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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549



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FORM 10-Q



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|x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ---------------------------------------------------------------------------------------

FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2007

or



| ̈ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ----------------------------------------------------------------------------------------

For the transaction period from  to

Commission File Number 0-28414



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UROLOGIX, INC.

(Exact name of registrant as specified in its charter)



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|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|Minnesota                                                      |  | 41-1697237                          
|(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification No.)

14405 21st Avenue North, Minneapolis, MN 55447

(Address of principal executive offices)

Registrants telephone number, including area code: (763) 475-1400



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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No ̈

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of accelerated filer and large accelerated filer in Rule 12b-2
of the Exchange Act.

Large Accelerated Filer ̈Accelerated Filer ̈Non-Accelerated
Filer  x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act).    Yes ̈No  x

As of November 1, 2007, the Company had outstanding 14,333,350 shares of common stock, $.01 par value.



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PART I  FINANCIAL INFORMATION



|ITEM 1. | FINANCIAL STATEMENTS
|------- | --------------------

Urologix, Inc.

Condensed Balance Sheets

(In thousands, except per share data)



|                                                                                                        |  |                    |         |   |               |   |         |  
|------------------------------------------------------------------------------------------------------- |  | ------------------ | ------- | - | ------------- | - | ------- | -
|                                                                                                        |  | September 30, 2007 |         |   | June 30, 2007 |  
|                                                                                                        |  | (unaudited)        |         |   | (*)           |  
|ASSETS                                                                                                  |  |                    |         |   |               |   |         |  
|Current assets:                                                                                         |  |                    |         |   |               |   |         |  
|Cash and cash equivalents                                                                               |  | $                  | 11,980  |   |               | $ | 12,250  |  
|Accounts receivable, net of allowances of $309 and $224, respectively                                   |  |                    | 3,656   |   |               |   | 4,071   |  
|Inventories                                                                                             |  |                    | 2,296   |   |               |   | 2,421   |  
|Prepaids and other current assets                                                                       |  |                    | 355     |   |               |   | 40      |  
|                                                                                                        |  |                    |         |   |               |   |         |  
|Total current assets                                                                                    |  |                    | 18,287  |   |               |   | 18,782  |  
|                                                                                                        |  |                    |         |   |               |   |         |  
|Property and equipment:                                                                                 |  |                    |         |   |               |   |         |  
|Machinery, equipment and furniture                                                                      |  |                    | 12,498  |   |               |   | 12,306  |  
|Less accumulated depreciation                                                                           |  |                    | (10,235 | ) |               |   | (9,973  | )
|                                                                                                        |  |                    |         |   |               |   |         |  
|Property and equipment, net                                                                             |  |                    | 2,263   |   |               |   | 2,333   |  
|Other assets                                                                                            |  |                    | 908     |   |               |   | 1,034   |  
|Goodwill                                                                                                |  |                    | 10,193  |   |               |   | 10,193  |  
|Other intangible assets, net                                                                            |  |                    | 294     |   |               |   | 311     |  
|                                                                                                        |  |                    |         |   |               |   |         |  
|Total assets                                                                                            |  | $                  | 31,945  |   |               | $ | 32,653  |  
|                                                                                                        |  |                    |         |   |               |   |         |  
|LIABILITIES AND SHAREHOLDERS EQUITY                                                                    |  |                    |         |   |               |   |         |  
|Current liabilities:                                                                                    |  |                    |         |   |               |   |         |  
|Accounts payable                                                                                        |  | $                  | 752     |   |               | $ | 948     |  
|Accrued compensation                                                                                    |  |                    | 625     |   |               |   | 756     |  
|Deferred income                                                                                         |  |                    | 223     |   |               |   | 229     |  
|Other accrued expenses                                                                                  |  |                    | 556     |   |               |   | 782     |  
|                                                                                                        |  |                    |         |   |               |   |         |  
|Total current liabilities                                                                               |  |                    | 2,156   |   |               |   | 2,715   |  
|Deferred tax liability                                                                                  |  |                    | 1,593   |   |               |   | 1,519   |  
|Deferred income                                                                                         |  |                    | 493     |   |               |   | 544     |  
|                                                                                                        |  |                    |         |   |               |   |         |  
|Total liabilities                                                                                       |  |                    | 4,242   |   |               |   | 4,778   |  
|                                                                                                        |  |                    |         |   |               |   |         |  
|COMMITMENTS AND CONTINGENCIES (Note 9)                                                                  |  |                    |         |   |               |   |         |  
|Shareholders equity:                                                                                   |  |                    |         |   |               |   |         |  
|Common stock, $.01 par value, 25,000 shares authorized; 14,333 and 14,333 shares issued and outstanding |  |                    | 143     |   |               |   | 143     |  
|Additional paid-in capital                                                                              |  |                    | 112,770 |   |               |   | 112,545 |  
|Accumulated deficit                                                                                     |  |                    | (85,210 | ) |               |   | (84,813 | )
|                                                                                                        |  |                    |         |   |               |   |         |  
|Total shareholders equity                                                                              |  |                    | 27,703  |   |               |   | 27,875  |  
|                                                                                                        |  |                    |         |   |               |   |         |  
|Total liabilities and shareholders equity                                                              |  | $                  | 31,945  |   |               | $ | 32,653  |  
|                                                                                                        |  |                    |         |   |               |   |         |  

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|(*) | The Balance Sheet at June 30, 2007 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by
generally accepted accounting principles for complete financial statements.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The accompanying notes to financial statements
are an integral part of these statements.



2



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Urologix, Inc.

Condensed Statements of Operations

(In thousands, except per share data)

(Unaudited)



|                                                                         |  |                                 |        |   |      |   |        |  
|------------------------------------------------------------------------ |  | ------------------------------- | ------ | - | ---- | - | ------ | -
|                                                                         |  | Three Months EndedSeptember 30, |       
|                                                                         |  | 2007                            |        |   | 2006 |  
|Sales                                                                    |  | $                               | 4,351  |   |      | $ | 5,415  |  
|Cost of goods sold                                                       |  |                                 | 1,629  |   |      |   | 2,410  |  
|                                                                         |  |                                 |        |   |      |   |        |  
|Gross profit                                                             |  |                                 | 2,722  |   |      |   | 3,005  |  
|                                                                         |  |                                 |        |   |      |   |        |  
|Operating expenses:                                                      |  |                                 |        |   |      |   |        |  
|Selling, general and administrative                                      |  |                                 | 2,501  |   |      |   | 2,973  |  
|Research and development                                                 |  |                                 | 678    |   |      |   | 616    |  
|Amortization of intangible assets                                        |  |                                 | 9      |   |      |   | 71     |  
|                                                                         |  |                                 |        |   |      |   |        |  
|Total operating expenses                                                 |  |                                 | 3,188  |   |      |   | 3,660  |  
|                                                                         |  |                                 |        |   |      |   |        |  
|Operating loss                                                           |  |                                 | (466   | ) |      |   | (655   | )
|Interest income                                                          |  |                                 | 143    |   |      |   | 129    |  
|                                                                         |  |                                 |        |   |      |   |        |  
|Net loss before taxes                                                    |  | $                               | (323   | ) |      | $ | (526   | )
|Provision for income taxes                                               |  |                                 | 74     |   |      |   |       |  
|                                                                         |  |                                 |        |   |      |   |        |  
|Net loss                                                                 |  | $                               | (397   | ) |      | $ | (526   | )
|                                                                         |  |                                 |        |   |      |   |        |  
|Net loss per common sharebasic                                          |  | $                               | (0.03  | ) |      | $ | (0.04  | )
|                                                                         |  |                                 |        |   |      |   |        |  
|Net loss per common sharediluted                                        |  | $                               | (0.03  | ) |      | $ | (0.04  | )
|                                                                         |  |                                 |        |   |      |   |        |  
|Weighted average number of shares used in basic per share calculations   |  |                                 | 14,333 |   |      |   | 14,330 |  
|                                                                         |  |                                 |        |   |      |   |        |  
|Weighted average number of shares used in diluted per share calculations |  |                                 | 14,333 |   |      |   | 14,330 |  
|                                                                         |  |                                 |        |   |      |   |        |  

The accompanying notes to financial statements are an integral part of these statements.



3



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Urologix, Inc.

Condensed Statements of Cash Flows

(In thousands)

(Unaudited)



|                                                                             |  |                                 |        |   |      |   |        |  
|---------------------------------------------------------------------------- |  | ------------------------------- | ------ | - | ---- | - | ------ | -
|                                                                             |  | Three Months EndedSeptember 30, |       
|                                                                             |  | 2007                            |        |   | 2006 |  
|Operating Activities:                                                        |  |                                 |        |   |      |   |        |  
|Net loss                                                                     |  | $                               | (397   | ) |      | $ | (526   | )
|Adjustments to reconcile net loss to net cash used for operating activities: |  |                                 |        |   |      |   |        |  
|Depreciation and amortization                                                |  |                                 | 278    |   |      |   | 514    |  
|Provision for bad debts                                                      |  |                                 | 7      |   |      |   | 47     |  
|Employee stock-based compensation expense                                    |  |                                 | 225    |   |      |   | 353    |  
|Deferred income taxes                                                        |  |                                 | 74     |   |      |   |       |  
|Change in operating items:                                                   |  |                                 |        |   |      |   |        |  
|Accounts receivable                                                          |  |                                 | 408    |   |      |   | 994    |  
|Inventories                                                                  |  |                                 | (4     | ) |      |   | (397   | )
|Prepaids and other assets                                                    |  |                                 | (189   | ) |      |   | (70    | )
|Accounts payable                                                             |  |                                 | (196   | ) |      |   | (424   | )
|Accrued expenses and deferred income                                         |  |                                 | (414   | ) |      |   | (514   | )
|                                                                             |  |                                 |        |   |      |   |        |  
|Net cash used for operating activities                                       |  |                                 | (208   | ) |      |   | (23    | )
|                                                                             |  |                                 |        |   |      |   |        |  
|Investing Activities:                                                        |  |                                 |        |   |      |   |        |  
|Purchase of property and equipment                                           |  |                                 | (62    | ) |      |   | (219   | )
|                                                                             |  |                                 |        |   |      |   |        |  
|Net cash used for investing activities                                       |  |                                 | (62    | ) |      |   | (219   | )
|                                                                             |  |                                 |        |   |      |   |        |  
|Financing Activities:                                                        |  |                                 |        |   |      |   |        |  
|Proceeds from exercise of stock options                                      |  |                                 |       |   |      |   | 8      |  
|                                                                             |  |                                 |        |   |      |   |        |  
|Net cash provided by financing activities                                    |  |                                 |       |   |      |   | 8      |  
|                                                                             |  |                                 |        |   |      |   |        |  
|Net decrease in cash and cash equivalents                                    |  |                                 | (270   | ) |      |   | (234   | )
|Cash and cash equivalents:                                                   |  |                                 |        |   |      |   |        |  
|Beginning of period                                                          |  |                                 | 12,250 |   |      |   | 11,054 |  
|                                                                             |  |                                 |        |   |      |   |        |  
|End of period                                                                |  |                                 | 11,980 |   |      |   | 10,820 |  
|                                                                             |  |                                 |        |   |      |   |        |  
|Supplemental cash-flow information                                           |  |                                 |        |   |      |   |        |  
|Net amount of inventory transferred to property and equipment                |  | $                               | 129    |   |      | $ | 137    |  

The accompanying notes to financial statements are an integral part of these statements.



4



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Urologix, Inc.

Notes to Condensed Financial Statements

September 30, 2007

(Unaudited)



|1. | Basis of Presentation
|-- | ---------------------

The accompanying unaudited
condensed financial statements of Urologix, Inc. (the Company, Urologix, we ) have been prepared in accordance with generally accepted accounting principles for interim financial information and with the
instructions for Form 10-Q and Article 10 of Regulation S-X. The balance sheet as of September 30, 2007 and the statements of operations and cash flows for the three months ended September 30, 2007 and 2006 are unaudited but include all
adjustments (consisting of normal recurring adjustments) necessary for a fair presentation of the financial position at such date and the operating results and cash flows for those periods. Certain information normally included in financial
statements and related footnotes prepared in accordance with generally accepted accounting principles has been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission. The accompanying financial
statements should be read in conjunction with the financial statements and notes included in Urologix Annual Report on Form 10-K for the year ended June 30, 2007.

Results for any interim period shown in this report are not necessarily indicative of results to be expected for any other interim period or for the
entire year.



|2. | Significant Accounting Policies
|-- | -------------------------------

Revenue Recognition

We recognize revenue from the sale of Cooled ThermoTherapy system control units when title passes to the customer which is upon
delivery. In addition to our sales of Cooled ThermoTherapy system control units, we place our Cooled ThermoTherapy system control units with customers under a variety of programs for both evaluation and long-term use, and also provide access to
Cooled ThermoTherapy treatments via our Cooled ThermoTherapy mobile service. We retain title to the control units placed with our customers for evaluation and longer-term use and do not recognize any revenue on these control units until title has
transferred. These programs, as well as our Cooled ThermoTherapy mobile service, are designed to expand access to our technology, and thus expand the market for our single-use treatment catheters. Revenue from our mobile service is recognized upon
treatment of the patient. Revenue from the sale of single-use treatment catheters is recognized at the time of shipment. Revenue for warranty service contracts is deferred and recognized over the contract period and revenue subject to certain sales
incentives is deferred based upon the contract provisions. 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. Sales and use taxes are reported on a net basis, excluding them from revenue.



|3. | 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. Actual results could differ from those estimates.



5



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Urologix, Inc.

Notes to Condensed Financial Statements

September 30, 2007

(Unaudited)



|4. | Stock-Based Compensation
|-- | ------------------------

We have a stock option plan that provides for the granting of incentive stock options to employees and nonqualified stock options to employees, directors and consultants. As of September 30, 2007, we had reserved
4,450,910 shares of common stock under this plan, and 2,228,213 shares were available for future grants. Options expire ten years from the date of grant and typically vest 25 percent after the first year of service with the remaining vesting
1/36theach month thereafter. Under the current terms of our stock option plan, persons serving as non-employee directors at the date of the annual
shareholder meeting automatically receive a grant to purchase 10,000 shares of common stock at a price equal to fair value on the date of grant. Generally, such options are immediately exercisable on the date of grant, and expire 10 years from the
date of grant, subject to earlier termination one year after the person ceases to be a director of the Company.

In addition to the
stock option plan described above, the Companys Chairman and Chief Executive Officer, received an option to purchase 225,000 shares in connection with his original employment agreement dated May 21, 2003. The option is a non-qualified
option exercisable at a price of $2.75. The 225,000 share grant vested over the period commencing on May 27, 2003 and ending on May 27, 2007.

On July 1, 2005, we adopted the fair value recognition provisions of SFAS No. 123R Share-Based Payment using the modified prospective method. As a result, as of September 30, 2007 and 2006,
our results of operations reflect compensation expense recognized over the requisite service period for new stock options granted since July 1, 2005, and the unvested portion of stock option grants made prior to July 1, 2005 which vested
during the quarter. Amounts recognized in the financial statements related to stock-based compensation were as follows (in thousands, except per share amounts):



|                                           |  |                                 |       |   |      |   |       |  
|------------------------------------------ |  | ------------------------------- | ----- | - | ---- | - | ----- | -
|                                           |  | Three months endedSeptember 30, |      
|                                           |  | 2007                            |       |   | 2006 |  
|Cost of goods sold                         |  | $                               | 32    |   |      | $ | 36    |  
|Selling, general and administrative        |  |                                 | 167   |   |      |   | 266   |  
|Research and development                   |  |                                 | 26    |   |      |   | 51    |  
|                                           |  |                                 |       |   |      |   |       |  
|Total cost of stock-based compensation     |  |                                 | 225   |   |      |   | 353   |  
|Tax benefit of options issued              |  |                                 |      |   |      |   |      |  
|                                           |  |                                 |       |   |      |   |       |  
|Total stock-based compensation, net of tax |  | $                               | 225   |   |      | $ | 353   |  
|                                           |  |                                 |       |   |      |   |       |  
|Impact on net loss per share:              |  |                                 |       |   |      |   |       |  
|Basic                                      |  | $                               | (0.02 | ) |      | $ | (0.02 | )
|Diluted                                    |  | $                               | (0.02 | ) |      | $ | (0.02 | )



6



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Urologix, Inc.

Notes to Condensed Financial Statements

September 30, 2007

(Unaudited)

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. The following assumptions were used to estimate the fair value of options granted during the
three-month periods ended September 30, 2007 and 2006 using the Black-Scholes option-pricing model:



|                         |  |          |   |  |           |  
|------------------------ |  | -------- | - |  | --------- | -
|                         |  | 2007     |   |  | 2006      |  
|Volatility               |  | 62.7     | % |  | 70.6      | %
|Risk-free interest rates |  | 4.7      | % |  | 5.0       | %
|Expected option life     |  | 3.1years |   |  | 3.2 years |  
|Stock dividend yield     |  |         |   |  |          |  

As of September 30, 2007, there was $1.2 million of total unrecognized compensation cost
related to unvested share-based compensation expense granted under our plan. That cost is expected to be recognized over a weighted-average period of 2.2 years.



|5. | Basic and Diluted Loss Per Share
|-- | --------------------------------

Basic loss per
share is computed by dividing the net loss by the weighted average number of shares of common stock outstanding during the periods presented. Diluted earnings per share is computed by dividing the net loss by the weighted average number of shares of
common stock outstanding plus all dilutive potential common shares that result from stock options. The weighted average common shares outstanding for both basic and dilutive, were 14,333 and 14,330, respectively, at September 30, 2007 and 2006.

The dilutive effect of stock options excludes 1,271,000 and 1,023,000, respectively, of options for which the exercise price was higher
than the average market price for the three month periods ended September 30, 2007 and 2006. Dilutive potential common shares of 4,709 were excluded from diluted earnings per share as they would be anti-dilutive due to our net loss during the
three months ended September 30, 2006. There were no dilutive potential common shares for the three months ended September 30, 2007.



|6. | Inventories
|-- | -----------

Inventories consisted of the following
as of September 30, 2007 and June 30, 2007 (in thousands):



|                  |  |                    |       |               |   |      
|----------------- |  | ------------------ | ----- | ------------- | - | -----
|                  |  | September 30, 2007 |       | June 30, 2007
|Raw materials     |  | $                  | 1,192 |               | $ | 1,306
|Work in process   |  |                    | 179   |               |   | 118  
|Finished goods    |  |                    | 925   |               |   | 997  
|                  |  |                    |       |               |   |      
|Total inventories |  | $                  | 2,296 |               | $ | 2,421
|                  |  |                    |       |               |   |      



7



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Urologix, Inc.

Notes to Condensed Financial Statements

September 30, 2007

(Unaudited)



|7. | Other Intangible Assets, Net
|-- | ----------------------------

Balances of
identifiable intangible assets, net, were as follows (in thousands):



|                                          |  |                          |        |                         |                          |        |  |                |     |       |   |            |  |     |       |  |   |       |  |   |    
|----------------------------------------- |  | ------------------------ | ------ | ----------------------- | ------------------------ | ------ |  | -------------- | --- | ----- | - | ---------- |  | --- | ----- |  | - | ----- |  | - | ---
|                                          |  | As of September 30, 2007 |        | As of June 30, 2007    
|                                          |  |                          |        |                         | Accumulated Amortization |        | 
|                                          |  | CarryingAmount           |        | AccumulatedAmortization |                          | Net    |  | CarryingAmount |     | Other |   | Impairment |  | Net
|Developed technologies                    |  | $                        | 7,500  |                         | $                        | 7,427  |  | $              | 73  |       | $ | 7,500      |  | $   | 3,375 |  | $ | 4,044 |  | $ | 81 
|Customer base                             |  |                          | 2,300  |                         |                          | 2,107  |  |                | 193 |       |   | 2,300      |  |     | 1,109 |  |   | 991   |  |   | 200
|Trademarks                                |  |                          | 1,140  |                         |                          | 1,121  |  |                | 19  |       |   | 1,140      |  |     | 150   |  |   | 969   |  |   | 21 
|Patents                                   |  |                          | 9      |                         |                          |       |  |                | 9   |       |   | 9          |  |     |      |  |   |      |  |   | 9  
|                                          |  |                          |        |                         |                          |        |  |                |     |       |   |            |  |     |       |  |   |       |  |   |    
|Total identifiable intangible assets, net |  | $                        | 10,949 |                         | $                        | 10,655 |  | $              | 294 |       | $ | 10,949     |  | $   | 4,634 |  | $ | 6,004 |  | $ | 311
|                                          |  |                          |        |                         |                          |        |  |                |     |       |   |            |  |     |       |  |   |       |  |   |    

At June 30, 2007, in connection with our strategy to develop a next generation catheter, we implemented an
end-of-life plan for our Prostatron control units and Prostaprobe catheters which resulted in asset impairment charges related to developed technologies, customer base, and trademarks in accordance with SFAS No. 144. In addition, the remaining
estimated useful life of the developed technologies and trademarks were reduced from 8.25 years to 2.5 years at June 30, 2007. The estimated remaining useful life of the customer base remained unchanged at 7.25 years. The patent intangible
assets relate to fees incurred for patents that have not yet been issued. We will begin amortization of these patent costs once the patents have been issued.



|8. | Warranty
|-- | --------

Some of our products are covered by
warranties against defects in material and workmanship for periods of up to twenty-four 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 three month periods ended September 30, 2007 and 2006 were as follows (in thousands):



|            |  |                             |     |                                  |   |     |                 |  |   |                                |   |  |   |    
|----------- |  | --------------------------- | --- | -------------------------------- | - | --- | --------------- |  | - | ------------------------------ | - |  | - | ---
|Fiscal Year |  | Beginning Balance at
July 1 |     | Warranty Provisions (Reductions) |   |     | Warranty Claims |  |   | Ending Balance at September 30
|2008        |  | $                           | 105 |                                  | $ | (44 | )               |  | $ | (16                            | ) |  | $ | 45 
|2007        |  | $                           | 94  |                                  | $ | 97  |                 |  | $ | (79                            | ) |  | $ | 112



8



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Urologix, Inc.

Notes to Condensed Financial Statements

September 30, 2007

(Unaudited)



|9. | Legal Proceedings
|-- | -----------------

We have been and are involved in
various claims, investigations, 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.



|10. | Recently Issued Accounting Pronouncements
|--- | -----------------------------------------

In July
2006, the FASB issued Interpretation No. 48 (FIN 48), Accounting for Uncertainty in Income Taxes, an Interpretation of SFAS No. 109. FIN 48 creates a single model to address accounting for uncertainty in tax positions and
clarifies the accounting for income taxes by prescribing the minimum recognition threshold a tax position is required to meet before being recognized in the financial statements. Specifically under FIN 48, the tax benefits from an uncertain tax
position may be recognized only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based upon the technical merits of the position. FIN 48 also provides guidance on derecognition,
measurement, classification, interest and penalties, accounting in interim periods, disclosure and transition. FIN 48 is effective for fiscal years beginning after December 15, 2006. We adopted FIN 48 effective July 1, 2007 as required.
The adoption of FIN 48 had no impact on our financial statements.

As of July 1, 2007, we had approximately $35,000 of unrecognized
tax benefits which would favorably impact the effective income tax rate in any future period, if recognized. Included in the amount of unrecognized benefits was accrued interest and penalties of approximately $15,000. We recognize accrued interest
and penalties related to unrecognized tax benefits as a component of income tax expense. We do not believe that the amount of unrecognized tax benefit will change significantly within the next twelve months.

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 1993. Income tax examinations we may be subject to for the various state taxing authorities vary by jurisdiction.

In September 2006, the FASB issued Statement of Financial Accounting Standard (SFAS) No. 157, Fair Value Measurements. SFAS No. 157
establishes a single authoritative definition of fair value, sets out a framework for measuring fair value and requires additional disclosures about fair-value measurements. This Statement applies only to fair-value measurements that are already
required or permitted by other accounting standards, except for measurements of share-based payments and measurements that are similar to, but not intended to be, fair value. This statement is expected to increase the consistency of fair value
measurements, but imposes no requirements for additional fair-value measures in financial statements. The provisions under SFAS No. 157 are effective for us beginning on July 1, 2008. We are still evaluating the impact the adoption of this
pronouncement will have on our financial statements.

In February 2007, the FASB issued SFAS No.159, The Fair Value Option for
Financial Assets and Financial Liabilities. SFAS No. 159 amends SFAS No. 115, Accounting for Certain Investments in Debt and Equity Securities and permits entities to choose to measure many financial instruments and
certain other items at fair value. SFAS No. 159 is effective for us beginning on July 1, 2008. We do not expect the adoption of this statement to have any impact on our financial statements.



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|ITEM 2. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|------- | -------------------------------------------------------------------------------------

This Managements Discussion and Analysis of Financial Condition and Results of Operations contains, in addition to historical information,
forward-looking statements that are based on our current expectations, beliefs, intentions or future strategies. These statements are subject to risks and uncertainties that could cause actual results to differ materially from the statements as a
result of certain factors, including those set forth under Part I, Item 1A. Risk Factors in our Annual Report on Form 10-K for the year ended June 30, 2007, as well as in other filings we make with the Securities and Exchange
Commission and include factors such as: the impact of competitive treatments, products and pricing; our ability to develop and market new products, including the Urologix-owned Cooled ThermoTherapy mobile service and the CoolWave control unit
and our ability to generate revenue from new products; our dependence upon third-party reimbursement for our products and reimbursement rates for Cooled ThermoTherapy; our dependence on Cooled ThermoTherapy for all of our revenues; approval by
the FDA of our products, including the introduction of our next generation catheter, CoolMax, and compliance with FDA requirements for the manufacture, labeling, marketing and sale of our products; the rate of adoption by the medical community
of Cooled ThermoTherapy products and the effectiveness of our sales organization and marketing efforts to the medical and patient community; our limited experience in manufacturing some of our products and our dependence upon third-party suppliers
to produce and supply products; our ability to successfully defend our intellectual property against infringement and the expense associated with that effort; product liability claims inherent in the testing, production, marketing and sale of
medical devices; and product recalls which could harm our reputation and business. 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.

The following is a discussion and analysis of Urologix financial condition and results of operations
as of and for the three month periods ended September 30, 2007 and 2006. This section should be read in conjunction with the condensed financial statements and related notes in Item 1 of this report and Urologix Annual Report on Form
10-K for the year ended June 30, 2007.

OVERVIEW

Urologix, Inc., based in Minneapolis, develops, manufactures and markets minimally invasive medical products for the treatment of urological disorders.

We have developed technology for the treatment of BPH, a disease that affects more than
23 million men worldwide. We market our control units under the Targis,® Prostatron® and CoolWave® names and our procedure kits under the CTC, Targis and Prostaprobe names. We are also in the process of developing our next generation catheters, CoolMax and CTC
Advance, in which we are planning to combine durability with increased patient comfort, as well as make the catheters easier to insert. During the fourth quarter of fiscal 2007, in connection with our strategy to develop a next generation
catheter, we implemented an end-of-life plan for our Prostatron control units and Prostaprobe catheters which will result in us exiting this product line over approximately the next 2.25 years. All systems utilize the Companys Cooled
ThermoTherapy technology, a targeted microwave energy combined with a unique cooling mechanism that protects healthy tissue and enhances patient comfort while providing safe, effective, lasting relief from the symptoms of BPH. Cooled ThermoTherapy
can be performed without anesthesia or intravenous sedation and can be performed in a physicians office or an outpatient clinic. We believe that Cooled ThermoTherapy provides an efficacious, safe and cost-effective solution for BPH with
results clinically superior to medication and without the complications and side effects inherent in surgical procedures.

Our goal is to
grow Cooled ThermoTherapy as a standard of care for the treatment of BPH. Our business strategy to achieve this goal is (i) educate both patients and physicians on the benefits of CooledThermoTherapy compared to other treatment options,
(ii) increase the use of Cooled ThermoTherapy by physicians who already have access to a Cooled ThermoTherapy system, (iii) increase the number of physicians who provide Cooled ThermoTherapy to their patients, (iv) efficiently provide
more physicians



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with access to Cooled ThermoTherapy through the expansion of our Cooled ThermoTherapy mobile service in the United States, and (v) increase the use of
Cooled ThermoTherapy for the treatment of BPH in international markets.

We expect to continue to invest in research and development and
clinical trials, sales and marketing programs and the expansion of our Cooled ThermoTherapy mobile service as we focus on growing revenues and continuing to improve our therapy. Our future profitability will be dependent upon, among other factors,
our success in achieving increased treatment volume and market adoption of the Cooled ThermoTherapy procedures in the physicians office, including treatments delivered through our Cooled ThermoTherapy mobile service, our success in obtaining
and maintaining necessary regulatory clearances, as well as the risk of FDA mandated recall of our products, our ability to manufacture at the volumes and quantities the market requires, the fact that our products may be subject to product recalls
even after receiving FDA clearance or approval, the extent to which Medicare and other health care payers continue to reimburse costs of Cooled ThermoTherapy procedures performed in physicians offices, hospitals, and ambulatory surgery centers
and the amount of reimbursement provided.

Critical Accounting Policies:

A description of our critical accounting policies was provided in the Managements Discussion and Analysis of Financial Condition and Results of
Operations section of our Annual Report on Form 10-K for the year ended June 30, 2007. At September 30, 2007, our critical accounting policies and estimates continue to include revenue recognition, allowance for doubtful accounts,
product warranty, inventories, valuation of goodwill, income taxes, and stock-based compensation.

RESULTS OF OPERATIONS

Net Sales

Net sales for the three month period
ended September 30, 2007 were $4.4 million compared to $5.4 million during the same period of the prior fiscal year. The $1.0 million or 20 percent decrease in revenue in the three month period ended September 30, 2007 is primarily
attributable to reduced orders from our direct office accounts, as well as the fact that our third party mobile accounts, which have lower overall average selling prices (ASPs) accounted for a greater proportion of our sales mix when compared to the
prior year quarter.

During the first quarter of fiscal 2008, 60 percent of sales were derived from treatment catheters, compared to 67
percent in the prior fiscal year, while our mobile treatments comprised 40 percent of total sales compared to 31 percent in the prior year.

Cost of
Goods Sold and Gross Profit

Cost of goods sold includes raw materials, labor, overhead, and royalties incurred in connection with
the production of our Cooled ThermoTherapy system control units and single-use treatment catheters, amortization related to developed technologies, as well as costs associated with the delivery of our Cooled ThermoTherapy mobile service. Cost of
goods sold for the three month period ended September 30, 2007 decreased by $781,000 or 32 percent to $1.6 million from $2.4 million during the three month period ended September 30, 2006. The decrease in costs of goods sold is a result of
lower sales as well as $161,000 less amortization and depreciation expense in fiscal 2007 compared to fiscal 2006 due to the impairment of our Prostatron long-lived assets in the fourth quarter of fiscal 2007, and reduced period costs, including a
$60,000 reduction in our warranty expense.

Gross profit as a percentage of sales for the three month period ended September 30, 2007
increased to 63 percent from 55 percent in the three month period ended September 30, 2006. Four percent of this increase is a result of a $161,000 reduction in amortization and depreciation expense related to the fourth quarter of fiscal 2007
impairment of our Prostatron long-lived assets mentioned above. The remaining increase is a result of improved manufacturing efficiencies and reduced period costs, including the $60,000 reduction in our warranty expense.



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Selling, General & Administrative

Selling, general and administrative expenses decreased $472,000 or 16 percent to $2.5 million for the three month period ended September 30, 2007
from $3.0 million in the same period of fiscal year 2007. The decrease in expense is primarily the result of a $243,000 decrease in selling wages, benefits and travel due to a decrease in the sales force, as well as a decrease in stock option
expense of $98,000, commissions of $33,000 and insurance premiums of $29,000. This decrease was partially offset by an increase in consulting and professional fees of $56,000 when compared to the prior year period.

Research and Development

Research and
development expenses, which include expenditures for product development, regulatory compliance and clinical studies, increased $62,000 or 10 percent to $678,000 from $616,000 for the three month periods ended September 30, 2007 and 2006,
respectively. The increase in expenses resulted primarily from increased product testing and project materials related to our next generation catheter offerings, CTC Advance and CoolMax.

Amortization of Intangible Assets

Amortization of intangible assets was $9,000 and $71,000
for the three month periods ended September 30, 2007 and 2006, respectively. This decrease is the result of the impairment of our trademark and customer base intangible assets during the fourth quarter of fiscal 2007 as a result of the
implementation of an end-of-life plan for our Prostatron control units and Prostaprobe catheters.

Net Interest Income

Net interest income for the three month period ended September 30, 2007 increased to $143,000 from $129,000 in the same period of the prior fiscal
year due primarily to the combination of higher cash and cash equivalent balances and higher interest rates.

Provision for Income Taxes

Income tax expense increased to $74,000 for the three month period ended September 30, 2007 from zero in the prior year period. Our
tax expense in the current year period primarily represents the indefinite-lived deferred tax liability which can not be offset against definite-lived deferred tax assets resulting from the amortization of goodwill for tax purposes. We did not have
any tax expense in the three month period ended September 30, 2006 as we believed our existing net deferred tax asset represented the maximum benefit that we would realize from our net operating loss carryforwards. At June 30, 2007 we
increased our valuation allowance to fully reserve our deferred tax assets that would not reverse against deferred tax liabilities within the scheduled reversal period based on managements assessment of all available evidence, including the
net loss in fiscal 2007. At September 30, 2007, we carried a valuation allowance of $33.4 million against our remaining deferred tax assets that will not reverse against deferred tax liabilities within the scheduled reversal period. Our tax
expense will continue to be primarily non-cash.

LIQUIDITY AND CAPITAL RESOURCES

We have financed our operations since inception through sales of equity securities and sales of our Cooled ThermoTherapy system control units, single-use
treatment catheters and mobile service offerings. As of September 30, 2007, we had total cash and cash equivalents of $12.0 million compared to $12.3 million as of June 30, 2007. Working capital was unchanged at $16.1 million at both
September 30, 2007 and June 30, 2007.

During the three months ended September 30, 2007, we used $208,000 of cash from
operating activities primarily as a result of decreases in our accrued expenses and deferred income of $414,000, our net loss of $397,000, decreases in our accounts payable of $196,000 and increases in prepaids and other assets of $189,000. The
decrease in accrued expenses and deferred income resulted primarily from the payment of accrued severance and legal fees during the first quarter, as well as a reduction in our warranty accrual. The decrease in accounts payable is due to the
decrease in operating expenses as well as the timing of purchases versus payments, and the increase in prepaids and other assets is mainly due to the payment of fiscal 2008 insurance renewals. These decreases in accrued expenses and deferred income
and accounts payable and increases in prepaids and other assets were partially offset by decreases in accounts receivable of $408,000, and non-cash activities of depreciation and amortization of $278,000 and stock-based compensation expense of
$225,000.



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During the first three months of fiscal 2007, we used $62,000 of cash from investing activities resulting
from the purchase of $62,000 of property and equipment to support our manufacturing operations.

During the three months ended
September 30, 2007, we had no financing related activity.

We plan to continue offering customers a variety of programs for both
evaluation and longer-term use of our Cooled ThermoTherapy system control units in addition to purchase options, as well as to grow our mobile service which provides physicians and patients with efficient access to our Cooled ThermoTherapy system
control units on a pre-scheduled basis. As of September 30, 2007, our property and equipment, net, included approximately $1.5 million of control units used in evaluation or longer-term use programs and units used in our Company-owned mobile
service. Depending on the growth of these programs, we may use additional capital to finance these programs.

We believe our $12.0 million
in cash and cash equivalents at September 30, 2007 will be sufficient to fund our working capital and capital resources needs for the next 12 months. There can be no assurance, however, that we will not require additional financing in the
future or that any additional financing will be available to us on satisfactory terms, if at all.

Off Balance Sheet Arrangements

We do not have any off balance sheet arrangements.

Recently Issued Accounting Standards

In July 2006, the FASB issued Interpretation No. 48 (FIN 48), Accounting
for Uncertainty in Income Taxes, an Interpretation of SFAS No. 109. FIN 48 creates a single model to address accounting for uncertainty in tax positions and clarifies the accounting for income taxes by prescribing the minimum recognition
threshold a tax position is required to meet before being recognized in the financial statements. Specifically under FIN 48, the tax benefits from an uncertain tax position may be recognized only if it is more likely than not that the tax position
will be sustained on examination by the taxing authorities, based upon the technical merits of the position. FIN 48 also provides guidance on derecognition, measurement, classification, interest and penalties, accounting in interim periods,
disclosure and transition. FIN 48 is effective for fiscal years beginning after December 15, 2006. We adopted FIN 48 effective July 1, 2007 as required. The adoption of FIN 48 had no impact on our financial statements.

As of July 1, 2007, we had approximately $35,000 of unrecognized tax benefits which would favorably impact the effective income tax rate in any
future period, if recognized. Included in the amount of unrecognized benefits was accrued interest and penalties of approximately $15,000. We recognize accrued interest and penalties related to unrecognized tax benefits as a component of income tax
expense. We do not believe that the amount of unrecognized tax benefit will change significantly within the next twelve months.

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 1993. Income tax examinations we may be
subject to for the various state taxing authorities vary by jurisdiction.

In September 2006, the FASB issued Statement of Financial
Accounting Standard (SFAS) No. 157, Fair Value Measurements. SFAS No. 157 establishes a single authoritative definition of fair value, sets out a framework for measuring fair value and requires additional disclosures about
fair-value measurements. This Statement applies only to fair-value measurements that are already required or permitted by other accounting standards, except for measurements of share-based payments and measurements that are similar to, but not
intended to be, fair value. This statement is expected to increase the consistency of fair value measurements, but imposes no requirements for additional fair-value measures in financial statements. The provisions under SFAS No. 157 are
effective for us beginning on July 1, 2008. We are still evaluating the impact the adoption of this pronouncement will have on our financial statements.



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In February 2007, the FASB issued SFAS No.159, The Fair Value Option for Financial Assets and
Financial Liabilities. SFAS No. 159 amends SFAS No. 115, Accounting for Certain Investments in Debt and Equity Securities and permits entities to choose to measure many financial instruments and certain other items at
fair value. SFAS No. 159 is effective for us beginning on July 1, 2008. We do not expect the adoption of this statement to have any impact on our financial statements.



|ITEM 3. | QUALITATIVE AND QUANTITATIVE DISCLOSURE ABOUT MARKET RISK
|------- | ---------------------------------------------------------

Our financial instruments include cash and cash equivalents. Increases and decreases in prevailing interest rates generally translate into decreases and increases, respectively, in the fair value of these instruments. Also, fair values of
interest rate sensitive instruments may be affected by the credit worthiness of the issuer, prepayment options, relative values of alternative instruments, the liquidity of the instrument and other general market conditions.

Market risk was estimated as the potential decrease in fair value resulting from a hypothetical 1% change in interest rates and was not materially
different from the quarter-end carrying value. Due to the nature of our cash and cash equivalents, we have concluded that we do not have a material market risk exposure.

Our policy is not to enter into derivative financial instruments. We do not have any significant foreign currency exposure since we do not generally transact business in foreign currencies. Therefore, we do not have
significant overall currency exposure. In addition, we do not enter into any futures or forward commodity contracts since we do not have significant market risk exposure with respect to commodity prices.



|ITEM 4. | CONTROLS AND PROCEDURES
|------- | -----------------------

(a) Evaluation of Disclosure Controls
and Procedures

The Companys Chief Executive Officer, Fred B. Parks, and Chief Financial Officer, Elissa J. Lindsoe, have evaluated the
Companys disclosure controls and procedures as of the end of the period covered by this report. Based upon this review, they have concluded that these controls and procedures are effective.

(b) Changes in Internal Control Over Financial Reporting

There have
been no changes in internal control over financial reporting that occurred during the fiscal period covered by this report that have materially affected, or are reasonably likely to materially affect, the Companys internal control over
financial reporting.

PART IIOTHER INFORMATION



|ITEM 1. | 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 our financial position, liquidity or results of operations.



|ITEM 1A. | RISK FACTORS
|-------- | ------------

The most significant risk factors
applicable to the Company are described in Part I, Item 1A Risk Factors of our Annual Report on Form 10-K for the year ended June 30, 2007. There have been no material changes from the risk factors previously disclosed in our
Annual Report on Form 10-K.



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|ITEM 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
|------- | -----------------------------------------------------------

Not
applicable.



|ITEM 3. | DEFAULTS UPON SENIOR SECURITIES
|------- | -------------------------------

Not applicable.



|ITEM 4. | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
|------- | ---------------------------------------------------

Not
applicable.



|ITEM 5. | OTHER INFORMATION
|------- | -----------------

Not applicable.



|ITEM 6. | EXHIBITS
|------- | --------



|             |  |                                                                                                    
|------------ |  | ---------------------------------------------------------------------------------------------------
|Exhibit 31.1 |  | Certification of Chief Executive Officer Pursuant to Section 13a-14 and 15d-14 of the Exchange Act.
|             | 
|Exhibit 31.2 |  | Certification of Chief Financial Officer Pursuant to Section 13a-14 and 15d-14 of the Exchange Act.
|             | 
|Exhibit 32   |  | Certification pursuant to 18 U.S.C. 1350.                                                          



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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



Urologix, Inc.(Registrant)/s/ Fred B. Parks.Fred B. ParksChairman and Chief Executive Officer(Principal Executive Officer)/s/ Elissa J. LindsoeElissa J. LindsoeChief Financial Officer(Principal Financial Officer)Date November 8, 2007




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