U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10 - QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended May 31, 1998
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: (801) 972-5555
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15 (d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Class Outstanding as of July 10, 1998
Common stock, $.01 Par Value 16,176,980
Transitional Small Business Disclosure Format (Check one): Yes [] No [X]
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BSD MEDICAL CORPORATION
Condensed Consolidated Balance Sheets
(Unaudited)
Assets May 31, Aug. 31,
------ 1998 1997
Current assets: ---------- ----------
Cash and cash equivalents $ 3,130,845 $ 43,681
Receivables 525,242 406,874
Inventories 595,185 542,226
Prepaid Expenses 5,125 20,500
Deposits 7,968 6,850
---------- ----------
Total current assets 4,264,365 1,020,131
---------- ----------
Property and equipment, net 56,759 280,396
Long-term trade receivables 77,080 68,480
---------- ----------
$ 4,398,204 $ 1,369,007
---------- ----------
Liabilities and Stockholders' Equity
------------------------------------
Current liabilities:
Current portion of long-term debt 7,299 251,723
Current portion of deferred revenue 28,585 82,850
Accounts payable 151,783 323,918
Accrued expenses 179,676 207,913
---------- ----------
Total current liabilities 367,343 866,404
---------- ----------
Long-term debt 64,549 89,697
Deferred revenue 370,808 104,733
---------- ----------
435,357 194,430
---------- ----------
Total liabilities 802,700 1,060,834
---------- ----------
Stockholders' equity:
Common stock, $.01 par value; authorized
20,000,000 shares; issued and outstanding 161,770 161,770
16,176,980 shares
Additional paid-in capital 20,413,575 20,413,575
Accumulated deficit (16,649,238) (19,784,689)
Deferred compensation (311,366) (463,246)
Common stock in treasury 243,928 shares, at (19,237) (19,237)
cost ---------- ----------
Net stockholders' equity 3,595,504 308,173
---------- ----------
$ 4,398,204 $ 1,369,007
========== ==========
<PAGE>
BSD MEDICAL CORPORATION
Condensed Consolidated Statements of Operations
(Unaudited)
Periods ended May 31, 1998, and May 31, 1997
Three Months Nine Months
Ended: Ended:
May 31, May 31, May 31, May 31,
1998 1997 1998 1997
-------- -------- -------- --------
Product sales $ 763,300 34,690 $1,524,155 265,790
Grant and license revenue - 70,947 133,173 355,127
-------- -------- -------- --------
Total revenues 763,300 105,636 1,657,328 620,917
-------- -------- -------- --------
Costs and expenses:
Cost of product sales 269,293 75,464 579,114 266,848
Research and development 110,728 167,282 254,951 345,443
Selling, general, and 186,642 369,407 781,686 926,647
administrative
-------- -------- -------- --------
Total costs and expenses 566,663 612,152 1,615,752 1,538,938
-------- -------- -------- --------
Operating income (loss) 196,637 (506,516> 41,576 (918,021>
Other income (expense):
Interest income 3,549 1,402 7,536 10,511
Settlement of litigation 2,950,000 - 2,950,000 -
Interest expense (1,203) (4,830) (7,446) (18,070>
Other, net 102,238 (642) 143,785 10,062
-------- -------- -------- --------
Total other income (expense) 3,054,583 (4,070) 3,093,875 2,502
-------- -------- -------- --------
Net income (loss) $ 3,251,220 (510,586> 3,135,451 (915,519>
======== ======== ======== ========
Primary net income (loss) per
common and common equivalent
share $ .20 (.03) $ .19 (.05)
======== ======== ======== ========
Fully diluted net income (loss)
per common and common
equivalent share $ .19 - $ .18 -
======== ======== ======== ========
Weighted average number of shares
outstanding
Primary 16,177,000 16,177,000 16,177,000 16,177,000
========== ========== ========== ==========
Fully diluted 17,087,000 - 17,287,000 -
========== ========== ========== ==========
See accompanying notes to financial statements.
<PAGE>
BSD MEDICAL CORPORATION
Condensed Consolidated Statements of Cash Flows
(Unaudited)
Nine Months ended May 31, 1998, and May 31, 1997
Increase (Decrease) in Cash and Cash Equivalents May 31, May 31,
1998 1997
---------- ----------
Cash flows from operating activities:
Net income (loss) $ 3,135,451 (915,519>
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization 14,150 339,226
Gain on settlement of accounts payables (7,103) (8,742)
Deferred compensation 151,880 -
Issuance of treasury stock as bonus - 630
Deferred gain on sale of asset (276,293> -
Recognized gain on sale of asset (49,191) -
(Increase) decrease in:
Receivables (126,968> 574,077
Inventories (52,959> (39,591)
Prepaid expenses and deposits 14,257 17,375
Decrease (Increase) in:
Accounts payable (165,032> 117,040
Accrued expenses (28,237> (196,942>
Deferred Income 240,049 676
---------- ----------
Net cash provided by (used in)
operating activities 2,850,004 (111,769)
---------- ----------
Cash flows from investing activities:
Purchase of property and equipment (5,286) (52,474)
Proceeds from sale of fixed asset 446,545 -
---------- ----------
441,259 (52,474)
Cash flows from financing activities:
Net proceeds from (payments on) short-term
notes payable (170,500) (17,250)
Principal payments on capital lease obligation (12,659) (34,268)
Principal payments on long-term debt obligation (20,940) (19,144)
---------- ----------
Net cash used in financing activities (204,099) (70,662)
---------- ----------
Increase in cash and cash equivalents $ 3,087,164 (234,905)
Cash and cash equivalents, beginning of period 43,681 381,746
---------- ----------
Cash and cash equivalents, end of period $ 3,130,845 146,841
========== ==========
Supplemental Disclosure of Cash Flow Information
- ------------------------------------------------
Cash paid for interest during period $ 1,203 18,070
<PAGE>
BSD MEDICAL CORPORATION
Notes to Condensed Consolidated Financial Statements
Note 1. Basis of Presentation
The Condensed Consolidated Balance Sheet as of May 31, 1998,
and the Condensed Consolidated Statements of Operations for the
three months and nine months ended May 31, 1998, and the
Condensed Consolidated Statements of Cash Flow for the nine
months ended May 31, 1998, and May 31, 1997, have been prepared
by the Company without audit. In the opinion of management, all
adjustments to the books and accounts (which include only normal
recurring adjustments) necessary to present fairly the financial
position, results of operations, and changes in financial
position of the Company as of May 31, 1998, have been made.
Certain information and footnote disclosures normally included
in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted.
The results of operations for the period ended May 31, 1998, are
not necessarily indicative of the results to be expected for the
full year.
Note 2. Net Income (Loss) Per Common Share
Net Income (Loss) per common share for the quarters ended May
31, 1998, and May 31, 1997, are based on the weighted average
number of shares outstanding during the respective periods.
Note 3. Federal Income Taxes
No provision has been made for income tax expense in the May
31, 1998, financial statements because of the reduction in the
valuation allowance for deferred taxes.
Note 4. Lease Agreement
On December 5, 1997, the Company signed a new lease agreement
for the Company's facilities with a new owner. The new owner
paid $700,000 to BSD for the Company's option to purchase the
building. As part of the agreement, the Company will lease the
building from the new landlord for an annual rental expense of
$78,396. The Company also has an option to purchase the building
after 18 months for $775,000. This transaction resulted in a
deferred gain of $325,513. As of May 31, 1998, $49,721 of this
gain has been recognized, leaving a deferred gain balance of
$276,293.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
Total assets increased from $1,369,007 at August 31, 1997, to
$4,398,204 at May 31, 1998, an increase of $3,029,197, or 221.27%
due to an increase in cash. Cash increased by $3,087,164 an
increase of 7,067.52 % primarily due to settlement of litigation
with Urologix, Inc., (see Part II, Item I).
Receivables increased $118,368, an increase of 29.09%,
primarily due to an increase in sales. Total inventories
increased by $52,959, an increase of 9.77% due to normal periodic
fluctuations.
Total current liabilities decreased by $499,061, a decrease of
57.60%. The decrease was primarily caused by payment in full of
notes payable, and reductions in accounts payable, deferred
income, and accrued expenses.
The Company has long term receivables for field service
contracts, as of May 31, 1998, of $77,080.
Fluctuations in Operating Results
The Company's sales and operating results historically have
varied (and will likely continue to vary) greatly on a quarter-to-
quarter and a year to year basis due to risks associated with
international operations; budgeting considerations of the
Company's customers; the nature of the medical capital equipment
market; the ability 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. For
these and other reasons, the results of operations for a
particular fiscal period may not be indicative of results for any
other period.
Results of Operations:
Nine Months ended May 31, 1998
Product Sales increased from $265,790 in the nine months ended
May 31, 1997, to $1,524,155 in the nine months ended May 31,
1998, an increase of $1,258,365, or 473.44% due to orders for the
Company's new product line, the BSD-2000/3D/MR, and orders from
TherMatrx, Inc. for products. (The first BSD 2000/3D was
installed in August 1997. In May 1998, BSD installed the MR
portion of this system at the first site and began compatibility
testing between the treatment and imaging systems. As of May 31,
1998, BSD had received total orders of $1,631,978 for sales of
this new product line.)
Gross profit on product sales increased from a loss of $1,058
in the nine months ended May 31, 1997, to a profit of $945,041 in
the nine months ended May 31, 1998, as a result of an increase in
product sales.
Selling, General and Administrative Expenses decreased from
$926,647 in the nine months ended May 31, 1997, to $781,686 in
the nine months ended May 31, 1998, a decrease of $144,961, or
15.64%. The decrease was primarily caused by a significant
decrease in deferred compensation (due to the vesting of a large
number of stock options), and a decrease in legal expense, as
compared to the same period last year.
Research and Development Expenses decreased from $345,443 for
the nine months ended May 31, 1997, to $254,951 in the nine
months ended May 31, 1998, a decrease of $90,492, or 26.20% due
to a reduction in costs required for the BSD-2000/3D/MR product
line development.
Total Operating Expenses increased by $76,814, an increase of
4.99%, primarily caused by increased cost of sales due to the
aforementioned increase in product sales.
The Operating Income increased from a loss of $918,021 in the
nine months ended May 31, 1997, to a profit of $41,576 in the
nine months ended May 31, 1998. This increase was caused by the
aforementioned increase in product sales and decrease in Selling,
General and Administrative expenses.
Interest Expense in the nine months ended May 31, 1997, was
$18,070, as compared with the $7,446 of Interest Expense in the
nine months ended May 31, 1998. The decrease was caused by
typical periodic business fluctuations.
The Net Income for the nine months ending May 31, 1998, was
$3,135,451, as compared with a Net Loss of $915,519 for the nine
months ending May 31, 1997. The primary reasons for this
increase were the aforementioned increases in product sales as
well as receipt of proceeds from settlement of litigation.
Three Months ended May 31, 1998
Product Sales increased from $34,690 in the three months ended
May 31, 1997, to $763,300 for the three months ended May 31,
1998, an increase of $728,610, or 2,100.35%. This increase was
due to increased orders for the Company's new product line, the
BSD-20003D/MR System and orders from TherMatrx for products.
Gross profit was $494,007 in the quarter ended May 31, 1998, as
compared to a loss of $40,774 in the quarter ended May 31, 1997,
as a result of the aforementioned increase in sales.
Selling, General and Administrative Expenses decreased by
$182,765, a decrease of 49.48%, as compared with the
corresponding three months in the previous year. The decrease
was primarily caused by a decrease in legal expense.
Research and Development Expenses decreased by $56,554, a
decrease of 33.81% due to a reduction in costs required for the
BSD-2000/3D/MR product line development.
Total Operating Expenses decreased by $45,489, a decrease of
7.43%, as compared with the corresponding three months in the
previous fiscal year. This decrease was primarily caused by the
aforementioned decreases in Selling, General and Administrative
expenses and Research and Development expenses.
Operating Income for the three months ended May 31, 1998, was
$196,637, as compared with the Operating Loss of $506,516 for the
corresponding period in the previous fiscal year. This increase
was primarily caused by the aforementioned increase in product
sales combined with decreases in Selling, General and
Administrative expenses and Research and Development expenses.
Interest Expense in the three months ended May 31, 1997, was
$4,830, as compared with the $1,203 of Interest Expense in the
three months ended May 31, 1998. The decrease was caused by
typical business fluctuations.
The Net Income for the quarter ended May 31, 1998, was
$3,251,220, as compared with the Net Loss of $510,586 for the
quarter ending May 31, 1997. The primary reason for this
increase was the aforementioned settlement of litigation,
decreases in operating expenses, and higher product sales.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On May 26, 1998, Urologix, Inc., BSD Medical Corporation, and
TherMatrx, Inc. jointly announced that they had entered into a
Settlement Agreement resolving their current litigation -
Urologix, Inc. v. BSD Medical Corporation, et al., Case No. 4-96-
647 (see Form 8K filed June 4, 1998).
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
The following exhibit is filed as part of this report:
Exhibit Description
Number
27 Financial Data Schedule.
b) Reports on Form 8-K - The Company filed a report on Form 8-K
on June 4, 1998, which reported a joint settlement agreement
between Urologix, Inc., BSD Medical Corporation and
TherMatrx, Inc.
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934, BSD Medical Corporation, the registrant, has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
BSD MEDICAL CORPORATION
Date: July 10, 1998 /s/ Paul F. Turner
--------------------------------
Paul F. Turner
Chairman of the Board, Acting President,
and Senior Vice President of Research
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> AUG-31-1998
<PERIOD-END> MAY-31-1998
<CASH> 3,130,845
<SECURITIES> 0
<RECEIVABLES> 535,242
<ALLOWANCES> (10,000)
<INVENTORY> 595,185
<CURRENT-ASSETS> 4,264,365
<PP&E> 828,602
<DEPRECIATION> (771,842)
<TOTAL-ASSETS> 4,398,204
<CURRENT-LIABILITIES> 367,343
<BONDS> 64,549
0
0
<COMMON> 161,770
<OTHER-SE> 3,433,734
<TOTAL-LIABILITY-AND-EQUITY> 4,398,204
<SALES> 1,524,155
<TOTAL-REVENUES> 1,657,328
<CGS> 579,114
<TOTAL-COSTS> 1,615,752
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,446
<INCOME-PRETAX> 3,135,451
<INCOME-TAX> 0
<INCOME-CONTINUING> 3,135,451
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,135,451
<EPS-PRIMARY> .19
<EPS-DILUTED> .18
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