316,154
---------- ---------- ----------
Cash flows from investing activities:
Payment for purchases
of property and equipment (164,474) (410,885) (599,421)
Proceeds from sale of equipment 71,400 4,300 -
Proceeds from sale of investments - 69,747 -
---------- ---------- ----------
Net cash used by investing activities (93,074) (336,838) (599,421)
---------- ---------- ----------
Cash flows from financing activities:
Payment on long-term debt (304,264) (273,153) (245,276)
Payment for capital lease obligations (224,169) (15,298) -
Proceeds from exercise of stock options - - 70,000
---------- ---------- ----------
Net cash used by financing activities (528,433) (288,451) (175,276)
---------- ---------- ----------
Increase(decrease)in cash and equivalents (93,417) 9,236 (458,543)
Cash and equivalents, beginning of year 1,083,818 1,074,582 1,533,125
---------- ---------- ----------
Cash and equivalents, end of year $ 990,401 $1,083,818 $1,074,582
========== ========== ==========
Supplemental Schedule of Non-Cash Transactions
Fixed assets acquired
through capital leases $ 347,167 $ 214,903 -
Investment valuation allowance - - $ 99,080
- --------------------------------------------------------------------------
See notes to financial statements.
</TABLE>
-20-
</PAGE>
<PAGE>22
PHARMAKINETICS LABORATORIES, INC.
NOTES TO FINANCIAL STATEMENTS
A. ORGANIZATION AND BASIS OF PRESENTATION
PharmaKinetics Laboratories, Inc. (the "Company") is a contract
research organization 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.
The Company operates principally in one industry segment, the testing
and related research of pharmaceutical products. Revenues include contract
revenue and revenue from licensing technologies under special agreements
whereby the Company receives license fees based upon the clients' actual
product sales. At June 30, 1996, 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 $493,076, $647,308, and
$895,656 was recorded during fiscal years ended June 30, 1996, 1995, and
1994, respectively. 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.
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 include 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, 1996, one customer contributed in excess
of 10% of contract revenue, accounting for 27% of contract revenue. For
the year ended June 30, 1995, one customer contributed in excess of 10% of
contract revenue, accounting for 11% of contract revenue. For the year
ended June 30, 1994, two customers each contributed in excess of 10% of
contract revenue, which in aggregate accounted for 41% of contract revenue.
As of June 30, 1996, three customers accounted for approximately 53% of
accounts receivable.
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.
-21-
</PAGE>
<PAGE>23
Upon completion of contracts, the customer is billed for the total contract
amount less any deposits or interim payments.
EARNINGS PER SHARE
Earnings 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.
CASH AND EQUIVALENTS
Cash equivalents consist of highly liquid investments with an original
maturity of ninety days or less.
Restricted cash at June 30, 1996, and 1995, of $34,875 and $39,036,
respectively, represents amounts held in escrow for 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 in the
Company's operating accounts are placed in an overnight investment account
which is collateralized by government securities held by the financial
institution.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost or net realizable
value. Depreciation is computed using the straight-line method over the
estimated useful lives of the related assets.
INCOME TAXES
The Company uses the asset and liability method of accounting for
income taxes. Under the asset and liability method, deferred income taxes
are recognized for the tax consequences of temporary differences by
applying currently enacted statutory rates applicable to future years to
differences between the financial statement carrying amounts and the tax
bases of existing assets and liabilities.
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.
NEW ACCOUNTING STANDARDS
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock Based Compensation", establishes accounting and reporting standards
for stock based employee compensation plans. As permitted by the
-22-
</PAGE>
<PAGE>24
standard, the Company expects to continue to account for such arrangements
under APB Opinion No. 25. Accordingly, adoption of the standard in fiscal
1997 will not affect the Company's results of operations or financial
position.
Statement of Financial Accounting Standards No. 121, "Accounting for
the Impairment of Long Lived Assets and Assets to be Disposed of", which is
to be adopted by the Company for its fiscal year beginning July 1, 1996,
requires that long lived assets be reviewed for impairment whenever events
or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. Adoption of this standard is not expected to have
a material impact on the Company's financial statements.
C. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment, at June 30, is summarized as follows:
1996 1995
----------- -----------
Land $ 200,000 $ 200,000
Building and improvements 2,876,430 2,850,402
Furniture and equipment 2,215,566 2,640,434
----------- -----------
5,291,996 5,690,836
Less: accumulated depreciation (1,429,286) (1,842,816)
----------- -----------
$ 3,862,710 $ 3,848,020
=========== ===========
Assets held under capital lease at June 30, 1996 and 1995, were
$562,070 and $214,903, respectively. Accumulated amortization of assets
held under capital lease at June 30, 1996 and 1995, was $94,230 and
$19,758, respectively.
During fiscal year 1996, the Company wrote-off certain fully
depreciated assets with an historical cost basis of $748,538. In addition,
idle equipment from the Company's discontinued stability and dissolution
operation were sold, generating cash proceeds of $71,400 and a loss of
$17,172. These assets had an historical cost basis of $156,359.
D. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
At June 30, accounts payable and accrued expenses consisted of the
following:
1996 1995
----------- -----------
Trade accounts payable $ 293,001 $ 812,075
Accrued payroll and related expenses 341,768 105,800
Other accrued expenses 578,634 460,620
----------- -----------
$ 1,213,403 $ 1,378,495
=========== ===========
-23-
</PAGE>
<PAGE>25
E. DEBT
At June 30, long-term debt consists of the following:
1996 1995
----------- -----------
Note payable to bank $ 1,852,033 $ 2,066,297
Other - 90,000
----------- -----------
1,852,033 2,156,297
Less: current portion (143,616) (198,338)
----------- -----------
$ 1,708,417 $ 1,957,959
=========== ===========
The Company has a 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 (8.25% at June 30, 1996) plus
an additional 1/2% on the note payable only. The note has a five year
amortization schedule with equal monthly payments of $25,000 for principal
and interest. 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.
The Company previously reached an agreement with the City of Baltimore
to finance past due real property taxes related to 1990 and 1991. The
final payment of $50,000 was made in June 1996.
In June 1996, the Company made its final payment of $40,000, plus
accrued interest, related to a 1991 fine by the Food and Drug
Administration.
Cash payments for interest were $362,946, $248,148, and $241,096, in
fiscal 1996, 1995, and 1994, respectively.
The long-term debt matures as follows:
Year ending June 30,
1997 $ 143,616
1998 206,922
1999 488,127
2000 532,593
2001 480,775
----------
$1,852,033
==========
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.
-24-
</PAGE>
<PAGE>26
F. INCOME TAXES
The Company's expenses for and benefit from income taxes results from
the impact of alternative minimum tax charges and credits.
Deferred tax balances are comprised of the following:
Year ended June 30,
-------------------------
1996 1995
----------- -----------
Deferred tax assets:
Property, plant and equipment $ 508,225 $ 656,461
Accrued liabilities 73,973 44,216
Net operating loss carryforwards 1,515,251 1,759,123
Alternative minimum tax credits 4,095 3,506
General business credits 1,432,538 1,403,536
----------- -----------
Total deferred tax assets 3,534,082 3,866,842
Less: valuation allowance (3,534,082) (3,866,842)
----------- -----------
Deferred income taxes per balance sheet$ - $ -
=========== ===========
Based on the weight of evidence available at June 30, 1996, in
management's opinion, a full valuation allowance is required to be recorded
against the Company's deferred income tax assets.
At June 30, 1996, the Company had tax loss carryforwards of
approximately $3,885,000, expiring in 2006 through 2009, and general
business credits of approximately $1,432,500, 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,
------------------------
1996 1995 1994
------ ------ ------
Statutory rate 34.0 % 34.0 % 34.0 %
State income taxes -
net of federal benefit 4.9 4.9 4.9
Alternative minimum tax .8 - -
Alternative minimum tax credits (.2) (29.0) (2.5)
Loss carryforwards (38.9) (38.9) (38.9)
------ ------ ------
Effective rate .6 % (29.0)% (2.5)%
====== ====== ======
G. COMMITMENTS AND CONTINGENT LIABILITIES
Leases
Lease expense for all operating leases, including leases with terms
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</PAGE>
<PAGE>27
of less than one year, amounted to $50,700, $106,000, and $261,000 for the
years ended June 30, 1996, 1995 and 1994, respectively.
The Company has entered into capital lease arrangements for the
purchase of furniture and equipment in the amount of $562,070. 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,
------------------
1997 $ 264,073
1998 73,309
1999 7,985
less: interest portion (22,766)
----------
$ 322,601
==========
Subsequent to June 30, 1996, the Company expects to enter into a
financing arrangement for laboratory equipment in the amount of $410,000 to
be paid over a period not to exceed sixty months.
H. 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 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
----------------------------
1996 1995 1994
--------- --------- ---------
Balance, beginning of year
($0.28 - $5.25 per share) 1,081,067 988,467 1,038,433
Exercised ($0.875) - - (80,000)
Granted ($0.4375 - $1.0625) 281,700 155,900 89,500
Cancelled ($0.4375 - $2.69) (172,700) (63,300) (59,466)
--------- --------- ---------
Balance, end of year
($0.28 - $5.25 per share) 1,190,067 1,081,067 988,467
========= ========= =========
Options exercisable at June 30, 1996, were 863,434. Options exercised
to date total 710,012. Of the options exercised to date, 200,000 shares
-26-
</PAGE>
<PAGE>28
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, 1996, the Company has reserved 2,339,255 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
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Pursuant to General Instruction G(3) to Form 10-K, the information
required by this Item with respect to directors is contained in the
Company's Proxy Statement for its 1996 annual meeting and is incorporated
herein by reference. Such Proxy Statement will be filed with the
Securities and Exchange Commission not later than 120 days subsequent to
June 30, 1996.
ITEM 11. EXECUTIVE COMPENSATION
Pursuant to General Instruction G(3) to Form 10-K, the information
required with respect to this Item is contained in the Company's Proxy
Statement for its 1996 annual meeting, and is incorporated herein by
reference. Such Proxy Statement will be filed with the Securities and
Exchange Commission not later than 120 days subsequent to June 30, 1996.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Pursuant to General Instruction G(3) to Form 10-K, the information
required with respect to this Item is contained in the Company's Proxy
Statement for its 1996 annual meeting, and is incorporated herein by
reference. Such Proxy Statement will be filed with the Securities and
Exchange Commission not later than 120 days subsequent to June 30, 1996.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Pursuant to General Instruction G(3) to Form 10-K, the information
required with respect to this Item is contained in the Company's Proxy
Statement for its 1996 annual meeting, and is incorporated herein by
reference. Such Proxy Statement will be filed with the Securities and
Exchange Commission not later than 120 days subsequent to June 30, 1996.
-27-
</PAGE>
<PAGE>29
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM
8-K
Page(s)
(a) 1. FINANCIAL STATEMENTS
Report of Independent Accountants 16
Statements of operations for each of the
three years in the period ended June 30, 1996 17
Balance sheets at June 30, 1996 and 1995 18
Statements of stockholders' equity for each of the
three years in the period ended June 30, 1996 19
Statements of cash flows for each of the three years
in the period ended June 30, 1996 20
Notes to financial statements 21
2. FINANCIAL STATEMENT SCHEDULES
Schedule II - Valuation and Qualifying Accounts 30
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, 1996.
-28-
</PAGE>
<PAGE>30
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 18, 1996 By:/s/James K. Leslie
------------------ ------------------------
James K. Leslie,
Chief Executive Officer
and President
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 18, 1996 /s/James K. Leslie
------------------ ---------------------------
James K. Leslie,
Chief Executive Officer,
President and Director
(Principal Executive Officer)
Date: September 18, 1996 /s/Taryn L. Kunkel
------------------ ---------------------------
Taryn L. Kunkel,
Vice-President and
Chief Financial Officer
(Principal Financial Officer
and Principal Accounting Officer)
Date: September 18, 1996 /s/Michael D. Dunn
------------------ ---------------------------
Michael D. Dunn,
Director
Date: September 18, 1996 /s/Thomas F. Kearns
------------------ ---------------------------
Thomas F. Kearns,
Director
Date: September 18, 1996 /s/Richard P. Sullivan
------------------ ---------------------------
Richard P. Sullivan,
Director
Date: September 18, 1996 /s/Roger C. Thies
------------------ ---------------------------
Roger C. Thies,
Director
-29-
</PAGE>
<PAGE>31
<TABLE>
PHARMAKINETICS LABORATORIES, INC.
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED JUNE 30, 1996, 1995 AND 1994
Column A Column B Column C Column D Column E
- ----------- --------- --------------------- -------- --------
Balance at Charged to Charged to Balance at
Beginning Costs and Other end
Description of Period Expense Accounts Deductions of Period
- ----------- --------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
(a)
Valuation
Allowance
Deferred
tax assets
1996 $3,866,842 - $ (332,760) - $3,534,082
1995 $4,341,980 - $ (475,138) - $3,866,842
1994 $4,402,884 - $ ( 60,904) - $4,341,980
Notes:
- -----
(a) Represents charges to deferred tax asset account.
See Note F to the Financial Statements.
</TABLE>
-30-
</PAGE>
<PAGE>32
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 (now, NationsBank, N.A.) 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.
(incorporated by reference to Exhibit 10(e) to the
Company's Annual Report on Form 10-K for the fiscal year ended
June 30, 1995).
(f) First Commercial Promissory Note Modification Agreement dated
May 11, 1995, between NationsBank, N.A. and PharmaKinetics
Laboratories, Inc. (incorporated by reference to Exhibit 10(f)
to the Company's Annual Report on Form 10-K for the fiscal year
ended June 30, 1995).
-31-
</PAGE>
<PAGE>33
(g) First Note Modification Agreement dated May 11, 1995, between
NationsBank, N.A. and PharmaKinetics Laboratories, Inc.
(incorporated by reference to Exhibit 10(g) to the Company's
Annual Report on Form 10-K for the fiscal year ended June 30,
1995).
(h) Second Amendment to Loan Agreement, dated May 11, 1995, between
NationsBank, N.A. and PharmaKinetics Laboratories, Inc. (filed
herewith).
11. Computations of net earnings per common share (reference Item 6
filed herewith).
21. List of subsidiaries of registrant (incorporated by reference to
Exhibit 10(g) to the Company's Annual Report on Form 10-K for the
fiscal year ended June 30, 1995).
99. (a) Court Order approving Debtor's Amended Plan of reorganization
(incorporated by reference to the Company's 8-K filing on April
6, 1993).
(b) Court Order approving Application for Final Decree (filed
herewith).
-32-
</PAGE>
<PAGE>1
EXHIBIT 10 (h)
SECOND AMENDMENT
TO
LOAN AGREEMENT
This SECOND AMENDMENT TO LOAN AGREEMENT (this "Agreement") is
made as of the 20th day of June, 1996, 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 "Loan Agreement"), which was amended by a First
Amendment to Loan Agreement dated May 11, 1995 (the "First
Amendment").
B. The Obligor has requested that the Bank amend the financial
reporting requirements established in 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.
AGREED PROVISIONS
-----------------
NOW, THEREFORE, in consideration of the premises and for other
good and valuable consideration, receipt of which is hereby
acknowledge, 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 return items and other adjustments made in
the ordinary course of business) is $0 and under the Term Note is
$1,852,033.
3. The Loan Agreement is hereby amended as follows:
(a) On Page 5 of the First Amendment, the section "Financial
-1-
</PAGE>
<PAGE>2
Statements", which substitutes for the section "Financial Statements"
on Page 7 of the Loan Agreement, item number 3, setting forth a
requirement that the Obligor provide monthly operating statements, is
hereby deleted in its entirety.
4. 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, and that, except as amended by the First
Amendment and this Second Amendment to Loan Agreement, all terms and
provision, representations, warranties and covenants of the original
Loan Agreement shall continue in full force and effect.
5. The Obligor hereby 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.
6. 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 the 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.
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/ James K. Leslie (SEAL)
- ------------------- -----------------------
James K. Leslie,
President and
Chief Executive Officer
ATTEST: NATIONSBANK, N.A.
/s/Glenda Garcia By: /s/ James W. Kirschner (SEAL)
- ------------- --------------------------
James W. Kirschner
Vice President
-2-
</PAGE>
<PAGE>3
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, 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 as amended, modified, substituted, extended and
renewed from time to time, include without limitation the amendments
described in the foregoing Agreement) are covered by the Guaranty.
WITNESS signature and seal of the undersigned as of the date of
the Agreement.
ATTEST: PKLB LIMITED PARTNERSHIP
By: PharmaKinetics Laboratories, Inc.,
General Partner
/s/ Taryn L. Kunkel By: /s/ James K. Leslie (SEAL)
- ------------------- -------------------------
James K. Leslie
President and
Chief Executive Officer
-3-
</PAGE>
<PAGE>
EXHIBIT 11
<TABLE>
STATEMENT RE: COMPUTATION OF EARNINGS PER SHARE (1)
<CAPTION>
For the Twelve Months Ended June 30,
----------------------------------------------------------------------
1996 1995 1994
---------------------- ---------------------- ----------------------
Fully Fully Fully
Primary Diluted Primary Diluted Primary Diluted
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Weighted
average shares
outstanding:
Common stock 12,195,891 12,195,891 12,395,891 12,395,891 12,350,959 12,350,959
Shares available
under options 123,755 147,626 202,211 202,211 429,728 429,728
---------- ---------- ---------- ---------- ---------- ----------
Weighted average
common and common
equivalent shares
outstanding 12,319,646 12,343,517 12,598,102 12,598,102 12,780,687 12,780,687
========== ========== ========== ========== ========== ==========
Net income $ 778,895 $ 778,895 $ 127,827 $ 127,827 $ 204,851 $ 204,851
========== ========== ========== ========== ========== ==========
Earnings
per share $ 0.06 $ 0.06 $ 0.01 $ 0.01 $ 0.02 $ 0.02
========== ========== ========== ========== ========== ==========
(1) Fully diluted earnings per share are not presented on the Company's
Statement of Operations due to fully diluted earnings per share not
having a difference from primary earnings per share of greater than 3%
for the years ended June 30, 1996, 1995 and 1994.
</TABLE>
</PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains 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-30-1996
<PERIOD-END> JUN-30-1996
<CASH> 990,401
<SECURITIES> 0
<RECEIVABLES> 1,248,293
<ALLOWANCES> 0
<INVENTORY> 336,930
<CURRENT-ASSETS> 2,701,827
<PP&E> 5,291,996
<DEPRECIATION> 1,429,286
<TOTAL-ASSETS> 6,622,959
<CURRENT-LIABILITIES> 2,290,329
<BONDS> 0
<COMMON> 12,196
0
0
<OTHER-SE> 2,535,558
<TOTAL-LIABILITY-AND-EQUITY> 6,622,959
<SALES> 10,962,160
<TOTAL-REVENUES> 11,002,908
<CGS> 7,289,138
<TOTAL-COSTS> 9,979,383
<OTHER-EXPENSES> 17,172
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 223,028
<INCOME-PRETAX> 783,325
<INCOME-TAX> 4,430
<INCOME-CONTINUING> 778,895
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 778,895
<EPS-PRIMARY> .06
<EPS-DILUTED> .06
</TABLE>
<PAGE>
EXHIBIT 99 (b)
IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF MARYLAND
NORTHERN DIVISION
In re:
PHARMAKINETICS LABORATORIES, INC. Case No: 90-5-5020-JS
(Chapter 11)
Debtor
ORDER APPROVING APPLICATION FOR FINAL DECREE
--------------------------------------------
Upon the foregoing Application for Final Decree and good cause
having been shown, it is therefore this 23rd day of May, 1996 by the
United States Bankruptcy Court for the District of Maryland,
ORDERED, that pursuant to Local Bankruptcy Rule 23, the within
bankruptcy case is closed.
/s/ James F. Schneider
----------------------
Judge, United States Bankruptcy
Court for the District of Maryland
cc: Joel I. Sher, Esquire
Shapiro and Olander
20th Floor
36 South Charles Street
Baltimore, Maryland 21201
Kenneth Oestreicher, Esquire
Whiteford, Taylor & Preston
Suite 1400
7 St. Paul Street
Baltimore, Maryland 21202-1626
Karen H. Moore, Esquire
Assistant U.S. Trustee
300 West Pratt Street, Suite 350
Baltimore, Maryland 21201
</PAGE>
