##### 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, 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
 (952) 426-6140
 þ o
  Large accelerated filer oAccelerated filer oNon-accelerated filer o(Do not check if a smaller reporting company)Smaller reporting company þ 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
    
    
    25Exhibit 31.1Exhibit 31.1
  Page 2




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##### Table of Contents



PART I. FINANCIAL INFORMATION
 
 ITEM 1. FINANCIAL STATEMENTS
 
   December 31, 2008(unaudited)
    
    
    March 31, 2008AssetsCurrent assets:Cash and cash equivalents
    
    $
    8,562,280
    
    
    $
    3,880,044Short-term investments
    
    
    
    
    
    
    6,266,037Accounts receivable, net
    
    
    1,501,037
    
    
    
    2,318,604Income tax receivable
    
    
    56,488
    
    
    
    50,841Inventories
    
    
    549,653
    
    
    
    558,657Other
    
    
    215,086
    
    
    
    244,517Total current assets
    
    
    10,884,544
    
    
    
    13,318,700Property, plant, and equipment, net
    
    
    1,506,053
    
    
    
    1,638,953Intangible assets, net
    
    
    3,590,605
    
    
    
    4,200,890Prepaid pension asset
    
    
    33,984
    
    
    
    26,482Deferred tax assets
    
    
    104,840
    
    
    
    105,298Total assets
    
    $
    16,120,026
    
    
    $
    19,290,323
  Page 3




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##### Table of Contents



December 31, 2008(unaudited)
    
    
    March 31, 2008Liabilities and Shareholders EquityCurrent liabilities:Current maturities  long-term debt
    
    $
    
    
    
    $
    84,879Deferred rent  current
    
    
    35,000
    
    
    
    35,000Accounts payable
    
    
    542,976
    
    
    
    661,624Accrued liabilities:Compensation
    
    
    818,809
    
    
    
    1,471,950Other
    
    
    278,384
    
    
    
    486,480Total current liabilities
    
    
    1,675,169
    
    
    
    2,739,933Long-term debt  less current maturities
    
    
    
    
    
    
    413,279Deferred rent  less current portion
    
    
    155,927
    
    
    
    180,979Accrued pension liability
    
    
    329,155
    
    
    
    353,411Total liabilities
    
    
    2,160,251
    
    
    
    3,687,602Shareholders equity:Common stock $.01 par value;
40,000,000 shares authorized,
14,946,540 shares issued and outstanding at
December 31, 2008 and 14,916,540
shares issued and outstanding at
March 31, 2008
    
    
    149,465
    
    
    
    149,165Additional paid-in capital
    
    
    35,649,593
    
    
    
    35,014,313Accumulated deficit
    
    
    (21,696,764
    )
    
    
    (19,835,230
    )Accumulated other comprehensive
income (loss)
    
    
    (142,519
    )
    
    
    274,473Total shareholders equity
    
    
    13,959,775
    
    
    
    15,602,721Total liabilities and shareholders equity
    
    $
    16,120,026
    
    
    $
    19,290,323
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Three Months Ended
    
    
    Nine Months EndedDecember 31,
    
    
    December 31,2008
    
    
    2007
    
    
    2008
    
    
    2007Net sales
    
    $
    3,387,285
    
    
    $
    3,729,314
    
    
    $
    11,833,422
    
    
    $
    9,717,531Cost of goods sold
    
    
    533,987
    
    
    
    789,955
    
    
    
    1,791,153
    
    
    
    2,053,208Gross profit
    
    
    2,853,298
    
    
    
    2,939,359
    
    
    
    10,042,269
    
    
    
    7,664,323Operating expensesGeneral and administrative
    
    
    713,545
    
    
    
    799,193
    
    
    
    2,670,653
    
    
    
    2,755,000Research and development
    
    
    723,673
    
    
    
    460,374
    
    
    
    1,457,170
    
    
    
    1,393,496Selling and marketing
    
    
    2,125,274
    
    
    
    2,399,227
    
    
    
    7,250,906
    
    
    
    6,006,598Amortization of intangibles
    
    
    211,626
    
    
    
    209,862
    
    
    
    633,567
    
    
    
    632,8653,774,118
    
    
    
    3,868,656
    
    
    
    12,012,296
    
    
    
    10,787,959Operating loss
    
    
    (920,820
    )
    
    
    (929,297
    )
    
    
    (1,970,027
    )
    
    
    (3,123,636
    )Other income (expense)Interest income
    
    
    24,001
    
    
    
    74,928
    
    
    
    162,657
    
    
    
    216,550Interest expense
    
    
    (1,787
    )
    
    
    (6,497
    )
    
    
    (15,372
    )
    
    
    (27,141
    )Foreign currency exchange loss
    
    
    
    
    
    
    (37,632
    )
    
    
    (731
    )
    
    
    (53,538
    )Other, net
    
    
    
    
    
    
    2,134
    
    
    
    (4,687
    )
    
    
    4,01422,214
    
    
    
    32,933
    
    
    
    141,867
    
    
    
    139,885Loss before income taxes
    
    
    (898,606
    )
    
    
    (896,364
    )
    
    
    (1,828,160
    )
    
    
    (2,983,751
    )Income tax expense (benefit)
    
    
    (4,684
    )
    
    
    4,004
    
    
    
    33,374
    
    
    
    141,944Net loss
    
    $
    (893,922
    )
    
    $
    (900,368
    )
    
    $
    (1,861,534
    )
    
    $
    (3,125,695
    )Basic and diluted loss per common share
    
    $
    (0.06
    )
    
    $
    (0.06
    )
    
    $
    (0.12
    )
    
    $
    (0.23
    )Weighted average common shares
outstanding:Basic and diluted
    
    
    14,924,540
    
    
    
    14,119,583
    
    
    
    14,919,216
    
    
    
    13,482,928
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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
    
    
    
    635,280
    
    
    
    
    
    
    
    
    
    
    
    635,580Comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,861,534
    )
    
    
    (416,992
    )
    
    
    (2,278,526
    )Balance at December
31, 2008
    
    
    14,946,540
    
    
    $
    149,465
    
    
    $
    35,649,593
    
    
    $
    (21,696,764
    )
    
    $
    (142,519
    )
    
    $
    13,959,775
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Nine Months EndedDecember 31,2008
    
    
    2007Cash flows from operating activities:Net loss
    
    $
    (1,861,534
    )
    
    $
    (3,125,695
    )Adjustments to reconcile net loss to net cash used in operating activities:Depreciation and amortization
    
    
    849,933
    
    
    
    796,748(Gain) Loss on disposal of equipment
    
    
    4,687
    
    
    
    (2,769
    )Share-based consulting expense
    
    
    52,567
    
    
    
    37,942Share-based compensation expense
    
    
    583,013
    
    
    
    829,146Deferred income taxes
    
    
    (11,531
    )
    
    
    7,113Deferred rent
    
    
    (26,250
    )
    
    
    (26,250
    )Changes in operating assets and liabilities:Accounts receivable
    
    
    668,510
    
    
    
    (534,542
    )Inventories
    
    
    (34,427
    )
    
    
    64,390Other current assets and income tax receivable
    
    
    8,173
    
    
    
    191,921Accounts payable
    
    
    (91,686
    )
    
    
    94,198Accrued liabilities
    
    
    (802,027
    )
    
    
    312,158Accrued pension liability, net
    
    
    (7,585
    )
    
    
    (247,388
    )Net cash used in operating activities
    
    
    (668,157
    )
    
    
    (1,603,028
    )Cash flows from investing activities:Proceeds from sale of short-term investments
    
    
    14,157,410
    
    
    
    4,200,000Purchase of short-term investments
    
    
    (7,891,373
    )
    
    
    (3,648,447
    )Purchases of property, plant and equipment
    
    
    (181,354
    )
    
    
    (210,875
    )Proceeds from sale of equipment
    
    
    
    
    
    
    4,811Payments for intangible assets
    
    
    (23,282
    )
    
    
    (92,013
    )Net cash provided by investing activities
    
    
    6,061,401
    
    
    
    253,476Cash flows from financing activities:Proceeds from financing obligations
    
    
    
    
    
    
    178,374Repayment of debt obligations
    
    
    (455,913
    )
    
    
    (239,872
    )Net proceeds from issuance of common stock, warrants and option exercise
    
    
    
    
    
    
    5,374,233Net cash provided by (used in) financing activities
    
    
    (455,913
    )
    
    
    5,312,735Effect of exchange rates on cash and cash equivalents
    
    
    (255,095
    )
    
    
    131,929Net increase in cash and cash equivalents
    
    
    4,682,236
    
    
    
    4,095,112Cash and cash equivalents at beginning of period
    
    
    3,880,044
    
    
    
    3,763,702Cash and cash equivalents at end of period
    
    $
    8,562,280
    
    
    $
    7,858,814Supplemental disclosure of cash flow information:Cash paid during the period for interest
    
    $
    13,612
    
    
    $
    25,204Cash paid during the period for income taxes
    
    
    53,739
    
    
    
    87,900Supplemental disclosure of non-cash financing and investing activities:Purchase of intellectual property funded by issuance of stock
    
    $
    
    
    
    $
    4,658,861
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##### Table of Contents



1. Basis of Presentation
    2. Short-term Investments
  3. Accounts Receivable
  Page 8




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##### Table of Contents



4. Inventories
  December 31, 2008
    
    
    March 31, 2008Raw materials
    
    $
    205,611
    
    
    $
    215,378Work-in-process
    
    
    33,764
    
    
    
    15,438Finished goods
    
    
    310,278
    
    
    
    327,841$
    549,653
    
    
    $
    558,657
  5. Intangible Assets
 Intangible Assets.
 December 31, 2008GrossEstimated
    
    Carrying
    
    
    AccumulatedLives (Years)
    
    Amount
    
    
    Amortization
    
    
    Net valueLicensed technology
    
    
    5
    
    
    $
    26,290
    
    
    $
    26,290
    
    
    $
    Patents and inventions
    
    
    6
    
    
    
    5,472,512
    
    
    
    1,881,907
    
    
    
    3,590,605$
    5,498,802
    
    
    $
    1,908,197
    
    
    $
    3,590,605March 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
    
    $
    212,0002010
    
    
    846,0002011
    
    
    843,0002012
    
    
    842,0002013
    
    
    842,0002014 and beyond
    
    
    6,000$
    3,591,000
 Page 9




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6. Deferred Rent and Leasehold Improvements
  7. Comprehensive Loss
  Three Months Ended
    
    
    Nine Months EndedDecember 31,
    
    
    December 31,2008
    
    
    2007
    
    
    2008
    
    
    2007Net loss
    
    $
    (893,922
    )
    
    $
    (900,368
    )
    
    $
    (1,861,534
    )
    
    $
    (3,125,695
    )Items of other
comprehensive income
(loss):Translation adjustment
    
    
    (115,013
    )
    
    
    97,349
    
    
    
    (432,881
    )
    
    
    276,378Pension related
    
    
    4,094
    
    
    
    (771
    )
    
    
    15,889
    
    
    
    (12,435
    )Comprehensive loss
    
    $
    (1,004,841
    )
    
    $
    (803,790
    )
    
    $
    (2,278,526
    )
    
    $
    (2,861,752
    )
  8. Net Loss per Common Share
  Number of Restricted
    
    
    Range of ExerciseStock/Options/Warrants
    
    
    PricesFor the nine months ended:December 31, 2008
    
    
    4,282,028
    
    
    $
    1.82 to $5.30December 31, 2007
    
    
    4,147,528
    
    
    $
    1.82 to $5.30
 9. Credit Facilities
  Page 10




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
 10. Warrants
   11. Share-based Compensation
    Nine Months Ended
    
    
    Nine Months EndedDecember 31, 2008
    
    
    December 31, 2007Expected life in years
    
    
    4.06
    
    
    
    4.08Risk-free interest rate
    
    
    3.13
    %
    
    
    4.57
    %Expected volatility
    
    
    82.70
    %
    
    
    91.88
    %Expected dividend yield
    
    
    0
    
    
    
    0Weighted-average fair value
    
    $
    1.88
    
    
    $
    2.84
  Page 11




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##### Table of Contents



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
    
    
    237,000
    
    
    
    3.02Options exercised
    
    
    
    
    
    
    Options cancelled
    
    
    (90,000
    )
    
    
    3.81Options outstanding at end of period
    
    
    2,185,100
    
    
    $
    3.91
    
    
    
    4.21
    
    
    $
    Exercisable at end of period
    
    
    1,881,345
    
    
    $
    4.00
    
    
    
    4.23
    
    
    $
    
   Weighted
    
    
    Weighted Avg.Avg. Grant
    
    
    Remaining
    
    
    AggregateNumber of
    
    
    Date Fair
    
    
    Contractual Life
    
    
    IntrinsicShares
    
    
    Value
    
    
    (Years)
    
    
    ValueShares unvested at beginning of period
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    Shares granted
    
    
    30,000
    
    
    
    3.11Shares vested
    
    
    16,000
    
    
    
    3.07Shares cancelled
    
    
    
    
    
    
    Shares unvested at end of period
    
    
    14,000
    
    
    $
    3.15
    
    
    
    0.40
    
    
    $
    44,100
  12. Savings and Retirement Plans
   Page 12




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Three Months Ended
    
    
    Nine Months EndedDecember 31,
    
    
    December 31,2008
    
    
    2007
    
    
    2008
    
    
    2007Gross service cost
    
    $
    15,276
    
    
    $
    22,841
    
    
    $
    50,933
    
    
    $
    65,768Interest cost
    
    
    21,350
    
    
    
    23,837
    
    
    
    71,868
    
    
    
    69,232Expected return on assets
    
    
    3,934
    
    
    
    (17,560
    )
    
    
    12,454
    
    
    
    (51,029
    )Amortization
    
    
    914
    
    
    
    1,646
    
    
    
    3,041
    
    
    
    4,856Net periodic retirement cost
    
    $
    41,474
    
    
    $
    30,764
    
    
    $
    138,296
    
    
    $
    88,827
  NineMonths EndedDecember 31,2008
    
    
    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
    %
   13. Foreign Currency Translation
   Page 13




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14. Income Tax Expense
 
    15. 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
 Page 14




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ITEM 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
  Forward-looking Statements
   Critical Accounting Policies
   Overview
    Page 15




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Results of Operations
 Three and nine months ended December 31, 2008 compared to three and nine months ended December 31,
2007
        Page 16




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
  Page 17




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Three Months Ended
    
    
    Nine Months EndedDecember 31,
    
    
    December 31,2008
    
    
    2007
    
    
    2008
    
    
    2007Gross ProfitGAAP gross profit
    
    $
    2,853,298
    
    
    $
    2,939,359
    
    
    $
    10,042,269
    
    
    $
    7,664,323% of sales
    
    
    84
    %
    
    
    79
    %
    
    
    85
    %
    
    
    79
    %SFAS 123 (R) share-based
compensation
    
    
    8,879
    
    
    
    9,008
    
    
    
    34,132
    
    
    
    18,695Depreciation expenses
    
    
    12,436
    
    
    
    13,277
    
    
    
    38,283
    
    
    
    41,882Non-GAAP gross profit
    
    
    2,874,613
    
    
    
    2,961,644
    
    
    
    10,114,684
    
    
    
    7,724,900Operating ExpensesGAAP operating expenses
    
    
    3,774,118
    
    
    
    3,868,656
    
    
    
    12,012,296
    
    
    $
    10,787,959SFAS 123 (R) share-based
compensation
    
    
    136,701
    
    
    
    187,438
    
    
    
    601,448
    
    
    
    848,394Depreciation expenses
    
    
    58,922
    
    
    
    43,842
    
    
    
    178,083
    
    
    
    122,001Amortization expenses
    
    
    211,626
    
    
    
    209,862
    
    
    
    633,567
    
    
    
    632,865Non-GAAP operating expenses
    
    
    3,366,869
    
    
    
    3,427,514
    
    
    
    10,599,198
    
    
    
    9,184,699Operating LossGAAP operating loss
    
    
    (920,820
    )
    
    
    (929,297
    )
    
    
    (1,970,027
    )
    
    
    (3,123,636
    )SFAS 123 (R) share-based
compensation
    
    
    145,580
    
    
    
    196,446
    
    
    
    635,580
    
    
    
    867,089Depreciation expenses
    
    
    71,358
    
    
    
    57,119
    
    
    
    216,366
    
    
    
    163,883Amortization expenses
    
    
    211,626
    
    
    
    209,862
    
    
    
    633,567
    
    
    
    632,865Non-GAAP operating loss
    
    $
    (492,256
    )
    
    $
    (465,870
    )
    
    $
    (484,514
    )
    
    $
    (1,459,799
    )
 Page 18




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##### Table of Contents



Liquidity and Capital Resources
 Cash Flows
     Sources of Liquidity
  
  Commitments and Contingencies.
  Page 19




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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
  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 4, 2009
    By:
    /s/ DAVID B. KAYSENDavid B. KaysenPresident and Chief Executive OfficerDate:  February 4, 2009
    By:
    /s/ MAHEDI A. JIWANIMahedi A. JiwaniChief Financial Officer Page 22