UNITED
STATES
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): July 1, 2014
ALBANY
MOLECULAR RESEARCH, INC.
(Exact Name of Registrant as Specified in Charter)
Delaware |
001-35622 |
14-1742717 |
|
|
|
(State or other jurisdiction |
(Commission |
(IRS Employer |
of incorporation) |
File Number) |
Identification No.) |
26 Corporate Circle Albany, NY |
12212 |
|
|
(Address of principal executive offices) |
(Zip Code) |
Registrant’s telephone number, including
area code: (518) 512-2000
Check the appropriate box below if the Form 8-K filing is intended
to simultaneously satisfy the filing obligation of the registrant under any of the following provisions ( see General Instruction
A.2. below) :
¨ Written communications
pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
¨ Soliciting
material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
¨ Pre-commencement
communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
¨ Pre-commencement
communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
Item 2.01 Completion of Acquisition
or Disposition of Assets
On July 7, 2014, Albany
Molecular Research, Inc., a Delaware corporation (the “Company”) filed a Form 8-K announcing that on July 1, 2014,
Albany Molecular Research, Inc., a Delaware corporation (“AMRI”), ALO Acquisition LLC, a Delaware limited liability
company and wholly-owned subsidiary of AMRI (“Acquisition Sub”), Oso BioPharm Holdings, LLC (the “Seller”)
and Oso BioPharmaceuticals Manufacturing, LLC, a Delaware limited liability company and wholly-owned subsidiary of the Seller (“OsoBio”),
completed the Closing of the purchase of OsoBio by the Acquisition Sub (the “Transaction”) pursuant to the Membership
Interest Purchase Agreement (the “Purchase Agreement”), which was previously announced in a separate 8-K filed on June
2, 2014. AMRI announced that upon completion of the Transaction, OsoBio would become a wholly-owned subsidiary of AMRI through
the Acquisition Sub.
It
is further noted that on April 4, 2014 AMRI completed a merger (the “Merger”) pursuant to an Agreement and
Plan of Merger, dated March 22, 2014 (the “Merger Agreement”), by and among the Company, AlCu Acquisition Corp.,
a Delaware corporation and wholly-owned subsidiary of the Company (“Merger Sub”), Cedarburg Pharmaceuticals,
Inc., a Delaware corporation (“Cedarburg”), and James Gale, solely in his capacity as initial Holder
Representative (as defined in the Merger Agreement). The Company announced that upon consummation of the Merger, Merger Sub
merged with and into Cedarburg, with Cedarburg continuing as the surviving corporation and a wholly-owned subsidiary of the
Company. The Company has previously filed the required financial information in
connection with this Merger in its Form 8-K filed on April 7, 2014.
The Company hereby
amends the Form 8-K filed on July 7, 2014 to provide certain financial statements required by Item 9.01 of Form 8-K with respect
to OsoBio and pro forma condensed combined financial information with respect to the Company’s acquisitions of OsoBio and
Cedarburg.
Item 9.01 Financial Statements and Exhibits
| (a) | Audited consolidated financial statements for Oso Biopharm Holdings, LLC and Subsidiaries as of
and for the years ended December 31, 2013 and 2012, and the unaudited financial statements of Oso Biopharmaceuticals Manufacturing,
LLC as of and for the six months ended June 30, 2014 and 2013, which are filed herewith as Exhibit 99.1 and are incorporated in
this Item 9.01 (a) by reference. |
| (b) | The unaudited pro forma condensed combined financial statements and related notes thereto of Albany
Molecular Research, Inc. at June 30, 2014 and for the six months ended June 30, 2014 and the year ended December 31, 2013, giving
effect to the Transaction and the Merger, are filed herewith as Exhibit 99.2 and incorporated in this Item 9.01(b) by reference. |
Exhibit No. |
|
Description |
|
|
|
23.1 |
|
Consent of Moss Adams LLP |
99.1 |
|
Audited consolidated financial statements for Oso Biopharm Holdings, LLC and Subsidiaries as of and for the years ended December 31, 2013 and 2012, and unaudited financial statements of Oso Biopharmaceuticals Manufacturing, LLC as of and for the six months ended June 30, 2014 and 2013. |
99.2 |
|
Unaudited pro forma condensed combined financial statements and related notes thereto of Albany Molecular Research, Inc. at June 30, 2014 and for the six months ended June 30, 2014 and the year ended December 31, 2013. |
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.
|
ALBANY MOLECULAR RESEARCH, INC. |
|
|
|
By: |
/s/ Michael M. Nolan |
|
|
Michael M. Nolan |
|
|
|
|
|
Senior Vice President, Chief Financial Officer and Treasurer |
Date: September 12, 2014
EXHIBIT INDEX
Exhibit No. |
|
Description |
|
|
|
23.1 |
|
Consent of Moss Adams LLP |
99.1 |
|
Audited consolidated financial statements for Oso Biopharm Holdings, LLC and Subsidiaries as of and for the years ended December 31, 2013 and 2012, and unaudited financial statements of Oso Biopharmaceuticals Manufacturing, LLC as of and for the six months ended June 30, 2014 and 2013. |
99.2 |
|
Unaudited pro forma condensed combined financial statements and related notes thereto of Albany Molecular Research, Inc. at June 30, 2014 and for the six months ended June 30, 2014 and the year ended December 31, 2013. |
Exhibit
23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the registration
statements on Form S-3 (Registration No. 333-178718), and on Form S-8 (Registration Nos. 333-80477, 333-91423, 333-152169, 333-174973,
and 333-189219) of Albany Molecular Research, Inc. of our report dated February 28, 2014, with respect to consolidated balance
sheets of OSO Biopharm Holdings, LLC and Subsidiaries at December 31, 2013 and 2012, and the related consolidated statements of
operations, members’ capital, and cash flows for the years then ended, which report appears in the Current Report on Form
8-K/A of Albany Molecular Research, Inc. and subsidiaries dated September 12, 2014.
/s/ Moss Adams LLP
Albuquerque, New Mexico
September 12, 2014
Exhibit 99.1
REPORT OF INDEPENDENT AUDITORS
Management Board
OSO Biopharm Holdings, LLC and Subsidiaries
Report on Financial Statements
We have audited the accompanying consolidated financial statements
of OSO Biopharm Holdings, LLC and Subsidiaries (the Company), which comprise the consolidated balance sheets as of December 31, 2013
and 2012, and the related consolidated statements of operations, members’ capital, and cash flows for the years then ended,
and the related notes to the financial statements.
Management’s Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation
of these consolidated financial statements in accordance with accounting principles generally accepted in the United States of
America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation
of consolidated financial statements that are free from material misstatement, whether due to fraud or error.
Auditor’s Responsibility
Our responsibility is to express an opinion on these consolidated
financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the
United States of America. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether
the consolidated financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence
about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor’s
judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due
to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation
and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly,
we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness
of significant accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial
statements.
We believe that the audit evidence obtained is sufficient and
appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the financial position of OSO Biopharm Holdings, LLC and Subsidiaries as of
December 31, 2013 and 2012, and the results of their operations and their cash flows for the years then ended in accordance
with accounting principles generally accepted in the United States of America.
/s/ Moss Adams LLP
Albuquerque, New Mexico
February 28, 2014
OSO BIOPHARM HOLDINGS, LLC AND SUBSIDIARIES
CONSOLIDATED BALANCE
SHEETS
| |
December 31, | |
| |
2013 | | |
2012 | |
| |
| | |
| |
ASSETS | |
| | |
| |
| |
| | |
| |
CURRENT ASSETS | |
| | | |
| | |
Cash and cash equivalents | |
$ | 3,889,806 | | |
$ | 4,444,374 | |
Accounts receivable, net of allowance for bad debts of $206,114 and $0 at 2013 and 2012, respectively | |
| 5,859,519 | | |
| 4,196,523 | |
Inventories, net | |
| 8,866,972 | | |
| 5,374,035 | |
Prepaid expenses | |
| 1,631,992 | | |
| 625,180 | |
Total current assets | |
| 20,248,289 | | |
| 14,640,112 | |
| |
| | | |
| | |
Property and equipment, net | |
| 15,028,126 | | |
| 14,093,109 | |
| |
| | | |
| | |
Total assets | |
$ | 35,276,415 | | |
$ | 28,733,221 | |
| |
| | | |
| | |
LIABILITIES AND MEMBERS' CAPITAL | |
| | | |
| | |
| |
| | | |
| | |
CURRENT LIABILITIES | |
| | | |
| | |
Accounts payable | |
$ | 2,111,196 | | |
$ | 2,486,246 | |
Accrued liabilities | |
| 3,445,068 | | |
| 3,117,661 | |
Customer deposits | |
| 221,584 | | |
| 615,460 | |
Deferred revenues | |
| 2,592,705 | | |
| 326,564 | |
Line of credit | |
| 70,957 | | |
| 1,750,000 | |
Long-term debt - current portion | |
| - | | |
| 1,622,529 | |
Total current liabilities | |
| 8,441,510 | | |
| 9,918,460 | |
| |
| | | |
| | |
LONG-TERM LIABILITIES | |
| | | |
| | |
Long-term debt | |
| 415,605 | | |
| - | |
Accrued liabilities | |
| 663,175 | | |
| 729,200 | |
Total long-term liabilities | |
| 1,078,780 | | |
| 729,200 | |
| |
| | | |
| | |
Total liabilities | |
| 9,520,290 | | |
| 10,647,660 | |
| |
| | | |
| | |
Commitments (Note 8) | |
| | | |
| | |
| |
| | | |
| | |
MEMBERS' CAPITAL | |
| 25,756,125 | | |
| 18,085,561 | |
| |
| | | |
| | |
Total liabilities and members' capital | |
$ | 35,276,415 | | |
$ | 28,733,221 | |
OSO BIOPHARM HOLDINGS, LLC AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF OPERATIONS
| |
Years Ended December 31, | |
| |
2013 | | |
2012 | |
| |
| | |
| |
Revenues | |
$ | 47,777,024 | | |
$ | 39,688,690 | |
| |
| | | |
| | |
Cost of sales | |
| 34,785,568 | | |
| 38,655,078 | |
| |
| | | |
| | |
Gross margin | |
| 12,991,456 | | |
| 1,033,612 | |
| |
| | | |
| | |
Selling, General and Administrative Expense | |
| | | |
| | |
Salaries and benefits | |
| 2,490,051 | | |
| 2,344,466 | |
Depreciation | |
| 89,632 | | |
| 153,578 | |
Professional fees and consulting | |
| 515,135 | | |
| 873,637 | |
Insurance | |
| 552,322 | | |
| 537,905 | |
Property and other taxes | |
| 382,451 | | |
| 334,070 | |
Supplies | |
| 363,089 | | |
| 389,355 | |
Provision for (recovery of) bad debt expense | |
| 206,114 | | |
| (203,150 | ) |
Travel and entertainment | |
| 251,205 | | |
| 248,615 | |
Telephone expense | |
| 110,390 | | |
| 128,905 | |
Other expenses | |
| 68,500 | | |
| 40,802 | |
| |
| | | |
| | |
Rents and leases | |
| 72,732 | | |
| 63,479 | |
Dues, fees and licenses | |
| 39,424 | | |
| 32,451 | |
Other employee expenses | |
| 79,209 | | |
| 54,223 | |
Advertising expense | |
| 93,608 | | |
| 166,999 | |
Meetings and training | |
| 42,368 | | |
| 24,461 | |
| |
| | | |
| | |
Total operating expenses | |
| 5,356,230 | | |
| 5,189,796 | |
| |
| | | |
| | |
GAIN (LOSS) FROM OPERATIONS | |
| 7,635,226 | | |
| (4,156,184 | ) |
| |
| | | |
| | |
NON-OPERATING (EXPENSE) INCOME | |
| | | |
| | |
Amortization of customer contracts liability | |
| - | | |
| 506,250 | |
Interest expense | |
| (73,075 | ) | |
| (128,881 | ) |
| |
| | | |
| | |
Insurance recoveries | |
| - | | |
| 2,200,000 | |
Stock compensation expense | |
| (74,929 | ) | |
| - | |
Other | |
| 45,913 | | |
| 29,621 | |
| |
| | | |
| | |
TOTAL NON-OPERATING (EXPENSE) INCOME | |
| (102,091 | ) | |
| 2,606,990 | |
| |
| | | |
| | |
NET INCOME (LOSS) | |
$ | 7,533,135 | | |
$ | (1,549,194 | ) |
OSO BIOPHARM HOLDINGS, LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS
OF MEMBERS’ CAPITAL
| |
Class A | | |
Class A-1 | | |
Class B | | |
Class C | | |
Total | |
| |
Member | | |
Member | | |
Member | | |
Member | | |
Members' | |
| |
Units | | |
Units | | |
Units | | |
Units | | |
Capital | |
| |
| | |
| | |
| | |
| | |
| |
BALANCE, December 31, 2011 | |
| 10,250,000 | | |
| - | | |
| 389,240 | | |
| 356,803 | | |
$ | 18,925,034 | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Vesting of Class C member units | |
| - | | |
| - | | |
| - | | |
| 97,310 | | |
| - | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Additional contribution | |
| - | | |
| 1,166,113 | | |
| - | | |
| - | | |
| 2,500,000 | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Repurchase units | |
| - | | |
| - | | |
| - | | |
| (16,218 | ) | |
| (1,790,279 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Net loss | |
| - | | |
| - | | |
| - | | |
| - | | |
| (1,549,194 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | |
BALANCE, December 31, 2012 | |
| 10,250,000 | | |
| 1,166,113 | | |
| 389,240 | | |
| 437,895 | | |
| 18,085,561 | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Vesting of Class C member units | |
| - | | |
| - | | |
| - | | |
| 48,655 | | |
| - | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Additional contribution | |
| - | | |
| 29,153 | | |
| - | | |
| - | | |
| 62,500 | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Compensation Expense C Shares | |
| - | | |
| - | | |
| - | | |
| - | | |
| 74,929 | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Net income | |
| - | | |
| - | | |
| - | | |
| - | | |
| 7,533,135 | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
BALANCE, December 31, 2013 | |
| 10,250,000 | | |
| 1,195,266 | | |
| 389,240 | | |
| 486,550 | | |
$ | 25,756,125 | |
OSO BIOPHARM HOLDINGS, LLC AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CASH FLOWS
| |
Years Ended December 31, | |
| |
2013 | | |
2012 | |
| |
| | |
| |
CASH FLOWS FROM OPERATING ACTIVITIES | |
| | | |
| | |
Net income (loss) | |
$ | 7,533,135 | | |
$ | (1,549,194 | ) |
Adjustments to reconcile net loss to net cash provided (used) by operations | |
| | | |
| | |
Depreciation | |
| 891,856 | | |
| 652,155 | |
Forgiveness of long term debt | |
| (65,650 | ) | |
| - | |
Amortization of customer contracts liability | |
| - | | |
| (506,250 | ) |
Provision for (recovery of) bad debt expense | |
| 206,114 | | |
| (203,150 | ) |
Provision for inventory obsolescence | |
| 1,863,749 | | |
| 1,681,072 | |
Stock compensation expense | |
| 74,929 | | |
| - | |
Loss on fixed asset disposal | |
| - | | |
| 8,674 | |
Changes in assets and liabilities | |
| | | |
| | |
Accounts receivable | |
| (1,869,110 | ) | |
| (794,369 | ) |
Inventories | |
| (5,356,686 | ) | |
| 19,933 | |
Prepaid expenses | |
| (1,006,812 | ) | |
| 88,171 | |
Accounts payable | |
| (375,050 | ) | |
| 876,157 | |
Accrued liabilities | |
| 327,407 | | |
| 98,140 | |
Deferred revenue and customer deposits | |
| 1,872,265 | | |
| (628,413 | ) |
Accrued liabilities | |
| 4,931 | | |
| 416,874 | |
| |
| | | |
| | |
Net cash provided by operating activities | |
| 4,101,078 | | |
| 159,800 | |
| |
| | | |
| | |
CASH FLOWS FROM INVESTING ACTIVITIES | |
| | | |
| | |
Purchase of property and equipment | |
| (1,826,873 | ) | |
| (2,698,289 | ) |
| |
| | | |
| | |
CASH FLOWS FROM FINANCING ACTIVITIES | |
| | | |
| | |
Proceeds from member contributions | |
| 62,500 | | |
| 2,500,000 | |
Repurchase of member units | |
| - | | |
| (1,790,279 | ) |
Proceeds from line of credit | |
| 415,605 | | |
| 1,750,000 | |
Payment on note payable | |
| (3,306,878 | ) | |
| (1,528,265 | ) |
| |
| | | |
| | |
Net cash (used) provided by financing activities | |
| (2,828,773 | ) | |
| 931,456 | |
| |
| | | |
| | |
Net decrease in cash and cash equivalents | |
| (554,568 | ) | |
| (1,607,033 | ) |
| |
| | | |
| | |
CASH AND CASH EQUIVALENTS, beginning of year | |
| 4,444,374 | | |
| 6,051,407 | |
| |
| | | |
| | |
CASH AND CASH EQUIVALENTS, end of year | |
$ | 3,889,806 | | |
$ | 4,444,374 | |
| |
| | | |
| | |
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION | |
| | | |
| | |
Cash paid during the year for interest | |
$ | 73,075 | | |
$ | 147,474 | |
Reduction of note payable for credit received for CIP equipment | |
| 65,650 | | |
| - | |
Note 1 – Organization and Description
of Business
OSO Biopharm
Holdings, LLC (Holdings) was formed under the laws of the State of Delaware on May 14, 2008 for the purpose of purchasing
the interests of OSO Biopharmaceuticals Manufacturing, LLC. The purchase was effective on May 16, 2008, and currently all operations
of Holdings are conducted by OSO Biopharmaceuticals Manufacturing, LLC, a subsidiary.
OSO Biopharmaceuticals
Manufacturing, LLC is a contract manufacturer of sterile injectable pharmaceuticals and is located in Albuquerque, New Mexico.
The Company manufactures products for pharmaceutical companies located in the United States and abroad. The manufacturing process
consists primarily of cGMP glass vial filling and lyophilization services for injectable drugs and biologics that are either approved
for commercial marketing or in clinical development.
On November
17, 2009, Holdings formed a single member LLC under the laws of the State of Delaware by the name of OsoBio Development, LLC. The
purpose of OsoBio Development, LLC is to enter into joint venture arrangements for the general purpose of identifying, acquiring,
developing, obtaining approval to market, manufacturing and commercializing injectable pharmaceutical products.
Note 2 – Significant Accounting
Policies
Principles of consolidation –
The consolidated financial statements include the accounts and activity of Holdings and its wholly owned subsidiaries, OSO Biopharmaceuticals
Manufacturing, LLC and OsoBio Development, LLC. Collectively, these entities are referred to as the “Company.”
All significant intercompany balances and transactions have been eliminated in consolidation.
Management’s estimates –
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of
contingent assets and liabilities, and the reported amount of revenues and expenses. Significant estimates include the valuation
of inventory, the measurement of allowances for doubtful accounts, and the customer contracts liability. Actual results could differ
from those estimates.
Generally Accepted Accounting Principles
(GAAP) – The accompanying consolidated financial statements are prepared in accordance with GAAP.
Cash and cash equivalents –
Cash and cash equivalents consist of cash and highly liquid investments with original maturities of three months or less. Cash
balances may exceed amounts insured by the Federal Deposit Insurance Corporation at various times during the year.
Accounts receivable – Accounts
receivable consists primarily of amounts due from customers for the manufacture of injectable pharmaceuticals. Management records
an estimated provision for doubtful accounts to the extent it is probable an amount will not be collected.
Note 2 – Significant Accounting
Policies (continued)
In evaluating the collectability of accounts
receivable, the Company considers a number of factors, including the age of the accounts and evaluation of each account based on
a customer’s payment history and other information that is made available to management.
Inventories – Finished goods,
work in process and raw materials are carried at standard cost (which approximates actual cost), principally on a first-in, first-out
basis, but not in excess of market. Inventory costs include the direct and indirect costs of manufacturing. General and administrative
costs are included as period charges, except for the portion of such expenses that may be clearly related to manufacturing and
thus constitute a part of inventory costs. Factory supplies are also expensed. The Company reviews the carrying value of inventories
on a quarterly basis and makes any lower of cost or market adjustments at that time. The Company reviews and sets standard costs
on an annual basis. Management’s estimate of the inventory reserve is based on the specification identification of lots that
are expected to be scrapped.
Property and equipment – Property
and equipment are recorded at cost, net of accumulated depreciation. Depreciation is computed using the straight-line method over
the estimated useful lives of the assets. The range of estimated useful lives is as follows:
Building and improvements |
39 years |
|
|
Machinery and equipment |
7 - 10 years |
|
|
Furniture and fixtures |
7 years |
|
|
Vehicles |
5 years |
|
|
Computer equipment and software |
3 - 5 years |
Depreciation of property and equipment
totaled $891,856 and $652,155 for the years ended December 31, 2013 and 2012, respectively. Of total depreciation, $802,224
and $498,577 was allocated to cost of sales for the years ended December 31, 2013 and 2012, respectively. Maintenance and repairs
are charged to operations when incurred. Betterments and renewals are capitalized. When property and equipment are sold or otherwise
disposed of, the asset account and related accumulated depreciation account are relieved, and any gain or loss is included in operations.
Customer contracts – In connection
with the acquisition OSO Biopharmaceuticals Manufacturing LLC in 2008, the Company recorded acquired customer contracts liabilities
of $5,400,000. These customer contract liabilities are amortized over their expected useful life of four years, and are fully amortized
as of December 31, 2013.
Income taxes – OSO Biopharm
Holdings, Inc. elected LLC status effective at its inception. The consolidated financial statements also include the consolidation
of subsidiary companies OSO Biopharmaceuticals Manufacturing, LLC and OsoBio Development, LLC, which elected and received
approval to operate as LLC’s. The taxable income and expenses of OSO Biopharm Holdings, Inc. and its subsidiaries flow through
to the members and are reportable by the individual members. Accordingly, no provision for income taxes is recorded in the accompanying
consolidated financial statements.
Note 2 – Significant Accounting
Policies (continued)
The Company adopted the Financial Accounting
Standards Board’s (FASB) guidance relating to accounting for uncertain tax positions. The guidance prescribes a recognition
threshold and measurement process for accounting for uncertain tax positions and also provides guidance on various related matters
such as de-recognition, interest, penalties and disclosures required. The Company does not have any entity level uncertain tax
positions. The Company files income tax returns in the U.S. federal jurisdiction and various state jurisdictions. Generally, the
Company is subject to examination by U.S. federal (or state and local) income tax authorities for three years from the filing of
a tax return.
Revenue – Revenue is recognized
either upon shipment or completion of the manufacturing process, in accordance with the terms of the contract, which specifies
when delivery is to take place and when the transfer of title occurs. Revenue is recognized upon completion of the manufacturing
process when the product is physically segregated in inventory and is complete and ready for shipment, and there are no substantial
additional performance requirements of the Company, and there are no uncertainties about the customer’s acceptance of the
product. Deferred revenue is recorded when products are nearing completion of the manufacturing process but the Company has yet
to meet the revenue recognition requirements.
Non-product revenue includes service fees
and the revenue related to these agreements is recognized when service obligations of performance have been completed.
Cost of sales – Costs of sales
includes the cost of inventory (as adjusted for charges for obsolescence), production, freight, discounts, and shrinkage.
Selling, general, and administrative
expenses – Selling, general and administrative expenses consist of compensation and employee benefit expenses, other
than those directly or indirectly related to production activities. Selling, general and administrative expenses also include such
costs as advertising, office supplies, freight, communication costs, travel, and purchased services.
Planned major maintenance activities
– The Company uses the direct expensing method to account for planned major maintenance activities. With the exception of
media validation runs, which are amortized over a 12 month period.
Shipping and handling – Shipping
and handling costs are included in cost of sales. Shipping and handling revenue is immaterial and is presented within revenues.
Advertising expense – The
cost of advertising is expensed when incurred or when the first advertising takes place. The Company does not participate in direct-response
advertising that requires the capitalization and amortization of related costs.
Note 2 – Significant Accounting
Policies (continued)
Subsequent events – Subsequent
events are events or transactions that occur after the balance sheet date but before the consolidated financial statements are
issued or are available to be issued. The Company recognizes in the consolidated financial statements the effects of all subsequent
events that provide additional evidence about conditions that existed at the date of the balance sheet, including the estimates
inherent in the process of preparing the consolidated financial statements. The Company’s consolidated financial statements
do not recognize subsequent events that provide evidence about conditions that did not exist at the date of the balance sheet but
arose after the balance sheet date and before consolidated financial statements are available to be issued.
The Company has evaluated subsequent events
through February 28, 2014 which is the date the consolidated financial statements were available to be issued.
Note 3 – Inventories
Inventories consisted of the following
at December 31:
| |
2013 | | |
2012 | |
| |
| | |
| |
Finished goods | |
$ | 4,306,977 | | |
$ | 1,324,737 | |
Raw materials | |
| 3,736,921 | | |
| 4,157,588 | |
Work-in-process | |
| 3,422,949 | | |
| 1,888,334 | |
| |
| 11,466,847 | | |
| 7,370,659 | |
Inventory reserve | |
| (2,599,875 | ) | |
| (1,996,624 | ) |
| |
| | | |
| | |
| |
$ | 8,866,972 | | |
$ | 5,374,035 | |
Note 4 – Manufacturing Operations
Disruption
During 2011, OSO Biopharmaceuticals Manufacturing, LLC had
an unplanned shut down due to an equipment malfunction on one of the main manufacturing lines. The underlying issue has been remedied
and the manufacturing line is now fully operational. In 2011, the Company recorded approximately $5,900,201 of costs related to
the disruption and recovered $1,750,000 under its insurance policies. In 2012, an additional amount of approximately $2,200,000
was recovered under the Company’s insurance policy and is included in non-operating income on the consolidated statements
of operations.
Note 5 – Property and Equipment
Property and equipment consisted of the
following at December 31:
| |
2013 | | |
2012 | |
| |
| | |
| |
Building and building improvements | |
$ | 2,595,761 | | |
$ | 2,311,079 | |
Machinery and equipment | |
| 8,940,908 | | |
| 7,810,645 | |
Computer equipment and software | |
| 2,559,970 | | |
| 2,392,250 | |
| |
| | | |
| | |
Automobiles | |
| 8,608 | | |
| 8,609 | |
Depreciable property and equipment | |
| 14,105,247 | | |
| 12,522,583 | |
Accumulated depreciation | |
| (3,650,074 | ) | |
| (2,758,219 | ) |
Depreciable property and equipment, net | |
| 10,455,173 | | |
| 9,764,364 | |
Construction in progress | |
| 4,572,953 | | |
| 4,328,745 | |
| |
| | | |
| | |
Total | |
$ | 15,028,126 | | |
$ | 14,093,109 | |
Note 6 – Long-term Debt and Line
of Credit
On July 2, 2010, the Company executed
a financing agreement with Robert Bosch Packaging Technology Corporation to purchase manufacturing equipment. The total purchase
price of the equipment was $6,686,275. During 2010 and 2011, the Company made cash payments towards the purchase price of $1,953,137.
The remaining balance was financed through issuance of a note payable with a balance of $4,733,138. The agreement had a maturity
date of December 31, 2013 and was paid according to terms. In 2013, the Company made payments of $1,556,879 and a credit was received
from the lender of $65,650 due to the Company not installing the syringe filler in full satisfaction of the financing agreement.
There is no outstanding balance as of December 31, 2013.
The Company had a $3,500,000 line-of-credit
with a financial institution that expired on May 31, 2013. The line was collateralized by accounts receivable and inventory. Interest
is payable monthly on outstanding balances at an interest rate of 2.46%. The Company paid $1,750,000 by the maturity date in full
satisfaction of the agreement.
On September 15, 2013 the Company executed two line-of-credit
agreements with a financial institution for a total of $5,500,000. One agreement for $3,500,000 is a revolving line-of-credit
with interest only payable monthly and principal due at maturity at an approximate interest rate of 2.43%. The other agreement
is a $2,000,000 one year advancing equipment loan with interest only payable monthly at an approximate interest rate of 2.68%.
The equipment loan agreement can be converted to a 48 or 60 month full amortization loan at the end of one year. Both agreements
mature on September 15, 2014. Both agreements are collateralized by the Company’s bank accounts, inventory and equipment.
As of December 31, 2013, the Company drew on the equipment line of $415,605 for an equipment purchase and accrued interest of
$70,957 that is payable in 2014.
Note 7 – 401(k) Retirement Plan
The Company sponsors a 401(k) retirement
plan (Plan) covering all eligible employees as defined by the Plan. Contributions to the Plan are based upon the amount of the
employees’ deferrals, the employer’s matching formula, and any discretionary profit sharing contributions. The Company
contributed $462,149 and $464,962 in matching contributions for the years ended December 31, 2013 and 2012, respectively. In addition,
the Company made discretionary profit sharing contributions of $141,001 for the year ended December 31, 2013. No profit sharing
contributions were made for the year ended December 31, 2012.
Note 8 – Commitments
The Company rents equipment, storage,
and vehicles primarily under month-to-month operating leases. Rental and lease expenses were $465,528 and $464,566 for the years
ended December 31, 2013 and 2012, respectively.
Future anticipated rent and lease expenses
under non-cancelable operating leases are as follows:
Year ending December 31, | |
| |
| |
| |
2014 | |
$ | 224,200 | |
2015 | |
| 137,494 | |
2016 | |
| 135,916 | |
2017 | |
| 135,916 | |
| |
| | |
| |
$ | 633,526 | |
Note 9 – Concentrations of Business
and Credit Risk
Concentrations of credit and business
risk with major customers – As of and for the year ended December 31, 2013, approximately 77% of the Company’s
accounts receivable balance, and 58% of revenues, were derived from 2 customers. As of and for the year ended December 31, 2012,
approximately 66% of the Company’s accounts receivable balance, and 67% of revenues, were derived from four customers. Management
does not believe the loss of any major customer is likely. The potential loss of one or more major customer would have a significant
impact on the Company’s operations. Management believes the reported balance of accounts receivable net of allowance for
bad debts will be collected.
Concentration of credit risk on cash
deposits – The Company maintains its cash in bank deposit accounts which, at times, may exceed federally insured limits.
The Company has not experienced any losses in such accounts. The Company exceeded the federally insured limit by $3,660,663 at
December 31, 2013. Management monitors the financial condition of these financial institutions and does not believe any significant
credit risk exists at this time.
Note 10 – Members’ Capital
The Company is governed by its Second
Amended and Restated Limited Liability Company Agreement (Agreement) dated December 19, 2012 which amends and restates the Amended
and Restated Limited Liability Company Agreement dated as of May 19, 2008, and shall continue in existence until terminated by
the Management Board. As of December 31, 2013, there are four authorized classes of membership units, designated as Class A, A-1,
B and C, as more fully described below. Allocations of net income and losses are made in accordance with the Agreement, generally
in proportion of membership interests held by each member.
Distributions from the Company are made
as follows:
Distributions prior to a sale
or liquidation, as defined in the Agreement, are paid in the following order of priority:
| • | First, to all members holding
the Class A-1 units who have an Unpaid Class A-1 Distribution Preference, as defined
in the Agreement, until their Unpaid A-1 Distribution Preferences are reduced to zero. |
| • | Second, to all members holding
the Class A-1 units who have an Unreturned Class A-1 Investment, until their Unreturned
Class A-1 Investments are reduced to zero. |
| • | Third, to all members holding
the Class A units who have an Unpaid Class A Distribution Preference, until their Unpaid
Class A Distribution Preferences are reduced to zero. |
| • | Fourth, to all members holding
the Class A Units who have an Unreturned Class A Investment, until their Unreturned Class
A Investments are reduced to zero. |
• Thereafter, to members
holding Class A-1 Units and Class A membership units.
Distributions in connection with
a sale or liquidation, as defined in the Agreement, are paid in the following order of priority:
| • | First, to all members holding
the Class A-1 Units who have an Unpaid Class A-1 Distribution Preference, as defined
in the Agreement, until all Unpaid Class A-1 Distribution Preferences are reduced to
zero. |
| • | Second, to all members holding
the Class A-1 Units who have an Unreturned Class A-1 Investment, until their Unreturned
Class A-1 Investments are reduced to zero. |
| • | Third, to all members holding
the Class A Units who have an Unpaid Class A Distribution Preference, until their Unpaid
Class A Distribution Preferences are reduced to zero. |
| • | Fourth, to all members holding
the Class A Units who have an Unreturned Class A Investment, until their Unreturned Class
A Investments are reduced to zero. |
| • | Thereafter, to all members in
proportion to the number of Class A, Class B and Class C Units held by each member, provided
that any prior distributions are treated as advances against amounts otherwise due to
Class A members. |
Note 10 – Members’ Capital
(continued)
Class A-1 Units
The Company issued 1,166,113 Class A-1
units on December 19, 2012 with a capital contribution of $2,500,000 and an approximate price per unit of $2.14. In addition,
the Company offered an additional 29,153 units to another member to keep the same proportionate share of Class A ownership. The
member did accept the offer as of December 31, 2013 and made a capital contribution of $62,500 at the same price per unit of $2.14.
Under the agreement, Class A-1 members
receive a distribution preference entitling the members to an 8% annual compounded rate of return on such member’s Unreturned
Class A-1 Investment. In addition, as defined in the agreement, Unreturned Class A-1 Investment for purposes other than the calculation
of the distribution preference is equal to two times the aggregate amount of contributions by such member. Class A-1 members have
priority over all other class members.
Class A Units
The Company issued 10,250,000 Class A
units on May 19, 2008. Such amounts remain issued and outstanding as of December 31, 2013 and 2012. The Class A units were issued
on the basis of $1 per unit for a total of $10,250,000.
Under the Agreement, Class A members may
contribute up to an additional $10,250,000 to the Company. Additional units will not be issued for any such additional contributions;
however, such additional contributions will be treated as Unreturned Investment entitling the members to a Distribution Preference
and to an 8% annual compounded rate of return on such Unreturned Investment, as those terms are defined in the Agreement. The
Class A units have a third priority on all distributions, and distributions to other classes of units are only made in the event
of a sale or liquidation event.
Class B Units
On May 16, 2008, the Company issued 389,240
Class B units in exchange for consulting services. In exchange for such services, the Company paid $250,000, plus issued the 389,240
Class B units. No value was recorded at the date of grant as the value was not estimable because the units have no potential value
unless the Company is liquidated in connection with a sale.
Note 10 – Members’ Capital
(continued)
Class C Units
The Company is authorized to issue up
to 713,606 Class C units to employees. The Class C Units are subject to vesting in accordance with the agreements and are not
subject to mandatory redemption by the Company. The Class C units vest over a period of four years from the date of grant at the
rate of 25% per year. No value was recorded at the date of the original grant as the units have no potential value unless the
Company is liquidated in connection with a sale; and at the time, the likelihood of liquidation was considered remote. Effective
in 2012, the Company obtained a third party valuation of the Company’s shares in order to re-purchase shares for two former
employees. Based on the valuation obtained by the Company, the fair value of the units is estimated at $1.54 per unit. In addition,
in 2012 new agreements were made to two members resulting in compensation expense as shares become vested. As of December 31,
2013, the total compensation cost related to non-vested awards not yet recognized is $299,715 which will be recognized over a
four year vesting period. The compensation cost expensed as of December 31, 2013 was $74,929. The Company issued 64,873 units
in 2013, none of which were vested as of December 31, 2013. There was no compensation cost expensed as of December 31, 2012.
A summary of the Class C units as of December 31, 2013 and 2012, and changes during the years then ended is presented in
the table below:
| |
2013 | | |
2012 | |
| |
| | |
| |
Outstanding at beginning of year | |
| 632,515 | | |
| 502,768 | |
Issued | |
| 64,873 | | |
| 194,620 | |
Repurchased | |
| - | | |
| (16,218 | ) |
Forfeited and canceled | |
| - | | |
| (48,655 | ) |
| |
| | | |
| | |
Outstanding at end of year | |
| 697,388 | | |
| 632,515 | |
| |
| | | |
| | |
Vested at end of year | |
| 486,550 | | |
| 437,895 | |
OSO BIOPHARMACEUTICALS MANUFACTURING, LLC
BALANCE SHEETS
Unaudited
| |
June 30, | |
| |
2014 | | |
2013 | |
ASSETS | |
| | | |
| | |
| |
| | | |
| | |
CURRENT ASSETS | |
| | | |
| | |
Cash and cash equivalents | |
$ | 2,223,160 | | |
$ | 3,731,646 | |
Accounts receivable, net of allowance for bad debts
of $428,526 and $0, at 2014 and 2013, respectively | |
| 6,272,344 | | |
| 10,106,872 | |
Inventories, net | |
| 6,458,535 | | |
| 5,762,403 | |
Prepaid expenses | |
| 1,990,440 | | |
| 1,476,991 | |
Total current assets | |
| 16,944,479 | | |
| 21,077,912 | |
| |
| | | |
| | |
PROPERTY AND EQUIPMENT, NET | |
| 15,997,861 | | |
| 14,458,773 | |
| |
| | | |
| | |
Total assets | |
$ | 32,942,340 | | |
$ | 35,536,685 | |
| |
| | | |
| | |
LIABILITIES AND MEMBERS' CAPITAL | |
| | | |
| | |
| |
| | | |
| | |
CURRENT LIABILITIES | |
| | | |
| | |
Accounts payable | |
$ | 2,195,093 | | |
$ | 2,097,220 | |
Accrued liabilities | |
| 4,933,571 | | |
| 3,654,163 | |
Customer deposits | |
| 298,659 | | |
| 394,946 | |
Deferred revenues | |
| 644,382 | | |
| 2,642,007 | |
Long-term debt - current portion | |
| - | | |
| 823,404 | |
Total current liabilities | |
| 8,071,705 | | |
| 9,611,740 | |
| |
| | | |
| | |
LONG-TERM LIABILITIES | |
| | | |
| | |
Accrued liabilities | |
| 633,163 | | |
| 900,188 | |
Payable to parent company | |
| 11,375,450 | | |
| 11,465,020 | |
Total long-term liabilities | |
| 12,008,613 | | |
| 12,365,208 | |
| |
| | | |
| | |
Total liabilities | |
| 20,080,318 | | |
| 21,976,948 | |
| |
| | | |
| | |
COMMITMENTS (Note 9) | |
| | | |
| | |
| |
| | | |
| | |
MEMBERS' CAPITAL | |
| 12,862,022 | | |
| 13,559,737 | |
| |
| | | |
| | |
Total liabilities and members' capital | |
$ | 32,942,340 | | |
$ | 35,536,685 | |
OSO BIOPHARMACEUTICALS MANUFACTURING,
LLC
STATEMENTS OF OPERATIONS AND MEMBERS’
CAPITAL
Unaudited
| |
Six-Month Periods Ended June 30, | |
| |
2014 | | |
2013 | |
| |
| | |
| |
Revenues | |
$ | 24,062,935 | | |
$ | 26,633,464 | |
Cost of sales | |
| 22,824,639 | | |
| 17,611,348 | |
Gross margin | |
| 1,238,296 | | |
| 9,022,116 | |
| |
| | | |
| | |
Selling, General and Administrative Expense | |
| | | |
| | |
Salaries and benefits | |
| 1,744,970 | | |
| 1,378,088 | |
Insurance | |
| 334,327 | | |
| 244,477 | |
Property and other taxes | |
| 221,919 | | |
| 175,434 | |
Supplies | |
| 218,651 | | |
| 173,967 | |
Provision for bad debt expense | |
| 202,412 | | |
| - | |
Travel and entertainment | |
| 118,040 | | |
| 124,319 | |
Professional fees and consulting | |
| 83,186 | | |
| 237,433 | |
Other employee expenses | |
| 73,814 | | |
| 10,768 | |
Telephone expense | |
| 54,382 | | |
| 58,614 | |
Depreciation | |
| 44,376 | | |
| 43,375 | |
Rents and leases | |
| 35,156 | | |
| 39,255 | |
Advertising expense | |
| 27,862 | | |
| 61,332 | |
Other expenses | |
| 18,000 | | |
| 6,009 | |
Dues, fees and licenses | |
| 7,000 | | |
| 22,671 | |
Meetings and training | |
| 5,754 | | |
| 40,657 | |
Total operating expenses | |
| 3,189,849 | | |
| 2,616,399 | |
| |
| | | |
| | |
(LOSS) INCOME FROM OPERATIONS | |
| (1,951,553 | ) | |
| 6,405,717 | |
| |
| | | |
| | |
NON-OPERATING INCOME (EXPENSE) | |
| | | |
| | |
Interest expense | |
| - | | |
| (38,745 | ) |
Stock compensation benefit (expense) | |
| 74,929 | | |
| (24,976 | ) |
Other | |
| 18,060 | | |
| 26,836 | |
TOTAL NON-OPERATING INCOME (EXPENSE) | |
| 92,989 | | |
| (36,885 | ) |
| |
| | | |
| | |
NET (LOSS) INCOME | |
| (1,858,564 | ) | |
| 6,368,832 | |
| |
| | | |
| | |
MEMBERS' CAPITAL, beginning of period | |
| 14,720,586 | | |
| 7,190,905 | |
| |
| | | |
| | |
MEMBERS' CAPITAL, end of period | |
$ | 12,862,022 | | |
$ | 13,559,737 | |
OSO BIOPHARMACEUTICALS MANUFACTURING,
LLC
STATEMENTS OF CASH FLOWS
Unaudited
| |
Six-Month Periods Ended June 30, | |
| |
2014 | | |
2013 | |
| |
| | |
| |
CASH FLOWS FROM OPERATING ACTIVITIES | |
| | | |
| | |
Net (loss) income | |
$ | (1,858,564 | ) | |
$ | 6,368,832 | |
Adjustments to reconcile net (loss) income to net
cash (used) provided by operations | |
| | | |
| | |
Depreciation | |
| 504,191 | | |
| 419,961 | |
Provision for bad debt expense | |
| 202,412 | | |
| - | |
Provision for inventory obsolescence | |
| 1,106,137 | | |
| 597,765 | |
Changes in assets and liabilities | |
| | | |
| | |
Accounts receivable | |
| (615,237 | ) | |
| (5,910,349 | ) |
Inventories | |
| 1,302,300 | | |
| (986,133 | ) |
Prepaid expenses | |
| (358,448 | ) | |
| (851,811 | ) |
Accounts payable | |
| 83,897 | | |
| (389,026 | ) |
Accrued liabilities | |
| 1,459,760 | | |
| 711,202 | |
Deferred revenue and customer deposits | |
| (1,871,248 | ) | |
| 2,094,929 | |
| |
| | | |
| | |
Net cash (used) provided by operating activities | |
| (44,800 | ) | |
| 2,055,370 | |
| |
| | | |
| | |
CASH FLOWS FROM INVESTING ACTIVITIES | |
| | | |
| | |
Purchase of property and equipment | |
| (1,473,926 | ) | |
| (785,625 | ) |
| |
| | | |
| | |
CASH FLOWS FROM FINANCING ACTIVITIES | |
| | | |
| | |
Payments of long-term debt | |
| - | | |
| (799,125 | ) |
Payable to parent company | |
| (147,920 | ) | |
| (1,183,348 | ) |
| |
| | | |
| | |
Net cash used by financing activities | |
| (147,920 | ) | |
| (1,982,473 | ) |
| |
| | | |
| | |
Net decrease in cash and cash equivalents | |
| (1,666,646 | ) | |
| (712,728 | ) |
| |
| | | |
| | |
CASH AND CASH EQUIVALENTS, beginning of period | |
| 3,889,806 | | |
| 4,444,374 | |
| |
| | | |
| | |
CASH AND CASH EQUIVALENTS, end of period | |
$ | 2,223,160 | | |
$ | 3,731,646 | |
Note 1 – Organization and Description
of Business
OSO
Biopharmaceuticals Manufacturing, LLC (the Company) was formed under the laws of the State of Delaware on May 6, 2008.
The Company is a contract manufacturer of sterile injectable pharmaceuticals and is located in Albuquerque, New Mexico. The Company
manufactures products for pharmaceutical companies located in the United States and abroad. The manufacturing process consists
primarily of cGMP glass vial filling and lyophilization services for injectable drugs and biologics that are either approved for
commercial marketing or in clinical development. The Company is a wholly owned subsidiary of OSO Biopharm Holdings, LLC (parent
company).
On June 1, 2014, the parent company agreed
to sell the Company to ALO Acquisition LLC, a company owned by Albany Molecular Research, Inc. (a NASDAQ listed entity) for
base purchase price of $110 million, subject to adjustments as specified in the agreement. This transaction was completed
on July 1, 2014.
Note 2 – Significant Accounting
Policies
Unaudited interim financial information
- The accompanying balance sheets as of June 30, 2014 and 2013, and statements of operations and members’ capital and
cash flows for the six months ended June 30, 2014 and 2013, are unaudited. The unaudited interim financial statements have been
prepared on the same basis as the annual financial statements and, in the opinion of management, reflect all adjustments, which
include only normal recurring adjustments, necessary to present fairly the Company’s financial position as of June 30, 2014
and 2013, and results of operations and cash flows for the six months ended June 30, 2014 and 2013. The results of the six months
ended June 30, 2014 and 2013, are not necessarily indicative of the results to be expected for the fiscal year ending December
31, 2014, or any other interim period or other future year.
Management’s estimates –
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of
contingent assets and liabilities, and the reported amount of revenues and expenses. Significant estimates include the valuation
of inventory, the measurement of allowances for doubtful accounts, and the customer contracts liability. Actual results could
differ from those estimates.
Generally Accepted Accounting Principles
(GAAP) – The accompanying financial statements are prepared in accordance with U.S. GAAP.
Cash and cash equivalents –
Cash and cash equivalents consist of cash and highly liquid investments with original maturities of three months or less. Cash
balances may exceed amounts insured by the Federal Deposit Insurance Corporation at various times during the period.
Note 2 – Significant Accounting
Policies (continued)
Accounts receivable – Accounts
receivable consists primarily of amounts due from customers for the manufacture of injectable pharmaceuticals. Management records
an estimated provision for doubtful accounts to the extent it is probable an amount will not be collected.
In evaluating the collectability of accounts
receivable, the Company considers a number of factors, including the age of the accounts and evaluation of each account based
on a customer’s payment history and other information that is made available to management.
Inventories – Finished
goods, work in process and raw materials are carried at standard cost (which approximates actual cost), principally on a first-in,
first-out basis, but not in excess of market. Inventory costs include the direct and indirect costs of manufacturing. General
and administrative costs are included as period charges, except for the portion of such expenses that may be clearly related to
manufacturing and thus constitute a part of inventory costs. Factory supplies are also expensed. The Company reviews the carrying
value of inventories on a quarterly basis and makes any lower of cost or market adjustments at that time. The Company reviews
and sets standard costs on an annual basis. Management’s estimate of the inventory reserve is based on the specific identification
of lots that are expected to be scrapped.
Property and equipment –
Property and equipment are recorded at cost, net of accumulated depreciation. Depreciation is computed using the straight-line
method over the estimated useful lives of the assets. The range of estimated useful lives is as follows:
Building and improvements | |
39 years |
| |
|
Machinery and equipment | |
7 - 10 years |
| |
|
Furniture and fixtures | |
7 years |
| |
|
Vehicles | |
5 years |
| |
|
Computer equipment and software | |
3 - 5 years |
Depreciation of property and equipment
totaled $504,191 and $419,961 for the six-month periods ended June 30, 2014 and 2013, respectively. Of total depreciation, $459,815
and $376,586 were allocated to cost of sales for the six-month periods ended June 30, 2014 and 2013, respectively. Maintenance
and repairs are charged to operations when incurred. Betterments and renewals are capitalized. When property and equipment are
sold or otherwise disposed of, the asset account and related accumulated depreciation account are relieved, and any gain or loss
is included in operations.
Income taxes – The Company
elected LLC status effective at its inception. The taxable income and expenses of the Company s flow through to the members and
are reportable by the individual members. Accordingly, no provision for income taxes is recorded in the accompanying financial
statements.
Note 2 – Significant Accounting
Policies (continued)
Accounting Standards on Income Taxes addresses
the determination of how tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements.
In accordance with the accounting standards, the Company must recognize the tax benefit from an uncertain tax position only if
it is more likely than not that the tax position will be sustained on examination by taxing authorities, based on the technical
merits of the position. The Company’s assessments of its tax positions did not result in changes that had a material impact
on results of operations, financial condition or liquidity. The Company does not have any entity
level uncertain tax positions at June 30, 2014 and 2013. The Company files income tax returns in the U.S. federal jurisdiction
and various state jurisdictions. Generally, the Company is subject to examination by U.S. federal (or state and local) income
tax authorities for three years from the filing of a tax return. The Company is no longer subject to income tax examinations by
tax authorities for fiscal years before December 31, 2010 for its federal and state filings.
Revenue
– Revenue is recognized either upon shipment or completion of the manufacturing
process, in accordance with the terms of the contract, which specifies when delivery is to take place and when the transfer of
title occurs. Revenue is recognized upon completion of the manufacturing process when the product is physically segregated in
inventory and is complete and ready for shipment, there are no substantial additional performance requirements of the Company,
and there are no uncertainties about the customer’s acceptance of the product. Deferred revenue is recorded when products
are nearing completion of the manufacturing process but the Company has yet to meet the revenue recognition requirements.
Non-product revenue includes service fees
and the revenue related to these agreements is recognized when service obligations of performance have been completed.
Cost of sales – Costs of
sales includes the cost of inventory (as adjusted for charges for obsolescence), production, freight, discounts, and shrinkage.
Selling, general, and administrative
expenses – Selling, general and administrative expenses consist of compensation and employee benefit expenses, other
than those directly or indirectly related to production activities. Selling, general and administrative expenses also include
such costs as advertising, office supplies, freight, communication costs, travel, and purchased services.
Planned major maintenance activities
– The Company uses the direct expensing method to account for planned major maintenance activities. With the exception
of media validation runs, which are amortized over a 12 month period.
Shipping and handling – Shipping
and handling costs are included in cost of sales. Shipping and handling revenue is immaterial and is presented within revenues.
Advertising expense – The
cost of advertising is expensed when incurred or when the first advertising takes place. The Company does not participate in direct-response
advertising that requires the capitalization and amortization of related costs.
Note 2 – Significant Accounting
Policies (continued)
Subsequent events – Subsequent
events are events or transactions that occur after the balance sheet date but before the financial statements are issued or are
available to be issued. The Company recognizes in the financial statements the effects of all subsequent events that provide additional
evidence about conditions that existed at the date of the balance sheet, including the estimates inherent in the process of preparing
the financial statements. The Company’s financial statements do not recognize subsequent events that provide evidence about
conditions that did not exist at the date of the balance sheet but arose after the balance sheet date and before financial statements
are available to be issued.
The Company has evaluated subsequent events
through September 12, 2014 which is the date the financial statements were available to be issued.
Note 3 – Inventories
Inventories
consisted of the following at June 30:
| |
2014 | | |
2013 | |
| |
| | |
| |
Finished goods | |
$ | 3,032,639 | | |
$ | 1,681,124 | |
Raw materials | |
| 3,810,776 | | |
| 3,675,565 | |
Work-in-process | |
| 3,321,132 | | |
| 3,000,103 | |
| |
| 10,164,547 | | |
| 8,356,792 | |
Inventory reserve | |
| (3,706,012 | ) | |
| (2,594,389 | ) |
| |
| | | |
| | |
| |
$ | 6,458,535 | | |
$ | 5,762,403 | |
Note 4 – Manufacturing Operations
Disruption
During the second quarter of 2014, the Company had an unplanned
shut down period due to equipment malfunctions on the main manufacturing lines. The underlying issues have been remedied and the
manufacturing lines are now fully operational. The Company recorded approximately $1.2 million in unabsorbed labor and overhead
cost, $231,000 material and validation costs and $967,000 of scrap batches for one customer related to these events.
Note 5 – Property and Equipment
Property and equipment consisted of the
following at June 30:
| |
2014 | | |
2013 | |
| |
| | |
| |
Building and building improvements | |
$ | 2,770,437 | | |
$ | 2,466,700 | |
Machinery and equipment | |
| 9,123,561 | | |
| 8,355,151 | |
Computer equipment and software | |
| 2,625,995 | | |
| 2,397,688 | |
Automobiles | |
| 8,608 | | |
| 8,608 | |
Depreciable property and equipment | |
| 14,528,601 | | |
| 13,228,147 | |
Accumulated depreciation | |
| (4,109,199 | ) | |
| (3,178,178 | ) |
Depreciable property and equipment, net | |
| 10,419,402 | | |
| 10,049,969 | |
Construction in progress | |
| 5,578,459 | | |
| 4,408,804 | |
| |
| | | |
| | |
Total | |
$ | 15,997,861 | | |
$ | 14,458,773 | |
Note 6 – Long-term Debt and Line
of Credit
On July 2, 2010, the Company executed
a financing agreement with Robert Bosch Packaging Technology Corporation to purchase manufacturing equipment. The total purchase
price of the equipment was $6,686,275. During 2010 and 2009, the Company made cash payments towards the purchase price of $1,953,137.
The remaining balance was financed through issuance of a note payable with a balance of $4,733,138. The agreement has a maturity
date of December 31, 2013 and bears interest of 6% per annum, and requires monthly principal and interest payments. The outstanding
balance is $823,404 as of June 30, 2013. The Company has secured the note with its home office building.
On September 15, 2013, the Company executed two line-of-credit
agreements with a financial institution for a total of $5,500,000. One agreement for $3,500,000 is a revolving line-of-credit
with interest only payable monthly and principal due at maturity at an approximate interest rate of 2.43%. The other agreement
is a $2,000,000 one year advancing equipment loan with interest only payable monthly at an approximate interest rate of 2.68%.
The equipment loan agreement can be converted to a 48 or 60 month full amortization loan at the end of one year. Both agreements
mature on September 15, 2014. Both agreements are collateralized by the Company’s bank accounts, inventory and equipment.
There are no outstanding balances at June 30, 2014.
Note 7 – 401(k) Retirement Plan
The Company sponsors a 401(k) retirement
plan (Plan) covering all eligible employees as defined by the Plan. Contributions to the Plan are based upon the amount of the
employees’ deferrals, the employer’s matching formula, and any discretionary profit sharing contributions. The Company
contributed $234,474 and $229,396 in matching contributions for the six-month periods ended June 30, 2014 and 2013, respectively.
No profit sharing contributions were made for the six-month periods ended June 30, 2014 and 2013.
Note 8 – Payable to parent company
The payable to the parent company represents
advances for the Company’s working capital requirements.
Note 9 – Commitments
The Company rents equipment, storage,
and vehicles primarily under month-to-month operating leases. Rental and lease expenses were $61,855 and $63,449 for the six-month
periods ended June 30, 2014 and 2013, respectively.
Future anticipated rent and lease expenses
under non-cancelable operating leases are as follows:
Period ending December 31, | |
| |
| |
| |
2014 | |
$ | 112,100 | |
2015 | |
| 137,494 | |
2016 | |
| 135,916 | |
2017 | |
| 135,916 | |
2018 | |
| 135,916 | |
| |
| | |
| |
$ | 657,342 | |
| |
| | |
Note 10 – Concentrations of Business
and Credit Risk
Concentrations of credit and business
risk with major customers – As of and for the six-month period ended June 30, 2014, approximately 68% of the Company’s
accounts receivable balance, and 77% of revenues, were derived from 3 customers. As of and for the six-month period ended June
30, 2013, approximately 64% of the Company’s accounts receivable balance, and 70% of revenues, were derived from 3 customers.
Management does not believe the loss of any major customer is likely. The potential loss of one or more major customer would have
a significant impact on the Company’s operations. Management believes the reported balance of accounts receivable net of
allowance for bad debts will be collected.
Concentration of credit risk on cash
deposits – The Company maintains its cash in bank deposit accounts which, at times, may exceed federally insured limits.
The Company has not experienced any losses in such accounts. The Company exceeded the federally insured limit by $1,973,002 and
$3,481,646 at June 30, 2014 and 2013, respectively. Management monitors the financial condition of these financial institutions
and does not believe any significant credit risk exists at this time.
Exhibit 99.2
UNAUDITED
PROFORMA COMBINED CONDENSED FINANCIAL STATEMENTS
On
July 1, 2014, Albany Molecular Research, Inc., a Delaware corporation
(“AMRI”, or the “Company”), ALO Acquisition LLC, a Delaware limited liability company and wholly-owned
subsidiary of AMRI (“Acquisition Sub”), Oso BioPharm Holdings, LLC (the “Seller”) and Oso BioPharmaceuticals
Manufacturing, LLC, a Delaware limited liability company and wholly-owned subsidiary of the Seller (“OsoBio”), completed
the Closing of the purchase of OsoBio by the Acquisition Sub (the “Transaction”) pursuant to the Membership Interest
Purchase Agreement (the “Purchase Agreement”), which was previously announced in a separate 8-K filed on June 2, 2014.
AMRI announced that upon completion of the Transaction, OsoBio would become a wholly-owned subsidiary of AMRI through the Acquisition
Sub.
On April
4, 2014 (the “Closing Date”), the Company completed a merger (the “Merger”) pursuant to an Agreement and
Plan of Merger, dated March 22, 2014 (the “Merger Agreement”), by and among the Company, AlCu Acquisition Corp., a
Delaware corporation and wholly-owned subsidiary of the Company (“Merger Sub”), Cedarburg Pharmaceuticals, Inc., a
Delaware corporation (“Cedarburg”), and James Gale, solely in his capacity as initial Holder Representative (as defined
in the Merger Agreement). The Company announced that upon consummation of the Merger, Merger Sub merged with and into Cedarburg,
with Cedarburg continuing as the surviving corporation and a wholly-owned subsidiary of the Company.
The following
unaudited pro forma combined condensed balance sheet as of June 30, 2014 and the unaudited combined condensed statements of operations
for the six months ended June 30, 2014 and the year ended December 31, 2013 are based on the separate historical financial statements
of the Company, OsoBio, and Cedarburg after giving effect to the acquisitions and the assumptions and preliminary pro forma adjustments
described in the accompanying notes to the unaudited pro forma combined condensed financial statements. The unaudited pro forma
combined condensed balance sheet presents the Company’s historical financial position combined with OsoBio as if the OsoBio
acquisition had occurred on June 30, 2014. The unaudited pro forma combined condensed statements of operations are presented as
if the acquisitions and financing required to fund the acquisitions had occurred on January 1, 2013 and combines the historical
results of the Company, OsoBio, and Cedarburg for the six months ended June 30, 2014 and for year ended December 31, 2013. The
historical financial results have been adjusted to give effect to pro forma events that are directly attributable to the acquisitions,
factually supportable, and with respect to the statement of operations, expected to have a continuing impact on the combined results
of the companies.
The unaudited
pro forma condensed combined financial statements included herein use the acquisition method of accounting, with the Company treated
as the acquirer. The purchase price for the OsoBio acquisition was approximately $109.2 million, and the purchase price for the
Cedarburg acquisition was approximately $39.0 million. The pro forma adjustments are based on currently available information and
upon assumptions that the Company believes are reasonable under the circumstances. A final determination of the allocation of the
purchase prices to the assets acquired and the liabilities assumed has not been made, therefore, the allocation reflected in the
unaudited pro forma condensed combined financial statements should be considered preliminary and is subject to the completion of
a more comprehensive valuation of the assets acquired and liabilities assumed. The final allocation of purchase prices could differ
from the pro forma allocation included herein. Amounts preliminarily allocated to intangible assets and goodwill may change significantly,
and amortization methods and useful lives may differ from the assumptions that have been used in this unaudited pro forma combined
condensed financial information, any of which could result in a material change in depreciation and amortization expense.
The unaudited
pro forma combined condensed statements of operations are provided for illustrative purposes only. The unaudited pro forma combined
condensed statements of operations are not necessarily, and should not be assumed to be, an indication of the results that would
have been achieved had the acquisitions been completed as of the dates indicated or that may be achieved in the future and should
not be taken as representative of future consolidated results of operations or financial condition of the Company. Furthermore,
no effect has been given in the unaudited pro forma combined condensed statements of operations for synergistic benefits and potential
cost savings, if any, that may be realized through the combination of the companies or the costs that may be incurred in integrating
their operations.
The unaudited
pro forma combined condensed statements of operations should be read together with the accompanying notes to the unaudited pro
forma combined condensed statements of operations, the historical consolidated financial statements of the Company and accompanying
notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2013, the historical consolidated
financial statements of the Company and accompanying notes included in the Company’s Quarterly Report on Form 10-Q for
the period ended June 30, 2014 and the historical financial statements of OsoBio and accompanying notes for the years ended December
31, 2013 and 2012, included in Exhibit 99.1 to this Current Report on Form 8-K/A.
Unaudited Pro
Forma Condensed Combined Balance Sheet
June 30, 2014
(dollars in
thousands)
| |
AMRI | | |
OsoBio Manufacturing | | |
Pro Forma Adjustments | | |
Pro Forma Combined | |
Assets | |
| | | |
| | | |
| | | |
| | |
Current assets: | |
| | | |
| | | |
| | | |
| | |
Cash and cash equivalents | |
$ | 130,417 | | |
$ | 2,223 | | |
$ | (109,194 | )(a) | |
$ | 23,446 | |
Restricted cash | |
| 6,467 | | |
| — | | |
| — | | |
| 6,467 | |
Accounts receivable, net | |
| 58,480 | | |
| 6,272 | | |
| — | | |
| 64,752 | |
Royalty income receivable | |
| 6,541 | | |
| — | | |
| — | | |
| 6,541 | |
Inventory | |
| 44,277 | | |
| 6,459 | | |
| — | | |
| 50,736 | |
Prepaid expenses and other current assets | |
| 10,325 | | |
| 1,990 | | |
| — | | |
| 12,315 | |
Deferred income taxes | |
| 4,311 | | |
| — | | |
| — | | |
| 4,311 | |
Total current assets | |
| 260,818 | | |
| 16,944 | | |
| (109,194 | ) | |
| 168,568 | |
| |
| | | |
| | | |
| | | |
| | |
Property and equipment, net | |
| 131,619 | | |
| 15,998 | | |
| 18,500 | (b) | |
| 166,117 | |
Notes hedges | |
| 87,964 | | |
| — | | |
| — | | |
| 87,964 | |
Goodwill | |
| 16,866 | | |
| — | | |
| 49,957 | (c) | |
| 66,823 | |
Intangible assets and patents, net | |
| 15,348 | | |
| — | | |
| 16,500 | (d) | |
| 31,848 | |
Deferred income taxes | |
| 1,876 | | |
| — | | |
| — | | |
| 1,876 | |
Other assets | |
| 5,659 | | |
| — | | |
| — | | |
| 5,659 | |
Total assets | |
$ | 520,150 | | |
$ | 32,942 | | |
$ | (24,237 | ) | |
$ | 528,855 | |
Liabilities and Stockholders’ Equity | |
| | | |
| | | |
| | | |
| | |
Current liabilities: | |
| | | |
| | | |
| | | |
| | |
Accounts payable and accrued expenses | |
$ | 32,685 | | |
$ | 7,428 | | |
| — | | |
$ | 40,113 | |
Deferred revenue and licensing fees | |
| 9,038 | | |
| 644 | | |
| — | | |
| 9,682 | |
Arbitration reserve | |
| 669 | | |
| — | | |
| — | | |
| 669 | |
Income taxes payable | |
| 6,651 | | |
| — | | |
| — | | |
| 6,651 | |
Accrued pension benefits | |
| 681 | | |
| — | | |
| — | | |
| 681 | |
Current installments of long-term debt | |
| 406 | | |
| — | | |
| — | | |
| 406 | |
Total current liabilities | |
| 50,130 | | |
| 8,072 | | |
| — | | |
| 58,202 | |
| |
| | | |
| | | |
| | | |
| | |
Long-term liabilities: | |
| | | |
| | | |
| | | |
| | |
Long-term debt, excluding current installments | |
| 122,154 | | |
| — | | |
| — | | |
| 122,154 | |
Notes conversion derivative | |
| 87,964 | | |
| — | | |
| — | | |
| 87,964 | |
Deferred licensing fees | |
| 975 | | |
| — | | |
| — | | |
| 975 | |
Pension and postretirement benefits | |
| 4,474 | | |
| — | | |
| — | | |
| 4,474 | |
Payable to parent company | |
| — | | |
| 11,375 | | |
| (11,375 | )(e) | |
| — | |
Deferred income taxes | |
| 71 | | |
| — | | |
| — | | |
| 71 | |
Other long-term liabilities | |
| 1,071 | | |
| 633 | | |
| — | | |
| 1,704 | |
Total liabilities | |
| 266,839 | | |
| 20,080 | | |
| (11,375 | ) | |
| 275,544 | |
| |
| | | |
| | | |
| | | |
| | |
Stockholders’ equity: | |
| | | |
| | | |
| | | |
| | |
Preferred stock | |
| — | | |
| — | | |
| — | | |
| — | |
Common stock | |
| 379 | | |
| — | | |
| — | | |
| 379 | |
Additional paid-in capital | |
| 240,355 | | |
| — | | |
| — | | |
| 240,355 | |
Retained earnings | |
| 90,134 | | |
| 12,862 | | |
| (12,862 | )(f) | |
| 90,134 | |
Accumulated other comprehensive loss, net | |
| (10,083 | ) | |
| — | | |
| — | | |
| (10,083 | ) |
| |
| 320,785 | | |
| 12,862 | | |
| (12,862 | ) | |
| 320,785 | |
Less, treasury shares at cost | |
| (67,474 | ) | |
| — | | |
| — | | |
| (67,474 | ) |
Total stockholders’ equity | |
| 253,311 | | |
| 12,862 | | |
| (12,862 | ) | |
| 253,311 | |
Total liabilities and stockholders’ equity | |
$ | 520,150 | | |
$ | 32,942 | | |
$ | (24,237 | ) | |
$ | 528,855 | |
Unaudited Pro
Forma Condensed Combined Statement of Operations
For the Six
Months Ended June 30, 2014
(dollars
in thousands)
| |
AMRI | | |
Cedarburg (g) | | |
OsoBio Manufacturing | | |
Pro Forma Adjustments | | |
Pro Forma Combined | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Contract revenue | |
$ | 112,512 | | |
$ | 1,790 | | |
$ | 24,063 | | |
$ | - | | |
$ | 138,365 | |
Recurring royalties | |
| 14,988 | | |
| - | | |
| - | | |
| - | | |
| 14,988 | |
Total revenue | |
| 127,500 | | |
| 1,790 | | |
| 24,063 | | |
| - | | |
| 153,353 | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Cost of contract revenue | |
| 86,648 | | |
| 2,511 | | |
| 22,825 | | |
| 567 | (h) | |
| 112,551 | |
Technology incentive award | |
| 1,017 | | |
| - | | |
| - | | |
| - | | |
| 1,017 | |
Research and development | |
| 207 | | |
| - | | |
| - | | |
| - | | |
| 207 | |
Selling, general and administrative | |
| 23,376 | | |
| 2,453 | | |
| 3,190 | | |
| (2,504 | )(i)(k) | |
| 26,515 | |
Postretirement benefit plan settlement gain | |
| (1,285 | ) | |
| - | | |
| - | | |
| - | | |
| (1,285 | ) |
Restructuring charges | |
| 1,272 | | |
| - | | |
| - | | |
| - | | |
| 1,272 | |
Impairment charges | |
| 3,718 | | |
| | | |
| | | |
| | | |
| 3,718 | |
Total operating expenses | |
| 114,953 | | |
| 4,964 | | |
| 26,015 | | |
| (1,937 | ) | |
| 143,995 | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Income (loss) from operations | |
| 12,547 | | |
| (3,174 | ) | |
| (1,952 | ) | |
| 1,937 | | |
| 9,358 | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Interest expense, net | |
| (5,681 | ) | |
| (39 | ) | |
| - | | |
| 43 | (l) | |
| (5,677 | ) |
Other (expense) income, net | |
| (232 | ) | |
| (13 | ) | |
| 93 | | |
| - | | |
| (152 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Income (loss) before income tax expense | |
| 6,634 | | |
| (3,226 | ) | |
| (1,859 | ) | |
| 1,980 | | |
| 3,529 | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Income tax (benefit) expense | |
| (590 | ) | |
| (1,129 | ) | |
| - | | |
| 42 | (n) | |
| (1,677 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Income (loss) from continuing operations | |
| 7,224 | | |
| (2,097 | ) | |
| (1,859 | ) | |
| 1,938 | | |
| 5,206 | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Loss from discontinued operations, net of tax | |
| - | | |
| (112 | ) | |
| - | | |
| - | | |
| (112 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Net income (loss) | |
$ | 7,224 | | |
$ | (2,209 | ) | |
$ | (1,859 | ) | |
$ | 1,938 | | |
$ | 5,094 | |
Unaudited Pro
Forma Condensed Combined Statement of Operations
For the Year
Ended December 31, 2013
(dollars
in thousands)
| |
AMRI | | |
Cedarburg | | |
OsoBio Holdings | | |
Pro Forma Adjustments | | |
Pro Forma Combined | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Contract revenue | |
$ | 210,001 | | |
$ | 16,227 | | |
$ | 47,777 | | |
$ | - | | |
$ | 274,005 | |
Recurring royalties | |
| 36,574 | | |
| - | | |
| - | | |
| - | | |
| 36,574 | |
Total revenue | |
| 246,575 | | |
| 16,227 | | |
| 47,777 | | |
| - | | |
| 310,579 | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Cost of contract revenue | |
| 171,923 | | |
| 9,815 | | |
| 34,786 | | |
| 1,342 | (h) | |
| 217,866 | |
Technology incentive award | |
| 2,767 | | |
| - | | |
| - | | |
| - | | |
| 2,767 | |
Research and development | |
| 414 | | |
| - | | |
| - | | |
| - | | |
| 414 | |
Selling, general and administrative | |
| 42,256 | | |
| 2,289 | | |
| 5,356 | | |
| 2,557 | (j)(k)(n) | |
| 52,458 | |
Restructuring charges | |
| 1,857 | | |
| - | | |
| - | | |
| - | | |
| 1,857 | |
Impairment charges | |
| 7,183 | | |
| | | |
| | | |
| | | |
| 7,183 | |
Total operating expenses | |
| 226,400 | | |
| 12,104 | | |
| 40,142 | | |
| 3,899 | | |
| 282,545 | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Income (loss) from operations | |
| 20,175 | | |
| 4,123 | | |
| 7,635 | | |
| (3,899 | ) | |
| 28,034 | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Interest expense, net | |
| (1,244 | ) | |
| (145 | ) | |
| (73 | ) | |
| (9,954 | )(l)(m)(n) | |
| (11,416 | ) |
Other income (expense), net | |
| 772 | | |
| 35 | | |
| (29 | ) | |
| - | | |
| 778 | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Income (loss) before income tax expense | |
| 19,703 | | |
| 4,013 | | |
| 7,533 | | |
| (13,853 | ) | |
| 17,396 | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Income tax expense (benefit) | |
| 7,023 | | |
| 1,192 | | |
| - | | |
| (2,212 | )(o) | |
| 6,003 | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Income (loss) from continuing operations | |
| 12,680 | | |
| 2,821 | | |
| 7,533 | | |
| (11,641 | ) | |
| 11,393 | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Loss from discontinued operations, net of tax | |
| - | | |
| (2,683 | ) | |
| - | | |
| - | | |
| (2,683 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Net income (loss) | |
$ | 12,680 | | |
$ | 138 | | |
$ | 7,533 | | |
$ | (11,641 | ) | |
$ | 8,710 | |
Notes
to Unaudited Pro Forma Condensed Combined Financial Statements
| 1. | Description of Transactions and Basis of Presentation |
On
July 1, 2014, the Company completed the purchase of OsoBio Pharmaceuticals Manufacturing LLC (OsoBio), a contract manufacturer
of highly complex injectable drug products located in Albuquerque, NM. The preliminary estimated aggregate purchase price is $109,194.
For
the purposes of these pro forma financial statements, the estimated aggregate purchase price has been preliminarily allocated based
on an estimate of the fair value of assets and liabilities acquired as of the acquisition date. The allocation of the estimated
acquisition consideration for OsoBio is based on estimates, assumptions, valuations and other studies which have not yet been finalized
in order to make a definitive allocation. The final amounts allocated to assets acquired and liabilities assumed could differ materially
from the amounts presented in the unaudited pro forma condensed consolidated combined financial statements.
The following table summarizes the allocation of the preliminary
estimated aggregate purchase price to the estimated fair value of the net assets acquired:
Assets Acquired | |
| | |
Cash | |
$ | 2,223 | |
Accounts receivable | |
| 6,272 | |
Inventory | |
| 6,459 | |
Prepaid expenses and other current assets | |
| 1,990 | |
Property and equipment | |
| 34,498 | |
Goodwill | |
| 49,957 | |
Intangible assets | |
| 16,500 | |
Total assets acquired | |
$ | 117,899 | |
| |
| | |
Liabilities Assumed | |
| | |
Accounts payable and accrued expenses | |
$ | 7,428 | |
Deferred revenue | |
| 644 | |
Other long-term liabilities | |
| 633 | |
Total liabilities assumed | |
| 8,705 | |
Net assets acquired | |
$ | 109,194 | |
On
April 4, 2014, the Company completed the purchase of all of the outstanding shares of Cedarburg Pharmaceuticals, Inc. (Cedarburg),
a contract developer and manufacturer of technically complex active pharmaceutical ingredients (“API’s”) for
both generic and branded customers, located in Grafton, WI and Denver, CO. The preliminary estimated aggregate purchase price is
$38,951.
| 2. | Unaudited Pro Forma Condensed Combined Financial Statement
Adjustments |
The
pro forma adjustments are preliminary, based on estimates, and are subject to change as more information becomes available and
after final analyses of the fair values of both tangible and intangible assets acquired and liabilities assumed are completed.
Accordingly, the final fair value adjustments may be materially different from those presented herein.
There
were no intercompany balances or transactions between the Company and OsoBio as of the dates for the periods of these pro forma
condensed combined financial statements. The Company has not identified any pre-acquisition contingencies where the related asset,
liability or impairment is probable and the amount of the asset, liability or impairment can be reasonably estimated. Prior to
the end of the purchase price allocation period, if information becomes available which would indicate it is probable that such
events have occurred and the amounts can be reasonably estimated, such items will be included in the purchase price allocation.
The
pro forma adjustments included in the unaudited pro forma condensed combined financial statements are as follows:
Unaudited
Pro Forma Condensed Combined Balance Sheet
| (a) | Represents the preliminary cash purchase price in connection with the OsoBio acquisition. |
| (b) | Represents acquisition accounting adjustment for the preliminary estimated fair value of acquired
property and equipment. |
| (c) | Represents the preliminary estimated goodwill associated with the OsoBio acquisition. |
| (d) | Represents acquisition accounting adjustment for the preliminary estimated fair value of acquired
intangible assets. |
| (e) | Represents the outstanding OsoBio Manufacturing intercompany debt owed to OsoBio Holdings that
was forgiven by OsoBio Holdings at closing. |
| (f) | Retained earnings balance of OsoBio that is eliminated in purchase accounting. |
Unaudited
Pro Forma Condensed Combined Statements of Operations
| (g) | Cedarburg results included in the condensed combined statement of operations for the six months
ended June 30, 2014 represent the financial results of Cedarburg for the period January 1, 2014 through April 4, 2014 prior to
the acquisition of Cedarburg by the Company. The financial results for Cedarburg for the period April 4, 2014 through June 30,
2014 subsequent to the acquisition are included in AMRI’s financial results in the condensed combined statement of operations
for the six months ended June 30, 2014. |
| (h) | Represents depreciation expense for the three months ended March 31, 2014 and the year ended December
31, 2013 of $104 and $412, respectively, related to the revaluation of acquired property and equipment at Cedarburg, as well as
depreciation expense for the six months ended June 30, 2014 and the year ended December 31, 2013 of $463 and $925, respectively,
related to the revaluation of acquired property and equipment at OsoBio. |
| (i) | To reduce acquisition-related costs of $1,652 and $1,548, respectively, that are included in the
historical financial results of the Company and Cedarburg for the six months ended June 30, 2014 that would have been incurred
in the year ended December 31, 2012 assuming a January 1, 2013 acquisition date. |
| (j) | To add acquisition-related costs of $514 and $310, respectively, that are included in the historical
financial results of the Company and Cedarburg for the six months ended June 30, 2014 that would have been incurred in the year
ended December 31, 2013 assuming a January 1, 2013 acquisition date. |
| (k) | Represents amortization expense for the three months ended
March 31, 2014 and the year ended December 31, 2013 of $171 and $684, respectively, related to acquired intangible assets at Cedarburg,
as well as amortization expense for the six months ended June 30, 2014 and the year ended December 31, 2013 of $525 and $1,050,
respectively, related to acquired intangible assets at OsoBio. |
| (l) | To eliminate interest expense that is included in the historical
financial results of Cedarburg for the six months ended June 30, 2014 and the year ended December 31, 2013 of $43 and $99, respectively,
due to the payment of outstanding debt balances by the Company at the time of acquisition. |
| (m) | The Company funded the acquisitions of Cedarburg in April
2014 and OsoBio in July 2014 utilizing the proceeds from a private offering of $150,000 aggregate principal amount of 2.25% Cash
Convertible Senior Notes (the “Notes”) that was completed in December 2013. The Company did not have sufficient cash
on hand to complete the acquisitions of Cedarburg and OsoBio as of January 1, 2013. For the purposes of presenting the pro forma
condensed combined statement of operations for the year ended December 31, 2013, the Company has assumed that the Notes were issued
on January 1, 2013 to fund the acquisitions of Cedarburg and OsoBio as of that date. The pro forma condensed combined statement
of operations for the year ended December 31, 2013 reflects the recognition of interest expense that would have been incurred on
the Notes had they been issued on January 1, 2013. The Company has recorded $10,074 of pro forma interest expense on the Notes
for the purposes of presenting the pro forma condensed combined statement of operations for the year ended December 31, 2013. |
| (n) | To eliminate selling, general and administrative expense
of $1 and interest expense of $21 included in consolidated statement of operations of OsoBio Holdings, LLC and Subsidiaries for
the year ended December 31, 2013 that were not related to the OsoBio Manufacturing business acquired by the Company. |
| (o) | To record tax effects at the applicable statutory rates associated
with the pro forma adjustments recorded in the combined condensed statements of operations, as well as to record the tax effects
of the pre-tax (loss) income of OsoBio included in the combined condensed statements of operations at the applicable statutory
rates. |
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