<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 QUARTER ENDED Commission File Number
MARCH 31, 1999 0-20963
UROQUEST MEDICAL CORPORATION
(Exact name of Registrant as specified in its charter)
DELAWARE 59-3176454
(state or other jurisdiction (IRS Employer Identification Number)
of incorporation or organization)
173 CONSTITUTION DRIVE, MENLO PARK, CALIFORNIA 94025
(Address of principal executive offices) (Zip Code)
(650) 463-5180
(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 Registrant's classes of
common stock, as of the latest practicable date.
Class Outstanding at April 15, 1999
- ----------------------------- ----------------------------
Common Stock, $.001 par value 12,452,522
<PAGE> 2
INDEX
PART I - FINANCIAL INFORMATION
Item 1 - Condensed Consolidated Financial Statements
Condensed Consolidated Statements of Operations for the Three
Months Ended March 31, 1999 and 1998 (unaudited)
Condensed Consolidated Balance Sheets as of March 31, 1999
(unaudited) and December 31, 1998
Condensed Consolidated Statements of Cash Flows for the Three
Months Ended March 31, 1999 and 1998 (unaudited)
Notes to Condensed Consolidated Financial Statements
Item 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations
Item 3 - Quantitative and Qualitative Disclosure of Market Risk
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings
Item 2 - Changes in Securities and Use of Proceeds
Item 3 - Defaults upon Senior Securities
Item 4 - Submission of Matters to a Vote of Security
Holders
Item 5 - Other Information
Item 6 - Exhibits and Reports on Form 8-K
Signatures
2
<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
UROQUEST MEDICAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three months ended March 31,
-------------------------------
1999 1998
------------ ------------
<S> <C> <C>
Net sales ............................... $ 4,393,045 $ 4,022,987
Cost of sales ........................... 2,245,579 2,066,515
------------ ------------
Gross profit .......................... 2,147,466 1,956,472
------------ ------------
Operating expenses:
Research and development .............. 1,017,494 915,423
General and administrative ............ 1,269,307 1,234,984
Sales and marketing ................... 620,858 642,276
Amortization of goodwill .............. 158,046 158,046
------------ ------------
Total operating expenses ............ 3,065,705 2,950,729
------------ ------------
Operating loss .......................... (918,239) (994,257)
Other income (expense):
Interest expense ...................... (22,063) (34,827)
Interest income ....................... 74,891 132,360
------------ ------------
Other income (expenses), net ........ 52,828 97,533
Loss before provision for income taxes .. (865,411) (896,724)
Provision for income taxes .............. 25,000 11,000
------------ ------------
Net loss ................................ $ (890,411) $ (907,724)
============ ============
Basic and diluted net loss per share .... $ (0.07) $ (0.08)
============ ============
Weighted average shares used in computing
basic and diluted net loss per share .. 12,415,067 11,957,193
============ ============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
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UROQUEST MEDICAL CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS March 31, December 31,
1999 1998
------------ ------------
(Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents ..................................... $ 6,557,914 $ 6,980,128
Accounts receivable, net of allowance for doubtful accounts ... 2,672,729 3,145,490
Inventories ................................................... 2,800,540 2,557,618
Prepaid expenses and other current assets ..................... 567,861 260,839
------------ ------------
Total current assets ...................................... 12,599,044 12,944,075
------------ ------------
Property, plant and equipment, net .................................. 4,521,417 4,699,491
Goodwill and intangible assets, at cost, less
accumulated amortization ...................................... 10,135,415 10,315,481
Other noncurrent asset .............................................. -- 200,000
------------ ------------
Total assets .............................................. $ 27,255,876 $ 28,159,047
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable .............................................. $ 699,370 $ 462,715
Accrued compensation .......................................... 640,584 839,663
Accrued selling and distribution expenses ..................... 154,085 154,610
Other accrued expenses ........................................ 980,911 970,870
Current portion of long-term debt ............................. 370,615 370,615
------------ ------------
Total current liabilities ................................. 2,845,565 2,798,473
------------ ------------
Long-term debt, net of current portion .............................. 791,282 921,654
Stockholders' equity:
Preferred stock, $.001 par value; 16,000,000 shares authorized;
none issued and outstanding ............................... -- --
Common stock, $.001 par value; 31,000,000 shares authorized;
12,452,522 and 12,356,210 shares issued and outstanding
as of March 31, 1999 and December 31, 1998, respectively . 12,453 12,356
Additional paid-in capital .................................... 37,390,992 37,323,670
Deferred compensation ......................................... (29,966) (33,067)
Accumulated deficit ........................................... (13,754,450) (12,864,039)
------------ ------------
Total stockholders' equity ................................ 23,619,029 24,438,920
------------ ------------
Total liabilities and stockholders' equity ................ $ 27,255,876 $ 28,159,047
============ ============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
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UROQUEST MEDICAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Three months ended March 31,
-------------------------------
1999 1998
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss .......................................... $ (890,411) $ (907,724)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization ..................... 424,299 400,085
Net utilizations of inventory reserves ............ (60,408) (169,777)
Changes in operating assets and liabilities:
Accounts receivable ........................... 472,761 (193,583)
Inventories ................................... (182,514) 182,038
Prepaid expenses and other assets ............. (107,022) 52,945
Accounts payable and accrued expenses ......... 47,092 412,742
Accrued severance costs ....................... -- (107,202)
------------ ------------
Net cash used in operating activities .. (296,203) (330,476)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment, net (63,058) (211,874)
------------ ------------
Net cash used in investing activities .. (63,058) (211,874)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock ........ 67,419 55,951
Repayment of notes payable and long-term debt . (130,372) (118,986)
------------ ------------
Net cash used in financing activities .... (62,953) (63,035)
------------ ------------
Net decrease in cash and cash equivalents ............... (422,214) (605,385)
Cash and cash equivalents at beginning of period ........ 6,980,128 11,054,088
------------ ------------
Cash and cash equivalents at end of period .............. $ 6,557,914 $ 10,448,703
============ ============
Supplemental disclosures of cash flow information:
Cash paid for interest ............................ $ 22,063 $ 34,827
Cash paid for income taxes ........................ 30,000 --
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
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UROQUEST MEDICAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999
(UNAUDITED)
NOTE 1 - BASIS OF PRESENTATION
The condensed consolidated financial statements include the assets and
liabilities of UroQuest Medical Corporation (the "Company") and its wholly owned
subsidiaries. All significant intercompany transactions have been eliminated in
consolidation.
In the opinion of management, the accompanying unaudited condensed
consolidated financial statements contain all adjustments (consisting of only
normal recurring adjustments) necessary to present fairly the Company's
consolidated financial position as of March 31, 1999, and the results of
operations and cash flows for the three months ended March 31, 1999 and 1998.
The results of operations for any interim period are not necessarily indicative
of results to be expected for the full fiscal year. The balance sheet at
December 31, 1998 has been derived from audited financial statements at such
date, but does not include all of the information and footnotes required by
generally accepted accounting principles.
The accompanying condensed consolidated financial statements should be
read in conjunction with the audited consolidated financial statements and the
notes thereto included in the Company's Form 10-K (File No. 0-20963) for the
year ended December 31, 1998 filed with the Securities and Exchange Commission
on March 31, 1999.
NOTE 2 - NET LOSS PER SHARE
Basic net loss per share has been calculated based on the weighted
average number of shares of common stock outstanding. If the Company had been in
a net income position in the periods presented, diluted earnings per share would
have been presented separately and would have included the effect of outstanding
stock options and warrants, calculated using the treasury stock method.
NOTE 3 - INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
March 31, 1999 December 31, 1998
-------------- -----------------
<S> <C> <C>
Finished goods ........... $ 714,391 $ 581,383
Work-in-process .......... 1,267,925 1,211,519
Raw materials and supplies 818,224 764,716
---------- ----------
2,800,540 2,557,618
========== ==========
</TABLE>
6
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UROQUEST MEDICAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1999
(UNAUDITED)
NOTE 4 - SEGMENT INFORMATION
<TABLE>
<CAPTION>
Urology Airway Management/
Products OEM Products Total
----------- ------------------ -----------
<S> <C> <C> <C>
Three months ended March 31, 1999
- ---------------------------------
Revenues from external customers $ -- $ 4,393,000 $ 4,393,000
Segment profit (loss) (1,302,000) 643,000 (659,000)
Three months ended March 31, 1998
- ---------------------------------
Revenues from external customers $ -- $ 4,023,000 $ 4,023,000
Segment profit (loss) (1,251,000) 560,000 (691,000)
</TABLE>
A reconciliation of the combined reportable segments' losses to the
Company's consolidated loss before income taxes is as follows:
<TABLE>
<CAPTION>
Three months ended Three months ended
March 31, 1999 March 31, 1998
------------------ ------------------
<S> <C> <C>
Total loss for reportable segments $(659,000) $(691,000)
Unallocated amounts:
Amortization of goodwill (158,000) (158,000)
Depreciation of acquired fixed asset
fair value adjustment (48,000) (48,000)
--------- ---------
Total consolidated loss before income taxes $(865,000) $(897,000)
========= =========
</TABLE>
NOTE 5 - COMPREHENSIVE INCOME
Total comprehensive income of the Company includes only the net loss.
The Company had no items of other comprehensive income in any period presented.
7
<PAGE> 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion of the financial condition and results of
operations of the Company should be read in conjunction with the Condensed
Consolidated Financial Statements and the related Notes thereto included
elsewhere in this Report and the Company's annual report on Form 10-K for the
year ended December 31, 1998. The following Management's Discussion and Analysis
of Financial Condition and Results of Operations contains forward-looking
statements, within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended,
that involve risks and uncertainties. The Company's actual results of operations
could differ materially from those anticipated in such forward-looking
statements as a result of certain factors including those discussed under
"Factors Affecting Operating Results" and elsewhere in this Report.
OVERVIEW
Since its inception in April 1992, the Company has devoted its efforts
to the design and development of advanced products for the management and
diagnosis of both male and female urological disorders. The Company's principal
product, the On-Command(R), is an intraurethral (inside the urethra) catheter
incorporating a proprietary anchoring system and a proprietary patient
controlled, magnetically activated valve used to regulate urine flow. The
On-Command is designed to enable persons with either urinary incontinence or
urinary retention to manage their condition without the restricted mobility,
medical complications, discomfort and embarrassment generally associated with
many of the existing management alternatives, including intermittent, Foley,
external and suprapubic catheters, diapers and absorbents, and penile clamps.
The On-Command is an investigational device that has not been approved by the
United States Food and Drug Administration (the "FDA") and will not be available
for commercial distribution in the United States unless and until such approval
is obtained.
Since 1996, Bivona Medical Technologies ("BMT") has been a wholly owned
subsidiary of the Company. BMT develops, manufactures and markets a line of
proprietary silicone medical device products and provides engineering design,
development and manufacturing services for silicone products on an OEM basis for
other medical device companies. All of the Company's current revenues relate to
sales of BMT products. BMT is one of a limited number of specialty manufacturers
of silicone catheters in the United States. BMT manufactures the Company's
On-Command currently being used in clinical trials and market evaluation
studies.
The Company has experienced substantial losses since inception and, as
of March 31, 1999, had an accumulated deficit of $13.8 million. The Company
expects its operating losses to continue until the On-Command achieves
significant market acceptance. The Company continues to expend substantial
resources in funding clinical trials in support of regulatory and reimbursement
approvals, expansion of marketing and sales activities, and research and
development. In addition, the Company's results of operations may fluctuate
significantly during future quarterly periods.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1999 COMPARED TO THREE MONTHS ENDED MARCH 31, 1998:
Net sales and cost of sales. Net sales, which were generated from sales
by BMT of primarily proprietary airway management products and other medical
device products to OEM customers, increased 9% to $4,393,000 for the three
months ended March 31, 1999 from $4,023,000 for the three months ended March 31,
1998. The increase in net sales was attributable equally to increased product
shipments to proprietary product and OEM customers. Cost of sales of $2,246,000
for the three months ended March 31, 1999 increased 9% from $2,067,000 for the
three months ended March 31,1998, due primarily to the
8
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increase in sales. The gross margin for the three months ended March 31, 1999
compared to the same period in 1998 remained at 49%.
Research and development. Research and development expenses include
product development, clinical testing and regulatory expenses. For the three
months ended March 31, 1999, research and development expenses increased to
$1,017,000 from $915,000 for the three months ended March 31, 1998. The increase
was attributable primarily to the additional personnel hired in support of the
increased activities in research and development of the Airway Management/OEM
products. Research and development expenses are expected to continue to increase
in the foreseeable future as the result of additional product development and
regulatory efforts related to Urology and Airway Management/OEM products.
General and administrative. General and administrative expenses
increased to $1,269,000 for the three months ended March 31, 1999 from
$1,235,000 for the three months ended March 31, 1998. The increase was
attributable primarily to increased personnel costs in the Airway Management/OEM
business segment. General and administrative expenses are expected to increase
due to anticipated additional activities related to the Company's Airway
Management/OEM business and Urology operations.
Sales and marketing. Sales and marketing expenses decreased to $621,000
for the three months ended March 31, 1999 from $642,000 for the three months
ended March 31, 1998. In the three-month period ended March 31, 1999, sales and
marketing expenses incurred in the Urology business segment increased $72,000
while these expenses incurred in the Airway Management/OEM business segment
decreased $93,000, when compared to the same period in 1998. The increase in the
Urology segment's sales and marketing expenses was due primarily to the
additional personnel hired to support its increased international marketing
activities. The decrease in the Airway Management/OEM segment's sales and
marketing expenses was attributable primarily to temporarily decreased personnel
costs in the Airway Management direct selling organization. Overall, sales and
marketing expenses are expected to increase in the foreseeable future, due in
part to the Company's European marketing evaluation studies of its Male and
Female On-Command that have been initiated in the fourth quarter of 1998 and the
anticipated hiring of replacement sales representatives in the Airway Management
direct selling organization.
Amortization of goodwill. Amortization of goodwill remained at $158,000
for the three months ended March 31, 1999 compared to the same period in 1998.
The goodwill was recognized as a result of the acquisition of BMT in October
1996, and is being amortized over an estimated life of 20 years.
Other income (expense). Other income (expense) decreased to net interest
income of $53,000 for the three months ended March 31, 1999 from a net interest
income of $98,000 for the three months ended March 31, 1998. Interest income
decreased to $75,000 for the three months ended March 31, 1999 from $132,000 for
the three months ended March 31, 1998. The decrease in interest income was
attributable to lower average cash balances, due primarily to net cash being
used in operating activities and purchases of property and equipment. Interest
expense decreased to $22,000 for the three months ended March 31, 1999 from
$35,000 for the three months ended March 31, 1998. The decrease in interest
expense was attributable primarily to the lower average debt balances as the
Company is repaying existing loans and has not incurred any new loans.
Provision for income taxes. The Company recorded a $25,000 and $11,000
provision for state income taxes for the three months ended March 31, 1999 and
1998, respectively, primarily as a result of taxable income earned by BMT in
Indiana where the Company is required to file tax returns on a separate company
basis. The Company has not paid any federal income taxes since its inception due
to net operating losses. Realization of deferred tax assets is dependent on
future earnings, if any, the timing and amount of which are uncertain.
Accordingly deferred tax asset valuation allowances have been established as of
March 31, 1999 and December 31, 1998 to reflect these uncertainties.
9
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As of December 31, 1998, the Company had federal net operating loss
carryforwards of approximately $8,500,000. The Company also had federal research
and development tax credit carryforwards of approximately $80,000. The net
operating loss and tax credit carryforwards will expire at various dates
beginning 2002 through 2018, if not utilized. Utilization of the net operating
loss carryforwards may be subject to a substantial annual limitation due to the
ownership change limitations provided by the Internal Revenue Code of 1986, as
amended. This annual limitation may result in the expiration of net operating
loss carryforwards before utilization.
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its operations primarily through the public and
private sale of equity securities and through bank-provided working capital
financing, short-term borrowings and equipment lease financing and, beginning in
1997, cash generated from operations at BMT. Since inception, the Company has
raised approximately $28 million in net proceeds of equity financing which
includes the net proceeds of $17.8 million generated through the initial public
offering of the Company's Common Stock in October 1996.
During the three months ended March 31, 1999, net cash used in operating
activities amounted to $296,000. During the three months ended March 31, 1998,
net cash used in operating activities amounted to $330,000. The decrease in net
cash used in operating activities in the three-month period ended March 31, 1999
compared to the same period in 1998 was due primarily to working capital
fluctuations and decreased capital spending.
Additions of property and equipment for the three months ended March 31,
1999 and 1998 were $63,000 and $212,000, respectively. The decrease in additions
of property and equipment in the three-month period ended March 31, 1999
compared to the same period in 1998 was due primarily to completion of the
facilities expenditures in support of the relocation of Urology's research and
development personnel and expansion of OEM production capacity. The Company
expects additional purchases of property and equipment in continued support of
the urological product development and BMT operations.
The Company's primary internal sources of liquidity presently consist of
existing borrowings, cash balances and cash generated from BMT's operations. The
Company's primary external sources of liquidity are equity financings and
bank-provided debt financing.
As of March 31, 1999 and December 31, 1998, the Company had cash and
cash equivalents of $6,558,000 and $6,980,000, respectively. The decrease since
December 31, 1998 was due primarily to the net cash used in operations,
purchases of fixed assets and repayment of long-term debt. As of March 31, 1999,
the Company had no significant noncancelable commitments for capital
expenditures or raw material purchases, although the Company may enter into such
commitments in the future.
The Company's capital requirements depend on numerous factors, including
the extent to which the On-Command and other products gain market acceptance,
actions relating to regulatory and reimbursement matters, progress of clinical
trials, the effect of competitive products, the cost and effect of future
marketing programs, the resources the Company devotes to manufacturing and
developing its products, the success of BMT's proprietary airway management
products and OEM sales, general economic conditions and various other factors.
The timing and amount of such capital requirements cannot accurately be
predicted. The Company believes that existing cash and cash equivalents and cash
anticipated to be generated from BMT's operations will provide adequate funding
for its currently anticipated capital requirements through 1999. Prior to
achieving profitability, the Company may require additional capital and there
can be no assurance that such additional funding will be available on terms
satisfactory to the Company, if at all. Any additional equity financing may be
dilutive to stockholders, and debt financing, if available, may involve
significant restrictive covenants. Failure to raise capital when needed could
have a material adverse effect on the Company's business, financial condition
and results of operations.
10
<PAGE> 11
The Company expects its operating losses to continue until the
On-Command achieves significant market acceptance. The Company continues to
expend substantial resources in funding clinical trials in support of regulatory
and reimbursement approvals, expansion of marketing and sales activities, and
research and development. In addition, the Company's results of operations may
fluctuate significantly during future quarterly periods. All management
estimates regarding liquidity and capital requirements are subject to the
factors discussed above and those set forth under "Factors Affecting Operating
Results".
YEAR 2000 COMPLIANCE
Many currently installed computer systems and software products are
coded to accept only two digit entries in the date code field. Beginning in the
year 2000, these date code fields will need to accept four digit entries to
distinguish 21st century dates from 20th century dates. As a result, in less
than one year, computer systems (hardware and software) and/or devices with
embedded date-sensitive chips used by many companies may need to be upgraded or
replaced to comply with such "Year 2000" requirements. Significant uncertainty
exists in the software industry concerning the potential effects associated with
such compliance.
Based on a recently completed assessment, the Company believes that all
its computer programs and hardware that have date-sensitive software or embedded
chips will properly utilize dates beyond December 31, 1999, primarily as a
result of system upgrades, currently in process, which were originally planned
to enhance business operations.
The completed assessment indicated that most of the Company's
significant information technology systems, if not upgraded or modified, could
be affected. These systems include accounting programs, internally developed
software and other PC-based applications. The Company has completed an upgrade
to its accounting system; such upgrade was originally intended to facilitate
increased business operations. The upgraded accounting system is certified by
the vendor that it is Year 2000 compliant. Regarding its internally developed
software, the Company determined that approximately 5% of the lines of codes in
the software had to be changed to resolve the Year 2000 issue. The Company
believes such changes have been fully completed. PC-based applications that are
currently used by the Company are certified by the vendors at time of purchase
that they are Year 2000 compliant; therefore, no replacements or upgrades are
considered necessary. The assessment also indicated that the embedded chips used
in production and manufacturing equipment are not date-sensitive and thus will
not be affected by the Year 2000 Issue. The cost directly related to addressing
Year 2000 issues has been determined to be immaterial.
The Company has purchased software to test all its personal computers
regarding Year 2000 compliance. The Company is now identifying and evaluating
certain testing programs to be used to assure that its main information
technology operating system is Year 2000 compliant. The Company anticipates
completing all the testing process by the first half of calendar year 1999.
The Company has also made queries to its significant suppliers of their
Year 2000 readiness. To date, the Company is not aware of any suppliers with a
Year 2000 issue that would materially impact the Company's results of
operations, liquidity, or capital resources. However, the Company has no means
of ensuring that its suppliers will be Year 2000 ready. The inability of
suppliers to complete their Year 2000 resolution process in a timely fashion
could materially impact the Company. The effect of noncompliance by suppliers is
not determinable.
The Company presently believes that with upgrades or modifications of
existing computer systems, the Year 2000 issue can be mitigated. However, if
such upgrades or modifications fail to address the Year 2000 issues, the
Company's business, financial condition and result of operations could be
materially adversely affected. The extent of the financial impact due to Year
2000 noncompliance cannot be reasonably estimated at this time.
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<PAGE> 12
The Company is studying the need for a contingency plan in the event
that its computer systems are not Year 2000 compliant. The Company plans to
determine whether such a plan is necessary after the internal testing process is
completed in the first half of calendar year 1999. The Company is developing
certain strategies in the case that its key suppliers do not resolve their Year
2000 issues in a timely manner.
FACTORS AFFECTING OPERATING RESULTS
The statements contained in this Report that are not purely historical
are "forward-looking statements" within the meaning of Section 21E of the
Securities Exchange Act of 1934, as amended. All forward-looking statements
involve various risks and uncertainties and include statements that indicate
what the Company anticipates regarding the Company's product developments,
commercial opportunities, regulatory approval, expectations, strategies, plans
and intentions for the future. All forward-looking statements are made as of
this date based on information available to the Company as of such date, and the
Company assumes no obligation to update any forward-looking statement. It is
important to note that such statements may not prove to be accurate and that the
Company's actual results and future events could differ materially from those
anticipated in such statements. Among the factors that could cause actual
results to differ materially from the results discussed in the forward-looking
statements are described below and elsewhere in this Report. All subsequent
written and oral forward-looking statements attributable to the Company or
persons acting on its behalf are expressly qualified in their entirety by this
Section and other factors included elsewhere in this Report. See other portions
of this Item 2. "Management's Discussion and Analysis of Financial Condition and
Results of Operations".
Lack of Regulatory Approval and Limited Clinical Data
The Company's principal product, the On-Command, is an investigational
device that has not been approved by the FDA and will not be available for
commercial distribution in the United States unless and until such approval is
obtained.
During 1998, a clinical trial of the Male On-Command for acute
indications was completed in the United States under an Investigational Device
Exemption ("IDE") application approved by the FDA. The trial was a randomized
controlled clinical study comparing the Male On-Command to a Foley catheter for
the treatment of acute urinary retention and incontinence for a single period of
up to 30 days. A 510(k) premarket notification was submitted to the FDA in
September 1998. In January 1999, the Company responded to a request for
additional information from the FDA regarding this 510(k). There can be no
assurance that the FDA will determine that the data derived from the clinical
trial will support the safety and effectiveness of the device or that such
application will be approved by the FDA.
The Company has initiated a clinical trial of the Male On-Command to
evaluate its use in multiple, sequential 30-day insertions and exchanges for
chronic indications. The Company began enrolling patients at U.S. sites in a
single arm trial in September 1998. The FDA has indicated to the Company during
informal discussions that chronic indications for its Male On-Command would
require a PMA approval. Furthermore, the agency indicated during IDE approval
discussions that it would expect data from an unspecified number of patients for
twelve consecutive months of sequential On-Command insertions. Based on these
regulatory requirements and the enrollment rate expected, it is not likely that
the Company will complete the chronic clinical trial before late 2000. The
Company expects the chronic patient market to be substantially larger than the
acute patient market because the Company believes more men suffer from chronic
rather than acute symptoms of urinary incontinence or retention. There can be no
assurance that the FDA will determine that the data derived from the chronic
clinical trial will support the safety and effectiveness of the device nor that
the data will be sufficient to file a PMA application or that such application
will be approved by the FDA.
Additionally, the Company has initiated a clinical trial of its Female
On-Command Continence System for acute indications in a randomized controlled
clinical study comparing the Female On-Command to a Foley catheter in patients
requiring post-surgical management of their urinary outflow.
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<PAGE> 13
Based on informal communications with the FDA, the Company believes an acute
indication would be covered under 510(k) regulations. The Company anticipates
completing this clinical study by the end of 1999. There can be no assurance
that the FDA will determine that the data derived from the clinical trial will
support the safety and effectiveness of the device nor that the data will be
sufficient to file a 510(k) notification or that such notification will be
approved by the FDA.
If either the Male or Female On-Command does not receive FDA approval,
the Company will not be able to market or commercialize these On-Command
products in the United States. Furthermore, approval for single use insertions
of the On-Command, if obtained, does not mean that use of successive device
insertions will be approved. There can be no assurance that either single use or
successive insertion use of the On-Command will prove to be safe and effective
in the United States, or that FDA approval will be obtained on a timely basis,
if at all. In addition, the clinical studies may identify technical,
manufacturing, design or other factors that could delay completion of such
testing, as has been experienced in early clinical trials of the Male
On-Command. If the Company is unable to obtain necessary regulatory approval, or
if the Company decides that the size of the markets for the On-Command do not
justify a product launch, the Company's business, financial condition and
results of operations will be materially adversely affected.
Dependence Upon the On-Command
Although the operations of BMT are expected to be the sole source of
revenues in the short-term, the Company's long-term revenues and future success
are substantially dependent upon its ability to market and commercialize the
On-Command in the United States and abroad. The failure of the Company to
successfully commercialize the On-Command or to realize significant revenues
therefrom would have a material adverse effect on the business, financial
condition and results of operations of the Company.
Uncertainty of Market Acceptance
The On-Command represents a new management modality for urinary outflow
dysfunction, and there can be no assurance that the On-Command will gain any
significant degree of market acceptance among physicians, health care payers or
patients, even if necessary domestic or international regulatory and
reimbursement approvals are obtained. The Company believes that recommendations
of the On-Command by physicians will be essential for market acceptance of the
On-Command, and there can be no assurance that any such recommendations will be
obtained. Broad use of the On-Command will require the training of numerous
physicians and the time required to complete such training could result in a
delay or dampening of market acceptance. Moreover, health care payers' approval
of reimbursement for the On-Command will be an important factor in establishing
market acceptance. Patient acceptance of the device will depend on many factors,
including physician recommendations, the degree, rate and severity of potential
complications, the cost and benefits compared to competing products, lifestyle
implications, available reimbursement, the patient's ability to operate the
product, the patient's tolerance of an intraurethral device and other
considerations. Failure of the On-Command to achieve substantial market
acceptance would have a material adverse effect on the Company's business,
financial condition and results of operations.
Limited Operating History; History of Losses and Expectation of Future Losses
The Company has a limited history of operations. Since its inception in
April 1992, the urology portion of Company has been primarily engaged in
research and development of the On-Command. The Company has experienced
substantial operating losses since inception and, as of March 31, 1999, had an
accumulated deficit of approximately $13.8 million. The Company expects its
operating losses to continue until the On-Command achieves significant market
acceptance. The Company continues to expend substantial resources in funding
clinical trials in support of regulatory and reimbursement approvals, expansion
of marketing and sales activities, and research and development. There can be no
assurance that the Company will achieve or sustain profitability in the future.
13
<PAGE> 14
Government Regulation
The Company's products, including the On-Command, are subject to
pervasive and continuing regulation by the FDA. Pursuant to the Federal Food,
Drug and Cosmetic Act (the "FDC Act") and regulations promulgated thereunder,
the FDA regulates the preclinical and clinical testing, manufacture, labeling,
distribution and promotion of medical devices in the United States. Prior to
commercialization in the United States, a medical device generally must receive
FDA clearance or approval, which can be an expensive, lengthy and uncertain
process. Regulatory agencies in the various foreign countries in which the
Company's products may be sold may impose additional or varying regulatory
requirements. Noncompliance with applicable requirements can result in, among
other things, fines, injunctions, civil penalties, recall or seizure of
products, total or partial suspension of production, failure of the government
to grant premarket clearance or approval for devices, withdrawal of marketing
clearances or approvals, and criminal prosecution. The FDA also has authority to
request recall, repair, replacement or refund of the cost of any device
manufactured or distributed by the Company.
Companies desiring to market a new medical device generally must obtain
either a premarket notification clearance under Section 510(k) of the FDC Act
("510(k)") or premarket approval ("PMA") prior to the introduction of such
medical device into the market. In addition, changes to a medical device that
significantly affect the safety or effectiveness of the device are also subject
to FDA review and clearance or approval. Although generally believed to be a
shorter, less costly regulatory path than a PMA, the process of obtaining a
510(k) clearance generally requires the submission of supporting data, which may
include data from clinical trails of the device. The time period required to
assemble and compile this data can be extensive and can extend the regulatory
process for a considerable length of time. The PMA process can take several
years longer than the 510(k) clearance process and requires the submission of
extensive clinical data and supporting information.
Regulatory approvals, if granted, may include significant limitations on
the indicated uses for which a product may be marketed. FDA enforcement policy
strictly prohibits the marketing of approved medical devices for unapproved
uses. The Company will be required to adhere to applicable FDA regulations
regarding Good Manufacturing Practices ("GMP") and similar regulations in other
countries, which include testing, control, and documentation requirements, and
with Medical Device Reporting ("MDR") requirements. Ongoing compliance with GMP
and other applicable regulatory requirements will be monitored through periodic
inspections by state and federal agencies, including the FDA, and by comparable
agencies in other countries. In addition, changes in existing regulations or
adoption of new governmental regulations or policies could prevent or delay
regulatory approval of the Company's products.
Sales of medical devices outside the United States are subject to
foreign regulatory requirements that vary widely from country to country. The
time necessary to obtain approval for sales in foreign countries may be longer
or shorter than that required for FDA approval, and requirements may differ from
FDA requirements. The Company has received the right to affix the CE mark, an
international symbol of adherence to quality assurance standards and compliance
with applicable European medical device directives, to the On-Command. Some
countries in which the Company is considering selling devices through
distributors either do not currently regulate medical devices such as the
On-Command or have minimal registration requirements. However, these countries
may develop more extensive regulations in the future that could impact the
Company's ability to market the On-Command.
There can be no assurance that the Company will be able to obtain or
maintain the required clearances or approvals, both domestically and
internationally, which would allow the Company to market the On-Command or other
products for their intended uses on a timely basis or at all, and delays in
receipt of or failure to receive such clearances or approvals, or failure to
comply with existing or future regulatory requirements would have a material
adverse effect on the Company's business, financial condition and results of
operations.
14
<PAGE> 15
BMT, as a developer and manufacturer of Class I and Class II medical
devices, is also subject to all of the foregoing regulatory requirements of the
FDA. BMT is also registered with the FDA as a distributor, initial importer,
repackager and relabeler of medical devices. Among its activities, BMT markets a
range of proprietary and OEM products, most of which require and have received
510(k) clearance. BMT has made modifications to one or more of its cleared
proprietary devices that BMT believes do not require the submission of new
510(k) notices. There can be no assurance, however, that the FDA would agree
with any of BMT's determinations not to submit a new 510(k) notice for any of
these changes or would not require BMT to submit a new 510(k) notice for any of
the changes made to BMT's devices. If the FDA requires BMT to submit a new
510(k) notice for any device modification, BMT may be prohibited from marketing
the modified device until the 510(k) notice is cleared by the FDA.
In January 1998, BMT received a Warning Letter from the FDA following
BMT's response to the FDA regarding certain deficiencies noted during an on-site
FDA inspection in December 1997. BMT management addressed the FDA's concerns
noted in the Warning Letter in both written and verbal communication in January
and February 1998. In March 1998, BMT received a letter in which the FDA
acknowledged BMT's responses and planned actions to address the FDA's concerns
and informed BMT that the FDA was planning a follow-up inspection in 1998. The
FDA has subsequently extended the time for the follow-up inspection into 1999.
While the Company believes it has fully addressed the FDA's concerns, there can
be no assurance that the FDA will concur. Nor can there be any assurance that
the FDA will not issue additional Warning Letters in the future. Failure by BMT
to adequately address the FDA's concerns could cause the FDA to take additional
actions that might cause disruptions in BMT's operations. These disruptions
could have a material, adverse effect on the Company's business, financial
condition and results of operations.
Limited Market, Lack of Marketing and Sales Experience
To date, the Company has not sold any On-Command products. The Company
is currently analyzing various sales and marketing methods it intends to use to
market the On-Command in the United States if and when necessary regulatory
approvals are obtained. The Company believes the market for the Male On-Command
for acute indications may be limited in size. The Company is studying whether to
launch the product if and when FDA clearance for acute indications is received
and, if so, how, given the expenditures required and the limited acute market
size. The Company currently employs a small number of marketing and no sales
employees for the On-Command. In addition, the Company is conducting marketing
evaluation studies of its Male and Female On-Command products in three countries
in Europe in order to test market the products and obtain chronic use data. The
Company intends to continue these marketing evaluation studies during 1999.
Furthermore, the Company is considering various strategies for the distribution
of its products in Europe. There can be no assurance that the Company can
attract and retain its own qualified marketing and sales personnel or otherwise
design and implement an effective marketing and sales strategy for the Male and
Female On-Command. There can also be no assurance that the Company will be
successful in continuing the marketing evaluation studies of its products in
Europe during this period or be able to establish effective marketing, sales and
distribution channels internationally at a later date. The failure to establish
and maintain effective marketing, sales and distribution channels for the
Company's products, or to attract and retain qualified sales personnel to
support commercial sales of the Company's products, would have a material
adverse effect on the Company's business, financial condition and results of
operations.
Manufacturing Risks
Through BMT, the Company has only manufactured the On-Command in limited
quantities for clinical testing purposes to date. Although BMT has extensive
experience in manufacturing custom silicone products, including urological
products, the Company does not have experience in manufacturing the On-Command
product in commercial quantities. As the Company begins to launch its On-Command
into
15
<PAGE> 16
various markets, the Company may encounter difficulties, delays and significant
expenses in scaling up production of the On-Command, including potential
problems involving production yields, quality control, component supply and
shortages of qualified personnel. The Company may also experience higher than
expected manufacturing costs that could prevent the Company from selling the
On-Command at a commercially reasonable price. Notwithstanding BMT's
manufacturing expertise, there can be no assurance that difficulties or
unfavorable costs will not be encountered in mass-production of the On-Command
and, in such event, these difficulties or costs could result in a material
adverse effect on the Company's business, financial condition and results of
operations.
Reliance On Patents and Protection of Proprietary Technology
The Company's ability to compete effectively will depend, in part, on
its ability to develop and maintain proprietary aspects of its technology to
preserve its trade secrets and to operate without infringing the proprietary
rights of the third parties. The Company's strategy regarding the protection of
its proprietary rights and innovations is to seek patents on those portions of
its technology that it believes are patentable and to protect as trade secrets
other confidential information and proprietary know-how. There can be no
assurance that the Company's issued patents, or any patents which may be issued
as a result of the Company's applications, will offer any degree of protection.
Legal standards related to the enforceability, scope and validity of patents are
in transition and are subject to uncertainty due to broad judicial discretion
and evolving case law. Moreover, there can be no assurance that any of the
Company's patents or patent applications will not be challenged, invalidated or
circumvented in the future. In addition, there can be no assurance that
competitors, many of which have substantial resources and have made significant
investments in competing technologies, will not seek to apply for and obtain
patents that may prevent, limit or interfere with the Company's ability to make,
use or sell its products either in the United States or internationally.
Some of the technology used in, and that may be important to, the
Company's products is not covered by any patent or patent application of the
Company. Therefore, the Company also relies on trade secrets and proprietary
know-how, which it seeks to protect, in part, through proprietary information
agreements with certain employees, consultants and other parties. The Company's
proprietary information agreements with employees and consultants contain
standard confidentiality provisions and, in certain instances, require such
individuals to assign to the Company, without additional consideration, any
inventions conceived or reduced to practice by them while employed or retained
by the Company, subject to customary exceptions. There can be no assurance that
proprietary information agreements with employees, consultants and others will
not be breached, that the Company would have adequate remedies for any breach,
or that the Company's trade secrets will not otherwise become known to or
independently developed by competitors. Moreover, litigation associated with the
enforcement by the Company of its trade secrets and proprietary know-how can be
lengthy and costly, with no guarantee of success. The Company also seeks to
protect its trademarks through registration. There can be no assurance, however,
that registration of such marks will provide any significant protection.
Intense Competition and Technological Advances
Competition in the market for treatment and management of urological
disorders is intense and is expected to increase. The Company believes it will
face considerable competition from existing incontinence management modalities,
such as intermittent, Foley, external and suprapubic catheters, adult diapers
and absorbents, and penile clamps. The Company also expects to face significant
competition from other domestic and international companies that are developing
similar and other products and technologies for the management of incontinence.
Most of the Company's competitors and potential competitors have significantly
greater financial, technical, research, manufacturing, marketing, sales,
distribution and other resources than the Company. There can be no assurance
that the Company's competitors will not succeed in developing or marketing
technologies and products that are more effective or commercially attractive
than any which may be offered by the Company, or that such competitors will not
succeed in obtaining
16
<PAGE> 17
regulatory approval, introducing or commercializing any such products prior to
the Company. Such developments could have a material adverse effect on the
Company's business, financial condition and results of operations.
Uncertainty Relating to Third-Party Reimbursement
In the United States and in foreign countries, third-party reimbursement
is generally available for medical devices such as intermittent, Foley, external
and suprapubic catheters for the management of urinary outflow dysfunction,
including incontinence and retention. Diapers and absorbents generally do not
receive third-party reimbursement and are paid for by the patient. The Company
believes, based on the availability of third-party reimbursement for certain
other medical devices, that the On-Command will likely be eligible for coverage
by third-party reimbursement programs. There can be no assurance, however, that
such reimbursement will be available for the On-Command or, if available, that
it will be sufficient to cover the cost of the product. If third-party
reimbursement is unavailable, consumers will have to pay for the On-Command
themselves, resulting in greater relative out-of-pocket costs for the device as
compared to surgical procedures and other management options for which
third-party reimbursement is available. The Company does not expect that
third-party reimbursement will be available, if at all, unless and until FDA and
foreign regulatory approval is received. After such time, if ever, as applicable
regulatory approval is received, third-party reimbursement for the On-Command
will be dependent upon decisions by the Health Care Financing Administration
(and its associates) for Medicare in the United States and similar authorities
abroad, as well as by private insurers and other payers.
Changes in the availability of third-party reimbursement for the
On-Command, for products of the Company's competitors or for surgical procedures
may affect the pricing of the On-Command or the relative cost to the patient.
Regardless of the type of reimbursement system, the Company believes that
physician advocacy of the On-Command will be required to obtain reimbursement.
There can be no assurance that reimbursement for the Company's products will be
available in the United States or in international markets under either
governmental or private reimbursement systems, or that physicians will support
the On-Command. Failure to obtain such reimbursement may have a material adverse
effect on the Company's business, financial condition and results of operations.
Future Capital Needs; Uncertainty of Additional Funding
The Company's capital requirements depend on numerous factors, including
the extent to which the On-Command and other products gain market acceptance,
actions relating to regulatory and reimbursement matters, progress of clinical
trials, the effect of competitive products, the cost and effect of future
marketing programs, the resources the Company devotes to manufacturing and
developing its products, the success of non-urological operations, general
economic conditions and various other factors. The timing and amount of such
capital requirements cannot adequately be predicted. Consequently, although the
Company believes existing cash balances and cash anticipated to be generated
from BMT operations will provide adequate funding for its capital requirements
through 1999, there can be no assurance that the Company will not require
additional funding or that such additional funding, if needed, will be available
on terms satisfactory to the Company, if at all. Any additional equity financing
may be dilutive to stockholders, and debt financing, if available, may involve
significant restrictive covenants. Failure to raise capital when needed could
have a material adverse effect on the Company's business, financial condition
and results of operations. See "Liquidity and Capital Resources".
Intellectual Property Litigation Risks
The medical device industry has been characterized by extensive
litigation regarding patents and other intellectual property rights, and
companies in the medical device industry have employed intellectual property
litigation to gain a competitive advantage. The Company is aware of patents held
by other participants in the urological disorder management market, and there
can be no assurance that the Company will not in the future become subject to
patent infringement claims and litigation or interference
17
<PAGE> 18
proceedings before the United States Patent and Trademark Office ("PTO"). The
defense and prosecution of intellectual property suits, PTO interference
proceedings and related legal and administrative proceedings are both costly and
time consuming. Litigation may be necessary to enforce patents issued to the
Company, to protect trade secrets or knowhow owned by the Company or to
determine the enforceability, scope and validity of the proprietary rights of
others.
Any litigation or interference proceedings would result in substantial
expense to the Company and significant diversion of attention by the Company's
technical and management personnel. An adverse determination in litigation or
interference proceedings to which the Company may become a party could subject
the Company to significant liabilities to third parties or require the Company
to seek licenses from third-parties. Although patent and intellectual property
disputes in the medical device area have often been settled through licensing or
similar arrangements, costs associated with such arrangements may be substantial
and could include ongoing royalties. Furthermore, there can be no assurance that
necessary licenses would be available to the Company on satisfactory terms or at
all. Accordingly, an adverse determination in a judicial or administrative
proceeding or failure to obtain necessary licenses could prevent the Company
from manufacturing and selling its products, which would have a material adverse
effect on the Company's business, financial condition and results of operations.
International Sales Risks
The Company plans to sell the On-Command product and other products both
in the United States and in foreign markets. Any international sales are
expected to be made through independent foreign distributors and involve a
number of inherent risks. Consequently, there can be no assurance that the
Company will be able to achieve significant sales of the On-Command or other
products in any foreign market. International sales may be adversely affected by
the imposition of government controls, export license requirements, political
instability, trade restrictions, changes in tariffs, distributor difficulties,
communications problems, fluctuations in foreign currency rates, foreign
competition and other factors. Any one or more of these factors could limit the
Company's international sales and have a material adverse effect on the
Company's business, financial condition and results of operations.
Product Liability Risk; Product Recall Risk
The manufacture and sale of medical devices entails significant product
liability and recall risks. Product liability may exist despite FDA approval and
future court decisions may also affect the Company's risk of product liability.
Although the Company maintains product liability insurance with respect to its
products, a successful product liability claim or series of claims brought
against the Company which are in excess of the Company's insurance coverage
could have a material adverse effect on the Company's business, financial
condition and results of operations. In addition, there can be no assurance that
product recalls, which could have a material adverse effect on the Company's
business, financial condition and results of operations, will not occur.
Dependence Upon Key Suppliers
Through BMT, the Company purchases certain of the components used to
manufacture the On-Command from several single source suppliers with whom the
Company has no long-term agreements. Any interruptions or delays associated with
any component shortages, particularly as the Company scales up its manufacturing
activities in support of commercial sales of the On-Command, could have a
material adverse effect on the Company's business, financial condition and
results of operations.
Uncertainty of BMT Operations
Although the business operations of BMT have continued since 1971, there
can be no assurance that BMT's revenues, cash flow or current profitability and
growth rate will continue in the future. Approximately 41% and 38% of BMT's net
sales during 1998 and the three months ended March 31, 1999,
18
<PAGE> 19
respectively, were derived from its manufacture of OEM medical device products.
BMT maintains no long-term OEM customer contracts and, during 1998 and the three
months ended March 31, 1999, BMT derived approximately 19% and 20%,
respectively, of its net sales from its major customer, Abbott Laboratories.
There can be no assurance that BMT's OEM customers will continue to use BMT as a
manufacturing resource. Furthermore, BMT is subject to general business risks
associated with operations of its size and, in particular, to the same risks
faced by other companies that manufacture and market medical device products.
Because virtually all of BMT's proprietary and OEM products incorporate silicone
components, any cost increase or other negative development associated with this
material could adversely affect its business, financial condition and results of
operations. BMT has faced two labor union election contests in the past eight
years and may face additional elections in the future. In the event BMT becomes
subject to a collective bargaining agreement, it may experience increased labor
and related costs that could have a material adverse effect on the Company's
business, financial condition and results of operations.
Environmental Risks
BMT utilizes many raw materials in the manufacturing process that are
subject to various environmental laws and regulations. Proper disposal of waste
including metals and chemicals used in the manufacturing process is a major
consideration for medical device manufacturers. In the event of a violation of
environmental laws, the Company could be held liable for damages and for the
costs of remedial actions and could also be subject to revocation of permits
necessary to conduct its business. Any such revocations could require BMT to
cease or limit production at its facilities, which could have a material adverse
effect on the Company's business, financial condition and results of operations.
BMT is also subject to environmental laws relating to the storage, use and
disposal of chemicals, solid waste and other hazardous materials, as well as air
quality regulations. Changes or restrictions on discharge limits, emissions
levels, or material storage or handling might require a high level of unplanned
capital investment and/or subsequent relocation to another location. There can
be no assurance that BMT will be able to comply with the discharge levels
mandated or that the costs of complying with such regulations will not require
additional capital expenses. Furthermore, there can be no assurance that
compliance with such regulations will not have a material adverse effect on the
Company's business, financial condition and results of operations.
Possible Volatility of Stock Price
The stock market has from time to time experienced significant price and
volume fluctuations that are unrelated to the operating performance of
particular companies. These broad market fluctuations may adversely affect the
market price of the Company's Common Stock. In addition, the market price of the
Common Stock has been volatile. Factors such as fluctuations in the Company's
operating results, announcements of technological innovations or new products by
the Company or its competitors, FDA and international regulatory actions,
actions with respect to reimbursement matters, developments with respect to
patents or proprietary rights, public concern as to the safety of products
developed by the Company or others, changes in health care policy in the United
States and internationally, changes in stock market analyst recommendations
regarding the Company, other medical device companies or the medical device
industry generally and general market conditions may have a significant effect
on the market price of the Common Stock. In addition, it is likely that during
future quarterly periods, the Company's results of operations may fluctuate
significantly or may fail to meet the expectations of stock market analysts and
investors and, in such event, the Company's stock price could be materially
adversely affected. In the past, securities class action litigation has been
initiated following periods of volatility in the market price of a company's
securities. Such litigation, if brought against the Company, could result in
substantial costs and a diversion of management's attention and resources, which
could have a material adverse effect on the Company's business, financial
condition and results of operations.
19
<PAGE> 20
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE OF MARKET RISK
There are no material changes in the reported market risk since the end
of fiscal year 1998.
20
<PAGE> 21
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings
Not applicable.
Item 2 - Changes in Securities and Use of Proceeds
Not applicable.
Item 3 - Defaults upon Senior Securities
Not applicable.
Item 4 - Submission of Matters to a Vote of Security Holders
Not applicable.
Item 5 - Other Information
Not applicable.
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
------- -------
<S> <C>
10.6 Lease for Ranburn Woods Plaza in Gary, Indiana dated
February 1, 1999 between JVM Realty Corporation and
Bivona, Inc.
27.1 Financial Data Schedule
</TABLE>
(b) Reports on Form 8-K:
The Company did not file any reports on Form 8-K during the
three months ended March 31, 1999.
21
<PAGE> 22
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
UROQUEST MEDICAL CORPORATION
Date: May 6, 1999 /s/ Terry E. Spraker, Ph.D.
----------------------------------------
Terry E. Spraker, Ph.D.
President and Chief Executive Officer
Date: May 6, 1999 /s/ Jeffrey L. Kaiser
----------------------------------------
Jeffrey L. Kaiser
Vice President, Chief Financial Officer,
Treasurer and Secretary
(Principal Financial Officer)
22
<PAGE> 23
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
------- -------
<S> <C>
10.6 Lease for Ranburn Woods Plaza in Gary, Indiana dated
February 1, 1999 between JVM Realty Corporation and
Bivona, Inc.
27.1 Financial Data Schedule
</TABLE>
<PAGE> 1
EXHIBIT 10.6
LEASE FOR
RANBURN WOODS PLAZA
GARY, INDIANA
ARTICLE I BASIC LEASE PROVISIONS
SECTION 1.1
LEASE DATE (FOR REFERENCE ONLY): February 1, 1999
LANDLORD: JVM Realty Corporation
ADDRESS OF LANDLORD: c/o JVM Realty Corporation, One Oakbrook Terrace, Suite
104, Oakbrook Terrace, Illinois 60181
TENANT: Bivona, Inc.
ADDRESS OF LEASED PREMISES: 4157 South Cleveland Street
Gary, Indiana 46408
MAILING ADDRESS OF TENANT: 5700 WEST 23RD AVENUE, GARY, INDIANA
TENANT'S TRADE NAME: Bivona, Inc.
LEASE TERM: Three (3) years
COMMENCEMENT DATE: February 16, 1999
EXPIRATION DATE: February 15, 2002
FIXED MINIMUM RENT: $5,579.15 per month for the first 12 months of the Lease;
$5,774.42 per month for the 13th through 24th months of the Lease; and $5,976.52
per month for the 25th through 36th months of the Lease.
OPTION PERIOD: Two options of three (3) years each.
FLOOR AREA: 18,600 square feet being the rentable area of the Leased Premises.
TENANTS PROPORTIONATE SHARE OF THE CENTER: 29.96%
SECURITY DEPOSIT: $4,650.00 on hand
GUARANTOR: Tenant
1
<PAGE> 2
SECTION 1.2 SIGNIFICANCE OF BASIC LEASE PROVISIONS
Each reference in this Lease to any of the basic lease provisions
contained in Section 1.1 of this Article shall be deemed and construed to
incorporate all of the items provided under each such basic lease provision.
SECTION 1.3 FIXED MINIMUM RENT
Rental as stipulated in Section 1.1 herein shall be paid by Tenant in
advance on the first day of each and every calendar month without any prior
demand and without offset of deduction of any kind or for any reason. Until
further notice to Tenant, all rent checks shall be payable to and mailed to JVM
Realty Corporation, One Oakbrook Terrace, Suite 104, Oakbrook Terrace, Illinois
60181, or at such place Landlord may designate in writing.
Rent shall be due and owing the 15th day of each month, and shall be due
and owing in accordance with Section 1.3 hereof.
SECTION 1.4 TERM OF LEASE
The lease term shall be for the period specified in Section 1.1 Supra.,
unless otherwise terminated or extended as provided herein.
SECTION 1.5 OPTION
Provided Tenant is not otherwise in default hereunder, Tenant shall have
two options to extend the term of the Lease for an additional period of 3 years
each subject to the terms, conditions, covenants and provisions of this Lease.
Tenant shall exercise such option by giving Landlord written notice 180 days
prior to expiration date of the Lease or extension thereto. Such notice shall
be sent via registered mail to Landlords address. If Tenant shall fail to give
Landlord timely notice of its exercise of the option herein contained, such
option shall become null and void. In the event Tenant exercises its option to
extend as provided and in accordance with the terms hereof, fixed minimum rent
due hereunder shall be:
(a) Option 1:
37th through 48th month at $6,185.70/month
49th through 60th month at $6,402.20/month
61st through 72nd month at $6,626.28/month
(b) Option 2:
73rd through 84th month at $6,858.20/month
85th through 96th month at $7,098,24/month
97th through 108th month at $7,346.68/month
2
<PAGE> 3
ARTICLE II TITLE AND ACCESS
Landlord covenants that it has the right and authority to make this Lease
for the term aforesaid. Landlord agrees that it will put Tenant into complete
and exclusive possession of the Leased Premises and the common use of the common
areas, and that if the Tenant shall pay the rental and perform all the covenants
and provisions of this Lease to be performed by the Tenant, the Tenant shall,
during the term demised, and any extensions thereof, freely, peaceably and
quietly occupy the full possession of the Leased Premises hereby leased,
including the common use of the common areas and the tenements, hereditaments
and appurtenances thereunto belonging and the rights and privileges herein
granted without molestation or hindrance, lawful or otherwise.
ARTICLE III USE
The Tenant covenants and agrees to conduct distribution and warehouse
operations from the Leased Premises and that the aforesaid Leased Premises shall
be used and occupied only for such purpose and not other, and that the Tenant
will not use the Leased Premises for any other purpose nor in violation of any
law, municipal ordinance or regulation, and that on any breach of this agreement
the Landlord may at its option terminate this Lease forthwith and re-enter and
repossess the Leased Premises.
All unattached furnishing, trade fixtures, signs, machinery and equipment
(not paid for by Landlord) owned and used by Tenant in the Leased Premises shall
at all times be and remain the property of the Tenant, and the Tenant shall have
the right to remove same from said Leased Premises.
ARTICLE IV COMMON AREAS
Landlord agrees to operate and maintain all the common areas and agrees to
keep from snow and ice, and to maintain and to keep the parking area striped to
assist in the orderly parking of cars.
The common areas shall at all times be subject to the exclusive control
and management of Landlord, and Landlord shall have the right from time to time
to establish, modify and enforce reasonable rules and regulations with respect
to all facilities and areas.
Landlord shall have the right from time to time to change the arrangement
of parking areas and other facilities hereinabove referred to; to restrict
parking by tenants, their officers, agents and employees to employee parking
areas; to close all or any portion of said areas of facilities to such extent as
may, in the opinion of Landlord's counsel, be legally sufficient to prevent a
dedication thereof or the accrual of any rights to any person or the public
therein; to close temporarily for repair any portion of the parking areas or
facilities; to discourage non-customer parking; and to do and perform such other
acts in and to said areas and improvements as in the use of good business
judgment, the Landlord shall determine to be advisable with a view to the
improvement of the convenience and use thereof by tenants, their officers,
agents, employees and customers.
3
<PAGE> 4
ARTICLE V MECHANICS' LIENS
Tenant further agrees that it will not permit any mechanics' or
materialmen's or other liens to stand against the Leased Premises for work or
material furnished Tenant; provided, however, that Tenant shall have the right
to contest the validity of any lien or claim, and that upon the written request
of Landlord, Tenant shall post a bond satisfactory to Landlord to insure that
upon a final determination of validity of such lien or claim, Tenant shall
immediately pay any judgment rendered against it with all proper costs and
charges and shall have said lien released without cost to Landlord.
ARTICLE VI HEAT, UTILITIES AND GLASS
The Tenant agrees to heat the Leased Premises and to pay the charges for
all utilities, water and fuel used by it in the Leased Premises.
The Tenant agrees to replace all cracked and broken glass, including plate
glass, during the term of this Lease; and the Tenant agrees to keep the plate
glass insured with a responsible insurance company in the name of the Landlord
and Tenant and deliver the policy or policies to Landlord before taking
possession of the Leased Premises.
ARTICLE VII LANDLORD'S REPAIRS
Landlord agrees, at its own expense, to make all roof, exterior and
structural repairs and restorations, and Landlord hereby agrees to assign to
Tenant all guarantees and warranties received by it from the general
contractors, all subcontractors and materialmen arising out of the construction
of the Leased Premises. Landlord has the right to enter the Leased Premises
periodically at any reasonable time not interfering with Tenant's business, to
inspect the condition of the Leased Premises, and to make repairs required of
it. If Landlord is required to make repairs to the exterior or structural
portions by reason of Tenant's, or its agents, employee's or supplier's
negligent acts or omission to act, Landlord may add the cost of such repairs to
the rent which shall thereafter become due. Landlord agrees to put heating and
air conditioning equipment in good operating order within 60 days of signature
of this Lease by both parties.
ARTICLE VIII TENANT'S REPAIRS
Tenant, throughout the term and at its sole cost and expense, agrees to
maintain in good repair the interior of the Leased Premises (including
maintenance of exterior entrances, all glass and show window moldings) and all
partitions, doors, fixtures, equipment and appurtenances thereof including
lighting, heating and plumbing fixtures, and air conditioning fixtures and
equipment, except for damage or destruction resulting from fire or the elements,
unless caused by Tenant's negligence.
4
<PAGE> 5
Tenant shall, throughout the term and at its sole cost and expense,
ordinary and extraordinary, comply with and conform to all of the requirements
(present and future) of any governmental authority relating in any way to the
condition, use or occupancy of the Leased Premises, and Tenant agrees to
indemnify and save Landlord harmless from any and all liabilities, costs and
expenses incurred because of non-compliance by Tenant, or in Landlord's causing
compliance.
Tenant may at any time remodel or alter the herein Leased Premises,
providing such remodeling and alternation are necessitated by or in furtherance
of Tenant's business purposes. Any structural or exterior remodeling or
alterations shall require the prior written consent of the Landlord, and such
remodeling or alterations shall remain for the benefit of Landlord. At the
expiration of said term, Tenant will quit and surrender the Leased Premises in
broom clean and in the same condition as received by Tenant, reasonable wear and
tear incident to Tenant's business excepted.
ARTICLE IX INSURANCE AND INDEMNITY
Tenant agrees to defend, indemnify and hold harmless the Landlord from any
liability for damages to any person or property in, on or about said Leased
Premises from any cause whatsoever; and Tenant will procure and keep in effect
during the term and any extensions hereof general comprehensive liability and
property damage insurance, in a responsible insurance company satisfactory to
Landlord, in the sum of at least Five Hundred Thousand Dollars ($500,000) for
damages resulting to one person and at least Five Hundred Thousand Dollars
($500,000) for damages resulting from one casualty, and at least Fifty Thousand
Dollars ($50,000) property damage insurance resulting from any one occurrence.
Tenant agrees to name Landlord as an additional insured party. Tenant shall
deliver certificates of said policies to the Landlord and upon renewal of said
policies from time to time, and upon Tenant's failure to do so, the Landlord
may at its option obtain such insurance and the cost thereof shall be paid as
additional rent due and payable upon the next ensuing rent day. All such
policies shall provide that same may not be cancelled or altered except upon 10
days' prior written notice to the insured parties.
ARTICLE X DAMAGE OR DESTRUCTION
The Landlord hereby covenants and agrees to carry fire and extended
coverage, vandalism and malicious mischief insurance in an amount equal to
sixty percent (60%) of the replacement cost of the shopping center (exclusive
of the cost of excavation, foundations and footings).
If the Leased Premises shall be damaged by fire, the elements, unavoidable
accident or other casualty insurable under full standard extended risk
insurance, but are not thereby rendered untenantable, in whole or in part,
Landlord shall promptly at its expense cause such damage to be repaired, without
abatement of rent; if however, the Leased Premises shall be rendered
untenantable in part, Landlord shall at its expense cause the damage to be
repaired. If by reason of such occurrence the Leased Premises shall be rendered
wholly untenantable, Landlord shall cause such damage to be repaired, unless
within sixty (60) days after said occurrence Landlord
5
<PAGE> 6
shall notify Tenant in writing that it has elected not to reconstruct the Leased
Premises, whereupon this Lease and the tenancy hereby created shall cease as of
the date of said occurrence, the minimum rent to be adjusted as of such date. In
no event shall Landlord be liable for damage to or replacement or repair of
fixtures, floor coverings, furniture and equipment owned by Tenant nor leasehold
improvements made by Tenant.
Tenant hereby releases Landlord from any and all liability or
responsibility (to the other or anyone claiming through or under them by way of
subrogation or otherwise) for any loss or damage to property or other claims
caused by fire or any of the other risks covered by the insurance described in
the first paragraph of this Article, even if such fire or other casualty shall
have been caused by the fault or negligence of the Landlord, or anyone for whom
Landlord may be responsible.
ARTICLE XI CONDEMNATION
If title to all of the shopping center is taken for any public or
quasi-public use under any statute, or by right of eminent domain, or by
private purchase in lieu of eminent domain, or if title to so much of the
shopping center is so taken that a reasonable amount of reconstruction thereof
will not result in its being a practical center, then, in any of those events,
this Lease shall terminate on the date that use thereof is prohibited.
If any part of the Leased Premises shall be so taken and the remaining
part (after reconstruction of the then existing building in which the Leased
Premises are located) is reasonably suitable for Tenant's continued occupancy
for the purposes and uses for which the Leased Premises are leased, this Lease
shall remain in full force and effect except as to the part so taken. As to the
part taken, this Lease shall terminate as of the date that possession of such
part is taken and Tenant is prohibited from using that portion thereof.
Landlord shall, at its own cost and expense, make all necessary repairs or
alterations to the Leased Premises. All rents and other charges payable by
Tenant hereunder shall be reduced from and after the date Tenant is deprived of
the use of such portion of the Leased Premises in the proportion that the area
taken bears to the total square footage of the ground floor area of the Leased
Premises.
In the event of any condemnation or taking as aforesaid, whether whole or
partial, the Tenant shall not be entitled to any part of the award paid for
such condemnation, and Landlord is to receive the full amount of such award,
the Tenant hereby expressly waiving any right or claim to any part thereof.
ARTICLE XII SIGNS
Landlord will approve size, location and design of all signs. Signs, sign
supports and sign lighting will be furnished and installed by Tenant and will
be properly maintained by the Tenant.
ARTICLE XIII OMITTED
6
<PAGE> 7
ARTICLE XIV DEFAULT
If Tenant shall default in payment of rent or other charges hereunder as
and when the same come due, and if such default shall continue for five (5)
days after Tenant has received written notice of such default by registered or
certified mail from Landlord, or if Tenant shall fail or neglect to commence
and to proceed with due diligence to cure a default in the performance of any
of the other terms, conditions or covenants of this Lease to be observed or
performed by Tenant within thirty (30) days after Tenant has received written
notice of such default by registered or certified mail from Landlord, or if the
estate created hereby shall be taken by execution, or if a petition in
bankruptcy shall be filed by Tenant or Tenant shall be adjudicated bankrupt or
if Tenant shall make a general assignment for the benefit of creditors or if in
any proceedings based upon the insolvency of Tenant a receiver of all of the
property of Tenant shall be appointed and shall not be discharged within sixty
(60) days after such appointment, or if Tenant shall abandon or vacate the
Leased Premises for a period of twenty (20) days (except in case of vacation by
Tenant due to fire or other casualty or strike or cause beyond its control),
then it shall be lawful for Landlord to re-enter the Leased Premises, or any
part thereof, either with or without process of law and to expel, remove and
put out Tenant and all persons occupying under it, using such force as may be
necessary in doing so, and again to repossess and enjoy said Leased Premises as
in its first or former state. Should Landlord elect to re-enter and repossess
the Leased Premises as herein provided, Landlord may either terminate this
Lease or it may, without terminating this Lease, relet said premises or any
part thereof for such rent and upon such terms as to Landlord may seem fit, and
if a sufficient sum shall not be thus realized by Landlord monthly from such
reletting to satisfy the rent and upon such terms as to Landlord may seem fit,
and if a sufficient sum shall not be thus realized by Landlord monthly from
such reletting to satisfy the rent hereby reserved, after first paying the
expenses of such reletting and collecting, Tenant shall satisfy and pay to
Landlord all deficiency monthly during each month of the remaining term of this
Lease. Notwithstanding any such reletting without termination, Landlord may at
any time thereafter elect to terminate this Lease for such previous default by
Tenant.
In the alternative, in case the Tenant shall fail or neglect to keep and
perform any of the covenants or agreements in this Lease contained on the part
of the Tenant to be kept and performed, other than the failure to pay rent or
other sums, the Landlord, in addition to all other remedies now or hereafter
afforded by law or under this Lease, may at its election, and after twenty (20)
days' written notice to the Tenant to cure such default, perform such covenants
or agreements on behalf of such Tenant to make good any default, and any amount
or amounts which the Landlord shall advance on that behalf shall be repaid by
the Tenant to the Landlord on demand, together with interest thereon at the
rate of twelve percent (12%) per annum from the date of such advance to the
repayment thereof in full.
If the Landlord shall repossess the leased property pursuant to the
foregoing provisions of this Article, the Tenant agrees that, upon the election
of Landlord, the Landlord shall be entitled to an assignment of the Lease
covering the designated Leased Premises or to so much of the Leased Premises
covered by said Lease as the Landlord shall elect to receive, and the Tenant
covenants that it will immediately complete such assignment.
7
<PAGE> 8
Tenant shall pay, as additional rent, attorney fees allowed by statute, or
by the court, court costs, and any other costs and expenses incurred by Landlord
because of any default of Tenant under this Lease or incurred by Landlord in
enforcing the terms of this Lease against Tenant.
Rent is due on the first day of the month of each month of this Lease. If
rent is not paid in full by the fifth day of the month, rent shall be increased
by $75.00 per day for each day paid after the first day of the month.
ARTICLE XV SECURITY DEPOSIT
Tenant has deposited with Landlord the sum of forty-six hundred, fifty and
NO/100 Dollars ($4,650.00), the receipt of which is hereby acknowledged by
Landlord, which sum shall be retained by Landlord as security for the payment by
Tenant of the rents herein agreed to be paid by Tenant and for the faithful
performance by Tenant of the terms and covenants of this Lease. The Tenant shall
not be entitled to interest on this deposit. The deposit may not be used as
rent.
ARTICLE XVI HOLDING OVER
The holding over by Tenant after the expiration hereof will be only by
written consent of Landlord and will be a month-to-month tenancy, and if the
Leased Premises are not surrendered at the end of the term or sooner (or any
extension thereof) for termination thereof, Tenant shall indemnify Landlord
against loss or liability resulting from delay of Tenant in so surrendering the
Leased Premises. Hold over monthly rent shall be double the most recent monthly
rent paid.
ARTICLE XVII RELEASE OF CLAIMS
It is further agreed that the Landlord or its agents will not be liable for
any damage or any loss of profits or for interruption of business or for any
claims of damage resulting from fire or the elements, or strikes or walkouts, or
from any cause beyond its control.
Neither Landlord nor its agents shall be liable to Tenant or to any person
claiming through Tenant, regardless of the cause, for any injury (or any injury
resulting in death) or for damage or destruction of property occurring in or
about or resulting from the Leased Premises or any part thereof or any equipment
or appurtenances, all claims for such damages or injury being hereby expressly
waived by Tenant.
ARTICLE XVIII SUBORDINATION
The Tenant does hereby agree, if requested by Landlord, to subordinate its
interest in the Leased Premises to any mortgage which now or hereafter may
affect the fee title to the Leased Premises. A separate subordination and
non-disturbance agreement shall be entered into between such mortgagee and
Tenant which shall provide that so long as Tenant pays rent to Landlord, its
mortgagee or the purchaser at any foreclosure sale it is not in default in the
payment of rent or any other of its obligations under this Lease. Tenant's
possession of the Leased Premises under this Lease, or any extensions or
renewals thereof as provided herein, shall not be interfered with. Tenant
agrees, within five days after written request by Landlord, to execute and
deliver any and all documents reasonably requested by Landlord to confirm or
effectuate such subordination. If
8
<PAGE> 9
Tenant fails to do so, Tenant hereby irrevocably appoints Landlord as Tenant's
attorney-in-fact to make, execute, acknowledge and deliver any such instruments
in its name and in behalf of Tenant.
ARTICLE XII TRANSFER OF TITLE BY LESSOR
If during the term of this Lease Landlord shall sell, assign or otherwise
transfer its interest in the shopping center or the Leased Premises, then from
and after the effective date of the sale or transfer Landlord shall be released
and discharged from any and all obligations and responsibilities under this
Lease except those already accrued, and such purchaser, assignee or transferee
shall succeed to all the rights, powers and duties of the Landlord hereunder
accruing after such effective date.
ARTICLE XX ACCESS
Tenant agrees to allow Landlord to place and display a "For Rent" sign on
and from said Leased Premises at any time 180 days prior to the end of the term
(or any extension thereof) of this Lease, and Landlord shall have the right of
entry to exhibit the Leased Premises to prospective tenants or purchasers of the
center and to make such repairs, alterations or improvements as Landlord may
deem necessary or desirable.
ARTICLE XXI OFFSET STATEMENTS
Tenant shall at any time and from time to time, without charge and within
five (5) days after written request therefor by Landlord, complete, execute and
deliver to Landlord, or to such other person or entity as Landlord designates, a
written statement in such form as Landlord or any first deed of trust or first
mortgage lender may request, which shall include the following: (a) confirmation
or ratification of this Lease; (b) dates of commencement and termination of this
Lease; (c) certification that this Lease is in full force and effect and has not
been assigned, modified, supplemented or amended (except as by such writings
shall be stated); (d) that all conditions under this Lease to be performed by
Landlord have been satisfied to date; (e) that there are no defenses or offsets
against the enforcement of this Lease by the Landlord or stating those that are
claimed by Tenant; (f) the amount, if any, of advance rental paid by Tenant; (g)
the date to which rental has been paid; (h) the amount of security deposit with
Landlord; and (i) that Tenant's possession of the Leased Premises is conclusive
evidence of acceptance of construction in full compliance with the terms of this
Lease.
ARTICLE XXII CONTINUOUS OPERATION
Tenant covenants and warrants that it will continuously operate, throughout
the term or any extension thereof, described herein in the whole of the Leased
Premises.
9
<PAGE> 10
ARTICLE XXIII ASSIGNMENT, SUBLETTING, SUBSTITUTION
SECTION 23.1 ASSIGNMENT, SUBLETTING:
Tenant shall not subdivide, assign, license or sublet the whole or any
portion of the Leased Premises during the term of this Lease or any extension
thereof.
SECTION 23.2 SUBSTITUTION OF PREMISES: OMITTED
ARTICLE XXIV RULES
Tenant agrees:
SECTION 24.1 Not to injure, overload, deface or otherwise harm the Leased
Premises, nor commit any nuisance; nor permit the emission of any objectionable
noise or odor; nor burn any trash or refuse within or outside the Lease
Premises, nor permit any use of the Leased Premises which is improper, offensive
or contrary to any law or ordinance or which will cause the Leased Premises to
be uninsurable; nor use any advertising medium that may constitute a nuisance,
such as loudspeakers, sound amplifiers, or phonographs in a manner to be heard
outside the Leased Premises; nor conduct any auction, fire, "going out of
business" or bankruptcy sales; nor do any act tending to injure the reputation
of the center; nor sell or display merchandise on, or otherwise obstruct, the
driveways, walks, malls, courts, and parking areas other than those designated
by Landlord for such use; nor use the malls, courts and walks for any purpose
other than pedestrian traffic.
SECTION 24.2 Tenant covenants and agrees to properly provide for the
storage and disposal of all printing materials and solvents and all other
chemicals, supplies, equipment and substances within its Leased Premises.
Tenant further agrees that it will not perform any act or cause the Landlord's
insurance rate to be greater as a result of Tenant's tenancy. Should Landlord's
insurance rate increase as a result of Tenant's tenancy, Tenant covenants and
agrees to reimburse Landlord for such increased cost within 10 days of Tenant's
receipt of notification thereof by Landlord.
SECTION 24.3 Not to permit the painting or placing of any exterior signs,
placards or other exterior advertising media, banners, pennants, awnings,
aerials, antennas or the like, without on each occasion obtaining prior written
consent of Landlord.
SECTION 24.4 Not to use any sidewalks in the center for any newsstand,
cigar stand, sidewalk shop, taxi stand or other business, occupation or
undertaking without prior written consent of Landlord.
SECTION 24.5 That no sign, lettering, picture, notice or advertisement
shall be placed on any outside window or in a position to be visible from
outside the center, it being understood that Tenant may place signs on the
interior side of a window, which sign may be exposed to the outside.
10
<PAGE> 11
ARTICLE XXV HVAC
Landlord agrees to put the heating and air conditioning units in good
operating order within 60 days of signature of this Lease by both parties; from
and after that date all heating and air conditioning repairs shall be the
responsibility of the Tenant. Tenant agrees to purchase a maintenance agreement
providing for two inspections of all HVAC equipment serving the premises, each
year by a qualified repair organization or technician who shall be subject to
approval by Landlord. Such maintenance agreement shall cover the cost of
inspection, maintenance, parts, supplies, and repair of all HVAC equipment.
ARTICLE XXVI NOTICES
All notices hereunder shall be in writing and sent by United States
Certified or Registered Mail, return receipt requested, postage prepaid,
addressed if to Landlord and to the place where rent checks are to be mailed;
and if to Tenant, to Mailing Address of Tenant as stated in Article I of this
Lease, provided that each party by like notice may designate any future of
different addresses to which subsequent Notices shall be sent.
ARTICLE XXVII OTHER
HEADINGS
Headings of the Articles contained in this Lease are for convenience only,
do not constitute a part of this Lease, and do not limit, affect or construe
the contents of such Articles.
ARTICLE XXVII TAXES
DEFINITIONS
As used herein, the term "taxes" shall mean general real estate taxes and
all other taxes and assessments, special or otherwise, levied or assessed upon
or with respect to the Leased Premises and Ranburn Woods Plaza, not including,
however, any net income or gross income tax or tax of a similar nature.
REAL ESTATE TAX "STOPS"
If the amount of tax expenses for any calendar year during the term of
this Lease, including the calendar year in which the term commences, and the
calendar year in which the term expires, shall exceed the following amounts,
Tenant shall pay to the Landlord as additional rent an amount equal to the
Tenant's proportionate share of said excess. This payment shall be made within
ten (10) days after Tenant receives a statement therefore.
Real Estate Tax Stop $34,798
11
<PAGE> 12
Tenant's proportionate share of excess tax expense shall be determined by
multiplying Tenant's proportionate share of Ranburn Woods Plaza, currently
29.96% as defined in Article I of this Lease by the total amount of said excess
tax. If at any time during the term of this Lease, the net rentable area of
either the Leased Premises or Ranburn Woods Plaza changes for any reason,
Tenant's proportion and share for the year in which such change takes place
shall be computed on the basis of the daily average of the net rentable area of
the Leased Premises in Ranburn Woods Plaza for that year.
For any partial leased year, the Tenant shall be obligated to pay only a
prorata share of said tax expense adjustment, based upon the number of days of
such partial leased year.
It is understood and agreed that in the jurisdiction wherein the Leased
Premises are located, the real estate taxes are due and payable in the year
following which they are imposed; for example, the taxes for the year 1998 are
payable in the year 1999.
ARTICLE XXVIII LEASE TERMINATION AGREEMENT:
Tenant shall have the right to terminate this Lease on the fifteenth
(15th) day of any month prior to the Lease Expiration Date by payment of a
Break Lease Fee and by giving Sufficient Notice to Landlord, both as specified
below.
The Break Lease Fee shall be in an amount equal to three (3) times the
then current monthly rent amount. Break Lease Fee is payable to the Landlord on
or before the fifteenth (15th) day of the Month of Notification. The Month of
Notification is that month during which, and prior to the fifteenth (15th) day
of said month, the Tenant provides Landlord with notice of his intent to
terminate the Lease.
Term of Sufficient Notice to Landlord shall be considered to be ninety (90)
days after the fifteenth (15th) day of the Month of Notification. Sufficient
Notice to Landlord shall be addressed in writing to Landlord and delivered to
Landlord's address via certified mail.
Tenant's right to early lease termination shall be conditioned on the Tenant
not being in violation of any of the terms or conditions of the Lease.
12
<PAGE> 13
IN WITNESS WHEREOF, Landlord and Tenant have hereunto executed this Lease
and affixed their respective seals as of the day and year first above written.
LANDLORD
JVM Realty Corporation
By: /s/ JAMES MADARY
-------------------------------------
TENANT
BIVONA, INC.
By: /s/ TOM E. BRANDT
-------------------------------------
By: Tom E. Brandt, Pres.
-------------------------------------
State of Indiana )
) SS
County of Lake )
I, the undersigned, a Notary Public in and for said County and State
aforesaid, do hereby certify that
TOM E. BRANDT
- --------------------------------------------------------------------------------
personally known to me to be the same person whose name is subscribed to the
foregoing instrument, appeared before me in person, and acknowledged that he
signed, sealed and delivered this instrument as his free and voluntary act this
24th day of February, 1999.
/s/ JOE FLACKE
[SEAL] -----------------------------------
Notary Public
JOE FLACKE
My Commission Expires: June 2, 2000 NOTARY PUBLIC, STATE OF INDIANA
-------------- LAKE COUNTY
MY COMMISSION EXP. JUNE 2, 2000
13
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS OF UROQUEST MEDICAL
CORPORATION, INCLUDING THE NOTES THERETO, OF MARCH 31, 1999 AND FOR THE THREE
MONTHS ENDED MARCH 31, 1999, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 6,557,914
<SECURITIES> 0
<RECEIVABLES> 2,732,729
<ALLOWANCES> 60,000
<INVENTORY> 2,800,540
<CURRENT-ASSETS> 12,599,044
<PP&E> 7,744,630
<DEPRECIATION> 3,223,213
<TOTAL-ASSETS> 27,255,876
<CURRENT-LIABILITIES> 2,845,565
<BONDS> 0
0
0
<COMMON> 12,453
<OTHER-SE> 23,606,576
<TOTAL-LIABILITY-AND-EQUITY> 27,255,876
<SALES> 4,393,045
<TOTAL-REVENUES> 4,393,045
<CGS> 2,245,579
<TOTAL-COSTS> 2,245,579
<OTHER-EXPENSES> 3,065,705
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 22,063
<INCOME-PRETAX> (865,411)
<INCOME-TAX> 25,000
<INCOME-CONTINUING> (890,411)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (890,411)
<EPS-PRIMARY> (0.07)
<EPS-DILUTED> (0.07)
</TABLE>
