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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 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 Jurisdiction of (IRS Employer Identification Number)
Incorporation or Organization)
330 Nevada Street 02460
Newton, Massachusetts (ZIP Code)
(Address of Principal Executive Offices)
Registrant's telephone number, including area code: (617) 928-0820
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class Name of Each Exchange on Which Registered
------------------- -----------------------------------------
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 Par Value
(Title of Class)
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.
[X] Yes [_] No
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
Aggregate market value, as of March 15, 1999, of Common Stock held by
non-affiliates of the registrant: $29,981,633 based on the last reported sale
price on the Nasdaq Stock Market.
Number of shares of Common Stock outstanding on March 15, 1999: 18,629,252.
DOCUMENTS INCORPORATED BY REFERENCE
The registrant intends to file a Definitive Proxy Statement pursuant to
Regulation 14A within 120 days of the end of the fiscal year ended December 31,
1998. Portions of such Proxy Statement are incorporated by reference in Part III
of this report.
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PART I
ITEM 1. BUSINESS.
Overview
Matritech, Inc. (the "Company" or "Matritech") develops, manufactures
and markets innovative cancer diagnostic products based on its proprietary
nuclear matrix protein ("NMP") technology. The nuclear matrix, a three
dimensional protein framework within the nucleus of cells, plays a fundamental
role in determining cell type by physically organizing the contents of the
nucleus, including DNA. The Company has demonstrated that there are differences
in the types and amounts of NMPs found in cancerous and normal tissue and
believes the detection of such differences in NMPs provides important diagnostic
information about cellular abnormalities, including cancer. Using its
proprietary NMP technology and expertise, the Company has developed non-invasive
or minimally invasive cancer diagnostic tests for bladder and colon cancer and
is developing additional tests for cervical, breast and prostate cancer. The
Company's objective is to develop tests that will be more accurate and allow for
reduced treatment costs and a higher standard of patient care than currently
available tests.
NMP22 Test Kit for Bladder Cancer. The Company's first product based on
its NMP technology, the NMP22 (*) Test Kit for bladder cancer, was approved for
sale in the United States by the U.S. Food and Drug Administration ("FDA") in
1996 as a prognostic indicator for the recurrence of bladder cancer. In May
1998, the NMP22 Test Kit for bladder cancer was approved for sale in Japan by
the Japanese Ministry of Health and Welfare ("Koseisho") for use in screening
previously-undiagnosed bladder cancer patients. The NMP22 Test Kit for bladder
cancer has been commercially available in Europe since 1995 and is currently
being marketed in Asia and in many other countries outside the United States.
The Company has retained worldwide manufacturing rights for the NMP22 Test Kit
for bladder cancer as well as certain marketing rights in the United States. The
Company has entered into an exclusive distribution agreement for the NMP22 Test
Kit for bladder cancer in Japan and has additional distribution arrangements in
selected European and other countries worldwide. In March 1998, the Company and
Curtin Matheson Scientific, a division of Fisher Healthcare Company, L.L.C.
("CMS") entered into a co-exclusive distribution agreement for the NMP22 Test
Kit for bladder cancer in the United States.
Test Kit for Colon Cancer. The Company has also developed a blood-
based test utilizing its NMP technology for the management of colon cancer
patients. Blood specimens for use in generating clinical data for a premarket
approval submission to the FDA have been collected and the Company believes that
these specimens are sufficient to permit the tests necessary to substantiate a
claim for the use of its colon cancer test kit for the differential diagnosis of
individuals exhibiting symptoms such as rectal bleeding. The Company intends to
use these specimens in conjunction with its current manual format test, the
NuMA(TM) Test Kit, or in validating the performance of a second generation NMP-
based colon cancer test employing other colon cancer NMPs. In either case, the
Company intends to conduct the specimen testing and the FDA submission in
collaboration with an automated instrument partner. Consequently, the timing of
an FDA submission for the Company's colon cancer test will depend upon
concluding a satisfactory agreement with an automated instrument partner, if
any, and upon completion of work necessary to design the test's automated
format, as the Company and such partner may agree. The Company has retained
worldwide manufacturing and marketing rights for its colon cancer assay.
_______________________
(*) NMP22/R/ is a registered trademark and NuMA/TM/, NMP-179/TM/ and
Matritech/TM/ are trademarks of Matritech, Inc. All other trademarks,
service marks or trade names used in this report are the property of their
respective owners.
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Cervical, Breast and Prostate Cancer Tests. The Company has also
identified NMPs specific to cervical, breast and prostate cancer and is
currently developing diagnostic tests based on its proprietary NMP technology
for these cancers. Matritech's scientists have reported the results of pre-
clinical trials of its NMP-179(TM) Test for the identification of women with
cancer or pre-cancerous conditions of the cervix. These studies, which were
conducted in collaboration with several leading women's health centers in New
England, confirm the efficacy of the NMP-179 antibody in identifying women at
elevated risk for cervical cancer. The Company is in the process of optimizing
the format and procedures relating to the test in preparation for conducting FDA
clinical trials to obtain approval to market the test in the United States.
Matritech scientists have identified cancer specific proteins for both breast
and prostate cancers and are in the process of developing blood and tissue based
tests for use in the identification and management of individuals with these
cancer types.
Matritech was incorporated in Delaware in October 1987. The Company's
facilities are located at 330 Nevada Street, Newton, Massachusetts 02460 and its
telephone number is (617) 928-0820.
Cancer Diagnostics Market
The cancer diagnostics market is comprised of several overlapping
categories, each corresponding to a stage in the identification and management
of the disease. The categories are screening, diagnosing, monitoring and
evaluating prognosis. Screening tests and procedures, such as mammograms and
Pap smears, are performed regularly on individuals who may have no evidence of
ill health because the tests are effective in revealing hidden, asymptomatic
disease. Screening tests do not yield a final diagnosis. An actual diagnosis
of cancer is usually made after microscopic examination of a tissue biopsy.
Following diagnosis, additional tests can be used to monitor the course of the
disease and the patient's response to treatment. These monitoring tests may be
repeated at regular intervals, often every three months, and may be continued
for the life of an individual in order to detect the recurrence of cancer. In
addition, diagnostic tests are also used to evaluate a patient's prognosis and
to select appropriate therapy. Patients identified as having a high risk of
recurrence will be monitored more closely and may receive more aggressive
treatment. In the United States, cancer diagnostic assays have generally been
approved by the FDA for monitoring patients with known disease and only
occasionally have been approved for screening purposes.
Ideally, a cancer diagnostic assay for use in a clinical laboratory
should be both sensitive and specific. Clinical sensitivity refers to the
percentage of cases in which the assay correctly identifies the presence of
disease. Clinical specificity refers to the percentage of cases in which the
assay correctly identifies the absence of disease. Clinical sensitivity and
specificity percentages reported from studies and trials of cancer diagnostic
products may not be directly comparable, as results may be affected by
laboratory-to-laboratory differences in specimen handling, the number of
subjects studied, variability in the stages of disease present in the subject
population and the demographic composition of the subject population, among
other factors.
Effective in vitro diagnostic assays can reduce the need for more
invasive or expensive procedures for diagnosing and managing cancer, such as
surgery, biopsy, bone scans and in vivo imaging. There are only a limited
number of FDA-approved in vitro cancer diagnostic tests currently available and
the relatively low clinical sensitivity and specificity of these tests have
limited their clinical utility. The Company believes that these tests suffer
from inherent inaccuracies because they detect substances that are only
indirectly correlated with the cancer cells. As a consequence of low clinical
sensitivity, these tests yield false negatives and many patients with cancer are
not diagnosed early enough to receive effective treatment, resulting in
additional costs and morbidity. Conversely, low
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clinical specificity yields false positives resulting in unnecessary, expensive
and painful treatment of patients without malignant disease.
NMP Technology
The Company believes that its NMP technology allows it to develop
cost-effective in vitro assays that are more accurate than others currently
available. The nuclear matrix, a three-dimensional protein framework within the
nucleus of cells, helps organize active genes ("DNA") in the nucleus. In this
way, the nuclear matrix plays a fundamental role in determining cell type and
cell function. Although the specific mechanisms of action are not yet fully
understood, Matritech and independent scientists have demonstrated that there
are differences in the types and amounts of NMPs found in cancerous and normal
tissues and also among different types of normal cells. Independent academic
investigators have also confirmed the Company's findings in papers published in
scientific journals which described NMPs specific to kidney, prostate, breast
and colon cancer tissues. Certain of these NMPs were shown to be present in
100% of the cancer tissue specimens examined, but were absent in all of the
normal tissue specimens. Subsequent to these papers, the Company has examined
numerous additional cancer tissue specimens with similar results. Matritech
also has demonstrated that cell death, including cell death related to early
tumor development, results in the release of NMPs into bodily fluids. As a
result, elevated levels of certain NMPs may be found in the bodily fluids of
cancer patients. The Company is not aware of any other cancer marker, or class
of markers, which exhibit this level of clinical specificity and sensitivity.
The Company uses its proprietary technology and expertise to identify,
isolate and extract NMPs from cancerous and normal tissues. Following
extraction, the Company's scientists characterize and sequence cancer-specific
NMPs, which generally are absent, or present at low levels, in the urine, blood
and cells of healthy individuals. The Company then develops proprietary
antibodies to these NMPs and incorporates the antibodies into industry-standard
diagnostic formats, such as blood-based immunoassays.
The Company's core NMP technology is licensed from the Massachusetts
Institute of Technology ("MIT"). Under the current terms of the Company's
license from MIT, the Company's worldwide license is exclusive until the
expiration of all patent rights in 2006. The Company has made additional
advances in NMP technology, has filed its own patent applications for related
protection and to date has been granted nine additional United States patents.
Matritech's Products and Products Under Development
NMP22 Test Kit for Bladder Cancer
In 1996, Matritech's NMP22 Test Kit for bladder cancer was approved
for sale in the United States by the FDA as a prognostic indicator for the
recurrence of bladder cancer. The test was approved based upon an extensive
clinical trial of the NMP22 Test Kit for bladder cancer involving more than
1,000 subjects at 13 sites, including bladder cancer patients, patients with
other cancers, patients with non-cancerous urinary conditions (such as urinary
tract infections) and healthy subjects. In May 1998, the NMP22 Test Kit for
bladder cancer was also approved for sale in Japan by Koseisho for use in
screening previously undiagnosed individuals. The Company is currently
marketing this product in the U.S. through its own sales force and distributors
and in other major markets worldwide through distributors. Sales of the NMP22
Test Kit for bladder cancer began in certain countries in Europe in 1995.
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The Company believes that the use of the NMP22 Test Kit for bladder
cancer will enable urologists to manage bladder cancer patients with less
invasive and less frequent procedures, thereby potentially reducing treatment
costs while maintaining a high standard of patient care. If a bladder cancer
patient's NMP22 value is low (less than or equal to 10 units per milliliter) 10
or more days after surgery, there is a high probability that there will be no
evidence of disease upon follow-up cystoscopic examination. Consequently, the
urologist may decide to postpone this exam in order to reduce the cost, anxiety
and risk to the patient. Similarly, an NMP22 value greater than 10 units per
milliliter indicates a higher risk that the follow-up cystoscopic examination
will indicate a recurrence of disease, enabling the urologist to make more
aggressive treatment decisions.
In 1994, the Company entered into a distribution agreement with Konica
Corporation ("Konica"). The Konica agreement grants exclusive distribution
rights in Japan for the NMP22 Test Kit for bladder cancer in exchange for
$325,000 in licensing fees. Under the terms of its agreement with Konica,
Matritech will sell NMP22 Test Kits to Konica for resale in Japan at prices
based on Japanese reimbursement rates. Konica has limited manufacturing rights
if the Company fails to deliver required quantities of test kits.
In March 1998, the Company entered into a distribution agreement with
CMS. Pursuant to this agreement, the Company retained its right to distribute
the NMP22 Test Kit for bladder cancer in the United States through its own sales
force, but granted CMS an otherwise exclusive right to distribute the NMP22 Test
Kit for bladder cancer to hospitals and commercial laboratories within the
United States. The Company has retained worldwide manufacturing rights for the
NMP22 Test Kit for bladder cancer. The Company has entered into distribution
arrangements in selected European and other countries worldwide.
Test Kit for Colon Cancer
The Company has also developed a blood-based test utilizing its NMP
technology for the management of colon cancer patients. Blood specimens for use
in generating clinical data for a premarket approval submission to the FDA have
been collected and the Company believes that these specimens are sufficient to
permit the tests necessary to substantiate a claim for the use of its colon
cancer test kit for the differential diagnosis of individuals exhibiting
symptoms such as rectal bleeding. The Company intends to use these specimens in
conjunction with its current manual format test, the NuMA Test Kit, or in
validating the performance of a second generation NMP-based colon cancer test
employing other colon cancer NMPs. In either case, the Company intends to
conduct the specimen testing and FDA submission in collaboration with an
automated instrument partner. Consequently, the timing of an FDA submission for
the Company's colon cancer test will depend upon concluding a satisfactory
agreement with an automated instrument partner, if any, and upon completion of
work necessary to design the test's automated format, as the Company and such
partner may agree.
The Company has retained worldwide manufacturing and marketing rights
for its colon cancer test. The Company is seeking distributors and an automated
instrument partner for this test.
Cervical Cancer Product
Matritech's scientists have reported the results of pre-clinical
trials of its NMP-179 Test for the identification of women with cancer or pre-
cancerous conditions of the cervix. These studies, which were conducted in
collaboration with several leading women's health centers in New England,
confirm the efficacy of the NMP-179 antibody in identifying women at elevated
risk for cervical cancer. The Company is in the process of optimizing the format
and procedures relating to the test in preparation for conducting FDA clinical
trials to obtain approval to market the test in the United States. Matritech has
maintained its worldwide manufacturing and marketing rights to its cervical
cancer product.
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Breast Cancer Product
During 1998, Matritech scientists, using a mass spectrometer
instrument, demonstrated the ability to detect certain breast cancer markers in
the blood of cancer patients at higher levels than in normal individuals. These
scientists are now evaluating these proteins to attempt to select an assay
combination suitable for pre-clinical evaluation in 1999. Following this, the
Company intends to conduct clinical trials to generate data required to apply
for FDA approval of such assays. Matritech believes that the distinctive NMPs
found in breast cancer cells and the Company's ability to detect these NMPs in
blood may enable it to develop a breast cancer blood-based assay more accurate
than products presently available. The Company has retained worldwide
manufacturing and marketing rights for its breast cancer product under
development.
Prostate Cancer Product
In collaboration with clinicians at Johns Hopkins University Medical
School ("Hopkins"), Matritech scientists have identified a nuclear matrix
protein, NMP-23, present in elevated amounts in the cells of prostate cancer
patients and absent, or present in low amounts, in normal individuals and those
with benign disease. The Company has developed an antibody, PRO4:216, to this
protein which has been tested by the Hopkins scientists using prostate biopsies.
Hopkins scientists have reported that the antibody is clinically useful in
differentiating prostate cancer cells from their normal and benign counterparts.
Matritech scientists are pursuing another NMP which they believe may be released
into the blood and are presently evaluating other antibodies to this protein
using conventional assay development techniques as a first step in developing a
clinical fluid-based assay for use in the management of prostate cancer
patients. The Company has retained worldwide manufacturing and marketing rights
for its prostate cancer product under development.
Marketing and Sales
The Company has retained rights to sell all of its products in the
United States. Matritech is selling its NMP22 Test Kit for bladder cancer in
the United States to clinical laboratories using its own direct sales force, and
in March 1998 entered into a distribution agreement with CMS granting CMS the
right, co-exclusive with Matritech, to distribute the NMP22 Test Kit for bladder
cancer to hospitals and commercial laboratories within the U.S. The Company
currently has three full-time sales representatives and such sales force may be
expanded as sales of the Company's products warrant. Outside the United States,
the Company sells the NMP22 Test Kit through distributors.
During the fiscal year ended December 31, 1998 the Company received
approximately 29% and 31% of its revenue from product sales from Wallac ADL and
CMS, respectively.
During the fiscal years ended December 31, 1996, 1997 and 1998, 24%,
42% and 52%, respectively, of the Company's total product sales were from the
United States and 76%, 58% and 48%, respectively, were from foreign countries.
Product sale revenue generated outside the U.S. during the fiscal years ended
December 31, 1996, 1997 and 1998 was primarily from Europe. See Note 9 of Notes
to Financial Statements -- "Segment and Geographic Information."
Third-Party Reimbursement
The Company's ability to successfully commercialize its products will
depend in part on the extent to which reimbursement for the cost of such
products will be available from government
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health administration authorities, private health insurers and other third-party
payors. The Company believes that FDA approval of a diagnostic product
facilitates third-party reimbursement, but there can be no assurance that
reimbursement will be available for such products or, if available, that it will
be adequate.
In the case of private insurance, the reimbursement of any medical
device, whether approved, or for investigational use only or for research use,
is at the sole discretion of the patient's individual carrier. The decision to
reimburse can be made on a case-by-case basis (as is done for research
therapies) or on a system-wide basis (such as screening mammography).
Historically, the decision to reimburse for a new medical procedure is made by
the carrier's medical director or review committee. This group will base their
reimbursement decision on published clinical data and information by the
treating physicians. Even if a procedure has been approved for reimbursement,
there are no assurances that the insurance carrier will continue to reimburse
the procedure.
Health care reform is an area of continuing national attention and a
priority of many governmental officials. Certain reform proposals, if adopted,
could impose limitations on the prices the Company will be able to charge in the
United States for its products or the amount of reimbursement available for the
Company's products from governmental agencies or third-party payors.
Manufacturing and Facilities
The Company currently assembles its test kits in a portion of its
22,500 square-foot facility in Newton, Massachusetts and relies on
subcontractors for certain components and processes. The Company's lease is for
a term of five years and expires on December 31, 2000. The annual base rent for
each year of the term is $230,625. The Company believes that its current
facilities are adequate to satisfy the Company's needs for the foreseeable
future. Thereafter, if the Company is required to expand its manufacturing
capabilities, it may be required to establish additional facilities elsewhere.
There can be no assurance that the Company will be able to extend its lease or
lease other space on reasonable terms. The Company has retained all
manufacturing rights for its products and products under development, except for
certain rights that could be granted to the Company's NMP22 Test Kit
distribution partner in Japan if the Company fails to perform under its
agreement with such distributor.
The Company currently relies on sole suppliers for certain key
components for its NMP22 Test Kit for bladder cancer. In the event that the
components from such suppliers should become unavailable for any reason, the
Company would seek alternative sources of supply, which may entail making
regulatory submissions and obtaining regulatory approvals from the FDA or such
alternative suppliers. Although the Company attempts to maintain an adequate
level of inventory to provide for these and other contingencies, should its
manufacturing process be disrupted as a result of a shortage of key components
or a revalidation of new components, there can be no assurance that the Company
would be able to meet its commitments to customers. The Company is also subject
to the FDA's Good Manufacturing Practice ("GMP") requirements. See "--
Government Regulation."
Competition
Matritech is not aware of any other company using NMP technology to
develop diagnostic or therapeutic products. However, competition in the
development and marketing of cancer diagnostics and therapeutics, using a
variety of technologies, is intense.
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There are many pharmaceutical companies, biotechnology companies,
public and private universities and research organizations actively engaged in
the research and development of clinical cancer diagnostic products. Many of
these organizations have financial, manufacturing, marketing and human resources
greater than those of the Company. Matritech expects that its diagnostic
products will compete largely on the basis of clinical utility, accuracy
(sensitivity and specificity), ease of use and other performance
characteristics, price, patent position, as well as on the capabilities of the
Company and its marketing partners.
The Company expects that certain of its assays will compete with
existing FDA-approved assays, including BTA, which is used for monitoring
bladder cancer, CEA, which is used primarily for monitoring colorectal and
breast cancers, PSA and PSA related markers, which are used primarily for
monitoring and screening prostate cancer, and TRUQUANT BR RIA, which is used for
monitoring breast cancer. Matritech is also aware of a number of companies
exploring the application of oncogene technology to cancer diagnostics.
A number of companies are attempting to develop automated instruments
for Pap smear analysis that would compete with the cervical cancer product
currently being developed by the Company. These companies are computerizing
image analysis techniques to automate much of the work currently done by
cytotechnologists. To date, several of these instruments have been approved
by the FDA for rescreening Pap smear slides previously identified by a
cytotechnologist as normal as well as the primary screening of cervical
specimens.
The Company's products will also compete with more invasive or
expensive procedures such as surgery, bone scans, magnetic resonance imaging
("MRI") and other in vivo imaging techniques. Matritech believes that its
products, if successfully commercialized, will contribute to improved patient
management and lower overall costs, by providing accurate information and, in
some cases, by providing an alternative to these invasive or costly procedures.
Should the Company decide to develop and seek to market therapeutic
products, competition will be based, among other things, on product efficacy,
safety, reliability, price and patent position as well as the state of the
industry and capabilities of the Company, future marketing partners and
competitors.
In addition, there can be no assurance that competing diagnostic and
therapeutic products based on other technologies will not be introduced by other
companies and adversely affect the competitive position of the Company.
Patents, Licenses and Trade Secrets
Matritech's diagnostic technology is protected by three United States
patents owned by MIT and expiring in 2006, with corresponding foreign patents
granted and/or patent applications pending in Canada and selected countries in
Europe and the Far East. One of the three United States patents was granted
following a reissue proceeding before the United States Patent and Trademark
Office. The NMP technology owned by MIT is licensed to Matritech worldwide in
exchange for royalties payable until the expiration of underlying patent rights.
MIT has licensed its patent rights to Matritech on an exclusive basis through
2006.
The protection offered by these patents extends to the detection and
measurement of NMPs, or associated nucleic acids, using antibody or gene probe
formats, as well as to certain assay methods exploiting NMPs. With regard to
related NMP advances, Matritech has filed additional United States
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patent applications and, in certain circumstances, foreign counterparts in one
or more countries including Australia, Canada and selected countries in Europe
and the Far East. The Company currently has nine United States patents and six
applications on file in the United States on these disclosures. Certain United
States patents provide additional protection for Matritech's NMP22 Test Kit for
bladder cancer until 2015. The Company intends to file additional patent
applications in the future. The Company believes that any patents that may issue
from its applications will provide competitive protection for its products after
expiration of its license from MIT. The Company also intends to rely on its
unpatented proprietary information to maintain and develop its commercial
position.
Government Regulation
Diagnostic Products
The medical devices to be marketed and manufactured by the Company are
subject to extensive regulation by the FDA, and, in some instances, by foreign
governments. Pursuant to the Federal Food, Drug and Cosmetic Act of 1976, as
amended, and the regulations promulgated thereunder (the "FDC Act"), the FDA
regulates the clinical testing, manufacture, labeling, distribution, and
promotion of medical devices. Noncompliance with applicable requirements can
result in, among other things, fines, injunctions, civil penalties, recall or
seizure of products, total or partial suspension of production, failure of the
government to grant premarket clearance or premarket approval for devices,
withdrawal of marketing approvals, and criminal prosecution. The FDA also has
the authority to request repair, replacement or refund of the cost of any device
manufactured or distributed by the Company.
In the United States, medical devices and diagnostics are classified
into one of three classes (class I, II, or III) on the basis of the controls
deemed necessary by the FDA to reasonably assure their safety and effectiveness.
Under FDA regulations, class I devices are subject to general controls (for
example, labeling, premarket notification and adherence to GMPs) and class II
devices are subject to general and special controls (for example, performance
standards, postmarket surveillance, patient registries, and FDA guidelines).
Generally, class III devices are those which must receive premarket approval
("PMA") by the FDA to ensure their safety and effectiveness (for example, life-
sustaining, life- supporting and implantable devices, or new devices which have
not been found substantially equivalent to legally marketed devices).
Before a new device can be introduced into the market, the
manufacturer must generally obtain marketing clearance through the filing of
either a 510(k) notification or a PMA. A 510(k) clearance will be granted if
the submitted information establishes that the proposed device is "substantially
equivalent" to a legally marketed class I or II medical device, or to a class
III medical device for which the FDA has not called for a PMA. The FDA may
determine that a proposed device is not substantially equivalent to a legally
marketed device, or that additional information or data are needed before a
substantial equivalence determination can be made. A request for additional
data may require that clinical studies of the safety and efficacy of the device
be performed.
Commercial distribution of a device for which a 510(k) notification is
required can begin only after the FDA issues an order finding the device to be
"substantially equivalent" to a predicate device. It generally takes from four
to twelve months from submission to obtain a 510(k) clearance, but may take
longer. The FDA may determine that a proposed device is not substantially
equivalent to a legally marketed device, or that additional information is
needed before a substantial equivalence determination can be made.
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A PMA application must be filed if a proposed device is not
substantially equivalent to a legally marketed class I or class II device, or if
it is a class III device for which the FDA has called for PMAs. A PMA
application must be supported by valid scientific evidence which typically
includes clinical trial data to demonstrate safety and the effectiveness of the
device. The PMA application must also contain the results of all relevant bench
tests, laboratory and animal studies, a complete description of the device and
its components, and a detailed description of the methods, facilities and
controls used to manufacture the device, as well as proposed labeling.
Upon receipt of a PMA application, the FDA makes a threshold
determination as to whether the application is sufficiently complete to permit a
substantive review. If the FDA determines that the PMA application is
sufficiently complete to permit a substantive review, the FDA will accept the
application for filing. Once the submission is accepted for filing, the FDA
begins an in-depth review of the PMA. An FDA review of a PMA application
generally takes one to two years from the date the PMA application is accepted
for filing, but may take significantly longer. The review time is often
significantly extended as a result of the FDA requiring more information or
clarification of information already provided in the submission. During the
review period, an advisory committee, typically a panel of clinicians and/or
other appropriate experts in the relevant fields, will likely be convened to
review and evaluate the application and provide recommendations to the FDA as to
whether the device should be approved. The FDA is not bound by the
recommendations of the advisory committee but generally follows them. Toward
the end of the PMA review process, the FDA generally will conduct an inspection
of the manufacturer's facilities to ensure that the facilities are in compliance
with applicable GMP requirements.
If the FDA's evaluations of both the PMA application and the
manufacturing facilities are favorable, the FDA will either issue an approval
letter or an approvable letter, which usually contains a number of conditions
which must be met in order to secure final approval for sale of the device.
When and if those conditions have been fulfilled to the satisfaction of the FDA,
the agency will issue a PMA approval letter, authorizing commercial marketing of
the device for certain indications. If the FDA's evaluations of the PMA
application or manufacturing facilities are not favorable, the FDA will deny
approval of the PMA application or issue a "not approvable letter." The FDA may
also determine that additional clinical trials are necessary, in which case a
PMA may be substantially delayed while additional clinical trials are conducted
and submitted in an amendment to the PMA. The PMA process can be expensive,
uncertain and lengthy and a number of devices for which FDA approval has been
sought by other companies have never been approved for marketing.
Once a device has successfully completed the PMA process,
modifications to the device, its labeling, or manufacturing process may require
approval by the FDA of PMA supplements or new PMAs. Supplements to a PMA often
require the submission of the same type of information required for an initial
PMA, except that the supplement is generally limited to that information needed
to support the proposed change from the product covered by the original PMA.
Although clinical investigations of most devices are subject to the
investigational device exemption ("IDE") requirements, clinical investigations
of in vitro diagnostic ("IVDs") tests are exempt from the IDE requirements,
including FDA approval of investigations, provided the testing is non- invasive,
does not require an invasive sampling procedure that presents significant risk,
does not introduce energy into a subject, and the tests are not used as a
diagnostic procedure without confirmation of the diagnosis by another medically
established diagnostic product or procedure. IVD manufacturers must also
establish distribution controls to assure that IVDs distributed for the purposes
of conducting clinical investigations are used only for that purpose. Pursuant
to current FDA policy, manufacturers of
<PAGE>
-10-
IVDs labeled for investigational use only ("IUO") or research use only ("RUO")
are encouraged by the FDA to establish a certification program under which
investigational IVDs are distributed to or utilized only by individuals,
laboratories, or health care facilities that have provided the manufacturer with
a written certification of compliance indicating that (1) the device will be
used for investigational or research purposes only, and (2) results will not be
used for diagnostic purposes without confirmation of the diagnosis under another
medically established diagnostic device or procedure. In addition, the
certification program requirements for IUO products should include assurances
that all investigations or studies will be conducted with approval from an
institutional review board ("IRB"), using an IRB-approved study protocol and
patient informed consent and that the device will be labeled in accordance with
the applicable labeling regulations. Sponsors of clinical trials are permitted
to sell those devices distributed in the course of the study provided such
compensation does not exceed recovery of the costs of manufacture, research,
development and handling.
In 1996, the FDA approved Matritech's NMP22 Test Kit for bladder
cancer for sale in the United States as a prognostic indicator for bladder
cancer (i.e., as a predictor of bladder cancer recurrence following therapy,
such as surgical excision of cancerous tissue). A number of independent urology
investigators have evaluated Matritech's NMP22 Test Kit for bladder cancer to
determine its value in resolving the symptom of hematuria (blood in the urine)
to identify those hematuria patients who actually have bladder cancer. Based
upon these published results, as well as the successful submission and approval
of the NMP22 Test Kit for bladder cancer for this claim in Japan, the Company
intends to complete an FDA clinical trial for this claim. The Company is in the
final stages of collecting and documenting urine specimens from hematuria
patients with the objective of submitting the NMP22 Test Kit for bladder cancer
for FDA approval in the second quarter of 1999.
In connection with Matritech's colon cancer program, blood specimens
for use in generating clinical data for a PMA submission to the FDA have been
collected and the Company believes that these specimens are sufficient to permit
the tests necessary to substantiate a claim for the use of Matritech's colon
cancer test for the differential diagnosis of individuals exhibiting symptoms
such as rectal bleeding. The Company intends to use these specimens in
conjunction with its current manual format test, the NuMA Test Kit, or in
validating the performance of a second generation NMP-based colon cancer test
employing other colon cancer NMPs. In either case, the Company intends to
conduct the specimen testing and FDA submission in collaboration with an
automated instrument partner. Consequently, the timing of an FDA submission for
the Company's colon cancer test will depend upon concluding a satisfactory
agreement with an automated instrument partner, if any, and upon completion of
work necessary to design the test's automated format, as the Company and such
partner may agree.
Any products manufactured or distributed by the Company pursuant to
FDA clearances or approvals are subject to pervasive and continuing regulation
by the FDA, including recordkeeping requirements and reporting of adverse
experiences with the use of the device. Device manufacturers are required to
register their establishments and list their devices with the FDA, and are
subject to periodic inspections by the FDA and certain state agencies. The FDC
Act requires devices to be manufactured in accordance with GMP regulations which
impose certain procedural and documentation requirements upon the Company with
respect to manufacturing and quality assurance activities.
Labeling and promotional activities are subject to scrutiny by the FDA
and, in certain instances, by the Federal Trade Commission. In the United
States, the NMP22 Test Kit for bladder cancer may only be promoted by the
Company to aid in the management of bladder cancer patients. The FDA actively
enforces regulations prohibiting the promotion of devices for unapproved uses
and the promotion of devices for which premarket clearance or approval has not
been obtained. Consequently, in the United States the Company cannot promote
the NMP22 Test Kit for cancer screening or for any other unapproved use.
Failure to comply with these requirements can result in regulatory enforcement
action by the FDA that would adversely affect the Company's ability to conduct
testing necessary to obtain
<PAGE>
-11-
market clearance for these products and, consequently, could have a material
adverse effect on the Company's business, financial condition and results of
operations.
The Company and its products are also subject to a variety of state
laws and regulations in those states or localities where its products are or
will be marketed. Any applicable state or local regulations may hinder the
Company's ability to market its products in those states or localities.
Manufacturers are also subject to numerous federal, state and local laws
relating to such matters as safe working conditions, manufacturing practices,
environmental protection, fire hazard control, and disposal of hazardous or
potentially hazardous substances. There can be no assurance that the Company
will not be required to incur significant costs to comply with such laws and
regulations now or in the future or that such laws or regulations will not have
a material adverse effect upon the Company's ability to do business.
Foreign Sales
Export of unapproved products subject to the PMA requirements must be
approved in advance by the FDA for export unless they are approved for use by
the regulatory authorities in any member community of the European Community and
certain other countries, in which case they may be exported to any country
without FDA approval. To obtain FDA export approval, when it is required,
certain requirements must be met and information must be provided to the FDA,
including, with some exceptions, documentation demonstrating that the product is
approved for import into a country to which it is to be exported and safety data
from animal or human studies. There can be no assurance that FDA will grant
export approval when such approval is necessary, or that the countries to which
the devices are to be exported will approve the devices for import. Failure on
the part of the Company to obtain export approvals, when required, could
significantly delay and impair the Company's ability to continue exports of its
devices and could have a material adverse effect on the Company's business,
financial condition or results of operations.
The introduction of the Company's developmental-stage test products in
foreign markets will also subject the Company to foreign regulatory clearances
which may impose additional substantial costs and burdens. International sales
of medical devices are subject to the regulatory requirements of each country.
The regulatory review process varies from country to country. Many countries
also impose product standards, packaging requirements, labeling requirements and
import restrictions on devices. In addition, each country has its own tariff
regulations, duties and tax requirements. In Germany, where the Company began
selling its NMP22 Test Kit for bladder cancer in 1995, no regulatory approval
comparable to the United States PMA is required prior to public sale of
diagnostic products. In May 1998, the Koseisho approved the NMP22 Test Kit for
bladder cancer for sale in Japan for use in screening previously undiagnosed
patients.
The approval by the FDA and foreign government authorities is
unpredictable and uncertain and no assurance can be given that the necessary
approvals or clearances will be granted on a timely basis or at all. Delays in
receipt of, or a failure to receive, such approvals or clearances, or the loss
of any previously received approvals or clearances, could have a material
adverse effect on the business, financial condition and results of operations of
the Company.
Changes in existing requirements or adoption of new requirements or
policies could adversely affect the ability of the Company to comply with
regulatory requirements. Failure to comply with regulatory requirements could
have a material adverse effect on the Company's business, financial condition
and results of operations. There can be no assurance that the Company will not
be required to incur significant costs to comply with laws and regulations in
the future or that laws or regulations will
<PAGE>
-12-
not have a material adverse effect upon the Company's business, financial
condition or results of operations.
CLIA
Pursuant to the Clinical Laboratory Improvement Amendments ("CLIA"),
the FDA will assign a complexity category to each new in vitro diagnostic test.
This category will determine the rigor of quality control that must be followed
by purchasers and users of the device and, thus, can affect purchasing decisions
of laboratories and hospitals. In addition, as part of the premarket review
process, manufacturers must establish that the device's quality control
instructions are commensurate with CLIA quality control requirements for that
device. The review period for in vitro diagnostic tests may be extended due to
these new CLIA requirements.
Other
In order for the Company to conduct preliminary studies or clinical
trials at a hospital or other health care facility, the Company's research
collaborators must first obtain approval from the IRB of the hospital or health
care facility. In each case, a written protocol must be submitted to the IRB
describing the study or trial, which is reviewed by the IRB with a view to
protecting the safety and privacy of the institution's patients.
In addition to the regulatory framework for clinical trials and
product approvals, the Company is subject to regulation under federal, state and
local law, including requirements regarding occupational safety, laboratory
practices, environmental protection and hazardous substance control, and may be
subject to other present and possible future local, state, federal and foreign
regulation.
Employees
As of March 15, 1999, the Company had 40 full-time employees, 21 of
whom were engaged in research and development. The Company's future success
depends in part on its ability to recruit and retain talented and trained
scientific, technical, marketing and business personnel. The Company has been
successful to date in hiring and retaining such personnel, but there can be no
assurance that such success will continue. None of the Company's employees is
represented by a labor union, and the Company considers its relations with its
employees to be excellent.
Research and Development
Matritech's future success will depend in large part on its ability to
develop and bring to market new products based on its proprietary NMP
technology. Accordingly, Matritech devotes substantial resources to research
and development. The Company has assembled a scientific staff with a variety
of complementary skills in several advanced research disciplines, including
molecular biology, immunology and protein chemistry. In addition, Matritech
maintains consulting and advisory relationships with a number of prominent
researchers.
In 1997, Matritech was awarded a Phase I Small Business Innovation
Research ("SBIR") Grant from the National Cancer Institute to further develop
NMP tests for use in the detection and management of colon cancer patients.
Matritech had recorded $6,000 and $73,000 in funding related to this SBIR grant
for the years ended December 31, 1997 and 1998, respectively.
<PAGE>
-13-
During 1996, 1997 and 1998 Matritech spent approximately $3.9 million,
$3.9 million and $4.0 million, respectively, on research and development.
Substantially all of these expenditures were related to the development of
diagnostic products.
ITEM 2. PROPERTIES.
The Company's facilities are located in Newton, Massachusetts, where
the Company leases corporate headquarters, research and development and
manufacturing facilities which occupy approximately 22,500 square feet. The
Company's lease is for a term of five (5) years and expires on or about December
31, 2000. The annual base rent for each year of the term is $230,625. The
Company believes that its current facilities are adequate to satisfy the
Company's needs for the foreseeable future, and has not made a determination
whether it will seek to extend its lease when it expires in 2000 or seek to
lease space elsewhere. There can be no assurance that the Company will be able
to extend its lease or lease other space on reasonable terms.
ITEM 3. LEGAL PROCEEDINGS.
The Company is not currently a party to any material pending legal
proceeding.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of security holders during the
fourth quarter of 1998.
<PAGE>
-14-
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
Since August 6, 1997, the Company's Common Stock has been traded on
The Nasdaq National Market tier of The Nasdaq Stock Market ("Nasdaq National
Market") under the symbol: "NMPS." Prior to that date the Company's Common Stock
was traded on The Nasdaq SmallCap Market tier of The Nasdaq Stock Market
("Nasdaq SmallCap Market") under the symbol: "NMPS" and on the Boston Stock
Exchange under the symbol: "MPS." The following table sets forth the range of
quarterly high and low sales price information for the Common Stock as reported,
for the period prior to August 6, 1997, by the Nasdaq SmallCap Market, and for
all subsequent periods, by the Nasdaq National Market.
<TABLE>
<CAPTION>
Fiscal 1997 High Low
- ------------ ---- ---
<S> <C> <C>
First Quarter $ 10-1/4 $ 4-5/8
Second Quarter 8-3/8 3-11/16
Third Quarter 7 4-7/8
Fourth Quarter 7-3/4 3-9/16
<CAPTION>
Fiscal 1998
- -----------
<S> <C> <C>
First Quarter $ 6 $ 3-3/8
Second Quarter 5-1/8 1-25/32
Third Quarter 2-15/16 29/32
Fourth Quarter 3 5/8
</TABLE>
As of March 15, 1999, there were approximately 322 shareholders of
record. The Company believes that shares of the Company's Common Stock held in
bank, money management, institution and brokerage house "nominee" names may
account for an estimated 7,000 additional beneficial holders.
The Company has never paid cash dividends on its Common Stock. The
Company currently intends to retain any earnings to finance future growth and
therefore does not anticipate paying any cash dividends in the foreseeable
future.
<PAGE>
-15-
ITEM 6. SELECTED FINANCIAL DATA.
The selected financial data presented below for each year in the five-year
period ended December 31, 1998 have been derived from the Company's financial
statements, which have been audited by Arthur Andersen LLP, independent public
accountants. This data should be read in conjunction with the financial
statements, related notes, "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and other financial information included
elsewhere in this Form 10-K.
<TABLE>
<CAPTION>
1994 1995 1996 1997 1998
----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Statements of Operations Data:
Revenues:
Collaborative research and $ 1,314,334 $ 1,023,438 $ 1,881,833 $ 747,532 $ 967,759
development, license fees and
product sales
Interest and other income 91,591 216,865 528,583 566,686 457,678
----------- ----------- ----------- ----------- -----------
Total revenues 1,405,925 1,240,303 2,410,416 1,314,218 1,425,437
Expenses:
Research & development 3,470,122 3,014,125 3,909,793 3,943,390 4,010,368
Selling, general & 1,591,525 2,308,773 3,665,298 4,845,915 4,950,593
administrative ----------- ----------- ----------- ----------- -----------
Total expenses 5,061,647 5,322,898 7,575,091 8,789,305 8,960,961
----------- ----------- ----------- ----------- -----------
Net loss $(3,655,722) $(4,082,595) $(5,164,675) $(7,475,087) $(7,535,524)
=========== =========== =========== =========== ===========
Basic and diluted net loss per $ (.46) $ (.38) $ (.32) $ (.43) $ (.40)
common share(1) =========== =========== =========== =========== ===========
Weighted average number of 7,951,721 10,733,769 15,900,467 17,512,242 18,608,784
common shares outstanding(1) =========== =========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
1994 1995 1996 1997 1998
--------------------------------------------------------------------------------------------------
Balance Sheet Data:
<S> <C> <C> <C> <C> <C>
Cash, cash equivalents and $ 3,974,237 $ 11,009,310 $ 6,770,336 $ 11,067,414 $ 4,146,821
short-term investments
Working capital 3,419,323 10,838,756 7,165,462 10,989,534 3,787,709
Total assets 4,582,194 11,959,203 8,669,861 12,691,773 5,511,825
Accumulated deficit (16,893,135) (20,975,730) (26,140,405) (33,615,492) (41,151,016)
Total stockholders' equity $ 3,878,067 $ 11,351,178 $ 7,783,984 $ 11,688,674 $ 4,399,981
</TABLE>
______________________
(1) Basic and diluted loss per share are the same for all periods presented.
See Note 1 of Notes to Financial Statements.
<PAGE>
-16-
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
Overview
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 December 31, 1998, the Company incurred a cumulative net loss of
approximately $41.2 million.
Results of Operations
Year Ended December 31, 1998 Compared with Year Ended December 31, 1997
- -----------------------------------------------------------------------
Product sales and collaborative research and development revenue increased
to $968,000 for the year ended December 31, 1998 from $748,000 for the year
ended December 31, 1997. Revenue from product sales increased to $895,000 for
the year ended December 31, 1998 from $602,000 for the year ended December 31,
1997 due primarily to increased sales of the NMP22 Test Kit for bladder cancer
in the United States and Europe. Product revenue may fluctuate from quarter to
quarter and from year to year based on the timing of distributors' orders for
the NMP22 Test Kits for bladder cancer. Revenue from collaborative research and
development included $73,000 and $6,000 in SBIR funding for Matritech's NuMA
Tumor Marker project for the years ended December 31, 1998 and December 31,
1997, respectively. In addition, Matritech recorded $140,000 in revenue from
collaborative research and development for the year ended December 31, 1997,
consisting of a milestone payment associated with a development agreement with
Bayer Corporation.
Interest and other income was $458,000 for the year ended December 31, 1998
and $567,000 for the year ended December 31, 1997. The decrease was due to
lower average cash balances available for investment in 1998 as compared to
1997.
Research and development expenses increased slightly to $4,010,000 for the
year ended December 31, 1998 from $3,943,000 for 1997. The increase was
primarily due to increased staffing of clinical affairs personnel to manage the
Company's colon cancer FDA submission and the NMP22 screening trial and related
site management costs.
Selling, general and administrative expenses increased to $4,951,000 for
the year ended December 31, 1998 from $4,846,000 for the year ended December 31,
1997. The increase was due to the augmentation of the sales force for the NMP22
Test Kit for bladder cancer and increased public relations and media relations
consulting fees. In April 1997, the Company issued a warrant to a public
relations consultant. The Company expensed the value of the warrant, $500,000,
ratably over the one year term of its agreement with such consultant. The
Company expensed $150,000 and $350,000 of the value of this warrant during the
years ended December 31, 1998 and December 31, 1997, respectively.
The Company incurred a net loss of $7,536,000 for the year ended December
31, 1998 as compared with a net loss of $7,475,000 for the year ended December
31, 1997. The increased loss was primarily due to increased sales and marketing
expenses for the NMP22 Test Kit for bladder cancer, consulting fees, and to a
lesser extent, increased clinical affairs costs associated with the colon cancer
project.
<PAGE>
-17-
Year Ended December 31, 1997 Compared with Year Ended December 31, 1996
- -----------------------------------------------------------------------
Product sales, collaborative research and development revenue and license
fees decreased to $748,000 for the year ended December 31, 1997 from $1,882,000
for the year ended December 31, 1996. Revenue from product sales decreased to
$602,000 for the year ended December 31, 1997 from $1,678,000 for the year ended
December 31, 1996. This decrease primarily reflects initial stocking orders of
the NMP22 Test Kit for bladder cancer that were made by new distributors in 1996
which were not repeated in 1997. Product revenue may fluctuate from quarter to
quarter and from year to year based on the timing of distributors' orders for
the NMP22 Test Kits for bladder cancer. Matritech's revenue from collaborative
research and development for the year ended December 31, 1997 and 1996 was
$140,000 and $120,000, respectively, consisting of milestone revenue from a
funded development agreement with Bayer Corporation. Matritech also received
$6,000 in SBIR funding during the year ended December 31, 1997 for its NuMA
Tumor Marker project and $84,000 in SBIR funding for its cancer therapy
development project during the year ended December 31, 1996.
Interest and other income was $567,000 for the year ended December 31, 1997
and $528,000 for the year ended December 31, 1996. The increase was due to
higher average cash balances available for investment and higher interest rates
in 1997 as compared to 1996.
Research and development expenses increased slightly to $3,943,000 for the
year ended December 31, 1997 from $3,910,000 for 1996. The increase was
primarily due to costs associated with product development personnel,
consultants, reagents and supplies for the Company's colon and cervical cancer
projects.
Selling, general and administrative expenses increased to $4,846,000 for
the year ended December 31, 1997 from $3,665,000 for the year ended December 31,
1996. The increase was due to the augmentation of the sales force for the NMP22
Test Kit for bladder cancer, 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
Test Kit for bladder cancer was primarily attributable to increased staffing in
sales, including recruitment, travel, administrative supplies and promotional
materials for the Company's sales representatives for the NMP22 Test Kit in the
United States, as well as, increased expenditures on clinical marketing programs
and consultants with clinical expertise. In April 1997, the Company issued a
warrant to a public relations consultant. The Company expensed the value of the
warrant, $500,000, ratably over the one year term of its agreement with such
consultant. The Company expensed $350,000 of the value of this warrant in the
year ended December 31, 1997. During 1996, the Company expensed approximately
$209,000 of costs associated with a proposed public offering which the Company
elected not to complete.
The Company incurred a net loss of $7,475,000 for the year ended December
31, 1997 as compared with a net loss of $5,165,000 for the year ended December
31, 1996. The increased loss resulted primarily from decreased revenues and
increased sales and marketing expenses for the NMP22 Test Kit for bladder
cancer.
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, 1998, 1997 and 1996 the
Company had cash and cash equivalents of $4,147,000, $11,067,000 and
<PAGE>
-18-
$6,770,000, respectively, and working capital of $3,788,000, $10,990,000 and
$7,165,000, respectively. The Company's primary cash infusion in 1997 was from
the private sale of common stock which totaled $10,904,000, and in 1996 the
Company received its primary cash infusion from the exercise of common stock
options and warrants which totaled $1,514,000.
The Company's operating activities used cash of approximately $6,901,000,
$6,486,000 and $5,505,000 for the years ended December 31, 1998, 1997 and 1996,
respectively, primarily to fund the Company's operating loss.
The Company's investing activities used cash of approximately $56,000,
$516,000 and $240,000 in the years ended December 31, 1998, 1997 and 1996,
respectively, primarily for purchases of computer systems, office and laboratory
equipment, leasehold improvements and certain intangible assets. The Company
currently estimates that capital expenditures during the year ending December
31, 1999 will not be significant.
Financing activities provided cash of approximately $36,000, $11,299,000
and $1,506,000 in the years ended December 31, 1998, 1997 and 1996,
respectively, primarily from the sale of equity securities, the exercise of
stock options and warrants and proceeds from a capital equipment loan in 1997,
net of payments of capital lease obligations.
In 1997, the Company entered into an equipment line of credit with Phoenix
Leasing, Incorporated under which it could borrow up to $1,200,000 for equipment
purchases. The equipment line of credit has since expired and was converted
into a term note on October 20, 1997 totaling $286,000. The term note is
payable over 48 months and is secured by the underlying equipment. The term
note bears interest at 11.75% and has an outstanding balance of $209,000 at
December 31, 1998.
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 will require
substantial additional funds to fund operations, 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, but not limited to: 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 has implemented certain cost-reduction measures to conserve
capital resources. Such measures include changing the Company's public relations
firm and deferring the hiring of non-essential personnel. The Company believes
that such measures will not materially detract from its marketing and sales
effort for its FDA-approved product for bladder cancer nor materially affect its
existing programs relating to colon, cervical, breast, or prostate cancer
product development.
During March 1999, the Company entered into an agreement with certain
investors providing for the sale of 3,094,811 shares of the Company's Common
Stock, in a private placement, for an aggregate net selling price of
approximately $4,000,000 (the "Private Placement"). The transactions
contemplated
<PAGE>
-19-
by this agreement are expected to close during April 1999, subject to customary
closing conditions. The Company expects to receive net proceeds of approximately
$3,940,000 after deducting the estimated expenses of the transaction.
The Company is also actively seeking additional long-term funding from
public and private sources including strategic collaborations and partnerships.
There can be no assurance, however, that capital will be available on terms
acceptable to the Company, if at all. If the Company uses equity to finance its
capital needs, such a financing could result in significant dilution to existing
stockholders.
As of December 31, 1998, the Company had $4,147,000 in cash and cash
equivalents and $3,788,000 of working capital. The Company believes that its
existing cash resources, expected cash flow from operating activities and the
proceeds from the Private Placement will satisfy its capital needs through 1999.
If the Private Placement should fail to close for any reason, the Company would
immediately seek to replace such financing. There can be no assurance that such
replacement financing could be obtained on terms acceptable to the Company, if
at all. If such replacement financing is not obtained, the Company believes
that its existing cash resources and expected cash flow from operating
activities may not be sufficient to fund its operations at current levels beyond
mid-1999. In such an event, the Company would be required to significantly
reduce the scope of operations after the second quarter of 1999. The Company
has contingency plans for cost reductions which could enable it to continue
limited operations through the end of 1999 under such circumstances.
The Company has reviewed all of its information systems to assess what
steps, if any, are required to achieve full Year 2000 compliance. The Company
relies upon microprocessor-based personal computers and commercially available
applications software. These technologies have been put into service recently,
and the Company's review indicates that certain of the Company's systems are
currently Year 2000 compliant. The Company has begun to address the small
number of systems that are not yet Year 2000 compliant, and anticipates
achieving full compliance early in the fourth quarter of 1999. The Company is
currently in the process of reviewing its critical non-information technology
systems and anticipates completing such review by the end of the second quarter
of 1999. The Company does not anticipate that it will incur material expenses
to make its computer software and operating systems Year 2000 compliant and has
accrued $25,000 in its financial statements at December 31, 1998 related to such
expenses. The Company is currently discussing Year 2000 readiness with its
material supply and service vendors. To date, those suppliers and service
vendors that have been contacted have indicated that their hardware or software
is or will be Year 2000 compliant in time frames that meet the Company's
requirements. The Company intends to continue to assess its exposure to Year
2000 noncompliance on the part of any of its material vendors and there can be
no assurance that their systems will be Year 2000 compliant. In the event that
certain material suppliers or service vendors indicate that they will not
successfully address their Year 2000 problems in a timely fashion and that such
failure may have a material adverse effect on the Company, management may elect
to suspend such business relationships until such time that such vendors become
fully compliant. The Company is currently formulating contingency plans to
address problems that may arise in the event either the Company or its material
suppliers and vendors fail to address their Year 2000 problems in a timely
fashion. The Company presently believes that the Year 2000 issue will not pose
significant operational problems for the Company. However, if all Year 2000
issues are not properly identified, or assessment, remediation and testing are
not effected timely with respect to Year 2000 problems that are identified,
there can be no assurance that the Year 2000 issue will not materially adversely
impact the Company's results or operations or materially adversely affect the
Company's relationships with customers, suppliers or others. Additionally,
there can be no assurance that the Year 2000 issues of third parties will not
have a material adverse impact on the Company's systems or results of
operations.
<PAGE>
-20-
The foregoing discussion includes forward-looking statements that are
subject to risks and uncertainties and actual results may differ materially from
those currently anticipated depending on a variety of factors including those
discussed below. See "Factors that may Affect Future Results." 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, 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:
Access to Capital. Even with expected proceeds from the pending
Private Placement, the Company needs to obtain additional long-term financing
and will consider various financing alternatives, including equity or debt
financings and corporate partnering arrangements. There can be no assurance,
however, that this financing will be available on terms acceptable to the
Company, if at all. If additional financing is not available, the Company may
be required to further curtail expenses or take other steps that adversely
affect the Company's future performance.
Risk of Delisting from the Nasdaq National Market. The Company's
Common Stock is currently listed on the Nasdaq National Market ("NNM"). For
continued listing of the Company's Common Stock on the NNM, it must, among other
things, maintain at least $4 million in net tangible assets and a minimum bid
price of $1.00. If the Company's net tangible assets fall below $4 million, or
the Company's Common Stock trades at a price of less than $1.00 for 30
consecutive business days or more, it may result in the delisting of the
Company's securities from NNM, and trading, if any, of the Company's securities
would thereafter be conducted on a non-Nasdaq over-the-counter market. If the
Company's securities are delisted, an investor could find it more difficult to
dispose of, or to obtain accurate quotations as to the market value of, the
Company's securities. In addition, if the Company's securities were delisted,
they may be subject to a rule that imposes additional sales practice
requirements on broker-dealers who sell such securities to persons other than
established customers and accredited investors. For transactions covered by
this rule, the broker-dealer must make a special suitability determination for
the purchaser and must have received the purchaser's written consent to the
transaction prior to sale. Consequently, delisting, if it occurred, may affect
the ability of broker-dealers to sell the Company's securities and the ability
of the stockholders to sell their securities.
History of Operating Losses and Anticipated Future Losses. The Company
has incurred operating losses since its inception and does not expect to be
profitable within the next several years. While the Company expects to improve
operating results in future periods, there can be no assurance that the Company
will achieve or maintain profitability or that its revenue will grow in the
future.
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; 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.
<PAGE>
-21-
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 for bladder cancer, which was approved for sale in the U.S. by the FDA in
1996 and approved for sale in Japan in 1998, and expects to generate
substantially all of its near-term product sales from the sale of NMP22 Test
Kits for bladder cancer. The Company would experience a material adverse effect
on its business, financial condition and results of operations if the NMP22 Test
Kit for bladder cancer does not achieve wide market acceptance. The remainder of
the Company's products have not been approved by the FDA or are in development
and there can be no assurance that it will be successful with such regulatory
approvals and product development.
Reliance on Sole Suppliers. The Company currently relies on sole suppliers
for certain key components for its NMP22 Test Kit. In the event that the
components from such suppliers should become unavailable for any reason, the
Company would seek alternative sources of supply, which may entail making
regulatory submissions and obtaining regulatory approvals from the FDA or such
alternative suppliers. Although the Company attempts to maintain an adequate
level of inventory to provide for these and other contingencies, should its
manufacturing process be disrupted as a result of a shortage of key components
or a revalidation of new components, there can be no assurance that the Company
would be able to meet its commitments to customers.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Investment Portfolio. The Company does not use derivative financial
instruments that meet high credit quality standards, as specified in the
Company's investment policy guidelines; the policy also limits the amount of
credit exposure to any one issue, issuer, and type of instrument. See Note 1 of
Notes to Financial Statements -- "Operations and Significant Accounting
Policies."
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The information required by this item is contained in the financial
statements set forth in Item 14(a) under the caption "Financial Statements" as a
part of this report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
There have been no changes in or disagreements with accountants on
accounting or financial disclosure matters during the Company's two most recent
fiscal years.
<PAGE>
-22-
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Directors
The information concerning directors of the Company required under this
item is incorporated herein by reference to the Company's definitive proxy
statement pursuant to Regulation 14A, to be filed with the Commission not later
than 120 days after the close of the Company's fiscal year ended December 31,
1998 under the headings "Occupations of Directors and Executive Officers" and
"Section 16(a) Beneficial Ownership Reporting Compliance."
Executive Officers
The information concerning executive officers of the Company required under
this item is incorporated herein by reference to the Company's definitive proxy
statement pursuant to Regulation 14A, to be filed with the Commission not later
than 120 days after the close of the Company's fiscal year ended December 31,
1998 under the headings "Occupations of Directors and Executive Officers" and
"Section 16(a) Beneficial Ownership Reporting Compliance."
ITEM 11. EXECUTIVE COMPENSATION.
The information required under this item is incorporated herein by
reference to the Company's definitive proxy statement pursuant to Regulation
14A, to be filed with the Commission not later than 120 days after the close of
the Company's fiscal year ended December 31, 1998, under the heading
"Compensation and Other Information Concerning Directors and Officers."
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information required under this item is incorporated herein by
reference to the Company's definitive proxy statement pursuant to Regulation
14A, to be filed with the Commission not later than 120 days after the close of
the Company's fiscal year ended December 31, 1998, under the heading "Securities
Ownership of Management and Principal Stockholders."
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information, if any, required under this item is incorporated herein by
reference to the Company's definitive proxy statement pursuant to Regulation
14A, to be filed with the Commission within 120 days after the close of the
Company's fiscal year ended December 31, 1998, under the heading "Certain
Relationships and Related Transactions."
<PAGE>
-23-
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) 1. Financial Statements.
Report of Independent Public Accountants.
Balance Sheets as of December 31, 1997 and 1998.
Statements of Operations for the Years ended December 31, 1996,
1997 and 1998.
Statements of Stockholders' Equity (Deficit) for the years ended
December 31, 1996, 1997 and 1998.
Statements of Cash Flows for the Years ended December 31, 1996, 1997
and 1998.
Notes to Financial Statements.
2. No schedules are submitted because they are not applicable, not
required or because the information is included in the Financial
Statements or Notes to Financial Statements.
3. List of Exhibits.
Exhibit Number Description of Exhibit
-------------- ----------------------
3.1 Amended and Restated Certificate of Incorporation
of the Registrant (filed as Exhibits 3, 4.1 to
the Company's Registration Statement No. 33-46158
on Form S-1 and incorporated herein by
reference).
3.2 Amended and Restated By-Laws of the Registrant
(filed as Exhibits 3.2, 4.1 to the Company's
Registration Statement No. 33-46158 on Form S-1
and incorporated herein by reference).
3.3 Certificate of Amendment dated June 16, 1994, of
Amended and Restated Certificate of Incorporation
of the Registrant (filed as Exhibit 3.2 of the
Company's Quarterly Report on Form 10-Q for the
fiscal quarter ended June 30, 1995 and
incorporated herein by reference).
3.4 Certificate of Amendment dated June 5, 1995, of
Amended and Restated Certificate of Incorporation
of the Registrant (filed as Exhibit 3.3 of the
Company's Quarterly Report on Form 10-Q for the
fiscal quarter ended June 30, 1995 and
incorporated herein by reference).
4.1 Description of Capital Stock contained in the
Registrant's Amended and Restated Certificate of
Incorporation, filed as Exhibits 3.1, 3.3 and
3.4.
<PAGE>
-24-
10.1* License Agreement between Matritech and the
Massachusetts Institute of Technology dated
December 14, 1987, as amended March 15, 1988,
December 20, 1989 and March 4, 1992 (filed as
Exhibit 10.1 to the Company's Registration
Statement No. 33-46158 on Form S-1 and
incorporated herein by reference).
10.2+ 1988 Stock Plan (filed as Exhibit 10.8 to the
Company's Registration Statement No. 33-46158 on
Form S-1 and incorporated herein by reference).
10.3+ 1992 Stock Plan as amended as of June 13, 1997
(filed as Exhibit 10.4 to the Company's Annual
Report on Form 10-K for the fiscal year ended
December 31, 1997 and incorporated herein by
reference).
10.4+ Amended and Restated 1992 Non-Employee Director
Stock Plan as amended as of June 7, 1996 (filed
as Exhibit 10.2 to the Company's Quarterly Report
on Form 10-Q for the fiscal quarter ended June
30, 1996 and incorporated herein by reference).
10.5+ 1992 Employee Stock Purchase Plan (filed as
Exhibit 10.11 to the Company's Registration
Statement No. 33-46158 on Form S-1 and
incorporated herein by reference).
10.6 Second Amended and Restated Registration Rights
Agreement dated May 4, 1990, as amended February
26, 1992 (filed as Exhibit 10.13 to the Company's
Registration Statement No. 33-46158 on Form S-1
and incorporated herein by reference).
10.7 Form of Indemnity Agreement with directors (filed
as Exhibit 10.14 to the Company's Registration
Statement No. 33-46158 on Form S-1 and
incorporated herein by reference).
10.8 Fourth Amendment dated March 18, 1993 to License
Agreement between the Company and the
Massachusetts Institute of Technology dated
December 14, 1987, as amended (filed as Exhibit
10.9 to the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1997 and
incorporated herein by reference).
10.9* License Agreement between the Company and The
Johns Hopkins University dated as of August 4,
1993 (filed as Exhibit 10.2 to the Company's
Quarterly Report on Form 10-Q for the quarter
ended September 30, 1993 and on paper as File No.
1-12128 and incorporated herein by reference).
10.10 Fifth Amendment dated April 14, 1994 to License
Agreement between the Company and the
Massachusetts Institute of Technology dated
December 14, 1987 (filed as Exhibit 10.1 to the
Company's Form 10-Q for the quarter ended March
31, 1994 and incorporated herein by reference).
<PAGE>
-25-
10.11* Exclusive Distribution Agreement between the
Company and Konica Corporation dated as of
November 9, 1994. (Filed as Exhibit 10.26 to the
Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1994 and
incorporated herein by reference).
10.12* License Agreement between the Company and Yale
University dated as of March 21, 1995 (filed as
Exhibit 10.2 to the Company's Quarterly Report on
Form 10-Q for the quarter ended March 31, 1995
and incorporated herein by reference).
10.13 Lease Agreement between the Company and One
Nevada Realty Trust dated October 6, 1995 (filed
as Exhibit 10.2 to the Company's Quarterly Report
on Form 10-Q for the fiscal quarter ended
September 30, 1995 and incorporated herein by
reference).
10.14 Sixth Amendment dated March 1, 1996 to License
Agreement between Matritech and the Massachusetts
Institute of Technology dated December 31, 1987,
as amended (filed as Exhibit 10.26 to the
Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1995 and
incorporated herein by reference).
10.15 Senior Loan and Security Agreement No. 0096
between the Company and Phoenix Leasing,
Incorporated dated August 29, 1997 including form
of Senior Secured Promissory Note between the
Company and Phoenix Leasing, Incorporated (filed
as Exhibit 10.20 to the Company's Annual Report
on Form 10-K for the fiscal year ended December
31, 1997 and incorporated herein by reference).
10.16* Distributorship Agreement by and between the
Company and Curtin Matheson Scientific, a
division of Fisher Scientific Company, L.L.C.
dated as of March 19, 1998 (filed as Exhibit
10.21 to the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1997 and
incorporated herein by reference).
10.17** Form of Subscription Agreement dated March 10,
1999 by and between the Company and certain
investors.
23** Consent of Arthur Andersen LLP.
27** Financial Data Schedule.
________________________
* Confidential Treatment Granted for portions thereof
** Filed herewith
+ Indicates management contract or compensatory plan or arrangement required
to be filed as an exhibit to this Form 10-K pursuant to Item 14(c) of this
report.
(b) Reports on Form 8-K.
Not Applicable
(c) Exhibits.
The Company hereby files as exhibits to this Form 10-K those exhibits
listed in Item 14(a)(3), above.
(d) Financial Statement Schedules.
The Company hereby files as financial statement schedules to this Form 10-K
those financial statement schedules listed in Item 14(a)(2), above.
<PAGE>
MATRITECH, INC.
Index to Financial Statements
PAGE
<TABLE>
<CAPTION>
Report of Independent Public Accountants F-2
<S> <C>
Balance Sheets as of December 31, 1997 and 1998 F-3
Statements of Operations for the Years Ended
December 31, 1996, 1997 and 1998 F-4
Statements of Stockholders' Equity for the
Years Ended December 31, 1996, 1997 and 1998 F-5
Statements of Cash Flows for the Years Ended
December 31, 1996, 1997 and 1998 F-6
Notes to Financial Statements F-7
</TABLE>
F-1
<PAGE>
Report of Independent Public Accountants
To Matritech, Inc.:
We have audited the accompanying balance sheets of Matritech, Inc. (a Delaware
corporation) as of December 31, 1997 and 1998, and the related statements of
operations, stockholders' equity and cash flows for each of the three years in
the period ended December 31, 1998. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Matritech, Inc. as of December
31, 1997 and 1998, and the results of its operations and its cash flows for each
of the three years in the period ended December 31, 1998, in conformity with
generally accepted accounting principles.
Arthur Andersen LLP
Boston, Massachusetts
February 8, 1999
F-2
<PAGE>
MATRITECH, INC.
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
1997 1998
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $11,067,414 $4,146,821
Accounts receivable 101,941 162,261
Inventories 487,360 336,398
Interest receivable and prepaid expenses 127,156 113,582
----------- ----------
Total current assets 11,783,871 4,759,062
----------- ----------
PROPERTY AND EQUIPMENT, at cost:
Laboratory equipment 1,370,929 1,418,042
Office equipment 203,214 212,698
Laboratory furniture 62,739 62,739
Leasehold improvements 56,981 56,981
----------- ----------
1,693,863 1,750,460
Less--Accumulated depreciation and amortization 872,706 1,065,060
----------- ----------
821,157 685,400
----------- ----------
OTHER ASSETS, net 86,745 67,363
----------- ----------
$12,691,773 $5,511,825
=========== ==========
</TABLE>
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
CURRENT LIABILITIES:
<S> <C> <C>
Current maturities of note payable $ 60,733 $ 68,271
Accounts payable 378,700 329,660
Accrued expenses 354,904 573,422
------------ ------------
Total current liabilities 794,337 971,353
------------ ------------
NOTE PAYABLE, less current maturities 208,762 140,491
------------ ------------
Commitments (Notes 3 and 6)
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
in 1997 and 18,626,602 shares in 1998 185,667 186,266
Additional paid-in capital 45,118,499 45,364,731
Accumulated deficit (33,615,492) (41,151,016)
------------ ------------
Total stockholders' equity 11,688,674 4,399,981
------------ ------------
$ 12,691,773 $ 5,511,825
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
MATRITECH, INC.
Statements of Operations
<TABLE>
<CAPTION>
Years Ended December 31,
1996 1997 1998
<S> <C> <C> <C>
REVENUES:
Collaborative research and development, $ 1,881,833 $ 747,532 $ 967,759
license fees and product sales
Interest and other income 528,583 566,686 457,678
----------- ----------- -----------
2,410,416 1,314,218 1,425,437
----------- ----------- -----------
EXPENSES:
Research and development 3,909,793 3,943,390 4,010,368
Selling, general and administrative 3,665,298 4,845,915 4,950,593
----------- ----------- -----------
7,575,091 8,789,305 8,960,961
----------- ----------- -----------
Net loss $(5,164,675) $(7,475,087) $(7,535,524)
=========== =========== ===========
BASIC/DILUTED NET LOSS PER COMMON SHARE $(.32) $(.43) $(.40)
=========== =========== ===========
BASIC/DILUTED WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 15,900,467 17,512,242 18,608,784
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
MATRITECH, INC.
STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock Additional Total
Number Paid-in Accumulated Stockholders'
of shares Par Value Capital Deficit Equity
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1995 15,194,127 $151,941 $32,174,967 $(20,975,730) $11,351,178
Exercise of common stock options 104,294 1,043 181,359 - 182,402
Exercise of common stock
purchase warrants 728,453 7,284 1,324,790 - 1,332,074
Issuance of common stock under
employee stock purchase plan 5,860 59 10,196 - 10,255
Compensation related to issuance of
common stock options - - 72,750 - 72,750
Net loss - - - (5,164,675) (5,164,675)
---------- ----------- ------------ ----------- ----------
Balance, December 31, 1996 16,032,734 160,327 33,764,062 (26,140,405) 7,783,984
Sale of common stock, net of commissions
and issuance costs of $92,430 2,457,609 24,576 10,879,492 - 10,904,068
Exercise of common stock options 12,878 128 27,525 - 27,653
Exercise of common stock purchase warrants 55,895 560 70,822 - 71,382
Issuance of common stock under
employee stock purchase plan 7,621 76 26,598 - 26,674
Compensation related to issuance of
common stock warrants - - 350,000 - 350,000
Net loss - - - (7,475,087) (7,475,087)
---------- ----------- ------------ ----------- ----------
Balance, December 31, 1997 18,566,737 185,667 45,118,499 (33,615,492) 11,688,674
Exercise of common stock
Options 43,513 435 51,400 - 51,835
Exercise of common stock
purchase warrants 10,000 100 17,900 - 18,000
Issuance of common stock under
employee stock purchase plan 6,352 64 26,932 - 26,996
Compensation related to
issuance of common stock
warrants - - 150,000 - 150,000
Net loss - - - (7,535,524) (7,535,524)
---------- ----------- ------------ ------------ ----------
Balance, December 31, 1998 18,626,602 $ 186,266 $ 45,364,731 $(41,151,016) $4,399,981
========== =========== ============ ============ ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
MATRITECH, INC.
Statements of Cash Flows
<TABLE>
<CAPTION>
Years Ended December 31,
1996 1997 1998
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net loss $(5,164,675) $(7,475,087) $(7,535,524)
Adjustments to reconcile net loss to net cash
used in operating activities
Depreciation and amortization 133,952 226,924 210,648
Operating expense related to issuance of common
stock warrant - 350,000 150,000
Compensation related to issuance of common
stock options 72,750 - -
Changes in assets and liabilities
Accounts receivable (701,405) 712,603 (60,320)
Inventories (150,673) (144,302) 150,962
Interest receivable and prepaid expenses 8,546 (3,755) 13,574
Accounts payable 81,999 (43,859) (49,040)
Accrued expenses 249,140 (108,414) 218,518
Deferred revenue (34,900) - -
----------- ----------- -----------
Net cash used in operating activities (5,505,266) (6,485,890) (6,901,182)
----------- ----------- -----------
Cash Flows from Investing Activities:
Purchase of property and equipment (285,386) (456,484) (56,597)
(Increase) decrease in other assets 45,334 (59,820) 1,089
----------- ----------- -----------
Net cash used in investing activities (240,052) (516,304) (55,508)
----------- ----------- -----------
Cash Flows from Financing Activities:
Proceeds from note payable - 288,376 -
Payments on note payable (18,387) (18,881) (60,734)
Proceeds from sale of common stock and warrants - 10,904,068 -
Proceeds from the exercise of common stock
purchase warrants 1,332,074 71,382 18,000
Proceeds from exercise of common stock options 182,402 27,653 51,835
Proceeds from issuance of common stock under
employee stock purchase plan 10,255 26,674 26,996
----------- ----------- -----------
Net cash provided by financing activities 1,506,344 11,299,272 36,097
----------- ----------- -----------
Increase (Decrease) in Cash and Cash Equivalents (4,238,974) 4,297,078 (6,920,593)
Cash and Cash Equivalents, beginning of year 11,009,310 6,770,336 11,067,414
----------- ----------- -----------
Cash and Cash Equivalents, end of year $ 6,770,336 $11,067,414 $ 4,146,821
=========== =========== ===========
Supplemental Disclosure of Cash Flow Information:
Cash paid during the year for interest $ - $ 5,420 $ 28,479
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
MATRITECH, INC.
Notes to Financial Statements
(1) Operations and Significant Accounting Policies
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 history of operating losses and anticipated future
losses, fluctuation in operating results, uncertainties associated with
future performance, 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.
In 1995, the Company began to sell its NMP22(R) Test Kits for bladder
cancer in certain countries in Europe through distributors. In 1996, the
Company received FDA approval to begin selling the NMP22 Test Kit as a
prognostic indicator for use in the management of bladder cancer patients
in the United States and in May, 1998 the Koseisho approved the NMP22 Test
Kit for sale in Japan for screening of bladder cancer patients.
The accompanying financial statements reflect the application of certain
accounting policies as described in this note and elsewhere in the
accompanying financial statements and notes.
(a) Revenue Recognition
The Company recognizes revenue from product sales upon shipment;
revenue from collaborative research and development arrangements as
milestones are achieved; revenue from nonrefundable license agreements
upon the signing of the agreement; and revenue from research grants as
earned.
(b) Cash and Cash Equivalents
The Company considers all highly liquid investments with original
maturities of three months or less to be cash equivalents. The Company
applies Statement of Financial Accounting Standards (SFAS) No. 115,
Accounting for Certain Investments in Debt and Equity Securities.
Under SFAS No. 115, securities that the Company has the positive
intent and ability to hold to maturity are reported at amortized cost,
which approximates fair market value, and are classified as held-to-
maturity. These securities include cash and cash equivalents, which
consist of auction market preferred stocks, money market accounts and
repurchase agreements at December 31, 1997 and 1998.
F-7
<PAGE>
MATRITECH, INC.
NOTES TO FINANCIAL STATEMENTS
(Continued)
(c) Inventories
Inventories are stated at the lower of cost or market and consist of
the following:
DECEMBER 31,
1997 1998
Raw materials $305,241 $225,159
Work-in-process 6,634 3,195
Finished goods 175,485 108,044
-------- --------
$487,360 $336,398
======== ========
(d) Depreciation and Amortization
The Company provides for depreciation and amortization using
accelerated and straight-line methods by charges to operations in
amounts that allocate the cost of property and equipment over their
estimated useful lives as follows:
ASSET CLASSIFICATION USEFUL LIFE
Laboratory equipment 10 years
Office equipment 5 years
Laboratory furniture 5 years
Leasehold improvements Life of lease
The Company amortizes certain intangible assets, including license
fees, over their estimated useful lives of three to five years.
(e) Uses of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
(f) Concentration of Credit Risk
SFAS No. 105, Disclosure of Information About Financial Instruments
with Off-Balance-Sheet Risk and Financial Instruments with
Concentrations of Credit Risk, requires disclosure of any significant
off-balance-sheet and credit risk concentrations. Financial
instruments that subject the Company to credit risk consist primarily
of cash and cash equivalents and trade accounts receivable. The
Company places its investments in highly rated financial institutions
and investment-grade securities. The Company has not experienced any
losses on its investments to date.
The Company received revenue of greater than 10% of total
collaborative research and development, license fees and product sales
from the following number of customers during the following periods:
Percentage of Product Revenues
SIGNIFICANT Customer
CUSTOMERS ------------------------------------------------------------
A B C D E F
Year ended December 4 16% - - 21% 11% 13%
31, 1996
Year ended December
31, 1997 2 - - 19% - - 18%
Year ended December
31, 1998 2 - 31% - - - 29%
F-8
<PAGE>
The Company had accounts receivable balances greater than 10% of total
accounts receivable from the following customers as of December 31,
1997 and 1998:
Percentage of Total Accounts Receivable
Customer
------------------------------------------------
A B C D F G H
As of December 31,
1997 - - 53% - - - -
1998 - - - - 60% 11% 12%
(g) Disclosure of Fair Value of Financial Instruments
The Company's financial instruments consist mainly of cash and cash
equivalents, accounts receivable, accounts payable and note payable.
The carrying amounts of the Company's financial instruments
approximate fair value.
(h) Research and Development
Research and development expenses in the accompanying statements of
operations are expensed as incurred and include both funded and
unfunded research and development expenses.
(i) 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 the
potential common stock are antidilutive. This accounting change had no
effect on the Company's historical net loss per common share. The
number of common stock equivalents excluded from the diluted net loss
per share were 1,049,338, 1,497,176 and 1,649,391 for the years ended
December 31, 1996, 1997 and 1998, respectively.
(j) Postretirement Benefits
The Company has no obligations for postretirement benefits.
(k) Comprehensive Income
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 the annual financial statements. 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
was the same as the reported net loss for all periods presented.
(2) Income Taxes
The Company follows the provisions of SFAS No. 109, Accounting for Income
Taxes. Under the provisions of SFAS No. 109, the Company recognizes a
current tax liability or asset for current taxes payable or refundable and
a deferred tax liability or asset for the estimated future tax effects of
temporary differences between the carrying value of assets and liabilities
for financial reporting and their tax basis and carryforwards to the extent
they are realizable.
F-9
<PAGE>
MATRITECH, INC.
NOTES TO FINANCIAL STATEMENTS
(Continued)
The net operating loss carryforwards and tax credits expire as follows:
<TABLE>
<CAPTION>
State
Federal Net Net Operating
Operating loss Loss Tax Credit
Expiration Date Carryforwards Carryforwards Carryforwards
- --------------- -------------- ------------- -------------
<S> <C> <C> <C>
1999 - $ 4,344,000
2000 - 3,715,000
2001 - 3,986,000
2002 - 2,048,000
2003-2018 32,500,000 9,207,000 $1,719,000
----------- ----------- ----------
$32,500,000 $23,300,000 $1,719,000
=========== =========== ==========
</TABLE>
The Company's net deferred tax asset consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
1997 1998
<S> <C> <C>
Net operating loss carryforwards $10,874,000 $14,008,000
Capitalized research and development expenses 2,670,000 3,530,000
Tax credits 1,376,000 1,719,000
Temporary differences (37,000) (21,000)
----------- -----------
Net deferred tax asset 14,883,000 19,236,000
Valuation allowance (14,883,000) (19,236,000)
----------- -----------
$ - $ -
=========== ===========
</TABLE>
The valuation allowance has been provided due to the uncertainty
surrounding the realization of the deferred tax asset.
(3) Lease Commitments
The Company leases office and laboratory facilities and certain equipment
under operating leases that expire through 2000. Annual commitments under
these operating leases are as follows:
YEAR AMOUNT
1999 $249,000
2000 242,000
--------
$491,000
========
Rent expense for the years ended December 31, 1996, 1997 and 1998 was
approximately $333,000, $275,000 and $275,000, respectively.
F-10
<PAGE>
MATRITECH, INC.
NOTES TO FINANCIAL STATEMENTS
(Continued)
(4) Note Payable
In August 1997, the Company entered into an equipment line of credit under
which it could borrow up to $1,200,000 for equipment purchases. This line
of credit has since expired and in October 1997, the outstanding balance
was converted into a 48 month term note. The term note bears interest at
11.75% and is secured by the underlying equipment. Payments under the term
note payable are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, AMOUNT
<S> <C> <C>
1999 $68,271
2000 76,745
2001 63,746
--------
$208,762
========
</TABLE>
(5) Common Stock
(a) Sale of Common Stock
In May 1997, the Company completed a private placement of 2,200,000
shares of common stock at $5 per share resulting in proceeds of
approximately $10,904,000, net of commissions and issuance costs. In
connection with the private placement, the Company issued to the
placement agent 257,609 shares of common stock and a warrant to
purchase 245,761 shares of common stock at $5 per share. During 1997,
5,530 of these warrants were exercised for 1,395 shares of common
stock.
(b) Warrants
In connection with a private placement in September 1994, the Company
issued a warrant to purchase 234,637 units at an exercise price equal
to $2.25 per unit to the placement agent ("Placement Agent Warrants").
Each Placement Agent Warrant converts into one share of common stock
and one Class B nonredeemable common stock purchase warrant. During
1996, 214,637 of the Placement Agent Warrants and 204,637 of the
underlying Class B non redeemable common stock purchase warrants were
exercised for net proceeds of $756,886, pursuant to which the Company
issued 400,693 shares of common stock. At December 31, 1997 and 1998,
there are 20,000 Placement Agent Warrants and 10,000 Class B
nonredeemable common stock purchase warrants outstanding.
In April 1997, the Company issued a warrant to a public relations
consultant for the purchase of up to 150,000 shares of the Company's
common stock for a price of $6.50 per share expiring in April 2002.
These warrants were valued at approximately $500,000 in accordance
with SFAS No. 123 and were expensed ratably over the one-year term of
the agreement. The Company expensed $150,000 and $350,000 as a
component of selling, general and administrative expenses on the
accompanying statement of operations for the years ended December 31,
1998 and 1997, respectively.
F-11
<PAGE>
MATRITECH, INC.
NOTES TO FINANCIAL STATEMENTS
(Continued)
(c) Stock Option and Purchase Plans
The Company has granted incentive and nonqualified options under its
1988 and 1992 option plans and the 1992 Directors' Plan. All option
grants, prices and vesting periods are determined by the Board of
Directors. Incentive stock options must be granted at a price not less
than the fair market value on the date of grant.
There are 375,461 common shares available for future grants under
existing option plans at December 31, 1998. The following table
summarizes stock option activity:
<TABLE>
<CAPTION>
NUMBER OPTION PRICE PER
OF OPTIONS SHARE
<S> <C> <C>
Options outstanding, December 31, 1995 438,124 .82- 5.00
Granted 624,649 3.63- 13.13
Exercised (104,294) .82- 3.38
Terminated (38,701) 1.81- 13.13
--------- -------------
Options outstanding, December 31, 1996 919,778 .82- 13.13
Granted 195,671 4.00- 8.06
Exercised (12,878) 1.37- 4.00
Terminated (55,626) 1.81- 12.00
--------- -------------
Options outstanding, December 31, 1997 1,046,945 $ .82- $13.13
Granted 320,725 1.44- 4.375
Exercised (43,513) .82- 4.00
Terminated (114,997) .82- 13.125
--------- -------------
Options outstanding, December 31, 1998 1,209,160 $1.37- $13.13
========= =============
Options exercisable, December 31, 1998 606,221 $1.37- $13.13
========= =============
</TABLE>
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------------------ ---------------------
WEIGHTED
AVERAGE
REMAINING WEIGHTED WEIGHTED
CONTRACTUAL AVERAGE AVERAGE
RANGE OF EXERCISE NUMBER LIFE (IN EXERCISE NUMBER EXERCISE
PRICE OUTSTANDING YEARS) PRICE EXERCISABLE PRICE
<S> <C> <C> <C> <C> <C>
$1.37 - $ 3.38 473,779 7.62 $ 1.95 203,254 $ 1.93
3.62 - 7.87 623,781 7.89 6.86 292,167 6.84
8.06 - 13.13 111,600 7.89 10.63 110,800 10.82
-------------- ------------ --------- --------- ----------- ----------
Total 1,209,160 7.78 $ 5.31 606,221 $ 5.92
</TABLE>
F-12
<PAGE>
MATRITECH, INC.
NOTES TO FINANCIAL STATEMENTS
(Continued)
The Company has reserved and may issue up to an aggregate of 225,000
shares of common stock under the Employee Stock Purchase Plan pursuant to
which stock is sold at 85% of fair market value, as defined. At December
31, 1997 and 1998, the Company has accumulated payroll deductions of
$26,996 and $3,975, respectively, for the issuance of 6,352 shares and
2,650 shares of common stock, respectively, which are issued in the
following year to employees pursuant to the plan. At December 31, 1998,
189,925 shares are available for issuance under the plan.
In October 1995, the Financial Accounting Standards Board ("FASB")
issued SFAS No. 123, Accounting for Stock-Based Compensation. SFAS No.
123 requires the measurement of the fair value of stock options,
including stock purchase plans, or warrants granted to employees to be
included in the statement of operations or disclosed in the notes to
financial statements. The Company has determined that it will continue to
account for stock-based compensation for employees under Accounting
Principles Board Opinion No. 25 and elect the disclosure-only alternative
under SFAS No. 123. The Company has computed the pro forma disclosures
required under SFAS No. 123 for options granted in 1996, 1997 and 1998
and stock issued pursuant to the stock purchase plan using the Black-
Scholes option pricing model prescribed by SFAS No. 123. The weighted
average assumptions used for 1996 1997 and 1998 are as follows:
1996 1997 1998
Risk-free interest rate 5.54%-6.83% 5.83%-6.86% 4.65%-5.56%
Expected dividend yield - - -
Expected life 7 years 7 years 7 years
Expected volatility 80% 65% 65%
The Black-Scholes option-pricing model was developed for use in
estimating the fair value of traded options which have no vesting
restrictions and are fully transferable. In addition, option-pricing
models require the input of highly subjective assumptions including
expected stock price volatility. Because the Company's employee stock
options have characteristics significantly different from those of traded
options, and because changes in the subjective input assumptions can
materially affect the fair value estimate, in management's opinion, the
existing models do not necessarily provide a reliable single measure of
the fair value of its employee stock options.
The total fair value of the options granted during 1996, 1997 and 1998
was computed as approximately $4,065,000, $819,000 and $504,000,
respectively. Of these amounts, approximately $196,000, $1,130,000 and
$1,143,000 would be charged to operations for the years ended December
31, 1996, 1997 and 1998, respectively. The remaining amount,
approximately $2,363,000, would be amortized over the remaining vesting
period of the underlying options. The resulting pro forma compensation
expense may not be representative of the amount to be expected in future
years as pro forma compensation expense may vary based upon the number of
options granted.
F-13
<PAGE>
MATRITECH, INC.
NOTES TO FINANCIAL STATEMENTS
(Continued)
The pro forma net loss and pro forma net loss per common share presented
below have been computed assuming no tax benefit. The effect of a tax
benefit has not been considered since a substantial portion of the stock
options granted are incentive stock options and the Company does not
anticipate a future deduction associated with the exercise of these stock
options.
The pro forma effect of SFAS No. 123 for the years ended December 31,
1996, 1997 and 1998 is as follows:
<TABLE>
<CAPTION>
1996
<S> <C> <C>
AS REPORTED PRO FORMA
Net loss $(5,164,675) $(5,360,717)
=========== ===========
Basic and diluted net loss per share $ (.32) $ (.34)
=========== ===========
1997
AS REPORTED PRO FORMA
Net loss $(7,475,087) $(8,605,405)
=========== ===========
Basic and diluted net loss per share $ (.43) $ (.49)
=========== ===========
1998
AS REPORTED PRO FORMA
Net loss $(7,535,524) $(8,678,197)
=========== ===========
Basic and diluted net loss per share $ (.40) $ (.47)
=========== ===========
</TABLE>
(d) Reserved Shares
As of December 31, 1998, the following shares of common stock were
reserved and available for future issuance:
1988 and 1992 Stock Option Plans 1,369,621
1992 Employee Stock Purchase Plan 189,925
Exercise of warrants outstanding 440,231
1992 Director Stock Option Plan 215,000
---------
2,214,777
=========
F-14
<PAGE>
MATRITECH, INC.
NOTES TO FINANCIAL STATEMENTS
(Continued)
(6) License Agreement
(a) MIT License Agreement
MIT has granted the Company a worldwide exclusive license to certain
technology, which was extended when the Company obtained FDA approval
of its first cancer diagnostic product in 1996, until the expiration
of all patent rights in 2006. Pursuant to the license agreement, the
Company pays royalties on the sales of products incorporating the
licensed technology. The Company paid $25,984, $19,096 and $17,776 in
royalties in the years ended December 31, 1996, 1997, and 1998.
(b) Hybritech License Agreement
In August 1994, the Company entered into a non-exclusive license
agreement with Hybritech, Inc. for the manufacture and sale of certain
patented technology for immunometric assays using monoclonal
antibodies. The Company is required to pay a royalty equal to the
greater of 8% of net sales of licensed products or $25,000 per year
until the expiration of patent rights on a country-by-country basis
beginning in 2000 through 2008. The Company paid $25,000, $53,863 and
$25,000 in royalties during the years ending December 31, 1996, 1997
and 1998, respectively. The Company presently is evaluating this
license to determine whether future royalties, if any, are due on the
future sale of any Matritech product.
(7) Collaboration Agreements
(a) Joint Development and Distribution with Bayer
In 1995, Matritech signed a joint development and distribution agreement
with Bayer for the identification of cervical cancer-specific NMPs and the
development of monoclonal antibodies which recognize malignant and pre-
malignant or dysplastic cervical cancer cells. In the years ended December
31, 1996 and 1997, the Company recorded revenues of $120,000, $140,000,
respectively. No revenues were recorded in the year ended December 31,
1998.
In December 1997, Matritech submitted pre-clinical evaluation data to Bayer
which had been providing 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 NMP-179 has terminated and Bayer is no longer
obligated to provide further funding towards the commercialization of the
system. Matritech has regained all marketing and product rights which had
been granted to Bayer Corporation in the cervical cancer development and
supply agreement between the two companies.
(b) Yamanouchi Pharmaceutical, Co., Ltd.
On November 10, 1998 the Company amended its development and supply
agreement with Yamanouchi Pharmaceutical, Co., Ltd. resulting in the
termination of development, supply and marketing rights. In addition,
Matritech reacquired all rights under the agreement in exchange for a two-
percent royalty on future product sales covered by this agreement, sold in
Japan, not to exceed $2,000,000.
F-15
<PAGE>
MATRITECH, INC.
NOTES TO FINANCIAL STATEMENTS
(Continued)
(8) Accrued Expenses
Accrued expenses consist of the following:
DECEMBER 31,
1997 1998
Payroll and related costs $120,371 $245,777
Professional fees 52,027 222,107
Royalties - 55,598
Clinical trials costs 134,798 37,484
Other 4,108 12,456
Printing and design costs 43,600 -
-------- --------
$354,904 $573,422
======== ========
(9) Segment and Geographic Information
The Company has adopted SFAS No. 131, Disclosures about Segments of an
Enterprise and Related Information in the fiscal year ended December 31,
1998. SFAS 131 establishes standards for reporting information regarding
operating segments in annual financial statements and requires selected
information for those segments to be presented in interim financial reports
issued to stockholders. SFAS 131 also establishes standards for related
disclosures about products and services and geographic areas. Operating
segments are identified as components of an enterprise about which separate
discrete financial information is available for evaluation by the chief
operating decision maker or decision making group, in making decisions how
to allocate resources and assess performance. The Company's chief decision
maker, as defined under SFAS 131, is a combination of the Chief Executive
Officer, President and the Chief Financial Officer. To date, the Company
has viewed its operations and manages its business as principally one
segment, the sale of cancer diagnostic products. Associated services are
not significant. As a result, the financial information disclosed herein,
represents all of the material financial information related to the
principal operating segment.
Geographic information product sales by destination as a percentage of
total product sales are as follows:
YEARS ENDED DECEMBER 31,
1996 1997 1998
United States 24.0% 41.9% 52.1%
Europe 41.5 37.0 36.0
Japan 31.5 1.4 6.2
All other 3.0 19.7 5.7
---- ---- ----
100% 100% 100%
Product sales were $1,678,000, $602,000 and $895,000 in the years ended
December 31, 1996, 1997, and 1998, respectively. All of the Company's
products were shipped from its facilities located in the United States.
F-16
<PAGE>
MATRITECH, INC.
NOTES TO FINANCIAL STATEMENTS
(Continued)
(10) Subsequent event
In March 1999, certain private investors agreed to invest approximately
$4.0 million in the Company through a private placement of 3,094,811 shares
of its Common Stock. The financing is expected to close in early April
1999, subject to customary closing conditions. Matritech expects to receive
net proceeds of approximately $3,940,000 after deducting the estimated
expenses of the transaction. Matritech agreed to file a registration
statement with the Securities and Exchange Commission covering the resale
of the shares issued in connection with this private placement. The purpose
of this transaction is to provide working capital, when combined with the
reserves in Matritech's treasury at the beginning of the year, to
adequately support the Company into the year 2000.
F-17
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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, in the City of Newton,
Commonwealth of Massachusetts, on the 30th day of March, 1999.
MATRITECH, INC.
By: /s/ Stephen D. Chubb
-----------------------------
Stephen D. Chubb
Director, Chairman and Chief
Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
/s/ Stephen D. Chubb Director, Chairman, Chief Executive March 30, 1999
- ----------------------------------------- Officer and Treasurer (Principal
Stephen D. Chubb Executive Officer)
/s/ David L. Corbet Director, President and Chief Operating March 30, 1999
- ----------------------------------------- Officer
David L. Corbet
/s/ Robert W. Morgan Vice President and Chief Financial March 30, 1999
- ----------------------------------------- Officer (Principal Accounting and
Robert W. Morgan Financial Officer)
/s/ J. Robert Buchanan Director March 30, 1999
- -----------------------------------------
J. Robert Buchanan
/s/ Thomas R. Morse Director March 30, 1999
- -----------------------------------------
Thomas R. Morse
/s/ David Rubinfien Director March 30, 1999
- -----------------------------------------
David Rubinfien
/s/ T. Stephen Thompson Director March 30, 1999
- -----------------------------------------
T. Stephen Thompson
/s/ C. William Zadel Director March 30, 1999
- -----------------------------------------
C. William Zadel
</TABLE>
<PAGE>
EXHIBIT INDEX
-------------
Exhibit Number Description of Exhibit
-------------- ----------------------
3.1 Amended and Restated Certificate of Incorporation of
the Registrant (filed as Exhibits 3, 4.1 to the
Company's Registration Statement No. 33-46158 on
Form S-1 and incorporated herein by reference).
3.2 Amended and Restated By-Laws of the Registrant (filed
as Exhibits 3.2, 4.1 to the Company's Registration
Statement No. 33-46158 on Form S-1 and incorporated
herein by reference).
3.3 Certificate of Amendment dated June 16, 1994, of
Amended and Restated Certificate of Incorporation of
the Registrant (filed as Exhibit 3.2 of the Company's
Quarterly Report on Form 10-Q for the fiscal quarter
ended June 30, 1995 and incorporated herein by
reference).
3.4 Certificate of Amendment dated June 5, 1995, of Amended
and Restated Certificate of Incorporation of the
Registrant (filed as Exhibit 3.3 of the Company's
Quarterly Report on Form 10-Q for the fiscal quarter
ended June 30, 1995 and incorporated herein by
reference).
4.1 Description of Capital Stock contained in the
Registrant's Amended and Restated Certificate of
Incorporation, filed as Exhibits 3.1, 3.3 and 3.4.
10.1* License Agreement between Matritech and the
Massachusetts Institute of Technology dated December
14, 1987, as amended March 15, 1988, December 20, 1989
and March 4, 1992 (filed as Exhibit 10.1 to the
Company's Registration Statement No. 33-46158 on
Form S-1 and incorporated herein by reference).
10.2+ 1988 Stock Plan (filed as Exhibit 10.8 to the Company's
Registration Statement No. 33-46158 on Form S-1 and
incorporated herein by reference).
10.3+ 1992 Stock Plan as amended as of June 13, 1997 (filed
as Exhibit 10.4 to the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 1997 and
incorporated herein by reference).
10.4+ Amended and Restated 1992 Non-Employee Director Stock
Plan as amended as of June 7, 1996 (filed as Exhibit
10.2 to the Company's Quarterly Report on Form 10-Q for
the fiscal quarter ended June 30, 1996 and incorporated
herein by reference).
<PAGE>
10.5+ 1992 Employee Stock Purchase Plan (filed as Exhibit
10.11 to the Company's Registration Statement No. 33-
46158 on Form S-1 and incorporated herein by
reference).
10.6 Second Amended and Restated Registration Rights
Agreement dated May 4, 1990, as amended February 26,
1992 (filed as Exhibit 10.13 to the Company's
Registration Statement No. 33-46158 on Form S-1 and
incorporated herein by reference).
10.7 Form of Indemnity Agreement with directors (filed as
Exhibit 10.14 to the Company's Registration Statement
No. 33-46158 on Form S-1 and incorporated herein by
reference).
10.8 Fourth Amendment dated March 18, 1993 to License
Agreement between the Company and the Massachusetts
Institute of Technology dated December 14, 1987, as
amended (filed as Exhibit 10.9 to the Company's Annual
Report on Form 10-K for the fiscal year ended December
31, 1997 and incorporated herein by reference).
10.9* License Agreement between the Company and The Johns
Hopkins University dated as of August 4, 1993 (filed as
Exhibit 10.2 to the Company's Quarterly Report on Form
10-Q for the quarter ended September 30, 1993 and on
paper as File No. 1-12128 and incorporated herein by
reference).
10.10 Fifth Amendment dated April 14, 1994 to License
Agreement between the Company and the Massachusetts
Institute of Technology dated December 14, 1987 (filed
as Exhibit 10.1 to the Company's Form 10-Q for the
quarter ended March 31, 1994 and incorporated herein by
reference).
10.11* Exclusive Distribution Agreement between the Company
and Konica Corporation dated as of November 9, 1994.
(Filed as Exhibit 10.26 to the Company's Annual Report
on Form 10-K for the fiscal year ended December 31,
1994 and incorporated herein by reference).
10.12* License Agreement between the Company and Yale
University dated as of March 21, 1995 (filed as Exhibit
10.2 to the Company's Quarterly Report on Form 10-Q for
the quarter ended March 31, 1995 and incorporated
herein by reference).
10.13 Lease Agreement between the Company and One Nevada
Realty Trust dated October 6, 1995 (filed as Exhibit
10.2 to the Company's Quarterly Report on Form 10-Q for
the fiscal quarter ended September 30, 1995 and
incorporated herein by reference).
<PAGE>
10.14 Sixth Amendment dated March 1, 1996 to License
Agreement between Matritech and the Massachusetts
Institute of Technology dated December 31, 1987, as
amended (filed as Exhibit 10.26 to the Company's Annual
Report on Form 10-K for the fiscal year ended December
31, 1995 and incorporated herein by reference).
10.15 Senior Loan and Security Agreement No. 0096 between the
Company and Phoenix Leasing, Incorporated dated August
29, 1997 including form of Senior Secured Promissory
Note between the Company and Phoenix Leasing,
Incorporated (filed as Exhibit 10.20 to the Company's
Annual Report on Form 10-K for the fiscal year ended
December 31, 1997 and incorporated herein by
reference).
10.16* Distributorship Agreement by and between the Company
and Curtin Matheson Scientific, a division of Fisher
Scientific Company, L.L.C. dated as of March 19, 1998
(filed as Exhibit 10.21 to the Company's Annual Report
on Form 10-K for the fiscal year ended December 31,
1997 and incorporated herein by reference).
10.17** Form of Subscription Agreement dated March 10, 1999 by
and between the Company and certain investors.
23** Consent of Arthur Andersen LLP.
27** Financial Data Schedule.
___________________
* Confidential Treatment Granted for portions thereof
** Filed herewith
+ Indicates management contract or compensatory plan or arrangement required
to be filed as an exhibit to this Form 10-K pursuant to Item 14(c) of this
report.
<PAGE>
Exhibit 10.17
SUBSCRIPTION AGREEMENT
THIS AGREEMENT is by and between MATRITECH, INC. (the "Company"), a Delaware
corporation with offices at 330 Nevada Street, Newton, Massachusetts 02460
U.S.A., and the purchaser whose name and address is set forth on the signature
page hereto (the "Purchaser").
IN CONSIDERATION of the mutual covenants contained in this Agreement and good
and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties agree as follows:
SECTION 1. Authorization of Shares. The Company has authorized the sale of
-----------------------
up to a maximum of 3,500,000 shares (the "Shares") of the Company's Common
Stock, $.01 par value (the "Common Stock").
SECTION 2. Agreement to Sell and Purchase the Shares. At the Closing (as
-----------------------------------------
defined in Section 4), the Company will sell to the Purchaser, and the Purchaser
will buy from the Company, upon the terms and conditions hereinafter set forth,
the number of Shares set forth on the signature page hereof at a purchase price
per Share equal to $_____ (the "Purchase Price").
The Company represents and warrants that, at the Closing or subsequent
closings, the Company may enter into substantially this same form of purchase
agreement with certain other investors (the "Other Purchasers"). The Purchaser
and the Other Purchasers are hereinafter sometimes collectively referred to as
the "Purchasers," and this Agreement and the agreements executed by the Other
Purchasers are hereinafter sometimes collectively referred to as the
"Agreements."
SECTION 3. Payment of Purchase Price. On or prior to the Closing Date, as
-------------------------
defined below, the Purchaser will deliver to the Company the full amount of the
aggregate Purchase Price for the Shares purchased hereunder by check or wire
transfer of funds.
SECTION 4. The Closing. The consummation of the transactions contemplated
-----------
by this Agreement (the "Closing") shall occur on a date (the "Closing Date") not
more than sixty (60) days from the date hereof and at such place and time as
shall be mutually agreed by the Company and the Purchasers. At the Closing, the
Company shall deliver to the Purchaser one or more common stock certificates
registered in the name of the Purchaser, or, if so indicated on the signature
page hereof, in the name of a nominee designated by the Purchaser, representing
the number of Shares to be purchased by it.
SECTION 5. Representations, Warranties and Covenants of the Company. The
--------------------------------------------------------
Company hereby represents and warrants to, and covenants with, the Purchaser
that, except as disclosed in the Company's Confidential Private Placement
Memorandum dated March 1999, including the exhibits thereto and as supplemented
from time to time prior to the Closing (the "Memorandum"), distributed in
connection with the offer and sale of the Shares, the following statements are
true correct:
<PAGE>
-2-
SECTION 5.1. Organization. The Company is duly organized and validly
------------
existing in good standing under the laws of the State of Delaware. The Company
has full power and authority to own, operate and occupy its properties and to
conduct its business as presently conducted and is registered or qualified to do
business and in good standing in each jurisdiction in which it owns or leases
property or transacts business and where the failure to be so qualified would
have a material adverse effect upon the business, financial condition,
properties or operations of the Company.
SECTION 5.2. Due Authorization. The Company has all requisite power and
-----------------
authority to execute, deliver and perform its obligations under this Agreement,
and this Agreement has been duly authorized and validly executed and delivered
by the Company and constitutes legal, valid and binding agreements of the
Company enforceable against the Company in accordance with their respective
terms, except as rights to indemnity and contribution may be limited by state or
federal securities laws or the public policy underlying such laws, except as
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting creditors' and contracting
parties' rights generally and except as enforceability may be subject to general
principles of equity (regardless of whether such enforceability is considered in
a proceeding in equity or at law).
SECTION 5.3. Non-Contravention. The execution and delivery of this
-----------------
Agreement, the issuance and sale of the Shares to be sold by the Company
hereunder, and the consummation of the transactions contemplated hereby will not
conflict with or constitute a violation of, or default (with the passage of time
or otherwise) under, any material agreement or instrument to which the Company
is a party or by which it is bound or the Amended and Restated Certificate of
Incorporation, as amended (the "Charter") or the Amended and Restated By-Laws,
as amended, of the Company nor result in the creation or imposition of any lien,
encumbrance, claim, security interest or restriction upon any of the material
properties or assets of the Company or an acceleration of indebtedness pursuant
to any obligation, agreement or condition contained in any material bond,
debenture, note or any other evidence of indebtedness or any material indenture,
mortgage, deed of trust or any other agreement or instrument to which the
Company is a party or by which the Company is bound or to which any of the
property or assets of the Company is subject, nor conflict with, or result in a
violation of, any law, administrative regulation, ordinance or order of any
court or governmental agency, arbitration panel or authority applicable to the
Company. No consent, approval, authorization or other order of, or
registration, qualification or filing with, any regulatory body, administrative
agency, or other governmental body in the United States, other than with respect
to "blue sky" laws, is required for the valid issuance and sale of the Shares to
be sold pursuant to this Agreement (other than such as have been made or
obtained).
SECTION 5.4. Capitalization. The capitalization of the Company is as set
--------------
forth in the Memorandum as of the date indicated therein. The Company has not
issued any capital stock since that date other than shares of Common Stock
issued upon exercise of outstanding options or warrants. The Shares have been
duly authorized, and when issued and paid for in accordance with the terms of
this Agreement, will be validly issued, fully paid and nonassessable.
<PAGE>
-3-
SECTION 5.5. Legal Proceedings. There is no material legal or governmental
-----------------
proceeding pending or, to the knowledge of the Company, threatened or
contemplated to which the Company is or may be a party or of which the business
or property of the Company is or may be subject.
SECTION 5.6. No Violations. The Company is not in violation of its Charter
-------------
or By-Laws, in violation of any law, administrative regulation, ordinance or
order of any court or governmental agency, arbitration panel or authority
applicable to the Company, which violation, individually or in the aggregate,
would have a material adverse effect on the business or financial condition of
the Company, or is in default in any material respect in the performance of any
obligation, agreement or condition contained in any bond, debenture, note or any
other evidence of indebtedness in any indenture, mortgage, deed of trust or any
other agreement or instrument to which the Company is a party or by which the
Company is bound or by which the properties of the Company are bound or
affected, and there exists no condition which, with the passage of time or
otherwise, would constitute a material default under any such document or
instrument or result in the imposition of any material penalty or the
acceleration of any indebtedness.
SECTION 5.7. Governmental Permits, Etc. The Company has all necessary
-------------------------
franchises, licenses, certificates and other authorizations from any foreign,
federal, state or local government or governmental agency, department, or body
that are currently necessary for the operation of the business of the Company as
currently conducted and as described in the Memorandum, the absence of which
would have a material adverse effect on the business or operations of the
Company.
SECTION 5.8. Financial Statements. The financial statements of the Company
--------------------
and the related notes contained in the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1997 and its Quarterly Reports on Form 10-Q
for the three-month periods ended March 31, 1998, June 30, 1998 and September
30, 1998 attached as an exhibit to the Memorandum (collectively, the "SEC
Filings"), present fairly the financial position of the Company, as of the dates
indicated therein, and the results of its operations and cash flows for the
periods therein specified. Such financial statements (including the related
notes) have been prepared in accordance with generally accepted accounting
principles applied on a consistent basis throughout the periods therein
specified and are true, correct and complete in all respects.
SECTION 5.9. Placement Memorandum. The information contained in the
--------------------
Memorandum (including the SEC Filings incorporated therein) is true and correct
in all material respects; and the Memorandum does not contain an untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.
SECTION 5.10. Additional Information. The Company has filed in a timely
----------------------
manner all documents that the Company was required to file under the Securities
Exchange Act of 1934, as amended (the "Exchange Act") during the 12 months
preceding the date of this Agreement. The following documents complied in all
material respects with the requirements of the Exchange Act as of their
respective filing dates, and the information contained therein was true and
correct
<PAGE>
-4-
in all material respects as of the date of such documents, and each of the
following documents as of the date thereof did not contain an untrue statement
of a material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading:
(a) The Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1997, its Quarterly Reports on Form 10-Q for the three-
month periods ended March 31, 1998, June 30, 1998 and September 30,
1998, its Current Report on Form 8-K dated May 14, 1998 and its
Proxy Statement for the Annual Meeting of Stockholders held on June
19, 1998; and
(b) all other documents, if any, filed by the Company with the
Securities and Exchange Commission (the "SEC") since the filing of
the Quarterly Report on Form 10-Q for the three-month period ended
September 30, 1998 pursuant to the reporting requirements of the
Exchange Act.
SECTION 5.11. Intellectual Property. The Company owns all right, title and
---------------------
interest in and to, all of the intellectual property owned and used by it (the
"Intellectual Property") free and clear of any liens or encumbrances; in any
case in which the Company does not own such Intellectual Property, it has good
and valid licenses for the same which are in full force and effect; in either
case, the Company has the right to use all Intellectual Property as now used in
its business. No claims have been asserted with respect to the use of any such
Intellectual Property or challenging or questioning the validity or
effectiveness of any such license or agreement.
SECTION 5.12. Default on Contracts. (a) The Company is not in violation of,
--------------------
or (with or without notice or the passage of time or both) in default under, any
term or provision of any contract, mortgage, deed of trust, bond, indenture,
lease, license, note, franchise certificate, option, warrant, right or other
instrument, undertaking, document or written agreement and any oral obligation,
right or agreement of any kind and nature whatsoever (hereinafter collectively
referred to as "Contracts" to which the Company is a party or by or to which the
Company or its assets or properties may be bound or affected or subject, which
violation or default might reasonably be expected to have a material adverse
effect on the Company or its business, condition (financial or otherwise),
operations, assets, properties or prospects of any of them. The Company is not
aware of any fact, circumstance or event which reasonably can be expected in the
future to cause a violation or default as described in the preceding sentence.
(b) To the best knowledge of the Company, no party to any Contract
material to the business, condition (financial or otherwise), operations,
assets, properties or prospects of the Company is in violation or default
thereunder, which violation or default might reasonably be expected to have a
material adverse effect on the business, condition (financial or otherwise),
operations, assets, properties or prospects of the Company, and there exists no
fact, circumstance or event, including the transactions contemplated by this
Agreement, which reasonably can be expected in the future to cause any such
party to be in any such violation or default, or which reasonably can be
expected in the future to permit any such party to terminate any such Contract,
which termination might reasonably be expected to have a material adverse effect
on the business, condition (financial or otherwise), operations, assets,
properties or prospects of the Company.
<PAGE>
-5-
SECTION 5.13. Listing. The Company shall use its best efforts to comply
-------
with all requirements of the National Association of Securities Dealers, Inc.
(the "NASD") and The Nasdaq Stock Market, Inc. with respect to the issuance of
the Shares and the listing of the Shares on the Nasdaq National Market.
SECTION 6. Representations, Warranties and Covenants of the Purchaser.
----------------------------------------------------------
(a) The Purchaser represents and warrants to, and covenants with, the
Company, as of the date hereof and as of the Closing Date, that: (i) the
Purchaser is an "accredited investor" as defined in the Memorandum; (ii) the
Purchaser is acquiring the number of Shares set forth below for its own account
for investment and with no present intention of distributing any of such Shares
(this representation and warranty not limiting the Purchaser's right to sell
pursuant to an effective registration statement registering the Shares for
resale or to be indemnified pursuant to the provisions hereof); (iii) the
Purchaser will not, directly or indirectly, voluntarily offer, sell, pledge,
transfer or otherwise dispose of (or solicit any offers to buy, purchase or
otherwise acquire or take a pledge of) any of the Shares, except in compliance
with the Securities Act of 1933, as amended (the "Securities Act") and the rules
and regulations promulgated thereunder; (iv) the Purchaser has had an
opportunity to ask questions and receive answers from the management of the
Company regarding the Company, its business and the offering of the Shares; (v)
the Purchaser has completed or caused to be completed the Questionnaire which is
a part hereof and the answers thereto are true and correct to the best knowledge
of the Purchaser as of the date hereof and will be true and correct as of the
effective date of the registration statement referred to in Section 9.1; (vi)
the Purchaser will notify the Company immediately of any change in any of such
information until such time as the Purchaser has sold all of its Shares or until
the Company is no longer required to keep such registration statements effective
pursuant to Sections 9.1(c); and (vii) the Purchaser has, in connection with its
decision to purchase Shares, relied solely upon the documents described in
Section 5.10 and Section 5.11 and the representations and warranties of the
Company contained herein.
(b) The Purchaser acknowledges, represents and agrees that no action
has been or will be taken in any jurisdiction outside the United States by the
Company that would permit an offering of the Shares, or possession or
distribution of offering material in connection with the issue of the Shares, in
any country or jurisdiction outside the United States where action for that
purpose is required. Each Purchaser outside the United States agrees to comply
with all applicable laws and regulations in each foreign jurisdiction in which
it purchases, offers, sells or delivers Shares or has in its possession or
distributes any offering material, in all cases at its own expense.
(c) The Purchaser agrees not to make any sale of the Shares, pursuant
to the registration statement referred to in Section 9.1 without effectively
causing the prospectus delivery requirements under the Securities Act to be
satisfied. The Purchaser acknowledges that there may occasionally be times when
the Company must suspend the use of the prospectus
<PAGE>
-6-
forming a part of the Registration Statement until such time as an amendment to
such registration statement has been filed by the Company and declared effective
by the SEC or until the Company has amended or supplemented such prospectus. The
Company agrees to use its best efforts to cause such amended registration
statement to be declared effective and/or to deliver such amended or
supplemented prospectus as soon as possible. The Purchaser hereby covenants that
it will not sell any Shares pursuant to said prospectus during the period
commencing at the time at which the Company gives the Purchaser notice of the
suspension of the use of said prospectus and ending at the time the Company
gives the Purchaser notice that the Purchaser may thereafter effect sales
pursuant to said prospectus.
(d) The Purchaser further represents and warrants to, and covenants
with, the Company that (i) the Purchaser has full right, power, authority and
capacity to enter into this Agreement and to consummate the transactions
contemplated hereby and has taken all necessary action to authorize the
execution, delivery and performance of this Agreement, and (ii) upon the
execution and delivery of this Agreement, this Agreement shall constitute a
valid and binding obligation of the Purchaser enforceable in accordance with its
terms, except as enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or similar laws affecting creditors' and
contracting parties' rights generally and except as enforceability may be
subject to general principles of equity (regardless of whether such
enforceability is considered in a proceeding in equity or at law) and except as
the indemnification agreements of the Purchaser herein may be legally
unenforceable.
SECTION 7. Survival of Representations, Warranties and Agreements.
------------------------------------------------------
Notwithstanding any investigation made by any party to this Agreement, all
covenants, agreements, representations and warranties made by the Company and
the Purchaser herein shall survive the execution of this Agreement, the delivery
to the Purchaser of the Shares being purchased and the payment therefor.
SECTION 8. Conditions to Closing.
---------------------
(a) The obligations of the Purchaser to consummate the transactions
contemplated hereby shall be subject to the satisfaction by the Company of each
of the following conditions on or before the Closing Date, any one or more of
which may be waived by the Purchaser:
(i) The representations and warranties of the Company set forth
in this Agreement delivered to the Purchaser by or on behalf of the Company
shall be true and correct as if made on the Closing Date.
(ii) Each of the covenants, agreements and conditions to be
performed and satisfied by the Company pursuant to this Agreement at or prior to
Closing shall have been duly performed and satisfied.
(b) The obligations of the Company to consummate the transactions
contemplated hereby shall be subject to the satisfaction by the Purchaser of
each of the following conditions on or before the Closing Date, any one or more
of which may be waived by the Company:
<PAGE>
-7-
(i) The representations and warranties of the Purchaser set forth in
this Agreement shall be true and correct as if made on the Closing Date.
(ii) Each of the covenants, agreements and conditions to be performed
and satisfied by the Purchaser pursuant to this Agreement at or prior to Closing
shall have been duly performed and satisfied.
(iii) The Purchaser shall have paid the Purchase Price in
accordance with Section 3.
SECTION 9. Registration of the Shares; Compliance with the Securities Act.
--------------------------------------------------------------
9.1. Registration Procedures and Expenses. The Company shall:
------------------------------------
(a) prepare and file with the SEC a registration statement (the
"Registration Statement") covering the resale of the Shares by the
Purchasers from time to time on the Nasdaq National Market or on
such securities market or system on which the Company's Common Stock
shall then be publicly traded, or in privately negotiated
transactions, no later than 30 days following the Closing Date;
(b) use its best efforts, subject to receipt of necessary information
from the Purchasers, to cause the Registration Statement to become
effective as soon as possible thereafter;
(c) prepare and file with the SEC such amendments and supplements to the
Registration Statement and the prospectus used in connection
therewith as may be necessary to comply with the provisions of the
Securities Act until the later of such time as all of the Shares
have been sold pursuant thereto or, by reason of Rule 144(k) under
the Securities Act or any other rule of similar effect, such shares
are no longer required to be registered for the unrestricted sale
thereof by the Purchasers;
(d) furnish to the Purchaser such number of copies of prospectuses and
preliminary prospectuses in conformity with the requirements of the
Securities Act and such other documents as the Purchaser may
reasonably request, in order to facilitate the public sale or other
disposition of all or any of the Shares held by the Purchaser,
provided, however, that the obligation of the Company to deliver
copies of prospectuses or preliminary prospectuses to the Purchaser
shall be subject to the receipt by the Company of reasonable
assurances from the Purchaser that the Purchaser will comply with
the applicable provisions of the Securities Act and of such other
securities or blue sky laws as may be applicable in connection with
any use of such prospectuses or preliminary prospectuses;
<PAGE>
-8-
(e) file documents required of the Company for normal blue sky clearance
in all states, provided, however, that the Company shall not be
required to qualify to do business or consent to service of process
in any jurisdiction in which it is not now so qualified or has not
so consented;
(f) bear all expenses in connection with the procedures in paragraphs
(a) through (c) of this Section 9.1, other than brokerage
commissions or placement agent fees and fees and expenses, if any,
of counsel or other advisers to the Purchaser or the Other
Purchasers with respect to the registration and resale of the
Shares; and
(g) prepare and file additional listing applications for the Shares on
the Nasdaq National Market.
The Company understands that the Purchaser disclaims being an underwriter, but
the Purchaser being deemed an underwriter shall not relieve the Company of any
obligations it has hereunder.
SECTION 9.2. Transfer of Shares After Registration. The Purchaser agrees
-------------------------------------
that it will not effect any disposition of the Shares, that would constitute a
sale within the meaning of the Securities Act except as contemplated in the
Registration Statements referred to in Section 9.1 or pursuant to an available
exemption from registration under the Securities Act and applicable state
securities laws.
SECTION 9.3. Indemnification.
---------------
(a) For the purpose of this Section 9.3:
(i) the term "Selling Shareholder" shall mean any person or entity
selling Shares pursuant to the Registration Statement, and any affiliate
thereof;
(ii) the term "Registration Statement" shall include any preliminary
prospectus, final prospectus, exhibit, supplement or amendment included in or
relating to the Registration Statement; and
(iii) the term "untrue statement" shall mean any untrue statement or
alleged untrue statement of a material fact in the Registration Statement, or
any omission or alleged omission to state in the Registration Statement a
material fact required to be stated therein or necessary to make the statements
therein, in the light of the circumstances under which they were made, not
misleading.
(b) The Company agrees to indemnify and hold harmless each Selling
Shareholder from and against any losses, claims, damages or liabilities to which
such Selling Shareholder
<PAGE>
-9-
may become subject (under the Securities Act or otherwise) insofar as such
losses, claims, damages or liabilities (or actions or proceedings in respect
thereof) arise out of, or are based upon, any untrue statement, or arise out of
any failure by the Company to fulfill any undertaking included herein or in the
Registration Statement, and the Company promptly will reimburse such Selling
Shareholder for any legal or other expenses reasonably incurred in
investigating, defending or preparing to defend any such action, proceeding or
claim; provided, however, that the Company shall not be liable in any such case
to the extent that such loss, claim, damage or liability arises out of, or is
based upon, an untrue statement made in reliance upon and in conformity with
written information furnished to the Company by or on behalf of such Selling
Shareholder specifically for use in preparation of the Registration Statement,
or the failure of such Selling Shareholder to comply with the covenants and
agreements contained herein; provided further, that the indemnification
contained in this Section 9.3 with respect to any prospectus after it has been
amended or supplemented, shall not inure to the benefit of any Selling
Shareholder (or any person controlling such Selling Shareholder) from whom the
person asserting such loss, claim, damage, or liability shall have purchased
Shares, that are the subject thereof if, after copies thereof have been
delivered by the Company to such Selling Shareholder, such Selling Shareholder
shall have failed to send or give a copy of the prospectus as then amended or
supplemented, as the case may be, to such person at or prior to the confirmation
of such sale of such Shares, to such person, and, if such loss, claim, damage or
liability would not have arisen but for the failure of such Selling Shareholder
to deliver the same.
(c) The Purchaser agrees to indemnify and hold harmless the Company (and
each other person, if any, who controls the Company within the meaning of
Section 15 of the Securities Act, each officer of the Company who signs the
Registration Statement and each director of the Company) from and against any
losses, claims, damages or liabilities to which the Company (or any such
officer, director or controlling person) may become subject (under the
Securities Act or otherwise), insofar as such losses, claims, damages or
liabilities (or actions or proceedings in respect thereof) arise out of, or are
based upon, any failure of the Purchaser to comply with its covenants and
agreements contained herein, or any untrue statement if such untrue statement
was made in reliance upon and in conformity with written information furnished
by or on behalf of the Purchaser specifically for use in preparation of the
Registration Statement, and the Purchaser promptly will reimburse the Company
(or such officer, director or controlling person), as the case may be, for any
legal or other expenses reasonably incurred in investigating, defending or
preparing to defend any such action, proceeding or claim.
(d) Promptly after receipt by any indemnified person of a notice of a
claim or the beginning of any action in respect of which indemnity is to be
sought against an indemnifying person pursuant to this Section 9.3, such
indemnified person shall notify the indemnifying person in writing of such claim
or of the commencement of such action, and, subject to the provisions
hereinafter stated, in case any such action shall be brought against an
indemnified person and such indemnifying person shall have been notified
thereof, such indemnifying person shall be entitled to participate therein, and,
to the extent it shall wish, to assume the defense thereof, with counsel
reasonably satisfactory to such indemnified person. After notice from the
indemnifying person to such indemnified person of its election to assume the
defense thereof, such indemnifying person shall not be liable to such
indemnified person for any legal expenses
<PAGE>
-10-
subsequently incurred by such indemnified person in connection with the defense
thereof. In the event that the indemnifying party shall have assumed the defense
of such action, such indemnifying party shall not enter into any compromise or
settlement without the indemnified party's prior written consent, which consent
shall not be unreasonably withheld, delayed or denied.
SECTION 9.4. Termination of Conditions and Obligations. The restrictions
-----------------------------------------
imposed by Section 6 or Section 9.2 upon the transferability of the Shares shall
cease and terminate as to any particular Shares when such Shares shall have been
effectively registered under the Securities Act and sold or otherwise disposed
of in accordance with the intended method of disposition set forth in the
Registration Statement or at such time as an opinion of counsel satisfactory to
the Company shall have been rendered to the effect that such restrictions are
not necessary in order to comply with the Securities Act. The Company will use
its best efforts to maintain the effectiveness of the Registration Statement
until all of the Purchasers have disposed of all of their Shares, or the Shares
have become freely tradable without restriction under Rule 144(k).
SECTION 9.5. Information Available. So long as the Registration Statement is
---------------------
effective covering the resale of Shares owned by the Purchaser, the Company will
furnish to the Purchaser upon request:
(a) any document filed by the Company with the SEC;
(b) upon the reasonable request of the Purchaser, any other information
concerning the Company that is generally available to the public;
and
(c) an adequate number of copies of the prospectuses relating to the
resale of the Shares to supply to any party requiring such
prospectuses.
SECTION 10. Notices. All notices, requests, consents and other
-------
communications hereunder shall be in writing, shall be mailed by first-class
registered or certified mail, postage prepaid, and shall be deemed given when so
mailed:
(a) if to the Company to:
Matritech, Inc.
330 Nevada Street
Newton, MA 02460
Attention: Chief Executive Officer
(b) if to the Purchaser, at its address as set forth at the end of
this Agreement, or at such other address or addresses as may have been furnished
to the Company in writing.
<PAGE>
-11-
SECTION 11. Termination.
-----------
(a) By the Purchaser. The Purchaser may terminate this Agreement
----------------
immediately, if at any time prior to the Closing, the Company shall cease
conducting business in the normal course; become insolvent or become unable to
meet its obligations as they become due; make a general assignment for the
benefit of creditors; petition, apply for, suffer or permit with or without its
consent the appointment of custodian, receiver, trustee in bankruptcy or similar
officer for all or any substantial part of its business or assets; avail itself
or become subject to any proceeding under the Federal Bankruptcy Code or any
similar state, federal or foreign statute relating to bankruptcy, insolvency,
reorganization, receivership, arrangement, adjustment of debts, dissolutions or
liquidation.
(b) By the Company. The Company may terminate this Agreement at any
--------------
time prior to the Closing.
SECTION 12. Changes. Any term of the Agreements may be amended or
-------
compliance therewith waived with the written consent of the Company and the
holders of a majority of the Shares purchased pursuant to the Agreements.
SECTION 13. Headings. The headings of the various sections of this
--------
Agreement have been inserted for convenience of reference only and shall not be
deemed to be part of this Agreement.
SECTION 14. Severability. In case any provision contained in this Agreement
------------
should be invalid, illegal or unenforceable in any respect, the validity,
legality and enforceability of the remaining provisions contained herein shall
not in any way be affected or impaired thereby.
SECTION 15. Governing Law. This Agreement shall be governed by and
-------------
construed in accordance with the internal laws of the Commonwealth of
Massachusetts and United States federal law.
SECTION 16. Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall constitute an original, but all of which, when
taken together, shall constitute but one instrument, and shall become effective
when one or more counterparts have been signed by each party hereto and
delivered to the other parties.
IN WITNESS WHEREOF, the parties hereto have caused this Stock Purchase
Agreement to be executed by their duly authorized representatives as of the
following date.
Dated: March ___, 1999
MATRITECH, INC.
By:
-------------------------
Title:
-----------------------
[Purchaser Signature Page Continues on the Following Page]
<PAGE>
-12-
PURCHASER SIGNATURE PAGE AND QUESTIONNAIRE
------------------------------------------
The undersigned Purchaser hereby executes the Securities Purchase Agreement
with Matritech, Inc. (the "Company") and hereby authorizes this signature page
to be attached to a counterpart of such document executed by a duly authorized
officer of the Company.
No. of Shares to be ______________________________
Purchased:_______________ Name of Purchaser [PLEASE
PRINT OR TYPE]
Aggregate Purchase By:___________________________
Price__________________$ [SIGN HERE]
Title:__________________________
Purchaser is an "accredited investor" as defined in Regulation D under the
Securities Act of 1933.
Name in which Shares are
to be registered: ______________________________
Address of registered holder: ______________________________
______________________________
Social Security or Tax ID Number: ______________________________
Contact name and telephone number
regarding settlement and ______________________________
registration: Name
______________________________
Telephone Number
Number of shares of common stock of the Company beneficially owned (meaning
shares owned or controlled or which the Purchaser has the right to acquire or
vote) by the Purchaser, other than the Shares being purchased pursuant
hereto:____________________
Have you or your organization had any position, office or other material
relationship with the Company within the past three years?
_____ Yes _____ No
Do you or your organization have any direct or indirect affiliation or
association with any NASD member? _____ Yes _____ No
If "Yes" to either of the last two questions, please indicate the nature of any
such relationships below:
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of
our report included in this Form 10-K, into the Company's previously filed
Registration Statement File Nos. 33-99724, 33-87432, 33-50244, 33-93198,
333-11913, 333-30179 and 333-57319.
/s/ Arthur Andersen LLP
-----------------------
ARTHUR ANDERSEN LLP
Boston, Massachusetts
March 31, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1998 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 4,146,821
<SECURITIES> 0
<RECEIVABLES> 162,261
<ALLOWANCES> 0
<INVENTORY> 336,398
<CURRENT-ASSETS> 4,759,062
<PP&E> 1,750,460
<DEPRECIATION> 1,065,060
<TOTAL-ASSETS> 5,511,825
<CURRENT-LIABILITIES> 971,353
<BONDS> 0
0
0
<COMMON> 186,266
<OTHER-SE> 45,364,731
<TOTAL-LIABILITY-AND-EQUITY> 5,511,825
<SALES> 895,000
<TOTAL-REVENUES> 1,425,437
<CGS> 0
<TOTAL-COSTS> 8,960,961
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (7,535,524)
<INCOME-TAX> 0
<INCOME-CONTINUING> (7,535,524)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (7,535,524)
<EPS-PRIMARY> (.40)
<EPS-DILUTED> (.40)
</TABLE>
