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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, 2002
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: (763) 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 October 23, 2002, the Company had outstanding 13,915,968 shares of common
stock, $.01 par value.
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Urologix, Inc.
Condensed Balance Sheets
(In thousands, except per share data)
September 30, June 30,
2002 2002
- ---------------------------------------------------------------------------------------------------
Assets (unaudited) (*)
Current assets:
Cash and cash equivalents $ 774 $ 1,604
Available-for-sale investments 10,218 11,109
Accounts receivable, net of allowance of $489 and $483 3,668 4,554
Inventories, net 3,200 2,424
Prepaids and other current assets 789 880
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Total current assets 18,649 20,571
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Property and equipment:
Machinery, equipment and furniture 8,918 8,227
Less - accumulated depreciation (5,318) (5,007)
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Property and equipment, net 3,600 3,220
Deposits and other assets 2,612 2,676
Goodwill, net 10,193 10,193
Other intangible assets, net 9,611 9,777
- ---------------------------------------------------------------------------------------------------
Total assets $ 44,665 $ 46,437
===================================================================================================
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable $ 2,341 $ 2,117
Accrued compensation 258 686
Accrued liabilities 1,635 1,357
Current portion of long-term lease obligation 540 513
Deferred income 1,792 1,891
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Total current liabilities 6,566 6,564
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Long-term liabilities:
Long-term debt 575 575
Long-term lease obligation 206 351
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Total long-term liabilities 781 926
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CONTINGENCIES (Note 9)
Shareholders' equity:
Common stock, $.01 par value, 25,000 shares authorized;
13,916 and 13,902 shares issued and outstanding 139 139
Additional paid-in capital 108,504 108,449
Accumulated deficit (71,430) (69,680)
Accumulated other comprehensive income 105 39
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Total shareholders' equity 37,318 38,947
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Total liabilities and shareholders' equity $ 44,665 $ 46,437
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(*) The Balance Sheet at June 30, 2002 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements.
The accompanying notes to financial statements are an integral part of these
statements.
Urologix, Inc.
Condensed Statements of Operations
(In thousands, except per share data)
(Unaudited)
Three Months Ended September 30,
--------------------------------
2002 2001
- -------------------------------------------------------------------------------------------
Sales $ 4,464 $ 5,184
Cost of goods sold 1,506 1,838
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Gross profit 2,958 3,346
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Costs and expenses:
Selling, general and administrative 3,639 2,831
Research and development 974 1,155
Amortization of intangible assets 166 166
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Total costs and expenses 4,779 4,152
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Operating loss (1,821) (806)
Interest income, net 71 73
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Net loss $ (1,750) $ (733)
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- -------------------------------------------------------------------------------------------
Basic and diluted net loss per common share $ (0.13) $ (0.05)
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Basic and diluted weighted average number of common shares
outstanding 13,910 13,672
---------------------------------
The accompanying notes to financial statements are an integral part of
these statements.
Urologix, Inc.
Condensed Statements of Cash Flows
(In thousands)
(Unaudited)
Three Months Ended
September 30,
-------------------------------------------
2002 2001
- -----------------------------------------------------------------------------------------------------------------
Operating Activities:
Net loss ($1,750) ($733)
Adjustments to reconcile net loss to net cash used for operating
activities
Depreciation and amortization 541 388
Value of options issued to consultants - 35
Provision for bad debts 26 46
Change in operating items
Accounts receivable 860 (570)
Inventories (776) (377)
Prepaids and other current assets 91 (48)
Accrued expenses and accounts payable (25) 106
- -----------------------------------------------------------------------------------------------------------------
Net cash used for operating activities (1,033) (1,153)
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Investing Activities:
Purchase of property and equipment, net (691) (31)
Proceeds from sale of available-for-sale investments, net 957 1,915
- -----------------------------------------------------------------------------------------------------------------
Net cash provided by investing activities 266 1,884
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Financing Activities:
Payments made on capital lease obligations (118) (97)
Proceeds from exercise of stock options 55 213
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Net cash used for financing activities (63) 116
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Net increase (decrease) in cash and cash equivalents (830) 847
Cash and cash equivalents:
Beginning of period 1,604 26
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End of period $ 774 $ 873
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Supplemental cash-flow information
Cash paid during the year for interest $ 42 $ 73
The accompanying notes to financial statements are an integral part
of these statements.
Urologix, Inc.
Notes to Condensed Financial Statements
September 30, 2002
(Unaudited)
1. Basis of presentation
The accompanying unaudited condensed financial statements of Urologix,
Inc. (the "Company" or "Urologix") 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, 2002, the statements of operations for the
three months ended September 30, 2002 and 2001, and the statements of cash flows
for the three months ended September 30, 2002 and 2001, are unaudited but
include all adjustments (consisting of normal recurring adjustments) necessary
for a fair presentation of the financial position at such date and the operating
results and cash flows for those periods. 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 included in Urologix' annual report on Form 10-K
for the year ended June 30, 2002, filed with the Securities and Exchange
Commission.
Results for any interim period shown in this report are not necessarily
indicative of results to be expected for any other interim period or for the
entire year.
Certain prior year amounts have been reclassified to conform to current
year presentation.
2. New Accounting Pronouncement
In July 2002, Statement of Financial Accounting Standards No. 146,
"Accounting for Costs Associated with Exit or Disposal Activities," (SFAS No.
146) was issued and is effective for periods beginning after December 31, 2002.
SFAS No. 146 requires, among other things, that costs associated with an exit
activity (including restructuring and employee and contract termination costs)
or with a disposal of long-lived assets be recognized when the liability has
been incurred and can be measured at fair value. Companies must record in income
from continuing operations costs associated with an exit or disposal activity
that does not involve a discontinued operation. Costs associated with an
activity that involves a discontinued operation would be included in the results
of discontinued operations. We plan to adopt the provisions of SFAS No. 146 on
January 1, 2003 and will evaluate the effect on our financial statements at that
time, if applicable.
3. Use of Estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial statements and the reported
amounts of revenue and expenses during the reporting period. Actual results
could differ from those estimates.
Urologix, Inc.
Notes to Condensed Financial Statements
September 30, 2002
(Unaudited)
4. Basic and diluted net loss per share
Basic and diluted net loss per common share was computed by dividing
the net loss by the weighted average number of shares of common stock
outstanding during the periods presented. For the three month period ended
September 30, 2002, common stock equivalents of 294,118 were excluded from the
calculation of diluted earnings per share as the effect would be antidilutive.
5. Revenue recognition
Revenue from product sales is recognized at the time of shipment, net
of estimated returns, which are also provided for at the time of shipment.
Deferred revenue for warranty service contracts is recognized over the contract
period. Revenue from equipment rental through our per procedure fee program is
recognized at the time of equipment use.
6. Inventories
Net inventories consisted of the following as of (in thousands):
September 30, 2002 June 30, 2002
- --------------------------------------------------------------------------------
Raw materials $ 1,441 $ 936
Work in process 365 415
Finished goods 1,394 1,073
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$ 3,200 $ 2,424
- --------------------------------------------------------------------------------
7. Goodwill and other intangible assets
Acquired developed technologies and customer base are amortized over
useful lives of 15 years and 14 years, respectively and we do not amortize the
acquired goodwill and trademarks as they are indefinite-lived intangible assets.
We perform annual impairment tests for the goodwill and indefinite-lived
intangible assets, or more frequently if changes in circumstances or the
occurrence of events suggests impairment exists. Future annual amortization
expense for acquired intangible assets is expected to be approximately $700,000
for each of the next five fiscal years.
Balances of acquired intangible assets were as follows (in thousands):
As of September 30, 2002
--------------------------------------
Carrying Accumulated
Amount Amortization Net
- ------------------------------------------------------------------------------------------------
Amortizing intangibles:
Developed technologies $ 7,500 $1,000 $ 6,500
Customer base 2,300 329 1,971
------- ------ -------
Subtotal 9,800 1,329 8,471
Non-amortizing intangibles and goodwill:
Goodwill 10,716 523 10,193
Trademarks 1,200 60 1,140
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Subtotal 11,916 583 11,333
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Total acquired intangible assets and goodwill $21,716 $1,912 $19,804
- ------------------------------------------------------------------------------------------------
Urologix, Inc.
Notes to Condensed Financial Statements
September 30, 2002
(Unaudited)
8. Comprehensive Loss
Comprehensive loss includes all changes in equity during a period
except those resulting from investments by and distributions to shareholders.
Our comprehensive loss represents net loss adjusted for unrealized gains
(losses) on available-for-sale investments.
(In thousands) Three Months ended September 30,
2002 2001
- -------------------------------------------------------------------------------------------------
Net loss $ (1,750) $ (733)
Change in net unrealized gains on available-for-sale
investments 66 57
- -------------------------------------------------------------------------------------------------
Comprehensive loss $ (1,684) $ (676)
- -------------------------------------------------------------------------------------------------
9. Legal Proceedings
The Company is involved in various legal actions arising in the
ordinary course of business. Management believes any losses that may occur from
these matters are adequately covered by insurance, and the ultimate outcome of
these matters will not have a material effect on the financial position or
results of operations of the Company. In addition, the Company is involved in
the litigation set forth below.
Urologix v. ProstaLund AB et al.
In March 2002, we filed a patent infringement action against ProstaLund
AB, ProstaLund Operations AB, and Circon Corporation a/k/a ACMI Corporation in
the United States District Court for the Eastern District of Wisconsin (and by a
later amended complaint) alleging that the defendants' products infringed two
United States Patents that were assigned to us: U.S. Patent No. 5,234,004 ("004
Patent") and U.S. Patent No. 5,509,929 (the "929 Patent"). We sought a
preliminary injunction prohibiting the manufacture, use, sale, or offer for sale
of the "ProstaLund Feedback Treatment" and an unspecified amount of damages.
Both patents were assigned to us in connection with our October 2000 acquisition
of the Prostatron product line from EDAP. The defendants counterclaimed,
alleging that they do not infringe our patents, that our patents are invalid and
unenforceable and that we have "marked" our products as "patented" in a manner
that violates patent law. The defendants are also seeking recovery of their
attorneys' fees.
In October 2002, the Court issued two separate Orders in this case. In
an Order dated October 10, 2002, the Court determined that the `004 patent was
not entitled to the benefit of an earlier filing date of a parent application
and as a result was invalid. In an Order dated October 16, 2002, the Court
denied our motion for a preliminary injunction on the `929 patent.
We are evaluating our options to appeal the rulings and are preparing
for a trial on the merits of the infringement claims of Patent No. 5,509,929,
which has been scheduled by the Court for October 2003.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following is a discussion and analysis of Urologix' financial
condition and results of operations for the three month periods ended September
30, 2002 and 2001. This section should be read in conjunction with the condensed
financial statements and related notes in Item 1 of this report and Urologix'
Annual Report on Form 10-K for the year ended June 30, 2002, which has been
filed with the Securities and Exchange Commission.
Cautionary Note Regarding Forward-Looking Statements
This Management's Discussion and Analysis of Financial Condition and
Results of Operations contains, in addition to historical information,
forward-looking statements that are based on our current expectations, beliefs,
intentions or future strategies. These statements are subject to risks and
uncertainties that could cause actual results to differ materially from the
statements, including the extent to which the physicians performing Cooled
ThermoTherapy procedures are able to obtain third-party reimbursement, changes
in the reimbursement environment, market acceptance and the rate of adoption of
Cooled ThermoTherapy for the treatment of benign prostatic hyperplasia (BPH) by
the medical community, our ability to successfully protect our intellectual
property rights, the ability of our key suppliers to provide product, the impact
of competitive treatments, products and pricing, and the effectiveness of our
sales and marketing organization. We do not take responsibility for updating
such forward-looking statements to reflect events that arise after the date of
this report. A detailed discussion of risks and uncertainties may be found below
in "Factors That May Affect Our Future Results and The Trading Price of Our
Common Stock" and in Urologix' Annual Report on Form 10-K for the year ended
June 30, 2002.
OVERVIEW
Urologix, Inc., based in Minneapolis, Minnesota, develops, manufactures
and markets minimally invasive medical products for the treatment of urological
disorders.
We have developed and offer non-surgical, catheter-based therapies that
use a proprietary cooled microwave technology for the treatment of BPH, a
disease that dramatically affects more than 23 million men worldwide by causing
adverse changes in urinary voiding patterns. We market our products under the
Targis and Prostatron names. Both systems utilize Cooled ThermoTherapy, a
targeted microwave energy combined with a unique cooling mechanism that protects
healthy tissue and enhances patient comfort while providing safe, effective,
lasting relief from the symptoms of BPH. Cooled ThermoTherapy can be performed
without anesthesia or intravenous sedation and, as a result, can be performed in
a physician's office or an outpatient clinic. We believe Cooled ThermoTherapy
provides an efficacious, safe and cost-effective solution for BPH that is
superior to medication without the complications and side effects inherent in
surgical procedures.
Third-party reimbursement is essential to acceptance of the Cooled
ThermoTherapy procedure. We estimate that more than 50% of patients who receive
treatment in the United States are eligible for Medicare coverage, making
Medicare reimbursement critical for widespread market acceptance in the United
States. The remaining patients will either be covered by private insurers,
including traditional indemnity health insurers and managed care organizations,
or they will be private-paying patients.
The rate of Medicare reimbursement for Cooled ThermoTherapy is
dependent on the site of service. Through July 31, 2000, Medicare had reimbursed
hospitals on a reasonable cost basis for each Cooled ThermoTherapy procedure
performed. Under the reasonable cost basis of reimbursement, Medicare reimbursed
all reasonable costs the hospital incurred in conducting the procedures.
Beginning August 1, 2000, the Center for Medicare and Medicaid Services (CMS),
which administers Medicare, replaced the reasonable cost basis of reimbursement
for outpatient hospital-based procedures with a new fixed rate or "prospective
payment system." Under this new method of reimbursement, a hospital receives a
fixed reimbursement for each procedure performed in its facility.
Medicare began to reimburse for Cooled ThermoTherapy procedures
performed in a physician's office on a
fixed-rate basis on January 1, 2001. The change was a significant milestone, as
it marked the first time patients were covered directly by Medicare for
in-office Cooled ThermoTherapy procedures. We believe that this change in
reimbursement allows Cooled ThermoTherapy treatments to be performed in the
environment the technology was designed to serve.
Our goal is to grow Cooled ThermoTherapy as a standard of care for the
treatment of BPH. Our business strategy to achieve this goal is to (i) increase
market awareness of Cooled ThermoTherapy, (ii) create access to Cooled
ThermoTherapy through both the sale and rental of Cooled ThermoTherapy systems
and (iii) increase the use of Cooled ThermoTherapy by physicians who already
have access to a Cooled ThermoTherapy System.
We expect to continue to incur operating losses as we expand our
marketing and sales activities, continue clinical trials in support of
regulatory and reimbursement approvals, and continue to invest in our effort to
protect our intellectual property. Our future profitability will be dependent
upon, among other factors, our success in achieving market acceptance of the
Cooled ThermoTherapy procedures in the physician's office, our success in
obtaining and maintaining necessary regulatory clearances, our ability to
manufacture at the volumes and quantities the market requires, the extent to
which Medicare and other health care payers continue to reimburse costs of
Cooled ThermoTherapy procedures performed and the amount of reimbursement
provided.
Critical Accounting Policies:
In accordance with Securities and Exchange Commission guidance, we set
forth below those material accounting policies that we believe are the most
critical to an investor's understanding of our financial results and condition,
and require complex management judgment.
Revenue Recognition
We recognize revenue in accordance with Securities and Exchange
Commission Staff Accounting Bulletin 101. Revenue from product sales is
recognized at the time of shipment, net of estimated returns, which also are
established at the time of shipment. Deferred revenue for warranty service
contracts is recognized over the contract period. Revenue from equipment rental
through our "per procedure" fee program is recognized at the time of treatment.
We also record a provision for estimated sales returns on product sales in the
same period as the related revenue is recorded. These estimates are based on
historical sales returns, analysis of credit memo data and other known factors.
If the historical data we used to calculate these estimates does not properly
reflect future returns, revenues could be overstated.
Product Warranty
We record a liability for warranty claims at the time of sale. The
amount of the liability is based on the trend in the historical ratio of product
failure rates, material usage and service delivery costs to sales, the
historical length of time between the sale and resulting warranty claim and
other factors. Should actual product failure rates, material usage or repair
costs differ from our estimates, revisions to the estimated warranty liability
would be required.
Inventory Reserves
We record reserves for inventory shrinkage and for potentially excess,
obsolete and slow moving inventory. The amounts of these reserves are based upon
historical experience and forecasted demand. Our reserve requirements could be
materially different if demand for our products decreased because of competitive
conditions or market acceptance, or if our products become obsolete because of
advancements in the industry.
Allowance for Doubtful Accounts
We maintain allowances for doubtful accounts for estimated losses
resulting from the inability of our customers to make required payments. This
allowance is a significant estimate and is regularly evaluated by us for
adequacy by taking into consideration factors such as past experience, credit
quality of the customer base, age of the receivable balances, both individually
and in the aggregate, and current economic conditions that may affect a
customer's ability to pay. If the financial condition of our customers were to
deteriorate, resulting in an impairment of their ability to make payments,
additional allowances may be required.
Valuation of Long-Lived and Intangible Assets and Goodwill
In fiscal 2002, we adopted Statement of Financial Accounting Standards
(SFAS) 142, "Goodwill and Other Intangible Assets," and as a result, we have
ceased to amortize approximately $10.2 million of goodwill and $1.1 million of
trademarks. Goodwill is tested for impairment annually or more frequently if
changes in circumstance or the occurrence of events suggests impairment exists.
The test for impairment requires us to make several estimates about fair value,
most of which are based on projected future cash flows. Our estimates associated
with the goodwill impairment tests are considered critical, due to the amount of
goodwill recorded on our balance sheets and the judgment required in determining
fair value amounts, including projected future cash flows.
Other intangible assets consist of developed technology, customer base
and trademarks. Developed technology and customer base are amortized using the
straight-line method over their estimated useful lives of 15 and 14 years,
respectively. The trademark asset is considered to be an intangible asset with
an indefinite useful life, and it will not be amortized until its useful life is
determined to be no longer indefinite. We review these definite and indefinite-
lived intangible assets for impairment annually or as changes in circumstance or
the occurrence of events suggests the remaining value is not recoverable.
RESULTS OF OPERATIONS
Net Sales
Net Sales decreased to $4.5 million for the three-month period ended
September 30, 2002, from $5.2 million during the same period in the prior fiscal
year. Both equipment and procedure kit sales were lower than expected due
primarily to our efforts to expand and train our sales force. During the
quarter, both our sales management and our experienced sales representatives
invested a significant amount of time recruiting and training new team members
at the expense of developing new customers and working with our existing
customer base. The effort to expand and train our sales force is continuing
through the second fiscal quarter.
Cost of Sales
Cost of goods sold includes raw materials, labor, overhead and
royalties incurred in connection with the production of our Cooled ThermoTherapy
control units and disposable procedure kits. Cost of goods sold decreased to
$1.5 million for the three-month period ended September 30, 2002, from $1.8
million during the same period in fiscal 2002. This decrease resulted from lower
control unit sales volume as well as decreases in the average per unit
manufacturing costs of our procedure kits. Gross profit as a percentage of sales
for the first quarter of fiscal 2003 increased to 66% from 65% in the same
period of fiscal year 2002. The increase is primarily attributable to a shift in
mix to the sale of our higher margin procedure kits, as well as lower per unit
manufacturing costs of our procedure kits due to continuing manufacturing
process improvements, increased production volumes, and decreased raw-material
costs.
Selling, General & Administrative
Selling, general and administrative expenses increased to $3.6 million
from $2.8 million for the three-month periods ended September 30, 2002 and 2001,
respectively. The increased expenses are primarily attributable to legal
expenses related to a patent infringement suit we filed to protect our
intellectual property as well as the expansion of our direct sales force. We
expect sales and marketing expenses to continue to increase as we further expand
our domestic sales force and intensify our efforts to grow awareness and
acceptance of Cooled ThermoTherapy.
Research and Development
Research and development expenses, which include expenditures for
product development, regulatory compliance and clinical studies, decreased to
$974,000 from $1.2 million for the three-month periods ended September 30, 2002
and 2001, respectively. The decrease in expenses resulted primarily from
decreased expenditures related to product development activities, partially
offset by increased clinical trial expenses. We expect quarterly research and
development expenses for the remainder of the fiscal year to be slightly above
the current quarter spending level.
Amortization of intangible assets
Amortization of intangible assets was $166,000 for the three-month
period ended September 30, 2002 and 2001. The amortization of intangible assets
is a result of the purchase of the Prostatron Cooled ThermoTherapy product line
from EDAP in October 2000.
Net interest income
Net interest income decreased to $71,000 for the three-month period
ended September 30, 2002 from $73,000 during the same period of the prior fiscal
year. The decrease is primarily attributable to lower interest income due to
lower cash and investment balances, partially offset by lower interest expense.
LIQUIDITY AND CAPITAL RESOURCES
We have financed our operations since inception through sales of equity
securities and, to a lesser extent, sales of product. As of September 30, 2002,
we had total cash, cash equivalents and available-for-sale investments of $11
million and working capital of $12.1 million.
During the three months ended September 30, 2002, we used $1 million of
cash in operating activities, primarily as a result of our net loss of $1.7
million and an increase in inventory of $776,000, partially offset by a net
decrease in accounts receivable of $886,000, depreciation and amortization of
$541,000 and a decrease in prepaids and other assets of $91,000. Inventory
increased and accounts receivable decreased primarily as a result of the
decrease in our sales for the three months ended September 30, 2002.
We generated $266,000 in investing activities, resulting from the net
sale of $957,000 of available-for-sale investments partially offset by the
purchase of $691,000 of property and equipment.
We used $63,000 in financing activities as a result of $118,000 of
payments on capital lease obligations offset by proceeds of $55,000 from the
exercise of stock options.
We expect to continue to incur additional losses and will use our
working capital as we incur expenses related to marketing and research and
development activities. In addition, we plan to continue offering customers a
per procedure rental program. As of September 30 2002, our property and
equipment, net, included approximately $2.5 million under per procedure or
rental agreements. Depending on the growth of this program, we may use
substantial capital to finance the units rented by customers.
As of the end of September we had outstanding commitments to purchase
approximately $1.5 million of Cooled Thermotherapy systems from third party
suppliers. Based on lower than expected sales in our first quarter and current
projections for our second quarter, we expect our inventory balance to
significantly increase as we receive inventory from our suppliers under these
existing commitments. We plan to closely monitor our inventory purchases
as we move forward and intend to use the inventory currently under commitment in
the next several quarters.
Although we believe that existing cash, cash equivalents and
available-for-sale securities will be sufficient to fund our operations for at
least the next 12 months, there can be no assurance that we will not require
additional financing in the future or that any additional financing will be
available to us on satisfactory terms, if at all.
We lease approximately 37,000 square feet of office, manufacturing and
warehouse space in a suburb of Minneapolis, Minnesota. In October 2002, we
signed a new lease for our existing premises that extends through March 2008. We
believe our facilities will be sufficient to meet our current and future
requirements.
FACTORS THAT MAY AFFECT OUR FUTURE RESULTS AND THE TRADING PRICE OF OUR COMMON
STOCK
The risks and uncertainties described below are not the only ones we face.
Additional risks and uncertainties not presently known to us or that we
currently deem immaterial may also impair our operations. The occurrence of any
of the following risks could harm our business. In that case, the trading price
of our common stock could decline, and investors may lose all or part of their
investment.
We have a limited operating history and expect to continue to generate losses.
We have incurred substantial losses since our inception and, if physicians
do not purchase and use our Cooled ThermoTherapy systems to treat patients with
BPH, we may never achieve or maintain profitable operation. We incurred a net
loss of approximately $1.7 million in the quarter ended September 30, 2002, and
have incurred losses of approximately $71 million since our inception. We expect
to continue to incur operating losses in the near future as we expand our
investment in sales and marketing activities to increase sales, continue to
incur costs and expenses to protect our intellectual property, and fund research
and development activities. We will need to increase significantly the revenues
we receive from sales of our products as a result of these planned increases in
operating expenses. We may be unable to increase revenue, and therefore may
never achieve profitability. Even if we do achieve profitability, we cannot be
certain that we will be able to sustain or increase profitability on a quarterly
or annual basis.
Our products may not achieve market acceptance, which could limit our future
revenue.
Physicians will not recommend Cooled ThermoTherapy procedures unless they
conclude, based on clinical data and other factors, that it is an effective
alternative to other methods of enlarged prostate treatment, including more
established methods. Patient acceptance of the procedure will depend in part
upon physician recommendations and on other factors, including the degree of
invasiveness and the rate and severity of complications associated with the
Cooled ThermoTherapy procedure compared with other therapies. Patient acceptance
of the Cooled ThermoTherapy procedure also will depend upon the ability of
physicians to educate these patients on their treatment choices. Health care
payer acceptance of our procedure will require, among other things, evidence of
the cost effectiveness of Cooled ThermoTherapy compared to other BPH therapies.
Our marketing strategy must overcome the difficulties inherent in the
introduction of new technology to the medical community. If our Cooled
ThermoTherapy procedure is not accepted by physicians, patients or payers, or is
accepted more slowly than expected, we may never operate profitably.
We are faced with intense competition and rapid technological and industry
change.
The medical device industry is characterized by rapid technological change,
changing customer needs and frequent new product introductions. Our products may
be rendered obsolete as a result of future innovations. We face intense
competition from other device manufacturers and surgical manufacturers, as well
as from pharmaceutical medical companies. Many of our competitors are
significantly larger than we are and have greater financial, technical,
research, marketing, sales, distribution and other resources than we do. We
believe there will be intense price competition for products developed in our
markets. Our competitors may develop or market technologies and products,
including drug-based treatments that are more effective or commercially
attractive than any we are developing or marketing. Our competitors may succeed
in obtaining regulatory approval and introducing or commercializing products
before we do. Such developments could have a significant negative effect on our
financial condition. Even if we are able to compete successfully, we may not be
able to do so in a profitable manner.
Third- party reimbursement is critical to market acceptance of our products.
Our future revenues are subject to uncertainties regarding health care
reimbursement and reform. In the United States, health care providers, such as
hospitals and physicians, generally rely on third-party payers.
Third-party reimbursement is dependent upon decisions by the Center for
Medicare and Medicaid Services, contract Medicare carriers, individual managed
care organizations, private insurers, foreign governmental health programs and
other payers of health care cost. Failure to receive or maintain favorable
coding, coverage and reimbursement determinations for Cooled ThermoTherapy by
these organizations could discourage physicians from using our products. We may
be unable to sell our products on a profitable basis if third-party payers deny
coverage, provide low reimbursement rates or reduce their current levels of
reimbursement.
The continuing efforts of government, insurance companies, health
maintenance organizations and other payers of health care costs to contain or
reduce costs of health care may affect our future revenues and profitability.
With recent federal and state government initiatives directed at lowering the
total cost of health care, the United States Congress and state legislatures
will likely continue to focus on health care reform including the reform of
Medicare and Medicaid systems, and on the cost of medical products and services.
Additionally, third-party payers are increasingly challenging the prices charged
for medical products and services. Also, the trend toward managed health care in
the United States and the concurrent growth of organizations such as HMOs that
could control or significantly influence the purchase of health care services
and products, as well as legislative proposals to reform health care or reduce
government insurance programs, may also result in lower prices for or rejection
of our products. The cost containment measures that health care payers and
providers are instituting and the effect of any health care reform could cause
reductions in the amount of reimbursement available, and could have a materially
adverse affect on our revenues and ability to operate profitably.
We are dependent on adequate protection of our patent and proprietary rights.
We rely on patents, trade secrets, trademarks, copyrights, know-how,
license agreements and contractual provisions to establish and protect our
intellectual property rights. These legal means afford us only limited
protection, however, and may not adequately protect our rights or remedies to
gain or keep any advantages we may have over our competitors.
In March 2002, we filed a patent infringement action against ProstaLund
AB, ProstaLund Operations AB, and Circon Corporation a/k/a ACMI Corporation in
the United States District Court for the Eastern District of Wisconsin (and by a
later amended complaint) alleging that the defendants' products infringed two
United States Patents that were assigned to us. The defendants have also raised
counterclaims against us and are seeking recovery of their legal fees. In
October 2002, the Court issued orders invalidating one of our patents and denied
our motion for a preliminary injunction. See "Legal Proceedings" for a
discussion of developments in these proceedings.
Although we continue to believe that we will prevail in the trial,
there can be no assurance that we will be successful. In addition, because we
lost our request for injunctive relief, we are currently unable to prevent the
defendants from selling their products in the United States. Although we believe
that our products have demonstrated superior results to the defendants'
products, there can be no assurance that they will not be able to capture a
significant part of the market for less invasive BPH treatments, which could
have an adverse effect on our future results of operations and profitability.
Further, this litigation has resulted in substantial expense and may divert our
attention from implementing our business strategy.
Additional litigation against other parties may be necessary in the
future to enforce our intellectual property rights, to protect our patents and
trade secrets, and to determine the validity and scope of our proprietary
rights. Furthermore, we cannot be assured that others have not developed or will
not develop similar products or manufacturing processes, duplicate any of our
products or manufacturing processes, or design around any of our patents.
We depend upon our Cooled ThermoTherapy systems for all of our revenues.
All of our revenues are derived from sales of our Cooled ThermoTherapy
systems and single-use disposable treatment catheters. As a result, our success
is solely dependent upon the success of our Cooled ThermoTherapy systems. To
date, our Cooled ThermoTherapy systems have not received widespread market
acceptance. If we are unable to commercialize the use of these systems
successfully, our business, financial condition and results of operations will
be materially and adversely affected.
We have limited manufacturing experience and are dependent upon a limited number
of third-party suppliers to manufacture our products.
We have contracted with third parties for the production of the Prostatron
product line and the Targis system control unit pursuant to written supply
agreements. If, for any reason, any of our third-party manufacturers are unable
or unwilling to manufacture the products for us in the future, we could incur
significant delays in obtaining a substitute contract manufacturer. Also, we
purchase additional components used in our products from various suppliers and
rely on single sources for several components. One such component is obtained
from a source that has a patent for the technology. Delays could result if
supply of this component or other components were interrupted. These delays
could be extended in certain situations in which a substitute contract
manufacturer or a component substitution would require approval by the FDA of a
PMA supplement. The termination or interruption of any of these relationships,
or the failure of these manufacturers or suppliers to supply products or
components to us on a timely basis or in sufficient quantities, likely would
cause us to be unable to meet customer orders for our products and harm our
business.
We produce the disposable treatment catheter for the Targis system. We have
limited experience in rapidly scaling up production. Manufacturers often
encounter difficulties in scaling up production of new products, including
problems involving production yields, product recalls, quality control and
assurance, component supply and lack of qualified personnel.
If we or any of our third-party manufacturers or suppliers experience
production problems, we may not be able to locate an alternate manufacturer
promptly. Identifying and qualifying alternative suppliers of components takes
time and involves significant additional costs and may delay the production of
our products. The FDA requires us to identify any supplier we use. The FDA may
require additional testing of any component from new suppliers prior to our use
of these components. The termination of our relationships with these single
source suppliers or the failure of these parties to supply us with the
components on a timely basis and in sufficient quantities likely would cause us
to be unable to meet customer orders for our products in a timely manner or
within our budget and harm our business.
We are dependent on distributors for international sales.
To date, a majority of our revenues outside the United States have been
derived from sales through third-party distributors. Although we intend to work
with our distributors and agents to improve international revenue, we expect a
decline in fiscal 2003 over fiscal 2002, driven primarily by a decrease in
reimbursement for Cooled ThermoTherapy in Japan. Further, the failure of our
distributors to market our products in the international markets effectively or
our failure to locate and establish relationships with reputable distributors
could have an adverse effect on our ability to achieve penetration of these
markets and establish long-term acceptance of Cooled ThermoTherapy.
We are dependent on key personnel.
Failure to attract and retain skilled personnel could hinder our sales and
marketing and research and development effort. Our future success depends to a
significant degree upon our ability to attract and retain qualified sales
personnel and the continued services of key technical and senior management
personnel. The inability to retain or attract qualified personnel could have a
significant negative effect and thereby materially harm our business and
financial condition.
Government regulation can have a significant impact on our business.
Government regulation in the United States and other countries is a
significant factor affecting the research and development, manufacture and
marketing of our products. In the United States, the FDA has broad authority
under the Federal Food, Drug and Cosmetic Act and the Public Health Service Act
to regulate the distribution, manufacture and sale of medical devices. Sales of
drugs and medical devices outside the United States are subject to government
regulation and restrictions that vary from country to country. The process of
obtaining FDA and other required regulatory approvals is lengthy and expensive.
We may not be able to obtain necessary approvals for clinical testing or
for the manufacturing or marketing of our products. Failure to comply with
applicable regulatory approvals can, among other things, result in fines,
suspension of regulatory approvals, product recalls, operating restrictions and
criminal prosecution. In addition, government regulations may be established
that could prevent, delay, modify or rescind regulatory approval of our
products. Any such position or change of position by the FDA may adversely
impact our business and financial condition. Regulatory approvals, if granted,
may include significant limitations on the indicated uses for which our products
may be marketed. In addition to obtaining such approvals, the FDA and foreign
regulatory authorities may impose numerous other requirements on us. FDA
prohibits the marketing of approved medical devices for unapproved uses. In
addition, product approvals can be withdrawn for failure to comply with
regulatory standards or the occurrence of unforeseen problems following initial
marketing. We may not be able to obtain regulatory approvals for our products on
a timely basis, or at all, and delays in receipt of or failure to receive such
approvals, the loss of previously obtained approvals, or failure to comply with
existing or future regulatory requirements would have a significant negative
effect on our financial condition. In addition, the health care industry in the
United States is generally subject to fundamental change due to regulatory, as
well as political, influences. We anticipate that Congress and state
legislatures will continue to review and assess alternative health care delivery
and payment systems. Potential approaches that have been considered include
controls on health care spending through limitations on the growth of private
purchasing groups and price controls. We cannot predict what impact the adoption
of any federal or state health care reform measures may have on our business.
We, as well as our distributors and health care providers who purchase our
products and services, are subject to state and federal laws prohibiting
kickbacks or other forms of bribery in the health care industry. We may be
subject to civil and criminal prosecution and penalties if we or our agents
violate any of these laws.
We may be required to pay damages that exceed our insurance coverage for product
liability claims.
Our business exposes us to potential product liability claims that are
inherent in the testing, production, marketing and sale of medical devices.
While we believe that we are reasonably insured against these risks, we may not
be able to obtain insurance in amounts or scope sufficient to provide us with
adequate coverage against all potential liabilities. Currently, we maintain
product liability insurance in amounts we deem to be reasonable. Some plaintiffs
have sought punitive or exemplary damages against us, which damages, if awarded,
may not be covered by insurance pursuant to state law or the provisions of our
insurance policies. A product liability claim in excess of our insurance
coverage or outside the scope of our coverage would have to be paid out of cash
reserves and would harm our reputation in the industry and our business.
Our products may be subject to product recalls even after receiving FDA
clearance or approval, which would harm our reputation and our business.
The FDA and similar governmental authorities in other countries have the
authority to request and, in some cases, require the recall of our products in
the event of material deficiencies or defects in design or manufacture. A
government-mandated or voluntary recall by us could occur as a result of
component failures, manufacturing errors or design defects. Any recall of
product would divert managerial and financial resources and harm our reputation
with customers and our business.
Fluctuations in our future operating results may negatively impact the market
price of our common stock.
Our operating results have fluctuated in the past and can be expected
to fluctuate in the future. Some of the factors that may cause these
fluctuations include but are not limited to:
. the timing and volume of customer orders for both equipment and
single-use treatment catheters,
. costs and expenses related to our effort to protect intellectual
property,
. the timing of expenditures related to sales and marketing, and
research and development, and
. product availability.
Our business is exposed to risks related to acquisitions and mergers.
As part of our strategy to commercialize our products, we may acquire
one or more businesses. On October 1, 2000, we purchased the Transurethral
Microwave ThermoTherapy (TUMT or Cooled ThermoTherapy) product line and related
patents and technologies from EDAP TMS S.A., a French corporation and its
affiliates. We may not be able to integrate our business effectively with any
other business we may acquire. The failure to integrate an acquired company or
acquired assets into our operations may cause a drain on our financial and
managerial resources, and thereby have a significant negative effect on our
business and financial results.
These difficulties could disrupt our ongoing business, distract our
management and employees or increase our expenses. Furthermore, any physical
expansion in facilities due to an acquisition may result in disruptions that
seriously impair our business. We are not experienced in managing facilities or
operations in geographically distant areas. In addition, our profitability may
suffer because of acquisition-related costs or amortization costs for acquired
goodwill and other intangible assets. Finally, in connection with any future
acquisitions, we may incur debt or issue equity securities as part or all of the
consideration for the acquired company's assets or capital stock. We may be
unable to obtain sufficient additional financing on favorable terms or at all.
Equity issuances would be dilutive to our existing shareholders.
Our stock price may be volatile and a shareholder's investment could decline in
value.
Our stock price has fluctuated in the past and is likely to continue
to fluctuate significantly, making it difficult to resell shares at an
attractive price when an investor wants to. The market prices for securities of
emerging companies have historically been highly volatile. Future events
concerning us or our competitors could cause such volatility, including:
. actual or anticipated variations in our operating results,
. developments regarding government and third-party reimbursement,
. changes in government regulation,
. government investigation of us or our products,
. changes in reimbursement rates or methods affecting our products,
. developments concerning proprietary rights,
. litigation or public concern as to the safety of our products or our
competitors' products,
. technological innovations or new commercial products by us or our
competitors,
. investor perception of us and our industry, and
. general economic and market conditions including market uncertainty.
In addition, the stock market is subject to price and volume
fluctuations that affect the market prices for companies in general, and
small-capitalization, high-technology companies in particular, which are often
unrelated to the operating performance of these companies. If our operating
results are below the expectations of securities analysts or investors, the
market price of our common stock may fall abruptly and significantly.
Future sales of shares of our common stock may negatively affect our stock
price.
Future sales of our common stock, including shares issued upon the exercise
of outstanding options or hedging or other derivative transactions with respect
to our stock, could have a significant negative effect on the market price of
our common stock. These sales also might make it more difficult for us to sell
equity securities or equity-related securities in the future at a time and price
that we would deem appropriate.
Our intangible assets and goodwill could become impaired.
Effective July 1, 2001, we no longer amortize goodwill and trademarks, but
we do perform an annual impairment test (or more frequently if changes in
circumstances or the occurence of events suggests impairment exists). If the
fair value of these intangible assets and goodwill decline below our carrying
value, we could incur an impairment charge.
Anti-takeover provisions in our articles of incorporation may have a possible
negative effect on our stock price.
Certain provisions of our certificate of incorporation and bylaws may make
it more difficult for a third party to acquire, or discourage a third party from
attempting to acquire, control of us. We have in place several anti-takeover
measures that could discourage or prevent a takeover, even if an acquisition
would be beneficial to our shareholders. Our stock option plans contain
provisions that allow for the acceleration of vesting or payments of awards
granted under the plans in the event of specified events that result in a
"change in control." In addition, we have adopted a shareholder rights plan that
would cause substantial dilution to any person or group attempting to acquire
our company on terms not approved in advance by our board of directors.
ITEM 3. QUALITATIVE AND QUANTITATIVE DISCLOSURE ABOUT MARKET RISK
Our financial instruments include cash and cash equivalents and available
for sale investments. The fair value of our financial investment portfolio at
September 30, 2002, approximated carrying value. Increases and decreases in
prevailing interest rates generally translate into decreases and increases in
the fair value of these instruments. Also, fair values of interest rate
sensitive instruments may be affected by the credit worthiness of the issuer,
prepayment options, relative values of alternative instruments, the liquidity of
the instrument and other general market conditions.
Market risk was estimated as the potential decrease in fair value resulting
from a hypothetical 1% change in interest rates for the issues contained in the
investment portfolio and was not materially different from the year-end carrying
value. Due to the nature of our short-term investments, we have concluded that
we do not have a material market risk exposure.
Our policy is not to enter into derivative financial instruments. We do not
have any significant foreign currency exposure since we do not generally
transact business in foreign currencies. Therefore, we do not have significant
overall currency exposure. In addition, we do not enter into any futures or
forward contracts and, therefore, do not have significant market risk exposure
with respect to commodity prices.
ITEM 4. CONTROLS AND PROCEDURES
(a) Evaluation of Disclosure Controls and Procedures.
The Company's Chief Executive Officer, Michael M. Selzer, Jr., and
Chief Financial Officer, Christopher R. Geyen, have reviewed the Company's
disclosure controls and procedures within 90 days prior to the filing of this
report. Based upon this review, these officers believe that the Company's
disclosure controls and procedures are effective in ensuring that material
information related to the Company is made known to them by others within the
Company.
(b) Changes in Internal Controls.
There were no significant changes in the Company's internal controls or
in other factors that could significantly affect these controls during the
quarter covered by this report or from the end of the reporting period to the
date of this Form 10-Q.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is involved in various legal actions arising in the
ordinary course of business. Management believes any losses that may occur from
these matters are adequately covered by insurance, and the ultimate outcome of
these matters will not have a material effect on the financial position or
results of operations of the Company. In addition, the Company is involved in
the litigation set forth below.
Urologix v. ProstaLund AB et al.
In March 2002, we filed a patent infringement action against ProstaLund
AB, ProstaLund Operations AB, and Circon Corporation a/k/a ACMI Corporation in
the United States District Court for the Eastern District of Wisconsin (and by a
later amended complaint) alleging that the defendants' products infringed two
United States Patents that were assigned to us: U.S. Patent No. 5,234,004
(issued August 10, 1993)("004 Patent") and U.S. Patent No. 5,509,929 (issued
April 23, 1996)(the "929 Patent"). We sought a preliminary injunction
prohibiting the manufacture, use, sale, or offer for sale of the "ProstaLund
Feedback Treatment" and an unspecified amount of damages. Both patents were
assigned to us in connection with our October 2000 acquisition of the Prostatron
product line from EDAP. The defendants counterclaimed, alleging that they do not
infringe our patents, that our patents are invalid and unenforceable and that we
have "marked" our products as "patented" in a manner that violates patent law.
The defendants are also seeking recovery of their attorneys' fees.
In October 2002, the Court issued two separate Orders in this case. In
an Order dated October 10, 2002, the Court determined that the `004 patent was
not entitled to the benefit of an earlier filing date of a parent application
and as a result was invalid. In an Order dated October 16, 2002, the Court
denied our motion for a preliminary injunction on the `929 patent.
We are evaluating our options to appeal the rulings and are preparing
for a trial on the merits of the infringement claims of Patent No. 5,509,929,
which has been scheduled by the Court for October 2003. See "Factors that may
affect our future results and the trading price of our Common Stock--We are
dependent on adequate protection of our patent and proprietary rights."
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit 99.1 Certification of Chief Executive Officer Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
Exhibit 99.2 Certification of Chief Financial Officer Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
(b) Report on Form 8-k
a. No reports on Form 8-K were filed during the period ended September
30, 2002
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.
November 13, 2002
Urologix, Inc.
(Registrant)
/s/ Michael M. Selzer Jr.
Michael M. Selzer, Jr.
President and Chief Executive Officer
(Duly Authorized Officer)
/s/ Christopher R. Geyen
Christopher R. Geyen
Vice President and Chief Financial Officer
(Principal Financial Officer)
CERTIFICATIONS
I, Michael M. Selzer, Jr., certify that:
1. I have reviewed this quarterly report on Form 10-Q of Urologix, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report
is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: November 13, 2002 /s/ Michael M. Selzer Jr.
Michael M. Selzer, Jr.
President and
Chief Executive Officer
I, Christopher R. Geyen, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Urologix, Inc.
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report
is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: November 13, 2002 /s/ Christopher R. Geyen
Christopher R. Geyen
Chief Financial Officer