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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, 1996.
Commission File Number
0-19659
DNX 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 8,707,307
Outstanding at August 14, 1996
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DNX CORPORATION AND SUBSIDIARIES
INDEX
PART I. FINANCIAL INFORMATION PAGE NO.
--------
Consolidated Balance Sheets -
June 30, 1996 and December 31, 1995 3
Consolidated Statements of Operations -
for the three and six months ended
June 30, 1996 and 1995 4
Consolidated Statement of Stockholders' Equity -
for the six months ended June 30, 1996 5
Consolidated Statements of Cash Flows -
for the six months ended June 30, 1996 and 1995 6
Notes to Consolidated Financial Statements 7
Management's Discussion and Analysis of Financial
Condition and Results of Operations 8 - 14
PART II. OTHER INFORMATION 15
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
DNX CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
June 30, 1996 and December 31, 1995
(in thousands except share and per share amounts)
Assets June 30, 1996 December 31, 1995
------ ------------- -----------------
(unaudited)
Current assets
Cash and cash equivalents $ 14,676 20,042
Short-term investments 5,247 1,001
Trade accounts receivable, net 7,481 7,662
Prepaid expenses and other current assets 1,124 1,351
-------- -------
Total current assets 28,528 30,056
Property, plant and equipment, net 15,651 16,935
Intangible assets, net 976 1,035
Other assets 414 44
Restricted cash 460 777
-------- -------
$ 46,029 48,847
======== =======
Liabilities and Stockholders' Equity
------------------------------------
Current liabilities
Short-term borrowings 347 1,399
Current portion of long-term debt 397 744
Accounts payable 2,403 2,100
Accrued expenses 3,016 2,992
Deferred revenue 2,364 3,456
-------- -------
Total current liabilities 8,527 10,691
Long-term debt, excluding current portion 7,467 7,830
Deferred income taxes 1,843 2,045
Other liabilities 926 948
-------- -------
Total liabilities 18,763 21,514
-------- -------
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 8,707,182 in 1996
and 8,606,194 in 1995 87 86
Additional paid-in capital 57,125 57,000
Translation adjustment 662 1,095
Accumulated deficit (30,608) (30,848)
-------- -------
Total stockholders' equity 27,266 27,333
-------- -------
Commitments and contingencies
$ 46,029 48,847
======== =======
See accompanying notes to consolidated financial statements.
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DNX CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations
Three and six months ended June 30, 1996 and 1995
(in thousands expect per share amounts)
(unaudited)
Three months ended June 30, Six months ended June 30,
1996 1995 1996 1995
------- ------- ------- -------
Revenues:
Commercial services $ 7,319 6,413 14,320 13,050
License fees and other contracts 127 206 246 536
------- ------- ------- -------
7,446 6,619 14,566 13,586
------- ------- ------- -------
Operating expenses:
Cost of commercial services 5,719 5,387 11,275 10,738
Research and development 132 236 236 521
General, administrative and marketing 1,494 1,324 3,026 2,794
------- ------- ------- -------
7,345 6,947 14,537 14,053
------- ------- ------- -------
Income (loss) from operations 101 (328) 29 (467)
------- ------- ------- -------
Other income (expense):
Interest income 268 74 581 161
Interest expense (156) (204) (334) (411)
Other 88 130 172 352
------- ------- ------- -------
200 -- 419 102
------- ------- ------- -------
Income (loss) before equity in net loss of
Nextran and income taxes 301 (328) 448 (365)
Equity in net loss of Nextran -- 880 -- 2,181
Provision (benefit) for income taxes 79 (65) 208 4
------- ------- ------- -------
Net income (loss) $ 222 (1,143) 240 (2,550)
======= ======= ======= =======
Earnings (loss) per common and common
equivalent share:
Primary $ 0.02 (0.13) 0.03 (0.29)
======= ======= ======= =======
Fully Diluted $ 0.02 (0.13) 0.03 (0.29)
======= ======= ======= =======
Shares used in computing per share amounts
Primary 9,311 8,797 9,223 8,792
======= ======= ======= =======
Fully Diluted 9,384 8,797 9,411 8,792
======= ======= ======= =======
See accompanying notes to consolidated financial statements.
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DNX CORPORATION AND SUBSIDIARIES
Consolidated Statement of Stockholders' Equity
Six months ended June 30, 1996
(in thousands except shares)
(unaudited)
Additional Total
Common paid-in Translation Accumulated stockholders'
stock capital adjustment deficit equity
----- ------- ---------- ------- ------
Balance, December 31, 1995 $86 57,000 1,095 (30,848) 27,333
Issuance of 93,496 shares
of common stock upon
exercise of stock options
and warrants 1 85 -- -- 86
Issuance of 7,492 shares
of common stock pursuant
to 401(k) plan -- 40 -- -- 40
Translation adjustment -- -- (433) -- (433)
Net income -- -- -- 240 240
--- ------ ------ ------- -------
Balance, June 30, 1996 $87 57,125 662 (30,608) 27,266
=== ====== ====== ======= =======
See accompanying notes to consolidated financial statements.
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DNX CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Six months ended June 30, 1996 and 1995
(in thousands)
(unaudited)
Six months ended
June 30,
1996 1995
-------- ------
Cash flows from operating activities:
Net income (loss) $ 240 (2,550)
Adjustments to reconcile net income (loss) to net cash provided by
(used in) operating activities:
Non-cash items:
Depreciation and amortization 1,237 1,403
Deferred income tax expense (benefit) 7 (49)
Gain (loss) on disposal of property, plant and equipment (3) 4
Amortization of premium on short-term investments 163 36
Noncash charges 40 55
Equity in net loss of Nextran - 2,181
Change in operating assets and liabilities:
(Increase) decrease in accounts receivable (93) 206
(Increase) decrease in prepaid expenses and other current assets 20 (332)
(Increase) decrease in other assets (370) 67
Increase in accounts payable 409 19
Increase (decrease) in accrued expenses 140 (1,398)
Decrease in deferred revenue (986) (1,160)
Increase in other liabilities 14 42
-------- ------
Net cash provided by (used in) operating activities 818 (1,476)
-------- ------
Cash flows from investing activities:
(Increase) decrease in restricted cash 317 954
Purchase of property, plant and equipment (519) (556)
Proceeds from disposal of property, plant and equipment 36 4
Purchases of intangibles assets (18) (17)
Purchases of short-term investments (5,409) (2,055)
Proceeds from maturities of short-term investments 1,000 -
-------- ------
Net cash used in investing activities (4,593) (1,670)
-------- ------
Cash flows from financing activities:
Principal payments on short-term borrowings (1,005) 727
Proceeds from borrowings of long-term debt - 61
Principal payments on long-term debt (705) (384)
Proceeds from stock options exercised 86 8
-------- ------
Net cash provided by (used in) financing activities (1,624) 412
-------- ------
Effect of exchange rate changes on cash 33 (54)
-------- ------
Decrease in cash and cash equivalents (5,366) (2,788)
Cash and cash equivalents, beginning of period 20,042 4,404
-------- ------
Cash and cash equivalents, end of period $ 14,676 1,616
======== ======
Supplemental disclosure of cash flow information Cash paid during the period
for:
Interest $ 329 425
Income taxes 7 810
-------- ------
See accompanying notes to consolidated financial statements.
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DNX CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 1996
(unaudited)
Note 1. Statement of Accounting Presentation
------------------------------------
In the opinion of DNX Corporation and Subsidiaries (as defined below)
(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, 1996, and the consolidated results of operations and
cash flows for the three and six month periods ended June 30, 1996 and 1995. The
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, 1995. The information set forth in the
accompanying consolidated balance sheet as of December 31, 1995 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, 1995.
Interim results are not necessarily indicative of the results for the
full year.
Note 2. Earnings (Loss) Per Share
-------------------------
Earnings (loss) per common and common equivalent share is computed
based upon the weighted average number of common shares outstanding during the
periods, plus when their effect is dilutive, common stock equivalents consisting
of certain shares subject to stock options and warrants, and gives effect to
certain adjustments as prescribed by Securities and Exchange Commission Staff
Accounting Bulletin 83.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
GENERAL SUMMARY
The Company is a contract research organization ("CRO") whose principal
activities consist of preclinical drug development services conducted through
its two wholly-owned subsidiaries, Pharmakon Research International, Inc.
("Pharmakon") and DNX Biotherapeutics, Inc. ("DNX Biotherapeutics"), currently
doing business as DNX Transgenics ("DNX Transgenics," together with Pharmakon,
the "Subsidiaries"). Pharmakon provides preclinical drug development and safety
assessment services, including in vitro and in vivo toxicological,
pharmacological and pharmacokinetics testing services, to the pharmaceutical,
biotechnology, chemical and other industries through its United States
operations and its European subsidiary, Pharmakon Europe. A primary component of
Pharmakon's preclinical drug development services consists of specialty services
such as general and safety pharmacology, continuous infusion techniques,
immunology and immunotoxicology. DNX Transgenics uses its proprietary transgenic
animal technology to provide drug development services to the pharmaceutical,
biotechnology and medical communities via the development of laboratory animal
models that more closely mimic human biological processes than do conventional
laboratory animal models for use in in vivo testing for drug discovery and
development and in biomedical research.
The Company also grants sublicenses of its proprietary Pronuclear DNA
Microinjection technology, the process widely used in the pharmaceutical and
biotechnology industries to develop transgenic animals. These sublicenses
entitle the Company to receive revenues consisting of fees and, in certain
cases, royalties. Additionally, although the Company has sold its partnership
interest in Nextran, in the event that Nextran develops and commercializes
hemoglobin blood substitutes using technologies licensed to Nextran by the
Company, the Company will receive royalty income.
Pharmakon accounted for more than 95% of the Company's revenues for the
years ended December 31, 1995 and 1994 and the six months ended June 30, 1996.
Since the majority of Pharmakon Europe's revenues, which accounted for
approximately 69% of the Company's revenues for the year ended December 31, 1995
and 67% of the Company's revenues for the six months ended June 30, 1996, are
denominated in French Francs, fluctuations in the exchange rate between the
French Franc and the U.S. dollar have an effect on the Company's operating
results.
FORMATION AND SALE OF NEXTRAN
- -----------------------------
On August 29, 1994, DNX Biotherapeutics entered into a Joint Venture
Agreement (the "Joint Venture Agreement") with Baxter Transplant Holdings
("Holdings"), a wholly-owned subsidiary of Baxter Healthcare Corporation
("Baxter"), which is a subsidiary of Baxter International, Inc., to form
Nextran, a Delaware general partnership, in which DNX Biotherapeutics had a 30%
partnership interest and Holdings has a 70% partnership interest. Pursuant to
the terms of the Purchase Agreement, dated
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September 22, 1995, as amended, DNX Biotherapeutics consummated the sale of its
30% partnership interest in Nextran to Transplant Acquisition Inc.
("Acquisition"), a wholly-owned subsidiary of Baxter, for a cash purchase price
of $18 million. See Note 6 of the Notes to Consolidated Financial Statements
contained in the Company's Form 10-K Annual Report for the fiscal year ended
December 31, 1995.
RESULTS OF OPERATIONS
REVENUES
- --------
Revenues were $7,446,000 for the three months ended June 30, 1996
versus $6,619,000 for the same period in 1995, an increase of 12.5%. Revenues
were $14,566,000 for the six months ended June 30, 1996 versus $13,586,000 for
the same period in 1995, an increase of 7.2%. The increase in revenues for the
three and six month periods ended June 30, 1996 as compared to the same periods
in 1995 was primarily due to an increase in business activity in preclinical
drug development services in both the European and U.S. marketplaces. The
Company believes the increase in business activity is a result of the
improvement in the pharmaceutical industry outsourcing trends and expanded cash
reserves within the biotechnology sector. Additionally, revenue for the six
months ended June 30, 1995 included approximately $275,000 of revenue,
classified as license fees and other contracts, primarily from a government
contract that was terminated in 1995.
OPERATING EXPENSES
- ------------------
Cost of commercial services was $5,719,000 or 78% of commercial service
revenues for the three months ended June 30, 1996 and $5,387,000 or 84% of
commercial service revenues for the same period in 1995. For the six months
ended June 30, 1996, cost of commercial services was $11,275,000 or 79% of
commercial service revenues and $10,738,000 or 82% of commercial services
revenue for the same period in 1995. The increase in these costs for the three
and six month periods ended June 30, 1996 versus the same periods in 1995 was
primarily due to (i) increased business activity, which resulted in an increase
in variable costs such as materials and supplies, and (ii) an increase in
commercial service activity associated with DNX Transgenics. The decrease in
these costs as a percent of revenues is due to the leveraging of a base cost
structure of management and scientific personnel, equipment and facilities which
supported a higher level of business in the first six months of 1996 than
experienced during the same period in 1995.
Research and development expenses decreased 44% to $132,000 for the
three month period ended June 30, 1996 from $236,000 for the same period in
1995. For the six month periods ended June 30, 1996 and 1995, research and
development expense decreased 55% to $236,000 from $521,000, respectively. The
decrease in expenses was primarily the result of the shift in the strategic
focus of DNX Transgenics from the internal development of transgenic animal
models to providing commercial specialty drug development services.
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General, administrative and marketing expenses were $1,494,000 for the
three months ended June 30, 1996 versus $1,324,000 for the same period in 1995.
For the six month periods ended June 30, 1996 and 1995, these expenses were
$3,026,000 and $2,794,000, respectively. The increase in expenses was primarily
the result of increased marketing and business development expenses.
OTHER INCOME (EXPENSE)
- ----------------------
Other income (expense) amounted to $200,000 for the three months ended
June 30, 1996 versus $0 for the same period last year. For the six months ended
June 30, 1996 and 1995, other income (expense) was $419,000 and $102,000,
respectively. The increase in other income for 1996 as compared to 1995 is
primarily the result of (i) the increase in cash available for investment and
(ii) the decrease in interest expense as a result of the decrease in interest
rates applicable to the Company's debt instruments. Additionally, in the first
quarter of 1995, the Company transferred its lease obligation on the former
Plainsboro pilot plant facility to a third party and sold certain equipment
associated with this facility to the same party for a total of $600,000 to be
paid in monthly installments through September 1996. Other income for the six
months ended June 30, 1996 and 1995 includes income of $150,000 and $326,000,
respectively, associated with the transactions for this facility.
EQUITY IN NET LOSS OF NEXTRAN
- -----------------------------
As a result of the sale of its partnership interest in Nextran in September
1995, the Company no longer records a share of Nextran's financial results of
operations in its consolidated financial statements. Prior to September 30,
1995, as a result of its minority equity ownership in Nextran, the Company
recorded its share of Nextran's financial results in its consolidated financial
statements based on the equity method of accounting. For the three and six month
periods ended June 30, 1995, the Company's share of Nextran's loss amounted to
$880,000 and $2,181,000, respectively.
TAXES
- -----
The Company's Pharmakon Europe subsidiary is subject to foreign income
taxes under French tax laws on the profits generated in France. The 1996 French
corporate income tax rate is approximately 37%. For the three and six months
ended June 30, 1996, the Company recorded income tax expense of $79,000 and
$208,000, respectively, as compared to income tax expense (benefit) of ($65,000)
and $4,000 for the three and six months ended June 30, 1995, respectively, due
to operating results generated by Pharmakon Europe.
The impact from United States federal and state income taxes is
currently not significant due to the Company's available net operating loss
carryforwards. At December 31, 1995, the Company had available net operating
loss carryforwards of approximately $20,318,000 for United States federal and
state income tax purposes. Such loss carry forwards expire through 2009 and
2001, respectively. The Company also has research and development tax credit
carryforwards of approximately $2,982,000 for federal income tax reporting
purposes which are available to reduce federal income taxes, if any, through
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2010. The Company has alternative minimum tax credit carryforwards of
approximately $200,000 for federal income tax purposes which are available to
reduce federal income taxes, if any. These tax credits have an unlimited
carryforward period.
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, 1996, the
Company had cash reserves (consisting of cash and cash equivalents, short-term
investments and restricted cash) of $20,383,000. The Company invests its cash in
a diversified portfolio of high-grade money market funds, United States
Government-backed securities and commercial paper and corporate obligations.
During the first six months of 1996, while the Company generated $818,000 from
operating activities, the Company's cash reserves decreased by $1,437,000
primarily due to reductions in the outstanding principal amounts of short-term
borrowings and long-term debt totaling $1,710,000.
DEBT
- ----
In December 1992, Pharmakon acquired Pharmakon Europe through a stock
purchase. Included in the purchase price were promissory notes having an
aggregate principal amount of $7.0 million (the "Pharmakon Notes"). The
remaining unpaid principal balance as of June 30, 1996 of $5,000,000 will be
paid in December 1997. The payment of the Pharmakon Notes is secured by a pledge
of the capital stock of Pharmakon Europe, a pledge of certain assets of
Pharmakon, a guarantee by the Company and a security interest in fees and
royalties payable to the Company under sublicenses of its proprietary DNA
Microinjection Technology. The Pharmakon Notes require prepayments in specified
amounts upon the Company selling any of its shares of common stock of Pharmakon.
The promissory notes contain various covenants, the most restrictive of which
prohibit the payment of dividends by Pharmakon to the Company and the sale of
any Pharmakon Europe assets that are not made in the ordinary course of
business.
In connection with its new U.S. facility, in 1994 Pharmakon secured (i)
a $1.5 million 15-year mortgage with a bank and (ii) a $1.2 million 15-year
mortgage from a Pennsylvania agency, which required cash collateral of $450,000.
These two loans are also secured by mortgages on the property acquired. The cash
collateral on the mortgage loan with the Pennsylvania agency is classified as
restricted cash as of June 30, 1996. If the Company achieves certain financial
covenants, this $450,000 of cash collateral will be released. 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.
Pharmakon Europe has lines of credit and overdraft privileges with
French banks in the aggregate amount of 10.5 million French Francs ($2.0 million
at the exchange rates in effect June 30, 1996). At December 31, 1995, there were
short-term borrowings outstanding under these facilities in the amount of 6.9
million French Francs ($1,399,000
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at December 31, 1995) which, as of June 30, 1996, has been reduced to 1.8
million French Francs ($347,000 at the exchange rate in effect on June 30,
1996).
In March 1993, DNX Biotherapeutics obtained a $3.0 million debt
financing facility from a bank in the form of an equipment line of credit which
is guaranteed by the Company. In connection with the curtailment of the blood
substitute program in 1993, DNX Biotherapeutics discontinued borrowings under
this line of credit and is paying the principal balance of $222,000 outstanding
on June 30, 1996 in monthly installments through January 1997. The loan is
secured by a security interest in the equipment acquired and the payments due to
the Company under the installment sale of certain equipment associated with the
transfer of the lease obligation on the former Plainsboro pilot plant facility.
In connection with the formation of Nextran, the Company entered into a
services/lease agreement whereby Nextran leases 49% of the equipment subject to
this loan and makes monthly payments to the Company equal to Nextran's
proportionate share of the monthly payment due under this loan based on the
equipment.
In May 1994, Pharmakon obtained a $500,000 equipment loan from a
Pennsylvania agency secured by certain of the equipment required in connection
with the expansion of Pharmakon's United States operations. The loan is payable
in equal monthly installments through June 2001. The funding period for this
loan ended on December 31, 1995. In April, 1996, $288,000, representing the
unused proceeds from this equipment loan, was returned to the Pennsylvania
agency.
CAPITAL REQUIREMENTS
- --------------------
The Company believes that with its current financial resources it has
the ability to meet its working capital requirements on an ongoing basis for the
foreseeable future. The Company anticipates that its future capital requirements
may include investment for expansion of its operating infrastructure to meet
anticipated increased demand for preclinical drug development services from the
pharmaceutical and biotechnology industries. In addition, a $5,000,000 payment
on the principal balance of the Pharmakon Notes will be due in December 1997.
Additionally, the Company from time to time is engaged in discussions regarding
strategic acquisitions of organizations providing various drug development
services and may finance such acquisition with its existing cash resources or by
additional public or private debt or equity financings or through the issuance
of stock. In the event any such acquisition requires financing, there can be no
assurance that such financing will be available to the Company or if available,
that it will be available on acceptable terms. Also, there can be no assurance
that the Company will consummate such a transaction or obtain any such
financing, or if consummated, that such financing arrangements will satisfy a
material portion of the Company's capital needs. Although the Company
continually evaluates potential acquisitions and related opportunities for
growth, and is in the final stages of negotiations regarding a potential
acquisition, it has not entered into any definitive agreements with respect to
any such acquisition.
As a former general partner of Nextran, the Company remains obligated
with respect to certain environmental representations and warranties which
expire on August
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29, 1997. Such representations and warranties are also limited by certain
financial indemnification provisions.
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 operating subsidiaries, Pharmakon and DNX
Transgenics; success in licensing the Company's DNA Microinjection technology;
the exchange rate between the United States dollar and the French Franc in the
event funds from the Company's Pharmakon Europe operation are needed to meet
capital requirements of the Company's U.S. operations; the level of Company
resources devoted to marketing and administration; technological advances; and
the status of competitors.
EXCHANGE RATE FLUCTUATIONS
- --------------------------
The Company's consolidated financial statements are denominated in U.S.
dollars and, accordingly, changes in the exchange rate between the French Franc
and the U.S. dollar will affect the translation of Pharmakon Europe'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 such subsidiary. Based on the assumption that
Pharmakon Europe continues 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 Company's revenues and an unfavorable impact on
the Company's operating expenses due to the effect of such currency translation
on Pharmakon Europe'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.
The Company does not currently hedge its currency translation exposure.
Contracts between Pharmakon Europe and its clients are generally
denominated in French Francs. Because substantially all of Pharmakon Europe's
expenses, such as salaries, services, materials and supplies, are paid in French
Francs, its expenses are not materially affected by fluctuations in exchange
rates. However, given that the majority of Pharmakon Europe's clients and
competitors are located outside of France, exchange rate fluctuations may
materially impact contract prices and therefore may materially impact the
results of operations of Pharmakon Europe and the Company.
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The results of operations of Pharmakon Europe denominated in French
Francs have been translated from French Francs into U.S. dollars using the
following exchange rates:
French Franc U.S. dollar per
Period per U.S. dollar French Franc
------ --------------- ------------
1st quarter 1995 5.1602 .1938
2nd quarter 1995 4.9161 .2034
3rd quarter 1995 4.9393 .2025
4th quarter 1995 4.9232 .2031
1st quarter 1996 5.0384 .1985
2nd quarter 1996 5.1578 .1939
The rates in the above table represent an average exchange rate calculated using
rates quoted in The Wall Street Journal.
ACCUMULATED DEFICIT
- -------------------
Since its inception in 1988 until the formation and subsequent sale of
its partnership interest in Nextran in 1995, the Company has expended
substantial funds for research and development and capital expenditures. A
significant portion of such expenditures were made to support DNX
Biotherapeutics' organ transplantation and blood substitute research and
development programs, which programs were transferred to the Nextran
partnership. Historically, these programs have accounted for a substantial
portion of the Company's accumulated deficit.
NEW ACCOUNTING PRONOUNCEMENT
- ----------------------------
In October 1995, the FASB issued Statement 123, "Accounting for
Stock-Based Compensation" ("SFAS 123"). SFAS 123 presents companies with the
alternative of retaining the current accounting for stock-based compensation or
adopting a new accounting method based on the estimated fair value of equity
instruments granted during the year. Companies that do not adopt the fair value
based method of accounting will be required to adopt the disclosure provisions
of SFAS 123 for the year ending December 31, 1996. The Company expects to
continue applying its current accounting principles and upon adoption in 1996
will present the required footnote disclosures.
INFLATION
- ---------
The Company believes that inflation has not had a material impact on
its results of operations.
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PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
a. Exhibits
11.1 Statement Re: Computation of earnings (loss) per share.
27 Financial Data Schedule
b. Reports on Form 8-K
None.
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DNX 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, 1996 and
1995, 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 14, 1996 DNX CORPORATION
/s/ John G. Cooper
---------------------------------------
John G. Cooper
Senior Vice President, Chief Financial
Officer and Treasurer
(Duly Authorized Officer and Chief
Accounting Officer)
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