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, 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 July 14, 1999
Common stock, $.01 Par Value 16,661,012
Transitional Small Business Disclosure Format (Check one): Yes [ ] No [X]
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BSD MEDICAL CORPORATION
Condensed Balance Sheets
(Unaudited)
Assets May 31,
1999
------------
Current assets:
Cash and cash equivalents $ 1,941,624
Receivables 98,418
Inventories 935,752
Prepaid Expenses 5,125
Deposits 9,437
------------
Total current assets 2,990,356
------------
Property and equipment, net 86,253
Long-term trade receivables 47,486
Investment in TherMatrx, Inc. 1,394
------------
$ 3,125,489
------------
Liabilities and Stockholders' Equity
Current liabilities:
Current portion on deferred gain on sale 61,416
- leaseback
Current portion of long-term debt 13,406
Current portion of deferred revenue 81,530
Accounts payable 85,310
Accrued expenses 362,074
------------
Total current liabilities 603,736
------------
Long-term debt -
Deferred gain on building transaction 153,461
Deferred revenue 40,923
------------
Total liabilities 798,120
------------
Stockholders' equity:
Common stock, $.01 par value; authorized
20,000,000 shares; issued and
outstanding 16,661,012, shares 166,406
Additional paid-in capital 20,674,750
Accumulated deficit (18,354,067)
Deferred compensation (159,486)
Common stock in treasury 13,412 shares, (234)
at cost ------------
Net stockholders' equity 2,327,371
------------
$ 3,125,489
============
<PAGE>
BSD MEDICAL CORPORATION
Condensed Statements of Operations
(Unaudited)
Periods ended May 31, 1999, and May 31, 1998
Three Months Nine Months
Ended: Ended:
------------------------ ------------------------
May 31, May 31, May 31, May 31,
1999 1998 1999 1998
----------- ----------- ----------- -----------
Product sales $ 81,086 763,300 $ 308,693 1,524,155
Grant and license revenue - - 23,780 133,173
----------- ----------- ----------- -----------
Total revenues 81,086 763,300 332,473 1,657,328
----------- ----------- ----------- -----------
Costs and expenses:
Cost of product sales 138,572 269,293 346,732 579,115
Research and development 141,789 110,728 370,384 254,951
Selling, general, and 430,190 186,642 779,224 781,686
administrative ----------- ----------- ----------- -----------
Total costs and expenses 710,551 566,663 1,496,340 1,615,752
----------- ----------- ----------- -----------
Operating income (loss) (629,465) 196,637 (1,163,867) 41,576
Other income (expense):
Equity Earnings in TherMatrx (120,046) - (408,591) -
Interest income 20,515 3,549 77,023 7,536
Settlement of litigation - 2,950,000 - 2,950,000
Interest expense (404) (1,203) (2,432) (7,446)
Other, net 22,221 102,237 37,911 143,785
----------- ----------- ----------- -----------
Total other income (expense) (77,714) 3,054,583 (296,089) 3,093,875
----------- ----------- ----------- -----------
Net income (loss) $ (707,179) 3,251,220 $(1,459,956) 3,135,451
=========== =========== =========== ===========
Basic net income (loss) per
common and common $ (.04) .20 $ (.09) .19
equivalent share ----------- ----------- ----------- -----------
Diluted net income (loss)
per common and common $ - .19 $ - .18
equivalent share ----------- ----------- ----------- -----------
Weighted average number of
shares outstanding
Primary 16,661,000 16,177,000 16,661,000 16,177,000
----------- ----------- ----------- -----------
Diluted - 17,087,000 - 17,287,000
----------- ----------- ----------- -----------
See accompanying notes to financial statements.
<PAGE>
BSD MEDICAL CORPORATION
Condensed Statements of Cash Flows (Unaudited)
Nine Months ended May 31, 1999, and May 31, 1998
Increase (Decrease) in Cash and Cash May 31, May 31,
Equivalents 1999 1998
----------- -----------
Cash flows from operating activities:
Net income (loss) $(1,459,956) 3,135,451
Adjustments to reconcile net income (loss)
to net cash provided by operating
activities:
Depreciation and amortization 17,674 14,150
Loss on joint venture 408,591 -
Gain on settlement of accounts payables - (7,103)
Deferred compensation 151,880 151,880
Stock issued for compensation 145,489 -
Deferred gain on sale of asset (46,062) (276,293)
Recognized gain on sale of asset - (49,191)
(Increase) decrease in:
Receivables 230,920 (126,968)
Inventories (311,476) (52,959)
Prepaid expenses and deposits 16,406 14,257
Increase (decrease) in:
Accounts payable 3,000 (165,032)
Accrued expenses 137,556 (28,237)
Deferred Income (71,875) 240,049
----------- -----------
Net cash provided by (used in) (777,853) 2,850,004
operating activities ----------- -----------
Cash flows from investing activities:
Purchase of property and equipment (35,151) (5,286)
Cash in unconsolidated subsidiary (3,593,083) -
Proceeds from sale of fixed asset - 446,545
----------- -----------
Net cash provided by (used in) (3,628,234) 441,259
investing activities
Cash flows from financing activities:
Net proceeds from (payments on) short-term - (170,500)
notes payable
Principal payments on capital lease - (12,659)
obligation
Principal payments on long-term debt (43,404) (20,940)
obligation ----------- -----------
Net cash used in financing activities (43,404) (204,099)
----------- -----------
Increase in cash and cash equivalents $(4,449,491) 3,087,164
Cash and cash equivalents, beginning of 6,391,115 43,681
period =========== ===========
Cash and cash equivalents, end of period $ 1,941,624 3,130,845
=========== ===========
Supplemental Disclosure of Cash Flow
Information
- ---------------------------------------
Cash paid for interest during period $ 2,432 18,070
Supplemental Non-cash
- ---------------------------------------
Investment in entity $ 409,985 -
Inventories (32,983) -
Other Assets (2,781) -
Property and equipment (116,517) -
Accounts payable 13,329 -
Accrued expenses 172,104 -
Minority interest 3,149,946 -
----------- -----------
Total Non-cash 3,593,083 -
Less cash in unconsolidated subsidiary 3,593,083 -
----------- -----------
0 -
<PAGE>
BSD MEDICAL CORPORATION
Notes to Condensed Financial Statements
Note 1. Basis of Presentation
The Condensed Balance Sheet as of May 31, 1999; the Condensed
Statements of Operations for the three months and nine months
ended May 31, 1999; the Condensed Statements of Cash Flow for the
nine months ended May 31, 1999, and May 31, 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 May 31, 1999, have
been made. During the period ended May 31, 1999, TherMatrx, Inc.
received an additional capital infusion from TherMatrx Investment
Holdings, LLC (assignee of Oracle Strategic Partners, L.P. and
Charles Manker). This infusion was based on TherMatrx's
achievement of key success milestones in the clinical
investigation of a new therapy to treat BPH with microwave
energy. This infusion decreased BSD's ownership of TherMatrx
from 54% to 34%. During the periods ending August 31, 1998,
November 30, 1998, and February 28, 1999, BSD presented
consolidated financials; however, BSD has become a minority
shareholder in TherMatrx and thus has changed the method of
accounting from a consolidation method to an equity method.
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, 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 May
31, 1999, and May 31, 1998, are based on the weighted average
number of shares outstanding during the respective periods.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
Total assets decreased from $4,308,861 at August 31, 1998, to
$3,125,489 at May 31, 1999, a decrease of $1,183,372, or 27.46%
primarily due to a decrease in cash. Cash decreased by $856,408,
a decrease of 30.61%, primarily due to use of cash for working
capital.
Receivables decreased $230,920, a decrease of 70.12%, primarily
due the collection of receivables. Total inventories increased
by $311,476, an increase of 49.89% due to purchase of materials
for future shipments.
Total current liabilities increased by $89,400, an increase of
17.38%. The increase was primarily caused by decreases in long
term debt and deferred revenue and an increase in accrued
expenses.
The Company has long term receivables for field service
contracts, as of May 31, 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 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, 1999
Product Sales decreased from $1,524,155 in the nine months
ended May 31, 1998, to $308,693 in the nine months ended May 31,
1999, a decrease of $1,215,462, or 79.75%, primarily due to 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. (As of May 31, 1999, BSD has a
backlog of $539,750 for its new BSD-2000-3D product line.)
Gross profit on product sales decreased from $945,040 in the
nine months ended May 31, 1998, to a loss of $38,039 in the nine
months ended May 31, 1999, as a result of a decrease in product
sales (see above).
Selling, General and Administrative Expenses decreased from
$781,686 in the nine months ended May 31, 1998, to $779,224 in
the nine months ended May 31, 1999, a slight decrease of $2,462,
or 0.32%.
Research and Development Expenses increased from $254,951 for
the nine months ended May 31, 1998, to $370,384 in the nine
months ended May 31, 1999, an increase of $115,433, or 45.28%.
The increase was due to increased resources devoted to completion
of the BSD-2000-3D/MR system and the costs associated with
obtaining CE Marking approval for this system.
Total Costs and Expenses decreased by $119,412, a decrease of
7.39%, primarily caused by a decrease in product sales.
Interest Expense in the nine months ended May 31, 1998, was
$7,446, compared with $2,432 of Interest Expense in the nine
months ended May 31, 1999. The decrease was caused by the lower
interest costs associated with notes payable as the notes reach
maturity.
The Net Loss for the nine months ending May 31, 1999, was
$1,459,956, as compared with a Net Income of $3,135,451 for the
nine months ending May 31, 1998. The primary reason for this
decrease was the receipt in May 1998 of $2,950,000 for litigation
settlement combined with the aforementioned decrease in product
sales, increase in research and development costs, and the equity
loss in TherMatrx.
Three Months ended May 31, 1999
Product Sales decreased from $763,300 in the three months ended
May 31, 1998, to $81,086 for the three months ended May 31, 1999,
a decrease of $682,214, or 89.38%. This decrease was due to 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. (As of May 31, 1999, BSD has a
backlog of $539,750 for its new BSD-2000-3D product line.)
Gross profit decreased from $494,007 in the quarter ended May
31, 1998, to a loss of $57,486 in the quarter ended May 31, 1999,
as a result of the aforementioned decrease in sales.
Selling, General and Administrative Expenses increased from
$186,642 in the quarter ended May 31, 1998, to $430,190, for the
quarter ended May 31, 1999, an increase of $243,548, or 130.49%.
The increase was primarily caused by an increase in personnel
costs and compensation expense incurred from the issue of new
common stock.
Research and Development Expenses increased by $31,061, an
increase of 28.05% 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.
Total Costs and Expenses increased by $143,888, an increase of
25.39%, as compared with the corresponding three months in the
previous fiscal year. This increase was primarily caused by the
aforementioned increases in Selling, General and Administrative
expenses and Research and Development expenses.
Interest Expense in the three months ended May 31, 1998, was
$1,203, as compared with $404 of Interest Expense in the three
months ended May 31, 1999. The decrease was caused by the lower
interest costs associated with notes payable as the notes reach
maturity.
The Net Loss for the quarter ended May 31, 1999, was $707,179,
as compared with the Net Income of $3,251,220 for the quarter
ending May 31, 1998. The primary reason for this decrease was
the receipt in May 1998 of $2,950,000 for litigation settlement
combined with the aforementioned decrease in product sales,
increase in Selling, General and Administrative and Research and
Development expenses, and the equity loss in TherMatrx.
YEAR 2000 COMPLIANCE. All of BSD Medical's systems are fully
Year 2000 (Y2K) compliant, with the exception of the BSD-500 and
some BSD-2000 systems. 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. In the event that a
customer elects not to purchase the updated software, their
system can still be operated by making a one time entry of 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 exhibit is 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: July 14, 1999 /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-31-1999
<PERIOD-END> MAY-31-1999
<CASH> 1,942,624
<SECURITIES> 0
<RECEIVABLES> 108,418
<ALLOWANCES> (10,000)
<INVENTORY> 935,752
<CURRENT-ASSETS> 2,990,356
<PP&E> 766,863
<DEPRECIATION> (680,610)
<TOTAL-ASSETS> 3,125,489
<CURRENT-LIABILITIES> 603,736
<BONDS> 0
0
0
<COMMON> 166,406
<OTHER-SE> 2,160,965
<TOTAL-LIABILITY-AND-EQUITY> 3,125,489
<SALES> 308,693
<TOTAL-REVENUES> 332,473
<CGS> 346,732
<TOTAL-COSTS> 1,496,340
<OTHER-EXPENSES> 408,591
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,432
<INCOME-PRETAX> (1,459,956)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,459,956)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,459,956)
<EPS-BASIC> (.04)
<EPS-DILUTED> 0
</TABLE>