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 November 30, 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 January 19, 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
Nov. 30,
1998
Current assets: ---------
Cash and cash equivalents $ 5,687,095
Receivables 330,036
Inventories 689,817
Prepaid expenses 15,375
Deposits 38,757
---------
Total current assets 6,761,080
Property and equipment, net 100,225
Other asset, net 2,042
Long-term trade receivables 47,486
---------
$ 6,910,833
=========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 126,917
Accrued expenses 232,097
Current portion of long-term debt 35,828
Current portion of deferred revenue 71,534
Current portion of deferred gain on sale - leaseback 46,062
---------
Total current liabilities 512,438
---------
Long-term debt 5,422
Deferred revenue 99,623
Deferred gain on sale - leaseback 199,523
---------
Total liabilities 817,006
---------
Minority interest 2,989,039
---------
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 (17,283,075)
Deferred compensation (307,566)
Less 13,412 shares of treasury stock, at cost (234)
---------
Total stockholders' equity 3,104,793
---------
$ 6,910,833
=========
See accompanying notes to financial statements.
<PAGE>
BSD MEDICAL CORPORATION
Condensed Consolidated Statements of Operations
(Unaudited)
Quarters ended November 30, 1998 and 1997
Nov. 30 Nov. 30
1998 1997
--------- ---------
Product sales $ 79,350 575,530
Grant and license revenue - 67,863
--------- ---------
Total revenues 79,350 643,393
--------- ---------
Costs and expenses:
Cost of product sales 68,560 201,263
Research and development 426,651 66,539
Selling, general, and administrative 397,103 249,438
--------- ---------
Total costs and expenses 892,313 517,240
--------- ---------
Operating income (loss) (812,963) 126,153
Other income (expense):
Interest income 70,218 758
Interest expense (1,178) (4,738)
Other, net 23,046 50
--------- ---------
Total other income (expense) 92,686 (3,930)
--------- ---------
Net income (loss) before minority interest
and income taxes (720,877) 122,223
Benefit for income taxes - current 171,000 -
--------- ---------
Income (loss) before minority interest (549,877) 122,223
Minority interest in net loss of subsidiary 160,912 -
--------- ---------
Net income (loss) (388,965) 122,223
========= =========
Net income (loss) per common and common
equivalent share $ (0.02) 0.01
========== ==========
Weighted average number of shares outstanding 16,370,000 17,314,726
========== ==========
See accompanying notes to financial statements.
<PAGE>
BSD MEDICAL CORPORATION
Condensed Consolidated Statements of Cash Flows
(Unaudited)
Quarters ended November 30, 1998 and 1997
Increase (Decrease) in Cash and Cash Equivalents
Nov. 30 Nov. 30
1998 1997
--------- ---------
Cash flows from operations activities:
Net income (loss) $ (388,965) 122,223
Adjustments to reconcile net income (loss)
to net cash (used in) provided by operating
activities:
Depreciation and amortization 6,576 5,794
Deferred compensation 3,800 3,800
Write-off of equipment 29,411 -
Deferred gain on sale of building (15,354) -
(Increase) decrease in:
Receivables (9,788) 217,981
Inventories (32,558) 5,847
Prepaid expenses and other assets 37,352 485
Increase (decrease) in:
Accounts payable 40,369 (26,083)
Accrued expenses (164,522) 187,166
Deferred revenue (23,173) (20,049)
Minority interest (160,912) -
--------- ---------
Net cash provided by (used in) operations
activities (677,764) 497,164
--------- ---------
Cash flows from investing activities:
Purchase of property and equipment (10,696) -
--------- ---------
Cash flows from financing activities:
Net proceeds from (payments on) short-term
notes payable - (158,103)
Principal payments on capital lease obligation - (12,659)
Principal payments on long-term debt obligation (15,560) (6,824)
--------- ---------
Net cash used in financing activities (15,560) (177,586)
--------- ---------
Increase (decrease) in cash and cash equivalents $ (704,620) 319,578
Cash and cash equivalents, beginning of period 6,391,115 43,681
--------- ---------
Cash and cash equivalents, end of period $ 5,687,095 363,259
========== =========
Supplemental Disclosure of Cash Flow Information
Cash paid during the period for interest $ 1,178 4,738
<PAGE>
BSD MEDICAL CORPORATION
Notes to Condensed Consolidated Financial Statements
Note 1. Basis of Presentation
The Condensed Consolidated Balance Sheet as of November 30,
1998, and the Condensed Consolidated Statements of Operations and
the Condensed Consolidated Statements of Cash Flow for the
quarters ended November 30, 1998, and November 30, 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 November 30, 1998,
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 November 30, 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
November 30, 1998, and November 30, 1997, are based on the
weighted average number of shares outstanding during the
respective periods. Common stock equivalents have not been
included in the November 30, 1998, 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 $6,910,832 at November
30, 1998, a decrease of $724,318, as compared to $7,635,150 at
August 31, 1998. Non-consolidated Total assets for the quarter
ended November 30, 1998, decreased to $3,109,613, a decrease of
$789,263, or 20.24%, as compared to $3,898,876 at August 31,
1998, primarily due to a decrease in cash. Consolidated Cash
decreased to $5,687,095, as compared to $6,391,115 at August 31,
1998. Non-consolidated Cash decreased to $2,466,217, a decrease
of $331,815, or 11.86%, as compared to $2,798,032 at August 31,
1998, primarily due to use of cash for working capital.
Consolidated Receivables increased to $330,036, a slight
increase of $9,788, or 3.06%, as compared to August 31, 1998,
which was caused by normal periodic fluctuations. Consolidated
Total inventories increased to $689,817, an increase of $32,558,
or 4.95%, as compared to August 31, 1998, due to periodic
business fluctuations.
Consolidated Total current liabilities decreased to $572,438, a
decrease of $178,240, or 25.81%. The decrease was primarily
caused by reductions in notes payable, deferred revenue, and
accrued expenses.
The Company has long term receivables for field service
contracts, as of November 30, 1998, 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:
Three Months ended November 30, 1998
Consolidated Net Sales for the three months ended November 30,
1998, decreased by $564,043, or 86.67% as compared to the three
months ended November 30, 1997. The decrease was primarily
caused by a delay in receipt and processing of European orders
while the Company obtains the CE Mark 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 $10,790 in the
quarter ended November 30, 1998, a decrease of $363,477, or
97.12%, as compared to $374,267 in the quarter ended November 30,
1997, as a result of the decrease in sales (see above).
Consolidated Selling, General and Administrative Expenses
totaled $397,103, an increase of $147,665, or 59.20%, as compared
with the corresponding three months in the previous year. Non-
consolidated Selling, General and Administrative Expenses totaled
$163,511, a decrease of $85,927, or 34.45%, 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
$426,650, an increase of $360,061, or 541.20%. Non-consolidated
Research and Development Expenses totaled $110,993, an increase
of $44,454, or 66.80%. The increase was caused by increased
resources devoted to completion of the BSD-2000/3D/MR system, and
costs associated with obtaining CE Mark 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 $892,313, an
increase of $375,073, or 72.51%, as compared with $517,240 in the
corresponding three months in the previous fiscal year. Non-
consolidated Total Costs and Expenses were $361,182, a decrease
of $156,058, or 30.17%. 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
November 30, 1998, was $1,178, as compared with the $4,738 of
Interest Expense in the three months ended November 30, 1997.
The decrease was caused by lower interest costs associated with
notes payable as they reach maturity. Consolidated Interest
Income in the three months ended November 30, 1998, was $70,218.
Consolidated Net Loss for the quarter ending November 30, 1998,
was $388,965, compared with a Net Income for the quarter ending
November 30, 1997 of $122,223. Non-consolidated Net Loss for the
quarter ended November 30, 1998, was $200,066 as compared to a
Net Income of $122,223 for the quarter ended November 30, 1997.
The difference from 1997 to 1998 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 allow usage to
continue until the end of 2099. The cost to BSD Medial to address
this issue is not material - less than $10,000. The new software
will be available for customer purchase by March 1, 1999. 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 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 is
dependent on other customers and vendors. The Company has been
talking to our vendors and customers but has not been able to
determine the Y2K readiness of these entities.
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: January 19, 1999 by: /s/ Paul F. Turner
Paul F. Turner
Chairman of the Board,
Acting President, and
Senior Vice President of Research
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<CURRENT-LIABILITIES> 512,438
<BONDS> 5,422
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<OTHER-SE> 3,104,793
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<SALES> 79,350
<TOTAL-REVENUES> 79,350
<CGS> 68,560
<TOTAL-COSTS> 892,313
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<INTEREST-EXPENSE> 1,178
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