Total revenues for the nine months ended May 31, 2009 were $2,887,668 compared to $3,778,397 for the nine months ended May 31, 2008, a decrease of $890,729, or 24%. The overall decrease in revenues in the current fiscal year is due primarily to a significant decrease in related party sales, partially offset by an increase in non-related party sales, as further discussed below. In addition, the company has not sold any higher priced BSD-2000/3D/MR systems in the current fiscal year.
Gross Profit: Total gross profit in the three months ended May 31, 2009 was $387,890 or 42% of total sales, as compared to $539,171 or 59% of total sales in the three months ended May 31, 2008. Total gross profit in the nine months ended May 31, 2009 was $1,275,052 or 44% of total sales, as compared to $2,370,611 or 63% of total sales in the nine months ended May 31, 2008. This decrease resulted from the increase in sales of systems in the current year with lower gross margins than the higher priced, higher margin systems sold in the first nine months of the prior fiscal year. In addition, margins decreased in the current year as a result of pricing with certain products and the increase in manufacturing costs discussed above. The gross margin percentage will fluctuate from period to period depending on the mix of revenues for the period, the product configuration, pricing and other factors.
Research and Development Expenses: Research and development expenses were $509,422 for the three months ended May 31, 2009, as compared to $481,692 for the three months ended May 31, 2008, an increase of $27,730, or approximately 6%. Research and development expenses were $1,443,563 for the nine months ended May 31, 2009, as compared to $1,252,914 for the nine months ended May 31, 2008, an increase of $190,649, or approximately 15%. The increase in research and development expenses on a year-to-date basis in the current fiscal year is due to the company’s continuing efforts to develop an advanced generation of the microwave ablation system, software improvements to enhance the utility of the BSD-500 and BSD-2000 systems, possible market expansion of its current products into other cancer and non-cancerous indications, and other enhancements to its current products and the development of new products.
Selling, General and Administrative Expenses: Selling, general and administrative expenses for the three months ended May 31, 2009 were $1,653,363, as compared to $1,368,451 for the three months ended May 31, 2008, an increase of $284,912, or approximately 21%. Selling, general and administrative expenses for the nine months ended May 31, 2009 were $4,663,942, as compared to $4,196,516 for the nine months ended May 31, 2008, an increase of $467,426, or approximately 11%. The increase in selling, general and administrative expenses in the current fiscal year is due primarily to severance payments paid in the three months ended May 31, 2009 to the company’s former president, higher non-cash stock option expense, and an increase in the board compensation due to the addition of one new director.
Interest and Investment Income: Interest and investment income decreased to $56,246 in the three months ended May 31, 2009, as compared to $226,692 for the three months ended May 31, 2008, and decreased to $578,813 in the nine months ended May 31, 2009, as compared to $771,680 in the nine months ended May 31, 2008. The decrease in interest and investment income in the current fiscal year resulted primarily from lower levels of cash and investments compared to the prior fiscal year. The proceeds from the sale of the company’s mutual funds in March and May 2009 have been deposited in money market funds. Therefore, the company anticipates that its interest and investment income for the foreseeable future will be substantially less than previously earned on its mutual funds, but will significantly reduce its exposure to market fluctuations.
Realized Loss on Investments: the company sold 100% of its investments in mutual funds in March and May 2009. The investments had a total cost basis of $16,652,543 and it received total proceeds of $10,150,957, resulting in a realized loss of $6,501,586. The company recognized $2,125,999 of the loss in the three months ended May 31, 2009 and $4,375,587 of the loss in the three months ended February 28, 2009. The company had no realized loss on investments in the prior fiscal year. As a result, at May 31, 2009, it had no investments, but cash and equivalents of $9,003,163, comprised primarily of money market funds.
Income Tax Benefit: The income tax benefit in the three months ended May 31, 2009 and 2008 was $151,000 and $336,071, respectively, consisting of a current tax benefit. The income tax benefit of $1,157,000 in the nine months ended May 31, 2009 is comprised of a current income tax benefit of $1,386,000, partially offset by a deferred income tax provision of $229,000. By comparison, the income tax benefit for the nine months ended May 31, 2008 was $647,071, comprised of a current benefit of $815,071, partially offset by a deferred provision of $168,000.
Net Loss: During the nine months ended May 31, 2009, the company had a net loss of $9,683,796, after recording an income tax benefit of $1,157,000, as compared to a net loss of $1,812,001, after recording an income tax benefit of $647,071 in the nine months ended May 31, 2008.
BSD Medical develops, manufactures, markets and services systems to treat cancer and benign diseases using heat therapy as provided by focused radio frequency and microwave energy.
