TherMatrx, Inc.
(A Development Stage Company)
Financial Statements
September 30, 2000
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
TherMatrx, Inc.
Bannockburn, IL 60015
We have audited the accompanying balance sheet of TherMatrx, Inc. (A Development
Stage Company) as of September 30, 2000, and the related statements of income
and retained earnings and cash flows for the year ended September 30, 2000, and
the period from November 13, 1997 (Date of Inception) to September 30, 2000.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of TherMatrx, Inc. (A Development
Stage Company) as of September 30, 2000, and the results of its operations and
its cash flows for the year then ended and the period from November 13, 1997
(Date of Inception), to September 30, 2000, in conformity with generally
accepted accounting principles.
Sincerely,
Benham, Ichen & Knox LLP
October 24, 2000
1117 S. Milwaukee Avenue, Suite C-11 Libertyville, Illinois 60048-3763
Voice: (847) 362-4310 Facsimile: (847) 362-5016 E-mail: [email protected]
<PAGE>
<TABLE>
<CAPTION>
TherMatrx, Inc.
(A Development Stage Company)
Balance Sheet
September 30, 2000
ASSETS
Current Assets
<S> <C> <C>
Cash and Cash Equivalents $ 690,414
Investments 3,417,140
Inventory 72,081
Deposits and Prepaid Expenses 192,178
Total Current Assets $ 4,371,813
Property and Equipment
Furniture and Fixtures 11,175
Equipment 37,513
48,688
Less: Accumulated Depreciation (28,843)
Total Property and Equipment 19,845
Other Assets
Patents 2,682,500
Total Other Assets __ 2,682,500
Total Assets $ 7,074,158
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts Payable $ 59,270
Accrued Expenses 108,897
Total Current Liabilities $ 168,167
Stockholders' Equity
Common Stock, .001 Par Value
(1,000,000 Shares Authorized; 54,000
Shares Issued and Outstanding) 4,000,000
Preferred Stock, .01 Par Value
(1,000,000 Shares Authorized; 103,500
Shares Issued and Outstanding) 6,500,000
Retained Earnings
(Deficit Accumulated During the
Development Stage) (3,594,009)
Total Stockholders' Equity 6,905,991
Total Liabilities and Stockholders' Equity $ 7,074,158
=================
</TABLE>
<PAGE>
TherMatrx, Inc.
(A Development Stage Company)
Statement of Income and Retained Earnings
Year Ended September 30, 2000, and the Period from
November 13, 1997 (Date of Inception) to September 30, 2000
<TABLE>
<CAPTION>
November 13, 1997
Year Ended (Inception) To
September 30, 2000 September 30, 2000
Expenses
<S> <C> <C>
Sales and Marketing $ 139,626 $ 250,182
Administrative 748,583 2,539,815
Research and Development 768,131 2,245,634
Total Expenses 1,656,340 5,035,631
Other Income (Expense)
Settlement from Lawsuit 1,230,000
Interest Income 267,643 594,899
Loss on Sale of Equipment (656) (656)
Organization Costs (382,621)
Total Other Income 266,987 _ 1,441,622
Net Loss (1,389,353) (3,594,009)
Retained Earnings, Beginning of Period (2,204,656) 0
Retained Earnings, End of Period $ (3,594,009) $ (3,594,009)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
TherMatrx, Inc.
(A Development Stage Company)
Statements of Cash Flows
Year Ended September 30, 2000, and the Period from
November 13, 1997 (Date of Inception) to September 30, 2000
November 13, 1997
Year Ended (Inception) To
September 30, 2000 September 30, 2000
Cash Flows From Operating Activities
<S> <C> <C>
Net Loss $ (1,389,353) $ (3,594,009)
Adjustments to reconcile net loss to
net cash used by operating activities:
Depreciation and Amortization 235,968 678,819
Loss on Sale of Equipment 656 656
Decrease (increase) in operating assets:
Inventory (51,024) (72,081)
Other (151,676) (192,179)
Increase (decrease) in operating liabilities:
Accounts Payable 27,537 59,270
Accrued Liabilities 68,258 108,898
Total Adjustments 129,719 583,383
Net Cash Used by Operating Activities (1,259,634) (3,010,626)
Cash Flows From Investing Activities
Proceeds from Sale of Equipment 600 600
Investments 1,458,725 (3,417,140)
Purchase of Property and Equipment (4,261) (52,420)
Lawsuit Settlement Allocated to Patents 670,000
Net Cash Provided (Used) by
Investing Activities 1,455,064 (2,798,960)
Cash Flows From Financing Activities
Preferred Stock 6,500,000
Increase in Cash and Cash Equivalents 195,430 690,414
Cash and Cash Equivalents at
Beginning of Period 494,984
Cash and Cash Equivalents
at End of Period $ 690,414 $ 690,414
Noncash Investing and Financing Transactions
Common Stock was acquired
by the contribution of patents $ 4,000,000
</TABLE>
The accompanying notes to the financial statements
are an integral part of this statement.
<PAGE>
TherMatrx, Inc.
(A Development Stage Company)
Notes to Financial Statements
From Inception November 13, 1997, to September 30, 2000
NOTE 1 ORGANIZATION AND OPERATION
TherMatrx, Inc. (A Development Stage Company) (the Company) was incorporated in
the state of Delaware on November 13, 1997. The Company is conducting clinical
trials for a new medical device to treat Benign Prostatic Hyperplasia (BPH),
which is a non-cancerous enlargement of the prostate glad. The clinical trials
are being performed throughout the United States.
NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Method of Accounting
The Company prepares its financial statements using the accrual basis of
accounting in accordance with generally accepted accounting principles.
Cash and Cash Equivalents
Cash and cash equivalents include all monies in banks and highly liquid
investments with maturity dates of less than seventy-six days.
Inventory
Inventories are stated at the lower of cost or market. Cost is determined using
the specific identification method.
Property and Equipment
Property and Equipment are carried at cost. Depreciation is provided using the
straight-line method at rates based on the following useful lives:
Furniture and Fixtures 5 years
Equipment 3 years
Expenditures for major renewals and betterments that extend the useful lives of
property and equipment are capitalized. Expenditures for maintenance and repairs
are charged to expense as incurred.
Use of Estimates
The process of preparing financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and reported amounts of revenues and expenses during the reported
period. Actual results could differ from those estimates.
<PAGE>
TherMatrx, Inc.
(A Development Stage Company)
Notes to Financial Statements
From Inception November 13, 1997, to September 30, 2000
NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Income Taxes
Income taxes are accounted for in accordance with the provisions of Statement of
Financial Accounting Standards No. 109. The provision for income tax expense or
benefit is based on income or loss reported for financial statement purpose
adjusted for temporary and permanent differences between reported financial and
taxable income or loss.
Patents
Patents are amortized on the straight-line basis over 15 years.
Costs $ 4,000,000
Proceeds from Lawsuit (670,000)
Accumulated Amortization (647,500)
___________________
Patents, net $ 2,682,500
===================
NOTE 3 COMMITMENTS
The Company has a lease for its office space. The minimum monthly rental is
$2,070. The lease expires on December 31, 2000. The Company is responsible for
its proportional share of real estate taxes and operating expenses of the
building.
Future minimum rental payments:
Year ending September 30 Amount
2001 $ 6,211
===========
Rent expense for the period ended September 30, 2000, 1999, and 1998 was
$25,894, $25,107, and $18,371, respectively.
The Company intends to sublease office space on a month-to-month basis through
December 2000.
Rental income for the period ended September 30, 2000, 1999, and 1998 was
$19,500, $2,600, and $11,700, respectively.
NOTE 4 INVESTMENTS
Investments consist of time deposits worth $2,408,807 and a Treasury Note with a
value of $1,008,333. The carrying value of these investments approximates fair
value because of the short-term maturities of these financial instruments.
<PAGE>
TherMatrx, Inc.
(A Development Stage Company)
Notes to Financial Statements
From Inception November 13, 1997, to September 30, 2000
NOTE 5 CONCENTRATION OF CREDIT RISK
The Company maintains cash accounts in one financial institution. Balances in
these accounts exceed the federally insured limit of $100,000.
NOTE 6 RELATED PARTY
The Company has entered into a consulting, supply and non-compete,
non-disclosure agreement with BSD Medical Corporation (BSD). BSD owns 100% of
the Company's common stock.
Consulting Agreement
The Company will use the expertise, on an "as needed" basis, of employees of BSD
in the development and conducting clinical trials of a new medical device to
treat Benign Prostatic Hyperplasia. At September 30, 2000, 1999, and 1998, the
Company has paid approximately $346,000, $179,000, and $197,000 for these
services, respectively.
Supply Agreement
The Company has purchased, from BSD, the demo medical devices to be used in the
clinical trials. The Company will also purchase supplies used in the clinical
trials. These supplies consist mainly of applicators and temperature probes. At
September 30, 2000, 1999, and 1998, the Company has paid approximately $45,000,
$92,000, and $175,000, respectively, for these supplies.
Non-compete, Non-disclosure Agreement
BSD has entered into an agreement with the Company not to engage in any business
or provide any services in the treatment of any benign conditions or diseases of
the prostrate gland. BSD shall not disclose any "Confidential Information" of
the clinical trials or the medical device used in such treatments.
NOTE 7 CAPITALIZATION AND VALUATION OF INTANGIBLES
<TABLE>
<CAPTION>
Capitalization Date # of Shares Amount
<S> <C> <C> <C>
Common Stock 11/13/97 54,000 $ 4,000,000
Preferred Stock 11/13/97 46,000 $ 3,250,000
4/20/99 57,500 $ 3,250,000
</TABLE>
<PAGE>
TherMatrx, Inc.
(A Development Stage Company)
Notes to Financial Statements
From Inception November 13, 1997, to September 30, 2000
NOTE 7 CAPITALIZATION AND VALUATION OF INTANGIBLES (Continued)
The initial capitalization of the Company included the issuance of 54,000 shares
of common stock and 46,000 shares of convertible preferred stock. The agreements
called for the issuance of 57,500 additional shares at a second closing
("Milestone Closing") when certain conditions had been met. On April 20, 1999,
the "Milestone Closing" occurred. The total shares to be issued on fully diluted
basis are 180,000 after the second closing. This includes 22,500 shares reserved
for issuance under a Management Stock Option Plan.
Valuation of Intangibles
In order to establish the value of the patents and patent rights contributed the
Company compared the percentage of the shares acquired for cash with the
percentage acquired for the rights to the patents. Based on the expectation that
the "Milestone Closing" would be achieved, it was determined that the intangible
assets contributed were worth $4,000,000 (Note 2). This asset is shown in the
financial statements as Patents and it will be amortized over 15 years in
accordance with generally accepted accounting principles. The patents and patent
rights were contributed to the Company for common stock valued at $4,000,000.
NOTE 8 DEVELOPMENT STAGE COMPANY
The Company has conducted a clinical trial to investigate the safety and
efficacy of the TherMatrx TMX2000 and its clinical utility in treating certain
aspects of symptomatic Benign Prostatic Hyperplasia. The proposed investigation
was a double blinded randomized trial, which included a sham group to study any
placebo effects and a treatment group which received Transurethral Microwave
Thermotherapy (Thermotherapy) at a targeted dose range.
Although the official Phase I/II Protocol has been approved by the U.S. Food and
Drug Administration (FDA), it is possible that modifications will be requested
during the final review process. When all of the modifications have been made
and FDA approval has been granted then the Company can start to sell this
procedure to treat Benign Prostatic Hyperplasia.
NOTE 9 SUBSEQUENT EVENTS
Common and Preferred Stock
The Board of Directors has unanimously approved that the total number of shares
of stock which the Corporation shall have authority to issue will be increased
to twenty million (20,000,000) shares each having a par value of $.001 per
share, divided into (a) fifteen million (15,000,000) shares of common stock (the
"Common Stock") and (b) five million (5,000,000) shares of preferred stock (the
"Preferred Stock"). As of the date of this report, the additional shares have
not been issued.
<PAGE>
TherMatrx, Inc.
(A Development Stage Company)
Notes to Financial Statements
From Inception November 13, 1997, to September 30, 2000
NOTE 9 SUBSEQUENT EVENTS (Continued)
The Board of Directors also approved a 50 to 1 stock split for both common and
preferred stock.
Stock Options
The Board of Directors has approved the following stock options:
Options granted January 2, 1998, vesting January 2, 1999, expiring
January 2, 2008, exercise price $1.50 per share. Number of shares is
300,000.
Options granted September 30, 2000, vesting 1/3 immediately, 1/3 on
January 1, 2001, and 1/3 on January 1, 2002, expiring September 30,
2010, exercise price $1.67 per share. Number of shares is 652, 500.
Options conditionally granted October 19, 2000, vesting only if
personal performance targets are met and on the following schedule:
1/3 on October 2, 2001, 1/3 on October 2, 2002, and 1/3 on October 2,
2003, expiring October 19, 2010, exercise price $1.78 per share.
Number of shares is 172,500.
These stock options are the 22,500 shares discussed in Note 7 after the impact
of the 50 to 1 split
None of the above stock options have been exercised as of the date of this
report.
