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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
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[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 2001
or
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transaction period from ____________ to _______________
Commission File Number 0-28414
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UROLOGIX, INC.
(Exact name of registrant as specified in its charter)
Minnesota 41-1697237
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
14405 21st Avenue North, Minneapolis, MN 55447
(Address of principal executive offices)
Registrant's telephone number, including area code: (763) 475-1400
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Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [_]
As of January 31, 2002 the Company had outstanding 13,862,297 shares of common
stock, $.01 par value.
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Urologix, Inc.
Condensed Balance Sheets
(In thousands, except per share data)
December 31, June 30,
2001 2001
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ASSETS (unaudited) (*)
Current assets:
Cash and cash equivalents $ 466 $ 26
Available-for-sale securities 12,703 14,895
Accounts receivable, net of allowance of $386 and $396 4,127 3,284
Inventories, net 3,188 2,203
Prepaids and other current assets 600 439
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Total current assets 21,084 20,847
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Property and equipment:
Machinery, equipment and furniture 6,854 6,847
Less accumulated depreciation (4,540) (4,240)
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Property and equipment, net 2,314 2,607
Deposits and other assets 2,853 3,003
Goodwill and trademarks, net 11,333 11,101
Other intangible assets, net 8,970 9,302
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Total assets $ 46,554 $ 46,860
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,895 $ 1,781
Accrued liabilities 1,805 1,566
Current portion of long-term lease obligation 464 419
Deferred income 1,975 2,146
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Total current liabilities 6,139 5,912
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Long-term liabilities:
Long-term debt 575 575
Long-term lease obligation 621 864
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Total long-term liabilities 1,196 1,439
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Shareholders' equity:
Common stock, $.01 par value, 25,000 shares authorized;
13,854 and 13,630 shares issued and outstanding 139 136
Additional paid-in capital 108,216 107,397
Accumulated deficit (69,232) (68,029)
Accumulated other comprehensive income 96 5
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Total shareholders' equity 39,219 39,509
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Total liabilities and shareholders' equity $ 46,554 $ 46,860
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* The Balance Sheet at June 30, 2001 has been derived from the audited
financial statements at that date but does not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements.
The accompanying notes to financial statements are an
integral part of these statements.
Urologix, Inc.
Condensed Statements of Operations
(In thousands, except per share data)
(Unaudited)
Three Months Ended Six Months Ended
December 31, December 31,
---------------------- ------------------------
2001 2000 2001 2000
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Sales $5,257 $3,202 $10,441 $5,137
Cost of goods sold 1,811 1,205 3,649 2,043
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Gross profit 3,446 1,997 6,792 3,094
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Costs and expenses:
Selling, general and administrative 2,755 2,587 5,586 4,881
Research and development 1,042 815 2,197 1,454
Amortization of intangible assets 166 358 332 358
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Total costs and expenses 3,963 3,760 8,115 6,693
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Operating loss (517) (1,763) (1,323) (3,599)
Interest income, net 47 156 120 532
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Net loss ($470) ($1,607) ($1,203) ($3,067)
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Basic and diluted net loss per common
share ($0.03) ($0.12) ($0.09) ($0.25)
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Basic and diluted weighted average
number of common shares outstanding 13,818 13,021 13,745 12,325
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The accompanying notes to financial statements are an
integral part of these statements.
Urologix, Inc.
Condensed Statements of Cash Flows
(In thousands)
(Unaudited)
Six Months Ended
December 31,
----------------------
2001 2000
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Operating Activities:
Net loss ($ 1,203) ($ 3,067)
Adjustments to reconcile net loss to net cash used for
operating activities, net of effects of acquisition -
Depreciation and amortization 782 777
Value of options issued to consultants 25 --
Change in operating items, net of effects of acquisition:
Accounts receivable (929) 22
Inventories (985) 91
Prepaids and other current assets (161) 1,101
Accounts payable and accrued liabilities 36 (1,307)
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Net cash used for operating activities (2,435) (2,383)
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Investing Activities:
Purchases of property and equipment, net (7) (513)
Proceeds from sale of available-for-sale securities, net 2,283 10,098
Cash paid for acquisitions, net of cash acquired -- (7,578)
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Net cash provided by investing activities 2,276 2,007
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Financing Activities:
Payments made on capital lease obligations (198) (83)
Proceeds from exercise of stock options 797 158
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Net cash provided by financing activities 599 75
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Net increase (decrease) in Cash and Cash Equivalents 440 (301)
Cash and cash equivalents beginning of period 26 459
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Cash and cash equivalents end of period $ 466 $ 158
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The accompanying notes to financial statements are an
integral part of these statements.
Urologix, Inc.
Notes to Condensed Financial Statements
December 31, 2001
(Unaudited)
1. Basis of presentation
The accompanying unaudited condensed financial statements of Urologix, Inc.
have been prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions for Form 10-Q and
Article 10 of Regulation S-X. The balance sheet as of December 31, 2001, the
statements of operations for the three and six months ended December 31, 2001
and 2000, and the statements of cash flows for the six months ended December 31,
2001 and 2000, are unaudited but include all adjustments (consisting of normal
recurring adjustments) necessary for a fair presentation of the financial
position at such dates and the operating results and cash flows for those
periods. Certain information normally included in financial statements and
related footnotes prepared in accordance with generally accepted accounting
principles has been condensed or omitted pursuant to the rules and regulations
of the Securities and Exchange Commission. The accompanying financial statements
should be read in conjunction with the financial statements and notes included
in Urologix' annual report on Form 10-K for the year ended June 30, 2001, filed
with the Securities and Exchange Commission.
Results for any interim period shown in this report are not necessarily
indicative of results to be expected for any other interim period or for the
entire year.
2. Acquisition of certain assets from EDAP
On October 1, 2000, we purchased the Prostatron Cooled ThermoTherapy
product line and related patents and technologies from EDAP TMS S.A., a French
corporation, EDAP Technomed Medical Systems S.A., a French corporation and EDAP
Technomed Inc., a Delaware corporation (collectively "EDAP"). We paid total
consideration of $7,988,000 in cash, issued 1,365,000 shares of common stock and
a five-year warrant to purchase 327,466 shares of Urologix common stock at a
price of $7.725 per share. We also agreed to assume approximately $1.5 million
in lease obligations related to equipment located at customer sites and issued a
promissory note to pay EDAP $575,000 plus accrued interest on December 30, 2003.
The statements of operations include the operating results of the acquired
business beginning October 1, 2000. Unaudited pro forma results of operations
for the six-month period ended December 31, 2000 include revenue of $7.9
million, a net loss of $5.5 million or a net loss per share of $0.42 if the
transaction had occurred on July 1, 2000. These unaudited pro forma results have
been prepared for comparative purposes only and do not purport to be indicative
of the results of operations which would have actually resulted had the
combinations been in effect on July 1, 2000, or of future results of operations.
Urologix, Inc.
Notes to Condensed Financial Statements
December 31, 2001
(Unaudited)
3. Supplemental cash-flow information
Selected cash payments and non-cash activities were as follows (in
thousands):
Six Months Ended
December 31,
2001 2000
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Cash paid during the year for interest $141 $ 87
Non-cash investing activities:
Equity capital issued for acquisition 11,911
Details of acquisition:
Fair value of assets acquired 25,376
Liabilities assumed (4,902)
Issuance of Debt (575)
Stock issued (11,911)
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Cash paid 7,988
Less cash acquired (410)
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Net cash paid for acquisition $ 7,578
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4. Basic and diluted net loss per share
Basic and diluted net loss per common share was computed by dividing the
net loss by the weighted average number of shares of common stock outstanding
during the periods presented. The impact of common stock equivalents has been
excluded from the computation of weighted average common shares outstanding as
the effect would be antidilutive.
5. Revenue recognition
Revenue from product sales is recognized at the time of shipment, net of
estimated returns, which are also provided for at the time of shipment. Deferred
revenue for warranty service contracts is recognized over the contract period.
Revenue from equipment rental through our per procedure fee program is
recognized at the time of equipment use.
6. Inventories
Net inventories consisted of the following (in thousands):
December 31, 2001 June 30, 2001
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Raw materials $1,154 $1,041
Work in process 479 385
Finished goods 1,555 777
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$3,188 $2,203
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Urologix, Inc.
Notes to Condensed Financial Statements
December 31, 2001
(Unaudited)
7. Goodwill and other intangible assets
In July 2001, the Financial Accounting Standards Board (FASB) issued
Statement No. 141 "Business Combinations" and Statement No. 142, "Goodwill and
Other Intangible Assets," (collectively, "the statements"). The statements
eliminate the pooling-of-interests method of accounting for business
combinations and the systematic amortization of goodwill and indefinite-lived
intangible assets. We adopted the statements effective July 1, 2001. We will
perform an annual impairment test for indefinite-lived assets. We do not believe
that any impairment will result upon completion of the analysis. Future annual
amortization expense for acquired intangible assets is expected to be
approximately $700,000 for the next five fiscal years.
The statements of operations include the operating results of an acquired
business beginning October 1, 2000. For illustrative purposes the following
unaudited proforma information gives the effect of the adoption of the
statements on prior periods:
Three Months Ended Six Months Ended
December 31, December 31,
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2001 2000 2001 2000
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Net Loss, as reported ($470) ($1,607) ($1,203) ($3,067)
Adjustment to goodwill amortization - 192 - 192
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Adjusted net loss ($470) ($1,415) ($1,203) ($2,875)
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Net loss per share, as reported ($0.03) ($0.12) ($0.09) ($0.25)
Adjustment to goodwill amortization - 0.01 - 0.02
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Adjusted net loss per share ($0.03) ($0.11) ($0.09) ($0.23)
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Balances of acquired intangible assets were as follows (in thousands):
December 31, 2001 June 30, 2001
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Developed technologies, net of accumulated
amortization of $625 and $375 $ 6,875 $ 7,125
Customer base, net of accumulated amortization
of $205 and $123 2,095 2,177
Goodwill and trademarks, net of accumulated
amortization of $584 and $584 11,333 11,101
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$20,303 $20,403
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Urologix, Inc.
Notes to Condensed Financial Statements
December 31, 2001
(Unaudited)
8. Comprehensive Loss
Comprehensive loss includes all changes in equity during a period except
those resulting from investments by and distributions to shareholders. Our
comprehensive loss represents net loss adjusted for unrealized gains (losses) on
available-for-sale securities.
(In thousands) Six Months ended
December 31,
2001 2000
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Net loss ($1,203) ($3,067)
Change in net unrealized gains on
available-for-sale securities 91 41
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Comprehensive loss ($1,112) ($3,026)
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following is a discussion and analysis of Urologix' financial condition
and results of operations for the three and six-month periods ended December 31,
2001 and 2000. This section should be read in conjunction with the condensed
financial statements and related notes in Item 1 of this report and Urologix'
Annual Report on Form 10-K for the year ended June 30, 2001, which has been
filed with the Securities and Exchange Commission.
Cautionary Note Regarding Forward-Looking Statements
This Management's Discussion and Analysis of Financial Condition and
Results of Operations contains, in addition to historical information,
forward-looking statements that are based on our current expectations, beliefs,
intentions or future strategies. These statements are subject to risks and
uncertainties that could cause actual results to differ materially from the
statements, including the extent to which the physicians performing Cooled
ThermoTherapy procedures are able to obtain third-party reimbursement, changes
in the reimbursement environment, market acceptance and the rate of adoption of
Cooled ThermoTherapy for the treatment of benign prostatic hyperplasia (BPH) by
the medical community, the ability of our key suppliers to provide product, the
impact of competitive treatments, products and pricing, and the effectiveness of
our sales and marketing organization. We do not take responsibility for updating
such forward-looking statements to reflect events that arise after the date of
this report. A detailed discussion of risks and uncertainties may be found in
Urologix' Annual Report on Form 10-K for the year ended June 30, 2001.
OVERVIEW
Urologix, Inc., based in Minneapolis, develops, manufactures and markets
minimally invasive medical products for the treatment of urological disorders.
We have developed and offer non-surgical, catheter-based treatments that
use a proprietary cooled microwave technology for the treatment of BPH, a
disease that dramatically affects more than 23 million men worldwide by causing
adverse changes in urinary voiding patterns. We market our products under the
Targis(TM) and Prostatron(R) names. Both systems utilize Cooled
ThermoTherapy(TM), a targeted microwave energy combined with a unique cooling
mechanism that protects healthy tissue and enhances patient comfort while
providing safe, effective, lasting relief from the symptoms of BPH. Cooled
ThermoTherapy can be performed without anesthesia or intravenous sedation and,
as a result, can be performed in a physician's office or an outpatient clinic.
We believe Cooled ThermoTherapy provides an efficacious, safe and cost effective
solution for BPH that is clinically superior to medication without the
complications and side effects inherent in surgical procedures.
Our ability to successfully commercialize Cooled ThermoTherapy depends in
part on the extent to which the users of our products obtain appropriate
reimbursement for the cost of the procedure. We estimate that 60% to 80% of
patients who receive treatment in the United States are eligible for Medicare
coverage, making Medicare reimbursement critical for widespread market
acceptance in the United States. Prior to August 1, 2000, the U.S. Health Care
Financing Administration, recently renamed Centers for Medicare and Medicaid
Services, or CMS, which administers Medicare reimbursement, only reimbursed
Cooled ThermoTherapy procedures performed in hospital-based settings, on a
reasonable cost or cost plus basis. On August 1, 2000, the reimbursement was
changed to a fixed rate or prospective payments system for procedures performed
in hospitals. On January 1, 2001, Medicare reimbursement became available under
the prospective payment system for Cooled ThermoTherapy procedures performed in
physicians' offices.
In the United States, we will continue to market our products through a
direct sales force and a network of independent third-party mobile service
providers. We offer our customers the option to either purchase our Cooled
ThermoTherapy systems outright or rent the equipment on a per use basis. We
continue to focus our sales and marketing efforts on expanding the base of
customer accounts and increasing the usage of our disposable products at
existing accounts. Internationally we utilize a network of distributors and
agents.
RESULTS OF OPERATIONS
Sales increased to $5.3 million and $10.4 million for the three and
six-month periods ended December 31, 2001, from $3.2 million and $5.1 million
during the same periods in the prior fiscal year. The growth in sales for both
periods was due to growth in the physician's office market as a direct result of
the favorable reimbursement change that allowed physicians to perform Cooled
ThermoTherapy in their offices. Due to a production shutdown at a third-party
supplier, Targis control units were in backorder during the first and second
quarter of fiscal 2002, negatively impacting our ability to ship product and
generate revenue. The Targis control unit was the only product affected by the
shutdown. During the first fiscal quarter of 2002 we entered into a two-year
supply agreement with Plexus Corp. for the production of our Targis control
unit. Plexus delivered the first production units in December 2001 and is
producing Targis control units pursuant to our purchase orders.
Cost of goods sold includes raw materials, labor, overhead and royalties
incurred in connection with the production of our Cooled ThermoTherapy control
units and disposable procedure kits. Cost of goods sold increased to $1.8
million and $3.6 million for the three and six-month periods ended December 31,
2001, from $1.2 million and $2.0 million during the same periods in fiscal 2001.
This increase resulted from higher sales volume. Gross profit as a percentage of
sales for the three-month period ended December 31, 2001 increased to 66% from
62% in the same period of fiscal year 2001. For the six-month period ended
December 31, 2001, gross profit as a percentage of sales increased to 65%, from
60% in the same period of the prior fiscal year. The increase in both periods is
primarily attributable to continuing manufacturing process improvements,
increased production volumes and decreased raw-material costs.
Selling, general and administrative expenses increased to $2.8 million and
$5.6 million from $2.6 million and $4.9 million for the three and six-month
periods ended December 31, 2001 and 2000, respectively. The increased expenses
are primarily attributable to the expansion of our direct sales force and
investments in advertising and physician training. We expect sales and marketing
expenses to continue to increase as we intensify our efforts to generate
awareness and acceptance of Cooled ThermoTherapy.
Research and development expenses include expenditures for product
development, regulatory compliance and clinical studies. Research and
development expenses increased to $1.0 million and $2.2 million for the three
and six-month periods ended December 31, 2001 from $815,000 and $1.5 million in
the same periods of the prior fiscal year. The increase in both periods resulted
primarily from increased headcount and product development activities, and
increased expenses resulting from a higher volume of clinical trial activity. We
expect quarterly research and development expenses for the remainder of the
fiscal year to be slightly lower than current quarter spending levels.
Amortization of intangible assets decreased to $166,000 and $332,000 for
the three and six-month periods ended December 31, 2001, from $358,000 for both
the three and six-month periods ended December 31, 2000. The amortization of
intangible assets resulted from the purchase of the Prostatron Cooled
ThermoTherapy product line from EDAP in October 2000. In July 2001, FASB issued
Statement 141, "Business Combinations," and Statement 142, "Goodwill and Other
Intangible Assets," (collectively, "the statements"). The statements eliminated
the pooling of interest method of accounting for business combinations and the
systematic amortization of goodwill. We adopted the statements during the
quarter ended September 30, 2001.
Net interest income decreased to $47,000 and $120,000 for the three and
six-month periods ended December 31, 2001 from $156,000 and $532,000 during the
same period of the prior fiscal year. The decrease is primarily attributable to
lower interest income due to lower cash and investment balances as well as
higher interest expenses resulting from the debt assumed in the Prostatron
product line acquisition from EDAP.
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 2001, we had total cash, cash equivalents and
available-for-sale securities of $13.2 million and working capital of $14.9
million compared to cash, cash equivalents and available-for-sale securities of
$14.9 million and working capital of $14.9 million at June 30, 2001.
During the six months ended December 31, 2001, we used $2.4 million in
operating activities, primarily as a result of our net loss of $1.2 million, an
increase in accounts receivable of $929,000, and an increase in inventories of
$985,000 which were partially offset by depreciation and amortization of
$782,000. We generated $2.3 million in investing activities, primarily from the
sale of available-for-sale securities. We generated $599,000 through financing
activities that consisted of $797,000 from the exercise of stock options offset
by $198,000 of payments on capital lease obligations.
We will continue to use our working capital as we incur expenses related to
marketing and research and development activities. In addition, we plan to
continue offering customers a per procedure rental program. Depending on the
growth of this program, we may use substantial capital to finance the units
rented by customers.
Although we believe that existing cash, cash equivalents and
available-for-sale securities will be sufficient to fund our operations for at
least the next 12 months, there can be no assurance that we will not require
additional financing or that any additional financing will be available to us on
satisfactory terms, if at all.
ITEM 3. QUALITATIVE AND QUANTITATIVE DISCLOSURE ABOUT MARKET RISK
Our financial instruments include cash and cash equivalents. The fair value
of our financial investment portfolio at December 31, 2001 approximated carrying
value. Increases and decreases in prevailing interest rates generally translate
into decreases and increases in the fair value of these instruments. Also, fair
values of interest rate sensitive instruments may be affected by the credit
worthiness of the issuer, prepayment options, relative values of alternative
instruments, the liquidity of the instrument and other general market
conditions.
Market risk was estimated as the potential decrease in fair value resulting
from a hypothetical 10% increase in interest rates for the issues contained in
the investment portfolio and was not materially different from the year-end
carrying value.
Our policy is not to enter into derivative financial instruments. We do not
have any significant foreign currency exposure since we do not generally
transact business in foreign currencies. Therefore, we do not have significant
overall currency exposure. In addition, we do not enter into any futures or
forward contracts and therefore we do not have significant market risk exposure
with respect to commodity prices.
PART II - OTHER INFORMATION
ITEM 5. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Our Annual Meeting of Shareholders was held on November 6, 2001. The
shareholders took the following actions:
(1) The shareholders elected two directors to hold office until the annual
meeting of shareholders following the fiscal year ending June 30, 2004. The
shareholders present in person or by proxy cast the following numbers of
votes in connection with the election of directors, resulting in the
election of both of the nominees:
Name Votes For Votes Withheld
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Bobby I. Griffin 12,345,008 798,380
Michael M. Selzer, Jr. 11,992,878 1,505,510
(2) The shareholders authorized amendments to our 1991 Stock Plan to increase
the number of shares authorized under the Plan by 500,000 shares, to
increase the number of options granted annually to non-employee directors
from 5,000 shares to 10,000 shares and to extend the term of the Plan until
August 1, 2011.
The amendment was passed by the following vote
For 5,328,514
Against 2,726,412
Abstain 16,056
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) No reports on Form 8-K were filed during the period ended December 31, 2001
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date February 13, 2002
Urologix, Inc.
- ----------------------------------
(Registrant)
/s/ Michael M. Selzer, Jr.
- ----------------------------------
Michael M. Selzer, Jr.
President and Chief Executive Officer
(Duly Authorized Officer)
/s/ Christopher R. Geyen
- ----------------------------------
Christopher R. Geyen
Vice President and Chief Financial Officer
(Principal Financial Officer)