##### 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 December 31, 2005
 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
 (612) 378-1180
   þ o
  o þ
   o þ




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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 PROCEDURESPART II. OTHER INFORMATIONITEM 1. LEGAL PROCEEDINGSITEM 6. EXHIBITSSIGNATURESCertifications by CEO & CFO Pursuant to Section 302Certifications by CEO & CFO Pursuant to Section 906    Table of Contents  
  
 ITEM 1. FINANCIAL STATEMENTS
 
 December 31, 2005
    
    
    March 31, 2005(unaudited)AssetsCurrent assets:Cash and cash equivalents
    
    $
    2,532,823
    
    
    $
    1,492,684Short-term investments
    
    
    1,526,214
    
    
    
    Accounts receivable, net
    
    
    920,020
    
    
    
    944,527Inventories
    
    
    812,299
    
    
    
    547,476Income tax receivable
    
    
    123,744
    
    
    
    114,189Other
    
    
    174,723
    
    
    
    161,920Total current assets
    
    
    6,089,823
    
    
    
    3,260,796Property, plant, and equipment, net
    
    
    1,032,196
    
    
    
    1,040,253Intangible assets, net
    
    
    371,878
    
    
    
    39,100Deferred tax assets
    
    
    88,984
    
    
    
    103,075Total assets
    
    $
    7,582,881
    
    
    $
    4,443,224
 See accompanying notes to the condensed interim consolidated financial statements. Page 2




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December 31, 2005
    
    
    March 31, 2005(unaudited)Liabilities and Shareholders EquityCurrent liabilities:Current maturities  long-term debt
    
    $
    40,721
    
    
    $
    44,606Accounts payable
    
    
    383,485
    
    
    
    362,994Accrued liabilities
    
    
    717,994
    
    
    
    478,682Warrant liability
    
    
    797,205
    
    
    
    Total current liabilities
    
    
    1,939,405
    
    
    
    886,282Long-term debt  less current maturities
    
    
    390,665
    
    
    
    461,265Accrued pension liability
    
    
    264,486
    
    
    
    303,781Total liabilities
    
    
    2,594,556
    
    
    
    1,651,328Shareholders equity:Common stock $.01 par value;
20,000,000 shares authorized,
6,880,405 and 4,699,597 shares issued
and outstanding at December 31 and
March 31, 2005, respectively
    
    
    68,804
    
    
    
    46,996Additional paid-in capital
    
    
    14,655,492
    
    
    
    9,366,644Accumulated deficit
    
    
    (9,347,146
    )
    
    
    (6,491,387
    )Accumulated other comprehensive loss
    
    
    (388,825
    )
    
    
    (130,357
    )Total shareholders equity
    
    
    4,988,325
    
    
    
    2,791,896Total liabilities and shareholders equity
    
    $
    7,582,881
    
    
    $
    4,443,224
 See accompanying notes to the condensed interim consolidated financial statements. Page 3




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Three Months Ended
    
    
    Nine Months EndedDecember 31,
    
    
    December 31,2005
    
    
    2004
    
    
    2005
    
    
    2004Net sales
    
    $
    1,592,526
    
    
    $
    1,609,692
    
    
    $
    4,793,134
    
    
    $
    5,012,912Cost of goods sold
    
    
    391,163
    
    
    
    383,573
    
    
    
    1,274,308
    
    
    
    1,317,303Gross profit
    
    
    1,201,363
    
    
    
    1,226,119
    
    
    
    3,518,826
    
    
    
    3,695,609Operating expensesGeneral and administrative
    
    
    859,321
    
    
    
    504,390
    
    
    
    2,294,752
    
    
    
    1,403,762Research and development
    
    
    700,203
    
    
    
    558,719
    
    
    
    2,361,609
    
    
    
    1,724,488Selling and marketing
    
    
    852,483
    
    
    
    416,886
    
    
    
    2,321,122
    
    
    
    1,535,6422,412,007
    
    
    
    1,479,995
    
    
    
    6,977,483
    
    
    
    4,663,892Operating loss
    
    
    (1,210,644
    )
    
    
    (253,876
    )
    
    
    (3,458,657
    )
    
    
    (968,283
    )Other income (expense)Warrant benefit
    
    
    560,048
    
    
    
    
    
    
    
    575,471
    
    
    
    Interest income
    
    
    52,511
    
    
    
    8,015
    
    
    
    107,507
    
    
    
    23,093Interest expense
    
    
    (12,767
    )
    
    
    (5,361
    )
    
    
    (22,091
    )
    
    
    (15,682
    )Foreign currency exchange loss
    
    
    (7,374
    )
    
    
    (6,478
    )
    
    
    (15,779
    )
    
    
    (20,564
    )Other
    
    
    438
    
    
    
    
    
    
    
    438
    
    
    
    592,856
    
    
    
    (3,824
    )
    
    
    645,546
    
    
    
    (13,153
    )Loss before income taxes
    
    
    (617,788
    )
    
    
    (257,700
    )
    
    
    (2,813,111
    )
    
    
    (981,436
    )Income tax expense
    
    
    39,942
    
    
    
    86,311
    
    
    
    42,648
    
    
    
    138,540Net loss
    
    $
    (657,730
    )
    
    $
    (344,011
    )
    
    $
    (2,855,759
    )
    
    $
    (1,119,976
    )Basic and diluted loss per common share
    
    $
    (0.10
    )
    
    $
    (0.07
    )
    
    $
    (0.43
    )
    
    $
    (0.24
    )Weighted average common shares
outstanding:Basic and diluted
    
    
    6,878,251
    
    
    
    4,670,522
    
    
    
    6,695,674
    
    
    
    4,638,628
 See accompanying notes to the condensed interim consolidated financial statements. Page 4




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AccumulatedAdditional
    
    
    
    
    
    
    Other
    
    
    TotalCommon Stock
    
    
    Paid-in
    
    
    Accumulated
    
    
    Comprehensive
    
    
    ShareholdersShares
    
    
    Amount
    
    
    Capital
    
    
    Deficit
    
    
    Loss
    
    
    EquityBalance at March 31, 2005
    
    
    4,699,597
    
    
    $
    46,996
    
    
    $
    9,366,644
    
    
    $
    (6,491,387
    )
    
    $
    (130,357
    )
    
    $
    2,791,896Proceeds from Private
Placement
    
    
    2,147,142
    
    
    
    21,471
    
    
    
    7,493,526
    
    
    
    
    
    
    
    
    
    
    
    7,514,997Costs of Private Placement
    
    
    
    
    
    
    
    
    
    
    (856,040
    )
    
    
    
    
    
    
    
    
    
    
    (856,040
    )Reissuance of Warrants
    
    
    
    
    
    
    
    
    
    
    (1,372,676
    )
    
    
    
    
    
    
    
    
    
    
    (1,372,676
    )Warrant registration costs
    
    
    
    
    
    
    
    
    
    
    (21,324
    )
    
    
    
    
    
    
    
    
    
    
    (21,324
    )Exercise of Stock Options
    
    
    33,666
    
    
    
    337
    
    
    
    45,362
    
    
    
    
    
    
    
    
    
    
    
    45,699Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,855,759
    )
    
    
    
    
    
    
    (2,855,759
    )Translation adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (264,181
    )
    
    
    (264,181
    )Additional pension
liability
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,713
    
    
    
    5,713Total comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,114,227
    )Balance at December 31,
2005
    
    
    6,880,405
    
    
    $
    68,804
    
    
    $
    14,655,492
    
    
    $
    (9,347,146
    )
    
    $
    (388,825
    )
    
    $
    4,988,325
  Page 5




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Nine Months EndedDecember 31,2005
    
    
    2004Cash flows from operating activities:Net loss
    
    $
    (2,855,759
    )
    
    $
    (1,119,976
    )Adjustments to reconcile net loss to net cash used in operating activities:Depreciation and amortization
    
    
    178,130
    
    
    
    122,869Loss on disposal of assets
    
    
    478
    
    
    
    3,987Warrant benefit
    
    
    (575,471
    )
    
    
    Deferred tax assets
    
    
    4,420
    
    
    
    (19,053
    )Changes in operating assets and liabilities:Accounts receivable
    
    
    (58,490
    )
    
    
    (18,397
    )Inventories
    
    
    (353,351
    )
    
    
    23,603Other current assets and income tax receivable
    
    
    (57,414
    )
    
    
    43,963Accounts payable
    
    
    37,554
    
    
    
    (3,734
    )Accrued liabilities
    
    
    275,446
    
    
    
    (76,513
    )Accrued pension liability
    
    
    (12,581
    )
    
    
    9,821Additional pension liability
    
    
    
    
    
    
    (996
    )Net cash used in operating activities
    
    
    (3,417,038
    )
    
    
    (1,034,426
    )Cash flows from investing activities:Payments for property, plant and equipment
    
    
    (180,745
    )
    
    
    (61,304
    )Payments for intangible assets
    
    
    (391,667
    )
    
    
    (7,277
    )Net cash used in investing activities
    
    
    (572,412
    )
    
    
    (68,581
    )Cash flows from financing activities:Repayment of long-term debt
    
    
    (31,535
    )
    
    
    (32,032
    )Net proceeds from issuance of common stock and warrants
    
    
    6,683,333
    
    
    
    204,812Net cash provided by financing activities
    
    
    6,651,798
    
    
    
    172,780Effect of exchange rates on cash and cash equivalents
    
    
    (95,995
    )
    
    
    118,314Net increase (decrease) in cash and cash equivalents
    
    
    2,566,353
    
    
    
    (811,913
    )Cash and cash equivalents at beginning of period
    
    
    1,492,684
    
    
    
    2,697,670Cash and cash equivalents at end of period
    
    $
    4,059,037
    
    
    $
    1,885,757Supplemental disclosure of cash flow information:Cash paid during the period for interest
    
    $
    14,253
    
    
    $
    16,583Cash paid during the period for income taxes
    
    
    62,608
    
    
    
    113,136
 See accompanying notes to the condensed interim consolidated financial statements. Page 6




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1. Basis of Presentation
    2. Nature of Business, Sales of Common Stock and Corporate Liquidity
     Page 7




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3. Short-term Investments
  Page 8




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4. Inventories
  December 31, 2005
    
    
    March 31, 2005Raw materials
    
    $
    384,921
    
    
    $
    216,723Work-in-process
    
    
    55,611
    
    
    
    75,337Finished goods
    
    
    426,382
    
    
    
    299,992Reserve
    
    
    (54,615
    )
    
    
    (44,576
    )$
    812,299
    
    
    $
    547,476
 5. Intangible Assets
  December 31, 2005Estimated Lives
    
    
    Gross Carrying
    
    
    Accumulated(Years)
    
    
    Amount
    
    
    Amortization
    
    
    Net valueLicensed technology
    
    
    5
    
    
    $
    417,957
    
    
    $
    70,333
    
    
    $
    347,624Patents and inventions
    
    
    6
    
    
    
    237,900
    
    
    
    213,646
    
    
    
    24,254Totals
    
    
    
    
    
    $
    655,857
    
    
    
    283,979
    
    
    $
    371,878
 March 31, 2005Licensed technology
    
    

    5
    
    
    $
    26,290
    
    
    $
    19,718
    
    
    $
    6,572Patents and inventions
    
    

    6
    
    
    
    237,900
    
    
    
    205,372
    
    
    
    32,528Totals
    
    
    
    
    
    $
    264,190
    
    
    $
    225,090
    
    
    $
    39,100
  Remainder of fiscal 2006
    
    $
    20,0002007
    
    
    89,0002008
    
    
    86,0002009
    
    
    86,0002010
    
    
    84,000Thereafter
    
    
    7,000$
    372,000
 Page 9




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6. Comprehensive Loss
  Three Months Ended
    
    
    Nine Months EndedDecember 31,
    
    
    December 31,2005
    
    
    2004
    
    
    2005
    
    
    2004Net loss
    
    $
    (657,730
    )
    
    $
    (344,011
    )
    
    $
    (2,855,759
    )
    
    $
    (1,119,976
    )Items of other comprehensive
income (loss):Translation adjustment
    
    
    (49,309
    )
    
    
    253,170
    
    
    
    (264,181
    )
    
    
    285,164Additional pension liability
    
    
    1,101
    
    
    
    (9,129
    )
    
    
    5,713
    
    
    
    (10,117
    )Comprehensive loss
    
    $
    (705,938
    )
    
    $
    (99,970
    )
    
    $
    (3,114,227
    )
    
    $
    (844,929
    )
 7. Options and Warrants
  Number of
    
    
    Range of ExerciseOptions/Warrants
    
    
    PricesFor the three months ended:December 31, 2005
    
    
    3,764,139

    
    
    $0.90 to $10.50December 31, 2004
    
    
    2,046,576
    
    
    $0.90 to $10.50For the nine months ended:December 31, 2005
    
    
    
    3,764,139
    
    
    $0.90 to $10.50December 31, 2004
    
    
    
    2,046,576
    
    
    $0.90 to $10.50
 8. Shareholders Equity
 Warrants
  Page 10




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9. Stock-based Compensation
  Accounting for Equity Instruments That Are Issued to Other Than Employees for Acquiring, or
in Conjunction with Selling, Goods or Services
  Three Months Ended
    
    
    Nine Months EndedDecember 31,
    
    
    December 31,2005
    
    
    2004
    
    
    2005
    
    
    2004Net loss  As reported
    
    $
    (657,730
    )
    
    $
    (344,011
    )
    
    $
    (2,855,759
    )
    
    $
    (1,119,976
    )Deduct: Total
stock-based employee
compensation expense
determined under fair
value based method
for all awards
    
    
    (274,235
    )
    
    
    (1,465,167
    )
    
    
    (1,268,423
    )
    
    
    (1,514,498
    )Net loss  Pro forma
    
    $
    (931,965
    )
    
    $
    (1,809,178
    )
    
    $
    (4,124,182
    )
    
    $
    (2,634,474
    )Net loss per common
share  As reported:Basic and diluted
    
    $
    (0.10
    )
    
    $
    (0.07
    )
    
    $
    (0.43
    )
    
    $
    (0.24
    )Net loss per common
share  Pro forma:Basic and diluted
    
    $
    (0.14
    )
    
    $
    (0.39
    )
    
    $
    (0.62
    )
    
    $
    (0.57
    )
   10. Savings and Retirement Plans
   Page 11




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Three Months Ended
    
    
    Nine Months EndedDecember 31,
    
    
    December 31,2005
    
    
    2004
    
    
    2005
    
    
    2004Gross service cost
    
    $
    47,882
    
    
    $
    41,098
    
    
    $
    148,107
    
    
    $
    118,351Interest cost
    
    
    22,755
    
    
    
    22,817
    
    
    
    73,565
    
    
    
    65,860Expected return on assets
    
    
    (12,710
    )
    
    
    (14,335
    )
    
    
    (42,025
    )
    
    
    (41,442
    )Amortization
    
    
    6,869
    
    
    
    14,317
    
    
    
    21,172
    
    
    
    41,835Net periodic retirement cost
    
    $
    64,796
    
    
    $
    63,897
    
    
    $
    200,819
    
    
    $
    184,604
  Three and Nine Months EndedDecember 31,2005
    
    
    2004Discount rate
    
    
    4.50-5.25
    %
    
    
    5.25-5.50
    %Expected return on assets
    
    
    4.00-5.00
    %
    
    
    4.50-5.00
    %Expected rate of increase in future
compensation:General
    
    
    3
    %
    
    
    3
    %Individual
    
    
    0%-3
    %
    
    
    0%-3
    %
 11. Foreign Currency Translation
   12. Income Tax Expense
  Page 12




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13. Business Segment and Geographic Information
     AdjustmentsUnited
    
    
    The
    
    
    United
    
    
    andStates
    
    
    Netherlands
    
    
    Kingdom
    
    
    Eliminations
    
    
    ConsolidatedFiscal 2006Sales to customers,
three-months ended
December 31, 2005
    
    $
    62,065
    
    
    $
    1,279,265
    
    
    $
    397,904
    
    
    $
    (146,708
    )
    
    $
    1,592,526Sales to customers,
nine-months ended
December 31, 2005
    
    
    63,415
    
    
    
    3,855,471
    
    
    
    1,316,432
    
    
    
    (442,184
    )
    
    
    4,793,134Income tax expense,
three-months ended
December 31, 2005
    
    
    
    
    
    
    39,942
    
    
    
    
    
    
    
    
    
    
    
    39,942Income tax expense,
nine-months ended
December 31, 2005
    
    
    
    
    
    
    42,648
    
    
    
    
    
    
    
    
    
    
    
    42,648Net income (loss),
three-months ended
December 31, 2005
    
    
    (941,090
    )
    
    
    212,498
    
    
    
    (32,398
    )
    
    
    103,260
    
    
    
    (657,730
    )Net income (loss),
nine-months ended
December 31, 2005
    
    
    (3,238,877
    )
    
    
    77,714
    
    
    
    (662
    )
    
    
    306,066
    
    
    
    (2,855,759
    )Long-lived assets
At December 31,
2005
    
    
    688,264
    
    
    
    709,035
    
    
    
    6,775
    
    
    
    
    
    
    
    1,404,074Fiscal 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
    
    
    
    
    
    
    
    1,141,317
 14. Subsequent Event
  Page 13




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ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
  Forward-looking Statements
     Overview
     
    
    Pursue regulatory approval in the U.S. for our Macroplastique product line.
 Page 14




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
    
    Successfully market and sell Urgent PC and I-Stop products by building our own U.S.
marketing and sales organization, using a combination of direct and independent sales
representatives;
    
    Expand distribution of our products outside of the U.S.; and
    
    Acquire or license complimentary products if appropriate opportunities arise.
   Critical Accounting Policies
  Revenue Recognition
 Accounts Receivable
 Inventories
 Foreign
Currency Translation/Transactions
 Page 15




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Impairment of Long-Lived Assets
  Results of Operations
 Three-month period ended December 31, 2005 compared to three-month period ended December 31, 2004
       Page 16




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Nine-month period ended December 31, 2005 compared to nine-month period ended December 31, 2004
     Page 17




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Liquidity and Capital Resources
 Cash Flows
   Sources of Liquidity.
 Page 18




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##### Table of Contents



Commitments and Contingencies.
      Page 19




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##### Table of Contents



Payments Due by
PeriodRemainder
    
    
    Fiscal
    
    
    Fiscal
    
    
    Fiscalof Fiscal
    
    
    2007 to
    
    
    2009 to
    
    
    2011 andTotal
    
    
    2006
    
    
    2009
    
    
    2011
    
    
    thereafterMinimum royalty payments
    
    $
    394,333
    
    
    $
    76,000
    
    
    $
    178,833
    
    
    $
    108,000
    
    
    $
    31,500Minimum purchase agreement
    
    
    4,658,024
    
    
    
    98,040
    
    
    
    1,093,328
    
    
    
    2,826,656
    
    
    
    640,000Notes payable
    
    
    431,386
    
    
    
    10,180
    
    
    
    81,442
    
    
    
    71,530
    
    
    
    268,234Operating lease commitments
    
    
    1,234,180
    
    
    
    75,708
    
    
    
    472,806
    
    
    
    308,118
    
    
    
    377,548Total contractual obligations
    
    $
    6,717,923
    
    
    $
    259,928
    
    
    $
    1,826,409
    
    
    $
    3,314,304
    
    
    
    1,317,282
 
 ITEM 3. CONTROLS AND PROCEDURES.
  Internal Control Matters
  Page 20




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##### Table of Contents



PART II. OTHER INFORMATION
  
 ITEM 1. LEGAL PROCEEDINGS
  
 ITEM 6. EXHIBITS.
    Page 21




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SIGNATURES
  UROPLASTY, INC.Date: February 14, 2006
    
    by: /s/ SAM B. HUMPHRIESSam B. HumphriesPresident and Chief Executive OfficerDate: February 14, 2006
    
    by: /s/ MAHEDI A. JIWANIMahedi A. JiwaniChief Financial Officer
 Page 22