UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended September 30, 1998
UROPLASTY, INC.
(Exact name of registrant as specified in its charter.)
Minnesota, U.S.A. 41-1719250
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2718 Summer Street NE,
Minneapolis, Minnesota 55413-2820
(Address of principal executive offices)
Registrant's telephone number, including area code:
(612) 378-1180
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the preceding 12 months
(or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the
past 90 days.
YES [X] NO [ ]
(APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS
DURING THE PRECEDING FIVE YEARS)
Check whether the registrant filed all documents and reports required to be
filed by Section 12,13 or 15(b) of the Exchange Act after the distribution of
securities under a plan confirmed by a court.
YES [ ] NO [ ] Not subject to Exchange Act at time [X]
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date: 5,918,371 on
November 11, 1998
Transitional Small Business Disclosure Format
YES [ ] NO [X]
<PAGE>
<TABLE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
UROPLASTY, INC. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<CAPTION>
September 30, 1998 March 31, 1998
_________________ ______________
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 4,529,899 $ 889,541
Accounts receivable trade 820,814 766,835
Inventories 536,607 294,424
Prepaid expenses 187,142 184,628
_________ _________
Total Current Assets 6,074,462 2,135,428
--------- ---------
Property, Plant and Equipment 1,497,801 1,261,059
Less accumulated depreciation
and amortization (309,515) (216,529)
_________ _________
1,188,286 1,044,530
--------- ---------
Intangible assets, net of
accumulated amortization 107,332 101,586
_________ _________
TOTAL ASSETS $ 7,370,080 $ 3,281,544
========= =========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C> <C>
Current Liabilities
Accounts payable $ 384,793 $ 358,782
Accrued liabilities
Compensation and payroll taxes 90,953 81,526
Royalties 17,000 16,900
Other 146,392 116,755
Current maturities - long term debt 54,909 47,219
_________ _________
Total Current Liabilities 694,047 621,182
--------- ---------
Long term debt - less current maturities 718,711 609,606
Total Liabilities 1,412,758 1,230,788
--------- ---------
Shareholders' equity
Common stock $.01 par value;
Authorized 20,000,000 shares
Issued and outstanding - 5,918,371 and
4,191,525 shares at June 30 and
March 31, 1998, respectively. 59,184 41,915
Additional paid in capital 5,815,627 2,432,599
Accumulated profit (deficit) 91,926 (256,629)
Cumulative translation adjustment (4,415) (162,129)
Note receivable shareholder (5,000) (5,000)
__________ __________
Total Shareholders' Equity 5,957,322 2,050,756
---------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS' __________ __________
EQUITY $ 7,370,080 $ 3,281,544
========== ==========
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
UROPLASTY, INC. and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<CAPTION>
Three months ended Six months ended
September 30 September 30
1998 1997 1998 1997
__________ __________ ___________ __________
<S> <C> <C> <C> <C>
Net sales $ 1,194,539 $ 917,364 2,510,239 2,066,603
Cost of goods sold 316,937 222,626 578,524 459,249
__________ __________ ___________ __________
Gross profit 877,602 694,738 1,931,715 1,607,354
Operating expenses:
General and administrative 303,376 268,173 545,929 475,067
Research and development 262,503 158,952 480,644 293,180
Selling and marketing 320,346 228,985 652,233 446,144
__________ __________ ___________ __________
886,225 656,110 1,678,806 1,214,391
---------- ---------- ----------- ----------
Operating profit (loss) (8,623) 38,628 252,909 392,963
Other income (expense)
Interest income 47,136 1,975 62,890 3,142
Interest expense (9,859) (714) (18,688) (9,471)
Foreign currency exchange gain (loss) 44,898 (33,293) 63,803 (104,388)
Other 0 0 (3,532) 0
---------- ---------- ----------- ----------
82,175 (32,032) 104,473 (110,717)
Income pretax 73,552 6,596 357,382 282,246
Income tax expense (benefit) (25,769) 12,697 8,827 49,655
__________ __________ ___________ __________
Net income $ 99,321 $ (6,101) $ 348,555 $ 232,591
========== ========== =========== ==========
Net income per common share $0.02 $0.00 $0.07 $0.06
Net income per common share
assuming dilution $0.02 $0.00 $0.06 $0.06
Weighted average common shares
outstanding:
Basic 5,917,610 4,140,710 5,332,141 4,091,247
Diluted 6,214,707 4,178,028 5,669,228 4,178,028
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
UROPLASTY, INC. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<CAPTION>
Six months ended
September 30
1998 1997
__________ __________
<S> <C> <C>
Cash flows from operating activities:
Net income $ 348,555 $ 232,591
Adjustments to reconcile net income
to net cash provided by operations:
Depreciation and amortization 106,069 67,944
Changes in operating assets and
liabilities
Accounts receivable (53,979) (29,023)
Inventories (242,183) 98,095
Prepaid expenses (2,514) (41,968)
Accounts payable 26,011 128,713
Accrued liabilities 39,164 (13,379)
- ------------------------------------------------------------------------
Net cash provided by operating activities 221,123 442,973
- ------------------------------------------------------------------------
Cash flows from investing activities:
Payments for property, plant and equipm. (236,742) (204,539)
Payments relating to intangible assets (18,829) (17,756)
- ------------------------------------------------------------------------
Net cash used in investing activities (255,571) (222,295)
- ------------------------------------------------------------------------
Cash flows from financing activities:
Repayment of long-term obligations (27,766) (451,656)
Proceeds from issuance of notes payable 75,007 0
Net proceeds from issuance of stock 3,400,297 453,959
- ------------------------------------------------------------------------
Net cash provided by
financing activities 3,447,538 2,303
- ------------------------------------------------------------------------
Effect of exchange rates on
cash and cash equivalents 227,268 (22,372)
- ------------------------------------------------------------------------
Net increase in cash and cash
equivalents 3,640,358 200,609
Cash and cash equivalents at beginning
of period 889,541 814,603
- ------------------------------------------------------------------------
Cash and cash equivalents at end
of period $ 4,529,899 $ 1,015,212
- ------------------------------------------------------------------------
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
UROPLASTY, INC. and Subsidiaries
FOOTNOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(1) Basis of Presentation
The financial statements included in this Form 10-QSB have been prepared by
the Company, without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed, or
omitted, pursuant to such rules and regulations, although management believes
the disclosures are adequate to make the information presented not misleading.
The results of operations for any interim period are not necessarily
indicative of results for a full year. These statements should be read in
conjunction with the financial statements and related notes included in the
Company's Annual Report on Form 10-KSB for the year ended March 31, 1998.
The financial statements presented herein as of September 30, 1998 and for
the three and six months ended September 30, 1998 and 1997 reflect, in the
opinion of management, all material adjustments consisting only of normal
recurring adjustments necessary for a fair presentation of the financial
position, results of operations and cash flows for the interim periods.
(2) Inventories
Inventories are summarized as follows:
September 30, 1998 March 31, 1998
__________________ ______________
Raw materials $ 91,655 $ 47,891
Work-in-process 267,122 118,973
Finished goods 177,830 127,560
________ ________
$536,607 $294,424
(3) Private Placement
On June 18, 1998, the Company completed a private placement of 1,702,950
shares of Common Stock at $2.375 per share, which resulted in net proceeds
to the Company of approximately $3,385,000. In connection with the private
placement, the Company issued warrants to purchase an aggregate of 150,000
shares of Common Stock at an exercise price of $2.375 per share. The
warrants are exercisable until June 18, 2003.
(4) Effective April 1, 1997, the Company adopted FASB Statement No. 130
(SFAS No. 130), "Reporting Comprehensive Income." SFAS No. 130 requires
that an entity report a total for comprehensive income in condensed
financial statements of interim periods issued to shareholders. For the
three and six month periods ended September 30, 1998 and 1997 the
net income (loss), items of other comprehensive income and comprehensive
income are as follows:
3 months ended
September 30, 1998 September 30, 1997
__________________ __________________
Net income (loss) $99,321 $(6,101)
Items of other comprehensive income:
Foreign currency translation 131,616 54,440
________ _______
Comprehensive income $230,937 $48,339
======== =======
6 months ended
September 30, 1998 September 30, 1997
__________________ __________________
Net income $348,555 $232,591
Items of other comprehensive income:
Foreign currency translation 157,714 (22,372)
________ ________
Comprehensive income $506,269 $210,219
======== ========
<PAGE>
UROPLASTY, INC. and Subsidiaries
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Overview
The Company was incorporated in Minnesota in 1992 as a wholly-owned
subsidiary of Bioplasty, Inc. ("Bioplasty"), a manufacturer of breast
implants. Bioplasty, along with other breast implant manufacturers,
became subject to numerous product liability class action lawsuits. As a
result, Bioplasty and the Company filed for protection under Chapter 11 of
the Federal Bankruptcy Code in 1993. The Company emerged from Chapter 11 in
February, 1994, as a separate and distinct entity from Bioplasty.
The Company sells Macroplastique and the related ancillary products for
use in augmenting soft tissues for the purpose of treating urinary
incontinence. At this time, sales are only made outside the United States
because the Company does not have regulatory approval to market its
product in the United States.
The Company's current objectives are to focus on growth in sales and
market penetration of Macroplastique in the European market for urinary
incontinence and vesicoureteral reflux treatment, and to begin the U.S.
regulatory process for Macroplastique as a treatment for female stress
urinary incontinence.
The Company also sells the Macroplastique product in a different
configuration for plastic surgery applications under the name
Bioplastique(tm), in limited markets. In addition, the Company has been
selling some specialized wound care products in the Netherlands and Great
Britain as a distributor for Derma Sciences, Inc. (formerly Genetic
Laboratories, Inc.), pursuant to a written arrangement which provides for a
schedule of prices and involves the submission by the Company of purchase
orders to meet product demand.
Set forth below is management's discussion and analysis of financial
condition and results of operations for the three and six months ended
September 30, 1998 and 1997.
Results of Operations
Sales were $2,510,239 for the six months ended September 30, 1998 as compared
to $2,066,603 for the six months ended fiscal 1998. This increase of
$443,636, or 21%, is the result of increased sales of the Macroplastique
product due to aggressively expanded overseas marketing activities. The
Macroplastique product line now accounts for 93% of total sales. During the
three months ended September 30, 1998, net sales were $1,194,539 compared to
$917,364 for the same period last year, an increase of $277,175, or 30%.
It is expected that Macroplastique sales will continue to grow through
further market awareness, expansion of the distribution network and the
introduction of innovations in Macroplastique implantation for fiscal 1999.
Management believes there will be upward pressure on selling, general and
administrative expenses as efforts continue to market Macroplastique.
Increased spending for research and development projects in fiscal 1999 is
anticipated, along with expenditures for the United States regulatory
approval process.
General and administrative costs increased 15% from $475,067 for the first
two quarters of fiscal 1998 to $545,929 for the same period of fiscal 1999
and increased from $268,173 to $303,376, or 13%, for the three months ended
September 30 of fiscal 1998 and fiscal 1999, respectively.
The FDA approval costs in the second quarter of fiscal 1999 were $121,366
compared to $0 in the second quarter of 1998 and for the six months
ended September 30 of fiscal 1999, were $184,300 compared to $0 for the
same period last year. Other R&D expenses decreased 11% from $158,952 in the
second quarter of fiscal 1998 to $141,137 in the second quarter of fiscal
1999. Other R&D expenses increased 1% from $293,180 for the six months
ended September 30 of fiscal 1998 to $296,344 for the same period this year.
During the six months ended September 30, 1998, selling and marketing expenses
were $652,233 compared to $446,144 during the six months ended September 30,
1997 and $320,346 and $228,985 for the three months ended September 30, 1998
and 1997 respectively. This increase of $206,089, or 46%, for the six months
ended and $91,361, or 40%, for the three months ended is due to the addition
of four sales personnel and expanded presence at international and domestic
medical conferences to increase market awareness of Macroplastique.
The operating profit for the six months ended September 30, 1998 was
$252,909, compared to $392,963 for the same period last year. The operating
loss for the three months ended September 30, 1998 was $8,623, compared to an
operating profit of $38,628 for the same period last year. The decrease is
primarily due to the increased operating expenses, partially offset by
increased sales.
Interest income increased because of interest on the private placement
proceeds. Included in the income tax expense is a non-recurring income
tax refund of $60,503. The remaining balance on the income tax expense
account of $69,330 in the first two quarters of fiscal 1999, compared to
$49,655 in the same period last year, relates to foreign tax on the profit
of a foreign subsidiary.
For the six months ended September 30, 1998 net income totaled $348,555; this
includes a foreign currency exchange gain of $63,803 (which is more
favorable than the comparable period for 1997 because of a change in
exchange rates). Comparatively, the six months ended September 30, 1997
showed $232,591 net income and a $104,388 foreign currency exchange loss.
For the three months ended September 30, 1998, net income totaled $99,321;
this includes a foreign currency exchange gain of $44,898. Comparatively,
the three months ended September 30, 1997 showed a $6,101 net loss and a
$33,293 foreign currency exchange loss.
In addition to Macroplastique and its related ancillary products, the
Registrant sells Bioplastique(TM)Implants for plastic surgery applications.
The Company's current focus is on growth in sales of the Macroplastique
line for treatment of male and female urinary incontinence and
vesicoureteral reflux, while preparing for future growth as it works toward
United States regulatory approval.
Liquidity and Capital Resources
As of September 30, 1998, the Company had $4,529,899 in cash and cash
equivalents. The net proceeds from the private placement of common stock are
invested in a short-term investment account. The September 30, 1998 balance
of this investment account was $3,408,903 and is included in cash and cash
equivalents on the balance sheet. In addition to the private placement proceeds,
the capital resources are derived from existing sales of the Registrant's
products.
On September 30, 1998 the inventory balance was $536,607, compared to a
balance of $294,424 on March 31, 1998. This is a consequence of managements'
intention to increase inventory levels to prevent the risk of not being able
to supply customers with products.
There is currently no financing arrangement in place for Uroplasty's
working capital needs, and the Registrant has no material unused sources
of liquidity other than its cash reserves and its accounts receivable
balances. The Company expects that it can satisfy its cash requirements and
does not expect that it will have to raise additional funds in the next
twelve months.
The company is expanding its manufacturing facility in The Netherlands with
the addition of new cleanrooms to triple manufacturing capacity, for which
fiscal year 1999 funding of approximately $160,000 will be needed.
In July 1998, a $58,242 Note Payable was issued to partially finance the
additional cleanrooms. This Note Payable has a fixed interest rate until
August 2003 of 5.6% per annum. After August 2003, the interest rate can be
adjusted by the bank. Monthly payments consist of $486 of principal plus
interest through August 2008.
The proceeds from the private placement in May and June, 1998 of 1,702,950
shares of common stock will be used to pursue an Investigational Device
Exemption (IDE) application, clinical studies and Premarket Approval (PMA)
application for Macroplastique(R) with the U.S. Food and Drug
Administration. The Company estimates that fiscal year 1999 funding of
the IDE, clinical studies and PMA application will be approximately
$2,500,000; and that fiscal year 2000 funding for such purposes will be
approximately $500,000. If such proceeds are not sufficient to complete the
PMA, additional cash from internal or other sources will be needed in fiscal
year 2000 or 2001.
The Company has significant operations in the United States and internationally.
United States net operating loss carryforwards cannot be used to offset
taxable income in foreign jurisdictions. Furthermore, repatriation of dividends
to the U.S. parent may result in additional foreign or U.S. taxes.
Conversion to Euro Currency
On January 1, 1999, eleven of the fifteen member countries of the European
Union (the "participating countries") are scheduled to adopt the euro as
their common legal currency and to establish fixed conversion rates between
their existing sovereign currencies and the euro. The euro will then trade
on currency exchanges and be available for non-cash transactions. The
participating countries will issue sovereign debt exclusively in euro, and
will redenominate outstanding sovereign debt in euro.
Although the Company does not expect that its operations will be materially
affected by the euro conversion, the Company has begun an internal
assessment of the effects of the conversion.
With respect to presently known trends and uncertainties related to the
euro conversion, the Company does not expect that there will be any
long-term competitive implications of the conversion (such as effects on
product or service pricing due to increased transparency); nor does it
anticipate any material costs in connection with the conversion nor a lack
of ability to pass any costs that might result along to customers.
Year 2000 Compliance
The Company's existing information system, consisting of hardware and
software supplied by third parties, is year 2000 compliant. However,
because most computer systems are by their nature, interdependent, it
is possible that non-compliant third party computers could impact
the Company's computer systems. The Company could be adversely affected
by the year 2000 problem if it or unrelated parties fail to successfully
address this problem. The Company intends to communicate with the
unrelated parties, including its suppliers and regulatory consultants
with whom it deals, to coordinate year 2000 compliance by the end of
Fiscal 1999. Based on the information developed, the Company may, if
needed, develop a contingency plan which will identify where the
greatest risks of non-compliance exist and what steps the Company might
take in order to deal with the most reasonably likely worst case
scenario. If costs are incurred in addressing year 2000 compliance, they
will be expensed as incurred, in compliance with GAAP.
<PAGE>
UROPLASTY, INC. and Subsidiaries
PART II - OTHER INFORMATION
Except for the following, none of the items contained in PART II of
Form 10-QSB are applicable to the Company for the six months ended
September 30, 1998.
ITEM 1. LEGAL PROCEEDINGS
On July 21, 1998, the Company announced that the United States
Patent and Trademark Office ("USPTO") had informed the Company that the
USPTO will initiate an interference proceeding between the Company and
Advanced UroScience, Inc. ("AUI"), White Bear Lake, Minnesota, to determine
which company was the first to invent carbon-coated micro beads for use in
treating urinary incontinence.
The Company expects that it could take the USPTO twenty-four months
or more to reach a final decision concerning this matter. Although the USPTO
originally granted the applicable patent to AUI, the interference proceeding
may result in a determination that either Uroplasty, Inc. or AUI is the
proper holder, or that a patent should not have been granted.
An interference proceeding, like other patent litigation, can be
complex, time consuming and expensive.
ITEM 2. CHANGES IN SECURITIES
a) In May and June, 1998, the Company sold 1,702,950 shares of its
Common Stock for an aggregate of $4,044,506 to a group of accredited
investors for cash pursuant to a private placement. As part of the
transaction, the Company paid to R. J. Steichen & Company, as Placement
Agent, an Agent's commission of $404,451(10% of gross proceeds) and a
non-accountable expense allowance of $121,335 (3% of gross proceeds).
Such securities transaction was made in reliance upon the
exemptions from registration under Sections 3(b) and 4(2) of the Securities
Act of 1933, as amended (in that sales were made to a small number of
persons, many of whom were accredited investors, and all of whom were
required to purchase for investment purposes only, and each of the
instruments recited that they were issued for investment purposes only).
b) In June 1998 the Company's total number of Common Shares Outstanding
has been reduced by an aggregate of 104 shares due to the voiding of two stock
certificates. These shares were issued as part of the Company's 1994
Reorganization proceedings and have been cancelled.
<PAGE>
UROPLASTY, INC. and Subsidiaries
SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant
caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
UROPLASTY, INC.
Dated: November 11, 1998 By /s/ DANIEL G. HOLMAN
Daniel G. Holman
Chairman, President and CEO
(Principal Executive and Financial Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> Mar-31-1999
<PERIOD-START> Apr-01-1998
<PERIOD-END> Sep-30-1998
<CASH> 4,529,899
<SECURITIES> 0
<RECEIVABLES> 892,627
<ALLOWANCES> 71,813
<INVENTORY> 536,607
<CURRENT-ASSETS> 6,074,462
<PP&E> 1,497,801
<DEPRECIATION> 309,515
<TOTAL-ASSETS> 7,370,080
<CURRENT-LIABILITIES> 694,047
<BONDS> 0
<COMMON> 59,184
0
0
<OTHER-SE> 5,898,138
<TOTAL-LIABILITY-AND-EQUITY> 7,370,080
<SALES> 2,510,239
<TOTAL-REVENUES> 2,510,239
<CGS> 578,524
<TOTAL-COSTS> 578,524
<OTHER-EXPENSES> 1,678,806
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (18,688)
<INCOME-PRETAX> 357,382
<INCOME-TAX> 8,827
<INCOME-CONTINUING> 348,555
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 348,555
<EPS-PRIMARY> .07
<EPS-DILUTED> .06
</TABLE>
