<PAGE>
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FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1997
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ___________________ TO ___________________
COMMISSION FILE NUMBER: 0-27576
ULTRAFEM, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 33-0435037
(State or other jurisdiction (I.R.S. Employer
of Identification No.)
incorporation or organization)
</TABLE>
805 THIRD AVENUE
NEW YORK, NEW YORK 10022
(Address of principal executive offices)
(Zip Code)
212-446-1400
(Registrant's telephone number, including area code)
500 FIFTH AVENUE, NEW YORK, NEW YORK 10110
(Former name, former address and former fiscal year, if changed
since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes __X__ No _____
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
At May 7, 1997, there were 8,494,170 shares of Common Stock, $.001 par
value, outstanding.
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<PAGE>
ULTRAFEM, INC.
INDEX
<TABLE>
<CAPTION>
PAGE NUMBER
------------
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements................................................................... 1
Balance Sheets as of March 31, 1997 and June 30, 1996.................................. 2
Statements of Operations for the Nine Months and Three Months Ended March 31, 1997 and
1996................................................................................. 3
Statements of Cash Flows for the Nine Months Ended March 31, 1997 and 1996............. 4
Notes to Financial Statements.......................................................... 5-6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations........................................................................... 7-11
PART II. OTHER INFORMATION
Item 1. Legal Proceedings...................................................................... 12
Item 2. Changes in Securities.................................................................. 12
Item 3. Defaults upon Senior Securities........................................................ 12
Item 4. Submission of Matters to a Vote of Security Holders.................................... 12
Item 5. Other Information...................................................................... 12
Item 6. Exhibits and Reports on Form 8-K....................................................... 13
Signatures........................................................................................... 14
</TABLE>
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Certain information and footnote disclosures required under generally
accepted accounting principles have been condensed or omitted from the following
financial statements pursuant to the rules and regulations of the Securities and
Exchange Commission. It is suggested that the following financial statements be
read in conjunction with the year end financial statements and notes thereto
included in the Company's Registration Statement on Form S-1 (File No.
333-11995) filed on November 13, 1996.
The results of operations for the three and nine month periods ended March
31, 1997 are not necessarily indicative of the results to be expected for the
entire fiscal year or for any other period.
1
<PAGE>
ULTRAFEM, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31, JUNE 30,
1997 1996
-------------- --------------
<S> <C> <C>
(UNAUDITED)
ASSETS
Current Assets:
Cash and cash equivalents....................................................... $ 33,334,439 $ 24,510,071
Accounts receivable............................................................. 681,897 --
Inventory....................................................................... 4,166,598 266,951
Prepaid marketing and other current assets...................................... 1,262,724 609,503
-------------- --------------
Total Current Assets........................................................ 39,445,658 25,386,525
Property and equipment--net....................................................... 9,678,029 2,875,153
Other assets--net................................................................. 847,065 1,146,258
-------------- --------------
TOTAL ASSETS.................................................................... $ 49,970,752 $ 29,407,936
-------------- --------------
-------------- --------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current portion--long-term debt................................................. $ 2,725,000 $ 3,442,013
Accounts payable................................................................ 1,554,441 893,548
Accrued interest................................................................ 876,343 724,932
Accrued salaries................................................................ 2,510,511 1,426,093
Accrued marketing and selling................................................... 2,728,776 200,590
Other accrued liabilities....................................................... 2,077,158 736,816
-------------- --------------
Total Current Liabilities................................................... 12,472,229 7,423,992
Long-term debt.................................................................. 700,000 700,000
Other liabilities............................................................... 107,234 --
-------------- --------------
Total Liabilities........................................................... 13,279,463 8,123,992
-------------- --------------
Stockholders' Equity:
Preferred stock, $.001 par value--authorized, 5,000,000 shares $8 cumulative
Convertible Series A: issued and outstanding 1,121.25 shares stated at
liquidation preference of $112,125 at June 30, 1996........................... -- 112,125
Common stock, $.001 par value--authorized 70,000,000 shares; outstanding
7,949,040 and 5,737,241 shares, respectively (stated at)...................... 12,118 9,905
Additional paid-in capital...................................................... 79,648,677 42,207,697
Deficit......................................................................... (42,969,506) (21,045,783)
-------------- --------------
Total Stockholders' Equity.................................................. 36,691,289 21,283,944
-------------- --------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY.................................. $ 49,970,752 $ 29,407,936
-------------- --------------
-------------- --------------
</TABLE>
See notes to financial statements.
2
<PAGE>
ULTRAFEM, INC.
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED THREE MONTHS ENDED
MARCH 31, MARCH 31,
----------------------------- ----------------------------
1997 1996 1997 1996
-------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net sales........................................... $ 1,572,007 $ -- $ 917,177 $ --
-------------- ------------- ------------- -------------
Costs and Expenses:
Cost of sales (exclusive of depreciation)......... 1,623,472 -- 850,558 --
Marketing, sales and distribution................. 14,468,202 791,367 6,649,490 130,730
Research and development.......................... 1,849,519 449,555 700,533 306,488
General and administrative........................ 5,990,814 3,579,525 2,253,597 1,774,105
Depreciation and amortization..................... 770,888 585,884 323,894 380,595
-------------- ------------- ------------- -------------
24,702,895 5,406,331 10,778,072 2,591,918
-------------- ------------- ------------- -------------
Loss from operations................................ 23,130,888 5,406,331 9,860,895 2,591,918
Interest income..................................... (1,222,162) (131,293) (538,721) (121,832)
Interest expense--net............................... 14,997 569,478 (214,793) 186,989
-------------- ------------- ------------- -------------
Net loss............................................ $ 21,923,723 $ 5,844,516 $ 9,107,381 $ 2,657,075
-------------- ------------- ------------- -------------
-------------- ------------- ------------- -------------
Net loss per share.................................. $ 3.19 $ 1.98 $ 1.15 $ .85
-------------- ------------- ------------- -------------
-------------- ------------- ------------- -------------
Weighted average number of common shares and
equivalents outstanding........................... 6,863,266 2,863,181 7,928,780 3,121,765
-------------- ------------- ------------- -------------
-------------- ------------- ------------- -------------
</TABLE>
See notes to financial statements.
3
<PAGE>
ULTRAFEM, INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
MARCH 31,
-----------------------
<S> <C> <C>
1997 1996
----------- ----------
Cash flows from operating activities:
Net loss.............................................................................. $(21,923,723) $(5,844,516)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation........................................................................ 489,316 48,548
Amortization of debt issuance, consulting, licensing and patent costs............... 281,572 537,337
Loss on disposal of equipment....................................................... 7,724 --
Non-cash officers compensation...................................................... 577,310 1,217,767
Non-employee stock based claim settlement........................................... 337,500 --
Non-employee stock based compensation............................................... 1,110 150,044
Changes in operating assets and liabilities......................................... 2,570 (464,202)
----------- ----------
Net Cash Used in Operating Activities............................................. (20,226,621) (4,355,022)
----------- ----------
Cash flows from investing activities:
Purchase of and deposits on property and equipment.................................... (7,299,916) (862,010)
----------- ----------
Net Cash Used in Investing Activities............................................. (7,299,916) (862,010)
----------- ----------
Cash flows from financing activities:
Proceeds from sale of convertible debentures.......................................... -- 2,125,000
Proceeds from notes payable........................................................... -- 2,227,870
Proceeds from sale of common stock (net of related expenses).......................... 35,924,421 34,085,611
Proceeds from exercise of stock options and warrants.................................. 747,705 776,000
Proceeds from sale of options and warrants............................................ -- 327
Repayment of borrowings............................................................... (321,221) (4,363,011)
Debt issue costs...................................................................... -- (716,458)
----------- ----------
Net Cash Provided by Financing Activities........................................... 36,350,905 34,135,339
----------- ----------
Net increase in cash.................................................................... 8,824,368 28,918,307
Cash and cash equivalents, beginning of period.......................................... 24,510,071 73,390
----------- ----------
Cash and cash equivalents, end of period................................................ $33,334,439 $28,991,697
----------- ----------
----------- ----------
Changes in operating assets and liabilities consist of:
Increase in accounts receivable....................................................... $ (681,897) $ --
Increase in inventory................................................................. (3,899,647) --
Increase in prepaid marketing and other current assets................................ (728,681) (392,164)
Decrease (increase) in other assets................................................... 17,621 (133,005)
Increase in accounts payable.......................................................... 660,893 114,673
Increase (decrease) in accrued liabilities............................................ 4,527,047 (53,706)
Increase in other long-term liabilities............................................... 107,234 --
----------- ----------
$ 2,570 $ (464,202)
----------- ----------
----------- ----------
Supplementary information:
Cash paid during the year for:
Interest............................................................................ $ 175,564 $ 503,214
----------- ----------
----------- ----------
Taxes............................................................................... $ -- $ --
----------- ----------
----------- ----------
Non-cash financing activities:
Conversion of secured notes and notes payable to convertible debentures............... $ -- $ 850,000
----------- ----------
----------- ----------
Conversion of secured notes to notes payable.......................................... $ -- $ 850,000
----------- ----------
----------- ----------
Conversion of accounts payable to warrants............................................ $ -- $ 85,000
----------- ----------
----------- ----------
Conversion of convertible debt to common stock........................................ $ 395,792 $ --
----------- ----------
----------- ----------
Issuance of below market value warrants in connection with the settlement of a
claim............................................................................... $ 337,500 $ --
----------- ----------
----------- ----------
Conversion of preferred stock to common stock......................................... $ 112,125 $ 73,125
----------- ----------
----------- ----------
Amounts receivable from the issuance of common stock.................................. $ -- $ 155,145
----------- ----------
----------- ----------
Issuance of below market value options and warrants in connection with professional
services and licensing agreement.................................................... $ 1,110 $ 350,044
----------- ----------
----------- ----------
</TABLE>
See notes to financial statements.
4
<PAGE>
ULTRAFEM, INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
1. ORGANIZATION AND BASIS OF PRESENTATION
During August 1996, Ultrafem, Inc. (the "Company" or "Ultrafem") began
selling the Company's product, INSTEAD-Registered Trademark-. Accordingly, as of
July 1, 1996, the Company is considered an operating entity rather than a
development stage enterprise.
The balance sheet as at March 31, 1997, and the statements of operations and
cash flows for the nine months ended March 31, 1997 and 1996 have been prepared
by the Company pursuant to the rules and regulations of the Securities and
Exchange Commission, and, in the opinion of management, contain all adjustments
(consisting of normal recurring adjustments) necessary to present fairly the
financial position, results of operations and cash flows for all periods
presented. Certain reclassifications have been made to conform with the current
presentation.
MARKETING COSTS--Marketing costs are expensed the first time the
advertisement or promotion takes place.
REVENUE RECOGNITION--Revenue is recognized upon shipment of merchandise.
CONSTRUCTION IN PROGRESS--Capitalized interest is included in construction
in progress and netted against interest expense.
2. RECENTLY ISSUED ACCOUNTING STANDARD
In February 1997, The Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, Earnings per Share, which establishes
new standards for computing and presenting net income per share and replaces the
standards previously found in Accounting Principles Board Opinion No. 15,
Earnings Per Share. The Company will begin reporting net income (loss) per share
according to this new standard in the second quarter of fiscal 1998. The Company
does not expect the implementation of SFAS No. 128 regarding the restatement of
prior periods net loss per share to have a material effect on the Company's
computation.
3. INVENTORY
Inventory consists of the following:
<TABLE>
<CAPTION>
MARCH 31, JUNE 30,
1997 1996
------------ ----------
<S> <C> <C>
Raw materials....................................................... $ 1,161,208 $ 258,919
Work-in-process..................................................... 36,457 --
Finished goods...................................................... 2,968,933 8,032
------------ ----------
$ 4,166,598 $ 266,951
------------ ----------
------------ ----------
</TABLE>
5
<PAGE>
ULTRAFEM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
4. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
MARCH 31, JUNE 30,
1997 1996
------------ ------------
<S> <C> <C>
Machinery and equipment........................................... $ 3,762,268 $ 1,797,941
Office furniture and equipment.................................... 729,185 105,096
Leasehold improvements............................................ 1,163,670 439,172
Construction in progress.......................................... 4,765,078 804,068
------------ ------------
10,420,201 3,146,277
Less accumulated depreciation and amortization.................... (742,172) (271,124)
------------ ------------
$ 9,678,029 $ 2,875,153
------------ ------------
------------ ------------
</TABLE>
5. RELATED PARTY
A director and stockholder of the Company is the Chairman of the Executive
Committee of an advertising agency used by the Company which was paid
approximately $8,420,000 and $628,000 during the nine months ended March 31,
1997 and 1996, respectively. In addition, approximately $2,238,000 and $560,000
owed to such agency are included in accrued liabilities and accounts payable at
March 31, 1997 and June 30, 1996, respectively.
The Company entered into a Research Agreement with ReProtect, LLC, formed by
scientists associated with The Johns Hopkins University (including a current
director) who conduct research for the Company. Research and development
expenditures pursuant to the above agreement amounted to approximately $750,000
for the nine months ended March 31, 1997. Included in prepaid marketing and
other current assets at March 31, 1997 and June 30, 1996 is $83,300 of prepaid
research and development expenditures paid to ReProtect.
6
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
Ultrafem is a women's health care company dedicated to providing women with
a broader range of options to protect their reproductive health. The Company's
business strategy is to develop, manufacture and market proprietary products
based on its patented SoftCup-Registered Trademark- Technology directed at high
potential, underserved segments of the women's health care market.
The Company's activities during the nine months ended March 31, 1997 were
focused on the launch of INSTEAD-REGISTERED TRADEMARK-, which commenced in
August 1996 and the expansion of the distribution of
INSTEAD-REGISTERED TRADEMARK-. The lead market for the initial rollout was in
the Pacific Northwest, a region which the Company estimates represents
approximately 8% of U.S. households and includes the major markets of San
Francisco, Seattle and Portland. Within the Pacific Northwest, food and drug
accounts overall dollar share of the tampon category for the twelve weeks ended
March 29, 1997 was 5.3%, as measured by A.C. Nielsen, versus 2.5% for the twelve
weeks ended December 28, 1996.
During the third quarter, the Company solidified plans to launch into the
second wave of its rollout. The second wave expansion geography completes the
Western United States and includes Southern California, Colorado, Montana, New
Mexico, Nevada, Wyoming, Hawaii, Alaska, Arizona and Utah. This launch commenced
on April 1, 1997, bringing INSTEAD-REGISTERED TRADEMARK- into markets which the
Company estimates represents 25% of United States households. The Company has
firm commitments from retail accounts in the rollout geography that represent
90% of all commodity volume in the drug class of trade, and 80% of the all
commodity volume within the food class of trade.
During the third quarter, the Company began shipping
INSTEAD-REGISTERED TRADEMARK- to both Target and Walgreens on a national basis,
totaling over 3,000 stores. This commitment from two of the nation's premier
retailers, with a combined market reach of 75% of the United States, will give
Ultrafem the opportunity to leverage interest from national media and provide a
purchase location for the millions of women who reside outside the lead market
geography.
During the nine months ended March 31, 1997, the Company continued marketing
and advertising activities for the first two waves of the rollout to support the
launch of INSTEAD-REGISTERED TRADEMARK- directed toward the consumer audiences
and the retail trade. These activities were centered on generating trial and
awareness of INSTEAD-REGISTERED TRADEMARK-. A customized research study
conducted in the quarter ended December 31, 1996, showed a 62% intent to convert
among consumers who responded to a consumer program offering, with 34% rating
themselves "definitely will convert" and 28% rating themselves "probably will
convert". A follow-up survey with the same population was conducted in the
quarter ended March 31, 1997 which showed 32% had already purchased
INSTEAD-REGISTERED TRADEMARK- with another 32% stating they definitely or
probably intended to purchase.
The Company also conducted research on the impact of its advertising
campaign. The INSTEAD-REGISTERED TRADEMARK- advertising received the highest
recall score in feminine protection advertising history, according to the
independent testing firm that conducted the research. Furthermore, an additional
independent tracking survey showed that this advertising in combination with the
other INSTEAD-REGISTERED TRADEMARK- marketing programs has resulted in brand
awareness of 62% in the Pacific Northwest, approaching the awareness levels of
key competitors who have been in the marketplace for over twenty-five (25)
years.
In addition to INSTEAD-REGISTERED TRADEMARK- launch activities, research and
development activities on new products continued. The BufferGel Technology
("BufferGel") developed by the Company's research and development partner,
ReProtect, LLC, was selected by HIVNET for funding of Phase I clinical trials to
test its safety in humans for use as an agent for the prevention of AIDS and
other sexually transmitted diseases (STDs). The Phase I clinical trials began in
December 1996 in Providence, Rhode Island. The first patent for the BufferGel
Technology for a vaginal device for controlling pH by acidic buffering was
received on January 14, 1997 by Ultrafem's research and development partner.
7
<PAGE>
The following table sets forth, for the periods indicated, the percentage
increases or decreases of certain items included in the Company's statement of
operations:
<TABLE>
<CAPTION>
INCREASE (DECREASE) FROM PRIOR PERIOD
--------------------------------------------
NINE MONTHS ENDED THREE MONTHS ENDED
MARCH 31, 1997 MARCH 31, 1997
COMPARED WITH 1996 COMPARED WITH 1996
--------------------- ---------------------
<S> <C> <C>
Net sales (1)....................................... -- --
Cost of sales (exclusive of depreciation) (1)....... -- --
Marketing, sales and distribution (3)............... -- --
Research and development............................ 311.4% 128.6%
General and administrative.......................... 67.4 27.0
Depreciation and amortization....................... 31.6 (14.9)
Loss from operations................................ 327.8 280.4
Interest income (2)................................. -- --
Interest expense.................................... (97.4) (214.9)
Net loss............................................ 275.1 242.8
</TABLE>
- ------------------------
(1) This percentage is not meaningful since the Company began generating sales
in August 1996.
(2) This percentage is not meaningful since the Company began generating
interest income in February 1996.
(3) This percentage is not meaningful since the Company began the launch of
INSTEAD-REGISTERED TRADEMARK- in August 1996.
NINE MONTHS 1997 VS. NINE MONTHS 1996 AND THREE MONTHS 1997 VS. THREE MONTHS
1996
NET SALES
Net sales for the nine months ended March 31, 1997 were $1,572,007 resulting
from the shipment of INSTEAD-REGISTERED TRADEMARK-. The Company was a
development stage company for the nine months ended March 31, 1996 and generated
no sales.
Net sales for the three months ended March 31, 1997 were $917,177. The
Company attributes this increase to the shipment of
INSTEAD-REGISTERED TRADEMARK-.
COST OF SALES (EXCLUSIVE OF DEPRECIATION)
Cost of sales during the nine months ended March 31, 1997 was $1,623,472.
The Company was a development stage company during the nine months ended March
31, 1996 and incurred no cost of sales. The cost of sales for the nine months
ended March 31, 1997 was attributable to start-up and manufacturing costs
associated with the production of INSTEAD-REGISTERED TRADEMARK- to support
related sales. For the nine months ended March 31, 1997, the Company has not
reached a level of production adequate to absorb the Company's manufacturing
costs on a cost efficient basis.
Cost of sales for the three months ended March 31, 1997 was $850,558. The
Company attributes this increase to the reasons set forth in the nine month
analysis. During the three months ended March 31, 1997, the Company experienced
less start-up manufacturing costs and reached a level of production adequate to
absorb the Company's manufacturing costs exclusive of depreciation and
amortization.
8
<PAGE>
MARKETING, SALES AND DISTRIBUTION
Marketing, sales and distribution expense increased to $14,468,202 for the
nine months ended March 31, 1997 from $791,367 for the nine months ended March
31, 1996. This increase was principally attributable to expenses incurred in
connection with the launch of INSTEAD-REGISTERED TRADEMARK- during the nine
months ended March 31, 1997 for marketing and advertising for television, print,
sampling and coupon mailings to generate consumer trial and awareness of
INSTEAD-REGISTERED TRADEMARK- and to a lesser extent market research and
administration of the various marketing and sales programs.
Marketing, sales and distribution expense increased to $6,649,490 during the
three months ended March 31, 1997 from $130,730 during the three months ended
March 31, 1996. The Company attributes this increase primarily to those reasons
set forth above.
RESEARCH AND DEVELOPMENT
Research and development expense increased to $1,849,519 for the nine months
ended March 31, 1997 from $449,555 for the nine months ended March 31, 1996. The
increase was primarily attributable to payments to ReProtect under the terms of
the Company's research and development agreement and to a lesser extent
administration of the various research and development programs.
Research and development expense increased to $700,533 during the three
months ended March 31, 1997 from $306,488 during the three months ended March
31, 1996. The Company attributes this increase primarily to those reasons set
forth above.
GENERAL AND ADMINISTRATIVE
General and administrative expense increased 67.4% to $5,990,814 for the
nine months ended March 31, 1997 from $3,579,525 for the nine months ended March
31, 1996. This increase was primarily due to salaries attributable to
administration support, non-cash charges resulting from the issuance of warrants
to purchase Common Stock at prices below fair market value in connection with
the settlement of a claim and increases in financial investor relations expense.
This increase was also due, to a lesser extent, to increases in legal fees and
consulting expense. This was offset in part by lower non-cash charges resulting
from issuance in prior years of options to purchase Common Stock at prices below
fair market value to officers and a director of the Company.
General and administrative expense increased 27.0% to $2,253,597 during the
three months ended March 31, 1997 from $1,774,105 during the three months ended
March 31, 1996. The Company attributes this increase primarily to those reasons
set forth above.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization increased 31.6% to $770,888 for the nine
months ended March 31, 1997 from $585,884 for the nine months ended March 31,
1996. This increase was attributable to the increase in the depreciation of
property and equipment offset by a decrease in the amortization of deferred debt
issuance costs.
Depreciation and amortization was $323,894 for the three months ended March
31, 1997 and $380,595 for the three months ended March 31, 1996. The 14.9%
decrease is primarily attributable to the write-off of deferred debt issuance
costs during the three months ended March 31, 1996 in connection with the
repayment of debt by the Company.
INTEREST EXPENSE
Interest expense associated with the Company's debt was $314,872 and
$569,478 for the nine months ended March 31, 1997 and 1996. For the nine months
ended March 31, 1997 interest expense was offset by
9
<PAGE>
$314,872 resulting from capitalized interest for construction in progress. The
decrease in interest expense associated with the Company's debt for the nine
months ended March 31, 1997 compared to the nine months ended March 31, 1996 was
attributable to the repayment of debt by the Company and the conversion of
convertible debt to Common Stock.
Interest expense associated with the Company's debt was $100,079 and
$186,989 for the three months ended March 31, 1997 and 1996, respectively. For
the three months ended March 31, 1997 interest expense was offset by $314,872
resulting from capitalized interest for construction in progress. The net
decrease in interest expense for the three months ended March 31, 1997 compared
to the three months ended March 31, 1996 was attributable to the reasons set
forth above.
INTEREST INCOME
Interest income was $1,222,162 and $131,293 for the nine months ended March
31, 1997 and 1996, respectively. The increase for the nine months ended March
31, 1997 compared to the nine months ended March 31, 1996 was attributable to
the money received by the Company during February 1996 from its Initial Public
Offering ("IPO") and during November 1996 from its second offering which was
invested in cash equivalents during the nine months ended March 31, 1997.
Interest income was $538,721 for the three months ended March 31, 1997 and
$121,832 for the three months ended March 31, 1996. The increase for the three
months ended March 31, 1997 compared to the three months ended March 31, 1996
was attributable to the reasons set forth above.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1997, the Company had $33,334,439 in cash and cash equivalents.
From June 30, 1996 to March 31, 1997, the Company's cash position increased by
$8,824,368, principally reflecting $35,924,421 in net proceeds from the sale of
2,000,000 shares of the Company's Common Stock through a second public offering;
$747,705 in proceeds from the exercise of stock options and warrants offset by
$20,226,621 used in operating activities, $7,299,916 used for the purchase of
property and equipment, and $321,221 for the repayment of debt.
The Company's working capital and capital requirements will depend on
numerous factors, including the progress of the staged market introduction of
INSTEAD-REGISTERED TRADEMARK-, the Company's research and development
activities, the level of resources that the Company devotes to the clinical,
patent, regulatory and marketing aspects of its products and the extent to which
strategic alliances with multi-national pharmaceutical or consumer product
companies are formed. At March 31, 1997, the Company had commitments in the
amount of approximately $7,997,000, of which $2,885,000 was unpaid, principally
for the purchase of manufacturing equipment and improvements to the
manufacturing facility to support increased levels of production. Included in
accounts payable and accrued liabilities at March 31, 1997 was approximately
$749,000 of these unpaid commitments. In addition, in February 1996 the Company
and ReProtect entered into a License, Research and Product Development Agreement
under which the Company is obligated to pay ReProtect a minimum of $1 million
per year for research and development. In addition, the Company will also
continue to incur additional expenses for research and development, prototype
manufacturing, laboratory and human clinical studies, regulatory and patent as
well as market research.
The Company's stockholders' equity increased by approximately $15,407,000
from June 30, 1996 to March 31, 1997 reflecting net proceeds of approximately
$35,924,000 from the sale of 2,000,000 shares of the Company's common stock
through a second public offering, proceeds from the exercise of stock options
and warrants, issuance of below market value stock warrants in connection with
the settlement of a claim and conversion of convertible debt into Common Stock
of approximately $1,407,000 offset by a net loss for the nine months ended March
31, 1997 of approximately $21,924,000.
10
<PAGE>
Subsequent to March 31, 1997, all remaining holders of the convertible notes
due April 1997 in the amount of $2,725,000 have converted their notes into
545,000 shares of the Company's Common Stock.
The Company believes that the financial resources available to it is an
important factor in its ability to achieve the marketing and distribution of
INSTEAD-REGISTERED TRADEMARK- and its ability to develop and eventually bring
medical products to market. The Company's need for funds has increased from
period to period as it has incurred expenses for, among other things, the
manufacturing, marketing and distribution of INSTEAD-REGISTERED TRADEMARK-,
research and development activities, engineering and design of fully automated
manufacturing systems, clinical testing, meeting domestic and international
regulatory requirements, applications for domestic and international patent
protection, applications for domestic trademark protection and market research.
The Company may require additional financing in the future to meet these needs
and if unforeseen risks are encountered. If the Company is unable to raise
additional capital or arrange satisfactory working capital or additional equity
financing the Company may be unable to complete the distribution of
INSTEAD-REGISTERED TRADEMARK- into the full United States market. Additional
financing may require the issuance of new equity securities, and there can be no
assurance that the Company will be able to obtain working capital or additional
financing at a favorable rate, if at all.
This Management's Discussion and Analysis of Financial Condition and Results
of Operations includes forward-looking statements within the meaning of Section
27A of the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended. These forward-looking statements involve risks
and uncertainties that may cause the Company's actual results to differ
materially from the results discussed in the forward-looking statements. Factors
that might cause such differences include the following: dependence on the
Company's single product; the need for additional financing to successfully
market and distribute INSTEAD-REGISTERED TRADEMARK- as well as for unforeseen
risks; the changing priorities of customers as well as other marketing risks;
the Company's lack of manufacturing experience; the uncertainty of consumer
acceptance; the necessity of regulatory clearances to market its products;
potential product liability; risks associated with the Company's proprietary
technology; risks associated with the research and development for other
applications of the Softcup-Registered Trademark- Technology; and risks
associated with a competitive response to the Company's product. The Company
urges readers to carefully review the risks and factors discussed more
completely under the heading "Risk Factors" in the Company's Prospectus dated
November 13, 1996.
11
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 2. Changes in Securities
(a) On February 10, 1997 the stockholders of the Corporation adopted a
proposal to amend the Corporation's Certificate of Incorporation to increase the
number of authorized shares of the Corporation's Common Stock from 20,000,000
shares to 70,000,000 shares.
(c) On February 10, 1997, the Corporation issued ten year options to purchase
an aggregate of 5,225 shares of Common Stock under the Corporation's 1990 Stock
Option Plan to six employees of the Corporation at an exercise price of $17.875
per share, the closing price of the Common Stock on NASDAQ on the date of grant.
The Options are exercisable in five equal annual installments beginning on the
first anniversary of the date of grant; provided that subject to the terms of
the 1990 Stock Option Plan, such options shall only vest if on the date of
vesting the option holder is an employee of the Corporation.
The Corporation believes the grant of the option was made in reliance upon
the exemption from the registration provisions under the Securities Act of 1933,
as amended, contained in Section 4(2) thereof.
Item 3.Defaults upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
(a) The Corporation held an Annual Meeting of Stockholders on February 10,
1997.
(c) At the Annual Meeting of Stockholders', the stockholders of the
Corporation voted on (i) the election of John W. Andersen and Charles D.
Peebler, Jr. as directors of the Corporation, and (ii) a proposal to amend the
Corporation's Certificate of Incorporation to increase the number of authorized
shares of the Corporation's Common Stock from 20,000,000 shares to 70,000,000
shares. Of the shares represented at the meeting, 6,979,234 shares were voted
for the election of Mr. Andersen to serve as director of the Corporation, 15,101
shares were voted against the election of Mr. Andersen to serve as director of
the Corporation or were withheld, and there were no broker non-votes; 6,979,234
shares were voted for the election of Mr. Peebler to serve as director of the
Corporation, 15,101 shares were voted against the election of Mr. Peebler to
serve as director of the Corporation or were withheld, and there were no broker
non-votes; and 5,761,991 shares were voted in favor of the proposal to amend the
Corporation's Certificate of Incorporation to increase the number of authorized
shares of Common Stock, 1,013,945 shares were voted against the proposal to
amend the Corporation's Certificate of Incorporation to increase the number of
authorized shares of Common Stock, 6,194 shares abstained with respect to the
proposal to amend the Corporation's Certificate of Incorporation to increase the
number of authorized shares of Common Stock, and 212,205 shares were broker
non-votes.
Item 5.Other Information
None.
12
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
- ----------- --------------------------------------------------------------------------------------
<C> <S>
27.1 Financial Data Schedule
</TABLE>
(b) Reports on 8-K
None.
13
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ULTRAFEM, INC.
By: /s/ JOHN W. ANDERSEN
-----------------------------------------
John W. Andersen, PRESIDENT;
CHIEF EXECUTIVE OFFICER; DIRECTOR AND
CHAIRMAN OF THE BOARD OF DIRECTORS
By: /s/ DORI M. REAP
-----------------------------------------
Dori M. Reap, SENIOR VICE PRESIDENT
OF FINANCE AND ADMINISTRATION AND
CHIEF FINANCIAL OFFICER
Dated: May 7, 1997
14
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM ULTRAFEM,
INC. FINANCIAL STATEMENTS AT MARCH 31, 1997 AND THE NINE MONTHS THEN ENDED AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> MAR-31-1997
<CASH> 33,334,439
<SECURITIES> 0
<RECEIVABLES> 700,118
<ALLOWANCES> 18,221
<INVENTORY> 4,166,598
<CURRENT-ASSETS> 39,445,658
<PP&E> 10,420,201
<DEPRECIATION> 742,172
<TOTAL-ASSETS> 49,970,752
<CURRENT-LIABILITIES> 12,472,229
<BONDS> 0
0
0
<COMMON> 12,118
<OTHER-SE> 36,679,171
<TOTAL-LIABILITY-AND-EQUITY> 49,970,752
<SALES> 1,572,007
<TOTAL-REVENUES> 1,572,007
<CGS> 1,623,472
<TOTAL-COSTS> 24,702,895
<OTHER-EXPENSES> (1,222,162)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 14,997
<INCOME-PRETAX> (21,923,723)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (21,923,723)
<EPS-PRIMARY> (3.19)
<EPS-DILUTED> 0
</TABLE>
