<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, 1997
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 15, 1997 there were 18,565,342 shares of Common Stock
outstanding.
Page 1 of 16
The Exhibit Index is located on Page 15.
<PAGE>
MATRITECH, INC.
INDEX
<TABLE>
<CAPTION>
PART I FINANCIAL INFORMATION
Page
----
<S> <C>
Item 1. Financial Statements
Balance Sheets as of December 31, 1996
and September 30, 1997 3
Statements of Operations for the three and nine months ended
September 30, 1996 and 1997 5
Statements of Cash Flows for the nine months ended
September 30, 1996 and 1997 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
(Unaudited)
<TABLE>
<CAPTION>
December 31, September 30,
1996 1997
---- ----
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $6,770,336 $12,878,806
Accounts receivable 814,544 312,727
Inventories 343,058 436,834
Prepaid expenses 123,401 92,575
---------- -----------
Total current assets 8,051,339 13,720,942
---------- -----------
PROPERTY AND EQUIPMENT, at cost:
Laboratory equipment 949,508 1,274,096
Office equipment 186,228 202,544
Laboratory furniture 55,772 59,422
Leasehold improvements 45,871 56,981
---------- -----------
1,237,379 1,593,043
Less-Accumulated depreciation
and amortization 701,769 822,924
---------- -----------
535,610 770,119
---------- -----------
OTHER ASSETS, net 82,912 110,250
---------- -----------
$8,669,861 $14,601,311
========== ===========
</TABLE>
See accompanying notes to financial statements.
Page 3 of 16
<PAGE>
MATRITECH, INC.
BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
(Unaudited)
<TABLE>
<CAPTION>
December 31, September 30,
1996 1997
---- ----
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable $ 422,559 $ 414,783
Accrued expenses 463,318 882,279
------------ ------------
Total current liabilities 885,877 1,297,062
------------ ------------
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 -- 16,032,734
shares at December 31, 1996, and
18,565,342 shares at September 30, 1997 160,327 185,653
Additional paid-in capital 33,764,062 44,993,516
Accumulated deficit (26,140,405) (31,874,920)
------------ ------------
Total stockholders' equity 7,783,984 13,304,249
------------ ------------
$ 8,669,861 $ 14,601,311
============ ============
</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,
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
REVENUES:
Product sales, collaborative
research and development
and license fees $ 170,839 $ 544,159 $ 547,417 $ 1,224,951
Interest and other income 194,796 127,502 381,549 413,837
----------- ----------- ----------- -----------
365,635 671,661 928,966 1,638,788
----------- ----------- ----------- -----------
EXPENSES:
Research and
development 1,117,452 1,009,864 2,979,721 2,871,299
Selling, general and
administrative 1,372,915 789,307 3,683,759 2,726,662
----------- ----------- ----------- -----------
2,490,367 1,799,171 6,663,480 5,597,961
----------- ----------- ----------- -----------
Net Loss $(2,124,732) $(1,127,510) $(5,734,514) $(3,959,173)
=========== =========== =========== ===========
NET LOSS PER SHARE $ (.11) $ (.07) $ (.33) $ (.25)
=========== =========== =========== ===========
WEIGHTED AVERAGE
NUMBER OF
COMMON
SHARES
OUTSTANDING 18,541,678 15,978,312 17,160,888 15,865,090
=========== =========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
Page 5 of 16
<PAGE>
MATRITECH, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended
September 30,
<TABLE>
<CAPTION>
1997 1996
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net Loss $(5,734,514) $(3,959,173)
Adjustments to reconcile net loss to net
cash used in operating activities -
Depreciation and amortization 93,817 97,449
Amortization of deferred compensation, net of
forfeitures -- 30,000
Operating expense related to issuance of 225,000 --
common stock warrant
Changes in assets and liabilities -
Accounts receivable 501,817 (413,606)
Inventories (93,776) (104,515)
Prepaid expenses 30,826 39,696
Accounts payable (7,776) 56,508
Accrued expenses 418,961 338,661
Deferred revenue -- (12,167)
----------- -----------
Net cash used in operating activities (4,565,645) (3,927,147)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (355,664) (172,856)
Purchase of marketable securities -- (2,000,000)
----------- -----------
Net cash used in investing activities (355,664) (2,172,856)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sale of common stock, options
and warrants 11,029,779 1,429,317
</TABLE>
See accompanying notes to financial statements.
Page 6 of 16
<PAGE>
MATRITECH, INC.
STATEMENTS OF CASH FLOWS (continued)
(Unaudited)
Nine Months Ended
September 30,
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Payments on note payable -- $ (13,617)
----------- ----------
Net cash provided by
financing activities 11,029,779 1,415,700
----------- ----------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 6,108,470 (4,684,303)
CASH AND CASH EQUIVALENTS, beginning
of period 6,770,336 11,009,310
----------- ----------
CASH AND CASH EQUIVALENTS, end of
period $12,878,806 $ 6,325,007
=========== ===========
</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 based on its proprietary nuclear matrix
protein technology. This technology was 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 uncertainty of
developing 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 for the year ended December 31, 1996
filed with the SEC (File No. 1-12128).
2. Cash Equivalents
- -------------------
Cash equivalents are short-term, highly liquid investments with original
maturities of less than three months. The Company's cash equivalents primarily
consisted of auction market equity securities, money market funds and repurchase
agreements at December 31, 1996 and September 30, 1997. The Company classifies
its investments in accordance with Financial Accounting Standards No. 115
"Accounting for Certain Investments in Debt and Equity Securities" (SFAS No.
115).
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. In March 1997, SFAS No.
128 Earnings Per Share was issued which established new standards for
calculating and presenting earnings per share. The Company will adopt this new
standard in its 1997 financial statements. When adopted, the statement will not
require restatement of prior years' loss per share.
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 for at least the next two years. For the period from inception
to September 30, 1997, the Company incurred a cumulative net loss of
approximately $32 million.
The Company sells its NMP22(R) Test Kit through its own direct sales
force in the United States and through distributors outside the United States.
The Company entered into agreements with several new distributors in Europe and
the Far East in the second half of 1996. See "Factors that may Affect Future
Results - Fluctuating Operating Results."
Results of Operations
- ---------------------
Three Months Ended September 30, 1997 Compared with Three Months Ended
----------------------------------------------------------------------
September 30, 1996
------------------
Product sales, collaborative research and development revenue and license
fees decreased to $171,000 for the quarter ended September 30, 1997 from
$544,000 for the quarter ended September 30, 1996. Revenue from product sales
decreased to $171,000 for the quarter ended September 30, 1997 as compared to
$484,000 in the third quarter of 1996 due to decreased sales of the NMP22 Test
Kit and research use only products. The Company's 1996 product revenue included
initial stocking orders of the NMP22 Test Kit from new distributors which were
not repeated in the 1997 period. Quarterly product revenue may fluctuate from
quarter to quarter based on the timing of distributors' orders for the NMP22
Test Kits. The Company recorded $60,000 in milestone revenue relating to a
funded development agreement with Bayer Corporation ("Bayer") during the third
quarter of 1996.
Interest and other income was $195,000 for the quarter ended September
30, 1997 and $128,000 for the quarter ended September 30, 1996. The increase was
due to higher average cash balances available for investment and higher interest
rates in the 1997 quarter as compared to the 1996 quarter.
Research and development expenses increased slightly to $1,117,000 for
the quarter ended September 30, 1997 from $1,010,000 for the quarter ended
September 30, 1996. The increase is primarily related to product development
personnel, reagents and supplies for the Company's colon and cervical cancer
projects.
Selling, general and administrative expenses increased to $1,373,000 for
the quarter ended September 30, 1997 from $789,000 for the quarter ended
September 30, 1996. The increase was primarily related to the augmentation of
the U.S. sales force for NMP22, increased marketing and public relations
consultant fees and to a lesser extent, media consultant expenses and the fees
associated with the Company's listing on the Nasdaq National Market in August
1997. The increase in selling expenses for NMP22 is primarily attributable to
staffing and related travel and promotional materials. During the third quarter
of 1997, the Company expensed $125,000 of costs associated with a public
relations consultant warrant which was valued at approximately $500,000 and will
be expensed ratably over the one year term of the agreement.
The Company incurred a net loss of $2,125,000 for the quarter ended
September 30, 1997, as compared to a net loss of $1,128,000 for the quarter
ended September 30, 1996. The increased loss was primarily the result of
increased sales and marketing expenses for the NMP22(R) Test Kit, a reduction in
total revenues, and to a lesser extent increased product development costs
associated with the colon and cervical cancer projects.
Page 9 of 16
<PAGE>
Nine Months Ended September 30, 1997 Compared with Nine Months Ended September
- ------------------------------------------------------------------------------
30, 1996
- --------
Product sales, collaborative research and development revenue and license
fees decreased to $547,000 for the nine months ended September 30, 1997 from
$1,225,000 for the first nine months of 1996. Revenue from product sales totaled
$487,000 for the nine months ended September 30, 1997 and $1,021,000 for the
nine months ended September 30, 1996. The decrease was primarily due to
decreased sales of the NMP22(R) Test Kit and research use only products. The
Company's 1996 product revenue included initial stocking orders of the NMP22(R)
Test Kit from new distributors which were not repeated in the 1997 period.
Quarterly product revenue may fluctuate from quarter to quarter based on the
timing of distributors' orders for the NMP22(R) Test Kits. Matritech's revenue
from collaborative research and development for the nine months ended September
30, 1997 and 1996 consisted of $60,000 and $120,000, respectively, in milestone
revenue from a funded development agreement with Bayer. Matritech also received
$84,000 in SBIR funding for its cancer therapy development project during the
nine months ended September 30, 1996.
Interest and other income remained consistent for the nine months ended
September 30, 1997 and 1996.
Research and development expenses increased to $2,980,000 for the nine
months ended September 30, 1997 from $2,871,000 for the first nine months of
1996. The increase was primarily due to product development personnel, reagents
and supplies for the Company's colon and cervical cancer projects and clinical
trial site payments, sample procurement and consultants for the NuMA(TM) colon
cancer product FDA submission.
Selling, general and administrative expenses increased to $3,684,000 for
the nine months ended September 30, 1997 from $2,727,000 for the nine months
ended September 30, 1996. The increase is due to the augmentation of the sales
force for the NMP22(R) Test Kit, increased public relations and media relations
consulting fees and fees associated with the inclusion of the Company on the
Nasdaq National Market system. The increase in selling expenses for the NMP22(R)
Test Kit is primarily attributable to increased staffing in the sales and
marketing departments including recruitment, travel, administrative supplies and
promotional materials for the Company's seven sales representatives for NMP22 in
the United States, as well as, increased clinical marketing consultants and
programs. During the second and third quarters of 1997, the Company expensed
$225,000 of costs associated with a public relations consultant warrant which
was valued at approximately $500,000 and will be expensed ratably over the one
year term of the agreement. 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.
The Company incurred a net loss of $5,735,000 for the nine months ended
September 30, 1997 as compared with a net loss of $3,959,000 for the nine months
ended September 30, 1996. The increased loss resulted primarily from increased
sales and marketing expenses for the NMP22(R) Test Kit for bladder cancer and a
reduction in total revenues.
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 May 1997, the Company received net
proceeds of approximately $10,915,000 from the private sale of Common Stock.
During the year ended December 31, 1996, the Company received net proceeds of
approximately $1,514,000 from the exercise of common stock options and warrants.
In June 1995, the Company signed a product development and marketing option
agreement with Bayer and received a $150,000 initial payment. In the year ended
December 31, 1996 and nine months ended September 30, 1997 the Company recorded
$120,000 and $60,000 respectively in milestone revenue under this agreement. At
September 30, 1997 the Company had cash and cash equivalents of $12,879,000 and
working capital of $12,424,000.
10 of 16
<PAGE>
The Company's operating activities used cash of approximately $3,927,000
and $4,566,000 for the nine-month periods ended September 30, 1996 and 1997,
respectively, primarily to fund the Company's operating loss.
The Company's investing activities used cash of approximately $2,173,000
and $356,000 in the nine-month periods ended September 30, 1996 and 1997,
respectively, for the purchase of computer systems, office and laboratory
equipment and leasehold improvements, as well as the purchase of marketable
securities in the nine-month period ended September 30, 1996.
Financing activities provided cash of approximately $11,030,000 in the
nine-month period ended September 30, 1997, from the private sale of common
stock and the exercise of common stock options and warrants. 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.
Capital expenditures totaled approximately $356,000 during the nine
months ended September 30, 1997, which amount was expended primarily for the
purchase of laboratory equipment, computer systems, office equipment and
leasehold improvements.
The Company expects to incur continued research and development expenses
and other costs, including costs related to clinical studies to commercialize
additional products based upon its NMP technology. The Company expects that such
costs will increase in the fiscal year ending December 31, 1998 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; 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.
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 1998. 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, however, is dependent on its ability to generate revenue from sales
of its products. There can be no assurance that such additional funding will be
available on terms acceptable to the Company, if at all, or that in the long
term, the Company will be able to generate sufficient revenue to achieve and
maintain profitability.
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 for at least the next two 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>
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 and size of orders from the Company's
customers and distributors; the timing of payments from corporate partners and
research grants; regulatory approvals and the introduction of new products by
the Company; 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.
Access to Capital. The Company may from time to time seek to raise
additional capital and will consider various financing alternatives including
equity or debt financings and corporate partnering arrangements. There can be no
assurance, however, that this funding will be available on terms acceptable to
the Company, if at all.
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, if any, 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.
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) No reports on Form 8-K were filed during the quarter ended
September 30,1997.
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 7, 1997 By: /s/ Stephen D. Chubb
---------------------
Stephen D. Chubb
Chairman and Chief
Executive Officer
(principal executive
and financial officer)
Date: November 7, 1997 By: /s/ Leslie R. Teso
------------------
Leslie R. Teso
Vice President, Finance,
Secretary and Treasurer
(principal accounting officer)
Page 14 of 16
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description Page
- ------ ----------- ----
<S> <C> <C>
27 Financial Data Schedule. 16
</TABLE>
Page 15 of 16
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10Q
SEPTEMBER 30, 1997 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-31-1997
<PERIOD-START> JUL-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 12,879
<SECURITIES> 0
<RECEIVABLES> 313
<ALLOWANCES> 0
<INVENTORY> 437
<CURRENT-ASSETS> 13,721
<PP&E> 1,593
<DEPRECIATION> 823
<TOTAL-ASSETS> 14,601
<CURRENT-LIABILITIES> 1,297
<BONDS> 0
0
0
<COMMON> 186
<OTHER-SE> 44,994
<TOTAL-LIABILITY-AND-EQUITY> 14,601
<SALES> 171
<TOTAL-REVENUES> 366
<CGS> 0
<TOTAL-COSTS> 2,490
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (2,125)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,125)
<EPS-PRIMARY> (11)
<EPS-DILUTED> 0
</TABLE>
