edX - TXT1x Data
-----BEGIN PRIVACY-ENHANCED MESSAGE-----1Proc-Type: 2001,MIC-CLEAR2Originator-Name: [email protected]3Originator-Key-Asymmetric:4MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen5TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB6MIC-Info: RSA-MD5,RSA,7CyCZ3iTDrE75rwO1L8kyeR/0tP6QU8Kp8Ycy7HcWlt2eyKcA9KEM2rXsLB8jnfEd8QgHG+A5Zy2bU64VTGXeeOA==910<SEC-DOCUMENT>0000897101-01-500814.txt : 2002041211<SEC-HEADER>0000897101-01-500814.hdr.sgml : 2002041212ACCESSION NUMBER: 0000897101-01-50081413CONFORMED SUBMISSION TYPE: 10-K14PUBLIC DOCUMENT COUNT: 315CONFORMED PERIOD OF REPORT: 2001093016FILED AS OF DATE: 200112121718FILER:1920COMPANY DATA:21COMPANY CONFORMED NAME: ROCHESTER MEDICAL CORPORATION22CENTRAL INDEX KEY: 000086836823STANDARD INDUSTRIAL CLASSIFICATION: SURGICAL & MEDICAL INSTRUMENTS & APPARATUS [3841]24IRS NUMBER: 41161322725STATE OF INCORPORATION: MN26FISCAL YEAR END: 09302728FILING VALUES:29FORM TYPE: 10-K30SEC ACT: 1934 Act31SEC FILE NUMBER: 000-1893332FILM NUMBER: 18120043334BUSINESS ADDRESS:35STREET 1: ONE ROCHESTER MEDICAL DR36CITY: STEWARTVILLE37STATE: MN38ZIP: 5597639BUSINESS PHONE: 50753396004041MAIL ADDRESS:42STREET 1: ONE ROCHESTER MEDICAL DR43CITY: STEWARTVILLE44STATE: MN45ZIP: 5597646</SEC-HEADER>47<DOCUMENT>48<TYPE>10-K49<SEQUENCE>150<FILENAME>rochester015173_10k.txt51<DESCRIPTION>ROCHESTER MEDICAL CORPORATION FORM 10-K52<TEXT>53================================================================================5455SECURITIES AND EXCHANGE COMMISSION56WASHINGTON, D.C. 205495758------------------5960FORM 10-K6162ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)63OF THE SECURITIES EXCHANGE ACT OF 19346465FOR FISCAL YEAR ENDED SEPTEMBER 30, 20016667Commission File Number: 0-189336869ROCHESTER MEDICAL CORPORATION7071MINNESOTA 41-161322772State of Incorporation IRS Employer Identification No.7374ONE ROCHESTER MEDICAL DRIVE75STEWARTVILLE, MINNESOTA 5597676Address of Principal Executive Offices7778Telephone Number: (507) 533-96007980Securities Registered pursuant to Section 12(b) of the Act: None8182Securities Registered Pursuant to Section 12(g) of the Act:8384COMMON STOCK WITHOUT PAR VALUE8586------------------8788Check whether the issuer (1) filed all reports required to be filed by Section8913 or 15(d) of the Exchange Act during the past 12 months (or for such shorter90period that the Registrant was required to file such reports), and has been91subject to such filing requirements for the past 90 days. Yes __X__ No _____9293Check if no disclosure of delinquent filers pursuant to Item 405 of Regulation94S-B is contained in this form, and no disclosure will be contained, to the best95of registrant's knowledge, in definitive proxy or information statements96incorporated by reference in Part III of this Form 10-K or any amendment to this97Form 10-K. _____9899The issuer's revenues for its most recent fiscal year were $8,301,667.100101The aggregate market value of voting stock held by non-affiliates based upon the102closing Nasdaq sale price on December 3, 2001 was $22,192,354.103104Number of shares outstanding on December 3, 2001 was 5,328,500 Common Shares.105106DOCUMENTS INCORPORATED BY REFERENCE107108Portions of Registrant's Proxy Statement for its January 24, 2002 Annual Meeting109of Shareholders are incorporated by reference in Part III.110111================================================================================112113<PAGE>114115116PART I117118119ITEM 1. BUSINESS120121OVERVIEW122123Rochester Medical Corporation (the "Company") develops, manufactures and124markets a broad line of innovative, technologically enhanced latex-free urinary125continence and urine drainage care products for the extended care and acute care126markets. The Company's extended care products include a line of male external127catheters for managing male urinary incontinence and a line of intermittent128catheters for managing both male and female urinary retention. It also includes129the FEMSOFT(R) INSERT, a soft, liquid-filled, conformable urethral insert for130managing female stress urinary incontinence in adult females. The Company's131acute care products include a line of standard Foley catheters and its132RELEASE-NF(R) CATHETER, an antibacterial Foley catheter to reduce the incidence133of hospital acquired urinary tract infection ("UTI").134135The Company markets its products under its own ROCHESTER MEDICAL(R) brand136through a direct field sales force in the United States and independent137distributors in international markets. The Company also supplies its products to138several large medical product companies for sale under brands owned by these139companies.140141EXTENDED CARE PRODUCTS142143MALE EXTERNAL CATHETERS. The Company's male external catheters are144self-care, disposable devices for managing male urinary incontinence. The145Company manufactures and markets four models of silicone male external146catheters: the ULTRAFLEX(R), POP-ON(R), WIDE BAND(R) and NATURAL(R) catheters.147The ULTRAFLEX catheter has adhesive positioned midway down the catheter sheath.148The "POP-ON" catheter has a sheath that is shorter than that of a standard male149external catheter and has adhesive applied to the full length of the sheath. It150is designed to accommodate patients who require shorter-length external151catheters. The Company's WIDE BAND self-adhering male external catheter has an152adhesive band which extends over the full length of the sheath, providing153approximately 70% more adhesive coverage than other male external catheters154currently marketed. The WIDE BAND catheter is designed to reduce adhesive155failure and the resulting leakage, which is a common complaint among users of156male external catheters. The NATURAL catheter is a non-adhesive version of the157Company's male external catheter.158159All models of the Company's male external catheters are produced in five160sizes for better patient fit. The Company's male external catheters are made161from silicone, a non-toxic and biocompatible material that eliminates the risks162of latex-related skin irritation. Silicone catheters are also odor free and have163greater air permeability than catheters made from other materials, including164latex. Air permeability reduces skin irritation and damage from catheter use and165thereby increases patient comfort. The Company's silicone catheters are166transparent, permitting visual skin inspection without removal of the catheters167and aiding proper placement of the catheters. The Company's catheters also have168a kink-proof funnel design to ensure uninterrupted urine flow. The self-adhering169technology of the Company's catheters simplifies application of the catheters170and provides a strong bond to the skin for greater patient confidence and171improved wear.172173The Company also manufactures and sells male external catheters made from a174proprietary non-latex, non-silicone material to certain private label customers.175Certain of these catheters use the same self-adhesive technology as the176Company's silicone male external catheters. Like the silicone male external177catheters, these non-silicone catheters eliminate the risk of latex reactions178and latex-related skin irritations. The non-silicone catheters also are odor179free.180181INTERMITTENT CATHETERS. The Company's PERSONAL CATHETERS(R) are a line of182disposable intermittent catheters manufactured from silicone. The Company183produces the PERSONAL CATHETERS in three lengths for male, female, and184pediatric use and in multiple diameters. The Company produces three distinct185versions of the PERSONAL CATHETER: the basic Standard PERSONAL CATHETER, the186Antibacterial PERSONAL CATHETER and the Hydrophilic PERSONAL CATHETER. The187Antibacterial PERSONAL1881891902191<PAGE>192193194CATHETER releases an anti-infection agent to help prevent urinary tract195infections. The Hydrophilic PERSONAL CATHETER becomes extremely slippery when196moistened, providing a very low friction surface for ease and comfort during197insertion and removal.198199FEMSOFT INSERT. The FEMSOFT INSERT is a disposable device for the200management of stress urinary incontinence in active women. It is a soft,201conformable urethral insert that assists the female urethra and bladder neck to202control the involuntary loss of urine. The device can be simply inserted, worn203and removed for voiding by most women. It requires no inflation, deflation,204syringes or valving mechanisms.205206The Company believes the FEMSOFT INSERT will provide significant advantages207in the management of female stress incontinence. The FEMSOFT INSERT is a208minimally invasive device that provides a patient with effective control of her209urinary function and eliminates the need for pads or liners that can cause210embarrassment, restrict mobility and compromise lifestyle. In addition, the211soft, liquid-filled silicone membrane of the FEMSOFT INSERT has been designed to212conform to anatomical variations of the urethra and follow the movements of the213urethra during normal activities, thereby reducing leakage without chafing or214abrasion of the delicate tissues of the urethra.215216The FEMSOFT INSERT is a prescription device that requires a woman to visit217her physician. The physician will fit the patient with the proper size and218instruct the patient on proper application of the FEMSOFT INSERT.219220ACUTE CARE PRODUCTS221222FOLEY CATHETERS. The Company's RELEASE-NF CATHETER is a silicone Foley223catheter that has been designed to reduce the incidence of hospital acquired224UTI. Using patented technology, the RELEASE-NF CATHETER incorporates225nitrofurazone, an effective broad-spectrum antibacterial agent, into the226structure of the catheter, permitting sustained release of a controlled dosage227directly into the urinary tract to prevent the onset of infection.228229The Company also offers standard Foley catheters in a two lumen version for230urinary drainage management and in a three lumen version for irrigation of the231urinary tract. These Foley catheters are available in all adult and pediatric232sizes. All of the Company's silicone Foley catheters eliminate the risk of the233allergic reactions and tissue irritation and damage associated with latex Foley234catheters. The Company's Foley catheters are transparent which enables235healthcare professionals to observe urine flow. Unlike the manufacturing236processes used by producers of competing silicone Foley catheters, in which the237balloon is made separately and attached by hand in a separate process involving238gluing, the Company's automated manufacturing processes allow the Company to239integrate the balloon into the structure of the Foley catheter, resulting in a240smoother, more uniform exterior that may help reduce irritation to urinary241tissue.242243The Company's Foley catheters are packaged sterile in single catheter244strips and sold under the ROCHESTER MEDICAL brand and under private label245arrangements. In addition, the Company sells its Foley catheters in bulk under246private label arrangements for packaging in kits with tubing, collection bags247and other associated materials.248249TECHNOLOGY250251The Company uses proprietary, automated manufacturing technologies and252processes to manufacture continence care devices cost effectively. The253production of the Company's products also depends on its materials expertise and254know-how in the formulation of silicone and advanced polymer products. The255Company's proprietary liquid encapsulation technology enables it to manufacture256innovative products, such as its FEMSOFT INSERT, that have soft, conformable,257liquid-filled reservoirs, which cannot be manufactured using conventional258technologies. Using this liquid encapsulation technology, the Company can mold259and form liquid encapsulated devices in a variety of shapes and sizes in an260automated process. The Company's manufacturing technologies and materials261know-how also allow the Company to incorporate a sustained release antibacterial262agent into its products. The Company believes that its manufacturing technology263is particularly well-suited to high unit volume production and that its264automated processes enable cost-effective2652662673268<PAGE>269270271production. The Company further believes that its manufacturing and materials272expertise, particularly its proprietary liquid encapsulation technology, may be273applicable to a variety of other devices for medical applications. The Company274plans to consider, commensurate with its financial and personnel resources,275future research and development activities to investigate opportunities provided276by the Company's technology and know-how.277278The Company believes that its proprietary manufacturing processes,279materials expertise, custom designed equipment and technical know-how allow it280to simplify and further automate traditional catheter manufacturing techniques281to reduce the Company's manufacturing costs. In order to manufacture high282quality products at competitive costs, the Company concurrently designs and283develops new products and the processes and equipment to manufacture them.284285MARKETING AND SALES286287To date, the majority of the Company's revenues have been derived from288sales of its male external catheters and standard Foley catheters to medical289products companies for resale under brands owned by such companies. Private290label arrangements are likely to continue to account for a significant portion291of the Company's revenues in the foreseeable future, particularly in292international markets where the Company does not maintain a direct sales293presence.294295The Company sells its products in the United States under the ROCHESTER296MEDICAL brand name through a five-person direct sales force. The primary markets297for the Company's products are individual hospitals and healthcare institutions,298distributors and extended care facilities.299300The Company relies on arrangements with medical product companies and301independent distributors to sell the Company's products in Europe and other302international markets. These arrangements are conducted under the ROCHESTER303MEDICAL brand name and under brands controlled by the medical product companies.304305MANUFACTURING306307The Company designs and builds custom equipment to implement its308manufacturing technologies and processes. The Company's manufacturing facilities309are located in Stewartville, Minnesota. The Company produces its Foley catheters310on one production line and its male external catheters and intermittent311catheters on other lines. The Company has constructed a separate manufacturing312facility to house its liquid encapsulation manufacturing operations, and has313installed the FEMSOFT INSERT manufacturing line in this facility.314315The Company maintains a comprehensive quality assurance and quality control316program, which includes documentation of all material specifications, operating317procedures, equipment maintenance and quality control test methods. The Company318has obtained ISO 9001 certification and CE mark quality system certification for319its Foley catheter, male external catheter, intermittent catheter and FEMSOFT320INSERT production lines.321322The Company's manufacturing facility has been designed to accommodate the323specialized requirements for the manufacture of medical devices, including the324FDA's requirements for Quality System Regulation ("QSR").325326SOURCES OF SUPPLY327328The Company obtains certain raw materials and components for a number of329its products from a sole supplier or limited number of suppliers. The loss of330such a supplier or suppliers, or a material interruption of deliveries from such331a supplier or suppliers, could have a material adverse effect on the Company.332The Company believes that in most, if not all, cases the Company has identified333other potential suppliers. In the event that the Company had to replace a334supplier, however, the Company may be required to repeat biocompatibility and335other testing of its products using the material from the new supplier and may336be required to obtain additional regulatory clearances.3373383394340<PAGE>341342343RESEARCH AND DEVELOPMENT344345The Company believes that its ability to add new products to its existing346continence care product lines is important to the Company's future success.347Accordingly, the Company is engaged in ongoing research and development to348develop and introduce new products which provide additional features and349functionality. In the future, consistent with market opportunities and the350Company's financial and personnel resources, the Company intends to perform351clinical studies for other of its products in development.352353Research and development expense for fiscal years 2001, 2000 and 1999, was354$1,062,000, $1,008,000 and $1,052,000, respectively.355356COMPETITION357358The continence care market is highly competitive. The Company believes that359the primary competitive factors include price, product quality, technical360capability, breadth of product line and distribution capabilities. The Company's361ability to compete is affected by its product development and innovation362capabilities, its ability to obtain regulatory clearances, its ability to363protect the proprietary technology of its products and manufacturing processes,364its marketing capabilities, its ability to attract and retain skilled employees,365and, for products sold in managed care environments, its ability to maintain366current distribution relationships, to establish new distribution relationships367and to secure participation in purchase contracts with group purchasing368organizations. The Company believes that it will be important for the Company to369differentiate its products in order to attract large customers, such as370distributors, dealers, institutions and home care organizations.371372The Company's products compete with a number of alternative products and373treatments for continence care. The Company's ability to compete with these374alternative methods for urinary continence care depends on the relative market375acceptance of alternative products and therapies and the technological advances376in these alternative products and therapies. Any development of a broad-based377and effective cure for a significant form of incontinence could have a material378adverse effect on sales of continence care devices such as the Company's379products.380381The Company competes directly for sales of continence care devices under382the Company's own brand with larger, multi-product medical device manufacturers383and distributors such as C.R. Bard, Inc., Maersk Medical, Kendall Healthcare384Products Company, Hollister and Mentor. Many of the competitive alternative385products or therapies to the Company's products are distributed by larger386competitors including Johnson & Johnson Personal Products Company,387Kimberly-Clark Corporation and Proctor & Gamble Company (for adult diapers and388absorbent pads), and C.R. Bard, Inc. (for injectable materials). Many of the389Company's competitors, potential competitors and providers of alternative390products or therapies have significantly greater financial, manufacturing,391marketing, distribution and technical resources and experience than the Company.392It is possible that other large healthcare and consumer products companies may393enter this market in the future. Furthermore, academic institutions,394governmental agencies and other public and private research organizations will395continue to conduct research, seek patent protection and establish arrangements396for commercializing products in this market. Such products may compete directly397with products which may be offered by the Company.398399PATENTS AND PROPRIETARY RIGHTS400401The Company's success may depend in part on its ability to obtain patent402protection for its products and manufacturing processes, to preserve its trade403secrets and to operate without infringing the proprietary rights of third404parties. The Company may seek patents on certain features of its products and405technology based on the Company's analysis of various business considerations,406such as the cost of obtaining a patent, the likely scope of patent protection407and the benefits of patent protection relative to relying on trade secret408protection. The Company also relies upon trade secrets, know-how and continuing409technological innovations to develop and maintain its competitive position.410411The Company owns 17 United States patents and a number of corresponding412foreign patents that generally relate to certain of the Company's catheters and413devices and certain of the4144154165417<PAGE>418419420Company's production processes. In addition, the Company owns a number of421pending United States and corresponding foreign patent applications. The Company422may file additional patent applications for certain of the Company's current and423proposed products and processes in the future.424425There can be no assurance that the Company's patents will be of sufficient426scope or strength to provide meaningful protection of the Company's products and427technologies. The coverage sought in a patent application can be denied or428significantly reduced before the patent is issued. In addition, there can be no429assurance that the Company's patents will not be challenged, invalidated or430circumvented or that the rights granted thereunder will provide proprietary431protection or commercial advantage to the Company.432433Should attempts be made to challenge, invalidate or circumvent the434Company's patents in the United States Patent and Trademark Office and/or courts435of competent jurisdiction, including administrative boards or tribunals, the436Company may have to participate in legal or quasi-legal proceedings therein, to437maintain, defend or enforce its rights in these patents. Any legal proceedings438to maintain, defend or enforce the Company's patent rights can be lengthy and439costly, with no guarantee of success. There also can be no assurance that the440Company will file additional patent applications or that additional patents will441issue from the Company's pending patent applications.442443A claim by third parties that the Company's current products or products444under development allegedly infringe their patent rights could have a material445adverse effect on the Company. The Company is aware that others have obtained or446are pursuing patent protection for various aspects of the design, production and447manufacturing of continence care products. The medical device industry is448characterized by frequent and substantial intellectual property litigation,449particularly with respect to newly developed technology. Intellectual property450litigation is complex and expensive, and the outcome of such litigation is451difficult to predict. Any future litigation, regardless of outcome, could result452in substantial expense to the Company and significant diversion of the efforts453of the Company's technical and management personnel. An adverse determination in454any such proceeding could subject the Company to significant liabilities to455third parties, require disputed rights to be licensed from such parties, if456licenses to such rights could be obtained, and/or require the Company to cease457using such technology. There can be no assurance that if such licenses were458obtainable, they would be obtainable at costs reasonable to the Company. If459forced to cease using such technology, there can be no assurance that the460Company would be able to develop or obtain alternate technology. Additionally,461if third party patents containing claims affecting the Company's technology are462issued and such claims are determined to be valid, there can be no assurance463that the Company would be able to obtain licenses to such patents at costs464reasonable to the Company, if at all, or be able to develop or obtain alternate465technology. Accordingly, an adverse determination in a judicial or466administrative proceeding or failure to obtain necessary licenses could prevent467the Company from manufacturing, using or selling certain of its products, which468could have a material adverse effect on the Company's business, financial469condition and results of operations.470471There also can be no assurance that any third party does not currently472have, has not applied for, or might not in the future apply for, additional473patents in the United States or abroad which, if ultimately granted, might be474infringed in such country by any of the Company's products as currently475configured or any other product of the Company and provide the basis for an476infringement action in such country against the Company.477478The Company also relies on proprietary manufacturing processes and479techniques, materials expertise and trade secrets applicable to the manufacture480of its products. The Company seeks to maintain the confidentiality of this481proprietary information. There can be no assurance, however, that the measures482taken by the Company will provide the Company with adequate protection of its483proprietary information or with adequate remedies in the event of unauthorized484use or disclosure. In addition, there can be no assurance that the Company's485competitors will not independently develop or otherwise gain access to486processes, techniques or trade secrets that are similar or4874884896490<PAGE>491492493superior to the Company's. Finally, as with patent rights, legal action to494enforce trade secret rights can be lengthy and costly, with no guarantee of495success.496497GOVERNMENT REGULATION498499The manufacture and sale of the Company's products are subject to500regulation by numerous governmental authorities, principally the FDA and501corresponding foreign agencies. In the United States, the medical devices502manufactured and sold by the Company are subject to laws and regulations503administered by the FDA, including regulations concerning the prerequisites to504commercial marketing, the conduct of clinical investigations, compliance with505QSR and labeling.506507A manufacturer may seek from the FDA market authorization to distribute a508new medical device by filing a 510(k) Premarket Notification ("510(k)") to509establish that the device is "substantially equivalent" to medical devices510legally marketed in the United States prior to the Medical Device Amendments of5111976. A manufacturer may also seek market authorization for a new medical device512through the more rigorous Premarket Approval ("PMA") application process, which513requires the FDA to determine that the device is safe and effective for the514purposes intended.515516The Company received FDA marketing authorization for its FEMSOFT INSERT on517September 30, 1999 pursuant to a PMA. As a condition of FDA approval of the518Company's PMA filing based on interim clinical study results, the Company will519be required to complete the current clinical study of the FEMSOFT INSERT and520submit the additional data to the FDA for its further consideration to determine521whether such approval should be continued. There can be no assurance that these522additional data will be sufficient in the FDA's opinion to permit continued523marketing of the device even though the PMA filing for the FEMSOFT INSERT was524initially approved by the FDA. All of the Company's other marketed products have525received FDA marketing authorization pursuant to 510(k) notifications.526527The Company is also required to register with the FDA as a medical device528manufacturer. As such, the Company's manufacturing facilities are inspected on a529routine basis for compliance with QSR. These regulations require that the530Company manufacture its products and maintain its documents in a prescribed531manner with respect to design, manufacturing, testing and quality control532activities. As a medical device manufacturer, the Company is further required to533comply with FDA requirements regarding the reporting of adverse events534associated with the use of its medical devices, as well as product malfunctions535that would likely cause or contribute to death or serious injury if the536malfunction were to recur. FDA regulations also govern product labeling and can537prohibit a manufacturer from marketing an approved device for unapproved538applications. If the FDA believes that a manufacturer is not in compliance with539the law, it can institute enforcement proceedings to detain or seize products,540issue a recall, enjoin future violations and assess civil and criminal penalties541against the manufacturer, its officers and employees.542543The Company may become subject to future legislation and regulations544concerning the manufacture and marketing of medical devices. Such future545legislation and regulations could increase the cost and time necessary to begin546marketing new products and could affect the Company in other respects not547currently foreseeable. The Company cannot predict the effect of possible future548legislation and regulations.549550Sales of medical devices outside the United States are subject to foreign551regulatory requirements that vary widely from country to country. These laws and552regulations range from simple product registration requirements in some553countries to complex clearance and production controls in others. As a result,554the processes and time periods required to obtain foreign marketing approval may555be longer or shorter than those necessary to obtain FDA approval. These556differences may affect the efficiency and timeliness of international market557introduction of the Company's products. For countries in the European Union558("EU"), medical devices must display a CE mark before they may be imported or559sold. In order to obtain and maintain the CE mark, the Company must comply with560the Medical Device Directive and pass an initial and annual facilities audit561inspections to ISO 9001 by an EU inspection agency. The Company has obtained ISO5629001 quality system certification for the CE mark for its currently marketed563standard products, the FEMSOFT INSERT, and the5645655667567<PAGE>568569570RELEASE-NF CATHETER. In order to maintain certification, the Company is571required to pass annual facilities audit inspections conducted by EU572inspectors.573574In addition, international sales of medical devices manufactured in the575United States that have not been approved by the FDA for marketing in the United576States are subject to FDA export requirements. These require that the Company577obtain documentation from the medical device regulatory authority of the578destination country stating that sale of the medical device is not in violation579of that country's medical device laws, and, under some circumstances, may580require the Company to apply to the FDA for permission to export a device to581that country.582583THIRD PARTY REIMBURSEMENT584585In the United States, healthcare providers that purchase medical devices586generally rely on third party payors, such as Medicare, Medicaid, private health587insurance plans and managed care organizations, to reimburse all or a portion of588the cost of the devices. The Medicare program is funded and administered by the589federal government, while the Medicaid program is jointly funded by the federal590government and the states, which administer the program under general federal591oversight. The Company believes its currently marketed products, including the592RELEASE-NF CATHETER, are generally eligible for coverage under these third party593reimbursement programs. The Company has received Medicare reimbursement for the594FEMSOFT INSERT, and several private health insurance plans also offer this595reimbursement. The competitive position of certain of the Company's products may596be partially dependent upon the extent of reimbursement for its products.597598The federal government and certain state governments are currently599considering a number of proposals to reform the Medicare and Medicaid health600care reimbursement system. The Company is unable to evaluate what legislation601may be drafted and whether or when any such legislation will be enacted and602implemented. Certain of the proposals, if adopted, could have an adverse effect603on the Company's business, financial condition and results of operations.604605In foreign countries, the policies and procedures for obtaining third party606payment of reimbursement for medical devices vary widely. Compliance with such607procedures may delay or prevent the eligibility of the Company's branded and/or608private label products for reimbursement, and have an adverse effect on the609Company's ability to sell its branded or private label products in a particular610foreign country.611612PRIVATE LABEL DISTRIBUTION AGREEMENTS613614The Company supplies a number of medical product companies with products on615a private label basis.616617EMPLOYEES618619As of September 30, 2001, the Company employed 156 full-time employees, of620whom 122 were in manufacturing, and the remainder in marketing and sales,621research and development and administration. The Company is not a party to any622collective bargaining agreement and believes its employee relations are good.6236246258626<PAGE>627628629EXECUTIVE OFFICERS OF THE REGISTRANT630631The executive officers of the Company as of December 1, 2001 are as632follows:633634NAME AGE POSITION635- ---- --- --------636637Anthony J. Conway 57 Chairman of the Board, Chief Executive Officer,638President and Secretary639David A. Jonas 37 Chief Financial Officer and Treasurer640Philip J. Conway 45 Vice President, Production Technologies641Richard D. Fryar 54 Vice President, Research and Development642Dara Lynn Horner 43 Vice President, Marketing643Martyn R. Sholtis 42 Vice President, International and Private Label Sales644645ANTHONY J. CONWAY, a founder of the Company, has served as Chairman of the646Board, Chief Executive Officer, President and Secretary of the Company since May6471988. In addition to his duties as Chief Executive Officer, Mr. Anthony Conway648actively contributes to the Company's research and development and design649activities. From 1979 to March 1988, he was President, Secretary and Treasurer650of Arcon Corporation ("Arcon"), a company that he co-founded in 1979 to develop,651manufacture and sell latex-based male external catheters and related medical652devices. Prior to founding Arcon, Mr. Anthony Conway worked for twelve years for653International Business Machines Corporation ("IBM") in various research and654development capacities. Mr. Anthony Conway is one of the named inventors on655numerous patent applications that have been assigned to the Company, of which to656date 17 have resulted in issued United States patents.657658DAVID A. JONAS has served as the Company's Treasurer since November 2000659and as its Chief Financial Officer since May 2001. From June 1, 1998 until May6602001, Mr. Jonas served as the Company's Controller. From August 1999 until661October 2001, Mr. Jonas served as the Company's Director of Operations. Mr.662Jonas has had principal responsibility for the Company's operational activities663since August 1999, and since November 2000 has also had principal664responsibility for the Company's financial activities. Prior to joining the665Company, Mr. Jonas was employed in various financial, financial management and666operational management positions with Polaris Industries, Inc. from January6671989 to June 1998. Mr. Jonas holds a BS degree in Accounting from the668University of Minnesota and is a certified public accountant.669670PHILIP J. CONWAY, a founder of the Company, has served as Vice President of671Production Technologies of the Company since August 1999 and as a Director of672the Company since May 1988. From 1988 to July 1999, Mr. Philip Conway served as673Vice President of Operations of the Company. Mr. Philip Conway is responsible674for plant design as well as new product and production processes, research,675design and development activities. From 1979 to March 1988, Mr. Philip Conway676served as Plant and Production Manager of Arcon, a company that he co-founded.677Prior to joining Arcon, Mr. Philip Conway was employed in a production678supervisory capacity by AFC Corp., a manufacturer and fabricator of fiberglass,679plastics and other composite materials. He is one of the named inventors on680numerous patent applications that have been assigned to the Company, of which to681date 17 have resulted in issued United States patents.682683RICHARD D. FRYAR, a founder of the Company, has served as Vice President,684Research and Development and as a director of the Company since May 1988. Mr.685Fryar is responsible for overseeing the Company's research and development and686regulatory affairs activities. From 1984 to March 1988, Mr. Fryar was employed687by Arcon, a company that he co-founded, in research and development capacities.688From 1969 to 1984, he was employed by IBM in various research and development689capacities. He is one of the named inventors on numerous patent applications690that have been assigned to the Company, of which to date 17 have resulted in691issued United States patents.692693DARA LYNN HORNER joined the Company in November 1998 and serves as the694Company's Vice President of Marketing. From November 1998 until November 1999,695Ms. Horner served as Marketing Director for the Company's FEMSOFT INSERT696product line. Ms. Horner has principal responsibility for management of the697Company's marketing activities. From 1990 until joining the6986997009701<PAGE>702703704Company in 1998, Ms. Horner was employed by Lake Region Manufacturing, Inc., a705medical device manufacturer, most recently as Marketing Director.706707MARTYN R. SHOLTIS joined the Company in April 1992 and serves as the708Company's Vice President of International and Private Label Sales. Mr. Sholtis'709responsibilities include the development of the Company's relationships with the710Company's private label and international customers. From 1985 to 1992 Mr.711Sholtis was employed by Sherwood Medical, a company that manufactured and sold a712variety of disposable medical products including urological catheters, most713recently as Regional Sales Manager for the Nursing Care Division.714715Messrs. Anthony J. Conway, Philip J. Conway and Peter R. Conway, a716director of the Company, are brothers.717718ITEM 2. PROPERTIES719720The Company's administrative offices and liquid encapsulation manufacturing721facilities occupy a 52,000 square foot manufacturing and office facility on a 28722acre site owned by the Company and located in an industrial park in723Stewartville, Minnesota. The Company's male external and Foley catheter724manufacturing facilities consists of a 34,000 square foot manufacturing and725office building located on a nearby 3.5 acre site owned by the Company in the726same industrial park.727728ITEM 3. LEGAL PROCEEDINGS729730The Company is not involved in any material legal proceedings.731732ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS733734No matters were submitted to a vote of security holders during the fourth735quarter ended September 30, 2001.736737738PART II739740ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS741742The Common Stock is quoted on the Nasdaq National Market under the symbol743ROCM. The following table sets forth, for the periods indicated, the range of744high and low last sale prices for the Common Stock as reported by the Nasdaq745National Market.746747HIGH LOW748------- ------749FISCAL 2000750First Quarter ................................... $10.156 $ 6.25751Second Quarter .................................. 12.375 7.00752Third Quarter ................................... 12.25 7.625753Fourth Quarter .................................. 9.375 5.875754755FISCAL 2001756First Quarter ................................... $ 7.00 $ 4.00757Second Quarter .................................. 5.766 4.188758Third Quarter ................................... 6.55 4.281759Fourth Quarter .................................. 6.25 3.50760761HOLDERS762763As of December 3, 2001, the Company had 129 shareholders of record. Such764number of record holders does not reflect shareholders who beneficially own765Common Stock in nominee or street name.766767The Company has paid no cash dividends on its Common Stock, and it does not768intend to pay cash dividends on its Common Stock in the future.76977077110772<PAGE>773774775ITEM 6. SELECTED FINANCIAL DATA776777The following selected financial data of the Company as of September 30,7782001 and 2000 and for the three fiscal years ended September 30, 2001, 2000 and7791999 are derived from, and should be read together with, the financial780statements of the Company audited by Ernst & Young LLP, independent auditors,781included elsewhere in this Form 10-K. The following selected financial data as782of September 30, 1999, 1998 and 1997 and for the fiscal years ended September78330, 1998 and 1997 are derived from audited financial statements not included784herein. The information set forth below should be read in conjunction with785"Management's Discussion and Analysis of Financial Condition and Results of786Operations," the Financial Statements and Notes thereto and other financial787information included elsewhere in this Form 10-K.788789<TABLE>790<CAPTION>791FISCAL YEARS ENDED SEPTEMBER 30,792----------------------------------------------------------------7932001 2000 1999 1998 1997794-------- -------- -------- -------- --------795<S> <C> <C> <C> <C> <C>796Statements of Operations Data:797Net sales ....................... $ 8,302 $ 7,860 $ 7,341 $ 9,518 $ 7,615798Cost of sales ................... 6,304 6,151 5,602 6,604 4,869799-------- -------- -------- -------- --------800Gross profit ................... 1,998 1,709 1,739 2,914 2,746801Operating expenses:802Marketing and selling ........... 2,545 4,589 3,944 3,191 2,210803Research and development ........ 1,062 1,008 1,052 1,384 1,451804General and administrative ...... 1,730 2,238 1,863 1,445 1,499805-------- -------- -------- -------- --------806Total operating expenses ....... 5,337 7,835 6,859 6,020 5,160807-------- -------- -------- -------- --------808Loss from operations ............. (3,339) (6,126) (5,120) (3,106) (2,414)809Interest income .................. 384 595 719 848 657810Interest expense ................. -- -- -- -- (342)811-------- -------- -------- -------- --------812Net loss ......................... $ (2,955) $ (5,531) $ (4,401) $ (2,258) $ (2,099)813======== ======== ======== ======== ========814Net loss per common share --815basic and diluted ............... $ (.55) $ (1.04) $ (.83) $ (.44) $ (.51)816Weighted average number of817common shares outstanding ....... 5,339 5,341 5,333 5,141 4,132818819<CAPTION>820AS OF SEPTEMBER 30,821----------------------------------------------------------------8222001 2000 1999 1998 1997823-------- -------- -------- -------- --------824<S> <C> <C> <C> <C> <C>825Balance Sheet Data:826Cash, cash equivalents and827marketable securities .......... $ 5,748 $ 8,859 $ 13,246 $ 16,410 $ 4,639828Working capital ................. 8,319 10,329 15,486 19,245 7,081829Total assets .................... 19,659 23,254 28,702 32,736 18,613830Long-term debt .................. -- -- -- -- --831Accumulated deficit ............. (22,661) (19,706) (14,175) (9,774) (7,516)832Total shareholders' equity ...... $ 18,455 $ 21,573 $ 27,177 $ 30,918 $ 17,181833</TABLE>83483583611837<PAGE>838839840ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS841OF OPERATIONS842843Statements other than historical information contained herein constitute844"forward-looking statements" within the meaning of the Private Securities845Litigation Reform Act of 1995. Such forward-looking statements may be identified846by the use of terminology such as "may," "will," "expect," "anticipate,"847"predict," "intend," "designed," "estimate," "should" or "continue" or the848negatives thereof or other variations thereon or comparable terminology. The849forward-looking statements involve known or unknown risks, uncertainties and850other factors which may cause the actual results, performance or achievements of851the Company, or industry results, to be materially different from any future852results, performance or achievements expressed or implied by such853forward-looking statements. Factors that might cause such differences include,854but are not limited to, those discussed in the section entitled "Risk Factors"855below.856857RESULTS OF OPERATIONS858859The following table sets forth, for the periods indicated, certain items860from the statements of operations of the Company expressed as a percentage of861net sales:862863<TABLE>864<CAPTION>865FISCAL YEARS ENDED866SEPTEMBER 30,867------------------------------8682001 2000 1999869---- ---- ----870<S> <C> <C> <C>871Total net sales ..................... 100% 100% 100%872Cost of sales ....................... 76 78 76873---- ---- ----874Gross margin ........................ 24 22 24875Operating expenses:876Marketing and selling .............. 30 58 54877Research and development ........... 13 13 14878General and administrative ......... 21 29 26879---- ---- ----880Total operating expenses ............ 64 100 94881Loss from operations ................ (40) (78) (70)882Interest income, net ................ 5 8 10883---- ---- ----884Net loss ............................ (35)% (70)% (60)%885==== ==== ====886</TABLE>887888FISCAL YEAR ENDED SEPTEMBER 30, 2001 COMPARED TO FISCAL YEAR ENDED889SEPTEMBER 30, 2000890891NET SALES. Net sales increased 6% to $8.3 million in fiscal 2001 from $7.9892million in the prior fiscal year. Domestic sales decreased 11% compared to the893prior fiscal year, with growth of 11% in ROCHESTER MEDICAL brand product sales894offset by a 33% decline in sales to domestic private label customers, primarily895ConvaTec. International sales increased 29% in fiscal 2001 compared to the prior896fiscal year, primarily due to growth in European markets.897898GROSS MARGIN. The Company's gross margin was 24% in fiscal 2001 compared to89922% in fiscal 2000. The Company's gross margin was substantially similar in900fiscal 2001 and fiscal 2000 primarily due to relatively stable utilization of901production capacity.902903MARKETING AND SELLING. Marketing and selling expense decreased 45% to $2.5904million in fiscal 2001 from $4.6 million in fiscal 2000. Decrease in expense is905primarily due to nonrecurring expenses for the development of marketing906materials related to the FEMSOFT INSERT in fiscal 2000 and a reduction in the907size of the Company's sales force.908909RESEARCH AND DEVELOPMENT. Research and development expense increased 5% to910$1.1 million in fiscal 2001 from $1.0 million in fiscal 2000. The increase in911research and development expense primarily reflects increased development costs912associated with the Company's hydrophilic intermittent catheter offset by a913reduction in accruals for costs of the FEMSOFT INSERT clinical trials related to914stage of completion.915916GENERAL AND ADMINISTRATIVE. General and administrative expense decreased91723% to $1.7 million in fiscal 2001 from $2.2 million in fiscal 2000. The918decrease in general and91992092112922<PAGE>923924925administrative expense is related to one-time costs in fiscal 2000 associated926with the terminated transaction with Maersk Medical, as well as one-time costs927related to severance expenses associated with a reduction in personnel.928929INTEREST INCOME. Interest income decreased 35% to $384,000 in fiscal 2001930from $595,000 in fiscal 2000. The decrease in interest income reflects the931comparatively lower average level of invested cash balances in the current932fiscal year due to the utilization of cash for operations and capital933expenditures as well as generally lower interest rates in fiscal 2001.934935FISCAL YEAR ENDED SEPTEMBER 30, 2000 COMPARED TO FISCAL YEAR ENDED936SEPTEMBER 30, 1999937938NET SALES. Net sales increased 7% to $7.9 million in fiscal 2000 from $7.3939million in the prior fiscal year. Domestic sales were flat compared to the prior940fiscal year, with growth of 17% in ROCHESTER MEDICAL brand product sales offset941by a 13% decline in sales to domestic private label customers, primarily Mentor942and ConvaTec. International sales increased 18% in fiscal 2000 compared to the943prior fiscal year, primarily due to growth in European markets.944945GROSS MARGIN. The Company's gross margin was 22% in fiscal 2000 compared to94624% in fiscal 1999. The fiscal 2000 margin primarily reflects costs associated947with continuing underutilized production capacity. Costs associated with948increased capacity are anticipated to continue until such time as, if ever, the949Company achieves sufficient sales to absorb the additional capacity.950951MARKETING AND SELLING. Marketing and selling expense increased 16% to $4.6952million in fiscal 2000 from $3.9 million in fiscal 1999. The increase in expense953is due to promotional activities for the FEMSOFT INSERT. The Company anticipates954that marketing and selling expenses will decrease in fiscal 2001 because fiscal9552000 included nonrecurring expenses for the development of marketing materials956related to the FEMSOFT INSERT and due to a reduction in the size of the957Company's sales force.958959RESEARCH AND DEVELOPMENT. Research and development expense decreased 4% to960$1.0 million in fiscal 2000 from $1.1 million in fiscal 1999. The decrease in961research and development expense primarily reflects a reduction in accruals for962costs of the FEMSOFT INSERT clinical trials related to stage of completion.963964GENERAL AND ADMINISTRATIVE. General and administrative expense increased96520% to $2.2 million in fiscal 2000 from $1.9 million in fiscal 1999. The966increase in general and administrative expense in fiscal 2000 is related to967one-time costs associated with the terminated transaction with Maersk Medical,968as well as one-time costs related to severance expenses associated with a969reduction in personnel.970971INTEREST INCOME. Interest income decreased 17% to $595,000 in fiscal 2000972from $719,000 in fiscal 1999. The decrease in interest income reflects the973comparatively lower average level of invested cash balances in the current974fiscal year due to the utilization of cash for operations and capital975expenditures.976977LIQUIDITY AND CAPITAL RESOURCES978979The Company has financed its operations primarily through public offerings980and private placements of its equity securities, and has raised approximately981$40.7 million in net proceeds since its inception.982983The Company's cash, cash equivalents and marketable securities were $5.8984million at September 30, 2001 compared with $8.9 million at September 30, 2000.985The September 30, 2001 total includes a corporate bond from Pacific Gas &986Electric ("PG&E") with a carrying value of $845,000 on September 30, 2001, which987matures December 24, 2001. On April 6, 2001, PG&E filed for Chapter 11988bankruptcy protection. While PG&E's management has stated their intent to pay989their creditors, the numerous political and economic factors influencing the990California utility market coupled with PG&E's bankruptcy filing could991potentially impact the timing and/or ultimate realization of payments. However,992the Company currently believes that it will realize the full value of this993investment. The Company used a net $2.7 million of cash in operating activities99499599613997<PAGE>9989991000during the year. Investing activities, primarily sales of marketable securities,1001provided net cash of $1,354,000 in fiscal 2001, offset in part by capital1002expenditures of $225,000.10031004During fiscal 2001, the Company's working capital position, excluding cash1005and marketable securities, increased by a net $1,102,000. Accounts receivable1006balances increased 49% or $492,000 during the fiscal year as a result of1007increased sales in the fourth quarter. Inventories increased 11% or $207,0001008during the year. Other current assets decreased 29% or $74,000 as a result of1009the collection of miscellaneous receivables. Current liabilities decreased 28%1010or $478,000 during the year. Changes in other asset and liability balances1011related to timing of expense recognition.10121013In December 1999, the Board of Directors authorized a stock repurchase1014program. Up to one million shares of the Company's outstanding common stock may1015be repurchased under the program. Purchases may be made from time to time at1016prevailing prices in the open market and through other customary means. No time1017limit has been placed on the duration of the stock repurchase program and it may1018be conducted over an extended period of time as business and market conditions1019warrant. The Company also may discontinue the stock repurchase program at any1020time. The repurchased shares will be available for reissuance pursuant to1021employee stock option plans and for other corporate purposes. The Company1022intends to fund such repurchases with currently available funds. During fiscal10232001, the Company repurchased 10,400 shares of common stock for $46,976.10241025Although the Company believes that its existing resources and anticipated1026cash flows from operations will be sufficient to satisfy its capital needs for1027approximately the next two years, there can be no assurance that the Company1028will not require additional financing before that time. The Company's actual1029liquidity and capital requirements will depend upon numerous factors, including1030the costs and timing of expansion of sales and marketing activities; the amount1031of revenues from sales of the Company's existing and new products; changes in,1032termination of, and the success of, existing and new distribution arrangements;1033the cost of maintaining, enforcing and defending patents and other intellectual1034property rights; competing technological and market developments; developments1035related to regulatory and third party reimbursement matters; the cost and1036progress of the Company's research and development efforts; and other factors.1037In the event that additional financing is needed, the Company may seek to raise1038additional funds through public or private financing, collaborative1039relationships or other arrangements. Any additional equity financing may be1040dilutive to shareholders, and debt financing, if available, may involve1041significant restrictive covenants. Collaborative arrangements, if necessary to1042raise additional funds, may require the Company to relinquish its rights to1043certain of its technologies, products or marketing territories. Failure to raise1044capital when needed could have a material adverse effect on the Company's1045business, financial condition and results of operations. There can be no1046assurance that such financing, if required, will be available on terms1047satisfactory to the Company, if at all.104810491050141051<PAGE>105210531054RISK FACTORS10551056LIMITED REVENUES; HISTORY OF LOSSES AND ANTICIPATED FUTURE LOSSES10571058The Company has generated only limited revenues to date and has experienced1059net losses since its inception. Net losses for the fiscal years ended September106030, 2001, 2000 and 1999 were $3.0 million, $5.5 million and $4.4 million,1061respectively. The Company had an accumulated deficit of approximately $22.71062million at September 30, 2001. The Company's ability to increase revenues and1063achieve profitability and positive cash flow over the next several years will1064depend primarily upon market acceptance of, and achievement of material sales1065from, the Company's intermittent catheters, the RELEASE-NF CATHETER and the1066FEMSOFT INSERT, of which there can be no assurance. A substantial portion of the1067expenses associated with the Company's manufacturing facilities are fixed in1068nature (i.e. depreciation) and will reduce the Company's operating margin until1069such time, if ever, as the Company is able to increase utilization of its1070capacity through increased sales of its new products. As a result, the Company1071expects to incur substantial operating losses for the foreseeable future and1072there can be no assurance that the Company will ever generate substantial1073revenues or achieve or sustain profitability.10741075DEPENDENCE ON DISTRIBUTION ARRANGEMENTS10761077A significant portion of the Company's net sales to date have depended on1078the Company's ability to provide products that meet the requirements of medical1079product companies that resell or distribute the Company's products, and on the1080sales and marketing efforts of such entities. Arrangements with these entities1081are likely to continue to be a significant portion of the Company's revenues in1082the future. There can be no assurance that the Company's purchasers and1083distributors will be able to successfully market and sell the Company's1084products, that they will devote sufficient resources to support the marketing of1085any of the Company's products, that they will market any of the Company's1086products at prices which will permit such products to develop, achieve, or1087sustain market acceptance, or that they will not develop alternative sources of1088supply. The failure of the Company's purchasers and distributors to continue to1089purchase products from the Company at levels reasonably consistent with their1090prior purchases or to effectively market the Company's products could have a1091material adverse effect on the Company's business, financial condition and1092results of operations.10931094UNCERTAINTY OF MARKET ACCEPTANCE OF NEW PRODUCTS10951096The Company has several new products, including the hydrophilic and1097antibacterial intermittent catheters, the RELEASE-NF CATHETER, and the FEMSOFT1098INSERT, that represent new methods and improvements for urinary continence care.1099There can be no assurance that these products will gain any significant degree1100of market acceptance among physicians, healthcare payors and patients. Market1101acceptance of these products, if it occurs, may require lengthy hospital1102evaluations and/or the training of numerous physicians and clinicians, which1103could delay or dampen any such market acceptance. Moreover, approval of1104reimbursement for the Company's products, competing products or alternative1105medical treatments, and the Company's pricing policies will be important factors1106in determining market acceptance of these products. Any of the foregoing1107factors, or other factors, could limit or detract from market acceptance of1108these products. Insufficient market acceptance of these products could have a1109material adverse effect on the Company's business, financial condition and1110results of operations.11111112RISKS ASSOCIATED WITH MARKETING AND SALES OF ROCHESTER MEDICAL BRAND PRODUCTS11131114The Company's success will depend on its ability to overcome established1115market positions of competitors and to establish its own market presence under1116the ROCHESTER MEDICAL brand name. One of the challenges facing the Company in1117this respect is the Company's ability to compete with companies that offer a1118wider array of products to hospitals and medical care institutions, distributors1119and end users. The Company may also find it difficult to sell its products due1120to the limited recognition of its brand name.112111221123151124<PAGE>112511261127HIGHLY COMPETITIVE MARKETS; ALTERNATIVE TREATMENTS; TECHNOLOGICAL ADVANCEMENTS11281129The medical products market in general is, and the markets for urinary1130continence care products in particular are, highly competitive. Many of the1131Company's competitors have greater name recognition than the Company and offer1132well known and established products, some of which are less expensive than the1133Company's products. As a result, even if the Company can demonstrate that its1134products provide greater ease of use, lifestyle improvement or beneficial1135effects on medical outcomes over the course of treatment, the Company may not be1136successful in capturing a significant share of the market. In addition, many of1137the Company's competitors offer broader product lines than the Company, which1138may be a competitive advantage in obtaining contracts with healthcare purchasing1139groups, and may adversely affect the Company's ability to obtain contracts with1140such purchasing groups. Additionally, many of the Company's competitors have1141substantially more marketing and sales experience than the Company and1142substantially greater resources to devote to such efforts. There can be no1143assurance that the Company will be able to compete successfully against such1144competitors.11451146Urinary continence care can be managed with a variety of alternative1147medical treatments and management products or techniques, including adult1148diapers and absorbent pads, surgery, behavior therapy, pelvic muscle exercise,1149implantable devices, injectable materials and other medical devices.1150Manufacturers of these products or techniques are engaged in research to develop1151more advanced versions of current products and techniques. Many of the companies1152that are engaged in such development work have substantially greater capital1153resources than the Company and greater expertise than the Company in research,1154development and regulatory matters. There can be no assurance that the Company's1155products will be able to compete with existing or future alternative products,1156techniques or therapies, or that advancements in existing products, techniques1157or therapies will not render the Company's products obsolete.11581159POSSIBLE NEED FOR ADDITIONAL CAPITAL11601161Although the Company believes its existing resources and anticipated cash1162flows from operations will be sufficient to satisfy its capital needs for1163approximately the next two years, there can be no assurance that the Company1164will not require additional financing before that time. The Company's actual1165liquidity and capital requirements will depend on numerous factors, including1166the costs and timing of expansion of sales and marketing activities; the amount1167of revenues from sales of the Company's existing and new products, including the1168RELEASE-NF CATHETER and FEMSOFT INSERT; changes in, termination of, and the1169success of, existing and new distribution arrangements; the cost of maintaining,1170enforcing and defending patents and other intellectual property rights;1171competing technological and market developments; developments relating to1172regulatory and third party reimbursement matters; the cost and progress of the1173Company's research and development efforts; and other factors. In the event that1174additional financing is needed, the Company may seek to raise additional funds1175through public or private financing, collaborate relationships or other1176arrangements. Any additional equity financing may be dilutive to shareholders,1177and debt financing, if available, may involve significant restrictive covenants.1178Failure to raise capital when needed could have a material adverse effect on the1179Company's business, financial condition and results of operations. There can be1180no assurance that such financing, if required, will be available on terms1181satisfactory to the Company, if at all.11821183EFFECTS OF GOVERNMENT REGULATION11841185The Company's products, product development activities and manufacturing1186processes are subject to extensive regulation by the FDA and by comparable1187agencies in foreign countries. In the United States, the FDA regulates the1188introduction of medical devices as well as manufacturing, labeling and record1189keeping procedures for such products. The process of obtaining marketing1190clearance for new medical products from the FDA can be costly and time1191consuming, and there can be no assurance that such clearance will be granted1192timely, if at all, for the Company's products in development, or that FDA review1193will not involve delays that would adversely affect the Company's ability to1194commercialize additional products or to expand permitted uses of existing1195products. Even if regulatory clearance to market a product is obtained from the1196FDA, this clearance may entail119711981199161200<PAGE>120112021203limitations on the indicated uses of the product. Marketing clearance can also1204be withdrawn by the FDA due to failure to comply with regulatory standards or1205the occurrence of unforeseen problems following initial clearance. The Company1206may be required to make further filings with the FDA under certain1207circumstances, such as the addition of product claims or product reformulation.1208The FDA could also limit or prevent the manufacture or distribution of the1209Company's products and has the power to require the recall of such products. FDA1210regulations depend heavily on administrative interpretation, and there can be no1211assurance that future interpretation made by the FDA or other regulatory bodies,1212which may have retroactive effect, will not adversely affect the Company. The1213FDA and various state agencies inspect the Company and its facilities from time1214to time to determine whether the Company is in compliance with regulations1215relating to medical device manufacturing companies, including regulations1216concerning design, manufacturing, testing, quality control and product labeling1217practices. A determination that the Company is in material violation of such1218regulations could lead to the imposition of civil penalties, including fines,1219product recalls, product seizures, or, in extreme cases, criminal sanctions.12201221A portion of the Company's revenues are dependent upon sales of its1222products outside the United States. Foreign regulatory bodies have established1223varying regulations governing product standards, packaging requirements,1224labeling requirements, import restrictions, tariff regulations, duties and tax1225requirements. The Company relies on its third-party foreign distributors to1226comply with certain foreign regulatory requirements. The inability or failure of1227the Company or such foreign distributors to comply with varying foreign1228regulations or the imposition of new regulations could restrict the sale of the1229Company's products internationally and thereby adversely affect the Company's1230business, financial condition and results of operations.12311232DEPENDENCE ON PATENTS AND PROPRIETARY RIGHTS12331234The Company's success may depend in part on its ability to obtain patent1235protection for its products and manufacturing processes, to preserve its trade1236secrets, and to operate without infringing the proprietary rights of third1237parties. The validity and breadth of claims covered in medical technology1238patents involve complex legal and factual questions and, therefore, may be1239highly uncertain. No assurance can be given that the scope of any patent1240protection under the Company's current patents, or under any patent the Company1241might obtain in the future, will exclude competitors or provide competitive1242advantages to the Company; that any of the Company's patents will be held valid1243if subsequently challenged; or that others will not claim rights in or ownership1244of the patents and other proprietary rights held by the Company. There can be no1245assurance that the Company's technology, current or future products or1246activities will not be deemed to infringe upon the rights of others.1247Furthermore, there can be no assurance that others have not developed or will1248not develop similar products or manufacturing processes, duplicate any of the1249Company's products or manufacturing processes, or design around the Company's1250patents. The Company also relies upon unpatented trade secrets to protect its1251proprietary technology, and no assurance can be given that others will not1252independently develop or otherwise acquire substantially equivalent technology1253or otherwise gain access to the Company's proprietary technology or disclose1254such technology or that the Company can ultimately protect meaningful rights to1255such unpatented proprietary technology.12561257The medical device industry is characterized by frequent and substantial1258intellectual property litigation, particularly with respect to newly developed1259technology. Litigation may be necessary to enforce patents issued to the1260Company, to protect trade secrets or know-how owned by the Company, or to1261determine the ownership, scope or validity of the proprietary rights of the1262Company and others. Intellectual property litigation is complex and expensive,1263and the outcome of such litigation is difficult to predict. Any such litigation,1264regardless of outcome, could result in substantial expense to the Company and1265significant diversion of the efforts of the Company's technical and management1266personnel. As a result, a claim by a third party that the Company's current1267products or products in development allegedly infringe its patent rights could1268have a material adverse effect on the Company. Moreover, an adverse1269determination in any such proceeding could subject the Company to significant1270liabilities to third parties, require disputed rights to be licensed from such1271parties, if licenses to such rights could be obtained, and/or require127212731274171275<PAGE>127612771278the Company to cease using such technology. If third party patents containing1279claims affecting the Company's technology were issued and such claims were1280determined to be valid, there can be no assurance that the Company would be able1281to obtain licenses to such patents at costs reasonable to the Company, if at1282all, or be able to develop or obtain alternate technology. Accordingly, an1283adverse determination in a judicial or administrative proceeding or failure to1284obtain necessary licenses could prevent the Company from manufacturing, using or1285selling certain of its products, which could have a material adverse effect on1286the Company's business, financial condition and results of operations.12871288POSSIBILITY OF PRODUCT LIABILITY LITIGATION; POSSIBLE INADEQUACY OF INSURANCE12891290The medical products industry is subject to substantial product liability1291litigation, and the Company faces an inherent business risk of exposure to1292product liability claims in the event that the use of its products is alleged to1293have resulted in adverse effects to a patient. Although the Company has not1294experienced any product liability claims to date, any such claims could have a1295material adverse effect on the Company, including on market acceptance of its1296products. The Company maintains general insurance policies that include coverage1297for product liability claims. The policies are limited to an aggregate maximum1298of $6 million per product liability claim, with an annual aggregate limit of $71299million under the policies. The Company may require increased product liability1300coverage as new products are developed and commercialized. There can be no1301assurance that liability claims will not exceed the coverage limits of the1302Company's policies or that adequate insurance will continue to be available on1303commercially reasonable terms, if at all. A product liability claim or other1304claim with respect to uninsured liabilities or in excess of insured liabilities1305could have a material adverse effect on the Company's business, financial1306condition and results of operations.130713081309181310<PAGE>131113121313ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.13141315The Company's operations are not currently subject to market risks for1316interest rates, foreign currency exchange rates, commodity prices or other1317relevant market price risks of a material nature.13181319ITEM 8. FINANCIAL STATEMENTS132013211322ROCHESTER MEDICAL CORPORATION13231324FINANCIAL STATEMENTS13251326YEARS ENDED SEPTEMBER 30, 2001, 2000 AND 199913271328PAGE1329-----1330Report of Independent Auditors ..................................... 201331Audited Financial Statements ....................................... 21-301332Balance Sheets .................................................... 211333Statements of Operations .......................................... 221334Statement of Shareholders' Equity ................................. 231335Statements of Cash Flows .......................................... 241336Notes to Financial Statements ..................................... 25133713381339191340<PAGE>134113421343REPORT OF INDEPENDENT AUDITORS134413451346134713481349Shareholders1350Rochester Medical Corporation135113521353We have audited the accompanying balance sheets of Rochester Medical1354Corporation as of September 30, 2001 and 2000, and the related statements of1355operations, shareholders' equity and cash flows for each of the three years in1356the period ended September 30, 2001. These financial statements are the1357responsibility of the Company's management. Our responsibility is to express an1358opinion on these financial statements based on our audits.13591360We conducted our audits in accordance with auditing standards generally1361accepted in the United States. Those standards require that we plan and perform1362the audit to obtain reasonable assurance about whether the financial statements1363are free of material misstatement. An audit includes examining, on a test basis,1364evidence supporting the amounts and disclosures in the financial statements. An1365audit also includes assessing the accounting principles used and significant1366estimates made by management, as well as evaluating the overall financial1367statement presentation. We believe that our audits provide a reasonable basis1368for our opinion.13691370In our opinion, the financial statements referred to above present fairly,1371in all material respects, the financial position of Rochester Medical1372Corporation at September 30, 2001, and the results of its operations and its1373cash flows for each of the three years in the period ended September 30, 2001,1374in conformity with accounting principles generally accepted in the United1375States.1376137713781379/s/ ERNST & YOUNG LLP13801381Minneapolis, Minnesota1382October 19, 2001138313841385201386<PAGE>138713881389ROCHESTER MEDICAL CORPORATION13901391BALANCE SHEETS13921393<TABLE>1394<CAPTION>1395SEPTEMBER 30,1396-----------------------------13972001 20001398------------ ------------1399<S> <C> <C>1400ASSETS1401Current assets:1402Cash and cash equivalents ................................... $ 1,842,796 $ 3,204,1611403Marketable securities ....................................... 3,904,840 5,654,4421404Accounts receivable, less allowance for doubtful accounts1405($60,498 - 2001; $62,567 - 2000) ........................... 1,499,337 1,007,4321406Inventories, net ............................................ 2,099,226 1,892,4551407Prepaid expenses and other current assets ................... 177,105 251,3281408------------ ------------1409Total current assets ......................................... 9,523,304 12,009,8181410Property, plant and equipment:1411Land ........................................................ 194,133 169,7071412Buildings ................................................... 5,260,404 5,250,7201413Equipment and fixtures ...................................... 10,175,200 9,984,4961414------------ ------------141515,629,737 15,404,9231416Less accumulated depreciation ............................... (5,682,089) (4,351,235)1417------------ ------------1418Total property, plant and equipment .......................... 9,947,648 11,053,6881419Patents, less accumulated amortization ($750,997 - 2001;1420$710,492 - 2000) ............................................ 188,345 190,7171421------------ ------------1422Total assets ................................................. $ 19,659,297 $ 23,254,2231423============ ============1424LIABILITIES AND SHAREHOLDERS' EQUITY1425Current liabilities:1426Accounts payable ............................................ $ 383,145 $ 799,7371427Accrued compensation ........................................ 585,976 530,2761428Accrued expenses ............................................ 234,991 351,1921429------------ ------------1430Total current liabilities .................................... 1,204,112 1,681,2051431Shareholders' equity:1432Common Stock, no par value:1433Authorized shares - 20,000,0001434Issued and outstanding shares; (5,328,500 - 2001;14355,338,900 - 2000) .......................................... 41,249,003 41,279,3591436Accumulated deficit .......................................... (22,660,988) (19,706,341)1437Unrealized loss on available-for-sale securities ............. (132,830) --1438------------ ------------1439Total shareholders' equity ................................... 18,455,185 21,573,0181440------------ ------------1441Total liabilities and shareholders' equity ................... $ 19,659,297 $ 23,254,2231442============ ============1443</TABLE>14441445SEE ACCOMPANYING NOTES.144614471448211449<PAGE>145014511452ROCHESTER MEDICAL CORPORATION14531454STATEMENTS OF OPERATIONS14551456<TABLE>1457<CAPTION>1458FISCAL YEARS ENDED SEPTEMBER 30,1459-------------------------------------------14602001 2000 19991461----------- ----------- -----------1462<S> <C> <C> <C>1463Net sales ......................................... $ 8,301,667 $ 7,860,132 $ 7,340,8701464Cost of sales ..................................... 6,304,173 6,151,195 5,602,0421465----------- ----------- -----------1466Gross profit ...................................... 1,997,494 1,708,937 1,738,82814671468Operating expenses:1469Marketing and selling ............................ 2,545,284 4,588,874 3,943,5891470Research and development ......................... 1,061,985 1,008,431 1,052,0901471General and administrative ....................... 1,729,261 2,237,985 1,863,1941472----------- ----------- -----------1473Total operating expenses .......................... 5,336,530 7,835,290 6,858,8731474Loss from operations .............................. (3,339,036) (6,126,353) (5,120,045)14751476Other income (expense):1477Interest income .................................. 384,389 595,208 719,3221478----------- ----------- -----------1479Net loss .......................................... $(2,954,647) $(5,531,145) $(4,400,723)1480=========== =========== ===========1481Net loss per common share -- basic and diluted .... $ (.55) $ (1.04) $ (.83)1482=========== =========== ===========1483Weighted average number of common shares1484outstanding ...................................... 5,338,541 5,341,243 5,332,8681485=========== =========== ===========1486</TABLE>14871488SEE ACCOMPANYING NOTES.148914901491221492<PAGE>149314941495ROCHESTER MEDICAL CORPORATION14961497STATEMENT OF SHAREHOLDERS' EQUITY14981499<TABLE>1500<CAPTION>1501COMMON STOCK UNREALIZED1502----------------------------- ACCUMULATED LOSS1503SHARES AMOUNT DEFICIT ON SECURITIES TOTAL1504------------ ------------ ------------ ------------- ------------1505<S> <C> <C> <C> <C> <C>1506Balance at September 30, 1998 ...... 5,269,500 $ 40,692,202 $ (9,774,473) $ -- $ 30,917,7291507Exercise of common stock1508options .......................... 80,000 660,000 -- -- 660,0001509Net loss for the year ............. -- -- (4,400,723) -- (4,400,723)1510------------ ------------ ------------ ------------ ------------1511Balance at September 30, 1999 ...... 5,349,500 41,352,202 (14,175,196) -- 27,177,0061512Stock Repurchase .................. (10,600) (72,843) -- -- (72,843)1513Net loss for the year ............. -- -- (5,531,145) -- (5,531,145)1514------------ ------------ ------------ ------------ ------------1515Balance at September 30, 2000 ...... 5,338,900 41,279,359 (19,706,341) -- 21,573,0181516Net loss for the year ............. -- -- (2,954,647) -- (2,954,647)1517Unrealized loss on1518available-for-sale1519securities ....................... -- -- -- (132,830) (132,830)1520------------ ------------ ------------ ------------ ------------1521Subtotal -- comprehensive1522loss ............................. (3,087,477)1523Stock Repurchase .................. (10,400) (46,976) -- -- (46,976)1524Valuation of stock options1525granted for services ............. -- 16,620 -- -- 16,6201526------------ ------------ ------------ ------------ ------------1527Balance at September 30, 2001 ...... 5,328,500 $ 41,249,003 $(22,660,988) $ (132,830) $ 18,455,1851528============ ============ ============ ============ ============1529</TABLE>15301531SEE ACCOMPANYING NOTES.153215331534231535<PAGE>153615371538ROCHESTER MEDICAL CORPORATION15391540STATEMENTS OF CASH FLOWS15411542<TABLE>1543<CAPTION>1544FISCAL YEARS ENDED SEPTEMBER 30,1545----------------------------------------------15462001 2000 19991547------------ ------------ ------------1548<S> <C> <C> <C>1549OPERATING ACTIVITIES1550Net loss ............................................... $ (2,954,647) $ (5,531,145) $ (4,400,723)1551Adjustments to reconcile net loss to net cash used1552in operating activities:1553Depreciation and amortization ......................... 1,371,359 1,162,978 837,3311554Valuation of stock options granted for services ....... 16,620 -- --1555Changes in operating assets and liabilities:1556Accounts receivable .................................. (491,905) 362,230 585,3861557Inventories .......................................... (206,771) 155,365 161,7791558Other current assets ................................. 74,223 96,532 141,1411559Accounts payable ..................................... (416,592) 110,262 (76,829)1560Other current liabilities ............................ (60,501) 45,554 (215,803)1561------------ ------------ ------------1562Net cash used in operating activities .................. (2,668,214) (3,598,224) (2,967,718)15631564INVESTING ACTIVITIES1565Capital expenditures ................................... (224,814) (675,965) (798,285)1566Patents ................................................ (38,133) (40,475) (58,081)1567Purchase of marketable securities ...................... (7,285,274) (23,570,342) (54,892,037)1568Sales and maturities of marketable securities .......... 8,902,046 26,945,196 59,408,0131569------------ ------------ ------------1570Net cash provided by investing activities .............. 1,353,825 2,658,414 3,659,61015711572FINANCING ACTIVITIES1573Sale (purchase) of Common Stock ........................ (46,976) (72,843) 660,0001574------------ ------------ ------------1575Net cash provided by (used in) financing1576activities ............................................ (46,976) (72,843) 660,0001577------------ ------------ ------------1578Increase (decrease) in cash and cash1579equivalents ........................................... (1,361,365) (1,012,653) 1,351,8921580Cash and cash equivalents at beginning of year ......... 3,204,161 4,216,814 2,864,9221581------------ ------------ ------------1582Cash and cash equivalents at end of year ............... $ 1,842,796 $ 3,204,161 $ 4,216,8141583============ ============ ============1584</TABLE>15851586SEE ACCOMPANYING NOTES.158715881589241590<PAGE>159115921593ROCHESTER MEDICAL CORPORATION15941595NOTES TO FINANCIAL STATEMENTS15961597SEPTEMBER 30, 2001159815991. BUSINESS ACTIVITY16001601Rochester Medical Corporation (the "Company") develops, manufactures and1602markets a broad line of innovative, technologically enhanced latex-free urinary1603continence and urine drainage care products for the home care and acute/extended1604care markets. The Company currently manufactures and markets standard continence1605care products, including male external catheters, Foley catheters and1606intermittent catheters and innovative and technologically advanced products such1607as its FEMSOFT INSERT, RELEASE-NF catheter and hydrophilic intermittent1608catheter.160916102. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES16111612CASH EQUIVALENTS1613The Company considers all highly liquid investments with a remaining1614maturity of three months or less when purchased to be cash equivalents.16151616MARKETABLE SECURITIES1617Marketable securities are classified as available for sale and are carried1618at fair value, with unrealized gains or losses included in accumulated other1619comprehensive income as a separate component of shareholders' equity. At1620September 30, 2001 and 2000, the balance consists of corporate bonds with1621contractual maturities of three months to three years. The amortized cost and1622estimated market value of available-for-sale securities are as follows:16231624AMORTIZED UNREALIZED ESTIMATED1625COST LOSS MARKET VALUE1626--------- ---------- ------------1627September 30, 2001 ................ $4,037,670 $132,830 $3,904,8401628September 30, 2000 ................ 5,654,442 -- 5,654,44216291630The total includes a corporate bond from Pacific Gas & Electric ("PG&E") with a1631carrying value of $845,000 on September 30, 2001, which matures December 24,16322001. On April 6, 2001, PG&E filed for Chapter 11 bankruptcy protection. While1633PG&E's management has stated their intent to pay their creditors, the numerous1634political and economic factors influencing the California utility market coupled1635with PG&E's bankruptcy filing could potentially impact the timing and/or1636ultimate realization of payments. However, the Company currently believes that1637it will realize the full value of this investment.16381639MANUFACTURING AND SALES1640The Company manufactures and sells its products to a full range of1641companies in the medical industry on a worldwide basis. There is a concentration1642of sales to larger medical wholesalers and distributors. Sales of products are1643recorded upon shipment. The Company performs periodic credit evaluations of its1644customers' financial condition. The Company requires irrevocable letters of1645credit on sales to certain foreign customers. Receivables generally are due1646within 30 days. Credit losses relating to customers consistently have been1647within management expectations.16481649INVENTORIES1650Inventories, consisting of material, labor and manufacturing overhead, are1651stated at the lower of cost or market. Cost is determined by the first-in,1652first-out (FIFO) method.16531654PROPERTY AND EQUIPMENT1655Property and equipment are stated at cost less accumulated depreciation.1656Depreciation is based on estimated useful lives of 4 -- 35 years computed using1657the straight-line method.16581659PATENTS1660Capitalized costs include costs incurred in connection with making patent1661applications for the Company's products and are amortized on a straight-line1662basis over eight years. The Company166316641665251666<PAGE>166716681669ROCHESTER MEDICAL CORPORATION16701671NOTES TO FINANCIAL STATEMENTS (CONTINUED)1672167316742. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)16751676periodically reviews its patents for impairment of value. Any adjustment from1677the analysis is charged to operations.16781679RESEARCH AND DEVELOPMENT COSTS1680Research and development costs are charged to operations as incurred.1681Research and development costs include clinical testing costs, certain salary1682and related expenses, other labor costs, materials and an allocation of certain1683overhead expenses.16841685REVENUE RECOGNITION1686The Company recognizes revenue upon shipment of the product.16871688INCOME TAXES1689Income taxes are accounted for under the liability method. Deferred income1690taxes are provided for temporary differences between financial reporting and tax1691bases of assets and liabilities.16921693STOCK-BASED COMPENSATION1694The Company follows Accounting Principles Board Opinion No. 25, "Accounting1695for Stock Issued to Employees" ("APB 25"), and related interpretations in1696accounting for its stock options. Under APB 25, when the exercise price of stock1697options equals the market price of the underlying stock on the date of grant, no1698compensation expense is recognized.16991700The Company has adopted the disclosure-only provisions of Statement of1701Financial Accounting Standards No 123, "Accounting for Stock-Based1702Compensation."17031704USE OF ESTIMATES1705The preparation of financial statements in conformity with generally1706accepted accounting principles requires management to make estimates and1707assumptions that affect the amounts reported in the financial statements and1708accompanying notes. Actual results could differ from those estimates.17091710IMPAIRMENT OF LONG-LIVED ASSETS1711The Company will record impairment losses on long-lived assets used in1712operations when indicators of impairment are present and the undiscounted cash1713flows estimated to be generated by those assets are less than the assets'1714carrying amount.17151716NET LOSS PER SHARE1717Basic net loss per share is computed using the weighted average number of1718common shares outstanding during the period. Fully diluted and basic net loss1719per share are the same because the effect of common equivalent shares from stock1720options and convertible debt are excluded from the computation as their effect1721is antidilutive.172217233. ADVERTISING COSTS17241725The Company incurred advertising expenses of $359,000, $1,347,000 and1726$779,000 for the years ended September 30, 2001, 2000 and 1999, respectively.1727All advertising costs are charged to operations as incurred.172817291730261731<PAGE>173217331734ROCHESTER MEDICAL CORPORATION17351736NOTES TO FINANCIAL STATEMENTS (CONTINUED)173717384. INVENTORIES17391740Inventories are summarized as follows:17411742SEPTEMBER 30,1743--------------------------17442001 20001745---------- ----------1746Raw materials ............................. $ 675,234 $ 771,4681747Work-in-process ........................... 892,736 766,4661748Finished goods ............................ 631,256 452,6401749Reserve for inventory obsolescence ........ (100,000) (98,119)1750---------- ----------1751$2,099,226 $1,892,4551752========== ==========175317545. SHAREHOLDERS' EQUITY17551756STOCK OPTIONS1757In February 2001, the Company's shareholders approved the 2001 Stock1758Incentive Plan. Under the terms of the 2001 Stock Incentive Plan, 500,000 shares1759are authorized for issuance pursuant to grants of incentive stock options and1760non-qualified options.17611762In August 1998, the 1991 Stock Option Plan was amended to increase by1763300,000 shares the number of shares authorized for issuance to 1,000,000 shares.1764Under terms of the 1991 Plan, the Board of Directors may grant employee1765incentive stock options equal to fair market value of the Company's Common Stock1766or employee non-qualified options at a price which cannot be less than 85% of1767the fair market value. Per the terms of the 1991 Plan, as of April 20, 2001, no1768new stock options may be granted under the 1991 Plan.17691770The 1995 Non-Statutory Stock Option Plan authorizes the issuance of up to177150,000 shares of Common Stock. In September 1995, Medical Advisory Board members1772were granted options to purchase 12,000 shares of the Company's Common Stock at1773an exercise price of $15.75 per share. In April 1999, one member of the Medical1774Advisory Board was granted options to purchase 6,000 shares of the Company's1775Common Stock at an exercise price of $10.125 per share.17761777Option activity is summarized as follows:17781779<TABLE>1780<CAPTION>1781AVERAGE1782SHARES WEIGHTED EXERCISE1783RESERVED OPTIONS PRICE PER1784FOR GRANT OUTSTANDING SHARE1785---------- ---------- ----------1786<S> <C> <C> <C>1787Balance as of September 30, 1998 ............ 310,000 723,000 $ 13.091788Options granted ............................. (173,500) 173,500 11.401789Options exercised ........................... -- (80,000) 8.251790Options canceled ............................ 70,000 (70,000) 13.801791---------- ---------- ----------1792Balance as of September 30, 1999 ............ 206,500 746,500 13.151793Options granted ............................. (155,000) 155,000 7.841794Options canceled ............................ 124,375 (124,375) 13.341795---------- ---------- ----------1796Balance as of September 30, 2000 ............ 175,875 777,125 12.071797Options granted ............................. (404,000) 404,000 5.021798Options canceled ............................ 217,875 (217,875) 11.811799Options canceled (1991 Plan) ................ (12,750) -- --1800Increase in authorized shares ............... 500,000 -- --1801---------- ---------- ----------1802Balance as of September 30, 2001 ............ 477,000 963,250 $ 9.161803========== ========== ==========1804</TABLE>180518061807271808<PAGE>180918101811ROCHESTER MEDICAL CORPORATION18121813NOTES TO FINANCIAL STATEMENTS (CONTINUED)181418155. SHAREHOLDERS' EQUITY (CONTINUED)18161817The weighted average fair value of options granted in 2001, 2000 and 19991818was $2.91, $4.90 and $7.48 per share, respectively. The exercise price of1819options outstanding at September 30, 2001 ranged from $4.50 to $20.00 per share1820as summarized in the following table:18211822<TABLE>1823<CAPTION>1824NUMBER WEIGHTED AVERAGE NUMBER WEIGHTED AVERAGE1825OUTSTANDING REMAINING EXERCISABLE EXERCISE PRICE1826RANGE OF EXERCISE PRICES AT 9/30/01 CONTRACTUAL LIFE AT 9/30/01 PER SHARE1827- ------------------------ ----------- ---------------- ----------- ----------------1828<S> <C> <C> <C> <C>1829$0.01 -- $5.00............ 219,000 9.3 years 30,000 $ 4.9418305.01 -- 10.00 ........... 405,250 6.5 years 159,500 7.64183110.01 -- 15.00 ........... 223,000 4.8 years 178,500 13.56183215.01 -- 20.00 ........... 116,000 5.5 years 103,750 16.571833------- -------1834963,250 6.6 years 471,750 $ 11.671835======= =======1836</TABLE>18371838The number of stock options exercisable at September 30, 2001, 2000 and18391999 was 471,750, 468,625 and 367,000 at a weighted average exercise price of1840$11.67, $12.88 and $12.80 per share, respectively.18411842The Company has elected to follow Accounting Principles Board Opinion No.184325, Accounting for Stock Issued to Employees ("APB 25") and related1844interpretations in accounting for its employee stock options because, as1845discussed below, the alternative fair value accounting provided under FASB1846Statement No. 123, "Accounting for Stock-Based Compensation" ("Statement 123"),1847requires use of option valuation models that were not developed for use in1848valuing employee stock options. Under APB 25, when the exercise price of the1849Company's employee stock options equals the market price of the underlying stock1850on the date of grant, no compensation expense is recognized.18511852Pro forma information regarding net loss and loss per share is required by1853Statement 123, and has been determined as if the Company had accounted for its1854employee stock options under the fair value method of Statement 123. The fair1855value of these options was estimated at the date of grant using the1856Black-Scholes option pricing model with the following weighted average1857assumptions: risk-free interest rate of 3.53%, 6.08% and 6.08% for fiscal 2001,18582000 and 1999, respectively; volatility factor of the expected market price of1859the Company's common stock of .559, .528 and .524 for fiscal 2001, 2000 and18601999, respectively; and a weighted average expected life of the option of 6.61861years, 7 years and 7 years for fiscal 2001, 2000 and 1999, respectively.18621863The Black-Scholes option valuation model was developed for use in1864estimating the fair value of traded options which have no vesting restrictions1865and are fully transferable. In addition, option valuation models require the1866input of highly subjective assumptions. Because the Company's employee stock1867options have characteristics significantly different from those of traded1868options, and because changes in the subjective input assumptions can materially1869affect the fair value estimate, in management's opinion, the existing models do1870not necessarily provide a reliable single measure of the fair value of its1871employee stock options.18721873For purposes of pro forma disclosures, the estimated fair value of the1874options is amortized to expense over the option's vesting period. The Company's1875pro forma information is as follows:18761877<TABLE>1878<CAPTION>1879YEAR ENDED SEPTEMBER 30,1880------------------------------------------------18812001 2000 19991882------------ ------------ ------------1883<S> <C> <C> <C>1884Pro forma net loss ........................ $ (4,308,736) $ (6,803,649) $ (5,934,181)1885Pro forma net loss per common share ....... $ (.81) $ (1.27) $ (1.11)1886</TABLE>188718881889281890<PAGE>189118921893ROCHESTER MEDICAL CORPORATION18941895NOTES TO FINANCIAL STATEMENTS (CONTINUED)189618976. INCOME TAXES18981899Deferred income taxes are due to temporary differences between the carrying1900values of certain assets and liabilities for financial reporting and income tax1901purposes. Significant components of deferred income taxes are as follows:19021903<TABLE>1904<CAPTION>1905SEPTEMBER 30,1906------------------------------19072001 20001908------------ ------------1909<S> <C> <C>1910Deferred assets:1911Net operating loss carryforward ...................... $ 8,864,000 $ 7,484,0001912Research and development credit carryforward ......... 202,000 164,0001913Allowance for uncollectible accounts ................. 22,000 23,0001914Inventory reserves ................................... 37,000 36,0001915Inventory capitalization ............................. 108,000 68,0001916Accrued expenses ..................................... 42,000 116,0001917------------ ------------1918Subtotal ............................................. 9,275,000 7,891,00019191920Deferred liability:1921Depreciation and amortization ........................ 543,000 346,0001922------------ ------------1923Net deferred income tax assets ....................... 8,732,000 7,545,0001924Valuation allowance .................................. (8,732,000) (7,545,000)1925------------ ------------1926Net deferred income taxes ............................ $ -- $ --1927============ ============1928</TABLE>19291930The Company will be subject to federal income taxes when operations become1931profitable. The Company's net operating loss carryforwards of approximately1932$23,956,000 can be carried forward to offset future taxable income, subject to1933the limitation of Internal Revenue Code Section 382. The net operating loss1934carryforward will expire at different times beginning in 2005.193519367. RELATED PARTY TRANSACTIONS19371938The brother-in-law of the CEO and President, the Vice President of1939Production Technologies and a member of the board of directors of the Company1940has performed legal services for the Company. During the years ended September194130, 2001, 2000 and 1999, the Company incurred legal fees and expenses of1942approximately $24,000, $16,000 and $46,000, respectively, to such counsel for1943services rendered in connection with litigation and for general legal services.1944Management believes the fees paid for the services rendered to the Company were1945on terms at least as favorable to the Company as could have been obtained from1946an unrelated party.19471948The Company contracts with Petersen Blacksmith Company for the fabrication1949of customized, proprietary manufacturing equipment used in the Company's1950automated production lines. During 2001, 2000 and 1999, the Company paid1951Petersen Blacksmith Company the sum of $20,000, $56,000 and $46,000,1952respectively. Michael Petersen, the proprietor of Petersen Blacksmith Company,1953is the brother-in-law of a Director and Vice President, Research and Development1954of the Company. Management believes that the terms of the agreement are at least1955as favorable to the Company as could have been obtained from an unrelated party.195619571958291959<PAGE>196019611962ROCHESTER MEDICAL CORPORATION19631964NOTES TO FINANCIAL STATEMENTS (CONTINUED)196519668. SIGNIFICANT CUSTOMERS19671968Significant customers, measured as a percentage of sales, are summarized as1969follows:19701971<TABLE>1972<CAPTION>1973SEPTEMBER 30,1974------------------------19752001 2000 19991976---- ---- ----1977<S> <C> <C> <C>1978Significant customers:1979ConvaTec ....................................... 6% 16% 16%1980Hollister ...................................... 8 9 71981Maersk ......................................... 10 15 181982Mentor ......................................... 1 1 101983---- ---- ----1984Total ............................................ 25% 41% 51%1985==== ==== ====1986</TABLE>198719889. EMPLOYEE BENEFIT PLAN19891990The Company has a 401(k) plan covering employees meeting certain1991eligibility requirements. The Company currently does not match employee1992contributions.1993199410. QUARTERLY RESULTS (UNAUDITED)19951996Summary data relating to the results of operations for each quarter of the1997years ended September 30, 2001 and 2000 follows (in thousands, except per share1998amounts):19992000<TABLE>2001<CAPTION>2002THREE MONTHS ENDED2003--------------------------------------------------------2004DECEMBER 31 MARCH 31 JUNE 30 SEPTEMBER 302005----------- -------- -------- ------------2006<S> <C> <C> <C> <C>2007Fiscal year 20012008Net sales ......................... $ 1,856 $ 2,103 $ 2,152 $ 2,1912009Gross profit ...................... 563 504 378 5522010Loss from operations .............. (958) (756) (846) (779)2011Net Loss .......................... (833) (652) (764) (706)2012Net Loss per common share ........ $ (.16) $ (.12) $ (.14) $ (.13)20132014Fiscal year 20002015Net sales ......................... $ 2,008 $ 2,046 $ 2,111 $ 1,6952016Gross profit ...................... 483 446 492 2882017Loss from operations .............. (1,499) (1,413) (1,500) (1,714)2018Net Loss .......................... (1,334) (1,266) (1,352) (1,579)2019Net Loss per common share ........ $ (.25) $ (.24) $ (.25) $ (.30)2020</TABLE>202120222023302024<PAGE>202520262027ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND2028FINANCIAL DISCLOSURE20292030None.203120322033PART III20342035ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT20362037Incorporated herein by reference to portions of the Proxy Statement for2038Annual Meeting of Shareholders to be filed with the Securities and Exchange2039Commission within 120 days of the close of the fiscal year ended September 30,20402001, and "Executive Officers of the Registrant" in Part I of this report.20412042ITEM 11. EXECUTIVE COMPENSATION20432044Incorporated herein by reference to portions of the Proxy Statement for2045Annual Meeting of Shareholders to be filed with the Securities and Exchange2046Commission within 120 days of the close of the fiscal year ended September 30,20472001.20482049ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT20502051Incorporated herein by reference to portions of the Proxy Statement for2052Annual Meeting of Shareholders to be filed with the Securities and Exchange2053Commission within 120 days of the close of the fiscal year ended September 30,20542001.20552056ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS20572058Incorporated herein by reference to portions of the Proxy Statement for2059Annual Meeting of Shareholders to be filed with the Securities and Exchange2060Commission within 120 days of the close of the fiscal year ended September 30,20612001.20622063ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K20642065(a)(1) The following financial statements are filed herewith in Item 8.20662067(i) Balance Sheets as of September 30, 2001 and 2000.20682069(ii) Statements of Operations for the years ended September 30,20702001, 2000 and 1999.20712072(iii) Statement of Shareholders' Equity for the years ended2073September 30, 2001 and 2000.20742075(iv) Statements of Cash Flows for the years ended September 30,20762001, 2000 and 1999.20772078(v) Notes to financial statements at September 30, 2001.20792080(a)(2) Financial Statement Schedules.20812082Schedule II -- Valuation and Qualifying Accounts20832084Financial statement schedules other than those listed have been2085omitted since they are not required or are not applicable or the2086required information is shown in the financial statements or2087related notes.20882089(b) Exhibits20902091The following exhibits are submitted herewith:209220933.1 Articles of Incorporation of the Company, as amended.2094(Incorporated by reference to Exhibit 4.1 of Registrant's2095Registration Statement on Form S-2, Registration Number209633-97788).209720983.2 Restated Bylaws of the Company. (Incorporated by reference2099to Exhibit 3.2 of Registrant's Registration Statement on2100Form S-18, Registration Number 33-36362-C).210121022103312104<PAGE>2105210621073.3 Amendment to Restated Bylaws of the Company. (Incorporated2108by reference to Exhibit 4.3 of Registrant's Registration2109Statement on Form S-2, Registration Number 33-97788).211021114.1 Specimen of Common Stock Certificate. (Incorporated by2112reference to Exhibit 4.4 of Registrant's Annual Report on2113Form 10-KSB for fiscal year ended September 30, 1995).211421154.2 The Company's 1991 Stock Option Plan as amended2116(Incorporated by reference to Exhibit 4.5 of Registrant's2117Registration Statement on Form S-8, Registration Number2118333-10261).211921204.3 Amendment to the Company's 1991 Stock Option Plan as2121amended (Incorporated by reference to Exhibit 4.3 of2122Registrant's Annual Report on Form 10-K for fiscal year2123ended September 30, 1998).2124212510.1 Employment Agreement, dated August 31, 1990 between the2126Company and Anthony J. Conway. (Incorporated by reference2127to Exhibit 10.13 of Registrant's Registration Statement on2128Form S-18, Registration Number 33-36362-C).2129213010.2 Employment Agreement, dated August 31, 1990 between the2131Company and Philip J. Conway. (Incorporated by reference to2132Exhibit 10.14 of Registrant's Registration Statement on2133Form S-18, Registration Number 33-36362-C).2134213510.3 Change of Control Agreement dated December 4, 1998, between2136the Company and Philip J. Conway (Incorporated by reference2137to Exhibit 10.3 of Registrant's Annual Report on Form 10-K2138for fiscal year ended September 30, 1998).2139214010.4 Employment Agreement, dated August 31, 1990 between the2141Company and Richard D. Fryar. (Incorporated by reference to2142Exhibit 10.15 of Registrant's Registration Statement on2143Form S-18, Registration Number 33-36362-C).2144214510.5 Change of Control Agreement dated December 4, 1998, between2146the Company and Richard D. Fryar (Incorporated by reference2147to Exhibit 10.5 of Registrant's Annual Report on Form 10-K2148for fiscal year ended September 30, 1998).2149215010.6 Change of Control Agreement dated November 21, 2000,2151between the Company and Anthony J. Conway. (Incorporated by2152reference to Exhibit 10.6 of the Registrant's Annual Report2153on Form 10-K for fiscal year ended September 30, 2000).2154215510.7 Change of Control Agreement dated November 21, 2000,2156between the Company and Dara Lynn Horner. (Incorporated by2157reference to Exhibit 10.7 of the Registrant's Annual Report2158on Form 10-K for fiscal year ended September 30, 2000).2159216010.8 Employment Agreement, dated November 16, 1998 between the2161Company and Dara Lynn Horner. (Incorporated by reference to2162Exhibit 10.8 of Registrant's Annual Report on Form 10-K for2163fiscal year ended September 30, 1999.)2164216510.9 Change of Control Agreement dated November 21, 2000,2166between the Company and Martyn R. Sholtis. (Incorporated by2167reference to Exhibit 10.9 of the Registrant's Annual Report2168on Form 10-K for fiscal year ended September 30, 2000).2169217010.10 Change of Control Agreement dated November 21, 2000,2171between the Company and David A. Jonas. (Incorporated by2172reference to Exhibit 10.10 of the Registrant's Annual2173Report on Form 10-K for fiscal year ended September 30,21742000).217521762177322178<PAGE>21792180218110.11 The Company's 2001 Stock Incentive Plan. (Incorporated by2182reference to Exhibit 4.1 of Registrant's Registration2183Statement on Form S-8, Registration Number 333-62592).2184218523 Consent of Ernst & Young LLP.*2186218724 Power of Attorney*21882189--------------------------2190* Filed herewith.21912192(c) Registrant filed no Report on Form 8-K during its fourth fiscal2193quarter.219421952196332197<PAGE>219821992200SIGNATURES22012202Pursuant to the requirements of Section 13 or 15(d) of the Securities2203Exchange Act of 1934, the registrant has duly caused this report to be signed on2204its behalf by the undersigned, thereunto duly authorized.22052206ROCHESTER MEDICAL CORPORATION2207220822092210Dated: December 12, 2001 By: /s/ ANTHONY J. CONWAY2211------------------------------------2212Anthony J. Conway2213CHAIRMAN OF THE BOARD, PRESIDENT,2214CHIEF EXECUTIVE OFFICER AND SECRETARY22152216Pursuant to the requirements of the Securities Exchange Act of 1934, this2217Report has been signed below by the following persons in the capacities and on2218the dates indicated.22192220SIGNATURE TITLE2221--------- -----22222223/s/ ANTHONY J. CONWAY Chairman of the Board, President,2224- ----------------------------- Chief Executive Officer, and Secretary2225Anthony J. Conway (PRINCIPAL EXECUTIVE OFFICER)22262227/s/ DAVID A. JONAS Chief Financial Officer and Treasurer2228- ----------------------------- (PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER)2229David A. Jonas22302231* Vice President, Production Technologies2232- ----------------------------- and Director2233Philip J. Conway22342235* Vice President, Research and Development2236- ----------------------------- and Director2237Richard D. Fryar22382239* Director2240- -----------------------------2241Darnell L. Boehm22422243* Director2244- -----------------------------2245Peter R. Conway22462247* Director2248- -----------------------------2249Roger W. Schnobrich22502251* Director2252- -----------------------------2253Benson Smith22542255*By /s/ DAVID A. JONAS Dated: December 12, 20012256- -----------------------------2257David A. Jonas2258ATTORNEY-IN-FACT225922602261342262<PAGE>226322642265ROCHESTER MEDICAL CORPORATION22662267SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS AND RESERVES22682269<TABLE>2270<CAPTION>2271- ----------------------------------------------------------------------------------------------------------2272COL. A. COL. B COL. C COL. D COL. E2273- ----------------------------------------------------------------------------------------------------------2274ADDITIONS2275----------------------------2276BALANCE AT CHARGED TO CHARGED TO BALANCE AT2277BEGINNING COSTS AND OTHER ACCOUNTS DEDUCTIONS END OF2278DESCRIPTION OF PERIOD EXPENSES -- DESCRIBE -- DESCRIBE PERIOD2279- ----------- ---------- ---------- -------------- ----------- ----------2280<S> <C> <C> <C> <C> <C>2281Year ended September 30, 2001:22822283Reserves and allowances2284deducted from asset accounts:2285Allowance for doubtful2286accounts ....................... $ 62,567 $ 3,000 -- $ 5,069(1) $ 60,4982287Allowance for inventory2288obsolescence ................... 98,118 4,615 -- 2,733(2) 100,0002289Allowance for inventory2290valuation ...................... 200,849 -- -- 69,359(3) 131,49022912292Year ended September 30, 2000:22932294Reserves and allowances2295deducted from asset accounts:2296Allowance for doubtful2297accounts ....................... $ 59,466 $ 12,000 -- $ 8,899(1) $ 62,5672298Allowance for inventory2299obsolescence ................... 108,729 14,000 -- 24,611(2) 98,1182300Allowance for inventory2301valuation ...................... -- 200,849(3) -- -- 200,84923022303Year ended September 30, 1999:23042305Reserves and allowances2306deducted from asset accounts:2307Allowance for doubtful2308accounts ....................... $ 50,000 $ 10,000 -- $ 534(1) $ 59,4662309Allowance for inventory2310obsolescence ................... 50,034 60,000 -- 1,305(2) 108,7292311Allowance for inventory2312valuation ...................... -- -- -- -- --2313</TABLE>23142315- ------------------23162317(1) Uncollectable accounts written off net of recoveries23182319(2) Obsolete disposed of net of recoveries23202321(3) Valuation of inventory at lower of cost or market23222323<PAGE>232423252326INDEX TO EXHIBITS23272328EXHIBIT PAGE2329- ------- ----233023313.1 Articles of Incorporation of the Company, as amended.2332(Incorporated by reference to Exhibit 4.1 of Registrant's2333Registration Statement on Form S-2, Registration Number233433-97788) ......................................................233523363.2 Restated Bylaws of the Company. (Incorporated by reference to2337Exhibit 3.2 of Registrant's Registration Statement on Form S-18,2338Registration Number 33-36362-C) ................................233923403.3 Amendment to Restated Bylaws of the Company. (Incorporated by2341reference to Exhibit 4.3 of Registrant's Registration Statement2342on Form S-2, Registration Number 33-97788) .....................234323444.1 Specimen of Common Stock Certificate. (Incorporated by reference2345to Exhibit 4.4 of Registrant's Annual Report on Form 10-KSB for2346fiscal year ended September 30, 1995) ..........................234723484.2 The Company's 1991 Stock Option Plan as amended (Incorporated by2349reference to Exhibit 4.5 of Registrant's Registration Statement2350on Form S-8, Registration Number 333-10261) ....................235123524.3 Amendment to the Company's 1991 Stock Option Plan as amended2353(Incorporated by reference to Exhibit 4.3 of Registrant's Annual2354Report on Form 10-K for fiscal year ended September 30, 1998) ..2355235610.1 Employment Agreement, dated August 31, 1990 between the Company2357and Anthony J. Conway. (Incorporated by reference to Exhibit235810.13 of Registrant's Registration Statement on Form S-18,2359Registration Number 33-36362-C) ................................2360236110.2 Employment Agreement, dated August 31, 1990 between the Company2362and Philip J. Conway. (Incorporated by reference to Exhibit236310.14 of Registrant's Registration Statement on Form S-18,2364Registration Number 33-36362-C) ................................2365236610.3 Change of Control Agreement dated December 4, 1998, between the2367Company and Philip J. Conway (Incorporated by reference to2368Exhibit 10.3 of Registrant's Annual Report on Form 10-K for2369fiscal year ended September 30, 1998) ..........................2370237110.4 Employment Agreement, dated August 31, 1990 between the Company2372and Richard D. Fryar. (Incorporated by reference to Exhibit237310.15 of Registrant's Registration Statement on Form S-18,2374Registration Number 33-36362-C) ................................2375237610.5 Change of Control Agreement dated December 4, 1998, between the2377Company and Richard D. Fryar (Incorporated by reference to2378Exhibit 10.5 of Registrant's Annual Report on Form 10-K for2379fiscal year ended September 30, 1998) ..........................2380238110.6 Change of Control Agreement dated November 21, 2000, between the2382Company and Anthony J. Conway. (Incorporated by reference to2383Exhibit 10.6 of the Registrant's Annual Report on Form 10-K for2384fiscal year ended September 30, 2000) ..........................2385238610.7 Change of Control Agreement dated November 21, 2000, between the2387Company and Dara Lynn Horner. (Incorporated by reference to2388Exhibit 10.7 of the Registrant's Annual Report on Form 10-K for2389fiscal year ended September 30, 2000) ..........................2390239110.8 Employment Agreement, dated November 16, 1998 between the2392Company and Dara Lynn Horner. (Incorporated by reference to2393Exhibit 10.8 of Registrant's Annual Report on Form 10-K for2394fiscal year ended September 30, 1999) ..........................2395239610.9 Change of Control Agreement dated November 21, 2000, between the2397Company and Martyn R. Sholtis. (Incorporated by reference to2398Exhibit 10.9 of the Registrant's Annual Report on Form 10-K for2399fiscal year ended September 30, 2000) ..........................24002401<PAGE>240224032404EXHIBIT PAGE2405- ------- ----2406240710.10 Change of Control Agreement dated November 21, 2000, between the2408Company and David A. Jonas. (Incorporated by reference to2409Exhibit 10.10 of the Registrant's Annual Report on Form 10-K for2410fiscal year ended September 30, 2000) ..........................2411241210.11 The Company's 2001 Stock Incentive Plan. (Incorporated by2413reference to Exhibit 4.1 of Registrant's Registration Statement2414on Form S-8, Registration Number 333-62592) ....................2415241623 Consent of Ernst & Young LLP* ..................................2417241824 Power of Attorney* .............................................24192420</TEXT>2421</DOCUMENT>2422<DOCUMENT>2423<TYPE>EX-232424<SEQUENCE>32425<FILENAME>rochester015173_ex23.txt2426<DESCRIPTION>CONSENT OF ERNST & YOUNG LLP2427<TEXT>2428EXHIBIT 23242924302431CONSENT OF ERNST & YOUNG LLP24322433We consent to the incorporation by reference in the Registration Statement2434(Form S-8 No. 333-10261) pertaining to the 1991 Stock Option Plan of Rochester2435Medical Corporation and the Registration Statement (Form S-8 No. 333-62592)2436pertaining to the 2001 Stock Incentive Plan of Rochester Medical Corporation of2437our report dated October 19, 2001, with respect to the financial statements of2438Rochester Medical Corporation included in this Annual Report (Form 10-K) for the2439year ended September 30, 2001.24402441Our audits also included the financial statement schedule of Rochester2442Medical Corporation listed in Item 14(a). This schedule is the responsibility of2443the Company's management. Our responsibility is to express an opinion based on2444our audits. In our opinion, the financial statement schedule referred to above,2445when considered in relation to the basic financial statements taken as a whole,2446present fairly in all material respects the information set forth therein.244724482449/s/ Ernst & Young LLP24502451Minneapolis, Minnesota2452December 7, 200124532454</TEXT>2455</DOCUMENT>2456<DOCUMENT>2457<TYPE>EX-242458<SEQUENCE>42459<FILENAME>rochester015173_ex24.txt2460<DESCRIPTION>POWER OF ATTORNEY2461<TEXT>2462EXHIBIT 24246324642465POWER OF ATTORNEY24662467KNOW ALL BY THESE PRESENTS, that each person whose signature appears below2468constitutes and appoints each of Anthony J. Conway and David A. Jonas, with full2469power to each to act without the other, his or her true and lawful2470attorney-in-fact and agent with full power of substitution, for him or her and2471in his or her name, place and stead, in any and all capacities, to sign the2472Annual Report on Form 10-K of Rochester Medical Corporation (the "Company") for2473the Company's fiscal year ended September 30, 2001, and any or all amendments to2474said Annual Report, and to file the same, with all exhibits thereto, and other2475documents in connection therewith, with the Securities and Exchange Commission,2476and to file the same with such other authorities as necessary, granting unto2477each such attorney-in-fact and agent full power and authority to do and perform2478each and every act and thing requisite and necessary to be done in and about the2479premises, as fully to all intents and purposes as he or she might or could do in2480person, hereby ratifying and confirming all that each such attorney-in-fact and2481agent, or his substitute, may lawfully do or cause to be done by virtue hereof.24822483IN WITNESS WHEREOF, this Power of Attorney has been signed on this 11th day2484of November, 2001, by the following persons.248524862487/s/ ANTHONY J. CONWAY /s/ DARNELL L. BOEHM2488---------------------------- ----------------------------2489Anthony J. Conway Darnell L. Boehm24902491/s/ DAVID A. JONAS /s/ PETER R. CONWAY2492---------------------------- ----------------------------2493David A. Jonas Peter R. Conway24942495/s/ PHILIP J. CONWAY /s/ ROGER W. SCHNOBRICH2496---------------------------- ----------------------------2497Philip J. Conway Roger W. Schnobrich24982499/s/ RICHARD D. FRYAR /s/ BENSON SMITH2500---------------------------- ----------------------------2501Richard D. Fryar Benson Smith25022503</TEXT>2504</DOCUMENT>2505</SEC-DOCUMENT>2506-----END PRIVACY-ENHANCED MESSAGE-----250725082509