<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): February 26,1999
STRATEGIC DIAGNOSTICS INC.
--------------------------------------------------
(Exact name of Registrant as specified in charter)
Delaware 0-68440 56-1581761
(State or Other Jurisdiction (Commission (I.R.S. Employer
of Incorporation or file Identification
Organization) number) Number)
111 Pencader Drive
Newark, Delaware 19702
(Address of principal executive offices)
(302) 456-6789
(Registrant's telephone number, including area code)
<PAGE>
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
(a) Financial Statements of HTI Bio-Products, Inc. (business acquired).
Independent Auditors' Report F-1
Balance Sheets F-2
Statements of Income F-4
Statements of Stockholders' Equity F-5
Statements of Cash Flows F-6
Notes to Financial Statements F-8
(b) Pro Forma Financial Information.
Summary Information on Acquisition F-16
Unaudited Pro Forma Consolidated Balance Sheet
as of December 31, 1998 F-17
Unaudited Pro Forma Consolidated Statement of
Operations For the Year Ended December 31, 1998 F-18
(c) Exhibits.
None
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Stockholders
HTI Bio-Products, Inc.
We have audited the accompanying balance sheets of HTI Bio-Products, Inc. (the
"Company") as of December 31, 1998 and 1997, and the related statements of
income, stockholders' equity and cash flows for the years then ended. 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 in accordance with generally accepted auditing
standards. Those standards 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. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of HTI Bio-Products, Inc. as of
December 31, 1998 and 1997, and the results of its operations and its cash flows
for the years then ended, in conformity with generally accepted accounting
principles.
Nation Smith Hermes Diamond, P.C.
March 31, 1999
F-1
<PAGE>
A. FINANCIAL STATEMENTS OF HTI BIO-PRODUCTS, INC.
HTI Bio-Products, Inc.
Balance Sheets
<TABLE>
<CAPTION>
December 31, 1998 1997
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets (Note 4)
Current Assets
Cash (Note 1(c) and 10(a)) $ 589,115 $ 137,105
Accounts receivable - net of allowance for doubtful
accounts of $5,000 in 1998 821,379 556,789
Unbilled accounts receivable 3,729 64,696
Related party receivable (Note 8(a)) 13,479 27,470
Note receivable - stockholder (Note 8(c)) 80,000 -
Note receivable - related party (Note 8(c)) 20,000 -
Interest receivable (Note 8(c)) - 6,400
Inventories (Note 1(d) and 2) 387,514 264,445
Prepaid expenses and other assets 60,737 42,699
- -----------------------------------------------------------------------------------------------------------------
Total current assets 1,975,953 1,099,604
Fixed Assets - Net (Notes 1(e), 3 and 5) 870,114 866,352
Note Receivable - Stockholder (Note 8(c)) - 80,000
Other Assets - Net 24,748 25,239
- -----------------------------------------------------------------------------------------------------------------
$2,870,815 $2,071,195
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
F-2
<PAGE>
HTI Bio-Products, Inc.
Balance Sheets
<TABLE>
<CAPTION>
December 31, 1998 1997
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Liabilities and Stockholders' Equity
Current Liabilities
Current maturities of long-term debt (Note 5) $ 44,561 $ 53,870
Accounts payable 190,669 155,984
Accrued payroll expense and related taxes (Note 6(b)) 717,197 160,567
Accrued liabilities 38,805 49,260
Related party payable (Note 8(a)) 3,168 33,785
Deferred revenue 18,000 10,995
- ------------------------------------------------------------------------------------------------------------------
Total current liabilities 1,012,400 464,461
Long-Term Debt - Net of Current Maturities (Note 5) 628,053 652,545
- ------------------------------------------------------------------------------------------------------------------
Total liabilities 1,640,453 1,117,006
Commitments and Contingencies (Notes 4, 9, 12 and 13)
Stockholders' Equity (Note 6)
Common stock, no par value; 5,000,000 shares
authorized and $1,000,000 shares issued and
outstanding 185,000 185,000
Note receivable - stockholder (Note 8(c)) (95,000) (95,000)
Retained earnings (Note 11) 1,140,362 864,189
- ------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 1,230,362 954,189
- ------------------------------------------------------------------------------------------------------------------
$2,870,815 $2,071,195
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
HTI Bio-Products, Inc.
Statements of Income
<TABLE>
<CAPTION>
Years Ended December 31, 1998 1997
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Revenues $5,637,873 $4,133,288
Direct expenses (2,038,466) (1,529,246)
Indirect expenses (1,972,211) (1,138,207)
- ----------------------------------------------------------------------------------------------------------------
Gross Profit 1,627,196 1,465,835
Operating expenses (1,353,782) (1,072,607)
- ----------------------------------------------------------------------------------------------------------------
Operating income 273,414 393,228
- ----------------------------------------------------------------------------------------------------------------
Other Income (Expense)
Interest expense (68,268) (67,110)
Rental income 57,350 36,980
Interest income 24,077 33,070
Miscellaneous expense (10,400) (9,091)
- ----------------------------------------------------------------------------------------------------------------
Total Other Income (Expense) 2,759 (6,151)
- ----------------------------------------------------------------------------------------------------------------
Net Income $ 276,173 $ 387,077
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
HTI Bio-Products, Inc.
Statements of Stockholders' Equity
<TABLE>
<CAPTION>
Common Stock Note
-------------------------------------- Receivable- Retained
Shares Amount Shareholder Earnings Total
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1996 1,000,000 $ 185,000 $ (95,000) $1,067,043 $1,157,043
Distributions (Note 11) - - - (563,681) (563,681)
Warrant purchase (Note 4) - - - (26,250) (26,250)
Net income - - - 387,077 387,077
- ----------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1997 1,000,000 185,000 (95,000) 864,189 954,189
Net income - - - 276,173 276,173
- ----------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1998 1,000,000 $ 185,000 $ (95,000) $1,140,362 $1,230,362
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
HTI Bio-Products, Inc.
Statements of Cash Flows
<TABLE>
<CAPTION>
Years Ended December 31, 1998 1997
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash Flows From Operating Activities
Net income $ 276,173 $ 387,077
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 107,747 84,744
Bad debt expense 5,000 -
Changes in operating assets and liabilities:
Accounts receivable (269,590) (28,863)
Unbilled accounts receivable 60,967 (23,232)
Related party receivable 13,991 (21,816)
Interest receivable 6,400 (6,400)
Inventories (123,069) (40,022)
Prepaid expenses and other assets (18,038) (12,272)
Other assets - (13,057)
Accounts payable 34,685 (2,613)
Accrued payroll expense and related taxes 556,630 126,150
Accrued liabilities (10,455) 21,617
Related party payable (30,617) 29,303
Deferred revenue 7,005 5,995
- ----------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 616,829 506,611
- ----------------------------------------------------------------------------------------------------------------
Cash Flows From Investing Activities
Purchases of fixed assets (111,018) (131,319)
- ----------------------------------------------------------------------------------------------------------------
Cash Flows From Financing Activities
Payments on long-term debt (33,801) (21,968)
(Increase) decrease in related party receivable (20,000) 113,989
Distributions to stockholders - (563,681)
Increase in stockholder notes payable - 33,000
Purchase of warrants relating to debt agreement - (26,250)
Note receivable stockholder - 5,550
- ----------------------------------------------------------------------------------------------------------------
Net cash used in financing activities (53,801) (459,360)
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
HTI Bio-Products, Inc.
Statements of Cash Flows, Continued
<TABLE>
<CAPTION>
Years Ended December 31, 1998 1997
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net increase (decrease) in cash and cash equivalents 452,010 (84,068)
Cash and Cash Equivalents at Beginning of Year 137,105 221,173
- ----------------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents at End of Year $ 589,115 $ 137,105
- ----------------------------------------------------------------------------------------------------------------
Supplemental Disclosures of Cash Information:
Cash paid during the year for:
Interest $ 68,268 $ 67,110
Income taxes $ 800 $ 800
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-7
<PAGE>
HTI Bio-Products, Inc.
Notes to Financial Statements
1. Summary of A summary of the Company's significant accounting policies
Significant consistently applied in the preparation of the accompanying
Accounting financial statements follows.
Policies
(a) Business The Company was incorporated under the laws of the State of
activity California on September 5, 1990. The Company's primary
business activity is the production and sale of polyclonal
antibodies for diagnostic use in research and in commercial
pharmaceutical products mainly in California.
(b) Use of The preparation of financial statements in conformity with
estimates generally accepted accounting principles requires management
to make estimates and assumptions that affect certain
reported amounts and disclosures. Accordingly, actual
results could differ from those estimates.
(c) Cash and cash The Company considers all highly-liquid investments with
equivalents original maturities of three months or less to be cash
equivalents.
(d) Inventories Inventories are valued at the lower of cost or market. Cost
is determined on the first-in first-out method of accounting
using standard costs for labor and materials.
(e) Depreciation Depreciation is provided for in amounts sufficient to relate
the cost of depreciable assets to operations over their
estimated service lives on either the straight-line or
double declining balance method, generally over three to
five years.
Maintenance, repairs, and minor renewals are charged to
operations as incurred. Upon sale or disposition of
properties, the asset account is relieved of the cost, the
accumulated depreciation account is charged with
depreciation taken prior to the sale, and any resultant gain
or loss is credited or charged to earnings.
(f) Income taxes The Company elected S corporation status for federal and
California income tax purposes in 1990. Under the federal
tax provisions, the Company does not pay federal corporate
income taxes on its taxable income. Instead, all taxable
income and tax benefits are passed through to the
shareholders. The income tax expense in the statements of
income is the provision for California franchise tax expense
at the statutory rate of 1.5% with a minimum tax of $800.
F-8
<PAGE>
(f) Income taxes, As of December 31, 1998, the Company had research and
cont'd development tax credit carryforwards of approximately
$14,000 to offset future taxable income. The Company has
recognized a deferred tax asset relating to these
carryforwards and a 100% valuation allowance against it. The
valuation allowance increased approximately $10,000 from
1997.
Due to the acquisition of the stock in February 1999 by a C
corporation, the Company lost its S corporation status (see
Note 13).
(g) Research and The Company is actively engaged in new product development
development efforts. Research and development expense relating to
possible future products are expensed as incurred. Total
expense was approximately $972,000 and $734,000 for 1998 and
1997, respectively.
2. Inventories Inventories consisted of the following:
December 31, 1998 1997
------------------------------------------------------------
Finished goods $ 92,093 $ 59,778
Work in process 27,251 32,883
Raw materials 268,170 171,784
------------------------------------------------------------
$ 387,514 $ 264,445
------------------------------------------------------------
3. Fixed Assets Fixed assets consisted of the following:
December 31, 1998 1997
------------------------------------------------------------
Building $ 585,000 $ 585,000
Equipment 405,202 306,221
Land 215,872 215,872
Furniture, fixtures, computers
and software 98,070 86,033
Livestock 50,000 50,000
------------------------------------------------------------
1,354,144 1,243,126
Less accumulated depreciation (484,030) (376,774)
------------------------------------------------------------
$ 870,114 $ 866,352
------------------------------------------------------------
Depreciation expense was $107,747 and $84,744 for 1998 and
1997, respectively.
F-9
<PAGE>
4. Line of Credit During 1997, the Company and a related entity entered into a
revolving loan agreement with a bank that allowed the
Company to borrow up to 80% of eligible accounts receivable.
Maximum borrowings under the agreement were limited to
$1,000,000. Interest was payable monthly at the bank's
reference rate (7.75% at December 31, 1998) plus .85%. The
revolving loan was secured by all the assets of the Company
and personally guaranteed by the majority shareholder. It
was cross-collateralized by the assets of the related
entity. The outstanding balance at December 31, 1998 was
$375,000 which was recorded on the financial statements of
the related entity.
The revolving loan contained certain restrictive covenants,
calculated quarterly. In addition, the loan agreement
limited the declaration and payment of dividends or
distributions to shareholders. At December 31, 1998, the
Company and related entity were in compliance with the loan
covenants.
As part of a revolving joint borrowing facility with the
related entity, the Company may borrow up to $500,000 at an
interest rate of prime (7.75% at December 31, 1998) plus
.75%. On March 9, 1999, the principal balance outstanding
converted to a non-revolving term loan, due January 2004.
The debt was collateralized by the Company assets and a
stockholder guarantee. The Company had no borrowings under
this facility at December 31, 1998.
The Company and the related entity had a line of credit
agreement with a bank which was paid in full during 1997. In
connection with the line of credit and a term loan
agreement, the Company granted stock warrants to the bank
equal to 3.75% of outstanding shares at September 1, 1995.
The warrants provided for a put option equal to $52,500.
This option was exercised and paid by the Company and the
related entity during 1997 resulting in changes to the
Company's and related entity's retained earnings of $26,250.
The Company was a guarantor on two term loans with the
related entity. All of the proceeds went to the related
entity which made the payments required under the loan
agreement. The loans were payable in monthly installments
totaling $27,502, with an interest rate of prime (7.75% at
December 31, 1998) plus 1%. The loans were due in August
2001 and August 2002 and were subject to collateral and
covenant agreements. At December 31, 1998, the Company and
related entity were in compliance with the loan covenants.
The outstanding balance at December 31, 1998 was $801,650
which was recorded on the financial statement of the related
entity.
The bank credit facilities that were in the name of the
Company and the related entity, as joint borrowers, were
paid in full and closed when the related entity was acquired
in January 1999 (see Note 12).
F-10
<PAGE>
5. Notes Payable Notes payable consisted of the following:
<TABLE>
<CAPTION>
December 31, 1998 1997
--------------------------------------------------------------------------------------
<S> <C> <C>
SBA guaranteed note payable to a bank, due in 300
monthly installments of $4,874, including
interest at a rate (established quarterly) of
prime (7.75% at December 31, 1998) plus 1.5%.
This note is secured by equipment and land. $ 541,053 $ 548,323
Note payable for purchase of land, due in 120
monthly installments of $2,295, including
interest, at a rate of 10%. This note is
secured by a second trust
deed on the land. 109,361 125,092
Unsecured demand notes payable to
shareholders. Interest is payable
annually at 8%. 22,200 33,000
--------------------------------------------------------------------------------------
672,614 706,415
Less current maturities (44,561) (53,870)
--------------------------------------------------------------------------------------
Long-term portion $ 628,053 $ 652,545
--------------------------------------------------------------------------------------
</TABLE>
Subsequent to December 31, 1998, the SBA guaranteed note
payable and the shareholder note payable balances were paid
in full. They are included in the future minimum payment
schedule below. Future minimum payments are as follows:
Year Ending December 31,
-----------------------------------------------------------
1999 $ 44,561
2000 29,031
2001 31,991
2002 35,252
2003 38,846
Thereafter 492,933
-----------------------------------------------------------
$ 672,614
-----------------------------------------------------------
F-11
<PAGE>
6. Common
Stock
(a) Stock options During 1998, the Company granted nonqualified stock options
to certain employees under which the employees have options
to purchase shares of the Company's common stock. These
options are fully vested at the date of grant.
The Company applies APB Opinion No. 25, Accounting for Stock
Issued to Employees, and related Interpretations in
accounting for its stock options. There has been no
compensation cost charged against income for the options for
1998. Had compensation cost for the Company's stock options
been determined based on their fair value at the grant dates
consistent with the method of FASB Statement No. 123,
Accounting for Stock-Based Compensation, the Company's net
income would have been decreased to the pro forma amount
indicated below. The fair value of each option is estimated
on the date of grant using the minimum value method with the
following weighted-average assumptions: risk-free interest
rate of 6% and expected life of one year.
Year Ended December 31, 1998
------------------------------------------------------------
As reported $ 276,173
Pro forma $ 245,082
------------------------------------------------------------
A summary of nonqualified stock option activity is as
follows:
<TABLE>
<CAPTION>
Number of Weighted average
shares exercise price
------------------------------------------------------------------------------------
<S> <C> <C>
Options outstanding at December 31, 1997 - $8.95
Granted 61,371 $8.95
Exercised - $ -
------------------------------------------------------------------------------------
Options outstanding at December 31, 1998 61,371 $8.95
------------------------------------------------------------------------------------
</TABLE>
In February 1999, the options were cancelled by the Company.
(b) Stock bonus In return for prior services and for voluntarily cancelling
the options, the Company granted 61,371 shares of common
stock to selected employees. Compensation expense of
$548,865 was accrued at December 31, 1998.
7. Employee The Company has a 401(k) retirement plan for all eligible
Benefit Plan employees. Eligible employees may elect to contribute up to
15% of their gross salary, not to exceed federal tax law
limitations. The Company's optional contribution match is up
to 50% of employee deferrals, but not to exceed $500. The
total expense was approximately $11,000 and $12,000 for 1998
and 1997, respectively.
F-12
<PAGE>
8. Related Party
Transactions
(a) Related party As of December 31, 1998 and 1997, the Company had a $13,479
receivable and $27,470 receivable from and a $3,168 and $33,785
(payable) payable, respectively, to a related party for rents and
operating expenses shared by the two companies. Both
companies were majority owned by the same shareholder at
December 31, 1998 and 1997.
(b) Rental income During 1997 and 1998, the Company leased some of its
facilities to the related party. Annual revenue from this
month-to-month lease was approximately $48,000 and $25,500
for 1998 and 1997, respectively.
(c) Note On December 31, 1995, the Company issued 125,000 shares of
receivable common stock to an officer of the Company for one dollar per
share. The Company received a note receivable for $95,000
with no specified payment schedule and 8% interest due
annually. The note stated that, if the officer continues
employment with the Company through December 31 of each
calendar year, accrued interest will be forgiven. In
February 1999, the note plus accrued interest was forgiven.
The Company also has a demand note receivable from a
stockholder for $80,000 with 8% interest due annually. The
note plus accrued interest was paid in full in February
1999. As a result, the note has been classified as a current
asset at December 31, 1998. At December 31, 1997, management
did not intend to call the note and accordingly classified
the note as a non-current asset.
At December 31, 1998, the Company has a demand note
receivable from a related party for $20,000 with 10%
interest due annually. The note and accrued interest were
paid in full in February 1999. Accordingly, the note has
been classified as a current asset at December 31, 1998.
(d) Operating The Company shares certain staff with a related party and
expenses the related salaries are allocated between the two
companies. The shared staff includes the chief executive
officer, all financial staff and certain husbandry
personnel. Certain costs of the Santa Ysabel facility, such
as gas and electric, are also shared by the two companies.
(e) Lease On December 31, 1996, the Company and the related party
guarantee guaranteed an equipment lease entered into by the majority
shareholder. The Company has a month-to-month lease on this
equipment with the shareholder. Lease expense for equipment
was approximately $55,000 and $35,000 for 1998 and 1997,
respectively.
F-13
<PAGE>
9. Commitments The Company leases office space and equipment under
and non-cancelable operating leases. Rent expense under these
Contingencies leases was approximately $117,000 and $57,000 for 1998 and
1997, respectively.
Future minimum rental payments required under operating
leases that have initial or remaining non-cancelable lease
terms in excess of one year are as follows:
Year Ending December 31,
------------------------------------------------------------
1999 $ 172,743
2000 170,240
2001 137,887
2002 103,904
2003 21,157
------------------------------------------------------------
$ 605,931
------------------------------------------------------------
10. Concentrations
(a) Credit risk The Company maintains its primary operating account at a
financial institution located in San Diego, California. The
account is insured by the Federal Deposit Insurance
Corporation up to $100,000. At December 31, 1998, the
Company's uninsured cash balance was approximately $575,000.
Management believes that the Company is not exposed to any
significant credit risk on cash and cash equivalents.
(b) Customer During 1998, the Company had revenues from four customers of
approximately $3,500,000 (62.5%). The combined accounts
receivable at December 31, 1998 was approximately $418,000
from those four customers.
(c) Suppliers The Company currently contracts with several suppliers to
supply animals, animal feed and project supplies. Although
there are a limited number of suppliers which could provide
animals and supplies, management believes other suppliers
could provide the animals and supplies. A change in
suppliers, however, could cause a delay in operations and
adversely affect results.
11. Distributions During 1998, the Company did not make distributions to the
shareholders. During 1997, the Company distributed $563,681
in cash from its retained earnings. The Directors considered
these distributions necessary for the shareholders to pay
their personal income tax attributable to the Company's net
income and provide a loan to a related company.
F-14
<PAGE>
12. Subsequent In March 1999, all of the outstanding stock of the Company
Event was acquired by an unrelated party. As part of the
acquisition, certain liabilities were paid by the acquiring
company. (See Notes 5, 6(b) and 9)
The Company's sister company was acquired by new owners in
January 1999.
13. Year 2000 The Company could be adversely affected if the computer
Issue systems it, its suppliers or its customers use do not
(Unaudited) properly process and calculate date-related information and
data from the period surrounding and including January 1,
2000. This is commonly known as the "Year 2000" issue.
Additionally, this issue could impact non-computer systems
and devices such as production equipment. At this time,
because of the complexities involved in the issue,
management cannot provide assurances that the Year 2000
issue will not have an impact on the Company's operations.
F-15
<PAGE>
B. PRO FORMA FINANCIAL INFORMATION
On February 26, 1999, the Company completed the acquisition of HTI Bio-Products,
Inc., a privately held manufacturer of custom and proprietary antibody products
and services located near San Diego, CA (HTI). Under the terms of the agreement
to acquire HTI, the Company paid approximately $8.1 million in cash, issued
556,286 shares of Series B preferred stock and assumed approximately $100 of
long term debt. The preferred shares convert into common shares on a 1-for-1
basis at any time at the option of the holder, and at the option of the Company
when the closing price of the Company's stock exceeds $3.50 for a period of 10
days, and carry a cumulative, annual cash dividend of $0.175 per share and a
liquidation preference. The Company is also obligated to pay a percentage of net
sales of certain products over the next three years, not to exceed $3 million.
Approximately $6 million of acquisition financing has been provided by the
Company's commercial bank, with the balance coming from existing cash on hand.
The following unaudited pro forma statement of operations for the year ended
December 31, 1998, gives effect to the acquisition of HTI Bio-Products Inc.
("HTI") by Strategic Diagnostics Inc. (The "Company") as if it had occurred on
January 1, 1998. The following unaudited pro forma balance sheet at December 31,
1998, gives effect to the acquisition as if it had occurred on December 31,
1998.
The unaudited pro forma statement of operations for the year ended December 31,
1998, is based upon the historical operating results of the Company and HTI for
such period. The pro forma statement of operations excludes material
non-recurring charges relating to purchased in-process research and development.
Such amount totaled $3.5 million at the acquisition date.
The pro forma financial statements may not be indicative of the results that
actually would have been attained if the acquisition had occurred on the dates
indicated or which may be attained in the future.
The pro forma adjustments are described in the accompanying footnotes to the pro
forma financial statements. The pro forma financial statements should be used in
conjunction with the notes and financial statements of SDI and HTI included in
SDI's annual report on Form 10-K for the year ended December 31, 1998, and the
HTI audited financial statements for the years ended December 31, 1998 and 1997
included within this Form 8-K/A.
F-16
<PAGE>
STRATEGIC DIAGNOSTICS INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
(in thousands, except share data)
<TABLE>
<CAPTION>
As of December 31,
- -----------------------------------------------------------------------------------------------------------------------------------
1998 1998 1998
SDI HTI Purchase Combined
ASSETS Actual Actual Adjustments Pro Forma
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 1,864 $589 $ - $2,453
Short-term investments 3,990 - (2,168)(1) 1,822
Receivables, net 3,653 938 - 4,591
Inventories 1,855 388 - 2,243
Other current assets 469 61 (27)(2) 503
- -----------------------------------------------------------------------------------------------------------------------------------
Total current assets 11,831 1,976 (2,195) 11,612
- -----------------------------------------------------------------------------------------------------------------------------------
PROPERTY AND EQUIPMENT, net 835 870 134(1) 1,839
OTHER ASSETS 494 25 - 519
INTANGIBLE ASSETS, net 1,933 - 3,985(1) 5,918
- -----------------------------------------------------------------------------------------------------------------------------------
Total assets $15,093 $2,871 $1,924 $19,888
- -----------------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
- -----------------------------------------------------------------------------------------------------------------------------------
CURRENT LIABILITIES
Accounts payable $802 $194 $ - $996
Accrued expenses 788 756 125(1) 1,669
Deferred revenue - 18 - 18
Current portion of LTD 83 45 1,194(1) 1,322
- -----------------------------------------------------------------------------------------------------------------------------------
Total current liabilities 1,673 1,013 1,319 4,005
- -----------------------------------------------------------------------------------------------------------------------------------
Long-term debt 265 628 4,267(1) 5,160
- -----------------------------------------------------------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY
Preferred stock, $.01 par value, 17,500,000 shares authorized,
no shares issued or outstanding - - - -
Series A preferred stock, $.01 par value, 2,164,362 shares -
authorized, issued and outstanding 22 - - 22
Series B preferred stock, $.01 par value, 556,286 shares -
authorized, issued and outstanding - - 1,068(1) 1,068
Common stock, $.01 par value, 35,000,000 shares authorized, -
13,262,157 and 13,112,949 issued and outstanding -
at December 31, 1998 and December 31, 1997, respectively 133 185 (185)(3) 133
Additional paid-in capital 23,946 - - 23,946
Accumulated deficit (10,921) 1,140 (4,640)(3)(4) (14,421)
Note receivable - shareholder (95) 95(3) -
Cumulative translation adjustments (25) - - (25)
- -----------------------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 13,155 1,230 (3,662) 10,723
- -----------------------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $15,092 $2,871 $1,924 $19,888
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) To record the fair value allocation of the cash purchase price of $7.6
million, and the issuance of 556,286 shares of Series B Preferred stock,
with a dividend of $.175 per share annually, and a fair value of
approximately $1.1 million.
(2) To reclassify deferred acquisition costs to goodwill.
(3) To eliminate the equity section of HTI Bio-Products, Inc.
(4) To record $3.5 million of purchased in-process research and
development.
F-17
<PAGE>
STRATEGIC DIAGNOSTICS INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
(in thousands, except share and per share data)
<TABLE>
<CAPTION>
Year Ended December 31,
- ------------------------------------------------------------------------------------------------------------------------------
1998 1998 1998
SDI HTI Pro Forma Combined
NET REVENUES: Actual Actual Adjustments Pro Forma(5)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Product related $ 14,172 $ 5,638 $ -- $ 19,810
Contract and other 1,553 -- -- 1,553
- ------------------------------------------------------------------------------------------------------------------------------
Total net revenues 15,725 5,638 -- 21,363
- ------------------------------------------------------------------------------------------------------------------------------
OPERATING EXPENSES:
Manufacturing cost of sales 6,222 3,039 -- 9,261
Research and development 1,922 972 -- 2,894
Selling, general and administrative 7,156 1,354(4) 202(1) 8,712
- ------------------------------------------------------------------------------------------------------------------------------
Total operating expenses 15,300 5,365 202 20,867
- ------------------------------------------------------------------------------------------------------------------------------
Operating income (loss) 425 273 (202) 496
- ------------------------------------------------------------------------------------------------------------------------------
Interest and other income (expense), net 356 3 (363)(2) (4)
- ------------------------------------------------------------------------------------------------------------------------------
Income before non-recurring charges directly
attributable to the acquisition 781 276 (565) 492
Preferred stock dividends -- -- (97)(3) (97)
- ------------------------------------------------------------------------------------------------------------------------------
Income before non-recurring charges directly
attributable to the acquisition
Applicable to common stockholders 781 276 (662) 395
- ------------------------------------------------------------------------------------------------------------------------------
Basic income before non-recurring charges directly
attributable to the acquisition per share
Applicable to common stockholders $ 0.06 $ -- $ 0.03
- ------------------------------------------------------------------------------------------------------------------------------
Shares used in computing basic income before
non-recurring charges directly attributable to the
acquisition
Per share applicable to common stockholders 13,174,000 -- 13,174,000
- ------------------------------------------------------------------------------------------------------------------------------
Diluted income before non-recurring charges directly
attributable to the acquisition per share
Applicable to common stockholders $ 0.05 $ -- $ 0.02
- ------------------------------------------------------------------------------------------------------------------------------
Shares used in computing diluted income before
non-recurring charges directly attributable to the
acquisition
Per share applicable to common stockholders 16,103,000 -- 206,000 16,309,000
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Charge incurred for amortization of goodwill of approximately $4.0 million
over its estimated useful life of 20 years.
(2) Represents interest expense on $6.0 million of new debt at approximately
7.6% interest, net of savings on the retirement of approximately $540,000
of HTI debt.
(3) Dividends on Series B preferred stock at a rate of $.175 per share
annually.
(4) Includes approximately $549,000 of non-recurring, non-cash, stock based
compensation.
(5) Does not include the $3.5 million non-recurring charge related to purchased
in-process research and development.
F-18
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this amendment to its report to be signed on its
behalf by the undersigned hereunto duly authorized.
STRATEGIC DIAGNOSTICS INC.
Date: May 12, 1999 By: /s/ Arthur A. Koch, Jr.
---------------------------
Name: Arthur A. Koch, Jr.
Title: Vice President - Finance and
Chief Operating Officer
F-19
