U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10 - KSB
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended August 31, 1995.
Commission file number 0-10783
BSD MEDICAL CORPORATION
DELAWARE 75-1590407
(State of Incorporation)(IRS Employer Identification Number)
2188 West 2200 South
Salt Lake City, Utah 84119
(Address of principal executive offices)(Zip Code)
Registrant's telephone number, including area code: (801) 972-5555
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Title of Each Class: Name of Each Exchange on Which Registered:
Common Stock, $.01 Par Value Over-the-Counter
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 [ ] No [X]
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-B is not contained herein,
and will not be contained, to the best of Registrant's
knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [X]
State issuer's revenues for its most recent fiscal year:
$1,148,656
Indicate the aggregate market value of the voting stock held
by non-affiliates of the Registrant: Not Available (see Part
II, Item 5).
As of February 24, 1997, there were 16,176,980 shares of
Common Stock with $0.01 par value outstanding.
Documents Incorporated by Reference: None
Transitional Small Business Disclosure Format: Yes[ ] No[X]
<PAGE>
PART I
ITEM 1. DESCRIPTION OF BUSINESS
GENERAL
BSD Medical Corporation (the "Company") is engaged in the
design, development, production, marketing, and servicing of
heat therapy (hyperthermia/thermotherapy) equipment for both
cancerous and benign diseases. Hyperthermia is used in the
application, monitoring and control of electromagnetic
(microwave or radiofrequency) or ultrasound generated heat for
the treatment of malignant and benign diseases. BSD pioneered
the commercial application of this technology in both the
radiation oncology and urology fields and has 18 current U.S.
patents (which cover all of its current applications and
products as well as additional applications and devices).
The Company was founded in 1978 by John E. Langdon as a result
of research which demonstrated that high heat could destroy
cancer cells. BSD continued this research and was successful in
pioneering, developing, and commercializing this break-through
cancer treatment. The Company's first hyperthermia system, the
BSD-1000, was developed and sold in 1979. BSD was the first
Company to obtain full PreMarket approvals (PMA) from the Food
and Drug Administration (FDA) for hyperthermia cancer therapy
systems (in 1983) and the first Company to obtain
Investigational Device Exemption (IDE) approval from the FDA for
hyperthermia/thermotherapy systems for the treatment of Benign
Prostatic Hyperplasia (BPH). BSD has developed second and third
generation equipment, and the Company's systems, depending upon
configuration and options, have list prices ranging from
approximately $50,000 to $850,000.
The Company was incorporated under the laws of the State of
Utah on March 17, 1978. On July 31, 1986, pursuant to a Plan
and Agreement of Merger dated July 11, 1986, the Company was
merged into a Delaware corporation, changing the Company's state
of incorporation from Utah to Delaware. The Delaware
corporation was the surviving company. At the time of the 1986
merger, the total number of shares of all classes of stock which
the Company shall have the authority to issue was increased to
30,000,000, of which 10,000,000 shares are of $1.00 par value
per share and are of a class designated Preferred Stock and of
which 20,000,000 shares are of $.01 par value per share and are
of a class designated Common Stock. There are currently no
preferred shares outstanding.
BSD PRODUCTS/THERAPIES
HYPERTHERMIA AS A CANCER TREATMENT. There are more than eight
million Americans alive today who have a history of cancer and
over 83 million, approximately four in ten Americans, will
eventually develop cancer, and the incidence of cancer is
expected to continue to grow. Over 520,000 people will die of
cancer this year. The Company's hyperthermia equipment is used
both in an effort to cure cancer by destroying and eliminating
cancer cells and, where curing the cancer is not possible, as
palliative treatment (the shrinking of tumors in order to reduce
the pain and other side effects of cancer). The combination of
differential heat sensitivity between cancerous and normal cells
and the inability of the cores of solid tumors to dissipate heat
as effectively as surrounding normal cells makes it possible, by
utilizing the controlled application of high heat, to destroy
cancerous tissues and cells without causing serious damage to
normal tissues and cells. Prospectively randomized clinical
studies using BSD's equipment have shown that the addition of
hyperthermia to other cancer therapies results in: faster tumor
regression; increased tumor response; lower relapse rate;
increased disease-free survival time; and improved quality of
life for the patient - with no increase in side effects and
lower overall costs of patient care. BSD is the world leader in
the hyperthermia market and is considered the leading innovator
and developer. The Company's equipment is most effective in the
treatment of solid localized tumors and increases long term
control of these tumors. Inability to control local tumors
remains a significant obstacle to a cure for cancer, causes over
one-third of all cancer deaths, results in severe symptoms which
reduce quality of life, increase cost of care, and increases the
risk of metastatic disease. BSD's hyperthermia equipment has
been shown to increase local tumor control without an increase
in toxicity.
The Company's hyperthermia equipment can be used alone but is
typically used in conjunction with other therapies and has been
shown to potentiate other cancer therapies, including radiation
therapy, chemotherapy and surgery. Published, clinical studies
using the Company's systems have shown that hyperthermia
increases the efficacy of radiation and chemotherapy to a
significant degree without an increase in toxicity.
Hyperthermia delivery using the Company's equipment has been
shown to provide supra-additive interactions with many
chemotherapeutic drugs; to cause localized toxicity of heated
tumor areas, while maintaining low levels of toxicity to non-
heated normal tissues; and to cause some chemotherapeutic agents
that are not effective at normal temperatures to become
effective at elevated temperatures. The addition of
hyperthermia to other therapies can allow a reduction in
chemotherapy and/or radiation dose, thus reducing the
debilitating and dangerous side effects of these treatments.
The use of pre-surgical hyperthermia delivered using BSD's
equipment has been shown to obviate the need for amputation of
normal tissues in sarcoma patients. BSD's systems have also
been used pre-surgically to reduce the size of the tumor prior
to surgery and thus make the tumor more easily resectable
(surgical removal) and increase the chances of obtaining clear
surgical tumor margins, one of the most significant prognostic
factors in recurrence.
In the past, hyperthermia has been typically used almost
exclusively as a therapy for patients who have failed all other
available methods of treatment, and even these heavily
pretreated patients have responded well to hyperthermia, and
some patients are now being treated earlier with BSD's equipment
using combination therapy which includes hyperthermia.
HYPERTHERMIA/THERMOTHERAPY AS A TREATMENT FOR BENIGN PROSTATIC
HYPERPLASIA (BPH). BPH, a condition in older men where the
enlarged prostate gland restricts urination, afflicts millions
of men around the world. Over 5 million American men meet
recently released U.S. government guidelines for treatment of
BPH; by the year 2020, 11 million U.S. men will require
treatment for BPH. Recently adopted World Health Organization
BPH treatment guidelines are similar to the U.S. guidelines. Of
the 5 million men in the U.S. currently in need of treatment for
BPH, only 700,000 will receive treatment due to the high
toxicities of available therapies. The Company believes that
many of the 5 million men suffering with BPH would likely seek
treatment if a non-surgical, low toxicity treatment were
available. A treatment alternative for BPH is desperately
needed by all segments of this market: BPH patients need a less
toxic treatment alternative to surgery; urologists need a less
invasive non-pharmaceutical procedure to offer patients; and
health care providers need a less expensive treatment. BSD
designed the BSD-50 to meet the needs of this substantial
market. The BSD-50 provides a low cost treatment which can be
administered in the physician's office, requires no anesthetic,
and has no significant acute or late side-effects. There is a
substantial market in disposable products associated with this
technology which will provide a self-perpetuating market and
revenue stream. Researchers have stated that BSD's equipment
provides an effective, low cost, non-surgical treatment for BPH
which allows the patient to resume normal activities immediately
following treatment.
The BSD-50 is a heat treatment (hyperthermia/thermotherapy)
system which has been shown to provide a less invasive, low
toxicity and low cost treatment for BPH. Physicians throughout
the world have used the BSD-50, as well as BSD's other products,
to treat BPH. Published clinical data using BSD's equipment for
transurethral microwave heat treatment of over 300 BPH patients
has shown significant benefits (an effectiveness level of over
70% which has been sustained on follow-up of up to nine years
for some patients) and only minor acute toxicity and no long
term side effects. One small study evaluated patient acceptance
of treatment, and 100% of the patients stated that they would
repeat HT treatment with BSD's equipment if their symptoms
recurred.
Published articles have described transurethral microwave
heating treatments of BPH using BSD's PMA approved treatment
monitoring and control systems in conjunction with BSD's PMA
approved microwave interstitial applicators which are inserted
into the prostate inside a urethral Foley catheter; however,
this treatment is not covered by BSD's PMA approval and thus is
defined by the FDA as an "off label treatment". BSD has
developed an integrated helical coil microwave radiating
applicator/catheter (MU-100) for BPH treatment. BSD initiated
clinical studies using the BSD-50 and MU-100 in Europe in 1989
and began those studies at the University of Utah in 1994 and at
Barnes Hospital, Washington University in St. Louis in 1995.
Commercial sales of the BSD-50 in the United States cannot be
made unless and until the FDA grants PMA approval for this
product, which will likely not be granted until fiscal 1998, if
at all.
The BSD-50 system is targeted to the field of urology, as
opposed to the Company's traditional emphasis on sales to the
oncology market, and the BSD-50 Systems sold by the Company thus
far have been purchased by foreign hospitals and clinics. The
Company estimates that BSD's BPH treatment devices, if
successful, could open a large new market for the Company.
There can be no assurance that the BSD-50 will be a successful
product, but the Company is placing a significant emphasis on
development of this product because of the large market
potential.
CANCER HYPERTHERMIA PRODUCTS. The Company's cancer
hyperthermia products are designed to apply electromagnetic
(i.e., microwave or radiofrequency) or ultrasonic energy to the
human body in order to generate temperatures of 40 to 60 degrees C
at the site of the tumor. Thermometry systems are used to measure
tumor and normal tissue temperatures during treatment in order
to assist in achieving and maintaining safe and optimal
treatment temperatures. The Company's hyperthermia systems are
designed to permit the treatment of various tumor sizes, various
tumor depths and various anatomical sites. A physician wishing
to have full hyperthermia treatment capability must have a wide
variety of hyperthermia techniques and devices available.
Cancer Hyperthermia Systems. A hyperthermia system typically
consists of an integrated computer control unit, a fixed or
variable frequency generator, applicators, and thermometry. The
Company's computer software is designed to maximize the safety
and effectiveness of the treatment. The Company's computer
software provides accurate monitoring of temperature and other
treatment parameters, and also pre-treatment planning, display,
storage, and recall of patient treatment data. The pre-
treatment planning capability utilizes the Company's proprietary
algorithms and software to allow the physician to customize
hyperthermia treatments for specific tumors.
The Company's cancer hyperthermia system product line includes
many system designations, depending upon the configuration and
options. The most significant of the Company's cancer
hyperthermia systems are discussed below.
The variable frequency BSD-1000 Hyperthermia System was the
Company's first hyperthermia system. The BSD-1000 has received
FDA PMA approval for commercial sale in the United States and
Japanese Ministry of Health approval for commercial sale in
Japan.
The BSD-300 provides fixed frequency 915 MHz operation for
superficial external and interstitial treatments. This system
is mobile and is PMA approved for commercial sale in the United
States.
The BSD-400 provides fixed frequency 915 MHz operation for
superficial external and interstitial treatments. The BSD-400
is a lower cost, simple to operate system which is well suited
for small volume interstitial or intracavitary treatments,
including prostate heating. This system is mobile and is PMA
approved for commercial sale in the United States.
The BSD-500 provides fixed frequency 915 MHz operation for
superficial external and interstitial treatments. The computer
control system, thermometry system, water cooling system, and
certain other equipment components of the BSD-500 are used as
the basic components for other systems of this series (i.e., the
BSD-750, BSD-1500, and BSD-2000). This system is mobile and is
PMA approved for commercial sale in the United States.
The BSD-750 is essentially a BSD-500 with the addition of a
BSD-250 for ultrasound hyperthermia capability. This system is
mobile. The BSD-500 portion is PMA approved for commercial sale
and the BSD-250 portion is under an Investigational Device
Exemption (IDE) from the FDA.
The BSD-1500 Deep Local Hyperthermia System uses the
Single/Dual Horn variable frequency applicators to treat to
greater depths than the 915 MHz fixed frequency applicators of
the BSD-500. Because of FCC regulations, the BSD-1500 requires
a shielded room due to the variable frequency capability. The
BSD-1500 has been granted an IDE by the FDA.
The variable frequency BSD-2000 is a deep local and regional
hyperthermia system which includes the "Sigma Treatment System."
This applicator system combines the energy from multiple
applicators positioned around the patient to generate heat deep
within the body. The design features of the BSD-2000 provide a
significant improvement in patient handling. The BSD-2000 has
been granted an IDE by the FDA.
The UT-100 uses ultrasound hyperthermia to deliver deeper more
focused heating. This system is mobile and has been granted an
IDE by the FDA for investigational use.
BSD is currently developing the BSD-2000-3D - a new generation
of deep regional hyperthermia equipment designed by BSD and
funded in part by Phase I and II grants received from the
National Cancer Institute (Grant No. CA61515). BSD plans to
complete development and install the first system in 1997. The
BSD-2000-3D can be modified for integration with a magnetic
resonance imaging system, and becomes the BSD-2000-3D/MR system.
The BSD-2000-3D System integrates state-of-the-art three-
dimensional (3D) focused deep regional hyperthermia with 3D
patient specific treatment planning in order to provide 3D
heating pattern steered focusing. The Company believes that
this system may be the technological breakthrough needed to
revolutionize deep hyperthermia treatment and increase survival
and quality of life for patients suffering from many large and
deep tumors (for which there are few treatment alternatives);
i.e., recurrent breast, sarcoma, lung, colorectal, liver,
cervical, bladder, stomach, and prostate. BSD plans to submit
to the FDA for an IDE for this equipment.
Cancer Hyperthermia Applicators. Hyperthermia applicators
emit radiofrequency, microwave or ultrasonic energy directly
into the patient to provide tumor heating. The Company has
developed and patented a number of specially designed
applicators for treating a particular tumor in a particular
location. The Company's applicators are designed to facilitate
safety, effectiveness and comfort of treatment.
Applicators generally fall into two categories: external
surface applicators (superficial and deep) and interstitial
(i.e., invasive) applicators. Microwave, superficial, external
applicators deliver externally generated heat to specific sites
on or slightly below the surface of the skin. Deep phased array
radiofrequency applicators provide externally generated heat to
deep seated tumors by combining phase aligned beams from
multiple applicators positioned around the body. Ultrasound
external applicators generally provide deeper and more focused
heating than microwave external applicators. Interstitial
microwave applicators are antennae which are implanted directly
into the body for heating from within the tumor itself.
The Annular Phased Array (APA) applicator is used to heat
solid tumors deep in the body. The Sigma-60, a second
generation deep hyperthermia applicator, replaced the APA.
The Mini Annular Phased Array (MAPA) applicator, designed to
treat deep seated tumors located in the arms and legs, is
similar in concept to the APA applicator. The Sigma-30, a
second generation deep hyperthermia applicator, replaced the
MAPA.
The Sigma-60 is part of the Sigma Treatment System. This
System includes a treatment base and couch, patient handling
system and water cooling system and permits easy installation of
phased array applicators of different aperture sizes. The Sigma-
60 (60 cm diameter) was designed to provide the ability to focus
and steer the heating pattern for the treatment of widespread,
large, and/or deep tumors in adults. The deep treatment
capability is provided through the use of applicators which
surround the patient and radiate radiofrequency energy directly
into the tumor. The Sigma-30 (30 cm diameter) is designed to
treat deep seated tumors located in the arms and legs in order
to prevent amputation; the Sigma-30 can also be used for
regional treatment of infants. The Sigma-40 (40 cm diameter) is
designed to treat children suffering from pediatric cancerous
tumors. The Company has been granted an IDE by the FDA for
clinical investigations using the BSD-2000 with the Sigma-60 and
Sigma-30 Applicators. The Sigma-40 is an export only device.
The Company has no current plans to pursue approval in the
United States because the potential U.S. market does not justify
the time and cost to obtain approval from the FDA.
The Sigma Eye is a new deep hyperthermia applicator used with
the Sigma Treatment System. The Sigma Eye is an elliptical
shaped phased array applicator which contains 24 energy
radiators, as compared to the 8 energy radiators in the Sigma-
60, Sigma-40, and Sigma-30. The Sigma Eye is capable of dynamic
three dimensional energy steering and heating pattern focusing.
The development of this applicator and control system was funded
in part by National Cancer Institute (NCI) Phase I and Phase II
grants, and NCI has approved additional funding for a Phase II
project to allow BSD to complete the design and testing of a
modified BSD-2000 control system; the modified BSD-2000 will
provide 3D focal energy steering when used in conjunction with
the new Sigma Eye. NCI funding also includes support for
clinical evaluation of the new Sigma Eye and BSD-2000 control
system and the clinical application of the innovative
capabilities of this applicator. Independent, published,
laboratory analysis has predicted that this design will provide
a significant improvement in the treatment dose delivered to
deep tumors, with no impact on tissues located outside the
treatment area and thus significantly improve clinical results
and provide an effective treatment for large and deep tumors,
for which there are few if any treatment alternatives.
The Microwave Interstitial module (which includes the MA-250
and MA-251 applicators) has PMA approval, can be used with all
of the Company's cancer hyperthermia systems, and permits the
physician to treat tumors accessible by catheter with
interstitial antenna applicators and customize hyperthermia
treatments to a specific patient's tumor and physiology. The
Microwave Interstitial module allows heat delivery and
temperature monitoring in the same catheter used for radiation
therapy. Interstitial applicators can be used for
intracavitary or interstitial heating using transurethral,
transrectal, or percutaneous insertion, or a combination of
these methods. BSD's products currently include
catheters/accessories for insertion and placement of
temperature probes and interstitial applicators for the
intracavitary treatment of malignant tumors; e.g., esophageal,
prostatic, and rectal. BSD's Microwave Interstitial
Pretreatment Planning Program can be used to improve the
planning, placement, and heating of MA-250 and MA-251 arrays
for intracavitary as well as interstitial treatments. The MA-
251 Interstitial Applicator has been granted PMA approval for
commercial sale. The MA-250 Interstitial Applicator has been
granted PMA approval for commercial sale.
The MA-100, MA-150 and MA-151 External Applicators, which are
used to treat surface and subsurface tumors, are PMA approved
for commercial sale. The MA-120 external microwave applicator,
used to treat chest wall tumors, has been granted PMA approval
for commercial sale. Ultrasound applicators are available with
the BSD-250, BSD-750 and UT-100 systems. These applicators
provide a uniform heating pattern and are small and lightweight
for ease of use. The SA-115 and SA-812 Spiral (external)
applicators radiate electromagnetic energy from spiral shaped
conductors etched onto plastic substrates. These applicators
are currently export only devices. The Company has no current
plans to pursue approval in the United States because the
potential U.S. market does not justify the time and cost to
obtain approval from the FDA.
The Single/Dual Horn Applicators (MA-200/MA-201) operate at
lower frequencies and higher powers than other external
superficial applicators, which results in deeper penetration.
These horn shaped external applicators were designed to treat
larger, deeper tumors by external application of transverse
electromagnetic ("TEM") energy, which reduces the hot spots
which sometimes occur with other applicators. The Dual Horn
applicator is two smaller applicators (MA-200s). The clinician
can use the MA-201 for a larger, deeper heating pattern, or the
two applicators can be disconnected and utilized separately (MA-
200) for a smaller, more shallow heating pattern. The MA-
200/201 applicators have been used clinically to treat 452 tumor
sites (primarily breast tumors) in 374 patients. BSD has
applied for PMA approval of these applicators.
Thermometry. In order to monitor and control the heating of
tumors, thermometry systems that are accurate, reliable and
suitable for use in clinical hyperthermia must be included in
hyperthermia systems. The Company manufactures the BSD
Thermistor Probe, as well as other thermistor based thermometry
probes. Independent testing by hyperthermia quality assurance
groups has shown the BSD Thermistor Probe to be the most
reliable and accurate thermometry probe commercially available.
The Company has an exclusive license for the manufacture and
distribution of the BSD Thermistor Probe.
The primary thermometry system used in all of the Company's
electromagnetic hyperthermia systems is a multi-probe system
which interfaces with BSD Thermistor Probes. A thermistor type
sensor has also been integrated into some models of the
microwave interstitial applicators manufactured by the Company.
The BSD Thermistor Probe can be used with the proprietary,
computer controlled BSD Thermal Mapping System which provides
temperature information throughout the tumor volume. The BSD
Thermal Mapping System is a sophisticated, automated thermometry
system that, under computerized control, periodically shifts
thermometry probes to multiple locations within implanted
catheters during treatment and automatically records temperature
data along the catheter lengths. The BSD Thermal Mapping System
has received PMA approval for commercial sale and is an option
for the BSD-500, BSD-750 and BSD-1500 systems and is standard
with the BSD-2000 system.
The Company also manufactures and sells specially developed
thermistor probes for ultrasound treatments.
The BSD-100 Thermometry System is offered as an option for the
Company's systems. This thermometry system can be used in
combination with the primary thermometry system as an additional
aid in monitoring temperature distributions during treatment.
The BSD-100 is purchased from another company. BSD anticipates
a continuous supply of this product; however, the loss of
availability of this product would have no material impact on
the Company.
In 1991, the Company introduced the BSD-500TMS (Thermal
Mapping System) also referred to as the "TMS-480" as a stand-
alone thermal mapping system. The BSD-500TMS provides the
ability to measure large temperature fields in heated tissue
equivalent media. The principal potential markets for the BSD-
500TMS are bioelectromagnetic research centers and engineering
laboratories. The BSD-500TMS is the BSD-500 thermometry system
and has PMA approval status.
The BSD-2000-3D/MR System is being designed to provide
simultaneous heating and non-invasive measurement of treatment
parameters; such as tumor temperature, tumor response, tissue
heat damage, tissue blood-flow, tissue pathology, and other
chemical and biological changes in the tissue, which has the
potential to optimize tumor heating and thus tumor destruction.
Currently available hyperthermia equipment requires the use of
invasive temperature monitoring to control heating delivery and
to determine treatment effectiveness, which limits the
commercial and clinical applications. The development of
reliable non-invasive thermometry is the next required
breakthrough in the field of hyperthermia and has the potential
to significantly increase the clinical applications and
commercial potential of hyperthermia; however, there can be no
assurance that this system will provide reliable non-invasive
thermometry.
PROSTATE HEATING PRODUCTS (BPH AND PROSTATIC CARCINOMA).
Intracavitary heat treatment of the prostate has been
established as an important adjuvant treatment for many
patients with prostate carcinoma and is rapidly becoming a
major nonsurgical treatment for patients with BPH. Many
published articles have described transurethral microwave
heating treatments of BPH using BSD's PMA approved treatment
monitoring and control systems (BSD-300, BSD-400, BSD-1000, and
BSD-500) in conjunction with the PMA approved MA-251 and MA-250
microwave interstitial applicators which are inserted into the
prostate inside a urethral Foley catheter. BSD Medical has
various PMA approved control systems, applicators, catheters,
and accessories which can be used for microwave heating of the
prostate. BSD has also developed an integrated helical coil
microwave radiating applicator/catheter (MU-100) for BPH
treatment. The MU-100 is currently undergoing IDE
investigations utilizing the BSD-50 Control System.
Independent published comparative studies have shown that the
heating patterns from the MA-250 and MA-251 applicators placed
inside a Foley catheter are basically identical to the
integrated applicator/catheter MU-100. The use of
transurethral microwave heating for treatment of prostatic
carcinoma has most often utilized concomitant radiation
therapy; however, published studies have reported efficacy
using hyperthermia/thermotherapy alone delivered by using
simultaneous transurethral and transrectal heating. BSD plans
to market and supply both the capital equipment and the
disposable applicator required for each patient treatment; the
market for hyperthermia/thermotherapy disposables is a
substantially larger market than the market for capital
equipment and provides a self-perpetuating revenue stream.
MARKETING AND SALES
In the U.S., the Company sells its cancer hyperthermia
products primarily to radiation oncology departments and,
outside the U.S., to radiation oncology and chemotherapy
oncology departments. The Company currently markets its
products in the United States directly through its own sales
and marketing staff. International sales of both cancer and
BPH products are generally accomplished through distributing
companies located in various foreign countries. The Company's
marketing efforts include participation at trade shows and
symposia and development of product brochures, newsletters, and
other promotional materials. The Company also co-sponsors an
annual international BSD Users' Conference.
BSD is developing comprehensive promotional and public
relations programs and is supporting additional clinical
testing, which will provide additional clinical safety and
efficacy data and cost-effectiveness evidence for support of
the marketing effort. Current marketing efforts include
education, training, and dissemination of information on the
effectiveness and benefits of BSD's equipment and therapy. BSD
also plans to do advertising in appropriate trade publications
and in mass media publications to increase patient education
and demand.
Leading research centers in Europe, who use BSD's equipment,
have recently published long term evidence proving that
hyperthermia is effective, safe, and cost effective. Many of
these studies were sponsored by the European Union (EU), the
Dutch government, the German government, and leading European
oncology associations. This recently published data should
allow BSD to increase sales throughout the world.
The Company is implementing a strategic plan to reactivate
domestic sales of the cancer product lines. Future marketing
for current cancer products will be expanded into two
previously unexplored markets: surgical and chemotherapeutic
oncology. These two disciplines control most cancer patients
and treatment funds, and clinical evidence of the safety and
efficacy of hyperthermia in conjunction with chemotherapy and
surgery has been published. Recently published data provides
the level of proof for hyperthermia which is required in
today's medical markets. Prospectively randomized studies
using BSD's equipment have shown that the addition of
hyperthermia to other cancer treatment modalities results in:
faster tumor regression; increased tumor response; lower
relapse rate; increased disease free survival time; and
improved quality of life for the patient. Health care reform
and the increasing trend toward managed care facilities provide
a new opportunity for the mass marketing of BSD's therapies
(which provide reduced patient care costs while increasing the
efficacy of other modalities) and BSD plans to target this
market segment. The Company believes that the domestic market
will begin to slowly expand in the future because of the recent
publication of randomized studies showing the effectiveness of
hyperthermia and a renewed interest in hyperthermia in the U.S.
BSD is seeking an investor/partner to provide the capital
needed to implement and accelerate current corporate and
marketing opportunities. BSD's therapies and equipment are
favorably poised to take advantage of a number of alliances,
including strategic marketing alliances, which may allow the
Company to expand and grow more quickly. Negotiations are
currently underway, and it may be feasible for the Company to
form strategic alliances with other companies, private
treatment centers and managed health care providers. The
Company is actively seeking strategic partnerships for
marketing, sales and distribution of the Company's current
products, collaborative arrangements for the development of new
product lines, as well as alliances for product development and
manufacturing of the companies' product. A report on the
medical industry by Frost and Sullivan, the leading worldwide
publisher of high-technology research reports, predicted a
seven percent annual growth in medical equipment markets and an
increase in the worldwide market for cancer diagnostic imaging
and therapeutic equipment from $2.7 billion in 1993 to $4.4
billion in the year 2000. The cancer therapy equipment
evaluated included hyperthermia equipment.
For the year ended August 31, 1995, two customers accounted
for approximately 25% and 18%, respectively, of net sales of the
Company. The loss of a significant customer could have a
material detrimental impact on the Company's operations. In
order to expand the customer base, BSD is currently increasing
its distributorship network, has implemented new distributorship
incentive programs, and is currently evaluating all distributors
and appointing new distributors in some countries. BSD is also
actively pursuing strategic marketing alliances.
THIRD-PARTY REIMBURSEMENT/MEDICAL COST CONTAINMENT. In the
United States, the Company's products are purchased primarily by
medical institutions (which then bill various third-party
payers, such as Medicare, Medicaid, other government programs,
and private insurance plans, for the health care services
provided to their patients), or by managed care organizations
which directly pay for services provided to their patients. In
December 1984, the Health Care Financing Administration ("HCFA"
- --- the agency responsible for administering the Medicare and
Medicaid systems) and most of the private medical insurance
carriers in the U.S. approved reimbursement for hyperthermia in
conjunction with radiation therapy for the treatment of surface
and subsurface tumors. Reimbursement for services rendered to
Medicaid beneficiaries is determined pursuant to each state's
Medicaid plan which is established by state law and regulations,
subject to requirements of Federal law and regulations.
In November 1995, the Health Care Financing Administration
authorized Medicare reimbursement for all investigational
therapies and devices for which underlying questions of safety
and effectiveness of that device type have been resolved based
on categorization by FDA into one of two categories - A or B.
Category A includes devices for which questions of safety and
effectiveness have not been resolved. Category B includes
investigational devices for which underlying questions of safety
and effectiveness of that device type have been resolved. As of
November 1, 1995, HCFA stated that all devices and procedures
which fall under Category B will be reimbursed for Medicare
patients. All of BSD's investigational equipment and protocols
have been categorized by the FDA into Category B and thus may be
reimbursed by Medicare. This new procedure will have no effect
on BSD's PMA approved equipment and therapy which received
approval for reimbursement from HCFA in 1984. However,
investigational treatments using BSD's PMA approved equipment
may also be reimbursed under this new policy. BSD anticipates
that these changes in reimbursement policy may have a positive
effect on U.S. sales.
Cost-containment policies are impacting the major cancer
markets such as the U.S., Western Europe, and Japan. Even
though these changes have negatively impacted the industry, the
long-term effects of healthcare reform are expected to be
favorable and provide increased opportunity for cost-effective
clinically proven therapies and equipment such as hyperthermia.
BSD's products have been designed to provide cost effective
treatment.
The Company is unable to predict the extent to which its
business may be affected by future legislative and regulatory
developments. There can be no assurance that future health care
reform legislation or regulation will not have a material
adverse effect on the Company's business, financial condition
and results of operations. There can be no assurance that
procedures using the Company's products will, in the future, be
considered cost-effective by third-party payers, that
reimbursement will be available or, if available, that payers'
reimbursement levels will not adversely affect the Company's
ability to sell its products.
COMPETITION
The Company believes that it is a technological and commercial
leader in the field of hyperthermia. However, competition in
the medical products industry is intense, both in the United
States and internationally. Some of the Company's competitors
have significantly greater financial, technical, research and
development, engineering, manufacturing, distribution, and sales
and marketing resources than the Company. Several companies
have received IDEs in the United States for certain experimental
hyperthermia systems designed to treat both malignant and benign
diseases. In addition to BSD, four other companies (Clinitherm
- - no longer in business, Labthermics, Cheung Labs, and Cook
Medical) have received FDA Pre-Market Approval for the
commercial sale of certain hyperthermia equipment for the
treatment of cancer in the U.S. In the BPH market, competitive
companies offering products similar to BSD's BSD-50 include EDAP
Technomed (which has PMA approval from the FDA), Urologix,
VidaMed (which has 510(k) marketing clearance from the FDA),
Dornier, and Thermal Therapeutics. In addition to
hyperthermia/thermotherapy equipment made by competitors, there
are many other competitive treatments for benign prostatic
hyperplasia (including various drug treatments, surgical lasers,
ultrasound ablation, electro-cautery surgery, stents,
transurethral incision of the prostate (T.U.I.P.), and balloon
dilation) which are currently being developed, clinically
investigated and/or actively marketed. The Company competes in
foreign markets with many foreign manufacturers of
hyperthermia/thermotherapy systems, some of which have greater
financial and other resources than the Company.
The Company believes that other companies are considering or
will consider marketing hyperthermia/thermotherapy equipment and
anticipates increased competition both in the United States and
internationally. There can be no assurance that others,
including those with greater resources and more extensive
business experience than the Company, will not develop products
that would materially adversely affect the ability of the
Company to compete effectively. Further, the treatment of
disease with hyperthermia equipment, and with other methods, is
subject to rapid technological change. There can be no
assurance that other forms of treatment will not be developed
which could render the Company's hyperthermia systems obsolete.
The Company expects to rely upon trade secrets, unpatented
proprietary know-how and continuing technological innovation, as
well as current patents and new patent applications, in order to
maintain and improve its competitive position.
PRODUCT SERVICE
The Company provides a 12-month warranty following
installation on all systems and a 90-day limited warranty on
individual components. BSD's employees install and service the
hyperthermia systems it sells to domestic customers. In
addition, technical and clinical training is performed by
Company personnel or consultants. Subsequent to the applicable
warranty period, the Company offers full or limited service
contracts to its domestic customers.
Generally, the Company's distributors install and service
systems sold to foreign customers and are responsible for
managing their own warranty programs for their customers,
including labor and travel expenses. The Company provides parts
repair/replacement warranties for 12 months for systems and for
90 days for individual components. Spare parts are generally
purchased by the distributors and stored at the distributors'
maintenance facilities to allow prompt repair. Distributor
service personnel are usually trained at customer sites and at
the Company's facilities in Salt Lake City.
PRODUCTION
The Company produces and tests its products at its facilities
in Salt Lake City, Utah. The Company's manufacturing operations
consist primarily of component assembly and testing. Most of
the principal components of the Company's systems are purchased
from independent suppliers and are modified, as required, by the
Company at its facilities. Some purchased components are
modified by the supplier or are customized to the Company's
specifications. Key factors in the manufacturing process are
assembly and testing. Raw/pre-fabricated materials, components,
and sub-assemblies required for production are tested at every
stage of manufacture and again prior to final shipment. Certain
components and processes used in the manufacturing of the
Company's products are currently provided or performed by single-
source vendors. Any supply interruption or yield problems from
these vendors would have a material adverse effect on the
Company's ability to manufacture its products until a new source
of supply were qualified and, as a result, could have a material
adverse effect on the Company's business, financial condition
and results of operations.
In order to provide outside financial support for
manufacturing operations and diversify the Company's services,
the Company is providing high quality manufacturing and testing
services under contract to local companies.
RESEARCH AND DEVELOPMENT
Technological changes in the treatment of disease in general,
and in the hyperthermia field in particular, are frequent.
Thus, the Company intends to continue to devote substantial sums
to research and development in order to improve existing
products and develop new products. During the fiscal years
ended August 31, 1994, August 31, 1995, and August 31, 1996, the
Company expended $250,243, $219,871, and $565,158, respectively,
for research and development, representing 27.55%, 19.14%, and
22.28% of total revenues. The Company intends to pursue new
markets and applications for the Company's products.
Prototype development by the Company of the Sigma Eye
applicator, a new deep hyperthermia applicator which provides 3D
phase steering of energy, was funded by an NCI Phase I grant of
$50,000. As of August 1995, NCI approved funding of $325,066 to
BSD for a Phase II project to complete the design and testing of
a modified BSD-2000 control system and the new Sigma Eye (BSD-
2000-3D). Additional NCI funding of $138,499 has been allocated
for the second year to complete this effort and begin clinical
evaluation of the new Sigma Eye and BSD-2000 control system.
BSD is also completing the development of a new BSD-2000-3D/MR
system under contract with Dr. Sennewald/Medizin Technik GmbH
for delivery to Munich in 1997. The BSD-2000-3D/MR System
combines three state-of-the-art technologies: three-dimensional
(3D) focused deep regional hyperthermia using the Sigma Eye; 3D
patient specific treatment planning; and open Magnetic Resonance
(MR) Imaging. The Company believes that this system will be the
technological breakthrough needed to revolutionize deep
hyperthermia treatment and thus increase survival and quality of
life for patients suffering from many large and deep tumors;
i.e., recurrent breast, sarcoma, lung, colorectal, liver,
cervical, bladder, stomach, and prostate. The first system will
be installed at a leading German oncological research
institution - the Clinic of Medical Oncology of the Klinikum
Grosshadern Medical School of Ludwigs-Maximilians-Universitaet
Muenchen, Munich, Germany. The Medical School received funding
from the Stiftung Deutsche Krebshilfe e.V. (German Cancer Aid
Foundation) for the system order. Over the past few years, the
Foundation has contributed more than DM 11 million ($7.5 million
U.S.) to this Institution to develop the clinical application of
regional deep hyperthermia combined with chemotherapy for the
treatment of cancer patients.
The Company is also currently collaborating with a number of
research institutions to develop advanced
hyperthermia/thermotherapy products and treatments and to
increase the clinical applications for BSD's products.
PATENTS, INTELLECTUAL PROPERTY, LICENSING, AND ROYALTY
AGREEMENTS
Because of the substantial length of time and expense
associated with bringing new products through development and
regulatory approval to the marketplace, the medical device
industry places considerable importance on obtaining patent and
trade secret protection for new technologies, products and
processes. The Company's policy is to file patent applications
to protect significant technology, inventions and product
improvements. The Company has been issued 18 patents in the
United States and additional patents outside the United States.
Other hyperthermia related patents are pending in the United
States, Japan and Europe. There can be no assurance that the
patents presently issued or those applied for (if granted), will
be of significant value to the Company or will be held valid
upon judicial review. Successful litigation against these
patents by a competitor could have a material adverse effect
upon the Company's business, financial condition and results of
operations.
The Company believes that it possesses significant proprietary
know-how in its hardware and software capabilities. There can
be no assurance that others will not develop, acquire or patent
technologies similar or superior to those of the Company or that
secrecy will not be breached. In July 1979, the Company entered
into an exclusive worldwide license for a unique temperature
probe (Bowman Probe). The license will remain in effect as long
as the technology does not become publicly known as a result of
actions taken by the licenser. The Company pays royalties based
upon its sales of the Bowman Probe. The license agreement was
amended and renewed in 1987 and is currently in effect.
There has been substantial litigation regarding patent and
other intellectual property rights in the medical device
industry. In the past, the Company has filed lawsuits for
patent infringement against three of its competitors and
subsequently settled those lawsuits.
From time to time, the Company has had and may continue to
have discussions with other companies, universities and private
individuals concerning the possible granting of licenses
covering technology and/or patents. There can be no assurance
that such discussions will result in any agreements. In the
past, BSD has granted non-exclusive practice licenses for a few
selected patents to three companies (one of which is no longer
in business and one which has been terminated by BSD).
In 1994, BSD issued a non-exclusive license to Urologix to
practice some of its patented technology for cash payments and
royalties on future sales (see Part I, Item 3, Urologix vs. BSD
Medical Corporation).
In July 1996, BSD entered into a license agreement and granted
EDAP Technomed, Inc. a non-exclusive, non-transferable license
of certain rights to one of BSD's patents. As a result of this
transaction, BSD received a non-refundable license fee in the
amount of $1,500,000 ($1,000,000 in July 1996 and $500,000 in
September 1996), as well as the right to receive royalties of
2.5%, up to a maximum of $3,500,000, on the sale of certain
products.
GOVERNMENT REGULATION
The medical devices that have been and are being developed by
the Company are subject to extensive and rigorous regulation by
numerous governmental authorities, principally by the United
States Food and Drug Administration (FDA). Pursuant to the
Federal Food, Drug and Cosmetic Act (the FD&C Act), as amended,
the FDA regulates and must approve the clinical testing,
manufacture, labeling, distribution, and promotion of medical
devices in the United States. This regulation has become
stringent and the approval process expensive and time consuming.
In addition, various foreign countries in which the Company's
products are or may be sold, have regulatory requirements.
The majority of the Company's past and present hyperthermia
systems have required, (and future systems, if any, would likely
continue to require) Pre-Market Approval from the FDA instead of
the simpler 510(k) marketing approval. Pre-Market Approval
requires clinical testing to assure safety and effectiveness
prior to marketing and distribution of medical devices. The
Company intends to continue to make improvements in and to its
existing products. Product improvements must be submitted to
the FDA under IDEs, 510(k) PreMarket notifications or PMA
supplements.
International sales of unapproved medical devices are subject
to FDA export requirements, unless these products have been
previously approved by one of 8 countries specified by the FDA.
In addition, international sales are subject to the regulatory
safety agency requirements of each country. The regulatory
review process varies from country to country. The Company has
obtained regulatory approval, import approval and export
approval for various of its products from certain countries and
has applied for additional approvals and will continue to apply
for others. There can be no assurance that all of the necessary
approvals will be granted on a timely basis or at all. Delays
in receipt of or failure to receive such approvals could have a
material adverse effect on the Company's financial condition and
results of operations. Sales into the European Union (EU) are
now governed by the need to obtain a CE Mark and to comply with
all applicable directives. BSD has started the process of
obtaining testing and certifications needed for compliance which
will allow BSD to affix the CE Mark. There can be no assurance
that BSD can obtain the CE Mark, and, if BSD is unable to obtain
these approvals, it could have a significant material effect on
the Company's financial condition.
FDA regulations pertain not only to human health care products
and medical devices, but also to the processes and facilities
used to manufacture such products. The Company is required to
register with the FDA as a device manufacturer. As such, the
Company is inspected from time to time by the FDA to determine
whether the Company is in compliance with various regulations
relating to medical device manufacturers. All devices must be
manufactured in accordance with Good Manufacturing Practices
(GMPs) specified in regulations under the FD&C Act. In
complying with FDA's Good Manufacturing Practice (GMP)
regulations, manufacturers must continue to expend time, money
and effort in the areas of production and quality control to
ensure full compliance. Significant changes to the
manufacturing process require notification to the FDA, and all
changes require documentation. The Medical Device Reporting
regulation requires that the Company provide information to the
FDA on death or serious injuries alleged to have been associated
with the use of its products, as well as product malfunctions
that would likely cause or contribute to death or serious injury
if the malfunctions were to recur. Failure to comply with
regulatory requirements could have a material adverse effect on
the Company's business, financial condition and results of
operations. Although the Company believes that it is in
material compliance with all applicable manufacturing and
marketing regulations of the FDA and other regulatory bodies
with respect to its existing products, a determination that the
Company is in material violation of such regulations could lead
to the imposition of penalties, including fines, recall orders,
product seizures, and criminal sanctions. In addition, current
regulations depend heavily on administrative interpretation, and
there can be no assurance that future interpretations made by
the FDA or other regulatory bodies, with possible retroactive
effect, will not adversely affect the Company. Although the
Company cannot predict what impact, if any, such changes might
have on its business, such changes could materially adversely
affect the Company's business.
The Federal Communications Commission (FCC) regulates the
frequencies of microwave and radiofrequency emissions from
medical and other types of equipment to prevent interference
with commercial and governmental communications networks. The
BSD-50, BSD-400, and the BSD-500 hyperthermia system applicators
emit a fixed frequency of 915 MHz, which is approved by the FCC
for medical applications. Some European countries allow the use
of 433.92 MHz rather than 915 MHz, thus the BSD-50, BSD-400, and
BSD-500 can be operated at 433.92 MHz. Accordingly, these
systems do not require shielding to prevent interference with
communications. The BSD-1000, BSD-1500 and BSD-2000 systems
utilize variable-frequency generators and applicators to achieve
therapeutic temperatures. Accordingly, these systems require
electromagnetic shielding. Ultrasound hyperthermia systems can
be operated without shielding because the applicators emit
acoustic rather than electromagnetic energy.
PRODUCT LIABILITY EXPOSURE
The manufacture and marketing of medical devices involve an
inherent risk of product liability. Because the Company's
products are intended to be used in hospitals on patients who
may be physiologically unstable and severely ill, the Company is
exposed to potential product liability claims. The Company
presently carries product liability insurance. However, there
can be no assurance that the product liability insurance will
provide adequate coverage against potential claims which might
be made against the Company. In the Company's 18 year history,
3 product liability claims have been filed against the Company,
and all were settled out of court with no material impact on the
Company. No product liability claims are presently pending
against the Company; however, there can be no assurance that
product liability claims will not be filed in the future.
EMPLOYEES
On August 31, 1996, the Company had 19 employees, 15 of them
full time employees. None of the Company's employees are
covered by a collective bargaining agreement. The Company
considers its relations with its employees to be satisfactory.
The Company is dependent upon a limited number of key
management, manufacturing, and technical personnel. The
Company's future success will depend in part upon its ability to
retain these highly qualified employees.
ITEM 2. PROPERTIES
The office, production and research facilities of the Company
are located in Salt Lake City, Utah. The complete headquarters
and production facility occupies approximately 20,000 square
feet and is rented on a lease with an option to purchase. The
annual rental expense is $62,400 (see Note 6 to Financial
Statements). The building is currently in good condition; is
adequate for the Company's needs; is suitable for all Company
functions; and provides room for future expansion. The Company
has received a commercial appraisal on the facility of $928,000
and has an agreement with its current landlord to purchase the
building for approximately $330,000. Thus, the Company is
currently attempting to obtain an agreement which will allow the
Company to purchase the facility and, in connection with this
agreement, borrow up to approximately 70% of the appraised value
of the building (see page F-14, Note 6 to Financial Statements).
The Company believes that it carries adequate insurance on the
property; however, there can be no assurance that this insurance
will provide adequate coverage.
ITEM 3. LEGAL PROCEEDINGS
UROLOGIX, INC. VS. BSD MEDICAL CORPORATION, United States
District Court for the District of Minnesota, Civil Action No. 4-
96-647.
In June 1996, BSD Medical notified Urologix, Inc. that
Urologix was in breach of the parties' license agreement because
of violations by Urologix, Inc. of the settlement and patent
licensing agreement's confidentiality provisions and that the
agreement was terminated. On July 30, 1996, Urologix, Inc.
filed suit (under seal) against the Company seeking a
declaration that the Company's termination of a settlement and
patent licensing agreement was not proper, and that the
settlement and patent licensing agreement remains in full force
and effect. The Company answered the complaint and filed a
counterclaim on August 20, 1996, seeking a declaratory judgment
that the settlement and patent licensing agreement were properly
terminated by the Company (based on Urologix, Inc.'s prior
breach of the confidentiality provision) and seeking damages
caused by such breach. Urologix, Inc. has answered the
counterclaim and discovery has recently commenced.
At this point in time, it is not possible to predict the
parties' relative likelihood of success on their various claims.
Though Urologix's complaint against the Company requests
unspecified "damages," it is apparent that the principal thrust
of the relief sought by Urologix, Inc. is declaratory and
injunctive. Since the Company has taken no action to preclude
Urologix, Inc. from continuing to offer products or to otherwise
affect Urologix's on-going business, it seems unlikely that
Urologix, Inc. will ever be able to establish significant
monetary damages.
NELSON BUNKER HUNT LIQUIDATING TRUST VS. ALAN L. HIMBER
Alan L. Himber, a former principal and officer of the Company,
filed for bankruptcy relief under Chapter 7 in the Northern
District of Texas. Mr. Himber's claims against the Company for
wages and equitable ownership interests through various
partnerships became property of the Chapter 7 estate. It
appears that, through an Asset Purchase and Release of Claims,
the Chapter 7 Trustee of Himber's estate released and conveyed
the Himber estate's wage claim and claims of interest in the
Company to the NBH Liquidating Trust.
BSD MEDICAL CORPORATION VS. ALAN L. HIMBER
The Company was involved in litigation against Mr. Alan Himber
(see 1994 10-K, Part I, Item 3, BSD Medical Corporation vs. Alan
L. Himber). A Settlement Agreement was reached on January 12,
1996, on behalf of Himber's estate which unconditionally
released BSD from all claims, causes of action, legal and
administrative remedies related to any claim, event, act or
omission, whether known or unknown, by Himber, occurring or
arising prior to January 12, 1996 (see 1994 10-K, Part I, Item
3, Nelson Bunker Hunt Liquidating Trust vs. Alan L. Himber).
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during
the fourth quarter of fiscal year 1995.
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The Company's Common Stock began publicly trading on
December 9, 1980, and was traded in the over-the-counter
market under the NASDAQ symbol "BSDM" until it was delisted
from NASDAQ on January 3, 1991. Since then, it has continued
to trade (very sporadically) in the over-the-counter market.
For the periods subsequent to December 1990, consistently
reliable stock quotations have not been readily available
because there has been no established market for the Company's
stock due to BSD's stock being delisted from NASDAQ. (The
Company plans to apply to have the symbol "BSDM" appear on the
NASD "Bulletin Board" in the future.)
As of August 31, 1996, there were approximately 625 holders of
record of the Common Stock. The Company has not paid any cash
dividends on its Common Stock since its inception and has no
intention of declaring any Common Stock dividends in the
foreseeable future.
ITEM 6. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The balance sheet as of August 31, 1995, and the statements
of operations, statements of cash flow and statements of
stockholders' deficit for the years ending August 31, 1994,
and 1995, and the independent auditors report thereon are
included elsewhere in this report. The following selected
financial information should be read in conjunction with
the financial statements and notes thereto included elsewhere
in this report.
FISCAL YEAR ENDED AUGUST 31, 1995. Revenues for the year
ended August 31, 1995, totaled $1,148,656, compared to $908,263
for the year ended August 31, 1994, an increase of $240,393, or
26.47%. The legal battle for control of the majority of the
Company's stock was resolved in 1994 and the majority ownership
was purchased by long-term Company insiders and BSD's primary
distributor (see Part II, Item 7, Management Discussion, page II-
2, August 31, 1994, 10-K), which has resulted in a change in
focus for the Company as well as a change in management,
marketing, and sales strategy. The increase in 1995 was
primarily a result of these changes in strategy.
The Company's revenues from products and services in the
United States, as compared to $360,593 in fiscal 1994, increased
slightly to $383,256 in fiscal 1995. The Company believes that
the domestic market will begin to expand slowly in the future
because of the Company's increased sales efforts, recent
publication of randomized studies showing the effectiveness of
hyperthermia, and a renewed interest in hyperthermia in the U.S.
Gross profit on product sales for 1995 was $501,923, an
increase of 15.66%, as compared to $433,971 in fiscal 1994; a
result of an increase in product sales. Gross profit margin
as a percentage of sales decreased from 50.56% in fiscal 1994
to 43.70% in fiscal 1995, primarily because of options issued
to employees to purchase shares of the Company's common stock,
which have been recorded as deferred compensation and amortized
over the vesting period of the options (see Note 5 to Financial
Statements) and the sale of a BSD-2000 at a reduced profit, sold
at that price because it was the first BSD-2000 placed in a
specific country and would provide a reference site to stimulate
future sales.
Selling, General and Administrative Expenses for 1995 totaled
$589,180, a decrease of $228,045, or 27.90%, as compared to
$817,225 in fiscal 1994. The decrease was primarily caused by
cost-cutting measures and efficiencies implemented by the
Company, particularly in the areas of general and administrative
staffing. These expenses may increase in the future as the
Company intends to expand its marketing and sales efforts.
Research and Development Expenses totaled $219,871, a decrease
of $30,372 in 1995, or 12.14%, as compared to $250,243 in fiscal
1994 due to cost cutting measures implemented in all areas of
the Company during this time while management evaluated the
overall business structure and focus. The Company intends to
increase research and development in order to improve existing
products and develop new products, including the development of
the BSD-2000-3D and the BSD-2000-3D/MR third generation deep
regional hyperthermia equipment. The Company also intends to
pursue new markets and applications for the Company's products.
Total Costs and Expenses for 1995 were $1,455,784, an
insignificant decrease of 2.41% as compared to $1,491,760 in
fiscal 1994.
In 1994 and 1995, Other Income, Net, a component of Other
Income (Expense), included gains from settling trade accounts
payable for less than their recorded balances as well as
recovery of previously estimated reserves and expenses. These
gains totaled approximately $110,000 in fiscal 1994 and $162,000
in 1995, decreasing loss per share by $.01 in fiscal 1995
and 1994.
Interest Expense increased to $37,493 in fiscal 1995, as
compared to $12,376 in 1994. The 1995 increase was caused
primarily by capitalization of the building lease costs incurred
for the Company to obtain and retain the option to purchase the
building BSD currently occupies at a favorable price (see Note 6
to Financial Statements).
During fiscal 1995, the Company experienced a net loss of
$196,879 a decrease of 26.60%, as compared to a net loss of
$268,224 in fiscal 1994 due to cost cutting measures implemented
by current management.
RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS. International
sales accounted for 60.30% and 66.63% of the Company's total
product sales during the fiscal years ended August 31, 1994, and
August 31, 1995, respectively. The Company expects that
international sales will continue to represent a significant
portion of its total sales. The Company is subject to risks
generally associated with international operations, including
the establishment by foreign regulatory agencies of product
standards different from, and in some cases more stringent than,
those in the United States. Although the Company's sales are
denominated in U.S. dollars, its international business may be
affected by changes in demand resulting from fluctuations in
currency exchange rates. The Company's international sales may
also be adversely affected by tariff regulations and export
license requirements. Possible governmental, legislative and
political actions that may be taken by the United States in
order to reduce the balance of payments deficit may result in
retaliatory actions by foreign governments. Such actions could
have adverse effects upon sales of the Company's products in
certain foreign markets. In addition, the laws of certain
foreign countries do not protect the Company's intellectual
property rights to the same extent as do the laws of the United
States.
FLUCTUATIONS IN OPERATING RESULTS. Due to risks associated
with international operations, budgeting considerations of the
Company's customers, the nature of the medical capital equipment
market, the inability of the Company to predict the timing of
various approvals required from the Food and Drug Administration
and other governmental agencies, the relatively large per unit
sales prices of the Company's products, the typical fluctuations
in the mix of orders for different systems and system
configurations, the limited unit sales volumes, the Company's
limited cash resources, changes in Medicare and other third-
party reimbursement policies, competition, and other factors,
the Company's sales and operating results historically have
varied (and will likely continue to vary) greatly on a quarter-
to-quarter and year-to-year basis. For these and other reasons,
the results of operations for a particular fiscal period may not
be indicative of results for any other period.
LIQUIDITY AND CAPITAL RESOURCES. Total assets decreased by
$126,739 a decrease of 9.66% from August 31, 1994, to August 31,
1995. The decrease was primarily due to cost cutting measures
and a reduction in inventory. Cash increased $5,189, an
increase of 12.67%, primarily as a result of normal business
fluctuations. Trade accounts receivable increased $8,640, an
increase of 9.36% primarily as a result of normal periodic
fluctuations in shipments. Inventories decreased by $152,291, a
decrease of 22.26%, primarily as a result of finished systems
shipped during 1995 which had been previously held in inventory.
Current liabilities decreased by $630,308, a decrease of 39.45%
primarily as a result of decreases in accounts payable, accrued
expenses, and customer deposits as well as other normal periodic
fluctuations.
MANAGEMENT DISCUSSION AND CURRENT STATUS OF FINANCIAL CONDITION.
Management believes that the current projected sales combined
with projected grants may be sufficient to meet the Company's
operating cash requirements into 1997. However, if sales and
grants are not sufficient to meet the Company's operating needs,
management intends to use its current cash position,
supplemented and aided by anticipated cash flow from sales,
budget controls, fiscal conservatism, the possibility of loans,
and if necessary, private placements of its equity securities to
meet operating requirements planned for 1997. The Company's
backlog of unfilled customer orders was $410,141, as of August
31, 1995, and $409,141, as of August 31, 1996. However, a
$335,000 deposit has already been collected by the Company for
this backlog. The Company also had long term receivables due
for field service contracts of $115,108, as of August 31, 1995,
and $106,820, as of August 31, 1996.
Following the change in controlling interest in the Company
(see Part III, Item 13, Employees Acquire Controlling Interest
in BSD Medical, August 31, 1994 10-K), current management
evaluated its overall business and implemented new corporate
structuring, focus and strategies. The Company implemented a
strategic plan to reactivate domestic sales of the cancer
product lines and anticipates slow increases in this market
segment in the future. Management plans to expand world wide
marketing for current cancer products into two previously
unexplored markets: surgical and chemotherapeutic oncology.
These two disciplines control most cancer patients and treatment
funds, and clinical evidence of the safety and efficacy of
hyperthermia in conjunction with chemotherapy and surgery has
been published. The increasing trend toward managed care
facilities provides a new opportunity for the marketing of BSD's
therapies which provide reduced patient care costs while
increasing the efficacy of other modalities and the Company
plans to develop marketing strategies targeted for this market.
BSD is seeking an investor/partner to provide the capital
needed to implement and accelerate current corporate and
marketing opportunities. The Company is also actively seeking
strategic partnerships for marketing, sales and distribution of
the Company's current products, collaborative arrangements for
the development of new product lines, as well as alliances for
product development and manufacturing of the companies' product.
BSD is well positioned for these types of alliances, and they
would allow the Company to expand and grow more quickly.
A report on the medical industry by Frost and Sullivan, the
leading worldwide publisher of high-technology research reports,
predicted a seven percent annual growth in medical equipment
markets and an increase in the worldwide market for cancer
diagnostic imaging and therapeutic equipment from $2.7 billion
in 1993 to $4.4 billion in the year 2000. The cancer therapy
equipment evaluated included hyperthermia equipment. Management
has implemented programs to increase profitability and expand
BSD's business and anticipates that these strategic plans will
result in future growth and profitability; however, there can be
no assurance these plans will be successful.
BSD plans to support further R & D for current products to
improve function and reduce cost. Funding of R & D objectives
for the cancer products will primarily come from government and
foundation sources, and product improvements on existing
product lines will be supported by current product sales. The
Company also intends to pursue new markets and applications for
the Company's product as well as all new opportunities that
would be commercially viable. The Company is primarily focused
on the development and commercialization of minimally invasive,
low toxicity, effective treatments of disease using controlled
heating. Changing the body's temperature is one of the most
natural and non-toxic methods to change the biology and
physiology of tissue, and research into heating may provide
additional new and unexplored diagnostic and treatment methods
for a variety of conditions. BSD is a high technology company
with a sophisticated research University customer base. The
research based customers often ask BSD to develop medical
products based on proposed solutions to current problems. BSD
plans to rely heavily on collaboration with this University
based idea pool for expansion of current products as well as
development of new products. This approach ensures that there
is an established market for the products developed by BSD and
provides rapid evaluation of technical feasibility by
collaborative testing of new products. New market
opportunities will be allocated limited internal funding to
determine market and technical feasibility. Once feasibility
is established, a project plan will be prepared and submitted
to the Board of Directors for review and further funding
approval. Some of these R & D projects may lead to new
products, partnerships, and strategic alliances. The Board
will determine whether these business opportunities should be
pursued by BSD or sold to other interested parties. BSD is
currently evaluating some new applications.
The Company has expanded its business to include contract
manufacturing in order to more effectively utilize BSD's
manufacturing expertise. Management is currently increasing the
marketing of this service.
The Company is placing a significant emphasis on development
of the BPH treatment market, as opposed to the Company's
traditional emphasis on sales to the oncology market, because of
the large market potential. BSD holds major patents in several
aspects of hyperthermia/thermotherapy treatment of BPH. It is
BSD's contention that all other companies in this market
infringe BSD's patents and BSD intends to defend its patent
positions and control entry into its protected markets. In
1996, BSD received a $1.5 million cash license fee from EDAP
Technomed, Inc., for a non-exclusive, non-transferable, patent
license for one of BSD's U.S. patents for heating the prostate
with microwave energy. In addition to the payment of $1.5
million for the license, BSD has received, and will continue to
receive, royalties on the sale of certain products from EDAP
Technomed.
In 1996, BSD received the first purchase order for its new,
advanced, deep regional, hyperthermia system - the BSD-2000-
3D/MR System. The purchase order for the amount of $850,000 was
received from Dr. Sennewald/Medizin-Technik GmbH, Munich,
Germany, BSD's primary European distributor, and included an
option for a second system order. In August 1995, the Company
was awarded a Phase II National Cancer Institute SBIR grant for
$325,066 for the first year with additional funding of $138,499
for the second year to support some of the development efforts
for the BSD-2000-3D. The Company anticipates that the BSD-2000-
3D System may increase the expansion of the commercial market in
hyperthermia throughout the world. BSD has started
collaborative developments for clinical application of this
technology, and some of these developments will be conducted
under grants from the Stiftung Deutsche Krebshilfe e.V. (German
Cancer Aid Foundation). In a January 23, 1996 press release,
the Foundation stated that they have contributed more than DM
30.5 million to implement the clinical application of regional
deep hyperthermia for the treatment of cancer because
hyperthermia is one of the few new weapons which have passed the
test in the fight against cancer during the past years.
Management is dedicated to improving operating results through
consistent performance, improved sales levels, new corporate
directions, diversification of products and services, and cost
reductions; however, there are no assurances that management
will be successful in achieving improved operating results and
there are certain risk factors which may impact the Company's
ability to fund its cash needs. Such risk factors include
uncertainties as to the Company's ability to achieve adequate
sales, general economic conditions, possible unforeseen and/or
non recurring expenses, and the availability of outside
financing. The absence of a substantial backlog may impair the
Company's ability to plan production and inventory levels, which
could lead to fluctuations in operating results, and the
Company's backlog as of any particular date may not be
indicative of the Company's actual sales for any fiscal period.
In addition, the Company's ability to produce and ship its
products depends upon its production capacity, manufacturing
yields and component availability, among other factors. The
domestic United States market for cancer hyperthermia equipment
has been severely adversely impacted as a result of Medicare and
other third-party reimbursement policies and procedures. The
positive clinical results from European studies and recent
changes in Medicare reimbursement policy should stimulate the
U.S. market; however, BSD projects that the U.S. market will
continue to grow at a slower rate than the international market.
Domestic United States orders have traditionally generated a
substantial cash down payment with each order. These down
payments have helped to stabilize cash fluctuations over the
course of each year and have helped to finance the acquisition
of the specific components needed to produce the systems for
which these down payments have been received. For the previous
few years, foreign sales have provided the majority of sales
revenues, and the Company anticipates that the majority of its
sales for at least the next one to two years will be to foreign
customers. The dramatic shift from predominantly domestic
United States sales to predominantly foreign sales could have a
negative impact on the Company's ability to fund its future
purchases of raw materials because payments to the Company for
foreign sales have typically been by means of letters of credit
whereby 100% of the purchase price for each system is paid to
the Company after the system has been produced and shipped. In
order to remedy this situation, the Company is attempting to
encourage substantial down payments with system orders and is
seeking to establish a line of credit; however, there can be no
assurance the Company will be successful in obtaining either.
ITEM 7. FINANCIAL STATEMENTS
Pursuant to Rule 12b-23, the financial statements set forth on
pages F-1 through F-17 attached hereto are incorporated by
reference.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
<PAGE>
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
The current directorship positions resulted from vacancies and
were filled by a majority of the directors then in office, and
the directors so chosen hold office until their successors have
been duly elected and qualified. The Company does not presently
have a nominating committee. Executive officers of the Company
are appointed by the Board of Directors and serve at the
discretion of the Board. There are no family relationships
between any of the directors or executive officers of the
Company and none of these individuals have been involved in any
reportable legal proceedings.
The following table sets forth certain information concerning
the directors, executive officers, and other significant
employee(s) of the Company.
Name Age Position
Paul F. Turner, 49 Chairman of the Board, Acting
M.S.E.E. President, and Senior Vice
President of Research
Dixie Toolson Sells 46 Vice President of Regulatory
Affairs and Corporate Secretary
Ray Lauritzen 46 Vice President of Field Service
Gerhard W. Sennewald, 60 Member of the Board of Directors
Ph.D.
S. Lewis Meyer, Ph.D. 52 Member of the Board of Directors
J. Gordon Short, M.D. 65 Member of the Board of Directors
Theron Schaefermeyer 45 Director of International Sales
and Marketing
Mr. Turner has been with BSD for 18 years. He has served as
Staff and Senior Scientist from 1979 to September 1986; as Vice
President of Research from September 1986, to January 1989; and
as Senior Vice President of Research from January 1989, to
October 1993. In October 1993, Mr. Turner resigned as Vice
President of Research, and he served as Senior Scientist from
October 1993 to December 1994. In December 1994, Mr. Turner was
re-appointed as Senior Vice President of Research and was
elected to the Board of Directors. On October 3, 1995, the
Board of Directors appointed Mr. Turner as Acting President.
Ms. Sells has been with BSD for 18 years. She has served as
Administrative Director from 1978 to 1984; as Director of
Regulatory Affairs from 1984 to September 1987; and as Vice
President of Regulatory Affairs from September 1987, to October
1993. In October 1993, Ms. Sells resigned as Vice President of
Regulatory Affairs, and she served as Director of Regulatory
Affairs from October 1993 to December 1994. In December 1994,
Ms. Sells was re-appointed as Vice President of Regulatory
Affairs and was appointed as Corporate Secretary by the Board of
Directors.
Mr. Lauritzen has been with BSD for 14 years. He has served
as Field Service Manager from 1982 to January 1988 and as Vice
President of Field Service Operations since January 1988.
Dr. Gerhard Sennewald was appointed to BSD's Board of
Directors in December 1994. He has been the key BSD European
representative and distributor for 12 years and has been
instrumental in obtaining the majority of BSD's foreign sales.
Dr. Sennewald is the President and Chief Executive Officer of
Medizin Technik GmbH of Munich, Germany.
Dr. S. Lewis Meyer returned to BSD's Board of Directors in
December 1994, after previously serving as a Director in the mid-
1980's. Dr. Meyer is President and Chief Executive Officer of
Imatron, Inc., a publicly traded manufacturer of Ultrafast CT
(Registered Trademark) Scanner. Dr. Meyer is also Chief
Executive Officer of Heartscan Imaging, Inc., a subsidiary of
Imatron, Inc., which is engaged in the development of a
nationwide network of coronary artery disease risk assessment
centers.
Dr. J. Gordon Short was appointed to BSD's Board of Directors
in December 1994, after extensive participation in the initial
development and market establishment of the Company's products
as Medical Director for BSD, as well as previous service on the
Company's Medical Advisory Board. Dr. Short is President and
Chief Executive Officer of Brevis Corporation, a medical
products company which specializes in consumable specialty
supplies.
Mr. Schaefermeyer has been with BSD for 15 years. He has been
a Research Assistant since 1985 and assisted with International
Marketing from 1991 to 1995. He has served as Director of
International Sales and Marketing since July 1995.
Pursuant to Section 16(a) of the Securities Act of 1934, the
Company's directors, executive officers, and any persons holding
more than 10 percent of the Company's stock, are required to
report their ownership and any changes in beneficial ownership
of the Company's stock to the Securities and Exchange
Commission. To the Company's knowledge, based solely on review
of the copies of such reports furnished to the Company, all of
such persons subject to these reporting requirements filed the
required reports with respect to the Company's most recent
fiscal year.
ITEM 10. EXECUTIVE COMPENSATION
The following tables set forth certain information regarding
all compensation earned during the last three fiscal years,
stock option grants and exercises during fiscal year 1995, and
fiscal year-end stock option values for the person(s) acting in
a similar capacity to chief executive officer of the Company in
the fiscal year ended August 31, 1995. No other executive
officers of the Company received compensation exceeding
$100,000.
SUMMARY COMPENSATION TABLE
Long Term
Annual Compensation Compensation Awards
- ---------------------------------------------------------------------
Other
Annual Restric- All
Name and Fiscal Salary Bonus Compen- ted Other
Position Year ($) ($) sation Stock Options Compen-
($) Awards($) (#) sation($)
- ---------------------------------------------------------------------
Paul F. 1995 $115,000 -0- -0- $1,240(1) 166,000 -0-
Turner, 1994 $115,000 -0- -0- -0- -0- -0-
Acting 1993 $110,212 -0- -0- -0- -0- -0-
President;
Sr VP,
Research
Steven J. 1995 $64,817 -0- -0- $1,240(1) -0- -0-
Carwell, 1994 $102,000 -0- -0- -0- -0- -0-
President; 1993 n/a(2) n/a n/a n/a n/a n/a
(2)
- -------------------------
(1) During fiscal 1995, the Company awarded both Mr. Turner
and Mr. Carwell 1,000 shares of restricted common stock.
Consistently reliable stock quotations have not been readily
available because there has been no established market for
the Company's stock (see Part II, Item 5). However, the
Company received a valuation of $1.24 per share on a
controlling interest basis as of December 4, 1994. The
Company believes these numbers may not be a reliable
indicator of actual realizable value of these shares.
However, this value has been reflected for the shares listed
in this table.
(2) Mr. Carwell served as President of the Company from
December 16, 1993, to May 3, 1995. Prior to December 16,
1993, Mr. Carwell was not an officer of the Company.
OPTION/SAR GRANTS IN LAST FISCAL YEAR - Individual Grants
Percent of
Total Exercise
Name and Options Options or Base Expiration
Position (#) Granted to Price Date
Employees ($/Sh)
in Fiscal
1995
- ------------------------------------------------------------------------
Paul F. Turner, 166,000 20.23% $.10 April 4, 2005
Acting President;
Sr VP, Research
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION/SAR VALUES
Shares Number of Value of
Acquired Value Securities Unexercised
Name and on Realized Underlying In-the-Money
Position Exercise ($) Unexercised Options at
(#) Options at FY-end ($)
FY-end (#)
------------------ --------------------
Exerci- Unexerci- Exerci- Unexerci-
sable sable sable sable
- -------------------------------------------------------------------------
Paul F. -0- -0- -0- 166,000 n/a $189,240 (1)
Turner,
Acting
President;
Sr VP,
Research
- ------------------
(1) Consistently reliable stock quotations have not been
readily available because there has been no established
market for the Company's stock (see Part II, Item 5).
However, the Company received a valuation of $1.24 per share
on a controlling interest basis as of December 4, 1994. The
Company believes these numbers may not be a reliable
indicator of actual realizable value of these options.
However, this value has been reflected for the options listed
in this table.
COMPENSATION OF DIRECTORS
During fiscal year 1995 each of the directors and full-time
employees of the Company were given 1,000 restricted shares each
of BSD common stock. Each director also received 35,000
nontransferable stock options under the "BSD Medical Corporation
1987 Stock Option Plan". These options were at an exercise
price of $.10 per share, vest over a five year period and expire
in 2005. The directors have not received any other compensation
for their service to the Company as directors.
EMPLOYMENT CONTRACTS
The Company has an employment contract with Mr. Paul F. Turner
which was signed November 2, 1988. The agreement provides that
after October 1, 1993, Paul Turner's salary shall be based upon
reasonable mutual agreements. The last salary increase
provided, according to this agreement between Mr. Turner and
BSD, a raise to $115,000 per year, as of October 1, 1993. In
the case of non-voluntary termination, Mr. Turner shall receive
severance pay for a one year period, which includes an extension
of all employee rights, privileges, and benefits, including
medical insurance. The one year severance pay shall be an
average of Mr. Turner's salary for the immediate twelve month
period prior to termination. The agreement also requires the
Company to pay Mr. Turner any accrued unused vacation at the
time of termination. BSD is also obligated to pay Mr. Turner
$1,000 (or the equivalent value in stock options) for newly
issued patents (this compensation is halved if multiple
inventors are involved).
Mr. Turner's agreement includes a period of non-competition
for one year following termination of employment. This non-
competition agreement may be extended by BSD for up to an
additional four years by written notification and continuing
severance payments for the additional years of extension (as
defined for the first year) if the non-competition obligation is
extended.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The following table sets forth certain information as of
August 31, 1995, with respect to the beneficial ownership of the
outstanding Common Stock by (i) each person known to management
of the Company to own beneficially more than 5% of the
outstanding Common Stock, (ii) all directors and named executive
officers of the Company, and (iii) all officers and directors as
a group:
Name and Address of Shares of Common Percentage of
Beneficial Owner Stock Beneficially Common Stock
Owned (1) Ownership (2)
- ----------------------------------------------------------------
Dr. Gerhard W. Sennewald 7,092,881 43.85%
c/o Medizin-Technik GmbH
Augustenstrasse 27
D-80333 Munich, Germany
Paul F. Turner 2,013,918 12.45%
762 Lacey Way
North Salt Lake, UT 84054
Inchon Partners, L.P. (3) 912,500 5.64%
c/o Alan L. Himber
3878 Oak Lawn
Suite 100B-212
Dallas, TX 75219-4610
Steven Hite 886,985 5.48%
10329 South 1540 West
South Jordan, UT 84095
S. Lewis Meyer, Ph.D. 4,000 *
c/o Imatron
389 Oyster Point Blvd.
S. San Francisco, CA 94080
J. Gordon Short, M.D., FCAP 1,000 *
c/o Brevis Corporation
3310 South 2700 East
Salt Lake City, UT 84109
All officers and directors 9,574,291 59.16%
as a group (6 persons)
- -------------------
* Less than 1.0%
(1) Unless otherwise noted and subject to community property
laws, where applicable, the persons named in the table above
possess sole voting and investment power with respect to all
shares shown to be beneficially owned by them.
(2) Shares not outstanding but deemed beneficially owned by
virtue of the right of a person or member of a group to
acquire them within 60 days are treated as outstanding only
when determining the amount and percent owned by such person
or group. (No officers or directors had vested options
within 60 days of fiscal year 1995.)
(3) Alan L. Himber, as the General Partner of Inchon Partners,
L.P., possessed voting rights to the stock owned by the
partnership and acted on behalf of the limited partners of
the partnership. However, Mr. Himber is in Chapter 7
bankruptcy, and according to an agreement between Thomas
Powers, Himber's Chapter 7 Trustee, and Carter Pate, the
NBHLT Trustee, dated January 12, 1996, Powers was deemed to
have "sold, transferred, and conveyed" to the NBHLT all of
the Himber estate's interest in and right to any shares of
stock of BSD, and all rights of the Himber estate to acquire
additional shares of BSD, including all options, warrants,
and convertible instruments. Thus, all of the Himber
estate's interest in and control of Inchon Partners has been
transferred to the NBHLT (see Part I, Item 3, Nelson Bunker
Hunt Liquidating Trust vs. Alan L. Himber).
The following table sets forth certain information as of
November 14, 1996, with respect to the beneficial ownership of
the outstanding Common Stock by (i) each person known to
management of the Company to own beneficially more than 5% of
the outstanding Common Stock, (ii) all directors and named
executive officers of the Company, and (iii) all officers and
directors as a group:
Name and Address of Shares of Common Percentage of
Beneficial Owner Stock Beneficially Common Stock
Owned (1) Ownership (2)
- ------------------------------------------------------------------
Dr. Gerhard W. Sennewald 6,662,946 (3) 41.01%
c/o Medizin-Technik GmbH
Augustenstrasse 27
D-80333 Munich, Germany
Paul F. Turner 1,984,807 (4) 12.14%
762 Lacey Way
North Salt Lake, UT 84054
Dora Lee Langdon 886,485 5.48%
P.O. Box 278
Granbury, TX 76048-0278
Inchon Partners, L.P. (5) 912,500 5.64%
c/o NBH Liquidating Trust
c/o R. Carter Pate
c/o Sun Coast Plastics
2700 South Westmoreland
Dallas, TX 75233
S. Lewis Meyer, Ph.D. 12,000 (6) *
c/o Imatron
389 Oyster Point Blvd.
S. San Francisco, CA 94080
J. Gordon Short, M.D., FCAP 9,000 (7) *
c/o Brevis Corporation
3310 South 2700 East
Salt Lake City, UT 84109
All officers and directors 9,215,836 (8) 55.81%
as a group (6 persons)
- --------------
* Less than 1.0%.
(1) Unless otherwise noted and subject to community property
laws, where applicable, the persons named in the table above
possess sole voting and investment power with respect to all
shares shown to be beneficially owned by them.
(2) Shares not outstanding but deemed beneficially owned by
virtue of the right of a person or member of a group to
acquire them within 60 days are treated as outstanding only
when determining the amount and percent owned by such person
or group.
(3) Includes 69,065 shares subject to options.
(4) Includes 169,889 shares subject to options.
(5) Alan L. Himber, as the General Partner of Inchon Partners,
L.P., possessed voting rights to the stock owned by the
partnership and acted on behalf of the limited partners of
the partnership. However, Mr. Himber is in Chapter 7
bankruptcy, and according to an agreement between Thomas
Powers, Himber's Chapter 7 Trustee, and Carter Pate, the
NBHLT Trustee, dated January 12, 1996, Powers was deemed to
have "sold, transferred, and conveyed" to the NBHLT all of
the Himber estate's interest in and right to any shares of
stock of BSD, and all rights of the Himber estate to acquire
additional shares of BSD, including all options, warrants,
and convertible instruments. Thus, all of the Himber
estate's interest in and control of Inchon Partners has been
transferred to the NBHLT (see Part I, Item 3, Nelson Bunker
Hunt Liquidating Trust vs. Alan L. Himber).
(6) Includes 7,000 shares subject to options.
(7) Includes 7,000 shares subject to options.
(8) Includes 335,545 shares subject to options.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
The following exhibits are filed as part of this report or are
hereby incorporated by reference as indicated:
Exhibit
Number Description
- ---------------------------------------------------------------
3.1 Certificate of Incorporation. Incorporated by reference
to Exhibit 3.1 of the BSD Medical Corporation
Registration Statement on Form S-1, filed October 16,
1986.
3.2 By-Laws. Incorporated by reference to Exhibit 3.2 of
the BSD Medical Corporation Registration Statement on
Form S-1, filed October 16, 1986.
4.1 Specimen Common Stock Certificate. Incorporated by
reference to Exhibit 4 of the BSD Medical Corporation
Registration Statement on Form S-1, filed October 16,
1986.
10.1 Transfer of Trade Secrets Agreement dated December 7,
1979, among BSD Medical Corporation, Vitek, Incorporated
and Ronald R. Bowman. Incorporated by reference to
Exhibit 10.6 of the BSD Medical Corporation Registration
Statement on Form S-1, filed October 16, 1986.
10.2 Volume Purchase Agreement dated June 6, 1986, between
BSD Medical Corporation and Luxtron Corporation.
Incorporated by reference to Exhibit 10.9 of the BSD
Medical Corporation Registration Statement on Form S-1,
filed October 16, 1986.
10.3 BSD Medical Corporation 1987 Stock Option Plan.
Incorporated by reference to Exhibit 10 of the BSD
Medical Corporation Form 10-K, filed April 8, 1988.
10.4 Second Addendum to Exclusive Transfer of Trade Secrets
Agreement dated April 2, 1987. Incorporated by
reference to Exhibit 10 of the BSD Medical Corporation
Form 10-K, filed April 8, 1988.
10.5 License Agreement between BSD Medical Corporation and
EDAP Technomed, Inc., dated July 3, 1996. Incorporated
by reference to Exhibit 10 of Form 8-K, filed August 7,
1996.
27 Financial Data Schedule.
(b) Reports on Form 8-K
During the last quarter of fiscal year 1995, no reports on
Form 8-K were filed by the Company.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
BSD MEDICAL CORPORATION
Date: February 24, 1997 By: /s/ Paul F. Turner
Paul F. Turner
Chairman of the Board, Acting
President, and Senior Vice
President of Research
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
on behalf of the registrant and in the capacities and on the
dates indicated.
Date: February 24, 1997 By: /s/ Paul F. Turner
Paul F. Turner
Chairman of the Board, Acting
President, and Senior Vice President
of Research
Date: February 24, 1997 By: /s/ S. Lewis Meyer
Dr. S. Lewis Meyer
Member of the Board of Directors
Date: February 24, 1997 By: /s/ Gerhard W. Sennewald
Dr. Gerhard W. Sennewald
Member of the Board of Directors
Date: February 24, 1997 By: /s/ J. Gordon Short
Dr. J. Gordon Short
Member of the Board of Directors
<PAGE>
BSD MEDICAL CORPORATION
Financial Statements
Form 10-K SB
August 31, 1995 and 1994
<PAGE>
Independent Auditors' Report
The Board of Directors
BSD Medical Corporation:
We have audited the accompanying balance sheet of BSD
Medical Corporation (the Company) as of August 31, 1995 and
the related statements of operations, stockholders' deficit,
and cash flows for each of the years in the two-year period
ended August 31, 1995. These financial statements are the
responsibility of the Company's management. Our
responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally
accepted auditing standards. Those standards require that
we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide
a reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial
position of BSD Medical Corporation at August 31, 1995, and
the results of its operations and its cash flows for each of
the years in the two-year period ended August 31, 1995, in
conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared
assuming that BSD Medical Corporation will continue as a
going concern. As discussed in note 11 to the financial
statements, the Company has current liabilities in excess of
current assets and a net stockholders' deficit that raise
substantial doubt about its ability to continue as a going
concern. Management's plans in regard to these matters are
also described in note 11. The financial statements do not
include any adjustments that might result from the outcome
of this uncertainty.
KPMG Peat Marwick LLP
Salt Lake City, Utah
November 25, 1996
<PAGE>
BSD MEDICAL CORPORATION
Balance Sheet
August 31, 1995
Assets
Current assets:
Cash and cash equivalents $46,125
Receivables:
Trade accounts, net of allowance for
doubtful receivables of $10,000 100,978
Employee and other 7,770
----------
Total net receivables 108,748
Inventories (note 9): ----------
Raw materials 205,864
Work-in-process 247,070
Finished goods 79,047
----------
Total inventories 531,981
----------
Prepaid expenses and other assets 29,891
----------
Total current assets 716,745
----------
Property and equipment:
Furniture and fixtures 297,743
Equipment 466,233
Building, under capital lease, net of reserve for potential
impairment of $181,534 (note 6) 233,766
----------
Total property and equipment 997,742
Less accumulated depreciation and amortization 732,384
----------
Net property and equipment 265,358
----------
Long-term receivables 115,108
Patents, at cost, less accumulated amortization of $175,106 87,626
----------
$1,184,837
==========
See accompanying notes to financial statements.
F-2
<PAGE>
Liabilities and Stockholders' Deficit
Current liabilities:
Notes payable (note 2) $ 263,480
Current installments of obligation under capital lease (note 6) 48,403
Current installments of obligation under long-term debt (note 7) 19,815
Accounts payable 196,713
Accrued payroll and commissions 152,169
Customer deposits (note 9) 122,427
Warranty reserves 57,005
Accrued expenses 107,316
----------
Total current liabilities 967,328
----------
Obligation under capital lease, excluding current
installments (note 6) 152,924
Obligation under long-term debt, excluding current installments 90,366
(note 7)
Deferred revenue 210,099
Related party deferred revenue (note 9) 335,141
----------
Total liabilities 1,755,858
----------
Stockholders' deficit (notes 4 and 5):
Preferred stock, $1.00 par value; authorized 10,000,000 shares;
none issued and outstanding (liquidation value $100 per share) -
Common stock, $.01 par value; authorized 20,000,000 shares;
issued and outstanding 16,176,980 shares 161,770
Additional paid-in capital 20,055,347
Accumulated deficit (19,713,157)
Common stock in treasury, 91,448 shares, at cost (19,911)
Deferred compensation (1,055,070)
----------
Net stockholders' deficit (571,021)
Commitments and contingencies (notes 10, 11, and 13) ----------
$ 1,184,837
F-3 ==========
<PAGE>
BSD MEDICAL CORPORATION
Statements of Operations
Years ended August 31, 1995 and 1994
1995 1994
---------- ----------
Product sales $1,148,656 858,263
Grant revenue - 50,000
---------- ----------
Total revenues 1,148,656 908,263
---------- ----------
Costs and expenses:
Cost of product sales 646,733 424,292
Research and development 219,871 250,243
Selling, general, and administrative 589,180 817,225
---------- ----------
Total costs and expenses 1,455,784 1,491,760
---------- ----------
Operating loss (307,128) (583,497)
Other income (expense):
Interest income 896 538
Write-off of patents (38,284) (126,471)
Interest expense (37,493) (12,376)
Other, net 185,130 453,582
---------- ----------
Total other income 110,249 315,273
---------- ----------
Net loss $ (196,879) (268,224)
========== ==========
Net loss per common and common equivalent share $ (.01) (.03)
========== ==========
Weighted average number of shares outstanding 15,123,113 9,853,778
========== ==========
See accompanying notes to financial statements.
F-4
<PAGE>
BSD MEDICAL CORPORATION
Statements of Stockholders' Deficit
Years ended August 31, 1995 and 1994
<TABLE>
<CAPTION>
Addi- Net
Series C Com- tional Deferred Accumu- Common stock-
Preferred mon paid-in compen- lated stock in holders
stock stock capital sation deficit treasury deficit
--------- ------- ---------- ----------- ------------ --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances, August 31, 1993 $ 5,072 98,538 18,951,886 - (19,192,471) (153,414) (290,389)
Reissuance of 100,000
shares of treasury
stock to acquire asset
under capital lease - - - - - 129,034 129,034
Dividends accrued -
preferred stock - - - - (50,720) - (50,720)
Net loss - - - - (268,224) - (268,224)
--------- ------- ---------- ----------- ------------ --------- ---------
Balances, August 31, 1994 5,072 98,538 18,951,886 - (19,511,415) (24,380) (480,299)
Dividends accrued -
preferred stock - - - - (4,863) - (4,863)
Shares issued in
satisfaction of
dividend payable 856 - 84,744 - - - 85,600
Common stock issued as
equivalent replacement
value for preferred
stock (note 4) (5,928) 63,232 (57,304) - - - -
Treasury stock issued
for employee bonuses - - 20,951 - - 4,469 25,420
Deferred compensation
related to grant of
stock options - - 1,055,070 (1,055,070) - - -
Net loss - - - - (196,879) - (196,879)
--------- ------- ----------- ----------- ------------ --------- -----------
Balances, August 31, 1995 $ - 161,770 20,055,347 (1,055,070)(19,713,157) (19,911) (571,021)
========= ======= =========== =========== ============ ========= ===========
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE>
BSD MEDICAL CORPORATION
Statements of Cash Flows
Years ended August 31, 1995 and 1994
Increase (Decrease) in Cash and Cash Equivalents 1995 1994
- ------------------------------------------------ -------- --------
Cash flows from operating activities:
Net loss $ (196,879) (268,224)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Depreciation and amortization 48,773 50,939
Write-off of patents 38,284 126,471
Provision for losses on trade accounts receivable - (44,380)
Provision for losses on inventory - (65,000)
Provision for warranties 60,822 42,144
Provision for impairment of asset under
capital lease - 181,534
Loss on disposal of assets 48 99
Gain on settlement of payables (162,442) (109,749)
Reduction of reserves (14,065) (61,194)
Stock issued for employee bonuses 25,420 -
Changes in assets and liabilities:
Receivables (104,401) 52,455
Inventories 152,291 (124,152)
Prepaid expenses and other assets (900) 8,009
Accounts payable (16,809) 183,680
Accrued payroll and commissions 90,383 (140,475)
Customer deposits 39,926 351,711
Warranty reserves (55,422) (124,759)
Accrued expenses (23,273) (60,631)
Deferred revenue 154,649 12,730
-------- --------
Net cash provided by operating activities 36,405 11,208
-------- --------
Cash flows from investing activities:
Additions to property, plant, and equipment (2,167) (806)
Purchase of other assets - (98,804)
-------- --------
Net cash used in investing activities (2,167) (99,610)
-------- --------
Cash flows from financing activities:
Net proceeds from short-term notes payable 3,390 58,993
Principal payments on capital lease obligation (32,439) -
-------- --------
Net cash provided by (used in)
financing activities (29,049) 58,993
-------- --------
F-6
<PAGE>
BSD MEDICAL CORPORATION
Statements of Cash Flows (continued)
Years ended August 31, 1995 and 1994
1995 1994
-------- --------
Increase (decrease) in cash and cash equivalents $ 5,189 (29,409)
Cash and cash equivalents, beginning of year 40,936 70,345
-------- --------
Cash and cash equivalents, end of year $ 46,125 40,936
======== ========
Supplemental Schedule of Noncash Investing and
Financing Activities:
- ----------------------------------------------
Dividends accrued on preferred stock $ 4,863 50,720
Preferred stock issued as dividend in lieu of cash 85,600 -
6,323,202 shares of common stock issued as
equivalent replacement value for 5,928 shares
of preferred stock 63,232 -
Conversion of accounts payable and accrued expenses
to notes payable and long-term debt 244,313 -
Reissuance of 100,000 shares of treasury stock to
acquire assets under capital lease - 129,034
Transfer of prepaid expense to assets under capital
lease - 52,500
Capital lease obligation incurred acquiring the
assets under capital lease - 233,766
Transfer of customer deposits to deferred revenue 300,000 -
Supplemental Disclosure of Cash Flow Information
- ------------------------------------------------
Cash paid during the year for interest $ 37,493 12,376
See accompanying notes to financial statements.
F-7
<PAGE>
(1) Summary of Significant Accounting Policies
(a) General
BSD Medical Corporation, the Company, develops,
produces, markets, and services systems used for the
treatment of cancer and other diseases. Such systems
are sold worldwide.
(b) Cash and Cash Equivalents
Cash and cash equivalents consist of cash and
investments with original maturities to the Company of
three months or less.
(c) Inventories
Raw material inventories are stated at the lower
of cost or market. Cost is determined using the
average cost method. Work-in-process and finished
goods are stated on the basis of accumulated
manufacturing costs, but not in excess of market (net
realizable value).
(d) Property and Equipment
Property, plant, and equipment are stated at
cost. The building under capital lease is stated at
the present value of the minimum lease payments, plus
costs incurred to obtain the option to purchase the
building, less the reserve for potential impairment.
Depreciation is provided using the straight-line
method over the estimated useful lives of 40 years for
the building and leasehold improvements and 5 to 12
years for furniture, fixtures, and equipment.
(e) Income Taxes
The Company accounts for income taxes using the
asset and liability method. Under the asset and
liability method, deferred tax assets and liabilities
are recognized for the future tax consequences
attributable to differences between the financial
statement carrying amounts of existing assets and
liabilities and their respective tax bases. Deferred
tax assets and liabilities are measured using enacted
tax rates expected to apply to taxable income in the
years in which those temporary differences are
expected to be recovered or settled. The effect on
deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period that
includes the enactment date.
F-8
<PAGE>
(1) Summary of Significant Accounting Policies (continued)
(f) Loss Per Common Share
Loss per common share is based on the weighted
average number of common shares outstanding. Common
stock equivalents (stock options and warrants) have
not been included in the computation as they would not
have a dilutive or material effect.
(g) Patents
Included are costs incurred in obtaining patents.
These costs are being amortized using the straight-
line method over ten years.
(h) Revenue Recognition
Sales revenues for products are recorded when
products are shipped. Revenue from long-term service
contracts is recognized on a straight line basis over
the term of the contract, which approximates
recognizing it as it is earned. Deferred revenue
includes amounts from service contracts as well as
revenue from sales of products which have not been
shipped.
(i) Research and Development Costs
Research and development costs are expensed as
incurred.
(j) Other Income
Included in other income in 1995 and 1994 are
gains from settling payables for less than their
recorded balances. These gains totaled approximately
$162,000 in fiscal 1995, and $110,000 in fiscal 1994,
decreasing loss per share by $.01 in both years.
(k) Use of Estimates
Management of the Company has made a number of
estimates and assumptions relating to reporting of
assets and liabilities and the disclosure of
contingent assets and liabilities to prepare these
financial statements in conformity with generally
accepted accounting principles. Actual results could
differ from those estimates.
(l) Reclassifications
Certain reclassifications have been made to prior
year amounts to conform with current year reporting
presentation.
F-9
<PAGE>
(2) Short-term Notes Payable
A summary of short-term notes payable at August 31,
1995 follows:
Noninterest bearing note payable due August 1996 $ 22,983
Note payable, due in quarterly installments
equal to 4% of gross sales, bearing
interest at 8% with final payment due
June 30, 1996 106,365
Note payable, due in monthly installments of
$5,000, bearing interest at 10% 134,132
--------
$263,480
========
The $134,132 note payable represents outstanding legal
fees which were converted from an account payable.
(3) Income Taxes
The Company has recorded no income tax expense due to net
operating losses. The difference between the expected
tax benefit and actual tax benefit is primarily
attributable to the effect of the net operating losses
being offset by an increase in the Company's valuation
allowance.
The Company's gross deferred assets of approximately
$4,217,000 in fiscal 1995 and $4,089,000 in fiscal 1994,
consist primarily of net operating losses which have been
fully reserved for with a valuation allowance. The
valuation allowance for deferred tax assets at September
1, 1994 was approximately $4,089,000. The net change in
the valuation allowance for the year ended August 31,
1995 was an increase of approximately $128,000.
F-10
<PAGE>
(3) Income Taxes (continued)
At August 31, 1995, the Company had tax and financial
statement net operating losses (NOL), research and
experimentation tax credits (RETC), and investment tax
credits (ITC), which can be carried forward to reduce
federal income taxes, approximately as follows:
Expiration
date NOL RETC ITC
---------- --------- -------- -------
1996 $ 230,000 7,000 4,400
1997 1,155,000 33,000 3,200
1998 1,192,000 16,000 2,100
1999 1,238,000 - 3,300
2000 1,115,000 - -
2001 235,000 - 1,000
2002 2,827,000 8,000 -
2003 2,122,000 41,000 -
2004 - 57,000 -
2005 1,000,000 - -
2007 197,000 - -
2008 - - -
2009 200,000 - -
2010 174,000 - -
-------- -------- -------
$11,685,000 162,000 14,000
Under the rules of the Tax Reform Act of 1986, the
Company has experienced a greater than 50 percent change
of ownership. Consequently, use of substantially all of
the Company's carryovers against future taxable income in
any one year may be limited and these carryovers may
expire unutilized due to the limitation imposed by the
change of ownership rules. The maximum amount of
carryovers available in a given year is limited to the
product of the Company's value on the date of ownership
change and the federal long-term tax-exempt rate, plus
any limited carryover not utilized in prior years.
Management does not believe that these rules will impact
the computation of income tax provisions for the current
or prior years.
Tax net operating losses expiring in the years 2005
through 2010 have been estimated due to no tax returns
having been filed by the Company for the years in which
these losses originated.
F-11
<PAGE>
(4) Preferred Stock Transactions
Each class of preferred stock is entitled to cumulative
cash dividends at the rate of $10 per share per annum.
On October 29, 1994, using the rate of 1,066.667 shares
of common stock for each share of Series C preferred
stock, the Company issued 6,323,202 shares of common
stock as equivalent replacement value for 5,928 shares of
preferred C stock and accrued preferred C stock
dividends. Simultaneous with this transaction the Series
C preferred stock was canceled and at August 31, 1995,
there were no Series C preferred stock authorized,
issued, or outstanding.
(5) Stock Option and Award Plans
(a) Employee Stock Option Plans
The Company's 1987 Stock Option Plan authorizes
the granting of incentive options to certain key
employees of the Company and nonqualified stock
options to certain key employees, nonemployee
directors, or individuals who provide services to the
Company. The plan, as amended, provides for the
granting of options for an aggregate of 950,000
shares. The options vest according to a set schedule
over a five-year period and expire upon the employee's
termination or after ten years from the date of grant.
On May 1, 1995 the Board of Directors authorized
the cancellation of all outstanding options and
reissuance of options with an exercise price of $.10
per share which will vest over a one to five year
period. Each employee was granted options to purchase
3,000 shares per year of service performed at the
Company, and the officers and directors were each
granted options to purchase 35,000 shares.
A summary of activity follows:
Number Exercise
of price
shares per share
-------- --------------
Outstanding balance as of August 31, 1993 780,823 $ 1.00 to 2.94
Canceled or expired 591,500 1.00 to 2.87
--------
Outstanding balance as of August 31, 1994 189,323 1.00 to 2.94
Canceled or expired 189,323 1.00 to 2.94
--------
Issued 925,500 0.10
--------
Outstanding balance as of August 31, 1995 925,500 0.10
========
Exercisable August 31, 1995 -
========
F-12
<PAGE>
(5) Stock Option and Award Plans (continued)
(a) Employee Stock Option Plans (continued)
During the year ended August 31, 1995, the
Company issued options to purchase shares of common
stock, at an exercise price of $.10 per share. The
Company has recorded as deferred compensation the
excess of the deemed value of the common stock at the
date of grant over the exercise price. The deferred
compensation will be amortized ratably over the
vesting period of the options.
(b) Incentive Stock Awards
The Company also has an employee incentive stock
award plan (the Plan) whereby up to 100,000 shares are
available to be awarded to certain employees and
directors of the Company at $.25 per share according
to the Plan's vesting requirements. No shares were
granted and no shares were vested during fiscal 1995
and 1994.
(6) Lease
Future minimum capital lease payments as of August 31,
1995 are:
Year ending August 31:
1996 $ 73,900
1997 62,400
1998 62,400
1999 57,200
-------
Total minimum lease payments 255,900
Less amount representing interest (at 12%) 54,573
-------
Present value of net minimum capital lease
payments 201,327
Less current installments of obligations under
capital leases 48,403
-------
Obligations under capital leases,
excluding current installments $152,924
=======
F-13
<PAGE>
(6) Lease (continued)
On July 22, 1994, the Company renewed a lease agreement,
originally entered into on June 1, 1991, for a building
used as the office and manufacturing site for the
Company. According to the terms of the lease, the Company
has the option to purchase the building at any time
during the lease term at a purchase price of
approximately $330,000. If the Company elects to
exercise the purchase option, $2,000 of each monthly
lease payment made will be applied against the purchase
price. At the time the original lease was executed, the
Company paid an additional sum of $52,500 in
consideration for the option to purchase the building.
At the time of the renewal of the lease, the Company
reissued 100,000 shares of its treasury stock with a cost
basis of $129,034 to the lessor to retain its option to
purchase the building.
The asset under capital lease includes the capitalization
of the costs incurred to obtain and retain the option to
purchase the asset, as well as management's best estimate
of a reserve for impairment.
(7) Long-term Debt
A summary of long-term debt at August 31, 1995 follows:
Note payable, due in monthly
installments of $2,742, bearing
interest at 9% with final payment
due October 1, 1999 $ 110,181
Less current portion 19,815
-------
$ 90,366
=======
The note payable represents outstanding royalties payable
which were converted to a note payable on August 31,
1995. Maturities of this note payable over the next five
fiscal years are as follows: 1996, $19,815; 1997,
$25,817; 1998, $28,239; 1999, $30,888; 2000, $5,422.
(8) Sales to Foreign Customers and Major Customers
A summary of sales to foreign customers for the years
ended August 31, 1995 and 1994, are as follows:
1995 1994
-------- --------
Europe $ 482,649 545,803
Canada - 245
Far East 282,751 1,622
-------- --------
$ 765,400 547,670
======== ========
F-14
<PAGE>
(8) Sales to Foreign Customers and Major Customers
(continued)
Sales to single customers, exceeding ten percent of total
sales, were $203,302 and $282,672 in fiscal 1995 and
$545,803 in fiscal 1994.
(9) Related Party Transactions
In December 1994, one of the Company's principal
distributors became a major stockholder owning more than
40% of the Company's common stock and a member of the
Board of Directors of the Company. At August 31, 1995
the Company had deferred revenue to this stockholder of
$335,141 for the sale of a system which has not yet been
shipped. However, title of this system had been
transferred to the stockholder. The amount included in
inventories for this system at August 31, 1995 is
$28,817. Additionally, during fiscal year 1995 the
Company had sales to this stockholder totaling $203,302
and held deposits from the stockholder for the purchase
of systems for $94,500 at August 31, 1995. Furthermore
included in finished goods inventories is $35,702 of
inventory on consignment to this stockholder.
(10) Commitments and Contingencies
The Company is involved in various claims and other legal
actions that have arisen in the ordinary course of
business. Furthermore, the last tax returns filed by the
Company were for 1989 and 1990. While the outcome of
such matters is currently not determinable, it is
management's opinion that these matters will not have a
material adverse effect on the Company's financial
condition, results of operations, or liquidity.
The Company has an employment agreement with the acting
president of the Company. The agreement provides that
the presidents salary will be based upon reasonable
mutual agreement. At August 31, 1996, the agreement
provided for a salary to the acting president of $115,000
per year. Additionally, in the case of non-voluntary
termination, the acting president will receive severance
pay for a one year period, which includes an extension of
all employee rights, privileges, and benefits, including
medical insurance. The one year severance pay would be
an average of the acting presidents salary for the
immediate twelve month period prior to termination. The
agreement also requires the Company to pay the acting
president for any accrued unused vacation and $1,000 for
any newly issued patents.
In addition, in July of 1979, the Company entered into an
exclusive worldwide license for a unique temperature
probe. The license will remain in effect as long as the
technology does not become publicly known as a result of
actions taken by the licenser. The Company pays
royalties based upon its sales of this probe. Royalties
accrued as of August 31, 1995 totaled $15,900.
F-15
<PAGE>
(11) Liquidity
As shown in the accompanying financial statements, at
August 31, 1995 the Company had current liabilities in
excess of current assets and a net stockholders' deficit.
Also, the Company has historically expended more cash in
the course of its business than it has generated from
operations, and has had to rely primarily upon cash
provided by financing activities and fees received from
patent license agreements to meet cash requirements.
Management intends to use its current cash position,
supplemented and aided by anticipated cash inflows from
sales, budget cutting, fiscal conservatism, the
possibility of loans, and, if necessary, private
placements of its equity securities to meet operating
requirements for future years. However, there are
certain risk factors which may impact the Company's
ability to fund its cash needs. Such risk factors
include uncertainties as to the Company's ability to
achieve adequate sales, general economic conditions,
possible unforeseen and/or nonrecurring expenses, and the
availability of outside financing. The financial
statements do not include any adjustments that might
result from the outcome of these uncertainties.
(12) Accounting Standards Issued Not Yet Adopted
In December of 1991, the Financial Accounting Standards
Board issued Statement of Financial Accounting Standards
No. 107, Disclosures about Fair Value of Financial
Statements. The Company is required to adopt the
provisions of this statement for the years ending after
December 31, 1995. This statement requires all entities
to disclose the fair value of financial statement, both
assets and liabilities recognized and not recognized in
the statement of financial position, for which it is
practicable to estimate fair value. If estimating fair
value is not practicable, this statement requires
disclosure of descriptive information pertinent to
estimating the value of the financial instrument. The
impact of Statement 107 is not expected to have a
material effect on the Company.
In March of 1995, the Financial Accounting Standards
Board issued Statement of Financial Accounting Standards
No. 121, Accounting for the Impairment of Long-lived
Assets and Long-lived Assets to be Disposed Of (FASB
121). The Company is required to adopt the provisions of
this statement for the years beginning after December 15,
1995. This statement establishes accounting standards
for the impairment of long-lived assets, certain
identifiable intangibles, and goodwill related to those
assets to be held and used and for long-lived assets and
certain identifiable intangibles to be disposed of.
F-16
<PAGE>
(12) Accounting Standards Issued Not Yet Adopted
(continued)
This Statement requires that long-lived assets and
certain identifiable intangibles to be held and used by
an entity be reviewed for impairment whenever events or
changes in circumstances indicate that the carrying
amount of an asset may not be recoverable. In performing
the review for recoverability, the entity should estimate
the future cash flows expected to result from the use of
the asset and its eventual disposition. If the sum of
the expected future cash flows (undiscounted and without
interest charges) is less than the carrying amount of the
asset, an impairment loss is recognized. Otherwise, an
impairment loss is not recognized. Measurement of an
impairment loss for long-lived assets and identifiable
intangibles that an entity expects to hold and use should
be based on the fair value of the asset. The impact of
FASB 121 is not expected to have a material affect on the
Company.
In October of 1995, the Financial Accounting Standards
Board issued Statement of Financial Accounting Standards
No. 123, Accounting for Stock Based Compensation (FASB
123). The Company is required to adopt the provisions of
this statement for years beginning after December 15,
1995. This statement encourages all entities to adopt a
fair value based method of accounting for employee stock
options or similar equity instruments. However, it also
allows an entity to continue to measure compensation cost
for those plans using the intrinsic-value method of
accounting prescribed by APB opinion No. 25, Accounting
for Stock Issued to Employees (APB 25). Entities
electing to remain with the accounting in APB 25 must
make pro forma disclosures of net income and earnings per
share as if the fair value based method of accounting
defined in this statement had been applied. It is
currently anticipated that the Company will continue to
measure compensation costs in accordance with APB 25 and
provide the disclosures required by FASB 123.
(13) Subsequent Events
On July 3, 1996 the Company issued a license agreement
for the use of a patent owned by the Company. As
consideration for the agreement the Company received a
non-refundable license fee of $1,500,000. In addition,
the Company will also receive a royalty of 2.5 percent,
up to a maximum of $3,500,000, of the net selling price
received on products covered by the Company's patent.
In August 1995 and 1996, the Company was awarded a
federal grant from the National Cancer Institute for
research and development. The grant allowed for
reimbursement of project expenses up to $325,066 and
$138,499 for fiscal 1996 and 1997, respectively. During
fiscal 1996, $325,066 of revenues and expenses were
recognized under this grant. These grants were issued
for the production and testing of system upgrades. A
representative of the awarding agency is currently
reviewing the allowability of grant expenditures for
fiscal 1996. This agency may disallow certain
expenditures based on its judgments about information
available to it during its examination. However, while
the outcome of the examination is currently not
determinable, it is management's opinion that this
examination will not have a material adverse effect on
the Company's financial condition, results of operations,
or liquidity.
F-17
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> AUG-31-1995
<PERIOD-END> AUG-31-1995
<CASH> 46,125
<SECURITIES> 0
<RECEIVABLES> 118,748
<ALLOWANCES> (10,000)
<INVENTORY> 531,981
<CURRENT-ASSETS> 716,745
<PP&E> 997,742
<DEPRECIATION> (732,384)
<TOTAL-ASSETS> 1,184,837
<CURRENT-LIABILITIES> 967,328
<BONDS> 0
0
0
<COMMON> 161,770
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 1,184,837
<SALES> 1,148,656
<TOTAL-REVENUES> 1,148,656
<CGS> 646,733
<TOTAL-COSTS> 1,455,784
<OTHER-EXPENSES> 38,284
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 37,493
<INCOME-PRETAX> (196,879)
<INCOME-TAX> 0
<INCOME-CONTINUING> (196,879)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (196,879)
<EPS-PRIMARY> (.01)
<EPS-DILUTED> 0
</TABLE>
