<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 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 June 30, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to _________
Commission file number: 0-25323
ALBANY MOLECULAR RESEARCH, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 14-1742717
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
21 Corporate Circle
Albany, New York 12203
(Address of principal executive offices)
(518) 464-0279
(Registrant's telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last
report)
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 [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at August 10, 1999
----- ------------------------------
Common Stock, $.01 par value 12,901,918
<PAGE>
ALBANY MOLECULAR RESEARCH, INC.
INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C>
Part I. Financial Information
Item 1. Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets 3
Condensed Consolidated Statement of Operations 4
Condensed Consolidated Statement of Cash Flows 5
Notes to Unaudited Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
Item 3. Quantitative and Qualitative Disclosure
About Market Risk 11
Part II. Other Information
Item 1. Legal Proceedings 11
Item 2. Changes in Securities and Use of Proceeds 11
Item 4. Submission of Matters to a Vote of Security Holders 13
Item 6. Exhibits and Reports Filed on Form 8-K 13
Signatures 14
</TABLE>
2
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
Albany Molecular Research, Inc.
Condensed Consolidated Balance Sheets
<TABLE>
<CAPTION>
June 30, 1999 December 31, 1998
-------------------- -----------------------
(unaudited)
Assets
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 17,640,153 $ 3,957,091
Accounts receivable 3,332,508 2,798,742
Royalty income receivable 5,847,500 3,256,498
Investment securities, available-for-sale 27,257,501 2,026,620
Inventory 836,927 575,525
Unbilled services 159,360 105,036
Prepaid expenses and other current assets 743,053 1,394,416
-------------------- ----------------------
Total current assets 55,817,002 14,113,928
Property and equipment, net 14,873,892 14,318,217
Other assets:
Patents and other intangible assets, net 286,820 338,220
Other assets 1,137,810 137,810
-------------------- ----------------------
Total other assets 1,424,630 476,030
-------------------- ----------------------
Total assets $ 72,115,524 $ 28,908,175
==================== ======================
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable and accrued expenses $ 1,798,003 $ 2,849,828
Unearned income 1,446,205 1,150,858
Current installments of long-term debt -- 1,587,168
Other current liabilities 533,853 182,293
-------------------- ----------------------
Total current liabilities 3,778,061 5,770,147
Long-term liabilities:
Long-term debt, excluding current installments -- 13,348,672
Deferred income taxes 908,487 509,812
-------------------- ----------------------
Total liabilities 4,686,548 19,628,631
-------------------- ----------------------
Stockholders' equity:
Preferred stock, $0.01 par value, authorized 2,000,000 shares, issued and
outstanding 0 and 100,000 shares at June 30, 1999 and December 31,
1998, respectively -- 1,000
Common stock, $0.01 par value, authorized 50,000,000 shares; issued
12,901,918 at June 30, 1999 and 11,102,127 at December 31, 1998;
outstanding 12,901,918 at June 30, 1999 and 9,970,224 at
December 31, 1998 129,014 111,021
Additional paid-in capital 45,174,626 3,834,411
Retained earnings 22,158,366 15,328,015
Treasury stock, at cost -- (10,061,360)
Accumulated other comprehensive income (33,030) 66,457
-------------------- ----------------------
Total stockholders' equity 67,428,976 9,279,544
-------------------- ----------------------
Total liabilities and stockholders' equity $ 72,115,524 $ 28,908,175
==================== ======================
</TABLE>
See notes to unaudited condensed consolidated financial statements.
3
<PAGE>
Albany Molecular Research, Inc.
Condensed Consolidated Statements of Operations
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
----------------------------------------------------------------------
June 30, 1999 June 30, 1998 June 30, 1999 June 30, 1998
---------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Net contract revenue $ 4,964,380 $ 3,091,168 $ 9,390,028 $ 5,964,176
Cost of contract revenue 2,800,619 1,744,481 5,303,241 3,252,202
---------------- --------------- --------------- ---------------
Gross profit from contract revenue 2,163,761 1,346,687 4,086,787 2,711,974
---------------- --------------- --------------- ---------------
Other operating revenue:
Non-recurring licensing fees,
milestones, and royalties -- 1,000,000 -- 7,369,000
Recurring royalties 5,850,430 3,286,544 10,034,177 5,016,145
Technology incentive award (577,748) (327,298) (992,833) (1,137,158)
--------------- -------------- -------------- --------------
Other operating revenue, net 5,272,682 3,959,246 9,041,344 11,247,987
---------------- --------------- --------------- --------------
Operating expenses:
Research and development 135,300 132,149 264,070 340,943
Selling, general and administrative 1,385,014 1,025,226 2,648,433 2,108,415
--------------- -------------- -------------- --------------
Total operating expenses 1,520,314 1,157,375 2,912,503 2,449,358
--------------- -------------- -------------- --------------
Income from operations 5,916,129 4,148,558 10,215,628 11,510,603
Other income, net 475,988 71,900 711,320 101,128
---------------- --------------- --------------- ---------------
Income before income tax expense 6,392,117 4,220,458 10,926,948 11,611,731
Income tax expense 2,396,597 1,462,487 4,096,597 4,315,097
---------------- --------------- --------------- ---------------
Net income $ 3,995,520 $ 2,757,971 $ 6,830,351 $ 7,296,634
================ =============== =============== ===============
Basic earnings per share $ 0.31 $ 0.26 $ 0.56 $ 0.68
================ =============== =============== ===============
Diluted earnings per share $ 0.28 $ 0.23 $ 0.50 $ 0.60
================ =============== =============== ===============
</TABLE>
See notes to unaudited condensed consolidated financial statements.
4
<PAGE>
Albany Molecular Research, Inc.
Condensed Consolidated Statements of Cash Flows
(unaudited)
<TABLE>
<CAPTION>
Six Months Ended
---------------------------------------
June 30, 1999 June 30, 1998
----------------- ---------------
<S> <C> <C>
Operating activities
Net income $ 6,830,351 $ 7,296,634
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 797,719 428,570
Provision for doubtful accounts 65,208 --
Deferred income tax expense 465,000 272,736
(Increase) decrease in:
Accounts receivable (598,974) (508,347)
Royalty income receivable (2,591,002) (3,275,000)
Unbilled services (54,324) 33,047
Inventory, prepaid expenses and other current assets 389,960 (13,941)
(Decrease) increase in:
Accounts payable and accrued expenses (1,051,826) 2,606,746
Unearned income 295,347 297,543
Other current liabilities 351,560 1,760,233
----------------- ---------------
Net cash provided by operating activities 4,899,019 8,898,221
----------------- ---------------
Investing activities
Purchases of investment securities (25,396,692) (2,727)
Purchases of property and equipment (1,300,050) (5,772,161)
Payment for deposits (1,000,000) --
Purchase of customer list -- (18,000)
Payments for organizational costs -- (4,650)
Payments for patent application costs (1,943) (33,507)
----------------- ---------------
Net cash used in investing activities (27,698,685) (5,831,045)
----------------- ---------------
Financing activities
Principal payments on long-term debt (14,935,840) (1,986,897)
Principal payments under capital lease obligations -- (1,256)
Proceeds from borrowings on long-term debt -- 5,000,000
Proceeds from sale of common stock 51,418,568 230,917
----------------- ---------------
Net cash provided by financing activities 36,482,728 3,242,764
----------------- ---------------
Increase in cash and cash equivalents 13,683,062 6,309,940
Cash and cash equivalents at beginning of year 3,957,091 1,261,518
----------------- ---------------
Cash and cash equivalents at end of period $ 17,640,153 $ 7,571,458
================= ===============
Noncash items:
Common stock issued for customer list $ -- $ 100,000
Common stock issued for relocation incentive $ -- $ 200,000
(Decrease) in net unrealized gain on securities
available-for-sale, net of tax $ (99,487) $ (1,539)
Additional disclosures relative to cash flows:
Interest paid $ 132,789 $ 92,604
Income taxes paid $ 2,754,000 $ 1,930,420
</TABLE>
See notes to unaudited condensed consolidated financial statements.
5
<PAGE>
Note A - 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. 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.
These financial statements should be read in conjunction with the Company's
audited financial statements and the notes thereto included in the Company's
Annual Report on Form 10-K for the fiscal year ended December 31, 1998.
Note B - Initial Public Offering
In the first quarter of 1999, the Company completed an initial public offering
of 2,815,000 shares of common stock. The Company received net proceeds of $51.4
million, which is net of $4.9 million in expenses relating to the issuance and
distribution of the securities. The Company used a portion of the net proceeds
to repay in full a $7.9 million note payable to the Company's former chief
financial officer and a trust for the benefit of his family. The Company also
utilized approximately $5.0 million of the proceeds to repay a portion of the
Company's outstanding indebtedness under its existing credit facility with Fleet
Bank, N.A.
Note C - Earnings Per Share
A summary of the shares used in the calculation of earnings per share is shown
below:
<TABLE>
<CAPTION>
Three Months Ended
----------------------------------------------------------------------
June 30, 1999 June 30, 1998
---------------------------------- --------------------------------
Average Per Average Per
Net Shares Share Net Shares Share
Income Outstanding Amount Income Outstanding Amount
---------------------------------- --------------------------------
<S> <C> <C> <C> <C> <C> <C>
Basic earnings per share $3,995,520 12,898,877 $0.31 $2,757,971 10,800,400 $0.26
Dilutive effect of stock
options and grants -- 1,402,113 -- 1,323,350
Dilutive effect of assumed
preferred stock conversion -- -- -- 45,000
-------------------------- -----------------------
Diluted earnings per share $3,995,520 14,300,990 $0.28 $2,757,971 12,168,750 $0.23
================================== ================================
</TABLE>
<TABLE>
<CAPTION>
Six Months Ended
----------------------------------------------------------------------
June 30, 1999 June 30, 1998
---------------------------------- --------------------------------
Average Per Average Per
Net Shares Share Net Shares Share
Income Outstanding Amount Income Outstanding Amount
---------------------------------- --------------------------------
<S> <C> <C> <C> <C> <C> <C>
Basic earnings per share $6,830,351 12,268,376 $0.56 $7,296,634 10,789,460 $0.68
Dilutive effect of stock
options and grants -- 1,353,497 -- 1,299,665
Dilutive effect of assumed
preferred stock conversion -- -- -- 45,000
-------------------------- -----------------------
Diluted earnings per share $6,830,351 13,621,873 $0.50 $7,296,634 12,134,125 $0.60
================================== ================================
</TABLE>
6
<PAGE>
Note D - Comprehensive Income
The Company is required to report comprehensive income and its components in
accordance with the provisions of the Financial Accounting Standards Board
Statement No. 130 "Reporting Comprehensive Income."
The following table presents the components of the Company's comprehensive
income for the three months ended June 30, 1999 and 1998:
<TABLE>
<CAPTION>
Three Months Ended
----------------------------------------------
June 30, 1999 June 30, 1998
-------------------- ------------------
<S> <C> <C>
Net income $ 3,995,520 $ 2,757,971
Other comprehensive (loss) income:
Change in unrealized (loss) gain on available-for-sale securities, net of
tax benefit of $61,496 in 1999 and tax expense of $697 in 1998 (92,244) 1,046
------------- ------------
Total comprehensive income $ 3,903,276 $ 2,759,017
============= ============
</TABLE>
The following table presents the components of the Company's comprehensive
income for the six months ended June 30, 1999 and 1998:
<TABLE>
<CAPTION>
Six Months Ended
------------------------------------------
June 30, 1999 June 30, 1998
----------------- -------------------
<S> <C> <C>
Net income $6,830,351 $7,296,634
Other comprehensive (loss):
Change in unrealized (loss) on available-for-sale securities, net of
tax benefit of $66,325 in 1999 and $1,026 in 1998 (99,487) (1,539)
---------- ----------
Total comprehensive income $6,730,864 $7,295,095
========== ==========
</TABLE>
Note E - Financial Information by Customer Concentration and Geographic Area
Net contract revenue from the Company's three largest customers represented
approximately 20%, 12% and 11% of total consolidated net contract revenue for
the three months ended June 30, 1999, and 18%, 15% and 13% of total consolidated
net contract revenue for the three months ended June 30, 1998. Net contract
revenue from the Company's three largest customers represented approximately
20%, 12% and 11% of total consolidated net contract revenue for the six months
ended June 30, 1999, and 16%, 14% and 13% of total consolidated net contract
revenue for the six months ended June 30, 1998.
The Company's net contract revenue for the three months ended June 30, 1999 and
1998 and for the six months ended June 30, 1999 and 1998 was recognized from
customers in the following geographic regions:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
---------------------------------------- --------------------------------------
June 30, 1999 June 30, 1998 June 30, 1999 June 30, 1998
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
United States 91% 85% 90% 84%
Europe 9% 15% 10% 16%
--------------- --------------- --------------- ---------------
Total 100% 100% 100% 100%
--------------- --------------- --------------- ---------------
</TABLE>
7
<PAGE>
Note F - Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133
"Accounting for Derivative Instruments and Hedging Activities," which
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts, and for
hedging activities. This statement was amended by SFAS No. 137 to defer the
effective date to fiscal quarters of fiscal years beginning after June 15, 2000.
Management does not anticipate that the adoption of this statement will have a
material effect on the Company's financial statements because the Company does
not presently utilize derivative investments or engage in hedging activities.
In April 1998, the AICPA issued Statement of Position 98-5, "Reporting the Costs
of Start-up Activities" (SOP 98-5). SOP 98-5 requires that the costs of start-up
activities including organizational costs, be expensed as incurred. SOP 98-5 is
effective for financial statements for fiscal years beginning after December 15,
1998. The adoption of this statement on January 1, 1999 did not have a material
effect on the Company's financial statements.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Forward Looking Statements
The following discussion of the results of operations and financial condition of
the Company should be read in conjunction with the accompanying Condensed
Consolidated Financial Statements and the Notes thereto included within this
report. This Form 10-Q contains "forward-looking statements" within the meaning
of Section 27A of the Securities Act and Section 21E of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"). The Company's actual results could
differ materially from those projected in the forward-looking statements and
therefore, prospective investors are cautioned that any such forward-looking
statements are not guarantees of future performance and involve risks and
uncertainties. Actual events or results may differ from those discussed in the
forward-looking statements as a result of various factors, including, without
limitation, the Company's ability to attract and retain experienced scientists,
any decline in the recent trend of outsourcing chemistry research services by
pharmaceutical and biotechnology companies, the continuation of royalties from
the Company's Allegra(TM)/Telfast license agreement with Hoechst Marion Roussel,
Inc. ("HMRI"), and the Company's ability to manage its growth, as well as the
factors set forth under the caption "Risk Factors and Certain Factors Affecting
Forward-Looking Statements," in the Company's Annual Report on Form 10-K for the
year ended December 31, 1998 filed with the Securities and Exchange Commission
on March 31, 1999, the discussion set forth below and the matters set forth in
this Form 10-Q generally.
Results of Operations - Three Months Ended June 30, 1999 Compared to Three
Months Ended June 30, 1998
Net contract revenue. Net contract revenue consists primarily of fees earned
under contracts with third party customers, net of reimbursed expenses.
Reimbursed expenses consist of laboratory supplies, chemicals and other costs
reimbursed by customers and, in accordance with industry practice, are included
in contract revenue. Reimbursed expenses vary from contract to contract. The
Company views net contract revenue as its primary measure of revenue growth
rather than licensing fees and royalties, which are dependent upon sales by the
Company's licensee. Net contract revenue for the second quarter of 1999
increased 61% to $5.0 million compared to $3.1 million for the same period in
1998. This increase was due principally to the performance by the Company of a
greater number of projects, primarily for core medicinal chemistry and chemical
development services.
Gross profit. The Company's cost of revenue, from which it derives gross profit,
consists primarily of compensation and associated fringe benefits for employees
and other direct project related costs. Gross profit increased 61% to $2.2
million in the second quarter of 1999 from $1.3 million for the same period in
1998. The Company's gross margin as a percentage of net contract revenue
remained consistent between periods.
8
<PAGE>
Other operating revenue. Other operating revenue consists of licensing fees,
milestones and royalties net of technology incentive award expense incurred
under the Company's Technology Development Incentive Plan. The Company earns
royalties from HMRI under a license agreement based on sales of fexofenadine
HCl, marketed as Allegra(TM) in the Americas and Telfast elsewhere. Royalty
payments are due within 45 days after the end of a calendar quarter and are
determined based on such quarter's sales. Other operating revenue for the second
quarter of 1999 increased 33% to $5.3 million compared to $4.0 million in 1998.
The second quarter 1998 operating revenue also included a $1.0 million milestone
payment. The Company expects no future non-recurring income from its
Allegra(TM)/Telfast license agreement with HMRI. Excluding this non-recurring
income, other operating revenue increased 78% to $5.3 million in the second
quarter of 1999 as compared to $3.0 million in 1998 as a result of increased
recurring royalties under the Allegra(TM)/Telfast license agreement due to
increased sales of the drug product.
Research and development. Research and development expense consists of payments
in connection with collaborations with academic institutions, compensation and
benefits for scientific personnel for work performed on proprietary research
projects and costs of supplies and related chemicals. Research and development
expense increased 2% to $135,000 for the second quarter of 1999 from $132,000
for the same period in 1998. The support for the Company's proprietary research
programs remained relatively consistent between periods.
Selling, general and administrative. Selling, general and administrative expense
consists of compensation and related fringe benefits for marketing and
administrative employees, professional services, marketing costs and all costs
related to facilities and information services. Selling, general and
administrative expenses increased 35% to $1.4 million for the second quarter of
1999 from $1.0 million for the corresponding period of 1998. Selling, general
and administrative expenses represented 27.9% of net contract revenue in the
second quarter of 1999 as compared to 33.2% in the second quarter of 1998. The
dollar increase was mainly attributable to an increase in administrative and
marketing staffing to support the expansion of operations, an increase in
expenses related to recruitment of scientists, and an increase in overhead
expenses relating to the expansion of the Company's Albany facility.
Income tax expense. Income tax expense increased to $2.4 million during the
second quarter of 1999 from $1.5 million in the second quarter of 1998. The
effective rate for the Company's provision for income taxes was 37.5% in the
second quarter of 1999 and 34.7% for the same period in 1998. The lower tax rate
for the second quarter of 1998 resulted from a change in the estimated effective
tax rate for the year.
Results of Operations - Six Months Ended June 30, 1999 Compared to Six Months
Ended June 30, 1998
Net contract revenue. Net contract revenue for the first six months of 1999
increased 57% to $9.4 million compared to $6.0 million for the same period in
1998. This increase was due principally to the performance of a greater number
of projects, primarily for core medicinal chemistry and chemical development
services.
Gross profit. Gross profit increased 51% to $4.1 million for the first six
months of 1999 from $2.7 million for the same period in 1998. The gross profit
margin percentage was approximately 43.5% for the first six months of 1999 as
compared to 45.5% for the same period in 1998. The decrease in the gross profit
margin was mainly attributable to overhead, depreciation and one-time supply
expenses associated with the expansion of the Company's laboratory facilities,
which was completed in January 1999.
Other operating revenue. Other operating revenue for the first six months of
1999 decreased 20% to $9.0 million as compared to $11.2 million during the same
period in 1998. The decline in other operating revenue in 1999 was attributable
to $7.4 million in non-recurring royalties and milestones recognized during the
first six months of 1998. The Company expects no future non-recurring income
from its Allegra(TM)/Telfast license agreement with HMRI. Excluding this non-
recurring income, other operating revenue increased 100% to $9.0 million in the
first six months of 1999 as compared to $4.5 million in 1998 as a result of
increased recurring royalties under the Allegra(TM)/Telfast license agreement
due to increased sales of the drug product.
Research and development. Research and development expense decreased 23% to
$264,000 for the first six months of 1999 from $341,000 for the same period in
1998. The decrease was due primarily to contractual renewals with the Company's
research collaborators pertaining to proprietary research programs funded at a
lower level than in previous periods.
9
<PAGE>
Selling, general and administrative. Selling, general and administrative
expenses increased 26% to $2.6 million for the first six months of 1999 from
$2.1 million for the corresponding period of 1998. Selling, general and
administrative expenses represented 28.2% of net contract revenue in the first
six months of 1999 as compared to 35.3% in the first six months of 1998. The
dollar increase was mainly attributable to an increase in administrative and
marketing staffing to support the expansion of operations, an increase in
expenses related to recruitment of scientists, an increase in overhead
expenses relating to the expansion of the Company's Albany facility, and certain
costs associated with becoming a publicly-traded company. During the first six
months of 1998, the Company incurred a one-time expense for partial
reimbursement of its landlord for expenses in relocating other tenants in order
to facilitate the Company's expansion. Excluding this charge, selling, general
and administrative expenses for the first six months of 1998 would have
represented 32.0% of net contract revenue for the period.
Income tax expense. Income tax expense decreased $219,000 from $4.3 million in
the first six months of 1998 to $4.1 million for the same period in 1999. The
effective rate for the provision for income taxes was 37.5% for the first six
months of 1999 and 37.2% for the same period in 1998.
Liquidity and Capital Resources
The Company has historically funded its business through operating cash flows,
proceeds from borrowings and the issuance of equity securities. During the first
six months of 1999, the Company generated cash of $4.9 million from operating
activities of which $2.3 million was used principally towards the purchase of
additional laboratory equipment. In addition, $25.4 million was used towards the
purchase of investment securities. During the first six months of 1999, the
Company generated $36.5 million from financing activities, consisting of $51.4
million from its recent initial public offering of 2,815,000 shares of common
stock, net of $14.9 million of proceeds used to repay principal on outstanding
debt obligations. Working capital was approximately $52.0 million at June 30,
1999 as compared to $10.1 million as of June 30, 1998. The Company has available
a $25 million credit facility to supplement its liquidity needs.
The Company has initiated a feasibility study for a potential expansion of
operations at its Rensselaer, New York site. This expansion would accommodate
additional chemical development laboratories, as well as a small-scale chemical
manufacturing facility. The total cost of this expansion is estimated to be $9
to $11 million, payable over approximately 18 to 24 months. The Company has
received initial approval of over $2 million in state grants to assist in
funding the expansion. The Company expects to fund the remaining cost of the
expansion through cash on hand, funds from operations, and, if necessary, its
credit facility.
The Company is pursuing the expansion of 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 the remaining net
proceeds from its recent public offering, together with cash generated from
operations and borrowings under the credit facility, will be sufficient to fund
its anticipated working capital needs and capital expenditures (other than
financing necessary to complete future acquisitions, if any) for at least the
next 12 months. Future acquisitions, if any, could be funded with cash from
operations, borrowings under the credit facility and/or the issuance of debt or
equity securities. There can be no assurance that attractive acquisition
opportunities will be available to the Company or will be available at prices
and upon such other terms that are attractive to the Company. The Company
regularly evaluates potential acquisitions of other businesses, products and
product lines and may hold discussions regarding such potential acquisitions. As
a general rule, the Company will publicly announce such acquisitions only after
a definitive agreement has been signed. In addition, in order to meet its long-
term liquidity needs or consummate future acquisitions, the Company may incur
additional indebtedness or issue additional equity and debt securities, subject
to market and other conditions. There can be no assurance that such additional
financing will be available on terms acceptable to the Company or at all. The
failure to raise the funds necessary to finance its future cash requirements or
consummate future acquisitions could adversely affect the Company's ability to
pursue its strategy and could negatively affect its operations in future
periods.
Year 2000 Compliance
General. The "Year 2000" issue concerns the potential exposures related to the
automated generation of business and financial misinformation resulting from the
application of computer programs which have been written using two digits,
rather than four, to define the application year of business transactions. The
Company's Year 2000 remediation and compliance program (the "Year 2000 Project")
10
<PAGE>
is managed by a Task Force consisting of representatives from all major
operational units within the Company and is currently directed by the Company's
Chief Financial Officer. The Year 2000 Project Task Force's focus has been the
functional areas of information technology, non-information technology (embedded
processors) and customer/vendor Year 2000 assessment.
Information technology. The Company's Task Force and independent information
technology consultants have conducted a comprehensive assessment of the
Company's main computer system to identify the enterprise-wide hardware and
software impact of the Year 2000 problem and to identify mission critical
software systems. They determined that no substantial changes are required for
the Company's enterprise-wide hardware and software to be considered Year 2000
compliant. Since substantially all of the Company's software are standard "off
the shelf" packages, much of the remediation and testing process is dependent on
the accuracy of work performed by, and the Year 2000 compliance of, such
purchased software. The Company believes that all of its mission critical
information technology systems will be Year 2000 compliant by the end of the
third quarter of 1999.
Non-information technology. The Company's non-information technology systems
consist mainly of embedded processors such as microcontrollers in security, fire
prevention and climate control systems. The Company has reviewed the Year 2000
readiness of vendors supplying such equipment and systems in order to assess the
possibility of a Year 2000 failure in these areas. Because of the Company's
recent physical expansion at its Albany, New York facility, the majority of the
centralized microcomputer systems have been either recently installed or
upgraded in capacity. The Company believes that substantially all of the non-
information technology systems within its infrastructure are Year 2000
compliant.
Customer/vendor relationships. The Task Force has investigated the Year 2000
readiness of its material customers (such as AstraZeneca and Eli Lilly and
Company) and its key licensees (such as HMRI). The Company is in the process of
attempting to obtain written verification from its critical vendors that they
will be Year 2000 compliant. The Company has received written verification from
substantially all of its critical vendors that they will be Year 2000 compliant
by the end of the third quarter of 1999. The failure of any of its significant
customers or vendors to be Year 2000 compliant could have a material adverse
effect on the Company's business, financial position and results of operations.
Due to the non-proprietary nature of the Company's software systems, along with
the recent acquisition of a majority of the Company's information technology
hardware, the Company anticipates that it will incur no material costs to become
Year 2000 compliant. Due to the unlikely nature of internal failures at the
Company, no contingency plans have been prepared to address this problem. The
most likely reasonable worst case scenario for the Company with respect to the
Year 2000 problem would be the failure of a significant customer or vendor,
including an energy vendor, to be Year 2000 compliant such that the failure
would either cause the Company to lose a revenue stream or to experience a
withholding of a vendor's goods or services because of the situation. In the
case of a material customer, this could result in lost revenue, while in the
case of a vendor, this could result in higher than anticipated expenses, as the
Company would be required to seek alternative suppliers of these goods and
services.
11
<PAGE>
Item 3. Quantitative and Qualitative Disclosure about Market Risk
Not Applicable.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
The Company, from time to time, may be involved in various claims and
legal proceedings arising in the ordinary course of its business. The Company is
not currently a party to any such claims or proceedings which, if decided
adversely to the Company, would likely either individually or in the aggregate
have a material adverse effect on the Company's business, financial condition or
results of operations.
Item 2. Changes in Securities and Use of Proceeds
(c) Recent Sales of Unregistered Securities.
(1) In March 1999, the Company issued 56,250 shares of Common Stock
upon exercise of an outstanding stock option under the Company's
1992 Stock Option Plan for an aggregate exercise price of $7,875
to an employee of the Company in reliance upon the exemption
from registration under Rule 701 promulgated under the
Securities Act.
(2) In April 1999, the Company issued 8,196 shares of Common Stock
upon the exercise of an outstanding stock option under the
Company's 1992 Stock Option Plan for an aggregate exercise price
of $4,554 to an employee of the Company in reliance upon the
exemption from registration under Rule 701 promulgated under the
Securities Act.
(3) In June 1999, the Company issued 6,750 shares of Common Stock
upon the exercise of an outstanding stock option under the
Company's 1992 Stock Option Plan for an aggregate exercise price
of $12,825 to an employee of the Company in reliance upon the
exemption from registration under Rule 701 promulgated under the
Securities Act.
(d) Use of Proceeds from Registered Securities.
(1) The effective date of the Securities Act registration statement
for which the use of proceeds information is being disclosed was
February 3, 1999, and the Commission file number assigned to the
registration statement is 333-58795.
(2) The offering commenced as of February 4, 1999.
(3) The offering did not terminate before any securities were sold.
(4) (i) As of the date of the filing of this report, the offering
has terminated and approximately 2,815,000 of the
securities registered were sold.
(ii) The names of the managing underwriters are ING Baring
Furman Selz LLC and Hambrecht & Quist LLC.
(iii) The Company's Common Stock, par value $0.01 per share, was
the class of securities registered.
(iv) The Company registered 2,875,000 shares of its Common Stock
(which includes 375,000 shares solely to cover over-
allotments), having an aggregate price of the offering
amount registered of $57,500,000 million. As of the date of
the filing of this report, 2,815,000 of the total shares
registered have been sold at an aggregate offering price of
$56,300,000.
(v) From February 4, 1999 to the date hereof, the amount of
expenses incurred by the Company in connection with the
issuance and distribution of the securities totaled $4.9
million, which consisted of direct payments of: (i) $0.8
million in legal, accounting and printing fees; (ii) $3.9
million in underwriters' discounts, fees and commissions;
and (iii) $0.2 million in miscellaneous expenses. No
payments for such expenses were made to (i) any of the
Company's directors, officers, general partners or their
associates, (ii) any person(s) owning 10% or more of any
class of equity securities of the Company or (iii) the
Company's affiliates.
(vi) The net offering proceeds to the Company after deducting
its total expenses were $51.4 million.
(vii) The Company used the net proceeds as follows: (i)
approximately $7.9 million was used to repay indebtedness
incurred in connection with the repurchase by the Company
on October 28, 1998 of a total of 1,131,903 shares of
Common Stock from the Company's former chief financial
officer and a trust for the benefit of his family for an
aggregate purchase price of approximately $9.9 million (the
"Share Repurchase"); and (ii) approximately $5.0 million
was used to repay a portion of the
12
<PAGE>
Company's outstanding indebtedness under its existing
credit facility with Fleet Bank, N.A., including fees and
accrued and unpaid interest. Other than in connection with
the Share Repurchase, no such payments were made to (i)
any of the Company's directors, officers, general partners
or their associates, (ii) any person(s) owning 10% or more
of any class of equity securities of the Company or (iii)
the Company's affiliates.
(viii) The uses of proceeds described do not represent a
material change in the uses of proceeds described in the
Company's prospectus.
Item 4. Submission of Matters to a Vote of Security Holders
The Company held its annual meeting of stockholders (the "Annual
Meeting") on June 17, 1999. At the Annual Meeting, stockholders of the Company
voted to elect Chester J. Opalka and Frank W. Haydu, III to serve as Class I
Directors of the company for three-year terms, such terms to continue until the
annual meeting of stockholders in 2002 and until their respective successors are
duly elected and qualified. The votes cast for, and withheld from, the election
of the aforementioned Directors are listed below:
Votes Votes
Cast For Withheld From
---------- -------------
Chester J. Opalka 12,131,902 3,900
Frank W. Haydu, III 12,131,602 4,200
Item 6. Exhibits and Reports Filed on Form 8-K
(a) Exhibits.
27.1 Financial Data Schedule
(b) Reports on Form 8-K.
None.
13
<PAGE>
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, thereunto duly authorized.
ALBANY MOLECULAR RESEARCH, INC.
Date: August 16, 1999 By: /s/ Thomas E. D'Ambra, Ph.D.
--------------------------------------
Thomas E. D'Ambra, Ph.D.
Chairman and Chief Executive Officer
Date: August 16, 1999 By: /s/ David P. Waldek
--------------------------------------
David P. Waldek
Treasurer and Chief Financial Officer
14
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<PERIOD-START> JAN-01-1999
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