<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 September 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 November 10, 1999
----- --------------------------------
Common Stock, $.01 par value 14,578,476
<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 Statements of Operations 4
Condensed Consolidated Statements 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 Disclosures About
Market Risk 11
Part II. Other Information
Item 1. Legal Proceedings 11
Item 2. Changes in Securities and Use of Proceeds 11
Item 6. Exhibits and Reports Filed on Form 8-K 13
Signatures 14
</TABLE>
2
<PAGE>
PART 1--FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
ALBANY MOLECULAR RESEARCH, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, 1999 DECEMBER 31, 1998
------------------ -----------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 13,964,614 $ 3,957,091
Accounts receivable, net 4,694,691 2,798,742
Royalty income receivable 5,787,700 3,256,498
Investment securities, available-for-sale 35,732,921 2,026,620
Inventory 1,082,027 575,525
Unbilled services 37,120 105,036
Prepaid expenses and other current assets 889,163 1,394,416
------------ ------------
Total current assets 62,188,236 14,113,928
Property and equipment, net 14,890,470 14,318,217
Other assets:
Patents and other intangible assets, net 276,371 338,220
Other assets 1,137,810 137,810
------------ ------------
Total other assets 1,414,181 476,030
------------ ------------
Total assets $ 78,492,887 $ 28,908,175
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 2,241,821 $ 2,849,828
Unearned income 1,538,838 1,150,858
Current installments of long-term debt -- 1,587,168
Other current liabilities 346,478 182,293
------------ ------------
Total current liabilities 4,127,137 5,770,147
Long-term liabilities:
Long-term debt, excluding current installments -- 13,348,672
Deferred income taxes 1,317,896 509,812
------------ ------------
Total liabilities 5,445,033 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 September 30, 1999 and December 31,
1998, respectively -- 1,000
Common stock, $0.01 par value, authorized 50,000,000 shares; issued
13,593,789 at September 30, 1999 and 11,102,127 at December 31, 1998;
outstanding 13,593,789 at September 30, 1999 and 9,970,224 at
December 31, 1998 135,938 111,021
Additional paid-in capital 46,616,477 3,834,411
Retained earnings 26,309,107 15,328,015
Treasury stock, at cost -- (10,061,360)
Accumulated other comprehensive income (13,668) 66,457
------------ ------------
Total stockholders' equity 73,047,854 9,279,544
------------ ------------
Total liabilities and stockholders' equity $ 78,492,887 $ 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 NINE MONTHS ENDED
---------------------------------------- ----------------------------------------
SEPTEMBER 30, 1999 SEPTEMBER 30, 1998 SEPTEMBER 30, 1999 SEPTEMBER 30, 1998
------------------ ------------------ ------------------ ------------------
<S> <C> <C> <C> <C>
Net contract revenue $ 5,430,764 $ 3,685,168 $ 14,820,792 $ 9,649,344
Cost of contract revenue 3,070,186 2,067,790 8,373,427 5,319,992
----------- ------------ ------------ ------------
Gross profit from contract revenue 2,360,578 1,617,378 6,447,365 4,329,352
----------- ------------ ------------ ------------
Other operating revenue:
Non-recurring licensing fees,
milestones, and royalties -- -- -- 7,368,921
Recurring royalties 5,847,756 3,261,937 15,881,933 8,278,161
Technology incentive award (584,775) (297,473) (1,577,608) (1,434,631)
----------- ------------ ------------ ------------
Other operating revenue, net 5,262,981 2,964,464 14,304,325 14,212,451
----------- ------------ ------------ ------------
Operating expenses:
Research and development 136,671 194,125 400,741 535,068
Selling, general and administrative 1,422,346 1,053,925 4,070,779 3,162,340
----------- ------------ ------------ ------------
Total operating expenses 1,559,017 1,248,050 4,471,520 3,697,408
----------- ------------ ------------ ------------
Income from operations 6,064,542 3,333,792 16,280,170 14,844,395
Other income, net 569,423 18,973 1,280,743 120,102
----------- ------------ ------------ ------------
Income before income tax expense 6,633,965 3,352,765 17,560,913 14,964,497
Income tax expense 2,483,224 1,349,240 6,579,821 5,664,338
----------- ------------ ------------ ------------
Net income $ 4,150,741 $ 2,003,525 $ 10,981,092 $ 9,300,159
=========== =========== ============ ============
Basic earnings per share $ 0.32 $ 0.18 $ 0.87 $ 0.86
=========== =========== ============ ============
Diluted earnings per share $ 0.29 $ 0.16 $ 0.79 $ 0.76
=========== =========== ============ ============
</TABLE>
See notes to unaudited condensed consolidated financial statements.
4
<PAGE>
ALBANY MOLECULAR RESEARCH, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
----------------------------------------------
SEPTEMBER 30, 1999 SEPTEMBER 30, 1998
------------------ ------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 10,981,092 $ 9,300,159
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 1,200,766 740,621
Provision for doubtful accounts 140,208 (30,000)
Deferred income tax expense 861,500 316,609
(Increase) decrease in:
Accounts receivable (2,036,275) (945,483)
Royalty income receivable (2,531,202) (3,241,317)
Unbilled services 67,916 (9,862)
Inventory, prepaid expenses and other current assets 13,344 (484,360)
(Decrease) increase in:
Accounts payable and accrued expenses (608,008) 1,400,150
Unearned income 387,980 639,386
Other current liabilities 164,185 366,852
------------ -----------
Net cash provided by operating activities 8,641,506 8,052,755
------------ -----------
INVESTING ACTIVITIES
Purchases of investment securities (33,839,841) (54,315)
Purchases of property and equipment (1,722,213) (9,460,885)
Payment for deposits (1,000,000) --
Purchase of customer list -- (18,000)
Payments for organizational costs -- (4,650)
Payments for patent application costs (3,431) (122,923)
------------ -----------
Net cash used in investing activities (36,565,485) (9,660,773)
------------ -----------
Financing activities
Principal payments on long-term debt (14,935,840) (1,967,222)
Principal payments under capital lease obligations -- (1,256)
Proceeds from borrowings on long-term debt -- 5,000,000
Proceeds from sale of common stock 52,867,343 145,997
------------ -----------
Net cash provided by financing activities 37,931,503 3,177,519
------------ -----------
Increase in cash and cash equivalents 10,007,524 1,569,501
Cash and cash equivalents at beginning of year 3,957,091 1,261,518
------------ -----------
Cash and cash equivalents at end of period $ 13,964,615 $ 2,831,019
============ ===========
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 $ (80,125) $ 15,878
Additional disclosures relative to cash flows:
Interest paid $ 133,089 $ 176,865
Income taxes paid $ 5,039,000 $ 4,648,499
</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--Subsequent Event
On October 19, 1999, the Company consummated a merger of EnzyMed, Inc., a
provider of combinatorial biocatalysis discovery services based in Iowa, with
and into the Company. As a result of the merger, the Company acquired all of the
outstanding common and preferred stock of EnzyMed in exchange for 726,056 shares
of the Company's Common Stock. In addition, the Company assumed all of the
outstanding options of EnzyMed, which represent options to purchase 79,647
shares of the Company's Common Stock. EnzyMed will retain its separate identity
as an independent business unit, and will continue to develope and market its
combinatorial biocatalysis platform for drug discovery technology as a division
of the Company. The acquisition of EnzyMed has been accounted for as a pooling
of interests, and as such, all historical financial data reported subsequent to
the merger will be restated to include the historical financial data of EnzyMed.
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
-----------------------------------------------------------------------
SEPTEMBER 30, 1999 SEPTEMBER 30, 1998
------------------------------------- -------------------------------
PER AVERAGE PER
NET AVERAGE SHARES SHARE NET SHARES SHARE
INCOME OUTSTANDING AMOUNT INCOME OUTSTANDING AMOUNT
------------------------------------ -------------------------------
<S> <C> <C> <C> <C> <C> <C>
Basic earnings per share $4,150,741 13,173,412 $0.32 $2,003,525 10,890,400 $0.18
Dilutive effect of stock
options and grants -- 1,249,860 -- 1,452,050
Dilutive effect of assumed
preferred stock conversion -- -- -- 45,000
---------------------------- -----------------------
Diluted earnings per share $4,150,741 14,423,272 $0.29 $2,003,525 12,387,450 $0.16
==================================== ===============================
<CAPTION>
NINE MONTHS ENDED
------------------------------------------------------------------------
SEPTEMBER 30, 1999 SEPTEMBER 30, 1998
------------------------------------------------------------------------
PER AVERAGE PER
NET AVERAGE SHARES SHARE NET SHARES SHARE
INCOME OUTSTANDING AMOUNT INCOME OUTSTANDING AMOUNT
------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Basic earnings per share $10,981,092 12,570,054 $0.87 $9,300,159 10,823,123 $0.86
Dilutive effect of stock
options and grants -- 1,318,952 -- 1,350,460
Dilutive effect of assumed
preferred stock conversion -- -- -- 45,000
----------------------------- ------------------------
Diluted earnings per share $10,981,092 13,889,006 $0.79 $9,300,159 12,218,583 $0.76
===================================== ================================
</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 September 30, 1999 and 1998:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
---------------------------------------------------------
SEPTEMBER 30, 1999 SEPTEMBER 30, 1998
-------------------------- --------------------------
<S> <C> <C>
Net income $4,150,741 $2,003,525
Other comprehensive (loss) income:
Unrealized gain on available-for-sale securities, net of
tax expense of $12,909 in 1999 and $11,612 in 1998 19,363 17,417
-------------------------- --------------------------
Total comprehensive income $4,170,104 $2,020,942
========================== ==========================
</TABLE>
The following table presents the components of the Company's comprehensive
income for the nine months ended September 30, 1999 and 1998:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
----------------------------------------------------------
SEPTEMBER 30, 1999 SEPTEMBER 30, 1998
-------------------------- --------------------------
<S> <C> <C>
Net income $10,981,092 $9,300,159
Other comprehensive (loss) income:
Unrealized (loss) gain on available-for-sale
securities, net of tax benefit of $53,417 in 1999
and tax expense of $10,585 in 1998 (80,125) 15,878
-------------------------- --------------------------
Total comprehensive income $10,900,967 $9,316,037
========================== ==========================
</TABLE>
Note E--Financial Information by Customer Concentration and Geographic Area
Net contract revenue from the Company's three largest customers represented
approximately 26%, 11% and 10% of total consolidated net contract revenue for
the three months ended September 30, 1999, and 22%, 14% and 13% of total
consolidated net contract revenue for the three months ended September 30, 1998.
Net contract revenue from the Company's three largest customers represented
approximately 22%, 11% and 10% of total consolidated net contract revenue for
the nine months ended September 30, 1999, and 18%, 17% and 15% of total
consolidated net contract revenue for the nine months ended September 30, 1998.
The Company's net contract revenue for the three months ended September 30, 1999
and 1998 and for the nine months ended September 30, 1999 and 1998 was
recognized from customers in the following geographic regions:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
-----------------------------------------------------------------------------------------
SEPTEMBER 30, 1999 SEPTEMBER 30, 1998 SEPTEMBER 30, 1999 SEPTEMBER 30, 1998
-------------------- ------------------ ------------------ ------------------
<S> <C> <C> <C> <C>
United States 89% 86% 90% 85%
Europe 11% 14% 10% 15%
-------------------- ------------------- ------------------ ------------------
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 instruments 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 of 1933, as amended (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 SEPTEMBER 30, 1999 COMPARED TO THREE
MONTHS ENDED SEPTEMBER 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 third quarter of 1999
increased 47% to $5.4 million compared to $3.7 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 46% to
$2.4 million in the third quarter of 1999 from $1.6 million for the same period
in 1998. The Company's gross margin as a percentage of net contract revenue
remained consistent between periods.
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
8
<PAGE>
determined based on such quarter's sales. Other operating revenue for the third
quarter of 1999 increased 78% to $5.3 million compared to $3.0 million in 1998.
The increase was attributable to increased sales of the drug product by the
Company's licensee.
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 decreased 30% to $137,000 for the third quarter of 1999 from $194,000
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.
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 third quarter of
1999 from $1.1 million for the corresponding period of 1998. Selling, general
and administrative expenses represented 26.2% of net contract revenue in the
third quarter of 1999 as compared to 28.6% in the third quarter of 1998. The
dollar increase was primarily 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.
Income tax expense. Income tax expense increased to $2.5 million during the
third quarter of 1999 from $1.3 million in the third quarter of 1998. The
effective rate for the Company's provision for income taxes was 37.4% in the
third quarter of 1999 and 40.2% for the same period in 1998. The higher tax
rate for the third quarter of 1998 resulted from a change in the estimated
effective tax rate for the year.
RESULTS OF OPERATIONS--NINE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO NINE
MONTHS ENDED SEPTEMBER 30, 1998
Net contract revenue. Net contract revenue for the first nine months of 1999
increased 54% to $14.8 million compared to $9.6 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 49% to $6.4 million for the first nine
months of 1999 from $4.3 million for the same period in 1998. The gross profit
margin percentage was 43.5% for the first nine months of 1999 as compared to
44.9% 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 during the first quarter of 1999.
Other operating revenue. Other operating revenue for the first nine months of
1999 increased 1% to $14.3 million as compared to $14.2 million during the same
period in 1998. Other operating revenue for the first nine months of 1998
included the recognition of $7.4 million in non-recurring royalties and
milestones. 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 91.2% to $14.3 million in the first
nine months of 1999 as compared to $7.5 million for the same period 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 25% to
$401,000 for the first nine months of 1999 from $535,000 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.
Selling, general and administrative. Selling, general and administrative
expenses increased 29% to $4.1 million for the first nine months of 1999 from
$3.2 million for the corresponding period of 1998. Selling, general and
administrative expenses represented 27.5% of net contract revenue in the first
nine months of 1999 as compared to 32.8% in the first nine months of 1998. The
dollar increase was primarily 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
9
<PAGE>
becoming a publicly-traded company. During the first nine 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 nine months of 1998 would have represented 30.6% of net contract
revenue for the period.
Income tax expense. Income tax expense increased $900,000 to $6.6 million
in the first nine months of 1999 from $5.7 million for the same period in 1998.
The effective rate for the provision for income taxes was 37.5% for the first
nine 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 nine months of 1999, the Company generated cash of $8.6 million from
operating activities of which $2.7 million was used principally towards the
purchase of additional laboratory equipment. In addition, $33.8 million was
used towards the purchase of investment securities. During the first nine
months of 1999, the Company generated $37.9 million from financing activities,
consisting of $51.4 million from its February 1999 initial public offering of
2,815,000 shares of common stock, net of $14.9 million of the proceeds used to
repay principal on outstanding debt obligations. The Company also received $1.4
million from the exercise of stock options for common stock during the period.
Working capital was approximately $58.1 million at September 30, 1999 as
compared to $8.3 million as of September 30, 1998. The Company has available a
$25 million credit facility to supplement its liquidity needs.
The Company has begun an expansion of operations at its Rensselaer, New York
site. This expansion would accommodate additional medicinal chemistry and
chemical development laboratories. The total construction and equipment cost of
this expansion is estimated to be $7 to $9 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 February 1999 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")
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.
10
<PAGE>
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 are currently Year 2000 compliant.
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 all essential 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 has received written
verification from substantially all of its critical vendors that they will be
Year 2000 compliant by the end of the year. 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.
Item 3. Quantitative and Qualitative Disclosures 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 August 1999, the Company issued 630,000 shares of Common
Stock upon exercise of an outstanding stock option for an
aggregate exercise price of $1,400,000 to an investor of the
Company in reliance upon the exemption from registration under
Section 4 (2) of the Securities Act.
11
<PAGE>
(2) During the three months ended September 30, 1999, the Company
issued 151,628 shares of Common Stock upon the exercise of
outstanding stock options under the Company's 1992 Stock Option
Plan for an aggregate offering price of $53,270 to employees of
the Company in reliance upon the exemption from registration
under Rule 701 promulgated under the Securities Act.
In light of the circumstances under which such shares of Common Stock
were issued and information obtained by the Company in connection
with such transactions, the Company believes that it may rely on such
exemptions.
(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 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.
12
<PAGE>
(viii) The uses of proceeds described do not represent a
material change in the uses of proceeds described in the
Company's prospectus.
Item 6. Exhibits and Reports Filed on Form 8-K
(a) Exhibits.
10.1 Agreement and Plan of Merger, dated as of September 8, 1999, by
and between the Company and EnzyMed, Inc. (incorporated herein
by reference to Exhibit 2.1 to the Company's Current Report on
Form 8-K filed on November 2, 1999, File No. 000-25323).
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: November 15, 1999 By: /s/ Thomas E. D'Ambra, Ph.D.
------------------------------------
Thomas E. D'Ambra, Ph.D.
Chairman and Chief Executive Officer
Date: November 15, 1999 By: /s/ David P. Waldek
------------------------------------
David P. Waldek
Treasurer and Chief Financial Officer
14
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