---

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549



---



FORM 10-Q/A

(Amendment No. 1)



---



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



FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2004



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



---



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 is an accelerated filer (as defined in Rule 12b-2) of the Exchange Act.    Yes  x    No ̈



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 shell company (as defined in Rule 12b-2 of
the Exchange Act.):    Yes ̈No  x



As of November 3, 2004, the Company had outstanding 14,287,468 shares of
common stock, $.01 par value.



---



---

EXPLANATORY STATEMENT



This Amendment No. 1 on Form 10-Q/A amends and restates the Companys Form 10-Q for the quarter ended September 30, 2004, initially filed with the
Securities and Exchange Commission (the SEC) on November 9, 2004 (the Original Filing), and is being filed to reflect the restatement of the condensed financial statements and other financial information of the Company for
the first fiscal 2005 quarter ended September 30, 2004. During the fiscal 2005 year end close process, the Company determined that, historically, the deferred income tax liability for the basis difference in goodwill and trademarks created since the
adoption of SFAS 142 was incorrectly offset against deferred income tax assets. The deferred tax liability relating to this basis difference was assumed to reverse against the deferred tax asset relating to the net operating loss carryforwards, and
thus the Company did not provide sufficient valuation allowance against deferred tax assets that were not more likely than not to be realized. Since the deferred tax liability relating to the goodwill and trademark basis difference relates to
indefinite lived assets and the net operating loss carryforwards have a definite life of 20 years or less, it was not correct to net these deferred tax assets and liabilities. Therefore, the Company has recorded additional deferred tax expense of
approximately $68,000 and $72,000, respectively for the first quarter of fiscal 2005 and 2004 to increase its deferred tax asset valuation allowance. See Note 2 to the condensed financial statements for further details.



For the convenience of the reader, this Form 10-Q/A sets forth the Original
Filing in its entirety. However, this Form 10-Q/A only amends and restates certain information in Items 1, 2 and 4 of Part I of the Original Filing, in each case solely as a result of and to reflect the restatement, and no other information in the
Original Filing is amended hereby. The foregoing items have not been updated to reflect other events occurring after the Original Filing or to modify or update those disclosures affected by subsequent events. In addition, pursuant to the rules of
the SEC, Item 6 of Part II of the Original Filing has been amended to include certifications re-executed as of the date of this Form 10-Q/A from the Companys Chief Executive Officer and Chief Financial Officer as required by Sections 302 and
906 of the Sarbanes-Oxley Act of 2002. The certifications of the Chief Executive Officer and Chief Financial Officer are attached to this Form 10-Q/A as exhibits 31.1, 31.2 and 32.



Except for the foregoing amended information, this Form 10-Q/A continues to describe conditions as of the date of the
Original Filing, and the disclosures contained herein have not been updated to reflect events, results or developments that occurred after the Original Filing, or to modify or update those disclosures affected by subsequent events. Among other
things, forward looking statements made in the Original Filing have not been revised to reflect events, results or developments that occurred or facts that became known to the Company after the date of the Original Filing (other than the
restatement), and such forward looking statements should be read in their historical context.



---

PART I  FINANCIAL INFORMATION



ITEM 1. FINANCIAL STATEMENTS



Urologix, Inc.

Condensed Balance Sheets

(In thousands, except per share data)



|                                                                                                        |  |                           |         |   |                       |   |         |  
|------------------------------------------------------------------------------------------------------- |  | ------------------------- | ------- | - | --------------------- | - | ------- | -
|                                                                                                        |  | RestatedSeptember 30,2004 |         |   | RestatedJune 30, 2004 |  
|                                                                                                        |  | (unaudited)               |         |   | (*)                   |  
|ASSETS                                                                                                  |  |                           |         |   |                       |   |         |  
|Current assets:                                                                                         |  |                           |         |   |                       |   |         |  
|Cash and cash equivalents                                                                               |  | $                         | 6,804   |   |                       | $ | 5,142   |  
|Available-for-sale investments                                                                          |  |                           | 1,340   |   |                       |   | 2,462   |  
|Accounts receivable, net of allowances of $315 and $299                                                 |  |                           | 2,885   |   |                       |   | 2,689   |  
|Inventories                                                                                             |  |                           | 2,206   |   |                       |   | 2,144   |  
|Prepaids and other current assets                                                                       |  |                           | 352     |   |                       |   | 371     |  
|                                                                                                        |  |                           |         |   |                       |   |         |  
|Total current assets                                                                                    |  |                           | 13,587  |   |                       |   | 12,808  |  
|                                                                                                        |  |                           |         |   |                       |   |         |  
|Property and equipment:                                                                                 |  |                           |         |   |                       |   |         |  
|Machinery, equipment and furniture                                                                      |  |                           | 9,305   |   |                       |   | 9,256   |  
|Less accumulated depreciation                                                                           |  |                           | (6,816  | ) |                       |   | (6,583  | )
|                                                                                                        |  |                           |         |   |                       |   |         |  
|Property and equipment, net                                                                             |  |                           | 2,489   |   |                       |   | 2,673   |  
|Other assets                                                                                            |  |                           | 1,960   |   |                       |   | 2,049   |  
|Goodwill                                                                                                |  |                           | 10,193  |   |                       |   | 10,193  |  
|Other intangible assets, net                                                                            |  |                           | 8,283   |   |                       |   | 8,449   |  
|                                                                                                        |  |                           |         |   |                       |   |         |  
|Total assets                                                                                            |  | $                         | 36,512  |   |                       | $ | 36,172  |  
|                                                                                                        |  |                           |         |   |                       |   |         |  
|LIABILITIES AND SHAREHOLDERS EQUITY                                                                    |  |                           |         |   |                       |   |         |  
|Current liabilities:                                                                                    |  |                           |         |   |                       |   |         |  
|Accounts payable                                                                                        |  | $                         | 1,149   |   |                       | $ | 949     |  
|Accrued compensation                                                                                    |  |                           | 517     |   |                       |   | 1,425   |  
|Other accrued expenses                                                                                  |  |                           | 1,497   |   |                       |   | 1,532   |  
|Current portion of long-term debt                                                                       |  |                           | 165     |   |                       |   | 165     |  
|Deferred income                                                                                         |  |                           | 1,313   |   |                       |   | 1,383   |  
|                                                                                                        |  |                           |         |   |                       |   |         |  
|Total current liabilities                                                                               |  |                           | 4,641   |   |                       |   | 5,454   |  
|                                                                                                        |  |                           |         |   |                       |   |         |  
|Deferred tax liability                                                                                  |  |                           | 926     |   |                       |   | 858     |  
|                                                                                                        |  |                           |         |   |                       |   |         |  
|Total liabilities                                                                                       |  |                           | 5,567   |   |                       |   | 6,312   |  
|COMMITMENTS AND CONTINGENCIES (Note 11)                                                                 |  |                           |         |   |                       |   |         |  
|Shareholders equity:                                                                                   |  |                           |         |   |                       |   |         |  
|Common stock, $.01 par value, 25,000 shares authorized; 14,287 and 14,194 shares issued and outstanding |  |                           | 143     |   |                       |   | 142     |  
|Additional paid-in capital                                                                              |  |                           | 110,024 |   |                       |   | 109,653 |  
|Accumulated deficit                                                                                     |  |                           | (79,224 | ) |                       |   | (79,944 | )
|Accumulated other comprehensive income                                                                  |  |                           | 2       |   |                       |   | 9       |  
|                                                                                                        |  |                           |         |   |                       |   |         |  
|Total shareholders equity                                                                              |  |                           | 30,945  |   |                       |   | 29,860  |  
|                                                                                                        |  |                           |         |   |                       |   |         |  
|Total liabilities and shareholders equity                                                              |  | $                         | 36,512  |   |                       | $ | 36,172  |  
|                                                                                                        |  |                           |         |   |                       |   |         |  

---

|(*) | The Balance Sheet at June 30, 2004 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by
generally accepted accounting principles for complete financial statements.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



---

Urologix, Inc.

Condensed Statements of Operations

(In thousands, except per share data)

(Unaudited)



|                                                                         |  |                                         |        |      |   |        |  
|------------------------------------------------------------------------ |  | --------------------------------------- | ------ | ---- | - | ------ | -
|                                                                         |  | RestatedThree Months EndedSeptember 30, |       
|                                                                         |  | 2004                                    |        | 2003 |  
|Sales                                                                    |  | $                                       | 6,051  |      | $ | 5,061  |  
|Cost of goods sold                                                       |  |                                         | 1,838  |      |   | 2,107  |  
|                                                                         |  |                                         |        |      |   |        |  
|Gross profit                                                             |  |                                         | 4,213  |      |   | 2,954  |  
|                                                                         |  |                                         |        |      |   |        |  
|Costs and expenses:                                                      |  |                                         |        |      |   |        |  
|Selling, general and administrative                                      |  |                                         | 2,727  |      |   | 2,825  |  
|Research and development                                                 |  |                                         | 642    |      |   | 584    |  
|Amortization of intangible assets                                        |  |                                         | 41     |      |   | 41     |  
|                                                                         |  |                                         |        |      |   |        |  
|Total costs and expenses                                                 |  |                                         | 3,410  |      |   | 3,450  |  
|                                                                         |  |                                         |        |      |   |        |  
|Operating earnings (loss)                                                |  |                                         | 803    |      |   | (496   | )
|Interest income, net                                                     |  |                                         | 26     |      |   | 6      |  
|                                                                         |  |                                         |        |      |   |        |  
|Net earnings (loss) before taxes                                         |  |                                         | 829    |      |   | (490   | )
|Provision for income taxes                                               |  |                                         | 109    |      |   | 72     |  
|                                                                         |  |                                         |        |      |   |        |  
|Net earnings (loss)                                                      |  | $                                       | 720    |      | $ | (562   | )
|                                                                         |  |                                         |        |      |   |        |  
|Net earnings (loss) per common share - basic                             |  | $                                       | 0.05   |      | $ | (0.04  | )
|                                                                         |  |                                         |        |      |   |        |  
|Net earnings (loss) per common share - diluted                           |  | $                                       | 0.05   |      | $ | (0.04  | )
|                                                                         |  |                                         |        |      |   |        |  
|Weighted average number of shares used in basic per share calculations   |  |                                         | 14,212 |      |   | 13,965 |  
|                                                                         |  |                                         |        |      |   |        |  
|Weighted average number of shares used in diluted per share calculations |  |                                         | 15,040 |      |   | 13,965 |  
|                                                                         |  |                                         |        |      |   |        |  



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



---

Urologix, Inc.

Condensed Statements of Cash Flows

(In thousands)

(Unaudited)



|                                                                                                      |  |                                         |        |   |      |   |      |  
|----------------------------------------------------------------------------------------------------- |  | --------------------------------------- | ------ | - | ---- | - | ---- | -
|                                                                                                      |  | RestatedThree Months EndedSeptember 30, |       
|                                                                                                      |  | 2004                                    |        |   | 2003 |  
|Operating Activities:                                                                                 |  |                                         |        |   |      |   |      |  
|Net earnings (loss)                                                                                   |  | $                                       | 720    |   |      | $ | (562 | )
|Adjustments to reconcile net earnings (loss) to net cash provided by (used for) operating activities: |  |                                         |        |   |      |   |      |  
|Depreciation and amortization                                                                         |  |                                         | 479    |   |      |   | 534  |  
|Provision for bad debts                                                                               |  |                                         | 37     |   |      |   | 25   |  
|Deferred income taxes                                                                                 |  |                                         | 68     |   |      |   | 72   |  
|Change in operating items:                                                                            |  |                                         |        |   |      |   |      |  
|Accounts receivable                                                                                   |  |                                         | (233   | ) |      |   | (302 | )
|Inventories                                                                                           |  |                                         | (180   | ) |      |   | 26   |  
|Prepaids and other assets                                                                             |  |                                         | 108    |   |      |   | 264  |  
|Accounts payable                                                                                      |  |                                         | 200    |   |      |   | (153 | )
|Accrued expenses and deferred income                                                                  |  |                                         | (1,013 | ) |      |   | (469 | )
|                                                                                                      |  |                                         |        |   |      |   |      |  
|Net cash provided by (used for) operating activities                                                  |  |                                         | 186    |   |      |   | (565 | )
|                                                                                                      |  |                                         |        |   |      |   |      |  
|Investing Activities:                                                                                 |  |                                         |        |   |      |   |      |  
|Purchase of property and equipment                                                                    |  |                                         | (11    | ) |      |   | (22  | )
|Proceeds from sale of available-for-sale investments, net                                             |  |                                         | 1,115  |   |      |   | 567  |  
|                                                                                                      |  |                                         |        |   |      |   |      |  
|Net cash provided by investing activities                                                             |  |                                         | 1,104  |   |      |   | 545  |  
|                                                                                                      |  |                                         |        |   |      |   |      |  
|Financing Activities:                                                                                 |  |                                         |        |   |      |   |      |  
|Payments made on capital lease obligations                                                            |  |                                         |       |   |      |   | (143 | )
|Proceeds from exercise of stock options                                                               |  |                                         | 372    |   |      |   | 12   |  
|                                                                                                      |  |                                         |        |   |      |   |      |  
|Net cash provided by ( used for) financing activities                                                 |  |                                         | 372    |   |      |   | (131 | )
|                                                                                                      |  |                                         |        |   |      |   |      |  
|Net increase (decrease) in cash and cash equivalents                                                  |  |                                         | 1,662  |   |      |   | (151 | )
|Cash and cash equivalents:                                                                            |  |                                         |        |   |      |   |      |  
|Beginning of period                                                                                   |  |                                         | 5,142  |   |      |   | 727  |  
|                                                                                                      |  |                                         |        |   |      |   |      |  
|End of period                                                                                         |  | $                                       | 6,804  |   |      | $ | 576  |  
|                                                                                                      |  |                                         |        |   |      |   |      |  
|Supplemental cash-flow information                                                                    |  |                                         |        |   |      |   |      |  
|Cash paid during the period for interest                                                              |  | $                                       |       |   |      | $ | 18   |  
|Net value of inventory transferred to property and equipment                                          |  | $                                       | 118    |   |      | $ | 185  |  



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



---

Urologix, Inc.

Notes to Condensed Financial Statements

September 30, 2004

(Unaudited)



1. Basis of presentation



The accompanying unaudited condensed financial statements of Urologix, Inc. (the Company or Urologix) 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, 2004 and the statements of operations and cash
flows for the three months ended September 30, 2004 and 2003 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/A for the year ended June 30,
2004.



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. Certain prior year amounts have been reclassified to conform to current year presentation.



2. Restatement of Financial Statements



During the fiscal 2005 year end close process, the Company determined that,
historically, the deferred income tax liability for the basis difference in goodwill and trademarks created since the adoption of SFAS 142 was incorrectly offset against deferred income tax assets. The deferred tax liability relating to this basis
difference was assumed to reverse against the deferred tax asset relating to the net operating loss carryforwards, and thus the Company did not provide sufficient valuation allowance against deferred tax assets that were not more likely than not to
be realized. Since the deferred tax liability relating to the goodwill and trademark basis difference relates to indefinite lived assets and the net operating loss carryforwards have a definite life of 20 years or less, it was not correct to net
these deferred tax assets and liabilities. Therefore, the Company has recorded additional deferred tax expense of approximately $68,000 and $72,000, respectively for the first quarter of fiscal 2005 and 2004 to increase its deferred tax asset
valuation allowance.



The Company has restated its balance
sheets as of September 30, 2004 and June 30, 2004, and its statements of operations for the fiscal quarters ended September 30, 2004 and 2003 for the impact of this deferred tax liability as follows:



|                                   |  |                                      |         |   |                                      |   |         |                       |  |   |             |   |  |   |         |  
|---------------------------------- |  | ------------------------------------ | ------- | - | ------------------------------------ | - | ------- | --------------------- |  | - | ----------- | - |  | - | ------- | -
|                                   |  | September 30, 2004                   |         |   | June 30, 2004                        |  
|                                   |  | As previouslyreported                |         |   | As restated                          |   |         | As previouslyreported |  |   | As restated |  
|BALANCE SHEET DATA:                |  |                                      |         |   |                                      |   |         |                       |  |   |             |   |  |   |         |  
|Non-current deferred tax liability |  | $                                    |        |   |                                      | $ | 926     |                       |  | $ |            |   |  | $ | 858     |  
|Total liabilities                  |  |                                      | 4,641   |   |                                      |   | 5,567   |                       |  |   | 5,454       |   |  |   | 6,312   |  
|Accumulated deficit                |  |                                      | (78,298 | ) |                                      |   | (79,224 | )                     |  |   | (79,086     | ) |  |   | (79,944 | )
|Total shareholders equity         |  |                                      | 31,871  |   |                                      |   | 30,945  |                       |  |   | 30,718      |   |  |   | 29,860  |  
|                                   |  |                                     
|                                   |  | Three Months EndedSeptember 30, 2004 |         |   | Three Months EndedSeptember 30, 2003 |  
|                                   |  | As previouslyreported                |         |   | As restated                          |   |         | As previouslyreported |  |   | As restated |  
|STATEMENT OF OPERATIONS DATA:      |  |                                      |         |   |                                      |   |         |                       |  |   |             |   |  |   |         |  
|Income tax expense                 |  | $                                    | 41      |   |                                      | $ | 109     |                       |  | $ |            |   |  | $ | 72      |  
|Net income (loss)                  |  |                                      | 788     |   |                                      |   | 720     |                       |  |   | (490        | ) |  |   | (562    | )
|Net income (loss) per common share |  |                                      |         |   |                                      |   |         |                       |  |   |             |   |  |   |         |  
|Basic                              |  | $                                    | 0.06    |   |                                      | $ | 0.05    |                       |  | $ | (0.04       | ) |  | $ | (0.04   | )
|Diluted                            |  | $                                    | 0.05    |   |                                      | $ | 0.05    |                       |  | $ | (0.04       | ) |  | $ | (0.04   | )



There was no impact in
any period on net cash provided by operating, financing, or investing activities on the statements of cash flows. The restatement also impacts note 5 and note 8 to the financial statements.



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.



---

Urologix, Inc.

Notes to Condensed Financial Statements

September 30, 2004

(Unaudited)



4. Basic and diluted earnings (loss) per share



Basic earnings (loss) per share was computed by dividing the net earnings (loss) by the weighted average number of shares of common stock outstanding
during the periods presented. Diluted earnings per share was computed by dividing the net earnings by the weighted average number of shares of common stock outstanding plus all dilutive potential common shares that result from stock options. The
number of shares used in earnings per share computations are as follows (in thousands):



|                                                     |  |                                 |  |       
|---------------------------------------------------- |  | ------------------------------- |  | ------
|                                                     |  | Three months endedSeptember 30,
|                                                     |  | 2004                            |  | 2003  
|Weighted average common shares outstanding - basic   |  | 14,212                          |  | 13,965
|Dilutive effect of stock options                     |  | 828                             |  |      
|                                                     |  |                                 |  |       
|Weighted average common shares outstanding - diluted |  | 15,040                          |  | 13,965
|                                                     |  |                                 |  |       



The dilutive effect of
stock options in the above table excludes 434,000 of options for which the exercise price was higher than the average market price for the three month period ended September 30, 2004.



As a result of the net loss for the three month period ended September 30, 2003, dilutive potential common shares from stock
options of 161,000 were excluded from the calculation of diluted earnings per share for the period as the effect would be antidilutive.



5. Stock-Based Compensation



We account for stock-based employee compensation arrangements in accordance with the provisions and related interpretations of Accounting Principles Board
Opinion 25, Accounting for Stock Issued to Employees and have elected to follow the disclosure only alternative prescribed by SFAS 123, Accounting for Stock-Based Compensation.



Had compensation cost for stock-based compensation been determined consistent
with SFAS 123, the net earnings (loss) and net earnings (loss) per share would have been adjusted to the following pro-forma amounts (in thousands, except for per share data):



|                                                                                         |  |                                 |      |   |      |   |        |  
|---------------------------------------------------------------------------------------- |  | ------------------------------- | ---- | - | ---- | - | ------ | -
|                                                                                         |  | Three months endedSeptember 30, |     
|                                                                                         |  | 2004                            |      |   | 2003 |  
|Net earnings (loss), as reported (restated)                                              |  | $                               | 720  |   |      | $ | (562   | )
|Total stock-based employee compensation expense determined under fair value based method |  |                                 | (618 | ) |      |   | (638   | )
|                                                                                         |  |                                 |      |   |      |   |        |  
|Pro forma net earnings (loss) (restated)                                                 |  | $                               | 102  |   |      | $ | (1,200 | )
|                                                                                         |  |                                 |      |   |      |   |        |  
|Net earnings (loss) per share: (restated)                                                |  |                                 |      |   |      |   |        |  
|Basic - as reported                                                                      |  | $                               | 0.05 |   |      | $ | (0.04  | )
|Basic - pro forma                                                                        |  | $                               | 0.01 |   |      | $ | (0.09  | )
|Diluted - as reported                                                                    |  | $                               | 0.05 |   |      | $ | (0.04  | )
|Diluted - pro forma                                                                      |  | $                               | 0.01 |   |      | $ | (0.09  | )



---

Urologix, Inc.

Notes to Condensed Financial Statements

September 30, 2004

(Unaudited)



6. Inventories



Inventories consisted of the following as of (in thousands):



|                  |  |                   |       |              |   |      
|----------------- |  | ----------------- | ----- | ------------ | - | -----
|                  |  | September 30,2004 |       | June 30,2004
|Raw materials     |  | $                 | 1,336 |              | $ | 1,304
|Work in process   |  |                   | 198   |              |   | 163  
|Finished goods    |  |                   | 672   |              |   | 677  
|                  |  |                   |       |              |   |      
|Total inventories |  | $                 | 2,206 |              | $ | 2,144
|                  |  |                   |       |              |   |      



7. Other intangible assets, net



Other intangible assets consist of developed
technologies, customer base and trademarks. Developed technologies and customer base are amortized using the straight-line method over their estimated useful lives of 15 and 14 years, respectively. The trademark asset is considered to be an
intangible with an indefinite useful life, and it will not be amortized until its useful life is determined to be no longer indefinite.



Effective July 1, 2004, we began including amortization expense relating to developed technologies within cost of goods sold. This expense was previously
reported within amortization of intangible assets on the statements of operations. Consistent with this change, we have re-classified $125,000 of such expense to cost of goods sold for the three month period ended September 30, 2003. Amortization
expense related to other intangible assets was $166,000 for the three month period ended September 30, 2004, with $125,000 of this expense reported in cost of goods sold and $41,000 reported in amortization of intangible assets. Amortization expense
for the next nine months of fiscal 2005 and for each of the next four fiscal years is expected to be $498,000 and $664,000, respectively.



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



|                              |  |                          |       |                         |   |       |  |   |      
|----------------------------- |  | ------------------------ | ----- | ----------------------- | - | ----- |  | - | -----
|                              |  | As of September 30, 2004
|                              |  | CarryingAmount           |       | AccumulatedAmortization |   | Net  
|Amortizing intangibles:       |  |                          |       |                         |   |       |  |   |      
|Developed technologies        |  | $                        | 7,500 |                         | $ | 2,000 |  | $ | 5,500
|Customer base                 |  |                          | 2,300 |                         |   | 657   |  |   | 1,643
|                              |  |                          |       |                         |   |       |  |   |      
|Subtotal                      |  |                          | 9,800 |                         |   | 2,657 |  |   | 7,143
|                              |  |                          |       |                         |   |       |  |   |      
|Non-amortizing intangibles:   |  |                          |       |                         |   |       |  |   |      
|Trademarks                    |  |                          |       |                         |   |       |  |   | 1,140
|                              |  |                          |       |                         |   |       |  |   |      
|Total other intangible assets |  |                          |       |                         |   |       |  |   | 8,283
|                              |  |                          |       |                         |   |       |  |   |      



---

Urologix, Inc.

Notes to Condensed Financial Statements

September 30, 2004

(Unaudited)



8. Comprehensive earnings (loss)



Comprehensive earnings (loss) includes all changes in equity during a period except those resulting from investments by and distributions to shareholders.
Our comprehensive earnings (loss) are as follows (in thousands):



|                                                                 |  |                                 |     |   |      |   |      |  
|---------------------------------------------------------------- |  | ------------------------------- | --- | - | ---- | - | ---- | -
|                                                                 |  | Three months endedSeptember 30, |    
|                                                                 |  | 2004                            |     |   | 2003 |  
|Net earnings (loss) (restated)                                   |  | $                               | 720 |   |      | $ | (562 | )
|Change in net unrealized gains on available-for-sale investments |  |                                 | (7  | ) |      |   | (29  | )
|                                                                 |  |                                 |     |   |      |   |      |  
|Comprehensive earnings (loss) (restated)                         |  | $                               | 713 |   |      | $ | (591 | )
|                                                                 |  |                                 |     |   |      |   |      |  



9. 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, 2004 and 2003 were as follows (in thousands):



|            |  |                             |     |                     |   |                 |  |   |                                |   |  |   |    
|----------- |  | --------------------------- | --- | ------------------- | - | --------------- |  | - | ------------------------------ | - |  | - | ---
|Fiscal Year |  | Beginning Balance at July 1 |     | Warranty Provisions |   | Warranty Claims |  |   | Ending Balance at September 30
|2005        |  | $                           | 215 |                     | $ | 77              |  | $ | (140                           | ) |  | $ | 152
|2004        |  | $                           | 159 |                     | $ | 71              |  | $ | (68                            | ) |  | $ | 162



---

Urologix, Inc.

Notes to Condensed Financial Statements

September 30, 2004

(Unaudited)



10. Restructuring Liability



In May 2003, we announced plans for an organizational restructuring which eliminated 28 positions within the Company and also resulted in our vacating a
portion of our leased facility. All of the targeted headcount reductions were completed by June 2003, and we reached an agreement to sublet the vacated space beginning in the second quarter of fiscal 2004. All of the severance obligations were paid
in fiscal 2004. The lease term on the vacated space currently runs through fiscal 2008.



Restructuring activity for the three month periods ended September 30, 2004 and 2003 were as follows (in thousands):



|                  |  |                  |   |       |                  |     |       |  |   |           |   |  |       |      |   |       |   |     |   |  |   |      |  
|----------------- |  | ---------------- | - | ----- | ---------------- | --- | ----- |  | - | --------- | - |  | ----- | ---- | - | ----- | - | --- | - |  | - | ---- | -
|                  |  | Fiscal Year 2005 |   |       | Fiscal Year 2004 |    
|                  |  | Severance        |   | Lease |                  |     | Total |  |   | Severance |   |  | Lease |      |   | Total |  
|Beginning balance |  | $                |  |       | $                | 169 |       |  | $ | 169       |   |  | $     | 636  |   |       | $ | 264 |   |  | $ | 900  |  
|Cash payments     |  |                  |  |       |                  | (11 | )     |  |   | (11       | ) |  |       | (319 | ) |       |   | (49 | ) |  |   | (368 | )
|                  |  |                  |   |       |                  |     |       |  |   |           |   |  |       |      |   |       |   |     |   |  |   |      |  
|Ending balance    |  | $                |  |       | $                | 158 |       |  | $ | 158       |   |  | $     | 317  |   |       | $ | 215 |   |  | $ | 532  |  
|                  |  |                  |   |       |                  |     |       |  |   |           |   |  |       |      |   |       |   |     |   |  |   |      |  



11. Legal Proceedings



Our business exposes us to product liability claims that
are inherent in the testing, production, marketing and sale of medical devices. Management believes any losses that may occur from these matters are adequately covered by insurance, and the ultimate outcome of these matters will not have a material
effect on the financial position or results of operations of the Company.



---

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



The following is a discussion and analysis of
Urologix financial condition and results of operations as of and for the three month periods ended September 30, 2004 and 2003. 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/A for the year ended June 30, 2004.



Cautionary Note Regarding Forward-Looking Statements



This Managements Discussion and Analysis of Financial Condition and Results of Operations contains, in addition to historical information, forward-looking statements that are based on our current expectations,
beliefs, intentions or future strategies. These statements are subject to risks and uncertainties that could cause actual results to differ materially from the statements, including the need to maintain profitability and increase revenues; the rate
of adoption of Cooled ThermoTherapy
(transurethral microwave thermotherapy) products, our sole products, by the medical community; the impact of competitive treatments, products and pricing; the development and effectiveness of the Companys sales organization and marketing
efforts; developments in the reimbursement environment for the Companys products including the determination of reimbursement rates for Cooled ThermoTherapy; the ability of third-party suppliers to produce and supply products; the
Companys ability to successfully defend its intellectual property against infringement and the cost and expense associated with that effort. We caution readers not to place undue reliance on any of these forward-looking statements, which speak
only as of the date made. A detailed discussion of risks and uncertainties may be found below in Factors That May Affect Our Future Results and The Trading Price of Our Common Stock and in our Annual Report on Form 10-K/A for the year
ended June 30, 2004.



OVERVIEW



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



We have developed and offer non-surgical, catheter-based therapies that use a proprietary cooled microwave technology for the treatment of BPH, a disease that dramatically affects more than 23 million men worldwide by
causing adverse changes in urinary voiding patterns. We market our products under the Targis® and Prostatron® names. Both systems utilize Cooled ThermoTherapy, a targeted microwave energy combined with a unique cooling mechanism that protects healthy tissue and enhances patient comfort while providing safe, effective, lasting
relief from the symptoms of BPH. Cooled ThermoTherapy can be performed without anesthesia or intravenous sedation and, as a result, can be performed in a physicians office or an outpatient clinic. We believe Cooled ThermoTherapy provides an
efficacious, safe and cost-effective solution for BPH that is superior to medication without the complications and side effects inherent in surgical procedures.



We believe that third-party reimbursement is essential to the acceptance of Cooled ThermoTherapy, and that clinical efficacy, overall cost
effectiveness and physician advocacy will be keys to obtaining this 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
acceptance of Cooled ThermoTherapy in the United States.



The
level of Medicare reimbursement for Cooled ThermoTherapy is dependent on the site of service. Beginning on August 1, 2000, the Centers for Medicare and Medicaid Services (CMS) replaced the reasonable cost basis of reimbursement for outpatient
hospital-based procedures, including Cooled ThermoTherapy, with a new fixed rate or prospective payment system. Under this method of reimbursement, a hospital receives a fixed reimbursement for each Cooled ThermoTherapy treatment performed in its
facility, approximately $2,000 in calendar year 2004, although the rate varies depending on a wage index and other factors for each hospital. The urologist performing the Cooled ThermoTherapy treatment receives reimbursement of approximately $500
per procedure.



---

In January 2001, CMS began to reimburse for Cooled ThermoTherapy treatments performed in the
urologists office. The reimbursement rate (inclusive of the physicians fee) in calendar year 2004 for Cooled ThermoTherapy procedures performed in the urologists office is approximately $4,000, which is subject to geographic
adjustment, and which is of particular significance to us, as a significant portion of our Cooled ThermoTherapy treatments are currently performed in this environment. Reimbursement rates for calendar year 2005 will be published in the November 2004
edition of the Federal Register.



In July 2003, CMS added the
CPT Code covering Cooled ThermoTherapy to the ASC list of Medicare approved procedures providing a reimbursement rate for ambulatory surgical centers (ASC). Procedures in an ASC are reimbursed under a two part system similar to hospital
reimbursement. The ASC receives a fixed reimbursement for each Cooled ThermoTherapy procedure performed. Cooled ThermoTherapy is in ASC payment group 9 which reimburses approximately $1,300, the highest amount allowed under this system. The
urologist performing the procedure is reimbursed the same amount as if the treatment occurred in a hospital, approximately $500. This low facility reimbursement rate relative to the cost of the procedure potentially limits the number of Cooled
ThermoTherapy treatments done in an ASC.



Private insurance
companies and HMOs make their own determinations regarding coverage and reimbursement based upon usual and customary fees. To date, we have received coverage and reimbursement in various geographies 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 or reimbursement determinations for Cooled
ThermoTherapy from these payers or that amounts reimbursed to physicians for performing Cooled ThermoTherapy procedures will be sufficient to encourage physicians to use Cooled ThermoTherapy. Internationally, reimbursement approvals for the Cooled
ThermoTherapy procedure are awarded on an individual-country basis.



Our goal is to grow Cooled ThermoTherapy as a standard of care for the treatment of BPH. The key aspects of our business strategy to achieve this goal are to: (i) increase the use of Cooled ThermoTherapy by physicians who already have
access to a Cooled ThermoTherapy system, (ii) satisfy additional demand for Cooled ThermoTherapy systems through the efficient use of our installed base of Cooled ThermoTherapy system control units, and (iii) increase market awareness of Cooled
ThermoTherapy.



Our revenues are primarily generated through
the sale of our disposable treatment catheters, and to a lesser extent, sales of our Cooled ThermoTherapy system control units. We believe that continued growth in revenue from the sale of our disposable treatment catheters will be key to
maintaining profitability and positive cash flow.



We will
continue to invest and focus our resources on growing our revenues, developing new products that expand our product platform, and continuing clinical trials in support of regulatory and reimbursement approvals. Our ability to maintain profitability
in the future will be dependent upon, among other factors, our success in achieving increased treatment volume and market acceptance of the Cooled ThermoTherapy procedures in the physicians office, our success in obtaining and maintaining
necessary regulatory clearances, our ability to manufacture at the volumes and quantities the market requires, the extent to which Medicare and other health care payers continue to reimburse costs of Cooled ThermoTherapy procedures performed in
hospitals, ambulatory surgery centers and physicians offices and the amount of reimbursement provided.



We anticipate fiscal 2005 annual revenues in the range of $25 million to $28 million, up from $24.3 million in fiscal year 2004. Diluted net earnings per
share are expected to be $0.14 to $0.22 per share compared to $0.04 per share last fiscal year. The fiscal 2005 guidance includes an increased investment in research and development over fiscal 2004 levels and assumes an income tax rate of 5 percent
for fiscal 2005.



---

Restatement of Financial Statements



During the fiscal 2005 year end close process, the Company determined that, historically, the deferred income tax liability
for the basis difference in goodwill and trademarks created since the adoption of SFAS 142 was incorrectly offset against deferred income tax assets. The deferred tax liability relating to this basis difference was assumed to reverse against the
deferred tax asset relating to the net operating loss carryforwards, and thus the Company did not provide sufficient valuation allowance against deferred tax assets that were not more likely than not to be realized. Since the deferred tax liability
relating to the goodwill and trademark basis difference relates to indefinite lived assets and the net operating loss carryforwards have a definite life of 20 years or less, it was not correct to net these deferred tax assets and liabilities.
Therefore, the Company has recorded additional deferred tax expense of approximately $68,000 and $72,000, respectively for the first quarter of fiscal 2005 and 2004 to increase its deferred tax asset valuation allowance.



The Company has restated its balance sheets as of September 30, 2004 and June
30, 2004, and its statements of operations for the fiscal quarters ended September 30, 2004 and 2003 for the impact of this deferred tax liability as follows:



|                                   |  |                                       |         |   |                                       |   |         |                        |  |   |             |   |  |   |         |  
|---------------------------------- |  | ------------------------------------- | ------- | - | ------------------------------------- | - | ------- | ---------------------- |  | - | ----------- | - |  | - | ------- | -
|                                   |  | September 30, 2004                    |         |   | June 30, 2004                         |  
|                                   |  | As previously reported                |         |   | As restated                           |   |         | As previously reported |  |   | As restated |  
|BALANCE SHEET DATA:                |  |                                       |         |   |                                       |   |         |                        |  |   |             |   |  |   |         |  
|Non-current deferred tax liability |  | $                                     |        |   |                                       | $ | 926     |                        |  | $ |            |   |  | $ | 858     |  
|Total liabilities                  |  |                                       | 4,641   |   |                                       |   | 5,567   |                        |  |   | 5,454       |   |  |   | 6,312   |  
|Accumulated deficit                |  |                                       | (78,298 | ) |                                       |   | (79,224 | )                      |  |   | (79,086     | ) |  |   | (79,944 | )
|Total shareholders equity         |  |                                       | 31,871  |   |                                       |   | 30,945  |                        |  |   | 30,718      |   |  |   | 29,860  |  
|                                   |  |                                      
|                                   |  | Three Months Ended September 30, 2004 |         |   | Three Months Ended September 30, 2003 |  
|                                   |  | As previously reported                |         |   | As restated                           |   |         | As previously reported |  |   | As restated |  
|STATEMENT OF OPERATIONS DATA:      |  |                                       |         |   |                                       |   |         |                        |  |   |             |   |  |   |         |  
|Income tax expense                 |  | $                                     | 41      |   |                                       | $ | 109     |                        |  | $ |            |   |  | $ | 72      |  
|Net income (loss)                  |  |                                       | 788     |   |                                       |   | 720     |                        |  |   | (490        | ) |  |   | (562    | )
|Net income (loss) per common share |  |                                       |         |   |                                       |   |         |                        |  |   |             |   |  |   |         |  
|Basic                              |  | $                                     | 0.06    |   |                                       | $ | 0.05    |                        |  | $ | (0.04       | ) |  | $ | (0.04   | )
|Diluted                            |  | $                                     | 0.05    |   |                                       | $ | 0.05    |                        |  | $ | (0.04       | ) |  | $ | (0.04   | )



There was no impact in
any period on net cash provided by operating, financing, or investing activities on the statements of cash flows.



Critical Accounting Policies:



In accordance with Securities and Exchange Commission guidance, we set forth below those material accounting policies that we believe are the most
critical to an investors understanding of our financial statements, financial results and condition, and require complex management judgment.



Revenue Recognition



We recognize revenue from the sale of Cooled ThermoTherapy system control units upon delivery to the customer. We recognize revenue from treatment
catheter sales at the time of shipment. 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.
We retain title to these control units and do not recognize any revenue on these control units until title has transferred. These programs are designed to expand access to our technology, and thus expand the market for our single-use treatment
catheters. Under these programs, we generally charge a higher price for each single-use treatment catheter to include the use of our Cooled ThermoTherapy system control unit by the customer. We recognize revenue on these single-use treatment
catheters at the time of shipment. Revenue for warranty service contracts is deferred and recognized over the contract period. We record a provision for estimated sales returns on product sales in the same period as the related revenue is recorded.
The provision for estimated sales returns is based on historical sales returns, analysis of credit memo data and other known factors. If the historical data used to calculate these estimates does not properly reflect future returns, our revenues
could be overstated.



Allowance for Doubtful Accounts



We maintain allowances for doubtful accounts for estimated losses
resulting from the inability of our customers to make required payments. This allowance is a significant estimate and is regularly evaluated by us for adequacy by taking into consideration factors such as past experience, credit quality of the
customer base, age of the receivable balances, both individually and in the aggregate, and current economic conditions that may affect a customers ability to pay. If the financial condition of our customers were to deteriorate, resulting in an
impairment of their ability to make payments, additional allowances may be required.



Product Warranty



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. Should actual product failure rates, material usage or repair costs differ from our estimates, revisions to the estimated warranty liability would be required.



Inventories and Related Allowance for Excess and Obsolete Inventory



We value our inventories, consisting primarily of control units,
single-use treatment catheters, and raw materials to produce the control units and treatment catheters, at the lower of cost or market value on the first-in, first-out (FIFO) basis. The inventory cost includes both merchandise and
freight. A periodic review of the inventory on hand is performed to determine if the inventory is properly stated at the lower of cost or market. In performing this analysis we consider, at a minimum, the following factors: average selling prices,
reimbursement changes, and changes in demand for our products due to competitive conditions or market acceptance. Each type of inventory is analyzed to determine net realizable values. A provision is recorded to reduce the cost of inventories to the
estimated net realizable values, if required.



We also analyze
the level of inventory on hand on a periodic basis, in relation to estimated customer requirements to determine whether write-downs for excess, obsolete, or slow-moving inventory are required. Any significant or unanticipated change in the factors
noted above could have a significant impact on the value of our inventories and on our reported operating results.



---

Valuation of Long-Lived and Intangible Assets and Goodwill



In accordance with Statement of Financial Accounting Standards (SFAS) 142,
Goodwill and Other Intangible Assets, we have ceased to amortize approximately $10.2 million of goodwill and $1.1 million of trademarks. Goodwill and trademarks are tested for impairment annually or more frequently if changes in
circumstance or the occurrence of events suggests an impairment exists. The test for impairment requires us to make several estimates about fair value, most of which are based on projected future cash flows. Our estimates associated with the
impairment tests are considered critical, due to the amount of goodwill and trademarks recorded on our balance sheet and the judgment required in determining fair value amounts, including projected future cash flows.



Other intangible assets consist of developed technologies, customer base and
trademarks. Developed technologies and customer base are amortized using the straight-line method over their estimated useful lives of 15 and 14 years, respectively. The trademark asset is considered to be an intangible asset with an indefinite
useful life, and it will not be amortized until its useful life is determined to be no longer indefinite. We review the definite lived intangible assets for impairment as changes in circumstance or the occurrence of events suggests the remaining
value is not recoverable.



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 bases of assets and liabilities. We regularly assess the likelihood that our deferred tax assets will be
recovered from future taxable income. We have recorded and continue to carry a full valuation allowance against our gross deferred tax assets that will not reverse against deferred tax liabilities within the scheduled reversal period. We consider
projected future taxable income and ongoing tax planning strategies in assessing the amount of the valuation allowance. If we determine it is more likely than not that we will not realize all or part of our deferred tax assets, we will adjust our
earnings for the deferred tax in the period we make the determination. With our last three quarters of profit and in light of our historical losses, we continue to assess the need for a full valuation allowance against our gross deferred tax assets
that will not reverse against deferred tax liabilities within the scheduled reversal period. The valuation allowance at June 30, 2004 was $32.5 million. We expect to provide a full valuation allowance on our future tax benefits until we can sustain
a level of profitability that demonstrates our ability to realize these assets.



---

RESULTS OF OPERATIONS



Net Sales



Net sales increased to $6.1 million for the three month period ended September 30, 2004 from $5.1 million during the same period of the prior fiscal year.
The sales growth in the three month period ended September 30, 2004 was primarily attributable to increased sales of our single-use treatment catheters in the United States at higher average per unit selling prices, partially offset by lower revenue
from sales of Cooled ThermoTherapy system control units. The increase in the average per unit selling prices of our single-use treatment catheters resulted from our price standardization initiative that was implemented effective January 1, 2004, as
well as a stronger mix of sales to our direct office accounts. Sales of our disposable treatment catheters accounted for over 95% of our revenue in the first quarter of fiscal 2005, compared to 93% of revenue in the prior year. At September 30,
2004, we had a domestic installed base of 437 Cooled ThermoTherapy systems, including the units that are being used by customers pursuant to our evaluation and long-term use programs, compared to an installed base of 427 units at June 30, 2004.



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, and amortization expense relating to developed technologies. Effective July 1, 2004, we began including this amortization
expense within cost of goods sold. This expense was previously reported within amortization of intangibles and consistent with this change, we have re-classified this expense to cost of goods sold for the periods prior to this change. For the three
month period ended September 30, 2003, the re-classification adjustment was $125,000.



Cost of goods sold for the three month period ended September 30, 2004 decreased to $1.8 million from $2.1 million during the three month period ended September 30, 2003. The decrease in cost of goods sold resulted
from lower per unit manufacturing costs of both our single-use treatment catheters and control units as well as the $160,000 charge that occurred in the first quarter of fiscal 2004 for a commitment to purchase additional control unit inventory at
prices which exceeded the expected future sales value.



Gross
profit as a percentage of sales for the three month period ended September 30, 2004 increased to 70% from 58% in the three month period ended September 30, 2003. The increase in gross profit rates resulted primarily from increased average per unit
selling prices of our single-use treatment catheters combined with reductions in the per unit manufacturing costs of both our single-use treatment catheters and Cooled ThermoTherapy system control units.



Selling, General & Administrative



Selling, general and administrative expenses decreased to $2.7 million for
the three month period ended September 30, 2004 from $2.8 million in the same period of fiscal year 2004. The decrease in expenses resulted primarily from a reduction in legal expenses related to the patent infringement suit we filed to protect our
intellectual property which was settled in January 2004.



---

Research and Development



Research and development expenses, which include expenditures for product development, regulatory compliance and clinical
studies, increased to $642,000 from $584,000 for three month periods ended September 30, 2004 and 2003, respectively. The increase in expenses resulted primarily from increased expenditures on product development activities partially offset by lower
clinical trial expenses.



Amortization of Intangible Assets



As noted above, effective July 1, 2004, we began
including amortization expense relating to developed technologies within cost of goods sold. This expense was previously reported within amortization of intangible assets. Consistent with this change, we have re-classified this expense from
amortization of intangible assets to cost of goods sold for the periods prior to this change. For the three month period ended September 30, 2003, the re-classification adjustment was $125,000.



Amortization of intangible assets was $41,000 for both of the three month
periods ended September 30, 2004 and 2003. This amortization expense is related to the acquired customer base that resulted from the purchase of the Prostatron Cooled ThermoTherapy product line from EDAP in October 2000.



Net Interest Income



Net interest income for the three month period ended September 30, 2004
increased to $26,000 from $6,000 in the same period of the prior fiscal year due primarily to higher cash and investment balances as well as a reduction in interest expense associated with the lease obligation assumed as part of the Prostatron
acquisition in October 2000. The lease obligation was completed during the third fiscal quarter of 2004.



Provision for Income Taxes



Income tax expense increased to $109,000 for the three month period ended September 30, 2004 from $72,000 in the prior year period. The increase in income tax expense is primarily due to federal alternative minimum
taxes and state taxes.



LIQUIDITY AND CAPITAL RESOURCES



We have financed our operations since inception through sales of equity
securities and, to a lesser extent, sales of our Cooled ThermoTherapy system control units and single-use treatment catheters. As of September 30, 2004, we had total cash, cash equivalents and available-for-sale investments of $8.1 million compared
to $7.6 million as of June 30, 2004. Working capital increased to $8.9 million at September 30, 2004 from $7.4 million at June 30, 2004.



During the three months ended September 30, 2004, we generated $186,000 of cash from operating activities. Our net earnings of $720,000 combined with
depreciation and amortization of $479,000 were partially offset by a decrease in accrued expenses and deferred income of $1.0 million. The significant decrease in accrued expenses and deferred income resulted primarily from the payment of employee
bonuses and fiscal 2004 year-end sales commissions during the first quarter of fiscal 2005. These expenses were accrued in fiscal 2004. Increases in accounts receivable and inventory of $196,000 and $180,000, respectively, were nearly offset by an
increase in accounts payables of $200,000 and a decrease in prepaids and other assets of $108,000.



During the first three months of fiscal 2005, we generated $1.1 million from investing activities, resulting from the net sale of $1.1 million of
available-for-sale investments partially offset by the purchase of $11,000 of property and equipment.



During the three months ended September 30, 2004, we generated $372,000 in financing activities as a result of proceeds from the exercise of stock
options.



On December 30, 2003, a final payment of $705,000,
including interest, was due to EDAP under a promissory note dated October 1, 2000 in the original principal amount of $575,000 issued to EDAP by us pursuant to an Asset Purchase Agreement dated the same date (the Note). Pursuant to the
terms of the Note, on December 30, 2003, we paid EDAP $130,000 of accrued interest and $410,000 of principal and have deferred payment of $165,000 for offset against future anticipated product claims against EDAP.



---

We plan to continue offering customers a variety of programs for both evaluation and long-term use of our
Cooled ThermoTherapy system control units in addition to purchase options. As of September 30, 2004, our property and equipment, net, included approximately $1.9 million of control units used in evaluation or long-term use programs. Depending on the
growth of these programs, we may use additional capital to finance the units used by these customers.



Based upon our financial performance in fiscal 2004 and the first three months of fiscal 2005, we believe our $8.1 million in cash, cash equivalents, and
available-for-sale investments at September 30, 2004, together with the funds generated from operations, 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.



---

FACTORS THAT MAY AFFECT OUR FUTURE RESULTS AND THE TRADING PRICE OF OUR COMMON STOCK



The risks and uncertainties described below are not the only ones we
face. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also affect our operations. The occurrence of any of the following risks could harm our business. In that case, the trading price of our
common stock could decline, and investors may lose all or part of their investment.



We are faced with intense competition and rapid technological and industry change.



The medical device industry is characterized by rapid technological change, changing customer needs and frequent new product introductions. Our products may be rendered
obsolete as a result of future innovations. We face intense competition from other device manufacturers and surgical manufacturers, as well as from pharmaceutical companies. Nearly all of our competitors are significantly larger than we are and have
greater financial, technical, research, marketing, sales, distribution and other resources than we do. We believe that price competition will continue among products developed in our markets. Our competitors may develop or market technologies and
products, including drug-based treatments that are more effective or commercially attractive than any we are developing or marketing. Our competitors may succeed in obtaining regulatory approval and introducing or commercializing products before we
do. Such developments could have a significant negative effect on our financial condition and operating results. Even if we are able to compete successfully, we may not be able to do so in a profitable manner.



We have only attained profitability recently.



Although we produced net earnings of $720,000 for the three months ended
September 30, 2004 and $356,000 for the year ended June 30, 2004, we have incurred losses of over $79 million since our inception. If physicians do not continue to purchase and use our Cooled ThermoTherapy systems to treat patients with BPH, we may
not be able to maintain profitability. Because we will continue to incur additional expenses relating to sales and marketing activities and research and development activities, we will need to increase the revenues we receive from sales of our
products in order to continue to operate in a profitable manner. We cannot assure you that we will be able to increase our revenues, maintain profitable operations, or successfully implement our business plan or future business opportunities.



We have limited cash resources and may not have additional financing
available to us.



We generated approximately $186,000
of cash and cash equivalents from operating activities in the three month period ended September 30, 2004 and ended that period with approximately $8.1 million of cash, cash equivalents, and available-for-sale investments. We believe our $8.1
million in cash, cash equivalents, and available-for-sale investments, together with the funds generated from product sales, will be sufficient to fund our working capital and capital resources needs for the next 12 months. Our business plan and
financing needs are subject to change depending on, among other things, success of our efforts to 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.



---

Our products may not achieve market acceptance, which could limit our future revenue.



Physicians will not recommend Cooled ThermoTherapy procedures unless they
conclude, based on clinical data and other factors, that it is an effective alternative to other methods of enlarged prostate treatment, including more established methods. Patient acceptance of the procedure will depend in part upon physician
recommendations and on other factors, including the degree of invasiveness and the rate and severity of complications associated with the Cooled ThermoTherapy procedure compared with other therapies. Patient acceptance of the Cooled ThermoTherapy
procedure also will depend upon the ability of physicians to educate these patients on their treatment choices. Health care payer acceptance of our procedure will require, among other things, evidence of the cost effectiveness of Cooled
ThermoTherapy compared to other BPH therapies. Our marketing strategy must overcome the difficulties inherent in the introduction of new technology to the medical community. If our Cooled ThermoTherapy procedure is not widely accepted by physicians,
patients or payers, or is accepted more slowly than expected, our business will be harmed.



Third- party reimbursement is critical to market acceptance of our products.



Our future revenues are subject to uncertainties regarding health care reimbursement and reform. In the United States, health care providers, such as
hospitals and physicians, generally rely on third-party payers. Third-party reimbursement is dependent upon decisions by the CMS, contract Medicare carriers, individual managed care organizations, private insurers, foreign governmental health
programs and other payers of health care cost. Failure to receive or maintain favorable coding, coverage and reimbursement determinations for Cooled ThermoTherapy by these organizations could discourage physicians from using our products. We may be
unable to sell our products on a profitable basis if third-party payers deny coverage, provide low reimbursement rates or reduce their current levels of reimbursement.



The continuing efforts of government, insurance companies, health maintenance organizations and other payers of health care
costs to contain or reduce costs of health care may affect our future revenues and profitability. With recent federal and state government initiatives directed at lowering the total cost of health care, the United States Congress and state
legislatures will likely continue to focus on health care reform including the reform of Medicare and Medicaid systems, and on the cost of medical products and services. Additionally, third-party payers are increasingly challenging the prices
charged for medical products and services. Also, the trend toward managed health care in the United States and the concurrent growth of organizations such as HMOs that could control or significantly influence the purchase of health care
services and products, as well as legislative proposals to reform health care or reduce government insurance programs, may also result in lower prices for, or rejection of, our products. The cost containment measures that health care payers and
providers are instituting and the effect of any health care reform could cause reductions in the amount of reimbursement available, and could have a material adverse effect on our revenues and ability to operate profitably.



We are dependent on adequate protection of our patent and proprietary rights.



We rely on patents, trade secrets, trademarks,
copyrights, know-how, license agreements and contractual provisions to establish and protect our intellectual property rights. However, these legal means afford us only limited protection and may not adequately protect our rights or remedies to gain
or keep any advantages we may have over our competitors.



In
March 2002, we filed a patent infringement action against ProstaLund AB, ProstaLund Operations AB, and Circon Corporation a/k/a ACMI Corporation in the United States District Court for the Eastern District of Wisconsin. This litigation has been
settled and we have granted ProstaLund and ACMI Corporation a non-exclusive, royalty free license under certain of our patents to sell the ProstaLund transurethral microwave thermotherapy system marketed in the United States by ACMI Corporation as
the CoreTherm device.



Additional litigation against other
parties may be necessary in the future to enforce our intellectual property rights, to protect our patents and trade secrets, and to determine the validity and scope of our proprietary rights. Future litigation may require us to incur substantial
litigation expense and may divert substantial time and attention of our personnel. The occurrence of this litigation or the effect of an adverse determination in similar future litigation could have a material adverse effect on our business,
financial condition and results of operations.



---

Furthermore, we cannot ensure that others have not developed or will not develop similar products or
manufacturing processes, duplicate any of our products or manufacturing processes, or design around any of our patents.



We depend upon our Cooled ThermoTherapy products for all of our revenues.



All of our revenues are derived from sales of our Cooled ThermoTherapy system control units and single-use treatment
catheters. As a result, our success is solely dependent upon the success of our Cooled ThermoTherapy products. To date, our Cooled ThermoTherapy systems have not achieved widespread market adoption. If we are unable to widely commercialize the use
of these systems successfully, our business, financial condition and results of operations will be materially and adversely affected. Further, higher than expected manufacturing, marketing and distribution costs, lower than expected reimbursement
levels, lower than expected usage by physicians, and/or other competitive forces may require us to alter our pricing or marketing structure in a manner that could have a material and adverse effect on us.



We have limited manufacturing experience and are dependent upon a limited number of
third-party suppliers to manufacture our products.



We
have previously contracted with third parties for the production of the Prostatron product line pursuant to written supply agreements. Our supply agreement for the production of the Prostatron control unit with EDAP ended on October 1, 2003. At this
time, we do not have plans to enter into another supply agreement for the manufacture of Prostatron control units, as we believe our current inventory of Prostatron control units combined with company owned control units located at customer sites
will adequately support future customer requirements. If, for any reason, customer demand exceeds our current projections, we could experience significant delays and expend significant resources in obtaining a new supply agreement with EDAP or
another manufacturer. We also have a supply agreement with UTI Corporation (formerly Venusa) for the production of the Prostatron single-use treatment catheter that extends though April 2006 with an automatic renewal term.



If for any reason, any of our third-party manufacturers are unable or
unwilling to manufacture the products for us in the future, we could incur significant delays in obtaining a substitute contract manufacturer. Also, we purchase additional components used in our products from various suppliers and rely on single
sources for several components. One such component is obtained from a source that has a patent for the technology. Delays in sale and delivery of our products could be caused if supply of this component or other components were interrupted. Further,
if FDA approval of a PMA supplement is required for any substitute contract manufacturer or component, delays would be extended. The termination or interruption of any of these relationships, or the failure of these manufacturers or suppliers to
supply products or components to us on a timely basis or in sufficient quantities, likely would cause us to be unable to meet customer orders for our products and harm our business.



We produce the single-use treatment catheters for the Targis system and in January 2004 we began manufacturing the Targis
system control unit. We have limited experience in rapidly scaling up production. Manufacturers often encounter difficulties in scaling up production of new products, including problems involving production yields, product recalls, quality control
and assurance, component supply and lack of qualified personnel. We cannot assure you that we will be able to manufacture a reliable product and deliver that product to customers in a timely fashion.



If we or any of our third-party manufacturers or suppliers experience
production problems, we may not be able to locate an alternate manufacturer promptly. Identifying and qualifying alternative suppliers of components takes time and involves significant additional costs and may delay the production of our products.
The FDA requires us to identify any supplier we use. The FDA may require additional testing of any component from new suppliers prior to our use of these components. The termination of our relationships with these single source suppliers or the
failure of these parties to supply us with the components on a timely basis and in sufficient quantities likely would cause us to be unable to meet customer orders for our products in a timely manner or within our budget and harm our business.



We are dependent on key personnel.



Failure to attract and retain skilled personnel could hinder our research
and development as well as our sales and marketing efforts. Our future success depends to a significant degree upon the continued services of key technical and senior management personnel, including Fred B. Parks, our Chairman of the Board and Chief
Executive Officer. We have an employment agreement with Mr. Parks that provides that Mr. Parks will serve as our Chairman and Chief Executive



---

Officer and that either party may terminate Mr. Parks employment at any time with or without cause. If we terminate
Mr. Parks employment without cause, however, we would be required to make specified payments to him as described in his employment agreement. We do not have key person life insurance on Mr. Parks. Our future success also depends on our
continuing ability to attract, retain and motivate highly qualified managerial, technical and sales personnel. Our inability to retain or attract qualified personnel could have a significant negative effect and thereby materially harm our business
and financial condition.



Government regulation can have a significant
impact on our business.



Government regulation in the
United States and other countries is a significant factor affecting the research and development, manufacture and marketing of our products. In the United States, the FDA has broad authority under the federal Food, Drug and Cosmetic Act and the
Public Health Service Act to regulate the distribution, manufacture and sale of medical devices. Sales of medical devices outside the United States are subject to government regulation and restrictions that vary from country to country. The process
of obtaining FDA and other required regulatory approvals is lengthy and expensive.



We may not be able to obtain necessary approvals for clinical testing or for the manufacturing or marketing of our products in the United States or in other countries. Failure to comply with applicable regulatory
approvals can, among other things, result in fines, and suspension of regulatory approvals, product recalls, operating restrictions and criminal prosecution. In addition, government regulations may be established that could prevent, delay, modify or
rescind regulatory approval of our products. Any such position or change of position by the FDA may adversely impact our business and financial condition. Regulatory approvals, if granted, may include significant limitations on the indicated uses
for which our products may be marketed in the United States or in other countries. In addition to obtaining such approvals, the FDA and foreign regulatory authorities may impose numerous other requirements on us. The FDA prohibits the marketing of
approved medical devices for unapproved uses. In addition, product approvals can be withdrawn for failure to comply with regulatory standards or the occurrence of unforeseen problems following initial marketing. We may not be able to obtain
regulatory approvals for our products on a timely basis, or at all, and delays in receipt of or failure to receive such approvals, the loss of previously obtained approvals, or failure to comply with existing or future regulatory requirements would
have a significant negative effect on our financial condition. In addition, the health care industry in the United States is generally subject to fundamental change due to regulatory, as well as political, influences. We anticipate that Congress and
state legislatures will continue to review and assess alternative health care delivery and payment systems. Potential approaches that have been considered include controls on health care spending through limitations on the growth of private
purchasing groups and price controls. We cannot predict what impact the adoption of any federal or state health care reform measures may have on our business.



We, along with our distributors and health care providers who purchase our products and services, are subject to state and federal laws prohibiting
kickbacks or other forms of bribery in the health care industry. We may be subject to civil and criminal prosecution for violations of any of these laws by our agents or us.



We may be required to pay damages that exceed our insurance coverage for product liability claims.



Our business exposes us to potential product liability claims that are
inherent in the testing, production, marketing and sale of medical devices. While we believe that we are reasonably insured against these risks, we may not be able to obtain insurance in amounts or scope sufficient to provide us with adequate
coverage against all potential liabilities. Currently, we maintain product liability insurance in amounts we deem to be reasonable. A product liability claim in excess of our insurance coverage would have to be paid out of cash reserves and may harm
our reputation in the industry and our business.



---

Our products may be subject to product recalls even after receiving FDA clearance or approval, which would harm our
reputation and our business.



The FDA and similar
governmental authorities in other countries in which our products are sold, have the authority to request and, in some cases, require the recall of our products in the event of material deficiencies or defects in design or manufacture. A
government-mandated or voluntary recall by us could occur as a result of component failures, manufacturing errors or design defects. Any recall of product would divert managerial and financial resources and harm our reputation with our customers and
our business.



In December 2003, we determined that a component
of one of our Cooled ThermoTherapy system control units may not perform properly under certain conditions. We advised our customers who are using the affected units of an appropriate product protocol to follow pending our implementation of a
software solution that will resolve the performance issue. We submitted the software update addressing the problem to the FDA and have received its approval. We are currently in the process of installing the updated software on all affected units in
the field. We expect to complete these installations in the second quarter of fiscal 2005. We believe we have adequately reserved for these expenses at September 30, 2004.



Fluctuations in our future operating results may negatively affect the market price of our common stock.



Our operating results have fluctuated in the past and can be expected to
fluctuate from time to time in the future. Some of the factors that may cause these fluctuations include but are not limited to:



| |  | the timing, volume and pricing of customer orders for both control units and single-use treatment catheters,
|- |  | ------------------------------------------------------------------------------------------------------------



| |  | the impact to the marketplace of competitive products and pricing,
|- |  | ------------------------------------------------------------------



| |  | costs and expenses related to our effort to protect our intellectual property,
|- |  | ------------------------------------------------------------------------------



| |  | the timing of expenditures related to sales and marketing, and research and development, and
|- |  | --------------------------------------------------------------------------------------------



| |  | product availability.
|- |  | ---------------------



If our operating results are below the expectations of securities analysts or investors, the market price of our common stock may fall abruptly and significantly.



Our stock price may be volatile and a shareholders investment could decline in
value.



Our stock price has fluctuated in the past and
may continue to fluctuate significantly, making it difficult for an investor to resell shares or to resell shares at an attractive price. The market prices for securities of emerging companies have historically been highly volatile. Future events
concerning us or our competitors could cause such volatility, including:



| |  | actual or anticipated variations in our operating results,
|- |  | ----------------------------------------------------------



| |  | developments regarding government and third-party reimbursement,
|- |  | ----------------------------------------------------------------



| |  | changes in government regulation,
|- |  | ---------------------------------



| |  | government investigation of us or our products,
|- |  | -----------------------------------------------



| |  | changes in reimbursement rates or methods affecting our products,
|- |  | -----------------------------------------------------------------



| |  | developments concerning proprietary rights,
|- |  | -------------------------------------------



| |  | litigation or public concern as to the safety of our products or our competitors products,
|- |  | -------------------------------------------------------------------------------------------



| |  | technological innovations or new commercial products introduced by us or our competitors,
|- |  | -----------------------------------------------------------------------------------------



| |  | investor perception of us and our industry,
|- |  | -------------------------------------------



| |  | general economic and market conditions including market uncertainty,
|- |  | --------------------------------------------------------------------



| |  | national or global political events,
|- |  | ------------------------------------



| |  | public confidence in the securities markets and regulation by or of the securities markets, and
|- |  | -----------------------------------------------------------------------------------------------



| |  | changes in senior management.
|- |  | -----------------------------



---

In addition, the stock market is subject to price and volume fluctuations that affect the market prices
for companies in general, and small-capitalization, high-technology companies in particular, which are often unrelated to the operating performance of these companies. Any failure by us to meet or exceed estimates of financial analysts is likely to
cause a decline in our common stock price.



Future sales of shares of our
common stock may negatively affect our stock price.



Future sales of our common stock could have a significant negative effect on the market price of our common stock. In addition, upon exercise of outstanding options and warrants, the number of shares outstanding of our common stock could
increase substantially. This increase, in turn, could dilute future earnings per share, if any, and could depress the market value of our common stock. Dilution and potential dilution, the availability of a large amount of shares for sale, and the
possibility of additional issuances and sales of our common stock may negatively affect both the trading price of our common stock and the liquidity of our common stock. These sales also might make it more difficult for us to sell equity securities
or equity-related securities in the future at a time and price that we would deem appropriate.



Anti-takeover provisions in our articles of incorporation may have a possible negative effect on our stock price.



Certain provisions of our certificate of incorporation and bylaws may make it more difficult for a third party to acquire, or discourage a third party
from attempting to acquire, control of us. We have in place several anti-takeover measures that could discourage or prevent a takeover, even if an acquisition would be beneficial to our shareholders. Our stock option plans contain provisions that
allow for the acceleration of vesting or payments of awards granted under the plans in the event of specified events that result in a change in control. In addition, we have adopted a shareholder rights plan that would cause substantial
dilution to any person or group attempting to acquire our company on terms not approved in advance by our board of directors.



---

ITEM 3. QUALITATIVE AND QUANTITATIVE DISCLOSURE ABOUT MARKET RISK



Our financial instruments include cash, cash equivalents, and
available-for-sale investments. Our financial investment portfolio at September 30, 2004 is carried at market value. Increases and decreases in prevailing interest rates generally translate into decreases and increases in the fair value of these
instruments. Also, fair values of interest rate sensitive instruments may be affected by the credit worthiness of the issuer, prepayment options, relative values of alternative instruments, the liquidity of the instrument and other general market
conditions.



Market risk was estimated as the potential
decrease in fair value resulting from a hypothetical 1% change in interest rates for the issues contained in the available-for-sale investment portfolio and was not materially different from the carrying value at September 30, 2004. Due to the
nature of our short-term investments, 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, Todd E. Paulson, have evaluated the Companys disclosure controls and procedures as of the end of the period covered by this report and due to the identification of a material weakness in internal control over financial
reporting related to the Companys accounting for income taxes, as described below, concluded that the Companys disclosure controls and procedures were not effective, at the reasonable assurance level, in ensuring that information
required to be disclosed by the Company in reports filed with the Securities and Exchange Commission is recorded, processed, summarized and reported on a timely basis. Due to this material weakness in internal control over financial reporting, the
Company performed other procedures related to the calculation of deferred income taxes in preparing its restated financial statements as of and for the quarter ended September 30, 2004 to ensure that such financial statements were presented fairly,
in all material respects, in accordance with U.S. generally accepted accounting principles.



In connection with managements evaluation of the effectiveness of the Companys internal control over financial reporting for its fiscal year ended June 30, 2005, management identified a material weakness
in internal control over financial reporting related to the Companys accounting for income taxes that led management to conclude that as of September 30, 2004, there was more than a remote likelihood that a material misstatement of the
Companys annual or interim financial statements would not be prevented or detected on a timely basis by Company employees in the normal course of performing their assigned functions. This material weakness occurred as of September 30, 2004
because the Companys management did not have adequate technical expertise with respect to income tax accounting to effectively oversee and review the Companys accounting over this area. This lack of adequate technical expertise resulted
in a material error in the Companys accounting for income taxes, which was identified during the course of the Companys 2005 audit. This error related to the Company not providing a sufficient valuation allowance against deferred tax
assets that are not more likely than not to be realized. The Company had incorrectly netted deferred tax liabilities related to intangibles with indefinite lives against deferred tax assets related to net operating loss carryforwards with finite
lives in determining the amount of allowance necessary. As a result, the Company has restated its financial statements for all periods presented in this report and its previously issued annual financial statements as of June 30, 2004 and 2003, and
for each of the years in the three-year period ended June 30, 2004 and for all the quarters for the year ended June 30, 2004.



(b) Changes in Internal Controls over Financial Reporting



There was no change in the Companys internal control over financial reporting during the quarter ended September 30, 2004 that has
materially affected, or is reasonably likely to materially affect, the Companys internal control over financial reporting.



Regarding the material weakness described above, the Company is taking steps to ensure that the material weakness is remediated by implementing enhanced control
procedures over accounting for income taxes which include education and training of Company management and staff to improve technical expertise with respect to income tax accounting. The Company is also evaluating whether to engage additional
independent tax consulting resources to assist with the Companys evaluation of complex issues concerning tax accounting and tax reserves and to assist management in developing its judgments with respect to such issues. The Company expects to
have the remediation completed no later than December 31, 2005.



The
Companys management, including the Chief Executive Officer and Chief Financial Officer, does not expect that its disclosure controls and procedures and its internal controls over financial reporting will prevent all errors and all fraud. A
control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met.



Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of
any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.



---

PART II - OTHER INFORMATION



ITEM 1. LEGAL PROCEEDINGS



Our business exposes us to product liability claims that are inherent in the testing, production, marketing and sale of medical devices. Management
believes any losses that may occur from these matters are adequately covered by insurance, and the ultimate outcome of these matters will not have a material effect on the financial position, liquidity or results of operations of the Company.



---

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K



| | (a) | 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.                                                          



| | (b) | Report on Form 8-K
| | --- | ------------------



During the quarter covered by this report, the Company filed a Form 8-K dated September 29, 2004 reporting under Items 8.01 and 9.01 a press release
announcing revised guidance for the Companys first quarter of fiscal year 2005.



During the quarter covered by this report, the Company also furnished a Form 8-K dated August 9, 2004 furnishing under Items 7 and 12 certain information regarding the Companys results of operations for the
quarter and fiscal year ended June 30, 2004.



---

SIGNATURES



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



Date September 28, 2005



|                                          
|------------------------------------------
|Urologix, Inc.                            
|(Registrant)                              
|                                          
|/s/ Fred B. Parks.                        
|Fred B. Parks                             
|Chairman and Chief Executive Officer      
|(Principal Executive Officer)             
|                                          
|/s/ Todd E. Paulson                       
|Todd E. Paulson                           
|Vice President and Chief Financial Officer
|(Principal Financial Officer)