Table of Contents
We are dependent
upon a limited number of third-party suppliers for our products.
We
manufacture CoolWave control units and single-use treatment catheters for use
with CoolWave control units at our suburban Minneapolis facility. Our success
will depend upon our ability to cost-effectively manufacture a reliable product
and deliver that product in a timely manner. We may encounter difficulties in
maintaining production efficiencies, quality control and assurance, component
supply and qualified personnel. We cannot offer assurance that we will be able
to manufacture a reliable product and deliver that product to customers in a
timely fashion. Our failure to maintain a reputation among our customers as a
timely, responsive manufacturer, or our failure to remedy manufacturing issues
in a timely manner and to our customers satisfaction, or higher than expected
manufacturing costs, would adversely affect our business.
Other
than the CoolWave control units and CTC Advance® catheter procedure
kits, we outsource the remaining manufacturing for our products. We assemble
CoolWave control units and procedure kits using materials and components
supplied by various subcontractors and suppliers, as well as components we
fabricate. We rely on single sources for several components, one of which is
obtained from a source that has a patent for the technology.
We
also outsource the manufacturing of the Prostiva product line. Our reliance on
outside suppliers for our components and for the Prostiva product involves
risks, including limited control over the price and uncertainty regarding
timely delivery and quality of parts and product. The start-up, transfer,
termination or interruption of any of these relationships or products, or the
failure of these manufacturers or suppliers, some of which operate in countries
outside of the United States, to supply products or components to us on a
timely basis or in sufficient quantities, likely would cause us to be unable to
meet customer orders for our products and harm our reputation with customers
and our business. Identifying and qualifying alternative suppliers of
components or manufacturers of products takes time and involves significant
additional costs and may delay the production of our products.
If
we obtain a new supplier for a component, manufacture our product with an
alternative component, or if our products are manufactured by an alternative
manufacturer, we likely will need either FDA approval of a pre-market approval
(PMA) supplement or FDA clearance of a 510(k) application to make a change in
component or product manufacturing. The process for obtaining FDA approval or
FDA clearance may result in extended delays in delivery of our product to
customers and increased costs associated with the change.
The
failure of our third-party manufacturers to manufacture the products for us,
and the failure of our components suppliers to supply us with the components,
consistent with our requirements as to quality, quantity and timeliness, would
materially harm our business.
Our business of the
manufacturing, marketing, and sale of medical devices involves the risk of
liability claims and such claims could seriously harm our business,
particularly if our insurance coverage is inadequate.
Our
business exposes us to potential product liability claims that are inherent in
the testing, production, marketing and sale of medical devices. Like other
participants in the medical device industry, we are from time to time involved
in lawsuits, claims and proceedings alleging product liability and related
claims such as negligence. If any current or future product liability claims
become substantial, our reputation could be damaged significantly, thereby
harming our business. We may be required to pay substantial damage awards as a
result of any successful product liability claims. Any product liability claim
against us, whether with or without merit, could result in costly litigation,
and divert the time, attention, and resources of our management.
As
a result of our exposure to product liability claims, we currently carry
product liability insurance covering our products with policy limits per
occurrence and in the aggregate that we have deemed to be sufficient. Our
insurance may not cover certain product liability claims or our liability for
any claims may exceed our coverage limits. Therefore, we cannot predict whether
this insurance is sufficient, or if not, whether we will be able to obtain
sufficient insurance to cover the risks associated with our business or whether
such insurance will be available at premiums that are commercially reasonable.
In addition, these insurance policies must be renewed annually. Although we
have been able to obtain liability insurance, such insurance may not be
available in the future on acceptable terms, if at all. A successful claim
against us or settlement by us with respect to uninsured liabilities or in
excess of our insurance coverage, or our inability to maintain insurance in the
future, or any claim that results in significant costs to or adverse publicity
against us, could have a material adverse effect on our business, financial
condition and results of operations.
25
Table of Contents
We are dependent on
adequate protection of our patent and proprietary rights.
We
rely on patents, trade secrets, trademarks, copyrights, know-how, license
agreements and contractual provisions to establish and protect our intellectual
property rights. However, these legal means afford us only limited protection
and may not adequately protect our rights or remedies to gain or keep any advantages
we may have over our competitors.
Other
competitors may independently develop the same or similar technologies or
otherwise obtain access to our technology and trade secrets. Our competitors,
many of which have substantial resources and may make substantial investments
in competing technologies, may apply for and obtain patents that will prevent,
limit, or interfere with our ability to manufacture or market our products.
Further, while we do not believe that any of our products or processes
interfere with the rights of others, third parties may nonetheless assert
patent infringement claims against us in the future.
Costly
litigation may be necessary to enforce patents issued or licensed to us, to
protect trade secrets or know-how we own, to defend us against claimed
infringement of the rights of others or to determine the ownership, scope, or
validity of our proprietary rights and the rights of others. In connection with
the settlement of a patent infringement suit we filed in March 2002, we
granted, in January 2004, ProstaLund AB, ProstaLund Operations AB and Circon
Corporation (a/k/a ACMI Corporation) a non-exclusive, royalty free license
under certain of our patents to sell the ProstaLund transurethral microwave
thermotherapy system marketed in the United States by ACMI Corporation as the
CoreTherm device.
Any
claim of infringement against us may involve significant liabilities to third
parties, could require us to seek licenses from third parties, and could prevent
us from manufacturing, selling, or using our products. The occurrence of this
litigation or the effect of an adverse determination in any of this type of
litigation could have a material adverse effect on our business, financial
condition and results of operations.
Our products may be
subject to product recalls even after receiving FDA clearance or approval,
which would harm our reputation and our business.
The
FDA and similar governmental authorities in other countries in which our
products are sold, have the authority to request and, in some cases, require
the recall of our products in the event of material deficiencies or defects in
design, manufacture or labeling. A government-mandated or voluntary recall by
us could occur as a result of component failures, manufacturing errors,
labeling errors or design defects. Any recall of product would divert
managerial and financial resources, harm our reputation with our customers and
damage our business.
We are dependent on key personnel.
Our
failure to attract and retain skilled personnel could hinder the management of
our business, our research and development, our sales and marketing efforts,
and our manufacturing capabilities. Our future success depends to a significant
degree upon the continued services of key senior management personnel,
including Gregory J. Fluet, our Chief Executive Officer and Interim Chief
Financial Officer and Lisa Ackermann, our Executive Vice President, Sales and
Marketing. Each of these members of senior management is employed at will by
us. However, if there is a change in control and we terminate Mr. Fluets or
Ms. Ackermanns employment without cause, we would be required to make
specified payments to him or her as described in an amended and restated change
of control letter agreement dated April 23, 2012. We do not have key person
life insurance on any member of senior management.
Our
future success also depends on our continuing ability to attract, retain and
motivate highly qualified managerial, technical and sales personnel. Our
inability to retain or attract qualified personnel could have a significant
negative effect and thereby materially harm our business and financial
condition.
26
Table of Contents
Risks Related to the Prostiva RF Therapy
System and Related Agreements
On
September 6, 2011, we entered into a license agreement and other agreements
with Medtronic, Inc. (Medtronic) and its subsidiary, VidaMed, Inc., relating to the Prostiva RF
Therapy System. In addition, on June 28, 2013 we entered into a Restructuring
Agreement and Amendment to Transaction Documents (the Restructuring
Agreement). For a summary of the agreements with Medtronic, please see
Prostiva Related Agreements in the Business section of this Annual Report
on Form 10-K. The addition of the Prostiva RF product to our business and these
agreements present additional risks to us and our business that are described
below.
If we fail to comply
with our obligations under our license agreement with Medtronic or if the
license agreement terminates for any reason, we would lose the ability to sell
the Prostiva product.
In
September 2011, we entered into a License Agreement with Medtronic, Inc. and
its subsidiary, VidaMed, Inc., that granted us an exclusive worldwide license
to the Prostiva RF Therapy System in the field of the radio frequency treatment
of the prostate, including BPH. At the same time we entered into the License
Agreement, we also entered into other agreements with Medtronic and VidaMed,
including a Transition Services and Supply Agreement, an Acquisition Option
Agreement and an Asset Purchase Agreement. Summaries of each of these
agreements may be found in the Business section of this Annual Report on Form
10-K under the heading Prostiva Related Agreements.
The
term of the License Agreement is ten years or the earlier closing date of a
purchase under the Acquisition Option Agreement. In addition, either party may
terminate the License Agreement by written notice for breach after an opportunity
to cure, and Medtronic may terminate the License Agreement in the event of our
bankruptcy or insolvency. The License Agreement also will automatically
terminate concurrently with certain terminations of the Transition Services and
Supply Agreement, including terminations relating to regulatory challenges
specified under the Transition Services and Supply Agreement. Upon termination
of the License Agreement, all rights to the Prostiva intellectual property will
revert back to Medtronic and the Transition Services and Supply Agreement and
Acquisition Option Agreement will terminate. Further, upon termination of the
License Agreement by Medtronic as a result of our breach or bankruptcy or
default on the promissory note entered into with Medtronic on June 28, 2013,
Medtronic will have the right, but not the obligation, to repurchase the assets
from us that we previously purchased under the Asset Purchase Agreement for the
same purchase price we previously paid.
Any
termination of the License Agreement would result in the loss of the right to
sell the Prostiva product and would materially harm our business. In addition,
if the License Agreement were terminated, we would not be able to recoup the
transaction expenses associated with the acquisition of the Prostiva business
or the expenses we have incurred associated with the integration of the
Prostiva business.
We have not paid
certain amounts due to Medtronic under the license agreement, which with proper
notice and opportunities to cure would entitle Medtronic to terminate the
license agreement for breach and entitle Medtronic to accelerate and demand
repayment of our $5.3 million promissory note to Medtronic.
Under
the license agreement, royalty payments for Prostiva products are paid one year
in arrears based on the contract year. The royalty payment due in the second
quarter of fiscal year 2014 of $650,000 has not been paid. This amount is
included in the short-term deferred acquisition payment liability as of June
30, 2014. In addition, we did not pay the annual $65,000 licensing maintenance
fee due on October 6, 2013 which is included in other accrued expenses as of
June 30, 2014.
The
non-payment does not entitle Medtronic to terminate the license agreement
unless Medtronic provides written notice and an opportunity to cure the
default. The non-payment under the license agreement is also not an event of
default under our promissory note to Medtronic dated June 28, 2013 in the
principal amount of approximately $5.3 million (the Note) unless Medtronic
provides written notice and an opportunity to cure the default. We have not
received any notice from Medtronic as of the date of this filing.
27
Table of Contents
Medtronic
may terminate the license agreement by written notice for breach after an
opportunity to cure and in the event of our bankruptcy or insolvency. If the
license agreement is terminated, our rights to sell the Prostiva product would
be terminated. Further, upon an event of default under the Note (which includes
a material breach of the license agreement or other transaction documents after
written notice and an opportunity to cure), Medtronic may accelerate and
declare due all amounts outstanding under the Note. If Medtronic accelerated
and declared due all amounts outstanding under the Note, we would not have
adequate cash to repay the amounts due, resulting in a loss of control of our
business or bankruptcy.
The
Companys ability to continue as a going concern is also dependent upon
avoiding an event of default under the Note and avoiding termination of the
license relating to the Prostiva product, whether by negotiation with
Medtronic, cure of any non-payment giving rise to an event of default or
termination, or otherwise. There can be no assurance that we will be able to
cure any potential event of default of the Note or cure any breach of any
agreement with Medtronic, maintain compliance with our agreements with
Medtronic, raise additional capital or otherwise improve our liquidity, or
improve our operating or financial performance. The Companys cash needs and
availability will be determined by a number of factors including operating
performance and the timing of payment of the $650,000 in annual royalties.
The Prostiva RF
Therapy System license, Restructuring Agreement and other agreements require
significant future payments.
Under
the License Agreement, Transition Services and Supply Agreement, and
Restructuring Agreement with Medtronic for the Prostiva RF Therapy System, we
are obligated to make certain future payments, including:
|
|
|
|
|
$65,000
annually as a license maintenance fee;
|
|
|
Royalties on
net sales of product payable thirty days following the end of each contract
year (or minimum royalty amounts beginning in the second contract year that
are payable ninety days following the end of each contract year);
|
|
|
five equal
annual payments of principal and accrued interest beginning on March 31, 2015
on the $5,332,538 promissory note which accrues interest at 6 percent
compounded annually. The promissory note represents amounts owed to Medtronic
for inventory received as part of the acquisition of the Prostiva business,
as well as inventory purchased subsequent to the acquisition.
|
Our
failure to pay these amounts when due with proper notice and opportunities to
cure, would be a breach of
the agreement, entitling Medtronic to terminate these agreements and our right
to sell the Prostiva product after proper notice and an opportunity to cure.
The addition of the
Prostiva RF Therapy System to our product portfolio may result in the
exacerbation of certain risks to our business.
As
detailed above, we face a number of risks in our business and risks associated
with our Cooled ThermoTherapy products. Because the addition of the Prostiva RF
Therapy System to our product portfolio presents some of these same risks to
us, these risks may be magnified. For example, with the Prostiva RF Therapy
System, we face risks associated with:
|
|
|
|
|
reliance on
third party reimbursement;
|
|
|
intense
competition, primarily from pharmaceutical companies that market and sell BPH
medication;
|
|
|
our lack of
diversification because our products are minimally invasive treatments for
BPH;
|
|
|
significant
impact of government regulation;
|
|
|
risk of
product liability claims;
|
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|
risk of
managing third party manufacturers; and
|
|
|
the
possibility of product recalls.
|
If
we are unable to address these risks as they relate to both the CTT and
Prostiva products, our results of operations, cash flows and the value of our
common stock would be negatively impacted.
28
Table of Contents
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|
ITEM 1B.
|
UNRESOLVED STAFF COMMENTS
|
Not
applicable.
We
lease approximately 26,000 square feet of office, manufacturing and warehouse
space in a suburb of Minneapolis, Minnesota. 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.
We believe our facilities will be sufficient to meet our current and future
requirements and that additional space at or near the current location will be
available at a reasonable cost if additional space is required in the future.
|
|
ITEM 3.
|
LEGAL PROCEEDINGS
|
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. 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.
|
|
ITEM 4.
|
MINE SAFETY DISCLOSURES
|
Not
applicable.
29
Table of Contents
PART II
|
|
ITEM 5.
|
MARKET
FOR THE REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS
AND ISSUER PURCHASES OF EQUITY SECURITIES
|
Our
common stock was traded on The Nasdaq Capital Market under the symbol ULGX
through June 6, 2013. As a result of our voluntary delisting from the Nasdaq
Capital Market on June 5, 2013, our common stock began trading on the OTCQB
Marketplace (OTCQB) under the symbol ULGX on June 7, 2013. The following
table sets forth quarterly high and low last-sale prices of our common stock
for each quarter during the past two fiscal years.
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter
|
|
Fiscal Year
|
|
|
|
|
First
|
|
Second
|
|
Third
|
|
Fourth
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2014
|
|
|
High
|
|
$
|
0.40
|
|
$
|
0.33
|
|
$
|
0.20
|
|
$
|
0.20
|
|
|
|
|
Low
|
|
|
0.15
|
|
|
0.14
|
|
|
0.14
|
|
|
0.14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2013
|
|
|
High
|
|
$
|
1.00
|
|
$
|
0.84
|
|
$
|
0.77
|
|
$
|
0.54
|
|
|
|
|
Low
|
|
|
0.64
|
|
|
0.61
|
|
|
0.54
|
|
|
0.16
|
|
The
foregoing prices reflect inter-dealer prices, without dealer markup, markdown
or commissions, and may not represent actual transactions.
Dividends
To
date, we have not declared or paid any cash dividends on our common stock, and
we do not intend to do so in the foreseeable future.
Equity Compensation Plan Information
The
table below presents our equity compensation plan information as of June 30,
2014:
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|
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|
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|
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|
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|
Plan
Category
|
|
|
Number of
securities to be
issued upon exercise of
outstanding options,
warrants and rights
|
|
|
Weighted-average
exercise
price of outstanding options,
warrants and rights
|
|
|
Number of
securities
remaining available for
future issuance under equity
compensation plans
(excluding securities
reflected in first column)
|
|
Equity compensation plans approved by
security holders
|
|
|
|
2,050,344
|
|
|
|
$ 1.17
|
|
|
|
1,319,354
|
|
Equity compensation plan not approved by
security holders
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Total
|
|
|
|
2,050,344
|
|
|
|
$ 1.17
|
|
|
|
1,319,354
|
|
The
equity compensation plans approved by security holders listed above represent
shares issuable under the Urologix, Inc. 2012 Stock Incentive Plan, an
employee benefit plan as defined by Rule 405 of Regulation C of the
Securities Act of 1933. Shareholders approved the most recent Stock Incentive
Plan at the 2012 Annual Meeting of Shareholders held on November 16, 2012.
30
Table of Contents
|
|
ITEM 6.
|
SELECTED FINANCIAL DATA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years
ended June 30,
|
|
|
|
2014
|
|
2013
|
|
2012
|
|
2011
|
|
2010
|
|
|
|
(in
thousands, except per share data)
|
|
Statements of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
|
$
|
14,235
|
|
$
|
16,590
|
|
$
|
17,027
|
|
$
|
12,571
|
|
$
|
14,771
|
|
Cost of goods sold
|
|
|
8,142
|
(1)
|
|
8,407
|
(2)
|
|
8,645
|
|
|
6,030
|
|
|
6,569
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
6,093
|
|
|
8,183
|
|
|
8,382
|
|
|
6,541
|
|
|
8,202
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and marketing
|
|
|
5,850
|
|
|
7,719
|
|
|
7,027
|
|
|
5,197
|
|
|
5,657
|
|
General and administrative
|
|
|
2,299
|
|
|
2,515
|
|
|
3,393
|
|
|
2,808
|
|
|
2,944
|
|
Research and development
|
|
|
1,625
|
|
|
2,269
|
|
|
2,189
|
|
|
2,238
|
|
|
1,834
|
|
Change in value of acquisition
consideration
|
|
|
(105
|
)
|
|
(447
|
)
|
|
(172
|
)
|
|
-
|
|
|
-
|
|
Impairment of goodwill
|
|
|
3,036
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Gain on demutualization
|
|
|
-
|
|
|
(321
|
)
|
|
-
|
|
|
-
|
|
|
-
|
|
Medical device tax
|
|
|
223
|
|
|
106
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Amortization of identifiable intangible
assets
|
|
|
95
|
|
|
104
|
|
|
90
|
|
|
24
|
|
|
24
|
|
Impairment of identifiable intangible
assets
|
|
|
-
|
|
|
160
|
(3)
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total costs and expenses
|
|
|
13,023
|
|
|
12,105
|
|
|
12,527
|
|
|
10,267
|
|
|
10,459
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
(6,930
|
)
|
|
(3,922
|
)
|
|
(4,145
|
)
|
|
(3,726
|
)
|
|
(2,257
|
)
|
Interest income/(expense), net
|
|
|
(693
|
)
|
|
(555
|
)
|
|
(482
|
)
|
|
1
|
|
|
-
|
|
Gain on debt extinguishment
|
|
|
-
|
|
|
206
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Foreign currency exchange gain/(loss)
|
|
|
(1
|
)
|
|
(7
|
)
|
|
(13
|
)
|
|
-
|
|
|
-
|
|
Loss before income taxes
|
|
|
(7,624
|
)
|
|
(4,278
|
)
|
|
(4,640
|
)
|
|
(3,725
|
)
|
|
(2,257
|
)
|
Income tax expense (benefit)
|
|
|
(16
|
)
|
|
14
|
|
|
55
|
|
|
8
|
|
|
(88
|
)
|
Net loss
|
|
$
|
(7,608
|
)
|
$
|
(4,292
|
)
|
$
|
(4,695
|
)
|
$
|
(3,733
|
)
|
$
|
(2,169
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per common share:
|
|
$
|
(0.36
|
)
|
$
|
(0.21
|
)
|
$
|
(0.32
|
)
|
$
|
(0.26
|
)
|
$
|
(0.15
|
)
|
Weighted average shares used in computing
net loss per share
|
|
|
21,219
|
|
|
20,703
|
|
|
14,741
|
|
|
14,556
|
|
|
14,508
|
|
Diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per common share:
|
|
$
|
(0.36
|
)
|
$
|
(0.21
|
)
|
$
|
(0.32
|
)
|
$
|
(0.26
|
)
|
$
|
(0.15
|
)
|
Weighted average shares used in computing
net loss per share
|
|
|
21,219
|
|
|
20,703
|
|
|
14,741
|
|
|
14,556
|
|
|
14,508
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2014
|
|
2013
|
|
2012
|
|
2011
|
|
2010
|
|
Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
718
|
|
$
|
2,290
|
|
$
|
1,899
|
|
$
|
3,061
|
|
$
|
5,702
|
|
Working capital/(deficit) (4)
|
|
|
(612
|
)
|
|
3,484
|
|
|
(1,520
|
)
|
|
4,038
|
|
|
6,720
|
|
Total assets
|
|
|
5,667
|
|
|
12,527
|
|
|
12,676
|
|
|
6,763
|
|
|
10,203
|
|
Total liabilities
|
|
|
12,644
|
|
|
12,107
|
|
|
12,050
|
|
|
1,917
|
|
|
1,997
|
|
Shareholders equity/(deficit)
|
|
|
(6,977
|
)
|
|
420
|
|
|
626
|
|
|
4,846
|
|
|
8,206
|
|
|
|
(1)
|
Includes a $739,000
non-cash charge to write down the value of Prostiva capital equipment
inventory.
|
|
(2)
|
Includes a $274,000 non-cash
charge to partially impair our developed technology acquired as part of the
Prostiva acquisition as of June 30, 2013.
|
31
Table of Contents
|
|
(3)
|
Represents the following
non-cash charges to partially impair intangible assets acquired as part of
the Prostiva acquisition as of June 30, 2013:
|
|
|
|
|
Customer Base
|
$95,000
|
|
Trademarks
|
$65,000
|
|
|
(4)
|
Significant increase in
working capital from fiscal year 2012 to fiscal year 2013 is a result of the
restructuring of the Prostiva liabilities from accounts payable and short-term
deferred acquisition payment to long-term debt.
|
SELECTED QUARTERLY FINANCIAL DATA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
June 30, 2014
|
|
|
|
First
Quarter
|
|
Second
Quarter
|
|
Third
Quarter
|
|
Fourth
Quarter
|
|
|
|
(in
thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
|
$
|
3,779
|
|
$
|
3,806
|
|
$
|
3,356
|
|
$
|
3,294
|
|
Gross profit
|
|
|
1,864
|
|
|
1,798
|
|
|
849
|
(1)
|
|
1,583
|
|
Loss before
income taxes
|
|
|
(1,322
|
)
|
|
(1,069
|
)
|
|
(1,646
|
)
|
|
(3,587
|
) (2)
|
Net Loss
|
|
|
(1,334
|
)
|
|
(1,085
|
)
|
|
(1,664
|
)
|
|
(3,525
|
) (2)
|
Basic net
loss per share
|
|
$
|
(0.06
|
)
|
$
|
(0.05
|
)
|
$
|
(0.08
|
)
|
$
|
(0.17
|
)
|
Diluted net
loss per share
|
|
$
|
(0.06
|
)
|
$
|
(0.05
|
)
|
$
|
(0.08
|
)
|
$
|
(0.17
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
June 30, 2013
|
|
|
|
First
Quarter
|
|
Second
Quarter
|
|
Third
Quarter
|
|
Fourth
Quarter
|
|
|
|
(in
thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
|
$
|
3,970
|
|
$
|
4,354
|
|
$
|
4,082
|
|
$
|
4,184
|
|
Gross profit
|
|
|
2,016
|
|
|
2,237
|
|
|
2,026
|
|
|
1,905
|
(3)
|
Loss before
income taxes
|
|
|
(1,053
|
)
|
|
(954
|
)
|
|
(988
|
)
|
|
(1,281
|
) (4)
|
Net Loss
|
|
|
(1,069
|
)
|
|
(970
|
)
|
|
(1,005
|
)
|
|
(1,247
|
) (4)
|
Basic net
loss per share
|
|
$
|
(0.05
|
)
|
$
|
(0.05
|
)
|
$
|
(0.05
|
)
|
$
|
(0.06
|
)
|
Diluted net
loss per share
|
|
$
|
(0.05
|
)
|
$
|
(0.05
|
)
|
$
|
(0.05
|
)
|
$
|
(0.06
|
)
|
(1) |
Includes a $739,000 non-cash charge for the write-down of Prostiva capital equipment inventory. |
|
|
(2) |
Includes a non-cash impairment charge of $3,036,000 related to goodwill acquired as part of the Prostiva acquisition. |
|
|
(3) |
Includes a non-cash impairment charge of $274,000 related to developed technologies acquired as part of the Prostiva acquisition. |
|
|
(4) |
Includes the following non-cash charges to partially impair intangibles assets acquired as part of the Prostiva acquisition as of June 30, 2013: |
|
|
|
|
|
Developed Technologies
|
|
$
|
274,000
|
|
Customer Base
|
|
|
95,000
|
|
Trademarks
|
|
|
65,000
|
|
|
|
$
|
434,000
|
|
32
Table of Contents
|
|
ITEM 7.
|
MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|
The following discussion should be read in conjunction with
our financial statements and related notes contained elsewhere in this Annual
Report on Form 10-K. This discussion may contain forward-looking statements
based upon current expectations that involve risks and uncertainties. Our
actual results and the timing of certain events could differ materially from
those anticipated in these forward-looking statements as a result of risks and uncertainties,
including those set forth under Risk Factors in Item 1A. All
forward-looking statements included herein are based on information available
to us as of the date hereof, and we undertake no obligation to update any such
forward-looking statements.
OVERVIEW
Urologix
develops, manufactures, and markets non-surgical, office-based therapies for
the treatment of the symptoms and obstruction resulting from non-cancerous
prostate enlargement also known as benign prostatic hyperplasia (BPH). These
therapies use proprietary technology in the treatment of BPH, a disease that
affects more than 30 million men worldwide and is the most common prostate
problem for men over 50. We market both the Cooled ThermoTherapy (CTT) product
line and the Prostiva® Radio Frequency (RF) Therapy System. We acquired the
exclusive worldwide license to the Prostiva RF Therapy System in September
2011. These two technologies are designed to be used by urologists in their
offices without placing their patients under general anesthesia. CTT uses a
flexible catheter to deliver targeted microwave energy combined with a unique
cooling mechanism that protects healthy urethral tissue and enhances patient
comfort to provide safe, effective, lasting relief from BPH voiding symptoms by
the thermal ablation of hyperplastic prostatic tissue surrounding the urethra.
The proprietary Prostiva RF Therapy System delivers radio frequency energy
directly into the prostate through the use of insulated electrodes deployed
from a transurethral scope, ablating targeted prostatic tissue under the direct
visualization of the urologist. These focal ablations reduce constriction of
the urethra, thereby relieving BPH voiding symptoms. These two proven
technologies have slightly different, yet complementary, patient indications
and providing them to our urologist customers enables them to treat a wide
range of patients in their office. We believe that these office-based BPH
therapies are efficacious, safe and low cost solutions for BPH as they have
shown results clinically superior to those of daily BPH medication and without
the complications and side effect profile inherent with surgical procedures.
Our
goal is to strengthen our business by efficiently deploying our resources to
support adoption of Cooled ThermoTherapy and Prostiva RF Therapy as the
preferred therapeutic options considered by urologists for their BPH patients
in the earlier stages of disease progression. Typically, these are patients who
do not want to take chronic BPH medication or are unhappy with the side
effects, costs or results. A urologist can choose between our two therapies
based upon clinical criteria specific to the BPH patients presentation. Our
business strategy to achieve this goal is to:
|
|
|
|
|
Increase utilization of
Cooled ThermoTherapy and Prostiva RF Therapy by urologists who already have
access to a Cooled ThermoTherapy and/or Prostiva RF Therapy system,
|
|
|
|
|
|
Build upon the evidence
supporting the cost effectiveness of our technologies and educate healthcare
providers on the benefit to patients and the healthcare system of our
in-office therapies,
|
|
|
|
|
|
Educate patients and
urologists on the benefits of Cooled ThermoTherapy and Prostiva RF Therapy
through educational and other market development efforts, and
|
|
|
|
|
|
Continue to partner with
our European distributors to support the customers outside the United States.
|
Clinical
research activities are focused on expanding the evidence demonstrating the
cost effectiveness of our technologies. Our research and development
engineering efforts and goals are currently focused primarily on continuing
engineering projects to support the product lines. This includes improving the
features and functions of the technologies used in our Cooled ThermoTherapy and
Prostiva RF Therapy procedures; improving the ease of use, continuous quality
improvement initiatives; and also reducing the manufacturing cost of our
products.
33
Table of Contents
We
have incurred net losses of $7.6 million in fiscal year 2014 and $4.3 million
in the fiscal year ended 2013. In addition, we have accumulated aggregate net
losses since the inception of business through June 30, 2014 of $126.6 million.
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 September 6, 2012. On June 28, 2013, we
entered into a Restructuring Agreement with Medtronic related to the $7.5
million we owed to Medtronic under the Transaction Documents. As part of this
agreement, we paid Medtronic $2.0 million in satisfaction of royalties earned
for the 12 months ended September 6, 2012, the second half of the initial
licensing fee, the license maintenance fee for the 12 month period ended
September 6, 2012, for outstanding transition services fees, and for Prostiva
inventory included as part of the acquisition and purchased subsequent to the
acquisition. In addition, we entered into a promissory note (the Note) with
Medtronic for $5.3 million for the remaining amounts owed on Prostiva inventory
acquired as part of the acquisition and purchased subsequent to the
acquisition. Interest on the Note accrues at a rate of 6 percent, compounded
annually and is payable in five equal installments of principal and accrued
interest, on March 31st of each year beginning on March 31, 2015.
The $206,000 difference between the $7.5 million in obligations owed to Medtronic
and the $2.0 million paid and the $5.3 million Note was recorded as a gain on
debt extinguishment in fiscal year 2013.
Under
the license agreement, royalty payments for Prostiva products are paid one year
in arrears based on the contract year. The royalty payment due during the
second quarter of fiscal year 2014 of $650,000 has not been paid as of June 30,
2014 or as of the date of filing this Annual Report on Form 10-K. The $650,000
is included in the short-term deferred acquisition payment liability as of June
30, 2014. In addition, we have not paid, as of June 30, 2014 and as of the date
of filing this Annual Report on Form 10-K, the annual $65,000 licensing
maintenance fee due on September 6, 2013 which is included in other accrued expenses
as of June 30, 2014. The non-payment does not entitle Medtronic to terminate
the license agreement unless Medtronic provides written notice and an
opportunity to cure the default. The non-payment under the license agreement is
also not an event of default under the Note unless Medtronic provides written
notice and an opportunity to cure.
During
the quarter ended September 30, 2012, the Company completed a follow-on
offering in which we sold 5,980,000 shares of common stock at a price of $0.75
per share which contributed approximately $3.8 million of net proceeds after
deducting underwriting discounts and commissions and other expenses payable by
the Company. However, as a result of the Companys history of operating losses
and negative cash flows from operations, the $2.0 million payment to Medtronic
in June 3013 for liabilities associated with the Prostiva acquisition, and the
remaining liabilities related to the Prostiva acquisition and Note owed to
Medtronic, there is substantial doubt about our ability to continue as a going
concern. In addition, our line of credit with Silicon Valley Bank expired on
June 30, 2014, and was not renewed. Our cash and cash generated from
operations, if any, may not be sufficient to sustain day-to-day operations for
the next 12 months, particularly if product sales do not generate revenues in
the amounts currently anticipated, if our operating costs are greater than
anticipated or greater than our business can support, or if our cost reduction
is not effective. Our ability to continue as a going concern is dependent upon
improving our liquidity.
The
Company is considering all available alternatives to improve its cash and
liquidity position. The Company implemented restructuring plans in January 2014
and again in April 2014. The Company made the strategic decision to restructure
the organization, including deploying a new distribution model and operational
structure, to reduce company expenses and focus remaining resources on the most
important needs of our business. These changes are designed to improve the
Companys ability to generate positive cash flow from operations. On April 10,
2014, we completed the implementation of this plan. The strategic
reorganization included implementing a new sales strategy using a leaner and
more efficient sales team which will continue to support our customer base in a
deployment designed to create a more profitable sales model. In addition, we
are piloting the use of dedicated resources charged with demonstrating our value
proposition to large provider organizations such as ACOs and certain hospital
systems which are highly-focused on cost-effective treatment alternatives like
our in-office BPH technologies. The targeted annual savings from these
restructurings total over $4 million when compared to the first half of fiscal
year 2014. These savings impact both cost of goods sold and operating expenses.
In the fourth quarter we received partial benefit of these changes (see
Footnote 6 for further details). The Company may seek to improve its liquidity
position by raising capital through additional indebtedness or an offering of
its equity securities or both. However, it may be difficult to raise additional
capital through a debt offering due to the debt outstanding with Medtronic and
their position as a secured lender.
34
Table of Contents
Our
financial statements do not include any adjustments related to the
recoverability and classification of recorded asset amounts or the amounts and
classification of liabilities that may be necessary as a result of this
uncertainty.
Critical Accounting Policies and Estimates:
In
accordance with Securities and Exchange Commission guidance, we set forth below
those material accounting policies that we believe are the most critical to an
investors understanding of our financial results and condition, and require
complex management judgment.
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. Revenue is recognized in accordance
with generally accepted accounting principles as outlined in Accounting
Standards Codification (ASC) 605-10-S99, Revenue
Recognition, which requires that four basic criteria be met before
revenue can be recognized: (i) persuasive evidence of an arrangement exists;
(ii) the price is fixed or determinable; (iii) collectability is reasonably
assured; and (iv) product delivery has occurred or services have been rendered.
The Company recognizes revenue as products are shipped based on FOB shipping
point terms when title passes to customers. 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 on a straight-line basis. 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.
Inventories
We
value our inventories, consisting primarily of control units, single-use
treatment catheters, and raw materials to produce the control units and
treatment catheters, at the lower of cost or market value on a first-in,
first-out (FIFO) basis. The inventory cost includes merchandise, labor,
overhead and freight. A periodic review of the inventory on hand is performed
to determine if the inventory is properly stated at the lower of cost or
market. In performing this analysis we consider, at a minimum, the following
factors: average selling prices, reimbursement changes, and changes in demand
for our products due to competitive conditions or market acceptance. Each type
of inventory is analyzed to determine net realizable values. A provision is
recorded to reduce the cost of inventories to the estimated net realizable
values, if required (a new cost basis).
We
also analyze the level of inventory on hand on a periodic basis, in relation to
estimated customer requirements to determine whether write-downs for excess,
obsolete, or slow-moving inventory are required. Any significant or
unanticipated change in the factors noted above could have a significant impact
on the value of our inventories and on our reported operating results.
35
Table of Contents
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, or if there is a shareholders
deficit, 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.
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 estimate.
As
a result of the delisting of our common stock from the NASDAQ exchange on June
7, 2013 and the continued decline of our stock price, we tested our long-lived
assets and goodwill for impairment as of June 30, 2013. Based on this
impairment testing it was determined that our intangible assets acquired as
part of the Prostiva acquisition were impaired. As a result, we recorded an
impairment charge of $274,000 on our developed technology asset which was
recorded in cost of goods sold, a $95,000 impairment charge on our customer
base asset and a $65,000 impairment charge on trademarks both of which were
recorded in operating expense. There was no impairment of goodwill as it was
determined that the fair value of the reporting unit exceeded its carrying
amount as of June 30, 2013. See Footnote 11 for a description of our intangible
assets.
We
tested our intangible assets and goodwill for impairment as of April 30, 2014,
our annual testing date. We tested our intangible assets and goodwill for
impairment due to our continued significant operating losses, negative cash
flows, the estimated fair value of obligations due to Medtronic and due to the
fact that we had a shareholders deficit as of the testing date. As part of
this testing we fair valued all of our assets and liabilities as of this date
using discounted cash flow analysis and forecasted future operating results.
Based on this testing, we determined that the fair value of the Company could
no longer support the carrying value of the goodwill acquired as part of the
Prostiva acquisition. As a result, we recorded a non-cash impairment charge of
$3,036,000 to fully impair our goodwill. See footnote 10 for a description of
our goodwill and related impairment charge. There was no additional impairment
of our long-lived assets as their estimated fair value exceeded their carrying
values at that date.
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. As of June
30, 2014, we carried a valuation allowance of $31.5 million against our net
deferred tax assets.
36
Table of Contents
Stock-Based Compensation
Stock-based 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 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. The Company also grants restricted stock awards which typically vest over a
period of one to four years. Fair value for restricted stock is based on the market price on the day of grant.
Fair Value of Contingent Consideration
Contingent
consideration is recorded at the acquisition date at the estimated fair value
of the future royalty payments in excess of contractual minimums. The
acquisition date fair value is measured 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 to the
estimated fair value at each reporting period with the change in fair value
recognized as gain or loss in our statement of operations. Changes to the fair
value of the contingent consideration liability occur as a result of changes in
discount rates and changes in the timing and amount of projected payments.
Results of Operations
Fiscal Years Ended June 30, 2014 and 2013
Net Sales
Net
sales decreased 14 percent to $14.2 million in fiscal year 2014 from $16.6
million in fiscal year 2013. The decrease in sales from fiscal year 2013 is due
to a decline in the number of units sold of both our Cooled ThermoThearpy and
Prostiva products.
Cost of Goods Sold and Gross Profit
Cost
of goods sold includes raw materials, labor, and overhead, incurred in
connection with the production of our Cooled ThermoTherapy system control units
and single-use treatment catheters, amortization related to developed
technologies, costs associated with the delivery of our Cooled ThermoTherapy
mobile service, as well as costs for the Prostiva products. Cost of goods sold
for fiscal year 2014 decreased $265,000 or 3 percent to $8.1 million, from $8.4
million in fiscal year 2013. This decrease in cost of goods sold is a result of
the decrease in sales year over year, partially offset by a $739,000 non-cash
charge associated with the write-down of Prostiva capital equipment inventory,
as well as higher manufacturing costs due to lower production. Fiscal year 2013
costs of goods sold also included a $274,000 impairment charge related to the
developed technologies acquired in the Prostiva acquisition. Excluding the
$739,000 write-down of Prostiva inventory in fiscal year 2014 and the $274,000
developed technology impairment charge in fiscal year 2013, cost of goods sold
would have decreased by $730,000 or 9 percent year over year.
Gross
profit as a percentage of sales decreased to 43 percent from 49 percent in fiscal
years 2013. The fiscal year 2014 gross margin was impacted by 5 percentage
points due to the $739,000 charge associated with the write-down of Prostiva
inventory noted above. Gross margin was also impacted by higher warranty
expenses on the Prostiva product line and lower margins on the CTT product line
due to higher manufacturing costs due to lower production. The fiscal year 2013
gross margin percentage was impacted by 2 percentage points as a result of the
$274,000 developed technology impairment charge mentioned above.
37
Table of Contents
Sales and Marketing
Sales
and marketing expenses in fiscal year 2014 decreased $1.9 million, or 24
percent, to $5.9 million from $7.7 million in fiscal year 2013. The decrease in
sales and marketing expense is the result of a $1.0 million decrease in wages
and benefits, including commissions, as a result of the restructuring
activities in January and April of 2014. In addition, advertising and
promotions spending decreased by $429,000, travel and entertainment decreased
by $240,000 due to lower headcount, and meeting expenses decreased by $162,000.
General & Administrative
General
and administrative expense in fiscal year 2014 decreased $216,000, or 9
percent, to $2.3 million from $2.5 million in fiscal year 2013. The decrease in
general and administrative expense is mainly a result of a decrease in wages
and benefits of $307,000 due to lower headcount, partially offset by an $81,000
increase in consulting expenses.
Research and Development
Research
and development expenses, which include expenditures for product development,
regulatory compliance and clinical studies, decreased to $1.6 million for
fiscal year 2014, from $2.3 million in fiscal year 2013. The $644,000, or 28
percent, decrease in research and development expense is due to a $360,000
decrease in transition service fees related to the Prostiva acquisition which
were paid in the prior year period. In addition, wages and benefits decreased
by approximately $130,000 due to lower headcount and consulting expenses
decreased by approximately $90,000.
Change in Value of Acquisition
Consideration
The
change in the value of acquisition consideration of $105,000 for the fiscal
year ended June 30, 2014 represents the reduction in fair value of contingent
consideration as a result of the reduction in projected royalty payments in
excess of contractual minimums in earlier years. For the fiscal year period
ended June 30, 2013, the change in value of acquisition consideration of
$447,000 represents the net effect of a reduction in fair value of contingent
consideration of $1.4 million prior to payments made in fiscal year 2013,
partially offset by an increase of $933,000 in non-contingent consideration.
These changes are due to an increase in the projected time it will take the
Company to reach the cumulative $10 million of royalty and license fees owed on
the Prostiva acquisition, and reduced the projected royalty payments in excess
of contractual minimums in earlier years.
Impairment of Goodwill
We
recorded a $3.0 million charge to fully impair our goodwill obtained in the
Prostiva acquisition. As part of our annual impairment test, we fair valued all
of our assets and liabilities and determined the fair value of the Company
could no longer support the carrying value of goodwill on our balance sheet due
to the continued operating losses of the Company along with the significant
amount due Medtronic and the estimated fair value of these obligations.
Gain on Demutualization
The
one-time gain on demutualization of $321,000 for the fiscal year ended June 30,
2013 represents the gain resulting from the demutualization of our products
liability insurance carrier.
Medical Device Tax
The
medical device excise tax represents the excise tax imposed beginning January
1, 2013 on all U.S. medical device sales as part of the Federal health care
reform legislation. The increase in the medical device tax expense of $117,000
from $106,000 in fiscal year 2013 to $223,000 in fiscal year 2014 is a result
of the medical device tax not being implemented until January, 2013 and
therefore only represents 6 months of expenses in the prior year period versus
12 months in fiscal year 2014.
38
Table of Contents
Amortization of Identifiable Intangible
Assets
Amortization
of identifiable intangible assets was approximately $95,000 in fiscal year
2014 compared to $104,000 in fiscal year 2013. The slight decrease in the
amortization expense is a result of the $160,000 impairment charge related to
intangible assets acquired as part of the Prostiva acquisition in the fourth
quarter of fiscal year 2013 which resulted in lower amortization expense over
the assets remaining useful lives.
Impairment of Identifiable Intangible
Assets
We
recorded an impairment charge of $160,000 on identifiable intangible assets in
fiscal year 2013. The impairment charge relates to a $95,000 write-down of the
customer base and a $65,000 write-down of the trademarks acquired as part of
the Prostiva acquisition.
Net Interest Income/(Expense)
Interest
expense is the result of non-cash interest accretion on the deferred
acquisition payments for the Prostiva business as well as the interest expense
accrued on the Note entered into with Medtronic on June 28, 2013. Net interest
expense of approximately $693,000 for the fiscal year ended June 30, 2014,
increased $138,000 over interest expense of $555,000 for the fiscal year ended
June 30, 2013. The increase in interest expense is due to accrued interest on
the Medtronic Note signed at the end of fiscal year 2013, partially offset by
lower accretion expense related to the restructuring of the license agreement
with Medtronic which resulted in the re-measurement of the contingent
consideration.
Gain on Debt Extinguishment
The
gain on debt extinguishment of $206,000 is a result of the Restructuring
Agreement entered into on June 28, 2013 with Medtronic which resulted in the
restructuring of $7.5 million in outstanding Prostiva liabilities into a $2.0
million cash payment and a $5.3 million promissory note.
Provision
for Income Taxes
We
recorded $16,000 of income tax benefit for the fiscal year ended June 30, 2014
compared to income tax expense of $14,000 for the fiscal year ended June 30,
2013. The $16,000 income tax benefit is the result of the reversal of the
deferred tax liability resulting from the impairment of goodwill created in the
Prostiva acquisition in the current fiscal year, partially offset by state
taxes. The income tax expense of $14,000 in fiscal year 2013 represents
deferred tax expense recorded on the amortization for tax purposes of
indefinite-lived goodwill as well as state taxes.
The
Company utilizes the asset and liability method of accounting for income taxes.
The Company recognizes 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 have recorded and continue to carry a full
valuation allowance against our gross deferred tax assets that will not reverse
against deferred tax liabilities. We will continue to assess the assumptions
used to determine the amount of our valuation allowance and may adjust the
valuation allowance in future periods based on changes in assumptions of
estimated future income and other factors.
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, 2014, we had cash of $718,000 compared to cash of $2.3 million
as of June 30, 2013. The decrease in cash of $1.6 million is the result of the
use of $1.6 million of net cash for operating and investing activities.
39
Table of Contents
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 September 6, 2012. On June 28, 2013, we
entered into a Restructuring Agreement with Medtronic related to the $7.5
million we owed to Medtronic under the Transaction Documents. As part of this
agreement we paid Medtronic $2.0 million in satisfaction of royalties earned
for the 12 months ended September 6, 2012, the second half of the initial
licensing fee, the license maintenance fee for the 12 month period ended
September 6, 2012, for outstanding transition services fees, and for Prostiva
inventory included as part of the acquisition and purchased subsequent to the
acquisition. In addition, we entered into a promissory note (the Note) with
Medtronic for $5.3 million for the remaining amounts owed on Prostiva inventory
acquired as part of the acquisition and purchased subsequent to the
acquisition. Interest on the Note accrues at a rate of 6 percent, compounded
annually and is payable in five equal installments of principal and accrued
interest, on March 31st of each year beginning on March 31, 2015.
The $206,000 difference between the $7.5 million in obligations owed to
Medtronic and the $2.0 million paid and the $5.3 million Note was recorded as a
gain on debt extinguishment in fiscal year 2013. The Company does not have adequate
cash to repay the full outstanding principal amount of $5.3 million on the
Note. Any event of default under the Note may result in a loss of control of
our business or bankruptcy.
Under
the license agreement, royalty payments for Prostiva products are paid one year
in arrears based on the contract year. The royalty payment due during the
second quarter of fiscal year 2014 of $650,000 has not been paid as of June 30,
2014 or as of the date of filing this Annual Report on Form 10-K. The $650,000
is included in the short-term deferred acquisition payment liability as of June
30, 2014. In addition, we did not pay, as of June 30, 2014 and as of the date
of filing this Annual Report on Form 10-K, the annual $65,000 licensing
maintenance fee due on September 6, 2013 which is included in other accrued
expenses as of June 30, 2014. The non-payment does not entitle Medtronic to
terminate the license agreement unless Medtronic provides written notice and an
opportunity to cure the default. The non-payment under the license agreement is
also not an event of default under the Note unless Medtronic provides written
notice and an opportunity to cure. In the event of a material breach of the
licensing agreement or other transaction documents, and Medtronic provides
written notice to the Company and the Company fails to cure the breach,
Medtronic may terminate the license agreement. If the license agreement is
terminated, the Companys rights to sell the Prostiva product would be
terminated.
During
the first quarter of fiscal year 2013 the Company completed a follow-on
offering which contributed approximately $3.8 million of net proceeds. However,
as a result of the Companys history of operating losses and negative cash
flows from operations there is substantial doubt about our ability to continue
as a going concern. In addition, our line of credit with Silicon Valley Bank
expired on June 30, 2014, and was not renewed. It also may be difficult to
raise additional capital through a debt offering due to the debt outstanding
with Medtronic and their position as a secured lender. As of June 30, 2014, the
Companys cash may not be sufficient to sustain day-to-day operations for the
next 12 months.
On
April 10, 2014, management completed the implementation of a strategic
restructuring plan which included deploying a new distribution model and
operational structure to refocus the allocation of company resources and
improve the Companys ability to achieve profitability and generate positive
cash flow from operations. As a result of this restructuring, cash utilization
in the fourth quarter of fiscal year 2014 was $98,000, which included $80,000
of cash payments related to the restructuring for payments related to severance
and accrued vacation. The targeted annual savings from this restructuring total
over $4 million when compared to the first half of fiscal year 2014. However,
there can be no assurance that we will be successful in improving our business
or obtaining positive cash flows from operations.
The
Companys ability to continue as a going concern is dependent upon our ability
to generate positive cash flows from our business and aggressively manage our
expenses, including those associated with our acquisition of the Prostiva
product line from Medtronic. The Companys ability to continue as a going
concern is also dependent upon avoiding an event of default under the Note and
avoiding termination of the license relating to the Prostiva product, whether
by negotiation with Medtronic, cure of any non-payment giving rise to an event
of default or termination, or otherwise. There is no assurance that our cash
and cash generated from operations, if any, will be sufficient to fund our
anticipated capital needs, operating expenses (including payments under the
license agreement), and Note repayments, particularly if product sales do not
generate revenues in the amounts currently anticipated, if our operating costs
are greater than anticipated or greater than our business can support.
40
Table of Contents
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.
There
can be no assurance that the Company will be able to cure any potential event
of default of the Note or cure any breach of any agreement with Medtronic,
maintain compliance with its agreements with Medtronic, raise additional
capital, or improve its operating or financial performance.
The
fiscal year 2014 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 2014, we used $1.5 million of cash from operating activities
compared to $2.0 million in fiscal year 2013. The net loss of $7.6 million
included non-cash charges of $3.0 million for the impairment of goodwill,
$587,000 from depreciation and amortization expense, $739,000 related to the
Prostiva inventory reserve, $211,000 from stock-based compensation expense and
$467,000 of accreted interest expense, which was partially offset by a $105,000
gain as a result of a fair value adjustment to deferred acquisition payments.
Changes in operating items resulted in the generation of $1.2 million of
operating cash flow for the period as a result of lower accounts receivable of
$620,000, lower inventories of $267,000, higher accounts payable of $264,000
and interest payable of $322,000. These increases were partially offset by
$375,000 of lower accrued expenses and deferred income.
The
decrease in accounts receivable is due to a decrease in revenue. The decrease
in inventories is due to lower volumes of CTT inventory on hand due to an
effort to decrease the days inventory on hand, and the increase in accounts payable
is the result of the timing of receipts and services versus payment. The
increase in interest payable represents the 6 percent interest accrued on the
Note agreement entered into with Medtronic in June, 2013. The decrease in
accrued expenses and deferred income is a result of a decrease in the
commission accrual due to lower sales and lower headcount.
Cash Used for Investing Activities
We
used $42,000 for investing activities related to the purchase of property and
equipment to support our business operations and investments in intellectual
property.
Cash Provided by Financing Activities
During
fiscal year 2014 we did not generate any cash from financing activities.
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, 2014, our property and equipment, net, included
approximately $311,000 of control units, generators and scopes 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.
41
Table of Contents
Future
contractual commitments that will affect cash flows are as follows (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2015
|
|
2016
|
|
2017
|
|
2018
|
|
2019
|
|
Building and
equipment leases
|
|
$
|
228
|
|
$
|
231
|
|
$
|
32
|
|
$
|
5
|
|
$
|
-
|
|
Prostiva Payments
Prostiva
payments are commitments related to the acquisition of the Prostiva RF Therapy
product line from Medtronic on September 6, 2011. Royalty obligations represent
royalties, including minimum royalty obligations, based on managements
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. In addition, on June
28, 2013, we entered into a promissory note (the Note) with Medtronic for
$5.3 million for the remaining amounts owed on Prostiva inventory acquired as
part of the acquisition and purchased subsequent to the acquisition. Interest
on the Note will accrue at a rate of 6 percent, compounded annually and is
payable in five equal installments of principal and accrued interest on March
31st of each year beginning on March 31, 2015 (see Footnote 12 for
more details).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Years
|
|
|
|
2015
|
|
2016
|
|
2017
|
|
2018
|
|
2019
|
|
Prostiva
Payments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Annual license maintenance fee
|
|
$
|
65
|
|
$
|
65
|
|
$
|
65
|
|
$
|
65
|
|
$
|
65
|
|
Royalty obligations
|
|
|
650
|
|
|
650
|
|
|
650
|
|
|
650
|
|
|
650
|
|
Note payments, including interest
|
|
|
1,323
|
|
|
1,323
|
|
|
1,323
|
|
|
1,323
|
|
|
1,323
|
|
Total
contractual Prostiva payments
|
|
$
|
2,038
|
|
$
|
2,038
|
|
$
|
2,038
|
|
$
|
2,038
|
|
$
|
2,038
|
|
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.
|
|
ITEM 7A.
|
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|
Our
financial instruments include cash and as a result 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.
42
Table of Contents
|
|
ITEM 8.
|
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
|
The
following financial statements are included in the Form 10-K:
43
Table of Contents
Managements
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 Companys 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
companys 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 Companys 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/Interim Chief Financial Officer, we
conducted an evaluation of the effectiveness of our internal control over
financial reporting based on the framework in Internal Control Integrated
Framework issued 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, 2014.
* * *
This Annual
Report on Form 10-K does not include an attestation report of the Companys
independent registered public accounting firm, Baker Tilly Virchow Krause, LLP
regarding internal controls over financial reporting. Managements report was
not subject to attestation by Baker Tilly Virchow Krause, LLP pursuant to rules
of the Securities and Exchange Commission that permit the Company to provide
only managements report in this Annual Report on Form 10-K.
44
Table of Contents
REPORT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM
To the Shareholders, Audit
Committee and Board of Directors
Urologix, Inc
Minneapolis, MN
We have audited the
accompanying balance sheets of Urologix, Inc. as of June 30, 2014 and 2013, and
the related statements of operations, shareholders equity (deficit) and cash
flows for the years then ended. These
financial statements are the responsibility of the companys 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. The company is not required to have, nor
were we engaged to perform, an audit of its internal control over financial
reporting. Our audits included
consideration of its internal control over financial reporting as a basis for
designing audit procedures that are appropriate in the circumstances, but not
for the purpose of expressing an opinion on the effectiveness of the companys
internal control over financial reporting.
Accordingly, we express no such opinion. 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 audit 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, 2014 and 2013
and the results of their operations and its cash flows for the years then
ended, 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 operating
losses and negative cash flows from operations, and needs additional working
capital to support future operations.
These factors raise substantial doubt about its ability to continue as a
going concern. Managements plans in regard
to 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.
/s/ Baker Tilly Virchow Krause, LLP
Minneapolis, Minnesota
September 19, 2014
45
Table of Contents
Urologix, Inc.
Balance Sheets
(In thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
|
2014
|
|
2013
|
|
ASSETS
|
|
|
|
|
|
|
|
Current Assets:
|
|
|
|
|
|
|
|
Cash
|
|
$
|
718
|
|
$
|
2,290
|
|
Accounts receivable, net of allowance of
$76 and $79, respectively
|
|
|
1,502
|
|
|
2,132
|
|
Inventories
|
|
|
1,397
|
|
|
1,571
|
|
Prepaids and other current assets
|
|
|
63
|
|
|
128
|
|
Total current assets
|
|
|
3,680
|
|
|
6,121
|
|
Property and equipment:
|
|
|
|
|
|
|
|
Property and equipment
|
|
|
12,162
|
|
|
12,165
|
|
Less accumulated depreciation
|
|
|
(11,691
|
)
|
|
(11,430
|
)
|
Property and equipment, net
|
|
|
471
|
|
|
735
|
|
Other
intangible assets, net
|
|
|
1,370
|
|
|
1,587
|
|
Goodwill
|
|
|
-
|
|
|
3,036
|
|
Long-term
inventories
|
|
|
141
|
|
|
1,043
|
|
Other assets
|
|
|
5
|
|
|
5
|
|
Total assets
|
|
$
|
5,667
|
|
$
|
12,527
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS
EQUITY/(DEFICIT)
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
892
|
|
$
|
628
|
|
Accrued compensation
|
|
|
487
|
|
|
721
|
|
Deferred income
|
|
|
6
|
|
|
5
|
|
Short-term deferred acquisition payment
|
|
|
1,339
|
|
|
681
|
|
Current portion of long-term debt
|
|
|
747
|
|
|
-
|
|
Interest payable
|
|
|
322
|
|
|
-
|
|
Other accrued expenses
|
|
|
499
|
|
|
602
|
|
Total current liabilities
|
|
|
4,292
|
|
|
2,637
|
|
|
|
|
|
|
|
|
|
Deferred tax
liability
|
|
|
-
|
|
|
36
|
|
Long-term deferred
acquisition payment
|
|
|
3,730
|
|
|
4,026
|
|
Long-term
debt
|
|
|
4,586
|
|
|
5,333
|
|
Other
accrued expenses
|
|
|
36
|
|
|
75
|
|
Total liabilities
|
|
|
12,644
|
|
|
12,107
|
|
Commitments and Contingencies (Note 13)
|
|
|
|
|
|
|
|
SHAREHOLDERS EQUITY/(DEFICIT):
|
|
|
|
|
|
|
|
Common stock, $.01 par value, 30,000 and
25,000 shares authorized; 21,291 and
20,909 shares issued; and 20,945 and 20,795 shares outstanding
|
|
|
209
|
|
|
208
|
|
Additional paid-in capital
|
|
|
119,440
|
|
|
119,230
|
|
Accumulated deficit
|
|
|
(126,626
|
)
|
|
(119,018
|
)
|
Total shareholders equity/(deficit)
|
|
|
(6,977
|
)
|
|
420
|
|
Total liabilities and shareholders
equity/(deficit)
|
|
$
|
5,667
|
|
$
|
12,527
|
|
The accompanying notes to financial statements are an integral part of
these statements.
46
Table of Contents
Urologix,
Inc.
Statements of Operations
(In thousands, except per share
data)
|
|
|
|
|
|
|
|
|
|
|
For the
Years Ended June 30
|
|
|
|
2014
|
|
|
2013
|
|
SALES
|
|
$
|
14,235
|
|
|
$
|
16,590
|
|
COST OF GOODS SOLD
|
|
|
8,142
|
|
|
|
8,407
|
|
Gross profit
|
|
|
6,093
|
|
|
|
8,183
|
|
|
|
|
|
|
|
|
|
|
COSTS AND EXPENSES
|
|
|
|
|
|
|
|
|
Sales and marketing
|
|
|
5,850
|
|
|
|
7,719
|
|
General and administrative
|
|
|
2,299
|
|
|
|
2,515
|
|
Research and development
|
|
|
1,625
|
|
|
|
2,269
|
|
Change in value of acquisition consideration
|
|
|
(105
|
)
|
|
|
(447
|
)
|
Goodwill impairment
|
|
|
3,036
|
|
|
|
-
|
|
Gain on demutualization
|
|
|
-
|
|
|
|
(321
|
)
|
Medical device tax
|
|
|
223
|
|
|
|
106
|
|
Amortization of identifiable intangible
assets
|
|
|
95
|
|
|
|
104
|
|
Impairment of identifiable intangible
assets
|
|
|
-
|
|
|
|
160
|
|
Total costs and expenses
|
|
|
13,023
|
|
|
|
12,105
|
|
OPERATING LOSS
|
|
|
(6,930
|
)
|
|
|
(3,922
|
)
|
|
|
|
|
|
|
|
|
|
INTEREST INCOME/(EXPENSE)
|
|
|
(693
|
)
|
|
|
(555
|
)
|
GAIN ON DEBT EXTINGUISHMENT
|
|
|
-
|
|
|
|
206
|
|
FOREIGN CURRENCY EXCHANGE LOSS
|
|
|
(1
|
)
|
|
|
(7
|
)
|
LOSS BEFORE INCOME TAXES
|
|
|
(7,624
|
)
|
|
|
(4,278
|
)
|
INCOME TAX (BENEFIT)/EXPENSE
|
|
|
(16
|
)
|
|
|
14
|
|
NET LOSS
|
|
$
|
(7,608
|
)
|
|
$
|
(4,292
|
)
|
|
|
|
|
|
|
|
|
|
NET LOSS PER COMMON SHARE - BASIC
|
|
$
|
(0.36
|
)
|
|
$
|
(0.21
|
)
|
|
|
|
|
|
|
|
|
|
NET LOSS PER COMMON SHARE - DILUTED
|
|
$
|
(0.36
|
)
|
|
$
|
(0.21
|
)
|
|
|
|
|
|
|
|
|
|
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING - BASIC
|
|
|
21,219
|
|
|
|
20,703
|
|
|
|
|
|
|
|
|
|
|
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING - DILUTED
|
|
|
21,219
|
|
|
|
20,703
|
|
The accompanying notes to financial statements are an integral part of
these statements.
47
Table of Contents
Urologix, Inc.
Statements of Shareholders
Equity/(Deficit)
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
Paid-In
Capital
|
|
Accumulated
Deficit
|
|
Total
Shareholders
Equity/(Deficit)
|
|
|
|
Common
Stock
|
|
|
|
|
|
Shares
|
|
Amount
|
|
|
|
Balance, June 30, 2012
|
|
|
14,719
|
|
$
|
147
|
|
$
|
115,205
|
|
$
|
(114,726
|
)
|
$
|
626
|
|
Net loss
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(4,292
|
)
|
|
(4,292
|
)
|
Stock options exercised
|
|
|
20
|
|
|
-
|
|
|
15
|
|
|
-
|
|
|
15
|
|
Vesting of restricted stock
|
|
|
76
|
|
|
1
|
|
|
(1
|
)
|
|
-
|
|
|
-
|
|
Stock-based compensation
|
|
|
-
|
|
|
-
|
|
|
257
|
|
|
-
|
|
|
257
|
|
Issuance of common stock
|
|
|
5,980
|
|
|
60
|
|
|
3,754
|
|
|
-
|
|
|
3,814
|
|
Balance, June 30, 2013
|
|
|
20,795
|
|
$
|
208
|
|
$
|
119,230
|
|
$
|
(119,018
|
)
|
$
|
420
|
|
Net loss
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(7,608
|
)
|
|
(7,608
|
)
|
Vesting of restricted stock
|
|
|
110
|
|
|
1
|
|
|
(1
|
)
|
|
-
|
|
|
-
|
|
Stock-based compensation
|
|
|
40
|
|
|
-
|
|
|
211
|
|
|
-
|
|
|
211
|
|
Balance, June 30, 2014
|
|
|
20,945
|
|
$
|
209
|
|
$
|
119,440
|
|
$
|
(126,626
|
)
|
$
|
(6,977
|
)
|
The accompanying notes to financial statements are an integral part of
these statements
48
Table of Contents
Urologix, Inc.
Statements of Cash Flows
(In thousands)
|
|
|
|
|
|
|
|
|
|
For the
Years Ended June 30
|
|
|
|
2014
|
|
2013
|
|
|
OPERATING ACTIVITIES
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(7,608
|
)
|
$
|
(4,292
|
)
|
Adjustments to reconcile net loss to net
cash used for operating activities:
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
587
|
|
|
674
|
|
Impairment of identifiable intangible
assets
|
|
|
-
|
|
|
434
|
|
Impairment of goodwill
|
|
|
3,036
|
|
|
-
|
|
Employee stock-based compensation expense
|
|
|
211
|
|
|
257
|
|
Provision for bad debts
|
|
|
10
|
|
|
(23
|
)
|
Prostiva inventory reserve
|
|
|
739
|
|
|
-
|
|
Loss on disposal of assets
|
|
|
6
|
|
|
7
|
|
Accretion expense on deferred acquisition
payments
|
|
|
467
|
|
|
544
|
|
Net adjustment to acquisition consideration
|
|
|
(105
|
)
|
|
(447
|
)
|
Gain on debt extinguishment
|
|
|
-
|
|
|
(206
|
)
|
Deferred income taxes
|
|
|
(36
|
)
|
|
1
|
|
Change in operating assets and liabilities:
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
620
|
|
|
23
|
|
Inventories
|
|
|
267
|
|
|
(626
|
)
|
Prepaids and other assets
|
|
|
65
|
|
|
162
|
|
Accounts payable
|
|
|
264
|
|
|
1,760
|
|
Accrued expenses and deferred income
|
|
|
(375
|
)
|
|
(227
|
)
|
Interest payable
|
|
|
322
|
|
|
-
|
|
Net cash used for operating activities
|
|
|
(1,530
|
)
|
|
(1,959
|
)
|
|
|
|
|
|
|
|
|
INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
Purchases of property and equipment
|
|
|
(32
|
)
|
|
(79
|
)
|
Acquisition of business
|
|
|
-
|
|
|
(1,368
|
)
|
Purchases of intellectual property
|
|
|
(10
|
)
|
|
(32
|
)
|
Net cash used for investing activities
|
|
|
(42
|
)
|
|
(1,479
|
)
|
|
|
|
|
|
|
|
|
FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
Proceeds from stock option exercises
|
|
|
-
|
|
|
15
|
|
Issuance of common stock
|
|
|
-
|
|
|
3,814
|
|
Net cash provided by financing activities
|
|
|
-
|
|
|
3,829
|
|
|
|
|
|
|
|
|
|
NET INCREASE/(DECREASE) IN CASH
|
|
|
(1,572
|
)
|
|
391
|
|
|
|
|
|
|
|
|
|
CASH
|
|
|
|
|
|
|
|
Beginning of year
|
|
|
2,290
|
|
|
1,899
|
|
End of year
|
|
$
|
718
|
|
$
|
2,290
|
|
|
|
|
|
|
|
|
|
Supplemental cash-flow information
|
|
|
|
|
|
|
|
Income taxes paid during the period
|
|
$
|
27
|
|
$
|
17
|
|
Net carrying amount of inventory
transferred to property and equipment
|
|
$
|
70
|
|
$
|
202
|
|
Deferred acquisition payment and accounts
payable transferred to long-term debt
|
|
$
|
-
|
|
$
|
5,333
|
|
The accompanying notes to financial statements are an integral part of
these statements.
49
Table of Contents
UROLOGIX,
INC.
Notes to Financial Statements
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® catheter. The Prostiva® RF Therapy System licensed
from Medtronic, Inc., 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
|
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. Revenue is recognized in accordance
with generally accepted accounting principles as outlined in Accounting
Standards Codification (ASC) 605-10-S99, Revenue
Recognition, which requires that four basic criteria be met before
revenue can be recognized: (i) persuasive evidence of an arrangement exists;
(ii) the price is fixed or determinable; (iii) collectability is reasonably
assured; and (iv) product delivery has occurred or services have been rendered.
The Company recognizes revenue as products are shipped based on FOB shipping
point terms when title passes to customers. 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 on a straight-line basis. 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 customers ability to pay when determining the
adequacy of the allowance. Invoices are generally due 30 days after
presentation. Accounts receivable over 30 days are considered past due.
Accounts receivable are written-off after management determines they are
uncollectible.
50
Table of Contents
UROLOGIX,
INC.
Notes to Financial Statements
Bad
debt and sales returns provisions and accounts receivable write-offs for the
years ended June 30, 2014 and 2013 were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
Years
Ended
|
|
Beginning
Balance
|
|
Provisions
|
|
Write-offs
|
|
Ending
Balance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2014
|
|
$
|
79
|
|
$
|
10
|
|
$
|
(13
|
)
|
$
|
76
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2013
|
|
|
83
|
|
|
38
|
|
|
(42
|
)
|
|
79
|
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,
2014
|
|
June 30,
2013
|
|
|
|
|
|
|
|
|
|
Raw
materials
|
|
$
|
685
|
|
$
|
734
|
|
Work-in-process
|
|
|
127
|
|
|
112
|
|
Finished
goods
|
|
|
726
|
|
|
1,768
|
|
Total
inventories
|
|
$
|
1,538
|
|
$
|
2,614
|
|
We
took a non-cash write-down of our Prostiva capital equipment inventory of
approximately $739,000, which included approximately $504,000 of finished goods
inventory acquired as part of the September 6, 2011 Prostiva acquisition in the
quarter ended March 31, 2014. This inventory continues to be reserved for as of
June 30, 2014. The write-down of the Prostiva capital equipment inventory was
due to low volume sales of the Prostiva generators and scopes, as well as the
implementations of the recent restructurings that occurred in January and April
of fiscal year 2014 as a result of our change in sales strategy. In addition,
as of June 30, 2014 and 2013, $141,000 and $1,043,000, respectively, 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, or if there is a shareholders
deficit, 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.
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.
51
Table of Contents
UROLOGIX,
INC.
Notes to Financial Statements
As
a result of the delisting of our common stock from the NASDAQ exchange on June
7, 2013 and the continued decline of our stock price, we tested our long-lived
assets and goodwill for impairment as of June 30, 2013. Based on this
impairment testing it was determined that our intangible assets acquired as
part of the Prostiva acquisition were impaired. As a result, we recorded an impairment
charge of $274,000 on our developed technology asset which was recorded in cost
of goods sold, a $95,000 impairment charge on our customer base asset and a
$65,000 impairment charge on trademarks both of which were recorded in
operating expense. There was no impairment of goodwill as it was determined
that the estimated fair value of the reporting unit exceeded its carrying
amount as of June 30, 2013. See Footnote 11 for a description of our intangible
assets.
We
tested our intangible assets and goodwill for impairment as of April 30, 2014,
our annual testing date. We tested our intangible assets and goodwill for
impairment due to our continued significant operating losses, negative cash
flows, the estimated fair value of obligations due to Medtronic and due to the
fact that we had a shareholders deficit as of the testing date. As part of
this testing we fair valued all of our assets and liabilities as of this date
using discounted cash flow analysis and forecasted future operating results. Based
on this testing, we determined that the fair value of the Company could no
longer support the carrying value of the goodwill acquired as part of the
Prostiva acquisition. As a result, we recorded a non-cash impairment charge of
$3,036,000 to fully impair our goodwill. See footnote 10 for a description of
our goodwill and related impairment charge. There was no additional impairment
of our long-lived assets as their estimated fair value exceeded their carrying
values at the testing date.
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 on a straight-line basis 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,
2014
|
|
June 30,
2013
|
|
|
|
|
|
|
|
|
|
Leasehold
improvements, equipment, furniture and vehicles
|
|
$
|
147
|
|
$
|
241
|
|
Computer
equipment
|
|
|
13
|
|
|
32
|
|
Control
units, generators and scopes
|
|
|
311
|
|
|
462
|
|
Total
property and equipment, net
|
|
$
|
471
|
|
$
|
735
|
|
Depreciation
expense for the years ended June 30, 2014 and 2013 was $360,000, and $401,000,
respectively.
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 loss. Any changes in fair value will impact earnings in such
reporting period until the contingencies are resolved.
52
Table of Contents
UROLOGIX,
INC.
Notes to Financial Statements
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,
2014, 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.
Warranty Costs
Certain
of our products, including the 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, 2014 and 2013 were as
follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended
|
|
Beginning
Balance
|
|
Warranty
Provisions
|
|
Warranty
Claims
|
|
Ending
Balance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2014
|
|
$
|
58
|
|
$
|
36
|
|
$
|
(38
|
)
|
$
|
56
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2013
|
|
|
47
|
|
|
63
|
|
|
(52
|
)
|
|
58
|
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. As of June
30, 2014, we carried a valuation allowance of $31.5 million against our net
deferred tax assets.
Stock-Based Compensation
Stock-based 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
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. The Company also grants restricted stock
awards which typically vest over a period of one to four years. Fair value for
restricted stock is based on the market price on the day of grant. See Note 5
for additional discussion.
53
Table of Contents
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 is 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, unless there is a net loss position, in which case diluted loss per
share is the same as basic loss per share. The number of shares used in
earnings per share computations is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
For the years ended June 30,
|
|
|
|
2014
|
|
2013
|
|
Weighted
average common shares outstanding - basic
|
|
|
21,219
|
|
|
20,703
|
|
Dilutive
effect of stock options
|
|
|
-
|
|
|
-
|
|
Weighted
average common shares outstanding - diluted
|
|
|
21,219
|
|
|
20,703
|
|
The
dilutive effect of stock options in the above table excludes 1.7 million and
1.7 million of underlying options for which the exercise price was higher than
the average market price for the years ended June 30, 2014 and 2013,
respectively. In addition, there were no potentially dilutive stock options
where the exercise price was lower than the average market price for the fiscal
year ended June 30, 2014. For the fiscal year ended June 30, 2013, there were
dilutive potential common shares of 1,061 shares, where the exercise price was
lower than the average market price and were excluded from diluted weighted
average common shares outstanding as they would be anti-dilutive due to our net
loss.
Research and Development Costs
Research
and development costs are charged to expense as incurred.
Shipping and
Handling Costs
The
Company includes shipping and handling revenues in sales and shipping and
handling costs in cost of goods sold.
Concentration of
Cash
The
Company deposits its cash in what management believes are high credit quality
financial institutions. The balance, at times, may exceed federally insured
limits.
Financial
Instruments
The
carrying amounts of our accounts receivable and accounts payable approximate
fair value due to their short-term nature. The fair value of
the Companys short and long-term debt, including deferred acquisition
payments, is estimated based on our future projected cash flow streams which
would be used to pay down the debt. As of June 30, 2014, the fair value of the
Companys short and long-term debt for purposes of the Companys goodwill
impairment analysis, including the deferred acquisition payments, was estimated
at $1.9 million versus a carrying value of $10.4 million based on a market
participant basis as required under the goodwill step 2 impairment test
guidance. The fair value of contingent consideration as disclosed in footnote 4
and the carrying amount of debt as disclosed in footnotes 12 and 13 are based
on using the contractual obligations due under the terms of the agreement.
54
Table of Contents
UROLOGIX,
INC.
Notes to Financial Statements
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 managements 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 change in the Prostiva
capital equipment inventory as noted earlier, 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.
Reclassification
The
balance sheet includes the reclassification of prior year inventory from
current inventories to long-term inventories to conform with current year
presentation. The reclassification is related to additional inventories
received subsequent to the Prostiva acquisition that should have been
classified as long-term, as we do not expect to sell them within the next 12
months, which had been classified in current inventories.
Recently Issued
Accounting Standard
In
May 2014, the FASB issued amended revenue recognition guidance to clarify the
principles for recognizing revenue from contracts with customers. The guidance
requires an entity to recognize revenue to depict the transfer of goods or
services to customers in an amount that reflects the consideration to which an
entity expects to be entitled in exchange for those goods or services. The
guidance also requires expanded disclosures relating to the nature, amount,
timing, and uncertainty of revenue and cash flows arising from contracts with
customers. Additionally, qualitative and quantitative disclosures are required
about customer contracts, significant judgments and changes in judgments, and
assets recognized from the costs to obtain or fulfill a contract. The
requirements are effective for annual reporting periods beginning after
December 15, 2016. Early adoption is not permitted. We are evaluating the
impact of the amended revenue recognition guidance on our financial statements.
As
of June 30, 2014, the Company had cash of $718,000. The Company incurred net
losses of $7,608,000 in fiscal year 2014 and $4,292,000 in the fiscal year
ended 2013. In addition, the Company has accumulated aggregate net losses from
the inception of business through June 30, 2014 of $126.6 million.
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. On June 28, 2013, we entered into a Restructuring Agreement
with Medtronic related to the $7.5 million we owed to Medtronic under the
Transaction Documents. As part of this agreement we paid Medtronic $2.0 million
in satisfaction of royalties earned for the 12 months ended September 6, 2012,
the second half of the initial licensing fee, the license maintenance fee for
the 12 month period ended September 6, 2012, for outstanding transition
services fees, and for Prostiva inventory included as part of the acquisition
and purchased subsequent to the acquisition. In addition, we entered into a
promissory note (the Note) with Medtronic for $5.3 million for the remaining
amounts owed on Prostiva inventory acquired as part of the acquisition and
purchased subsequent to the acquisition. Interest on the Note accrues at a rate
of 6 percent, compounded annually and is payable in five equal installments of
principal plus accrued interest on March 31st of each year beginning
on March 31, 2015. The $206,000 difference between the $7.5 million in obligations
owed to Medtronic and the $2.0 million paid and the $5.3 million Note was
recorded as a gain on debt extinguishment in fiscal year 2013. The Company does
not have adequate cash to repay the full outstanding principal amount of $5.3
million on the Note. Any event of default under the Note may result in a loss
of control of our business or bankruptcy.
55
Table of Contents
UROLOGIX,
INC.
Notes to Financial Statements
Under
the license agreement, royalty payments for Prostiva products are paid one year
in arrears based on the contract year. The royalty payment due during the
second quarter of fiscal year 2014 of $650,000 has not been paid as of June 30,
2014 or as of the date of filing this Annual Report on Form 10-K. The $650,000
is included in the short-term deferred acquisition payment liability as of June
30, 2014. In addition, we have not paid, as of June 30, 2014 or as of the date
of filing this Annual Report on Form 10-K, the annual $65,000 licensing
maintenance fee due on September 6, 2013 which is included in other accrued
expenses as of June 30, 2014. The non-payment does not entitle Medtronic to
terminate the license agreement unless Medtronic provides written notice and an
opportunity to cure the default. The non-payment under the license agreement is
also not an event of default under the Note unless Medtronic provides written
notice and an opportunity to cure. In the event of a material breach of the
licensing agreement or other transaction documents, and Medtronic provides
written notice to the Company and the Company fails to cure the breach, Medtronic
may terminate the license agreement. If the license agreement is terminated,
the Companys rights to sell the Prostiva product would be terminated.
During
the first quarter of fiscal 2013, the Company completed a follow-on offering in
which we sold 5,980,000 shares of common stock at a price of $0.75 per share
which contributed approximately $3.8 million of net proceeds after deducting
underwriting discounts and commissions and other expenses payable by the
Company. However, as a result of the Companys history of operating losses and
negative cash flows from operations, and the need for additional working
capital to support future operations, there is substantial doubt about our
ability to continue as a going concern. In addition, our line of credit with
Silicon Valley Bank expired on June 30, 2014, and was not renewed.
The
Companys cash may not be sufficient to sustain day-to-day operations for the
next 12 months. The Companys ability to continue as a going concern is dependent
upon our ability to generate positive cash flows from our business and
aggressively manage our expenses, including those associated with our
acquisition of the Prostiva product line from Medtronic. The Companys ability
to continue as a going concern is also dependent upon avoiding an event of
default under the Note and avoiding termination of the license relating to the
Prostiva product, whether by negotiation with Medtronic, cure of any
non-payment giving rise to an event of default or termination, or otherwise.
The
Company is considering all available alternatives to improve its cash and
liquidity position. In particular, the Company implemented a new sales strategy
using a leaner and more efficient sales team which will continue to support our
current customer base while also targeting new accounts which align with our
value proposition of strong clinical outcomes and low costs in an attempt to
generate revenues both from sales of our Cooled ThermoTherapy and Prostiva
products in an amount sufficient to improve cash flow from our business. The
Company also implemented restructuring plans in January 2014 and again in April
2014 to reduce our cash utilization. The targeted annual savings from these
restructurings total over $4 million, compared with the first half of fiscal
year 2014. In the fourth quarter, we received partial benefit of these changes
(see Footnote 6 for further details). The Company may also seek to improve its
liquidity position by raising capital through additional indebtedness or an
offering of its equity securities or both. However, it may be difficult to
raise additional capital through a debt offering due to the debt outstanding
with Medtronic and their position as a secured lender.
56
Table of Contents
UROLOGIX,
INC.
Notes to Financial Statements
There
is no assurance that our cash, cash generated from operations, if any, will be
sufficient to fund our anticipated capital needs, operating expenses,
(including payments under the licensing agreement), and Note repayments,
particularly if product sales do not generate revenues in the amounts currently
anticipated, if our operating costs are greater than anticipated or greater
than our business can support.
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. In addition, there can be no assurance that the Company will be
able to cure any potential event of default of the Note or cure any breach of
any agreement with Medtronic, maintain compliance with its agreements with
Medtronic, raise additional capital, or improve its operating or financial
performance.
The
financial statements as of and for the year ended June 30, 2014 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.
|
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.
|
As
part of the consideration for the Prostiva acquisition, the estimated royalty
payments between the minimum and maximum amounts are considered contingent
consideration. The contingent consideration, including the payment up to the
minimum obligation to transfer the license, 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 $953,000 at June 30, 2014. The Company recognized a reduction
in fair value of contingent consideration of $105,000 during the fiscal year
ended June 30, 2014 as a result of the reduction in the projected royalty
payments in excess of contractual minimums. There was no change in the fair
value of non-contingent consideration. The following table provides a
reconciliation of the beginning and ending balances of the contingent
consideration liability:
|
|
|
|
|
|
|
|
(in thousands)
|
|
Fiscal
Year
2013
|
|
Fiscal
Year
2014
|
|
Beginning
Balance - Contingent Consideration Liability
|
|
$
|
2,862
|
|
$
|
962
|
|
Accretion
expense
|
|
|
(11
|
)
|
|
96
|
|
Change in
fair value of contingent consideration
|
|
|
(1,380
|
)
|
|
(105
|
)
|
Payments
|
|
|
(509
|
)
|
|
-
|
|
Ending
Balance - Contingent Consideration Liability
|
|
$
|
962
|
|
$
|
953
|
|
57
Table of Contents
UROLOGIX,
INC.
Notes to Financial Statements
As part of
our annual testing, we tested our goodwill for impairment as of April 30, 2014.
As part of this impairment testing, we fair valued all of our assets and
liabilities, many of which were based on discounted cash flows analysis and
forecasted future operating results which represent Level 3 inputs. As a result
of our testing, we recorded a non-cash impairment charge of $3,036,000 to fully
impair our goodwill. The following table provides a reconciliation of the
beginning and ending balances of our goodwill intangible asset:
|
|
|
|
|
(in thousands)
|
|
Fiscal
Year
2014
|
|
Beginning
Balance - Goodwill
|
|
$
|
3,036
|
|
Impairment
charge
|
|
|
(3,036
|
)
|
Ending
Balance - Goodwill
|
|
$
|
-
|
|
As
a result of the delisting of our common stock from the NASDAQ exchange at the
start of trading on June 7, 2013 and the continued decline of our stock price,
we tested our long-lived assets and goodwill for impairment as of June 30,
2013. Based on this impairment testing it was determined that our intangible
assets acquired as part of the Prostiva acquisition with carrying amount of
$1.9 million were impaired (See Note 11). As a result, we wrote the intangible
assets down to their implied fair value of $1.5 million and recorded an
impairment charge of $434,000. The fair value of patents and technology,
customer base and trademark intangible assets was determined based on a
discounted cash flow analysis of forecasted future operating results, which
represents Level 3 assets measured at fair value on a nonrecurring basis
subsequent to its original recognition. The following table provides a
reconciliation of the beginning and ending balances of intangible assets:
|
|
|
|
|
|
|
|
(in thousands)
|
|
Fiscal
Year
2013
|
|
Fiscal
Year
2014
|
|
Beginning
Balance - Intangible Assets
|
|
$
|
2,177
|
|
$
|
1,495
|
|
Amortization
expense
|
|
|
(248
|
)
|
|
(194
|
)
|
Impairment
charge
|
|
|
(434
|
)
|
|
-
|
|
Ending
Balance - Intangible Assets
|
|
$
|
1,495
|
|
$
|
1,301
|
|
|
|
5.
|
Stock Options and Restricted Stock Awards
|
On
November 16, 2012, our shareholders approved a new equity compensation plan,
the Urologix, Inc. 2012 Stock Incentive Plan (the 2012 Plan). The 2012 Plan
replaced our Amended and Restated 1991 Stock Option Plan (the 1991 Plan) and
provides stock incentive awards in the form of options (incentive and
non-qualified), stock appreciation rights, restricted stock, restricted stock
units, performance stock, performance units, and other awards in stock and/or
cash. As of June 30, 2014, we had reserved 1,860,328 shares of common stock
under the 2012 Plan, which includes 260,328 expired and forfeited shares from
the 1991 Plan and 1,319,354 shares were available for future grants. The number
of shares available under the 2012 Plan will be increased by an amount equal to
the number of shares subject to awards or options granted under the 1991 Plan,
which would have become available for additional awards under the 1991 Plan by
reason of the forfeiture, cancellation, expiration or termination of those
awards. 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. The Company issues new shares when stock options are
exercised.
58
Table of Contents
UROLOGIX, INC.
Notes to Financial Statements
Amounts
recognized in the financial statements related to stock-based compensation for
the fiscal years ended June 30, 2014 and 2013 were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
2014
|
|
2013
|
|
Cost of
goods sold
|
|
$
|
12
|
|
$
|
19
|
|
Sales and
marketing
|
|
|
53
|
|
|
46
|
|
General and
administrative
|
|
|
132
|
|
|
164
|
|
Research and
development
|
|
|
14
|
|
|
28
|
|
Total cost of stock-based compensation
|
|
$
|
211
|
|
$
|
257
|
|
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, 2014 and 2013 using the
Black-Scholes option-pricing model:
|
|
|
|
|
|
|
|
|
|
2014
|
|
2013
|
|
Volatility
|
|
|
84.00%
|
|
|
72.00%
|
|
Risk-free
interest rate
|
|
|
0.7%
|
|
|
0.4%
|
|
Expected
option life
|
|
|
3.1 years
|
|
|
3.4 years
|
|
Stock
dividend yield
|
|
|
-
|
|
|
-
|
|
A
summary of our options and option activity for the fiscal year ended June 30,
2014 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding
|
|
|
Options Exercisable
|
|
Range of Exercise Prices
|
|
Outstanding as of
June 30, 2014
|
|
Weighted
Avg.
Remaining
Contractual
Life
|
|
Weighted
Avg. Exercise
Price
|
|
|
Exercisable as of
June 30, 2014
|
|
Weighted
Avg. Exercise
Price
|
|
$
|
0.00
|
|
$
|
2.43
|
|
|
1,631,542
|
|
|
4.9
|
|
$
|
1.21
|
|
|
|
1,331,973
|
|
$
|
1.34
|
|
$
|
2.44
|
|
$
|
4.86
|
|
|
57,500
|
|
|
2.1
|
|
$
|
3.20
|
|
|
|
57,500
|
|
$
|
3.20
|
|
$
|
4.87
|
|
$
|
7.29
|
|
|
7,500
|
|
|
1.0
|
|
$
|
5.47
|
|
|
|
7,500
|
|
$
|
5.47
|
|
$
|
7.30
|
|
$
|
14.58
|
|
|
7,500
|
|
|
0.1
|
|
$
|
12.23
|
|
|
|
7,500
|
|
$
|
12.23
|
|
|
|
|
|
|
|
|
1,704,042
|
|
|
4.8
|
|
$
|
1.35
|
|
|
|
1,404,473
|
|
$
|
1.50
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
Options
|
|
|
Weighted-avg.
Exercise Price
Per Option
|
|
Weighted-avg.
Remaining
Contractual
Term
|
|
Aggregate
Intrinsic Value
|
|
Outstanding
at July 1, 2013
|
|
|
1,711,430
|
|
|
$
|
1.43
|
|
|
|
|
$
|
-
|
|
Options granted
|
|
|
191,500
|
|
|
|
0.38
|
|
|
|
|
|
|
|
Options forfeited
|
|
|
(88,063
|
)
|
|
|
0.66
|
|
|
|
|
|
|
|
Options expired
|
|
|
(110,825
|
)
|
|
|
1.49
|
|
|
|
|
|
|
|
Outstanding at June 30, 2014
|
|
|
1,704,042
|
|
|
$
|
1.35
|
|
|
4.79
|
|
$
|
-
|
|
Exercisable
at June 30, 2014
|
|
|
1,404,473
|
|
|
$
|
1.50
|
|
|
4.02
|
|
$
|
-
|
|
There
is no aggregate intrinsic value in the table above as our closing stock price
of $0.18 and $0.17 on June 30, 2014 and June 28, 2013, respectively, the last
trading day prior to June 30, 2013, was lower than all options outstanding and
exercisable as of that date.
59
Table of Contents
UROLOGIX, INC.
Notes to Financial Statements
The
weighted average fair value of our options at their grant date was
approximately $0.21 and $0.40 for options granted during the fiscal years ended
June 30, 2014 and 2013, respectively. No options were exercised in fiscal year
2014. There was a negative intrinsic value of approximately $600 on options
exercised during fiscal year 2013, as some options were exercised at a market
price lower than the exercise price.
A
summary of the status of our non-vested options as of June 30, 2014 is as
follows:
|
|
|
|
|
|
|
|
|
|
|
Number of Options
|
|
|
Weighted-avg. Grant-Date
Fair Value
|
|
Non-vested
at June 30, 2013
|
|
|
383,115
|
|
|
$
|
0.46
|
|
Options granted
|
|
|
191,500
|
|
|
|
0.21
|
|
Options forfeited
|
|
|
(88,063
|
)
|
|
|
0.34
|
|
Options vested
|
|
|
(186,983
|
)
|
|
|
0.48
|
|
Non-vested
at June 30, 2014
|
|
|
299,569
|
|
|
$
|
0.32
|
|
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, 2013
|
|
|
113,667
|
|
|
$
|
0.68
|
|
Awards granted
|
|
|
377,500
|
|
|
|
0.28
|
|
Awards forfeited
|
|
|
(35,000
|
)
|
|
|
0.38
|
|
Awards vested
|
|
|
(109,865
|
)
|
|
|
0.67
|
|
Non-vested
at June 30, 2014
|
|
|
346,302
|
|
|
$
|
0.28
|
|
As of June
30, 2014, total unrecognized compensation cost related to non-vested stock
options and restricted stock awards granted
under our plan was $86,000 and $24,000, respectively. That cost is expected to
be recognized over a weighted-average period of 2.0 years for non-vested stock
options and 0.36 years for restricted stock awards. The total fair value of
options vested during the fiscal years ended June 30, 2014 and 2013 was $89,000
and $140,000, respectively.
On
January 3, 2014, the Company implemented a restructuring plan, reorganizing the
Companys operations and sales departments. The restructuring expenses totaled
approximately $41,000. On April 10, 2014, the Company implemented a second
restructuring plan, making additional changes to the Companys operations and
sales departments. The restructuring included another reduction in work force
and severance payments of approximately $45,000. Of the $86,000 of expenses
related to the two restructurings, approximately $26,000 was included in cost
of goods sold and $60,000 was included in operating expense in fiscal year
2014. A summary of the restructuring activity is as follows:
|
|
|
|
|
|
|
Employee Termination Costs
|
|
|
|
|
|
|
Balance as of June 30, 2013
|
|
$
|
-
|
|
Restructuring
charges
|
|
|
86
|
|
Payments
|
|
|
(86
|
)
|
Balance as of June 30, 2014
|
|
$
|
-
|
|
60
Table of Contents
UROLOGIX, INC.
Notes to Financial Statements
The
Company made the strategic decision to restructure the organization, including
deploying a new distribution model and operational structure to refocus the
allocation of company resources and improve the Companys ability to achieve
profitability and generate positive cash flow from operations. The strategic
reorganization included implementing a leaner and more efficient sales team
which will continue to support our customer base in a deployment designed to
create a more profitable sales model.
As
a result of these restructurings cash utilization in the fourth quarter of
fiscal year 2014 was $98,000, which included $80,000 of cash payments related
to the April 10th restructuring for payments related to severance and accrued vacation.
|
|
7.
|
Other
Accrued Expenses
|
Other
accrued expenses is comprised of the following as of June 30 (in thousands):
|
|
|
|
|
|
|
|
|
|
2014
|
|
2013
|
|
Sales tax
accrual
|
|
$
|
79
|
|
$
|
126
|
|
Other
|
|
|
420
|
|
|
476
|
|
Total other accrued expenses
|
|
$
|
499
|
|
$
|
602
|
|
The
components of income tax expense (benefit) for the periods ended June 30, 2014
and 2013 consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the fiscal year ended June 30,
|
|
|
|
2014
|
|
2013
|
|
|
|
Current
|
|
Deferred
|
|
Total
|
|
Current
|
|
Deferred
|
|
Total
|
|
Federal
|
|
$
|
-
|
|
$
|
(33
|
)
|
$
|
(33
|
)
|
$
|
-
|
|
$
|
1
|
|
$
|
1
|
|
State
|
|
|
20
|
|
|
(3
|
)
|
|
17
|
|
|
13
|
|
|
-
|
|
|
13
|
|
Total
|
|
$
|
20
|
|
$
|
(36
|
)
|
$
|
(16
|
)
|
$
|
13
|
|
$
|
1
|
|
$
|
14
|
|
A reconciliation of our statutory tax expense
(benefit) to our actual tax expense (benefit) is as follows:
|
|
|
|
|
|
|
|
|
|
For the years ended June 30,
|
|
|
|
2014
|
|
2013
|
|
Federal statutory rate at 34 percent
|
|
$
|
(2,592
|
)
|
$
|
(1,459
|
)
|
State taxes, net of federal tax expense (benefit) and state valuation
allowance
|
|
|
(231
|
)
|
|
(128
|
)
|
Nondeductible expenses
|
|
|
34
|
|
|
17
|
|
Stock-based compensation
|
|
|
29
|
|
|
55
|
|
Adjustments to net operating losses and credits
|
|
|
918
|
|
|
5,562
|
|
Adjustments to deferred tax assets
|
|
|
485
|
|
|
-
|
|
Other
|
|
|
1
|
|
|
3
|
|
Change in valuation allowance
|
|
|
1,340
|
|
|
(4,036
|
)
|
|
|
$
|
(16
|
)
|
$
|
14
|
|
61
Table of Contents
UROLOGIX, INC.
Notes to Financial Statements
The
components of our net deferred tax assets and liabilities are as follows (in
thousands):
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
|
2014
|
|
2013
|
|
Deferred Tax Assets:
|
|
|
|
|
|
|
|
Non-Current:
|
|
|
|
|
|
|
|
Net operating loss carry forward
|
|
$
|
27,861
|
|
$
|
27,131
|
|
Definite-lived intangibles
|
|
|
2,851
|
|
|
2,414
|
|
Alternative minimum tax credit
|
|
|
3
|
|
|
3
|
|
Federal and state general business credits
|
|
|
886
|
|
|
865
|
|
Non-qualified stock-based compensation
|
|
|
153
|
|
|
536
|
|
Property, plant and equipment
|
|
|
80
|
|
|
64
|
|
Current:
|
|
|
|
|
|
|
|
Accrued expenses
|
|
|
582
|
|
|
318
|
|
Gross deferred tax assets
|
|
|
32,416
|
|
|
31,331
|
|
Deferred Tax Liabilities:
|
|
|
|
|
|
|
|
Non-Current:
|
|
|
|
|
|
|
|
Amortization of indefinite-lived intangible
|
|
|
-
|
|
|
(36
|
)
|
Contingent consideration on acquisition
|
|
|
(900
|
)
|
|
(1,155
|
)
|
Gross deferred tax liabilities
|
|
|
(900
|
)
|
|
(1,191
|
)
|
Net deferred tax assets before valuation allowance
|
|
|
31,516
|
|
|
30,140
|
|
Less: valuation allowance
|
|
|
(31,516
|
)
|
|
(30,176
|
)
|
Total net deferred tax liability
|
|
$
|
-
|
|
$
|
(36
|
)
|
The
valuation allowance for deferred tax assets as of June 30, 2014 and 2013 was
$31,516,000 and $30,176,000, respectively. The total
valuation allowance increased by $1,340,000 for the year ended June 30, 2014.
The total valuation allowance decreased $4,087,000 for the year ended June 30,
2013. A significant portion of the current year increase in valuation allowance
is attributable to generating NOL carryforward tax benefits. In assessing the
need for a valuation allowance, management considers whether it is more likely
than not that some portion or all of the deferred tax assets will not be
realized. The ultimate realized of deferred tax assets is dependent upon the
generation of future taxable income during the periods in which those temporary
differences become deductible. Management considers the scheduled reversal of
deferred tax liabilities, projected future taxable income and tax planning
strategies in making this assessment.
Deferred
tax assets relating to the tax benefits of employee stock option grants have
been reduced to reflect exercises through the year ended June 30, 2014. Certain
exercises resulted in tax deductions in excess of previously recorded tax
benefits. The Companys Federal NOL carryforwards of $77,534,000 referenced below
as of June 30, 2014 include $541,000 of income tax deductions in excess of
previously recorded tax benefits. Although these additional tax deductions are
reflected in NOL carryforwards referenced below, the related tax benefit of
$184,000 will not be recognized until the deductions reduce taxes payable.
Accordingly, since the tax benefit does not reduce the Companys current taxes
payable in 2014, these tax benefits are not reflected in the Companys deferred
tax assets presented above. The tax benefit of these excess deductions will be
reflected as a credit to additional paid-in capital when and if recognized.
62
Table of Contents
UROLOGIX, INC.
Notes to Financial Statements
As
of June 30, 2014, 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
|
|
Net Operating
Loss
|
|
Credits
|
|
June 30, 2015
|
|
$
|
-
|
|
$
|
-
|
|
June 30, 2016 June 30,
2020
|
|
|
21,389
|
|
|
-
|
|
June 30, 2021 June 30,
2025
|
|
|
19,481
|
|
|
115
|
|
June 30, 2026 June 30,
2034
|
|
|
36,664
|
|
|
552
|
|
|
|
|
|
|
|
|
|
|
|
$
|
77,534
|
|
$
|
667
|
|
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, 2014, 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, 2014, 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 1998 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, 2014 and 2013 consists of deferred warranty service
income of $6,000 and $5,000, 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 $3,036,000 of goodwill as of June 30, 2013, related
to the acquisition of the Prostiva RF Therapy System on September 6, 2011.
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. We tested our goodwill for impairment due to our continued significant
operating losses, negative cash flows, the estimated fair value of obligations
due to Medtronic and due to the fact that we had a shareholders deficit as of
the testing date. As part of this testing we fair valued all of our assets and
liabilities as of this date using discounted cash flow analysis and forecasted
future operating results. Based on this testing it was determined that the fair
value of the Company could no longer support the carrying value of the
goodwill. As a result, we recorded a non-cash impairment charge of $3,036,000
to write off the full balance of goodwill as of the testing date.
63
Table of Contents
UROLOGIX, INC.
Notes to Financial Statements
Intangible
assets as of June 30, 2014 and 2013 consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2014
|
|
June 30, 2013
|
|
|
|
Carrying
Value
|
|
Accumulated
Amortization
|
|
Impairment
|
|
Net
Carrying
Value
|
|
Carrying
Value
|
|
Accumulated
Amortization
|
|
Impairment
|
|
Net
Carrying
Value
|
|
Prostiva
Acquisition
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Patents and Technology
|
|
$
|
1,529
|
|
$
|
(443
|
)
|
$
|
(274
|
)
|
$
|
812
|
|
$
|
1,529
|
|
$
|
(311
|
)
|
$
|
(274
|
)
|
$
|
944
|
|
Customer Base
|
|
|
531
|
|
|
(154
|
)
|
|
(95
|
)
|
|
282
|
|
|
531
|
|
|
(108
|
)
|
|
(95
|
)
|
|
328
|
|
Trademarks
|
|
|
325
|
|
|
(53
|
)
|
|
(65
|
)
|
|
207
|
|
|
325
|
|
|
(37
|
)
|
|
(65
|
)
|
|
223
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EDAP
Acquisition
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer Base
|
|
|
2,300
|
|
|
(2,294
|
)
|
|
-
|
|
|
6
|
|
|
2,300
|
|
|
(2,270
|
)
|
|
-
|
|
|
30
|
|
Other
|
|
|
74
|
|
|
(11
|
)
|
|
-
|
|
|
63
|
|
|
64
|
|
|
(2
|
)
|
|
-
|
|
|
62
|
|
Total intangible assets
|
|
$
|
4,759
|
|
|
(2,955
|
)
|
$
|
(434
|
)
|
$
|
1,370
|
|
$
|
4,749
|
|
|
(2,728
|
)
|
$
|
(434
|
)
|
$
|
1,587
|
|
Amortization
expense associated with intangible assets for the fiscal years ended June 30,
2014 and 2013 was $227,000 and $274,000, respectively and includes amortization
expense recorded in cost of goods sold. As a result of the delisting of our
common stock from the NASDAQ exchange at the start of trading on June 7, 2013
and the continued decline of our stock price, we tested our long-lived assets
and goodwill for impairment as of June 30, 2013. Based on this impairment
testing it was determined that our intangible assets acquired as part of the
Prostiva acquisition were impaired. As a result, we recorded an impairment
charge of $274,000 on our developed technology asset which was recorded in cost
of goods sold, a $95,000 impairment charge on our customer base asset and a
$65,000 impairment charge on trademarks both of which were recorded in
operating expense. The fair value of patents and technology, customer base and
trademark intangible assets was determined based on a discounted cash flow
analysis of forecasted future operating results.
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 0.25
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
|
|
|
|
|
2015
|
|
$
|
205
|
|
2016
|
|
|
199
|
|
2017
|
|
|
199
|
|
2018
|
|
|
198
|
|
2019
|
|
|
196
|
|
64
Table of Contents
UROLOGIX, INC.
Notes to Financial Statements
|
|
12.
|
Financing Arrangement
|
Promissory Note
On
June 28, 2013, the Company entered into a promissory note (the Note) with
Medtronic for $5.3 million for the remaining amounts owed on Prostiva inventory
acquired as part of the acquisition and purchased subsequent to the
acquisition. Interest on the principal amount of the Note will accrue at the
annual rate of 6%, compounded annually. The Note requires that the Company make
five equal annual payments of principal and accrued interest on March 31 of
each year beginning March 31, 2015. All amounts under the Note are due and
payable on March 31, 2019 or earlier upon a Change of Control (as defined in
the Note). The Company may prepay the Note without penalty at any time. The
Note is junior to a new lender that provides certain refinancing, but is senior
in all respects (including right of payment) to all other existing or future
indebtedness. The Note also specifies certain customary events of default that
will entitle Medtronic, after any required notice, to declare the outstanding
obligations immediately due and payable. The Note contains customary
representations, warranties and covenants by the Company.
Pursuant
to the terms of a Security Agreement dated as of June 28, 2013 by and between
Urologix and Medtronic, the Companys obligations under the Note are secured by
a security interest in all of the Companys assets, specifically excluding
intellectual property (but including accounts receivable and proceeds of
intellectual property).
|
|
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 2018. Rent
expense related to operating leases was approximately $229,000 and $227,000 for
the years ended June 30, 2014 and 2013, 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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2015
|
|
2016
|
|
2017
|
|
2018
|
|
2019
|
|
Building and equipment
leases
|
|
$
|
228
|
|
$
|
231
|
|
$
|
32
|
|
$
|
5
|
|
$
|
-
|
|
Prostiva Payments
Prostiva
payments are commitments related to the acquisition of the Prostiva RF Therapy
product line from Medtronic on September 6, 2011. In addition, on June 28,
2013, we entered into a promissory note (the Note) with Medtronic for $5.3
million for the remaining amounts owed on Prostiva inventory acquired as part
of the acquisition and purchased subsequent to the acquisition.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Years
|
|
|
|
2015
|
|
2016
|
|
2017
|
|
2018
|
|
2019
|
|
Prostiva Payments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Annual license maintenance fee
|
|
$
|
65
|
|
|
65
|
|
|
65
|
|
|
65
|
|
|
65
|
|
Royalty obligations
|
|
|
650
|
|
|
650
|
|
|
650
|
|
|
650
|
|
|
650
|
|
Note payments, including interest
|
|
|
1,323
|
|
|
1,323
|
|
|
1,323
|
|
|
1,323
|
|
|
1,323
|
|
|
|
$
|
2,038
|
|
$
|
2,038
|
|
$
|
2,038
|
|
$
|
2,038
|
|
$
|
2,038
|
|
65
Table of Contents
UROLOGIX, INC.
Notes to Financial Statements
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.
Major Vendor
During
the fiscal year ended June 30, 2014, the Company had purchases from one vendor
that accounted for approximately 70 percent of total inventory purchases. This
vendor is the supplier of our Prostiva handpieces which accounted for
approximately one-third of our revenue in fiscal year 2014.
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.
|
|
15.
|
Gain on Demutualization
|
Urologixs
primary product liability insurance carrier since July 1, 2006 has been Medmarc
Mutual Insurance Company (Medmarc). On June 27, 2012, Medmarc announced that
it would become part of ProAssurance Corporation (PRA). In order for Medmarc
to be acquired by PRA, it was required to convert from a mutual insurance
company to a stock insurance company through a demutualization process.
Concurrently, upon demutualization, PRA would purchase the newly-issued shares
of Medmarc common stock. Under the terms of the demutualization, Urologixs
calculated portion of the cash consideration to be received was approximately
$321,000. The receipt of the consideration had no direct effect on the
Companys existing insurance policy or coverage. On December 4, 2012, the
majority of eligible members voted to approve the demutualization of Medmarc,
and in accordance with the Plan of Conversion agreement, Urologix was eligible
to receive the cash consideration upon the completion of the acquisition, or
January 1, 2013. Urologix received the cash consideration of $321,000 for the
demutualization in January, 2013 and recognized a gain from the demutualization
in fiscal year 2013.
66
Table of Contents
|
|
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
Companys Chief Executive Officer and Interim Chief Financial Officer, Gregory
J. Fluet, has evaluated the Companys disclosure controls and procedures as of
June 30, 2014. Based upon his review, he has concluded that these controls and
procedures are effective.
The
Companys Chief Executive Officer and Interim 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 his 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, 2014 that have materially affected, or
are reasonably likely to materially affect, the Companys internal control over
financial reporting.
The
Companys internal control report is included in this report under Item 8,
under the caption Managements Report on Internal Control over Financial
Reporting.
|
|
ITEM 9B.
|
OTHER INFORMATION
|
None.
67
Table of Contents
PART III
|
|
ITEM 10.
|
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
|
Information
required under this item is contained in the following sections of the
Companys Proxy Statement for the 2014 Annual Meeting of Shareholders (the
2014 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
Companys 2014 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 Companys 2014 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
Companys 2014 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
Companys 2014 Proxy Statement and is incorporated herein by reference:
Independent Registered Public Accountants.
68
Table of Contents
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, 2014 and 2013.
|
|
|
None.
|
|
|
|
(b)
|
Exhibits.
|
|
|
|
|
|
Exhibit Number
|
|
Document
|
|
Incorporated
by Reference To:
|
|
|
|
|
|
3.1
|
|
Amended and Restated
Articles of Incorporation.
|
|
Exhibit 3.1 of the
Companys 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
Companys 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 Companys
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
Companys Form 10-K for the year ended June 30, 2009.
|
|
|
|
|
|
10.2
|
|
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.
|
|
|
|
|
|
10.3
|
|
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.
|
|
|
|
|
|
10.4
|
|
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.
|
|
|
|
|
|
10.5
|
|
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
|
|
|
|
|
|
10.6
|
|
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
|
|
|
|
|
|
10.7
|
|
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
|
69
Table of Contents
|
|
|
|
|
Exhibit Number
|
|
Document
|
|
Incorporated
by Reference To:
|
|
|
|
|
|
10.8
|
|
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
|
|
|
|
|
|
10.9
|
|
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
|
|
|
|
|
|
10.10
|
|
Urologix, Inc. 2012 Stock
Incentive Plan
|
|
Appendix A to the
Companys Proxy Statement for the 2012 Annual Meeting of Shareholders held on
November 16, 2012
|
|
|
|
|
|
10.11
|
|
Restructuring Agreement
and Amendment to Transaction Documents dated June 28, 2013 by and among
Urologix, Inc., Medtronic, Inc. and Medtronic VidaMed, Inc.
|
|
Exhibit 10.1 to Current
Report on Form 8-K dated June 28, 2013
|
|
|
|
|
|
10.12
|
|
Promissory Note dated June
28, 2013 by Urologix, Inc. as borrower to Medtronic, Inc. as holder in
principal amount of $5,332,537.72
|
|
Exhibit 10.2 to Current
Report on Form 8-K dated June 28, 2013
|
|
|
|
|
|
10.13
|
|
Security Agreement dated
as of June 28, 2013 by and between Urologix, Inc. and Medtronic, Inc.
|
|
Exhibit 10.3 to Current
Report on Form 8-K dated June 28, 2013
|
|
|
|
|
|
10.14
|
|
First Amendment of the
Transition Services and Supply Agreement effective as of March 1, 2013 by and
between Urologix, Inc. and Medtronic, Inc.
|
|
Exhibit 10.4 to Current
Report on Form 8-K dated June 28, 2013
|
|
|
|
|
|
10.15
|
|
First Amendment of the
License Agreement effective as of March 1, 2013 by and among Urologix, Inc.,
Medtronic, Inc. and Medtronic VidaMed, Inc. **
|
|
Exhibit 10.5 to Current
Report on Form 8-K dated June 28, 2013
|
|
|
|
|
|
23.1
|
|
Consent of Baker Tilly
Virchow Krause, LLP, 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.
|
70
Table of Contents
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 19, 2014
|
|
|
|
|
UROLOGIX, INC.
|
|
|
|
By:
|
/s/ Gregory J. Fluet
|
|
|
Gregory J. Fluet, Chief
Executive Officer
|
|
(principal executive
officer)
|
Each
person whose signature appears below hereby constitutes and appoints Gregory J.
Fluet 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
attorney-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 attorney-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 19, 2014.
|
|
|
Signature
|
|
Title
|
|
|
|
/s/ Gregory J. Fluet
|
|
Chief Executive Officer,
Interim Chief Financial Officer and Director
(principal executive officer, principal financial officer and principal
accounting officer)
|
Gregory J. Fluet
|
|
|
|
|
/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
|
|
|
71
EXHIBIT 23.1
Consent of Independent Registered Public Accounting
Firm
We consent to the
incorporation by reference in the registration statements on Form S-8 (File
Nos. 333-185479, 333-11981, 333-41385, 333-84869, 333-53634, 333-82854 and
333-124939) of Urologix, Inc. of our report dated September 19, 2014 with
respect to the balance sheets of Urologix, Inc. as of June 30, 2014 and 2013,
and the related statements of operations, shareholders equity (deficit), and cash flows
for the years ended June 30, 2014 and 2013, which report appears in the June
30, 2014 annual report on Form 10-K of Urologix, Inc.
Our report dated September
19, 2014 contains an explanatory paragraph that states that the Company has
suffered recurring operations losses, negative operating cash flows and the need
for additional working capital to support future operations that raise
substantial doubt about its ability to continue as a going concern. The
financial statements do not include any adjustments that might result from the
outcome of that uncertainty.
/s/ BAKER TILLY VIRCHOW
KRAUSE, LLP
Minneapolis, Minnesota
September 19, 2014
EXHIBIT 31.1
CERTIFICATIONS
I, Gregory J. Fluet, certify
that:
|
|
|
|
|
|
1.
|
I have reviewed this Form
10-K of Urologix, Inc.
|
|
|
|
|
2.
|
Based on my knowledge,
this report does not contain any untrue statement of a material fact or omit
to state a material fact necessary to make the statements made, in light of
the circumstances under which such statements were made, not misleading with
respect to the period covered by this report;
|
|
|
|
|
3.
|
Based on my knowledge, the
financial statements, and other financial information included in this
report, fairly present in all material respects the financial condition,
results of operations and cash flows of the registrant as of, and for, the
periods presented in this report;
|
|
|
|
|
4.
|
The registrants other
certifying officer(s) and I are responsible for establishing and maintaining
disclosure controls and procedures (as defined in Exchange Act Rules
13a-15(e) and 15d-15(e)) and internal control over financial reporting (as
defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and
have:
|
|
|
|
|
|
|
|
|
(a)
|
Designed such disclosure
controls and procedures, or caused such disclosure controls and procedures to
be designed under our supervision, to ensure that material information
relating to the registrant, including its consolidated subsidiaries, is made
known to us by others within those entities, particularly during the period
in which this report is being prepared;
|
|
|
|
|
|
|
|
|
(b)
|
Designed such internal
control over financial reporting, or caused such internal control over
financial reporting to be designed under our supervision, 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;
|
|
|
|
|
|
|
|
|
(c)
|
Evaluated the
effectiveness of the registrants disclosure controls and procedures and
presented in this report our conclusions about the effectiveness of the
disclosure controls and procedures, as of the end of the period covered by
this report based on such evaluation; and
|
|
|
|
|
|
|
|
|
(d)
|
Disclosed in this report
any change in the registrants internal control over financial reporting that
occurred during the registrants most recent fiscal quarter (the registrants
fourth fiscal quarter in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect, the registrants
internal control over financial reporting.
|
|
|
|
|
|
|
5.
|
The registrants other
certifying officer(s) and I have disclosed, based on our most recent
evaluation of internal control over financial reporting, to the registrants
auditors and the audit committee of the registrants board of directors (or
persons performing the equivalent functions):
|
|
|
|
|
|
|
(a)
|
All significant
deficiencies and material weaknesses in the design or operation of internal
control over financial reporting which are reasonably likely to adversely
affect the registrants ability to record, process, summarize and report
financial information; and
|
|
|
|
|
|
|
|
|
(b)
|
Any fraud, whether or not
material, that involves management or other employees who have a significant
role in the registrants internal control over financial reporting.
|
|
|
|
Date: September 19, 2014
|
|
|
|
|
/s/ Gregory J. Fluet
|
|
|
Gregory J. Fluet
Chief Executive Officer
(principal executive officer)
|
EXHIBIT 31.2
CERTIFICATIONS
I, Gregory J. Fluet, certify
that:
|
|
|
|
|
|
1.
|
I have reviewed this Form
10-K of Urologix, Inc.
|
|
|
|
|
|
|
2.
|
Based on my knowledge,
this report does not contain any untrue statement of a material fact or omit
to state a material fact necessary to make the statements made, in light of
the circumstances under which such statements were made, not misleading with
respect to the period covered by this report;
|
|
|
|
|
3.
|
Based on my knowledge, the
financial statements, and other financial information included in this
report, fairly present in all material respects the financial condition,
results of operations and cash flows of the registrant as of, and for, the
periods presented in this report;
|
|
|
|
|
4.
|
The registrants other
certifying officer(s) and I are responsible for establishing and maintaining
disclosure controls and procedures (as defined in Exchange Act Rules
13a-15(e) and 15d-15(e)) and internal control over financial reporting (as
defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and
have:
|
|
|
|
|
|
|
(a)
|
Designed such disclosure
controls and procedures, or caused such disclosure controls and procedures to
be designed under our supervision, to ensure that material information
relating to the registrant, including its consolidated subsidiaries, is made
known to us by others within those entities, particularly during the period
in which this report is being prepared;
|
|
|
|
|
|
|
|
|
(b)
|
Designed such internal
control over financial reporting, or caused such internal control over
financial reporting to be designed under our supervision, 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;
|
|
|
|
|
|
|
|
|
(c)
|
Evaluated the
effectiveness of the registrants disclosure controls and procedures and
presented in this report our conclusions about the effectiveness of the
disclosure controls and procedures, as of the end of the period covered by
this report based on such evaluation; and
|
|
|
|
|
|
|
|
|
(d)
|
Disclosed in this report
any change in the registrants internal control over financial reporting that
occurred during the registrants most recent fiscal quarter (the registrants
fourth fiscal quarter in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect, the registrants
internal control over financial reporting.
|
|
|
|
|
|
|
5.
|
The registrants other
certifying officer(s) and I have disclosed, based on our most recent
evaluation of internal control over financial reporting, to the registrants
auditors and the audit committee of the registrants board of directors (or
persons performing the equivalent functions):
|
|
|
|
|
|
|
(a)
|
All significant
deficiencies and material weaknesses in the design or operation of internal
control over financial reporting which are reasonably likely to adversely
affect the registrants ability to record, process, summarize and report
financial information; and
|
|
|
|
|
|
|
|
|
(b)
|
Any fraud, whether or not
material, that involves management or other employees who have a significant
role in the registrants internal control over financial reporting.
|
|
|
|
Date: September 19, 2014
|
|
|
|
|
/s/ Gregory J. Fluet
|
|
|
Gregory J. Fluet
Interim Chief Financial Officer
(principal financial officer and principal accounting officer)
|
EXHIBIT 32
CERTIFICATION
The undersigned certifies
pursuant to 18 U.S.C. §1350, that:
|
|
(1)
|
The accompanying Annual
Report on Form 10-K for the period ended June 30, 2014, fully complies with
the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of
1934; and
|
|
|
(2)
|
The information contained
in the accompanying Report fairly presents, in all material respects, the
financial condition and results of operations of the Company.
|
|
|
Date:
|
September 19, 2014
|
|
|
|
/s/ Gregory J. Fluet
|
|
Gregory J. Fluet
|
|
Chief
Executive Officer and Interim Chief Financial Officer
|
|
(Principal executive
officer, principal financial officer and principal accounting officer)
|
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