<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934.
For the quarterly period ended September 30, 1998
Commission file number 000-23266
UroMed Corporation
(Exact name of registrant as specified in its charter)
Massachusetts 04 - 3104185
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1400 Providence Highway, Norwood,
Massachusetts 02194
(Address of principal
executive offices)
(781) 762-2080
(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
--- - --
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date:
5,364,904 shares of Common stock, no par value,
outstanding at October 31, 1998
<PAGE>
UROMED CORPORATION
FORM 10-Q
For the quarterly period ended September 30, 1998
Table of contents
Part I - FINANCIAL INFORMATION Page No.
Item 1. Financial Statements
Condensed Balance Sheet at September 30, 1998 and December 31, 1997 3
Condensed Statement of Operations for the three months and nine
months ended September 30, 1998 and 1997 4
Condensed Statement of Cash Flows for the nine months ended
September 30, 1998 and 1997 5
Notes to Condensed Financial Statements 6 - 8
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 9 -15
Part II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 16
Signatures 17
<PAGE>
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
UROMED CORPORATION
CONDENSED BALANCE SHEET
(In thousands)
(unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
------------ -----------
Assets
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 11,648 $ 12,007
Short-term investments 35,058 53,018
Inventories 319 287
Prepaid expenses and other assets 1,395 1,403
---------- ----------
Total current assets 48,420 66,715
Fixed assets, net 5,476 6,357
Other assets 3,698 3,521
---------- ----------
$ 57,594 $ 76,593
========== ==========
Liabilities and Stockholders' Equity / (Deficit)
Current liabilities:
Accounts payable $ 545 $ 1,197
Accrued expenses 5,175 4,611
---------- ----------
Total current liabilities 5,720 5,808
---------- ----------
Convertible subordinated notes 60,670 69,000
---------- ----------
Stockholders' equity / (deficit):
Common stock 107,034 106,993
Treasury stock (511) -
Other stockholders' deficit (115,319) (105,208)
---------- ----------
Stockholders' equity / (deficit) (8,796) 1,785
---------- ----------
$ 57,594 $ 76,593
========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
Item 1. Financial Statements (continued)
UROMED CORPORATION
CONDENSED STATEMENT OF OPERATIONS
(In thousands, except per share data)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------- -------------------
<S>
<C> <C> <C> <C>
1998 1997 1998 1997
-------- -------- -------- --------
Revenues $ 271 $ 42 $ 452 $ 457
-------- -------- -------- --------
Costs and expenses:
Cost of revenues 809 1,212 2,811 3,148
Research and development 1,067 3,474 4,443 9,202
Marketing and sales 720 2,799 3,636 10,802
General and administrative 682 1,127 2,591 3,685
Restructuring - - 1,024 -
-------- -------- -------- --------
Total costs and expenses 3,278 8,612 14,505 26,837
-------- -------- -------- --------
Loss from operations (3,007) (8,570) (14,053) (26,380)
Interest income 730 1,122 2,394 3,593
Interest expense (1,077) (1,134) (3,345) (3,401)
-------- -------- -------- --------
Loss before extraordinary
gain on early retirement
of debt (3,354) (8,582) (15,004) (26,188)
-------- -------- -------- --------
Extraordinary gain on early
retirement of debt 4,865 - 4,865 -
-------- -------- -------- --------
Net income (loss) $ 1,511 $ (8,582) $(10,139) $(26,188)
======== ======== ======== ========
Basic and diluted net income
(loss) per share $ .29 $ (1.61) $ (1.90) $ (4.94)
======== ======== ======== ========
Basic and diluted weighted
average common shares
outstanding 5,262 5,323 5,327 5,303
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
Item 1. Financial Statements (continued)
UROMED CORPORATION
CONDENSED STATEMENT OF CASH FLOWS
Increase (Decrease) in Cash and Cash Equivalents
(In thousands)
(unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
---------------------------
<S>
<C> <C>
1998 1997
Net cash used in operating activities $ (13,928) $(21,907)
---------- ----------
Cash flows from investing activities:
Sales of short-term investments, net 17,944 21,102
Purchases of fixed assets (543) (4,543)
Investment in Medworks Corporation - (1,000)
Decrease in other assets 37 25
---------- ----------
Net cash provided by investing
activities 17,438 15,584
---------- ----------
Cash flows from financing activities:
Purchase of convertible subordinated notes (3,399) -
Purchase of common stock for treasury (511) -
Proceeds from issuance of common stock 41 109
---------- ----------
Net cash provided (used) by financing
activities (3,869) 109
---------- ----------
Net decrease in cash and cash equivalents (359) (6,214)
Cash and cash equivalents, beginning of period 12,007 45,556
---------- ----------
Cash and cash equivalents, end of period $ 11,648 $ 39,342
========== ==========
Supplemental disclosure of cash flow information:
Interest paid $ 2,250 $ 2,070
---------- ----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
Item 1. Financial Statements (continued)
UROMED CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
(In thousands, except per share data)
(unaudited)
1. Nature of Business
UroMed Corporation (the "Company"), a Massachusetts corporation, was
incorporated in October 1990 to develop male and female health care
products and has developed or acquired technology in three core areas:
prostate cancer, urinary incontinence, and breast cancer. The Company has
a direct hospital-based business and offers an office-based continuum
of continence care consumer product lines. The Company is developing its
investigational BreastExam, BreastCheck and BreastView electronic
palpation technology.
2. Basis of Presentation
The condensed balance sheet at September 30, 1998, and the condensed
statement of operations and the condensed statement of cash flows for the
three months and nine months ended September 30, 1998 and 1997 are
unaudited. In the opinion of management, all adjustments necessary for
a fair presentation of these financial statements have been included.
Such adjustments consisted only of recurring items. Interim results are
not necessarily indicative of results for a full year.
Certain prior year amounts have been reclassified to conform to the
current period financial statement presentation. These reclassifications
had no impact on net loss.
The financial statements should be read in conjunction with the Company's
audited financial statements and related footnotes for the year ended
December 31, 1997, which may be found in the Company's 1997 Annual Report
on Form 10-K.
3. Inventories
Inventories are stated at the lower of cost or market, cost being
determined using the first-in, first-out method. At September 30, 1998,
inventories consisted of the following:
Raw materials $ 28
Work in process 93
Finished goods 198
--------
$ 319
--------
4. Comprehensive Loss
The Company adopted FASB Statement No. 130, "Reporting Comprehensive
Income", in the first quarter of 1998. This statement establishes
standards for the reporting and display of comprehensive income or loss
and its components in the financial statements.
Three months ended Nine months ended
September 30, September 30,
1998 1997 1998 1997
--------- --------- --------- ---------
Net income (loss) $ 1,511 $ (8,582) $(10,139) $(26,188)
Unrealized gain
(loss) on
investments
available-for-sale 53 36 (16) 45
------- ------- ------- -------
Total comprehensive
income (loss) $ 1,564 $ (8,546) $(10,155) $(26,143)
========= ========= ========= =========
<PAGE>
5. Recently Enacted Accounting Pronouncement
In June 1997, the FASB issued Statement of Financial Accounting Standards
No. 131, "Disclosures about Segments of an Enterprise and Related
Information" ("SFAS 131"). The Company will implement SFAS 131 as
required in 1998, which will require the Company to report and display
separately certain information related to operating segments but will
not result in any changes to previously recorded amounts.
6. Licensing Agreement with BEBIG GmbH
During the first quarter of 1998, the Company signed an agreement with
BEBIG GmbH for the exclusive right to market BEBIG's Iodine-125 ("I-125")
seeds for prostate brachytherapy treatment in North and South America, and
non-exclusive rights in other parts of the world. This licensing
agreement calls for a commitment by UroMed of approximately $1.75 million,
which is expected to be paid in 1998 and early 1999 and will be used to
support construction of a related production line and partially as an
advance payment against future I-125 seed purchases. As of September 30,
1998, the Company had made milestone payments of approximately $0.75
million in connection with this agreement, which are included in other
assets in the condensed balance sheet.
7. Restructuring
During the first quarter of 1998, the Company recorded a charge of
$1,024,000 for the restructuring of its operations to increase its
emphasis on its hospital-based sales efforts and to decrease its
investment in the consumer-oriented continence care business, which the
Company believes will be best approached through utilizing marketing
partners. This charge is reported as restructuring in the Condensed
Statement of Operations for the nine months ended September 30, 1998, and
includes $579,000 of employee termination benefits and $445,000 of costs
to exit certain leased facilities. The $579,000 cost for employee
termination benefits included the reduction of approximately 40 people
from all functions of the Company. Costs to exit certain leased
facilities included the write-off of $138,000 of fixed assets. As of
September 30, 1998 actual cash expenditures of $395,000 were made for
employee termination benefits and $217,000 for costs to exit certain
leased facilities. The remaining restructuring accrual at September 30,
1998 is $274,000.
8. Reverse Stock Split
On May 18, 1998 the Company adopted an amendment to the Company's
Restated Articles of Organization, which effected a one-for-five reverse
stock split (the "Reverse Stock Split"). The Reverse Stock Split was
approved by the stockholders of the Company on May 15, 1998, with holders
of approximately 93% of the total shares represented at the meeting voted
in favor. Basic and diluted net loss per share and weighted average
shares outstanding in the Condensed Statement of Operations reflect the
effect of the Reverse Stock Split retroactively.
9. Common Stock Repurchase Program
The Board of Directors of the Company authorized a Common Stock
repurchase program on June 17, 1998 (the "Repurchase Program"). Under
the Repurchase Program, the Company is authorized to repurchase up to one
million shares, which is approximately 20% of the outstanding Common
Stock, from time to time, subject to prevailing market conditions. As of
September 30, 1998 the Company has repurchased approximately 187,000
shares of its Common stock for $0.5 million as part of the Repurchase
Program.
10. Nasdaq National Market De-Listing
In June 1998, the Nasdaq Stock Market, Inc. ("Nasdaq") notified the
Company that given its then current net worth, the Company was not in
compliance with the market capitalization requirements for the continued
listing of its Common Stock on the Nasdaq National Market and requested
that the Company provide additional information to enable Nasdaq to
evaluate the Company's financial condition. In October 1998, the Company
moved from the Nasdaq National Market to the Nasdaq SmallCap Market via
a temporary exception from the Net Tangible Assets requirement of the
Nasdaq Stock Market listing. In November 1998, Nasdaq informed the
Company that it had demonstrated compliance with the Nasdaq SmallCap
Market listing standards and accordingly would continue to be listed on
the Nasdaq SmallCap Market.
<PAGE>
11. Early Retirement of Debt and Tender Offer to Repurchase Debt
On August 19, 1998 and August 28, 1998, the Company repurchased $5.3
million and $3.0 million, respectively, in aggregate prinicipal amount of
its 6% Convertible Subordinated Notes due October 15, 2003 (the "Notes").
These repurchases occurred in unsolicited open market transactions with
persons who were not affiliates of the Company for purchase prices of
$2.2 million and $1.2 million respectively. The August 19, 1998 repurchase
of $5.3 million principal amount of Notes was made at a purchase price of
$390 per $1,000 principal amount of Notes, plus accrued and unpaid interest
from April 15, 1998 through the repurchase date, and the August 28, 1998
repurchase of $3.0 principal amount of Notes was made at a purchase price
of $380 per $1,000 principal amount of Notes, plus accrued and unpaid
interest from April 15, 1998 through the repurchase date. As a result, an
extraordinary gain on the early retirement of these Notes of $4.9 million
has been reported in the condensed statement of operations for the three
and nine months ended September 30, 1998.
On September 23, 1998 the Company announced the commencement of an offer
(the "Offer") to purchase up to $40.0 million aggregate principal amount
of its Notes. The purchase price in the Offer per $1,000 principal
amount was $450, plus all accrued and unpaid interest. On October 22,
1998 the Company completed the Offer and purchased $34.9 million in
aggregate principal amount of the Notes, which was the total principal
amount of the Notes tendered by noteholders, for $15.8 million. As a
result, the Company expects to report an extraordinary gain on the early
retirement of the Notes of $17.8 million during the fourth quarter of 1998.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Overview
The Company is a developer of male and female healthcare products. The
Company has developed or acquired technology in three core areas: prostate
cancer, urinary incontinence, and breast cancer. The Company's direct
hospital-based business lines include its CaverMap Surgical Aid, intended
to aid physicians in preserving vital nerves which control potency during
prostate cancer surgery, its BEBIG Iodine-125 seeds for prostate cancer
brachytherapy and its BEACON Technology System (TM) and AlloSling (TM)
incontinence surgical lines. The Company's office-based continuum of
continence care product lines include the Impress(TM) Softpatch, the
INTROL(R) Bladder Neck Support Prosthesis, and the Reliance(R) Insert.
In breast cancer screening, the Company is developing its investigational
BreastExam(TM), BreastCheck(TM) and BreastView(TM) electronic palpation
technology in order to aid physicians and patients in finding suspicious
breast lumps earlier. The Company also continues to dedicate significant
resources to the development and/or acquisition of product lines and
identifying partnership arrangements that fit into its strategic platform.
In the first quarter of 1998, the Company restructured its operations to
increase its emphasis on hospital-based sales efforts and to decrease its
investment in the consumer-oriented continence care business, which the
Company believes will be best approached through utilizing marketing
partners. The restructuring included the reduction Company-wide of
approximately 40 employees and a provision for exiting certain leased
facilities. This initiative is designed to reduce operating costs while
allowing UroMed to create a business model with a significantly lower
break-even level. The Company expects projected annual cost savings of
the restructuring, and related actions, to be approximately $11.0 million.
However, there can be no assurance that these cost savings will
be realized.
Hospital-Based Business
The CaverMap Surgical Aid was cleared by the U.S. Food and Drug
Administration ("FDA") for marketing in the United States in November
1997. The Company began initial introduction efforts of this product
in the U.S. late in the second quarter of 1998. The Company began sales
launches of a series of surgical kits utilizing its BEACON technology
during the first quarter of 1998. The Company recently introduced its
AlloSling(TM) Fascia product line, used in surgery to correct female
incontinence. The AlloSling product line includes UroMed's proprietary
Access(TM) instruments, recently cleared for marketing by the FDA, for use
in conjunction with the AlloSling material during surgical procedures.
The Company commenced sales of its AlloSling product line in the fourth
quarter of 1998.
During the first quarter of 1998, the Company signed an agreement with
BEBIG GmbH for the exclusive right to market BEBIG's Iodine-125 ("I-125")
seeds for prostate brachytherapy treatment in North and South America, and
non-exclusive rights in other parts of the world. Prostate cancer
brachytherapy is a minimally-invasive procedure in which small radiation
sources, or "seeds", are implanted into the prostate to treat localized
cancer. According to terms of the agreement, BEBIG will design and build
an automated manufacturing line, based on its proprietary technology, at
its facility in Berlin, Germany. This licensing agreement calls for a
commitment by UroMed of approximately $1.75 million, which is expected to
be paid in 1998 and early 1999, and which will be used to support
construction of a related production line and partially as an advance
payment against future I-125 seed purchases. Milestone payments of
approximately $0.7 million have been made in connection with this
agreement through November 13, 1998. The Iodine I-125 seeds are
expected to be commercially available in the United States in early to
mid-1999. The Company recently introduced a product line of insertion
needles used as introducers for radioactive brachytheryapy seeds. The
Company obtains the needles from a third-party supplier and they became
commercially available during the fourth quarter of 1998.
As a result of the BEBIG agreement, the Company will be able to pursue as
its core operating focus two significant treatment segments for prostate
cancer: nerve-sparing prostatectomy, via the CaverMap Surgical Aid, and
brachytherapy, via the Iodine-125 seeds.
Office-Based Continence Care Products
During the first quarter of 1998, the Company received FDA marketing
clearance for over-the-counter use of its Impress Softpatch. The Company
believes that the best vehicle for capitalizing on both the
over-the-counter and prescription marketplaces is in partnership or
partnerships with larger, more established companies. Therefore, the
Company is currently pursuing such partnership(s), and has decided not to
incur Impress launch costs until such partnership(s) are in place.
<PAGE>
In July 1998, the Company announced the signing of an agreement with
Johnson & Johnson Medical K.K. ("JJMKK"), a subsidiary of Johnson &
Johnson, giving JJMKK the exclusive right to distribute the Company's
INTROL Bladder Neck Support Prosthesis in Japan. The agreement has a
term of three years.
Breast Cancer
The BreastCheck technology is an investigational technology and must
receive FDA approval. The Company anticipates seeking this approval
through the form of Pre-Market Approval ("PMA"). The Company will
continue its piloting of studies on the performance of this technology for
professional as well as consumer use. Additional formal clinical trials
are currently slated to begin in 1999, and this technology may be
available in the U.S. in 2000, if and only if, FDA approval is obtained
within that time frame. No assurances can be made that the Company will
be successful in obtaining FDA approval for this product, or as to the
timing of such approval.
Results of Operations
Revenues
The Company's revenues for the third quarter of 1998 increased 545% to
$0.27 million as compared to $0.05 million in the third quarter of
1997, and for the first nine months of 1998 decreased 1% to $0.45 million
as compared to $0.46 million for the first nine months of 1997. The
increase in the third quarter of 1998 is a result of sales of new
product offerings, including the CaverMap Surgical Aid, and sales of the
Company's Introl product to JJMKK. The decrease for the nine months
ended September 30, 1998 is primarily the result of the recognition of
deferred revenue from European distributorship agreements in 1997 and
there being no such revenue in 1998.
Cost and Expenses
Cost of revenues for third quarter of 1998 decreased 33% to $0.81
million as compared to $1.21 million in the third quarter of 1997, and for
the first nine months of 1998 decreased 11% to $2.8 million as compared
to $3.1 million for the first nine months of 1997. The decrease in the
third quarter of 1998 is predominantly a result of decreased manufacturing
engineering costs due to a reduced headcount resulting from the first
quarter of 1998 restructuring. The decrease in the first nine months of
1998 compared to the first nine months of 1997 is mainly due to decreased
manufacturing engineering costs partially offset by 1997 inventory reserve
provisions exceeding those in 1998. The Company anticipates an increasing
cost of revenues over the next two quarters related to expected increases
in product shipments. The Company expects negative or low gross margins
for the near term and, accordingly, has considered this in its valuation
of inventory. There can be no assurance that the Company will ever
realize sufficient production volumes or otherwise reduce its
manufacturing costs in order to raise gross margins.
Research and development expenses for the third quarter of 1998 decreased
69% to $1.1 million as compared to $3.5 million for the third quarter of
1997, and for the first nine months of 1998 decreased 52% to $4.4 million
as compared to $9.2 million for the first nine months of 1997. The
decreases are the result of the decreased level of expenditures incurred
in 1998 on Impress Softpatch activities, product line acquisition costs
and clinical and regulatory efforts. The Company anticipates similar
levels in research and development expenditures in the fourth quarter of
1998 and the first quarter of 1999, as compared to the third quarter of
1998.
Marketing and sales expenses for the third quarter of 1998 decreased 74%
to $0.7 million as compared to $2.8 million in the third quarter of
1997, and for the first nine months of 1998 decreased 66% to $3.6 million
as compared to $10.8 million for the first nine months of 1997. These
decreases were predominantly the result of the high level of advertising
and public relations expenses incurred during 1997 in connection with the
Reliance Insert and other office-based continence care products. There
have been insignificant levels of such expenses incurred during 1998.
Marketing and sales expenses are expected to remain at similar levels in
the fourth quarter of 1998 and the first quarter of 1999, as compared to
the third quarter of 1998.
<PAGE>
General and administrative expenses for the third quarter of 1998
decreased 39% to $0.7 million as compared to $1.1 million for the third
quarter of 1997, and for the first nine months of 1998 decreased 30% to
$2.6 million as compared to $3.7 million for the first nine months of
1997. These decreases were mainly due to decreased headcount, and
decreased systems and consulting expenses. General and administrative
expenses are expected to remain at similar levels in the fourth
quarter of 1998 and the first quarter of 1999, as compared to the third
quarter of 1998.
Restructuring
During the first quarter of 1998, the Company recorded a charge of $1.0
million for the restructuring of its operations to increase its emphasis
on its hospital-based sales efforts and to decrease its investment in the
consumer-oriented continence care business, which the Company believes
will be best approached through utilizing marketing partners. This charge
included $579,000 of employee termination benefits and $445,000 of costs
to exit certain leased facilities. The $579,000 cost for employee
termination benefits included the reduction of approximately 40 people
from all functions of the Company. Costs to exit certain leased
facilities included $138,000 of fixed assets written off. As of September
30, 1998, actual cash expenditures of $395,000 were made for employee
termination benefits and $217,000 for costs to exit certain leased
facilities. The remaining restructuring accrual at September 30, 1998 is
$274,000. Cash expenses of approximately $210,000 are to be paid out
against this accrual over the next twelve months and the remaining
$64,000, pertaining to costs to exit certain leased facilities, are
expected to be paid out evenly over the subsequent three years.
Interest income and interest expense
Interest income for the third quarter of 1998 decreased 35% to $0.7
million as compared to $1.1 million in the third quarter of 1997, and
for the first nine months of 1998 decreased 33% to $2.4 million as
compared to $3.6 million for the first nine months of 1997. The
decreases are due to decreased balances of interest-bearing cash
equivalents and short-term investments.
Interest expense in the third quarter of 1998 decreased 5% to $1.1
million as compared to $1.1 million in the third quarter of 1997, and
for the first nine months of 1998 decreased 2% to $3.3 million as compared
to $3.4 million in the first nine months of 1997. The decreases are the
result of the reduction in interest expense on the $8.3 million principal
of 6% Convertible Subordinated Notes (the "Notes") repurchased during the
third quarter of 1998. As a result of the repurchase of $34.5 million
in principal of the Notes in October, the Company expects interest income
and interest expense to be significantly reduced in future quarters.
<PAGE>
Extraordinary Gain on Early Retirement of Debt
On August 19, 1998 and August 28, 1998, the Company repurchased $5.3
million and $3.0 million, respectively, in prinicipal of Notes.
These repurchases occurred in unsolicited open market transactions with
persons who were not affiliates of the Company for purchase prices of
$2.2 million and $1.2 million respectively. The August 19, 1998 repurchase
of $5.3 million principal amount of Notes was made at a purchase price of
$390 per $1,000 principal amount of Notes, plus accrued and unpaid interest
from April 15, 1998 through the repurchase date, and the August 28, 1998
repurchase of $3.0 principal amount of Notes was made at a purchase price
of $380 per $1,000 principal amount of Notes, plus accrued and unpaid
interest from April 15, 1998 through the repurchase date.
Liquidity and Capital Resources
Cash and short-term investments totaled approximately $46.7 million at
September 30, 1998 compared to $65.0 million at December 31, 1997. At
September 30, 1998, the Company's funds were invested in U.S. government
obligations, corporate debt obligations and money market funds.
Net cash used in operating activities of $13.9 million during the nine
months ended September 30, 1998 was primarily the result of the net loss
for the period.
Net cash provided by investing activities was $17.4 million during the
nine months ended September 30, 1998. Short-term investments decreased by
$17.9 million due to a shift into cash and cash equivalents and cash used
for operating expenses. In addition, the Company made $0.5 million of
fixed asset purchases during the period.
Net cash used by financing activities was $3.9 million during the
nine months ended September 30, 1998 primarily as a result of the
repurchase of Notes and Common stock.
In October 1996, the Company sold $69.0 million of its 6% Convertible
Subordinated Notes due October 15, 2003 (the "Notes"). The Notes are
convertible at any time into shares of common stock of the Company at a
conversion price of $66.41 per share, which is adjusted for the reverse
stock split in May 1998. Interest on the Notes is payable each April and
October, unless previously converted or repurchased. The Notes are
redeemable at the option of the Company on or after October 1999 at
specified redemption prices, initially 103.429% of the principal amount
plus accrued and unpaid interest at the redemption date.
On September 23, 1998 the Company announced a commencement of an offer
(the "Offer") to purchase up to $40.0 million aggregate principal amount
of its Notes. The purchase price in the Offer per $1,000 principal
amount was $450, plus all accrued and unpaid interest. On October 22,
1998, the Company completed the Offer and purchased $34.9 million
principal amount of the Notes which was the total principal amount of the
Notes tendered by noteholders.
<PAGE>
In June 1998, the Nasdaq Stock Market, Inc. ("Nasdaq") notified, that
given its net worth, the Company was not in compliance with the market
capitalization requirements for the continued listing of its Common Stock
on the Nasdaq National Market and requested that the Company provide
additional information to enable Nasdaq to evaluate the Company's
financial condition. In October 1998, the Company moved from the Nasdaq
National Market to the Nasdaq SmallCap Market via a temporary exception
from the Net Tangible Assets requirement of the Nasdaq Stock Market
listing. In November 1998, Nasdaq informed the Company that it had
demonstrated compliance with the Nasdaq SmallCap Market listing standards
and accordingly would continue to be listed on the Nasdaq SmallCap Market.
On May 18, 1998 the Company adopted an amendment to the Company's
Restated Articles of Organization, which effected a one-for-five reverse
stock split (the "Reverse Stock Split"). The Reverse Stock Split was
approved by the stockholders of the Company on May 15, 1998, with holders
of approximately 93% of the total shares represented at the meeting voted
in favor. Basic and diluted net loss per share and weighted average
shares outstanding in the Condensed Statement of Operations reflect the
effect of the Reverse Stock Split retroactively.
The Board of Directors of the Company authorized a Common Stock
repurchase program on June 17, 1998 (the "Repurchase Program"). The
Company is authorized to repurchase up to one million shares, which is
approximately 20% of the outstanding Common Stock, from time to time,
subject to prevailing market conditions. In addition to the Repurchase
Program, the Company is considering from time to time repurchasing some
of its Notes. The Company intends to complete the Repurchase Program
within one year depending upon a variety of factors including market
conditions. Purchases pursuant to the Repurchase Program and any
repurchases of Notes may be made on the open market or in privately
negotiated transactions. The Company plans to fund such purchases from
its working capital. As of September 30, 1998, the Company had
repurchased approximately 187,000 shares of its Common stock for
$0.5 million as part of the Repurchase Program.
The Company believes that available cash, cash equivalents and short term
investments will be sufficient to meet the Company's operating expenses
and capital requirements for the foreseeable future. The Company's future
long-term liquidity and capital requirements depend on numerous factors,
including, but not limited to, development of the Company's marketing
capability, market acceptance of the BEACON Technology system and
AlloSling surgical line and the CaverMap Surgical Aid, development and
launch of the Company's I-125 seed (not yet FDA-cleared for marketing,
development of the Company's Impress Softpatch partnership(s), the
development status of other potential products, including but not limited
to the BreastCheck, BreastExam and the BreastView devices, potential
acquisitions and other potential strategic product opportunities. There
can be no assurance that the Company will not require additional financing
or that, if required, such financing will be available on terms acceptable
to the Company.
<PAGE>
The Company has identified its Year 2000 risk in three categories: internal
business software; imbedded chip technology; and external non-compliance
by significant suppliers and service providers.
INTERNAL BUSINESS SOFTWARE. During 1996 the Company purchased an
Enterprise Resource Planning System ("ERP System") which was Year 2000
compliant. The ERP system provides for significantly all of the Company's
internal accounting, business management, and planning needs. The total
hardware, software, installation and testing cost of the ERP system was
approximately $1.2 million which has been spent to date. The Company does
not anticipate incurring significant additional costs for further testing
and compliance activities. Given that its internal business software is
Year 2000 compliant, the Company does not have a contingency plan in place.
IMBEDDED CHIP TECHNOLOGY. At this time, most of the Company products are
manufactured by outside suppliers and, as such, the Company has limited
manufacturing activities. The Company does not rely materially on imbedded
chip technology in its manufacturing processes and therefore does not
anticipate that Year 2000 issues will significantly affect its ability to
manufacture finished goods.
At this time, the Company believes that it will not encounter significant
operational difficulties from the effect of a Year 2000 issue arising from
its imbedded chip technology. Accordingly, based on these expectations,
the Company does not have a contingency plan to address material Year 2000
issues. If significant Year 2000 issues arise, there can be no assurance
that the Company will be able to develop and implement a contingency plan
in a timely manner and, if not, the Company's operations could be
adversely effected.
EXTERNAL NON-COMPLIANCE BY SIGNIFICANT SUPPLIERS AND SERVICE PROVIDERS.
The Company has identified all of its significant suppliers and service
providers to determine the extent to which the Company's business is
vulnerable to those third parties' failure to remedy their own Year 2000
issues. The Company's significant suppliers include those that supply the
products sold, or proposed to be sold, by the Company including
the CaverMap Surgical Aid, the BEBIG Iodine I-125 seeds, the BEACON
Technology System, AlloSling incontinence surgical products, and the INTROL
Bladder Neck Support Prosthesis. At this time, the Company has begun the
process of contacting its significant suppliers (including those that
supply its products) and service providers concerning their successful
completion of Year 2000 compliance tesing or indication that they were
working toward achieving Year 2000 compliance. Based upon the results of
these inquiries and to the extent that responses to Year 2000 readiness
responses are unsatisfactory, the Company intends to develop contingency
plans. There can be no assurance that all significant suppliers and
service providers will successfully complete their Year 2000 compliance,
that the Company's contingency plans could replace those noncompliant
suppliers or service providers (including those that supply its products)
with suppliers or service providers that are Year 2000 compliant, or that
these Year 2000 issues would not have a material adverse effect on the
Company.
<PAGE>
Forward-Looking Statements and Associated Risks
Certain statements contained in this Quarterly Report may be considered
forward looking statements within the meaning of Section 27A of the
Securities Act of 1933 and Section 21E of the Securities Exchange Act of
1934, including statements regarding (i) the planned progression of the
Company's commercialization strategies for the Impress Softpatch, the
INTROL Bladder Neck Support Prosthesis, the BEACON Technology System
surgical line, the CaverMap Surgical Aid, the AlloSling product line,
Bebig I-125 seeds and brachytherapy seed insertion needles, including the
timing and extent of initial or other sales, (ii) consumer acceptance of
the use of the Impress Softpatch and the INTROL Bladder Neck Support
Prosthesis as strategies for the self-care of urinary incontinence and the
size and accessibility of the Company's target markets, (iii) the
Company's expectations regarding its research and development and
in-licensing activities, including but not limited to the BreastCheck,
BreastExam and BreastView devices, (iv) the timing related to the
commencement of marketing activities for the commercial launches of the
BreastCheck, BreastExam and BreastView devices, Impress Softpatch,
BEACON Technology System, the CaverMap Surgical Aid, the AlloSling product
line, Bebig I-125 seeds and brachytherapy seed insertion needles, (v) the
timing related to regulatory clearance for the BreastCheck and BreastExam
devices, (vi) the Company's planned uses for its cash and other liquid
resources, including repurchases of Common Stock and Convertible Notes,
(vii) the Company's expectations regarding its 1998 restructuring,
included anticipated cost savings and (viii) the extent of future
revenues, expenses and results of operations and the sufficiency of the
Company's financial resources to meet planned operational costs and other
expenditure needs. These forward-looking statements are based largely on
the Company's expectations and are subject to a number of risks and
uncertainties, many of which are beyond the Company's control. Actual
results could differ materially from these forward-looking statements as a
result of certain factors, including those described below:
o The uncertainty that the Impress Softpatch, the INTROL Bladder Neck
Support Prosthesis, the BEACON Technology system, the CaverMap
Surgical Aid, the AlloSling product line, Bebig I-125 seeds
and brachytherapy insertion needles will gain market acceptance
either among physicians or patients in the United States.
o The uncertainty that physicians will prescribe the Impress
Softpatch and the INTROL Bladder Neck Support Prostheses in
significant numbers.
o The uncertainty that the Company will be able to develop an
effective sales force and implement a successful marketing
campaign for the BEACON Technology system, the CaverMap Surgical
Aid, its AlloSling product line, Bebig I-125 seeds and brachytherapy
insertion needles in the United States.
o The uncertainty that the Company will be able to develop
effective partnerships to pursue over-the-counter and prescription
outlets for the Impress Softpatch.
o The uncertainty of receiving regulatory clearance for the
Company's BreastCheck, BreastExam and BreastView devices.
o The Company's dependence on others for raw materials and
certain components of its products, including certain materials
available only from single sources.
o The uncertain protection afforded the Company by its patents
and/or other intellectual property rights relating to the Impress
Softpatch, the INTROL Bladder Neck Support Prosthesis and other
products.
o The uncertainty whether the Company will be able to manufacture,
market and sell its products at prices that permit it to achieve
satisfactory margins in the production and marketing of its products.
o Risks relating to FDA or other governmental oversight of the
Company's operations, including the possibility that the FDA could
impose costly additional labeling requirements on, or restrict the
marketing of, the Company's products, or suspend operations at one or
more of the Company's facilities.
o The uncertainty of the size of the potential markets based on
such technology and the coordination of products based on such
technology with UroMed's other products.
Other relevant risks are described in the Company's Annual Report on Form
10-K for the year ended December 31, 1997 under the headings
"Forward-Looking Statements and Associated Risks" and "Risk Factors", and
are incorporated herein by reference.
<PAGE>
Part II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27 Financial Data Schedule
(b) Reports on Form 8-K
(1) On October 23, 1998 the Company filed a current report on
Form 8-K as requested by Nasdaq to demonstrate compliance
with continued listing requirements of the Nasdaq SmallCap
Market.
<PAGE>
SIGNATURES
Pursuant to 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.
UroMed Corporation
Date: November 16, 1998 /s/ John G. Simon
-------------- ----------------------------------
John G. Simon, President and
Chief Executive Officer
Date: November 16, 1998 /s/ Paul J. Murphy
-------------- -----------------------------------
Paul J. Murphy, Treasurer and
Chief Financial Officer (Principal
Financial and Accounting Officer)
<PAGE>
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THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION FROM THE BALANCE
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QUARTERLY REPORT ON FROM 10Q.
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