<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, 1997
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES
EXCHANGE ACT OF 1934
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
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, 1997, the Company had outstanding 9,341,696 shares of common
Stock, $.01 par value.
<PAGE>
UROLOGIX, INC.
BALANCE SHEETS
September 30, 1997 June 30, 1997
- ------------------------------------------------------------------------------
Assets (Unaudited)
Current assets:
Cash and cash equivalents $ 1,814,708 $ 275,571
Available-for-sale securities 20,719,903 25,825,238
Accounts receivable 2,278,966 1,272,994
Inventories 2,340,709 2,119,373
Prepaids and other current assets 632,044 667,593
- ------------------------------------------------------------------------------
Total current assets 27,786,330 30,160,769
- ------------------------------------------------------------------------------
Property and equipment:
Machinery, equipment and furniture 2,954,137 2,680,661
Less - accumulated depreciation (1,025,992) (832,604)
- ------------------------------------------------------------------------------
Property and equipment, net 1,928,145 1,848,057
Other assets, net 3,407,173 3,573,261
- ------------------------------------------------------------------------------
$33,121,648 $35,582,087
==============================================================================
Liabilities and Shareholders' Equity
Current liabilities:
Current maturities of capitalized lease
obligations $ 19,531 $ 19,531
Accounts payable 1,327,110 2,087,443
Accrued compensation and other 1,189,329 1,040,345
- ------------------------------------------------------------------------------
Total current liabilities 2,535,970 3,147,319
Capitalized lease obligations, less current
maturities 31,737 37,725
- ------------------------------------------------------------------------------
Total liabilities 2,567,707 3,185,044
- ------------------------------------------------------------------------------
Commitments and contingencies
Shareholders' equity
Common stock, $.01 par value, 25,000,000
shares authorized; 9,340,846 and
9,256,594 shares issued and outstanding 93,408 92,566
Additional paid-in capital 59,286,675 59,131,097
Accumulated deficit (28,783,024) (26,767,362)
Net unrealized losses on investments (43,118) (59,258)
- ------------------------------------------------------------------------------
Total shareholders' equity 30,553,941 32,397,043
- ------------------------------------------------------------------------------
$33,121,648 $35,582,087
==============================================================================
The accompanying notes to financial statements are an integral part of these
balance sheets.
<PAGE>
UROLOGIX, INC.
STATEMENT OF OPERATIONS
(Unaudited)
For the Three Months Ended September 30,
---------------------------------------------
1997 1996
- -----------------------------------------------------------------------------
Sales $2,599,135 $586,125
Cost of goods sold 1,738,301 721,553
- -----------------------------------------------------------------------------
Gross profit (loss) 860,834 (135,428)
- -----------------------------------------------------------------------------
Costs and expenses:
Research and development 1,374,165 1,239,224
Sales and marketing 1,332,966 485,044
General and administrative 500,805 450,743
- -----------------------------------------------------------------------------
Total costs and expenses 3,207,936 2,175,011
- -----------------------------------------------------------------------------
Operating loss (2,347,102) (2,310,439)
Interest income, net 331,442 520,754
- -----------------------------------------------------------------------------
Net loss ($2,015,660) ($1,789,685)
=============================================================================
- -----------------------------------------------------------------------------
Net loss per common share ($0.22) ($0.20)
=============================================================================
Weighted average number of common
shares outstanding 9,309,896 9,128,765
The accompanying notes to financial statements are an integral part of these
statements.
<PAGE>
UROLOGIX, INC.
STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
For the Three Months Ended September 30,
---------------------------------------------
1997 1996
- --------------------------------------------------------------------------------------------
<S> <C> <C>
Operating Activities:
Net loss ($2,015,660) ($1,789,685)
Adjustments to reconcile net loss to net cash
used for operating activities -
Depreciation and Amortization 492,336 46,706
Change in operating items:
Accounts receivable (1,005,972) (717,217)
Inventories (221,336) (237,934)
Prepaids and other current assets 35,549 11,475
Accounts payable and accrued liabilities (611,349) 426,028
- --------------------------------------------------------------------------------------------
Net cash used for operating activities (3,326,432) (2,260,627)
- --------------------------------------------------------------------------------------------
Investing Activities:
Purchases of property and equipment (406,338) (134,656)
Purchase of intangible assets - (2,962,301)
Proceeds from sale of securities 5,121,475 5,492,802
- --------------------------------------------------------------------------------------------
Net cash provided by investing
activities 4,715,137 2,395,845
- --------------------------------------------------------------------------------------------
Financing Activities:
Proceeds from exercise of stock options 156,420 2,540
Payments made on capital lease obligations (5,988) (4,278)
- --------------------------------------------------------------------------------------------
Net cash provided by (used for)
financing activities 150,432 (1,738)
- --------------------------------------------------------------------------------------------
Net increase in Cash and Cash Equivalents 1,539,137 133,480
Cash and Cash Equivalents:
Beginning of period 275,571 65,042
- --------------------------------------------------------------------------------------------
End of Period $1,814,708 $198,522
============================================================================================
Supplemental cash flow disclosure:
Cash paid for interest $1,125 $1,485
====== ======
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
<PAGE>
UROLOGIX, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
September 30, 1997
(Unaudited)
1. Basis of presentation
The accompanying unaudited condensed financial statements of Urologix, Inc. (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,
1997 and the statements of operations for the three-month periods ended
September 30, 1997 and 1996, and the statements of cash flows for the three-
month period ended September 30, 1997 and 1996, 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, 1997.
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 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 as the effect would be antidilutive.
3. Inventories
Inventories consisted of the following as of:
September 30, 1997 June 30, 1997
- ------------------------------------------------------------------------
Raw materials $1,287,056 $915,609
Work in process 93,874 352,174
Finished goods 959,779 851,590
- ------------------------------------------------------------------------
$2,340,709 $2,119,373
========================================================================
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Overview
Urologix, Inc., incorporated in May 1991, has been engaged primarily in
developing its proprietary Targis(TM) System to treat BPH; conducting clinical
trials for the Targis System; seeking various regulatory approvals necessary
to market the Targis System; and producing Targis Systems for sale outside the
United States. Regulatory approvals necessary to market the Targis System in
Japan and the 15 European Union countries were obtained in fiscal year 1997.
In August 1997, the Company also received Food and Drug Administration
(FDA) approval to market the Targis System in the United States and intends to
launch the Targis System in the United States during the fourth calendar
quarter of 1997. The Company's Targis System consists of a control unit and a
procedure kit, which includes the microwave delivery system incorporated in a
catheter, a cooling bag and a rectal thermosensing unit. The Company's
revenues to date consist primarily of Targis System sales to its two
international distributors.
The Company intends to market the Targis System through a direct sales force
in the United States. Internationally, the Company has developed broad-based
relationships with two parties for market development and sales of the Targis
System. Boston Scientific Corporation, a worldwide developer, manufacturer and
marketer of medical devices, has exclusive distribution rights for the Targis
System in all countries outside the United States, except Japan. Nihon Kohden
Corporation, a major Japanese developer, manufacturer and marketer of medical
devices, has exclusive distribution rights in Japan for the Targis System.
Since inception, the Company has experienced operating losses and anticipates
that its operating losses will continue for the foreseeable future.
Expenditures will be primarily related to the Targis System market introduction
in the United States, scale-up of commercial manufacturing, clinical trials
and research and development activities.
The Company expects sales of the Targis System to account for all of its
revenues for the foreseeable future. In the United States, the Company intends
to offer urologists the option to purchase or lease the Targis System control
unit. The leases will either be offered under a third-party leasing
arrangement or directly from the Company. Revenues from the sale of Targis
System control units and disposable procedure kits will be recognized upon
shipment.
Results of Operations
Three months ended September 30, 1997 and 1996
Sales increased to $2.6 million for the three months ended September 30, 1997
from $586,000 for the same period in the prior fiscal year. The increase in
sales is due to sales to the Company's international distributors following the
Company's obtaining the CE mark for its Targis System in July 1996 and the
Company's Japanese distributor obtaining Japanese Ministry of Health and
Welfare marketing approval in February 1997.
Cost of goods sold includes costs incurred in connection with the production
of Targis Systems including manufacturing and quality assurance overhead. Cost
of goods sold increased to $1.7 million for the three months ended September
30, 1997 from $722,000 for the same period in the prior fiscal year, due
primarily to the significant increase in sales and production of the Company's
Targis System. The Company expects further increases in cost of goods sold
as sales increase and production capacity is increased in anticipation of the
United States launch of the Targis System. If sales of the Targis System
increase, the Company expects cost of goods sold, as a percent of sales, to
decrease due to efficiencies obtained from higher production volumes.
Research and development expenses include those costs associated with the
development and protection of the Company's Targis System intellectual
property, treatment of patients participating in clinical trials, the
accumulation of outcome data to substantiate clinical results and the
preparation and submission of applications for regulatory approvals. Research
and development expenses for the three months ended September 30, 1997
increased to $1.4 million from $1.2 million for the same period in the prior
fiscal year, due primarily to costs related to new and on-going clinical
studies of the Targis System and costs associated with product development
activities related to Targis System improvements and alternative applications
for the Company's technology. Research and development expenses are expected
to increase in fiscal 1998 due to continuing clinical study expenses and
product development projects to further develop the Company's technologies.
<PAGE>
Sales and marketing expenses for the three months ended September 30, 1997
increased to $1.3 million from $485,000 in the same period in the prior fiscal
year due primarily to costs associated with supporting the marketing of the
Targis System in Europe and Japan, as well as the Company's preparation for
the United States marketing launch, following FDA marketing approval received in
August 1997. These preparations included the hiring of sales and marketing
management, preparation of promotional materials, recruitment of field sales
representatives and efforts related to obtaining third-party reimbursement for
the Targis System. The Company expects sales and marketing expenses to
increase significantly as it commercially launches the Targis System in the
United States, including the expected significant expansion of its direct
sales force, and continues supporting its international distributors' sales
efforts.
General and administrative expenses increased to $501,000 for the three month
period ended September 30, 1997 from $451,000 for the same period in the prior
fiscal year, due to administrative costs associated with an increase in
employees in connection with the Company's growth and commencement of sales
activities.
Interest income decreased to $331,000 for the three month period ended September
30, 1997 from $521,000 for the same period in the prior fiscal year, due
primarily to lower cash and investment balances.
Liquidity and Capital Resources
The Company has financed its operations since inception through sales of
equity securities and, to a lesser extent, sales of the Targis System to its
distributors. Through September 30, 1997, the Company had received
approximately $59 million in net proceeds from equity financings. During the
three months ended September 30, 1997 the Company used approximately $3.7
million of cash for operating activities and property and equipment purchases,
which amounts were funded primarily by proceeds from available-for-sale
securities. As of September 30, 1997, the Company had total cash, cash
equivalents and available-for-sale securities of $22.5 million, and working
capital of $25.3 million.
The Company expects to continue to incur additional losses, and will require
additional working capital, as it incurs substantial expenses related to the
Targis System market introduction in the United States, expansion of
manufacturing capacity, clinical trials and research and development
activities. In addition, should the Company choose to lease Targis System
control units to customers, substantial capital could be required to finance
the lease arrangements. Although the Company may finance part or all
of the capital requirements associated with these leasing arrangements through
equipment financing with a commercial lender, the Company has not yet obtained
a commitment for such equipment financing. 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 12 months, there can
be no assurance that the Company will not require additional financing in the
future or that any additional financing will be available to the Company on
satisfactory terms, if at all.
Forward-Looking Statements
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 existing or new BPH treatments;
(ii) the Company's ability to successfully market its product in the United
States through sales representatives; (iii) the ability of the Company's
distributors to successfully market and sell the Company's products in markets
outside the United States; (iv) the Company's ability to successfully
manufacture the Targis System in sufficient quantities to meet future demand for
the products; and (v) the extent to which the physicians performing the Targis
System procedures are able to obtain third party reimbursement.
PART II - OTHER INFORMATION
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 10, 1997
----------------------
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
Three Months Ended
September 30,
1997 1996
----------------------------
Net loss ($2,015,660) ($1,789,685)
=========== ===========
Weighted average common shares outstanding 9,309,896 9,128,765
=========== ===========
Loss per common share ($0.22) ($0.20)
=========== ===========
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM UROLOGIX FDS
FOR 1ST QUARTER FORM 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-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 1,814,708
<SECURITIES> 20,719,903
<RECEIVABLES> 2,278,966
<ALLOWANCES> 0
<INVENTORY> 2,340,709
<CURRENT-ASSETS> 27,786,330
<PP&E> 2,954,137
<DEPRECIATION> 1,025,992
<TOTAL-ASSETS> 33,121,648
<CURRENT-LIABILITIES> 2,535,970
<BONDS> 0
0
0
<COMMON> 93,408
<OTHER-SE> 30,460,533
<TOTAL-LIABILITY-AND-EQUITY> 33,121,648
<SALES> 2,599,135
<TOTAL-REVENUES> 2,599,135
<CGS> 1,738,301
<TOTAL-COSTS> 1,738,301
<OTHER-EXPENSES> 3,207,936
<LOSS-PROVISION> 2,347,102
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (2,015,660)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,015,660)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,015,660)
<EPS-PRIMARY> (0.22)
<EPS-DILUTED> (0.22)
</TABLE>
