<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
<TABLE>
<S> <C>
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
</TABLE>
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 of (I.R.S. Employer Identification No.)
incorporation or organization)
</TABLE>
805 THIRD AVENUE, 17TH FLOOR
NEW YORK, NEW YORK 10022
(Address of principal executive offices)
(Zip Code)
212-446-1400
(Registrant's telephone number, including area code)
------------------------
(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 November 7, 1997, there were 8,557,003 shares of Common Stock, $.001 par
value, outstanding.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
ULTRAFEM, INC.
INDEX
<TABLE>
<CAPTION>
PAGE
NUMBER
-----------
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements..................................................................... 1
Balance Sheets as of September 30, 1997 and June 30, 1997................................ 2
Statements of Operations for the Three Months Ended September 30, 1997 and 1996.......... 3
Statements of Cash Flows for the Three Months Ended September 30, 1997 and 1996.......... 4
Notes to Financial Statements............................................................ 5-6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.... 7-10
PART II. OTHER INFORMATION
Item 1. Legal Proceedings........................................................................ 11
Item 2. Changes in Securities.................................................................... 11
Item 3. Defaults upon Senior Securities.......................................................... 11
Item 4. Submission of Matters to a Vote of Security Holders...................................... 11
Item 5. Other Information........................................................................ 11
Item 6. Exhibits and Reports on Form 8-K......................................................... 11
Signatures............................................................................................. 12
</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 Annual Report on Form 10-K for the year ended June 30,
1997.
The results of operations for the three month period ended September 30,
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>
SEPTEMBER 30, JUNE 30,
1997 1997
------------- -------------
<S> <C> <C>
(UNAUDITED)
<CAPTION>
ASSETS
<S> <C> <C>
Current Assets:
Cash and cash equivalents........................................................ $ 7,274,665 $ 20,751,393
Accounts receivable--less allowance for doubtful accounts of $82,000 and
$72,000........................................................................ 1,495,315 1,515,788
Inventory........................................................................ 4,945,813 4,581,944
Prepaid marketing and other current assets....................................... 2,443,855 1,420,330
------------- -------------
Total Current Assets........................................................... 16,159,648 28,269,455
Property and equipment--net........................................................ 11,703,552 11,227,028
Other assets--net.................................................................. 1,400,774 1,209,810
------------- -------------
TOTAL ASSETS................................................................... $ 29,263,974 $ 40,706,293
------------- -------------
------------- -------------
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
Current Liabilities:
Accounts payable................................................................. $ 4,014,216 $ 3,639,035
Accrued interest................................................................. 492,924 463,833
Accrued salaries................................................................. 2,660,717 2,823,615
Accrued marketing and selling.................................................... 4,777,377 5,665,363
Other accrued liabilities........................................................ 2,047,872 2,359,797
------------- -------------
Total Current Liabilities...................................................... 13,993,106 14,951,643
Long-term debt..................................................................... 700,000 700,000
Other liabilities.................................................................. 210,517 186,412
------------- -------------
Total Liabilities.............................................................. 14,903,623 15,838,055
------------- -------------
Stockholders' Equity:
Preferred stock, $.001 par value--authorized 5,000,000 shares $8 cumulative
Convertible Series A: none issued.............................................. -- --
Common stock, $.001 par value--authorized 70,000,000 shares; outstanding
8,557,003 and 5,737,241 shares, respectively (stated at)....................... 12,710 12,668
Additional paid-in capital....................................................... 82,936,142 82,622,208
Deficit.......................................................................... (68,588,501) (57,766,638)
------------- -------------
Total Stockholders' Equity..................................................... 14,360,351 24,868,238
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY..................................... $ 29,263,974 $ 40,706,293
------------- -------------
------------- -------------
</TABLE>
See notes to financial statements.
2
<PAGE>
ULTRAFEM, INC.
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
---------------------------
<S> <C> <C>
1997 1996
------------- ------------
Net sales............................................................................ $ 1,786,679 $ 192,540
------------- ------------
Costs and Expenses:
Cost of sales (exclusive of depreciation).......................................... 1,168,381 358,377
Marketing, sales and distribution.................................................. 8,507,890 2,921,392
Research and development........................................................... 805,960 394,778
General and administrative......................................................... 2,076,229 1,924,557
Depreciation and amortization...................................................... 262,687 213,355
------------- ------------
12,821,147 5,812,459
------------- ------------
Loss from operations................................................................. 11,034,468 5,619,919
Interest income...................................................................... (216,871) (285,345)
Interest expense--net of capitalized interest of $30,714 in 1997..................... 4,266 122,858
------------- ------------
Net loss............................................................................. $ 10,821,863 $ 5,457,432
------------- ------------
------------- ------------
Net loss per share................................................................... $ 1.27 $ .94
------------- ------------
------------- ------------
Weighted average number of common shares and equivalents outstanding................. 8,521,886 5,827,622
------------- ------------
------------- ------------
</TABLE>
See notes to financial statements.
3
<PAGE>
ULTRAFEM, INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
-----------------------------
<S> <C> <C>
1997 1996
-------------- -------------
Cash flows from operating activities:
Net loss........................................................................... $ (10,821,863) $ (5,457,432)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation................................................................... 226,966 109,284
Provision for doubtful accounts................................................ 10,000 --
Amortization of debt issuance, consulting, licensing and patent costs.......... 35,721 104,071
Non-cash officers compensation................................................. 192,613 192,970
Non-employee stock-based claim settlement...................................... -- 338,000
Non-employee stock-based compensation.......................................... 46,178 --
Loss on disposal of equipment.................................................. 9,816 7,724
Changes in operating assets and liabilities.................................... (2,730,651) (745,925)
-------------- -------------
Net Cash Used in Operating Activities........................................ (13,031,220) (5,451,308)
-------------- -------------
Cash flows from investing activities:
Purchase of and deposits on property and equipment............................... (763,074) (2,946,550)
Proceeds from sale of equipment.................................................. 49,768 --
-------------- -------------
Net Cash Used in Investing Activities.......................................... (713,306) (2,946,550)
-------------- -------------
Cash flows from financing activities:
Proceeds from exercise of stock options and warrants............................. 267,798 654,010
Repayment of borrowings.......................................................... -- (103,125)
-------------- -------------
Net Cash Provided by Financing Activities...................................... 267,798 550,885
-------------- -------------
Net (decrease) in cash............................................................. (13,476,728) (7,846,973)
Cash and cash equivalents, beginning of period..................................... 20,751,393 24,510,071
-------------- -------------
Cash and cash equivalents, end of period........................................... $ 7,274,665 $ 16,663,098
-------------- -------------
-------------- -------------
Changes in operating assets and liabilities consist of:
Decrease (increase) in accounts receivable....................................... $ 10,473 $ (157,806)
Increase in inventory............................................................ (363,869) (909,492)
Increase in prepaid marketing and other current assets........................... (1,023,525) (1,034,290)
Increase in other assets......................................................... (226,685) (454,070)
Increase in accounts payable..................................................... 375,181 817,263
(Decrease) increase in accrued liabilities....................................... (1,526,331) 992,470
Increase in other long-term liabilities.......................................... 24,105 --
-------------- -------------
$ (2,730,651) $ (745,925)
-------------- -------------
-------------- -------------
Supplementary information:
Cash paid during the year for:
Interest....................................................................... $ 5,888 $ 77,754
-------------- -------------
-------------- -------------
Taxes.......................................................................... $ -- $ --
-------------- -------------
-------------- -------------
Non-cash financing activities:
Conversion of notes payable to common stock...................................... $ -- $ 130,000
-------------- -------------
-------------- -------------
Conversion of preferred stock to common stock.................................... $ -- $ 112,125
-------------- -------------
-------------- -------------
Other non-cash activities:
Issuance of options and warrants in connection with employee and non-employee
stock-based compensation....................................................... $ 238,791 $ 530,970
-------------- -------------
-------------- -------------
</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, the
Company is no longer considered a development stage enterprise as it was through
June 30, 1996.
The balance sheet as at September 30, 1997 and the statements of operations
and cash flows for the three months ended September 30, 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.
2. LOSS PER COMMON AND COMMON EQUIVALENT SHARE
Loss per common and common equivalent share for the three months ended
September 30, 1997 and 1996 was computed using the weighted average number of
common shares outstanding during each period. The dilutive effect of outstanding
options, warrants and common stock equivalents for the three months ended
September 30, 1997 and 1996 were not considered as their effect was
antidilutive.
3. INVENTORY
Inventory consists of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, JUNE 30,
1997 1997
------------- -------------
<S> <C> <C>
Raw materials...................................................................... $ 927,175 $ 1,026,051
Work-in-process.................................................................... 25,748 26,785
Finished goods..................................................................... 3,992,890 3,529,108
------------- -------------
$ 4,945,813 $ 4,581,944
------------- -------------
------------- -------------
</TABLE>
4. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, JUNE 30,
1997 1997
------------- -------------
<S> <C> <C>
Machinery and equipment............................................................ $ 4,458,229 $ 4,400,397
Office furniture and equipment..................................................... 802,781 744,614
Leasehold improvements............................................................. 1,242,097 1,234,016
Construction in progress........................................................... 6,358,588 5,785,501
------------- -------------
12,861,695 12,164,528
Less accumulated depreciation and amortization..................................... (1,158,143) (937,500)
------------- -------------
$ 11,703,552 $ 11,227,028
------------- -------------
------------- -------------
</TABLE>
5
<PAGE>
ULTRAFEM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
5. OTHER ASSETS
Other assets consist of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, JUNE 30,
1997 1997
------------- -------------
<S> <C> <C>
Patent and trademark costs.......................................................... $ 222,493 $ 222,493
Debt issuance costs................................................................. 23,734 23,734
Deferred offering costs............................................................. 192,132 --
Consulting agreement................................................................ 275,000 275,000
Licensing agreements................................................................ 400,000 400,000
Security deposits................................................................... 533,226 498,673
------------- -------------
1,646,585 1,419,900
Less accumulated amortization....................................................... (245,811) (210,090)
------------- -------------
$ 1,400,774 $ 1,209,810
------------- -------------
------------- -------------
</TABLE>
6. RELATED PARTY
A director and stockholder of the Company is the President and Chief
Executive Officer of a holding company which includes an advertising agency used
by the Company which was paid approximately $7,303,000 and $2,048,000 during the
three months ended September 30, 1997 and 1996, respectively. In addition,
approximately $5,732,000 and $6,072,000 owed to such agency are included in
accrued liabilities and accounts payable at September 30, 1997 and June 30,
1997, 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 $302,000
and $250,000 for the three months ended September 30, 1997 and 1996,
respectively. Included in prepaid marketing and other current assets at
September 30, 1997 and June 30, 1997 is $135,917 and $83,300, respectively, of
prepaid research and development expenditures paid to ReProtect.
A director and stockholder of the Company is a partner of a law firm used by
the Company which was paid approximately $156,000 and $222,000 for the three
months ended September 30, 1997 and 1996, respectively. In addition,
approximately $95,000 and $102,000 owed to the law firm is included in accounts
payable and accrued expenses at September 30, 1997 and June 30, 1997,
respectively.
6
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
The Company's activities during the quarter ended September 30, 1997 were
focused on the commercial introduction of INSTEAD-Registered Trademark-. The
introduction of INSTEAD-Registered Trademark- was initiated in the Fall of 1996
in the Pacific Northwest ("Wave I"), a region which the Company estimates
represents approximately 8% of U.S. households and includes the major markets of
San Francisco, Seattle, Portland, Spokane, Sacramento and Boise. Key retailers
carrying INSTEAD-Registered Trademark- in this geography include Albertsons,
Fred Meyer, Longs, Luckys, Safeway, Target, Thrifty Payless, and Walgreens. In
the Spring of 1997, the Company expanded the distribution of
INSTEAD-Registered Trademark- into the remaining Western United States ("Wave
II"), a region which the Company estimates represents approximately 16% of U.S.
households and includes the major markets of Los Angeles, San Diego, Phoenix,
Salt Lake City, Las Vegas and Denver. New key retailers in this geography
include Fry's, King Sooper, Osco, Ralph's, Vons and Wal-Mart. In the first half
of 1997, the Company began to distribute INSTEAD-Registered Trademark- on a
national basis to Target and Walgreens. During the quarter ended September 30,
1997, CVS/Revco, Eckerd and Rite-Aid began national distribution of
INSTEAD-Registered Trademark-.
The Company continued marketing and advertising activities for
INSTEAD-Registered Trademark- directed to the consumer audiences and retail
trade. These activities were centered on generating awareness and trial of
INSTEAD-Registered Trademark-. In Wave I (Pacific Northwest), AC Nielsen dollar
market share for the quarter ended September 27, 1997 was 4.4%. Significant
increases were seen in the mass merchandiser class of trade, growing from a 2.5%
dollar market share in the fourth quarter of fiscal 1997 to a 3.8% dollar market
share in the first quarter of fiscal 1998.
In the Wave II area, retail distribution and consumer response are
significantly ahead of the initial launch area after only three months in the
market. Distribution in the food class of trade was 63% in Wave II compared with
41% in Wave I. AC Nielsen dollar market share in the additional 16% geography
continues to grow with a 2.5% dollar market share for the quarter ended
September 27, 1997.
Manufacturing activities to support the launch of
INSTEAD-Registered Trademark- progressed during the three months ended September
30, 1997. For the three months ended September 30, 1997, gross margin exclusive
of depreciation was positive, as the Company maintained a level of production
adequate to absorb manufacturing costs.
In addition, research and development activities on new products continued.
On September 15, 1997, Ultrafem began pre-clinical trials with women at two U.S.
test centers under an IND for the contraceptive product, which combines the
SoftCup-Registered Trademark- Technology and the BufferGel-TM-.
The BufferGel-TM- Phase I clinical trials in the U.S. are nearing
completion. The study was sponsored by HIVNET, a unit of the National Institutes
of Health to validate the safety of BufferGel-TM- for use as a vaginal
microbicide for the prevention of AIDS and other sexually transmitted diseases
(STD's). BufferGel-TM- was developed by ReProtect, LLC scientists associated
with Johns Hopkins University. Ultrafem has the worldwide licensing rights to
BufferGel-TM- and intends to bring to market all new vaginal products using the
BufferGel-TM- technology.
7
<PAGE>
The following table sets forth, for the periods indicated, the percentage
increases or (decreases) of certain items included in the Company's statements
of operations:
<TABLE>
<CAPTION>
PERCENTAGE
INCREASE(DECREASE) FROM PRIOR PERIOD
---------------------------------------
<S> <C>
THREE MONTHS ENDED SEPTEMBER 30, 1997
COMPARED WITH 1996
---------------------------------------
Net sales.................................................................. 828.0%
Cost of sales (exclusive of depreciation).................................. 226.0
Marketing, sales and distribution.......................................... 191.2
Research and development................................................... 104.2
General and administrative................................................. 7.9
Depreciation and amortization.............................................. 23.1
Interest income............................................................ (24.0)
Interest expense........................................................... (96.5)
Net loss................................................................... 98.3
</TABLE>
THREE MONTHS 1997 VS. THREE MONTHS 1996
NET SALES
Net sales increased 828% to $1,786,679 during the three months ended
September 30, 1997 compared to $192,540 during the three months ended September
30, 1996. The Company attributes this increase primarily to expanded
distribution of INSTEAD-Registered Trademark- to the Western United States in
the Spring of 1997 compared to distribution, which began during August 1996,
only in the Pacific Northwest during the three months ended September 30, 1996.
This increase was also due to expanded distribution on a national basis to
retailers such as Target, Walgreens, CVS/Revco, Eckerd and Rite-Aid and greater
store sales in the comparable Pacific Northwest market where the Company was in
the same market during both quarters.
COST OF SALES (EXCLUSIVE OF DEPRECIATION)
Cost of sales increased 226% to $1,168,381 during the three months ended
September 30, 1997 compared to $358,377 during the three months ended September
30, 1996, exclusive of depreciation. The Company attributes this increase
primarily to increased manufacturing costs associated with the production of
INSTEAD-Registered Trademark- to support related increased sales and samples.
MARKETING, SALES AND DISTRIBUTION
Marketing, sales and distribution expense increased 191.2% to $8,507,890
during the three months ended September 30, 1997 compared to $2,921,392 during
the three months ended September 30, 1996. The Company attributes this increase
primarily to expenses incurred in connection with the continued expansion of
INSTEAD-Registered Trademark- into the Pacific Northwest, into further western
geography and initiation of distribution into selected national accounts. This
included marketing, advertising for television, print, sampling and coupon
mailings to generate consumer trial and awareness of
INSTEAD-Registered Trademark- and, to a lesser extent, administration of the
various marketing and sales programs and market research.
RESEARCH AND DEVELOPMENT
Research and development expense increased 104.2% to $805,960 during the
three months ended September 30, 1997 compared to $394,778 during the three
months ended September 30, 1996. The increase was primarily attributable to
development of the contraceptive product prototypes, consulting fees in
connection with developing a strategic plan regarding the Company's health care
products and to a lesser extent legal expenses.
8
<PAGE>
GENERAL AND ADMINISTRATIVE
General and administrative expense increased 7.9% to $2,076,229 during the
three months ended September 30, 1997 compared to $1,924,557 during the three
months ended September 30, 1996. This increase was primarily due to salaries and
related expenses attributable to support general and administrative activities,
insurance, office related expenses and to a lesser extent, increases in
professional fees and consulting expense. This was offset in part by non-cash
charges during the quarter ended September 30, 1996 resulting from the issuance
of warrants to purchase Common Stock in connection with the settlement of a
claim and a reduction in financial investor relation expenses.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization increased 23.1% to $262,687 during the three
months ended September 30, 1997 compared to $213,355 during the three months
ended September 30, 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.
INTEREST EXPENSE
Interest expense was $4,266 and $122,858 for the three months ended
September 30, 1997 and 1996, respectively. For the three months ended September
30, 1997, interest expense was offset by $30,714, resulting from capitalized
interest for construction in progress. The Company also attributes this decrease
to the repayment of debt by the Company and conversion of convertible debt to
Common Stock.
INTEREST INCOME
Interest income was $216,871 and $285,345 for the three months ended
September 30, 1997 and 1996, respectively. The decrease was attributable to
lower cash and cash equivalent balances during the three months ended September
30, 1997 compared to September 30, 1996.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1997, the Company had $7.3 million in cash and cash
equivalents. From June 30, 1997 to September 1997, the Company's cash position
decreased by $13.5 million, principally reflecting $13.1 million used in
operating activities, $.7 million used for the purchase of and deposits on
property and equipment, offset in part by $.3 million from the exercise of stock
options and warrants.
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 September 30, 1997, the Company had commitments in the
amount of approximately $6,139,000, of which $2,340,000 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 September 30, 1997 was approximately
$716,000 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. 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 decreased by approximately $10,508,000
from June 30, 1997 to September 30, 1997 reflecting a net loss for the three
months ended September 30, 1997 of approximately
9
<PAGE>
$10,822,000 offset by proceeds from the exercise of stock options and warrants
and non-employee stock-based compensation in the amount of approximately
$314,000.
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
women's health care 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 will require additional financing to
meet these needs and if unforeseen risks are encountered. The Company is
currently seeking to raise funds in a private placement. The securities sold in
the private placement will not be registered under the Securities Act of 1933,
as amended, and may not be offered or sold in the United States absent
registration or in an applicable exemption from registration requirements of
such Act. 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, inherent limitations of market
research and accuracy of syndicated data purchased by the Company, as well as
other marketing risks; the Company's need to achieve economies of scale in its
manufacturing operations; 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
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 and the description of the Company's business
in Form 10-K for the year ended June 30, 1997.
10
<PAGE>
PART II. OTHER INFORMATION
<TABLE>
<C> <S>
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibts
</TABLE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
- ----------- --------------------------------------------------------------------------------------------------------
<C> <S>
10.62 Letter Agreement, dated as of January 1, 1997, between Ultrafem, Inc. and Bozell Worldwide, Inc.
27.1 Financial Data Schedule
(b) Reports on 8-K
None.
</TABLE>
11
<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; SECRETARY AND CHIEF
FINANCIAL OFFICER
Dated: November 10, 1997
12
<PAGE>
EXHIBIT 10.62
As of January 1, 1997
Ms. Dori M. Reap
Chief Financial Officer
Ultrafem, Inc.
805 Third Avenue, 17th Floor
New York, New York 10022
We hereby agree to act as your agent in connection with the
preparation and placement within the domestic United States of general, direct
response and trade advertising, media and direct response materials as more
fully described below, and upon the following terms and conditions:
1. ASSIGNMENT
During the term of this agreement, we are the primary company charged
with the responsibility of planning, preparing and placing, advertising and
direct response materials in any and all media as authorized by you. No
expenditures will be made by us for your account except upon your prior
approval, except when you give specific spending authority in writing to
individual Bozell employees.
2. NATURE OF SERVICES
We shall perform services for you in connection with the planning,
preparing and placing of advertising and direct response materials on your
behalf, including, without limitation:
(a) Study your products or services;
(b) Analyze your present and potential markets and conduct
necessary research relating thereto;
(c) Create, prepare and submit to you for approval, advertising
ideas and programs;
(d) Prepare and submit to you for approval, estimates of costs
of these recommended advertising programs;
(e) Employ on your behalf, our knowledge of available media and
means that can be profitably used to advertise your products or services;
(f) Write, design, illustrate or otherwise prepare your
advertisements, including commercials to be broadcast or other appropriate forms
of your message;
<PAGE>
Ms. Dori M. Reap
September 30, 1997
Page 2
(g) Prepare and implement Direct Response programs on your
behalf;
(h) Incorporate the message in mechanical or other form and
forward it with proper instructions for the fulfillment of the order;
(i) Order the space, time or other means to be used for your
advertising, endeavoring to secure the most advantageous rates available;
(j) Check and verify insertions, displays, broadcasts or other
means used, to such degree as is usually performed by agencies; and
(k) Audit invoices for space, time, material preparation and
services.
3. TERM
The term of this agreement will commence as of January 1, 1997 and
will continue for one (1) year thereafter, unless terminated by either party in
accordance with the provisions of this paragraph. In addition, unless
terminated by either party in accordance with the provisions of this paragraph,
this agreement will remain effective thereafter from year to year. Any notice
of termination by either party must be given in writing by registered or
certified mail or overnight courier (with proof of delivery) to the other party
not less than ninety (90) days prior to the date of termination. Such notice
shall be deemed given when received by the non-terminating party.
The rights, duties, and responsibilities of the parties hereto shall
continue in full force until the expiration of the term, including the ordering
and billing of advertising in media, the closing or air dates of which fall
within such period.
4. COMPENSATION
For our services and outlays on your behalf, the basis of our
compensation shall be as indicated in Appendix A annexed hereto.
5. BILLING AND PAYMENT PROCEDURE
(a) Media: We shall invoice you for all media costs
sufficiently in advance of our payment date to media to permit prepayment by you
to enable us to take advantage of all available cash discounts. As all media
will be billed from contract or estimates, all adjustments from actual costs are
made in the month following.
<PAGE>
Ms. Dori M. Reap
September 30, 1997
Page 3
(b) Production: At Bozell, we use the "Progress Billing" basis.
That is, all costs incurred during the month are billed out to the client at the
tenth (10th) day of the following month. This billing is headed "Progress
Billing" and the billable items are listed and supported in the usual manner.
This is done for each succeeding month until such time as the job is completed.
An initial production charge will be included in the first billing on any
produced job to cover all processing, handling and coordination costs. Each
invoice carries a summary of the previous billing, enabling you to see the total
cost of the job.
(c) Supplemental Fee: We will invoice you at the beginning of
each month for which the monthly Supplemental Fee payment is due.
(d) Miscellaneous: Traveling costs, outdoor media monitoring
services, in home monitoring services, third party consultant costs, air courier
costs, photocopying, messenger, postage, tax and similar expenditures will be
invoiced in the month in which they are processed.
(e) General:
(i) All cash discounts on agency purchases including,
but not limited to, media, art, printing and mechanical work, shall be passed on
to you provided our billing terms are complied with and there is no overdue
indebtedness by you at the time of payment to the vendor, with overdue
indebtedness being defined as undisputed invoices over thirty (30) days due.
(ii) Rate or billing adjustments shall be credited or
charged to you on the first billing date after we have been invoiced or as soon
as otherwise practical.
(iii) All billing for services rendered in a particular
month shall be contained in one invoice sent to you within ten (10) days after
the end of such month, which shall be payable within thirty (30) days after your
receipt of our invoice, unless otherwise stated on such invoice.
(iv) Invoices shall be submitted in an itemized format.
6. INSPECTION OF BOOKS
We agree that any and all contracts, correspondence, books, accounts,
and other sources of information (except for salary information on our
personnel) relating to your business shall be available for inspection and
photocopying (at your expense) at our office by your
<PAGE>
Ms. Dori M. Reap
September 30, 1997
Page 4
authorized representatives during ordinary business hours upon reasonable prior
notice by you to us of your desire to inspect same.
7. COMMITMENTS TO THIRD PARTIES
If you should direct us to cancel or terminate any previously
authorized purchase or project, we shall promptly take all appropriate action,
provided that you will hold us harmless with respect to any costs incurred by us
as a result thereof.
8. SAFEGUARDING OF PROPERTY
(a) We shall take all reasonable precautions to safeguard any of
your property entrusted to our custody or control, but in the absence of
negligence on our part or willful disregard by us of your property rights, we
shall not be responsible for any loss, damage, destruction, or unauthorized use
by others of any such property.
(b) We shall not be responsible for the return of engravings
after their use in publications, unless you specifically request their return
before they are sent to the publication.
9. RIGHTS UPON TERMINATION
(a) After the expiration of this agreement, no rights or
liabilities shall arise out of this relationship, regardless of any plans which
may have been made for future advertising; except that any uncancellable
contracts made on your authorization and still existing at the expiration of the
term shall be carried to completion by us and paid for by you in accordance with
the provisions herein, unless mutually agreed in writing to the contrary.
(b) Except as otherwise provided herein, upon the termination of
this agreement, we shall transfer, assign, and make available to you or your
representative all property and materials, which materials may consist of
artwork, mechanicals, digital or electronic data and various intellectual
properties (collectively, the "Materials") in our possession or control
belonging to you and paid for by you. We also agree to give all reasonable
cooperation toward transferring all reservations, contracts, and arrangements
with advertising media or others for advertising space, radio and/or television
time, or materials yet to be used (including uncancellable contracts), and all
rights and claims thereto and therein, provided we have the approval of third
parties to the extent required to effect the transfer in interest in the
foregoing, upon being released from the obligations thereof. You recognize that
talent contracts with members of certain labor unions or guilds generally cannot
be assigned except to signatories to the collective bargaining agreements
governing the services rendered by such talent.
<PAGE>
Ms. Dori M. Reap
September 30, 1997
Page 5
10. AFFILIATED ENTITIES
Attached hereto as Appendix C is a statement concerning the business
and operations of an affiliate of Bozell Worldwide, Inc., which creates products
or performs services which might be utilized by us in the performance of our
services on your behalf. It is understood and agreed that you may at your
option determine whether or not the services of this organization should be
utilized.
11. CONFIDENTIALITY AND NON-COMPETITION
(a) We covenant and agree that we and our subsidiaries:
(i) Shall keep confidential any and all information
concerning your business and operation which becomes known to us by reason of
the performance of our services as your advertising agency, and which
information you advise us that you consider to be confidential in nature.
(ii) Shall not disclose any such confidential information
to any person outside of our employ, unless to do so is required in connection
with the performance of our services, and in such event we agree to utilize our
best efforts to obtain from any such suppliers a similar agreement to maintain
such information as confidential; and
(iii) Shall obtain from our employees, who in the
performance of services on your behalf may become privy to any such confidential
information, a similar covenant and agreement to keep confidential all of such
information.
(b) Notwithstanding the terms of paragraph 11(a) above,
information shall not be considered confidential nor subject to the obligations
imposed pursuant to said paragraph if the information (i) was rightfully in our
possession or independently developed by us prior to the date of the disclosure
to us of such information; (ii) was in the public domain prior to the date of
disclosure to us of such information; (iii) has become part of the public domain
by publication or by other means except an unauthorized act or omission; (iv)
was supplied without restriction by a third party who was under no obligation to
maintain such information in confidence; or (v) was required to be disclosed
pursuant to the order or requirement of a government body, court or
administrative agency.
(c) We hereby covenant and agree that throughout the term of
this agreement and until the date occurring ninety (90) days thereafter (the
"Covenant Termination Date"), no operating entity within Bozell Worldwide Inc.
which has provided services on your behalf within a period of six (6) months
(the "Six Month Period") prior to the Covenant
<PAGE>
Ms. Dori M. Reap
September 30, 1997
Page 6
Termination Date will, without your prior written consent, perform any services,
either directly or indirectly, on behalf of any product competitive to any of
your products which we may have represented within the Six Month Period.
(d) We agree that the covenants contained in this paragraph are
reasonable covenants under the circumstances, and further agree that if, in the
opinion of any court of competent jurisdiction, such covenants are not
reasonable in any respect, such court shall have the right, power and authority
to excise or modify such provision or provisions of these covenants which shall
not appear reasonable to such court and to enforce the remainder of these
covenants as so amended. We further agree that any breach of the covenants
contained in this Paragraph 11 would irreparably injure you. Accordingly, we
agree that, in addition to pursuing any other remedies you may have in law or in
equity, you may obtain an injunction against us from any court having any
jurisdiction over the matter restraining any violation of Paragraph 11.
12. INDEMNIFICATION
(a) We shall indemnify and hold you harmless with respect to any
claims or actions against you based upon material prepared by us involving any
claim for libel, slander, piracy, plagiarism, invasion of privacy or
infringement of copyright, except where any such claim or action may arise out
of material supplied by you to us and incorporated in material prepared by us;
with respect to any such latter claims or actions you will indemnify and hold us
harmless as provided in paragraph 12(b) below.
We agree to obtain and maintain in force during the term
hereof, at our sole expense, a Communications Liability Insurance Policy for
Advertising Agencies with a minimum limit of liability of $1,000,000. If
requested by you, we agree to furnish a copy of such policy to you.
(b) You will indemnify and hold us harmless with respect to any
claims or actions instituted by a third party relating to your products or
services or resulting from the use by us of material furnished by you or where
material created by us is substantially changed by you. Information or data
obtained by us from you to substantiate claims made in advertising shall be
deemed to be "materials" furnished to us by you.
You also agree to indemnify us and hold us harmless with
respect to any death or personal injury claims or actions arising from the use
of your products or services.
(c) In the event of any proceeding against you by any regulatory
agency or in the event of any court action or self-regulatory action challenging
any advertising prepared by us, we shall assist you in the preparation of the
defense of such action or proceeding
<PAGE>
Ms. Dori M. Reap
September 30, 1997
Page 7
and cooperate with you and your attorneys. You will reimburse us for any out-
of-pocket costs we may incur in connection with any such action or proceeding.
13. OWNERSHIP
You shall own all Materials created hereunder during the term hereof
and paid for by you, except that you shall not own any object code or source
code with respect to such Materials or those elements of such Materials which
have been licensed to us by third parties ("Third Party Licenses"). We will
attempt to facilitate the assignment of all licenses requested by you. It is
understood and agreed that your use of all Materials hereunder, whether during
or after the term hereof, shall be subject to the Third Party Licenses.
Notwithstanding the foregoing, we shall endeavor to secure ownership of any
copyrights under such Third Party Licenses if so requested by you, provided that
you shall promptly reimburse us for any costs incurred by us in connection with
such acquisition.
14. MISCELLANEOUS
(a) We acknowledge that all of our employees rendering services
hereunder shall be under our sole and exclusive direction and control and for no
purpose shall they be considered your employees. In furtherance of the
foregoing, we shall be responsible for all federal, state and municipal taxes
assessed with respect to such employees.
(b) This agreement shall be governed by and construed in
accordance with the internal laws of the State of New York. The parties hereto
agree that the sole and exclusive jurisdiction and venue for any litigation
arising from or relating to this agreement or the subject matter hereof shall be
an appropriate federal or state court located in the State of New York.
(c) This agreement represents the entire understanding between
you and us regarding our services and supersedes all prior agreements. No
waiver, modification, or addition to this agreement shall be valid unless in
writing and signed by the parties hereto.
<PAGE>
Ms. Dori M. Reap
September 30, 1997
Page 8
If the above meets with your approval, kindly indicate your consent
hereto by signing where indicated below.
Very truly yours,
Bozell Worldwide, Inc.
By: /s/ Marianne Coleman
------------------------------------
Title: Executive Vice President
ACCEPTED AND AGREED
By: /s/ Dori M. Reap
------------------------------------
Title: Senior Vice President and
Chief Financial Officer
Ultrafem, Inc.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM ULTRAFEM,
INC. FINANCIAL STATEMENTS AT SEPTEMBER 30, 1997 AND THE THREE 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-30-1998
<PERIOD-END> SEP-30-1997
<CASH> 7,274,665
<SECURITIES> 0
<RECEIVABLES> 1,577,315
<ALLOWANCES> 82,000
<INVENTORY> 4,945,813
<CURRENT-ASSETS> 16,159,648
<PP&E> 12,861,695
<DEPRECIATION> 1,158,143
<TOTAL-ASSETS> 29,263,974
<CURRENT-LIABILITIES> 13,993,106
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0
0
<COMMON> 12,710
<OTHER-SE> 14,347,641
<TOTAL-LIABILITY-AND-EQUITY> 29,263,974
<SALES> 1,786,679
<TOTAL-REVENUES> 1,786,679
<CGS> 1,168,381
<TOTAL-COSTS> 12,821,147
<OTHER-EXPENSES> (216,871)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,266
<INCOME-PRETAX> (10,821,863)
<INCOME-TAX> 0
<INCOME-CONTINUING> (10,821,863)
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<EXTRAORDINARY> 0
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<NET-INCOME> (10,821,863)
<EPS-PRIMARY> (1.27)
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