Use these links to rapidly review the documentALBANY MOLECULAR RESEARCH, INC. INDEX TO ANNUAL REPORT ON FORM 10-K TABLE OF CONTENTS 2 ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.



UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

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FORM 10-K

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|(Mark One)                                                       |                                                                                         
|---------------------------------------------------------------- | ----------------------------------------------------------------------------------------
|ý                                                                | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934    
|For the fiscal year ended December 31, 2007                     
|or                                                              
|o                                                                | 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

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Albany Molecular Research, Inc.(Exact name of registrant as specified in its charter)

|Delaware(State or Other Jurisdiction of
Incorporation or Organization)                        |  | 14-1742717(IRS Employer
Identification No.)
|--------------------------------------------------------------------------------------------- |  | -------------------------------------------
|21 Corporate Circle, P.O. Box 15098, Albany, New York(Address of principal executive offices) |  | 12212-5098(zip code)                       
|(518) 464-0279(Registrant's telephone number, including area code)                           

Securities registered pursuant to Section 12(b) of the Act:

Title of Class

Name of each exchange on which registeredCommon Stock, par value $.01 per share
Preferred Stock Purchase Rights

The NASDAQ Stock Market LLC


Securities
registered pursuant to section 12(g) of the Act:

None(Title of Each Class)

Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes o    No ý

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the
Act. Yes o    No ý

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 ý    No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K.    o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting
company. See definitions of "accelerated filer", large accelerated filer" and "small reporting company" in 12b-2 of the Exchange Act

|Large accelerated filer o |  | Accelerated filer ý |  | Non-accelerated filer o (Do not check if a smaller reporting company) |  | Smaller reporting company o
|------------------------- |  | ------------------- |  | --------------------------------------------------------------------- |  | ---------------------------

Indicate
by checkmark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Act). Yes o    No ý

The aggregate market value of the Registrant's Common Stock held by non-affiliates of the Registrant on June 30, 2007 was approximately
$335 million based upon the closing price per share of the Registrant's Common Stock as reported on the Nasdaq National Market on June 30, 2007. Shares of Common Stock held by each
officer and director and by each person who owns 10% or more of the outstanding Common Stock have been excluded in that such persons may be deemed to be affiliates. This determination of affiliate
status is not necessarily a conclusive determination for other purposes. As of February 29, 2008, there were 32,616,239 outstanding shares of the Registrant's Common Stock, excluding treasury
shares of 2,469,562.

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DOCUMENTS INCORPORATED BY REFERENCE

The information required pursuant to Part III of this report is incorporated by reference from the Company's definitive proxy statement, relating to the
annual meeting of stockholders to be held on June 4, 2008, pursuant to Regulation 14A to be filed with the Securities and Exchange Commission.



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ALBANY MOLECULAR RESEARCH, INC.  INDEX TO  ANNUAL REPORT ON FORM 10-K



|                                                     |  |                                                                                                               |  | Page No.
|---------------------------------------------------- |  | ------------------------------------------------------------------------------------------------------------- |  | --------
|                                                     |  | Part I.                                                                                                       |  |         
|Cautionary Note Regarding Forward-Looking Statements |  | 3                                                                                                            
|Item 1.                                              |  | Business                                                                                                      |  | 5       
|Item 1A.                                             |  | Risk Factors                                                                                                  |  | 18      
|Item 1B.                                             |  | Unresolved Staff Comments                                                                                     |  | 26      
|Item 2.                                              |  | Properties                                                                                                    |  | 26      
|Item 3.                                              |  | Legal Proceedings                                                                                             |  | 27      
|Item 4.                                              |  | Submission of Matters to a Vote of Security Holders                                                           |  | 28      
|                                                     |  | Part II.                                                                                                      |  |         
|Item 5.                                              |  | Market for Registrant's Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities |  | 29      
|Item 6.                                              |  | Selected Financial Data                                                                                       |  | 32      
|Item 7.                                              |  | Management's Discussion and Analysis of Financial Condition and Results of Operations                         |  | 33      
|Item 7A.                                             |  | Quantitative and Qualitative Disclosures about Market Risk                                                    |  | 51      
|Item 8.                                              |  | Financial Statements and Supplementary Data                                                                   |  | 52      
|Item 9.                                              |  | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure                          |  | 52      
|Item 9A.                                             |  | Controls and Procedures                                                                                       |  | 52      
|Item 9B.                                             |  | Other Information                                                                                             |  | 53      
|                                                     |  | Part III.                                                                                                     |  |         
|Item 10.                                             |  | Directors, Executive Officers and Corporate Governance of the Registrant                                      |  | 53      
|Item 11.                                             |  | Executive Compensation                                                                                        |  | 53      
|Item 12.                                             |  | Security Ownership of Certain Beneficial Owners and Management                                                |  | 53      
|Item 13.                                             |  | Certain Relationships, Related Transactions and Director Independence                                         |  | 53      
|Item 14.                                             |  | Principal Accountant Fees and Services                                                                        |  | 54      
|                                                     |  | Part IV.                                                                                                      |  |         
|Item 15.                                             |  | Exhibits and Financial Statement Schedules                                                                    |  | 54      

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Forward-Looking Statements

References throughout this Form 10-K to the "Company", "we," "us," and "our" refer to Albany Molecular Research, Inc. and its
subsidiaries, taken as a whole. This Form 10-K, including Management's Discussion and Analysis of Financial Condition and Results of Operations, contains "forward-looking
statements" within the meaning of Section 27A of the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended. These statements may be identified by
forward-looking words such as "may," "could," "should," "would," "will," "intend," "expect," "anticipate," "believe," and "continue" or similar words, and include, but are not limited to, statements
concerning pension and postretirement benefit costs, GE Healthcare, the Company's collaboration with Bristol-Myers Squibb ("BMS"), future acquisitions, earnings, contract revenues, costs and margins,
royalty revenues, patent protection and the ongoing Allegra patent infringement litigation, Allegra royalty revenue, government regulation, retention and recruitment of employees, customer spending
and business trends, foreign operations (including Singapore, India and Hungary), the effect of the purchase of assets from Ariane Orgachem Private Limited and Ferico Laboratories Limited,
collectively known as AMRI India Pvt. Ltd. ("AMRI India"), including increasing options and solutions for customers, business growth and the expansion of the Company's global market, clinical
supply manufacturing, management's strategic plans, the goal of submitting an Investigational New Drug Application to the U.S. Food and Drug Administration ("FDA") in 2008, drug discovery, product
commercialization, license arrangements, research and development projects and expenses, selling, general and administrative expenses, goodwill impairment, competition and tax rates. The Company's
actual results may differ materially from such forward-looking statements as a result of numerous factors, some of which the Company may not be able to predict and may not be within the Company's
control. Factors that could cause such differences include, but are not limited to, the Company's ability to recruit and retain experienced scientists and other highly-skilled employees, trends in
pharmaceutical and biotechnology companies outsourcing chemical and discovery research and development, including softness in these markets, competition from domestic competitors and foreign companies
operating under lower cost structures, the loss of a significant customer, sales of Allegra (including any deviations in sales estimates provided by Sanofi-Aventis) and the impact of the
"at-risk" launch of generic Allegra on the Company's receipt of significant royalties under the Allegra license agreement, the risk of an "at-risk" launch of generic
Allegra-D and the impact of that on the Company's receipt of significant royalties under the Allegra license agreement, the risk that Allegra may be approved for
over-the-counter use, the over-the-counter sale of Claritin and Zyrtec, the over-the-counter sale of generic alternatives for
the treatment of allergies and the risk of new product introductions for the treatment of allergies, such as Xyzal, including generic forms of Allegra, the Company's and Sanofi-Aventis's ability to
successfully enforce their respective intellectual property, patent rights and technology rights, including with respect to the generic companies' Abbreviated New Drug Application filings, the
Company's ability to successfully develop novel compounds and lead candidates in its research programs and collaborative arrangements, the Company's performance under the collaboration with BMS. BMS's
continuous utilization of the Company's services at levels set forth in the contract with BMS, BMS's continued pursuit of programs under which the Company provides services, delay or denial of
marketing approvals from the FDA resulting from, among other things, adverse FDA decisions or interpretations of data that differ from BMS's interpretations and that may require additional clinical
trials or potential changes in the cost, scope and duration of clinical trials, if approved, the inability to successfully launch, increase sales of or sustain the product or products in the market,
the inability to successfully and efficiently scale-up manufacturing for commercialized compounds, the outcome of clinical work that will be required to commercialize compounds, the
Company's ability to take advantage of proprietary technology and expand the scientific tools available to it, uncertainty concerning charges
associated with the Company's restructuring of its Large Scale Manufacturing business unit, which may be higher than estimated at this time, the risk that the Company will not realize the anticipated
cost savings from its restructuring plans during the time frame

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indicated,
or even if the anticipated cost savings are achieved, that the Large Scale Manufacturing business unit may remain unprofitable or operate with low gross margins, the ability of the
Company's strategic investments and acquisitions to perform as expected and the cost and any goodwill impairment related to such investments and acquisitions, customer reaction to the acquisition of
AMRI India, the Company's timing and ability to successfully integrate AMRI India's operations (including implementation of the Company's systems and controls) and employees, the introduction of new
services by competitors or the entry of new competitors into the markets for the Company's and AMRI India's services, the failure by the company to retain key employees of AMRI India, failure to
further develop and successfully market AMRI India's service offerings, the Company's ability to successfully complete its ongoing expansion projects on schedule, the risks associated with
international operations and managing our international operations, especially in India, Singapore and Hungary, the Company's ability to execute its business plan for compound and chemical screening
libraries, failure to achieve anticipated revenues and earnings, the existence of deficiencies and/or material weaknesses in the Company's internal controls over financial reporting, risks related to
the ongoing implementation of its enterprise resource planning system, the Company's ability to effectively manage its growth, liability for harm caused by drugs the Company develops and tests,
liability for contamination or other harm caused by hazardous materials used by the Company, failure to meet strict regulatory requirements, health care reform reducing the price pharmaceutical and
biotechnology companies can charge for drugs, thus reducing resources available to retain the services of our Company, the fluctuation of the market price of our common stock, changes in the foreign
currency exchange rates and interest rates, and the possibility of a natural disaster, catastrophic event or terrorist attack. Readers are cautioned that these forward-looking statements are only
predictions and are subject to risks, uncertainties and assumptions that are difficult to predict. Therefore, actual results may differ materially and adversely from those expressed in any
forward-looking statements. Readers should review carefully the risks and uncertainties identified below under the caption "Risk Factors and Certain Factors Affecting Forward-Looking Statements" and
elsewhere in this 10-K. All forward-looking statements are made as of the date of this report and we do not undertake any obligation to update our forward-looking statements, except as
required by applicable law.

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PART I

ITEM 1.    BUSINESS.

Overview

Albany Molecular Research, Inc. (the "Company," "we," "us," and "our"), a Delaware corporation incorporated on June 20, 1991, provides scientific
services, technologies and products focused on improving the quality of life. The Company's core business consists of a fee-for-service contract services platform encompassing
drug discovery, development and manufacturing, and a separate, stand-alone research and development division consisting of proprietary technology investments, internal drug discovery and niche generic
active pharmaceutical ingredient product development. With locations in the U.S., Europe, and Asia, the Company provides customers with a range of services and cost models.

Business Strategy

Contract ServicesWe provide contract services to many of the world's leading pharmaceutical and
biotechnology companies. We derive our contract revenue from research and
development expenditures and commercial manufacturing demands of the pharmaceutical and biotechnology industry. We continue to execute our long-term strategy to develop and grow a fully
integrated global platform from which we can provide these services. In addition to existing research facilities in the United States, Hungary, Singapore and Hyderabad, India, we purchased large-
scale manufacturing sites in India in June 2007 and completed the expansion of our research and development facilities in Hyderabad, India in September 2007.

We
continue to build on an integrated research and manufacturing platform worldwide, increasing our access to key global markets and enabling us to provide our customers with a flexible
combination of high quality services and competitive cost structures to meet their individual outsourcing needs. We seek comprehensive research and/or supply agreements with our customers,
incorporating several of our service offerings and/or spanning across the entire pharmaceutical research and development process. Our research facilities provide discovery, chemical development,
analytical, and small-scale current Good Manufacturing Practices ("cGMP") manufacturing services. Compounds discovered and developed in our research facilities can then be more easily transitioned to
production at our large-scale manufacturing facilities for use in clinical trials and, ultimately, commercial sales if the product meets regulatory approval. We believe that the ability to partner
with a single provider of pharmaceutical research and development services from discovery through commercial production is of significant benefit to our customers. Through our comprehensive service
offerings, we are able to provide customers with a more efficient transition of experimental compounds through the research and development process, ultimately reducing the time and cost involved in
bringing these compounds from concept to market.

Strategic TechnologiesWe conduct proprietary research and development to discover new therapeutically
active lead compounds with commercial potential. We anticipate that we would then license these compounds and underlying technology to third parties in return for up-front and service fees
and milestone payments, as well as recurring royalty payments if these compounds are developed into new commercial drugs. In addition, research and development is performed for our large-scale
manufacturing business related to the potential manufacture of new products, the development of processes for the manufacture of generic products with commercial potential, and the development of
alternative manufacturing processes. Our proprietary research and development activities previously led to the development, patenting and licensing of a substantially pure form of, and a manufacturing
process for, the active ingredient in the non-sedating antihistamine fexofenadine HCl marketed by Sanofi-Aventis S.A. as Allegra in the Americas and as Telfast elsewhere. Under our
license agreement with Sanofi-Aventis, we have earned a total of $367.3 million in milestones and royalty revenue from 1995 through 2007 and are entitled to receive ongoing royalties from
Sanofi-Aventis based upon a

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percentage
of worldwide sales of Allegra/Telfast and its authorized generic alternative. Further, in October 2005, we licensed the worldwide rights to develop and commercialize potential products from
the amine neurotransmitter reuptake inhibitor patents developed in one of our proprietary research programs to Bristol-Myers Squibb Company ("BMS"). Under our contract with BMS, the successful
advancement of two such candidates could result in the receipt of in excess of $150 million in up-front license, contract service, and milestone revenue. In 2007, we earned
$1.5 million for achieving the first milestone with BMS. In October 2006, we announced the selection of a compound from our proprietary oncology research program for advanced preclinical
testing, with the goal of submitting an Investigational New Drug Application ("IND") to the U.S. Food and Drug Administration ("FDA"). Our current goal is to submit this IND in 2008. We also continue
to utilize our proprietary technologies to further advance other early to middle stage internal research programs in the fields of oncology, obesity, bacterial infection and other diseases, with a
view to seeking a licensing partner for these programs at an appropriate research or developmental stage.

Industry Overview

Opportunities to develop therapeutics for previously unmet or under-met medical needs are being fueled by advances in disciplines such as molecular
biology, high throughput synthesis and screening and human genomics proteomics research. In addition, pharmaceutical and biotechnology companies are under increasing pressure to deliver new drugs to
market and reduce the time required for drug development. This pressure has come about, in part, as a result of the significant number of current drug products on the market for which patent
protection has or will soon expire, as well as a reported drop in productivity from pharmaceutical company internal research pipelines.

In
order to take advantage of these opportunities and to respond to these pressures, many pharmaceutical and biotechnology companies have augmented their internal research and
development capacity through outsourcing.

Small Molecule Drug Discovery, Development and Manufacturing Process

Although many scientific disciplines are required for new drug discovery and development, chemistry and biology are core technologies. Chemists and biologists
typically work together to develop laboratory models of disease, screen small molecule compounds to identify those that demonstrate desired activity and finally create a marketable drug. The drug
discovery and development process includes the following steps:



The Importance of Chemistry in the Drug Discovery and Development Process

Lead Discovery.The first major hurdle in drug discovery is the identification of one or more lead compounds that interact
with a biological target, such as an enzyme, receptor or other protein that may be associated with a disease. A biological test, or assay, based on the target is developed and used to test or "screen"
chemical compounds. Medicinal chemistry and combinational chemistry working interactively with computational science are used to synthesize these compounds rapidly and study the interaction between
the three-dimensional molecular structures of the compounds and biological

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targets.
The objective of lead discovery is to identify a lead compound for further research and development.

Lead Optimization.Once a lead compound has been identified, medicinal chemistry is used to optimize that lead compound by
modifying and synthesizing analogs of active lead candidates with improved potency, selectivity and/or pharmacokinetics (improved absorption, solubility, half-life and metabolism) in order
to identify a more promising drug candidate. This iterative process involves the synthesis of compounds for biological testing, the analysis of the screening results and the further design and
synthesis of additional compounds based upon the analysis of structure-activity relationships. During lead optimization, specialists in chemical development optimize the synthesis process and perform
the scale-up synthesis of a lead compound as that compound is advanced through the drug discovery and development process. These scientists are experts in the preparation of chemicals on a
larger scale and focus on the efficiency, economics, simplicity and safety of the preparation of such chemicals. Chemical development is also an iterative process which may require progressive
improvements in chemical synthesis as subsequent repeat batches are prepared. In addition to providing repeat synthesis, significant process research may be required to refine existing or develop new
synthesis processes. Also, during the lead optimization stage, analytical chemistry services are incorporated to assure the identity and purity of the lead candidate.

Preclinical Testing.Following the development of a lead compound during the lead optimization stage, advanced preclinical
testing is conducted in order to evaluate the efficacy and safety of the lead compound prior to initiating human clinical trials. The lead compound must demonstrate a scientifically proven benefit in
controlled and well-defined biological tests in animal models, and must exhibit this benefit at doses much lower than those at which side effects would occur. During the lead optimization
and preclinical testing phases, scientists continue the synthesis of additional analogs of the lead compound using medicinal chemistry. Often a second compound, referred to as a backup compound or
second generation analog, is synthesized and enters the drug development cycle. In addition, continued synthesis is desirable in order to prepare compounds of significant diversity to broaden
potential patent coverage. As a result, the advancement of a lead compound into preclinical testing is often a catalyst which increases, rather than decreases, the need for additional medicinal
chemical synthesis and other chemical services. During this phase, specialists in chemical development continue to conduct significant process research to optimize the production of a compound.

Clinical Trials.During clinical trials, several phases of studies are conducted to test the safety and efficacy of a drug
candidate in humans. As study populations increase and trial durations lengthen, larger quantities of the active ingredient are required. The active pharmaceutical ingredient ("API") and the
formulated drug product, must be prepared under current good manufacturing practices, commonly referred to as cGMP, guidelines. Analytical chemistry services are critical to cGMP
manufacturing. Additional preparations provide an opportunity to further refine the manufacturing process, with the ultimate goal of maximizing the cost effectiveness and safety of the synthesis prior
to commercialization.

Product Commercialization.Before approving a drug, the FDA requires that manufacturing procedures and operations conform to
cGMP guidelines, International Conference on Harmonization guidance and manufacturing guidelines and guidance published by the FDA. Manufacturing procedures and operations must be in compliance with
all regulatory and quality regulations at all times during the manufacture of commercial products and APIs. Once a drug has received all necessary approvals, the manufacture, marketing and sale of
commercial quantities of the approved drug may commence.

Trends in Contracting for Drug Discovery and Development

Beginning in 2005, we began to experience strong demand for our developmental and small-scale cGMP manufacturing services as a result of a trend in drug
development and discovery outsourcing.

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The
following trends continue to lead to demand for contract services in drug discovery and development:



In
recent years, we have experienced increased demand in the areas of developmental and small-scale cGMP manufacturing services, reflecting a reduction in budgetary constraints of our
emerging pharmaceutical and biotech customers and their increased efforts to bring identified compounds into clinical trials. During this timeframe partly, in recognition of increased competition and
consolidation within the pharmaceutical industry, we established lower-cost international operations in Hungary, Singapore and India. Contract service providers that were not able to offer
a cost competitive product were forced to exit or significantly reduce their presence in the marketplace during this time. In addition to providing customers with a range of technologies and cost
options, expanding internationally has provided increased access to customers and potential customers in regions of the world which we have, until recently, not sought to pursue.

Also,
in addition to the longer-term trend of growth in development and small scale cGMP manufacturing services discussed above, we have more recently seen an increased trend
in demand for our discovery services as our ability to provide high-quality services under a variety of business models and cost structures by incorporating our international facilities
has been well-received by our customers. We currently expect the trend of increased worldwide demand for our services to continue in 2008, and we expect to continue to expand our global
service platform to meet the needs of our customers. In 2007, we completed the construction of a 50,000 square foot research center focusing primarily on custom synthesis and medicinal chemistry
support services at the Shapoorji Pallonji Biotech Park in Hyderabad, India. Additionally, we commenced a 10,000 square foot expansion of our Singapore Research Center in early 2008. In addition to
increasing existing discovery service capabilities, the expansion of our Singapore Research Center will also include the introduction of in vitro biology services at the facility.

Trends in Contracting for Pharmaceutical Manufacturing Services

The trends noted above that have driven demand for drug discovery and development services in recent years have also led to an increase in demand for contract
manufacturing services as healthcare companies transition their early stage compounds into clinical and ultimately commercial production. Further, many healthcare companies have elected to outsource
their manufacturing capabilities in an effort to control costs by eliminating expenses associated with owning and operating manufacturing facilities. In addition, the demand for the manufacturing of
generic drugs has significantly increased as

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healthcare
companies strategic objectives increasingly include the ability to introduce generic drug product into the market upon expiration of patented technologies.

We
have integrated our drug discovery and development research facilities with our large-scale manufacturing facilities to allow for the easier transition throughout the entire
pharmaceutical research and development process. Through our comprehensive service offerings, we are able to provide customers with a more efficient transition of compounds through the research and
development process, ultimately reducing the time and cost involved in bringing these compounds from concept to market. We enhanced our large-scale manufacturing capabilities with our acquisition of
manufacturing facilities in India in June 2007. With this acquisition, we begun able to globalize our manufacturing operations, which offers us the flexibility to produce raw materials and process
intermediates to support our domestic large-scale manufacturing facility. In addition, we believe that this acquisition increases our generic drug product manufacturing capabilities and provides the
opportunity to increase our global manufacturing market share over time.

Our Capabilities

We perform services including drug discovery, pharmaceutical development, and manufacturing of active ingredients and pharmaceutical intermediates for many of the
world's leading healthcare companies. The problem-solving abilities of our scientists can provide added value throughout the drug discovery, development and manufacturing process. Our comprehensive
suite of services allows our customers to contract with a single partner, eliminating the time and cost of transitioning projects among multiple vendors.

Service Offerings

Drug Discovery Services

The competitive drug discovery industry continues to face many challenges, including a weakening product pipeline, increasing costs and more complex disease
targets and regulatory hurdles. These challenges have compelled many companies/research organizations to look outside their own research and development ("R&D") function for contract partners to
support research and development at the earliest stages of the drug discovery process. We provide a broad spectrum of lead discovery services backed by key employees with decades of experience. All
services provided by our lead discovery group are tightly integrated with our chemistry business and can be accessed independently or as part of a program involving chemistry-driven lead optimization.

Our
Drug Discovery Services include:

Assay Development and Design

We offer custom assay design and development services to clients in the pharmaceutical, biopharmaceutical and agrochemical industries who are starting from a
unique target or who are supporting ongoing lead discovery programs. This service can be delivered independently to a client, or integrated with our full range of chemistry services.

Key
features of our Assay Design and Development services include:



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Screening

Our diverse offering of screening programs and collections give customers the essential tools to efficiently and safely identify active compounds during the lead
finding phases of drug discovery and development. Our screening collections are comprised of extracts that can be used in conjunction with assay development and screening services to enable lead
finding.

Key
features of our screening programs and collections include:



Libraries

We have created a series of unique, high purity, cost effective, small molecule synthetic compound libraries and a complementary collection of natural product
extracts from marine, plant and microbial sources designed for screening and hit-to-lead programs. We are uniquely positioned to fully support active hits from any of these
libraries with lead optimization services, analytical services, custom synthesis and/or small or large scale manufacturing.

Our
libraries include:



Bioanalytical Services

We develop and execute rapid, sensitive, and robust bioanalytical methods for extraction and quantitation of drug and metabolites in biological fluids and tissues
to support preclinical and clinical studies.

Natural Product Services

We have a longstanding, well established ability to deliver on Natural Products discovery programs. With a complete team of natural product experts with decades
of experience in the field and access to a variety of complementary discovery technologies and disciplines, we have the unique ability to rapidly advance a natural product from hit to lead to
qualified drug candidate.

Lead Optimization

Lead optimization is the complex, iterative process of altering the chemical structure of a confirmed hit to identify an improved drug lead with the goal of
progressing to a preclinical candidate. Once our scientists identify a screening hit, our medicinal chemistry department provides lead optimization services. Well-trained, intuitive and
knowledgeable, our medicinal chemists have years of experience working with drug-like compounds. We complement our medicinal chemistry lead optimization expertise with technologies in
metabolism and biotransformation, including proprietary combinatorial biocatalysis technology and extensive fermentation capabilities.

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Medicinal Chemistry

We apply medicinal chemistry to modify the structure of a hit compound (or series of hit compounds) to synthesize new molecules with the end goal of discovering
compounds suitable for progression into human clinical trials. All of these services are fully integrated within the company allowing for a "one stop shop" approach towards outsourcing lead discovery
and optimization efforts, if so desired.

Computer-Aided Drug Discovery ("CADD")

Our CADD services use sophisticated computational software and techniques to help identify novel hits or leads against selected therapeutic targets, as well as to
support medicinal chemistry lead optimization programs. CADD methods can increase the odds of identifying compounds with desirable characteristics, speed up the hit-to-lead
process and improve the chances of getting a compound over the many hurdles of preclinical testing.

In vitro ADMET

We conduct in vitro ADMET assays to evaluate and improve metabolism, bioavailability, pharmacology and toxicology of compounds.

Early
stage ADMET testing, integrated with Medicinal Chemistry programs, typically include:



Preparative Chromatography

We expertly conduct separation services for our customers within all phases of the drug development process. Purification of materials of interest such as APIs,
intermediates, impurities or degradants, and chiral resolution of key targets are routinely performed on gram to kilogram scale. Materials of interest, including controlled and potent compounds, are
routinely isolated through classic and chromatographic techniques. Additionally, chiral method development services are provided supporting manufacturing and chiral resolution processes.

Chemical Development

Chemical development involves the scale-up synthesis of a lead compound and intermediates. Processes developed for small scale production of a
compound may not be suitable for larger scale production because they may be too expensive or environmentally unacceptable or they may present safety concerns. With pharmaceutical development
locations around the globe, we have become a top choice for an ever increasing number of pharmaceutical and biotechnology companies seeking a partner for the rapid advancement of their drug
candidates. Customers throughout the world rely on our proven technical expertise, commitment to the highest quality and regulatory standards, flexibility, and strong customer focus to advance their
lead compounds through the drug development process, from bench scale to commercial production.

Our
Chemical Development services include:



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cGMP Manufacturing

We provide chemical synthesis and manufacturing services for our customers in accordance with cGMP guidelines. All facilities and manufacturing techniques used in
the manufacture of products for clinical use or for sale in the United States must be operated in conformity with cGMP guidelines as established by the FDA. Our Albany, New York location has
production facilities and quarantine and restricted access storage necessary to manufacture quantities of drug substances under cGMP conditions sufficient for conducting clinical trials from
Phase I through Phase II, and later stages for selected products, based on volume and other parameters. Our large scale manufacturing facility in Rensselaer, New York is equipped to
provide a wide range of custom chemical development and manufacturing capabilities. We conduct commercial cGMP manufacturing of APIs and advanced intermediates. Our large-scale cGMP manufacturing
facilities provide synergies with our small-scale development laboratories, offering our customers services at every scale, from bench to production. We have special capabilities in high value-added
areas of pharmaceutical development and manufacturing, including High Potency Manufacturing. Cytotoxic and other highly potent compounds present a number of potential challenges in their production
and handling. We have extensive experience in the cGMP production of these types of compounds, from grams to hundreds of kilograms per year. Our Rensselaer facility is licensed by the U.S. Drug
Enforcement Administration to produce Schedule I, II, III, IV and V controlled substances. For over 50 years, the facility has produced controlled substances such as analgesics,
amphetamines, barbiturates, and anabolic steroids. In the third quarter of 2007, our focus on quality was reinforced after a successful FDA inspection of our Rensselaer facility resulted in no
issuances of Form FDA 483Observations of Objectionable Conditions and Practices.

Our
manufacturing facilities are strategically situated in various locations in the United States and Asia. These locations are globally positioned to provide tailored customer solutions
and enable the efficient and cost-effective transfer of pre-clinical, clinical and commercial drug products from small-scale to large-scale production. Additionally, these
locations easily integrate with our discovery and pharmaceutical development services.

Analytical Chemistry Services

We provide broad analytical support for drug discovery, pharmaceutical development and manufacturing. With years of industry experience,
state-of-the-art technologies and instrumentation, along with close collaboration with synthesis chemists, our analytical services are designed to ensure that the
right tools are used to solve even the most difficult problem.

Analytical
services that we provide include:



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Proprietary Research and Development

Leveraging our wide array of drug discovery capabilities, we seek to discover and develop promising drug candidates and license these candidates in return for
upfront fees, milestones and downstream royalty payments for commercialized drug products. We identify lead series by utilizing our high throughput lead finding capabilities, coupled with our computer
assisted drug design capabilities, to assess our diverse range of synthetic, virtual and natural product screening libraries. Applying the expertise of our separate R&D medicinal chemistry group,
supported by our ownin vitrobiology andin vitrometabolism capabilities and a select range of in vivoservice providers, we optimize these leads series to develop candidate status, in some cases pursuing these into early clinical studies. Current
drug discovery and development projects are focused on treatments for cancer, irritable bowel disease, bacterial infection and obesity. Our R&D efforts benefit from access to a broad array of our
scientific services including capabilities in microbial fermentation, molecular biology, cell culture, gene expression and cloning, scale up synthesis of human metabolites, preformulation, chemical
development and cGMP synthesis. We spent $12.8 million, $11.4 million and $14.5 million on proprietary research and development activities in 2007, 2006 and 2005, respectively.

Licensing Agreements

In October 2005, we licensed the worldwide rights to develop and commercialize potential products from our amine neurotransmitter reuptake inhibitor technology
and patents identified in one of our proprietary research programs to BMS. In conjunction with the licensing agreement, we received a non-refundable, non-creditable
up-front payment of $8.0 million. In addition, the agreement provided for the establishment of a research program under which BMS would purchase approximately $10.0 million
in research and development services over the initial three year term of the program. The agreement also set forth milestone events that, if achieved by these products, would entitle the Company to
non-refundable, non-creditable milestone payments of up to $66.0 million for each of the first and second compounds to achieve these events, and up to
$22.0 million for each subsequent product to achieve these events. In 2007, we earned $1.5 million upon achievement of the first milestone with BMS. The agreement also provides for the
Company to receive royalty payments on worldwide sales of any such product that is commercialized.

Our
proprietary research and development efforts to date have contributed to the discovery and development of one product that has reached the market. We discovered a new process to
prepare a metabolite known as terfenadine carboxylic acid, or TAM, in a purer form. The purer form of TAM is the active ingredient in the non-sedating antihistamine known as fexofenadine
HCl, which is sold by Sanofi-Aventis under the name Allegra in the Americas and as Telfast elsewhere. We have been issued several United States and foreign patents relating to TAM and the process
chemistry by which TAM is produced. Subject to payment of government annuities and maintenance fees, our issued patents relating to TAM expire between 2013 and 2015.

In
March 1995, we entered into a license agreement with Sanofi-Aventis. Under the terms of the license agreement, we granted Sanofi-Aventis an exclusive, worldwide license to any patents
issued to

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us
related to our original TAM patent applications. From the beginning of the agreement through December 31, 2007, we have earned $7.4 million in milestone payments and
$359.9 million in royalties under this license agreement. Sanofi-Aventis is obligated under the license agreement to pay ongoing royalties to us based upon its sales of Allegra/Telfast and
generic fexofenadine. We are not entitled, however, to receive any additional milestone payments under the license agreement. Sales of Allegra/Telfast and generic fexofenadine by Sanofi-Aventis
worldwide were approximately $1.0 billion for the year ended December 31, 2007, $0.9 billion for the year ended December 31, 2006 and $1.76 billion for the year
ended December 31, 2005. See "Item 3Legal Proceedings" for discussion of current legal proceedings related to Allegra/Telfast.

Business Segments

Our large scale cGMP manufacturing activities represent a distinct business segment as defined by Statement of Financial Accounting Standards ("SFAS")
No. 131 ("SFAS 131"), "Disclosures about Segments of an Enterprise and Related Information". The Company's remaining activities, including drug lead discovery, optimization, drug
development, and small scale commercial manufacturing represent a separate distinct business segment as defined by SFAS 131. See Item 7 and the notes to the consolidated financial
statements for financial information on the Company's business segments.

Customers

Our customers include pharmaceutical companies and biotechnology companies and, to a limited extent, agricultural companies, fine chemical companies, contract
chemical manufacturers, government research entities and non-profit organizations. For the year ended December 31, 2007, contract revenue from our three largest customers
represented 19%, 5% and 5%, respectively, of our contract revenue. For the year ended December 31, 2006, contract revenue from our three largest customers represented 21%, 7% and 6%,
respectively, of our contract revenue. For the year ended December 31, 2005, contract revenue from our three largest customers represented 37%, 6% and 4%, respectively, of our contract revenue.
Our largest customer, General Electric ("GE"), represented 19% of total contract revenue for the year ended December 31, 2007. See Note 16 to the consolidated financial statements for
information on geographic and other customer concentrations.

Marketing

Our services are marketed primarily by our dedicated sales and business development personnel and senior management. Because our customer contacts are often
highly skilled scientists, we believe our use of technical experts in marketing has allowed us to establish strong customer relationships. In addition to our internal marketing efforts, we also rely
on the marketing efforts of consultants, both in the United States and abroad. We market our services directly to customers through targeted mailings, meetings with senior management of pharmaceutical
and biotechnology companies, maintenance of an extensive Internet web site, participation in trade conferences and shows, and advertisements in scientific and trade journals. We also receive a
significant amount of business from customer referrals and through expansion of existing contracts.

Employees

As of January 31, 2008, we had 1,226 employees. Of these employees, 397 are at our international facilities. Our U.S. large-scale manufacturing hourly work
force of 91 employees is covered by a collective bargaining agreement with the International Chemical Workers Union. A new 4-year collective bargaining agreement was signed in January 2007
with the union and expires on January 10, 2011. Additionally, we have 44 union employees at our large-scale manufacturing facility at AMRI India that are covered by two separate collective
bargaining agreements that expire in 2009. None of

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our
other employees are covered by collective bargaining agreements. We consider our relations with our employees and the union to be good.

Competition

We face competition based on a number of factors, including size, relative expertise and sophistication, speed and costs of identifying and optimizing potential
lead compounds and of developing and optimizing chemical processes. In certain aspects of our business we also face foreign competition from companies in regions with lower cost structures. We compete
with the research departments of pharmaceutical companies, biotechnology companies, combinatorial chemistry companies, contract research companies, contract drug manufacturing companies and research
and academic institutions. Many of these competitors have greater financial and other resources and more experience in research and development than we do. Smaller companies may also prove to be
significant competitors, particularly through arrangements with large corporate collaborators.

Historically,
pharmaceutical companies have maintained close control over their research and development activities, including the synthesis, screening and optimization of chemical
compounds and the development of chemical processes. Many of these companies, which represent a significant potential market for our products and services, are developing or already possess
in-house technologies and services offered by us. Academic institutions, governmental agencies and other research organizations are also conducting research in areas in which we provide
services either on their own or through collaborative efforts.

We
anticipate that we will continue to face increased competition in the future as new companies enter the market, including increased foreign competition from Asia, Eastern Europe and
other lower-cost environments. Our services and expertise may be rendered obsolete or uneconomical by technological advances or entirely different approaches developed by one or more of
our competitors. The existing approaches of our competitors or new approaches or technologies developed by our competitors may be more effective than those developed by us. We cannot give assurance
that our competitors will not develop more effective or more affordable technologies or services, thus rendering our technologies and/or services obsolete, uncompetitive or uneconomical.

Patents and Proprietary Rights

Our success will depend, in part, on our ability to obtain and enforce patents, protect trade secrets, obtain licenses to technology owned by third parties when
necessary, and conduct our business without infringing the proprietary rights of others. The patent positions of pharmaceutical, medical products and biotechnology firms can be uncertain and involve
complex legal and factual questions. We cannot assure you that any AMRI patent applications will result in the issuance of patents or, if any patents are issued, whether they will provide significant
proprietary protection or commercial advantage, or will not be circumvented by others. In the event a third party has also filed one or more patent applications for inventions which conflict with one
of ours, we may have to participate in interference proceedings declared by the United States Patent and Trademark Office to determine priority of invention, which could result in the loss of any
opportunity to secure patent protection for the inventions and the loss of any right to use the inventions. Even if the eventual outcome is favorable to us, these proceedings could result in
substantial cost to us. The filing and prosecution of patent applications, litigation to establish the validity and scope of patents, assertion of patent infringement claims against others and the
defense of patent infringement claims by others can be expensive and time consuming. We cannot assure you that in the event that any claims with respect to any of our patents, if issued, are
challenged by one or more third parties, a court or patent authority ruling on such challenge will determine that such patent claims are valid and enforceable. An adverse outcome in such litigation
could cause us to lose exclusivity afforded by the disputed rights. If a third party is found to have rights covering products or processes used by us, we could be forced to cease using the
technologies covered by such rights,

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could
be subject to significant liability to the third party, and could be required to license technologies from the third party. Furthermore, even if our patents are determined to be valid,
enforceable, and broad in scope, we cannot assure you that competitors will not be able to design around such patents and compete with us and our licensees using the resulting alternative technology.

We
have a policy of seeking patent protection for patentable aspects of our proprietary technology. We have been issued various United States and international patents covering
fexofenadine HC1 and certain related manufacturing processes. Our United States patents begin to expire in 2013, and our international patents begin to expire in 2014. Additionally, our United States
patents related to substituted biaryl purines as potent anticancer agents and a series of aryl and heteroaryl tetrahydroisoquinolines related to central nervous system indications begin to expire in
2020.

We
seek patent protection with respect to products and processes developed in the course of our activities when we believe such protection is in our best interest and when the cost of
seeking such protection is not inordinate. However, we cannot assure you that any patent application will be filed, that any filed applications will result in issued patents, or that any issued
patents will provide us with a competitive advantage or will not be successfully challenged by third parties. The protections afforded by patents will depend upon their scope and validity, and others
may be able to design around our patents.

Many
of our current contracts with our customers provide that ownership of proprietary technology developed by us in the course of work performed under the contract is vested in the
customer, and we retain little or no ownership interest.

We
also rely upon trade secrets and proprietary know-how for certain unpatented aspects of our technology. To protect such information, we require all employees, consultants
and licensees to enter into confidentiality agreements limiting the disclosure and use of such information. We cannot assure you that these agreements provide meaningful protection or that they will
not be breached, that we would have adequate remedies for any such breach, or that our trade secrets, proprietary know-how and technological advances will not otherwise become known to
others. In addition, we cannot assure you that, despite precautions taken by us, others have not and will not obtain access to our proprietary technology. Further, we cannot assure you that third
parties will not independently develop substantially equivalent or better technology.

Government Regulation

The manufacture, transportation and storage of our products are subject to certain international, Federal, state and local laws and regulations. Our future
profitability is indirectly dependent on the sales of pharmaceuticals and other products developed by our customers. Regulation by governmental entities in the United States and other countries will
be a significant factor in the production and marketing of any pharmaceutical products that may be developed by us or our customers. The nature and the extent to which such regulation may apply to us
or our customers will vary depending on the nature of any such pharmaceutical products. Virtually all pharmaceutical products developed by us or our customers will require regulatory approval by
governmental agencies prior to commercialization. Human pharmaceutical products are subject to rigorous preclinical and clinical testing and other approval procedures by the FDA and by foreign
regulatory authorities. Various federal and, in some
cases, state statutes and regulations also govern or influence the manufacturing, safety, labeling, storage, record keeping and marketing of such pharmaceutical products. The process of obtaining
these approvals and the subsequent compliance with appropriate federal and foreign statutes and regulations are time consuming and require the expenditure of substantial resources.

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Generally, in order to gain U.S. FDA approval, a company first must conduct preclinical studies in the laboratory and in animal models to gain preliminary information on a compound's
efficacy and to identify any safety problems. The results of these studies are submitted as a part of an IND, that the FDA must review before human clinical trials of an investigational drug can
start. In order to commercialize any products, we or our customer will be required to sponsor and file an IND and will be responsible for initiating and overseeing the clinical studies to demonstrate
the safety and efficacy that are necessary to obtain FDA approval of any such products. Clinical trials are normally done in three phases and generally take two to seven years, but may take longer, to
complete. After completion of clinical trials of a new product, FDA and foreign regulatory authority marketing approval must be obtained. If the product is classified as a new drug, we or our customer
will be required to file a new drug application, or NDA, and receive approval before commercial marketing of the drug. The testing and approval processes require substantial time, effort and
expense, and we cannot assure you that any approval will be granted on a timely basis, if at all. NDAs submitted to the FDA can take several years to obtain approval. Even if FDA regulatory clearances
are obtained, a marketed product is subject to continual review. Later discovery of previously unknown problems or failure to comply with the applicable regulatory requirements may result in
restrictions on the marketing of a product or withdrawal of the product from the market as well as possible civil or criminal sanctions. For marketing outside the United States, we will also be
subject to foreign regulatory requirements governing human clinical trials and marketing approval for pharmaceutical products. The requirements governing the conduct of clinical trials, product
licensing, pricing and reimbursement vary widely from country to country.

All
facilities and manufacturing techniques used in the manufacture of API for clinical use or for sale in the United States must be operated in conformity with cGMP guidelines as
established by the FDA. Our facilities are subject to unscheduled periodic regulatory inspections to ensure compliance with cGMP requirements. Failure on our part to comply with applicable
requirements could result in the termination of ongoing research or the disqualification of data for submission to regulatory authorities. A finding that we had materially violated cGMP requirements
could result in additional regulatory sanctions and, in severe cases, could result in a mandated closing of our facilities or significant fines, which would materially and adversely affect our
business, financial condition and results of operations. An FDA inspection of our Rensselaer manufacturing facility was completed in the third quarter of 2007, resulting in no issuance of a Form FDA
483. Also, an FDA inspection of our cGMP manufacturing facility, located at 21 Corporate Circle in Albany, was completed in 2006, resulting in no issuance of a Form FDA 483.

Our
manufacturing and research and development processes involve the controlled use of hazardous materials. We are subject to federal, state and local laws and regulations governing the
use, manufacture, storage, handling and disposal of such materials and certain waste products. Although we believe that our activities currently comply with the standards prescribed by such laws and
regulations, the risk of accidental contamination or injury from these materials cannot be eliminated. In the event
of such an accident, we could be held liable for any damages that result and any such liability could exceed our resources. In addition, we cannot assure you that we will not be required to incur
significant costs to comply with environmental laws and regulations in the future.

Internet Website

We maintain an internet website atwww.amriglobal.com. The information contained on our website is not included as
a part of, or incorporated by reference into, this Annual Report on Form 10-K. We make available on our website, free of charge, our annual report on Form 10-K,
quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the
Securities Exchange Act of 1934 (the "Exchange Act"), as amended, as

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soon
as reasonably practicable after such reports are electronically filed with, or furnished to, the SEC. Our reports filed with, or furnished to, the SEC are also available at the SEC's website at www.sec.gov.

ITEM 1A.    RISK FACTORS.

The following factors should be considered carefully in addition to the other information in this Form 10-K. Except as mentioned under
"Quantitative and Qualitative Disclosure About Market Risk" and except for the historical information contained herein, the discussion contained in this Form 10-K contains
"forward-looking statements," within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act, that involve risks and uncertainties. Our actual results could
differ materially from those discussed in this Form 10-K. Important factors that could cause or contribute to such differences include those discussed below, as well as those
discussed elsewhere herein.

The introduction of a generic Allegra-D could materially impact royalty revenue.

Royalties from sales of Allegra currently constitute a significant, but declining, portion of our revenue, operating income and operating cash flow. In 2005, the
Company began to experience a decrease in our royalties from Allegra, which is primarily attributable to the at-risk launch of generic fexofenadine announced by Barr
Pharmaceuticals, Inc. and Teva Pharmaceuticals Industries Ltd. on September 6, 2005. The launch of the generic product is considered an "at-risk" launch
due to the on-going litigation. Continued generic Allegra competition, including an at-risk launch of Allegra-D, may further adversely affect U.S. sales of Allegra.
If the dollar amount of Allegra sales subject to our license agreement decreases, due to these or any other factors, our revenues from our license agreement with Sanofi-Aventis will also decrease.
Because we have very few costs associated with the Allegra license, a decrease in revenues from our license agreement for Allegra would have a material adverse effect on our revenue, operating income
and financial condition. For example, a $5.0 million decrease in our Allegra royalty revenue would decrease our operating income by $4.5 million.

We
have been issued several patents on a pure form of, and a manufacturing process for, fexofenadine HCl. The patent positions of pharmaceutical, medical and biotechnology firms can be
uncertain and can involve complex legal and factual questions. Litigation, in particular patent litigation, can be complex and time-consuming and the outcome is inherently uncertain. We
cannot assure our stockholders that we and/or Sanofi-Aventis will ultimately succeed in any current or future litigation against generic drug manufacturers involving patents with respect to Allegra.
In the event that one or more of the patents owned by us or Sanofi-Aventis are ultimately determined to be invalid or unenforceable, Sanofi-Aventis and we would lose exclusivity with respect to the
claims covered by those patents. Any such loss of exclusivity or the introduction of generic forms of fexofenadine HCl may cause a reduction in Allegra sales. In addition, under our current
arrangements with Sanofi-Aventis, Sanofi-Aventis, with consultation from us, has the right to lead with respect to preparing and executing a strategy to defend and enforce certain of the patents
relating to Allegra, and is executing that role in the current litigation. As a result, we may not be able to control the conduct of such litigation and the strategic decisions that are made during
the course of such litigation. See "Item 3Legal Proceedings."

Pharmaceutical and biotechnology companies may discontinue or decrease their usage of our services.

We depend on pharmaceutical and biotechnology companies that use our services for a large portion of our revenues. Although there has been a trend among
pharmaceutical and biotechnology companies to outsource drug research and development functions, this trend may not continue. We have experienced increasing pressure on the part of our customers to
reduce expenses, including the use of our services as a result of negative economic trends generally and in the pharmaceutical industry. Although our contract revenues increased in 2007, we may be
adversely affected in future periods as a result of general economic or pharmaceutical industry downturns. If pharmaceutical and biotechnology companies discontinue or decrease their usage of our
services, including as a result of a

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slowdown
in the overall global economy, our revenues and earnings could be lower than we currently expect and our revenues may decrease or not grow at historical rates.

We may lose one or more of our major customers.

During the year-ended December 31, 2007, revenues from sales of raw material to GE Healthcare for use in one of its diagnostic imaging agents
totaled $29.9 million and represented approximately 18% of our contract revenue, or 16% of our total revenue. Our subsidiary, AMRI Rensselaer, Inc. ("AMRI Rensselaer"), formerly known as
Organichem, entered into a long-term agreement to supply this material to GE Healthcare in 1999 that was renewed in 2005, extending the expiration date of the original agreement from 2007
to 2010. GE Healthcare's purchases have historically exceeded the contractual minimum purchases, however, this may not continue. Additionally, in order to maintain our good relationship with GE
Healthcare, we have recently agreed to price concessions which will impact our margins during 2008. If GE Healthcare materially reduces its purchase levels or attempts to renegotiate prices, there may
be a material decrease in our revenues and operating income. In addition, excluding GE Healthcare, during the year ended December 31, 2007, we provided services to three major customers
representing approximately 15% of our contract revenues or 13% of our total revenue. These customers typically may cancel their contracts with 30 days' to one-year's prior notice
depending on the size of the contract, for a variety of reasons, many of which are beyond our control. If any one of our major customers cancels its contract with us, our contract revenues may
decrease.

We face increased competition.

We compete directly with the in-house research departments of pharmaceutical companies and biotechnology companies, as well as combinatorial chemistry
companies, contract research companies, and research and academic institutions. We are also experiencing increased competition from foreign companies operating under lower cost structures. Many of our
competitors have greater financial and other resources than we have. As new companies enter the market and as more advanced technologies become available, we currently expect to face increased
competition. In the future, any one of our competitors may develop technological advances that render the services that we provide obsolete. While we plan to develop technologies, which will give us
competitive advantages, our competitors plan to do the same. We may not be able to develop the technologies we need to successfully compete in the future, and our competitors may be able to develop
such technologies before we do or provide those services at a lower cost. Consequently, we may not be able to successfully compete in the future.

We may be unsuccessful in producing and licensing proprietary technology developed from our internal research and development efforts or acquired from a third party.

We have expended and continue to expend significant time and money on internal research and development with the intention of producing proprietary technologies
in order to patent and then license them to other companies. For example, in October 2005 we licensed our proprietary amine neurotransmitter reuptake inhibitor technology to BMS. However, we may not
be successful in
producing any additional valuable technology or successfully licensing it to a third party in the future. To the extent we are unable to produce technology that we can license, we may not receive any
revenues related to our internal research and development efforts.

We may be unsuccessful in our collaboration with BMS.

Our objective is to patent our proprietary technologies and license such technologies to other companies for the purpose of advancing compounds associated with
these technologies through human clinical trials and ultimately obtaining regulatory approval for the commercial sale of products containing these compounds. We seek to enter into licensing
arrangements with selected partners that provide for a combination of up-front license fees, milestone payments upon the achievement of

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specified
research and development objectives, and royalty payments based on sales of related commercial products. In October 2005, we licensed the worldwide rights to develop and commercialize
potential products from our amine neurotransmitter reuptake inhibitors to BMS. In conjunction with the licensing agreement, we received a non-refundable, non-creditable
up-front fee of $8.0 million. In addition, BMS committed to purchase approximately $10.0 million in research and development services over the initial three year term of our
agreement. The license agreement also sets forth development related milestone events that, if achieved by our products, would entitle us to non-refundable, non-creditable
milestone payments of up to $66.0 million for each of the first and second products to achieve these events, and up to $22.0 million for each subsequent product to achieve these events.
The license agreement also provides for us to receive royalty payments on worldwide sales of any such product that is commercialized. During 2007, we recognized $1.5 million of milestone
revenue in conjunction with this agreement.

Our
arrangement with BMS is a significant component of our proprietary research and development business. If there is a delay or failure in BMS's performance, our proprietary research
and development business may not produce the long-term revenues, earnings, or strategic benefits that we anticipate. We cannot control BMS's performance or the resources it devotes to our
collaborative program. We cannot guarantee BMS's continuous utilization of our services at levels set forth in our agreement after the initial term of the agreement, and we cannot guarantee BMS's
continued pursuit of programs covered by our agreement. Furthermore, with respect to any drug candidate resulting from our collaborative program, the FDA may delay or deny marketing approvals because
of adverse FDA decisions or interpretations of data that differ from BMS's interpretations and that may require additional clinical trials or potential changes in the cost, scope and duration of
clinical trials. Even if we succeed in getting market approvals, BMS may not have the ability to successfully launch, increase sales of or sustain the product or products in the market, or efficiently
scale-up manufacturing for commercialized compounds. Disputes may arise between us and BMS, which may not be resolved in our favor. Further, BMS could merge with or be acquired by another
company or experience financial or other setbacks unrelated to our collaboration that could, nevertheless, adversely affect us. The occurrence of any of these could result in our proprietary research
and development
business not producing the long-term revenues, earnings, or strategic benefits that we anticipate which could have a material adverse effect on our business.

Our business may be adversely affected if we encounter complications in connection with our continued implementation and operation of information management software.

In 2007, we continued our global implementation of a new comprehensive enterprise resource planning ("ERP") system to enhance operating efficiencies and provide
more effective management of our business operations. Continuing and uninterrupted performance of our ERP system is critical to the success of our business strategy. Any material failure of our ERP
system that interrupts or delays our operations could adversely impact our ability to do the following in a timely manner and have a material adverse effect on our operations:



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Our goodwill may become impaired.

As of December 31, 2007, we had $46.6 million of goodwill on our consolidated balance sheet. We perform an annual assessment of the carrying value
of our goodwill for potential impairment using an independent third-party. A determination of impairment is made based upon the estimated future cash flows of the operations associated with goodwill,
comparable company multiples and recent transactions involving similar entities. If goodwill is determined to be impaired in the future we would be required to record a charge to our results of
operations. Factors we consider important which could result in an impairment include the following:



Agreements we have with our employees, customers, consultants and other third parties may not afford adequate protection for our valuable intellectual property, confidential
information and other proprietary information.

Some of our most valuable assets include patents. In addition to patent protection, we also rely on, trade secrets, know-how, continuing technological
innovation and licensing opportunities. In an effort to maintain the confidentiality and ownership of our customer's information, such as trade secrets, proprietary information and other customer
confidential information, as well as our own, we often require our employees, consultants and advisors to execute confidentiality and proprietary information agreements. However, these agreements may
not provide us with adequate protection against improper use or disclosure of confidential information and there may not be adequate remedies in the event of unauthorized use or disclosure.
Furthermore, we may from time to time hire scientific personnel formerly employed by other companies involved in one or more areas similar to the activities we conduct. In some situations, our
confidentiality and proprietary information agreements may conflict with, or be subject to, the rights of third parties with whom our employees, consultants or advisors have prior employment or
consulting relationships. Although we require our employees and consultants to maintain the confidentiality of all proprietary information of their previous employers, these individuals, or we, may be
subject to allegations of trade secret misappropriation or other similar claims as a result of their prior affiliations. Finally, others may independently develop substantially equivalent proprietary
information and techniques causing some technologies that we develop to be patented by other companies. Our failure to protect our proprietary information and techniques may inhibit our ability to
compete effectively and our investment in those technologies may not yield the benefits we expected. In addition, we may be subject to claims that we are infringing on the intellectual property of
others. We could incur significant costs defending such claims and if we are unsuccessful in defending these claims, we may be subject to liability for infringement. To the extent that we are unable
to protect confidential customer information, we may encounter material harm to our reputation and to our business.

Our failure to manage our expansion may adversely affect us.

Our business has expanded rapidly in the past several years. Expansion places increased stress on our financial, managerial and human resources. As we expand, we
will need to recruit and retain

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additional
highly skilled scientists and technicians. Expansion of our facilities may lead to increased expenses and may divert management attention away from operations.

We may not be able to realize the benefits of recent acquisitions and strategic investments.

In June 2007, we completed the acquisition of two pharmaceutical manufacturing facilities in Aurangabad, India and Navi Mumbai, India ("AMRI India"). In February
2006, we completed the acquisition of ComGenex, a privately held drug discovery service company in Budapest, Hungary. These acquisitions may not be as beneficial to us as we currently expect. With
regards to our strategic equity investments, we record an impairment charge when we believe an investment has experienced a decline in value that is other than temporary. Future adverse changes in
market conditions, poor operating results of underlying investments or the investees' inability to obtain additional financing could result in our inability to recover the carrying value of the
investments, thereby requiring an impairment charge in the future.

Future acquisitions may disrupt our business and distract our management.

We have engaged in a number of acquisitions and strategic investments, and we currently expect to continue to do so. For example, in June 2007 we completed the
acquisition of AMRI India, consisting of two pharmaceutical manufacturing companies in India. Also, in February 2006, we completed the acquisition of ComGenex, a privately held drug discovery service
company in Budapest, Hungary. However, we may not be able to identify additional suitable acquisition candidates, and if we do identify suitable candidates, we may not be able to make such
acquisitions on commercially acceptable terms or at all. If we acquire another company, we may not be able to successfully integrate the acquired business into our existing business in a timely and
non-disruptive manner or at all. We may have to devote a significant amount of time and resources to do so. Even with this investment of time and resources, an acquisition may not produce
the revenues, earnings or business synergies that we anticipate. If we fail to integrate the acquired business effectively or if key employees of that business leave, the anticipated benefits of the
acquisition would be jeopardized. The time, capital, management and other resources spent on an acquisition that fails to meet our expectations could cause our business and financial condition to be
materially adversely affected. In addition, acquisitions can involve charges of significant amounts related to goodwill that could become impaired and adversely affect our results of operations.

We may not be able to effectively manage our international operations.

We established contract research facilities in Singapore and Hyderabad, India in 2005, and have continued to expand our facilities in India in 2006 and 2007. In
February 2006, we completed the acquisition of ComGenex, a privately held drug discovery service company in Budapest, Hungary. Additionally in June 2007, we acquired AMRI India. There are significant
risks associated with the establishment of foreign operations, including, but not limited to: geopolitical risks, foreign currency exchange rates and the impact of shifts in the U.S. and local
economies on those rates, compliance with local laws and regulations, the protection of our intellectual property and that of our customers, the ability to integrate our corporate culture with local
customs and cultures, and the ability to effectively
and efficiently supply our international facilities with the required equipment and materials. If we are unable to effectively manage these risks, these locations may not produce the revenues,
earnings, or strategic benefits that we anticipate which could have a material adverse affect our business.

We may not be able to recruit and retain the highly skilled employees we need.

Our future growth and profitability depends upon the research and efforts of our highly skilled employees, such as our scientists, and their ability to keep pace
with changes in drug discovery and development technologies. We compete vigorously with pharmaceutical firms, biotechnology firms,

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contract
research firms, and academic and research institutions to recruit scientists. If we cannot recruit and retain scientists and other highly skilled employees, we will not be able to continue
our existing services and will not be able to expand the services we offer to our customers.

We may lose one or more of our key employees.

Our business is highly dependent on our senior management and scientific staff, including:



Although
we have employment agreements with certain individuals listed above, we do not have employment agreements with all of our key employees. The loss of any of our key employees,
including our scientists, may have a material adverse effect on our business.

We may be held liable for harm caused by drugs that we develop and test.

We develop, test and manufacture drugs that are used by humans. If any of the drugs that we develop, test or manufacture harm people, we may be required to pay
damages to those persons. Although we carry liability insurance, we may be required to pay damages in excess of the amounts of our insurance coverage. Damages awarded in a product liability action
could be substantial and could have a material adverse effect on our financial condition.

We may be liable for contamination or other harm caused by hazardous materials that we use.

Our research and development processes involve the use of hazardous materials. We are subject to Federal, state and local regulation governing the use,
manufacture, handling, storage and disposal of hazardous materials. We cannot completely eliminate the risk of contamination or injury resulting from
hazardous materials and we may incur liability as a result of any contamination or injury. We may also incur expenses relating to compliance with environmental laws. Such expenses or liabilities could
have a material adverse effect on our financial condition.

We
completed an environmental remediation assessment associated with groundwater contamination at our Rensselaer, New York location. This contamination is associated with past practices
at the facility prior to 1990, and prior to our investment or ownership of the facility. Ongoing costs associated with the remediation include biannual monitoring and reporting to the State of New
York's Department of Environmental Conservation. Under the remediation plan, we are expected to pay for monitoring and reporting until 2014. Under a 1999 agreement with the facility's previous owner,
our maximum liability under the remediation is $5.5 million. If the State of New York Department of Environmental Conservation finds that we fail to comply with the appropriate regulatory
standards, it may impose fines on us which could have a material adverse effect on our operations.

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If we fail to meet strict regulatory requirements, we could be required to pay fines or even close our facilities.

All facilities and manufacturing techniques used to manufacture drugs in the United States must conform to standards that are established by the FDA. The FDA
conducts unscheduled periodic inspections of our facilities to monitor our compliance with regulatory standards. If the FDA finds that we fail to comply with the appropriate regulatory standards, it
may impose fines on us or, if the FDA determines that our non-compliance is severe, it may close our facilities. Any adverse action by the FDA could have a material adverse effect on our
operations.

Our operations may be interrupted by the occurrence of a natural disaster or other catastrophic event at our primary facilities.

We depend on our laboratories and equipment for the continued operation of our business. Our research and development operations and all administrative functions
are primarily conducted at our facilities in Albany and Rensselaer, New York. Although we have contingency plans in effect for natural disasters or other catastrophic events, these events could still
disrupt our operations. Even though we carry business interruption insurance policies, we may suffer losses as a result of business interruptions that exceed the coverage available under our insurance
policies. Any natural disaster or catastrophic event in the Albany area or at our facilities could have a significant negative impact on our operations.

Terrorist attacks or acts of war may seriously harm our business.

Terrorist attacks or acts of war may cause damage or disruption to our company, our employees, our facilities and our customers, which could significantly impact
our revenues, costs and expenses and financial condition. The potential for terrorist attacks, the national and international responses to terrorist attacks, and other acts of war or hostility have
created many economic and political uncertainties, which could materially adversely affect our business, results of operations, and financial condition in ways that we currently cannot predict.

Health care reform could reduce the prices pharmaceutical and biotechnology companies can charge for drugs they sell which, in turn, could reduce the amounts that they have
available to retain our services.

We depend on contracts with pharmaceutical and biotechnology companies for a majority of our revenues. We therefore depend upon the ability of pharmaceutical and
biotechnology companies to earn enough profit on the drugs they market to devote substantial resources to the research and development of new drugs. Future legislation may limit the prices
pharmaceutical and biotechnology companies can charge for the drugs they market. Such laws may have the effect of reducing the resources that pharmaceutical and biotechnology companies can devote to
the research and development of new drugs. If pharmaceutical and biotechnology companies decrease the resources they devote to the research and development of new drugs, the amount of services that we
perform, and therefore our revenues, could be reduced.

The ability of our stockholders to control our policies and effect a change of control of our company is limited, which may not be in your best interests.

There are provisions in our certificate of incorporation and bylaws which may discourage a third party from making a proposal to acquire us, even if some of our
stockholders might consider the proposal to be in their best interests. These provisions include the following:



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Additionally,
we are subject to Section 203 of the Delaware General Corporation Law, which, in general, imposes restrictions upon acquirers of 15% or more of our stock.

We
have adopted a Shareholder Rights Plan, the purpose of which is, among other things, to enhance the Board's ability to protect shareholder interests and to ensure that shareholders
receive fair treatment in the event any coercive takeover attempt of us is made in the future. Under the terms of the Shareholder Rights Plan, the Board can in effect prevent a person or group from
acquiring more than 15% of the outstanding shares of our Common Stock. Once a shareholder acquires more than 15% of our outstanding Common Stock without Board approval (the "acquiring person"), all
other shareholders will have the right to purchase securities from us at a price less than their then fair market value. These subsequent purchases by other shareholders substantially reduce the value
and influence of the shares of Common Stock owned by the acquiring person.

Our officers and directors have significant control over us and their interests may differ from yours.

At February 29, 2008, our directors and officers beneficially owned or controlled approximately 15.0% of our outstanding common stock. Individually and in
the aggregate, these stockholders significantly influence our management, affairs and all matters requiring stockholder approval. In particular, this concentration of ownership may have the effect of
delaying, deferring or preventing an acquisition of us and may adversely affect the market price of our common stock.

Because our stock price may be volatile, our stock price could experience substantial declines.

The market price of our common stock has historically experienced and may continue to experience volatility. Our quarterly operating results, changes in general
conditions in the economy or the financial markets and other developments affecting us or our competitors could cause the market price of our common stock to fluctuate substantially. In addition, in
recent years, the stock market has experienced significant price and volume fluctuations. In addition, the global economic and potential uncertainty have created significant additional volatility in
the United States capital markets. This volatility and the recent market decline has affected the market prices of securities issued by many companies, often for reasons unrelated to their operating
performance or their business prospects, and may adversely affect the price of our common stock.

Because we do not intend to pay dividends, you will benefit from an investment in our common stock only if it appreciates in value.

We have never declared or paid any cash dividends on our common stock. We currently intend to retain our future earnings, if any, to finance the expansion of our
business and do not expect to pay any cash dividends in the foreseeable future. As a result, the success of your investment in our common stock will depend entirely upon any future appreciation. There
is no guarantee that our common stock will appreciate in value or even maintain the price at which you purchased your shares.

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We may experience disruptions in or the inability to source raw materials to support our production processes.

We rely on independent suppliers for key raw materials, consisting primarily of various chemicals. We generally use raw materials available from more than one
source. We could experience inventory shortages if we were required to use an alternative manufacturer on short notice, which could lead to raw materials being purchased on less favorable terms then
we have with our regular supplier. A disruption in the supply of certain raw materials could disrupt production of certain of our products thereby adversely impacting our ability to market and sell
such products and our ability to compete.

We may experience significant increases in operational costs out of our control.

Costs for certain items which are needed to run our business, such as natural gas, energy and petroleum, have increased significantly in the past few years. As
these cost increases are dependent on market conditions, and although we do our best to hedge these price increases, we may experience increases in our costs due to the volatility of prices and market
conditions. Increases in these costs could negatively impact our results of operations.

We may be subject to foreign currency risks.

Our global business operations give rise to market risk exposure related to changes in foreign exchange rates, interest rates, commodity prices and other market
factors. If we fail to effectively manage such risks, it could have a negative impact on our consolidated financial statements.

ITEM 1B.    UNRESOLVED STAFF COMMENTS.

We have received no written comments regarding our periodic or current reports from the staff of the Securities and Exchange Commission that were issued
180 days or more preceding the end of our 2007 fiscal year.

ITEM 2.    PROPERTIES.

Our principal manufacturing and research and development facilities are located in the United States. The aggregate square footage of our operating facilities is
approximately 883,000 square feet, of which 543,000 square feet are owned and 340,000 square feet are leased. Set forth below is information on our principal facilities:

|Location                 |  | Square Feet |  | Primary Purpose                                         
|------------------------ |  | ----------- |  | --------------------------------------------------------
|Rensselaer, New York     |  | 276,000     |  | Manufacturing & Research & Development                  
|Albany, New York         |  | 268,000     |  | Manufacturing, Research & Development and Administration
|Aurangabad, India        |  | 95,000      |  | Manufacturing                                           
|East Greenbush, New York |  | 64,000      |  | Manufacturing & Research & Development                  
|Hyderabad, India         |  | 57,000      |  | Research & Development                                  
|Bothell, Washington      |  | 33,000      |  | Research & Development                                  
|Syracuse, New York       |  | 28,000      |  | Manufacturing & Research & Development                  
|Budapest, Hungary        |  | 27,000      |  | Research & Development                                  
|Singapore                |  | 26,000      |  | Research & Development                                  
|Fuzfo, Hungary           |  | 12,000      |  | Research & Development                                  
|Mumbai, India            |  | 4,000       |  | Administrative                                          
|Navi Mumbai, India       |  | 3,000       |  | Manufacturing                                           

Our
Rensselaer, NY facility and our Aurangabad and Navi Mumbai, India facilities are used in our Large-Scale Manufacturing ("LSM") segment as reported in the consolidated financial
statements. All

26

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other
facilities are used in our Discovery/Development/Small Scale Manufacturing ("DDS") segment, as reported in the consolidated financial statements. We consider these facilities to be in good
condition and suitable for their purpose. The capacity associated with these facilities is adequate to meet our anticipated needs through 2008.

ITEM 3.    LEGAL PROCEEDINGS.

The Company, from time to time, may be involved in various claims and legal proceedings arising in the ordinary course of business. Except as noted below in
regards to litigation relating to Allegra, the Company is not currently a party to any such claims or proceedings which, if decided adversely to the Company, would either individually or in the
aggregate have a material adverse effect on the Company's business, financial condition, results of operations or cash flows.

AMR
Technology, a subsidiary of the Company, along with Aventis Pharmaceuticals Inc., the U.S. pharmaceutical business of Sanofi-Aventis S.A., are involved in legal
proceedings with several companies seeking to market or which are currently marketing generic versions of Allegra. Beginning in 2001, Barr Laboratories, Inc., Impax Laboratories, Inc.,
Mylan Pharmaceuticals, Inc., Teva Pharmaceuticals USA, Inc., Dr. Reddy's Laboratories, Ltd./Dr. Reddy's Laboratories, Inc., Ranbaxy
Laboratories Ltd./Ranbaxy Pharmaceuticals Inc., and Sandoz Inc. filed Abbreviated New Drug Applications ("ANDAs") with the FDA, to produce and market generic versions of Allegra
products.

In
response to the filings described above, beginning in 2001, Aventis Pharmaceuticals filed patent infringement lawsuits against Barr Laboratories, Impax Laboratories, Mylan
Pharmaceuticals, Teva Pharmaceuticals, Dr. Reddy's Laboratories, Ranbaxy Laboratories Ltd./Ranbaxy Pharmaceuticals Inc., and Sandoz. Each of the lawsuits was filed in the U.S.
District Court in New Jersey and alleges infringement of one or more patents owned by Aventis Pharmaceuticals. In addition, beginning on November 14, 2006, Aventis filed two patent infringement
suits against Teva Pharmaceuticals USA, Barr Laboratories, Inc. and Barr Pharmaceuticals, Inc. in the Eastern District of Texas based on patents owned by Aventis. Those lawsuits have now
been transferred to the U.S. District Court in New Jersey.

Further,
beginning on March 5, 2004, AMR Technology, along with Aventis Pharmaceuticals, filed suit in the U.S. District Court in New Jersey against Barr Laboratories, Impax
Laboratories, Mylan Pharmaceuticals, Teva Pharmaceuticals, Dr. Reddy's Laboratories, Amino Chemicals, Ltd., Ranbaxy Laboratories Ltd./Ranbaxy Pharmaceuticals Inc., DiPharma
S.P.A., DiPharma Francis s.r.l., and Sandoz,
asserting infringement of two of our U.S. patents that are exclusively licensed to Aventis Pharmaceuticals relating to Allegra and Allegra-D products. On December 11, 2006, AMR
Technology and Sanofi-Aventis U.S. LLC, an affiliate of Aventis Pharmaceuticals, also filed a patent infringement lawsuit in the Republic of Italy against DiPharma Francis s.r.l. and
DiPharma S.P.A. based on European Patent No. 703,902 which is owned by AMR Technology and licensed to Sanofi-Aventis U.S. LLC. In addition, on December 22, 2006, AMR Technology
filed a patent infringement lawsuit in Canada against Novopharm Ltd., Teva Pharmaceutical Industries Ltd., Teva Pharmaceuticals USA, Inc., DiPharma S.P.A. and
DiPharma s.r.l. based on Canadian Patent No. 2,181,089. On March 20, 2007, AMR Technology filed a patent infringement lawsuit in Australia against Alphapharm Pty Ltd based
on Australian Patent No. 699,799. On September 28, 2007, AMR Technology filed a patent infringement lawsuit in Australia against Arrow Pharmaceuticals Pty Ltd, Chemists' Own
Pty Ltd, and Sigma Pharmaceuticals Limited based on Australian Patent No. 699,799.

Aventis
Pharmaceuticals and AMR Technology have entered into covenants not to sue on U.S. Patent No. 5,578,610 with defendants other than Novopharm, DiPharma S.P.A., DiPharma
Francis s.r.l., Alphapharm, Arrow Pharmaceuticals Pty Ltd, Chemists' Own Pty Ltd, and Sigma Pharmaceuticals Limited. Aventis Pharmaceuticals exclusively licenses U.S. Patent
No. 5,578,610 from us, but that patent has not been asserted in the litigations in the U.S. However, we and Aventis Pharmaceuticals have agreed that Aventis Pharmaceuticals will continue to pay
royalties to us based on that patent under our

27

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original
license agreement with Aventis Pharmaceuticals. Under our arrangements with Aventis Pharmaceuticals, we will receive royalties until expiration of the underlying patents (2013 for U.S. Patent
No. 5,578,610 and 2015 for U.S. Patent No. 5,750,703) unless the patents are earlier determined to be invalid.

Under
applicable federal law, marketing of an FDA-approved generic version of Allegra may not commence until the earlier of a decision favorable to the generic challenger in
the patent litigation or 30 months after the date the patent infringement lawsuit was filed. In general, the first generic filer is entitled to a 180-day marketing exclusivity
period upon FDA approval.

On
September 6, 2005, Barr Pharmaceuticals, Inc. and Teva Pharmaceuticals Industries Ltd. announced that they have entered into an agreement for the launch of
Fexofenadine Hydrochloride 30 mg, 60 mg and 180 mg tablets, the generic version of Allegra tablets in the United States. The launch of the generic product is considered an "at-risk" launch
due to the on-going litigation. This generic launch has had a material adverse impact on U.S. sales of Allegra by Sanofi-Aventis since the fourth quarter of 2005 and, in turn, the
royalties earned by the Company on those sales. The launch has not had a material impact on non-U.S. sales of Allegra to date.

On
September 20, 2005, AMR Technology, along with Aventis Pharmaceuticals, filed a Motion for Preliminary Injunction in the U.S. District Court in New Jersey seeking to enjoin
Barr Pharmaceuticals, Inc., Teva Pharmaceuticals Ltd., Ranbaxy Laboratories, Ltd. and Amino Chemicals, Ltd. from the sale of generic versions of Allegra in the United
States. On January 30, 2006, the U.S. District
Court denied the request by AMR Technology and Aventis Pharmaceuticals for a preliminary injunction. An appeal of that decision was taken to the U.S. Court of Appeals for the Federal Circuit and, on
November 8, 2006, the appellate court affirmed the District Court's denial of a preliminary injunction. The Federal Circuit's decisions on the preliminary injunction application is not
dispositive of the merits of the claims being asserted as described above.

Subsequent
to the preliminary injunction proceeding in the District Court, Dr. Reddy's Laboratories and Mylan Pharmaceuticals have engaged in at-risk launches of
generic fexofenadine products.

Should
the Company be unsuccessful in defending these patents, the Company would continue to experience a material decrease in operating cash flows and a material adverse effect on our
results of operations and financial condition.

ITEM 4.    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

During the fourth quarter of the fiscal year covered by this report, there were no matters submitted to a vote of security holders through solicitation of proxies
or otherwise.

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PART II

ITEM 5.    MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES.

(a)    Market
Information.    The Common Stock of the Company is traded on the Nasdaq National Market ("Nasdaq") under the symbol "AMRI." The following table sets
forth the high and low closing prices for our Common Stock as reported by Nasdaq for the periods indicated:

Period

High

LowYear ending December 31, 2007First Quarter

$
10.71

$
9.06Second Quarter

$
15.32

$
9.51Third Quarter

$
16.98

$
11.57Fourth Quarter

$
18.20

$
11.98Year ending December 31, 2006First Quarter

$
12.44

$
9.70Second Quarter

$
10.81

$
9.22Third Quarter

$
10.41

$
8.50Fourth Quarter

$
12.43

$
9.19


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Stock Performance Graph

The following graph provides a comparison, from December 31, 2002 through December 31, 2007, of the cumulative total stockholder return (assuming
reinvestment of any dividends) among the Company, the Nasdaq Stock Market (U.S. Companies) Index (the "Nasdaq Index") and the Nasdaq Pharmaceuticals Index (the "Pharmaceuticals Index"). The historical
information set forth below is not necessarily indicative of future performance. Data for the Nasdaq Index and the Pharmaceuticals Index were provided to the Company by Nasdaq.

GRAPHIC

|                  |  | Albany Molecular
Research, Inc |  | Nasdaq Stock
Market
(U.S. Companies)
Index |  | Nasdaq
Pharmaceuticals
Index
|----------------- |  | ------------------------------ |  | ------------------------------------------ |  | ----------------------------
|December 31, 2002 |  | 100.000                        |  | 100.000                                    |  | 100.000                     
|December 31, 2003 |  | 101.487                        |  | 149.521                                    |  | 146.588                     
|December 31, 2004 |  | 75.321                         |  | 162.719                                    |  | 156.132                     
|December 31, 2005 |  | 82.150                         |  | 166.178                                    |  | 171.930                     
|December 31, 2006 |  | 71.400                         |  | 182.574                                    |  | 168.293                     
|December 31, 2007 |  | 97.228                         |  | 197.978                                    |  | 176.974                     

(b)    Holders.

The
number of record holders of our Common Stock as of February 29, 2008 was approximately 194. We believe that the number of beneficial owners of our Common Stock at that date
was substantially greater than 194.

(c)    Dividends.

We
have not declared any cash dividends on our Common Stock since our inception in 1991. We currently intend to retain our earnings for future growth and, therefore, do not anticipate
paying cash dividends in the foreseeable future. Under Delaware law, we are permitted to pay dividends only out of our surplus, or, if there is no surplus, out of our net profits. Although our current
bank credit facility permits us to pay cash dividends, subject to certain limitations, the payment of cash dividends may be prohibited under agreements governing debt which we may incur in the future.

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(d)    Equity
Compensation Plan InformationThe following table provides information about the securities authorized for issuance under our equity compensation
plans as of December 31, 2007:

|Plan Category                                              |  | (a)
Number of securities to be
issued upon exercise of
outstanding options,
warrants and rights |  | (b)
Weighted-average
exercise price of
outstanding options,
warrants and rights |       | (c)
Number of securities
remaining available for
future issuance under
equity compensation
plans (excluding
securities reflected in
column (a)) |          
|---------------------------------------------------------- |  | ----------------------------------------------------------------------------------------------- |  | ------------------------------------------------------------------------------- | ----- | ----------------------------------------------------------------------------------------------------------------------------------------------- | ---------
|Equity compensation plans approved by security holders(1)  |  | 1,963,441                                                                                       |  | $                                                                               | 20.95 |                                                                                                                                                 | 1,410,667
|Equity compensation plans not approved by security holders |  |                                                                                                |  |                                                                                 |      |                                                                                                                                                 |         
|                                                           |  |                                                                                                 |  |                                                                                 |       |                                                                                                                                                 |          
|Total                                                      |  | 1,963,441                                                                                       |  | $                                                                               | 20.95 |                                                                                                                                                 | 1,410,667
|                                                           |  |                                                                                                 |  |                                                                                 |       |                                                                                                                                                 |          

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ITEM 6.    SELECTED FINANCIAL DATA.

The selected financial data shown below for the fiscal years ended December 31, 2007, 2006, and 2005 and as of December 31, 2007 and 2006, have been
derived from our audited consolidated financial statements included in this Form 10-K. The selected financial data set forth below for the fiscal years ended December 31,
2004 and 2003 and as of December 31, 2005, 2004 and 2003 have been derived from our audited consolidated financial statements for those years, which are not included in this
Form 10-K. The information should be read in conjunction with the Company's audited consolidated financial statements and related notes and other financial information included
herein, including Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations".

|                                                    |                                | As of and for the Year Ending December 31,
|--------------------------------------------------- | ------------------------------ | ------------------------------------------
|
|
|Consolidated Statement of Income (Loss) Data:       |                                |                                           
|Contract revenue                                    |                                | $                                         
|Recurring royalties                                 |                                |                                           
|Milestone revenue                                   |                                |                                           
|                                                    |                                |                                           
|                                                    | Total revenue                  |                                           
|Cost of contract revenue                            |                                |                                           
|Write-down of library inventories                   |                                |                                           
|                                                    |                                |                                           
|                                                    | Total cost of contract revenue |                                           
|Technology incentive award                          |                                |                                           
|Research and development                            |                                |                                           
|Selling, general and administrative                 |                                |                                           
|Property and equipment impairment                   |                                |                                           
|Goodwill impairment                                 |                                |                                           
|Intangible asset impairment                         |                                |                                           
|Restructuring charge                                |                                |                                           
|                                                    |                                |                                           
|                                                    | Total costs and expenses       |                                           
|                                                    |                                |                                           
|Income (loss) from operations                       |                                |                                           
|Equity in loss of unconsolidated affiliates         |                                |                                           
|Interest income, net                                |                                |                                           
|Minority interest in consolidated subsidiaries      |                                |                                           
|Loss on equity investment                           |                                |                                           
|Other (loss) income, net                            |                                |                                           
|                                                    |                                |                                           
|Income (loss) before income tax expense             |                                |                                           
|Income tax expense                                  |                                |                                           
|                                                    |                                |                                           
|Net income (loss)                                   |                                | $                                         
|                                                    |                                |                                           
|Basic earnings (loss) per share                     |                                | $                                         
|                                                    |                                |                                           
|Diluted earnings (loss) per share                   |                                | $                                         
|                                                    |                                |                                           
|Weighted average common shares outstanding, basic   |                                |                                           
|                                                    |                                |                                           
|Weighted average common shares outstanding, diluted |                                |                                           
|                                                    |                                |                                           
|Consolidated Balance Sheet Data:                    |                                |                                           
|Cash, cash equivalents and investment securities    |                                | $                                         
|Property and equipment, net                         |                                |                                           
|Working capital                                     |                                |                                           
|Total assets                                        |                                |                                           
|Long-term debt, excluding current installments      |                                |                                           
|Total stockholders' equity                          |                                |                                           
|Other Consolidated Data:                            |                                |                                           
|Capital expenditures                                |                                | $                                         

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ITEM 7.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

Overview

We provide scientific services, technologies and products focused on improving the quality of life while delivering excellence, value and maximum return to our
shareholders. Our core business consists of contract drug discovery, chemistry, and manufacturing services. In addition to our contract services, we also have a separate, stand-alone research and
development division comprising proprietary technology investments, internal drug discovery and niche generic active pharmaceutical ingredient product development. We conduct proprietary research and
development to discover new therapeutically active lead compounds with commercial potential. We anticipate that we would then license these compounds to third parties in return for
up-front and service fees, and milestone payments as well as recurring royalty payments if these compounds are developed into new commercial drugs. Our proprietary research and development
activities previously led us to license the worldwide rights to develop and commercialize potential products from the amine neurotransmitter reuptake inhibitor patents and technology identified in one
of our proprietary research programs to Bristol-Myers Squibb Company ("BMS"), in October 2005. In addition, these activities also led to the development, patenting and 1995 licensing of a
substantially pure form of, and a manufacturing process for, the active ingredient in the non-sedating antihistamine fexofenadine HCl marketed by Sanofi-Aventis S.A. as Allegra in
the Americas and as Telfast elsewhere.

Our
total revenue for 2007 was $192.5 million, including $163.4 million from our contract service business, $2.1 from our milestones and $27.0 million from our
royalties on sales of Allegra/Telfast. We generated $31.7 million in cash from operations and spent $11.9 million related to the acquisition of
assets of Ariane Orgachem Private Limited and Ferico Laboratories Limited, collectively known as AMRI India Pvt. Limited ("AMRI India"). In addition, we spent $17.7 million in capital on our
facilities and equipment, primarily related to the construction and outfitting of research facilities in Hyderabad, India and the modernization of manufacturing suites at our Rensselaer facility. In
addition, we paid down $4.6 million in outstanding principal on our credit facilities. We recorded net income of $8.9 million in 2007. As of December 31, 2007, we had
$107.7 million in cash, cash equivalents and investments and $14.0 million in bank and other related debt, carrying a blended interest rate of approximately 4.43%.

Strategy

We provide contract services to many of the world's leading pharmaceutical and biotechnology companies. We derive our contract revenue from research and
development expenditures and commercial manufacturing demands of the pharmaceutical and biotechnology industry. We continue to execute our long-term strategy to develop and grow a fully
integrated global platform from which we can provide these services. In addition to existing research facilities in the United States, Hungary, Singapore and Hyderabad, India, we purchased large-scale
manufacturing sites in India in June 2007 and completed the expansion of our research and development facilities in Hyderabad, India in September 2007.

We
continue to integrate our research and manufacturing facilities worldwide, increasing our access to key global markets and enabling us to provide our customers with a flexible
combination of high quality services and competitive cost structures to meet their individual outsourcing needs. We seek comprehensive research and/or supply agreements with our customers,
incorporating several of our service offerings and spanning across the entire pharmaceutical research and development process. Our research facilities provide discovery, chemical development,
analytical, and small-scale current Good Manufacturing Practices ("cGMP") manufacturing services. Compounds discovered and developed in our research facilities can then be more easily transitioned to
production at our large-scale

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manufacturing
facilities for use in clinical trials and, ultimately, commercial sales if the product meets regulatory approval. We believe that the ability to partner with a single provider of
pharmaceutical research and development services from discovery through commercial production is of significant benefit to our customers. Through our comprehensive service offerings, we are able to
provide customers with a more efficient transition of experimental compounds through the research and development process, ultimately reducing the time and cost involved in bringing these compounds
from concept to market.

Our
global platform increases our market share and allows us to maintain and grow margins. In addition to our globalization, we continue to implement process efficiencies, including our
implementation of a Lean-to-Excellence campaign, along with efforts to strengthen our sourcing. We believe these factors will drive higher margins.

We
conduct proprietary research and development to discover new therapeutically active lead compounds with commercial potential. We anticipate that we would then license these compounds
to third parties in return for up-front and service fees and milestone payments, as well as recurring royalty payments if these compounds are developed into new commercial drugs. In
addition, research and development is performed at our large-scale manufacturing facility related to the potential manufacture of new products, the development of processes for the manufacture of
generic products with commercial potential, and the development of alternative manufacturing processes.

In
recent years, we have experienced increased demand in the areas of developmental and small-scale cGMP manufacturing services, reflecting a reduction in budgetary constraints and their
increased efforts to bring identified compounds into clinical trials on the part of our emerging pharmaceutical and biotechnology customers. During this timeframe, in recognition of increased
competition and consolidation within the pharmaceutical industry, we established lower-cost international operations in Hungary, Singapore and India. Contract service providers that were
not able to offer a cost competitive product were forced to exit or significantly reduce their presence in the marketplace during this time.

In
addition to the longer-term trend of growth in development and small-scale cGMP manufacturing services discussed above, we have more recently seen an increased trend in
demand for our discovery services, as our ability to provide high-quality services under a variety of business models and cost structures by incorporating our international facilities has
been well-received by our customers. We currently expect the trend of increased worldwide demand for our services to continue in 2008, and we expect to continue to expand our global
service platform to meet the needs of our customers. In 2007, we completed the construction of a 50,000 square foot research center focusing primarily on drug development, synthesis and medicinal
support services at the Shapoorji Pallonji Biotech Park in Hyderabad, India. Additionally, we commenced a 10,000 square foot expansion of our Singapore Research Center in early 2008. In addition to
increasing existing discovery service capabilities, the expansion of our Singapore Research Center will also include the introduction of in vitro biology services at the facility.

As
discussed in Item 3 of this Form 10-K, beginning in September 2005, several generic manufacturers began to produce and market a generic version of Allegra.
We and Aventis Pharmaceuticals have filed several patent infringement suits against these generic companies alleging infringement of certain U.S. and Canadian patents. The launch of the generic
product is considered an "at-risk" launch due to the on-going litigation. The at-risk launch of generic fexofenadine has had a material adverse impact on U.S. sales
of Allegra by Sanofi-Aventis and in turn, the royalties earned by us on those sales. We continue to forcefully and vigorously defend our intellectual property related to Allegra, and we continue to
pursue our intellectual property rights as the patent infringement litigation progresses. However, should we or Sanofi-Aventis be unsuccessful in defending these patents we would continue to
experience a material decrease in royalty revenues and operating cash flows.

34

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The recurring royalties we receive on the sales of Allegra/Telfast have historically provided a material portion of our revenues, earnings, and operating cash flows. The
at-risk launch of generic fexofenadine had a material adverse impact on U.S. sales of Allegra in 2006, resulting in a 42% decrease in our royalty revenues for 2006 compared to 2005.
Allegra royalty revenues remained flat in 2007 compared with amounts recognized in 2006. We currently expect 2008 Allegra royalty revenues to remain flat or decrease slightly from amounts recognized
in 2007. We have experienced a decrease in earnings and operating cash flows from levels experienced prior to the 2005 at-risk launch as we continue to develop our business in an effort to
supplement the revenues, earnings and operating cash flows that have historically been provided by Allegra/Telfast royalties.

Results of Operations

Operating Segment Data

We have organized our sales, marketing and production activities into the Discovery/Development/Small Scale Manufacturing ("DDS") and Large Scale Manufacturing
("LSM") segments based on the criteria set forth in Statement of Financial Accounting Standards ("SFAS") No. 131 ("SFAS 131"), "Disclosures about Segments of an Enterprise and Related
Information." We rely on an internal management accounting system to report results of these segments. The accounting system includes revenue and cost information by segment. We make financial
decisions and allocate resources based on the information we receive from this internal system. The DDS segment includes activities such as drug lead discovery, optimization, drug development and
small scale commercial manufacturing. The LSM segment include pilot to commercial scale manufacturing of active pharmaceutical ingredients and intermediates and high potency and controlled substance
manufacturing. The manufacturing performed at our Rensselaer facility is in compliance with cGMP.

Contract Revenue

Contract revenue consists primarily of fees earned under contracts with third-party customers. Our contract revenues for our DDS and LSM segments were as follows:

Year Ended December 31,2007

2006

2005(in 000's)DDS

$
87,063

$
75,777

$
55,645LSM


76,312


77,006


81,343Total

$
163,375

$
152,783

$
136,988


DDS
contract revenue for the year ended December 31, 2007 was $87.1 million, an increase of $11.3 million or 14.9% compared to contract revenue of
$75.8 million for the same period in 2006. This increase is primarily due to an increase in contract revenue from development and small-scale manufacturing services of $9.2 million, as
customers continue to focus on development-stage projects. In addition, discovery services revenue increased $2.1 million due to increased demand for these services, as our ability to offer
various combinations of services and cost structures at our U.S. and international locations continues to gain acceptance in the worldwide marketplace. We expect the growth trends in both discovery
services and development and small-scale manufacturing services to continue in 2008.

LSM
contract revenue decreased by $0.7 million, or 0.9%, to $76.3 million for the year ended December 31, 2007 as compared to $77.0 million for the same
period in 2006. The decrease in contract revenue was primarily attributable to the decrease in sales to GE Healthcare of $2.6 million due to the timing of customer requirements, along with a
decrease in revenue from the production of clinical supply materials for use in advanced stage human trials of $1.7 million. These decreases were offset, in

35

---



part,
by an increase in incremental revenues from our June 2007 AMRI India acquisition, coupled with commercial sales of $1.4 million. We expect LSM contract revenue in 2008 to increase
slightly from amounts recognized in 2007 due to a full year of revenue from our AMRI India acquisition.

DDS
contract revenue for the year ended December 31, 2006 was $75.8 million, an increase of $20.2 million or 36.2% compared to contract revenue of $55.6 for the same
period in 2005. The increase in contract revenue was primarily attributable to an increase in discovery services revenue of $12.1 million or 44% due to the recognition of license fee and FTE
services revenues resulting from our License and Research Agreement with BMS, strong worldwide demand for discovery services provided through both our U.S. and Singapore facilities, and the addition
of $8.1 million in revenue from our 2006 acquisition of ComGenex Kutato-Fejleszto Rt. ("AMRI Hungary"). In addition, contract revenue from chemical development, small-scale cGMP manufacturing
and analytical services increased by $8.1 million or 29% as our customers continue to focus on development-stage projects and demand for development services provided through our India facility
increased.

LSM
contract revenue decreased by $4.3 million, or 5.3%, to $77.0 million in 2006 compared to $81.3 in 2005. The decrease in contract revenue was primarily attributable to
the discontinuation of purchases of one of LSM's products by GE Healthcare in the second quarter of 2005. Sales of this product totaled $17.0 million in 2005, which represented 21% of 2005 LSM
revenue, and 12% of total contract revenue for the year ended December 31, 2005. The decrease was largely offset by an increase in demand for clinical supply products for advanced stage human
trials as we shift the focus of our large-scale manufacturing operations. Clinical supply manufacturing revenues were $24.3 million in 2006, or 32% of total LSM revenue, compared to
$17.9 million in 2005, or 22.0% of total LSM revenue. The decrease is further offset by a $5.5 million increase in sales of commercial products to customers other than GE due to the
timing of customer requirements.

Recurring Royalties

We earn royalties under our licensing agreement with Sanofi-Aventis S.A. for the active ingredient in Allegra/Telfast. Royalties were as follows:

Year Ended December 31,2007

2006

2005(in 000's)$27,056

$27,024

$46,918


Recurring
royalties, which are based on the worldwide sales of fexofenadine HCI, marketed as Allegra in the Americas and Telfast elsewhere, as well as on the sales of Sanofi-Aventis'
authorized generics, slightly increased to $27.1 million for the year ended December 31, 2007 from $27.0 million in 2006.

Recurring
royalties decreased 42.4% to $27.0 million for the year ended December 31, 2006 from $46.9 million for 2005. The decrease is primarily attributable to the
impact of the at-risk launch of generic fexofenadine by Barr Pharmaceuticals, Inc. and Teva Pharmaceuticals Industries Ltd.

The
recurring royalties we receive on the sales of Allegra/Telfast have historically provided a material portion of our revenues, earnings, and operating cash flows. During 2006 and
2007, we experienced a decrease in revenues, earnings, and operating cash flows from historical levels due to the impact of the "at-risk" launch of generic fexofenadine by Barr
Pharmaceuticals, Inc. and Teva Pharmaceuticals Industries Ltd. on U.S. sales of Allegra by Sanofi-Aventis. We currently expect royalty revenues for 2008 to remain flat or decrease
slightly from amounts recognized in 2007. We continue to develop our business in an effort to supplement the revenues, earnings and operating cash flows that have historically been provided by
Allegra/Telfast royalties. We continue to forcefully and vigorously defend our intellectual property related to Allegra, and we continue to pursue our intellectual property

36

---



rights
as patent infringement litigation progresses. However, should we or Aventis be unsuccessful in defending these patents we would continue to experience a material decrease from historic royalty
revenues and operating cash flows. Furthermore, an at-risk launch of a generic version of Allegra-D by a generic competitor could result in further material decreases in
royalty revenues.

Milestone revenue

Milestone revenue is earned for achieving certain milestones included in licensing and research agreements with certain customers. Milestone revenues were as
follows:

Year Ended December 31,2007

2006

2005(in 000's)$2,080

$

$


Milestone
revenue received during the year ended December 31, 2007 is primarily due to a milestone payment of $1.5 million in conjunction with the Company's license and
research agreement with BMS. This milestone payment was triggered by a compound being developed under the agreement proceeding into pre-clinical development. An additional
$0.5 million of milestone revenue was recognized during the fourth quarter of 2007 from a collaborative research agreement.

Cost of Contract Revenue

Cost of contract revenue consists primarily of compensation and associated fringe benefits for employees, as well as chemicals, depreciation and other indirect
project related costs. Cost of contract revenue for our DDS and LSM segments were as follows:

Year Ended December 31,2007

2006

2005(in 000's)DDS

$
63,091

$
53,591

$
45,179LSM


68,941


75,019


69,526Total

$
132,032

$
128,610

$
114,705DDS Gross Margin


27.5
%

29.3
%

18.8
%LSM Gross Margin


9.7
%

2.6
%

14.5
%Total Gross Margin


19.2
%

15.8
%

16.3
%


DDS
contract revenue gross margin was 27.5% for the year ended December 31, 2007, compared to 29.3% in 2006. The decrease in gross margin largely resulted from underutilized
capacity at some of our international locations, offset in part, by an increase in contract revenues in relation to the fixed cost components of DDS contract business. We expect DDS contract revenue
gross margins to increase in 2008 due to increases in contract revenues both domestically and internationally in relation to the fixed costs at these locations.

LSM
contract revenue gross margin increased to 9.7% for the year ended December 31, 2007 compared to 2.6% in 2006. The increase is primarily due to process efficiencies as well as
the recognition of operating cost savings resulting from the November 2006 restructuring of this segment. This increase was offset, in part, by a decrease in margin resulting from start up costs
associated with our acquisition of AMRI India. We expect gross margins in the LSM segment to improve slightly in 2008, from our continued implementation of cost savings and process efficiencies in our
Rensselaer facilities and from fully integrating AMRI India into our LSM segment. This improvement will be offset, in part, by a decrease in margins in relation to price concessions to our largest
customer, GE

37

---



Healthcare.
Although these price concessions are expected to decrease our gross margin, we believe this strengthens our ability to retain this customer for future business.

DDS
contract revenue gross margin was 29.3% for the year ended December 31, 2006, compared to 18.8% in 2005. The increase in gross margin largely resulted from the increase in
contract revenues in relation to the fixed cost components of DDS contract business, including the addition of license fee revenues associated with our Licensing and Research Agreement with BMS. The
recognition of license fees contributed approximately $2.9 million to DDS contract revenue for 2006, with no corresponding incremental cost. We also realized margin contributions on services
performed at AMRI Hungary. DDS contract gross margin was also favorably impacted by a $1.2 million decrease in the amortization of the Company's chemical compound and natural product library
inventories for the year ended December 31, 2006, due to the impairment of these libraries in the fourth quarter of 2005. This item was offset by increased salary and benefit expenses due to
annual merit increases and the recognition of additional share-based compensation expense under SFAS No. 123 (Revised 2004), "Share-Based Payment" ("SFAS 123(R)").

LSM
contract revenue gross margin decreased to 2.6% for the year ended December 31, 2006 compared to 14.5% in 2005. The decrease was due to the impact of the transition of our
large-scale manufacturing facility from specializing in the repetitive manufacturing of commercial products to the non-repetitive manufacturing of clinical supply compounds for numerous
customers for use in clinical trials. In November 2006 we announced a restructuring plan to realign the facility's operations and cost structure with this business model. The goal of the restructuring
plan was to improve the efficiency and profitability of the LSM operating segment by eliminating overlap in business processes, organization and project process flow, as well as leveraging existing
resources and assets.

Technology Incentive Award

We maintain a Technology Development Incentive Plan, the purpose of which is to stimulate and encourage novel innovative technology development by our employees.
This plan allows eligible participants to share in a percentage of the net revenue earned by us relating to patented technology with respect to which the eligible participant is named as an inventor
or made a significant intellectual contribution. To date, the royalties from Allegra are the main driver of the awards. Accordingly, as the
creator of the technology, the award is currently payable primarily to Dr. Thomas D'Ambra, the Chief Executive Officer and President of the Company. The incentive awards were as follows:

Year Ended December 31,2007

2006

2005(in 000's)$2,784

$2,783

$4,695


The
technology incentive award expense remained flat for the year ended December 31, 2007 compared to 2006. The majority of expense in both years is primarily due to the incentive
paid on Allegra royalty revenue. Additionally in 2006, the Company recorded expense for incentives paid to employees involved in the development of our proprietary amine neurotransmitter reuptake
inhibitors resulting from the licensing of this technology to BMS, while in 2007 recorded expense related to awards granted in relation to a milestone payment from BMS for the same project. We expect
technology incentive award expense to generally fluctuate directionally and proportionately with fluctuations in Allegra royalties in future periods.

The
technology incentive award expense decreased 40.7% to $2.8 million for the year ended December 31, 2006, compared to $4.7 million for 2005. The decrease was
directly attributable to the continued decrease in Allegra royalties in 2006, partially offset by technology incentive awards paid to employees involved in the development of our proprietary amine
neurotransmitter reuptake inhibitors as a result of the successful licensing of this technology to BMS.

38

---



Research and Development

Research and development ("R&D") expense consists of compensation and benefits for scientific personnel for work performed on proprietary technology R&D projects,
costs of chemicals and other out of pocket costs, and overhead costs. We utilize our expertise in small molecule chemistry, biocatalysis and natural product technologies to perform our internal
research and development projects. The goal of these programs is to discover new compounds with commercial potential. We would then seek to license these compounds to a third party in return for a
combination of up-front license fees, milestone payments and recurring royalty payments if these compounds are successfully developed into new drugs and reach the market. In addition,
research and development is performed at our large-scale manufacturing facility related to the potential manufacture of new products, the development of processes for the manufacture of generic
products with commercial potential, and the development of alternative manufacturing processes. Research and development expenses were as follows:

Year Ended December 31,2007

2006

2005(in 000's)$12,821

$11,428

$14,468


Research
and development expenses increased 12.2% to $12.8 million for the year ended December 31, 2007 from $11.4 million for 2006. The increase in R&D expense
during the year ended December 31, 2007 is due primarily to the progression of one of our compounds from our proprietary oncology research program to the advanced preclinical testing phase. On
October 30, 2006, we announced the selection of a compound from our proprietary oncology research program for advanced preclinical testing, with the goal of submitting an Investigational New
Drug Application ("IND") with the U.S. Food and Drug Administration ("FDA"). Our current goal is to submit this IND in 2008. In addition, R&D expense increased due to incremental costs related to the
development of active pharmaceutical ingredients to be used in the manufacturing of specialty generic drugs. We currently expect R&D expense to increase in 2008 as we continue to advance our oncology
compound towards an IND submission with the FDA. Additionally, we expect increased costs associated with the continued development of specialty generics, as well as researching and developing
processes to manufacture
intermediates at our AMRI India facility. These intermediates have historically been purchased from third parties to be used at our domestic locations.

Projecting
completion dates and anticipated revenue from our internal research programs is not practical at this time due to the early stages of the projects and the inherent risks
related to the development of new drugs. Our proprietary amine neurotransmitter reuptake inhibitor program, which was our most advanced project at that time, was licensed to BMS in October 2005 in
exchange for up-front license fees, contracted research services, and the rights to future milestone and royalty payments. We also continue to utilize our proprietary technologies to
further advance other early to middle-stage internal research programs in the fields of oncology, irritable bowel syndrome/emesis, obesity, immunosuppresion and inflammation, with a view to seeking a
licensing partner for these programs at an appropriate research or developmental stage.

We
budget and monitor our research and development costs by type or category, rather than by project on a comprehensive or fully allocated basis. In addition, our research and
development expenses are not tracked by project as it benefits multiple projects or our technology platform. Consequently, fully loaded R&D cost summaries by project are not available.

Research
and development expenses decreased 21.0% to $11.4 million for the year ended December 31, 2006 from $14.5 million for 2005. The decrease in R&D expense
during the year ended December 31, 2006 was due primarily to the out-licensing of our CNS programs, which represented our most significant investment in R&D in 2005, to BMS in
October 2005. As a result, after signing the

39

---



agreement
in October 2005, we did not incur significant R&D expenditures that would have been necessary to further advance these programs. In addition, certain costs associated with these programs,
primarily consisting of compensation, employee benefits, and overhead costs related to our scientific personnel working on these programs, have been allocated to cost of contract revenue due to the
contract research we are performing for BMS in conjunction with the licensing and research agreement.

Selling, General and Administrative

Selling, general and administrative expenses consist of compensation and related fringe benefits for marketing, operational and administrative employees,
professional service fees, marketing costs and costs related to facilities and information services. Selling, general and administrative expenses were as follows:

Year Ended December 31,2007

2006

2005(in 000's)$33,250

$31,899

$26,494


The
increase in selling, general and administrative expenses in 2007 is primarily due to an increase in compensation and benefits expense related to the addition of business development
personnel worldwide, the addition of incremental administrative costs incurred at AMRI India and the addition of administrative support staff at our Singapore and Hyderabad, India locations. These
increases were partially offset by a decrease in data processing costs associated with the implementation of our enterprise resource planning ("ERP") system. Selling, general and administrative
expenses are expected to increase in 2008 primarily due to increased business development personnel costs and a full year of expenses related to AMRI India.

The
increase in selling, general and administrative expenses in 2006 was primarily due to the addition of incremental administrative costs incurred at AMRI Hungary, an increase in
salaries and benefits expense due to the addition of administrative and business development personnel and the recognition of additional share-based compensation expense under SFAS No. 123(R),
as well as an increase in costs due to the implementation and maintenance of our ERP system. These increases were partially offset by a decrease from a refund of property taxes at our Mt. Prospect
facility and an incremental decrease in our Singapore expenses.

Restructuring Charges

Large
Scale Manufacturing Restructuring

On
November 9, 2006, we announced plans to initiate a restructuring of our LSM business segment. Consistent with our continued strategy of realigning the LSM segment toward a
greater focus on manufacturing clinical trial materials with strong commercial potential, the goals of the restructuring plan were to strengthen our competitiveness in this area and reduce operating
costs by eliminating overlap in business processes, organization and project process flow, as well as leveraging existing resources and assets. The restructuring plan included a reduction of
workforce, as well as reductions of non-essential operating expenses, raw material costs and future capital expenditure activities. We estimated that total large scale costs will be
reduced by $5.0 million annually as a result of this restructuring. We recorded a restructuring charge of approximately $2.4 million in the fourth quarter of 2006, including a
non-cash asset disposal charge of approximately $1.6 million, and other charges of approximately $0.8 million consisting primarily of termination benefits. We recorded
additional restructuring charges of $0.3 million in the first nine months of 2007, consisting of additional termination benefits associated with the restructuring.

40

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The
large scale restructuring costs are included under the caption restructuring charge in the consolidated statements of operations during 2007 and 2006, and the restructuring
liabilities are included in accounts payable and accrued expenses on the consolidated balance sheets at December 31, 2007 and 2006.

The
following table displays the restructuring activity and liability balances:

|                     |  | Balance at
January 1,
2007 |       | Charges |   | Incurred
Amounts |  | Balance at
December 31,
2007
|-------------------- |  | -------------------------- | ----- | ------- | - | ---------------- |  | ----------------------------
|
|Termination benefits |  | $                          | 682   |         |   | 273              |  |                             
|Asset disposal costs |  |                            | 382   |         |   |                 |  |                             
|                     |  |                            |       |         |   |                  |  |                             
|Total                |  | $                          | 1,064 |         | $ | 273              |  | $                           
|                     |  |                            |       |         |   |                  |  |                             

|
|

|                     |  | Balance at
January 1,
2006 |   | Charges |   | Incurred
Amounts |  | Balance at
December 31,
2006
|-------------------- |  | -------------------------- | - | ------- | - | ---------------- |  | ----------------------------
|
|Termination benefits |  | $                          |  |         |   | 874              |  |                             
|Asset disposal costs |  |                            |  |         |   | 1,557            |  |                             
|                     |  |                            |   |         |   |                  |  |                             
|Total                |  | $                          |  |         | $ | 2,431            |  | $                           
|                     |  |                            |   |         |   |                  |  |                             

Termination
benefits relate to severance packages, outplacement services and career counseling for employees affected by the restructuring. Asset disposal costs related primarily to the
carrying value of underutilized assets that were identified for disposal in conjunction with the restructuring plan.

The
large scale manufacturing restructuring activity was recorded in the LSM operating segment. The net cash outflow related to the large scale manufacturing restructuring for the years
ended December 31, 2007 and 2006 were $0.8 million and $0.1 million, respectively. Anticipated cash outflows related to the large scale manufacturing restructuring for 2008 are
$0.1 million, which primarily consists of the payment of termination benefits.

Mt. Prospect Restructuring and Impairment Charges

On
May 4, 2004 we announced our plan to consolidate operations by relocating our Mt. Prospect facility operations to our facilities in New York. Our proprietary biocatalysis
technology platform, drug metabolism screening, research fermentation and chemical development technologies in Mt. Prospect have been relocated to New York and continue to be fully integrated with our
drug discovery and development technologies. The restructuring resulted in the closure of the Mt. Prospect Research Center in the fourth quarter of 2004. The consolidation was initiated as a result of
a lack of anticipated growth in our chemical development services at the facility.

During
the fourth quarter of 2006, we secured a letter of intent related to the potential sale of the Mt. Prospect facility. We recorded impairment charges of approximately
$3.5 million during 2006 to reduce the carrying amount of these assets to reflect the sales price per the letter of intent less estimated selling costs. We completed the sale of the facility in
March 2007 for $1.5 million.

41

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Interest income, net

Year Ended December 31,(in thousands)2007

2006

2005Interest expense

$
(853
)
$
(985
)
$
(1,772
)Interest income


4,045


3,975


3,559Interest income, net

$
3,192

$
2,990

$
1,787


Interest
expense decreased to $0.9 million for the year ended December 31, 2007 from $1.0 million for 2006. The decrease was primarily due to the reduction of
outstanding interest-bearing debt balances in 2007.

Interest
expense decreased to $1.0 million for the year ended December 31, 2006 from $1.8 million for 2005. The decrease was primarily due to the
pay-down of the $25.5 million outstanding balance on the Company's line of credit in the third quarter of 2005.

Interest
income remained constant at $4.0 million for the year ended December 31, 2007 as compared to 2006 as increases in the average balances of interest-bearing cash and
investments held by the Company were offset by decreases in the interest rates earned on these balances in 2007.

Interest
income increased to $4.0 million for the year ended December 31, 2006 from $3.6 million for 2005. The increase was due to increases in the rates earned on
investment securities, interest bearing cash accounts and other short-term cash equivalents, partially offset by decreases in the underlying interest-earning balances held by the Company.

Income tax expense

Year Ended December 31,2007

2006

2005(in 000's)$5,449

$59

$8,825


Income
tax expense increased to $5.4 million for the year ended December 31, 2007, due primarily to an increase in pre-tax income of $12.1 million. The
Company's effective tax rate increased to 37.9% of pre-tax income for the year ended December 31, 2007 from 2.6% of pre-tax income for the year ended December 31,
2006. The increase is due to an increase in pre-tax income in relation to the Company's deductible items and non-taxable earnings, which remained consistent in 2007, along with
changes in the composition of taxable income in relation to the applicable tax rates at our various international locations. We expect the effective tax rate to approximate 35% of pre-tax
income for 2008.

Income
tax expense was $59,000 for the year ended December 31, 2006, compared to $8.8 million for 2005. The overall decrease in income tax expense was primarily
attributable to a decrease in pre-tax income. The Company's effective tax rate decreased to 2.6% of pre-tax income for the year ended December 31, 2006 from 35.1% of
pre-tax income for the year ended December 31, 2005. The decrease was due to the consistency of the Company's deductible items and non-taxable earnings and a decrease in
pre-tax income, as well as the benefit recognized from tax holidays that the Company has been granted on earnings from certain foreign operations.

Liquidity and Capital Resources

We have historically funded our business through operating cash flows, proceeds from borrowings and the issuance of equity securities. During 2007, we generated
cash of $31.7 million from operating

42

---



activities.
The primary sources of operating cash flows are increased contract and milestone revenues in 2007 and decrease in accounts receivable due to the timing of cash collections. The primary
uses of operating cash flows are the payment of compensation and benefits to both scientific and administrative personnel, purchases of inventory and supplies, and payment of occupancy costs and
income taxes.

The
recurring royalties we receive on the sales of Allegra/Telfast have historically provided a material portion of our operating cash flows. As discussed in Item 3 of this
Form 10-K, several generic manufacturers have filed ANDA applications with the FDA seeking authorization to produce and market a generic version of Allegra. We and Aventis
Pharmaceuticals have filed several patent infringement suits against these generic companies alleging infringement of certain U.S. patents. However, should we or Aventis be unsuccessful in defending
these patents we would continue to experience a material decrease in royalty revenues and operating cash flows. Furthermore, an at-risk launch of a generic version of Allegra-D
by a generic competitor could result in further material decreases in royalty revenues and operating cash flows.

During
2007, we used $9.8 million in cash for investing activities, primarily consisting of $17.7 million for the acquisition of property and equipment and
$11.9 million related to the acquisition of AMRI India, partially offset by proceeds from sales and maturities of investment securities, net of purchases of these securities, of
$18.8 million. During 2007, we used $3.0 million for financing activities, consisting primarily of $4.6 million in long-term debt repayments, offset, in part, by
$1.4 million provided by proceeds from stock option exercises and stock purchase plan withholdings.

Working
capital was $138.9 million as of December 31, 2007, compared to $149.9 million at December 31, 2006. The primary reasons for the decrease were the use
of cash and investments to fund capital expenditures, the acquisition of AMRI India and the maturity of a portion of the Company's
long-term debt. These decreases were partially offset by a decrease in deferred revenue due primarily to the recognition of deferred up-front licensing fees received in
conjunction with our licensing and research agreement with BMS. We believe we have mitigated a potentially significant risk associated with auction rate securities, which are included in investment
securities, available-for-sale, on our consolidated balance sheet, by reducing our balance of these types of securities from $28.0 million at December 31, 2007 to
$7.8 million at February 29, 2008.

Total
capital expenditures for the year ended December, 31 2007 were $17.7 million as compared to $16.5 million for the year ended December 31, 2006. Capital
expenditures in 2007 were primarily related to the construction of our research facilities in Singapore and Hyderabad, India and modernization of our large-scale manufacturing facilities. For 2008, we
expect to incur $15.0$20.0 million in capital expenditures, primarily related to the expansion of our research facilities in Singapore and the addition or replacement, as
appropriate, of equipment for our domestic discovery, development, small-scale manufacturing, and large scale manufacturing services.

We
entered into a credit facility consisting of a $30.0 million term loan and a $35.0 million line of credit to fund the acquisition of AMRI Rensselaer, Inc. ("AMRI
Rensselaer") (formerly known as Organichem) during 2003. The term loan matured in February, 2008. We are currently negotiating a refinancing of this debt, which would include converting debt into a
revolving line of credit. This negotiation is expected to be completed during the first quarter of 2008. As of December 31, 2007, the interest rate on $7.1 million of the outstanding
term loan balance was 4.36% and the interest rate on the remaining $2.5 million was 6.20%. On June 30, 2005, the Company amended the credit facility to extend the maturity date on the
line of credit from February 2006 to June 2010. The line of credit bears interest at a variable rate based on the Company's leverage ratio. As of December 31, 2007, the outstanding balance of
the line of credit was $0. The credit facility contains certain financial covenants, including a maximum leverage ratio, a minimum required operating cash flow coverage ratio, a minimum earnings
before interest and taxes to interest ratio and a minimum current ratio. Other covenants include limits on asset disposals and the payment of dividends. As of December 31, 2007 and 2006, we
were in compliance with all covenants under the credit facility.

43

---





Working capital was $149.9 million as of December 31, 2006, compared to $162.8 million at December 31, 2005. The primary reasons for the decrease were the use
of cash and investments to fund capital expenditures, the acquisition of AMRI Hungary, and a decrease in the carrying value of our held-for-sale Mt. Prospect facility. These
decreases were partially offset by a decrease in deferred revenue, due primarily to the recognition of deferred up-front licensing fees received in conjunction with our Licensing and
Research Agreement with BMS as well as the completion of the revenue recognition process on several fixed fee contracts, and an increase in accounts receivable due to the timing of invoicing and
collecting on sales to customers.

Total
capital expenditures for the year ended December 31, 2006 were $16.5 million as compared to $19.2 million for the year ended December 31, 2005. Capital
expenditures in 2006 were primarily related to the construction of our research facilities in Singapore and India, development of an ERP system and expansion and modification of our large-scale
manufacturing facilities.

During
2006, we used $9.0 million in cash for investing activities, primarily resulting from $16.5 million for the acquisition of property and equipment, and
$11.6 million related to the acquisition of ComGenex, offset by proceeds from sales and maturities of investment securities net of purchases of these securities of $19.3 million. During
2006, we used $4.0 million for financing activities, consisting of $4.6 million in long-term debt repayments, offset by $0.6 million provided by proceeds from stock
option exercises and stock purchase plan withholdings.

We
continue to pursue the expansion of our operations through internal growth and strategic acquisitions. We expect that such activities will be funded from existing cash and cash
equivalents, cash flow from operations, the issuance of debt or equity securities and borrowings. Future acquisitions, if any, could be funded with cash on hand, cash from operations, borrowings under
our credit facility and/or the issuance of equity or debt securities. There can be no assurance that attractive acquisition opportunities will be available to us or will be available at prices and
upon such other terms that are attractive to us. We regularly evaluate potential acquisitions of other businesses, products and product lines and may hold discussions regarding such potential
acquisitions. As a general rule, we will publicly announce such acquisitions only after a definitive agreement has been signed. In addition, in order to meet our long-term liquidity needs
or consummate future acquisitions, we may incur additional indebtedness or issue additional equity or debt securities, subject to market and other conditions. There can be no assurance that such
additional financing will be available on terms acceptable to us or at all. The failure to raise the funds necessary to finance our future cash requirements or consummate future acquisitions could
adversely affect our ability to pursue our strategy and could negatively affect our operations in future periods. Furthermore, a continued decrease in royalties from Allegra would negatively affect
our cash flow from operations and financial condition in future periods.

Off Balance Sheet Arrangements

We do not use special purpose entities or other off-balance sheet financing techniques that we believe have or are reasonably likely to have a current
or future material effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity or capital resources.

Contractual Obligations

The following table sets forth our long-term contractual obligations and commitments as of December 31, 2007.

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Payments Due by Period (in thousands)

|                              |  | Total |        | Under 1 Year |   | 1-3 Years |  | 4-5 Years |       | After 5 Years
|----------------------------- |  | ----- | ------ | ------------ | - | --------- |  | --------- | ----- | -------------
|Long-Term Debt (principal)(1) |  | $     | 13,981 |              | $ | 9,900     |  | $         | 530   |              
|Long-Term Debt (interest)(1)  |  |       | 1,441  |              |   | 447       |  |           | 269   |              
|Operating Leases              |  |       | 11,098 |              |   | 3,156     |  |           | 4,194 |              
|Purchase Commitments          |  |       | 15,165 |              |   | 15,165    |  |           |      |              
|Pension Plan Contributions    |  |       | 303    |              |   | 303       |  |           |      |              

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Related Party Transactions

Technology Development Incentive Plan

In 1993, we adopted a Technology Development Incentive Plan to provide a method to stimulate and encourage novel innovative technology development. To be eligible
to participate, the individual must be an employee and must be the inventor of, co-inventor of, or have made a significant intellectual contribution to novel technology that results in new
revenues received by us. Eligible participants will share in awards based on a percentage of the licensing, royalty or milestone revenue received by us, as defined by the Plan.

In
2007, 2006 and 2005 we awarded Technology Incentive Compensation primarily to Thomas D'Ambra, our Chairman, President and Chief Executive Officer and the inventor of the terfenadine
carboxylic acid metabolite technology, which is covered by the Company's patents relating to the active ingredient in Allegra. Additionally, in 2006 we awarded Technology incentive compensation to
employees involved in the development of our proprietary amine neurotransmitter reuptake inhibitors as a result of the successful licensing of this technology to BMS. In addition, in 2007 awards were
granted in relation to the milestone payment from BMS made pursuant to the licensing and research agreement between the Company and BMS. The amounts awarded and included in the consolidated statements
of income for the years ended December 31, 2007, 2006 and 2005 are $2.8 million, $2.8 million and $4.7 million, respectively. Included in accrued compensation in the
accompanying consolidated balance sheets, at December 31, 2007 and 2006, are unpaid Technology Development Incentive Compensation awards of approximately $0.7 million and
$0.6 million, respectively.

Telecommunication Services

A member of the Company's board of directors is the Chief Executive Officer of one of the providers of telephone and internet services to the Company. This
telecommunications company was paid approximately $228,000, $156,000 and $194,000 for services rendered to the Company in 2007, 2006 and 2005, respectively.

Critical Accounting Policies and Estimates

Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in
accordance with U.S. generally accepted accounting principles. The preparation of these consolidated financial statements requires us to make estimates and judgments that affect the reported amounts
of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our estimates, including those related to bad
debts, inventories, intangible assets, equity investments, unbilled revenue, income taxes, pension and postretirement benefit plans, and contingencies. We base

45

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our
estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the
carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

We
believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our consolidated financial statements.

Contract Revenue Recognition

Our contract revenue consists primarily of fees earned under contracts with third-party customers and reimbursed expenses under such contracts. We also seek to
include provisions in certain contracts that contain a combination of up-front licensing fees, milestone and royalty payments should our proprietary technology and expertise lead to the
discovery of new products that reach the market. Reimbursed expenses consist of chemicals and other project specific costs. Generally, our contracts may be terminated by the customer upon
30 days' to one year's prior notice, depending on the size of the contract. We analyze our agreements to determine whether the elements can be separated and accounted for individually or as a
single unit of accounting in accordance with Emerging Issues Task Force ("EITF") No. 00-21, "Revenue Arrangements with Multiple Deliverables", and SAB 104, "Revenue
Recognition". Allocation of revenue to individual elements which qualify for separate accounting is based on the estimated fair value of the respective elements.

We
generate contract revenue on the following basis:

Full-time Equivalent (FTE).An FTE agreement establishes the number of our employees contracted for a project or
a series of projects, the duration of the contract period, the price per FTE,
plus an allowance for chemicals and other project specific costs, which may or may not be incorporated in the FTE rate. FTE contracts can run in one month increments, but typically have terms of six
months or longer. Our FTE contracts typically provide for annual adjustments in billing rates for the scientists assigned to the contract. These contracts involve our scientists providing services on
a "best efforts" basis in a project that involves a research component with a timeframe or outcome that has some level of unpredictability. There are no fixed deliverables that must be met for payment
as part of these services. As such, we recognize revenue under FTE contracts on a monthly basis as services are performed according to the terms of the contract.

Time and Materials.Under a time and materials contract we charge our customers an hourly rate plus reimbursement for
chemicals and other project specific costs. We recognize revenue for time and material contracts based on the number of hours devoted to the project multiplied by the customer's billing rate plus
other project specific costs incurred.

Fixed-Fee.Under a fixed-fee contract we charge a fixed agreed upon amount for a deliverable.
Fixed-fee contracts have fixed deliverables upon completion of the project. Typically, we recognize revenue for fixed-fee contracts after projects are completed, delivery is
made and title transfers to the customer, and collection is reasonably assured. In certain instances, our customers request that we retain materials produced upon completion of the project due to the
fact that the customer does not have a qualified facility to store those materials. In these instances, the revenue recognition process is considered complete when necessary project documentation
(batch records, Certificates of Analysis, etc.) has been delivered to the customer and payment has been collected.

Up-Front License Fees, Milestone, and Royalty Revenue.We recognize revenue from up-front
non-refundable licensing fees on a straight-line basis over the period of the underlying project. We will recognize revenue arising from a substantive milestone payment upon
the successful achievement of the event, and the resolution of any uncertainties or contingencies regarding potential collection of the related payment, or if appropriate over the remaining term of
the agreement.

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Deferred Revenue.Deferred revenue represents monies received for services that have not yet been performed as well as
customer billings related to completed production which has not yet shipped. As an added service, we temporarily store completed cGMP production at our facilities for certain customers. Under these
arrangements, upon completion of the customer project we typically will enter into a storage agreement with the customer. We will temporarily store and subsequently ship the completed production,
often in multiple shipments to multiple sites. The revenue related to these arrangements is typically recognized at the time the products are ultimately shipped, however, in certain instances, the
revenue recognition process is considered complete when necessary project
documentation (batch records, Certificates of Analysis, etc.) has been delivered to the customer and payment has been collected, as noted above.

Recurring Royalty Revenue Recognition.Recurring royalties consist of royalties under a license agreement with Sanofi-Aventis
based on the worldwide sales of fexofenadine HCl, marketed as Allegra in the Americas and Telfast elsewhere. We record royalty revenue in the period in which the sales of Allegra/Telfast occur.
Royalty payments from Sanofi-Aventis are due within 45 days after each calendar quarter and are determined based on sales of Allegra/Telfast in that quarter.

Restructuring Charges

We account for our restructuring costs as required by SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities" ("SFAS
No. 146"). SFAS No. 146 requires that a liability for a cost associated with an exit or disposal activity be recognized and measured initially at its fair value in the period in which
the liability is incurred, except for one-time termination benefits that meet certain requirements.

Inventory

Inventory consists primarily of commercially available fine chemicals used as raw materials, work-in-process and finished goods in our
large-scale manufacturing plant. Large-scale manufacturing inventories are valued based on standard costs as they are produced on a first-in, first-out (FIFO) basis. Variances
from standard costs are accumulated as they are incurred and are included in the carrying value of inventory. Inventories are stated at the lower of cost or market. The Company writes down inventories
equal to the difference between the cost of inventory and the estimated market value based upon assumptions about future demand and market conditions. Any such write-down results in a
charge to operations.

Goodwill

In accordance with the provisions of SFAS No. 142, we perform an annual assessment of the carrying value of goodwill for potential impairment (or on an
interim basis if certain triggering events occur). A determination of impairment is made based upon the estimated discounted future cash flows of the operations associated with the related reporting
unit, comparable company multiples and recent transactions involving similar entities. If goodwill is determined to be impaired in the future we would
be required to record a charge to our results of operations. Factors the Company considers important that could result in an impairment include the following:



47

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If
management's expectations of future operating results change, or if there are changes to other assumptions, the estimate of the fair value of our reporting units could change
significantly. Such a change could result in goodwill impairment charges in future periods, which could have a significant impact on our consolidated financial statements. Total goodwill recorded on
the Company's consolidated balance sheet at December 31, 2007 was $46.6 million, including $23.1 million associated with the Company's acquisition of AMRI Rensselaer,
$11.5 million of goodwill associated with the Company's acquisition of AMRI Hungary and $9.4 million of goodwill associated with the Company's acquisition AMRI India in June 2007.

Long-Lived Assets

In accordance with the provisions of SFAS No. 144, we assess the impairment of long-lived assets whenever events or changes in circumstances
indicate that their carrying
value may not be recoverable. Factors we consider important that could trigger an impairment review include, among others, the following:



If
we determine that the carrying value of long-lived assets may not be recoverable, based upon the existence of one or more of the above indicators of impairment, we compare
the carrying value of the asset group to the undiscounted cash flows expected to be generated by the asset group. If the carrying value exceeds the undiscounted cash flows an impairment charge is
recorded. An impairment charge is recognized to the extent that the carrying amount of the asset group exceeds their fair value and will reduce only the carrying amounts of the long-lived
assets.

Equity Investments

We have equity investments in leveraged private companies that have operations in areas within our strategic focus. We account for these investments using the
cost method of accounting for investments as our ownership interest in each customer is below 20% and we do not have the ability to exercise significant influence over the entities. We assess the fair
value of these investments quarterly or whenever events or changes in circumstance, such as changes in market conditions, poor operating results of the underlying investments, or the inability of the
entities to obtain additional financing indicate that the investment value may not be recoverable. However, should the events and conditions that are indicative of impairment as noted above arise, the
Company may be required to record additional impairment charges in future periods. Total equity investments recorded on the Company's consolidated balance sheet at December 31, 2007 were
$1.0 million.

Pension and Postretirement Benefit Plans

We maintain pension and postretirement costs and liabilities that are developed from actuarial valuations. Inherent in these valuations are key assumptions,
including discount rates, expected return on plan assets, and trends in health care costs, which are updated on an annual basis. We are required to consider current market conditions, including
changes in interest rates, in making these assumptions. Changes in the related pension benefit costs may occur in the future due to changes in the assumptions. In September 2006, the FASB issued SFAS
No. 158, "Employers' Accounting for Defined Benefit Pension and Other Postretirement Plans" ("SFAS No. 158"). SFAS No. 158 requires an employer that sponsors one or more defined
benefit pension plans or other postretirement plans to recognize the funded status of a plan, measured as the difference between plan assets at fair value and the benefit obligation, in the balance
sheet; recognize in shareholders' equity as a component of

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accumulated
other comprehensive loss, net of tax, the gains or losses and prior service costs or credits that arise during the period but are not yet recognized as components of net periodic benefit
cost; measure defined benefit plan assets and obligations as of the date of the employer's fiscal year-end balance sheet; and disclose in the notes to the financial statements additional
information about the effects on net periodic benefit cost for the next fiscal year that arise from delayed recognition of the gains or losses, prior service costs or credits, and transition asset or
obligation. The Company adopted SFAS No. 158 effective December 31, 2006.

Allowance for Doubtful Accounts

We record an allowance for doubtful accounts to reflect estimated receivable losses as circumstances arise that bring into doubt our ability to fully collect on
outstanding receivable balances. The allowance and related accounts receivable are reduced when the account is deemed uncollectible.

Environmental Liabilities

In the ordinary course of business the Company is subject to environmental laws and regulations, and has made provisions for the estimated financial impact of
environmental cleanup related costs. The quantification of environmental exposures requires an assessment of many factors, including changing laws and regulations, advancements in environmental
technologies, the quality of information available related to specific sites, the assessment stage of each site investigation, preliminary findings and the length of time involved in the remediation
or settlement. The Company accrues environmental cleanup related costs when those costs are believed to be probable and can be reasonably estimated.

Stock-Based Compensation

Effective January 1, 2006, the Company adopted SFAS 123(R), which amends SFAS 123 and supersedes Accounting Principles Board ("APB") Opinion
No. 25, "Accounting for Stock Issued to Employees," ("APB 25") in establishing standards for the accounting for transactions in which an entity exchanges its equity instruments for goods
or services, as well as transactions in which an entity incurs liabilities in exchange for goods or services that are based on the fair value of the entity's equity instruments or that may be settled
by the issuance of those equity instruments. This Statement requires that the cost resulting from all share-based payment transactions be recognized in the financial statements based on the fair value
of the share-based payment. This Statement establishes fair value as the measurement objective in accounting for share-based payment transactions with employees, except for equity instruments held by
employee share ownership plans. As allowed under SFAS 123(R), the Company elected the modified prospective method of adoption, under which compensation cost is recognized in the financial
statements beginning with the effective date of SFAS 123(R) for all share-based payments granted after that date, and for all unvested awards granted prior to the effective date of
SFAS 123(R). Accordingly, prior period amounts have not been restated.

Prior
to January 1, 2006, the Company applied the intrinsic value-based method of accounting prescribed by APB No. 25 in accounting for its stock options. As such,
compensation expense was recorded only if, on the date of grant, the current market price of the underlying stock exceeded the exercise price. Any compensation expense was to be recognized over the
vesting period.

Compensation
cost is based on the fair value of the options on their grant date, and is recognized over the period of requisite service. The fair value of stock option grants is
determined utilizing the Black-Scholes option pricing model. Inherent in these valuations are key assumptions, including expected volatility in the Company's common share price, risk-free
interest rates, and the expected lives of the options granted, and are updated for each option grant. We are required to consider current market conditions, including interest rates and the market for
the Company's common stock, as well as

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historical
data regarding option exercises and forfeitures in making these assumptions. Changes in the related compensation costs associated with future grants may occur due to changes in the
assumptions.

Income Taxes

Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the income tax consequences
attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax
assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on
deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

In
assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized.
The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income and the taxable income in the two previous tax years to which tax loss carryback can be
applied. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, taxable income in the carryback period and tax planning strategies in making this
assessment, and records a valuation allowance on deferred tax assets when considered necessary.

On
January 1, 2007, the Company adopted the provisions of FASB Interpretation No. 48, "Accounting for Uncertainty in Income Taxes, an Interpretation of FASB Statement
No. 109" ("FIN 48"). FIN 48 provides recognition criteria and a related measurement model for tax positions taken by companies. In accordance with FIN 48, a tax position is
a position in a previously filed tax return or a position expected to be taken in a future tax filing that is reflected in measuring current or deferred income tax assets and liabilities. Tax
positions are recognized only when it is more likely than not (likelihood of greater than 50%), based on technical merits, that the position would be sustained upon examination by taxing authorities.
Tax positions that meet the more likely than not threshold are measured using a probability-weighted approach as the largest amount of tax benefit that is greater than 50% likely of being realized
upon settlement. The adoption of FIN 48 did not result in a change to the liability of unrecognized benefits.

Recent Accounting Pronouncements

In February 2007, the FASB issued SFAS No. 159 ("SFAS 159"), "The Fair Value Option for Financial Assets and Financial Liabilities". SFAS 159
permits an entity to measure certain financial assets and financial liabilities at fair value. Entities that elect the fair value option will report unrealized gains and losses in earnings at each
subsequent reporting date. The provisions of SFAS 159 are effective for fiscal years beginning after November 15, 2007. We are currently evaluating the impact, if any, of the provisions
of SFAS 159 on our financial statements.

In
November 2007, the Emerging Issues Task Force issued EITF Issue 07-01 ("EITF 07-01"), "Accounting for Collaborative Arrangements".
EITF 07-01 requires collaborators to present the results of activities for which they act as the principal on a gross basis and report any payments received from (made to) other
collaborators based on other applicable GAAP or, in the absence of other applicable GAAP, based on analogy to authoritative accounting literature or a reasonable, rational, and consistently applied
accounting policy election. Further, EITF 07-01 clarified that the determination of whether transactions within a collaborative arrangement are part of a vendor-customer (or
analogous) relationship subject to Issue 01-9, "Accounting for Consideration Given by a Vendor to a Customer".
EITF 07-01 is effective for fiscal years beginning after December 15, 2008. We are currently evaluating the impact, if any, of EIFT 07-01 on our financial
statements.

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On
December 4, 2007, the FASB issued SFAS No. 160 ("SFAS 160"), "Noncontrolling Interests in Consolidated Financial StatementsAn Amendment of ARB
No. 51". SFAS 160 establishes new accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. Specifically, this
statement requires the recognition of a noncontrolling interest (minority interest) as equity in the consolidated financial statements and separate from the parent's equity. The amount of net income
attributable to the noncontrolling interest will be included in consolidated net income on the face of the income statement. SFAS 160 clarifies that changes in a parent's ownership interest in
a subsidiary that do not result in deconsolidation are equity transactions if the parent retains its controlling financial interest. In addition, this statement requires that a parent recognize a gain
or loss in net income when a subsidiary is deconsolidated. Such gain or loss will be measured using the fair value of the noncontrolling equity investment on the deconsolidation date. SFAS 160
also includes expanded disclosure requirements regarding the interests of the parent and its noncontrolling interest. SFAS 160 is effective for fiscal years, and interim periods within those
fiscal years, beginning on or after December 15, 2008. Earlier adoption is prohibited. We are currently assessing the impact of this statement and the effect it will have on our financial
statements.

In
December 2007, the FASB issued SFAS No. 141(R) ("SFAS 141(R)"), "Business Combinations". SFAS 141(R) establishes principles and requirements for how an acquirer
in a business combination recognizes and measures the assets acquired, liabilities assumed and any noncontrolling interest in the acquiree. This statement also provides guidance for recognizing and
measuring the goodwill acquired in the business combination and determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the
business combination. SFAS 141(R) applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first fiscal year beginning on or after
December 15, 2008. We are currently evaluating the impact, if any, of the provisions of SFAS 141(R) on our financial statements

ITEM 7A.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

We have market risk with respect to foreign currency exchange rates and interest rates. The market risk is the potential loss arising from adverse changes in
these rates as discussed below.

The
Company has facilities in Singapore, India and Hungary and therefore is subject to foreign currency risk. This risk is composed of both potential losses from the translation of
foreign currency financial statements and the remeasurement of foreign currency transactions. The total net assets of non-U.S. operations denominated in non-functional
currencies subject to potential loss amount to approximately $75.8 million. The potential loss in fair value resulting from a hypothetical 10% adverse change in quoted foreign currency exchange
rates amounts to approximately $7.6 million. Furthermore, related to foreign currency transactions, the Company has exposure to non-functional currency balances totaling
approximately $5.0 million. This amount includes, on an absolute basis, exposures to foreign currency assets and liabilities. On a net basis, the Company had approximately $4.0 million
of foreign currency liabilities as of December 31, 2007. As currency rates change, these non-functional currency balances are revalued, and the corresponding adjustment is recorded
in the consolidated statement of income. A hypothetical change of 10% in currency rates could result in an adjustment to the consolidated statement of income of approximately $0.4 million.

With
respect to interest rates, the risk is composed of changes in future cash flows due to changes in interest rates on our variable rate $9.6 million term loan and
$4.3 million industrial development authority bonds.

To
mitigate this risk, we have entered into interest rate swap agreements that have fixed the interest rate on 51% of our variable rate debt. Included in other assets is approximately
$8,000, which represents the estimated market value of the swap agreements. The potential loss in 2008 cash flows from a 10% adverse change in quoted interest rates would approximate $31,000.

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ITEM 8.    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

Financial statements and notes thereto appear on pages F-1 to F-43 of this Form 10-K Annual Report.

ITEM 9.    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.

None.

ITEM 9A.    CONTROLS AND PROCEDURES.

Evaluation of Disclosure Controls and Procedures

As required by rule 13a-15(b) under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), as of the end of the period covered
by this Annual Report on Form 10-K, the Company's management conducted an evaluation with the participation of the Company's Chief Executive Officer and Chief Financial Officer
regarding the effectiveness of the design and operation of the Company's disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the
Exchange Act). Based upon that evaluation the Company's Chief Executive Officer and Chief Financial Officer have concluded that the Company's disclosure controls and procedures were effective as of
December 31, 2007.

Management's Annual Report on Internal Control over Financial Reporting

The Company's management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in
Rule 13a-15(f) under the Exchange Act. The Company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles, and includes those policies and procedures that:



Because
of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

The
Company's management, including the Chief Executive Officer and Chief Financial Officer, assessed as of December 31, 2007 the effectiveness of the Company's internal control
over financial reporting. In making this assessment, management used the criteria set forth in the framework inInternal ControlIntegrated
Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on the results of this evaluation, management has concluded that the
Company maintained effective internal control over financial reporting as of December 31, 2007.

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In
making this assessment, management has excluded the internal control over financial reporting of AMRI India, which was acquired on June 29, 2007 and whose financial statements
constitute 3.8 percent of total consolidated assets and 1.2 percent of consolidated revenues as of and for the year ended December 31, 2007.

Attestation Report of the Registered Public Accounting Firm

The attestation report of the Company's independent registered public accounting firm regarding internal control over financial reporting is included on
page F-2 of this Annual Report on Form 10-K and incorporated herein by reference.

Changes in Internal Control Over Financial Reporting

There were no changes in the Company's internal control over financial reporting identified in connection with the evaluation of such internal control that
occurred during the Company's last fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.

ITEM 9B.    OTHER INFORMATION

None.

PART III

ITEM 10.    DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.

The information appearing under the captions "Directors and Executive Officers," "Section 16(a) Beneficial Ownership Reporting Compliance" and "Code of
Ethics" in the Company's definitive proxy statement relating to the Annual Meeting of Stockholders to be held on June 4, 2008 is incorporated herein by reference.

ITEM 11.    EXECUTIVE COMPENSATION.

The information appearing under the captions "Executive CompensationSummary Compensation,Compensation Committee Interlocks and Insider
Participation,
andAgreements with Named Executive Officers," and "Information Regarding DirectorsThe Board of Directors and its Committees" in the Company's definitive proxy statement
relating to the Annual Meeting of Stockholders to be held on June 4, 2008 is incorporated herein by reference.

ITEM 12.    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.

The information appearing under the caption "Principal and Management Stockholders" in the Company's definitive proxy statement relating to the Annual Meeting of
Stockholders to be held on June 4, 2008 is incorporated herein by reference.

ITEM 13.    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE.

The information appearing under the caption "Certain Transactions" in the Company's definitive proxy statement relating to the Annual Meeting of Stockholders to
be held on June 4, 2008 is incorporated herein by reference.

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ITEM 14.    PRINCIPAL ACCOUNTANT FEES AND SERVICES.

The information appearing under the caption "Audit Fees" in the Company's definitive proxy statement relating to the Annual Meeting of Stockholders to be held on
June 4, 2008 is incorporated herein by reference.

PART IV

ITEM 15.    EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

(a)(1)
Financial Statements.

The
consolidated financial statements required by this item are submitted in a separate section beginning on page F-1 of this report.



Page
NumberReports of Independent Registered Public Accounting Firm

F-2Consolidated Statements of Income for the Years Ended December 31, 2007, 2006 and 2005

F-5Consolidated Balance Sheets at December 31, 2007 and 2006

F-6Consolidated Statements of Stockholders' Equity and Comprehensive Income for the Years Ended December 31, 2007, 2006 and 2005

F-7Consolidated Statements of Cash Flows for the Years Ended December 31, 2007, 2006 and 2005

F-8Notes to Consolidated Financial Statements

F-10


(a)(2)    Financial
Statement Schedules

The
following financial schedule of Albany Molecular Research, Inc. is included in this annual report on Form 10-K.

Schedule IIValuation and Qualifying Accounts

SCH-1


Schedules
other than that which is listed above have been omitted since they are either not required, are not applicable, or the required information is shown in the consolidated
financial statements or related notes.

(a)(3)    Exhibits

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EXHIBIT INDEX

|Exhibit
No. |  | Description                                                                                                                                                                                                                                                                                                                                                                                                       
|----------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|2.1         |  | Business Transfer Agreement, dated May 16, 2007 between Albany Molecular Research, Inc. and Ariane Orgachem Private Limited (incorporated by reference to Exhibit 2.1 to the Company's Quarterly Report on
Form 10-Q for the quarterly period ended June 30, 2007, File No. 000-25323).                                                                                                                           
|2.2         |  | Business Transfer Agreement, dated May 16, 2007 between Albany Molecular Research, Inc. and Ferico Laboratories Limited (incorporated by reference to Exhibit 2.2 to the Company's Quarterly Report on
Form 10-Q for the quarterly period ended June 30, 2007, File No. 000-25323).                                                                                                                               
|2.3         |  | Stock Purchase Agreement, dated January 27, 2006, between Albany Molecular Research, Inc. and ComGenex Kutato-Fejleszto Rt. (incorporated herein by reference to Exhibit 2.1 to the Company's Quarterly Report
on Form 10-Q for the quarterly period ended March 31, 2006, File No. 000-25323).                                                                                                                   
|3.1         |  | Restated Certificate of Incorporation of the Company (incorporated herein by reference to Exhibit 3.2 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1998, File
No. 000-25323).                                                                                                                                                                                               
|3.2         |  | Amended and Restated By-Laws of the Company (incorporated herein by reference to Exhibit 3.1 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1998, File
No. 000-25323).                                                                                                                                                                                                        
|4.1         |  | Specimen certificate for shares of Common Stock, $0.01 par value, of the Company (incorporated herein by reference to Exhibit 4.1 to Amendment No. 3 to the Company's Registration Statement on Form S-1, File
No. 333-58795).                                                                                                                                                                                    
|4.2         |  | Certificate of Designations, Preferences and Rights of a Series of Preferred Stock of Albany Molecular Research, Inc. classifying and designating the Series A Junior Participating Cumulative Preferred Stock.
(incorporated herein by reference to Exhibit 3.1 to the Company's Registration Statement on Form 8-A filed with the Securities and Exchange Commission on September 19, 2002, File No. 000-25323).
|4.3         |  | Shareholder Rights Agreement, dated as of September 18, 2002, between the Company and Mellon Investor Services LLC, as Rights Agent (incorporated herein by reference to Exhibit 3.2 to the Company's
Registration Statement on Form 8-A filed with the Securities and Exchange Commission on September 19, 2002, File No. 000-25323).                                                                            
|10.1        |  | Lease dated as of October 9, 1992, as amended, by and between the Company and Hoffman Enterprises (incorporated herein by reference to Exhibit 10.1 to Amendment No. 3 to the Company's Registration Statement
on Form S-1, File No. 333-58795).                                                                                                                                                                  
|10.2*       |  | 1998 Stock Option and Incentive Plan of the Company (incorporated herein by reference to Exhibit 10.2 to Amendment No. 3 to the Company's Registration Statement on Form S-1, File
No. 333-58795).                                                                                                                                                                                                                
|10.3*       |  | Amended and Restated 1992 Stock Option Plan of the Company (incorporated herein by reference to Exhibit 10.3 to Amendment No. 2 to the Company's Registration Statement on Form S-1, File
No. 333-58795).                                                                                                                                                                                                         
|10.4*       |  | 1998 Employee Stock Purchase Plan of the Company (incorporated herein by reference to Exhibit 10.4 to Amendment No. 2 to the Company's Registration Statement on Form S-1 (File No. 333-58795)
).                                                                                                                                                                                                                 

55

---



|10.5   |  | Form of Indemnification Agreement between the Company and each of its directors (incorporated herein by reference to Exhibit 10.5 to Amendment No. 2 to the Company's Registration Statement on Form S-1, File
No. 333-58795).                                                                                                                                                                                                                    
|------ |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.6   |  | License Agreement dated March 15, 1995 by and between the Company and Marion Merrell Dow Inc. (now Sanofi-Aventis, S.A.) (excluding certain portions which have been omitted as indicated based upon an order
for confidential treatment, but which have been filed separately with the Commission) (incorporated herein by reference to Exhibit 10.7 to Amendment No. 3 to the Company's Registration Statement on Form S-1, File
No. 333-58795).
|10.7*  |  | Amendment to 1998 Stock Option and Incentive Plan of the Company (incorporated herein by reference to Exhibit 10.7 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2004,
File No. 000-25323).                                                                                                                                                                                                                  
|10.8*  |  | Technology Development Incentive Plan (incorporated herein by reference to Exhibit 10.10 to Amendment No. 2 to the Company's Registration Statement on Form S-1, File No. 333-58795).                                                                                                                                                                                                                                                             
|10.9*  |  | Employment Agreement between the Company and Harold Meckler, Ph.D. (incorporated herein by reference to Exhibit 10.12 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1998,
File No. 000-25323).                                                                                                                                                                                                               
|10.10* |  | Form of Employee Innovation, Proprietary Information and Post-Employment Activity Agreement between the Company and each of its executive officers (incorporated herein by reference to Exhibit 10.14 to Amendment
No. 3 to the Company's Registration Statement on Form S-1, File No. 333-58795).                                                                                                                                                
|10.11  |  | Credit Agreement, dated as of February 12, 2003, by and between the Company and Fleet National Bank, Fleet Securities, Inc., JP Morgan Chase Bank, and Citizens Bank of Massachusetts (incorporated herein by
reference to Exhibit 10.19 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2004, File No. 000-25323).                                                                                            
|10.12  |  | Second Amendment, dated as of June 30, 2005, to Credit Agreement between Albany Molecular Research, Inc. and Bank of America, N.A., JP Morgan Chase Bank, N.A. and Citizens Bank of Massachusetts (incorporated
herin by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2005 filed with the Securities and Exchange Commission on August 9, 2005, File No. 000-25323).                   
|10.13  |  | Restated and Revised Lease Agreement, dated as of December 1, 1999, between the University at Albany Foundation and the Company (incorporated herein by reference to Exhibit 10.21 to the Company's Annual Report
on Form 10-K for the fiscal year ended December 31, 1999, File No. 000-25323).                                                                                                                                                  
|10.14* |  | Form of Restricted Stock Award Agreement under 1998 Stock Option and Incentive Plan (incorporated herein by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed with the Securities and
Exchange Commission on March 17, 2005, File No. 000-25323).                                                                                                                                                                       
|10.15* |  | Albany Molecular Research, Inc. Incentive Bonus Plan (incorporated herein by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed with the Securities and Exchange Commission on
May 3, 2005, File No. 000-25323).                                                                                                                                                                                                         
|10.16* |  | Form of Incentive Stock Option Agreement under 1998 Stock Option and Incentive Plan (incorporated herein by reference to Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for the quarter ended
March 31, 2005 filed with the Securities and Exchange Commission on May 10, 2005, File No. 000-25323).                                                                                                                                 

56

---



|10.17* |  | Form of Non-Qualified Stock Option Agreement under 1998 Stock Option and Incentive Plan (incorporated herein by reference to Exhibit 10.3 to the Company's Quarterly Report on Form 10-Q for the quarter ended
March 31, 2005 filed with the Securities and Exchange Commission on May 10, 2005, File No. 000-25323).                                                                                                                                                                                                                                  
|------ |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.18  |  | Supply Agreement, dated as of August 31, 2005, between Organichem Corporation and Amersham Health AS, a wholly-owned subsidiary of GE Healthcare, Inc. (filed with certain information omitted pursuant to a
request for confidential treatment and filed separately with the Securities and Exchange Commission) (incorporated herein by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30,
2005 filed with the Securities and Exchange Commission on November 4, 2005, File No. 000-25323).
|10.19  |  | License and Research Agreement, dated as of October 20, 2005, between Albany Molecular Research, Inc., AMR Technology, Inc. and Bristol-Myers Squibb Company (incorporated herein by reference to
Exhibit 10.19 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2006, File No. 000-25323).                                                                                                                                                                                                                          
|10.20* |  | Form of Notice of Acceleration of Certain Stock Options and Acknowledgement of Lock-Up dated January 25, 2006 (incorporated herein by reference to Exhibit 10.23 to the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 2005, File No. 000-25323)                                                                                                                                                                                                                                                                          
|10.21* |  | Amended and Revised Technology Department Incentive Plan, dated October 13, 2003 (incorporated herein by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the quarterly period
ended March 31, 2006, File No. 0-25323)                                                                                                                                                                                                                                                                                                     
|10.22* |  | Amended and Restated Employment Agreement, dated June 30, 2006, between Albany Molecular Research, Inc. and Thomas E. D'Ambra (incorporated herein by reference to Exhibit 10.1 to the Company's Quarterly
Report on Form 10-Q for the quarterly period ended June 30, 2006, File No. 0-25323)                                                                                                                                                                                                                                                         
|10.23* |  | Form of Amended and Restated Employment Agreement, dated June 30, 2006, between Albany Molecular Research, Inc. and each of Mark T. Frost, Michael Trova and Kenton L. Shultis (incorporated herein by reference to
Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2006, File No. 0-25323)                                                                                                                                                                                                        
|10.24* |  | Employment Agreement, dated March 23, 2007, between Albany Molecular Research, Inc. and Jonathan D. Evans (filed herein)                                                                                                                                                                                                                                                                                                                                                                                                                               
|10.25* |  | Employment Agreement, dated October 22, 2007, between Albany Molecular Research, Inc. and William Steven Jennings (filed herein)                                                                                                                                                                                                                                                                                                                                                                                                                       
|21.1   |  | Subsidiaries of the Company (filed herewith).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|23.1   |  | Consent of KPMG LLP (filed herewith).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|31.1   |  | Rule 13a-14(a)/15d-14(a) certification                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|31.2   |  | Rule 13a-14(a)/15d-14(a) certification                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|32.1   |  | Section 1350 certification                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|32.2   |  | Section 1350 certification                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             

---

57

---





SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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.

|Dated: March 17, 2008 |  | ALBANY MOLECULAR RESEARCH, INC.
|--------------------- |  | -------------------------------
|                      |  | By:                            

Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on
the dates indicated.

|Signature                                          |  | Title                                                                                                |  | Date          
|-------------------------------------------------- |  | ---------------------------------------------------------------------------------------------------- |  | --------------
|                                                   |  |                                                                                                      |  |               
|/s/THOMAS E. D'AMBRAThomas E. D'Ambra, Ph.D.       |  | Chairman of the Board, President,
Chief Executive Officer and Director
(Principal Executive Officer) |  | March 17, 2008
|/s/MARK T. FROSTMark T. Frost                      |  | Chief Financial Officer and Treasurer                                                                |  | March 17, 2008
|/s/PAUL S. ANDERSONPaul S. Anderson, Ph.D.         |  | Director                                                                                             |  | March 17, 2008
|/s/DONALD E. KUHLADonald E. Kuhla, Ph.D.           |  | Director                                                                                             |  | March 17, 2008
|/s/KEVIN O'CONNORKevin O'Connor                    |  | Director                                                                                             |  | March 17, 2008
|/s/ARTHUR J. ROTHArthur J. Roth                    |  | Director                                                                                             |  | March 17, 2008
|/s/ANTHONY P. TARTAGLIAAnthony P. Tartaglia, M.D.  |  | Director                                                                                             |  | March 17, 2008
|/s/VERONICA G.H. JORDANVeronica G.H. Jordan, Ph.D. |  | Director                                                                                             |  | March 17, 2008
|/s/UNA S. RYANUna S. Ryan, Ph.D., O.B.E.           |  | Director                                                                                             |  | March 17, 2008

58

---



INDEX TO CONSOLIDATED

FINANCIAL STATEMENTS ALBANY MOLECULAR RESEARCH, INC.



|                                                                                                                              |  | Page
|----------------------------------------------------------------------------------------------------------------------------- |  | ----
|Reports of Independent Registered Public Accounting Firm                                                                      |  | F-2 
|Consolidated Statements of Income for the Years Ended December 31, 2007, 2006 and 2005                                        |  | F-5 
|Consolidated Balance Sheets at December 31, 2007 and 2006                                                                     |  | F-6 
|Consolidated Statements of Stockholders' Equity and Comprehensive Income for the Years Ended December 31, 2007, 2006 and 2005 |  | F-7 
|Consolidated Statements of Cash Flows for the Years Ended December 31, 2007, 2006 and 2005                                    |  | F-8 
|Notes to Consolidated Financial Statements                                                                                    |  | F-10

F-1

---





Report of Independent Registered Public Accounting Firm

The
Board of Directors and Stockholders
Albany Molecular Research, Inc.:

We
have audited the accompanying consolidated balance sheets of Albany Molecular Research, Inc. and subsidiaries (the Company) as of December 31, 2007 and 2006, and the
related consolidated statements of income, stockholders' equity and comprehensive income, and cash flows for each of the years in the three-year period ended December 31, 2007. In
connection with our audits of the consolidated financial statements, we also have audited the financial statement schedule listed in the index appearing under Item 15(a)(2). These consolidated
financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements and
financial statement schedule based on our audits.

We
conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our opinion.

In
our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Albany Molecular Research, Inc. and
subsidiaries as of December 31, 2007 and 2006, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31,
2007, in conformity with U.S. generally accepted accounting principles. Also in our opinion, the related financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.

As
discussed in Note 1 to the consolidated financial statements, effective January 1, 2006, the Company adopted Financial Accounting Standards No. 123 (Revised), Share-Based Payment.Also
discussed in Note 1 to the consolidated financial statements, effective December 31, 2006, the Company adopted
FASB Statement of Financial Accounting Standards No. 158,Employers' Accounting for Defined Pension and Other Postretirement Plans, an amendment of FASB Statements
No. 87, 88, 106, and 132(R).

We
also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Albany Molecular Research, Inc's. internal control over financial
reporting as of December 31, 2007, based upon criteria established inInternal ControlIntegrated Frameworkissued by the Committee
of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated March 13, 2008, expressed an unqualified opinion on the effectiveness of Albany Molecular
Research, Inc.'s internal control over financial reporting.

/s/
KPMG LLP
Albany, New York
March 13, 2008

F-2

---



The
Board of Directors and Stockholders
Albany Molecular Research, Inc.:

We
have audited internal control over financial reporting of Albany Molecular Research, Inc. and subsidiaries (the Company) as of December 31, 2007, based on criteria
established inInternal ControlIntegrated Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
The Company's management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting,
included in the accompanying Management's Annual Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company's internal control over financial
reporting based on our audit.

We
conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to
obtain
reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over
financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit
also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A
company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures
that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide
reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.

Because
of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In
our opinion, Albany Molecular Research, Inc. and subsidiaries maintained, in all material respects, effective internal control over financial reporting as of
December 31, 2007, based on criteria established inInternal ControlIntegrated Frameworkissued by COSO.

The
Company acquired AMRI India on June 29, 2007, and management excluded from its assessment of the effectiveness of the Company's internal control over financial reporting as of
December 31, 2007, AMRI India's internal control over financial reporting. AMRI India's total assets and total revenue represent 3.8% and 1.2%, respectively, of the related amounts included in
the consolidated financial statements of Albany Molecular Research, Inc. and subsidiaries as of and for the year ended December 31, 2007. Our audit of internal control over financial
reporting of Albany Molecular Research, Inc. also excluded an evaluation of the internal control over financial reporting of AMRI India.

F-3

---



We
also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Albany Molecular
Research, Inc. and subsidiaries as of December 31, 2007 and 2006, the related consolidated statements of income, stockholders' equity and comprehensive income, and cash flows for each of
the years in the three-year period ended December 31, 2007, and the related financial statement schedule, and our report dated March 13, 2008, expressed an unqualified
opinion on those consolidated financial statements and related financial statement schedule.

/s/
KPMG LLP
Albany, New York
March 13, 2008

F-4

---





ALBANY MOLECULAR RESEARCH, INC.        CONSOLIDATED STATEMENTS OF INCOME        Years Ended December 31, 2007, 2006 and 2005        (Dollars in thousands, except per share
amounts)

|                                    |                                | Year Ended December 31, |        
|----------------------------------- | ------------------------------ | ----------------------- | -------
|
|Contract revenue                    |                                | $                       | 163,375
|Recurring royalties                 |                                |                         | 27,056 
|Milestone revenue                   |                                |                         | 2,080  
|                                    |                                |                         |        
|                                    | Total revenue                  |                         |        
|Cost of contract revenue            |                                |                         | 132,032
|Write-down of library inventories   |                                |                         |       
|                                    |                                |                         |        
|                                    | Total cost of contract revenue |                         |        
|Technology incentive award          |                                |                         | 2,784  
|Research and development            |                                |                         | 12,821 
|Selling, general and administrative |                                |                         | 33,250 
|Property and equipment impairment   |                                |                         |       
|Restructuring charge                |                                |                         | 273    
|                                    |                                |                         |        
|                                    | Total costs and expenses       |                         |        
|                                    |                                |                         |        
|Income (loss) from operations       |                                |                         | 11,351 
|Interest expense                    |                                |                         | (853   
|Interest income                     |                                |                         | 4,045  
|Other income (expense), net         |                                |                         | (158   
|                                    |                                |                         |        
|Income before income tax expense    |                                |                         | 14,385 
|Income tax expense                  |                                |                         | 5,449  
|                                    |                                |                         |        
|Net income                          |                                | $                       | 8,936  
|                                    |                                |                         |        
|Basic earnings per share            |                                | $                       | 0.28   
|                                    |                                |                         |        
|Diluted earnings per share          |                                | $                       | 0.27   
|                                    |                                |                         |        

See
Accompanying Notes to Consolidated Financial Statements.

F-5

---





ALBANY MOLECULAR RESEARCH, INC.        CONSOLIDATED BALANCE SHEETS        Years Ended December 31, 2007 and 2006        (In thousands, except per share amounts)

|                                                                                                                        |                                            | December 31, |        
|----------------------------------------------------------------------------------------------------------------------- | ------------------------------------------ | ------------ | -------
|
|Assets                                                                                                                  |                                            |              |        
|Current assets:                                                                                                         |                                            |              |        
|Cash and cash equivalents                                                                                               |                                            | $            | 45,506 
|Investment securities, available-for-sale                                                                               |                                            |              | 62,193 
|Accounts receivable (net of allowance for doubtful accounts of $252 at December 31, 2007 and $293 at December 31, 2006) |                                            |              | 28,006 
|Royalty income receivable                                                                                               |                                            |              | 6,086  
|Inventory                                                                                                               |                                            |              | 22,581 
|Unbilled services                                                                                                       |                                            |              | 259    
|Prepaid expenses and other current assets                                                                               |                                            |              | 5,698  
|Deferred income taxes                                                                                                   |                                            |              | 4,931  
|Property and equipment held for sale                                                                                    |                                            |              |       
|                                                                                                                        |                                            |              |        
|                                                                                                                        | Total current assets                       |              |        
|                                                                                                                        |                                            |              |        
|Property and equipment, net                                                                                             |                                            |              | 158,028
|Goodwill                                                                                                                |                                            |              | 46,575 
|Intangible assets and patents, net                                                                                      |                                            |              | 2,232  
|Equity investment in unconsolidated affiliates                                                                          |                                            |              | 956    
|Pension and postretirement benefits                                                                                     |                                            |              | 624    
|Other assets                                                                                                            |                                            |              | 2,979  
|                                                                                                                        |                                            |              |        
|                                                                                                                        | Total assets                               |              | $      
|                                                                                                                        |                                            |              |        
|Liabilities and Stockholders' Equity                                                                                    |                                            |              |        
|Current liabilities:                                                                                                    |                                            |              |        
|Accounts payable and accrued expenses                                                                                   |                                            | $            | 13,562 
|Deferred revenue                                                                                                        |                                            |              | 6,922  
|Accrued compensation                                                                                                    |                                            |              | 3,893  
|Accrued pension benefits                                                                                                |                                            |              | 303    
|Income taxes payable                                                                                                    |                                            |              | 1,789  
|Current installments of long-term debt                                                                                  |                                            |              | 9,900  
|                                                                                                                        |                                            |              |        
|                                                                                                                        | Total current liabilities                  |              |        
|                                                                                                                        |                                            |              |        
|Long-term liabilities:                                                                                                  |                                            |              |        
|Long-term debt, excluding current installments                                                                          |                                            |              | 4,080  
|Deferred income taxes                                                                                                   |                                            |              | 11,446 
|Pension and postretirement benefits                                                                                     |                                            |              |       
|Environmental liabilities                                                                                               |                                            |              | 191    
|                                                                                                                        |                                            |              |        
|                                                                                                                        | Total liabilities                          |              |        
|                                                                                                                        |                                            |              |        
|Commitments and contingencies (notes 12, 14)                                                                            |                                            |              |        
|Stockholders' equity:                                                                                                   |                                            |              |        
|Preferred stock, $0.01 par value, authorized 2,000 shares, none issued or outstanding                                   |                                            |              |       
|Common stock, $0.01 par value, authorized 50,000 shares, 35,075 shares issued in 2007 and 34,749 shares issued in 2006  |                                            |              | 351    
|Additional paid-in capital                                                                                              |                                            |              | 195,985
|Retained earnings                                                                                                       |                                            |              | 170,256
|Accumulated other comprehensive income, net                                                                             |                                            |              | 5,147  
|                                                                                                                        |                                            |              |        
|                                                                                                                        |                                            |              | 371,739
|Less, treasury shares at cost, 2,077 shares in 2007 and 2006                                                            |                                            |              | (37,171
|                                                                                                                        |                                            |              |        
|                                                                                                                        | Total stockholders' equity                 |              |        
|                                                                                                                        |                                            |              |        
|                                                                                                                        | Total liabilities and stockholders' equity |              | $      
|                                                                                                                        |                                            |              |        

See Accompanying Notes to Consolidated Financial Statements.

F-6

---





ALBANY MOLECULAR RESEARCH, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME
Years Ended December 31, 2007, 2006 and 2005

|                                                                           |                                              |   |   | Common Stock |        |   |   |     |   |   |         | Treasury Stock |   |         |  |   |      
|-------------------------------------------------------------------------- | -------------------------------------------- | - | - | ------------ | ------ | - | - | --- | - | - | ------- | -------------- | - | ------- |  | - | -----
|
|
|Balances at January 1, 2005                                                |                                              | $ |  |              | 33,942 |   | $ | 340 |   | $ | 189,608 |                | $ | 142,816 |  | $ | (117 
|Comprehensive income:                                                      |                                              |   |   |              |        |   |   |     |   |   |         |                |   |         |  |   |      
|Net income                                                                 |                                              |   |   |              |        |   |   |     |   |   |         |                |   | 16,321  |  |   |      
|Unrealized loss on investment securities, available-for-sale, net of taxes |                                              |   |   |              |        |   |   |     |   |   |         |                |   |         |  |   | (92  
|Unrealized gain on interest rate swap contract, net of taxes               |                                              |   |   |              |        |   |   |     |   |   |         |                |   |         |  |   | 132  
|Increase in additional minimum pension liability, net of taxes             |                                              |   |   |              |        |   |   |     |   |   |         |                |   |         |  |   | (254 
|Foreign currency translation loss                                          |                                              |   |   |              |        |   |   |     |   |   |         |                |   |         |  |   | (64  
|                                                                           |                                              |   |   |              |        |   |   |     |   |   |         |                |   |         |  |   |      
|Total comprehensive income                                                 |                                              |   |   |              |        |   |   |     |   |   |         |                |   |         |  |   |      
|                                                                           |                                              |   |   |              |        |   |   |     |   |   |         |                |   |         |  |   |      
|Tax benefit from exercise of stock options                                 |                                              |   |   |              |        |   |   |     |   |   | 416     |                |   |         |  |   |      
|Modifications of stock options                                             |                                              |   |   |              |        |   |   |     |   |   | 37      |                |   |         |  |   |      
|Cancellation of BMS warrants                                               |                                              |   |   |              |        |   |   |     |   |   | (562    | )              |   |         |  |   |      
|Issuance of restricted stock                                               |                                              |   |   |              | 288    |   |   | 3   |   |   | (3      | )              |   |         |  |   |      
|Amortization of unearned compensationrestricted stock                     |                                              |   |   |              |        |   |   |     |   |   | 327     |                |   |         |  |   |      
|Forfeiture of unearned compensationrestricted stock                       |                                              |   |   |              | (31    | ) |   |    |   |   |        |                |   |         |  |   |      
|Issuance of common stock in connection with stock option plan and ESPP     |                                              |   |   |              | 272    |   |   | 2   |   |   | 1,322   |                |   |         |  |   |      
|                                                                           |                                              |   |   |              |        |   |   |     |   |   |         |                |   |         |  |   |      
|Balances at December 31, 2005                                              |                                              | $ |  |              | 34,471 |   | $ | 345 |   | $ | 191,145 |                | $ | 159,137 |  | $ | (395 
|Comprehensive Income:                                                      |                                              |   |   |              |        |   |   |     |   |   |         |                |   |         |  |   |      
|Net income                                                                 |                                              |   |   |              |        |   |   |     |   |   |         |                |   | 2,183   |  |   |      
|Unrealized gain on investment securities, available-for-sale, net of taxes |                                              |   |   |              |        |   |   |     |   |   |         |                |   |         |  |   | 165  
|Unrealized loss on interest rate swap contract, net of taxes               |                                              |   |   |              |        |   |   |     |   |   |         |                |   |         |  |   | (61  
|Foreign currency translation gain                                          |                                              |   |   |              |        |   |   |     |   |   |         |                |   |         |  |   | 255  
|Decrease in additional minimum pension liability, net of taxes             |                                              |   |   |              |        |   |   |     |   |   |         |                |   |         |  |   | 254  
|                                                                           |                                              |   |   |              |        |   |   |     |   |   |         |                |   |         |  |   |      
|Total comprehensive income                                                 |                                              |   |   |              |        |   |   |     |   |   |         |                |   |         |  |   |      
|                                                                           |                                              |   |   |              |        |   |   |     |   |   |         |                |   |         |  |   |      
|Adjustment to initially apply FASB Statement No. 158, net of tax           |                                              |   |   |              |        |   |   |     |   |   |         |                |   |         |  |   | 614  
|Tax benefit from exercise of stock options                                 |                                              |   |   |              |        |   |   |     |   |   | 34      |                |   |         |  |   |      
|Tax benefit from cancellation of BMS warrants                              |                                              |   |   |              |        |   |   |     |   |   | 197     |                |   |         |  |   |      
|Share-based payment expense                                                |                                              |   |   |              |        |   |   |     |   |   | 561     |                |   |         |  |   |      
|Issuance of restricted stock                                               |                                              |   |   |              | 194    |   |   | 2   |   |   | (2      | )              |   |         |  |   |      
|Amortization of unearned compensationrestricted stock                     |                                              |   |   |              |        |   |   |     |   |   | 611     |                |   |         |  |   |      
|Forfeiture of unearned compensationrestricted stock                       |                                              |   |   |              | (32    | ) |   |    |   |   |        |                |   |         |  |   |      
|Issuance of common stock in connection with stock option plan and ESPP     |                                              |   |   |              | 116    |   |   |    |   |   | 581     |                |   |         |  |   |      
|                                                                           |                                              |   |   |              |        |   |   |     |   |   |         |                |   |         |  |   |      
|Balances at December 31, 2006                                              |                                              | $ |  |              | 34,749 |   | $ | 347 |   | $ | 193,127 |                | $ | 161,320 |  | $ | 832  
|Comprehensive Income:                                                      |                                              |   |   |              |        |   |   |     |   |   |         |                |   |         |  |   |      
|Net income                                                                 |                                              |   |   |              |        |   |   |     |   |   |         |                |   | 8,936   |  |   |      
|Unrealized gain on investment securities, available-for-sale, net of taxes |                                              |   |   |              |        |   |   |     |   |   |         |                |   |         |  |   | 83   
|Unrealized loss on interest rate swap contract, net of taxes               |                                              |   |   |              |        |   |   |     |   |   |         |                |   |         |  |   | (92  
|Pension and other postretirement benefits:                                 |                                              |   |   |              |        |   |   |     |   |   |         |                |   |         |  |   |      
|                                                                           | Amortization of actuarial gain, net of taxes |   |   |              |        |   |   |     |   |   |         |                |   |         |  |   |      
|                                                                           | Current year actuarial gain, net of taxes    |   |   |              |        |   |   |     |   |   |         |                |   |         |  |   |      
|Foreign currency translation gain                                          |                                              |   |   |              |        |   |   |     |   |   |         |                |   |         |  |   | 3,907
|                                                                           |                                              |   |   |              |        |   |   |     |   |   |         |                |   |         |  |   |      
|Total comprehensive income                                                 |                                              |   |   |              |        |   |   |     |   |   |         |                |   |         |  |   |      
|                                                                           |                                              |   |   |              |        |   |   |     |   |   |         |                |   |         |  |   |      
|Tax benefit from exercise of stock options                                 |                                              |   |   |              |        |   |   |     |   |   | 121     |                |   |         |  |   |      
|Share-based payment expense                                                |                                              |   |   |              |        |   |   |     |   |   | 584     |                |   |         |  |   |      
|Issuance of restricted stock                                               |                                              |   |   |              | 197    |   |   | 2   |   |   | (2      | )              |   |         |  |   |      
|Amortization of unearned compensationrestricted stock                     |                                              |   |   |              |        |   |   |     |   |   | 720     |                |   |         |  |   |      
|Forfeiture of unearned compensationrestricted stock                       |                                              |   |   |              | (98    | ) |   | (1  | ) |   | 1       |                |   |         |  |   |      
|Issuance of common stock in connection with stock option plan and ESPP     |                                              |   |   |              | 227    |   |   | 3   |   |   | 1,434   |                |   |         |  |   |      
|                                                                           |                                              |   |   |              |        |   |   |     |   |   |         |                |   |         |  |   |      
|Balances at December 31, 2007                                              |                                              | $ |  |              | 35,075 |   | $ | 351 |   | $ | 195,985 |                | $ | 170,256 |  | $ | 5,147
|                                                                           |                                              |   |   |              |        |   |   |     |   |   |         |                |   |         |  |   |      

See Accompanying Notes to Consolidated Financial Statements.

F-7

---





ALBANY MOLECULAR RESEARCH, INC.        CONSOLIDATED STATEMENTS OF CASH FLOWS        Years Ended December 31, 2007, 2006 and 2005        (In thousands)

|                                                                               |                                                                                   | Year ended December 31,                                     |       
|------------------------------------------------------------------------------ | --------------------------------------------------------------------------------- | ----------------------------------------------------------- | ------
|
|Operating Activities                                                           |                                                                                   |                                                             |       
|Net income                                                                     |                                                                                   | $                                                           | 8,936 
|                                                                               | Adjustments to reconcile net income to net cash provided by operating activities: |                                                             |       
|                                                                               | Depreciation and amortization                                                     |                                                             |       
|                                                                               | Net amortization of premiums on securities                                        |                                                             |       
|                                                                               | Provision for obsolete inventories                                                |                                                             |       
|                                                                               | Write-down of library inventories                                                 |                                                             |       
|                                                                               | Property, plant and equipment impairment                                          |                                                             |       
|                                                                               | Provision for doubtful accounts                                                   |                                                             |       
|                                                                               | Forgiven principal on notes receivable                                            |                                                             |       
|                                                                               | Deferred income tax expense (benefit)                                             |                                                             |       
|                                                                               | Loss on disposal of property, plant and equipment                                 |                                                             |       
|                                                                               | Stock-based compensation expense                                                  |                                                             |       
|                                                                               | Foreign exchange loss (gain)                                                      |                                                             |       
|                                                                               | (Increase) decrease in operating assets, net of business combinations:            |                                                             |       
|                                                                               |                                                                                   | Accounts receivable                                         |       
|                                                                               |                                                                                   | Royalty income receivable                                   |       
|                                                                               |                                                                                   | Unbilled services                                           |       
|                                                                               |                                                                                   | Inventory                                                   |       
|                                                                               |                                                                                   | Prepaid expenses and other assets                           |       
|                                                                               | Increase (decrease) in operating liabilities, net of business combinations:       |                                                             |       
|                                                                               |                                                                                   | Accounts payable, accrued compensation and accrued expenses |       
|                                                                               |                                                                                   | Income taxes payable                                        |       
|                                                                               |                                                                                   | Deferred revenue                                            |       
|                                                                               |                                                                                   | Pension and postretirement benefits                         |       
|                                                                               |                                                                                   | Environmental liability                                     |       
|                                                                               |                                                                                   |                                                             |       
|Net cash provided by operating activities                                      |                                                                                   |                                                             | 31,667
|                                                                               |                                                                                   |                                                             |       
|Investing Activities                                                           |                                                                                   |                                                             |       
|                                                                               | Net purchases of securities                                                       |                                                             |       
|                                                                               | Proceeds from sales and maturities of investment securities                       |                                                             |       
|                                                                               | Purchase of business, net of cash acquired                                        |                                                             |       
|                                                                               | Purchases of property, plant and equipment                                        |                                                             |       
|                                                                               | Payments for patent applications and other costs                                  |                                                             |       
|                                                                               | Proceeds from disposal of property, plant and equipment                           |                                                             |       
|                                                                               |                                                                                   |                                                             |       
|Net cash used in investing activities                                          |                                                                                   |                                                             | (9,785
|                                                                               |                                                                                   |                                                             |       
|Financing Activities                                                           |                                                                                   |                                                             |       
|                                                                               | Principal payments on long-term debt                                              |                                                             |       
|                                                                               | Tax benefit of stock option exercises                                             |                                                             |       
|                                                                               | Proceeds from exercise of options and ESPP                                        |                                                             |       
|                                                                               |                                                                                   |                                                             |       
|Net cash used in financing activities                                          |                                                                                   |                                                             | (2,996
|                                                                               |                                                                                   |                                                             |       
|Effect of exchange rate changes on cash flows                                  |                                                                                   |                                                             | 496   
|                                                                               |                                                                                   |                                                             |       
|Increase (decrease) in cash and cash equivalents                               |                                                                                   |                                                             | 19,382
|Cash and cash equivalents at beginning of period                               |                                                                                   |                                                             | 26,124
|                                                                               |                                                                                   |                                                             |       
|Cash and cash equivalents at end of period                                     |                                                                                   | $                                                           | 45,506
|                                                                               |                                                                                   |                                                             |       
|Supplemental disclosure of non-cash investing and financing activities:        |                                                                                   |                                                             |       
|Unrealized gain (loss) on securities available-for-sale, net of tax            |                                                                                   | $                                                           | 83    
|Increase (decrease) in net unrealized gain/(loss) on swap contract, net of tax |                                                                                   | $                                                           | (92   
|Actuarial (gain) loss on pension and other postretirement benefit liabilities  |                                                                                   | $                                                           | 417   
|Adjustment for SFAS No. 158 implementation                                     |                                                                                   | $                                                           |      
|Issuance of restricted stock                                                   |                                                                                   | $                                                           | 2,035 
|Supplemental disclosures of cash flow information:                             |                                                                                   |                                                             |       
|Cash paid during the period for:                                               |                                                                                   |                                                             |       
|Interest                                                                       |                                                                                   | $                                                           | 856   
|Income taxes                                                                   |                                                                                   | $                                                           | 5,828 

F-8

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ALBANY MOLECULAR RESEARCH, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)

Years Ended December 31, 2007, 2006 and 2005

(In thousands)

In 2007, the Company, through a wholly-owned subsidiary, acquired certain assets of Ariane Orgachem Private Limited and Ferico Laboratories
Limited, collectively known as AMRI Pvt. Ltd. ("AMRI India") for aggregate purchase price of $11,898. In conjunction with the acquisition, assets were acquired and liabilities were assumed as
follows:

|Fair value of assets acquired |  | $ | 12,145  |  
|----------------------------- |  | - | ------- | -
|Cash paid for net assets      |  |   | (11,898 | )
|Liabilities assumed           |  | $ | 247     |  

In
2006, the Company purchased all of the outstanding shares of ComGenex Kutato-Fejleszto Rt. ("AMRI Hungary") for an aggregate purchase price of $11,930. In conjunction with the
acquisition, assets were acquired and liabilities were assumed as follows:

|Fair value of assets acquired                              |  | $ | 14,411  |  
|---------------------------------------------------------- |  | - | ------- | -
|Cash paid for the outstanding shares, net of cash acquired |  |   | (11,607 | )
|Liabilities assumed                                        |  | $ | 2,804   |  

See
Accompanying Notes to Consolidated Financial Statements.

F-9

---





ALBANY MOLECULAR RESEARCH, INC.        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS        December 31, 2007, 2006 and 2005        (In thousands, except per share amounts)

1. Summary of Significant Accounting Policies

Nature of Business:

Albany Molecular Research, Inc. (the "Company") provides scientific services, technologies and products focused on improving the quality of life. The
Company's core business consists of a fee-for-service contract services platform encompassing drug discovery, development and manufacturing and a separate, stand-alone research
and development division consisting of proprietary technology investments, internal drug discovery and niche generic active pharmaceutical ingredient product development. With locations in the U.S.,
Europe, and Asia, the Company provides customers with a range of services and cost models.

Basis of Presentation:

The consolidated financial statements include the accounts of Albany Molecular Research, Inc. ("AMRI") and its wholly-owned subsidiaries. All intercompany
balances and transactions have been eliminated during consolidation. When necessary, prior years' consolidated financial statements have been reclassified to conform to the current year presentation.
Assets and liabilities of non-U.S. operations are translated at period-end rates of exchange, and the statements of income (loss) are translated at the average rates of
exchange for the period. Gains or losses resulting from translating non-U.S. currency financial statements are recorded in accumulated other comprehensive income in the accompanying
December 31, 2007 and 2006 consolidated balance sheets.

Use of Management Estimates:

The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities, and disclosures of contingent assets and liabilities, at the date of the financial statements, and the reported amounts of revenues and
expenses during the reporting period. The most significant estimates included in the accompanying consolidated financial statements include assumptions regarding the collectibility of receivables, the
valuation of inventory, and the fair value of goodwill, intangible assets, and long-lived assets. Other significant estimates include assumptions utilized in determining the amount and
realizabilty of deferred tax assets and assumptions utilized in determining actuarial obligations in conjunction with the Company's pension and postretirement health plans. Actual results can vary
from these estimates.

Contract Revenue Recognition:

The Company's contract revenue consists primarily of fees earned under contracts with third-party customers and reimbursed expenses under such contracts. The
Company also seeks to include provisions in certain contracts that contain a combination of up-front licensing fees, milestone and royalty payments should the Company's proprietary
technology and expertise lead to the discovery of new products that reach the market. Reimbursed expenses consist of chemicals and other project specific costs. Generally, the Company's contracts may
be terminated by the customer upon 30 days' to one year's prior notice, depending on the size of the contract. The Company analyzes its agreements to determine whether the elements can be
separated and accounted for individually or as a single unit of

F-10

---



ALBANY MOLECULAR RESEARCH, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2007, 2006 and 2005

(In thousands, except per share amounts)

1. Summary of Significant Accounting Policies (Continued)

accounting
in accordance with Emerging Issues Task Force ("EITF") No. 00-21, "Revenue Arrangements with Multiple Deliverables," and SAB 104, "Revenue Recognition". Allocation
of revenue to individual elements that qualify for separate accounting is based on the estimated fair value of the respective elements.

The
Company generates contract revenue on the following basis:

Full-time Equivalent ("FTE").An FTE agreement establishes the number of Company employees contracted for a
project or a series of projects, the duration of the contract period, the price per FTE, plus an allowance for chemicals and other project specific costs, which may or may not be incorporated in the
FTE rate. FTE contracts can run in one month increments, but typically have terms of six months or longer. FTE contracts typically provide for annual adjustments in billing rates for the scientists
assigned to the contract.

These
contracts involve the Company's scientists providing services on a "best efforts" basis on a project that may involve a research component with a timeframe or outcome that has some
level of unpredictability. There are no fixed deliverables that must be met for payment as part of these services. As such, the Company recognizes revenue under FTE contracts on a monthly basis as
services are performed according to the terms of the contract.

Time and Materials.Under a time and materials contract the Company charges customers an hourly rate plus reimbursement for
chemicals and other project specific costs. The Company recognizes revenue for time and material contracts based on the number of hours devoted to the project multiplied by the customer's billing rate
plus other project specific costs incurred.

Fixed-Fee.Under a fixed-fee contract the Company charges a fixed agreed upon amount for a
deliverable. Fixed-fee contracts have fixed deliverables upon completion of the project. Typically, the Company recognizes revenue for fixed-fee contracts after projects are
completed, delivery is made and title transfers to the customer, and collection is reasonably assured. In certain instances, the Company's customers request that the Company retain materials produced
upon completion of the project due to the fact that the customer does not have a qualified facility to store those materials. In these instances, the revenue recognition process is considered complete
when project documents (batch records, Certificates of Analysis, etc.) have been delivered to the customer and payment has been collected.

Up-Front License Fees, Milestone, and Royalty Revenue.The Company recognizes revenue from up-front
non-refundable licensing fees on a straight-line basis over the period of the underlying project. The Company will recognize revenue arising from a substantive milestone
payment upon the successful achievement of the event, and the resolution of any uncertainties or contingencies regarding potential collection of the related payment, or if appropriate over the
remaining term of the agreement.

Recurring Royalty Revenue Recognition.Recurring royalties consist of royalties under a license agreement with Sanofi-Aventis
based on the worldwide sales of fexofenadine HCl, marketed as Allegra in the Americas and Telfast elsewhere, as well as on sales of Sanofi-Aventis' authorized generics. The Company records royalty
revenue in the period in which the sales of Allegra/Telfast occur, because we

F-11

---



ALBANY MOLECULAR RESEARCH, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2007, 2006 and 2005

(In thousands, except per share amounts)

1. Summary of Significant Accounting Policies (Continued)

can
reasonably estimate such royalties. Royalty payments from Sanofi-Aventis are due within 45 days after each calendar quarter and are determined based on sales of Allegra/Telfast in that
quarter.

Cash Equivalents:

Cash equivalents consist of money market accounts and overnight deposits. For purposes of the consolidated statements of cash flows, the Company considers all
highly liquid investments with a maturity of three months or less when purchased to be cash equivalents.

Allowance for Doubtful Accounts:

The Company records an allowance for doubtful accounts for estimated receivable losses. Management reviews outstanding receivable balances on a regular basis in
order to assess the collectibility of these balances, and adjusts the allowance for doubtful accounts accordingly. The allowance and related accounts receivable are reduced when the account is deemed
uncollectible.

Inventory:

Inventory consists primarily of commercially available fine chemicals used as raw materials, work-in-process and finished goods in our
large-scale manufacturing plant. Large-scale manufacturing inventories are valued based on standard costs as they are produced on a first-in, first-out (FIFO) basis. Variances
from standard costs are accumulated as they are incurred and are included in the carrying value of inventory. Inventories are stated at the lower of cost or market. The Company writes down inventories
equal to the difference between the cost of inventory and the estimated market value based upon assumptions about future demand and market conditions. Any such write-down results in a
charge to operations.

Investment Securities:

In accordance with Statement of Financial Accounting Standards (SFAS) No. 115, "Accounting for Certain Debt and Equity Securities," short-term
investments are classified as available-for-sale. Available-for-sale securities are carried at fair value, with the unrealized gains and losses reported
in accumulated other comprehensive income. The amortized cost of debt securities in this category is adjusted for amortization of premiums and accretion of discounts to maturity. Such amortization is
included in interest income or expense. Realized gains and losses and declines in value judged to be other-than-temporary, if any, on available-for-sale
securities are included in other income or expense. The
cost of securities sold is based on the specific identification method. Interest and dividends on securities classified as available-for-sale are included in interest income.

At
December 31, 2007 and 2006, the Company has investments in securities in the current assets section of the consolidated balance sheets included $28.0 million and
$32.6 million, respectively, of auction rate municipal bonds, classified as available-for-sale securities. The Company's investments in these securities are recorded at
cost, which approximates fair market value due to their variable interest rates, which typically reset every 7 to 35 days, and, despite the long-term nature of their stated
contractual maturities, the Company generally has the ability to quickly liquidate these securities. As a

F-12

---



ALBANY MOLECULAR RESEARCH, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2007, 2006 and 2005

(In thousands, except per share amounts)

1. Summary of Significant Accounting Policies (Continued)

result,
there are no cumulative gross unrealized holding gains (losses) or gross realized gains (losses) from these securities. All income generated from these current investments is recorded as
interest income.

Property and Equipment:

Property and equipment are recorded at cost. Expenditures for maintenance and repairs are expensed when incurred. When assets are sold, retired, or otherwise
disposed of, the applicable costs and accumulated depreciation are removed from the accounts and the resulting gain or loss is recognized.

Depreciation
is determined using the straight-line method over the estimated useful lives of the individual assets. Accelerated methods of depreciation have been used for
income tax purposes.

The
Company provides for depreciation of property and equipment over the following estimated useful lives:

Laboratory equipment and fixtures

7-18 yearsOffice equipment

3-7 yearsComputer equipment

3-5 yearsBuildings

39 years


Leasehold
improvements are amortized over the lesser of the life of the asset or the lease term.

Equity Investments in Unconsolidated Subsidiaries:

The Company maintains two equity investments in companies that have operations in areas within its strategic focus. These investments are in leveraged
start-up companies and were recorded at historical cost.

The
Company records an impairment charge when we believe an investment has experienced a decline in value that is other-than-temporary. Future adverse changes in
market conditions or poor operating results of underlying investments could result in the Company's inability to recover the carrying value of the investments thereby requiring an impairment charge in
the future.

Long-Lived Assets:

In accordance with the provisions of SFAS No. 144,"Accounting for the Impairment or Disposal of
Long-Lived Assets" ("SFAS No. 144"), the Company assesses the impairment of long-lived assets whenever events or changes in circumstances indicate that their carrying
value may not be recoverable. Factors the Company considers important that could trigger an impairment review include, among others, the following:



F-13

---





ALBANY MOLECULAR RESEARCH, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2007, 2006 and 2005

(In thousands, except per share amounts)

1. Summary of Significant Accounting Policies (Continued)



If
the Company determines that the carrying value of long-lived assets may not be recoverable, based upon the existence of one or more of the above indicators of impairment,
the Company compares the carrying value of the asset group to the undiscounted cash flows expected to be generated by the asset group. If the carrying value exceeds the undiscounted cash flows an
impairment charge is recorded. An impairment charge is recognized to the extent that the carrying amount of the asset group exceeds their fair value and will reduce only the carrying amounts of the
long-lived assets.

Goodwill:

In accordance with the provisions of SFAS No. 142, "Goodwill and Other Intangible Assets" ("SFAS No. 142"), the Company performs an annual
assessment of the carrying value of goodwill for potential impairment (or on an interim basis if certain triggering events occur). A determination of impairment is made based upon the estimated
discounted future cash flows of the operations associated with the related reporting unit. If goodwill is determined to be impaired in the future the Company would be required to record a charge to
its results of operations. Factors the Company considers important which could result in an impairment include the following:



Included
in goodwill as of December 31, 2007 are $23.1 million related to the acquisition of AMRI Rensselaer, Inc ("AMRI Rensselaer"), $11.5 million related to the
acquisition of ComGenex Kutato-Fejleszto Rt. and $9.4 million related to the acquisition of AMRI India. See Note 19 for further information on the Company's goodwill balances.

Patents, Patent Application Costs, and Licensing Rights:

The costs of patents issued and acquired are being amortized on the straight-line method over the estimated remaining lives of the issued patents.
Patent application and processing costs are capitalized and will be amortized over the estimated life once a patent is acquired or expensed in the period the patent application is denied or the
related appeal process has been exhausted.

Licensing
costs are accumulated and amortized once the license agreement is executed. The costs of licensing rights are being amortized on the straight-line method over the
term of the license agreement. Licensing costs are written off in the period the licensing rights are canceled or are determined not to provide future benefits.

F-14

---



ALBANY MOLECULAR RESEARCH, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2007, 2006 and 2005

(In thousands, except per share amounts)

1. Summary of Significant Accounting Policies (Continued)

Swap Contracts:

The Company maintains two interest rate swap agreements. These agreements have been designated as interest rate hedges on future cash flows of our variable debt
instruments in accordance with SFAS No. 133, "Accounting for Derivatives and Hedging Activities", as amended by SFAS No. 138, "Accounting for Certain Derivative and Certain Hedging
Activities." Accordingly, these contracts are reported at fair value in the consolidated balance sheets, and any change in fair value is recorded as an adjustment to accumulated other comprehensive
income, net of tax, because the hedges are deemed effective.

Pension and Postretirement Benefits:

The Company maintains pension and post-retirement benefit costs and liabilities that are developed from actuarial valuations. Inherent in these
valuations are key assumptions, including discount rates and expected return on plan assets, which are updated on an annual basis. The Company is required to consider current market conditions,
including changes in interest rates, in making these assumptions. Changes in the related pension and post-retirement benefit costs may occur in the future due to changes in the
assumptions.

Environmental Costs:

In the ordinary course of business the Company is subject to environmental laws and regulations, and has made provisions for the estimated financial impact of
environmental cleanup related costs. The quantification of environmental exposures requires an assessment of many factors, including changing laws and regulations, advancements in environmental
technologies, the quality of information available related to specific sites, the assessment stage of each site investigation, preliminary findings and the length of time involved in the remediation
or settlement. The Company accrues environmental cleanup related costs when those costs are believed to be probable and can be reasonably estimated.

Research and Development:

Research and development costs are charged to operations when incurred and are included in operating expenses.

Income Taxes:

Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the income tax consequences
attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the enactment date.

F-15

---



ALBANY MOLECULAR RESEARCH, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2007, 2006 and 2005

(In thousands, except per share amounts)

1. Summary of Significant Accounting Policies (Continued)

On
January 1, 2007, the Company adopted the provisions of FASB Interpretation No. 48, "Accounting for Uncertainty in Income Taxes, an Interpretation of FASB Statement
No. 109" ("FIN 48"). FIN 48 provides recognition criteria and a related measurement model for tax positions taken by companies. In accordance with FIN 48, a tax position is
a position in a previously filed tax return or a position expected to be taken in a future tax filing that is reflected in measuring current or deferred income tax assets and liabilities. Tax
positions are recognized only when it is more likely than not (likelihood of greater than 50%), based on technical merits, that the position would be sustained upon examination by taxing authorities.
Tax positions that meet the more likely than not threshold are measured using a probability-weighted approach as the largest amount of tax benefit that is greater than 50% likely of being realized
upon settlement. The adoption of FIN 48 did not result in a change to the liability of unrecognized benefits.

Stock-Based Compensation:

Effective January 1, 2006, the Company adopted SFAS No. 123 (Revised 2004), "Share-Based Payment" ("SFAS No. 123 (R)"), which amends SFAS
No. 123 and supersedes APB No. 25 in establishing standards for the accounting for transactions in which an entity exchanges its equity instruments for goods or services, as well as
transactions in which an entity incurs liabilities in exchange for goods or services that are based on the fair value of the entity's equity instruments or that may be settled by the issuance of those
equity instruments. This Statement requires that the cost resulting from all share-based payment transactions be recognized in the financial statements based on the fair value of the share-based
payment. This Statement establishes fair value as the measurement objective in accounting for share-based payment transactions with employees, except for equity instruments held by employee share
ownership plans. As allowed under SFAS No. 123 (R), the Company elected the modified prospective method of adoption, under which compensation cost is recognized in the financial statements
beginning with the effective date of SFAS No. 123 (R) for all share-based payments granted after that date, and for all unvested awards granted prior to the effective date of SFAS
No. 123 (R). Accordingly, prior period amounts have not been restated.

F-16

---



ALBANY MOLECULAR RESEARCH, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2007, 2006 and 2005

(In thousands, except per share amounts)

1. Summary of Significant Accounting Policies (Continued)

The
following table illustrates the effect on net income and earnings per share if the Company had applied the fair value recognition provisions of SFAS No. 123 to its share-based
payments during 2005:

December 31, 2005Net income, as reported

$
16,321Add: Stock-based employee compensation expense included in reported net income, net of related tax effects


218Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects


7,633Pro forma

$
8,906Earnings per share:Basic as reported

$
0.51Basic pro forma

$
0.28Diluted as reported

$
0.50Diluted pro forma

$
0.28


Effective
December 30, 2005, pursuant to and in accordance with the recommendation of the Compensation Committee (the "Committee") of the Board of Directors, the Board of
Directors of the Company approved full acceleration of the vesting of each otherwise unvested stock option that had an exercise price of $15.00 or greater granted under the Company's 1998 Stock Option
and Incentive Plan (the "Plan") that was held by employees, officers, and non-employee directors. These options had exercise prices in excess of the current market value of the Company's
common stock, based on the closing price of $12.15 per share, on December 30, 2005 (i.e., such options were "underwater"). Options to purchase approximately 1.3 million shares of
the Company's common stock, including approximately 101,000 options held by executive officers, were subject to this acceleration.

The
Committee also required that, as a condition to the acceleration of vesting, each executive officer and each non-employee director agree to refrain from selling shares of
the Company's common stock acquired upon the exercise of accelerated options (other than shares needed to cover the exercise price and satisfy withholding taxes) until the date on which the exercise
of such options would have been permitted under the option's pre-acceleration vesting terms or, if earlier, the officer's or director's last day of employment or upon a "change in control"
as defined in the Plan.

The
decision to accelerate the vesting of these underwater options was made primarily to minimize certain future compensation expenses that the Company would otherwise recognize in its
consolidated statements of income (loss) with respect to these options pursuant to SFAS No. 123 (R), which became effective for the Company beginning January 1, 2006. The Company also
believes that the acceleration may have a positive effect on employee morale, retention and the perception of option value. The acceleration had no effect on reported net income for the year ended
December 31, 2005, and an

F-17

---



ALBANY MOLECULAR RESEARCH, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2007, 2006 and 2005

(In thousands, except per share amounts)

1. Summary of Significant Accounting Policies (Continued)

approximate
$3,881, net of tax, impact on pro forma net income in the fourth quarter of 2005. The impact of the acceleration is reflected in the pro forma amounts above.

The
per share weighted-average fair value of stock options granted is determined using the Black-Scholes option-pricing model with the following weighted-average assumptions:

2007

2006

2005Expected life in years:

5

5

5Interest rate

4.24
%
4.95
%
4.06
%Volatility

39
%
41
%
48
%Dividend yield








Earnings Per Share:

Basic earnings per share is computed by dividing income available to common stockholders by the weighted average number of common shares outstanding for the
period. Diluted earnings per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in
the issuance of common stock that then shared in the earnings of the Company (such as stock options and warrants).

The
following table provides basic and diluted earnings per share calculations:

|                                    |  | Year Ended December 31, 2007 |       | Year Ended December 31, 2006 |        | Year Ended December 31, 2005 |  
|----------------------------------- |  | ---------------------------- | ----- | ---------------------------- | ------ | ---------------------------- | -
|
|Basic earnings per share            |  | $                            | 8,936 |                              | 32,351 |                              | $
|Dilutive effect of stock options    |  |                              |      |                              | 85     |                              |  
|Dilutive effect of restricted stock |  |                              |      |                              | 190    |                              |  
|                                    |  |                              |       |                              |        |                              |  
|Diluted earnings per share          |  | $                            | 8,936 |                              | 32,626 |                              | $
|                                    |  |                              |       |                              |        |                              |  

The
weighted average amount of anti-dilutive options and warrants outstanding were 1,895, 1,966 and 2,390 for the years ended December 31, 2007, 2006 and 2005,
respectively, and were excluded from the calculation of diluted earnings per share.

F-18

---



ALBANY MOLECULAR RESEARCH, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2007, 2006 and 2005

(In thousands, except per share amounts)

1. Summary of Significant Accounting Policies (Continued)

Restructuring Charges:

The Company accounts for its restructuring costs as required by SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities" ("SFAS
No. 146"). SFAS No. 146 requires that a liability for a cost associated with an exit or disposal activity be recognized and measured initially at its fair value in the period in which
the liability is incurred, except for one-time termination benefits that meet certain requirements.

Recent Accounting Pronouncements:

In February 2007, the FASB issued SFAS No. 159 ("SFAS 159"), "The Fair Value Option for Financial Assets and Financial Liabilities". SFAS 159
permits an entity to measure certain financial assets and financial liabilities at fair value. Entities that elect the fair value option will report unrealized gains and losses in earnings at each
subsequent reporting date. The provisions of SFAS 159 are effective for fiscal years beginning after November 15, 2007. The Company is currently evaluating the impact, if any, of the
provisions of SFAS 159 on its financial statements.

In
November 2007, the Emerging Issues Task Force issued EITF Issue 07-01 ("EITF 07-01"), "Accounting for Collaborative Arrangements".
EITF 07-01 requires collaborators to present the results of activities for which they act as the principal on a gross basis and report any payments received from (made to) other
collaborators based on other applicable GAAP or, in the absence of other applicable GAAP, based on analogy to authoritative accounting literature or a reasonable, rational, and consistently applied
accounting policy election. Further, EITF 07-01 clarified that the determination of whether transactions within a collaborative arrangement are part of a vendor-customer (or
analogous) relationship subject to Issue 01-9, "Accounting for Consideration Given by a Vendor to a Customer". EITF 07-01 is effective for fiscal years beginning after
December 15, 2008. The Company is currently evaluating the impact, if any, of EIFT 07-01 on its financial statements.

On
December 4, 2007, the FASB issued SFAS No. 160 ("SFAS 160"), "Noncontrolling Interests in Consolidated Financial StatementsAn Amendment of ARB
No. 51". SFAS 160 establishes new accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. Specifically, this
statement requires the recognition of a noncontrolling interest (minority interest) as equity in the consolidated financial statements and separate from the parent's equity. The amount of net income
attributable to the noncontrolling interest will be included in consolidated net income on the face of the income statement. SFAS 160 clarifies that changes in a parent's ownership interest in
a subsidiary that do not result in deconsolidation are equity transactions if the parent retains its controlling financial interest. In addition, this statement requires that a parent recognize a gain
or loss in net income when a subsidiary is deconsolidated. Such gain or loss will be measured using the fair value of the noncontrolling equity investment on the deconsolidation date. SFAS 160
also includes expanded disclosure requirements regarding the interests
of the parent and its noncontrolling interest. SFAS 160 is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008. Earlier
adoption is prohibited. The Company is currently assessing the impact of this statement and the effect it will have on its financial statements.

F-19

---



ALBANY MOLECULAR RESEARCH, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2007, 2006 and 2005

(In thousands, except per share amounts)

1. Summary of Significant Accounting Policies (Continued)

In December 2007, the FASB issued SFAS No. 141(R) ("SFAS 141(R)"), "Business Combinations". SFAS 141(R) establishes principles and
requirements for how an acquirer in a business combination recognizes and measures the assets acquired, liabilities assumed and any noncontrolling interest in the acquiree. This statement also
provides guidance for recognizing and measuring the goodwill acquired in the business combination and determines what information to disclose to enable users of the financial statements to evaluate
the nature and financial effects of the business combination. SFAS 141(R) applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first
fiscal year beginning on or after December 15, 2008. The Company is currently evaluating the impact, if any, of the provisions of SFAS 141(R) on its financial statements

2. Business Combinations

On June 29, 2007, the Company, through a wholly-owned subsidiary, acquired certain assets of AMRI India.

The
aggregate purchase price of $11,898 included cash payments totaling $11,073 and capitalized costs related to the acquisition, primarily professional fees, of $825.

The
following table summarizes the preliminary allocation of the purchase price to the estimated fair value of the net assets acquired. The allocation will be adjusted upon the final
determination of the purchase price and the completion of the Company's valuation of the acquired assets and liabilities of AMRI India.

June 29, 2007Assets AcquiredAccounts receivable, net

$
13Inventory


723Prepaid expenses and other current assets


229Property and equipment, net


2,077Goodwill


9,103Total assets acquired

$
12,145Liabilities AssumedAccounts payable and accrued expenses

$
247Total liabilities assumed

$
247Net assets acquired

$
11,898


Pro
forma financial information for the year ended December 31, 2007, as if the AMRI India acquisition had been completed as of January 1, 2007, has been excluded due to
the immateriality of the operating results of AMRI India in relation to the Company's consolidated operating results as a whole.

F-20

---



ALBANY MOLECULAR RESEARCH, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2007, 2006 and 2005

(In thousands, except per share amounts)

2. Business Combinations (Continued)

On
February 28, 2006, the Company, through a wholly-owned subsidiary, acquired all of the outstanding shares of ComGenex Kutato-Fejleszto Rt. ("ComGenex"), a privately held drug
discovery service company located in Budapest, Hungary.

The
aggregate purchase price of $11,930 included cash payments totaling $11,160 and capitalized costs related to the acquisition, primarily professional fees, of $770.

The
following table summarizes the final allocation of the purchase price to the estimated fair value of the net assets acquired. Based on final determination of the purchase price and
the completion of the Company's valuation of the acquired assets and liabilities of ComGenex, there have been certain reclassifications from the purchase price allocation disclosed in the Company's
Form 10-K for the period ended December 31, 2006.

February 28,
2006Assets AcquiredCash and cash equivalents

$
323Accounts receivable, net


1,002Inventory


121Prepaid expenses and other current assets


1,141Property and equipment, net


1,729Goodwill


9,293Intangible assets and patents, net


1,104Other assets


21Total assets acquired

$
14,734Liabilities AssumedAccounts payable and accrued expenses

$
1,545Deferred revenue


1,119Deferred income taxes


78Other long term liabilities


62Total liabilities assumed

$
2,804Net assets acquired

$
11,930


Pro
forma financial information for the years ended December 31, 2006 and 2005 as if the ComGenex acquisition had been completed as of January 1, 2005 has been excluded due
to the immateriality of the operating results of ComGenex in relation to the Company's consolidated operating results as a whole.

F-21

---



ALBANY MOLECULAR RESEARCH, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2007, 2006 and 2005

(In thousands, except per share amounts)

3. Restructuring

Large Scale Manufacturing Facility

On November 9, 2006, the Company announced plans to initiate a restructuring of the Company's Large Scale Manufacturing ("LSM") business segment.
Consistent with the Company's continued strategy of realigning its LSM segment toward a greater focus on manufacturing clinical trial materials with strong commercial potential, the goals of the
restructuring plan are to strengthen the Company's competitiveness in this area and reduce operating costs by eliminating overlap in business processes,
organization and project process flow, as well as leveraging existing resources and assets. The restructuring plan included a reduction of workforce in this segment, as well as reductions of
non-essential operating expenses, raw material costs and future capital expenditure activities. The Company has estimated that total LSM costs will be reduced by $5,000 annually as a
result of this restructuring. The Company recorded a restructuring charge of approximately $2,400 in the fourth quarter of 2006, including a non-cash asset disposal charge of approximately
$1,600, and other charges of approximately $800 consisting primarily of termination benefits. The Company recorded additional restructuring charges of $273 in 2007, consisting of termination benefits.

The
restructuring costs are included under the caption restructuring charge in the consolidated statements of operations during 2007 and 2006 and the restructuring liabilities are
included in accounts payable and accrued expenses on the consolidated balance sheets at December 31, 2007 and 2006.

The
following table displays the LSM restructuring activity and liability balances:

Balance at
January 1,
2007

Charges

Incurred
Amounts

Balance at
December 31,
2007Termination benefits

$
682


273


(815
)
$
140Asset disposal costs


382





(382
)

Total

$
1,064

$
273

$
(1,197
)
$
140


|
|

Balance at
January 1,
2006

Charges

Incurred
Amounts

Balance at
December 31,
2006Termination benefits

$



874


(192
)
$
682Asset disposal costs





1,557


(1,175
)

382Total

$


$
2,431

$
(1,367
)
$
1,064


Termination
benefits relate to severance packages, outplacement services and career counseling for employees affected by the restructuring. Asset disposal costs relate primarily to the
carrying value of underutilized assets that were identified for disposal in conjunction with the restructuring plan.

The
large scale manufacturing restructuring activity was recorded in the LSM operating segment. The net cash outflow related to the large scale manufacturing restructuring for the year
ended December 31, 2007 and 2006 were $815 and $72, respectively. Anticipated cash outflows related to the

F-22

---



ALBANY MOLECULAR RESEARCH, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2007, 2006 and 2005

(In thousands, except per share amounts)

3. Restructuring (Continued)

large
scale manufacturing restructuring for 2008 are $140, which primarily consists of the payment of termination benefits.

Mt. Prospect Research Center

On May 4, 2004 the Company announced its plan to consolidate operations by relocating its Mt. Prospect facility operations to its facilities in New York.

During
the fourth quarter of 2006, the Company secured a letter of intent related to the potential sale of the Mt. Prospect facility. The Company recorded impairment charges of
approximately $3,500 during 2006 to reduce the carrying amount of these assets to reflect the sales price per the letter of intent less estimated selling costs. The Company completed the sale of the
facility in March 2007 for $1,500.

At
December 31, 2006, the Company had recorded restructuring liabilities totaling $190 related to asset disposal costs, including brokerage commissions, legal fees, and marketing
expenses associated with the planned sale of the Mt. Prospect Research Center facility.

The
following table displays the Mt. Prospect restructuring activity and liability balances:

Balance at
January 1, 2007

Adjustments

Payments

Balance at
December 31, 2007Asset disposal costs


190


(6
)

(184
)

Total

$
190

$
(6
)
$
(184
)
$



|
|

Balance at
January 1, 2006

Charges

Payments

Balance at
December 31, 2006Asset disposal costs


513


(323
)




190Total

$
513

$
(323
)
$


$
190


|
|

Balance at
January 1, 2005

Charges

Payments

Balance at
December 31, 2005Termination benefits

$
129

$
(65
)
$
(64
)
$
Asset disposal costs


513








513Total

$
642

$
(65
)
$
(64
)
$
513


Asset
disposal costs related primarily to brokerage commissions, legal fees, and marketing expenses associated with the planned sale of the Mt. Prospect Research Center facility. Costs
of termination benefits related to severance packages, outplacement services and career counseling for employees affected by the restructuring.

The
Company also incurred approximately $0, $0 and $200 in employee and equipment relocation costs during the years ended December 31, 2007, 2006 and 2005, respectively. These
relocation costs

F-23

---



ALBANY MOLECULAR RESEARCH, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2007, 2006 and 2005

(In thousands, except per share amounts)

3. Restructuring (Continued)

are
included under the caption "selling, general and administrative" in the consolidated statements of income.

The
Mt. Prospect restructuring activity was recorded in the Discovery/Development/Small Scale Manufacturing ("DDS") operating segment while the large scale manufacturing restructuring
activity was recorded in the LSM operating segment. The restructuring costs are included under the caption restructuring charge in the consolidated statements of income and the restructuring
liabilities are included in accounts payable and accrued expenses in the consolidated balance sheets at December 31, 2007 and 2006.

4. Inventory

Inventory consisted of the following at December 31, 2007 and 2006:

December 31,2007

2006Raw materials

$
6,865

$
7,525Work in process


2,064


1,914Finished goods


13,535


12,858Libraries


117


347Total inventories, at cost

$
22,581

$
22,644


In
connection with the ongoing evaluation of library inventory for the year ended December 31, 2005, the Company determined that an unfavorable shift in the market for compound
libraries had occurred, and the Company was unable to forecast any demand for its chemical lead finding sample collections. As a result, the Company recorded a reserve of $2,063 to eliminate the
remaining carrying value of these collections.

5. Investment Securities, Available-for-Sale

The amortized cost, gross unrealized gains, gross unrealized losses and fair value for available-for-sale investment securities by major
security type were as follows:

December 31, 2007Amortized
Cost

Gross
Unrealized
Gains

Gross
Unrealized
Losses

Fair
ValueObligations of states and political subdivisions

$
32,197

$
29

$
(8
)
$
32,218U.S. Government and Agency obligations


2,000








2,000Auction rate securities


27,975








27,975$
62,172

$
29

$
(8
)
$
62,193


F-24

---



ALBANY MOLECULAR RESEARCH, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2007, 2006 and 2005

(In thousands, except per share amounts)

5. Investment Securities, Available-for-Sale (Continued)

|
|

December 31, 2006Amortized
Cost

Gross
Unrealized
Gains

Gross
Unrealized
Losses

Fair
ValueObligations of states and political subdivisions

$
38,232

$
3

$
(32
)
$
38,203U.S. Government and Agency obligations


10,351





(89
)

10,262Auction rate securities


32,575








32,575$
81,158

$
3

$
(121
)
$
81,040


Auction
rate securities are structured to be tendered at par, at the option of the investor, at auctions occurring every 3035 days. Recent disruption in the financial
and capital markets has resulted in reduced liquidity of these auction rate securities as auctions that have occurred in February 2008 have not been successful. Subsequent to
December 31, 2007, and prior to the failed auctions in February 2008, the Company had reduced its holdings in these securities to approximately $7,800. Given the negative impact of the
liquidity situation in the financial markets, the fair value of these auction rate debt securities may become lower than their carrying value. A continuation of the recent disruption in the financial
and capital markets may result in impairment write-downs on the auction rate debt securities and/or realized losses on the disposition of the remaining auction rate securities.

Contractual
maturities of securities classified as available-for-sale at December 31, 2007 and 2006 were as follows:

December 31, 2007

December 31, 2006Amortized
Cost

Fair
Value

Amortized
Cost

Fair
ValueDue less than one year

$
14,758

$
14,761

$
13,891

$
13,845Due after one year through five years


2,425


2,439


10,923


10,855Due after five years through ten years


1,087


1,096


1,945


1,945Due after ten years


43,902


43,897


54,399


54,395$
62,172

$
62,193

$
81,158

$
81,040


Information
on temporarily impaired securities at December 31, 2007, segregated according to the length of time such securities had been in a continuous unrealized loss position,
is summarized as follows:

Less than 12 Months

12 Months or Longer

TotalFair
alue

Unrealized
Loss

Fair
Value

Unrealized
Loss

Fair
Value

Unrealized
LossObligations of states and political subdivisions

$
603

$
(1
)
$
1,203

$
(7
)
$
1,806

$
(8
)$
603

$
(1
)
$
1,203

$
(7
)
$
1,806

$
(8
)


F-25

---



ALBANY MOLECULAR RESEARCH, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2007, 2006 and 2005

(In thousands, except per share amounts)

5. Investment Securities, Available-for-Sale (Continued)

Information
on temporarily impaired securities at December 31, 2006, segregated according to the length of time such securities had been in a continuous unrealized loss position,
is summarized as follows:

Less than 12 Months

12 Months or Longer

TotalFair
Value

Unrealized
Loss

Fair
Value

Unrealized
Loss

Fair
Value

Unrealized
LossObligations of states and political subdivisions

$
4,398

$
(9
)
$
5,980

$
(23
)
$
10,378

$
(32
)U.S. Government and Agency obligations


3,969


(31
)

6,293


(58
)

10,262


(89
)$
8,367

$
(40
)
$
12,273

$
(81
)
$
20,640

$
(121
)


The
above tables represent 6 and 26 securities at December 31, 2007 and 2006, respectively, where the current fair value is less than the related amortized cost. These unrealized
losses do not reflect any deterioration of the credit worthiness of the issuing entities. No security has a rating that is below "A2." The unrealized losses on these temporarily impaired securities
are a result of changes in interest rates for fixed-rate securities where the interest rate received is less than the current rate available for new offerings of similar securities and
changes in market spreads as a result of shifts in supply and demand. The Company has the ability and intent to hold these securities to maturity, at which time full recovery of the investment is
expected.

The
Company received proceeds of $86,476, $160,646 and $174,980 and recorded realized losses of $0 from maturities and sales of available-for-sale securities
during the years ended December 31, 2007, 2006 and 2005.

F-26

---



ALBANY MOLECULAR RESEARCH, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2007, 2006 and 2005

(In thousands, except per share amounts)

6. Property and Equipment

Property and equipment consists of the following:

December 31,2007

2006Laboratory equipment and fixtures

$
107,238

$
90,901Office equipment


24,753


21,421Leasehold improvements


37,951


37,688Buildings


54,249


52,966Land


1,101


2,155225,292


205,131Less accumulated depreciation and amortization


(79,706
)

(64,249
)145,586


140,882Construction-in-progress


12,442


13,820Less: Property and equipment held for sale (Note 3)





(1,500
)$
158,028

$
153,202


Depreciation
and amortization expense of property and equipment was approximately $16,100, $14,600 and $13,800 for the years ended December 31, 2007, 2006 and 2005, respectively.

Refer
to Note 3 for details regarding the status of the Mt. Prospect facility and related impairment charges.

7. Equity Investments

The Company has entered into equity investments with two entities in the Company's area of strategic focus. The Company accounts for these investments using the
cost method of accounting as the Company's ownership interest in each investee is below 20% and the Company does not have the ability to exercise significant influence over the investees.

The
carrying value of equity investments at December 31, 2007 and 2006 was $956.

8. Long-Term Debt and Swap Contracts

Long-Term Debt

The Company entered into a $30,000 term loan and $35,000 line of credit to fund the acquisition of AMRI Rensselaer. The term loan matures in February, 2008 and
bears interest at a variable rate based on the Company's leverage ratio. The Company is currently negotiating a refinancing of this debt, which includes converting debt into a revolving line of
credit. The Company expects to complete this negotiation in the first quarter of 2008. As of December 31, 2007, the variable interest rate was 6.20%. On June 30, 2005, the Company
amended the credit facility to extend the maturity date on the line of credit from February 2006 to June 2010. The line of credit bears interest at a variable rate based on the Company's leverage
ratio. As of December 31, 2007, the outstanding balance of the line of credit was $0. The credit facility contains certain financial covenants, including a maximum leverage

F-27

---



ALBANY MOLECULAR RESEARCH, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2007, 2006 and 2005

(In thousands, except per share amounts)

8. Long-Term Debt and Swap Contracts (Continued)

ratio,
a minimum required operating cash flow coverage ratio, a minimum earnings before interest and taxes to interest ratio and a minimum current ratio. Other covenants include limits on asset
disposals and the payment of dividends. As of December 31, 2007 and 2006, the Company was in compliance with all covenants under the credit facility.

The
Company maintains variable interest rate industrial development authority bonds due in increasing annual installments through 2021. Interest payments are due monthly with a current
interest rate of 3.52%.

The
following table summarizes long-term debt:

December 31,
2007

December 31,
2006Term loan

$
9,645

$
13,941Industrial development authority bonds


4,335


4,580Notes payable to financing company





1313,980


18,534Less current portion


(9,900
)

(4,541
)Total long-term debt

$
4,080

$
13,993


The
aggregate maturities of long-term debt at December 31, 2007 are as follows:

2008

$
9,9002009


2602010


2702011


2752012


285Thereafter


2,990




The Company entered into two swap agreements effective April 1, 2003. The objective of these swaps is to hedge interest rate risk associated with future
cash flows on a portion of the $30,000 variable rate term loan. The following table summarizes these swap transactions:

|Swap Description   |  | Original
Notional
Amount |        | AMRI
pays |             | AMRI
Receives |       | Maturity
Date |                | Reprice/Settlement
Dates
|------------------ |  | ------------------------ | ------ | --------- | ----------- | ------------- | ----- | ------------- | -------------- | ------------------------
|April 1, 2003 Swap |  | $                        | 13,333 |           | Fixed 3.37% |               | LIBOR |               | February, 2008 |                         
|April 1, 2003 Swap |  |                          | 6,667  |           | Fixed 3.37% |               | LIBOR |               | February, 2008 |                         
|                   |  |                          |        |           |             |               |       |               |                |                         
|Total              |  | $                        | 20,000 |           |             |               |       |               |                |                         

F-28

---



ALBANY MOLECULAR RESEARCH, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2007, 2006 and 2005

(In thousands, except per share amounts)

8. Long-Term Debt and Swap Contracts (Continued)

The
fair value of these hedges, which represents the cash the Company would pay to settle the agreements, is recorded as a swap contract asset/liability with a corresponding offset to
other comprehensive income.

The
weighted average rate received from the counterparties on all swaps was 5.32%, 5.09% and 3.29% for the years ended December 31, 2007, 2006 and 2005, respectively. The fair
value of the interest rate swap agreements was $8 and $161 and was included in other long-term assets in the consolidated balance sheets at December 31, 2007 and 2006, respectively.
The Company recorded an unrealized loss, net of tax, of $92 and $61 and an unrealized gain of $132 in accumulated other comprehensive income (loss) representing the change in the fair value of its
hedges during the years ended December 31, 2007, 2006 and 2005, respectively. The Company recognized $164 and $191 of interest income and $14 in additional interest expense related to the net
settlement of the swaps during the years ended December 31, 2007, 2006 and 2005, respectively.

9. Income Taxes

The components of income before taxes and income tax expense are as follows:

Year Ended December 31,2007

2006

2005Income (loss) before taxes:U.S.

$
18,457

$
1,822

$
25,058Foreign


(4,072
)

420


88$
14,385

$
2,242

$
25,146Income tax expense (benefit):Current:Federal

$
3,928

$
646

$
11,572State


2


10


10Foreign


169


127


304,099


783


11,612Deferred:Federal


1,683


(830
)

(3,014
)State


160


105


227Foreign


(494
)1,350


(724
)

(2,787
)$
5,449

$
59

$
8,825


F-29

---



ALBANY MOLECULAR RESEARCH, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2007, 2006 and 2005

(In thousands, except per share amounts)

9. Income Taxes (Continued)

The differences between income tax expense and income taxes computed using a federal statutory rate of 35% for the years ended December 31, 2007, 2006 and
2005, were as follows:

|                                              |  | Year Ended December 31, |      
|--------------------------------------------- |  | ----------------------- | -----
|
|Pre-tax income at statutory rate              |  | $                       | 5,035
|Increase (reduction) in taxes resulting from: |  |                         |      
|Tax-free interest income                      |  |                         | (890 
|State taxes, net of federal benefit           |  |                         | 105  
|Extraterritorial income credit                |  |                         |     
|Rate differential on foreign operations       |  |                         | 1,126
|Domestic production deduction                 |  |                         | (140 
|Termination of outstanding warrants           |  |                         |     
|Stock compensation expense                    |  |                         | 76   
|Other, net                                    |  |                         | 137  
|                                              |  |                         |      
|                                              |  | $                       | 5,449
|                                              |  |                         |      

F-30

---



ALBANY MOLECULAR RESEARCH, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2007, 2006 and 2005

(In thousands, except per share amounts)

9. Income Taxes (Continued)

The
tax effects of temporary differences giving rise to significant portions of the deferred tax assets and liabilities are as follows:

|                                                                                            |  | December 31, |        
|------------------------------------------------------------------------------------------- |  | ------------ | -------
|
|Deferred tax assets:                                                                        |  |              |        
|Nondeductible accrued expenses                                                              |  | $            | 140    
|Allowance for doubtful accounts                                                             |  |              | 89     
|Library amortization                                                                        |  |              | 563    
|Inventory reserves                                                                          |  |              | 3,347  
|Warrants                                                                                    |  |              | 168    
|Environmental reserves                                                                      |  |              | 67     
|Pension and postretirement costs                                                            |  |              | 438    
|Research and experimentation credit carryforwards                                           |  |              | 193    
|Alternative minimum tax credit                                                              |  |              |       
|State tax credit carryforward                                                               |  |              | 4,373  
|Foreign deferred tax                                                                        |  |              | 441    
|Impairment charges                                                                          |  |              | 1,954  
|Investment write-downs and losses                                                           |  |              | 869    
|Capital loss on sale of fixed assets                                                        |  |              | 77     
|Deferred revenue                                                                            |  |              | 703    
|Stock based compensation                                                                    |  |              | 824    
|Net operating loss carryforwards                                                            |  |              | 758    
|                                                                                            |  |              |        
|                                                                                            |  |              | 15,004 
|Less valuation allowance                                                                    |  |              | (6,028 
|                                                                                            |  |              |        
|Deferred tax assets, net                                                                    |  |              | 8,976  
|                                                                                            |  |              |        
|Deferred tax liabilities:                                                                   |  |              |        
|Property and equipment depreciation differences (accelerated depreciation for tax purposes) |  |              | (14,235
|Prepaid real estate taxes                                                                   |  |              | (194   
|Goodwill amortization                                                                       |  |              | (450   
|                                                                                            |  |              |        
|Net deferred tax liability                                                                  |  | $            | (5,903 
|                                                                                            |  |              |        

The
preceding table does not include deferred tax (liabilities) assets of $(9) and $47 at December 31, 2007 and 2006, respectively, associated with the Company's unrealized
losses/gains on investment securities discussed in Note 5, deferred tax liability of $3 and $64 at December 31, 2007 and 2006, respectively, associated with the Company's swap contract
asset as discussed in Note 8, and deferred tax liability of $600 and $325 at December 31, 2007 and 2006, respectively, associated the Company's adoption of SFAS No. 158 and
additional minimum pension liability as discussed in Note 11.

F-31

---



ALBANY MOLECULAR RESEARCH, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2007, 2006 and 2005

(In thousands, except per share amounts)

9. Income Taxes (Continued)

The
Company's net operating loss carry forwards begin to expire in 2012. As a result of change in control related to acquisitions, the Company's use of net operating loss carry forwards
is limited to approximately $451 per year. The Company's state investment tax credit carry forwards begin to expire in 2018. The Company's research and development credit carry forwards begin to
expire in 2011.

The
Company has not recorded an income tax provision on earnings from certain of its foreign operations due to the fact that it has been granted certain tax holidays, which expire in
2012 and may be extended to 2015 if the Company meets additional criteria.

In
assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized.
The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income and the taxable income in the two previous tax years to which tax loss carry back can be
applied. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and taxable income in the carry back period and tax planning strategies in making
this assessment. Based upon the level of projected future taxable income over the periods in which the deferred tax assets are deductible and tax planning strategies, a valuation allowance of $5,302
and $3,190 at December 31, 2007 and 2006, respectively, is included in deferred tax assets above. The net deferred tax assets represent a level where management believes it is more likely than
not that the Company will realize the benefits of those deductible differences. The increase in valuation allowance in 2007 is directly related to the generation of additional state investment tax
credit carry forwards and a net operating loss carry forward at AMRI Hungary. The amount of the deferred tax asset considered realizable could be reduced if estimates of future taxable income during
the carry forward period are reduced.

On
January 1, 2007, the Company adopted the provisions of FASB Interpretation No. 48, "Accounting for Uncertainty in Income Taxes, an Interpretation of FASB Statement
No. 109" ("FIN 48"). FIN 48 provides recognition criteria and a related measurement model for tax positions taken by companies. In accordance with FIN 48, a tax position is
a position in a previously filed tax return or a position expected to be taken in a future tax filing that is reflected in measuring current or deferred income tax assets and liabilities. Tax
positions are recognized only when it is more likely than not (likelihood of greater than 50%), based on technical merits, that the position would be sustained upon examination by taxing authorities.
Tax positions that meet the more likely than not threshold are measured using a probability-weighted approach as the largest amount of tax benefit that is greater than 50% likely of being realized
upon settlement. The adoption of FIN 48 did not result in a change to the liability of unrecognized benefits.

A
reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:

2007Balance at January 1, 2007

$
5,105Additions based on tax positions related to the year ended December 31, 2007


400Additions/reductions for tax position of prior years


224Balance at December 31, 2007

$
5,729


F-32

---



ALBANY MOLECULAR RESEARCH, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2007, 2006 and 2005

(In thousands, except per share amounts)

9. Income Taxes (Continued)

At
December 31, 2007, $3.0 million (net of the federal benefit on state issues) represents the amount of unrecognized tax benefits that, if recognized, would favorably
affect the effective tax rate for future periods. The Company classifies interest expense and penalties related to unrecognized tax benefits as a component of income tax expense. This policy did not
change with adoption of FIN 48. As of December 31, 2007, the Company has not accrued any penalties related to its uncertain tax position as it believes that it is more likely than not
that there will not be any assessment of penalties. The total amount of accrued interest resulting from such unrecognized tax benefits was $1.0 million at December 31, 2007, of which
$0.2 million was recognized in 2007.

The
Company files Federal income tax returns, as well as multiple state and foreign jurisdiction tax returns. The Company's federal income tax returns have been examined by the Internal
Revenue Service through the year ended December 31, 2004. All significant state and foreign matters have been concluded for years through 1999. There are tax examinations that are currently
underway. The completion of certain of these tax examinations is anticipated within the next year. Based on the current status of these examinations, management of the Company believes that the
reserves associated with tax positions under examination are adequate. However, the Company does not believe it is reasonably possible to estimate the potential change in its unrecognized tax benefit
that will result from the completion of these examinations.

The
Company intends to reinvest indefinitely any of its unrepatriated foreign earnings. The Company has not provided for U.S. income taxes on these undistributed earnings of its
foreign subsidiaries because management considers such earnings to be reinvested indefinitely outside of the U.S. If the earnings were distributed, the Company may be subject to both foreign
withholding taxes and U.S. income taxes that may not be fully offset by foreign tax credits.

10. Stockholders' Equity

During the years ended December 31, 2007, 2006 and 2005, the Company recognized total share based compensation cost, net of tax, of $983, $886 and $218,
respectively.

Employee Stock Purchase Plan

The Company's 1998 Employee Stock Purchase Plan (the "Purchase Plan") was adopted during August 1998. Up to 600,000 shares of common stock may be issued under the
Purchase Plan, which is administered by the Compensation Committee of the Board of Directors. The Purchase Plan establishes two stock offering periods per calendar year, the first beginning on
January 1 and ending on June 30, and the second beginning on July 1 and ending December 31. All employees who work more than 20 hours per week are eligible for
participation in the Purchase Plan. Employees who are deemed to own greater than 5% of the combined voting power of all classes of stock of the Company are not eligible for participation in the
Purchase Plan.

During
each offering, an employee may purchase shares under the Purchase Plan by authorizing payroll deductions up to 10% of their cash compensation during the offering period. The
maximum number of shares to be issued to any single employee during an offering period is limited to one thousand shares. At the end of the offering period, the accumulated payroll deductions will be
used to

F-33

---



ALBANY MOLECULAR RESEARCH, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2007, 2006 and 2005

(In thousands, except per share amounts)

10. Stockholders' Equity (Continued)

purchase
common stock on the last business day of the offering period at a price equal to 85% of the closing price of the common stock on the first or last day of the offering period, whichever is
lower.

Under
SFAS No. 123(R), the 15% discount and the look-back feature are considered compensatory items for which expense must be recognized. The Company values Purchase
Plan shares as a combination position consisting of 15% of a share of nonvested stock and 85% of a six-month stock option. The value of the nonvested stock is estimated based on the fair
market value of the Company's common stock at the beginning of the offering period. The value of the stock option is calculated using the Black-Scholes valuation model using historical expected
volatility percentages, a risk free interest rate equal to the six-month U.S. Treasury rate at the beginning of the offering period, and an expected life of six months. The resulting
per-share value is multiplied by the shares estimated to be purchased during the offering period based on historical experience to arrive at a total estimated compensation cost for the
offering period. The estimated compensation cost is recognized on a straight-line basis over the offering period.

During
the years ended December 31, 2007, 2006 and 2005, 37, 40 and 41 shares, respectively, were issued under the Purchase Plan. During the years ended December 31, 2007
and 2006, cash received from stock option exercises and employee stock purchase plan purchases was $1,437 and $581, respectively.

Stock Option Plan

The Company has a Stock Option Plan, through which incentive stock options or non-qualified stock options may be issued. Incentive stock options
granted to employees may not be granted at prices less than 100% of the fair market value of the Company's common stock at the date of option grant. Non-qualified stock options may be
granted to employees, directors, advisors, consultants and other key persons of the Company at prices established at the date of grant, and may be less than the fair market value at the date of grant.
All incentive stock options may be exercised at any time, after vesting, over a ten-year period subsequent to the date of grant. Incentive stock options generally vest over five years,
with a 60% vesting occurring at the end of the third anniversary of the grant date, 20% at the end of the fourth anniversary of the grant date and 20% at the end of the fifth anniversary of the grant
date. Non-qualified stock option vesting terms are established at the date of grant, but have a duration of not more than ten years.

During
the year ended December 31, 2005 the Company applied the intrinsic value-based method of accounting prescribed by Accounting Principles Board ("APB") Opinion No. 25,
"Accounting for Stock Issued to Employees," and related interpretations, in accounting for its share-based payments.

F-34

---



ALBANY MOLECULAR RESEARCH, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2007, 2006 and 2005

(In thousands, except per share amounts)

10. Stockholders' Equity (Continued)

Following
is a summary of the status of stock option programs during 2007, 2006 and 2005:

|                                       |  | Number of
Shares |   | Weighted
Exercise
Price |       | Weighted Average
Remaining
Contractual Term
(Years) |     | Aggregate
Intrinsic
Value
|-------------------------------------- |  | ---------------- | - | ----------------------- | ----- | --------------------------------------------------- | --- | -------------------------
|Outstanding, January 1, 2005           |  | 2,814            |   | $                       | 19.76 |                                                     |     |                          
|Granted                                |  | 47               |   |                         | 13.36 |                                                     |     |                          
|Exercised                              |  | (221             | ) |                         | 3.91  |                                                     |     |                          
|Forfeited                              |  | (399             | ) |                         | 26.56 |                                                     |     |                          
|                                       |  |                  |   |                         |       |                                                     |     |                          
|Outstanding, December 31, 2005         |  | 2,241            |   |                         | 19.99 |                                                     |     |                          
|Granted                                |  | 96               |   |                         | 10.33 |                                                     |     |                          
|Exercised                              |  | (73              | ) |                         | 1.74  |                                                     |     |                          
|Forfeited                              |  | (82              | ) |                         | 24.12 |                                                     |     |                          
|Expired                                |  | (11              | ) |                         | 1.10  |                                                     |     |                          
|                                       |  |                  |   |                         |       |                                                     |     |                          
|Outstanding, December 31, 2006         |  | 2,171            |   |                         | 20.12 |                                                     |     |                          
|Granted                                |  | 188              |   |                         | 13.40 |                                                     |     |                          
|Exercised                              |  | (200             | ) |                         | 6.26  |                                                     |     |                          
|Forfeited                              |  | (195             | ) |                         | 19.75 |                                                     |     |                          
|Expired                                |  | (1               | ) |                         | 1.53  |                                                     |     |                          
|                                       |  |                  |   |                         |       |                                                     |     |                          
|Outstanding, December 31, 2007         |  | 1,963            |   | $                       | 20.95 |                                                     | 4.9 |                          
|                                       |  |                  |   |                         |       |                                                     |     |                          
|Options exercisable, December 31, 2007 |  | 1,680            |   | $                       | 22.37 |                                                     | 4.2 |                          
|                                       |  |                  |   |                         |       |                                                     |     |                          

The
weighted average fair value per share of stock options granted during the years ended December 31, 2007, 2006 and 2005 was $5.46, $4.49 and $6.01, respectively. The total
intrinsic value of stock options exercised during the years ended December 31, 2007, 2006 and 2005 was $1,465, $673 and $1,666, respectively. The actual tax benefit realized for the tax
deductions from stock option exercises was $121 and $34 during the years ended December 31, 2007 and 2006.

As
of December 31, 2007, there was $763 of total unrecognized compensation cost related to non-vested stock options. That cost is expected to be recognized over a
weighted-average period of 2.5 years. The total fair value of shares vested during the years ended December 31, 2007, 2006 and 2005 was approximately $3,184, $300 and $14,800,
respectively.

Effective
December 30, 2005, pursuant to and in accordance with the recommendation of the Compensation Committee (the "Committee") of the Board of Directors, the Board of
Directors of the Company approved full acceleration of the vesting of each otherwise unvested stock option that had an
exercise price of $15.00 or greater granted under the Company's 1998 Stock Option and Incentive Plan (the "Plan") that was held by employees, officers, and non-employee directors. These
options had exercise prices in excess of the current market value of the Company's common stock, based on the closing price of $12.15 per share, on December 30, 2005 (i.e., such options
were "underwater"). Options to purchase approximately 1.3 million shares of the Company's common stock, including approximately 101,000 options held by executive officers, were subject to this
acceleration.

F-35

---



ALBANY MOLECULAR RESEARCH, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2007, 2006 and 2005

(In thousands, except per share amounts)

10. Stockholders' Equity (Continued)

The Committee also required that, as a condition to the acceleration of vesting, each executive officer and each non-employee director agree to
refrain from selling shares of the Company's common stock acquired upon the exercise of accelerated options (other than shares needed to cover the exercise price and satisfy withholding taxes) until
the date on which the exercise of such options would have been permitted under the option's pre-acceleration vesting terms or, if earlier, the officer's or director's last day of
employment or upon a "change in control" as defined in the Plan.

The
decision to accelerate the vesting of these underwater options was made primarily to minimize certain future compensation expenses that the Company would otherwise recognize in its
consolidated statements of income with respect to these options pursuant to SFAS No. 123 (R). The Company also believes that the acceleration may have a positive effect on employee morale,
retention and the perception of option value.

The
following summarizes information about stock options outstanding as of December 31, 2007:

|              |  | Outstanding Options |  | Exercisable Options
|------------- |  | ------------------- |  | -------------------
|
|$0.00-$6.54   |  | 4                   |  | 0.94               
|$6.54-$13.09  |  | 373                 |  | 6.54               
|$13.09-$19.63 |  | 714                 |  | 6.26               
|$19.63-$26.18 |  | 534                 |  | 3.19               
|$26.18-$32.72 |  | 95                  |  | 2.93               
|$32.72-$39.26 |  | 41                  |  | 2.78               
|$39.26-$45.81 |  | 184                 |  | 3.09               
|$45.81-$52.35 |  | 12                  |  | 3.17               
|$52.35-$58.89 |  | 4                   |  | 2.86               
|$58.89-$65.44 |  | 2                   |  | 2.99               
|              |  |                     |  |                    
|              |  | 1,963               |  | 4.91               
|              |  |                     |  |                    

The
following are the shares of common stock reserved for issuance at December 31, 2007:

Number of SharesEmployee Stock Option Plans

3,052Employee Stock Purchase Plan

322Shares reserved for issuance

3,374


Restricted Stock

The Company also issues restricted shares of common stock to employees of the Company under the 1998 Stock Option and Incentive Plan. The shares are issued as
restricted stock and are held in the custody of the Company until all vesting restrictions are satisfied. Shares vest under this grant over a

F-36

---



ALBANY MOLECULAR RESEARCH, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2007, 2006 and 2005

(In thousands, except per share amounts)

10. Stockholders' Equity (Continued)

period
of five years, with 60% vesting after three years of continuous employment from the grant date and an additional 20% vesting after each of four and five years of continuous employment from the
grant date. If the vesting terms under which the award was granted are not satisfied, the shares are forfeited. Unearned compensation in equity is recorded based on the market value of the shares on
the grant date, and is amortized to expense on a straight-line basis over the applicable vesting period. The Company reduces the straight-line compensation expense by an
estimated forfeiture rate to account for the estimated impact of shares of restricted stock that are expected to be forfeited before becoming fully vested. This estimate is based on our historical
forfeiture experience.

A
summary of unvested restricted stock activity as of December 31, 2007 and 2006 and changes during the years then ended is presented below:

Number of
Shares

Weighted
Average Grant Date
Fair ValueOutstanding, December 31, 2004



$
Granted

288


8.71Vested




Forfeited

(31
)

8.45Outstanding, December 31, 2005

257

$
8.75Granted

194


10.28Vested




Forfeited

(32
)

9.45Outstanding, December 31, 2006

419

$
9.40Granted

197


10.33Vested




Forfeited

(98
)

9.23Outstanding, December 31, 2007

518

$
9.79


For
the years ended December 31, 2007 and 2006, unearned compensation of $2,035 and $1,995, respectively, was recorded based on the market value of the shares on the grant date,
and is included as a separate component of stockholders' equity and amortized over the applicable vesting period. During the years ended December 31, 2007 and 2006, a total of 98 and 32 shares,
respectively, with an unamortized unearned compensation balance of $904 and $303, respectively, were forfeited. The amount amortized to expense during years ended December 31, 2007, 2006 and
2005, net of the impact of forfeitures, was approximately $719, $611 and $327, respectively. As of December 31, 2007, there was $3,413 of total unrecognized compensation cost related to
non-vested restricted shares. That cost is expected to be recognized over a weighted-average period of 3.29 years. No restricted shares vested during the years ended
December 31, 2007 and 2006.

F-37

---



ALBANY MOLECULAR RESEARCH, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2007, 2006 and 2005

(In thousands, except per share amounts)

10. Stockholders' Equity (Continued)

Shareholder Rights Plan

The Company has adopted a Shareholder Rights Plan, the purpose of which is, among other things, to enhance the Board of Directors' ability to protect shareholder
interests and to ensure that shareholders receive fair treatment in the event any coercive takeover attempt of the Company is made in the future. The Shareholder Rights Plan could make it more
difficult for a third party to acquire, or could discourage a third party from acquiring, the Company or a large block of the Company's Common Stock. The following summary description of the
Shareholder Rights Plan does not purport to be complete and is qualified in its entirety by reference to the Company's Shareholder Rights Plan, which has been previously filed with the Securities and
Exchange Commission as an exhibit to a Registration Statement on Form 8-A.

In
connection with the adoption of the Shareholder Rights Plan, the Board of Directors of the Company declared a dividend distribution of one preferred stock purchase right (a "Right")
for each outstanding share of Common Stock to stockholders of record as of the close of business on September 19, 2002. The Rights currently are not exercisable and are attached to and trade
with the outstanding shares of Common Stock. Under the Shareholder Rights Plan, the Rights become exercisable if a person becomes an "acquiring person" by acquiring 15% or more of the outstanding
shares of Common Stock or if a person commences a tender offer that would result in that person owning 15% or more of the Common Stock. A stockholder owning 15% or more of the common stock of the
Company as of September 19, 2002, is "grandfathered" under the Shareholder Rights Plan and will become an "acquiring person" upon acquiring an additional 1/2% of the Common
Stock. If a person becomes an "acquiring person," each holder of a Right (other than the acquiring person) would be entitled to purchase, at the then-current exercise price, such number of
shares of the Company's preferred stock which are equivalent to shares of Common Stock having twice the exercise price of the Right. If the Company is acquired in a merger or other business
combination transaction after any such event, each holder of a Right would then be entitled to purchase, at the then-current exercise price, shares of the acquiring company's common stock
having a value of twice the exercise price of the Right.

Stock Purchase Warrants

In March 2004, the Company issued warrants to purchase up to 516 shares of the Company's common stock to Bristol-Myers Squibb Company ("BMS"). The issuance of
these warrants resulted from a 2002 agreement whereby BMS transferred intellectual property to the Company, providing the Company with ownership of one of BMS's preclinical drug candidates, along with
patent applications covering attention deficit hyperactivity disorder ("ADHD") and central nervous system indications. In connection with the agreement, in March 2004, the Company elected to retain
ownership of the technology and all improvements made to date, resulting in the issuance of the warrants to BMS.

In
October 2005, the Company entered into a License and Research Agreement ("the Agreement") with BMS. In conjunction with the Agreement, all outstanding warrants were cancelled. The
cancellation of the warrants was deemed to represent additional up-front licensing consideration from BMS. As a result, the cancelled warrants, which had a value of $562 on the date of
cancellation,

F-38

---



ALBANY MOLECULAR RESEARCH, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2007, 2006 and 2005

(In thousands, except per share amounts)

10. Stockholders' Equity (Continued)

were
recorded as deferred revenue, with a corresponding debit to shareholders' equity during the quarter ended December 31, 2005. The value of the cancelled warrants will be recognized as
contract revenue in the consolidated statement of income over the three-year term of the Agreement. The value of warrants cancelled was determined using the Black-Scholes option-pricing
model with the following weighted-average assumptions.

Expected life (years)

3.2Interest rate

4.30
%Volatility

42.68
%Dividend yield




Share Repurchase Program

On February 7, 2008, the Company's Board of Directors approved a stock repurchase program, which authorized the Company to purchase up to $20,000 of the
issued and outstanding shares of the Company's Common Stock in the open market or in private transactions during the next twelve months. Shares may be repurchased from time to time and in such amounts
as market conditions warrant, subject to price ranges set by management and regulatory considerations.

11. Employee Benefit Plans

Defined Contribution Plans

The Company maintains a savings and profit sharing plan under section 401(k) of the Internal Revenue Code covering all eligible non-union
employees. Employees must complete one calendar month of service and be over 20.5 years of age as of the plan's entry dates. Participants may contribute up to 100% of their compensation,
subject to IRS limitations. The Company currently makes matching contributions equal to 50% of the participants' contributions (up to a limit of 10% of the participants' compensation). In addition,
the Company has reserved the right to make discretionary profit sharing contributions to employee accounts. The Company has made no discretionary profit sharing contributions. Employer matching
contributions vest at a rate of 20% per year beginning after two years of participation in the plan. Employer matching contributions were approximately $1,576, $1,375 and $1,335 for the years ended
December 31, 2007, 2006 and 2005, respectively.

The
Company also sponsors a savings and profit sharing plan under section 401(k) of the Internal Revenue Code covering union employees. Employees must complete one calendar month
of service and be over 18 years of age as of the plan's entry dates. Participants may contribute from 1% to 100% of their regular wages, subject to IRS limitations, and the Company matches 50%
of each dollar contributed by the employee up to 10% of their wages. Employer matching contributions vest at a rate of 20% per year beginning after two years of participation in the plan, however the
employer match under this plan does not begin until the employee completes one year of service. Employer matching contributions were $158, $78 and $143 for the years ended December 31, 2007,
2006 and 2005, respectively.

F-39

---



ALBANY MOLECULAR RESEARCH, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2007, 2006 and 2005

(In thousands, except per share amounts)

11. Employee Benefit Plans (Continued)

Defined Benefit and Postretirement Welfare Plan

AMRI Rensselaer maintains a non-contributory defined benefit plan (salaried and hourly) and a non-contributory, unfunded
post-retirement welfare plan, covering substantially all employees. Benefits for the salaried defined benefit plan are based on salary and years of service. Benefits for the hourly defined
benefit plan (for union employees) are based on negotiated benefits and years of service. The hourly defined benefit plan is covered under a collective bargaining agreement with the International
Chemical Workers Union which represents the hourly workforce at AMRI Rensselaer.

Effective
June 5, 2003, the Company eliminated all benefits under the non-contributory, unfunded post-retirement welfare plan for salaried employees.
Effective August 1, 2003, the Company curtailed the salaried defined benefit pension plan. Effective March 1, 2004, the Company curtailed the hourly defined benefit pension plan.

In
September 2006, the FASB issued SFAS No. 158, "Employers' Accounting for Defined Benefit Pension and Other Postretirement Plans" ("SFAS No. 158"), requiring an employer
to recognize the overfunded or underfunded status of its postretirement plans in the statement of financial position and to recognize changes in that funded status in the year in which the changes
occur. Additionally, an employer is required to measure the funded status of a plan as of the end of the employer's fiscal year. The Company adopted SFAS No. 158 effective December 31,
2006.

The
following table provides a reconciliation of the changes in the plans' benefit obligations and fair value of the plans' assets during the years ended December 31, 2007 and
2006, and a reconciliation

F-40

---



ALBANY MOLECULAR RESEARCH, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2007, 2006 and 2005

(In thousands, except per share amounts)

11. Employee Benefit Plans (Continued)

of
the funded status to the net amount recognized in the consolidated balance sheets as of December 31 (the plans' measurement dates) of both years:

Pension Benefits

Postretirement
Benefits2007

2006

2007

2006Change in benefit obligation:Benefit obligation at January 1

$
21,678

$
21,483

$
755

$
521Service cost








46


71Interest cost


1,220


1,192


36


31Plan amendments











6Actuarial loss (gain)


(861
)

168


(92
)

126Benefits paid


(1,291
)

(1,165
)




Benefit obligation at December 31


20,746


21,678


745


755Change in plan assets:Fair value of plan assets at January 1


21,319


18,876





Actual return on plan assets


1,218


2,593





Employer contributions


566


1,015





Benefits paid


(1,291
)

(1,165
)




Fair value of plan assets at December 31


21,812


21,319





Funded status

$
1,066

$
(359
)
$
(745
)
$
(755
)


The
Company included $417 and $254 in other comprehensive income for the years ended December 31, 2007 and 2006, respectively, which represent the respective fluctuations in the
additional minimum pension liability, net of related tax benefits.

At
December 31, 2007 and 2006, the accumulated benefit obligation (the actuarial present value of benefits, vested and non-vested, earned by employees based on current
and past compensation levels) for the Company's pension plans totaled $20,746 and $21,678, respectively.

F-41

---



ALBANY MOLECULAR RESEARCH, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2007, 2006 and 2005

(In thousands, except per share amounts)

11. Employee Benefit Plans (Continued)

The
following table provides the components of net periodic benefit (income) cost for the years ended December 31:

Pension Benefits

Postretirement
Benefits2007

2006

2005

2007

2006

2005Service cost

$


$


$


$
46

$
71

$
63Interest cost


1,220


1,193


1,161


36


31


25Expected return on plan assets


(1,486
)

(1,349
)

(1,230
)







Amortization of net loss





53


21


7


10


8Net periodic benefit (income) cost

$
(266
)
$
(103
)
$
(48
)
$
89

$
112

$
96Recognized in AOCI:Prior service cost

$


$





$
5

$
6Net actuarial (gain) loss


(1,781
)

(1,189
)




201


300Total recognized in AOCI

$
(1,781
)
$
(1,189
)



$
206

$
306


In
2008, the Company expects to amortize $1 of prior service cost and $7 of net actuarial loss from shareholders' equity into postretirement benefit plan cost.

The
following table represents the incremental effect of applying SFAS No. 158 on individual line items in the consolidated balance sheet as of December 31, 2006:

Before
Application of
SFAS No. 158

Adjustments

After
Application of
SFAS No. 158Liability for pension benefits

$
2,372

$
(1,258
)
$
1,114Deferred income taxes


4,531


390


4,921Total liabilities


53,181


(868
)

52,313Accumulated other comprehensive income


(36
)

868


832Total stockholders' equity


317,587


868


318,455


The
following assumptions were used to determine the periodic pension cost for the defined benefit pension plans for the year ended December 31:

2007

2006

2005Discount rate

6.25
%
5.75
%
5.50
%Expected return on plan assets

8.00
%
8.00
%
8.00
%Rate of compensation increase

N/A

N/A

N/A


The
discount rates utilized for determining the Company's pension obligation and net periodic benefit cost were selected using high-quality long-term corporate
bond indices as of the plan's measurement date. The rate selected as a result of this process was substantiated by comparing it to the composite discount rate that produced a liability equal to the
plan's expected benefit payment

F-42

---



ALBANY MOLECULAR RESEARCH, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2007, 2006 and 2005

(In thousands, except per share amounts)

11. Employee Benefit Plans (Continued)

stream
discounted using the Citigroup Pension Discount Curve ("CPDC"). The CPDC was designed to provide a means for plan sponsors to value the liabilities of their postretirement benefit plans. The
CPDC is a yield curve of hypothetical double-A zero coupon bonds with maturities up to 30 years. This curve includes adjustments to eliminate the call features of corporate bonds.
As a result of this modeling process, the discount rate was increased from 5.75% at December 31, 2006 to 6.25% at December 31, 2007.

The
following assumptions were used to determine the periodic postretirement benefit cost for the postretirement welfare plan for the year ended December 31:

2007

2006

2005Health care cost trend rate assumed for next year

10.0
%
9.0
%
8.0
%Rate to which the cost trend rate is assumed to decline (the ultimate trend rate)

5.0
%
4.5
%
4.0
%Year that the rate reaches the ultimate trend rate

2013

2012

2010


Assumed
health care cost trend rates have a significant effect on the amounts reported for the postretirement welfare plan. A one-percentage-point change in assumed health
care cost trend rates would have the following effects:

Point Increase

Point DecreaseEffect on total of service and interest cost

$
23

$
(18
)Effect on accumulated postretirement benefit obligation for the year ended December 31, 2007

$
195

$
(149
)


The
Company's pension plan weighted-average asset allocations at December 31 by asset category are as follows:

2007

2006Equity securities

59
%
60
%Debt securities

34

33Real Estate

5

5Other

2

2Total

100
%
100
%


The
overall objective of the Company's defined benefit plans is to provide the means to pay benefits to participants and their beneficiaries in the amounts and at the times called for by
the plan. This is expected to be achieved through the investment of the Company's contributions and other assets and by utilizing investment policies designed to achieve adequate funding over a
reasonable period of time.

Defined
benefit plan assets are invested so as to achieve a return on investment, based on levels of liquidity and investment risk that is prudent and reasonable under circumstances
which exist from time to time. While the Company recognizes the importance of the preservation of capital, it also adheres to

F-43

---



ALBANY MOLECULAR RESEARCH, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2007, 2006 and 2005

(In thousands, except per share amounts)

11. Employee Benefit Plans (Continued)

the
theory of capital market pricing which maintains that varying degrees of investment risk should be rewarded with compensating returns.

The
asset allocation decision includes consideration of the non-investment aspects of the Company's defined benefit plans, including future retirements, lump-sum
elections,
contributions, and cash flow. These actual characteristics of the plans place certain demands upon the level, risk, and required growth of trust assets. The Company regularly conducts analyses of the
plans' current and likely future financial status by forecasting assets, liabilities, benefits and contributions over time. In so doing, the impact of alternative investment policies upon the plans'
financial status is measured and an asset mix which balances asset returns and risk is selected.

The
Company's decision with regard to asset mix is reviewed periodically. Asset mix guidelines include target allocations and permissible ranges for each asset category. Assets are
monitored on an ongoing basis and rebalanced as required to maintain an asset mix within the permissible ranges. The guidelines will change from time to time, based on an ongoing evaluation of the
plan's tolerance of investment risk.

The
market-related value of plan assets is used in developing the expected rate of return on plan assets. In developing the expected rate of return, the market-related value of plan
assets phases in recognition of capital appreciation by recognizing investment gains and losses over a four-year period at 25% per year.

The
expected future benefit payments under the plans are as follows for the years ending December 31:

Pension
Benefits

Postretirement
Benefits2008

$
1,260

$
2009


1,339


2010


1,450


2011


1,469


2012


1,499


2013 - 2016


7,986


136


The
Company expects to contribute $303 to its pension plans in 2008.

12. Lease Commitments

The Company leases both facilities and equipment used in its operations and classifies those leases as operating leases following the provisions of SFAS
No. 13, "Accounting for Leases".

F-44

---



ALBANY MOLECULAR RESEARCH, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2007, 2006 and 2005

(In thousands, except per share amounts)

12. Lease Commitments (Continued)

The Company has long-term operating leases for a substantial portion of its research and development laboratory facilities. The expiration dates on
the present leases range from February 2008 to April 2015. The leases contain renewal options at the option of the Company. The Company is responsible for paying the cost of utilities, operating
costs, and increases in property taxes at its leased facilities.

Future
minimum lease payments under non-cancelable operating leases (with initial or remaining lease terms in excess of one year) as of December 31, 2007 are as
follows:

Year ending December 31,2008

$
3,1562009


2,5682010


1,6262011


1,5282012


1,140Thereafter


1,080


Rental
expense amounted to approximately $3,502, $2,977 and $2,400 during the years ended December 31, 2007, 2006 and 2005, respectively.

13. Related Party Transactions

(a) Technology Development Incentive Plan

In 1993, the Company adopted a Technology Development Incentive Plan to provide a method to stimulate and encourage novel innovative technology development. To be
eligible to participate, the individual must be an employee and must be the inventor, co-inventor or have made a significant intellectual contribution of novel technology that results in
new revenues received by the Company. Eligible participants will share in awards based on a percentage of the licensing, royalty or milestone revenue received by the Company, as defined by the Plan.

In
2007, 2006 and 2005, the Company awarded Technology Incentive Compensation primarily to the inventor of the terfenadine carboxylic acid metabolite technology, which is covered by the
Company's patents relating to the active ingredient in Allegra. The inventor is Thomas D'Ambra, the Company's Chairman, President and Chief Executive Officer. In 2006, the Company awarded employees
involved in the development of its proprietary amine neurotransmitter reuptake inhibitors as a result of successful licensing of this technology to BMS. Additionally, in 2007, the Company granted
awards to employees in relation to a milestone payment from BMS. The amounts awarded and included in the consolidated statements of income for the years ended December 31, 2007, 2006 and 2005
are $2,784, $2,783 and $4,695, respectively. Included in accrued compensation in the accompanying consolidated balance sheets at both December 31, 2007 and 2006 are unpaid Technology
Development Incentive Compensation awards of approximately $659 and $623.

F-45

---



ALBANY MOLECULAR RESEARCH, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2007, 2006 and 2005

(In thousands, except per share amounts)

13. Related Party Transactions (Continued)

(b) Telecommunication Services

A member of the Company's board of directors is the Chief Executive Officer of one of the providers of telephone and internet services to the Company. This
telecommunications company was paid approximately $228, $156 and $194 for services rendered to the Company in 2007, 2006 and 2005, respectively.

14. Legal Proceedings

The Company, from time to time, may be involved in various claims and legal proceedings arising in the ordinary course of business. Except as noted below in
regards to litigation relating to Allegra, the Company is not currently a party to any such claims or proceedings which, if decided adversely to the Company, would either individually or in the
aggregate have a material adverse effect on the Company's business, financial condition, results of operations or cash flows.

AMR
Technology, a subsidiary of the Company, along with Aventis Pharmaceuticals Inc., the U.S. pharmaceutical business of Sanofi-Aventis S.A., are involved in legal
proceedings with several companies seeking to market or which are currently marketing generic versions of Allegra. Beginning in 2001, Barr Laboratories, Inc., Impax Laboratories, Inc.,
Mylan Pharmaceuticals, Inc., Teva Pharmaceuticals USA, Dr. Reddy's Laboratories, Ltd./Dr. Reddy's Laboratories, Inc., Ranbaxy Laboratories Ltd./Ranbaxy
Pharmaceuticals Inc., and Sandoz Inc. filed Abbreviated New Drug Applications ("ANDAs") with the U.S. Food and Drug Administration ("FDA") to produce and market generic versions of
Allegra products.

In
response to the filings described above, beginning in 2001, Aventis Pharmaceuticals filed patent infringement lawsuits against Barr Laboratories, Impax Laboratories, Mylan
Pharmaceuticals, Teva Pharmaceuticals, Dr. Reddy's Laboratories, Ranbaxy Laboratories Ltd./Ranbaxy Pharmaceuticals Inc., and Sandoz. Each of the lawsuits was filed in the U.S.
District Court in New Jersey and alleges infringement of one or more patents owned by Aventis Pharmaceuticals. In addition, beginning on November 14, 2006, Aventis filed two patent infringement
suits against Teva Pharmaceuticals USA, Barr Laboratories, Inc. and Barr Pharmaceuticals, Inc. in the Eastern District of Texas based on patents owned by Aventis. Those lawsuits have now
been transferred to the U.S. District Court in New Jersey.

Further,
beginning on March 5, 2004, AMR Technology, along with Aventis Pharmaceuticals, filed suit in the U.S. District Court in New Jersey against Barr Laboratories, Impax
Laboratories, Mylan Pharmaceuticals, Teva Pharmaceuticals, Dr. Reddy's Laboratories, Amino Chemicals, Ltd., Ranbaxy Laboratories Ltd./Ranbaxy Pharmaceuticals Inc., DiPharma
S.P.A., DiPharma Francis s.r.l., and Sandoz, asserting infringement of two of our U.S. patents that are exclusively licensed to Aventis Pharmaceuticals relating to Allegra and
Allegra-D products. On December 11, 2006, AMR Technology and Sanofi-Aventis U.S. LLC, an affiliate of Aventis Pharmaceuticals, also filed a patent infringement lawsuit in the
Republic of Italy against DiPharma Francis s.r.l. and DiPharma S.P.A. based on European Patent No. 703,902 which is owned by AMR Technology and licensed to Sanofi-Aventis
U.S. LLC. In addition, on December 22, 2006, AMR Technology filed a patent infringement lawsuit in Canada against Novopharm Ltd., Teva Pharmaceutical Industries Ltd., Teva
Pharmaceuticals USA, Inc., DiPharma S.P.A. and DiPharma s.r.l. based on Canadian Patent No. 2,181,089. On March 20, 2007,

F-46

---



ALBANY MOLECULAR RESEARCH, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2007, 2006 and 2005

(In thousands, except per share amounts)

14. Legal Proceedings (Continued)

AMR
Technology filed a patent infringement lawsuit in Australia against Alphapharm Pty Ltd based on Australian Patent No. 699,799. On September 28, 2007, AMR Technology filed a
patent infringement lawsuit in Australia against Arrow Pharmaceuticals Pty Ltd, Chemists' Own Pty Ltd, and Sigma Pharmaceuticals Limited based on Australian Patent No. 699,799.

Aventis
Pharmaceuticals and AMR Technology have entered into covenants not to sue on U.S. Patent No. 5,578,610 with defendants other than Novopharm, DiPharma S.P.A., DiPharma
Francis s.r.l., Alphapharm, Arrow Pharmaceuticals Pty Ltd, Chemists' Own Pty Ltd, and Sigma Pharmaceuticals Limited. Aventis Pharmaceuticals exclusively licenses U.S. Patent
No. 5,578,610 from us, but that patent has not been asserted in the litigations in the U.S. However, the Company and Aventis Pharmaceuticals have agreed that Aventis Pharmaceuticals will
continue to pay royalties to the Company based on that patent under the Company's original license agreement with Aventis Pharmaceuticals. Under our arrangements with Aventis Pharmaceuticals, we will
receive royalties until expiration of the underlying patents (2013 for U.S. Patent No. 5,578,610 and 2015 for U.S. Patent No. 5,750,703) unless the patents are earlier determined to be
invalid.

Under
applicable federal law, marketing of an FDA-approved generic version of Allegra may not commence until the earlier of a decision favorable to the generic challenger in
the patent litigation or 30 months after the date the patent infringement lawsuit was filed. In general, the first generic filer is entitled to a 180-day marketing exclusivity
period upon FDA approval.

On
September 6, 2005, Barr Pharmaceuticals, Inc. and Teva Pharmaceuticals Industries Ltd. announced that they have entered into an agreement for the launch of
Fexofenadine Hydrochloride 30 mg, 60 mg and 180 mg tablets, the generic version of Allegra tablets in the United States. The launch of the generic product is considered an "at-risk" launch
due to the on-going litigation. This generic launch has had a material adverse impact on U.S. sales of Allegra by Sanofi-Aventis since the fourth quarter of 2005 and in turn, the royalties
earned by the Company on those sales. The launch has not had a material impact on non-U.S. sales of Allegra to date.

On
September 20, 2005, AMR Technology, along with Aventis Pharmaceuticals, filed a Motion for Preliminary Injunction in the U.S. District Court in New Jersey seeking to enjoin
Barr Pharmaceuticals, Inc., Teva Pharmaceuticals Ltd., Ranbaxy Laboratories, Ltd. and Amino Chemicals, Ltd. from the sale of generic versions of Allegra in the United
States. On January 30, 2006, the U.S. District Court denied the request by AMR Technology and Aventis Pharmaceuticals for a preliminary injunction. An appeal of that decision was taken to the
U.S. Court of Appeals for the Federal Circuit and, on November 8, 2006, the appellate court affirmed the District Court's denial of a preliminary injunction. The Federal Circuit's decisions on
the preliminary injunction application is not dispositive of the merits of the claims being asserted as described above.

Subsequent
to the preliminary injunction proceeding in the District Court, Dr. Reddy's Laboratories and Mylan Pharmaceuticals have engaged in an at-risk launches of
generic fexofenadine products.

F-47

---



ALBANY MOLECULAR RESEARCH, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2007, 2006 and 2005

(In thousands, except per share amounts)

14. Legal Proceedings (Continued)

Should
the Company be unsuccessful in defending these patents, the Company would continue to experience a material decrease in operating cash flows and a material adverse effect on our
results of operations and financial condition.

15. Environmental Costs

The Company has completed an environmental remediation assessment associated with groundwater contamination at its Rensselaer, NY location. Ongoing costs
associated with the remediation include biannual monitoring and reporting to the State of New York's Department of Environmental Conservation. Under the remediation plan, the Company is expected to
pay for monitoring and reporting until 2014. Under a 1999 agreement with the facility's previous owner, the Company's maximum liability under the remediation is $5.5 million. For the years
ended December 31, 2007, 2006 and 2005, respectively, $0, $0 and $256 in costs have been paid by the Company.

Management
has estimated the future liability associated with the monitoring based on enforcement rulings, market prices from third parties, when available, and historical cost
information for similar activities. Management's estimates could be materially impacted in the future by changes in legislative and enforcement rulings. While a change in estimate based on these
factors is reasonably possible in the near term, based on currently available data, the Company believes that current compliance with the remediation plan will not have a material adverse effect on
the Company's financial position, results of operations or cash flows.

At
December 31, 2007 and 2006, $191 and $236, respectively, was recorded for future environmental liabilities in the consolidated balance sheets.

16. Concentration of Business

For the year ended December 31, 2007, contract revenue from the Company's three largest customers represented 19%, 5% and 5%, respectively, of its contract
revenue. For the year ended December 31, 2006, contract revenue from the Company's three largest customers represented 21%, 7% and 6%, respectively, of its contract revenue. For the year ended
December 31, 2005, contract revenue from the Company's three largest customers respectively represented 37%, 6% and 4% of its contract revenue. The Company's largest customer, GE Healthcare,
represented 19% of total contract revenue for the year ended December 31, 2007. In the majority of circumstances, there are agreements in force with these entities that provide for the
Company's continued involvement in present research projects. However, there regularly exists the possibility that the Company will have no further association with these entities once these projects
conclude.

F-48

---



ALBANY MOLECULAR RESEARCH, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2007, 2006 and 2005

(In thousands, except per share amounts)

16. Concentration of Business (Continued)

Contract
revenue by geographic region, based on the location of the customer, and expressed as a percentage of total contract revenue follows:

Year Ended
December 31,2007

2006

2005United States

69
%
66
%
59
%Europe

26
%
31
%
38
%Other countries

5
%
3
%
3
%Total

100
%
100
%
100
%


17. Business Segments

The Company has organized its sales, marketing and production activities into the DDS and LSM segments based on the criteria set forth in SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information". The Company's management relies on an internal management accounting system to report results of the segments. The system
includes revenue and cost information by segment. The Company's management makes financial decisions and allocates resources based on the information it receives from this internal system.

DDS
includes activities such as drug lead discovery, optimization, drug development and small scale commercial manufacturing. The Rensselaer facility includes pilot to commercial scale
manufacturing of active pharmaceutical ingredients and intermediates and high potency and controlled substance manufacturing all of which are in compliance with the FDA current Good Manufacturing
Practices. Corporate activities include business development and administrative functions, as well as research and development costs that have not been allocated to the operating segments.

F-49

---



ALBANY MOLECULAR RESEARCH, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2007, 2006 and 2005

(In thousands, except per share amounts)

17. Business Segments (Continued)

The
following table summarizes information by segment for the year ended December 31, 2007:

DDS

LSM

TotalContract revenue

$
87,061

$
76,314

$
163,375Milestone revenue


2,000


80


2,080Recurring royalties


27,056





27,056Total revenue

$
116,117

$
76,394

$
192,511Operating income (before unallocated expenses)

$
50,242

$
7,180

$
57,422Unallocated expenses:Research and development








12,821Selling, general and administrative








33,250Total unallocated expenses








46,071Operating income








11,351Reconciling items:Interest income, net








3,192Other loss, net








(158
)Income before income tax expense







$
14,385Supplemental information:Depreciation and amortization

$
10,534

$
6,456

$
16,990


The
following table summarizes other information by segment as of December 31, 2007:

DDS

LSM

TotalTotal assets

$
235,603

$
151,051

$
386,654Goodwill included in total assets


14,141


32,434


46,575Investments in unconsolidated affiliates


956





956Capital expenditures


13,711


4,036


17,747


F-50

---



ALBANY MOLECULAR RESEARCH, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2007, 2006 and 2005

(In thousands, except per share amounts)

17. Business Segments (Continued)

The following table summarizes information by segment for the year ended December 31, 2006:

DDS

LSM

TotalContract revenue

$
75,777

$
77,006

$
152,783Recurring royalties


27,024





27,024Total revenue

$
102,801

$
77,006

$
179,807Operating income (before unallocated expenses)

$
42,873

$
(444
)
$
42,429Unallocated expenses:Research and development








11,428Selling, general and administrative








31,899Total unallocated expenses








43,327Operating income








(898
)Reconciling items:Interest income, net








2,990Other loss, net








150Income before income tax expense







$
2,242Supplemental information:Depreciation and amortization

$
9,231

$
6,050

$
15,281


The
following table summarizes other information by segment as of December 31, 2006:

DDS

LSM

TotalTotal assets

$
243,506

$
131,987

$
375,493Goodwill included in total assets


12,751


23,060


35,811Investments in unconsolidated affiliates


956





956Capital expenditures


10,278


6,175


16,453


18. Fair Value of Financial Instruments

The following disclosure of the estimated fair value of financial instruments is made in accordance with the requirements of SFAS No. 107, "Disclosures
About Fair Value of Financial Instruments". Although the estimated fair value amounts have been determined by the Company using available market information and appropriate valuation methodologies,
the estimates presented are not necessarily indicative of the amounts that the Company could realize in current market exchanges.

The
Company is estimating its fair value disclosures for financial instruments using the following methods and assumptions:

Cash and cash equivalents, receivables, and accounts payable:The carrying amounts reported in the consolidated balance
sheets approximate their fair value because of the short maturities of these instruments.

F-51

---



ALBANY MOLECULAR RESEARCH, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2007, 2006 and 2005

(In thousands, except per share amounts)

18. Fair Value of Financial Instruments (Continued)

Investment securities, available-for-sale:As disclosed in Note 5, investment securities are
estimated based on quoted market prices at the consolidated balance sheet date.

Long-term debt:The carrying value of long-term debt was approximately equal to fair value at
December 31, 2007 and 2006 due to the resetting dates of the variable interest rates.

Swap Contracts:As discussed in Note 8, the swap contract asset is carried at fair value at December 31, 2007
and 2006.

19. Goodwill and Intangible Assets

Goodwill

The carrying amount of goodwill, by segment, as of December 31, 2007 and 2006 are as follows:

DDS

LSM

TotalDecember 31, 2007Goodwill

$
14,141

$
32,434

$
46,575December 31, 2006Goodwill

$
12,751

$
23,060

$
35,811


The
increase in goodwill within the DDS segment from December 31, 2006 to December 31, 2007 is related to the impact of foreign currency translation, partially offset by
final valuation adjustments for the Company's acquisition of AMRI Hungary, described in Note 2. The increase in goodwill within the
LSM segment from December 31, 2006 to December 31, 2007 is related to the acquisition of AMRI India described in Note 2, as well as the impact of foreign currency translation.

Intangible Assets

The components of intangible assets are as follows:

Cost

Accumulated Amortization

Net

Amortization PeriodDecember 31, 2007Patents and Licensing Rights

$
2,976

$
(1,075
)
$
1,901

2-16 yearsOther


973


(642
)

331

18-24 monthsTotal

$
3,949

$
(1,717
)
$
2,232December 31, 2006Patents and Licensing Rights

$
2,492

$
(727
)
$
1,765

2-16 yearsOther


629


(293
)

336

18-24 monthsTotal

$
3,121

$
(1,020
)
$
2,101


F-52

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ALBANY MOLECULAR RESEARCH, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2007, 2006 and 2005

(In thousands, except per share amounts)

19. Goodwill and Intangible Assets (Continued)

Amortization
expense related to intangible assets for the years ended December 31, 2007, 2006 and 2005 was $697, $643 and $101, respectively.

The
following chart represents estimated future annual amortization expense related to intangible assets:

Year ending December 31,2008

$
5102009


2122010


1592011


1592012


159Thereafter


1,037


20. Selected Quarterly Consolidated Financial Data (unaudited)

The following tables present unaudited consolidated financial data for each quarter of 2007 and 2006:

First
Quarter

Second
Quarter

Third
Quarter

Fourth
Quarter2007Contract revenue

$
41,231

$
39,936

$
41,571

$
40,637Gross profit


8,544


9,933


8,167


4,699Recurring royalties


7,146


7,838


5,986


6,086Income (loss) from operations


3,937


6,527


2,137


(1,250
)Net income (loss)


3,224


4,576


1,980


(844
)Net income (loss) per share:Basic

$
0.10

$
0.14

$
0.06

$
(0.02
)Diluted

$
0.10

$
0.14

$
0.06

$
(0.03
)2006Contract revenue

$
36,188

$
38,383

$
37,907

$
40,305Gross profit


5,045


5,894


5,775


7,459Recurring royalties


7,178


7,200


6,333


6,313Income (loss) from operations


1,953


(1,127
)

780


(2,504
)Net income (loss)


1,894


(353
)

1,406


(764
)Net income (loss) per share:Basic

$
0.06

$
(0.01
)
$
0.04

$
(0.02
)Diluted

$
0.06

$
(0.01
)
$
0.04

$
(0.02
)


F-53

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ALBANY MOLECULAR RESEARCH, INC.        SCHEDULE IIVALUATION AND QUALIFYING ACCOUNTS        Years Ended December 31, 2007, 2006 and 2005

|Description                                |  | Balance at
Beginning of
Period |           | Charged to Cost
and Expenses |   | Charged to Other
Accounts |   | Deductions
Charged to
Reserves |  | Balance at
End of
Period
|------------------------------------------ |  | ------------------------------ | --------- | ---------------------------- | - | ------------------------- | - | ------------------------------ |  | ------------------------
|Allowance for doubtful accounts receivable |  |                                |           |                              |   |                           |   |                                |  |                         
|2007                                       |  | $                              | 293,224   |                              | $ | 26,851                    |   |                               |  | $                       
|2006                                       |  | $                              | 98,338    |                              | $ | 197,886                   |   |                               |  | $                       
|2005                                       |  | $                              | 205,072   |                              | $ | (70,691                   | ) |                               |  | $                       
|Note receivable reserve                    |  |                                |           |                              |   |                           |   |                                |  |                         
|2007                                       |  | $                              |          |                              | $ |                          |   |                               |  |                         
|2006                                       |  | $                              |          |                              | $ |                          |   |                               |  |                         
|2005                                       |  | $                              | 32,277    |                              | $ | (32,277                   | ) |                               |  |                         
|Deferred tax asset valuation allowance     |  |                                |           |                              |   |                           |   |                                |  |                         
|2007                                       |  | $                              | 3,189,895 |                              | $ | 2,112,336                 |   |                               |  |                         
|2006                                       |  | $                              | 2,997,335 |                              | $ | 192,560                   |   |                               |  |                         
|2005                                       |  | $                              | 1,769,331 |                              | $ | 1,228,004                 |   |                               |  |                         

SCH-1

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