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 JUNE 30, 2000
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: 0-18933
ROCHESTER MEDICAL CORPORATION
(Exact name of registrant as specified in its charter)
MINNESOTA 41-1613227
State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
ONE ROCHESTER MEDICAL DRIVE,
STEWARTVILLE, MN 55976
(Address of principal executive offices) (Zip Code)
(507) 533-9600
(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 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.
5,338,900 Common Shares as of August 10, 2000.
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TABLE OF CONTENTS
ROCHESTER MEDICAL CORPORATION
REPORT ON FORM 10-Q
FOR QUARTER ENDED
JUNE 30, 2000
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Balance Sheets -- June 30, 2000 and September 30, 1999 ................................................3
Statements of Operations -- Three months ended June 30, 2000 and 1999;
Nine months ended June 30, 2000 and 1999 ............................................................4
Statements of Cash Flows -- Nine months ended June 30, 2000 and 1999 ..................................5
Notes to Financial Statements .........................................................................6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations .................................................................................7
Item 3. Quantitative and Qualitative Disclosures about Market Risk ....................................11
PART II. OTHER INFORMATION .....................................................................................12
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
ROCHESTER MEDICAL CORPORATION
BALANCE SHEETS
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JUNE 30, SEPTEMBER 30,
2000 1999
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ASSETS
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CURRENT ASSETS:
Cash and Cash Equivalents .................................... $ 2,648,010 $ 4,216,814
Marketable Securities ........................................ 6,628,334 9,029,296
Accounts Receivable .......................................... 1,496,980 1,369,662
Inventories .................................................. 2,089,089 2,047,820
Prepaid Expenses and Other Assets ............................ 160,051 347,860
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TOTAL CURRENT ASSETS ................................ 13,022,464 17,011,452
PROPERTY AND EQUIPMENT
Land and Buildings ........................................... 5,416,768 5,390,785
Equipment and Fixtures ....................................... 9,916,975 9,338,173
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15,333,743 14,728,958
Less: Accumulated Depreciation ............................... (4,075,134) (3,257,233)
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TOTAL PROPERTY AND EQUIPMENT ........................ 11,258,609 11,471,725
INTANGIBLE ASSETS
Patents, Less Accumulated Amortization ....................... 203,809 219,218
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TOTAL ASSETS .................................................... $ 24,484,882 28,702,395
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LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts Payable ............................................. $ 847,559 689,475
Accrued Expenses ............................................. 485,712 835,914
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TOTAL CURRENT LIABILITIES ........................... 1,333,271 1,525,389
SHAREHOLDERS' EQUITY
Common Stock, no par value:
Authorized -- 20,000,000
Issued and Outstanding Shares -- 5,338,900
-- Jun., 2000 and 5,349,500 -- Sept., 1999 ...... 41,279,359 41,352,202
Accumulated Deficit .......................................... (18,127,748) (14,175,196)
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TOTAL SHAREHOLDERS' EQUITY .......................... 23,151,611 27,177,006
TOTAL LIABILITIES & SHAREHOLDERS' EQUITY ........................ $ 24,484,882 28,702,395
============ ============
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Note -- The Balance Sheet at September 30, 1999 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
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ROCHESTER MEDICAL CORPORATION
STATEMENTS OF OPERATIONS (UNAUDITED)
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THREE MONTHS ENDED
JUNE 30, NINE MONTHS ENDED JUNE 30,
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2000 1999 2000 1999
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NET SALES ....................... $ 2,111,022 $ 1,733,368 $ 6,165,355 $ 5,460,680
COST OF SALES ................... 1,619,245 1,375,701 4,744,553 4,215,435
----------- ----------- ----------- -----------
GROSS PROFIT .................... 491,777 357,667 1,420,802 1,245,245
COSTS AND EXPENSES:
Marketing and Selling ........ 1,161,172 1,068,347 3,594,098 2,623,344
Research and Development ..... 222,531 238,877 646,426 747,994
General and Administrative ... 607,737 458,084 1,591,985 1,368,746
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TOTAL OPERATING EXPENSES 1,991,440 1,765,308 5,832,509 4,740,084
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LOSS FROM OPERATIONS ............ (1,499,663) (1,407,641) (4,411,707) (3,494,839)
OTHER INCOME (EXPENSE):
Interest Income .............. 147,188 174,776 459,155 532,562
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TOTAL OTHER INCOME (EXP) ..... 147,188 174,776 459,155 532,562
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NET LOSS ........................ $(1,352,475) $(1,232,865) $(3,952,552) $(2,962,277)
=========== =========== =========== ===========
NET LOSS PER COMMON SHARE
(Basic and Diluted) ............. $ (0.25) $ (0.23) $ (0.74) $ (0.56)
=========== =========== =========== ===========
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING ....... 5,338,900 5,349,500 5,342,030 5,327,264
=========== =========== =========== ===========
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See Notes to Financial Statements
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ROCHESTER MEDICAL CORPORATION
STATEMENTS OF CASH FLOWS (UNAUDITED)
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NINE MONTHS ENDED
JUNE 30,
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2000 1999
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OPERATING ACTIVITIES
Net Loss ............................................................... $(3,952,552) $(2,962,277)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization .......................................... 867,844 698,656
Changes in assets and liabilities:
Accounts Receivable .................................................... (127,318) 858,689
Inventories ............................................................ (41,268) (148,707)
Other Current Assets ................................................... 187,810 254,339
Accounts Payable ....................................................... 158,084 (359,439)
Other Current Liabilities .............................................. (350,203) (466,894)
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NET CASH (USED IN) OPERATING ACTIVITIES .......................... (3,257,603) (2,125,633)
INVESTING ACTIVITY
Capital Expenditures ................................................... (604,786) (577,612)
Patents ................................................................ (34,535) (46,401)
Sales (Purchases) of Marketable Securities, Net ........................ 2,400,963 5,468,269
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NET CASH PROVIDED BY INVESTING ACTIVITIES .............................. 1,761,642 4,844,256
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FINANCING ACTIVITIES
Proceeds from Sale (Purchases) of Common Stock ......................... (72,843) 660,000
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NET CASH PROVIDED BY FINANCING ACTIVITIES .............................. (72,843) 660,000
(DECREASE) INCREASE IN CASH
AND CASH EQUIVALENTS .................................................. (1,568,804) 3,378,623
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD ................................................... 4,216,814 2,864,922
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CASH AND CASH EQUIVALENTS AT END OF PERIOD ................................ $ 2,648,010 $ 6,243,545
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See Notes to Financial Statements
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ROCHESTER MEDICAL CORPORATION
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 2000
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 1999 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 June 30, 2000 are not necessarily indicative of the results that may be
expected for the year ending September 30, 2000.
NOTE B -- EARNINGS (LOSS) PER SHARE
For the nine-month periods ended June 30, 2000 and 1999, 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 are
excluded as their effects are antidilutive.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RECENT DEVELOPMENT
On July 5, 2000, the Company announced that it was unable to reach a
definitive agreement with Maersk Medical regarding the sale of the Company's
standard silicone Foley catheter manufacturing operations and standard Foley
catheter private label business. The Company will continue to manufacture and
sell standard silicone Foley catheters.
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.
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Three Months Nine Months
Ended Ended
June 30, June 30,
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2000 1999 2000 1999
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Total Net Sales ................... 100% 100% 100% 100%
Cost of Sales ..................... 77% 79% 77% 77%
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Gross Margin .................. 23% 21% 23% 23%
Operating Expenses
Marketing and Selling ......... 55% 62% 58% 48%
Research and Development ...... 11% 14% 10% 14%
General and Administrative .... 29% 26% 26% 25%
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Total Operating Expenses .......... 95% 102% 94% 87%
Loss From Operations .............. (72)% (81)% (71)% (64)%
Interest Income (Expense) Net ..... 7% 10% 7% 10%
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Net Loss .......................... (65%) (71%) (64%) (54%)
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THREE MONTH AND NINE MONTH PERIODS ENDED JUNE 30, 2000 AND JUNE 30, 1999
NET SALES. Net sales for the third quarter of fiscal 2000 increased 22%
to $2,111,000 from $1,733,000 for the comparable quarter of last fiscal year.
The sales increase resulted from comparably stronger order volumes in both
domestic and international markets. Domestic sales increased by 22% as a result
of higher branded and private label sales. International sales increased by 21%
as a result of significantly increased sales to Maersk Medical for the purpose
of building inventory in anticipation of Maersk Medical's proposed purchase of
the Company's standard silicone Foley catheter business, which were offset in
part by lower sales in Europe, primarily due to the timing of orders. The
Company expects reduced sales to Maersk Medical for the next several months due
to its inventory build up, which will result in a decline in net sales over the
next two fiscal quarters.
Net sales for the nine months ended June 30, 2000 increased 13% to
$6,165,000 from $5,461,000 for the comparable nine-month period of last fiscal
year. Primary factors leading to the increase in nine- month sales results
include an increase in international sales, primarily in Europe, offset in part
by a decrease in domestic sales. The decrease in overall domestic sales reflects
lower domestic private label sales as previously disclosed, partially offset by
growth in domestic branded sales.
The RELEASE NF catheter and the FEMSOFT(R) INSERT continue to be
introduced into the marketplace. The net sales of these products and the related
sales volumes are not yet significant to the Company's overall sales levels.
GROSS MARGIN. The Company's gross margin as a percentage of net sales
for the third quarter of fiscal 2000 was 23% compared to 21% for the comparable
quarter of last fiscal year. The current quarter's margin primarily reflects
costs associated with underutilized production capacity. Costs associated with
increased capacity are anticipated to continue until the Company achieves
sufficient sales to absorb the additional capacity.
The Company's gross margin as a percentage of net sales for the nine
months ended June 30, 2000 was 23% compared to 23% for the comparable nine-month
period of last fiscal year. Factors related to the nine-month margin level are
generally consistent with those discussed above for the current quarter.
The Company anticipates that gross margins may decline over the next
two fiscal quarters due to lower production volumes related to the anticipated
decline in net sales related to the Maersk Medical activities as described
above.
MARKETING AND SELLING. Marketing and selling expense for the third
quarter of fiscal 2000 increased 9% to $1,161,000 from $1,068,000 for the
comparable quarter of last fiscal year. The increase in marketing and selling
expense is primarily due to promotional activities as part of the Company's
phased rollout of the FEMSOFT INSERT.
Marketing and selling expense for the nine months ended June 30, 2000
increased 37% to $3,594,000 from $2,623,000 for the comparable nine-month period
of last fiscal year. Factors affecting the comparative nine-month expense levels
are generally consistent with those discussed above for the current quarter.
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RESEARCH AND DEVELOPMENT. Research and development expense for the
third quarter of fiscal 2000 decreased 7% to $223,000 from $239,000 for the
comparable quarter of last fiscal year. The decrease in research and development
expense primarily reflects a reduction in accruals for costs of the FemSoft(R)
Insert clinical trials related to stage of completion.
Research and development expense for the nine months ended June 30,
2000 decreased 14% to $646,000 from $748,000 for the comparable nine-month
period of last fiscal year. Factors affecting the comparative nine-month expense
levels are generally consistent with those discussed above for the current
quarter.
GENERAL AND ADMINISTRATIVE. General and administrative expense for the
third quarter of fiscal 2000 increased 33% to $608,000 from $458,000 for the
comparable quarter of last fiscal year. The increase in general and
administrative expense is primarily related to a one-time expense related to the
terminated Maersk Medical transaction and general increases in administrative
support costs.
General and administrative expense for the nine months ended June 30,
2000 increased 16% to $1,592,000 from $1,369,000 for the comparable nine-month
period of last fiscal year. Factors affecting the comparative nine-month expense
levels are generally consistent with those discussed above for the current
quarter.
INTEREST INCOME. Interest income for the third quarter of fiscal 2000
decreased 16% to $147,000 from $175,000 for the comparable quarter of last
fiscal year. The decrease in interest income reflects the comparatively lower
average level of invested cash balances in the current quarter due to the
utilization of cash for operations and capital expenditures.
Interest income for the nine months ended June 30, 2000 decreased 14%
to $459,000 from $533,000 for the comparable nine-month period of last fiscal
year. The decrease reflects a comparatively lower average level of invested cash
balances for the current quarter as discussed above.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash, cash equivalents and marketable securities were
$9,276,000 at June30, 2000 compared with $13,246,000 at September 30, 1999. The
Company used a net $3,258,000 of cash from operating activities during the
quarter, of which $3,085,000 reflects the net loss before non-cash depreciation.
During the nine-month period ended June 30, 2000, the Company's working
capital position, excluding cash and marketable securities, decreased by a net
$173,000. Accounts receivable balances increased 9% or $127,000 during this
period as a result of increased sales and the timing of customer orders. Other
current assets decreased 54% or $188,000 during the recent nine-month period
primarily as a result of the collection of accrued investment interest
receivable. Current liabilities decreased 13% or $192,000 during the recent
nine-month period, reflecting comparatively lower balances for clinical trials
and accrued compensation. Changes in other asset and liability balances during
the recent nine- month period are related to timing of expense recognition.
The Company believes that its capital resources on hand at June 30,
2000, together with revenues
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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, 1999.
FORWARD-LOOKING STATEMENTS
Statements other than historical information contained herein
constitute "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. Such forward-looking statements may be
identified by the use of terminology such as "may," "will," "expect,"
"anticipate," "predict," "intend," "designed," "estimate," "should" or
"continue" or the negatives thereof or other variations thereon or comparable
terminology. Such forward-looking statements involve known or unknown risks,
uncertainties and other factors which may cause the actual results, performance
or achievements of the Company, or industry results, to be materially different
from any future results, performance or achievements expressed or implied by
such forward-looking statements. Such factors include, among other things, the
following: the uncertainty of market acceptance of the RELEASE NF catheter and
the FEMSOFT INSERT; the uncertainty of the level of continuing sales volumes, if
any, to Maersk Medical; the results of product evaluations; the securing of
Group Purchasing Organization contract participation; the timing of purchases by
customers; manufacturing capacities for both current products and new products;
results of clinical tests; the timing of clinical preference testing and product
introductions; FDA review and response times; the risks associated with the
Company's expanded reliance on sales of ROCHESTER MEDICAL brand products; and
other risk factors listed from time to time in the Company's SEC reports,
including, without limitation, the section entitled "Risk Factors" in the
Company's Annual Report on Form 10-K (Part II, Item 6) for the year ended
September 30, 1999.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The Company does not believe that there is any material market risk
exposure with respect to derivative or other financial instruments which would
require disclosure under this item.
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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:
27 Financial Data Schedule
(b) Reports on Form 8-K:
None
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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.
ROCHESTER MEDICAL CORPORATION
Date: August 14, 2000 By: /s/ Anthony J. Conway
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Anthony J. Conway
CHIEF EXECUTIVE OFFICER
Date: August 14, 2000 By: /s/ Brian J. Wierzbinski
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Brian J. Wierzbinski
CHIEF FINANCIAL OFFICER
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EXHIBIT INDEX
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27 Financial Data Schedule
