FORM 10-K/A
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Previously Filed For the Fiscal Year Ended December 31, 1995
on April 29, 1996
Commission file number 0-16005
Unigene Laboratories, Inc.
(Exact name of registrant as specified in its charter)
Delaware 22-2328609
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
110 Little Falls Road, Fairfield, New Jersey 07004
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (201) 882-0860
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Name of each exchange
Title of each class on which registered
Common Stock, $.01 Par Value Not Applicable
Redeemable Class B Common Stock
Purchase Warrants Not Applicable
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 by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
State the aggregate market value of the voting stock held by non-affiliates of
the registrant. The aggregate market value shall be computed by reference to the
price at which the stock was sold, or the average bid and asked prices of such
stock, as of a specified date within 60 days prior to the date of filing.
Aggregate market value as of February 28, 1996:
$ 46,513,211
APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING
THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes__. No__.
APPLICABLE ONLY TO CORPORATE REGISTRANTS:
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date.
Common Stock, $.01 Par Value-- 24,205,461 shares as of March 1, 1996
DOCUMENTS INCORPORATED BY REFERENCE
List hereunder the following documents if incorporated by reference and the Part
of the Form 10-K into which the document is incorporated: (1) Any annual report
to security holders; (2) Any proxy or information statement; and (3) Any
prospectus filed pursuant to Rule 424(b) or (c) under the Securities Act of
1933. The listed documents should be clearly described for identification
purposes.
PART III Definitive Proxy Statement of Unigene Laboratories, Inc., to be filed
in connection with the Annual Meeting of Stockholders to be held on June 20,
1996.
PART I
Item 1. Business.
Unigene Laboratories, Inc. ("Unigene" or "Company"), incorporated under the
laws of the State of Delaware in 1980, is a health-care oriented biotechnology
company which is engaged in research and production of laboratory grade
Calcitonin and is currently planning to engage in the production and marketing
in bulk of pharmaceutical grade calcitonin. It is changing its primary business
from a research oriented business to a pharmaceutical production business. The
Company has succeeded in combining its proprietary amidation process with
bacterial recombinant DNA technology to develop a peptide hormone production
process. The Company believes that its proprietary amidation process will be a
key step in the more efficient and economical commercial production of certain
peptide hormones with extensive therapeutic applications. Many of these hormones
cannot be produced at a reasonable cost in sufficient quantities for clinical
testing or commercial use by currently available production processes. Using its
proprietary process, Unigene has produced laboratory-scale quantities of seven
such peptide hormones: human Calcitonin, salmon Calcitonin, human Growth Hormone
Releasing Factor, human Calcitonin Gene-Related Peptide, human Corticotropin
Releasing Factor, human Amylin and a human Magainin. During 1991, a study
commissioned by the Company was prepared by a professor of chemical engineering
at the Massachusetts Institute of Technology. The study evaluated the economics
for producing multi-kilogram quantities of Calcitonin and indicated that the
Company's process for producing Calcitonin should reduce the cost and time
required for commercial production by up to 95%.
The Company's strategy is to develop proprietary products and processes
with applications in human health-care, independently or in conjunction with
pharmaceutical and chemical companies, in order to generate revenues from
license fees, royalties and product sales in bulk. Generally, the Company seeks
sponsors and licensees to provide research funding and assume responsibility for
obtaining appropriate regulatory approvals, clinical testing, production and
marketing of products derived from Unigene's research activities. It has
concentrated most of its efforts on one product - calcitonin for the treatment
of osteoporosis. The Company has built a production facility and plans to
undertake production of pharmaceutical grade calcitonin and will assume
responsibility for some clinical testing and possibly for obtaining regulatory
approval.
Since 1992, the Company has been producing and from time to time
selling small quantities of research-grade salmon Calcitonin. During 1993, the
Company began construction of a Good Manufacturing Practice ("GMP") facility for
the production of pharmaceutical-grade calcitonin in leased premises located in
Boonton, New Jersey which was mechanically completed during the fourth quarter
of 1994. The facility will also produce Unigene's proprietary amidating enzyme
for use in producing Calcitonin. The initial production capacity of the facility
is expected to be between 0.5-1.0 kilograms of bulk Calcitonin per year,
representing approximately 10% of the current estimated world supply for this
leading osteoporosis drug.
The Company is taking steps to secure the validation of the facility by
the U.S. Food and Drug Administration ("FDA") which is required to allow Unigene
to provide its Calcitonin for human use. The Company believes that validation of
the facility should be completed in the early spring of 1996. Although the
facility is expected to be validated first by an independent consultant and
later by the FDA, there can be no assurance that this will occur. In addition
there is no assurance that the facility production goals will be achieved, that
there will be a market for the Company's products, that such production will be
profitable to the Company, that others will not develop processes and products
superior to, or otherwise precluding the commercial utilization of, the
processes or products developed by the Company. The design of the facility is
intended to allow for substantial increases in Calcitonin production utilizing
the existing equipment with no additional capital expenditures or personnel.
Although the facility will initially be exclusively devoted to Calcitonin
production, it would be suitable for producing other peptide hormone products in
the future. There can be no assurance that there will be sufficient acceptance
of the Company's products in the marketplace for successful commercialization.
In addition to the validation and FDA approval of the new facility, it
is necessary to obtain FDA approval for human use of the salmon Calcitonin to be
produced in the facility. This will require various human and animal studies.
The Company will then apply to the FDA for approval of the Company's Calcitonin
for human use. The Company expects an expedited approval process. The Company
believes that it will get an expedited approval process which would be shorter
than that typically associated with a New Drug Application ("NDA") submission
because: i) the active ingredient is structurally identical to and biologically
indistinguishable from the active ingredient in products already approved by the
FDA, ii) the formulation is essentially similar to the formulations used in
similar, already approved-products, and iii) the clinical trial program that the
FDA authorized was relatively brief and involved small numbers of subjects, so
the amount of information that must be reviewed is far less than would have been
compiled for a typical NDA submission. However, there can be no assurance that
such approval will be received in an accelerated time frame. Expanded consumer
acceptance of pharmaceutical-grade Calcitonin may be dependent on development of
a consumer acceptable delivery system. A major pharmaceutical company has
recently received approval of the FDA for the marketing of a nasal spray
delivery system for Calcitonin, which should enlarge the market for Calcitonin.
The Company and others are conducting research on oral delivery systems for
Calcitonin. There can be no assurance that suitable delivery systems will be
developed or that governmental approval of such delivery systems will be
obtained.
The Company is continuing its efforts to develop a calcitonin pill. In
December 1995, the Company successfully tested its proprietary calcitonin pill
in a Phase I clinical trial. Preliminary results of these studies indicated that
the majority of those who received the pill showed levels of the hormone in
blood samples taken during the trial. The Company believes that this is the
first time significant blood levels of calcitonin have been observed in humans
following oral administration of the hormone. Preliminary results of a second
Phase I trial also showed that blood levels of the drug were obtained in several
of the recipients. However, there is no assurance that these results will be
replicated in further studies. The Company plans to file an Investigational New
Drug (IND) application with the U.S. Food and Drug Administration as well as a
patent application with the U.S. Patent & Trademark Office. There can be no
assurance that either application will be approved as projected or that the
Company will be successful in marketing its products.
The planned activities of the Company are all subject to obtaining
adequate financing. There can be no assurance that the Company will have
sufficient resources to complete the preproduction process, to produce and
market its products and to carry on its other projects. See Part II "Liquidity
and Capital Resources."
In June, 1995, the Company entered into an agreement for a joint
venture, effective as of March 1996, with the Qingdao General Pharmaceutical
Company and its Huanghai factory for the production and marketing in China of
Calcitonin utilizing the Company's amidation technology. Under the agreement,
the Chinese partners would finance the project, including the construction and
operation of a dedicated manufacturing facility in China. Unigene would provide
the technology and training and its proprietary enzyme to the joint venture at a
discounted price. Unigene would also receive a combination of fixed fees and
minimum annual royalties based upon sales of the end product. There is no
assurance that the joint venture will be successful or that Unigene will receive
significant income from this joint venture.
The Company has been engaged in four collaborative research programs.
Two collaborations, one with Rutgers University College of Pharmacy and a second
with an independent company, seek to develop an oral drug delivery system for
Calcitonin. The third collaboration, performed in conjunction with Yale
University, is investigating novel applications for certain amidated peptide
hormones. The fourth collaboration, with Johns Hopkins School of Medicine, is
investigating changes in certain cancerous cells which, if successful, may allow
for early diagnosis and treatment. At present, the Company has no third party
sponsored research agreements in effect. The Company is currently conducting
discussions with major pharmaceutical companies regarding licensing and/or
research agreements.
There can be no assurance that such discussions will result in new
research or licensing agreements or that the Company will be able to obtain
adequate funding for its current or new projects. The Company is dependent on
large pharmaceutical companies, having much greater resources than the Company,
for revenues from sales of product, research sponsorship, joint ventures and
licensing arrangements.
Foreign Sponsorship
The Company's potential major customers, partners and licensees are
likely to be foreign corporations or corporations with significant international
business. Such corporations' business operations and their ability to pay
license fees, royalties and other amounts due and otherwise perform their
obligations to the Company under agreements with the Company, are subject to
regulation and approval by foreign governments and to international political
and currency fluctuation problems. There can be no assurance that required
approvals will be received. Such political and currency problems, governmental
regulation, or failure to receive required approvals may have a material adverse
effect on the ability of the Company to earn or receive payments pursuant to
such agreements and, in such event, may have a material adverse effect on the
Company's future operations.
Government Regulation
The laboratory research activities of the Company and its sponsors,
collaborators and potential licensees and the processes and products which may
be developed by them and the new production facility, are subject to significant
regulation by numerous federal, state, local and foreign governmental
authorities. The regulatory process for a pharmaceutical product may take a
number of years and requires substantial resources. In the case of the
regulatory process for the Company's Calcitonin product, which may be handled by
the Company as well as other entities, the Company believes that the process
will be expedited. There can be no assurance that regulatory approval will be
obtained for the new facility or any of its products. The inability to obtain,
or delays in obtaining, such approval would adversely affect the Company's
ability to receive royalties or product revenues. Furthermore, the extent of any
adverse governmental regulation which may arise from future legislative and
administrative action cannot be predicted.
The Company's production facility may, from time to time, be audited by
the FDA to ensure that it is operating in compliance with current GMP guidelines
which require that the production operation be conducted in strict compliance
with, among other things, the Company's written protocols for reagent
qualification, process execution, data recording, instrument calibration and
quality monitoring. The FDA is empowered to suspend production operations if, in
its opinion, significant and/or repeated deviations from these protocols have
occurred. Such a suspension could have a material adverse impact on the
Company's future operations.
Competition
The Company's primary business activity to date has been biotechnology
research. Beginning in 1996, the Company intends to commence the manufacture and
sale of amidated peptide hormones, beginning with calcitonin. Biotechnology
research is highly competitive, particularly in the field of human health-care.
Unigene competes with specialized biotechnology companies, major pharmaceutical
and chemical companies, universities and other non-profit research
organizations, many of which can devote considerably greater financial resources
to research activities.
In the manufacture and sale of amidated peptide hormones, the Company
and its licensees, if any, will be competing with contract laboratories and
major pharmaceutical companies, many of whom can devote considerably greater
financial resources to manufacturing and selling activities. However, the
Company believes that its patented hormone manufacturing process will enable it
to greatly reduce manufacturing time and costs in order to successfully compete
with these companies.
The Company believes that success in competing with others in the
biotechnology industry will be based primarily upon scientific expertise and
technological superiority, the ability to identify and pursue scientifically
feasible and commercially viable opportunities and to obtain proprietary
protection for research achievements, the availability of adequate funding and
the success in developing, testing, protecting, producing and marketing products
and obtaining timely regulatory approval. There can be no assurance that others
will not develop processes or products which are superior to, or otherwise
preclude the commercial utilization of, processes or products developed by the
Company.
Human Resources
On March 1, 1996, the Company had 60 full-time employees of whom 25 were
engaged in research and development activities, 24 were engaged in preproduction
activities and 11 were engaged in general and administrative functions. Ten of
the Company's employees hold Ph.D. degrees. The Company's employees have
expertise in molecular biology, including DNA cloning, synthesis, sequencing and
expression; protein chemistry, including purification, amino acid analysis,
synthesis and sequencing of proteins; immunology, including tissue culture,
monoclonal and polyclonal antibody production and immunoassay development;
chemical engineering; pharmaceutical production; quality assurance; and quality
control. None of the Company's employees is covered by a collective bargaining
agreement.
Research and Development
The Company has established a multidisciplinary research team to adapt
current genetic engineering technologies to the development of proprietary
products and processes. Approximately half of the Company's employees are
directly engaged in activities relating to plant validation processes and
research and development of new, and improvement of existing, products and
processes. During the years ended December 31, 1995, 1994 and 1993 approximately
$6,876,000, $5,137,000, and $3,357,000, respectively, were spent on these
activities.
Patents and Proprietary Technology
The Company has filed applications for U.S. patents relating to the
proprietary amidation and immunization processes invented in the course of its
research. To date, the following two patents have issued in the U.S.:
Immunization By Immunogenic Implant, a process patent, and Alpha-Amidation
Enzyme, a process and product patent. Other applications are pending. Filings
relating to the amidation process have been made in selected foreign countries;
nine such foreign patents have issued. There can be no assurance that any of
Unigene's applications will issue as patents or that Unigene's patents will
provide the Company with significant competitive advantages. Furthermore, there
can be no assurance that others will not independently develop similar or
superior technologies. Although the Company believes its patents and patent
applications are valid, the invalidation of its Alpha-Amidation Enzyme patent or
the failure of certain of its pending Alpha-Amidation Enzyme-related
applications to issue as patents could have a material adverse effect upon its
business. Difficulties in detecting and proving infringement are generally
greater with process patents than with product patents. In addition, the value
to the Company of a process patent may be reduced if products which can be
derived from such process have been patented by others. For example, Ciba-Geigy
Corporation and the Salk Institute hold U.S. patents for human Calcitonin and
human Growth Hormone Releasing Factor, respectively. The cooperation of these
patent holders or their sub-licensees would be needed for the commercialization
of the aforementioned patented products in countries where these companies hold
valid patents.
Executive Officers of the Registrant
Served in Such
Position or Office
Name Age Continually Since Position(1)
- ------------------ ----- -------------------- ----------------
Dr. Warren P. Levy(2)(3) 44 1980 President (Chief
Executive Officer)
Dr. Ronald S. Levy(2)(4) 47 1980 Vice President
and Secretary
Jay Levy(2)(5) 72 1980 Treasurer
NOTES:
(1) Each executive officer's term of office is until the first meeting
of the Board of Directors of Unigene following the annual meeting of
stockholders and until the election and qualification of his successor.
Officers serve at the discretion of the Board of Directors. The term of
office of each director will expire on the date of the Company's annual
meeting of stockholders and upon the election and qualification of each
such director's successor.
(2) Dr. Warren P. Levy and Dr. Ronald S. Levy are brothers and are the
sons of Mr. Jay Levy.
(3) Dr. Warren P. Levy, a founder of the Company, has served as
President, Chief Executive Officer and Director of the Company since
its formation in November 1980. Dr. Levy holds a Ph.D. in biochemistry
and molecular biology from Northwestern University and a bachelor's
degree in chemistry from the Massachusetts Institute of Technology.
(4) Dr. Ronald S. Levy, a founder of the Company, has served as Vice
President and Director of the Company since its formation in November
1980, and as Secretary since May 1986. Dr. Levy holds a Ph.D. in
bioinorganic chemistry from Pennsylvania State University and a
bachelor's degree in chemistry from Rutgers University.
(5) Mr. Jay Levy, a founder of the Company, has served as Chairman of
the Board of Directors and Treasurer of the Company on a part- time
basis since its formation in November 1980. He also served as Secretary
from 1980 to May 1986. Mr. Levy devotes approximately 15% of his time
to the Company. From 1985 through February 1991, he served as the
principal financial advisor to The Nathan Cummings Foundation, Inc., a
large charitable foundation. From 1968 through 1985, he performed
similar services for the late Nathan Cummings, a noted industrialist
and philanthropist.
Item 2. Properties
In 1983, Unigene completed the construction of a one-story office and
laboratory facility consisting of approximately 12,500 square feet. The facility
is located on a 2.2 acre site in Fairfield, New Jersey which the Company
purchased in 1982.
The Company's 32,000 square foot GMP facility of which 18,000 square feet
will be used for the production of pharmaceutical-grade Calcitonin and other
peptide hormones was constructed in a building located in Boonton, New Jersey,
that is being leased under a 10-year agreement which began in February 1994. The
Company has two 10-year renewal options as well as an option to purchase the
facility. The facility was mechanically completed during 1994 and is currently
undergoing the validation process.
Item 3. Legal Proceedings
None.
Item 4. Submission of Matters to a Vote of Security Holders.
No matters were submitted to a vote of security holders during the fourth
quarter of the year ended December 31, 1995.
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters
-------------------------------------------------------------
The Company has not declared or paid any cash dividends since inception,
and does not anticipate paying any in the near future.
The Company's Common Stock began trading on August 12, 1987 in the
over-the-counter market with the NASDAQ symbol UGNE. The Company's Class B
Warrants began trading on May 28, 1991 in the over-the-counter market with the
NASDAQ symbol UGNEZ. There were 607 Common Stockholders and 53 Class B
Warrantholders of record as of February 28, 1996. The Company's Common Stock is
listed on the NASDAQ National Market System. The prices below are as reported to
the Company by the National Association of Securities Dealers, Inc.
1995
-------------------------------------------------------
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
High-Low High-Low High-Low High-Low
------------ --------------- ------------- -------------
Common Stock 2 7/8-1 1/2 2 1/8 - 1 2 1/8-1 9/32 2 1/16-1 3/16
Class B Warrants 7/8-5/16 11/16-1/4 9/16-1/4 15/32 - 5/32
1994
-------------------------------------------------------
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
High-Low High-Low High-Low High-Low
------------ --------------- ------------- -------------
Common Stock 3 5/8-2 5/16 3 11/16-2 7/16 3 3/8-2 5/8 3 5/8-2 1/4
Class B Warrants 27/32-1/2 27/32-3/8 7/8-1/2 1 5/16-7/16
The prices presented for the Class B Warrants for 1994 are bid prices,
which represent prices between broker-dealers and may not include mark-ups or
commissions to broker-dealers and may not reflect prices in actual transactions.
The prices for the Common Stock and for the Class B Warrants for 1995 represent
high and low sale prices.
Item 6. Selected Financial Data
(In thousands, except per share data)
Years Ended December 31 1995 1994 1993 1992 1991
- ----------------------- ------- ------- ------ ------ -------
Research and development
contracts and licensing fees $ 8 $ 258 $ 12 $ 10 $ 2
Research and development
expenses $ 6,876 $ 5,137 $ 3,357 $ 2,998 $ 2,486
Net loss $(9,435) $(6,319) $(3,739) $(3,019)$(2,825)
Net loss per share $ (.44) $ (.32) $ (.19) $ ( .16)$ (.17)
At December 31
- --------------
Working capital (deficiency) $(4,061) $(1,907) $11,380 $16,936 $18,759
Total assets $13,332 $14,211 $15,665 $19,286 $20,898
Long-term debt $ 3,955 $ -- $ -- $ -- $ --
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations
-----------------------------------------------------------
RESULTS OF OPERATIONS
Revenues for 1995, 1994 and 1993 from hormone and enzyme sales were $8,000,
$8,000 and $12,000, respectively. Revenues in 1994 included $250,000 from a
final payment from a prior research agreement.
Research and development, the Company's largest expense, increased 34% in 1995
to $6,876,000 from $5,137,000 in 1994, after increasing 53% in 1994 from
$3,357,000 in 1993. The increases were related to the Company's manufacturing
facility, including depreciation charges and expenditures for pre-production
salaries, the development program for the calcitonin pill, regulatory consulting
fees, as well as the sponsorship of collaborative research programs for which
the Company spent $483,000, $301,000 and $93,000 in 1995, 1994 and 1993
respectively.
General and administrative expenses increased 29% in 1995 to $2,158,000 from
$1,671,000 in 1994, after increasing 36% in 1994 from $1,230,000 in 1993. The
1995 increase was primarily due to legal and other expenses associated with the
Company's ongoing financing activities . The 1994 increase was primarily due to
higher legal fees relating to licensing and joint venture negotiations and to
patent matters.
Interest and other income decreased $163,000 or 70% in 1995 from 1994 after
decreasing $606,000 or 72% in 1994 from 1993. The decreases were due to a
reduction in total monies available to be invested.
The Company incurred $477,000 in interest expense in 1995, up from $1,000 in
1994. This was due to increased borrowings in 1995.
During 1994 the Company constructed and staffed its manufacturing facility and
hired regulatory consultants in the U.S. and in Europe. During both 1995 and
1994, the Company concentrated on internally-sponsored research programs and
collaborations, and post research development programs, including the scale-up
and production of research grade calcitonin and the development of a calcitonin
pill. Therefore, operating expenses increased, and cash decreased causing a
decrease in interest income. In addition, increased borrowings in 1995 increased
interest expense. As a result, the net loss increased $3,115,000 and $2,581,000
for the years ended December 31, 1995 and 1994, respectively, from the prior
years.
As of December 31, 1995, the Company had available for income tax reporting
purposes net operating loss carryforwards in the approximate amount of
$34,000,000, expiring from 1996 through 2010, which are available to reduce
future earnings which would otherwise be subject to federal income taxes. In
addition, the Company has investment tax credits and research and development
credits in the amounts of $69,000 and $1,594,000, respectively, which are
available to reduce the amount of future federal income taxes. These credits
expire from 1996 through 2010.
The Company follows Statement of Financial Accounting Standards No. 109 (FASB
109), "Accounting for Income Taxes". Given the Company's past history of
incurring operating losses, any deferred tax assets that are recognizable under
FASB 109 have been fully reserved. As of January 1, 1995 and 1994, under FASB
109, the Company had deferred tax assets of approximately $11,100,000 and
$8,400,000, respectively, subject to valuation allowances of $11,100,000 and
$8,400,000, respectively. The deferred tax assets were generated primarily as a
result of the Company's net operating losses and tax credits generated. At
December 31, 1995, the Company's deferred tax assets and valuation allowances
each increased by approximately $4,000,000.
Statement of Financial Accounting Standards ("SFAS") No. 121, issued March 1995,
"Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to Be
Disposed Of", is effective for the Company beginning in 1996. The statement
requires that long-lived assets and certain identifiable intangibles to be held
and used by an entity be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. An impairment loss is recognized if the sum of the expected future
cash flows is less than the carrying amount of the asset. Management does not
expect the implementation of SFAS No. 121 to have a material impact on the
Company's financial position or results of operations, assuming successful
commercialization of the Company's product and/or the signing of licensing/joint
venture agreements with pharmaceutical companies (see Note 12).
SFAS No. 123, "Accounting for Stock-based Compensation", issued in October 1995,
established financial accounting and reporting standards for stock-based
employee compensation plans. These plans include all arrangements by which
employees receive shares of stock or other equity investments of the employer or
the employer incurs liabilities to employees in amounts based on the price of
the employer's stock. This statement also applies to transactions in which an
entity issues its equity instruments to acquire goods or services from
non-employees. The Company will elect the disclosure requirements only of FASB
123 and such additional disclosure requirements are not effective for the
Company until 1996.
LIQUIDITY AND CAPITAL RESOURCES
During 1994, the Company completed construction of its peptide production
facility in Boonton, New Jersey. The facility was constructed in a shell
building that is being leased under a 10-year net lease which began in February
1994. The Company has two 10-year renewal options as well as an option to
purchase the facility. The total cost of leasehold improvements and process
equipment for this facility, including current validation costs, totalled
approximately $11.9 million. The improvements and equipment have been primarily
financed from the remainder of the $17 million of proceeds received as a result
of the exercise by the warrant holders of the Company's Class A Warrants in 1991
and the proceeds of $2.2 million from the sale of stock in 1994. There are
currently no material commitments for capital expenditures relating to either
facility. The Company is undertaking steps to secure the validation of the
facility by the U.S. Food and Drug Administration to allow Unigene to provide
its calcitonin for human pharmaceutical use.
The Company, at December 31, 1995, had cash and cash equivalents of $259,000, a
decrease of $333,000 from December 31, 1994. During 1995, Warren P. Levy, Ronald
S. Levy, and Jay Levy, officers and directors of the Company, and a member of
their family loaned a total of $1,905,000 to the Company. These loans accrue
interest at the Merrill Lynch Loan Rate plus .25% (8.875% at December 31, 1995).
$650,000 is due February 10, 1997. The balance was originally due on demand, but
in any event not later than February 10, 1997. However, pursuant to an agreement
entered into with the holders of the 10% Convertible Debentures, an aggregate of
$1,250,000 may be repaid based upon the achievement of specific corporate
benchmarks. A total of $1,850,000 of these loans is secured by liens on the
Fairfield plant and equipment. In March 1995, the Company borrowed $1,000,000
from an unrelated third party. This loan was paid off in May 1995 with the
proceeds of a new $2,000,000 loan from an unrelated third party. The new loan
was on a short-term basis secured by all of the assets of the Company. In
connection with that loan, the members of the Levy family agreed to subordinate
their security interests in the Fairfield plant and equipment to the secured
lender and received a subordinated security interest on the equipment at the
Boonton plant. This $2,000,000 loan was originally due on July 7, 1995 with
interest at 13% per annum however, it was extended to November, 1995 with an
interest rate of 24.5% per annum. In November 1995, the $2,000,000 loan was
repaid from the proceeds of a $3,000,000 debt financing from two unrelated third
parties collateralized by almost all of the Company's assets. In December 1995
these two parties loaned the Company an additional $300,000. These loans accrue
interest at a rate of 9.5% per annum. On March 6, 1996 this $3,300,000 loan was
exchanged for 9.5% Senior Secured Convertible Debentures in the principal amount
of $3,300,000. The Debentures mature November 15, 1998 and are convertible into
shares of the Company's common stock at a conversion rate of $1.15 per share,
subject to certain reset provisions.
From July 1 through December 31, 1995, the Company sold in private placements
approximately 2.8 million shares of its common stock at a price of $1 per share,
which after expenses netted the Company $2.6 million. From January through March
1996, the Company sold in private placements an aggregate of 371,000 shares of
common stock receiving net proceeds of $370,000.
In March 1996 the Company completed a private placement of $9.08 million in 10%
Convertible Debentures. All interest is payable at maturity or upon conversion
of the debentures. The Company received net proceeds of $8,172,000 as a result
of this placement. These Debentures mature March 4, 1999. The debentures are
convertible into common stock for up to one-third of the principal amount on
each of April 27, 1996, May 27, 1996 and June 26, 1996. The debentures are
convertible at the lower of $2.00 per share or 85% of the market price per share
of the Company's common stock at the date of conversion.
The aforementioned sales of stock and convertible debentures all represented
significant dilution to existing stockholders. However, because of the limited
capital sources available to the Company, management believes that it was in the
best interest of the Company and of its stockholders to continue to raise money
in this manner in order to continue operations.
The Company's ability to generate additional cash from operations depends
primarily upon signing research or licensing agreements, achieving defined
benchmarks in such agreements, completion of plant validation, receiving
regulatory approval for its products, and marketing hormones and enzyme
products. The Company has signed one joint venture agreement. However, the
Company has not yet received any revenue from this agreement, and there is no
assurance that any revenues will be received.
The Company requires additional working capital to continue its operations. The
Company's cash requirements have increased by approximately $2.5-$3 million per
year with the opening of its peptide manufacturing facility. In addition, the
Company will face sizable debt and interest obligations over the next several
years. Because of the conversion prices of each of the issues of debentures, the
Company expects that a substantial portion, if not all, of such debentures will
be converted into comon stock. In addition, upon conversion of the 10%
Convertible Debentures, accrued interest is payable in shares of common stock.
However, if none of the debentures are so converted the Company, as of March 31,
1996, did not have sufficient resources for these principal and interest
payments. Management believes that the Company has sufficient cash through at
least the third quarter of 1996. The Company will require additional funds
through financing or licensing agreements to ensure continued operations. The
Company intends to actively pursue a broad range of possible financing,
including both debt and equity. Managment also is seeking a licensing/joint
venture agreement with a major multi-national pharmaceutical company. The
Company is currently developing two calcitonin products (an oral version and an
injectable version) for which it is seeking licensing partners. In the absence
of sufficient financing proceeds, the signing of one or more agreements will be
necessary to fund current operations and to repay its loans and interest thereon
when due. However, there is no assurance that sufficient funds will be obtained.
Moreover, the Company anticipates that any such financing or licensing
transaction will satisfy the Company's liquidity requirements over the
short-term. Satisfying the Company's long-term liquidity requirements will
require the successful commercialization of one or more of its calcitonin
products.
Item 8. Financial Statements and Supplementary Data.
Index to Financial Statements and Related Information
(1) Financial Statements:
Independent Auditors' Report
Balance Sheets at December 31, 1995 and 1994
Statements of Operations for the three years
ended December 31, 1995
Statements of Stockholders' Equity for the
three years ended December 31, 1995
Statements of Cash Flows for the three
years ended December 31, 1995
Notes to Financial Statements
(2) Financial Statement Schedules:
All schedules are omitted because they are not applicable or the required
information is shown in the financial statements or notes thereto.
Independent Auditors' Report
The Stockholders and Board of Directors
Unigene Laboratories, Inc.:
We have audited the financial statements of Unigene Laboratories, Inc. as listed
in the accompanying index. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Unigene Laboratories, Inc. as
of December 31, 1995 and 1994, and the results of its operations and its cash
flows for each of the years in the three-year period ended December 31, 1995, in
conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 12 to the
financial statements, the Company has suffered recurring losses from operations
and has a net working capital deficiency which raise substantial doubt about its
ability to continue as a going concern. Management's plans in regard to these
matters are also described in Note 12. The financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
KPMG PEAT MARWICK LLP
New York, New York
March 22, 1996
UNIGENE LABORATORIES, INC.
BALANCE SHEETS
DECEMBER 31, 1995 and 1994
1995 1994
---- ----
ASSETS
Current assets:
Cash and cash equivalents $ 258,627 $ 592,011
Prepaid expenses and other
current assets 434,159 394,553
---------- -----------
Total current assets 692,786 986,564
Property, plant and equipment-net of
accumulated depreciation
and amortization (Note 4) 11,513,019 12,221,504
Patents and other assets 1,125,828 1,003,276
----------- -----------
$13,331,633 $14,211,344
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,859,264 $ 2,399,663
Accrued expenses 644,663 494,091
Notes payable - stockholders (Note 3) 1,250,000 ---
----------- -----------
Total current liabilities 4,753,927 2,893,754
Notes payable - stockholders (Note 3) 655,000
Note payable - other (Note 5) 3,300,000
Stockholders' equity (Note 7):
Common stock-par value $.01 per share,
authorized 48,000,000 shares, issued
and outstanding 23,813,171 shares in
1995 and 20,918,399 shares in 1994 238,132 209,184
Additional paid-in capital 38,110,512 35,399,473
Accumulated deficit (33,724,907) (24,290,036)
Less: Treasury stock, at cost,
7,290 shares (1,031) (1,031)
----------- -----------
Total stockholders' equity 4,622,706 11,317,590
---------- -----------
$ 13,331,633 $14,211,344
=========== ===========
See accompanying notes to financial statements.
UNIGENE LABORATORIES, INC.
STATEMENTS OF OPERATIONS
Years Ended December 31, 1995, 1994 and 1993
1995 1994 1993
---- ---- ----
Sales and other revenue $ 7,531 $ 258,393 $ 11,777
--------- ---------- ----------
Operating expenses:
Research and
development 6,876,253 5,137,011 3,357,202
General and
administrative 2,157,777 1,670,502 1,229,960
---------- ---------- ----------
9,034,030 6,807,513 4,587,162
---------- ---------- ----------
Operating loss (9,026,499) (6,549,120) (4,575,385)
---------- ---------- ----------
Other income (expense):
Interest/other income 68,133 230,686 836,705
Interest expense (476,505) (1,055) --
---------- ---------- ----------
(408,372) 229,631 836,705
---------- ---------- ----------
Net loss $(9,434,871) $(6,319,489) $(3,738,680)
========== ========= =========
Net loss per share $ (.44) $ (.32) $ (.19)
========== ========== ==========
Weighted average number
of shares outstanding 21,657,549 19,730,246 19,620,859
========== ========== ==========
See accompanying notes to financial statements.
UNIGENE LABORATORIES, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
Years Ended December 31, 1995, 1994 and 1993
Common Stock
------------------ Additional
Number of Par Paid-in Accumulated Treasury
Shares Value Capital Deficit Stock Total
--------- --------- ----------- ---------- -------- ----------
Balance,
January 1, 1993 19,628,149 $196,281 $32,988,202 $(14,231,867) $(1,031) $18,951,585
Net loss -- -- -- (3,738,680) -- (3,738,680)
---------- -------- ----------- ------------ --------- -----------
Balance,
December 31, 1993 19,628,149 196,281 32,988,202 (17,970,547) (1,031) 15,212,905
Sales of
stock 1,135,000 11,350 2,198,586 -- -- 2,209,936
Exercise of
stock options 155,250 1,553 212,685 -- -- 214,238
Net loss -- -- -- (6,319,489) -- (6,319,489)
---------- -------- ----------- ------------ ---------- ----------
Balance,
December 31,1994 20,918,399 209,184 35,399,473 (24,290,036) (1,031) 11,317,590
Sales of
stock 2,802,022 28,020 2,561,044 -- -- 2,589,064
Exercise of
stock options 92,750 928 149,995 -- -- 150,923
Net loss -- -- -- (9,434,871) -- (9,434,871)
---------- -------- ----------- ------------ ---------- ----------
Balance,
December 31,
1995 23,813,171 $238,132 $38,110,512$(33,724,907) $(1,031) $4,622,706
========== ======== =========== =========== ======== ==========
See accompanying notes to financial statements.
UNIGENE LABORATORIES, INC.
STATEMENTS OF CASH FLOWS
Years Ended December 31,
1995 1994 1993
------------ ------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ........................................ $ (9,434,871) $ (6,319,489) $ (3,738,680)
------------ ------------ ------------
Adjustments to reconcile net loss to net
cash provided by operating activities:
Depreciation and amortization .............. 1,445,596 573,830 327,187
Decrease in interest receivable ............ -- 120,610 254,797
(Increase) decrease in prepaid
expenses and other current assets ....... (39,606) 61,411 (148,501)
Increase in operating accounts
payable and accrued expenses* ........... 1,457,187 981,835 117,537
------------ ------------ ------------
Total adjustments ............................... 2,863,177 1,737,686 551,020
------------ ------------ ------------
Net cash used for
operating activities ......................... (6,571,694) (4,581,803) (3,187,660)
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Maturity of marketable securities ............ -- 3,000,000 12,000,000
Purchase of marketable securities ............ -- -- (1,000,000)
Construction of leasehold improvements* ...... (939,947) (5,746,782) (1,398,698)
Purchase of furniture and equipment* ......... (635,198) (2,681,814) (258,524)
Increase in patents and other assets ......... (131,532) (40,184) (399,899)
------------ ------------ ------------
Net cash (used in) provided by
investing activities ......................... (1,706,677) (5,468,780) 8,942,879
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Sales of stock, net of related expenses ...... 2,589,064 2,209,936 --
Issuance of debt ............................. 8,205,000 -- --
Repayment of debt ............................ (3,000,000) -- --
Exercise of stock options .................... 150,923 214,238 --
------------ ------------ ------------
Net cash provided by
financing activities ......................... 7,944,987 2,424,174 --
------------ ------------ ------------
Net increase (decrease) in cash and
cash equivalents .............................. (333,384) (7,626,409) 5,755,219
Cash and cash equivalents at
beginning of period ........................... 592,011 8,218,420 2,463,201
------------ ------------ ------------
Cash and cash equivalents at
end of period ................................ $ 258,627 $ 592,011 $ 8,218,420
============ ============ ============
See accompanying notes to financial statements.
* Does not include 1995 and 1994 non-cash activity: $612,000 and $1,459,000
in accounts payable and accrued expenses for construction of leasehold
improvements and purchases of furniture and equipment.
UNIGENE LABORATORIES, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995, 1994 and 1993
1. Description of Business- Unigene Laboratories, Inc. (the "Company"), a
health-care oriented biotechnology research company, was incorporated in the
State of Delaware in 1980. The Company is in the process of changing its primary
business from a research oriented business to a pharmaceutical production
business. The Company has concentrated most of its efforts to date on one
product - calcitonin, for the treatment of osteoporosis. The Company's
calcitonin product will require clinical trials, FDA approval as well as
acceptance in the marketplace prior to commercialization. Although the Company
believes its patents and patent applications are valid, the invalidation of its
Alpha-Amidation Enzyme patent or the failure of certain of its pending
Alpha-Amidation Enzyme-related applications to issue as patents could have a
material adverse effect upon its business. The Company competes with specialized
biotechnology companies, major pharmaceutical and chemical companies and
universities and research institutions. Many of these competitors have
substantially greater resources than does the Company.
The Company has incurred annual operating losses since its inception and, as a
result, at December 31, 1995, had an accumulated deficit of $33,700,000 and a
working capital deficiency at December 31, 1995 of $4,100,000. Cost of
improvements, equipment and validation through December 31, 1995 total
$11,900,000. In 1995, the Company borrowed $3,300,000 from two unrelated third
parties (see Note 5). Although the Company sold convertible debentures in the
principal amount of $9,080,000 in March 1996 (see Note 12) management believes
that the Company requires additional funds through financing or licensing
agreements to ensure continued operations. There is no assurance that sufficient
funds will be obtained.
2. Summary of Significant Accounting Policies & Practices
Property, Plant and Equipment- Property, plant and equipment are carried at
cost. Depreciation is computed using the straight-line method. Amortization of
leasehold improvements is computed over the remaining life of the lease using
the straight-line method. The cost of maintenance and repairs is charged to
expense as incurred. Significant renewals and betterments are capitalized.
Research and Development- Research and development contract revenues are accrued
based upon the successful completion of various benchmarks as set forth in the
individual agreements. Research and development expenditures are expensed as
incurred.
Patents- Patent costs are deferred pending the outcome of patent applications.
Successful patent costs are amortized using the straight-line method over the
lives of the patents. Unsuccessful patent costs are expensed when determined
worthless. As of December 31, 1995, two of the Company's patents had issued in
the U.S. and nine have issued in various foreign countries. Various other
applications are still pending.
Net Loss per Share- Net loss per share is computed using the weighted average
number of shares outstanding during the period. Stock options and warrants have
not been included in the calculation since the inclusion of such shares would be
anti-dilutive.
Statements of Cash Flows- The Company considers all highly liquid securities
purchased with an original maturity of three months or less to be cash
equivalents. Interest expense paid was $240,000 in 1995, $1,000 in 1994 and $0
in 1993.
Use of Estimates- The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
3. Related Party Transactions
In connection with loans made to the Company by certain stockholders in 1984 and
1985, which loans were repaid in 1989, the former lenders received options to
purchase 400,950 shares of the common stock of the Company, at prices ranging
from $1.37 to $1.65 per share. During 1994, options to purchase 145,800 shares
of common stock were exercised and options to purchase 72,900 shares of common
stock expired. During 1995, options to purchase 80,750 shares of common stock
were exercised and options to purchase 101,500 shares of common stock expired.
During 1994, the Company's stockholders approved the adoption of a stock option
plan for outside directors. This plan replaced a plan previously adopted in
1991. As a result, the three outside members of the Board of Directors at that
time were granted options, expiring in 2004 except if the individual is no
longer a director, to purchase a total of 90,000 shares of the Company's common
stock at $3.00 per share. During 1995, one outside director retired and his
options totaling 30,000 shares were cancelled. New outside directors will
automatically receive stock options for 30,000 shares of common stock upon their
election to the Board of Directors at a price equal to the fair market value on
the date of grant. At December 31, 1995, options representing 60,000 shares were
outstanding of which 50,000 shares were exercisable; however, none have been
exercised.
Notes payable - stockholders, totaling $1,905,000 at December 31, 1995, consist
of notes to Warren P. Levy, Ronald S. Levy and Jay Levy, officers and directors
of the Company, who in the aggregate own 17% of the Company's outstanding common
stock, and a member of their family. These notes bear interest at the Merrill
Lynch Margin Loan Rate plus .25% (8.875% at December 31, 1995) and are
collateralized by subordinated security interests in the Company's Fairfield
plant and Boonton equipment. Notes for $1,255,000 were originally payable on
demand but in any event not later than February 10, 1997. A note for $650,000 is
due on February 10, 1997 and is classified as long-term. Under an agreement
entered into with the holders of the $9.08 million Convertible Debentures (see
Note 12), only $1,250,000 of these loans can be repaid by the Company based upon
the achievement of certain corporate benchmarks. The benchmarks and their
associated repayments include $250,000 payable upon the occurrence of each of
the following: achievement of GMP status for the peptide production facility,
the filing of an injectable calcitonin IND and the filing of an oral calcitonin
IND. In addition, there is a $500,000 repayment associated with the signing of a
contract with a strategic marketing partner. Since management expects these
benchmarks to be achieved during 1996, $1,250,000 of these loans has been
classified as short-term as of December 31, 1995.
4. Property, Plant and Equipment
Property, plant and equipment consisted of the following at December 31, 1995
and 1994:
Estimated
Depreciable
1995 1994 Lives
---------- ---------- -----------
Building and
improvements $1,373,975 $1,373,975 25 years
Leasehold improvements 8,437,674 7,890,989 Remaining Life of Lease
Manufacturing equipment 3,420,757 3,297,855 10 years
Laboratory equipment 2,332,272 2,302,264 5 years
Other equipment 466,523 466,523 10 years
Office equipment and
furniture 179,574 151,038 5 years
---------- ----------
16,210,775 15,482,644
Less accumulated
depreciation and
amortization 4,818,923 3,382,307
---------- ----------
11,391,852 12,100,337
Land 121,167 121,167
---------- ----------
$11,513,019 $12,221,504
========== ==========
Depreciation and amortization expense on property, plant and equipment was
$1,437,000, $531,000 and $236,000 in 1995, 1994 and 1993, respectively.
5. Note Payable - Other
Represents a $3.3 million debt financing received in November and December 1995
from two unrelated third parties. A total of $2.2 million was used to pay off
other short-term debt plus accrued interest. This note is secured by all of the
Company's assets and accrues interest at the rate of 9.5% per annum. The note
was due in February, 1996. However, on March 6, 1996 the note was exchanged for
Senior Secured Convertible Debentures with interest at the rate of 9.5% per
annum, secured by all of the Company's assets, maturing in 1998. The debentures
are convertible into shares of the Company's common stock at a conversion rate
of $1.15 per share, subject to certain reset provisions. As a result of the
exchange, the $3.3 million note at December 31, 1995 has been classified as
long-term.
6. Lease
The Company is obligated under a 10 year net-lease which began in February 1994
for its manufacturing facility located in Boonton, New Jersey. The Company has
two 10-year renewal options as well as an option to purchase the facility. Total
future minimum rentals under this noncancelable operating lease as of December
31, 1995 are as follows:
YEAR RENT
---- ----
1996 $ 185,323
1997 185,323
1998 185,323
1999 185,323
2000 185,323
Thereafter 571,409
-------
$1,498,024
==========
Total rent expense for 1995, 1994 and 1993 was $185,000, $140,000 and $0,
respectively.
7. Stockholders' Equity
The Company has outstanding Class B Warrants which entitle the holder of each
warrant to purchase one share of Common Stock for an adjusted price of $4.1694
per share on or before the extended due date of August 11, 1996. The Class B
Warrants are subject to redemption by the Company if the closing bid price of
the Common Stock, as reported by NASDAQ, averages in excess of an adjusted price
of $5.8372 per share for thirty consecutive business days.
In November and December 1994, the Company sold in two separate transactions,
1,135,000 shares of its Common Stock and received net proceeds of $2,200,000.
During 1995, the Company sold an aggregate of 2.8 million shares of its Common
Stock and received total net proceeds of $2.6 million. As a result of these
sales and of prior transactions for which no adjustment was required, and
pursuant to the requirements of the Class B Warrant Agreement, Unigene adjusted
the exercise price of its Class B Warrants, as indicated above, to $4.1694 per
share and adjusted the number of shares of Common Stock thereby exercisable for
each Class B Warrant to 1.1992 shares of Common Stock. As a consequence of the
adjustment of the price of the Class B Warrants, the Redemption Price of the
Class B Warrants was adjusted to $0.0417 per Warrant and the market price of the
Common Stock required to be exceeded in order for the Company to exercise its
right of redemption was adjusted to $5.8372 per share.
In October 1994, the Company entered into a consulting agreement with Broad
Capital Associates, Inc. ("Broad"). Broad's compensation for its services
included the issuance of warrants, exercisable at $3.00 per share, for the
purchase of 1,000,000 shares of Common Stock. During 1995, these warrants were
sold by Broad to an unrelated third party. No proceeds were received by the
Company in connection with this transaction. These warrants expire in April
1997.
In connection with the issuance of stock as discussed above and of debt (see
Note 5) during 1995, the Company issued an aggregate of 2,164,000 stock purchase
warrants , expiring from 2000 to 2001, exercisable at prices ranging from $1.44
to $3.00 per share. The exercise prices of the warrants were at or above the
fair market value of the common stock at their dates of issue; therefore no
value was ascribed to the warrants at the time of their issuances.
8. Stock Option Plans
Under the Unigene Laboratories, Inc. 1984 Non-Qualified Stock Option Plan for
Selected Employees (the "1984 Plan") 2,916,000 shares of Common Stock were
reserved for issuance upon the exercise of options granted. Each option granted
expires no later than the tenth anniversary of the date of its grant. The 1984
Plan terminated in November 1994, however 329,650 options previously granted
continue to be exercisable under that plan.
During 1994 the Company's stockholders approved the adoption of the 1994
Employee Stock Option Plan (the "1994 Plan"). All employees of the Company are
eligible to participate in the 1994 Plan, including executive officers and
directors who are employees of the Company. The 1994 Plan is being administered
by the Employee Stock Option Committee which selects the employees to be granted
options, fixes the number of shares to be covered by the options granted and
determines the exercise price and other terms and conditions of each option.
During 1995, options for 582,750 shares of Common Stock were issued under the
1994 Plan. This total includes options for an aggregate of 538,750 shares of
Common Stock which were issued pursuant to an employee "swap" agreement. Under
the terms of this offer, employees were eligible to exchange higher priced stock
options for new stock options having an exercise price of $1.625 per share, the
fair market value at the date of the new agreements. Old options that were
currently vested received new extended vesting periods, while certain other
vesting periods were accelerated. A maximum of 1,500,000 shares of Common Stock
is reserved for issuance under the 1994 Plan. Options granted under the 1994
Plan will continue in effect for a maximum of ten (10) years from the date
granted. The purchase price of the shares issuable upon the exercise of each
option cannot be less than the fair market value of the Common Stock at the time
the option is granted. The 1994 Plan will terminate on June 16, 2004, unless
earlier terminated.
Transactions under the plans are as follows:
Option
Options Price
Outstanding Per Share
----------- -----------
January 1, 1993 469,250 $1.00-$6.38
----------- ------------
1993: Granted 11,000 $2.56-$4.13
Cancelled ( 9,000)
----------- ------------
December 31, 1993 471,250 $1.00-$5.00
----------- ------------
1994: Granted 447,350 $2.38-$3.25
Cancelled ( 9,750)
Exercised ( 9,450) $1.19-$2.75
----------- ------------
December 31, 1994 899,400 $1.00-$5.00
----------- ------------
1995: Granted 582,750 $1.44-$2.69
Cancelled (590,750)
Exercised (12,000) $1.50
----------- ------------
December 31, 1995 879,400 $1.00-$3.00
----------- ------------
As of December 31, 1995, options to purchase 891,250 shares were available for
grant under the 1994 Plan and options for 690,167 shares were exercisable under
the 1994 and 1984 plans.
During 1993, a consultant received options to purchase 5,000 shares of the
Company's common stock at $4.56 per share, all of which options are currently
exercisable. During 1995, the Company granted a stock option to a consultant to
purchase 10,000 shares of the Company's common stock. The consultant is entitled
to purchase an additional 50,000 shares of the Company's common stock if certain
conditions are met. These options are exercisable at $1.44 per share. In
addition, another consultant will receive 10,000 shares of the Company's common
stock when certain conditions are met.
In addition, at December 31, 1995, there are 60,000 options outstanding and
shares reserved under agreements referred to in note 3.
9. Income Taxes
As of December 31, 1995, the Company had available for income tax reporting
purposes net operating loss carryforwards in the amount of approximately
$34,000,000, expiring from 1996 through 2010, which are available to reduce
future earnings which would otherwise be subject to federal income taxes. In
addition, the Company has investment tax credits and research and development
credits in the amounts of $69,000 and $1,594,000, respectively, which are
available to reduce the amount of future federal income taxes.
These credits expire from 1996 through 2010.
The Company follows Statement of Financial Accounting Standards No. 109 (FASB
109), "Accounting for Income Taxes." Given the Company's past history of
incurring operating losses, any deferred tax assets that are recognizable under
FASB 109 have been fully reserved. As of January 1, 1995 and 1994, under FASB
109, the Company had deferred tax assets of approximately $11,100,000 and
$8,400,000, respectively, subject to valuation allowances of $11,100,000 and
$8,400,000, respectively. The deferred tax assets were generated primarily as a
result of the Company's net operating losses and tax credits generated. At
December 31, 1995, the Company's deferred tax assets and valuation allowances
each increased by approximately $4,000,000.
10. Employee Benefit Plan
The Company, in 1989, implemented a deferred compensation plan covering all
full-time employees. The plan allows participants to defer a portion of their
compensation on a pre-tax basis pursuant to Section 401(k) of the Internal
Revenue Code, as amended, up to a maximum for each employee of $9,240 for 1995.
11. Research Contract
In September 1989, the Company executed a letter of intent with Berlex
Laboratories, Inc. ("Berlex"), a subsidiary of Schering A.G., Berlin, West
Germany, to investigate novel peptide-based approaches in the treatment of
certain cardiovascular disorders. The letter of intent provided for Berlex to
obtain a license to proprietary technology already developed by Unigene and
Berlex was to sponsor the collaborative research effort. If the research program
proved to be successful, product development and marketing would be the
responsibility of Berlex, while Unigene would retain a royalty on any resulting
sales. Under the letter of intent, $270,800 and $362,500 were recognized as
revenue during 1990 and 1989, respectively. The letter of intent was terminated
in June 1990 and a final payment of $250,000 was received and included in Sales
and Other Revenue in 1994. The Company has no further obligations under this
letter of intent.
12. Subsequent Events
The Company has incurred annual operating losses since its inception and in 1994
completed construction of an $11,900,000 manufacturing facility. At December 31,
1995, the Company had a working capital deficiency of $4,100,000. In March 1996,
the Company sold $9.08 million of 10% Convertible Debentures due in 1999 in a
private placement and received net proceeds of approximately $8,200,000. The
debentures are convertible into common stock for up to one-third of the
principal amount on each of April 27,1996, May 27, 1996 and June 26, 1996. The
debentures are convertible at the lower of $2.00 per share or 85% of the market
price per share at the date of conversion. The Placement Agent in connection
with the issuance of the debentures received a five-year warrant to purchase
454,000 shares of the Company's common stock at $2.10 per share.
From January through March 1996, the Company sold in private placements an
aggregate of 371,000 shares of common stock receiving net proceeds of $370,000.
In March 1996, the Company exchanged its outstanding $3.3 million secured
indebtedness with the holders thereof for $3.3 million in Senior Secured
Convertible Debentures. The senior debentures mature on November 15, 1998, bear
interest at the rate of 9.5% per annum and are secured by substantially all of
the assets of the Company. In accordance with the terms on which the holders
initially assumed the indebtedness in November 1995, the senior debentures are
convertible into shares of the Company's common stock at a conversion rate of
$1.15 per share, subject to certain reset provisions.
The Company is seeking to commercialize its calcitonin by producing and selling
calcitonin from its manufacturing plant, by signing licensing/joint venture
agreements with pharmaceutical companies and by developing a calcitonin pill.
There can be no assurance that these goals will be achieved. Management believes
that the Company requires additional funds through financing or license
agreements to ensure continued operations. There is no assurance that sufficient
funds will be obtained.
PART III
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.
None.
Item 10. Directors and Executive Officers of the Registrant.
The following table sets forth information with respect to the five nominees for
election as directors:
Served
Continuously
Name Age as Director Since
- ---- --- -----------------
Warren P. Levy (1)(2) 44 1980
Ronald S. Levy (1)(3) 47 1980
Jay Levy (1)(4) 72 1980
Robert G. Ruark (5) 54 1993
George M. Weimer (6) 77 1984
(1) Dr. Warren P. Levy and Dr. Ronald S. Levy are brothers and are the sons of
Mr. Jay Levy. Drs. Levy and Mr. Levy are the Company's only executive officers.
(2) Dr. Warren P. Levy, a founder of the Company, has served as President, Chief
Executive Officer and Director of the Company since its formation in November
1980. Dr. Levy holds a Ph.D. in biochemistry and molecular biology from
Northwestern University and a bachelor's degree in chemistry from the
Massachusetts Institute of Technology.
(3) Dr. Ronald S. Levy, a founder of the Company, has served as Vice President
and Director of the Company since its formation in November 1980 and as
Secretary since May 1986. Dr. Levy holds a Ph.D. in bioinorganic chemistry from
Pennsylvania State University and a bachelor's degree in chemistry from Rutgers
University.
(4) Mr. Jay Levy, a founder of the Company, has served as Chairman of the Board
of Directors and Treasurer of the Company since its formation in November 1980.
Mr. Levy is a part time employee of the Company and devotes approximately 15% of
his time to the Company. From 1985 through February 1991, he served as the
principal financial advisor to the Estate of Nathan Cummings and its principal
beneficiary, The Nathan Cummings Foundation, Inc., a large charitable
foundation. For the seventeen years prior thereto, he performed similar services
for the late Nathan Cummings, a noted industrialist and philanthropist.
(5) Mr. Robert G. Ruark has been an independent consultant since June 1993.
Prior thereto, he had been employed by Merck and Co., Inc., an international
pharmaceutical company, for 25 years in legal and administrative capacities. Mr.
Ruark, an attorney, has extensive experience in international licensing and
business development. When he retired in 1993, Mr. Ruark was Vice President of
the Merck Human Health Division.
(6) Mr. George M. Weimer has been an independent general partner and director of
Westford Technology Ventures L.P., a venture capital investment company, since
May 1988. For more than 40 years prior thereto, Mr. Weimer worked in various
administrative capacities for divisions and subsidiaries of Merck & Co., Inc.
and E.R. Squibb & Sons, both of which are major international pharmaceutical
companies. When he retired in 1984, Mr. Weimer was Senior Vice
President-Administration for Merck Sharp & Dohme International Pharmaceuticals,
Inc., a position he had held since 1981. Since 1984, he has served as a
pharmaceutical consultant for the Company and, from time to time, for other
corporations.
Information concerning the Executive Officers of the Registrant is included
in Item I of Part I above, in the section entitled "Executive Officers of the
Registrant".
Item 11. Executive Compensation.
REPORT OF THE BOARD OF DIRECTORS ON 1995 EXECUTIVE COMPENSATION
The entire Board of Directors was responsible for determining the 1995
compensation of the three executive officers of the Company. This Report
describes the policies and other considerations used by the Board in
establishing such compensation.
The Board has familiarized itself with various forms and types of
remuneration from reports of other public corporations and their own business
experience.
The Board has determined that, because the Company was still in a
research and preproduction phase in 1995, compensation for 1995 for executive
officers could not be related primarily to the performance of the Company's
stock or to the annual profit performance of the Company. A primary
consideration for the compensation of an executive officer of the Company is his
leadership effort in the development of proprietary products and processes, and
in planning for future growth and profitability. Other significant factors
considered by the Board of Directors in determining executive officers'
compensation were salaries paid by other public companies in the health-care
related biotechnology field to comparable officers, the duties and
responsibilities of the executive officers in the past and as projected, their
past performance and commitment to the Company, and incentives for future
performance. The executive officers were also consulted with respect to their
compensation and their plans for compensation for other personnel in order to
coordinate all compensation policies of the Company.
The Board of Directors determined that no bonuses or salary increases
should be paid to executive officers in 1995, primarily on the basis of the
Company's losses and the projected expenses and cash flow required for the
development of the calcitonin pill and the validation of the Company's new
plant.
The Board also determined that no stock options be awarded to executive
officers for 1995, at the request of such executive officers.
The compensation for the Chief Executive Officer for 1995 was based on
the same policies and considerations set forth above for executive officers
generally.
Warren P. Levy
Ronald S. Levy
Jay Levy
Robert G. Ruark
George M. Weimer
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Executive compensation for 1995 was determined by the Board of Directors of
the Company consisting of Messrs. Warren P. Levy, Ronald S. Levy, Jay Levy,
Robert G. Ruark, and George M. Weimer.
Three of the members of the five member Board of Directors, Warren P. Levy,
Ronald S. Levy and Jay Levy, are executive officers of the Company. Jay is the
father of Warren and Ronald Levy. The other directors were outside directors
unrelated to the executive officers.
During 1995, Warren P. Levy, Ronald S. Levy, and Jay Levy, officers and
directors of the Company, and a member of their family loaned a total of
$1,905,000 to the Company of which $1,850,000 is secured by liens on the
Fairfield plant and equipment and the Boonton manufacturing equipment. The notes
bear interest at the Merrill Lynch Margin Loan Rate (approximately 8.5% at April
17, 1996). During 1995, the Company borrowed $3,300,000 from unrelated third
parties on a short-term basis secured by most of the assets of the Company. In
connection with those loans, the members of the Levy family agreed to
subordinate their security interests in the Fairfield plant and equipment and
the equipment at the Boonton plant to secured lenders. In March 1996, the
Company sold $9.08 million of 10% Convertible Debentures due in 1999 in a
private placement to unrelated third parties. Under the terms of those
Debentures, $1,250,000 of the Levy family loans is payable over time based upon
the achievement of certain corporate benchmarks.
EXECUTIVE COMPENSATION
The following table sets forth for the years 1993, 1994 and 1995
compensation paid or awarded to the Chief Executive Officer of the Company and
to each other executive officer whose remuneration from the Company exceeded
$100,000 during 1995 in all capacities in which they served:
SUMMARY COMPENSATION TABLE
All Other
Annual Compensation Long Term Compensation Compensation
------------------------------ --------------------------- ------------
Awards (1) Payouts
------------------ -------
Restricted
Name and Stock Options/ LTIP
Principal Position Year Salary Bonus Other Award SARs Payouts(2)
- ------------------- ------ -------- ------- ------ --------- -------- --------
Warren P. Levy, 1995 $145,394 $-0 $ -0- $ -0- $ -0- $ -0- 13,811(3)
President, Chief 1994 145,344 -0- -0- -0- -0- -0- 12,942(3)
Executive Officer 1993 145,514 -0- -0- -0- -0- -0- 14,436
and Director
Dr. Ronald S. Levy, 1995 140,829 -0- -0- -0- -0- -0- 16,616(3)
Vice President and 1994 140,716 -0- -0- -0- -0- -0- 13,914(3)
Director 1993 139,956 -0- -0- -0- -0- -0- 16,899
(1) Warren P. Levy and Ronald S. Levy have received no stock awards, options or
SARs and do not own any restricted stock.
(2) Long Term Incentive Plans (LTIP).
(3) Represents premium on executive split-dollar life insurance.
The Company has installed a split-dollar life insurance program in the
amount of $1,000,000 on the lives of each of Dr. Warren P. Levy and Dr. Ronald
S. Levy. If all actuarial assumptions are correct, there will be no termination
costs to the Company. Should there be a premature death, there may be a gain
realized by the Company.
SHAREHOLDER RETURN PERFORMANCE PRESENTATION
Set forth below is a line graph comparing the yearly percentage change in the
cumulative total stockholder return on the Company's Common Stock against the
cumulative total return of the NASDAQ Market Index and of a peer group index
determined by Standard Industrial Classification (SIC) code.
[GRAPHIC -- GRAPH PLOTTED TO POINTS IN CHART BELOW]
COMPARISON OF CUMULATIVE TOTAL RETURN
OF COMPANY, INDUSTRY INDEX AND BROAD MARKET
1990 1991 1992 1993 1994 1995
---- ---- ---- ---- ---- ----
UNIGENE LABS INC 100 253.85 257.69 153.85 146.15 80.77
INDUSTRY INDEX 100 233.02 192.66 159.93 107.34 208.38
BROAD MARKET 100 128.38 129.64 155.50 163.26 211.77
Item 12. Security Ownership of Certain Beneficial Owners and Management.
PRINCIPAL STOCKHOLDERS
As of April 22, 1996, the following were the only beneficial owners of the
Company's voting securities known to hold more than 5 percent of the outstanding
shares of Common Stock. The Company has no other class of voting securities
outstanding.
Name and Address of Amount of Beneficial Percentage of
Beneficial Owner Ownership Outstanding Shares
- --------------------- --------------------- -------------------
Warren P. Levy (1) 1,711,700 7.1%
110 Little Falls Road
Fairfield, NJ 07004
Ronald S. Levy (1) 1,726,700 7.1%
110 Little Falls Road
Fairfield, NJ 07004
Citadel Investment
Management, L.P.(2) 3,094,565 11.3%
225 West Washington, Suite 900
Chicago, IL 60606
(1) Dr. Warren P. Levy and Dr. Ronald S. Levy, together with their father, Mr.
Jay Levy whose shares are set forth in the next table, beneficially own
4,078,350 shares of the Company's Common Stock including shares owned by a trust
in which they have pecuniary interests, or 17% of the outstanding shares. See
also footnotes 1 and 2 to the next table.
(2) Consists of 9.5% Convertible Senior Secured Debentures in the principal
amount of $3,300,000 which are convertible immediately into 2,869,565 shares of
the Company's Common Stock as well as warrants to purchase 225,000 shares of the
Company's Common Stock which are exercisable immediately.
SECURITY OWNERSHIP OF MANAGEMENT
On April 22, 1996, the directors listed below and all officers and
directors as a group beneficially owned the following equity securities of the
Company, including options to purchase shares of Common Stock of the Company.
Common Stock of the Company
-----------------------------------
Name of Amount and Nature of Percent of
Beneficial Owner Beneficial Ownership(1) Class
- ---------------- ----------------------- ----------
Warren P. Levy 1,711,700 (2) 7.1%
Ronald S. Levy 1,726,700 (2) 7.1%
Jay Levy 439,950 (2) 1.8%
Robert G. Ruark 20,000 (3) 0.1%
George M. Weimer 30,000 (4) 0.1%
Officers and Directors
as a Group (5 persons) 3,928,350 (2)(5) 16.2%
(1) Unless otherwise noted, all officers, directors and principal stockholders
have sole voting and investment power with respect to securities beneficially
owned by them.
(2) In addition, 200,000 shares of Common Stock, representing approximately 1%
of the total outstanding, is held by a trust. Jay Levy and members of his
immediate family, including his two sons, Warren P. Levy and Ronald S. Levy,
have pecuniary interests in the trust. As a result, each of such persons may be
deemed to be the beneficial owner of shares held by the trust. Warren P. Levy,
his wife and Ronald S. Levy are co-trustees of the trust.
(3) Consists solely of shares of Common Stock which Mr. Ruark has the right to
acquire pursuant to stock options which are exercisable immediately.
(4) Consists solely of shares of Common Stock which Mr. Weimer has the right to
acquire pursuant to stock options which are exercisable immediately.
(5) Includes an aggregate of 50,000 shares of Common Stock which such persons
have the right to acquire pursuant to stock options which are exercisable
immediately.
Item 13. Certain Relationships and Related Transactions.
Information concerning the Executive Officers of the Registrant is included
in Item 11 of Part III above, in the section entitled "Compensation Committee
Interlocks and Insider Participation".
PART IV
Item 14. Exhibits, Financial Statement Schedules
and Reports on Form 8-K
(a) (1) and (2). Financial Statement Schedules.
None.
(b) Exhibits.
See Index to Exhibits which appears on Pages 29 and 30.
(c) Reports on Form 8-K:
During the last fiscal quarter of 1995, the Registrant did not file any
current reports on Form 8-K.
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
UNIGENE LABORATORIES, INC.
March 28, 1996 /s/ Warren P. Levy
-----------------------------
Warren P. Levy, President
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
March 28, 1996 /s/ Warren P. Levy
-----------------------------
Warren P. Levy, President,
Chief Executive Officer and
Director
March 28, 1996 /s/ Jay Levy
-----------------------------
Jay Levy, Treasurer,
Chief Financial Officer, Chief
Accounting Officer and Director
March 28, 1996 /s/ Ronald S. Levy
-----------------------------
Ronald S. Levy, Secretary,
Vice President and Director
March 28, 1996 /s/ Robert G. Ruark
-----------------------------
Robert G. Ruark, Director
/s/ George M. Weimer
March 28, 1996 -----------------------------
George M. Weimer, Director
INDEX TO EXHIBITS
-----------------
3.1(1) Certificate of Incorporation and Amendments to July 1, 1986.
3.1.1(1) Amendments to Certificate of Incorporation filed July 29, 1986
and May 22, 1987.
3.2(1) By-Laws.
4.1(1) Amended Form of Unit Purchase Option.
4.1.1(1) Amended Proposed Form of Warrant Agreement, Specimen Class A
Warrant and Specimen Class B Warrant.
4.2(1) Specimen Certificate for Common Stock, par value $.01 per
share.
10.2(3) Lease agreement between the Company and Fulton Street
Associates, dated May 20, 1993.
10.6(1) Agreement between the Company and George M. Weimer dated
February 10, 1984.
10.7 1994 Employee Stock Option Plan which is incorporated by
refer- ence to the Company's Definitive Proxy Statement dated
April 28, 1994, which is set forth as Appendix A to Exhibit 28
to the Company's Form 10-K for the year ended December 31,
1993.
10.8 1994 Outside Directors Stock Option Plan which is incorporated
by reference to the Company's Definitive Proxy Statement dated
April 28, 1994 which is set forth as Appendix B to Exhibit 28
to the Company's Form 10-K for the year ended December 31,
1993.
10.9(2) Mortgage and Security Agreement between the Company and Jean
Levy dated February 10, 1995.
10.10(2) Loan and Security Agreement between the Company and Jay Levy,
Warren P. Levy and Ronald S. Levy dated March 2, 1995.
10.11(1) Non-Competition Agreements with Warren P. Levy and Ronald S.
Levy dated May 29, 1987.
10.14(4) Split Dollar Agreement dated September 30, 1992 between
Unigene Laboratories, Inc. and Warren P. Levy.
10.15(4) Split Dollar Agreement dated September 30, 1992 between
Unigene Laboratories, Inc. and Ronald S. Levy.
10.16(2) Loan and Security Agreement between the Company and Dejufra,
Inc. dated March 15, 1995.
10.17 Consulting Agreement, dated October 25, 1994, between the
Company and Broad Capital Associates, Inc. which is
incorporated by reference as Exhibit 1 to the Company's Form
10Q for the period ended September 30, 1994.
10.18(2) Amendment to Loan Agreement and Security Agreement between the
Company and Jay Levy, Warren P. Levy and Ronald S. Levy dated
March 20, 1995.
10.19 Amended and Restated Securities Purchase Agreement dated March
6, 1996 by and among Olympus Securities, Ltd., Nelson Partners
and Unigene Laboratories, Inc.
10.20 Regulation S Securities Subscription Agreement.
10.20.1 Registration Rights Agreement between the Company and Swartz
Investments, LLC dated March 12, 1996.
10.21 Amendment to Loan and Security Agreement between the Company
and Jay Levy, Warren P. Levy and Ronald S. Levy dated June 29,
1995.
10.22 Promissory Note between the Company and Jay Levy, Warren P.
Levy and Ronald S. Levy dated June 29, 1995.
23 Independent Auditor's Consent
(1) Incorporated by reference to the exhibit of same number to the
Company's Registration Statement No. 33-6877 on Form S-1.
(2) Incorporated by reference to the exhibit of same number to the
Company's Form 10-K for the year ended December 31, 1994.
(3) Incorporated by reference to the exhibit of same number to the
Company's Form 10-K for the year ended December 31, 1993.
(4) Incorporated by reference to the exhibit of same number to the
Company's Form 10-K for the year ended December 31, 1992.