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Unilife Corp – ‘10-Q’ for 9/30/13

On:  Tuesday, 11/12/13, at 5:16pm ET   ·   For:  9/30/13   ·   Accession #:  1193125-13-438524   ·   File #:  1-34540

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  As Of               Filer                 Filing    For·On·As Docs:Size             Issuer                      Filing Agent

11/12/13  Unilife Corp                      10-Q        9/30/13   52:2.7M                                   Donnelley … Solutions/FA

Quarterly Report   —   Form 10-Q   —   Sect. 13 / 15(d) – SEA’34
Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: 10-Q        Quarterly Report                                    HTML    208K 
 2: EX-31.1     Certification -- §302 - SOA'02                      HTML     22K 
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51: R1          Document and Entity Information                     HTML     39K 
36: R2          Consolidated Balance Sheets                         HTML    111K 
33: R3          Consolidated Balance Sheets (Parenthetical)         HTML     42K 
14: R4          Consolidated Statements of Operations and           HTML     65K 
                Comprehensive Loss                                               
35: R5          Consolidated Statement of Stockholders' Equity      HTML     54K 
23: R6          Consolidated Statements of Cash Flows               HTML     92K 
45: R7          Description of Business and Unaudited Financial     HTML     22K 
                Statements                                                       
24: R8          Liquidity                                           HTML     24K 
26: R9          Summary of Significant Accounting Policies          HTML     30K 
15: R10         Equity Transactions and Share-Based Compensation    HTML     56K 
25: R11         Property, Plant and Equipment and                   HTML     29K 
                Construction-in-Progress                                         
44: R12         Goodwill and Intangible Assets                      HTML     27K 
41: R13         Long-Term Debt                                      HTML     36K 
34: R14         Net Loss Per Share                                  HTML     30K 
48: R15         Contingencies                                       HTML     29K 
43: R16         Business Alliances                                  HTML     22K 
12: R17         Summary of Significant Accounting Policies          HTML     51K 
                (Policies)                                                       
17: R18         Equity Transactions and Share-Based Compensation    HTML     52K 
                (Tables)                                                         
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                Construction-in-Progress (Tables)                                
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38: R23         Liquidity - Additional Information (Detail)         HTML     27K 
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                Additional Information (Detail)                                  
22: R25         Equity Transactions and Share-Based Compensation -  HTML     50K 
                Schedule of Stock Options Activity by Employees                  
                and Directors (Detail)                                           
19: R26         Equity Transactions and Share-Based Compensation -  HTML     50K 
                Schedule of Stock Options Activity by Other than                 
                Employees and Directors (Detail)                                 
18: R27         Equity Transactions and Share-Based Compensation -  HTML     31K 
                Fair Value of Options Granted (Detail)                           
27: R28         Equity Transactions and Share-Based Compensation -  HTML     40K 
                Summary of Activity Related to Restricted Stock                  
                Awards (Detail)                                                  
37: R29         Property, Plant and Equipment and                   HTML     45K 
                Construction-in-Progress - Components of Property,               
                Plant and Equipment and Construction-in-Progress                 
                (Detail)                                                         
42: R30         Goodwill and Intangible Assets - Changes in         HTML     23K 
                Carrying Amount of Goodwill (Detail)                             
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                (Detail)                                                         
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‘10-Q’   —   Quarterly Report
Document Table of Contents

Page (sequential)   (alphabetic) Top
 
11st Page  –  Filing Submission
"Table of Contents
"Part I. Financial Information
"Item 1. Financial Statements
"Unaudited Consolidated Balance Sheets as of September 30, 2013 and June 30, 2013
"Unaudited Consolidated Statements of Operations and Comprehensive Loss for the three months ended September 30, 2013 and 2012
"Unaudited Consolidated Statement of Stockholders' Equity for the three months ended September 30, 2013
"Unaudited Consolidated Statements of Cash Flows for the three months ended September 30, 2013 and 2012
"Notes to Unaudited Consolidated Financial Statements
"Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
"Item 3. Quantitative and Qualitative Disclosures About Market Risk
"Item 4. Controls and Procedures
"Part Ii. Other Information
"Item 1. Legal Proceedings
"Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
"Item 6. Exhibits
"Signatures

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  Form 10-Q  
Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-Q

 

 

(Mark One)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2013

OR

 

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from              to             

Commission file number 001-34540

 

 

UNILIFE CORPORATION

(Exact name of registrant as specified in its charter)

 

 

 

Delaware   27-1049354

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

250 Cross Farm Lane, York, Pennsylvania 17406

(Address of principal executive offices)

Telephone: (717) 384-3400

(Registrant’s telephone number, including area code)

 

 

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 whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer   ¨    Accelerated filer   x
Non-accelerated filer   ¨    Smaller reporting company   ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

As of November 8, 2013, 100,491,541 shares of the registrant’s common stock were outstanding.

 

 

 


Table of Contents

Table of Contents

 

     Page  

PART I. FINANCIAL INFORMATION

  

Item 1. Financial Statements

  

Unaudited Consolidated Balance Sheets as of September 30, 2013 and June 30, 2013

     3   

Unaudited Consolidated Statements of Operations and Comprehensive Loss for the three months ended September  30, 2013 and 2012

     4   

Unaudited Consolidated Statement of Stockholders’ Equity for the three months ended September 30, 2013

     5   

Unaudited Consolidated Statements of Cash Flows for the three months ended September 30, 2013 and 2012

     6   

Notes to Unaudited Consolidated Financial Statements

     7   

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

     16   

Item 3. Quantitative and Qualitative Disclosures About Market Risk

     18   

Item 4. Controls and Procedures

     19   

PART II. OTHER INFORMATION

  

Item 1. Legal Proceedings

     19   

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

     20   

Item 6. Exhibits

     20   

Signatures

     21   

 

2


Table of Contents

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

UNILIFE CORPORATION AND SUBSIDIARIES

Consolidated Balance Sheets

(unaudited)

 

     September 30, 2013     June 30, 2013  
     (in thousands, except share data)  
Assets     

Current Assets:

    

Cash and cash equivalents

   $ 7,416      $ 5,736   

Restricted cash

     1,966        2,400   

Accounts receivable

     5,059        654   

Inventories

     72        71   

Prepaid expenses and other current assets

     284        409   
  

 

 

   

 

 

 

Total current assets

     14,797        9,270   

Property, plant and equipment, net

     45,724        46,106   

Goodwill

     11,712        11,498   

Intangible assets, net

     23        23   

Other assets

     1,162        1,504   
  

 

 

   

 

 

 

Total assets

   $ 73,418      $ 68,401   
  

 

 

   

 

 

 
Liabilities and Stockholders’ Equity     

Current Liabilities:

    

Accounts payable

   $ 1,909      $ 3,428   

Accrued expenses

     3,720        2,444   

Current portion of long-term debt

     2,719        3,826   

Deferred revenue

     115        3,010   
  

 

 

   

 

 

 

Total current liabilities

     8,463        12,708   

Long-term debt, less current portion

     19,752        20,045   

Deferred revenue

     5,050        50   
  

 

 

   

 

 

 

Total liabilities

     33,265        32,803   
  

 

 

   

 

 

 

Contingencies (Note 9)

    

Stockholders’ Equity:

    

Preferred stock, $0.01 par value, 50,000,000 shares authorized as of September 30, 2013; none issued or outstanding as of September 30, 2013 and June 30, 2013

     —         —    

Common stock, $0.01 par value, 250,000,000 shares authorized as of September 30, 2013; 100,520,211 and 95,602,558 shares issued, and 100,491,541 and 95,573,888 shares outstanding as of September 30, 2013 and June 30, 2013, respectively

     1,005        956   

Additional paid-in-capital

     283,646        268,157   

Accumulated deficit

     (247,076     (235,832

Accumulated other comprehensive income

     2,718        2,457   

Treasury stock, at cost, 28,670 shares as of September 30, 2013 and June 30, 2013, respectively

     (140     (140
  

 

 

   

 

 

 

Total stockholders’ equity

     40,153        35,598   
  

 

 

   

 

 

 

Total liabilities and stockholders’ equity

   $ 73,418      $ 68,401   
  

 

 

   

 

 

 

See accompanying notes to the consolidated financial statements.

 

3


Table of Contents

UNILIFE CORPORATION AND SUBSIDIARIES

Consolidated Statements of Operations and Comprehensive Loss

(unaudited)

 

       Three Months Ended
September 30,
 
       2013        2012  
       (in thousands, except per share data)  

Revenue

     $ 3,187         $ 692   

Cost of product sales

       —            59   
    

 

 

      

 

 

 

Gross profit

       3,187           633   
    

 

 

      

 

 

 

Operating expenses:

         

Research and development

       6,399           4,738   

Selling, general and administrative

       6,520           6,577   

Depreciation and amortization

       1,042           1,223   
    

 

 

      

 

 

 

Total operating expenses

       13,961           12,538   
    

 

 

      

 

 

 

Operating loss

       (10,774        (11,905

Interest expense

       480           616   

Interest income

       (6        (24

Other income

       (4        —    
    

 

 

      

 

 

 

Net loss

       (11,244        (12,497

Other comprehensive loss:

         

Foreign currency translation

       (261        (173
    

 

 

      

 

 

 

Total comprehensive loss

     $ (10,983      $ (12,324
    

 

 

      

 

 

 

Net loss per share:

         

Basic and diluted net loss per share

     $ (0.12      $ (0.16
    

 

 

      

 

 

 

See accompanying notes to the consolidated financial statements.

 

4


Table of Contents

UNILIFE CORPORATION AND SUBSIDIARIES

Consolidated Statement of Stockholders’ Equity

(unaudited)

 

     Common Stock      Additional
Paid-In
Capital
     Accumulated
Deficit
    Accumulated
Other
Comprehensive
Income
     Treasury
Stock
    Total  
               
   Shares      Amount               
     (In thousands, except share data)  

Balance as of July 1, 2013

     95,602,558       $ 956       $ 268,157       $ (235,832   $ 2,457       $ (140   $ 35,598   

Net loss

     —          —          —          (11,244     —          —         (11,244

Foreign currency translation

     —          —          —          —         261         —         261   

Share-based compensation expense

     100,500         1         2,635         —         —          —         2,636   

Issuance of common stock from public offerings, net of issuance costs

     3,512,153         35         10,633         —         —          —         10,668   

Issuance of common stock upon exercise of stock options

     1,305,000         13         2,221         —         —          —         2,234   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Balance as of September 30, 2013

     100,520,211       $ 1,005       $ 283,646       $ (247,076   $ 2,718       $ (140   $ 40,153   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

See accompanying notes to the consolidated financial statements.

 

5


Table of Contents

UNILIFE CORPORATION AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(unaudited)

 

     Three Months Ended
September 30,
 
     2013     2012  
     (in thousands)  

Cash flows from operating activities:

  

Net loss

   $ (11,244   $ (12,497

Adjustments to reconcile net loss to net cash used in operating activities:

    

Depreciation and amortization

     1,042        1,223   

Share-based compensation expense

     2,636        1,555   

Recognition of deferred revenue

     (3,187     (663

Changes in assets and liabilities:

    

Accounts receivable

     935        (69

Inventories

     (1     5   

Prepaid expenses and other current assets

     124        213   

Other assets

     6        3   

Accounts payable

     (705     (300

Accrued expenses

     980        18   

Deferred revenue

     —          50   
  

 

 

   

 

 

 

Net cash used in operating activities

     (9,414     (10,462

Cash flows from investing activities:

    

Purchases of property, plant and equipment

     (1,166     (111
  

 

 

   

 

 

 

Net cash used in investing activities

     (1,166     (111

Cash flows from financing activities:

    

Principal payments on long-term debt and capital lease obligations

     (1,108     (1,173

Proceeds from the issuance of common stock and warrants, net of issuance costs

     10,668        18,780   

Proceeds from the exercise of options to purchase common stock

     2,234        —    

Decrease in restricted cash

     434        —    
  

 

 

   

 

 

 

Net cash provided by financing activities

     12,228        17,607   

Effect of exchange rate changes on cash

     32        14   
  

 

 

   

 

 

 

Net increase in cash and cash equivalents

     1,680        7,048   

Cash and cash equivalents at beginning of period

     5,736        11,410   
  

 

 

   

 

 

 

Cash and cash equivalents at end of period

   $ 7,416      $ 18,458   
  

 

 

   

 

 

 

Supplemental disclosure of non-cash activities

    

Purchases of property, plant and equipment in accounts payable and accrued expenses

   $ 229      $ 166   
  

 

 

   

 

 

 

See accompanying notes to the consolidated financial statements.

 

6


Table of Contents

Unilife Corporation and Subsidiaries

Notes to Unaudited Consolidated Financial Statements

1. Description of Business and Unaudited Financial Statements

Unilife Corporation and subsidiaries (the “Company”) is a U.S. based manufacturer and supplier of injectable drug delivery systems. The Company’s customers are biotechnology companies who seek to leverage its innovative, differentiated and customizable devices to enable or enhance the clinical development, regulatory approval and commercial lifecycles of its injectable biologics, drugs and vaccines. The Company manufactures and supplies its proprietary devices to pharmaceutical companies in a format where they can be filled and packaged with an injectable therapy prior to its shipment to the end-user for safe, simple and convenient administration.

The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). The accompanying unaudited consolidated financial statements contain all normal and recurring adjustments that, in the opinion of management, are necessary for a fair presentation for the periods presented as required by Rule 10-01 of Regulation S-X. Interim results may not be indicative of results for a full year. The accompanying unaudited consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and the notes thereto for the fiscal year ended June 30, 2013 contained in its Annual Report on Form 10-K.

References to A$ mean the lawful currency of the Commonwealth of Australia. References to € or euros are to the lawful currency of the European Union.

2. Liquidity

The Company has incurred recurring losses from operations during the year ended June 30, 2013, and the three months ended September 30, 2013, and anticipates incurring additional losses until such time that it can generate sufficient revenue from the sale, customization, or exclusive use and licensing of its proprietary range of injectable drug delivery systems to pharmaceutical and biotechnology customers. Management has taken such steps delineated below to address its cash requirements.

The Company needs additional funding to support its operations and capital expenditure requirements. The Company continues to have discussions with current and prospective customers for many active programs in its commercial pipeline and expects to progressively execute agreements featuring a combination of revenue streams including exclusivity fees, device customization programs and supply contracts that are expected to generate cash payments to the Company during calendar 2014. Given the substantial size, complexity and long-term duration of many of these prospective agreements, some can take a significant time to negotiate and finalize. The Company is consciously managing its cash position to minimize raising additional equity capital and thereby minimize dilution to existing stockholders.

The Company continues to evaluate debt funding programs available to the Company as part of its overall financing strategy. Combined with the ancipated revenue to be generated from new and existing customer agreements or through other transactions, the Company expects to have sufficient near term liquidity. However, there can be no assurance that such additional funding, or sales transactions, will close as expected or be available when needed. These various factors continue to raise substantial doubt about the Company’s ability to continue as a going concern.

The accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the ordinary course of business. The consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might result from the outcome of this uncertainty.

In October 2012, the Company entered into a Controlled Equity Offering Sales Agreement, (the “Sales Agreement”) pursuant to which the Company may, from time to time, issue and sell shares of common stock having an aggregate offering price of up to $45.0 million. During the three months ended September 30, 2013, the Company issued 3,512,153 shares of common stock and raised approximately $10.7 million under the Sales Agreement. The Company is not obligated to make any additional sales of shares under the Sales Agreement. As of September 30, 2013, there was approximately $19.2 million available under the Sales Agreement.

 

7


Table of Contents

Unilife Corporation and Subsidiaries

Notes to Unaudited Consolidated Financial Statements

 

3. Summary of Significant Accounting Policies

Principles of Consolidation

The consolidated financial statements include the accounts of Unilife Corporation and its wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation.

Use of Estimates

The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. The estimates are principally in the areas of revenue recognition and share-based compensation expense. Management bases its estimates on historical experience and various assumptions that are believed to be reasonable under the circumstances. Actual results could differ from those estimates.

Inventories

Inventories consist primarily of syringe components and include direct materials, direct labor and manufacturing overhead. Inventories are stated at the lower of cost or market, with cost determined using the first in, first out method. The Company routinely reviews its inventory for obsolete, slow moving or otherwise impaired inventory and records estimated impairments in the periods in which they occur.

Share-Based Compensation

The Company grants equity awards to its employees, directors and consultants. Certain employee and director awards vest over stated vesting periods and others also require achievement of specific performance or market conditions. The Company expenses the grant-date fair value of awards to employees and directors over their respective vesting periods. To the extent that employee and director awards vest only upon the achievement of a specific performance condition, expense is recognized over the period from the date management determines that the performance condition is probable of achievement through the date they are expected to be met. Awards granted to consultants are sometimes granted for past services, in which case their fair value is expensed on their grant date, while other awards require future service, or the achievement of performance or market conditions. Timing of expense recognition for consultant awards is similar to that of employee and director awards; however, aggregate expense is re-measured each quarter-end based on the then fair value of the award through the vesting date of the award. The Company estimates the fair value of stock options using the Black-Scholes option-pricing model, with the exception of market-based grants, which are valued based on the Monte Carlo option pricing model. Option pricing methods require the input of highly subjective assumptions, including the expected stock price volatility.

Revenue Recognition

The Company recognizes revenue from industrialization and development fees, licensing fees and product sales.

The Company recognizes up front, non-refundable fees ratably over the expected life of the related agreement. Revenue from industrialization and development fees is recognized upon achievement of the “at risk” milestone events, which represent the culmination of the earnings process related to such events. Milestones can include specific phases of projects such as product design, prototype availability, user tests, manufacturing proof of principle and the various steps to complete the industrialization of the product. Revenue is recognized when each substantive milestone has been achieved and the Company has no future performance obligations related to the milestone.

The Company recognizes revenue from sales of products at the time of shipment when title passes to the customer.

Reclassifications

Certain prior year amounts in the consolidated financial statements have been reclassified to conform to the current year presentation.

 

8


Table of Contents

Unilife Corporation and Subsidiaries

Notes to Unaudited Consolidated Financial Statements

 

Recently Issued Accounting Pronouncements

In February 2013, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2013-02, “Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income” (“ASU 2013-02”). The new guidance requires an entity to disclose in a single location the effects of reclassifications out of accumulated other comprehensive income (“AOCI”). For items reclassified out of AOCI and into net income in their entirety, entities must disclose the effect of the reclassification on each affected net income item. For AOCI reclassification items that are not reclassified in their entirety into net income, entities must provide a cross reference to other required U.S. GAAP disclosures. The standard does not change the items which must be reported in other comprehensive income. ASU 2013-02 is effective for annual and interim periods for fiscal years beginning after December 15, 2012. Since this guidance impacts presentation only, it has had no effect on the Company’s financial condition or its financial statements.

In July 2013, the FASB issued ASC 2013-11, “Income Taxes — Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists (“ASU 2013-11”) which is part of Accounting Standards Codification (“ASC”) 740: Income Taxes. The new guidance requires an entity to present an unrecognized tax benefit and an NOL carryforward, a similar tax loss, or a tax credit carryforward on a net basis as part of a deferred tax asset, unless the unrecognized tax benefit is not available to reduce the deferred tax asset component or would not be utilized for that purpose, then a liability would be recognized. ASU 2013-11 is effective for annual and interim periods for fiscal years beginning after December 15, 2013. The Company is currently evaluating the impact of the July 1, 2014 adoption of this guidance on its financial statements.

4. Equity Transactions and Share-Based Compensation

The Company recognized share-based compensation expense related to equity awards to employees, directors and consultants of $2.6 million and $1.6 million during the three months ended September 30, 2013 and 2012, respectively.

Stock Options and Warrants

The Company has granted stock options to certain employees and directors under the Employee Share Option Plan (the “Plan”). The Plan is designed to assist in the motivation and retention of employees and to recognize the importance of employees to the long-term performance and success of the Company. The Company has also granted stock options to certain consultants outside of the Plan. The majority of the options to purchase common stock vest on the anniversary of the date of grant, which ranges from one to three years. Additionally, certain stock options vest upon the closing price of the Company’s common stock reaching certain minimum levels, as defined in the agreements. Share-based compensation expense related to options granted to employees is recognized on a straight-line basis over the related vesting term. Share-based compensation expense related to options granted to consultants is recognized ratably over each vesting tranche of the options.

In November 2009, the Company adopted the 2009 Stock Incentive Plan (the “Stock Incentive Plan”). The Stock Incentive Plan initially provided for a maximum of 6,000,000 shares of common stock to be reserved for the issuance of stock options and other stock-based awards. Commencing on January 1, 2012, and on each January 1st thereafter, through January 1, 2019, the share reserve automatically adjusts so that it equals 17.5% of the weighted average number of shares of common stock outstanding reduced by the sum of any shares of common stock issued under the Stock Incentive Plan and any shares of common stock subject to outstanding awards under the Stock Incentive Plan.

In January 2010, the Company issued 1,000,000 options to purchase common stock to a consultant under the Stock Incentive Plan in consideration for various services to be performed for the Company. The options to purchase common stock are exercisable at A$6.33 per share and vest upon the trading price of the Company’s CHESS Depositary Interests reaching certain minimum levels on the Australian Securities Exchange, which range from A$1.75 to A$3.22 per share. The options are re-measured each reporting date and as of September 30, 2013 were valued at $0.54 per option, which is being expensed ratably over the vesting period of each tranche, which ranges from 0.83 years to 0.98 years. The options will be re-valued on a quarterly basis and marked to market until exercised.

 

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Unilife Corporation and Subsidiaries

Notes to Unaudited Consolidated Financial Statements

 

The following is a summary of activity related to stock options held by employees and directors during three months ended September 30, 2013:

 

     Number of
Options
    Weighted
Average
Exercise Price
     Weighted
Average
Remaining
Contractual
Life (in years)
     Aggregate Intrinsic
Value
 
                         (in thousands)  

Outstanding as of July 1, 2013

     5,121,807      $ 4.09         

Cancelled

     (74,396     5.55         

Exercised

     (1,250,000     1.85         
  

 

 

   

 

 

       

Outstanding as of September 30, 2013

     3,797,411      $ 4.80         5.7       $ 516   
  

 

 

   

 

 

    

 

 

    

 

 

 

Exercisable as of September 30, 2013

     1,332,274      $ 5.32         5.3       $ 60   
  

 

 

   

 

 

    

 

 

    

 

 

 

The following is a summary of activity related to stock options and warrants held by persons other than employees and directors during the three months ended September 30, 2013:

 

     Number of
Options
    Weighted
Average
Exercise Price
     Weighted
Average
Remaining
Contractual
Life (in years)
     Aggregate Intrinsic
Value
 
                         (in thousands)  

Outstanding as of July 1, 2013

     4,258,937      $ 7.19         

Granted

     300,000        3.11         

Exercised

     (55,000     1.85         
  

 

 

   

 

 

       

Outstanding as of September 30, 2013

     4,503,937      $ 6.98         1.2       $ 328   
  

 

 

   

 

 

    

 

 

    

 

 

 

Exercisable as of September 30, 2013

     3,503,937      $ 7.30         1.2       $ 328   
  

 

 

   

 

 

    

 

 

    

 

 

 

The aggregate intrinsic value is defined as the difference between the market value of the Company’s common stock as of the end of the period and the exercise price of the in-the-money stock options. The total intrinsic value of stock options exercised during the three months ended September 30, 2013 was $1.8 million. There were no stock options exercised during the three months ended September 30, 2012.

The Company used the following weighted average assumptions in calculating the fair value of options granted during the three months ended September 30, 2013 and 2012:

 

     Three Months Ended
September 30,
 
     2013     2012  

Number of stock options granted

     300,000        270,000   

Expected dividend yield

     0     0

Risk-free interest rate

     1.54     1.54

Expected volatility

     55     57

Expected life (in years)

     5.0        6.0   

The fair value of each stock option was estimated at the grant date using the Black-Scholes option pricing model, with the exception of grants subject to market conditions, which were valued using a Monte Carlo option pricing model. The Company has not historically paid dividends to its stockholders and, as a result, assumed a dividend yield of 0%. The risk free interest rate is based upon the rates of U.S. Treasury bonds with a term equal to the expected term of the option. Due to the Company’s limited Nasdaq trading history, the expected volatility used to value options granted after January 27, 2010 is based upon a blended rate of the historical share price of the Company’s stock on the Australian Securities Exchange and the volatility of peer companies traded on U.S. exchanges operating in the same industry as the Company. The expected term of the options to purchase common stock issued to employees and directors is based upon the simplified method, which is the mid-point between the vesting date of the option and its contractual term unless a reasonable alternate term is estimated by management. The expected term of the options to purchase common stock issued to consultants is based on the contractual term of the awards.

 

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Unilife Corporation and Subsidiaries

Notes to Unaudited Consolidated Financial Statements

 

Restricted Stock

The Company has granted shares of restricted stock to certain employees and consultants under the Stock Incentive Plan. During the period prior to vesting, the holder of the non-vested restricted stock will have the right to vote and the right to receive all dividends and other distributions declared. All non-vested shares of restricted stock are reflected as outstanding; however, they have been excluded from the calculation of basic earnings per share.

For employees, the fair value of restricted stock is measured on the date of grant using the price of the Company’s common stock on that date. Share-based compensation expense for restricted stock issued to employees is recognized on a straight-line basis over the requisite service period, which is generally the longest vesting period. For restricted stock granted to consultants, the fair value of the awards is re-valued on a quarterly basis and marked to market until vested. Share-based compensation expense for restricted stock issued to consultants is recognized ratably over each vesting tranche.

The following is a summary of activity related to restricted stock awards during the three months ended September 30, 2013:

 

     Number of Restricted
Stock Awards
    Weighted Average
Grant Date Fair Value
 

Unvested as of July 1, 2013

     3,254,403      $ 3.31   

Granted

     55,000        3.38   

Vested

     (402,750     3.25   

Cancelled

     (4,500     3.46   
  

 

 

   

 

 

 

Unvested as of September 30, 2013

     2,902,153      $ 3.32   
  

 

 

   

 

 

 

5. Property, Plant and Equipment and Construction-in-Progress

Property, plant and equipment consist of the following:

 

     September 30,
2013
    June 30,
2013
 
     (in thousands)  

Building

   $ 32,188      $ 32,188   

Machinery and equipment

     18,363        21,682   

Computer software

     2,653        2,653   

Furniture and fixtures

     556        374   

Construction in progress

     272        91   

Land

     2,036        2,036   

Leasehold improvements

     166        88   
  

 

 

   

 

 

 
     56,234        59,112   

Less: accumulated depreciation and amortization

     (10,510     (13,006
  

 

 

   

 

 

 

Property, plant and equipment, net

   $ 45,724      $ 46,106   
  

 

 

   

 

 

 

6. Goodwill and Intangible Assets

The changes in the carrying amount of goodwill during the three months ended September 30, 2013 are as follows:

 

     (in thousands)  

Balance as of July 1, 2013

   $ 11,498   

Foreign currency translation

     214   
  

 

 

 

Balance as of September 30, 2013

   $ 11,712   
  

 

 

 

Intangible assets consist of patents acquired in a business acquisition of $0.1 million. Related accumulated amortization as of both September 30, 2013 and June 30, 2012 was $0.1 million. Future amortization expense is scheduled to be $7,000 annually, excluding the impact of foreign currency exchange.

 

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Unilife Corporation and Subsidiaries

Notes to Unaudited Consolidated Financial Statements

 

7. Long-Term Debt

Long-term debt consists of the following:

 

     September 30, 2013      June 30, 2013  
     (In thousands)  

6.00% Mortgage loan, due December 2031

   $ 13,581       $ 13,677   

6.00% Mortgage loan, due October 2020

     3,244         3,322   

12.85% Secured lending facility, due 2013

     1,493         2,586   

4.75% Bank term loans, due January 2021 through August 2021

     1,656         1,701   

5.00% Commonwealth of Pennsylvania financing authority loan, due January 2021

     2,121         2,133   

Other

     376         452   
  

 

 

    

 

 

 
     22,471         23,871   

Less: current portion of long-term debt

     2,719         3,826   
  

 

 

    

 

 

 

Total long-term debt

   $ 19,752       $ 20,045   
  

 

 

    

 

 

 

Mortgage Loans

In October 2010, Unilife Cross Farm LLC, a wholly owned subsidiary of the Company, (“Cross Farm”) entered into a loan agreement with Metro Bank (“Metro”), pursuant to which Metro provided Cross Farm with two mortgage loans in the amounts of $14.25 million and $3.75 million. The proceeds received were used to finance the purchase of land and construction of the Company’s corporate headquarters and manufacturing facility in York, Pennsylvania.

During construction, Cross Farm paid only interest on both term loans at the Prime Rate plus 1.50% per annum, with a floor of 4.50% per annum. Subsequent to construction, Cross Farm is paying principal and interest on both term loans, with interest at a fixed rate of 6.00%. The weighted average interest rate on both term notes was 6.00% during the three months ended September 30, 2013 and year ended June 30, 2013.

The loan agreement contains certain customary covenants, including the maintenance of a Debt Service Reserve Account in the amount of $2.4 million, classified as restricted cash on the consolidated balance sheet, which will remain in place until Cross Farm and Metro agree on the financial covenants. The terms of the loan agreement allow the Company to use the Debt Service Reserve Account to pay monthly debt service on the mortgage loans, so long as the balance in the account is at least $1.6 million and is replenished to $2.4 million every six months. The Company was in compliance with its debt covenants as of September 30, 2013. However, there can be no assurance that the Company will be able to maintain the Debt Service Reserve Account balance for a period of 12 months from September 30, 2013. Cross Farm may prepay the loan without penalty. The U.S. Department of Agriculture has guaranteed $10.0 million of the loans.

Secured Lending Facility

In August 2011, the Company entered into a Master Lease Agreement (the “Lease Agreement”) with Varilease Finance, Inc. (“Varilease”) for up to $10.0 million of secured financing for production equipment for its Unifill syringe. Based on the Company’s continuing involvement throughout the term of the agreement and the integral nature of the production equipment, the transaction is being accounted for as a financing. Over the term of the Lease Agreement, the Company will make up to 27 monthly installments based upon the amount drawn. This facility has an effective interest rate of 12.85%. The secured lending facility contains covenants and provisions for events of default customarily found in lease agreements.

As previously disclosed, on September 30, 2013, Varilease and CCA Financial LLC filed an action in the State of Michigan in the Circuit Court for the County of Oakland, Case No. 2013-136458-CK seeking a judgment confirming the terms of the lease. The Company removed the action to the U.S. District Court for the Eastern District of Michigan, Case No. 2:13-CV-14238-SFC-LJM, on October 4, 2013. Under the Lease Agreement, Varilease and the Company were to negotiate a buyout rate at the end of the two-year lease term, which Varilease represented to the Company during the lease negotiations would be 15% of the amount financed. When the Company notified Varilease that it wanted to exercise the buyout of the equipment, Varilease claimed a buyout rate significantly higher than 15%. Under the terms of the lease, if the parties are unable to agree on a buyout rate by the end of the lease term, the lease will automatically

 

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Unilife Corporation and Subsidiaries

Notes to Unaudited Consolidated Financial Statements

 

renew for an additional 12-month period and the Company would be responsible for another year of lease payments. Varilease’s action in Michigan state court asked the court to confirm that the parties have been unable to agree on a buyout rate and therefore under the terms of the lease the lease is automatically extended for one year.

The Company also filed suit on September 30, 2013 against Varilease and CCA Financial in the U.S. District Court for the Eastern District of Michigan, Case No. 2:13-cv-14174-SFC-LJM alleging, among other things, that Varilease fraudulently induced the Company into entering the lease by making misrepresentations about the buyout rate. The Company seeks, among things, to have the federal court enforce a 15% buyout rate and to enjoin Varilease from declaring a default under the lease and taking possession of the equipment for which the company would have to impair the carrying value of assets. On October 17, 2013, in a stipulated order, the U.S. District Court ordered that the Company continue to make the same monthly payments under the lease, that as long as the Company makes timely payments, Varilease shall not declare a default, and that Varilease is required to provide advance notice of a default. A conference has been scheduled to take place on November 25, 2013. While the Company intends to vigorously pursue its claims and defend itself in the actions described above, it is not possible to determine the outcome of these matters.

Commonwealth of Pennsylvania Financing Authority Loan

In October 2009, the Company accepted a $5.45 million offer of assistance from the Commonwealth of Pennsylvania which included up to $2.25 million in financing for land and the construction of its current manufacturing facility. In December 2010, Cross Farm received the $2.25 million loan which bears interest at a rate of 5.00% per annum, matures in January 2021 and is secured by a third mortgage on the facility. In connection with the loan agreement, Cross Farm entered into an intercreditor agreement by which the Commonwealth of Pennsylvania agreed that it would not exercise its rights in the event of a default by Cross Farm without the consent of Metro, which holds the first and second mortgages on the facility.

8. Net Loss Per Share

The Company’s net loss per share is as follows:

 

     Three Months Ended
September 30,
 
     2013     2012  
    

(In thousands, except share and per

share data)

 

Numerator

    

Net loss

   $ (11,244   $ (12,497

Denominator

    

Weighted average number of shares used to compute basic net loss per share

     93,833,603        77,250,687   

Effect of dilutive options to purchase common stock

     —         —    
  

 

 

   

 

 

 

Weighted average number of shares used to compute diluted net loss per share

     93,833,603        77,250,687   
  

 

 

   

 

 

 

Basic and diluted net loss per share

   $ (0.12   $ (0.16
  

 

 

   

 

 

 

Due to the Company’s net losses, unvested shares of restricted stock (participating securities) totaling 3,147,851 and 4,424,146 were excluded from the calculation of basic and diluted net loss per share during the three months ended September 30, 2013 and 2012, respectively.

In addition, stock options (non-participating securities) totaling 6,283,164 and 10,054,103 during the three months ended September 30, 2013 and 2012, respectively, were excluded from the calculation of diluted net loss per share as their effect would have been anti-dilutive. Certain of these stock options were excluded solely due to the Company’s net loss position. Had the Company reported net income during the three months ended September 30, 2013 and 2012, these shares would have had an effect of 495,572 and 583,090 diluted shares, respectively, for purposes of calculating diluted net loss per share.

 

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Unilife Corporation and Subsidiaries

Notes to Unaudited Consolidated Financial Statements

 

9. Contingencies

From time to time, the Company is involved in various legal proceedings, claims, suits and complaints arising out of the normal course of business. Based on the facts currently available to the Company, management believes that these claims, suits and complaints are adequately provided for, covered by insurance, without merit or not probable that an unfavorable outcome will result.

As previously disclosed, on September 7, 2012, the Company received a letter from counsel for Talbot (Todd) Smith, a former employee, alleging that Mr. Smith was wrongly terminated. Mr. Smith, who was terminated “for cause” by the Company, filed a complaint with the Occupational Safety & Health Administration (“OSHA”) in November 2012. The Company and various third parties have investigated the allegations made by Mr. Smith and have determined that the allegations are without merit. The Company believes the allegations made by Mr. Smith against the Company are in retaliation for his “for cause” termination and has been defending itself vigorously in the OSHA matter. Because OSHA did not make a final determination on Mr. Smith’s complaint within 180 days, Mr. Smith filed a complaint with the U.S. District Court for the Eastern District of Pennsylvania (“USDC”) on August 30, 2013. The USDC complaint makes the same allegations made by Mr. Smith in the OSHA complaint and does not make any additional material allegations. Given that the allegations made by Mr. Smith in the USDC complaint are nearly identical to those made in his OSHA complaint, the Company and various third parties have investigated the allegations previously and have determined that the allegations are without merit, and the Company will defend itself vigorously in court. Given that Mr. Smith has now filed the complaint with the USDC, OSHA has dismissed the OSHA matter without a final determination.

As previously disclosed, subsequent to the filing of the OSHA complaint by Mr. Smith on February 12, 2013, the Company received a subpoena from the staff of the U.S. Securities and Exchange Commission (the “Staff”) requesting the Company to provide certain information to the Staff, which is generally consistent with the meritless allegations made by Mr. Smith in his OSHA complaint. In the USDC complaint, Mr. Smith states that he provided the Staff with information about his allegations in July and August 2012. The Company responded to that subpoena and received a second subpoena from the Staff, requesting additional information consistent with the first subpoena. The Company is cooperating fully with the Staff and has provided the requested information.

On November 1, 2013, the Company and certain of its officers were named as defendants in a purported class action lawsuit filed in the United States District Court for the Middle District of Pennsylvania alleging violations of the federal securities laws. The lawsuit was brought on behalf of a purported stockholder of the Company and all other similarly situated stockholders who purchased the Company’s securities between July 13, 2011 and September 9, 2013 (the “Class Period”). The complaint appears to be mainly based on the meritless allegations made by Mr. Smith in his complaint and generally alleges that the defendants made false and misleading statements regarding the Company’s business, operations and prospects, which allegedly caused the plaintiff and other members of the purported class to purchase the Company’s securities at inflated prices during the Class Period. The lawsuit seeks unspecified damages. With respect to the allegations made in these claims, the Company believes it is in full compliance with all applicable regulatory requirements. In 2013 two regulatory compliance audits of the Company’s quality system were performed. Both audits resulted in zero observations, i.e.,no deviations from applicable quality standards were noted. In February 2013, the Notified Body NSAI (National Standards Authority of Ireland) performed an audit of the quality system, which is equivalent to an FDA audit for European countries. This audit resulted in zero observations, i.e., no deviations from the applicable standards were found. The auditor’s conclusion was that the Company was in compliance with the applicable standards. In March, 2013, the FDA performed an audit of the Company’s quality system and facility. The FDA closed out the audit with no FDA 483 Inspectional Observation issued, i.e., no deviations from the applicable standards were noted. The Company intends to vigorously defend this matter and believes that the allegations are without merit.

The Company does not believe there will be any material impact to the Company or its business as a result of these matters.

10. Business Alliances

Sanofi

The Company signed an exclusivity agreement and an industrialization agreement with Sanofi, a multinational pharmaceutical company, between June 2008 and July 2009. Under the terms of these agreements, Sanofi had agreed to pay the Company an aggregate of approximately $36.4 million in exclusivity fees and industrialization milestone payments for the exclusive right to negotiate the purchase of the Unifill ready-to-fill (prefilled) syringe (Unifill syringe or product) which was developed pursuant to the agreements. Sanofi had paid the Company a €10.0 million ($13.0 million) up front non-refundable one-time fee which the Company was recognizing as revenue over the expected term of the agreement.

On September 3, 2013, the Company and Sanofi entered into a supply agreement and terminated both the exclusivity agreement and the industrialization agreement. As a result, the Company has recognized the remaining unamortized revenue of $2.3 million

 

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Unilife Corporation and Subsidiaries

Notes to Unaudited Consolidated Financial Statements

 

during the three months ended September 30, 2013. Under the terms of the supply agreement, the Company has granted Sanofi the exclusive use of the Unifill Finesse with anti-thrombotic drugs during the contract period. Following a four year ramp-up period after market entry, exclusivity will be maintained, subject to Sanofi purchasing a minimum of 150 million units of the Unifill Finesse or other Unifill syringes per year. The Company can supply its Unifill syringes, including the Unifill Finesse, to additional customers in all other therapeutic classes outside of anti-thrombotics. In addition to future revenue from the sale of Unifill Finesse syringes, the Company may receive up to $15 million from Sanofi in milestone-based payments with $5.0 million of these payments received in October 2013. This supply contract replaces and supersedes all other agreements previously signed between both parties regarding the Unifill syringe platform.

 

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Cautionary Note Regarding Forward-Looking Information

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q. This discussion and analysis includes certain forward-looking statements that involve risks, uncertainties and assumptions. You should review the “Risk Factors” section of our Annual Report on Form 10-K for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by such forward-looking statements.

Certain statements in this Quarterly Report on Form 10-Q may constitute forward looking statements. In some cases, you can identify forward-looking statements by terms such as “may,” “will,” “should,” “could,” “would,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “projects,” “predicts,” “potential” and similar expressions intended to identify forward-looking statements. These forward-looking statements are based on management’s beliefs and assumptions and on information currently available to our management. Our management believes that these forward-looking statements are reasonable as and when made. However, you should not place undue reliance on any such forward-looking statements because such statements speak only as of the date when made. We do not undertake any obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. In addition, forward-looking statements are subject to certain risks and uncertainties that could cause actual results, events and developments to differ materially from our historical experience and our present expectations or projections. These risks and uncertainties include, but are not limited to, those described in “Item 1A. Risk Factors” in our Annual Report on Form 10-K and those described from time to time in other reports which we file with the Securities and Exchange Commission.

Overview

We are a U.S.-based developer, manufacturer and supplier of injectable drug delivery systems. Our customers are pharmaceutical and biotechnology companies who seek to leverage our innovative, differentiated and customizable devices to enable or enhance the clinical development, regulatory approval and commercial lifecycles of their injectable biologics, drugs and vaccines. We manufacture and supply our proprietary devices to pharmaceutical companies in a format where they can be filled and packaged with an injectable therapy prior to its shipment to the end-user for safe, simple and convenient administration.

Critical Accounting Policies and Estimates

We prepare our consolidated financial statements in accordance with accounting principles generally accepted in the United States of America. This requires management to make certain estimates, judgments and assumptions that could affect the amounts reported in the consolidated financial statements and accompanying notes.

Our critical accounting policies and estimates are described in Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Critical Accounting Policies and Estimates” of our Annual Report on Form 10-K. There have been no changes in critical accounting policies in the current year from those described in our Annual Report on Form 10-K.

 

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Results of Operations

The following table summarizes our results of operations for the three months ended September 30, 2013 and 2012:

 

     Three Months Ended
September 30,
 
     2013     2012  
     (in thousands, except per share data)  

Revenue

   $ 3,187      $ 692   

Cost of product sales

     —         59   
  

 

 

   

 

 

 

Gross profit

     3,187        633   
  

 

 

   

 

 

 

Operating expenses:

    

Research and development

     6,399        4,738   

Selling, general and administrative

     6,520        6,577   

Depreciation and amortization

     1,042        1,223   
  

 

 

   

 

 

 

Total operating expenses

     13,961        12,538   
  

 

 

   

 

 

 

Operating loss

     (10,774     (11,905

Interest expense

     480        616   

Interest income

     (6     (24

Other income

     (4     —    
  

 

 

   

 

 

 

Net loss

   $ (11,244   $ (12,497
  

 

 

   

 

 

 

Net loss per share:

    

Basic and diluted net loss per share

   $ (0.12   $ (0.16
  

 

 

   

 

 

 

Three Months Ended September 30, 2013 Compared to Three Months Ended September 30, 2012

Revenues. Revenue increased by $2.5 million or 361% due to additional revenue recognized from our agreements with Sanofi as well as revenue related to development activities for a new customer.

Research and development expenses. Research and development expenses increased by $1.7 million or 35% due to increased payroll costs and research and development share-based compensation expense.

Selling, general and administrative expenses. Selling, general and administrative expenses decreased by $0.1 million or less than 1%.

Depreciation and amortization expense. Depreciation and amortization expense decreased by $0.2 million or 15% primarily as a result of a $4.1 million loss on the disposal of certain pieces of equipment during fiscal 2013.

Net loss and net loss per share. Net loss during the three months ended September 30, 2013 and 2012 was $11.2 million and $12.5 million, respectively. Basic and diluted net loss per share was $0.12 and $0.16, respectively, on weighted average shares outstanding of 93,833,603 and 77,250,687. The increase in the weighted average shares outstanding was primarily due to the issuance of common stock in connection with our October 2012 and February 2013 equity financings.

Liquidity and Capital Resources

To date, we have funded our operations primarily from a combination of equity issuances, borrowings under our bank mortgages, term loans, an external secured financing and payments from Sanofi under our exclusive licensing and industrialization agreements. As of September 30, 2013, cash and cash equivalents were $7.4 million, restricted cash was $2.0 million and our long-term debt was $22.5 million. As of June 30, 2013, cash and cash equivalents were $5.7 million, restricted cash was $2.4 million and our long-term debt was $23.9 million. The $2.0 million of restricted cash relates to amounts that must remain in cash deposits under our loan agreement with Metro Bank (“Metro”).

During October 2012, we entered into a Controlled Equity Offering Sales Agreement (the “Sales Agreement”), pursuant to which we may, from time to time, issue and sell shares of common stock having an aggregate offering price of up to $45.0 million. During the three months ended September 30, 2013, we issued 3,512,153 shares of common stock and raised approximately $10.7 million under the Sales Agreement. We are not obligated to make any additional sales of shares under the Sales Agreement. As of September 30, 2013, there was approximately $19.2 million available under the Sales Agreement.

 

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We have incurred losses from operations during the year ended June 30, 2013 and three months ended September 30, 2013 and anticipate incurring additional losses until such time that we can generate sufficient revenue from the sale, customization or exclusive use and licensing of our proprietary range of injectable drug delivery systems to pharmaceutical and biotechnology customers. We estimate that our cash and cash equivalents of $9.4 million as of September 30, 2013, which includes $2.0 million of restricted cash is sufficient to sustain planned operations through the second quarter of fiscal 2014.

The following table summarizes our cash flows during the three months ended September 30, 2013 and 2012:

 

     Three Months Ended
September 30,
 
         2013             2012      
     (in thousands)  

Net cash provided by (used in):

    

Operating activities

   $ (9,414   $ (10,462

Investing activities

     (1,166     (111

Financing activities

     12,228        17,607   

Net Cash Used In Operating Activities

Net cash used in operating activities during the three months ended September 30, 2013 was $9.4 million compared to $10.5 million during the three months ended September 30, 2012.

Net Cash Used in Investing Activities

Net cash used in investing activities during the three months ended September 30, 2013 and 2012 was $1.2 million and $0.1 million respectively, primarily as a result of costs incurred in connection with the purchase of machinery and related equipment.

Net Cash Provided by Financing Activities

Net cash provided by financing activities during the three months ended September, 2013 was $12.2 million compared to $17.6 million during the three months ended September 30, 2012. During the three months ended September 30, 2013, we received $10.7 million in connection with our public offering of common stock under the Sales Agreement and $2.2 million upon the exercise of stock options, partially offset by principal debt payments of $1.1 million.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

We are exposed to market risk from changes in interest rates and foreign currency exchange rates. Changes in these factors could cause fluctuations in our results of operations and cash flows.

Interest Rate Risk

Our exposure to interest rate risk is limited to our cash and cash equivalents that are invested in money market funds with highly liquid short term investments and our variable interest rate term loans. We currently do not utilize derivative instruments to mitigate changes in interest rates.

Foreign Currency Exchange Rate Fluctuations

Certain of our revenues are derived from payments under our exclusive agreement received in euros while we incur most of our expenses in U.S. dollars and Australian dollars. In addition, a portion of our cash and cash equivalents and investments are held at Australian banking institutions and are denominated in Australian dollars. We are exposed to foreign currency exchange rate risks on these amounts. We currently do not utilize options or forward contracts to mitigate changes in foreign currency exchange rates. For U.S. reporting purposes, we translate all assets and liabilities of our non-U.S. entities into U.S. dollars using the exchange rate as of the end of the related period and we translate all revenues and expenses of our non-U.S. entities using the average exchange rate during the applicable period.

 

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Item 4. Controls and Procedures

Disclosure Controls and Procedures

Our management with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as such terms is defined in Rules 13a-15(e) under the Exchange Act of 1934, as amended), as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on such evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of such date, our disclosure controls and procedures were effective.

Changes in Internal Control

There has not been any change in our internal control over financial reporting (as such term is defined in Rule 13a-15(f) under the Exchange Act) during the fiscal quarter to which this report relates that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

As previously disclosed, on September 7, 2012, we received a letter from counsel for Talbot (Todd) Smith, a former employee, alleging that Mr. Smith was wrongly terminated. Mr. Smith, who was terminated “for cause” by us, filed a complaint with the Occupational Safety & Health Administration (“OSHA”) in November 2012. We and various third parties have investigated the allegations made by Mr. Smith and have determined that the allegations are without merit. We believe the allegations made by Mr. Smith against us are in retaliation for his “for cause” termination and have been defending ourself vigorously in the OSHA matter. Because OSHA did not make a final determination on Mr. Smith’s complaint within 180 days, Mr. Smith filed a complaint with the U.S. District Court for the Eastern District of Pennsylvania (“USDC”) on August 30, 2013. The USDC complaint makes the same allegations made by Mr. Smith in the OSHA complaint and does not make any additional material allegations. Given that the allegations made by Mr. Smith in the USDC complaint are nearly identical to those made in his OSHA complaint, we and various third parties have investigated the allegations previously and have determined that the allegations are without merit, and we will defend ourself vigorously in court. Given that Mr. Smith has now filed the complaint with the USDC, OSHA has dismissed the OSHA matter without a final determination.

As previously disclosed, on September 30, 2013, Varilease and CCA Financial LLC filed an action in the State of Michigan in the Circuit Court for the County of Oakland, Case No. 2013-136458-CK seeking a judgment confirming the terms of the lease. We removed the action to the U.S. District Court for the Eastern District of Michigan, Case No. 2:13-CV-14238-SFC-LJM, on October 4, 2013. Under the Lease Agreement, Varilease and us were to negotiate a buyout rate at the end of the two-year lease term, which Varilease represented to us during the lease negotiations would be 15% of the amount financed. When we notified Varilease that we wanted to exercise the buyout of the equipment, Varilease claimed a buyout rate significantly higher than 15%. Under the terms of the lease, if the parties are unable to agree on a buyout rate by the end of the lease term, the lease will automatically renew for an additional 12-month period and we would be responsible for another year of lease payments. Varilease’s action in Michigan state court asked the court to confirm that the parties have been unable to agree on a buyout rate and therefore under the terms of the lease the lease is automatically extended for one year.

We also filed suit on September 30, 2013 against Varilease and CCA Financial in the U.S. District Court for the Eastern District of Michigan, Case No. 2:13-cv-14174-SFC-LJM alleging, among other things, that Varilease fraudulently induced us into entering the lease by making misrepresentations about the buyout rate. We seek, among things, to have the federal court enforce a 15% buyout rate and to enjoin Varilease from declaring a default under the lease and taking possession of the equipment for which we would have to impair the carrying value of assets. On October 17, 2013, in a stipulated order, the U.S. District Court ordered that we continue to make the same monthly payments under the lease, that as long as we make timely payments, Varilease shall not declare a default, and that Varilease is required to provide advance notice of a default. A conference has been scheduled to take place on November 25, 2013. While we intend to vigorously pursue our claims and defend ourself in the actions described above, it is not possible to determine the outcome of these matters.

 

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On November 1, 2013, we and certain of our officers were named as defendants in a purported class action lawsuit filed in the United States District Court for the Middle District of Pennsylvania alleging violations of the federal securities laws. The lawsuit was brought on behalf of a purported stockholder of the Company, and all other similarly situated stockholders who purchased our securities between July 13, 2011 and September 9, 2013 (the “Class Period”). The complaint appears to be mainly based on the meritless allegations made by Mr. Smith in his complaint and generally alleges that the defendants made false and misleading statements regarding our business, operations and prospects, which allegedly caused the plaintiff and other members of the purported class to purchase our securities at inflated prices during the Class Period. The lawsuit seeks unspecified damages. With respect to the allegations made in these claims, we believe we are in full compliance with all applicable regulatory requirements. In 2013 two regulatory compliance audits of our quality system were performed. Both audits resulted in zero observations, i.e., no deviations from applicable quality standards were noted. In February 2013, the Notified Body NSAI (National Standards Authority of Ireland) performed an audit of the quality system, which is equivalent to an FDA audit for European countries. This audit resulted in zero observations, i.e., no deviations from the applicable standards were found. The auditor’s conclusion was that we were in compliance with the applicable standards. In March, 2013, the FDA performed an audit of our quality system and facility. The FDA closed out the audit with no FDA 483 Inspectional Observation issued, i.e., no deviations from the applicable standards were noted. We intend to vigorously defend this matter and believes that the allegations are without merit.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

On August 23, 2013, we issued, pursuant to Section 4(2) of the Securities Act, a warrant to purchase 150,000 shares of common stock to a vendor in connection with services rendered by such vendor. The warrant is exercisable at $2.89 per share, vests upon the first anniversary of the date of grant, and is exercisable for a period of five years from the date of grant. On September 30, 2013, we issued, pursuant to Section 4(2) of the Securities Act, a warrant to purchase 150,000 shares of common stock to a vendor in connection with services rendered by such vendor. The warrant is exercisable at $3.32 per share, vests upon the first anniversary of the date of grant, and is exercisable for a period of five years from the date of grant.

Item 6. Exhibits

The exhibits to this report are listed in the Exhibit Index below.

 

Exhibit

No.

  

Description of Exhibit

   Included
Herewith
 
  31.1    Rule 13a-14(a)/15d-14(a) Certification of the Chief Executive Officer      X   
  31.2    Rule 13a-14(a)/15d-14(a) Certification of the Chief Financial Officer      X   
  32.1    Section 1350 Certification      X   
  32.2    Section 1350 Certification      X   
101.INS    XBRL Instance Document      X   
101.SCH    XBRL Taxonomy Extension Schema      X   
101.CAL    XBRL Taxonomy Extension Calculation Linkbase      X   
101.LAB    XBRL Taxonomy Extension Label Linkbase      X   
101.PRE    XBRL Taxonomy Extension Presentation Linkbase      X   
101.DEF    XBRL Taxonomy Extension Definition Linkbase      X   

 

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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.

 

Date: November 12, 2013     UNILIFE CORPORATION
    By:   /s/ R. Richard Wieland II
      R. Richard Wieland II
      Chief Financial Officer

 

21


Dates Referenced Herein   and   Documents Incorporated by Reference

This ‘10-Q’ Filing    Date    Other Filings
1/1/19
7/1/14
12/15/13
11/25/134,  8-K,  8-K/A
Filed on:11/12/138-K
11/8/13
11/1/13
10/17/13
10/4/13
For Period end:9/30/134
9/9/138-K
9/3/138-K
8/30/138-K
8/23/13
7/1/13
6/30/1310-K,  4
2/12/138-K
12/15/12
9/30/1210-Q
9/7/12
6/30/1210-K
1/1/12
7/13/11
1/27/10UPLOAD
 List all Filings 
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