---

---

|                                   |  | 
|---------------------------------- |  | 
|UNITED STATES                     
|SECURITIES AND EXCHANGE COMMISSION
|WASHINGTON, D.C. 20549            
|                                  
|                                  
|                                   |  | 
|FORM 10-Q                         
|                                  
|                                  

|                                                                                                                                            | 
|------------------------------------------------------------------------------------------------------------------------------------------- | 
|xQUARTERLY REPORT PURSUANT TO SECTION 13 OR
 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED
 December 31, 2010
|or                                                                                                                                         
|oTRANSITION REPORT PURSUANT TO SECTION 13 OR
 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934                                                 

|                                                                 |  | 
|---------------------------------------------------------------- |  | 
|For
 the transaction period from ____________ to _______________
|                                                                 |  | 
|Commission
 File Number 0-28414                                 
|                                                                
|                                                                
|                                                                 |  | 
|UROLOGIX, INC.                                                  
|(Exact
 name of registrant as specified in its charter)         

| |                                                                   |  |                                         | 
| | ----------------------------------------------------------------- |  | --------------------------------------- | 
| | Minnesota                                                         |  | 41-1697237                              | 
| | (State
 or other jurisdiction of 
 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
|                                                                   
|                                                                   

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 o

Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted an posted pursuant to Rule 405 of Regulation S-T during the preceding
12 months (or for such shorter period that the registrant was required to
submit and post such files). Yes o No o

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

|                           |                      |                          |                             
|-------------------------- | -------------------- | ------------------------ | ----------------------------
|Large
 Accelerated Filer o | Accelerated
 Filer o | Non-Accelerated
 Filer o | Smaller
 Reporting Company x

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

As
of February 1, 2011, the Company had outstanding 14,574,648 shares of common
stock, $.01 par value.

---

---

---



PART I  FINANCIAL INFORMATION

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

Urologix, Inc. 
Condensed Balance Sheets 
(In thousands, except per share data)

|                                                                                                         |  |                    |          |                |   |          |  
|-------------------------------------------------------------------------------------------------------- |  | ------------------ | -------- | -------------- | - | -------- | -
|                                                                                                         |  | December 31,
 2010 |          | June 30,
 2010 |  
|                                                                                                         |  | (unaudited)        |          | (*)            |  
|ASSETS                                                                                                   |  |                    |          |                |   |          |  
|Current assets:                                                                                          |  |                    |          |                |   |          |  
|Cash and cash equivalents                                                                                |  | $                  | 4,288    |                | $ | 5,702    |  
|Accounts receivable, net of allowances of $60 and $96, respectively                                      |  |                    | 1,600    |                |   | 1,378    |  
|Inventories                                                                                              |  |                    | 1,640    |                |   | 1,498    |  
|Prepaid and other current assets                                                                         |  |                    | 190      |                |   | 139      |  
|                                                                                                         |  |                    |          |                |   |          |  
|Total current assets                                                                                     |  |                    | 7,718    |                |   | 8,717    |  
|                                                                                                         |  |                    |          |                |   |          |  
|Property and equipment:                                                                                  |  |                    |          |                |   |          |  
|Machinery, equipment and furniture                                                                       |  |                    | 11,667   |                |   | 11,669   |  
|Less accumulated depreciation                                                                            |  |                    | (10,732  | )              |   | (10,655  | )
|                                                                                                         |  |                    |          |                |   |          |  
|Property and equipment, net                                                                              |  |                    | 935      |                |   | 1,014    |  
|Other intangible assets, net                                                                             |  |                    | 112      |                |   | 123      |  
|Other assets                                                                                             |  |                    | 251      |                |   | 349      |  
|                                                                                                         |  |                    |          |                |   |          |  
|Total assets                                                                                             |  | $                  | 9,016    |                | $ | 10,203   |  
|                                                                                                         |  |                    |          |                |   |          |  
|LIABILITIES AND SHAREHOLDERS EQUITY                                                                     |  |                    |          |                |   |          |  
|Current liabilities:                                                                                     |  |                    |          |                |   |          |  
|Accounts payable                                                                                         |  | $                  | 726      |                | $ | 434      |  
|Accrued compensation                                                                                     |  |                    | 443      |                |   | 875      |  
|Deferred income                                                                                          |  |                    | 100      |                |   | 169      |  
|Other accrued expenses                                                                                   |  |                    | 611      |                |   | 519      |  
|                                                                                                         |  |                    |          |                |   |          |  
|Total current liabilities                                                                                |  |                    | 1,880    |                |   | 1,997    |  
|                                                                                                         |  |                    |          |                |   |          |  
|Other accrued liabilities                                                                                |  |                    | 150      |                |   |         |  
|                                                                                                         |  |                    |          |                |   |          |  
|Total liabilities                                                                                        |  |                    | 2,030    |                |   | 1,997    |  
|                                                                                                         |  |                    |          |                |   |          |  
|COMMITMENTS AND CONTINGENCIES (Note 9)                                                                   |  |                    |          |                |   |          |  
|Shareholders equity:                                                                                    |  |                    |          |                |   |          |  
|Common stock, $.01 par value, 25,000 shares authorized; 14,474 and
 14,447 shares issued and outstanding |  |                    | 144      |                |   | 144      |  
|Additional paid-in capital                                                                               |  |                    | 114,560  |                |   | 114,360  |  
|Accumulated deficit                                                                                      |  |                    | (107,718 | )              |   | (106,298 | )
|                                                                                                         |  |                    |          |                |   |          |  
|Total shareholders equity                                                                               |  |                    | 6,986    |                |   | 8,206    |  
|                                                                                                         |  |                    |          |                |   |          |  
|Total liabilities and shareholders equity                                                               |  | $                  | 9,016    |                | $ | 10,203   |  

(*) The Balance Sheet at June
30, 2010 has been derived from the audited financial statements at that date
but does not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements.

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

2

---



Urologix, Inc.
Condensed Statements of Operations
(In thousands, except per share data)
(Unaudited)

|                                                                         |  |                                  |        |                                |   |        |   |      |        |   |   |        |  
|------------------------------------------------------------------------ |  | -------------------------------- | ------ | ------------------------------ | - | ------ | - | ---- | ------ | - | - | ------ | -
|                                                                         |  | Three Months Ended
 December 31, |        | Six Months Ended
 December 31, |  
|                                                                         |  | 2010                             |        | 2009                           |   | 2010   |   | 2009 |       
|                                                                         |  |                                  |        |                                |   |        |   |      |        |   |   |        |  
|Sales                                                                    |  | $                                | 3,321  |                                | $ | 4,064  |   | $    | 6,673  |   | $ | 7,917  |  
|                                                                         |  |                                  |        |                                |   |        |   |      |        |   |   |        |  
|Cost of goods sold                                                       |  |                                  | 1,473  |                                |   | 1,735  |   |      | 2,996  |   |   | 3,449  |  
|Gross profit                                                             |  |                                  | 1,848  |                                |   | 2,329  |   |      | 3,677  |   |   | 4,468  |  
|                                                                         |  |                                  |        |                                |   |        |   |      |        |   |   |        |  
|                                                                         |  |                                  |        |                                |   |        |   |      |        |   |   |        |  
|Costs and expenses:                                                      |  |                                  |        |                                |   |        |   |      |        |   |   |        |  
|Selling, general and administrative                                      |  |                                  | 2,013  |                                |   | 2,193  |   |      | 3,999  |   |   | 4,570  |  
|Research and development                                                 |  |                                  | 556    |                                |   | 418    |   |      | 1,102  |   |   | 860    |  
|Total costs and expenses                                                 |  |                                  | 2,569  |                                |   | 2,611  |   |      | 5,101  |   |   | 5,430  |  
|                                                                         |  |                                  |        |                                |   |        |   |      |        |   |   |        |  
|                                                                         |  |                                  |        |                                |   |        |   |      |        |   |   |        |  
|Operating loss                                                           |  |                                  | (721   | )                              |   | (282   | ) |      | (1,424 | ) |   | (962   | )
|Interest income, net                                                     |  |                                  |       |                                |   |       |   |      | 1      |   |   |       |  
|                                                                         |  |                                  |        |                                |   |        |   |      |        |   |   |        |  
|Loss before taxes                                                        |  |                                  | (721   | )                              |   | (282   | ) |      | (1,423 | ) |   | (962   | )
|Income tax benefit                                                       |  |                                  | (9     | )                              |   | (9     | ) |      | (3     | ) |   | (12    | )
|Net loss                                                                 |  | $                                | (712   | )                              | $ | (273   | ) | $    | (1,420 | ) | $ | (950   | )
|                                                                         |  |                                  |        |                                |   |        |   |      |        |   |   |        |  
|Net loss per common share - basic                                        |  | $                                | (0.05  | )                              | $ | (0.02  | ) | $    | (0.10  | ) | $ | (0.07  | )
|                                                                         |  |                                  |        |                                |   |        |   |      |        |   |   |        |  
|Net loss per common share - diluted                                      |  | $                                | (0.05  | )                              | $ | (0.02  | ) | $    | (0.10  | ) | $ | (0.07  | )
|                                                                         |  |                                  |        |                                |   |        |   |      |        |   |   |        |  
|Weighted average number of shares used in basic per share calculations   |  |                                  | 14,548 |                                |   | 14,506 |   |      | 14,553 |   |   | 14,493 |  
|                                                                         |  |                                  |        |                                |   |        |   |      |        |   |   |        |  
|Weighted average number of shares used in diluted per share calculations |  |                                  | 14,548 |                                |   | 14,506 |   |      | 14,553 |   |   | 14,493 |  

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

3

---



Urologix, Inc.
Condensed Statements of Cash Flows
(Unaudited, in thousands)

|                                                                              |  |                            |        |      |   |        |  
|----------------------------------------------------------------------------- |  | -------------------------- | ------ | ---- | - | ------ | -
|                                                                              |  | Six Months Ended
 Dec. 31, |       
|                                                                              |  | 2010                       |        | 2009 |  
|Operating Activities:                                                         |  |                            |        |      |   |        |  
|Net loss                                                                      |  | $                          | (1,420 | )    | $ | (950   | )
|Adjustments to reconcile net loss to net
 cash used for operating activities: |  |                            |        |      |   |        |  
|Depreciation and amortization                                                 |  |                            | 309    |      |   | 422    |  
|Employee stock-based compensation expense                                     |  |                            | 200    |      |   | 257    |  
|Provision for bad debts                                                       |  |                            | (36    | )    |   | 10     |  
|Loss on disposal of assets                                                    |  |                            | 10     |      |   | 2      |  
|Change in operating items:                                                    |  |                            |        |      |   |        |  
|Accounts receivable                                                           |  |                            | (186   | )    |   | (326   | )
|Inventories                                                                   |  |                            | (180   | )    |   | (77    | )
|Prepaid and other assets                                                      |  |                            | 47     |      |   | (56    | )
|Accounts payable                                                              |  |                            | 292    |      |   | 21     |  
|Accrued expenses and deferred income                                          |  |                            | (259   | )    |   | (283   | )
|Net cash used for operating activities                                        |  |                            | (1,223 | )    |   | (980   | )
|                                                                              |  |                            |        |      |   |        |  
|Investing Activities:                                                         |  |                            |        |      |   |        |  
|Purchase of property and equipment                                            |  |                            | (190   | )    |   | (51    | )
|Purchases of intellectual property                                            |  |                            | (1     | )    |   |       |  
|Net cash used for investing activities                                        |  |                            | (191   | )    |   | (51    | )
|                                                                              |  |                            |        |      |   |        |  
|Financing Activities:                                                         |  |                            |        |      |   |        |  
|Proceeds from stock option exercises                                          |  |                            |       |      |   | 10     |  
|Net cash provided by financing activities                                     |  |                            |       |      |   | 10     |  
|                                                                              |  |                            |        |      |   |        |  
|Net decrease in cash and cash equivalents                                     |  |                            | (1,414 | )    |   | (1,021 | )
|Cash and cash equivalents:                                                    |  |                            |        |      |   |        |  
|Beginning of period                                                           |  |                            | 5,702  |      |   | 7,032  |  
|End of period                                                                 |  | $                          | 4,288  |      | $ | 6,011  |  
|                                                                              |  |                            |        |      |   |        |  
|Supplemental cash-flow information                                            |  |                            |        |      |   |        |  
|                                                                              |  |                            |        |      |   |        |  
|Income taxes paid during the period                                           |  | $                          | 5      |      | $ | 4      |  
|Net amount of inventory transferred to
 property and equipment                |  | $                          | 38     |      | $ | 218    |  

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

4

---



Urologix, Inc.
Notes to Condensed Financial Statements
December 31, 2010
(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 December 31, 2010 and the statements of operations and cash flows for the
three and six-month periods ended December 31, 2010 and 2009 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 the Urologix Annual Report
on Form 10-K for the year ended June 30, 2010.

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.       Use of Estimates

The
preparation of financial statements in conformity with U.S. generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenue and expenses during the reporting period. These
estimates and assumptions are based on managements best estimates and
judgments. Management evaluates its estimates and assumptions on an ongoing
basis using historical experience and other factors that management believes to
be reasonable under the circumstances, including the current economic
environment. The Company adjusts such estimates and assumptions when facts and
circumstances dictate. These include, among others, the continued difficult
economic conditions, tight credit markets, Medicare reimbursement rate
uncertainty, and a decline in consumer spending and confidence, all of which
have combined to increase the uncertainty inherent in such estimates and
assumptions. As future events and their effects cannot be determined with
precision, actual amounts could differ significantly from those estimated at
the time the financial statements are prepared. Changes in those estimates resulting
from continuing changes in the economic environment will be reflected in the
financial statements in future periods.

3.       Stock-Based Compensation

The Company
has an equity compensation plan, the 1991 Stock Option Plan (the 1991 Plan),
that provides for the granting of incentive stock options to employees and
nonqualified stock options and restricted stock to employees, directors and
consultants. As of December 31, 2010, we had reserved 4,450,910 shares of
common stock under the 1991 Plan, and 557,467 shares were available for future
grants. Options expire 10 years from the date of grant and typically vest 25
percent after the first year of service with the remaining vesting 1/36th each
month thereafter. Under the current terms of the 1991 Plan, persons serving as
non-employee directors at the date of the annual shareholder meeting receive an
option grant to purchase 10,000 shares of common stock at a price equal to fair
market value on the date of grant. Generally, such options are immediately
exercisable on the date of grant, and expire 10 years from the date of grant,
subject to earlier termination one year after the person ceases to be a
director of the Company. On August 19, 2010, our Compensation Committee
recommended, and the Board of Directors approved, an award of restricted stock
to each non-employee director serving as a member of the Companys Board of
Directors immediately following the 2010 Annual Meeting of Shareholders held on
November 9, 2010 with the number of shares of restricted stock equal to $12,500
divided by the closing price of our common stock on the date of the Annual
Meeting, rounded up to the next whole share. A total of 60,976 shares of
restricted stock were granted under the 1991 Plan to our non-employee directors
on the date of the Annual Meeting or 15,244 shares of restricted stock to each
of our four non-employee directors. The restrictions on the restricted stock
lapse on the first business day immediately prior to the date of our 2011
Annual Meeting of Shareholders if the director is serving on the board as of
such date. The restricted stock award is in addition to the stock option grant
under the 1991 Plan.

5

---



Urologix, Inc. Notes to Condensed Financial Statements 
December 31, 2010 
(Unaudited)

Options
were granted to a non-employee consultant to purchase a total of 20,000 shares
in both the first quarter of fiscal years 2011 and 2010. These options are
non-qualified options which expire 10 years from the grant date and become
fully vested over 24 months from the date of grant provided the consultant is
still providing services to the Company. As these options were granted to a
non-employee consultant, the final value of these options will be determined at
their vesting dates, rather than the date of grant, using the Black-Scholes
option pricing model and marked to market at each reporting date until they
become fully vested. The Company uses the fair value recognition provisions of
the revised authoritative guidance for equity-based compensation and applies
the modified prospective method in determining stock option expense. Our
results of operations reflect compensation expense for new stock options
granted and vested under the 1991 Plan and the unvested portion of previous
stock option grants and restricted stock which vest during the year.

Amounts
recognized in the financial statements for the three and six-month periods
ended December 31, 2010 and 2009 related to stock-based compensation were as
follows (in thousands):

|                                           |  |                                  |     |                                |   |      |  |      |     |  |   |     | 
|------------------------------------------ |  | -------------------------------- | --- | ------------------------------ | - | ---- |  | ---- | --- |  | - | --- | 
|                                           |  | Three months ended
 December 31, |     | Six months ended
 December 31, |  
|                                           |  | 2010                             |     | 2009                           |   | 2010 |  | 2009 |    
|Cost of goods sold                         |  | $                                | 10  |                                | $ | 12   |  | $    | 22  |  | $ | 26  | 
|Selling, general and administrative        |  |                                  | 85  |                                |   | 108  |  |      | 156 |  |   | 210 | 
|Research and development                   |  |                                  | 12  |                                |   | 11   |  |      | 22  |  |   | 21  | 
|Total cost of stock-based compensation     |  | $                                | 107 |                                | $ | 131  |  | $    | 200 |  | $ | 257 | 
|Tax benefit of options issued              |  |                                  |    |                                |   |     |  |      |    |  |   |    | 
|Total stock-based compensation, net of tax |  | $                                | 107 |                                | $ | 131  |  | $    | 200 |  | $ | 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. The following assumptions were used to estimate the fair value of
options granted during the six-month periods ended December 31, 2010 and 2009
using the Black-Scholes option-pricing model:

|                        |  |      |            |      |  |            | 
|----------------------- |  | ---- | ---------- | ---- |  | ---------- | 
|                        |  | 2010 |            | 2009 | 
|Volatility              |  |      | 80.17%     |      |  | 75.8%      | 
|Risk-free interest rate |  |      | 1.0%       |      |  | 1.9%       | 
|Expected option life    |  |      | 3.8
 years |      |  | 3.6
 years | 
|Stock dividend yield    |  |      |           |      |  |           | 

6

---



Urologix, Inc. 
Notes to Condensed Financial Statements 
December 31, 2010 
(Unaudited)

A
summary of our option activity for the six-month period ended December 31, 2010
is as follows:

|                                 |  |                    |           |                                         |   |                                             |  |                            |      |  |   |        | 
|-------------------------------- |  | ------------------ | --------- | --------------------------------------- | - | ------------------------------------------- |  | -------------------------- | ---- |  | - | ------ | 
|                                 |  | Number of
 Options |           | Weighted-avg.
 Exercise PricePer Option |   | Weighted-avg.
 Remaining
 Contractual
 Term |  | Aggregate Intrinsic
 Value |     
|Outstanding at July 1, 2010      |  |                    | 1,625,942 |                                         | $ | 2.15                                        |  |                            |      |  | $ | 47,820 | 
|Options granted                  |  |                    | 285,500   |                                         |   | 0.90                                        |  |                            |      |  |   |        | 
|Options forfeited                |  |                    | (42,421   | )                                       |   | 1.17                                        |  |                            |      |  |   |        | 
|Options expired                  |  |                    | (107,880  | )                                       |   | 3.38                                        |  |                            |      |  |   |        | 
|Options exercised                |  |                    |          |                                         |   |                                            |  |                            |      |  |   |        | 
|Outstanding at December 31, 2010 |  |                    | 1,761,141 |                                         |   | 1.89                                        |  |                            | 7.70 |  |   | 1,850  | 
|Exercisable at December 31, 2010 |  |                    | 916,600   |                                         |   | 2.42                                        |  |                            | 6.70 |  |   | 1,225  | 

The aggregate intrinsic
value in the table above is based on our closing stock price of $0.64 and $1.07
on December 31, 2010 and June 30, 2010, respectively, which would have been
received by the optionees had all in-the-money options been exercised on that
date.

A
summary of restricted stock award activity for the six-month period ended
December 31, 2010 is as follows:

|                               |  |                                                      |         |                                       |   |      | 
|------------------------------ |  | ---------------------------------------------------- | ------- | ------------------------------------- | - | ---- | 
|                               |  | Number of Shares
 Underlying
 RestrictedStock Awards |         | Weighted-avg. Grant-
 Date Fair Value |  
|Nonvested at July 1, 2010      |  |                                                      | 66,322  |                                       | $ | 1.50 | 
|Shares granted                 |  |                                                      | 60,976  |                                       |   | 0.82 | 
|Shares forfeited               |  |                                                      |        |                                       |   |     | 
|Shares vested                  |  |                                                      | (26,322 | )                                     |   | 1.06 | 
|Nonvested at December 31, 2010 |  |                                                      | 100,976 |                                       | $ | 1.20 | 

As
of December 31, 2010, total unrecognized compensation cost related to
non-vested stock options and restricted stock awards granted under our plan was
$450,000 and $82,000, respectively. That cost is expected to be recognized over
a weighted-average period of 2.4 years for non-vested stock options and 1.2
years for restricted stock awards.

|   |                                  
|-- | ---------------------------------
|4. | 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 and participating securities outstanding
during the periods presented. Diluted loss per share is computed by dividing
the net loss by the weighted average number of shares of common stock and
participating securities outstanding plus all dilutive potential common shares
that result from stock options. The weighted average common shares outstanding
for both basic and dilutive (in thousands), were 14,548 and 14,506, for the
three-month periods ended December 31, 2010 and 2009, respectively, and 14,553
and 14,493, for the six-month periods ended December 31, 2010 and 2009,
respectively.

7

---



Urologix, Inc.
Notes to Condensed Financial Statements
December 31, 2010
(Unaudited)

The
dilutive effect of stock options excludes approximately 1.78 million and 1.65
million options for the three and six-month periods ended December 31, 2010, respectively,
and 1.76 million and 1.79 million options for the three and six-month periods
ended December 31, 2009, respectively, for which the exercise price was higher
than the average market price. In addition, 6,231 and 30,738 of potentially
dilutive stock options where the exercise price was lower than the average
market price were excluded from diluted weighted average common shares
outstanding for the three-month periods ended December 31, 2010 and December 31,
2009, as they would be anti-dilutive due to our net loss for such periods. For
the six-month periods ended December 31, 2010 and 2009, there were 2,800 and
37,819 potentially dilutive stock options, respectively,  excluded from
diluted weighted average common shares outstanding, as they would also be
anti-dilutive due to our net loss for these six-month periods.

|   |            
|-- | -----------
|5. | Inventories

Inventories are stated at
the lower of cost or market on a first-in, first-out (FIFO) basis and consisted
of (in thousands):

|                  |  |                     |       |                 |   |       | 
|----------------- |  | ------------------- | ----- | --------------- | - | ----- | 
|                  |  | December 31, 
 2010 |       | June 30, 
 2010 |  
|Raw materials     |  | $                   | 731   |                 | $ | 702   | 
|Work in process   |  |                     | 160   |                 |   | 208   | 
|Finished goods    |  |                     | 749   |                 |   | 588   | 
|Total inventories |  | $                   | 1,640 |                 | $ | 1,498 | 

|   |                                                                              
|-- | -----------------------------------------------------------------------------
|6. | Other Accrued Expenses                                                       
|   |                                                                              
|   | Other
 accrued expenses were comprised of the following as of (in thousands):

|                             |  |                    |     |                |   |     | 
|---------------------------- |  | ------------------ | --- | -------------- | - | --- | 
|                             |  | December 31,
 2010 |     | June 30,
 2010 |  
|Sales tax
 accrual           |  | $                  | 200 |                | $ | 191 | 
|Other                        |  |                    | 411 |                |   | 328 | 
|Total other accrued expenses |  | $                  | 611 |                | $ | 519 | 

|   |             
|-- | ------------
|7. | 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 recognize accrued interest and penalties related to
unrecognized tax benefits as a component of income tax expense.

As
of June 30, 2010, the liability for gross unrecognized tax benefits was
$15,000. During the six-month period ended December 31, 2010, 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
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 1995. We may also be
subject to state income tax examinations whose regulations vary by
jurisdiction.

8

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Urologix, Inc.
Notes to Condensed Financial Statements 
December 31, 2010 
(Unaudited)

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

Some
of our 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 six-month periods ended December 31, 2010 and
2009 were as follows (in thousands):

|                   |                     |                       |                   |                 
|------------------ | ------------------- | --------------------- | ----------------- | ----------------
|Six Months
 Ended  | Beginning 
 Balance | Warranty 
 Provisions | Warranty 
 Claims | Ending 
 Balance
|                   |                     |                       |                   |                 
|December 31,
 2010 | $13                 | $23                   | ($22)             | $14             
|                   |                     |                       |                   |                 
|December 31,
 2009 | $19                 | $21                   | ($25)             | $15             

|   |                              
|-- | -----------------------------
|9. | Commitments and Contingencies

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. 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
October 2009, the Financial Accounting Standards Board (FASB) issued new
revenue guidance that requires an entity to apply the relative selling price
allocation method in order to estimate a selling price for all units of
accounting, including delivered items when vendor-specific objective evidence
or acceptable third-party evidence does not exist, as well as new guidance
addressing the accounting for revenue transactions involving software. The new
guidance is effective for revenue arrangements entered into or materially
modified in fiscal years beginning on or after June 15, 2010. The Company
adopted this new guidance effective July 1, 2010 on a prospective basis. The
adoption of this statement did not have any impact on our financial condition
or results of operations.

9

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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, 2010, as
well as in other filings we make with the Securities and Exchange Commission
and include factors such as: we are faced with intense competition and rapid
technological and industry change; third party reimbursement is critical to
market acceptance of our products; we depend upon our Cooled ThermoTherapy products
for all of our revenues; we have a history of unprofitability; we may not have
additional financing available to us; government regulation has a significant
impact on our business; we are dependent upon a limited number of third-party
suppliers to manufacture our products; 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; we are dependent on adequate protection of
our patent and proprietary rights; our products may be subject to product
recalls even after receiving FDA clearance or approval, which would harm our
reputation and our business; we are dependent on key personnel; fluctuations in
our future operating results may negatively affect the market price of our
common stock; our stock price may be volatile and a shareholders investment
could decline in value; future sales of shares of our common stock may
negatively affect our stock price; and provisions of Minnesota law, our
governing documents and other agreements may deter a change of control of us
and have a possible negative effect on our stock price. 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
and six month periods ended December 31, 2010 and 2009. 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, 2010.

OVERVIEW

Urologix
develops, manufactures, and markets non-surgical, catheter-based therapies that
use a proprietary cooled microwave technology for the treatment of benign
prostatic hyperplasia (BPH), a disease that affects more than 23 million men worldwide.
We market our control units under the CoolWave® and Targis® names and our
procedure kits, that consist of a disposable treatment catheter, Rectal Thermal
Unit (RTU) balloon and coolant bag, under the CTC Advance®, Targis, and
Prostaprobe names. All systems utilize the Companys Cooled ThermoTherapy
(CTT) 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 by the
thermal ablation of hyperplasic prostatic tissue. Cooled ThermoTherapy can be
performed without general anesthesia or intravenous sedation and can be
performed in a urologist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 establish Cooled ThermoTherapy as a standard of care for the treatment of
BPH. Our business strategy to achieve this goal is to (i) educate both patients
and urologists on the benefits of Cooled ThermoTherapy compared to other
treatment options, (ii) increase the use of Cooled ThermoTherapy by urologists
who already have access to a Cooled ThermoTherapy system, (iii) increase the
number of urologists who provide Cooled ThermoTherapy to their patients, and
(iv) provide more urologists with access to Cooled ThermoTherapy through the
use of our own Cooled ThermoTherapy mobile service or third party mobile
providers in the United States.

10

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We believe
that third-party reimbursement is essential to the continued adoption of Cooled
ThermoTherapy, and that clinical efficacy, overall cost-effectiveness and
physician advocacy will be keys to maintaining such reimbursement. We estimate
that 60% to 80% of patients who receive Cooled ThermoTherapy treatment in the
United States will be eligible for Medicare coverage. The remaining patients
will either be covered by private insurers, including traditional indemnity
health insurers and managed care organizations, or they will be private-paying
patients. As a result, Medicare reimbursement is particularly critical for
widespread market adoption of Cooled ThermoTherapy in the United States.

Each
calendar year the Medicare reimbursement rate for Cooled ThermoTherapy is
determined by the Centers for Medicare and Medicaid Services (CMS). The
Medicare reimbursement rate for physicians varies depending on the site of
service, wage indexes and geographic location. The national average
reimbursement rate is the fixed rate for the year without any geographic
adjustments, but does vary based on site of service. Cooled ThermoTherapy can
be performed in the urologists office, an ambulatory surgery center (ASC), or
a hospital as an outpatient procedure.

CMS
published the Physician Fee Schedule (PFS) final rule for calendar 2010 on
October 30, 2009. From the date of publication to the end of 2010, Congress
acted four times to temporarily adjust the 2010 Medicare reimbursement for all
physician payments, with the final short term patch occurring in November 2010
to stabilize the rate through the end of calendar 2010. These adjustments were
to offset broader prescribed reimbursement cuts to Medicare driven by the
Sustainable Growth Rate (SGR) formula.

In
December of 2010, the Congress and the President acted to stabilize
reimbursement for all of calendar 2011. While the law that was passed
eliminated the cuts which were to take effect from the SGR formula, the law
also resulted in a slight reduction to the Conversion Factor that applies to
all Medicare Physician Fee Schedule reimbursement rates. The result for all
transurethral microwave therapy procedures is that the national average of
Medicare reimbursement in the physician office setting for calendar 2011 is
$2,350 per procedure compared to $2,430 at the end of calendar year 2010. We
continue to monitor all reimbursement developments closely and will continue to
execute on our active reimbursement strategy.

Cooled
ThermoTherapy procedures are reimbursed when performed in an ASC or a hospital
outpatient setting, but these are a small portion of our business and the CMS
changes to these rates will not have a material effect on our financial
performance.

Private
insurance companies and HMOs make their own determinations regarding coverage
and reimbursement based upon usual and customary fees. To date, we have
received coverage and reimbursement from private insurance companies and HMOs
throughout the United States. We intend to continue our efforts to gain
coverage and reimbursement across the United States. There can be no assurance
that we will receive favorable coverage, nor reimbursement determinations for
Cooled ThermoTherapy from these payers or that amounts reimbursed to urologists
for performing Cooled ThermoTherapy procedures will be sufficient to encourage
urologists to use Urologix product and service offerings.

As
a result of recently enacted federal health care reform legislation,
substantial changes are anticipated in the United States health care system.
Such legislation includes numerous provisions affecting the delivery of health
care services, the financing of health care costs, reimbursement of health care
providers and the legal obligations of health insurers, providers and
employers. These provisions are currently slated to take effect at specified
times over approximately the next decade. The federal health care reform
legislation did not directly affect our fiscal year 2010 financial statements
and we do not expect the legislation to affect our financial results for fiscal
year 2011.

We
will continue to invest in research and development and clinical trials to
improve our products and our therapy. These investments are intended to broaden
our product offering and expand the clinical evidence supporting our
proprietary Cooled ThermoTherapy treatment for BPH. We continue to highlight
our five year durability data and the ability of urologists using our system to
customize the treatment for patients.

11

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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, 2010. At December 31, 2010, our critical
accounting policies and estimates continue to include revenue recognition,
allowance for doubtful accounts, inventories, valuation of long-lived assets,
income taxes, and stock-based compensation.

RESULTS OF OPERATIONS

Net Sales

Net
sales for the three and six-month periods ended December 31, 2010 were $3.3
million and $6.7 million, respectively, compared to $4.1 million and $7.9
million, respectively, during the same periods of the prior fiscal year. The
$743,000 or 18 percent decrease in net sales, and the $1.2 million, or 16
percent decrease in net sales, for the comparable three and six-month periods
ended December 31, 2010 and December 31, 2009, is primarily attributable to the
temporary market withdrawal of a competitive product in the prior fiscal year,
as well as reduced utilization from our customer base in 2010.

During
the second quarter of fiscal 2011, revenue derived from the Urologix-owned
Cooled ThermoTherapy mobile service constituted 44 percent of overall revenue
in the current quarter compared to 48 percent of revenues in the second quarter
of fiscal 2010. Revenue derived from treatment catheter sales to direct
accounts constituted 36 percent of sales compared to 35 percent in the same
quarter of the prior fiscal year. Third party mobile catheter revenue remained
constant at 15 percent of overall revenue in the second quarter of fiscal 2011
and 2010.

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
December 31, 2010 decreased $262,000, or 15 percent, to $1.5 million, and for
the six-month period ended December 31, 2010 decreased $453,000, or 13 percent,
to $3.0 million, from $1.7 million and $3.4 million during the respective
periods of the prior year. The decrease in costs of goods sold for the three
and six-month periods ended December 31, 2010 is primarily a result of the
lower sales mentioned above.

Gross
profit as a percentage of sales decreased to 56 percent and 55 percent for the three and
six-month periods ended December 31, 2010 from 57 percent and 56 percent,
respectively, for the three and six-month periods ended December 31, 2009. The
decrease in gross margin rate is due to a decrease in the number of kits
produced resulting in higher fixed costs per unit.

Selling, General
& Administrative

Selling,
general and administrative expenses of $2.0 million for the second quarter of
fiscal 2011 decreased $180,000, or 8 percent when compared to selling, general
and administrative expenses of $2.2 million in the same period of fiscal 2010.
The decrease in selling, general and administrative expenses for the
three-month period ended December 31, 2010 is largely due to a $176,000
decrease in commission expense as a result of lower sales. For the six-month
period ended December 31, 2010, selling, general and administrative expenses
decreased $571,000, or 12 percent, to $4.0 million from $4.6 million reported
for the same six-month period of fiscal year 2010. The decrease in expense when
compared to the six-month period ended December 31, 2009 is primarily the
result of a decrease in commissions of $371,000 and a decrease in the bonus
accrual of $166,000.

12

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Research and Development

Research
and development expenses, which include expenditures for product development,
regulatory compliance and clinical studies, increased to $556,000 and $1.1
million, for the three and six-month periods ended December 31, 2010,
respectively, from $418,000 and $860,000 in the same respective periods of the
prior fiscal year. The increase in expense of $138,000, or 33 percent, and
$242,000 or 28 percent, for the three and six-month periods ended December 31,
2010, respectively, is due to increased wages and consulting expenses as we
have increased our research and development activities.

Provision for Income
Taxes

We
recognized an income tax benefit of $9,000 and $3,000 for the three and
six-month periods ended December 31, 2010, respectively, compared to an income
tax benefit of $9,000 and $12,000 for the comparable prior year fiscal periods.
The tax benefit in the three and six-month periods ended December 31, 2010 and
2009 relates to estimates for research and development credits, partially
offset by provisions for state taxes.

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 December 31, 2010, we
had total cash and cash equivalents of $4.3 million compared to $5.7 million as
of June 30, 2010. Working capital decreased to $5.8 million at December 31,
2010 from $6.7 million at June 30, 2010. This decrease in working capital is
primarily due to the $1.4 million decrease in the cash balance and a $292,000
increase in accounts payable, offset by the $186,000 increase in accounts
receivable as well as the $180,000 increase in inventories.

During
the six-month period ended December 31, 2010, we used $1.2 million of cash for
operating activities. The net loss of $1.4 million included non-cash charges of
$309,000 from depreciation and amortization expense and $200,000 from
stock-based compensation expense. Changes in operating items resulted in the
use of $286,000 of operating cash flow for the period as a result of lower
accrued expense and deferred income of $259,000, higher accounts receivable of
$186,000, and increased inventories of $180,000, which was partially offset by
an increase in accounts payable of $292,000. The decrease in accrued expenses
and deferred income is a result of a decrease in our payroll accrual due to
timing and a decrease in the bonus accrual as a result of the payout of fiscal
2010 bonuses during the first quarter of fiscal 2011. The decrease in accounts
receivable is the result of the decrease in sales, and the increase in
inventories is a result of an increase in finished goods inventory. The slight
increase in our year-over-year cash used in operations of $243,000 is largely
due to the decrease in sales, partially offset by our increase in accounts
payable.

During
the six-months ended December 31, 2010, we used $191,000 for investing
activities primarily to purchase property and equipment related to a tenant
improvement allowance as a result of signing a building lease extension.

During
the six-months ended December 31, 2010, we did not generate any cash from
financing activities.

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. We also will continue to provide physicians and
patients with efficient access to our Cooled ThermoTherapy system control units
on a pre-scheduled basis through our mobile service. As of December 31, 2010,
our property and equipment, net, included approximately $637,000 of control
units used in evaluation or longer-term use programs and in our Company-owned
mobile service.

We
believe our $4.3 million in cash and cash equivalents at December 31, 2010 will
be sufficient to fund our working capital and capital resource needs beyond the
next twelve months. In addition, we believe the majority of our cash
equivalents are secure as they are backed by United States Government
Treasuries.

13

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Our
business plan and financing needs are subject to change depending on, among
other things, the success of our efforts to increase revenue and continue to
effectively manage expenses, market conditions, business opportunities and cash
flow from operations, if any. We may require additional financing to continue
our business, the receipt of which cannot be assured. Such additional financing
could be sought from a number of sources, including possible sales of equity or
debt securities, or loans from banks or other financial institutions. We may
not be able to obtain additional financing from any source on reasonable terms,
if at all. Any future capital that is available may be raised on terms that are
dilutive to our shareholders.

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 10 to
the condensed financial statements in this Quarterly Report on Form 10-Q.

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

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

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

Our
policy is not to enter into derivative financial instruments. We do not have
any significant foreign currency exposure since we do not generally transact
business in foreign currencies. 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, Stryker Warren, Jr., and Chief Financial
Officer, Brian J. Smrdel, have evaluated the Companys disclosure controls and
procedures, as defined in the Exchange Act Rule 13a-15(e), 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.

14

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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, 2010, as updated by our subsequent filings with the Securities and
Exchange Commission. There have been no material changes from the risk factors
previously disclosed in our Annual Report on Form 10-K.

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

Not applicable.

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

Not applicable.

|        |                       
|------- | ----------------------
|ITEM 4. | [REMOVED AND RESERVED]

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

On August 19,
2010, the Company received a letter from The Nasdaq Stock Market stating that
the bid price of the Companys common stock was below $1.00 per share for 30
consecutive business days and that the Company was therefore not in compliance
with Listing Rule 5550(a)(2) requiring a minimum bid price of $1.00 per share.
The letter stated that under the Listing Rules, the Company has 180 days, or
until February 15, 2011, to regain compliance with the minimum bid price
requirement for continued listing.

Subsequent to
the August 2010 letter, the Nasdaq Stock Market changed its Listing Rules to
permit eligible companies to receive a second 180 day compliance period to cure
a deficiency in the minimum bid price requirement.

On January 13,
2011, the Company submitted a letter to The Nasdaq Stock Market requesting the
grant of an additional 180 day compliance period ending August 15, 2011 and
agreeing to effect a reverse stock split should the Company not cure the bid
price deficiency during the second compliance period. The Company believes that
it is eligible to receive this second 180 day compliance period under the
Listing Rules. The Nasdaq Stock Market has informed the Company that it will
make a determination as to the Companys eligibility and the availability of
the second cure period on or about February 15, 2011.

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

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

15

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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/ Stryker
 Warren, jr.                                                               
| | Stryker
 Warren, jr.
 Chief Executive Officer
 (Principal Executive Officer)           
| |                                                                                        
| | /s/ Brian J.
 Smrdel                                                                   
| | Brian J.
 Smrdel
 Chief Financial Officer
 (Principal Financial and Accounting Officer)
| |                                                                                        
| | Date
 February 11, 2011                                                                

16

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