<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 December 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
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 February 5, 1998, the Company had outstanding 11,080,963 shares of common
Stock, $.01 par value.
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
UROLOGIX, INC.
BALANCE SHEETS
December 31, 1997 June 30, 1997
- ------------------------------------------------------------------------------
Assets (Unaudited)
Current assets:
Cash and cash equivalents $ 561,443 $ 275,571
Available-for-sale securities 49,819,248 25,825,238
Accounts receivable 3,784,048 1,272,994
Inventories 3,819,453 2,119,373
Prepaids and other 444,778 667,593
- ------------------------------------------------------------------------------
Total current assets 58,428,970 30,160,769
- ------------------------------------------------------------------------------
Property and equipment:
Machinery, equipment and furniture 3,355,297 2,680,661
Less - accumulated depreciation (1,211,006) (832,604)
- ------------------------------------------------------------------------------
Property and equipment, net 2,144,291 1,848,057
Other assets, net 3,155,905 3,573,261
- ------------------------------------------------------------------------------
$ 63,729,166 $ 35,582,087
==============================================================================
Liabilities and Shareholders' Equity
Current liabilities:
Current maturities of capitalized lease
obligations $ 19,531 $ 19,531
Accounts payable 1,939,815 2,087,443
Accrued expenses 1,608,302 1,040,345
- ------------------------------------------------------------------------------
Total current liabilities 3,567,648 3,147,319
Capitalized lease obligations, less current
maturities 27,890 37,725
- ------------------------------------------------------------------------------
Total liabilities 3,595,538 3,185,044
- ------------------------------------------------------------------------------
Commitments and contingencies
Shareholders' equity
Common stock, $.01 par value, 25,000,000 shares
authorized; 11,070,996 and 9,256,594 shares
issued and outstanding 110,710 92,566
Additional paid-in capital 90,878,032 59,131,097
Accumulated deficit (30,923,332) (26,767,362)
Net unrealized gains(losses) on investments 68,218 (59,258)
- ------------------------------------------------------------------------------
Total shareholders' equity 60,133,628 32,397,043
- ------------------------------------------------------------------------------
$ 63,729,166 $ 35,582,087
==============================================================================
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 December 31, Six Months Ended December 31,
------------------------------------------------------------------
1997 1996 1997 1996
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sales $ 3,203,845 $ 1,285,675 $ 5,802,980 $ 1,871,800
Cost of goods sold 2,140,126 1,154,468 3,878,427 1,876,021
- ----------------------------------------------------------------------------------------------------
Gross profit (loss) 1,063,719 131,207 1,924,553 (4,221)
- ----------------------------------------------------------------------------------------------------
Costs and expenses:
Research and development 1,444,241 1,079,132 2,818,406 2,318,356
Sales and marketing 1,520,866 541,774 2,853,832 1,026,818
General and administrative 631,200 572,415 1,132,005 1,023,158
- ----------------------------------------------------------------------------------------------------
Total costs and expenses 3,596,307 2,193,321 6,804,243 4,368,332
- ----------------------------------------------------------------------------------------------------
Operating loss (2,532,588) (2,062,114) (4,879,690) (4,372,553)
Interest income, net 392,281 464,666 723,723 985,420
- ----------------------------------------------------------------------------------------------------
Net loss $(2,140,307) $(1,597,448) $(4,155,967) $(3,387,133)
====================================================================================================
Basic and diluted net loss
per common share $ (0.21) $ (0.17) $ (0.43) $ (0.37)
====================================================================================================
Weighted average number of
common shares outstanding 10,140,194 9,148,655 9,725,045 9,139,732
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
<PAGE>
UROLOGIX, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
For the Six Months Ended December 31,
-------------------------------------
1997 1996
- --------------------------------------------------------------------------
Operating Activities:
Net loss $ (4,155,967) $ (3,387,133)
Adjustments to reconcile net
loss to net cash used for
operating activities -
Depreciation and amortization 928,620 98,959
Change in operating items:
Accounts receivable (2,511,054) (1,495,960)
Inventories (1,700,080) (816,029)
Prepaids and other assets 222,815 47,756
Accounts payable and accrued
expenses 420,326 703,192
- --------------------------------------------------------------------------
Net cash used for operating
activities (6,795,340) (4,849,215)
- --------------------------------------------------------------------------
Investing Activities:
Purchases of property and equipment (807,498) (339,264)
Purchase of intangible assets - (2,897,972)
Purchase of available-for-sale
securities (235,146,258) -
Proceeds from sale of available-
for-sale securities 211,279,723 9,376,917
- --------------------------------------------------------------------------
Net cash provided by (used for)
investing activities (24,674,032) 6,139,681
- --------------------------------------------------------------------------
Financing Activities:
Sale of common stock, net 31,527,102 -
Proceeds from exercise of stock
options 237,977 13,124
Payments made on capital lease
obligations (9,835) (9,294)
- --------------------------------------------------------------------------
Net cash provided by financing
activities 31,755,244 3,830
- --------------------------------------------------------------------------
Net Increase in Cash and Cash Equivalents 285,872 1,294,296
Cash and Cash Equivalents:
Beginning of period 275,571 65,042
- --------------------------------------------------------------------------
End of period $ 561,443 $ 1,359,338
- --------------------------------------------------------------------------
Supplemental cash flow disclosure:
Cash paid for interest $ 2,175 $ 2,835
=========== ============
The accompanying notes to financial statements are an integral part of these
statements.
<PAGE>
UROLOGIX, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 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 December 31,
1997 and the statements of operations for the three and six-month periods ended
December 31, 1997 and 1996, and the statements of cash flows for the six month
periods ended December 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 has 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 Common and Common Equivalent Share
Net loss per common and common equivalent share was computed by dividing net
loss by the weighted average number of shares of Common Stock. In accordance
with the requirements of Financial Accounting Standard No. 128, which the
Company adopted as of December 31, 1997, common stock equivalents have been
excluded from the calculation as their inclusion would be antidilutive.
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Overview
Urologix, Inc., incorporated in 1991, develops, manufactures and markets
minimally invasive medical devices for the treatment of urological diseases. The
Company has developed the Targis System, a non-surgical, anesthesia-free,
catheter-based therapy that uses a proprietary microwave technology for the
treatment of benign prostatic hyperplasia (BPH), a disease that affects over 23
million men worldwide. In August 1997, the Company received Food and Drug
Administration (FDA) approval to market the Targis System in the United States
and launched the Targis System in the United States during the fourth calendar
quarter of 1997. Regulatory approvals necessary to market the Targis System in
Japan and the 15 European Union countries were obtained in fiscal year 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 markets 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 offers
urologists or hospitals the option to purchase or lease the Targis System
control unit. The leases are offered by a third-party lessor directly to the
Company's customer, allowing the Company to record the transaction as a sale.
Revenues from the sale of Targis System control units and disposable procedure
kits are recognized upon shipment.
Results of Operations
Sales increased to $3.2 million and $5.8 million for the three and six-months
ended December 31, 1997, respectively, from $1.3 million and $1.9 million,
respectively, for the same periods in the prior fiscal year. These increases
are due to an increase in shipments of the Targis System to the Company's
international distributors resulting from regulatory marketing approvals
obtained in the European Union and Japan and initial sales in the U.S. resulting
from FDA commercial marketing approval. Sales in the U.S. represented
approximately 26% and 14% of total sales for the three and six-months ended
December 31, 1997, respectively, versus no U.S. sales in the same periods in the
prior fiscal year.
Cost of goods sold includes raw materials, labor and royalties, as well as costs
incurred in connection with the production of Targis Systems including
manufacturing and quality assurance overhead. Cost of goods sold increased to
$2.1 million and $3.9 million for the three and six-months ended December 31,
1997 from $1.2 million and $1.9 million for the same periods 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 due to 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.
<PAGE>
Research and development expenses include those costs associated with the
development and protection of the Company's 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 and
six-months ended December 31, 1997 increased to $1.4 million and $2.8 million,
respectively, from $1.1 million and $2.3 million, respectively, for the same
periods in the prior fiscal year, due primarily to costs related to new and on-
going clinical studies of the Targis System, costs associated with product
development activities related to Targis System improvements and alternative
applications for the Company's technology and costs related to the Company's
ongoing litigation described in Part II, Item 1. 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.
Sales and marketing expenses for the three and six-months ended December 31,
1997 increased to $1.5 million and $2.9 million, respectively, from $542,000 and
$1.0 million, respectively, in the same periods 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 U.S. marketing launch of the
Targis System. These costs 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
as it increases its sales efforts in the United States, including the expected
expansion of its direct sales force, and continues supporting its international
distributors' sales efforts.
General and administrative expenses increased to $631,000 and $1.1 million for
the three and six-months ended December 31, 1997, respectively, from $572,000
and $1.0 million, respectively, for the same periods 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 for the three and six-months ended December 31, 1997
from the same period in the prior fiscal year, due primarily to lower average
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. During the six
months ended December 31, 1997, the Company sold 1.725 million shares of common
stock in a public stock offering for net proceeds of approximately $31.5
million. During the six months ended December 31, 1997 the Company used
approximately $7.6 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 December 31, 1997, the Company had total
cash, cash equivalents and available-for-sale securities of $50.4 million, and
working capital of $54.9 million.
The Company expects to continue to incur additional losses, and will use its
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 rent Targis System control units to customers in the
future, substantial capital could be required. 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 in the
future or that any additional financing will be available to the Company on
satisfactory terms, it at all.
<PAGE>
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 risks and uncertainties include: competition from other BPH treatments;
the ability of the Company's distributors and representatives to successfully
market and sell the Targis System; the Company's ability to manufacture the
Targis Systems in sufficient quantities; the Company's ability to maintain
intellectual property protection for its proprietary products and to defend its
existing intellectual property rights from challenges by third parties; and the
extent to which the physicians performing the Targis System procedures are able
to obtain third-party reimbursement. In addition, a detailed discussion of risks
and uncertainties may be found in the Risk Factors section of the company's
Prospectus dated November 12, 1997.
<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 (the "Court")
against BSD Medical Corporation ("BSD") to enforce the terms of a settlement and
patent license agreement between the Company and BSD ("the BSD Settlement
Agreement''). The Company's suit requests that the Court enforce the BSD
Settlement Agreement and enter a declaratory judgment stating that the BSD
Settlement Agreement remains in effect. BSD subsequently filed an answer and
counterclaim alleging that the BSD Settlement Agreement was properly terminated
and is seeking relief against the Company. The Company believes that it has
fully complied with the BSD Settlement Agreement and intends to continue
complying with the BSD Settlement Agreement. The Company believes that BSD's
allegations and purported termination of the BSD Settlement Agreement are
without merit.
In December 1997, the Court granted BSD's motion for partial summary judgment,
which sought a finding of breach of the Company. The remaining issues,
including whether there has been a material breach of the BSD Settlement
Agreement, whether BSD has been caused any damage by the breach, and whether a
remedy of termination is warranted, are currently set for trial in early March,
1998.
In November 1997, BSD announced that BSD and Oracle Strategic Partners had
formed a jointly-owned company called TherMatrx, Inc. In January 1998,
TherMatrx and Oracle Strategic Partners were joined as defendants with BSD in
the lawsuit.
Although the Company continues to believe that it did not violate the terms of
the BSD Settlement, there can be no assurance that the District Court's finding
that the Company breached the BSD Settlement Agreement will not enable BSD to
terminate the BSD Settlement Agreement. Nor can there be assurance that the
Court's finding will be reversed on appeal. A final resolution of the lawsuit
in favor of BSD could result in patent litigation against the Company. The
Company believes that the patent that was the subject of the previous litigation
between the Company and BSD is invalid, unenforceable and not infringed by the
Company's product.
Item 2. Submission of Matters to a Vote of Securities Holders
On November 19, 1997 the Company held its Annual Shareholders meeting. There
were two matters submitted to vote of security holders, (i) the election of two
directors to serve a three year term expiring at the Annual Meeting following
the year 2000; (ii) the approval of certain amendments to the Urologix, Inc.
1991 Amended and Restated Stock Option Plan. The directors elected are to serve
until the annual meeting of shareholders held following the end of fiscal year
2000, or until their respective successors are duly elected. Listed below are
the names of the two directors elected and their respective vote counts.
Buzz Benson For: 8,475,107
Withheld: 52,396
Paul La Violette For: 8,480,037
Withheld: 47,466
<PAGE>
Listed below is the vote count related to the second matter submitted:
Proposal to approve certain amendments to the Urologix, Inc. 1991 Amended and
Restated Option Plan.
For: 8,007,537
Against: 342,415
Abstain: 43,911
Withheld: 133,640
Item 3. Exhibits and Reports on Form 8-K
(a) Exhibits
--------
(11.1) Computation of Basic and Diluted 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 February 13, 1998 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 BASIC AND DILUTED NET LOSS PER COMMON SHARE
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended,
December 31, December 31,
-------------------------------------------------------------
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Net loss ($2,140,307) ($1,597,448) ($4,155,967) ($3,387,133)
============ =========== =========== ===========
Weighted average common
shares outstanding 10,140,194 9,148,655 9,725,045 9,139,732
============ =========== =========== ===========
Basic and diluted net
loss per common share ($0.21) ($0.17) ($0.43) ($0.37)
============ =========== =========== ===========
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM UROLOGIX FDS
FOR QUARTER ENDED 12/31/97 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 561,443
<SECURITIES> 49,819,248
<RECEIVABLES> 3,784,048
<ALLOWANCES> 0
<INVENTORY> 3,819,453
<CURRENT-ASSETS> 444,778
<PP&E> 3,355,297
<DEPRECIATION> 1,211,006
<TOTAL-ASSETS> 63,729,166
<CURRENT-LIABILITIES> 3,567,648
<BONDS> 0
0
0
<COMMON> 110,710
<OTHER-SE> 60,022,918
<TOTAL-LIABILITY-AND-EQUITY> 63,729,166
<SALES> 3,203,845
<TOTAL-REVENUES> 3,203,845
<CGS> 2,140,126
<TOTAL-COSTS> 2,140,126
<OTHER-EXPENSES> 3,596,307
<LOSS-PROVISION> 2,532,588
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (2,140,307)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,140,307)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,140,307)
<EPS-PRIMARY> (0.21)
<EPS-DILUTED> (0.21)
</TABLE>
