COLUMBIA LABORATORIES, INC.
PROSPECTUS
300,000 Shares of Common Stock Issuable Upon Exercise of Certain Warrants
45,000 Shares of Common Stock Issuable in Payment of Legal Services
The Prospectus relates to (i) 300,000 shares of Common Stock, $.01
par value per share ("Common Stock"), issuable upon exercise of a warrant
to purchase 300,000 shares at $5.3125 per share and (ii) 45,000 shares of
Common Stock issuable in payment of legal services. The exercise price of
the warrants is subject to adjustment in certain events. The shares
registered hereby are collectively referred to as the "Shares".
The Shares offered pursuant to this Prospectus may be sold from
time to time by the selling securityholders ("Selling Securityholders"), or
by their transferees, in certain instances. No underwriting arrangements
have been entered into for the sale of the Shares. Sales may be made from
time to time on the American Stock Exchange at prices prevailing at the
time of sale, or in private transactions at negotiated prices, and any
commissions paid or discounts given will be those customary in the
transactions involved.
The Selling Securityholders and brokers and dealers through whom
such securities are sold may be deemed "underwriters" within the meaning of
the Securities Act of 1933, as amended ("Securities Act"), with respect to
such securities, and any profits realized or commissions received may be
deemed underwriting compensation. The Company has agreed to indemnify the
Selling Securityholders against certain liabilities, including liabilities
under the Securities Act.
The Company will not receive any of the proceeds from the sale of the
Shares by the Selling Securityholders. The Company will receive the
proceeds from the exercise of the warrants, which would aggregate
$1,593,750, if, and when, all of the warrants are exercised. There can be no
assurance that any of the warrants will be exercised. Expenses of this
offering, estimated at $5,500 are payable by the Company. See "Selling
Securityholders."
The Company's Common Stock trades on the American Stock Exchange
("AMEX") under the symbol COB. On August 28, 1995, the last reported sale
price of the Company's Common Stock on the American Stock Exchange was
$8.81. See "Price Range of Common Stock."
THE SECURITIES OFFERED HEREBY INVOLVE
A HIGH DEGREE OF RISK.
SEE "RISK FACTORS ON PAGES 3-7."
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED
BY THE SECURITIES AND EXCHANGE COMMISSION NOR HAS
THE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is August 28, 1995.
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AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934 under Section 15(d) thereof and in
accordance therewith files reports and other information with the
Securities and Exchange Commission ("Commission"). In addition, the Company
has filed with the Commission a registration statement on Form S-1 under
the Securities Act covering the securities offered by this Prospectus. Such
reports and other information can be inspected and copied at public
reference facilities maintained by the Commission at Room 1024, Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C.; Northwestern Atrium
Center, 500 W. Madison Street, Suite 1400, Chicago, Illinois; and 7 World
Trade Center, Suite 1300, New York, New York. Copies of such material can
be obtained from the Public Reference Section of the Commission, Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates.
In addition, the Company's Common Stock trades on the American Stock
Exchange and reports, proxy statements and other information concerning the
Company can be inspected at the offices of the American Stock Exchange, 86
Trinity Place, New York, New York.
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THE COMPANY
Columbia Laboratories, Inc. (the "Company") was incorporated as a
Delaware corporation in December 1986. The Company's principal executive
offices are located at 2665 South Bayshore Drive, Miami, Florida 33133, and
its telephone number is (305) 860-1670. The Company's subsidiaries, all of
which are wholly-owned, are Columbia Laboratories (Bermuda) Ltd. ("Columbia
Bermuda"), Columbia Laboratories (France) SARL ("Columbia France"),
Columbia Laboratories (UK) Limited ("Columbia UK"), Columbia Laboratories
(Ireland) Limited ("Columbia Ireland") and Columbia Research Laboratories,
Inc. ("Columbia Research").
The Company's objective is to develop on a worldwide basis a
portfolio of women's prescription and over-the-counter products, including
those which help prevent sexually transmitted diseases. Columbia's products
primarily utilize the Company's patented bioadhesive delivery technology,
the Bioadhesive Delivery System ("See "Business-Products").
Formulated products utilizing the Bioadhesive Delivery System
consist principally of a polymer, polycarbophil, and an active ingredient.
The Bioadhesive Delivery System is based upon the principle of bioadhesion,
a process by which the polymer adheres to epithelial surfaces and to mucin,
a naturally occurring secretion of the mucous membranes. The polymer
remains attached to epithelial surfaces and/or the mucin and is discharged
upon normal cell turnover or upon the detachment of the mucin from the
mucous membranes, a physiological process which, depending upon the area of
the body, occurs every 12 to 72 hours. This extended period of attachment
permits the Bioadhesive Delivery System to be utilized in products when
extended duration of effectiveness is desirable or required.
The Company's initial efforts have applied the technology to
women's health care products that can be sold as cosmetics and
over-the-counter drugs, which do not require governmental or regulatory
approval. The Company has focused on women's health care because of the
significant number of women--particularly of post-menopausal age--whose
health and hygiene needs have not been met by available products and
because the Company has found vaginal delivery to be particularly
effective. The Company intends to continue to develop products that improve
the delivery of previously approved drugs.
RISK FACTORS
An investment in the securities offered hereby is speculative and
involves a high degree of risk. The securities should be purchased only by
persons who are sophisticated in financial and business matters and who can
afford the loss of their entire investment. In addition, prospective
investors should carefully consider, along with the other information
contained herein, the following special considerations and risk factors in
analyzing the offering.
1. HISTORY OF LOSSES; SHORTAGE OF WORKING CAPITAL. The Company
sustained a net loss of $12,993,889 for the fiscal year ended December 31, 1994,
which was primarily the result of research and development activities. There can
be no assurance that the Company's current funds and funds generated from
operations will be sufficient to achieve the Company's research and development
plans. In the event that the Company is unable to generate sufficient funds from
sales of its current products, the Company expects to need additional funds to
continue and complete research and development, conduct pre-clinical and
clinical trials and apply for regulatory approval, if necessary. In such event,
if the Company is unable to obtain such additional funds, the Company may be
unable to continue operations. In addition, companies engaging in the
development and commercialization of prescription and over-the-counter drugs and
cosmetics frequently
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encounter various unanticipated problems, including development, regulatory,
manufacturing, distribution and marketing difficulties. The failure to
adequately address such difficulties would adversely affect the Company's
prospects.
2. DEPENDENCE UPON STRATEGIC ALLIANCE AGREEMENTS. The Company's
original commercialization strategy was to market Replens through its own
sales force. In 1991, in order to gain mass marketing power and access to
worldwide markets quickly, the Company developed and executed an
alternative marketing strategy. The Company entered into strategic alliance
agreements with various companies for the distribution and marketing of its
bioadhesive products in certain countries. There can be no assurance that
any of the companies with whom the Company has entered into these
agreements will aggressively or successfully market the products. The
Company's success to a great extent is dependent on the marketing efforts
of its strategic alliance partners, over which the Company has limited
ability to influence. The failure of these companies to successfully market
the products could have a materially adverse effect on the Company's cash
flow. The failure of the Company to satisfy its obligations under any of
these agreements may result in modifications of the terms or termination of
the relevant agreement. There can be no assurance that the Company will
have the ability to satisfy all of its obligations under the agreements.
Modification or termination of these agreements could have a materially
adverse effect on the business and financial condition of the Company.
As part of these agreements, certain of the strategic alliance
partners have the right of first option or right of first refusal, in the
applicable countries, to license future gynecological products developed by
the Company. The Company is currently in discussions with these partners
and other companies regarding the potential licensing of other products.
See "Business--Products". There can be no assurance that the Company will
be able to enter into any such agreements or that any upfront payments or
ongoing royalties will be received or whether the partners will
aggressively or successfully market these products.
3. COMPETITION. While the Company has entered into the strategic
alliance agreements for the marketing of its bioadhesive products in
certain countries with large pharmaceutical companies, there can be no
assurance that the Company and its partners will have the ability to
compete successfully. The Company's success to a great extent is dependent
on the marketing efforts of its strategic alliance partners, over which the
Company has limited ability to influence. The markets which the Company and
its strategic alliance partners operate in or intend to enter are
characterized by intense competition. The Company and its partners compete
against established pharmaceutical and consumer product companies which
market products addressing similar needs. In addition, numerous companies
are developing or, in the future, may develop enhanced delivery systems and
products competitive with the Company's present and proposed products. Some
of the Company's and its partners' competitors possess greater financial,
research and technical resources than the Company or its partners.
Moreover, these companies may possess greater marketing capabilities than
the Company or its partners, including the resources to implement extensive
advertising campaigns.
4. GOVERNMENT REGULATION. The Company is subject to both the
applicable regulatory provisions of the Food and Drug Administration
("FDA") in the United States and the applicable regulatory agencies in
those foreign countries where its products are manufactured and/or
distributed.
As in the United States, a number of foreign countries require
pre-marketing approval by health regulatory authorities. Requirements for
approval may differ from country to country and may involve different types
of testing. There can be substantial delays in obtaining required approvals
from regulatory authorities after applications are filed. Even after
approvals are obtained, further delays may be encountered before the
products become commercially available.
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5. FDA REVIEW REGARDING LEGATRIN(REGISTERED TRADEMARK) The FDA, in 1988,
initiated a review to determine whether drugs containing quinine sulfate for
night leg cramps, an ingredient in the Company's product Legatrin, should
remain on the market. The FDA issued a final monograph, which became effective
on February 22, 1995, restricting manufacturer's from selling over-the-counter
quinine sulfate based-products for the relief of night leg cramps. As a
result, in February 1995 the Company introduced New Advanced Formula
Legatrin PM(TRADEMARK), which does not contain quinine sulfate. Legatrin PM
provides relief of occasional pain and sleeplessness associated with minor
muscle aches such as leg cramps; however, it is not known at this time
whether consumers will find Legatrin PM as effective as Legatrin. Sales
of Legatrin and gross profit derived from sales of Legatrin approximated $4
million and $3 million, respectively, for each of the three years ended
December 31, 1994. Sales of Legatrin represented approximately 49%, 48% and
47% of the Company's net sales in 1994, 1993 and 1992, respectively.
There can be no assurance as to what future sales of Legatrin PM will be.
6. TECHNOLOGICAL CHANGE; PATENT AND TRADEMARK PROTECTION AND
PROPRIETARY INFORMATION. Notwithstanding the patents underlying the
Bioadhesive Delivery System, other companies may independently develop
equivalent or superior technologies or processes and may obtain patents or
similar rights with respect thereto. Moreover, the Company may determine
for financial or other reasons not to enforce its rights under the patents.
Although the Company believes that the patented technology has been
independently developed and does not infringe on the patents of others,
there can be no assurance that the technology does not and will not
infringe on the patents of others. In the event of infringement, the
Company would, under certain circumstances, be required to modify the
processes or obtain a license and/or pay a license fee. There can be no
assurance that the Company would be able to do either of the foregoing in a
timely manner or upon acceptable terms and conditions, and failure to do
any of the foregoing could have a materially adverse effect on the Company.
The Company has registered "Replens" as a trademark in the United
States, the United Kingdom and 49 other countries. Applications are pending
in an additional six countries. Applications for the trademarks "Advantage
24" and "Crinone" have recently been filed in over 50 countries. There can
be no assurance that such trademarks will afford the Company adequate
protection or that the Company will have the financial resources to enforce
its rights under such trademarks.
The Company also relies on confidentiality and nondisclosure
agreements. There can be no assurance that other companies will not acquire
information which the Company considers to be proprietary. Moreover, there
can be no assurance that other companies will not independently develop
know-how comparable or superior to that of the Company.
7. UNCERTAINTY OF DEVELOPMENT OF FORMULATED PRODUCTS UTILIZING THE
BIOADHESIVE DELIVERY SYSTEM. Several potential products utilizing the
Bioadhesive Delivery System remain in the early stages of development and
remain subject to all the risks inherent in the development of products
based on innovative technologies, including unanticipated development
problems, as well as the possible insufficiency of funds to undertake
development which could result in abandonment or substantial change in the
development of a specific formulated product. In addition, ethical products
developed by the Company will require pre-marketing regulatory approval.
Other than Replens and Advantage 24, which are fully developed, there can
be no assurance that formulated products utilizing the Bioadhesive Delivery
System can be successfully developed, can be developed on a timely basis or
will prove to be more effective than formulated products based on existing
or other newly developed technologies.
8. DEPENDENCE UPON PRINCIPAL SUPPLIER. Medical grade, cross-linked
polycarbophil, the polymer used in the Company's products utilizing the
Bioadhesive Delivery System, is currently available from only one supplier,
B.F. Goodrich Company ("Goodrich"). The Company believes that Goodrich will
supply as much of the material as the Company may require because the
Company's products rank among the highest value-added uses of the polymer.
There can be no assurance that Goodrich will continue to
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supply the product. In the event that Goodrich cannot or will not supply enough
of the product to satisfy the Company's needs, the Company will be required to
seek alternative sources of polycarbophil. There can be no assurance that an
alternative source of polycarbophil will be obtained.
9. DEPENDENCE UPON KEY PERSONNEL. The success of the Company will
be largely dependent on the personal efforts of Norman M. Meier, its
President and Chief Executive Officer; William J. Bologna, its Chairman
and Nicholas A. Buoniconti, its Vice Chairman and Chief Operating
Officer. The Company has entered into an employment agreement with Mr.
Buoniconti which expires on April 15, 1997. The success of the Company is
also dependent upon certain other key personnel and the Company's ability
to hire additional qualified marketing, technical and other personnel.
There can be no assurance that the Company will be able to hire and retain
such additional employees when needed.
10. POTENTIAL PRODUCT LIABILITY. The Company may be exposed to
product liability claims by consumers. Although the Company presently
maintains product liability insurance coverage in the amount of $10
million, there can be no assurance that such insurance will be sufficient
to cover all possible liabilities. In the event of a successful suit
against the Company, insufficiency of insurance coverage could have a
materially adverse effect on the Company. In addition, certain food and
drug retailers require minimum product liability insurance coverage as a
condition precedent to purchasing or accepting products for retail
distribution. Failure to satisfy such insurance requirements could impede
the ability of the Company to achieve broad retail distribution of its
proposed products, which would have a materially adverse effect upon the
business and financial condition of the Company.
11. NO DIVIDENDS IN FORESEEABLE FUTURE ON COMMON, SERIES A OR
SERIES B STOCK. The Company has never paid a cash dividend on its Common
Stock and does not anticipate the payment of cash dividends in the
foreseeable future. The Company intends to retain any earnings for use in
the development and expansion of its business.
The Series A Preferred Stock pays cumulative dividends at a rate of
8% per annum payable quarterly. As of June 30, 1995, dividends of $92,563
have been earned but have not been declared and are included in other
long-term liabilities in the accompanying consolidated balance sheet.
12. EFFECT ON MARKET PRICE OF SALES OF SUBSTANTIAL AMOUNTS OF
COMMON STOCK. As of July 31, 1995, the Company had 25,679,354 shares of
Common Stock outstanding, of which 21,498,299 shares are freely tradeable.
In addition, the Company had outstanding Series A and Series B Preferred
Stock and outstanding warrants and options then exercisable, that if
exercised or converted would result in the issuance of an additional
1,933,396 shares of Common Stock, all of which have been registered under
the Securities Act and; accordingly, when issued will be freely tradeable.
The exercise and conversion of these securities is likely to dilute the
then book value per share of the Company's Common Stock. In addition, the
existence of these securities may adversely affect the terms on which the
Company can obtain additional equity financing. Moreover, the holders of
these securities are likely to exercise their rights at a time when the
Company would otherwise be able to obtain capital on terms more favorable
than those provided by their exercise prices. Approximately 4,175,404
shares of the Company's Common Stock that are restricted securities may
currently be sold pursuant to Rule 144. Sales of substantial amounts of
Common Stock in the open market could have a significant adverse effect on
the market price of the Company's Common Stock.
13. AUTHORITY TO ISSUE ADDITIONAL PREFERRED STOCK. The Company's
Certificate of Incorporation authorizes the issuance of preferred stock
with such designation, rights and preferences as may be determined from
time to time by the Board of Directors. The Board of Directors is
empowered, without stockholder approval, to issue preferred stock with
dividend, liquidation, conversion, voting or other rights which could
adversely affect the voting power or other rights of the holders of the
Company's Common
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Stock or outstanding series of preferred stock. In the event of issuance of
additional shares of the Company's preferred stock, such shares could be
utilized, under certain circumstances, as a method of discouraging, delaying
or preventing a change in control of the Company. There can be no assurance
that the Company will not, under certain circumstances, issue additional shares
of its preferred stock. See "Description of Securities."
14. DEPENDENCE UPON THIRD-PARTY MANUFACTURING ARRANGEMENT. The
Company currently relies on third-party arrangements for the manufacture of
its products. There can be no assurance that third-party manufacturers will
be able to satisfy the Company's needs. The Company's dependence upon third
parties for the manufacture of its products could have an adverse effect on
the Company's profit margins and its ability to deliver its products on a
timely and competitive basis.
15. NET OPERATING LOSS ABSORPTION LIMITATION. As of December 31,
1994, the Company had available net operating loss carryforwards of
approximately $40 million to offset its future U.S. taxable income. Under
Section 382 of the Internal Revenue Code of 1986, as amended ("Code"),
utilization of prior net operating loss carryforwards is limited after an
ownership change to the product of (a) an annual amount equal to the value
of the loss corporation's outstanding stock at the date of the ownership
change multiplied by (b) the federal long-term tax exempt bond rate. While
the Company's initial public offering of Common Stock (when combined with
prior and subsequent issuances and transfers of the Company's capital stock
since January 1, 1987) probably did constitute an ownership change, the
resulting annual limitation on utilization of the Company's net operating
loss carryforwards is not expected to cause a significant portion of the
Company's present net operating loss carryforwards to become unavailable
for offset against the Company's income on a long-term basis, although
depending upon the precise method utilized to compute the value of the
Company at the date of the ownership change, the Code Section 382
limitation may significantly limit utilization of such net operating losses
in any one year.
USE OF PROCEEDS
The Company will receive no proceeds from the sale of the Shares,
but will receive proceeds of $1,593,750, if, and when, all of the warrants are
exercised. There can be no assurance that any of the warrants will be
exercised. Expenses of this offering, estimated at $5,500 are payable by
the Company. The Company anticipates that any proceeds received from the
exercise of the warrants will be used for working capital and general
corporate purposes.
DILUTION
As of June 30, 1995, the net tangible book value of the Company
was $4,289,225. After consideration of the $311,500 liquidation
preference of the outstanding Series A and B Preferred Stock, the tangible
book value of the Common Stock was $3,977,725 or $.15 per share of Common
Stock. After giving effect to the conversion of the Series A and B
Preferred Stock and exercise of all the outstanding options and warrants,
the pro forma net tangible book value of the Company's Common Stock would
be $.84 per share, representing immediate dilution of $4.47 per share to
the individuals exercising the warrants.
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BUSINESS
GENERAL DESCRIPTION OF BUSINESS
The Company was incorporated in December 1986 for the purpose of
developing, marketing and selling pharmaceutical products utilizing
recognized, proven and effective ingredients. The Company's objective is to
develop on a worldwide basis a portfolio of women's prescription and
over-the-counter products, including those which help prevent sexually
transmitted diseases. Columbia's products primarily utilize the Company's
patented bioadhesive delivery technology, the Bioadhesive Delivery System.
Formulated products utilizing the Bioadhesive Delivery System
consist principally of a polymer, polycarbophil, and an active ingredient.
The Bioadhesive Delivery System is based upon the principle of bioadhesion,
a process by which the polymer adheres to epithelial surfaces and to mucin,
a naturally occurring secretion of the mucous membranes. The polymer
remains attached to epithelial surfaces and/or the mucin and is discharged
upon normal cell turnover or upon the detachment of the mucin from the
mucous membranes, a physiological process which, depending upon the area of
the body, occurs every 12 to 72 hours. This extended period of attachment
permits the Bioadhesive Delivery System to be utilized in products when
extended duration of effectiveness is desirable or required.
The Company's initial efforts have applied the technology to
women's health care products that can be sold as cosmetics and
over-the-counter drugs, which do not require governmental or regulatory
approval. The Company has focused on women's health care because of the
significant number of women--particularly of post-menopausal age--whose
health and hygiene needs have not been met by available products and
because the Company has found vaginal delivery to be particularly
effective. The Company intends to continue to develop products that improve
the delivery of previously approved drugs.
The Company is currently engaged solely in one business segment --
the development and sale of pharmaceutical products and cosmetics. See
footnote 7 to the consolidated financial statements for information on
foreign operations.
PRODUCTS
REPLENS(REGISTERED TRADEMARK). In November 1989, the Company introduced
Replens, the first product utilizing the Bioadhesive Delivery System, in the
United States. Replens replenishes vaginal moisture on a sustained basis and
relieves the discomfort associated with vaginal dryness. The Company
introduced Replens in England and Ireland in December 1990. The Company's
original commercialization strategy was to market Replens through its own
sales force.
In 1991, in an attempt to gain mass marketing power and access to
worldwide markets quickly, the Company developed and executed an
alternative marketing strategy. The Company has entered into strategic
alliance agreements for the marketing and distribution of Replens with: (i)
Warner-Lambert Company under which Warner-Lambert Company markets Replens
in the United States; (ii) subsidiaries of Johnson and Johnson under which
those subsidiaries market Replens in Italy and will market Replens in
Belgium; (iii) Roussel-UCLAF under which Roussel markets Replens in France,
certain French overseas territories and Greece; (iv) Sterling Drug Inc.
under which Sterling markets Replens in Japan, South America, Central
America, Australia, New Zealand, and other Pacific Rim nations; (v) Teva
Pharmaceutical under which Teva will market Replens in Israel; (vi) Logos
Pharmaceuticals (Pty) Limited under which Logos markets Replens in South
Africa and the sixteen countries of sub-Saharan Africa; (vii) LASA SA under
which LASA SA markets Replens in Spain; (viii) Unipath Ltd. under which
Unipath markets Replens in the United Kingdom; (ix) Roberts Pharmaceutical
Corporation under which Roberts will market Replens in Canada; (x) Vifor SA
under which Vifor will market Replens in Switzerland and Liechtenstein;
(xi) Hermes H/F under
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which Hermes is currently marketing Replens in Iceland and (xii) a Swedish
pharmaceutical company that has created a joint venture which markets Replens
in Sweden and other Scandinavian countries.
As a result of having marketed Replens in the United States and
England, which demonstrated the market for Replens, the Company has been
able to negotiate agreements with its strategic alliance partners pursuant
to which the Company manufactures Replens and in return receives as revenue
approximately 24% to 30% of its partners' selling price of the product.
These companies are responsible for all marketing and distribution costs of
Replens in their territories. The Company has been informed that its
strategic alliance partners expect to spend, in aggregate, over $20 million
during 1995 marketing Replens and Advantage 24; however, there can be no
assurance that such amounts will be spent or if spent will have a favorable
impact on the Company's sales. Prior to entering into these strategic
alliance agreements, the Company lost money on Replens as a result of the
significant amounts the Company was required to spend on product promotion.
As part of these agreements, certain of the strategic alliance partners
have the right of first option or right of first refusal, in the applicable
countries, to license future gynecological products developed by the
Company.
In December 1992, the United Kingdom Medicines Control Agency
("MCA") granted a General Sales License for Replens to be sold in the UK
for the symptomatic relief of vaginal dryness in postmenopausal women and,
when used regularly, for the reduction of pH to levels normally found in
premenopausal women. Replens had previously been sold in the UK under the
cosmetic regulations which restricted the claims that the Company could
make for the product. The Company believes that Replens is now the only
non-hormonal product approved for vaginal moisturization and reduction of
pH in the UK. In the United States, Replens is sold as a cosmetic.
In February 1994, the European Union recommended to its member
countries, based on consultation from each of the countries, that Replens
be approved as a drug. Currently, eleven of the twelve countries agree with
the European Union's recommendation and the Company believes that licenses
from these individual countries will be issued within the next several
months.
While the strategic alliance agreements in the United States and
abroad have not produced desired unit sales as quickly as planned, the
Company believes it has established effective working relationships with
its partners which the Company believes form a solid foundation to build
sales of Replens and the other products in the development pipeline. In
addition, upon granting of the European multistate license, Replens should
become a reimbursable product in certain countries. The Company believes
that sales of Replens in Europe should increase once the licenses are
granted. The Company's success to a great extent is dependent on the
marketing efforts of its strategic alliance partners, over which the
Company has limited ability to influence.
FEMINESSE. Feminesse, which also utilizes the Bioadhesive Delivery
System, helps eliminate vaginal odor on a sustained basis. Feminesse is
currently sold in the U.K. by Unipath.
ADVANTAGE 24(REGISTERED TRADEMARK). During 1993, Advantage 24, the
Company's 24 hour sustained release contraceptive gel, was qualified to be
sold in the United States, under the existing FDA monograph for nonoxynol-9
spermicidal products. In September 1994, the Company entered into a license
and distribution agreement with Lake Pharmaceutical, Inc. under which Lake
markets Advantage 24 in the United States.
Among Advantage 24's benefits is its slow release characteristic
which permits the spermicide to be effective for up to 24 hours, in
contrast with conventional spermicides that must be applied at most two
hours prior to intercourse. The slow release feature is derived from the
Company's Bioadhesive Delivery System, which enables the nonoxynol-9 to
adhere to the cervix. Broader claims relating to prevention of sexually
transmitted diseases (STD's) will be requested upon completion, if
successful, of clinical studies now underway. The Company expects that
within 12 months it will have sufficient data to apply for
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regulatory approval on the broader claims. In Europe, the Company intends
to register Advantage 24 as an over-the-counter drug.
Additionally, the World Health Organization (WHO) has recently
completed an approximately 300 women safety study on Advantage 24. WHO's
preliminary analysis of the data generated indicates that Advantage 24, as
used in the study, was free of any serious side effects. A full analysis of
the data is now being performed. Based on the results of this study, the
WHO has indicated an interest in studying the efficacy of Advantage 24 in
preventing the heterosexual transmission of HIV and other STD's. The WHO is
currently developing a protocol with the Company.
CRINONE(TRADEMARK). Preliminary analysis of the clinical data on the
Company's first prescription drug utilizing the Bioadhesive Delivery
System, Crinone, a vaginal progesterone product, has confirmed that it can
help protect against uterine cancer in women receiving estrogen replacement
therapy. The clinical studies have also indicated that the Company's
bioadhesive natural progesterone is applicable to women who have difficulty
in maintaining pregnancy, especially the difficulties of those undergoing
in-vitro fertilization procedures (IVF).
During 1994, the Company submitted registration files covering
Crinone to the U.K.'s Medical Control Agency and to certain other European
regulatory authorities for approval as a new drug. The Company anticipates
that a New Drug Application (NDA) will be filed in the United States upon
successful completion of two additional clinical studies.
During 1993, the Logos Replens Agreement was amended such that
Logos will also be the exclusive distributor of the Company's progesterone
product in South Africa and the sixteen countries of sub-Saharan Africa. As
part of the agreement, the Company received upfront licensing fees and
expects to receive ongoing revenue from manufacturing and product sales.
In May 1995, the Company entered into an exclusive worldwide, except
for South Africa, license and supply agreement with American Home Product
Corporation (AHP) under which the Wyeth-Ayerst division of AHP will market
Crinone. Under the terms of the agreement, the Company received a $6
million upfront payment and will receive milestone payments and a
significant percentage of sales.
OTHER PRODUCTS. The Company also markets New Advanced Formula
Legatrin PM(TRADEMARK), for the relief of occasional pain and sleeplessness
associated with minor muscle aches such as night leg cramps; Vaporizer in a
Bottle(REGISTERED TRADEMARK), a portable decongestant for relief of colds and
hay fever congestion; and Diasorb(REGISTERED TRADEMARK), a pediatric
antidiarrheal product. These products do not utilize the Bioadhesive Delivery
System.
RESEARCH AND DEVELOPMENT
The Company expended $9,376,047 in 1994, $5,290,912 in 1993 and
$3,129,026 in 1992, on research and development activities. The increase in
expenditures are primarily the result of costs associated with contracting
for, supervising and administering the clinical studies on the Company's
Crinone and Advantage 24 products. These studies are coordinated from the
Company's New York and Paris offices.
In December 1993, the Company entered into an Option and License
Agreement with a French research group based in Marseille, France, pursuant
to which it was granted an option to obtain an exclusive license to the
North and South American rights to a potential AIDS treatment. The option
cost $2 million, of which $1.1 million was paid in December 1993 and the
remaining $900,000 was paid in February 1994. The potential product was
recently granted a Clinical Trials Exemption (CTX) in the United Kingdom
and clinical trials in humans are now underway.
-10-
<PAGE>
The option, which must be exercised upon the occurrence of certain
events, expires in December 1998. Upon exercise of the option, the Company
will be required to pay an additional $5 million. If the Company does not
exercise its option upon the occurrence of certain events, the Company's
rights to the option are terminated.
The synthetic molecule, which could prove to be a breakthrough in
the treatment of AIDS, is a multibranched peptide, a type of protein, which
acts to prevent the AIDS virus from fusing with a healthy cell. Up to now,
the only treatments available for AIDS patients act by stopping the virus
from multiplying rapidly. The Marseille molecule, according to a recent
paper published in the Journal of France's Academy of Sciences, could
prevent the virus from attacking healthy cells in two ways: (i) in
lymphocytes, the white blood cells that are a key part of the body's immune
system and (ii) in macrophages, a type of white blood cell that is often a
vehicle for transmitting the virus to the brain.
PATENTS, TRADEMARKS AND PROTECTION OF PROPRIETARY INFORMATION
The Company purchased the patents underlying the Bioadhesive Delivery
System from Bio-Mimetics, Inc. ("Bio-Mimetics"). The Company has the
exclusive right to the use of the Bioadhesive Delivery System subject to
certain third party licenses issued by Bio-Mimetics that have been assigned
to the Company and certain restrictions on the assignment of the patents.
See "Management's Discussion and Analysis of Financial Conditions and
Results of Operations."
The basic patent that covers the Bioadhesive Delivery System was
issued in the United States in 1986 and by the European Patent Office in
1992. Corresponding patents have also been issued in Canada and Australia.
A corresponding application is currently pending in Japan. The Company is
continuing to develop the core Bioadhesive Delivery System and has filed
patent applications covering tissue moisturization, in general, as well as
vaginal moisturization. These applications are currently pending in the
U.S. Patent and Trademark Office, the European Patent Office, and
elsewhere, worldwide. While patent applications do not ensure the ultimate
issuance of a patent, it is the Company's belief that patents based on
these applications will issue.
In addition to the basic patents discussed above, the Company has
two additional patents that cover ophthalmic treatment products. These two
patents also underlie an agreement to share technology with InSite Vision
Incorporated ("Insite"). Under this agreement, the Company obtained from
Insite the worldwide rights to market ophthalmic veterinary products which
utilize Insite's sustained release gel technology. In addition, the Company
obtained the right to market, in all parts of the world except North
America and portions of Asia, ophthalmic over-the-counter drugs which
utilize Insite's sustained release gel technology. In exchange, Insite
obtained from the Company the worldwide rights to market prescription
ophthalmic products which utilize the Company's Bioadhesive Delivery
System. In addition, InSite obtained the right to market, in North America
and portions of Asia, ophthalmic over-the-counter drugs which utilize the
Company's Bioadhesive Delivery System.
Because the Company operates on a worldwide basis, the Company
seeks worldwide patent protection for its technology and products. While
having patent protection cannot ensure that no competitors will emerge,
this is a fundamental step in protecting the technologies of the Company.
The Company has registered "Replens" as a trademark in the United
States, the United Kingdom and in 49 other countries. Applications are
pending in an additional six countries. Applications for the trademarks
"Advantage 24" and "Crinone" have recently been filed in over 50 countries.
Applications for the registration of trademarks do not ensure the ultimate
registration of these marks. The Company believes these marks will be
registered.
-11-
<PAGE>
The Company also relies on confidentiality and nondisclosure
agreements. There can be no assurance that other companies will not acquire
information which the Company considers to be proprietary. Moreover, there
can be no assurance that other companies will not independently develop
know-how comparable to or superior to that of the Company.
MANUFACTURING
During 1991, the Company introduced a new, more efficient and less
expensive manufacturing and packaging process for the production of Replens
and its future women's health care products. The process, called "form,
fill and seal," is a single step process whereby the redesigned applicator
is created, filled and sealed in one process. Replens is currently being
manufactured and packaged, utilizing the process developed by the Company,
by third-party manufacturers in Europe. In 1991, the Company placed orders
for approximately $2.7 million of manufacturing equipment. As of June 30,
1995 and December 31, 1994 and 1993, $945,000 of this equipment was
completed and is included in machinery and equipment in the accompanying
consolidated balance sheet. Deposits on manufacturing equipment totalling
approximately $991,000 are included in other assets in the June 30, 1995
and December 31, 1994 and 1993 consolidated balance sheets. Due to
production delays, the Company does not expect to take delivery of this
equipment until 1995 or 1996.
Medical grade, cross-linked polycarbophil, the polymer used in the
Company's products utilizing the Bioadhesive Delivery System, is currently
available from only one supplier, B.F. Goodrich Company ("Goodrich"). The
Company believes that Goodrich will supply as much of the material as the
Company may require because the Company's products rank among the highest
value-added uses of the polymer. There can be no assurance that Goodrich
will continue to supply the product. In the event that Goodrich cannot or
will not supply enough of the product to satisfy the Company's needs, the
Company will be required to seek alternative sources of polycarbophil.
There can be no assurance that an alternative source of polycarbophil will
be obtained.
All of the other raw materials used by the Company for its products
utilizing the Bioadhesive Delivery System are available from several
sources.
OVER-THE-COUNTER DRUGS
GENERAL. The Company currently markets three over-the-counter drugs:
New Advanced Formula Legatrin PM(TRADEMARK), for the relief of occasional
pain and sleeplessness associated with minor muscle aches such as night leg
cramps; Diasorb, a pediatric antidiarrheal product; and Vaporizer in a
Bottle, a portable decongestant for relief of colds and hay fever
congestion. These over-the-counter drugs are manufactured by third-party
manufacturers. All of the raw materials used by the Company for its
over-the-counter drugs are available from several sources.
The over-the-counter drugs are sold to drug wholesalers and chain
drug stores. The Company utilizes 18 drug manufacturers' representative
firms to make calls on the Company's trade customers. The manufacturers'
representatives receive commissions based on sales made within their
respective territories. The Company supports the activities of the
manufacturers' representatives by advertising in medical and consumer
publications, direct mailings and convention participation.
LEGATRIN. In February 1989, the Company acquired from Scholl, Inc.,
a subsidiary of Schering-Plough Corporation, the North American rights to
the product Legatrin and the related trademark, for $300,000 and the
assumption of certain liabilities approximating $41,000. The FDA, in 1988,
initiated a review to determine whether drugs containing quinine sulfate
for night leg cramps, an ingredient in Legatrin,
-12-
<PAGE>
should remain on the market. The FDA issued a final monograph, which became
effective on February 22, 1995, restricting manufacturer's from selling
over-the-counter quinine sulfate based-products for the relief of night leg
cramps. As a result, in February 1995 the Company introduced New Advanced
Formula Legatrin PM.
SALES
The following tables sets forth the percentage of the Company's
consolidated net sales by product, for each product accounting for 15% or
more of consolidated net sales in any of the three years ended December 31,
1994.
1994 1993 1992
---- ---- ----
Replens 39% 42% 42%
Legatrin 49 48 47
Other products 12 10 11
--- --- ---
100% 100% 100%
=== === ===
The Company anticipates the percentage of sales attributable to Legatrin
and the other products to decrease in future years as additional products
utilizing the Bioadhesive Delivery System are introduced. Warner-Lambert
accounted for approximately 27%, 29% and 32% of 1994, 1993 and 1992
consolidated net sales, respectively. Another customer accounted for
approximately 14% and 11% of 1994 and 1993 consolidated net sales,
respectively. As set forth above, the FDA issued a final monograph, which
became effective on February 22, 1995, restricting manufacturer's from
selling over-the-counter quinine sulfate based-products for the relief of
night leg cramps. As a result, in February 1995 the Company introduced New
Advanced Formula Legatrin PM.
COMPETITION
While the Company has entered into the strategic alliance
agreements for the marketing of Replens and Crinone with large
pharmaceutical companies, there can be no assurance that the Company and
its partners will have the ability to compete successfully. The Company's
success to a great extent is dependent on the marketing efforts of its
strategic alliance partners, over which the Company has limited ability to
influence. The markets which the Company and its strategic alliance
partners operate in or intend to enter are characterized by intense
competition. The Company and its partners compete against established
pharmaceutical and consumer product companies which market products
addressing similar needs. In addition, numerous companies are developing
or, in the future, may develop enhanced delivery systems and products
competitive with the Company's present and proposed products. Some of the
Company's and its partners' competitors possess greater financial, research
and technical resources than the Company or its partners. Moreover, these
companies may possess greater marketing capabilities than the Company or
its partners, including the resources to implement extensive advertising
campaigns.
Although the Company is not aware of any product incorporating
rate-controlled technology with respect to vaginal lubrication, the Company
believes that Replens competes in the same markets as K-Y Jelly(REGISTERED
TRADEMARK) and Gyne-Moisturin(REGISTERED TRADEMARK), vaginal lubricants
marketed by Johnson & Johnson Products, Inc. and Schering-Plough Corporation,
respectively. The Company also believes that Advantage 24, Legatrin PM and
Diasorb compete against numerous products in their respective categories and
that Vaporizer in a Bottle(REGISTERED TRADEMARK) competes against Vicks
Vaporsteam, a product distributed by Richardson-Vicks, Inc.
-13-
<PAGE>
GOVERNMENT REGULATION
The Company is subject to both the applicable regulatory provisions
of the FDA in the United States and the applicable regulatory agencies in
those foreign countries where its products are manufactured and/or
distributed.
As in the United States, a number of foreign countries require
premarketing approval by health regulatory authorities. Requirements for
approval may differ from country to country and may involve different types
of testing. There can be substantial delays in obtaining required approvals
from regulatory authorities after applications are filed. Even after
approvals are obtained, further delays may be encountered before the
products become commercially available.
In the United States, manufacturers of pharmaceutical products are
subject to extensive regulation by various Federal and state governmental
entities relating to nearly every aspect of the development, manufacture
and commercialization of such products. The FDA, which is the principal
regulatory authority in the United States for such products, has the power
to seize adulterated or misbranded products and unapproved new drugs, to
require their recall from the market, to enjoin further manufacture or sale
and to publicize certain facts concerning a product. As a result of FDA
regulations, pursuant to which new pharmaceuticals are required to undergo
extensive and rigorous testing, obtaining premarket regulatory approval
requires extensive time and cash expenditures. The manufacturing of the
Company's products which are either manufactured and/or sold in the United
States, is subject to current Good Manufacturing Practices prescribed by
the FDA. The labeling of over-the-counter drugs in the United States, as
well as advertising relating to such products, are subject to the review of
the Federal Trade Commission ("FTC") pursuant to the general authority of
the FTC to monitor and prevent unfair or deceptive trade practices.
PRODUCT LIABILITY
The Company may be exposed to product liability claims by
consumers. Although the Company presently maintains product liability
insurance coverage in the amount of $10 million, there can be no assurance
that such insurance will be sufficient to cover all possible liabilities.
In the event of a successful suit against the Company, insufficiency of
insurance coverage could have a materially adverse effect on the Company.
EMPLOYEES
As of July 31, 1995, the Company had 22 employees, 5 in management,
4 in sales positions, 4 in research and development administration and 9 in
support functions. None of the Company's employees are represented by a
labor union. The Company believes that its relationship with its employees
is satisfactory.
The Company has employment agreements with certain employees, some of
whom are also stockholders of the Company. See "Executive
Compensation--Employment Agreements."
-14-
<PAGE>
PROPERTIES
As of July 31, 1995, the Company leases the following properties:
<TABLE>
<CAPTION>
ANNUAL
LOCATION USE SQUARE FEET EXPIRATION RENT
-------- --- ----------- ---------- ------
<S> <C> <C> <C> <C>
Miami, FL Corporate office 3,900 September 1998 $85,000
Paris, France Research admin office 2,000 January 1996 100,000
Paris, France Business residence 1,870 September 1995 50,000
New York, NY Residential office 1,000 April 1996 39,000
</TABLE>
LEGAL PROCEEDINGS
Various claims and complaints have been filed against the Company
with respect to various matters. In the opinion of management and counsel,
all such matters are adequately reserved for or covered by insurance or, if
not so covered, are without any or have little merit or involve such
amounts that if disposed of unfavorably would not have a material adverse
effect on the Company.
SELECTED FINANCIAL DATA
The following consolidated selected financial data of the Company
should be read in conjunction with the consolidated financial statements
and related notes thereto. See the financial statements of the Company
annexed to this Prospectus on pages F-1 to F-18.
<TABLE>
<CAPTION>
FOR THE
SIX MONTHS ENDED
JUNE 30, FOR THE YEARS ENDED DECEMBER 31,
1995 1994 1994 1993 1992 1991 1990
---- ---- ---- ---- ---- ---- ----
(amounts in thousands except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales $6,084 $3,878 $8,769 $8,150 $ 9,173 $ 10,675 $ 12,139
Net income (loss) 5,208 (5,571) (12,994) (10,453) (8,536) (14,548) (16,337)
Income (loss) per common share .21 (.25) (.58) (.49) (.51) (1.17) (1.62)
Weighted average number
of common shares outstanding 25,123 22,199 22,530 21,380 16,880 12,856 10,788
BALANCE SHEET DATA:
Working capital (deficiency) 2,284 (1,362) (3,858) $2,888 $(4,443) $ 1,542 $ (2,167)
Total assets 12,260 10,834 6,808 13,870 9,833 14,488 10,690
Long-term debt -- 7,212 6,218 5,474 58 1,692 123
Stockholders' equity (deficiency) 5,964 (4,005) (6,192) 1,475 (6,991) (720) (3,952)
</TABLE>
-15-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
In May 1995, the Company entered into an exclusive worldwide, except
for South Africa, license and supply agreement with American Home Product
Corporation (AHP) under which the Wyeth-Ayerst division of AHP will market
Crinone. Under the terms of the agreement, the Company received a $6 million
upfront payment and will receive milestone payments and a significant percentage
of sales. A $2 million milestone payment was received in June 1995, when Crinone
was approved as a drug in the U.K. As a result cash and equivalents increased
from approximately $690,000 at December 31, 1994 to approximately $6 million at
June 30, 1995.
Cash and cash equivalents decreased from approximately $5.3 million at
December 31, 1993 to approximately $690,000 at December 31, 1994, primarily
as a result of approximately $7.8 million used for operating activities and
$900,000 used to pay the remaining cost of an option the Company acquired in
December 1993 to obtain an exclusive license to the North and South American
rights to a potential AIDS treatment; offset by approximately $4.2 million
received from the exercise of options and warrants and the issuance of
Common Stock. The loss for the year ending December 31, 1994, was
approximately $13.4 million, resulting in stockholders' deficit of
approximately $4.6 million as of December 31, 1994.
During 1995, the Company repaid $6,339,409 of long-term debt and
accrued interest through the issuance of 1,695,232 shares of the Company's
Common Stock.
During the three years ended December 31, 1994, the Company incurred an
aggregate of $18 million in research and development expenditures, resulting in
net cash used in operating activities aggregating approximately $24 million. To
fund these amounts, during the three years ended December 31, 1994, the Company
raised approximately $20 million through various debt and equity financings. The
year to year fluctuations in cash provided by (used for) operations, investing
and financing activities are primarily the result of the timing of the various
financings and the resultant cash balances.
The Company is currently in discussions with several large
pharmaceutical companies regarding the licensing of some of the Company's
products. In addition, the Company is in discussions regarding potential
product development agreements with certain of these companies, in which
the cost of development would be borne by the strategic alliance partner.
The Company expects to receive both upfront payments and ongoing royalties
upon consummation of any such agreements.
There can be no assurance that the Company will be able to enter
into any such agreements or that any upfront payments or ongoing royalties
will be received or, if received, will be sufficient to meet the Company's
funding requirements. The Company's future cash flow requirements are
substantially dependent upon the receipt of such upfront payments and on
the marketing efforts of its strategic alliance partners. If such payments
are not received, the Company will seek to raise additional capital, the
success of which is not determinable. If the Company is unable to raise
sufficient additional capital, the Company will explore the alternatives
available to it at such time, including without limitation, delaying
clinical studies or otherwise reducing its operating activities or seeking
other ways to reduce its cash requirements.
In December 1993, the Company entered into an Option and License
Agreement with a French research group based in Marseille, France, pursuant
to which it was granted an option to obtain an exclusive license to the
North and South American rights to a potential AIDS treatment. The option
cost $2 million, of which $1.1 million was paid in December 1993 and the
remaining $900,000 was paid in February 1994. The potential product was
recently granted a Clinical Trials Exemption (CTX) in the United Kingdom
(UK) and clinical trials in humans are now underway.
-16-
<PAGE>
The option, which must be exercised upon the occurrence of certain
events, expires in December 1998. Upon exercise of the option, the Company
will be required to pay an additional $5 million. If the Company does not
exercise its option upon the occurrence of certain events, the Company's
rights to the option are terminated.
The FDA, in 1988, initiated a review to determine whether drugs
containing quinine sulfate for night leg cramps, an ingredient in Legatrin,
should remain on the market. The FDA issued a final monograph, which became
effective on February 22, 1995, restricting manufacturer's from selling
over-the-counter quinine sulfate based-products for the relief of night leg
cramps.
As a result, the Company recently introduced New Advanced Formula
Legatrin PM. Legatrin PM(TRADEMARK), which does not contain quinine sulfate,
provides relief of occasional pain and sleeplessness associated
with minor muscle aches such as leg cramps; however, it is not known at
this time whether consumers will find Legatrin PM as effective as Legatrin.
Sales of Legatrin and gross profit derived from sales of Legatrin approximated
$4 million and $3 million, respectively, for each of the three years ended
December 31, 1994. Sales of Legatrin represented approximately 49%, 48% and
47% of the Company's net sales in 1994, 1993 and 1992, respectively. There can
be no assurance as to what future sales of Legatrin PM will be.
In connection with the 1989 purchase of the assets of Bio-Mimetics,
Inc., which assets consisted of the patents underlying the Company's
Bioadhesive Delivery System, other patent applications and related
technology, the Company pays Bio-Mimetics, Inc. a royalty equal to two
percent of the net sales of products based on the Bioadhesive Delivery
System, to an aggregate of $7.5 million. The Company is required to prepay
a portion of the remaining royalty obligation, in cash or stock at the
option of the Company, if certain conditions are met.
As of June 30, 1995, the Company has outstanding exercisable
options and warrants that, if exercised, would result in approximately $11
million of additional capital. However, there can be no assurance that such
options or warrants will be exercised.
Material expenditures anticipated by the Company in the near future
are concentrated on production commitments related to Replens and research
and development related to new products. The Company has committed to spend
an aggregate of approximately $850,000 on additional molding capacity at
its suppliers during 1995 and 1996.
As of December 31, 1994, the Company had available net operating
loss carryforwards of approximately $40 million to offset its future U.S.
taxable income. In accordance with Statement of Financial Standards No.
109, as of December 31, 1994, other assets in the accompanying consolidated
balance sheet includes a deferred tax asset of approximately $14 million
(consisting primarily of a net operating loss carryforward) which has been
fully reserved as its ultimate realizability is not assured.
RESULTS OF OPERATIONS - YEARS ENDED DECEMBER 31, 1994 VERSUS DECEMBER
31, 1993 VERSUS DECEMBER 31, 1992
Sales and gross margin have remained relatively constant during the
last three years. While the strategic alliance agreements in the United
States and abroad have not produced desired unit sales as quickly as
planned, the Company believes it has established effective working
relationships with its partners which the Company believes form a solid
foundation to build sales of Replens and the other products in the
development pipeline. In addition, upon granting of the European multistate
license, Replens should become a reimbursable product in certain countries.
The Company believes that sales of Replens in Europe should increase once
the licenses are granted. The Company's success is dependent to a great
extent on the
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<PAGE>
marketing efforts of its strategic alliance partners, which the Company has
limited ability to influence.
In anticipation of the increased sales, during 1992 and 1993, the
Company built up its inventory of Replens applicators, the cost of which
were included in raw materials as of December 31, 1993. During 1994,
when the sales of Replens did not materialize as quickly as planned, the
Company significantly scaled back its manufacturing of Replens applicators
and in addition wrote off approximately $900,000 of outdated applicators,
thereby reducing raw material inventory as of December 31, 1994.
Selling and distribution expenses continue to decrease as a result
of the strategic alliance agreements whereby the Company's partners are
responsible for all marketing and distribution costs of Replens and
Advantage 24 in their territories. The Company has been informed that the
strategic alliance partners expect to spend in excess of $20 million during
1995 marketing Replens and Advantage 24; however, there can be no assurance
that such amounts will be spent, or if spent, will have a favorable impact
on the Company's sales.
General and administrative expenses have also decreased
significantly as a result of cost control programs implemented by the
Company.
Research and development expenditures have increased as a result of
costs associated with performing clinical studies on the Company's current
and future products.
Lease termination cost represents expenses incurred in relocating
the Company's corporate headquarters to a smaller premise and in closing
the Company's laboratory facility in Madison, Wisconsin. Of the total, $1.2
million was paid through the issuance of 239,238 shares of the Company's Common
Stock.
The increase in interest expense is primarily the result of the
interest on the 1993 Notes and the Warrants.
In August 1990, Columbia sold a 25% equity interest in Columbia UK,
to a group of European Investors for a purchase price of (pound)1.8
million. In connection therewith, the Company committed to provide the
European Investors a compound annual internal rate of return of 50% on
their investment. In January 1993, the Company repurchased the European
Investors interest in Columbia UK through the payment of $2.5 million in
cash and the issuance of 867,579 shares of the Company's Common Stock. As a
result of this transaction, the Company has no further obligations to the
European Investors.
During 1993 the Company entered into an Option and License Agreement
pursuant to which it was granted an option to obtain an exclusive license to the
North and South American rights to a potential AIDS treatment. In accordance
with SFAS No. 2, the $2 million option cost has been expensed when acquired in
1993.
As a result, the net loss for 1994 was $12,993,889 or $.58 per
share as compared to net losses in 1993 of $10,452,983 or $.49 per common
share and $8,535,936 or $.51 per share in 1992.
RESULTS OF OPERATIONS - SIX MONTHS ENDED JUNE 30, 1995 VERSUS SIX
MONTHS ENDED JUNE 30, 1994
Sales have increased in 1995 as compared to 1994 primarily as a result
of Advantage 24(TRADEMARK) now being available on drug store shelves
throughout the U.S., renewed sales activity from the Company's OTC segment,
including the introduction of Legatrin PM, as well as revenue from a
research agreement which began in late 1994. While the strategic alliance
agreements in the United States and abroad have not produced desired unit
sales as quickly as planned, the Company believes it has established
effective working relationships with its partners which the Company
believes form a solid foundation to build sales of Replens and the other
products in the development pipeline. In addition, upon granting of the
European multistate license, Replens should become a reimbursable product
in certain countries. The Company believes that sales of Replens in Europe
should increase significantly once the licenses are granted. The Company's
success to a great extent is dependent on the marketing efforts of its
strategic alliance partners, over which
-18-
<PAGE>
the Company has limited ability to influence.
Selling and distribution expenses increased as a result of costs
associated with the introduction of Legatrin PM.
Research and development expenditures have decreased as a result of
the completion of a majority of the clinical studies related to Crinone and
Advantage 24.
License fees, net includes $8 million received as upfront and milestone
payments in connection with the licensing agreement with AHP.
The decrease in interest expense is primarily the result of
repayment of a portion of the 1993 Notes.
As a result, the net income for 1995 was $5,208,095 or $.21 per share
as compared to a net loss in 1994 of $(5,570,960) or $(.25) per common share.
IMPACT OF INFLATION
Sales revenues, manufacturing costs, selling and distribution
expenses, general and administrative expenses and research and development
costs tend to reflect the general inflationary trends.
-19-
<PAGE>
PRICE RANGE OF COMMON STOCK
The Company's Common Stock trades on the American Stock Exchange
("AMEX") under the symbol COB. The following table sets forth the high and
low sales prices of the Common Stock on the American Stock Exchange, as
reported on the Composite Tape.
<TABLE>
<CAPTION>
HIGH LOW
---- ---
<S> <C> <C>
FISCAL YEAR ENDED DECEMBER 31, 1993
First Quarter $6.00 $4.25
Second Quarter 5.88 4.50
Third Quarter 5.88 3.56
Fourth Quarter 6.88 4.88
FISCAL YEAR ENDED DECEMBER 31, 1994
First Quarter $6.75 $4.25
Second Quarter 6.00 4.25
Third Quarter 4.94 4.00
Fourth Quarter 5.38 4.00
FISCAL YEAR ENDED DECEMBER 31, 1995
First Quarter $5.63 $4.06
Second Quarter 8.50 4.00
Third Quarter (through August 28, 1995) 9.19 6.63
</TABLE>
At July 31, 1995, there were 670 shareholders of record of the
Company's Common Stock, although the Company estimates that there are
approximately 7,000 beneficial owners, 6 shareholders of record of the
Company's Series A Convertible Preferred Stock ("Series A Preferred Stock")
and 4 shareholders of record of the Company's Series B Convertible
Preferred Stock ("Series B Preferred Stock").
DIVIDEND POLICY
The Series A Preferred Stock pays cumulative dividends at a rate of
8% per annum payable quarterly. As of June 30, 1995, dividends of $92,563
have been earned but have not been declared and are included in other
long-term liabilities in the accompanying consolidated balance sheet. Upon
conversion of any shares of Series A Preferred Stock, the Company is
obligated to issue additional shares of Common Stock having a market value
equal to accrued but unpaid dividends on the Series A Preferred Stock at
the time of conversion.
The Company has never paid a cash dividend on its Common Stock and
does not anticipate the payment of cash dividends in the foreseeable
future. The Company intends to retain any earnings for use in the
development and expansion of its business.
Applicable provisions of the Delaware General Corporation Law may
affect the ability of the Company to declare and pay dividends on its
Common Stock as well as on its Preferred Stock. In particular, pursuant to
the Delaware General Corporation Law, a company may pay dividends out of
its surplus, as defined, or out of its net profits, for the fiscal year in
which the dividend is declared and/or the preceding year. Surplus is
defined in the Delaware General Corporation Law to be the excess of net
assets of the company over capital. Capital is defined to be the aggregate
par value of shares issued.
-20-
<PAGE>
MANAGEMENT
The executive officers and directors of the Company as of July 31,
1995 are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
William J. Bologna 53 Chairman of the Board
Nicholas A. Buoniconti 54 Vice Chairman of the Board and Chief
Operating Officer
Norman M. Meier 56 President, Chief Executive Officer and
Director
Margaret J. Roell 35 Vice President--Finance and
Administration, Chief Financial Officer,
Secretary and Treasurer
Irwin L. Kellner 56 Director
John E. A. Kidd 50 Director
Lila E. Nachtigall, M.D. 61 Director
</TABLE>
WILLIAM J. BOLOGNA has been a director of the Company since
inception and was elected Chairman of the Company's Board of Directors in
January 1992. From December 1988 to January 1992, Mr. Bologna served as
Vice Chairman of the Company's Board of Directors. In addition, since 1980,
he has been Chairman of Bologna & Hackett ("B&H"), an advertising agency
specializing in pharmaceutical products which has in the past performed
services for various international pharmaceutical companies. B&H ceased
operations in May 1991 and has remained inactive since that date; however,
B&H has not yet been dissolved. Prior to 1980, Mr. Bologna was employed by
William Douglas McAdams, Inc., a company engaged in the marketing of
pharmaceuticals, in a variety of positions, including Senior Vice
President. In 1965, Mr. Bologna received his B.S. in Pharmacy from Fordham
University. He received an MBA in Finance from Columbia University in 1971.
NICHOLAS A. BUONICONTI has been a director of the Company since
June 1991 and was elected Vice Chairman and Chief Operating Officer of the
Company in April 1992. Mr. Buoniconti, an attorney, is a member of the
Massachusetts and Florida Bar. From January 1990 to April 1992, he was a
member of the law firm of Nicholas A. Buoniconti, P.A. He held the position
of President and Chief Operating Officer of UST, a Fortune 500 company,
from May 1987 to December 1989. From 1985 to 1987, Mr. Buoniconti served as
President and Chief Operating Officer of U.S. Tobacco (which changed its
name to UST), as well as serving on the Board of Directors from 1978 to
1989. He has served as a member of the Board of Directors of the Miami
Project to Cure Paralysis, and is heavily involved in the fund-raising
efforts for the Project through the Marc Buoniconti Fund, named for his
son. Mr. Buoniconti is a former All-Pro linebacker for the Miami Dolphins.
Since 1978, he has co-hosted "Inside the NFL" on the Home Box Office cable
network. Mr. Buoniconti is also a director of American Bankers Insurance
Co. and Simmons Outdoor Corporation.
-21-
<PAGE>
NORMAN M. MEIER has been President, Chief Executive Officer and a
director of the Company since inception. In addition, since 1980, Mr. Meier
has been an officer and director of B&H. B&H ceased operations in May 1991
and has remained inactive since that date; however, B&H has not yet been
dissolved. From 1971 to 1977, Mr. Meier was Vice President of Sales and
Marketing for Key Pharmaceuticals, Inc., a company which had been engaged
in the marketing and sales of pharmaceuticals until its sale to
Schering-Plough Corporation in June 1986. From 1977 until June 1986, Mr.
Meier served as a consultant to Key Pharmaceuticals, Inc. In 1960, Mr.
Meier received his B.S. in Pharmacy from Columbia University. He received
his M.S. in Pharmacy Administration from Long Island University in 1964.
Mr. Meier is also a director of Universal Heights, Inc.
MARGARET J. ROELL has been Vice President--Finance and Administration,
Chief Financial Officer, Treasurer and Secretary of the Company since June
1991. Ms. Roell was employed by Arthur Andersen & Co., independent public
accountants, from 1981 to 1991 and was an audit manager with Arthur
Andersen & Co. from 1986 to 1991.
IRWIN L. KELLNER has been a director of the Company since May 1988.
Dr. Kellner is the chief economist of Chemical Banking, formed by the
merger of Chemical Bank with Manufacturers Hanover Trust Company ("MHT").
Dr. Kellner has been employed by MHT since 1970. From 1980 to 1991, Dr.
Kellner was the Chief Economist of MHT. Dr. Kellner, a past president of
the Forecasters Club of New York and the New York Association of Business
Economists, holds membership, and has held a variety of posts, in several
professional associations, including the American Economic Association,
American Statistical Association and the National Association of Business
Economists. Dr. Kellner is also a governor of the Money Marketeers. His
other board memberships include the Juvenile Diabetes Foundation, the
Children's AIDS Network, North Shore University Hospital, the Don Monti
Memorial Research Foundation and Touro College's Barry Z. Levine School of
Health Sciences.
JOHN E. A. KIDD has been a director of the Company since April 1988
and served as Chairman of the Board of Directors of the Company from
December 1988 to December 1991. From July 1988 to 1990, Mr. Kidd was a
director of Care Plus, Inc., a publicly owned health care company traded
over-the-counter. For approximately the past five years, Mr. Kidd has been
an Executive Director of a number of public companies located in the United
Kingdom, in which an investment company controlled by his family had been a
major investor.
LILA E. NACHTIGALL, M.D. has been a director of the Company since
November 1992. Dr. Nachtigall has been employed by the New York University
School of Medicine since 1961. Dr. Nachtigall is currently a Professor of
Obstetrics and Gynecology. In addition, Dr. Nachtigall is the Clinic
Coordinator of GYN-Endocrine Clinic at Bellevue Hospital and Co-director of
the GYN-Endocrine Program and Director of Women's Wellness Division at New
York University Medical Center.
All directors hold office until the next annual meeting of
stockholders and the election and qualification of their successors.
Directors receive no compensation for serving on the Board, except for the
receipt of stock options and the reimbursement of reasonable expenses
incurred in attending meetings. Officers are elected annually by the Board
of Directors and serve at the discretion of the Board. The Board of
Directors has two standing committees, the Audit Committee and the
Compensation/Stock Option Committee.
-22-
<PAGE>
EXECUTIVE COMPENSATION
The tables and descriptive information set forth below are intended
to comply with the Securities and Exchange Commission compensation
disclosure requirements. This information is being furnished with respect
to the Company's Chief Executive Officer ("CEO") and its three other
executive officers, other than the CEO, whose salary and bonus exceeded
$100,000 for the most recent fiscal year (collectively, the "Executive
Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION
------------------- ----------------------
SECURITIES
UNDERLYING
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS (1) OPTIONS (3)
- --------------------------- ---- ------ --------- -----------
<S> <C> <C> <C> <C>
Norman M. Meier 1994 $ 180,000 $ - 470,000
President and Chief 1993 180,000 - 200,000
Executive Officer 1992 180,000 45,100 -
William J. Bologna 1994 180,000 - 470,000
Chairman of the Board 1993 180,000 - 200,000
1992 180,000 45,100 -
Nicholas A. Buoniconti 1994 135,000 - 910,000
Vice Chairman and 1993 135,000 - 200,000
Chief Operating Officer 1992 95,625(2) - 675,000
Margaret J. Roell 1994 120,000 - -
Vice President - 1993 120,000 - 20,000
Finance & Administration 1992 120,000 - 50,000
Chief Financial Officer
<FN>
(1) These amounts are accrued as of year end and paid during the following
year.
(2) Mr. Buoniconti was hired as of April 15, 1992.
(3) The options granted in 1993 and 1992 to Messrs. Meier, Bologna and
Buoniconti, were cancelled in 1994. See Ten Year Option Repricings Chart on
the following page.
</FN>
</TABLE>
OPTION GRANTS DURING 1994
<TABLE>
<CAPTION>
NUMBER OF % OF TOTAL
SECURITIES OPTIONS GRANT
UNDERLYING GRANTED TO EXERCISE DATE
OPTIONS EMPLOYEES PRICE EXPIRATION PRESENT
NAME GRANTED (1) IN 1994 ($/SH) DATE VALUE (2)
- ---- ----------- ---------- -------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Norman M. Meier 470,000 24% $4.375 9/28/2004 $1,640,300
William J. Bologna 470,000 24% 4.375 9/28/2004 1,640,300
Nicholas A. Buoniconti 910,000 47% 4.375 9/28/2004 3,175,900
Margaret J. Roell - - - - -
<FN>
(1) These options were granted in connection with Messrs. Meier, Bologna and
Buoniconti each investing $200,000 into the Company. In connection
therewith, options to purchase 450,000, 450,000 and 910,000 shares of
Common Stock previously granted to Messrs. Meier, Bologna and Buoniconti,
respectively, were cancelled.
(2) The estimated grant date present value reflected in the above table is
determined using the Black-Scholes model. The material assumptions and
adjustments incorporated in the Black-Scholes model in estimating the
value of the options reflected in the above table include the following:
(i) an exercise price of $4.375, equal to the fair market value of the
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<PAGE>
underlying stock on the date of grant, (ii) an option term of ten years,
(iii) an interest rate of 7.46% that represents the interest rate on a
U.S. Treasury security with a maturity date corresponding to that of the
option term, (iv) volatility of 65.104% calculated using daily stock
prices for the one-year period prior to the grant date and (v) no
annualized dividends paid with respect to a share of Common Stock at the
date of grant. The ultimate values of the options will depend on the
future price of the Company's Common Stock, which cannot be forecast with
reasonable accuracy. The actual value, if any, an optionee will realize
upon exercise of an option will depend on the excess of the market value
of the Company's Common Stock over the exercise price on the date the
option is exercised.
</FN>
</TABLE>
AGGREGATED OPTION EXERCISES DURING 1994 AND FISCAL YEAR END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT
SHARES ACQUIRED VALUE DECEMBER 31, 1994 DECEMBER 31, 1994
NAME ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Norman M. Meier - $ - - 470,000 $ - 256,250
William J. Bologna - - - 470,000 - 256,250
Nicholas A. Buoniconti - - - 910,000 - 568,750
Margaret J. Roell - - 75,000 45,000 3,125 3,125
</TABLE>
TEN YEAR OPTION REPRICINGS
<TABLE>
<CAPTION>
NUMBER OF LENGTH OF
SECURITIES MARKET PRICE EXERCISE ORIGINAL
UNDERLYING OF STOCK AT PRICE AT OPTION TERM
OPTIONS TIME OF TIME OF REMAINING AT
REPRICED OR REPRICING OR REPRICING OR NEW DATE OF
AMENDED AMENDMENT AMENDMENT EXERCISE REPRICING OR
NAME DATE (#) ($) ($) PRICE ($) AMENDMENT
- ---- -------- ----------- --------------- ------------ --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Norman M. Meier 9/28/94 100,000 $4.375 $4.50 $4.375 6.5 years
9/28/94 200,000 4.375 5.50 4.375 9 years
9/28/94 120,000 4.375 13.25 4.375 3 months
9/28/94 29,244 4.375 14.58 4.375 3 months
William J. Bologna 9/28/94 100,000 4.375 4.50 4.375 6.5 years
9/28/94 200,000 4.375 5.50 4.375 9 years
9/28/94 120,000 4.375 13.25 4.375 3 months
9/28/94 29,244 4.375 14.58 4.375 3 months
Nicholas A. Buoniconti 9/28/94 400,000 4.375 4.875 4.375 7.5 years
9/28/94 200,000 4.375 5.500 4.375 9 years
9/28/94 25,000 4.375 5.750 4.375 7 years
9/28/94 10,000 4.375 8.000 4.375 7 years
9/28/94 250,000 4.375 8.000 4.375 7.5 years
9/28/94 25,000 4.375 9.000 4.375 7 years
</TABLE>
EMPLOYMENT AGREEMENTS
In January 1990, the Company entered into five-year employment
agreements with each of John E.A. Kidd, William J. Bologna and Norman M.
Meier, to serve as Chairman, Vice-Chairman and President of the Company,
respectively. Pursuant to their respective employment agreements, each such
employee is entitled to a base salary of $180,000 per year and a bonus
equal to one-half of 1% of the Company's net revenues. Net revenues are
defined to be gross sales less discounts, allowances and returns. In
addition, each such employee was granted options to purchase 150,000 shares
of the Company's Common Stock at an exercise
-24-
<PAGE>
price of $13.25 with respect to Mr. Kidd and $14.58 with respect to each of
Messrs. Meier and Bologna. Pursuant to the terms of such agreements, each
employee has agreed to dedicate his services on a substantially full-time
basis and has agreed for the term of his agreement and for two years thereafter
not to compete with the Company. As of December 31, 1991, contemporaneously
with his resignation as Chairman of the Board, Mr. Kidd's contract was amended
such that he will receive a salary of $1,000 per year for performing certain
investor relations tasks for the Company. In June 1993, Messrs. Bologna and
Meier 's employment agreements were amended such that effective January 1,
1993, the provisions pursuant to which they would have received an
aggregate bonus equal to one percent of sales in 1993 and 1994 were
canceled. If the Company would have had pre-tax earnings during 1994,
Messrs. Bologna and Meier would have been eligible to participate in the
incentive compensation plan approved by the shareholders at the 1993 annual
meeting of the Company. During 1994, in connection with Messrs. Meier and
Bologna each investing $200,000 into the Company, these options were
canceled and new options were granted. New employment agreements have not
been entered into; however, Messrs. Meier and Bologna have continued to
provide the same services to the Company and therefore have been receiving
the same compensation and benefits as provided for in the original
employment agreements.
In April 1992, the Company entered into a five-year employment
agreement with Nicholas A. Buoniconti, to serve as Vice Chairman and Chief
Operating Officer of the Company. Pursuant to this agreement, Mr.
Buoniconti is paid an annual salary of $135,000. As additional
compensation, Mr. Buoniconti was granted options to purchase 250,000 and
400,000 shares of the Company's Common Stock at exercise prices of $8.00
and $4.88 per share, respectively, which options vest over five years.
Pursuant to the terms of such agreement, Mr. Buoniconti agreed to dedicate
his services on a substantially full-time basis and has agreed for the term
of his agreement and for two years thereafter not to compete with the
Company. During 1994, in connection with Mr. Buoniconti investing $200,000
into the Company, these options were canceled and new options were granted.
In June 1991, the Company entered into a two-year employment
agreement with Margaret J. Roell, its Vice-President -- Finance and
Administration, Chief Financial Officer, Secretary and Treasurer, with
provision for extension of the agreement for an additional two years.
Pursuant to this agreement, Ms. Roell is paid an annual salary of $120,000.
As additional compensation, Ms. Roell was granted options to purchase
50,000 shares of the Company's Common Stock at an exercise price of $5.75.
One half of such options became exercisable in June 1992 with the remainder
exercisable beginning in June 1993. In June 1993, Ms. Roell's contract was
renewed under the same terms for an additional two years. A new employment
agreement has not been entered into; however, Ms. Roell has continued to
provide the same services to the Company and therefore has been receiving
the same compensation and benefits as provided for in the original
employment agreement.
The exercise price of all of the options granted pursuant to the
aforementioned employment agreements are based on the closing price of the
Company's Common Stock on the American Stock Exchange on the day prior to
grant.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
As of July 31, 1995, directors and named executive officers,
individually and as a group, beneficially owned Common Stock as follows:
NAME OF SHARES, NATURE OF INTEREST
BENEFICIAL OWNER AND PERCENTAGE OF EQUITY SECURITIES(1)
---------------- --------------------------------------
Norman M. Meier (3) 1,295,800 5.0%
William J. Bologna (2)(3) 2,408,632 9.2%
-25-
<PAGE>
Nicholas A. Buoniconti (3) 990,000 3.7%
Irwin L. Kellner (3) 121,500 *
John E. A. Kidd (3) 165,936 *
Lila E. Nachtigall (3) 57,000 *
Margaret J. Roell (3) 100,200 *
Officers and directors as a group
(7 people) 5,139,068 18.4%
* Represents less than 1 percent.
(1) Includes shares issuable upon exercise of both
options and warrants which are currently exercisable or
which may be acquired within 60 days and shares issuable
upon conversion of the Series A and Series B Preferred Stock
(12.36 for the Series A Preferred Stock and 20.57 for the
Series B Preferred Stock).
(2) Includes 20,570 shares issuable upon conversion
of 1,000 shares of Series B Preferred Stock. Includes 98,062
shares beneficially owned by Mr. Bologna's spouse.
(3) Includes shares issuable upon exercise of options, which are
currently exercisable or which may be acquired within 60 days,
to purchase 470,000 shares with respect to Mr. Meier, 470,000
shares with respect to Mr. Bologna, 910,000 shares with respect
to Mr. Buoniconti, 82,000 shares with respect to Dr. Kellner, 115,936
shares with respect to Mr. Kidd, 57,000 shares with respect to
Dr. Nachtigall and 100,000 shares with respect to Ms. Roell.
As of July 31, 1995, the following table sets forth information
regarding the number and percentage of Common Stock held by all persons who
are known by the Company to beneficially own or exercise voting or
dispositive control over 5% or more of the Company's outstanding Common
Stock:
NUMBER OF SHARES
NAME AND ADDRESS BENEFICIALLY OWNED PERCENT OF CLASS
---------------- ------------------ ----------------
Dominion Capital, Inc./
Dominion Resources, Inc. (1)
901 East Byrd Street, 17th Floor
Richmond, VA 23219 1,292,123 5.1%
(1) Based on information included on Schedule 13D dated January 10,
1995. Includes warrants to purchase 150,000 shares of the Company's
Common Stock.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During 1993, the Company loaned Messrs. Meier and Bologna, $80,000
and $110,350, respectively. The notes, which bear interest at 10% per annum
and are unsecured but with full recourse, are due on or before December 7,
1996.
During 1994, Messrs. Meier, Bologna and Buoniconti, each invested
$200,000 into the Company, through the purchase of 50,000, 38,663 and
50,000 shares, respectively.
-26-
<PAGE>
PLAN OF DISTRIBUTION
The Shares owned by the Selling Securityholders may be sold from time to
time by the Selling Securityholders, or by pledges, donees, transferees or other
successors in interest. Such sales may be made on the American Stock Exchange or
otherwise at prices and at terms then prevailing or at prices related to the
then current market prices, or in privately negotiated transactions. The Shares
may be sold publicly by one or more of the following: (i) ordinary brokerage
transactions and transactions in which the broker solicits purchasers; (ii)
purchases by a broker or dealer as principal and resale by such broker or dealer
for its account pursuant to this Prospectus; and (iii) a block trade in which
the broker or dealer so engaged will attempt to sell the shares as agent but may
position and resell a portion of the block as principal to facilitate the
transaction. In effecting sales, brokers or dealers engaged by the Selling
Securityholders may arrange for other brokers or dealers to participate. Brokers
or dealers will receive commissions or discounts from the Selling
Securityholders in amounts to be negotiated immediately prior to the sale. Such
brokers or dealers and any other participating brokers or dealers may be deemed
to be "underwriters" within the meaning of the Securities Act in connection with
such sales. The sale of a substantial number of the Shares by the Selling
Securityholders may have an adverse effect on the market price of the Company's
Common Stock.
The Company will pay certain expenses incident to the offering and sale of
the Shares. The Company will not pay for, among other expenses, commissions and
discounts of underwriters, dealers or agents or the fees and expenses of counsel
for the Selling Securityholders. The Company has agreed to indemnify the Selling
Securityholders against certain liabilities, including liabilities under the
Securities Act.
SELLING SECURITYHOLDERS
The Selling Securityholders are the holders of the Shares.
In April 1992, the Company filed an action against Bank Piquet ("Piquet"),
and certain other defendants (all of whom except Piquet have defaulted), for a
declaratory judgement ("Action"), in the United States District Court for the
Southern District of Florida ("Court"), relating to the ownership and rights to
exercise certain warrants to purchase shares of the Company's Common Stock
("Warrants"). The Action was commenced by the Company when it determined that
Piquet, the purported holder of the Warrants, was not the registered owner in
accordance with the procedures for transfer set forth in the warrant agreement,
and Piquet's ownership claims were from an entity different from the entity to
whom the Warrants were issued. Thereafter, Piquet filed a counterclaim claiming
$600,000 in damages as a result of the Company's denying Piquet the right to
exercise the Warrants. The Company filed the Action in order to avoid being
exposed to duplicate claims to the right to exercise the Warrants, and the
attendant liability thereto. This Action was settled as of May 13, 1995. In
connection therewith, the Company issued Piguet a warrant to purchase 300,000
shares of Common Stock at $5.31 per share, exercisable through May 13, 1998. The
terms of the settlement were approved by the Company's Board of Directors.
The Common Stock was issued to Sherman & Fischman and Slatt & Lane as of
the effective date of this prospectus in payment of legal services aggregating
$210,000 and $105,000, respectively, provided to the Company. The number of
shares of Common Stock issued to Sherman & Fischman and Slatt & Lane was based
on the market price of the Company's Common Stock on the date the issuance of
the Common Stock was approved by the Company's Board of Directors.
The following table sets forth as of the commencement of the offering,
based on information provided to the Company by the Selling Securityholders, the
shares of Common Stock being offered by each of the Selling Securityholders. The
percentage of voting securities to be owned after the offering assumes the sale
of the securities registered hereby, and takes into consideration the voting
rights of the Common Stock and Series A and B Preferred Stock as of July 31,
1995.
<TABLE>
<CAPTION>
NUMBER OF SHARES OF PERCENTAGE OF VOTING
NAME OF SELLING COMMON STOCK SECURITIES OWNED
SECURITYHOLDERS INCLUDED IN THE OFFERING AFTER OFFERING
- --------------- ------------------------ --------------------
<S> <C> <C>
Bank Piguet et Cie, SA 300,000 *
Sherman & Fischman 30,000 *
Slatt & Lane 15,000 *
-------
Total 345,000
=======
<FN>
* Less than 1 percent
</FN>
</TABLE>
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<PAGE>
DESCRIPTION OF SECURITIES
GENERAL
The Company is authorized to issue 40,000,000 shares of common
stock, par value $.01 per share, ("Common Stock") and 1,000,000 shares of
preferred stock, par value $.01 per share, of which 151,000 shares have
been designated Series A Preferred Stock and 150,000 shares have been
designated Series B Preferred Stock. As of July 31, 1995, 25,679,354 shares
of Common Stock, 1,365 shares of Series A Preferred Stock and 1,750 shares
of Series B Preferred Stock were outstanding, and there were 670, 6 and 4
holders of record of Common Stock, Series A and Series B Preferred Stock,
respectively. The Company has been informed that there are approximately
7,000 beneficial owners of its Common Stock.
COMMON STOCK
With the exception of certain circumstances, holders of the Series
A and Series B Preferred Stock and Common Stock vote together as a single
class on all matters upon which stockholders are entitled to vote. The
holders of Common Stock are entitled to one vote for each share of such
stock held of record by them and may not accumulate votes. This means that
the holders of more than 50% of the shares voting for the election of
directors can elect all of the directors if they choose to do so; and, in
such event, the holders of the remaining shares will not be able to elect
any person to the Board of Directors. The holders of Common Stock are
entitled to receive dividends when, as and if declared by the Board of
Directors out of funds legally available therefor, subject to prior rights
of preferred stockholders, and in the event of liquidation, dissolution or
winding up of the Company, to share ratably in all assets remaining after
payment of liabilities and after payment of any preferential amounts to
which holders of preferred stock are entitled. Holders of shares of Common
Stock, as such, have no conversion, preemptive or other subscription
rights, and there are no redemption or sinking fund provisions applicable
to the Common Stock.
DIVIDENDS
The Company has never paid a cash dividend on its Common Stock and
does not anticipate the payment of cash dividends in the foreseeable
future. The Company intends to retain any earnings for use in the
development and expansion of its business.
FUTURE SALES OF COMMON STOCK
Approximately 4,175,404 shares of Common Stock outstanding are
"restricted securities" as that term is defined in Rule 144 under the
Securities Act and may be sold only in compliance with such Rule, pursuant
to registration under the Act or pursuant to exemption therefrom.
Generally, under Rule 144, each person holding restricted securities for a
period of two years may, every three months after such two-year holding
period, sell in ordinary brokerage transactions or to market makers an
amount of shares equal to the greater of one percent of the Company's then
outstanding Common Stock or the average weekly trading volume during the
four weeks prior to the proposed sale. This limitation on the amount of
shares which may be sold under the Rule does not apply to restricted
securities sold for the account of a person who is not and has not been an
affiliate of the Company during the three months prior to the proposed sale
and who has beneficially owned the securities for at least three years. In
addition, the shares of Common Stock underlying the shares of Series A and
Series B Preferred Stock have been registered under the Securities Act and,
accordingly, when issued, will not be restricted securities. Sales of
substantial amounts of Common Stock in the public market under Rule 144,
pursuant to registration statements, or otherwise, could adversely affect
prevailing market prices of the Common Stock.
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<PAGE>
WARRANTS
The statements under this caption are summaries that do not purport
to be complete. They are qualified by reference to the Warrant Instruments,
which have been filed with the Securities and Exchange Commission.
As of July 31, 1995, the Company had warrants outstanding for the
purchase of up to 1,015,381 shares of Common Stock at prices ranging from
$4.00 to $8.875 per share. These warrants are exercisable through 1999. The
exercise price of the warrants and the number of shares of Common Stock
issuable upon the exercise of the warrants are subject to adjustment in
certain circumstances. Warrants may be exercised at any time during their
exercise periods by surrendering to the Company the certificate evidencing
such warrants, with the form to exercise all or a portion of such Warrants
duly filled in and signed, together with payment of the exercise price.
PREFERRED STOCK
The Board of Directors is authorized to issue shares of preferred
stock and, subject to the limitations contained in the Certificate of
Incorporation and any limitations prescribed by law, to establish and
designate series and to fix the number of shares and the relative rights,
conversion rights, voting rights, terms of redemption and liquidation
preferences. If shares of preferred stock with voting rights are issued,
such issuance could affect the voting rights of the holders of the
Company's Common Stock by increasing the number of outstanding shares
having voting rights. In addition, if the Board of Directors authorizes the
issuance of shares of preferred stock with conversion rights, the number of
shares of Common Stock outstanding could potentially be increased up to the
authorized amount. The issuance of preferred stock, could, under certain
circumstances, have the effect of delaying or preventing a change in
control of the Company and may adversely affect the rights of holders of
Common Stock. Also, preferred stock could have preferences with respect to
dividend and liquidation rights.
The Company issued 151,000 shares of Series A Preferred Stock in
connection with its private placement completed in November 1989 and
150,000 shares of Series B Preferred Stock in connection with its private
placement completed in August 1991. The following description of the
rights, preferences and privileges of the Series A and Series B Preferred
Stock does not purport to be complete and is subject to and qualified in
its entirety by reference to the Certificates of Designation to the
Company's Certificate of Incorporation, which sets forth the terms and
provisions of the Series A and Series B Preferred Stock, copies of which
have been previously filed with the Securities and Exchange Commission.
DIVIDENDS
The Series A Preferred Stock pays cumulative dividends at a rate of
8% per annum payable quarterly. As of June 30, 1995, dividends of $92,563
have been earned but have not been declared and are included in other
long-term liabilities in the accompanying consolidated balance sheet. Upon
conversion of any shares of Series A Preferred Stock, the Company is
obligated to issue additional shares of Common Stock having a market value
equal to accrued but unpaid dividends on the Series A Preferred Stock at
the time of conversion. The issuance of any such shares of Common Stock is
subject to applicable provisions of the Delaware General Corporation Law.
The Company does not presently intend to declare dividends with
respect to the Series B Preferred Stock. In the event the Board of
Directors elects to declare any cash dividends on the Common Stock, the
Board must also declare a cash dividend on the Series B Preferred Stock in
an amount equal to the common equivalent per share dividend declared on the
Common Stock. Dividends will be cumulative from the payment date of any
such declaration, whether or not there are funds of the Company legally
available
-29-
<PAGE>
for the payment of such dividends. Accumulations of dividends on shares of
Series B Preferred Stock shall not bear interest. See "Dividend Policy."
CONVERSION RIGHTS
Holders of Series A and Series B Preferred Stock are entitled to
convert their shares of Preferred Stock into shares of Common Stock at any
time. As of July 31, 1995, each share of Series A Preferred Stock is
convertible into 12.36 shares of Common Stock and each share of Series B
Preferred Stock is convertible into 20.57 shares of Common Stock.
The Conversion Rates are subject to adjustment in certain
circumstances. If the Company declares a dividend on its Common Stock
payable in Common Stock or payable in securities convertible into Common
Stock, or if the Company subdivides, combines, or reclassifies its
outstanding shares of Common Stock, then the Conversion Rates will be
adjusted such that each holder of Series A or Series B Preferred Stock will
be entitled to receive on conversion of his shares that number of shares of
Common Stock he would have held after the dividend, subdivision,
combination, or reclassification if he had converted his shares of Series A
and Series B Preferred Stock immediately prior to the record date or
effective date thereof, and, in the case of a dividend payable in
securities convertible into Common Stock, after he had converted all such
securities into Common Stock.
The Series B Preferred Stock will be automatically converted into
Common Stock upon the first to occur of the following events: (i) the
completion of at least a $10 million public offering with an offering price
of at least $10 per share or (ii) the date on which the closing price of
the Common Stock on a national exchange is at least $10.00 per share for a
minimum of 20 consecutive trading days where the average daily volume
during such period is at least 30,000 shares.
REDEMPTION RIGHT
The Company has the right to redeem all or part of the shares of
Series A Preferred Stock at redemption prices ranging from $103.20 per
share of Series A Preferred Stock in 1995 to $100 in 1999, plus accrued and
unpaid dividends, if any.
VOTING RIGHTS
Holders of Series A and Series B Preferred Stock are each entitled
to one vote for each share of Common Stock into which the shares of Series
A and Series B Preferred Stock are convertible. With the exception of
certain circumstances, holders of Series A and Series B Preferred Stock and
Common Stock vote together as a single class on all matters upon which
stockholders are entitled to vote. Holders of Series A Preferred Stock also
have the right, voting as a separate class, to approve any creation of a
series of stock senior to the Series A Preferred Stock as to dividends or
liquidation. In the event the Company fails to pay dividends that have been
declared on the Series A Preferred Stock for four consecutive quarters, the
holders of Series A Preferred Stock, voting as a separate class, have the
right to elect one member of the Board of Directors. Holders of Series B
Preferred Stock have the right, voting as a separate class, to approve the
creation of any series of stock senior to the Series B Preferred Stock as
to liquidation.
LIQUIDATION RIGHTS
In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the Company, holders of Series A and Series B
Preferred Stock will be entitled to receive out of assets of the Company
available for distribution to its stockholders, before any distribution is
made to holders of its Common Stock, liquidating distributions in an amount
equal to $100 per share. In addition, holders of Series A Preferred Stock
will be entitled to receive all accrued but unpaid dividends. After payment
of the full amount of the
-30-
<PAGE>
liquidating distributions to the holders of the Series A
and Series B Preferred Stock, holders of the Company's Common Stock will
be entitled to any further distribution of the Company's assets. If the
assets of the Company are insufficient to pay the full amounts of the
liquidating distributions on the Series A and Series B Preferred Stock,
then all available assets of the Company will be distributed ratably to the
holders of the Series A and Series B Preferred Stock.
TRANSFER AGENT
The transfer agent for the Company's Common Stock and Series A and
Series B Preferred Stock is First Union National Bank, 230 S. Tryon Street,
Charlotte, NC 28288-1154.
REPORTS TO STOCKHOLDERS
The Company furnishes its stockholders with annual reports
containing audited financial statements and other periodic reports as the
Company determines to be appropriate or as may be required by law.
INDEMNIFICATION OF OFFICERS AND DIRECTORS
Delaware law provides, in general, that a corporation shall have
power to indemnify any person who was or is a party or is threatened to be
made a party to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative (other
than an action by or in the right of the corporation), by reason of the
fact that he is or was a director or officer of the corporation. Such
indemnity may be against expenses (including attorney's fees), judgments,
fines and amounts paid in settlement actually and reasonably incurred in
connection with such action, suit or proceeding, if the indemnified party
acted in good faith and in a manner reasonably believed to be in or not
opposed to the best interests of the corporation with respect to any
criminal action or proceeding and the indemnified party did not have
reasonable cause to believe his conduct was unlawful.
Delaware law also provides, in general, that a corporation shall
have power to indemnify any person who was or is a party or is threatened
to be made a party to any threatened, pending or completed action or suit
by or in the right of the corporation to procure a judgment in its favor by
reason of the fact that he is or was a director or officer of the
corporation, against any expenses (including attorney's fees) actually and
reasonably incurred by him in connection with the defense or settlement of
such action or suit if he acted in good faith and in a manner he reasonably
believed to be in or not opposed to the best interest of the corporation.
Additionally, Delaware law provides, in general, that a corporation
shall have the power to purchase and maintain insurance on behalf of any
person who is or was a director or officer of the corporation against any
liability asserted against him or incurred by him in any such capacity, or
arising out of his status as such, whether or not the corporation would
have the power to indemnify him against such liability under the provisions
of the law.
Article EIGHTH of the Registrant's Restated and Amended Certificate
of Incorporation and Section 1 of Article VI of the Registrant's By-Laws
give a director or officer the right to be indemnified by the Registrant to
the fullest extent permitted under Delaware law.
Article TENTH of the Registrant's Restated and Amended Certificate
of Incorporation provides that no director shall be personally liable to
the Registrant or any stockholder for monetary damages for breach of
fiduciary duty as a director, except for any matter in respect of which
such director shall be liable under Section 174 of Title 8 of the General
Corporation Law of the State of Delaware, or shall be liable by reason
that, in addition to any and all other requirements for such liability, he
(i) shall have breached his duty of
-31-
<PAGE>
loyalty to the Registrant or its stockholders, (ii) shall not have acted
in good faith or, in failing to act, shall not have acted in good faith,
(iii) shall have acted in a manner involving intentional misconduct or a
knowing violation of law or, in failing to act, shall have acted in a manner
involving intentional misconduct or a knowing violation of law or (iv) shall
have derived an improper personal benefit. The provisions of such article do
not limit or eliminate the liability of any director for any act or omission
occurring prior to the effective time of such article.
Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers or persons
controlling the Company pursuant to the foregoing provisions, the Company
has been informed that in the opinion of the Securities and Exchange
Commission, such indemnification is against public policy as expressed in
the Act and is therefore unenforceable.
LEGAL MATTERS
The legality of the securities offered hereby will be passed upon for
the Company by Weil, Gotshal & Manges (a partnership including professional
corporations), New York, New York.
EXPERTS
The financial statements and schedules included in this prospectus
and elsewhere in the registration statement have been audited by Arthur
Andersen LLP, independent public accountants, as indicated in their reports
with respect thereto, and are included herein in reliance upon the
authority of said firm as experts in giving said reports.
-32-
<PAGE>
COLUMBIA LABORATORIES, INC. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
Page
Report of Independent Certified Public Accountants F-2
Consolidated Balance Sheets
As of June 30, 1995 (unaudited) and December 31, 1994 and 1993 F-3
Consolidated Statements of Operations
for each of the three years ended December 31, 1994 and for the
six months ended June 30, 1995 (unaudited) and 1994 (unaudited) F-5
Consolidated Statements of Stockholders' Equity (Deficit)
for each of the three years ended December 31, 1994 and for the
six months ended June 30, 1995 (unaudited) F-6
Consolidated Statements of Cash Flows
for each of the three years ended December 31, 1994 and for the
six months ended June 30, 1995 (unaudited) and 1994 (unaudited) F-8
Notes to Consolidated Financial Statements F-11
F-1
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders
of Columbia Laboratories, Inc.:
We have audited the accompanying consolidated balance sheets of Columbia
Laboratories, Inc. (a Delaware corporation) and subsidiaries as of December
31, 1994 and 1993, and the related consolidated statements of operations,
stockholders' equity (deficit) and cash flows for each of the three years
in the period ended December 31, 1994. These financial statements are the
responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. 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 financial statements referred to above present fairly,
in all material respects, the financial position of Columbia Laboratories,
Inc. and subsidiaries as of December 31, 1994 and 1993, and the results of
their operations and their cash flows for each of the three years in the
period ended December 31, 1994 in conformity with generally accepted
accounting principles.
ARTHUR ANDERSEN LLP
Miami, Florida,
February 24, 1995.
F-2
<PAGE>
COLUMBIA LABORATORIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS
--------- DECEMBER 31,
JUNE 30, ------------------------
1995 1994 1993
--------- ---- ----
(UNAUDITED)
CURRENT ASSETS:
<S> <C> <C> <C>
Cash and cash equivalents $ 6,038,642 $ 689,749 $ 5,280,829
Accounts receivable, net of
allowance for doubtful accounts
of $136,754, $98,370, and $110,015
in 1995, 1994 and 1993,
respectively 1,011,768 904,277 1,361,604
Inventories 1,253,400 1,117,243 2,874,208
Prepaid expenses 184,117 125,832 218,729
----------- ---------- ----------
Total current assets 8,487,927 2,837,101 9,735,370
----------- ---------- ----------
PROPERTY AND EQUIPMENT:
Leasehold improvements 16,167 15,162 13,045
Machinery and equipment 1,430,261 1,394,788 1,123,847
Furniture and fixtures 71,700 70,597 65,499
----------- ---------- ----------
1,518,128 1,480,547 1,202,391
Less-Accumulated depreciation
and amortization 712,634 564,924 359,231
----------- ---------- ----------
805,494 915,623 843,160
----------- ---------- ----------
INTANGIBLE ASSETS, net 1,674,847 1,786,037 2,007,937
OTHER ASSETS 1,292,356 1,268,803 1,283,584
----------- ----------- -----------
$12,260,624 $6,807,564 $13,870,051
=========== ========== ===========
</TABLE>
(Continued)
F-3
<PAGE>
COLUMBIA LABORATORIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(CONTINUED)
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
DECEMBER 31,
JUNE 30, ------------------------
1995 1994 1993
--------- ---- ----
(UNAUDITED)
<S> <C> <C> <C>
CURRENT LIABILITIES:
Current portion of long-term debt $ 156,751 $ - $ 37,527
Accounts payable 3,560,662 3,707,966 1,748,704
Accrued expenses 761,586 1,059,960 2,421,261
Deferred revenue 1,335,445 1,540,549 2,328,542
Estimated liability for returns
and allowances 389,545 387,075 311,147
---------- ----------- ----------
Total current liabilities 6,203,989 6,695,550 6,847,181
---------- ----------- ----------
LONG-TERM DEBT, net of current portion
and debt discount - 6,217,649 5,473,838
OTHER LONG-TERM LIABILITIES 92,563 86,743 74,144
COMMITMENTS AND CONTINGENCIES
(Notes 1 and 5)
STOCKHOLDERS' EQUITY (DEFICIT):
Preferred stock, $.01 par value;
1,000,000 shares authorized;
Series A Convertible Preferred
Stock, 1,365, 1,515 and 1,915
shares issued and outstanding
in 1995, 1994 and 1993,
respectively (liquidation
preference of $136,500 and
$151,500 at June 30, 1995
and December 31, 1994,
respectively) 14 15 19
Series B Convertible Preferred
Stock, 1,750, 2,000 and 7,750
shares issued and outstanding
in 1995, 1994 and 1993,
respectively (liquidation
preference of $175,000 and
$200,000 at June 30, 1995
and December 31, 1994,
respectively) 18 20 77
Common stock, $.01 par value;
40,000,000 shares authorized;
25,648,354, 23,778,897 and
22,155,906 shares issued and
outstanding in 1995, 1994 and
1993, respectively 256,484 237,789 221,559
Capital in excess of par value 71,339,245 64,206,507 58,926,490
Accumulated deficit (65,645,261) (70,853,356) (57,859,467)
Cumulative translation adjustment 13,572 216,647 186,210
----------- ----------- -----------
Total stockholders' equity
(deficit) 5,964,072 (6,192,378) 1,474,888
----------- ----------- -----------
$12,260,624 $ 6,807,564 $13,870,051
=========== =========== ===========
</TABLE>
The accompanying notes to consolidated financial
statements are an integral part of these balance sheets.
F-4
<PAGE>
COLUMBIA LABORATORIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, YEAR ENDED DECEMBER 31,
---------------------------- ----------------------------------------
1995 1994 1994 1993 1992
------------ ------------ ------------ ------------ ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
NET SALES $ 6,083,866 $ 3,877,732 $ 8,769,064 $ 8,150,227 $ 9,173,042
COST OF GOODS SOLD 3,197,014 2,029,088 5,539,424 5,077,816 5,327,459
----------- ---------- ----------- ----------- -----------
Gross profit 2,886,852 1,848,644 3,229,640 3,072,411 3,845,583
----------- ---------- ----------- ----------- -----------
OPERATING EXPENSES:
Selling and distribution 1,448,463 1,077,567 2,036,353 2,571,164 3,373,259
General and administrative 1,572,054 1,573,311 2,799,863 3,491,201 4,701,646
Research and development 2,725,085 4,087,422 8,976,047 5,290,912 3,129,026
Lease termination cost - - - 238,282 1,000,000
----------- ---------- ------------ ----------- -----------
Total operating expenses 5,745,602 6,738,300 13,812,263 11,591,559 12,203,931
----------- ---------- ------------ ----------- -----------
Loss from operations (2,858,750) (4,889,656) (10,582,623) (8,519,148) (8,358,348)
----------- ---------- ------------ ----------- -----------
OTHER INCOME (EXPENSE):
License fees, net 8,054,883 60,464 174,741 561,297 2,776,043
Interest income 40,205 37,144 61,030 89,540 114,801
Interest expense (140,750) (714,068) (2,479,610) (431,983) (548,924)
Guaranteed return to minority
shareholders of subsidiary - - - - (2,585,118)
Purchase of option - - - (2,000,000) -
Other, net 112,507 (64,844) (167,427) (152,689) 65,610
----------- ----------- ------------ ----------- ----------
8,066,845 (681,304) (2,411,266) (1,933,835) (177,588)
----------- ----------- ------------ ----------- ----------
Net income (loss) $ 5,208,095 $(5,570,960) $(12,993,889) $(10,452,983) $(8,535,936)
=========== =========== ============ ============ ===========
NET INCOME (LOSS) PER COMMON SHARE $ .21 $ (.25) $ (.58) $ (.49) $ (.51)
=========== =========== ============ =========== ===========
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 25,123,000 22,199,000 22,530,000 21,380,000 16,880,000
=========== =========== ============ =========== ===========
</TABLE>
The accompanying notes to consolidated financial
statements are an integral part of these statements.
<PAGE>
COLUMBIA LABORATORIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
SERIES A SERIES B
PREFERRED STOCK PREFERRED STOCK COMMON STOCK
--------------- --------------- -----------------------
NUMBER NUMBER NUMBER
OF OF OF
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
------ ------ ------ ------ ---------- --------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, January 1, 1992 3,165 $ 32 22,750 $ 227 16,392,281 $163,923
Common stock issued in payment
for services rendered - - - - 15,000 150
Options exercised - - - - 561,432 5,614
Warrants exercised - - - - 123,898 1,239
Conversion of preferred stock (975) (10) (10,000) (100) 212,051 2,120
Accumulated dividends on
preferred stock - - - - - -
Payment of accumulated dividends - - - - 757 8
Translation adjustment - - - - - -
Net loss - - - - - -
--------- ------- --------- ------ ---------- -------
BALANCE, December 31, 1992 2,190 22 12,750 127 17,305,419 173,054
Issuance of common stock - - - - 3,992,002 39,920
Options exercised - - - - 531,568 5,316
Warrants exercised - - - - 220,668 2,207
Issuance of warrants - - - - - -
Conversion of preferred stock (275) (3) (5,000) (50) 106,249 1,062
Accumulated dividends on
preferred stock - - - - - -
Translation adjustment - - - - - -
Net loss - - - - - -
--------- ------- --------- ------ ---------- -------
BALANCE, December 31, 1993 1,915 19 7,750 77 22,155,906 221,559
</TABLE>
<TABLE>
<CAPTION>
CAPITAL IN CUMULATIVE
EXCESS OF ACCUMULATED TRANSLATION
PAR VALUE DEFICIT ADJUSTMENT TOTAL
--------- ----------- ------------ -----------
<S> <C> <C> <C> <C>
BALANCE, January 1, 1992 $38,369,579 $(38,870,548) $(383,298) $(720,085)
Common stock issued in payment
for services rendered 119,850 - - 120,000
Options exercised 1,015,322 - - 1,020,936
Warrants exercised 126,145 - - 127,384
Conversion of preferred stock (2,010) - - -
Accumulated dividends on
preferred stock (19,826) - - (19,826)
Payment of accumulated dividends 6,336 - - 6,344
Translation adjustment - - 1,010,097 1,010,097
Net loss - (8,535,936) - (8,535,936)
----------- ------------ ----------- ----------
BALANCE, December 31, 1992 39,615,396 (47,406,484) 626,799 (6,991,086)
Issuance of common stock 16,644,494 - - 16,684,414
Options exercised 474,689 - - 480,005
Warrants exercised 296,727 - - 298,934
Issuance of warrants 1,912,500 - - 1,912,500
Conversion of preferred stock (1,009) - - -
Accumulated dividends on
preferred stock (16,307) - - (16,307)
Translation adjustment - - (440,589) (440,589)
Net loss - (10,452,983) - (10,452,983)
----------- ------------ ----------- ----------
BALANCE, December 31, 1993 58,926,490 (57,859,467) 186,210 1,474,888
(Continued)
<PAGE>
COLUMBIA LABORATORIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(Continued)
</TABLE>
<TABLE>
<CAPTION>
SERIES A SERIES B
PREFERRED STOCK PREFERRED STOCK COMMON STOCK
--------------- --------------- -----------------------
NUMBER NUMBER NUMBER
OF OF OF
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
------ ------ ------ ------ ---------- --------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, January 1, 1994 1,915 $ 19 7,750 $ 77 22,155,906 $221,559
Issuance of common stock - - - - 126,061 1,261
Options exercised - - - - 20,000 200
Warrants exercised - - - - 1,060,000 10,600
Conversion of debt - - - - 293,710 2,937
Conversion of preferred stock (400) (4) (5,750) (57) 123,220 1,232
Accumulated dividends on
preferred stock - - - - - -
Translation adjustment - - - - - -
Net loss - - - - - -
------- ----- ------ ---- ---------- --------
BALANCE, December 31, 1994 1,515 15 2,000 20 23,778,897 237,789
Issuance of common stock (unaudited) - - - - 67,610 676
Options exercised (unaudited) - - - - 35,000 350
Warrants exercised (unaudited) - - - - 64,619 646
Conversion of debt (unaudited) - - - - 1,695,232 16,953
Conversion of preferred stock
(unaudited) (150) (1) (250) (2) 6,996 70
Accumulated dividends on
preferred stock (unaudited) - - - - - -
Translation adjustment (unaudited) - - - - - -
Net income (loss) (unaudited) - - - - - -
------- ----- ------ ---- ---------- --------
BALANCE, June 30, 1995 (unaudited) 1,365 $ 14 1,750 $ 18 25,648,354 $256,484
======= ===== ====== ==== ========== ========
</TABLE>
<TABLE>
<CAPTION>
CAPITAL IN CUMULATIVE
EXCESS OF ACCUMULATED TRANSLATION
PAR VALUE DEFICIT ADJUSTMENT TOTAL
--------- ------------ ------------ -----------
<S> <C> <C> <C> <C>
BALANCE, January 1, 1994 $58,926,490 $(57,859,467) $186,210 $1,474,888
Issuance of common stock 525,739 - - 527,000
Options exercised 28,600 - - 28,800
Warrants exercised 3,714,400 - - 3,725,000
Conversion of debt 1,025,048 - - 1,027,985
Conversion of preferred stock (1,171) - - -
Accumulated dividends on
preferred stock (12,599) - - (12,599)
Translation adjustment - - 30,437 30,437
Net loss - (12,993,889) - (12,993,889)
----------- ------------ ------------ -----------
BALANCE, December 31, 1994 64,206,507 (70,853,356) 216,647 (6,192,378)
Issuance of common stock
(unaudited) 302,471 - - 303,147
Options exercised (unaudited) 161,525 - - 161,875
Warrants exercised (unaudited) 352,173 - - 352,819
Conversion of debt (unaudited) 6,322,456 - - 6,339,409
Conversion of preferred stock
(unaudited) (67) - - -
Accumulated dividends on
preferred stock (unaudited) (5,820) - - (5,820)
Translation adjustment (unaudited) - - (203,075) (203,075)
Net income (loss) (unaudited) - 5,208,095 - 5,208,095)
----------- ------------ ------------ -----------
BALANCE, June 30, 1995
(unaudited) $71,339,245 $(65,645,261) $ 13,572 $ 5,964,072
=========== ============ ============ ===========
</TABLE>
The accompanying notes to consolidated financial
statements are an integral part of these statements.
<PAGE>
COLUMBIA LABORATORIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, YEAR ENDED DECEMBER 31,
---------------------------- -----------------------------------------
1995 1994 1994 1993 1992
------------ ------------ ------------ ------------ -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 5,208,095 $ (5,570,960) $(12,993,889) $(10,452,983) $(8,535,936)
Adjustments to reconcile net income
(loss) to net cash used in
operating activities-
Depreciation and amortization 255,658 213,269 440,496 496,984 568,669
Provision for (recovery of) doubtful
accounts 38,384 16,382 (3,030) 4,734 (113,977)
Provision for returns and allowances 13,092 335,844 168,215 233,969 532,073
Lease termination cost - - - 112,007 1,000,000
Write-down of property and equipment - - - 216,133 11,815
Write-down of inventories - - 888,277 451,460 -
Guaranteed return to minority
shareholders of subsidiary - - - - 2,585,118
Interest expense - 347,770 1,738,635 173,865 -
Changes in assets and liabilities -
(Increase) decrease in:
Accounts receivable (393,186) (51,074) 43,773 (469,726) (197,360)
Inventories (136,159) 337,453 868,688 (31,914) (3,053,773)
Prepaid expenses 201,090 267,432 78,365 (87,374) 393,302
Other assets (18,418) 18,626 20,548 (510,804) 96,127
Increase (decrease) in:
Accounts payable 40,352 1,634,050 2,071,080 (1,617,947) 1,703,535
Accrued expenses (203,383) (1,311,017) (1,516,010) 1,579,201 (1,428,550)
Deferred revenue 54,882 (231,304) (387,993) (144,738) 128,244
Estimated liability for returns
and allowances (10,622) - (92,287) (344,203) (558,460)
--------- ----------- ----------- ------------ ----------
Net cash used in operating
activities 5,049,785 (3,993,529) (8,675,132) (10,391,336) (6,869,173)
--------- ----------- ----------- ------------ -----------
(Continued)
<PAGE>
COLUMBIA LABORATORIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, YEAR ENDED DECEMBER 31,
---------------------------- -----------------------------------------
1995 1994 1994 1993 1992
------------ ------------ ------------ ------------ -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment $ (29,177) $ (140,765) $ (275,210) $ (118,023) $(423,613)
Proceeds from sale of investment - - - 25,817 53,653
--------- ----------- ----------- ---------- ----------
Net cash used in investing activities (29,177) (140,765) (275,210) (92,206) (369,960)
--------- ----------- ----------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of notes payable
and long-term debt - - - 7,250,000 -
Repayments of notes payable and
long-term debt (91,954) (37,527) (37,527) (192,024) (28,519)
Repayment of amount owed to minority
shareholders of a subsidiary - - - (2,500,000) -
Proceeds from issuance of common stock 78,147 - 500,000 9,448,813 -
Proceeds from exercise of options
and warrants 514,694 78,800 3,753,800 778,939 1,148,320
--------- ----------- ----------- ---------- ----------
Net cash provided by financing
activities 500,887 41,273 4,216,273 14,785,728 1,119,801
--------- ----------- ----------- ---------- ----------
EFFECT OF EXCHANGE RATE CHANGES ON CASH (172,602) 115,564 142,989 (62,143) 19,592
--------- ----------- ----------- ---------- ----------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 5,348,893 (3,977,457) (4,591,080) 4,240,043 (6,099,740)
CASH AND CASH EQUIVALENTS,
beginning of period 689,749 5,280,829 5,280,829 1,040,786 7,140,526
--------- ----------- ----------- ---------- ----------
CASH AND CASH EQUIVALENTS,
end of period $6,038,642 $ 1,303,372 $ 689,749 $5,280,829 $1,040,786
========== =========== =========== ========== ==========
SUPPLEMENTAL DISCLOSURE OF
CASH FLOW INFORMATION
Interest paid during the period $ 12,435 $ - $ 573,338 $ 29,857 $ 147,231
========= =========== =========== ========== ==========
</TABLE>
(Continued)
<PAGE>
COLUMBIA LABORATORIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Continued)
SUPPLEMENTAL SCHEDULE OF NONCASH
OPERATING AND FINANCING ACTIVITIES:
During the six months ended June 30, 1995, the Company issued 1,695,232
shares of Common Stock in payment of long-term debt and accrued interest
totalling $6,339,409.
During the six months ended June 30, 1995, the Company issued 50,000
shares of Common Stock in payment of legal fees totalling $225,000.
In January 1993, the Company completed a private placement of 2.5
million shares of its Common Stock, raising net proceeds of approximately
$9.5 million. In addition, the Company repaid the amount owed to the
minority shareholders of a subsidiary through the payment of $2.5 million
in cash and the issuance of 867,579 shares of the Company's Common Stock.
The Company also repaid $1.6 million of long-term debt through the payment
of $100,000 in cash and the issuance of 375,000 shares of the Company's
Common Stock.
During 1993, the Company issued 239,238 shares of Common Stock in
payment of lease termination costs which totaled $1.2 million. In addition,
during 1994 and 1993, the Company issued 5,008 and 10,300 shares of Common
Stock, respectively, in payment of consulting fees, which totaled $27,000
and $54,000, respectively.
The accompanying notes to consolidated financial statements
are an integral part of these statements.
F-10
<PAGE>
COLUMBIA LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Data with respect to June 30, 1995 and 1994 have not been
audited by independent certified public accountants.)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
ORGANIZATION-
Columbia Laboratories, Inc. (the "Company") was incorporated as a Delaware
corporation in December 1986. The Company's objective is to develop on a
worldwide basis a portfolio of women's prescription and over-the-counter
products, including those which help prevent sexually transmitted diseases.
The Company's products primarily utilize the Company's patented bioadhesive
delivery technology.
PRINCIPLES OF CONSOLIDATION-
The consolidated financial statements include the accounts of the Company
and its subsidiaries. All significant intercompany balances and
transactions have been eliminated in consolidation.
ADJUSTMENT OF PRIOR YEARS' FINANCIAL STATEMENTS-
In December 1993, the Company entered into an Option and License Agreement
pursuant to which it was granted an option to obtain an exclusive license to the
North and South American rights to a potential AIDS treatment. The option cost
$2 million, which in accordance with SFAS No. 2, should have been expensed when
acquired in 1993. As a result, the Company has restated net income (loss) for
1993, 1994 and 1995.
The effect of the restatement is to increase 1993 net loss by $2 million or
$(.09) per share and decrease 1994 net loss $400,000 or $.01 per share. The
effect on the 1994 and 1995 per share quarterly amounts is immaterial.
FOREIGN CURRENCY-
The assets and liabilities of the Company's foreign subsidiaries are
translated into U.S. dollars at current exchange rates and revenue and
expense items are translated at average rates of exchange prevailing during
the period. Resulting translation adjustments are accumulated as a separate
component of stockholders' equity (deficit).
INVENTORIES-
Inventories are stated at the lower of cost (first-in, first-out) or
market. Components of inventory cost include materials, labor and
manufacturing overhead. Inventories consist of the following:
DECEMBER 31,
JUNE 30, --------------------------
1995 1994 1993
----------- ---------- ----------
Finished goods $ 232,923 $ 260,666 $ 236,241
Raw materials 1,020,477 856,577 2,637,967
---------- ---------- ----------
$1,253,400 $1,117,243 $2,874,208
========== ========== ==========
PROPERTY AND EQUIPMENT-
Property and equipment are stated at cost less accumulated depreciation.
Depreciation is computed on the straight-line method over the estimated
useful lives of the respective assets, as follows:
YEARS
------
Machinery and equipment 5 - 10
Furniture and fixtures 5
F-11
<PAGE>
Costs of major additions and improvements are capitalized and expenditures
for maintenance and repairs which do not extend the life of the assets are
expensed. Upon sale or disposition of property and equipment, the cost and
related accumulated depreciation are eliminated from the accounts and any
resultant gain or loss is credited or charged to income.
INTANGIBLE ASSETS-
Intangible assets consist of the following:
DECEMBER 31,
JUNE 30, --------------------------
1995 1994 1993
----------- ---------- ----------
Patents $2,600,000 $2,600,000 $2,600,000
Trademarks 341,000 341,000 341,000
----------- ---------- ----------
2,941,000 2,941,000 2,941,000
Less accumulated
amortization (1,730,362) (1,154,963) (933,063)
----------- ---------- ----------
$1,674,847 $1,786,037 $2,007,937
=========== ========== ==========
Patents are being amortized on a straight-line basis over their remaining
lives (through 2003). Trademarks are being amortized on a straight-line
basis over ten years.
Following the acquisition of any intangible assets, the Company continually
evaluates whether later events and circumstances have occurred that indicate
that a trademark or patent may not be recoverable. Factors considered when
determining whether an impairment of value has occurred and the amount of such
an impairment, if any, include the underlying products estimated future
undiscounted net income, including amounts to be received over the remaining
life of the intangible from license fees, royalty income, and related deferred
revenues as compared to the carrying value of the related intangible.
Unrecoverable amounts are charged to operations.
INCOME TAXES-
As of December 31, 1994, the Company has U.S. tax net operating loss
carryforwards of approximately $40 million which expire through 2009. The
Company also has unused tax credits of approximately $738,000 which expire
at various dates through 2004. Utilization of net operating loss
carryforwards may be limited in any year due to limitations in the Internal
Revenue Code.
In February 1992, the Financial Accounting Standards Board issued a new
standard on accounting for income taxes ("SFAS No. 109"). The Company
adopted the new accounting and disclosure rules as of
F-12
<PAGE>
January 1, 1993. Implementation of SFAS No. 109 had no effect on the Company's
reported financial position and net loss. As of December 31, 1994 and 1993,
other assets in the accompanying consolidated balance sheets include deferred
tax assets of approximately $14 million (comprised primarily of a net operating
loss carryforward) which have been fully reserved for as their ultimate
realizability is not assured.
REVENUE RECOGNITION-
Sales are recorded as products are shipped and services are rendered.
Royalties and additional monies owed to the Company based on the
strategic alliance partners selling prices are recorded as revenue as
sales are made by the strategic alliance partners.
LICENSE FEES-
License fees, net of related expenses, are recognized as other income when the
Company has no further obligations with respect to the payments and thus the
earnings process is complete.
RESEARCH AND DEVELOPMENT COSTS-
Company sponsored research and development costs related to future products
are expensed as incurred. Costs related to research and development
contracts are charged to cost of sales upon recognition of the related
revenue.
LEASE TERMINATION COST-
Lease termination cost represents expenses incurred in relocating the
Company's corporate headquarters to a smaller premises and in closing the
Company's laboratory facility in Madison, Wisconsin. Of this amount, $1.2
million was paid through the issuance of 239,238 shares of the Company's
$.01 par value Common Stock ("Common Stock").
LOSS PER SHARE-
Loss per share is computed by dividing the net loss plus preferred
dividends by the weighted average number of shares of common stock
outstanding during the period. Shares to be issued upon the exercise of the
outstanding options and warrants or the conversion of the preferred stock
are not included in the computation of loss per share as their effect is
antidilutive.
STATEMENTS OF CASH FLOWS-
For purposes of the statements of cash flows, the Company considers all
investments purchased with a maturity of three months or less to be cash
equivalents.
(2) STRATEGIC ALLIANCE AGREEMENTS:
The Company has entered into strategic alliance agreements for the
marketing and distribution of Replens with: (i) Warner-Lambert Company
under which Warner-Lambert Company markets Replens in the United States;
(ii) subsidiaries of Johnson and Johnson under which those subsidiaries
market Replens in Italy and will market Replens in Belgium; (iii)
Roussel-UCLAF under which Roussel markets Replens in France, certain French
overseas territories and Greece; (iv) Sterling Drug Inc. under which
Sterling markets Replens in Japan, South America, Central America,
Australia, New Zealand, and other Pacific Rim nations; (v) Teva
Pharmaceutical under which Teva will market Replens in Israel; (vi) Logos
Pharmaceuticals (Pty) Limited under which Logos markets Replens in South
Africa and the sixteen countries of sub-Saharan Africa; (vii) LASA SA under
which LASA SA markets Replens in Spain; (viii) Unipath Ltd. under which
Unipath markets Replens and Feminesse(TM) in the United Kingdom; (ix)
Roberts Pharmaceutical Corporation under which Roberts will market Replens
in Canada; (x) Vifor SA under which Vifor will market Replens in
Switzerland and Liechtenstein; (xi) Hermes H/F under which Hermes is
currently marketing Replens in Iceland and (xii) a Swedish pharmaceutical
company that has created a joint venture which markets Replens in Sweden
and other Scandinavian countries. Pursuant to these agreements, the Company
has received advance payments, of which $1,540,549 and $2,328,542,
respectively, are reflected as deferred revenue in the
F-13
<PAGE>
accompanying December 31, 1994 and 1993 consolidated balance sheets,
respectively. These advance payments will be recognized as products are
shipped to the applicable strategic alliance partners or as sales are made
by the strategic alliance partners.
During 1993, the Logos agreement was amended such that Logos will also be
the exclusive distributor of the Company's progesterone product in South
Africa and the sixteen countries of sub-Saharan Africa. As part of the
agreement, the Company received upfront licensing fees as well as ongoing
revenue from manufacturing and product sales.
In September 1994, the Company entered into a license and distribution
agreement with Lake Pharmaceutical, Inc. under which Lake markets Advantage
24 in the United States.
(3) LONG-TERM DEBT:
Long-term debt consists of the following:
DECEMBER 31,
JUNE 30, --------------------------
1995 1994 1993
----------- ---------- ----------
10% notes payable $ 156,751 $6,217,649 $7,250,000
Less - Debt discount - - (1,738,635)
Less - Payments
due within one
year (156,751) - (37,527)
----------- ---------- ----------
$ - $6,217,649 $5,473,838
=========== ========== ==========
During 1993, the Company issued $7.25 million of unsecured 10% notes
payable due on June 30, 1996 ("1993 Notes"). Pursuant to the terms of the
1993 Notes, if the Company or any of its subsidiaries receives upfront
license fees for the marketing and distribution of the Company's
prescription progesterone product, the Company will use one-third of the
net proceeds of such upfront fees to make "pro-rata" prepayments of the
notes payable. In January 1994, a prepayment totaling $37,527 was made. In
connection with the 1993 Notes, the Company issued warrants to purchase
1,212,500 shares of the Company's Common Stock at an exercise price of
$4.00 per share, which was less than the market value of the Company's
Common Stock on the date of grant. The difference, aggregating $1,912,500,
is being recorded as additional interest expense over the term of the 1993
Notes. As of December 31, 1993, $1,738,635 is reflected as debt discount
in the accompanying consolidated balance sheet. The warrants are
exercisable during the period from July 1, 1994 through June 30, 1998.
During 1994, the exercise price of certain of the warrants was reduced from
$4.00 per share to $3.50 per share, conditioned on the immediate exercise
of the warrants. As additional consideration for the immediate exercise of
the warrants, the holders were granted the right at any time to convert the
outstanding principal amount of the 1993 debt and accrued interest thereon,
into shares of Common Stock at an exchange rate equal to a 25% discount to
the then current market price, based on the average closing price of the
Common Stock for the fifteen days prior to the conversion date, but in no
event at a price less than $3.50 per share. As consideration for the
repricing of the warrants, the note holders waived their right to receive
one-third of the net proceeds of any upfront licensing fees. As a result,
warrants to purchase 1,050,000 shares of Common Stock were exercised
resulting in net proceeds of $3,675,000 to the Company.
During 1994, the Company repaid $1,027,985 of long-term debt and accrued
interest through the issuance of 293,710 shares of the Company's Common
Stock. In addition, during 1995, the Company repaid an
F-14
<PAGE>
additional $6,339,409 of long-term debt and accrued interest through the
issuance of 1,695,232 shares of the Company's Common Stock. As a result of the
exercise of the warrants and the repayment of the debt, during 1994, debt
discount aggregating $1,738,635 has been recorded as additional interest
expense.
(4) STOCKHOLDERS' EQUITY (DEFICIT):
PREFERRED STOCK-
In November 1989, the Company completed a private placement of 151,000
shares of Series A Convertible Preferred Stock ("Series A Preferred
Stock"). The Series A Preferred Stock pays cumulative dividends at a rate
of 8% per annum payable quarterly and each share is convertible into 12.36
shares of the Company's Common Stock. As of June 30, 1995 and December 31,
1994 and 1993, dividends of $92,563, $86,743 and $74,144, respectively,
have been earned but have not been declared and are included in other
long-term liabilities in the accompanying consolidated balance sheets.
In August 1991, the Company completed a private placement of 150,000 shares
of Series B Convertible Preferred Stock ("Series B Preferred Stock"). Each
share of Series B Preferred Stock is convertible into 20.57 shares of the
Company's Common Stock.
Upon liquidation of the Company, the holders of the Series A and Series B
Preferred Stock are entitled to $100 per share. In addition, the holders of
Series A Preferred Stock are entitled to accumulated unpaid dividends. The
Series A Preferred Stock shares are redeemable for cash, at the option of
the Company, at specified redemption prices. The Series B Preferred Stock
will be automatically converted into Common Stock upon the occurrence of
certain events. Holders of the Series A and Series B Preferred Stock are
entitled to one vote for each share of common stock into which the
preferred stock is convertible.
WARRANTS-
As of June 30, 1995, December 31, 1994 and 1993, the Company had warrants
outstanding for the purchase of 1,015,381, 780,000 and 2,316,500 shares of
Common Stock, respectively. Information on outstanding warrants is as follows:
DECEMBER 31,
EXERCISE JUNE 30, -----------------------------
PRICE 1995 1994 1993
----------- ----------- --------- ---------
$4.00 162,500 162,500 1,212,500
4.375 150,000 150,000 -
4.81 75,000 75,000 75,000
4.875 57,500 57,500 -
5.00 14,000 14,000 398,000
5.25 7,000 7,000 7,000
5.31 300,000 - 300,000
5.46 60,381 125,000 125,000
5.625 7,000 7,000 7,000
5.875 7,000 7,000 7,000
7.13 - - 10,000
8.875 175,000 175,000 175,000
--------- ------- ---------
1,015,381 780,000 2,316,500
========= ======= =========
All of the warrants, except the $4.875 warrants, were exercisable on
December 31, 1994.
F-15
<PAGE>
STOCK OPTION PLAN-
All employees, officers, directors and consultants of the Company or any
subsidiary are eligible to participate in the Columbia Laboratories, Inc.
1988 Stock Option Plan (the "Plan"). Under the Plan, as amended, a total of
5,000,000 shares of Common Stock have been authorized for issuance upon
exercise of the options. Information on options are as follows:
NUMBER
OF SHARES PRICE PER SHARE
----------- -----------------
Outstanding, January 1, 1993 2,979,068 $ .25 - 16.03
Granted 1,003,572 5.38 - 5.63
Exercised (531,568) .25 - 2.72
Canceled (110,500) 4.88 - 13.25
----------
Outstanding, December 31, 1993 3,340,572 1.44 - 16.03
Granted 1,925,000 4.38 - 6.13
Exercised (20,000) 1.44
Canceled (1,995,252) 4.34 - 14.58
----------
Outstanding, December 31, 1994 3,250,320 1.44 - 16.03
Granted - -
Exercised (35,000) 4.50 - 5.38
Canceled (208,174) 13.25
----------
Outstanding, June 30, 1995 3,007,146 1.44 - 16.03
==========
Options exercisable:
December 31, 1993 1,625,500 $ 1.44 - 16.03
========== ==============
December 31, 1994 1,074,320 $ 1.44 - 16.03
========== ==============
June 30, 1995 891,146 $ 1.44 - 16.03
========== ==============
(5) COMMITMENTS AND CONTINGENCIES:
LEASES-
The Company leases office space, apartments and office equipment under
noncancelable operating leases. Lease expense for each of the six months
ended June 30, 1995 and 1994 and for each of the three years ended
December 31, 1994, 1993 and 1992 totaled $207,073, $239,583, $461,489,
$308,625 and $842,512, respectively. Future minimum lease payments as of
December 31, 1994 are as follows:
1995 $351,902
1996 200,171
1997 105,830
1998 73,258
1999 2,850
--------
$734,011
========
ROYALTIES-
In 1989, the Company purchased the assets of Bio-Mimetics, Inc. which
consisted of the patents underlying the Company's Bioadhesive Delivery
System, other patent applications and related technology, for $2,600,000,
in the form of 9% convertible debentures which were converted into 500,000
shares of the Company's Common Stock during 1991, and $100,000 in cash. The
Company also agreed to pay Bio-Mimetics, Inc. a royalty equal to one
percent of the net sales of products based on the Bioadhesive Delivery
System to an aggregate amount of $7,500,000. In settlement of certain
claims made by Bio-Mimetics, Inc.
F-16
<PAGE>
and the Company, the royalty was increased to two percent effective July 1,
1992. In addition, beginning in March 1995, the Company agreed to prepay a
portion of the remaining royalty obligation if certain conditions are met.
The Company may not assign the patents underlying the Bioadhesive Delivery
System without the prior written consent of Bio-Mimetics, Inc. until the
aggregate royalties have been paid. Until September 1993, Joseph Robinson,
Ph.D., the developer of the Bioadhesive Delivery System and a 50% owner of
Bio-Mimetics, Inc., was the Vice President-Pharmaceutical Development of the
Company. The assets and revenues of Bio-Mimetics, Inc. prior to acquisition
were not significant to the financial statements of the Company.
In May 1989, the Company signed an exclusive agreement to license the U.S.
and Canadian marketing rights for Diasorb, a unique pediatric antidiarrheal
product formerly marketed by Schering-Plough Corporation. Under the terms
of the agreement, the Company is obligated to pay a royalty equal to 5% of
the net sales of Diasorb.
EMPLOYMENT AGREEMENTS-
The Company has employment agreements with certain employees, some of whom
are also stockholders of the Company. The terms of the employment
agreements range from one to five years. Future base compensation to be
paid under these agreements as of December 31, 1994 are as follows:
1995 $388,958
1996 147,083
1997 39,375
--------
$575,416
========
During 1993, the Company's shareholders approved an Incentive Compensation
Plan covering all employees pursuant to which an aggregate of 5% of pretax
earnings of the Company for any year will be awarded to designated
employees of the Company. As a result of the net loss, no amounts were
awarded for 1994.
MANUFACTURING EQUIPMENT-
In 1991, the Company placed orders for approximately $2,700,000 of
manufacturing equipment. As of June 30, 1995 and December 31, 1994 and
1993, $945,000 of this equipment was completed and is included in machinery
and equipment in the accompanying consolidated balance sheets. Deposits on
manufacturing equipment totalling approximately $991,000 as of June 30,
1995 and December 31, 1994 and 1993, are included in other assets in the
accompanying consolidated balance sheets.
LEGAL PROCEEDINGS-
Various claims and complaints have been filed or are pending against the
Company with respect to various matters. In the opinion of management and
counsel, all such matters are adequately reserved for or covered by
insurance or, if not so covered, are without any or have little merit or
involve such amounts that if disposed of unfavorably would not have a
material adverse effect on the Company.
(6) OTHER RELATED-PARTY TRANSACTION:
During 1993, the Company loaned two individuals who are officers, directors
and stockholders of the Company an aggregate of $190,350. These notes,
which bear interest at 10% per annum, are due on or before December 7,
1996. The notes and the related accrued interest, aggregating $211,219 and
$192,184, respectively, are included in other assets in the accompanying
December 31, 1994 and 1993 consolidated balance sheets.
F-17
<PAGE>
(7) SEGMENT INFORMATION:
The Company and its subsidiaries are engaged in one line of business, the
development and sale of pharmaceutical products and cosmetics. One customer
accounted for approximately 27%, 29% and 32% of 1994, 1993 and 1992
consolidated net sales, respectively. Another customer accounted for
approximately 14% and 11%, respectively, of 1994 and 1993 consolidated net
sales. The following table shows selected information by geographic area:
<TABLE>
<CAPTION>
NET LOSS FROM IDENTIFIABLE
SALES OPERATIONS ASSETS
----------- ------------ ------------
<S> <C> <C> <C>
As of and for the year
ended December 31, 1994-
United States $7,681,985 $ (2,798,773) $3,153,159
Europe 1,087,079 (7,783,850) 3,654,405
---------- ------------ -----------
$8,769,064 $(10,582,623) $6,807,564
========== ============ ===========
As of and for the year
ended December 31, 1993-
United States $7,009,867 $(5,144,088) $10,306,454
Europe 1,140,360 (3,375,060) 3,563,597
----------- ------------ -----------
$8,150,227 $(8,519,148) $13,870,051
=========== ============ ===========
As of and for the year
ended December 31, 1992-
United States $8,235,564 $(6,251,978) $ 4,783,501
Europe 937,478 (2,106,370) 5,049,653
----------- ------------ -----------
$9,173,042 $(8,358,348) $ 9,833,154
=========== ============ ===========
As of and for the six months
ended June 30, 1995-
United States $5,061,930 $ (566,178) $ 3,444,518
Europe 1,021,936 (2,302,572) 8,816,106
----------- ------------ -----------
$6,083,866 $(2,858,750) $12,260,624
=========== ============ ===========
As of and for the six months
ended June 30, 1994-
United States $3,432,906 $(1,578,175) $ 4,895,854
Europe 444,826 (3,311,481) 5,938,486
----------- ------------ -----------
$3,877,732 $(4,889,656) $10,834,340
=========== ============ ===========
</TABLE>
F-18
<PAGE>
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED IN
CONNECTION WITH THIS OFFERING TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS. THIS
PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL, OR THE SOLICITATION OF AN
OFFER TO BUY, THE SECURITIES OFFERED HEREBY.
TABLE OF CONTENTS
Available Information 2
The Company 3
Risk Factors 3
Use of Proceeds 7
Dilution 7
Business 8
Properties 15
Legal Proceedings 15
Selected Financial Data 15
Management's Discussion and Analysis of
Financial Condition and Results
of Operations 16
Price Range of Common Stock 20
Dividend Policy 20
Management 21
Security Ownership of Certain Beneficial
Owners and Management 25
Certain Relationships and Related
Transactions 26
Plan of Distribution 27
Selling Securityholders 27
Description of Securities 28
Indemnification of Officers and Directors 31
Legal Matters 32
Experts 32
Index to Consolidated Financial Statements F-1
