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) - January 29, 2002
KENDLE INTERNATIONAL INC.
(Exact name of registrant as specified in charter)
OHIO 000-23019 31-1274091
(STATE OF OTHER JURISDICTION (COMMISSION (IRS EMPLOYER
OF INCORPORATION) FILE NUMBER) IDENTIFICATION NO.)
441 VINE STREET, SUITE 1200, CINCINNATI, OH 45202
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(513) 381-5500
(Registrant's telephone number, including area code)
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) FINANCIAL STATEMENTS.
Audited financial statements of Clinical and Pharmacologic Research, Inc. for
the nine months ended September 30, 2001 and the year ended December 31, 2000.
See Contents on Page F-2.
(b) PRO FORMA FINANCIAL INFORMATION.
Pro forma financial information of Kendle International Inc. See "Index to
Unaudited Pro Forma Condensed Consolidated Financial Statements" on Page F-17.
(c) EXHIBITS.
2(a) ASSET PURCHASE AGREEMENT made and entered into on January 29,
2002 among KENDLE INTERNATIONAL INC., CLINICAL AND PHARMACOLOGIC
RESEARCH, INC., THOMAS S. CLARK, M.D., CHARLES T. CLARK, and E.
STUART CLARK. (previously filed)
2(b) CONVERTIBLE SUBORDINATED NOTE, dated January 29, 2002 issued by
KENDLE INTERNATIONAL INC. to CLINICAL AND PHARMACOLOGIC RESEARCH,
INC. (previously filed)
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Kendle International Inc.
Date: March 29, 2002 By: /s/ Timothy M. Mooney
-----------------------------
Timothy M. Mooney,
Executive Vice President -
Chief Financial Officer
CLINICAL AND PHARMACOLOGIC
RESEARCH, INC.
REPORT ON AUDITS OF FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2001
AND THE YEAR ENDED DECEMBER 31, 2000
F-1
CLINICAL AND PHARMACOLOGIC RESEARCH, INC.
INDEX TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Page(s)
Report of Independent Accountants 1
Financial Statements
Balance Sheets as of September 30, 2001 and December 31, 2000 2
Statements of Operations and Comprehensive Income for the nine
months ended September 30, 2001 and the year ended December 31, 2000 3
Statements of Changes in Shareholder Equity for the nine months ended
September 30, 2001 and the year ended December 31, 2000 4
Statements of Cash Flows for the nine months ended
September 30, 2001 and the year ended December 31, 2000 5
Notes to Financial Statements 6-14
F-2
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
and Shareholder of Clinical
and Pharmacologic Research, Inc.
In our opinion, the accompanying balance sheets and the related statements of
operations and comprehensive income, of changes in shareholder equity and of
cash flows present fairly, in all material respects, the financial position of
Clinical and Pharmacologic Research, Inc. at September 30, 2001 and December 31,
2000, and the results of its operations and its cash flows for the nine months
ended September 30, 2001 and the year ended December 31, 2000 in conformity with
accounting principles generally accepted in the United States of America. These
financial statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States of America, which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Cincinnati, Ohio
January 29, 2002
F-3
CLINICAL AND PHARMACOLOGIC RESEARCH, INC.
BALANCE SHEETS AS OF SEPTEMBER 30, 2001
AND DECEMBER 31, 2000
- --------------------------------------------------------------------------------
SEPTEMBER 30, DECEMBER 31,
2001 2000
---------- ----------
ASSETS
Cash and cash equivalents $273,179 $424,184
Accounts receivable 241,619 512,850
Project work-in-progress 346,843 767,521
Prepaid expenses and other current assets 29,936 23,407
Notes receivable 28,720 55,355
Investment in SMT LLC 62,500 62,500
---------- ----------
Total current assets 982,797 1,845,817
Property and equipment, net 242,144 295,376
---------- ----------
Total assets $1,224,941 $2,141,193
========== ==========
LIABILITIES
Accounts payable $18,955 $32,342
Accrued payroll 53,254 9,200
Accrued 401(k) contributions 13,543 71,779
Accrued expenses and other current liabilities 152,885 128,633
Unearned revenue 897,518 1,739,594
Current portion of capital lease obligation 19,312 17,923
---------- ----------
Total current liabilities 1,155,467 1,999,471
Long-term liabilities - capital lease obligation 59,777 74,439
---------- ----------
Total liabilities 1,215,244 2,073,910
---------- ----------
Commitments and contingencies
SHAREHOLDER EQUITY
Common Stock, $.05 stated value, 100,000 shares authorized,
20,000 shares issued and outstanding 1,000 1,000
Additional paid-in-capital 8,697 66,283
Retained earnings -- --
---------- ----------
Total shareholder equity 9,697 67,283
---------- ----------
Total liabilities and shareholder equity $1,224,941 $2,141,193
========== ==========
The accompanying notes are an integral part of these financial statements.
F-4
CLINICAL AND PHARMACOLOGIC RESEARCH, INC.
STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 2001 AND THE YEAR ENDED DECEMBER 31, 2000
NINE MONTHS YEAR
ENDED ENDED
SEPTEMBER 30, DECEMBER 31,
2001 2000
------------ ------------
Net revenue $5,319,938 $6,734,505
Cost of revenue 2,790,668 3,406,961
---------- ----------
Gross profit 2,529,270 3,327,544
General and administrative expenses 703,645 2,033,392
---------- ----------
Income from operations 1,825,625 1,294,152
Interest income 10,789 42,786
---------- ----------
Net income and other comprehensive income $1,836,414 $1,336,938
========== ==========
The accompanying notes are an integral part of these financial statements.
F-5
CLINICAL AND PHARMACOLOGIC RESEARCH, INC.
STATEMENTS OF CHANGES IN SHAREHOLDER EQUITY FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 2001 AND THE YEAR ENDED DECEMBER 31, 2000
COMMON STOCK
--------------------
STATED ADDITIONAL RETAINED
SHARES VALUE PAID-IN-CAPITAL EARNINGS TOTAL
------ ----- --------------- -------- -----
Balance at January 1, 2000 20,000 $ 1,000 $ 150,000 $ 427,313 $ 578,313
Stock option grants -- -- 755,206 -- 755,206
Net income -- -- -- 1,336,938 1,336,938
Distributions to shareholder -- -- (838,923) (1,764,251) (2,603,174)
------ ----------- ----------- ---------- -----------
Balance at December 31, 2000 20,000 1,000 66,283 -- 67,283
------ ----------- ----------- ---------- -----------
Net income -- -- -- 1,836,414 1,836,414
Distributions to shareholder -- -- (57,586) (1,836,414) (1,894,000)
------ ----------- ----------- ---------- -----------
Balance at September 30, 2001 20,000 $ 1,000 $ 8,697 $ -- $ 9,697
====== =========== =========== ========== ===========
The accompanying notes are an integral part of these financial statements.
F-6
CLINICAL AND PHARMACOLOGIC RESEARCH, INC.
STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 2001 AND THE YEAR ENDED DECEMBER 31, 2000
- --------------------------------------------------------------------------------
SEPTEMBER 30, DECEMBER 31,
2001 2000
------------- ------------
Cash flows from operating activities:
Net income $ 1,836,414 $ 1,336,938
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 69,640 95,593
Net loss from disposition of property and equipment 322 --
Non-cash stock compensation -- 755,206
Changes in assets and liabilities:
Decrease (increase) in accounts receivable 271,231 (339,856)
Decrease (increase) in project work-in-progress 420,678 (183,830)
(Increase) decrease in prepaid expenses and other current assets (6,529) 51,078
Decrease in accounts payable (13,387) (6,712)
Increase in accrued payroll 44,054 2,248
Decrease in accrued 401(k) contributions (58,236) (4,159)
Increase in accrued expenses and other current liabilities 24,252 110,171
(Decrease) increase in unearned revenue (842,076) 471,093
----------- -----------
Net cash provided by operating activities 1,746,363 2,287,770
----------- -----------
Cash flows from investing activities:
Purchase of property and equipment (16,730) (66,490)
Issuance of notes receivable -- (32,923)
Repayments on notes receivable 26,635 --
----------- -----------
Net cash provided by (used in) investing activities 9,905 (99,413)
----------- -----------
Cash flows from financing activities:
Distributions to shareholder (1,894,000) (2,603,174)
Payments on capital lease obligations (13,273) (10,994)
----------- -----------
Net cash used in financing activities (1,907,273) (2,614,168)
----------- -----------
Net decrease in cash and cash equivalents (151,005) (425,811)
Cash and cash equivalents, beginning of period 424,184 849,995
----------- -----------
Cash and cash equivalents, end of period $ 273,179 $ 424,184
=========== ===========
Supplemental disclosure of cash flow information:
Acquisition of equipment under capital lease -- $ (103,356)
The accompanying notes are an integral part of these financial statements.
F-7
CLINICAL AND PHARMACOLOGIC RESEARCH, INC.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. NATURE OF BUSINESS
Clinical and Pharmacologic Research, Inc. (the "Company") is a contract
research organization (CRO) that conducts bioequivalence and clinical
studies for the generic drug industry. The Company is the preferred
provider of all clinical research services for Mylan Laboratories,
Inc.("Mylan"), a leading pharmaceutical company. Mylan is widely
considered to have the broadest pipeline of all generic manufacturers,
having 22 Abbreviated New Drug Applications ("ANDAs") currently under
FDA review. The relationship between the two companies is governed by
an agreement expiring in 2009 which affords the Company a right of
first refusal for all clinical trial and study work performed by Mylan.
2. SIGNIFICANT ACCOUNTING POLICIES
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with an original
maturity of three months or less to be cash equivalents. At September
30, 2001 and December 31, 2000, cash equivalents were comprised of
money market funds totaling $7,328 and $247,516, respectively.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Expenditures for
maintenance, repairs, renewals and betterments that do not
significantly prolong the useful lives of the assets are charged to
expense as incurred. Depreciation is computed using an accelerated
method for all classes of property and equipment. Asset useful lives
have been estimated as seven years, five years, and ten years for
furniture and fixtures, computer equipment and leasehold improvements,
respectively. Upon retirement or sale, the cost of assets disposed of
and the related accumulated depreciation are removed from the accounts
and any resulting gain or loss is recorded.
F-8
CLINICAL AND PHARMACOLOGIC RESEARCH, INC.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
REVENUE RECOGNITION
The Company recognizes revenue when all services have been rendered
under a contract. The Company bills its customer throughout the
duration of the contract and records progress billings as unearned
revenue. Costs associated with contract completion are capitalized and
recorded as project work-in-progress on the balance sheet until project
completion. Upon project completion, unearned revenue and project
work-in-progress are recorded as earned and incurred, respectively.
ADVERTISING COSTS
The Company expenses advertising costs as incurred. Advertising expense
approximated $45,000 and $142,000 for the nine months ended September
30, 2001 and the year ended December 31, 2000, respectively.
INCOME TAXES
The Company has elected to be treated as an S-Corporation under the
Internal Revenue Code. Accordingly, taxable income is reportable on the
individual income tax returns of the shareholder.
RELATED PARTY
The sole shareholder of Clinical and Pharmacologic Research, Inc. is an
Officer and the Vice President Medical Director of Mylan Laboratories.
CONCENTRATION OF CREDIT RISK AND MAJOR CUSTOMER
The Company derives substantially all of its revenue and income from
Mylan Laboratories, Inc., a related party and a leading generic
pharmaceutical manufacturer headquartered in Morgantown, West Virginia.
F-9
CLINICAL AND PHARMACOLOGIC RESEARCH, INC.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
At September 30, 2001 and December 31, 2000 and for the nine months and
year then ended, respectively, the Company had credit concentrations as
follows:
SEPTEMBER 30, DECEMBER 31,
2001 2000
------------- ------------
Accounts Receivable:
Mylan Laboratories, Inc. 93% 100%
NINE MONTHS YEAR
ENDED ENDED
SEPTEMBER 30, 2001 DECEMBER 31, 2000
------------------ -----------------
Revenue:
Mylan Laboratories, Inc. 100% (92%)
As depicted above, the company is currently dependent on Mylan for the
continued generation of revenue and income.
COMPREHENSIVE INCOME
Comprehensive income is comprised of two components, net income and
other comprehensive income. There was no other comprehensive income
during the nine months ended September 30, 2001 or the year ended
December 31, 2000.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts reported in the balance sheet for cash and cash
equivalents, accounts receivable, accounts payable and other accrued
expenses approximate their fair values due to the short-term nature of
these financial instruments.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements, the reported
amounts of revenues and expenses during the reporting periods, and
amounts reported in the accompanying notes. Actual results could differ
from those estimates.
F-10
CLINICAL AND PHARMACOLOGIC RESEARCH, INC.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
Statement of Financial Accounting Standards ("SFAS") No. 133,
"Accounting for Derivative Instruments and Hedging Activities," as
amended, establishes accounting and reporting standards for derivative
instruments and hedging activities and requires recognition of all
derivatives as either assets or liabilities measured at fair value. The
accounting for changes in the fair value of a derivative depends on the
intended use of the derivative and the resulting designation. SFAS No.
133, as amended, is effective for fiscal years beginning after June 15,
2000 and its adoption on January 1, 2001 did not have an effect on the
Company's results of operations or its financial position because the
Company does not currently hold any derivative instruments.
In July 2001, the FASB issued SFAS No. 141, "Business Combinations"
("SFAS 141") and SFAS No. 142, "Goodwill and Other Intangible Assets"
("SFAS 142"). SFAS 141, which supercedes Accounting Principles Board
("APB") Opinion No. 16, "Business Combinations" and SFAS No. 38,
"Accounting for Preacquisition Contingencies of Purchased Enterprises",
requires that all business combinations entered into after the
effective date of July 1, 2001 to be accounted for by the purchase
method, defines criteria for recognition of intangible assets apart
from goodwill, and further defines disclosure requirements for business
combinations. The Company does not expect this standard to have a
significant impact on its financial position, results of operations and
cash flows.
SFAS 142, which replaces APB Opinion No. 17, "Intangible Assets",
defines new accounting treatment for goodwill and other intangible
assets. This standard eliminates the amortization of goodwill and other
intangible assets that have indefinite lives, establishes a requirement
that goodwill and intangible assets with indefinite lives be tested
annually for impairment, provides specific guidance on the process for
this testing at the reporting unit level and requires disclosures of
information about goodwill and other intangible assets in the years
subsequent to their acquisition that was not previously required. SFAS
142 is effective for fiscal years beginning after December 15, 2001,
except that goodwill and intangible assets acquired after June 30, 2001
will be immediately subject to the new provisions. The Company does not
expect this standard to have a significant impact on its financial
position, results of operations and cash flows.
In October 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets" ("SFAS 144"). SFAS 144
supersedes SFAS No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed of" ("SFAS 121") and
amends APB Opinion No. 30, "Reporting Results of Operations-Reporting
the Effects of Disposal of a Segment of a Business" ("APB 30").
F-11
CLINICAL AND PHARMACOLOGIC RESEARCH, INC.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
This statement develops one accounting model (based on the model in
SFAS 121) for long-lived assets that are disposed of by sale, as well
as addresses the principal implementation issues. It eliminates APB
30's requirement that discontinued operations be measured at net
realizable value or that entities include under "discontinued
operations" in the financial statements amounts for operating losses
that have not yet occurred. Additionally SFAS 144 expands the scope of
discontinued operations to include all components of an entity with
operations that (1) can be distinguished from the rest of the entity
and (2) will be eliminated from the ongoing operations of the entity in
a disposal transaction. This statement is effective for fiscal years
beginning after December 15, 2001. The Company does not expect this
standard to have a significant impact on its financial position,
results of operations and cash flows.
3. PROPERTY AND EQUIPMENT
Property and equipment consist of:
BALANCE AT BALANCE AT
USEFUL LIFE SEPTEMBER 30, DECEMBER 31,
(YEARS) 2001 2000
----------- ------------- ------------
Computer equipment 5 $ 277,350 $272,335
Furniture and fixtures 7 521,451 509,736
Leasehold improvements 10 57,841 57,841
---------- --------
856,642 839,912
Less - accumulated depreciation and amortization 614,498 544,536
---------- --------
$ 242,144 $295,376
========== ========
4. COMMON STOCK
Each share of common stock is entitled to one vote. The holders of
common stock are also entitled to receive dividends whenever funds are
legally available and when declared by the Board of Directors, subject
to the prior rights of holders of all classes of stock outstanding. In
September of 2000, the Company declared a 1,000-to-1 stock split, which
has been retroactively applied to the financial statements.
F-12
CLINICAL AND PHARMACOLOGIC RESEARCH, INC.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
5. INVESTMENT IN SMT LLC
In August of 1999, the Company entered into an operating agreement with
two individuals to create a corporation titled SMT LLC (the
"Corporation"). The Company has a one-third investment interest in the
corporation. The Corporation's sole asset is a motor vehicle purchased
in April of 1999.
6. 401(k) SAVINGS PLAN
The Company maintains a defined contribution savings plan under Section
401(k) of the Internal Revenue Code. This plan covers substantially all
employees who meet minimum age and service requirements and allows
participants to defer a portion of their annual compensation on a
pre-tax basis. Company matching contributions are fifty percent of
participant contributions up to a maximum of four percent of an
employee's salary.
For the nine months ended September 30, 2001 and the year ended
December 31, 2000, the Company recorded contributions to the plan
totaling approximately $14,000 and $19,000, respectively.
In conjunction with the savings plan, the Company may elect to make a
profit-sharing contribution. Any such election is made at the Company's
sole discretion. The Company contributed $0 and $53,201 during the nine
months ended September 30, 2001 and the year ended December 31, 2000,
respectively.
F-13
CLINICAL AND PHARMACOLOGIC RESEARCH, INC.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
7. LEASE COMMITMENTS
The Company leases its current facility and five vehicles under
agreements that are classified as operating leases. The operating
leases have initial terms that range from three to ten years. The
Company also leases a copier and printers under one agreement with a
five-year term. The Company classifies this lease as a capital lease.
Amortization of the capital lease for both periods is included with
depreciation expense. Future minimum payments, by year and in the
aggregate, under capital and operating leases with remaining terms of
one year or more, are as follows at September 30, 2001:
Capital Operating
Lease Leases
----- ------
2001 $ 6,588 $80,067
2002 26,352 315,353
2003 26,352 297,907
2004 26,352 289,716
2005 8,785 289,716
Thereafter - 112,209
-------- ----------
Total minimum lease payments $ 94,429 $1,384,968
----------
Amount representing interest (15,340)
--------
Present value of minimum lease payments 79,089
Current portion (19,312)
--------
Obligation under capital lease, less current portion $ 59,777
--------
Rent expense for the nine months ended September 30, 2001 and the year
ended December 31, 2000 totaled $206,855 and $274,068, respectively.
F-14
CLINICAL AND PHARMACOLOGIC RESEARCH, INC.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
8. STOCK-BASED COMPENSATION PLAN
During 2000, the Company created the 2000 Stock Incentive Plan (the
"Plan") to encourage increased effort to make the Company more
successful and to provide an additional inducement for eligible
individuals to remain with the Company by awarding such individuals an
opportunity to acquire shares of the Company's Common Stock. Under the
Plan, individuals meeting certain eligibility requirements are granted
options to purchase Common Stock at the sole discretion of the Board of
Directors. In September of 2000, the Board of Directors authorized
15,000 shares for issuance under the Plan. The options immediately vest
and are exercisable at any time following the grant date. The options
remain exercisable for a period of ten years from the date of the
grant. During 2000, the Company granted 3,529 stock options at an
exercise price of $336. The Company recognized approximately $755,000
in compensation expense during 2000 based on the intrinsic value of the
options in accordance with Accounting Principles Board Opinion (APB)
No. 25, "Accounting for Stock Issued to Employees." The number of
granted, exercised, cancelled, and outstanding options for the periods
ended September 30, 2001, and December 31, 2000, are as follows:
WEIGHTED-
AVERAGE
SHARES EXERCISE PRICE
------ --------------
Options outstanding at January 1, 2000 - $ -
Granted 3,529 336
Cancelled - -
Exercised -
----- ----
Options outstanding at December 31, 2000 3,529 336
Granted - -
Cancelled - -
Exercised - -
----- ----
Options outstanding at September 30, 2001 3,529 $336
===== ====
The weighted average remaining contractual life on the outstanding
options is 9.08 years at September 30, 2001.
The fair value of each option granted in 2000 was estimated on the date
of grant as $360 using the minimum value option pricing model as the
Company has no history of stock price volatility, using the following
assumptions:
Expected dividend yield 0%
Risk-free interest rate 5.7%
Expected term 10 years
F-15
CLINICAL AND PHARMACOLOGIC RESEARCH, INC.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Had the Company adopted SFAS No. 123, "Accounting for Stock-Based
Compensation," for expense recognition purposes, the amount of
compensation expense that would have been recognized in 2000 would be
approximately $1,270,000. The Company's proforma net income would have
been reduced to the amounts below:
NINE MONTHS YEAR ENDED
ENDED DECEMBER 31,
SEPTEMBER 30, 2001 2000
------------------ ----
Net income as reported $1,836,414 $1,336,938
Proforma net income 1,836,414 821,704
9. COMMITMENTS
In August 2000, the Company entered into a commercial line of credit
agreement (the "Agreement") for $300,000. The Agreement bears interest
at the New York Prime Rate plus 0.5%. The Agreement states that
interest payments are due monthly and principal is due upon creditor's
demand. The Agreement does not mature until December of 2003. There are
no amounts drawn on the line of credit at either September 30, 2001 or
December 31, 2000.
10. CONTINGENCIES
The Company is from time to time subject to legal proceedings and
claims that arise in the normal course of business. All such matters
are subject to uncertainties that are not predictable with assurance.
Management is currently not aware of any such matters that are
outstanding.
11. SUBSEQUENT EVENTS
In December 2001, the Company entered into a purchase agreement with
Dr. Thomas Clark, the sole shareholder of the Company. The agreement
stated that Dr. Clark purchase the Investment in SMT LLC in exchange
for $62,500 in cash, the net book value of the asset. The purchase
agreement also stated that two of the three notes receivable
outstanding at September 30, 2001 be purchased in exchange for $18,401
in cash, the net book value of the assets.
On January 29, 2002, the assets and certain liabilities of the Company
were purchased by Kendle International Inc., a publicly traded company
based in Cincinnati, Ohio.
F-16
KENDLE INTERNATIONAL INC.
INDEX TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
PAGE
----
Financial Statements
Unaudited Pro Forma Condensed Consolidated Balance Sheet - F-18
as of September 30, 2001
Unaudited Pro Forma Condensed Consolidated Statement
of Operations - For the Nine Months Ended September 30, 2001 and the
Year Ended December 31, 2000 F-19
Notes to Unaudited Pro Forma Condensed Consolidated Financial F-21
Statements
F-17
KENDLE INTERNATIONAL INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF SEPTEMBER 30, 2001
(IN THOUSANDS)
Pro Forma
Adjustments
Actual to Reflect Consolidated
Kendle Actual CPR Acquisition Pro Forma
------ ---------- ----------- ---------
ASSETS
Current assets:
Cash and cash equivalents $ 5,726 $ 273 $ (8,000)1 $ 4,699
6,700 1
Available for sale securities 18,607 -- -- 18,607
Accounts receivable 49,608 589 -- 50,197
Project work-in-progress -- -- 587 2 587
Unreimbursed investigator and project costs 5,797 -- -- 5,797
Other current assets 5,237 121 -- 5,358
--------- --------- --------- ---------
Total current assets 84,975 983 (713) 85,245
--------- --------- --------- ---------
Property and equipment, net 15,842 242 -- 16,084
Goodwill, net 84,092 -- 2,068 1 86,160
Other assets 11,116 -- 16,200 1 27,316
--------- --------- --------- ---------
Total assets $ 196,025 $ 1,225 $ 17,555 $ 214,805
========= ========= ========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of obligations under capital leases $ 555 $ 19 $ -- $ 574
Amounts outstanding under credit facilities 16,079 -- 6,700 1 22,779
Trade payables 4,759 19 -- 4,778
Advances against investigator and project costs 2,490 -- -- 2,490
Advance billings 13,679 898 773 2 15,350
Other accrued liabilities 11,286 219 -- 11,505
--------- --------- --------- ---------
Total current liabilities 48,848 1,155 7,473 57,476
--------- --------- --------- ---------
Obligations under capital leases, less current portion 909 60 969
Note payable -- -- 6,000 1 6,000
Other noncurrent liabilities 5,870 -- -- 5,870
--------- --------- --------- ---------
Total liabilities 55,627 1,215 13,473 70,315
--------- --------- --------- ---------
Shareholders' equity:
Common stock 75 1 (1)1 75
Additional paid in capital 128,686 9 4,083 1 132,778
Retained earnings 15,429 -- -- 15,429
Accumulated other comprehensive income:
Net unrealized holding gains on available
for sale securities 42 -- -- 42
Foreign currency translation adjustment (3,484) -- -- (3,484)
--------- --------- --------- ---------
Total accumulated other comprehensive loss (3,442) -- -- (3,442)
Less: Cost of common stock held in treasury (350) -- -- (350)
--------- --------- --------- ---------
Total shareholders' equity 140,398 10 4,082 144,490
--------- --------- --------- ---------
Total liabilities and shareholders' equity $ 196,025 $ 1,225 $ 17,555 $ 214,805
========= ========== ========= =========
F-18
KENDLE INTERNATIONAL INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2001
(IN THOUSANDS, EXCEPT EARNINGS PER SHARE)
Pro Forma
Adjustments
Actual to Reflect Consolidated
Kendle Actual CPR Acquisition Pro Forma
------ ---------- ----------- ---------
Net revenues $110,353 $ 5,320 $ - $ 115,673
--------- -------- -------- ----------
Costs and expenses:
Direct costs 67,284 2,791 - 70,075
Selling, general and administrative expenses 32,008 646 - 32,654
Depreciation and amortization 7,335 57 - 7,392
--------- -------- -------- ----------
Total costs and expenses 106,627 3,494 - 110,121
--------- -------- -------- ----------
Income from operations 3,726 1,826 - 5,552
Other income 357 10 (171) 1 196
--------- -------- -------- ----------
Income before income taxes 4,083 1,836 (171) 5,748
Income taxes 1,770 - 666 1 2,436
--------- -------- -------- ----------
Net income $ 2,313 $ 1,836 $ (837) $ 3,312
========= ======== ======== ==========
Income per share data:
Basic:
Income before income taxes per share $ 0.19 $ 0.26
Weighted average shares outstanding 12,210 314 2 12,524
Diluted:
Income before income taxes per share $ 0.18 $ 0.25
Weighted average shares outstanding 12,803 628 2 13,431
F-19
KENDLE INTERNATIONAL INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2000
(IN THOUSANDS, EXCEPT EARNINGS PER SHARE)
Pro Forma
Adjustments
Actual to Reflect Consolidated
Kendle Actual CPR Acquisition Pro Forma
------ ---------- ----------- ---------
Net revenues $ 120,487 $ 6,735 $ - $ 127,222
---------- -------- ---------- ----------
Costs and expenses:
Direct costs 74,077 3,407 - 77,484
Selling, general and administrative expenses 39,249 1,948 - 41,197
Depreciation and amortization 7,930 85 - 8,015
Employee severance and other costs 2,980 - - 2,980
---------- -------- ---------- ----------
Total costs and expenses 124,236 5,440 - 129,676
---------- -------- ---------- ----------
Income (loss) from operations (3,749) 1,295 - (2,454)
Other income (loss) 53 42 (228) 1 (133)
---------- -------- ---------- ----------
Income (loss) before income taxes (3,696) 1,337 (228) (2,587)
Income taxes (1,566) - 444 1 (1,122)
---------- -------- ---------- ----------
Net income (loss) $ (2,130) $ 1,337 $ (672) $ (1,465)
========== ======== ========== ==========
Income (loss) per share data:
Basic:
Income (loss) before income taxes per share $ (0.18) $ (0.12)
Weighted average shares outstanding 11,708 314 2 12,022
Diluted:
Income (loss) before income taxes per share $ (0.18) $ (0.12)
Weighted average shares outstanding 11,708 314 2 12,022
F-20
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Kendle International Inc. ("the Company") acquired substantially all of the
assets of Clinical and Pharmacologic Research, Inc. ("CPR") on January 29, 2002.
The acquisition has been accounted for using the purchase method of accounting.
The Company has not yet quantified the purchase price allocations and,
therefore, the amounts allocated to the tangible and identifiable intangible
assets acquired and liabilities assumed have been estimated for purposes of
these pro forma financial statements.
The total purchase price of approximately $18.1 million consisted of $8 million
in cash, 314,243 shares of the Registrant's Common Stock with a fair value of
approximately $4.1 million and a convertible note, the principal amount of which
is $6 million.
The unaudited pro forma condensed consolidated statements of operations reflect
the Company's results of operations for the nine months ended September 30, 2001
and the year ended December 31, 2000, as if the acquisition had occurred on
January 1, 2000 after giving effect to purchase accounting adjustments. The
unaudited pro forma condensed consolidated balance sheet reflects the Company's
financial position as of September 30, 2001, as if the acquisition had occurred
on September 30, 2001 after giving effect to purchase accounting adjustments.
The unaudited pro forma condensed consolidated financial statements have been
prepared for comparative purposes only, do not purport to be indicative of what
the Company's operating results or financial position would have been had the
acquisitions actually taken place on January 1, 2000, or September 30, 2001,
respectively, and may not be indicative of future operating results or financial
position.
These statements have been prepared from the consolidated financial statements
and notes thereto of the Company as contained in the Form 10-Q for the nine
months ended September 30, 2001 and the Form 10-K for the year ended December
31, 2000 and the financial statements and the notes thereto of CPR included in
this report on Form 8-K/A and should be read in conjunction therewith.
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
1. Pro Forma Adjustments (in thousands, unless otherwise noted)
The following adjustments were applied to the Company's historical statements of
operations and those of CPR to arrive at the pro forma consolidated financial
information.
Statement of Operations for the nine months ended September 30, 2001:
- - To record the interest expense on the note payable totaling $171.
- - To record the tax effect of the pro forma adjustments and the application
of corporate income taxes to CPR's net income which would have been
recorded if CPR had been a C corporation during the entire period
presented, at an assumed statutory combined federal and state rate of 40%.
Statement of Operations for the year ended December 31, 2000:
- - To record the interest expense on the note payable totaling $228.
- - To record the tax effect of the pro forma adjustments and the application
of corporate income taxes to CPR's net income which would have been
recorded if CPR had been a C corporation during the entire period
presented, at an assumed statutory combined federal and state rate of 40%.
2. Net (loss) income per Share
Net loss per basic share for the year ended December 31, 2000 and net income per
basic share for the nine months ended September 30, 2001 is computed using the
weighted average number of common shares for the year ended December 31, 2000
and the nine months ended September 30, 2001, respectively. Net loss per diluted
share for the
F-21
year ended December 31, 2000 is computed excluding the weighted average number
of common equivalent shares outstanding because such common equivalents are
anti-dilutive. Net income per diluted share for the nine months ended September
30, 2001 is computed assuming conversion of common equivalents (including the
convertible note issued in connection with the acquisition). Assuming conversion
of the note, interest expense of $103, net of taxes, has been added back to net
income in calculating net income per diluted share. Differences between
historical weighted average shares outstanding used to compute per share amounts
result from the inclusion of shares issued in conjunction with the acquisitions
as if such shares were outstanding from January 1, 2000.
NOTES TO PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
1. Pro Forma Adjustments (in thousands, unless otherwise noted)
The following adjustments were applied to the Company's historical balance sheet
and that of CPR to arrive at the pro forma condensed consolidated financial
information.
- - To record $8 million cash included in the total consideration related to
the acquisition.
- - To record the $6.7 million in cash drawn on the Company's existing credit
revolver to consummate the transaction.
- - To record the issuance of 314,243 shares of common stock with a fair value
of approximately $4.1 million.
- - To record the issuance of a convertible note with a value of $6 million.
- - To record the indefinite-lived intangible asset with a value of
approximately $16.2 million related to a customer contract acquired as a
result of the acquisition.
- - To record goodwill of $2.1 million related to the acquisition. - To
eliminate the equity accounts of CPR.
2. A purchase accounting adjustment was made to the pro forma balance sheet to
adjust CPR's deferred revenue to the estimated cost of completing the
services to which the deferred revenue related.
F-22