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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549
 FORM 10-QSB Quarterly Report Under
section 13 or 15(d) of the Securities Exchange Act of 1934 For the Quarterly Period Ended December 31, 2004 Commission File No. 000-20989 UROPLASTY, INC.  Minnesota, U.S.A.
    
    41-1719250(State or other jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    Identification No.)
 2718 Summer Street NE
Minneapolis, Minnesota 55413-2820
(Address of principal executive offices) (612) 378-1180
(Issuers telephone number, including area code) Securities registered under Section 12(g) of the Exchange Act: Common Stock, $.01 par value (Title of class) Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the
past 12 months (or for such shorter period that the Company was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. YES þ
    
    NO o
 The number of shares outstanding of the issuers only class of common stock on February 1, 2005 was 4,691,497.

Transitional Small Business Disclosure Format: YES o
    
    NO þ
    Page 1




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TABLE OF CONTENTS  PART I. FINANCIAL INFORMATIONITEM 1. FINANCIAL STATEMENTSITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSITEM 3. CONTROLS AND PROCEDURES.PART II. OTHER INFORMATIONITEM 6. EXHIBITS.SIGNATURESEmployment Agreement - Sam B. HumphriesEmployment and Consulting Agreement - Daniel G. HolmanCertifications by CEO & CFO Pursuant to Section 302Certifications by CEO & CFO Pursuant to Section 906    Table of Contents   
 PART I. FINANCIAL INFORMATION  
 ITEM 1. FINANCIAL STATEMENTS UROPLASTY, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS December
31, 2004(unaudited)
    
    
    March 31, 2004)AssetsCurrent assets:Cash and cash equivalents
    
    $
    1,885,757
    
    
    $
    2,697,670Accounts receivable, net
    
    
    1,180,398
    
    
    
    1,065,176Inventories
    
    
    573,255
    
    
    
    519,130Other
    
    
    199,074
    
    
    
    235,078Total current assets
    
    
    3,838,484
    
    
    
    4,517,054Property, plant, and equipment, net
    
    
    1,099,052
    
    
    
    1,071,116Intangible assets, net
    
    
    42,265
    
    
    
    51,495Deferred tax assets
    
    
    155,793
    
    
    
    123,893Total assets
    
    $
    5,135,594
    
    
    $
    5,763,558
 See accompanying notes to the condensed interim consolidated financial statements. Page 2




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UROPLASTY, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS December
31, 2004(unaudited)
    
    
    March 31, 2004Liabilities and Shareholders EquityCurrent liabilities:Current maturities  long-term debt
    
    $
    46,560
    
    
    $
    42,301Accounts payable
    
    
    231,049
    
    
    
    225,315Accrued liabilities
    
    
    372,823
    
    
    
    475,957Income tax payable
    
    
    154,217
    
    
    
    101,562Total current liabilities
    
    
    804,649
    
    
    
    845,135Long-term debt  less current maturities
    
    
    493,109
    
    
    
    479,720Accrued pension liability
    
    
    373,720
    
    
    
    334,470Total liabilities
    
    
    1,671,478
    
    
    
    1,659,325Shareholders equity:Common stock $.01 par value;
20,000,000
shares authorized, 4,691,497 and
4,584,802 shares issued and
outstanding at December 31, 2004 and
March 31, 2004, respectively
    
    
    46,915
    
    
    
    45,848Additional paid-in capital
    
    
    9,334,325
    
    
    
    9,130,580Accumulated deficit
    
    
    (5,876,598
    )
    
    
    (4,756,622
    )Accumulated other comprehensive loss
    
    
    (40,526
    )
    
    
    (315,573
    )Total shareholders equity
    
    
    3,464,116
    
    
    
    4,104,233Total liabilities and shareholders equity
    
    $
    5,135,594
    
    
    $
    5,763,558
 See accompanying notes to the condensed interim consolidated financial statements. Page 3




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UROPLASTY, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited) Three Months Ended
    
    
    Nine Months EndedDecember 31,
    
    
    December 31,2004
    
    
    2003
    
    
    2004
    
    
    2003Net sales
    
    $
    1,609,692
    
    
    $
    1,447,671
    
    
    $
    5,012,912
    
    
    $
    3,982,333Cost of goods sold
    
    
    383,573
    
    
    
    404,130
    
    
    
    1,317,303
    
    
    
    1,107,105Gross profit
    
    
    1,226,119
    
    
    
    1,043,541
    
    
    
    3,695,609
    
    
    
    2,875,228Operating expensesGeneral and administrative
    
    
    504,390
    
    
    
    493,905
    
    
    
    1,403,762
    
    
    
    1,450,447Research and development
    
    
    558,719
    
    
    
    454,349
    
    
    
    1,724,488
    
    
    
    1,336,313Selling and marketing
    
    
    416,886
    
    
    
    487,619
    
    
    
    1,535,642
    
    
    
    1,286,9221,479,995
    
    
    
    1,435,873
    
    
    
    4,663,892
    
    
    
    4,073,682Operating loss
    
    
    (253,876
    )
    
    
    (392,332
    )
    
    
    (968,283
    )
    
    
    (1,198,454
    )Other income (expense)Interest income
    
    
    8,015
    
    
    
    6,715
    
    
    
    23,093
    
    
    
    23,832Interest expense
    
    
    (5,361
    )
    
    
    (5,291
    )
    
    
    (15,682
    )
    
    
    (16,539
    )Foreign currency exchange loss
    
    
    (6,478
    )
    
    
    11,697
    
    
    
    (20,564
    )
    
    
    5,126(3,824
    )
    
    
    13,121
    
    
    
    (13,153
    )
    
    
    12,419Loss before income taxes
    
    
    (257,700
    )
    
    
    (379,211
    )
    
    
    (981,436
    )
    
    
    (1,186,035
    )Income tax expense
    
    
    86,311
    
    
    
    120,914
    
    
    
    138,540
    
    
    
    241,309Net loss
    
    $
    (344,011
    )
    
    $
    (500,125
    )
    
    $
    (1,119,976
    )
    
    $
    (1,427,344
    )Basic and diluted loss per common share
    
    $
    (0.07
    )
    
    $
    (0.11
    )
    
    $
    (0.24
    )
    
    $
    (0.32
    )Weighted average common shares
outstanding:Basic and diluted
    
    
    4,670,522
    
    
    
    4,530,657
    
    
    
    4,638,628
    
    
    
    4,500,677
 See accompanying notes to the condensed interim consolidated financial statements. Page 4




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UROPLASTY, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended December 31, 2004 and 2003
(Unaudited) Nine Months EndedDecember 31,2004
    
    
    2003Cash flows from operating activities:Net loss
    
    $
    (1,119,976
    )
    
    $
    (1,427,344
    )Adjustments to reconcile net loss to net cash used in operating activities:Depreciation and amortization
    
    
    122,869
    
    
    
    118,706Loss on disposal of assets
    
    
    3,987
    
    
    
    Stock-based consulting expense
    
    
    
    
    
    
    304,290Deferred tax assets
    
    
    (19,053
    )
    
    
    (15,164
    )Changes in operating assets and liabilities:Accounts receivable
    
    
    (18,397
    )
    
    
    84,563Inventories
    
    
    23,603
    
    
    
    88,411Other current assets
    
    
    43,963
    
    
    
    7,710Accounts payable
    
    
    (3,734
    )
    
    
    (49,119
    )Accrued liabilities
    
    
    (76,513
    )
    
    
    118,320Accrued pension liability
    
    
    9,821
    
    
    
    11,106Additional pension liability
    
    
    (996
    )
    
    
    (2,222
    )Net cash used in operating activities
    
    
    (1,034,426
    )
    
    
    (760,743
    )Cash flows from investing activities:Payments for property, plant and equipment
    
    
    (61,304
    )
    
    
    (63,669
    )Payments for intangible assets
    
    
    (7,277
    )
    
    
    (18,773
    )Net cash used in investing activities
    
    
    (68,581
    )
    
    
    (82,442
    )Cash flows from financing activities:Repayment of long-term debt
    
    
    (32,032
    )
    
    
    (29,383
    )Net proceeds from issuance of stock
    
    
    204,812
    
    
    
    49,917Net cash provided by financing activities
    
    
    172,780
    
    
    
    20,534Effect of exchange rates on cash and cash equivalents
    
    
    118,314
    
    
    
    60,573Net decrease in cash and cash equivalents
    
    
    (811,913
    )
    
    
    (762,078
    )Cash and cash equivalents at beginning of period
    
    
    2,697,670
    
    
    
    3,375,981Cash and cash equivalents at end of period
    
    $
    1,885,757
    
    
    $
    2,613,903Supplemental disclosure of cash flow information:Cash paid during the period for interest
    
    $
    16,583
    
    
    $
    17,723Cash paid during the period for income taxes
    
    
    113,136
    
    
    
    38,808Shares issued for 401(k) plan profit sharing contribution
    
    
    
    
    
    
    28,080Vesting of restricted shares for mold purchase
    
    
    
    
    
    
    170,000
 See accompanying notes to the condensed interim consolidated financial statements. Page 5




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UROPLASTY, INC. AND SUBSIDIARIES Notes to the Condensed Interim Consolidated Financial Statements
(Unaudited) 1. Basis of Presentation We have prepared our condensed consolidated financial statements included in this Form 10-QSB,
without audit, pursuant to the rules and regulations of the Securities and Exchange Commission.
Certain information and footnote disclosures normally included in 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. The consolidated results of
operations for any interim period are not necessarily indicative of results for a full year. These
condensed consolidated statements should be read in conjunction with the consolidated financial
statements and related notes included in our Annual Report on Form 10-KSB for the year ended March
31, 2004. The condensed consolidated financial statements presented herein as of December 31, 2004 and for
the three and nine-months periods ended December 31, 2004 and 2003 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 the Companys management, and as a result are subject to an
inherent level of uncertainty. These are characterized as critical accounting policies and
address revenue recognition, inventories, foreign currency translation and transactions, and
impairment of long-lived assets, each of which is more fully described in our Annual Report on Form
10-KSB for the year ended March 31, 2004. Based upon our review, we have determined that these
policies remain our most critical accounting policies for the three and nine-months periods ended
December 31, 2004, and have made no changes to these policies during fiscal 2005. 2. Nature of Business and Corporate Liquidity We currently sell our products outside of the United States and are pursuing regulatory approvals
to market our products in the United States. We anticipate increasing our sales and marketing
activities in the U.S. once we obtain such approvals. The FDA approval process can be costly,
lengthy and uncertain. As a result of the $2.4 million gross proceeds of a Rights Offering
completed July 2002, we believe that current resources and the funds generated from sale of our
products outside the U.S. will be adequate to meet our cash flow needs, including regulatory
activities associated with existing products, through at least the first quarter of fiscal 2006.
Ultimately, we will need to achieve profitability and positive cash flows from operations and to
raise additional debt or equity financing to fund our operations and grow our business. 3. Inventories Inventories are stated at the lower of cost (first-in, first-out method) or market (net realizable
value) and consist of the following: December 31, 2004
    
    
    March 31, 2004Raw materials
    
    $
    190,110
    
    
    $
    138,920Work-in-process
    
    
    93,913
    
    
    
    110,511Finished goods
    
    
    289,232
    
    
    
    269,699$
    573,255
    
    
    $
    519,130
 Page 6




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4. Comprehensive Loss Comprehensive loss consists of net loss, and the translation adjustments as follows: Three Months Ended
    
    
    Nine Months EndedDecember 31,
    
    
    December 31,2004
    
    
    2003
    
    
    2004
    
    
    2003Net loss
    
    $
    (344,011
    )
    
    $
    (500,125
    )
    
    $
    (1,119,976
    )
    
    $
    (1,427,344
    )Items of other comprehensive
income (loss):Translation adjustment
    
    
    253,170
    
    
    
    183,201
    
    
    
    285,164
    
    
    
    320,590Additional pension liability
    
    
    (9,129
    )
    
    
    (4,294
    )
    
    
    (10,117
    )
    
    
    (7,709
    )Comprehensive loss
    
    $
    (99,970
    )
    
    $
    (321,218
    )
    
    $
    (844,929
    )
    
    $
    (1,114,463
    )
 5. Reconciliation of Net Loss and Per Share Amounts Used in EPS Calculation Basic and diluted loss per common share is calculated by dividing net loss by the weighted-average
common shares outstanding during the period. Basic andDiluted LossPer ShareFor the three months ended:December 31, 2004Net loss
    
    $
    (344,011
    )Weighted average shares
    
    
    4,670,522Per share amount
    
    $
    (0.07
    )For the three months ended:December 31, 2003Net loss
    
    $
    (500,125
    )Weighted average shares
    
    
    4,530,657Per share amount
    
    $
    (0.11
    )For the nine months ended:December 31, 2004Net loss
    
    $
    (1,119,976
    )Weighted average shares
    
    
    4,638,628Per share amount
    
    $
    (0.24
    )
 Page 7




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Basic andDiluted LossPer ShareFor the nine months ended:December 31, 2003Net loss
    
    $
    (1,427,344
    )Weighted average shares
    
    
    4,500,677Per share amount
    
    $
    (0.32
    )
 The following options and warrants outstanding at December 31, 2004 and 2003 to purchase shares of
common stock were excluded from diluted loss per share, because of their anti-dilutive effect: Number of
    
    
    Range of ExerciseOptions/Warrants
    
    
    PricesFor the three and nine months ended:December 31, 2004
    
    
    2,046,576
    
    
    $0.90 to $10.50December 31, 2003
    
    
    1,752,264
    
    
    $0.90 to $10.50
 6. Shareholders Equity We apply the intrinsic-value method to account for employee stock-based compensation. As such,
compensation expense, if any, is recorded on the date of grant if the current market price of the
underlying stock exceeds the exercise price. We account for stock-based instruments granted to non-employees under the fair value method of SFAS
No. 123 and Emerging Issues Task Force (EITF) 96-18, Accounting for Equity Instruments That Are
Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or Services.
Under SFAS No. 123, we record options at their fair value on the measurement date, which is
typically the vesting date. Consulting Agreements On April 1, 2003, we executed a consulting agreement with CCRI Corporation (CCRI) to provide
investor relations and development services. We pay CCRI a monthly fee of $4,000 plus expenses.
CCRI received 35,000 shares of fully vested restricted common stock, and vested warrants to
purchase 50,000 shares of common stock at an exercise price of $3.00 per share, and received vested
warrants to purchase 50,000 shares of common stock at an exercise price of $5.00 per share on
November 2, 2003. We fully amortized the fair value of the common stock and warrants in fiscal
2004. Stock-based compensation expense for the CCRI agreement for the three and nine-months ended
December 31, 2003 aggregated $110,924 and $217,410, respectively. On April 1, 2004, we extended the
agreement for one year. The monthly fee of $4,000 plus expenses remained the same. On April 1, 2003, we executed a consulting agreement with Executive Advisory Group (EAG) to provide
us with general management advice and guidance as well as strategic and tactical planning services.
Mr. Sam B. Humphries, at that time a Director of the Company, is President of EAG. We paid EAG a
monthly fee of $6,000 plus expenses and granted to EAG stock options to purchase 50,000 shares of
common stock, exercisable at $2.80 per share. We fully amortized the fair value of the stock
options in fiscal 2004. Stock-based compensation expense for the EAG agreement for the three and
nine-months ended December 31, 2003 aggregated $28,959 and $86,880, respectively. On April 1, 2004,
we extended the agreement. The monthly fee of $6,000 plus expenses remained the same. This
agreement was terminated on January 1, 2005, the date Mr. Humphries was appointed President and
Chief Executive Officer of our Company. Page 8




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7. Stock-based Compensation Had we determined compensation cost based on the fair value at the grant date for our stock options
issued to employees under SFAS 123, Accounting for Stock-Based Compensation, our net loss and per
share amounts would have increased to the pro forma amounts shown below: Three Months Ended
    
    
    Nine Months EndedDecember 31,
    
    
    December 31,2004
    
    
    2003
    
    
    2004
    
    
    2003Net loss  As reported
    
    $
    (344,011
    )
    
    $
    (500,125
    )
    
    $
    (1,119,976
    )
    
    $
    (1,427,344
    )Deduct: Total stock-based
employee compensation
expense determined under
fair value based method
for all awards
    
    
    (1,221,115
    )
    
    
    (43,868
    )
    
    
    (403,940
    )
    
    
    (217,367
    )Net loss  Pro forma
    
    $
    (1,565,126
    )
    
    $
    (543,993
    )
    
    $
    (2,413,012
    )
    
    $
    (1,644,711
    )Net loss per common share
- As reported:Basic and diluted
    
    $
    (0.07
    )
    
    $
    (0.11
    )
    
    $
    (0.24
    )
    
    $
    (0.32
    )Net loss per common share
- Pro forma:Basic and diluted
    
    $
    (0.34
    )
    
    $
    (0.12
    )
    
    $
    (0.52
    )
    
    $
    (0.37
    )
 8. 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. Our international
subsidiaries have defined benefit retirement plans for eligible employees. These plans provide
benefits based on each employees years of service and compensation during the years immediately
preceding retirement, termination, disability, or death, as defined in the plans. Our UK
subsidiarys defined benefit plan accrued pension liability and periodic pension cost are not
material to our consolidated financial statements. Pension plan assets are invested in insurance
contracts. The cost for our plan in The Netherlands includes the following components for the periods ended
December 31, 2004 and 2003: Three Months Ended
    
    
    Nine Months EndedDecember 31,
    
    
    December 31,2004
    
    
    2003
    
    
    2004
    
    
    2003Gross service cost, net of
employee contribution
    
    $
    31,248
    
    
    $
    19,697
    
    
    $
    89,723
    
    
    $
    58,421Interest cost
    
    
    17,684
    
    
    
    12,916
    
    
    
    50,777
    
    
    
    38,308Expected return on assets
    
    
    (10,135
    )
    
    
    (7,488
    )
    
    
    (29,101
    )
    
    
    (22,209
    )Amortization
    
    
    3,491
    
    
    
    1,984
    
    
    
    10,024
    
    
    
    5,885Net periodic retirement cost
    
    $
    42,288
    
    
    $
    27,109
    
    
    $
    121,423
    
    
    $
    80,405
 Page 9




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Major assumptions used in the above calculations include: Three Months Ended
    
    
    Nine Months EndedDecember 31,
    
    
    December 31,2004
    
    
    2003
    
    
    2004
    
    
    2003Discount rate
    
    
    5.25
    %
    
    
    5.25
    %
    
    
    5.25
    %
    
    
    5.25
    %Expected return on assets
    
    
    4.50
    %
    
    
    4.50
    %
    
    
    4.50
    %
    
    
    4.50
    %Expected rate of
increase in future
compensationGeneral
    
    
    3
    %
    
    
    3
    %
    
    
    3
    %
    
    
    3
    %Individual
    
    
    0%-3
    %
    
    
    0%-3
    %
    
    
    0%-3
    %
    
    
    0%-3
    %
 9. Foreign Currency Translation All assets and liabilities are translated using period-end exchange rates and statements of
operations items are translated 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 the Company and its foreign subsidiaries. All intercompany balances are
revolving in nature and are not deemed to be long-term balances. For the three-months ended
December 31, 2004 and 2003, we recognized foreign currency gains (losses) of $(6,478) and $11,697,
respectively. For the nine-months ended December 31, 2004 and 2003, we recognized foreign currency
gains (losses) of $(20,564) and $5,126, respectively. 10. Income Tax Expense During the quarters ended December 31, 2004 and 2003, our Dutch subsidiaries recorded income tax
expense of $86,311 and $120,914, respectively, as we have fully utilized our net operating loss
carryforwards. For the nine months ended December 31, 2004 and 2003, our Dutch subsidiaries
recorded income tax expense of $138,540 and $241,309, respectively. The U.S. net operating loss
carryforwards cannot be used to offset taxable income in foreign jurisdictions. 11. Business Segment Information We sell Macroplastique®, a soft tissue bulking material, for the treatment of urinary
incontinence. In addition, we market our soft tissue bulking material for additional indications,
including for the treatment of vocal cord rehabilitation, fecal incontinence and soft tissue facial
augmentation. At this time, we make sales only outside the United States. Our current objectives
are to focus on obtaining U.S. regulatory approvals for Macroplastique and the I-Stop sling for
treating stress urinary incontinence, or SUI, and on increasing market penetration and sales of
Macroplastique for the treatment of SUI and vesicoureteral reflux and of PTQ Implants for the
treatment of fecal incontinence in markets outside the U.S. We anticipate initiating marketing in
the U.S. once we obtain the requisite approvals. Our Macroplastique product line accounted for 77%
and 84%, respectively, of total net sales during the 2004 and 2003 nine-month periods presented. In
addition, we sell specialized wound care products in The Netherlands and United Kingdom as a
distributor. Based upon the above, we operate in only one reportable segment consisting of medical products
primarily for the urology market. Page 10




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Information regarding operations in different geographies for the three and nine-months ended
December 31, 2004 and 2003 is as follows: AdjustmentsUnited
    
    
    The
    
    
    United
    
    
    andStates
    
    
    Netherlands
    
    
    Kingdom
    
    
    Eliminations
    
    
    ConsolidatedFiscal 2005Sales to customers,
three-months ended
December 31, 2004
    
    $
    
    
    
    $
    1,394,658
    
    
    $
    391,419
    
    
    $
    (176,385
    )
    
    $
    1,609,692Sales to customers,
nine-months ended
December 31, 2004
    
    
    
    
    
    
    4,255,905
    
    
    
    1,264,274
    
    
    
    (507,267
    )
    
    
    5,012,912Income tax expense,
three-months ended
December 31, 2004
    
    
    
    
    
    
    86,311
    
    
    
    
    
    
    
    
    
    
    
    86,311Income tax expense,
nine-months ended
December 31, 2004
    
    
    
    
    
    
    138,540
    
    
    
    
    
    
    
    
    
    
    
    138,540Net income (loss),
three-months ended
December 31, 2004
    
    
    (520,693
    )
    
    
    165,788
    
    
    
    14,178
    
    
    
    (3,284
    )
    
    
    (344,011
    )Net income (loss),
nine-months ended
December 31, 2004
    
    
    (1,495,654
    )
    
    
    271,347
    
    
    
    8,773
    
    
    
    95,558
    
    
    
    (1,119,976
    )Long-lived assets
At December 31, 2004
    
    
    294,293
    
    
    
    832,063
    
    
    
    14,961
    
    
    
    
    
    
    
    1,141,317Fiscal 2004Sales to customers,
three-months ended
December 31, 2003
    
    
    
    
    
    
    1,317,858
    
    
    
    391,180
    
    
    
    (261,367
    )
    
    
    1,447,671Sales to customers,
nine-months ended
December 31, 2003
    
    
    
    
    
    
    3,586,988
    
    
    
    1,085,354
    
    
    
    (690,009
    )
    
    
    3,982,333Income tax expense,
three-months ended
December 31, 2003
    
    
    
    
    
    
    120,914
    
    
    
    
    
    
    
    
    
    
    
    120,914Income tax expense,
nine-months ended
December 31, 2003
    
    
    
    
    
    
    241,309
    
    
    
    
    
    
    
    
    
    
    
    241,309Net income (loss),
three-months ended
December 31, 2003
    
    
    (500,277
    )
    
    
    224,701
    
    
    
    (119,116
    )
    
    
    (105,433
    )
    
    
    (500,125
    )Net income (loss),
nine-months ended
December 31, 2003
    
    
    (1,308,535
    )
    
    
    466,079
    
    
    
    (358,445
    )
    
    
    (226,443
    )
    
    
    (1,427,344
    )Long-lived asset
At December 31, 2003
    
    
    317,196
    
    
    
    786,180
    
    
    
    21,719
    
    
    
    
    
    
    
    1,125,095
 
 ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS We recommend that you read this Report on Form 10-QSB in conjunction with our Annual Report on Form
10-KSB for the year ended March 31, 2004. Forward-looking Statements We may from time to time make written or oral forward-looking statements, including our
statements contained in this filing with the Securities and Exchange Commission and in our reports
to stockholders, as well as elsewhere. Forward-looking statements are statements such as those
contained in projections, plans, objectives, estimates, statements of future economic performance,
and assumptions related to any of the foregoing, and may be identified by the use of
forward-looking terminology, such as may, expect, anticipate, estimate, goal, continue,
or other comparable terminology. By their very nature, 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. Any such statement is qualified by
reference to the following cautionary statements. Page 11




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Our business operates in highly competitive markets and is subject to changes in general economic
conditions, competition, 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 from time to time in our Securities and Exchange Commission filings. In this filing, the section entitled Managements Discussion and Analysis of Financial Condition
and Results of Operations contains forward-looking statements. Various factors and risks (not all
of which are identifiable at this time) could cause our results, performance, or achievements to
differ materially from that contained in our forward-looking statements, and investors are
cautioned that any forward-looking statement contained herein or elsewhere is qualified by and
subject to the warnings and cautionary statements contained above and in our other filings with the
Securities and Exchange Commission. We do not undertake, nor assume obligation, to update any forward-looking statement that we may
make from time to time. Overview Uroplasty, Inc. develops, manufactures, and/or markets medical products in certain segments of the
urology, gynecology, urogynecology, colon and rectal, wound care, otolaryngology and plastic
surgery markets. The products we sell are subject to regulation by the U.S. FDA and/or various
regulating agencies in countries outside the U.S. Existing sales have been, and we expect future
sales growth to be, derived from Macroplastique and related ancillary products designed for use by
urologists, gynecologists, and uro-gynecologists for the primary treatment of stress urinary
incontinence, or SUI, and for the treatment of vesicouretal reflex, or VUR, a condition in which
urine flows backward from the bladder to the kidney. Macroplastique is comprised of soft, textured,
solid, medical grade silicone elastomer implants suspended in a biocompatible carrier gel. Our
minimally invasive procedure allows for Macroplastique to be placed in the tissue of the
mid-urethra (in the case of SUI), and at the ureteral orifice (in the case of VUR). The implants
act as a bulking material to restore urinary continence or to eliminate backward flow of urine from
the bladder to the kidneys. We are concluding a multi-center human clinical trial with our urethral bulking agent,
Macroplastique, pursuant to an FDA Investigational Device Exemption as a minimally invasive,
office-based procedure for treating female SUI. Based on this clinical trial data, we are seeking
premarket approval of Macroplastique for treating female SUI. In addition to the urological applications, we also market our implantable tissue bulking material
outside the U.S. for reconstructive and cosmetic plastic surgery applications under the trade name
Bioplastique Implants; fecal incontinence applications under the trade name PTQ Implants
(formerly PTP Implants); and vocal cord rehabilitation under the trade name VOX Implants. In
The Netherlands and the United Kingdom, we distribute certain wound care products on behalf of
another company in accordance with an executed Distributor Agreement. Under the terms of the
Distributor Agreement, we are not obligated to purchase any minimum level of wound care products.
In the United Kingdom we are the exclusive distributor of I-Stop®, a tension-free mid-urethral
sling, indicated for the treatment of female urinary incontinence due to urethral hypermobility or
intrinsic sphincter deficiency (ISD). Each of our products is CE marked, demonstrating compliance with European requirements for medical
devices and allowing our products to be sold within the European Union and other countries that
recognize CE marking. Our products are sold by a direct sales force in the United Kingdom, and by
a network of distributors in numerous countries outside the U.S., including in Europe, Australia,
Canada and Latin America. In September 2004, we entered into a Manufacturing and Distribution Agreement with CL Medical SAS,
Lyon, France, under which we have exclusive distribution rights in the United States for CL
Medicals tension-free synthetic sling, the I-Stop sling. The I-Stop sling is currently sold in
Europe for treating female SUI due to urethral hypermobility, which occurs when the urethra is no
longer appropriately supported by the surrounding tissues and ligaments. We have agreed to
purchase our entire requirement of product components from CL Medical and to purchase specified
minimum amounts of product components during the first 5 years of the agreement. We are
responsible for FDA clinical and regulatory requirements for the product. The agreement is for 6
years with an option to renew the agreement for successive 5-year terms. We expect to submit to
the FDA a 510(k), or premarket notification application, with respect to the I-Stop sling in 2005. Our current objectives are to focus on obtaining U.S. regulatory approvals of Macroplastique and
the I-Stop sling for treating SUI and increasing market penetration and sales of our products in
countries outside the U.S. We anticipate initiating marketing in the U.S. once we obtain the
requisite FDA approvals. Page 12




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In December 2004, we signed a letter of intent to acquire CystoMedix, Inc, a privately held
company, and to a pursue a merger of CystoMedix into a newly formed subsidiary of ours. CystoMedix
developed and markets a proprietary neuromodulation product for patients suffering from overactive
bladder symptoms, including urge incontinence. The Urgent® PC Neuromodulation System has received
CE marking and FDA approval for sale within and outside the United States. The merger consideration
is expected to consist of our common stock and cash. Completion of the merger is subject to completion of our due diligence investigation, negotiation
of a definitive agreement, approval by CystoMedix shareholders and other customary conditions. We
expect the merger will be completed by March 31, 2005. However, we cannot be certain the merger
will occur at all or, if the merger is completed, that the merger will achieve the benefits that we
may anticipate. Critical Accounting Policies We prepare our consolidated financial statements in accordance with accounting principles generally
accepted in the U.S., 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
believe that of our significant accounting policies, the following are particularly important to
the portrayal of our results of operations and financial position. They may require the
application of a higher level of judgment by Uroplasty management, and as a result are subject to
an inherent degree of uncertainty. Revenue Recognition and Accounts Receivable. The Securities and Exchange Commissions Staff
Accounting Bulletin (SAB) No. 104, Revenue Recognition in Financial Statements, provides
guidance on the application of generally accepted accounting principles to selected revenue
recognition issues. We believe our revenue recognition policies comply with SAB 104. We market and
distribute our products through a network of distributors and through direct sales to end-users in
the United Kingdom and The Netherlands. We recognize revenue upon shipment of product to our
distributors and direct customers. We have no customer acceptance provisions or installation
obligations. Our sales terms to our distributors and customers provide no right of return outside
of our standard warranty, and payment terms consistent with industry standards apply. Sales terms
and pricing to our distributors are governed by the respective distribution agreements. Our
distribution partners purchase the Uroplasty products to meet sales demand of their end-user
customers as well as to fulfill their internal requirements associated with the sales process and,
if applicable, contractual purchase requirements under the respective distribution agreements.
Internal and other requirements include purchases of products for training, demonstration and
evaluation purposes, clinical evaluations, product support, establishing inventories, and meeting
minimum purchase commitments. As a result, the level of our revenue during any period is not
necessarily indicative of our distributors sales to end-user customers during that period, which
are estimated not to be substantially different than our sales to those distributors in each of the
last two years. Our distributors level of inventories of our products, their sales to end-user
customers and their internal product requirements may impact our future revenue growth. Inventories. We state inventories at the lower of cost or market using the first-in, first-out
method. We provide reserves for slow moving and obsolete inventories based upon current and
expected future product sales and the expected impact of product transitions or modifications.
While we expect our sales to grow, a reduction in sales could reduce the demand for our products,
and additional inventory reserves may be required. Foreign Currency Translation/Transactions. The financial statements of our foreign
subsidiaries were translated in accordance with the provisions of SFAS No. 52 Foreign Currency
Translation. Under this Statement, we translate all assets and liabilities using period-end
exchange rates, and 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 the statement of operations, including unrealized gains and losses on short-term
intercompany obligations using period-end exchange rates, resulting in an increase in the
volatility of our consolidated statements of operations. We recognize unrealized gains and losses
on long-term intercompany obligations within accumulated other comprehensive loss, a separate
component of shareholders equity. Impairment of Long-Lived Assets. Long-lived assets at December 31, 2004 consist of property, plant
and equipment. We review our long-lived assets for impairment whenever events or business
circumstances indicate that the carrying amount of an asset may not be recoverable. We measure the
recoverability of assets to be held and used by a comparison of the carrying amount of an asset to
future undiscounted net cash flows expected to be generated by the asset. If we consider such
assets impaired, we measure the impairment to be recognized by the amount by which the carrying
amount of the assets exceeds the fair value of the assets. We report assets to be disposed of at
the lower of the carrying amount or fair value less costs to sell. Page 13




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Set forth below is managements discussion and analysis of the financial condition and results of
operations for the three and nine-months ended December 31, 2004 and 2003. Results of Operations Three-month period ended December 31, 2004 compared to three-month period ended December 31, 2003 Net Sales: In the third quarter ended December 31, 2004, net sales of all products were
$1,609,692, representing a $162,021 or 11% increase when compared to net sales of $1,447,671 for
the third quarter ended December 31, 2003. Excluding fluctuations in foreign currency exchange
rates, we had a sales increase of approximately 2%, mainly attributed to increased prices. We
believe our sales will increase as a result of the impact of all sales personnel and their focus on
the execution of sales plans designed to expand our global market share in the specialties of both
urinary and fecal incontinence. The Macroplastique product line accounts for 76% and 84% of total
net sales, respectively, during the periods presented. Gross Profit: Gross profit was $1,226,119 and $1,043,541 for the quarters ended December 31, 2004
and 2003, respectively, or 76% and 72% of net sales. Gross profit increased as a result of
increased customer prices and currency fluctuations. Gross profit as a percentage of net sales in
any one specific period will continue to fluctuate, based on the following factors: our unit sales,
our utilization of manufacturing capacity, the mix of products sold with different gross margins,
the mix of customers (and different discounts to them), the mix of direct sales versus sales
through distributors (with higher margins on direct sales), and currency fluctuations.
Historically, the gross margin has ranged from approximately 70-80% of net sales. General and Administrative Expense: General and administrative (G&A) expenses increased from
$493,905 during the third quarter of fiscal 2004 to $504,390 during the third quarter of fiscal
2005. The G&A expense increase related to increased salary costs of $39,000, a $50,000 increase in
professional fees for accounting and legal, general price increases and fluctuations in foreign
currency exchange rates. This increase was offset in part by decreases of $29,000 in consulting
fees and $108,000 of shareholders expense. The decrease in both the consulting fees and the
shareholders expense primarily relates to the $139,883 of stock-based compensation expense
recognized in the third quarter of fiscal 2004. The increased salary costs relates to added
personnel and increased salaries. Research and Development Expense: Research and development (R&D) expenses increased $104,370, or
23%, from $454,349 during the third quarter of fiscal 2004 to $558,719 during the third quarter of
fiscal 2005. The increase in R&D expense is due to quality and regulatory costs related to the
development of our premarket approval (PMA) submission for U.S. market clearance for Macroplastique
in the treatment of adult female stress urinary incontinence. Selling and Marketing Expenses: Selling and marketing (S&M) costs decreased 15% from $487,619
during the third quarter of fiscal 2004 to $416,886 during the third quarter of fiscal 2005. The
decrease resulted from a $34,000 decrease in personnel costs, a $19,000 decrease of automobile
expense, mainly due to an early returned lease car in fiscal 2004, decreased costs of $11,000
relating to trade-shows, conventions and congresses. The decreased personnel costs relate to
dismissal payment made in the third quarter of fiscal 2004. The timing of when trade shows and
congresses take place caused the decrease in the costs. Other Income (Expense): Other income (expense) includes interest income, interest expense, foreign
currency exchange gains and losses, settlement income and other non-operating costs when incurred.
Our financial results are subject to material fluctuations based on changes in currency exchange
rates. Other income (expense) was $(3,824) and $13,121 for the third quarters ended December 31,
2004 and 2003, respectively. 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 the Company and its foreign subsidiaries.
We recognized foreign currency gains (losses) of $(6,478) and $11,697 for the third quarters ended
December 31, 2004 and 2003, respectively. Income Tax Expense: Our Dutch subsidiaries recorded income tax expense of $86,311 and $120,914 for
the third quarter ended December 31, 2004 and 2003, respectively, as they have fully utilized their
net operating loss carryforwards. The U.S. net operating loss carryforwards cannot be used to
offset taxable income in foreign jurisdictions. We expect continued profits for our Dutch
subsidiaries and therefore continued income tax expenses. The Dutch income tax rate is 29% for
euro 22,689 of profit and 34.5% for the amount above euro 22,689. For profits after January 1, 2005
the Dutch income tax rate is 27% for euro 22,689 of profit and 31.5% for the amount above euro
22,689. Page 14




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Nine-month period ended December 31, 2004 compared to nine-month period ended December 31, 2003 Net Sales: During the nine-months ended December 31, 2004, net sales of all products were
$5,012,912, representing a $1,030,579 or 26% increase when compared to net sales of $3,982,333 for
the nine months ended December 31, 2003. Excluding fluctuations in foreign currency exchange rates,
we had a sales increase of approximately 16%. The sales increase is partly contributed by price
increases, but mainly attributable by increased unit sales. We believe the continued increase in
sales is related to the impact and execution of sales plans designed to expand our global market
share in the specialties of both urinary and fecal incontinence. The Macroplastique product line
accounts for 77% and 84% of total net sales, respectively, during the periods presented. Gross Profit: Gross profit was $3,695,609 and $2,875,228 for the nine-months ended December 31,
2004 and 2003, respectively, or 74% and 72% of net sales. Gross profit increased as a result of
increased customer prices and currency fluctuations. Gross profit as a percentage of net sales in
any one specific period will continue to fluctuate, based on the following factors: our unit sales,
our utilization of manufacturing capacity, the mix of products sold with different gross margins,
the mix of customers (and different discounts to them), the mix of direct sales versus sales
through distributors (with higher gross margins on direct sales), and currency fluctuations.
Historically, the gross margin has ranged from approximately 70-80% of net sales. General and Administrative Expense: General and administrative (G&A) expenses decreased from
$1,450,447 during the nine-months ended December 31, 2003 to $1,403,762 during the same period of
fiscal 2005. The G&A expense decrease related to decreases of $87,000 in consulting fees and
$215,000 of shareholders expense. This decrease was offset by increased salary costs of $80,000, a
$125,000 increase in professional fees for accounting and legal, general price increases and
fluctuations in foreign currency exchange rates. The decrease in both the consulting fees and the
shareholders expense primarily relates to the $304,290 of stock-based compensation expense
recognized in the nine-months ended December 31, 2003. The increased salary costs relates to added
personnel and increased salaries. Research and Development Expense: Research and development (R&D) expenses increased $388,175, or
29%, from $1,336,313 during the nine months ended December 31, 2003 to $1,724,488 for the same
period of fiscal 2005. The increase in R&D expense is primarily due to quality and regulatory costs
related to the development of the Companys premarket approval (PMA) submission for U.S. market
clearance for Macroplastique in the treatment of adult female stress urinary incontinence. Selling and Marketing Expenses: Selling and marketing (S&M) costs increased 19% from $1,286,922
during the nine months ended December 31, 2003 to $1,535,642 for the same period of fiscal 2005.
This increase resulted from a $159,000 increase in personnel costs, an additional $141,000 in costs
relating to trade-shows, conventions and congresses, general price increases, and fluctuations in
foreign currency exchange rates. The increase was offset by a decrease in promotional costs of
$60,000. The increased personnel costs relate to the hiring of experienced sales personnel and
increased salaries and bonuses. Other Income (Expense): Other income (expense) includes interest income, interest expense, foreign
currency exchange gains and losses, settlement income and other non-operating costs when incurred.
Our financial results are subject to material fluctuations based on changes in currency exchange
rates. Other income (expense) was $(13,153) and $12,419 for the nine months ended December 31, 2004
and 2003, respectively. 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 the Company and its foreign subsidiaries.
We recognized foreign currency gains (losses) of $(20,564) and $5,126 for the periods presented. Income Tax Expense: Our Dutch subsidiaries recorded income tax expense of $138,540 and $241,309 for
the periods presented, as they have fully utilized their net operating loss carryforwards. The U.S.
net operating loss carryforwards cannot be used to offset taxable income in foreign jurisdictions.
We expect continued profits for our Dutch subsidiaries and therefore continued income tax expenses.
The Dutch income tax rate is 29% for euro 22,689 of profit and 34.5% for the amount above euro
22,689. For profits after January 1, 2005 the Dutch income tax rate is 27% for euro 22,689 of
profit and 31.5% for the amount above euro 22,689. Liquidity and Capital Resources As of December 31, 2004, our cash and cash equivalent balances totaled $1,885,757. Page 15




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At December 31, 2004, we had working capital of approximately $3.0 million. During the nine month
period ended December 31, 2004, we used $1,034,426 of cash in operating activities, compared to
$760,743 of cash used in the prior-year. The usage of cash was primarily attributable to the net
loss incurred of $1,119,976. Accounts receivable, other current assets, accounts payable and
accrued expenses fluctuated due to the timing of payments and fluctuations in foreign currency
exchange rates. We recorded $304,290 of non-cash stock-based compensation expense during the nine
months ended December 31, 2003. We currently have no financing arrangements in place with any bank for general working capital
needs, and no material unused sources of liquidity other than the cash, equipment leasing
arrangements, and our accounts receivable and inventory balances at December 31, 2004 of $1,180,398
and $573,255, respectively. For the remainder of fiscal 2005, we do not anticipate any material
capital expenditures. Our financial condition and results of operations could be materially affected by fluctuations in
foreign currency exchange rates and weak economic conditions in foreign markets where we sell and
distribute our products. The effects of these conditions could include reduced unit sales and
reduced sales in dollars when converted from foreign currency amounts and material gains and losses
on transactions denominated in foreign currencies. Furthermore, because our U.S. operations are
funded by sales denominated in foreign currency, strengthening of the U.S. dollar against the euro,
and/or the British pound could have an adverse effect on our cash flow and results of operations. We expect to continue to incur significant costs for regulatory activities associated with
obtaining regulatory approval in the United States for Macroplastique and the I-Stop sling. For
the remainder of fiscal 2005, we have budgeted approximately $600,000 for our regulatory expenses.
We currently expect that during fiscal 2006 selling and marketing expenses will continue to
increase due to the anticipated launch of the Macroplastique and I-Stop products in the United
States. In addition, we currently expect general and administrative expenses in fiscal 2006 to
increase due to the implementation of Section 404 of the Sarbanes-Oxley Act of 2002. We believe that current resources and the funds generated from sale of our products outside the
U.S. will be adequate to meet our cash flow needs, including regulatory activities associated with
existing products, through at least the first quarter of fiscal 2006. Ultimately, we will need to
achieve profitability and positive cash flows from operations and to raise additional debt or
equity financing to fund our operations and grow our business. Repayments of our contractual obligations, consisting of royalties, notes payable, and operating
leases, are summarized below: Payments Due by PeriodRemainder
    
    
    
    
    
    
    Fiscalof Fiscal
    
    
    Fiscal
    
    
    2007 andTotal
    
    
    2005
    
    

2006
    
    
    ThereafterMinimum royalty payments
    
    $
    365,000
    
    
    
    13,500
    
    
    
    104,000
    
    
    
    247,500Notes payable
    
    
    539,669
    
    
    
    11,640
    
    
    
    46,560
    
    
    
    481,469Operating lease commitments
    
    
    439,877
    
    
    
    85,500
    
    
    
    253,364
    
    
    
    101,013Total contractual obligations
    
    $
    1,344,546
    
    
    
    110,640
    
    
    
    403,924
    
    
    
    829,982
 Uroplasty has a pension plan covering 17 employees in The Netherlands, reported as a defined
benefit plan. We pay premiums to an insurance company to fund annuities for these employees.
However, we are responsible for funding additional annuities based on continued service and future
salary increases. We are obligated to pay royalties of 5% of net sales in the U.S. of Macroplastique products with a
minimum of $50,000 per year. The duration of this royalty agreement is through May 1, 2006. Under
another royalty agreement we pay royalties, in the aggregate, of three to five percent of net sales
of Macroplastique, Bioplastique, and PTQ Implants subject to a monthly minimum of $4,500. The
royalties payable under this Agreement will continue until the patent referenced in the Agreement
expires in 2010. Under a license agreement for the Macroplastique Implantation System, we pay a
royalty of 10 British pounds for each unit sold during the life of the patent. Page 16




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ITEM 3. CONTROLS AND PROCEDURES. Disclosure Controls and Procedures. Within the 90 days prior to the date of this report, our
Principal Executive Officer and Principal Financial Officer carried out an evaluation of the
effectiveness of the design and operation of our disclosure controls and procedures pursuant to
Rule 13a-15b under the Securities Exchange Act of 1934. Based on their review of our disclosure
controls and procedures, such officers have concluded that our disclosure controls and procedures
are effective in timely alerting them to material information relating to us that is required to be
included in our periodic SEC filings. Internal Controls and Procedures. There were no significant changes in internal controls or in
other factors that could significantly affect these controls subsequent to the date of their
evaluation, including any corrective actions with regard to significant deficiencies and material
weaknesses. Page 17




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PART II. OTHER INFORMATION   Except as indicated below, none of the items contained in PART II of Form 10-QSB are applicable to
us for the three months ended December 31, 2004. 
 ITEM 6. EXHIBITS. (a) Exhibits 10.1 Employment Agreement between Uroplasty, Inc. and Sam B. Humphries dated January 1, 2005 10.2 Employment and Consulting Agreement between Uroplasty, Inc. and Daniel G. Holman dated
January 1, 2005 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) Page 18




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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. UROPLASTY, INC.Date: February 11, 2005
    
    
    by:
    
    /s/ SAM B. HUMPHRIESSam B. HumphriesPresident and Chief Executive OfficerDate: February 11, 2005
    
    
    by:
    
    /s/ DANIEL G. HOLMANDaniel G. HolmanChief Financial Officer
 Page 19