<PAGE>
Page 1
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 June 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:
5,176,764 shares of Common stock, no par value,
outstanding at July 31, 1999.
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UROMED CORPORATION
FORM 10-Q
For the quarterly period ended June 30, 1999
Table of contents Page No.
Part I - FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Balance Sheet at June 30, 1999 and December 31, 1998 3
Condensed Statement of Operations for the three and six months
ended June 30, 1999 and 1998 4
Condensed Statement of Cash Flows for the six months ended
June 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 -15
Part II - OTHER INFORMATION
Item 4. Submission of Matters to Vote of Security Holders 16
Item 6. Exhibits 16
Item 7a. Quantitative and Qualitative Disclosures
About Market Risk 16
Signatures 17
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Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
UROMED CORPORATION
CONDENSED BALANCE SHEET
(In thousands)
(unaudited)
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
---------- -----------
Assets
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 4,964 $ 11,576
Short-term investments 16,110 14,704
Accounts receivable 410 224
Inventories 582 422
Prepaid expenses and other assets 408 640
---------- ----------
Total current assets 22,474 27,566
Fixed assets, net 3,524 4,414
Other assets 1,831 1,626
---------- ----------
$ 27,829 $ 33,606
========== ==========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 247 $ 250
Accrued expenses 1,728 3,026
---------- ----------
Total current liabilities 1,975 3,276
---------- ----------
Convertible subordinated notes 23,406 24,756
---------- ----------
Stockholders' equity:
Common stock 107,210 107,222
Other stockholders' deficit (104,762) (101,648)
---------- ----------
Stockholders' equity 2,448 5,574
---------- ----------
$ 27,829 $ 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 Six Months Ended
June 30, June 30,
------------------- ------------------
<S>
<C> <C> <C> <C>
1999 1998 1999 1998
-------- -------- -------- --------
Revenues $ 675 $ 121 $ 1,118 $ 181
-------- -------- -------- --------
Costs and expenses:
Cost of revenues 736 867 1,341 2,002
Research and development 586 1,456 1,339 3,376
Marketing and sales 605 1,152 1,042 2,916
General and administrative 408 832 1,023 1,909
Restructuring - - ( 80) 1,024
-------- -------- ------- -------
Total costs and expenses 2,335 4,307 4,665 11,227
-------- -------- ------- -------
Loss from operations (1,660) (4,186) ( 3,547) (11,046)
Interest income 263 767 580 1,664
Interest expense ( 385) (1,134) ( 791) ( 2,268)
-------- -------- -------- -------
Loss before extraordinary gain
on early retirement of debt (1,782) (4,553) (3,758) (11,650)
Extraordinary gain on early
retirement of debt - - 701 -
-------- -------- -------- --------
Net loss $(1,782) $(4,553) $(3,057) $(11,650)
========= ========= ========= =========
Basic and diluted per share
amounts:
Loss before extraordinary
gain on early retirement
of debt $ (.34) $ (.85) $ (.73) $ (2.17)
Extraordinary gain on
early retirement of debt - - .14 -
-------- -------- ------- -------
Net loss $ (.34) $ (.85) $ (.59) $ (2.17)
======== ======== ======== ========
Basic and diluted weighted
average common shares
outstanding 5,181 5,365 5,183 5,360
======== ======== ======== ========
</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>
Six Months Ended
June 30,
--------------------------
<S>
<C> <C>
1999 1998
Net cash used in operating activities $ (4,726) $ (11,323)
--------- ---------
Cash flows from investing activities:
(Purchases) sales of short-term
investments, net (1,449) 12,546
Purchase of fixed assets - ( 543)
Decrease in other assets 196 -
--------- ---------
Net cash provided by (used for)
investing activities (1,253) 12,003
--------- ---------
Cash flows from financing activities:
Proceeds from issuance of common stock 3 31
Purchase of common stock (15) -
Repurchase of convertible subordinated notes (621) -
--------- ---------
Net cash provided by (used for)
financing activities (633) 31
--------- ---------
Net (decrease) increase
in cash and cash equivalents (6,612) 711
Cash and cash equivalents, beginning of period 11,576 12,007
--------- ---------
Cash and cash equivalents, end of period $ 4,964 $ 12,718
========= =========
Supplemental disclosure of cash flow information:
Interest paid $ 736 $ 2,070
</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 June 30, 1999 and the condensed statement of
operations for the three and six months ended June 30, 1999 and 1998 and the
condensed statement of cash flows for the six months ended June 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. At June 30, 1999, inventories
consisted of the following (in thousands):
Raw materials $ 249
Work in process 24
Finished goods 309
--------
$ 582
========
4. Comprehensive Loss
FASB Statement No. 130, "Reporting Comprehensive Income", establishes
standards for the reporting and display of comprehensive income or loss and its
components in the financial statements. The Company's comprehensive loss for
the three months and six months ended June 30, 1999 and 1998 was as follows
(in thousands):
Three months ended Three months ended
June 30, 1999 June 30, 1998
-------------- --------------
Net loss ($1,782) ($4,553)
Unrealized gain (loss)
on investments
available-for-sale (5) 11
-------- --------
Total comprehensive loss ($1,787) ($4,542)
======== ========
Six months ended Six months ended
June 30, 1999 June 30, 1998
-------------- --------------
Net loss ($3,057) ($11,650)
Unrealized loss
on investments
available-for-sale (43) (69)
-------- --------
Total comprehensive loss ($3,100) ($11,719)
======== ========
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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
approximately $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
approximately $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 approximately $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 approximately $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 approximately $80,000 of the
restructuring liability during the three months ended March 31, 1999.
During the quarter ended June 30, 1999, the activity in the restructuring
liability was as follows (in thousands):
Balance at Balance at
March 31, Cash Non-Cash June 30,
1999 Payments Items 1999
------------- ---------- ---------- ------------
Employee termination
Benefits $ 22 $ 22 $ - $ -
Asset write-downs - - - -
Other facility exit costs 120 120 - -
---------- ---------- ---------- -----------
$ 142 $ 142 $ - $ -
========== ========== ========== ==========
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 six months ended June 30, 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 which
represents income or loss before interest income and expense and extraordinary
gain on early retirement of debt. There are no intersegment revenues.
The tables below presents information about the Company's segments for the
three months and six months ended June 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 June 30, 1999
Revenues $ 675 $ - $ 675
Depreciation (416) - (416)
Operating Loss (1,211) - (1,211)
Three months ended June 30, 1998
Revenues $ 121 $ - $ 121
Depreciation (467) (13) (480)
Operating Loss (2,771) (654) (3,425)
The following are reconciliations of the operating loss amounts presented
above to corresponding totals in the accompanying financial statements:
Three months ended June 30, 1999 1998
- --------------------------------------------------------------------
Total for reportable segments $ (1,211) $ (3,425)
Corporate (428) (761)
Interest income 263 767
Interest expense (406) (1,134)
---------- ----------
Loss before extraordinary
gain on the early retirement
of debt $ (1,782) $ (4,553)
========== ==========
Product sales to a customer in Japan were approximately 12% and 18% of
total product sales for the three months ended June 30, 1999 and 1998,
respectively.
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Prostate cancer
and Breast
Incontinence Cancer Totals
---------------- -------- --------
Six months ended June 30, 1999
Revenues $ 1,118 $ - $ 1,118
Restructuring 80 - 80
Depreciation (835) (9) (844)
Operating Loss (2,233) (422) (2,655)
Six months ended June 30, 1998
Revenues $ 181 $ - $ 181
Restructuring (1,024) - (1,024)
Depreciation (767) (25) (792)
Operating Loss (7,618) (1,567) (9,185)
The following are reconciliations of the operating loss amounts presented
above to corresponding totals in the accompanying financial statements:
Six months ended June 30, 1999 1998
- --------------------------------------------------------------------
Total for reportable segments $ (2,655) $ (9,185)
Corporate (892) (1,861)
Interest income 580 1,664
Interest expense (791) (2,268)
---------- ----------
Loss before extraordinary
gain on the early retirement
of debt $ (3,758) $ (11,650)
========== ==========
Product sales to a customer in Japan were approximately 17% and 12% of
total product sales for the six months ended June 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 business 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 No. 18 "The Equity Method of Acconting 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 six months ended
June 30, 1999.
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 0n 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 June 30, 1999, the
Company has repurchased approximately 197,000 shares of its Common Stock for
approximately $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 approximately 10,000 shares for approximately $15,000 as
part of this program for the six months ended June 30, 1999.
10. Subsequent Event
On July 21, 1999, UroMed Corporation entered into an agreement to sell
global rights to its Impress Softpatch technology to Procter & Gamble. Under the
agreement, UroMed 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. In
addition and under certain conditions, UroMed may receive additional cash
consideration in the future in the form of royalty and equipment-related
payments. As a result of the transaction, the Company will report a gain of
approximately $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 alos 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 second quarter of 1999 increased 458% to
$0.7 million as compared to $0.1 million in the second quarter of 1998. For the
first six months of 1999 revenues increased 518% to $1.1 million as compared to
$0.2 million for the first six 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 insignificant. 1998 sales 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 parternships to capitalize on its incontinence products and technology.
Cost of revenues
Cost of revenues for the second quarter of 1999 decreased 15% to $0.7
million as compared to $0.9 million in the second quarter of 1998. For the first
six months of 1999 cost of revenues decreased 33% to $1.3 million as compared to
$2.0 million for the first six months of 1998. The major components of the
decrease for the second quarter of 1999 as compared to the second quarter of
1998 are $0.2 million in salaries and related costs and $0.1 million in
reductions in facilities and corporate-related allocated expenses. These
reductions are partially offset by an increase of $0.1 million in variable
product costs due to increased revenue levels in the second quarter of 1999 as
compared to the second quarter of 1998. The areas of major cost reduction in
comparing the first six months of 1999 to the first six months of 1998 are as
follows: $0.4 million in salaries and related costs as a result of the headcount
reduction as part of the 1998 restructuring and $0.2 million attributable to
reductions in facilities and corporate expenses.
Operating Expenses
Research and development expenses in the second quarter of 1999 decreased
60% to $0.6 million as compared to $1.5 million in the second quarter of 1998.
For the first six months of 1999 research and development expenses decreased 60%
to $1.3 million from $3.4 million for the first six months of 1998 . The
decrease in the second quarter of 1999 as compared to the second quarter of 1998
resulted from the reduction of $0.4 million in Assurance Medical Inc related
expenses. 1999 included insignificant Assurance Medical Inc related expenses due
to the spin-out of this group into a separate corporation in April 1999.
Decreases of $0.4 million pertained to reductions in incontinence related
expenses and $0.1 million of corporate expenses. For the first six months of
1999 as compared to the first six months of 1998, decreases were as follows:
$0.7 million in reductions in incontinence related expenses, $0.5 million in
salaries and related costs as a result of the headcount reduction in the 1998
restructuring, $0.4 million in Assurance Medical related expenses , $0.2 million
of clinical study expenses for the CaverMap Surgical Aid and $0.2 million in
corporate expenses.
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On April 15, 1999, the Company completed the "spin-out" of its breast
cancer business 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 the obligation to continue 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 stake
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.
In May 1996, the Company acquired the technology underlying the Impress
Softpatch, and at June 30, 1999, there was approximately $3.2 million of
manufacturing equipment included within fixed assets that is specific to the
Impress Softpatch manufacturing process. In connection with the restructuring of
its operations in 1998 (See Note 5 of the condensed financial statements), 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 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. In addition and under
certain conditions, UroMed may receive additional cash consideration in the
future in the form of royalty and equipment-related payments. The Company
anticipates that it will record a gain of approximately %0.7 million as a result
of this transaction in the third quarter of 1999.
Marketing and sales expenses in the second quarter of 1999 decreased 47% to
$0.6 million as compared to $1.2 million in the second quarter of 1998. For the
first six months of 1999 marketing and sales expenses decreased 64% to $1.0
million as compared to $2.9 million for the first six months of 1999. The
decrease in the second quarter of 1999 as compared to the second quarter of 1998
is due to a $0.2 million reduction in Assurance related expenses due to the
April 1999 spin-out of Assurance Medical Inc into a separate corporation, $0.2
million in reduced incontinence related product literature and development
expenses and a reduction of $0.2 million in marketing program expenses. The
decrease for the first six months of 1999 as compared to the first six 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, $0.2 million in travel and
related expenses, and $0.2 million in marketing program expenses.
General and administrative expenses in the second quarter of 1999 decreased
51% to $0.4 million as compared to $0.8 million in the second quarter of 1998.
For the first six months of 1999, general and administrative expenses decreased
46% to $1.0 million from $1.9 million for the first six months of 1999. The
decrease in the second quarter of 1999 as compared to the second quarter of 1998
is a result of $0.2 million in reduced finance and administration costs, $0.1 in
Assurance related expenses as a result of the April 1999 spin-out of Assurance
Medical Inc and $0.1 million in reduced system expenses. The decrease for the
first six months of 1999 as compared to the first six 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, and $0.4 million reduction in
finance and administration expenses and a $0.1 million reduction each for both
Assurance Medical expenses and system expenses.
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Page 12
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
approximately $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
approximately $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 approximately $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 approximately $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 approximately $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.
During the quarter ended June 30, 1999, the activity in the restructuring
liability was as follows (in thousands):
Balance at Balance at
March 31, Cash Non-Cash June 30
1999 Payments Items 1999
------------- ---------- ---------- ------------
Employee termination
Benefits $ 22 $ 22 $ - $ -
Asset write-downs - - - -
Other facility exit costs 120 120 - -
---------- ---------- ---------- -----------
$ 142 $ 142 $ - $ -
========== ========== ========== ==========
As compared to the first six months of 1998, for the first six 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). Annual cost savings in 1999 (as compared to 1998) are expected to
reach approximately $11.0 million.
Interest income and interest expense
Interest income in the second quarter of 1999 decreased 66% to $0.3 million
as compared to $0.8 million in the second quarter of 1998. For the first six
months of 1999 interest income decreased 65% to $0.6 million from $1.7 million
for the first six 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 second quarter of 1999 decreased 66% to $0.4
million as compared to $1.1 million in the second quarter of 1999. For the first
six months of 1999 interest expense decreased 65% to $0.8 million from $2.3
million for the first six months of 1998. Theese decreases were attributable to
the reduction in outstanding Convertible Subordinated Notes due to repurchases
thereof during 1998 and 1999.
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Page 13
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 three months ended March 31, 1999.
Liquidity and Capital Resources
Cash and short-term investments totaled $21.1 million at June 30, 1999,
compared to $26.3 million at December 31, 1998. At June 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 $4.7 million during the six months
ended June 30, 1999 was primarily a result of the net loss for the period. In
addition, there were decreases in accounts payable and accrued expenses due to
the payout of items accrued at December 31, 1998. These uses of cash were
partially offset by depreciation and amortization expenses.
Net cash used by investing activities was $1.3 million during the six
months ended June 30, 1999 due primarily to net purchases of short-term
investments.
Net cash used for financing activities was $0.6 million during the six
months ended June 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 approximately $1.4 million of Notes for
approximately $0.6 million. Through June 1999, the Company repurchased a total
of approximately $45.6 million in aggregate principal amount of its Notes
resulting in an outstanding principal balance of the Notes at June 30, 1999 of
$23.4 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 June 30, 1999, the
Company had repurchased approximately 197,000 shares of its Common Stock for
approximately $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 approximately 10,000 shares for approximately $15,000 as
part of this program during the six months ended June 30, 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 14
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, the 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 a Year
2000 compliance testing or indication that they were working toward achieving
Year 2000 compliance. At this time, the Company has received notification from
most significant suppliers and service providers of their Year 2000 compliance.
However, some responses were made only informally, and formal notification is
still pending. Based upon the results of the remaining inquiries to significant
suppliers and service providers, and to the extent that responses to Year 2000
readiness responses are unsatisfactory, the Company intends to develop a
contingency plan. 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. The main risks
associated with the Year 2000 issue are the uncertainties as to whether the
Company's suppliers or service providers can continue to perform their services
for the Company uninterrupted by the Year 2000 event. The Company's suppliers
and service providers, if they are unable to remediate their Year 2000 issues,
may be unable to produce or deliver goods ordered by the Company. 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, and contingency
plans will be developed, 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 15
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 16
Part II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
On May 21, 1999 the Company held its Special Meeting of Stockholders to
consider and vote upon the following two proposals:
(1) A proposal to elect two Class II directors of the Company, each to
hold a three-year term.
(2) A proposal to ratify the appointment of PricewaterhouseCoopers LLP
as independent accountants of the Company for the year ended
December 31, 1999.
Results with respect to the voting on each of the above proposals were as
follows:
Withheld
For Authority
---------------- -------------
(1) Election of Directors
David P. Fialkow 4,507,333 67,005
Thomas E. Tierney 4,507,563 66,775
For Against Abstain
---------------- --------- ----------
(2) Ratification of
PricewaterhouseCoopers
LLP as independent
accountants 4,547,084 26,006 1,248
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
approximately 17% of the Company's sales for the six months ended 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 17
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: August 13, 1999 /s/ John G. Simon
-------------- ----------------------------------
John G. Simon, President and
Chief Executive Officer
Date: August 13, 1999 /s/ Domenic C. Micale
-------------- -----------------------------------
Domenic C. Micale, Director of
Finance (Principal Financial and
Accounting Officer)
<PAGE>
Page 18
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