-----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, MUTTs+mBrYpTILcCRbn10enbg8GOmn96qdMPj8MEUovgd142d9aEReE6J7UhuASn C8Peb2xwVH6ODLp05k/S0A== 0000929638-01-500172.txt : 20010815 0000929638-01-500172.hdr.sgml : 20010815 ACCESSION NUMBER: 0000929638-01-500172 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20010630 FILED AS OF DATE: 20010814 FILER: COMPANY DATA: COMPANY CONFORMED NAME: UROMED CORP CENTRAL INDEX KEY: 0000917821 STANDARD INDUSTRIAL CLASSIFICATION: SURGICAL & MEDICAL INSTRUMENTS & APPARATUS [3841] IRS NUMBER: 043104185 STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-23266 FILM NUMBER: 1710618 BUSINESS ADDRESS: STREET 1: 1400 PROVIDENCE HIGHWAY CITY: NORWOOD STATE: MA ZIP: 02062 BUSINESS PHONE: 7817622080X247 MAIL ADDRESS: STREET 1: 1400 PROVIDENCE HIGHWAY STREET 2: BLDG 2 CITY: NORWOOD STATE: MA ZIP: 02062 10-Q 1 uro10q63001.txt 10Q FOR JUNE 30, 2001 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q X Quarterly report pursuant to Section 13 or 15(d) of the - Securities Exchange Act of 1934. For the quarterly period ended June 30, 2001 or Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. For the transition period to Commission file number 000-23266 UroMed Corporation (Exact name of registrant as specified in its charter) Massachusetts 04 - 3104185 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 1400 Providence Highway Norwood, MA 02062 (Address of principal executive offices) (781) 762-2080 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- - -- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: 7,322,384 shares of Common stock, no par value, outstanding at July 31, 2001. UROMED CORPORATION FORM 10-Q For the quarterly period ended June 30, 2001 Table of contents Page No. Part I - FINANCIAL INFORMATION Item 1. Financial Statements Condensed Balance Sheet at June 30, 2001 and December 31, 2000 3 (unaudited) Condensed Statement of Operations for the three and six months ended June 30, 2001 and 2000 (unaudited) 4 Condensed Statement of Cash Flows for the six months ended June 30, 2001 and 2000 (unaudited) 5 Notes to Condensed Financial Statements 6 - 10 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 11 -15 Item 3. Quantitative and Qualitative Disclosures About Market Risk 16 Part II - OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders 16 Item 6. Exhibits and Reports on Form 8-K 16 Signatures 17 2 Part I. FINANCIAL INFORMATION Item 1. Financial Statements UROMED CORPORATION CONDENSED BALANCE SHEET (In thousands) (unaudited)
June 30, December 31, 2001 2000 ---------- ----------- Assets Current assets: Cash and cash equivalents $ 2,754 $ 5,974 Short-term investments 3,021 4,259 Accounts receivable, net 1,174 654 Inventories 749 684 Prepaid expenses and other assets 707 491 ---------- ---------- Total current assets 8,405 12,062 Fixed assets, net 270 54 Goodwill and other intangible assets, net 7,253 - Other assets 1,438 1,552 ---------- ---------- Total Assets $ 17,366 $ 13,668 ========== ========== Liabilities and Stockholders' Deficit Current liabilities: Capital leases $ 32 $ - Notes payable to stockholder - current portion 250 - Accounts payable 798 267 Accrued expenses 1,450 989 Deferred revenue 1,160 - ---------- ---------- Total current liabilities 3,690 1,256 Convertible subordinated notes 14,393 14,393 Notes payable to stockholder - long-term portion 210 - ---------- ---------- Total liabilities 18,293 15,649 ---------- ---------- Stockholders' (deficit): Common stock, no par value; 10,000 shares 112,823 107,565 authorized; 7,560 and 5,440 shares issued, 7,322 and 5,200 shares outstanding at June 30, 2001 and December 31, 2000, respectively Other stockholders' deficit (113,750) (109,546) ---------- ---------- Total stockholders' deficit (927) (1,981) ---------- ---------- $ 17,366 $ 13,668 ========== ==========
The accompanying notes are an integral part of the condensed financial statements. 3 Item 1. Financial Statements (continued) UROMED CORPORATION CONDENSED STATEMENT OF OPERATIONS (In thousands, except per share data) (unaudited)
Three Months Ended Six Months Ended June 30, June 30, ------------------- ------------------ 2001 2000 2001 2000 -------- -------- -------- -------- Revenues Product $ 1,225 $ 1,234 $ 2,201 $ 2,235 Services 294 - 307 - -------- -------- -------- -------- Total Revenues $ 1,519 $ 1,234 $ 2,508 $ 2,235 -------- -------- -------- -------- Costs and expenses: Cost of product revenues 1,064 1,025 1,875 1,758 Cost of services revenues 59 - 61 - Research and development 566 347 814 650 Marketing and sales 1,020 648 1,669 1,279 General and administrative 560 203 1,017 662 Amortization of goodwill and other intangible assets 419 - 440 - Restructuring - - 72 - -------- -------- -------- -------- Total costs and expenses 3,688 2,223 5,948 4,349 -------- -------- ------- -------- Loss from operations (2,169) (989) ( 3,440) ( 2,114) Interest income 67 222 197 452 Interest expense ( 251) ( 241) ( 488) ( 520) -------- -------- -------- -------- Loss before extraordinary gain on early retirement of debt (2,353) (1,008) (3,731) (2,182) Extraordinary gain on early retirement of debt - - - 1,259 -------- -------- -------- -------- Net loss $(2,353) $(1,008) $(3,731) $( 923) ======== ======== ======== ======== Basic and diluted per share amounts: Loss before extraordinary gain on early retirement of debt $ (.32) $ (.19) $ (.59) $ (.42) Extraordinary gain on early retirement of debt - - - .25 -------- -------- -------- -------- Net loss $ (.32) $ (.19) $ (.59) $ (.17) ======== ======== ======== ======== Basic and diluted weighted average common shares outstanding 7,321 5,177 6,326 5,164 ======== ======== ======== ========
The accompanying notes are an integral part of the condensed financial statements. 4 Item 1. Financial Statements (continued) UROMED CORPORATION CONDENSED STATEMENT OF CASH FLOWS (In thousands) (unaudited)
Six Months Ended June 30, -------------------------- 2001 2000 -------- -------- Net cash used in operating activities $ (2,982) $ (3,705) --------- --------- Cash flows from investing activities: Sales (purchases) of short-term investments, net 1,254 6,993 Acquisition of SSGI, net of cash acquired of $3 (972) - Purchase of fixed assets ( 59) (31) --------- --------- Net cash provided by investing activities 223 6,962 --------- --------- Cash flows from financing activities: Proceeds from issuance of common stock 13 94 Repurchase of convertible subordinated notes - (1,679) Net repayment of line of credit (474) - --------- --------- Net cash (used in) financing activities (461) (1,585) --------- --------- Net (decrease) increase in cash and cash equivalents (3,220) 1,672 Cash and cash equivalents, beginning of period 5,974 3,485 --------- --------- Cash and cash equivalents, end of period $ 2,754 $ 5,157 ========= ========= Supplemental disclosure of cash flow information: Interest paid $ 432 $ 508
The accompanying notes are an integral part of the condensed financial statements. 5 Item 1. Financial Statements (continued) UROMED CORPORATION NOTES TO FINANCIAL STATEMENTS (unaudited) 1. Nature of Business UroMed Corporation, a Massachusetts corporation (the "Company"), was incorporated in October 1990 and is dedicated to providing highly effective and efficient cancer treatment options that will improve both the longevity and quality of life for worldwide cancer patients. On July 19, 2001, the Company announced that it would be doing business as Alliant Medical Technologies and plans to seek shareholder approval of its name change in the future. 2. Basis of Presentation The condensed balance sheet at June 30, 2001 and the condensed statement of operations and the condensed statement of cash flows for the three and six months ended June 30, 2001 and 2000 are unaudited. In the opinion of management, all adjustments necessary for a fair presentation of these financial statements have been included. Such adjustments consisted only of recurring items. Interim results are not necessarily indicative of results for the full year. The financial statements should be read in conjunction with the Company's audited financial statements and related footnotes for the year ended December 31, 2000, which may be found in the Company's 2000 Annual Report on Form 10-K. On March 27, 2001, the Company completed the acquisition of SSGI Prowess Systems Inc. ("SSGI"). SSGI, founded in 1987 and headquartered in Chico, California, was a privately held company that developed cancer treatment planning software. SSGI focused on the field of treatment planning for brachytherapy, a rapidly growing treatment of modality for prostate cancer. These financial statements present, together, the financial position and results of operations of the Company and SSGI from the date of acquisition. Revenue from the acquired SSGI business is primarily from two sources: (i) software license revenue and (ii) service revenue, derived primarily from providing support, maintenance and consulting services to customers. Revenue from software licenses is recognized upon execution of a contract and completion of delivery obligations, provided that no uncertainties regarding customer acceptance exist, fees are fixed or determinable and collection of the related receivable is reasonably assured. Revenue from support and maintenance services is recognized ratably over the contractual period. Payments for support and maintenance fees are generally made in advance and are nonrefundable. Revenue from consulting services is recognized as the related services are performed. 3. Recent Accounting Developments In July 2001, the Financial Accounting Standards Board (FASB) issued Statements of Financial Accounting Standards (SFAS) No. 141, Business Combinations, and SFAS No. 142, Goodwill and Other Intangible Assets. SFAS 141 requires use of the purchase method of accounting for business combinations initiated after June 30, 2001 and eliminated the pooling-of-interests method. The Company does not believe that the adoption of SFAS 141 will have a significant impact on its financial statements. SFAS 142 is effective for the Company on January 1, 2002 and requires, among other things, the discontinuance of goodwill amortization. In addition, the standard includes provisions for the reclassification of certain existing recognized intangible assets into goodwill, the reassessment of the useful lives of existing recognized intangible assets, the reclassification of certain intangible assets out of previously reported goodwill and the identification of reporting units for purposes of assessing potential future impairments of goodwill. SFAS 142 also requires the Company to complete a transitional goodwill impairment test within six months from the date of adoption. The Company is currently assessing but has not yet determined the impact of SFAS 142 on its financial position and results of operations. 6 4. Acquisition On March 27, 2001, the Company completed the acquisition of SSGI. As consideration for the acquisition of SSGI, the Company issued 2,000,000 shares of its common stock to SSGI stockholders with a value of $4,437,520 and provided for $500,000 of contingent payments to SSGI stockholders if the newly combined company achieves certain revenue targets over the next three years. These additional payments will be recorded as additional goodwill when, and if, achieved. Concurrent with the acquisition, the Company also discharged certain outstanding indebtedness owed to SSGI stockholders and other related parties through a $500,000 cash payment, the issuance of 114,036 shares of the Company's common stock with a value of $253,013, and the issuance of a $460,000 promissory note payable which bears interest at 10% per annum and is payable in two annual installments of $250,000 in 2002 and $210,000 in 2003. Direct costs associated with the acquisition totaled $475,000, consisting principally of accounting, legal and investment banking fees. The business combination was accounted for using the purchase method. Accordingly, the purchase price has been allocated to the assets acquired and liabilities assumed at their fair values on the date of the acquisition, based on management's estimates and, with respect to the identifiable intangible assets, a professional appraisal. The excess of the purchase price over the amounts allocated to the assets acquired and liabilities assumed was recorded as goodwill. The purchase price, which includes amounts paid to discharge SSGI indebtedness, was allocated as follows (in thousands): Current assets $ 945 Property and equipment 179 Assembled workforce 600 Developed technology 557 Customer relationships 733 Non-compete covenants 541 Other long-term assets 21 Current liabilities (1,797) Deferred revenue (916) Goodwill 5,263 --------- $6,126 ========= 6 The following table summarizes the unaudited pro forma results of operations for the six months ended June 30, 2001 and 2000 as if the acquisition of SSGI had been completed on January 1, 2000. The unaudited pro forma data gives effect to the actual operating results prior to the acquisition, including adjustments primarily to reflect amortization of goodwill and other intangible assets acquired. These pro forma amounts do not purport to be indicative of actual results had the acquisition occurred on January 1, 2000 or that may be obtained in the future. Six months ended June 30, 2001 2000 ---------- ---------- (In thousands, except per share data) Revenue $3,214 $3,607 Loss before extraordinary item (4,356) (3,758) Loss per share before extraordinary item: Basic and Diluted (0.46) (0.52) Net loss (4,356) (2,499) Net loss per common share: Basic and Diluted $(0.46) $(0.34) 5. Inventories Inventories are stated at the lower of cost or market, cost being determined using the first-in, first-out method. The components of inventory at June 30, 2001 and December 31, 2000 are as follows (in thousands): Balance at, June 30, 2001 December 31, 2000 ----------------- ----------------- Raw materials $ 189 $ 195 Work in process 181 185 Finished goods 379 304 ------- ------ $ 749 $ 684 ======= ====== 7 6. Goodwill and Other Intangible Assets Goodwill represents the excess of cost over the fair value of the net assets acquired in the purchase of SSGI (Note 4). Goodwill is amortized using the straight line method over 5 years. The cost of acquired identifiable intangible assets is amortized using the straight line method over the following useful lives: (i) developed technology - 5 years, (ii) customer relationships - 7 years, (iii) assembled workforce - 4 years, and (iv) non-compete covenants with former members of SSGI senior management - 2 years. In accordance with SFAS No. 121, "Accounting for the Impairment of Long- Lived Assets and Long-Lived Assets to be Disposed Of," the Company records impairment losses on long-lived assets used in operations, including goodwill and other intangible assets, when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets' carrying amount. 7. Comprehensive Income (Loss) The Company's comprehensive loss for the three and six months ended June 30, 2001 and 2000 was as follows (in thousands): Three months ended Three months ended June 30, 2001 June 30, 2000 -------------- -------------- Net loss $ (2,353) $ (1,008) Unrealized gain on investments available-for-sale 5 - -------------- -------------- Total comprehensive loss $ (2,348) $ (1,008) ============== ============== Six months ended Six months ended June 30, 2001 June 30, 2000 -------------- -------------- Net income loss $ (3,731) $ ( 923) Unrealized gain on investments available-for-sale 16 14 -------------- -------------- Total comprehensive loss $ (3,715) $ ( 909) ============== ============== 8. Restructuring During October and December 2000, the Company terminated 12 employees and committed to pay severance benefits of $171,000. During 2000, $78,000 of the commitment was paid. During 2001, the remainder of $93,000 was paid. In March 2001, the Company eliminated four positions in the operations and marketing areas. These eliminations resulted in an accrual for severance pay of $72,000, all of which was paid during the quarter ended June 30, 2001. Activity in the restructuring liability was as follows (in thousands): Balance at Balance at December 31, Cash June 30, 2000 Expense Payments 2001 ------------- ---------- ----------- ------------ Employee termination benefits $ 93 $ 72 $ (165) $ - ============= ========== ========== ============ 9. Bank Line of Credit As part of the acquisition of SSGI (Note 4), the Company assumed a line of credit with a bank. This line of credit provides a borrowing capacity of $500,000 and has a maturity date of December 10, 2001. This line requires an annual committment fee of $2,500 and bears interest at the bank's base rate plus 5.5%. As of March 31, 2001, $474,000 was outstanding under the line of credit. During April 2001, the Company paid-down the outstanding balance and terminated the line of credit agreement. 8 10. Early Retirement of Debt In March 2000, the Company repurchased, at a discount, $3,000,000 in aggregate principal amount of its outstanding 6% Convertible Subordinated Notes due October 15, 2003 (the "Notes") for $1,680,000 in cash. As a result of this repurchase $61,000 of deferred financing fees were written off, and an extraordinary gain of $1,259,000 was reported in the condensed statement of operations for the three months ended March 31, 2000. These repurchases occurred in unsolicited open market transactions, with persons who are not affiliated to the Company. 11. Segment Reporting During the quarter ended June 30, 2001 the Company's management modified its reportable segments as a result of the acquisition of SSGI (see Note 4). The Company has determined its reportable segments based on its method of internal reporting, which disaggregates its business by product category. The Company's reportable segments are (i) its radiation therapy business, which includes a shared salesforce for the Symmetra I-125 seeds used for prostate brachytherapy treatments, software systems and support for the BrachyPro treatement planning systems used for prostate seed implants, and the suite of software and support products for external beam radiation therapy treatment planning, and (ii)the surgical products business, which includes the Cavermap surgical aid and fascia. The accounting policies of the segments are the same as those described in Note 2, "Summary of Significant Accounting Policies" in the Company's Annual Report on Form 10-K for the year ended December 31, 2000. The Company evaluates the performance of its operating segments based on operating results which represents income or loss before interest income and expense and extraordinary gain on early retirement of debt. There are no intersegment revenues. The tables below presents information about the Company's segments for the three months and six months ended June 30, 2001 and 2000. Asset information by segment is not reported, because the Company does not produce such information internally (in thousands): Radiation Surgical Therapy Products Totals -------------- --------- -------- Three months ended June 30, 2001 Revenues $ 1,192 $ 327 $1,519 Depreciation (22) (3) (25) Loss from operations (1,323) (308) (1,631) Three months ended June 30, 2000 Revenues $ 274 $ 960 $ 1,234 Depreciation (9) (23) (33) Loss from operations (506) (153) (659) The following are reconciliations of the loss from operations amounts presented above to corresponding totals in the accompanying financial statements: Three months ended June 30, 2001 2000 - -------------------------------------------------------------------- Total for reportable segments $ (1,631) $ (659) Corporate (538) (330) Interest income 67 222 Interest expense (251) (241) ---------- ---------- Loss before extraordinary gain on the early retirement of debt $ (2,353) $ (1,008) ========== ========== There were $0.1 million of international product sales for both radiation therapy and surgical products for the three months ended June 30, 2001. There were $0.1 million of international surgical product sales for the three months ended June 30, 2000, and $0 in international radiation therapy product sales for the three months ended June 30, 2000. 9 Radiation Surgical Therapy Products Totals -------------- --------- -------- Six months ended June 30, 2001 Revenues $ 1,663 $ 845 $ 2,508 Depreciation (29) (9) (38) Loss from operations (1,761) (730) (2,491) Six months ended June 30, 2000 Revenues $ 540 $1,695 $ 2,235 Depreciation (24) (54) (79) Loss from operations (944) (443) (1,387) The following are reconciliations of the loss from operations amounts presented above to corresponding totals in the accompanying financial statements: Six months ended June 30, 2001 2000 - -------------------------------------------------------------------- Total for reportable segments $ (2,491) $ (1,387) Corporate (949) (727) Interest income 197 452 Interest expense (488) (520) ---------- ---------- Loss before extraordinary gain on the early retirement of debt $ (3,731) $ (2,182) ========== ========== There were $0.1 million of international product sales for both radiation therapy and surgical products for the six months ended June 30, 2001. There were $0.2 million of international surgical product sales for the six months ended June 30, 2000, and $0 in international radiation therapy product sales for the six months ended June 30, 2000. 10 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations The following is a discussion of the financial condition and results of operations of the Company for a three and six month period ended June 30, 2001. This discussion should be read in conjunction with the Management's Discussion and Analysis of Financial Condition and Results of Operation, Financial Statements of the Company and Notes thereto included in the Form 10-K for the fiscal year ended December 31, 2000. This Management's Discussion and Analysis should also be read incorporating "Forward-Looking Statements and Associated Risks" contained later in this report. Overview The Company is dedicated to providing highly effective and efficient cancer treatment options that will improve both the longevity and quality of life for worldwide cancer patients. The Company markets a portfolio of products including : treatment planning software systems and support for external beam therapy and brachytherapy, the Symmetra I-125 radioactive seeds used in a brachytherapy procedure to treat localized prostate cancer, and CaverMap Surgical Aid, available to aid physicians in preserving vital nerves during prostate cancer surgery. The Company also continues to dedicate resources to the development and/or acquisition of product lines that fit into its strategic platform. On March 27, 2001, the Company acquired SSGI Prowess Systems Inc. ("SSGI"). SSGI, founded in 1987 by Philip Heintz, PhD, and headquartered in Chico, California, is a privately held company that develops cancer treatment planning software. SSGI is a leader in the field of treatment planning for brachytherapy, a rapidly growing treatment modality for prostate cancer. SSGI offers a network for radiation therapy planning that combines affordability with many advanced high technological features. By utilizing a Windows NT software platform, SSGI systems provide radiation oncology sites with advanced expansion capabilities through unmatched planning system flexibility and low cost additional workstation licenses. SSGI's market penetration in the field of brachytherapy treatment planning is strong; this is an area in which the combined company plans to expand throughout the world. The newly combined company will also capitalize on the external beam therapy market worldwide by solidifying key distribution partnerships. As consideration for the SSGI acquisition, UroMed issued 2,000,000 shares of its common stock to SSGI stockholders and will provide for $500,000 of contingent payments to SSGI stockholders if the newly combined company achieves certain revenue targets over the next three years. UroMed also discharged certain outstanding indebtedness owed to SSGI stockholders and other related parties through a $500,000 cash payment, the issuance of 114,036 shares of UroMed common stock, and the issuance of a $460,000 promissory note payable in two annual installments in 2002 and 2003. The common stock has been registered with the SEC for resale and most of the shares will be subject to limitations on the number of shares that can be sold in any year. The transaction was accounted for under the purchase method during the quarter ended March 31, 2001. The results of operations of SSGI are included with those of the Company from the date of the acquisition. 11 Results of Operations Three and Six Months Ended June 30, 2001 Compared to Three and Six Months Ended June 30, 2000 Revenues The Company's product revenues were $1.2 million for both the quarter ended June 30, 2001 and the quarter ended June 30, 2000. The quarter ended June 30, 2001 includes revenues of: $0.4 million of combined external beam therapy and brachytherapy treatment planning software systems, $0.5 million of Symmetra I-125 seeds, and $0.3 million of CaverMap. These compare to 2000 revenues of: $0.2 million of Symmetra I-125 seeds, $0.6 million of CaverMap, and $0.4 million in fascia revenues as a result of large orders from a distributor. The 2001 decreases in CaverMap and fascia revenues are the result of a shift in salesforce focus to the radiation therapy business. The Company's product revenues were $2.2 million for both the six months ended June 30, 2001 and the six months ended June 30, 2000. The six months ended June 30, 2001 includes revenues of: $0.4 million of combined external beam therapy and brachytherapy treatment planning software systems, $1.0 million of Symmetra I-125 seeds, and $0.8 million of CaverMap. These compare to 2000 revenues of: $0.5 million of Symmetra I-125 seeds, $1.3 million of CaverMap, and $0.4 million in fascia revenues as a result of large orders from a distributor. The 2001 decrease in CaverMap and fascia revenues is the result of a shift in salesforce focus to the radiation therapy business. The Company's $0.3 million of service revenues for the three and six months ended June 30, 2001 is the result of software support and maintenance services, which relates to the SSGI product line which the Company acquired on March 27, 2001. Service revenues have been recognized ratably over the relevant contractual periods. Payments for support and maintenance fees are generally made in advance and are nonrefundable. Revenue from consulting services is recognized as the related services are performed. Cost of revenues Cost of product revenues increased 4% to $1.1 million from $1.0 million for the quarter ended June 30, 2001 as compared to the quarter ended June 30, 2000. The primary reason for the increase in 2001 was the increase in overall variable materials costs for Symmetra I-125 seeds. Cost of product revenues increased 7% to $1.9 million from $1.8 million for the six months ended June 30, 2001 as compared to the six months ended June 30, 2000. The primary reason for the increase in 2001 was the increase in overall variable materials costs for Symmetra I-125 seeds. Cost of service revenues were $0.1 million for both the three and six months ended June 30, 2001. This represents primarily the labor costs associated with providing customer technical support to users of the Company's software. Operating Expenses Research and development expenses increased 63% to $0.6 million from $0.3 million for the quarter ended June 30, 2001 as compared to the quarter ended June 30, 2000. The major component of the increase is salaries and related expenses for the physicists and software developers as a result of the SSGI acquisition. Research and development expenses increased 25% to $0.8 million from $0.6 million for the six months ended June 30, 2001 as compared to the six months ended June 30, 2000. The major component of the increase in salaries and related expenses for the physicists and software developers as a result of the SSGI acquisition. Marketing and sales expenses increased 57% to $1.0 million from $0.6 million for the quarter ended June 30, 2001 as compared to the quarter ended June 30, 2000. The major components of the increase are the salaries and travel expenses due to an increased number of direct salespeople and field application specialists as a result of the SSGI acquisition. Marketing and sales expenses increased 30% to $1.7 million from $1.3 million for the six months ended June 30, 2001 as compared to the six months ended June 30, 2000. The major components of the increase are the salaries and travel expenses due to an increased number of direct salespeople and field application specialists as a result of the SSGI acquisition. 12 General and administrative expenses increased 176% to $0.6 million from $0.2 million for the quarter ended June 30, 2001 as compared to the quarter ended June 30, 2000. The increase is due to including in the prior year the offsetting effect of a cash receipt of $0.2 million for assets previously written off, and current year increases of $0.1 million in both salaries, consulting and professional fees. General and administrative expenses increased 54% to $1.0 million from $0.7 million for the six months ended June 30, 2001 as compared to the six months ended June 30, 2000. The increase is due to including in the prior year the offsetting effect of a cash receipt of $0.2 million for assets previously written off, and a current year increases of $0.1 million in consulting and professional fees. Restructuring In March 2001, to reduce operating costs, the Company eliminated four positions in the operations and marketing areas. These eliminations resulted in an accrual for severance pay of $72,000, all of which was paid during the quarter ended June 30, 2001. Interest income and interest expense Interest income decreased 70% to $0.1 million from $0.2 million in the quarter ended June 30, 2001 as compared to the quarter ended June 30, 2000. The decrease was attributable to the reduction of the Company's investment portfolio as a result of funding the Company's operations, its acquisition of SSGI and advances made to SSGI prior to the acquisition. Interest expense increased 4% to $0.3 million from $0.2 million in the quarter ended June 30, 2001 as compared to the quarter ended June 30, 2000. The slight increase is attributable to interest on the line of credit. Interest income decreased 56% to $0.2 million from $0.5 million in the six months ended June 30, 2001 as compared to the six months ended June 30, 2000. The decrease was attributable to the reduction of the Company's investment portfolio as a result of funding the Company's operations, its acquisition of SSGI and advances made to SSGI prior to the acquisition. Interest expense decreased 6% to $0.49 million from $0.52 million in the six months ended June 30, 2001 as compared to the six months ended June 30, 2000. The decrease was attributable to the reduction in outstanding Notes due to repurchases thereof during 2000, partially offset by interest on the line of credit. Extraordinary gain on early retirement of debt In March 2000, the Company repurchased, at a discount, portions of its outstanding Notes. This repurchase occurred in open market transactions with persons who are not affiliated to the Company. The Company repurchased $3.0 million in aggregate principal amount of its Notes for $1.7 million in cash. As a result of this repurchase, an extraordinary gain of $1.3 million was reported in the condensed statement of operations for the six months ended June 30, 2000. 13 Liquidity and Capital Resources Cash and short-term investments totaled $5.8 million at June 30, 2001 compared to $10.2 million at December 31, 2000. At June 30, 2001, the Company's funds were invested in corporate debt obligations and money market funds. Net cash used in operating activities of $3.0 million during the six months ended June 30, 2001 was primarily a result of the net loss for the period. Net cash provided by investing activities of $0.2 million during the six months ended June 30, 2001 was due primarily to net sales of short-term investments, offset by funding the cash portion of the acquisition of SSGI. Net cash used in financing activities was $0.5 million during the six months ended June 30, 2001, as a result of $474,000 repayment of a line of credit and $13,000 due to the exercise of stock options. In October 1996, the Company completed the sale of $69.0 million of its Notes. In March 2000, the Company repurchased $3.0 million of Notes for $1.7 million. Through June 2001, the Company repurchased a total of $54.6 million in aggregate principal amount of its Notes resulting in an outstanding principal balance of the Notes at June 30, 2001 of $14.4 million. The Company is considering from time to time additional repurchases of its Notes. Any repurchases of Notes may be made on the open market or in privately negotiated transactions. The Company plans to fund such purchases from its working capital. The Board of Directors of the Company authorized a Common Stock repurchase program in 1999 (the "Repurchase Program"). The Company is authorized to repurchase up to one million shares of the outstanding Common Stock, from time to time, subject to prevailing market conditions. As of June 30, 2001, the Company has repurchased approximately 240,000 shares of its Common Stock for $573,000 as part of the Repurchase Program. Purchases pursuant to the Repurchase Program may be made on the open market or in privately negotiated transactions. The Company plans to fund such purchases from its working capital. The Company did not repurchase any common stock during the six months ended June 30, 2001 and 2000. The Company currently anticipates that its available cash will be sufficient to meet its anticipated working capital and capital expenditure requirements through June 30, 2002. The Company's future beyond June 30, 2002 is dependent upon its ability to achieve break-even or positive cash flows from operations, to leverage the acquisition of SSGI, and/or to obtain additional funding. There is no assurance that the Company will be able to achieve break-even or positive cash flows or that it will be successful in obtaining additional funding on terms acceptable to the Company, if at all. Recent Accounting Developments In July 2001, the Financial Accounting Standards Board (FASB) issued Statements of Financial Accounting Standards (SFAS) No. 141, Business Combinations, and SFAS No. 142, Goodwill and Other Intangible Assets. SFAS 141 requires use of the purchase method of accounting for business combinations initiated after June 30, 2001 and eliminated the pooling-of-interests method. The Company does not believe that the adoption of SFAS 141 will have a significant impact on its financial statements. SFAS 142 is effective for the Company on January 1, 2002 and requires, among other things, the discontinuance of goodwill amortization. In addition, the standard includes provisions for the reclassification of certain existing recognized intangible assets into goodwill, the reassessment of the useful lives of existing recognized intangible assets, the reclassification of certain intangible assets out of previously reported goodwill and the identification of reporting units for purposes of assessing potential future impairments of goodwill. SFAS 142 also requires the Company to complete a transitional goodwill impairment test within six months from the date of adoption. The Company is currently assessing but has not yet determined the impact of SFAS 142 on its financial position and results of operations. 14 FORWARD-LOOKING STATEMENTS AND ASSOCIATED RISKS. Certain statements contained in this Quarterly Report on Form 10-Q may be considered forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, including statements regarding (i) the planned progression of the Company's commercialization strategies for the CaverMap Surgical Aid, the Symmetra I-125 brachytherapy seed and the UroMed Prostate Seeding Needles including the timing and extent of sales, (ii) the continued marketing activities for the commercial launch of the Symmetra I-125 brachytherapy seeds, (iii) the Company's planned uses for its cash and other liquid resources and the sufficiency of the Company's available working capital to meet its working capital and capital expenditure requirements, (iv) the extent of future revenues, expenses and results of operations and the sufficiency of the Company's financial resources to meet planned operational costs and other expenditure needs, and the development of partnerships and/or strategic alliances for all incontinence and breast care products and related assets and technology, (v) the risk of the Company's dependence on Bebig to manufacture the Symmetra I-125 seeds and the Company's dependence on Symmetra's overall contribution to the Company's operations, (vi) the benefits expected through the Company's acquisition of SSGI, the continued development and commercialization of the SSGI product line, and that the Company will be able to successfully manage the combination of the SSGI and UroMed businesses and (vii) certain other statements identified or qualified by words such as "likely", "will", "suggests", "may", "would", "could", "should", "expects", "anticipates", "estimates", "plans", "projects", "believes", or similiar expressions (and variants of such words or expressions). These forward-looking statements are based largely on the Company's expectations and are subject to a number of risks and uncertainties, many of which are beyond the Company's control. Actual results could differ materially from these forward-looking statements as a result of certain factors, including those described below: -- the benefits expected through the Company's acquisition of SSGI, the continued development and commercialization of the SSGI product line, and that the Company will be able to successfully manage the combination of the SSGI and UroMed businesses. - - The uncertainty that the CaverMap Surgical Aid and Symmetra I-125 seeds will gain market acceptance among physicians in the United States. - - The uncertainty that the Company will be able to develop and maintain an effective sales force and implement a successful marketing campaign for the CaverMap Surgical Aid and the Symmetra I-125 brachytherapy seed in the United States. - - The Company's dependence on others, including Bebig, for its products and raw materials and other certain components of its products, including certain materials available only from single sources. - - The uncertainty as to whether the Company will be able to effectively manage the cost of the scrap and decayed Symmetra I-125 seeds. - - The uncertainty as to whether the Company's distributor of its Symmetra I-125 seeds, IPL, will be able to effectively manage this distribution process. - - The uncertain protection afforded the Company by its patents and/or other intellectual property rights relating to the Company's products. - - The uncertainty as to whether the Company will be able to market and sell its products at prices that permit it to achieve satisfactory margins in the production and marketing of its products. - - Risks relating to FDA and other governmental oversight of the Company's operations, including the possibility that the FDA could impose costly additional labeling requirements on, or restrict the marketing of, the Company's products, or suspend operations at one or more of the Company's facilities. - - The uncertainty of the size of the potential markets of the Company's products. Other relevant risks are described in the Company's Annual Report on Form 10-K for the year ended December 31, 2000 under the headings "Forward-Looking Statements and Associated Risks" and "Risk Factors", and are incorporated herein by reference. 15 Item 3. Quantitative and Qualitative Disclosures About Market Risk The Company does not use derivative financial instruments. Less than 10% of the Company's sales for the six months ended June 30, 2001 were to foreign customers, primarily in Europe and Asia. All such foreign sales are denominated in U.S. dollars. The Company believes, based on a hypothetical ten percent adverse movement in foreign currency exchange rates for the European Euro, the potential losses in future earnings and cash flows are immaterial, although the actual effects may differ materially from the hypothetical analysis. Part II. OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders On June 27, 2001 the Company held its Special Meeting of Stockholders to consider and vote upon the following three proposals: (1) A proposal to elect two Class I directors of the Company, each to hold a three-year term. (2) A proposal to ratify the appointment of PricewaterhouseCoopers LLP as independent accountants of the Company for the year ended December 31, 2001. (3) A proposal to amend the Second Amended and Restated Stock Option Plan to increase the total number of shares of common stock authorized for issuance under the plan from 890,000 to 1,230,000 shares. Results with respect to the voting on each of the above proposals were as follows: For Abstain ------------- ------------- (1) Election of Directors Daniel Muscatello 4,884,899 63,379 Dr. Elizabeth E. Connell 4,887,350 70,928 For Against Abstain ------------- --------- ---------- (2) Ratification of PricewaterhouseCoopers LLP as independent accountants 4,922,220 22,108 3,950 (3) Adoption of the amendment to the Company's Second Amended and Restated 1991 Stock Option Plan 4,709,995 204,919 33,364 Item 6. Exhibits and Reports on Form 8-K (a) Exhibits None (b) Reports on Form 8-K (1) Form 8-KA filed on May 25, 2001 in connection with SSGI acquisition. 16 SIGNATURES Pursuant to requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. UroMed Corporation Date: August 14, 2001 /s/ Daniel Muscatello -------------- ---------------------------------- President and Chief Executive Officer Date: August 14, 2001 /s/ Domenic C. Micale -------------- ----------------------------------- Chief Financial Officer and Treasurer 17 -----END PRIVACY-ENHANCED MESSAGE-----