SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(Mark One)
| þ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. |
For the quarterly period ended June 30, 2002
OR
| o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from ____________________ to ____________________
Commission File Number 0-19371
(Exact name of registrant as specified in its charter)
| Delaware (State or other jurisdiction of incorporation or organization) |
77-0187280 (IRS Employer Identification Number) |
|
| 4600 Beach Street Haltom City, Texas (Address of principal executive offices) |
76137 (Zip Code) |
Registrant’s telephone number, including area code: (817) 605-5300
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 report(s), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o
As of July 31, 2002, the registrant had outstanding 5,852,593 shares of Common Stock, $0.001 par value.
PHARMCHEM, INC.
QUARTERLY REPORT ON FORM 10-Q
INDEX
| Page | ||||
| Part I. | Financial Information | |||
| Item 1. | Condensed Consolidated Financial Statements | 3 | ||
| Condensed Consolidated Balance Sheets (unaudited) at June 30, 2002 and December 31, 2001 | 4 | |||
| Condensed Consolidated Statements of Operations (unaudited) for the Three and Six Months ended June 30, 2002 and 2001 | 5 | |||
| Condensed Consolidated Statements of Comprehensive Income (Loss) (unaudited) for the Three and Six Months ended June 30, 2002 and 2001 | 6 | |||
| Condensed Consolidated Statements of Cash Flows (unaudited) for the Three and Six Months ended June 30, 2002 and 2001 | 7 | |||
| Notes to Condensed Consolidated Financial Statements (unaudited) | 8 | |||
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 12 | ||
| Part II. | Other Information | |||
| Item 4. | Submission of Matters to a Vote of Security Holders | 19 | ||
| Item 6. | Exhibits and Reports on Form 8-K | 19 | ||
| Signature | 20 |
2
PART I. Financial Information
Item 1. Condensed Consolidated Financial Statements
The condensed consolidated financial statements included herein have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in complete financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the disclosures made are adequate to make the information presented not misleading. It is suggested that the condensed consolidated financial statements be read in conjunction with the consolidated financial statements and the notes thereto for the year ended December 31, 2001 included in the Company’s Annual Report on Form 10-K.
These financial statements have been prepared in all material respects in conformity with the standards of accounting measurements set forth in Accounting Principles Board Opinion No. 28, “Interim Financial Reporting,” and the rules and regulations as specified by the Securities and Exchange Commission and reflect all adjustments, consisting only of normal recurring adjustments which, in the opinion of management, are necessary to summarize fairly our consolidated financial position and the results of operations and cash flows for the periods presented. The results of operations for such interim periods are not necessarily indicative of the results to be expected for the full year.
3
PHARMCHEM, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands, except par value)
| June 30, | December 31, | |||||||||||
| 2002 | 2001 | |||||||||||
| ASSETS | ||||||||||||
CURRENT ASSETS: |
||||||||||||
Cash and cash equivalents |
$ | 5,085 | $ | 197 | ||||||||
Accounts receivable, net |
4,790 | 5,378 | ||||||||||
Inventory |
1,605 | 2,160 | ||||||||||
Prepaid expenses |
447 | 538 | ||||||||||
Deferred income taxes |
— | 390 | ||||||||||
Net current assets of discontinued operations |
— | 526 | ||||||||||
TOTAL CURRENT ASSETS |
11,927 | 9,189 | ||||||||||
PROPERTY AND EQUIPMENT, net |
12,630 | 12,915 | ||||||||||
OTHER ASSETS |
39 | 763 | ||||||||||
GOODWILL, net |
729 | 729 | ||||||||||
NET NONCURRENT ASSETS OF DISCONTINUED OPERATIONS |
— | 1,613 | ||||||||||
TOTAL ASSETS |
$ | 25,325 | $ | 25,209 | ||||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||||||
CURRENT LIABILITIES: |
||||||||||||
Revolving line of credit |
$ | 3,881 | $ | 4,544 | ||||||||
Current portion of long-term debt |
1,183 | 2,668 | ||||||||||
Accounts payable |
3,537 | 5,935 | ||||||||||
Accrued compensation |
398 | 635 | ||||||||||
Accrued collectors and other liabilities |
2,584 | 1,659 | ||||||||||
TOTAL CURRENT LIABILITIES |
11,583 | 15,441 | ||||||||||
LONG-TERM DEBT, net of current portion |
2,607 | 3,030 | ||||||||||
TOTAL LIABILITIES |
14,190 | 18,471 | ||||||||||
STOCKHOLDERS’ EQUITY: |
||||||||||||
Common stock, $0.001 par value, 25,000 shares authorized,
5,853 shares issued and outstanding at June 30, 2002 and
December 31, 2001 |
6 | 6 | ||||||||||
Additional paid-in capital |
19,589 | 19,589 | ||||||||||
Accumulated other comprehensive loss |
— | (279 | ) | |||||||||
Accumulated deficit |
(8,460 | ) | (12,578 | ) | ||||||||
TOTAL STOCKHOLDERS’ EQUITY |
11,135 | 6,738 | ||||||||||
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY |
$ | 25,325 | $ | 25,209 | ||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
4
PHARMCHEM, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except per share amounts)
| Three Months Ended | Six Months Ended | ||||||||||||||||||
| June 30, | June 30, | ||||||||||||||||||
| 2002 | 2001 | 2002 | 2001 | ||||||||||||||||
NET SALES |
$ | 8,066 | $ | 9,030 | $ | 15,542 | $ | 18,664 | |||||||||||
COST OF SALES |
6,249 | 9,214 | 11,917 | 16,928 | |||||||||||||||
GROSS PROFIT (LOSS) |
1,817 | (184 | ) | 3,625 | 1,736 | ||||||||||||||
OPERATING EXPENSES: |
|||||||||||||||||||
Selling, general and administrative |
1,933 | 4,415 | 3,946 | 7,239 | |||||||||||||||
Amortization of goodwill |
— | 32 | — | 64 | |||||||||||||||
Restructuring charge |
— | 1,029 | — | 1,029 | |||||||||||||||
Total operating expenses |
1,933 | 5,476 | 3,946 | 8,332 | |||||||||||||||
LOSS FROM OPERATIONS |
(116 | ) | (5,660 | ) | (321 | ) | (6,596 | ) | |||||||||||
Interest expense |
134 | 86 | 253 | 155 | |||||||||||||||
Other expense (income) |
(55 | ) | (4 | ) | 13 | (17 | ) | ||||||||||||
| 79 | 82 | 266 | 138 | ||||||||||||||||
LOSS FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES |
(195 | ) | (5,742 | ) | (587 | ) | (6,734 | ) | |||||||||||
PROVISION FOR (BENEFIT FROM) INCOME TAXES |
13 | — | (69 | ) | — | ||||||||||||||
LOSS FROM CONTINUING OPERATIONS |
(208 | ) | (5,742 | ) | (518 | ) | (6,734 | ) | |||||||||||
DISCONTINUED OPERATIONS: |
|||||||||||||||||||
Income from discontinued operations, net of applicable
income taxes of $103 for the three months ended
June 30, 2001, and $184 and $250 for the six months
ended June 30, 2002 and 2001, respectively |
— | 185 | 359 | 477 | |||||||||||||||
Gain on disposition, net of applicable income taxes of
$1,116 |
— | — | 4,277 | — | |||||||||||||||
NET INCOME (LOSS) |
$ | (208 | ) | $ | (5,557 | ) | $ | 4,118 | $ | (6,257 | ) | ||||||||
NET INCOME (LOSS) PER COMMON SHARE: |
|||||||||||||||||||
| BASIC: | Continuing operations | $ | (0.04 | ) | $ | (0.98 | ) | $ | (0.09 | ) | $ | (1.15 | ) | ||||||
Discontinued operations |
— | 0.03 | 0.79 | 0.08 | |||||||||||||||
Net income (loss) |
$ | (0.04 | ) | $ | (0.95 | ) | $ | 0.70 | $ | (1.07 | ) | ||||||||
DILUTED: |
Continuing operations |
$ | (0.04 | ) | $ | (0.98 | ) | $ | (0.09 | ) | $ | (1.15 | ) | ||||||
Discontinued operations |
— | 0.03 | 0.79 | 0.08 | |||||||||||||||
Net income (loss) |
$ | (0.04 | ) | $ | (0.95 | ) | $ | 0.70 | $ | (1.07 | ) | ||||||||
WEIGHTED AVERAGE SHARES OUTSTANDING: |
|||||||||||||||||||
BASIC |
5,853 | 5,851 | 5,853 | 5,849 | |||||||||||||||
DILUTED |
5,853 | 5,851 | 5,853 | 5,849 | |||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
5
PHARMCHEM, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Unaudited)
(In thousands)
| Three Months Ended | Six Months Ended | ||||||||||||||||
| June 30, | June 30, | ||||||||||||||||
| 2002 | 2001 | 2002 | 2001 | ||||||||||||||
NET INCOME (LOSS) |
$ | (208 | ) | $ | (5,557 | ) | $ | 4,118 | $ | (6,257 | ) | ||||||
OTHER COMPREHENSIVE LOSS: |
|||||||||||||||||
Foreign currency translation |
— | 49 | (53 | ) | (87 | ) | |||||||||||
Reclassification adjustment for realized foreign
currency exchange loss included in net income |
— | — | 332 | — | |||||||||||||
| — | 49 | 279 | (87 | ) | |||||||||||||
COMPREHENSIVE INCOME (LOSS) |
$ | (208 | ) | $ | (5,508 | ) | $ | 4,397 | $ | (6,344 | ) | ||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
6
PHARMCHEM, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| Six Months Ended | ||||||||||||
| June 30, | ||||||||||||
| 2002 | 2001 | |||||||||||
CASH FLOWS FROM OPERATING ACTIVITIES |
||||||||||||
Net income (loss) |
$ | 4,118 | $ | (6,257 | ) | |||||||
Adjustments to reconcile net income (loss) to net cash provided by
(used in) operating activities: |
||||||||||||
Income from discontinued operations |
(359 | ) | (477 | ) | ||||||||
Depreciation and amortization |
1,121 | 1,075 | ||||||||||
Amortization of discount on subordinated debt |
86 | — | ||||||||||
Provision for doubtful accounts |
35 | 47 | ||||||||||
Gain on sale of disposition of subsidiary, net of tax |
(4,277 | ) | — | |||||||||
Deferred income taxes |
— | (4 | ) | |||||||||
Gain on disposal of assets |
— | (90 | ) | |||||||||
Restructuring charge |
— | 586 | ||||||||||
Changes in operating assets and liabilities: |
||||||||||||
Accounts receivable |
553 | 1,096 | ||||||||||
Inventory |
555 | 131 | ||||||||||
Prepaids and other current assets |
91 | (611 | ) | |||||||||
Other assets |
(2 | ) | (3 | ) | ||||||||
Accounts payable and other accrued liabilities |
(1,674 | ) | 1,265 | |||||||||
Other noncurrent liabilities |
— | (1 | ) | |||||||||
Net cash provided by (used in) operating activities of continuing
operations |
247 | (3,243 | ) | |||||||||
Net cash provided by operating activities of discontinued operations |
161 | 460 | ||||||||||
CASH FLOWS FROM INVESTING ACTIVITIES |
||||||||||||
Purchases of property and equipment |
(836 | ) | (2,717 | ) | ||||||||
Proceeds from sale of discontinued operations |
10,000 | — | ||||||||||
Net cash provided by (used in) investing activities of continuing
operations |
9,164 | (2,717 | ) | |||||||||
Net cash used in investing activities of discontinued operations |
(40 | ) | (15 | ) | ||||||||
CASH FLOWS FROM FINANCING ACTIVITIES |
||||||||||||
Principal payments on long-term debt |
(1,994 | ) | (1,066 | ) | ||||||||
Proceeds from lease financing and short-term debt |
— | 2,786 | ||||||||||
Borrowings (repayments) on revolving line of credit, net |
(663 | ) | &nb | |||||||||