UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended December 31, 1998
Commission file number 000-20989
UROPLASTY, INC.
(Exact name of registrant as specified in its charter.)
Minnesota, U.S.A. 41-1719250
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2718 Summer Street NE,
Minneapolis, Minnesota 55413-2820
(Address of principal executive offices)
Registrant's telephone number, including area code:
(612) 378-1180
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the preceding 12 months
(or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the
past 90 days.
YES [X] NO [ ]
(APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS
DURING THE PRECEDING FIVE YEARS)
Check whether the registrant filed all documents and reports required to be
filed by Section 12,13 or 15(b) of the Exchange Act after the distribution of
securities under a plan confirmed by a court.
YES [ ] NO [ ] Not subject to Exchange Act at time [X]
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date: 5,918,371 on
February 16, 1999
Transitional Small Business Disclosure Format
YES [ ] NO [X]
<PAGE>
<TABLE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
UROPLASTY, INC. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<CAPTION>
December 31, 1998 March 31, 1998
_________________ ______________
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 1,793,724 $ 889,541
Marketable securities 1,496,175 0
Accounts receivable trade 795,257 766,835
Inventories 640,700 294,424
Prepaid expenses 168,075 184,628
Interest receivable 17,044 0
_________ _________
Total Current Assets 4,910,975 2,135,428
--------- ---------
Property, Plant and Equipment 1,644,988 1,261,059
Less accumulated depreciation
and amortization (356,165) (216,529)
_________ _________
1,288,823 1,044,530
--------- ---------
Marketable securities-Long Term 768,074 0
Intangible assets, net of
accumulated amortization 109,236 101,586
_________ _________
TOTAL ASSETS $ 7,077,108 $ 3,281,544
========= =========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C> <C>
Current Liabilities
Accounts payable $ 338,797 $ 358,782
Accrued liabilities
Compensation and payroll taxes 77,279 81,526
Royalties 33,700 16,900
Other 132,073 116,755
Current maturities - long term debt 54,945 47,219
_________ _________
Total Current Liabilities 636,794 621,182
--------- ---------
Long term debt - less current maturities 704,444 609,606
Total Liabilities 1,341,238 1,230,788
--------- ---------
Shareholders' equity
Common stock $.01 par value;
Authorized 20,000,000 shares
Issued and outstanding - 5,918,371 and
4,191,525 shares at December 31 and
March 31, 1998, respectively. 59,184 41,915
Additional paid in capital 5,781,595 2,432,599
Unrealized loss on marketable securities (9,538) 0
Accumulated profit (deficit) (68,401) (256,629)
Cumulative translation adjustment (21,970) (162,129)
Note receivable shareholder (5,000) (5,000)
__________ __________
Total Shareholders' Equity 5,735,870 2,050,756
---------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS' __________ __________
EQUITY $ 7,077,108 $ 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 Nine months ended
December 31 December 31
1998 1997 1998 1997
__________ __________ ___________ __________
<S> <C> <C> <C> <C>
Net sales $ 1,365,652 $ 1,108,051 3,875,891 3,174,654
Cost of goods sold 449,504 235,595 1,028,028 694,844
__________ __________ ___________ __________
Gross profit 916,148 872,456 2,847,863 2,479,810
Operating expenses:
General and administrative 311,865 239,076 857,794 714,142
Research and development 455,910 255,363 936,554 548,544
Selling and marketing 400,354 238,722 1,052,587 684,866
__________ __________ ___________ __________
1,168,129 733,161 2,846,935 1,947,552
---------- ---------- ----------- ----------
Operating profit (loss) (251,981) 139,295 928 532,258
Other income (expense)
Interest income 44,211 1,991 107,101 5,133
Interest expense (9,291) (2,205) (27,979) (11,676)
Liquidation gain on foreign subsidiary 39,565 0 39,565 0
Foreign currency exchange gain (loss) (43,927) (2,014) 19,876 (106,402)
Other 0 0 (3,532) 0
---------- ---------- ----------- ----------
30,558 (2,228) 135,031 (112,945)
Income (loss) pretax (221,423) 137,067 135,959 419,313
Income tax expense (benefit) (61,096) 51,176 (52,269) 100,831
__________ __________ ___________ __________
Net (loss)income $ (160,327) $ 85,891 $ 188,228 $ 318,482
========== ========== =========== ==========
Net income (loss) per common share $(0.03) $0.02 $0.03 $0.08
Net income (loss) per common share
assuming dilution $(0.03) $0.02 $0.03 $0.08
Weighted average common and potential
common shares outstanding:
Basic 5,918,371 4,170,525 5,528,182 3,975,358
Diluted 5,918,371 4,482,407 5,845,856 4,239,359
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
UROPLASTY, INC. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<CAPTION>
Nine months ended
December 31
1998 1997
__________ __________
<S> <C> <C>
Cash flows from operating activities:
Net income $ 188,228 $ 318,482
Adjustments to reconcile net income
to net cash provided by operations:
Depreciation and amortization 159,709 106,958
Amortization of premium and discounts
marketable securities, net (1,081) 0
Gain on liquidation of subsidiary (39,565) 0
Changes in operating assets and
liabilities
Accounts receivable (28,422) (125,829)
Inventories (346,276) 160,719
Prepaid expenses 16,553 (67,082)
Interest receivable (17,044) 0
Accounts payable (19,985) (3,431)
Accrued liabilities 27,871 26,225
- ------------------------------------------------------------------------
Net cash (used in) provided by
operating activities (60,012) 416,042
- ------------------------------------------------------------------------
Cash flows from investing activities:
Payments for property, plant and equipm. (383,929) (971,465)
Payments relating to intangible assets (27,723) (22,122)
Purchase of marketable securities (2,272,706) 0
- ------------------------------------------------------------------------
Net cash used in investing activities (2,684,358) (993,587)
- ------------------------------------------------------------------------
Cash flows from financing activities:
Repayment of long-term obligations (43,157) (472,775)
Proceeds from issuance of notes payable 75,007 684,549
Net proceeds from issuance of stock 3,366,265 453,959
- ------------------------------------------------------------------------
Net cash provided by
financing activities 3,398,115 665,733
- ------------------------------------------------------------------------
Effect of exchange rates on
cash and cash equivalents 250,438 (31,474)
- ------------------------------------------------------------------------
Net increase in cash and cash
equivalents 904,183 56,714
Cash and cash equivalents at beginning
of period 889,541 814,603
- ------------------------------------------------------------------------
Cash and cash equivalents at end
of period $ 1,793,724 $ 871,317
- ------------------------------------------------------------------------
<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 December 31, 1998 and for
the three and nine months ended December 31, 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) Forward-looking Statements
The Company may from time to time make written or oral "forward-
looking statements", including statements contained in this
Filing 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.
(3) Marketable Securities
The Company accounts for its marketable debt securities in accordance
with the provisions of Statement of Financial Accounting Standards No. 115
("SFAS 115"), "Accounting for Certain Investments in Debt and Equity
Securities". The Company's marketable debt securities are classified as
available-for-sale and are carried at fair value.
(4) Inventories
Inventories are summarized as follows:
December 31, 1998 March 31, 1998
__________________ ______________
Raw materials $ 144,033 $ 47,891
Work-in-process 303,141 118,973
Finished goods 193,526 127,560
________ ________
$ 640,700 $ 294,424
(5) Private Placement
On June 18, 1998, the Company completed a private placement of 1,702,950
shares of Common Stock at $2.375 per share, which resulted in net proceeds
to the Company of approximately $3,385,000. In connection with the private
placement, the Company issued warrants to purchase an aggregate of 150,000
shares of Common Stock at an exercise price of $2.375 per share. The
warrants are exercisable until June 18, 2003.
(6) Effective April 1, 1997, the Company adopted Statement of Financial
Accounting Standards No. 130 (SFAS No. 130), "Reporting Comprehensive Income."
SFAS No. 130 requires that an entity report a total for comprehensive income
in condensed financial statements of interim periods issued to shareholders.
For the three and nine month periods ended December 31, 1998 and 1997 the
net income (loss), items of other comprehensive income and comprehensive
income are as follows:
3 months ended
December 31, 1998 December 31, 1997
__________________ __________________
Net income (loss) $ (160,327) $ 85,891
Items of other comprehensive income:
Foreign currency translation (17,555) (9,102)
________ ________
Comprehensive income (loss) $ (177,882) $ 76,789
======== =======
9 months ended
December 31, 1998 December 31, 1997
__________________ __________________
Net income $ 188,228 $ 318,482
Items of other comprehensive income:
Foreign currency translation 140,159 (31,474)
________ ________
Comprehensive income $ 328,387 $ 287,008
======== ========
<PAGE>
UROPLASTY, INC. and Subsidiaries
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Overview
The Company was incorporated in Minnesota in 1992 as a wholly-owned
subsidiary of Bioplasty, Inc. ("Bioplasty"), a manufacturer of breast
implants. Bioplasty, along with other breast implant manufacturers,
became subject to numerous product liability class action lawsuits. As a
result, Bioplasty and the Company filed for protection under Chapter 11 of
the Federal Bankruptcy Code in 1993. The Company emerged from Chapter 11 in
February, 1994, as a separate and distinct entity from Bioplasty.
The Company sells Macroplastique(R) and the related ancillary products for
use in augmenting soft tissues for the purpose of treating urinary
incontinence. At this time, sales are only made outside the United States
because the Company does not have regulatory approval to market its
product in the United States.
The Company's current objectives are to focus on growth in sales and
market penetration of Macroplastique in the European market for urinary
incontinence and vesicoureteral reflux treatment, and to begin the U.S.
regulatory process for Macroplastique as a treatment for female stress
urinary incontinence.
The Company also sells the Macroplastique product in a different
configuration for plastic surgery applications under the name
Bioplastique(tm), in limited markets. In addition, the Company has been
selling some specialized wound care products in the Netherlands and Great
Britain as a distributor for Derma Sciences, Inc. (formerly Genetic
Laboratories, Inc.), pursuant to a written arrangement which provides for a
schedule of prices and involves the submission by the Company of purchase
orders to meet product demand.
Set forth below is management's discussion and analysis of financial
condition and results of operations for the three and nine months ended
December 31, 1998 and 1997.
Results of Operations
Sales were $3,875,891 for the nine months ended December, 31 1998 as compared
to $3,174,654 for the nine months ended fiscal 1998. This increase of
$701,237, or 22%, is the result of increased sales of the Macroplastique
product due to aggressively expanded overseas marketing activities. The
Macroplastique product line accounts for 93% of total sales. During the
three months ended December 31, 1998, net sales were $1,365,652 compared to
$1,108,051 for the same period last year, an increase of $257,601, or 23%.
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.
The gross margin percentage decreased from 79% for the three months ended fiscal
1998 to 67% for the three months ended fiscal 1999. This decrease is due to
increased import duties on components shipped from The United States to
The Netherlands where finished products are made and non-recurring costs
associated with manufacturing changes and new equipment installations.
The gross margin also includes a non-recurring charge of $38,000 for import
duties relating to previous quarters.
General and administrative costs increased 20% from $714,142 for the first
nine months of fiscal 1998 to $857,794 for the same period of fiscal 1999
and increased from $239,076 to $311,865, or 30%, for the three months ended
December 31 of fiscal 1998 and fiscal 1999, respectively. The increase of
the general and administrative expenses are primarily due to increased costs
of professional fees, shareholders expense and depreciation.
The FDA approval costs in the third quarter of fiscal 1999 were $238,588
compared to $0 in the third quarter of 1998 and for the nine months
ended December 31 of fiscal 1999, were $422,888 compared to $0 for the
same period last year. Other R&D expenses decreased 15% from $255,363 in the
third quarter of fiscal 1998 to $217,322 in the third quarter of fiscal
1999. Other R&D expenses decreased 6% from $548,544 for the nine months
ended December 31 of fiscal 1998 to $513,666 for the same period this year.
Increased spending for research and development projects is anticipated, along
with expenditures for the United States regulatory approval process.
During the nine months ended December 31, 1998, selling and marketing expenses
were $1,052,587 compared to $684,866 during the nine months ended December 31,
1997 and $400,354 and $238,722 for the three months ended December 31, 1998
and 1997 respectively. This increase of $367,721, or 54%, for the nine months
ended and $161,632, or 68%, for the three months ended is due to the addition
of five sales personnel and expanded presence at international and domestic
medical conferences to increase market awareness of Macroplastique.
The operating profit for the nine months ended December 31, 1998 was
$928, compared to $532,258 for the same period last year. The operating
loss for the three months ended December 31, 1998 was $251,981, compared to an
operating profit of $139,295 for the same period last year. The decrease is
primarily due to increased operating expenses, of which $422,888 relates
to FDA approval costs for the nine months ended December 31, 1998, partially
offset by increased sales.
Interest income increases reflect interest received on proceeds from the
private placement.
In December 1998, the Company liquidated its interest in the wholly owned
subsidiary in Belgium. The net gain of $39,565 is recognized in other
income.
Included in the income tax expense is a non-recurring income
tax refund of $60,503. The remaining balance on the income tax expense
account of $8,234 in the first nine months of fiscal 1999, compared to
$100,831 in the same period last year, relates to foreign tax on the profit
of foreign subsidiaries.
For the nine months ended December 31, 1998 net income totaled $188,228; this
includes a foreign currency exchange gain of $19,876 (which is more
favorable than the comparable period for 1997 because of a change in
exchange rates). Comparatively, the nine months ended December 31, 1997
showed $318,482 net income and a $106,402 foreign currency exchange loss.
For the three months ended December 31, 1998, net loss totaled $160,327;
this includes a foreign currency exchange loss of $43,927. Comparatively,
the three months ended December 31, 1997 showed a $85,891 net income and a
$2,014 foreign currency exchange loss.
Liquidity and Capital Resources
As of December 31, 1998, the Company had $1,793,724 in cash and cash
equivalents and $2,264,249 in marketable securities. The Company's
marketable securities are classified as available-for-sale and are carried
at amortized cost, which approximates fair value. The capital resources
are derived from the private placement proceeds and existing sales of the
Registrant's products.
On December 31, 1998 the inventory balance was $640,700, compared to a
balance of $294,424 on March 31, 1998. This is a result of managements'
intention to increase inventory levels in anticipation of increased sales.
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, its securities and its accounts
receivable balances. The Company expects that it can satisfy its cash
requirements and does not expect that it will have to raise additional funds
in the next twelve months.
The company expanded its manufacturing facility in The Netherlands with
the addition of new cleanrooms to increase manufacturing capacity.
In July 1998, a $58,242 Note Payable was issued to partially finance the
additional cleanrooms. This Note Payable has a fixed interest rate until
August 2003 of 5.6% per annum. After August 2003, the interest rate can be
adjusted by the bank. Monthly payments consist of $486 of principal plus
interest through August 2008.
The proceeds from the private placement in May and June, 1998 will be used
to pursue submissions, clinical studies and marketing approvals with the
U.S. Food and Drug Administration. The Company estimates that fourth quarter
fiscal 1999 funding of such activities will be approximately $150,000; and
that fiscal year 2000 funding for such purposes will be approximately
$1,500,000. If such proceeds are not sufficient to complete the PMA, additional
cash from internal or other sources will be needed in fiscal year 2000 or 2001.
The Company has significant operations in the United States and internationally.
United States net operating loss carryforwards cannot be used to offset
taxable income in foreign jurisdictions. Furthermore, repatriation of dividends
to the U.S. parent may result in additional foreign or U.S. taxes.
Conversion to Euro Currency
On January 1, 1999, eleven of the fifteen member countries of the European
Union (the "participating countries") adopted the euro as their common legal
currency and established fixed conversion rates between their existing
sovereign currencies and the euro. The euro trades on currency exchanges and
is available for non-cash transactions. The participating countries will issue
sovereign debt exclusively in euro, and will redenominate outstanding sovereign
debt in euro.
Although the Company does not expect that its operations will be materially
affected by the euro conversion, the Company has begun an internal
assessment of the effects of the conversion.
With respect to presently known trends and uncertainties related to the
euro conversion, the Company does not expect that there will be any
long-term competitive implications of the conversion (such as effects on
product or service pricing due to increased transparency); nor does it
anticipate any material costs in connection with the conversion nor a lack
of ability to pass any costs that might result along to customers.
Year 2000 Compliance
The Company's existing information system, consisting of hardware and
software supplied by third parties, is year 2000 compliant. However,
because most computer systems are by their nature, interdependent, it
is possible that non-compliant third party computers could impact
the Company's computer systems. The Company could be adversely affected
by the year 2000 problem if it or unrelated parties fail to successfully
address this problem. The Company intends to communicate with the
unrelated parties, including its suppliers and regulatory consultants
with whom it deals, to coordinate year 2000 compliance by the end of
Fiscal 1999. Based on the information developed, the Company may, if
needed, develop a contingency plan which will identify where the
greatest risks of non-compliance exist and what steps the Company might
take in order to deal with the most reasonably likely worst case
scenario. If costs are incurred in addressing year 2000 compliance, they
will be expensed as incurred, in compliance with GAAP.
<PAGE>
UROPLASTY, INC. and Subsidiaries
PART II - OTHER INFORMATION
Except for the following, none of the items contained in PART II of
Form 10-QSB are applicable to the Company for the nine months ended
December 31, 1998.
ITEM 1. LEGAL PROCEEDINGS
On July 21, 1998, the Company announced that the United States
Patent and Trademark Office ("USPTO") had informed the Company that the
USPTO will, as requested by the Company, initiate an interference
proceeding between the Company and Advanced UroScience, Inc. ("AUI"),
White Bear Lake, Minnesota, to determine which company was the first to
invent carbon-coated micro beads for use in treating urinary incontinence.
The USPTO had not, as of February 3, 1999, formally commenced the
interference proceeding.
At such time as the interference proceeding is formally commenced,
it could take the USPTO twenty-four months or more to reach a final decision
concerning this matter. Although the USPTO originally granted the
applicable patent to AUI, the interference proceeding may result in a
determination that either Uroplasty, Inc. or AUI is the proper holder, or
that a patent should not have been granted. An interference proceeding,
like other patent litigation, can be complex, time consuming and expensive.
In addition, during the fiscal quarter, the Company commenced a related
lawsuit against AUI for misappropriation of trade secrets, and AUI, subsequent
to December 31, 1998, brought a counterclaim against the Company with respect
to such matter.
<PAGE>
UROPLASTY, INC. and Subsidiaries
SIGNATURE
In accordance with the requirements of the Exchange Act, the Registrant
caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
UROPLASTY, INC.
Dated: February 16, 1999 By /s/ DANIEL G. HOLMAN
Daniel G. Holman
Chairman, President and CEO
(Principal Executive and Financial Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> Mar-31-1999
<PERIOD-START> Apr-01-1998
<PERIOD-END> Dec-31-1998
<CASH> 1,793,724
<SECURITIES> 1,496,175
<RECEIVABLES> 858,350
<ALLOWANCES> 63,093
<INVENTORY> 640,700
<CURRENT-ASSETS> 4,910,975
<PP&E> 1,644,988
<DEPRECIATION> 356,165
<TOTAL-ASSETS> 7,077,108
<CURRENT-LIABILITIES> 636,794
<BONDS> 0
<COMMON> 59,184
0
0
<OTHER-SE> 5,676,686
<TOTAL-LIABILITY-AND-EQUITY> 7,077,108
<SALES> 3,875,891
<TOTAL-REVENUES> 3,875,891
<CGS> 1,028,028
<TOTAL-COSTS> 1,028,028
<OTHER-EXPENSES> 2,846,935
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (27,979)
<INCOME-PRETAX> 135,959
<INCOME-TAX> (52,269)
<INCOME-CONTINUING> 188,228
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 188,228
<EPS-PRIMARY> .03
<EPS-DILUTED> .03
</TABLE>
