<PAGE>
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 September 30, 1996
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: 1-12128
MATRITECH, INC.
---------------
(Exact name of registrant as specified in its charter)
DELAWARE 04-2985132
-------- ----------
(State or other (I.R.S. Employer
jurisdiction of Identification No.)
incorporation or
organization)
330 NEVADA STREET, NEWTON, MASSACHUSETTS 02160
----------------------------------------------
(Address of principal executive offices) (Zip Code)
(617) 928-0820
--------------
(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 Securities Exchange Act of
1934 during the preceding 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__
-
As of October 18, 1996 there were 15,987,358 shares of Common Stock
outstanding.
Page 1 of 16
The Exhibit Index is located on Page 15.
<PAGE>
MATRITECH, INC.
INDEX
PART I FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Page
----
<S> <C>
ITEM 1. FINANCIAL STATEMENTS
Balance Sheets as of December 31, 1995
and September 30, 1996 3
Statements of Operations for the three and
nine months ended September 30, 1995 and 1996 5
Statements of Cash Flows for the nine months
ended September 30, 1995 and 1996 6
Notes to Financial Statements 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 9
PART II OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 13
SIGNATURES 14
</TABLE>
Page 2 of 16
<PAGE>
PART I. - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
MATRITECH, INC.
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1995 1996
------------ --------------
(UNAUDITED)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $11,009,310 $6,325,007
Marketable securities - 2,000,000
Accounts receivable 113,139 518,729
Interest receivable - 8,016
Inventories 192,385 296,900
Prepaid expenses 131,947 92,251
----------- ----------
Total current assets 11,446,781 9,240,903
----------- ----------
PROPERTY AND EQUIPMENT, at cost:
Laboratory equipment 729,935 851,081
Office equipment 137,876 173,725
Laboratory furniture 44,511 55,772
Leasehold improvements 39,671 44,271
----------- ----------
951,993 1,124,849
Less-Accumulated depreciation
and amortization 596,721 672,492
----------- ----------
355,272 452,357
----------- ----------
OTHER ASSETS, net 157,150 135,472
----------- ----------
$11,959,203 $9,828,732
=========== ==========
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
Page 3 of 16
<PAGE>
MATRITECH, INC.
BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1995 1996
------------- --------------
(UNAUDITED)
CURRENT LIABILITIES:
<S> <C> <C>
Current portion of note payable $ 18,387 $ 4,770
Accounts payable 340,560 397,068
Accrued expenses 214,178 552,839
Deferred revenue 34,900 22,733
----------- ----------
Total current liabilities 608,025 977,410
---------- ----------
STOCKHOLDERS' EQUITY:
Preferred stock, $1.00 par
value -
Authorized - 4,000,000 - -
shares
Issued and outstanding - none
Common stock, $.01 par value -
Authorized -- 40,000,000
shares
Issued and outstanding --
15,194,127 shares at
December 31, 1995, and
15,978,522 shares at 151,941 159,785
September 30, 1996
Additional paid-in capital 32,174,967 33,626,440
Deficit accumulated in the
development stage (20,975,730) (24,934,903)
------------ ------------
Total stockholders' equity 11,351,178 8,851,322
------------ ------------
$ 11,959,203 $ 9,828,732
============ ============
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
Page 4 of 16
<PAGE>
MATRITECH, INC.
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1996 1995 1996 1995
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
REVENUES:
Collaborative research
and development, license
fees and product sales $ 544,159 $ 167,218 $ 1,224,951 $ 541,658
Interest and other income 127,502 24,058 413,837 112,502
---------- ----------- ---------- ---------
671,661 191,276 1,638,788 654,160
---------- ----------- ---------- ---------
EXPENSES:
Research and
development 1,009,864 729,309 2,871,299 2,294,977
Selling, general and
administrative 789,307 514,246 2,726,662 1,554,392
---------- ---------- ---------- ----------
1,799,171 1,243,555 5,597,961 3,849,369
---------- ----------- ----------- -----------
Net Loss $(1,127,510) $(1,052,279) $(3,959,173) $(3,195,209)
=========== =========== =========== ===========
NET LOSS PER SHARE $(.07) $(.11) $(.25) $(.33)
=========== =========== =========== ===========
WEIGHTED AVERAGE
NUMBER OF
COMMON
SHARES
OUTSTANDING 15,978,312 9,821,394 15,865,090 9,798,332
========== ========== ========== =========
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
Page 5 of 16
<PAGE>
MATRITECH, INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
1996 1995
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss $(3,959,173) $(3,195,209)
Adjustments to reconcile net loss
to net cash used in operating
activities -
Depreciation and amortization 97,449 76,184
Amortization of deferred 30,000 13,566
compensation,
net of forfeitures
Changes in assets and
liabilities -
Accounts receivable (413,606) (91,898)
Inventories (104,515) (101,826)
Prepaid expenses 39,696 9,068
Accounts payable 56,508 119,256
Accrued expenses 338,661 64,775
Deferred revenue (12,167) 52,350
----------- -----------
Net cash used in (3,927,147) (3,053,734)
operating activities
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and
equipment (172,856) (37,531)
Purchase of marketable
securities (2,000,000) -
Increase in other assets - (17,189)
----------- -----------
Net cash used in (2,172,856) (54,720)
investing activities
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sale of common stock
options and warrants 1,429,317 6,684,027
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
Page 6 of 16
<PAGE>
MATRITECH, INC.
STATEMENTS OF CASH FLOWS (CONTINUED)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
1996 1995
----------- -----------
<S> <C> <C>
Payments on note payable $ (13,617) $ (12,326)
----------- -----------
Net cash provided by
financing activities 1,415,700 6,671,701
----------- -----------
NET (DECREASE) INCREASE IN CASH AND
CASH EQUIVALENTS (4,684,303) 3,563,247
CASH AND CASH EQUIVALENTS, BEGINNING
OF PERIOD 11,009,310 3,974,237
----------- -----------
CASH AND CASH EQUIVALENTS, END OF
PERIOD $ 6,325,007 $7,537,484
=========== ===========
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
Page 7 of 16
<PAGE>
MATRITECH, INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
1. Operations and Basis of Presentation
- ---------------------------------------
Matritech, Inc. ("Matritech" or the "Company") was incorporated on
October 29, 1987 to develop, produce and distribute products for the diagnosis
and potential treatment of cancer. The Company's products are based on
technology licensed to the Company by the Massachusetts Institute of Technology
("MIT").
The Company is devoting substantially all of its efforts toward product
research and development, raising capital and marketing existing products and
products under development. The Company is subject to risks common to companies
in similar stages of development, including dependence on key individuals,
competition from substitute products and larger companies, the development of
commercially usable products and the need to obtain adequate additional
financing necessary to fund the development of its future products.
The financial statements included herein have been prepared by the
Company, without audit, pursuant to the rules and regulations of the Securities
and Exchange Commission ("SEC") and include, in the opinion of management, all
adjustments, consisting of normal, recurring adjustments, necessary for a fair
presentation of interim period results. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations. The results for the interim periods
presented are not necessarily indicative of results to be expected for any
future period. It is suggested that these condensed financial statements be
read in conjunction with the audited financial statements and notes thereto
included in the Company's Annual Report on Form 10-K, as amended, for the year
ended December 31, 1995 filed with the SEC (File No. 1-12128).
2. Cash, Cash Equivalents and Marketable Securities
- ----------------------------------------------------
The Company applies Statement of Financial Accounting Standards (SFAS)
No. 115, Accounting for Certain Investments in Debt and Equity Securities. The
Company's cash equivalents and marketable securities are classified as held-to-
maturity. Cash equivalents are short-term, highly liquid investments with
original maturities of less than three months. Marketable securities are
investments with original maturities of greater than three months. Cash
equivalents are carried at cost which approximates fair market value and consist
of auction market equity securities, money market funds, repurchase agreements
and United States Government treasury notes. Marketable securities are recorded
at amortized cost which approximates market value and consist of an auction
market equity security with a maturity of six months.
3. Net Loss Per Share
- ---------------------
Net loss per common share is based on the weighted average number of
common shares outstanding. Common stock equivalents have not been included for
any loss period as the amounts would be antidilutive.
Page 8 of 16
<PAGE>
MATRITECH, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The Company was incorporated in 1987 to develop, manufacture and market
innovative cancer diagnostic products based on its proprietary NMP technology.
Matritech has been unprofitable since inception and expects to incur significant
operating losses over the next few years. For the period from inception to
September 30, 1996, the Company incurred a cumulative net loss of approximately
$25 million.
RESULTS OF OPERATIONS
- ---------------------
THREE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED WITH THREE MONTHS ENDED SEPTEMBER
- --------------------------------------------------------------------------------
30, 1995
--------
Collaborative research and development, license fees and product sales
increased to $544,000 for the quarter ended September 30, 1996 from $167,000 for
the quarter ended Septemer 30, 1995. Revenue from product sales increased to
$484,000 for the quarter ended September 30, 1996 as compared to $97,000 in the
third quarter of 1995 due to worldwide sales of the Company's NMP22(R) Test Kit
for bladder cancer which was approved for sale in the United States by the U.S.
Food and Drug Administration ("FDA") in July 1996. The Company recorded $60,000
in milestone revenue relating to a funded development agreement with Bayer
Corporation ("Bayer") during the third quarter of 1996 compared to $70,000 in
SBIR funding for its prostate and colon cancer research projects during the
third quarter of 1995.
Interest and other income was $128,000 for the quarter ended September
30, 1996 and $24,000 for the quarter ended September 30, 1995. The increase was
due to significantly higher cash balances available for investment resulting
from financings during the fourth quarter of 1995.
Research and development expenses increased 38% to $1,010,000 for the
quarter ended September 30, 1996 from $729,000 for the quarter ended September
30, 1995. The increase is primarily related to the scale-up of product
manufacturing for the Company's NMP22(R) Test Kit for bladder cancer which
received FDA approval for sale in the United States in July 1996, costs
associated with the initial stages of clinical trials for the Company's
colorectal cancer test and to a lesser extent, increased research and
development personnel costs.
Selling, general and administrative expenses increased 53% to $789,000
for the quarter ended September 30, 1996 from $514,000 for the quarter ended
September 30, 1995. The increase was primarily related to increased sales and
marketing personnel costs and the establishment of marketing programs to promote
the Company's products worldwide, and to a lesser extent, increased professional
fees.
The Company incurred a net loss of $1,128,000 for the quarter ended
September 30, 1996, as compared to a net loss of $1,052,000 for the quarter
ended September 30, 1995. The increased loss was primarily the result of
increased sales, marketing and manufacturing expenses for the NMP22(R) Test Kit
significantly offset by increased revenue from product sales and interest
income.
NINE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED WITH NINE MONTHS ENDED SEPTEMBER
- ------------------------------------------------------------------------------
30, 1995
--------
Collaborative research and development, license fees and product sales
increased to $1,225,000 for the nine months ended September 30, 1996 from
$542,000 for the first nine months of last year. Revenue from product sales
totaled $1,021,000 for the nine months ended September 30, 1996 and $229,000 for
the nine months ended September 30, 1995. The increase was primarily due to
worldwide sales of the Company's NMP22(R) Test Kit for bladder cancer which
received approval from the FDA for sale in the United States in July 1996.
Matritech's revenue from collaborative research and development for the nine
months ended September 30, 1996 and 1995 consisted of $120,000 in milestone
revenue and a $150,000 initial payment, respectively, in revenues from a funded
development agreement with Bayer.
Page 9 of 16
<PAGE>
Matritech also received $84,000 in SBIR funding for its drug screening assay
project during the nine months ended September 30, 1996 compared with $163,000
in the same period last year for prostate and colon cancer research projects
Interest and other income was $414,000 for the first nine months of 1996
compared with $112,000 for the same period last year. The increase was due to
significantly higher cash balances available for investment resulting from
financings during the third and fourth quarter of 1995.
Research and development expenses increased 25% to $2,871,000 for the
nine months ended September 30, 1996 from $2,295,000 for the nine months ended
September 30, 1995. The increase is primarily attributable to the scale-up of
product manufacturing for the Company's NMP22(R) Test Kit for bladder cancer,
and to a lesser extent, increased research and development personnel costs and
costs associated with the initial stages of clinical trials for the Company's
colorectal cancer test.
Selling, general and administrative expenses increased 75% to $2,727,000
for the nine months ended September 30, 1996 from $1,554,000 for the nine months
ended September 30, 1995. During the second and third quarters of 1996, the
Company expensed approximately $212,000 of costs associated with a proposed
public offering which the Company elected not to complete. Excluding these
expenses, selling, general and administrative expenses increased 62%, primarily
from increased sales and marketing personnel costs, the termination of the
Company's former distributor in Europe and the establishment of marketing
programs to promote the Company's products worldwide. The balance of the
increase is primarily related to increased professional fees and office
supplies.
The Company incurred a net loss of $3,959,000 for the nine months ended
September 30, 1996, as compared with a net loss of $3,195,000 for the nine
months ended September 30, 1995. The increased loss resulted primarily from
increased sales and marketing expenses, the scale-up of product manufacturing
for the NMP22(R) Test Kit for bladder cancer, and to a lesser extent the
expenses associated with the withdrawn public offering and termination costs of
the Company's former European distributor.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
Since its inception, the Company has financed its operations primarily
through private and public offerings of its securities and through funded
development and marketing agreements. In September 1995, the Company received
net proceeds of approximately $6,658,000 from the private sale of common stock.
In December 1995, the Company received net proceeds of approximately $4,656,000
from the exercise of certain common stock warrants which the Company had called
for redemption. At September 30, 1996 the Company had cash, cash equivalents,
and marketable securities of $8,325,000 and working capital of $8,263,000.
The Company's operating activities used cash of approximately $3,054,000
and $3,927,000 for the nine-month periods ended September 30, 1995 and 1996,
respectively, primarily to fund the Company's operating loss.
The Company's investing activities used cash of approximately $55,000 and
$2,173,000 in the nine-month periods ended September 30, 1995 and 1996,
respectively, for the purchase of computer systems, office and laboratory
equipment, leasehold improvements as well as the purchase of marketable
securities in the nine month period ended September 30, 1996.
Page 10 of 16
<PAGE>
Financing activities provided cash of approximately $1,416,000 in the
nine-month period ended September 30, 1996, primarily from the exercise of stock
options and warrants, net of payments of capital lease obligations. Financing
activities provided cash of approximately $6,672,000 in the nine-month period
ended September 30, 1995, primarily from the private sale of common stock, net
of payments of capital lease obligations.
Capital expenditures totaled approximately $173,000 during the nine
months ended September 30, 1996, which amount was expended primarily for the
purchase of computer systems, office and laboratory equipment and leasehold
improvements. The Company currently estimates that it will acquire
approximately $158,000 of capital equipment during the remainder of the year
ended December 31, 1996, consisting primarily of computer systems, laboratory
equipment and office equipment.
The Company expects to incur continued research and development expenses
and other costs, including costs related to future clinical studies to
commercialize additional products based upon its NMP technology. The Company
expects that such costs will continue in the fiscal year ending December 31,
1996 and will result in continued losses from operations. The Company may
require substantial additional funds to complete new product development,
conduct clinical trials and manufacture and market its products.
The Company's future capital requirements will depend on many factors,
including: continued scientific progress in its research and development
programs and the magnitude of these programs; progress with clinical trials for
its diagnostic products; the time involved in obtaining regulatory approvals;
the costs involved in filing, prosecuting and enforcing patent claims; competing
technological and market developments; the ability of the Company to establish
additional development and marketing arrangements to provide funding for
research and development and to conduct clinical trials; obtain regulatory
approvals, and manufacture and market certain of the Company's products. Should
the Company pursue potential therapeutic applications of its technology beyond
initial feasibility studies, substantial additional financing would also be
required.
The Company may from time to time consider obtaining additional long-term
funding for its operations from various sources including collaborative
arrangements and additional public or private financings. The Company
anticipates that its existing capital resources including working capital and
interest thereon will satisfy its capital needs at least through September 30,
1997. The foregoing forward-looking statement is subject to uncertainties and
there can be no assurance that the Company's needs may not change. See "Factors
that may Affect Future Results-Access to Capital." The survival of the Company
in the long term is dependent on its ability to generate revenue from sales of
its products and to obtain financing. There can be no assurance that such
additional funding will be available on terms acceptable to the Company, if at
all.
FACTORS THAT MAY AFFECT FUTURE RESULTS.
The Company's future financial and operational results are subject to a
number of material risks and uncertainties that may affect such results or
conditions, including:
History of Operating Losses and Anticipated Future Losses. The Company
has incurred operating losses since its inception and expects to incur
significant operating losses over the next few years. The Company expects to
improve operating results in future periods, however, there can be no assurance
that the Company will achieve or maintain profitability or that its revenue
growth can be sustained in the future.
Page 11 of 16
<PAGE>
Uncertainties Associated with Future Performance. The Company's success
in the market for diagnostic products will depend, in part, on the Company's
ability to: successfully develop, test, produce and market its products; obtain
necessary governmental approvals in a timely manner; attract and maintain key
employees; and successfully respond to technological changes in its marketplace.
The Company's success in markets outside the United States is dependent on the
performance of independent distributors over which the Company has limited
control.
Near-Term Dependence Upon NMP22. The Company anticipates that in the
near-term it will be substantially dependent on the success of the NMP22 Test
Kit, which was approved for sale in the U.S. by the FDA in July 1996 and expects
to generate substantially all of its near-term product sales from the sale of
NMP22 Test Kits. The Company would experience a material adverse effect on its
business, financial condition and results of operations if the NMP22 Test Kit
does not achieve wide market acceptance. The remainder of the Company's
products are in clinical trials or in development and there can be no assurance
that it will be successful with such clinical trials and product development.
Access to Capital. The Company will consider from time to time various
financing alternatives and may seek to raise additional capital through equity
or debt financing or by entering into corporate partnering arrangements. There
can be no assurance, however, that this funding will be available on terms
acceptable to the Company, if at all.
Fluctuation in Operating Results. The Company's future operating results
may vary significantly from quarter to quarter or from year to year depending on
a number of factors including: the timing of payments from corporate partners
and research grants; regulatory approvals and the introduction of new products
by the Company; the timing and size of orders from the Company's customers; and
the market acceptance of the Company's products. The Company's current planned
expense levels are based in part upon expectations as to future revenue.
Consequently, profits may vary significantly from quarter to quarter or year to
year based on the timing of revenue. Revenue or profits in any period will not
necessarily be indicative of results in subsequent periods.
Page 12 of 16
<PAGE>
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
(a) Exhibits:
--------
27 Financial Data Schedule
(b) Form 8-K:
On July 9, 1996 the Company filed a Current Report on Form 8-K dated
as of July 8, 1996 including Item 5.
Item 5 reported the following other event:
(i) US. Food and Drug Administration Approval for the
NMP22(R) Test Kit for bladder cancer on July 8, 1996.
Page 13 of 16
<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.
MATRITECH, INC.
Date: November 8, 1996 By: /s/ Stephen D. Chubb
--------------------
Stephen D. Chubb
Chairman and Chief
Executive Officer
(principal executive
and financial officer)
Date: November 8, 1996 By: /s/ Leslie R. Teso
---------------------
Leslie R. Teso
Vice President, Finance,
Secretary and Treasurer
(principal accounting officer)
Page 14 of 16
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description Page
- ------ ----------- ----
27 Financial Data Schedule. 16
Page 15 of 16
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-Q
Sept. 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JUL-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 6,325
<SECURITIES> 2,000
<RECEIVABLES> 527
<ALLOWANCES> 0
<INVENTORY> 297
<CURRENT-ASSETS> 9,241
<PP&E> 1,125
<DEPRECIATION> 672
<TOTAL-ASSETS> 9,829
<CURRENT-LIABILITIES> 977
<BONDS> 0
0
0
<COMMON> 160
<OTHER-SE> 33,626
<TOTAL-LIABILITY-AND-EQUITY> 9,829
<SALES> 544
<TOTAL-REVENUES> 672
<CGS> 0
<TOTAL-COSTS> 1,799
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (1,128)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,128)
<EPS-PRIMARY> (.07)
<EPS-DILUTED> 0
</TABLE>
