<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1996
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transaction period from to
Commission File Number 0-28414
UROLOGIX, INC.
(Exact name of registrant as specified in its charter)
MINNESOTA 41-1697237
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
14405 21ST AVENUE NORTH, MINNEAPOLIS, MN 55447
(Address of principal executive offices)
Registrant's telephone number, including area code: (612) 475-1400
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: COMMON STOCK,
$.01 PAR VALUE.
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes (x) No ( )
As of November 5, 1996, the Company had outstanding 9,144,164 shares of common
Stock, $.01 par value.
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
UROLOGIX, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, 1996 June 30, 1996
- --------------------------------------------------------------------------------------------
ASSETS (Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 198,522 $ 65,042
Available-for-sale securities 35,266,730 40,779,176
Accounts receivable 752,283 35,066
Inventories 653,854 415,920
Prepaids and other 354,501 365,976
- --------------------------------------------------------------------------------------------
Total current assets 37,225,890 41,661,179
- --------------------------------------------------------------------------------------------
PROPERTY AND EQUIPMENT:
Leasehold improvements 79,721 79,721
Machinery, equipment and furniture 834,350 699,694
Less - accumulated depreciation (445,157) (401,381)
- --------------------------------------------------------------------------------------------
Property and equipment, net 468,914 378,034
OTHER ASSETS, NET 3,288,011 328,641
- --------------------------------------------------------------------------------------------
$ 40,982,815 $ 42,367,855
============================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of capitalized lease obligations $ 17,926 $ 17,926
Accounts payable 1,169,952 845,566
Accrued compensation and other 959,800 858,158
- --------------------------------------------------------------------------------------------
Total current liabilities 2,147,678 1,721,650
CAPITALIZED LEASE OBLIGATIONS, less current maturities 53,590 57,868
- --------------------------------------------------------------------------------------------
TOTAL LIABILITIES 2,201,268 1,779,518
- --------------------------------------------------------------------------------------------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Common stock, $.01 par value, 25,000,000 shares
authorized; 9,134,347 and 9,128,432 shares issued
and outstanding 91,343 91,284
Additional paid-in capital 59,033,040 59,030,559
Accumulated deficit (20,323,192) (18,533,506)
Net unrealized losses on investments (19,644) -
- --------------------------------------------------------------------------------------------
Total shareholders' equity 38,781,547 40,588,337
- --------------------------------------------------------------------------------------------
$ 40,982,815 $ 42,367,855
============================================================================================
The accompanying notes to financial statements are an integral part of these balance sheets.
</TABLE>
<PAGE>
UROLOGIX, INC.
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended September 30,
--------------------------------
1996 1995
- ----------------------------------------------------------------------------------------
<S> <C> <C>
SALES $ 586,125 $ -
COST OF GOODS SOLD 721,553 193,260
- ----------------------------------------------------------------------------------------
Gross loss (135,428) (193,260)
- ----------------------------------------------------------------------------------------
COSTS AND EXPENSES:
Research and development 1,239,224 887,513
Sales and marketing 485,044 134,669
General and administrative 450,743 236,977
- ----------------------------------------------------------------------------------------
Total costs and expenses 2,175,011 1,259,159
- ----------------------------------------------------------------------------------------
OPERATING LOSS (2,310,439) (1,452,419)
INTEREST INCOME, NET 520,754 25,025
- ----------------------------------------------------------------------------------------
Net loss ($1,789,685) ($1,427,394)
========================================================================================
Net loss per common share ($0.20) ($0.24)
========================================================================================
Weighted average number of common shares
outstanding 9,128,765 6,008,485
The accompanying notes to financial statements are an integral part of these statements.
</TABLE>
<PAGE>
UROLOGIX, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended September 30,
--------------------------------
1996 1995
- ----------------------------------------------------------------------------------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss ($1,789,685) ($1,427,396)
Adjustments to reconcile net loss to net cash
used for operating activities -
Depreciation 46,706 27,001
Change in operating items:
Accounts receivable (717,217) 73,294
Inventories (237,934) 36,359
Prepaids and other 11,475 (4,931)
Accounts payable and accrued liabilities 426,028 (158,896)
Other assets (2,962,301) (7,644)
- ----------------------------------------------------------------------------------------
Net cash used for operating activities (5,222,928) (1,462,213)
- ----------------------------------------------------------------------------------------
INVESTING ACTIVITIES:
Purchases of property and equipment (134,656) (31,637)
Proceeds from sale of securities 5,492,802 992,620
- ----------------------------------------------------------------------------------------
Net cash provided by investing activities 5,358,146 960,983
- ----------------------------------------------------------------------------------------
FINANCING ACTIVITIES:
Proceeds from exercise of stock options 2,540 19
Payments made on capital lease obligations (4,278) (1,223)
- ----------------------------------------------------------------------------------------
Net cash used for financing activities (1,738) (1,204)
- ----------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 133,480 (502,434)
CASH AND CASH EQUIVALENTS:
Beginning of period 65,042 1,349,041
- ----------------------------------------------------------------------------------------
End of period $198,522 $846,607
========================================================================================
The accompanying notes to financial statements are an integral part of these statements.
</TABLE>
<PAGE>
UROLOGIX, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1996
(Unaudited)
1. Basis of presentation
Urologix, Inc. (the "Company") was a company in the development stage until
significant revenue-generating activities commenced in July 1996. The
accompanying unaudited condensed financial statements of the Company have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions for Form 10-Q and Article 10 of
Regulation S-X. The balance sheet as of September 30, 1996 and the statements
of operations and the statements of cash flows for the three-month periods ended
September 30, 1996 and 1995, are unaudited but include all adjustments
(consisting of normal recurring adjustments) which the Company considers
necessary for a fair presentation of the financial position at such dates and
the operating results and cash flows for those periods. Although the Company
believes that the disclosures in these financial statements are adequate to make
the information presented not misleading, certain information normally included
in financial statements and related footnotes prepared in accordance with
generally accepted accounting principles have been condensed or omitted pursuant
to the rules and regulations of the Securities and Exchange Commission. The
accompanying financial statements should be read in conjunction with the
financial statements and notes thereto included in the Company's annual report
on Form 10-K for the year ended June 30, 1996. Results for any interim period
are not necessarily indicative of results for any other interim period or for
the entire year.
2. Net loss per common share
Net loss per common share was computed by dividing net loss by the weighted
average number of shares of common stock outstanding during each period. The
impact of common stock equivalents has been excluded from the computation of
weighted average common shares outstanding, except as noted below, as the effect
would be antidilutive. Pursuant to Securities and Exchange Commission rules,
stock options granted within one year prior to the date of the Company's filing
of a registration statement with respect to its initial public offering have
been included in the calculation of common share equivalents for the periods
prior to the Company's initial public offering. In addition, all shares of
preferred stock that were converted to common stock in conjunction with the
initial public offering completed in June 1996 have been included in the
computation of weighted average common shares as if converted for all periods
presented.
3. Inventories
Inventories at September 30 and June 30, 1996 are as follows:
September 30, 1996 June 30, 1996
- --------------------------------------------------------------------------------
Raw materials $216,349 $214,460
Work in process 142,144 54,969
Finished goods 295,361 146,491
- --------------------------------------------------------------------------------
$653,854 $415,920
================================================================================
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Overview
Urologix, Inc., incorporated in May 1991, was formerly in the development stage,
but is currently entering the commercial stage. The Company recorded its first
commercial revenues in the three months ended September 30, 1996. Since its
inception, the Company has been engaged primarily in developing its proprietary
T3 Targeted Transurethral Thermo-ablation System to treat Benign Prostatic
Hyperplasia ("BPH"); conducting clinical trials for the T3 System; seeking
various regulatory approvals necessary to market outside the U.S.; and
developing its premarket approval application ("PMA") for submission to the
United States Food and Drug Administration ("FDA"). The Company's T3 System
consists of the T3 System Control Unit and the T3 System Procedure Kit, which
includes the T3 System Catheter, Cooling Bag and Rectal Thermosensing Unit. The
T3 System is an investigational device in the U.S. and, therefore is not
currently available for commercial distribution in the U.S. The Company
obtained the CE Mark in July 1996, which allows the T3 System to be marketed in
the European Union countries. As a result, the Company's revenues to date
consist primarily of sales outside the U.S. or cost reimbursement, which
reflects the reimbursement of certain costs incurred by the Company for T3
Control Units and disposable Procedure Kits as permitted by the applicable FDA
regulation. The Company expects to file its PMA with the FDA in the first
quarter of calendar 1997.
Internationally, the Company will market the T3 System through two distributors.
Boston Scientific Corporation ("BSC"), a worldwide developer, manufacturer and
marketer of medical devices, has exclusive distribution rights for the T3 System
in all countries outside the U.S., except Japan. Nihon Kohden Corporation, a
large medical device company in Japan, has exclusive distribution rights for the
T3 System in Japan.
Since inception, the Company has experienced operating losses, and, as of
September 30, 1996, had an accumulated deficit of $20.3 million. The Company
anticipates that its operating losses will continue for the foreseeable future
due to expenditures on T3 System development, scale-up of commercial
manufacturing capabilities, clinical trials, regulatory matters, and sales and
marketing activities.
The Company expects sales of the T3 System to account for all of its revenues
for the foreseeable future. Revenues from the sale of T3 System Control Units
and disposable Procedure Kits are recognized upon shipment.
RESULTS OF OPERATIONS
Three months ended September 30, 1996 and 1995
Sales of $586,000 were recorded in the three months ended September 30, 1996,
compared to no sales for the same period in the prior fiscal year. The Company
generated sales in the current quarter due to the Company's obtaining the CE
Mark for its T3 System in July 1996, and the Company's initial sales under its
distribution agreement with BSC. Until regulatory approvals to sell the T3
System are obtained in Japan and the United States, the Company expects its
sales to be exclusively to BSC.
Cost of goods sold increased to $722,000 for the three months ended September
30, 1996, from $193,000 for the same period in the prior fiscal year, due
primarily to a significant increase in production of the T3 System and costs
related to bringing the Company's manufacturing process into compliance with ISO
9001 standards necessary to market the T3 System in the European Union.
Research and development expenses include costs associated with development and
protection of the Company's T3 System and related intellectual property,
clinical trials of T3 System and regulatory efforts necessary to obtain and
maintain approvals to market and manufacture the T3 System. Research and
development expenses for the first fiscal quarter of 1997 increased to $1.2
million from $888,000 in the same quarter in fiscal 1996, due primarily to costs
related to clinical studies of the T3 System and regulatory costs related to the
Company's upcoming PMA submission to the FDA and its recently achieved CE Mark
certification.
Sales and marketing expenses for the first fiscal quarter of 1997 increased to
$485,000 from $135,000 in the same quarter in fiscal 1996, due primarily to
costs associated with the marketing launch of the T3 System in Europe.
<PAGE>
General and administrative expenses increased to $451,000 in the first quarter
of fiscal 1997 from $237,000 in the first quarter of fiscal 1996 due to
administrative costs associated with an increase in employees in connection with
the Company's growth and commencement of sales activities and costs related to
the Company's external reporting obligations as a public company.
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its operations since inception through sales of equity
securities and, to a lesser extent, revenues from the T3 System. Through
September 30, 1996, the Company had received $59 million in net proceeds from
equity financings. As of September 30, 1996, the Company had total cash, cash
equivalents and available-for-sale securities of $35.5 million, and working
capital of $35.1 million.
In August 1996, the Company entered into a worldwide license agreement with EDAP
International S. A. (EDAP), under which EDAP granted Urologix a non-exclusive
license under all EDAP issued and pending patents pertaining to the microwave
treatment of BPH and other conditions of the prostate. Although the terms of
the license agreement are confidential, they include an initial license fee as
well as prepaid and ongoing royalty payments, subject to a maximum royalty.
The Company expects to continue to incur additional losses as it incurs
substantial expenses in support of its clinical trials, regulatory requirements
and development of the T3 System, as well as increased expenses and working
capital related to the introduction of the T3 System in international markets.
In addition, should the Company lease T3 System Control Units, substantial
capital will be required to finance the lease arrangements. The Company
currently may finance part or all of the capital requirements associated with
these leasing arrangements through equipment financing with a third-party
lessor, although the Company has not yet established such an arrangement. If
the Company is unable to obtain equipment financing or a relationship with a
third-party lessor, it may need to seek other forms of financing through the
sale of equity securities or other means, to achieve its business objectives.
Although the Company believes that existing cash, cash equivalents and
available-for-sale securities will be sufficient to fund its operations for at
least the next 24 months, there can be no assurance that the Company will not
require additional financing within that time frame. Any additional required
financing may not be available to the Company on satisfactory terms, if at all.
Statements included in this Form 10-Q that are not historical or current facts
are "forward-looking statements" made pursuant to the safe harbor provisions of
the Private Securities Litigation Reform Act of 1995 and are subject to certain
risks and uncertainties that could cause actual results to differ materially.
These factors include (i) competition from other treatments for BPH in markets
outside the United States; (ii) the ability of the Company's distributors to
successfully market and sell the Company's products in markets outside the
United States; (iii) the Company's ability to successfully complete and file a
PMA application that will enable it to receive FDA approval in a timely manner;
(iv) the Company's ability to manufacture and supply the T3 System in sufficient
quantities to meet its distributors' demand; and (v) the extent to which
physicians performing the T3 procedures are able to obtain third-party
reimbursement.
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
- --------------------------
As previously reported, on July 30, 1996, the Company filed a lawsuit
under seal in United States District Court for the District of
Minnesota against BSD Medical Corporation ("BSD") to enforce the terms
of a settlement agreement and patent license between the Company and
BSD. The Company's suit requests that the court enforce the agreement
and enter a declaratory judgment stating that the settlement agreement
remains in effect. BSD subsequently filed an answer and counterclaim
alleging that the license agreement was properly terminated and is
seeking relief against the Company. The lawsuit is currently in the
discovery stage.
Item 2. Change in Securities
- -----------------------------
None
Item 3. Defaults upon Senior Securities
- ----------------------------------------
None
Item 4. Submission of Matters to a Vote of Securities Holders
- --------------------------------------------------------------
None
Item 5. Other Information
- --------------------------
None
Item 6. Exhibits and Reports on Form 8-K
- -----------------------------------------
(a) Exhibits
(11.1) Computation of Net Loss Per Common Share
(27.1) Financial Data Schedule
(b) Reports on Form 8-K
During the quarter for which this Quarterly Report is filed, the
Company filed no Reports on form 8-K.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DATE November 13, 1996 Urologix, Inc.
--------------------------- --------------------------------------
(Registrant)
/s/ Jack E. Meyer
--------------------------------------
Jack E. Meyer
President and Chief Executive Officer
(Duly Authorized Officer)
/s/ Wesley E. Johnson, Jr.
--------------------------------------
Wesley E. Johnson, Jr.
Vice President/Finance and Chief
Financial Officer
(Principal Financial Officer)
<PAGE>
EXHIBIT 11.1
UROLOGIX, INC.
COMPUTATION OF NET LOSS PER COMMON SHARE
<TABLE>
<CAPTION>
Three Months Ended
September 30,
-------------------------
1996 1995
<S> <C> <C>
Net loss $(1,789,685) $(1,427,394)
=========== ===========
Weighted average common shares outstanding (1) 9,128,765 5,224,251
Effect of cheap shares issued (2) - 784,234
----------- -----------
9,128,765 6,008,485
=========== ===========
Loss per common share $(0.20) $(0.24)
=========== ===========
</TABLE>
(1) All shares of preferred stock which were converted to common stock in
conjunction with the initial public offering have been included in the
calculation of weighted average common shares as if converted for all periods
presented.
(2) All preferred shares issued and options granted from April 5, 1995 to April
4, 1996 are included in the calculation for periods prior to the initial public
offering presented in accordance with Staff Accounting Bulletin Topic 4(D).
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND> This schedule contains summary financial information extracted from
ULGX FDS for 1st quarter for 10-Q and is qualified in its entirety by reference
to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 198,522
<SECURITIES> 35,266,730
<RECEIVABLES> 752,283
<ALLOWANCES> 0
<INVENTORY> 653,854
<CURRENT-ASSETS> 37,225,890
<PP&E> 468,914
<DEPRECIATION> 445,157
<TOTAL-ASSETS> 40,982,815
<CURRENT-LIABILITIES> 2,147,678
<BONDS> 0
<COMMON> 91,343
0
0
<OTHER-SE> 38,690,204
<TOTAL-LIABILITY-AND-EQUITY> 40,982,815
<SALES> 586,125
<TOTAL-REVENUES> 586,125
<CGS> 721,553
<TOTAL-COSTS> 721,553
<OTHER-EXPENSES> 2,175,011
<LOSS-PROVISION> 2,310,439
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (1,789,685)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,789,685)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,789,685)
<EPS-PRIMARY> (0.20)
<EPS-DILUTED> (0.20)
</TABLE>
