<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 March 31, 1998
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: 0-12128
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 02416
----------------------------------------------
(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 May 4, 1998 there were 18,596,054 shares of Common Stock outstanding.
Page 1 of 15
The Exhibit Index is located on Page 15.
<PAGE>
MATRITECH, INC.
INDEX
PART I FINANCIAL INFORMATION
Page
----
Item 1. Financial Statements
Balance Sheets as of December 31, 1997
and March 31, 1998 3
Statements of Operations for the three-month periods ended
March 31, 1997 and 1998 5
Statements of Cash Flows for the three-month periods ended
March 31, 1997 and 1998 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
Page 2 of 15
<PAGE>
PART I. - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
MATRITECH, INC.
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1997 1998
----------- -----------
(Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $11,067,414 $ 9,283,946
Accounts receivable 101,941 191,863
Inventories 487,360 443,944
Prepaid expenses 127,156 94,191
----------- -----------
Total current assets 11,783,871 10,013,944
----------- -----------
PROPERTY AND EQUIPMENT, at cost:
Laboratory equipment 1,370,929 1,386,656
Office equipment 203,214 208,810
Laboratory furniture 62,739 62,739
Leasehold improvements 56,981 56,981
------------ ------------
1,693,863 1,715,186
Less-Accumulated depreciation
and amortization 872,706 921,511
------------ ------------
821,157 793,675
------------ ------------
OTHER ASSETS, net 86,745 73,269
------------ ------------
$12,691,773 $10,880,888
============ ============
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
Page 3 of 15
<PAGE>
MATRITECH, INC.
BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1997 1998
------------ ------------
(Unaudited)
<S> <C> <C>
CURRENT LIABILITIES:
Current maturities of note payable $ 60,733 $ 62,536
Accounts payable 378,700 405,273
Accrued expenses 354,904 434,002
------------ ------------
Total current liabilities 794,337 901,811
------------ ------------
NOTE PAYABLE, LESS CURRENT MATURITIES 208,762 192,435
------------ ------------
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 -- 18,566,737
shares at December 31, 1997, and
18,593,564 shares at March 31, 1998 185,667 185,936
Additional paid-in capital 45,118,499 45,276,654
Accumulated deficit (33,615,492) (35,675,948)
------------ ------------
Total stockholders' equity 11,688,674 9,786,642
------------ ------------
$ 12,691,773 $ 10,880,888
============ ============
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
Page 4 of 15
<PAGE>
MATRITECH, INC.
STATEMENTS OF OPERATIONS
(UNAUDITED)
THREE MONTHS ENDED
MARCH 31,
<TABLE>
<CAPTION>
1997 1998
----------- -----------
<S> <C> <C>
REVENUES:
Product sales, collaborative
research and development revenue
and license fees $ 225,175 $ 264,495
Interest and other income 83,783 146,460
----------- -----------
308,958 410,955
----------- -----------
EXPENSES:
Research and
development 896,391 1,039,955
Selling, general and
administrative 935,166 1,431,456
----------- -----------
1,831,557 2,471,411
----------- -----------
Net Loss $(1,522,599) $(2,060,456)
=========== ===========
BASIC/DILUTED LOSS PER SHARE $(.09) $(.11)
=========== ===========
BASIC/DILUTED WEIGHTED AVERAGE
NUMBER OF
COMMON
SHARES
OUTSTANDING 16,041,146 18,579,383
=========== ===========
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
Page 5 of 15
<PAGE>
MATRITECH, INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
THREE MONTHS ENDED
MARCH 31,
<TABLE>
<CAPTION>
1997 1998
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss $(1,522,599) $(2,060,456)
Adjustments to reconcile net loss to
net cash used in operating activities -
Depreciation and amortization 35,964 62,281
Operating expense related to
issuance of common stock warrant --- 112,500
Changes in assets and liabilities -
Accounts receivable 455,123 (89,922)
Inventories (67,569) 43,416
Prepaid expenses (3,952) 32,965
Accounts payable (60,559) 26,573
Accrued expenses 180,826 79,098
----------- -----------
Net cash used in operating activities (982,766) (1,793,545)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (20,189) (21,323)
----------- -----------
Net cash used in investing activities (20,189) (21,323)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of common
stock options 29,755 45,924
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
Page 6 of 15
<PAGE>
MATRITECH, INC.
STATEMENTS OF CASH FLOWS (continued)
(UNAUDITED)
THREE MONTHS ENDED
MARCH 31,
<TABLE>
<CAPTION>
1997 1998
----------- -----------
<S> <C> <C>
Payments on note payable --- $ (14,524)
----------- -----------
Net cash provided by
financing activities 29,755 31,400
----------- -----------
NET DECREASE IN CASH AND
CASH EQUIVALENTS (973,200) (1,783,468)
CASH AND CASH EQUIVALENTS, BEGINNING
OF PERIOD 6,770,336 11,067,414
----------- -----------
CASH AND CASH EQUIVALENTS, END OF
PERIOD $ 5,797,136 $ 9,283,946
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid during the period for interest $ - $ 7, 779
=========== ===========
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
Page 7 of 15
<PAGE>
MATRITECH, INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
1. Operations and Basis of Presentation
- ---------------------------------------
Matritech, Inc. (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 products. 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 for the year ended December
31, 1997 filed with the SEC (File No. 0-12128).
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 preferred stocks, money market accounts and
repurchase agreements at December 31, 1997 and March 31, 1998. 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. Inventories
- ----------------
Inventories are stated at the lower of cost or market and consist of the
following:
<TABLE>
<CAPTION>
December 31, March 31,
1997 1998
<S> <C> <C>
Raw materials $305,241 $295,755
Work-in-process 6,634 8,149
Finished goods 175,485 140,040
________ ________
$487,360 $443,944
======== ========
</TABLE>
Page 8 of 15
<PAGE>
4. Net Loss Per Common Share
- ----------------------------
In March 1997, the Financial Accounting Standards Board issued SFAS No.
128, Earnings per Share, which established new standards for calculating and
presenting earnings per share. Basic net loss per common share was computed by
dividing net loss by the weighted average number of common shares outstanding
during the year. Diluted loss per share is the same as basic loss per share as
the effects of common stock equivalents are antidilutive. This accounting
change had no effect on the Company's historical net loss per common share.
5. Bayer Agreement
- ------------------
Matritech has regained all marketing and product rights which had been
granted to Bayer Corporation in the 1995 cervical cancer development and supply
agreement between the two companies. In December 1997, Matritech submitted pre-
clinical evaluation data to Bayer which had been providing partial funding for
this project. After a period of discussion between the two companies, Bayer
elected not to proceed with the project. Bayer's option to develop and launch
an automated cervical cancer instrument for use with NMP179 has terminated and
Bayer is no longer obligated to provide further funding towards the
commercialization of the system.
6. New Accounting Pronouncements
- --------------------------------
Effective January 1, 1998, the Company adopted SFAS No. 130, "Reporting
Comprehensive Income." This Statement requires that all items recognized under
accounting standards as components of comprehensive earnings be reported in an
annual financial statement. It also requires that an entity classify items of
other comprehensive earnings (e.g., foreign currency translation adjustments and
unrealized gains and losses on certain marketable securities) by their nature in
an annual financial statement. The Company's total comprehensive loss for the
three month periods ended March 31, 1998 and 1997 were the same as reported net
loss for those periods.
In April 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-5 "Reporting on the Costs of Start-Up
Activities" ("SOP 98-5"). SOP 98-5 provides guidance on the financial reporting
of start-up costs and organization cost. It requires costs of start-up
activities and organization costs to be expensed as incurred. The Company does
not believe that the impact of SOP 98-5 will have a material impact on its
financial statements.
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 several years. For the period from
inception to March 31, 1998, the Company incurred a cumulative net loss of
approximately $36 million.
In the United States, the Company sells its NMP22(R) Test Kit through its
own direct sales force, and in March 1998 entered into a distribution agreement
with Curtin Matheson Scientific, a division of Fisher Scientific Company,
L.L.C. ("CMS") granting CMS the right, co-exclusive with Matritech, to
distribute the NMP22 Test Kit to hospitals and commercial laboratories within
the United States. Outside the United States, the Company sells the NMP22 Test
Kit through distributors.
Page 9 of 15
<PAGE>
RESULTS OF OPERATIONS
- ---------------------
THREE MONTHS ENDED MARCH 31, 1998 COMPARED WITH THREE MONTHS ENDED MARCH 31,
- ----------------------------------------------------------------------------
1997
- ----
Product sales, collaborative research and development revenue and license
fees increased to $264,000 for the quarter ended March 31, 1998 from $225,000
for the quarter ended March 31, 1997. Revenue from product sales increased to
$209,000 for the quarter ended March 31, 1998 as compared to $165,000 in the
first quarter of 1997 due to increased sales of the NMP22(R) Test Kit in the
United States. During the first quarter of 1997 the Company recorded $60,000 in
milestone revenue related to a funded development agreement with Bayer
Corporation ("Bayer") which was terminated in March 1998 and during the first
quarter of 1998 recorded $55,000 in SBIR funding for the Company's NuMA tumor
marker project.
Interest and other income was $146,000 for the quarter ended March 31,
1998 and $84,000 for the quarter ended March 31, 1997. The increase was due to
higher average cash balances available for investment and higher interest rates
in the first quarter of 1998 as compared to the first quarter of 1997.
Research and development expenses increased to $1,040,000 for the quarter
ended March 31, 1998 from $896,000 for the quarter ended March 31, 1997. The
increase is primarily related to (i) increased costs associated with product
development personnel, reagents and supplies for the Company's colon and
cervical cancer projects and (ii) increased staffing of clinical affairs
personnel to manage the Company's colon cancer FDA submission and the NMP22
screening trial and its related site management costs including travel to the
sites.
Selling, general and administrative expenses increased to $1,431,000 for
the quarter ended March 31, 1998 from $935,000 for the quarter ended March 31,
1997. The increase was primarily due to increased advertising agency fees and
to a lesser extent, marketing personnel costs in both the U. S. and Europe. In
April 1997, the Company issued a warrant to a public relations consultant. The
Company will expense the value of the warrant, $500,000, ratably over the one
year term of its agreement with such consultant. The Company expensed $112,500
of the value of this warrant during the quarter ended March 31, 1998. The
balance of the increase relates to professional fees for investor and media
relations and Nasdaq National Market fees.
The Company incurred a net loss of $2,060,000 for the quarter ended March
31, 1998, as compared to a net loss of $1,523,000 for the quarter ended March
31, 1997. The increased loss was primarily the result of increased marketing
expenses for the NMP22 Test Kit, professional fees, and to a lesser extent
increased product development costs associated with the colon and cervical
cancer projects and clinical affairs.
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. At December 31, 1997 and March 31, 1998
the Company had cash and cash equivalents of $11,067,000 and $9,284,000
respectively, and working capital of $10,990,000 and $9,112,000, respectively.
The Company's primary cash infusion in 1997 was from the private sale of common
stock which totaled $10,904,000.
The Company's operating activities used cash of approximately $983,000,
and $1,794,000 for the three-month periods ended March 31, 1997 and 1998,
respectively, primarily to fund the Company's operating loss.
Page 10 of 15
<PAGE>
The Company's investing activities used cash of approximately $20,000 and
$21,000 in the three-month periods ended March 31, 1997 and 1998, respectively,
for the purchase of computer systems and office and laboratory equipment. The
Company currently estimates that it will acquire approximately $453,000 of
capital equipment during 1998, consisting primarily of laboratory equipment.
Financing activities provided cash of approximately $30,000 in the three-
month period ended March 31, 1997, from the exercise of common stock options.
Financing activities provided cash of approximately $31,000 in the three-month
period ended March 31, 1998, primarily from the exercise of stock options net of
equipment loan payments.
In August 1997, the Company entered into an equipment line of credit with
Phoenix Leasing, Incorporated under which it can borrow up to $1,200,000 for
equipment purchases. The equipment line of credit converts into a 48 month term
note payable. The equipment line of credit and note bear interest at 11.75% and
are secured by the underlying equipment. At March 31, 1998, the Company had
approximately $914,000 available under the equipment line of credit and
converted approximately $286,000 into a term note payable.
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 its research and development programs; progress with
clinical trials for its diagnostic products; the magnitude of product sales;
the time involved in obtaining regulatory approvals; the costs involved in
filing, prosecuting and enforcing patent claims; competing technological and
market developments; and 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 is actively seeking 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 several 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 will grow in the future.
Page 11 of 15
<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.
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(R) Test
Kit, which was approved for sale in the U.S. by the FDA in 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 awaiting FDA approval or are in development and there can be no
assurance that it will be successful with such regulatory approvals 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.
Year 2000 Compliance. Certain of the Company's internal computer systems
are not Year 2000 compliant. Matritech has examined this problem and expects to
implement successfully the systems and programming changes necessary to address
Year 2000 issues and does not believe the cost of such actions will have a
material effect on the Company's results of operations or financial condition.
There can be no assurances, however, that there will not be a delay in, or
increased costs associated with, the implementation of such changes, and the
Company's inability to implement such changes could have an adverse effect on
future results of operations. In addition, there can be no assurance that the
Company's customers and suppliers will not be adversely affected by their own
Year 2000 issues, which may indirectly adversely and materially affect the
Company.
Page 12 of 15
<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
March 31, 1998.
Page 13 of 15
<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: May 11, 1998 By: /s/ Stephen D. Chubb
_______________________
Stephen D. Chubb
Chairman and Chief
Executive Officer
(principal executive
and financial officer)
Date: May 11, 1998 By: /s/ Leslie R. Teso
________________________
Leslie R. Teso
Vice President, Finance,
Secretary and Treasurer
(principal accounting officer)
Page 14 of 15
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description Page
- ------ ----------- ----
27 Financial Data Schedule. 16
Page 15 of 15
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM FORM 10-Q MARCH 31,
1998 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-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 9,284
<SECURITIES> 0
<RECEIVABLES> 192
<ALLOWANCES> 0
<INVENTORY> 444
<CURRENT-ASSETS> 10,014
<PP&E> 1,715
<DEPRECIATION> 922
<TOTAL-ASSETS> 10,881
<CURRENT-LIABILITIES> 902
<BONDS> 0
0
0
<COMMON> 186
<OTHER-SE> 45,277
<TOTAL-LIABILITY-AND-EQUITY> 10,881
<SALES> 265
<TOTAL-REVENUES> 411
<CGS> 0
<TOTAL-COSTS> 2,471
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (2,060)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,060)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,060)
<EPS-PRIMARY> (.11)
<EPS-DILUTED> (.11)
</TABLE>
