<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 June 30, 2000
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 (I.R.S. Employer
Incorporation or Organization) Identification No.)
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 August 7, 2000, there were 25,034,563 shares of Common Stock
outstanding.
Page 1 of 19
The Exhibit Index is located on Page 19.
<PAGE> 2
MATRITECH, INC.
INDEX
<TABLE>
<CAPTION>
PART I FINANCIAL INFORMATION
Page
----
<S> <C>
ITEM 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets at December 31, 1999
and June 30, 2000 3
Consolidated Statements of Operations for the three and six months ended
June 30, 1999 and 2000 5
Consolidated Statements of Cash Flows for the six months ended
June 30, 1999 and 2000 6
Notes to Consolidated Financial Statements 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 11
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK 15
PART II OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS 16
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 16
ITEM 5. OTHER INFORMATION 17
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 17
SIGNATURES 18
</TABLE>
Page 2 of 19
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
MATRITECH, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1999 2000
---------- ----------
(UNAUDITED)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $5,612,194 $6,067,990
Accounts receivable, net 211,016 259,736
Inventories 300,897 396,176
Prepaid expenses 112,656 171,126
---------- ----------
Total current assets 6,236,763 6,895,028
---------- ----------
PROPERTY AND EQUIPMENT, at cost:
Laboratory equipment 1,454,823 1,767,209
Office equipment 212,698 254,172
Laboratory furniture 62,739 62,739
Leasehold improvements 56,981 56,981
Automobiles -- 34,535
---------- ----------
1,787,241 2,175,636
Less-Accumulated depreciation
and amortization 1,186,501 1,355,228
---------- ----------
600,740 820,408
---------- ----------
Goodwill -- 204,194
Other assets, net 65,072 133,851
---------- ----------
$6,902,575 $8,053,481
========== ==========
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
Page 3 of 19
<PAGE> 4
MATRITECH, INC.
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1999 2000
------------ ------------
(UNAUDITED)
<S> <C> <C>
CURRENT LIABILITIES:
Current maturities of note payable $ 76,744 $ 269,570
Accounts payable 274,188 364,404
Accrued expenses 536,745 498,420
Deferred revenue 7,750 9,887
------------ ------------
Total current liabilities 895,427 1,142,281
------------ ------------
NOTE PAYABLE, LESS CURRENT
MATURITIES 63,688 211,135
------------ ------------
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 - 23,552,984
shares at December 31, 1999 and
25,033,313 shares at June 30, 2000 235,530 250,333
Additional paid-in capital 52,983,162 56,959,282
Other equity -- (214,300)
Translation gain/loss -- 1,813
Accumulated deficit (47,275,232) (50,297,063)
------------ ------------
Total stockholders' equity 5,943,460 6,700,065
------------ ------------
$ 6,902,575 $ 8,053,481
============ ============
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
Page 4 of 19
<PAGE> 5
MATRITECH, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
1999 2000 1999 2000
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
REVENUE:
Product sales $ 150,339 $ 189,661 $ 320,221 $ 329,691
Interest and other income 63,956 109,423 98,368 188,615
------------ ------------ ------------ ------------
214,295 299,084 418,589 518,306
------------ ------------ ------------ ------------
EXPENSES:
Research and
Development 805,656 707,811 1,776,644 1,394,583
Selling, General and
Administrative 944,025 848,335 1,845,409 1,685,506
------------ ------------ ------------ ------------
1,749,681 1,556,146 3,622,053 3,080,089
------------ ------------ ------------ ------------
NET LOSS $ (1,535,386) $ (1,257,062) $ (3,203,464) $ (2,561,783)
============ ============ ============ ============
BASIC/DILUTED
NET LOSS PER SHARE $ (.07) $ (.05) $ (.16) $ (.10)
============ ============ ============ ============
BASIC/DILUTED
WEIGHTED AVERAGE
NUMBER OF COMMON
SHARES OUTSTANDING 21,554,164 24,929,436 20,099,788 24,474,250
============ ============ ============ ============
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
Page 5 of 19
<PAGE> 6
MATRITECH, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
1999 2000
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(3,203,464) $(2,561,783)
Adjustments to reconcile net loss to net cash
used in operating activities -
Depreciation and amortization 90,581 55,028
Changes in assets and liabilities -
Accounts receivable, net (70,897) (4,671)
Inventories 9,576 40,183
Prepaid expenses 20,116 (62,748)
Other assets 1,041 1,250
Accounts payable (91,769) (131,080)
Accrued expenses 75,707 (99,334)
----------- -----------
Net cash used in operating activities (3,169,109) (2,763,155)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (22,878) (73,465)
Cash acquired in purchase of ADL -- 6,946
----------- -----------
Net cash used in investing activities (22,878) (66,519)
----------- -----------
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
Page 6 of 19
<PAGE> 7
MATRITECH, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
1999 2000
----------- -----------
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sale of common stock $ 3,919,198 $ --
Proceeds from exercise of common stock options -- 425,442
Proceeds from exercise of common stock purchase
Warrants -- 2,892,959
Proceeds from issuance of common stock under
Employee stock purchase plan 3,976 4,500
Payments on notes payable (33,137) (37,431)
----------- -----------
Net cash provided by financing activities 3,890,037 3,285,470
----------- -----------
NET INCREASE IN CASH AND
CASH EQUIVALENTS 698,050 455,796
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 4,146,821 5,612,194
----------- -----------
CASH AND CASH EQUIVALENTS,
END OF PERIOD $ 4,844,871 $ 6,067,990
=========== ===========
SUPPLEMENTAL DISCLOSURE
OF CASH FLOW INFORMATION:
Cash paid during the period for interest $ 11,469 $ 7,976
=========== ===========
IN CONNECTION WITH THE ACQUISITION OF ADL,
THE FOLLOWING NON-CASH TRANSACTION OCCURRED:
Fair value of assets acquired $ 483,708
Liabilities assumed 644,402
Issuance of common stock 214,300
Cash paid for acquisition costs 44,000
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
Page 7 of 19
<PAGE> 8
MATRITECH, INC.
NOTES TO CONSOLIDATED 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, near-term dependence on its NMP22 Test Kit for bladder cancer,
reliance on sole suppliers, 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 consolidated 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, 1999 filed with the SEC (File No. 0-12128).
On June 28, 2000, the Company acquired all of the outstanding shares of capital
stock of ADL-Vertriebsgesellschaft mbH, Gesellschaft fur Allergie, Diagnostika
und Laborkonzepte ("ADL"), a European distributor of diagnostic testing
products, including the Company's NMP22 Test Kit for Bladder Cancer. ADL is
located in Freiburg, Germany. As payment of the purchase price, the Company
assumed $688,000 in liabilities and transaction costs. For financial statement
purposes, this acquisition was accounted for as a purchase, and accordingly the
results of operations of ADL from June 28, 2000 forward are included in the
Company's consolidated statements of operations.
The aggregate purchase price of $688,000 consisted of assumed liabilities of
$644,000 and acquisition costs of $44,000. The purchase price was allocated
based upon the fair value of the tangible and intangible assets acquired. Total
tangible assets acquired were $484,000 comprised of current assets of $261,000,
net fixed assets of $202,000 and other assets of $21,000. Goodwill of $204,000
was recorded in connection with the acquisition and will be amortized ratably
over three years.
In connection with the acquisition, the Company issued 37,153 shares of the
Company's common stock to the shareholders of ADL and may issue up to an
additional 13,700 shares of the Company's common stock, based on the achievement
of certain performance objectives during 2000. These shares are restricted
subject to continued employment of the ADL shareholders. The initial issuance of
37,153 shares has been valued at $214,300, which will be recorded ratably as
compensation over the three year employment period. The second issuance of
shares will be valued at December 31, 2000 and recorded ratably as compensation
over the remaining employment period.
Page 8 of 19
<PAGE> 9
Pro Forma Results of Operations
The following unaudited pro forma combined results of operations of the Company
assume that the ADL acquisition was completed on January 1, 1999. These proforma
results represent the historical operating results of ADL prior to its date of
acquisition, combined with those of the Company with appropriate adjustments.
These pro forma results are not necessarily indicative of operating results
which would have occurred if the ADL acquisition had been operated by current
management during the periods presented.
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
1999 2000 1999 2000
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Total revenue $ 765,700 $ 651,794 $ 1,518,409 $ 1,251,894
Net loss $(1,607,481) $(1,375,052) $(3,365,123) $(2,790,400)
Net loss per share
- basic and diluted $ (.07) $ (.06) $ (.17) $ (.11)
</TABLE>
2. Cash Equivalents
Cash equivalents are short-term, highly liquid investments with
original maturities of 90 days or less. The Company's cash equivalents primarily
consist of auction market preferred stocks and money market accounts at December
31, 1999 and June 30, 2000. 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, June 30,
1999 2000
------------ --------
<S> <C> <C>
Raw materials $179,316 $164,245
Work-in-process 1,464 2,276
Finished goods 120,117 229,655
-------- --------
$300,897 $396,176
======== ========
</TABLE>
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 the potential common stock are antidilutive. Potential common
stock consists of stock options and warrants; and also at June 30, 2000, the
37,153 shares of common stock held in escrow in connection with the ADL
acquisition, as these shares are contingent upon future employment.The amount of
potential common stock excluded from the computation of diluted net loss per
share at June 30, 1999 and 2000 is 1,900,858 and 1,365,439 shares, respectively.
Page 9 of 19
<PAGE> 10
5. Debt Acquired in ADL Acquisition
In connection with the acquisition of ADL, the Company assumed $378,000
of long and short term obligations at June 30, 2000. The obligations consist of
the following: a $147,000 line of credit at a bank, which bears interest at 11%
and is secured by trade receivables and inventory. The line of credit was paid
off subsequent to June 30, 2000; a $150,000 loan from a bank, due in May 2004
which bears interest at 5.2% and is secured by trade receivables and inventory;
a $49,000 third party demand note which will be repaid by the Company and the
Company will be reimbursed by a key ADL employee; a $19,000 car loan from a bank
bearing interest at 7.50% and due in March 2003; and a $13,000 car loan from a
bank bearing interest at 6.99% and due in November 2002.
6. Segment and Geographic Information
The Company adopted SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information" in the fiscal year ended December 31, 1998.
SFAS 131 establishes standards for reporting information regarding operating
segments in annual financial statements and requires selected information for
those segments to be presented in interim financial reports issued to
stockholders. SFAS 131 also establishes standards for related disclosures about
products and services and geographic areas. Operating segments are identified as
components of an enterprise about which separate discrete financial information
is available for evaluation by the chief operating decision maker or decision
making group, in making decisions about how to allocate resources and assess
performance. The Company's chief decision maker, as defined under SFAS 131, is a
combination of the Chief Executive Officer, President and the Chief Financial
Officer. The Company views its operations and manages its business as
principally one segment, the sale of diagnostic products. Associated services
are not significant. As a result, the financial information disclosed herein
represents all of the material financial information related to the principal
operating segment. All of the Company's products were shipped either from its
facilities located in the United States or since June 28, 2000 from its newly
acquired facilities in Freiburg, Germany.
<TABLE>
<CAPTION>
($ in 000's)
Three Months Ended June 30, Six Months Ended June 30,
1999 2000 1999 2000
---- ---- ---- ----
$ % $ % $ % $ %
- - - - - - - -
<S> <C> <C> <C> <C> <C> <C> <C> <C>
United States $ 68 45% $ 71 38% $143 45% $124 38%
Japan 55 37 31 16 137 43 81 25
Europe 7 5 67 35 13 4 83 25
Rest of world 20 13 21 11 27 8 42 12
---- --- ---- --- ---- --- ---- ---
Total $150 100% $190 100% $320 100% $330 100%
</TABLE>
7. Reclassifications
Certain reclassifications have been made to the prior years financial
statements to conform to current presentation. These classifications have no
effect on the Company's results of operations or financial position.
8. Subsequent Event
In July 2000, the Company issued a warrant to a public relations
consultant for the purchase of 450,000 shares of the Company's common stock for
a price of $2.50 per share expiring in July 2005. The estimated value of these
warrants using the Black-Scholes option pricing model is approximately $1.8
million and will result in a non-cash charge to operations over the one-year
term of the agreement. The issuance of the warrants has no impact upon cash
until the time of exercise of the warrants.
Page 10 of 19
<PAGE> 11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This Quarterly Report on Form 10-Q, other reports and
communications to securityholders, as well as oral statements made by the
Company's officers or agents may contain forward-looking statements made
pursuant to the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995. These statements may relate to, among other things, the
Company's future revenue, operating income, and the plans and objectives of
management. In particular, certain statements contained in the "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and in
"Factors That May Affect Future Results" constitute forward-looking statements.
Actual events or results may differ materially from those stated in any
forward-looking statement. Factors that may cause such differences are discussed
below and in the Company's other reports filed with the Securities and Exchange
Commission.
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 June 30, 2000, the Company incurred a cumulative net loss of
approximately $50 million.
In the United States, the Company sells its NMP22 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 its newly acquired European subsidiary and other distributors.
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 2000 COMPARED WITH THREE MONTHS ENDED JUNE 30, 1999
Product sales revenue increased to $190,000 from $150,000 for the
quarters ended June 30, 2000 and 1999, respectively. This increase was primarily
due to the inclusion of 3 days worth of sales from the Company's June 28, 2000
acquisition of ADL along with an increase in Matritech's stand-alone European
sales, offset by a decrease in Japanese sales due to the timing of distributor
inventory purchases.
Interest and other income increased to $109,000 from $64,000 for
the quarters ended June 30, 2000 and 1999, respectively. The increase was due to
higher average cash balances available for investment resulting from funds
raised in private placements in November 1999, along with proceeds from option
and warrant exercises throughout the first quarter of 2000.
Research and development expenses decreased to $707,000 from
$806,000 for the quarters ended June 30, 2000 and 1999, respectively. This
decrease is primarily due to a $78,000 reduction in bladder clinical trial
expenses and related consultants incurred in the second quarter of 1999 in
connection with the FDA submission. Additional various immaterial decreases
totaling $21,000 were experienced in the 2000 period.
Selling, general and administrative expenses decreased to $848,000
from $944,000 for the quarters ended June 30, 2000 and 1999, respectively. This
decrease is primarily due to a $69,000 reduction derived through decreased sales
and marketing headcount and a $22,000 reduction in outside marketing expenses.
Additional various immaterial decreases totaling $5,000 were experienced in the
2000 period.
Page 11 of 19
<PAGE> 12
The Company incurred a net loss of $1,257,000 for the quarter ended
June 30, 2000, compared to a net loss of $1,535,000 for the quarter ended June
30, 1999. The decrease of $278,000, or 18%, in the net loss was primarily the
result of increased revenue from the ADL acquisition in addition to expense
reductions in all departments.
SIX MONTHS ENDED JUNE 30, 2000 COMPARED WITH SIX MONTHS ENDED JUNE 30, 1999
Product sales revenue increased to $330,000 from $320,000 for the
six months ended June 30, 2000 and 1999, respectively. This increase was
primarily due to the inclusion of 3 days worth of sales from the Company's June
28, 2000 acquisition of ADL along with an increase in Matritech's stand-alone
European sales, offset by a decrease in Japanese sales due to the timing of
distributor inventory purchases.
Interest and other income increased to $189,000 from $98,000 for
the six months ended June 30, 2000 and 1999, respectively. The increase was due
to higher average cash balances available for investment resulting from funds
raised in private placements in November 1999, along with proceeds from option
and warrant exercises throughout the first quarter of 2000.
Research and development expenses decreased to $1,395,000 from
$1,777,000 for the six months ended June 30, 2000 and 1999, respectively. This
decrease is primarily due to a $224,000 reduction in bladder clinical trial
expenses incurred in the first half of 1999 in connection with the FDA
submission; a $117,000 reduction in personnel and related expenses through
headcount in connection with cost-reduction programs; and $50,000 of expense
accrued in the first quarter of 1999 for cervical clinical trials. Various
immaterial increases totaling $9,000 offset these decreases.
Selling, general and administrative expenses decreased to
$1,686,000 from $1,845,000 for the six months ended June 30, 2000 and 1999,
respectively. This decrease is primarily due to a $107,000 reduction derived
through decreased sales and marketing headcount, a $78,000 reduction in reliance
on outside marketing consultants, and a $57,000 reduction in sales travel
expenses. These expense reductions were offset by a $96,000 increase in general
and administrative personnel-related expenditures due to increased headcount.
Additional various immaterial decreases totaling $13,000 were experienced in the
2000 period.
The Company incurred a net loss of $2,562,000 for the six months
ended June 30, 2000, compared to a net loss of $3,203,000 for the six months
ended June 30, 1999. The decrease of $641,000, or 20%, in the net loss was
primarily the result of increased revenue from interest income in addition to
expense reductions in sales, marketing and research and development.
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 June 30, 2000 and December 31,
1999, the Company had cash and cash equivalents of $6,068,000 and $5,612,000,
respectively, and working capital of $5,753,000 and $5,341,000, respectively.
The Company's operating activities used cash of $2,763,000 and
$3,169,000 for the six month periods ended June 30, 2000 and 1999, respectively,
primarily to fund the Company's operating loss.
The Company's investing activities used cash of $67,000 and $23,000
in the six month periods ended June 30, 2000 and 1999, respectively, primarily
for the purchase of laboratory equipment. The Company acquired net fixed assets
of $202,000 in connection with the acquisition of ADL. The Company currently
estimates that it will acquire approximately $50,000 of capital equipment during
the remainder of 2000, consisting of additional laboratory and computer-related
equipment.
Page 12 of 19
<PAGE> 13
The Company's financing activities provided cash of $3,285,000 and
$3,890,000 for the six month periods ended June 30, 2000 and 1999, respectively.
The activity in the 2000 period resulted primarily from proceeds from the
exercise of common stock options and common stock purchase warrants, and the
activity in the 1999 period was primarily from proceeds from the April 1999
private placement of common stock.
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 June 30, 2000 and December 31, 1999 is $103,000 and $140,000,
respectively.
In connection with the acquisition of ADL, the Company acquired
$378,000 of long and short term obligations at June 30, 2000. The obligations
consist of a $147,000 line of credit, a $150,000 loan from a bank, a $49,000
third party demand note, and $32,000 worth of car loans. The line of credit was
paid off subsequent to June 30, 2000. The $150,000 bank loan is due in May 2004,
bears interest at 5.2% and is secured by trade receivables and inventory.The
demand note will be repaid by the Company and the Company will be reimbursed by
a key ADL employee. The car loans bear interest between 6.99% and 7.50% and are
due in monthly installments totalling $1,048.
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 expense and size of its research and
development programs; the 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; the 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.
In July 2000, the Company filed a Form S-3 shelf registration
statement with the Securities and Exchange Commission for the issuance of up to
2.45 million shares of the Company's common stock. These shares will be
available for sale by the Company when it believes that market conditions are
favorable and investment opportunities arise. The terms of any sale will be
determined when the shares are issued.
The Company is also actively seeking additional long-term funding
for its operations 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. 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, in the long term, the Company will be
able to generate sufficient revenue to achieve and maintain profitability.
Page 13 of 19
<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:
Access to Capital. The Company needs to obtain additional long-term
financing to continue to market its NMP22 Test Kit for bladder cancer, to
conduct research and development, to conduct clinical trials and to manufacture
and market its products as currently contemplated. The Company will consider
various financing alternatives, including equity or debt financings and
corporate partnering arrangements. There can be no assurance, however, that this
funding will be available on terms acceptable to the Company, if at all. 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 anticipates future
losses. 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.
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 a Limited Number of Products. The
Company anticipates that in the near-term the Company's success will be
substantially dependent on the success of a limited number of products. The
Company would experience a material adverse effect on its business, financial
condition and results of operations if those products do 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 the Company
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.
Page 14 of 19
<PAGE> 15
Recent Acquisition.In June 2000, the Company completed the acquisition
of ADL. The Company faces challenges relating to integration of operations such
as coordinating geographically separate organizations, integrating personnel
with disparate business backgrounds and combining different corporate cultures.
There can be no assurance that the acquired business or its products will be
successful, that the Company will successfully integrate the acquired business
into the Company, or that the Company will achieve the desired synergies from
the transaction.
Foreign Exchange. To the extent that foreign currency exchange rates
fluctuate in the future, the Company may be exposed to continued financial risk.
These can be no assurance that the Company will be successful in limiting its
exposure.
Euro Currency. On January 1, 1999 certain member countries of the
European Union (EU) established fixed conversion rates between their existing
currencies and the EU's common currency, the euro. The former currencies of the
participating countries are schedules to remain legal tender as denominations of
the euro until January 1, 2002 when the euro will be adopted as the sole legal
currency.
The Company is currently assessing the impact that the conversion to
the euro will have on its newly acquired European operations. The company is
evaluating the potential impact in several areas of its business including the
ability of its information systems to handle euro-denominated transactions and
the impact on exchange costs and currency exchange rate prices. The Company is
also evaluating the impact that cross-border price transparencies, which may
affect the ability to price products differently in various countries, will have
on its margin. Although the Company is still in the assessment phase, the
conversion to the euro is not expected to have a material impact on the
Company's operations or financial position.
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, 1999 filed
with the SEC (File No. 0-12128).
Foreign Exchange. The accounts of the Company's foreign subsidiary
are translated in accordance with SFAS No. 52, Foreign Currency Translation. In
translating the accounts of the foreign subsidiary into U.S. dollars, assets and
liabilities are translated at the rate of exchange in effect at year-end, while
stockholders' equity is translated at historical rates. Revenue and expense
accounts are translated using the weighted average exchange rate in effect
during the period. Foreign currency translation and transaction gains or losses
for the Company's subsidiary are included in the accompanying consolidated
statements of operations since the functional currency for the Company's
subsidiary is the U.S. dollar. The Company had sales of approximately $42,000
denominated in foreign currency from June 28 to June 30, 2000, the period during
which the acquisition was effective.
Page 15 of 19
<PAGE> 16
PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
(c) Recent Sales of Unregistered Securities
On June 28, 2000, the Company acquired all of the outstanding
capital stock of ADL-Vertriebsgesellschaft mbH Gesellschaft
fur Allergie, Diagnostika und Laborkonzepte, a German
corporation ("ADL"). In connection with this acquisition, an
aggregate of 37,153 shares of the Company's Common Stock, par
value $0.01 per share (the "Common Stock"), were issued in
exchange for all of the outstanding shares of ADL.
From April 1, 2000 through June 30, 2000, the Company issued
62,500 shares of Common Stock at an exercise price of $2.20
per share for an aggregate purchase price of $137,500 pursuant
to the exercise of warrants.
No underwriters were involved in the foregoing sales of
securities. Such sales were made in reliance upon an exemption
from the registration provisions of the Securities Act of
1933, as amended (the "Securities Act"), set forth in Section
4(2) thereof relative to sales by an issuer not involving any
public offering or the rules and regulations promulgated
thereunder, or in the case of certain options to purchase
common stock and employee stock grants, Rule 701 under the
Securities Act.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) The annual meeting ("the Annual Meeting") of stockholders of
Matritech was held on June 16, 2000.
(b) The following directors were elected at the Annual Meeting:
<TABLE>
<CAPTION>
VOTES
----------------------------
ELECTION OF DIRECTORS FOR WITHHELD
--------------------- ---------- --------
<S> <C> <C>
Stephen D. Chubb 22,343,396 237,951
David L. Corbet 22,217,594 363,753
David Rubenfien 22,370,873 210,474
Richard A. Sandberg 22,357,721 223,626
T. Stephen Thompson 21,859,044 722,303
C. William Zadel 21,857,181 724,166
</TABLE>
The following other matters were proposed and voted upon as
indicated
To approve an amendment to the Company's 1992 Stock Plan to
increase the number of shares of Common Stock authorized for
issuance pursuant to the 1992 Plan from 1,500,000 shares to
2,500,000 shares. With 10,343,817 voting for, 659,695 against, and
100,404 abstaining, the proposal was passed.
To approve an amendment to the Company's 1992 Director Plan to
increase the number of shares of Common Stock authorized for
issuance pursuant to the Director Plan from 215,000 shares to
465,000 shares. With 10,150,136 voting for, 858,886 against, and
94,894 abstaining, the proposal was passed.
Page 16 of 19
<PAGE> 17
To ratify the selection of the firm of Arthur Andersen LLP as
auditors for the fiscal year ending December 31, 2000. With
22,432,436 voting for, 77,498 against, and 71,413 abstaining, the
proposal was passed.
ITEM 5. OTHER INFORMATION
In July 2000, the Company completed a private placement of warrants
to purchase up to 450,000 shares of the Company's Common Stock. The
warrants issued in this transaction may be exercised at a price per
share of $2.50 at any time during the period commencing at 9:00
a.m., Eastern Time, on July 14, 2000 and ending at 5:00 p.m.,
Eastern Time, on July 14, 2005.
In connection with the transaction, the Company agreed, at least
thirty (30) days prior to each proposed filing by the Company of a
Registration Statement (other than a registration statement
relating solely to securities issued pursuant to an employee
benefit plan, or a registration statement on Form F-4 or S-4), to
notify the warrantholders in writing of any such proposed filing
and to include in any such registration any shares (as defined
therein) held by the warrantholders which the warrantholders
request to be included. In addition, the Company agreed, upon
receipt of a written request (the "Registration Request") from
warrantholders holding at least 75% of the total number of shares
of Common Stock isssuable upon exercise of the warrants issued
pursuant to that certain Investor Relations Warrant Agreement dated
as of July 14, 2000 (the "Warrant Agreement"), by and between the
Company and the purchasers therein, to prepare and file, at the
warrantholders' expense, a Registration Statement sufficient to
permit the public offering of shares covered by the Registration
Request. The registration rights granted pursuant to the Warrant
Agreement terminate on July 14, 2005.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
10.1 Investor Relations Warrant Agreement dated as of July 14,
2000, by and among Matritech, Inc. and the individuals
set forth on Exhibit A thereto
27 Financial Data Schedule
(b) Reports on Form 8-K:
On July 10, 2000, the Company filed a Current Report on Form 8-K
dated as of June 28, 2000 including Items 5 and 7.
Item 5 reported the following other event:
(i) On June 28, 2000, the Company acquired ADL, a European
distributor of diagnostic testing products, through an
exchange of 100% of the shares of ADL in return for an initial
issuance of 37,153 shares of the Company's common stock.
Item 7 included a Purchase Agreement dated June 28, 2000 by and
between the Company and the shareholders of ADL.
Page 17 of 19
<PAGE> 18
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: August 11, 2000 By: /s/Stephen D. Chubb
-----------------------------
Stephen D. Chubb
Director, Chairman and
Chief Executive Officer
(principal executive officer)
Date: August 11, 2000 By: /s/John S. Doherty
---------------------
John S. Doherty
Vice President,
Chief Financial Officer and
Treasurer
(principal accounting and financial officer)
Page 18 of 19
<PAGE> 19
EXHIBIT INDEX
Exhibit
Number Description
------ -----------
10.1 Investor Relations Warrant Agreement dated as of July 14, 2000, by and
among Matritech, Inc. and the individuals set forth on Exhibit A
thereto
27 Financial Data Schedule
Page 19 of 19
