<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 March 31, 1999
[ ] 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 April
7, 1999, was 17,205,391 shares.
<PAGE> 2
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. 10
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K. 14
SIGNATURES 15
Exhibit Index 16
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)
<TABLE>
<CAPTION>
Three months ended
March 31,
-------------------------
1999 1998
-------- --------
<S> <C> <C>
Net sales $ 26,115 $ 20,973
-------- --------
Operating costs and expenses:
Direct costs 14,598 10,955
Selling 2,668 2,484
General and administrative 5,263 4,602
Research and development 1,868 1,402
Transaction, integration, and
restructuring costs 6,400 --
-------- --------
30,797 19,443
-------- --------
Income (loss) from operations (4,682) 1,530
Other income:
Interest income, net of expense (179) 130
Other, net (32) 11
-------- --------
(211) 141
-------- --------
Income (loss) before income taxes (4,893) 1,671
Provision (benefit) for income taxes (1,130) 511
-------- --------
Net income (loss) $ (3,763) $ 1,160
======== ========
Basic earnings (loss) per share $ (0.22) $ 0.07
======== ========
Weighted average shares outstanding 17,199 17,100
======== ========
Diluted earnings (loss) per share $ (0.21) $ 0.07
======== ========
Weighted average shares outstanding 17,960 17,770
======== ========
</TABLE>
(Unaudited)
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>
March 31, December 31,
1999 1998
--------- ---------
(Unaudited) (Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 9,533 $ 12,299
Accounts receivable 25,747 26,138
Work-in-progress 15,857 15,570
Prepaid and other current assets 9,128 7,902
--------- ---------
Total current assets 60,265 61,909
Property and equipment, net 39,765 38,802
Goodwill and other intangibles 14,282 15,509
Other assets 4,370 3,288
--------- ---------
Total assets $ 118,682 $ 119,508
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt
and short-term debt $ 11,838 $ 7,038
Accounts payable 6,362 7,169
Customer advances 3,485 6,818
Accrued wages and benefits 4,630 4,522
Other accrued liabilities 11,312 7,836
--------- ---------
Total current liabilities 37,627 33,383
Long-term debt 5,899 7,749
Other liabilities 4,308 3,254
Commitments and contingencies -- --
Stockholders' equity:
Common stock 17 17
Paid-in capital 69,640 69,570
Retained earnings (deficit) 1,890 5,653
Accumulated other comprehensive losses (634) (53)
Stock subscriptions receivable (65) (65)
--------- ---------
Total stockholders' equity 70,848 75,122
--------- ---------
Total liabilities and stockholders' equity $ 118,682 $ 119,508
========= =========
</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>
Three months ended
March 31,
-------------------------
1999 1998
-------- --------
<S> <C> <C>
Net income $ (3,763) $ 1,160
Adjustments to reconcile to net cash provided
(used) by operating activities:
Depreciation and amortization 1,794 1,498
Other 42 384
Changes in assets and liabilities:
Trade and other receivables 99 295
Work-in-progress (546) (904)
Prepaid and other assets, net (2,408) (111)
Accounts payable (659) (913)
Customer advances (3,162) 117
Other accrued liabilities 5,189 (908)
-------- --------
Net cash provided (used) by operating activities: (3,414) 618
Cash flows from investing activities:
Purchase of property and equipment (2,946) (2,363)
Other (37) (32)
-------- --------
Net cash used by investing activities (2,983) (2,395)
Cash flows from financing activities:
Net (payments) proceeds on short-term debt 5,194 530
Net (payments) proceeds on long-term debt (1,476)
Other (17) 72
-------- --------
Net cash (used) provided by financing activities 3,701 602
-------- --------
Net decrease in cash and cash equivalents (2,696) (1,175)
Effect of exchange rate changes on cash (70) (12)
Cash and cash equivalents, beginning of period 12,299 27,436
-------- --------
Cash and cash equivalents, end of period $ 9,533 $ 26,249
======== ========
Supplemental information, cash paid for:
Interest $ 222 $ 233
Income taxes $ 17 $ 0
</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 March 16, 1999, the Company merged with Medical and Technical Research
Associates, Inc. ("MTRA"), a clinical contract research organization located
near Boston, Massachusetts, in exchange for approximately 1.3 million shares of
AAI stock including the conversion of MTRA options. The merger has been
accounted for as a pooling-of-interests. The results of operations for the
separate companies and the combined amounts presented in the consolidated
financial statements are as follows:
<TABLE>
<CAPTION>
Three months ended
March 31,
-------------------------
1999 1998
-------- --------
<S> <C> <C>
Net sales:
AAI $ 21,275 $ 17,113
MTRA 4,840 3,860
-------- --------
$ 26,115 $ 20,973
======== ========
Net Income (Loss):
AAI (4,002) 1,073
MTRA 239 87
-------- --------
$ (3,763) $ 1,160
======== ========
</TABLE>
The accompanying consolidated financial statements include operations of the
combined entities for the three months ended March 31, 1999 and 1998.
In connection with the merger, the Company has recorded a non-recurring charge
to operating income reflecting the costs to complete the transaction, integrate
the businesses and realign its workforce to its new combined operating
structure. The items included in this charge are detailed in Note 6.
6
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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. The following table presents the changes in
the weighted shares outstanding.
<TABLE>
<CAPTION>
Three months ended
March 31,
-------------------------
1999 1998
-------- --------
<S> <C> <C>
Basic Earnings per Share:
Weighted average number of shares 17,199 17,100
Effect of Dilutive Securities:
Employee and Director stock options 761 670
------- -------
Diluted Earnings per Share:
Adjusted weighted average number of
shares and assumed conversions 17,960 17,770
======= =======
</TABLE>
4. 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>
Three months ended
March 31,
(In thousands)
---------------------------
1999 1998
--------- ---------
<S> <C> <C>
Net income $ (3,763) $ 1,160
Other comprehensive income (loss):
Currency translation adjustments (634) (14)
--------- ---------
Comprehensive income $ (4,397) $ 1,146
========= =========
</TABLE>
7
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5. Financial Information by Business Segment and Geographic Area (In thousands):
<TABLE>
<CAPTION>
Three months ended
March 31,
-------------------------
1998 1997
-------- --------
<S> <C> <C>
Net sales:
Clinical $ 6,260 $ 5,952
Pharmaceutic 15,958 13,486
Internal Product Development 3,897 1,535
-------- --------
$ 26,115 $ 20,973
======== ========
United States $ 20,071 $ 16,636
Non-U.S 7,048 4,786
Less inter-geographic sales (1,004) (449)
-------- --------
$ 26,115 $ 20,973
======== ========
Income (loss) from operations:
Clinical $ 357 $ 306
Pharmaceutic 1,403 1,038
Internal Product Development 1,010 133
Corporate (1,052) 53
Corporate Restructuring Charges (6,400) 0
-------- --------
$ (4,682) $ 1,530
======== ========
United States $ (6,671) $ 1,447
Non-U.S 1,989 83
-------- --------
$ (4,682) $ 1,530
======== ========
</TABLE>
6. Transaction, Integration and Restructuring Costs
In connection with the Company's merger with MTRA, certain expenses of the
transaction, costs to integrate the two organizations and reorganize the
combined business have been accrued and recorded as an expense. The expenses are
in the statement of income.
Transaction costs are comprised of amounts owed to investment bankers and
advisors as a percentage of the total merger consideration and other expenses
directly related to the completion of the transaction including financial
reviews and legal fees. Personnel costs include the separation of approximately
58 employees in the US and Europe to combine the clinical operations of the
companies and realign the workforce in the new organization. Facility and
equipment costs include lease payments required under non-cancelable leases for
vacant properties and the write off of leasehold improvements and equipment
which will become redundant or obsolete due to the transaction. Other costs
include integration costs directly related to the merger and other costs
resulting from actions taken to merge the operations.
8
<PAGE> 9
The following table presents the components of the expense and the amounts paid
through March 31, 1999.
<TABLE>
<CAPTION>
Total Paid to
Expense Date
-------- --------
<S> <C> <C>
Transaction costs $ 1,913 $ 466
Personnel separation costs 1,919 58
Facility costs 1,724 136
Other costs 844 89
-------- --------
$ 6,400 $ 749
======== ========
</TABLE>
9
<PAGE> 10
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 - First Quarter 1999 compared to First Quarter 1998
Net sales for the first quarter of 1999 increased 24% to $26.1 million compared
to $21.0 million in 1998. Pharmaceutic revenues were $16.0 million in 1999, up
19% from $13.5 million in 1998 and Clinical revenues were up 5% to $6.3 million
in the first quarter of 1999 from $6.0 million in the same period of 1998.
Revenues from Internal Product Development were $3.9 million in 1999 compared to
$1.5 million last year, an increase of 160%. The Company finalized one new
domestic license agreement in the first quarter of 1999.
Demand for Pharmaceutic and Clinical Fee-for-Service businesses continues to be
strong. Growth in the clinical business was effected by the completion of a
large clinical project in France. However, as the European and US clinical
businesses are integrated, management expects growth to return to historical
trends. Increases in the Pharmaceutic and Clinical businesses reflect continued
market expansion in the pharmaceutic outsourcing business which are expected to
increase further in future quarters. In the first quarter of 1999, the Company's
North Brunswick, New Jersey facility was fully operational and added to
additional pharmaceutic capacity. The additional costs of the facility decreased
overall margins as the capacity of the facility was not fully realized during
the quarter. The additional capacity is relieving other areas of the Company
which have been operating at or near capacity levels. As the facility processes
additional volume, future cost efficiencies are expected.
Overall gross margin was approximately 44% for the first quarter of 1999
compared to 48% for the same period of 1998. The gross margin from Pharmaceutic
work was approximately 9% for the first quarter of 1999 compared to 8% for the
same period of 1998. The difference in gross margin percentage is mainly
attributable to the higher volume of work in 1999, increased costs for
additional facilities and capacity and the mix of services provided. Gross
margins in the clinical business increased to 6% for the first quarter of 1999
from 5% for the same period of 1998. The improvement in margin was due mainly to
the increased volume of work.
General and administrative costs as a percentage of net sales reduces to
approximately 30% in 1999 compared to 34% for the same quarter in 1998. During
the first quarter, the Company increased the size of its salesforce by adding
additional technical support and expertise from its operating units. These
additions have added to the Company's ability to present the highly technical
aspects of our work to the scientific customer base. Management expects this
investment in selling expertise to increase the ability to sign additional
business and help identify potential customer needs for future growth
opportunities. The Company expects to continue its efforts at controlling
selling, general and
10
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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
first quarter of 1999, approximately the same percentage of sales as the first
quarter of 1998. In the first quarter of 1999, research and development expenses
were approximately $466,000 higher than the first quarter of 1998. Internal
product development revenues, which are the resulting benefit of research
expenses, were approximately 209% of research and development expenses in 1999,
up from 109% for the same period of 1998. Management expects internal product
development revenues to exceed research and development expenses in the future
as prior investments in research continue to provide revenues.
Income from operations was a loss of $4.7 million in the first quarter of 1999
and income of $1.5 million for the same period of 1998. The decrease was due to
a charge to operating income for certain one-time costs associated with the
acquisition of MTRA and other integration and restructuring costs. The charge
was $6.4 million and includes approximately $2.0 million in transaction fees and
other transaction costs, costs to integrate the Company's existing clinical
business with the MTRA business and certain idle facility costs which are under
lease. The integration of the clinical business of MTRA with the Company's
existing clinical business includes the combination of management and salesforce
as well as the movement of the operational headquarters of the clinical business
to the US from Germany. The clinical management of MTRA will be leading the
clinical integration efforts which are expected to take approximately one year.
Excluding the charge for transaction, integration and restructuring costs,
income from operations was $1.7 million in 1999, up from $1.5 million in 1998, a
12% increase. The 12% increase reflects the additional strategic investments in
selling and research expenses in the first quarter which are expected to
generate greater revenue growth in the future.
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 $22.6 million at March 31, 1999 compared to approximately
$28.5 million at December 31, 1998. The Company had available approximately $12
million on an existing credit facility to supplement its liquidity needs at
March 31, 1999.
Capital expenditures were approximately $2.9 million during the first three
months of 1999 compared to approximately $2.4 million during the same period
last year. The Company anticipates total capital expenditures for 1999 to be
approximately $12 million.
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 and other capital obligations as
they become due. The Company regularly evaluates 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.
11
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Year 2000 Disclosure
The Company has an active program 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. The Company has completed a 100% assessment of all its information
technology ("IT") and non-IT systems for Y2K issues. In addition, the Company
has inquired 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 an enterprise
resource planning process. The Company's Board of Directors authorized 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 by implementation of the strategic plans. 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 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 currently available 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, Company studies 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.
The Company has communicated with its major customers and suppliers and is not
aware of any such business associates that will cause a material third-party
risk to the Company.
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 expensed approximately $7.1
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 $3 million per year.
The Company has not segregated the direct costs associated with Y2K issues in
its IT capital spending plans. However, all current capital additions are Y2K
compliant. Prior to the merger with MTRA, the systems of MTRA were evaluated for
12
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Y2K readiness. MTRA's separate systems are included in AAI's plans and all
significant systems will be replaced or Y2K compliant in accordance with AAI's
previously established timeline.
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 essentially all 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 in the Company's
ability 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 AAI's state of readiness, the company believes
that its internal plans should be ready by September 1999 in order to avoid any
material Y2K issues. The company is 70% complete with the remediation and
testing of systems identified as non-compliant during the assessment. 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.
13
<PAGE> 14
PART II. OTHER INFORMATION
Recent Sales of Unregistered Securities
In connection with the merger of MTRA with a subsidiary of the company on March
16, 1999, the Company issued 801,691 shares of unregistered common stock to
certain prior owners of MTRA in exchange for their shares of MTRA. 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 February 18, 1999, to file a press release announcing the
Company's definitive agreement to merge with Medical and Technical Research
Associates, Inc.;
Dated March 3, 1999, to file a press release reporting the Company's
consolidated financial results for the quarter and year ended December 31, 1998;
Dated March 31, 1999, to announce the Company's merger with Medical and
Technical Research Associates, Inc.
14
<PAGE> 15
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: May 7, 1999 By: /s/ FREDERICK D. SANCILIO
----------------------------------
Frederick D. Sancilio, Ph.D.
Chairman of the Board and Chief Executive
Officer (Principal Executive Officer)
Date: May 7, 1999 By: /s/ EUGENE T. HALEY
---------------------
Eugene T. Haley
Executive Vice President and Chief Financial Officer
(Principal Financial Officer)
15
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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 to 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))
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<PAGE> 17
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. (formerly, GenerEst,
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)
10.12 - Partnership Agreement dated as of October 2, 1998 between
the Company, First Security Bank, N. A. and the Various Banks
and Other Lending Institutions Which are Parties Hereto from
time to time, as the Holders and as the Lenders and
NationsBank, N. A.
10.13 - Security Agreement dated as of October 2, 1998 between First
Security Bank, N. A., and NationsBank, N. A.
13 - Portions of the 1998 Annual Report to Shareholders
21 - Subsidiaries of Applied Analytical Industries, Inc,
27 - Financial Data Schedule (for SEC use only)
27.2-.10 - Amended and Restated Financial Data Schedule (for SEC use
only)
17
<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> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 9,533
<SECURITIES> 0
<RECEIVABLES> 27,057
<ALLOWANCES> 1,310
<INVENTORY> 0
<CURRENT-ASSETS> 60,265
<PP&E> 68,652
<DEPRECIATION> 28,887
<TOTAL-ASSETS> 118,682
<CURRENT-LIABILITIES> 37,627
<BONDS> 0
0
0
<COMMON> 17
<OTHER-SE> 70,831
<TOTAL-LIABILITY-AND-EQUITY> 118,682
<SALES> 26,115
<TOTAL-REVENUES> 26,115
<CGS> 14,598
<TOTAL-COSTS> 14,598
<OTHER-EXPENSES> 16,199
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (4,893)
<INCOME-TAX> (1,130)
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,763)
<EPS-PRIMARY> (0.22)
<EPS-DILUTED> (0.21)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS AMENDED AND RESTATED SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM THE FINANCIAL STATEMENTS OF APPLIED ANALYTICAL INDUSTRIES, INC.
RESTATED TO REFLECT THE ACQUISITION OF MEDICAL & TECHNICAL RESEARCH ASSOCIATES.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 44,486
<SECURITIES> 0
<RECEIVABLES> 12,461
<ALLOWANCES> 73
<INVENTORY> 0
<CURRENT-ASSETS> 75,557
<PP&E> 34,275
<DEPRECIATION> 13,482
<TOTAL-ASSETS> 115,959
<CURRENT-LIABILITIES> 41,271
<BONDS> 0
0
0
<COMMON> 16
<OTHER-SE> 64,063
<TOTAL-LIABILITY-AND-EQUITY> 115,959
<SALES> 53,728
<TOTAL-REVENUES> 53,728
<CGS> 24,975
<TOTAL-COSTS> 24,975
<OTHER-EXPENSES> 29,034
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 474
<INCOME-PRETAX> (689)
<INCOME-TAX> 1,774
<INCOME-CONTINUING> (2,462)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,462)
<EPS-PRIMARY> 0.26
<EPS-DILUTED> 0.26
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS AMENDED AND RESTATED SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM THE FINANCIAL STATEMENTS OF APPLIED ANALYTICAL INDUSTRIES, INC.
RESTATED TO REFLECT THE ACQUISITION OF MEDICAL & TECHNICAL RESEARCH ASSOCIATES.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 36,006
<SECURITIES> 0
<RECEIVABLES> 12,864
<ALLOWANCES> 82
<INVENTORY> 0
<CURRENT-ASSETS> 67,597
<PP&E> 36,108
<DEPRECIATION> 14,284
<TOTAL-ASSETS> 107,697
<CURRENT-LIABILITIES> 31,767
<BONDS> 0
0
0
<COMMON> 16
<OTHER-SE> 65,156
<TOTAL-LIABILITY-AND-EQUITY> 107,697
<SALES> 18,483
<TOTAL-REVENUES> 18,483
<CGS> 8,196
<TOTAL-COSTS> 8,196
<OTHER-EXPENSES> 8,298
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 336
<INCOME-PRETAX> 1,668
<INCOME-TAX> 648
<INCOME-CONTINUING> 1,020
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,020
<EPS-PRIMARY> 0.06
<EPS-DILUTED> 0.06
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS AMENDED AND RESTATED SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM THE FINANCIAL STATEMENTS OF APPLIED ANALYTICAL INDUSTRIES, INC.
RESTATED TO REFLECT THE ACQUISITION OF MEDICAL & TECHNICAL RESEARCH ASSOCIATES.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 29,884
<SECURITIES> 0
<RECEIVABLES> 11,926
<ALLOWANCES> 91
<INVENTORY> 0
<CURRENT-ASSETS> 72,845
<PP&E> 39,271
<DEPRECIATION> 15,092
<TOTAL-ASSETS> 107,463
<CURRENT-LIABILITIES> 31,061
<BONDS> 0
0
0
<COMMON> 16
<OTHER-SE> 65,986
<TOTAL-LIABILITY-AND-EQUITY> 107,463
<SALES> 37,496
<TOTAL-REVENUES> 37,496
<CGS> 16,465
<TOTAL-COSTS> 16,465
<OTHER-EXPENSES> 17,515
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 486
<INCOME-PRETAX> 3,060
<INCOME-TAX> 1,280
<INCOME-CONTINUING> 1,779
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,779
<EPS-PRIMARY> 0.09
<EPS-DILUTED> 0.09
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS AMENDED AND RESTATED SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM THE FINANCIAL STATEMENTS OF APPLIED ANALYTICAL INDUSTRIES, INC.
RESTATED TO REFLECT THE ACQUISITION OF MEDICAL & TECHNICAL RESEARCH ASSOCIATES.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 27,771
<SECURITIES> 0
<RECEIVABLES> 19,126
<ALLOWANCES> 100
<INVENTORY> 0
<CURRENT-ASSETS> 62,264
<PP&E> 41,835
<DEPRECIATION> 16,505
<TOTAL-ASSETS> 105,466
<CURRENT-LIABILITIES> 30,026
<BONDS> 0
0
0
<COMMON> 16
<OTHER-SE> 65,331
<TOTAL-LIABILITY-AND-EQUITY> 105,466
<SALES> 55,459
<TOTAL-REVENUES> 55,459
<CGS> 25,221
<TOTAL-COSTS> 25,221
<OTHER-EXPENSES> 28,078
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 735
<INCOME-PRETAX> 1,476
<INCOME-TAX> 452
<INCOME-CONTINUING> 1,024
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,024
<EPS-PRIMARY> 0.02
<EPS-DILUTED> 0.02
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS AMENDED AND RESTATED SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM THE FINANCIAL STATEMENTS OF APPLIED ANALYTICAL INDUSTRIES, INC.
RESTATED TO REFLECT THE ACQUISITION OF MEDICAL & TECHNICAL RESEARCH ASSOCIATES.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 27,436
<SECURITIES> 0
<RECEIVABLES> 21,272
<ALLOWANCES> 109
<INVENTORY> 0
<CURRENT-ASSETS> 63,550
<PP&E> 44,821
<DEPRECIATION> 18,261
<TOTAL-ASSETS> 108,470
<CURRENT-LIABILITIES> 31,027
<BONDS> 0
0
0
<COMMON> 16
<OTHER-SE> 67,386
<TOTAL-LIABILITY-AND-EQUITY> 108,470
<SALES> 80,106
<TOTAL-REVENUES> 80,106
<CGS> 42,325
<TOTAL-COSTS> 42,325
<OTHER-EXPENSES> 34,048
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 972
<INCOME-PRETAX> 3,473
<INCOME-TAX> 975
<INCOME-CONTINUING> 2,498
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,498
<EPS-PRIMARY> 0.08
<EPS-DILUTED> 0.08
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS AMENDED AND RESTATED SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM THE FINANCIAL STATEMENTS OF APPLIED ANALYTICAL INDUSTRIES, INC.
RESTATED TO REFLECT THE ACQUISITION OF MEDICAL & TECHNICAL RESEARCH ASSOCIATES.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 26,248
<SECURITIES> 0
<RECEIVABLES> 21,290
<ALLOWANCES> 184
<INVENTORY> 0
<CURRENT-ASSETS> 63,215
<PP&E> 46,567
<DEPRECIATION> 19,305
<TOTAL-ASSETS> 108,492
<CURRENT-LIABILITIES> 32,057
<BONDS> 0
0
0
<COMMON> 16
<OTHER-SE> 68,679
<TOTAL-LIABILITY-AND-EQUITY> 118,682
<SALES> 20,973
<TOTAL-REVENUES> 20,973
<CGS> 10,955
<TOTAL-COSTS> 10,955
<OTHER-EXPENSES> 8,488
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,671
<INCOME-TAX> 511
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,160
<EPS-PRIMARY> 0.07
<EPS-DILUTED> 0.07
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS AMENDED AND RESTATED SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM THE FINANCIAL STATEMENTS OF APPLIED ANALYTICAL INDUSTRIES, INC.
RESTATED TO REFLECT THE ACQUISITION OF MEDICAL & TECHNICAL RESEARCH ASSOCIATES.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 22,929
<SECURITIES> 0
<RECEIVABLES> 21,947
<ALLOWANCES> 199
<INVENTORY> 0
<CURRENT-ASSETS> 64,626
<PP&E> 48,472
<DEPRECIATION> 19,639
<TOTAL-ASSETS> 111,263
<CURRENT-LIABILITIES> 33,295
<BONDS> 0
0
0
<COMMON> 16
<OTHER-SE> 69,280
<TOTAL-LIABILITY-AND-EQUITY> 111,263
<SALES> 44,784
<TOTAL-REVENUES> 44,784
<CGS> 22,619
<TOTAL-COSTS> 38,232
<OTHER-EXPENSES> 2,770
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 477
<INCOME-PRETAX> 4,058
<INCOME-TAX> 1,452
<INCOME-CONTINUING> 2,606
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,606
<EPS-PRIMARY> 0.15
<EPS-DILUTED> 0.15
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS AMENDED AND RESTATED SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM THE FINANCIAL STATEMENTS OF APPLIED ANALYTICAL INDUSTRIES, INC.
RESTATED TO REFLECT THE ACQUISITION OF MEDICAL & TECHNICAL RESEARCH ASSOCIATES.
</LEGEND>
<RESTATED>
<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> 15,133
<SECURITIES> 0
<RECEIVABLES> 29,407
<ALLOWANCES> 290
<INVENTORY> 0
<CURRENT-ASSETS> 65,216
<PP&E> 54,601
<DEPRECIATION> 21,066
<TOTAL-ASSETS> 119,339
<CURRENT-LIABILITIES> 38,862
<BONDS> 0
0
0
<COMMON> 16
<OTHER-SE> 72,459
<TOTAL-LIABILITY-AND-EQUITY> 118,799
<SALES> 69,947
<TOTAL-REVENUES> 69,947
<CGS> 35,274
<TOTAL-COSTS> 59,465
<OTHER-EXPENSES> 4,024
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (301)
<INCOME-PRETAX> 6,802
<INCOME-TAX> 2,283
<INCOME-CONTINUING> 4,519
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,519
<EPS-PRIMARY> 0.23
<EPS-DILUTED> 0.23
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS AMENDED AND RESTATED SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM THE FINANCIAL STATEMENTS OF APPLIED ANALYTICAL INDUSTRIES, INC.
RESTATED TO REFLECT THE ACQUISITION OF MEDICAL & TECHNICAL RESEARCH ASSOCIATES.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 12,298
<SECURITIES> 0
<RECEIVABLES> 26,577
<ALLOWANCES> 440
<INVENTORY> 0
<CURRENT-ASSETS> 61,898
<PP&E> 66,667
<DEPRECIATION> 27,880
<TOTAL-ASSETS> 119,507
<CURRENT-LIABILITIES> 36,473
<BONDS> 0
0
0
<COMMON> 16
<OTHER-SE> 75,108
<TOTAL-LIABILITY-AND-EQUITY> 119,507
<SALES> 98,241
<TOTAL-REVENUES> 98,241
<CGS> 50,771
<TOTAL-COSTS> 50,771
<OTHER-EXPENSES> 5,389
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 10,101
<INCOME-TAX> 3,481
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,620
<EPS-PRIMARY> 0.35
<EPS-DILUTED> 0.35
</TABLE>
