SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[x] Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 1996
Commission File Number: 0-18933
ROCHESTER MEDICAL CORPORATION
(Exact name of 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, MINNESOTA 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 last practicable date:
4,128,500 Common Shares as of February 6, 1997.
Total Number of Pages: 11 Index to Exhibits on Page: 9
TABLE OF CONTENTS
ROCHESTER MEDICAL CORPORATION
REPORT ON FORM 10-Q
FOR QUARTER ENDED
DECEMBER 31, 1996
PAGE
PART 1 FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Balance Sheets -- December 31, 1996 and September 30, 1996 3
Statements Of Operations --Three months ended December 31, 1996
and 1995 4
Statements of Cash Flows --Three months ended December 31, 1996
and 1995 5
Notes to Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 7
PART II OTHER INFORMATION 10
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
ROCHESTER MEDICAL CORPORATION
BALANCE SHEETS
DECEMBER 31, SEPTEMBER 30,
1996 1996
ASSETS
CURRENT ASSETS
Cash and Cash Equivalents $ 3,408,958 $ 8,394,607
Marketable Securities 11,975,911 9,013,522
Accounts Receivable 1,323,484 1,513,577
Inventories 1,181,051 1,191,283
Prepaid Expenses And Other Current Assets 88,568 84,194
TOTAL CURRENT ASSETS 17,977,972 20,197,183
PROPERTY AND EQUIPMENT
Land and Buildings 2,774,440 815,075
Equipment and Fixtures 3,373,532 3,929,507
6,147,972 4,744,582
Less: Accumulated Depreciation (1,538,006) (1,432,257)
TOTAL PROPERTY AND EQUIPMENT 4,609,966 3,312,325
INTANGIBLE ASSETS
Patents, Less Accumulated Amortization 365,015 378,232
TOTAL ASSETS $22,952,953 $23,887,740
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts Payable $ 305,847 $ 957,951
Accrued Compensation 200,468 74,499
Accrued Expenses 313,197 303,314
TOTAL CURRENT LIABILITIES 819,512 1,335,764
LONG-TERM DEBT 3,391,875 3,320,625
SHAREHOLDERS' EQUITY
Common Stock, no par value:
Authorized--20,000,000 Issued and
Outstanding Shares--4,128,500
--Dec, 1996 and 4,127,500--Sep 1996 24,663,663 24,648,913
Accumulated Deficit (5,922,097) (5,417,562)
TOTAL SHAREHOLDERS' EQUITY 18,741,566 19,231,351
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $22,952,953 $23,887,740
Note --The Balance Sheet at September 30, 1996 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
DECEMBER 31,
1996 1995
NET SALES $1,727,840 $ 957,999
Cost Of Sales 1,086,816 691,302
GROSS PROFIT 641,024 266,697
COSTS AND EXPENSE:
Marketing and Selling 523,016 280,494
Research and Development 411,925 128,402
General and Administrative 343,745 111,427
TOTAL OPERATING EXPENSES 1,278,686 520,323
LOSS FROM OPERATIONS (637,662) (253,626)
OTHER INCOME (EXPENSE):
Interest Income 204,377 130,510
Interest Expense (71,250) (71,276)
TOTAL OTHER INCOME
(EXPENSE) 133,127 59,234
NET LOSS $ (504,535) $ (194,392)
NET LOSS PER COMMON SHARE $ (0.12) $ (0.06)
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 4,128,200 3,270,000
See Notes to Financial Statements
ROCHESTER MEDICAL CORPORATION
STATEMENTS OF CASH FLOWS (UNAUDITED)
THREE MONTHS ENDED
DECEMBER 31,
1996 1995
OPERATING ACTIVITIES
Net Loss $ (504,535) $ (194,392)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 133,349 97,785
Changes in assets and liabilities:
(Increase) Decrease Accounts Receivable 190,093 (152,287)
(Increase) Decrease Inventories 10,232 (104,033)
(Increase) Decrease Other Current Assets (4,374) 73,614
Increase (decrease) Accounts Payable (652,104) (5,215)
Increase (decrease) Other Current
Liabilities 135,852 (97,581)
NET CASH USED IN OPERATING ACTIVITIES (691,487) (382,109)
INVESTING ACTIVITY
Capital expenditures (1,403,390) (3,930)
Patents (14,383) (26,244)
(Increase) Decrease Marketable Securities (2,962,389) (1,255,202)
NET CASH USED IN INVESTING ACTIVITIES (4,380,162) (1,285,376)
FINANCING ACTIVITIES
Interest Expense Added To Note Payable 71,250 71,250
Proceeds from Sale of Common Stock 14,750 16,217,393
NET CASH PROVIDED BY FINANCING
ACTIVITIES 86,000 16,288,643
(DECREASE) INCREASE IN CASH AND
CASH EQUIVALENTS (4,985,649) 14,621,158
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 8,394,607 551,142
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 3,408,958 $15,172,300
See Notes to Financial Statements
ROCHESTER MEDICAL CORPORATION
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
DECEMBER 31, 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-Q. Accordingly, they do not include all of
the information and footnotes required by generally accepted accounting
principles for complete financial statements. These financial statements should
be read in conjunction with the financial statements and related notes included
in the Company's 1996 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 three month period
ended December 31, 1996 are not necessarily indicative of the results that may
be expected for the year ending September 30, 1997.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The Company designs, develops, manufactures and markets disposable latex-free
continence care and other urological devices. The Company markets its products
under its own ROCHESTER MEDICAL(R) brand and through private label arrangements,
including its strategic marketing alliance with ConvaTec, a division of the
Bristol-Myers Squibb Company.
During the quarter ended December 31, 1996, the Company completed a
reorganization of its marketing and field sales groups, increased sales and
marketing activities for its current product lines, and began construction
necessary to house expanded production for its current products. The Company
completed a major, year long clinical study of its Antibacterial Foley catheter
at the University of Wisconsin, and began preparations to submit a 510(k)
Notification to the FDA based on the favorable results of that study. The
Company also completed arrangements for a multi-site clinical study of its
FEMSOFT(tm) female continence insert, which began in January of 1997.
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 ENDED
DECEMBER 31
1996 1995
Net Sales
Private Label 87% 73%
Rochester Medical Brand. 13% 27%
Total Net Sales 100% 100%
Cost of Sales 63% 72%
Gross Margin 37% 28%
Operating Expenses
Marketing and Selling. 30% 29%
Research and Development. 24% 13%
General and Administrative 20% 12%
Total Operating Expenses 74% 54%
Loss From Operations (37%) (26%)
Interest Income (Expense) Net 8% 6%
Net Loss (29%) (20%)
FISCAL QUARTERS ENDED DECEMBER 31, 1996 AND DECEMBER 31, 1995
NET SALES. Net Sales increased 80% to $1,727,800 for the first quarter of fiscal
1997 from $958,000 for the first quarter of fiscal 1996, due primarily to
significant increases in private label order volumes from ConvaTec and Mentor.
Sales of ROCHESTER MEDICAL(R) brand products were slightly below the comparable
prior quarter due primarily to the timing of stocking orders to certain
international distributors and to domestic field sales force reorganization.
GROSS MARGIN. The Company's gross margin improved nine percentage points in the
current quarter compared to the same quarter last year. The improvement was the
result of manufacturing efficiencies from higher production volumes and labor
productivity as well as favorable mix in private label sales.
MARKETING AND SELLING. Marketing and selling expenses increased 87% to $523,000
for the first quarter of fiscal 1997 from $280,500 for the first quarter of
fiscal 1996. The increase reflects planned acceleration of advertising and
promotion spending and reorganization of the Company's marketing and sales
groups, including the addition of a director of marketing for branded products
and four field sales personnel.
RESEARCH AND DEVELOPMENT. Research and development expenses increased 220% to
$412,000 for the first quarter of fiscal 1997 from $128,400 for the first
quarter of fiscal 1996. The increase primarily reflects costs associated with
the commencement of multi-site clinical evaluations of the Company's FEMSOFT(tm)
female continence insert.
GENERAL AND ADMINISTRATIVE. General and administrative expense increased 208% to
$343,700 for the first quarter of fiscal 1997 from $111,400 for the first
quarter of fiscal 1996. The increased expense reflects the continued development
of administrative infrastructure, which began in the second quarter of fiscal
1996 with the addition of a Chief Financial Officer and implementation of
information systems, to support the Company's expanded activities and increased
sales volumes.
INTEREST INCOME (EXPENSE). Interest income increased by 57% to $204,400 for the
first quarter of fiscal 1997 from $130,500 for the first quarter of fiscal 1996,
as a result of earnings on cash invested from the proceeds of the Company's
public offering in November 1995. Interest expense remained constant reflecting
interest due on the $3 million convertible subordinated loan from ConvaTec.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash, cash equivalents and marketable securities were
approximately $15,385,000 at December 31, 1996 compared to $17,408,000 at
September 30, 1996. The Company used $691,487 of cash to finance operating
activities, the majority of which relates to the net loss for the quarter.
Capital expenditures totaling $1,403,000 were made during the quarter,
substantially all of which relates to the Company's new manufacturing
facilities. Changes in accounts receivable and current liability balances are
due to the timing of receipts and payments. Inventory levels remained steady and
in line with the Company's current sales trends.
The Company believes that its capital resources on hand at December 31, 1996,
together with revenues from sales, will be sufficient to satisfy its working
capital requirements for the foreseeable future as described in the Liquidity
and Capital Resources portion of Management's Discussion and Analysis of
Financial Condition and Results of Operations in the Company's Annual Report on
Form 10-KSB (Part II, Item 6) for the fiscal year ended September 30, 1996.
BUSINESS OUTLOOK
The following discussion contains forward looking statements that involve risks
and uncertainties, including the timing of purchases by customers, the
successful renewal of a private label agreement presently in negotiations,
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, including, without limitation, the sections entitled
"Business Outlook" and "Risk Factors" in the Company's Annual Report on Form
10-KSB (Part II, Item 6) for the year ended September 30, 1996.
The Company continues to experience solid sales growth in private label sales,
particularly to ConvaTec. The Company believes this growth trend will continue
through the second quarter, however, growth may slow during the second half of
the fiscal year due to significant non-recurring stocking orders from major
private label customers in the prior year. The Company is presently concluding
negotiations with Allegiance Euromedical ("Allegiance") to revise and extend its
private label agreement. The agreement now being negotiated contemplates that
the Company will conduct expanded packaging activities for Allegiance, which
would offset the slower order volumes that the Company has experienced during
the period of these negotiations. Should these negotiations conclude without
renewal, sales growth during the second half of the fiscal year may be adversely
affected.
The Company anticipates increases in branded product sales from both domestic
and overseas customers reflecting the results of sales activities by the
Company's newly hired field sales force and from expansion of overseas
distribution.
The Company continues research and development activities for its high potential
new products. Multi-site clinical trials of the Company's FEMSOFT(tm) female
continence insert commenced in January 1997. The Company is also preparing to
submit a 510-k notification for its Antibacterial Foley catheter. Construction
of the Company's new manufacturing facility to house its FEMSOFT(tm) product
line and expansion of its current manufacturing facility for its current
products are proceeding on schedule.
The Company continues to explore the prospect of additional financing to expand
future marketing activities which may be necessary to properly bring its
Antibacterial Foley catheter and FEMSOFT(tm) female continence insert to market,
if and as those products receive FDA marketing approval, as well as for research
and development activities necessary to bring other of its products in
development to market.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is not involved in any material legal proceedings.
ITEM 2. CHANGES IN SECURITIES
Not Applicable. The Company has made no sales of unregistered
securities during the period covered by this Report.
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:
27. Financial Data Schedule
(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: February 7, 1997 By: /S/ ANTHONY J. CONWAY
Anthony J. Conway
CHIEF EXECUTIVE OFFICER
Date: February 7, 1997 By: /S/ BRIAN J. WIERZBINSKI
Brian J. Wierzbinski
CHIEF FINANCIAL OFFICER
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