<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934, FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1998.
Commission File Number
0-19659
CHRYSALIS INTERNATIONAL CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 22-2877973
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
575 Route 28, Raritan, New Jersey 08869
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (908) 722-7900
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 the number of shares outstanding of each of the issuer's
classes of common stock as of the latest practicable date.
Common Stock $0.01 par value 11,481,776 shares
outstanding at August 7, 1998
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CHRYSALIS INTERNATIONAL CORPORATION AND SUBSIDIARIES
INDEX
PART I. FINANCIAL INFORMATION PAGE NO.
Item 1. Financial Statements
Consolidated Balance Sheets -
June 30, 1998 (unaudited) and December 31, 1997 3
Unaudited Consolidated Statements of Operations -
for the three and six months ended
June 30, 1998 and 1997 4
Unaudited Consolidated Statement of Stockholders' Equity -
for the six months ended June 30, 1998 5
Unaudited Consolidated Statements of Cash Flows -
for the six months ended June 30, 1998 and 1997 6
Notes to Unaudited Consolidated Financial Statements 7-8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9-22
Item 3. Quantitative and Qualitative Disclosure about Market
Value 22
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Stockholders 23-24
Item 6. Exhibits and Reports on Form 8-K 24
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CHRYSALIS INTERNATIONAL CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
June 30, 1998 and December 31, 1997
(in thousands except share and per share amounts)
<TABLE>
<CAPTION>
Assets June 30, 1998 December 31, 1997
------ ------------- -----------------
(unaudited)
<S> <C> <C>
Current assets
Cash and cash equivalents $ 8,716 6,925
Trade accounts receivable, net 10,644 9,669
Prepaid expenses and other current assets 2,533 1,916
-------- --------
Total current assets 21,893 18,510
Property and equipment, net 15,259 15,127
Intangible assets, net 788 805
Other assets 344 338
Restricted cash 460 460
-------- --------
$ 38,744 35,240
======== ========
Liabilities and Stockholders' Equity
Current liabilities
Short-term borrowings 3,105 2,377
Note payable - related party 288 291
Current portion of long-term debt 1,386 768
Accounts payable 3,602 3,204
Accrued expenses 5,977 5,567
Deferred revenue 4,608 3,524
-------- --------
Total current liabilities 18,966 15,731
Long-term debt, excluding current portion 9,600 6,561
Deferred income taxes 1,462 1,646
Other liabilities 660 633
-------- --------
Total liabilities 30,688 24,571
-------- --------
Stockholders' equity
Serial preferred stock, $.01 par value, 5,000,000
shares authorized; no shares issued and outstanding -- --
Common stock, $.01 par value, 20,000,000 shares
authorized; issued and outstanding 11,481,776 in 1998
and 11,430,764 in 1997 115 114
Additional paid-in capital 59,280 57,768
Cumulative comprehensive loss (858) (536)
Employee stock purchase loans (86) (86)
Accumulated deficit (50,395) (46,591)
-------- --------
Total stockholders' equity 8,056 10,669
-------- --------
Commitments and contingencies
$ 38,744 35,240
======== ========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
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CHRYSALIS INTERNATIONAL CORPORATION AND SUBSIDIARIES
Unaudited Consolidated Statements of Operations
Three and six months ended June 30, 1998 and 1997
(in thousands except per share amounts)
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
1998 1997 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues:
Service revenue $ 11,719 11,491 23,027 22,973
Less: Reimbursed costs (1,629) (1,506) (3,489) (3,359)
-------- -------- -------- --------
Net service revenue 10,090 9,985 19,538 19,614
License fees 202 160 427 437
-------- -------- -------- --------
10,292 10,145 19,965 20,051
-------- -------- -------- --------
Operating expenses:
Direct costs 8,112 7,101 15,814 14,123
General, administrative and marketing 3,110 2,976 6,333 5,850
Depreciation and amortization 514 654 1,007 1,293
-------- -------- -------- --------
11,736 10,731 23,154 21,266
Loss from operations (1,444) (586) (3,189) (1,215)
-------- -------- -------- --------
Other income (expense):
Interest income 56 123 183 303
Interest expense (420) (165) (668) (357)
Other (5) (6) (12) --
-------- -------- -------- --------
(369) (48) (497) (54)
-------- -------- -------- --------
Loss before income taxes (1,813) (634) (3,686) (1,269)
Income tax benefit (expense) 11 (31) (118) (40)
-------- -------- -------- --------
Net Loss $ (1,802) (665) (3,804) (1,309)
======== ======== ======== ========
Basic loss per share ($ 0.16) ($ 0.06) ($ 0.33) ($ 0.12)
======== ======== ======== ========
Weighted average shares outstanding-Basic 11,452 11,388 11,442 11,380
======== ======== ======== ========
Diluted loss per share $ (0.16) $ (0.06) $ (0.33) $ (0.12)
======== ======== ======== ========
Weighted average shares outstanding-Diluted 11,452 11,388 11,442 11,380
======== ======== ======== ========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
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CHRYSALIS INTERNATIONAL CORPORATION AND SUBSIDIARIES
Unaudited Consolidated Statement of Stockholders' Equity
Six months ended June 30, 1998
(in thousands except share amounts)
<TABLE>
<CAPTION>
Employee Total
Additional Cumulative stock stock-
Common paid-in Comprehensive purchase Accumulated holders'
stock capital Loss loan deficit equity
<S> <C> <C> <C> <C> <C> <C>
Balance December 31, 1997 $ 114 57,768 (536) (86) (46,591) 10,669
Issuance of 2,864 shares
of common stock upon
exercise of stock options -- 1 -- -- -- 1
Issuance of 48,148 shares
of common stock pursuant
to 401(k) plan 1 111 -- -- -- 112
Translation adjustment -- -- (322) -- -- (322)
Issuance of 2,000,000 warrants
convertible to common stock
upon exercise -- 1,400 -- -- -- 1,400
Net loss -- -- -- -- (3,804) (3,804)
------- ------- ------- ------- ------- -------
Balance June 30, 1998 $ 115 59,280 (858) (86) (50,395) 8,056
======= ======= ======= ======= ======= =======
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
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CHRYSALIS INTERNATIONAL CORPORATION AND SUBSIDIARIES
Unaudited Consolidated Statements of Cash Flows
Six months ended June 30, 1998 and 1997
(in thousands)
<TABLE>
<CAPTION>
Six months ended
June 30,
1998 1997
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (3,804) (1,309)
Adjustments to reconcile net loss to net cash used in
operating activities:
Non-cash items:
Depreciation and amortization 1,007 1,293
Deferred income tax expense (benefit) 118 (337)
Loss (gain) on disposal of property and equipment -- 2
Amortization of warrant value 137 --
Non-cash charges 112 91
Change in operating assets and liabilities:
Increase in accounts receivable (1,129) (421)
Increase in prepaid expenses and other current assets (815) (550)
Increase in other assets (25) (136)
Increase in accounts payable 421 114
Increase (decrease) in accrued expenses 515 (1,067)
Increase (decrease) in deferred revenue 1,182 (1,114)
Decrease in other liabilities (72) (254)
-------- --------
Net cash used in operating activities (2,353) (3,688)
-------- --------
Cash flows from investing activities:
Increase in restricted cash -- (38)
Purchases of property and equipment (1,238) (1,572)
Proceeds from disposal of property and equipment -- 1
Purchases of intangible assets (4) (1)
Proceeds from maturities of short-term investments -- 7,068
-------- --------
Net cash provided by (used in) investing activities (1,242) 5,458
-------- --------
Cash flows from financing activities:
Principal payments on short-term borrowings -- (4,368)
Principal proceeds on short-term borrowings 835 462
Principal payments on long-term debt (74) (70)
Proceeds from issuance of long-term debt 5,000 --
Proceeds from stock options exercised 1 81
-------- --------
Net cash provided by (used in) financing activities 5,762 (3,895)
-------- --------
Effect of exchange rate changes on cash (376) (144)
-------- --------
Increase (decrease) in cash and cash equivalents 1,791 (2,269)
Cash and cash equivalents, beginning of period 6,925 10,455
-------- --------
Cash and cash equivalents, end of period $ 8,716 $ 8,186
======== ========
Supplemental disclosure of cash flow information
Cash paid during the period for:
Interest $ 327 $ 323
Income taxes 411 770
-------- --------
Non-cash investing activities:
Unrealized loss on marketable securities $ -- $ (95)
-------- --------
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
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CHRYSALIS INTERNATIONAL CORPORATION AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements
June 30, 1998
Note 1. Statement of Accounting Presentation
In the opinion of Chrysalis International Corporation and subsidiaries
(the "Company"), the accompanying unaudited consolidated financial statements
include all significant adjustments (consisting only of normal recurring
accruals) necessary to fairly state the Company's consolidated financial
position as of June 30, 1998, and the consolidated results of operations and
cash flows for the three and six month periods ended June 30, 1998 and 1997. The
unaudited consolidated financial statements have been prepared in accordance
with the requirements for Form 10-Q and, therefore, do not include all
disclosures of financial information required by generally accepted accounting
principles. The accompanying consolidated financial statements should be read in
conjunction with the financial statements included in the Company's Annual
Report on Form 10-K for the year ended December 31, 1997. The information set
forth in the accompanying consolidated balance sheet as of December 31, 1997 has
been derived from the audited consolidated balance sheet included in the
Company's Annual Report on Form 10-K for the year ended December 31, 1997.
Interim results are not necessarily indicative of the results for the
full year.
Note 2. Summary of Significant Accounting Policies
Loss per Share
Loss per share has been calculated in accordance with Financial
Accounting Standards Board Statement No. 128, Earnings Per Share. In computing
diluted earnings per share for the three and six month periods ended June 30,
1998 and 1997, the denominator did not change from the computation of basic loss
per share, because the effect of including potential common shares in this
calculation, would be antidilutive. If the effect on diluted earnings per share
had not been antidilutive, the denominator would have increased by 186,000 and
359,000 shares for the three months ended June 30, 1998 and 1997, respectively,
and by 188,000 and 411,000 shares for the six months ended June 30, 1998 and
1997, respectively. This increase in shares represents the inclusion of stock
options and warrants outstanding at June 30, 1998 and 1997 with an exercise
price less than the average market price of Chrysalis' common stock, par value
$0.01 per share (the "Common Stock"), during the three and six month periods
ended June 30, 1998 and 1997, respectively.
Comprehensive Income
In June 1997, the Financial Accounting Standards Board issued Statement
No. 130, Reporting Comprehensive Income ("SFAS 130"). This Statement establishes
standards for the reporting and display of comprehensive income and its
components in the financial statements. Components of comprehensive income
include net income (loss) and all other nonowner changes in equity such as the
change in the cumulative translation
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CHRYSALIS INTERNATIONAL CORPORATION AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (continued)
June 30, 1998
Note 2. Summary of Significant Accounting Policies (Cont.)
Comprehensive Income (continued)
adjustment. Initial application of this Statement is required for interim
periods of fiscal years beginning after December 15, 1997; however, interim
period disclosure is limited to reporting a total for comprehensive income. In
accordance with SFAS 130, total comprehensive income (loss), is ($1,924,000) and
($992,000) for the three months ended June 30, 1998 and 1997, respectively, and
($4,126,000) and ($2,201,000) for the six month periods ended June 30, 1998 and
1997, respectively. The Company's total comprehensive income represents net
income (loss) plus the change in the cumulative translation adjustment equity
account for the periods presented.
Note 3. Stock Option Repricing
In June 1998, the Company authorized the repricing of potentially
524,000 stock options, held by non-officer employees, under the Company's 1991
and 1996 Stock Option Plans. The repricing will exclude officers, directors, and
all non-employee option holders. This repricing, with the agreement of the
employee, will be a 2 for 1 exchange in option shares. One-half of these options
will vest one year after the date of the agreement and the remaining one-half
will vest daily for a period of one year beginning June 25, 1999.
Note 4. Financing Alternatives
The Company retained Vector Securities International, Inc. as its
financial advisor to assist in evaluating financing transactions, including
strategic partnerships and other strategic alternatives for the Company. The
Company currently does not have any understandings, arrangements or agreements
with respect to any such financing transaction, strategic partnership or other
strategic alternative.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
GENERAL SUMMARY
The Company is an international contract research organization ("CRO")
providing a broad range of integrated drug development services primarily to the
pharmaceutical and biotechnology industries. This broad portfolio of drug
development services includes transgenic discovery research, preclinical
development and clinical capabilities that enable the Company to manage a
comprehensive drug development program or a client's specific requirements. The
Company utilizes its international expertise and experience in preclinical and
clinical services to provide a coordinated approach for a client to transition
its drug through various preclinical to clinical stages of development thereby
minimizing certain delays which typically occur before a new drug is introduced
to the market. In addition, the Company is the only CRO that is currently able
to use its proprietary transgenic and licensed gene targeting technology to
provide services for its clients that require transgenic animal models in order
to determine the function of human genes and identify therapeutic targets
implicated in disease and for the evaluation of therapeutic lead compounds for
further development. The Company generates substantially all of its revenues
from its drug development services and provides services for more than 250
clients in 26 countries.
On March 16, 1998, the Company issued a $5.0 million subordinated
debenture to a wholly-owned subsidiary of MDS. As part of this transaction, the
Company also issued a warrant to purchase 2,000,000 shares of Common Stock at an
exercise price of $2.50 per share. In addition, the Company and MDS entered into
a standstill agreement which, among other things, governs the ownership and
acquisition of securities of the Company by MDS and its affiliates. As a part of
this transaction, MDS and the Company will explore opportunities to pursue
strategic alliances and other business opportunities with respect to their
respective operations.
Chrysalis is also the exclusive commercial licensee of a U.S. patent
covering DNA Microinjection, the process widely used in the pharmaceutical and
biotechnology industries to develop transgenic animals. The Company utilizes
this license for its drug development services and grants sublicenses for the
use of this technology. These sublicenses entitle the Company to receive
revenues consisting of fees and, in certain cases, royalties.
The Company's financial statements are denominated in U.S. dollars and,
accordingly, changes in the exchange rate between non-U.S. currencies and the
U.S. dollar will affect the translation of non-U.S. revenues and operating
results into U.S. dollars for purposes of reporting the Company's financial
results. For the three and six month periods ended June 30, 1998, approximately
64% and 63%, respectively, of the Company's revenues were from operations
outside the U.S. Approximately 46% and 42% of the Company's revenues for the
three and six months ended June 30, 1998, respectively, were from operations in
France and denominated in French Francs; accordingly, fluctuations in the
exchange rate between the
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French Franc and the U.S. dollar may have a material effect on the Company's
operating results. See " -- Liquidity and Capital Requirements -- Exchange Rate
Fluctuations."
In addition, the Company may be subject to foreign currency transaction
risk when the Company's multi-country contracts are denominated in a currency
other than the currency in which the Company incurs the expenses related to such
contracts. For such multi-country drug contracts, the Company seeks to require
its client to incur the effect of fluctuations in the relative values of the
contract currency and the currency in which the expenses are incurred. To the
extent the Company is unable to require its clients to incur the effects of
currency fluctuations, these fluctuations could have a material effect on the
results of operations of the Company. The Company does not currently hedge
against the risk of exchange rate fluctuations.
The Company's contracts are typically fixed price contracts that
require a portion of the contract amount to be paid at or near the time the
trial is initiated. The Company generally bills its clients upon the completion
of negotiated performance requirements and, to a lesser extent, on a date
certain basis. Certain of the Company's contracts are subject to cost
limitations which cannot be exceeded without client approval. Because, in many
cases, the Company bears the risk of cost overruns, unbudgeted costs in
connection with performing these contracts may have a detrimental effect on the
financial results of the Company. If it is determined that a loss will result
from the performance of a contract, the entire amount of the estimated loss is
charged against income in the period in which the determination is made.
The Company's contracts generally may be terminated with or without
cause. In the event of termination, the Company is typically entitled to all
sums owed for work performed through the notice of termination and all costs
associated with termination of the study. In addition, some of the Company's
contracts provide for an early termination fee, the amount of which usually
declines as the work progresses. The Company's service contracts also contain
certain provisions designed to address the negative impact on the Company's
revenues and profitability as a result of non-controllable delays. These
provisions, however, may not be included in all of the Company's service
contracts. In any event, the Company attempts to negotiate reimbursement of
certain fees whether or not such provisions are included in the service
contract. The Company is not always successful in negotiating such
reimbursement. The loss of or delay in a large contract or the loss of multiple
contracts could adversely affect the Company's future revenues and
profitability. In addition, termination or delay in the performance of a
contract occurs for various reasons, including; but not limited to, unexpected
or undesired results, inadequate patient enrollment or investigator recruitment,
production problems resulting in shortages of the drug being tested, adverse
patient reactions to the drug being tested, or the client's decision to not
proceed with a particular trial.
Revenue for contracts is recognized on a percentage of completion basis
as work is performed. Revenue is affected by the mix of trials conducted and the
degree to which effort is expended. The Company will incur travel costs and may
subcontract with third-party investigators in connection with multi-site
clinical trials. These costs are passed through to clients and, in accordance
with industry practice, are included in service revenue. The costs may vary
significantly from contract to contract; therefore, changes in service revenue
may not be indicative of trends in revenue growth. Accordingly, the Company
considers net service
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revenue, which consists of service revenue less these costs, as its primary
measure of revenue growth.
The Company has had, and will continue to have, certain clients from
which at least 10% of the Company's overall revenue is generated over multiple
contracts. Such concentration of business is not uncommon within the CRO
industry. For the three and six month periods ended June 30, 1998, the Company's
top ten customers accounted for approximately 62% and 55%, respectively, of its
combined net revenue. Two customers accounted for 12% and 10% of the Company's
combined net revenue for the three months ended June 30, 1998, and for the six
months ended June 30, 1998, two customers accounted for approximately 15% and
12% of the Company's combined net revenue. The Company believes that the loss of
any of these customers, if not replaced or if services provided to existing
customers are not expanded, may have a material adverse effect on the Company.
There can be no assurance that the loss of any such customer would be replaced
or services to existing customers would be expanded on terms acceptable to the
Company.
The Company has incurred expenses during the last year expanding its
infrastructure, primarily in the clinical operations, to support global drug
development capabilities and utilized management's resources primarily to
communicate these expanded capabilities to its existing client base and the
pharmaceutical and biotechnology industries. See -- "Discontinuation of Large
Clinical Trial." As a result of these efforts, the Company believes it is
capable of supporting higher revenues. However, the Company's future operating
results will be contingent upon successfully utilizing this expanded
infrastructure which will require the Company to convert proposals into
contracts and revenues. There can be no assurance that the Company will be able
to successfully utilize its expanded clinical infrastructure or that proposals
will be converted into revenues in a timely manner. The Company's ability to
utilize its expanded infrastructure into future operating results may also be
affected by factors such as delays in initiating or completing significant
preclinical and clinical trials, the lengthening of lead times to convert
proposals into contracts and revenues, and the termination of preclinical and
clinical trials, all of which may be beyond the control of the Company. See " --
Quarterly Results."
DISCONTINUATION OF LARGE CLINICAL TRIAL
One of the Company's largest clients, a leading pharmaceutical company,
notified the Company that it decided to change a clinical protocol and thereby
delay a large clinical trial which was originally expected to begin during the
fourth quarter of 1997. As a result, consistent with management's expectations,
results during the first half of 1998 were negatively impacted. In April 1998,
the Company was informed that the drug being developed in this trial will be
out-licensed or co-developed with a partner. There can be no assurance that
Chrysalis will be retained to assist in the further development of this drug.
This event, coupled with the strategic decision to maintain clinical
infrastructure utilized for this trial and improve the Company's ability to
compete for other large global studies, will have a significant negative impact
on the Company's results of operations for the remainder of 1998. Additionally,
while the Company has recently obtained additional clients and contracts with
long term potential, this will not result in significant revenue in the near
term. As a result, these additional contracts are not sufficient over the near
term to offset the significant loss created by the loss of the large clinical
trial.
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RESULTS OF OPERATIONS
REVENUES
Revenues were $10,292,000 for the three months ended June 30, 1998 as
compared to $10,145,000 for the same period in 1997. For the six month period
ended June 30, 1998, revenues were $19,965,000 as compared to $20,051,000 for
the same period in 1997. For the three and six month periods ended June 30,
1998, the Company generated approximately 64% and 63%, respectively, of its
revenues from operations outside of the U.S. As a result, the Company
experienced an unfavorable effect, amounting to approximately $262,000 and
$718,000 for the three and six month periods ended June 30, 1998, respectively,
compared to the same periods in 1997, from the currency translation of the
European operations from local currencies to U.S. dollars. See " -- Liquidity
and Capital Requirements - Exchange Rate Fluctuations." The increase in revenues
for the three months ended June 30, 1998, as adjusted for foreign currency
fluctuations, as compared to the same period in 1997, was primarily the result
of the following: (i) an increase in the Company's transgenic based services
particularly those supporting functional genomics research programs and (ii) an
increase in preclinical business in North America and Europe. These increases
were partially offset by a decrease in the clinical business resulting primarily
from (i) the completion of a large global clinical study with one of the Company
largest customers, in the second quarter of 1998 and (ii) the cancellation of a
large clinical trial in April 1998. The increase in revenues for the six months
ended June 30, 1998, as adjusted for foreign currency fluctuations, as compared
to the same period in 1997, was primarily the result of the following: (i) an
increase in the Company's transgenic based services particularly those
supporting functional genomics research programs and (ii) an increase in
clinical business in Europe, including services provided under contracts with
one of the Company's largest customers. These increases were partially offset by
a decrease in the clinical business in North America and in the preclinical
business.
One of the Company's largest clients, a leading pharmaceutical company,
notified the Company that it decided to change a clinical protocol and thereby
delay a large clinical trial which was originally expected to begin during the
fourth quarter of 1997. As a result, consistent with management's expectations,
revenues during the first half of 1998 were negatively impacted. In April 1998,
the Company was informed that this trial will be discontinued until the drug
being developed is out-licensed or co-developed with a partner. There can be no
assurance that Chrysalis will be retained to assist in the further development
of this drug. While the Company has recently obtained additional clients and
contracts with long term potential, this will not result in significant revenue
in the near term. As a result, these additional contracts are not sufficient
over the near term to offset the significant loss in revenues created by the
loss of the large clinical trial.
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OPERATING EXPENSES
Direct costs were $8,112,000 or 79% of net revenues for the three
months ended June 30, 1998 and $7,101,000 or 70% of net revenues for the same
period in 1997. For the six months ended June 30, 1998, direct costs were
$15,814,000 or 79% of net revenue and $14,123,000 or 70% of net revenues for the
same period in 1997. Excluding the impact of foreign currency translations, the
increase in direct costs for the three and six month periods ended June 30,
1998, as compared to the same period last year, would have been $1,208,000 and
$2,238,000, respectively. This increase in direct costs for the three and six
month periods ended June 30, 1998 as compared to the same period in 1997 was
primarily due to (i) investments in clinical personnel and infrastructure to
support the long-term business expansion strategy of the Company and to
accommodate the large clinical trial with a leading pharmaceutical company which
was discontinued in April 1998, and (ii) investments in personnel and
infrastructure to support the growth in the Company's transgenic based services
particularly those supporting functional genomics research programs. The
increase in these costs, as a percent of revenues, is due to a base cost
structure, primarily in the clinical business, of personnel, facilities and
related expenses which is capable of supporting a higher level of business than
experienced during the first half of 1998. Although the Company has and may in
the future implement certain cost reduction programs, the relationship of direct
costs to revenues, expressed as a percentage, that was experienced in the first
half of 1998, is expected to be relatively consistent throughout the remainder
of 1998, because the Company expects to maintain the majority of its recently
expanded clinical infrastructure to better position the Company for long-term
growth and to improve the Company's ability to compete for global studies.
General, administrative and marketing expenses were $3,110,000 for the
three months ended June 30, 1998 versus $2,976,000 for the same period in 1997.
For the six month periods ended June 30, 1998 and 1997, general, administrative
and marketing expenses were $6,333,000 and $5,850,000, respectively. Excluding
the impact of foreign currency translations, the increase in general,
administrative and marketing expenses for the three and six month periods ended
June 30, 1998, as compared to the same period last year, would have been
approximately $206,000 and $665,000, respectively. This increase in expenses for
the three and six month periods was primarily due to the increase in personnel
and related costs for marketing and business development, strategic planning,
information systems and general management.
Depreciation and amortization expense decreased to $514,000 for the
three months ended June 30, 1998 as compared to $654,000 for the same period
last year. For the six months ended June 30, 1998 depreciation and amortization
expense decreased to $1,007,000 as compared to $1,293,000 for the same period
last year. This decrease is the result of certain assets, associated with the
Company's preclinical European business, that were fully depreciated by 1998.
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OTHER INCOME (EXPENSE)
Other income (expense) represented expense of $369,000 for the three
months ended June 30, 1998 compared to $48,000 for the same period last year.
For the six month period ended June 30, 1998, other income (expense) represented
expense of $497,000 compared to $54,000 for the same period in 1997. The
increase in expense for 1998 as compared to 1997 is primarily the result of (i)
a decrease in interest income earned in the first half of 1998 as a result of a
decrease in average available cash and other investment balances, and (ii) an
increase in interest expense in the first half of 1998 resulting from higher
outstanding debt balances and the amortization of the warrants associated with
the subordinated debenture in the transaction with MDS.
TAXES
The Company's foreign subsidiaries are subject to foreign income taxes
under foreign tax laws on the profits generated in such countries which in
general may not be offset by losses from operations in other countries. The
Company recorded a net benefit of $11,000 compared to a provision of $31,000,
for the three months ended June 30, 1998 and 1997, respectively. For the six
months ended June 30, 1998 and 1997, the Company recorded net provisions of
$118,000 and $40,000, respectively. These provisions are primarily associated
with the Company's French operations.
The impact from United States federal income taxes is currently not
significant due to the Company's available net operating loss carryforwards. At
December 31, 1997, the Company has available net operating loss carryforwards of
approximately $26,434,000 for United States federal income tax purposes. Such
loss carryforwards expire through 2012. The Company also has research and
development tax credit carryforwards of approximately $3,012,000 for U.S.
federal income tax reporting purposes which are available to reduce U.S. federal
income taxes, if any, through 2011. The Company has alternative minimum tax
credit carryforwards of approximately $164,000 for U.S. federal income tax
purposes which are available to reduce U.S. federal income taxes, if any. These
tax credits have an unlimited carryforward period. The Company's acquisition of
the clinical drug development business in December 1996 resulted in an ownership
change under the Internal Revenue Code of 1986, as amended (the "Code").
Accordingly, the Company's ability to utilize its net operating loss
carryforwards to offset operating profits may be subject to certain limitations
in the future under the Code. These net operating loss carryforwards may not be
utilized to offset profit in other countries.
BACKLOG
The Company reports backlog based on anticipated net revenues from
uncompleted projects which have been authorized by the client, through a written
contract or otherwise. Once work under a letter of intent or contract commences,
net service revenue is recognized over the life of the contract using the
percentage-of-completion method of accounting. In certain cases, the Company
will commence work on a project prior to finalizing a letter of intent or
contract. Contracts included in backlog are subject to termination or delay at
any time by the client or regulatory authorities. Terminations or
14
<PAGE> 15
delays can result from a number of factors, many of which are beyond the
Company's control. Delayed contracts remain in the Company's backlog pending
determination of whether to continue, modify or cancel the contract.
The Company believes that its backlog as of any date is not necessarily
a meaningful indicator of future results and no assurance can be given that the
Company will be able to realize net service revenue included in backlog. As of
June 30, 1998, the Company's backlog was approximately $16 million compared to
approximately $41 million as of December 31, 1997. This decrease in backlog
primarily reflects the cancellation of the large clinical trial. See " --
General Summary - Discontinuation of Large Clinical Trial."
QUARTERLY RESULTS
The Company's quarterly operating results are subject to variation, and
are expected to continue to be subject to variation, as a result of factors such
as delays in initiating or completing significant preclinical and clinical
trials, the lengthening of lead times to convert proposals into contracts and
revenues, termination of preclinical and clinical trials, acquisitions and
exchange rate fluctuations. Delays and terminations of studies or trials are
often the result of actions taken by clients or regulatory authorities and are
not typically subject to the control of the Company. Since a large amount of the
Company's operating costs are relatively fixed while its revenues are subject to
fluctuation, minor variations in the commencement, progress or completion of
preclinical and clinical trials may cause significant variations in quarterly
operating results. The Company expects the results of the second half of 1998 to
be comparable with the results of the first six months of 1998. See " -- General
Summary Discontinuation of Large Clinical Trial."
The following table presents unaudited quarterly operating results for
each of the fiscal quarters beginning June 30, 1997 through June 30, 1998. In
the opinion of the Company, this information has been prepared on the same basis
as the audited consolidated financial statements of the Company and reflects all
adjustments (consisting only of normal recurring adjustments) necessary for a
fair presentation of results of operations for those periods. This quarterly
financial data should be read in conjunction with the consolidated audited
financial statements and notes thereto included in the Company's 1997 Annual
Report on Form 10-K. The operating results for any quarter are not necessarily
indicative of the results to be expected in any future period.
15
<PAGE> 16
<TABLE>
<CAPTION>
QUARTER ENDED ($000'S EXCEPT PER SHARE DATA)
-----------------------------------------------------------------------
(UNAUDITED)
June 30, Sept. 30, Dec. 31, March 31, June 30,
1997 1997 1997 1998 1998
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net revenues $ 10,145 10,623 11,624 9,673 10,292
Operating expenses:
Direct costs 7,101 7,423 7,838 7,702 8,112
General, administrative &
marketing 2,976 3,123 3,442 3,223 3,110
Depreciation & amortization 654 708 699 493 514
-------- -------- -------- -------- --------
10,731 11,254 11,979 11,418 11,736
Loss from operations (586) (631) (355) (1,745) (1,444)
Other income (expense):
Interest income 123 93 72 127 56
Interest expense (165) (206) (213) (248) (420)
Foreign currency gain -- -- 11 -- --
Other (6) 692 (4) (7) (5)
-------- -------- -------- -------- --------
(48) 579 (134) (128) (369)
-------- -------- -------- -------- --------
Loss before income taxes (634) (52) (489) (1,873) (1,813)
Income tax expense (benefit) 31 41 159 129 (11)
-------- -------- -------- -------- --------
Net loss $ (665) (93) (648) (2,002) (1,802)
======== ======== ======== ======== ========
Basic loss per share $ (0.06) $ (0.01) $ (0.06) $ (0.18) $ (0.16)
======== ======== ======== ======== ========
Diluted loss per share $ (0.06) $ (0.01) $ (0.06) $ (0.18) $ (0.16)
======== ======== ======== ======== ========
Shares used in computing
per share amounts 11,388 11,405 11,419 11,431 11,452
======== ======== ======== ======== ========
</TABLE>
REVENUES BY BUSINESS AND GEOGRAPHIC REGION BY QUARTER
<TABLE>
<CAPTION>
QUARTER ENDED ($000'S)
----------------------------------------------------------------------------
(UNAUDITED)
June 30, Sept. 30, Dec. 31, March 31, June 30,
1997 1997 1997 1998 1998
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Preclinical $ 6,708 6,476 7,355 6,043 7,466
Clinical 3,277 3,972 4,085 3,406 2,624
Licensing 160 175 184 224 202
------- ------- ------- ------- -------
Total 10,145 10,623 11,624 9,673 10,292
======= ======= ======= ======= =======
International 6,661 6,168 7,170 5,952 6,554
North America 3,324 4,280 4,270 3,497 3,536
Licensing 160 175 184 224 202
------- ------- ------- ------- -------
Total $10,145 10,623 11,624 9,673 10,292
======= ======= ======= ======= =======
</TABLE>
16
<PAGE> 17
LIQUIDITY AND CAPITAL REQUIREMENTS
CASH RESERVES
The Company finances its operations and activities by relying on (i)
its operating activities for its working capital requirements, (ii) its cash
reserves and (iii) its available lines of credit. As of June 30, 1998, the
Company had cash reserves (consisting of cash and cash equivalents, short-term
investments, marketable debt securities and restricted cash) of $9,176,000. The
Company invests its excess cash in a diversified portfolio of high-grade money
market funds, United States Government-backed securities and commercial paper
and corporate obligations. The Company's cash reserves increased by $1,791,000
during the first six months of 1998 from the fourth quarter of 1997 primarily
due to the following: (i) the receipt of $5,000,000 related to the subordinated
debenture issued on March 16, 1998 (see " -- Debt") partially offset by (ii) the
funding of operating losses of approximately $2,353,000 and (iii) approximately
$1,238,000 in capital expenditures.
DEBT
The Company has a working line of credit with a Swiss bank. As of June
30, 1998, the outstanding balance under this line of credit was approximately
$3,105,000. This line is secured by the clinical operation's trade accounts
receivable and a guarantee by the Company. Additionally, the Company has lines
of credit and overdraft privileges with French banks in the aggregate amount of
10.5 million French Francs ($1.7 million at the exchange rate in effect on June
30, 1998). At June 30, 1998, there were no short-term borrowings outstanding
under these facilities.
On March 16, 1998, the Company issued, in exchange for $5,000,000 cash,
a subordinated debenture and a warrant to purchase 2,000,000 shares of Common
Stock at an exercise price of $2.50 per share, to a wholly-owned subsidiary of
MDS. The terms of the subordinated debenture provide for semi-annual interest
payments with the aggregate principal amount payable on March 16, 2001. This
debenture is subordinate to certain outstanding indebtedness of the Company,
including its existing bank debt and mortgages. In addition, a portion or all of
the principal amount of the debenture may, at the option of the holder, be
satisfied by issuance of the shares of Common Stock in accordance with the terms
of the warrant.
In connection with the acquisition of the Company's preclinical
operations in France, included in the purchase price were promissory notes
having an aggregate principal amount of $7.0 million (the "Notes"), of which
$5.0 million remained outstanding as of December 31, 1996. In the third quarter
of 1997, the Company refinanced this debt by obtaining a five year $5.0 million
term loan from a large commercial bank, with the principal payable in quarterly
installments beginning September 1998. Interest will be paid monthly over the
life of the loan. This loan is secured by substantially all of the Company's
domestic assets, including the capital stock of its subsidiaries. The Company
was in default at December 31, 1997 under certain financial covenants set forth
in the credit agreement with respect to this term loan and obtained
17
<PAGE> 18
a waiver of such default from the commercial bank which provided this term loan.
See " -- Capital Requirements."
In connection with its U.S. preclinical facility, the Company secured
(i) a $1.5 million mortgage with a bank and, (ii) a $1.2 million mortgage from a
Pennsylvania agency, which required cash collateral of $450,000. These two
loans, due in monthly installments through 2009, are secured by mortgages on the
property acquired. As of June 30, 1998 the aggregate outstanding balances under
these mortgages was approximately $2,250,000. The cash collateral of $450,000 on
the mortgage loan with the Pennsylvania agency is classified as restricted cash
as of June 30, 1998. As a result of satisfying certain financial covenants, this
$450,000 of cash collateral was released in July 1998. Additionally, the
favorable interest rate on the mortgage with the Pennsylvania agency is subject
to change upon review by the agency of certain future conditions.
CAPITAL REQUIREMENTS
The Company anticipates that its capital requirements for the remainder
of 1998 will include costs to maintain its operating infrastructure and
investments to expand its transgenics business. The Company also anticipates
that its long term capital requirements may include investment for expansion of
its operating infrastructure to meet anticipated increased demand for drug
development services from the pharmaceutical and biotechnology industries.
Additionally, in connection with the refinancing of the Notes (see " -- Debt"),
the Company has quarterly cash requirements for the repayment of principal
beginning September 1998, and monthly cash requirements for interest payments
due throughout the five year term of the loan, as well as a requirement to
comply with certain restrictive debt covenants. Furthermore, the Company will
have semi-annual cash requirements beginning in 1998 for the payment of interest
on the subordinated debenture issued in the MDS transaction.
In addition to the above, the Company's working capital and other
capital requirements will depend on numerous factors, including among others:
success in increasing the Company's revenues and managing its operations;
maintaining its contractual relationship with its clients; particularly its top
customer(s); exchange rate fluctuations between the U.S. dollar and foreign
currencies; investments for clinical and preclinical strategic business
objectives; investment to support the growth in the Company's transgenic based
services, particularly those supporting functional genomics research programs;
the level of Company resources devoted to management, marketing, information and
data management capabilities and business and financial administration;
technological advances; and the status of competitors; as well as the costs and
timing of potential financing transactions, dispositions, strategic partnerships
or other strategic alternatives described below.
In order to satisfy its capital requirements the Company believes it
will be required to obtain additional capital resources during the remainder of
1998. The Company may seek to obtain its capital requirements by issuing stock
or other securities in public or private equity or debt financings. In the event
that the Company seeks to issue stock or other securities, there can be no
assurance that the Company will be able to issue such stock or other securities
or that any financing will be available to the Company or that such offering or
financing will be available on acceptable terms. Additionally, the Company
retained Vector Securities International, Inc. as its financial advisor to
assist in evaluating financing transactions, strategic
18
<PAGE> 19
partnerships and other strategic alternatives. Although the Company is
considering and evaluating such financing transactions, dispositions, strategic
partnerships and other strategic alternatives, it currently does not have any
understandings, arrangements or agreements with respect to any such financing
transactions, dispositions, strategic partnerships or other strategic
alternatives. The Company may need to finance any such strategic partnership or
strategic alternative by additional public or private debt or equity
financings. In the event that the Company seeks to pursue any such financing
transactions, strategic partnerships or other strategic alternatives requiring
financing, there can be no assurance that any financing will be available to
the Company or that such financing will be available on acceptable terms. In
the event that any such financing transaction, disposition, strategic
partnership or other strategic alternative, as described above, is not
available so that the Company may obtain during the third quarter of 1998
sufficient capital resources to satisfy the Company's capital requirements, the
Company will be in default on certain financial covenants related to its
existing indebtedness. The Company has had discussions with the bank, regarding
the impact and timing of such future financings, as described above, on the
existing indebtedness. In addition, the Company has had and will continue to
have discussions with the bank regarding a waiver of potential default on
certain financial covenants related to its indebtedness. Based on these
discussions, the Company believes, during the third quarter of 1998, it will be
able to obtain a waiver of such certain financial covenants.
EXCHANGE RATE FLUCTUATIONS
Approximately 64% and 66% of the Company's net revenues for the
quarters ended June 30, 1998 and 1997, respectively, and 63% and 67% of the
Company's net revenues for the six months ended June 30, 1998 and 1997,
respectively, were derived from the Company's operations outside the United
States. The Company's consolidated financial statements are denominated in U.S.
dollars and, accordingly, changes in exchange rates between the applicable
foreign currency and the U.S. dollar will affect the translation of such
subsidiary's financial results into U.S. dollars for purposes of reporting the
Company's consolidated financial results. Translation adjustments are reported
as a separate section of stockholders' equity.
The Company may be subject to foreign currency transaction risks when
the Company's multi-country contracts are denominated in a currency other than
the currency in which the Company incurs the expenses related to such contracts.
For such multi-country contracts, the Company seeks to require its client to
incur the effect of fluctuations in the relative values of the contract currency
and the currency in which the expenses are incurred. To the extent the Company
is unable to require its clients to incur the effects of currency fluctuations,
these fluctuations could have a material effect on the results of operations of
the Company. The Company generally does not hedge its currency translation and
transaction exposure.
Due to its preclinical operations in France, the percentage of the
Company's total revenues recorded in French Francs is significant. For the
quarters ended June 30, 1998 and 1997, the French operations accounted for
approximately 46% and 47%, respectively, of the Company's revenues. For the six
month periods ended June 30, 1998 and 1997 the French operations accounted for
approximately 42% and 47%, respectively, of the Company's revenues. Accordingly,
changes in the exchange rate between the French Franc and the U.S. dollar will
affect the translation of the French preclinical operation's revenues and
operating results into U.S. dollars for purposes of reporting the Company's
consolidated financial results, and also affect the U.S. dollar amounts actually
received by the Company from the French preclinical operations. Based on the
assumption that the French preclinical operations will continue to represent a
significant portion of the business of the Company, the depreciation of the U.S.
dollar against the French Franc would have a favorable impact on the
19
<PAGE> 20
Company's revenues and an unfavorable impact on the Company's operating expenses
due to the effect of such currency translation on the French preclinical
operation's operating results; however, the appreciation of the U.S. dollar
against the French Franc would have an unfavorable impact on the Company's
revenues and a favorable impact on the Company's operating expenses.
For purposes of the Company's consolidated financial results, the
results of operations of the French preclinical business denominated in French
Francs have been translated from French Francs into U.S. dollars using the
following exchange rates:
<TABLE>
<CAPTION>
French Franc U.S. dollar per
Period per U.S. dollar French Franc
------ --------------- ------------
<S> <C> <C>
1st quarter 1997 5.6038 .1785
2nd quarter 1997 5.7831 .1729
3rd quarter 1997 6.0838 .1644
4th quarter 1997 5.8817 .1700
1st quarter 1998 6.0948 .1641
2nd quarter 1998 6.0157 .1662
</TABLE>
The rates in the above table represent an average exchange rate calculated using
rates quoted in The Wall Street Journal. As of August 7, 1998 the French Franc
per U.S. dollar rate was 5.966.
ACCUMULATED DEFICIT
Since its inception in 1988 until the formation in 1994 and subsequent
sale of its partnership interest in Nextran in 1995, the Company expended
substantial funds for research and development and capital expenditures. A
significant portion of such expenditures were made to support the Company's
organ transplantation and blood substitute research and development programs,
which programs were transferred to the Nextran partnership. Historically, these
expenditures accounted for a substantial portion of the Company's accumulated
deficit. Also contributing to the accumulated deficit are the costs associated
with the development of a worldwide clinical business.
INFLATION
The Company believes that inflation has not had a material impact on
its results of operations.
YEAR 2000
Information systems are an integral part of the services and products
the Company provides. The Company is currently taking steps to assess the Year
2000 issue from an internal, supplier and customer perspective, and has been
actively involved in resolving related issues since 1997. The Company currently
expects that it will be Year
20
<PAGE> 21
2000 compliant by the end of 1998. Limited exceptions concerning certain systems
used in the preclinical business will be validated and fully operational in
1999. Although the Company believes at this time that neither the costs nor the
expenses of the Year 2000 issue will be material to the Company, the ultimate
costs and expenses are still unknown and such costs or the consequences of
failure to correct any Year 2000 issues could have a material impact on
Chrysalis' financial conditions, business or operations.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, the FASB issued Statement No. 131, Disclosures about Segments
of an Enterprise and Related Information ("SFAS 131"). This Statement
establishes standards for the way that public business enterprises report
information about operating segments in annual and interim financial statements.
It also establishes standards for related disclosures about products and
services, geographic areas and major customers. This Statement shall be
effective for financial statements for fiscal years beginning after December 15,
1997. Financial statement disclosures for prior periods are required to be
restated. The Company is in the process of evaluating the disclosure
requirements. This statement, by its nature, will not impact the Company's
consolidated results of operations, financial position or cash flows.
In March 1998, the Accounts Standards Executive Committee ("AcSEC") of the
American Institute of Certified Public Accountants issued Statement of Position
98-1, Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use ("SOP 98-1"). SOP 98-1 provides guidance for the accounting
treatment of various costs typically incurred during the development or purchase
of computer software for internal use. SOP 98-1 shall be effective for fiscal
periods beginning after December 15, 1998. The impact on the Company's
consolidated results of operations, financial position and cash flows of the
application of SOP 98-1 is currently being evaluated.
In April 1998, The AcSEC issued Statement of Position 98-5, Reporting on
the Costs of Start-Up Activities ("SOP 98-5"). SOP 98-5 provides guidance on the
financial reporting of start-up and organization costs; requiring such costs be
expensed as incurred. SOP 98-5 shall be effective for fiscal periods beginning
after December 15, 1998. Application of SOP 98-5 is not expected to have a
material impact on the Company's consolidated results of operations, financial
position or cash flows.
In June 1998, the FASB issued Statement No. 133, Accounting for Derivative
Instruments and Hedging Activities ("SFAS 133"). SFAS 133 provides a
comprehensive and consistent standard for the recognition and measurement of
derivatives and hedging activities and requires all derivatives to be recorded
on the balance sheet at fair value. SFAS 133 is effective for years beginning
after June 15, 1999. Adoption of SFAS 133 is not expected to have a material
impact on the Company's consolidated results of operations, financial position
or cash flows.
21
<PAGE> 22
FORWARD LOOKING STATEMENTS
The statements contained in "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and elsewhere throughout this
Quarterly Report on Form 10-Q that are not historical facts are "forward-looking
statements" within the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange of 1934. These forward-looking statements
are subject to certain risks and uncertainties described below, which could
cause actual results to differ materially from those reflected in the
forward-looking statements. These forward-looking statements reflect
management's analysis, judgment, belief or expectation only as of the date
hereof. The Company undertakes no obligation to publicly revise these
forward-looking statements to reflect events or circumstances that arise after
the date hereof or to publicly release the results of any revisions to such
forward-looking statements that may be made to reflect events or circumstances
after the date hereof. In addition to the disclosure contained herein, readers
should carefully review any disclosure of risks and uncertainties contained in
other documents the Company files or has filed from time to time with the
Securities and Exchange Commission pursuant to the Securities Exchange Act of
1934.
Factors that could cause actual results to differ materially from those
reflected in the forward looking statements include, without limitation: the
degree of the Company's success in obtaining new contracts; the scope and
duration of drug development trials; the loss or downsizing of, or delay in,
existing drug development trials; the lengthening of the lead time to convert
proposals into contracts and revenues; the Company's exposure to cost overruns
under fixed-price contacts; the Company's dependence on certain clients,
especially its larger clients, and on the pharmaceutical and biotechnology
industries; adverse trends in the regulatory environment, including health care
reform measures; the Company's dependence on key management personnel;
competition and consolidation in the drug development services industry;
liability for negligence or errors and omissions arising out of drug development
trials; foreign exchange rate fluctuations, the ability to obtain future
financings; and the costs associated with dispositions or integrating future
acquired businesses. In addition, the Company's quarterly operating results will
continue to be subject to variation as a result of factors such as those
discussed above in " -- Quarterly Results" as well as the costs associated with
integrating the clinical and preclinical businesses.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT
MARKET RISKS
Not required
22
<PAGE> 23
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Stockholders
On June 16, 1998, the Company held its Annual Meeting of Shareholders to
consider and vote upon the following two proposals:
(1) A proposal to elect three (3) directors of the Company to hold
office until the 2001 Annual Meeting of Shareholders, and until
their successors are duly elected and qualified.
(2) A proposal to ratify an amendment to the Company's 1996 Stock
Option Plan to increase from 350,000 shares to 700,000 shares the
aggregate number of shares of the Company's Common Stock, par
value $.01 per share, available for issuance thereunder.
(3) A proposal to ratify the appointment of KPMG Peat Marwick LLP as
independent accountants of the Company for the current fiscal
year.
Results with respect to the voting on each of the above proposals were
as follows:
Proposal 1: Jack Barbut
For -10,668,635 Against - 100,058
Photios T. Paulson
For - 10,667,335 Against - 101,358
W. Leigh Thompson
For - 10,520,931 Against - 247,762
Proposal 2: 9,849,022 Votes For
802,558 Votes Against
55,176 Abstentions
23
<PAGE> 24
Item 4. Submission of Matters to a Vote of Stockholders (continued)
Proposal 3 10,705,423 Votes For
44,920 Votes Against
117,113 Abstentions
Following the Annual Meeting of Shareholders, in addition to Dr. Jack Barbut,
Mr. Photios T. Paulson and Dr. W. Leigh Thompson; Mr. Desmond H. O'Connell, Jr.,
Dr. Barry M. Sherman, Mr. Paul J. Schmitt and Dr. J. Christian Jensen continue
to serve as Directors of Chrysalis.
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
27.1 Financial Data Schedule-June 30, 1998
27.2 Financial Data Schedule-June 30, 1997 (restated)
b. Reports on Form 8-K
None.
24
<PAGE> 25
CHRYSALIS INTERNATIONAL CORPORATION
SIGNATURES
The financial information furnished herein has not been audited.
However in the opinion of management, all significant adjustments necessary for
a fair presentation for the three and six month periods ended June 30, 1998 and
1997, have been included.
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.
Date: August 12, 1998 CHRYSALIS INTERNATIONAL CORPORATION
/s/ John G. Cooper
------------------------------------------
John G. Cooper
Senior Vice President, Chief Financial Officer
and Treasurer
(Duly Authorized Officer and Chief
Accounting Officer)
25
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 8,716
<SECURITIES> 0
<RECEIVABLES> 10,644
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 21,893
<PP&E> 15,259
<DEPRECIATION> 0
<TOTAL-ASSETS> 38,744
<CURRENT-LIABILITIES> 18,966
<BONDS> 0
0
0
<COMMON> 115
<OTHER-SE> 7,941
<TOTAL-LIABILITY-AND-EQUITY> 38,744
<SALES> 0
<TOTAL-REVENUES> 10,292
<CGS> 0
<TOTAL-COSTS> 8,112
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 420
<INCOME-PRETAX> (1,813)
<INCOME-TAX> (11)
<INCOME-CONTINUING> (1,802)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,802)
<EPS-PRIMARY> (.16)
<EPS-DILUTED> (.16)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 8,186
<SECURITIES> 0
<RECEIVABLES> 10,374
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 20,699
<PP&E> 15,013
<DEPRECIATION> 0
<TOTAL-ASSETS> 37,396
<CURRENT-LIABILITIES> 16,010
<BONDS> 0
0
0
<COMMON> 114
<OTHER-SE> 11,303
<TOTAL-LIABILITY-AND-EQUITY> 37,396
<SALES> 0
<TOTAL-REVENUES> 10,145
<CGS> 0
<TOTAL-COSTS> 7,101
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 165
<INCOME-PRETAX> (634)
<INCOME-TAX> 31
<INCOME-CONTINUING> (665)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (665)
<EPS-PRIMARY> (.06)
<EPS-DILUTED> (.06)
</TABLE>
