##### Table of Contents



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 June 30, 2004 Commission File No. 000-20989 UROPLASTY, INC.  Minnesota, U.S.A.
    
    41-1719250(State or other jurisdiction of
incorporation or organization)
    
    (I.R.S. Employer
Identification No.)
 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 aggregate market value of the voting stock held by non-affiliates computed by reference to the price at which the
stock was sold or the average bid and asked prices of such stock as of August 2, 2004 was $10,446,339. The number of shares outstanding of the issuers only class of common stock on August 2, 2004 was 4,659,865. 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 OR PLAN OF OPERATIONITEM 3. CONTROLS AND PROCEDURES.PART II. OTHER INFORMATIONITEM 2. CHANGES IN SECURITIESITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.SIGNATURESCertifications by the CEO/CFO and Controller Pursuant to Section 302Certifications by the CEO/CFO and Controller Pursuant to Section 906Press Release    Table of Contents  
 PART I. FINANCIAL INFORMATION 
 ITEM 1. FINANCIAL STATEMENTS UROPLASTY, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS June 30, 2004
    
    March 31, 2004(unaudited)AssetsCurrent assets:Cash and cash equivalents
    
    $
    2,502,202
    
    
    $
    2,697,670Accounts receivable, net
    
    
    1,014,695
    
    
    
    1,065,176Inventories
    
    
    469,102
    
    
    
    519,130Other
    
    
    247,530
    
    
    
    235,078Total current assets
    
    
    4,233,529
    
    
    
    4,517,054Property, plant, and equipment, net
    
    
    1,065,876
    
    
    
    1,071,116Intangible assets, net
    
    
    47,229
    
    
    
    51,495Deferred tax assets
    
    
    108,636
    
    
    
    123,893Total assets
    
    $
    5,455,270
    
    
    $
    5,763,558
 See accompanying notes to consolidated financial statements. Page 2




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UROPLASTY, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS June 30, 2004
    
    March 31, 2004(unaudited)Liabilities and Shareholders EquityCurrent liabilities:Accounts payable
    
    $
    220,977
    
    
    $
    225,315Income tax payable
    
    
    128,817
    
    
    
    101,562Accrued liabilities
    
    
    427,969
    
    
    
    475,957Current maturities  long-term debt
    
    
    41,905
    
    
    
    42,301Total current liabilities
    
    
    819,668
    
    
    
    845,135Long-term debt  less current maturities
    
    
    464,760
    
    
    
    479,720Accrued pension liability
    
    
    333,469
    
    
    
    334,470Total liabilities
    
    
    1,617,897
    
    
    
    1,659,325Shareholders equity:Common stock $.01 par value;
20,000,000
shares authorized, 4,602,033 and
4,584,802 shares issued and
outstanding at June 30, 2004 and
March 31, 2004, respectively
    
    
    46,020
    
    
    
    45,848Additional paid-in capital
    
    
    9,171,538
    
    
    
    9,130,580Accumulated deficit
    
    
    (5,041,981
    )
    
    
    (4,756,6220
    )Accumulated other comprehensive loss
    
    
    (338,204
    )
    
    
    (315,573
    )Total shareholders equity
    
    
    3,837,373
    
    
    
    4,104,233Total liabilities and shareholders equity
    
    $
    5,455,270
    
    
    $
    5,763,558
 See accompanying notes to consolidated financial statements. Page 3




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UROPLASTY, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited) Three Months EndedJune 30,2004
    
    2003(restated)Net sales
    
    $
    1,752,496
    
    
    $
    1,359,589Cost of goods sold
    
    
    463,558
    
    
    
    396,971Gross profit
    
    
    1,288,938
    
    
    
    962,618Operating expensesGeneral and administrative
    
    
    391,112
    
    
    
    467,229Research and development
    
    
    580,053
    
    
    
    429,956Selling and marketing
    
    
    527,957
    
    
    
    424,3651,499,122
    
    
    
    1,321,550Operating loss
    
    
    (210,184
    )
    
    
    (358,932
    )Other income (expense)Interest income
    
    
    5,879
    
    
    
    10,509Interest expense
    
    
    (5,184
    )
    
    
    (5,844
    )Foreign currency exchange loss
    
    
    (9,411
    )
    
    
    (2,361
    )(8,716
    )
    
    
    2,304Loss before income taxes
    
    
    (218,900
    )
    
    
    (356,628
    )Income tax expense
    
    
    66,459
    
    
    
    92,056Net loss
    
    $
    (285,359
    )
    
    $
    (448,684
    )Basic loss per common share
    
    $
    (0.06
    )
    
    $
    (0.10
    )Diluted loss per common share
    
    $
    (0.06
    )
    
    $
    (0.10
    )Weighted average common shares
outstanding:Basic
    
    
    4,591,136
    
    
    
    4,483,971Diluted
    
    
    4,591,136
    
    
    
    4,483,971
 Page 4




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UROPLASTY, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months ended June 30, 2004 and 2003
(Unaudited) 2004
    
    2003(restated)Cash flows from operating activities:Net loss
    
    $
    (285,359
    )
    
    $
    (448,684
    )Adjustments to reconcile net loss to net cash used in operations:Depreciation and amortization
    
    
    40,822
    
    
    
    37,362Loss on disposal of assets
    
    
    2,281
    
    
    
    Stock-based consulting expense
    
    
    
    
    
    
    82,204Changes in operating assets and liabilities:Accounts receivable
    
    
    38,924
    
    
    
    153,868Inventories
    
    
    39,201
    
    
    
    (26,965
    )Other current assets
    
    
    (15,511
    )
    
    
    (25,948
    )Deferred tax assets
    
    
    16,220
    
    
    
    7,314Accounts payable
    
    
    (2,301
    
    
    
    72,885Accrued liabilities
    
    
    (16,849
    )
    
    
    (25,979
    )Accrued pension liability
    
    
    (3,851
    )
    
    
    25,415Additional pension liability
    
    
    1,824
    
    
    
    (2,222
    )Net cash used in operating activities
    
    
    (184,599
    )
    
    
    (150,750
    )Cash flows from investing activities:Payments for property, plant and equipment
    
    
    (38,748
    )
    
    
    (27,107
    )Payments relating to intangible assets
    
    
    (2,656
    )
    
    
    (5,167
    )Net cash used in investing activities
    
    
    (41,404
    )
    
    
    (32,274
    )Cash flows from financing activities:Repayment of long-term debt
    
    
    (10,381
    )
    
    
    (9,794
    )Net proceeds from issuance of stock
    
    
    41,130
    
    
    
    Net cash provided by (used in) financing activities
    
    
    30,749
    
    
    
    (9,794
    )Effect of exchange rates on cash and cash equivalents
    
    
    (214
    )
    
    
    13,966Net decrease in cash and cash equivalents
    
    
    (195,468
    )
    
    
    (178,852
    )Cash and cash equivalents at beginning of period
    
    
    2,697,670
    
    
    
    3,375,981Cash and cash equivalents at end of period
    
    $
    2,502,202
    
    
    $
    3,197,129Supplemental disclosure of cash flow information:Cash paid during the period for interest
    
    $
    5,496
    
    
    $
    6,729Cash paid during the period for income taxes
    
    
    24,133
    
    
    
    Supplemental disclosure of non-cash financing and investing activities:None.
 See accompanying notes to consolidated financial statements. Page 5




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UROPLASTY, INC. AND SUBSIDIARIES Notes to the Interim Consolidated Financial Statements
(Unaudited) 1. Basis of Presentation The consolidated financial statements included in this Form 10-QSB have been
prepared by Uroplasty, Inc. (Uroplasty or the Company), 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 consolidated statements should be read in conjunction with
the consolidated financial statements and related notes included in the
Companys Annual Report on Form 10-KSB for the year ended March 31, 2004. The consolidated financial statements presented herein as of June 30, 2004 and
for the three-month periods ended June 30, 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. The Company has identified certain of its accounting policies that it considers
particularly important for the portrayal of the Companys 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 more fully described in the Companys Annual Report on Form 10-KSB for
the year ended March 31, 2004. Based upon the Companys review, management has
determined that these policies remain its most critical accounting policies for
the three-month period ended June 30, 2004, and has made no changes to these
policies during fiscal 2005. 2. Nature of Business and Corporate Liquidity The Company is currently selling its products outside of the United States and
is undertaking FDA investigational clinical trials in the United States and
Canada. Based on the Companys current plans, it is anticipated the Company
will launch its products in the U.S. after obtaining FDA approval. Completing
clinical trials and obtaining FDA approval is a costly and time-consuming
process. As a result of the $2.4 million gross proceeds of a Rights Offering
completed July 2002, management believes current resources and the funds
generated from sale of the Companys products outside the U.S. will be adequate
to meet the Companys cash flow needs, including R&D activities, associated
with existing products and markets through fiscal 2005. Ultimately, the Company
will need to achieve profitability and positive cash flows from operations or
obtain additional debt or equity financing to fund its operations. 3. Restatements During the fiscal 2004 year end close process, the Company determined that its
pension plan, covering 18 employees in The Netherlands, had historically been
reported as a defined contribution plan, but should have been reported as a
defined benefit plan. The Company pays premiums to an insurance company to
fund annuities for these employees. However, the Company is responsible for
funding additional annuities based on continued service and future salary
increases. Furthermore, the Company discovered an error in how the effect of
exchange rates on cash and cash equivalents was recorded in the Statement of
Cash Flows. In this Form 10-QSB, the Company has restated its first quarter of
fiscal 2004 consolidated results of operations, the first quarter of fiscal
2004 consolidated statement of cash flows and related footnote disclosures for
the impact of accounting for the pension plan as a defined benefit plan and for
the correction of the effect of exchange rates on cash and cash equivalents as
follows: Page 6




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Three Months EndedJune 30, 2003As previouslyreported
    
    As restatedSTATEMENT OF OPERATIONS DATA:Cost of goods sold
    
    $
    405,587
    
    
    $
    396,971
    )Operating expensesGeneral and administrative
    
    
    465,276
    
    
    
    467,229Research and development
    
    
    438,573
    
    
    
    429,956Selling and marketing
    
    
    422,410
    
    
    
    424,365Operating loss
    
    
    (372,257
    )
    
    
    (358,932
    )Loss before income taxes
    
    
    (369,953
    )
    
    
    (356,628
    )Income tax expense
    
    
    80,166
    
    
    
    92,056Net loss
    
    
    (450,119
    
    
    
    (448,684
    )Net income per common shareBasic
    
    $
    (0.10
    )
    
    $
    (0.10
    )Diluted
    
    $
    (0.10
    )
    
    $
    (0.10
    )CASH FLOW DATA:Net cash used in operating activities
    
    $
    (240,900
    )
    
    $
    (150,750
    )Effect of exchange rates on cash and cash
equivalents
    
    
    104,116
    
    
    
    13,966
 4. Inventories Inventories are stated at the lower of cost (first-in, first-out method) or
market (net realizable value) and consist of the following: June 30, 2004
    
    March 31, 2004Raw materials
    
    $
    152,318
    
    
    $
    138,920Work-in-process
    
    
    110,855
    
    
    
    110,511Finished goods
    
    
    205,929
    
    
    
    269,699$
    469,102
    
    
    $
    519,130
 Page 7




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5. Comprehensive Income (Loss) Comprehensive income (loss) consists of net income (loss), and the translation adjustments as follows: Three Months EndedJune 30,2004
    
    2003(restated)Net loss
    
    $
    (285,359
    )
    
    $
    (448,684
    )Items of other comprehensive income
(loss):Translation adjustment
    
    
    (23,572
    )
    
    
    61,993Additional pension liability
    
    
    941
    
    
    
    (52,159
    )Comprehensive loss
    
    $
    (307,990
    )
    
    $
    (438,850
    )
 6. Reconciliation of Net income (loss) and Share Amounts Used in EPS Calculation Basic income (loss) per common share is calculated by dividing net income
(loss) by the weighted-average common shares outstanding during the period.
Diluted income (loss) per common share for the three-months ended June 30, 2004
and 2003 was calculated using the treasury-stock method to compute the weighted
average common stock outstanding assuming the conversion of dilutive potential
common shares. Effect ofBasic Loss
    
    Dilutive
    
    Diluted LossPer Share
    
    Securities
    
    Per ShareFor the three months ended:June 30, 2004Net loss
    
    $
    (285,359
    )
    
    
    
    
    
    $
    (285,359
    )Weighted average
shares
    
    
    4,591,136
    
    
    
    
    
    
    
    4,591,136Per share amount
    
    $
    (0.06
    )
    
    
    
    
    
    $
    (0.06
    )For the three months ended:June 30, 2003Net loss (restated)
    
    $
    (448,684
    )
    
    
    
    
    
    $
    (448,684
    )Weighted average shares
    
    
    4,483,971
    
    
    
    
    
    
    
    4,483,971Per share amount (restated)
    
    $
    (0.10
    )
    
    
    
    
    
    $
    (0.10
    )
 The following options and warrants outstanding at June 30, 2004 and 2003 to
purchase shares of common stock were excluded from diluted loss per share,
because of their anti-dilutive effect: Page 8




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Number of
    
    Range of exerciseOptions/Warrants
    
    pricesFor the three months ended:June 30, 2004
    
    
    1,710,069
    
    
    $0.90 to $10.50June 30, 2003
    
    
    1,763,458
    
    
    $0.90 to $10.50
 7. Shareholders Equity The Company applies 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. The Company accounts 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, options are recorded at their fair value on the measurement
date, which is typically the vesting date. Consulting Agreements On April 1, 2003, the Company executed a consulting agreement with CCRI
Corporation (CCRI) to provide investor relations and development services. The
Company pays the Consultant 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. The
fair value of the common stock and warrants was fully amortized in fiscal 2004.
Stock-based compensation expense for CCRI agreement for the three-months ended
June 30, 2003 aggregated $53,242. On April 1, 2004, the agreement was extended
for one year. The monthly fee of $4,000 plus expenses remained the same. On April 1, 2003, the Company executed a consulting agreement with Executive
Advisory Group (EAG) to perform services for and on behalf of the Company. Mr.
Sam B. Humphries, a Director of the Company, is President of EAG. The Company
pays EAG a monthly fee of $6,000 plus expenses. EAG also received stock options
to purchase 50,000 shares of common stock, exercisable at $2.80 per share. The
fair value of the stock options was fully amortized in fiscal 2004. Stock-based
compensation expense for the EAG agreement for the three-months ended June 30,
2003 aggregated $28,962. On April 1, 2004, the agreement was extended for one
year. The monthly fee of $6,000 plus expenses remained the same. 8. Stock-based Compensation Had the Company determined compensation cost based on the fair value at the
grant date for its stock options under SFAS 123, Accounting for Stock-Based
Compensation, the Companys net loss would have increased to the pro forma
amounts shown below: Page 9




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Three Months EndedJune 30,2004
    
    2003(restated)Net loss  As reported
    
    $
    (285,359
    )
    
    $
    (448,684
    )Add: Total stock-based employee
compensation expense determined under
intrinsic value based method for all
awards
    
    
    
    
    
    
    Deduct: Total stock-based employee
compensation expense determined under
fair value based method for all awards
    
    
    (36,007
    )
    
    
    (90,925
    )Net loss  Pro forma
    
    $
    (321,366
    )
    
    $
    (539,609
    )Net loss per common share  As
reported:Basic
    
    $
    (0.06
    )
    
    $
    (0.10
    )Diluted
    
    $
    (0.06
    )
    
    $
    (0.10
    )Net loss per common share  Pro forma:Basic
    
    $
    (0.07
    )
    
    $
    (0.12
    )Diluted
    
    $
    (0.07
    )
    
    $
    (0.12
    )
 9. Savings and Retirement Plans The Company sponsors various plans for eligible employees in the United States,
the United Kingdom (UK), and The Netherlands. The Companys 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. The
Company may also make discretionary contributions ratably to all eligible
employees. The Companys 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. The Companys UK subsidiary defined benefit plan accrued pension
liability and periodic pension cost are not material to the Companys
consolidated financial statements. Pension plan assets are invested in
insurance contracts. The cost for the
Companys plan in The Netherlands includes the following
components for the periods ended June 30, 2004 and 2003: Three Months EndedJune 30,2004
    
    2003(restated)Gross service cost, net of employee contribution
    
    $
    29,076
    
    
    $
    19,480Interest cost
    
    
    16,455
    
    
    
    12,774Expected return on assets
    
    
    (9,431
    )
    
    
    (7,405
    )Amortization
    
    
    3,248
    
    
    
    1,962Net periodic retirement cost
    
    $
    39,348
    
    
    $
    26,810
 Page 10




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Major assumptions used in the above calculations include: Three Months EndedJune 30,2004
    
    2003 (restated)Discount rate
    
    
    5.25
    %
    
    
    5.25
    %Expected return on assets
    
    
    4.50
    %
    
    
    4.50
    %Expected rate of increase in future compensationGeneral
    
    
    3
    %
    
    
    3
    %Individual
    
    
    0%-3
    %
    
    
    0%-3
    %
 10. 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. The resulting translation adjustment is recorded within
accumulated other comprehensive loss, a separate component of shareholders
equity. Foreign currency transaction gains and losses are recognized currently
in the consolidated statements of operations, including unrealized gains and
losses on short-term inter-company obligations using period-end exchange rates.
Unrealized gains and losses on long-term intercompany obligations are
recognized within accumulated other comprehensive loss, a separate component of
shareholders equity. Exchange gains and losses are recognized 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 the Companys subsidiaries), as
well as their effect on the dollar denominated intercompany obligations between
the Company and its foreign subsidiaries. The Company recognized net foreign
currency losses of $9,411 and $2,361 for the quarters ended June 30, 2004 and
2003, respectively. 11. Income Tax Expense During the quarters ended June 30, 2004 and 2003, the Companys Dutch
subsidiaries recorded income tax expense of $66,459 and $92,056, 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. 12. Business Segment Information The Company sells Macroplastique and the related ancillary products used for
soft-tissue augmentation for the treatment of urinary incontinence and
vesicoureteral reflux. At this time, sales are only made outside the United
States because the Company has not yet made submissions to the FDA for
regulatory approval to market its products in the United States. The Companys
current objectives are to focus on sales and marketing activities designed to
increase market penetration and sales of Macroplastique for SUI and VUR, and of
PTQ Implants in countries outside the U.S., and to efficiently and effectively
execute the Macroplastique human clinical study for treatment of female SUI
within the U.S. The Company also sells injectable implant products outside the
United States for soft-tissue augmentation for specific indications in
otolaryngology and plastic surgery applications under the name Bioplastique in
limited markets. In addition, the Company sells specialized wound care products
in The Netherlands and United Kingdom as a distributor. The Macroplastique
product line accounts for 79% and 84% of total net sales during the periods
presented. Based upon the above, the Company operates in only one reportable segment
consisting of medical products primarily for the urology market. Page 11




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Information regarding operations in different geographies for the three-months
ended June 30, 2004 and 2003 is as follows: AdjustmentsUnited
    
    The
    
    United
    
    andStates
    
    Netherlands
    
    Kingdom
    
    eliminations
    
    ConsolidatedFiscal 2004Sales to customers
    
    $
    
    
    
    
    1,445,453
    
    
    
    459,831
    
    
    
    (152,788
    )
    
    
    1,752,496Income tax expense
    
    $
    
    
    
    
    66,459
    
    
    
    
    
    
    
    
    
    
    
    66,459Net income (loss)
    
    $
    (554,046
    )
    
    
    133,251
    
    
    
    14,332
    
    
    
    121,104
    
    
    
    (285,359
    )Long-lived assets
At June 30, 2004
    
    $
    327,924
    
    
    
    767,538
    
    
    
    17,643
    
    
    
    
    
    
    
    1,113,105Fiscal 2003 (restated)Sales to customers
    
    $
    
    
    
    
    1,214,581
    
    
    
    332,352
    
    
    
    (187,344
    )
    
    
    1,359,589Income tax expense
    
    $
    
    
    
    
    92,056
    
    
    
    
    
    
    
    
    
    
    
    92,056Net income (loss)
    
    $
    (319,365
    )
    
    
    187,738
    
    
    
    (147,080
    )
    
    
    (169,977
    )
    
    
    (448,684
    )Long-lived
assets
At June 30, 2003
    
    $
    151,362
    
    
    
    739,883
    
    
    
    25,155
    
    
    
    
    
    
    
    916,400
 
 ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OR PLAN OF OPERATION This Report on Form 10-QSB should be read in conjunction with the Annual Report
on Form 10-KSB for the year ended March 31, 2004. Forward-looking Statements The Registrant may from time to time make written or oral forward-looking
statements, including statements contained in this filing by the Company with
the Securities and Exchange Commission and in its 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 the Companys future
performance that may cause the actual results, performance, or achievements of
the Company, 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. The Registrants 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 the Registrants 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 the Companys results, performance, or achievements to
differ materially from that contained in the Companys 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 the Companys other filings with
the Securities and Exchange Commission. The Company does not undertake and assumes no obligation to update any
forward-looking statement that may be made from time to time by or on behalf of
the Company. Page 12




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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. Products sold by the
Company 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 future
sales growth is expected 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
(SUI) and for the treatment of vesicoureteral reflux (VUR), a condition in
which urine flows backward from the bladder to the kidney. Macroplastique is
comprised of soft, textured, vulcanized, medical grade silicone elastomer
implants suspended in a biocompatible carrier gel. Our minimally invasive
procedure allows for Macroplastique to be placed in the soft tissue of the
mid-urethra (in the case of SUI), and at the ureteral orifice (in the case of
vesicoureteral reflux). The implants act as a bulking material to restore
urinary continence or to eliminate reflux of urine from the bladder to the
kidneys. In addition to the urological applications, the Companys implantable tissue
bulking material is also marketed by the Company 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, the
Company distributes certain wound care products on behalf of another company in
accordance with an executed Distributor Agreement. Under the terms of the
Distributor Agreement, the Company is not obligated to purchase any minimum
level of wound care products. The Companys products are sold by direct sales forces in the United Kingdom,
and by a network of distributors in numerous countries outside the U.S.,
including Europe, Australia, Canada and South America. The Company is
currently conducting a multi-center human clinical trial with its urethral
bulking agent, Macroplastique, pursuant to an FDA IDE as a minimally invasive,
office-based procedure for treating female SUI. This study is required as part
of a Premarket Approval Submission to the FDA for marketing within the United
States. The Companys current objectives are to focus on sales and marketing activities
designed to increase market penetration and sales of Macroplastique for SUI and
VUR, and of PTQ Implants for fecal incontinence applications in countries
outside the U.S., and to efficiently and effectively execute the Macroplastique
human clinical study for treatment of female SUI within the U.S. Critical Accounting Policies The consolidated financial statements are prepared in accordance with
accounting principles generally accepted in the U.S., which require the Company
to make estimates and assumptions in certain circumstances that affect amounts
reported. In preparing these financial statements, management has made its best
estimates and judgments of certain amounts, giving due consideration to
materiality. The Company believes that of its significant accounting policies,
the following are particularly important to the portrayal of the Companys
results of operations and financial position and may require the application of
a higher level of judgment by the Companys 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
provides guidance on the application of generally accepted accounting
principles to selected revenue recognition issues, and the Companys revenue
recognition policies are in compliance with SAB 104. The Company markets and
distributes its products through a network of distributors and through direct
sales to end-users in the United Kingdom and The Netherlands. The Company
recognizes revenue upon shipment of product to its distributors and direct
customers. There are no customer acceptance provisions or Company installation
obligations. The Companys sales terms to its distributors and customers
provide no right of return outside of the Companys standard warranty, and
payment terms consistent with industry standards apply. Sales terms and pricing
to the Companys distributors are governed by the respective distribution
agreements. The Companys distribution partners purchase the Companys 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, meeting minimum purchase commitments. As a result,
the level of the Companys revenue during any period is not necessarily
indicative of its distributors sales to end-user customers during that period,
which are estimated not to be substantially different than the Companys sales
to those distributors in each of the last two years. The Companys future
revenue growth may be impacted by its distributors level of inventories of the
Companys products, their sales to end-user customers and their internal
product requirements. Page 13




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Inventories. Inventories are stated at the lower of cost or market using the
first-in, first-out method. Reserves for slow moving and obsolete inventories
are provided based upon current and expected future product sales and the
expected impact of product transitions or modifications. While the Company
expects its sales to grow, a reduction in its sales could reduce the demand for
the Companys products, and additional inventory reserves may be required. Foreign Currency Translation/Transactions. The financial statements of the
Companys foreign subsidiaries were translated in accordance with the
provisions of SFAS No. 52 Foreign Currency Translation. Under this
Statement, 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. The resulting translation adjustment is recorded within
accumulated other comprehensive loss, a separate component of shareholders
equity. Foreign currency transaction gains and losses are recognized currently
in the statement of operations, including unrealized gains and losses on
short-term inter-company obligations using period-end exchange rates, resulting
in an increase in the volatility of the Companys Consolidated Statements of
Operations. Unrealized gains and losses on long-term inter-company obligations
are recognized within accumulated other comprehensive loss, a separate
component of shareholders equity. Impairment of Long-Lived Assets. Long-lived assets at June 30, 2004 consist of
property, plant and equipment. The Company reviews its long-lived assets for
impairment whenever events or business circumstances indicate that the carrying
amount of an asset may not be recoverable. Recoverability of assets to be held
and used is measured by a comparison of the carrying amount of an asset to
future undiscounted net cash flows expected to be generated by the asset. If
such assets are considered to be impaired, the impairment to be recognized is
measured by the amount by which the carrying amount of the assets exceeds the
fair value of the assets. Assets to be disposed of are reported at the lower of
the carrying amount or fair value less costs to sell. Set forth below is managements discussion and analysis of the financial
condition and results of operations for the three-month periods ended June 30,
2004 and 2003. Results of Operations Net Sales: In the first quarter ended June 30, 2004, net sales of all products
were $1,752,496, representing a $392,907 or 29% increase when compared to net
sales of $1,359,589 for the first quarter ended June 30, 2003. Excluding
fluctuations in foreign currency exchange rates, there was a sales increase of
approximately 20%. Management believes the increase in sales is related to the
impact of the hiring of experienced sales directors and representatives, and
their focus of initiating sales plans to increase our market share within the
global distributor markets and to increase sales penetration to surgeons in our
direct market in the United Kingdom. The Macroplastique product line accounts
for 79% and 84% of total net sales during the periods presented. Gross Profit: Gross profit was $1,288,938 and $962,618 for the quarter ended
June 30, 2004 and 2003, respectively, or 74% and 71% of net sales. Gross profit
in any one period is highly variable depending on unit sales and utilization of
manufacturing capacity. Historically, the gross margin percentage has varied
between approximately 70-80% of net sales. General and Administrative Expense: General and administrative (G&A) expenses
decreased from $467,229 during the first quarter of fiscal 2004 to $391,112
during the first quarter of fiscal 2005. Decreased consulting fees and
shareholders expense, offset by increased salary costs, combined with general
price increases and fluctuations in foreign currency exchange rates caused the
decrease in G&A expenses. The consulting fees and shareholder expenses relate
to the consulting agreements with the Executive Advisory Group (EAG) to perform
services for and on behalf of the Company and the consulting agreement with
CCRI Corporation to provide investor relations and development services. Research and Development Expense: Research and development (R&D) expenses
increased $150,097, or 35%, from $429,956 during the first quarter of fiscal
2004 to $580,053 during the first quarter of fiscal 2005. The increase in R&D
expense is related to clinical, 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
24% from $424,365 during the first quarter of fiscal 2004 to $527,957 during
the first quarter of fiscal 2005. The increase resulted from travel costs and
costs relating to trade-shows, conventions and congresses, marketing materials,
general price increases, and fluctuations in foreign currency exchange rates. Page 14




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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. The Companys financial results
are subject to material fluctuations based on changes in currency exchange
rates. Other income (expense) was $(8,716) and $2,304 for the first quarter
ended June 30, 2004 and 2003, respectively. The majority of the difference
between periods was due to foreign currency exchange gains. Exchange gains and
losses are recognized 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 the Companys subsidiaries), as well as their
effect on the dollar denominated intercompany obligations between the Company
and its foreign subsidiaries. The Company recognized foreign currency losses of
$9,411 and $2,361 for the first quarter ended June 30, 2004 and 2003,
respectively. Income Tax Expense: The Companys Dutch subsidiaries recorded income tax
expense of $66,459 and $92,056 for the first quarter ended June 30, 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. Management expects continued
profits for its 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. Liquidity and Capital Resources As of June 30, 2004, the Companys cash and cash equivalent balances totaled
$2,502,202. At June 30, 2004, the Company had working capital of approximately $3.4
million. During the quarter ended June 30, 2004, $184,599 of cash was used in
operating activities, compared to $150,750 of cash used in the prior year. The
usage of cash was primarily attributable to the net loss incurred of $285,359,
compared to a loss of $448,684 in the prior year. Accounts receivable, other
current assets, accounts payable and accrued expenses fluctuated due to the
timing of payments and fluctuations in foreign currency exchange rates. The Company currently has 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 its accounts
receivable and inventory balances at June 30, 2004 of $1,014,695 and $469,102,
respectively. For fiscal 2005, management does not anticipate any material
capital expenditures. The Companys 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 the Companys products are distributed.
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 the Companys 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 the Companys
cash flow and results of operations. Management expects continued high costs associated with the conduct of the U.S.
human clinical study for Macroplastique pursuant to the FDA approved IDE, the
subsequent U.S. Premarket Approval process, and pre-commercialization and
market launch costs in the U.S. relating to Macroplastique for female SUI. Management believes that current resources and the funds generated from sale of
the Companys products outside the U.S. will be adequate to meet the Companys
cash flow needs, including R&D activities associated with existing products and
markets through fiscal 2005. Ultimately, the Company will need to achieve
profitability and positive cash flows from operations or obtain additional debt
or equity financing to fund its operations. Page 15




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Repayments on the Companys 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
    
    $
    392,000
    
    
    
    40,500
    
    
    
    104,000
    
    
    
    247,500Notes payable
    
    
    506,653
    
    
    
    31,421
    
    
    
    41,894
    
    
    
    433,338Operating lease commitments
    
    
    619,442
    
    
    
    285,985
    
    
    
    240,817
    
    
    
    92,640Total contractual obligations
    
    $
    1,518,095
    
    
    
    357,906
    
    
    
    386,711
    
    
    
    773,478
 The Company has a pension plan covering 18 employees in The Netherlands,
reported as a defined benefit plan. The Company pays premiums to an insurance
company to fund annuities for these employees. However, the Company is
responsible for funding additional annuities based on continued service and
future salary increases. The Company is 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
the Company pays 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 the Company pays a royalty
of 10 British pounds for each unit sold during the life of the patent. 
 ITEM 3. CONTROLS AND PROCEDURES. Disclosure Controls and
Procedures. At the end of the period covered by
this report, Daniel G. Holman, our President, Chief Executive Officer, Chief
Financial Officer and Arie J. Koole, our Controller, Principal Accounting
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 16




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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 the Company for the three months ended June 30, 2004. 
 ITEM 2. CHANGES IN SECURITIES ( c ) Recent Sales of Unregistered Securities None. 
 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. (a) Exhibits 31 Certifications by the Chief Executive Officer/Chief Financial Officer and
the Controller pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 32 Certifications by the Chief Executive Officer/Chief Financial Officer and
the Controller pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (this
Exhibit is furnished pursuant to SEC rules, but is deemed not filed) 99.1 Press release dated August 23, 2004 (b) Reports on Form 8-K On June 14, 2004, the Company announced that KPMG, the Companys certifying
accountant, declined to stand for reelection and that the client-auditor
relationship between the Company and KPMG LLP will cease upon completion of
KPMGs audit of the Companys consolidated financial statements as of and for
the year ended March 31, 2004 and the issuance of their report thereon. On June 29, 2004, the Company filed an extension of time to file its annual
report on Form 10KSB. Page 17




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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:  August 23, 2004
    by: /s/ DANIEL G. HOLMANDaniel G. HolmanPresident, Chief Executive Officer,
Chief Financial Officer and Director 
(Principal Executive and Financial Officer)Date:  August 23, 2004
    by: /s/ ARIE J. KOOLEArie J. KooleController (Principal Accounting Officer)  Page 18