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UNIS > SEC Filings for UNIS > Form 10-Q on 10-Feb-2014All Recent SEC Filings

Show all filings for UNILIFE CORP

Form 10-Q for UNILIFE CORP


10-Feb-2014

Quarterly Report


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 and six
months ended December 31, 2013 and 2012:



                                                Three Months Ended               Six Months Ended
                                                   December 31,                    December 31,
                                               2013            2012            2013            2012
                                                       (in thousands, except per share data)

Revenue                                      $   3,573       $     699       $   6,760       $   1,391
Cost of product sales                               -               22              -               81

Gross profit                                     3,573             677           6,760           1,310

Operating expenses:
Research and development                         7,807           4,994          14,206           9,732
Selling, general and administrative              6,703           8,327          13,223          14,904
Depreciation and amortization                    1,000           1,365           2,042           2,588

Total operating expenses                        15,510          14,686          29,471          27,224

Operating loss                                 (11,937 )       (14,009 )       (22,711 )       (25,914 )
Interest expense                                 4,351             645           4,831           1,261
Interest income                                     (5 )           (14 )           (11 )           (38 )
Other income, net                                   -               -               (4 )            -

Net loss                                     $ (16,283 )     $ (14,640 )     $ (27,527 )     $ (27,137 )

Net loss per share:
Basic and diluted net loss per share         $   (0.17 )     $   (0.19 )     $   (0.29 )     $   (0.35 )

Three Months Ended December 31, 2013 Compared to Three Months Ended December 31, 2012

Revenue. Revenue increased by $2.9 million or 411% due to additional revenue recognized related to development activities for various customers.

Research and development expenses. Research and development expenses increased by $2.8 million or 56% 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 $1.6 million or 20% due to decreased share-based compensation expense.

Depreciation and amortization expense. Depreciation and amortization expense decreased by $0.4 million or 27% primarily as a result of a $4.1 million loss on the disposal of certain pieces of equipment during fiscal 2013.

Interest expense.Interest expense increased by $3.7 million or 575% primarily as a result of additional amounts to be paid in connection with our equipment financing with Varilease.

Net loss and net loss per share. Net loss during the three months ended December 31, 2013 and 2012 was $16.3 million and $14.6 million, respectively. Basic and diluted net loss per share was $0.17 and $0.19, respectively, on weighted average shares outstanding of 97,868,961 and 77,622,481. 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.

Six Months Ended December 31, 2013 Compared to Six Months Ended December 31, 2012

Revenue. Revenue increased by $5.4 million or 386% due to additional revenue related to development activities for various customers.

Research and development expenses. Research and development expenses increased by $4.5 million or 46% 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 $1.7 million or 11% primarily due to decreased share-based compensation expense.


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Depreciation and amortization expense. Depreciation and amortization expense decreased by $0.5 million or 21% primarily as a result of a $4.1 million loss on the disposal of certain pieces of equipment during fiscal 2013.

Interest expense. Interest expense increased by $3.6 million or 283% primarily as a result of additional amounts to be paid in connection with our equipment financing with Varilease.

Net loss and net loss per share. Net loss during the six months ended December 31, 2013 and 2012 was $27.5 million and $27.1 million, respectively. Basic and diluted net loss per share was $0.29 and $0.35, respectively, on weighted average shares outstanding of 95,851,282 and 77,525,619. 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 December 31, 2013, cash and cash equivalents were $4.3 million, restricted cash was $2.4 million and our long-term debt was $25.2 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 $2.4 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 six months ended December 31, 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 December 31, 2013, there was approximately $19.2 million available under the Sales Agreement. Subsequent to December 31, 2013, we issued 1,500,000 shares of common stock and raised approximately $6.2 million under the Sales Agreement.

We have incurred losses from operations during the year ended June 30, 2013 and six months ended December 31, 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 $6.7 million as of December 31, 2013, which includes $2.4 million of restricted cash, together with the $6.2 million that we received under the Sales Agreement and cash receipts from customers is sufficient to sustain planned operations through the fourth quarter of fiscal 2014.

The following table summarizes our cash flows during the six months ended December 31, 2013 and 2012:

                                                   Six Months Ended
                                                     December 31,
                                                 2013           2012
                                                    (in thousands)
             Net cash provided by (used in):
             Operating activities              $ (11,000 )    $ (20,735 )
             Investing activities                 (1,798 )       (1,321 )
             Financing activities                 11,312         16,550

Net Cash Used In Operating Activities

Net cash used in operating activities during the six months ended December 31, 2013 was $11.0 million compared to $20.7 million during the six months ended December 31, 2012. The decrease in net cash used in operating activities was primarily due to cash receipts from customers which was recorded as deferred revenue.

Net Cash Used in Investing Activities

Net cash used in investing activities during the six months ended December 31, 2013 and 2012 was $1.8 million and $1.3 million respectively, primarily as a result of costs incurred in connection with the purchase of machinery and related equipment.


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Net Cash Provided by Financing Activities

Net cash provided by financing activities during the six months ended December 31, 2013 was $11.3 million compared to $16.6 million during the six months ended December 31, 2012. During the six months ended December 31, 2013, we received $10.7 million in connection with our public offering of common stock under the Sales Agreement and $2.3 million upon the exercise of stock options, partially offset by principal debt payments of $1.7 million.

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