<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 0-21185
APPLIED ANALYTICAL INDUSTRIES, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 04-2687849
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
5051 NEW CENTRE DRIVE, WILMINGTON, NC 28403
(Address of principal executive office) (Zip code)
(910) 392-1606
(Registrant's telephone number, including area code)
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 [ ]
The number of shares of the Registrant's common stock outstanding, as of
November 6, 1998, was 16,379,646 shares.
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Applied Analytical Industries, Inc.
Table of Contents
The terms "Company", "Registrant" or "AAI" in this Form 10-Q include
Applied Analytical Industries, Inc. and its subsidiaries, except where the
context may indicate otherwise. Any item which is not applicable or to which the
answer is negative has been omitted.
Page No.
--------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited).
Condensed Consolidated Statement of Income 3
Condensed Consolidated Balance Sheet 4
Condensed Consolidated Statement of Cash Flows 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations. 8
PART II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds. 12
Item 6. Exhibits and Reports on Form 8-K. 12
SIGNATURES 13
Exhibit Index 14
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
Applied Analytical Industries, Inc.
Condensed Consolidated Statement of Income
(In thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
------------------------- -------------------------
1998 1997 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net sales $ 20,138 $ 14,021 $ 56,676 $ 45,010
-------- -------- -------- --------
Operating costs and expenses:
Cost of sales 9,854 7,994 27,316 23,051
Selling 2,249 2,268 6,431 5,932
General and administrative 4,958 4,022 13,020 11,056
Research and development 1,372 2,379 4,740 5,750
-------- -------- -------- --------
18,433 16,663 51,507 45,789
-------- -------- -------- --------
Income (loss) from operations 1,705 (2,642) 5,169 (779)
Other income:
Interest income, net of expense 75 196 321 770
Other, net 131 298 101 515
-------- -------- -------- --------
206 494 422 1,285
-------- -------- -------- --------
Income (loss) before income taxes 1,911 (2,148) 5,591 506
Provision (benefit) for income taxes 498 (984) 1,799 177
-------- -------- -------- --------
Net income (loss) $ 1,413 $ (1,164) $ 3,792 $ 329
======== ======== ======== ========
Basic earnings (loss) per share $ 0.09 $ (0.07) $ 0.23 $ 0.02
======== ======== ======== ========
Weighted average shares outstanding 16,308 16,291 16,303 16,289
======== ======== ======== ========
Diluted earnings (loss) per share $ 0.09 $ (0.07) $ 0.23 $ 0.02
======== ======== ======== ========
Weighted average shares outstanding 16,356 16,519 16,390 16,457
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
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Applied Analytical Industries, Inc.
Condensed Consolidated Balance Sheet
(In thousands)
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
--------- ---------
(Unaudited)
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 14,450 $ 26,219
Accounts receivable 23,172 19,415
Work-in-progress 13,321 8,968
Prepaid and other current assets 5,356 4,481
--------- ---------
Total current assets 56,299 59,083
--------- ---------
Property and equipment, net 32,265 25,326
Goodwill and other intangibles 15,812 13,747
Other assets 2,445 2,293
--------- ---------
Total assets $ 106,821 $ 100,449
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt
and short-term debt $ 5,270 $ 5,561
Accounts payable 3,476 4,005
Customer advances 8,885 7,869
Accrued wages and benefits 4,800 3,561
Other accrued liabilities 6,446 5,450
--------- ---------
Total current liabilities 28,877 26,446
--------- ---------
Long-term debt 6,409 6,578
Other liabilities 1,122 1,349
Commitments and contingencies -- --
Stockholders' equity:
Common stock 16 16
Paid-in capital 68,067 67,550
Retained earnings (deficit) 2,456 (1,336)
Accumulated other comprehensive losses (61) (5)
Stock subscriptions receivable (66) (149)
--------- ---------
Total stockholders' equity 70,413 66,076
--------- ---------
Total liabilities and stockholders' equity $ 106,821 $ 100,449
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
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Applied Analytical Industries, Inc.
Condensed Consolidated Statement of Cash Flows
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Nine months ended
September 30,
--------------------------
1998 1997
-------- --------
<S> <C> <C>
Net income $ 3,792 $ 329
Adjustments to reconcile to net cash provided
(used) by operating activities:
Depreciation and amortization 4,299 3,522
Gain on sale of property and equipment (540) --
Other 56 501
Changes in assets and liabilities:
Trade and other receivables (2,148) (6,353)
Work-in-progress (3,642) (187)
Prepaid and other assets, net (736) 624
Accounts payable (711) (3,935)
Customer advances 323 (1,164)
Other accrued liabilities (114) (5,411)
-------- --------
Net cash provided (used) by operating activities: 579 (12,074)
-------- --------
Cash flows from investing activities:
Purchase of property and equipment (8,304) (8,124)
Mergers and acquisitions, net of cash acquired (4,008) --
Proceeds from sale of property and equipment 928 --
Other 33 (40)
-------- --------
Net cash used by investing activities (11,351) (8,164)
-------- --------
Cash flows from financing activities:
Net (payments) proceeds on short-term debt (686) 4,078
Net (payments) proceeds on long-term debt (504) 653
Sale of common stock 76 63
Other 83 --
-------- --------
Net cash (used) provided by financing activities (1,031) 4,794
-------- --------
Net decrease in cash and cash equivalents (11,803) (15,444)
Effect of exchange rate changes on cash 34 (28)
Cash and cash equivalents, beginning of period 26,219 42,186
======== ========
Cash and cash equivalents, end of period $ 14,450 $ 26,714
======== ========
Supplemental information, cash paid for:
Interest $ 601 $ 424
Income taxes $ 1,784 $ 1,402
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
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Applied Analytical Industries, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
1. Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles and
applicable Securities and Exchange Commission regulations for interim financial
information. These financial statements do not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements. It is presumed that users of this interim financial
information have read or have access to the audited financial statements for the
preceding fiscal year. In the opinion of management, all adjustments (consisting
of normal recurring adjustments) considered necessary for fair presentation have
been included. Operating results for the interim periods presented are not
necessarily indicative of the results that may be expected for the full year.
2. Mergers and acquisitions
On September 14, 1998, the Company acquired by merger Kansas City Analytical
Services, Inc. ("KCAS"), a bioanalytical and pharmaceutical analysis laboratory
located near Kansas City, Kansas. The aggregate purchase price was approximately
$5.5 million, consisting of cash ($5.2 million) and the issuance of 26,642
shares of common stock. The acquisition has been accounted for using the
purchase method of accounting. Accordingly, the results of KCAS's operations
have been included in the Company's consolidated results from the date of
acquisition. The impact to the consolidated Statement of Income for the periods
presented was not material.
3. Earnings Per Share
The weighted average shares used in the calculation of diluted earnings per
share represents the weighted average shares outstanding plus the dilutive
impact of outstanding stock options.
6
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4. Comprehensive Income
The Company is required, effective fiscal year 1998, to report comprehensive
income and its components in accordance with the provisions of Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income."
Comprehensive income is defined as the change in equity during a period from
transactions and other events and circumstances from non-owner sources.
The following table presents the components of the Company's comprehensive
income.
<TABLE>
<CAPTION>
Nine months ended
September 30,
------------------------
(In thousands)
1998 1997
------- -------
<S> <C> <C>
Net income $ 3,792 $ 329
Other comprehensive income (loss):
Currency translation adjustments (61) --
------- -------
Comprehensive income $ 3,731 $ 329
======= =======
</TABLE>
5. Financial Information by Business Segment and Geographic Area (In thousands):
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
-------------------------- --------------------------
1998 1997 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net sales:
Fee-for-Service $ 18,396 $ 12,617 $ 51,171 $ 41,586
Internal Product Development 1,742 1,404 5,505 3,424
-------- -------- -------- --------
$ 20,138 $ 14,021 $ 56,676 $ 45,010
======== ======== ======== ========
United States $ 14,641 $ 10,496 $ 41,761 $ 34,753
Non-U.S 5,798 4,085 15,774 11,328
Less inter-geographic sales (301) (560) (859) (1,071)
-------- -------- -------- --------
$ 20,138 $ 14,021 $ 56,676 $ 45,010
======== ======== ======== ========
Income (loss) from operations:
Fee-for-Service $ 2,054 $ (370) $ 5,649 $ 3,840
Internal Product Development 370 (1,534) 764 (2,885)
Corporate (719) (738) (1,245) (1,734)
-------- -------- -------- --------
$ 1,705 $ (2,642) $ 5,169 $ (779)
======== ======== ======== ========
United States $ 1,312 $ (2,006) $ 5,195 $ 314
Non-U.S 393 (636) (26) (1,093)
-------- -------- -------- --------
$ 1,705 $ (2,642) $ 5,169 $ (779)
======== ======== ======== ========
</TABLE>
7
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Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
The Company's quarterly results have been, and are expected to continue to be,
subject to fluctuations. Quarterly results can fluctuate as a result of a number
of factors, including without limitation, the commencement, completion or
cancellation of large contracts, progress of ongoing contracts, achieving
expected levels of licensing and royalty revenues, potential acquisitions, the
timing of start-up expenses for new facilities, timing and level of research and
development expenditures and changes in the mix of services. Since a large
percentage of the Company's operating costs are relatively fixed, variations in
the timing and progress of large contracts or the recognition of licensing and
royalty revenues (on projects for which associated expense may have been
recognized in prior periods) can materially affect quarterly results.
Accordingly, the Company believes that comparisons of its quarterly financial
results may not be meaningful.
Results of Operations - Third Quarter 1998 compared to Third Quarter 1997
Net sales for the third quarter of 1998 increased 44% to $20.1 million compared
to $14.0 million in 1997. Core Fee-for-Service revenues were $18.4 million in
1998, up 46% from $12.6 million in 1997. Revenues from Internal Product
Development were $1.7 million in 1998 compared to $1.4 million last year. The
Company finalized one new domestic license agreement in the third quarter of
1998.
Demand for Fee-for-Service business continues to be strong but the Company's
growth rate in certain areas has been limited by available capacity. In response
to this demand, the Company committed to expand its capacity with the addition
of a 75,000 square foot leased facility in New Jersey. This facility will be
brought on-line over a three-year period, beginning October 1998. The building
was formerly operated by a major pharmaceutical company, which will minimize the
time and cost of making it operational for AAI.
Overall gross margin was approximately 51% for the third quarter of 1998
compared to 43% for the same period of 1997. The gross margin from
Fee-for-Service work was approximately 46% for the third quarter of 1998
compared to 37% for the same period of 1997. The difference in gross margin
percentage is mainly attributable to the higher volume of work in 1998 and the
mix of services provided.
Selling expenses as a percentage of net sales were approximately 11% in 1998
compared to 16% last year. General and administrative expenses as a percentage
of net sales were approximately 25% in 1998 compared to 29% last year. These
changes are primarily a result of higher sales levels. The Company expects to
continue its efforts at controlling selling, general and administrative expenses
by maintaining such growth at rates equal to or less than overall net sales
growth.
Research and development expenses were approximately 7% of net sales in the
third quarter of 1998 compared to 17% in 1997. The Company has continued
spending on internal development projects with an expectation of spending
approximately 9% of net sales over an annual cycle.
The improvement in income from operations, $1.7 million in 1998 compared to a
loss of $(2.6) million in 1997, is attributable to improvements in both lines of
business. In the Fee-for-Service business, the Company had a significant
increase in income from operations, with $2.1 million in
8
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1998 compared to a loss of $(0.4) million last year. The Internal Product
Development business recorded its fourth consecutive quarter with revenues
exceeding R&D expenses, with income from operations of $0.4 million in 1998
compared to a loss of $(1.5) million in 1997.
Results of Operations - Nine-Months 1998 compared to Nine-Months 1997
Net sales for the first nine-months of 1998 increased 26% to $56.7 million
compared to $45.0 million in 1997. The core Fee-for-Service revenues were $51.2
million in 1998, up 23% from $41.6 million in 1997. Revenues from Internal
Product Development were $5.5 million in 1998 compared to $3.4 million last
year, an increase of approximately 61%.
Overall gross margin was approximately 52% for the first nine-months of 1998
compared to 49% for the same period of 1997. The gross margin from
Fee-for-Service work was approximately 47% for the first nine-months of 1998
compared to 45% for the same period of 1997. The difference in gross margin
percentage is mainly attributable to improved sales levels and the mix of
services provided.
Selling expenses as a percentage of net sales were approximately 11% in 1998
compared to 13% last year. General and administrative expenses as a percentage
of net sales were approximately 23% in 1998 compared to 25% last year. The 1998
general and administrative expenses include a gain of approximately $540,000
resulting from the sale of certain corporate assets in the first quarter. The
Company expects to continue its efforts at controlling selling, general and
administrative expenses by maintaining such growth at rates equal to or less
than overall net sales growth.
Research and development expenses were approximately 8% of net sales in 1998
compared to 13% in 1997. The Company has continued spending on internal
development projects with an expectation of spending approximately 9% of net
sales over an annual cycle. The reduction in R&D as a percent of net sales
reflects the Company's continuing ability to reduce such expenses through the
use of internal clinical capabilities acquired in Europe at the end of 1996. The
Company's Diclofenac with ProSorb(TM) product is in Phase II clinical studies
for migraine with aura and is expected to enter Phase III studies in the first
quarter of 1999. The Company expects to broaden the therapeutic expectations of
the studies to include general migraine applications and certain post-surgical
pain. While the Company's expectation is to spend approximately 9% of net sales
on R&D over an annual cycle, the timing of the above clinical studies and other
studies may result in higher percentages during certain quarterly periods.
The improvement in income from operations, $5.2 million in the first nine-months
of 1998 compared to a loss of $(0.8) million last year is attributable to
improvements in both lines of business. In the Fee-for-Service business, the
Company had a 47% improvement in income from operations, with $5.6 million in
1998 compared to $3.8 million last year. The Internal Product Development
business recorded its fourth consecutive quarter with revenues exceeding R&D
expenses with income from operations of $0.8 million in 1998 compared to a loss
of $(2.9) million in 1997.
Liquidity and Capital Resources
The Company has historically funded its business through operating cash flows,
proceeds from borrowings and the issuance of equity securities. Working capital
was approximately $27.4 million at September 30, 1998 compared to approximately
$32.6 million at December 31, 1997. Additionally, the Company has available a
$20 million credit facility to supplement its liquidity needs.
9
<PAGE> 10
Capital expenditures were approximately $8.3 million during the first
nine-months of 1998 compared to approximately $8.1 million during the same
period last year. The Company anticipates total capital expenditures for 1998 to
be approximately $12 million.
In October 1998, the Company has entered into a $15 million lease financing
arrangement with a trust whereby the trust will acquire certain existing leased
facilities and develop certain new facilities. The Company has agreed to lease
these properties from the trust for a period of five years, including renewals.
After the five-year period, the Company may either acquire these properties or
arrange for new lease financing. The Company is acting as the construction agent
on the property being developed and has sold land to the trust for approximately
$127,000.
AAI expects to continue expanding its operations through internal growth and
strategic acquisitions. The Company expects such activities will be funded from
existing cash and cash equivalents, cash flow from operations, the issuance of
equity securities and borrowings. The Company believes that such sources of cash
and financing alternatives will be sufficient to fund operations for the current
and foreseeable future and to pay existing debt as it becomes due and other
capital obligations. The Company is constantly evaluating acquisition or growth
opportunities. At some point in the future there may be opportunities that
require additional external financing, and the Company may from time-to-time
seek to obtain funds through the public or private issuance of equity or debt
securities. There can be no assurances that such financing will be available on
terms acceptable to the Company.
Year 2000 Disclosure
The Company has commenced efforts to assess and where required, remediate,
issues associated with Year 2000 ("Y2K") issues. Generally defined, Y2K issues
arise from computer programs which use only two digits to refer to the year and
which may experience problems when the two digits become "00" in the year 2000.
In addition, imbedded hardware microprocessors may contain time and two-digit
year fields in executing their functions. Much literature has been devoted to
the possible effects such programs may experience in the Year 2000, although
significant uncertainty exists as to the scope and effect the Y2K issues will
have on industry and the Company.
The Company has recognized the need to address the Y2K issue in a comprehensive
and systematic manner and has taken steps to assess the possible Y2K impact on
the Company. Although the Company has not completed a 100% assessment of all its
information technology ("IT") and non-IT systems for Y2K issues, the Company has
completed its assessment of all mission-critical systems. All mission-critical
systems and most of the major applications and hardware have been assessed to
determine the Y2K impact and a plan is in place for timely resolution of
potential issues. In addition, the Company is inquiring of all its significant
vendors and clients their assessment of Y2K issues on their operations.
In 1996, the Company developed a strategic plan to identify the IT systems
needed to accomplish the Company's overall growth plans. As part of this process
potential Y2K issues were considered and addressed through enterprise resource
planning process. The Company's Board of Directors authorized approximately $3
million of spending to implement portions of this strategic plan over several
years.
In 1997, the Company established an internal multi-discipline task force to
specifically address Y2K issues. The task force has inventoried IT and non-IT
systems and made preliminary assessments as to Y2K compliance. In those
instances where a system would be replaced or eliminated through the
implementation of our strategic plan before being impacted by Y2K issues, no
further action was deemed necessary. All mission-critical systems not being
addressed in the above manner have been further assessed and protocols have been
developed to test compliance. This testing is ongoing. As issues are identified
they are remedied as soon as possible. In addition, as upgrades are made to the
Company's proprietary software, Company employees are revising the computer code
to ensure Y2K compliance. All Company purchase orders for new equipment and
systems contain representations regarding Y2K compliance. Based on our current
information, the non-IT systems used by the Company are not expected to cause
significant problems or expense to the Company. While AAI relies heavily on its
technical equipment, we have found that much of it can be upgraded or, for items
that are not mission-critical, can continue to be operated if they are not
linked to other systems.
10
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We have communicated with our major customers and suppliers and are not aware of
any such business associates that will cause a material third-party risk to the
Company. While management does not believe this issue will materially affect its
products, services or competitive condition, it has not fully completed its
assessment and remediation process at this time.
The cost of bringing the Company in full compliance should not result in a
material increase in the recent levels of capital spending or any material
one-time expenses. The Company has not been tracking the direct cost of solving
potential Y2K issues. Since 1996, the Company has spent approximately $3.7
million for all IT items. It is not reasonably possible to determine what
portion of such spending was directly related to correcting Y2K issues. The
future spending on IT items is expected to be approximately $2 million per year.
Again, the Company has not segregated the direct costs associated with Y2K
issues in its IT capital spending plans.
The failure of either the Company, its vendors or clients to correct the systems
affected by Y2K issues could result in a disruption or interruption of business
operations. The Company uses computer programs and systems in a vast array of
its operations to collect, assimilate and analyze data. Failure of such programs
and systems could affect the Company's ability to perform contracts to test,
develop, or manufacture pharmaceutical and biotechnology products or perform
clinical trials, thereby causing delays in the development and commercialization
of pharmaceutical and biotechnology products. Similarly, failure of
vendor-provided products and services could result in delay of the Company to
develop pharmaceutical products. Although the Company does not believe that any
of the foregoing worst-case scenarios will occur, there can be no assurance that
unexpected Y2K problems of the Company's and its vendors' and clients'
operations will not have a material adverse effect on the Company.
While it is difficult to classify our state of readiness, we believe that our
internal plans should have the Company ready by the end of 1999 to avoid any
material Y2K issues. We are in the process of completing the assessment, testing
systems and developing contingency plans. Management is in constant
communication with the task force and has made and will continue to make reports
to the Company's Board of Directors.
Forward Looking Statements
This quarterly report may contain certain forward-looking statements, within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended, that are based on the
Company's belief and assumptions, as well as information currently available to
the Company. When or if used herein, the words "anticipate," "estimate,"
"expect," and similar expressions may identify forward-looking statements.
Although the Company believes that the expectations reflected in any such
forward-looking statements are reasonable; there can be no assurance that such
expectations will prove to be correct. Any such statements are subject to
certain risks and uncertainties. Should one or more of these risks or
uncertainties materialize, or should underlying assumptions prove incorrect,
actual results, performance or financial condition may vary materially from
those anticipated, estimated or expected. Key factors that may have a direct
bearing on the Company's results, performance and financial condition include,
but are not limited to, the Company's dependence on and effect of government
regulation; its management of growth and acquisition risks, including its
integration of acquired operations; the level of outsourcing of research,
development and testing activities in the pharmaceutical and biotechnology
industries; its ability to accurately assess and remediate potential year 2000
problems; its dependence on key personnel, and its dependence on third-party
marketing and distribution of internally developed drugs.
11
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PART II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds.
Use of Proceeds from Initial Public Offering
In 1996, the Company completed the sale of 3,105,000 shares of common stock
through an offering filed on Registration Statement Form S-1 (No. 333-5535)
which became effective on September 19, 1996. The net offering proceeds to the
Company after underwriting discounts and other expenses, as previously disclosed
in other Company filings, was $44,793,000. The final application of such
proceeds is described below. Such information represents cumulative totals
through the reporting date of this periodic report and all amounts, unless
indicated otherwise, are for direct or indirect payments to others.
Construction of plant, building and facilities $ 6,908,000
Purchase and installation of machinery and equipment 14,976,000
Mergers and acquisitions 5,188,000
Repayment of indebtedness 1,932,000
Working capital 1,985,000
Research and development costs 13,804,000
-----------
Use of proceeds $44,793,000
===========
Recent Sales of Unregistered Securities
In connection with the acquisition of Kansas City Analytical Services, Inc.
("KCAS") on September 14, 1998, the Company issued 26,642 shares of unregistered
common stock to certain prior owners of KCAS as partial consideration for the
exchange of their shares of KCAS. The Company valued such stock at approximately
$300,000 using the average of the high and low trading prices on the date of
issuance. Such securities are exempt from registration under Section 4(2) of the
Securities Act of 1933 and Rule 506 of Regulation D, thereunder.
Item 6. Exhibits and Reports on Form 8-K.
Exhibits:
A list of the exhibits required to be filed as part of this Report on Form 10-Q
is set forth in the "Exhibit Index", which immediately precedes such exhibits,
and is incorporated herein by reference.
Reports on Form 8-K:
The Company has recently filed the following Form 8-K's:
Dated September 14, 1998, to report the acquisition of Kansas City
Analytical Services, Inc. and a Form 8-K;
Dated September 25, 1998, to file a press release announcing the
Company's estimates of revenues and net income for certain future
periods;
Dated November 3, 1998, to file a press release reporting the Company's
unaudited consolidated financial results for the period ended September
30, 1998.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Applied Analytical Industries, Inc.
Date: November 16, 1998 By: /s/ FREDERICK D. SANCILIO
----------------------------------
Frederick D. Sancilio, Ph.D.
Chairman of the Board and
Chief Executive Officer
(Principal Executive Officer)
Date: November 16, 1998 By: /s/ EUGENE T. HALEY
----------------------------------
Eugene T. Haley
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer)
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APPLIED ANALYTICAL INDUSTRIES, INC.
Exhibit Index
Exhibit
No. Description
--- -----------
3.1 - Amended and Restated Certificate of Incorporation of the
Company (incorporated by reference to Exhibit 3.1 to the
Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1996)
3.2 - Restated By-laws of the Company (incorporated by reference
to Exhibit 3.2 to the Company's Registration Statement on Form
S-1 (Registration No. 333-5535))
4.1 - Articles Fourth, Seventh, Eleventh and Twelfth of the form
of Amended and Restated Certificate of Incorporation of the
Company (included in Exhibit 3.1)
4.2 - Article II of the form of Restated By-laws of the Company
(included in Exhibit 3.2)
4.3 - Specimen Certificate for shares of Common Stock, $.001 par
value, of the Company (incorporated by reference to Exhibit
4.3 to the Company's Registration Statement on Form S-1
(Registration No. 333-5535))
10.1 - Employment Agreement dated November 17, 1995 between the
Company and Frederick D. Sancilio (incorporated by reference
to Exhibit 10.1 to the Company's Registration Statement on
Form S-1 (Registration No. 333-5535))
10.2 - Applied Analytical Industries, Inc. 1995 Stock Option Plan
(incorporated by reference to Exhibit 10.3 to the Company's
Registration Statement on Form S-1 (Registration No.
333-5535))
10.3 - Applied Analytical Industries, Inc. 1996 Stock Option Plan
(incorporated by reference to Exhibit 10.4 to the Company's
Registration Statement on Form S-1 (Registration No.
333-5535))
10.4 - Applied Analytical Industries, Inc. 1997 Stock Option Plan,
as amended on May 8, 1998 (incorporated by reference to
Exhibit 10.4 of the Company's Quarterly Report on Form 10-Q
for the quarter ended June 30, 1998)
10.5 - Stockholder Agreement dated as of November 17, 1995 among
the Company, GS Capital Partners II, L.P., GS Capital Partners
II Offshore, L.P., Goldman, Sachs & Co. Verwaltungs GmbH,
Stone Street Fund 1995, L.P., Bridge Street Fund 1995, L.P.,
Noro-Moseley Partners III, L.P., Wakefield Group Limited
Partnership, James L. Waters, Frederick D. Sancilio and the
parties listed on Schedule 1 thereto (incorporated by
reference to Exhibit 10.5 to the Company's Registration
Statement on Form S-1 (Registration No. 333-5535))
14
<PAGE> 15
Exhibit
No. Description
--- -----------
10.6 - Lease Agreement dated as of March 7, 1994 between 5051 New
Centre Drive, L.L.C., as landlord, and the Company, as tenant
(incorporated by reference to Exhibit 10.10 to the Company's
Registration Statement on Form S-1 (Registration No.
333-5535))
10.7 - Development Agreement dated as of April 25, 1994 between the
Company and Endeavor Pharmaceuticals Inc. (incorporated by
reference to Exhibit 10.12 to the Company's Registration
Statement on Form S-1 (Registration No. 333-5535))
10.8 - Development Agreement dated as of April 4, 1995 between the
Company and Aesgen, Inc. (incorporated by reference to Exhibit
10.13 to the Company's Registration Statement on Form S-1
(Registration No. 333-5535))
10.9 - Loan Agreement dated as of December 30, 1996 between
NationsBank, N.A. and the Company (incorporated by reference
to Exhibit 10.14 to the Company's Annual Report on Form 10-K
for the year ended December 31, 1996)
10.10 - Amendment No. 1, dated as of February 13, 1998, to the Loan
Agreement dated as of December 30, 1996 between NationsBank,
N.A. and the Company (incorporated by reference to Exhibit
10.10 of the Company's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1998).
10.11 - Underwriting Agreement dated September 19, 1996 between the
Company and Goldman Sachs & Co., Cowen & Company and Lehman
Brothers, Inc., as representatives of the underwriters listed
on Schedule 1 thereto (incorporated by reference to Exhibit
10.17 to the Company's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1996)
27 - Financial Data Schedule (for SEC use only)
15
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF APPLIED ANALYTICAL INDUSTRIES, INC. AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 14,450
<SECURITIES> 0
<RECEIVABLES> 23,462
<ALLOWANCES> (290)
<INVENTORY> 0
<CURRENT-ASSETS> 56,299
<PP&E> 50,333
<DEPRECIATION> 18,068
<TOTAL-ASSETS> 106,821
<CURRENT-LIABILITIES> 28,877
<BONDS> 0
0
0
<COMMON> 16
<OTHER-SE> 70,397
<TOTAL-LIABILITY-AND-EQUITY> 106,821
<SALES> 56,676
<TOTAL-REVENUES> 56,676
<CGS> 27,316
<TOTAL-COSTS> 51,507
<OTHER-EXPENSES> (101)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (321)
<INCOME-PRETAX> 5,591
<INCOME-TAX> 1,799
<INCOME-CONTINUING> 3,792
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,792
<EPS-PRIMARY> 0.23
<EPS-DILUTED> 0.23
</TABLE>
