Get Started for Free Contexxia identifies hard-to-find pieces of information in SEC filings. No more highlighters, no more redlining, no more poring over huge documents. UROLOGIX INC (882873) 10-Q published on May 14, 2015 at 4:05 pm
Reporting Period: Mar 30, 2015
Cost of goods sold includes raw materials, labor, and overhead incurred in connection with the production of our Cooled ThermoTherapy system control units and single-use treatment catheters, amortization related to developed technologies, costs associated with the delivery of our Urologix mobile service, as well as costs for the Prostiva products. Cost of goods sold for the three-months ended March 31, 2015 decreased $1.0 million, or 41 percent, to $1.5 million, from $2.5 million for the three-month period ended March 31, 2015. Cost of goods sold for the nine-month period ended March 31, 2015 decreased $1.8 million or 28 percent, to $4.7 million compared with cost of goods sold of $6.4 million for the nine-month period ended March 31, 2014. The decrease in costs of goods sold for the three and nine-month periods ended March 31, 2015 is a result of the decrease in unit volume of sales as well as the $739,000 non-cash write-down of Prostiva capital equipment inventory reflected in the three and nine-month periods ended March 31, 2014 and, to a lesser degree, expenses in the comparable prior year periods related to the implementation of restructurings that occurred in January and April 2014.
Gross profit as a percentage of net sales were 47 percent and 48 percent for the three and nine-month periods ended March 31, 2015, respectively, compared with 25 percent and 41 percent for the comparable prior year periods. The improvement in gross profit as a percentage of net sales over the prior year periods primarily reflects the aforementioned $739,000 Prostiva write-down recorded during the third quarter of fiscal 2014. The decrease in production volume as a result of lower sales has been largely offset by a decrease in variable manufacturing expenses.
Sales and marketing expense of $657,000 for the third quarter of fiscal year 2015 decreased by $656,000, or 50 percent, when compared to sales and marketing expense of $1.3 million in the same period of fiscal year 2014. The decrease in sales and marketing expense for the three-months ended March 31, 2015 is due primarily to a $478,000 decrease in personnel related expenses due to decreased commissions and headcount, as well as a $76,000 decrease in travel and $13,000 decrease in advertising and promotion expenses as a result of the restructuring plans implemented in January and April of 2014 and also expense management efforts. For the comparable year-to-date period, personnel related expenses declined $1.9 million, travel expenses declined $369,000 and advertising and promotion expenses declined $255,000, also due to the restructurings that occurred in the prior fiscal year as well as ongoing expense management efforts.
We recognized no income tax benefit or expense for the three months ended March 31, 2015 and income tax expense of $9,000 for the nine-months ended March 31, 2015, compared to income tax expense of $18,000 and $46,000 for the three and nine-month periods ended March 31, 2014. The tax expense in the nine-months ended March 31, 2015 primarily represents state taxes. The tax expense in the three and nine-month periods ended March 31, 2014 relates to $9,000 and $27,000, respectively, for the deferred tax liability resulting from the amortization for tax purposes of the goodwill acquired in the Prostiva acquisition, as well as $9,000 and $19,000, 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.
Because of our failure to pay required amounts due on March 31, 2015 under the note, an event of default on the note occurred on April 14, 2015. Because of the event of default under the note, Medtronic has the right to declare all amounts under the note immediately due and payable, which is an additional $4.6 million. Our obligations on the note are secured by substantially all of our assets (excluding our intellectual property). Because of the event of default under the note, Medtronic may also exercise any of its other rights and remedies as a secured party under applicable law or under the security agreement in favor of Medtronic. Under the security agreement, Medtronic may, among other actions, foreclose on our assets constituting collateral, causing us to lose control of our business. If Medtronic exercises its rights as a secured party, we may be forced to sell our assets, submit to foreclosure proceedings or the appointment of a receiver, cease operations or seek bankruptcy or reorganization protection.
By a letter dated April 9, 2015, Medtronic has notified us of its reservation of its legal rights under our agreements with Medtronic, including the note, the security agreement and the license agreement, and Medtronic stated that it is entitled, at its option, at any time to (a) declare the entire outstanding principal and unpaid interest on the Note to be immediately due and payable, (b) terminate the Prostiva license agreement, (c) exercise its rights and remedies under the security agreement, including the right to possess, foreclose upon, sell or appoint a receiver in respect of the collateral as identified therein and (d) exercise any or all other rights and remedies available under any operative documents or under applicable law. To date, Medtronic has not exercised its available rights and remedies, but there can be no assurance that it will not do so at any time.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS