FORM 10Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
--------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from_______________ to_____________
For Quarter Ended___________ Commission file number 0-16005
Unigene Laboratories, Inc.
-----------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 22-2328609
- ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
110 Little Falls Road, Fairfield, New Jersey 07004
- -------------------------------------------- ---------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (201)882-0860
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report.)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [ X ] No [ ]
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes [ ] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: Common Stock, $.01 Par
Value--27,760,685 shares as of August 1, 1996
<PAGE>
INDEX
UNIGENE LABORATORIES, INC.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed balance sheets-June 30, 1996 and
December 31, 1995
Condensed statements of operations-Three months ended
June 30, 1996 and 1995; Six months ended June 30,
1996 and 1995
Condensed statements of cash flows-
Six months ended June 30, 1996 and 1995
Notes to condensed financial statements-
June 30, 1996
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
PART II. OTHER INFORMATION
SIGNATURES
<PAGE>
PART I. FINANCIAL INFORMATION
UNIGENE LABORATORIES, INC.
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
------------ ------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ............ $ 2,480,879 $ 258,627
Accounts receivable .................. 300,000 --
Prepaid expenses and other
current assets .................... 947,588 434,159
------------ ------------
Total current assets ............ 3,728,467 692,786
Property, plant and equipment-net
of accumulated depreciation and
amortization ......................... 10,909,193 11,513,019
Patents and other assets ................ 1,176,831 1,125,828
Unamortized debt issue costs ............ 443,000 --
------------ ------------
$ 16,257,491 $ 13,331,633
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ..................... $ 1,099,925 $ 2,859,264
Accrued expenses ..................... 720,446 644,663
Notes payable - stockholders ......... 1,190,000 1,250,000
------------ ------------
Total current liabilities ...... 3,010,371 4,753,927
Note payable - stockholders .......... 655,000 655,000
Note payable - other ................. -- 3,300,000
9.5% convertible debentures .......... 3,300,000 --
10% convertible debentures ........... 4,090,000 --
Stockholders' equity:
Common stock-par value $.01 per share;
authorized 48,000,000 shares, issued
and outstanding 26,861,420 shares in
1996 and 23,813,171 shares in 1995 . 268,614 238,132
Additional paid-in capital ........... 43,137,649 38,110,512
Accumulated deficit .................. (38,203,112) (33,724,907)
Less: Treasury stock, at cost,
7,290 shares ...................... (1,031) (1,031)
------------ ------------
Total stockholders' equity ...... 5,202,120 4,622,706
------------ ------------
$ 16,257,491 $ 13,331,633
============ ============
</TABLE>
See notes to condensed financial statements.
<PAGE>
UNIGENE LABORATORIES, INC.
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
---------------------------------- ----------------------------------
1996 1995 1996 1995
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Licensing and
other revenue ........................... $ 628 $ 464 $ 305,809 $ 5,606
------------ ------------ ------------ ------------
Operating expenses:
Research and
development .......................... 1,785,509 1,743,910 3,550,955 3,442,673
General and
administrative ....................... 518,030 615,423 909,210 1 095,269
------------ ------------ ------------ ------------
2,303,539 2,359,333 4,460,165 4,537,942
------------ ------------ ------------ ------------
Operating loss ........................ (2,302,911) (2,358,869) (4,154,356) (4,532,336)
------------ ------------ ------------ ------------
Other income (expense):
Interest/other income ................... 58,454 762 136,792 3,520
Interest expense ........................ (286,053) (77,330) (460,642) (94,003)
------------ ------------ ------------ ------------
(227,599) (76,568) (323,850) (90,483)
------------ ------------ ------------ ------------
Net loss ................................... $ (2,530,510) $ (2,435,437) $ (4,478,206) $ (4,622,819)
============ ============ ============ ============
Net loss per share ......................... $ (.10) $ (.12) $ (.18) $ (.22)
============ ============ ============ ============
Weighted average number
of shares outstanding ..................... 25,190,637 20,993,969 24,520,790 20,989,482
============ ============ ============ ============
</TABLE>
See notes to condensed financial statements.
<PAGE>
UNIGENE LABORATORIES, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
---------------------------
1996 1995
----------- -----------
<S> <C> <C>
Cash used for operations ......................... $(6,125,813) $(3,781,759)
----------- -----------
Investing activities:
Construction of leasehold improvements ........ -- (335,071)
Purchase of equipment and furniture ........... (125,574) (129,161)
Increase in patents and other assets .......... (55,833) (39,230)
----------- -----------
(181,407) (503,462)
----------- -----------
Financing activities:
Sales of stock, net of related expenses ....... 300,440 --
Proceeds from issuance of convertible
debentures, net of related expenses .... 8,137,000 --
Proceeds from issuance of notes
payable ................................ -- 3,605,000
Repayment of debt ............................. (60,000) --
Exercise of stock options ..................... 152,032 150,922
Other ......................................... -- (52,867)
----------- -----------
8,529,472 3,703,055
----------- -----------
Net increase (decrease) in cash and
cash equivalents ............................... 2,222,252 (582,166)
Cash and cash equivalents at
beginning of year ............................. 258,627 592,011
----------- -----------
Cash and cash equivalents at
end of period ................................. $ 2,480,879 $ 9,845
=========== ===========
Supplemental cash flow information:
Exchange of note payable for
9.5% convertible debentures ................... $ 3,300,000
===========
Conversion of 10% convertible
debentures into common stock .................. $ 4,990,000
===========
</TABLE>
See notes to condensed financial statements.
<PAGE>
NOTES TO CONDENSED FINANCIAL STATEMENTS
JUNE 30, 1996
NOTE A-BASIS OF PRESENTATION
The accompanying unaudited condensed financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q and Article 10 of Regulation
S-X. Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments considered necessary
for a fair presentation have been included. Operating results for the six month
period ended June 30, 1996 are not necessarily indicative of the results that
may be expected for the year ended December 31, 1996. For further information,
please refer to the Company's financial statements and footnotes thereto
included in the Company's annual report on Form 10-K for the year ended December
31, 1995.
NOTE B - DEBT FINANCING
In March 1996 the Company completed a private placement of $9.08 million of 10%
Convertible Debentures. The Company received net proceeds of approximately $8.1
million as a result of this placement. These debentures mature March 4, 1999.
The debentures are convertible into common stock at the lower of $2.00 per share
or 85% of the average market price per share of the Company's common stock
during the ten days preceding the date of conversion. Through June 30, 1996,
$4,990,000 of principal amount of these debentures, plus accrued interest, had
been converted into approximately 2,553,000 shares of common stock. As of August
1, 1996, $6,270,000 of principal amount of these debentures, plus accrued
interest, has been converted into approximately 3,227,000 shares of common
stock.
Also in March 1996, secured indebtedness of $3,300,000 was exchanged for 9.5%
Senior Secured Convertible Debentures in the principal amount of $3,300,000.
These debentures mature November 15, 1998, are secured by substantially all of
the Company's assets, and are convertible into shares of the Company's common
stock at a conversion rate of $1.15 per share, subject to certain reset
provisions.
NOTE C - CLASS B WARRANTS
The Company extended the expiration date of its Class B Warrants by 30 days to
September 10, 1996. Each Class B Warrant is currently exercisable at $3.504 for
1.4269 shares of Common Stock.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Operating revenues for the first half of 1996 include $300,000 from the
Company's joint venture partner in China. Other operating revenues are from
hormone and enzyme sales which were $6,000 for each of the six months ended June
30, 1996 and 1995.
Research and development, the Company's largest expense, increased 2% from
$1,744,000 to $1,786,000 and 3% from $3,443,000 to $3,551,000 for the three
months and six months ended June 30, 1996, respectively, as compared to the same
periods in 1995. The increases were primarily related to the Company's oral
clinical trials, expenses incurred in preparation for its injectable clinical
trials, as well as to the sponsorship of collaborative research programs.
<PAGE>
General and administrative expenses decreased 16% from $615,000 to $518,000, and
17% from $1,095,000 to $909,000 for the three months and six months ended June
30, 1996, as compared to the same periods in 1995. The decreases were primarily
due to a reduction in expenses related to the Company's financing activities.
Interest and other income increased $58,000 and $133,000 for the three months
and six months ended June 30, 1996, respectively, as compared to the same
periods in 1995. The increases were due to increased interest income from the
Company's receipt of proceeds of financings which provided additional funds to
be invested, as well as gains on settlement of debt.
Interest expense increased $209,000 and $367,000 for the three months and six
months ended June 30, 1996, as compared to the same periods in 1995. This
was due to increased borrowings by the Company.
As a result of increased interest expense, partially offset by increased
interest income and decreased operating expenses, net loss increased $95,000 or
4% for the three months ended June 30, 1996, from the corresponding period in
1995. As a result of increased operating and other revenue, as well as decreased
operating expenses, partially offset by increased interest expense, net loss
decreased $145,000 or 3% for the three months ended June 30, 1996, from the
corresponding period in 1995.
As of December 31, 1995, the Company had available for income tax reporting
purposes net operating loss carryforwards in the approximate amount of
$34,000,000, expiring from 1996 through 2010, which are available to reduce
future earnings which would otherwise be subject to federal income taxes. For
the six months ending June 30, 1996, the Company had additional losses of
approximately $4,480,000. In addition, the Company has investment tax credits
and research and development credits in the amounts of $69,000 and $1,594,000,
respectively, which are available to reduce the amount of future federal income
taxes. These credits expire from 1996 through 2010.
The Company follows Statement of Financial Accounting Standards No. 109 (FASB
109), "Accounting for Income Taxes". Given the Company's past history of
incurring operating losses, any deferred tax assets that are recognizable under
FASB 109 have been fully reserved. As of January 1, 1996, under FASB 109, the
Company had deferred tax assets of approximately $15,100,000, subject to a
valuation allowance of $15,100,000. The deferred tax assets were generated
primarily as a result of the Company's net operating losses and tax credits
generated. For the six month period ended June 30, 1996, the Company's deferred
tax assets and valuation allowances each increased by approximately $1,800,000.
LIQUIDITY AND CAPITAL RESOURCES
During 1994, the Company completed construction of its peptide production
facility in Boonton, New Jersey. The facility was constructed in a shell
building that is being leased under a ten year net lease which began in February
1994. The Company has two ten year renewal options as well as an option to
purchase the facility. The total cost of leasehold improvements and process
equipment for this facility, including validation costs associated with the
facility's construction, is approximately $11.9 million. The facility is
producing calcitonin in accordance with current Good Manufacturing Practice
("cGMP") regulations.
In March 1996 the Company completed a private placement of $9.08 million of 10%
Convertible Debentures. The Company received net proceeds of approximately $8.1
million as a result of this placement. These debentures mature March 4, 1999.
The debentures are convertible into common stock at the lower of $2.00 per share
<PAGE>
or 85% of the average market price per share of the Company's common stock
during the ten days preceding the date of conversion. The Placement Agent in
connection with the issuance of the debentures received a five-year warrant to
purchase 454,000 shares of the Company's common stock at $2.10 per share.
Also in March 1996, secured indebtedness of $3,300,000 was exchanged for 9.5%
Senior Secured Convertible Debentures in the principal amount of $3,300,000.
These debentures mature November 15, 1998, are secured by substantially all of
the Company's assets, and are convertible into shares of the Company's common
stock at a conversion rate of $1.15 per share, subject to certain reset
provisions.
The Company, at June 30, 1996, had cash and cash equivalents of $2,481,000, an
increase of $2,222,000 from December 31, 1995.
The Company's ability to generate additional cash from operations depends
primarily upon signing research or licensing agreements, achieving defined
benchmarks in such agreements, receiving regulatory approval for its products,
and marketing hormones and enzyme products. The Company has one joint venture
agreement in effect, which contributed $300,000 to 1996 revenues. However, there
can be no assurance that any additional revenues will be recognized under this
agreement.
The Company requires additional working capital to continue its operations.
Management believes that the Company has sufficient cash through at least the
third quarter of 1996. The Company requires additional funds through financing
or licensing agreements to ensure continued operations. There is no assurance
that sufficient funds will be obtained.
<PAGE>
PART II. OTHER INFORMATION
ITEM 4. Submission of Matters to a Vote of Security-Holders
(a) The matters described under item 4(c) below were submitted
to a vote of security-holders, through the solicitation of proxies
pursuant to Regulation 14 under the Securities Exchange Act, at the
Annual Meeting of Stockholders held on 1996 (the "Annual Meeting").
(b) Not applicable.
(c) The following describes the matters voted upon at the
Annual Meeting and sets forth the number of votes cast for, against
or withheld and the number of abstentions as to each such matter
(except as provided below, there were no broker non-votes):
(i) Election of directors:
Nominee For Withheld
------- --- --------
Jay Levy 22,133,527 143,269
Ronald S. Levy 22,133,527 143,269
Warren P. Levy 22,133,527 143,269
Robert G. Ruark 22,133,527 143,269
George M. Weimer 22,132,527 144,269
(ii) Proposal to ratify the sale of the 10% Convertible
Debentures:
For Against Abstain
--- ------- -------
12,252,595 183,957 224,880
There were 9,615,364 broker non-votes with reference
to this item.
(iii) Proposal to ratify the appointment of KPMG
Peat Marwick LLP as auditors of the Company
for 1996:
For Against Abstain
--- ------- -------
22,106,301 74,625 95,870
(d) Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits - none.
(b) Reports on Form 8-K.
The Company did not file any reports on Form 8-K during the three
months ended June 30, 1996.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
UNIGENE LABORATORIES, INC.
-----------------------------
(Registrant)
/s/ Warren P. Levy
August 12, 1996 -----------------------------
Warren P. Levy, President
(Chief Executive Officer)
/s/ Jay Levy
August 12, 1996 -----------------------------
Jay Levy, Treasurer
(Chief Financial Officer and
Chief Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 2,480,879
<SECURITIES> 0
<RECEIVABLES> 300,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 3,728,467
<PP&E> 16,457,516
<DEPRECIATION> 5,548,323
<TOTAL-ASSETS> 16,257,491
<CURRENT-LIABILITIES> 3,010,371
<BONDS> 8,045,000
0
0
<COMMON> 268,614
<OTHER-SE> 4,933,506
<TOTAL-LIABILITY-AND-EQUITY> 16,257,491
<SALES> 5,809
<TOTAL-REVENUES> 305,809
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 4,460,165
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 460,642
<INCOME-PRETAX> (4,478,206)
<INCOME-TAX> 0
<INCOME-CONTINUING> (4,478,206)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,478,206)
<EPS-PRIMARY> (.18)
<EPS-DILUTED> (.18)
</TABLE>
