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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
Quarterly Report Under Section 13 or 15(d) of the Securities Exchange Act of
1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2000
Commission file number 000-20989
UROPLASTY, INC.
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)
(612) 378-1180
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days:
YES [X] NO [ ]
The number of shares outstanding of the issuer's only class of common stock on
July 19, 2000 was 5,985,271
Transitional Small Business Disclosure Format:
YES [ ] NO [X]
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PART I. FINANCIAL INFORMATION
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ITEM 1. FINANCIAL STATEMENTS
UROPLASTY, INC. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
(unaudited)
<TABLE>
<CAPTION>
June 30, 2000 March 31, 2000
------------------ -----------------
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 2,020,797 $ 1,553,093
Marketable securities 0 750,000
Accounts receivable, net 1,012,033 954,525
Inventories 841,658 735,630
Other 242,210 400,283
-------------- --------------
Total Current Assets 4,116,698 4,393,531
-------------- --------------
Property, plant and equipment, net 1,056,436 1,097,118
Intangible assets, net 119,847 108,892
-------------- --------------
TOTAL ASSETS $ 5,292,981 $ 5,599,541
============== ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 266,071 $ 348,176
Accrued liabilities 404,523 428,151
Current maturities - long-term debt 49,445 49,390
------------- -------------
Total Current Liabilities 720,039 825,717
Long-term debt - less current maturities 514,572 528,808
------------- -------------
Total Liabilities 1,234,611 1,354,525
------------- -------------
Shareholders' Equity
Common stock $.01 par value; authorized 20,000,000
shares issued and outstanding - 5,985,271 and 5,975,271
shares at June 30 and March 31, 2000, respectively 59,853 59,753
Additional paid-in capital 5,814,877 5,809,977
Retained earnings (accumulated deficit) (1,449,495) (1,273,557)
Accumulated other comprehensive loss (366,865) (351,157)
------------- -------------
Total Shareholders' Equity 4,058,370 4,245,016
------------- -------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 5,292,981 $ 5,599,541
============= =============
</TABLE>
See accompanying notes to the interim consolidated financial statements.
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UROPLASTY, INC. and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended June 30, 2000 and 1999
(Unaudited)
<TABLE>
<CAPTION>
2000 1999
----------- -----------
<S> <C> <C>
Net sales $ 1,479,043 $ 1,470,055
Cost of goods sold 298,341 442,034
----------- -----------
Gross profit 1,180,702 1,028,021
Operating expenses:
General and administrative 329,089 324,927
Research and development 482,086 286,142
Selling and marketing 542,189 541,622
----------- -----------
1,353,364 1,152,691
----------- -----------
Operating loss (172,662) (124,670)
Other expense, net (3,276) (26,205)
----------- -----------
Net loss before income taxes (175,938) (150,875)
Income tax expense 0 3,366
----------- -----------
Net loss $ (175,938) $ (154,241)
=========== ===========
Net loss per common share $ (0.03) $ (0.03)
Net loss per common share
assuming dilution $ (0.03) $ (0.03)
Weighted average common and potential common shares
outstanding:
Basic 5,981,040 5,923,371
Diluted 5,981,040 5,923,371
</TABLE>
See accompanying notes to the interim consolidated financial statements.
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UROPLASTY, INC. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended June 30, 2000 and 1999
(Unaudited)
<TABLE>
<CAPTION>
2000 1999
---------------- ----------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (175,938) $ (154,241)
Adjustments to reconcile net loss
to net cash used in operations:
Depreciation and amortization 50,429 44,905
Amortization of premium and discounts
marketable securities, net 0 6,042
Changes in operating assets and liabilities:
Accounts receivable (57,508) 64,531
Inventories (106,028) 48,765
Prepaid expenses and other current assets 158,073 (23,957)
Accounts payable (82,105) 11,929
Accrued liabilities (23,628) (182,842)
----------- -----------
Net cash used in operating activities (236,705) (184,868)
----------- -----------
Cash flows from investing activities:
Payments for property, plant and equipment (9,369) (66,559)
Proceeds from sale of property, plant
and equipment 0 10,440
Payments relating to intangible assets (17,750) (2,677)
Sale of marketable securities 750,000 750,000
----------- -----------
Net cash provided by investing activities 722,881 691,204
----------- -----------
Cash flows from financing activities:
Repayment of long-term obligations (12,063) (12,640)
Proceeds from issuance of notes payable 0 12,002
Net proceeds from issuance of stock 5,000 0
----------- -----------
Net cash used in financing activities (7,063) (638)
----------- -----------
Effect of exchange rates on cash and
cash equivalents (11,409) (64,524)
----------- -----------
Net increase in cash and cash equivalents 467,704 441,174
Cash and cash equivalents at beginning of period 1,553,093 1,588,984
----------- -----------
Cash and cash equivalents at end of period $ 2,020,797 $ 2,030,158
=========== ===========
Supplemental disclosure of Cash Flow information:
Cash paid during the period for interest $ 7,551 $ 6,988
Cash paid during the period for income taxes 0 13,263
</TABLE>
See accompanying notes to the interim consolidated financial statements.
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UROPLASTY, INC. and Subsidiaries
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
The financial statements included in this Form 10-QSB have been prepared by
Uroplasty, Inc. ("the Registrant" or "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, 2000.
The financial statements presented herein as of June 30, 2000 and for the
three months ended June 30, 2000 and 1999 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 stated at the lower of cost (first-in, first-out method) or
market (net realizable value) and consist of the following:
<TABLE>
<CAPTION>
June 30, 2000 March 31, 2000
------------- --------------
<S> <C> <C>
Raw materials $ 133,007 $ 127,169
Work-in-process 424,175 392,341
Finished goods 284,476 216,120
------------- ------------
$ 841,658 $ 735,630
============= ============
</TABLE>
3. Comprehensive loss
Comprehensive loss consists of net loss, net unrealized gains (losses) on
marketable securities, and the translation adjustment. For the three months
ended June 30, 2000 and 1999 total comprehensive loss is comprised of the
following:
<TABLE>
<CAPTION>
2000 1999
---------------- ----------------
<S> <C> <C>
Net loss $ (175,938) $ (154,241)
Items of other comprehensive loss:
Unrealized loss on marketable
securities 0 (333)
Translation adjustment (15,708) (91,391)
--------------- ---------------
Total comprehensive loss $ (191,646) $ (245,965)
=============== ===============
</TABLE>
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4. Reconciliation of earnings and share amounts used in EPS calculation
Basic earnings (loss) per common share is calculated by dividing net income
(loss) by the weighted-average common shares outstanding during the period.
Diluted earnings per common share for the three months ended June 30, 2000
and 1999 was calculated using the treasury stock method to compute the
weighted average common stock outstanding assuming the conversion of
dilutive potential common shares.
<TABLE>
<CAPTION>
Basic loss Diluted loss
per share Effect of per share
to common dilutive to common
shareholders securities shareholders
-------------------------------------------------
<S> <C> <C> <C>
For the three months ended:
June 30, 2000
Net loss $ (175,938) - $ (175,938)
Shares 5,981,040 - 5,981,040
------------ -----------
Per share amount $ (0.03) - $ (0.03)
June 30, 1999
Net loss $ (154,241) - $ (154,241)
Shares 5,923,371 - 5,923,371
------------ -----------
Per share amount $ (0.03) - $ (0.03)
</TABLE>
5. Legal Proceedings
In Item 1 of Part II of this filing the legal proceedings of the Company
are listed. The Company has not accrued for potential losses on these cases
as the likelihood of a loss is not probable and the amount in the event of
a loss cannot be reasonably estimated.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
FORWARD-LOOKING STATEMENTS
The Registrant 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.
The Registrant'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
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<PAGE> 7
uncertainties of potential litigation, as well as other risks and uncertainties
detailed elsewhere herein and from time to time in the Registrant's Securities
and Exchange Commission filings.
In this filing, the following section entitled "Management's Discussion and
Analysis of Financial Condition and Results of Operations" contains
forward-looking statements. 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 Company's other
filings with the Securities and Exchange Commission.
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.
OVERVIEW
Uroplasty, Inc. develops, manufactures, and/or markets medical products in
certain segments of the urology, wound care, and plastic surgery markets.
Products sold by the Company are subject to regulation by the U.S. Food & Drug
Administration ("FDA") and/or various regulating agencies in countries outside
the U.S. Existing sales have been, and future sales growth is expected to be,
derived from Macroplastique(R) and related ancillary products designed for use
by urologists, urogynecologists, and gynecologists for the treatment of certain
types of stress urinary incontinence ("SUI"), for vesicoureteral reflux ("VUR"),
a condition occuring mostly in children in which urine flows backward from the
bladder to the kidneys, and for incontinence in men after prostate surgery.
Macroplastique is a soft tissue bulking agent comprised of heat vulcanized,
highly textured, solid, soft, irregularly shaped polydimethylsiloxane (solid
silicone) implants suspended in a biocompatible carrier solution. Based on the
clinical experience outside the United States, Macroplastique does not cause
chronic inflammation and is not resorbed by the body. The actual implantation of
Macroplastique is minimally invasive and can be accomplished in less than 30
minutes in an inpatient or outpatient setting. The Macroplastique procedure is
designed to restore the patient to normal urinary continence, or to correct VUR,
almost immediately following the minimally invasive procedure.
The Registrant 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 Registrant believes the advantages of Macroplastique are its
biocompatibility, cost effectiveness, and successful use in over 20,000 patients
overseas since 1991.
In addition to the urological applications, the Company's soft tissue bulking
agent is also marketed by the Company outside the U.S. for reconstructive and
cosmetic plastic surgery applications and vocal cord rehabilitation under the
trade name Bioplastique(TM). In The Netherlands and United Kingdom, the
Company's direct sales force distributes on behalf of another company certain
wound care products in accordance with an executed Distributor Agreement. Under
the terms of the Distributor Agreement, the Company is not obligated to purchase
any minimum level of wound care products.
The Company's products are currently sold by direct sales forces in the United
Kingdom, The Netherlands, and Canada, and by a network of distributors in
numerous countries outside the U.S., including Western Europe, Australia, and
Central and South America. In September 1999, the Company received unconditional
approval from the FDA pursuant to a previously filed IDE Application to initiate
human clinical studies in the U.S. for the Company's primary product
Macroplastique in the treatment of female SUI. Through various urological
investigators in various clinical sites across the U.S., the human clinical
procedures specified by the study protocol are currently being performed.
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The Company's current objectives include focusing on sales and marketing
activities designed to increase market penetration and sales of Macroplastique
for SUI and VUR applications in countries outside the U.S., and to efficiently
and effectively execute the Macroplastique human clinical study for treatment of
female SUI within the U.S.
The Company is also continuing its evaluation and pursuit of corporate
partnering and/or complimentary product line opportunities which would be
beneficial to the commercialization of Macroplastique and its related products
in the United States pursuant to their approval by the FDA sometime in the
future. Management believes that partnering Macroplastique for female SUI with a
distribution network already established in the urology and gynecology markets
in the U.S. could be an efficient way to obtain widespread acceptance and use of
the product upon its approval by the FDA.
Set forth below is management's discussion and analysis of the financial
condition and results of operations for the three month period ended June 30,
2000 and 1999.
RESULTS OF OPERATIONS
Net Sales: The Macroplastique product line accounts for over 92% of total net
sales during the periods presented. Unit sales of Macroplastique increased 12%
during the quarter ended June 30, 2000 compared to the three month period ended
June 30, 1999, while unit sales of both Macroplastique and Bioplastique
increased 16% during the same periods. However, changes in the mix of sales to
direct customers versus distributors and changes in foreign currency exchange
rates had decreasing affects on sales denominated in U.S. dollars. In the
quarter ended June 30, 2000, total net sales of all products were $1,479,043,
representing an $8,988, or approximately 1%, increase when compared to net sales
of $1,470,055 for the quarter ended June 30, 1999.
Unit sales of Macroplastique during the quarter ended June 30, 2000 includes the
sales of the Macroplastique Implantation System ("MIS"). The MIS includes the
disposable Macroplastique Implantation Device for guiding and delivering
Macroplastique without the use of an endoscope in the treatment of female SUI.
Management expects the MIS will continue to make Macroplastique usable by an
expanding base of urologists, uro-gynecologists, and gynecologists treating a
growing portion of SUI patients. There can be no assurance however, that the
Company's efforts to increase sales and market penetration through the use of
the MIS will continue to be successful.
Gross Profit: Gross profit was $1,180,702 and $1,028,021 for the quarters ended
June 30, 2000 and 1999, respectively, or 80% and 70% of net sales. During the
quarter ended June 30, 2000, utilization of manufacturing facilities and
manufacturing related personnel was greater than that experienced during the
quarter ended June 30, 1999. Consequently, fixed manufacturing expenses were
more fully absorbed in inventory and had an increasing effect on the gross
profit margin during the quarter ended June 30, 2000. Manufacturing efficiencies
have also allowed for dedication of human resources to the increasing clinical
and regulatory functions, which further increased the gross profit margin during
the quarter ended June 30, 2000.
General and Administrative Expense: General and administrative ("G&A") expenses
increased 1% from $324,927 during quarter ended June 30, 1999 to $329,089 during
quarter ended June 30, 2000.
Research and Development Expense: Research and development ("R&D") expenses
increased $195,944, or 68%, from $286,142 during the first quarter of fiscal
2000 to $482,086 during the first quarter fiscal 2001. The increase in R&D
expense during the quarter ended June 30, 2000 reflects the various costs
associated with FDA and other clinical studies, including additional personnel
and a greater portion of existing salaries dedicated to these expanding clinical
functions.
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<PAGE> 9
Management believes that initiation of Macroplastique human clinical studies in
the U.S. pursuant to the Company's approved IDE Application will cause R&D
expenses to increase further throughout fiscal 2001. The human clinical study
costs are primarily comprised of physician and medical fees relating to the
patient procedures and follow-up examinations, in addition to the costs of
monitoring the study, maintaining and evaluating the patient treatment, and
follow-up examination data.
Selling and Marketing Expense: Selling and marketing costs remained at the same
level, approximately $542,000 during the first quarters of fiscal 2001 and
fiscal 2000.
Other Income (Expense): Other income (expense) includes interest income,
interest expense, foreign currency exchange gains and losses, and other
non-operating costs when incurred. Other income (expense) was $(3,276) and
$(26,205) for the quarter ended June 30, 2000 and 1999, respectively. The net
interest income decreased from $28,100 during the first quarter fiscal 2000 to
$13,989 during the same quarter fiscal 2001. The exchange loss decreased from
$54,305 during the first quarter ended June 30, 1999 to $17,265 during the first
quarter ended June 30, 2000. Exchange gains and losses are recognized primarily
as a result of fluctuations in currency rates between the U.S. Dollar (the
functional reporting currency) and the Dutch Guilder, Canadian Dollar, and
British Pound (currencies of the Company's subsidiaries), as well as their
effect on the valuation of intercompany obligations between the Registrant and
its foreign subsidiaries. These exchange gains and losses do not represent
actual cash flow gains and losses until such time as one currency is used to
purchase another currency for the payment of a portion of the intercompany
obligation.
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 2000, the Company's cash and cash equivalent balances totaled
$2,020,797. The capital resources existing at March 31, 2000 were derived from
operations during the fiscal years ended March 31, 1997 and 1998, plus the net
proceeds from the Company's sale of approximately 1.7 million shares of Common
Stock in June 1998.
At June 30, 2000, the Company had working capital of approximately $3.4 million.
During the first quarter of fiscal year 2001, the Company used $236,705 of cash
from operating activities. The Company expects cash to be used in operations
during the remainder of fiscal 2001 as a result of Macroplastique sales and
marketing initiatives and the costs of conducting the Macroplastique human
clinical trial in the U.S.
The Company currently has no financing arrangements in place with any bank for
general working capital needs, and no material unused sources of liquidity other
than the cash and marketable securities described above, equipment leasing
arrangements, and its accounts receivable and inventory balances at June 30,
2000 of approximately $1,012,000 and $842,000, respectively.
The Company has operations in the U.S. and internationally. U.S. 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.
Management expects increasing costs associated with the conduct of the U.S.
human clinical study for Macroplastique pursuant to the FDA approved IDE, the
subsequent PMA submission and review process, and pre-commercialization and
market launch costs in the U.S. relating to Macroplastique for female SUI. In
the event that anticipated increases in current sales levels are not achieved,
additional funds from the sale of the Company's securities or other alternative
sources will be necessary. There can be no assurance that such alternative
sources of funds will be available to the Company when they are needed or
pursuant to terms considered acceptable to the Company at that time. However,
Management believes that current resources and the funds generated from sale of
the Company's products outside the U.S. will be adequate to meet the Company's
cash flow needs through fiscal 2001.
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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.
With respect to presently known trends and uncertainties related to the euro
conversion, the Company does not expect 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.
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PART II - OTHER INFORMATION
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Except for the following, none of the items contained in PART II of Form 10-QSB
are applicable to the Company for the three months ended June 30, 2000.
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 the date of this
filing, formally declared the interference proceeding.
At such time as the interference proceeding is formally declared, 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 third quarter of fiscal 1999, 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. In October 1999, the Company announced that the U.S.
District Court for Minnesota had granted a motion by AUI to dismiss the
Company's claims against AUI, which the Company has since appealed.
As of the date of the preparation of this filing, the U.S. Court of Appeals,
Eighth Circuit, has notified the Company that pursuant to the Company's request,
the appeal has been transferred to the Federal Circuit. The Company and AUI have
each filed documents relating to the appeal and are currently awaiting the
Federal Circuit Court's ruling on the appeal. The Company's appeal requests that
the Federal Circuit Court vacate the U.S. District Courts dismissal of the case
and remand it to state court, or, in the alternative, to reverse the District
Court's judgment and remand the case for trial.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On July 11, 2000, the Company mailed to its shareholders, and filed with the
Securities & Exchange Commission, it's Proxy Statement and Annual Report
pursuant to Section 14(a) of the Securities Exchange Act of 1934 relating to
it's annual meeting of shareholders scheduled for August 10, 2000.
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
UROPLASTY, INC.
Date: August 7, 2000 By: /s/ DONALD A. MAJOR
--------------------
Donald A. Major
Chief Financial Officer (Principal Financial Officer)
Date: August 7, 2000 By: /s/ ARIE J. KOOLE
------------------
Arie J. Koole
Controller (Principal Accounting Officer)
Page 11 of 11
