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 March 31, 1997
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 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--37,005,702 shares as of May 1, 1997
<PAGE>
INDEX
UNIGENE LABORATORIES, INC.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed balance sheets-
March 31, 1997 and December 31, 1996
Condensed statements of operations-
Three months ended March 31, 1997 and 1996
Condensed statements of cash flows-
Three months ended March 31, 1997 and 1996
Notes to condensed financial statements-
March 31, 1997
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
PART II. OTHER INFORMATION
Item 2. Changes in Securities
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
<PAGE>
PART I. FINANCIAL INFORMATION
<TABLE>
<CAPTION>
UNIGENE LABORATORIES, INC.
CONDENSED BALANCE SHEETS
March 31 December 31
1997 1996
------------ ------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents .................. $ 2,308,013 $ 4,491,386
Accounts receivable ........................ 100,380 100,954
Prepaid expenses and other
current assets .......................... 869,187 882,135
------------ ------------
Total current assets .................. 3,277,580 5,474,475
Property, plant and equipment-net
of accumulated depreciation and
amortization ............................... 10,131,055 10,356,070
Patents and other assets ...................... 1,336,367 1,338,691
------------ ------------
$14,745,002 $ 17,169,236
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ........................... $ 795,137 $ 1,025,136
Accrued expenses ........................... 633,345 685,568
Notes payable - stockholders ............... 810,000 810,000
------------ ------------
Total current liabilities ............ 2,238,482 2,520,704
Note payable - stockholders ................ 655,000 655,000
9.5% convertible debentures ................ 502,694 1,283,400
10% convertible debentures ................. 650,000 850,000
Stockholders' equity:
Common stock-par value $.01 per share;
authorized 48,000,000 shares, issued
and outstanding 37,005,702 shares in
1997 and 35,352,824 shares in 1996 ...... 370,057 353,528
Additional paid-in capital ................. 59,087,806 55,829,641
Accumulated deficit ........................ (48,758,006) (44,322,006)
Less: Treasury stock, at cost,
7,290 shares ............................ (1,031) (1,031)
------------ ------------
Total stockholders' equity ............ 10,698,826 11,860,132
------------ ------------
$ 14,745,002 $ 17,169,236
============ ============
See notes to condensed financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended
March 31
----------------------------
1997 1996
----------- -----------
<S> <C> <C>
Licensing and
other revenue ........................ $ 1,442 $ 305,181
----------- -----------
Operating expenses:
Research and
development ....................... 2,192,961 1,765,446
Settlement of contractual right
(Note C) ............................. 1,669,063 --
General and
administrative .................... 550,016 391,180
----------- -----------
4,412,040 2,156,626
----------- -----------
Operating loss ....................... (4,410,598) (1,851,445)
----------- -----------
Other income (expense):
Interest/other income .......... 48,198 78,338
Interest expense ............... (73,601) (174,589)
----------- -----------
(25,403) (96,251)
----------- -----------
Net loss ................................ $(4,436,001) $(1,947,696)
=========== ===========
Net loss per share ...................... $ (.12) $ (.08)
=========== ===========
Weighted average number
of shares outstanding ................. 36,019,408 23,850,944
=========== ===========
See notes to condensed financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
UNIGENE LABORATORIES, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended
March 31,
-----------------------------
1997 1996
------------ -----------
<S> <C> <C>
Net cash used for operating activities ....... $ (2,567,809) $(2,955,029)
----------- -----------
Investing activities:
Construction of leasehold improvements .... (18,298) --
Purchase of equipment and furniture ....... (126,087) (16,901)
Increase in patents and other assets ...... (22,644) (38,676)
----------- -----------
(167,029) (55,577)
----------- -----------
Financing activities:
Sales of stock, net of related expenses ... -- 300,440
Issuance of debt, net of related expenses . -- 8,137,000
Exercise of stock options and warrants .... 551,465 23,612
----------- -----------
551,465 8,461,052
----------- -----------
Net increase (decrease) in cash and
cash equivalents ........................... (2,183,373) 5,450,446
Cash and cash equivalents at
beginning of year ......................... 4,491,386 258,627
----------- -----------
Cash and cash equivalents at
end of period ............................. $ 2,308,013 $ 5,709,073
=========== ===========
Supplemental cash flow information:
Exchange of notes ......................... -- $ 3,300,000
Conversion of convertible debentures
and accrued interest, net of related
offering expenses into common stock ....... $ 978,842 --
See notes to condensed financial statements.
</TABLE>
<PAGE>
UNIGENE LABORATORIES, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
MARCH 31, 1997
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 three
month period ended March 31, 1997 are not necessarily indicative of the results
that may be expected for the year ended December 31, 1997. 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, 1996.
NOTE B - CONVERSION OF NOTES PAYABLE TO STOCKHOLDERS INTO COMMON STOCK
During 1995, executive officers of the company, Warren Levy, Ronald Levy and Jay
Levy, and a member of the Levy family loaned to the Company an aggregate of
$1,905,000. A total of $440,000 of these loans was repaid in 1996. On May 2,
1997, an aggregate of $200,000 in principal amount of these loans was converted
into 57,200 shares of the common stock of the Company at a conversion price of
$3.4965 per share. The closing price of the common stock on May 1, 1997, as
reported in the Wall Street Journal, was $3.21875 per share.
NOTE C - SETTLEMENT OF CONTRACTUAL RIGHT
On February 7, 1997, the Company issued an aggregate of 490,000 shares of common
stock to the holders of the Company's 9.5% Senior Secured Convertible Debentures
(the "Debentures") in exchange for the surrender of certain contractual rights.
Under the terms of the agreement pursuant to which the Debentures were issued,
the Company could have become obligated as of December 31, 1998 to pay to the
holders a fee equal to 2% of the sum of the market value of the Company's common
stock plus the principal amount of all outstanding debt of the Company, less its
cash on deposit, up to a maximum fee of $3,000,000. The expense associated with
this transaction was valued at $1,669,603, based on a closing price of the
common stock of $3.40625 on February 7, 1997.
NOTE D - CONVERTIBLE DEBENTURES
During the period January 1, 1997 through March 31, 1997, $780,706 of principal
amount of the Company's 9.5% Senior Secured Convertible Debentures was converted
into 697,058 shares of common stock.
During the period January 1, 1997 through March 31, 1997, $200,000 of principal
amount of the Company's 10% Convertible Debentures, plus $18,136 of accrued
interest, had been converted into 109,068 shares of common stock. From April 1,
1997 through May 5, 1997, an additional $200,000 of principal amount of these
debentures, plus $22,795 of accrued interest, was converted into 111,397 shares
of common stock.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Revenues for the first quarter of 1996 included a license fee of $300,000 from
the Company's joint venture in China. Revenues from hormone and enzyme sales
were $1,000 and $5,000 for the three months ended March 31, 1997 and 1996,
respectively.
Research and development, the Company's largest expense, increased 24% from
$1,765,000 to $2,193,000, for the three months ended March 31, 1997, as compared
to the same period in 1996. The increase was primarily related to regulatory
documentation preparation fees and increased expenditures for supplies and
salaries.
Settlement of contractual right in 1997 represents the following. On February 7,
1997, the Company issued an aggregate of 490,000 shares of common stock to the
holders of the Company's 9.5% Senior Secured Convertible Debentures (the
"Debentures") in exchange for the surrender of certain contractual rights. Under
the terms of the agreement pursuant to which the Debentures were issued, the
Company could have become obligated as of December 31, 1998 to pay to the
holders a fee equal to 2% of the sum of the market value of the Company's common
stock plus the principal amount of all outstanding debt of the Company, less its
cash on deposit, up to a maximum fee of $3,000,000. The expense associated with
this transaction was valued at $1,669,603, based on a closing price of the
common stock of $3.40625 on February 7, 1997.
General and administrative expenses increased 41% from $391,000 to $550,000, for
the three months ended March 31, 1997, as compared to the same period in 1996.
The increase was primarily due to higher public relations, insurance and legal
expenses.
Interest and other income decreased $30,000 for the three months ended March 31,
1997, as compared to the same period in 1996. The decrease was due to gains on
settlement of debt recognized in 1996.
Interest expense decreased $101,000 for the three months ended March 31, 1997,
as compared to the same period in 1996 due to conversions in 1996 and 1997 of
the Company's convertible debentures.
As a result of decreased revenue, as well as increased operating expenses,
partially offset by decreased interest expense, the Company's net loss increased
$2,488,000 or 128% compared to the prior year.
As of December 31, 1996, the Company had available for income tax reporting
purposes net operating loss carryforwards in the approximate amount of
$44,300,000, expiring from 1997 through 2011, which are available to reduce
future earnings that otherwise would be subject to federal income taxes. For the
three months ending March 31, 1997, the Company accumulated additional losses of
approximately $4,400,000. In addition, the Company has investment tax credits
and research and development credits in the amounts of $64,000 and $1,454,000,
respectively, which are available to reduce the amount of future federal income
taxes. These credits expire from 1997 through 2011.
<PAGE>
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, 1997, under FASB 109, the
Company had deferred tax assets of approximately $19,200,000, subject to a
valuation allowance of $19,200,000. The deferred tax assets were generated
primarily as a result of the Company's net operating losses and available tax
credits. For the three-month period ended March 31, 1997, 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 current validation costs, totaled
approximately $12 million. The improvements and equipment have been primarily
financed from the remainder of the $17 million of proceeds received as a result
of the exercise by the warrant holders of the Company's Class A Warrants in 1991
and the proceeds of $2.2 million from the sale of stock in 1994. There are
currently no material commitments for capital expenditures relating to either
the Boonton facility or the Company's facility in Fairfield.
The Company, at March 31, 1997, had cash and cash equivalents of $2,308,000, a
decrease of $2,183,000 from December 31, 1996.
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
is no assurance that any additional revenues will be recognized or received
under this agreement.
The Company's cash requirements have increased by approximately $2.5-$3 million
per year with the opening of its peptide manufacturing facility. In addition,
the Company faces principal and interest obligations over the next several years
under its outstanding debentures and other indebtedness. However, because of the
recent increase in the Company's stock price and the current below market
conversion prices of each of the issues of debentures, a substantial portion of
such debentures has been, and a substantial portion of the remainder is expected
to be, converted into common stock. Management believes that the Company has
sufficient financial resources to sustain its operations at the current level
through at least the second quarter of 1997. The Company will require additional
funds through financing or licensing agreements to ensure continued operations
beyond that time. Management is actively seeking licensing and/or supply
agreements with pharmaceutical companies. The Company is currently developing
two Calcitonin products (an oral version and an injectable version) for which it
is seeking licensing partners. The signing of one or more agreements will be
necessary to fund operations and to repay its loans and interest thereon when
due. In the absence of or the delay in signing such agreements, obtaining
adequate interim financing from other sources would be necessary. However, there
is no assurance that sufficient funds will be obtained. The Company believes
that the implementation of a licensing transaction will satisfy the Company's
liquidity requirements over the short-term. Satisfying the Company's long-term
liquidity requirements will require the successful commercialization of one or
more of its Calcitonin products.
<PAGE>
PART II. OTHER INFORMATION
Item 2. CHANGES IN SECURITIES.
(a) and (b) Not applicable
(c) Recent Sales of Unregistered Securities
On February 7, 1997, the Company issued an aggregate of 490,000 shares
of common stock to the holders (the "Holders") of its 9.5% Senior Secured
Convertible Debentures due November 15, 1998 (the "9.5% Debentures") in exchange
for the surrender by the Holders of certain contractual rights. Under the terms
of the agreement pursuant to which the 9.5% Debentures were issued, the Company
would have been obligated to pay the Holders a fee equal to 2% of the sum of the
market value of the Company's outstanding common stock plus the principal amount
of all outstanding debt of the Company less its cash on deposit, all as of
December 31, 1998, up to a maximum fee of $3,000,000. The expense associated
with the surrender of the fee was valued at $1,669,603, based on the closing
price of the common stock of $3.406 per share on February 7, 1997. The issuance
of the 490,000 shares was effected in reliance on an exemption from registration
pursuant to Section 4(2) of the Securities Act of 1933, as amended (the
"Securities Act").
In the first quarter of 1997, the Company issued (i) 697,058 shares of
common stock upon the conversion of $780,706 in principal amount of the 9.5%
Debentures, and (ii) 109,068 shares of common stock upon the conversion of
$218,137 in principal amount of and accrued interest on the Company's 10%
Convertible Debentures due March 4, 1999 (the "10% Debentures"). All of such
shares were issued by the Company without registration pursuant to Section
3(a)(9) of the Securities Act.
In the first quarter of 1997, the Company issued 132,952 shares of
common stock upon the exercise of an equal number of warrants exercisable to
purchase one share of common stock at an exercise price of $2.10 per share. The
warrants were issued by the Company to certain accredited investors in
connection with the sale of the 10% Debentures in March 1996. The issuance of
such shares was effected in reliance on an exemption from registration pursuant
to Section 4(2) of the Securities Act.
In the first quarter of 1997, the Company issued an aggregate of
112,000 shares of common stock to certain financial and public relations
consultants upon the exercise of an equal number of warrants exercisable to
purchase one share of common stock at exercise prices ranging from $1.50 to
$2.00 per share. All such consultants were accredited investors and the issuance
of such shares was affected in reliance on an exemption from registration
pursuant to Section 4(2) of the Securities Act.
In the first quarter of 1997, the Company issued 10,000 shares of
common stock to a financial consultant under the terms of an agreement dated
December 30, 1994 as partial compensation for services rendered under the
agreement. The Company received no additional consideration for the issuance of
such shares. Such consultant was an accredited investor and the issuance of such
shares was affected in reliance on an exemption from registration pursuant to
Section 4(2) of the Securities Act.
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
Letter Agreement dated as of February 7, 1997 among Unigene
Laboratories, Inc., Olympus Securities, Ltd. and Nelson
Partners.
(b) Reports on Form 8-K.
The Company did not file any reports on Form 8-K during the
three months ended March 31, 1997.
<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
May 12, 1997 -----------------------------
Warren P. Levy, President
(Chief Executive Officer)
/s/ Jay Levy
May 12, 1997 -----------------------------
Jay Levy, Treasurer
(Chief Financial Officer and
Chief Accounting Officer)
<PAGE>
EXHIBIT
February 6, 1997
Dr. Ronald S. Levy
Unigene Laboratories, Inc.
110 Little Falls Road
Fairfield, New Jersey 07004
Re: Repurchase of Success Fee
Dear Ron:
Pursuant to our phone conversation earlier today, I have set forth
below the terms pursuant to which each of Nelson Partners ("Nelson") and Olympus
Securities, Ltd. ("Olympus") will sell to Unigene Laboratories, Inc. (the
"Company"), and the Company will purchase from each of Nelson and Olympus, the
contractual right of each of Nelson and Olympus to receive from the Company the
success fee described in Section 8 of the Amended and Restated Securities
Purchase Agreement dated as of March 6, 1996, by and among Nelson, Olympus and
the Company (the "Purchase Agreement"). Capitalized terms used but not defined
in this letter have the respective meanings set forth in the Purchase Agreement.
1. Issuance of Common Stock. The Company hereby agrees to issue
378,638 shares of Common Stock to Nelson and 111,362 shares of
Common Stock to Olympus within 10 business days after the
Company's execution of this letter (collectively, the "Success
Shares").
2. Cancellation of Success Fee. Nelson and Olympus hereby agree (a)
that the Company's issuance of the Success Shares shall constitute
full consideration for their rights to receive the Success Fee and
(b) to waive all rights to receive the Success Fee from and after
the date of receipt of the Success Shares.
3. Registration of Success Shares. The Company hereby agrees to
effect the registration of the Success Shares for resale by each
of Nelson and Olympus on a Form S-3 registration statement (the
"Registration Statement") within one year after the date of the
Company's execution of this letter (such one year anniversary, the
"Registration Date") and to maintain the effectiveness of the
Registration Statement for a period of three years from the date
of the Company's issuance of the Success Shares. Except as set
forth in the preceding sentence, the Company hereby agrees to
effect such registration on substantially the same terms set forth
in the Registration Rights Agreement dated as of October 11, 1996,
by and among the Company, Nelson, Olympus and certain other
stockholders of the Company.
4. Miscellaneous. Except as expressly modified by the terms of this
letter, the Purchase Agreement shall remain in full force and
effect. This letter shall be governed and construed in accordance
with the laws of the State of New York.
<PAGE>
Unigene Laboratories, Inc.
February 6, 1997
Page 2
If you are in agreement with the terms of this letter please so
indicate by executing this letter in the space provided below and returning (via
facsimile) an executed copy of this letter to my attention. The offer
incorporated in this letter shall expire at 5:00 p.m. (CST) on Friday, February
7, 1997 unless the Company has executed and delivered this letter in the manner
referred to in the preceding sentence.
Sincerely,
NELSON PARTNERS
By: Citadel Limited Partnership
Its: Managing General Partner
By: GLB Partners, L.P.
Its: General Partner
By: Citadel Investment Group, L.L.C.
Its: General Partner
By: /s/Kenneth C. Griffin
Name: Kenneth C. Griffin
Its: President
OLYMPUS SECURITIES, LTD.
By: Citadel Limited Partnership
Its: Trading Manager
By: GLB Partners, L.P.
Its: General Partner
By: Citadel Investment Group, L.L.C.
Its: General Partner
By: /s/Kenneth C. Griffin
Name: Kenneth C. Griffin
Its: President
Agreed and Accepted as of February 7, 1997:
UNIGENE LABORATORIES, INC.
By: /s/Ronald S. Levy
-----------------
Name: Ronald S. Levy
Its: Vice President
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 2,308,013
<SECURITIES> 0
<RECEIVABLES> 100,380
<ALLOWANCES> 0
<INVENTORY> 731,331
<CURRENT-ASSETS> 3,277,580
<PP&E> 16,792,063
<DEPRECIATION> 6,661,008
<TOTAL-ASSETS> 14,745,002
<CURRENT-LIABILITIES> 2,238,482
<BONDS> 1,807,694
0
0
<COMMON> 370,057
<OTHER-SE> 10,328,769
<TOTAL-LIABILITY-AND-EQUITY> 14,745,002
<SALES> 1,442
<TOTAL-REVENUES> 1,442
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 4,412,040
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 73,601
<INCOME-PRETAX> (4,436,001)
<INCOME-TAX> 0
<INCOME-CONTINUING> (4,436,001)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,436,001)
<EPS-PRIMARY> (.12)
<EPS-DILUTED> (.12)
</TABLE>
