SECURITIES AND EXCHANGE COMMISSION
FORM 10-Q
(Mark One)
þ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2005 |
OR
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
FOR THE TRANSITION PERIOD FROM to |
Commission File Number: 0-18933
ROCHESTER MEDICAL CORPORATION
MINNESOTA | 41-1613227 | |
State or other jurisdiction of | (I.R.S. Employer | |
incorporation or organization) | Identification No.) | |
ONE ROCHESTER MEDICAL DRIVE, | ||
STEWARTVILLE, MN | 55976 | |
(Address of principal executive offices) | (Zip Code) |
(507) 533-9600
(Registrants 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 Exchange Act during the past 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 þ NO o
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of
the Exchange Act).
YES o NO þ
Indicate the number of shares outstanding of each of the issuers classes of common stock as of the latest practicable date.
5,470,750 Common Shares as of May 5, 2005.
Table of Contents
ROCHESTER MEDICAL CORPORATION
Report on Form 10-Q
for quarter ended
March 31, 2005
2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
ROCHESTER MEDICAL CORPORATION
BALANCE SHEETS
March 31, | September 30, | |||||||
2005 | 2004 | |||||||
(unaudited) | ||||||||
Assets: |
||||||||
Current assets: |
||||||||
Cash and cash equivalents |
$ | 280,846 | $ | 620,441 | ||||
Marketable securities |
5,191,142 | 5,251,763 | ||||||
Accounts receivable, net |
3,056,246 | 2,631,188 | ||||||
Inventories |
4,297,980 | 3,945,313 | ||||||
Prepaid expenses and other assets |
549,779 | 273,229 | ||||||
Total current assets |
13,375,993 | 12,721,934 | ||||||
Property and equipment: |
||||||||
Land and buildings |
6,354,067 | 6,247,386 | ||||||
Equipment and fixtures |
11,697,861 | 11,568,452 | ||||||
18,051,928 | 17,815,838 | |||||||
Less accumulated depreciation |
(10,006,259 | ) | (9,373,411 | ) | ||||
Total property and equipment |
8,045,669 | 8,442,427 | ||||||
Patents, less accumulated amortization |
253,066 | 219,296 | ||||||
Total assets |
$ | 21,674,728 | $ | 21,383,657 | ||||
Liabilities and Shareholders Equity: |
||||||||
Current liabilities: |
||||||||
Accounts payable |
$ | 788,394 | $ | 778,766 | ||||
Accrued expenses |
613,145 | 595,145 | ||||||
Deferred revenue |
157,143 | 157,143 | ||||||
Current maturities of capital leases and debt |
72,683 | 71,611 | ||||||
Total current liabilities |
1,631,365 | 1,602,665 | ||||||
Long-term liabilities: |
||||||||
Deferred revenue |
642,857 | 721,429 | ||||||
Long-term portion of capital leases and debt |
152,202 | 171,814 | ||||||
Total long-term liabilities |
$ | 795,059 | 893,243 | |||||
Shareholders equity: |
||||||||
Common Stock, no par value: |
||||||||
Authorized 20,000,000 |
||||||||
Issued and outstanding shares (5,467,250 March 31, 2005;
5,441,131 September 30, 2004) |
42,065,134 | 41,940,700 | ||||||
Accumulated deficit |
(22,715,870 | ) | (22,979,077 | ) | ||||
Unrealized loss on available-for-sale securities |
(100,960 | ) | (73,874 | ) | ||||
Total shareholders equity |
19,248,304 | 18,887,749 | ||||||
Total liabilities and shareholders equity |
$ | 21,674,728 | $ | 21,383,657 | ||||
Note | The Balance Sheet at September 30, 2004 was derived from the audited financial statements at that date, but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. |
See Notes to Financial Statements
3
ROCHESTER MEDICAL CORPORATION
STATEMENTS OF OPERATIONS (UNAUDITED)
Three Months Ended | Six Months Ended | |||||||||||||||
March 31, | March 31, | |||||||||||||||
2005 | 2004 | 2005 | 2004 | |||||||||||||
Net sales |
$ | 4,147,173 | $ | 3,811,179 | 7,812,445 | $ | 7,159,653 | |||||||||
Cost of sales |
2,633,061 | 2,466,368 | 4,900,339 | 4,620,073 | ||||||||||||
Gross profit |
1,514,112 | 1,344,811 | 2,912,106 | 2,539,580 | ||||||||||||
Costs and expenses |
||||||||||||||||
Marketing and selling |
566,452 | 496,860 | 1,136,990 | 1,007,525 | ||||||||||||
Research and development |
181,309 | 192,135 | 378,039 | 368,906 | ||||||||||||
General and administrative |
652,896 | 537,065 | 1,189,924 | 993,646 | ||||||||||||
Total operating expenses |
1,400,657 | 1,226,060 | 2,704,953 | 2,370,077 | ||||||||||||
Income from operations |
113,455 | 118,751 | 207,153 | 169,503 | ||||||||||||
Other income (expense): |
||||||||||||||||
Interest income |
32,160 | 26,356 | 64,190 | 50,486 | ||||||||||||
Interest expense |
(4,402 | ) | (5,742 | ) | (8,134 | ) | (17,036 | ) | ||||||||
27,758 | 20,614 | 56,056 | 33,450 | |||||||||||||
Net income |
$ | 141,213 | $ | 139,365 | $ | 263,209 | 202,953 | |||||||||
Net income
per share - basic |
$ | 0.03 | $ | 0.03 | $ | 0.05 | $ | 0.04 | ||||||||
Net income
per share - diluted |
$ | 0.02 | $ | 0.02 | $ | 0.05 | $ | 0.04 | ||||||||
Shares in
per share computation - basic |
5,457,777 | 5,432,905 | 5,452,980 | 5,430,292 | ||||||||||||
Shares in
per share computation - diluted |
5,768,546 | 5,690,661 | 5,721,881 | 5,709,594 |
See Notes to Financial Statement
4
ROCHESTER MEDICAL CORPORATION
STATEMENTS OF CASH FLOWS (UNAUDITED)
Six Months Ended | ||||||||
March 31, | ||||||||
2005 | 2004 | |||||||
Operating activities: |
||||||||
Net income |
$ | 263,209 | $ | 202,953 | ||||
Adjustments to reconcile net income to net cash
(used in) provided by operating activities: |
||||||||
Depreciation and amortization |
658,003 | 671,727 | ||||||
Changes in assets and liabilities: |
||||||||
Accounts receivable |
(425,058 | ) | 495,765 | |||||
Inventories |
(352,667 | ) | (202,400 | ) | ||||
Other current assets |
(276,550 | ) | (142,867 | ) | ||||
Accounts payable |
9,628 | 182,830 | ||||||
Deferred revenue |
(78,572 | ) | (78,571 | ) | ||||
Other current liabilities |
17,999 | (263,052 | ) | |||||
Net cash (used in) provided by operating activities |
$ | (184,008 | ) | $ | 866,385 | |||
Investing activities: |
||||||||
Capital expenditures |
(236,090 | ) | (206,809 | ) | ||||
Patents |
(58,926 | ) | (33,018 | ) | ||||
Sales (purchases) of marketable securities, net |
33,535 | (56,131 | ) | |||||
Net cash used in investing activities |
$ | (261,481 | ) | $ | (295,958 | ) | ||
Financing activities: |
||||||||
Payments on capital leases |
(18,540 | ) | (45,616 | ) | ||||
Proceeds from issuance of common stock |
124,434 | 58,597 | ||||||
Net cash provided by financing activities |
$ | 105,894 | $ | 12,981 | ||||
(Decrease) increase in cash and cash equivalents |
(339,595 | ) | 583,408 | |||||
Cash and cash equivalents at beginning of period |
620,441 | 1,764,499 | ||||||
Cash and cash equivalents at end of period |
$ | 280,846 | $ | 2,347,907 | ||||
See Notes to Financial Statements
5
ROCHESTER MEDICAL CORPORATION
Notes to Financial Statements (Unaudited)
March 31, 2005
Note A Basis of Presentation
The accompanying unaudited financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. These financial statements should be read in conjunction with the financial statements and related notes included in the Companys 2004 Form 10-K. In the opinion of management, all adjustments (consisting only of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three- month and six-month periods ended March 31, 2005 are not necessarily indicative of the results that may be expected for the year ending September 30, 2005.
Note B Net Income Per Share
Net income per share is calculated in accordance with Financial Accounting Standards Board Statement No. 128, Earnings Per Share. The Companys basic net income per share is computed by dividing net income by the weighted average number of common shares outstanding during the period. Diluted net income per share is computed by dividing income by the weighted average number of common shares outstanding during the period, increased to include dilutive potential common shares issuable upon the exercise of stock options that were outstanding during the period. A reconciliation of the numerator and denominator in the basic and diluted net income per share calculation is as follows:
Three Months Ended | Six Months Ended | |||||||||||||||
March 31, | March 31, | |||||||||||||||
2005 | 2004 | 2005 | 2004 | |||||||||||||
Numerator: |
||||||||||||||||
Net income |
$ | 141,213 | $ | 139,365 | $ | 263,209 | $ | 202,953 | ||||||||
Denominator: |
||||||||||||||||
Denominator for basic net income per share-
weighted average shares outstanding |
5,457,777 | 5,432,905 | 5,452,980 | 5,430,292 | ||||||||||||
Effect of dilutive stock options |
310,769 | 257,756 | 268,901 | 279,302 | ||||||||||||
Denominator for diluted net income per share-
weighted average shares outstanding |
5,768,546 | 5,690,661 | 5,721,881 | 5,709,594 | ||||||||||||
Basic net income per share |
$ | 0.03 | $ | 0.03 | $ | 0.05 | $ | 0.04 | ||||||||
Diluted net income per share |
$ | 0.02 | $ | 0.02 | $ | 0.05 | $ | 0.04 | ||||||||
Employee stock options of 281,000 and 339,000 for the second quarter of fiscal years 2005 and 2004, respectively, and 336,000 and 297,000 for the six months ended March 31, 2005 and 2004, respectively, have been excluded from the diluted net income per share calculation because their exercise prices were greater than the average market price of the Companys common stock.
6
Note C Stock Based Compensation
The Company accounts for employee stock options in accordance with APB 25, Accounting for Stock Issued to Employees. Under APB 25, the Company recognizes no compensation expense related to employee stock options, since options are always granted at an exercise price equal to the market price on the date of grant.
In December 2004, the FASB issued FASB Statement No. 123R, Share-Based Payment, an Amendment of FASB Statement No. 123 (FAS No. 123R). FAS No. 123R requires companies to recognize in the statement of operations the grant-date fair value of stock options and other equity-based compensation issued to employees. FAS No. 123R is effective for periods beginning after December 15, 2005, which means for the Companys first quarter of fiscal 2006. The Company is still evaluating the provisions of FAS 123R; however, it believes the effects should be consistent with the pro forma net income and earnings per share data disclosed in this Note C.
To determine the pro forma impact under FAS No. 123, the fair value of stock options is estimated on the date of grant using the Black-Scholes option-pricing model and is then hypothetically amortized to compensation expenses over the four-year vesting period. The pro forma impact for the three-month and six-month periods ended March 31 follows:
Three Months Ended | Six Months Ended | |||||||||||||||
March 31, | March 31, | |||||||||||||||
2005 | 2004 | 2005 | 2004 | |||||||||||||
Net Income, as reported |
$ | 141,213 | $ | 139,365 | $ | 263,209 | 202,953 | |||||||||
Pro forma impact of expensing stock options |
(203,903 | ) | (200,638 | ) | (274,898 | ) | (290,033 | ) | ||||||||
Pro forma net income (loss) |
(62,690 | ) | (61,273 | ) | $ | (11,689 | ) | $ | (87,080 | ) | ||||||
Reported Basic Net Income Per Share |
$ | 0.03 | $ | 0.03 | $ | 0.05 | $ | 0.04 | ||||||||
Pro Forma Impact of Expensing Stock Options |
$ | (0.04 | ) | $ | (0.04 | ) | $ | (0.05 | ) | $ | (0.06 | ) | ||||
Pro Forma Basic Net Income (Loss) Per Share |
$ | (0.01 | ) | $ | (0.01 | ) | $ | 0.00 | $ | (0.02 | ) | |||||
Reported Diluted Net Income Per Share |
$ | 0.02 | $ | 0.02 | $ | 0.05 | $ | 0.04 | ||||||||
Pro Forma Impact of Expensing Stock Options |
$ | (0.04 | ) | $ | (0.04 | ) | $ | (0.05 | ) | $ | (0.06 | ) | ||||
Pro Forma Diluted Loss Per Share |
$ | ( 0.01 | ) | $ | (0.01 | ) | $ | 0.00 | $ | (0.02 | ) | |||||
Note D Inventories
Inventories consist of the following:
March 31 | September | |||||||
2005 | 2004 | |||||||
Raw materials |
$ | 1,097,774 | $ | 686,492 | ||||
Work-in-process |
1,942,034 | 1,890,860 | ||||||
Finished goods |
1,358,172 | 1,467,961 | ||||||
Reserve for inventory obsolescence |
(100,000 | ) | (100,000 | ) | ||||
$ | 4,297,980 | $ | 3,945,313 | |||||
Note E Income Taxes
The Company has a history of pre-tax losses and has not generated taxable income since inception until fiscal 2003. While the Company had pre-tax income in fiscal 2003, fiscal 2004 and the first six months of fiscal 2005, the Company has net operating loss carryforwards of approximately $23
7
million that will offset its taxable income and therefore, no federal income taxes are due. The Company has recorded a valuation allowance to reduce the carrying value of its net deferred tax assets to an amount that is more likely than not to be realized. As of September 30, 2004 and March 31, 2005, the valuation allowance has reduced the carrying value of the net deferred tax asset to $0.
Note F Comprehensive Income
Comprehensive income includes net income and all other nonowner changes in shareholders equity during a period.
The comprehensive income for the three-month and six-month periods ended March 31, 2005 and 2004 consists of the following:
Three Months Ended | Six Months Ended | |||||||||||||||
March 31, | March 31, | |||||||||||||||
2005 | 2004 | 2005 | 2004 | |||||||||||||
Net income |
$ | 141,213 | $ | 139,365 | $ | 263,209 | $ | 202,953 | ||||||||
Unrealized loss on securities held |
(18,898 | ) | 15,983 | (27,087 | ) | 1,401 | ||||||||||
Comprehensive income |
$ | 122,315 | $ | 155,348 | $ | 236,122 | $ | 204,354 | ||||||||
8
Item 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
Results of Operations
The following table sets forth, for the fiscal periods indicated, certain items from the statements of operations of the Company expressed as a percentage of net sales.
Three Months Ended | Six Months Ended | |||||||||||||||
March 31, | March 31, | |||||||||||||||
2005 | 2004 | 2005 | 2004 | |||||||||||||
Net Sales |
100 | % | 100 | % | 100 | % | 100 | % | ||||||||
Cost of Sales |
63 | % | 65 | % | 63 | % | 65 | % | ||||||||
Gross Margin |
37 | % | 35 | % | 37 | % | 35 | % | ||||||||
Operating Expenses |
||||||||||||||||
Marketing and Selling |
14 | % | 13 | % | 15 | % | 14 | % | ||||||||
Research and Development |
4 | % | 5 | % | 5 | % | 5 | % | ||||||||
General and Administrative |
16 | % | 14 | % | 15 | % | 14 | % | ||||||||
Total Operating Expenses |
34 | % | 32 | % | 35 | % | 33 | % | ||||||||
Income From Operations |
3 | % | 3 | % | 2 | % | 2 | % | ||||||||
Interest Income, Net |
1 | % | 1 | % | 1 | % | 0 | % | ||||||||
Net Income |
4 | % | 4 | % | 3 | % | 2 | % | ||||||||
The following table sets forth, for the periods indicated, net sales information by product category (base products, which include male external catheters and standard silicone Foley catheters, and advanced products, which include intermittent catheters, anti-infection Foley catheters and the FemSoft Insert), marketing method (private label and Rochester Medical branded sales) and distribution channel (domestic and international markets)(all dollar amounts below are in thousands):
Fiscal Quarter | Fiscal Quarter | |||||||||||||||||||||||
Ended March 31, 2005 | Ended March 31, 2004 | |||||||||||||||||||||||
Domestic | Intl | Total | Domestic | Intl | Total | |||||||||||||||||||
Private Label Sales: |
||||||||||||||||||||||||
Base Products |
$ | 1,369 | $ | 962 | $ | 2,331 | $ | 1,191 | $ | 773 | $ | 1,964 | ||||||||||||
Advanced Products |
19 | 25 | 44 | 177 | 67 | 244 | ||||||||||||||||||
Total Private Label Sales |
$ | 1,388 | $ | 987 | $ | 2,375 | $ | 1,368 | $ | 840 | $ | 2,208 | ||||||||||||
Branded Sales: |
||||||||||||||||||||||||
Base Products |
$ | 845 | $ | 612 | $ | 1,457 | $ | 730 | $ | 589 | $ | 1,319 | ||||||||||||
Advanced Products |
189 | 126 | 315 | 148 | 136 | 284 | ||||||||||||||||||
Total Branded Sales |
$ | 1,034 | $ | 738 | $ | 1,772 | $ | 878 | $ | 725 | $ | 1,603 | ||||||||||||
Total Net
Sales: |
$ | 2,422 | $ | 1,725 | $ | 4,147 | $ | 2,246 | $ | 1,565 | $ | 3,811 | ||||||||||||
9
Fiscal Year to Date | Fiscal Year to Date | |||||||||||||||||||||||
Ended March 31, 2005 | Ended March 31, 2004 | |||||||||||||||||||||||
Domestic | Intl | Total | Domestic | Intl | Total | |||||||||||||||||||
Private Label Sales: |
||||||||||||||||||||||||
Base Products |
$ | 2,257 | $ | 1,810 | $ | 4,067 | $ | 1,884 | $ | 1,548 | $ | 3,432 | ||||||||||||
Advanced Products |
57 | 51 | 108 | 404 | 102 | 506 | ||||||||||||||||||
Total Private Label Sales |
$ | 2,314 | $ | 1,861 | $ | 4,175 | $ | 2,288 | $ | 1,650 | $ | 3,938 | ||||||||||||
Branded Sales: |
||||||||||||||||||||||||
Base Products |
$ | 1,555 | $ | 1,546 | $ | 3,101 | $ | 1,483 | $ | 1,308 | $ | 2,791 | ||||||||||||
Advanced Products |
359 | 177 | 536 | 270 | 161 | 431 | ||||||||||||||||||
Total Branded Sales |
$ | 1,914 | $ | 1,723 | $ | 3,637 | $ | 1,753 | $ | 1,469 | $ | 3,222 | ||||||||||||
Total Net Sales: |
$ | 4,228 | $ | 3,584 | $ | 7,812 | $ | 4,041 | $ | 3,119 | $ | 7,160 | ||||||||||||
Three Month and Six Month Periods Ended March 31, 2005 and March 31, 2004
Net Sales. Net sales for the second quarter of fiscal 2005 increased 9% to $4,147,000 from $3,811,000 for the comparable quarter of last fiscal year. The sales increase primarily resulted from an increased volume of sales of Rochester Medical® branded products, as well as an increase in private label sales. Net sales of advanced products to private label customers decreased during the second quarter of fiscal 2005 as compared to the comparable period in the prior fiscal year, primarily as a result of a delay in the timing of product orders by certain private label customers, particularly in Europe, due to the pending patent litigation instituted by Coloplast A/S in the United Kingdom against Hollister Incorporated relating to the packaging configuration for the Companys hydrophilic catheters, which Hollister resells in Europe under its own brand. The Company issued a press release regarding these matters in September 2004. While the Company is reasonably confident that the European packaging patent will be deemed invalid, it is nonetheless designing an alternative packaging configuration.
Net sales for the six months ended March 31, 2005 increased 9% to $7,812,000 from $7,160,000 for the comparable six-month period of last fiscal year. The six-month sales increase primarily resulted from an increased volume of sales of Rochester Medical® branded products, as well as an increase in private label sales of base products, offset by a decrease in private label sales of advanced products for the reasons discussed above for the current quarter.
Gross Margin. The Companys gross margin as a percentage of net sales for the second quarter of fiscal 2005 was 37% compared to 35% for the comparable quarter of last fiscal year. The current quarters margin improvement primarily reflects the Companys increased net sales, as well as its product mix and manufacturing efficiency.
10
The Companys gross margin as a percentage of net sales for the six months ended March 31, 2005 was 37% compared to 35% for the comparable period of last fiscal year for reasons generally consistent with those discussed above for the current quarter.
Marketing and Selling. Marketing and selling expense for the second quarter of fiscal 2005 increased 14% to $566,000 from $497,000 for the comparable quarter of last fiscal year. Marketing and selling expense as a percentage of net sales for the fiscal quarters ended March 31, 2005 and 2004 were 14% and 13%, respectively. The increase in marketing and selling expense in absolute dollars is primarily related to the introduction of new products.
Marketing and selling expense for the six months ended March 31, 2005 increased 13% to $1,137,000 from $1,008,000 for the comparable six-month period of last fiscal year. Factors affecting the comparative six-month expense levels are generally consistent with those discussed above for the current quarter.
Research and Development. Research and development expense for the second quarter of fiscal 2005 decreased to $181,000 from $192,000 for the comparable quarter of last fiscal year. Research and development expense as a percentage of net sales for the fiscal quarters ended March 31, 2005 and 2004 were 4% and 5%, respectively. The decrease in research and development expense, both in absolute dollars and as a percentage of net sales, is primarily due to the timing of project costs as part of the Companys product development cycle.
Research and development expense for the six months ended March 31, 2005 increased 2% to $378,000 from $369,000 for the comparable six-month period of last fiscal year. The increase in research and development expense, both in absolute dollars and as a percentage of net sales, is primarily due to increased new product development costs.
General and Administrative. General and administrative expense for the second quarter of fiscal 2005 increased 22% to $653,000 from $537,000 for the comparable quarter of last fiscal year. General and administrative expense as a percentage of net sales for the fiscal quarters ended March 31, 2005 and 2004 were 16% and 14%, respectively. The increase in general and administrative expense, both in absolute dollars and as a percentage of net sales, is primarily related to increased costs for professional fees, as well as increased costs associated with being a public company, particularly due to the Companys Sarbanes-Oxley Section 404 compliance readiness activities.
General and administrative expense for the six months ended March 31, 2005 increased 20% to $1,190,000 from $994,000 for the comparable six-month period of last fiscal year. Factors affecting the comparative six-month expense levels are generally consistent with those discussed above for the current quarter.
Interest Income. Interest income for the second quarter of fiscal 2005 increased 23% to $32,000 from $26,000 for the comparable quarter of last fiscal year. The increase in interest income reflects an overall higher interest rate on short-term investments.
Interest income for the six months ended March 31, 2005 increased 28% to $64,000 from $50,000 for the comparable six-month period of last fiscal year. The increase reflects an overall higher interest rate on short-term investments as discussed above.
11
Interest Expense. Interest expense for the first quarter of fiscal 2005 decreased 33% to $4,000 from $6,000 for the comparable quarter of last fiscal year. The decrease in interest expense reflects less interest accrued in the first quarter of fiscal 2005 in connection with the debt related to the Companys purchase of certain equipment and real estate in 2003.
Interest expense for the six months ended March 31, 2005 decreased 53% to $8,000 from $17,000 for the comparable six-month period of last fiscal year. The decrease reflects less interest accrued in the six-month period ended March 31, 2005 for the reasons discussed above.
Income Taxes. The Company has a history of pre-tax losses and had not generated taxable income from inception until fiscal 2003. While the Company had pre-tax income in fiscal 2003, fiscal 2004 and the first six months of fiscal 2005, the Company has net operating loss carryforwards of approximately $23 million that will offset its taxable income, and therefore no federal income taxes are due.
Liquidity and Capital Resources
The Companys cash, cash equivalents and marketable securities were $5.5 million at March 31, 2005 compared to $5.9 million at September 30, 2004. The decrease in cash primarily resulted from the net cash used in investing activities, primarily capital expenditures, and cash used in operating activities, offset by cash generated by financing activities.
During the six-month period ended March 31, 2005, the Company used $184,000 of cash from operating activities compared to cash provided by operations of $866,000 during the comparable period of the prior fiscal year. Decreased net cash from operating activities in fiscal 2005 primarily reflects net income before depreciation offset by increases in current assets and decreases in current liabilities. Accounts receivable balances during this period increased 16% or $425,000, primarily as a result of the timing of shipments. Inventories increased 9% or $353,000, primarily as a result of increased kit configurations and a planned increase in the Companys inventory of intermittent catheters. Other current assets increased 101% or $277,000 during the recent six-month period primarily as a result of prepaid insurance premiums and prepayments relating to certain manufacturing equipment. Current liabilities increased 2% or $28,000 during the recent three-month period, primarily reflecting the timing of payments related to accounts payable. In addition, capital expenditures during this period were $236,000 compared to $207,000 for the comparable period of the prior fiscal year.
During the fiscal quarter ended March 31, 2005, the Company entered into a $1,000,000 revolving line of credit with U.S. Bank National Association. The agreement calls for a variable interest rate that is equal to 1% plus the one-month LIBOR rate. The agreement runs through March 31, 2006. As of March 31, 2005, the Company did not have any amounts outstanding under this line of credit.
The Company believes that its capital resources on hand at March 31, 2005, together with cash generated from sales, will be sufficient to satisfy its working capital requirements for the foreseeable future as described in the Liquidity and Capital Resources portion of Managements Discussion and Analysis of Financial Condition and Results of Operations in the Companys Annual Report on Form 10-K (Part II, Item 6) for the fiscal year ended September 30, 2004. However, the Company may be required to seek additional funding sources, such as additional borrowings under the Companys revolving line of credit or equity or debt financings, to fund the Companys working capital requirements. If the Company decides to seek additional financing, there can be no assurance as to the outcome of such efforts, including whether financing will be available to the Company, or if available,
12
whether it would be on terms favorable to the Company and its shareholders. Failure by the Company to secure additional financing could result in significant cash restraints and financial issues for the Company.
Forward-Looking Statements
Statements other than historical information contained herein constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements may be identified by the use of terminology such as believe, may, will, expect, anticipate, predict, intend, designed, estimate, should or continue or the negatives thereof or other variations thereon or comparable terminology. Such forward-looking statements involve known or unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Company, or industry results, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Such factors include, among other things, the following: the uncertainty of gaining acceptance of the hydrophilic intermittent catheters, the anti-infection catheters and the FemSoft Insert in the marketplace; the uncertainty of gaining new strategic relationships; the uncertainty of timing of revenues from private label sales (particularly with respect to international customers); FDA and other regulatory review and response times; manufacturing capacities for both current products and new products; the uncertainty of insurance coverage of the FemSoft Insert by additional insurers; the uncertainty that initial consumer interest in the FemSoft Insert may not result in significant sales of the product or continued sales of the product after trial; the results of product evaluations; the securing of Group Purchasing Organization contract participation; results of clinical tests; the timing of clinical preference testing and product introductions; and other risk factors listed from time to time in the Companys SEC reports, including, without limitation, the section entitled Risk Factors in the Companys Annual Report on Form 10-K (Part II, Item 6) for the year ended September 30, 2004.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The Company does not believe its operations are currently subject to significant market risks for interest rates, foreign currency exchange rates, commodity prices or other relevant market price risks of a material nature.
Item 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures. Under the supervision and with the participation of the Companys management, including the Companys Chief Executive Officer and Chief Financial Officer, the Company evaluated the effectiveness of the design and operation of its disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) as of the end of the period covered by this report. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, as of the end of the period covered by this report, the Companys disclosure controls and procedures were effective.
Changes in Internal Controls. During our second fiscal quarter, there have not been any significant changes in the Companys internal control over financial reporting (as defined in Rule 13(a)-15(f) under the Exchange Act) that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
13
Part II. OTHER INFORMATION
Item 1. Legal Proceedings
The Company is plaintiff in a lawsuit titled Rochester Medical Corporation vs. C.R. Bard, Inc.; Tyco International (US), Inc.; Tyco Health Care Group, L.P.; Novation LLC; VHA, Inc.; Premier, Inc.; and Premier Purchasing Partners, in the United States District Court for the Eastern District of Texas, Civil Action No. 504-CV-060. This suit alleges anti-competitive conduct against the defendants in the markets for standard and anti-infection Foley catheters as well as urethral catheters, and seeks an unspecified amount of damages and injunctive and other relief. The litigation is in the early stages of discovery, and the Company cannot now estimate the prospects for a favorable outcome.
Item 2. Unregistered Sales of Equity 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
None.
Item 6. Exhibits
31.1 | Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |||
31.2 | Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |||
32.1 | Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |||
32.2 | Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
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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.
ROCHESTER MEDICAL CORPORATION | ||||||
Date:
May 16, 2005
|
By: | /s/ Anthony J. Conway | ||||
Anthony J. Conway | ||||||
President and Chief Executive Officer | ||||||
Date:
May 16, 2005
|
By: | /s/ David A. Jonas | ||||
David A. Jonas | ||||||
Chief Financial Officer and Treasurer |
15
INDEX TO EXHIBITS
Exhibit | Page | |||
31.1
|
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |||
31.2
|
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |||
32.1
|
Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |||
32.2
|
Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |