##### 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 June 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
    
    (I.R.S. Employerincorporation or organization)
    
    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 Income
    
    
    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
    
    
    18Item 4. Controls and Procedures
    
    
    19PART II. OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    20Item 1A. Risk Factors
    
    
    20Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    20Item 3. Defaults upon Senior Securities
    
    
    20Item 4. Submission of Matters to a Vote of Security Holders
    
    
    20Item 5. Other Information
    
    
    20Item 6. Exhibits
    
    
    20SIGNATURES
    
    
    21Certifications 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 906Certifications by the CEO and CFOSection 906 Certifications of the CEO and CFO
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PART I. FINANCIAL INFORMATION
 
 ITEM 1. FINANCIAL STATEMENTS
  
  June 30, 2008
    
    
    March 31, 2008(unaudited)AssetsCurrent assets:Cash and cash equivalents
    
    $
    4,932,234
    
    
    $
    3,880,044Short-term investments
    
    
    4,308,304
    
    
    
    6,266,037Accounts receivable, net
    
    
    2,187,908
    
    
    
    2,318,604Income tax receivable
    
    
    58,370
    
    
    
    50,841Inventories
    
    
    527,583
    
    
    
    558,657Other
    
    
    404,276
    
    
    
    244,517Total current assets
    
    
    12,418,675
    
    
    
    13,318,700Property, plant, and equipment, net
    
    
    1,619,632
    
    
    
    1,638,953Intangible assets, net
    
    
    3,989,915
    
    
    
    4,200,890Prepaid pension asset
    
    
    33,265
    
    
    
    26,482Deferred tax assets
    
    
    107,946
    
    
    
    105,298Total assets
    
    $
    18,169,433
    
    
    $
    19,290,323
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June 30, 2008
    
    
    March 31, 2008(unaudited)Liabilities and Shareholders EquityCurrent liabilities:Current maturities  long-term debt
    
    $
    47,373
    
    
    $
    84,879Deferred rent  current
    
    
    35,000
    
    
    
    35,000Accounts payable
    
    
    451,659
    
    
    
    661,624Accrued liabilities:Compensation
    
    
    770,993
    
    
    
    1,471,950Other
    
    
    401,869
    
    
    
    486,480Total current liabilities
    
    
    1,706,894
    
    
    
    2,739,933Long-term debt  less current maturities
    
    
    392,384
    
    
    
    413,279Deferred rent  less current portion
    
    
    172,628
    
    
    
    180,979Accrued pension liability
    
    
    409,572
    
    
    
    353,411Total liabilities
    
    
    2,681,478
    
    
    
    3,687,602Shareholders equity:Common stock $.01 par value;
40,000,000
shares authorized, 14,946,540
and 14,916,540 shares issued and
outstanding at June 30 and
March 31, 2008, respectively
    
    
    149,465
    
    
    
    149,165Additional paid-in capital
    
    
    35,297,004
    
    
    
    35,014,313Accumulated deficit
    
    
    (20,241,878
    )
    
    
    (19,835,230
    )Accumulated other comprehensive
income
    
    
    283,364
    
    
    
    274,473Total shareholders equity
    
    
    15,487,955
    
    
    
    15,602,721Total liabilities and shareholders equity
    
    $
    18,169,433
    
    
    $
    19,290,323
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Three Months EndedJune 30,2008
    
    
    2007Net sales
    
    $
    4,525,622
    
    
    $
    2,948,674Cost of goods sold
    
    
    707,967
    
    
    
    594,212Gross profit
    
    
    3,817,655
    
    
    
    2,354,462Operating expensesGeneral and administrative
    
    
    1,038,714
    
    
    
    808,374Research and development
    
    
    405,519
    
    
    
    506,125Selling and marketing
    
    
    2,620,035
    
    
    
    1,632,789Amortization of intangibles
    
    
    210,975
    
    
    
    216,5214,275,243
    
    
    
    3,163,809Operating loss
    
    
    (457,588
    )
    
    
    (809,347
    )Other income (expense)Interest income
    
    
    75,115
    
    
    
    76,383Interest expense
    
    
    (6,834
    )
    
    
    (11,365
    )Foreign currency exchange loss
    
    
    (5,770
    )
    
    
    (2,029
    )Other, net
    
    
    
    
    
    
    1,87962,511
    
    
    
    64,868Loss before income taxes
    
    
    (395,077
    )
    
    
    (744,479
    )Income tax expense
    
    
    11,571
    
    
    
    96,156Net loss
    
    $
    (406,648
    )
    
    $
    (840,635
    )Basic and diluted loss per common share
    
    $
    (0.03
    )
    
    $
    (0.06
    )Weighted average common shares outstanding:Basic and diluted
    
    
    14,916,540
    
    
    
    12,981,466
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AccumulatedAdditional
    
    
    
    
    
    
    Other
    
    
    TotalCommon Stock
    
    
    Paid-in
    
    
    Accumulated
    
    
    Comprehensive
    
    
    ShareholdersShares
    
    
    Amount
    
    
    Capital
    
    
    Deficit
    
    
    Income
    
    
    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
    
    
    
    282,691
    
    
    
    
    
    
    
    
    
    
    
    282,991Comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (406,648
    )
    
    
    8,891
    
    
    
    (397,757
    )Balance at June 30,
2008
    
    
    14,946,540
    
    
    $
    149,465
    
    
    $
    35,297,004
    
    
    $
    (20,241,878
    )
    
    $
    283,364
    
    
    $
    15,487,955
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Three Months EndedJune 30,2008
    
    
    2007Cash flows from operating activities:Net loss
    
    $
    (406,648
    )
    
    $
    (840,635
    )Adjustments to reconcile net loss to net cash used in operating activities:Depreciation and amortization
    
    
    280,822
    
    
    
    263,850Gain on disposal of equipment
    
    
    
    
    
    
    (2,771
    )Stock-based consulting expense
    
    
    16,029
    
    
    
    14,067Stock-based compensation expense
    
    
    266,962
    
    
    
    153,019Deferred income taxes
    
    
    (2,637
    )
    
    
    572Deferred rent
    
    
    (8,750
    )
    
    
    (8,750
    )Changes in operating assets and liabilities:Accounts receivable
    
    
    129,863
    
    
    
    (524,327
    )Inventories
    
    
    32,627
    
    
    
    10,651Other current assets and income tax receivable
    
    
    (167,223
    )
    
    
    (926
    )Accounts payable
    
    
    (208,510
    )
    
    
    (97,291
    )Accrued liabilities
    
    
    (784,377
    )
    
    
    (472,737
    )Accrued pension liability, net
    
    
    48,922
    
    
    
    (145,556
    )Net cash used in operating activities
    
    
    (802,920
    )
    
    
    (1,650,834
    )Cash flows from investing activities:Proceeds from sale of short-term investments
    
    
    4,500,000
    
    
    
    600,000Purchase of short-term investments
    
    
    (2,542,267
    )
    
    
    Purchases of property, plant and equipment
    
    
    (50,750
    )
    
    
    (78,948
    )Proceeds from sale of equipment
    
    
    
    
    
    
    9,952Payments for intangible assets
    
    
    
    
    
    
    (89,725
    )Net cash provided by investing activities
    
    
    1,906,983
    
    
    
    441,279Cash flows from financing activities:Proceeds from financing obligations
    
    
    
    
    
    
    178,374Repayment of debt obligations
    
    
    (58,187
    )
    
    
    (115,067
    )Net proceeds from issuance of common stock, warrants and option exercise
    
    
    
    
    
    
    575,998Net cash provided by (used in) financing activities
    
    
    (58,187
    )
    
    
    639,305Effect of exchange rates on cash and cash equivalents
    
    
    6,314
    
    
    
    11,232Net increase in cash and cash equivalents
    
    
    1,052,190
    
    
    
    559,018Cash and cash equivalents at beginning of period
    
    
    3,880,044
    
    
    
    3,763,702Cash and cash equivalents at end of period
    
    $
    4,932,234
    
    
    $
    3,204,684Supplemental disclosure of cash flow information:Cash paid during the period for interest
    
    $
    6,850
    
    
    $
    9,099Cash paid during the period for income taxes
    
    
    19,759
    
    
    
    15,573Supplemental 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
  June 30, 2008
    
    
    March 31, 2008Raw materials
    
    $
    186,178
    
    
    $
    215,378Work-in-process
    
    
    18,230
    
    
    
    15,438Finished goods
    
    
    323,175
    
    
    
    327,841$
    527,583
    
    
    $
    558,657
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4. Intangible Assets
 Intangible Assets.
 June 30, 2008GrossEstimated
    
    
    Carrying
    
    
    AccumulatedLives (Years)
    
    
    Amount
    
    
    Amortization
    
    
    Net valueLicensed technology
    
    
    5
    
    
    $
    26,290
    
    
    $
    26,290
    
    
    $
    Patents and inventions
    
    
    6
    
    
    
    5,449,230
    
    
    
    1,459,315
    
    
    
    3,989,915$
    5,475,520
    
    
    $
    1,485,605
    
    
    $
    3,989,915March 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
    
    $
    633,0002010
    
    
    840,0002011
    
    
    839,0002012
    
    
    839,0002013
    
    
    839,000$
    3,990,000
 5. Deferred Rent and Leasehold Improvements
  6. Comprehensive Loss
  Three Months EndedJune 30,2008
    
    
    2007Net loss
    
    $
    (406,648
    )
    
    $
    (840,635
    )Items of other comprehensive income (loss):Accumulated translation adjustment
    
    
    8,870
    
    
    
    22,127Pension related
    
    
    21
    
    
    
    (3,300
    )Comprehensive loss
    
    $
    (397,757
    )
    
    $
    (821,808
    )
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7. Net Loss per Common Share
  Number of Restricted
    
    
    Range of ExerciseStock/Options/Warrants
    
    
    PricesFor the three months ended:June 30, 2008
    
    
    4,324,528
    
    
    $
    1.82 to $5.30June 30, 2007
    
    
    4,131,178
    
    
    $
    1.10 to $5.30
 8. Warrants
    9. Share-based Compensation
    Three Months Ended
    
    
    Three Months EndedJune 30, 2008
    
    
    June 30, 2007Expected life in years
    
    
    4.31
    
    
    
    4.35Risk-free interest rate
    
    
    3.35
    %
    
    
    4.67
    %Expected volatility
    
    
    82.41
    %
    
    
    108.28
    %Expected dividend yield
    
    
    0
    
    
    
    0Weighted-average fair value
    
    $
    2.01
    
    
    $
    3.34
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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
    
    
    194,500
    
    
    
    3.17Options exercised
    
    
    
    
    
    
    Options cancelled
    
    
    (55,000
    )
    
    
    4.01Options outstanding at end of period
    
    
    2,177,600
    
    
    $
    3.94
    
    
    
    4.68
    
    
    $
    447,675Exercisable at end of period
    
    
    1,763,846
    
    
    $
    4.08
    
    
    
    4.76
    
    
    $
    357,700
  Weighted
    
    
    Weighted Avg.Avg. Grant
    
    
    Remaining
    
    
    AggregateNumber of
    
    
    Date Fair
    
    
    Contractual
    
    
    IntrinsicShares
    
    
    Value
    
    
    Life (Years)
    
    
    ValueRS unvested at beginning of period
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    RS granted
    
    
    30,000
    
    
    
    3.11RS vested
    
    
    
    
    
    
    RS cancelled
    
    
    
    
    
    
    RS unvested at end of period
    
    
    30,000
    
    
    $
    3.11
    
    
    
    0.63
    
    
    $
    93,220
  10. Savings and Retirement Plans
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Three Months EndedJune 30,2008
    
    
    2007Gross service cost
    
    $
    18,162
    
    
    $
    21,258Interest cost
    
    
    25,740
    
    
    
    22,485Expected return on assets
    
    
    4,333
    
    
    
    (16,578
    )Amortization
    
    
    1,083
    
    
    
    1,590Net periodic retirement cost
    
    $
    49,319
    
    
    $
    28,755
  ThreeMonths EndedJune 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
    %
   11. Foreign Currency Translation
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12. Income Tax Expense
     13. 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"
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ITEM 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
  Forward-looking Statements
     Overview
  Strategy
  
    
    Educate physicians about the benefits of our Urgent PC system;
    
    Build patient awareness of office-based solutions;
    
    Focus on office-based solutions for physicians;
    
    Increase market coverage in the United States and internationally; and
    
    Develop, acquire or license new products.
 
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Our Products
    ® ®
 Sales, Distribution and Marketing
  Critical Accounting Policies
    Results of Operations
 Three months ended June 30, 2008 compared to three months ended June 30, 2007
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Three Months EndedJune 30,2008
    
    
    2007Gross ProfitGAAP gross profit
    
    $
    3,817,655
    
    
    $
    2,354,462% of sales
    
    
    84
    %
    
    
    80
    %SFAS 123 (R) stock-based compensation
    
    
    16,375
    
    
    
    579Depreciation expense
    
    
    12,790
    
    
    
    15,550Non-GAAP gross profit
    
    
    3,846,820
    
    
    
    2,370,591Operating ExpensesGAAP operating expenses
    
    
    4,275,243
    
    
    $
    3,163,809SFAS 123 (R) stock-based compensation
    
    
    266,616
    
    
    
    166,506Depreciation expense
    
    
    57,057
    
    
    
    31,779Amortization expense
    
    
    210,975
    
    
    
    216,521Non-GAAP operating expenses
    
    
    3,740,595
    
    
    
    2,749,003Operating LossGAAP operating loss
    
    
    (457,588
    )
    
    
    (809,347
    )SFAS 123 (R) stock-based compensation
    
    
    282,991
    
    
    
    167,085Depreciation expense
    
    
    69,847
    
    
    
    47,329Amortization expense
    
    
    210,975
    
    
    
    216,521Non-GAAP operating income (loss)
    
    $
    106,225
    
    
    $
    (378,412
    )
 Liquidity and Capital Resources
 Cash Flows
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Sources of Liquidity
   Commitments and Contingencies.
      
 ITEM 3. Quantitative and Qualitative Disclosures about Market Risk
 Foreign Currency Risk
 Page 18




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Other Matters
 
 ITEM 4. Controls and Procedures
 (a) Evaluation of Disclosure Controls Procedures.
 (b) Changes in Internal Controls
  Page 19




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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
  
 ITEM 5. Other Information
  
 ITEM 6. Exhibits
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SIGNATURES
  UROPLASTY, INC.Date:  August 1, 2008
    By:
    /s/ DAVID B. KAYSENDavid B. KaysenPresident and Chief Executive OfficerDate:  August 1, 2008
    By:
    /s/ MAHEDI A. JIWANIMahedi A. JiwaniChief Financial Officer Page 21