-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, MbWZMmUYt+1+m9l7gjv6IJnyk/p1maOIgEsH10vjjjxTgeMRuCRcAEuY7OEcGgCS YXu8itH8bO4ejmhpI9MYvQ== 0000891618-99-002125.txt : 19990513 0000891618-99-002125.hdr.sgml : 19990513 ACCESSION NUMBER: 0000891618-99-002125 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990331 FILED AS OF DATE: 19990512 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PHARMCHEM LABORATORIES INC CENTRAL INDEX KEY: 0000876645 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-MEDICAL LABORATORIES [8071] IRS NUMBER: 770187280 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-19371 FILM NUMBER: 99617567 BUSINESS ADDRESS: STREET 1: 1505 A OBRIEN DR CITY: MENLO PARK STATE: CA ZIP: 94025 BUSINESS PHONE: 4153286200 10-Q 1 FORM 10-Q FOR PERIOD ENDED MARCH 31,1999 1 ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 ---------------- FORM 10-Q (MARK ONE) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1999 OR [ ] 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 PHARMCHEM [LOGO] (Exact name of registrant as specified in its charter) CALIFORNIA 77-0187280 (State or other jurisdiction (IRS Employer of incorporation or organization) Identification Number) 1505-A O'BRIEN DRIVE MENLO PARK, CALIFORNIA 94025 (Address of principal executive offices) (Zip Code) REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (650) 328-6200 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 [X] No [ ] As of April 30, 1999, the registrant had outstanding 5,784,206 shares of Common Stock, no par value. ================================================================================ 2 PHARMCHEM LABORATORIES, INC. QUARTERLY REPORT ON FORM 10-Q INDEX
PAGE ---- PART I. FINANCIAL INFORMATION Item 1. Condensed Consolidated Financial Statements 3 Condensed Consolidated Balance Sheets at March 31, 1999 and December 31, 1998 (unaudited) 4 Condensed Consolidated Statements of Operations (unaudited) for the Three Months ended March 31, 1999 and 1998 5 Condensed Consolidated Statements of Comprehensive Income (Loss) (unaudited) for the Three Months ended March 31, 1999 and 1998 6 Condensed Consolidated Statements of Cash Flows (unaudited) for the Three Months ended March 31, 1999 and 1998 7 Notes to Condensed Consolidated Financial Statements (unaudited) 8 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 9 PART II. OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders 14 Item 5. Other Information 14 Item 6. Exhibits and Reports on Form 8-K 14 SIGNATURE 14
2 3 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 financial statements prepared in accordance with generally accepted accounting principles 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, 1998 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 in the Securities Exchange Act of 1934 and reflect all adjustments, consisting only of normal recurring adjustments which, in the opinion of management, are necessary to summarize fairly the Company's consolidated financial position, 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 4 PHARMCHEM LABORATORIES, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) (In thousands)
March 31, December 31, 1999 1998 --------- ------------ ASSETS CURRENT ASSETS Cash and cash equivalents $ 1,034 $ 802 Accounts receivable, net 6,729 6,522 Inventory 1,532 1,525 Prepaids and other current assets 806 719 -------- -------- TOTAL CURRENT ASSETS 10,101 9,568 -------- -------- PROPERTY AND EQUIPMENT, net 8,600 8,508 OTHER ASSETS 896 997 GOODWILL, net 2,944 2,990 -------- -------- TOTAL ASSETS $ 22,541 $ 22,063 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Revolving line of credit $ 1,337 $ 2,379 Current portion of long-term debt 665 465 Accounts payable 2,742 3,123 Accrued compensation 1,282 1,155 Accrued collectors and other liabilities 3,014 2,765 -------- -------- TOTAL CURRENT LIABILITIES 9,040 9,887 LONG-TERM DEBT, net of current portion 1,832 656 OTHER NONCURRENT LIABILITIES 245 610 -------- -------- TOTAL LIABILITIES 11,117 11,153 -------- -------- SHAREHOLDERS' EQUITY Common stock, no par value, 10,000 shares authorized, 5,781 and 5,781 shares issued and outstanding at March 31, 1999 and December 31, 1998, respectively 19,090 19,090 Accumulated other comprehensive income 14 83 Accumulated deficit (7,680) (8,263) -------- -------- TOTAL SHAREHOLDERS' EQUITY 11,424 10,910 -------- -------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 22,541 $ 22,063 ======== ========
The accompanying notes are an integral part of these condensed consolidated financial statements. 4 5 PHARMCHEM LABORATORIES, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (In thousands, except per share amounts)
Three Months Ended March 31, ------------------------- 1999 1998 -------- -------- NET SALES $ 10,174 $ 9,528 COST OF SALES 7,224 7,308 -------- -------- GROSS PROFIT 2,950 2,220 OPERATING EXPENSES: Selling, general and administrative 2,439 2,208 Marketing rights and research costs 19 27 Amortization of goodwill 46 46 -------- -------- Total operating expenses 2,504 2,281 -------- -------- INCOME (LOSS) FROM OPERATIONS 446 (61) Interest expense (56) (99) Other income 17 3 -------- -------- (39) (96) -------- -------- INCOME (LOSS) BEFORE PROVISION FOR INCOME TAXES 407 (157) BENEFIT FROM (PROVISION FOR) INCOME TAXES 176 (35) -------- -------- NET INCOME (LOSS) $ 583 $ (192) ======== ======== EARNINGS (LOSS) PER SHARE: Basic $ 0.10 $ (0.03) ======== ======== Diluted $ 0.10 $ (0.03) ======== ======== WEIGHTED AVERAGE SHARES OUTSTANDING: Basic 5,782 5,751 ======== ======== Diluted 6,096 5,751 ======== ========
The accompanying notes are an integral part of these condensed consolidated financial statements. 5 6 PHARMCHEM LABORATORIES, INC. CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (Unaudited) (In thousands)
Three Months Ended March 31, ------------------- 1999 1998 ----- ----- NET INCOME (LOSS) $ 583 $(192) OTHER COMPREHENSIVE INCOME (LOSS): Foreign currency translation (69) 16 ----- ----- COMPREHENSIVE INCOME (LOSS) $ 514 $(176) ===== =====
The accompanying notes are an integral part of these condensed consolidated financial statements. 6 7 PHARMCHEM LABORATORIES, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (In thousands)
Three Months Ended March 31, ----------------------- 1999 1998 ------- ------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $ 583 $ (192) Adjustments to reconcile net income (loss) to net cash provided by Operating activities: Depreciation and amortization 472 495 Provision for doubtful accounts 47 39 Gain on sale of equipment 7 -- Changes in operating assets and liabilities: Accounts receivable (254) 161 Inventory (7) 103 Prepaids and other current assets (87) (134) Other assets 101 6 Accounts payable and other accrued liabilities (5) 442 Other noncurrent liabilities (372) 350 ------- ------- Net cash provided by operating activities 485 1,270 ------- ------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property and equipment (518) (680) ------- ------- Net cash used in investing activities (518) (680) ------- ------- CASH FLOWS FROM FINANCING ACTIVITIES: Borrowings (repayments) on revolving lines of credit, net 458 (633) Principal payments on long-term debt (124) (122) Proceeds from exercise of stock options -- 3 ------- ------- Net cash provided by (used in) financing activities 334 (752) ------- ------- FOREIGN CURRENCY TRANSLATION (69) -- ------- ------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 232 (162) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 802 372 ------- ------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 1,034 $ 210 ======= =======
The accompanying notes are an integral part of these condensed consolidated financial statements. 7 8 PHARMCHEM LABORATORIES, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 1. Earnings (Loss) per Share The Company computes and discloses its earnings (loss) per share in accordance with SFAS No. 128, "Earnings Per Share," which requires the presentation of basic and diluted earnings (loss) per share. Basic earnings (loss) per share is calculated using the weighted average number of common shares outstanding during the period. Diluted earnings (loss) per share is calculated using the weighted average number of common shares and dilutive potential common shares outstanding during the period. Dilutive potential common shares represent shares issuable upon the exercise of outstanding options and are calculated using the treasury stock method. Options to purchase 1,021,000 shares of the Company's common stock for the three month period ended March 31, 1998 were not included in the computation of diluted earnings per share because their effect would have been antidilutive. Options to purchase 20,000 shares of the Company's common stock at March 31, 1999 were not included in the computation of diluted earnings per share because their exercise prices were greater than the average market price of the Company's common stock of $3.53 per share. Weighted average dilutive options of 314,000 were used in the computation of earnings per share for the three month period ending March 31, 1999. 2. Inventory Inventory represents laboratory materials, collection materials and products and is stated at the lower of cost or market. Cost is determined using standard costs, including freight, that approximate actual costs on a first-in, first-out basis. Inventory consisted of the following at March 31, 1999 and December 31, 1998, respectively:
1999 1998 ------ ------ (In thousands) Laboratory materials ... $ 495 $ 529 Collection materials... 843 801 Products ............... 194 195 ------ ------ $1,532 $1,525 ====== ======
3. Debt PharmChem maintains a revolving line of credit agreement ("Credit Agreement") with a bank. At March 31, 1999, the maximum that could be borrowed and the amount outstanding under the Credit Agreement were $4,785,000 and $1,337,000, respectively. As of March 31, 1999, the Company was in compliance with all debt covenants. 8 9 4. Reportable Segments The Company adopted SFAS No. 131, "Dislosures about Segments of an Enterprise and Related Information," effective December 31, 1998. Prior period amounts have been restated to conform to the presentation required by SFAS No. 131. The Company has two reportable segments, Domestic and International, providing integrated drug testing services. The Domestic segment serves the United States and the International segment serves primarily the United Kingdom and also includes the European, Asian, Middle Eastern and South American markets. The Domestic segment is serviced by the Company's California and Texas operations and the International segment is serviced by Medscreen, the Company's London-based subsidiary. The Company evaluates segment profit based on income or loss from operations before intercompany interest, other income or expense and income taxes and excluding goodwill amortization. Intersegment sales and transfers are not material. Information about the Company's segments as of and for the three month periods ended March 31 is as follows:
Domestic International Total ---- -------- ------------- -------- (In thousands) 1999: Net sales from external customers..... $ 8,476 $ 1,698 $ 10,174 Segment profit ....................... 236 256 492 1998: Net sales from external customers..... $ 7,974 $ 1,554 $ 9,528 Segment profit (loss) ................ (217) 202 (15)
5. Subsequent Events On April 20, 1999, the Company entered into a $1,500,000 variable rate installment note ("Installment Note") with its bank. The proceeds from the Installment Note were immediately used to reduce the amount outstanding under the Company's revolving line of credit. The Installment Note is subject to the terms and conditions of the Credit Agreement, bears interest at the bank's base rate (currently prime) plus 1.0% and is payable over 60 months. The Company has reclassified $1,289,000 of the revolving line of credit as long-term debt as of March 31, 1999, as such debt was refinanced in April, 1999. On April 30, 1999, the Company entered into a $1,082,000 lease agreement with a lessor to refinance certain modules of the Company's Unified Database software project. The lease agreement bears interest at 8.5% and is payable over 36 months. Proceeds from the lease agreement are expected to be used to finance the Company's ongoing capital expenditure program. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations FORWARD LOOKING STATEMENTS "Management's Discussion and Analysis of Financial Condition and Results of Operations" 9 10 contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934 and Section 27A of the Securities Act of 1933, which are subject to the "safe harbor" created by these Sections. The Company's actual future results could differ materially from those projected in the forward-looking statements. Some factors which could cause future actual results to differ materially from the Company's recent results and those projected in the forward-looking statements are described in the Company's Annual Report on Form 10-K for the year ended December 31, 1998. The Company assumes no obligation to update the forward-looking statements or such factors. RESULTS OF OPERATIONS The following table sets forth for the periods indicated certain financial data (dollars in thousands):
Three Months Ended March 31, -------------------------------------------- 1999 1998 1999 1998 ------- ------- ----- ----- NET SALES: (As a percentage of sales) Public and private employers analyses $ 3,257 $ 3,617 32.0% 38.0% Criminal justice agencies analyses 4,223 3,559 41.5 37.3 Drug rehabilitation programs analyses 380 334 3.7 3.5 Domestic product sales 616 464 6.1 4.8 Medscreen 1,698 1,554 16.7 16.4 ------- ------- ------- ------- Total net sales 10,174 9,528 100.0 100.0 COST OF SALES 7,224 7,308 71.0 76.7 ------- ------- ------- ------- GROSS PROFIT 2,950 2,220 29.0 23.3 ------- ------- ------- ------- OPERATING EXPENSES: Selling, general and administrative 2,439 2,208 24.0 23.2 Marketing rights and research 19 27 0.2 0.3 Amortization of goodwill 46 46 0.4 0.5 ------- ------- ------- ------- Total operating expenses 2,504 2,281 24.6 24.0 ------- ------- ------- ------- INCOME (LOSS) FROM OPERATIONS 446 (61) 4.4 (0.7) OTHER EXPENSE, net 39 96 0.4 1.0 BENEFIT FROM (PROVISION FOR) INCOME TAXES 176 (35) 1.7 (0.3) ------- ------- ------- ------- NET INCOME (LOSS) $ 583 $ (192) 5.7% (2.0)% ======= ======= ======= =======
Net sales for the three months ended March 31, 1999 increased $646,000 (6.8%) to $10,174,000 in 1999 from $9,528,000 in 1998. The Company's domestic criminal justice revenues increased $664,000 (18.7%) reflecting higher specimen volume from federal customers. Increased specimen volume also contributed to higher sales for domestic drug rehabilitation customers and for Medscreen, the Company's London-based subsidiary. However, average selling prices for domestic laboratory analyses decreased slightly due primarily to lower workplace specimen volume. The Company's domestic specimen volume increased 6.6% and international specimen volume increased 43.8% from comparable 1998 levels. Sales 10 11 of PharmScreen(R) On-site Screening Devices increased $56,000 (11.7%) and sales of PharmChek(R) Drugs of Abuse Patch increased $89,000, attributed to the timing of shipments, compared to the prior year. Cost of sales for the three months ended March 31, 1999 decreased $84,000 (1.1%) to $7,224,000 in 1999 from $7,308,000 in 1998, despite the higher specimen volume and product sales. The improvement in cost of sales reflects the favorable impact of the Company's ongoing cost reduction program and laboratory process improvement program. The success of the programs have resulted in lower direct labor and material costs per specimen unit compared to the prior year. Cost of sales as a percentage of net sales decreased to 71.0% in 1999 from 76.7% in 1998. Gross profit as a percentage of net sales increased to 29.0% in 1999 from 23.3% in 1998. Selling, general and administrative (SG&A) expenses for the three months ended March 31, 1999 increased $231,000 (10.5%) to $2,439,000 in 1999 from $2,208,000 in 1998, representing continued rebuilding of the sales, marketing, information systems and administrative infrastructure and higher depreciation expenses related to information systems placed into service. SG&A expenses as a percentage of net sales increased slightly to 24.0% in 1999 from 23.2% in 1998. Income from operations for the three months ended March 31, 1999 was $446,000 compared to a loss of $61,000 for the comparable period in 1998. Benefit from (provision for) income taxes. The Company recorded a benefit from income taxes of $176,000 in 1999 compared to an income tax provision of $35,000 during 1998. The 1999 benefit from income taxes reflects an income tax provision of $160,000 was more than offset by an income tax credit of $336,000. This income tax credit reflects the reversal of a liability established in a prior year when the Internal Revenue Service (IRS) disputed the deductibility of research expenses incurred in the years 1992 through 1994 related to the development of PharmChek(R). Recently, the IRS issued a final determination in favor of the Company's position. Net income for the three months ended March 31, 1999 was $583,000 or $0.10 per diluted common share compared to a net loss of $192,000 or $0.03 per diluted common share in 1998. Excluding the impact of the $336,000 income tax credit, net income would have been $247,000 or $0.04 per diluted share in 1999. LIQUIDITY AND CAPITAL RESOURCES The Company's operations during the three month period ended March 31 provided cash of approximately $485,000 in 1999 and $1,270,000 in 1998. The decrease in cash flow from operations between 1999 and 1998 principally reflects the reversal of the $336,000 income tax credit and improvements in working capital recorded in 1998, which more than offset the increase in net income in 1999. As of March 31, 1999, the Company had $1,034,000 in cash and cash equivalents. During the three months ended March 31, 1999, the Company used approximately $518,000 in cash to acquire property and equipment, principally for information systems and laboratory equipment. These property and equipment acquisitions were financed mostly by borrowings under the revolving line of credit. The Company maintains a Credit Agreement with a bank. All borrowings are secured by a lien on 11 12 all assets of the Company. The Credit Agreement provides for borrowings under the revolver limited to 85% of qualified accounts receivables up to a maximum of $6,000,000. At March 31, 1999, the maximum that could be borrowed was $4,785,000 and approximately $1,337,000 was outstanding under the Credit Agreement. Year-to-date net borrowings on the revolver were approximately $458,000 as of March 31, 1999. The Credit Agreement contains certain financial covenants which, among others, require the Company to maintain certain levels of net worth, cash flow and profitability, and restricts the payment of dividends. As of March 31, 1999, the Company was in compliance with its financial covenants. On April 20, 1999, the Company entered into a $1,500,000 variable rate installment note ("Installment Note") with its bank. The proceeds from the Installment Note were immediately used to reduce the amount outstanding under the Company's revolving line of credit. The Installment Note is subject to the terms and conditions of the Credit Agreement, bears interest at the bank's base rate (currently prime) plus 1.0% and is payable over 60 months. The Company has reclassified $1,289,000 of the revolving line of credit as long-term debt as of March 31, 1999, as such debt was refinanced in April, 1999. On April 30, 1999, the Company entered into a $1,082,000 lease agreement with a lessor to refinance certain modules of the Company's Unified Database software project. The lease agreement bears interest at 8.5% and is payable over 36 months. Proceeds from the lease agreement are expected to be used to finance the Company's ongoing capital expenditure program. The Company anticipates that existing cash balances, amounts available under existing and future credit agreements and funds to be generated from future operations will be sufficient to fund operations and forecasted capital expenditures through 1999. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK PharmChem is subject to market risk with respect to its debt outstanding and foreign currency transactions. The Company's revolving credit agreement and installment note carry interest at the prime rate plus 1.0%. As the prime rate increases, the Company will incur higher relative interest expense and similarly, a decrease in the prime rate will reduce relative interest expense. In recent years, there have not been significant fluctuations in the prime rate. A 1.0% change in the prime rate would not materially change interest expense assuming levels of debt consistent with historical amounts. Due to the Company's international operations, certain transactions are conducted in foreign currencies. Medscreen's transactions are denominated approximately 85% in pound sterling and 15% in US currency. During the three month periods ending March 31, 1999 and 1998, Medscreen's net sales represented 16.7% and 16.4%, respectively, of the Company's total net sales and, as a result, the impact of market risk on foreign currency transactions is not considered material. These market risks are not considered significant and, therefore, the Company does not intend to engage in hedging transactions. YEAR 2000 The Year 2000 ("Y2K") issue is the result of date-sensitive devices, systems and computer applications that were deployed using two digits rather than four digits to define the applicable year. Therefore, these technologies may improperly recognize a year containing "00" as 1900 rather than the 12 13 year 2000. This may result in a system failure or miscalculations causing disruptions of operations. The Company is subject to various risks associated with the Y2K impact on information systems software and hardware. The Company has completed its assessment of the Y2K impact on internal information systems. The assessment identified operational inefficiencies and Y2K non-compliance of the existing laboratory information system ("LIS"). The Company has commenced replacing its existing LIS with a new system that is Y2K ready. The new LIS is expected to be implemented in mid-third quarter of 1999. The Company estimates the cost to purchase and install the new LIS and related hardware will be approximately $1 million. Excluding the LIS expenditures, the Company estimates additional Y2K related expenditures of approximately $100,000 representing consulting costs and payroll for employees dedicated to Y2K projects. Due to the large volume of electronic transmissions, the Company has conducted inquiries of customers, vendors and key business partners to identify Y2K issues and continues to evaluate responses. During the second quarter of 1999, the Company will commence limited transmissions of test results to selected customers using a four digit year to determine which customers can and cannot receive such electronic results with a year field of four digits. The Company's various internal drug test results reporting systems have been reprogrammed and tested in a parallel systems environment and the Company continues to test external results reporting services. The Company has reviewed its facilities systems and found that many are not date sensitive. With respect to other facilities systems and financial accounting systems, the Company is in the process of obtaining documentation of Y2K compliance or replacing systems that are not Y2K compliant. For the period January 1, 1996 through March 31, 1999, the Company has invested approximately $5.7 million in new information systems which have been designed to enhance its operational capabilities as well as meet Y2K requirements. The Company expects to complete all Y2K projects at various dates through the end of the third quarter of 1999. All investments in information systems and other Y2K projects have been funded or are expected to be funded by internally generated cash, leases or bank financing. The Company is in the process of refining its contingency plans to consider additional scenarios whereby Y2K readiness is not significantly achieved by the Company and/or its key customers, business partners and vendors. The Company believes that the "most reasonably likely worst case Year 2000 scenario" would result from a failure of third party transportation systems which would prevent the Company from receiving specimens to test. These contingency plans, including issues involving providers of transportation services, are expected to be completed in mid-1999. If the Company determines that any critical supplier is not Y2K compliant, it will seek alternate suppliers and, if it finds that alternate suppliers are not available, the Company will purchase inventory in advance in excess of normal purchase levels. In the event of information systems failures, the Company may utilize appropriate manual procedures or alternate information systems for an interim period. Due to the general uncertainty inherent in the Y2K issues, resulting in part from the uncertainty of Y2K readiness of third party providers, suppliers and customers, the Company is unable to determine at this time whether the consequences of Y2K non-compliance will have a material impact on the Company's results of operations, liquidity or financial position. 13 14 PART II. OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders None. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits: Exhibit 27 - Financial Data Schedule. (b) Reports on Form 8-K: None. SIGNATURE 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. PharmChem Laboratories, Inc. (Registrant) Date: May 12, 1999 By: /S/ David A. Lattanzio ------------------------------------ David A. Lattanzio Chief Financial Officer and Vice President, Finance and Administration (Principal Financial and Accounting Officer) 14 15 INDEX TO EXHIBITS
Exhibit Number Description - ------ ----------- 27 Financial Data Schedule
EX-27 2 FINANCIAL DATA SCHEDULE
5 1,000 3-MOS DEC-31-1998 JAN-01-1999 MAR-31-1999 1,034 0 7,294 605 1,532 10,101 19,849 11,249 22,541 9,040 0 0 0 19,090 0 22,541 0 10,174 0 7,224 0 43 56 407 (176) 0 0 0 0 583 0.10 0.10
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