UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

þ		Quarterly Report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934

o		Transition Report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934

Commission File No. 001-32632

UROPLASTY, INC.

(Exact name of registrant as specified in its Charter)

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
(Address of principal executive offices)

(952) 426-6140
(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES þ NO o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S. YES o NO o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large Accelerated Filer o		Accelerated Filer o		Non-Accelerated Filer o		Smaller Reporting Company þ
		(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) YES o NO þ

As of January 31, 2010 the registrant had 14,946,540 shares of common stock outstanding.

 

 

Table of Contents
INDEX

UROPLASTY INC. AND SUBSIDIARIES

PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets			3
Condensed Consolidated Statements of Operations			5
Condensed Consolidated Statement of Shareholders’ Equity and Comprehensive Loss			6
Condensed Consolidated Statements of Cash Flows			7
Notes to the Condensed Consolidated Financial Statements			8
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			15
Item 3. Quantitative and Qualitative Disclosures about Market Risk			20
Item 4. Controls and Procedures			20
PART II. OTHER INFORMATION
Item 1. Legal Proceedings			21
Item 1A. Risk Factors			21
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			21
Item 3. Defaults upon Senior Securities			21
Item 4. Submission of Matters to a Vote of Security Holders			21
Item 5. Other Information			21
Item 6. Exhibits			21
SIGNATURES			22
Certifications by the Chief Executive Officer and the Chief Financial Officer pursuant to Section 302			23
Certifications by the Chief Executive Officer and the Chief Financial Officer pursuant to Section 906			25
EX-31.1
EX-32.1

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

UROPLASTY, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

		December 31, 2009				March 31, 2009
		(unaudited)
Assets
Current assets:
Cash and cash equivalents		$	2,403,132			$	3,276,299
Short-term investments			3,500,000				4,500,000
Accounts receivable, net			1,204,466				1,214,049
Inventories			416,632				495,751
Other			266,901				279,898
Total current assets			7,791,131				9,765,997
Property, plant, and equipment, net			1,311,307				1,401,229
Intangible assets, net			2,744,143				3,378,648
Prepaid pension asset			93,040				66,130
Deferred tax assets			79,946				68,793
Total assets		$	12,019,567			$	14,680,797

See accompanying notes to the condensed consolidated financial statements.

UROPLASTY, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

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

See accompanying notes to the condensed consolidated financial statements.

UROPLASTY, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)

		Three Months Ended								Nine Months Ended
		December 31,								December 31,
		2009				2008				2009				2008
Net sales		$	3,068,142			$	3,387,285			$	8,880,546			$	11,833,422
Cost of goods sold			505,399				533,987				1,592,443				1,791,153
Gross profit			2,562,743				2,853,298				7,288,103				10,042,269
Operating expenses
General and administrative			639,608				713,545				2,201,199				2,670,653
Research and development			401,481				723,673				1,365,194				1,457,170
Selling and marketing			1,702,900				2,125,274				5,728,242				7,250,906
Amortization			211,189				211,626				634,505				633,567
			2,955,178				3,774,118				9,929,140				12,012,296
Operating loss			(392,435	)			(920,820	)			(2,641,037	)			(1,970,027	)
Other income (expense)
Interest income			21,468				24,001				77,097				162,657
Interest 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				141,867
Loss before income taxes			(380,593	)			(898,606	)			(2,598,139	)			(1,828,160	)
Income tax expense (benefit)			6,143				(4,684	)			29,030				33,374
Net 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

See accompanying notes to the condensed consolidated financial statements.

UROPLASTY, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY AND COMPREHENSIVE LOSS
Nine months ended December 31, 2009
(Unaudited)

										Additional								Accumulated				Total
		Common Stock								Paid-in				Accumulated				Other Comprehensive				Shareholders’
		Shares				Amount				Capital				Deficit				Income (loss)				Equity
Balance at March 31, 2009			14,946,540			$	149,465			$	35,763,619			$	(23,413,350	)		$	(191,157	)		$	12,308,577
Share-based compensation			—				—				356,583				—				—				356,583
Comprehensive 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

See accompanying notes to the condensed consolidated financial statements.

UROPLASTY, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

		Nine Months Ended
		December 31,
		2009				2008
Cash 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				849,933
Loss on disposal of equipment			183				4,687
Share-based consulting expense			—				52,567
Share-based compensation expense			356,583				583,013
Deferred income taxes			(5,299	)			(11,531	)
Deferred rent			(26,250	)			(26,250	)
Changes in operating assets and liabilities:
Accounts receivable			71,404				668,510
Inventories			112,460				(34,427	)
Other current assets and income tax receivable			(44,238	)			8,173
Accounts 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				14,157,410
Purchase 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				6,061,401
Cash 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	)			4,682,236
Cash and cash equivalents at beginning of period			3,276,299				3,880,044
Cash and cash equivalents at end of period		$	2,403,132			$	8,562,280
Supplemental disclosure of cash flow information:
Cash paid during the period for interest		$	6,145			$	13,612
Cash paid during the period for income taxes			121,655				53,739

See accompanying notes to the condensed consolidated financial statements.

UROPLASTY, INC. AND SUBSIDIARIES

Notes to the Condensed Consolidated Financial Statements
(Unaudited)

1. Basis of Presentation

We have prepared our condensed consolidated financial statements included in this Form 10-Q, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in the consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted, pursuant to such rules and regulations, although we believe that our disclosures are adequate to make the information not misleading. The consolidated results of operations for any interim period are not necessarily indicative of results for a full year. These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and related notes included in our Annual Report on Form 10-K for the year ended March 31, 2009.

The condensed consolidated financial statements presented herein as of December 31, 2009 and for the three- and nine-month periods ended December 31, 2009 and 2008 reflect, in the opinion of management, all material adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the consolidated financial position, results of operations and cash flows for the interim periods.

We have identified certain accounting policies that we consider particularly important for the portrayal of our results of operations and financial position and which may require the application of a higher level of judgment by our management, and as a result are subject to an inherent level of uncertainty. These are characterized as “critical accounting policies” and address revenue recognition, accounts receivable, inventories, foreign currency translation and transactions, impairment of long-lived assets, share-based compensation, defined benefit pension plans and income taxes, each of which is described in our Annual Report on Form 10-K for the year ended March 31, 2009. Based upon our review, we have determined that these policies remain our most critical accounting policies for the three- and nine-month periods ended December 31, 2009, and we have made no changes to these policies during fiscal 2010.

2. Short-term Investments

Short-term investments consist of certificates of deposit held-to-maturity that mature within the next twelve months. Based on the short-term nature of these investments, their cost approximates their fair market value. We have determined that short-term investments and cash and cash equivalents are Level 1 inputs within the fair value hierarchy of Accounting Standards Codification (ASC 820), “Fair Value Measurements and Disclosures.”

3. Accounts Receivable

We grant credit to our customers in the normal course of business and, generally, do not require collateral or any other security to support amounts due. If necessary, we have an outside party assist us with performing credit and reference checks and establishing credit limits for the customer. Accounts outstanding longer than the contractual payment terms, are considered past due. We carry our accounts receivable at the original invoice amount less an estimate made for doubtful receivables based on a periodic review of all outstanding amounts. We determine the allowance for doubtful accounts by considering a number of factors, including the length of time accounts receivables are past due, customer financial condition and ability to pay the obligation, historical and expected credit loss experience, and the condition of the general economy and the industry as a whole. We write off accounts receivable when deemed uncollectible. We record recoveries of accounts receivable previously written off when received. We are not always able to timely anticipate changes in the financial condition of our customers and if circumstances related to these customers deteriorate, our estimates of the recoverability of accounts receivable could be materially affected and we may be required to record additional allowances. Alternatively, if more allowances are provided than are ultimately required, we may reverse a portion of such provisions in future periods based on the actual collection experience. Historically, the accounts receivable balances we have written off have generally been within our expectations. The allowance for doubtful accounts was $18,000 and $114,000 at December 31, 2009 and March 31, 2009, respectively.

4. Inventories

Inventories are stated at the lower of cost (first-in, first-out method) or market (net realizable value). Inventories consist of the following:

		December 31, 2009				March 31, 2009
Raw materials		$	167,423			$	227,054
Work-in-process			37,633				23,326
Finished goods			211,576				245,371
		$	416,632			$	495,751

5. Intangible Assets

Intangible Assets. Our intangible assets are comprised of patents and licensed technology which we amortize on a straight-line basis over their estimated useful lives or contractual terms, whichever is less.

						Gross
		Estimated				Carrying				Accumulated
		Lives (Years)				Amount				Amortization				Net value
										December 31, 2009
Patents and licensed technology			6			$	5,472,512			$	2,728,369			$	2,744,143

										March 31, 2009
Patents and licensed technology			6			$	5,472,512			$	2,093,864			$	3,378,648

Estimated annual amortization for these assets for the years ending March 31, is as follows:

Remainder of 2010		$	211,000
2011			843,000
2012			842,000
2013			842,000
2014			4,000
2015 and beyond			2,000
		$	2,744,000

6. Deferred Rent and Leasehold Improvements

We entered into an 8-year operating lease agreement, effective May 2006, for our corporate facility in Minnesota. As part of the agreement, the landlord provided an incentive of $280,000 for leasehold improvements. We recorded this incentive as deferred rent and are amortizing it as a reduction in lease expense over the lease term in accordance to ASC 840, “Leases.” We are amortizing the leasehold improvements over the shorter of the asset life or the lease term.

7. Comprehensive Loss

Comprehensive loss includes our net loss, accumulated translation adjustment, and change in minimum pension obligation as follows:

		Three Months Ended								Nine Months Ended
		December 31,								December 31,
		2009				2008				2009				2008
Net 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	)			15,889
Comprehensive loss		$	(416,069	)		$	(1,004,841	)		$	(2,485,152	)		$	(2,278,526	)

Other accumulated comprehensive income (loss) at December 31, 2009 totalled $(49,140) and consists of $2,870 for accumulated translation adjustment and $(52,010) for accumulated additional pension liability.

8. Net Loss per Common Share

The following restricted stock, options and warrants outstanding at December 31, 2009 and 2008, to purchase shares of common stock, were excluded from diluted loss per common share because of their anti-dilutive effect:

		Number of Restricted				Range of
		Stock/Options/Warrants				Exercise Prices
December 31, 2009			4,141,928			$	0.71 to $5.19
December 31, 2008			4,282,028			$	1.82 to $5.30

9. Credit Facilities

Uroplasty BV, our subsidiary, has an agreement with Rabobank of The Netherlands for a €500,000 (approximately $717,000) credit line. The bank charges interest on the loan at the rate of one percentage point over the Rabobank base interest rate (4.85% base rate on December 31, 2009), subject to a minimum interest rate of 3.5% per annum. At December 31, 2009, we had no borrowings outstanding on this credit line.

On October 30, 2009 we entered into a one-year business loan agreement with Venture Bank. The agreement provides for a credit line of up to $2 million secured by the assets of our company. We may borrow up to 50% (to a maximum of $500,000) of the value of our eligible inventory on hand and 80% of the value of our eligible U.S. accounts receivable; provided, however, our total liabilities, inclusive of the amount borrowed, may not exceed our tangible net worth. To be eligible to borrow any amount, we must maintain a minimum tangible net worth of $5 million. At December 31, 2009 we had no borrowings outstanding under this agreement, but we estimate we had a borrowing capacity of approximately $0.5 million. Interest on the outstanding borrowings is charged at a per annum rate of the greater of 7.5% or one percentage point over the prime rate (3.25% prime rate on December 31, 2009).

10. Warrants

As of December 31, 2009, we had issued and outstanding warrants to purchase an aggregate of 2,066,928 common shares, at a weighted average exercise price of $3.78.

In connection with the equity offerings of April 2005 private placement, August 2006 private placement and December 2006 follow-on offering, we issued five-year warrants to purchase 1,180,928, 764,500, 121,500 common shares, respectively, at exercise prices of $4.75, $2.50 and $2.40 per share, respectively.

11. Share-based Compensation

As of December 31, 2009, we had one active plan (2006 Amended Stock and Incentive Plan) for share-based compensation grants. Under the plan, if we have a change in control, all outstanding grants, including those subject to vesting or other performance targets, fully vest immediately. Under this plan, we had reserved 2,700,000 shares of our common stock for share-based grants. As of December 31, 2009, we had remaining 1,500,000 shares available for grant. We grant option awards with an exercise price equal to the closing market price of our stock at the date of the grant.

We account for share-based compensation costs under ASC 718, “Compensation — Stock Compensation”. We incurred a total of approximately $357,000 and $636,000 in share-based compensation expense (inclusive of $0 and $53,000, respectively, for option grants to consultants) for the nine months ended December 31, 2009 and 2008, respectively.

We determined the fair value of our option awards using the Black-Scholes option pricing model. We used the following weighted-average assumptions to value the options granted during the following periods:

		Nine months Ended				Nine months Ended
		December 31, 2009				December 31, 2008
Expected life in years			4.83				4.06
Risk-free interest rate			2.74	%			3.13	%
Expected volatility			94.21	%			82.70	%
Expected dividend yield			0				0
Weighted-average fair value		$	0.60			$	1.88

The expected life selected for options granted during the quarter represents the period of time that we expect our options to be outstanding based on historical data of option holder exercise and termination behavior for similar grants. The risk-free interest rate for periods within the contractual life of the option is based on the U.S. Treasury rate over the expected life at the time of grant. Expected volatilities are based upon historical volatility of our stock. We estimate a forfeiture rate for stock awards of up to 14.5% based on our historical experience.

The following table summarizes the activity related to our stock options during the nine months ended December 31, 2009:

										Weighted
						Weighted				average				Aggregate
		Number of				average				remaining life				intrinsic
		shares				exercise price				in years				value
Options outstanding at March 31, 2009			2,134,500			$	3.93				4.02			$	—
Options granted			380,000				0.83
Options exercised			—
Options expired and cancelled			(439,500	)			4.97
Options outstanding at December 31, 2009			2,075,000			$	3.14				4.16			$	251,725
Exercisable at December 31, 2009			1,777,662			$	3.41				4.16			$	120,407

The aggregate intrinsic value for the outstanding options as of March 31, 2009 was zero because all the grants were out-of-the-money based on the closing price of our Company’s common stock on March 31, 2009. As of December 31, 2009, we had approximately $156,000 of unrecognized share-based compensation expense, net of estimated forfeitures, related to options that we expect to recognize over a weighted-average period of 1.22 years.

The following table summarizes the activity related to our restricted shares during the nine months ended December 31, 2009:

						Weighted				Weighted average				Aggregate
		Number of				average grant				remaining life in				intrinsic
		Shares				date fair value				years				value
Balance at March 31, 2009			14,000			$	3.15				0.16			$	44,100
Shares granted			—				—
Shares vested			14,000				3.15
Shares cancelled			—				—
Balance at December 31, 2009			—			$	—				—			$	—

The aggregate intrinsic value represents the total pre-tax value of restricted stock that holders would have received (based on the closing price of our Company’s common stock on the grant date) had all restricted stock vested and if we had issued common stock to the holders on the grant date. As of December 31, 2009, all of the restricted shares have fully vested and we had no unrecognized compensation expense related to restricted stock.

12. Savings and Retirement Plans

We sponsor various plans for eligible employees in the United States, the United Kingdom (UK), and The Netherlands. Our retirement savings plan in the United States conforms to Section 401(k) of the Internal Revenue Code and participation is available to substantially all employees. We may also make discretionary contributions ratably to all eligible employees. We made contributions to the U.S. plan of $105,000 and $0 for the nine months ended December 31, 2009 and 2008, respectively.

Our international subsidiaries have defined benefit retirement plans for eligible employees. These plans provide benefits based on the employee’s years of service and compensation during the years immediately preceding retirement, termination, disability, or death, as defined in the plans. We froze the UK subsidiary’s defined benefit plan on December 31, 2004. On March 10, 2005, we established a defined contribution plan for the UK subsidiary. As of April 1, 2005 we closed The Netherlands subsidiary’s defined benefit retirement plan for new employees and established for them a defined contribution plan.

The cost for our defined benefit retirement plans in The Netherlands and the United Kingdom includes the following components for the three and nine-month periods ended December 31, 2009 and 2008:

		Three Months Ended								Nine Months Ended
		December 31,								December 31,
		2009				2008				2009				2008
Gross service cost		$	16,692			$	15,276			$	48,278			$	50,933
Interest cost			24,152				21,350				70,205				71,868
Expected return on assets			1,579				3,934				4,188				12,454
Amortization			(117	)			914				(337	)			3,041
Net periodic retirement cost		$	42,306			$	41,474			$	122,334			$	138,296

Major assumptions used in the above calculations include:

		Nine months Ended
		December 31,
		2009				2008
Discount 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	%

The United Kingdom pension plan is in an over funded position and its funded status is shown as a prepaid pension asset. The Netherlands pension plan is in an under funded position and its funded status is shown as accrued pension liability.

We made aggregate contributions of approximately $154,000 and $151,000, respectively, during the nine months ended December 31, 2009 and 2008 to the two defined benefit plans. We made aggregate contributions of approximately $12,000 and $31,000 , respectively, during the nine months ended December 31, 2009 and 2008 to the two defined contribution plans.

13. Foreign Currency Translation

We translate all assets and liabilities using period-end exchange rates. We translate statements of operations items using average exchange rates for the period. We record the resulting translation adjustment within accumulated other comprehensive loss, a separate component of shareholders’ equity. We recognize foreign currency transaction gains and losses in our consolidated statements of operations, including unrealized gains and losses on short-term intercompany obligations using period-end exchange rates. We recognize unrealized gains and losses on long-term intercompany obligations within accumulated other comprehensive loss, a separate component of shareholders’ equity.

We recognize exchange gains and losses primarily as a result of fluctuations in currency rates between the U.S. dollar (the functional reporting currency) and the Euro and British pound (currencies of our subsidiaries), as well as their effect on the dollar denominated intercompany obligations between us and our foreign subsidiaries. All intercompany balances are revolving in nature and we do not deem them to be long-term balances. For the three months ended December 31, 2009 and 2008, we recognized foreign currency exchange loss of $8,335 and $0, respectively. For the nine months ended December 31, 2009 and 2008, we recognized foreign currency exchange loss of $23,030 and $731, respectively.

14. Business Segment Information

ASC 280, “ Segment Reporting,” establishes disclosure standards for segments of a company based on management’s approach to defining operating segments. In accordance with the objective and basic principles of the standard we aggregate our operating segments into one reportable segment.

Information regarding our geographic operations for the three- and nine-month periods ended December 31, 2009 and 2008 is as follows:

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

Accounting policies of the operations in the various geographic areas are the same as those described in Note 1. Sales attributed to each geographic area are net of intercompany sales. No single customer represents 10% or more of our consolidated net sales. Long-lived assets consist of property and equipment, intangible assets and certain other assets.

15. Income Tax Expense

As of March 31, 2009, we have generated approximately $23 million in U.S. net operating loss carryforwards that we cannot use to offset taxable income in foreign jurisdictions. We recognize a valuation allowance when we determine it is more likely than not that we will not realize a portion of the deferred tax asset. We have established a valuation allowance for U.S. and certain foreign deferred tax assets due to the uncertainty that we will generate enough income in those taxing jurisdictions to utilize the assets.

In addition, future utilization of NOL carryforwards are subject to certain limitations under Section 382 of the Internal Revenue Code. This section generally relates to a 50 percent change in ownership of a company over a three-year period. We believe that the issuance of our common stock in the December 2006 follow-on public offering resulted in an “ownership change” under Section 382. Accordingly, our ability to use NOL tax attributes generated prior to December 2006 may be limited

During the three months ended December 31, 2009 and 2008, we recorded income tax expense (benefit) of approximately $6,000 and $(5,000), respectively. During the nine months ended December 31, 2009 and 2008, we recorded income tax expense of approximately $29,000 and $33,000, respectively.

On December 31, 2009 and 2008 we had a deferred tax asset of $80,000 and $69,000, respectively. We recognize deferred tax assets and liabilities for future tax consequences attributable to differences between the financial carrying amounts of existing assets and liabilities and their respective tax bases. We measure deferred tax assets and liabilities using enacted tax rates we expect to apply to taxable income in the years in which we expect to recover or settle those temporary differences.

Effective April 1, 2007, we adopted ASC 740, “Income Taxes”, which prescribes a recognition threshold and a measurement attribute for financial statement recognition of tax positions we take or expect to take in a tax return. It is management’s responsibility to determine whether it is “more-likely-than-not” that a taxing authority will sustain a tax position upon examination, including resolution of any related appeals or litigation processes, based on the technical merits of the position. At adoption on April 1, 2007, we had no unrecognized tax benefits which needed adjustment. We reviewed all income tax positions taken or that we expect to take for all open tax years and determined that our income tax positions are appropriately stated and supported for all open years. Accordingly, adoption of ASC 740 did not have a significant effect on our consolidated financial statements.

Under our accounting policies we would recognize interest and penalties accrued on unrecognized tax benefits as well as interest received from favorable tax settlements within income tax expense. At the adoption date of April 1, 2007, we recognized no interest or penalties related to uncertain tax positions. As of December 31, 2009, we recorded no accrued interest or penalties related to uncertain tax positions.

The fiscal tax years 2005 through 2008 remain open to examination by the Internal Revenue Service and various state taxing jurisdictions to which we are subject. In addition, we are subject to examination by certain foreign taxing authorities for which the fiscal years 2007 through 2009 remain open for examination.

16. Recently Issued Accounting Standards

In August 2009, the FASB issued Accounting Standards Update No. 2009-05, “Measuring Liabilities at Fair Value” (ASU 2009-05). This Standards Update provides amendments to ASC Topic 820, “Fair Value Measurements and Disclosure” for the fair value measurement of liabilities when a quoted price in an active market is not available. This ASU was effective for our third quarter of our fiscal 2010 and the adoption did not have an impact on our financial position or results of operations.

In June 2009, the FASB issued SFAS No. 168, “The FASB Accounting Codification and the Hierarchy of Generally Accepted Accounting Principles.” SFAS 168 replaced FASB Statement No. 162, “The Hierarchy of Generally Accepted Accounting Principles,” and establishes the FASB Accounting Standards Codification ^TM (Codification) as the source of authoritative accounting principles recognized by the FASB to be applied by nongovernmental entities in the preparation of financial statements in conformity with generally accepted accounting principles (GAAP). SFAS 168 was effective for interim and annual periods ending after September 15, 2009. We now use the new Codification when referring to GAAP in our interim financial statements. The adoption of the SFAS 168 changes our references to U.S. GAAP, but does not have an impact on our financial position or results of operations.

In May 2009, the FASB issued ASC 855, “Subsequent Events.” This Statement incorporates guidance into accounting literature that was previously addressed only in auditing standards. The statement refers to subsequent events that provide

additional evidence about conditions that existed at the balance-sheet date as “recognized subsequent events.” Subsequent events which provide evidence about conditions that arose after the balance sheet date but prior to the issuance of the financial statements are referred to as “non-recognized subsequent events.” It also requires companies to disclose the date through which subsequent events have been evaluated and whether this date is the date the financial statements were issued or the date the financial statements were available to be issued. We adopted this standard effective April 1, 2009 — see Note 17.

In December 2008, the FASB issued additional guidance on an employer’s disclosures about plan assets of a defined benefit pension or other postretirement plan. The requirements, effective for fiscal years beginning after December 15, 2009, pertain only to the disclosures and do not affect the accounting for defined benefit pensions or other postretirement plans. We do not anticipate adoption of the new guidance to have an impact on our financial position or results of operations.

17. Subsequent events

We evaluated all subsequent events through February 1, 2010, the filing date of this Form 10-Q with the Securities and Exchange Commission, to ensure that this Form 10-Q includes appropriate disclosure of events both recognized in the financial statements as of December 31, 2009, and events which occurred subsequent to December 31, 2009 but were not recognized in the financial statements. As of February 1, 2010, we had no subsequent events which required recognition in the financial statements.

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

This Form 10-Q contains “forward-looking statements” relating to projections, plans, objectives, estimates, and other statements of future economic performance. These forward-looking statements are subject to known and unknown risks and uncertainties relating to our future performance that may cause our actual results, performance, or achievements, or industry results, to differ materially from those expressed or implied in any such forward-looking statements. Our business operates in highly competitive markets and is subject to changes in general economic conditions, competition, reimbursement levels, customer and market preferences, government regulation, the impact of tax regulation, foreign exchange rate fluctuations, the degree of market acceptance of products, the uncertainties of potential litigation, as well as other risks and uncertainties detailed elsewhere herein and in our Annual Report filed on Form 10-K for the year ended March 31, 2009.

We do not undertake, nor assume obligation, to update any forward-looking statement that we may make from time to time.

Critical Accounting Policies

We prepare our consolidated financial statements in accordance with U.S. generally accepted accounting principles, which require us to make estimates and assumptions in certain circumstances that affect amounts reported. In preparing these consolidated financial statements, we have made our best estimates and judgments of certain amounts, giving due consideration to materiality.

We have identified certain accounting policies that we consider particularly important for the portrayal of our results of operations and financial position and which may require the application of a higher level of judgment by our management, and as a result are subject to an inherent level of uncertainty. These are characterized as “critical accounting policies” and address revenue recognition, accounts receivable, inventories, foreign currency translation and transactions, impairment of long-lived assets, share-based compensation, defined benefit pension plans and income taxes, each of which is described in our Annual Report on Form 10-K for the year ended March 31, 2009. Based upon our review, we have determined that these policies remain our most critical accounting policies for the nine-month period ended December 31, 2009, and we have made no changes to these policies during fiscal 2010.

Overview

We are a medical device company that develops, manufactures and markets innovative, proprietary products for the treatment of voiding dysfunctions. Our primary focus is on two products: our Urgent PC^® system, which we believe is the only FDA-approved minimally invasive, office-based neuromodulation therapy for the treatment of urinary urgency, urinary frequency, and urge incontinence — symptoms often associated with overactive bladder (OAB); and Macroplastique^®, a urethral bulking agent for the treatment of adult female stress urinary incontinence primarily due to intrinsic sphincter deficiency (ISD). We believe physicians prefer our products because they offer an effective therapy for the patient, can be administered in office-based settings and, to the extent reimbursement is in place, provide the physicians a new recurring revenue stream. We believe patients prefer our products because they are minimally invasive treatment alternatives that do not have the side effects associated with pharmaceutical treatment options nor the morbidity associated with surgery.

Outside of the U.S., our Urgent PC is also approved for treatment of fecal incontinence, and Macroplastique is also approved for treatment of male stress incontinence and vesicoureteral reflux.

Our sales performance has been greatly influenced by the sales in the U.S. of our Urgent PC system. Starting in the second half of fiscal 2009, sales over corresponding year-ago periods of our Urgent PC system declined and continued to do so in the first half of fiscal 2010 because of reimbursement-related issues, although sales have stabilized at around $900,000 to $1 million per quarter in each of the last three quarters. The American Medical Association (AMA) advised the medical community during our first fiscal quarter of 2009 that their previously recommended “listed” Current Procedure Technology (CPT) code for reimbursement of Urgent PC treatments should be replaced with an “unlisted” code. As a result, some third-party insurance carriers are now denying reimbursement while certain other carriers are reassessing their coverage and reimbursement policies for Urgent PC treatments. However, many other third party payers, under a published positive coverage policy or on a case-by-case basis, continue to provide reimbursement for Urgent PC treatments.

A major part of our strategy, supported by publication of clinical studies in peer-reviewed journals in the U.S., is to obtain a listed CPT code for percutaneous tibial nerve stimulation, and expand third-party reimbursement coverage of Urgent PC treatments in the U.S. Additionally, we continue to implement a comprehensive program designed to educate Medicare carriers and private payer medical directors around the country about the benefits and clinical study results of Urgent PC. The medical directors have asked for additional peer-reviewed publications in U.S. medical journals and to date five new articles have been published. The most recent publication on the results of the long-term phase of our earlier OrBIT clinical trial was published in the January 2010 issue of The Journal of Urology^® and the results of our 12-week SUmiT trial are expected to be published in the April 2010 issue of this journal.

We have submitted our application to the AMA, for consideration at their February 2010 meeting, for a listed CPT code, which if granted would be effective in January 2011. We believe the availability of a listed CPT code will encourage broader use of our Urgent PC. We expect that Urgent PC sales will not return to prior historical sales levels in the U.S. until after a new listed CPT code is assigned and payers create coverage policies that provide adequate reimbursement.

Our results are also impacted by the steadily increasing sales in the U.S. of our Macroplastique product because of our increased sales and marketing focus. Sales of our Macroplastique product in the U.S., accounting for $1.5 million through nine months of our current fiscal year, have about doubled over the corresponding year-ago quarter.

Our net loss for the nine months ended December 31, 2009 increased because of a decline in sales and a decline in gross margin, primarily because of lower capacity utilization, offset partially by a reduction in operating expenses. In the three months ended December 31, 2009, our net loss was cut to less than one-half of the loss in the corresponding year-ago period because of a reduction in spending.

Results of Operations

Three and nine months ended December 31, 2009 compared to three and nine months ended December 31, 2008

Net Sales: During the three months ended December 31, 2009, net sales of $3.1 million represented a $319,000 or a 9% decrease, over net sales of $3.4 million for the three months ended December 31, 2008. Excluding the translation impact of fluctuations in foreign currency exchange rates, sales decreased by approximately 14%. During the nine months ended December 31, 2009, net sales of $8.9 million represented a $2.9 million, or a 25% decrease, over net sales of $11.8 million for the nine months ended December 31, 2008. Excluding the translation impact of fluctuations in foreign currency exchange rates, sales decreased by approximately 23%.

Sales to customers in the U.S. during the three months ended December 31, 2009 totaled $1.5 million, representing a $431,000, or a 22% decrease, over net sales of $1.9 million for the three months ended December 31, 2008. During the nine

months ended December 31, 2009 sales to customers in the U.S. totaled $4.5 million, representing a 30% decrease, over net sales of $6.4 million for the nine months ended December 31, 2008.

Sales in the U.S. of our Urgent PC product, decreased 42% to $934,000 for three months ended December 31, 2009, from $1.6 million for the same year-ago period, and for the nine months ended December 31, 2009 decreased 48% to $2.9 million from $5.6 million for the same year-ago period. The trend in decline of our Urgent PC sales over corresponding year-ago periods began in the second half of fiscal 2009 due to reimbursement related issues. Sales have stabilized at around $900,000 to $1 million per quarter in each of the last three quarters.

Sales in the U.S. of our Macroplastique product, increased 76% to $565,000 for three months ended December 31, 2009, from $321,000 for the same year-ago period, and for the nine months ended December 31, 2009 increased 99% to $1.5 million from $762,000 for the same year-ago period. Sales of our Macroplastique product have about doubled over the corresponding year-ago period because of our increased sales and marketing focus.

Sales to customers outside the U.S. for the three months ended December 31, 2009 and 2008 were $1.6 million and $1.4 million, respectively, an increase of 8%. Excluding the translation impact of fluctuations in foreign currency exchange rates, sales decreased by approximately 2%. For the nine months ended December 31, 2009 and 2008 sales to customers outside of the U.S. were $4.4 million and $5.5 million, respectively, a decrease of 19%. Excluding the translation impact of fluctuations in foreign currency exchange rates, sales decreased by approximately 15%. We believe the sales decrease for the nine months is mainly attributed to increased competition from a newly-introduced product against our Macroplastique product. In addition, in fiscal year 2010 we discontinued in the United Kingdom our I-Stop urethral sling product which accounted for approximately $135,000 in sales for the nine months ended December 31, 2008 and $191,000 in sales in fiscal 2009.

Gross Profit: Gross profit was $2.6 million and $2.9 million for the three months ended December 31, 2009 and 2008, respectively, or 84% of net sales both periods. Gross profit was $7.3 million and $10.0 million for the nine months ended December 31, 2009 and 2008, respectively, or 82% and 85% of net sales in the respective periods. We attribute the lower gross profit percentage in the nine months ended December 31, 2009 primarily to a decrease in manufacturing capacity utilization as a result of the decreased sales, changes in sales product mix, and the negative impact of changes in the currency exchange rates from our foreign currency-denominated sales. The first two factors each had an approximately one percentage point negative effect on the gross profit percentage, and the last factor had a negative effect of about 0.5 percentage point on the gross profit percentage.

General and Administrative Expenses (G&A): G&A expenses decreased $74,000 from $714,000 during the three months ended December 31, 2008 to $640,000 during the same period in 2009. Expenses decreased $469,000 from $2.7 million during the nine months ended December 31, 2008 to $2.2 million during the same period in 2009. Included in the three-month period ended December 31, 2008 is $45,000 non-cash, share-based compensation expense, compared with a charge of $25,000 in the three-month period ended December 31, 2009. Excluding share-based compensation charges, G&A expenses decreased by $54,000 during the three months ended December 31, 2009 from the three months ended December 31, 2008. Included in the nine-month period ended December 31, 2008 is $262,000 non-cash, share-based compensation expense, compared with a charge of $169,000 in the nine-month period ended December 31, 2009. Excluding share-based compensation charges, G&A expenses decreased by $376,000 during the nine months ended December 31, 2009 from the nine months ended December 31, 2008. G&A expenses decreased primarily because of a $186,000 decrease in professional and consulting fees, a $44,000 recovery of a customer receivable which we had reserved for in the prior fiscal year, a $26,000 decrease in travel costs, and other reductions as we implemented cost reduction measures. We have implemented concentrated efforts to reduce expenses until reimbursement in the U.S. for Urgent PC recovers and the economy improves.

Research and Development Expenses (R&D): R&D expenses decreased from $724,000 during the three months ended December 31, 2008 to $401,000 during the same period in 2009. Expenses decreased from $1.5 million during the nine months ended December 31, 2008 to $1.4 million during the same period in 2009. The decrease during the quarter is attributed primarily to a decrease in spending for clinical studies. The decrease for the nine months ended December 31, 2009 is attributed to a $59,000 decrease in spending for clinical studies, a $37,000 decrease in travel costs, a $29,000 decrease in consulting expense, a $11,000 decrease in regulatory expenses, offset partially by an $67,000 increase in compensation related costs. We have undertaken clinical studies that we anticipate may assist us in obtaining a specific “listed” CPT code that will encourage broader use of our Urgent PC. We spent approximately $1.3 million in fiscal 2009, have spent approximately $364,000 in the nine months ended December 31, 2009 and anticipate spending approximately $100,000 in the remainder of the current fiscal year for such clinical studies.

Selling and Marketing Expenses (S&M): S&M expenses decreased from $2.1 million during the three months ended December 31, 2008 to $1.7 million during the same period in 2009. Expenses decreased from $7.3 million during the nine

months ended December 31, 2008 to $5.7 million during the same period in 2009. We attribute the decrease during the nine months ended December 31, 2009 to a $372,000 decrease in commissions due to the decrease in sales, a $378,000 decrease in compensation related costs on lower headcount and share-based charges, a $273,000 decrease in travel costs, a $228,000 decrease in cost to support our marketing activities and a $131,000 decrease in consultancy costs, mainly related to reimbursement. Although we have maintained our assembled U.S. sales force and redirected some of their effort to our Macroplastique product line until reimbursement for Urgent PC stabilizes, we have taken steps to control other sales and marketing expenses.

Amortization of Intangibles: Amortization of intangibles was $211,000 and $212,000 for the three months ended December 31, 2009 and 2008, respectively, and was $635,000 and $634,000 for the nine months ended December 31, 2009 and 2008, respectively. In April 2007, we acquired from CystoMedix, Inc., certain intellectual property assets related to the Urgent PC system for $4.7 million, which we are amortizing over six years.

Other Income (Expense): Other income (expense) includes interest income, interest expense, foreign currency exchange gains and losses and other non-operating costs when incurred. Net other income was $12,000 and $22,000 for the three months ended December 31, 2009 and 2008, respectively, and was $43,000 and $142,000 for the nine months ended December 31, 2009 and 2008, respectively. The decline in net other income is attributed primarily to the decline in interest income on lower cash balance and interest rates.

We recognize exchange gains and losses primarily as a result of fluctuations in currency rates between the U.S. dollar (the functional reporting currency) and the Euro and British pound (currencies of our subsidiaries), as well as their effect on the dollar denominated short-term intercompany obligations between us and our foreign subsidiaries. We recognized foreign currency exchange loss of $8,000 and $0 for the three months ended December 31, 2009 and 2008, respectively, and $23,000 and $731 for the nine months ended December 31, 2009 and 2008, respectively.

Income Tax Expense (Benefit): During the three months ended December 31, 2009 and 2008, we recorded income tax expense (benefit) of $6,000 and $(5,000), respectively, and $29,000 and $33,000 for the nine months ended December 31, 2009 and 2008, respectively.

Non-GAAP Financial Measures: The following table reconciles our operating loss calculated in accordance with accounting principles generally accepted in the U.S. (GAAP) to non-GAAP financial measures that exclude non-cash charges for share-based compensation, and depreciation and amortization expenses from gross profit, operating expenses and operating loss. The non-GAAP financial measures used by management and disclosed by us are not a substitute for, or superior to, financial measures and consolidated financial results calculated in accordance with GAAP, and you should carefully evaluate our reconciliations to non-GAAP. We may calculate our non-GAAP financial measures differently from similarly titled measures used by other companies. Therefore, our non-GAAP financial measures may not be comparable to those used by other companies. We have described the reconciliations of each of our non-GAAP financial measures described above to the most directly comparable GAAP financial measures.

We use these non-GAAP financial measures, and in particular non-GAAP operating loss, for internal managerial purposes and incentive compensation for senior management because we believe such measures are one important indicator of the strength and the operating performance of our business. Analysts and investors frequently ask us for this information. We believe that they use such measures to evaluate the overall operating performance of companies in our industry, including as a means of comparing period-to-period results and as a means of evaluating our results with those of other companies.

Our non-GAAP operating loss of approximately $42,000 for the three months ended December 31, 2009 was less than the $492,000 operating loss in same period in fiscal 2009. Our non-GAAP operating loss was approximately $1.4 million for the nine months ended December 31, 2009 compared to an operating loss of $485,000 in same period fiscal in 2009. We attribute the increased operating loss during the nine months ended December 31, 2009 primarily to the decrease in sales and a lower gross margin rate, offset partially by a decrease in cash operating expenses. With continued focus on spending reductions, we reduced the operating loss for the three months ended December 31, 2009.

		Three Months Ended								Nine Months Ended
		December 31,								December 31,
		2009				2008				2009				2008
Gross Profit
GAAP 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				34,132
Depreciation expense			14,481				12,436				42,780				38,283
Non-GAAP gross profit			2,581,995				2,874,613				7,354,101				10,114,684
Operating Expenses
GAAP operating expenses			2,955,178				3,774,118				9,929,140				12,012,296
Share-based compensation			60,351				136,701				333,365				601,448
Depreciation expense			59,462				58,922				175,085				178,083
Amortization expense			211,189				211,626				634,505				633,567
Non-GAAP operating expenses			2,624,176				3,366,869				8,786,185				10,599,198
Operating Loss
GAAP operating loss			(392,435	)			(920,820	)			(2,641,037	)			(1,970,027	)
Share-based compensation			65,122				145,580				356,583				635,580
Depreciation expense			73,943				71,358				217,865				216,366
Amortization expense			211,189				211,626				634,505				633,567
Non-GAAP operating loss		$	(42,181	)		$	(492,256	)		$	(1,432,084	)		$	(484,514	)

Liquidity and Capital Resources

Cash Flows.

At December 31, 2009, our cash and cash equivalent and short-term investments balances totaled $5.9 million.

At December 31, 2009, we had working capital of approximately $6.4 million. For the nine months ended December 31, 2009, we used $1.9 million of cash in operating activities, compared to $0.7 million of cash used in the same period a year ago. We attribute the increase in cash used in operating activities primarily to the decrease in sales, and a decrease of the gross profit rate, offset partially by a decrease in cash operating expenses.

For the nine months ended December 31, 2009 we used approximately $70,000 to purchase property, plant and equipment compared with approximately $181,000 for the same period a year ago.

For the nine months ended December 31, 2008 we used cash in financing activities of approximately $456,000 to repay debt obligations. In the third quarter of fiscal 2009 we fully retired the debt. We used no cash in financing activities during the nine months ended December 31, 2009.

Sources of Liquidity.

Uroplasty BV, our subsidiary, has an agreement with Rabobank of The Netherlands for a €500,000 (approximately $717,000) credit line. The bank charges interest on the loan at the rate of one percentage point over the Rabobank base interest rate (4.85% base rate on December 31, 2009), subject to a minimum interest rate of 3.5% per annum. At December 31, 2009, we had no borrowings outstanding on this credit line.

On October 30, 2009 we renewed our credit line with Venture Bank. The agreement provides for a credit line of up to $2 million secured by the assets of our company. We may borrow up to 50% (to a maximum of $500,000) of the value of our eligible inventory on hand and 80% of the value of our eligible U.S. accounts receivable; provided, however, our total liabilities, inclusive of the amount borrowed, may not exceed our tangible net worth. To be eligible to borrow any amount, we must maintain a minimum tangible net worth of $5 million. At December 31, 2009 we had no borrowings outstanding under this agreement, but we estimate we had a borrowing capacity of approximately $0.5 million. Interest on the loan is charged at a per annum rate of the greater of 7.5% or one percentage point over the prime rate (3.25% prime rate on December 31, 2009).

We believe we have sufficient liquidity to meet our needs over the next twelve months. However, we may need to raise additional financing to support our operations and planned growth activities in the future as we have yet to achieve profitability and generate positive cash flows. To achieve profitability, we must generate substantially more revenue than we have this year or in prior years. Our ability to achieve significant revenue growth will depend, in large part, on our ability to achieve widespread market acceptance for our products and successfully expand our business in the U.S., which in turn may be partially dependent upon re-establishing broad reimbursement for our Urgent PC product and successfully demonstrating the superiority of our Macroplastique product to clinicians. We cannot guarantee that we will be entirely successful in either of these pursuits. If we are unable to raise the needed funds, we may need to curtail our operations including product development, clinical studies and sales and marketing activities. This would adversely impact our future business and prospects. Ultimately, we will need to achieve profitability and generate positive cash flows from operations to meet our cash needs and grow our business.

Commitments and Contingencies.

We discuss our commitments and contingencies in our Annual Report on Form 10-K for the year ended March 31, 2009. There have been no significant changes in our commitments for capital expenditure and contractual obligations since March 31, 2009.

We may continue to incur significant costs for clinical studies, beyond those we have expensed to date, to support broader marketing of our Urgent PC System in the U.S. We expect that in fiscal 2010 we will spend approximately $0.5 million for such clinical studies. We also expect to continue to incur significant expenses to support our U.S. sales and marketing organization.

ITEM 3.		Quantitative and Qualitative Disclosures about Market Risk

Not applicable due to our status as a “Smaller Reporting Company.”

ITEM 4.		Controls and Procedures

Disclosure Controls and Procedures.

Under the supervision and with the participation of our management, including, our President and Chief Executive Officer and Chief Financial Officer, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e)) under the Securities Exchange Act of 1934 (the “Exchange Act”). Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of the end of the period covered by this report, our disclosure controls and procedures are effective in ensuring that the information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in applicable rules and forms and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, in a manner that allows timely decisions regarding required disclosure.

Internal Control Over Financial Reporting.

There were no changes in our internal control over financial reporting during the quarter ended December 31, 2009, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

ITEM 1.		Legal Proceedings

None.

ITEM 1A.		Risk Factors

There have been no material changes from the risk factors set forth in our Annual Report on Form 10-K for the fiscal year ended March 31, 2009.

ITEM 2.		Unregistered Sales of Equity Securities and Use of Proceeds.

None.

ITEM 3.		Defaults upon Senior Securities

None.

ITEM 4.		Submission of Matters to a Vote of Security Holders

None

ITEM 5.		Other Information

None.

ITEM 6.		Exhibits

Exhibits

31.1 Certifications by the Chief Executive Officer and the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1 Certifications by the Chief Executive Officer and the Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (this Exhibit is “furnished” pursuant to SEC rules, but is deemed not “filed”)

SIGNATURES

In accordance with the requirements of the Securities Exchange Act of 1934, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.