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, 1997
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.)
ONE ROCHESTER MEDICAL DRIVE, STEWARTVILLE, MN 55976
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(507) 533-9600
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:
5,261,500 Common Shares as of February 12, 1998.
<PAGE>
Table of Contents
ROCHESTER MEDICAL CORPORATION
Report on Form 10-Q
for quarter ended
December 31, 1997
PART 1 FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Balance Sheets - - December 31, 1997 and 1
September 30, 1997
Statements Of Operations - - Three months ended 2
December 31, 1997 and 1996
Statements of Cash Flows - - Three months ended 3
December 31, 1997 and 1996
Notes to Financial Statements 4
Item 2 Management's Discussion and Analysis of
Financial Condition and Results of
Operations. 5
PART II OTHER INFORMATION 8
<PAGE>
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
ROCHESTER MEDICAL CORPORATION
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, September 30,
1997 1997
------------ ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and Cash Equivalents $ 310,266 $ 1,191,428
Marketable Securities 19,486,752 3,447,461
Accounts Receivable 1,468,892 1,967,194
Inventories 1,963,961 1,653,733
Prepaid Expenses And Other Current Assets 393,489 253,785
------------ ------------
TOTAL CURRENT ASSETS 23,623,360 8,513,601
PROPERTY AND EQUIPMENT
Land and Buildings 2,447,532 2,438,826
Equipment and Fixtures 9,903,282 9,186,588
------------ ------------
12,350,814 11,625,414
Less: Accumulated Depreciation (2,022,262) (1,855,980)
------------ ------------
TOTAL PROPERTY AND EQUIPMENT 10,328,552 9,769,434
INTANGIBLE ASSETS
Patents, Less Accumulated Amortization 307,502 330,338
------------ ------------
TOTAL ASSETS $ 34,259,414 $ 18,613,373
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts Payable $ 422,389 $ 457,564
Accrued Expenses 1,275,238 974,836
------------ ------------
TOTAL CURRENT LIABILITIES 1,697,627 1,432,400
Shareholders' equity Common Stock, no par value:
Authorized--20,000,000
Issued and Outstanding Shares--5,261,500
--Dec, 1997 and 4,133,500--Sep 1997 40,584,202 24,697,199
Accumulated Deficit (8,022,415) (7,516,226)
------------ ------------
TOTAL SHAREHOLDERS' EQUITY 32,561,787 17,180,973
------------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 34,259,414 $ 18,613,373
============ ============
</TABLE>
Note - The Balance Sheet at September 30, 1997 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
<PAGE>
STATEMENTS OF OPERATIONS (UNAUDITED)
Three Months Ended
December 31,
----------------------------
1997 1996
----------- -----------
NET SALES $ 1,855,287 $ 1,727,840
Cost Of Sales 1,271,321 1,086,816
----------- -----------
GROSS PROFIT 583,966 641,024
COSTS AND EXPENSE:
Marketing and Selling 632,610 523,016
Research and Development 298,153 411,925
General and Administrative 326,872 343,745
----------- -----------
TOTAL OPERATING EXPENSES 1,257,635 1,278,686
----------- -----------
LOSS FROM OPERATIONS (673,669) (637,662)
OTHER INCOME (EXPENSE):
Interest Income 172,652 204,377
Interest Expense -- (71,250)
----------- -----------
TOTAL OTHER INCOME (EXPENSE) 172,652 133,127
----------- -----------
NET LOSS $ (501,017) $ (504,535)
=========== ===========
NET LOSS PER COMMON SHARE (Basic and Diluted) $ (0.11) $ (0.12)
=========== ===========
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 4,771,200 4,128,200
=========== ===========
See Notes to Financial Statements
<PAGE>
STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
December 31,
------------------------------
1997 1996
------------ ------------
<S> <C> <C>
OPERATING ACTIVITIES
Net Loss $ (501,017) $ (504,535)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation and amortization 198,312 133,349
Changes in assets and liabilities:
Decrease In Accounts Receivable 498,302 190,093
(Increase) Decrease In Inventories (315,400) 10,232
(Increase) In Other Current Assets (139,703) (4,374)
(Decrease) In Accounts Payable (35,175) (652,104)
Increase In Other Current Liabilities 300,401 135,852
------------ ------------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES 5,720 (691,487)
INVESTING ACTIVITY
Capital expenditures (725,400) (1,403,390)
Patents (9,195) (14,383)
(Purchase) Of Marketable Securities (18,539,333) (9,755,794)
Sales and Maturities Of Marketable Securities 2,500,043 6,793,405
------------ ------------
NET CASH (USED IN) INVESTING ACTIVITIES (16,773,885) (4,380,162)
FINANCING ACTIVITIES
Interest Expense Added To Note Payable -- 71,250
Proceeds from Sale of Common Stock 15,887,003 14,750
------------ ------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 15,887,003 86,000
------------ ------------
(DECREASE) IN CASH AND
CASH EQUIVALENTS (881,162) (4,985,649)
CASH AND CASH EQUIVALENTS
AT BEGINNING OF PERIOD 1,191,428 8,394,607
------------ ------------
CASH AND CASH EQUIVALENTS
AT END OF PERIOD $ 310,266 $ 3,408,958
============ ============
</TABLE>
See Notes to Financial Statements
<PAGE>
ROCHESTER MEDICAL CORPORATION
Notes to Financial Statements (Unaudited)
December 31, 1997
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
1997 Form 10-K. 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, 1997 are
not necessarily indicative of the results that may be expected
for the year ending September 30, 1998.
NOTE B - - EARNINGS (LOSS) PER SHARE
The Company has adopted Financial Accounting Standards Board
Statement No. 128, "Earnings Per Share". This Statement replaces
previously reported primary and fully diluted earnings per share
(EPS) with basic and diluted EPS. Unlike primary EPS, basic EPS
excludes any dilutive effects of options, warrants and
convertible debt. Diluted EPS is very similar to the previously
reported fully diluted EPS. For the three-month periods ended
December 31, 1997 and 1996, there is no difference between basic
and diluted net loss per share or between basic and net loss per
share as previously reported. Common equivalent shares from stock
options and convertible debt are excluded as their effects are
antidilutive.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The Company develops, manufactures and markets innovative urinary continence
care products for urinary dysfunction management and urine drainage management.
The Company currently manufactures and markets a broad line of functionally and
technologically enhanced latex-free versions of standard continence care
products, including male external catheters, Foley catheters and intermittent
catheters. The Company markets its products under its own ROCHESTER MEDICAL(R)
brand and through private label arrangements.
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
------------------
1997 1996
---- ----
Net Sales
Private Label ............ 73% 87%
Rochester Medical Brand .. 27% 13%
---- ----
Total Net Sales ............... 100% 100%
Cost of Sales ................. 69% 63%
---- ----
Gross Margin .................. 31% 37%
Operating Expenses
Marketing and Selling .... 34% 30%
Research and Development . 16% 24%
General and Administrative 17% 20%
---- ----
Total Operating Expenses ...... 67% 74%
Loss From Operations .......... (36%) (37%)
---- ----
Net Loss ...................... (27%) (29%)
FISCAL QUARTERS ENDED DECEMBER 31, 1997 AND DECEMBER 31, 1996
NET SALES. Net sales increased 7% to $1,855,000 for the first quarter of fiscal
1998 from $1,728,000 for the comparable quarter last year, primarily as a result
of increased sales of Rochester Medical brand products. Sales of Rochester
Medical brand products increased 117%, with growth in both domestic and
international markets. Sales to private label customers decreased 10% in the
fourth quarter of fiscal 1998 as compared to the same period of fiscal 1997 as a
result of lower sales to ConvaTec which were partially offset by increased sales
to other private label customers.
GROSS MARGIN. The Company's gross margin was 31% for the first quarter of fiscal
1998 compared with 37% for the same period last year. Gross
<PAGE>
margin in the first quarter of fiscal 1997 was lower as compared to the first
quarter of the prior fiscal year primarily due to increased depreciation expense
associated with the expansion of male external catheter production capacity,
increases in labor rates and recent investment in production support areas.
MARKETING AND SELLING. Marketing and selling expense increased 19% for the first
quarter of fiscal 1998 to $633,000 from $523,000 for the comparable quarter last
year. The increase in expense primarily relates to expansion of the domestic
field sales force to promote sales growth of Rochester Medical brand products.
RESEARCH AND DEVELOPMENT. Research and development expense decreased 28% to
$298,000 in the first quarter of fiscal 1998 from $412,000 for the comparable
quarter last year. The decrease in expense primarily reflects the completion of
clinical tests for the nitrofuran delivery catheter in early 1997.
GENERAL AND ADMINISTRATIVE. General and administrative expense decreased 5% to
$327,000 in the first quarter of fiscal 1998 from $344,000 for the comparable
quarter last year. The decrease in expense reflects improved productivity of
administrative resources and a temporary delay in hiring and information
technology investments pending receipt of FDA approval for the Nitrofuran
Delivery Catheter.
INTEREST INCOME AND (EXPENSE). Interest income decreased by 16% to $173,000 for
the first quarter of fiscal 1998 from $204,000 for the comparable quarter last
year. The average balance of invested assets was lower in the first quarter of
fiscal 1998 versus the comparable quarter of the prior year due to capital
expenditures for production infrastructure expansion throughout 1997 and to the
timing of receipt of proceeds from the public offering. Interest expense has
been eliminated in the first quarter of fiscal 1998, reflecting repayment of the
$3 million convertible loan from ConvaTec, with accrued interest, on September
30, 1997.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash, cash equivalents and marketable securities were $19,797,000
at December 31, 1997 compared with $4,639,000 at September 31, 1997. The
increase reflects the receipt of public offering proceeds of $15,887,000 in
November, 1997. The Company generated a net $6,000 of cash from operating
activities during the quarter, reflecting substantial collections of accounts
receivable and the timing of accounts payable disbursements. Capital
expenditures of $725,000 were made during the quarter, substantially all of
which relate to the Company's new manufacturing facilities. Inventory levels
increased moderately as planned, restoring stock levels in line with current
sales trends.
The Company believes that its capital resources on hand at December 31, 1997,
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-K (Part II, Item 6) for the fiscal year ended September 30, 1997.
<PAGE>
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, including, without limitation, the sections entitled "Business Outlook"
and "Risk Factors" in the Company's Annual Report on Form 10-K (Part II, Item 6)
for the year ended September 30, 1997.
The Company anticipates continued sales growth of currently marketed products
under its own ROCHESTER MEDICAL(R) brand and under private label arrangements,
other than ConvaTec. The Company was recently awarded a contract with the
Veteran's Administration to supply its hospitals nationwide with non-latex
self-self adhering male external catheters. The Company also reached agreement
with Maersk Medical, a division of A. P. Mueller Group, to supply its worldwide
requirements of silicone Foley catheters. In December 1997, ConvaTec announced a
reorganization of senior management and a restructuring of its business. The
Company and ConvaTec are in continuing discussions regarding their strategic
relationship, including future sales trends and distribution activities for the
Company's products. Based on those discussions, the Company presently estimates
that ConvaTec order volumes for fiscal 1998 are likely to approximate 50% of
ConvaTec's order volumes for fiscal 1997, as ConvaTec continues the redeployment
of its purchased inventory.
In January 1997, the Company received FDA marketing approval for its new
Nitrofuran Delivery Catheter. The approval was based on the results of a
rigorous clinical study which showed that use of the Nitrofuran Delivery
Catheter resulted in a substantial decrease in the incidence of catheter induced
urinary tract bacterial infection during the first seven days of catheterization
when compared to a control group. The Company plans to introduce the new
catheter at industry trade shows being held during May 1998.
The Company is aware of the possibility that some computer programs may fail or
cause erroneous results due to their innability to accommodate the date 2000.
The principal components of the Company's computer systems have been recently
purchased. Although the Company is not presently aware of any such problems with
its computer systems, it plans to make appropriate inquiries to its vendors, and
does not now know what the results of those inquiries may be.
The Company continues to receive favorable results from its multi-site clinical
trial of its FEMSOFT(TM) insert, a soft, liquid-filled, conformable urethral
insert for managing female incontinence. The Company plans to use that data to
support its submission to the FDA later this year.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
There Company is not involved in any material legal proceedings.
<PAGE>
ITEM 2. CHANGES IN SECURITIES
Not Applicable. The Company has made no sales of unregistered
securities during he 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 13, 1998 By: /s/ Anthony J. Conway
---------------------
Anthony J. Conway
Chief Executive Officer,
Date: February 13, 1998 By: /s/ Brian J. Wierzbinski
------------------------
Brian J. Wierzbinski,
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> SEP-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 310,266
<SECURITIES> 19,486,752
<RECEIVABLES> 1,522,991
<ALLOWANCES> 54,099
<INVENTORY> 1,963,961
<CURRENT-ASSETS> 23,623,360
<PP&E> 12,350,814
<DEPRECIATION> 2,022,262
<TOTAL-ASSETS> 34,259,414
<CURRENT-LIABILITIES> 1,697,627
<BONDS> 0
0
0
<COMMON> 40,584,202
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 34,259,414
<SALES> 1,855,287
<TOTAL-REVENUES> 1,855,287
<CGS> 1,271,321
<TOTAL-COSTS> 2,528,956
<OTHER-EXPENSES> 0
<LOSS-PROVISION> (673,669)
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (501,017)
<EPS-PRIMARY> (0.11)
<EPS-DILUTED> (0.11)
</TABLE>
