|
Sales and Marketing
|
Sales
and marketing expense of $729,000 for the second quarter of fiscal year 2015
decreased by $952,000, or 57 percent, when compared to sales and marketing
expense of $1.7 million in the same period of fiscal year 2014. The decrease
in sales and marketing expense for the three-months ended December 31, 2014
is due to a $675,000 decrease in headcount related expenses due to decreased
commissions and decreased headcount, as well as a $139,000 decrease in travel
expenses as a result of the restructuring plans implemented in January and
April of 2014. In addition, as a result of our expense management efforts,
advertising and promotion expense decreased by $92,000 and convention and
meeting expenses decreased by $46,000 in the current year period.
|
|
For
the six-month period ended December 31, 2014, sales and marketing expense
decreased by $2.0 million, or 56 percent, from $3.5 million at December 31,
2013 to $1.5 million at December 31, 2014. The $2.0 million decrease is due
to a $1.5 million decrease in headcount related expenses, including
commissions, a $293,000 decrease in travel expenses, as well as a $242,000
decrease in advertising and promotions. As mentioned above, the
year-over-year decreases in sales and marketing expense are due to the
restructurings implemented in the second half of fiscal year 2014 as well as
expense management efforts.
|
|
General and Administrative
|
General
and administrative expense decreased $94,000, or 17 percent, to $467,000 for
the three-month period ended December 31, 2014 compared to $561,000 for the
three-month period ended December 31, 2013. The decrease in general and
administrative expense is largely the result of decreased wages and benefits
of $93,000 due to lower headcount.
|
|
General
and administrative expense for the six-month period ended December 31, 2014
was $955,000, a decrease of $291,000 or 23 percent compared to $1.2 million
for the six-month period ended December 31, 2013. The decrease in general and
administrative expense for the six-month period ended December 31, 2014 is a
result of decreased spending in all general and administrative areas in an
effort to manage expenses. In particular, wages and benefits decreased
$130,000 due to lower headcount, consulting expenses decreased by $69,000,
stock option expense decreased by $50,000 due to lower fair market values of
our stock, and bank fees and service charges decreased by $38,000 as a result
of the reduced sales and termination of our bank line of credit at the end of
fiscal year 2014.
|
|
Research and Development
|
Research
and development expense, which includes expenditures for product development,
regulatory compliance and clinical studies, decreased $115,000 or 25 percent
to $337,000 for the three-month period ended December 31, 2014 from $452,000
for the three-month period ended December 31, 2013. The decrease in research
and development expense is a result of a $122,000 decrease in wages and
benefits due to lower headcount in the current year, partially offset by a
$17,000 increase in product testing and project materials spending.
|
|
For
the six-month period ended December 31, 2014, research and development
expense decreased by $203,000 or 23 percent to $671,000 compared to $874,000
for the six-month period ended December 31. 2013. The decrease in research
and development expense compared to the prior year period is again due to a
decrease in wages and benefits expense of $244,000, partially offset by a
$40,000 increase in consulting expenses.
|
|
Change in Value of Acquisition
Consideration
|
There
was no change in the value of acquisition consideration for the three and
six-month periods ended December 31, 2014 compared to reductions of $85,000
and $93,000 for the three and six-month periods ended December 31, 2013. For
the three and six-month periods ended December 31, 2013, the change in the
value of acquisition consideration represents the reduction in fair value of
contingent consideration as a result of a reduction in the projected royalty
payments in excess of contractual minimums in earlier years.
|
|
Medical Device Tax
|
The
medical device tax expense represents the excise tax imposed beginning
January 1, 2013 on all U.S. medical device sales as part of the Federal
health care reform legislation. The medical device excise tax expense of
$48,000 and $96,000 for the three and six-month periods ended December 31,
2014, respectively, decreased by 19 percent, when compared to medical device
excise tax expense of $59,000 and $119,000 for the three and six-months ended
December 31, 2013, respectively. The decrease in the medical device tax
expense is a result of the decrease in sales.
|
|
Amortization of Identifiable Intangible
Assets
|
Amortization expense was $17,000 and $40,000 for the three and six-month
periods ended December 31, 2014, respectively, compared to $22,000 and
$44,000 for the three and six-month periods ended December 31, 2013,
respectively. The slight decrease in amortization expense year-over-year is
due to the complete amortization of the customer base intangible asset
acquired as part of the EDAP acquisition in fiscal year 2001.
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|
Net Interest Expense
|
Interest
expense is a result of non-cash interest accretion on the deferred
acquisition payments for the Prostiva business as well as the interest
accrued on amounts owed to Medtronic, including the Note entered into with
Medtronic on June 28, 2013. Interest expense increased to $216,000 and
$404,000 for the three and six-month periods ended December 31, 2014,
respectively, from $178,000 and $338,000 for the three and six-months ended
December 31, 2013, respectively. The increase in interest expense is due to
lower accretion expense in the prior year period due to the true up of the
contractual deferred acquisition liability as well as additional interest
expense on past due amounts to Medtronic.
|
|
Provision for Income Taxes
|
We
recognized income tax expense of $4,000 and $9,000 for the three and
six-months ended December 31, 2014, compared to income tax expense of $16,000
and $28,000 for the three and six-month periods ended December 31, 2013. The
tax expense in the three and six-months ended December 31, 2014 represents
expense for state taxes. The tax expense in the three and six-month periods
ended December 31, 2013 relates to $11,000 and $18,000, respectively, for the
deferred tax liability resulting from the amortization for tax purposes of
the goodwill acquired in the Prostiva acquisition, as well as $5,000 and
$10,000, respectively, for the provision for state taxes. We fully impaired
our goodwill balance as of April 30, 2014, and therefore wrote-off the
balance of the related deferred tax liability.
|
|
The
Company utilizes the asset and liability method of accounting for income
taxes. The Company recognizes deferred tax liabilities or assets for the
expected future tax consequences of temporary differences between the book
and tax basis of assets and liabilities. We have recorded and continue to
carry a full valuation allowance against our gross deferred tax assets that
will not reverse against deferred tax liabilities. We will continue to assess
the assumptions used to determine the amount of our valuation allowance and
may adjust the valuation allowance in future periods based on changes in
assumptions of estimated future income and other factors.
|
LIQUIDITY AND CAPITAL RESOURCES
We
have financed our operations since inception through sales of equity securities
and, to a lesser extent, sales of our Cooled ThermoTherapy products and,
beginning September 6, 2011, sales of the Prostiva RF Therapy System product.
As of December 31, 2014, we had cash of $570,000, which includes $40,000 of
restricted cash, compared to cash of $718,000 as of June 30, 2014.
On
June 28, 2013, the Company entered into a restructuring agreement with
Medtronic related to the $7.5 million it then owed to Medtronic under the
September 2011 Prostiva license transaction documents. As part of this
agreement, we paid Medtronic $2.0 million in satisfaction of certain amounts
owed under the transaction documents and entered into a promissory note (the
Note) with Medtronic for $5.3 million for the remaining amounts owed.
Interest on the Note accrues at a rate of 6 percent, compounded annually, and
is payable in five equal installments of principal and accrued interest, on
March 31st of each year beginning on March 31, 2015. The obligations
on the Note are secured by substantially all of the Companys assets (excluding
intellectual property).
Under
the license agreement, royalty payments for Prostiva products are paid one year
in arrears based on the contract year. The Company has not paid, as of December
31, 2014 or subsequently, two royalty payments, each in the amount of $650,000,
that were due on October 4, 2013 and October 6, 2014. Accordingly, royalty
payments totaling $1.3 million are included in the short-term deferred
acquisition payment liability as of December 31, 2014. The Company has also not
paid, as of December 31, 2014 or subsequently, the annual $65,000 license
maintenance fee due on September 6, 2013 and September 6, 2014. The total
license maintenance fee of $130,000 is included in other accrued expenses as of
December 31, 2014. Including interest, total amounts due and unpaid to
Medtronic as of December 31, 2014 are approximately $1.5 million.
As
a result of the non-payment of royalties and license maintenance fees,
Medtronic may terminate the license agreement if Medtronic provides written
notice and an opportunity to cure the default. If the license agreement is
terminated, the Companys rights to sell the Prostiva product would be
terminated.
The
Companys cash balance at December 31, 2014 is inadequate to repay amounts owed
to Medtronic or to cure any default under the license agreement. On March 31,
2015, the first payment of $1.3 million on the Note is due and the Companys
cash balance is inadequate to fund this payment. It is an event of default under the
Note if any amount due remains unpaid for 10 business days. Upon an event of
default, Medtronic may declare all outstanding obligations on the Note to be
immediately due and payable and may exercise any of its rights under the Note
and Security Agreement. Accordingly, as of December 31, 2014, the
Companys cash is not sufficient to sustain day-to-day operations for the next
12 months. The Companys ability to continue as a going concern is dependent
upon our ability to address our outstanding indebtedness to Medtronic. The
Company believes that this debt is most likely to be addressed through one or
more strategic alternatives.
16
Strategic
alternatives include sale of the Company or its assets, merging with another
company, raising capital by incurring additional debt or raising capital
through an offering of its debt or equity securities or both. Because all of
the Companys assets (exclusive of intellectual property) are subject to a lien
in favor of Medtronic and because of our limited cash flow available for debt
service, the Company does not believe raising capital through incurring
additional debt is a viable alternative at this time. Further, the Company does
not believe raising capital through the sale of equity is a preferred
alternative at this time given the valuation of the company in the public
markets and limited liquidity of our stock. No assurance can be given that the
Company will successfully realize any strategic alternative or that the
strategic alternative will be executed within any particular timeframe or on
terms and conditions acceptable to Urologix, its creditors or its shareholders.
The Companys failure to address its indebtedness to Medtronic to Medtronics
satisfaction may result in seizure by Medtronic of the assets that secure the
Companys indebtedness, loss of control of the Companys business, bankruptcy
or cessation of the business.
The
Company has also implemented operational initiatives designed to enhance the
value of the Company and the viability of strategic alternatives and to improve
the Companys cash and liquidity position while these alternatives are pursued.
As part of these operational initiatives, the Company implemented restructuring
plans in January 2014 and again in April 2014 to reduce our cash utilization.
The targeted annual savings from these restructurings total over $4.0 million,
compared with the first half of fiscal year 2014. Additional operational
initiatives focus on generating additional revenues from sales of both Cooled
ThermoTherapy and Prostiva products, negotiating payment terms with our
vendors, and managing expenses. There can be no assurance that the Companys
operational initiatives will be successful in supporting the Companys efforts
to pursue strategic alternatives or improving its cash and liquidity position
in the short-term sufficient to meet its obligations.
The
financial statements as of and for the six-months ended December 31, 2014 do
not include any adjustments to reflect the possible future effects on the
recoverability and classification of assets or the amounts and classifications
of liabilities that may result should the Company be unable to continue as a
going concern.
During
the six-months ended December 31, 2014, we used $138,000 of cash for operating
activities. The net loss of $794,000 included non-cash charges of $250,000 from
depreciation and amortization expense, $37,000 from stock-based compensation
expense and $261,000 of accreted interest expense. Changes in operating items
resulted in the generation of $88,000 of operating cash flow for the period as
a result of higher interest payable of $212,000, lower inventories of $88,000
and higher accounts payable of $42,000. These changes were partially offset by
higher prepaids and other assets of $146,000 and lower other accrued expenses
of $104,000.
Interest
expense represents interest on amounts due Medtronic, including interest
accrued on the Medtronic Note. The decrease in inventories is a result of lower
CTT production to lower our days inventory on hand and the increase in accounts
payable is a result of the timing of receipts and payments. Prepaids and other
assets increased as a result of the payment of annual insurance premiums which
are paid at the beginning of the fiscal year and amortized over the annual
period, and the decrease in other accrued expenses is a result of the payment
of the fiscal year 2014 bonuses in the first quarter of fiscal year 2015.
During
the six-months ended December 31, 2014, we used $50,000 for investing
activities. Collateral requirements on the corporate credit cards resulted in
the use of $40,000 of cash. The remaining cash used for investing activities
related to the purchase of property and equipment and investments in
intellectual property, which was partially offset by $5,000 of proceeds from an
asset sale.
We
plan to continue offering customers a variety of programs for both evaluation
and longer-term use of our Cooled ThermoTherapy system control units and
Prostiva RF Therapy System generators and scopes in addition to purchase
options. We also will continue to provide physicians and patients with
efficient access to our Cooled ThermoTherapy system control units and Prostiva
RF Therapy System generators and scopes on a pre-scheduled basis through our
mobile service. As of December 31, 2014, our property and equipment, net,
included approximately $214,000 of control units, generators and scopes used in
evaluation or longer-term use programs and units used in our Company-owned
mobile service.
Off Balance Sheet Arrangements
We
do not have any off balance sheet arrangements.
Recently Issued Accounting Standards
Information
regarding recently issued accounting pronouncements is included in Note 14 to
the condensed financial statements in this Quarterly Report on Form 10-Q.
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|
ITEM 3.
|
QUALITATIVE AND QUANTITATIVE
DISCLOSURE ABOUT MARKET RISK
|
Our
financial instruments include cash and as a result we do not have a material market risk exposure.
17
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.
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|
ITEM 4.
|
CONTROLS AND PROCEDURES
|
(a) Evaluation of Disclosure Controls and
Procedures
The
Companys Chief Executive Officer and Interim Chief Financial Officer, Gregory
J. Fluet, has evaluated the Companys disclosure controls and procedures, as
defined in the Exchange Act Rule 13a-15(e), as of the end of the period covered
by this report. Based upon this review, he has concluded that these controls
and procedures are effective.
(b) Changes in Internal Control Over
Financial Reporting
There
have been no changes in internal control over financial reporting that occurred
during the fiscal period covered by this report that have materially affected,
or are reasonably likely to materially affect, the Companys internal control
over financial reporting.
PART II
- OTHER INFORMATION
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|
ITEM 1.
|
LEGAL PROCEEDINGS
|
We
have been and are involved in various legal proceedings and other matters that
arise in the normal course of our business, including product liability claims
that are inherent in the testing, production, marketing and sale of medical
devices. Based upon currently available information, we believe that the
ultimate resolution of these matters will not have a material effect on our
financial position, liquidity or results of operations.
The
most significant risk factors applicable to the Company are described in Part
I, Item 1A Risk Factors of our Annual
Report on Form 10-K for the year ended June 30, 2014, and our subsequent
filings with the Securities and Exchange Commission.
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|
ITEM 2.
|
UNREGISTERED SALES OF EQUITY
SECURITIES AND USE OF PROCEEDS
|
Not
applicable.
|
|
ITEM 3.
|
DEFAULTS UPON SENIOR SECURITIES
|
Not
applicable.
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|
ITEM 4.
|
MINE SAFETY DISCLOSURES
|
Not
applicable.
|
|
ITEM 5.
|
OTHER INFORMATION
|
None
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|
Exhibit 31.1
|
Certification
of Chief Executive Officer Pursuant to Section 13a-14(a) and 15d-14(a) of the
Exchange Act.
|
Exhibit 31.2
|
Certification
of Interim Chief Financial Officer Pursuant to Section 13a-14(a) and
15d-14(a) of the Exchange Act.
|
Exhibit 32
|
Certification
pursuant to 18 U.S.C. §1350.
|
18
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the Registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
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Urologix,
Inc.
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(Registrant)
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/s/ Gregory
J. Fluet
|
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|
Gregory J.
Fluet
|
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|
Chief
Executive Officer and Interim Chief Financial Officer
|
|
|
(Principal
Executive Officer and Principal Financial and Accounting Officer)
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Date:
February 13, 2015
|
19
Exhibit 31.1
CERTIFICATIONS
I, Gregory J. Fluet, certify that:
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|
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1. |
I have reviewed this Form 10-Q of Urologix,
Inc. |
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2. |
Based on my knowledge, this report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under
which such statements were made, not misleading with respect to the period
covered by this report; |
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3. |
Based on my knowledge, the financial statements, and other
financial information included in this report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
report; |
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4. |
The registrants other certifying officer(s) and I are
responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and
internal control over financial reporting (as defined in Exchange Act
Rules 13a-15(f) and 15d-15(f)) for the registrant and
have: |
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|
|
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(a) |
Designed such disclosure controls and procedures, or
caused such disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the period in which
this report is being prepared; |
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(b) |
Designed such internal control over financial reporting,
or caused such internal control over financial reporting to be designed
under our supervision, to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted
accounting principles; |
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|
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(c) |
Evaluated the effectiveness of the registrants disclosure
controls and procedures and presented in this report our conclusions about
the effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this report based on such evaluation;
and, |
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(d) |
Disclosed in this report any change in the registrants
internal control over financial reporting that occurred during the
registrants most recent fiscal quarter (the registrants fourth fiscal
quarter in the case of an annual report) that has materially affected, or
is reasonably likely to materially affect, the registrants internal
control over financial reporting; and, |
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5. |
The registrants other certifying officer(s) and I have
disclosed, based on our most recent evaluation of internal control over
financial reporting, to the registrants auditors and the audit committee
of the registrants board of directors (or persons performing the
equivalent functions): |
|
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|
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(a) |
All significant deficiencies and material weaknesses in
the design or operation of internal control over financial reporting which
are reasonably likely to adversely affect the registrants ability to
record, process, summarize and report financial information;
and |
|
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|
|
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(b) |
Any fraud, whether or not material, that involves
management or other employees who have a significant role in the
registrants internal control over financial
reporting.
|
|
|
Date: February 13, 2015 |
/s/ Gregory J. Fluet |
|
Gregory J. Fluet |
|
Chief Executive Officer |
20
Exhibit 31.2
CERTIFICATIONS
I, Gregory J. Fluet, certify that:
|
|
|
|
|
|
1. |
I have reviewed this Form 10-Q of Urologix,
Inc. |
|
|
|
|
|
|
2. |
Based on my knowledge, this report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under
which such statements were made, not misleading with respect to the period
covered by this report; |
|
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|
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3. |
Based on my knowledge, the financial statements, and other
financial information included in this report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
report; |
|
|
|
|
|
|
4. |
The registrants other certifying officer(s) and I are
responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and
internal control over financial reporting (as defined in Exchange Act
Rules 13a-15(f) and 15d-15(f)) for the registrant and
have: |
|
|
|
|
|
|
|
|
(a) |
Designed such disclosure controls and procedures, or
caused such disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the period in which
this report is being prepared; |
|
|
|
|
|
|
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|
(b) |
Designed such internal control over financial reporting,
or caused such internal control over financial reporting to be designed
under our supervision, to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted
accounting principles; |
|
|
|
|
|
|
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|
(c) |
Evaluated the effectiveness of the registrants disclosure
controls and procedures and presented in this report our conclusions about
the effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this report based on such evaluation;
and, |
|
|
|
|
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|
(d) |
Disclosed in this report any change in the registrants
internal control over financial reporting that occurred during the
registrants most recent fiscal quarter (the registrants fourth fiscal
quarter in the case of an annual report) that has materially affected, or
is reasonably likely to materially affect, the registrants internal
control over financial reporting; and, |
|
|
|
|
|
|
5. |
The registrants other certifying officer(s) and I have
disclosed, based on our most recent evaluation of internal control over
financial reporting, to the registrants auditors and the audit committee
of the registrants board of directors (or persons performing the
equivalent functions): |
|
|
|
|
|
|
|
|
(a) |
All significant deficiencies and material weaknesses in
the design or operation of internal control over financial reporting which
are reasonably likely to adversely affect the registrants ability to
record, process, summarize and report financial information;
and |
|
|
|
|
|
|
|
|
(b) |
Any fraud, whether or not material, that involves
management or other employees who have a significant role in the
registrants internal control over financial
reporting. |
|
|
Date: February 13, 2015 |
/s/ Gregory J. Fluet |
|
Gregory J. Fluet, |
|
Interim Chief Financial
Officer |
21
Exhibit 32
CERTIFICATION
|
|
The undersigned certify pursuant to 18 U.S.C. § 1350,
that: |
(1) |
The accompanying quarterly report on Form 10-Q for the
period ended December 31, 2014 fully complies with the requirements of
Section 13(a) or 15(d) of the Securities Exchange Act of 1934;
and |
|
|
(2) |
The information contained in the accompanying Report
fairly presents, in all material respects, the financial condition and
results of operations of the Company. |
|
|
Date: February 13, 2015 |
|
|
/s/ Gregory J. Fluet |
|
Gregory J. Fluet |
|
Chief Executive Officer and Interim Chief Financial
Officer |
22
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