SECURITIES AND EXCHANGE COMMISSION

FORM 10-Q

(Mark One)

OR

Commission File Number: 0-18933

ROCHESTER MEDICAL CORPORATION

(507) 533-9600
(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
YES [X] NO [  ]

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act)

YES [  ] NO [X]

Indicate the number of shares outstanding of each of the issuer’s classes of common stock as of the latest practicable date.

5,437,331 Common Shares as of May 4, 2004.

Table of Contents

ROCHESTER MEDICAL CORPORATION

Report on Form 10-Q
for quarter ended
March 31, 2004

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PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)

ROCHESTER MEDICAL CORPORATION

BALANCE SHEETS

Note —

The Balance Sheet at September 30, 2003 was derived from the audited financial statements at that date, but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements.

See Notes to Financial Statements

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ROCHESTER MEDICAL CORPORATION

STATEMENTS OF OPERATIONS (UNAUDITED)

See Notes to Financial Statements

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ROCHESTER MEDICAL CORPORATION

STATEMENTS OF CASH FLOWS (UNAUDITED)

See Notes to Financial Statements

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ROCHESTER MEDICAL CORPORATION

Notes to Financial Statements (Unaudited)

March 31, 2004

Note A — Basis of Presentation

     The accompanying unaudited financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. These financial statements should be read in conjunction with the financial statements and related notes included in the Company’s 2003 Form 10-K. In the opinion of management, all adjustments (consisting only of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three- month and six-month periods ended March 31, 2004 are not necessarily indicative of the results that may be expected for the year ending September 30, 2004.

Note B — Net Income Per Common Share

     Net income per share is calculated in accordance with Financial Accounting Standards Board Statement No. 128, “Earnings Per Share.” The Company’s basic net income per share is computed by dividing income by the weighted average number of common shares outstanding during the period. Diluted net income per share is computed by dividing income by the weighted average number of common shares outstanding during the period, increased to include dilutive potential common shares issuable upon the exercise of stock options that were outstanding during the period. A reconciliation of the numerator and denominator in the basic and diluted net income per share calculation is as follows (in thousands, except per share):

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Employee stock options of 339,000 for the second quarter of fiscal year 2004 and 297,000 for the six months ended March 31, 2004 have been excluded from the diluted net income per share calculation because their exercise prices were greater than the average market price of the Company’s common stock.

Note C — Stock Based Compensation

     The Company accounts for employee stock options in accordance with APB 25, “Accounting for Stock Issued to Employees.” Under APB 25, the company recognizes no compensation expenses related to employee stock options, since options are always granted at a price equal to the market price on the day of grant.

     To determine the pro forma impact, the fair value of stock options is estimated on the date of grant using the Black-Scholes option-pricing model and is then hypothetically amortized to compensation expenses over the four-year vesting period. The pro forma impact for the three-month and six-month periods ended March 31 follows (in thousands, except per share):

Note D — Inventories

     Inventories consist of the following:

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Note E – Income Taxes

     The Company has a history of pre-tax losses and has not generated taxable income since inception until fiscal 2003. While the Company had pre-tax income in fiscal 2003 and the first two quarters of fiscal 2004, the Company has net operating loss carryforwards of approximately $24.0 million that will offset its taxable income and therefore, no federal income taxes are due. The Company has recorded a valuation allowance to reduce the carrying value of its net deferred tax assets to an amount that is more likely than not to be realized. As of September 30, 2003 and March 31, 2004, the valuation allowance has reduced the carrying value of the net deferred tax asset to $0.

Note F – Comprehensive Income (Loss)

     Comprehensive income (loss) includes net income (loss) and all other nonowner changes in shareholders’ equity during a period.

     The comprehensive income for the three-month and six-month periods ended March 31, 2004 and 2003 consists of the following:

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Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Results of Operations

     The following table sets forth, for the fiscal periods indicated, certain items from the statements of operations of the Company expressed as a percentage of net sales.

Three Month and Six Month Periods Ended March 31, 2004 and March 31, 2003

     Net Sales. Net sales for the second quarter of fiscal 2004 increased 3% to $3,811,000 from $3,718,000 for the comparable quarter of last fiscal year. The sales increase primarily resulted from a higher volume of branded product sales, offset by a slightly lower volume of product sales to private label customers.

     Net sales for the six months ended March 31, 2004 decreased 1% to $7,160,000 from $7,257,000 for the comparable six-month period of last fiscal year. The six-month sales decrease primarily resulted from an increase in volume of branded product sales, offset by a proportionately higher decrease in the volume of private label sales.

     Gross Margin. The Company’s gross margin as a percentage of net sales for the second quarter of fiscal 2004 was 35% compared to 36% for the comparable quarter of last fiscal year, primarily reflecting a higher proportion of sales of more recently introduced products in the second quarter of fiscal 2004 which, due to the current volume of sales of such products, have lower margins than many of the Company’s standard products, which have a higher volume of sales.

     The Company’s gross margin as a percentage of net sales for the six months ended March 31, 2004 was 35%, which was identical to the gross margin in the comparable six-month period of last fiscal year.

     Marketing and Selling. Marketing and selling expense for the second quarter of fiscal 2004 decreased 6% to $497,000 from $527,000 for the comparable quarter of last fiscal year. The decrease in

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marketing and selling expense is primarily related to an overall decrease in the level of advertising and other promotional costs in the second quarter of fiscal 2004.

     Marketing and selling expense for the six months ended March 31, 2004 decreased 6% to $1,008,000 from $1,078,000 for the comparable six-month period of last fiscal year. Factors affecting the comparative six-month expense levels are generally consistent with those discussed above for the current quarter.

     Research and Development. Research and development expense for the second quarter of fiscal 2004 decreased 10% to $192,000 from $213,000 for the comparable quarter of last fiscal year. The decrease in research and development expense is primarily related to a comparatively higher level of development costs relating to the Company’s intermittent catheters in the prior year’s second fiscal quarter.

     Research and development expense for the six months ended March 31, 2004 decreased 12% to $369,000 from $420,000 for the comparable six-month period of last fiscal year. Factors affecting the comparative six-month expense levels are generally consistent with those discussed above for the current quarter.

     General and Administrative. General and administrative expense for the second quarter of fiscal 2004 increased 7% to $537,000 from $504,000 for the comparable quarter of last fiscal year. The increase in general and administrative expense is primarily related to increased professional fees, property taxes and insurance expense.

     General and administrative expense for the six months ended March 31, 2004 increased 7% to $994,000 from $927,000 for the comparable six-month period of last fiscal year. Factors affecting the comparative six-month expense levels are generally consistent with those discussed above for the current quarter.

     Interest Income. Interest income for the second quarter of fiscal 2004 decreased 50% to $21,000 from $42,000 for the comparable quarter of last fiscal year. The decrease in interest income reflects an overall lower interest rate on short-term investments.

     Interest income for the six months ended March 31, 2004 decreased 61% to $33,000 from $85,000 for the comparable six-month period of last fiscal year. The decrease reflects an overall lower interest rate on short-term investments as discussed above.

Liquidity and Capital Resources

     The Company’s cash, cash equivalents and marketable securities were $6.6 million at March 31, 2003 compared to $6.0 million at September 30, 2003. The increase in cash primarily resulted from the net cash provided by operating activities offset by an increase in capital expenditures.

     During the three-month period ended March 31, 2004, the Company generated $838,000 of cash from operating activities compared to a net $144,000 of cash generated by operations during the comparable period of the prior fiscal year. Increased net cash from operating activities in fiscal 2004 primarily reflects net income before depreciation and a decrease in accounts receivable. Accounts receivable balances for the three-month period decreased 16% or $371,000, primarily as a result of the timing of orders. Inventories were essentially flat, with a decrease of $13,000 during the recent three-

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month period. Other current assets decreased 5% or $20,000 during the recent three-month period primarily as a result of prepaid insurance premiums and prepayments relating to certain manufacturing equipment. Current liabilities were essentially flat, with a decrease of $7,000 during the recent three-month period. In addition, capital expenditures during this period were $165,000 compared to $142,000 for the comparable period of the prior fiscal year.

     During the fiscal quarter ended March 31, 2003, the Company entered into a $1,000,000 revolving line of credit with U.S. Bank National Association. The agreement calls for a variable interest rate that is equal to 1% plus the one-month LIBOR rate. The agreement’s initial term expired March 31, 2004. However, on April 1, 2004, the parties extended the term of this line of credit through March 31, 2005. As of March 31, 2004, the company did not have any amounts outstanding under this line of credit.

     The Company believes that its capital resources on hand at March 31, 2004, together with cash generated from sales, will be sufficient to satisfy its working capital requirements for the foreseeable future as described in the Liquidity and Capital Resources portion of Management’s Discussion and Analysis of Financial Condition and Results of Operations in the Company’s Annual Report on Form 10-K (Part II, Item 6) for the fiscal year ended September 30, 2003. However, the Company may be required to seek additional funding sources, such as additional borrowings under the Company’s revolving line of credit or equity or debt financings, to fund the Company’s working capital requirements. If the Company decides to seek additional financing, there can be no assurance as to the outcome of such efforts, including whether financing will be available to the Company, or if available, whether it would be on terms favorable to the Company and its shareholders. Failure by the Company to secure additional financing could result in significant cash restraints and financial issues for the Company.

Forward-Looking Statements

     Statements other than historical information contained herein constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements may be identified by the use of terminology such as “believe,” “may,” “will,” “expect,” “anticipate,” “predict,” “intend,” “designed,” “estimate,” “should” or “continue” or the negatives thereof or other variations thereon or comparable terminology. Such forward-looking statements involve known or unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Company, or industry results, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Such factors include, among other things, the following: the uncertainty of gaining acceptance of the anti-infection and hydrophilic intermittent catheters, the Release-NF Foley catheters and the FemSoft Insert in the marketplace; the uncertainty of new product introductions; the uncertainty of gaining new strategic relationships; the uncertainty of timing of revenues from private label sales (particularly with respect to international customers); FDA and other regulatory review and response times; manufacturing capacities for both current products and new products; the uncertainty of insurance coverage of the FemSoft Insert by additional insurers; the uncertainty that initial consumer interest in the FemSoft Insert may not result in significant sales of the product or continued sales of the product after trial; the results of product evaluations; the securing of Group Purchasing Organization contract participation; results of clinical tests; the timing of clinical preference testing and product introductions; and other risk factors listed from time to time in the Company’s SEC reports, including, without limitation, the section entitled “Risk Factors” in the Company’s Annual Report on Form 10-K (Part II, Item 6) for the year ended September 30, 2002.

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Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

     The Company does not believe that there is any material market risk exposure with respect to derivative or other financial instruments which would require disclosure under this item.

Item 4. CONTROLS AND PROCEDURES

     Evaluation of Disclosure Controls and Procedures. Under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, the Company evaluated the effectiveness of the design and operation of its disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) as of the end of the period covered by this report. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, as of the end of the period covered by this report, the Company’s disclosure controls and procedures are adequately designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Securities and Exchange Act of 1934, as amended, is recorded, processed, summarized and reported, within the time periods specified in applicable rules and forms.

     Changes in Internal Controls. During our first fiscal quarter, there have not been any significant changes in the Company’s internal control over financial reporting (as defined in Rule 13(a)-15(f) under the Exchange Act) that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Part II. OTHER INFORMATION

Item 1.		Legal Proceedings
		The Company is not a party to any material legal proceedings.
Item 2.		Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities.
		In December 1999, the Board of Directors authorized a plan for the Company to purchase up to a total of 1,000,000 shares of its outstanding common stock, primarily through open-market transactions. Unless earlier terminated by resolution of the Company’s board of directors, this plan will expire when the Company has repurchased all shares authorized for repurchase thereunder.

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Information on the Company’s purchases of equity securities follows:

Item 3.		Defaults Upon Senior Securities
		Not Applicable.
Item 4.		Submission of Matters to a Vote of Security Holders

               The 2004 Annual Meeting of Shareholders of Rochester Medical Corporation was held on Thursday, January 22, 2004, at the Minneapolis Hilton and Towers Hotel in Minneapolis, Minnesota.

               The holders of 5,183,712 shares of common stock, representing 95.49% of the 5,428,431 outstanding shares entitled to vote as of the record date, were represented at the meeting in person or by proxy. Management’s entire slate of five directors listed in the proxy statement was elected to serve until the next Annual Meeting of Shareholders by the following vote tallies:

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               The Company’s shareholders ratified the selection of Ernst & Young LLP as the Company’s independent auditors by the following vote tallies:

Item 5.		Other Information
		None.
Item 6.		Exhibits and Reports on Form 8-K

(a)

Exhibits:

(b)		Reports on Form 8-K:
		The Company filed an 8-K dated January 27, 2004 reporting under Item 7 (“Financial Statements and Exhibits”) and Item 12 (“Results of Operations and Financial Condition”), a press release announcing the Company’s financial results for the fiscal quarter ended December 31, 2003.

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SIGNATURES

     Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	ROCHESTER MEDICAL CORPORATION
Date: May 14, 2004	By:	/s/ Anthony J. Conway
		Anthony J. Conway
		President and Chief Executive Officer
Date: May 14, 2004	By:	/s/ David A. Jonas
		David A. Jonas
		Chief Financial Officer and Treasurer

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INDEX TO EXHIBITS