Shares of aaiPharma ( AAII) imploded Thursday, a day after the problem-plagued drug company said it may file for Chapter 11 bankruptcy protection. The announcement of deteriorating finances was just one piece of a multilevel tale of misery that the Wilmington, N.C.-based company presented to investors Wednesday, after markets had closed, in a filing with the Securities and Exchange Commission. The company says it won't make an upcoming interest payment to lenders; is again looking at restructuring its debt; has again failed to file a timely annual report with the SEC; and again risks delisting from Nasdaq. Its independent auditors say any 10-K filing must include the cautionary comments "that our recurring losses from operations raise substantial doubt regarding our ability to continue to operate as a going concern," the SEC document says. "Whether or not we are able to reach an agreement on ... restructuring of our debt, in light of the uncertainty regarding our ability to obtain needed additional sources of liquidity to fund operations, it is highly likely that it will become necessary for us to seek relief under chapter 11 of the U.S. Bankruptcy Code," the company says in the SEC filing. "In the event of any restructuring of our debt, the interests of the holders of our common stock may be substantially diluted or eliminated." There isn't much stock value left. Shares sank 96 cents, or 50%, to 97 cents. The stock fell as low as 86 cents. About 4.9 million shares had been traded, or 11 times the daily average for the last three months. Despite asset sales and restructuring, the company faces such a cash crunch that it won't be able to pay its lenders a $10.5 million interest payment due April 1, placing the company in default. "In addition, we believe that we may not have adequate sources of liquidity to fund our operations in the near term" unless it can raise more money, the company's SEC filing says. The company says it is seeking waivers from lenders.
This isn't the first time aaiPharma has delayed filing financial reports. It missed the deadline for its 2003 10-K report and its first quarter 2004 report. That prompted Nasdaq to warn aaiPharma that it faced delisting because the delays violated Nasdaq rules. The company won a reprieve from Nasdaq in June 2004 if it met certain conditions, including the timely filing of all quarterly and year-end reports through June 30, 2005. But the company missed Wednesday's deadline for filing its 10-K report for 2004, telling the SEC it is still completing its assessment of internal controls over financial reporting and making "certain adjustments" to the 2004 financial results. The company said it has identified some "material weaknesses" in these internal controls. The delays are due in part to what aaiPharma calls "limited financial and human resources" and changes in top management, including the hiring of a new CEO in September and a new chief financial officer in December. The company added that it will try to file the 10-K "as soon as possible."