We recorded $55,000 of income tax expense for the fiscal year ended June 30, 2012 compared to income tax expense of $8,000 for the fiscal year ended June 30, 2011. The increase in income tax expense of $47,000 is mainly the result of recording a deferred tax liability resulting from the amortization of goodwill for tax purposes created in the Prostiva acquisition. The deferred tax liability related to the goodwill which is considered an indefinite lived intangible asset cannot be offset against deferred tax assets with finite lives. The $8,000 of income tax for the fiscal year ended June 30, 2011 was the result of recording $11,000 of state income tax expense partially offset by a small federal tax benefit of $3,000.
Net sales decreased 15 percent to $12.6 million in fiscal year 2011 from $14.8 million in fiscal year 2010. The decrease in sales from fiscal year 2010 is primarily due to decreased orders in all sales channels: direct, mobile and third-party mobile.
During fiscal year 2011, revenue from catheter sales to direct accounts constituted 37 percent of sales compared to 36 percent in the prior fiscal year, while catheter sales to third party mobiles constituted 14 percent of revenue in the current fiscal year compared to 15 percent in fiscal year 2010. Revenue derived from the Urologix mobile service constituted 46 percent of total sales in fiscal year 2011 compared to 47 percent in the prior fiscal year. The remaining three percent of our sales in fiscal year 2011 were from sales of our control units, warranty service contracts, and non-kit items.
Cost of goods sold includes raw materials, labor, overhead, and royalties incurred in connection with the production of our Cooled ThermoTherapy control units and single-use treatment catheters, as well as costs associated with the delivery of our Urologix mobile service. Cost of goods sold for fiscal year 2011 decreased to $6.0 million, or 8 percent, from $6.6 million in fiscal year 2010. This decrease in cost of goods sold is attributed to the 15 percent decrease in sales year over year, partially offset by higher manufacturing expense per unit.
Gross profit as a percentage of sales decreased to 52% in fiscal year 2011 from 56% in the prior fiscal year. The four percentage point decrease in fiscal year 2011 as compared to fiscal year 2010 is a result of higher manufacturing expense per unit due to lower production volume of our treatment catheters, which provided a smaller base to absorb our fixed manufacturing overhead costs.
Sales and marketing expenses in fiscal year 2011 decreased $460,000, or 8 percent, to $5.2 million from $5.7 million in fiscal 2010. The decrease in sales and marketing expense is due to the $489,000 decrease in commission expense resulting from the lower sales volume.
General and administrative expenses decreased by $136,000, or 5 percent, to $2.8 million from $2.9 million in fiscal 2010. The decrease in general and administrative expense is due to a $96,000 decrease in bonus expense and a $45,000 decrease in legal and audit expenses.
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Research and Development
Research and development expenses, which include expenditures for product development, regulatory compliance and clinical studies, increased to $2.2 million for fiscal year 2011, an increase of 22 percent from $1.8 million in fiscal year 2010. The increase in research and development is due to a $371,000 increase in wages as a result of an increase in headcount, as well as an $89,000 increase in product testing and project materials as we continue to invest in research and development activities. These increases were partially offset by a $51,000 decrease in the bonus accrual.
Amortization of Identifiable Intangible Assets
Amortization of identifiable intangible assets remained consistent at $24,000 in fiscal years 2011 and 2010. This amortization expense relates to the amortization of our remaining customer base intangible asset over its remaining useful life of 3.25 years.
Net Interest Income
Interest income remained relatively consistent between fiscal years 2011 and 2010 at approximately $1,000.
Provision for Income Taxes
We recorded $8,000 of income tax expense for the fiscal year ended June 30, 2011 compared to an $88,000 income tax benefit for the fiscal year ended June 30, 2010. The $8,000 of income tax for the fiscal year ended June 30, 2011 was the result of recording $11,000 of state income tax expense partially offset by a small federal benefit of $3,000. The $88,000 income tax benefit for the fiscal year ended June 30, 2010 was the result of recording an income tax benefit of $84,000 related to a net operating loss carry back claim to recapture alternative minimum tax paid during fiscal years 2005 and 2006 and $23,000 related to research and development credits. This income tax benefit was partially offset by the recording of $21,000 of state income tax expense.
Liquidity and Capital Resources
We have financed our operations since inception through sales of equity securities and, to a lesser extent, sales of our Cooled ThermoTherapy products and, beginning September 6, 2011, sales of the Prostiva RF Therapy System product. As of June 30, 2012, we had total cash and cash equivalents of $1.9 million compared to cash and cash equivalents of $3.1 million as of June 30, 2011. The decrease in cash and cash equivalents resulted primarily from our net operating loss of $4.7 million in fiscal year 2012.
During the first quarter of fiscal 2012, the Company entered into a license agreement with Medtronic for the Prostiva RF Therapy System. The Company paid Medtronic $500,000 on September 6, 2011 for half of the $1,000,000 initial license fee, with the remaining $500,000 payable on the one-year anniversary of this date, September 6, 2012. As part of the licensing agreement, royalty payments for Prostiva products are paid one year in arrears based on the contract year, with the first payment of royalties due October 6, 2012. In addition, inventory payments were deferred on both inventory transferred following the close of the agreement and on shipments of products purchased. Deferred payments to be made on inventory received through June 30, 2012, which are due in fiscal year 2013, approximate $3.8 million.
The Company completed a secondary offering in the first quarter of fiscal year 2013 which contributed approximately $3.8 million of net proceeds. However, as a result of the Company’s history of operating losses and negative cash flows from operations, and the licensing fee, royalties and inventory payments related to the Prostiva acquisition, there is substantial doubt about our ability to continue as a going concern. The Company’s cash and cash equivalents may not be sufficient to sustain day-to-day operations for the next 12 months and the Company’s ability to continue as a going concern is dependent upon our ability to generate positive cash flows from our business, as well as available borrowing under our line of credit with Silicon Valley Bank entered into on January 11, 2012. The line of credit allows borrowing by the Company of up to the lesser of $2.0 million or the defined borrowing base consisting of 80% of eligible accounts receivable. As of June 30, 2012 the Company has not borrowed against this facility.
There is no assurance that our cash, cash generated from operations, if any, and available borrowing under our agreement with Silicon Valley Bank will be sufficient to fund our anticipated capital needs and operating expenses, particularly if product sales do not generate revenues in the amounts currently anticipated or if our operating costs are greater than anticipated.
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Our cash needs will depend on our ability to generate revenue from our operations, our ability to manage expenses, and the timing and amount of payments to Medtronic relating to the Prostiva product. In addition, in the first quarter of our fiscal year we typically have higher than usual cash expenditures for things such as the annual year-end audit and insurance premiums.
If the Company is unable to generate sufficient liquidity to meet its needs and in a timely manner, the Company may be required to further reduce expenses and curtail capital expenditures, sell assets, or suspend or discontinue operations. If the Company is unable to make the required payments to Medtronic with respect to the Prostiva acquisition, it would give Medtronic the right to terminate the Company’s rights to sell the Prostiva product. We review our cash position at a minimum on a monthly basis.
The fiscal year 2012 financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classifications of liabilities that may result should the Company be unable to continue as a going concern.
Cash Provided by Operating Activities
During fiscal year 2012, we used $713,000 of cash from operating activities compared to $2.4 million in fiscal year 2011. The net loss of $4.7 million included non-cash charges of $695,000 from depreciation and amortization expense, $359,000 from stock-based compensation expense and $644,000 of accreted interest expense, which was partially offset by a $172,000 gain as a result of a fair value adjustment to contingent deferred acquisition payments. Changes in operating items resulted in the generation of $2.4 million of operating cash flow for the period as a result of higher accounts payable of $2.6 million and higher accrued expense and deferred income of $455,000, partially offset by higher accounts receivable of $740,000. The increase in accounts payable is the result of, as previously mentioned, the deferral of payments for approximately $3.8 million of Prostiva product purchased since the date of acquisition from 270-day terms negotiated as part of the licensing agreement with Medtronic. The increase in accrued expenses and deferred income is the result of a $153,000 increase in the commission accrual due to the increase in sales, an $117,000 increase in the bonus accrual as we met more of our bonus objectives in fiscal year 2012, as well as a $54,000 accrual related to the annual maintenance fee owed to Medtronic as part of the Prostiva transaction, and a $48,000 increase in the sales tax accrual. The increase in accounts receivable is the result of the increase in sales.
Cash Used for Investing Activities
We used $565,000 for investing activities of which $500,000 relates to payment of half of the $1 million licensing fee related to the Prostiva RF Therapy System acquisition. The remaining $65,000 of investing activities relates to the purchase of property and equipment to support our business operations and investments in intellectual property. See Note 4 to the Condensed Financial Statements for further details on this acquisition.
Cash Provided by Financing Activities
During fiscal year 2012, we generated $116,000 from financing activities as a result of proceeds from the exercise of stock options.
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Contractual Commitments
We plan to continue offering customers a variety of programs for both evaluation and longer-term use of our Cooled ThermoTherapy system control units and Prostiva RF Therapy System generators and scopes in addition to purchase options. We also will continue to provide physicians and patients with efficient access to our Cooled ThermoTherapy system control units and Prostiva RF Therapy System generators and scopes on a pre-scheduled basis through our mobile service. As of June 30, 2012, our property and equipment, net, included approximately $553,000 of control units used in evaluation or longer-term use programs and units used in our Company-owned mobile service. Depending on the growth of these programs, we may use additional capital to finance these programs.
Future contractual commitments that will affect cash flows are as follows (in thousands):
| | | | | | | | | | | | | | | | |
| | 2013 | | 2014 | | 2015 | | 2016 | | 2017 | |
Building and equipment leases | | $ | 218 | | $ | 213 | | $ | 214 | | $ | 217 | | $ | 20 | |
Prostiva Payments
Prostiva payments are commitments related to the acquisition of the Prostiva RF Therapy product line from Medtronic on September 6, 2011 (see Footnote 4 for more details). Royalty obligations represent royalties, including minimum royalty obligations, based on management’s estimates of future revenues to be generated through sales of Prostiva products. Actual revenues generated through sales of Prostiva product and actual royalty payments may differ from these estimates.
| | | | | | | | | | | | | | | | |
| | Fiscal Years | |
| | 2013 | | 2014 | | 2015 | | 2016 | | 2017 | |
Prostiva Payments | | | | | | | | | | | | | | | | |
Remaining license fee | | $ | 500 | | $ | - | | $ | - | | $ | - | | $ | - | |
Annual license maintenance fee | | | 65 | | | 65 | | | 65 | | | 65 | | | 65 | |
Royalty obligations | | | 512 | | | 606 | | | 716 | | | 1,080 | | | 1,366 | |
Consigned inventory payments | | | 1,389 | | | - | | | - | | | - | | | - | |
Total contractual Prostiva payments | | $ | 2,466 | | $ | 671 | | $ | 781 | | $ | 1,145 | | $ | 1,431 | |
Off Balance Sheet Arrangements
We do not have any off balance sheet arrangements.
Recently Issued Accounting Standards
Information regarding recently issued accounting pronouncements is included in Note 2 to the Financial Statements included in this Annual Report on Form 10-K.
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ITEM 7A. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
Our financial instruments include cash equivalent instruments. Increases and decreases in prevailing interest rates generally translate into decreases and increases, respectively, in the fair value of these instruments, as our investments are variable rate investments. 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 and was not materially different from the quarter-end carrying value. Due to the nature of our cash equivalents instruments, 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 commodity contracts since we do not have significant market risk exposure with respect to commodity prices.
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ITEM 8. | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA |
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Management’s Report on Internal Control over Financial Reporting
The Board of Directors and Shareholders
Urologix, Inc.:
Management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a15-(f) and 15d-15(f) under the Securities Exchange Act of 1934. The Company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that:
| | |
| (i) | pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; |
| | |
| (ii) | provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and |
| | |
| (iii) | provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements. |
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Under the supervision of our Chief Executive Officer and our Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework inInternal Control – Integrated Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on our assessment and those criteria, management concluded that the Company maintained effective internal control over financial reporting as of June 30, 2012.
* * *
This Annual Report on Form 10-K does not include an attestation report of the Company’s independent registered public accounting firm, KPMG LLP, regarding internal controls over financial reporting. Management’s report was not subject to attestation by KPMG LLP pursuant to rules of the Securities and Exchange Commission that permit the Company to provide only management’s report in this Annual Report on Form 10-K.
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Report of Independent Registered Public Accounting Firm
The Board of Directors and Shareholders
Urologix, Inc.:
We have audited the accompanying balance sheets of Urologix, Inc. (the Company) as of June 30, 2012 and 2011, and the related statements of operations, shareholders’ equity, and cash flows for each of the years in the three-year period ended June 30, 2012. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Urologix, Inc. as of June 30, 2012 and 2011, and the results of its operations and its cash flows for each of the years in the three-year period ended June 30, 2012, in conformity with U.S. generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 3 to the financial statements, the Company has suffered recurring losses from operations and negative operating cash flows and has significant current obligations related to the Prostiva acquisition that raise substantial doubt about its ability to continue as a going concern. Management’s plans regarding these matters are also described in Note 3. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
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| /s/ KPMG LLP |
| |
Minneapolis, Minnesota | |
September 21, 2012 | |
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Urologix, Inc.
Balance Sheet
(In thousands)
| | | | | | | |
| | June 30, | |
| | 2012 | | 2011 | |
ASSETS | | | | | | | |
Current Assets: | | | | | | | |
Cash and cash equivalents | | $ | 1,899 | | $ | 3,061 | |
Accounts receivable, net of allowance of $83 and $50, respectively | | | 2,132 | | | 1,358 | |
Inventories | | | 1,448 | | | 1,127 | |
Prepaids and other current assets | | | 290 | | | 249 | |
Total current assets | | | 5,769 | | | 5,795 | |
Property and equipment: | | | | | | | |
Property and equipment | | | 12,006 | | | 11,691 | |
Less accumulated depreciation | | | (11,144 | ) | | (10,830 | ) |
Property and equipment, net | | | 862 | | | 861 | |
Other intangible assets, net | | | 2,262 | | | 102 | |
Goodwill | | | 3,115 | | | - | |
Long-term inventories | | | 663 | | | - | |
Other assets | | | 5 | | | 5 | |
Total assets | | $ | 12,676 | | $ | 6,763 | |
| | | | | | | |
LIABILITIES AND SHAREHOLDERS’ EQUITY | | | | | | | |
Current liabilities: | | | | | | | |
Accounts payable | | $ | 3,376 | | $ | 741 | |
Accrued compensation | | | 732 | | | 454 | |
Deferred income | | | 7 | | | 21 | |
Short-term deferred acquisition payment | | | 2,395 | | | - | |
Other accrued expenses | | | 779 | | | 541 | |
Total current liabilities | | | 7,289 | | | 1,757 | |
| | | | | | | |
Deferred income | | | - | | | 9 | |
Deferred tax liability | | | 35 | | | - | |
Long-term deferred acquisition payment | | | 4,613 | | | - | |
Other accrued expenses | | | 113 | | | 151 | |
Total liabilities | | | 12,050 | | | 1,917 | |
Commitments and Contingencies (Note 13) | | | | | | | |
SHAREHOLDERS’ EQUITY: | | | | | | | |
Common stock, $.01 par value, 25,000 shares authorized; 14,803 and 14,626 shares issued; and 14,719 and 14,500 shares outstanding | | | 147 | | | 145 | |
Additional paid-in capital | | | 115,205 | | | 114,732 | |
Accumulated deficit | | | (114,726 | ) | | (110,031 | ) |
Total shareholders’ equity | | | 626 | | | 4,846 | |
Total liabilities and shareholders’ equity | | $ | 12,676 | | $ | 6,763 | |
The accompanying notes to financial statements are an integral part of these statements.
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Urologix, Inc.
Statements of Operations
(In thousands, except per share data)
| | | | | | | | | | | | |
| | For the Years Ended June 30 | |
| | 2012 | | 2011 | | 2010 | |
SALES | | $ | 17,027 | | | $ | 12,571 | | | $ | 14,771 | |
COST OF GOODS SOLD | | | 8,645 | | | | 6,030 | | | | 6,569 | |
Gross profit | | | 8,382 | | | | 6,541 | | | | 8,202 | |
| | | | | | | | | | | | |
COSTS AND EXPENSES | | | | | | | | | | | | |
Sales and marketing | | | 7,027 | | | | 5,197 | | | | 5,657 | |
General and administrative | | | 3,393 | | | | 2,808 | | | | 2,944 | |
Research and development | | | 2,189 | | | | 2,238 | | | | 1,834 | |
Change in value of contingent consideration | | | (172 | ) | | | - | | | | - | |
Amortization of identifiable intangible assets | | | 90 | | | | 24 | | | | 24 | |
Total costs and expenses | | | 12,527 | | | | 10,267 | | | | 10,459 | |
OPERATING LOSS | | | (4,145 | ) | | | (3,726 | ) | | | (2,257 | ) |
| | | | | | | | | | | | |
INTEREST INCOME/(EXPENSE) | | | (482 | ) | | | 1 | | | | - | |
FOREIGN CURRENCY EXCHANGE LOSS | | | (13 | ) | | | - | | | | - | |
LOSS BEFORE INCOME TAXES | | | (4,640 | ) | | | (3,725 | ) | | | (2,257 | ) |
INCOME TAX EXPENSE (BENEFIT) | | | 55 | | | | 8 | | | | (88 | ) |
NET LOSS | | $ | (4,695 | ) | | $ | (3,733 | ) | | $ | (2,169 | ) |
| | | | | | | | | | | | |
NET LOSS PER COMMON SHARE - BASIC | | $ | (0.32 | ) | | $ | (0.26 | ) | | $ | (0.15 | ) |
| | | | | | | | | | | | |
NET LOSS PER COMMON SHARE - DILUTED | | $ | (0.32 | ) | | $ | (0.26 | ) | | $ | (0.15 | ) |
| | | | | | | | | | | | |
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING - BASIC | | | 14,741 | | | | 14,556 | | | | 14,508 | |
| | | | | | | | | | | | |
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING - DILUTED | | | 14,741 | | | | 14,556 | | | | 14,508 | |
The accompanying notes to financial statements are an integral part of these statements.
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Urologix, Inc.
Statements of Shareholders’ Equity
(In thousands)
| | | | | | | | | | | | | | | | |
| | | | Additional
Paid-In
Capital | | Accumulated
Deficit | | Total
Shareholders’
Equity | |
| | Common Stock | | | | |
| | Shares | | Amount | | | | |
Balance, June 30, 2009 | | | 14,413 | | $ | 144 | | $ | 113,910 | | $ | (104,129 | ) | $ | 9,925 | |
Net loss | | | - | | | - | | | - | | | (2,169 | ) | | (2,169 | ) |
Stock options exercised | | | 14 | | | - | | | 10 | | | - | | | 10 | |
Vesting of restricted stock | | | 20 | | | - | | | - | | | - | | | - | |
Stock-based compensation | | | - | | | - | | | 440 | | | - | | | 440 | |
Balance, June 30, 2010 | | | 14,447 | | $ | 144 | | $ | 114,360 | | $ | (106,298 | ) | $ | 8,206 | |
Net loss | | | - | | | - | | | - | | | (3,733 | ) | | (3,733 | ) |
Stock options exercised | | | 6 | | | - | | | 4 | | | - | | | 4 | |
Vesting of restricted stock | | | 47 | | | 1 | | | (1 | ) | | - | | | - | |
Stock-based compensation | | | - | | | - | | | 369 | | | - | | | 369 | |
Balance, June 30, 2011 | | | 14,500 | | $ | 145 | | $ | 114,732 | | $ | (110,031 | ) | $ | 4,846 | |
Net loss | | | - | | | - | | | - | | | (4,695 | ) | | (4,695 | ) |
Stock options exercised | | | 104 | | | 1 | | | 115 | | | - | | | 116 | |
Vesting of restricted stock | | | 115 | | | 1 | | | (1 | ) | | - | | | - | |
Stock-based compensation | | | - | | | - | | | 359 | | | - | | | 359 | |
Balance, June 30, 2012 | | | 14,719 | | $ | 147 | | $ | 115,205 | | $ | (114,726 | ) | $ | 626 | |
The accompanying notes to financial statements are an integral part of these statements
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Urologix, Inc.
Statements of Cash Flows
(In thousands)
| | | | | | | | | | |
| | For the Years Ended June 30 | |
| | 2012 | | 2011 | | 2010 | |
| | | | | | | | | | |
OPERATING ACTIVITIES | | | | | | | | | | |
Net loss | | $ | (4,695 | ) | $ | (3,733 | ) | $ | (2,169 | ) |
Adjustments to reconcile net loss to net cash provided by operating activities: | | | | | | | | | | |
Depreciation and amortization | | | 695 | | | 565 | | | 793 | |
Employee stock-based compensation expense | | | 359 | | | 369 | | | 440 | |
Provision for bad debts | | | (34 | ) | | (46 | ) | | 47 | |
Loss on disposal of assets | | | 15 | | | 12 | | | 2 | |
Accretion expense on deferred acquisition payments | | | 644 | | | - | | | - | |
Adjustment to contingent consideration | | | (172 | ) | | - | | | - | |
Deferred income taxes | | | 35 | | | - | | | - | |
Change in operating assets and liabilities: | | | | | | | | | | |
Accounts receivable | | | (740 | ) | | 66 | | | 80 | |
Inventories | | | 131 | | | 243 | | | (387 | ) |
Prepaids and other assets | | | (41 | ) | | 234 | | | 158 | |
Accounts payable | | | 2,635 | | | 307 | | | (28 | ) |
Accrued expenses and deferred income | | | 455 | | | (387 | ) | | (191 | ) |
Net cash used for operating activities | | | (713 | ) | | (2,370 | ) | | (1,255 | ) |
| | | | | | | | | | |
INVESTING ACTIVITIES | | | | | | | | | | |
Purchase of property and equipment | | | (57 | ) | | (272 | ) | | (81 | ) |
Acquisition of business | | | (500 | ) | | - | | | - | |
Other | | | (8 | ) | | (3 | ) | | (4 | ) |
Net cash used for investing activities | | | (565 | ) | | (275 | ) | | (85 | ) |
| | | | | | | | | | |
FINANCING ACTIVITIES | | | | | | | | | | |
Proceeds from stock option exercises | | | 116 | | | 4 | | | 10 | |
Net cash provided by financing activities | | | 116 | | | 4 | | | 10 | |
| | | | | | | | | | |
NET DECREASE IN CASH AND CASH EQUIVALENTS | | | (1,162 | ) | | (2,641 | ) | | (1,330 | ) |
| | | | | | | | | | |
CASH AND CASH EQUIVALENTS | | | | | | | | | | |
Beginning of year | | | 3,061 | | | 5,702 | | | 7,032 | |
End of year | | $ | 1,899 | | $ | 3,061 | | $ | 5,702 | |
| | | | | | | | | | |
Supplemental cash-flow information | | | | | | | | | | |
Income taxes paid during the period | | $ | 12 | | $ | 17 | | $ | 13 | |
Net carrying amount of inventory transferred to property and equipment | | $ | 293 | | $ | 128 | | $ | 296 | |
Non-cash consideration for acquisition | | $ | 6,532 | | $ | - | | $ | - | |
The accompanying notes to financial statements are an integral part of these statements.
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UROLOGIX, INC.
Notes to Financial Statements
1. Nature of Business
Description of Operating Activities
Urologix, Inc. (the “Company,” “Urologix,” “we”) consists of one reportable segment. Urologix is based in Minneapolis and develops, manufactures and markets minimally invasive medical products for the treatment of obstruction and symptoms due to Benign Prostatic Hyperplasia (BPH). Urologix’ Cooled ThermoTherapy™ produces targeted microwave energy combined with a unique cooling mechanism to protect healthy tissue and enhance patient comfort. The Cooled ThermoTherapy™ product line includes the CoolWave® and Targis® Control Units and the CTC Advance® and Targis® catheter families. The Prostiva® RF Therapy System owned by Medtronic, Inc. but distributed by Urologix, delivers radio frequency energy directly into the prostate destroying prostate tissue, reducing constriction of the urethra, and thereby relieving BPH voiding symptoms. Both of these products provide safe, effective and lasting relief of the symptoms and obstruction due to BPH.
2. Significant Accounting Policies
Cash and Cash Equivalents
We classify highly liquid investments with original maturities of 90 days or less as cash equivalents. Cash equivalents are stated at cost, which approximates market value.
Revenue Recognition
We recognize revenue from the sale of Cooled ThermoTherapy control units upon delivery to the customer, which include urologists, urology practices, mobile units, clinics and hospitals. We recognize revenue from the sale of Prostiva generators upon shipment to the customer. In addition to our sales of Cooled ThermoTherapy control units and Prostiva generators, we place our control units and generators with customers free of charge under a variety of programs for both evaluation and long-term use, and also provide access to Cooled ThermoTherapy and Prostiva RF Therapy treatments via our Urologix mobile service. We retain title to the control units and generators placed with our customers for evaluation and longer-term use. These programs, as well as our Urologix mobile service, are designed to expand access to our technology, and thus expand the market for our single-use treatment catheters and Prostiva handpieces. The free use of our Cooled ThermoTherapy control units and Prostiva generators are bundled with the sale of single-use treatment catheters or Prostiva handpieces and scopes, respectively, and are considered a single unit of accounting. Revenue from the bundled sales is recognized when the single-use treatment catheters or handpieces and scopes are shipped to our customers. Revenue from our mobile service is recognized upon treatment of the patient. Revenue for extended warranty service contracts is deferred and recognized 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 specific customer-based circumstances. Should actual sales returns differ from our estimates, revisions to the sales return reserve would be required. Sales and use taxes are reported on a net basis, excluding them from revenue.
Allowance for Doubtful Accounts
We maintain allowances for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments. We consider 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 when determining the adequacy of the allowance. Accounts receivable are written-off after management determines they are uncollectible.
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UROLOGIX, INC.
Notes to Financial Statements
Bad debt and sales returns provisions and accounts receivable write-offs for the years ended June 30, 2012, 2011 and 2010 were as follows (in thousands):
| | | | | | | | | |
Years Ended | | Beginning
Balance | | Provisions | | Write-offs | | Ending
Balance | |
| | | | | | | | | |
June 30, 2012 | | $50 | | $115 | | $(82) | | $83 | |
| | | | | | | | | |
June 30, 2011 | | 96 | | (10) | | (36) | | 50 | |
| | | | | | | | | |
June 30, 2010 | | 72 | | 47 | | (23) | | 96 | |
Inventories
Inventories are stated at the lower of cost or market on a first-in, first-out (FIFO) basis and consist of (in thousands):
| | | | | | | |
| | June 30, 2012 | | June 30, 2011 | |
| | | | | | | |
Raw materials | | $ | 555 | | $ | 558 | |
Work-in-process | | | 164 | | | 154 | |
Finished goods | | | 1,392 | | | 415 | |
Total inventories | | $ | 2,111 | | $ | 1,127 | |
The June 30, 2012 finished goods inventory balance includes the inventory acquired as a result of the September 6, 2011 Prostiva acquisition, of which approximately $763,000 remained at June 30, 2012. In addition, approximately $663,000 of the above finished goods balance represents long-term inventories that the Company does not expect to sell within the next 12 months, however, they are not considered excess or obsolete.
Valuation of Long-Lived Assets and Goodwill
We assess the impairment of long-lived assets whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An asset or asset group is considered impaired if its carrying amount exceeds the undiscounted future net cash flows the asset or asset group is expected to generate. If an asset or asset group is considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the asset exceeds its fair value. If estimated fair value is less than the book value, the asset is written down to the estimated fair value and an impairment loss is recognized.
Goodwill is tested for impairment annually on April 30th or more frequently if changes in circumstance or the occurrence of events suggests an impairment may exist. To determine if there is goodwill impairment, the fair value of the reporting unit is compared to its carrying amount. If the fair value of a reporting unit is less than its carrying value, an impairment loss is recorded to the extent that the fair value of the goodwill is less than the carrying value of the goodwill. The test for impairment requires us to make several estimates about fair value, most of which are based on projected future cash flows.
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UROLOGIX, INC.
Notes to Financial Statements
Considerable management judgment is necessary in estimating future cash flows and other factors affecting the valuation of long-lived assets and goodwill, including the operating and macroeconomic factors that may affect them. We use historical financial information, internal plans and projections and industry information in making such estimates.
Property and Equipment
Property and equipment are stated at cost. Company owned Cooled ThermoTherapy control units and Prostiva RF Therapy generators located at customer sites for evaluation and long-term use programs are transferred from inventory and classified as property and equipment that are valued at cost to manufacture and depreciated over a useful life of four years. Improvements that extend the useful lives of property and equipment are capitalized at cost and depreciated over their remaining useful lives. Repairs and maintenance are charged to expense as incurred. Depreciation is calculated using the straight-line method based upon estimated useful lives of three to seven years for machinery, equipment, furniture and vehicles. Leasehold improvements are amortized over the shorter of the useful life of the assets or term of the lease.
Property and equipment, net consisted of the following (in thousands):
| | | | | | | |
| | June 30, 2012 | | June 30, 2011 | |
| | | | | | | |
Leasehold improvements, equipment, furniture and vehicles | | $ | 284 | | $ | 281 | |
Computer equipment | | | 25 | | | 30 | |
Control units, generators and scopes | | | 553 | | | 550 | |
Total property and equipment, net | | $ | 862 | | $ | 861 | |
Other Assets
Other assets consist primarily of prepaid royalties resulting from patent licensing agreements. The agreements require us to pay a royalty on sales of Cooled ThermoTherapy products. Royalties are charged to cost of goods sold as sales are recognized. These royalty agreements ended in fiscal year 2012.
Contingent Consideration
Contingent consideration was recorded on the balance sheet at the acquisition date fair value based on the consideration expected to be transferred, discounted back to present value. The discount rate used is determined at the time of measurement in accordance with accepted valuation methods. The fair value of the contingent consideration is remeasured at the estimated fair value at each reporting period with the change in fair value recognized as income or expense in operating income. Any changes in fair value will impact earnings in such reporting period until the contingencies are resolved.
Leases and Deferred Rent
We lease all of our office space. We evaluate and classify all of our leases as operating or capital leases for financial reporting purposes. As of June 30, 2012, all of our leases were accounted for as operating leases. For leases that contain rent escalations, we record the total rent payable during the lease term, as determined above, on a straight-line basis over the term of the lease and record the difference between the rents paid and the straight-line rent as a deferred rent. Any lease incentives we receive for items such as leasehold improvements, we record a deferred credit for the amount of the lease incentive and amortize it over the lease term, which may or may not equal the amortization period of the leasehold improvements.
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UROLOGIX, INC.
Notes to Financial Statements
Warranty Costs
Certain of our products, including the newly acquired Prostiva products, are covered by warranties against defects in material and workmanship for periods of up to 24 months. 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.
Warranty provisions and claims for the years ended June 30, 2012, 2011 and 2010 were as follows (in thousands):
| | | | | | | | | |
Years Ended | | Beginning
Balance | | Warranty
Provisions | | Warranty
Claims | | Ending
Balance | |
| | | | | | | | | |
June 30, 2012 | | $10 | | $98 | | $(61) | | $47 | |
| | | | | | | | | |
June 30, 2011 | | 13 | | 40 | | (43) | | 10 | |
| | | | | | | | | |
June 30, 2010 | | 19 | | 43 | | (49) | | 13 | |
Income Taxes
We utilize the asset and liability method of accounting for income taxes. We recognize deferred tax liabilities or assets for the expected future tax consequences of temporary differences between the book and tax basis of assets and liabilities. We regularly assess the likelihood that our deferred tax assets will be recovered from future taxable income. We consider projected future taxable income and ongoing tax planning strategies in assessing the amount of the valuation allowance necessary to offset our deferred tax assets that will not be recoverable. We have recorded and continue to carry a full valuation allowance against our gross deferred tax assets that will not reverse against deferred tax liabilities within the scheduled reversal period. If we determine in the future that it is more likely than not that we will realize all or a portion of our deferred tax assets, we will adjust our valuation allowance in the period we make the determination. We expect to provide a full valuation allowance on our future tax benefits until we can sustain a level of profitability that demonstrates our ability to realize these assets. At June 30, 2012, we carried a valuation allowance of $34.3 million against our net deferred tax assets.
Stock-Based Compensation
The Company uses the fair value recognition provisions of the revised authoritative guidance for equity-based compensation and applies the modified prospective method in determining stock compensation expense. Stock compensation expense is based on the fair value of the award at the date of grant and is recognized over the requisite service period which corresponds to the vesting period. Options and restricted stock awards typically vest 25 percent after the first year of service with the remaining vesting 1/36th each month thereafter. Generally, options granted to non-employee directors are immediately exercisable at the date of grant while restricted stock awards generally vest after one year. Options are priced based on the closing price of a share of our common stock at the date of grant. The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model. To determine the inputs for the Black-Scholes option pricing model, we use historical data to estimate expected volatility and the period of time that option grants are expected to be outstanding. The risk-free rate is based on the U.S. Treasury yield curve in effect at the time of grant for the estimated life of the option. The range of these assumptions and the range of option pricing and number of options granted at the different grant dates will impact our calculation of the fair value of the awards and will therefore impact the amount of expense reflected in our statement of operations for any given period. Fair value for restricted stock is based on the market price on the day of grant. See Note 6 for additional discussion.
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UROLOGIX, INC.
Notes to Financial Statements
Net Loss Per Common Share
Basic loss per share was computed by dividing the net loss by the weighted average number of shares of common stock and participating securities outstanding during the periods presented. Diluted net loss per share was computed by dividing the net loss by the weighted average number of shares of common stock outstanding plus all potentially dilutive common shares that result from stock options. The number of shares used in earnings per share computations is as follows (in thousands):
| | | | | | | | | | |
| | For the years ended June 30, | |
| | 2012 | | 2011 | | 2010 | |
Weighted average common shares outstanding - basic | | | 14,741 | | | 14,556 | | | 14,508 | |
Dilutive effect of stock options | | | - | | | - | | | - | |
Weighted average common shares outstanding - diluted | | | 14,741 | | | 14,556 | | | 14,508 | |
The dilutive effect of stock options in the above table excludes 1.2 million, 1.9 million, and 1.2 million of underlying options for which the exercise price was higher than the average market price for the years ended June 30, 2012, 2011 and 2010, respectively. In addition, dilutive potential common shares of 26,653 shares, 918 shares and 73,890 shares, where the exercise price was lower than the average market price, were excluded from diluted weighted average common shares outstanding for the year ended June 30, 2012, 2011 and 2010, respectively as they would be anti-dilutive due to our net loss for those years.
Research and Development Costs
Research and development costs are charged to expense as incurred.
Financial Instruments
The carrying amounts of our accounts receivable and accounts payable approximate fair value due to their short-term nature.
Use of Estimates
The preparation of financial statements in conformity with U.S. generally accepted accounting principles 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. These estimates and assumptions are based on management’s best estimates and judgments. Management evaluates its estimates and assumptions on an ongoing basis using historical experience and other factors that management believes to be reasonable under the circumstances, including the current economic environment. The Company adjusts such estimates and assumptions when facts and circumstances dictate. These include, among others, the continued difficult economic conditions, tight credit markets, Medicare reimbursement rate uncertainty, and a decline in consumer spending and confidence, all of which have combined to increase the uncertainty inherent in such estimates and assumptions. As future events and their effects cannot be determined with precision, actual amounts could differ significantly from those estimated at the time the financial statements are prepared. Changes in those estimates resulting from continuing changes in the economic environment will be reflected in the financial statements in future periods.
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UROLOGIX, INC.
Notes to Financial Statements
Recently Issued Accounting Standards
In September 2011, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2011-08 “Testing Goodwill for Impairment” (ASU 2011-08), which amends ASC 350 “Intangibles – Goodwill and Other.” This update permits entities to make a qualitative assessment of whether it is more likely than not that a reporting unit’s fair value is less than its carrying amount before applying the two-step goodwill impairment test. If an entity concludes that it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, it would not be required to perform the two-step impairment test for that reporting unit. This update is effective for fiscal years beginning after December 15, 2011. The Company does not anticipate the adoption of this statement to have an impact on its financial position or results of operations.
In May 2011, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2011-04, “Fair Value Measurements (Topic 820) – Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs”, which is effective for annual reporting periods beginning after December 15, 2011. This guidance amends certain accounting and disclosure requirements related to fair value measurements. The Company does not anticipate the adoption of this statement to have an impact on its financial position or results of operations.
The Company incurred net losses of $4,695,000 in fiscal year 2012 and $3,733,000 and $2,169,000 in the fiscal years ended 2011 and 2010, respectively. In addition, the Company has accumulated aggregate net losses from the inception of business through June 30, 2012 of $114,726,000. At June 30, 2012, the Company had cash and cash equivalents of $1,899,000 and no debt outstanding.
During the first quarter of fiscal 2012, the Company entered into a license agreement with Medtronic for the Prostiva RF Therapy System. The Company paid Medtronic $500,000 on September 6, 2011 for half of the $1,000,000 initial license fee, with the remaining $500,000 payable on the one-year anniversary of this date, September 6, 2012. As part of the licensing agreement, royalty payments for Prostiva products are paid one year in arrears based on the contract year, with the first payment of royalties due October 6, 2012. In addition, inventory payments were deferred on both inventory transferred following the close of the agreement and on shipments of products purchased. Deferred payments to be made on inventory received through June 30, 2012, which are due in fiscal year 2013, approximate $3.8 million.
The Company completed a secondary offering in the first quarter of fiscal year 2013 which contributed approximately $3.8 million of net proceeds. However, as a result of the Company’s history of operating losses and negative cash flows from operations, and the licensing fee, royalties and inventory payments related to the Prostiva acquisition, there is substantial doubt about our ability to continue as a going concern. The Company’s cash and cash equivalents may not be sufficient to sustain day-to-day operations for the next 12 months and the Company’s ability to continue as a going concern is dependent upon our ability to generate positive cash flows from our business, as well as available borrowing under our line of credit with Silicon Valley Bank entered into on January 11, 2012. The line of credit allows borrowing by the Company of up to the lesser of $2.0 million or the defined borrowing base consisting of 80% of eligible accounts receivable. As of June 30, 2012 the Company has not borrowed against this facility. There is no assurance that our cash, cash generated from operations, if any, and available borrowing under our agreement with Silicon Valley Bank will be sufficient to fund our anticipated capital needs and operating expenses, particularly if product sales do not generate revenues in the amounts currently anticipated or if our operating costs are greater than anticipated.
The Company’s current plan to improve its cash and liquidity position is to generate expected revenues both from sales of our Cooled ThermoTherapy and Prostiva products which will help generate positive cash flow from our business.
If the Company is unable to generate sufficient liquidity to meet its needs and in a timely manner, the Company may be required to further reduce expenses and curtail capital expenditures, sell assets, or suspend or discontinue operations. If the Company is unable to make the required payments to Medtronic with respect to the Prostiva acquisition, it would give Medtronic the right to terminate the Company’s rights to sell the Prostiva product.
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UROLOGIX, INC.
Notes to Financial Statements
The financial statements as of and for the year ended June 30, 2012 do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classifications of liabilities that may result should the Company be unable to continue as a going concern.
| |
4. | Acquisition of Prostiva Radio Frequency Therapy |
On September 6, 2011, the Company entered into agreements with Medtronic, Inc. relating to the Prostiva® Radio Frequency (RF) Therapy System, a minimally invasive medical product for the treatment of BPH. As a result of those agreements, the Company obtained an exclusive, worldwide license to the Prostiva technology for a ten year term, with an option to purchase the technology anytime during the ten year term for a maximum purchase price of $10 million.
The above transaction was accounted for as a business combination. Under the terms of the agreements the Company will be responsible for the manufacturing, sourcing, operations, compliance, quality, regulatory and other matters of the Prostiva RF Therapy System. The Company entered into this transaction to increase its addressable patient population, customer base and sales force. As a result of this transaction, Urologix became the clear market leader for providing in-office treatment solutions for symptomatic or obstructive BPH with over 50 percent market share.
The Company hired independent valuation specialists to assist management with its determination of the fair value of the consideration to be paid as well as the fair value of the assets acquired in the acquisition of the Prostiva RF Therapy System. Management is responsible for the estimates and valuations. The work performed by the independent valuation specialists has been considered in management’s estimates of fair value reflected below. In addition, since the initial recognition of the fair value of consideration to be paid and assets acquired, additional information has become available during the measurement period that relate to conditions or circumstances that existed at the date of acquisition. This additional information has resulted in revisions to the fair value of consideration to be paid and assets acquired as of the date of acquisition.
The Company estimates that the fair value of the consideration to be paid to acquire the Prostiva business is approximately $7.0 million, after an adjustment of $149,000 made subsequent to the original estimate of $7.2 million. Additional information obtained during the measurement period that existed at the acquisition date resulted in the adjustment to the fair value of consideration to be paid. Included in the total consideration is the licensing fee, of which $500,000 was paid on September 6, 2011 and $500,000 is due on the anniversary of this date, deferred payments for acquired inventory, and royalties on Prostiva products sold, subject to minimum and maximum amounts.
The consideration is categorized as contingent or non-contingent. The non-contingent consideration consists of the $500,000 paid at the date of acquisition, as well as future cash payments with an acquisition date fair value of $3.8 million. The estimated royalty payments between the minimum and maximum amounts are contingent consideration and are measured at fair value at the acquisition date by applying an appropriate discount rate that reflects the risk factors associated with the payment streams. The acquisition date fair value of the contingent consideration was $2.7 million.
The Company assumed no liabilities in the acquisition. The fair values of the assets acquired by major class in the acquisition are as follows (in thousands):
| | | | |
Manufacturing Equipment | | $ | 128 | |
Finished Goods Inventory | | | 1,405 | |
Identifiable Intangible Assets | | | | |
Patents and Technology | | | 1,529 | |
Customer List | | | 531 | |
Trademarks | | | 325 | |
Goodwill | | | 3,115 | |
Total assets acquired | | $ | 7,033 | |
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UROLOGIX, INC.
Notes to Financial Statements
Subsequent to the original acquisition accounting, the Company obtained additional information that existed at the acquisition date, which increased the amount of Prostiva inventory acquired as part of the acquisition by $43,000 and reduced the acquisition date fair value of future cash payments by $149,000. These adjustments resulted in a reduction of goodwill of $192,000.
Additional information that existed at the acquisition date but was at that time unknown to the Company may become known to the Company during the remainder of the measurement period, a period not to exceed 12 months from the acquisition date. Changes to amounts recorded as assets may result in a corresponding adjustment to goodwill.
The goodwill of $3.1 million represents the value of the functional business already in place at the time of acquisition and the expected higher future revenue stream from the combined product lines as a result of expected synergies from the combined businesses. For tax purposes, the goodwill value at acquisition was $1.7 million. For tax purposes, the payments related to the acquisition of Prostiva RF Therapy System patent rights are treated as payment in respect of a license agreement and therefore tax deductible in the current year. The inventory and manufacturing equipment acquired is treated for tax purposes as an asset purchase and will be depreciated. The goodwill and other intangible assets are recorded for tax as an acquisition and are amortized and deductible over 15 years for tax purposes.
The patents and technology intangible assets consist of patents and technology, many of which are used in the Prostiva RF Therapy System. Trademarks consist of the use of the Prostiva name in the BPH marketplace. The Company used a relief from royalty method to determine the estimated fair values of the patents and technology and trademark intangible assets. The relief from royalty method applies a cost-savings concept under the notion that if Urologix did not own the asset it would pay a royalty to a third party for the right to use that asset. The fair value of the patents and technology and trademarks are based on the present value of the royalty payments saved by owning the asset, based on an appropriate market participant royalty rate. Revenue on which the royalty was calculated was projected over the expected remaining useful life of the core patents and technology and trademarks.
The Company used a Multi-Period Excess Cash Flow model under the income approach to determine the fair value of the customer list. The Multi-Period Excess Cash Flow model projects future cash flows based on management’s estimates and assumptions, including a historical attrition rate, that will be derived from the sale of products to existing Prostiva customers, adjusted to present value by applying an appropriate discount rate that reflects the risk factors associated with the cash flow stream.
For the fiscal year ended June 30, 2012, the Company incurred $287,000 of transaction related expenses, primarily related to legal and accounting fees, which are included in general and administrative expenses. Total cumulative transaction expenses were $391,000, of which $103,000 were incurred in fiscal year 2011 and included in selling, general and administrative expenses in that year.
In addition to the above transaction payments, the Company is required to pay an annual licensing fee of $65,000 to Medtronic, as well as a monthly $30,000 transition services fee that began in November 2011 for transition services provided by Medtronic until the earlier of the end of the initial term of the Transition Agreement or the last of certain United States or European Union regulatory transfers. As these fees are for services being provided by Medtronic on a go-forward basis, they are not included in total consideration for the acquisition of the Prostiva RF Therapy System and will be expensed in the period incurred and reported as part of selling, general and administrative expenses.
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UROLOGIX, INC.
Notes to Financial Statements
The revenue and operating expenses related to the Prostiva business have been included in the Company’s results of operations since September 6, 2011, the date of acquisition. The acquired Prostiva business was not operated as a separate subsidiary, division or entity by Medtronic, Inc. As a result, the Company is unable to accurately determine earnings/(loss) for the Prostiva business on a standalone basis since the date of acquisition. Prostiva revenue included in reported Urologix revenue for the fiscal year ended June 30, 2012 totaled approximately $5.4 million.
As previously mentioned, as the Prostiva business was not operated as a separate subsidiary, division or entity, Medtronic did not maintain separate financial statements for the Prostiva business. As a result, the following unaudited pro-forma financial information represents revenue and only direct expenses for the Prostiva business prior to the September 6, 2011 acquisition date. The below pro-forma financial information shows the revenue and net loss as if the businesses were combined for the fiscal years ended June 30, 2012 and 2011 (in thousands except per share amounts).
| | | | | | | |
| | Fiscal Year Ended | |
| | June 30, | |
| | (Unaudited) | |
| | 2012 | | 2011 | |
Pro forma net revenue | | $ | 18,283 | | $ | 23,523 | |
Pro forma net loss | | $ | (4,960 | ) | $ | (2,862 | ) |
Pro forma net loss per share (basic) | | $ | (0.34 | ) | $ | (0.20 | ) |
Pro forma net loss per share (diluted) | | $ | (0.34 | ) | $ | (0.20 | ) |
The above pro forma financial information excludes the non-recurring acquisition related expenses of $391,000. However, the pro forma financial information does include the amortization and depreciation expense from acquired Prostiva assets, the implied interest expense on deferred acquisition payments, and the expense related to the increase in the fair value of acquired Prostiva inventories as if they had occurred as of July 1st of the first fiscal year presented. The pro forma financial information is not indicative of the results that would have actually been realized if the acquisitions had occurred as of the beginning of fiscal years 2012 or 2011, or of results that may be realized in the future.
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5. | Fair Value Measurements |
The Company follows the authoritative guidance on fair value measurements and disclosures with respect to assets and liabilities that are measured at fair value on both a recurring and non-recurring basis. Under this guidance, fair value is defined as the exit price, or the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants as of the measurement date. The authoritative guidance also establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. The hierarchy is broken down into three levels defined as follows:
| | |
| • | Level 1 - Inputs are quoted prices in active markets for identical assets or liabilities. |
| | |
| • | Level 2 - Inputs include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active and inputs (other than quoted prices) that are observable for the asset or liability, either directly or indirectly. |
| | |
| • | Level 3 - Inputs are unobservable for the asset or liability. |
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UROLOGIX, INC.
Notes to Financial Statements
As part of the consideration for the Prostiva acquisition, (see Note 4), the estimated royalty payments between the minimum and maximum amounts are considered contingent consideration. The contingent consideration is measured at fair value at the acquisition date and is remeasured to fair value at each reporting date until the contingency is resolved using Level 3 inputs. The Level 3 inputs consist of the projected fiscal year of payments based on projected revenues and an estimated discount rate. The fair value is determined by applying an appropriate discount rate that reflects the risk factors associated with the payment streams. The changes in fair value that do not relate to the initial recognition of the liability as of the acquisition date are recognized in earnings. The Company estimates the fair value of the future contingent consideration at $2.5 million at June 30, 2012. As a result, the Company recognized a contingent consideration gain of $172,000 during the fourth quarter of fiscal year 2012. The following table provides a reconciliation of the beginning and ending balances of the contingent consideration liability:
| | | | |
(in thousands) | | Fiscal Year
2012 | |
Beginning Balance | | $ | 2,734 | |
Accretion expense | | | 300 | |
Change in fair value of contingent consideration | | | (172 | ) |
Ending Balance | | $ | 2,862 | |
| |
6. | Stock Options and Restricted Stock Awards |
The Company has an equity compensation plan, the 1991 Stock Option Plan (the “1991 Plan”), that provides for the granting of incentive stock options to employees and nonqualified stock options and restricted stock to employees, directors and consultants. As of June 30, 2012, we had reserved 4,450,910 shares of common stock under the 1991 Plan, and 486,842 shares were available for future grants. Options expire 10 years from the date of grant and typically vest 25 percent after the first year of service with the remaining vesting 1/36th each month thereafter. Under the current terms of the 1991 Plan, persons serving as non-employee directors at the date of the annual shareholder meeting receive an option grant to purchase 10,000 shares of common stock at a price equal to fair market value on the date of grant. Generally, such options are immediately exercisable on the date of grant, and expire 10 years from the date of grant, subject to earlier termination one year after the person ceases to be a director of the Company.
Options were granted to a non-employee consultant to purchase a total of 20,000 shares in both the first quarter of fiscal years 2011 and 2010. These options are non-qualified options which expire 10 years from the grant date and become fully vested over 24 months from the date of grant provided the consultant is still providing services to the Company. As these options were granted to a non-employee consultant, the final value of these options will be determined at their vesting dates, rather than the date of grant, using the Black-Scholes option pricing model and marked to market at each reporting date until they become fully vested. The Company uses the fair value recognition provisions of the revised authoritative guidance for equity-based compensation and applies the modified prospective method in determining stock option expense. Our results of operations reflect compensation expense for new stock options granted and vested under the 1991 Plan and the unvested portion of previous stock option grants and restricted stock which vest during the year.
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Notes to Financial Statements
Amounts recognized in the financial statements related to stock-based compensation for the fiscal years ended June 30, 2012, 2011 and 2010 were as follows (in thousands):
| | | | | | | | | | |
| | 2012 | | 2011 | | 2010 | |
Cost of goods sold | | $ | 29 | | $ | 38 | | $ | 44 | |
Sales and marketing | | | 88 | | | 43 | | | 68 | |
General and administrative | | | 207 | | | 244 | | | 282 | |
Research and development | | | 35 | | | 44 | | | 46 | |
Total cost of stock-based compensation | | | 359 | | | 369 | | | 440 | |
Tax benefit of options issued | | | - | | | - | | | - | |
Total stock-based compensation, net of tax | | $ | 359 | | $ | 369 | | $ | 440 | |
The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model. We use historical data to estimate expected volatility, the period of time that option grants are expected to be outstanding, as well as employee termination behavior. The risk-free rate is based on the U.S. Treasury yield curve in effect at the time of grant for the estimated life of the option. For restricted stock awards, the fair value is calculated as the market price on date of grant and we amortize the fair value on a straight-line basis over the requisite service period of the award. The following weighted-average assumptions were used to estimate the fair value of options granted during the fiscal years ended June 30, 2012, 2011 and 2010 using the Black-Scholes option-pricing model:
| | | |
| 2012 | 2011 | 2010 |
Volatility | 78.00% | 80.00% | 77.00% |
Risk-free interest rate | 0.4% | 0.9% | 1.7% |
Expected option life | 3.3 years | 3.6 years | 3.0 years |
Stock dividend yield | - | - | - |
A summary of our options and option activity for the fiscal year ended June 30, 2012 is as follows:
| | | | | | | | | | | | | | | | | | | | | |
Options Outstanding | | | Options Exercisable | |
Range of Exercise | | Outstanding as of
June 30, 2012 | | Weighted
Avg.
Remaining
Contractual
Life | | Weighted
Avg. Exercise
Price | | | Exercisable as of
June 30, 2012 | | Weighted
Avg. Exercise
Price | |
$ | - | | $ | 2.43 | | | 1,521,972 | | | 7.24 | | $ | 1.33 | | | | 1,046,255 | | $ | 1.47 | |
$ | 2.43 | | $ | 4.86 | | | 83,023 | | | 3.40 | | $ | 3.30 | | | | 83,023 | | $ | 3.30 | |
$ | 4.86 | | $ | 7.29 | | | 8,600 | | | 2.84 | | $ | 5.64 | | | | 8,600 | | $ | 5.64 | |
$ | 7.29 | | $ | 12.15 | | | - | | | - | | $ | - | | | | - | | $ | - | |
$ | 12.15 | | $ | 14.58 | | | 7,500 | | | 2.06 | | $ | 12.23 | | | | 7,500 | | $ | 12.23 | |
| | | | | | | 1,621,095 | | | 7.00 | | $ | 1.50 | | | | 1,145,378 | | $ | 1.70 | |
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UROLOGIX, INC.
Notes to Financial Statements
| | | | | | | | | | | | | | |
| | Number of
Options | | | Weighted-avg.
Exercise Price
Per Option | | Weighted-avg.
Remaining
Contractual
Term | | Aggregate
Intrinsic Value | |
Outstanding at July 1, 2011 | | | 1,744,873 | | | $ | 1.77 | | | | | $ | 29,631 | |
Options granted | | | 249,000 | | | | 0.89 | | | | | | | |
Options forfeited | | | (109,437 | ) | | | 1.12 | | | | | | | |
Options expired | | | (158,921 | ) | | | 4.04 | | | | | | | |
Options exercised | | | (104,420 | ) | | | 1.12 | | | | | | | |
Outstanding at June 30, 2012 | | | 1,621,095 | | | $ | 1.50 | | | 7.00 | | $ | 1,504 | |
Exercisable at June 30, 2012 | | | 1,145,378 | | | $ | 1.70 | | | 6.37 | | $ | 1,425 | |
The aggregate intrinsic value in the table above is based on our closing stock price of $0.77 on June 29, 2012, the last trading day prior to June 30, 2012, which would have been received by the optionees had all options been exercised on that date. The aggregate intrinsic value for options exercisable at June 30, 2011 and 2010 was $18,000 and $34,000, respectively, when the closing price of our stock on June 30, 2011 and 2010 was $0.95 and $1.07, respectively.
The weighted average fair value of our options at their grant date was approximately $0.47, $0.51 and $0.69 for options granted during the fiscal years ended June 30, 2012, 2011 and 2010, respectively. There was a negative intrinsic value of approximately $14,000 on options exercised during fiscal year 2012 as some options were exercised at a market price lower than the exercise price. The total intrinsic value of options exercised during the fiscal years ended June 30, 2011 and 2010 was $360, and $7,000 respectively.
A summary of the status of our non-vested options as of June 30, 2012 is as follows:
| | | | | | | | |
| | Number of Options | | Weighted-avg. Grant-
Date Fair Value | |
Non-vested at June 30, 2011 | | | 747,578 | | | | | $0.62 | | |
Options granted | | | 249,000 | | | | | 0.47 | | |
Options forfeited | | | (109,437 | ) | | | | 0.52 | | |
Options vested | | | (411,424 | ) | | | | 0.70 | | |
Non-vested at June 30, 2012 | | | 475,717 | | | | | 0.53 | | |
A summary of restricted stock award activity is as follows:
| | | | | | | | |
| | Number of Restricted
Stock Awards | | Weighted-avg. Grant-Date
Fair Value | |
Non-vested at June 30, 2011 | | | 126,608 | | | | | $0.95 | | |
Awards granted | | | 72,168 | | | | | 0.97 | | |
Awards forfeited | | | - | | | | | - | | |
Awards vested | | | (115,200 | ) | | | | 1.05 | | |
Non-vested at June 30, 2012 | | | 83,576 | | | | | 0.98 | | |
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UROLOGIX, INC.
Notes to Financial Statements
As of June 30, 2012, total unrecognized compensation cost related to non-vested stock options and restricted stock awards granted under our plan was $223,000 and $33,000, respectively. That cost is expected to be recognized over a weighted-average period of 2.3 years for non-vested stock options and 0.4 years for restricted stock awards. The total fair value of options vested during the fiscal years ended June 30, 2012, 2011 and 2010 was $288,000, $281,000 and $208,000, respectively.
Other accrued expenses is comprised of the following as of June 30 (in thousands):
| | | | | | | |
| | 2012 | | 2011 | |
Sales tax accrual | | $ | 237 | | $ | 188 | |
Other | | | 542 | | | 353 | |
Total other accrued expenses | | $ | 779 | | $ | 541 | |
The components of income tax expense (benefit) for each of the years in the three-year period ended June 30, 2012 consist of the following (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | For the fiscal year ended June 30, | |
| | 2012 | | 2011 | | 2010 | |
| | Current | | Deferred | | Total | | Current | | Deferred | | Total | | Current | | Deferred | | Total | |
Federal | | $ | - | | $ | 32 | | $ | 32 | | $ | (3 | ) | $ | - | | $ | (3 | ) | $ | (109 | ) | $ | - | | $ | (109 | ) |
State | | | 20 | | | 3 | | | 23 | | | 11 | | | - | | | 11 | | | 21 | | | - | | | 21 | |
Total | | $ | 20 | | $ | 35 | | $ | 55 | | $ | 8 | | $ | - | | $ | 8 | | $ | (88 | ) | $ | - | | $ | (88 | ) |
A reconciliation of our statutory tax expense (benefit) to our actual tax expense (benefit) is as follows:
| | | | | | | | | | |
| | For the years ended June 30, | |
| | 2012 | | 2011 | | 2010 | |
Federal statutory rate at 34 percent | | $ | (1,578 | ) | $ | (1,267 | ) | $ | (767 | ) |
State taxes, net of federal tax expense (benefit) and state valuation allowance | | | (135 | ) | | (125 | ) | | (36 | ) |
Nondeductible expenses | | | 49 | | | 47 | | | 52 | |
Stock –based compensation | | | 60 | | | 52 | | | 77 | |
General business credits | | | - | | | (20 | ) | | (77 | ) |
Net operating loss carryback claim | | | - | | | - | | | (84 | ) |
Adjustments to net operating losses and credits | | | 3,125 | | | 4,236 | | | 2,061 | |
Other | | | 3 | | | (9 | ) | | (11 | ) |
Change in valuation allowance | | | (1,469 | ) | | (2,906 | ) | | (1,303 | ) |
| | $ | 55 | | $ | 8 | | $ | (88 | ) |
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UROLOGIX, INC.
Notes to Financial Statements
The components of our net deferred tax assets and liabilities are as follows (in thousands):
| | | | | | | |
| | June 30, | |
| | 2012 | | 2011 | |
Deferred Tax Assets: | | | | | | | |
Non-Current: | | | | | | | |
Net operating loss carry forward | | $ | 30,730 | | $ | 31,473 | |
Definite-lived intangibles | | | 2,783 | | | 2,482 | |
Alternative minimum tax credit | | | 3 | | | 3 | |
Federal and state general business credits | | | 862 | | | 865 | |
Non-qualified stock-based compensation | | | 525 | | | 535 | |
Property, plant and equipment | | | 62 | | | 53 | |
Current: | | | | | | | |
Accrued expenses | | | 434 | | | 330 | |
Gross deferred tax assets | | | 35,399 | | | 35,741 | |
Deferred Tax Liabilities: | | | | | | | |
Non-Current: | | | | | | | |
Amortization of indefinite-lived intangible | | | (35 | ) | | - | |
Contingent consideration on acquisition | | | (1,136 | ) | | - | |
Gross deferred tax liabilities | | | (1,171 | ) | | - | |
Net deferred tax assets before valuation allowance | | | 34,228 | | | 35,741 | |
Less: valuation allowance | | | (34,263 | ) | | (35,741 | ) |
Total net deferred tax liability | | $ | (35 | ) | $ | - | |
Included in the valuation allowance amounts above is $541,000 and $538,000 as of June 30, 2012 and 2011, respectively, which is attributable to increases in the net operating loss carry forwards resulting from the exercise of stock options. These amounts will be recorded as an increase to additional paid-in-capital if it is determined in the future that this portion of the valuation allowance is no longer required, and the net operating loss generated by these deductions is utilized on the tax return.
At June 30, 2012, the expiration dates and amounts of our net operating loss carryforwards and credits for federal income tax purposes are as follows (in thousands):
| | | | | | | |
Years expiring (in thousands) | | Net Operating
Loss | | Credits | |
June 30, 2013 | | $ | 15,907 | | $ | - | |
June 30, 2014 – June 30, 2018 | | | - | | | - | |
June 30, 2019 – June 30, 2023 | | | 38,920 | | | - | |
June 30, 2024 – June 30, 2032 | | | 28,860 | | | 656 | |
| | | | | | | |
| | $ | 83,687 | | $ | 656 | |
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UROLOGIX, INC.
Notes to Financial Statements
The Company completed a Section 382 analysis of the net operating loss carryforwards through February 1, 2006. Through that analysis it was determined that none of the remaining pre-February 1, 2006 net operating loss carryforwards are subject to a Section 382 limitation. Net operating losses generated since February 1, 2006 have not been analyzed for any Section 382 limitations and therefore may or may not be fully realizable in the future.
As of June 30, 2012, the Company had approximately $14,000 of unrecognized tax benefits related to state tax liabilities which would favorably impact the effective income tax rate in any future period, if recognized. During the year ended June 30, 2012, there were no significant changes to the total gross unrecognized tax benefits. It is expected that the amount of unrecognized tax benefits for positions which we have identified will not change significantly in the next twelve months.
We recognize accrued interest and penalties related to unrecognized tax benefits as a component of income tax expense. We file income tax returns in the United States (U.S.) federal jurisdiction as well as various state jurisdictions. We are subject to U.S. federal income tax examinations by tax authorities for fiscal years after 1997 due to unexpired net operating loss carryforwards originating in and subsequent to that fiscal year. Income tax examinations we may be subject to for the various state taxing authorities vary by jurisdiction.
Deferred income as of June 30, 2012 and 2011 consists of deferred warranty service income of $7,000 and $30,000, respectively. Deferred warranty service income is for prepayments made to us for warranty service contracts and is recognized over the contract period ranging from 12 to 24 months.
The Company had approximately $3,115,000 of goodwill as of June 30, 2012 related to the acquisition of the Prostiva RF Therapy System on September 6, 2011. Please refer to Note 4 to the Notes to the Condensed Financial Statements for further information regarding this acquisition. Goodwill will be tested for impairment annually on April 30th or more frequently if changes in circumstance or the occurrence of events suggests an impairment may exist.
Intangible assets as of June 30, 2012 and 2011 consisted of the following (in thousands):
| | | | | | | | | | | | | | | | | | | |
| | June 30, 2012 | | June 30, 2011 | |
| | Carrying
Value | | Accumulated
Amortization | | Net
Carrying
Value | | Carrying
Value | | Accumulated
Amortization | | Net
Carrying
Value | |
Prostiva Acquisition | | | | | | | | | | | | | | | | | | | |
Patents and Technology | | $ | 1,529 | | $ | (142 | ) | $ | 1,387 | | $ | - | | $ | - | | $ | - | |
Customer Base | | | 531 | | | (49 | ) | | 482 | | | - | | | - | | | - | |
Trademarks | | | 325 | | | (17 | ) | | 308 | | | - | | | - | | | - | |
EDAP Acquisition | | | | | | | | | | | | | | | | | | | |
Customer Base | | | 2,300 | | | (2,246 | ) | | 54 | | | 2,300 | | | (2,221 | ) | | 79 | |
Other | | | 32 | | | (1 | ) | | 31 | | | 24 | | | (1 | ) | | 23 | |
Total intangible assets | | $ | 4,717 | | $ | (2,455 | ) | $ | 2,262 | | $ | 2,324 | | $ | (2,222 | ) | $ | 102 | |
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UROLOGIX, INC.
Notes to Financial Statements
Amortization expense associated with intangible assets for the fiscal year ended June 30, 2012 was $233,000 and includes amortization expense recorded in cost of goods sold. Amortization expense associated with intangible assets for the fiscal year ended June 30, 2011 was $24,000. Please refer to Note 4 of the Condensed Financial Statements for further information regarding this acquisition. All intangible assets are amortized using the straight-line method over their estimated remaining useful lives. Patents and technology, customer base and trademarks related to the Prostiva acquisition are being amortized over 9 years, 9 years, and 16 years, respectively. The customer base related to the EDAP acquisition is being amortized over its remaining useful life of 2.25 years, and other intangible assets related to patent costs are amortized upon issuance over their estimated useful lives.
Future amortization expense related to the net carrying amount of intangible assets is estimated to be as follows (in thousands):
| | | | |
Fiscal Years | | | | |
2013 | | $ | 276 | |
2014 | | | 276 | |
2015 | | | 258 | |
2016 | | | 252 | |
2017 | | | 252 | |
On January 11, 2012, the Company entered into a Loan and Security Agreement with Silicon Valley Bank (“SVB”). Under the Loan Agreement, SVB will make revolving advances to the Company of the lesser of $2.0 million or the defined borrowing base consisting of 80% of eligible accounts. The principal amount outstanding under the revolving line of credit will accrue interest at a floating per annum rate equal to either the prime rate plus 2.75% if the Company is Streamline Eligible, or the prime rate plus 3.75% if the Company is not Streamline Eligible. Interest is payable monthly. In order to be “Streamline Eligible,” the Company’s unrestricted cash maintained at SVB for the immediately preceding month has to be greater than the outstanding obligations as well as no event of default continuing. The Company also must meet a financial covenant that requires the Company’s maximum loss, on a trailing three month period, not be greater than $1.5 million, tested on the last day of each month. In connection with the Loan Agreement, the Company granted SVB a first priority security interest in certain properties, rights and assets of the Company, specifically excluding intellectual property. All amounts borrowed by the Company under this revolving line of credit with SVB will be due January 11, 2014. As of June 30, 2012, the Company had no borrowings outstanding on this credit line.
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UROLOGIX, INC.
Notes to Financial Statements
| |
13. | Commitments and Contingencies |
Leases
The Company leases its facility and certain equipment under non-cancelable operating leases that expire at various dates through fiscal year 2016. Rent expense related to operating leases was approximately $216,000, $197,000, and $215,000 for the years ended June 30, 2012, 2011 and 2010, respectively. On September 9, 2010, the Company entered into a new lease agreement with our current landlord, covering the same square footage, for a period of seventy-two months, effective August 1, 2010. Future minimum annual lease commitments under non-cancelable operating leases with initial terms of one year or more are as follows:
| | | | | | | | | | | | | | | | |
| | 2013 | | 2014 | | 2015 | | 2016 | | 2017 | |
| | | | | | | | | | | | | | | | |
Building and equipment leases | | $ | 218 | | $ | 213 | | $ | 214 | | $ | 217 | | $ | 20 | |
Prostiva Payments
Prostiva payments are commitments related to the acquisition of the Prostiva RF Therapy product line from Medtronic on September 6, 2011 (see Note 4 for more details).
| | | | | | | | | | | | | | | | |
| | Fiscal Years | |
| | 2013 | | 2014 | | 2015 | | 2016 | | 2017 | |
| | | | | | | | | | | | | | | | |
Prostiva Payments Annual license maintenance fee | | | 65 | | | 65 | | | 65 | | | 65 | | | 65 | |
Contingencies
We have been and are involved in various legal proceedings and other matters that arise in the normal course of our business, including product liability claims that are inherent in the testing, production, marketing and sale of medical devices. The ultimate liabilities, if any, cannot be determined at this time. However, based upon currently available information, we believe that the ultimate resolution of these matters will not have a material effect on the financial position, liquidity or results of operations of the Company.
The Company provides a 401(k) savings plan to which eligible employees may make pretax payroll contributions up to the allowed limit of the Internal Revenue Service. Company matching contributions are discretionary, and none have been made to date.
On July 5, 2012 we completed a secondary offering of 5.2 million shares of our common stock at a public offering price of $0.75 per share. On August 7, 2012 we completed the sale of an additional 780,000 shares of our common stock at the same price of $0.75 per share. This sale of 780,000 shares was pursuant to a 45-day over-allotment option granted to the underwriter. The Company received approximately $3.8 million in net proceeds from these offerings, after deducting underwriting discounts and commissions and estimated expenses payable by the Company.
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| |
ITEM 9. | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE |
None.
| |
ITEM 9A. | CONTROLS AND PROCEDURES |
(a) Evaluation of Disclosure Controls and Procedures
The Company’s Chief Executive Officer, Stryker Warren, Jr., and Chief Financial Officer, Brian J. Smrdel, have evaluated the Company’s disclosure controls and procedures as of June 30, 2012. Based upon their review, they have concluded that these controls and procedures are effective.
The Company’s Chief Executive Officer and Chief Financial Officer used the definition of “disclosure controls and procedures” as set forth in Rule 13a-15(e) under the Exchange Act in making their conclusion as to the effectiveness of such controls and procedures.
(b)Changes in Internal Controls over Financial Reporting
There have been no changes in internal control over financial reporting that occurred during the fourth quarter ended June 30, 2012 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
The Company’s internal control report is included in this report under Item 8, under the caption “Management’s Report on Internal Control over Financial Reporting.”
| |
ITEM 9B. | OTHER INFORMATION |
None.
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PART III
| |
ITEM 10. | DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE |
Information required under this item is contained in the following sections of the Company’s Proxy Statement for the 2012 Annual Meeting of Shareholders (the “2012 Proxy Statement”), a definitive copy of which will be filed with the Commission within 120 days of the end of the fiscal year covered by this Annual Report on Form 10-K and is incorporated herein by reference: Election of Directors, Information Regarding Executive Officers, Section 16(a) Beneficial Ownership Reporting Compliance, Corporate Governance, and Code of Ethics.
| |
ITEM 11. | EXECUTIVE COMPENSATION |
Information required under this item is contained in the following sections of the Company’s 2012 Proxy Statement and is incorporated herein by reference: Executive Compensation, Compensation of Directors, and Employment and Change in Control Arrangements.
| |
ITEM 12. | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS |
The information required under this item with respect to Item 403 of Regulation S-K is contained in the following sections of the Company’s 2012 Proxy Statement and is incorporated herein by reference: Security Ownership of Principal Shareholders and Management. The information required under this item with respect to Item 201(d) of Regulation S-K is contained in Item 5 of this Annual Report on Form 10-K.
| |
ITEM 13. | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE |
Information required under this item is contained in the following sections of the Company’s 2012 Proxy Statement and is incorporated herein by reference: Certain Relationships and Related Persons Transactions, Policy Regarding Transactions with Related Persons, and Corporate Governance.
| |
ITEM 14. | PRINCIPAL ACCOUNTANT FEES AND SERVICES |
Information required under this item is contained in the following sections of the Company’s 2012 Proxy Statement and is incorporated herein by reference: Independent Registered Public Accountants.
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PART IV
| |
ITEM 15. | EXHIBITS AND FINANCIAL STATEMENTS SCHEDULES |
| |
(a) | Documents filed as part of this report. |
| | |
| (1) | Financial Statements. |
| | The financial statements of the Company are set forth at Item 8. “Financial Statements and Supplementary Data” of this Annual Report on Form 10-K. |
| | |
| (2) | Financial Statement Schedules for fiscal years ended June 30, 2012, 2011 and 2010.
None. |
| | | | |
Exhibit
Number | | Document | | Incorporated by Reference To: |
| | | | |
3.1 | | Amended and Restated Articles of Incorporation. | | Exhibit 3.1 of the Company’s Registration Statement on Form S-1 (File No. 333-03304) filed on May 28, 1996 (the “1996 Registration Statement”). |
| | | | |
3.2 | | Amended and Restated Bylaws of Urologix, Inc., as amended on December 5, 2006. | | Exhibit 3.2 of the Company’s Form 8-K dated December 5, 2006. |
| | | | |
4.1 | | Certificate of Designation, Preferences and Rights of Series A Junior Participating Preferred Stock | | Exhibit 1 of the Company’s Registration Statement on Form 8-A (File No. 000-28414) filed January 16, 1997. |
| | | | |
10.1 | | * Amended and Restated Urologix, Inc. 1991 Stock Option Plan, as amended through June 21, 2008 | | Exhibit 10.1 of the Company’s Form 10-K for the year ended June 30, 2009. |
| | | | |
10.2 | | Letter Agreement Regarding Offer of Employment between Urologix, Inc. and Stryker Warren Jr. dated June 24, 2008. | | Exhibit 10.1 to Current Report on Form 8-K dated June 24, 2008. |
| | | | |
10.3 | | Letter Agreement Regarding Offer of Employment between Urologix, Inc. and Gregory Fluet dated July 14, 2008. | | Exhibit 10.1 to Current Report on Form 8-K dated July 14, 2008. |
| | | | |
10.4 | | Amended and Restated Letter Agreement Regarding Change In Control Benefits between Urologix, Inc. and Certain Executive Officers dated April 23, 2012. | | Exhibit 10.1 to Current Report on Form 8-K dated April 19, 2012. |
| | | | |
10.5 | | Letter Agreement dated April 27, 2010 regarding Offer of Employment entered into effective April 29, 2010 between Urologix, Inc. and Brian J. Smrdel | | Exhibit 10.1 to Current Report on Form 8-K dated April 29, 2010. |
| | | | |
10.6 | | First Amended and Restated Lease by and between Parkers Lake I Realty LLC and Urologix, Inc. dated as of August 1, 2010 | | Exhibit 10.1 to Current Report on Form 8-K dated September 9, 2010. |
| | | | |
10.7 | | Letter Agreement regarding Offer of Employment entered into effective June 3, 2011 between Urologix, Inc. and Lisa Ackermann | | Exhibit 10.1 to Current Report on Form 8-K dated June 3, 2011 |
| | | | |
10.8 | | License Agreement dated as of September 6, 2011 by and among Medtronic, Inc., Medtronic VidaMed, Inc., and Urologix, Inc. ** | | Exhibit 10.1 to Current Report on Form 8-K dated September 6, 2011 |
| | | | |
10.9 | | Transition Services and Supply Agreement dated as of September 6, 2011 by and among Medtronic, Inc. and Urologix, Inc. ** | | Exhibit 10.2 to Current Report on Form 8-K dated September 6, 2011 |
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| | | | |
Exhibit
Number | | Document | | Incorporated by Reference To: |
| | | | |
10.10 | | Acquisition Option Agreement dated as of September 6, 2011 by and among Medtronic VidaMed, Inc., Medtronic, Inc., and Urologix, Inc. | | Exhibit 10.3 to Current Report on Form 8-K dated September 6, 2011 |
| | | | |
10.11 | | Asset Purchase Agreement dated as of September 6, 2011 by and among Medtronic VidaMed, Inc., Medtronic, Inc., and Urologix, Inc. | | Exhibit 10.4 to Current Report on Form 8-K dated September 6, 2011 |
| | | | |
10.12 | | Underwriting Agreement dated June 29, 2012 by and between Dougherty & Company LLC and Urologix, Inc. | | Exhibit 1.1 to Amendment No. 2 to the Company’s Registration Statement on Form S-1 (File No. 333-181716) filed on June 22, 2012 |
| | | | |
23.1 | | Consent of Independent Registered Public Accounting Firm. | | Attached hereto. |
| | | | |
31.1 | | Certification of Chief Executive Officer (principal executive officer) pursuant to Rules 13a-14(a) and 15d-14(a) of the Exchange Act. | | Attached hereto. |
| | | | |
31.2 | | Certification of Chief Financial Officer (principal financial officer and principal accounting officer) pursuant to Rules 13a-14(a) and 15d-14(a) of the Exchange Act. | | Attached hereto. |
| | | | |
32 | | Certification pursuant to 18 U.S.C. §1350. | | Attached hereto. |
| | |
| * | Indicates a management contract or compensatory plan or arrangement. |
| ** Certain portions of this exhibit have been deleted and filed separately with the Securities and Exchange Commission pursuant to a request for confidential treatment under Rule 24b-2. Spaces corresponding to the deleted portions are represented by brackets with asterisks. |
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Dated: September 21, 2012
| | |
| UROLOGIX, INC. |
| | |
| By: | /s/ Stryker Warren, Jr. |
| Stryker Warren, Jr., Chief Executive Officer |
| (principal executive officer) |
Each person whose signature appears below hereby constitutes and appoints Stryker Warren, Jr. and Brian J. Smrdel, and each of them, as his true and lawful attorney-in-fact and agent, with full power of substitution, to sign on his behalf, individually and in each capacity stated below, all amendments and post-effective amendments to this Form 10-K and to file the same, with all exhibits thereto and any other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully and to all intents and purposes as each might or could do in person, hereby ratifying and confirming each act that said attorneys-in-fact and agents may lawfully do or cause to be done by virtue thereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below on behalf of the registrant by the following persons in the capacities indicated on September 21, 2012.
| | |
Signature | | Title |
| | |
/s/ Stryker Warren, Jr. | | Chief Executive Officer and Director |
Stryker Warren, Jr. | | (principal executive officer) |
| | |
/s/ Brian J. Smrdel | | Chief Financial Officer |
Brian J. Smrdel | | (principal financial officer and principal accounting officer) |
| | |
/s/ Mitchell Dann | | Director |
Mitchell Dann | | |
| | |
/s/ Sidney W. Emery, Jr. | | Director |
Sidney W. Emery, Jr. | | |
| | |
/s/ Christopher R. Barys | | Director |
Christopher R. Barys | | |
| | |
/s/ Patrick D. Spangler | | Director |
Patrick Spangler | | |
70
