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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 DECEMBER 31, 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 February 7, 2003, 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)
December 31, June 30,
2002 2002
- -----------------------------------------------------------------------------------------------
ASSETS (unaudited) (*)
Current assets:
Cash and cash equivalents $ 284 $ 1,604
Available-for-sale investments 7,504 11,109
Accounts receivable, net of allowance of $432 and $483 2,896 4,554
Inventories, net 4,905 2,424
Prepaids and other current assets 746 880
- -----------------------------------------------------------------------------------------------
Total current assets 16,335 20,571
- -----------------------------------------------------------------------------------------------
Property and equipment:
Machinery, equipment and furniture 9,420 8,227
Less accumulated depreciation (5,580) (5,007)
- -----------------------------------------------------------------------------------------------
Property and equipment, net 3,840 3,220
Other assets 2,545 2,676
Goodwill, net 10,193 10,193
Other intangible assets, net 9,445 9,777
- -----------------------------------------------------------------------------------------------
Total assets $ 42,358 $ 46,437
===============================================================================================
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable $ 2,730 $ 2,117
Accrued compensation 502 686
Other accrued expenses 1,364 1,357
Current portion of lease obligation 568 513
Deferred income 1,756 1,891
- -----------------------------------------------------------------------------------------------
Total current liabilities 6,920 6,564
- -----------------------------------------------------------------------------------------------
Long-term liabilities:
Long-term debt 575 575
Long-term lease obligation 53 351
- -----------------------------------------------------------------------------------------------
Total long-term liabilities 628 926
- -----------------------------------------------------------------------------------------------
COMMITMENTS AND 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 (73,920) (69,680)
Accumulated other comprehensive income 87 39
- -----------------------------------------------------------------------------------------------
Total shareholders' equity 34,810 38,947
- -----------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 42,358 $ 46,437
===============================================================================================
(*) 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.
2
Urologix, Inc.
Condensed Statements of Operations
(In thousands, except per share data)
(Unaudited)
Three Months Ended Six Months Ended
December 31, December 31,
------------------------- ---------------------------
2002 2001 2002 2001
- ----------------------------------------------------------------------------------------------------
Sales $ 4,584 $ 5,257 $ 9,048 $ 10,441
Cost of goods sold 1,854 1,811 3,360 3,649
- ----------------------------------------------------------------------------------------------------
Gross profit 2,730 3,446 5,688 6,792
- ----------------------------------------------------------------------------------------------------
Costs and expenses:
Selling, general and administrative 4,131 2,755 7,770 5,586
Research and development 963 1,042 1,937 2,197
Amortization of intangible assets 166 166 332 332
- ----------------------------------------------------------------------------------------------------
Total costs and expenses 5,260 3,963 10,039 8,115
- ----------------------------------------------------------------------------------------------------
Operating loss (2,530) (517) (4,351) (1,323)
Interest income, net 40 47 111 120
- ----------------------------------------------------------------------------------------------------
Net loss $ (2,490) $ (470) $ (4,240) $ (1,203)
====================================================================================================
====================================================================================================
Basic and diluted net loss per common
share $ (0.18) $ (0.03) $ (0.30) $ (0.09)
====================================================================================================
Basic and diluted weighted average number of
common shares outstanding 13,916 13,818 13,913 13,745
------------------------- ---------------------------
The accompanying notes to financial statements are an integral part of these
statements.
3
Urologix, Inc.
Condensed Statements of Cash Flows
(In thousands)
(Unaudited)
Six Months Ended
December 31,
----------------------------------
2002 2001
- ----------------------------------------------------------------------------------------------------
Operating Activities:
Net loss ($4,240) ($1,203)
Adjustments to reconcile net loss to net cash used for
operating activities
Depreciation and amortization 1,036 782
Value of options issued to consultants - 25
Provision for bad debts 49 95
Change in operating items
Accounts receivable 1,609 (1,024)
Inventories (2,481) (985)
Prepaids and other assets 134 (161)
Accrued expenses and accounts payable 301 36
- ----------------------------------------------------------------------------------------------------
Net cash used for operating activities (3,592) (2,435)
- ----------------------------------------------------------------------------------------------------
Investing Activities:
Purchase of property and equipment, net (1,193) (7)
Proceeds from sale of available-for-sale investments, net 3,653 2,283
- ----------------------------------------------------------------------------------------------------
Net cash provided by investing activities 2,460 2,276
- ----------------------------------------------------------------------------------------------------
Financing Activities:
Payments made on capital lease obligations (243) (198)
Proceeds from exercise of stock options 55 797
- ----------------------------------------------------------------------------------------------------
Net cash (used for) provided by financing activities (188) 599
- ----------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents (1,320) 440
Cash and cash equivalents:
Beginning of period 1,604 26
- ----------------------------------------------------------------------------------------------------
End of period $ 284 $ 466
====================================================================================================
Supplemental cash-flow information
Cash paid during the period for interest $ 78 $ 141
The accompanying notes to financial statements are an integral part of these
statements.
4
Urologix, Inc.
Notes to Condensed Financial Statements
December 31, 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 December 31, 2002, the statements of operations for the three and six
months ended December 31, 2002 and 2001, and the statements of cash flows for
the six months ended December 31, 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 dates 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. We adopted the provisions of
SFAS No. 146 on January 1, 2003. SFAS No. 146 will have an impact on any
restructuring activities initiated after December 31, 2002.
In December 2002, the FASB issued SFAS No. 148, Stock Compensation. SFAS
No. 148 provides alternative methods of transition for a voluntary change to the
fair value based method of accounting for stock-based employee compensation. In
addition, SFAS No. 148 amends the disclosure requirements of SFAS No. 123 to
require prominent disclosures in both annual and interim financial statements
about the method of accounting for stock-based employee compensation and the
effect of the method used on reported results. The Company does not plan to
change its method of accounting for stock-based employee compensation. The
Company will make the required interim disclosures effective with the quarter
ending March 31, 2003.
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 and disclosure of contingent 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.
5
Urologix, Inc.
Notes to Condensed Financial Statements
December 31, 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 and six month periods ended December
31, 2002, common stock equivalents of 45,720 and 162,163, respectively, were
excluded from the calculation of diluted earnings per share as the effect would
be antidilutive.
5. Inventories
Net inventories consisted of the following as of (in thousands):
December 31, 2002 June 30, 2002
- --------------------------------------------------------------------------------
Raw materials $ 1,481 $ 936
Work in process 424 415
Finished goods 3,000 1,073
- --------------------------------------------------------------------------------
Total inventories $ 4,905 $ 2,424
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6. Goodwill and other intangible assets
Acquired developed technologies and customer base are amortized over useful
lives of 15 years and 14 years, respectively. 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. Amortization of intangible assets was
$166,000 and $332,000 for the three and six-month periods ended December 31,
2002. 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 December 31, 2002
------------------------------------------
Carrying Accumulated
Amount Amortization Net
- ----------------------------------------------------------------------------------------------------------------
Amortizing intangibles:
Developed technologies $ 7,500 $1,125 $ 6,375
Customer base 2,300 370 1,930
------- ------ -------
Subtotal 9,800 1,495 8,305
Non-amortizing intangibles and goodwill:
Goodwill 10,716 523 10,193
Trademarks 1,200 60 1,140
------- ------ -------
Subtotal 11,916 583 11,333
================================================================================================================
Total acquired intangible assets $21,716 $2,078 $19,638
================================================================================================================
6
Urologix, Inc.
Notes to Condensed Financial Statements
December 31, 2002
(Unaudited)
7. 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 securities.
(In thousands) Six Months ended December 31,
2002 2001
- ---------------------------------------------------------------------------------------------------------------
Net loss $ (4,240) $ (1,203)
Change in net unrealized gains on available-for-sale
securities 48 91
- ---------------------------------------------------------------------------------------------------------------
Comprehensive loss $ (4,192) $ (1,112)
- ---------------------------------------------------------------------------------------------------------------
8. Warranty
Sales of our procedure kits and Cooled ThermoTherapy systems are subject to
limited warranty guarantees. Procedure kit guarantees are limited to the
disposable's printed date of expiration and System guarantees typically extend
for one year after the date of installation or 15 months after the date of
delivery, whichever is earlier. Standard warranty terms are included in customer
contracts. Under the terms of these warranties, we are obligated to repair or
replace any components or parts we deem defective in workmanship or materials.
We reserve the right to reject warranty claims where we determine that failure
is due to normal wear, customer modifications, improper maintenance or misuse.
We record warranty provision monthly based on an estimated warranty expense
percentage applied to current period revenue. The percentage applied reflects
historical warranty incidence over the preceding twelve-month period. Both the
experience percentage and the warranty liability are evaluated on an ongoing
basis for adequacy. Warranty provisions and claims for the period ended December
31, 2002 were as follows:
Three Months Beginning Warranty Warranty Ending
Ended Balance Provisions Claims Balance
----------------------------------------------------------------------------
December 31, 2002 $188 $66 ($82) $172
7
Urologix, Inc.
Notes to Condensed Financial Statements
September 30, 2002
(Unaudited)
9. Legal Proceedings
Our business exposes us to product liability claims that are inherent in
the testing, production, marketing and sale of medical devices. 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. The
defendants counterclaimed, alleging that they do not infringe our patents, that
our patents are invalid 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.
Subsequent to the Court Action, in response to our request, on November 19,
2002, the United States Patent and Trademark Office ("PTO") issued an office
action granting Urologix the benefit of the earlier office action on the `004
patent. On November 29, 2002, we filed a motion with the Court requesting that,
in light of the PTO office action, the Court vacate the October 10, 2002 Order
determining the '004 patent was invalid. The matter is pending before the Court.
We are unable to determine when and how the Court will rule on our motion.
We are evaluating our options in connection with the lawsuit 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.
8
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 and six-month periods ended December 31,
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. Medicare reimburses outpatient hospital-based procedures
with a fixed rate under a "prospective payment system." Under this 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.
9
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, and the extent to which Medicare and
other health care payers continue to reimburse costs of Cooled ThermoTherapy
procedures performed in hospitals, ambulatory surgery centers and physicians'
offices and the amount of reimbursement provided.
Critical Accounting Policies:
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. Revenue from equipment rental through our "per procedure" fee
program is recognized at the time of treatment. Revenue for warranty service
contracts is deferred and recognized on a straight-line basis over the contract
period. We record a provision for estimated sales returns on product sales in
the same period as the related revenue is recorded. The provision for estimated
sales returns is based on historical sales returns, analysis of credit memo data
and other known factors. If the historical data we used to calculate this
estimate 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 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.
10
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 $4.6 million and $9.0 million for the three and
six-month periods ended December 31, 2002, from $5.3 million and $10.4 million
during the same periods in the prior fiscal year. The decrease in revenue in
both the three and six-month periods was caused primarily by a decrease in the
average per unit selling price of Cooled ThermoTherapy systems while system
sales volume and revenue from procedure kit sales remained relatively consistent
with prior periods. Our effort to expand our domestic sales force during the
first six months of fiscal 2003 limited the growth of procedure kit sales.
During the expansion, both our sales management and our experienced sales
representatives invested a significant amount of time recruiting and training
new team members which slowed work with existing customers and the effort to
generate new business. We completed the expansion of our sales organization in
December 2002.
On January 17, 2003 Medicare published new rates for office based microwave
treatments, including Cooled ThermoTherapy, which are scheduled to be effective
for claims processed by Medicare on or after March 1, 2003 for office based
microwave treatments. The new rates published by Medicare reflect a decrease of
approximately 30% from the current national average rate of approximately
$3,500. We do not know what impact this rate change will have on our business.
See "Factors That May Affect Our Future Results and The Trading Price of Our
Common Stock -- Third-party reimbursement is critical to market acceptance of
our products."
Cost of Goods Sold and Gross Profit
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 for the three-month
period ended December 31, 2002 was $1.9 million, up slightly from $1.8 million
during the same period in fiscal 2002. Cost of goods sold for the six-month
period ended December 31, 2002 decreased to $3.4 million from $3.6 million in
the same period of the prior fiscal year. The decrease resulted from slightly
lower procedure kit sales volume.
Gross profit as a percentage of sales for the three and six-month periods
ended December 31, 2002 decreased to 60% and 63% respectively, from 66% and 65%
in the same periods of the prior fiscal year. The decreases have resulted
primarily from the drop in the average per unit selling price of our Cooled
ThermoTherapy systems.
Selling, General & Administrative
Selling, general and administrative expenses increased to $4.1 million and
$7.8 million for the three and six-month periods ended December 31, 2002,
respectively, from $2.8 million and $5.6 million in the same periods of fiscal
year 2002. The increased expenses are primarily attributable to legal expenses
related to a patent
11
infringement suit we filed to protect our intellectual property as well as the
expansion of our direct sales force. We expect to continue to incur legal
expenses in connection with our efforts to protect our intellectual property.
Research and Development
Research and development expenses, which include expenditures for product
development, regulatory compliance and clinical studies, decreased to $963,000
and $1.9 million from $1.0 million and $2.2 million for the three and six-month
periods ended December 31, 2002 and 2001, respectively. The decrease in expenses
in both periods resulted primarily from decreased expenditures on 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 consistent with or slightly below the current quarter spending
level.
Amortization of intangible assets
Amortization of intangible assets was $166,000 and $332,000 for both the
three and six-month periods ended December 31, 2002 and 2001, respectively. 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 $40,000 and $111,000 for the three and
six-month periods ended December 31, 2002 from $47,000 and $120,000 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 sales of product. As of December 31, 2002, we had total cash,
cash equivalents and available-for-sale investments of $7.8 million and working
capital of $9.4 million.
During the six months ended December 31, 2002, we used $3.6 million of cash
in operating activities, primarily as a result of our net loss of $4.2 million
and an increase in inventory of $2.5 million, partially offset by a net decrease
in accounts receivable of $1.7 million, depreciation and amortization of $1.0
million and an increase in accounts payable and accrued expenses of $301,000.
Our inventory has increased due to the receipt of a large number of control
units from our third-party suppliers. Inventory balances are expected to
decrease over the next several quarters as product demand is expected to
increase and inventory purchases are scheduled to decrease.
We generated $2.5 million in investing activities, resulting from the net
sale of $3.7 million of available-for-sale investments partially offset by the
purchase of $1.2 million of property and equipment.
We used $188,000 in financing activities as a result of $243,000 of
payments on capital lease obligations offset by $55,000 from the exercise of
stock options.
We expect to continue to incur additional losses and we plan to continue
offering customers the ability to evaluate our equipment prior to purchase and
offer long-term rental agreements. As of December 31, 2002, our property and
equipment, net, included approximately $2.9 million of equipment used in
evaluation or long-term rental agreements. Depending on the growth of these
programs, we may use substantial capital to finance the units used by these
customers.
Although we believe that existing cash, cash equivalents and
available-for-sale securities will be sufficient to fund our operations for 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.
12
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 $4.2 million for the six month period ended December 31,
2002, and have incurred losses of approximately $74 million since our inception.
We expect to continue to incur operating losses in the near future as we
continue 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 significantly increase
the revenues we receive from sales of our products as a result of these
increased operating expenses. We may be unable to do so, 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 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. These 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.
13
Third-party reimbursement is dependent upon decisions by the Center for
Medicare and Medicaid Services (CMS), 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.
CMS issued a Program Memorandum to Medicare Carriers on January 17, 2003
indicating the national average rate for Cooled ThermoTherapy procedures, CPT
Code 53850, would be approximately $2,500 in the office setting. This rate would
be effective for claims processed by Medicare on or after March 1, 2003. The new
rate published by CMS reflects a decrease of approximately 30% from the current
national average rate of approximately $3,500. We do not know what impact this
rate change will have on our business. The rate change may discourage some
physicians from using our products or could limit our future growth.
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 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 the defendants 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. In
addition, this litigation has resulted in substantial expense and we anticipate
that there may be additional substantial expense involved in this litigation.
Furthermore, the existence of this litigation 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.
14
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.
15
Failure to attract and retain skilled personnel could hinder our sales and
marketing and research and development efforts. 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.
16
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 from time to time 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,
. the impact of reimbursement changes
. 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 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.
17
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 occurrence 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. The fair value
of our financial investment portfolio at December 31, 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 December 31, 2002
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.
18
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.
19
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Our business exposes us to product liability claims that are inherent in
the testing, production, marketing and sale of medical devices. 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. The
defendants counterclaimed, alleging that they do not infringe our patents, that
our patents are invalid 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.
Subsequent to the Court Action, in response to our request, on November 19,
2002, the United States Patent and Trademark Office ("PTO") issued an office
action granting Urologix the benefit of the earlier office action on the `004
patent. On November 29, 2002, we filed a motion with the Court requesting that,
in light of the PTO office action, the Court vacate the October 10, 2002 Order
determining the "004 patent was invalid. The matter is pending before the Court.
We are unable to determine when and how the Court will rule on our motion.
We are evaluating our options in connection with the lawsuit 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 5. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Our Annual Meeting of Shareholders was held on November 6, 2002. Three directors
were elected at the Annual Meeting. Daniel Starks was elected to serve until the
Annual Meeting following fiscal year 2003, and Mitchell Dann and Susan Bartlett
Foote were elected serve until the Annual Meeting following fiscal year 2005.
Name Votes For Votes Withheld
- -----------------------------------------------------------------------
Daniel Starks 13,221,736 61,183
Mitchell Dann 13,154,669 128,250
Susan Bartlett Foote 13,054,329 228,590
20
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 December
31, 2002
21
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 11, 2003
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)
22
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: February 11, 2003 /s/ Michael M. Selzer, Jr.
------------------ --------------------------
Michael M. Selzer, Jr.
President and Chief Executive
Officer
23
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: February 11, 2003 /s/ Christopher R. Geyen
------------------ ------------------------
Christopher R. Geyen
Vice President
and Chief Financial Officer
24