##### 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 December 31, 2009
 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. 001-32632
 (UROPLASTY LOGO)
 UROPLASTY, INC.
  Minnesota, U.S.A.
(State or other jurisdiction of 
incorporation or organization)
    
    41-1719250
(I.R.S. Employer
Identification No.)
 5420 Feltl Road
Minnetonka, Minnesota, 55343
 (952) 426-6140
 þ o
 o 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
    
    
    15Item 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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PART I. FINANCIAL INFORMATION
 
 ITEM 1. FINANCIAL STATEMENTS
  
  December 31, 2009
    
    March 31, 2009(unaudited)AssetsCurrent assets:Cash and cash equivalents
    
    $
    2,403,132
    
    
    $
    3,276,299Short-term investments
    
    
    3,500,000
    
    
    
    4,500,000Accounts receivable, net
    
    
    1,204,466
    
    
    
    1,214,049Inventories
    
    
    416,632
    
    
    
    495,751Other
    
    
    266,901
    
    
    
    279,898Total current assets
    
    
    7,791,131
    
    
    
    9,765,997Property, plant, and equipment, net
    
    
    1,311,307
    
    
    
    1,401,229Intangible assets, net
    
    
    2,744,143
    
    
    
    3,378,648Prepaid pension asset
    
    
    93,040
    
    
    
    66,130Deferred tax assets
    
    
    79,946
    
    
    
    68,793Total assets
    
    $
    12,019,567
    
    
    $
    14,680,797
  Page 3




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December 31, 2009
    
    
    March 31, 2009(unaudited)Liabilities and Shareholders EquityCurrent liabilities:Current portion  deferred rent
    
    $
    35,000
    
    
    $
    35,000Accounts payable
    
    
    292,087
    
    
    
    604,593Income tax payable
    
    
    
    
    
    
    56,785Accrued liabilities:Compensation
    
    
    888,083
    
    
    
    983,052Other
    
    
    181,611
    
    
    
    248,568Total current liabilities
    
    
    1,396,781
    
    
    
    1,927,998Deferred rent  less current portion
    
    
    121,307
    
    
    
    147,576Accrued pension liability
    
    
    321,471
    
    
    
    296,646Total liabilities
    
    
    1,839,559
    
    
    
    2,372,220Commitments and Contingencies
    
    
    
    
    
    
    Shareholders equity:Common stock $.01 par value;
40,000,000
shares authorized, 14,946,540
shares issued and outstanding
at December 31 and March 31,
2009
    
    
    149,465
    
    
    
    149,465Additional paid-in capital
    
    
    36,120,202
    
    
    
    35,763,619Accumulated deficit
    
    
    (26,040,519
    )
    
    
    (23,413,350
    )Accumulated other comprehensive
loss
    
    
    (49,140
    )
    
    
    (191,157
    )Total shareholders equity
    
    
    10,180,008
    
    
    
    12,308,577Total liabilities and shareholders equity
    
    $
    12,019,567
    
    
    $
    14,680,797
  Page 4




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Three Months Ended
    
    
    Nine Months EndedDecember 31,
    
    
    December 31,2009
    
    
    2008
    
    
    2009
    
    
    2008Net sales
    
    $
    3,068,142
    
    
    $
    3,387,285
    
    
    $
    8,880,546
    
    
    $
    11,833,422Cost of goods sold
    
    
    505,399
    
    
    
    533,987
    
    
    
    1,592,443
    
    
    
    1,791,153Gross profit
    
    
    2,562,743
    
    
    
    2,853,298
    
    
    
    7,288,103
    
    
    
    10,042,269Operating expensesGeneral and administrative
    
    
    639,608
    
    
    
    713,545
    
    
    
    2,201,199
    
    
    
    2,670,653Research and development
    
    
    401,481
    
    
    
    723,673
    
    
    
    1,365,194
    
    
    
    1,457,170Selling and marketing
    
    
    1,702,900
    
    
    
    2,125,274
    
    
    
    5,728,242
    
    
    
    7,250,906Amortization
    
    
    211,189
    
    
    
    211,626
    
    
    
    634,505
    
    
    
    633,5672,955,178
    
    
    
    3,774,118
    
    
    
    9,929,140
    
    
    
    12,012,296Operating loss
    
    
    (392,435
    )
    
    
    (920,820
    )
    
    
    (2,641,037
    )
    
    
    (1,970,027
    )Other income (expense)Interest income
    
    
    21,468
    
    
    
    24,001
    
    
    
    77,097
    
    
    
    162,657Interest expense
    
    
    (1,291
    )
    
    
    (1,787
    )
    
    
    (10,986
    )
    
    
    (15,372
    )Foreign currency exchange loss
    
    
    (8,335
    )
    
    
    
    
    
    
    (23,030
    )
    
    
    (731
    )Other, net
    
    
    
    
    
    
    
    
    
    
    (183
    )
    
    
    (4,687
    )11,842
    
    
    
    22,214
    
    
    
    42,898
    
    
    
    141,867Loss before income taxes
    
    
    (380,593
    )
    
    
    (898,606
    )
    
    
    (2,598,139
    )
    
    
    (1,828,160
    )Income tax expense (benefit)
    
    
    6,143
    
    
    
    (4,684
    )
    
    
    29,030
    
    
    
    33,374Net loss
    
    $
    (386,736
    )
    
    $
    (893,922
    )
    
    $
    (2,627,169
    )
    
    $
    (1,861,534
    )Basic and diluted loss per common share
    
    $
    (0.03
    )
    
    $
    (0.06
    )
    
    $
    (0.18
    )
    
    $
    (0.12
    )Weighted average common shares
outstanding:Basic and diluted
    
    
    14,946,540
    
    
    
    14,924,540
    
    
    
    14,943,638
    
    
    
    14,919,216
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Additional
    
    
    
    
    
    Accumulated
    
    TotalCommon Stock
    
    Paid-in
    
    Accumulated
    
    Other Comprehensive
    
    ShareholdersShares
    
    Amount
    
    Capital
    
    Deficit
    
    Income (loss)
    
    EquityBalance at March
31, 2009
    
    
    14,946,540
    
    
    $
    149,465
    
    
    $
    35,763,619
    
    
    $
    (23,413,350
    )
    
    $
    (191,157
    )
    
    $
    12,308,577Share-based
compensation
    
    
    
    
    
    
    
    
    
    
    356,583
    
    
    
    
    
    
    
    
    
    
    
    356,583Comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,627,169
    )
    
    
    142,017
    
    
    
    (2,485,152
    )Balance at December
31, 2009
    
    
    14,946,540
    
    
    $
    149,465
    
    
    $
    36,120,202
    
    
    $
    (26,040,519
    )
    
    $
    (49,140
    )
    
    $
    10,180,008
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Nine Months EndedDecember 31,2009
    
    
    2008Cash flows from operating activities:Net loss
    
    $
    (2,627,169
    )
    
    $
    (1,861,534
    )Adjustments to reconcile net loss to net cash used in operating activities:Depreciation and amortization
    
    
    852,370
    
    
    
    849,933Loss on disposal of equipment
    
    
    183
    
    
    
    4,687Share-based consulting expense
    
    
    
    
    
    
    52,567Share-based compensation expense
    
    
    356,583
    
    
    
    583,013Deferred income taxes
    
    
    (5,299
    )
    
    
    (11,531
    )Deferred rent
    
    
    (26,250
    )
    
    
    (26,250
    )Changes in operating assets and liabilities:Accounts receivable
    
    
    71,404
    
    
    
    668,510Inventories
    
    
    112,460
    
    
    
    (34,427
    )Other current assets and income tax receivable
    
    
    (44,238
    )
    
    
    8,173Accounts payable
    
    
    (324,094
    )
    
    
    (91,686
    )Accrued liabilities
    
    
    (221,266
    )
    
    
    (802,027
    )Accrued pension liability, net and income tax payable
    
    
    (20,141
    )
    
    
    (7,585
    )Net cash used in operating activities
    
    
    (1,875,457
    )
    
    
    (668,157
    )Cash flows from investing activities:Proceeds from sale of short-term investments
    
    
    3,000,000
    
    
    
    14,157,410Purchase of short-term investments
    
    
    (2,000,000
    )
    
    
    (7,891,373
    )Purchases of property, plant and equipment
    
    
    (70,354
    )
    
    
    (181,354
    )Proceeds from sale of property, plant and equipment
    
    
    2,000
    
    
    
    Payments for intangible assets
    
    
    
    
    
    
    (23,282
    )Net cash provided by investing activities
    
    
    931,646
    
    
    
    6,061,401Cash flows from financing activities:Repayment of debt obligations
    
    
    
    
    
    
    (455,913
    )Net cash used in financing activities
    
    
    
    
    
    
    (455,913
    )Effect of exchange rates on cash and cash equivalents
    
    
    70,644
    
    
    
    (255,095
    )Net increase (decrease) in cash and cash equivalents
    
    
    (873,167
    )
    
    
    4,682,236Cash and cash equivalents at beginning of period
    
    
    3,276,299
    
    
    
    3,880,044Cash and cash equivalents at end of period
    
    $
    2,403,132
    
    
    $
    8,562,280Supplemental disclosure of cash flow information:Cash paid during the period for interest
    
    $
    6,145
    
    
    $
    13,612Cash paid during the period for income taxes
    
    
    121,655
    
    
    
    53,739
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1. Basis of Presentation
    2. Short-term Investments
  3. Accounts Receivable
  Page 8




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4. Inventories
  December 31, 2009
    
    
    March 31, 2009Raw materials
    
    $
    167,423
    
    
    $
    227,054Work-in-process
    
    
    37,633
    
    
    
    23,326Finished goods
    
    
    211,576
    
    
    
    245,371$
    416,632
    
    
    $
    495,751
 5. Intangible Assets
 Intangible Assets.
 GrossEstimated
    
    
    Carrying
    
    
    AccumulatedLives (Years)
    
    
    Amount
    
    
    Amortization
    
    
    Net valueDecember 31, 2009Patents and licensed technology
    
    
    6
    
    
    $
    5,472,512
    
    
    $
    2,728,369
    
    
    $
    2,744,143
 March 31, 2009Patents and licensed technology
    
    
    6
    
    
    $
    5,472,512
    
    
    $
    2,093,864
    
    
    $
    3,378,648
  Remainder of 2010
    
    $
    211,0002011
    
    
    843,0002012
    
    
    842,0002013
    
    
    842,0002014
    
    
    4,0002015 and beyond
    
    
    2,000$
    2,744,000
 6. Deferred Rent and Leasehold Improvements
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7. Comprehensive Loss
  Three Months Ended
    
    
    Nine Months EndedDecember 31,
    
    
    December 31,2009
    
    
    2008
    
    
    2009
    
    
    2008Net loss
    
    $
    (386,736
    )
    
    $
    (893,922
    )
    
    $
    (2,627,169
    )
    
    $
    (1,861,534
    )Items of other comprehensive income (loss):Accumulated translation adjustment
    
    
    (30,808
    )
    
    
    (115,013
    )
    
    
    145,259
    
    
    
    (432,881
    )Minimum pension obligation
    
    
    1,475
    
    
    
    4,094
    
    
    
    (3,242
    )
    
    
    15,889Comprehensive loss
    
    $
    (416,069
    )
    
    $
    (1,004,841
    )
    
    $
    (2,485,152
    )
    
    $
    (2,278,526
    )
  8. Net Loss per Common Share
  Number of Restricted
    
    
    Range ofStock/Options/Warrants
    
    
    Exercise PricesDecember 31, 2009
    
    
    4,141,928
    
    
    $
    0.71 to $5.19December 31, 2008
    
    
    4,282,028
    
    
    $
    1.82 to $5.30
 9. Credit Facilities
 
  10. Warrants
   Page 10




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11. Share-based Compensation
    Nine months Ended
    
    
    Nine months EndedDecember 31, 2009
    
    
    December 31, 2008Expected life in years
    
    
    4.83
    
    
    
    4.06Risk-free interest rate
    
    
    2.74
    %
    
    
    3.13
    %Expected volatility
    
    
    94.21
    %
    
    
    82.70
    %Expected dividend yield
    
    
    0
    
    
    
    0Weighted-average fair value
    
    $
    0.60
    
    
    $
    1.88
   WeightedWeighted
    
    
    average
    
    
    AggregateNumber of
    
    
    average
    
    
    remaining life
    
    
    intrinsicshares
    
    
    exercise price
    
    
    in years
    
    
    valueOptions outstanding at March 31, 2009
    
    
    2,134,500
    
    
    $
    3.93
    
    
    
    4.02
    
    
    $
    Options granted
    
    
    380,000
    
    
    
    0.83Options exercised
    
    
    Options expired and cancelled
    
    
    (439,500
    )
    
    
    4.97Options outstanding at December 31, 2009
    
    
    2,075,000
    
    
    $
    3.14
    
    
    
    4.16
    
    
    $
    251,725Exercisable at December 31, 2009
    
    
    1,777,662
    
    
    $
    3.41
    
    
    
    4.16
    
    
    $
    120,407
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Weighted
    
    
    Weighted average
    
    
    AggregateNumber of
    
    
    average grant
    
    
    remaining life in
    
    
    intrinsicShares
    
    
    date fair value
    
    
    years
    
    
    valueBalance at March 31, 2009
    
    
    14,000
    
    
    $
    3.15
    
    
    
    0.16
    
    
    $
    44,100Shares granted
    
    
    
    
    
    
    Shares vested
    
    
    14,000
    
    
    
    3.15Shares cancelled
    
    
    
    
    
    
    Balance at December 31, 2009
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    
  12. Savings and Retirement Plans
    Three Months Ended
    
    
    Nine Months EndedDecember 31,
    
    
    December 31,2009
    
    
    2008
    
    
    2009
    
    
    2008Gross service cost
    
    $
    16,692
    
    
    $
    15,276
    
    
    $
    48,278
    
    
    $
    50,933Interest cost
    
    
    24,152
    
    
    
    21,350
    
    
    
    70,205
    
    
    
    71,868Expected return on assets
    
    
    1,579
    
    
    
    3,934
    
    
    
    4,188
    
    
    
    12,454Amortization
    
    
    (117
    )
    
    
    914
    
    
    
    (337
    )
    
    
    3,041Net periodic retirement cost
    
    $
    42,306
    
    
    $
    41,474
    
    
    $
    122,334
    
    
    $
    138,296
  Nine months EndedDecember 31,2009
    
    
    2008Discount rate
    
    
    6.60-6.70
    %
    
    
    6.10-6.70
    %Expected return on assets
    
    
    5.00-6.60
    %
    
    
    5.00-6.10
    %Expected rate of increase in future
compensation:General
    
    
    3
    %
    
    
    3
    %Individual
    
    
    0-3
    %
    
    
    0-3
    %
 Page 12




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13. Foreign Currency Translation
   14. Business Segment Information
  Segment Reporting,
  United
    
    
    The
    
    
    UnitedStates
    
    
    Netherlands
    
    
    Kingdom
    
    
    ConsolidatedThree months ended December 31, 2009Sales to customers
    
    $
    1,514,489
    
    
    $
    1,180,952
    
    
    $
    372,701
    
    
    $
    3,068,142Nine months ended December 31, 2009Sales to customers
    
    $
    4,477,944
    
    
    $
    3,246,190
    
    
    $
    1,156,412
    
    
    $
    8,880,546Long-lived assets at December 31, 2009
    
    
    3,313,103
    
    
    
    738,669
    
    
    
    96,718
    
    
    
    4,148,490Three months ended December 31, 2008Sales to customers
    
    $
    1,945,508
    
    
    $
    1,010,201
    
    
    $
    431,576
    
    
    $
    3,387,285Nine months ended December 31, 2008Sales to customers
    
    $
    6,377,191
    
    
    $
    3,915,638
    
    
    $
    1,540,593
    
    
    $
    11,833,422
  Page 13




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15. Income Tax Expense
        16. Recently Issued Accounting Standards
  The FASB Accounting Codification and the Hierarchy of
Generally Accepted Accounting Principles. The
Hierarchy of Generally Accepted Accounting Principles, TM
 Subsequent Events.
 Page 14




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17. Subsequent events
  
 ITEM 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
 We recommend that you read this Report on Form 10-Q in conjunction with our Annual Report on Form
10-K for the year ended March 31, 2009.
 Forward-looking Statements
   Critical Accounting Policies
   Page 15




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Overview
 ® ®
   The Journal of Urology ®
    Results of Operations
 Three and nine months ended December 31, 2009 compared to three and nine months ended December 31,
2008
   Page 16




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Page 17




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Page 18




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Three Months Ended
    
    
    Nine Months EndedDecember 31,
    
    
    December 31,2009
    
    
    2008
    
    
    2009
    
    
    2008Gross ProfitGAAP gross profit
    
    $
    2,562,743
    
    
    $
    2,853,298
    
    
    $
    7,288,103
    
    
    $
    10,042,269% of sales
    
    
    84
    %
    
    
    84
    %
    
    
    82
    %
    
    
    85
    %Share-based compensation
    
    
    4,771
    
    
    
    8,879
    
    
    
    23,218
    
    
    
    34,132Depreciation expense
    
    
    14,481
    
    
    
    12,436
    
    
    
    42,780
    
    
    
    38,283Non-GAAP gross profit
    
    
    2,581,995
    
    
    
    2,874,613
    
    
    
    7,354,101
    
    
    
    10,114,684Operating ExpensesGAAP operating expenses
    
    
    2,955,178
    
    
    
    3,774,118
    
    
    
    9,929,140
    
    
    
    12,012,296Share-based compensation
    
    
    60,351
    
    
    
    136,701
    
    
    
    333,365
    
    
    
    601,448Depreciation expense
    
    
    59,462
    
    
    
    58,922
    
    
    
    175,085
    
    
    
    178,083Amortization expense
    
    
    211,189
    
    
    
    211,626
    
    
    
    634,505
    
    
    
    633,567Non-GAAP operating expenses
    
    
    2,624,176
    
    
    
    3,366,869
    
    
    
    8,786,185
    
    
    
    10,599,198Operating LossGAAP operating loss
    
    
    (392,435
    )
    
    
    (920,820
    )
    
    
    (2,641,037
    )
    
    
    (1,970,027
    )Share-based compensation
    
    
    65,122
    
    
    
    145,580
    
    
    
    356,583
    
    
    
    635,580Depreciation expense
    
    
    73,943
    
    
    
    71,358
    
    
    
    217,865
    
    
    
    216,366Amortization expense
    
    
    211,189
    
    
    
    211,626
    
    
    
    634,505
    
    
    
    633,567Non-GAAP operating loss
    
    $
    (42,181
    )
    
    $
    (492,256
    )
    
    $
    (1,432,084
    )
    
    $
    (484,514
    )
 Liquidity and Capital Resources
 Cash Flows
     Page 19




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##### Table of Contents



Sources of Liquidity
 
   Commitments and Contingencies.
   
 ITEM 3.
    
    Quantitative and Qualitative Disclosures about Market Risk
  
 ITEM 4.
    
    Controls and Procedures
 Disclosure Controls and Procedures
 Internal Control Over Financial Reporting.
 Page 20




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##### Table of Contents



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
    Page 21




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##### Table of Contents



SIGNATURES
  UROPLASTY, INC.Date:  February 1, 2010
    By:
    /s/ DAVID B. KAYSENDavid B. KaysenPresident and Chief Executive OfficerDate:  February 1, 2010
    By:
    /s/ MAHEDI A. JIWANIMahedi A. JiwaniChief Financial Officer Page 22