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, 1999.
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, 1999
Common stock, $.01 Par Value 16,356,640
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 Sheet
(Unaudited)
Assets Feb. 28,
1999
Current assets: ----------
Cash and cash equivalents $ 5,004,156
Receivables 287,665
Inventories 750,398
Prepaid expenses 10,250
Deposits 10,338
----------
Total current assets 6,062,807
Property and equipment, net 107,017
Other asset, net 2,041
Long-term trade receivables 47,486
----------
$ 6,219,351
==========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 87,617
Accrued expenses 141,506
Current portion of long-term debt 22,068
Current portion of deferred revenue 46,827
Current portion of deferred gain on sale - leaseback 61,416
----------
Total current liabilities 359,434
----------
Long-term debt 5,422
Deferred revenue 97,339
Deferred gain on sale - leaseback 168,815
----------
Total liabilities 631,010
----------
Minority interest 2,847,360
----------
Stockholders' equity:
Common stock, $.01 par value; authorized 20,000,000
shares; issued 16,370,052 shares 163,701
Additional paid-in capital 20,531,967
Accumulated deficit (17,646,887)
Deferred compensation (307,566)
Less 13,412 shares of treasury stock, at cost (234)
----------
Total stockholders' equity 2,740,981
----------
$ 6,219,351
==========
See accompanying notes to financial statements.
<PAGE>
BSD MEDICAL CORPORATION
Condensed Consolidated Statements of Operations
(Unaudited)
Quarters ended February 28, 1999 and 1998
Three Months Six Months
Ended: Ended:
------------------- -------------------
Feb. 28, Feb. 28, Feb. 28, Feb. 28,
1999 1998 1999 1998
--------- --------- --------- ---------
Product sales $ 97,070 185,326 $ 176,420 760,856
Grant and license revenue 23,780 65,310 23,780 133,173
--------- --------- --------- ---------
Total revenues 120,850 250,636 200,200 894,029
--------- --------- --------- ---------
Costs and expenses:
Cost of product sales 103,327 108,558 171,887 309,822
Research and development 270,632 77,685 697,282 144,223
Selling, general, and 293,468 345,606 690,571 595,044
administrative --------- --------- --------- ---------
Total costs and expenses 667,427 531,849 1,559,740 1,049,089
--------- --------- --------- ---------
Operating income (loss) (546,577) (281,213)(1,359,540) (155,060)
Other income (expense):
Interest income 55,344 3,229 125,562 3,987
Gain on settlement of accounts - 7,103 - 7,103
payable
Interest expense (850 (1,505) (2,028) (6,243)
Other, net (13,404) 34,394 9,642 34,444
--------- --------- --------- ---------
Total other income (expense) 41,090 43,221 133,176 39,291
--------- --------- --------- ---------
Net income (loss) before (505,487) (237,992)(1,226,364) (115,769)
minority interest and
income taxes
Benefit for income taxes - current - - 171,000 -
--------- --------- --------- ---------
Income (loss) before minority (505,487) (237,992)(1,055,364) -
interest
Minority interest in net income
(loss) of subsidiary 141,675 - 302,587 -
--------- --------- --------- ---------
Net income (loss) (363,812) (237,992) (752,777) (115,769)
========= ========= ========= =========
Net income (loss) per common and
common equivalent share $ (0.02) (0.01) $ (0.05) (0.01)
========= ========= ========= =========
Weighted average number of shares 16,370,000 16,177,000 16,370,000 16,177,000
outstanding ========== ========== ========== ==========
See accompanying notes to financial statements.
<PAGE>
BSD MEDICAL CORPORATION
Condensed Consolidated Statements of Cash Flows
(Unaudited)
Six Months ended February 28, 1999 and 1998
Increase (Decrease) in Cash and Cash Equivalents Feb. 28, Feb. 28,
1999 1998
---------- ----------
Cash flows from operations activities:
Net income (loss) $ (752,777) (115,769)
Adjustments to reconcile net income (loss)
to net cash (used in) provided by operating
activities:
Depreciation and amortization 15,856 9,902
Gain on settlement of accounts payables - (7,103)
Deferred compensation 3,800 3,800
Write-off of equipment 30,612 -
Deferred gain on sale of building - (291,647)
Recognized gain on sale of building (30,708) (33,837)
(Increase) decrease in:
Receivables 32,583 203,630
Inventories (93,139) (118,079)
Prepaid expenses and other assets 70,897 9,131
Increase (decrease) in:
Accounts payable 1,069 (15,765)
Accrued expenses (255,113) 285,954
Deferred revenue (50,164) 277,110
Minority interest (302,586) -
---------- ----------
Net cash provided by (used in) operations
activities (1,329,670) 207,327
Cash flows from investing activities:
Purchase of property and equipment (27,969) (2,067)
Proceeds from sale of fixed asset - 446,545
---------- ----------
Net cash provided by (used in) investing
activities (27,969) 444,478
---------- ----------
Cash flows from financing activities:
Net proceeds from (payments on) short-term notes (14,222) (164,227)
payable
Principal payments on capital lease obligation - (12,659)
Principal payments on long-term debt obligation (15,098) (13,803)
---------- ----------
Net cash used in financing activities (29,320) (190,689)
---------- ----------
Increase (decrease) in cash and cash equivalents $(1,386,959) 461,116
Cash and cash equivalents, beginning of period 6,391,115 43,681
---------- ----------
Cash and cash equivalents, end of period $ 5,004,156 504,797
Supplemental Disclosure of Cash Flow Information
- ------------------------------------------------
Cash paid during the period for interest $ 2,028 6,243
<PAGE>
BSD MEDICAL CORPORATION
Notes to Condensed Consolidated Financial Statements
Note 1. Basis of Presentation
The Condensed Consolidated Balance Sheet as of February 28,
1999, and the Condensed Consolidated Statements of Operations and
the Condensed Consolidated Statements of Cash Flow for the
quarters ended February 28, 1999, and February 28, 1998, 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, 1999,
have been made. BSD currently has fifty-four percent interest in
a subsidiary, TherMatrx, thus, the financial statements for the
two companies have been consolidated. All material intercompany
balances and transactions have been eliminated.
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, 1999,
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, 1999, and February 28, 1998, are based on the
weighted average number of shares outstanding during the
respective periods. Common stock equivalents have not been
included in the February 28, 1999, quarter, as they are anti-
dilutive.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
Consolidated Total Assets decreased to $6,219,351 at February
28, 1999, a decrease of $1,415,799, as compared to $7,635,150 at
August 31, 1998. Non-consolidated Total Assets for the quarter
ended February 28, 1999, decreased to $3,383,864, a decrease of
$515,012, or 13.21%, as compared to $3,898,876 at August 31,
1998, primarily due to a decrease in cash. Consolidated Cash
decreased to $5,004,156, as compared to $6,391,115 at August 31,
1998. Non-consolidated Cash decreased to $2,085,422, a decrease
of $712,610, or 25.47%, as compared to $2,798,032 at August 31,
1998, primarily due to use of cash for working capital.
Consolidated Receivables decreased to $287,665, a decrease of
$32,583, or 10.17%, as compared to August 31, 1998, which was
caused by normal periodic fluctuations. Consolidated Total
inventories increased to $750,398, an increase of $93,139, or
14.17%, as compared to August 31, 1998, due to periodic business
fluctuations.
Consolidated Total Current liabilities decreased to $359,434, a
decrease of $331,244, or 47.96%. The decrease was primarily
caused by reductions in notes payable and accrued expenses.
The Company has long term receivables for field service
contracts, as of February 28, 1999, of $47,486.
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 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 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. 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, 1999
Consolidated Net Sales for the six months ended February 28,
1999, decreased by $584,374, or 76.81% as compared to the six
months ended February 28, 1998. The decrease was primarily
caused by a delay in receipt and processing of European orders
while the Company obtains CE Marking approval on the new BSD-
2000/3D system, now required for sales to all European Union (EU)
countries. The Company anticipates receipt of CE Mark approval
by the end of this fiscal year.
Consolidated Gross profit on product sales was $4,595 in the
quarter ended February 28, 1999, a decrease of $446,439, or
98.98%, as compared to $451,034 in the quarter ended February 28,
1998, as a result of the decrease in sales (see above).
Consolidated Selling, General and Administrative Expenses
totaled $690,571, an increase of $95,527, or 16.05%, as compared
with the corresponding six months in the previous year, due to
periodic fluctuations. Non-consolidated Selling, General and
Administrative Expenses totaled $281,114, a decrease of $313,930,
or 52.76%, as compared with the corresponding six months in the
previous year. The decrease was primarily caused by a reduction
in legal costs due to settlement of the lawsuit with Urologix
(see Note 15 to Financial Statements, August 31, 1998 10-KSB).
Consolidated Research and Development Expenses totaled
$697,282, an increase of $553,059, or 383.47%. Non-consolidated
Research and Development Expenses totaled $228,596, an increase
of $84,373, or 58.50%. The increase was due to increased
resources devoted to completion of the BSD-2000/3D/MR system, and
costs associated with obtaining CE Marking approval for this
system, as well as development of a new, low-cost, PC-based
system for the treatment of site specific tumors, including
prostate carcinoma, head and neck tumors, and cervical carcinoma.
Consolidated Total Costs and Expenses were $1,559,740, an
increase of $510,651, or 48.68%, as compared with $1,049,089 in
the corresponding six months in the previous fiscal year. Non-
consolidated Total Costs and Expenses were $413,437, a decrease
of $635,652, or 60.59%. This decrease was primarily caused by
the aforementioned decrease in legal costs and above referenced
decrease in sales and thus cost of product sales.
Consolidated Interest Expense in the six months ended February
28, 1999, was $2,028, as compared with the $6,243 of Interest
Expense in the six months ended February 28, 1998. The decrease
was caused by lower interest costs associated with notes payable
as they reach maturity. Consolidated Interest Income in the six
months ended February 28, 1999, was $125,562.
Consolidated Net Loss for the six months ended February 28,
1999, was $752,777, compared with a Net Loss for the six months
ended February 28, 1998 of $115,769. Non-consolidated Net Loss
for the six months ended February 28, 1999, was $619,378. The
difference from 1998 to 1999 was primarily due to a decrease in
sales and an increase in research and development costs.
Three Months ended February 28, 1999
Consolidated Net Sales for the three months ended February 28,
1999, decreased by $88,256, or 47.62% as compared to the three
months ended February 28, 1998. The decrease was primarily
caused by a delay in receipt and processing of European orders
while the Company obtains CE Marking approval on the new BSD-
2000/3D system, now required for sales to all European Union (EU)
countries. The Company anticipates receipt of CE Mark approval
by the end of this fiscal year.
Consolidated Gross profit on product sales went from $76,770 in
the quarter ended February 28, 1998, to a loss of $6,257 in the
quarter ended February 28, 1999 as a result of the decrease in
sales (see above).
Consolidated Selling, General and Administrative Expenses
totaled $293,468, a decrease of $52,138, or 15.09%, as compared
with the corresponding three months in the previous year. Non-
consolidated Selling, General and Administrative Expenses totaled
$174,353, a decrease of $171,253, or 49.55%, as compared with the
corresponding three months in the previous year. The decrease
was primarily caused by a reduction in legal costs due to
settlement of the lawsuit with Urologix (see Note 15 to Financial
Statements, August 31, 1998 10-KSB).
Consolidated Research and Development Expenses totaled
$270,632, an increase of $192,947, or 248.37%. Non-consolidated
Research and Development Expenses totaled $117,603, an increase
of $39,918, or 51.38%. The increase was due to increased
resources devoted to completion of the BSD-2000/3D/MR system, and
costs associated with obtaining CE Marking approval for this
system, as well as development of a new, low-cost, PC-based
system for the treatment of site specific tumors, including
prostate carcinoma, head and neck tumors, and cervical carcinoma.
Consolidated Total Costs and Expenses were $667,427, an
increase of $135,578, or 25.49%, as compared with $531,849 in the
corresponding three months in the previous fiscal year. Non-
consolidated Total Costs and Expenses were $413,437, a decrease
of $118,412, or 22.26%. This decrease was primarily caused by
the aforementioned decrease in legal costs and above referenced
decrease in sales and thus cost of product sales.
Consolidated Interest Expense in the three months ended
February 28, 1999, was $850, as compared with the $1,505 of
Interest Expense in the three months ended February 28, 1998.
The decrease was caused by lower interest costs associated with
notes payable as they reach maturity. Consolidated Interest
Income in the three months ended February 28, 1999, was $55,344.
Consolidated Net Loss for the quarter ending February 28, 1999,
was $363,812, compared with a Net Loss for the quarter ending
February 28, 1998 of $237,992. Non-consolidated Net Loss for the
quarter ended February 28, 1999, was $252,998 as compared to a
Net Loss of $237,992 for the quarter ended February 28, 1998.
The difference from 1998 to 1999 was primarily due to a decrease
in sales and an increase in research and development costs.
YEAR 2000 COMPLIANCE. All of BSD Medical's systems are fully
Year 2000 (Y2K) compliant, with the exception of some BSD-500 and
BSD-2000 systems that use either a 68000 or 68020 computer
system. Beginning January 1, 2000, these systems will display an
error message when the system is first started, indicating the
system has an invalid date. The Company is in the process of
rewriting the software for both of these systems, which will make
these systems Y2K compliant and permit unrestricted use. The
cost to BSD Medical to address this issue is not material - less
than $10,000. The new software is available for customer
purchase. In the event that a customer elects not to purchase
the updated software, their system can still be operated by
manually entering a year between 1985 and 1999. The system
operations and calculations do not include any date driven
functions and therefore the systems will not exhibit any change
in performance due to the arrival of the year 2000; rather the
date is used only as a method to identify the treatment record.
Thus, the use of an invalid date does not create any material
risks. These systems are not connected to any other computer
systems, as they are stand-alone systems.
The Company has installed software upgrades for its accounting
and manufacturing systems that are warranted by the vendors to be
Y2K compatible. The Company is currently evaluating its other
computerized systems. The aggregate costs to upgrade systems for
Y2K compliance appear to be below $13,000, and these costs will
be amortized over five years. There do not appear to be any
other material internal issues at this time.
The Company has been talking to vendors and customers but has
not yet determined the Y2K readiness of these entities. However,
the Company is monitoring the Y2K progress of its vendors,
customers, and payors to determine the potential impact to the
Company.
FORWARD OUTLOOK AND RISKS. From time to time, the Company may
publish forward-looking statements relating to such matters as
anticipated financial performance, business prospects,
technological development, new products, research and development
activities and similar matters. The Private Securities
Litigation Reform Act of 1995 provides a safe harbor for forward-
looking statements. In order to comply with the terms of the
safe harbor, the Company notes that a variety of factors could
cause the Company's actual results and experience to differ
materially from the anticipated results or other expectations
expressed in any of the Company's forward-looking statements.
This form 10-QSB contains and incorporates by reference certain
"forward-looking statements" within the meaning of Section 27A of
the Securities Act and Section 21E of the Exchange Act with
respect to results of operations and businesses of the Company.
All statements, other than statements of historical facts,
included in this Form 10-QSB, including those regarding market
trends, the Company's financial position, business strategy,
projected costs, and plans and objectives of management for
future operations, are forward-looking statements. These forward-
looking statements are based on the Company's current
expectations. Although the Company believes that the
expectations reflected in such forward-looking statements are
reasonable, there can be no assurance that such expectations will
prove to be correct.
CHANGING REGULATORY ENVIRONMENT. The Company's business is
subject to extensive federal, state and local regulation.
Political, economic and regulatory influences are subjecting the
health care industry in the United States to fundamental change.
See "Government Regulation" in the Company's fiscal 1998 10-KSB.
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
The following exhibits are filed as part of this report:
Exhibit Description
Number
27 Financial Data Schedule.
b) Reports on Form 8-K -- During the quarter, no reports on Form
8-K were filed by the Company.
<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, 1999 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-31-1999
<PERIOD-END> FEB-28-1999
<CASH> 5,004,156
<SECURITIES> 0
<RECEIVABLES> 297,665
<ALLOWANCES> (10,000)
<INVENTORY> 750,398
<CURRENT-ASSETS> 6,062,807
<PP&E> 791,157
<DEPRECIATION> 684,140
<TOTAL-ASSETS> 6,219,351
<CURRENT-LIABILITIES> 359,434
<BONDS> 5,422
0
0
<COMMON> 163,701
<OTHER-SE> 2,577,280
<TOTAL-LIABILITY-AND-EQUITY> 6,219,351
<SALES> 176,420
<TOTAL-REVENUES> 200,200
<CGS> 171,887
<TOTAL-COSTS> 1,559,740
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,028
<INCOME-PRETAX> (752,777)
<INCOME-TAX> 0
<INCOME-CONTINUING> (752,777)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
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