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 February 28, 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 April 13, 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 Feb. 28, Aug. 31,
1998 1997
---------- ----------
Current assets:
Cash and cash equivalents $ 504,797 $ 43,681
Receivables 194,644 406,874
Inventories 660,305 542,226
Prepaid Expenses 10,250 20,500
Deposits 7,969 6,850
---------- ----------
Total current assets 1,377,965 1,020,131
---------- ----------
Property and equipment, net 57,788 280,396
Long-term trade receivables 77,080 68,480
---------- ----------
1,512,833 1,369,007
========== ==========
Liabilities and Stockholders' Equity
Current liabilities:
Current installments of long-term debt 20,709 251,723
Current installments of deferred revenue 50,292 82,850
Accounts payable 301,050 323,918
Accrued expenses 493,866 207,913
---------- ----------
Total current liabilities 865,917 866,404
---------- ----------
Long-term debt 64,549 89,697
Deferred revenue 386,162 104,733
---------- ----------
450,711 194,430
---------- ----------
Total liabilities 1,316,628 1,060,834
---------- ----------
Stockholders' equity:
Common stock, $.01 par value; authorized
20,000,000 shares; issued and outstanding
16,176,980 shares 161,770 161,770
Additional paid-in capital 20,413,575 20,413,575
Accumulated deficit (19,900,458) (19,784,689)
Deferred compensation (459,445) (463,246)
Common stock in treasury, 240,340 shares, at (19,237) (19,237)
cost ---------- ----------
Net stockholders' equity 196,205 308,173
---------- ----------
$ 1,512,833 $ 1,369,007
<PAGE>
BSD MEDICAL CORPORATION
Condensed Consolidated Statements of Operations
(Unaudited)
Quarters ended February 28, 1998 and February 28, 1997
Three Months Six Months
Ended: Ended:
Feb. 28, Feb. 28, Feb. 28, Feb. 28,
1998 1997 1998 1997
---------- ---------- ---------- ----------
Product sales $ 185,326 158,048 $ 760,856 231,100
Grant and license revenue 65,310 165,515 133,173 284,181
---------- ---------- ---------- ----------
Total revenues 250,636 323,563 894,029 515,280
---------- ---------- ---------- ----------
Costs and expenses:
Cost of product sales 108,558 97,819 309,822 191,384
Research and development 77,685 79,127 144,223 178,162
Selling, general, and 345,606 222,479 595,044 557,240
administrative ---------- ---------- ---------- ----------
Total costs and expenses 531,849 399,425 1,049,089 926,786
---------- ---------- ---------- ----------
Operating loss (281,213) (75,861) (155,060) (411,505)
Other income (expense):
Interest income 3,229 3,373 3,987 9,108
Gain on settlement of accounts 7,103 3,779 7,103 8,517
payable
Interest expense (1,505) (6,476) (6,243) (13,240)
Other, net 34,394 1,886 34,444 2,187
---------- ---------- ---------- ----------
Total other income 43,221 2,563 39,291 6,572
---------- ---------- ---------- ----------
Net loss $ (237,992) (73,298) (115,769) (404,933)
========== ========== ========== ==========
Net income (loss) per common and
common equivalent share $ (0.01) 0.00 $ (0.01) (0.02)
========== ========== ========== ==========
Weighted average number of 16,177,000 16,177,000 16,177,000 16,177,000
shares outstanding ========== ========== ========== ==========
See accompanying notes to financial statements.
<PAGE>
BSD MEDICAL CORPORATION
Condensed Consolidated Statements of Cash Flows
(Unaudited)
Six Months ended February 28, 1998, and February 28, 1997
Increase (Decrease) in Cash and Cash Equivalents Feb. 28, Feb. 28,
1998 1997
---------- ----------
Cash flows from operating activities:
Net income (loss) $ (115,769) (404,933)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation and amortization 9,902 174,851
Gain on settlement of accounts payables (7,103) (8,517)
Deferred compensation 3,800 -
Deferred gain on sale of asset (291,647) -
Recognized gain on sale of asset (33,837) -
(Increase) decrease in:
Receivables 203,630 512,259
Inventories (118,079) (21,390)
Prepaid expenses and deposits 9,131 6,722
Decrease (Increase) in:
Accounts payable (15,765) 6,754
Accrued expenses 285,954 (218,166)
Deferred Income 277,110 9,416
---------- ----------
Net cash provided by operating activities 207,327 56,996
---------- ----------
Cash flows from investing activities:
Purchase of property and equipment (2,067) (50,059)
Proceeds from sale of fixed asset 446,545 -
---------- ----------
Net cash provided by (used in) investing
activities 444,478 (50,059)
Cash flows from financing activities:
Net proceeds from (payments on) short-term notes
payable (164,227) (11,375)
Principal payments on capital lease obligation (12,659) (22,342)
Principal payments on long-term debt obligation (13,803) (12,619)
---------- ----------
Net cash used in financing activities (190,689) (46,336)
---------- ----------
Increase in cash and cash equivalents 461,116 (39,399)
Cash and cash equivalents, beginning of period 43,681 381,746
---------- ----------
Cash and cash equivalents, end of period $ 504,797 342,347
========== ==========
Supplemental Disclosure of Cash Flow Information
Cash paid for interest during period $ 6,243 13,240
<PAGE>
BSD MEDICAL CORPORATION
Notes to Condensed Consolidated Financial Statements
Note 1. Basis of Presentation
The Condensed Consolidated Balance Sheet as of February 28,
1998, and the Condensed Consolidated Statements of Operations for
the three months and six months ended February 28, 1998, and the
Condensed Consolidated Statements of Cash Flow for the six months
ended February 28, 1998, and February 28, 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 February 28, 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 February 28, 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
February 28, 1998, and February 29, 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
February 28, 1998, financial statements because of the reduction
in the valuation allowance for deferred taxes.
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
$1,512,833 as of February 28, 1998, an increase of $143,826, or
10.51%, due to an increase in cash and inventories. Cash
increased by $461,116, an increase of 1,055%, primarily due to
the Company signing a new lease agreement for the Company's
facilities which provided net proceeds totaling $446,545 to BSD
for purchase of the Company's option to purchase the building
(see November 30, 1997, 10-QSB, page 7).
Receivables decreased by $212,230, a decrease of 52.16%,
primarily caused by collection of prior receivables. Total
inventories increased by $118,079, an increase of 21.78%,
primarily due to purchase of materials needed for shipments
scheduled for the third quarter of fiscal year 1998.
Total current liabilities decreased by $487, a decrease of
0.06%. The decrease was caused by normal periodic fluctuations.
The Company has long term receivables for field service
contracts, as of February 28, 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:
Six Months ended February 28, 1998
Product Sales increased from $231,100 in the six months ended
February 28, 1997, to $760,856 in the six months ended February
28, 1998, an increase of $529,756, or 229.23% due to orders for
the Company's new product line, the BSD-2000/3D/MR. (The first
BSD-2000/3D was installed in August 1997. BSD is completing the
modifications required for the installation of the MR portion of
this system, which is projected for installation in Spring 1998).
BSD has received total orders of $1,631,978 for sales of this new
product line, and, as of February 28, 1998, has a remaining back-
log of $618,042 for the new product.
Gross profit on product sales increased from $39,716 in the six
months ended February 28, 1997, to $451,034 in the six months
ended February 28, 1998, as a result of an increase in product
sales.
Selling, General and Administrative Expenses increased from
$557,240 in the six months ended February 28, 1997, to $595,044
in the six months ended February 28, 1998, an increase of
$37,804, or 6.78%. During the six months ended February 28,
1998, there was a decrease in deferred compensation for
amortization of options issued to employees and non-employees to
purchase shares of the Company's common stock (see Note 6 to
Financial Statements, August 31, 1997 10-KSB), which caused a
decrease in Selling, General and Administrative Expenses,
combined with an increase in legal expenses for the Urologix
lawsuit (see Part II, Item 1 below), which resulted in a net
increase of $37,804 in Selling, General and Administrative
Expenses.
Research and Development Expenses decreased from $178,162 for
the six months ended February 28, 1997, to $144,223 in the six
months ended February 28, 1998, a decrease of $33,939, or 19.05%.
The decrease was caused by completion of the BSD-2000/3D product
line and near completion of the MR portion of this system.
Total Operating Expenses increased by $122,303, an increase of
13.20%, primarily caused by the increase in Cost of Product Sales
as a result of higher product sales.
The Operating Loss decreased from $411,505 in the six months
ended February 28, 1997, to $155,060 in the six months ended
February 28, 1998. This decrease was caused by the
aforementioned increase in gross profit.
Interest Expense in the six months ended February 28, 1998, was
$6,243, as compared with the $13,240 of Interest Expense in the
six months ended February 28, 1997. The decrease was caused by
typical periodic business fluctuations.
The Net Loss for the six months ending February 28, 1998, was
$115,769, as compared with the Net Loss of $404,933 for the six
months ending February 28, 1997. The primary reason for this
decrease was the aforementioned increase in gross profit.
Three Months ended February 28, 1998
Product Sales increased from $158,048 in the three months ended
February 28, 1997, to $185,326 for the three months ended
February 28, 1998, a small increase of $27,278, or 17.26%.
Gross profit was $76,768 in the quarter ended February 28,
1998, as compared to $60,299 in the quarter ended February 28,
1997, as a result of a small increase in product sales.
Selling, General and Administrative Expenses increased by
$123,127, an increase of 55.34%, as compared with the
corresponding three months in the previous year. The increase was
primarily caused by an increase in legal expenses required for
the Urologix lawsuit (see Part II, Item 1 below).
Research and Development Expenses decreased by $1,442, a
decrease of 1.82%. The decrease was caused by completion of the
BSD-2000/3D product line and near completion of the MR portion of
this system.
Total Operating Expenses increased by $132,424, an increase of
33.15%, as compared with the corresponding three months in the
previous fiscal year. This increase was primarily caused by the
aforementioned increase in Selling, General and Administrative
expenses.
Operating Loss for the three months ended February 28, 1998,
was $281,213, as compared with the Operating Loss of $75,861 for
the corresponding period in the previous fiscal year. This
increase was primarily caused by the aforementioned increase in
Selling, General and Administrative expenses combined with a
reduction in grant and license revenue due to completion - in
June 1997 - of BSD's National Cancer Institute grant project.
Interest Expense in the three months ended February 28, 1998,
was $1,505, as compared with the $6,476 of Interest Expense in
the three months ended February 28, 1997. The decrease was
caused by typical periodic business fluctuations.
The Net Loss for the quarter ending February 28, 1998, was
$237,992, as compared with the Net Loss of $73,298 for the
quarter ending February 28, 1997. The primary reason for this
increase was the aforementioned increase in operating expenses
combined with the aforementioned reduction in grant and license
revenue.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
UROLOGIX, INC. VS. BSD MEDICAL CORPORATION, United States
District Court for the District of Minnesota, Civil Action No. 4-
96-647.
BSD is currently involved in litigation with Urologix, Inc.
regarding the continued validity of the non-exclusive license (to
practice certain patents) granted by BSD to Urologix in
settlement of prior patent infringement litigation (see Part I,
Item 3, August 31, 1997, 10-KSB). In its counterclaim against
Urologix, BSD alleged that Urologix breached a confidentiality
provision of the license agreement and that BSD's termination of
the license agreement, based on that breach, was proper. The
counterclaim also seeks recovery of damages caused to BSD as a
result of Urologix' breach. On December 22, 1997, the United
States District Court for the District of Minnesota issued a
significant ruling in the litigation between BSD Medical
Corporation and Urologix, Inc. In ruling on the parties' cross-
motions for summary judgment, the District Court denied Urologix'
motion and granted BSD's motion, finding that Urologix had
breached the license agreement by disclosing the confidential
financial terms to a third party. The case went to trial on
March 25, 1998, to determine the remaining issues regarding
termination and damages. The trial ended on April 3, 1998. No
ruling has been made by the Court as of the filing of this 10-
QSB. (At Urologix' request, the lawsuit is under seal by the
Court; therefore, only limited information about the litigation
and the Court's ruling can be provided.)
ITEM 5. OTHER INFORMATION
On September 15, 1996, Medizintechnik (a company owned by Dr.
Gerhard Sennewald, a member of BSD's Board of Directors and a
major stockholder of the Company) obtained a worldwide fully paid
software license from Konrad-Zuse-Zentrum fuer
Informationstechnik (ZIB) of Berlin for a three-dimensional (3D)
hyperthermia treatment planning software - HYPERPLAN - developed
by ZIB. On January 21, 1998, BSD entered into an agreement with
Medizintechnik wherein Medizintechnik irrevocably assigned the
worldwide rights under the ZIB software license agreement to BSD,
with the sole exception of Europe, where Medizintechnik retained
these rights itself. In consideration for this assignment of
rights, BSD agreed to supply, at no charge, one Sigma-Eye
applicator (not an MR compatible version) to Medizintechnik, who
will forward this applicator to Strahlenklinik and Poliklinik,
Virchow-Klinikum of the Humboldt-Universitaet of Berlin. BSD
also agreed to inform Medizintechnik on a regular basis about
software sales to final customers and to pay timely to
Medizintechnik the software license fee (8% of the sales price
for the HYPERPLAN software or a minimum of DM 6,000) which, under
the terms of the ZIB agreement, is due to ZIB for each software
sale.
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 January 14, 1998, which reported the appointment of Dr.
Michael Nobel to the Company's Board of Directors and a
significant ruling in the Urologix lawsuit.
<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: April 13, 1998 by: /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> 6-MOS
<FISCAL-YEAR-END> AUG-31-1998
<PERIOD-END> FEB-28-1998
<CASH> 504,797
<SECURITIES> 0
<RECEIVABLES> 204,644
<ALLOWANCES> (10,000)
<INVENTORY> 660,305
<CURRENT-ASSETS> 1,377,965
<PP&E> 825,382
<DEPRECIATION> (767,594)
<TOTAL-ASSETS> 1,512,833
<CURRENT-LIABILITIES> 865,917
<BONDS> 64,549
0
0
<COMMON> 161,770
<OTHER-SE> 34,435
<TOTAL-LIABILITY-AND-EQUITY> 1,512,833
<SALES> 760,856
<TOTAL-REVENUES> 894,029
<CGS> 309,822
<TOTAL-COSTS> 1,049,089
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,243
<INCOME-PRETAX> (115,769)
<INCOME-TAX> 0
<INCOME-CONTINUING> (115,769)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
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<NET-INCOME> (115,769)
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