##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
  þ
    
    Quarterly Report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934
 For the Quarterly Period Ended September 30, 2008
 o
    
    Transition Report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934
 For the Transition Period from  to .
 Commission File No. 000-20989
 
 UROPLASTY, INC.
  Minnesota, U.S.A.
    
    
    
    41-1719250(State or other jurisdiction of 
incorporation or organization)
    
    
    
    (I.R.S. Employer
Identification No.)
 5420 Feltl Road
Minnetonka, Minnesota, 55343
 (912) 426-6140
 þ o
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer o
    
    Smaller Reporting Company
þ(Do not check if a smaller reporting company)
 o þ




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##### 



Table of Contents
INDEX
 UROPLASTY INC. AND SUBSIDIARIES
 PART I. FINANCIAL INFORMATIONItem 1.
    
    Financial StatementsCondensed Consolidated Balance Sheets
    
    
    3Condensed Consolidated Statements of Operations
    
    
    5Condensed Consolidated Statement of Shareholders Equity and Comprehensive Loss
    
    
    6Condensed Consolidated Statements of Cash Flows
    
    
    7Notes to the Condensed Consolidated Financial Statements
    
    
    8Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    14Item 3.
    
    Quantitative and Qualitative Disclosures about Market Risk
    
    
    20Item 4.
    
    Controls and Procedures
    
    
    20PART II. OTHER INFORMATIONItem 1.
    
    Legal Proceedings
    
    
    21Item 1A.
    
    Risk Factors
    
    
    21Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    21Item 3.
    
    Defaults upon Senior Securities
    
    
    21Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    21Item 5.
    
    Other Information
    
    
    21Item 6.
    
    Exhibits
    
    
    21SIGNATURES
    
    
    22Certifications by the Chief Executive Officer and the Chief Financial Officer pursuant to Section 302
    
    
    23Certifications by the Chief Executive Officer and the Chief Financial Officer pursuant to Section 906
    
    
    25EX-31.1EX-32.1
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##### Table of Contents



PART I. FINANCIAL INFORMATION
 
 ITEM 1. FINANCIAL STATEMENTS
  
  September 30, 2008(unaudited)
    
    
    March 31, 2008AssetsCurrent assets:Cash and cash equivalents
    
    $
    3,675,592
    
    
    $
    3,880,044Short-term investments
    
    
    5,349,105
    
    
    
    6,266,037Accounts receivable, net
    
    
    1,690,285
    
    
    
    2,318,604Income tax receivable
    
    
    34,445
    
    
    
    50,841Inventories
    
    
    527,460
    
    
    
    558,657Other
    
    
    359,598
    
    
    
    244,517Total current assets
    
    
    11,636,485
    
    
    
    13,318,700Property, plant, and equipment, net
    
    
    1,546,601
    
    
    
    1,638,953Intangible assets, net
    
    
    3,778,949
    
    
    
    4,200,890Prepaid pension asset
    
    
    36,482
    
    
    
    26,482Deferred tax assets
    
    
    105,961
    
    
    
    105,298Total assets
    
    $
    17,104,478
    
    
    $
    19,290,323
  Page 3




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##### Table of Contents



September 30, 2008(unaudited)
    
    
    March 31, 2008Liabilities and Shareholders EquityCurrent liabilities:Current maturities  long-term debt
    
    $
    
    
    
    $
    84,879Deferred rent  current
    
    
    35,000
    
    
    
    35,000Accounts payable
    
    
    504,126
    
    
    
    661,624Accrued liabilities:Compensation
    
    
    952,034
    
    
    
    1,471,950Other
    
    
    339,260
    
    
    
    486,480Total current liabilities
    
    
    1,830,420
    
    
    
    2,739,933Long-term debt  less current maturities
    
    
    
    
    
    
    413,279Deferred rent  less current portion
    
    
    164,277
    
    
    
    180,979Accrued pension liability
    
    
    290,744
    
    
    
    353,411Total liabilities
    
    
    2,285,441
    
    
    
    3,687,602Shareholders equity:Common stock
$.01 par value; 40,000,000 shares authorized, 14,946,540
shares issued and outstanding at
September 30, 2008 and
14,916,540 shares issued and
outstanding at March 31, 2008
    
    
    149,465
    
    
    
    149,165Additional paid-in capital
    
    
    35,504,014
    
    
    
    35,014,313Accumulated deficit
    
    
    (20,802,842
    )
    
    
    (19,835,230
    )Accumulated other comprehensive
income (loss)
    
    
    (31,600
    )
    
    
    274,473Total shareholders equity
    
    
    14,819,037
    
    
    
    15,602,721Total liabilities and shareholders equity
    
    $
    17,104,478
    
    
    $
    19,290,323
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Three Months Ended
    
    
    Six Months EndedSeptember 30,
    
    
    September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Net sales
    
    $
    3,920,516
    
    
    $
    3,039,543
    
    
    $
    8,446,138
    
    
    $
    5,988,217Cost of goods sold
    
    
    549,199
    
    
    
    669,041
    
    
    
    1,257,166
    
    
    
    1,263,253Gross profit
    
    
    3,371,317
    
    
    
    2,370,502
    
    
    
    7,188,972
    
    
    
    4,724,964Operating expensesGeneral and administrative
    
    
    918,394
    
    
    
    1,147,432
    
    
    
    1,957,108
    
    
    
    1,955,806Research and development
    
    
    327,978
    
    
    
    426,997
    
    
    
    733,498
    
    
    
    933,122Selling and marketing
    
    
    2,505,598
    
    
    
    1,974,583
    
    
    
    5,125,632
    
    
    
    3,607,372Amortization of intangibles
    
    
    210,966
    
    
    
    206,482
    
    
    
    421,941
    
    
    
    423,0033,962,936
    
    
    
    3,755,494
    
    
    
    8,238,179
    
    
    
    6,919,303Operating loss
    
    
    (591,619
    )
    
    
    (1,384,992
    )
    
    
    (1,049,207
    )
    
    
    (2,194,339
    )Other income (expense)Interest income
    
    
    63,542
    
    
    
    65,239
    
    
    
    138,656
    
    
    
    141,622Interest expense
    
    
    (6,750
    )
    
    
    (9,279
    )
    
    
    (13,585
    )
    
    
    (20,644
    )Foreign currency exchange gain (loss)
    
    
    5,038
    
    
    
    (13,877
    )
    
    
    (732
    )
    
    
    (15,906
    )Other, net
    
    
    (4,687
    )
    
    
    
    
    
    
    (4,687
    )
    
    
    1,88057,143
    
    
    
    42,083
    
    
    
    119,652
    
    
    
    106,952Loss before income taxes
    
    
    (534,476
    )
    
    
    (1,342,909
    )
    
    
    (929,555
    )
    
    
    (2,087,387
    )Income tax expense
    
    
    26,487
    
    
    
    41,783
    
    
    
    38,057
    
    
    
    137,940Net loss
    
    $
    (560,963
    )
    
    $
    (1,384,692
    )
    
    $
    (967,612
    )
    
    $
    (2,225,327
    )Basic and diluted loss per common share
    
    $
    (0.04
    )
    
    $
    (0.10
    )
    
    $
    (0.06
    )
    
    $
    (0.17
    )Weighted average common shares
outstanding:Basic and diluted
    
    
    14,916,540
    
    
    
    13,342,284
    
    
    
    14,916,540
    
    
    
    13,162,862
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AccumulatedAdditional
    
    
    
    
    
    
    Other
    
    
    TotalCommon Stock
    
    
    Paid-in
    
    
    Accumulated
    
    
    Comprehensive
    
    
    ShareholdersShares
    
    
    Amount
    
    
    Capital
    
    
    Deficit
    
    
    Income (loss)
    
    
    EquityBalance at March
31, 2008
    
    
    14,916,540
    
    
    $
    149,165
    
    
    $
    35,014,313
    
    
    $
    (19,835,230
    )
    
    $
    274,473
    
    
    $
    15,602,721Share-based
consulting and
compensation
    
    
    30,000
    
    
    
    300
    
    
    
    489,701
    
    
    
    
    
    
    
    
    
    
    
    490,001Comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (967,612
    )
    
    
    (306,073
    )
    
    
    (1,273,685
    )Balance at
September 30, 2008
    
    
    14,946,540
    
    
    $
    149,465
    
    
    $
    35,504,014
    
    
    $
    (20,802,842
    )
    
    $
    (31,600
    )
    
    $
    14,819,037
  Page 6




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Six Months EndedSeptember 30,2008
    
    
    2007Cash flows from operating activities:Net loss
    
    $
    (967,612
    )
    
    $
    (2,225,327
    )Adjustments to reconcile net loss to net cash used in operating activities:Depreciation and amortization
    
    
    566,949
    
    
    
    529,766(Gain) Loss on disposal of equipment
    
    
    4,687
    
    
    
    (2,771
    )Share-based consulting expense
    
    
    36,409
    
    
    
    26,005Share-based compensation expense
    
    
    453,592
    
    
    
    644,637Deferred income taxes
    
    
    (10,164
    )
    
    
    2,474Deferred rent
    
    
    (17,500
    )
    
    
    (17,500
    )Changes in operating assets and liabilities:Accounts receivable
    
    
    537,959
    
    
    
    (498,578
    )Inventories
    
    
    (11,128
    )
    
    
    (16,176
    )Other current assets and income tax receivable
    
    
    (108,041
    )
    
    
    64,660Accounts payable
    
    
    (145,610
    )
    
    
    190,508Accrued liabilities
    
    
    (634,851
    )
    
    
    (80,460
    )Accrued pension liability, net
    
    
    (44,772
    )
    
    
    (305,435
    )Net cash used in operating activities
    
    
    (340,082
    )
    
    
    (1,688,197
    )Cash flows from investing activities:Proceeds from sale of short-term investments
    
    
    8,808,304
    
    
    
    1,800,000Purchase of short-term investments
    
    
    (7,891,373
    )
    
    
    (1,200,000
    )Purchases of property, plant and equipment
    
    
    (130,421
    )
    
    
    (135,984
    )Proceeds from sale of equipment
    
    
    
    
    
    
    4,417Payments for intangible assets
    
    
    
    
    
    
    (89,725
    )Net cash provided by investing activities
    
    
    786,510
    
    
    
    378,708Cash flows from financing activities:Proceeds from financing obligations
    
    
    
    
    
    
    178,374Repayment of debt obligations
    
    
    (455,913
    )
    
    
    (184,458
    )Net proceeds from issuance of common stock, warrants and option exercise
    
    
    
    
    
    
    768,298Net cash provided by (used in) financing activities
    
    
    (455,913
    )
    
    
    762,214Effect of exchange rates on cash and cash equivalents
    
    
    (194,967
    )
    
    
    93,320Net decrease in cash and cash equivalents
    
    
    (204,452
    )
    
    
    (453,955
    )Cash and cash equivalents at beginning of period
    
    
    3,880,044
    
    
    
    3,763,702Cash and cash equivalents at end of period
    
    $
    3,675,592
    
    
    $
    3,309,747Supplemental disclosure of cash flow information:Cash paid during the period for interest
    
    $
    13,612
    
    
    $
    17,024Cash paid during the period for income taxes
    
    
    35,474
    
    
    
    38,923Supplemental disclosure of non-cash financing and investing activities:Purchase of intellectual property funded by issuance of stock
    
    $
    
    
    
    $
    4,658,861
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1. Basis of Presentation
 
  2. Short-term Investments
  3. Inventories
  September 30, 2008
    
    
    March 31, 2008Raw materials
    
    $
    186,815
    
    
    $
    215,378Work-in-process
    
    
    29,870
    
    
    
    15,438Finished goods
    
    
    310,775
    
    
    
    327,841$
    527,460
    
    
    $
    558,657
  Page 8




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4. Intangible Assets
 Intangible Assets.
 September 30, 2008GrossEstimated
    
    
    Carrying
    
    
    AccumulatedLives (Years)
    
    
    Amount
    
    
    Amortization
    
    
    Net valueLicensed technology
    
    
    5
    
    
    $
    26,290
    
    
    $
    26,290
    
    
    $
    Patents and inventions
    
    
    6
    
    
    
    5,449,230
    
    
    
    1,670,281
    
    
    
    3,778,949$
    5,475,520
    
    
    $
    1,696,571
    
    
    $
    3,778,949
 March 31, 2008Licensed technology
    
    
    5
    
    
    $
    26,290
    
    
    $
    26,290
    
    
    $
    Patents and inventions
    
    
    6
    
    
    
    5,449,230
    
    
    
    1,248,340
    
    
    
    4,200,890$
    5,475,520
    
    
    $
    1,274,630
    
    
    $
    4,200,890
   Remainder of 2009
    
    $
    422,0002010
    
    
    840,0002011
    
    
    839,0002012
    
    
    839,0002013
    
    
    839,000$
    3,779,000
 5. Deferred Rent and Leasehold Improvements
  Page 9




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6. Comprehensive Loss
  Three Months Ended
    
    
    Six Months EndedSeptember 30,
    
    
    September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Net loss
    
    $
    (560,963
    )
    
    $
    (1,384,692
    )
    
    $
    (967,612
    )
    
    $
    (2,225,327
    )Items of other
comprehensive income
(loss):Translation adjustment
    
    
    (326,738
    )
    
    
    156,903
    
    
    
    (317,868
    )
    
    
    179,030Pension related
    
    
    11,774
    
    
    
    (8,365
    )
    
    
    11,795
    
    
    
    (11,665
    )Comprehensive loss
    
    $
    (875,927
    )
    
    $
    (1,236,154
    )
    
    $
    (1,273,685
    )
    
    $
    (2,057,962
    )
  7. Net Loss per Common Share
  Number of Restricted
    
    
    Range of ExerciseStock/Options/Warrants
    
    
    PricesFor the six months ended:September 30, 2008
    
    
    4,340,361
    
    
    $
    1.82 to $5.30September 30, 2007
    
    
    4,119,578
    
    
    $
    1.82 to $5.30
 8. Credit Facilities
  
 9. Warrants
   Page 10




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10. Share-based Compensation
    Six Months Ended
    
    
    Six Months EndedSeptember 30, 2008
    
    
    September 30, 2007Expected life in years
    
    
    4.08
    
    
    
    4.03Risk-free interest rate
    
    
    3.16
    %
    
    
    4.61
    %Expected volatility
    
    
    82.76
    %
    
    
    91.47
    %Expected dividend yield
    
    
    0
    
    
    
    0Weighted-average fair value
    
    $
    1.90
    
    
    $
    2.85
   Weighted Avg.Weighted
    
    
    Remaining
    
    
    AggregateNumber of
    
    
    Avg. Exercise
    
    
    Contractual
    
    
    IntrinsicShares
    
    
    Price
    
    
    Life (Years)
    
    
    ValueOptions outstanding at beginning of period
    
    
    2,038,100
    
    
    $
    4.01
    
    
    
    
    
    
    $
    Options granted
    
    
    232,000
    
    
    
    3.05Options exercised
    
    
    
    
    
    
    Options cancelled
    
    
    (76,667
    )
    
    
    3.93Options outstanding at end of period
    
    
    2,193,433
    
    
    $
    3.91
    
    
    
    4.44
    
    
    $
    78,900Exercisable at end of period
    
    
    1,877,178
    
    
    $
    4.01
    
    
    
    4.46
    
    
    $
    78,900
  Page 11




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Weighted
    
    
    Weighted Avg.Avg. Grant
    
    
    Remaining
    
    
    AggregateNumber of
    
    
    Date Fair
    
    
    Contractual
    
    
    IntrinsicShares
    
    
    Value
    
    
    Life (Years)
    
    
    ValueShares unvested at beginning of period
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    Shares granted
    
    
    30,000
    
    
    
    3.11Shares vested
    
    
    
    
    
    
    Shares cancelled
    
    
    
    
    
    
    Shares unvested at end of period
    
    
    30,000
    
    
    $
    3.11
    
    
    
    0.38
    
    
    $
    93,220
  11. Savings and Retirement Plans
    Three Months Ended
    
    
    Six Months EndedSeptember 30,
    
    
    September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Gross service cost
    
    $
    17,494
    
    
    $
    21,670
    
    
    $
    35,657
    
    
    $
    42,927Interest cost
    
    
    24,778
    
    
    
    22,910
    
    
    
    50,518
    
    
    
    45,395Expected return on assets
    
    
    4,187
    
    
    
    (16,891
    )
    
    
    8,520
    
    
    
    (33,469
    )Amortization
    
    
    1,044
    
    
    
    1,619
    
    
    
    2,127
    
    
    
    3,209Net periodic retirement cost
    
    $
    47,503
    
    
    $
    29,308
    
    
    $
    96,822
    
    
    $
    58,062
 Page 12




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SixMonths EndedSeptember 30,2008
    
    
    2007Discount rate
    
    
    6.10-6.70
    %
    
    
    4.90-5.30
    %Expected return on assets
    
    
    5.00-6.10
    %
    
    
    4.90-5.00
    %Expected rate of increase in future compensation:General
    
    
    3
    %
    
    
    3
    %Individual
    
    
    0%-3
    %
    
    
    0%-3
    %
   12. Foreign Currency Translation
   13. Income Tax Expense
 
   Page 13




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14. Recently Issued Accounting Standards
 Business Combinations
 Noncontrolling Interest in Consolidated Financial
Statements  An Amendment of ARB 51
 Fair Value Measurements" The Fair Value Option for Financial Assets and Financial Liabilities"
 
 ITEM 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
  Forward-looking Statements
   Critical Accounting Policies
   Page 14




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Overview
    Results of Operations
 Three months ended September 30, 2008 compared to three months ended September 30, 2007
    Page 15




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
 Six months ended September 30, 2008 compared to six months ended September 30, 2007
 .
   Page 16




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
   Page 17




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Three Months Ended
    
    
    Six Months EndedSeptember 30,
    
    
    September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Gross ProfitGAAP gross profit
    
    
    3,371,317
    
    
    $
    2,370,502
    
    
    
    7,188,972
    
    
    $
    4,724,964% of sales
    
    
    86
    %
    
    
    78
    %
    
    
    85
    %
    
    
    79
    %SFAS 123 (R) share-based
compensation
    
    
    8,879
    
    
    
    9,107
    
    
    
    25,253
    
    
    
    9,686Depreciation expenses
    
    
    13,057
    
    
    
    13,054
    
    
    
    25,847
    
    
    
    28,604Non-GAAP gross profit
    
    
    3,393,253
    
    
    
    2,392,663
    
    
    
    7,240,072
    
    
    
    4,763,254Operating ExpensesGAAP operating expenses
    
    
    3,962,936
    
    
    
    3,755,494
    
    
    
    8,238,179
    
    
    $
    6,919,303SFAS 123 (R) share-based
compensation
    
    
    198,131
    
    
    
    494,449
    
    
    
    464,748
    
    
    
    660,956Depreciation expenses
    
    
    62,104
    
    
    
    46,379
    
    
    
    119,161
    
    
    
    78,159Amortization expenses
    
    
    210,966
    
    
    
    206,482
    
    
    
    421,941
    
    
    
    423,003Non-GAAP operating expenses
    
    
    3,491,735
    
    
    
    3,008,184
    
    
    
    7,232,329
    
    
    
    5,757,185Operating LossGAAP operating loss
    
    
    (591,619
    )
    
    
    (1,384,992
    )
    
    
    (1,049,207
    )
    
    
    (2,194,339
    )SFAS 123 (R) share-based
compensation
    
    
    207,010
    
    
    
    503,556
    
    
    
    490,001
    
    
    
    670,642Depreciation expenses
    
    
    75,161
    
    
    
    59,433
    
    
    
    145,008
    
    
    
    106,763Amortization expenses
    
    
    210,966
    
    
    
    206,482
    
    
    
    421,941
    
    
    
    423,003Non-GAAP operating gain (loss)
    
    
    (98,482
    )
    
    $
    (615,521
    )
    
    
    7,743
    
    
    $
    (993,931
    )
 Liquidity and Capital Resources
 Cash Flows
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##### Table of Contents



Sources of Liquidity
  
  Commitments and Contingencies.
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##### Table of Contents



ITEM 3. Quantitative and Qualitative Disclosures about Market Risk
 Foreign Currency Risk     Other Matters
 
 ITEM 4. Controls and Procedures
 (a) Evaluation of Disclosure Controls Procedures.
 (b) Changes in Internal Controls
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PART II. OTHER INFORMATION
 
 ITEM 1. Legal Proceedings
  
 ITEM 1A. Risk Factors
  
 ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds.
  
 ITEM 3. Defaults upon Senior Securities
  
 ITEM 4. Submission of Matters to a Vote of Security Holders
  Votes
    
    Votes
    
    Votes
    
    
    
    
    
    BrokerFor
    
    Against
    
    Withheld
    
    Abstentions
    
    Non-VotesProposal 1  Election of
Directors:Sven A. Wehrwein
    
    
    12,263,415
    
    
    
    
    
    
    
    1,385,744
    
    
    
    
    
    
    
    382,088R. Patrick Maxwell
    
    
    13,471,675
    
    
    
    
    
    
    
    177,484
    
    
    
    
    
    
    
    382,088Proposal 2  Amendment
of the 2006 Stock and
Incentive Plan:
    
    
    6,697,556
    
    
    
    2,652,079
    
    
    
    
    
    
    
    30,065
    
    
    
    4,650,577
 
 ITEM 5. Other Information
  
 ITEM 6. Exhibits
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##### Table of Contents



SIGNATURES
  UROPLASTY, INC.Date: November 3, 2008
    
    By:
    
    /s/ DAVID B. KAYSENDavid B. KaysenPresident and Chief Executive OfficerDate: November 3, 2008
    
    By:
    
    /s/ MAHEDI A. JIWANIMahedi A. JiwaniChief Financial Officer
 Page 22