UPI » Topics » Liquidity and Capital Resources

This excerpt taken from the UPI 10-K filed Jun 4, 2009.
Liquidity and Capital Resources
 
Cash Flows. At March 31, 2009, our cash and cash equivalent and short-term investments balances totaled $7.8 million.
 
At March 31, 2009, we had working capital of approximately $7.8 million. In fiscal 2009, we used $1.4 million of cash in operating activities, compared to $1.8 million of cash used in fiscal 2008. We attribute the decrease in cash used in operating activities primarily to the increase in sales for the year, an improvement in gross profit rate and a reduction in accounts receivable primarily because of a reduction fourth fiscal quarter sales over the corresponding year-ago period, offset partially by a reduction accrued liabilities primarily because of a reduction in management bonuses on lower-than-planned operating financial performance.
 
In fiscal 2009 we used approximately $200,000 to purchase property, plant and equipment compared with approximately $302,000 in fiscal 2008.
 
In fiscal 2009 we used cash in financing activities of approximately $456,000 to retire debt, while in fiscal 2008 we generated approximately $5.3 million of cash in financing activities, comprised of approximately $5.4 million we generated from issuance of common stock and exercise of warrants and options.
 
Sources of Liquidity. In November 2007, we conducted a secondary offering in which we sold 1,466,400 shares of our common stock at price of $3.50 per share, for an aggregate purchase price of approximately $5.1 million. The stock sale proceeds are offset by costs of approximately $526,000, resulting in net proceeds of approximately $4.6 million.
 
In September 2008 we entered into a one-year business loan agreement with Venture Bank. The agreement provides for a credit line of up to $2 million secured by the assets of our company. We may borrow up to 50% (to a maximum of $500,000) of the value of our eligible inventory on hand and 80% of the value of our eligible U.S. accounts receivable; provided, however, our total liabilities, inclusive of the amount borrowed, may not exceed our tangible net worth. To be eligible to borrow any amount, we must maintain a minimum tangible net worth of $5 million. Interest on the loan is charged at a per annum rate of the greater of 7.5% or

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one percentage point over the prime rate (3.25% prime rate on March 31, 2009). At March 31, 2009, we had no borrowings outstanding on this credit line.
 
Uroplasty BV, our subsidiary, has an agreement with Rabobank of The Netherlands for a €500,000 (approximately $660,000) credit line secured by our facility in Geleen, The Netherlands. The bank charges interest on the loan at the rate of one percentage point over the Rabobank base interest rate (5.1% base rate on March 31, 2009), subject to a minimum interest rate of 3.5% per annum. At March 31, 2009, we had no borrowings outstanding on this credit line.
 
We believe we have sufficient liquidity to meet our needs over the next twelve months. However, we may need to raise additional financing to support our operations and planned growth activities in the future as we have yet to achieve profitability and generate positive cash flows. To achieve profitability, we must generate substantially more revenue than we have this year or in prior years. Our ability to achieve significant revenue growth will depend, in large part, on our ability to achieve widespread market acceptance for our products and successfully expand our business in the U.S., which in turn may be partially dependent upon re-establishing broad reimbursement for our Urgent PC product and successfully demonstrating the superiority of our Macroplastique product to clinicians. We cannot guarantee that we will be entirely successful in either of these pursuits. If we are unable to raise the needed funds, we may need to curtail our operations including product development, clinical studies and sales and marketing activities. This would adversely impact our future business and prospects. Ultimately, we will need to achieve profitability and generate positive cash flows from operations to meet our cash needs and grow our business.
 
Commitments and Contingencies. We expect to continue to incur significant costs for clinical studies to support our effort to obtain a specific “listed” CPT code that we anticipate will encourage broader use of our Urgent PC System in the U.S. We expect that in fiscal 2010 we will spend approximately $0.6 million for such clinical studies. We also expect to continue to incur significant expenses to support our U.S. sales and marketing organization, and for regulatory activities.
 
Under a royalty agreement we pay royalties, in the aggregate, of three to five percent of net sales of Macroplastique, Bioplastique, and PTQ Implants 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. Under a license agreement for the Macroplastique Implantation System, we pay a royalty of 10 British pounds for each unit sold during the life of the patent.
 
In our normal course of business we have commitments, generally for periods of less than twelve months, to purchase from various vendors finished goods and manufacturing components under issued purchase orders.
 
We have a defined benefit pension plan covering seven employees in The Netherlands. We pay premiums to an insurance company to fund annuities for these employees. However, we are responsible for funding additional annuities based on continued service and future salary increases. We closed this defined benefit plan for new employees in April 2005. As of that date, the Dutch subsidiary established a defined contribution plan that now covers new employees. We have a defined benefit pension plan for six former employees of our UK subsidiary. We closed this plan to further accrual for all employees effective December 31, 2004, and, effective March 2005, established a defined contribution plan that now covers new employees.


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The following table presents the sensitivity of our funded status as of March 31, 2009, and fiscal 2010 pension expense to the following changes in key assumptions:
 
                 
    Increase/(Decrease)
    Increase/(Decrease)
 
    Funded Status at
    Fiscal 2010 pension
 
    March 31, 2009     expense  
 
Assumption:
               
Increase in discount rate of 1%
  $ 100,000     $ (4,000 )
Decrease in discount rate of 1%
    (127,000 )     4,000  
Increase in estimated return on assets of 1%
    -       (4,000 )
Decrease of estimated return on assets of 1%
    -       4,000  
Increase in inflation of 1%
    (179,000 )     29,000  
Decrease in inflation of 1%
    151,000       (25,000 )
Increase in compensation of 1%
    (146,000 )     31,000  
Decrease in compensation of 1%
    7,000       (1,000 )
 
In January 2006, we entered into a long-term lease with Liberty Property Limited Partnership for an 18,258 square foot facility for our U.S. headquarters located at 5420 Feltl Road, Minnetonka, Minnesota. The lease effective date was May 1, 2006, has a term of 96 months, requires average annual minimum rent payments of approximately $140,000 and requires payments for operating expenses we estimated at approximately $99,000 over 12 months.
 
These excerpts taken from the UPI 10-K filed Jun 9, 2008.
Liquidity and Capital Resources
 
Cash Flows. As of March 31, 2008, our cash and cash equivalent and short-term investments balances totaled $10.1 million.
 
At March 31, 2008, we had working capital of approximately $10.6 million. In fiscal 2008, we used $1.8 million of cash for operating activities, compared to $3.5 million of cash used in fiscal 2007. We attribute the decrease in cash used in operating activities primarily to the increase in sales and an improvement in gross profit rate, offset partially by increase in cash operating expenses.
 
Sources of Liquidity. Net cash provided by financing activities was $5.3 million and $7.8 million in fiscal 2008 and fiscal 2007, respectively.
 
In August 2006, we entered into a securities purchase agreement with certain investors pursuant to which we sold approximately 1.4 million shares of our common stock for $1.50 per share, together with warrants to


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purchase 764,500 shares (inclusive of warrants issued to the selling agent) of our common stock, for an aggregate purchase price of approximately $2.1 million. After offset for our estimated costs of $275,000, we received net proceeds of approximately $1.8 million. The warrants are exercisable for five years (commencing 181 days after closing) at an exercise price of $2.50 per share.
 
In December 2006, we conducted a follow-on public offering in which we sold 2,430,000 shares of our common stock at a price per share of $2.00, resulting in net proceeds of approximately $4.3 million.
 
In November 2007, we conducted an additional follow-on public offering in which we sold 1,466,400 shares of our common stock at price of $3.50 per share, for an aggregate purchase price of approximately $5.1 million. The stock sale proceeds are offset by costs of approximately $526,000, resulting in net proceeds of approximately $4.6 million.
 
The proceeds from exercise of warrants and options were $785,000 in fiscal 2008.
 
Uroplasty BV, our subsidiary, has an agreement with Rabobank of The Netherlands for a €500,000 (approximately $790,000) credit line. The bank charges interest on the loan at the rate of one percentage point over the Rabobank base interest rate (5.25% base rate on March 31, 2008), subject to a minimum interest rate of 3.5% per annum. At March 31, 2008, we had no borrowings outstanding on this credit line.
 
We believe we have sufficient liquidity to meet our needs over the next twelve months. However, we may need to raise additional financing to support our operations and planned growth activities in the future as we have yet to achieve profitability and generate positive cash flows. To achieve profitability, we must generate substantially more revenue than we have this year or in prior years. Our ability to achieve significant revenue growth will depend, in large part, on our ability to achieve widespread market acceptance for our products and successfully expand our business in the U.S., which we cannot guarantee will happen. If we are unable to raise the needed funds, we may need to curtail our operations including product development, clinical studies and sales and marketing activities. This would adversely impact our future business and prospects. Ultimately, we will need to achieve profitability and generate positive cash flows from operations to fund our operations and grow our business.
 
Commitments and Contingencies. We believe that our current resources, funds generated from sale of our products together with our credit lines will be adequate to meet our cash flow needs, including regulatory activities associated with our existing products, through the end of the next fiscal year (fiscal 2009).
 
We expect to continue to incur significant costs for clinical studies to support the marketing of our products and for regulatory activities associated with the FDA-required, post-market studies in the United States for the Macroplastique product. We also expect that during fiscal 2009, we will continue to incur significant expenses to support our U.S. selling and marketing organization.
 
In April 2007, we acquired from CystoMedix certain intellectual property assets related to the Urgent PC product and terminated the April 2005 exclusive manufacturing and distribution agreement. In consideration, we issued CystoMedix 1,417,144 shares of our common stock valued at approximately $4.7 million.
 
Under a royalty agreement we pay royalties, in the aggregate, of three to five percent of net sales of Macroplastique, Bioplastique, and PTQ Implants 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. Under a license agreement for the Macroplastique Implantation System, we pay a royalty of 10 British pounds for each unit sold during the life of the patent.
 
We have commitments, generally for periods less than twelve months, to purchase from various vendors finished goods and manufacturing components under issued purchase orders.
 
We have a defined benefit pension plan covering seven employees in The Netherlands. We pay premiums to an insurance company to fund annuities for these employees. However, we are responsible for funding additional annuities based on continued service and future salary increases. We closed this defined benefit plan for new employees in April 2005. As of that date, the Dutch subsidiary established a defined contribution plan that now covers new employees. We also closed our UK subsidiary’s defined benefit plan to further accrual for


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all employees effective December 31, 2004, and, effective March 2005, established a defined contribution plan that now covers new employees.
 
In January 2006, we entered into a long-term lease with Liberty Property Limited Partnership for an 18,258 square foot facility for our U.S. headquarters located at 5420 Feltl Road, Minnetonka, Minnesota. The lease effective date was May 1, 2006, has a term of 96 months, requires average annual minimum rent payments of approximately $140,000 and requires payments for operating expenses we estimated at approximately $89,000 over 12 months.
 
Liquidity
and Capital Resources



 



Cash Flows. As of March 31, 2008, our cash and
cash equivalent and short-term investments balances totaled
$10.1 million.


 



At March 31, 2008, we had working capital of approximately
$10.6 million. In fiscal 2008, we used $1.8 million of
cash for operating activities, compared to $3.5 million of
cash used in fiscal 2007. We attribute the decrease in cash used
in operating activities primarily to the increase in sales and
an improvement in gross profit rate, offset partially by
increase in cash operating expenses.


 



Sources of Liquidity. Net cash provided by financing
activities was $5.3 million and $7.8 million in fiscal
2008 and fiscal 2007, respectively.


 



In August 2006, we entered into a securities purchase agreement
with certain investors pursuant to which we sold approximately
1.4 million shares of our common stock for $1.50 per share,
together with warrants to





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purchase 764,500 shares (inclusive of warrants issued to
the selling agent) of our common stock, for an aggregate
purchase price of approximately $2.1 million. After offset
for our estimated costs of $275,000, we received net proceeds of
approximately $1.8 million. The warrants are exercisable
for five years (commencing 181 days after closing) at an
exercise price of $2.50 per share.


 



In December 2006, we conducted a follow-on public offering in
which we sold 2,430,000 shares of our common stock at a
price per share of $2.00, resulting in net proceeds of
approximately $4.3 million.


 



In November 2007, we conducted an additional follow-on public
offering in which we sold 1,466,400 shares of our common
stock at price of $3.50 per share, for an aggregate purchase
price of approximately $5.1 million. The stock sale
proceeds are offset by costs of approximately $526,000,
resulting in net proceeds of approximately $4.6 million.


 



The proceeds from exercise of warrants and options were $785,000
in fiscal 2008.


 



Uroplasty BV, our subsidiary, has an agreement with Rabobank of
The Netherlands for a €500,000 (approximately $790,000)
credit line. The bank charges interest on the loan at the rate
of one percentage point over the Rabobank base interest rate
(5.25% base rate on March 31, 2008), subject to a minimum
interest rate of 3.5% per annum. At March 31, 2008, we had
no borrowings outstanding on this credit line.


 



We believe we have sufficient liquidity to meet our needs over
the next twelve months. However, we may need to raise additional
financing to support our operations and planned growth
activities in the future as we have yet to achieve profitability
and generate positive cash flows. To achieve profitability, we
must generate substantially more revenue than we have this year
or in prior years. Our ability to achieve significant revenue
growth will depend, in large part, on our ability to achieve
widespread market acceptance for our products and successfully
expand our business in the U.S., which we cannot guarantee will
happen. If we are unable to raise the needed funds, we may need
to curtail our operations including product development,
clinical studies and sales and marketing activities. This would
adversely impact our future business and prospects. Ultimately,
we will need to achieve profitability and generate positive cash
flows from operations to fund our operations and grow our
business.


 



Commitments and Contingencies. We believe that our
current resources, funds generated from sale of our products
together with our credit lines will be adequate to meet our cash
flow needs, including regulatory activities associated with our
existing products, through the end of the next fiscal year
(fiscal 2009).


 



We expect to continue to incur significant costs for clinical
studies to support the marketing of our products and for
regulatory activities associated with the FDA-required,
post-market studies in the United States for the Macroplastique
product. We also expect that during fiscal 2009, we will
continue to incur significant expenses to support our
U.S. selling and marketing organization.


 



In April 2007, we acquired from CystoMedix certain intellectual
property assets related to the Urgent PC product and terminated
the April 2005 exclusive manufacturing and distribution
agreement. In consideration, we issued CystoMedix
1,417,144 shares of our common stock valued at
approximately $4.7 million.


 



Under a royalty agreement we pay royalties, in the aggregate, of
three to five percent of net sales of Macroplastique,
Bioplastique, and PTQ Implants 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.
Under a license agreement for the Macroplastique Implantation
System, we pay a royalty of 10 British pounds for each unit sold
during the life of the patent.


 



We have commitments, generally for periods less than twelve
months, to purchase from various vendors finished goods and
manufacturing components under issued purchase orders.


 



We have a defined benefit pension plan covering seven employees
in The Netherlands. We pay premiums to an insurance company to
fund annuities for these employees. However, we are responsible
for funding additional annuities based on continued service and
future salary increases. We closed this defined benefit plan for
new employees in April 2005. As of that date, the Dutch
subsidiary established a defined contribution plan that now
covers new employees. We also closed our UK subsidiary’s
defined benefit plan to further accrual for





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Table of Contents






all employees effective December 31, 2004, and, effective
March 2005, established a defined contribution plan that now
covers new employees.


 



In January 2006, we entered into a long-term lease with Liberty
Property Limited Partnership for an 18,258 square foot
facility for our U.S. headquarters located at 5420 Feltl
Road, Minnetonka, Minnesota. The lease effective date was
May 1, 2006, has a term of 96 months, requires average
annual minimum rent payments of approximately $140,000 and
requires payments for operating expenses we estimated at
approximately $89,000 over 12 months.


 




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