DRAFT, 2/9/00
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 DECEMBER 31,
1999
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 February 8, 2000.
<PAGE>
TABLE OF CONTENTS
ROCHESTER MEDICAL CORPORATION
REPORT ON FORM 10-Q
FOR QUARTER ENDED
DECEMBER 31, 1999
<TABLE>
<CAPTION>
PAGE
----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
<S> <C>
Balance Sheets-- December 31, 1999 and September 30, 1999 .............................................3
Statements of Operations-- Three months ended December 31, 1999 and 1998 ..............................4
Statements of Cash Flows-- Three months ended December 31, 1999 and 1998 ..............................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
</TABLE>
-2-
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
ROCHESTER MEDICAL CORPORATION
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1999 1999
--------------------- ------------------
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash and Cash Equivalents ........................................... $ 2,769,130 $ 4,216,814
Marketable Securities ............................................... 9,016,117 9,029,296
Accounts Receivable ................................................. 1,356,216 1,369,662
Inventories ......................................................... 2,030,036 2,047,820
Prepaid Expenses and Other Assets ................................... 275,895 347,860
--------------------- ------------------
TOTAL CURRENT ASSETS ....................................... 15,447,394 17,011,452
PROPERTY AND EQUIPMENT
Land and Buildings .................................................. 5,390,785 5,390,785
Equipment and Fixtures .............................................. 9,677,840 9,338,173
--------------------- ------------------
15,068,625 14,728,958
Less: Accumulated Depreciation ...................................... (3,509,565) (3,257,233)
--------------------- ------------------
TOTAL PROPERTY AND EQUIPMENT ............................... 11,559,060 11,471,725
INTANGIBLE ASSETS
Patents, Less Accumulated Amortization .............................. 213,350 219,218
--------------------- ------------------
TOTAL ASSETS ........................................................... $ 27,219,804 28,702,395
===================== ==================
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts Payable .................................................... $ 1,018,530 689,475
Accrued Expenses .................................................... 431,141 835,914
--------------------- ------------------
TOTAL CURRENT LIABILITIES .................................. 1,449,671 1,525,389
SHAREHOLDERS' EQUITY
Common Stock, no par value:
Authorized -- 20,000,000
Issued and Outstanding Shares -- 5,338,900
-- Dec., 1999 and 5,349,500 -- Sept., 1999 .............. 41,279,359 41,352,202
Accumulated Deficit ................................................. (15,509,226) (14,175,196)
--------------------- ------------------
TOTAL SHAREHOLDERS' EQUITY ............................. 25,770,133 27,177,006
TOTAL LIABILITIES & SHAREHOLDERS' EQUITY ............................... $ 27,219,804 28,702,395
===================== ==================
</TABLE>
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
-3-
<PAGE>
ROCHESTER MEDICAL CORPORATION
STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
DECEMBER 31,
-----------------------------------
1999 1998
----------------- ---------------
<S> <C> <C>
NET SALES .................................... $ 2,007,783 $ 2,345,995
COST OF SALES ................................ 1,525,100 1,755,960
----------------- ---------------
GROSS PROFIT ................................. 482,683 590,035
COSTS AND EXPENSES:
Marketing and Selling ..................... 1,298,718 830,323
Research and Development .................. 223,176 220,643
General and Administrative ................ 459,939 444,951
----------------- ---------------
TOTAL OPERATING EXPENSES 1,981,833 1,495,917
----------------- ---------------
LOSS FROM OPERATIONS ......................... (1,499,150) (905,882)
OTHER INCOME (EXPENSE):
Interest Income ........................... 165,121 175,903
-------------- -------------
TOTAL OTHER INCOME (EXP) 165,121 175,903
-------------- -------------
NET LOSS ..................................... $ (1,334,029) $ (729,979)
================= ===============
NET LOSS PER COMMON SHARE
(Basic and Diluted) .......................... $ (0.25) $ (0.14)
================= ===============
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 5,348,221 5,288,353
================= ===============
</TABLE>
See Notes to Financial Statements
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<PAGE>
ROCHESTER MEDICAL CORPORATION
STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
DECEMBER 31,
------------------------------------
1999 1998
------------------ ----------------
OPERATING ACTIVITIES
<S> <C> <C>
Net Loss .................................................................. $ (1,334,029) $ (729,979)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization ............................................. 268,980 275,639
Changes in assets and liabilities:
Accounts Receivable ....................................................... 13,447 (153,543)
Inventories ............................................................... 17,785 (88,611)
Other Current Assets ...................................................... 71,965 255,596
Accounts Payable .......................................................... 329,056 (160,106)
Other Current Liabilities ................................................. (404,773) (352,757)
------------------ ----------------
NET CASH (USED IN) OPERATING ACTIVITIES ............................. (1,037,569) (953,761)
INVESTING ACTIVITY
Capital Expenditures ...................................................... (339,671) (296,601)
Patents ................................................................... (10,781) (24,645)
Sales (Purchases) of Marketable Securities, Net 13,180 (2,002,477)
------------------ ----------------
NET CASH (USED IN) INVESTING ACTIVITIES ................................... (337,272) (2,323,723)
------------------ ----------------
FINANCING ACTIVITIES
Proceeds from Sales (Purchases) of Common Stock ........................... (72,843) 536,250
------------------ ----------------
NET CASH PROVIDED BY FINANCING ACTIVITIES ................................. (72,843) 536,250
(DECREASE) INCREASE IN CASH
AND CASH EQUIVALENTS ..................................................... (1,447,684) (2,741,234)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD ...................................................... 4,216,814 2,864,922
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 2,769,130 $ 123,688
================== ================
</TABLE>
See Notes to Financial Statements
-5-
<PAGE>
ROCHESTER MEDICAL CORPORATION
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
DECEMBER 31, 1999
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 December 31, 1999 are not necessarily indicative of the results that may
be expected for the year ending September 30, 2000.
NOTE B -- EARNINGS (LOSS) PER SHARE
The Company follows Financial Accounting Standards Board Statement No. 128,
"Earnings Per Share." For the three-month periods ended December 31, 1999 and
1998, 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.
-6-
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
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,
------------
1999 1998
----- -----
Total Net Sales............................... 100% 100%
Cost of Sales................................. 76% 75%
----- -----
Gross Margin......................... 24% 25%
Operating Expenses
Marketing and Selling............... 64% 35%
Research and Development............ 11% 9%
General and Administrative.......... 23% 19%
----- -----
Total Operating Expenses..................... 98% 63%
Loss From Operations......................... (74%) (38%)
Interest Income (Expense) Net................ 8% 7%
----- -----
Net Loss.................................... (66%) (31%)
===== =====
-7-
<PAGE>
THREE MONTH PERIODS ENDED DECEMBER 31, 1999 AND DECEMBER 31, 1998
NET SALES. Net sales for the first quarter of fiscal 2000 decreased 14% to
$2,008,000 from $2,346,000 for the comparable quarter of last fiscal year. The
sales decrease resulted from significantly lower private label sales,
partially offset by a 20% increase in domestic sales of ROCHESTER MEDICAL
brand products and a 117% increase in international sales. Currently, the
Company is experiencing a shortage of production workers due to competitive
conditions in the local labor market, which may temporarily affect the timing
for filling customer orders in upcoming quarters. The Company recently
implemented a benefits program, including wage increases, designed to address
these competitive conditions.
GROSS MARGIN. The Company's gross margin as a percentage of net sales for
the first quarter of fiscal 2000 was 24% compared to 25% for the comparable
quarter of last fiscal year. The current quarter's margin reflects costs
associated with underutilized production capacity due to lower sales. Costs
associated with increased capacity are anticipated to continue until the
Company achieves sufficient sales to absorb the additional capacity. In
addition, the Company's recent implementation of the benefits program
described above could impact gross margins in future periods.
MARKETING AND SELLING. Marketing and selling expense for the first quarter
of fiscal 2000 increased 56% to $1,299,000 from $830,000 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(R) INSERT. The Company anticipates that marketing and
selling expenses will increase in future periods as the Company expands its
promotional and market development activities related to ROCHESTER MEDICAL
brand products, particularly the FEMSOFT INSERT.
RESEARCH AND DEVELOPMENT. Research and development expense for the first
quarter of fiscal 2000 increased 1% to $223,000 from $221,000 for the
comparable quarter of last fiscal year. The increase in research and
development expense primarily reflects an increase in costs relating to the
development and testing of new FEMSOFT INSERT manufacturing and packaging
equipment offset by a decrease in FEMSOFT INSERT clinical testing costs.
GENERAL AND ADMINISTRATIVE. General and administrative expense for the first
quarter of fiscal 2000 increased 3% to $460,000 from $445,000 for the
comparable quarter of last fiscal year. The increase in general and
administrative expense is primarily related to general increases in personnel
and other miscellaneous support costs.
INTEREST INCOME. Interest income for the first quarter of fiscal 2000
decreased 6% to $165,000 from $176,000 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.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash, cash equivalents and marketable securities were
$11,785,000 at December 31, 1999 compared with $13,246,000 at September 30,
1999. The Company used a
-8-
<PAGE>
net $1,038,000 of cash from operating activities during the quarter, primarily
reflecting the net loss before non-cash depreciation.
During the three-month period ended December 31, 1999, the Company's working
capital position, excluding cash and marketable securities, decreased by a net
$28,000. Accounts receivable balances and inventories were virtually unchanged
during this period, at approximately $1,400,000 and $2,000,000, respectively.
Other current assets decreased 21% or $72,000 during the recent three-month
period as a result of the timing of receipt of interest earnings on
investments. Current liabilities decreased 5% or $75,000 during the recent
three-month period, reflecting a temporary increase in raw material purchase
volumes related to Year 2000 preparations, offset by a reduction in accrued
expenses from payment of clinical trial and accrued compensation obligations.
Changes in other asset and liability balances during the recent three-month
period related to timing of expense recognition.
In December 1999, the Board of Directors authorized a stock repurchase
program. Up to one million shares of the Company's outstanding common stock
may be repurchased under the program. Purchases may be made from time to time
at prevailing prices in the open market and through other customary means. No
time limit has been placed on the duration of the stock repurchase program and
it may be conducted over an extended period of time as business and market
conditions warrant. The Company also may discontinue the stock repurchase
program at any time. The repurchased shares will be available for reissuance
pursuant to employee stock option plans and for other corporate purposes. The
Company intends to fund such repurchases with currently available funds.
During the first quarter of fiscal 2000, the Company repurchased 10,600 shares
of common stock for $73,000.
The Company believes that its capital resources on hand at December 31,
1999, 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, 1999.
IMPACT OF YEAR 2000
As described in the Form 10-K for the year ended September 30, 1999,
the Company had developed plans to address the possible exposures related to
the impact on its computer systems of the Year 2000. Since entering the year
2000, the Company has not experienced any major disruptions to its business
nor is it aware of any significant Year 2000-related disruptions impacting its
customers and suppliers. Furthermore, the Company did not experience any
material impact on overall inventory levels at calendar year end. The Company
will continue to monitor its critical systems over the next several months but
does not anticipate any significant impacts due to Year 2000 exposures from
its internal systems as well as from the activities of its suppliers and
customers.
-9-
<PAGE>
Costs incurred to achieve Year 2000 readiness, which include contractor
costs to modify existing systems and costs of internal resources dedicated to
achieving Year 2000 compliance, were charged to expense as incurred. Such
costs totaled approximately $85,000 and were essentially incurred prior to the
current fiscal year.
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 risks associated with the
Company's expanded reliance on sales of ROCHESTER MEDICAL brand products as
well as 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.
-10-
<PAGE>
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
-11-
<PAGE>
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: February 11, 2000 By: /s/ Anthony J. Conway
--------------------------
Anthony J. Conway
CHIEF EXECUTIVE OFFICER
Date: February 11, 2000 By: /s/ Brian J. Wierzbinski
--------------------------
Brian J. Wierzbinski
CHIEF FINANCIAL OFFICER
-12-
<PAGE>
EXHIBIT INDEX
Page
----
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-2000
<PERIOD-START> OCT-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 2,769,130
<SECURITIES> 9,016,117
<RECEIVABLES> 1,419,156
<ALLOWANCES> 62,940
<INVENTORY> 2,030,036
<CURRENT-ASSETS> 15,447,393
<PP&E> 15,068,626
<DEPRECIATION> 3,509,565
<TOTAL-ASSETS> 27,219,804
<CURRENT-LIABILITIES> 1,449,671
<BONDS> 0
0
0
<COMMON> 41,279,359
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 27,219,804
<SALES> 2,007,783
<TOTAL-REVENUES> 2,007,783
<CGS> 1,525,100
<TOTAL-COSTS> 3,506,933
<OTHER-EXPENSES> 0
<LOSS-PROVISION> (1,499,150)
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,334,029)
<EPS-BASIC> (0.25)
<EPS-DILUTED> (0.25)
</TABLE>
