|UNITED STATESSECURITIES
AND EXCHANGE COMMISSIONWashington,
D.C. 20549


FORM 10-Q


QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934


For the
Quarter Period Ended September 30, 2001


Commission file number
0-11580



PHARMAKINETICS
LABORATORIES, INC.(Exact Name of Registrant as Specified in its Charter)
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Maryland(State of Incorporation) | 52-1067519(I.R.S. Employer Identification No.)
|-------------------------------- | ----------------------------------------------

|302 West Fayette Street
Baltimore, Maryland 21201 (Address of Principal Executive Offices)



Registrants Telephone
Number, Including Area Code (410) 385-4500



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  [_]
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|ClassCommon Stock, $.005 par value | Outstanding November 12, 20012,496,129
|---------------------------------- | --------------------------------------

|PHARMAKINETICS
LABORATORIES, INC.INDEX
|--------------------------------------

|         |  | Page                                                                
|-------- |  | --------------------------------------------------------------------
|Part I.  |  | FINANCIAL INFORMATION                                               
|        
|         |  | Item 1.   Financial Statements                                      
|        
|         |  | Consolidated Balance Sheets                                         
|        
|         |  | Consolidated Statements of Operations                               
|        
|         |  | Consolidated Statements of Changes in Stockholders Equity          
|        
|         |  | Consolidated Statements of Cash Flows                               
|        
|         |  | Notes to Consolidated Financial Statements                          
|        
|         |  | Item 2.   Managements Discussion and Analysis of Financial Position
|         |  | And Results of Operation                                            
|        
|         |  | Item 3.   Quantitative and Qualitative Disclosures about Market Risk
|        
|Part II. |  | OTHER INFORMATION                                                   
|        
|         |  | Item 1.   Legal Proceedings                                         
|        
|         |  | Item 2.   Changes in Securities                                     
|        
|         |  | Item 3.   Defaults Upon Senior Securities                           
|        
|         |  | Item 4.   Submission of Matters to a Vote of Security Holders       
|        
|         |  | Item 5.   Other Information                                         
|        
|         |  | Item 6.   Exhibits and Reports on Form 8-K                          
|        
|         |  | Signatures                                                          

|1
|-

|Part I. FINANCIAL
INFORMATION



Item 1.
Financial Statements


The
consolidated financial statements included in this report have been prepared,
without audit, pursuant to the rules and regulations of the Securities and
Exchange Commission. Certain information and footnote disclosures normally
included in consolidated 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. These
consolidated financial statements should be read in conjunction with the audited
financial statements and the related notes included in our annual report on Form
10-K for the fiscal year ended June 30, 2001.


In
the opinion of our management, any adjustments contained in the accompanying
unaudited consolidated financial statements are of a normal recurring nature
necessary to present fairly its financial position, results of operations,
changes in stockholders equity and cash flows as of and for the
three-month period ended September 30, 2001. Interim results are not necessarily
indicative of results for the full fiscal year.



PHARMAKINETICS
LABORATORIES, INC. CONSOLIDATED BALANCE SHEETS(in
thousands, except share data)
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                               | September 30, 2001(unaudited) | June 30, 2001
|---------------------------------------------- | ----------------------------- | -------------
|ASSETS                                         |                               |              
|Current assets:                                |                              
|Cash and cash equivalents                      |                               | $      547   
|Accounts receivable, net                       |                               | 550          
|Contracts in process                           |                               | 56           
|Prepaid expenses                               |                               | 227          
|                                               |                               |              
|Total current assets                           |                               | 1,380        
|Property, plant and equipment, net             |                               | 3,318        
|Other assets                                   |                               | 66           
|                                               |                               |              
|                                               |                               | $   4,764    
|                                               |                               |              
|LIABILITIES AND STOCKHOLDERS EQUITY           |                              
|Current liabilities:                           |                              
|Accounts payable                               |                               | $      528   
|Accrued expenses                               |                               | 875          
|Deposits on contracts in process               |                               | 553          
|                                               |                               |              
|Total current liabilities                      |                               | 1,956        
|                                               |                               |              
|Stockholders Equity:                          |                              
|Convertible Preferred stock:                   |                              
|Class A, no par value; authorized 1,500,000    |                              
|shares;  issued and outstanding, 833,300       |                              
|shares at Sept. 30, 2001 and June 30, 2001,    |                              
|respectively                                   |                               | 4,938        
|Class B, no par value; issued and outstanding, |                              
|250,000 shares at Sept. 30, 2001 and June 30,  |                              
|2001, respectively                             |                               | 273          
|Common stock, $.005 par value; authorized,     |                              
|10,000,000 shares; issued and outstanding,     |                              
|2,496,129 shares at Sept. 30, 2001 and         |                              
|June 30, 2001, respectively                    |                               | 12           
|Additional paid-in capital                     |                               | 11,930       
|Accumulated deficit                            |                               | (14,345      
|                                               |                               |              
|Total stockholders equity                     |                               | 2,808        
|                                               |                               |              
|                                               |                               | $   4,764    
|                                               |                               |              

|See
accompanying notes to consolidated financial statements.

2
|---------------------------------------------------------------

|PHARMAKINETICS
LABORATORIES, INC.                                               CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
                                                                           (in thousands, except for share data)
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                     | Three Months EndedSeptember 30,
|------------------------------------ | -------------------------------
|
|Revenues                             |                                
|Cost and expenses:                   |                                
|Cost of contracts                    |                                
|Selling, general and administrative  |                                
|Research and development             |                                
|                                     |                                
|Total costs and expenses             |                                
|                                     |                                
|(Loss) income from operations        |                                
|Other income and (expenses):         |                                
|Interest income, net                 |                                
|                                     |                                
|                                     |                                
|                                     |                                
|Net (loss) income                    |                                
|                                     |                                
|(Loss) earnings per common shares:   |                                
|Basic                                |                                
|                                     |                                
|Diluted                              |                                
|                                     |                                
|Shares used in calculation of (loss) |                                
|earnings per common share:           |                                
|Basic                                |                                
|                                     |                                
|Diluted                              |                                
|                                     |                                

|See
accompanying notes to consolidated financial statements.


3
|----------------------------------------------------------------

|3PHARMAKINETICS
LABORATORIES, INC.CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS EQUITY (unaudited)
Three Months Ended September 30, 2001(in thousands, except share data)
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                            | Preferred Stock
|--------------------------- | ---------------
|
|
|Balance, July 1, 2001       |                
|Comprehensive loss          |                
|Net loss                    |                
|Other comprehensive loss    |                
|                            |                
|Total comprehensive loss    |                
|                            |                
|                           
|Balance, September 30, 2001 |                
|                           

|See accompanying notes to
consolidated financial statements
4
|-------------------------------------------------------------

|PHARMAKINETICS
LABORATORIES, INC.
 CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
         (in thousands, except share data)
|-------------------------------------------------------------------------------------------------------------------------------

|                                                                    | Three Months Ended,September 30,
|------------------------------------------------------------------- | --------------------------------
|
|CASH FLOWS FROM OPERATING ACTIVITIES:                               |                                 
|Net loss                                                            |                                 
|Adjustments to reconcile net loss to net cash provided by (used in) |                                 
|operating activities:                                               |                                 
|Depreciation and amortization                                       |                                 
|Changes in operating assets and liabilities:                        |                                 
|Accounts receivable, net                                            |                                 
|Contracts in process                                                |                                 
|Prepaid expenses and non-current other assets                       |                                 
|Accounts payable and accrued expenses                               |                                 
|Deposits on contracts in process                                    |                                 
|                                                                    |                                 
|Net cash provided by (used in) operating activities                 |                                 
|                                                                    |                                 
|CASH FLOWS FROM INVESTING ACTIVITIES:                               |                                 
|Purchases of property and equipment                                 |                                 
|                                                                    |                                 
|Net cash used in investing activities                               |                                 
|                                                                    |                                 
|CASH FLOWS FROM FINANCING ACTIVITES:                                |                                 
|Payments on capital lease obligations                               |                                 
|                                                                    |                                 
|Net cash used in financing activities                               |                                 
|                                                                    |                                 
|Net increase (decrease) in cash and cash equivalents                |                                 
|CASH AND CASH EQUIVALENTS AT THE BEG. OF PERIOD                     |                                 
|                                                                    |                                 
|CASH AND CASH EQUIVALENTS AT THE END OF PERIOD                      |                                 
|                                                                    |                                 
|Supplemental disclosures of cash flow information:                  |                                 
|Interest paid                                                       |                                 
|                                                                    |                                 

|See accompanying notes to
consolidated financial statements.

5
|---------------------------------------------------------------

|PHARMAKINETICS
LABORATORIES, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(unaudited)


1.  
Organization and Description of Business


PharmaKinetics
Laboratories, Inc. (PharmaKinetics or the Company) is a
contract research organization (CRO), located in Baltimore,
Maryland, providing a range of clinical research and development services to the
worldwide pharmaceutical and biotechnology industries in the development of
prescription and non-prescription drug products. These services include Phase I
clinical research, bioanalytical laboratory testing, and the management and
monitoring of multi-center clinical trials. The Company offers ancillary
services in these areas such as protocol development, case report form design,
data management, biostatistics and regulatory consulting.





2.  Summary of
Significant Accounting


Principles
of Consolidation



The accompanying consolidated financial statements include the results of the Company and the PK
Limited
Partnership, a wholly owned subsidiary, which owns the building the Company
occupies. The Company includes 100% of the building operations in its financial
statements.


Reclassifications


Certain
prior year amounts have been reclassified to conform to the current year
presentation.


Use
of Estimates


The
preparation of the Companys financial statements in conformity with
generally accepted accounting principles in the Unites States of America,
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities, revenues and expenses, and disclosure of
contingent assets and liabilities at the date of the financial statements.
Actual amounts will differ from these estimates.


Earnings
(Loss) per Share



Basic earnings (loss) per share (EPS) is computed by dividing earnings (loss) by the weighted-average
number
of shares outstanding for the period. The computation of Diluted EPS is similar
to Basic EPS except that the weighted-average number of shares outstanding for
the period is increased to include the number of additional
  shares that would have been outstanding if the dilutive potential common shares had been issued.
  Potential common shares are excluded if the effect on earnings (loss) per share is antidilutive.


The following table presents the computations of basic and diluted EPS:
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                         | Three Months Ended 
    September 30,
(in thousands, except share data)
|---------------------------------------- | -----------------------------------------------------------------------
|
|Net (loss) income                        |                                                                        
|                                         |                                                                        
|Basic (loss) earnings per common share   |                                                                        
|                                         |                                                                        
|Diluted (loss) earnings per common share |                                                                        
|                                         |                                                                        
|Weighted-average shares used to compute  |                                                                        
|basic (loss) earnings per common share   |                                                                        
|                                         |                                                                        
|Effect of dilutive securities            |                                                                        
|                                         |                                                                        
|Weighted-average shares used to compute  |                                                                        
|diluted (loss) earnings per common share |                                                                        
|                                         |                                                                        

|6
|-

|Item 2. Managements
Discussion and Analysis of Financial Condition and Results of Operation


Liquidity and
Capital Resources


The
Company had cash and cash equivalents of $547,000 at September 30, 2001. The
Companys primary source of funds is cash flow from operations, which was
$133,000. The Company seeks to finance the acquisition of capital assets through
leasing arrangements. There were no such arrangements in place at September 30,
2001 nor did the Company acquire capital assets during the quarter.


The
operating environment confronting the Company raises significant uncertainty
about the Companys ability to continue as a going concern. The
Companys near term and long-term operating strategies focus on its sales
and marketing efforts to gain new as well as previous customers. In addition,
the Company has and is pursuing cost cutting measures and is taking other
appropriate steps to manage the Companys cash balances. The Company
maintains a backlog of its business, representing studies underway in-house for
which revenue has not yet been recognized, and studies that have been awarded to
the Company by its various clients, but have yet to begin. At October 26, 2001,
the backlog was approximately $6.4 million. The Company expects to recognize
revenue from this backlog during fiscal 2002 and future fiscal years. The
Company believes that the successful implementation of its plans will enable the
Company to return to profitability and allow the Company to meet its cash needs.


The
Company cannot guarantee that the results from operations will be sufficient to
support the Companys liquidity requirements through September 30, 2002 and
beyond. There can be no assurance that the above actions will be accomplished or
whether they will be adequate.


Results of
Operations


Revenues


Revenues
consisted of the following:
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Three months ended, September 30, (in thousands)
| |  | ------------------------------------------------
|
| |  | Phase I Services                                
| |  | Bioanalytical Laboratory Services               
| |  | Clinical Trial Mgt and Monitoring               
| |  | Licensing                                       
| |  | Consulting Services                             
| |  |                                                 
| |  | Total                                           
| |  |                                                 

|Total
revenues were $2.2 million compared to $2.6 million for the three months ended
September 30, 2001 and 2000, respectively. The decrease is primarily in the area
of Phase I services  bioequivalence studies and Phase I clinical trials,
$0.4 million compared to $1.7 million for the three months ended September 30,
2001 and 2000, respectively. Clinical trial management and monitoring increased
to $1.5 million compared to $0.3 million for the three months ended September
30, 2001 and 2000, respectively. The Company has strategically focused its sales
and marketing efforts on maintaining the core Phase I services while expanding
other key revenue sources, primarily in the areas of clinical trials management
and monitoring and bioanalytical laboratory services.


Cost of
Contracts


Cost
of contracts were $2.3 million compared to $2.0 million for the three months
ended September 30, 2001 and 2000, respectively. The increase is primarily
attributable to the Companys clinical trials management and monitoring
services. These costs include compensation and fringe benefits in addition to
certain supply and external costs related to the services provided.


7
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Selling,
General and Administrative


Selling,
general and administrative (SG&A) expenses were $0.4 million
compared to $0.5 million for the three months ended September 30, 2001 and 2000,
respectively. The decrease in SG&A expenses is attributable to an increase
to the allowance for doubtful accounts of $63,000 in fiscal year 2001. There
were no such increases to the reserve for the three months ended September 30,
2001.


Research and
Development


Research
and development (R&D) expenses were $44,000 compared to $34,000
for the three months ended September 30, 2001 and 2000, respectively. Due to the
nature of the Companys bioanalytical laboratory services, it requires the
Company to develop new assay methods in testing pharmaceutical products. The
Company continues, when possible, to invest in its research and development
program to develop methods for utilization in current and future studies related
primarily to its LC/MS/MS instrumentation.


Income Taxes


No
benefit for income taxes was recorded for the three months ended September 30,
2001 and 2000, due to the uncertainty of utilizing such benefits.


Other Income
and Expenses


Other income and expenses consists primarily of interest income earned on
overnight investments and interest expense related to capital lease obligations.
Income was approximately $6,000 compared to $10,000 for the three months ended
September 30, 2001 and 2000, respectively. The decrease in interest income is
primarily related to a reduction in the average invested cash balances. Interest
expense was approximately $1,200 compared to $4,600 for the three months ended
September 30, 2001 and 2000, respectively. The decrease in interest expense is
primarily due to the expiration of capital lease in fiscal year 2001.



Item 3.
Quantitative and Qualitative Disclosure About Market RiskInterest Rate Risks


The
exposure to market risk for changes in interest rates relates primarily to the
Companys short-term investments, which generally have maturities of three
months or less. The Company does not use derivative financial instruments for
speculative or trading purposes. The Company invests its excess cash in
short-term fixed income financial instruments with an investment strategy to buy
and hold to maturity.


Foreign
Currency Risk


The
Company does not have exposure to foreign currency exchange rate fluctuations
since the Companys contracts require payment to the Company in U.S.
dollars.



8
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Part II. OTHER
INFORMATION



Item 1. Legal
Proceedings:


None



Item 2.
Changes In Securities:


None



Item 3. Defaults
Upon Senior Securities:


None



Item 4. Submission of
Matters to a Vote of Security Holders:


None



Item 5. Other
Information:


None



Item 6.
Exhibits and Reports on Form 8-K:


A. Exhibits


None


B. Reports on
Form 8-K


None



9
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|SIGNATURES


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: November 14, 2001 |  | PHARMAKINETICS LABORATORIES, INC.By: /s/ James M. Wilkinson, II, Ph.D.
James M. Wilkinson, II, Ph.D.Chief Executive Officerand President
|----------------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------

|Date: November 14, 2001 |  | By: /s/ Jeffrey A. Scheidt
Jeffrey A. ScheidtVice President and
  Chief Financial Officer
  (Principal Financial Officer
  and Principal Accounting Officer)
|----------------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10
|--