##### Table of Contents



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, 2007
 Commission File No. 000-20989
 
 UROPLASTY, INC.
  Minnesota, U.S.A.
    
    41-1719250(State or other jurisdiction of
    
    I.R.S. Employerincorporation or organization)
    
    (Identification No.)
 5420 Feltl Road
Minnetonka, Minnesota, 55343
 (912) 426-6140
  
 þ o
  o þ
   o þ




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TABLE OF CONTENTS  PART I. FINANCIAL INFORMATIONITEM 1. FINANCIAL STATEMENTSITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSITEM 3. CONTROLS AND PROCEDURESPART II. OTHER INFORMATIONITEM 1. LEGAL PROCEEDINGSITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERSSIGNATURESCertifications by the Chief Executive Officer and the Chief Financial Officer pursuant to Section 302Certifications by the Chief Executive Officer and the Chief Financial Officer pursuant to Section 906    Table of Contents  
   
 ITEM 1. FINANCIAL STATEMENTS
   June 30, 2007(unaudited)
    
    
    March 31, 2007AssetsCurrent assets:Cash and cash equivalents
    
    $
    3,204,684
    
    
    $
    3,763,702Short-term investments
    
    
    2,400,000
    
    
    
    3,000,000Accounts receivable, net
    
    
    1,775,607
    
    
    
    1,240,141Income tax receivable
    
    
    34,099
    
    
    
    113,304Inventories
    
    
    821,577
    
    
    
    823,601Other
    
    
    354,814
    
    
    
    272,035Total current assets
    
    
    8,590,781
    
    
    
    9,212,783Property, plant, and equipment, net
    
    
    1,459,165
    
    
    
    1,431,749Intangible assets, net
    
    
    4,845,177
    
    
    
    308,093Deferred tax assets
    
    
    94,234
    
    
    
    93,819Total assets
    
    $
    14,989,357
    
    
    $
    11,046,444




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##### Table of Contents



June 30, 2007(unaudited)
    
    
    March 31, 2007Liabilities and Shareholders EquityCurrent liabilities:Current maturities  long-term debt
    
    $
    161,696
    
    
    $
    78,431Deferred rent  current
    
    
    35,000
    
    
    
    35,000Accounts payable
    
    
    449,635
    
    
    
    544,507Accrued liabilities
    
    
    882,940
    
    
    
    1,347,670Total current liabilities
    
    
    1,529,271
    
    
    
    2,005,608Long-term debt  less current maturities
    
    
    411,935
    
    
    
    427,382Deferred rent  less current portion
    
    
    206,030
    
    
    
    214,381Accrued pension liability
    
    
    458,937
    
    
    
    596,026Total liabilities
    
    
    2,606,173
    
    
    
    3,243,397Shareholders equity:Common stock $.01 par value;
40,000,000
shares authorized, 13,262,140 and
11,614,330 shares issued and
outstanding at June 30 and
March 31, 2007, respectively
    
    
    132,621
    
    
    
    116,143Additional paid-in capital
    
    
    29,382,285
    
    
    
    23,996,818Accumulated deficit
    
    
    (16,851,625
    )
    
    
    (16,010,990
    )Accumulated other comprehensive loss
    
    
    (280,097
    )
    
    
    (298,924
    )Total shareholders equity
    
    
    12,383,184
    
    
    
    7,803,047Total liabilities and shareholders equity
    
    $
    14,989,357
    
    
    $
    11,046,444




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##### Table of Contents



Three Months EndedJune 30,2007
    
    
    2006Net sales
    
    $
    2,948,674
    
    
    $
    1,764,210Cost of goods sold
    
    
    594,212
    
    
    
    555,516Gross profit
    
    
    2,354,462
    
    
    
    1,208,694Operating expensesGeneral and administrative
    
    
    808,374
    
    
    
    857,572Research and development
    
    
    506,125
    
    
    
    674,954Selling and marketing
    
    
    1,632,789
    
    
    
    1,232,587Amortization of intangibles
    
    
    216,521
    
    
    
    26,5373,163,809
    
    
    
    2,791,650Operating loss
    
    
    (809,347
    )
    
    
    (1,582,956
    )Other income (expense)Interest income
    
    
    76,383
    
    
    
    19,507Interest expense
    
    
    (11,365
    )
    
    
    (5,982
    )Warrant benefit
    
    
    
    
    
    
    327,732Foreign currency exchange gain (loss)
    
    
    (2,029
    )
    
    
    26,411Other, net
    
    
    1,879
    
    
    
    4,80064,868
    
    
    
    372,468Loss before income taxes
    
    
    (744,479
    )
    
    
    (1,210,488
    )Income tax expense
    
    
    96,156
    
    
    
    30,751Net loss
    
    $
    (840,635
    )
    
    $
    (1,241,239
    )Basic and diluted loss per common share
    
    $
    (0.06
    )
    
    $
    (0.18
    )Weighted average common shares outstanding:Basic and diluted
    
    
    12,981,466
    
    
    
    6,952,167




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##### Table of Contents



AccumulatedAdditional
    
    
    
    
    
    
    Other
    
    
    TotalCommon Stock
    
    
    Paid-in
    
    
    Accumulated
    
    
    Comprehensive
    
    
    ShareholdersShares
    
    
    Amount
    
    
    Capital
    
    
    Deficit
    
    
    Loss
    
    
    EquityBalance at March 31, 2007
    
    
    11,614,330
    
    
    $
    116,143
    
    
    $
    23,996,818
    
    
    $
    (16,010,990
    )
    
    $
    (298,924
    )
    
    $
    7,803,047Issuance of common stock
in connection with the
purchase of
intellectual property
    
    
    1,417,144
    
    
    
    14,171
    
    
    
    4,644,690
    
    
    
    
    
    
    
    
    
    
    
    4,658,861Proceeds from exercise
of warrants
    
    
    50,000
    
    
    
    500
    
    
    
    149,500
    
    
    
    
    
    
    
    
    
    
    
    150,000Proceeds from exercise
of stock options
    
    
    180,666
    
    
    
    1,807
    
    
    
    424,191
    
    
    
    
    
    
    
    
    
    
    
    425,998Share-Based Consulting
and Compensation
    
    
    
    
    
    
    
    
    
    
    167,086
    
    
    
    
    
    
    
    
    
    
    
    167,086Comprehensive Loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (840,635
    )
    
    
    18,827
    
    
    
    (821,808
    )Balance at June 30, 2007
    
    
    13,262,140
    
    
    $
    132,621
    
    
    $
    29,382,285
    
    
    $
    (16,851,625
    )
    
    
    ($280,097
    )
    
    $
    12,383,184




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Three Months EndedJune 30,2007
    
    
    2006Cash flows from operating activities:Net loss
    
    $
    (840,635
    )
    
    $
    (1,241,239
    )Adjustments to reconcile net loss to net cash used in operating activities:Depreciation and amortization
    
    
    274,189
    
    
    
    72,462Gain on disposal of equipment
    
    
    (2,771
    )
    
    
    (4,800
    )Warrant benefit
    
    
    
    
    
    
    (327,732
    )Stock-based consulting expense
    
    
    14,067
    
    
    
    11,007Stock-based compensation expense
    
    
    153,019
    
    
    
    299,595Deferred income taxes
    
    
    572
    
    
    
    (21,495
    )Deferred rent
    
    
    (8,750
    )
    
    
    (5,833
    )Changes in operating assets and liabilities:Accounts receivable
    
    
    (524,327
    )
    
    
    (178,338
    )Inventories
    
    
    10,651
    
    
    
    76,937Other current assets and income tax receivable
    
    
    (926
    )
    
    
    59,400Accounts payable
    
    
    (97,291
    )
    
    
    35,354Accrued liabilities
    
    
    (472,737
    )
    
    
    (207,646
    )Accrued pension liability, net
    
    
    (145,556
    )
    
    
    27,025Net cash used in operating activities
    
    
    (1,640,495
    )
    
    
    (1,405,303
    )Cash flows from investing activities:Proceeds from sale of short-term investments
    
    
    600,000
    
    
    
    1,137,647Purchases of property, plant and equipment
    
    
    (89,287
    )
    
    
    (91,825
    )Proceeds from sale of equipment
    
    
    9,952
    
    
    
    4,800Payments for intangible assets
    
    
    (89,725
    )
    
    
    Net cash provided by investing activities
    
    
    430,940
    
    
    
    1,050,622Cash flows from financing activities:Proceeds from long-term obligations
    
    
    178,374
    
    
    
    210,999Repayment of long-term obligations
    
    
    (115,067
    )
    
    
    (36,374
    )Proceeds from issuance of common stock, warrants and option exercise
    
    
    575,998
    
    
    
    12,798Net cash provided by financing activities
    
    
    639,305
    
    
    
    187,423Effect of exchange rates on cash and cash equivalents
    
    
    11,232
    
    
    
    (1,869
    )Net increase in cash and cash equivalents
    
    
    559,018
    
    
    
    (169,127
    )Cash and cash equivalents at beginning of period
    
    
    3,763,702
    
    
    
    1,563,433Cash and cash equivalents at end of period
    
    $
    3,204,684
    
    
    $
    1,394,306Supplemental disclosure of cash flow information:Cash paid during the period for interest
    
    $
    9,099
    
    
    $
    7,081Cash paid during the period for income taxes
    
    
    15,573
    
    
    
    23,121Supplemental disclosure of non-cash financing and investing activities:Employee retirement savings plan contribution issued in common shares
    
    
    
    
    
    $
    44,408Property, plant and equipment additions funded by lessor allowance and
classified as deferred rent
    
    
    
    
    
    
    280,000Purchase of intellectual property funded by issuance of stock
    
    $
    4,658,861
    
    
    
    




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1. Basis of Presentation
    2. Nature of Business, Sales of Common Stock and Corporate Liquidity
  ®
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3. Short-term Investments
  4. Inventories
  June 30, 2007
    
    
    March 31, 2007Raw materials
    
    $
    239,026
    
    
    $
    254,988Work-in-process
    
    
    26,249
    
    
    
    20,773Finished goods
    
    
    556,302
    
    
    
    547,840$
    821,577
    
    
    $
    823,601
 5. Intangible Assets
 ®
  June 30, 2007Estimated
    
    
    GrossUseful Lives
    
    
    Carrying
    
    
    Accumulated(Years)
    
    
    Amount
    
    
    Amortization
    
    
    Net valueLicensed technology
    
    5
    
    
    $
    26,290
    
    
    $
    26,290
    
    
    $
    Patents and inventions
    
    6
    
    
    
    5,461,486
    
    
    
    616,309
    
    
    
    4,845,177Totals
    
    
    
    
    
    $
    5,487,776
    
    
    $
    642,599
    
    
    $
    4,845,177March 31, 2007Licensed technology
    
    5
    
    
    $
    26,290
    
    
    $
    26,290
    
    
    $
    Patents and inventions
    
    6
    
    
    
    712,900
    
    
    
    404,807
    
    
    
    308,093Totals
    
    
    
    
    
    $
    739,190
    
    
    $
    431,097
    
    
    $
    308,093
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Remainder of fiscal 2008
    
    $
    634,5052009
    
    
    845,9032010
    
    
    843,6192011 +
    
    
    2,521,150$
    4,845,177
 6. Deferred Rent
  7. Comprehensive Loss
  Three Months EndedJune 30,2007
    
    
    2006Net loss
    
    $
    (840,635
    )
    
    $
    (1,241,239
    )Items of other comprehensive income (loss):Translation adjustment
    
    
    22,127
    
    
    
    96,589Pension related
    
    
    (3,300
    )
    
    
    (11,403
    )Comprehensive loss
    
    $
    (821,808
    )
    
    $
    (1,156,053
    )
 8. Net Loss per Common Share
  Number of
    
    
    Range of ExerciseOptions/Warrants
    
    
    PricesFor the three months ended:June 30, 2007
    
    
    4,131,178
    
    
    $1.10 to $5.30June 30, 2006
    
    
    4,038,460
    
    
    $0.90 to $10.50
 9. Warrants
   Page 9




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10. Share-based Compensation
     Three Months Ended
    
    
    Three Months EndedJune 30, 2007
    
    
    June 30, 2006Expected life in years
    
    
    4.35
    
    
    
    8.97Risk-free interest rate
    
    
    4.67
    %
    
    
    5.06
    %Expected volatility
    
    
    108.28
    %
    
    
    100.26
    %Expected dividend yield
    
    
    0
    
    
    
    0Weighted-average fair value
    
    
    3.34
    
    
    
    2.18
    Weighted Avg.RemainingWeighted
    
    
    Contractual
    
    
    AggregateAvg. Exercise
    
    
    Life
    
    
    IntrinsicNumber of Shares
    
    
    Price
    
    
    (Years)
    
    
    ValueOptions outstanding at beginning of period
    
    
    2,169,866
    
    
    $
    3.62
    
    
    
    4.93Options granted
    
    
    35,000
    
    
    
    4.40
    
    
    
    4.87Options exercised
    
    
    (180,666
    )
    
    
    2.36
    
    
    
    Options surrendered
    
    
    (9,500
    )
    
    
    2.49
    
    
    
    Options outstanding at end of period
    
    
    2,014,700
    
    
    $
    3.75
    
    
    
    5.05
    
    
    $
    1,969,850Exercisable at end of period
    
    
    1,638,199
    
    
    $
    4.01
    
    
    
    4.86
    
    
    $
    1,347,916
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11. Savings and Retirement Plans
    Three Months EndedJune 30,2007
    
    
    2006Gross service cost
    
    $
    21,258
    
    
    $
    50,542Interest cost
    
    
    22,485
    
    
    
    30,413Expected return on assets
    
    
    (16,578
    )
    
    
    (17,444
    )Amortization
    
    
    1,590
    
    
    
    10,431Net periodic retirement cost
    
    $
    28,755
    
    
    $
    73,942
  Three Months EndedJune 30,2007
    
    
    2006Discount rate
    
    
    4.90-5.30
    %
    
    
    4.25-5.50
    %Expected return on assets
    
    
    4.90-5.00
    %
    
    
    4.00-5.00
    %Expected rate of increase in future
compensation:General
    
    
    3
    %
    
    
    3
    %Individual
    
    
    0%-3
    %
    
    
    0%-3
    %
 12. Foreign Currency Translation
   Page 11




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13. Income Tax Expense
      14. Business Segment and Geographic Information
    United
    
    The
    
    UnitedStates
    
    Netherlands
    
    Kingdom
    
    Eliminations *
    
    ConsolidatedFiscal 2008Sales, three months
ended June 30, 2007
    
    $
    1,350,794
    
    
    $
    1,736,778
    
    
    $
    515,653
    
    
    $
    (654,551
    )
    
    $
    2,948,674Income tax expense,
three months ended
June 30, 2007
    
    
    300
    
    
    
    95,856
    
    
    
    
    
    
    
    
    
    
    
    96,156Net income (loss),
three months ended
June 30, 2007
    
    
    (1,197,344
    )
    
    
    290,366
    
    
    
    (62,735
    )
    
    
    129,078
    
    
    
    (840,635
    )Long-lived assets
At June 30, 2007
    
    
    5,562,951
    
    
    
    734,575
    
    
    
    6,816
    
    
    
    
    
    
    
    6,304,342
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United
    
    The
    
    UnitedStates
    
    Netherlands
    
    Kingdom
    
    Eliminations *
    
    ConsolidatedFiscal 2007Sales, three months
ended June 30, 2006
    
    $
    298,300
    
    
    $
    1,163,129
    
    
    $
    529,437
    
    
    $
    (226,656
    )
    
    $
    1,764,210Income tax expense,
three months ended
June 30, 2006
    
    
    
    
    
    
    30,751
    
    
    
    
    
    
    
    
    
    
    
    30,751Net income (loss),
three months ended
June 30, 2006
    
    
    (1,347,945
    )
    
    
    107,927
    
    
    
    (57,675
    )
    
    
    56,454
    
    
    
    (1,241,239
    )Long-lived assets
At June 30, 2006
    
    
    1,079,198
    
    
    
    747,365
    
    
    
    4,282
    
    
    
    
    
    
    
    1,830,845
 
 *
    
    The information in the column entitled Eliminations represents intercompany transactions. 15. Recently Issued Accounting Standards
   Page 13




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ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
  Forward-looking Statements
     Overview
  Strategy
  
    
    Focus on office-based solutions for physicians.We believe that our company is uniquely
positioned to provide a broad product offering of office-based solutions for physicians.
By continuing to expand our U.S. presence, we intend to develop long-standing relationships
with leading physicians treating incontinence and overactive bladder symptoms. These
relationships will provide us with a source of new product ideas and a conduit through
which to introduce new products. We also intend to develop marketing programs to assist
physicians in marketing their practices and to provide innovative programs focused on
helping physicians attract patients and develop referral networks. Building these
relationships is an important part of our growth strategy, particularly for the development
and introduction of new products.
    
    Grow our U.S. sales and international distribution.We believe that in addition to
international markets, the U.S. is a significant opportunity for future sales of our
products. In order to grow our U.S. business, we have expanded our sales organization
(consisting of direct field personnel and independent sales
representatives) and marketing organization, and reimbursement department to market our products directly to our customers.
We anticipate further increasing, as needed, our sales and marketing organization in the
United States to support our sales growth. In addition, we intend to expand our European
presence by creating new distribution partnerships.
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
    
    Educate physicians and patients about the benefits of our Urgent PC neuromodulation
system.We believe education of physicians and patients regarding the benefits of our
Urgent PC is critical to the successful adoption of this product. To this end, we have
initiated a clinical trial, which is a U.S. multi-center randomized prospective study
comparing the Urgent PC device to the most commonly prescribed pharmaceutical treatment for
OAB symptoms. We believe the results of this and other studies, if successful, will allow
us to expand our marketing and sales efforts. These sales and marketing efforts may
include physician training and education programs which will emphasize the clinical
efficacy and ease of use of our Urgent PC product as well as patient-oriented marketing
materials for physicians to use to inform patients of the availability and potential
benefits of our Urgent PC product.
    
    Provide patient-driven alternatives.Patients often weigh the quality of life benefits
of electing to undergo a surgical procedure against the invasiveness of the procedure. We
intend to continue to expand our marketing efforts to build patient awareness of these
treatment alternatives and encourage patients to see physicians. We believe this will help
physicians build their practices and simultaneously increase sales of our products.
    
    Develop, license or acquire products.We believe that our broad and diverse product
offering is an important competitive advantage because it allows us to address the various
preferences of doctors and patients, as well as the quality of life issues presented by
voiding dysfunctions. An important part of our growth strategy is to broaden our product
line further to meet customer needs by developing new products internally, licensing or
acquiring new products through acquisitions.
 Our Products
   TM
 Sales and Marketing
  Page 15




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Critical Accounting Policies
  Revenue Recognition
 Accounts Receivable
 Inventories
 Foreign Currency Translation/Transactions
 Impairment of Long-Lived Assets
 Share-Based Compensation. Share-Based Payment,
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Defined Benefit Pension Plans.
 Income Taxes.
   Results of Operations
 Three months ended June 30, 2007 compared to three months ended June 30, 2006
     Page 17




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Liquidity and Capital Resources
 Cash Flows
   Sources of Liquidity
     Page 19




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Payments Due by PeriodRemainder
    
    
    Fiscal
    
    
    Fiscal
    
    
    Fiscalof Fiscal
    
    
    2009 and
    
    
    2011 and
    
    
    2013 andTotal
    
    
    2008
    
    
    2010
    
    
    2012
    
    
    thereafterMinimum royalty payments
    
    $
    180,000
    
    
    $
    40,500
    
    
    $
    108,000
    
    
    $
    31,500
    
    
    $
    Minimum purchase agreement
    
    
    2,329,911
    
    
    
    732,013
    
    
    
    1,092,575
    
    
    
    505,323
    
    
    
    Notes payable, including
interest
    
    
    600,403
    
    
    
    77,420
    
    
    
    161,230
    
    
    
    103,606
    
    
    
    258,147Operating lease commitments
    
    
    1,308,241
    
    
    
    203,492
    
    
    
    427,332
    
    
    
    370,108
    
    
    
    307,309Total contractual obligations
    
    $
    4,418,555
    
    
    $
    1,053,425
    
    
    $
    1,789,137
    
    
    $
    1,010,537
    
    
    $
    565,456
 
 ITEM 3. CONTROLS AND PROCEDURES.
 Evaluation of Disclosure Controls Procedures.
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Internal Control Matters
  Page 21




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PART II. OTHER INFORMATION
   
 ITEM 1. LEGAL PROCEEDINGS
  
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  ITEM 6. EXHIBITS.
    Page 22




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SIGNATURES
  UROPLASTY, INC.Date: August 13, 2007
    
    By:
    
    /s/ DAVID B. KAYSENDavid B. Kaysen
President and Chief Executive OfficerDate: August 13, 2007
    
    By:
    
    /s/ MAHEDI A. JIWANIMahedi A. Jiwani
Chief Financial Officer
 Page 23