-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, U2cK4eHFirIUMbSD5Dq/OkzvowFrx0x2TqfBOYkiH+CV4veQT4LZXtSxBdDFVnK0 wEPCV4UL43+LADZ9GoDHEw== 0000927016-99-001244.txt : 19990402 0000927016-99-001244.hdr.sgml : 19990402 ACCESSION NUMBER: 0000927016-99-001244 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990331 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MATRITECH INC/DE/ CENTRAL INDEX KEY: 0000884847 STANDARD INDUSTRIAL CLASSIFICATION: IN VITRO & IN VIVO DIAGNOSTIC SUBSTANCES [2835] IRS NUMBER: 042985132 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 001-12128 FILM NUMBER: 99582101 BUSINESS ADDRESS: STREET 1: 330 NEVADA ST CITY: NEWTON STATE: MA ZIP: 02160 BUSINESS PHONE: 6176616660 MAIL ADDRESS: STREET 1: 330 NEVADA STREET CITY: NEWTON STATE: MA ZIP: 02160-1458 10-K405 1 FORM 10-K405 ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTIONS 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1998. OR [_] 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 0-12128 MATRITECH, INC. (Exact Name of Registrant as Specified in Its Charter) Delaware 04-2985132 (State or Other Jurisdiction of (IRS Employer Identification Number) Incorporation or Organization) 330 Nevada Street 02460 Newton, Massachusetts (ZIP Code) (Address of Principal Executive Offices) Registrant's telephone number, including area code: (617) 928-0820 Securities registered pursuant to Section 12(b) of the Act: Title of Each Class Name of Each Exchange on Which Registered ------------------- ----------------------------------------- None Securities registered pursuant to Section 12(g) of the Act: Common Stock, $.01 Par Value (Title of Class) 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. [X] Yes [_] No Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] Aggregate market value, as of March 15, 1999, of Common Stock held by non-affiliates of the registrant: $29,981,633 based on the last reported sale price on the Nasdaq Stock Market. Number of shares of Common Stock outstanding on March 15, 1999: 18,629,252. DOCUMENTS INCORPORATED BY REFERENCE The registrant intends to file a Definitive Proxy Statement pursuant to Regulation 14A within 120 days of the end of the fiscal year ended December 31, 1998. Portions of such Proxy Statement are incorporated by reference in Part III of this report. ================================================================================ PART I ITEM 1. BUSINESS. Overview Matritech, Inc. (the "Company" or "Matritech") develops, manufactures and markets innovative cancer diagnostic products based on its proprietary nuclear matrix protein ("NMP") technology. The nuclear matrix, a three dimensional protein framework within the nucleus of cells, plays a fundamental role in determining cell type by physically organizing the contents of the nucleus, including DNA. The Company has demonstrated that there are differences in the types and amounts of NMPs found in cancerous and normal tissue and believes the detection of such differences in NMPs provides important diagnostic information about cellular abnormalities, including cancer. Using its proprietary NMP technology and expertise, the Company has developed non-invasive or minimally invasive cancer diagnostic tests for bladder and colon cancer and is developing additional tests for cervical, breast and prostate cancer. The Company's objective is to develop tests that will be more accurate and allow for reduced treatment costs and a higher standard of patient care than currently available tests. NMP22 Test Kit for Bladder Cancer. The Company's first product based on its NMP technology, the NMP22 (*) Test Kit for bladder cancer, was approved for sale in the United States by the U.S. Food and Drug Administration ("FDA") in 1996 as a prognostic indicator for the recurrence of bladder cancer. In May 1998, the NMP22 Test Kit for bladder cancer was approved for sale in Japan by the Japanese Ministry of Health and Welfare ("Koseisho") for use in screening previously-undiagnosed bladder cancer patients. The NMP22 Test Kit for bladder cancer has been commercially available in Europe since 1995 and is currently being marketed in Asia and in many other countries outside the United States. The Company has retained worldwide manufacturing rights for the NMP22 Test Kit for bladder cancer as well as certain marketing rights in the United States. The Company has entered into an exclusive distribution agreement for the NMP22 Test Kit for bladder cancer in Japan and has additional distribution arrangements in selected European and other countries worldwide. In March 1998, the Company and Curtin Matheson Scientific, a division of Fisher Healthcare Company, L.L.C. ("CMS") entered into a co-exclusive distribution agreement for the NMP22 Test Kit for bladder cancer in the United States. Test Kit for Colon Cancer. The Company has also developed a blood- based test utilizing its NMP technology for the management of colon cancer patients. Blood specimens for use in generating clinical data for a premarket approval submission to the FDA have been collected and the Company believes that these specimens are sufficient to permit the tests necessary to substantiate a claim for the use of its colon cancer test kit for the differential diagnosis of individuals exhibiting symptoms such as rectal bleeding. The Company intends to use these specimens in conjunction with its current manual format test, the NuMA(TM) Test Kit, or in validating the performance of a second generation NMP- based colon cancer test employing other colon cancer NMPs. In either case, the Company intends to conduct the specimen testing and the FDA submission in collaboration with an automated instrument partner. Consequently, the timing of an FDA submission for the Company's colon cancer test will depend upon concluding a satisfactory agreement with an automated instrument partner, if any, and upon completion of work necessary to design the test's automated format, as the Company and such partner may agree. The Company has retained worldwide manufacturing and marketing rights for its colon cancer assay. _______________________ (*) NMP22/R/ is a registered trademark and NuMA/TM/, NMP-179/TM/ and Matritech/TM/ are trademarks of Matritech, Inc. All other trademarks, service marks or trade names used in this report are the property of their respective owners. -2- Cervical, Breast and Prostate Cancer Tests. The Company has also identified NMPs specific to cervical, breast and prostate cancer and is currently developing diagnostic tests based on its proprietary NMP technology for these cancers. Matritech's scientists have reported the results of pre- clinical trials of its NMP-179(TM) Test for the identification of women with cancer or pre-cancerous conditions of the cervix. These studies, which were conducted in collaboration with several leading women's health centers in New England, confirm the efficacy of the NMP-179 antibody in identifying women at elevated risk for cervical cancer. The Company is in the process of optimizing the format and procedures relating to the test in preparation for conducting FDA clinical trials to obtain approval to market the test in the United States. Matritech scientists have identified cancer specific proteins for both breast and prostate cancers and are in the process of developing blood and tissue based tests for use in the identification and management of individuals with these cancer types. Matritech was incorporated in Delaware in October 1987. The Company's facilities are located at 330 Nevada Street, Newton, Massachusetts 02460 and its telephone number is (617) 928-0820. Cancer Diagnostics Market The cancer diagnostics market is comprised of several overlapping categories, each corresponding to a stage in the identification and management of the disease. The categories are screening, diagnosing, monitoring and evaluating prognosis. Screening tests and procedures, such as mammograms and Pap smears, are performed regularly on individuals who may have no evidence of ill health because the tests are effective in revealing hidden, asymptomatic disease. Screening tests do not yield a final diagnosis. An actual diagnosis of cancer is usually made after microscopic examination of a tissue biopsy. Following diagnosis, additional tests can be used to monitor the course of the disease and the patient's response to treatment. These monitoring tests may be repeated at regular intervals, often every three months, and may be continued for the life of an individual in order to detect the recurrence of cancer. In addition, diagnostic tests are also used to evaluate a patient's prognosis and to select appropriate therapy. Patients identified as having a high risk of recurrence will be monitored more closely and may receive more aggressive treatment. In the United States, cancer diagnostic assays have generally been approved by the FDA for monitoring patients with known disease and only occasionally have been approved for screening purposes. Ideally, a cancer diagnostic assay for use in a clinical laboratory should be both sensitive and specific. Clinical sensitivity refers to the percentage of cases in which the assay correctly identifies the presence of disease. Clinical specificity refers to the percentage of cases in which the assay correctly identifies the absence of disease. Clinical sensitivity and specificity percentages reported from studies and trials of cancer diagnostic products may not be directly comparable, as results may be affected by laboratory-to-laboratory differences in specimen handling, the number of subjects studied, variability in the stages of disease present in the subject population and the demographic composition of the subject population, among other factors. Effective in vitro diagnostic assays can reduce the need for more invasive or expensive procedures for diagnosing and managing cancer, such as surgery, biopsy, bone scans and in vivo imaging. There are only a limited number of FDA-approved in vitro cancer diagnostic tests currently available and the relatively low clinical sensitivity and specificity of these tests have limited their clinical utility. The Company believes that these tests suffer from inherent inaccuracies because they detect substances that are only indirectly correlated with the cancer cells. As a consequence of low clinical sensitivity, these tests yield false negatives and many patients with cancer are not diagnosed early enough to receive effective treatment, resulting in additional costs and morbidity. Conversely, low -3- clinical specificity yields false positives resulting in unnecessary, expensive and painful treatment of patients without malignant disease. NMP Technology The Company believes that its NMP technology allows it to develop cost-effective in vitro assays that are more accurate than others currently available. The nuclear matrix, a three-dimensional protein framework within the nucleus of cells, helps organize active genes ("DNA") in the nucleus. In this way, the nuclear matrix plays a fundamental role in determining cell type and cell function. Although the specific mechanisms of action are not yet fully understood, Matritech and independent scientists have demonstrated that there are differences in the types and amounts of NMPs found in cancerous and normal tissues and also among different types of normal cells. Independent academic investigators have also confirmed the Company's findings in papers published in scientific journals which described NMPs specific to kidney, prostate, breast and colon cancer tissues. Certain of these NMPs were shown to be present in 100% of the cancer tissue specimens examined, but were absent in all of the normal tissue specimens. Subsequent to these papers, the Company has examined numerous additional cancer tissue specimens with similar results. Matritech also has demonstrated that cell death, including cell death related to early tumor development, results in the release of NMPs into bodily fluids. As a result, elevated levels of certain NMPs may be found in the bodily fluids of cancer patients. The Company is not aware of any other cancer marker, or class of markers, which exhibit this level of clinical specificity and sensitivity. The Company uses its proprietary technology and expertise to identify, isolate and extract NMPs from cancerous and normal tissues. Following extraction, the Company's scientists characterize and sequence cancer-specific NMPs, which generally are absent, or present at low levels, in the urine, blood and cells of healthy individuals. The Company then develops proprietary antibodies to these NMPs and incorporates the antibodies into industry-standard diagnostic formats, such as blood-based immunoassays. The Company's core NMP technology is licensed from the Massachusetts Institute of Technology ("MIT"). Under the current terms of the Company's license from MIT, the Company's worldwide license is exclusive until the expiration of all patent rights in 2006. The Company has made additional advances in NMP technology, has filed its own patent applications for related protection and to date has been granted nine additional United States patents. Matritech's Products and Products Under Development NMP22 Test Kit for Bladder Cancer In 1996, Matritech's NMP22 Test Kit for bladder cancer was approved for sale in the United States by the FDA as a prognostic indicator for the recurrence of bladder cancer. The test was approved based upon an extensive clinical trial of the NMP22 Test Kit for bladder cancer involving more than 1,000 subjects at 13 sites, including bladder cancer patients, patients with other cancers, patients with non-cancerous urinary conditions (such as urinary tract infections) and healthy subjects. In May 1998, the NMP22 Test Kit for bladder cancer was also approved for sale in Japan by Koseisho for use in screening previously undiagnosed individuals. The Company is currently marketing this product in the U.S. through its own sales force and distributors and in other major markets worldwide through distributors. Sales of the NMP22 Test Kit for bladder cancer began in certain countries in Europe in 1995. -4- The Company believes that the use of the NMP22 Test Kit for bladder cancer will enable urologists to manage bladder cancer patients with less invasive and less frequent procedures, thereby potentially reducing treatment costs while maintaining a high standard of patient care. If a bladder cancer patient's NMP22 value is low (less than or equal to 10 units per milliliter) 10 or more days after surgery, there is a high probability that there will be no evidence of disease upon follow-up cystoscopic examination. Consequently, the urologist may decide to postpone this exam in order to reduce the cost, anxiety and risk to the patient. Similarly, an NMP22 value greater than 10 units per milliliter indicates a higher risk that the follow-up cystoscopic examination will indicate a recurrence of disease, enabling the urologist to make more aggressive treatment decisions. In 1994, the Company entered into a distribution agreement with Konica Corporation ("Konica"). The Konica agreement grants exclusive distribution rights in Japan for the NMP22 Test Kit for bladder cancer in exchange for $325,000 in licensing fees. Under the terms of its agreement with Konica, Matritech will sell NMP22 Test Kits to Konica for resale in Japan at prices based on Japanese reimbursement rates. Konica has limited manufacturing rights if the Company fails to deliver required quantities of test kits. In March 1998, the Company entered into a distribution agreement with CMS. Pursuant to this agreement, the Company retained its right to distribute the NMP22 Test Kit for bladder cancer in the United States through its own sales force, but granted CMS an otherwise exclusive right to distribute the NMP22 Test Kit for bladder cancer to hospitals and commercial laboratories within the United States. The Company has retained worldwide manufacturing rights for the NMP22 Test Kit for bladder cancer. The Company has entered into distribution arrangements in selected European and other countries worldwide. Test Kit for Colon Cancer The Company has also developed a blood-based test utilizing its NMP technology for the management of colon cancer patients. Blood specimens for use in generating clinical data for a premarket approval submission to the FDA have been collected and the Company believes that these specimens are sufficient to permit the tests necessary to substantiate a claim for the use of its colon cancer test kit for the differential diagnosis of individuals exhibiting symptoms such as rectal bleeding. The Company intends to use these specimens in conjunction with its current manual format test, the NuMA Test Kit, or in validating the performance of a second generation NMP-based colon cancer test employing other colon cancer NMPs. In either case, the Company intends to conduct the specimen testing and FDA submission in collaboration with an automated instrument partner. Consequently, the timing of an FDA submission for the Company's colon cancer test will depend upon concluding a satisfactory agreement with an automated instrument partner, if any, and upon completion of work necessary to design the test's automated format, as the Company and such partner may agree. The Company has retained worldwide manufacturing and marketing rights for its colon cancer test. The Company is seeking distributors and an automated instrument partner for this test. Cervical Cancer Product Matritech's scientists have reported the results of pre-clinical trials of its NMP-179 Test for the identification of women with cancer or pre- cancerous conditions of the cervix. These studies, which were conducted in collaboration with several leading women's health centers in New England, confirm the efficacy of the NMP-179 antibody in identifying women at elevated risk for cervical cancer. The Company is in the process of optimizing the format and procedures relating to the test in preparation for conducting FDA clinical trials to obtain approval to market the test in the United States. Matritech has maintained its worldwide manufacturing and marketing rights to its cervical cancer product. -5- Breast Cancer Product During 1998, Matritech scientists, using a mass spectrometer instrument, demonstrated the ability to detect certain breast cancer markers in the blood of cancer patients at higher levels than in normal individuals. These scientists are now evaluating these proteins to attempt to select an assay combination suitable for pre-clinical evaluation in 1999. Following this, the Company intends to conduct clinical trials to generate data required to apply for FDA approval of such assays. Matritech believes that the distinctive NMPs found in breast cancer cells and the Company's ability to detect these NMPs in blood may enable it to develop a breast cancer blood-based assay more accurate than products presently available. The Company has retained worldwide manufacturing and marketing rights for its breast cancer product under development. Prostate Cancer Product In collaboration with clinicians at Johns Hopkins University Medical School ("Hopkins"), Matritech scientists have identified a nuclear matrix protein, NMP-23, present in elevated amounts in the cells of prostate cancer patients and absent, or present in low amounts, in normal individuals and those with benign disease. The Company has developed an antibody, PRO4:216, to this protein which has been tested by the Hopkins scientists using prostate biopsies. Hopkins scientists have reported that the antibody is clinically useful in differentiating prostate cancer cells from their normal and benign counterparts. Matritech scientists are pursuing another NMP which they believe may be released into the blood and are presently evaluating other antibodies to this protein using conventional assay development techniques as a first step in developing a clinical fluid-based assay for use in the management of prostate cancer patients. The Company has retained worldwide manufacturing and marketing rights for its prostate cancer product under development. Marketing and Sales The Company has retained rights to sell all of its products in the United States. Matritech is selling its NMP22 Test Kit for bladder cancer in the United States to clinical laboratories using its own direct sales force, and in March 1998 entered into a distribution agreement with CMS granting CMS the right, co-exclusive with Matritech, to distribute the NMP22 Test Kit for bladder cancer to hospitals and commercial laboratories within the U.S. The Company currently has three full-time sales representatives and such sales force may be expanded as sales of the Company's products warrant. Outside the United States, the Company sells the NMP22 Test Kit through distributors. During the fiscal year ended December 31, 1998 the Company received approximately 29% and 31% of its revenue from product sales from Wallac ADL and CMS, respectively. During the fiscal years ended December 31, 1996, 1997 and 1998, 24%, 42% and 52%, respectively, of the Company's total product sales were from the United States and 76%, 58% and 48%, respectively, were from foreign countries. Product sale revenue generated outside the U.S. during the fiscal years ended December 31, 1996, 1997 and 1998 was primarily from Europe. See Note 9 of Notes to Financial Statements -- "Segment and Geographic Information." Third-Party Reimbursement The Company's ability to successfully commercialize its products will depend in part on the extent to which reimbursement for the cost of such products will be available from government -6- health administration authorities, private health insurers and other third-party payors. The Company believes that FDA approval of a diagnostic product facilitates third-party reimbursement, but there can be no assurance that reimbursement will be available for such products or, if available, that it will be adequate. In the case of private insurance, the reimbursement of any medical device, whether approved, or for investigational use only or for research use, is at the sole discretion of the patient's individual carrier. The decision to reimburse can be made on a case-by-case basis (as is done for research therapies) or on a system-wide basis (such as screening mammography). Historically, the decision to reimburse for a new medical procedure is made by the carrier's medical director or review committee. This group will base their reimbursement decision on published clinical data and information by the treating physicians. Even if a procedure has been approved for reimbursement, there are no assurances that the insurance carrier will continue to reimburse the procedure. Health care reform is an area of continuing national attention and a priority of many governmental officials. Certain reform proposals, if adopted, could impose limitations on the prices the Company will be able to charge in the United States for its products or the amount of reimbursement available for the Company's products from governmental agencies or third-party payors. Manufacturing and Facilities The Company currently assembles its test kits in a portion of its 22,500 square-foot facility in Newton, Massachusetts and relies on subcontractors for certain components and processes. The Company's lease is for a term of five years and expires on December 31, 2000. The annual base rent for each year of the term is $230,625. The Company believes that its current facilities are adequate to satisfy the Company's needs for the foreseeable future. Thereafter, if the Company is required to expand its manufacturing capabilities, it may be required to establish additional facilities elsewhere. There can be no assurance that the Company will be able to extend its lease or lease other space on reasonable terms. The Company has retained all manufacturing rights for its products and products under development, except for certain rights that could be granted to the Company's NMP22 Test Kit distribution partner in Japan if the Company fails to perform under its agreement with such distributor. The Company currently relies on sole suppliers for certain key components for its NMP22 Test Kit for bladder cancer. In the event that the components from such suppliers should become unavailable for any reason, the Company would seek alternative sources of supply, which may entail making regulatory submissions and obtaining regulatory approvals from the FDA or such alternative suppliers. Although the Company attempts to maintain an adequate level of inventory to provide for these and other contingencies, should its manufacturing process be disrupted as a result of a shortage of key components or a revalidation of new components, there can be no assurance that the Company would be able to meet its commitments to customers. The Company is also subject to the FDA's Good Manufacturing Practice ("GMP") requirements. See "-- Government Regulation." Competition Matritech is not aware of any other company using NMP technology to develop diagnostic or therapeutic products. However, competition in the development and marketing of cancer diagnostics and therapeutics, using a variety of technologies, is intense. -7- There are many pharmaceutical companies, biotechnology companies, public and private universities and research organizations actively engaged in the research and development of clinical cancer diagnostic products. Many of these organizations have financial, manufacturing, marketing and human resources greater than those of the Company. Matritech expects that its diagnostic products will compete largely on the basis of clinical utility, accuracy (sensitivity and specificity), ease of use and other performance characteristics, price, patent position, as well as on the capabilities of the Company and its marketing partners. The Company expects that certain of its assays will compete with existing FDA-approved assays, including BTA, which is used for monitoring bladder cancer, CEA, which is used primarily for monitoring colorectal and breast cancers, PSA and PSA related markers, which are used primarily for monitoring and screening prostate cancer, and TRUQUANT BR RIA, which is used for monitoring breast cancer. Matritech is also aware of a number of companies exploring the application of oncogene technology to cancer diagnostics. A number of companies are attempting to develop automated instruments for Pap smear analysis that would compete with the cervical cancer product currently being developed by the Company. These companies are computerizing image analysis techniques to automate much of the work currently done by cytotechnologists. To date, several of these instruments have been approved by the FDA for rescreening Pap smear slides previously identified by a cytotechnologist as normal as well as the primary screening of cervical specimens. The Company's products will also compete with more invasive or expensive procedures such as surgery, bone scans, magnetic resonance imaging ("MRI") and other in vivo imaging techniques. Matritech believes that its products, if successfully commercialized, will contribute to improved patient management and lower overall costs, by providing accurate information and, in some cases, by providing an alternative to these invasive or costly procedures. Should the Company decide to develop and seek to market therapeutic products, competition will be based, among other things, on product efficacy, safety, reliability, price and patent position as well as the state of the industry and capabilities of the Company, future marketing partners and competitors. In addition, there can be no assurance that competing diagnostic and therapeutic products based on other technologies will not be introduced by other companies and adversely affect the competitive position of the Company. Patents, Licenses and Trade Secrets Matritech's diagnostic technology is protected by three United States patents owned by MIT and expiring in 2006, with corresponding foreign patents granted and/or patent applications pending in Canada and selected countries in Europe and the Far East. One of the three United States patents was granted following a reissue proceeding before the United States Patent and Trademark Office. The NMP technology owned by MIT is licensed to Matritech worldwide in exchange for royalties payable until the expiration of underlying patent rights. MIT has licensed its patent rights to Matritech on an exclusive basis through 2006. The protection offered by these patents extends to the detection and measurement of NMPs, or associated nucleic acids, using antibody or gene probe formats, as well as to certain assay methods exploiting NMPs. With regard to related NMP advances, Matritech has filed additional United States -8- patent applications and, in certain circumstances, foreign counterparts in one or more countries including Australia, Canada and selected countries in Europe and the Far East. The Company currently has nine United States patents and six applications on file in the United States on these disclosures. Certain United States patents provide additional protection for Matritech's NMP22 Test Kit for bladder cancer until 2015. The Company intends to file additional patent applications in the future. The Company believes that any patents that may issue from its applications will provide competitive protection for its products after expiration of its license from MIT. The Company also intends to rely on its unpatented proprietary information to maintain and develop its commercial position. Government Regulation Diagnostic Products The medical devices to be marketed and manufactured by the Company are subject to extensive regulation by the FDA, and, in some instances, by foreign governments. Pursuant to the Federal Food, Drug and Cosmetic Act of 1976, as amended, and the regulations promulgated thereunder (the "FDC Act"), the FDA regulates the clinical testing, manufacture, labeling, distribution, and promotion of medical devices. 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 premarket approval for devices, withdrawal of marketing approvals, and criminal prosecution. The FDA also has the authority to request repair, replacement or refund of the cost of any device manufactured or distributed by the Company. In the United States, medical devices and diagnostics are classified into one of three classes (class I, II, or III) on the basis of the controls deemed necessary by the FDA to reasonably assure their safety and effectiveness. Under FDA regulations, class I devices are subject to general controls (for example, labeling, premarket notification and adherence to GMPs) and class II devices are subject to general and special controls (for example, performance standards, postmarket surveillance, patient registries, and FDA guidelines). Generally, class III devices are those which must receive premarket approval ("PMA") by the FDA to ensure their safety and effectiveness (for example, life- sustaining, life- supporting and implantable devices, or new devices which have not been found substantially equivalent to legally marketed devices). Before a new device can be introduced into the market, the manufacturer must generally obtain marketing clearance through the filing of either a 510(k) notification or a PMA. A 510(k) clearance will be granted if the submitted information establishes that the proposed device is "substantially equivalent" to a legally marketed class I or II medical device, or to a class III medical device for which the FDA has not called for a PMA. The FDA may determine that a proposed device is not substantially equivalent to a legally marketed device, or that additional information or data are needed before a substantial equivalence determination can be made. A request for additional data may require that clinical studies of the safety and efficacy of the device be performed. Commercial distribution of a device for which a 510(k) notification is required can begin only after the FDA issues an order finding the device to be "substantially equivalent" to a predicate device. It generally takes from four to twelve months from submission to obtain a 510(k) clearance, but may take longer. The FDA may determine that a proposed device is not substantially equivalent to a legally marketed device, or that additional information is needed before a substantial equivalence determination can be made. -9- A PMA application must be filed if a proposed device is not substantially equivalent to a legally marketed class I or class II device, or if it is a class III device for which the FDA has called for PMAs. A PMA application must be supported by valid scientific evidence which typically includes clinical trial data to demonstrate safety and the effectiveness of the device. The PMA application must also contain the results of all relevant bench tests, laboratory and animal studies, a complete description of the device and its components, and a detailed description of the methods, facilities and controls used to manufacture the device, as well as proposed labeling. Upon receipt of a PMA application, the FDA makes a threshold determination as to whether the application is sufficiently complete to permit a substantive review. If the FDA determines that the PMA application is sufficiently complete to permit a substantive review, the FDA will accept the application for filing. Once the submission is accepted for filing, the FDA begins an in-depth review of the PMA. An FDA review of a PMA application generally takes one to two years from the date the PMA application is accepted for filing, but may take significantly longer. The review time is often significantly extended as a result of the FDA requiring more information or clarification of information already provided in the submission. During the review period, an advisory committee, typically a panel of clinicians and/or other appropriate experts in the relevant fields, will likely be convened to review and evaluate the application and provide recommendations to the FDA as to whether the device should be approved. The FDA is not bound by the recommendations of the advisory committee but generally follows them. Toward the end of the PMA review process, the FDA generally will conduct an inspection of the manufacturer's facilities to ensure that the facilities are in compliance with applicable GMP requirements. If the FDA's evaluations of both the PMA application and the manufacturing facilities are favorable, the FDA will either issue an approval letter or an approvable letter, which usually contains a number of conditions which must be met in order to secure final approval for sale of the device. When and if those conditions have been fulfilled to the satisfaction of the FDA, the agency will issue a PMA approval letter, authorizing commercial marketing of the device for certain indications. If the FDA's evaluations of the PMA application or manufacturing facilities are not favorable, the FDA will deny approval of the PMA application or issue a "not approvable letter." The FDA may also determine that additional clinical trials are necessary, in which case a PMA may be substantially delayed while additional clinical trials are conducted and submitted in an amendment to the PMA. The PMA process can be expensive, uncertain and lengthy and a number of devices for which FDA approval has been sought by other companies have never been approved for marketing. Once a device has successfully completed the PMA process, modifications to the device, its labeling, or manufacturing process may require approval by the FDA of PMA supplements or new PMAs. Supplements to a PMA often require the submission of the same type of information required for an initial PMA, except that the supplement is generally limited to that information needed to support the proposed change from the product covered by the original PMA. Although clinical investigations of most devices are subject to the investigational device exemption ("IDE") requirements, clinical investigations of in vitro diagnostic ("IVDs") tests are exempt from the IDE requirements, including FDA approval of investigations, provided the testing is non- invasive, does not require an invasive sampling procedure that presents significant risk, does not introduce energy into a subject, and the tests are not used as a diagnostic procedure without confirmation of the diagnosis by another medically established diagnostic product or procedure. IVD manufacturers must also establish distribution controls to assure that IVDs distributed for the purposes of conducting clinical investigations are used only for that purpose. Pursuant to current FDA policy, manufacturers of -10- IVDs labeled for investigational use only ("IUO") or research use only ("RUO") are encouraged by the FDA to establish a certification program under which investigational IVDs are distributed to or utilized only by individuals, laboratories, or health care facilities that have provided the manufacturer with a written certification of compliance indicating that (1) the device will be used for investigational or research purposes only, and (2) results will not be used for diagnostic purposes without confirmation of the diagnosis under another medically established diagnostic device or procedure. In addition, the certification program requirements for IUO products should include assurances that all investigations or studies will be conducted with approval from an institutional review board ("IRB"), using an IRB-approved study protocol and patient informed consent and that the device will be labeled in accordance with the applicable labeling regulations. Sponsors of clinical trials are permitted to sell those devices distributed in the course of the study provided such compensation does not exceed recovery of the costs of manufacture, research, development and handling. In 1996, the FDA approved Matritech's NMP22 Test Kit for bladder cancer for sale in the United States as a prognostic indicator for bladder cancer (i.e., as a predictor of bladder cancer recurrence following therapy, such as surgical excision of cancerous tissue). A number of independent urology investigators have evaluated Matritech's NMP22 Test Kit for bladder cancer to determine its value in resolving the symptom of hematuria (blood in the urine) to identify those hematuria patients who actually have bladder cancer. Based upon these published results, as well as the successful submission and approval of the NMP22 Test Kit for bladder cancer for this claim in Japan, the Company intends to complete an FDA clinical trial for this claim. The Company is in the final stages of collecting and documenting urine specimens from hematuria patients with the objective of submitting the NMP22 Test Kit for bladder cancer for FDA approval in the second quarter of 1999. In connection with Matritech's colon cancer program, blood specimens for use in generating clinical data for a PMA submission to the FDA have been collected and the Company believes that these specimens are sufficient to permit the tests necessary to substantiate a claim for the use of Matritech's colon cancer test for the differential diagnosis of individuals exhibiting symptoms such as rectal bleeding. The Company intends to use these specimens in conjunction with its current manual format test, the NuMA Test Kit, or in validating the performance of a second generation NMP-based colon cancer test employing other colon cancer NMPs. In either case, the Company intends to conduct the specimen testing and FDA submission in collaboration with an automated instrument partner. Consequently, the timing of an FDA submission for the Company's colon cancer test will depend upon concluding a satisfactory agreement with an automated instrument partner, if any, and upon completion of work necessary to design the test's automated format, as the Company and such partner may agree. Any products manufactured or distributed by the Company pursuant to FDA clearances or approvals are subject to pervasive and continuing regulation by the FDA, including recordkeeping requirements and reporting of adverse experiences with the use of the device. Device manufacturers are required to register their establishments and list their devices with the FDA, and are subject to periodic inspections by the FDA and certain state agencies. The FDC Act requires devices to be manufactured in accordance with GMP regulations which impose certain procedural and documentation requirements upon the Company with respect to manufacturing and quality assurance activities. Labeling and promotional activities are subject to scrutiny by the FDA and, in certain instances, by the Federal Trade Commission. In the United States, the NMP22 Test Kit for bladder cancer may only be promoted by the Company to aid in the management of bladder cancer patients. The FDA actively enforces regulations prohibiting the promotion of devices for unapproved uses and the promotion of devices for which premarket clearance or approval has not been obtained. Consequently, in the United States the Company cannot promote the NMP22 Test Kit for cancer screening or for any other unapproved use. Failure to comply with these requirements can result in regulatory enforcement action by the FDA that would adversely affect the Company's ability to conduct testing necessary to obtain -11- market clearance for these products and, consequently, could have a material adverse effect on the Company's business, financial condition and results of operations. The Company and its products are also subject to a variety of state laws and regulations in those states or localities where its products are or will be marketed. Any applicable state or local regulations may hinder the Company's ability to market its products in those states or localities. Manufacturers are also subject to numerous federal, state and local laws relating to such matters as safe working conditions, manufacturing practices, environmental protection, fire hazard control, and disposal of hazardous or potentially hazardous substances. There can be no assurance that the Company will not be required to incur significant costs to comply with such laws and regulations now or in the future or that such laws or regulations will not have a material adverse effect upon the Company's ability to do business. Foreign Sales Export of unapproved products subject to the PMA requirements must be approved in advance by the FDA for export unless they are approved for use by the regulatory authorities in any member community of the European Community and certain other countries, in which case they may be exported to any country without FDA approval. To obtain FDA export approval, when it is required, certain requirements must be met and information must be provided to the FDA, including, with some exceptions, documentation demonstrating that the product is approved for import into a country to which it is to be exported and safety data from animal or human studies. There can be no assurance that FDA will grant export approval when such approval is necessary, or that the countries to which the devices are to be exported will approve the devices for import. Failure on the part of the Company to obtain export approvals, when required, could significantly delay and impair the Company's ability to continue exports of its devices and could have a material adverse effect on the Company's business, financial condition or results of operations. The introduction of the Company's developmental-stage test products in foreign markets will also subject the Company to foreign regulatory clearances which may impose additional substantial costs and burdens. International sales of medical devices are subject to the regulatory requirements of each country. The regulatory review process varies from country to country. Many countries also impose product standards, packaging requirements, labeling requirements and import restrictions on devices. In addition, each country has its own tariff regulations, duties and tax requirements. In Germany, where the Company began selling its NMP22 Test Kit for bladder cancer in 1995, no regulatory approval comparable to the United States PMA is required prior to public sale of diagnostic products. In May 1998, the Koseisho approved the NMP22 Test Kit for bladder cancer for sale in Japan for use in screening previously undiagnosed patients. The approval by the FDA and foreign government authorities is unpredictable and uncertain and no assurance can be given that the necessary approvals or clearances will be granted on a timely basis or at all. Delays in receipt of, or a failure to receive, such approvals or clearances, or the loss of any previously received approvals or clearances, could have a material adverse effect on the business, financial condition and results of operations of the Company. Changes in existing requirements or adoption of new requirements or policies could adversely affect the ability of the Company to comply with regulatory requirements. Failure to comply with regulatory requirements could have a material adverse effect on the Company's business, financial condition and results of operations. There can be no assurance that the Company will not be required to incur significant costs to comply with laws and regulations in the future or that laws or regulations will -12- not have a material adverse effect upon the Company's business, financial condition or results of operations. CLIA Pursuant to the Clinical Laboratory Improvement Amendments ("CLIA"), the FDA will assign a complexity category to each new in vitro diagnostic test. This category will determine the rigor of quality control that must be followed by purchasers and users of the device and, thus, can affect purchasing decisions of laboratories and hospitals. In addition, as part of the premarket review process, manufacturers must establish that the device's quality control instructions are commensurate with CLIA quality control requirements for that device. The review period for in vitro diagnostic tests may be extended due to these new CLIA requirements. Other In order for the Company to conduct preliminary studies or clinical trials at a hospital or other health care facility, the Company's research collaborators must first obtain approval from the IRB of the hospital or health care facility. In each case, a written protocol must be submitted to the IRB describing the study or trial, which is reviewed by the IRB with a view to protecting the safety and privacy of the institution's patients. In addition to the regulatory framework for clinical trials and product approvals, the Company is subject to regulation under federal, state and local law, including requirements regarding occupational safety, laboratory practices, environmental protection and hazardous substance control, and may be subject to other present and possible future local, state, federal and foreign regulation. Employees As of March 15, 1999, the Company had 40 full-time employees, 21 of whom were engaged in research and development. The Company's future success depends in part on its ability to recruit and retain talented and trained scientific, technical, marketing and business personnel. The Company has been successful to date in hiring and retaining such personnel, but there can be no assurance that such success will continue. None of the Company's employees is represented by a labor union, and the Company considers its relations with its employees to be excellent. Research and Development Matritech's future success will depend in large part on its ability to develop and bring to market new products based on its proprietary NMP technology. Accordingly, Matritech devotes substantial resources to research and development. The Company has assembled a scientific staff with a variety of complementary skills in several advanced research disciplines, including molecular biology, immunology and protein chemistry. In addition, Matritech maintains consulting and advisory relationships with a number of prominent researchers. In 1997, Matritech was awarded a Phase I Small Business Innovation Research ("SBIR") Grant from the National Cancer Institute to further develop NMP tests for use in the detection and management of colon cancer patients. Matritech had recorded $6,000 and $73,000 in funding related to this SBIR grant for the years ended December 31, 1997 and 1998, respectively. -13- During 1996, 1997 and 1998 Matritech spent approximately $3.9 million, $3.9 million and $4.0 million, respectively, on research and development. Substantially all of these expenditures were related to the development of diagnostic products. ITEM 2. PROPERTIES. The Company's facilities are located in Newton, Massachusetts, where the Company leases corporate headquarters, research and development and manufacturing facilities which occupy approximately 22,500 square feet. The Company's lease is for a term of five (5) years and expires on or about December 31, 2000. The annual base rent for each year of the term is $230,625. The Company believes that its current facilities are adequate to satisfy the Company's needs for the foreseeable future, and has not made a determination whether it will seek to extend its lease when it expires in 2000 or seek to lease space elsewhere. There can be no assurance that the Company will be able to extend its lease or lease other space on reasonable terms. ITEM 3. LEGAL PROCEEDINGS. The Company is not currently a party to any material pending legal proceeding. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. No matters were submitted to a vote of security holders during the fourth quarter of 1998. -14- PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. Since August 6, 1997, the Company's Common Stock has been traded on The Nasdaq National Market tier of The Nasdaq Stock Market ("Nasdaq National Market") under the symbol: "NMPS." Prior to that date the Company's Common Stock was traded on The Nasdaq SmallCap Market tier of The Nasdaq Stock Market ("Nasdaq SmallCap Market") under the symbol: "NMPS" and on the Boston Stock Exchange under the symbol: "MPS." The following table sets forth the range of quarterly high and low sales price information for the Common Stock as reported, for the period prior to August 6, 1997, by the Nasdaq SmallCap Market, and for all subsequent periods, by the Nasdaq National Market.
Fiscal 1997 High Low - ------------ ---- --- First Quarter $ 10-1/4 $ 4-5/8 Second Quarter 8-3/8 3-11/16 Third Quarter 7 4-7/8 Fourth Quarter 7-3/4 3-9/16 Fiscal 1998 - ----------- First Quarter $ 6 $ 3-3/8 Second Quarter 5-1/8 1-25/32 Third Quarter 2-15/16 29/32 Fourth Quarter 3 5/8
As of March 15, 1999, there were approximately 322 shareholders of record. The Company believes that shares of the Company's Common Stock held in bank, money management, institution and brokerage house "nominee" names may account for an estimated 7,000 additional beneficial holders. The Company has never paid cash dividends on its Common Stock. The Company currently intends to retain any earnings to finance future growth and therefore does not anticipate paying any cash dividends in the foreseeable future. -15- ITEM 6. SELECTED FINANCIAL DATA. The selected financial data presented below for each year in the five-year period ended December 31, 1998 have been derived from the Company's financial statements, which have been audited by Arthur Andersen LLP, independent public accountants. This data should be read in conjunction with the financial statements, related notes, "Management's Discussion and Analysis of Financial Condition and Results of Operations" and other financial information included elsewhere in this Form 10-K.
1994 1995 1996 1997 1998 ---------------------------------------------------------------------------------------------- Statements of Operations Data: Revenues: Collaborative research and $ 1,314,334 $ 1,023,438 $ 1,881,833 $ 747,532 $ 967,759 development, license fees and product sales Interest and other income 91,591 216,865 528,583 566,686 457,678 ----------- ----------- ----------- ----------- ----------- Total revenues 1,405,925 1,240,303 2,410,416 1,314,218 1,425,437 Expenses: Research & development 3,470,122 3,014,125 3,909,793 3,943,390 4,010,368 Selling, general & 1,591,525 2,308,773 3,665,298 4,845,915 4,950,593 administrative ----------- ----------- ----------- ----------- ----------- Total expenses 5,061,647 5,322,898 7,575,091 8,789,305 8,960,961 ----------- ----------- ----------- ----------- ----------- Net loss $(3,655,722) $(4,082,595) $(5,164,675) $(7,475,087) $(7,535,524) =========== =========== =========== =========== =========== Basic and diluted net loss per $ (.46) $ (.38) $ (.32) $ (.43) $ (.40) common share(1) =========== =========== =========== =========== =========== Weighted average number of 7,951,721 10,733,769 15,900,467 17,512,242 18,608,784 common shares outstanding(1) =========== =========== =========== =========== ===========
1994 1995 1996 1997 1998 -------------------------------------------------------------------------------------------------- Balance Sheet Data: Cash, cash equivalents and $ 3,974,237 $ 11,009,310 $ 6,770,336 $ 11,067,414 $ 4,146,821 short-term investments Working capital 3,419,323 10,838,756 7,165,462 10,989,534 3,787,709 Total assets 4,582,194 11,959,203 8,669,861 12,691,773 5,511,825 Accumulated deficit (16,893,135) (20,975,730) (26,140,405) (33,615,492) (41,151,016) Total stockholders' equity $ 3,878,067 $ 11,351,178 $ 7,783,984 $ 11,688,674 $ 4,399,981
______________________ (1) Basic and diluted loss per share are the same for all periods presented. See Note 1 of Notes to Financial Statements. -16- ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. Overview The Company was incorporated in 1987 to develop, manufacture and market innovative cancer diagnostic products based on its proprietary NMP technology. Matritech has been unprofitable since inception and expects to incur significant operating losses for at least the next several years. For the period from inception to December 31, 1998, the Company incurred a cumulative net loss of approximately $41.2 million. Results of Operations Year Ended December 31, 1998 Compared with Year Ended December 31, 1997 - ----------------------------------------------------------------------- Product sales and collaborative research and development revenue increased to $968,000 for the year ended December 31, 1998 from $748,000 for the year ended December 31, 1997. Revenue from product sales increased to $895,000 for the year ended December 31, 1998 from $602,000 for the year ended December 31, 1997 due primarily to increased sales of the NMP22 Test Kit for bladder cancer in the United States and Europe. Product revenue may fluctuate from quarter to quarter and from year to year based on the timing of distributors' orders for the NMP22 Test Kits for bladder cancer. Revenue from collaborative research and development included $73,000 and $6,000 in SBIR funding for Matritech's NuMA Tumor Marker project for the years ended December 31, 1998 and December 31, 1997, respectively. In addition, Matritech recorded $140,000 in revenue from collaborative research and development for the year ended December 31, 1997, consisting of a milestone payment associated with a development agreement with Bayer Corporation. Interest and other income was $458,000 for the year ended December 31, 1998 and $567,000 for the year ended December 31, 1997. The decrease was due to lower average cash balances available for investment in 1998 as compared to 1997. Research and development expenses increased slightly to $4,010,000 for the year ended December 31, 1998 from $3,943,000 for 1997. The increase was primarily due to increased staffing of clinical affairs personnel to manage the Company's colon cancer FDA submission and the NMP22 screening trial and related site management costs. Selling, general and administrative expenses increased to $4,951,000 for the year ended December 31, 1998 from $4,846,000 for the year ended December 31, 1997. The increase was due to the augmentation of the sales force for the NMP22 Test Kit for bladder cancer and increased public relations and media relations consulting fees. In April 1997, the Company issued a warrant to a public relations consultant. The Company expensed the value of the warrant, $500,000, ratably over the one year term of its agreement with such consultant. The Company expensed $150,000 and $350,000 of the value of this warrant during the years ended December 31, 1998 and December 31, 1997, respectively. The Company incurred a net loss of $7,536,000 for the year ended December 31, 1998 as compared with a net loss of $7,475,000 for the year ended December 31, 1997. The increased loss was primarily due to increased sales and marketing expenses for the NMP22 Test Kit for bladder cancer, consulting fees, and to a lesser extent, increased clinical affairs costs associated with the colon cancer project. -17- Year Ended December 31, 1997 Compared with Year Ended December 31, 1996 - ----------------------------------------------------------------------- Product sales, collaborative research and development revenue and license fees decreased to $748,000 for the year ended December 31, 1997 from $1,882,000 for the year ended December 31, 1996. Revenue from product sales decreased to $602,000 for the year ended December 31, 1997 from $1,678,000 for the year ended December 31, 1996. This decrease primarily reflects initial stocking orders of the NMP22 Test Kit for bladder cancer that were made by new distributors in 1996 which were not repeated in 1997. Product revenue may fluctuate from quarter to quarter and from year to year based on the timing of distributors' orders for the NMP22 Test Kits for bladder cancer. Matritech's revenue from collaborative research and development for the year ended December 31, 1997 and 1996 was $140,000 and $120,000, respectively, consisting of milestone revenue from a funded development agreement with Bayer Corporation. Matritech also received $6,000 in SBIR funding during the year ended December 31, 1997 for its NuMA Tumor Marker project and $84,000 in SBIR funding for its cancer therapy development project during the year ended December 31, 1996. Interest and other income was $567,000 for the year ended December 31, 1997 and $528,000 for the year ended December 31, 1996. The increase was due to higher average cash balances available for investment and higher interest rates in 1997 as compared to 1996. Research and development expenses increased slightly to $3,943,000 for the year ended December 31, 1997 from $3,910,000 for 1996. The increase was primarily due to costs associated with product development personnel, consultants, reagents and supplies for the Company's colon and cervical cancer projects. Selling, general and administrative expenses increased to $4,846,000 for the year ended December 31, 1997 from $3,665,000 for the year ended December 31, 1996. The increase was due to the augmentation of the sales force for the NMP22 Test Kit for bladder cancer, increased public relations and media relations consulting fees and fees associated with the inclusion of the Company on the Nasdaq National Market system. The increase in selling expenses for the NMP22 Test Kit for bladder cancer was primarily attributable to increased staffing in sales, including recruitment, travel, administrative supplies and promotional materials for the Company's sales representatives for the NMP22 Test Kit in the United States, as well as, increased expenditures on clinical marketing programs and consultants with clinical expertise. In April 1997, the Company issued a warrant to a public relations consultant. The Company expensed the value of the warrant, $500,000, ratably over the one year term of its agreement with such consultant. The Company expensed $350,000 of the value of this warrant in the year ended December 31, 1997. During 1996, the Company expensed approximately $209,000 of costs associated with a proposed public offering which the Company elected not to complete. The Company incurred a net loss of $7,475,000 for the year ended December 31, 1997 as compared with a net loss of $5,165,000 for the year ended December 31, 1996. The increased loss resulted primarily from decreased revenues and increased sales and marketing expenses for the NMP22 Test Kit for bladder cancer. Liquidity and Capital Resources Since its inception, the Company has financed its operations primarily through private and public offerings of its securities and through funded development and marketing agreements. At December 31, 1998, 1997 and 1996 the Company had cash and cash equivalents of $4,147,000, $11,067,000 and -18- $6,770,000, respectively, and working capital of $3,788,000, $10,990,000 and $7,165,000, respectively. The Company's primary cash infusion in 1997 was from the private sale of common stock which totaled $10,904,000, and in 1996 the Company received its primary cash infusion from the exercise of common stock options and warrants which totaled $1,514,000. The Company's operating activities used cash of approximately $6,901,000, $6,486,000 and $5,505,000 for the years ended December 31, 1998, 1997 and 1996, respectively, primarily to fund the Company's operating loss. The Company's investing activities used cash of approximately $56,000, $516,000 and $240,000 in the years ended December 31, 1998, 1997 and 1996, respectively, primarily for purchases of computer systems, office and laboratory equipment, leasehold improvements and certain intangible assets. The Company currently estimates that capital expenditures during the year ending December 31, 1999 will not be significant. Financing activities provided cash of approximately $36,000, $11,299,000 and $1,506,000 in the years ended December 31, 1998, 1997 and 1996, respectively, primarily from the sale of equity securities, the exercise of stock options and warrants and proceeds from a capital equipment loan in 1997, net of payments of capital lease obligations. In 1997, the Company entered into an equipment line of credit with Phoenix Leasing, Incorporated under which it could borrow up to $1,200,000 for equipment purchases. The equipment line of credit has since expired and was converted into a term note on October 20, 1997 totaling $286,000. The term note is payable over 48 months and is secured by the underlying equipment. The term note bears interest at 11.75% and has an outstanding balance of $209,000 at December 31, 1998. The Company expects to incur continued research and development expenses and other costs, including costs related to clinical studies to commercialize additional products based upon its NMP technology. The Company will require substantial additional funds to fund operations, complete new product development, conduct clinical trials and manufacture and market its products. The Company's future capital requirements will depend on many factors, including, but not limited to: continued scientific progress in its research and development programs; the magnitude of its research and development programs; progress with clinical trials for its diagnostic products; the magnitude of product sales; the time involved in obtaining regulatory approvals; the costs involved in filing, prosecuting and enforcing patent claims; competing technological and market developments; and the ability of the Company to establish additional development and marketing arrangements to provide funding for research and development and to conduct clinical trials, obtain regulatory approvals, and manufacture and market certain of the Company's products. The Company has implemented certain cost-reduction measures to conserve capital resources. Such measures include changing the Company's public relations firm and deferring the hiring of non-essential personnel. The Company believes that such measures will not materially detract from its marketing and sales effort for its FDA-approved product for bladder cancer nor materially affect its existing programs relating to colon, cervical, breast, or prostate cancer product development. During March 1999, the Company entered into an agreement with certain investors providing for the sale of 3,094,811 shares of the Company's Common Stock, in a private placement, for an aggregate net selling price of approximately $4,000,000 (the "Private Placement"). The transactions contemplated -19- by this agreement are expected to close during April 1999, subject to customary closing conditions. The Company expects to receive net proceeds of approximately $3,940,000 after deducting the estimated expenses of the transaction. The Company is also actively seeking additional long-term funding from public and private sources including strategic collaborations and partnerships. There can be no assurance, however, that capital will be available on terms acceptable to the Company, if at all. If the Company uses equity to finance its capital needs, such a financing could result in significant dilution to existing stockholders. As of December 31, 1998, the Company had $4,147,000 in cash and cash equivalents and $3,788,000 of working capital. The Company believes that its existing cash resources, expected cash flow from operating activities and the proceeds from the Private Placement will satisfy its capital needs through 1999. If the Private Placement should fail to close for any reason, the Company would immediately seek to replace such financing. There can be no assurance that such replacement financing could be obtained on terms acceptable to the Company, if at all. If such replacement financing is not obtained, the Company believes that its existing cash resources and expected cash flow from operating activities may not be sufficient to fund its operations at current levels beyond mid-1999. In such an event, the Company would be required to significantly reduce the scope of operations after the second quarter of 1999. The Company has contingency plans for cost reductions which could enable it to continue limited operations through the end of 1999 under such circumstances. The Company has reviewed all of its information systems to assess what steps, if any, are required to achieve full Year 2000 compliance. The Company relies upon microprocessor-based personal computers and commercially available applications software. These technologies have been put into service recently, and the Company's review indicates that certain of the Company's systems are currently Year 2000 compliant. The Company has begun to address the small number of systems that are not yet Year 2000 compliant, and anticipates achieving full compliance early in the fourth quarter of 1999. The Company is currently in the process of reviewing its critical non-information technology systems and anticipates completing such review by the end of the second quarter of 1999. The Company does not anticipate that it will incur material expenses to make its computer software and operating systems Year 2000 compliant and has accrued $25,000 in its financial statements at December 31, 1998 related to such expenses. The Company is currently discussing Year 2000 readiness with its material supply and service vendors. To date, those suppliers and service vendors that have been contacted have indicated that their hardware or software is or will be Year 2000 compliant in time frames that meet the Company's requirements. The Company intends to continue to assess its exposure to Year 2000 noncompliance on the part of any of its material vendors and there can be no assurance that their systems will be Year 2000 compliant. In the event that certain material suppliers or service vendors indicate that they will not successfully address their Year 2000 problems in a timely fashion and that such failure may have a material adverse effect on the Company, management may elect to suspend such business relationships until such time that such vendors become fully compliant. The Company is currently formulating contingency plans to address problems that may arise in the event either the Company or its material suppliers and vendors fail to address their Year 2000 problems in a timely fashion. The Company presently believes that the Year 2000 issue will not pose significant operational problems for the Company. However, if all Year 2000 issues are not properly identified, or assessment, remediation and testing are not effected timely with respect to Year 2000 problems that are identified, there can be no assurance that the Year 2000 issue will not materially adversely impact the Company's results or operations or materially adversely affect the Company's relationships with customers, suppliers or others. Additionally, there can be no assurance that the Year 2000 issues of third parties will not have a material adverse impact on the Company's systems or results of operations. -20- The foregoing discussion includes forward-looking statements that are subject to risks and uncertainties and actual results may differ materially from those currently anticipated depending on a variety of factors including those discussed below. See "Factors that may Affect Future Results." The survival of the Company in the long term, however, is dependent on its ability to generate revenue from sales of its products. There can be no assurance that, in the long term, the Company will be able to generate sufficient revenue to achieve and maintain profitability. Factors That May Affect Future Results The Company's future financial and operational results are subject to a number of material risks and uncertainties that may affect such results or conditions, including: Access to Capital. Even with expected proceeds from the pending Private Placement, the Company needs to obtain additional long-term financing and will consider various financing alternatives, including equity or debt financings and corporate partnering arrangements. There can be no assurance, however, that this financing will be available on terms acceptable to the Company, if at all. If additional financing is not available, the Company may be required to further curtail expenses or take other steps that adversely affect the Company's future performance. Risk of Delisting from the Nasdaq National Market. The Company's Common Stock is currently listed on the Nasdaq National Market ("NNM"). For continued listing of the Company's Common Stock on the NNM, it must, among other things, maintain at least $4 million in net tangible assets and a minimum bid price of $1.00. If the Company's net tangible assets fall below $4 million, or the Company's Common Stock trades at a price of less than $1.00 for 30 consecutive business days or more, it may result in the delisting of the Company's securities from NNM, and trading, if any, of the Company's securities would thereafter be conducted on a non-Nasdaq over-the-counter market. If the Company's securities are delisted, an investor could find it more difficult to dispose of, or to obtain accurate quotations as to the market value of, the Company's securities. In addition, if the Company's securities were delisted, they may be subject to a rule that imposes additional sales practice requirements on broker-dealers who sell such securities to persons other than established customers and accredited investors. For transactions covered by this rule, the broker-dealer must make a special suitability determination for the purchaser and must have received the purchaser's written consent to the transaction prior to sale. Consequently, delisting, if it occurred, may affect the ability of broker-dealers to sell the Company's securities and the ability of the stockholders to sell their securities. History of Operating Losses and Anticipated Future Losses. The Company has incurred operating losses since its inception and does not expect to be profitable within the next several years. While the Company expects to improve operating results in future periods, there can be no assurance that the Company will achieve or maintain profitability or that its revenue will grow in the future. Fluctuation in Operating Results. The Company's future operating results may vary significantly from quarter to quarter or from year to year depending on a number of factors including: the timing and size of orders from the Company's customers and distributors; regulatory approvals and the introduction of new products by the Company; and the market acceptance of the Company's products. The Company's current planned expense levels are based in part upon expectations as to future revenue. Consequently, profits may vary significantly from quarter to quarter or year to year based on the timing of revenue. Revenue or profits in any period will not necessarily be indicative of results in subsequent periods. -21- Uncertainties Associated with Future Performance. The Company's success in the market for diagnostic products will depend, in part, on the Company's ability to: successfully develop, test, produce and market its products; obtain necessary governmental approvals in a timely manner; attract and maintain key employees; and successfully respond to technological changes in its marketplace. The Company's success in markets outside the United States is dependent on the performance of independent distributors over which the Company has limited control. Near-Term Dependence Upon NMP22. The Company anticipates that in the near-term it will be substantially dependent on the success of the NMP22 Test Kit for bladder cancer, which was approved for sale in the U.S. by the FDA in 1996 and approved for sale in Japan in 1998, and expects to generate substantially all of its near-term product sales from the sale of NMP22 Test Kits for bladder cancer. The Company would experience a material adverse effect on its business, financial condition and results of operations if the NMP22 Test Kit for bladder cancer does not achieve wide market acceptance. The remainder of the Company's products have not been approved by the FDA or are in development and there can be no assurance that it will be successful with such regulatory approvals and product development. Reliance on Sole Suppliers. The Company currently relies on sole suppliers for certain key components for its NMP22 Test Kit. In the event that the components from such suppliers should become unavailable for any reason, the Company would seek alternative sources of supply, which may entail making regulatory submissions and obtaining regulatory approvals from the FDA or such alternative suppliers. Although the Company attempts to maintain an adequate level of inventory to provide for these and other contingencies, should its manufacturing process be disrupted as a result of a shortage of key components or a revalidation of new components, there can be no assurance that the Company would be able to meet its commitments to customers. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. Investment Portfolio. The Company does not use derivative financial instruments that meet high credit quality standards, as specified in the Company's investment policy guidelines; the policy also limits the amount of credit exposure to any one issue, issuer, and type of instrument. See Note 1 of Notes to Financial Statements -- "Operations and Significant Accounting Policies." ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. The information required by this item is contained in the financial statements set forth in Item 14(a) under the caption "Financial Statements" as a part of this report. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. There have been no changes in or disagreements with accountants on accounting or financial disclosure matters during the Company's two most recent fiscal years. -22- PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. Directors The information concerning directors of the Company required under this item is incorporated herein by reference to the Company's definitive proxy statement pursuant to Regulation 14A, to be filed with the Commission not later than 120 days after the close of the Company's fiscal year ended December 31, 1998 under the headings "Occupations of Directors and Executive Officers" and "Section 16(a) Beneficial Ownership Reporting Compliance." Executive Officers The information concerning executive officers of the Company required under this item is incorporated herein by reference to the Company's definitive proxy statement pursuant to Regulation 14A, to be filed with the Commission not later than 120 days after the close of the Company's fiscal year ended December 31, 1998 under the headings "Occupations of Directors and Executive Officers" and "Section 16(a) Beneficial Ownership Reporting Compliance." ITEM 11. EXECUTIVE COMPENSATION. The information required under this item is incorporated herein by reference to the Company's definitive proxy statement pursuant to Regulation 14A, to be filed with the Commission not later than 120 days after the close of the Company's fiscal year ended December 31, 1998, under the heading "Compensation and Other Information Concerning Directors and Officers." ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. The information required under this item is incorporated herein by reference to the Company's definitive proxy statement pursuant to Regulation 14A, to be filed with the Commission not later than 120 days after the close of the Company's fiscal year ended December 31, 1998, under the heading "Securities Ownership of Management and Principal Stockholders." ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. The information, if any, required under this item is incorporated herein by reference to the Company's definitive proxy statement pursuant to Regulation 14A, to be filed with the Commission within 120 days after the close of the Company's fiscal year ended December 31, 1998, under the heading "Certain Relationships and Related Transactions." -23- PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K. (a) 1. Financial Statements. Report of Independent Public Accountants. Balance Sheets as of December 31, 1997 and 1998. Statements of Operations for the Years ended December 31, 1996, 1997 and 1998. Statements of Stockholders' Equity (Deficit) for the years ended December 31, 1996, 1997 and 1998. Statements of Cash Flows for the Years ended December 31, 1996, 1997 and 1998. Notes to Financial Statements. 2. No schedules are submitted because they are not applicable, not required or because the information is included in the Financial Statements or Notes to Financial Statements. 3. List of Exhibits. Exhibit Number Description of Exhibit -------------- ---------------------- 3.1 Amended and Restated Certificate of Incorporation of the Registrant (filed as Exhibits 3, 4.1 to the Company's Registration Statement No. 33-46158 on Form S-1 and incorporated herein by reference). 3.2 Amended and Restated By-Laws of the Registrant (filed as Exhibits 3.2, 4.1 to the Company's Registration Statement No. 33-46158 on Form S-1 and incorporated herein by reference). 3.3 Certificate of Amendment dated June 16, 1994, of Amended and Restated Certificate of Incorporation of the Registrant (filed as Exhibit 3.2 of the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 1995 and incorporated herein by reference). 3.4 Certificate of Amendment dated June 5, 1995, of Amended and Restated Certificate of Incorporation of the Registrant (filed as Exhibit 3.3 of the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 1995 and incorporated herein by reference). 4.1 Description of Capital Stock contained in the Registrant's Amended and Restated Certificate of Incorporation, filed as Exhibits 3.1, 3.3 and 3.4. -24- 10.1* License Agreement between Matritech and the Massachusetts Institute of Technology dated December 14, 1987, as amended March 15, 1988, December 20, 1989 and March 4, 1992 (filed as Exhibit 10.1 to the Company's Registration Statement No. 33-46158 on Form S-1 and incorporated herein by reference). 10.2+ 1988 Stock Plan (filed as Exhibit 10.8 to the Company's Registration Statement No. 33-46158 on Form S-1 and incorporated herein by reference). 10.3+ 1992 Stock Plan as amended as of June 13, 1997 (filed as Exhibit 10.4 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1997 and incorporated herein by reference). 10.4+ Amended and Restated 1992 Non-Employee Director Stock Plan as amended as of June 7, 1996 (filed as Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 1996 and incorporated herein by reference). 10.5+ 1992 Employee Stock Purchase Plan (filed as Exhibit 10.11 to the Company's Registration Statement No. 33-46158 on Form S-1 and incorporated herein by reference). 10.6 Second Amended and Restated Registration Rights Agreement dated May 4, 1990, as amended February 26, 1992 (filed as Exhibit 10.13 to the Company's Registration Statement No. 33-46158 on Form S-1 and incorporated herein by reference). 10.7 Form of Indemnity Agreement with directors (filed as Exhibit 10.14 to the Company's Registration Statement No. 33-46158 on Form S-1 and incorporated herein by reference). 10.8 Fourth Amendment dated March 18, 1993 to License Agreement between the Company and the Massachusetts Institute of Technology dated December 14, 1987, as amended (filed as Exhibit 10.9 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1997 and incorporated herein by reference). 10.9* License Agreement between the Company and The Johns Hopkins University dated as of August 4, 1993 (filed as Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1993 and on paper as File No. 1-12128 and incorporated herein by reference). 10.10 Fifth Amendment dated April 14, 1994 to License Agreement between the Company and the Massachusetts Institute of Technology dated December 14, 1987 (filed as Exhibit 10.1 to the Company's Form 10-Q for the quarter ended March 31, 1994 and incorporated herein by reference). -25- 10.11* Exclusive Distribution Agreement between the Company and Konica Corporation dated as of November 9, 1994. (Filed as Exhibit 10.26 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1994 and incorporated herein by reference). 10.12* License Agreement between the Company and Yale University dated as of March 21, 1995 (filed as Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1995 and incorporated herein by reference). 10.13 Lease Agreement between the Company and One Nevada Realty Trust dated October 6, 1995 (filed as Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 1995 and incorporated herein by reference). 10.14 Sixth Amendment dated March 1, 1996 to License Agreement between Matritech and the Massachusetts Institute of Technology dated December 31, 1987, as amended (filed as Exhibit 10.26 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1995 and incorporated herein by reference). 10.15 Senior Loan and Security Agreement No. 0096 between the Company and Phoenix Leasing, Incorporated dated August 29, 1997 including form of Senior Secured Promissory Note between the Company and Phoenix Leasing, Incorporated (filed as Exhibit 10.20 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1997 and incorporated herein by reference). 10.16* Distributorship Agreement by and between the Company and Curtin Matheson Scientific, a division of Fisher Scientific Company, L.L.C. dated as of March 19, 1998 (filed as Exhibit 10.21 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1997 and incorporated herein by reference). 10.17** Form of Subscription Agreement dated March 10, 1999 by and between the Company and certain investors. 23** Consent of Arthur Andersen LLP. 27** Financial Data Schedule. ________________________ * Confidential Treatment Granted for portions thereof ** Filed herewith + Indicates management contract or compensatory plan or arrangement required to be filed as an exhibit to this Form 10-K pursuant to Item 14(c) of this report. (b) Reports on Form 8-K. Not Applicable (c) Exhibits. The Company hereby files as exhibits to this Form 10-K those exhibits listed in Item 14(a)(3), above. (d) Financial Statement Schedules. The Company hereby files as financial statement schedules to this Form 10-K those financial statement schedules listed in Item 14(a)(2), above. MATRITECH, INC. Index to Financial Statements PAGE
Report of Independent Public Accountants F-2 Balance Sheets as of December 31, 1997 and 1998 F-3 Statements of Operations for the Years Ended December 31, 1996, 1997 and 1998 F-4 Statements of Stockholders' Equity for the Years Ended December 31, 1996, 1997 and 1998 F-5 Statements of Cash Flows for the Years Ended December 31, 1996, 1997 and 1998 F-6 Notes to Financial Statements F-7
F-1 Report of Independent Public Accountants To Matritech, Inc.: We have audited the accompanying balance sheets of Matritech, Inc. (a Delaware corporation) as of December 31, 1997 and 1998, and the related statements of operations, stockholders' equity and cash flows for each of the three years in the period ended December 31, 1998. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Matritech, Inc. as of December 31, 1997 and 1998, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1998, in conformity with generally accepted accounting principles. Arthur Andersen LLP Boston, Massachusetts February 8, 1999 F-2 MATRITECH, INC. BALANCE SHEETS ASSETS
DECEMBER 31, 1997 1998 CURRENT ASSETS: Cash and cash equivalents $11,067,414 $4,146,821 Accounts receivable 101,941 162,261 Inventories 487,360 336,398 Interest receivable and prepaid expenses 127,156 113,582 ----------- ---------- Total current assets 11,783,871 4,759,062 ----------- ---------- PROPERTY AND EQUIPMENT, at cost: Laboratory equipment 1,370,929 1,418,042 Office equipment 203,214 212,698 Laboratory furniture 62,739 62,739 Leasehold improvements 56,981 56,981 ----------- ---------- 1,693,863 1,750,460 Less--Accumulated depreciation and amortization 872,706 1,065,060 ----------- ---------- 821,157 685,400 ----------- ---------- OTHER ASSETS, net 86,745 67,363 ----------- ---------- $12,691,773 $5,511,825 =========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES: Current maturities of note payable $ 60,733 $ 68,271 Accounts payable 378,700 329,660 Accrued expenses 354,904 573,422 ------------ ------------ Total current liabilities 794,337 971,353 ------------ ------------ NOTE PAYABLE, less current maturities 208,762 140,491 ------------ ------------ Commitments (Notes 3 and 6) STOCKHOLDERS' EQUITY: Preferred stock, $1.00 par value Authorized--4,000,000 shares Issued and outstanding--none - - Common stock, $.01 par value Authorized--40,000,000 shares Issued and outstanding--18,566,737 shares in 1997 and 18,626,602 shares in 1998 185,667 186,266 Additional paid-in capital 45,118,499 45,364,731 Accumulated deficit (33,615,492) (41,151,016) ------------ ------------ Total stockholders' equity 11,688,674 4,399,981 ------------ ------------ $ 12,691,773 $ 5,511,825 ============ ============
The accompanying notes are an integral part of these financial statements. F-3 MATRITECH, INC. Statements of Operations
Years Ended December 31, 1996 1997 1998 REVENUES: Collaborative research and development, $ 1,881,833 $ 747,532 $ 967,759 license fees and product sales Interest and other income 528,583 566,686 457,678 ----------- ----------- ----------- 2,410,416 1,314,218 1,425,437 ----------- ----------- ----------- EXPENSES: Research and development 3,909,793 3,943,390 4,010,368 Selling, general and administrative 3,665,298 4,845,915 4,950,593 ----------- ----------- ----------- 7,575,091 8,789,305 8,960,961 ----------- ----------- ----------- Net loss $(5,164,675) $(7,475,087) $(7,535,524) =========== =========== =========== BASIC/DILUTED NET LOSS PER COMMON SHARE $(.32) $(.43) $(.40) =========== =========== =========== BASIC/DILUTED WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING 15,900,467 17,512,242 18,608,784 =========== =========== ===========
The accompanying notes are an integral part of these financial statements. F-4 MATRITECH, INC. STATEMENT OF STOCKHOLDERS' EQUITY
Common Stock Additional Total Number Paid-in Accumulated Stockholders' of shares Par Value Capital Deficit Equity Balance, December 31, 1995 15,194,127 $151,941 $32,174,967 $(20,975,730) $11,351,178 Exercise of common stock options 104,294 1,043 181,359 - 182,402 Exercise of common stock purchase warrants 728,453 7,284 1,324,790 - 1,332,074 Issuance of common stock under employee stock purchase plan 5,860 59 10,196 - 10,255 Compensation related to issuance of common stock options - - 72,750 - 72,750 Net loss - - - (5,164,675) (5,164,675) ---------- ----------- ------------ ----------- ---------- Balance, December 31, 1996 16,032,734 160,327 33,764,062 (26,140,405) 7,783,984 Sale of common stock, net of commissions and issuance costs of $92,430 2,457,609 24,576 10,879,492 - 10,904,068 Exercise of common stock options 12,878 128 27,525 - 27,653 Exercise of common stock purchase warrants 55,895 560 70,822 - 71,382 Issuance of common stock under employee stock purchase plan 7,621 76 26,598 - 26,674 Compensation related to issuance of common stock warrants - - 350,000 - 350,000 Net loss - - - (7,475,087) (7,475,087) ---------- ----------- ------------ ----------- ---------- Balance, December 31, 1997 18,566,737 185,667 45,118,499 (33,615,492) 11,688,674 Exercise of common stock Options 43,513 435 51,400 - 51,835 Exercise of common stock purchase warrants 10,000 100 17,900 - 18,000 Issuance of common stock under employee stock purchase plan 6,352 64 26,932 - 26,996 Compensation related to issuance of common stock warrants - - 150,000 - 150,000 Net loss - - - (7,535,524) (7,535,524) ---------- ----------- ------------ ------------ ---------- Balance, December 31, 1998 18,626,602 $ 186,266 $ 45,364,731 $(41,151,016) $4,399,981 ========== =========== ============ ============ ==========
The accompanying notes are an integral part of these financial statements. F-5 MATRITECH, INC. Statements of Cash Flows
Years Ended December 31, 1996 1997 1998 Cash Flows from Operating Activities: Net loss $(5,164,675) $(7,475,087) $(7,535,524) Adjustments to reconcile net loss to net cash used in operating activities Depreciation and amortization 133,952 226,924 210,648 Operating expense related to issuance of common stock warrant - 350,000 150,000 Compensation related to issuance of common stock options 72,750 - - Changes in assets and liabilities Accounts receivable (701,405) 712,603 (60,320) Inventories (150,673) (144,302) 150,962 Interest receivable and prepaid expenses 8,546 (3,755) 13,574 Accounts payable 81,999 (43,859) (49,040) Accrued expenses 249,140 (108,414) 218,518 Deferred revenue (34,900) - - ----------- ----------- ----------- Net cash used in operating activities (5,505,266) (6,485,890) (6,901,182) ----------- ----------- ----------- Cash Flows from Investing Activities: Purchase of property and equipment (285,386) (456,484) (56,597) (Increase) decrease in other assets 45,334 (59,820) 1,089 ----------- ----------- ----------- Net cash used in investing activities (240,052) (516,304) (55,508) ----------- ----------- ----------- Cash Flows from Financing Activities: Proceeds from note payable - 288,376 - Payments on note payable (18,387) (18,881) (60,734) Proceeds from sale of common stock and warrants - 10,904,068 - Proceeds from the exercise of common stock purchase warrants 1,332,074 71,382 18,000 Proceeds from exercise of common stock options 182,402 27,653 51,835 Proceeds from issuance of common stock under employee stock purchase plan 10,255 26,674 26,996 ----------- ----------- ----------- Net cash provided by financing activities 1,506,344 11,299,272 36,097 ----------- ----------- ----------- Increase (Decrease) in Cash and Cash Equivalents (4,238,974) 4,297,078 (6,920,593) Cash and Cash Equivalents, beginning of year 11,009,310 6,770,336 11,067,414 ----------- ----------- ----------- Cash and Cash Equivalents, end of year $ 6,770,336 $11,067,414 $ 4,146,821 =========== =========== =========== Supplemental Disclosure of Cash Flow Information: Cash paid during the year for interest $ - $ 5,420 $ 28,479 =========== =========== ===========
The accompanying notes are an integral part of these financial statements. F-6 MATRITECH, INC. Notes to Financial Statements (1) Operations and Significant Accounting Policies Matritech, Inc. (the "Company") was incorporated on October 29, 1987 to develop, produce and distribute products for the diagnosis and potential treatment of cancer based on its proprietary nuclear matrix protein technology. This technology was licensed to the Company by the Massachusetts Institute of Technology ("MIT"). The Company is devoting substantially all of its efforts toward product research and development, raising capital and marketing products. The Company is subject to risks common to companies in similar stages of development, including history of operating losses and anticipated future losses, fluctuation in operating results, uncertainties associated with future performance, dependence on key individuals, competition from substitute products and larger companies, the development of commercially usable products and the need to obtain adequate additional financing necessary to fund the development of its future products. In 1995, the Company began to sell its NMP22(R) Test Kits for bladder cancer in certain countries in Europe through distributors. In 1996, the Company received FDA approval to begin selling the NMP22 Test Kit as a prognostic indicator for use in the management of bladder cancer patients in the United States and in May, 1998 the Koseisho approved the NMP22 Test Kit for sale in Japan for screening of bladder cancer patients. The accompanying financial statements reflect the application of certain accounting policies as described in this note and elsewhere in the accompanying financial statements and notes. (a) Revenue Recognition The Company recognizes revenue from product sales upon shipment; revenue from collaborative research and development arrangements as milestones are achieved; revenue from nonrefundable license agreements upon the signing of the agreement; and revenue from research grants as earned. (b) Cash and Cash Equivalents The Company considers all highly liquid investments with original maturities of three months or less to be cash equivalents. The Company applies Statement of Financial Accounting Standards (SFAS) No. 115, Accounting for Certain Investments in Debt and Equity Securities. Under SFAS No. 115, securities that the Company has the positive intent and ability to hold to maturity are reported at amortized cost, which approximates fair market value, and are classified as held-to- maturity. These securities include cash and cash equivalents, which consist of auction market preferred stocks, money market accounts and repurchase agreements at December 31, 1997 and 1998. F-7 MATRITECH, INC. NOTES TO FINANCIAL STATEMENTS (Continued) (c) Inventories Inventories are stated at the lower of cost or market and consist of the following: DECEMBER 31, 1997 1998 Raw materials $305,241 $225,159 Work-in-process 6,634 3,195 Finished goods 175,485 108,044 -------- -------- $487,360 $336,398 ======== ======== (d) Depreciation and Amortization The Company provides for depreciation and amortization using accelerated and straight-line methods by charges to operations in amounts that allocate the cost of property and equipment over their estimated useful lives as follows: ASSET CLASSIFICATION USEFUL LIFE Laboratory equipment 10 years Office equipment 5 years Laboratory furniture 5 years Leasehold improvements Life of lease The Company amortizes certain intangible assets, including license fees, over their estimated useful lives of three to five years. (e) Uses of Estimates in the Preparation of Financial Statements The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. (f) Concentration of Credit Risk SFAS No. 105, Disclosure of Information About Financial Instruments with Off-Balance-Sheet Risk and Financial Instruments with Concentrations of Credit Risk, requires disclosure of any significant off-balance-sheet and credit risk concentrations. Financial instruments that subject the Company to credit risk consist primarily of cash and cash equivalents and trade accounts receivable. The Company places its investments in highly rated financial institutions and investment-grade securities. The Company has not experienced any losses on its investments to date. The Company received revenue of greater than 10% of total collaborative research and development, license fees and product sales from the following number of customers during the following periods: Percentage of Product Revenues SIGNIFICANT Customer CUSTOMERS ------------------------------------------------------------ A B C D E F Year ended December 4 16% - - 21% 11% 13% 31, 1996 Year ended December 31, 1997 2 - - 19% - - 18% Year ended December 31, 1998 2 - 31% - - - 29% F-8 The Company had accounts receivable balances greater than 10% of total accounts receivable from the following customers as of December 31, 1997 and 1998: Percentage of Total Accounts Receivable Customer ------------------------------------------------ A B C D F G H As of December 31, 1997 - - 53% - - - - 1998 - - - - 60% 11% 12% (g) Disclosure of Fair Value of Financial Instruments The Company's financial instruments consist mainly of cash and cash equivalents, accounts receivable, accounts payable and note payable. The carrying amounts of the Company's financial instruments approximate fair value. (h) Research and Development Research and development expenses in the accompanying statements of operations are expensed as incurred and include both funded and unfunded research and development expenses. (i) Net Loss per Common Share In March 1997, the Financial Accounting Standards Board issued SFAS No. 128, Earnings per Share, which established new standards for calculating and presenting earnings per share. Basic net loss per common share was computed by dividing net loss by the weighted average number of common shares outstanding during the year. Diluted loss per share is the same as basic loss per share as the effects of the potential common stock are antidilutive. This accounting change had no effect on the Company's historical net loss per common share. The number of common stock equivalents excluded from the diluted net loss per share were 1,049,338, 1,497,176 and 1,649,391 for the years ended December 31, 1996, 1997 and 1998, respectively. (j) Postretirement Benefits The Company has no obligations for postretirement benefits. (k) Comprehensive Income Effective January 1, 1998, the Company adopted SFAS No. 130, Reporting Comprehensive Income. This statement requires that all items recognized under accounting standards as components of comprehensive earnings be reported in the annual financial statements. It also requires that an entity classify items of other comprehensive earnings (e.g., foreign currency translation adjustments and unrealized gains and losses on certain marketable securities) by their nature in an annual financial statement. The Company's total comprehensive loss was the same as the reported net loss for all periods presented. (2) Income Taxes The Company follows the provisions of SFAS No. 109, Accounting for Income Taxes. Under the provisions of SFAS No. 109, the Company recognizes a current tax liability or asset for current taxes payable or refundable and a deferred tax liability or asset for the estimated future tax effects of temporary differences between the carrying value of assets and liabilities for financial reporting and their tax basis and carryforwards to the extent they are realizable. F-9 MATRITECH, INC. NOTES TO FINANCIAL STATEMENTS (Continued) The net operating loss carryforwards and tax credits expire as follows:
State Federal Net Net Operating Operating loss Loss Tax Credit Expiration Date Carryforwards Carryforwards Carryforwards - --------------- -------------- ------------- ------------- 1999 - $ 4,344,000 2000 - 3,715,000 2001 - 3,986,000 2002 - 2,048,000 2003-2018 32,500,000 9,207,000 $1,719,000 ----------- ----------- ---------- $32,500,000 $23,300,000 $1,719,000 =========== =========== ==========
The Company's net deferred tax asset consists of the following:
DECEMBER 31, 1997 1998 Net operating loss carryforwards $10,874,000 $14,008,000 Capitalized research and development expenses 2,670,000 3,530,000 Tax credits 1,376,000 1,719,000 Temporary differences (37,000) (21,000) ----------- ----------- Net deferred tax asset 14,883,000 19,236,000 Valuation allowance (14,883,000) (19,236,000) ----------- ----------- $ - $ - =========== ===========
The valuation allowance has been provided due to the uncertainty surrounding the realization of the deferred tax asset. (3) Lease Commitments The Company leases office and laboratory facilities and certain equipment under operating leases that expire through 2000. Annual commitments under these operating leases are as follows: YEAR AMOUNT 1999 $249,000 2000 242,000 -------- $491,000 ======== Rent expense for the years ended December 31, 1996, 1997 and 1998 was approximately $333,000, $275,000 and $275,000, respectively. F-10 MATRITECH, INC. NOTES TO FINANCIAL STATEMENTS (Continued) (4) Note Payable In August 1997, the Company entered into an equipment line of credit under which it could borrow up to $1,200,000 for equipment purchases. This line of credit has since expired and in October 1997, the outstanding balance was converted into a 48 month term note. The term note bears interest at 11.75% and is secured by the underlying equipment. Payments under the term note payable are as follows:
DECEMBER 31, AMOUNT 1999 $68,271 2000 76,745 2001 63,746 -------- $208,762 ========
(5) Common Stock (a) Sale of Common Stock In May 1997, the Company completed a private placement of 2,200,000 shares of common stock at $5 per share resulting in proceeds of approximately $10,904,000, net of commissions and issuance costs. In connection with the private placement, the Company issued to the placement agent 257,609 shares of common stock and a warrant to purchase 245,761 shares of common stock at $5 per share. During 1997, 5,530 of these warrants were exercised for 1,395 shares of common stock. (b) Warrants In connection with a private placement in September 1994, the Company issued a warrant to purchase 234,637 units at an exercise price equal to $2.25 per unit to the placement agent ("Placement Agent Warrants"). Each Placement Agent Warrant converts into one share of common stock and one Class B nonredeemable common stock purchase warrant. During 1996, 214,637 of the Placement Agent Warrants and 204,637 of the underlying Class B non redeemable common stock purchase warrants were exercised for net proceeds of $756,886, pursuant to which the Company issued 400,693 shares of common stock. At December 31, 1997 and 1998, there are 20,000 Placement Agent Warrants and 10,000 Class B nonredeemable common stock purchase warrants outstanding. In April 1997, the Company issued a warrant to a public relations consultant for the purchase of up to 150,000 shares of the Company's common stock for a price of $6.50 per share expiring in April 2002. These warrants were valued at approximately $500,000 in accordance with SFAS No. 123 and were expensed ratably over the one-year term of the agreement. The Company expensed $150,000 and $350,000 as a component of selling, general and administrative expenses on the accompanying statement of operations for the years ended December 31, 1998 and 1997, respectively. F-11 MATRITECH, INC. NOTES TO FINANCIAL STATEMENTS (Continued) (c) Stock Option and Purchase Plans The Company has granted incentive and nonqualified options under its 1988 and 1992 option plans and the 1992 Directors' Plan. All option grants, prices and vesting periods are determined by the Board of Directors. Incentive stock options must be granted at a price not less than the fair market value on the date of grant. There are 375,461 common shares available for future grants under existing option plans at December 31, 1998. The following table summarizes stock option activity:
NUMBER OPTION PRICE PER OF OPTIONS SHARE Options outstanding, December 31, 1995 438,124 .82- 5.00 Granted 624,649 3.63- 13.13 Exercised (104,294) .82- 3.38 Terminated (38,701) 1.81- 13.13 --------- ------------- Options outstanding, December 31, 1996 919,778 .82- 13.13 Granted 195,671 4.00- 8.06 Exercised (12,878) 1.37- 4.00 Terminated (55,626) 1.81- 12.00 --------- ------------- Options outstanding, December 31, 1997 1,046,945 $ .82- $13.13 Granted 320,725 1.44- 4.375 Exercised (43,513) .82- 4.00 Terminated (114,997) .82- 13.125 --------- ------------- Options outstanding, December 31, 1998 1,209,160 $1.37- $13.13 ========= ============= Options exercisable, December 31, 1998 606,221 $1.37- $13.13 ========= =============
OPTIONS OUTSTANDING OPTIONS EXERCISABLE ------------------------------------------------------ --------------------- WEIGHTED AVERAGE REMAINING WEIGHTED WEIGHTED CONTRACTUAL AVERAGE AVERAGE RANGE OF EXERCISE NUMBER LIFE (IN EXERCISE NUMBER EXERCISE PRICE OUTSTANDING YEARS) PRICE EXERCISABLE PRICE $1.37 - $ 3.38 473,779 7.62 $ 1.95 203,254 $ 1.93 3.62 - 7.87 623,781 7.89 6.86 292,167 6.84 8.06 - 13.13 111,600 7.89 10.63 110,800 10.82 -------------- ------------ --------- --------- ----------- ---------- Total 1,209,160 7.78 $ 5.31 606,221 $ 5.92
F-12 MATRITECH, INC. NOTES TO FINANCIAL STATEMENTS (Continued) The Company has reserved and may issue up to an aggregate of 225,000 shares of common stock under the Employee Stock Purchase Plan pursuant to which stock is sold at 85% of fair market value, as defined. At December 31, 1997 and 1998, the Company has accumulated payroll deductions of $26,996 and $3,975, respectively, for the issuance of 6,352 shares and 2,650 shares of common stock, respectively, which are issued in the following year to employees pursuant to the plan. At December 31, 1998, 189,925 shares are available for issuance under the plan. In October 1995, the Financial Accounting Standards Board ("FASB") issued SFAS No. 123, Accounting for Stock-Based Compensation. SFAS No. 123 requires the measurement of the fair value of stock options, including stock purchase plans, or warrants granted to employees to be included in the statement of operations or disclosed in the notes to financial statements. The Company has determined that it will continue to account for stock-based compensation for employees under Accounting Principles Board Opinion No. 25 and elect the disclosure-only alternative under SFAS No. 123. The Company has computed the pro forma disclosures required under SFAS No. 123 for options granted in 1996, 1997 and 1998 and stock issued pursuant to the stock purchase plan using the Black- Scholes option pricing model prescribed by SFAS No. 123. The weighted average assumptions used for 1996 1997 and 1998 are as follows: 1996 1997 1998 Risk-free interest rate 5.54%-6.83% 5.83%-6.86% 4.65%-5.56% Expected dividend yield - - - Expected life 7 years 7 years 7 years Expected volatility 80% 65% 65% The Black-Scholes option-pricing model was developed for use in estimating the fair value of traded options which have no vesting restrictions and are fully transferable. In addition, option-pricing models require the input of highly subjective assumptions including expected stock price volatility. Because the Company's employee stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management's opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options. The total fair value of the options granted during 1996, 1997 and 1998 was computed as approximately $4,065,000, $819,000 and $504,000, respectively. Of these amounts, approximately $196,000, $1,130,000 and $1,143,000 would be charged to operations for the years ended December 31, 1996, 1997 and 1998, respectively. The remaining amount, approximately $2,363,000, would be amortized over the remaining vesting period of the underlying options. The resulting pro forma compensation expense may not be representative of the amount to be expected in future years as pro forma compensation expense may vary based upon the number of options granted. F-13 MATRITECH, INC. NOTES TO FINANCIAL STATEMENTS (Continued) The pro forma net loss and pro forma net loss per common share presented below have been computed assuming no tax benefit. The effect of a tax benefit has not been considered since a substantial portion of the stock options granted are incentive stock options and the Company does not anticipate a future deduction associated with the exercise of these stock options. The pro forma effect of SFAS No. 123 for the years ended December 31, 1996, 1997 and 1998 is as follows:
1996 AS REPORTED PRO FORMA Net loss $(5,164,675) $(5,360,717) =========== =========== Basic and diluted net loss per share $ (.32) $ (.34) =========== =========== 1997 AS REPORTED PRO FORMA Net loss $(7,475,087) $(8,605,405) =========== =========== Basic and diluted net loss per share $ (.43) $ (.49) =========== =========== 1998 AS REPORTED PRO FORMA Net loss $(7,535,524) $(8,678,197) =========== =========== Basic and diluted net loss per share $ (.40) $ (.47) =========== ===========
(d) Reserved Shares As of December 31, 1998, the following shares of common stock were reserved and available for future issuance: 1988 and 1992 Stock Option Plans 1,369,621 1992 Employee Stock Purchase Plan 189,925 Exercise of warrants outstanding 440,231 1992 Director Stock Option Plan 215,000 --------- 2,214,777 ========= F-14 MATRITECH, INC. NOTES TO FINANCIAL STATEMENTS (Continued) (6) License Agreement (a) MIT License Agreement MIT has granted the Company a worldwide exclusive license to certain technology, which was extended when the Company obtained FDA approval of its first cancer diagnostic product in 1996, until the expiration of all patent rights in 2006. Pursuant to the license agreement, the Company pays royalties on the sales of products incorporating the licensed technology. The Company paid $25,984, $19,096 and $17,776 in royalties in the years ended December 31, 1996, 1997, and 1998. (b) Hybritech License Agreement In August 1994, the Company entered into a non-exclusive license agreement with Hybritech, Inc. for the manufacture and sale of certain patented technology for immunometric assays using monoclonal antibodies. The Company is required to pay a royalty equal to the greater of 8% of net sales of licensed products or $25,000 per year until the expiration of patent rights on a country-by-country basis beginning in 2000 through 2008. The Company paid $25,000, $53,863 and $25,000 in royalties during the years ending December 31, 1996, 1997 and 1998, respectively. The Company presently is evaluating this license to determine whether future royalties, if any, are due on the future sale of any Matritech product. (7) Collaboration Agreements (a) Joint Development and Distribution with Bayer In 1995, Matritech signed a joint development and distribution agreement with Bayer for the identification of cervical cancer-specific NMPs and the development of monoclonal antibodies which recognize malignant and pre- malignant or dysplastic cervical cancer cells. In the years ended December 31, 1996 and 1997, the Company recorded revenues of $120,000, $140,000, respectively. No revenues were recorded in the year ended December 31, 1998. In December 1997, Matritech submitted pre-clinical evaluation data to Bayer which had been providing funding for this project. After a period of discussion between the two companies Bayer elected not to proceed with the project. Bayer's option to develop and launch an automated cervical cancer instrument for use with NMP-179 has terminated and Bayer is no longer obligated to provide further funding towards the commercialization of the system. Matritech has regained all marketing and product rights which had been granted to Bayer Corporation in the cervical cancer development and supply agreement between the two companies. (b) Yamanouchi Pharmaceutical, Co., Ltd. On November 10, 1998 the Company amended its development and supply agreement with Yamanouchi Pharmaceutical, Co., Ltd. resulting in the termination of development, supply and marketing rights. In addition, Matritech reacquired all rights under the agreement in exchange for a two- percent royalty on future product sales covered by this agreement, sold in Japan, not to exceed $2,000,000. F-15 MATRITECH, INC. NOTES TO FINANCIAL STATEMENTS (Continued) (8) Accrued Expenses Accrued expenses consist of the following: DECEMBER 31, 1997 1998 Payroll and related costs $120,371 $245,777 Professional fees 52,027 222,107 Royalties - 55,598 Clinical trials costs 134,798 37,484 Other 4,108 12,456 Printing and design costs 43,600 - -------- -------- $354,904 $573,422 ======== ======== (9) Segment and Geographic Information The Company has adopted SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information in the fiscal year ended December 31, 1998. SFAS 131 establishes standards for reporting information regarding operating segments in annual financial statements and requires selected information for those segments to be presented in interim financial reports issued to stockholders. SFAS 131 also establishes standards for related disclosures about products and services and geographic areas. Operating segments are identified as components of an enterprise about which separate discrete financial information is available for evaluation by the chief operating decision maker or decision making group, in making decisions how to allocate resources and assess performance. The Company's chief decision maker, as defined under SFAS 131, is a combination of the Chief Executive Officer, President and the Chief Financial Officer. To date, the Company has viewed its operations and manages its business as principally one segment, the sale of cancer diagnostic products. Associated services are not significant. As a result, the financial information disclosed herein, represents all of the material financial information related to the principal operating segment. Geographic information product sales by destination as a percentage of total product sales are as follows: YEARS ENDED DECEMBER 31, 1996 1997 1998 United States 24.0% 41.9% 52.1% Europe 41.5 37.0 36.0 Japan 31.5 1.4 6.2 All other 3.0 19.7 5.7 ---- ---- ---- 100% 100% 100% Product sales were $1,678,000, $602,000 and $895,000 in the years ended December 31, 1996, 1997, and 1998, respectively. All of the Company's products were shipped from its facilities located in the United States. F-16 MATRITECH, INC. NOTES TO FINANCIAL STATEMENTS (Continued) (10) Subsequent event In March 1999, certain private investors agreed to invest approximately $4.0 million in the Company through a private placement of 3,094,811 shares of its Common Stock. The financing is expected to close in early April 1999, subject to customary closing conditions. Matritech expects to receive net proceeds of approximately $3,940,000 after deducting the estimated expenses of the transaction. Matritech agreed to file a registration statement with the Securities and Exchange Commission covering the resale of the shares issued in connection with this private placement. The purpose of this transaction is to provide working capital, when combined with the reserves in Matritech's treasury at the beginning of the year, to adequately support the Company into the year 2000. F-17 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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, in the City of Newton, Commonwealth of Massachusetts, on the 30th day of March, 1999. MATRITECH, INC. By: /s/ Stephen D. Chubb ----------------------------- Stephen D. Chubb Director, Chairman and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature Title Date /s/ Stephen D. Chubb Director, Chairman, Chief Executive March 30, 1999 - ----------------------------------------- Officer and Treasurer (Principal Stephen D. Chubb Executive Officer) /s/ David L. Corbet Director, President and Chief Operating March 30, 1999 - ----------------------------------------- Officer David L. Corbet /s/ Robert W. Morgan Vice President and Chief Financial March 30, 1999 - ----------------------------------------- Officer (Principal Accounting and Robert W. Morgan Financial Officer) /s/ J. Robert Buchanan Director March 30, 1999 - ----------------------------------------- J. Robert Buchanan /s/ Thomas R. Morse Director March 30, 1999 - ----------------------------------------- Thomas R. Morse /s/ David Rubinfien Director March 30, 1999 - ----------------------------------------- David Rubinfien /s/ T. Stephen Thompson Director March 30, 1999 - ----------------------------------------- T. Stephen Thompson /s/ C. William Zadel Director March 30, 1999 - ----------------------------------------- C. William Zadel
EXHIBIT INDEX ------------- Exhibit Number Description of Exhibit -------------- ---------------------- 3.1 Amended and Restated Certificate of Incorporation of the Registrant (filed as Exhibits 3, 4.1 to the Company's Registration Statement No. 33-46158 on Form S-1 and incorporated herein by reference). 3.2 Amended and Restated By-Laws of the Registrant (filed as Exhibits 3.2, 4.1 to the Company's Registration Statement No. 33-46158 on Form S-1 and incorporated herein by reference). 3.3 Certificate of Amendment dated June 16, 1994, of Amended and Restated Certificate of Incorporation of the Registrant (filed as Exhibit 3.2 of the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 1995 and incorporated herein by reference). 3.4 Certificate of Amendment dated June 5, 1995, of Amended and Restated Certificate of Incorporation of the Registrant (filed as Exhibit 3.3 of the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 1995 and incorporated herein by reference). 4.1 Description of Capital Stock contained in the Registrant's Amended and Restated Certificate of Incorporation, filed as Exhibits 3.1, 3.3 and 3.4. 10.1* License Agreement between Matritech and the Massachusetts Institute of Technology dated December 14, 1987, as amended March 15, 1988, December 20, 1989 and March 4, 1992 (filed as Exhibit 10.1 to the Company's Registration Statement No. 33-46158 on Form S-1 and incorporated herein by reference). 10.2+ 1988 Stock Plan (filed as Exhibit 10.8 to the Company's Registration Statement No. 33-46158 on Form S-1 and incorporated herein by reference). 10.3+ 1992 Stock Plan as amended as of June 13, 1997 (filed as Exhibit 10.4 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1997 and incorporated herein by reference). 10.4+ Amended and Restated 1992 Non-Employee Director Stock Plan as amended as of June 7, 1996 (filed as Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 1996 and incorporated herein by reference). 10.5+ 1992 Employee Stock Purchase Plan (filed as Exhibit 10.11 to the Company's Registration Statement No. 33- 46158 on Form S-1 and incorporated herein by reference). 10.6 Second Amended and Restated Registration Rights Agreement dated May 4, 1990, as amended February 26, 1992 (filed as Exhibit 10.13 to the Company's Registration Statement No. 33-46158 on Form S-1 and incorporated herein by reference). 10.7 Form of Indemnity Agreement with directors (filed as Exhibit 10.14 to the Company's Registration Statement No. 33-46158 on Form S-1 and incorporated herein by reference). 10.8 Fourth Amendment dated March 18, 1993 to License Agreement between the Company and the Massachusetts Institute of Technology dated December 14, 1987, as amended (filed as Exhibit 10.9 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1997 and incorporated herein by reference). 10.9* License Agreement between the Company and The Johns Hopkins University dated as of August 4, 1993 (filed as Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1993 and on paper as File No. 1-12128 and incorporated herein by reference). 10.10 Fifth Amendment dated April 14, 1994 to License Agreement between the Company and the Massachusetts Institute of Technology dated December 14, 1987 (filed as Exhibit 10.1 to the Company's Form 10-Q for the quarter ended March 31, 1994 and incorporated herein by reference). 10.11* Exclusive Distribution Agreement between the Company and Konica Corporation dated as of November 9, 1994. (Filed as Exhibit 10.26 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1994 and incorporated herein by reference). 10.12* License Agreement between the Company and Yale University dated as of March 21, 1995 (filed as Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1995 and incorporated herein by reference). 10.13 Lease Agreement between the Company and One Nevada Realty Trust dated October 6, 1995 (filed as Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 1995 and incorporated herein by reference). 10.14 Sixth Amendment dated March 1, 1996 to License Agreement between Matritech and the Massachusetts Institute of Technology dated December 31, 1987, as amended (filed as Exhibit 10.26 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1995 and incorporated herein by reference). 10.15 Senior Loan and Security Agreement No. 0096 between the Company and Phoenix Leasing, Incorporated dated August 29, 1997 including form of Senior Secured Promissory Note between the Company and Phoenix Leasing, Incorporated (filed as Exhibit 10.20 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1997 and incorporated herein by reference). 10.16* Distributorship Agreement by and between the Company and Curtin Matheson Scientific, a division of Fisher Scientific Company, L.L.C. dated as of March 19, 1998 (filed as Exhibit 10.21 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1997 and incorporated herein by reference). 10.17** Form of Subscription Agreement dated March 10, 1999 by and between the Company and certain investors. 23** Consent of Arthur Andersen LLP. 27** Financial Data Schedule. ___________________ * Confidential Treatment Granted for portions thereof ** Filed herewith + Indicates management contract or compensatory plan or arrangement required to be filed as an exhibit to this Form 10-K pursuant to Item 14(c) of this report. EX-10.17 2 FORM OF SUBSCRIPTION AGREEMENT DATED 3/10/99 Exhibit 10.17 SUBSCRIPTION AGREEMENT THIS AGREEMENT is by and between MATRITECH, INC. (the "Company"), a Delaware corporation with offices at 330 Nevada Street, Newton, Massachusetts 02460 U.S.A., and the purchaser whose name and address is set forth on the signature page hereto (the "Purchaser"). IN CONSIDERATION of the mutual covenants contained in this Agreement and good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties agree as follows: SECTION 1. Authorization of Shares. The Company has authorized the sale of ----------------------- up to a maximum of 3,500,000 shares (the "Shares") of the Company's Common Stock, $.01 par value (the "Common Stock"). SECTION 2. Agreement to Sell and Purchase the Shares. At the Closing (as ----------------------------------------- defined in Section 4), the Company will sell to the Purchaser, and the Purchaser will buy from the Company, upon the terms and conditions hereinafter set forth, the number of Shares set forth on the signature page hereof at a purchase price per Share equal to $_____ (the "Purchase Price"). The Company represents and warrants that, at the Closing or subsequent closings, the Company may enter into substantially this same form of purchase agreement with certain other investors (the "Other Purchasers"). The Purchaser and the Other Purchasers are hereinafter sometimes collectively referred to as the "Purchasers," and this Agreement and the agreements executed by the Other Purchasers are hereinafter sometimes collectively referred to as the "Agreements." SECTION 3. Payment of Purchase Price. On or prior to the Closing Date, as ------------------------- defined below, the Purchaser will deliver to the Company the full amount of the aggregate Purchase Price for the Shares purchased hereunder by check or wire transfer of funds. SECTION 4. The Closing. The consummation of the transactions contemplated ----------- by this Agreement (the "Closing") shall occur on a date (the "Closing Date") not more than sixty (60) days from the date hereof and at such place and time as shall be mutually agreed by the Company and the Purchasers. At the Closing, the Company shall deliver to the Purchaser one or more common stock certificates registered in the name of the Purchaser, or, if so indicated on the signature page hereof, in the name of a nominee designated by the Purchaser, representing the number of Shares to be purchased by it. SECTION 5. Representations, Warranties and Covenants of the Company. The -------------------------------------------------------- Company hereby represents and warrants to, and covenants with, the Purchaser that, except as disclosed in the Company's Confidential Private Placement Memorandum dated March 1999, including the exhibits thereto and as supplemented from time to time prior to the Closing (the "Memorandum"), distributed in connection with the offer and sale of the Shares, the following statements are true correct: -2- SECTION 5.1. Organization. The Company is duly organized and validly ------------ existing in good standing under the laws of the State of Delaware. The Company has full power and authority to own, operate and occupy its properties and to conduct its business as presently conducted and is registered or qualified to do business and in good standing in each jurisdiction in which it owns or leases property or transacts business and where the failure to be so qualified would have a material adverse effect upon the business, financial condition, properties or operations of the Company. SECTION 5.2. Due Authorization. The Company has all requisite power and ----------------- authority to execute, deliver and perform its obligations under this Agreement, and this Agreement has been duly authorized and validly executed and delivered by the Company and constitutes legal, valid and binding agreements of the Company enforceable against the Company in accordance with their respective terms, except as rights to indemnity and contribution may be limited by state or federal securities laws or the public policy underlying such laws, except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting creditors' and contracting parties' rights generally and except as enforceability may be subject to general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law). SECTION 5.3. Non-Contravention. The execution and delivery of this ----------------- Agreement, the issuance and sale of the Shares to be sold by the Company hereunder, and the consummation of the transactions contemplated hereby will not conflict with or constitute a violation of, or default (with the passage of time or otherwise) under, any material agreement or instrument to which the Company is a party or by which it is bound or the Amended and Restated Certificate of Incorporation, as amended (the "Charter") or the Amended and Restated By-Laws, as amended, of the Company nor result in the creation or imposition of any lien, encumbrance, claim, security interest or restriction upon any of the material properties or assets of the Company or an acceleration of indebtedness pursuant to any obligation, agreement or condition contained in any material bond, debenture, note or any other evidence of indebtedness or any material indenture, mortgage, deed of trust or any other agreement or instrument to which the Company is a party or by which the Company is bound or to which any of the property or assets of the Company is subject, nor conflict with, or result in a violation of, any law, administrative regulation, ordinance or order of any court or governmental agency, arbitration panel or authority applicable to the Company. No consent, approval, authorization or other order of, or registration, qualification or filing with, any regulatory body, administrative agency, or other governmental body in the United States, other than with respect to "blue sky" laws, is required for the valid issuance and sale of the Shares to be sold pursuant to this Agreement (other than such as have been made or obtained). SECTION 5.4. Capitalization. The capitalization of the Company is as set -------------- forth in the Memorandum as of the date indicated therein. The Company has not issued any capital stock since that date other than shares of Common Stock issued upon exercise of outstanding options or warrants. The Shares have been duly authorized, and when issued and paid for in accordance with the terms of this Agreement, will be validly issued, fully paid and nonassessable. -3- SECTION 5.5. Legal Proceedings. There is no material legal or governmental ----------------- proceeding pending or, to the knowledge of the Company, threatened or contemplated to which the Company is or may be a party or of which the business or property of the Company is or may be subject. SECTION 5.6. No Violations. The Company is not in violation of its Charter ------------- or By-Laws, in violation of any law, administrative regulation, ordinance or order of any court or governmental agency, arbitration panel or authority applicable to the Company, which violation, individually or in the aggregate, would have a material adverse effect on the business or financial condition of the Company, or is in default in any material respect in the performance of any obligation, agreement or condition contained in any bond, debenture, note or any other evidence of indebtedness in any indenture, mortgage, deed of trust or any other agreement or instrument to which the Company is a party or by which the Company is bound or by which the properties of the Company are bound or affected, and there exists no condition which, with the passage of time or otherwise, would constitute a material default under any such document or instrument or result in the imposition of any material penalty or the acceleration of any indebtedness. SECTION 5.7. Governmental Permits, Etc. The Company has all necessary ------------------------- franchises, licenses, certificates and other authorizations from any foreign, federal, state or local government or governmental agency, department, or body that are currently necessary for the operation of the business of the Company as currently conducted and as described in the Memorandum, the absence of which would have a material adverse effect on the business or operations of the Company. SECTION 5.8. Financial Statements. The financial statements of the Company -------------------- and the related notes contained in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1997 and its Quarterly Reports on Form 10-Q for the three-month periods ended March 31, 1998, June 30, 1998 and September 30, 1998 attached as an exhibit to the Memorandum (collectively, the "SEC Filings"), present fairly the financial position of the Company, as of the dates indicated therein, and the results of its operations and cash flows for the periods therein specified. Such financial statements (including the related notes) have been prepared in accordance with generally accepted accounting principles applied on a consistent basis throughout the periods therein specified and are true, correct and complete in all respects. SECTION 5.9. Placement Memorandum. The information contained in the -------------------- Memorandum (including the SEC Filings incorporated therein) is true and correct in all material respects; and the Memorandum does not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. SECTION 5.10. Additional Information. The Company has filed in a timely ---------------------- manner all documents that the Company was required to file under the Securities Exchange Act of 1934, as amended (the "Exchange Act") during the 12 months preceding the date of this Agreement. The following documents complied in all material respects with the requirements of the Exchange Act as of their respective filing dates, and the information contained therein was true and correct -4- in all material respects as of the date of such documents, and each of the following documents as of the date thereof did not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading: (a) The Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1997, its Quarterly Reports on Form 10-Q for the three- month periods ended March 31, 1998, June 30, 1998 and September 30, 1998, its Current Report on Form 8-K dated May 14, 1998 and its Proxy Statement for the Annual Meeting of Stockholders held on June 19, 1998; and (b) all other documents, if any, filed by the Company with the Securities and Exchange Commission (the "SEC") since the filing of the Quarterly Report on Form 10-Q for the three-month period ended September 30, 1998 pursuant to the reporting requirements of the Exchange Act. SECTION 5.11. Intellectual Property. The Company owns all right, title and --------------------- interest in and to, all of the intellectual property owned and used by it (the "Intellectual Property") free and clear of any liens or encumbrances; in any case in which the Company does not own such Intellectual Property, it has good and valid licenses for the same which are in full force and effect; in either case, the Company has the right to use all Intellectual Property as now used in its business. No claims have been asserted with respect to the use of any such Intellectual Property or challenging or questioning the validity or effectiveness of any such license or agreement. SECTION 5.12. Default on Contracts. (a) The Company is not in violation of, -------------------- or (with or without notice or the passage of time or both) in default under, any term or provision of any contract, mortgage, deed of trust, bond, indenture, lease, license, note, franchise certificate, option, warrant, right or other instrument, undertaking, document or written agreement and any oral obligation, right or agreement of any kind and nature whatsoever (hereinafter collectively referred to as "Contracts" to which the Company is a party or by or to which the Company or its assets or properties may be bound or affected or subject, which violation or default might reasonably be expected to have a material adverse effect on the Company or its business, condition (financial or otherwise), operations, assets, properties or prospects of any of them. The Company is not aware of any fact, circumstance or event which reasonably can be expected in the future to cause a violation or default as described in the preceding sentence. (b) To the best knowledge of the Company, no party to any Contract material to the business, condition (financial or otherwise), operations, assets, properties or prospects of the Company is in violation or default thereunder, which violation or default might reasonably be expected to have a material adverse effect on the business, condition (financial or otherwise), operations, assets, properties or prospects of the Company, and there exists no fact, circumstance or event, including the transactions contemplated by this Agreement, which reasonably can be expected in the future to cause any such party to be in any such violation or default, or which reasonably can be expected in the future to permit any such party to terminate any such Contract, which termination might reasonably be expected to have a material adverse effect on the business, condition (financial or otherwise), operations, assets, properties or prospects of the Company. -5- SECTION 5.13. Listing. The Company shall use its best efforts to comply ------- with all requirements of the National Association of Securities Dealers, Inc. (the "NASD") and The Nasdaq Stock Market, Inc. with respect to the issuance of the Shares and the listing of the Shares on the Nasdaq National Market. SECTION 6. Representations, Warranties and Covenants of the Purchaser. ---------------------------------------------------------- (a) The Purchaser represents and warrants to, and covenants with, the Company, as of the date hereof and as of the Closing Date, that: (i) the Purchaser is an "accredited investor" as defined in the Memorandum; (ii) the Purchaser is acquiring the number of Shares set forth below for its own account for investment and with no present intention of distributing any of such Shares (this representation and warranty not limiting the Purchaser's right to sell pursuant to an effective registration statement registering the Shares for resale or to be indemnified pursuant to the provisions hereof); (iii) the Purchaser will not, directly or indirectly, voluntarily offer, sell, pledge, transfer or otherwise dispose of (or solicit any offers to buy, purchase or otherwise acquire or take a pledge of) any of the Shares, except in compliance with the Securities Act of 1933, as amended (the "Securities Act") and the rules and regulations promulgated thereunder; (iv) the Purchaser has had an opportunity to ask questions and receive answers from the management of the Company regarding the Company, its business and the offering of the Shares; (v) the Purchaser has completed or caused to be completed the Questionnaire which is a part hereof and the answers thereto are true and correct to the best knowledge of the Purchaser as of the date hereof and will be true and correct as of the effective date of the registration statement referred to in Section 9.1; (vi) the Purchaser will notify the Company immediately of any change in any of such information until such time as the Purchaser has sold all of its Shares or until the Company is no longer required to keep such registration statements effective pursuant to Sections 9.1(c); and (vii) the Purchaser has, in connection with its decision to purchase Shares, relied solely upon the documents described in Section 5.10 and Section 5.11 and the representations and warranties of the Company contained herein. (b) The Purchaser acknowledges, represents and agrees that no action has been or will be taken in any jurisdiction outside the United States by the Company that would permit an offering of the Shares, or possession or distribution of offering material in connection with the issue of the Shares, in any country or jurisdiction outside the United States where action for that purpose is required. Each Purchaser outside the United States agrees to comply with all applicable laws and regulations in each foreign jurisdiction in which it purchases, offers, sells or delivers Shares or has in its possession or distributes any offering material, in all cases at its own expense. (c) The Purchaser agrees not to make any sale of the Shares, pursuant to the registration statement referred to in Section 9.1 without effectively causing the prospectus delivery requirements under the Securities Act to be satisfied. The Purchaser acknowledges that there may occasionally be times when the Company must suspend the use of the prospectus -6- forming a part of the Registration Statement until such time as an amendment to such registration statement has been filed by the Company and declared effective by the SEC or until the Company has amended or supplemented such prospectus. The Company agrees to use its best efforts to cause such amended registration statement to be declared effective and/or to deliver such amended or supplemented prospectus as soon as possible. The Purchaser hereby covenants that it will not sell any Shares pursuant to said prospectus during the period commencing at the time at which the Company gives the Purchaser notice of the suspension of the use of said prospectus and ending at the time the Company gives the Purchaser notice that the Purchaser may thereafter effect sales pursuant to said prospectus. (d) The Purchaser further represents and warrants to, and covenants with, the Company that (i) the Purchaser has full right, power, authority and capacity to enter into this Agreement and to consummate the transactions contemplated hereby and has taken all necessary action to authorize the execution, delivery and performance of this Agreement, and (ii) upon the execution and delivery of this Agreement, this Agreement shall constitute a valid and binding obligation of the Purchaser enforceable in accordance with its terms, except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting creditors' and contracting parties' rights generally and except as enforceability may be subject to general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law) and except as the indemnification agreements of the Purchaser herein may be legally unenforceable. SECTION 7. Survival of Representations, Warranties and Agreements. ------------------------------------------------------ Notwithstanding any investigation made by any party to this Agreement, all covenants, agreements, representations and warranties made by the Company and the Purchaser herein shall survive the execution of this Agreement, the delivery to the Purchaser of the Shares being purchased and the payment therefor. SECTION 8. Conditions to Closing. --------------------- (a) The obligations of the Purchaser to consummate the transactions contemplated hereby shall be subject to the satisfaction by the Company of each of the following conditions on or before the Closing Date, any one or more of which may be waived by the Purchaser: (i) The representations and warranties of the Company set forth in this Agreement delivered to the Purchaser by or on behalf of the Company shall be true and correct as if made on the Closing Date. (ii) Each of the covenants, agreements and conditions to be performed and satisfied by the Company pursuant to this Agreement at or prior to Closing shall have been duly performed and satisfied. (b) The obligations of the Company to consummate the transactions contemplated hereby shall be subject to the satisfaction by the Purchaser of each of the following conditions on or before the Closing Date, any one or more of which may be waived by the Company: -7- (i) The representations and warranties of the Purchaser set forth in this Agreement shall be true and correct as if made on the Closing Date. (ii) Each of the covenants, agreements and conditions to be performed and satisfied by the Purchaser pursuant to this Agreement at or prior to Closing shall have been duly performed and satisfied. (iii) The Purchaser shall have paid the Purchase Price in accordance with Section 3. SECTION 9. Registration of the Shares; Compliance with the Securities Act. -------------------------------------------------------------- 9.1. Registration Procedures and Expenses. The Company shall: ------------------------------------ (a) prepare and file with the SEC a registration statement (the "Registration Statement") covering the resale of the Shares by the Purchasers from time to time on the Nasdaq National Market or on such securities market or system on which the Company's Common Stock shall then be publicly traded, or in privately negotiated transactions, no later than 30 days following the Closing Date; (b) use its best efforts, subject to receipt of necessary information from the Purchasers, to cause the Registration Statement to become effective as soon as possible thereafter; (c) prepare and file with the SEC such amendments and supplements to the Registration Statement and the prospectus used in connection therewith as may be necessary to comply with the provisions of the Securities Act until the later of such time as all of the Shares have been sold pursuant thereto or, by reason of Rule 144(k) under the Securities Act or any other rule of similar effect, such shares are no longer required to be registered for the unrestricted sale thereof by the Purchasers; (d) furnish to the Purchaser such number of copies of prospectuses and preliminary prospectuses in conformity with the requirements of the Securities Act and such other documents as the Purchaser may reasonably request, in order to facilitate the public sale or other disposition of all or any of the Shares held by the Purchaser, provided, however, that the obligation of the Company to deliver copies of prospectuses or preliminary prospectuses to the Purchaser shall be subject to the receipt by the Company of reasonable assurances from the Purchaser that the Purchaser will comply with the applicable provisions of the Securities Act and of such other securities or blue sky laws as may be applicable in connection with any use of such prospectuses or preliminary prospectuses; -8- (e) file documents required of the Company for normal blue sky clearance in all states, provided, however, that the Company shall not be required to qualify to do business or consent to service of process in any jurisdiction in which it is not now so qualified or has not so consented; (f) bear all expenses in connection with the procedures in paragraphs (a) through (c) of this Section 9.1, other than brokerage commissions or placement agent fees and fees and expenses, if any, of counsel or other advisers to the Purchaser or the Other Purchasers with respect to the registration and resale of the Shares; and (g) prepare and file additional listing applications for the Shares on the Nasdaq National Market. The Company understands that the Purchaser disclaims being an underwriter, but the Purchaser being deemed an underwriter shall not relieve the Company of any obligations it has hereunder. SECTION 9.2. Transfer of Shares After Registration. The Purchaser agrees ------------------------------------- that it will not effect any disposition of the Shares, that would constitute a sale within the meaning of the Securities Act except as contemplated in the Registration Statements referred to in Section 9.1 or pursuant to an available exemption from registration under the Securities Act and applicable state securities laws. SECTION 9.3. Indemnification. --------------- (a) For the purpose of this Section 9.3: (i) the term "Selling Shareholder" shall mean any person or entity selling Shares pursuant to the Registration Statement, and any affiliate thereof; (ii) the term "Registration Statement" shall include any preliminary prospectus, final prospectus, exhibit, supplement or amendment included in or relating to the Registration Statement; and (iii) the term "untrue statement" shall mean any untrue statement or alleged untrue statement of a material fact in the Registration Statement, or any omission or alleged omission to state in the Registration Statement a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading. (b) The Company agrees to indemnify and hold harmless each Selling Shareholder from and against any losses, claims, damages or liabilities to which such Selling Shareholder -9- may become subject (under the Securities Act or otherwise) insofar as such losses, claims, damages or liabilities (or actions or proceedings in respect thereof) arise out of, or are based upon, any untrue statement, or arise out of any failure by the Company to fulfill any undertaking included herein or in the Registration Statement, and the Company promptly will reimburse such Selling Shareholder for any legal or other expenses reasonably incurred in investigating, defending or preparing to defend any such action, proceeding or claim; provided, however, that the Company shall not be liable in any such case to the extent that such loss, claim, damage or liability arises out of, or is based upon, an untrue statement made in reliance upon and in conformity with written information furnished to the Company by or on behalf of such Selling Shareholder specifically for use in preparation of the Registration Statement, or the failure of such Selling Shareholder to comply with the covenants and agreements contained herein; provided further, that the indemnification contained in this Section 9.3 with respect to any prospectus after it has been amended or supplemented, shall not inure to the benefit of any Selling Shareholder (or any person controlling such Selling Shareholder) from whom the person asserting such loss, claim, damage, or liability shall have purchased Shares, that are the subject thereof if, after copies thereof have been delivered by the Company to such Selling Shareholder, such Selling Shareholder shall have failed to send or give a copy of the prospectus as then amended or supplemented, as the case may be, to such person at or prior to the confirmation of such sale of such Shares, to such person, and, if such loss, claim, damage or liability would not have arisen but for the failure of such Selling Shareholder to deliver the same. (c) The Purchaser agrees to indemnify and hold harmless the Company (and each other person, if any, who controls the Company within the meaning of Section 15 of the Securities Act, each officer of the Company who signs the Registration Statement and each director of the Company) from and against any losses, claims, damages or liabilities to which the Company (or any such officer, director or controlling person) may become subject (under the Securities Act or otherwise), insofar as such losses, claims, damages or liabilities (or actions or proceedings in respect thereof) arise out of, or are based upon, any failure of the Purchaser to comply with its covenants and agreements contained herein, or any untrue statement if such untrue statement was made in reliance upon and in conformity with written information furnished by or on behalf of the Purchaser specifically for use in preparation of the Registration Statement, and the Purchaser promptly will reimburse the Company (or such officer, director or controlling person), as the case may be, for any legal or other expenses reasonably incurred in investigating, defending or preparing to defend any such action, proceeding or claim. (d) Promptly after receipt by any indemnified person of a notice of a claim or the beginning of any action in respect of which indemnity is to be sought against an indemnifying person pursuant to this Section 9.3, such indemnified person shall notify the indemnifying person in writing of such claim or of the commencement of such action, and, subject to the provisions hereinafter stated, in case any such action shall be brought against an indemnified person and such indemnifying person shall have been notified thereof, such indemnifying person shall be entitled to participate therein, and, to the extent it shall wish, to assume the defense thereof, with counsel reasonably satisfactory to such indemnified person. After notice from the indemnifying person to such indemnified person of its election to assume the defense thereof, such indemnifying person shall not be liable to such indemnified person for any legal expenses -10- subsequently incurred by such indemnified person in connection with the defense thereof. In the event that the indemnifying party shall have assumed the defense of such action, such indemnifying party shall not enter into any compromise or settlement without the indemnified party's prior written consent, which consent shall not be unreasonably withheld, delayed or denied. SECTION 9.4. Termination of Conditions and Obligations. The restrictions ----------------------------------------- imposed by Section 6 or Section 9.2 upon the transferability of the Shares shall cease and terminate as to any particular Shares when such Shares shall have been effectively registered under the Securities Act and sold or otherwise disposed of in accordance with the intended method of disposition set forth in the Registration Statement or at such time as an opinion of counsel satisfactory to the Company shall have been rendered to the effect that such restrictions are not necessary in order to comply with the Securities Act. The Company will use its best efforts to maintain the effectiveness of the Registration Statement until all of the Purchasers have disposed of all of their Shares, or the Shares have become freely tradable without restriction under Rule 144(k). SECTION 9.5. Information Available. So long as the Registration Statement is --------------------- effective covering the resale of Shares owned by the Purchaser, the Company will furnish to the Purchaser upon request: (a) any document filed by the Company with the SEC; (b) upon the reasonable request of the Purchaser, any other information concerning the Company that is generally available to the public; and (c) an adequate number of copies of the prospectuses relating to the resale of the Shares to supply to any party requiring such prospectuses. SECTION 10. Notices. All notices, requests, consents and other ------- communications hereunder shall be in writing, shall be mailed by first-class registered or certified mail, postage prepaid, and shall be deemed given when so mailed: (a) if to the Company to: Matritech, Inc. 330 Nevada Street Newton, MA 02460 Attention: Chief Executive Officer (b) if to the Purchaser, at its address as set forth at the end of this Agreement, or at such other address or addresses as may have been furnished to the Company in writing. -11- SECTION 11. Termination. ----------- (a) By the Purchaser. The Purchaser may terminate this Agreement ---------------- immediately, if at any time prior to the Closing, the Company shall cease conducting business in the normal course; become insolvent or become unable to meet its obligations as they become due; make a general assignment for the benefit of creditors; petition, apply for, suffer or permit with or without its consent the appointment of custodian, receiver, trustee in bankruptcy or similar officer for all or any substantial part of its business or assets; avail itself or become subject to any proceeding under the Federal Bankruptcy Code or any similar state, federal or foreign statute relating to bankruptcy, insolvency, reorganization, receivership, arrangement, adjustment of debts, dissolutions or liquidation. (b) By the Company. The Company may terminate this Agreement at any -------------- time prior to the Closing. SECTION 12. Changes. Any term of the Agreements may be amended or ------- compliance therewith waived with the written consent of the Company and the holders of a majority of the Shares purchased pursuant to the Agreements. SECTION 13. Headings. The headings of the various sections of this -------- Agreement have been inserted for convenience of reference only and shall not be deemed to be part of this Agreement. SECTION 14. Severability. In case any provision contained in this Agreement ------------ should be invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein shall not in any way be affected or impaired thereby. SECTION 15. Governing Law. This Agreement shall be governed by and ------------- construed in accordance with the internal laws of the Commonwealth of Massachusetts and United States federal law. SECTION 16. Counterparts. This Agreement may be executed in two or more ------------ counterparts, each of which shall constitute an original, but all of which, when taken together, shall constitute but one instrument, and shall become effective when one or more counterparts have been signed by each party hereto and delivered to the other parties. IN WITNESS WHEREOF, the parties hereto have caused this Stock Purchase Agreement to be executed by their duly authorized representatives as of the following date. Dated: March ___, 1999 MATRITECH, INC. By: ------------------------- Title: ----------------------- [Purchaser Signature Page Continues on the Following Page] -12- PURCHASER SIGNATURE PAGE AND QUESTIONNAIRE ------------------------------------------ The undersigned Purchaser hereby executes the Securities Purchase Agreement with Matritech, Inc. (the "Company") and hereby authorizes this signature page to be attached to a counterpart of such document executed by a duly authorized officer of the Company. No. of Shares to be ______________________________ Purchased:_______________ Name of Purchaser [PLEASE PRINT OR TYPE] Aggregate Purchase By:___________________________ Price__________________$ [SIGN HERE] Title:__________________________ Purchaser is an "accredited investor" as defined in Regulation D under the Securities Act of 1933. Name in which Shares are to be registered: ______________________________ Address of registered holder: ______________________________ ______________________________ Social Security or Tax ID Number: ______________________________ Contact name and telephone number regarding settlement and ______________________________ registration: Name ______________________________ Telephone Number Number of shares of common stock of the Company beneficially owned (meaning shares owned or controlled or which the Purchaser has the right to acquire or vote) by the Purchaser, other than the Shares being purchased pursuant hereto:____________________ Have you or your organization had any position, office or other material relationship with the Company within the past three years? _____ Yes _____ No Do you or your organization have any direct or indirect affiliation or association with any NASD member? _____ Yes _____ No If "Yes" to either of the last two questions, please indicate the nature of any such relationships below: EX-23 3 CONSENT OF ARTHUR ANDERSEN LLP EXHIBIT 23 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our report included in this Form 10-K, into the Company's previously filed Registration Statement File Nos. 33-99724, 33-87432, 33-50244, 33-93198, 333-11913, 333-30179 and 333-57319. /s/ Arthur Andersen LLP ----------------------- ARTHUR ANDERSEN LLP Boston, Massachusetts March 31, 1999 EX-27 4 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 12-MOS DEC-31-1998 JAN-01-1998 DEC-31-1998 4,146,821 0 162,261 0 336,398 4,759,062 1,750,460 1,065,060 5,511,825 971,353 0 0 0 186,266 45,364,731 5,511,825 895,000 1,425,437 0 8,960,961 0 0 0 (7,535,524) 0 (7,535,524) 0 0 0 (7,535,524) (.40) (.40)
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