<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
X Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934: For the quarterly period ended September 30, 1999
OR
__ Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934: For the transition period from _______to_______
Commission file number: 0-12128
MATRITECH, INC.
---------------
(Exact Name of Registrant as Specified in Its Charter)
DELAWARE 04-2985132
-------- ----------
(State or Other (I.R.S. Employer
Jurisdiction of Identification No.)
Incorporation or
Organization)
330 NEVADA STREET, NEWTON, MASSACHUSETTS 02460
----------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
(617) 928-0820
--------------
(Registrant's Telephone Number, Including Area Code)
Indicate by check mark whether the registrant: (1) has filed all
reports required to be filed by Section 13 or 15 (d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No __
As of November 11, 1999, there were 21,724,217 shares of Common Stock
outstanding.
Page 1 of 18
The Exhibit Index is located on Page 18.
<PAGE> 2
MATRITECH, INC.
INDEX
PART I FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Page
----
<S> <C>
ITEM 1. FINANCIAL STATEMENTS
Balance Sheets at December 31, 1998
and September 30, 1999 3
Statements of Operations for the three and nine months ended
September 30, 1998 and 1999 5
Statements of Cash Flows for the nine months ended
September 30, 1998 and 1999 6
Notes to Financial Statements 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 10
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK 15
PART II OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 16
SIGNATURES 17
</TABLE>
Page 2 of 18
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
MATRITECH, INC.
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1998 1999
(UNAUDITED)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $4,146,821 $3,509,134
Accounts receivable, net 162,261 154,500
Inventories 336,398 338,905
Prepaid expenses 113,582 56,780
---------- ----------
Total current assets 4,759,062 4,059,319
---------- ----------
PROPERTY AND EQUIPMENT, at cost:
Laboratory equipment 1,418,042 1,440,920
Office equipment 212,698 217,150
Laboratory furniture 62,739 62,739
Leasehold improvements 56,981 56,981
---------- ----------
1,750,460 1,777,790
Less-Accumulated depreciation
and amortization 1,065,060 1,201,182
---------- ----------
685,400 576,608
---------- ----------
OTHER ASSETS, net 67,363 65,696
---------- ----------
$5,511,825 $4,701,623
========== ==========
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
Page 3 of 18
<PAGE> 4
MATRITECH, INC.
BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1998 1999
(UNAUDITED)
<S> <C> <C>
CURRENT LIABILITIES:
Current maturities of note payable $ 68,271 $ 59,521
Accounts payable 329,660 213,062
Accrued expenses 573,422 700,792
------------ ------------
Total current liabilities 971,353 973,375
------------ ------------
NOTE PAYABLE, LESS CURRENT
MATURITIES 140,491 98,794
------------ ------------
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 - 18,626,602
shares at December 31, 1998 and
21,724,217 shares at September 30, 1999 186,266 217,242
Additional paid-in capital 45,364,731 49,247,706
Accumulated deficit (41,151,016) (45,835,494)
------------ ------------
Total stockholders' equity 4,399,981 3,629,454
------------ ------------
$ 5,511,825 $ 4,701,623
============ ============
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
Page 4 of 18
<PAGE> 5
MATRITECH, INC.
STATEMENT OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1998 1999 1998 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
REVENUE:
Product sales and collaborative
research and development revenue $ 277,601 $ 129,598 $ 811,104 $ 449,819
Interest and other income 80,545 55,179 355,022 153,547
------------ ------------ ------------ ------------
358,146 184,777 1,166,126 603,366
------------ ------------ ------------ ------------
EXPENSES:
Research and
Development 1,252,557 818,857 3,407,120 2,716,812
Selling, General and
Administrative 918,282 846,933 3,695,148 2,571,032
------------ ------------ ------------ ------------
2,170,839 1,665,790 7,102,268 5,287,844
------------ ------------ ------------ ------------
NET LOSS $ (1,812,693) $ (1,481,013) $ (5,936,142) $ (4,684,478)
============ ============ ============ ============
BASIC/DILUTED
NET LOSS PER SHARE $ (.10) $ (.07) $ (.32) $ (.23)
============ ============ ============ ============
BASIC/DILUTED
WEIGHTED AVERAGE
NUMBER OF COMMON
SHARES OUTSTANDING 18,620,439 21,724,217 18,612,724 20,647,215
============ ============ ============ ============
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
Page 5 of 18
<PAGE> 6
MATRITECH, INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
1998 1999
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(5,936,142) $(4,684,478)
Adjustments to reconcile net loss to net cash
used in operating activities -
Depreciation and amortization 171,038 136,122
Operating expense related to issuance of
Common stock warrant 150,000 --
Changes in assets and liabilities -
Accounts receivable, net (130,688) 7,761
Inventories 148,708 (2,507)
Prepaid expenses 50,379 58,469
Accounts payable (174,212) (116,598)
Accrued expenses 277,830 127,370
----------- -----------
Net cash used in operating activities (5,443,087) (4,473,861)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (56,688) (27,330)
----------- -----------
Net cash used in investing activities (56,688) (27,330)
----------- -----------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
Page 6 of 18
<PAGE> 7
MATRITECH, INC.
STATEMENTS OF CASH FLOWS (CONTINUED)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
1998 1999
---- ----
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sale of common stock $ 26,996 $ 3,909,975
Proceeds from exercise of common stock options
and purchase warrants 69,629 3,976
Payments on note payable (44,878) (50,447)
------------ ------------
Net cash provided by financing activities 51,747 3,863,504
------------ ------------
NET DECREASE IN CASH AND
CASH EQUIVALENTS (5,448,028) (637,687)
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 11,067,414 4,146,821
------------ ------------
CASH AND CASH EQUIVALENTS,
END OF PERIOD $ 5,619,386 $ 3,509,134
============ ============
SUPPLEMENTAL DISCLOSURE
OF CASH FLOW INFORMATION:
Cash paid during the period for interest $ 22,032 $ 17,205
============ ============
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
Page 7 of 18
<PAGE> 8
MATRITECH, INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
1. Operations and Basis of Presentation
- ---------------------------------------
Matritech, Inc. ( the "Company") was incorporated on October 29, 1987
to develop, produce and distribute products for the diagnosis and potential
treatment of cancer based on its proprietary nuclear matrix protein technology.
This technology was licensed to the Company by the Massachusetts Institute of
Technology ("MIT").
The Company is devoting substantially all of its efforts toward product
research and development, raising capital, securing partners 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 its operations
and to develop its future products.
The financial statements included herein have been prepared by the
Company, without audit, pursuant to the rules and regulations of the Securities
and Exchange Commission ("SEC") and include, in the opinion of management, all
adjustments, consisting of normal, recurring adjustments, necessary for a fair
presentation of interim period results. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations. The results for the interim periods
presented are not necessarily indicative of results to be expected for any
future period. It is suggested that these condensed financial statements be read
in conjunction with the audited financial statements and notes thereto included
in the Company's Annual Report on Form 10-K for the year ended December 31, 1998
filed with the SEC (File No. 0-12128).
2. Cash Equivalents
- -------------------
Cash equivalents are short-term, highly liquid investments with
original maturities of less than three months. The Company's cash equivalents
primarily consist of auction market preferred stocks, money market accounts and
repurchase agreements at December 31, 1998 and September 30, 1999. The Company
classifies its investments in accordance with Statement of Financial Accounting
Standards ("SFAS") No. 115, "Accounting for Certain Investments in Debt and
Equity Securities".
3. Inventories
- ---------------
Inventories are stated at the lower of cost or market and consist of
the following:
<TABLE>
<CAPTION>
December 31, September 30,
1998 1999
---- ----
<S> <C> <C>
Raw materials $225,159 $188,684
Work-in-process 3,195 2,111
Finished goods 108,044 148,110
-------- --------
$336,398 $338,905
======== ========
</TABLE>
Page 8 of 18
<PAGE> 9
4. Net Loss Per Common Share
- ----------------------------
The Company applies SFAS No. 128, "Earnings Per Share", for calculating
and presenting earnings per share. Basic net loss per common share is computed
by dividing net loss by the weighted average number of common shares outstanding
during the year. Diluted loss per share is the same as basic loss per share as
the effects of common stock equivalents are antidilutive. The calculation of net
loss per share did not include options and warrants for the periods ended
September 30, 1999 and 1998.
5. 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. Product sales of $278,000 and $739,000 for the
three and nine month periods ended September 30, 1998, respectively, were
primarily to the United States and Europe. Product sales of $130,000 and
$450,000 for the three and nine month periods ended September 30, 1999,
respectively, were primarily to the United States and Japan. All of the
Company's products were shipped from its facilities located in the United
States.
6. Private Placement
- ---------------------
In April 1999, the Company completed a private placement of
3,094,965 shares of Common Stock for an aggregate selling price of approximately
$4 million. The Company received net proceeds of approximately $3.9 million
after deducting the fees and expenses of the transaction.
7. Repricing of Warrants
- -------------------------
In October 1999, the Company repriced certain warrants issued in
1997 to a public relations consultant and a group of private investors. The
former exercise prices of $6.50 and $5.00 per share have been changed to $2.50
per share.
8. Reclassifications
- --------------------
Certain reclassifications have been made to the prior years
financial statements to conform to current presentation. These reclassifications
have no effect on the Company's results of operations or financial position.
Page 9 of 18
<PAGE> 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The Company was incorporated in 1987 to develop, manufacture and
market innovative cancer diagnostic products based on its proprietary NMP
technology. Matritech has been unprofitable since inception and expects to incur
significant operating losses for at least the next several years. For the period
from inception to September 30, 1999, the Company incurred a cumulative net loss
of approximately $46 million.
In the United States, the Company sells its NMP22(R) Test Kit
through its own direct sales force, and in March 1998 entered into a
distribution agreement with Curtin Matheson Scientific, now Fisher Healthcare
("Fisher") granting Fisher the right, co-exclusive with Matritech, to distribute
the microtiter plate based NMP22 Test Kit to hospitals and commercial
laboratories within the United States. Outside the United States, the Company
sells the NMP22 Test Kit through distributors.
RESULTS OF OPERATIONS
- ---------------------
THREE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED WITH THREE MONTHS ENDED SEPTEMBER
30, 1998
Product sales revenue decreased to $130,000 from $278,000 for the
quarter ended September 30, 1999 and 1998, respectively. This decrease was
primarily due to domestic and European distributor inventory balances being
built up in 1998 (eliminating the need for additional shipments in the 1999
period) and the timing of domestic distributor inventory purchases. Both of
these factors led to a decrease in the number of units sold to distributors in
1999.
Interest and other income decreased to $55,000 from $81,000 for the
quarter ended September 30, 1999 and 1998, respectively. The decrease was due
to lower average cash balances available for investment in the third quarter of
1999 as compared to the third quarter of 1998.
Research and development expenses decreased to $819,000 from
$1,253,000 for the quarter ended September 30, 1999 and 1998, respectively. This
decrease is primarily due to a $165,000 reduction derived through decreased
headcount under cost-reduction programs and a $74,000 reduction in supplies
usage (due to the reduction in headcount).
Selling, general and administrative expenses decreased to $847,000
from $918,000 for the quarter ended September 30, 1999 and 1998, respectively.
The decrease is primarily due to an $85,000 reduction derived through decreased
sales/marketing headcount under cost-reduction programs.
The Company incurred a net loss of $1,481,000 for the quarter ended
September 30, 1999, compared to a net loss of $1,813,000 for the quarter ended
September 30, 1998. The decrease of $332,000 or 18% in the net loss was
primarily the result of savings in both research and development and selling,
general and administrative expenses partially offset by decreased revenue.
Page 10 of 18
<PAGE> 11
NINE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED WITH NINE MONTHS ENDED SEPTEMBER
30, 1998
Product sales and collaborative research and development revenue
decreased to $450,000 from $811,000 for the nine months ended September 30, 1999
and 1998, respectively. Revenue from product sales decreased to $450,000 from
$739,000 for the nine months ended September 30, 1999 and 1998, respectively.
This decrease was primarily due to domestic and European distributor inventory
balances being built up in 1998 (eliminating the need for additional shipments
in the 1999 period) and the timing of domestic distributor inventory purchases.
Both of these factors led to a decrease in the number of units sold to
distributors in 1999. The decrease is also due to a lesser extent to a lower
average unit sales price in the 1999 period. The emergence of product sales
arising from new partner-based distribution in Japan in the 1999 period helped
to offset these decreases. In addition, collaborative research and development
revenue decreased $72,000 as the SBIR funding for the Company's NuMA tumor
marker project was fulfilled in 1998.
Interest and other income decreased to $154,000 from $355,000 for
the nine months ended September 30, 1999 and 1998, respectively. The decrease
was due to lower average cash balances available for investment in the first
nine months of 1999 as compared to the first nine months of 1998.
Research and development expenses decreased to $2,717,000 from
$3,407,000 for the nine months ended September 30, 1999 and 1998, respectively.
The decrease is primarily due to a $341,000 reduction derived through decreased
headcount under cost-reduction programs and a $140,000 reduction in supplies
usage (due to the reduction in headcount).
Selling, general and administrative expenses decreased to
$2,571,000 from $3,695,000 for the nine months ended September 30, 1999 and
1998, respectively. The decrease is primarily due to the following: a $258,000
reduction in expenses with the development of promotional materials in the 1998
period not incurred in the 1999 period; $150,000 of expense associated with the
issuance of a common stock warrant for public relations services in the 1998
period not incurred in the 1999 period; a $191,000 savings through decreased
headcount associated with cost-reduction programs; and a $215,000 reduction in
reliance on outside marketing and administrative consultants.
The Company incurred a net loss of $4,684,000 for the nine months
ended September 30, 1999, compared to a net loss of $5,936,000 for the nine
months ended September 30, 1998. The decrease of $1,252,000 or 21% in the net
loss was primarily the result of savings in both research and development and
selling, general and administrative expenses partially offset by decreased
revenue.
Page 11 of 18
<PAGE> 12
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 September 30, 1999 and December
31, 1998, the Company had cash and cash equivalents of $3,509,000 and
$4,147,000, respectively, and working capital of $3,086,000 and $3,788,000,
respectively.
The Company's operating activities used cash of $4,474,000 and
$5,443,000 for the nine months ended September 30, 1999 and 1998, respectively,
primarily to fund the Company's operating loss.
The Company's investing activities used cash of $27,000 and $57,000
in the nine months ended September 30, 1999 and 1998, respectively, for the
purchase of computer systems and office and laboratory equipment. The Company
currently estimates that it will acquire approximately $30,000 of capital
equipment during the remainder of 1999, consisting primarily of office and
laboratory equipment as well as related capital investments associated with Year
2000 activities.
The Company's financing activities provided cash of $3,864,000 and
$52,000 for the nine months ended September 30, 1999 and 1998, respectively. In
April 1999, the Company completed a private placement of common stock which
resulted in net proceeds of approximately $3.9 million. The activity in the 1998
period was from the issuance of common stock under the Company's Employee Stock
Purchase Plan and from the exercise of common stock options and stock purchase
warrants. The remainder of the activity in the 1999 period was from the exercise
of common stock options net of equipment loan payments.
The Company has a term note with Phoenix Leasing Incorporated for
equipment purchases. The term note is payable over 48 months, bears interest at
11.75% and is secured by the underlying equipment. The outstanding balance of
this note at September 30, 1999 and December 31, 1998 is $158,000 and $209,000,
respectively.
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's Common Stock is currently listed on the Nasdaq
National Market ("NNM"). For continued listing on the NNM, the Company must,
among other things, maintain at least $4 million in net tangible assets and a
minimum bid price of $1.00. At September 30, 1999, the Company's net tangible
assets fell below $4 million. Consequently, unless the Company is able to obtain
additional financing, the Company's Common Stock may be delisted by Nasdaq. See
"Factors That May Affect Future Results - Risk of Delisting from the Nasdaq
National Market."
Page 12 of 18
<PAGE> 13
In the fourth quarter of 1998, the Company implemented and has
continued 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 research and
development programs relating to colon, cervical, breast, or prostate cancer
product development.
The Company is actively seeking additional long-term funding for
its operations from public and private sources including strategic
collaborations and partnerships. At September 30, 1999, the Company had $3.5
million in cash and cash equivalents. The Company believes that the cash in its
Treasury and cash flow from anticipated operating activities will be sufficient
to meet its ongoing obligations into the middle of the second quarter of 2000.
If the Company is unable to obtain additional financing sufficient to meet its
operating needs, the Company would be required to significantly reduce the scope
of operations during the second quarter of 2000. See "Factors that May Affect
Future Results - Access to Capital".
The foregoing discussion includes forward-looking statements which
are subject to uncertainties and actual results may differ materially from those
currently anticipated depending on a variety of factors including those
discussed below. There can be no assurance that the Company's needs may not
change. See "Factors That May Affect Future Results." The survival of the
Company in the long term is dependent on its ability to generate revenue from
sales of its products. There can be no assurance that capital will be available
on terms acceptable to the Company, if at all, or that in the long term, the
Company will be able to generate sufficient revenue to achieve and maintain
profitability. If the Company uses equity to finance its capital needs, such a
financing could result in significant dilution to existing shareholders.
The Company has reviewed all of its information technology systems
to assess what steps, if any, are required to achieve full Year 2000 ("Y2K")
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 Y2K compliant. The Company has begun to address
the small number of systems that are not yet Y2K compliant, and anticipates
achieving full compliance prior to December 31, 1999. The Company has reviewed
its critical non-information technology systems which include
telecommunications, air ventilation systems, security and certain laboratory
equipment, and expects to remediate all significant Y2K issues prior to December
31, 1999. The Company does not anticipate that it will incur material expenses
to make these systems Y2K compliant and has accrued $34,000 and $25,000 in its
financial statements at September 30, 1999 and December 31, 1998, respectively,
related to such expenses. The Company is currently discussing Y2K 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 Y2K compliant in time frames that meet the Company's requirements.
The Company intends to continue to assess its exposure to Y2K noncompliance on
the part of any of its material vendors and there can be no assurance that their
systems will be Y2K compliant. In the event that certain material suppliers or
service vendors indicate that they will not successfully address their Y2K
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 that either the Company or its material suppliers and vendors
fail to address their Y2K problems in a timely fashion. The Company presently
believes that the Y2K issue will not pose significant operational problems for
the Company. However, if all Y2K issues are not properly identified, or
assessment, remediation and testing are not effected timely with respect to the
Y2K problems that are identified, there can be no assurance that the Y2K 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 Y2K issues
of third parties will not have a material adverse impact on the Company's
systems or results of operations.
Page 13 of 18
<PAGE> 14
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:
Risk of Delisting from the Nasdaq National Market. At September 30,
1999, the Company's net tangible assets fell below $4 million, and consequently,
unless the Company obtains additional financing, its Common Stock may be
delisted from 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.
Risks Related to Insufficient Capital to Fund Operations. At
September 30, 1999, the Company had $3.5 million in cash and cash equivalents.
The cash on hand and cash flow from anticipated operating activities will be
sufficient to meet the Company's ongoing obligations into the middle of the
second quarter of 2000. If the Company is unable to obtain additional financing
sufficient to meet its operating needs, the Company would be required to
significantly reduce the scope of its operations during the second quarter of
2000. Such reduction in the scope of its operations would have a material
adverse effect on the Company's results of operations and financial condition.
Access to Capital. The Company needs to obtain additional long-term
financing. The Company is currently seeking to raise additional capital and will
consider various alternatives, including equity or debt financing and corporate
partnering arrangements. There can be no assurance, however, that this funding
will be available on terms acceptable to the Company, if at all. 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.
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; changes in prices; the timing of
payments from corporate partners and research grants, if any; 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 14 of 18
<PAGE> 15
Uncertainties Associated with Future Performance. The Company's
success in the market for diagnostic products will depend, in part, on the
Company's ability to: successfully develop, test, produce and market its
products; obtain necessary governmental approvals in a timely manner; attract
and maintain key employees; and successfully respond to technological changes in
its marketplace. The Company's success in markets outside the United States is
dependent on the performance of independent distributors over which the Company
has limited control.
Near-Term Dependence Upon NMP22. The Company anticipates that in
the near-term it will be substantially dependent on the success of the NMP22(R)
Test Kit 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. The Company expects to generate
substantially all of its near-term product sales from the sale of NMP22 Test
Kits, and would experience a material adverse effect on its business, financial
condition and results of operations if the NMP22 Test Kit does not achieve wide
market acceptance. The remainder of the Company's products 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 3. 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. It is
suggested that this paragraph be read in conjunction with Note 1 of Notes to
Financial Statements - "Operations and Significant Accounting Policies" of the
Company's Annual Report on Form 10-K for the year ended December 31, 1998 filed
with the SEC (File No. 0-12128).
Page 15 of 18
<PAGE> 16
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
4.1 Amendment No. 1, dated October 30, 1999, to Public
Relations Warrant Agreement dated April 18, 1997 and
Certificate between the Company and Sunrise Financial
Group, Inc.
4.2 Form of Amendment No. 1, dated October 30, 1999, to
Warrant Agreement dated May 28, 1997 and Certificate
between the Company and certain designees of Sunrise
Securities Corp.
27 Financial Data Schedule
(b) Reports on Form 8-K:
No Reports on Form 8-K were filed during the quarter ended
September 30, 1999.
Page 16 of 18
<PAGE> 17
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MATRITECH, INC.
Date: November 13, 1999 By: /s/ Stephen D. Chubb
----------------------
Stephen D. Chubb
Director, Chairman and
Chief Executive Officer
(principal executive officer)
Date: November 13, 1999 By: /s/ John S. Doherty
---------------------
John S. Doherty
Vice President, Finance,
Chief Financial Officer,
Treasurer and Secretary
(principal accounting and financial
officer)
Page 17 of 18
<PAGE> 18
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------ -----------
<S> <C>
4.1 Amendment No. 1, dated October 30, 1999, to Public Relations
Warrant Agreement dated April 18, 1997 and Certificate between the
Company and Sunrise Financial Group, Inc.
4.2 Form of Amendment No. 1, dated October 30, 1999, to Warrant Agreement dated May 28, 1997 and
Certificate between the Company and certain designees of Sunrise Securities Corp.
27 Financial Data Schedule
</TABLE>
Page 18 of 18
<PAGE> 1
EXHIBIT 4.1
Amendment No. 1 to Public Relations Warrant Agreement
and
Warrant Certificate
AMENDMENT NO. 1 dated October 30, 1999, to Public Relations Warrant
Agreement (the "Warrant Agreement") dated April 18, 1997 by and between
Matritech, Inc., a Delaware corporation (the "Company") and Sunrise Financial
Group, Inc. ("Sunrise") and to the corresponding Warrant Certificate No. PRW-1
(the "Warrant Certificate," together with the Warrant Agreement, the "Warrant").
The parties hereto, in consideration of the premises and agreements
herein contained and intending to be legally bound hereby, agree as follows:
1. The Warrant Price (as such term is defined in both the Warrant
Agreement and the Warrant Certificate) is hereby reduced from
six dollars and fifty cents ($6.50) to two dollars and fifty
cents ($2.50).
2. Section 3(b) of the Warrant Agreement and the last sentence of
the second paragraph of the Warrant Certificate are deleted in
their entirety, and accordingly, from the date hereof the
Warrant may only be exercised by payment of the Warrant Price
in cash or by certified or cashier's check.
3. Sunrise and Nathan Low acknowledge that the Warrant and the
securities issuable upon exercise of the Warrant have not been
registered under the United States Securities Act of 1933, as
amended (the "Act"), and as such may not be sold, assigned,
exchanged, hypothecated or otherwise transferred without
registration of such securities under the Act or compliance
with an exemption therefrom.
4. The Company agrees to file as soon as practicable, but in no
event later than 45 days from the date hereof, a registration
statement on Form S-3 with the Securities and Exchange
Commission registering the resale of all of the securities
underlying the Warrant.
5. This Amendment No. 1 may be signed in multiple counterparts,
each of which shall be deemed an original, but all taken
together shall constitute one agreement.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
<PAGE> 2
IN WITNESS WHEREOF, the parties have caused the Amendment No. 1 to be
duly executed as of the day and year first above written.
MATRITECH, INC. SUNRISE FINANCIAL GROUP, INC.
By: /s/ Stephen D. Chubb By: /s/ Nathan Low
-------------------------------- -------------------------------
Stephen D. Chubb Nathan Low
Chairman and Chief Executive
Officer
/s/ Nathan Low
-------------------------------
NATHAN LOW
<PAGE> 1
EXHIBIT 4.2
Amendment No. 1 to Warrant Agreement
and
Warrant Certificate
AMENDMENT NO. 1 dated October 30, 1999, to Warrant Agreement (the
"Warrant Agreement") dated May 28, 1997 by and between Matritech, Inc., a
Delaware corporation (the "Company") and _________________ (the "Holder") and to
the corresponding Warrant Certificate No. SSAW-____ (the "Warrant Certificate,"
together with the Warrant Agreement, the "Warrant").
The parties hereto, in consideration of the premises and agreements
herein contained and intending to be legally bound hereby, agree as follows:
1. The Warrant Price (as such term is defined in both the Warrant
Agreement and the Warrant Certificate) is hereby reduced from
five dollars ($5.00) to two dollars and fifty cents ($2.50).
2. Section 3(b) of the Warrant Agreement and the last sentence of
the second paragraph of the Warrant Certificate are deleted in
their entirety, and accordingly, from the date hereof the
Warrant may only be exercised by payment of the Warrant Price
in cash or by certified or cashier's check.
3. Holder acknowledges that the Warrant and the securities
issuable upon exercise of the Warrant have not been registered
under the United States Securities Act of 1933, as amended
(the "Act"), and as such may not be sold, assigned, exchanged,
hypothecated or otherwise transferred without registration of
such securities under the Act or compliance with an exemption
therefrom.
4. The Company agrees to file as soon as practicable, but in no
event later than 45 days from the date hereof, a registration
statement on Form S-3 with the Securities and Exchange
Commission registering the resale of all of the securities
underlying the Warrant.
5. This Amendment No. 1 may be signed in multiple counterparts,
each of which shall be deemed an original, but all taken
together shall constitute one agreement.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
<PAGE> 2
IN WITNESS WHEREOF, the parties have caused the Amendment No. 1 to be
duly executed as of the day and year first above written.
MATRITECH, INC.
By:_______________________________ __________________________________
Stephen D. Chubb Holder
Chairman and Chief Executive Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-Q
FOR 9/30/99 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<CURRENCY> USD
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<EXCHANGE-RATE> 1
<CASH> 3,509,134
<SECURITIES> 0
<RECEIVABLES> 154,500
<ALLOWANCES> 0
<INVENTORY> 338,905
<CURRENT-ASSETS> 4,059,319
<PP&E> 1,777,790
<DEPRECIATION> 1,201,182
<TOTAL-ASSETS> 4,701,623
<CURRENT-LIABILITIES> 973,375
<BONDS> 0
0
0
<COMMON> 217,242
<OTHER-SE> 3,412,212
<TOTAL-LIABILITY-AND-EQUITY> 4,701,623
<SALES> 449,819
<TOTAL-REVENUES> 603,366
<CGS> 0
<TOTAL-COSTS> 5,287,844
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (4,684,478)
<INCOME-TAX> 0
<INCOME-CONTINUING> (4,684,478)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,684,478)
<EPS-BASIC> (.23)
<EPS-DILUTED> (.23)
</TABLE>
