UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 1
TO
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
UROPLASTY, INC
(Name of Small Business Issuer in its Charter)
Minnesota 3841 41- 1719250
(State of (Primary Standard Industrial (I.R.S. Employer
Incorporation) Classification Code Number) Identification No.)
2718 Summer Street N.E., Minneapolis, Minnesota 55413
Telephone 612/378-1180 FAX 612/378-2027
(Address and telephone number of principal executive
offices, and of principal place of business)
Daniel G. Holman, Chairman, President, CEO, CFO
Uroplasty, Inc.
2718 Summer Street N.E., Minneapolis, Minnesota 55413
Telephone 612/378-1180 FAX 612/378-2027
(Name, address and telephone number of agent for service)
-----------------------
Copies to:
Richard P. Keller, Esq.
Keller & Lokken, P.A.
First National Bank Building, Suite W-790
332 Minnesota Street
St. Paul, Minnesota 55101
(612) 292-1001
(612) 292-8912 (FAX)
-----------------------
Approximate date of proposed sale to the public: As soon as practicable
after the effective date of this Registration Statement.
CALCULATION OF REGISTRATION FEE
Proposed Proposed
Maximum Maximum
Title of Each Class of Amount Offering Aggregate Amount of
Securities to be Registered To Be Price Per Offering Registration
Registered Unit Price Fee
Common Stock, $.01 1,702,950(1) $3.1875(2) $5,428,153 $1,601.31
par value per share
TOTAL: 1,702,950 $5,428,153 $1,601.31
(1) All shares to be registered hereby are already outstanding and owned by
various Selling Shareholders identified herein.
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 230.457 (c). Based on the average of prices of
$2.875 bid and 3.50 asked on July 8, 1998.
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until the Registration
Statement shall become effective on such date as the Commission, acting
pursuant to said Section 8(a), may determine.
UROPLASTY, INC
Registration Statement on Form SB-2
- ----------------------------------------------------------------------------
Cross Reference Sheet Between Items of Form SB-2
and Prospectus as to 1,702,950 Shares
- ----------------------------------------------------------------------------
Item in Form SB-2 Caption or Location in Prospectus
1. Front of Registration Statement and Front of Registration Statement;
Outside Front Cover of Prospectus front cover page of Prospectus
2. Inside Front and Outside Back Cover Inside Front and outside back
Pages of Prospectus Cover Page
3. Summary Information and Risk Factors Summary of Offering; High Risk
Factors
4. Use of Proceeds Use of Proceeds
5. Determination of Offering Price Not applicable
6. Dilution Not applicable
7. Selling Security Holders Selling Shareholders
8. Plan of Distribution Plan of Offering
9. Legal Proceedings Business - Legal Proceedings
10. Directors, Executive Officers, Management - Directors and Executive
Promoters and Control Persons Officers
11. Security Ownership of Certain Principle Shareholders
Beneficial Owners and Management
12. Description of Securities Description of Securities
13. Interest of Named Experts and Not Applicable
Counsel
14. Disclosure of Commission Position Management-Limitation of Directors'
on Indemnification for Securities Liability; Item 28.c. of
Act Liabilities Registration Statement
15. Organization Within Last Five Years Certain Transactions
16. Description of Business Business
17. Management's Discussion and Analysis Management's Discussion and Analysis
or Plan of Operation
18. Description of Property Business-Property
19. Certain Relationships and Related Certain Transactions
Transactions
20. Market for Common Equity and Related Cover Page of Prospectus;
Stockholder Matters Description of Securities
21. Executive Compensation Management - Executive Compensation
22. Financial Statements Financial Statements
23. Changes in and Disagreements with Not Applicable
Accountants on Accounting and Financial
Disclosure
Legend Required by Item 1 of Form SB-2 and Item 501(a)(8) of Regulation S-B:
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with
the Securities and Exchange Commission. These securities may not be sold
nor may offers to buy be accepted prior to the time the registration
statement becomes effective. This prospectus shall not constitute an offer
to sell or the solicitation of an offer to buy nor shall there be any sale
of these securities in any State in which such offer, solicitation or sale
would be unlawful prior to registration or qualification under the
securities laws of any such State.
No copies of any Preliminary Prospectus will be delivered to any person
without such legend appearing on the cover page thereof in compliance with
Item 501(a)(8) of Regulation S-B.
Should any copy of the Preliminary Prospectus be delivered to any person,
it will include on its cover the above legend and the following words:
Preliminary Prospectus, dated , September 22, 1998
Subject to Completion
UROPLASTY, INC.
1,702,950 Shares of Common Stock
This Prospectus pertains to 1,702,950 shares of common stock (the "Shares")
of Uroplasty, Inc. (the "Company"). All of the Shares are owned by and may
be offered and sold at market prices by certain Selling Shareholders identified
herein. The Company is not selling and will not receive any proceeds
resulting from the sale of any of the Shares. The Shares were issued by the
Company as part of a private placement transaction in May and June, 1998.
The Company's Common Stock is traded in the local over-the-counter
(Bulletin Board) market under the symbol "UROP".
THE SECURITIES OFFERED HEREBY ARE HIGHLY
SPECULATIVE, INVOLVE A HIGH DEGREE OF RISK AND
SHOULD BE PURCHASED ONLY BY PERSONS WHO CAN
AFFORD TO LOSE THEIR ENTIRE INVESTMENT. See "Risk
Factors" herein.
THESE SECURITIES HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE
COMMISSION, OR ANY STATE COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
The Company expects that the Shares will be sold at market prices. The
expenses of this offering, estimated to be $20,000, not counting any
commissions or expenses payable by the Selling Shareholders, will be paid by
the Company. Selling shareholders are responsible for any brokerage
commissions payable upon the sale of their Shares. The Company will not
receive any proceeds from the sale of any of the Shares.
The date of this Prospectus is September ___, 1998.
TABLE OF CONTENTS
SUMMARY 4
RISK FACTORS 6
MARKET FOR COMMON STOCK 14
USE OF PROCEEDS 13
DIVIDEND POLICY 14
CAPITALIZATION 15
SELECTED FINANCIAL DATA 16
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS 17
BUSINESS 19
MANAGEMENT 31
PRINCIPAL SHAREHOLDERS 35
DESCRIPTION OF SECURITIES 42
REPORTS TO SHAREHOLDERS 45
LEGAL MATTERS 45
EXPERTS 45
AVAILABLE, ADDITIONAL AND SUPPLEMENTAL
INFORMATION 45
FINANCIAL STATEMENTS F-1
IMPORTANT INFORMATION
THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFER OF SECURITIES TO ANY PERSON OTHER THAN THE
RECIPIENT OF THIS PROSPECTUS. THE CONTENTS OF THIS
PROSPECTUS ARE THE RESPONSIBILITY OF THE
COMPANY. NO PERSON HAS BEEN AUTHORIZED BY THE
COMPANY TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN AS CONTAINED IN THIS
PROSPECTUS AND, IF GIVEN OR MADE, MUST NOT BE
RELIED UPON. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALES HEREUNDER SHALL UNDER
ANY CIRCUMSTANCES CREATE ANY IMPLICATION THAT
THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE
COMPANY SINCE THE DATE HEREOF.
FORWARD-LOOKING STATEMENTS
The Company may from time to time make written or oral
"forward-looking statements", including statements contained
in this Prospectus and in documents filed by the Company with the
Securities and Exchange Commission and in its reports to stockholders, as
well as elsewhere. "Forward-looking statements" are statements such as
those contained in projections, plans, objectives, estimates, statements of
future economic performance, and assumptions related to any of the
foregoing, and may be identified by the use of forward-looking
terminology, such as "may, "expect," "anticipate," "estimate, "goal,"
"continue," or other comparable terminology. By their very nature,
forward-looking statements are subject to known and unknown risks and
uncertainties relating to the Company's future performance that may
cause the actual results, performance or achievements of the Company, or
industry results, to differ materially from those expressed or implied in
any such "forward-looking statements". Any such statement is qualified
by reference to the following cautionary statements.
The Company's business operates in highly competitive markets
and is subject to changes in general economic conditions, competition,
customer and market preferences, government regulation, the impact of
tax regulation, foreign exchange rate fluctuations, the degree of market
acceptance of products, the uncertainties of potential litigation, as well as
other risks and uncertainties detailed elsewhere herein and from time to
time in the Company's Securities and Exchange Commission filings.
In this Prospectus, the following sections contain "forward-
looking statements": "Summary"; "Risk Factors"; "Business"; and
"Management's Discussion and Analysis of Financial Condition and
Results of Operation". Various factors and risks (not all of which are
identifiable at this time) could cause the Company's results, performance
or achievements to differ materially from that contained in the
Company's forward-looking statements, and investors are cautioned that
any forward-looking statement contained herein or elsewhere is qualified
by and subject to the warnings and cautionary statements contained above
and in the Risk Factors section of this Prospectus.
The Company does not undertake and assumes no obligation to
update any forward-looking statement that may be made from time to
time by or on behalf of the Company.
SUMMARY
This summary is intended for quick reference purposes only and
does not contain all facts material to a determination to invest in the
securities offered hereby, and is qualified in its entirety by the more
detailed information and financial information appearing elsewhere in
this prospectus.
The Company
The Company designs, develops, manufactures and markets
medical products primarily for the treatment of urinary incontinence.
Currently, the Company sells its products only to customers outside the
United States through its foreign subsidiaries. The Company's key
product is Macroplastique(R), an injectable soft tissue bulking agent
currently used to treat certain types of stress urinary incontinence
("SUI"), the most common form of urinary incontinence. SUI refers to
involuntary loss of urine as a result of activities that increase intra-
abdominal pressure, such as coughing, laughing or exercising.
Macroplastique also is used to treat vesicoureteral reflux ("VUR"), a
condition occurring mostly in children in which urine flows backward
from the bladder into the kidney. In addition, some doctors in Europe are
beginning to use Macroplastique to treat incontinence in men recovering
from prostate surgery. In June 1996, Macroplastique received a CE mark
in Europe (similar to FDA approval in the United States), allowing the
product to be sold throughout the European Union. Macroplastique is not
sold in the United States because it has not been approved for marketing
by the Food and Drug Administration ("FDA"). Through this offering,
the Company seeks to fund its efforts to obtain FDA pre-market approval
for Macroplastique, which would allow the Company to enter the United
States female urinary incontinence treatment market.
It is estimated that urinary incontinence afflicts about 5% of the
general population and women comprise about 85% of the sufferers. In
Europe, currently the Company's largest market, approximately 17
million people suffer from various forms of urinary incontinence and
about 14.5 million of these sufferers are women. Bulking agents such as
Macroplastique are used to treat women with SUI caused by intrinsic
sphincter deficiency, estimated by the Company to comprise 10% of the
female incontinence market or about 1.4 million women in Europe alone.
VUR is primarily a pediatric concern, with a prevalence estimated to be
as high as 1% of the pediatric population. The Company estimates that
about half of this population are candidates for Macroplastique
treatments. Of the estimated 2.6 million European men who are
incontinent, the Company believes about 25% are candidates for
treatment with Macroplastique.
Macroplastique consists of solid, highly textured particles that are
soft and flexible, made by heat vulcanizing polydimethylsiloxane
(silicone). The particles are suspended in a water-based biocompatible
carrier solution. Macroplastique is not a silicone gel, the compound
which became controversial in connection with its use in breast implants.
Macroplastique has been used to treat approximately 15,000 patients in
Europe over the last seven years with no reported serious product-related
adverse incidents.
The Company was incorporated in Minnesota in 1992 as a
wholly-owned subsidiary of Bioplasty, Inc. ("Bioplasty"), a manufacturer
of breast implants, which, along with other breast implant manufacturers,
became subject to numerous product liability class action lawsuits. In
1993, Bioplasty and Uroplasty filed for protection under Chapter 11 of
the Federal Bankruptcy Code. The Company emerged from Chapter 11
in February 1994 as a separate and distinct entity from Bioplasty.
Capital Structure
Common Stock outstanding as of June 30, 1998: 5,917,371 shares of
Common Stock(1)
(1) Does not include 483,200 shares underlying outstanding options,
as of June 30, 1998, nor 150,000 Shares underlying an Agent's
Warrant.
Risk Factors
The securities offered hereby are highly speculative, illiquid,
involve a high degree of risk and immediate substantial dilution and
should be purchased only by persons who can afford to lose their entire
investment. See "Risk Factors" and "Dilution" herein.
<TABLE>
<CAPTION>
Summary Financial Data
(In thousands, except per share data and shares outstanding.)
Years ended March 31,
1998 1997
<S> <C> <C>
Consolidated Statement of Operations Data:
Net sales $4,336 $3,335
Operating profit 662 376
Net income $ 408 $ 218
Net income per share $ .10 $ .06
Weighted average number of
common shares outstanding(1) 4,026,571 3,575,609
March 31, 1998
Actual Pro Forma As Adjusted(2)
Consolidated Balance Sheet Data:
Cash and cash equivalents $ 890 $4,334
Working capital 1,514 4,958
Total shareholders' equity 2,051 5,495
</TABLE>
(1) Does not include 505,200 shares, as of March 31, 1998, (483,200
shares, as of June 30, 1998) underlying outstanding options, nor
150,000 shares underlying an Agent's Warrant, as of June 30,
1998.
(2) As adjusted on a pro forma basis to reflect the sale of 1,702,950
shares in May and June, 1998, and the application of the net
proceeds therefrom.
Address/Telephone Numbers
The mailing address and telephone/fax numbers of the principal
executive offices of the Company are:
Uroplasty, Inc.
2718 Summer Street N.E.
Minneapolis, MN 55413
Telephone (612) 378-1180
Fax (612) 378-2027
RISK FACTORS
The securities offered hereby are highly speculative, illiquid,
involve a high degree of risk and immediate substantial dilution and
should be purchased only by persons who can afford to lose their entire
investment. In evaluating an investment in such securities, prospective
investors should carefully consider the following risk factors and other
information contained in this Prospectus.
Government Regulation - International and United States; Inability
to Market or Sell Macroplastique in United States; Uncertainty of
Obtaining FDA Marketing Approval.
The Company's product, manufacturing processes and product development
activities are subject to extensive and rigorous regulation by governmental
and regulatory authorities in foreign countries similar to the U.S. Food
and Drug Administration ("FDA"). In Europe, where the Company has been
marketing Macroplastique since 1991, the Company's introduction of
medical devices as well as its design, manufacturing, labeling,
distribution, sale, marketing, advertising, promotion and recordkeeping
procedures for its products are subject to laws and regulations governing
medical devices contained in the European Medical Device Directives
("MDD"). In June, 1996, the Company received a Certificate of
Authorization for affixing the CE mark (Conformite Europeene) on
Macroplastique based upon compliance with the MDD.
In the United States, the Company cannot market or sell
Macroplastique until Investigational Device Exemption ("IDE") and
subsequent Pre-Market Approval ("PMA") authorization for
Macroplastique are received from the FDA. As of the date of this
Prospectus, the Company had not submitted an IDE application to the
FDA to request authority to commence human clinical studies in the
United States. There can be no assurance that the requisite approvals
or certifications will be granted for Macroplastique or any other
product, on a timely basis, or at all, or that such regulatory reviews will
not involve delays that would conflict with the Company's ability to
commercialize its products in the United States.
In summary, the Company has received MDD approval to market Macroplastique
and Bioplastique throughout the European Community, but the Company has not
yet applied for regulatory approval from the FDA in the United States for
Macroplastique or any of it other products.
Even if regulatory approval to market a product is obtained from
the FDA, this approval may necessitate limitations on the indicated uses
of the product. Marketing approval can also be withdrawn by the FDA in
the United States (and by regulatory authorities in foreign countries) due
to failure to comply with regulatory requirements or the occurrence of
unforeseen problems following initial approval. The Company may be
required to make further filings with the FDA and other regulatory
authorities in foreign countries under certain circumstances, such as the
addition of product claims or product reformulation. The FDA and other
regulatory authorities in foreign countries could also limit or prevent the
manufacture or distribution of the Company's products and has the power
to demand the recall of such products. FDA medical device regulations
depend strongly on administrative interpretation, and there can be no
assurance that future interpretation made by the FDA or other regulatory
bodies, with possible retroactive effect, will not adversely affect the
Company. The FDA and various other authorities either currently inspect
or will inspect the Company and its facilities from time to time to
determine whether the Company is in compliance with regulations
relating to medical device manufacturing, including regulations
concerning design, manufacturing, testing, quality control, product
labeling, distribution, promotion and record keeping practices. A
determination that the Company is in material violation of such
regulations could lead to the imposition of civil penalties, including fines,
product recalls, product seizures or, in extreme cases, criminal sanctions.
See "Business - Government Regulations".
Dependence on Single Product. The Company expects to derive
substantially all of its revenues for the next several years from
sales of Macroplastique. The Company's failure to continue its
commercialization of Macroplastique in Europe would have a material
adverse effect on the Company's business, financial condition and
results of operations. The Company does not expect that commercialization
of other new products will be feasible without a substantial, continuing
commitment to research and development for an extended period of time
or acquisitions of new products, or both. Also, new medical products
must typically undergo clinical trials and regulatory clearance or approval
before commercialization. There can be no assurance as to whether or
when commercialization of other products might begin or as to the
likelihood that any such initiative would be successful. The market for
medically-related products changes constantly, and if the market changes,
or if new or strengthened competition emerges, or customer preferences
change, or if new technology causes Macroplastique to be viewed as a
less effective treatment, the Company's business, financial condition and
results of operation would be adversely affected. Unlike larger
companies with many products in the marketplace, the Company is
dependent on one product and its fate is, consequently, much more
closely tied to market acceptance of that product.
Dependence on Patents and Proprietary Rights. The Company's success depends
in part on its ability to preserve trade secrets, obtain and maintain patent
protection for its products under United States and international patent
laws and other intellectual property laws and operate without infringing
upon the proprietary rights of third parties. Patents covering the
materials, process and applications have been issued to the Company by the
Patent Offices in the United States, United Kingdom, Japan and Germany.
Applications are also currently pending in various other countries,
including Canada and other European countries. No assurances can be given
that the scope of any patent protection will prevent competitors (most of
which have financial and other resources substantially greater than the
Company) from introducing products competitive with the Company's products,
the Company's patents will be held valid if subsequently challenged, others
will not claim rights in or ownership of the patents and other proprietary
rights held by the Company, or the Company's product and processes will
not infringe, or be alleged to infringe, the proprietary rights of others.
A number of patents have been issued to others in the area of
injectable bulking agents. The validity and breadth of claims covered in
medical device technology patents involve complex legal and factual
questions and may therefore be highly uncertain. The Company also
relies upon unpatented trade secrets to protect its proprietary technology.
No assurance can be given that others will not independently develop or
otherwise acquire substantially equivalent techniques and/or gain access
to and disclose the Company's proprietary technology. Further, no
assurance can be given that the Company can ultimately protect
meaningful rights to such unpatented proprietary technology. There has
been substantial litigation regarding patent and other intellectual property
rights in the medical device industry. Companies in the medical device
industry have employed intellectual property litigation to gain a
competitive advantage. Litigation may be necessary to enforce any
patents issued to the Company, protect trade secrets or proprietary
information owned by the Company against claimed infringement of the
rights of others or determine the scope and validity of the proprietary
rights of others. The defense and prosecution of patent litigation or other
legal and/or administrative proceedings related to patents is costly and
time-consuming regardless of the outcome. An adverse outcome in any
litigation could subject the Company to significant liabilities to third
parties, require disputed rights to be licensed from others and/or require
the Company to cease making, using or selling any products. There can
be no assurance that any licenses required under any patents or
proprietary rights would be made available on terms acceptable to the
Company, if at all. See "Business - Patents, Trademarks, and Licenses".
Uncertainty Relating to Third-Party Reimbursement. The success of
the Company will depend, in part, upon, satisfactory reimbursement for
Macroplastique procedures from third party health care payers. In the
United States and many foreign countries, third-party reimbursement is
currently generally available for surgical procedures for urinary
incontinence, but there is no uniform policy for such reimbursements.
The Company sells Macroplastique to physicians, hospitals and other
users, which bill various third-party payers, such as government health
programs, private health insurance plans, managed care organizations and
other similar programs, for the health care products and services provided
to their patients. Payers may deny reimbursement if they determine that a
product used in a procedure was not used in accordance with established
payer protocols regarding cost-efficient treatment methods, was used for
an unapproved indication or was not otherwise covered. Third-party
payers are increasingly challenging the prices charged for medical
products and services and, in some instances, have pressured medical
suppliers to lower their prices. The availability of third-party
reimbursement for Macroplastique or competitors' products and
continuing efforts to reduce the costs of health care by decreasing
reimbursement rates may reduce the price received by the Company for
Macroplastique or increase the relative expense to the consumer. The
Company believes that a material amount of its Macroplastique revenues
are received from third party payers, and that, therefore, failure
to receive sufficient reimbursement from health care payers for
procedures using Macroplastique or adverse changes in governmental and
third-party payers' policies toward reimbursement for such procedures
would materially adversely affect the Company's business, financial
condition and results of operations. See "Business - Third Party
Reimbursement".
Potential Unfavorable Public Reaction to Use of Silicone
Products/Earlier Silicone Controversies. Macroplastique is comprised
of heat vulcanized polydimethylsiloxane, which results in a solid flexible
silicone elastomer. The United States breast implant industry in the
1990's became the subject of significant controversies (some of which
continue at this time) surrounding the possible effects upon the human
body of the use of silicone gel in breast implants. One consequence was a
massive flood of products liability litigation, leading to the bankruptcy of
several companies, including Uroplasty's former parent, Bioplasty, Inc.,
(which in turn, caused Uroplasty, Inc. to file for bankruptcy in 1993).
The Company uses only solid silicone material, and not semi-liquid
silicone gel (as was used in breast implants), in its Macroplastique
product. However, since the controversies in the United States
surrounding the use of silicone in breast implants have been so
widespread and resulted in such extensive litigation, there can be no
assurance that the use by the Company, and others, of solid silicone in
medical devices implanted in the human body will not result in
controversies, or even litigation. There can be no assurance that studies
or research unknown to date will not some day cast doubt, in the mind of
the public, on the safety of the Company's products and the
appropriateness of their intended use.
The Company expects its competitors will attempt to portray
silicone as an undesirable feature of Macroplastique, and the effects of
such efforts cannot be predicted at this time. The earlier silicone
controversies may adversely affect the Company's ability to market
Macroplastique in the United States if and when the Company receives
PMA approval from the FDA for Macroplastique.
Research and Development Expenses in Fiscal Year 1999; Expected
Losses. The Company's future success will depend upon, among other
factors, its ability to introduce and market Macroplastique on a timely
basis in the United States, and to that end, it has committed the largest
portion of the proceeds resulting from its private placement of Common Stock
in May and June, 1998. Although the Company has been profitable in fiscal
years 1998 and 1997, the Company expects to incur significant operating
losses in its fiscal year 1999, due largely to the significant costs
associated with clinical trials and other aspects of the FDA approval
process. The development and commercialization by the Company of
Macroplastique and other products in the United States will require
substantial additional product development, clinical, regulatory and
other expenditures for the foreseeable future. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations," "Business," "Financial Statements", and "Risk Factors -
Need for Additional Capital".
Need for Additional Capital. The Company anticipates that the net
proceeds received from its private placement in May and June, 1998,
together with cash flow from operations will be sufficient to fund its
IDE submission, clinical studies and the completion of its PMA
application to the FDA for Macroplastique. However, if expenses or
operating profits differ from expected levels, the Company will require
additional financing to complete its PMA application to the FDA for
Macroplastique. Further, the Company will need additional funds in
order to introduce Macroplastique to the U.S. vesicoureteral reflux and
male incontinence markets because separate regulatory approval is needed
for each of these conditions. There can be no assurance that additional
capital will be available to the Company when needed or on terms acceptable
to the Company. The net proceeds of the Company's private placement of
the Shares in May and June, 1998, together with the Company's existing
capital resources and any funds provided by future operations, will not
be sufficient to fund new product development, and funds for such purpose
may not be available, on reasonable terms, and there can be no assurance
that other sources of funding will be available. If equity capital is
needed by the Company in the future, the Company would attempt to obtain
it on terms it considered favorable, but the demands of the business and
the nature of financial markets at the time may be such that any resulting
issuance of equity securities would result in dilution to then existing
shareholders. See "Use of Proceeds" and "Management's Discussion and
Analysis".
Lack of Marketability and Registration in All States. The Company is not
required, and does not intend, to register the Shares in all states in
which the Shares may be sold, including without limitation, California,
Virginia, and Arizona.
Highly Competitive Industry. Competition in the urinary incontinence
management and treatment products market is fierce. The medical
condition treated by using the Company's product also may be managed
or treated using a variety of alternative products or techniques, including
adult diapers, absorbent pads, behavior therapy, pelvic muscle exercises,
drugs, surgery, implantable devices, other injectable bulking agents and
other medical devices. There is no assurance the Company's products
will be a substitute for such alternative products or techniques or that
advancements in these alternative products or techniques will not make
the Company's products obsolete. In addition, the Company believes
some of its competitors who do not currently have injectable bulking
agents are attempting to develop injectable bulking agents which will
directly compete with Macroplastique. Many of the Company's existing
as well as potential competitors have substantially greater capital
resources, name recognition, distribution capabilities, well-known and
well-established product lines and larger marketing, research and
development staffs and facilities than the Company. These competitors
may also have greater expertise than the Company in research and
development, manufacturing, marketing and sales and regulatory affairs.
There can be no assurance that the Company and Macroplastique will be
able to compete effectively with such alternative products or techniques
or with such competitors and potential competitors.
In addition, the Company's ability to compete in the urinary
incontinence treatment market will depend primarily upon physician,
patient and healthcare payer acceptance of Macroplastique as a safe,
effective and cost-effective treatment for stress urinary incontinence.
The Company's ability to compete in this market will also depend upon
product pricing and the consistency of its product quality and delivery.
Other factors within or outside the Company's control include its product
development and innovation capabilities, ability to obtain required
regulatory approvals, ability to protect its proprietary technology,
manufacturing and marketing capabilities and ability to attract and retain
skilled employees. See "Business - Competition".
Risks and Effects of Technological Developments. The Company
competes in a market characterized by technological innovation,
extensive research efforts and significant competition. Improvements in
existing treatment options or developments of new treatment methods
may have a material adverse effect on the Company's ability to increase
sales of Macroplastique and successfully commercialize any future
products and may render such products noncompetitive or obsolete.
Other companies are currently engaged in the development of products
and innovative methods for treating stress urinary incontinence that are
similar to, or compete with, Macroplastique. Significant developments by
any of these companies or advances by medical researchers at
universities, government research facilities or private research
laboratories could eliminate the market for Macroplastique or otherwise
render Macroplastique obsolete. Although technological change has
not had a direct material impact on the Company in recent years, the
potential that such a change might occur is a continuing risk for the
Company. See "Business-Competition."
Risk of Product Liability; No Assurance Insurance is Adequate. The
medical products industry is subject to substantial litigation. As a
manufacturer of an implantable medical product, the Company faces an
inherent business risk of exposure to product liability claims in the event
that the use of its product is alleged to have resulted in adverse effects to a
patient. The Company maintains product liability insurance in the amount
of $2,000,000, aggregate and per occurrence, but there can be no assurance
that such coverage limits are adequate to protect the Company from any
liabilities which it might incur in connection with the clinical trials
and commercialization of Macroplastique or any other product. Such insurance
is expensive and in the future may not be available on acceptable terms,
if at all. Furthermore, the Company does not expect to be able to obtain
insurance covering its costs and losses as a result of any recall of its
products due to alleged defects, whether such a recall is instituted by
the Company or required by a regulatory agency. Consequently, a product
liability claim, recall or other claim with respect to uninsured
liabilities or in excess of insured liabilities could have a material
adverse effect on the business, financial condition and results of
operations of the Company. See "Business-Product Liability".
Uncertainty of Future Market Acceptance. The Company currently sells
Macroplastique in Europe and other foreign countries.
Acceptance of Macroplastique by physicians in preference to other
treatment options, including other bulking agents, will depend upon the
demonstration of its safety and effectiveness, relative performance of
Macroplastique compared to other market approved products, ease of use
and relative cost compared to other bulking agents and treatment
alternatives. Physicians may elect not to prescribe treatment using
Macroplastique unless adequate reimbursement from health care payers is
available. Health care payer acceptance of a treatment utilizing
Macroplastique will require, among other things, evidence of the cost
effectiveness of this treatment as compared to other treatment options.
There can be no assurance that the acceptance of Macroplastique by
urological and gynecological health care providers will continue to grow
in Europe and other areas where Macroplastique is already used.
The Company does not sell Macroplastique in the United States.
There can be no assurance that Macroplastique will achieve any
significant degree of market acceptance in the United States among
physicians, health care payers or patients, even if the safety and
effectiveness of Macroplastique is established in the United States and the
necessary regulatory approvals are obtained. Even if those approvals
were granted, the Company's future success in the United States market
would be entirely dependent on the successful commercialization and
market acceptance of Macroplastique. Accordingly, any delay or failure
by the Company in demonstrating that Macroplastique is safe and
effective, receiving required regulatory approvals to market
Macroplastique or achieving significant market acceptance of
Macroplastique in the United States among physicians, health care payers
and/or patients would have a material adverse effect on the Company's
business, financial condition and results of operations. In addition, the
earlier controversies surrounding silicone, and possible lingering public
concerns about it, could impede the acceptance of Macroplastique. See
"Business".
Dependence on Key Personnel. The Company's success depends to a
significant degree upon the continued contributions of its key
management personnel. The Company believes that its future success
will depend in large part on its ability to attract and retain highly skilled
managerial, engineering, operations and marketing personnel who are in
great demand. Failure to attract and retain key personnel could have a
material adverse effect on the Company's results of operations. The
Company does not have an employment agreement or non-compete
agreement with Daniel G. Holman, its Chairman, President, CEO and
CFO, or Susan Hartjes-Doherty, its Vice President of Operations and
Regulatory Affairs and Secretary. The Company does not maintain
key person life insurance for any of its employees.
Risks Associated with International Operations; Currency Risks. At
this time, the Company only sells Macroplastique outside the United
States through its wholly-owned foreign subsidiaries. Sales and
operations outside of the United States are subject to certain inherent
risks, including, without limitation, fluctuations in the value of the U.S.
dollar relative to foreign currencies, tariffs, quotas, taxes and other market
barriers, political and economic instability, restrictions on the import and
export of technology, difficulties in staffing and managing international
operations, difficulties in obtaining work permits for employees,
difficulties in collecting receivables, potentially adverse tax
consequences, potential language barriers, and difficulties in operating in
a different culture and legal system. There can be no assurance that any
of these factors will not have a materially adverse effect on the
Company's financial condition or results of operations. In particular,
because the Company's international sales are denominated primarily in
Dutch guilders, currency fluctuations in countries where the Company
does business may render the Company's products less price competitive
than those of foreign companies whose sales are denominated in weaker
currencies. The Company reports its financial results in U.S. dollars, and
fluctuations in the value of the dollar or the currencies in which the
Company transacts business can have a negative impact on its financial
results.
Dependence on Suppliers. The Company currently purchases all raw
materials from single sources. Alternative suppliers for these materials
exist should the current suppliers discontinue production or distribution.
However, the Company would need to complete additional testing to
qualify the materials obtained from any new suppliers. Additionally,
limited notice of the need to switch suppliers for either of these materials
could result in production delays and inventory depletion. The Company
has not experienced any shortage of these materials to date; however, no
assurance can be given that shortages of these materials will not be
experienced in the future.
Limited Public Market for Common Stock; Possible Stock Price
Volatility. Prior to this offering, there has been only a limited public
market for the Company's common stock, and there can be no assurance
that an active trading market for the common stock will develop in the
future or be sustained following any subsequent registration of the
common stock. There can be no assurance that future market prices of
the common stock will not be lower than the purchase price of the Shares
sold in this offering. The market price of the common stock following the
offering may be highly volatile. Announcements of new products and
services by the Company or its competitors, technological innovations,
disputes regarding patents or other proprietary rights, regulatory
developments and economic and other external factors, as well as period-
to-period fluctuations in the Company's financial results, could cause the
market price of the common stock to fluctuate significantly. In addition,
the stock market in general and, in particular the market prices for
medical technology companies, have historically experienced significant
volatility which has affected the market price of securities of many
companies and which has sometimes been unrelated to the operating
performance of such companies. Such volatility may adversely affect the
market price of the common stock.
Absence of Long-Term Human Clinical Studies. Although the
Company believes that Macroplastique is safe when used as
recommended by the Company, there are no long-term well-controlled
human clinical studies of this product. Accordingly, no assurance can be
given that Macroplastique, even when used as recommended, will have
the effects intended or will not have adverse effects over a patient's
lifetime. For example, there can be no assurance as to whether or how
frequently patients will require additional injections of Macroplastique
and whether any such additional injections will be effective or will have a
negative effect on physician, payer or patient acceptance.
Fluctuations In Quarterly Operating Profit and Net Income. The
Company may experience variability in its net sales and operating profit
on a quarterly basis as a result of many factors, including, among others,
buying habits of European health care providers, size and timing of orders
by certain customers, shifts in demand for types of products,
technological changes and industry announcements of new products. If
revenues do not meet expectations in any given quarter, operating results
may be materially adversely affected. The Company may, in addition,
experience variability in its net income on a quarterly basis as a result of
many factors, including currency fluctuations. As a result of these
potential fluctuations in quarterly results, period-to-period comparisons of
the Company's financial results should be approached cautiously.
Possible Adverse Market Effect of Shares Eligible for Future Sale.
Sales of substantial amounts of Common Stock (including shares issued
upon the exercise of outstanding options and warrants) in the public
market could have an adverse effect on the price of the Company's
Common Stock. Such sales may also make it more difficult for the
Company to sell equity or equity-related securities in the future at a time
and price that the Company would deem appropriate. As of June 30,
1998, the Company had 5,917,371 shares of Common Stock issued and
outstanding. In addition to the 1,702,950 shares of Common Stock
covered hereby, (i) approximately 2,700,000 shares are eligible for
immediate sale on the date of this Prospectus in accordance with Rule
144(k) under the Securities Act of 1933, as amended ("Rule 144") or
otherwise; and (ii) approximately 1,100,000 additional shares became
eligible for sale in the public market in July, 1998, in
accordance with Rule 144 subject to volume and manner
of sale limitations thereunder and will become available for immediate
sale in accordance with Rule 144(k) in July, 1999. See "Description
of Securities - Shares Eligible for Future Sale".
Possible Adverse Effect of Anti-Takeover Provisions and Staggered
Board. As a Minnesota corporation, the Company is subject to certain
anti-takeover provisions of the Minnesota Business Corporation Act. The
authority of the Board with regard to the anti-takeover provisions of such
Act could have the effect of delaying, deferring or preventing a change in
control of the Company, may discourage bids for the Company's
Common Stock at a premium over the then prevailing market price of the
Common Stock, and may adversely affect the market price of, and the
voting and other rights of the holders of, Common Stock. Should the
Company issue additional shares, whether for purposes of raising
additional capital or otherwise, it could have the effect of making
a takeover more difficult. See "Description of Securities".
The Company's Articles of Incorporation and Bylaws include
certain provisions (the "Staggered Board Provisions") for staggering the
election of the members of the Board of Directors. The Board is divided
into three classes with each class serving for an independent term. The
classification of directors is intended to make it more difficult to change
the composition of the Board. At least two shareholders' meetings,
instead of one, will generally be required for shareholders to effect a
change in control of the Board. The Staggered Board Provisions will
apply to every election of directors, whether or not a change in the Board,
in the opinion of some or a majority of the Company's shareholders,
would be desirable. The Staggered Board Provisions relating to the
removal of directors and the filling of vacancies are designed to protect
the staggered Board structure in the event a third party gains control of a
majority of the Company's voting power and could discourage an attempt
to gain control of the Company. See "Description of Securities".
Potential Applicability of "Penny Stock Rules"; Possible Impact on
Liquidity of Stock. If the Company fails to become listed on Nasdaq or,
after such listing, fails to satisfy the Nasdaq requirements to maintain
listing on Nasdaq in the future, the Common Stock will likely continue to
be quoted only in the local over-the-counter "pink sheets" market. The
public trading market for the Common Stock could be adversely affected
by such limited quotation, and there would likely be fewer market makers
for the Company's stock, less interest by potential institutional investors
and less coverage by analysts and the financial media.
In order to be listed in the NASDAQ Small Cap Market, the Company would
need $4,000,000 in net tangible assets, a minimum bid price of $4.00
per share for at least 30 calendar days and three market makers, as well
as meet certain other requirements. At June 30, 1998, the Company had
over $5,000,000 in net tangible assets, but its recent share price
has been in the range of $2.50 to $3.00 per share and it had only one
market maker.
In addition, if the Company's Common Stock is not listed in the NSADAQ
Small Cap Market, it will be subject to SEC rules under the Securities
Exchange Act of 1934 relating to "penny stocks." The "penny stock rules",
which apply to companies whose common stock trades at less than $5.00 per
share, require brokers who sell securities subject to such rules to
persons other than established customers and "institutional accredited
investors" to complete certain documentation, make suitability inquiries
of investors and provide investors with certain information concerning
the risks of trading in the security. The application of these rules
may restrict the ability of brokers to sell the Company's Common Stock, may
adversely affect the liquidity of the Shares, and may affect the ability
of purchasers to sell the Shares in the secondary market.
No Dividends. The Company has never paid any cash dividends on its
Common Stock and does not anticipate paying such dividends for the
foreseeable future. See "Dividend Policy".
Net Operating Loss Carryforwards; Effect of International
Operations on Tax Position. The Company has net operating loss
carryforwards for U.S. income tax reporting purposes of approximately
$2,061,000, which can be used to offset U.S. taxable income in future
years. Sales of the Company's voting common shares during the prior
three years, combined with the current equity offering will most likely
cause a change in ownership under Section 382 of the Internal Revenue
Code of 1996. Section 382 limits the annual use of the Company's U.S.
net operating loss carryforwards existing as of the date of the ownership
change. Notwithstanding the application of Section 382, it is not
anticipated that any limitation would have a material adverse effect on the
Company.
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.
PLAN OF OFFERING
All of the 1,702,950 shares of Common Stock offered hereby (the
"Shares") are owned by Selling Shareholders. None of the Shares is
owned by the Company, and the Company will receive none of the
proceeds resulting from the sale of any of the Shares.
Selling Shareholders will make their own arrangements for the
offer and sale of any of the Shares and will be responsible for all sales and
brokerage commissions associated with such sales. The Company will
bear the costs of registration of the Shares, such as legal and accounting
fees, filing fees, printing expenses and the like.
The Company will not select and does not expect to have any
contact with any of the broker-dealer firms that may be used by Selling
Shareholders in making sales of the Shares.
USE OF PROCEEDS
The Company will receive none of the proceeds resulting from
the sale of any of the Shares, nor will any such proceeds become the
property of the Company. All of the Shares are owned by and will be
offered and sold by Selling Shareholders.
The Shares were acquired by the Selling Shareholders in May and
June, 1998, at a price of $2.375 per share, which was considered fair
market value for the Shares at the time. The limited public trading
market for the Company's Common Stock at the time was slightly higher.
(See "Market for Common Stock", below.)
At the time of the private placement, the Company proposed to use,
and is now using, the proceeds from the sale of the Shares as follows:
IDE submission to FDA and clinical studies for Macroplastique
for female stress urinary incontinence. $1,900,000
Complete PMA application to FDA for Macroplastique $1,000,000
Working Capital $100,000
----------
$3,000,000
----------
----------
MARKET FOR COMMON STOCK
As of the date hereof, there is only a limited public trading market
for the Company's common stock. Although one broker dealer published
bid and ask quotations for the Company's common stock on an irregular
basis during the period March through June, 1997, the Company is not
aware of any shares that were either purchased or sold through such
broker dealer.
The following table sets forth the high and low bid prices for the
Company's Common Stock, as reported in the NASD'S Bulletin Board
system (market symbol UROP), on a quarterly basis, from July 1997,
through June 1998, and for the period July 1, 1998 through August 21, 1998.
Such quotations represent interdealer prices, without retail markup,
markdown or commission, and do not necessarily represent actual
transactions.
Quarter Low Bid High Bid
July 1 - September 30, 1997 $ 1/2 $ 3 3/16
October 1 - December 31, 1997 3 3 1/2
January 1 - March 31, 1998 2 1/4 3 1/4
April 1 - June 30, 1998 3 5
July 1 - September 17, 1998 2 7/8 3
As of June 30, 1998, the Company's Common Stock was held of
record by approximately 600 holders. Registered ownership includes
nominees who may hold securities on behalf of multiple beneficial
owners.
DIVIDEND POLICY
The Company has never declared nor paid any cash dividends on
its Common Stock. The Company currently intends to retain any
earnings for use in the development and growth of its business and
therefore does not currently anticipate ever paying any cash dividends.
CAPITALIZATION
The following table sets forth the capitalization of the Company
as of March 31, 1998, and as adjusted to reflect the sale of 1,702,950
shares of Common Stock pursuant to a private placement in May and
June, 1998.
This table should be read in conjunction with the financial
statements of the Company included elsewhere in this Prospectus. See
"Financial Statements."
Outstanding as of March 31, 1998
Actual As Adjusted
Long-term debt (1) $ 609,606 $ 609,606
Shareholders' equity:
Common stock 41,915 58,945
Additional paid-in capital 2,432,599 5,859,289
Accumulated deficit (256,629) (256,629)
Cumulative translation
adjustment (162,129) (162,129)
Note receivable ( 5,000) ( 5,000)
Total shareholders' equity $2,050,756 $5,494,476(2)
Total capitalization $2,660,362 $6,104,082
Number of shares of common
stock outstanding (3) 4,191,525 5,895,475
(1) Includes real estate mortgage note and capital leases, but not
current maturities nor real estate leases.
(2) Includes gross proceeds of $4,044,506 resulting from the sale of
1,702,950 shares at $2.375 per share, less commissions (10%),
non-accountable expenses (3%) and estimated expenses of the
offering ($75,000), and net proceeds of $3,443,720.
(3) Does not include outstanding options for 505,200 shares as of
March 31, 1998, (483,200 shares as of June 30, 1998) nor an
Agent's warrant for 150,000 shares as of June 30, 1998.
SELECTED FINANCIAL DATA
The following selected financial data of the Company as of
March 31, 1998, and for the fiscal years ended March 31, 1998 and 1997
have been derived from, and are qualified by reference to, the
consolidated financial statements of the Company which have been
audited by KPMG Peat Marwick LLP, independent auditors, included
elsewhere in this Prospectus. The selected financial data should be read
in conjunction with the Company's Consolidated Financial Statements,
related Notes, and the independent auditors' report, "Management's
Discussion and Analysis of Financial Condition and Results of
Operations," and other financial information included elsewhere in this
Prospectus.
(In thousands, except per share data and shares outstanding.)
Years ended
March 31,
1998 1997
Consolidated Statement of Operations Data:
Net sales $ 4,336 $ 3,335
Operating profit 662 376
Net income $ 408 $ 218
Net income per share $ .10 $ .06
Weighted average number of common
shares outstanding(1) 4,026,571 3,575,609
March 31, 1998
Actual Pro Forma As Adjusted(2)
Consolidated Balance Sheet Data:
Cash and cash equivalents $ 890 4,334
Working capital 1,514 4,958
Total shareholders' equity 2,051 5,495
(1) Does not include 505,200 shares as of March 31, 1998 (483,200
shares as of June 30, 1998) underlying outstanding options, nor
150,000 shares underlying an Agent's Warrant as of June 30, 1998.
(2) As adjusted on a pro forma basis to reflect the sale of 1,702,950
Shares in May and June, 1998, and the application of the net
proceeds therefrom.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THIS DISCUSSION OF THE FINANCIAL CONDITION AND
THE RESULTS OF OPERATIONS OF THE COMPANY SHOULD BE
READ IN CONJUNCTION WITH, AND IS QUALIFIED IN ITS
ENTIRETY BY, THE FINANCIAL STATEMENTS AND NOTES
THERETO INCLUDED ELSEWHERE WITHIN THIS PROSPECTUS,
AND THE MATERIAL CONTAINED IN THE "RISK FACTORS"
AND "BUSINESS" SECTIONS OF THIS PROSPECTUS.
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
BioplastiqueT, in limited markets. In addition, the Company has been
selling some specialized wound care products as a distributor.
Set forth below is management's discussion and analysis of financial
condition and results of operations for the three months ended June 30, 1998
and 1997.
Results of Operations (First Quarter Ended June 30, 1998)
Sales were $1,315,700 for the first quarter ended June 30, 1998 as
compared to $1,149,239 for the first quarter of fiscal 1998. This increase of
$166,461 (14%) is the result of increased sales of the Macroplastique products
due to aggressively expanded overseas marketing activities. The Macroplastique
product line now accounts for 93% of total sales.
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 17%
from $206,894 in the first quarter of fiscal 1998 to $242,553 in the first
quarter of fiscal 1999. The FDA approval costs in the first quarter of fiscal
1999 were $62,934 compared to none in the first quarter of 1998. Other R&D
expenses increased 16% from $134,228 in the first quarter of fiscal 1998 to
$155,207 in the first quarter of fiscal 1999. The increase resulted from
development and testing efforts on new and existing products. Selling and
marketing expenses increased 53% from $217,159 in the first quarter of fiscal
1998 to $331,887 in the first quarter of fiscal 1999, due to the addition of
four sales personnel and expanded presence at international and domestic medical
conferences to increase market awareness of Macroplastique.
The income tax expense of $34,596 relates to the profit of a foreign
subsidiary in the first quarter of fiscal 1999.
The operating profit for the three months ended June 30, 1998 was
$261,532, compared to $354,335 for same period last year. The decrease is
primarily due to the increased operating expenses, partially offset by increased
sales.
For the three months ended June 30, 1998 net income totaled
$249,234; this includes a foreign currency exchange gain of $18,905.
Comparatively, the three months ended June 30, 1997 showed $238,692 net income
and a $71,095 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 (First Quarter Ended June 30, 1998)
As of June 30, 1998, the Company had $4,385,459 in cash and cash
equivalents. The $3,403,123 of net proceeds from the private placement of
common stock are invested in a short-term investment account. The June 30, 1998
balance of this investment account was $3,413,902 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.
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 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. The
capital equipment needs are expected to be financed through lease financing.
The proceeds of the private placement 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.
Results of Operations (Fiscal Year Ended March 31, 1998)
During the year ended March 31, 1998, net sales were $4,335,908
compared to $3,334,563 during the year ended March 31, 1997. This
increase of $1,001,345 (30%) is the result of substantially higher sales of
the Macroplastique product line as a result of increased market
penetration by existing distribution outlets. Unit sales of Macroplastique
increased 46% for the same period. Sales of Macroplastique were
approximately 91% of total sales. It is expected that Macroplastique sales
will continue to grow through further market penetration by existing
distribution outlets, expansion of its distribution network and the
introduction of innovations in Macroplastique implantation techniques.
The gross margin percentage improved from 77% in fiscal 1997
to 78% in fiscal 1998. Management believes that this high level of the
gross margin percentage can be maintained as a result of the
establishment of a new manufacturing facility, located in Eindhoven, The
Netherlands.
Operating expenses increased 24% from $2,204,590 in fiscal
1997 to $2,736,288 in fiscal 1998. The increase in operating expenses is
primarily attributable to an increase in the number of employees and the
initiation of several research and development projects. General and
administrative costs increased from $685,430 in fiscal 1997 to $994,068
in fiscal 1998. Research and development expenses increased from
$610,677 in fiscal 1997 to $778,082 in fiscal 1998. Selling and marketing
costs increased from $908,483 in fiscal 1997 to $964,138 in fiscal 1998.
Management believes there will be upward pressure on selling,
general and administrative expenses as efforts continue to market
Macroplastique. Additionally, management anticipates increased
expenditures for research and development projects associated with U.S.
regulatory activities for fiscal 1999.
The operating profit for the year ended March 31, 1998, was
$661,642, compared to $376,204 for the same period last year, an
increase of 76%. This increase is attributed to a higher sales level and
controlled operating expenses.
Income tax expense for the year ended March 31, 1998, was
$111,860, compared to $0 for the twelve months ended March 31, 1997.
The increase in income tax expense results primarily from the non-
availability in 1998 of foreign net operating losses which were available
in 1997.
For the year ended March 31, 1998, net income totaled $407,841,
compared to $218,221 for the twelve months ended March 31, 1997, an
increase of 87%.
Liquidity and Capital Resources (Fiscal Year Ended March 31, 1998)
The Company and its wholly-owned subsidiaries' capital resources are
derived from existing sales of the Company's products. As of March 31,
1998, the Company had approximately $890,000 in cash and cash equivalents.
There is currently no financing arrangement in place for the
Company's working capital needs, and the Company has no material
unused sources of liquidity other than its cash reserves and its accounts
receivable balances.
In November, 1997, due to expansion, the Company purchased an
office building for its international headquarters in Geleen, The
Netherlands. The purchase price of the building was $590,000 and was
fully financed through the issuance of a Note Payable, with a variable
interest rate (5% per annum at March 31, 1998). Monthly payments
consist of $2,563 of principal plus variable rate interest through
November 2017. In addition, during the fiscal year the Company made
other capital purchases of approximately $450,000, including primarily
building improvements and equipment for a new manufacturing plant in
Eindhoven, The Netherlands, which was financed by cash from
operations.
The proceeds of the sale, in May and June, 1998, of 1,702,950
shares of Common Stock, in addition to cash generated by product sales,
will be used to pursue an Investigational Device Exemption (IDE)
application and Premarket Approval (PMA) application for
Macroplastique with the U.S. Food and Drug Administration. If such
proceeds are not sufficient to complete the PMA, additional cash from
internal or other sources will be needed.
The Company has significant operations in the United States and
internationally. United States net operating loss carryforwards can not 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.
Year 2000 Compliance
The financial impact to the Company of year 2000 compliance
has not been and is not expected to be material to the Company's
financial position or results of operations in any given year. 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 "reinfect" 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. 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. The costs incurred in
addressing year 2000 compliance will be expensed as incurred, in
compliance with GAAP.
BUSINESS
General
The Company designs, develops, manufactures and markets
medical products primarily for the treatment of urinary incontinence. The
Company's key product is Macroplastique(R), an injectable soft tissue
bulking agent currently used to treat certain types of stress urinary
incontinence ("SUI"), the most common form of urinary incontinence.
SUI refers to involuntary loss of urine as a result of activities that increase
intra-abdominal pressure, such as coughing, laughing or exercising.
Macroplastique also is used to treat vesicoureteral reflux ("VUR"), a
condition occurring mostly in children in which urine flows backward
from the bladder into the kidney. In addition, some doctors in Europe are
beginning to use Macroplastique to treat incontinence in men recovering
from prostate surgery. In June 1996, Macroplastique received a CE mark
in Europe (similar to FDA approval in the United States), allowing the
product to be sold throughout the European Union. Macroplastique is not
sold in the United States because it has not been approved for marketing
by the Food and Drug Administration ("FDA"). In May and June, 1998, the
Company completed a private placement of 1,702,950 shares of its Common
Stock, the proceeds of which will be used to fund the Company's efforts to
obtain FDA pre-market approval for Macroplastique, which would allow the
Company to enter the U.S. female stress urinary incontinence treatment market.
It is estimated that urinary incontinence afflicts about 5% of the
general population and women comprise about 85% of the sufferers. In
Europe, currently the Company's largest market, approximately 17
million people suffer from various forms of urinary incontinence and
about 14.5 million of these sufferers are women. Bulking agents such as
Macroplastique are used to treat women with SUI caused by intrinsic
sphincter deficiency, estimated by the Company to comprise 10% of the
female incontinence market or about 1.4 million women in Europe alone.
VUR is primarily a pediatric concern, with a prevalence estimated to be
as high as 1% of the pediatric population. The Company estimates that
about half of this population are candidates for Macroplastique
treatments. Of the estimated 2.6 million European men who are
incontinent, the Company believes about 25% are candidates for
treatment with Macroplastique.
Macroplastique consists of soft, flexible, solid, highly textured
particles of heat vulcanized polydimethylsiloxane (solid silicone)
suspended in a water-based biocompatible carrier solution.
Macroplastique is not a silicone gel, the compound which became
controversial in its use in breast implants. Macroplastique was first
introduced in the European urological marketplace in 1991 and has been
used to treat approximately 15,000 patients over the last seven years with
no reported serious product related adverse incidents.
Urinary Incontinence Market
Urinary incontinence is an involuntary loss of urine, so severe it
has social and/or hygienic consequences. In varying degrees, urinary
incontinence is a problem suffered by millions of people worldwide. The
Agency for Health Care Policy and Research (a division of the Public
Health Service, U.S. Department of Health and Human Services)
estimated in 1996 that there were approximately 13 million adults with
urinary incontinence in the United States. The same agency estimated the
total cost (utilizing all management and curative approaches) of treating
incontinence of all types in the United States as $15 billion in 1996.
Urinary incontinence can result in a substantial decrease in a person's
quality of life and is often the main reason a family commits an elderly
person to nursing home care.
The Company estimates there are approximately 11 million
female urinary incontinence sufferers in the United States and 14.5
million female urinary incontinence sufferers in Europe. Of these
populations, the Company believes that there are approximately 1 million
American women and 1.4 million European women who are suitable for
treatment with Macroplastique. The Company expects that the incidence
of urinary incontinence will rise as the percentage of elderly people
continues to increase.
Types of Urinary Incontinence
The mechanisms of urinary incontinence are complicated and involve the
interaction between several anatomical structures. In females, urinary
continence is primarily controlled by the urinary sphincter. This
muscle surrounds the urethra and provides constrictive pressure to prevent
urine from flowing out of the bladder. Urination occurs when the urinary
sphincter relaxes as the bladder contracts, allowing urine to flow through
the urethra. The urinary sphincter is also responsible for maintaining
continence during periods of physical stress. Urinary incontinence may
result when any part of the urinary incontinence tract fails to function as
intended. A broad range of conditions and disorders can cause incontinence,
including birth defects (e.g. spina bifida), pelvic surgery, injuries to
the pelvic region or the spinal cord, neurological diseases, (e.g.
multiple sclerosis, poliomyelitis) and degenerative changes associated
with aging.
Stress Urinary Incontinence: Stress urinary incontinence ("SUI") refers
to the involuntary loss of urine due to an increase in intra-abdominal
pressure from coughing, sneezing, laughing, straining or lifting. In
women, the most common cause of SUI is hypermobility, a lack of
anatomic stability primarily caused by weak surrounding tissue, which
results in the abnormal movement of the bladder neck and urethra. This
anatomical problem is often the result of childbirth. SUI can also be
caused by intrinsic sphincter deficiency (ISD), or the inability of the
urinary sphincter valve or muscle to function properly. ISD can be due to
congenital sphincter weakness or deterioration of the muscular wall of the
urethra after trauma, prostatectomy, spinal cord lesion or radiation
therapy. To date, Macroplastique has been used to treat incontinence in
women suffering from SUI caused by intrinsic sphincter deficiency.
Urge Incontinence: Urge incontinence refers to the involuntary loss of
urine associated with an abrupt and strong desire to urinate. Urge
incontinence often occurs with neurologic problems, causing the bladder
to contract and empty with little or no warning. Urge incontinence is
typically caused by central nervous system lesions (such as a stroke)
which impair inhibition of bladder contraction, and local irritating factors
such as urinary infection or bladder tumors.
Overflow Incontinence: Overflow incontinence is associated with an
over-distention of the bladder. This can be the result of an underactive
bladder or an obstruction in the bladder or urethra.
Mixed Incontinence: Mixed incontinence is the combination of urge and
stress incontinence (and, in some cases, overflow). Since prostate
enlargement often obstructs the urethra, older men often have urge
incontinence coupled with overflow incontinence.
Management and Treatment of Urinary Incontinence
There are two general approaches to dealing with urinary incontinence.
One approach is to manage the symptoms of urinary incontinence, such
as with pads or diapers. The other approach consists of curative
measures that attempt to restore continence, such as surgery or
treatment with bulking agents. The Company suggests the treatment of
stress urinary incontinence should proceed from the least invasive to the
most invasive therapy.
Management of Urinary Incontinence
Absorbent Products: Absorbent products are probably the most common
treatment for urinary incontinence of all types; most men and women use
these products without consulting a physician. The cost of diapers and
pads can be substantial, thus creating a continuous financial burden for
patients. Additionally, this management technique requires frequent
changing of diapers and pads to control patient embarrassment due to
odor.
Behavior Modification: The techniques used in behavior modification
include bladder training, scheduled voiding and pelvic floor muscle
exercises ("kegels"). Some of the tools used in conjunction with these
training regimes are vaginal cones or weights, biofeedback devices and
electrical stimulation. While these are typically low-risk procedures, they
do not work for many patients and even where effective they only partly
alleviate the symptoms and are seldom curative.
Penile Compression Devices: Penile clamps are reserved for temporary
use with male incontinence. Complications such as penile and urethral
erosion, penile edema, pain and obstruction can occur if clamps are
improperly used.
Pelvic Organ Support Devices: Pelvic organ support devices such as
pessaries (doughnut-shaped devices made of flexible materials) are
designed to temporarily reduce pelvic prolapse and alleviate symptoms of
pelvic relaxation in females with and without incontinence.
Complications can result when these devices are misused or neglected
and can include ulceration of the vagina and rectovaginal and
vesicovaginal fistula. Persons using pessaries require frequent and
regular monitoring.
Occlusion Devices: Urethral occlusion devices, or "plugs," consist of tiny
disposable products intended to be used by a sub-segment of stress
incontinent women (women that are younger, more physically active, and
are motivated to use a disposable urethral plug on a daily basis). The
primary problems with this device are urinary tract infections, treatment
compliance and progressive urethral dilation which may require larger
plugs over time.
Urinary Catheters and Collection Devices: There are four types of
urinary catheters: 1) intermittent (inserted through the urethra into the
bladder every 3 to 6 hours for bladder drainage; may be appropriate for
the management of acute or chronic urinary retention); 2) indwelling
(closed sterile system inserted through the urethra to allow for bladder
drainage; may be needed for short-term treatment and for terminally ill
patients); 3) suprapubic (requires percutaneous or surgical introduction of
a catheter into the bladder through the abdominal wall, for short-term use
following gynecologic, urologic and other types of surgery or as an
alternative to long-term urethral catheter use in men); and 4) external
collection (devices made from latex rubber, polyvinyl or silicone like a
condom and are secured on the shaft of the penis by a double-sided
adhesive, latex or foam strap and are connected to urine collecting bags
by a tube; may be useful for short-term maintenance). The type and
severity of incontinence and the patient's physical and mental condition
determine which is the best catheter option for the patient.
Drug Therapy: Drug treatment is used to manage multiple types of
urinary incontinence. These drugs tend to fall into one of two categories:
those that manage urge urinary incontinence by affecting the contraction
of the muscle tissue of the bladder and those that manage stress urinary
incontinence by either affecting contraction of the muscle tissue of the
bladder neck or improving the quality of the mucosal lining of the bladder
neck and urethra. Drugs seldom cure stress urinary incontinence and the
potential side effects include urinary retention, nausea, dizziness, blurred
vision and the possibility of unwanted interactions with other drugs.
Curative Treatments for Urinary Incontinence
Surgery: In women, stress urinary incontinence can be surgically
corrected through various suspension and sling procedures. In these
procedures, the physician elevates and stabilizes the urethra and bladder
neck. Current surgical procedures require vaginal or abdominal incisions
and are typically performed under general anesthesia. Surgery is
expensive, traumatic and involves a 3-10 day hospital stay with several
months required for full recovery. In men, the main surgical option is an
implanted artificial urinary sphincter. However, it carries with it the
inherent risks of device malfunction, tissue erosion and atrophy and
infection. In practice, the artificial urinary sphincter is rarely applicable
to the management of uncomplicated stress incontinence.
Injectable Bulking Agents: Bulking agents are inserted with a needle into
the area around the urethra, thereby augmenting the sphincter. Hence,
these materials are often called "bulk-enhancing agents" or "injectables."
Bulking agents may be either synthetic or biologically derived. Bulking
agents are an attractive alternative to surgery because they are
considerably less invasive than many of the surgical procedures described
above. For this reason, bulking agents represent a particularly desirable
treatment option for the elderly or infirm who may not otherwise be able
to withstand the trauma and morbidity resulting from a fully invasive
surgical procedure. Active women also can benefit from the use of
bulking agents since their use will often allow the patient to return to
normal activities in a matter of days instead of weeks for fully invasive
surgical procedures. The 1996 Clinical Practice Guidelines published by
the U.S. Department of Health and Human Services recommend
periurethral bulking agents as first line treatment for men with intrinsic
sphincter deficiency and for women with intrinsic sphincter deficiency
who do not have co-existing hypermobility.
The two major types of bulking agents are biologically derived
agents and synthetic bulking agents. Biologically derived bulking agents
include injections of autologous fat and bovine collagen. Fat injections
involve complex, invasive harvesting of the patient's own fat cells and
reinjecting them into the bladder neck. Another procedure involves the
injection of processed bovine collagen. The two most commonly used
synthetic bulking agents are Macroplastique (polydimethylsiloxane) and
Teflon(C) paste (polytetrafluoroethylene, also known as PTFE).
Macroplastique
The Company's Macroplastique product is an injectable soft tissue
bulking agent primarily used to treat stress urinary incontinence in
women. Macroplastique is a proprietary composition of heat vulcanized,
highly textured, solid, soft and irregularly shaped polydimethylsiloxane
(solid silicone) particles suspended in a biocompatible carrier solution.
Based on the Company's clinical experience, Macroplastique does not
cause chronic inflammation, is not absorbable by the body and does not
migrate. Macroplastique is used to provide permanent bulking or
augmentation of the urethral sphincter. The actual implantation of
Macroplastique is minimally invasive and can be accomplished using less
than 30 minutes of the physician's time in an inpatient or outpatient
setting. It is designed to restore the patient to normal urinary continence
almost immediately following treatment. Macroplastique is also used to
treat vesicoureteral reflux, a condition occurring primarily in children,
and urinary incontinence in men after prostate surgery.
The Company markets Macroplastique on the basis that its use can lead
to lower surgical risk, shorter recovery time and less expense than more
invasive alternatives. The advantages of Macroplastique, in the
Company's view, include the following:
No Absorption/Migration: The Macroplastique elastomer particles are
soft, heavily textured and irregularly shaped, to provide numerous
surfaces to allow for rapid deposit of host collagen (a form of scar tissue)
between the individual particles and around the periphery of the injected
product. The highly irregular shapes of optimally sized particles minimize
the potential for migration by the propensity of individual particles to
interlock with each other to form larger agglomerates.
Biocompatible: The medical grade polydimethylsiloxane used in
Macroplastique is commonly utilized in many other biomedical
applications and has a well-documented safety record for biomedical
usage. For example, such elastomers have been and are used for long
term implants such as pacemaker leads and hydrocephalic shunts.
Macroplastique itself has undergone extensive testing to confirm its
favorable biocompatibility characteristics.
Clinical Experience: The Company's seven year clinical experience with
more than 15,000 patients, all outside the United States, supports the
effectiveness of Macroplastique. During this time period, no serious
product-related adverse reaction of any kind has been reported to the
Company.
Minimally Invasive/Cost Effective: Macroplastique is designed to offer
surgeons and their patients a minimally invasive, long-lasting and cost-
effective treatment for female and male stress urinary incontinence and
vesicoureteral reflux. The Company has developed an implantation
procedure for Macroplastique that is technologically feasible, easily
performed and effective.
Marketing, Distribution and Sales
The Company markets and sells Macroplastique and the related
ancillary products used in the implantation procedure only in countries
outside the United States, primarily in Europe. The Company uses a
direct sales force of six persons in the United Kingdom and three persons
in the Netherlands. For approximately 20 other countries in which the
Company markets Macroplastique, it uses a network of distributors. The
Company has written agreements with the individual distributors if their
distribution rights exceed one year. None of the distributors sells
injectable products which compete directly with Macroplastique. The
Company's technical staff in the Netherlands provides training for the
distributors. The Company's largest distributor is ABS, which sells
in France, and which accounted for 14% of the Company's sales in fiscal
1998. (See "Business - Dependence on One or a Few Major Customers")
No other distributor accounted for more than 10% of the Company's
sales. Collectively, the Company's distributors accounted for
approximately 54% and 48% of total sales in fiscal years 1998 and 1997,
respectively.
Other Products
The Company also sells the materials contained in
Macroplastique for plastic surgery applications under the name
BioplastiqueT Implants, in limited markets. In addition, the Company
has been selling some specialized wound care products as a distributor.
The Company recently introduced a new product to the gynecology and
urology market called the UroScopeT. This is a modified short
endoscope specifically designed for the administration of
Macroplastique in females.
Government Regulations
As a medical device manufacturer, the Company is subject to
government regulations in every market where its products are sold. In
markets such as the United States and Europe, these regulations are
substantial and play a significant role in the Company's designing,
testing, manufacturing, and marketing of its products.
In order to market its products within the countries of the
European Union, the Company is required to obtain CE marking for its
products. To obtain CE marking, a product must comply with the
requirements set forth in Council Directive 93/42/EEC published in
Volume 36 (12 July 1993) of the Official Journal of the European
Communities. This document is often called the "Medical Device
Directives" (MDD) in Europe. The requirements for new medical devices
set forth in this document are based upon their relative risk to the patient.
Medical devices that present a low risk to the patient (Class I devices)
have relatively few requirements for CE mark authorization. Medical
devices that present a greater risk to the patient such as long-term
implantables (Class IIb and III) have more rigorous requirements for CE
mark approval. CE mark authorization is granted by organizations called
"Notified Bodies" that are approved by their respective national
"Competent Authorities" (which are usually referred to as national Health
Ministries) to conduct medical device evaluations. Notified Bodies are
technical expert organizations that serve as the auditing and certifying
arm of the Competent Authorities.
Under the European MDD, Macroplastique is considered a Class
IIb device. To obtain the CE Mark for Macroplastique, the Company was
required to submit extensive information regarding the product design,
labeling, safety, preclinical and clinical testing results to its Notified Body
for evaluation by expert reviewers. In addition, the Company maintains
registration to rigorous quality standards ISO 9001 and EN46001
(EN46001 references ISO 9001 with additional medical device
requirements). After successfully demonstrating full compliance to the
MDD, the Notified Body issued a "Certificate of Authorization" to the
Company in June 1996 which allowed the Company to place the CE mark
on Macroplastique. With CE marking, Macroplastique can be marketed
throughout the European Union after fulfilling any additional national
requirements. The Company is subject to periodic surveillance audits by
its Notified Body to ensure it adheres to the requirements of the MDD.
Changes in existing requirements or adoption of new requirements or
policies could adversely affect the ability of the Company to comply with
regulatory requirements. Failure to comply with regulatory requirements
could have a material adverse effect on the Company's business, financial
condition and results of operations. There can be no assurance the
Company will not be required to incur significant costs to comply with
laws and regulations in the future, or that laws or regulations will not
have a material adverse effect upon the Company's business, financial
condition or results of operations.
The Company maintains facilities in the United States, United
Kingdom and The Netherlands, each of which has numerous federal, state
and local laws relating to such matters as safe working conditions,
manufacturing practices, environmental protection, fire hazard control
and disposal of hazardous or potentially hazardous substances. There can
be no assurance that the Company will not be required to incur significant
costs to comply with such laws and regulations now or in the future or
that such laws or regulations will not have a material adverse effect upon
the Company's ability to do business.
In the United States, the Company must comply with the Federal,
Food, Drug and Cosmetic Act, as amended, which is enforced by the
Food and Drug Administration (the "FDA"). These regulations are
complex but generally function by associating a level of risk with a
proposed product. Products which are lower risk, such as surgical gloves
(considered a Class I device) have fewer requirements for marketing than
products which are life sustaining, diagnostic, or long-term implants
(considered Class III devices). The FDA has determined that urethral
bulking agents such as Macroplastique are Class III devices subject to a
Pre-Market Approval (PMA) application prior to marketing in the United
States.
A PMA application is a rigorous submission that requires the
manufacturer to substantiate the product's claims of safety and
effectiveness with valid scientific evidence. The PMA process is lengthy
and expensive with no guarantee of final approval at its completion. A
typical PMA submission includes very detailed, technical descriptions of
the proposed device, the device's manufacturing and quality control
systems, the pre-clinical (biocompatibility) testing performed on the
device, and the results of human clinical studies. After receiving the
PMA submission from the manufacturer, the FDA will normally review
the information for 1-2 years. During this time period the FDA usually
assembles a panel of clinicians to make a non-binding recommendation of
whether to approve the product. The FDA will also conduct an onsite
inspection of the manufacturer to establish that the FDA's manufacturing
and quality system requirements (called Good Manufacturing Practices,
or GMP's) will be followed during the production of the device. In some
instances, the FDA will decide that additional testing or clinical studies
are necessary to support the PMA submission. Such a decision
considerably lengthens the time and expense required for obtaining U.S.
marketing approval. If the FDA approves PMA submission, it may still
place certain conditions on the manufacturer, such as the initiation of a
post-marketing study or restrictions to the product's intended use.
After approval of the PMA submission, the Company must
comply with other FDA regulations to maintain its U.S. marketing
approval. The Company's manufacturing facilities will be subjected to
routine inspections by the FDA to ensure that the Company is in
compliance with GMP regulations. Because the Company's quality
system has already achieved ISO 9001 registration, the Company believes
that few additional elements will be required to satisfy the GMP
regulations. However, there can be no assurance that the FDA would find
the Company's quality system to be in compliance with all relevant
aspects of the requirements (See "Business - Manufacturing"). The
Company must also comply with U.S. Medical Device Reporting (MDR)
regulations, which require companies to document and investigate device
malfunctions or any deaths or serious injuries that may be associated with
the use of their products. The FDA will also scrutinize all labeling and
marketing claims made by the Company to ensure that only the product
indications specifically approved by the FDA are promoted by the
company.
The Company is also subject to a variety of state and local laws
and regulations in those states or localities where its product will be
marketed. Any applicable state or local regulations may hinder the
Company's ability to market its products in those states or localities.
Third-Party Reimbursement
Throughout much of the world, the Company sells Macroplastique to
hospitals and other users who often transfer the cost of the medical
product and services to various third-party payers, such as
government health programs, private health insurance plans, managed
care organizations and other similar programs. These third-party payers
may deny or substantially limit reimbursement if they believe that a
medical device was not used in accordance with established payer
protocols regarding cost-efficient treatment methods, was used for an
unapproved indication or was not otherwise covered. In some markets,
medical device manufacturers are being forced to demonstrate the clinical
efficacy and cost-effectiveness of their products to third-party payers
before these organizations will agree to provide reimbursement to users.
Changes to third-party reimbursement policies in the United States,
Europe and other potential Macroplastique markets could result in
diminished revenues to the Company.
In most European nations and other Macroplastique markets, third party
reimbursement is currently available for Macroplastique for the
treatment of urinary incontinence. Within the United States, third-
party reimbursement is currently available for certain bulking agents and
the Company expects to obtain third-party reimbursement for
Macroplastique if and when the product is approved for marketing.
However, there is currently no uniform policy for reimbursement in the
United States and no guarantee Macroplastique will be reimbursed at the
levels expected by the Company, if at all. The availability of third-party
reimbursement for Macroplastique or competitors' products and
continuing efforts to reduce the costs of health care by decreasing
reimbursement rates may reduce the price received by the Company for
Macroplastique.
Product Liability
The medical device industry is subject to substantial litigation.
The Company is a manufacturer of a long-term implantable device and
consequently faces an inherent business risk of exposure to product
liability claims resulting from alleged adverse effects to the patient. The
Company currently carries product liability insurance but there can be no
assurance the Company's existing insurance coverage limits are adequate
to protect the Company from any liabilities which it might incur in
connection with the clinical trials of Macroplastique or the initial
commercialization of Macroplastique in the United States. There can be
no assurance that liability claims will not exceed coverage limits. Such
insurance is expensive and in the future may not be available on
acceptable terms, if at all. Furthermore, the Company does not expect to
be able to obtain insurance covering its costs and losses as a result of any
recall of its products due to alleged defects, whether such a recall is
instituted by the Company or required by a regulatory agency. A product
liability claim, recall or other claim with respect to uninsured liabilities or
in excess of insured liabilities could have a material adverse effect on the
business, financial condition and results of operations of the Company.
Manufacturing
At this time, the Company only manufactures Macroplastique at its
facilities in The Netherlands from medical grade materials obtained
from qualified suppliers. At such time in the future as it receives FDA
approval of its PMA submission, the Company expects to begin
manufacturing Macroplastique in the United States. The Company's
facilities utilize dedicated heating, ventilation, and high
efficiency particulate air (HEPA) filtration systems for the
manufacturing area to provide a controlled working environment. All
manufacturing processes, including material storage and handling,
gowning, and cleaning are performed according to written procedures
approved by the Company's quality department. All critical
manufacturing processes are performed in a cleanroom environment by
trained production technicians. An outside vendor sterilizes
Macroplastique using a validated method and returns the product to the
Company for final inspection and testing.
The Company currently purchases its base silicone solution from Advanced
Silicone, Inc. and its carrier solution from GAF Corporation,
which are single sources of supply for such products at the moment, and
with neither of whom does it have a supply agreement. Alternative
suppliers for these materials do exist should the current suppliers
discontinue production or distribution. However, the Company would need
to complete additional testing to qualify the materials obtained from
any new suppliers. Additionally, limited notice of the need to switch
suppliers for either of these materials could result in production delays
and inventory depletion.
The Company's manufacturing facilities are periodically audited
by an independent registrar to ensure compliance with ISO 9001 and EN
46001 quality system requirements. Prior to marketing the product in the
United States, the Company will also be inspected by the U.S. FDA and
will also be subject to any additional state, local and federal government
regulations in both the United States and The Netherlands applicable to
the manufacture of the Company's products. See "Business -
Government Regulations".
Competition
Competition in the urinary incontinence products market is
intense. The Company faces competition from existing manufacturers of
management and curative treatments for urinary incontinence, including
competing manufacturers of commercially available bulking agents, as
well as from companies developing new or improved treatment methods
for urinary incontinence. The Company believes the principal competitive
factors among treatment methods for urinary incontinence include
physician and patient acceptance of the method in managing or curing
incontinence, cost and the availability of third-party reimbursement,
marketing and sales capability and the existence of meaningful patent
protection. The Company's ability to compete in this market also will
depend on the consistency of its product quality and delivery and product
pricing. Other factors within and outside the Company's control include
its product development and innovation capabilities, ability to obtain
required regulatory approvals, ability to protect its proprietary
technology, manufacturing and marketing capabilities and ability to
attract and retain skilled employees.
Current major competitors who compete in the urinary
incontinence management and treatment market include Kimberly-Clark
Corp. and Procter & Gamble Co. for adult diapers and absorbent pads;
Empi, Inc. and MedCare Technologies, Inc. with electrical pelvic floor
stimulators and behavioral treatments; Abbott Laboratories, Warners
Wellcome and Hoechst Marion Roussell for pharmaceutical treatments;
C. R. Bard, Inc., Kendall Co., Mentor Corp. and Baxter International for
catheter/urine collection bag drainage systems; and American Medical
Systems, Inc., a division of Pfizer, Boston Scientific Corporation,
Influence, Inc. and Johnson & Johnson for sling procedures and artificial
sphincter implants. The Company believes that some of its current
competitors and others that do not have injectable bulking products are
also seeking to develop competing bulking agents.
There are currently at least two injectable soft tissue bulking
agent products that compete directly with Macroplastique, both of which
are supplied by companies with considerably larger financial and other
resources than Uroplasty. These products are Urethrin(R), manufactured
and distributed only outside the United States by Mentor, Inc. and
Contigen(R), manufactured by Collagen Corporation and distributed by
C.R. Bard, in both the United States and foreign markets. The Company
expects other devices for treating urinary incontinence by means of soft
tissue injection therapy will become available in the future and
competition will continue to intensify. In addition, Advanced Uroscience,
Inc. and the Convatec division of Bristol, Meyers, Squibb are seeking
regulatory approval for an injectable bulking agent.
Many of the Company's competitors and potential competitors
have significantly greater financial, manufacturing, marketing,
distribution and technical resources and experience than the Company. In
addition, many of the Company's competitors offer broader product lines
within the urology market, which may give such competitors the ability to
negotiate exclusive, long-term supply contracts and to offer
comprehensive pricing for their products. It is possible that other large
health care and consumer products companies may enter this industry in
the future. Furthermore, smaller companies, academic institutions,
governmental agencies and other public and private research
organizations will continue to conduct research, seek patent protection
and establish arrangements for commercializing products. Such products
may compete directly with any products which may be offered by the
Company in the future.
Dependence on One or a Few Major Customers
Approximately 14% of the Company's total sales during the fiscal year
period ended March 31, 1998 were made to ABS, the Company's
distributor for France. ABS, which holds 100,000 shares of Uroplasty
common stock, is not affiliated with the Company. No other distributor
accounts for in excess of 10% of the Company's sales.
Patents, Trademarks, and Licenses
The Company's success depends in part on its ability to obtain
and maintain patent protection for its products, to preserve its trade
secrets and to operate without infringing the proprietary rights of third
parties. The Company seeks to protect its technology by filing patent
applications for patentable technologies that it considers important to the
development of its business based on an analysis of the cost of obtaining a
patent, the likely scope of protection and the relative benefits of patent
protection compared to trade secret protection, among other
considerations. The Company also relies upon trade secrets, know-how
and continuing technological innovation to develop and maintain its
competitive position.
Multiple patents covering the Macroplastique materials, processes
and applications have been issued to the Company by the United States,
United Kingdom, German and Japanese Patent Offices. Such patents will
expire in the United States at various times between 2010 and 2013.
Applications are also currently pending in various other countries,
including Canada and other European countries. There can be no
assurance that any of the Company's pending or future U.S. or foreign
patent applications will result in issued patents, or that any issued
patents will be of sufficient scope or strength to provide meaningful
protection of the Company's products. The coverage sought in a patent
application can be denied or significantly reduced before the patent
is issued. In addition, there can be no assurance that any current
or future U.S. or foreign patents of the Company will not be challenged
or circumvented by competitors or others, or that such patents will be
found to be valid or sufficiently broad to protect the Company's
technology or provide the Company with any competitive advantage.
Should attempts be made to challenge, circumvent or invalidate the
Company's patents in the U.S. Patent and Trademark Office or courts
of competent jurisdiction, including administrative boards or tribunals,
the Company may have to participate in legal or quasi-legal proceedings
therein to maintain, defend or enforce its rights in these patents.
Any legal proceedings to maintain, defend or enforce the Company's patent
rights could be lengthy and costly, with no guarantee of success.
The Company also relies heavily upon trade secrets and other
proprietary information. The Company seeks to maintain the
confidentiality of such information by requiring employees, consultants
and other parties to sign confidentiality agreements and by limiting access
by parties outside the Company to such information. There can be no
assurance, however, that these measures will prevent the unauthorized
disclosure or use of this information or that others will not be able to
independently develop such information. Additionally, there can be no
assurance that any agreements regarding confidentiality and
non-disclosure will not be breached, or, in the event of any breach, that
adequate remedies would be available to the Company.
In July 1998, the Company announced that the United States Patent and
Trademark Office ("USPTO") had informed the Company that the USPTO will,
as Uroplasty requested, initiate an interference proceeding between
Uroplasty and Advanced UroScience, Inc. ("AUI"), White Bear Lake,
Minneosta, to determine which company was the first to invent carbon-
coated micro beads for use in treating urinary incontinence. Although
the USPTO originally granted the applicable patent to AUI, the interference
proceeding may result in a determination that either Uroplasty or AUI is
the proper holder, or that a patent should not have been granted. Uroplasty
expects that it could take the USPTO twenty-four months or more to reach
a final decision concerning this matter. An interference proceeding,
like other patent litigation, can be complex, time-consuming and expensive.
The interference proceeding does not involve Macroplastique. Subsequently,
the Company brought suit against AUI and certain related defendants,
alleging a wrongful taking and misuse of the Company's trade secrets
pertaining to the carbon-coated micro beads.
In 1992, the Company and its then parent, Bioplasty, Inc., were
sued by Collagen Corporation, which alleged that Macroplastique
infringed on one of its U.S. patents for a bulking agent. The parties
entered into a license and settlement agreement in 1993 pursuant to which
the Company pays Collagen a royalty of 5% of net sales of certain
products sold in the United States with a minimum of $50,000 per year.
Recently, the Company received several letters from Collagen's counsel
questioning whether additional royalties were payable as a result of either
the manufacture or sale by the Company of Macroplastique in the United
States. The Company's position is that royalties are payable only on "net
sales" in the United States, and, there having been none, no additional
royalties are payable. Collagen has not brought any new or renewed legal
action in connection with its claims and allegations. There can be no
assurance, however, that Collagen or any other third party will not pursue
legal action with respect to these matters.
Claims by competitors such as Collagen and other third parties
that the Company's products allegedly infringe the patent or other
intellectual property rights of others could have a material adverse effect
on the Company. There has been substantial litigation regarding patent
and other intellectual property rights in the medical device industry, and
intellectual property litigation may be used against the Company as a
means of gaining a competitive advantage. Intellectual property litigation
is complex, time-consuming and expensive, and the outcome of such
litigation is difficult to predict. Any future litigation, regardless of
outcome, could result in substantial expense to the Company and
significant diversion of the efforts of the Company's technical and
management personnel. An adverse outcome in any litigation could
subject the Company to significant liabilities to third parties, require
disputed rights to be licensed from others, if licenses to such rights could
be obtained, or require the Company to cease making, using or selling
certain products. There can be no assurance that any licenses required
under any patents or proprietary rights would be made available on terms
acceptable to the Company, if at all. In addition to being costly, protracted
litigation to defend or prosecute intellectual property could result in the
Company being unable to commercialize Macroplastique on a timely
basis or at all, and could have a material adverse effect on the Company's
business, financial condition and results of operations.
Although the Company intends to apply for additional patents and
vigorously defend issued patents, management believes that its success as
a business will depend primarily upon its development and marketing
skills, and the quality and economic value of its products rather than on
its ability to obtain and defend patents.
The Company has a Royalty Agreement with three individuals,
two of whom are former officers and directors. Under such Agreement,
the Company pays royalties, in the aggregate, of three to five percent of
net sales of Macroplastique, subject to a monthly minimum of $4,500.
The royalties payable under this Agreement will continue until the patent
referenced in the Agreement expires in 2010.
In December 1995, the Company obtained a license from a British surgeon,
Sam M. Henalla, for a urethral guiding device designed to make
implantation of Macroplastique easier and more precise. Under this
agreement, the Company made a cash payment of approximately $30,000
to the licensor and will make royalty payments at the rate of 10%
of the worldwide net sales of this device for a period of 10 years.
Research and Development
The Company has an active Research and Development program
working to develop new products in the field of incontinence. The
Company is also continually working on new methods and devices for the
implantation of Macroplastique and on new applications for this material.
Expenditures for research and development totaled $778,082 and
$610,677 for the fiscal years ended March 31, 1998 and March 31, 1997,
respectively. None of these costs were borne directly by customers.
For fiscal year 1999, the Company's research and development
expenses will increase significantly. This is due, in part, to the
accounting protocol of treating regulatory expenses as research and
development expenses. See "Management's Discussion and Analysis".
The Company has acquired the rights to a urethral guiding device
designed to make implantation of Macroplastique in women simpler and
more precise. The Company intends to introduce this device late in fiscal
year 1999. The Company currently does not intend to charge doctors
separately for this product. Instead, the Company will provide an
implantation kit including Macroplastique, the urethral guiding device
and administration needles. The Company expects the new device to
make implantation easier and allow it to be performed on an outpatient
basis at the doctor's office. Currently, Macroplastique is injected using a
more cumbersome endoscope and patients are usually admitted to the
hospital and put under general anesthesia during the procedure.
The Company is developing a pubovaginal sling which is a
surgically implanted device providing support for the bladder neck and
urethrea. This device is expected to expand the Company's product line
to cover a broader range of female SUI. The Company intends to
introduce this product into the U.S. market in early fiscal 2000, pending
submission and approval of a 510(k) review by the FDA.
Compliance with Environmental Laws
Compliance by the Company with applicable environmental
requirements during its fiscal years ended March 31, 1998 and 1997 has
not had a material effect upon the capital expenditures, earnings or
competitive position.
Employees
As of March 31, 1998, the Company had thirty-eight employees,
of which thirty-two were full-time, two temporary and four part time.
None of such employees has a collective bargaining agreement with the
Company.
Property
The Company owns office and warehouse space at Hofkamp 2,
6161 DC Geleen, The Netherlands. In addition, the Company leases
office, warehouse, laboratory and production space at 2718 Summer
Street NE, Minneapolis Minnesota 55413-2820, USA pursuant to a lease
expiring in February, 2000; and office and warehouse space at
Unit 3, Woodside business Park, Whitley Wood Lane, Reading, Berkshire
RG2 8LW, United Kingdom pursuant to a lease expiring in September, 2001;
and office, warehouse, laboratory and manufacturing space at Industrieweg
12, 5627 BS Eindhoven, The Netherlands pursuant to a lease expiring
July, 2002; and office space at Hertogsingel 54, 6214 AE Maastricht,
The Netherlands pursuant to a lease expiring in October, 1999. The
Company considers its facilities adequate for its foreseeable needs.
Litigation
The Company is not, as of the date hereof, a party to any material
pending legal proceedings, nor is its property the subject of any such
proceedings. However, the Company has been informed that it will be
a party to an interference proceeding, brought at its request, in the
United States Patent and Trademark Office and it is a party to a related
lawsuit, which it brought for misappropriation of trade secrets.
(see "Business - Patents, Trademarks and Licenses")
Former Parent, and Current Subsidiaries
The Company was incorporated in January 1992 as a wholly-owned subsidiary
of Bioplasty, Inc., which was primarily a manufacturer and distributor of
breast implants. Because of extensive products liability litigation
brought against Bioplasty and all other manufacturers of breast implant
products, Bioplasty, Inc. and Uroplasty, Inc. filed for protection
from creditors under Chapter 11 of the United States Bankruptcy Code in
April 1993. On January 31, 1994, the U.S. Bankruptcy Court confirmed
the Joint Plan of Reorganization (the "Plan") of Bioplasty, Inc. and
Uroplasty, Inc. Under the Plan, all equity interests held by Bioplasty, Inc.
in Uroplasty, Inc. were canceled and new shares of each of Bioplasty, Inc.
and Uroplasty, Inc. were issued to creditors, claimants and certain
investors. Such persons became the shareholders of Uroplasty, Inc. In
addition, under the Plan all pre-petition claims, including known and
unknown products liability claims, against Bioplasty, Inc. and Uroplasty,
Inc. were discharged, except for certain claims and expenses identified by
name and amount, which were allowed by the Court.
In January 1995, Uroplasty, Inc. acquired from Bioplasty, Inc. in
a tax-free exchange transaction approved by the shareholders of both
companies all its remaining operating assets and liabilities, including the
stock of its foreign subsidiaries, in satisfaction of obligations due
Uroplasty, Inc. generated in the normal course of business.
The Company's wholly-owned foreign subsidiaries and their
respective principal functions are as follows:
Uroplasty BV - Incorporated in The Netherlands, is the
manufacturer of Macroplastique, and sells
Macroplastique outside of The Netherlands to
distributors
Uroplasty LTD - Incorporated in and acts as the sole distributor of
Macroplastique, Bioplastique and wound care
products in the United Kingdom
Bioplasty BV - Incorporated in and acts as a distributor of
Macroplastique, Bioplastique and wound care
products in The Netherlands
MANAGEMENT
Directors and Executive Officers
The Company's Directors and Executive Officers, as of August 31, 1998,
were as follows:
Name Age Position Director Since Term Expires
Daniel G. Holman 52 Chairman, President, 1994 2000
CEO, CFO
Joel R. Pitlor 59 Director 1994 1999
R. Patrick Maxwell 53 Director 1994 1999
Alex Gerwer 43 Director 1998 1999
Susan Hartjes-Doherty 44 Vice President of Operations
and Regulatory Affairs, Secretary
Germain E. Willem 51 Vice President of Sales
and Marketing
Christopher Harris 39 Vice President of Corporate
Development
All directors are members of the Nominating Committee; all
directors except Mr. Holman are members of the Compensation
Committee; and Mr. Maxwell and Mr. Pitlor are members of the Audit
Committee.
The Company does not have any employment or non-compete
agreement with Mr. Holman or Ms. Doherty, whose employment, as such,
is at will, but the Company does have employment agreements with
Messrs. Willem and Harris.
The following paragraphs describe the business experience of
each of the Company's directors and officers. Several of these
individuals have served as directors or officers of Bioplasty, Inc., which
filed for bankruptcy in April 1993. See "Business - Former Parent and
Current Subsidiaries".
Daniel G. Holman has served as Chairman of the Board, President and
Chief Executive Officer of Uroplasty, Inc. since February 1994, and as
Chief Financial Officer since June 1996. Mr. Holman was Executive
Vice President of Bioplasty, Inc. from 1973 to 1985, its President from
1985 to 1987, and Secretary from 1986 to March 1992. Mr. Holman has
been Chairman of the Board of Bioplasty, Inc. since March 1992, and
President and CEO since February 22, 1993. Mr. Holman served as
Chairman of the Board and Chief Executive Officer of Bio-Vascular, Inc.
from June 1988, to September 1991, served as a director of Genetic
Laboratories Wound Care, Inc. from February 1988 until July 1993, and
as Vice President from February 1988 through November 1992. Mr.
Holman holds a Bachelor of Arts degree in Biology from St. Cloud State
University.
Joel R. Pitlor has been a director since February 1994. Mr. Pitlor served
as a director of Bioplasty from January 1989 until May 1996. For over
sixteen years, he has been the owner and manager of a management
consulting firm. Mr. Pitlor is presently a Director of Precision Optics
Corporation, which is publicly-held. Mr. Pitlor holds a Bachelor of
Science degree from MIT and serves as Personal Advisor to several
CEOs.
R. Patrick Maxwell was appointed a Director of Uroplasty in April 1994
and elected by shareholders in August 1997. Mr. Maxwell has been an
attorney since 1969. Mr. Maxwell holds and has held management
positions in numerous other businesses (primarily temporary placement
services, telemarketing and legal expense insurance).
Alex Gerwer was elected a director of Uroplasty in August, 1998. Mr.
Gerwer has been a Principal and Consultant for AKN in San Diego,
California, a management consulting firm to medical product companies
since 1990. From 1988 to 1990, he was the Manager of New Business
Development for Nihon Kohden America, a medical electronics company in
Irvine, California. Mr. Gerwer was a Research Scientist for Diatek,
Inc. in San Diego, California from 1986 to 1988. Mr. Gerwer received
a B.S. in Chemistry and Physics from the University of Michigan, and
a Master of Science in Chemical Physics from the California Institute
of Technology.
Susan Hartjes-Doherty joined Bioplasty, Inc. in September 1991 as
Director of Operations and served as Vice President of Operations from
April 1993 until May 1996. In November 1994, Ms. Doherty was
appointed Vice-President of Operations for Uroplasty, Inc. and was
elected Secretary in September, 1996. Prior to 1991, Ms. Doherty was
Director of Operations at Bio-Vascular, Inc. in St. Paul, Minnesota from
November 1989 to September 1991. Prior to that time, she served at
various other pharmaceutical and medical device companies in
management-oriented positions in production, quality assurance and
research. Ms. Doherty has Bachelor of Arts degrees in Biology-
Microbiology and BioMedical Science from St. Cloud State University,
and has done graduate work in the biological sciences. Ms. Doherty is a
senior member and a Certified Quality Auditor of the American Society
for Quality and served several years on its Executive Committee and is a
member of the American Society of Microbiology, and the Henrici
Society for Microbiologists. She has served on several national and
international standards committees.
Germain E. Willem joined the Company in November 1994 as Director of
International Sales and Marketing and became Vice President of Sales
and Marketing in January 1997. Mr. Willem has 20 years of experience
in international sales and marketing of medical devices, including the
AMS division of Pfizer Product Group. Mr. Willem has a degree in
engineering from the 'Industriele Hogeschool West Vlaanderen' in
Belgium. He has been active in standardization organizations for medical
devices both in Belgium and The Netherlands.
Christopher Harris joined Bioplasty in October 1989 as Area Sales
Manager in the United Kingdom. Since September 1994, Mr. Harris has
been the Managing Director of the Company's subsidiary in the United
Kingdom. In February 1996, Mr. Harris was appointed as Director of
Corporate Development and in January 1997 he was appointed Vice
President of Corporate Development. Mr. Harris, a certified nurse in the
United Kingdom, practiced general surgery nursing for two years and
operating room nursing for nine years prior to 1989.
Management Compensation
The following table sets forth, in summary form, (1) the
compensation paid for the years shown in the table, to Daniel G. Holman,
the Company's Chairman, President, CEO and CFO and to Susan Hartjes-
Doherty, the Company's Vice President of Regulatory Affairs and
Operations and Secretary; (2) the stock options and stock appreciation
rights granted to such individuals for the years shown; and (3) long-term
payouts and other compensation for the years shown:
<TABLE>
<CAPTION>
Summary Compensation Table
Long Term Compensation (1)
Fiscal Year --------------------------
Annual Compensation Awards
- -------------------------------------------------------------------------------------------------
Other Securities
Name Annual Restricted Under-
and Compen- Stock lying
Principal sation Awards Options
Position Year Salary($) Bonus($) ($) ($) SARs(#)
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Daniel G. Holman 1998 161,919 -- 25,632 (2) -- 70,000
CEO 1997 154,162 -- 28,818 (2) -- 0
1996 146,534 -- 18,016 (2) -- 15,000
Susan Hartjes-Doherty 1998 102,160 5,000 -- -- 40,000
Vice President
Total Compensation for All Executive Officers
For Fiscal Year 1998:
(Four Persons) 475,617
</TABLE>
(1) There were no payouts under a "long-term incentive plan" (called
"LTIP") for the years shown, nor was any other form of compensation
paid or awarded.
(2) Reimbursement of expatriot living expenses in The Netherlands.
Mr. Pitlor receives a $2,000 per month consulting fee from the
Registrant under a month to month agreement. All non-employee Board
members who do not receive any other form of compensation from the
Registrant receive $500 per board meeting attended. In addition,
directors participate in the Registrant's option plan.
Option/SAR Grants Table
<TABLE>
<CAPTION>
Option Grants in Fiscal Year Ended March 31, 1998
- -----------------------------------------------------------------------------
Number of Percent of
Securities Total Op-
Underlying tions/SARS
Options Granted to Exercise or Securities
/SARS Employees in Base Price Expiration
Name Granted(#) Fiscal Year ($/Share) Date
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Daniel G. 50,000 15.1% $1.00 April 2002
Holman, CEO 20,000 6.0% $3.25 February 2003
Susan Hartjes- 25,000 7.6% $1.00 April 2002
Doherty, V.P. 15,000 4.5% $3.25 February 2003
</TABLE>
(1) Options for 250,000 shares were granted to officers and directors
during the fiscal year ended March 31, 1998.
The Company adopted an Incentive Stock Option Plan (the "1995
Plan") in May 1995 which provided for the granting of options to
purchase 350,000 shares of stock. At March 31, 1998 there were 177,200
options outstanding under the 1995 Plan. In April 1997, the Board of
Directors adopted and in August 1997, the Company's shareholders
approved the 1997 Stock Option Plan (the "1997 Plan") pursuant to which
500,000 shares of common stock have been reserved. At March 31, 1998
there were 313,000 options outstanding under the 1997 Plan. (In
addition, the Company had 15,000 options outstanding not issued
pursuant to either Plan.) Both Plans required that options be granted at
exercise prices equal to or greater than the fair market value of the stock
at the time of the grant.
Aggregated Option/SAR Exercises and Fiscal Year-End Option/SAR Value Table
<TABLE>
<CAPTION>
Number of
Securities Value of
Underlying Unexercised
Unexercised In-the-Money
Option/SARs Options/SARs
Shares acquired Value At FY-End (#) at FY-End ($)
Name on Exercise Realized ($) Exercisable Exercisable
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Daniel G. 10,000 27,000 95,000 181,250
Holman, CEO
Susan Hartjes- -- -- 65,000 125,000
Doherty, V.P.
</TABLE>
PRINCIPAL SHAREHOLDERS
At June 30, 1998, the Company had 5,917,371 shares of common
stock outstanding and options for 483,200 shares of common stock
outstanding.
The following table sets forth the number of shares of the
Company's common stock and the percentage of the total number of
shares outstanding beneficially owned, as of June 30, 1998, by (i) each
person known to the Company to be the beneficial owner of more than
five percent of the Company's Common Stock, (ii) each director, (iii)
each executive officer of the Company who is named in "Management
Compensation" above, and by (iv) all directors and executive officers as a
group:
<TABLE>
<CAPTION>
Name and Address of Number of Shares
Beneficial Owner Beneficially Owned Percent of Class(7)
- ----------------------------------------------------------------------------
<S> <C> <C>
Bruce P. Mindich
555 White Plains Road
Tarrytown, NY 10591 1,100,000 18.6%
Daniel G. Holman
2718 Summer Street NE
Minneapolis, MN 55413-2820 299,981 (1) 5.1%
Susan Hartjes-Doherty
2718 Summer Street NE
Minneapolis, MN 55413-2820 122,203 (2) 2.1%
Joel R. Pitlor
19 Chalk Street
Cambridge, MA 02139 145,000 (3) 2.5%
R. Patrick Maxwell
Templeton & Associates
10 South Fifth Street, Suite #990
Minneapolis, MN 55402 65,307 (3) 1.1%
Alex Gerwer
2718 Summer Street NE
Minneapolis, MN 55413-2820 43,800 (4) .7%
Directors and Executive
Officers as a Group (7 persons) 768,291 (5)(6) 12.2%
</TABLE>
(1) Includes 95,000 shares held under options to purchase common stock.
(2) Includes 65,000 shares held under options to purchase common stock.
(3) Includes 45,000 shares held under options to purchase common stock.
(4) Includes 30,000 shares held under options to purchase common stock.
(5) Includes 372,000 shares held under options to purchase common stock.
(6) To the Company's knowledge, the persons named have both voting and
investment power over the shares listed.
(7) Percentages were calculated on the basis of outstanding securities
owned by each person or group of persons named, plus, for each
person or group any securities that can be acquired within 60 days
pursuant to exercise of options.
SELLING SHAREHOLDERS
All of the shares of the Company's Common Stock offered
hereby are being offered by certain shareholders of the Company
(referred to herein as the "Selling Shareholders"). None of the Selling
Shareholders is an affiliate of the Company, except for Patrick Maxwell,
who is a director of the Company.
The names of the Selling Shareholders are stated below. None of
such persons has had or held a position, office or material relationship
with the Company or any of its predecessors or affiliates within the past
three years, except for Patrick Maxwell, who is a director of the
Company. The table below also states the total number of shares of the
Company's Common Stock registered in the name of each of such
persons which are covered by this Prospectus.
This table covers only shares of the Company's stock covered by
this Prospectus and owned by the Selling Shareholders. Such persons
may own other shares of the Company's stock.
Name of Shareholder Number of Shares
Frank S. Amendola, Jr. 5,000
Robert W. Amis, Jr. 15,000
Frederick P. Angst 10,000
Glenn Bartoo 6,000
John D. Bartsh and Lonna Bartsh, JTWROS 2,500
Robert James Beck 5,000
First Trust NATL ASSN TTEE
FBO Arthur A. Beisang IRA 20,000
First Trust NATL ASSN TTEE
FBO Shirley F. Beisang IRA 20,000
William W. Berg 2,500
Herbert J. Bernick 10,000
Randy E. Bickmann 5,000
James G. Bigelow, Sr. 10,000
Vannoy C. Black and Cynthia F. Black JTWROS 10,000
First Trust NATL ASSN TTEE
FBO Gertrude L. Blackshear IRA 5,000
Robert Blain 30,000
Frederick C. Boos 10,000
First Trust NATL ASSN TTEE
FBO Dennis G. Bottjen IRA 10,500
First Trust NATL ASSN TTEE
FBO Dennis G. Bottjen M/P/P 17,500
Elraine A. Brennan 5,500
O. Charles Brown 2,500
Joseph J. Buska 10,000
Michael F. Cassel 10,000
First Trust NATL ASSN TTEE
FBO Patricia A. Cellitti IRA 10,000
Walter T. Cleveland TTEE
Martha E. Cleveland TTEE
Walter T. Cleveland Trust 10,000
James G. Cowan 7,000
Larry R. Cramer 5,000
Joseph J. Christensen 5,000
Dennis M. Davidson and
Barbara A. Davidson, JTWROS 5,000
First Trust NATL ASSN TTEE
FBO Bruce N. Davis IRA 10,000
First Trust NATL ASSN TTEE
FBO Jack G. Davis IRA 8,400
Daniel J. Dokken and Ruth Dokken, JTWROS 5,000
Jeff Dousette 10,000
Del Dozak 6,000
Justin Droessler 7,300
Paul K. Ebel 5,000
First Trust NATL ASSN TTEE
FBO Werner H. Egli IRA 10,000
Ronald A. Erickson, Trustee 10,000
Lary B. Falck and Judith A. Falck, FTWROS 2,500
John E. Feltl 10,000
Carol M. Ford 5,000
John M. Friedges 6,500
Karl Fromm 20,000
Craig R. Geller 2,500
Alexander S. Gerwer and Dena J. Gerwer, JTWROS 13,800
Kathryn R. Gilbertson 20,000
First Trust NATL ASSN TTEE
FBO Joseph Hafermann IRA 5,000
William E. Hanneman 5,000
Hartman Hanson and Marguerite Hanson, JTWROS 10,000
Gerald L. Heinzen and Andrea M. Heinzen, JTWROS 6,500
Joseph P. Hennen 10,000
Douglas L. Hildreth and Ruth M. Hildreth, JTWROS 5,000
First Trust NATL ASSN TTEE
FBO James A. Hinrichs IRA 10,000
William J. Holman Jr. and Dianna J. Holman, JTWROS 5,000
Randall D. Horan 2,500
Per Huffeldt, Trustee 10,000
Robert G. Hulke 5,000
Thomas Hunt 10,000
William D. Hunt TTEE and Constance J. Hunt TTEE 2,500
Richard Huselid and Marlys Huselid, JTWROS 5,000
David P. Ihle 10,000
Industricorp & Co. FBO, Twin City Carpenters Pension 60,000
Dana J. Isaacson 10,000
Roland Isaacson 10,000
John B. Jasper 10,000
Morris G. Jesperson and Beverly A. Jesperson, JTWROS 10,000
First Trust National Association,
Trustee FBO Cheryl L. Johnson Roth IRA 5,000
David T. Johnson 10,000
Donald O. Johnson 5,000
Earl Johnson and Cheryl L. Johnson, JTWROS 4,500
First Trust National Association,
Trustee FBO Earl Johnson IRA 2,500
Bryan L. Jones 5,000
Peggy Kaplan 10,000
Jennifer Katz 5,000
Claire M. King 10,000
Steven King 10,000
Daniel T. Koch 50,000
Richard J. Koehler and Sally J. Koehler, JTWROS 5,000
William W. Koop 10,000
Robert J. Korkowski and Phyllis M. Korkowski, JTWROS 10,000
First Trust National Association,
Trustee FBO Raymond P. Kruse IRA 10,000
Mark Laskowski 10,000
Larry Laughlin 5,000
James E. Lindell 5,600
Mac W. Lutz III 2,000
Dennis Leslie Maetzold 20,000
Jan Magnuson 15,000
Stanley R. Magnuson and Jayne M. Magnuson JTWROS 10,000
Piper Jaffray as Custodian
FBO Wallace A. Marx 10,000
R. Patrick Maxwell 20,000
Timothy J. McCarthy 2,000
Timothy J. McCoy 10,000
First Trust National Association,
Trustee FBO Timothy J. McCoy IRA 5,000
First Trust National Association,
Trustee FBO Lyle McMurchie 3,750
First Trust NATL ASSN TTEE
FBO Charles J. Meler, Jr. IRA 10,000
Dean L. Melnyk 10,000
Brian H. Miller 9,900
Robert Duane Miller 10,000
Dennis M. Mills and Nancy M. Mills, JTWROS 5,000
James J. Moore 10,000
Phil C. Murray 1,200
Ronald S. Musich 20,000
Theodore C. Nagel and Judy Ann Nagel, JTWROS 5,000
Philip A. Nasby 10,000
Drs. Nelson & Schultz Profit Sharing Trust 12,500
Daniel W. O'Brien 9,000
Kome Okposo 10,000
Rodney L. Olsen and Alyce J. Olsen, JTWROS 10,000
Donald L. Olson and Kaye F. Olson JTWROS 5,000
Roger A. Olson, Trustee 5,000
Michael Ormond and Miriam E. Cameron JTWROS 5,000
Perkins Foundation 10,000
R.W. Perkins TTE, Perkins Capital Management 15,000
Richard W. Perkins, TTEE 25,000
Warren E. Peterson 3,000
Warren E. Peterson 5,000
David W. Powell 10,000
Pyramid Partners L.P. 100,000
James E. Reasoner and Suzanne M. Reasoner JTWROS 10,000
Ben Reuben and Sophie Reuben JTWROS 20,000
Thomas Reynolds 5,000
Devin Patrick Rice 1,700
First Trust National Association, Trustee
FBO Devin Patrick Rice IRA 3,300
Dale Roberts 10,000
Gary A. Ross 10,000
Anita A.H.Y Rullens 30,000
First Trust National Association,
Trustee FBO Terry H. Rust IRA 10,000
Peter Sajevic 10,000
Frank W. Smith 5,000
Gary Specketer and Eileen Specketer, JTWROS 5,000
SRMI Inc. 10,000
First Trust NATL ASSN TTEE
FBO James F. Stattmiller IRA 5,500
Barbara H. Steinkamp, Trustee 1,500
Richard Stiers and Janice Stiers, JTWROS 10,000
First Trust NATL ASSN TTEE
FBO William G. Strop IRA 8,000
Gerald Swedeen and Marcia Swedeen, JTWROS 10,000
Denise W. Templeton and James W. Templeton, JTWROS 10,000
William I. Thompson 10,000
Dennis J. Truempi 10,000
Leo Tutewohl and Sharon Tutewohl, JTWROS 10,000
Sylvester M. Vanyo 10,000
Francis P. Veit 4,000
Dean Vlahos and Michelle Redmond Vlahos, JTWROS 10,000
Carl Vogt and Marjorie Vogt, JTWROS 10,000
Donald W. Walczak 5,000
Ronald E. Wald, Jr. and Michele R. Wald, JTWROS 10,000
William G. Walker, Sr. 2,500
First Trust NATL ASSN TTEE
FBO William G. Walker, Sr. IRA 5,000
Jerome R. Welle and Mary K. Welle, JTWROS 10,000
Don W. Wennberg 10,000
Jeffrey I. Werbalowsky 20,000
Joseph H. Whitney 10,000
Brian D. Wilcox and Mary T. Wilcox, JTWROS 15,000
Ronald J. Will 5,000
Duane H. Windhorst and Marilyn Windhorst JTWROS 10,000
Judith C. Winge 5,000
Steven E. Wirth and Kathryn E. Wirth, 3,000
David Y. Wolfenson 10,000
Marvin Wolfenson and Elayne Wolfenson JTWROS 20,000
First Trust National Association,
Trustee FBO James E. Wolff IRA 7,000
First Trust National Association,
Trustee FBO Roberta M. Wolff IRA 3,000
Roger Wothe 5,000
Yushya Yang 95,000
James R. Zylla TTEE 10,000
Total 1,702,950
CERTAIN TRANSACTIONS
The Company has a Royalty Agreement with three individuals
(collectively, the "Licensors"), namely Arthur A. Beisang, Jr.,
Robert A. Ersek, M.D., and Arthur A. Beisang, III, M.D. Mr. Beisang
and Dr. Ersek are former officers and directors of the Company (see
"Business - Patents, Trademarks, and Licenses"), and each previously
owned more than 5% of the Company's outstanding stock. Under the terms
of such Royalty Agreement, the Company is obligated until 2010 to pay
the Licensors 3 to 5% of net sales of Macroplastique (see Note 4(e) of
Notes to Financial Statements). The aggregate amount of royalty expense
recognized by the Company pursuant to such Royalty Agreement during each
of the past three fiscal years was as follows.
Fiscal Year ended 3/31/98 Uroplasty, Inc. $ 147,860
Fiscal Year ended 3/31/97 Uroplasty, Inc. $ 110,495
Fiscal Year ended 3/31/96 Bioplasty, Inc. $ 1,000
Uroplasty, Inc. 64,695
Total $ 65,695
On July 11, 1997, the Company's then second largest shareholder,
the Bioplasty Product Claimants Trust (the "Trust"), which prior to
such date owned 640,000 shares, or 17.5% of the Company's then
outstanding shares of common stock, sold such shares to a group of
investors (the "Investors"). In connection with such transaction, the Trust
sold to the Investors its interest in that certain Promissory Note, dated
March 30, 1994, which, at March 31, 1997, had a principal balance
outstanding of $496,000. Concurrently with the sale by the Trust of the
640,000 shares to the Investors, the Company agreed to convert and did
convert the Note into 496,000 shares of Common Stock, at a conversion
ratio of $1.00 per share. The Investors, who included certain registered
representatives (or their customers) employed by RJ Steichen & Co.,
consisted of 33 individuals, retirement accounts and corporations
located primarily in the Minneapolis/St. Paul, Minnesota area. The
aforementioned transaction was facilitated by certain registered
representatives of RJ Steichen & Co., but they were not directly
compensated for their efforts by either the Trust or the Company, and the
Investors did not pay a commission on the transaction. There was no
involvement whatsoever by R.J. Steichen & Co. as an entity.
DESCRIPTION OF SECURITIES
The Company is not presently aware of any arrangements which
may result in a change in its control.
Common Stock
The Company's authorized capital stock consists of 20,000,000
shares of Common Stock, $.01 par value. There were 5,917,371 shares of
Common Stock issued and outstanding as of June 30, 1998.
There are no preemptive, subscription, conversion or redemption
rights pertaining to the Common Stock. The absence of preemptive rights
could result in a dilution of the interest of existing shareholders should
additional shares of Common Stock be issued. Holders of the Common
Stock are entitled to receive such dividends as may be declared by the
Board of Directors out of assets legally available therefore, and to share
ratably in the assets of the Company available upon liquidation.
Each share of Common Stock is entitled to one vote for all
purposes and cumulative voting is not permitted in the election of
directors. Accordingly, the holders of more than fifty percent of all of the
outstanding shares of voting stock can elect all of the directors.
Significant corporate transactions such as amendments to the articles of
incorporation, mergers, sales of assets and dissolution or liquidation
require approval by the affirmative vote of the majority of the outstanding
shares of the voting stock. Other matters to be voted upon by the holders
of voting stock normally require the affirmative vote of a majority of the
shares present at the particular shareholder's meeting.
The rights of holders of the shares of Common Stock may become subject
in the future to prior and superior rights and preferences in the event
the Board of Directors establishes one or more additional classes of
Common Stock or one or more additional series of Preferred Stock. The
Board of Directors has no present plans to establish any such additional
class or series.
Shares Eligible For Future Sale
There are 5,917,371 shares of Common Stock issued and outstanding as of
June 30, 1998. The 1,702,950 shares of Common Stock covered by this
Prospectus (the "Shares") are freely tradable without registration
or other restriction under the Securities Act of 1933, as amended
(the "Securities Act"), except for any Shares owned by an
"affiliate" of the Company (as defined in the Securities Act).
In addition to the Shares, 3,400,000 shares are presently eligible
for sale under Rule 144 and an additional 1,100,000 shares will become
eligible for sale under Rule 144 by the end of July, 1998, assuming all of
the other requirements of Rule 144 have been satisfied.
In general, under Rule 144 as currently in effect, any person (or
persons whose shares are aggregated) including persons deemed to be
affiliates, whose restricted securities have been fully paid for and held for
at least one year from the later of the date of issuance by the Company or
acquisition from an affiliate, may sell such securities in broker's
transactions or directly to market makers, provided that the number of
shares sold in any three month period may not exceed the greater of 1%
of the then outstanding shares of Common Stock or the average weekly
trading volume of the shares of Common Stock in the over-the-counter
market during the four calendar weeks preceding the sale. Sales under
Rule 144 are also subject to certain notice requirements and the
availability of current public information about the Company. After two
years have elapsed from the later of the issuance of restricted securities
from the Company or their acquisition from an affiliate, such securities
may be sold without limitation by persons who are not affiliates under the
rule.
The Company cannot predict the effect, if any, that sales of its
Common Stock or the availability of such Common Stock for sale, will
have on the market price prevailing from time to time. Nevertheless,
sales by existing shareholders of substantial amounts of Common Stock
could adversely affect prevailing market prices for the Company's
Common Stock.
Minnesota Anti-Takeover Law
The Company is governed by the provisions of Sections
302A.671 and 302A.673 of the Minnesota Business Corporation Act. In
general, Section 302A.671 provides that the shares of a corporation
acquired in a "control share acquisition" have no voting rights unless
voting rights are approved in a prescribed manner. A "control share
acquisition" is an acquisition, directly or indirectly, of beneficial
ownership of shares that would, when added to all the other shares
beneficially owned by the acquiring person, entitle the acquiring person to
have voting power of 20% or more in the election of directors. In
general, Section 302A.673 prohibits a publicly held Minnesota
corporation from engaging in a "business combination" with an
"interested shareholder" for a period of four years after the date of the
transaction in which the person became an interested shareholder, unless
the business combination is approved in a prescribed manner. "Business
combination" includes mergers, asset sales and other transactions
resulting in a financial benefit to the interested shareholder. An
"interested shareholder" is a person who is the beneficial owner, directly
or indirectly, of 10% or more of the corporation's voting stock or who is
an affiliate or associate of the corporation and at any time within four
years prior to the date in question was the beneficial owner, directly or
indirectly, of 10% or more of the corporation's voting stock.
Transfer Agent and Registrar
The Company has selected Stock Trans, Inc., Philadelphia, PA,
telephone (610) 649-7300, to act as Registrar and Transfer Agent for the
Company's Common Stock.
Indemnification
The Company's Bylaws and the provisions of the Minnesota
Business Corporation Act, which govern the actions of the Company,
provide that present and former directors and officers of the Company
shall be indemnified against certain liabilities and expenses which any of
them may incur as a result of being, or having been, a director or officer
of the Company. Indemnification is contingent upon certain conditions
being met, including, that the person: has not been previously indemnified
by another party for the same matter; has acted in good faith; has received
no improper personal benefit; and, in the case of a criminal proceeding,
has no reason to believe that the conduct complained of was unlawful and
reasonably believed that the conduct complained of was in the best
interests of the Company, or in certain circumstances, reasonably believed
that, the conduct complained of was not opposed to the best interests of
the Company.
In addition, the Company's Articles of Incorporation provide that
a director of the Company shall not be liable for monetary damages for a
breach of such director's fiduciary duty, except for a breach of the duty of
loyalty, acts not in good faith or in knowing violation of law, violations of
state securities laws, or for actions from which the director derived an
improper personal benefit. The Company has obtained directors and
officers liability insurance.
Insofar, as the indemnification of liabilities arising under the
Securities Act may be permitted to directors, officers and controlling
persons of the Company pursuant to the provisions of its Articles of
Incorporation, Bylaws and the provisions of the Minnesota Business
Corporation Act, or otherwise, the Company has been advised that, in the
opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable.
Penny Stock
The Company's securities are considered "penny stock" under a
Securities and Exchange Commission rule that imposes additional sales
practice requirements on agents and broker-dealers who sell such
securities to persons other than established customers and institutional
accredited investors. For transactions covered by the rule, the agent or
broker-dealer must make a special suitability determination about the
purchaser (which concerns financial and business sophistication, previous
investment experience and financial condition) and have received the
purchaser's written agreement to the transaction prior to the sale. Such
agents or broker-dealers must also, prior to the purchase, provide the
customer with a risk disclosure document which identifies risks
associated with investing in "penny stocks" and which describes the
market therefor as well as a brief description of the broker-dealer's
obligations under certain "Penny Stock Rules" and rights and remedies
available to customers under federal and state securities laws. The
broker-dealer must obtain a signed and dated acknowledgement from its
customer demonstrating that the customer has actually received the
required risk disclosure document before the first transaction in a penny
stock. Consequently, such rules may restrict the ability of brokers to
sell the Company's Common Stock, may adversely affect the liquidity of
the Shares and may affect the ability of purchasers to sell the Shares
in the secondary market.
REPORTS TO SHAREHOLDERS
The Company is currently a reporting company and it will make
available to its shareholders annual reports containing audited financial
statements and a report by independent certified public accountants, and
quarterly reports for the first three quarters of each fiscal year containing
unaudited financial information.
LEGAL MATTERS
The validity of the issuance of the Shares covered hereby will be
passed upon for the Company by Keller & Lokken, P.A., St. Paul,
Minnesota.
EXPERTS
The consolidated financial statements of Uroplasty, Inc. and
subsidiaries as of March 31, 1998, and 1997, and for the years then ended,
have been included herein and in the Registration Statement in reliance
upon the report of KPMG Peat Marwick LLP, independent certified
public accountants, appearing elsewhere herein, and upon the authority of
said firm as experts in accounting and auditing. The report of KPMG
Peat Marwick LLP covering the March 31, 1998 financial statements
refers to a prior period adjustment.
AVAILABLE AND ADDITIONAL INFORMATION
The Company is a reporting company under the Securities
Exchange Act of 1934, as amended, and therefore files periodic reports
with the Securities and Exchange Commission.
For further information with respect to the Company and the
Shares, reference is made to the Company's periodic reports and other
documents filed with the Securities and Exchange Commission ("SEC")
in Washington, D.C., which may be inspected without charge, or copies
of which may be obtained from the Public Reference Section of the
SEC's Washington, D.C. office, 450 Fifth Street N.W., Washington, D.C.
20549 upon payment of the prescribed fees. In addition, such information
is available without charge through use of the SEC's EDGAR system,
which allows interested persons to obtain on-line access to such
information.
The SEC maintains a Web site that contains reports, proxy and
information statements and other information regarding registrants that
file electronically with the SEC, including the Company. The address is
(http://www.sec.gov).
The Company will provide without charge to each person who
receives a copy of this Prospectus, upon written or oral request of such
person, a copy of the information, if any, that is incorporated by reference
in this Prospectus. Inquiries should be directed to Uroplasty, Inc., 2718
Summer Street NE, Minneapolis, MN 55413-2820, telephone number
612-378-1180, FAX 612-378-2027.
UROPLASTY, INC. AND SUBSIDIARIES
Consolidated Financial Statements
March 31, 1998 and 1997
June 30, 1998 and 1997
TABLE OF CONTENTS
Page(s)
Independent Auditors' Report F-2
Financial Statements:
Consolidated Balance Sheets F-3
Consolidated Statements of Operations F-4
Consolidated Statements of Shareholders' Equity F-5
Consolidated Statements of Cash Flows F-6
Notes to Consolidated Financial Statements F-7 - F-16
Unaudited Financial Statements for the Three Months
Ended June 30, 1998 F-17 - F-__
Independent Auditors' Report
The Board of Directors and Shareholders
Uroplasty, Inc.:
We have audited the accompanying consolidated balance sheets of
Uroplasty, Inc. and subsidiaries as of March 31, 1998 and 1997, and the
related consolidated statements of operations, shareholders' equity, and
cash flows for the years then ended. These consolidated financial statements
are the responsibility of the Company's management. Our responsibility is
to express an opinion on these consolidated financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of
Uroplasty, Inc. and subsidiaries as of March 31, 1998 and 1997, and the
results of their operations and their cash flows for the years then ended
in conformity with generally accepted accounting principles.
As discussed in footnote 7, the fiscal 1997 consolidated financial
statements have been revised to reflect a prior period adjustment.
KPMG Peat Marwick LLP
April 23, 1998
Minneapolis, Minnesota
UROPLASTY, INC. AND SUBSIDIARIES
Consolidated Financial Statements
March 31, 1998 and 1997
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS
March 31, 1998 AND 1997
1998 1997
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 889,541 814,603
Accounts receivable trade,
less allowance for doubtful
accounts of $64,930 in 1998
and $124,000 in 1997 766,835 502,744
Inventories 294,424 387,373
Prepaid expenses 184,628 105,625
Total current assets 2,135,428 1,810,345
Property, plant, and equipment 1,261,059 241,075
Less accumulated depreciation 216,529 92,745
1,044,530 148,330
Intangible assets, net of accumulated
amortization of $64,252 in 1998
and $44,500 in 1997 101,586 80,030
Total assets $ 3,281,544 2,038,705
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable 358,782 160,811
Accrued liabilities:
Compensation and payroll taxes 81,526 62,364
Royalties 16,900 12,400
Other 116,755 95,575
Capital lease obligations current
maturities 16,463 32,191
Note payable-current maturities 30,756 36,954
Total current liabilities 621,182 400,295
Capital lease obligations, less current
maturities 31,893 0
Note payable, less current maturities 577,713 407,994
Total liabilities 1,230,788 808,289
Shareholders' equity
Common stock $.01 par value; authorized
20,000,000 shares 4,191,525 and
3,649,525 issued and outstanding at
March 31, 1998 and 1997,
respectively 41,915 36,495
Additional paid-in capital 2,432,599 1,963,560
Accumulated deficit (256,629) (664,470)
Cumulative translation adjustment (162,129) (100,169)
Note receivable shareholder (5,000) (5,000)
Total shareholders' equity 2,050,756 1,230,416
Commitments and contingencies (note 4)
Total liabilities and
shareholders' equity $ 3,281,544 2,038,705
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
UROPLASTY, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
Years ended March 31, 1998 and 1997
<CAPTION>
1998 1997
<S> <C> <C>
Net sales $ 4,335,908 3,334,563
Cost of goods sold 937,978 753,769
Gross profit 3,397,930 2,580,794
Operating expenses:
General and administrative 994,068 685,430
Research and development 778,082 610,677
Selling and marketing 964,138 908,483
2,736,288 2,204,590
Operating profit 661,642 376,204
Other income (expense)
Interest income 8,294 2,389
Interest expense (20,732) (36,884)
Liquidation loss on foreign subsidiary 0 (12,307)
Foreign currency exchange loss (129,503) (204,315)
Other 0 93,134
(141,941) (157,983)
Net income before income taxes 519,701 218,221
Income tax expense 111,860 0
Net income $ 407,841 218,221
</TABLE>
Net income per common share $ 0.10 0.06
Net income per common share
assuming dilution 0.09 0.06
Weighted average common shares outstanding:
Basic 4,026,571 3,575,609
Diluted 4,321,132 3,670,275
[FN]
See accompanying notes to consolidated financial statements.
<TABLE>
<CAPTION>
UROPLASTY, INC. AND SUBSIDIARIES
Consolidated Statements of Shareholders' Equity
Years ended March 31, 1998 and 1997
Common Stock Additional Accu- Cumulative Total
Paid in mulated translation Note shareholders'
Shares Amount capital deficit adjustment receivable equity
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at March 31, 1996 3,472,525 $ 34,725 1,811,830 (882,691)(224,922) (5,000)
733,942
Issuance of 130,000 shares
of common stock 130,000 1,300 128,700 0 0 0 130,000
Issuance of 17,000 shares of
common stock pursuant to
stock option exercise 17,000 170 8,330 0 0 0 8,500
Issuance of 30,000 shares of
common stock for note
payable conversion 30,000 300 14,700 0 0 0 15,000
Net income 0 0 0 218,221 0 0 218,221
Translation adjustment 0 0 0 0 124,753 0 124,753
Balance at March 31, 1997 3,649,525 36,495 1,963,560 (664,470)(100,169) (5,000)
1,230,416
Issuance of 46,000 shares of
common stock pursuant to
stock option exercise 46,000 460 23,540 0 0 0 24,000
Issuance of 496,000 shares of
common stock for note
payable conversion, net of
$5,146 of conversion costs 496,000 4,960 436,499 0 0 0 441,459
Stock options issued in lieu
of cash compensation 0 0 9,000 0 0 0 9,000
Net income 0 0 0 407,841 0 0 407,841
Translation adjustment 0 0 0 0 (61,960) 0 (61,960)
Balance at March 31, 1998 4,191,525 $ 41,915 2,432,599 (256,629)(162,129) (5,000)
2,050,756
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
UROPLASTY, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended March 31, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Cash flows from operating activities:
Net income $ 407,841 218,221
Adjustments to reconcile net income
to net cash provided by operations:
Depreciation and amortization 121,640 63,913
Loss on disposal of assets 0 45,000
Liquidation loss on foreign
subsidiary 0 12,307
Stock options issued in lieu
of cash compensation 9,000
Changes in operating assets and
liabilities:
Accounts receivable (264,091) (166,596)
Inventories 92,949 (130,718)
Prepaid expenses (79,003) (12,062)
Accounts payable 197,971 (47,592)
Accrued liabilities 44,842 (40,525)
Net cash provided by (used in)
operating activities 531,149 (58,052)
Cash flows from investing activities:
Payments for property, plant,
and equipment (1,045,386) (85,276)
Payments relating to intangible assets (41,308) (7,202)
Net cash used in investing activities (1,086,694) (92,478)
Cash flows from financing activities:
Repayment of long-term obligations (63,404) (35,947)
Proceeds from issuance of notes payable 684,549 8,909
Net proceeds from issuance of stock 24,000 138,500
Payments received on note receivable 0 22,595
Net cash provided by financing activities 645,145 134,057
Effect of exchange rates on
cash and cash equivalents (14,662) 112,446
Net increase in cash and cash equivalents 74,938 95,973
Cash and cash equivalents
at beginning of year 814,603 718,630
Cash and cash equivalents
at end of year $ 889,541 814,603
Supplemental disclosure of
Cash Flow information:
Cash paid during the year
for interest $ 20,732 37,425
Cash paid during the year
for income taxes 87,522 0
Supplemental disclosure of
non-cash financing activities:
During the years ended March 31, 1998 and 1997, $441,459 and $15,000,
respectively, in notes payable were converted into common stock.
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
UROPLASTY, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
March 31, 1998 and 1997
(1) Summary of Significant Accounting Policies
(a) Nature of Business
Uroplasty, Inc. (the Company or UPI) is a manufacturer and
distributor of urological and plastic surgery implantable medical devices.
The primary focus of the Company's business is the marketing of an
implantable device for the management of stress urinary incontinence and
vesicoureteral reflux. Currently, all sales of the Company's products are
to customers outside the United States by the Company's foreign
subsidiaries.
(b) Principles of Consolidation
The consolidated financial statements include the accounts of the
Company and its wholly owned foreign subsidiaries. All significant
intercompany accounts and transactions have been eliminated.
(c) Revenue Recognition
The Company recognizes revenue upon shipment of product to customers.
(d) Cash and Cash Equivalents
The Company considers highly liquid debt instruments purchased with
an original maturity of three months or less to be cash equivalents.
(e) Patents
Patents are stated at cost and are amortized over six years using the
straight line method.
(f) Income Taxes
Deferred tax assets and liabilities are recognized for future tax
consequences attributable to differences between the financial carrying
amounts of existing assets and liabilities and their respective tax bases.
(g) Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from these
estimates.
(h) Inventories
Inventories are stated at the lower of cost, (first-in, first-out
method), or market (net realizable value), and consist of the following at
March 31, 1998 and 1997:
1998 1997
Raw materials $47,891 88,864
Work-in-process 118,973 136,204
Finished goods 127,560 162,305
$294,424 387,373
(i) Property, Plant, and Equipment
Property, plant, and equipment are carried at cost and consist of the
following at March 31, 1998 and 1997:
1998 1997
Land $129,465 -
Building 526,639 -
Equipment 604,955 241,075
1,261,059 241,075
Less accumulated depreciation (216,529) (92,745)
$1,044,530 148,330
Depreciation is provided for using both straight-line and accelerated
methods over useful lives of four to seven years for equipment and 40 years
for the building. Maintenance and repairs are charged to expense as
incurred. Renewals and betterments are capitalized and depreciated over
their estimated useful service lives.
(j) Research and Development
Research and development costs are expensed as incurred.
(k) Foreign Currency Translation
The financial statements of the Company's foreign subsidiaries were
translated in accordance with the provisions of Statement of Financial
Accounting Standards No. 52. Under this Statement, all assets and
liabilities are translated using period-end exchange rates and statements
of operations items are translated using average exchange rates for the
period. The resulting translation adjustment is recorded as a separate
component of shareholders' equity. Foreign currency transaction gains and
losses are recognized currently in net income.
(l) Stock Based Compensation
The Company applies the intrinsic value method described in
Accounting Principles Board (APB) Opinion No. 25 in accounting for the
issuance of stock incentives to employees and directors and, accordingly,
no compensation expense has been recognized in the financial statements.
Effective April 1, 1996, in accordance with Statement of Financial
Accounting Standards No. 123 (SFAS 123), Accounting for Stock Based
Compensation, pro forma information reflecting compensation cost for such
issuances is presented in the Shareholders' Equity footnote.
(m) Net Income Per Common Share
Effective December 31, 1997, the Company adopted Statement of
Financial Accounting Standards No. 128 (SFAS 128), Earnings per Share.
SFAS 128 simplifies the computation of earnings per share ("EPS")
previously required by replacing primary and fully diluted EPS with basic
and diluted EPS. Under SFAS 128, basic EPS is calculated by dividing net
earnings by the weighted-average common shares outstanding during the
period. Diluted EPS reflects the potential dilution to basic EPS that
could occur upon conversion or exercise of securities, options, or other
such items, to common shares using the treasury stock method based upon
the weighted-average fair value of the Company's common shares during the
period. Reconciliations of basic and diluted average common shares
outstanding are as follows:
1998 1997
Average common shares outstanding 4,026,571 3,575,609
Assumed conversion of stock options 294,561 94,666
Average common and
assumed conversion shares 4,321,132 3,670,275
Options to purchase 17,753 and 8,740 shares of common stock at $3.19
and $3.25 per share, respectively, were outstanding during 1998 but were
not included in the computation of diluted earnings per share because the
exercise prices of the options were greater than the average market price
of the common shares. The options expire from 2002 to 2004.
(n) Reclassifications
Certain prior year amounts have been reclassified to conform with the
current year presentation.
(o) New Accounting Pronouncements
Statement of Financial Accounting Standards No. 130 (SFAS 130),
Reporting Comprehensive Income, and Statement of Financial Accounting
Standards No. 131 (SFAS 131), Disclosures about Segments of an Enterprise
and Related Information, were issued in June 1997. SFAS 130 and SFAS 131
are effective for fiscal years beginning subsequent to December 15, 1997
and, therefore, will be adopted by the Company on April 1, 1998. The
Company does not expect the adoption of SFAS 130 or SFAS 131 to result in
any substantive changes in its disclosure, except that comprehensive income
will be adjusted by the amount of the annual translation adjustment.
(2) Long-term Debt
Long-term debt consists of the following at March 31, 1998 and 1997:
1998 1997
Non-interest bearing, unsecured promissory
note payable, discounted at 8% per annum,
$16,000 quarterly payments, remaining
balance due February 1999 $ - 444,948
Mortgage note, monthly payments of $2,563 plus
variable rate interest through November 2017
(rate at March 31, 1998 - 5%) 608,469 -
Less current maturities 30,756 36,954
$577,713 407,994
The promissory note payable was converted into 496,000 shares of
common stock during 1998.
Future payments of long-term debt are as follows:
1999 $ 30,756
2000 30,756
2001 30,756
2002 30,756
2003 30,756
Thereafter 454,689
$ 608,469
(3) Shareholders' Equity
(a) Stock Options
Pursuant to the Uroplasty, Inc. Qualified Incentive Stock Option
Plans, the Company has reserved 677,200 shares of its common stock for
issuance to employees and directors. Employee options vest on the date of
grant and director options vest evenly over two years. Outstanding options
generally expire five years from date of grant. Options are granted at the
discretion of the directors and are exercisable in amounts equal to or
greater than the fair market value of the Company's common stock at date of
grant. The plans provide for the exercise of options during a limited
period following termination of employment, death, or disability.
Stock option activity under these plans is summarized as follows:
Weighted-average
Shares exercise price
outstanding per share
Balance at March 31, 1996 246,700 0.50
Granted 3,000 1.00
Exercised (17,000) 0.50
Canceled (9,500) 0.50
Balance at March 31, 1997 223,200 0.51
Granted 328,000 1.58
Exercised (46,000) 0.52
Balance at March 31, 1998 505,200 $ 1.20
At March 31, 1998, the range of exercise prices and weighted-average
remaining contractual life of outstanding options was $0.50- $3.25 and 3.8
years, respectively. At March 31, 1998, and 1997, 445,200 and 223,200
options, respectively, were exercisable with weighted average exercise
prices of $1.13 and $.51, respectively.
(b) Fair Value of Stock Plans
The Company applies APB Opinion No. 25, Accounting for Stock Issued
to Employees in accounting for its stock incentive plans for designated
persons and, accordingly, no compensation cost has been recognized in the
financial statements for employee and director stock options granted under
its stock option plans. Had the Company determined compensation cost based
on the fair value at the grant date for its stock options under SFAS 123,
Accounting for Stock-based Compensation, the Company's net income would
have decreased to the pro forma amounts shown below:
1998 1997
Net income:
As reported $ 407,841 218,221
Pro forma 167,695 217,705
Net income per common share - basic:
As reported 0.10 0.06
Pro forma 0.04 0.06
Pro forma net income only reflects options granted in 1998, 1997, and
1996. Therefore, the full impact of calculating compensation cost for stock
options under SFAS 123 is not reflected in the pro forma net income amounts
presented above because compensation cost is reflected over the options'
vesting period and compensation cost for options granted prior to April 1,
1995 is not considered.
The per share weighted-average fair value of stock options granted
during 1998 and 1997 was $0.97 and $0.17, respectively, on the date of
grant, using the Black-Scholes option-pricing model with the following
weighted-average assumptions:
1998 1997
Expected dividend yield 0.0% 0.0%
Risk-free interest rate 6.0% 6.5%
Expected volatility 156.0% 0.0%
Expected life, in years 3.0 3.0
(4) Commitments and Contingencies
(a) License Agreement
On December 7, 1995, the Company entered into an agreement as
licensee to obtain exclusive patent rights covering certain
injection-related instrumentation. Under this agreement, the Company made
a cash payment of approximately $30,000 to the licensor and will make
royalty payments at the rate of 10% of the worldwide net sales for a period
of 10 years. No additional payments have been made in either fiscal 1998
or 1997.
(b) Savings and Retirement Plans
The Company sponsors various plans for eligible employees both
domestically as well as in the United Kingdom and the Netherlands. The
total contibution expense associated with these plans was $43,782 and
$13,985 for the years ended March 31, 1998 and 1997, respectively.
(c) Operating Lease Commitments
UPI leases office, warehouse, and production space under four
operating leases and leases various automobiles for its European employees.
Future minimum lease payments under noncancelable operating leases with an
initial or remaining lease term in excess of one year for the ensuing years
ending March 31 are as follows:
1999 $ 279,959
2000 193,606
2001 98,159
2002 56,728
2003 11,211
$ 639,663
Total rent expense paid for operating leases was $241,732 and
$167,999 in 1998 and 1997, respectively.
(d) Capital Lease Obligations
UPI leases various equipment under noncancelable capital leases. The
leases call for aggregate monthly payments of $2,034 with various
expiration dates through July 2002. Equipment includes $85,854 and $46,661
of cost and $22,070 and $10,340 of accumulated amortization as of March 31,
1998 and 1997, respectively, related to these leases.
Future minimum capital lease payments are as follows as of March 31,
1998:
1999 $ 20,371
2000 17,783
2001 10,146
2002 8,665
2003 4,667
61,632
Amount representing interest (13,276)
Present value of capital lease payments 48,356
Current maturities 16,463
Obligations under capital leases
less current maturities $ 31,893
(e) Royalties
Under the terms of an agreement with former officers and directors of
the Company, UPI pays royalties equal to between three percent and five
percent of the net sales of certain products, subject to a specified
monthly minimum of $4,500. The royalties payable under this agreement will
continue for the longer of the term of the patent or ten years from the
date of this agreement, which began in November, 1993. Total expense
recognized under the agreement was $147,860 and $110,495 for the years
ended March 31, 1998 and 1997, respectively.
Under the terms of a settlement agreement for a patent suit brought
by a competitor in 1991, UPI is obligated to pay the plaintiff a royalty
equal to five percent of the net sales of certain products in the United
States, or a minimum of $50,000 per year as long as the products are being
marketed abroad. Total expense recognized under the agreement was $50,000
for each of the years ended March 31, 1998 and 1997.
(f) Contingencies
The Company, as of March 31, 1998, is not party to any material
pending legal proceedings; however, because of the nature of its business,
it may become subject to certain claims and lawsuits filed in the ordinary
course of business that could adversely affect the Company's financial
position.
(5) Income Taxes
The components of income tax expense for each of the years in the
two-year period ended March 31, 1998 consist of the following:
1998 1997
Income tax provision:
Current:
U.S. and state $ 1,000 -
Foreign 111,000 -
Total income tax expense $ 112,000 -
Effective tax rates differ from statutory federal income tax rates
for the year ended March 31, 1998 and 1997 as follows:
1998 1997
Statutory federal income tax rate 34.0% 34.0%
State income taxes, net of federal benefit (1.2) 2.0
Valuation allowance decrease (22.6) (36.0)
Other permanent differences 2.0 0.0
Impact of foreign operations 9.6 0.0
21.8% 0.0%
Deferred taxes as of March 31, 1998 and 1997 consist of the
following:
1998 1997
Deferred tax assets:
Other reserves and accruals $ 14,000 8,000
Deferred profit on intercompany sales 208,000 300,000
Net operating loss carryforwards 1,001,000 1,031,000
1,223,000 1,339,000
Less valuation allowance (1,223,000) (1,339,000)
$ - -
At March 31, 1998, the Company had U.S. net operating loss
carryforwards (NOL) of approximately $2,061,000 for U.S. income tax
purposes, which begin to expire in 2012, and a foreign NOL of
approximately $739,000, which carries forward indefinitely. U.S. net
operating loss carryforwards cannot be used to offset taxable income in
foreign jurisdictions. In addition, U.S. tax rules impose limitations on
the use of net operating losses following certain changes in ownership.
Such a change in ownership may limit the amount of these benefits that
would be available to offset future taxable income each year, starting with
the year of ownership change.
The Company has not reflected any benefit of such net operating loss
carryforwards in the accompanying financial statements in accordance with
Financial Accounting Standards Board Statement No. 109.
(6) Major Customers and Domestic and Foreign Operations
During fiscal 1998 and 1997, approximately 12% and 14% of the
Company's net sales were to one customer.
Information regarding operations in different geographies for the
years ended March 31, 1998 and 1997 is as follows:
<TABLE>
<CAPTION>
United Adjustments
States Europe and eliminations Consolidated
Fiscal 1998
<S> <C> <C> <C> <C>
Sales to unaffiliated customers $ - 6,335,002 (1,999,094) 4,335,908
Income from operations (719,552) 1,056,408 324,786 661,642
Other income (expense) 99,104 (240,649) (396) (141,941)
Net income (loss) (621,010) 704,461 324,390 407,841
Identifiable assets at
March 31, 1998 $3,919,360 2,391,218 (3,029,034) 3,281,544
Fiscal 1997
Sales to unaffiliated customers $ - 3,972,740 (638,177) 3,334,563
Income from operations 201,931 909,960 (735,687) 376,204
Other income (expense) 29,764 57,058 (244,805) (157,983)
Net income 231,694 967,024 (980,497) 218,221
Identifiable assets at
March 31, 1997 $4,434,731 3,032,906 (5,428,932) 2,038,705
(7) Liquidation Loss on Foreign Subsidiary-Prior Period Adjustment
In 1997, the Company liquidated its interest in a wholly owned
foreign subsidiary and recognized a net gain of $59,245 in the statement of
operations. However, cumulative translation losses of $71,552 related to
the Company's net investment in this subsidiary were excluded from the gain
or loss on liquidation.
Statement of Financial Accounting Standards No. 52, Foreign Currency
Translation, requires that upon complete or substantial liquidation of an
investment in a foreign entity, the amount attributable to that entity and
accumulated in the translation adjustment component of equity shall be
removed from the separate component of equity and shall be reported as part
of the gain or loss on sale or liquidation of the investment for the period
during which the sale or liquidation occurs.
Accordingly, the net loss on liquidation charged to other income in
1997 is $12,307, or $.02 per common share, rather than previously reported
net gain on liquidation of $59,245. At March 31, 1997 this adjustment
reduces previously reported 1997 net income by $71,552, or $.02 per common
share, and increases the accumulated deficit, which increase is offset
within shareholders' equity by an equivalent reduction in the cumulative
translation adjustment.
UNAUDITED FINANCIAL STATEMENTS for the Three Months Ended June 30, 1998
UROPLASTY, INC. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<CAPTION>
June 30, 1998 March 31, 1998
_________________ ______________
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 4,385,459 $ 889,541
Accounts receivable trade 795,096 766,835
Inventories 377,208 294,424
Prepaid expenses 209,945 184,628
_________ _________
Total Current Assets 5,767,708 2,135,428
--------- ---------
Property, Plant and Equipment 1,351,801 1,261,059
Less accumulated depreciation
and amortization (256,046) (216,529)
_________ _________
1,095,755 1,044,530
--------- ---------
Intangible assets, net of
accumulated amortization 108,445 101,586
_________ _________
TOTAL ASSETS $ 6,971,908 $ 3,281,544
========= =========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C> <C>
Current Liabilities
Accounts payable $ 331,660 $ 358,782
Accrued liabilities
Compensation and payroll taxes 56,724 81,526
Royalties 25,800 16,900
Other 141,869 116,755
Current maturities - long term debt 51,556 47,219
_________ _________
Total Current Liabilities 607,609 621,182
--------- ---------
Long term debt - less current maturities 623,587 609,606
Total Liabilities 1,231,196 1,230,788
--------- ---------
Shareholders' equity
Common stock $.01 par value;
Authorized 20,000,000 shares
Issued and outstanding - 5,917,371 and
4,191,525 shares at June 30 and
March 31, 1998, respectively. 59,174 41,915
Additional paid in capital 5,829,964 2,432,599
Accumulated deficit (7,395) (256,629)
Cumulative translation adjustment (136,031) (162,129)
Note receivable shareholder (5,000) (5,000)
__________ __________
Total Shareholders' Equity 5,740,712 2,050,756
---------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS' __________ __________
EQUITY $ 6,971,908 $ 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
June 30
1998 1997
__________ __________
<S> <C> <C>
Net sales $ 1,315,700 $ 1,149,239
Cost of goods sold 261,587 236,623
__________ __________
Gross profit 1,054,113 912,616
Operating expenses:
General and administrative 242,553 206,894
Research and development 218,141 134,228
Selling and marketing 331,887 217,159
__________ __________
792,581 558,281
---------- ----------
Operating profit 261,532 354,335
Other income (expense)
Interest income 15,754 1,167
Interest expense (8,829) (8,757)
Foreign currency exchange gain (loss) 18,905 (71,095)
Other (3,532) 0
---------- ----------
22,298 (78,685)
Income pretax 283,830 275,650
Income tax expense 34,596 36,958
__________ __________
Net income $ 249,234 $ 238,692
========== ==========
Net income per common share $0.05 $0.07
Net income per common share
assuming dilution $0.05 $0.06
Weighted average common shares
outstanding:
Basic 4,740,237 3,649,525
Diluted 5,079,455 3,916,073
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
UROPLASTY, INC. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<CAPTION>
Three months ended
June 30
1998 1997
__________ __________
<S> <C> <C>
Cash flows from operating activities:
Net income $ 249,234 $ 238,692
Adjustments to reconcile net income
to net cash provided by operations:
Depreciation and amortization 45,914 46,628
Changes in operating assets and
liabilities
Accounts receivable (28,261) (229,362)
Inventories (82,784) 18,888
Prepaid expenses (25,317) 10,863
Accounts payable (27,122) 106,049
Accrued liabilities 9,212 (5,110)
- - ------------------------------------------------------------------------
Net cash provided by operating activities 140,876 186,648
- - ------------------------------------------------------------------------
Cash flows from investing activities:
Payments for property, plant and equipm. (90,742) (58,613)
Payments relating to intangible assets (13,256) (8,103)
- - ------------------------------------------------------------------------
Net cash used in investing activities (103,998) (66,716)
- - ------------------------------------------------------------------------
Cash flows from financing activities:
Repayment of long-term obligations (14,087) (10,081)
Proceeds from issuance of notes payable 16,883 0
Net proceeds from issuance of stock 3,414,624 0
- - ------------------------------------------------------------------------
Net cash provided by (used in)
financing activities 3,417,420 (10,081)
- - ------------------------------------------------------------------------
Effect of exchange rates on
cash and cash equivalents 41,620 (5,260)
- - ------------------------------------------------------------------------
Net increase in cash and cash
equivalents 3,495,918 104,591
Cash and cash equivalents at beginning
of period 889,541 814,603
- - ------------------------------------------------------------------------
Cash and cash equivalents at end
of period $ 4,385,459 $ 919,194
- - ------------------------------------------------------------------------
<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 June 30, 1998 and for
the three months ended June 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:
June 30, 1998 March 31, 1998
_____________ ______________
Raw materials $ 43,627 $ 47,891
Work-in-process 178,553 118,973
Finished goods 155,028 127,560
________ ________
$377,208 $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 $3,400,000. 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.
<PAGE>
UROPLASTY, INC. and Subsidiaries
THIS PROSPECTUS DOES NOT 1,702,950
CONSTITUTE AN OFFER TO BUY ANY SHARES OF COMMON STOCK
SECURITIES OTHER THAN THE
SECURITIES TO WHICH IT RELATES.
THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO ANYONE IN UROPLASTY, INC.
ANY JURISDICTION IN WHICH SUCH
OFFER OR SOLICITATION IS NOT
AUTHORIZED OR IN WHICH THE
PERSON MAKING SUCH OFFER OR
SOLICITATION IS NOT QUALIFIED TO
DO SO, OR TO ANY PERSON TO WHOM
IT IS UNLAWFUL TO MAKE SUCH
OFFER OR SOLICITATION.
ALL INFORMATION CONTAINED PROSPECTUS
HEREIN IS AS OF THE DATE OF THIS
PROSPECTUS, AND NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR
ANY SALES MADE HEREUNDER SHALL,
UNDER ANY CIRCUMSTANCES, IMPLY
THAT THERE HAS BEEN NO CHANGE IN
THE AFFAIRS OF THE COMPANY SINCE
SUCH DATE.
BROKERS OR DEALERS EXECUTING
A TRANSACTION ON BEHALF OF A
SELLING SHAREHOLDER MAY BE
REQUIRED TO DELIVER A
PROSPECTUS.
September ,1998
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Directors and Officers.
Section 302A.521, Subd. 2., Minnesota Statutes, requires the Registrant to
indemnify its directors, officers and employees against liabilities
incurred as a result of legal proceedings, unless the Registrant's Articles
or Bylaws provide otherwise. Article Five of the Registrant's Bylaws,
incorporated by reference as Exhibit 3.2, requires indemnification to the
full extent required by Minnesota law. The general effect of such
provisions is to relieve the directors and officers of the Registrant from
personal liability which may be imposed for certain acts performed in their
capacity as directors or officers of the Registrant.
Item 25. Other Expenses of Issuance and Distribution.
The estimated expenses of the Registrant in connection with the
registration of the securities covered hereby are set forth in the
following table:
SEC Registration Fee $ 1,633
Blue Sky Registration Fees 2,000
NASD Filing Fee 1,732
Transfer agent 1,000
Printing and engraving 2,000
Legal 5,000
Accounting 5,000
Miscellaneous 1,635
Total: $ 20,000
Note: All of such expenses will be paid by the Registrant, and none by
the Selling Shareholders. The foregoing estimated expenses do not include
any commissions or expenses payable by the Selling Shareholders on their
own behalf.
Item 26. Recent Sales of Unregistered Securities.
During the period of three or more years since June 30, 1995, the
Registrant has sold securities not registered under the Securities Act in
the transactions described below.
1. In November, 1995, the Registrant sold 1,000,000 shares of its Common
Stock to one accredited investor, Bruce P. Mindich, for $500,000 in cash
and short-term notes pursuant to a private placement.
2. In August, 1996, the Registrant sold 100,000 shares for $100,000
to one investor, ABS, a French corporation, for cash pursuant to a private
placement.
3. During the period October,1996, through June 1998, the Registrant sold
116,000 shares to various employees upon exercise of stock options.
4. In October,1996 the Registrant sold 60,000 shares to Precision Optics
Corporation pursuant to the conversion of a promissory note.
5. In July, 1997, the Registrant sold 496,000 shares to a group of
investors upon conversion of a promissory note. See Item 12 of Form
10-KSB for the fiscal year ended March 31, 1998, or Certain Transactions in
the Prospectus which is part of this Registration Statement.
6. In May and June, 1998, the Registrant sold 1,702,950 shares of its
Common Stock for an aggregate of $4,044,506.20 to a group of accredited
investors (identified in the Selling Shareholders section of the Prospectus)
for cash pursuant to a private placement. As part of the transaction,
the Registrant paid to R.J. Steichen & Co., as Placement Agent, an Agent's
commission of $404,450.62 (10% of gross proceeds) and a non-accountable
expense allowance of $121,335.18 (3% of gross proceeds).
Except for item no. 6, there were no underwriting discounts or sales
commissions paid by the Registrant as part of any such transactions.
All securities transactions identified above were made in reliance upon the
exemptions from registration under either or both of 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 subscription agreements recited that the purchases were
made for investment purposes only).
Item 27. Exhibits.
(a) The following Exhibits are incorporated by reference to the
Registrant's Registration Statement on Form 10-SB, filed July 10, 1996:
2.1 First Amended Joint Plan of Reorganization (Modified), of the
Registrant, dated January 31, 1994. (Filed as Exhibit 8.2 to Form10SB)
3.1 Articles of Incorporation of Uroplasty, Inc. (Filed as Exhibit 2.1 to
Form 10SB)
3.2 Bylaws of Uroplasty, Inc. (Filed as Exhibit 2.2 to Form 10SB)
4.1 Form of Stock Certificate of the Registrant, representing shares of
the Registrant's common stock. (Filed as Exhibit 3.1 to Form 10SB)
10.1 Settlement Agreement and Release dated November 30, 1993 by and
between Bioplasty, Inc., Bio-Manufacturing, Inc., Uroplasty, Inc., Arthur
A. Beisang, Arthur A. Beisang, III, MD and Robert A. Ersek, MD. (Filed as
Exhibit 6.1 to Form 10SB)
10.2 Purchase and Sale Agreement dated December 1, 1995 by and among
Bio-Vascular, Inc., Bioplasty, Inc. and Uroplasty, Inc. (Filed as Exhibit
6.2 to Form 10SB)
10.3 License Agreement dated December 1, 1995 by and among Bio-Vascular,
Inc. and Uroplasty, Inc. (Filed as Exhibit 6.3 to Form 10SB)
10.4 Lease Agreement dated January 10, 1995 between Summer Business Center
Partnership and Uroplasty, Inc. (Filed as Exhibit 6.4 to Form 10SB)
10.5 Unsecured $640,000 Promissory Note dated March 30, 1994 by and between
Bioplasty, Inc., Uroplasty, Inc. and Bioplasty Product Claimants' Trust.
(Filed as Exhibit 6.5 to Form 10SB)
10.6 Agreement and Satisfaction dated January 30, 1995 by and between
Bioplasty Product Claimants' Trust and Bioplasty, Inc. (Filed as Exhibit
6.6 to Form 10SB)
10.7 Asset Sale and Satisfaction of Debt Agreement dated June 23, 1995 by
and between Bioplasty, Inc. and Uroplasty, Inc. (Filed as Exhibit 6.7 to
Form 10SB)
10.8 Executory Contract Assumption Stipulation dated December 28, 1993 by
and between Bioplasty, Inc., Uroplasty, Inc. and Collagen Corporation.
(Filed as Exhibit 6.8 to Form 10SB)
10.9 Settlement and License Agreement dated July 23, 1992 by and between
Collagen Corporation, Bioplasty, Inc. and Uroplasty, Inc. (Filed as
Exhibit 6.9 to Form 10SB)
(b) The following exhibits were previously filed as part of this Registration
Statement:
21.1 Subsidiaries of the Registrant (Incorporated by reference to Exhibit
21.1 to the Registrant's Annual Report on Form 10-KSB for the fiscal
year ended March 31, 1998).
23.1 Consent of KPMG Peat Marwick LLP - Independent Auditor.
24.1 Form of Power of Attorney, running from each of the Registrant's
directors namely Joel R. Pitlor, R. Patrick Maxwell, Carolyn A.
Bruhjell, and Daniel G. Holman to Daniel G. Holman CEO, CFO, Chairman
and President and Susan Hartjes-Doherty, Vice President of Operations and
Regulatory Affairs, of the Registrant, respectively, with respect to
signing of this Registration Statement and any amendments.
27.1 Financial Data Schedule (Incorporated by reference to Exhibit 27.1 to
the Registrant's Annual Report on Form 10-KSB for the fiscal year ended
March 31, 1998).
(c) The following exhibits are filed as part of this Amendment No. 1 to
Registration Statement:
*2.2 Order Confirming First Amended Plan of Reorganization (Modified)
dated January 31, 1994; issued by the United States Bankruptcy
Court, District of Minnesota.
*5.1 Opinion of Keller & Lokken, P.A. regarding legality of securities
being registered.
*10.10 Form of employment agreement between the Registrant and two of its
officers (Messrs. Willem and Harris).
*23.1 Consent of KPMG Peat Marwick LLP - Independent Auditor.
*23.2 Consent of Keller & Lokken, P.A. Contained in Exhibit 5.1 to this
Registration Statement.
27.1 Financial Data Schedule (Incorporated by reference to Exhibit 27.1 to the
Registrant's Quarterly Report on Form 10Q-SB for the period ended June
30, 1998.
*Included with this filing
Item 28. Undertakings.
a. Rule 415 Offering [Item 512(a) of Regulation S-B] The small business
issuer will:
(1) File, during any period in which it offers or sells securities, a
post-effective amendment to this registration statement to:
(i) Include any prospectus required by section 10(a)(3) of the Securities
Act of 1933 (the "Securities Act");
(ii) Reflect in the prospectus any facts or events which, individually or
together, represent a fundamental change in the information in the
registration statement; and
(iii) Include any additional or changed material information on the plan of
distribution.
(2) For determining liability under the Securities Act, treat each
post-effective amendment as a new registration statement of the securities
offered, and the offering of the securities at that time to be the initial
bona fide offering.
(3) File a post-effective amendment to remove from registration any of the
securities that remain unsold at the end of the offering.
b. Request for Acceleration of Effective Date [Item 512(e) of
Regulation S-B]:
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
small business issuer pursuant to the foregoing provisions, or otherwise,
the small business issuer has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the small business issuer of expenses incurred
or paid by a director, officer or controlling person of the small business
issuer in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with
the securities being registered, the small business issuer will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question
whether such indemnification by it is against public policy as expressed in
the Securities Act and will be governed by the final adjudication of such
issue.
Signatures
In accordance with the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it
meets all of the requirements for filing on Form SB-2 and authorized this
Amendment No. 1 to Registration Statement to be signed on its behalf by
the undersigned, in the City of Minneapolis, State of Minnesota, on
September 22, 1998.
UROPLASTY INC.
/s/ Daniel G. Holman
By: Daniel G. Holman,
Chairman,President, CEO, CFO
In accordance with the requirements of the Securities Act of 1933, this
Amendment No. 1 to Registration Statement has been signed by the following
persons in the capacities and on the dates stated.
Signature Title Dated:
/s/ Daniel G. Holman Chairman, President, September 22, 1998
Daniel G. Holman CEO and CFO (Principal
executive officer, principal
financial officer and principal
accounting officer)
* Director )
Joel R. Pitlor )
)
)
* Director )
R. Patrick Maxwell )
)
)
Director ) By: /s/ Daniel G. Holman
Alex Gerwer ) Daniel G. Holman
) Attorney-in-Fact
September 22, 1998
* Executed by Daniel G. Holman as Attorney-in-Fact
UNITED STATES BANKRUPTCY COURT
DISTRICT OF MINNESOTA
FOURTH DIVISION
In re:
BKY 4-93-02600
Bioplasty, Inc., a
Minnesota corporation,
Debtor,
In re:
BKY 4-93-02603
Bio-Manufacturing, Inc., a
Minnesota corporation,
Debtor,
In re: BKY 4-93-02604
Uroplasty, Inc., a
Minnesota corporation,
Debtor.
ORDER CONFIRMING FIRST AMENDED PLAN OF REORGANIZATION
(MODIFIED) DATED JANUARY 31,1994
This matter came before the Court on the 31st day of January, 1994, for
hearing on confirmation of the First Amended Plan Of Reorganization
(Modified) dated January 10, 1994 (the "Plan") filed by Bioplasty, Inc.
("Bioplasty"), Bio-Manufacturing, Inc. ("Bio-Manufacturing"), and
Uroplasty, Inc. ("Uroplasty") (collectively the "Debtors").
Richard D. Holper appeared on behalf of Bioplasty and Bio-Manufacturing
at the hearing on confirmation of the Plan (the "Confirmation Hearing").
William I. Kampf appeared on behalf of Uroplasty. Robert B. Raschke
appeared on behalf of the Committee of Unsecured Creditors and Steven D.
DeRuyter appeared on behalf of the Committee of Future Product Liability
Claimants (the "Committees"). Charles S. Zimmerman, counsel for the
Class of Current Product Liability Claimants and Chair of the Committee
of Unsecured Creditors appeared as did Michael T. Kallas, counsel for
Allen Putnam. Other appearances were as noted in the record.
At the Confirmation Hearing the Debtors introduced the exhibits noted in
the record and presented testimony in support of confirmation through
Sandra Ferrian, Esq., General Counsel for the Debtors. In addition the
Debtors presented a motion to make certain modifications to the Plan to
cure inconsistencies in the Plan and orally moved the Court for an Order
approving certain additional modifications to the Plan. The additional
modifications reflect the terms of an agreement entered into among the
Debtors and the Committees at the Confirmation Hearing. Under this
agreement the Committees withdrew their objections to the Plan, subject
to modification of the Plan to reflect the modifications placed into the
record at the Confirmation Hearing.
NOW THEREFORE: Based upon the testimony and the exhibits introduced at
the Confirmation Hearing, the memoranda filed in the Cases, the
arguments of counsel and all files, records and proceedings herein, and
incorporating herein defined terms utilized in the Modified Plan and
Title 11 of the United States Code, the Court makes the following:
FINDINGS OF FACT:
1. As directed by the Court at the hearing on confirmation, the
Debtors incorporated the agreed upon modifications into a First Amended
Joint Plan of Reorganization (Modified) dated January 31, 1994 (the
"Modified Plan"). Further, as directed by the Court, the Debtors
reviewed the Modified Plan with counsel for the Committees and filed the
Modified Plan with the Court.
2. The Modified Plan requires that any payment made or to be made for
services rendered or for fees and expenses incurred in connection with
the Cases or the Modified Plan, has been approved by, or is subject to
the approval of, the Court as reasonable.
3. The Debtors have disclosed the identity and affiliations of the
directors or officers of the reorganized Debtors, New Bioplasty, and New
Uroplasty. In addition to the individuals identified by the Debtors as
directors, the Boards of Directors of the Debtors after confirmation
will include representatives of the unsecured creditors and the product
claimants, as identified in the Modified Plan. Those directors, as well
as the directors identified at the Confirmation Hearing, will appoint
one director at large. The appointment to, or continuance in office by
each individual designated as an officer or director of the reorganized
Debtors is consistent with the interests of creditors, equity security
holders, and with public policy.
4. The Debtors have disclosed the identity of any Insiders who will
be employed or retained by the reorganized Debtors as well as the nature
of any compensation for such Insiders.
5. The Debtors are not subject to regulation by any governmental
regulatory conimission with respect to rates charged by the Debtors.
6. Each holder of a claim or interest in a class which is an impaired
class under the Modified Plan has either accepted the Modified Plan, or
will receive or retain under the Modified Plan on account of such claim
or interest, property of a value, as of the Effective Date of the
Modified Plan, that is not less than the amount that such holder would
so receive or retain if the Debtors were liquidated under Chapter 7 of
Title 11 of the United States Code on the Effective Date.
7. Class 3(a), an impaired class under the Modified Plan, has
accepted the Modified Plan. Acceptance by this class has been
determined without including any acceptance of the Modified Plan by any
Insider.
8. Confirmation of the Modified Plan is not likely to be followed by
the liquidation, or the need for further financial reorganization of New
Bioplasty or New Uroplasty, except to the extent provided in the
Modified Plan.
9. All fees payable under 28 U.S.C. Section 1930, have been paid, or the
Modified Plan provides for the payment of all such fees on the Effective
Date.
10. The Debtors do not have any Retiree Benefits.
11. Under the Modified Plan no holder of a claim or interest that is
junior to the impaired, rejecting Class 3(b), will receive or retain any
property on account of such junior claim or interest.
12. The Debtors have proposed the Modified Plan in good faith and not
by any means forbidden by law.
CONCLUSIONS OF LAW
1. The Debtors have complied with applicable provisions of Title 11
of the United States Code in connection with the Modified Plan.
2. The modifications to the Plan, evidence by the Modified Plan and
the actions taken by the Debtors in connection therewith, comply with
the requirements of 11 U.S.C. Section 1127 and Bankruptcy Rule 3019.
3. The Modified Plan complies with applicable provisions of Title 11
of the United States Code.
4. The Modified Plan classifies and treats administrative claims,
priority claims, and priority tax claims in accordance with 11 U.S.C.
Section 1129(a)(9).
5. The Modified Plan does not discriminate unfairly, and is fair and equitable
with respect to each class of claims or interests impaired thereunder
which has not accepted the Modified Plan.
6. All applicable requirements of 11 U.S.C. Section 1129(a), other
than as contained in 11 U.S.C. Section 1129(a)(8), have been met.
IT IS ORDERED THAT
1. The Plan may be modified to incorporate the modifications which
were placed into the record orally during the Confirmation Hearing.
2. The First Amended Joint Plan of Reorganization (Modified), dated
January 31, 1994, is confirmed.
3. Any objections to confirmation, which have not been withdrawn, are
overruled.
4. All Product Claims against the Debtors, as that term is defined in
the Modified Plan (including without limitation claims of injury and
damages by users of products designed, manufactured, or sold by the
Debtors prior to the Petition Date, persons who were damaged by an
alleged conspiracy in which one or more Debtors were involved; spouses,
dependents or others entitled to assert related claims; and co-
defendants, sales representatives, distributors, clinics, physicians, or
any other entity alleging a right to recover for their own injury or
damage or for any claim for contribution or indemnity arising in any way
out of the design, manufacture, sale, warranty, promotion, warnings, or
industry practices consumer liabilities, fraud or misrepresentation or
any other theory of liability related to any product sold by Debtors
regardless of whether such claim has matured), that arose out of the
Debtors' design, manufacture or sale of a product prior to the Petition
Date, are discharged; provided, however, the foregoing discharge of the
Debtors shall not discharge or release claims against co-defendants,
sales representatives, distributors, clinics, or any other entity that
may be liable under applicable law.
5. On the Confirmation Date:
(A) The Debtors are discharged from all Claims and Debts to the extent
provided in 11 U.S.C. Section 1141.
(B) the consideration paid into the Trust provided for under the
Modified Plan shall satisfy in full all Allowed Products Claims and
costs and expenses of the Trust.
6. All executory contracts and unexpired leases assumed by the
Debtors during the Cases or under the Modified Plan shall remain in full
force and effect for the benefit of New Bioplasty or New Uroplasty,
notwithstanding any provision in such contracts or leases which
prohibits such assignment or transfer.
7. The Newly Issued Stock, to be issued pursuant to the Modified Plan
as the Class 3 Stock Distribution, the Employee Stock, and the
Settlement Stock is exempt from the registration requirements of the
Securities Act of 1933, as amended, and any State or local law requiring
registration for the offer or sale of a security or licensing of an
issuer, underwriter, broker, or dealer under 11 U.S.C. Section 1145.
8. The funds raised pursuant to the Private Placement will not become
property of the reorganized Debtors until the Effective Date.
9. New Bioplasty and New Uroplasty are authorized to make all
distributions contemplated under the Modified Plan.
10. Except as otherwise provided in the Modified Plan, all property of
the Debtors' estates vest in the reorganized Debtors.
11. The Court shall retain jurisdiction over the Cases to the extent
set forth in the Plan or the Product Claimants Trust Agreement. In
addition the order of the Court dated and entered on December 15, 1993,
authorizing the Committee of Unsecured Creditors to pursue on behalf of
the Debtors the avoidance action described therein, shall survive
confirmation of the Modified Plan. Any compensation to Professional
Persons relating to such avoidance action shall only be paid from the
proceeds thereof and only with prior approval of the Court.
Dated this 4th day of February, 1994.
BY THE COURT:
/s/ NANCY DREHER
______________________________
The Honorable Nancy Dreher
United States Bankruptcy Judge
September 22, 1998
Uroplasty, Inc.
2718 Summer Street N.E.
Minneapolis, MN 55413
Re: Sale of up to 1,702,950 Shares of Common Stock by Selling
Shareholders
Dear Sir/Madam:
We have acted as legal counsel to Uroplasty, Inc. (the "Company") in
connection with the proposed offer and sale by selling shareholders of up to
1,702,950 shares (the "Shares"). The shares will be issued and sold by selling
shareholders pursuant to the terms and conditions set forth in the
Registration Statement, dated July 8, 1998, Registration No. 333-58887, as
amended (the "Registration Statement").
In our capacity as legal counsel to the Company, we have examined the
following:
1. Articles of Incorporation of the Company, as amended.
2. Bylaws of the Company, as amended.
3. Certain corporate resolutions of the Company's Board of
Directors, including, without limitation, resolutions dated as
of May 14, 1998.
Based upon our review of the foregoing documents, we are of the opinion
that:
1. The Company has been duly incorporated under the laws of the
State of Minnesota and is now a validly organized and existing
corporation under the laws of the State of Minnesota and had,
at the time of issuance, the corporate authority to issue the
Shares.
2. The Shares have been validly issued, fully paid and are
nonassessable.
We hereby consent to the filing of this opinion as Exhibit 5.1 to the
Registration Statement, to its use as a part of the Registration Statement and
to the use of our name under the caption "Legal Matters" in the Prospectus
which forms part of the Registration Statement.
Very truly yours,
Richard P. Keller
RPK/clm
EMPLOYMENT AGREEMENT
The undersigned:
Uroplasty BV, seated at Maastricht and with its place of business at
Maastricht, Hertogsingel 54, hereinafter referred to as "the Company",
and,
Mr. , residing at , hereinafter to be
referred to as "the Employee",
declare to have entered into the following employment agreement:
1.0 Function`
1.1 The Employee enters into the employment of the Company as starting
on and agrees to perform to the best of his/her abilities all the duties
which may reasonably be assigned to him/her by or on behalf of the
Company, and to follow thereby the instructions which shall be given
to him/her by or on behalf of the Company.
1.2 The Employee shall put in every effort in order to further the
interests of the Company.
1.3 Employees responsibilities would include, but would not be limited
to the following:
2.0 Duration of the employment
2.1 This agreement is entered into for a period of 12 months. After
this period the agreement can be terminated by force of law without
notice being required on . After this year
the agreement can also be renewed for an indefinite period of time.
2.2 The first two months after the Employee has begun duties shall be
considered as a trial period. During this trial period either party
shall have the right to terminate the agreement with immediate effect.
3.0 Termination
3.1 If the interest of the Company so requires, the Company is entitled
to order the Employee to refrain from active duty.
3.2 The agreement can at any time be immediately terminated without a
termination period being taken into account in the event that an urgent
cause for instantaneous dismissal should occur.
3.3 Both the Employee and the Company can terminate the agreement.
For the employee the termination period is two months.
4.0 Salary and benefits
4.1 The salary before taxes is dfl. per month, payable in
arrears at the bank account of the Employee.
4.2 In the month of May a vacation benefit shall be paid equal to 8%
of the annual salary before taxes (in the first year 8% of a portion
of the annual salary).
4.3 The employee shall be entitled to a vacation of 25 working days
per year.
5.0 Duty of secrecy at present
5.1 The Employee shall, both during the term of this Agreement and
after this Agreement has been terminated for whatever reason, refrain
from disclosing in any manner to whomsoever (including to other
members of the Companies or any of its associated Companies' staff,
unless such staff members must be informed in connection with their
work for the Company or any of its associated Companies and in such event only
upon the expressed authorization of the Company) any information of a
confidential nature conc of her employment with the Company and with
respect to which information the Employee knew or should have known the
confidential nature.
5.2 In the event the Employee breaches the obligations pursuant to
section 1 of this article 5, the Employee shall, without any notice
of default being required, forfeit to the Company liquidated damages
for each breach thereof, amounting to 3 times the Employee's most
recent monthly salary before taxes, without prejudice to the Company's
rights to claim actual damages instead of liquidated damages.
6.0 Documents
6.1 The employee shall not have or keep in his/her private possession
any documents or correspondence or copies thereof in any manner
whatsoever, that are available to the Employee as a result of her
employment, except in so far as and for as long as necessary for the
performance of his work for the Company. In any event the Employee
shall, promptly and without the need for any request to be made in
this regard, return to the Company any and all such documents,
correspondence or copies thereof at the termination of the employment
or at the retirement of the Employee for whatever reason from active
duty.
7.0 Non competition during employment and no additional occupation
7.1 The employee shall during the term of this agreement not be engaged
or involved in any manner whether for payment or for her own account in
activities in a field similar to or otherwise competing with that of the
Company or any of its associated Companies.
8.0 Non competition
8.1 The employee shall during the term of this Agreement and during the
term of one year after this agreement has terminated not be engaged or
involved in any manner, directly or indirectly, whether for the account
of the Employee or for the account of others, in any enterprise carrying
on activities in the field of injectable or implantable products for
urinary incontinence.
8.2 In the event the Employee shall breach the obligations as expressed
in this article, the Employee shall forfeit liquidated damages for
every such breach to the extent of 2 times the Employees most recent
monthly salary before taxes, plus dfl. 500,- for each day such breach
continues after notice of the discovery thereof as been given by the
Company, without prejudice to the Company's right to claim actual
damages instead of liquidated damages.
9.0 No gifts
9.1 The Employee shall, without the prior consent of the Company during
the term of this agreement, not accept or stipulate in connection with
the performance of the duties of the Employee any commission, favor,
compensation, or gifts in whatever form, in any manner, directly or
indirectly, from customers, suppliers or other third parties.
9.2 The provision of this article does not apply to the customary
business gifts of small value.
10.0 Patent assignment by employee
In consideration of employment by Uroplasty B.V. and monies paid to the
employee through salary and other benefits, the undersigned herein
agrees to disclose promptly to the corporation or any subsidiary or
affiliate company, or nominee thereof, every disclosure, improvement
and invention made, conceived or developed by the employee during the
entire period of employment, either in the course of such employment
or with the use of Company's time, material or facilities, or
directly related to the business of the Company.
The undersigned further agrees to convey to the corporation or any
subsidiary affiliate or nominee thereof, the entire right, title or
interest, domestic and file which the employee may have in such
discoveries, improvements or inventions, or a lesser thereof at the
option of the Company, its subsidiaries or affiliates and does further
agree to sign all applications for subsidiaries or affiliates and other
appropriate documents and perform all acts and do all things necessary
to make this agreement effective.
11.0 Applicable law
11.1 This agreement is governed by the law of the Netherlands.
Thus agreed and executed in twofold at
Maastricht, on May 12, 1997
Uroplasty BV Mr.
Mr. D.G. Holman
Direkteur
Consent of Independent Auditors
The Board of Directors
Uroplasty, Inc.:
We consent to the use of our report included herein and to the
reference to our Firm under the headings "Selected Financial Data"
and "Experts" in the prospectus. Our report refers to a prior
period adjustment.
/s/ KPMG Peat Marwick LLP
-------------------------
Minneapolis, Minnesota
September 22, 1998
Exhibit 23.1