<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 March 31, 1997
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
<TABLE>
<S> <C>
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.
Preferred Stock Purchase Rights
</TABLE>
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 May 9, 1997, the Company had outstanding 9,235,279 shares of common Stock,
$.01 par value.
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
UROLOGIX, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, 1997 June 30, 1996
- ------------------------------------------------------------------------
<S> <C> <C>
ASSETS (Unaudited)
Current assets:
Cash and cash equivalents $ 697,349 $ 65,042
Available-for-sale securities 29,484,308 40,779,176
Accounts receivable 1,528,055 35,066
Inventories 1,712,039 415,920
Prepaids and other 280,649 365,976
- ------------------------------------------------------------------------
Total current assets 33,702,400 41,661,180
- ------------------------------------------------------------------------
Property and equipment:
Leasehold improvements 425,526 79,721
Machinery, equipment and furniture 1,485,332 699,694
Less - accumulated depreciation (582,336) (401,381)
- ------------------------------------------------------------------------
Property and equipment, net 1,328,522 378,034
Other assets, net 3,155,813 328,641
- ------------------------------------------------------------------------
$ 38,186,735 $ 42,367,855
========================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current maturities of capitalized
lease obligations $ 17,926 $ 17,926
Accounts payable 2,079,826 845,566
Accrued compensation and other 803,682 858,158
- ------------------------------------------------------------------------
Total current liabilities 2,901,434 1,721,650
Capitalized lease obligations, less
current maturities 44,011 57,868
- ------------------------------------------------------------------------
Total liabilities 2,945,445 1,779,518
- ------------------------------------------------------------------------
Commitments and contingencies
Shareholders' equity
Common stock, $.01 par value,
25,000,000 shares authorized;
9,173,696 and 9,128,432 shares issued
and outstanding 91,737 91,284
Additional paid-in capital 59,090,569 59,030,559
Accumulated deficit (23,790,405) (18,533,506)
Net unrealized loss on investments (150,611) -
- ------------------------------------------------------------------------
Total shareholders' equity 35,241,290 40,588,337
- ------------------------------------------------------------------------
$ 38,186,735 $ 42,367,855
========================================================================
</TABLE>
The accompanying notes to financial statements are an integral part of these
balance sheets.
<PAGE>
UROLOGIX, INC.
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31, Nine Months Ended, March 31,
----------------------------------------------------------
1997 1996 1997 1996
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sales $ 1,789,500 $ 159,480 $ 3,661,300 $ 342,355
Cost of goods sold 1,524,123 371,884 3,400,144 866,057
- ---------------------------------------------------------------------------------------------------
Gross profit (loss) 265,377 (212,404) 261,156 (523,702)
- ---------------------------------------------------------------------------------------------------
Costs and expenses:
Research and development 1,245,730 1,476,372 3,564,086 3,571,314
General and administrative 576,895 310,158 1,600,053 822,250
Sales and marketing 730,601 228,270 1,757,419 546,802
- ---------------------------------------------------------------------------------------------------
Total costs and expenses 2,553,226 2,014,800 6,921,558 4,940,366
- ---------------------------------------------------------------------------------------------------
Operating loss (2,287,849) (2,227,204) (6,660,402) (5,464,068)
Interest income, net 418,083 20,026 1,403,503 82,896
- ---------------------------------------------------------------------------------------------------
Net loss ($1,869,766) ($2,207,178) ($5,256,899) ($5,381,172)
===================================================================================================
Net loss per common share ($0.20) ($0.37) ($0.57) ($0.90)
===================================================================================================
Weighted average number of common
shares outstanding 9,158,231 6,008,733 9,149,020 6,009,679
</TABLE>
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 Nine Months Ended March 31,
--------------------------------------
1997 1996
- ------------------------------------------------------------------------------
<S> <C> <C>
Operating Activities:
Net loss ($5,256,899) ($5,381,172)
Adjustments to reconcile net loss to
net cash used for operating
activities -
Depreciation 180,955 90,678
Change in operating items:
Accounts receivable (1,492,989) -
Inventories (1,296,119) 427,909
Prepaids and other 85,327 (108,450)
Accounts payable and accrued
liabilities 1,179,784 291,534
Other assets (2,827,172) (8,466)
- ------------------------------------------------------------------------------
Net cash used for operating
activities (9,427,113) (4,687,967)
- ------------------------------------------------------------------------------
Investing Activities:
Purchases of property and equipment (1,131,443) (114,844)
Proceeds from sale of securities 11,144,257 1,972,452
- ------------------------------------------------------------------------------
Net cash provided by investing
activities 10,012,814 1,857,608
- ------------------------------------------------------------------------------
Financing Activities:
Issuance of preferred stock, net 4,587,064
Issuance of common stock, net 46,943
Proceeds from exercise of stock options 60,463 -
Payments made on capital lease obligations (13,857) (3,785)
- ------------------------------------------------------------------------------
Net cash provided by financing
activities 46,606 4,630,222
- ------------------------------------------------------------------------------
Net Increase in Cash and Cash 632,307 1,799,863
Equivalents
Cash and Cash Equivalents:
Beginning of period 65,042 1,349,041
- ------------------------------------------------------------------------------
End of period $ 697,349 $ 3,148,904
==============================================================================
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
<PAGE>
UROLOGIX, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1997
(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 March 31, 1997 and the statements of
operations for the three and nine-month periods ended march 31, 1997 and 1996,
and the statements of cash flows for the nine-month periods ended March 31, 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, 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 March 31, 1997 and June 30, 1996 are as follows:
<TABLE>
<CAPTION>
March 31, 1997 June 30, 1996
- ------------------------------------------------
<S> <C> <C>
Raw materials $ 216,349 $214,460
Work in process 142,144 54,969
Finished goods 1,353,546 146,491
- ------------------------------------------------
$1,712,039 $415,920
================================================
</TABLE>
4. New Accounting Pronouncement
During March, 1997, the Financial Accounting Standards Board released Statement
of Financial Accounting Standards No. 128 ("SFAS 128"), "Earning per Share",
which requires the disclosure of basic earnings per share and diluted earnings
per share. The Company expects to adopt SFAS 128 at the end of fiscal 1997 and
anticipates it will not have a material impact on previously reported earnings
per share.
<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
Targeted Transurethral Thermo-ablation System ("T3(R) 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 and submitting 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 has the regulatory approvals necessary to commercially market the T3
System in Canada, Japan and the eighteen European Union countries. As a result,
the Company's revenues to date consist primarily of sales to its international
distributors 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. Cost reimbursement of $159,480
and $342,355 for the three and nine months ended March 31, 1997, respectively,
is included in sales in the accompanying statements of operations. The Company
submitted its PMA with the FDA in February, 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 Japanese medical device company, has exclusive distribution rights for the
T3 System in Japan.
Since inception, the Company has experienced operating losses, and, as of March
31, 1997, had an accumulated deficit of $23.8 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, less allowance for returns, are recognized upon
shipment.
Results of Operations
Sales increased to $1,789,500 and $3,661,300 for the three and nine months ended
March 31, 1997, respectively, from $159,480 and $342,355, respectively, for the
same periods in the prior fiscal year. The increases in sales for both periods
are due to sales to the Company's international distributors following the
Company's obtaining the CE Mark for its T3 System in July 1996 and the Company's
Japanese distributor obtaining Japanese Ministry of Health and Welfare marketing
approval in Japan in February 1997. Included in sales for the three and nine
months ended March 31, 1996 is the reimbursement of certain costs incurred by
the Company for T3 control units and procedure kits as permitted by the
applicable FDA regulation.
Cost of goods sold increased to $1,524,123 and $3,400,144 for the three and nine
months ended March 31, 1997, respectively, from $371,884 and $866,057 in the
same periods in the prior fiscal year, due primarily to the significant increase
in sales and production of T3 Systems. Current gross profits reflect low
production volumes of the Company's T3 System and, as production volumes
increase, the Company anticipates gross profits to improve.
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 three months ended March 31, 1997 decreased to $1.2
million from $1.5 million for the same quarter in the prior year due primarily
to costs incurred in the prior year's third quarter associated with bringing
Company's development processes and products into compliance with ISO 9001 and
CE mark certification requirements. Research and development expenses for the
nine months ended March 31, 1997 were unchanged from the same period a year ago
as costs related to the Company's PMA submission in 1997 offset costs related to
ISO 9001 and CE mark certification in 1996.
<PAGE>
Sales and marketing expenses increased to $730,601 and $1,757,419 for the three
and nine months ended March 31, 1997, respectively, from $228,270 and $546,802
in the same periods in the prior fiscal year due primarily to costs associated
with the marketing launch of the T3 System in Europe and Japan and preparation
for U.S. marketing launch.
General and administrative expenses increased to $576,895 and $1,600,053 for the
three and nine months ended March 31, 1997, respectively, from $310,158 and
$822,250 in the same periods in the prior fiscal 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.
Interest income increased significantly during the three and nine months ended
March 31, 1997, due primarily to income from the investment of proceeds from the
Company's initial public offering, completed in June, 1996.
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 March
31, 1997, the Company had received $59 million in net proceeds from equity
financings. As of March 31, 1997, the Company had total cash, cash equivalents
and available-for-sale securities of $30.2 million, and working capital of $30.8
million.
During the nine months ended March 31, 1997, the Company used $9.4 million of
cash for operating activities funded primarily by proceeds from the sale of
available-for-sale securities.
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 included 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 12 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.
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 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 obtain FDA commercial
marketing approval for the T3 System; (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 May 14, 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
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended,
March 31, March 31,
-------------------------------------------------------
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Net loss ($1,869,766) ($2,207,178) ($5,256,899) ($5,381,172)
========== ========== ========== ==========
Weighted average common shares
outstanding (1) 9,158,231 5,224,499 9,149,020 5,225,445
Effect of cheap shares issued (2) - 784,234 784,234
---------- ---------- ---------- ----------
9,158,231 6,008,733 9,149,020 6,009,679
========== ========== ========== ==========
Loss per common share ($0.20) ($0.37) ($0.57) ($0.90)
========== ========== ========== ==========
</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
Urologix FDS for 3rd 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-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> MAR-31-1997
<CASH> 697,349
<SECURITIES> 29,484,308
<RECEIVABLES> 1,528,055
<ALLOWANCES> 0
<INVENTORY> 1,712,039
<CURRENT-ASSETS> 33,702,400
<PP&E> 1,910,858
<DEPRECIATION> 582,336
<TOTAL-ASSETS> 38,186,735
<CURRENT-LIABILITIES> 2,901,434
<BONDS> 0
0
0
<COMMON> 91,737
<OTHER-SE> 35,149,553
<TOTAL-LIABILITY-AND-EQUITY> 38,186,735
<SALES> 1,789,500
<TOTAL-REVENUES> 1,789,500
<CGS> 1,524,123
<TOTAL-COSTS> 1,524,123
<OTHER-EXPENSES> 2,553,226
<LOSS-PROVISION> 2,287,849
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (1,869,766)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,869,766)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,869,766)
<EPS-PRIMARY> (0.20)
<EPS-DILUTED> (0.20)
</TABLE>
