<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 8-K/A
AMENDMENT NO. 1
CURRENT REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): December 31, 1996
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APPLIED ANALYTICAL INDUSTRIES, INC.
-----------------------------------
(Exact Name of Registrant as Specified in its Charter)
Delaware
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(State or Other Jurisdiction of Incorporation or Organization)
0-21185 04-2687849
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(Commission File Number) (I.R.S. Employer Identification Number)
5051 New Centre Drive
Wilmington, North Carolina 28403
--------------------------------
(Address of Principal Executive Offices) (Zip Code)
(910) 392-1606
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(Registrant's Telephone Number, Including Area Code)
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APPLIED ANALYTICAL INDUSTRIES, INC.
FORM 8-K/A
(Any item which is not applicable or to which the answer is negative
has been omitted.)
Item 2. Acquisition or Disposition of Assets.
On December 31, 1996, Applied Analytical Industries, Inc. ("AAI"), through its
wholly-owned subsidiary, My Asset Management GmbH and another wholly-owned
German subsidiary, exercised options to acquire all of the outstanding
ownership of L.A.B. Gesellschaft fur pharmakologische Untersuchungen mbH & Co.
("L.A.B."). The controlling ownership interest was acquired from Friedrich
Herzog von Wurttemberg.
L.A.B. is a European contract research and development organization
headquartered in Neu-Ulm, Germany with principal operational units in Neu-Ulm,
and Munich, Germany and Paris, France, with smaller operational units in
Stuttgart, Germany; Arnheim, Netherlands; London, England; and Budapest,
Hungary. It employs approximately 250 scientists, technicians and support
personnel, 40 or more with Ph.D. or M.D. degrees. L.A.B. focuses on both
clinical and non-clinical pharmaceutical product development and provides
services that include drug formulation development; chemical analysis; Phase I
clinical studies; bioanalytical testing; and European regulatory consulting.
The firm also provides controlled Phase II-A studies and multi-center trials
focused in niche therapeutic areas including hepatic disease,
chemotherapeutics, and hormone replacement therapy.
The acquisition will be accounted for using the purchase method of accounting.
The aggregate acquisition cost, including current and deferred payments to
former owners, amounts advanced to L.A.B. to retire existing bank debt and other
liabilities, contingencies and acquisition costs, is approximately $20.9
million. The acquisition will be funded through the release of an escrow
deposit; current cash payments from existing cash balances of AAI, exclusive of
any proceeds from its recent initial public offering; with the remainder,
including deferred payments to former owners, payments on L.A.B. bank debt and
other liabilities and contingencies expected to be paid out over the next few
years, with cash flow from operations.
2
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Item 7. Financial Statements and Exhibits.
(a) Financial statements of the business acquired:
Page
----
L.A.B., historical financial statements
for the years ended December 31, 1996 and 1995:
Report of Independent Accountants F-1
Consolidated Balance Sheet F-2
Consolidated Statement of Operations F-3
Consolidated Statement of Cash Flows F-4
Notes to Financial Statements F-5 to F-8
(b) Pro forma financial information:
Pro Forma Condensed Statement of Operations,
reflecting the pro forma combination of AAI
and L.A.B., for the year ended December 31, 1996 F-9
Notes to Pro Forma Financial Information F-10
AAI, historical Condensed Consolidated Balance Sheet
at December 31, 1996, which reflects the L.A.B.
acquisition (presented for information purposes) F-11
(c) Exhibits:
Exhibit No. Description
2.1* Option Agreement between Applied Analytical
Industries, Inc. and My Asset Management
GmbH and Friedrich Herzog von Wurttemberg**
2.2* Purchase and Assignment Agreement between
Friedrich Herzog von Wurttemberg and My
Asset Management GmbH**
- ------------------------------------
* Previously filed
** Schedules and appendices to such documents have been omitted and will be
supplementally provided to the Securities and Exchange Commission upon
request.
3
<PAGE> 4
Report of Independent Accountants
To the Owners of
L.A.B. Gesellschaft fur pharmakologische Untersuchungen mbH & Co.
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations and of cash flows present fairly, in all
material respects, the financial position of L.A.B. Gesellschaft fur
pharmakologische Untersuchungen mbH & Co. and subsidiaries ("L.A.B.") at
December 31, 1996 and 1995 and the results of their operations and their cash
flows for each of the two years in the period ended December 31, 1996, in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
Effective December 31, 1996, Applied Analytical Industries, Inc. acquired L.A.B.
PRICE WATERHOUSE GmbH
Stuttgart, Germany
February 21, 1997
F-1
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L.A.B. Gesellschaft fur pharmakologische Untersuchungen mbH & Co.
Consolidated Balance Sheet
(In thousand Deutsche marks)
<TABLE>
<CAPTION>
December 31,
------------
1996 1995
---- ----
<S> <C> <C>
ASSETS
Current assets:
Cash 341 577
Accounts receivable 2,440 4,165
Work-in-progress 6,711 9,364
Prepaid and other current assets 1,363 1,913
------- -------
Total current assets 10,855 16,019
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Property and equipment:
Buildings and improvements 27 27
Machinery and equipment 14,558 14,007
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14,585 14,034
Less, accumulated depreciation 11,221 10,256
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3,364 3,778
Other assets 559 258
------- -------
Total assets 14,778 20,055
======= =======
LIABILITIES AND OWNERS' EQUITY
Current liabilities:
Loan obligations 5,972 5,570
Accounts payable 5,675 6,204
Accrued wages and benefits 2,710 2,221
Customer advances 10,862 13,489
AAI advance 1,364 --
Rent payable 3,367 2,817
Other accrued liabilities 8,849 6,519
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Total current liabilities 38,799 36,820
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Long-term debt -- 6,062
Owners' note payable -- 848
Commitments and contingencies
Owners' equity:
Stated capital 2,000 2,000
Contributed capital 2,890 --
Accumulated deficit (28,911) (25,675)
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Total owners' equity (24,021) (23,675)
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Total liabilities and owners' equity 14,778 20,055
======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-2
<PAGE> 6
L.A.B. Gesellschaft fur pharmakologische Untersuchungen mbH & Co.
Consolidated Statement of Operations
(In thousand Deutsche marks)
<TABLE>
<CAPTION>
For the years ended
December 31,
-----------------------
1996 1995
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<S> <C> <C>
Net sales 27,425 32,895
Operating costs and expenses:
Cost of sales 23,535 25,475
Selling 2,670 1,991
General and administrative 6,263 5,905
Research and development 2,280 1,180
------- -------
34,748 34,551
------- -------
Loss from operations (7,323) (1,656)
Other (income) expense:
Interest 1,245 1,499
Other (275) (342)
------- -------
970 1,157
------- -------
Loss before income taxes and extraordinary item (8,293) (2,813)
Provision for income taxes 943 852
------- -------
Loss before extraordinary item (9,236) (3,665)
Extraordinary item - gain on forgiveness of debt 6,000 --
------- -------
Net Loss (3,236) (3,665)
======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE> 7
L.A.B. Gesellschaft fur pharmakologische Untersuchungen mbH & Co.
Consolidated Statement of Cash Flows
(In thousand Deutsche marks)
<TABLE>
<CAPTION>
For the years ended
December 31,
------------
1996 1995
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net loss (3,236) (3,665)
Adjustments to reconcile net loss to net cash
provided (used) by operating activities:
Depreciation and amortization 985 965
Extraordinary gain (6,000) --
Changes in assets and liabilities:
Accounts receivable 1,725 (325)
Work-in-progress 2,653 223
Prepaid and other assets 550 468
Accounts payable (529) 1,704
Accrued wages and benefits 489 512
Customer advances (2,627) (3,653)
AAI advance 1,364 --
Rent payable 3,440 794
Other accrued liabilities 2,330 (439)
------ ------
Net cash provided (used) by operating activities 1,144 (3,416)
------ ------
Cash flows from investing activities:
Proceeds from sale of property and equipment 242 94
Purchase of property and equipment (813) (2,564)
Other (301) (24)
------ ------
Net cash used by investing activities (872) (2,494)
------ ------
Cash flows from financing activities:
Proceeds from borrowings 402 6,848
Payments on borrowings (910) (2,541)
Capital contribution -- 1,500
------ ------
Net cash provided (used) by financing activities (508) 5,807
------ ------
Net increase (decrease) in cash (236) (103)
Cash, beginning of period 577 680
------ ------
Cash, end of period 341 577
------ ------
Supplemental information, cash paid for:
Interest 197 125
Income taxes 722 30
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE> 8
L.A.B. Gesellschaft fur pharmakologische Untersuchungen mbH & Co.
Notes to Consolidated Financial Statements
1. Business and Significant Accounting Policies
Description of business
L.A.B. Gesellschaft fur pharmakologische Untersuchungen mbH & Co. (the "Company"
or "L.A.B."), is a limited partnership operating as a European contract research
and development organization headquartered in Neu-Ulm, Germany with operational
units in Neu-Ulm, Stuttgart and Munich, Germany as well as limited liability
subsidiaries in France, Netherlands, England and Hungary.
Basis of presentation
The consolidated financial statements include the accounts of L.A.B. and its
subsidiaries. All material intercompany transactions have been eliminated.
Revenue recognition
Revenues from contract pharmaceutical product development and support services
are recognized on a percentage of completion basis. Work-in-progress represents
revenues recognized prior to contract billing terms. Provisions for losses on
contracts, if any, are recognized when identified. Licensing revenues from
Company funded development projects are primarily recognized as significant
contract requirements are met.
Income taxes
The Company does not have the ability to consolidate its operations for income
tax purposes and is subject to income taxes separately by subsidiary.
Property and equipment
Property and equipment is recorded at cost. Depreciation is recognized using the
straight-line method over the estimated useful lives of the assets. Depreciable
lives are 12 years for building improvements and 3 to 10 years for equipment.
Other assets
Other assets include a 50% joint venture in China entered into in November
1996. The investment is reported at original cost and is accounted for using the
equity method. There was no significant impact on 1996 operating results from
this investment.
F-5
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Distributions
Distributions, under German law, are payable to the owners only when retained
earnings are not in a deficit position. Taxable income or loss passes directly
to the partners of L.A.B. since it is a limited partnership.
Translation of foreign currencies
The functional currency for the Company is the Deutsche mark. The financial
statements for international operations were translated into marks at year-end
exchange rates, including the statement of operations. Adjustments which would
have resulted from financial statement translations at average exchange rates
and be included in owners' equity as cumulative translation adjustments were not
material. Gains and losses resulting from foreign currency transactions are
included in operating results.
Fair value of financial instruments
The carrying value of cash and cash equivalents, accounts receivable, current
liabilities and loans approximate fair value.
Use of estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the consolidated financial statements and
accompanying notes. Actual results could differ from such estimates and changes
in such estimates may affect amounts reported in future periods.
2. Change in Control of L.A.B.
Applied Analytical Industries, Inc. ("AAI") exercised its option to acquire
L.A.B., effective as of December 31, 1996, through two wholly-owned German
subsidiaries. This change in control of L.A.B. is expected to have a significant
impact on the Company as described in the following footnotes.
3. Extraordinary Item
In contemplation of the acquisition of L.A.B. by AAI, certain creditors of the
Company have waived, as of December 30, 1996, their demands for DM6 million in
loan obligations prior to such acquisition. This forgiveness of liability has
been recognized in the consolidated financial statements as an extraordinary
item. There are no income taxes related to this transaction.
F-6
<PAGE> 10
4. Loan Obligations (in thousand Deutsche marks):
<TABLE>
<CAPTION>
December 31,
------------
1996 1995
---- ----
<S> <C> <C>
Banking institutions 5,972 11,632
Landlord loan -- 848
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5,972 12,480
Less current maturities 5,972 5,570
------ ------
Long-term debt -- 6,062
------ ------
</TABLE>
The banking institutions' loan obligations represent interest bearing
lines-of-credit extended to the Company. The amounts at December 31, 1996 have
been reduced by the extraordinary item described above. Two of the three banking
institutions have withdrawn their credit lines for the Company and have
requested payment of their outstanding balances in January 1997. The remaining
bank has not requested immediate payment and has informally continued a
line-of-credit for DM1.3 million. The weighted average interest rate for the
loan obligations to banking institutions was 5.5% in 1996 and 8.7% in 1995.
The landlord loan represents unpaid rental payments, prior to 1994, related to
the Company's Neu-Ulm facility which were converted to a loan obligation at the
end of 1993. This loan has been paid through monthly installments of
approximately DM26,000, including interest at 8%.
5. Related Party Transactions
In 1995, the owner of the Company's leased facility in Neu-Ulm acquired 75%
ownership of L.A.B. through a capital contribution of DM1.5 million. The Company
has not made rental payments related to this facility for 1995 and 1996. In
contemplation of the acquisition of L.A.B. by AAI, this majority-owner of the
Company, as of December 30, 1996, has waived all claims against L.A.B., except
for approximately DM2.9 million of the rental payments discussed above. This
forgiveness of liability of approximately DM2.9 million has been recognized as a
contribution of capital by this partner to owners' equity.
In 1996, AAI advanced DM1.5 million to L.A.B. as a prepayment for work to be
performed by the Company. As of December 31, 1996, there was approximately DM1.4
million remaining in customer advances. L.A.B. performed approximately DM100,000
of work for AAI in 1996.
6. Income Taxes
The provision for income taxes relates to taxable income of subsidiary
companies. The main operating company in Germany has had losses for both 1996
and 1995 which accrued to the existing partners; therefore, no tax loss
carryforwards will be available for AAI. Tax loss carryforwards available to AAI
at the non-German operations would have a 100% valuation allowance given the
historical operating losses at such operations.
F-7
<PAGE> 11
7. Commitments and Contingencies
The Company leases land, buildings and equipment under renewable lease
arrangements classified as operating leases. Lease expense recognized under such
agreements totaled DM5.1 million and DM4.0 million for the years ended December
31, 1996 and 1995, respectively. Included in both the 1996 and 1995 amounts was
approximately DM1.5 million which was ultimately forgiven.
Future minimum rentals due under lease agreements as of December 31, 1996 are
DM2.2 million - 1997; DM1.7 million - 1998; DM1.5 million - 1999; DM1.7 million
- - 2000; DM1.5 million - 2001 and none thereafter.
8. Going Concern
L.A.B.'s current liabilities exceed its current assets at both December 31, 1996
and 1995, and given its financial resource availability described in footnote 4,
there would exist substantial doubt regarding the Company's ability to continue
as a going concern; however, this situation is alleviated by the AAI acquisition
and AAI's ability and intent to make financing available to fund L.A.B.'s
operations for the next year.
F-8
<PAGE> 12
Applied Analytical Industries, Inc.
Pro Forma Financial Information
The following unaudited pro forma financial information is presented to reflect
the acquisition of L.A.B. Gesellschaft fur pharmakologische Untersuchungen mbH &
Co. ( "L.A.B.") by Applied Analytical Industries, Inc. ("AAI" or the "Company")
as if it had occured at the beginning of 1996. This pro forma financial
information is presented for informational purposes and is not necessarily
indicative of the consolidated results that would have been achieved had the
acquisition been consummated at the beginning of the period presented. A pro
forma balance sheet is not presented as of December 31, 1996, since the L.A.B.
transaction is reflected in such consolidated balance sheet of AAI. A copy of
the condensed consolidated balance sheet of AAI is included for information
purposes.
Pro Forma Condensed Statement of Operations
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Historical Historical Pro forma Pro forma
Year ended December 31, 1996 AAI L.A.B. adjustments combined
- ---------------------------- --- ------ ----------- --------
<S> <C> <C> <C> <C>
Net sales $42,162 $18,223 $ -- $60,385
Operating costs and expenses:
Cost of sales 17,621 15,638 (840) 32,419
Selling 6,357 1,774 (112) 8,019
General and administrative 8,908 4,161 359 13,428
Research and development 4,216 1,515 5,731
Unusual item 6,600 6,600
------- ------- ----- -------
43,702 23,088 (593) 66,197
------- ------- ----- -------
Income (loss) from operations (1,540) (4,865) 593 (5,812)
Other income (expense), net 494 (645) 219 68
------- ------- ----- -------
Income (loss) before income taxes (1,046) (5,510) 812 (5,744)
Provision for income taxes 2,102 627 2,729
------- ----- -------
Net income (loss) $(3,148) $(6,137) $ 812 $(8,473)
------- ------- ----- -------
Earnings (loss) per share $ (0.23) $ (0.63)
------- -------
Weighted average shares outstanding 13,440 13,440
------- -------
</TABLE>
The accompanying notes are an integral part of
this pro forma financial information.
F-9
<PAGE> 13
Applied Analytical Industries, Inc.
Notes to Pro Forma Financial Information
(Unaudited)
1. AAI Historical Information
The historical AAI information reflects the write-off of certain in-process
research and development costs with an appraised value of approximately $6.6
million, in connection with the L.A.B. acquisition on the unusual item line.
2. L.A.B. Historical Information.
The historical L.A.B. information used in the pro forma statement of operations
does not include the extraordinary items reported in 1996. Additionally, it has
been translated from Deutsche marks to U.S. dollars using an exchange rate of
1.505 marks per dollar, which was calculated using monthly exchange rates for
1996 published by the Federal Reserve. The Company believes this is a reasonable
representation to what actual exchange rates may have been.
3. Pro Forma Adjustments.
The pro forma adjustments include the following:
Amortization of intangibles ($737,000) and depreciation on assets ($56,000)
where the allocated purchase price is greater than the historical L.A.B. value.
A reduction in rental expense ($1,120,000) related to the Neu-Ulm facility to
reflect the accrued amounts forgiven by the landlord to be more in-line with
future rent.
A reduction in general and administrative expenses for L.A.B. merger related
costs ($266,000) incurred during 1996.
A reduction in interest expense ($219,000) related to L.A.B. forgiven bank debt.
F-10
<PAGE> 14
Applied Analytical Industries, Inc.
Condensed Consolidated Balance Sheet
December 31, 1996
(In thousands)
<TABLE>
ASSETS
<S> <C>
Current assets:
Cash and cash equivalents $ 42,186
Accounts receivable 10,033
Work-in-progress 9,462
Prepaid and other current assets 6,357
--------
Total current assets 68,038
--------
Property and equipment:
Land 298
Buildings and improvements 9,864
Machinery and equipment 17,388
Construction-in-progress 2,927
Less, accumulated depreciation (11,261)
--------
19,216
Goodwill and other intangibles 14,953
Other assets 2,271
--------
Total assets $104,478
========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt and short-term debt $ 2,092
Accounts payable 8,429
Customer advances 7,790
Accrued wages and benefits 5,127
Other accrued liabilities 8,845
--------
Total current liabilities 32,283
========
Long-term debt 6,671
Other liabilities 1,529
Commitments and contingencies
Stockholders' equity:
Preferred stock --
Common stock 16
Paid-in capital 66,719
Retained earnings (deficit) (2,591)
Stock subscriptions receivable (149)
--------
Total stockholders' equity 63,995
Total liabilities and stockholders' equity $104,478
========
</TABLE>
F-11
<PAGE> 15
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 hereunto duly authorized.
APPLIED ANALYTICAL INDUSTRIES, INC.
Date: March 17, 1997 By: /s/ Frederick D. Sancilio
--------------------------------------
Frederick D. Sancilio, Ph.D.
President and Chief Executive Officer
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APPLIED ANALYTICAL INDUSTRIES, INC.
EXHIBIT INDEX
Exhibit No. Description
2.1* Option Agreement between Applied Analytical
Industries, Inc. and My Asset Management
GmbH and Friedrich Herzog von Wurttemberg**
2.2* Purchase and Assignment Agreement between
Friedrich Herzog von Wurttemberg and My
Asset Management GmbH**
- ------------------------------------
* Previously filed
** Schedules and appendices to such documents have been omitted and will be
supplementally provided to the Securities and Exchange Commission upon
request.
5
