-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, VJJvAMIY4WEfTQ7PILUjDWNPc+rPCb4vKTr6r9pric/YIIarQhR02FI/787MQqi/ 9hobQ4DG7YC9u8L8chHZtw== 0000897101-96-000580.txt : 19960805 0000897101-96-000580.hdr.sgml : 19960805 ACCESSION NUMBER: 0000897101-96-000580 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19960802 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: ROCHESTER MEDICAL CORPORATION CENTRAL INDEX KEY: 0000868368 STANDARD INDUSTRIAL CLASSIFICATION: SURGICAL & MEDICAL INSTRUMENTS & APPARATUS [3841] IRS NUMBER: 411613227 STATE OF INCORPORATION: MN FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10QSB SEC ACT: 1934 Act SEC FILE NUMBER: 000-18933 FILM NUMBER: 96603339 BUSINESS ADDRESS: STREET 1: 1500 SECOND AVE N W CITY: STEWARTVILLE STATE: MN ZIP: 55976 BUSINESS PHONE: 5075334203 MAIL ADDRESS: STREET 1: 1500 SECOND AVE NW CITY: STEWARTVILLE STATE: MN ZIP: 55976 10QSB 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 FORM 10-QSB [X] Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended June 30, 1996 Commission file number: 0-18933 Rochester Medical Corporation (EXACT NAME OF SMALL BUSINESS ISSUER AS SPECIFIED IN ITS CHARTER) Minnesota 41-1613227 (STATE OR OTHER JURISDICTION OF (IRS EMPLOYER INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.) 1500 Second Avenue N. W., Stewartville, MN 55976 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (507) 533-4203 ISSUER'S TELEPHONE NUMBER Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes _X_ No ___ Indicate the number of shares outstanding of each of the issuer's classes of common stock as of the latest practicable date: 4,127,500 Common Shares as of August 2, 1996. Table of Contents ROCHESTER MEDICAL CORPORATION Report on Form 10-QSB for quarter ended June 30, 1996 Page ------ PART I FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) Balance Sheets - June 30, 1996 and September 30, 1995 3 Statements of Operations - Three months ended June 30, 1996 and 1995; Nine months ended June 30, 1996 and 1995 4 Statements of Cash Flows - Nine months ended June 30, 1996 and 1995 5 Notes to the Financial Statements 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. 7 PART II OTHER INFORMATION 11 PART 1 - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED) ROCHESTER MEDICAL CORPORATION BALANCE SHEETS June 30, September 30, 1996 1995 ------------ ------------ ASSETS CURRENT ASSETS: Cash and Cash Equivalents $ 11,110,094 $ 551,142 Marketable Securities 6,913,483 2,354,199 Accounts Receivable 1,348,414 752,224 Employee Note Receivable 25,199 226,000 Inventories 1,093,833 766,144 Prepaid Expenses and Other Current Assets 59,135 153,466 ------------ ------------ TOTAL CURRENT ASSETS 20,550,158 4,803,175 PROPERTY AND EQUIPMENT Land and Buildings 881,489 757,338 Equipment and Fixtures 2,532,530 2,326,820 ------------ ------------ 3,414,019 3,084,158 Less: Accumulated Depreciation (1,387,466) (1,125,456) ------------ ------------ TOTAL PROPERTY AND EQUIPMENT 2,026,553 1,958,702 INTANGIBLE ASSETS Patents, Less Accumulated Amortization 403,791 401,244 ------------ ------------ TOTAL ASSETS $ 22,980,502 $ 7,163,121 ============ ============ LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Accounts Payable $ 424,544 $ 204,329 Accrued Compensation 112,633 115,834 Accrued Expenses 195,259 135,505 ------------ ------------ TOTAL CURRENT LIABILITIES 732,436 455,668 LONG-TERM DEBT 3,249,375 3,035,625 SHAREHOLDERS' EQUITY Common Shares, no par value: Authorized -- 20,000,000 Issued and Outstanding Shares--4,047,500 --June, 1996 and 2,724,000--Sept, 1995 23,946,911 7,729,518 Accumulated deficit (4,948,220) (4,057,690) ------------ ------------ TOTAL SHAREHOLDERS' EQUITY 18,998,691 3,671,828 ------------ ------------ TOTAL LIABILITIES AND SHLDRS' EQUITY $ 22,980,502 $ 7,163,121 ============ ============ Note - The Balance Sheet at September 30, 1995 was derived from the audited financial statements at that date, but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. See Notes to Financial Statements
ROCHESTER MEDICAL CORPORATION STATEMENTS OF OPERATIONS (UNAUDITED) Three Months Ended Nine Months Ended June 30, June 30, ----------------------------- ----------------------------- 1996 1995 1996 1995 ----------- ----------- ----------- ----------- NET SALES $ 1,710,603 $ 833,994 $ 3,753,254 $ 2,216,727 Cost Of Sales 1,119,326 658,800 2,599,363 1,703,279 ----------- ----------- ----------- ----------- GROSS PROFIT 591,277 175,194 1,153,891 513,448 COSTS AND EXPENSE: Marketing and Selling 388,485 254,409 940,747 660,350 Research and Development 422,974 67,560 819,547 297,830 General and Administrative 257,861 217,755 659,835 365,628 ----------- ----------- ----------- ----------- TOTAL OPERATING EXPENSES 1,069,320 539,724 2,420,129 1,323,808 ----------- ----------- ----------- ----------- LOSS FROM OPERATIONS (478,043) (364,530) (1,266,238) (810,360) OTHER INCOME (EXPENSE): Interest Income 229,984 7,278 589,624 35,154 Interest Expense (71,250) (10,130) (213,916) (30,400) ----------- ----------- ----------- ----------- TOTAL OTHER INCOME (EXPENSE) 158,734 (2,852) 375,708 4,754 ----------- ----------- ----------- ----------- NET LOSS $ (319,309) $ (367,382) $ (890,530) $ (805,606) =========== =========== =========== =========== NET LOSS PER COMMON SHARE $ (0.08) $ (0.14) $ (0.24) $ (0.30) =========== =========== =========== =========== WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING 4,047,500 2,686,040 3,786,200 2,671,347 =========== =========== =========== =========== See Notes to Financial Statements
ROCHESTER MEDICAL CORPORATION STATEMENTS OF CASH FLOWS (UNAUDITED) Nine Months Ended June 30, ------------------------------- 1996 1995 ------------ ------------ OPERATING ACTIVITIES Net Loss $ (890,530) $ (805,606) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 339,240 283,950 Changes in assets and liabilities: (Increase) Acounts Receivable (596,190) (82,585) (Increase) Decrease Inventories (327,689) 18,076 (Increase) Decrease Other Current Assets 295,130 (103,730) Increase (Decrease) Accounts Payable 220,215 (61,475) Increase (Decrease) Other Current Liabilities 56,553 (8,091) ------------ ------------ NET CASH USED IN OPERATING ACTIVITIES (903,271) (759,461) INVESTING ACTIVITIES Capital Expenditures (329,860) (209,717) Patents (79,776) (41,190) (Increase) Decrease Marketable Securities (4,559,284) 1,274,202 ------------ ------------ NET CASH PROVIDED BY (USED IN) INVESTMENT ACTIVITIES (4,968,920) 1,023,295 FINANCING ACTIVITIES Payments on Bank Mortgage Loan 0 (15,519) Interest Expense Added To Note Payable 213,750 0 Exercise of Common Stock Warrants 0 92,400 Proceeds from Sale of Common Stock 16,217,393 0 ------------ ------------ NET CASH PROVIDED BY FINANCING ACTIVITIES 16,431,143 76,881 ------------ ------------ INCREASE IN CASH AND CASH EQUIVALENTS 10,558,952 340,715 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 551,142 96,179 CASH AND CASH EQUIVALENTS AT ------------ ------------ END OF PERIOD $ 11,110,094 $ 436,894 ============ ============ See Notes to Financial Statements
ROCHESTER MEDICAL CORPORATION Notes to Financial Statements (Unaudited) June 30, 1996 NOTE A -- BASIS OF PRESENTATION The accompanying unaudited financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-QSB. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principes for complete financial statements. These financial statements should be read in conjunction with the financial statments and related notes included in the Company's 1995 Form 10-KSB. In the opinion of management, all adjustments (consisting only of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the nine month period ending June 30, 1996 are not necessarily indicative of the results that may be expected for the year ending September 30, 1996. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS INTRODUCTION Rochester Medical Corporation (the "Company") manufactures and markets leading edge male external catheters for the management of male urinary incontinence and leading edge silicone Foley catheters for urinary catheterization. The Company has also developed several advanced feature catheters which the Company believes will provide improved medical outcomes and which are in various stages of commercialization. The Company recently developed its FemSoft(TM) urethral assist insert for managing stress incontinence in active women. This new device, which builds on the Company's proprietary liquid encapsulation technology, is designed to support, rather than obstruct normal urethral functions and is intended to provide a new treatment modality for stress incontinence. The new FemSoft(TM) urethral assist insert is a soft and conformable insert having a reciprocal fluid transfer design which permits it to be simply inserted, worn, and removed for voiding; all without inflation, deflation, syringes, or valving mechanisms. The FemSoft(TM) urethral assist insert may also be expelled by voluntary voiding. The Company markets its products under its own Rochester Medical(R) brand and under existing private label arrangements, including a strategic marketing alliance with ConvaTec, a division of the Bristol-Myers Squibb Company. RESULTS OF OPERATIONS The following table sets forth, for the fiscal periods indicated, certain items from the statements of operations of the Company expressed as a percentage of net sales.
Three Months Nine Months Ended Ended June 30 June 30 ---------------- ---------------- 1996 1995 1996 1995 ---- ---- ---- ---- Net Sales Private Label 86% 84% 81% 79% Rochester Medical Brand 14% 16% 19% 21% ---- ---- ---- ---- Total Net Sales 100% 100% 100% 100% Cost of Sales 65% 79% 69% 77% ---- ---- ---- ---- Gross Margin 35% 21% 31% 23% Operating Expenses Marketing and Selling 23% 31% 25% 30% Research and Development 25% 8% 22% 13% General and Administrative 15% 26% 18% 16% ---- ---- ---- ---- Total Operating Expenses 63% 65% 65% 59% Loss From Operations (28%) (41%) (34%) (36%) Interest Income (Expense) Net 9% - % 10% - % ---- ---- ---- Net Loss (19%) (44%) (24%) (36%)
THREE MONTH AND NINE MONTH PERIODS ENDED JUNE 30, 1996 AND JUNE 30, 1995 NET SALES. Net Sales increased 105% to $1,710,603 for the third quarter of fiscal 1996 from $833,994 for the third quarter of fiscal 1995, reflecting growth in both private label and Company branded sales. The increase in private label sales is due primarily to increased sales to Mentor and to Baxter. Total sales to Mentor, Baxter, and Hollister, respectively, comprised approximately 37% of net sales, 22% of net sales, and 10% of net sales for the quarter compared to 27%, 16%, and 20% of net sales for the comparable quarter of the prior year. Sales of Rochester Medical(R) brand products grew at a rate of 76% during the current quarter, and represented a relatively modest proportion of product mix due to the strong private label sales. Net Sales increased 69% to $3,753,254 for the nine months ended June 30, 1996, from $2,216,727 for the comparable nine months of the prior year. Sales of Rochester Medical(R) brand products grew at a rate of 48% during the current nine months over last year's comparable period. Factors affecting product mix are consistent with those discussed above for the third quarter. Total sales to Mentor, Baxter and Hollister comprised, respectively, approximately 25%, 22%, and 14% of net sales for the current nine month period, compared to approximately 10%, 21%, and 27% of net sales for the comparable period of the prior year. GROSS MARGIN. The Company's gross margin as a percentage of net sales was 35% for the third quarter of fiscal 1996 compared with 21% for the third quarter of fiscal 1995. The Company's gross margin during the current quarter benefited from increased efficiencies attributable to increased production volumes for both private label and branded product sales. The Company's gross margin as a percentage of net sales was 31% for the nine months ended June 30, 1996 compared with 23% for the nine months ended June 30, 1995. Factors affecting gross margin for the nine month period are consistent with those discussed above for the third quarter. MARKETING AND SELLING. Marketing and selling expense increased 53% to $388,485 for the third quarter of fiscal 1996 from $254,409 for the third quarter of fiscal 1995 due to increased personnel costs and promotional expenses for branded products. Marketing and selling expense rate decreased to 23% of net sales in the current quarter from 31% of net sales for the comparable prior quarter reflecting the impact of 105% sales growth. Marketing and selling expense increased 43% to $940,747 for the nine months ended June 30, 1996 from $660,350 for the nine months ended June 30, 1995. The increased expense reflects personnel and product promotion costs as discussed above for the current quarter. Marketing and selling expense rate decreased to 25% of net sales in the current nine month period from 30% of net sales for the comparable prior nine month period due to increased sales. RESEARCH AND DEVELOPMENT. Research and development expense increased 526% to $422,974 for the third quarter of fiscal 1996 from $67,560 for the third quarter of fiscal 1995. The increase is due to the addition of a new Director of Clinical and Regulatory Affairs and expenditures related to clinical testing of the Company's new FemSoft(TM) urethral assist device, as well as other of the Company's products in development. Research and development expense rate increased to 25% of net sales in the current quarter from 8% for the comparable prior quarter. Research and development expense increased 175% to $819,547 for the nine months ended June 30, 1996 from $297,830 for the nine months ended June 30, 1995, due to the factors discussed above for the third quarter. Research and development expense rate increased to 22% of net sales in the current nine month period from 13% for the comparable prior nine month period. GENERAL AND ADMINISTRATIVE. General and administrative expense increased 18% to $257,861 for the third quarter of fiscal 1996 from $217,755 for the third quarter of fiscal 1995. The expense increase relates to the development of administrative structures, primarily personnel and systems. General and administrative expense rate decreased to 15% of net sales in the current quarter from 26% of net sales for the comparable quarter of the prior year. General and administrative expense increased 80% to $659,835 for the nine months ended June 30, 1996 from $365,628 for the nine months ended June 30, 1995. The increased expense primarily reflects key personnel costs and administrative development factors noted above for the current quarter. General and administrative expense rate increased to 18% of net sales in the current nine month period from 16% of net sales for the comparable nine month period of the prior year. INTEREST INCOME (EXPENSE). Interest income increased to $229,984 for the third quarter of fiscal 1996 from $7,278 for the third quarter of fiscal 1995, and to $589,624 for the nine months ended June 30, 1996, from $35,154 for the nine months ended June 30, 1995, as a result of earnings on cash invested in December 1995 from the proceeds of the Company's public offering. Interest expense increased to $71,250 for the third quarter of fiscal 1996 from $10,130 for the third quarter of fiscal 1995, and $213,916 for the nine months ended June 30, 1996, from $30,400 for the nine months ended June 30, 1995. The increase in expense is a result of interest due on the $3 million convertible subordinated loan from ConvaTec made in August 1995, and the elimination of interest payments on a mortgage loan that was repaid from the proceeds of the ConvaTec loan. LIQUIDITY AND CAPITAL RESOURCES The Company's cash and marketable securities at June 30, 1996 were $18,023,577 compared to $2,905,341 at September 30, 1995, a net increase of $15,118,236. Net proceeds of $16,217,393 from a public stock offering in the first quarter of the current fiscal year represent the primary source of the additional liquidity. Cash of $903,271 was used to fund operating activities during the nine month period ended June 30, 1996. Essentially all of this amount relates to the net operating loss for the nine month period, exclusive of non-cash depreciation and amortization expenses. Trade accounts receivable and inventory balances at June 30, 1996, increased $596,190 (79%) and $327,689 (42%) respectively, from September 30, 1995. Receivable balances reflect the increase in sales levels, and the inventory build is in preparation for anticipated future sales. Changes in other asset and liability balances are insignificant and relate primarily to timing of expense recognition. Capital expenditures of $329,860 were made during the current nine month period, primarily related to expansion of the existing production facility and initial expenditures on a new production facility. Patent expenditures of $79,776 relate to filings on the Company's new FemSoft(TM) products. BUSINESS OUTLOOK The following discussion contains forward looking statements that involve risks and uncertainties, including the timing of purchases by customers, manufacturing capacities for both current products and new products, the timing of clinical preference testing and product introductions, and FDA review and response times, as well as other risk factors listed from time to time in the Company's SEC reports and filings, including, without limitation, the section entitled "Risk Factors" in the Company's Annual Report on Form 10-KSB (Part II, Item 6) for the year ended September 30, 1995, and in the Company's Prospectus dated July 25, 1996. Consolidation and integration in the domestic health care industry have tended to favor growth of private label sales over growth in sales of branded products. The Company is engaged in strategic planning to identify appropriate market opportunities for its current products and for its newer products in development. The Company intends to develop and refine marketing strategies for each of its products, and to structure its domestic sales and marketing organization to address these market trends. The Company's continuing sales growth of private label products partly depends upon continuing purchases by Mentor Corporation. Mentor holds a patent license from the company which would permit Mentor to commence manufacturing the silicone male external catheter which it presently purchases from the Company. However, the Company has not been advised by Mentor that it intends to establish a facility to manufacture such product itself. Sales growth has consumed much of the Company's excess manufacturing capacity for certain of its current products. The Company presently anticipates continuing sales growth for such products, including growth which may result from future purchases by ConvaTec, as well as by other of the Company's customers. As a result, the Company is presently planning to expand it manufacturing capacities for such products. Unseasonable weather conditions and delays in receiving federally required permits caused temporary construction delays for the Company's new manufacturing and office facilities. The Company presently expects to occupy the new facilities and to commence manufacturing operations at the new facilities by mid 1997. The Company recently filed its Investigational Plan with the FDA for its new FemSoft(TM) urethral assist insert and expects to begin clinical testing of this new device by calendar year end, with the results to be submitted to the FDA during 1997 as a part of a PMA application for that device. The Company and ConvaTec are currently finalizing arrangements for joint clinical preference testing of the intermittent Personal(TM) catheter, the Comfort Sleeve(TM) Foley catheter, and the FemSoft(TM) continuous drain catheter, and the Company anticipates that clinical preference testing of those products will begin in the coming months. Each of those products has already received marketing approval from the FDA, and the clinical preference testing will be conducted for marketing related purposes. The Company is presently completing clinical testing of its Medicated Foley catheter at the University of Wisconsin Medical School, and expects that the results of those tests will be announced by calendar year end. If the results are favorable, the Company intends to resubmit a 510-K marketing approval application for the Medicated Foley catheter to the FDA. The FDA recently proposed labeling regulations requiring medical products containing latex to be marked as such and prohibiting such products from being labeled as "hypoallergenic." The Company believes the proposed FDA regulations, if adopted, may have a beneficial effect on the Company's future sales. The Company anticipates significant capital requirements in the near future in order to finance expanded manufacturing facilities and equipment for its current products and for its new FemSoft(TM) female incontinence product line, to continue its marketing efforts, including the expansion of its marketing and sales operations, to conduct clinical testing for products in development, and to bring such products to market. The Company's current cash resources should be sufficient to finance these requirements for the foreseeable future; however, management intends to pursue appropriate debt financing alternatives for new production facilities and equipment. Management also intends to evaluate the additional capital requirements occasioned by the Company's development of its new FemSoft(TM) urethral assist device, and to consider such additional debt or equity financing as may be necessary or appropriate for the commercialization of that product. PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS The Company is not a party to any material legal proceedings. ITEM 2. CHANGES IN SECURITIES Not Applicable. ITEM 3. DEFAULTS UPON SENIOR SECURITIES Not Applicable ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. None ITEM 5. OTHER INFORMATION None ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits: None (b) Reports on Form 8-K: None SIGNATURES In accordance with the requirements of the Exchange Act, the registrant has caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Rochester Medical Corporation Date: August 2, 1996 By: /s/ Anthony J. Conway --------------------- Anthony J. Conway Chief Executive Officer, Date: August 2, 1996 By: /s/ Brian J. Wierzbinski ------------------------ Brian J. Wierzbinski Chief Financial Officer -----END PRIVACY-ENHANCED MESSAGE-----