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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, 1999
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, MA 02062
(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:
5,176,957 shares of Common stock, no par value,
outstanding at October 29, 1999.
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UROMED CORPORATION
FORM 10-Q
For the quarterly period ended September 30, 1999
Table of contents Page No.
Part I - FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Balance Sheet at September 30, 1999 and December 31, 1998 3
Condensed Statement of Operations for the three and nine months
ended September 30, 1999 and 1998 4
Condensed Statement of Cash Flows for the nine months ended
September 30, 1999 and 1998 5
Notes to Condensed Financial Statements 6 - 9
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 10 -16
Part II - OTHER INFORMATION
Item 6. Exhibits 17
Item 7a. Quantitative and Qualitative Disclosures
About Market Risk 17
Signatures 18
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Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
UROMED CORPORATION
CONDENSED BALANCE SHEET
(In thousands)
(unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
---------- -----------
Assets
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 6,895 $ 11,576
Short-term investments 16,278 14,704
Accounts receivable 537 224
Inventories 660 422
Prepaid expenses and other assets 510 640
---------- ----------
Total current assets 24,880 27,566
Fixed assets, net 209 4,414
Other assets 2,137 1,626
---------- ----------
$ 27,226 $ 33,606
========== ==========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 114 $ 250
Accrued expenses 1,859 3,026
---------- ----------
Total current liabilities 1,973 3,276
---------- ----------
Convertible subordinated notes 23,406 24,756
---------- ----------
Stockholders' equity:
Common stock 107,210 107,222
Other stockholders' deficit (105,363) (101,648)
---------- ----------
Stockholders' equity 1,847 5,574
---------- ----------
$ 27,226 $ 33,606
========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
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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>
1999 1998 1999 1998
-------- -------- -------- --------
Revenues $ 719 $ 271 $ 1,837 $ 452
-------- -------- -------- --------
Costs and expenses:
Cost of revenues 608 809 1,949 2,811
Research and development 445 1,067 1,784 4,443
Marketing and sales 505 720 1,547 3,636
General and administrative 364 682 1,387 2,591
Restructuring - - ( 80) 1,024
-------- -------- ------- -------
Total costs and expenses 1,922 3,278 6,587 14,505
-------- -------- ------- -------
Loss from operations (1,203) (3,007) ( 4,750) (14,053)
Gain on sale of assets 672 - 672 -
Interest income 297 730 877 2,394
Interest expense ( 385) (1,077) (1,176) ( 3,345)
-------- -------- -------- -------
Loss before extraordinary gain
on early retirement of debt ( 619) (3,354) (4,377) (15,004)
Extraordinary gain on early
retirement of debt - 4,865 701 4,865
-------- -------- -------- --------
Net income (loss) $( 619) $1,511 $ (3,676) $(10,139)
========= ========= ========= =========
Basic and diluted per share
amounts:
Loss before extraordinary
gain on early retirement
of debt $( .12) $( .63) $ ( .84) $ (2.82)
Extraordinary gain on
early retirement of debt - .92 .14 .92
-------- -------- ------- -------
Net income (loss) $( .12) $ 0.29 $ ( .70) $ (1.90)
======== ======== ======== ========
Basic and diluted weighted
average common shares
outstanding 5,177 5,262 5,181 5,327
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
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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>
1999 1998
Net cash used in operating activities $ (5,962) $ (13,928)
--------- ---------
Cash flows from investing activities:
(Purchases) sales of short-term
investments, net (1,615) 17,944
Purchase of fixed assets (7) ( 543)
Proceeds from sale of assets 3,340 -
Decrease in other assets 196 37
--------- ---------
Net cash provided by
investing activities 1,914 17,438
--------- ---------
Cash flows from financing activities:
Proceeds from issuance of common stock 3 41
Purchase of common stock (15) ( 511)
Repurchase of convertible subordinated notes ( 621) (3,399)
--------- ---------
Net cash used for
financing activities ( 633) (3,869)
--------- ---------
Net decrease
in cash and cash equivalents (4,681) ( 359)
Cash and cash equivalents, beginning of period 11,576 12,007
--------- ---------
Cash and cash equivalents, end of period $ 6,895 $ 11,648
========= =========
Supplemental disclosure of cash flow information:
Interest paid $ 1,436 $ 2,250
</TABLE>
The accompanying notes are an integral part of the financial statements.
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Item 1. Financial Statements (continued)
UROMED CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
(unaudited)
1. Nature of Business
UroMed Corporation (the "Company"), a Massachusetts corporation, was
incorporated in October 1990 and is dedicated to establishing itself as a leader
in providing interventional urological products, with a primary emphasis on the
treatment of prostate cancer. The Company has also developed and acquired
technology in urinary incontinence products.
2. Basis of Presentation
The condensed balance sheet at September 30, 1999 and the condensed
statement of operations for the three and nine months ended September 30, 1999
and 1998 and the condensed statement of cash flows for the nine months ended
September 30, 1999 and 1998 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, 1998, which may be found in the Company's 1998 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. Inventories
consisted of the following (in thousands):
At Dec 31, 1998 At September 30, 1999
-------------------- ----------------------
Raw materials $ 85 $ 143
Work in process 22 238
Finished goods 315 279
--------- --------
$ 422 $ 660
========= ========
4. Comprehensive Loss
FASB Statement No. 130, "Reporting Comprehensive Income", establishes
standards for the reporting and display of comprehensive income/(loss) and its
components in the financial statements. The Company's comprehensive loss for the
three months and nine months ended September 30, 1999 and 1998 was as follows
(in thousands):
Three months ended Three months ended
September 30, 1999 September 30, 1998
-------------- --------------
Net income (loss) ($ 619) $1,511
Unrealized gain (loss)
on investments
available-for-sale 17 53
-------- --------
Total comprehensive income
(loss) ($ 602) $1,564
======== ========
Nine months ended Nine months ended
September 30, 1999 September 30, 1998
-------------- --------------
Net loss ($3,676) ($10,139)
Unrealized loss
on investments
available-for-sale (26) (16)
-------- --------
Total comprehensive income
(loss) ($3,702) ($10,155)
======== ========
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5. Restructuring
During the year ended December 31, 1998, the Company recorded a total
charge of $1,704,000, representing the cost of restructuring its operations to
shift its strategic emphasis to the hospital-based business and away from the
consumer-oriented continence care business, which the Company has concluded will
be best approached by entering into a partnership or other arrangement with a
larger company. During the first quarter of 1998, a plan to effect this
restructuring was adopted by the Board of Directors and, at that time, the
Company recorded a restructuring charge of $1,024,000. This charge consisted of
$579,000 of employee termination benefits and $445,000 of costs to exit two of
the Company's leased facilities. The employee termination benefits related to
the termination of approximately 40 employees, all of which were terminated as
of December 31, 1998, across all functional areas of the Company. The facility
exit costs included the write-off of $138,000 of leasehold improvements, with
the remainder representing certain contractual lease payments related to the
leased facilities.
During the fourth quarter of 1998, the Company made certain changes to its
restructuring plan and, as a result, an additional charge of $680,000 was
recorded at that time, representing additional facility exit costs.
Specifically, the Company decided not to abandon one of the aforementioned
facilities slated for closure and, at that same time, committed to abandoning
one of the facilities that it had previously expected to keep open. The facility
exit costs include the write-off of $500,000 of leasehold improvements, with the
remainder representing certain contractual lease payments related to the
abandonment of the leased facility.
In March 1999, the Company entered into a lease termination agreement in
respect of the facility that it committed to abandoning during the fourth
quarter of 1998. Based upon the terms of this agreement, the Company's cost of
exiting this facility was $80,000 less than the Company's original estimates
that were included within the restructuring liability as of December 31, 1998.
As a result, the Company reversed $80,000 of the restructuring liability during
the three months ended March 31, 1999.
As of June 30, 1999, all amounts previously accrued for the restructuring
had been paid.
6. Early Retirement of Debt
On March 19, 1999, the Company repurchased $1.4 million in aggregate
principal amount of its Convertible Subordinated Notes. This repurchase occurred
in an unsolicited open market transaction, with a person who was not an
affiliate of the Company, for a purchase price of $0.6 million plus accrued and
unpaid interest of $0.04 million. As a result of this repurchase, an
extraordinary gain of $0.7 million has been reported in the condensed statement
of operations for the three and nine months ended September 30, 1999.
In November, 1999, the Company repurchased $3.9 million in principal amount
of notes in an unsolicited open market transaction, with a person who was not an
affiliate of the Company, for a purchase price of $2.3 million plus accrued and
unpaid interest of $0.05 million. As a result of this repurchase, the Company
expects to report an extraordinary gain of $1.6 million during the fourth
quarter ended December 31, 1999.
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7. Segment Reporting
The Company has determined its reportable segments based on its method of
internal reporting, which disaggregates its business by product category. The
Company's reportable segments are (i) its prostate cancer and incontinence
business, which includes the Cavermap surgical aid, the I-125 brachytherapy
seeds and needles and all consumer and surgical incontinence products, and (ii)
its breast cancer business, which includes all development efforts for its
proposed BreastExam, BreastView and BreastCheck products.
The accounting policies of the segments are the same as those described in
Note 2, "Summary of Significant Accounting Policies" in the Company's Annual
Report on Form 10-K for the year ended December 31, 1998. The Company evaluates
the performance of its operating segments based on operating results.
The tables below presents information about the Company's segments for the
three months and Nine months ended September 30, 1999 and 1998. Asset
information by segment is not reported, because the Company does not produce
such information internally (in thousands):
Prostate cancer
and Breast
Incontinence Cancer Totals
---------------- -------- --------
Three months ended September 30, 1999
Revenues $ 719 $ - $ 719
Depreciation (202) - (202)
Loss from operations (888) - (888)
Three months ended September 30, 1998
Revenues $ 271 $ - $ 271
Depreciation (457) (15) (472)
Loss from operations (1,934) (469) (2,403)
The following are reconciliations of the loss from operations presented
above to corresponding totals in the accompanying financial statements:
Three months ended September 30, 1999 1998
- --------------------------------------------------------------------
Total for reportable segments $ ( 888) $ (2,403)
Corporate (315) (604)
---------- ----------
Loss from operations $ (1,203) $ (3,007)
========== ==========
Product sales to a customer in Japan were 0% and 27% of total product sales
for the three months ended September 30, 1999 and 1998, respectively.
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Prostate cancer
and Breast
Incontinence Cancer Totals
---------------- -------- --------
Nine months ended September 30, 1999
Revenues $ 1,837 $ - $ 1,837
Restructuring 80 - 80
Depreciation (1,037) (9) (1,046)
Loss from operations (2,653) (422) (3,075)
Nine months ended September 30, 1998
Revenues $ 452 $ - $ 452
Restructuring (1,024) - (1,024)
Depreciation (1,224) (40) (1,264)
Loss from operations (9,552) (2,036) (11,588)
The following are reconciliations of the loss from operations presented
above to corresponding totals in the accompanying financial statements:
Nine months ended September 30, 1999 1998
- --------------------------------------------------------------------
Total for reportable segments $ (3,075) $ (11,588)
Corporate (604) (2,465)
---------- ----------
Loss from operations $ (3,679) $ (14,053)
========== ==========
Product sales to a customer in Japan were 10% and 12% of total product
sales for the nine months ended September 30, 1999 and 1998, respectively.
8. Assurance Medical Inc Spin-out
On April 15, 1999, the Company completed the "spin-out" of its breast
cancer technology into a new, private company, Assurance Medical, Inc.
("Assurance"). In conjunction with this spin-out, Assurance received $8.0
million in equity financing from two healthcare venture capital firms and the
Company contributed its breast cancer screening technology to Assurance in
exchange for an approximate one-third equity position. The Company will account
for its investment under the equity method of accounting as presribed by
Accounting Principles Board Opinion No. 18 "The Equity Method of Accounting for
Investments in Common Stock". The transaction itself did not have a material
impact on the Company's results of operations for the three and nine months
ended September 30, 1999. Because the Company's recorded investment in Assurance
is zero and the Company does not intend to provide additional funding to
Assurance, the Company has not recorded its share of Assurance's net loss since
the spin-out.
9. Treasury Stock
The Board of Directors of the Company authorized a Common Stock repurchase
program in 1998 (the "Repurchase program"). The Repurchase program was extended
by the Company's Board of Directors on June 17, 1999. The Company is authorized
to repurchase up to one million shares of the outstanding Common Stock, from
time to time, subject to prevailing market conditions. As of September 30, 1999,
the Company has repurchased 197,000 shares of its Common Stock for $515,000 as
part of the Repurchase program. Purchases pursuant to the Repurchase program may
be made on the open market or in privately negotiated transactions. The Company
plans to fund such purchases from its working capital. The Company purchased
10,000 shares for $15,000 as part of this program for the nine months ended
September 30, 1999. The Company purchased an additional 22,000 shares for
$23,000 during November, 1999.
10. Gain on sale of assets
On July 21, 1999, the Company entered into an agreement to sell global
rights to its Impress Softpatch technology and assets to Procter & Gamble. Under
the agreement, the Company received $3.3 million in cash at closing and is to
receive an additional $150,000 in cash payments each year for a four-year period
commencing on July 21, 2000. In addition and under certain conditions, the
Company may receive additional cash consideration in the future in the form of
royalty and other payments. As a result of the transaction, the Company reported
a gain of $0.7 million in the third quarter of 1999.
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Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
This Management's Discussion and Analysis should be read together with
"Forward-Looking Statements and Associated Risks" contained later in this
report.
Overview
The Company is dedicated to establishing itself as a leader in providing
interventional urological products, with primary emphasis on the treatment of
prostate cancer. The Company seeks to market a portfolio of products including
its two main proprietary products for the treatment of prostate cancer: the
FDA-cleared CaverMap Surgical Aid, available to aid physicians in preserving
vital nerves during prostate cancer surgery, and the FDA-cleared Symmetra I-125
radioactive seeds, used in a brachytherapy procedure to treat localized prostate
cancer. The Company's product portfolio also includes brachytherapy introducer
needles and minimally invasive incontinence surgical products. The Company,
through its approximate one-third ownership of Assurance Medical Inc., has
supported the development of electronic palpation technology in order to aid
physicians in finding breast lumps earlier. The Company has also developed
technology and assets in office-based incontinence products; the Company
continues its efforts to leverage its technology and assets in this area via
corporate partnerships and/or strategic alliances. The Company also continues to
dedicate resources to the development and/or acquisition of product lines that
fit into its strategic platform.
Results of Operations
Revenues
The Company's revenues for the third quarter of 1999 increased 165% to $0.7
million as compared to $0.3 million in the third quarter of 1998. For the first
nine months of 1999, revenues increased 306% to $1.8 million as compared to $0.5
million for the first nine months of 1998. These increases are primarily due to
increased 1999 sales of CaverMap Surgical Aid related products whereas 1998
sales levels of such products were relatively insignificant. The Company
commenced customer shipments of its Symmetra I-125 radioactive seeds during the
third quarter of 1999, however, this had a minimal contribution to total
quarterly revenue due to limited production quantity availability. Revenues in
1998 were derived primarily from sales of the Company's incontinence products,
which are currently not actively marketed by the Company. The Company has
entered into and continues to seek partnerships to capitalize on its
incontinence products and technology.
Cost of revenues
Cost of revenues for the third quarter of 1999 decreased 25% to $0.6
million as compared to $0.8 million in the third quarter of 1998. For the first
nine months of 1999 cost of revenues decreased 31% to $2.0 million as compared
to $2.8 million for the first nine months of 1998. The major components of the
decrease for the third quarter of 1999 as compared to the third quarter of 1998
are reductions of $0.2 million in depreciation, $0.1 million in facilities and
corporate-related allocated expenses, and $0.1 million in salaries and related
personnel expenses. These reductions are partially offset by an increase of $0.2
million in variable product costs due to increased revenue levels in the third
quarter of 1999 as compared to the third quarter of 1998. The areas of major
cost reduction in comparing the first nine months of 1999 to the first nine
months of 1998 are as follows: $0.5 million in salaries and related personnel
costs as a result of the headcount reduction from the 1998 restructuring, $0.4
million attributable to reductions in facilities and corporate-related allocated
expenses, and $0.2 million in depreciation. These reductions are partially
offset by an increase of $0.3 million in variable product costs due to the
increased revenue levels in 1999 as compared to 1998.
Operating Expenses
Research and development expenses in the third quarter of 1999 decreased
58% to $0.4 million as compared to $1.1 million in the third quarter of 1998.
For the first nine months of 1999 research and development expenses decreased
60% to $1.8 million from $4.4 million for the first nine months of 1998 . The
decrease in the third quarter of 1999 as compared to the third quarter of 1998
resulted from the reduction of $0.3 million in breast cancer technology related
expenses, due to the spin-out of this technology into a separate corporation in
April 1999, and, decreases of $0.2 million in administrative salaries and other
expenses, $0.1 million in corporate-related expenses and $0.1 million in
incontinence related expenses. For the first nine months of 1999 as compared to
the first nine months of 1998, decreases were as follows: reductions of $0.8
million in incontinence related expenses, $0.5 million in salaries and related
costs as a result of the headcount reduction in the 1998 restructuring, $0.7
million in breast cancer technology related expenses , $0.2 million of clinical
study expenses for the CaverMap Surgical Aid and $0.4 million in administrative
and corporate-related expenses.
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On April 15, 1999, the Company completed the "spin-out" of its breast
cancer technology into a new, private company, Assurance Medical, Inc.
("Assurance"). In conjunction with this spin-out, Assurance received $8.0
million in equity financing from two healthcare venture capital firms and the
Company contributed its breast cancer screening technology to Assurance in
exchange for an approximate one-third equity position. The completion of this
transaction relieves the Company from continuing to fund the development of this
technology and, as a result, the Company anticipates that the transaction will
result in expenditure savings of approximately $0.45 million per quarter over
the course of 1999. The Company is hopeful that it will eventually share in the
benefits related to this technology via its equity interest in Assurance,
although there can be no assurance that the Company will be able to do so. The
transaction did not have a material impact on UroMed's financial position or
results of operations. Because the Company's recorded investment in Assurance is
zero and the Company does not intend to provide additional funding to Assurance,
the Company has not recorded its share of Assurance's net loss since the
spin-out.
In May 1996, the Company acquired the technology underlying the Impress
Softpatch, and at June 30, 1999, $3.2 million of manufacturing equipment was
included within fixed assets that is specific to the Impress Softpatch
manufacturing process. In connection with the restructuring of its operations in
1998, the Company concluded that the best vehicle for capitalizing on the
Impress Softpatch product opportunity was a partnership with, or the sale of the
technology to, a large company that has an extensive distribution channel. On
July 21, 1999, UroMed Corporation entered into an agreement to sell global
rights to its Impress Softpatch technology and assets to Procter & Gamble. Under
the agreement, UroMed received $3.3 million in cash at closing and will receive
an additional $150,000 each year for a four-year period commencing on July 21,
2000. In addition and under certain conditions, UroMed may receive additional
cash consideration in the future in the form of royalty and other payments. The
Company recorded a gain of $0.7 million as a result of this transaction in the
third quarter of 1999.
Marketing and sales expenses in the third quarter of 1999 decreased 30% to
$0.5 million as compared to $0.7 million in the third quarter of 1998. For the
first nine months of 1999 marketing and sales expenses decreased 57% to $1.5
million as compared to $3.6 million for the first nine months of 1999. The
decrease in the third quarter of 1999 as compared to the third quarter of 1998
is due to a $0.1 million reduction in breast cancer technology related expenses
due to the April 1999 spin-out of its breast cancer technology and $0.1 million
in reduced marketing administrative expenses. The decrease for the first nine
months of 1999 as compared to the first nine months of 1998 is due to a
reduction of $0.7 million in salaries and related costs as a result of the
headcount reduction as part of the 1998 restructuring, $0.4 million in public
relations and product literature expenses, $0.2 million in travel and related
expenses, $0.2 million in marketing program expenses, and $1.0 million each in
marketing administrative expenses and breast cancer technology related expenses.
General and administrative expenses in the third quarter of 1999 decreased
47% to $0.4 million as compared to $0.7 million in the third quarter of 1998.
For the first nine months of 1999, general and administrative expenses decreased
46% to $1.4 million from $2.6 million for the first nine months of 1999. The
decrease in the third quarter of 1999 as compared to the third quarter of 1998
is a result of $0.2 million in reduced finance and administration costs and $0.1
in breast cancer technology related expenses. The decrease for the first nine
months of 1999 as compared to the first nine months of 1998 is due to a $0.2
million reduction in salaries and related costs as a result of the headcount
reduction in the 1998 restructuring, $0.6 million reduction in finance and
administration expenses, and a $0.2 million reduction each for both breast
cancer technology related expenses and system expenses.
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Restructuring
During the year ended December 31, 1998, the Company recorded a total
charge of $1,704,000, representing the cost of restructuring its operations to
shift its strategic emphasis to the hospital-based business and away from the
consumer-oriented continence care business, which the Company concluded would be
best approached by entering into a partnership or other arrangement with a
larger company. During the first quarter of 1998, a plan to effect this
restructuring was adopted by the Board of Directors and, at that time, the
Company recorded a restructuring charge of $1,024,000. This charge consisted of
$579,000 of employee termination benefits and approximately $445,000 of costs to
exit two of the Company's leased facilities. The employee termination benefits
related to the termination of approximately 40 employees, all of which were
terminated as of December 31, 1998, across all functional areas of the Company.
The facility exit costs included the write-off of $138,000 of leasehold
improvements, with the remainder representing certain contractual lease payments
related to the leased facilities.
During the fourth quarter of 1998, the Company made certain changes to its
restructuring plan and, as a result, an additional charge of $680,000 was
recorded at that time, representing additional facility exit costs.
Specifically, the Company decided not to abandon one of the aforementioned
facilities slated for closure and, at that same time, committed to abandoning
one of the facilities that it had previously expected to keep open. The facility
exit costs include the write-off of $500,000 of leasehold improvements, with the
remainder representing certain contractual lease payments related to the
abandonment of the leased facility.
In March 1999, the Company entered into a lease termination agreement in
respect to the facility that it committed to abandoning during the fourth
quarter of 1998. Based upon the terms of this agreement, the Company's cost of
exiting this facility were $80,000 less than the Company's original estimates
that were included within the restructuring liability as of December 31, 1998.
As a result, the Company reversed $80,000 of the restructuring liability during
the three months ended March 31, 1999. All remaining restructuring accruals were
paid in cash during the three months ended June 30, 1999.
As compared to the first nine months of 1998, for the first nine months of
1999 cost savings from the 1998 restructuring amounted to approximately $2.7
million, which was in line with management's estimate. The major reductions from
1998 expenditure levels were as follows: $1.6 million in reduced employee
expenses, $0.4 million in reduced public relations and selling costs, $0.4
million in clinical and regulatory expenses, $0.1 million in reduced
distribution costs and $0.2 million in reduced facility costs (including
amortization).
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Gain on Sale of Assets
On July 21, 1999, the Company entered into an agreement to sell global
rights to its Impress Softpatch technology and assets to Procter & Gamble. Under
the agreement, the Company received $3.3 million in cash at closing and is to
receive an additional $150,000 in cash payments each year for a four-year period
commencing on July 21, 2000. In addition and under certain conditions, UroMed
may receive additional cash consideration in the form of royalty and other
payments. As a result of the transaction, the Company is reporting a gain of
$0.7 million in the third quarter of 1999.
Interest income and interest expense
Interest income in the third quarter of 1999 decreased 59% to $0.3 million
as compared to $0.7 million in the third quarter of 1998. For the first nine
months of 1999 interest income decreased 63% to $0.9 million from $2.4 million
for the first nine months of 1998. These decreases were attributable to the
reduced size of the Company's investment portfolio, caused by the need to fund
the Company's operations and to repurchase a portion of its 6% Convertible
Subordinated Notes due October 15, 2003 (the "Notes").
Interest expense in the third quarter of 1999 decreased 64% to $0.4 million
as compared to $1.1 million in the third quarter of 1999. For the first nine
months of 1999 interest expense decreased 65% to $1.2 million from $3.3 million
for the first nine months of 1998. Theese decreases were attributable to the
reduction in outstanding Convertible Subordinated Notes due to repurchases
thereof during 1998 and 1999.
Extraordinary gain on early retirement of debt
On March 19, 1999, the Company repurchased $1.4 million in aggregate
principal amount of its Notes. This repurchase occurred in an unsolicited open
market transaction, with a person who was not an affiliate of the Company, for a
purchase price of $0.6 million plus accrued and unpaid interest of $0.04
million. As a result, an extraordinary gain on the early retirement of these
Notes of $0.7 million has been reported in the condensed statement of operations
for the nine months ended September 30, 1999. In November, 1999, the Company
repurchased an additional $3.9 million in principal amount of Notes in
unsolicited open market transactions, with a person who was not an affiliate of
the Company, for a purchase price of $2.3 million plus accrued and unpaid
interest of $0.1 million. As a result of this repurchase, the Company expects to
report an extraordinary gain of $1.5 million during the fourth quarter ended
December 31, 1999.
<PAGE>
Page 14
Liquidity and Capital Resources
Cash and short-term investments totaled $23.2 million at September 30,
1999, compared to $26.3 million at December 31, 1998. At September 30, 1999, 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 $6.0 million during the nine
months ended September 30, 1999 was primarily a result of the net loss for the
period and, to a lesser extent, a decrease in accrued expenses primarily due to
payments of previously accrued restructuring expenses and marketing and sales
expenses.
Net cash provided by investing activities was $1.9 million during the nine
months ended September 30, 1999 due primarily to the proceeds from the sale of
rights to the technology and assets of the Impress Softpatch, partially offset
by the net purchase of short-term investments.
Net cash used for financing activities was $0.6 million during the nine
months ended September 30, 1999, as a result of the $0.6 million used to
repurchase $1.4 million in aggregate principal amount of Notes.
In October 1996, the Company completed the sale of $69.0 million of its 6%
Convertible Subordinated Notes due October 15, 2003 (the "Notes"). In March
1999, the Company repurchased $1.4 million of Notes for approximately $0.6
million. Through September 30, 1999, the Company repurchased a total of $45.6
million in aggregate principal amount of its Notes resulting in an outstanding
principal balance of the Notes at September 30, 1999 of $23.4 million. In
November, 1999, the Company repurchased an additional $3.9 million in aggregate
principal amount of its notes for $2.3 million. The Company is considering from
time to time additional repurchases of its Notes. 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.
The Board of Directors of the Company authorized a Common Stock repurchase
program in 1998 (the "Repurchase program"). The Repurchase program was extended
by the Company's Board of Directors on June 17, 1999. The Company is authorized
to repurchase up to one million shares of the outstanding Common Stock, from
time to time, subject to prevailing market conditions. As of September 30, 1999,
the Company had repurchased 197,000 shares of its Common Stock for $515,000 as
part of the Repurchase program. Purchases pursuant to the Repurchase program may
be made on the open market or in privately negotiated transactions. The Company
plans to fund such purchases from its working capital. The Company purchased
10,000 shares for $15,000 as part of this program during the nine months ended
September 30, 1999. The Company purchased an additional 22,000 shares for
$23,000 during November, 1999.
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 at least the next twelve months. 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 CaverMap Surgical Aid and the Symmetra
I-125 seed, development of partnerships and alliances for its assets and
technology in incontinence. 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>
Page 15
Year 2000
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's 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 Symmetra
I-125 seeds, and the INTROL Bladder Neck Support Prosthesis. The Company
received Year 2000 compliance notification from its significant suppliers
(including those that supply its products) and service providers concerning
their successful completion of a Year 2000 compliance testing. The Company
depends significantly upon telephone orders; should the Company's telephone
service be adversely affected, the Company will be unable to receive a high
percentage of its retail orders. The Company also depends in large measure on
delivery services such as Federal Express and UPS to deliver goods to customers;
accordingly should one or more of these delivery services prove unable to make
deliveries as a result of Year 2000 issues, the Company's cash flow and business
would be severely affected. Although the state of readiness of the Company's
suppliers and service providers will be monitored and evaluated, no assurances
can be given as to the eventual state of readiness of the Company's suppliers
and/or service providers. Nor can any assurance be given as to the eventual
effectiveness of the Company's contingency plans.
The preceding discussion contains forward-looking statements information
within the meaning of Section 21E of the Exchange Act. This disclosure is also
subject to protection under the Year 2000 Information and Readiness Disclosure
Act of 1998, Public Law 105-271, as a "Year 2000 Statement" and "Year 2000
Readiness Disclosure" as defined therein. Actual results may differ materially
from such projected information due to changes in underlying assumptions.
<PAGE>
Page 16
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 CaverMap Surgical Aid, the Symmetra I-125
brachytherapy seed and introducer needle and the Allosling surgical products,
including the timing and extent of initial or other sales, (ii) the timing
related to the commencement of marketing activities for the commercial launches
of the Symmetra I-125 brachytherapy seeds, (iii) the Company's planned uses for
its cash and other liquid resources, (iv) 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, and (v) continued development of partnerships and/or strategic alliances
for the relevant incontinence and related assets and technology. 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:
- - The uncertainty that the CaverMap Surgical Aid and Symmetra I-125 seeds
will gain market acceptance among physicians.
- - The uncertainty that the Company will be able to develop an effective
sales force and implement a successful marketing campaign for the CaverMap
Surgical Aid and the Symmetra I-125 brachytherapy seed.
- - The uncertainty that the Company will be able to develop effective
partnerships and/or strategic alliances for its assets and technology as
part of its incontinence effort.
- - The Company's dependence on others for raw materials and certain
components of its products, including certain materials available only from
single sources.
- - The uncertain protection afforded the Company by its patents and/or
other intellectual property rights relating to the Company's products.
- - The uncertainty as to 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.
- - 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.
- - The uncertainty of the size of the potential markets of the Company's
products.
Other relevant risks are described in the Company's Annual Report on
Form 10-K for the year ended December 31, 1998 under the headings
"Forward-Looking Statements and Associated Risks" and "Risk Factors", and
are incorporated herein by reference.
<PAGE>
Page 17
Part II. OTHER INFORMATION
Item 6. Exhibits
27 Financial Data Schedule
Item 7a. Quantitative and Qualitative Disclosures About Market Risk
The Company does not use derivative financial instruments. While 10% of the
Company's sales for the nine months ended September 30, 1999 were made to a
customer in Japan, these sales are denominated in US dollars. The Company
believes, based on a hypothetical ten percent adverse movement in foreign
currency exchange rates for the Japanese Yen, the potential losses in future
earnings and cash flows are immaterial, although the actual effects may differ
materially from the hypothetical analysis.
<PAGE>
Page 18
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 12, 1999 /s/ John G. Simon
-------------- ----------------------------------
John G. Simon, President and
Chief Executive Officer
Date: November 12, 1999 /s/ Domenic C. Micale
-------------- -----------------------------------
Domenic C. Micale, Vice President
of Finance and Administration,
Treasurer
<PAGE>
Page 19
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