U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10 - KSB
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended August 31, 2000.
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, including area code: (801) 972-5555
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Title of Each Class Name of Each Exchange on Which Registered
Common Stock, $.01 Par Value Over-the-Counter
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 by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-B is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [X]
Issuer's revenues for its most recent fiscal year: $1,730,393
The approximate aggregate market value of Common Stock held by
non-affiliates, computed by reference to the price at which the stock was sold,
or the average bid and asked prices of such stock, as of November 21, 2000, was
$8,116,266.
As of November 21, 2000, there were 17,464,520 shares of Common Stock with
$0.01 par value outstanding.
Documents Incorporated by Reference: None
Transitional Small Business Disclosure Format: Yes [ ] No [X]
BSD Medical Corporation 2000 10-KSB Page 1
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
GENERAL
BSD Medical Corporation (the "Company"), a biomedical firm, was founded in
1978 to research the demonstrated ability of elevated heat (hyperthermia) to
destroy cancer cells. Hyperthermia has been shown to double the effectiveness of
radiation and provide supra-additive interactions with many chemotherapeutic
drugs. BSD was successful in developing and commercializing hyperthermia
treatment - a breakthrough therapy for both cancerous and benign diseases.
Following the initial commercial success, in the late 1980s the Company
redirected itself away from commercial sales to concentrate on
research/development of a new generation of deep electronically focused phased
array equipment. It determined that the first generation products did not target
and steer deep focused energy with sufficient efficacy to achieve the full
therapeutic benefit of hyperthermia. The second-generation product, the
BSD-2000, was developed with the cooperative efforts of such American research
institutions as Duke University, Northwestern University, University of Southern
California, Stanford University, University of Utah and University of
Washington, St. Louis. European research institutions that contributed to this
development effort included the Clinic of Grosshadern in Munich, Germany, Daniel
Den Hoed Cancer Center in Rotterdam, Netherlands, Kantonsspital Aarau in Aarau,
Switzerland, University Clinic for Chirugie in Graz, Austria, Medical Clinic for
Lubeck University in Lubeck, Germany, University Clinic in Essen, Germany,
University Clinic in Dusseldorf, Germany, University Clinic in Tubingen,
Germany, University of Bergin in Bergin, Norway, University of Verona in Verona,
Italy and Hambolt University in Berlin, Germany.
The objective of this collaborative research was to perfect the targeting
and steering capabilities of hyperthermia equipment and to demonstrate safety
and efficacy for the new generation products from the concepts phase through
extensive clinical trials. After more than a decade-long effort, the BSD-2000
product family now has CE Mark approval in Europe, the support of published
Phase III clinical trials and has achieved acceptance, including reimbursement,
in some substantial European countries. Cancer sites investigated in clinical
trials include breast, head and neck, ovarian, cervical/uterine, colorectal,
prostate and bladder. Histologies include melanoma, carcinoma and sarcoma. In
addition to those completed, ten U.S. protocols are currently running. They
include studies relating to use of hyperthermia for treatment of locally
advanced carcinoma of the rectum, ovarian carcinoma, soft-tissue sarcoma and use
of hyperthermia in conjunction with intravenous liposome.
Through research funded by the National Cancer Institute and supportive
efforts by other research institutions, the Company has also been able to
develop third-generation enhancements to the BSD-2000 product. The BSD-2000o3D
adds three-dimensional steering of deep focused energy, delivering even more
precise heating to the tumor. As part of the international collaborative
research efforts, treatment planning software for the BSD-2000o3D has been
developed and is marketed through BSD.
Both the BSD-2000 and BSD-2000o3D administer non-invasive treatment to deep
tumors. As a further objective, non-invasive treatment monitoring has also been
added. The BSD-2000o3D/MR provides magnetic resonance imaging (MRI) as an
interface with the BSD-2000o3D.
To provide additional support for these sophisticated products, BSD hired
Dr. Mark Hagmann in May 2000. Dr. Hagmann, a former Fellow at the National
Institutes of Health, brings broad applicable experience to this effort. He
continues to serve as, among several distinctions, an honorary member of the MIT
Institute for Theory and Computation of the Electromagnetics Academy in the
Departments of Electrical Engineering and Computer Science.
BSD Medical Corporation 2000 10-KSB Page 2
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In addition to therapy for deep tumors, BSD has developed hyperthermia
equipment for superficial tumors and tumors that can be treated using
interstitial techniques. While commercializing first generation products, BSD
received the only FDA approval issued for heat-alone superficial or heat-alone
interstitial hyperthermia. BSD also received the only FDA approval commercially
available for interstitial hyperthermia in combination with radiation. In
addition, BSD has approval for use of superficial hyperthermia in combination
with radiation. BSD has broad FDA approvals for treatment of many tumor sites
and types. The Company is therefore using care in the current development of its
new generation of products for treating superficial/interstitial tumors to
preserve continuance of this broad scope FDA approval for the new products.
Tumors that can be treated with superficial hyperthermia include major
health problems such as melanomas, head and neck cancer and breast cancer. The
Company has FDA approval to treat these with hyperthermia alone or in
combination with radiation. A new market is also emerging for interstitial
hyperthermia in combination with radiation. The implantation of radioactive
seeds is becoming increasingly common as a cancer treatment technique. BSD
interstitial products can be used to deliver interstitial hyperthermia as an
additional procedure, using antennae inserted through the same implanted
catheters required for interstitial radiation (brachytherapy). The Company has
FDA approval for interstitial treatments using hyperthermia alone or in
combination with radiation.
Hyperthermia is used to treat certain benign diseases, including Benign
Prostatic Hyperplasia (BPH), caused by enlargement of the prostate. On November
24, 1997, BSD entered into an agreement with Oracle Strategic Partners to form
TherMatrx, Inc., a jointly-owned company that would initially focus on minimally
invasive treatments of urological diseases, specifically BPH. Equipment used by
TherMatrx was based on technology originating with the Company. TherMatrx has
conducted Phase III randomized multi-center clinical trials. The FDA PMA process
is currently underway for the TherMatrx BPH treatment.
The Company is engaged in four major endeavors: (1) providing FDA approval
for its deeply focused electromagnetically adaptive phased array treatment
products, (2) completion and commercialization of new generation products for
superficial tumor treatment also utilizing its FDA approved superficial phased
array technology, (3) completion and commercialization of new generation
products for interstitial treatment and (4) support of the commercialization of
TherMatrx for the treatment of BPH. The Company believes that it and TherMatrx
have the competence and resources to obtain needed approvals from the FDA. There
can be no assurance, however, that BSD or TherMatrx will be successful in
obtaining FDA approval for commercial marketing of deep hyperthermia products or
BPH products. BSD believes that it can successfully conclude and commercialize
its new generation of superficial/interstitial systems, however there can be no
assurance of this success as changes in market conditions, access to needed
resources or unforeseen conditions could dilute or preclude accomplishment of
these objectives. Although there is much clinical support for the efficacy of
hyperthermia in the treatment of tumors, there is no assurance that hyperthermia
is equally therapeutic or effective in treating all forms of cancer or benign
diseases, alone or in combination with other therapies, or that hyperthermia can
be equally effective in treating all patients with the same disease, depending
on the patient's health, the progress of the disease and other factors.
BSD is in the business of development, production, marketing, and servicing
of heat therapy (hyperthermia/thermotherapy) equipment. BSD currently has 11
U.S. patents, 8 foreign patents, and 5 patent licenses (which cover all of its
current applications and products as well as additional applications and
devices).
BSD was the first Company to obtain PreMarket approval (PMA) from the Food
and Drug Administration (FDA) for a hyperthermia cancer therapy system and the
first Company to obtain Investigational Device Exemption (IDE) approval from the
FDA for thermotherapy systems for the treatment of Benign Prostatic Hyperplasia
(BPH). BSD has developed second and third generation equipment, and the
Company's systems, depending upon configuration and options, have list prices
ranging from approximately $100,000 to $1,100,000.
BSD Medical Corporation 2000 10-KSB Page 3
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The Company was incorporated under the laws of the State of Utah on March
17, 1978. On July 31, 1986, pursuant to a Plan and Agreement of Merger dated
July 11, 1986, the Company was merged into a Delaware corporation, changing the
Company's state of incorporation from Utah to Delaware. The Delaware Corporation
was the surviving company. At the time of the 1986 merger, the total number of
shares of all classes of stock which the Company shall have the authority to
issue was increased to 30,000,000, of which 10,000,000 shares are of $1.00 par
value per share and are of a class designated Preferred Stock and of which
20,000,000 shares are of $.01 par value per share and are of a class designated
Common Stock. There are currently no preferred shares outstanding.
BSD'S PRODUCTS/THERAPIES
HYPERTHERMIA AS A CANCER TREATMENT. Cancer is a disease characterized by
uncontrolled growth and spread of abnormal cells. According to estimates by the
American Cancer Society, 552,200 Americans are expected to die from cancer in
the year 2000, and 1,220,100 new cancer cases are expected to be diagnosed
during the year. Cancer is the second leading cause of death in the US, exceeded
only by heart disease. The National Institutes of Health estimate overall annual
costs for cancer at $107 billion.
Hyperthermia is the process of applying energy to elevate the temperature
of the cancer cells in order to destroy or damage the tumor. The Company's
hyperthermia equipment is used both in an effort to cure cancer, by destroying
and eliminating cancer cells, and, where curing the cancer is not possible, as
palliative treatment (the shrinking of tumors in order to reduce the pain and
other side effects of cancer). Hyperthermia can usually destroy cancerous cells
without harming normal cells. There is also some evidence that hyperthermia
increases the patient's immune system, allowing the patient's own system to
fight the cancer as well as the side effects of other treatments.
The Company's hyperthermia treatment can be used alone, but is typically
used in conjunction with other therapies. The primary advantage of hyperthermia
is that it can increase the effect of other therapies, such as radiation therapy
(radiotherapy) or chemotherapy, while sometimes reducing overall side effects.
Hyperthermia has been shown to double the effectiveness of radiation and provide
supra-additive interactions with many chemotherapeutic drugs. The use of
pre-surgical hyperthermia delivered using BSD's equipment has been shown to
obviate the need for amputation of normal tissues in some sarcoma patients.
BSD's systems have also been used pre-surgically to reduce the size of the tumor
prior to surgery and thus make the tumor more easily resectable (surgical
removal) and increase the chances of obtaining clear surgical tumor margins, one
of the most significant prognostic factors in recurrence. Published, randomized
clinical studies using BSD's equipment have shown that the addition of
hyperthermia to other cancer therapies can result in: increased tumor response;
increased disease-free survival time; and improved quality of life for the
patient.
CANCER HYPERTHERMIA PRODUCTS. The Company's cancer hyperthermia products
are designed to apply electromagnetic (i.e., microwave or radiofrequency) or
ultrasonic energy to the human body in order to generate temperatures of 40
(degrees) C to 60 (degrees) C at the site of the tumor. Thermometry systems are
used to measure tumor and normal tissue temperatures during treatment in order
to assist in achieving and maintaining safe and optimal treatment temperatures.
The Company's hyperthermia systems are designed to permit the treatment of
various tumor sizes, various tumor depths and various anatomical sites.
Cancer Hyperthermia Systems. A hyperthermia system typically consists of an
integrated computer control unit, a fixed or variable frequency generator,
applicators, and thermometry. The Company's computer software is designed to
maximize the safety and effectiveness of the treatment by providing accurate
treatment planning, monitoring, and recall. The treatment planning capability
utilizes the Company's proprietary algorithms and software to allow the
physician to customize hyperthermia treatments for specific tumors. The
Company's cancer hyperthermia system product line includes various systems
designed to target specific markets.
BSD Medical Corporation 2000 10-KSB Page 4
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Cancer Hyperthermia Applicators. Hyperthermia applicators emit
radiofrequency, microwave or ultrasonic energy directly into the patient to
provide tumor heating. The Company has developed and patented a number of
specially designed applicators for treating a particular tumor in a particular
location.
Applicators generally fall into two categories: external surface
applicators (superficial and deep) and interstitial (i.e., invasive)
applicators. Superficial and external applicators deliver externally generated
energy to specific sites on or slightly below the surface of the skin. Deep
phased array radiofrequency applicators provide externally generated energy to
deep-seated tumors by combining phase-aligned beams from multiple applicators
positioned around the body. Interstitial microwave applicators are antennae that
are implanted directly into the body for heating from within the tumor itself.
Thermometry. The Company manufactures the BSD Thermistor Probe, as well as
other thermistor based thermometry probes. The Company has an exclusive license
for the manufacture and distribution of the BSD Thermistor Probe. The Company
also manufactures and sells specially developed thermistor probes for ultrasound
treatments.
THERMOTHERAPY AS A BPH TREATMENT. On November 24, 1997, BSD entered into an
agreement with Oracle Strategic Partners to form TherMatrx, Inc., a
jointly-owned company that would initially focus on minimally invasive
treatments of urological diseases, specifically Benign Prostatic Hyperplasia
(BPH), a market that is currently estimated to exceed $3 billion annually in the
United States alone.
The partnership allowed Oracle Strategic Partners to invest an initial $3
million on closing and an additional $3 million upon the achievement of certain
milestone parameters. Charles Manker, President and CEO of TherMatrx, was
allowed to provide an initial investment of $250,000, in addition to Oracle's
investment, and another $250,000 when milestone funding was obtained from
Oracle. BSD contributed certain assets that have applicability in the urology
market, and agreed not to engage in BPH business. As part of the agreement, BSD
is providing certain manufacturing and consulting services, for which TherMatrx
compensates the Company.
In April 1999, TherMatrx Investment Holdings, LLC (assignee of Oracle
Strategic Partners, L.P. and Charles Manker) completed an additional capital
infusion into TherMatrx, Inc. of $3.25 Million, based on TherMatrx's achievement
of key success milestones in the clinical investigation of a new therapy to
treat BPH with microwave energy. After exercise of all shares allocated for the
Management Stock Purchase Plan, the Company will retain a 30 percent interest on
a fully diluted basis.
TherMatrx's corporate headquarters are in Chicago. Dr. Gerhard Sennewald
serves as BSD's representative on TherMatrx's Board of Directors.
MARKETING AND SALES
The Company markets its cancer hyperthermia products primarily to research
sites in radiation oncology departments in the U.S. and to radiation oncology
and chemotherapy oncology research sites outside the U.S. In the U.S., the
Company markets its equipment directly using its own sales and marketing staff.
International sales are generally accomplished through distributing companies
located in various foreign countries. The Company's marketing efforts include
participation at trade shows and symposia and development of product brochures,
newsletters, and other promotional materials. The Company also co-sponsors an
annual international BSD Users' Conference.
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The Company anticipates that future marketing will be primarily directed to
commercial radiation oncology and chemotherapy oncology customers. Further,
future marketing for current cancer products may be expanded into two largely
untapped markets: surgical and chemotherapeutic oncology. These two disciplines
control most cancer patients and treatment funds, and clinical evidence of the
safety and efficacy of hyperthermia in conjunction with chemotherapy and surgery
has been published. The Company believes that the domestic market will expand in
the future because of a renewed interest in hyperthermia in the U.S. and
evidence of increased profits from the addition of hyperthermia; however, there
can be no assurance that an increase in the U.S. market will occur.
For the year ended August 31, 2000, two customers accounted for
approximately 51% and 9%, respectively, of BSD's net sales. Medizintechnik, a
company controlled by a shareholder of the Company, purchased 51% sales. The
loss of a significant customer could have a material detrimental impact on the
Company's operations. Because only one hyperthermia machine is generally
required at a treatment facility, BSD does not sell capital equipment to any one
customer on an ongoing basis.
THIRD-PARTY REIMBURSEMENT/MEDICAL COST CONTAINMENT. In the United States,
the Company's products are purchased primarily by medical institutions, which
then bill various third-party payers, such as Medicare, Medicaid, other
government programs, and private insurance plans, for the health care services
provided to their patients, or by managed care organizations, which directly pay
for services provided to their patients. In December 1984, the Health Care
Financing Administration ("HCFA" --- the agency responsible for administering
the Medicare and Medicaid systems) and most of the private medical insurance
carriers in the U.S. approved reimbursement for hyperthermia in conjunction with
radiation therapy for the treatment of surface and subsurface tumors.
Reimbursement for services rendered to Medicaid beneficiaries is determined
pursuant to each state's Medicaid plan, which is established by state law and
regulations, subject to requirements of Federal law and regulations.
In November 1995, HCFA authorized Medicare reimbursement for all
investigational therapies and devices for which underlying questions of safety
and effectiveness of that device type have been resolved, based on
categorization by FDA. All of BSD's investigational (IDE) equipment and
protocols have been placed in this category by the FDA, and thus may be
reimbursed by Medicare.
Cost-containment policies are impacting the major cancer markets such as
the U.S., Western Europe, and Japan, and these changes have negatively impacted
the industry. The Company is unable to predict the extent to which its business
may be affected by future legislative and regulatory developments. There can be
no assurance that future health care reform legislation or regulation will not
have a material adverse effect on the Company's business, financial condition
and results of operations. There can be no assurance that procedures using the
Company's products will, in the future, be considered cost-effective by
third-party payers, that reimbursement will be available or, if available, that
payers' reimbursement levels will not adversely affect the Company's ability to
sell its products.
COMPETITION
The Company believes that its combination of technology, performance,
quality, reliability, price, and breadth of product line and services are
important competitive factors, however, competition in the medical products
industry is intense, both in the United States and internationally. BSD's
therapies are generally considered complementary to rather than competitive with
other cancer therapies, such as radiation and chemotherapy. However, some
companies that could be competitors, in that they are also engaged in cancer
treatment businesses, have significantly greater financial, technical, research
and development, engineering, manufacturing, distribution, and sales and
marketing resources than the Company. Several companies have received IDEs in
the United States for certain experimental hyperthermia systems designed to
treat both malignant and benign diseases. In addition to BSD, two other
companies have received FDA Pre-Market Approval for the commercial sale of
certain hyperthermia equipment for the treatment of cancer in the U.S.:
Labthermics and Celsion Corporation (formerly Cheung Labs).
BSD Medical Corporation 2000 10-KSB Page 6
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BSD participates in the BPH market as an investor in TherMatrx, Inc. (see
"Thermotherapy as a BPH Treatment", Page 3). In the BPH market, competitive
companies offering products similar to TherMatrx's products include EDAP TMS
(being acquired by Urologix), Urologix, and Dornier (which have PMA approval
from the FDA), VidaMed and ArgoMed, Inc. (which have 510(k) marketing clearance
from the FDA), and other foreign manufacturers. In addition to thermotherapy
equipment made by competitors, there are many other competitive treatments for
BPH [including various drug treatments, surgical lasers, ultrasound ablation,
electro-cautery surgery, stents, transurethral incision of the prostate
(T.U.I.P.), and balloon dilation] that are currently being developed, clinically
investigated and/or actively marketed.
The Company believes that other companies may consider marketing
hyperthermia/thermotherapy equipment and anticipates possible increased
competition in the United States and internationally. There can be no assurance
that others will not develop products that would materially adversely affect the
ability of the Company to compete effectively. Further, the treatment of disease
with hyperthermia equipment, and with other methods, is subject to technological
change. There can be no assurance that other forms of treatment will not be
developed which could be superior to the Company's hyperthermia systems. The
Company expects to rely on trade secrets, unpatented proprietary know-how and
continuing technological innovation, as well as current patents and new patent
applications, in order to maintain and improve its competitive position.
PRODUCT SERVICE
The Company provides a 12-month warranty following installation on all
cancer treatment systems and a 90-day limited warranty on individual components.
BSD's employees install and service the hyperthermia systems it sells to
domestic customers. In addition, Company personnel or consultants perform
technical and clinical training. Subsequent to the applicable warranty period,
the Company offers full or limited service contracts to its domestic customers.
Generally, the Company's distributors install and service systems sold to
foreign customers and are responsible for managing their own warranty programs
for their customers, including labor and travel expenses. The Company provides
parts repair/replacement warranties for 12 months for systems and for 90 days
for individual components. Spare parts are generally purchased by the
distributors and stored at the distributors' maintenance facilities to allow
prompt repair. Distributor service personnel are usually trained at customer
sites and at the Company's facilities in Salt Lake City.
PRODUCTION
The Company produces and tests its products at its facilities in Salt Lake
City, Utah. Some purchased components are modified by the supplier or are
customized to the Company's specifications. Key factors in the manufacturing
process are assembly and testing. Certain components and processes used in the
manufacturing of the Company's products are currently provided or performed by
single-source vendors. Any supply interruption or yield problems from these
vendors would have a material adverse effect on the Company's ability to
manufacture its products until a new source of supply were qualified and, as a
result, could have a material adverse effect on the Company's business,
financial condition and results of operations.
In order to provide outside financial support for manufacturing operations
and diversify the Company's services, the Company is providing manufacturing and
testing services under contract to other companies.
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RESEARCH AND DEVELOPMENT
During the fiscal years ended August 31, 2000, and August 31, 1999, the
Company expended $586,420 and $517,564 respectively, for research and
development, representing 33.9% and 83.4% of total revenues. Research and
Development expenditures increased in 2000 due to costs associated with the
development of the BSD-2000 3D/MR system and a new BSD-300-4 system, combined
with costs associated with obtaining ISO 9001 and EN 46001 certification and CE
Marking for the BSD-2000 3D.
BSD has developed the BSD-2000 3D - a new generation of deep regional
hyperthermia equipment funded in part by Phase I and II grants received from the
National Cancer Institute (Grant No. CA61515). The BSD-2000 3D can be modified
for integration with a magnetic resonance imaging system, and becomes the
BSD-2000 3D/MR system. The BSD-2000 3D System integrates three-dimensional (3D),
"steerable", focused deep regional hyperthermia with 3D patient specific
treatment planning. This system is targeted for the treatment of large and deep
tumors; i.e., recurrent breast, sarcoma, lung, colorectal, liver, cervical,
bladder, stomach, and prostate. The first BSD-2000 3D/MR system has been
installed and tested at a leading German oncological research institution - the
Clinic of Medical Oncology of the Klinikum Grobhadern Medical School of
Ludwigs-Maximilians-Universitat Munchen, Munich, Germany. The Medical School
received funding from the Stiftung Deutsche Krebshilfe e. V. (German Cancer Aid
Foundation) for the system order.
The BSD-2000 3D/MR System was designed to provide simultaneous heating and
non-invasive measurement of treatment parameters; such as tumor temperature,
tumor response, tissue heat damage, tissue blood-flow, tissue pathology, and
other chemical and biological changes in the tissue. Non-invasive treatment
monitoring has the potential to optimize tumor heating and thus tumor
destruction. The development of reliable non-invasive thermometry is the next
required step in the field of hyperthermia and has the potential to
significantly increase the clinical applications and commercial potential of
hyperthermia; however, there can be no assurance that this system will provide
reliable non-invasive thermometry. Preliminary laboratory testing has
demonstrated the ability to simultaneously heat and image with the MR portion of
this system.
Technological changes play an important part in the advancement of the
hyperthermia industry. Thus, the Company intends to continue to devote
substantial sums to research and development in order to improve existing
products and develop new products. The Company is also currently in discussions
with some researchers and institutions regarding heat treatment products and
treatments that might increase the clinical applications for BSD's products,
with a focus on deep regional hyperthermia, which would include ovarian,
colorectal, uterine, cervix, and bladder, and the treatment of prostatic
carcinoma and breast cancer.
PATENTS, INTELLECTUAL PROPERTY, LICENSING, AND ROYALTY AGREEMENTS
Because of the substantial length of time and expense associated with
bringing new products through development and regulatory approval to the
marketplace, the medical device industry places considerable importance on
obtaining patent and trade secret protection for new technologies, products and
processes. The Company's policy is to file patent applications to protect
significant technology, inventions and product improvements. The Company
currently has 11 patents in the United States and 8 patents outside the United
States. [Four patents were assigned to TherMatrx, for which the Company
maintained a license, and one patent license was obtained by the Company from
University of California San Francisco (UCSF).] Other hyperthermia related
patents are pending. A European patent for the BSD-2000 3D system has been
issued. There can be no assurance that the patents presently issued, or those
applied for (if granted), will be of significant value to the Company or will be
held valid upon judicial review. Successful litigation against these patents by
a competitor could have a material adverse effect upon the Company's business,
financial condition and results of operations. The Company believes that it
possesses significant proprietary know-how in its hardware and software
capabilities. However, there can be no assurance that others will not develop,
acquire or patent technologies similar or superior to those of the Company or
that secrecy will not be breached.
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In July 1979, the Company entered into an exclusive worldwide license for a
unique temperature probe (Bowman Probe). The license will remain in effect as
long as the technology does not become publicly known as a result of actions
taken by the licensor. The Company pays royalties based upon its sales of the
Bowman Probe. The license agreement was amended and renewed in August 2000 and
is currently in effect.
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 fur 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. 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, which will forward
this applicator to Strahlenklinik and Poliklinik, Virchow-Klinikum of the
Humboldt-Universitat 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) that, under the terms of the ZIB agreement,
is due to ZIB for each software sale.
In July 1996, BSD entered into a license agreement and granted EDAP
Technomed, Inc., now EDAP TMS S.A., a non-exclusive, non-transferable license of
certain rights to one of BSD's patents. In 1994, BSD issued a non-exclusive
license to Urologix to practice some of its patented technology for cash
payments and royalties on future sales; in 1996, the Company terminated this
license. This license became part of a lawsuit that was settled in May 1998. The
license is now fully paid and irrevocable (see Note 15 to Financial Statements).
BSD has acquired from UCSF the exclusive patent license for small microwave
antennae that can be inserted into cancerous tumors to destroy them from the
inside. The innovative microwave antenna design enables the therapeutic heating
length to be tailored to match the tumor size. Clinical studies have shown a
survival improvement when using this technology in combination with radiation
brachytherapy. This technology has been shown to be effective for many cancerous
tumors, including brain tumors.
There has been substantial litigation regarding patent and other
intellectual property rights in the medical device industry. In the past, the
Company has filed lawsuits for patent infringement against three of its
competitors and subsequently settled all three of those lawsuits.
From time to time, the Company has had and may continue to have discussions
with other companies, universities and private individuals concerning the
possible granting of licenses covering technology and/or patents. There can be
no assurance that such discussions will result in any agreements. In the past,
BSD has granted non-exclusive practice licenses for a few selected patents to
three companies. One of these companies is no longer in business.
GOVERNMENT REGULATION
The medical devices that have been and are being developed by the Company
are subject to extensive and rigorous regulation by numerous governmental
authorities, principally by the United States Food and Drug Administration
(FDA). Pursuant to the Federal Food, Drug and Cosmetic Act (the FD&C Act), as
amended, the FDA regulates and must approve the clinical testing, manufacture,
labeling, distribution, and promotion of medical devices in the United States.
This regulation has become stringent and the approval process expensive and time
consuming. In addition, various foreign countries in which the Company's
products are or may be sold, have regulatory requirements.
BSD Medical Corporation 2000 10-KSB Page 9
<PAGE>
Sales into the European Union (EU) are now governed by the need to obtain
ISO certification and a CE Mark and the requirement to comply with all
applicable directives. In June 1998, the Medical Devices Directives (MDD)
requirements went into effect for the EU. Following June 1998, no medical
products could be marketed in Europe without obtaining a CE Mark and thus
demonstrating compliance to MDD requirements. The Company has obtained ISO
certification of its quality, development, and manufacturing processes and has
successfully completed the CE Mark testing and Annex II audit, which will allow
BSD to affix the CE Mark label on the BSD-2000 3D system and deliver systems to
Europe. However, the Company must maintain compliance with all current and
future directives and requirements in order to maintain ISO certification and to
continue to affix the CE Mark, and there can be no assurance that the Company
will continue to maintain compliance. If BSD is unable to maintain these
approvals, it could have a significant material effect on the Company's future
financial condition.
The majority of the Company's past and present hyperthermia systems have
required, (and future systems, if any, would likely continue to require)
Pre-Market Approval from the FDA instead of the simpler 510(k) marketing
approval. Pre-Market Approval requires clinical testing to assure safety and
effectiveness prior to marketing and distribution of medical devices. The
Company intends to continue to make improvements in and to its existing
products. Significant product changes must be submitted to the FDA under IDEs,
510(k) PreMarket notifications or PMA supplements.
All medical devices must be manufactured in accordance with regulations
specified in the FDA Quality System Regulation (QSR) and in the ISO and other
applicable regulations. In complying with these regulations, manufacturers must
continue to expend time, money and effort in the areas of design control,
production, and quality control to ensure full compliance. The Medical Device
Reporting regulation requires that the Company provide information to the FDA on
death or serious injuries alleged to have been associated with the use of its
products, as well as information on product malfunctions that would likely cause
or contribute to a death or serious injury if the malfunctions were to recur.
The MDD vigilance system regulations require that the Company's European
Representative provide information to the Competent Authority on death or
serious injuries alleged to have been associated with the use of its products,
as well as information on product malfunctions that would likely cause or
contribute to a death or serious injury if the malfunctions were to recur.
International sales of unapproved medical devices are subject to FDA export
requirements, unless these products have been previously approved by one of the
countries specified by the FDA. Failure to comply with regulatory requirements
could have a material adverse effect on the Company's business, financial
condition and results of operations. Although the Company believes that it is in
material compliance with all applicable manufacturing and marketing regulations
of the FDA and other regulatory bodies with respect to its existing products, a
determination that the Company is in material violation of such regulations
could lead to the imposition of penalties, including fines, recall orders,
product seizures, and criminal sanctions. In addition, current regulations
depend heavily on administrative interpretation, and there can be no assurance
that future interpretations made by the FDA or other regulatory bodies, with
possible retroactive effect, will not adversely affect the Company.
International sales are subject to the regulatory and safety requirements
of the country into which the sale occurs. There can be no assurance that all of
the necessary approvals will be granted on a timely basis or at all. Delays in
receipt of or failure to receive such approvals could have a material adverse
effect on the Company's financial condition and results of operations.
BSD Medical Corporation 2000 10-KSB Page 10
<PAGE>
The Federal Communications Commission (FCC) regulates the frequencies of
microwave and radiofrequency emissions from medical and other types of equipment
to prevent interference with commercial and governmental communications
networks. BSD's fixed frequency systems and applicators emit 915 MHz for U.S.
and some European installations and 433.92 MHz for some European installations,
which is approved by the FCC for medical applications. Accordingly, these
systems do not require shielding to prevent interference with communications.
BSD's variable-frequency generators and applicators require electromagnetic
shielding. Ultrasound hyperthermia systems can be operated without shielding
because the applicators emit acoustic rather than electromagnetic energy.
PRODUCT LIABILITY EXPOSURE
The manufacturing and marketing of medical devices involve an inherent risk
of product liability. Because the Company's products are intended to be used in
hospitals on patients who may be physiologically unstable and severely ill, the
Company is exposed to potential product liability claims. The Company presently
carries product liability insurance. However, there can be no assurance that the
product liability insurance will provide adequate coverage against potential
claims that might be made against the Company. No product liability claims are
presently pending against the Company; however, there can be no assurance that
product liability claims will not be filed in the future.
EMPLOYEES
As of August 31, 2000, the Company had 28 employees; 24 of them were full
time employees. None of the Company's employees is covered by a collective
bargaining agreement. The Company considers its relations with its employees to
be satisfactory. The Company is dependent upon a limited number of key
management, manufacturing, and technical personnel. The Company's future success
will depend in part upon its ability to retain these highly qualified employees.
ITEM 2. PROPERTIES
The office, production and research facilities of the Company are located
in Salt Lake City, Utah. The complete headquarters and production facility
occupies approximately 20,000 square feet. The Company leases the building for
an annual rental expense of $78,396 (see Note 4 to Financial Statements). The
Company has an option to purchase the building. The building lease is accounted
for as an operating lease for financial statement purposes. The building is
currently in good condition; is adequate for the Company's needs; is suitable
for all Company functions; and provides room for future expansion. The Company
believes that it carries adequate insurance on the property.
ITEM 3. LEGAL PROCEEDINGS
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
BSD Medical Corporation 2000 10-KSB Page 11
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock trades publicly on the OTC Bulletin Board under
the symbol "BSDM". The following table sets forth the high and low bid
transactions, as provided by the OTC Bulletin Board, for the quarters in fiscal
year 1998 and 1999. The amounts reflect inter-dealer prices, without retail
mark-up, markdown or commission, and may not represent actual transactions.
Bid
---------------------------
Quarter Ended: High Low
----------------------------------------------------------------
----------------------------------------------------------------
November 30, 1998................. 3/8 .19
February 28, 1999................. 9/16 3/16
May 31, 1999...................... 1/2 .26
August 31, 1999................... .45 5/16
November 30, 1999................. .88 .25
February 29, 2000................. 5.19 1.03
May 31, 2000...................... 3.81 1.13
August 31, 2000................... 2.31 .88
As of August 31, 2000, there were approximately 591 holders of record of
the Common Stock. The Company has not paid any cash dividends on its Common
Stock since its inception and has no intention of declaring any Common Stock
dividends in the foreseeable future.
ITEM 6. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
RESULTS OF OPERATIONS
The balance sheet as of August 31, 2000, and the statements of operations,
statements of cash flow and statements of stockholders' equity for the years
ending August 31, 1999, and 2000, and the independent auditors report thereon,
are included elsewhere in this report. The following selected financial
information should be read in conjunction with the financial statements and
notes thereto included elsewhere in this report. At August 31, 1998, BSD had a
fifty-four percent interest in a subsidiary, TherMatrx, thus, the financial
statements for the two companies were consolidated. During the year ended August
31, 1999, the Company's interest in the subsidiary was reduced to 34% and
consolidation was no longer required. Therefore, the financial statements as of
August 31, 1999, have been restated with the Company's investment in TherMatrx
recorded using the equity method as of August 31, 2000 the equity method has
been discontinued.(see Note 1 to Financial Statements).
FISCAL YEAR ENDED AUGUST 31, 2000. Revenues for the year ended August 31,
2000, totaled $1,730,393, as compared to $620,221 for the year ended August 31,
1999, an increase of $1,110,172, or 178.99%, primarily due to processing of
European orders after the Company received the CE Marking approval on the new
BSD-2000 3D system, now required for sales to all European Union (EU) countries.
The Company has successfully completed the CE Mark testing and Annex II audit,
which allows BSD to affix the CE Mark label on the BSD-2000 3D system and
deliver systems to Europe.
BSD Medical Corporation 2000 10-KSB Page 12
<PAGE>
Product sales increased from $596,441 in 1999 to $1,535,600 in 2000, an
increase of $939,159, or 157.46%. Sales remained principally limited to research
centers, awaiting new product commercialization. Gross profit on product sales
was $604,228, as compared to a gross loss of $36,064 for fiscal 1999, due to
above mentioned increase in sales. Selling, General and Administrative Expenses
for 2000 totaled $1,147,868, as compared to $944,756 in 1999, an increase of
$203,112, or 21.49%, primarily due to increases in Sales and Marketing efforts
and compensation expense associated with amortization of options and stock
awards.
Research and Development Expenses for 2000 totaled $586,420, as compared to
$517,564 in 1999, an increase of $68,856 or 13.3%, due to development costs
associated with the BSD-2000 3D/MR system and with a new BSD-300-4 system,
combined with costs associated with obtaining ISO 9001 and EN 46001
certification and CE Marking for the BSD-2000 3D.
Total Costs and Expenses for 2000 were $2,665,660, an increase of $570,835,
or 27.24%, as compared to $2,094,825 for fiscal 1999 due to the aforementioned
increases in Research and Development Expenses, Selling, General and
Administrative Expenses and higher product costs as a result of increased sales.
Interest Expense in 2000 decreased to $654, as compared to $3,630 in 1999.
The decrease was caused primarily by lower interest costs associated with notes
payable as they reach maturity and that the company has no interest bearing
debt.
During fiscal 2000, the Company experienced a Net Loss of $888,947 as,
compared to a Net Loss in fiscal 1999 of $1,928,050. The fiscal 2000 loss was
primarily associated with expenses designated to prepared new product lines for
commercialization. The loss for 1999 included $546,452 which was attributable to
Thermatrx which does not apply to fiscal 2000 because of the above mentioned
change in accounting method resulting from the change in ownership percentage by
the Company and it's carrying value of the Thermatrx investment.
RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS. International sales
accounted for 69.60% and 47.59% of the Company's total product sales during the
fiscal years ended August 31, 2000, and August 31, 1999, respectively. The
Company expects that international sales will continue to represent a
significant portion of its total sales. The Company has successfully completed
the CE Mark testing and Annex II audit, which will allow BSD to affix the CE
Mark label on the BSD-2000 3D system and deliver systems to Europe. However, an
inability to maintain the necessary approvals could have adverse effects on
future sales of products to EC countries (see Government Regulation, page 7).
The Company is subject to risks generally associated with international
operations, including the establishment by foreign regulatory agencies of
product standards different from, and in some cases more stringent than, those
in the United States. Although the Company's sales are denominated in U.S.
dollars, its international business may be affected by changes in demand
resulting from fluctuations in currency exchange rates. The Company's
international sales may also be adversely affected by tariff regulations and
export license requirements. Possible governmental, legislative and political
actions that may be taken by the United States in order to reduce the balance of
payments deficit may result in retaliatory actions by foreign governments. Such
actions could have adverse effects upon sales of the Company's products in
certain foreign markets. In addition, the laws of certain foreign countries do
not protect the Company's intellectual property rights to the same extent as do
the laws of the United States.
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, the European Union countries, 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.
BSD Medical Corporation 2000 10-KSB Page 13
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES. Total assets decreased to $2,154,413 in
2000, a decrease of $643,504, as compared to 1999. The decrease was primarily
due to a decrease in cash. Cash decreased to $731,494, as compared to $1,689,027
in 1999, primarily as a result of using cash for operating expenses. Accounts
receivable increased to $348,333, an increase of $289,067, or 487.74%, primarily
due to shipment of European orders after the receipt of the CE Mark. Total
inventories decreased to $905,102, a decrease of $3,139, or .34%. Current
liabilities increased to $848,452, an increase of $86,528, or 11.35%, primarily
due to an increase in customer deposits.
MANAGEMENT DISCUSSION AND CURRENT STATUS OF FINANCIAL CONDITION.
Management believes that the current projected sales and cash position will
be sufficient to meet the Company's operating cash requirements through fiscal
year 2000. Management further believes that the primary financial opportunities
for the company are in commercialization of new generation products and
commercialization of TherMatrx products, as described in Part I General. The
Company's ability to be profitable will depend on achieving regulatory approval
of certain new products, the completion of development for others, and in the
successful commercialization of these products in the marketplace. There can be
no assurance that commercialization of these new products will be successful, or
that profitability will be achieved.
On November 14, 1997, BSD signed an agreement with Oracle Strategic
Partners (OSP) to form TherMatrx, Inc., a jointly-owned company which will
initially focus on minimally invasive treatments of benign urological diseases,
specifically Benign Prostatic Hyperplasia (BPH). BSD participates in the BPH
market through TherMatrx. The BPH market is currently estimated to be over $3
billion annually in the U.S. alone. The FDA PMA process is currently underway
for TherMatrx. There is no assurance, however, that TherMatrx will obtain a PMA.
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-KSB 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-KSB, 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.
ITEM 7. FINANCIAL STATEMENTS
Pursuant to Rule 12b-23, the financial statements set forth on pages F-1
through F-18 attached hereto are incorporated by reference.
BSD MEDICAL CORPORATION
Financial Statements
August 31, 2000 and 1999
<PAGE>
BSD MEDICAL CORPORATION
Index to Financial Statements
--------------------------------------------------------------------------------
Page
Independent Auditor's Report F-1
Balance Sheet F-2
Statement of Operations F-3
Statement of Stockholders' Equity F-4
Statement of Cash Flows F-5
Notes to Financial Statements F-6
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
of BSD Medical Corporation
We have audited the balance sheet of BSD Medical Corporation (the Company) as of
August 31, 2000, and the related statements of operations, stockholders' equity,
and cash flows for the years ended August 31, 2000 and 1999. 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 audits.
We conducted our audits 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 audits provide 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 BSD Medical Corporation as of
August 31, 2000, and the results of their operations and cash flows for the
years ended August 31, 2000 and 1999 in conformity with generally accepted
accounting principles.
Salt Lake City, Utah
October 13, 2000
F-1
<PAGE>
BSD MEDICAL CORPORATION
Balance Sheet
August 31, 2000
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Assets
Current assets:
<S> <C>
Cash and cash equivalents $ 731,494
Receivables, net 348,333
Inventories 905,102
Prepaid expenses 21,459
Deposits and other assets 28,987
------------------
Total current assets 2,035,375
Property and equipment, net 86,582
Long-term trade receivables 19,210
Patent, net of amortization of $683 13,246
------------------
$ 2,154,413
------------------
----------------------------------------------------------------------------------------------------------
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 61,537
Accrued expenses 692,561
Current portion of deferred revenue 32,938
Current portion of deferred gain on sale - leaseback 61,416
------------------
Total current liabilities 848,452
------------------
Deferred revenue 13,086
Deferred gain on sale - leaseback 76,691
------------------
Total liabilities 938,229
------------------
Commitments and contingencies -
Stockholders' equity:
Common stock, $.01 par value; authorized 20,000,000
shares; issued and outstanding 17,479,692 shares 174,797
Additional paid-in capital 20,766,625
Deferred compensation (13,897)
Accumulated deficit (19,711,107)
Treasury stock, at cost (234)
------------------
Total stockholders' equity 1,216,184
------------------
$ 2,154,413
------------------
</TABLE>
See accompanying notes to financial statements. F-2
<PAGE>
<TABLE>
<CAPTION>
Statement of Operations
Years Ended August 31,
-------------------------------------------------------------------------------------------------------------------
2000 1999
-----------------------------------
Revenues:
<S> <C> <C>
Sales $ 577,003 $ 215,441
Sales to related parties 958,597 381,000
Grants and licenses 194,793 23,780
-----------------------------------
1,730,393 620,221
-----------------------------------
Costs and expenses:
Cost of sales 546,753 437,556
Cost of sales to related parties 384,619 194,949
Research and development 586,420 517,564
Selling, general, and administrative 1,147,868 944,756
-----------------------------------
2,665,660 2,094,825
-----------------------------------
Operating loss (935,267) (1,474,604)
Other income (expense):
Interest income 46,974 96,636
Interest expense (654) (3,630)
Loss of joint venture - (546,452)
-----------------------------------
Net loss $ (888,947 $ (1,928,050)
-----------------------------------
Loss per common share - basic and diluted $ (.05) $ (.12)
-----------------------------------
Weighted average shares 17,047,000 16,468,000
-----------------------------------
</TABLE>
--------------------------------------------------------------------------------
See accompanying notes to financial statements. F-3
<PAGE>
<TABLE>
<CAPTION>
BSD MEDICAL CORPORATION
Statement of Stockholders' Equity
Years Ended August 31, 2000 and 1999
-------------------------------------------------------------------------------------------------------------------
Additional Deferred
Common Stock Paid-In Compen- Accumulated Treasury Stock
--------------------- ----------------------
Shares Amount Capital sation Deficit Shares Amount
----------------------------------------------------------------------------------
Balance,
<S> <C> <C> <C> <C> <C> <C> <C>
September 1, 1998 16,370,052 $ 163,701 $ 20,531,967 $ (311,366) $ (16,894,110) 13,412 $ (234)
Amortization of deferred
compensation - - - 151,880 - - -
Common stock issued
for services 323,923 3,239 156,142 - - - -
Net loss - - - - (1,928,050) - -
----------------------------------------------------------------------------------
Balance,
August 31, 1999 16,693,975 166,940 20,688,109 (159,486) (18,822,160) 13,412 (234)
Common stock issued
for:
Cash 244,912 2,449 23,748 - - - -
Stock options
and warrants 509,044 5,090 (5,090) - - - -
Services 29,761 298 52,452 - - - -
Subscription receivable 2,000 20 480 - - - -
Amortization of deferred
compensation - - - 151,880 - - -
Deferred compensation - - 6,926 (6,291) - - -
Contribution of
treasury shares - - - - - 10,919 -
Net loss - - - - (888,947) - -
----------------------------------------------------------------------------------
Balance,
August 31, 2000 17,479,692 $ 174,797 $ 20,766,625 $ (13,897) $ (19,711,107) 24,331 $ (234)
----------------------------------------------------------------------------------
</TABLE>
-------------------------------------------------------------------------------
See accompanying notes to financial statements. F-4
<PAGE>
<TABLE>
<CAPTION>
BSD MEDICAL CORPORATION
Statement of Cash Flows
Years Ended August 31,
-------------------------------------------------------------------------------------------------------------------
2000 1999
-----------------------------------
Cash flows from operating activities:
<S> <C> <C>
Net loss $ (888,947) $ (1,928,050)
Adjustments to reconcile net loss to net
cash (used in) operating activities:
Depreciation and amortization 23,082 23,854
Provision for losses on receivables - (30)
Deferred gain on sale of building (61,416) (61,416)
Loss (gain) on disposal of
property and equipment 25 1,203
Deferred compensation 145,589 151,880
Stock compensation expense 59,676 159,381
(Increase) decrease in:
Receivables (295,037) 304,848
Inventories 3,139 (283,966)
Prepaid expenses and other assets (8,898) (10,580)
Increase (decrease) in:
Accounts payable 30,748 (51,520)
Accrued expenses 135,089 196,491
Deferred revenue (65,018) (83,288)
Loss (income) from equity investment - 546,452
-----------------------------------
Net cash used in
operating activities (921,968) (1,034,741)
-----------------------------------
Cash flows from investing activities:
Purchase of property and equipment (21,914) (43,374)
Purchase of patent license (13,928) -
-----------------------------------
Net cash used in
investing activities (35,842) (43,374)
-----------------------------------
Cash flows from financing activities:
Payments on long-term debt (25,922) (30,888)
Proceeds from issuance of common stock 26,197 -
-----------------------------------
Net cash (used in) provided by
financing activities 275 (30,888)
-----------------------------------
Decrease in cash and cash equivalents (957,535) (1,109,003)
Cash and cash equivalents, beginning of year 1,689,029 2,798,032
-----------------------------------
Cash and cash equivalents, end of year $ 731,494 $ 1,689,029
</TABLE>
--------------------------------------------------------------------------------
See accompanying notes to financial statements. F-5
<PAGE>
Notes to Financial Statements
August 31, 2000 and 1999
--------------------------------------------------------------------------------
1.Organization and Significant Accounting Policies
Organization
BSD Medical Corporation (the Company) develops, produces, markets, and services
systems used for the treatment of cancer and other diseases. These systems are
sold worldwide. In addition, the Company currently has a thirty-four percent
interest in Thermatrx, Inc. (Thermatrx) a corporate joint venture that is
engaged in the manufacture and sale of medical equipment.
Cash and Cash Equivalents
Cash and cash equivalents consist of cash and investments with original
maturities to the Company of three months or less.
Inventories
Parts and supplies inventories are stated at the lower of cost or market. Cost
is determined using the average cost method. Work-in-process and finished goods
are stated at the lower of the accumulated manufacturing costs or market.
Property and Equipment
Property and equipment are stated at cost less accumulated depreciation.
Depreciation and amortization is determined using the straight-line method over
the estimated useful lives of the assets. Expenditures for maintenance and
repairs are expensed when incurred and betterments are capitalized. Gains and
losses on sale of property and equipment are reflected in operations.
Investment in Joint Venture
The Company has a 34% ownership in another company. The investment is accounted
for on the equity method of accounting. In accordance with APB 18, the Company
has discontinued applying the equity method as the investment has, because of
recurring losses, been eliminated as an asset and the Company is not obligated
for any liability obligations of the joint venture.
Patents
Patents are carried at the cost and are being amortized over the life of the
patent.
--------------------------------------------------------------------------------
F-6
<PAGE>
BSD MEDICAL CORPORATION
Notes to Financial Statements
Continued
--------------------------------------------------------------------------------
1. Organization and Significant Accounting Policies Continued
Income Taxes
The Company accounts for income taxes using the asset and liability method.
Under the asset and liability method, deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets and liabilities and
their respective tax bases. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or settled. The
effect on deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment date.
Loss Per Common Share
The computation of basic loss per common share is based on the weighted average
number of shares outstanding during each year.
The computation of diluted earnings per common share is based on the weighted
average number of shares outstanding during the year, plus the common stock
equivalents that would arise from the exercise of stock options and warrants
outstanding, using the treasury stock method and the average market price per
share during the year. Common stock equivalents are not included in the diluted
loss per share calculation when their effect is antidilutive.
Stock Subscription Receivable
A stock subscription receivable of $500, included in deposits and other assets,
represents stock acquired with a note receivable. Proceeds from the receivable
were collected subsequent to August 31, 2000.
Revenue Recognition
Sales for products are recorded when products are shipped. Revenue from
long-term service contracts is recognized on a straight-line basis over the term
of the contract, which approximates recognizing it as it is earned. Deferred
revenue includes amounts from service contracts as well as revenue from sales of
products which have not been shipped.
Research and Development Costs
Research and development costs are expensed as incurred.
--------------------------------------------------------------------------------
F-7
<PAGE>
BSD MEDICAL CORPORATION
Notes to Financial Statements
Continued
--------------------------------------------------------------------------------
1. Organization and Significant Accounting Policies Continued
Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentration of
credit risk consists primarily of trade receivables. In the normal course of
business, the Company provides credit terms to its customers. Accordingly, the
Company performs ongoing credit evaluations of its customers and maintains
allowances for possible losses which, when realized, have been within the range
of management's expectations.
The Company has cash in bank and short-term investments that, at times, may
exceed federally insured limits. The Company has not experienced any losses in
such accounts. The Company believes it is not exposed to any significant credit
risk on cash and short-term investments.
Use of Estimates in the Preparation of Financial Statements
The preparation of 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
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
2. Detail of Certain Balance Sheet Accounts
Details of certain balance sheet accounts as of August 31, 2000, are as follows:
Receivables:
Trade receivables $ 295,540
Other receivables 62,762
Less allowance for doubtful
accounts (9,969)
-----------------
$ 348,333
-----------------
--------------------------------------------------------------------------------
F-8
<PAGE>
BSD MEDICAL CORPORATION
Notes to Financial Statements
Continued
--------------------------------------------------------------------------------
2. Detail of Certain Balance Sheet Accounts Continued
Inventories:
Parts and supplies $ 533,306
Work-in-process 371,796
Finished goods -
-----------------
$ 905,102
-----------------
Accrued expenses:
Customer deposits $ 380,817
Accrued expenses 311,744
-----------------
$ 692,561
-----------------
3. Property and Equipment
Property and equipment consists of the following:
Equipment $ 493,850
Furniture and fixtures 297,741
-----------------
791,591
Less accumulated depreciation
and amortization (705,009)
-----------------
$ 86,582
-----------------
4. Deferred Gain
During the year ended August 31, 1998, the Company entered into a sale-leaseback
on its building. The sale-leaseback resulted in a gain of $325,513 of which
$307,000 was deferred and is being credited to income as rent expense
adjustments over the term of the lease. The lease requires monthly payments of
$6,533 through November 2002.
--------------------------------------------------------------------------------
F-9
<PAGE>
BSD MEDICAL CORPORATION
Notes to Financial Statements
Continued
--------------------------------------------------------------------------------
4. Deferred Gain Continued
Future minimum payments at August 31, 2000, are as follows:
Years Ending August 31, Amount
-----------------
2001 $ 78,396
2002 78,396
2003 19,599
-----------------
$ 176,391
-----------------
Annual rent expense on this operating lease for the years ended August 31, 2000
and 1999, amounted to approximately $78,000.
5. Income Taxes
The Income tax benefit differs from the amount computed at federal statutory
rates as follows:
Years Ended
----------------------------------
2000 1999
----------------------------------
Income tax benefit at statutory rate $ 457,000$ 655,000
Subsidiary loss (155,000) (186,000)
Other (9,000) (111,000)
Change in valuation allowance (293,000) (358,000)
----------------------------------
$ $- -
----------------------------------
--------------------------------------------------------------------------------
F-10
<PAGE>
BSD MEDICAL CORPORATION
Notes to Financial Statements
Continued
--------------------------------------------------------------------------------
5. Income Taxes Continued
Deferred tax assets (liabilities) are comprised of the following:
Net operating loss carryforwards $ 1,574,000
General business and AMT credit carryforwards 180,000
Accrued expenses and deposits 167,000
Inventory 7,000
Allowance for bad debts and reserves 3,000
Depreciation (13,000)
Deferred compensation expense 5,000
Deferred gain 42,000
-----------------
1,965,000
Valuation allowance (1,965,000)
-----------------
$ -
-----------------
At August 31, 2000, the Company has net operating losses (NOL) as follows:
Expiration Date NOL
-----------------
2003 $ 339,000
2005 1,270,000
2007 190,000
2008 99,000
2009 671,000
2010 170,000
2012 838,000
2018 1,052,000
-----------------
$ 4,629,000
-----------------
--------------------------------------------------------------------------------
F-11
<PAGE>
BSD MEDICAL CORPORATION
Notes to Financial Statements
Continued
--------------------------------------------------------------------------------
5. Income Taxes Continued
At August 31, 2000, the Company has Research and Experimentation Tax Credit
(RETC) , Investment Tax Credit (ITC), and Alternative Minimum Tax Credit (AMTC)
as follows:
Expiration Date RETC ITC AMTC
----------------------------------------------
2001 $ - $ 2,000 $ -
2002 8,000 - -
2003 41,000 - -
2005 72,000 - -
No expiration date - - 57,000
----------------------------------------------
$ 121,000 $ 2,000 $ 57,000
----------------------------------------------
The Company has experienced a greater than 50 percent change of ownership.
Consequently, use of the Company's carryovers against future taxable income in
any one year may be limited and those carryovers may expire unutilized due to
limitations imposed by the change of ownership rules.
6. Stock Options and Warrants
Stock Options
The Company's 1987 Employee Stock Option Plan authorizes the granting of
incentive options to certain key employees of the Company and nonqualified stock
options to certain key employees, nonemployee directors, or individuals who
provide services to the Company. The Plan, as amended, provides for the granting
of options for an aggregate of 950,000 shares. The options vest according to a
set schedule of over a five-year period and expire upon the employee's
termination or after ten years from the date of grant. In 1995, the Board of
Directors authorized the cancellation of all outstanding options under this plan
and reissue of options with an exercise price of $.10 per share which vest over
a one to five year period.
The Company's 1998 Employee Stock Option Plan authorizes the granting of
incentive stock options to certain key employees and nonemployees who provide
services to the Company. The Plan provides for the granting of options for an
aggregate of 2,000,000 shares. The options vest subject to management's
discretion.
--------------------------------------------------------------------------------
F-12
<PAGE>
BSD MEDICAL CORPORATION
Notes to Financial Statements
Continued
--------------------------------------------------------------------------------
6. Stock Options and Warrants Continued
The Company's 1998 Director Stock Plan authorizes granting a total of $12,000 in
cash and options to each nonemployee director. The Plan allows for an aggregate
of 1,000,000 shares to be granted. The options vest according to a set schedule
over a five-year period and expire upon the director's termination, or after ten
years from the date of grant. For certain options issued under this plan, the
Company has recorded as deferred compensation the excess of the market value of
common stock at the date of grant over the exercise price.
A schedule of the options and warrants are as follows:
Price Per
Options Warrants Share
---------------------------------------
Outstanding at August 31, 1998 1,135,246 242,655 $ .10 to .25
Granted 419,000 - .24 to .45
Canceled (75,000) - .24 to .35
---------------------------------------
Outstanding at August 31, 1999 1,479,246 242,655 $ .10 to .45
Granted 445,000 75,000 .39 to 9.00
Exercised (596,978) (181,991) .10 to .45
Cancelled (45,600) .24 to .45
---------------------------------------
Outstanding at August 31, 2000 1,281,668 135,664 $ .10 to 9.00
---------------------------------------
--------------------------------------------------------------------------------
F-13
<PAGE>
BSD MEDICAL CORPORATION
Notes to Financial Statements
Continued
--------------------------------------------------------------------------------
6. Stock Options and Warrants Continued
The Company has adopted the disclosure-only provisions of Statement of Financial
Accounting Standards (SFAS) No. 123, Accounting for Stock-Based Compensation.
Accordingly, no compensation cost has been recognized in the financial
statements for employees, except when the exercise price is below the market
price of the stock on the date of grant. Had compensation cost for the Company's
stock option plans been determined based on the fair value at the grant date for
awards in 2000 and 1999 consistent with the provisions of SFAS No. 123, the
Company's approximate net loss and loss per share would have been the pro forma
amounts indicated below:
Years Ended
August 31,
------------------------------------
2000 1999
------------------------------------
Loss income - as reported $ 889,000 $ (1,928,000)
Income - pro forma $ (976,000) $ (1,957,000)
Diluted loss per share - as reported $ (.05) $ (.12)
Diluted loss per share - pro forma $ (.06) $ (.12)
------------------------------------
The fair value of each option grant is estimated in the date of grant using the
Black-Scholes option pricing model with the following assumptions:
August 31,
-----------------------------------
2000 1999
-----------------------------------
Expected dividend yield $ - $ -
Expected stock price volatility 148% 124%
Risk-free interest rate 5.6% 5.6%
Expected life of options 5 years 5 years
-----------------------------------
The weighted average fair value of options and warrants granted during 2000 and
1999 are $.68 and $.31, respectively.
--------------------------------------------------------------------------------
F-14
<PAGE>
BSD MEDICAL CORPORATION
Notes to Financial Statements
Continued
--------------------------------------------------------------------------------
6. Stock Options and Warrants Continued
The following table summarizes information about stock options and warrants
outstanding at August 31, 2000:
Options and Warrants
Options and Warrants Outstanding Exercisable
------------------------------------------------------------------
Weighted
Average
Number Remaining Weighted Number Weighted
Range of Outstanding Contractual Average Exercisable Average
Exercise at Life Exercise at Exercise
Prices 8/31/00 (Years) Price 8/31/00 Price
--------------------------------------------------------------------------------
$ .10 - .24 644,132 5.00 $ .13 548,632 .12
.37 - .81 648,200 9.10 .52 43,600 .38
1.76 - 3.00 125,000 6.83 2.50 - -
--------------------------------------------------------------------------------
$ .10 - 3.00 1,417,332 7.02 $ .52 592,232 .13
--------------------------------------------------------------------------------
7. Foreign Customer and Major Customer
During the years ended August 31, 2000 and 1999, the Company had sales to a
customer in Europe that amounted to approximately $884,000 and $291,000,
respectively. The Company also had sales to a stockholder that amounted to
$884,000 and $285,000, respectively.
8. Related Party Transactions
During the years ended August 31, 2000 and 1999, the Company had sales to a
stockholder of approximately $884,000 and $285,000, respectively.
During the year ended August 31, 2000 and 1999 the Company had sales to an
unconsolidated subsidiary of approximately $75,000 and $96,000, respectively.
At August 31, 2000 and 1999, accrued expenses includes approximately $212,000
and $170,000, respectively due to a stockholder. Accrued expenses also includes
$35,000 and $165,000 due from an unconsolidated subsidiary at August 31, 2000
and 1999, respectively.
At August 31, 2000 and 1999 accounts receivable includes approximately $179,000
and $7,000, respectively due from a stockholder.
--------------------------------------------------------------------------------
F-15
<PAGE>
BSD MEDICAL CORPORATION
Notes to Financial Statements
Continued
--------------------------------------------------------------------------------
9. Supplemental Cash Flow Information
Actual amounts paid for interest and income taxes are as follows:
Years Ended
August 31,
-----------------------------------
2000 1999
-----------------------------------
Interest expense $ 654 $ 3,631
-----------------------------------
Income taxes $ - $ 32,827
-----------------------------------
10. Significant Unconsolidated Affiliate
Summarized financial information for the significant unconsolidated affiliate of
the Company, at September 30, 2000 and 1999 (the affiliate's fiscal year runs
from October 1, through September 30) are as follows:
September 30
-----------------------------------
2000 1999
-----------------------------------
Result for year:
Gross revenues $ - $ -
Gross profit - -
Net loss $ (1,389,353) $ (1,476,223)
Year-end financial position:
Current assets $ 4,371,813 $ 5,432,408
Non-current assets 2,702,345 2,935,308
Current liabilities 168,167 72,372
Non-current liabilities $ - $ -
--------------------------------------------------------------------------------
F-16
<PAGE>
BSD MEDICAL CORPORATION
Notes to Financial Statements
Continued
--------------------------------------------------------------------------------
11. Commitments and Contingencies
The Company has an employment agreement with the Chairman of the Board of
Directors of the Company. The agreement provides that the Chairman of the Board
of Directors's salary will be based upon a reasonable mutual agreement.
Additionally, in the case of nonvoluntary termination, the acting president will
receive severance pay for a six month period, which includes an extension of all
employee rights, privileges, and benefits, including medical insurance. The six
month severance pay would be the salary at the highest rate paid to the
president prior to such a nonvoluntary termination. The agreement also requires
the Company to pay the acting president for any accrued unused vacation and
bonuses.
The Company has an exclusive worldwide license for a unique temperature probe.
The license will remain in effect as long as the technology does not become
publicly known as a result of actions taken by the licensor. The Company pays
royalties based upon its sales of this probe. Royalties accrued as of August 31,
2000 and 1999, are approximately $29,000 and $5,000, respectively. Royalty
expense amounted to approximately $7,000 and $5,000 for the years ended August
31, 2000 and 1999, respectively.
12. Fair Value of Financial Instruments
None of the Company's financial instruments are held for trading purposes. The
Company estimates that the fair value of all financial instruments at August 31,
2000 and 1999, does not differ materially from the aggregate carrying values of
its financial instruments recorded in the accompanying balance sheet. The
estimated fair value amounts have been determined by the Company using available
market information and appropriate valuation methodologies. Considerable
judgement is necessarily required in interpreting market data to develop the
estimates of fair value, and, accordingly, the estimates are not necessarily
indicative of the amounts that the Company could realize in a current market
exchange.
--------------------------------------------------------------------------------
F-17
<PAGE>
Notes to Financial Statements
Continued
--------------------------------------------------------------------------------
13. Earnings Per Share
Financial accounting standards require companies to present basic earnings per
share (EPS) and diluted earnings per share along with additional informational
disclosures. Information related to earnings per share is as follows:
Years Ended December 31,
------------------------------------
2000 1999
------------------------------------
Basic and EPS:
Net loss available to
common stockholders $ 888,947 $ (1,928,050)
------------------------------------
Weighted average common shares $ 17,047,000 $ 16,468,000
------------------------------------
Net loss per share $ (.05) $ (.12)
------------------------------------
--------------------------------------------------------------------------------
F-16
<PAGE>
BSD Medical Corporation 2000 10-KSB Page 14
<PAGE>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
BSD Medical Corporation 2000 10-KSB Page 15
<PAGE>
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
WITH SECTION 16(a) OF THE EXCHANGE ACT
Information regarding directors of the Company are contained under Election
of Directors in the registrant's 1998 Proxy Statement, which is incorporated
herein by reference. The current directorship positions resulted from vacancies
and were filled by a majority of the directors then in office, and the directors
so chosen hold office until their successors have been duly elected and
qualified. The Company does not presently have a nominating committee. Executive
officers of the Company are appointed by the Board of Directors and serve at the
discretion of the Board. There are no family relationships between any of the
directors or executive officers of the Company and none of these individuals
have been involved in any reportable legal proceedings.
The following table sets forth certain information concerning the directors
and executive officers of the Company.
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------------
Initial Date as
Name Age Position Officer or Director
--------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Paul F. Turner* 53 Chairman of the Board, Senior Vice President, and 1986
Chief Technology Officer
Hyrum A. Mead* 53 President and Member of the Board of Directors 1999
Dixie Toolson Sells 50 Vice President of Regulatory Affairs and Corporate 1987
Secretary
Ray Lauritzen 50 Vice President of Field Service 1988
Gerhard W. Sennewald, Ph.D. 64 Member of the Board of Directors 1994
J. Gordon Short, M.D. 69 Member of the Board of Directors 1994
Michael Nobel, Ph.D. 60 Member of the Board of Directors 1997
--------------------------------------------------------------------------------------------------------------------------
</TABLE>
*Executive officers of the Company.
Mr. Turner has been with BSD for 22 years. He served as Staff and Senior
Scientist from 1978 to September 1986; as Vice President of Research from
BSD Medical Corporation 2000 10-KSB Page 16
<PAGE>
September 1986, to January 1989; and as Senior Vice President of Research from
January 1989, to October 1993. In October 1993, Mr. Turner resigned as Vice
President of Research, and he served as Senior Scientist from October 1993 to
December 1994. In December 1994, Mr. Turner was re-appointed as Senior Vice
President of Research and was elected to the Board of Directors. From October
1995, to August 1999, Mr. Turner served as Acting President. Since August 1999,
Mr. Turner has served as Senior Vice President and Chief Technology Officer.
Mr. Mead was appointed as President and elected to the Board of Directors
in August 1999. He has served as VP of Business Development at ZERO Enclosures,
a leading manufacturer in the telecommunications, computer and aerospace
industry and as President of Electro Controls, a manufacturer of computer
controlled power systems that have significant technological overlaps with the
BSD systems. Mr. Mead began his career in sales and marketing with IBM.
Ms. Sells has been with BSD for 21 years. She served as Administrative
Director from 1978 to 1984; as Director of Regulatory Affairs from 1984 to
September 1987; and as Vice President of Regulatory Affairs from September 1987,
to October 1993. In October 1993, Ms. Sells resigned as Vice President of
Regulatory Affairs, and she served as Director of Regulatory Affairs from
October 1993 to December 1994. In December 1994, Ms. Sells was re-appointed as
Vice President of Regulatory Affairs and was appointed as Corporate Secretary by
the Board of Directors. Ms. Sells also serves on the Board of Directors of the
Utah Intermountain Biomedical Association.
Mr. Lauritzen has been with BSD for 17 years. He served as Field Service
Manager from 1982 to January 1988 and as Vice President of Field Service
Operations since January 1988.
Dr. Gerhard Sennewald was appointed to BSD's Board of Directors in December
1994. He has been the key BSD European representative and distributor for 15
years and has been instrumental in obtaining the majority of BSD's foreign
sales. Dr. Sennewald is the President and Chief Executive Officer of
Medizin-Technik GmbH of Munich, Germany.
Dr. J. Gordon Short was appointed to BSD's Board of Directors in December
1994, after extensive participation in the initial development and market
establishment of the Company's products as Medical Director for BSD, as well as
previous service on the Company's Medical Advisory Board. Dr. Short is Chairman
of Brevis Corporation, a medical products company that specializes in consumable
specialty supplies.
Dr. Michael Nobel was appointed to the Board of Directors on January 13,
1998. Dr Nobel is Chairman of the Board of the Nobel Family Society. He is
Chairman of the American Non-Violence Project inc., and has served as a
consultant to Unesco in Paris and the United Nations Social Affairs Division in
Geneva. Dr. Nobel participated in the introduction of magnetic resonance imaging
as European Vice President for Fonar Corp. Dr. Nobel is the CEO of the MRAB
Group which provides diagnostic imaging services
Pursuant to Section 16(a) of the Securities Act of 1934, the Company's
directors, executive officers, and any persons holding more than 10 percent of
the Company's stock, are required to report their ownership and any changes in
beneficial ownership of the Company's stock to the Securities and Exchange
Commission. To the Company's knowledge, based solely on review of the copies of
such reports furnished to the Company, all of such persons subject to these
reporting requirements filed the required reports with respect to the Company's
most recent fiscal year.
ITEM 10. EXECUTIVE COMPENSATION
The following tables set forth certain information regarding all
BSD Medical Corporation 2000 10-KSB Page 17
<PAGE>
compensation earned during the last three fiscal years and fiscal year-end stock
option values for the person acting in a similar capacity to chief executive
officer of the Company in the fiscal year ended August 31, 2000. No stock
options were granted to or exercised by the Acting President during fiscal year
2000. No other executive officers of the Company received compensation exceeding
$100,000.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
------------------------------------------------------------------------------------------------------------------------
Long Term Compensation Awards
Annual Compensation
--------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------
Other Annual Restricted All Other
Name and Fiscal Salary Compen-sation(Stock Awards Compen-sation($)
Position Year ($) Bonus ($) ($) Options(#)
========================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C>
Hyrum A. Mead, 2000 $125,000 $100 -0- -0- 200,000 -0-
President (1) 1999 $5,689 0 0 0 200,000 0
------------------------------------------------------------------------------------------------------------------------
$143,757
Paul F. Turner, 2000 $140,000 $100 -0- -0- -0- -0-
Sr. VP and Chief 1999 $128,543 $100 -0- -0- -0- -0-
Technology Officer 1998 -0- -0- -0- -0-
------------------------------------------------------------------------------------------------------------------------
(1) Mr. Mead began employment with BSD as of August 10, 1999.
</TABLE>
<TABLE>
<CAPTION>
OPTION/SAR GRANTS IN LAST FISCAL YEAR - Individual Grants
---------------------------------------------------------------------------------------------------------------------
Percent of Total Exercise or
Options Granted to Base Price
Name and Options Employees in Fiscal ($/Sh)
Position (#) 1999 Expiration Date
=====================================================================================================================
=====================================================================================================================
<S> <C> <C> <C> <C>
Hyrum A. Mead, 200,000 54.05% $.81 January 18, 2010
President
---------------------------------------------------------------------------------------------------------------------
</TABLE>
BSD Medical Corporation 2000 10-KSB Page 18
<PAGE>
<TABLE>
<CAPTION>
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION/SAR VALUES
----------------------------------------------------------------------------------------------------------------------
Shares
Acquired on Number of Securities Underlying Value of Unexercised
Exercise Value Unexercised Options at FY-end (#) In-the-Money Options at FY-end
Name and Realized ($)
=====================================================================
---------------------------------------------------------------------
Position (#) ($) Exercisable Unexercisable Exercisable Unexercisable
======================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Hyrum A. Mead, 0 0 40,000 360,000 $34,000 $218,000
President
----------------------------------------------------------------------------------------------------------------------
Paul F. Turner, 0 0 180,953 0 $202,667 0 Sr. VP and Chief Technology Officer (1)
----------------------------------------------------------------------------------------------------------------------
(1) Paul Turner has received options from Thermatrx to purchase shares of its
common stock. The options were issued at estimated fair market value. The
options granted total less than 1% of the outstanding shares of the common stock
of Thermatrx.
</TABLE>
COMPENSATION OF DIRECTORS
The 1998 Director Stock Plan provides for annual compensation in the amount
of $12,000 for each non-employee director - $4,000 to be paid in cash and the
balance of the retainer to be paid in the form of restricted shares of BSD
Common Stock. In addition to the annual compensation to directors, each
Non-Employee Director shall receive an annual option to purchase 25,000
restricted shares of BSD Common Stock at a purchase price of 85% of the Fair
Market Value at the date the Option is granted.The options vest over 5 years and
expire in 10 years.. On September 1, 1999, Michael Nobel, Gerhard W. Sennewald,
and J. Gordon Short were each awarded 25,000 options to purchase the Company's
restricted common stock at $.39 per share. These directors were also paid
$2,000, and awarded 8,633 shares of restricted common stock based on service to
the Company for the prior six months. On September 1, 1999, S. Lewis Meyer was
awarded 2,065 shares of restricted common stock and paid $478.26 for his service
to the Company from March 1, 1999, through April 13, 1999, when he resigned from
his position on the Board of Directors. On March 1, 2000, Michael Nobel, Gerhard
W. Sennewald, and J. Gordon Short were paid $2,000, and awarded 1,587 shares of
restricted common stock based on service to the Company for the prior six
months. On September 1, 2000, Michael Nobel, Gerhard W. Sennewald, and J. Gordon
Short were each awarded 25,000 options to purchase the Company's restricted
common stock at $1.11 per share. These directors were also paid $2,000, and
awarded 3,053 shares of restricted common stock based on service to the Company
for the prior six months.
EMPLOYMENT CONTRACTS
The Company has an employment contract with the President, Mr. Mead, that
was signed August 10, 1999. This agreement provides that Mr. Mead shall receive
a base salary of $125,000, which shall be reviewed annually by the Board of
Directors. Additionally, in the case of non-voluntary termination, Mr. Mead
shall receive all compensation for a period of six months, which includes an
extension of all benefits and perquisites. The six month severance shall be
salary at the highest rate paid to Mr. Mead prior to such termination and the
total amount of bonuses paid or payable during the preceding 12 months. The
agreement also requires the Company to vest any options granted to Mr. Mead for
the purchase of the Company's stock with a 90 day period to exercise such
options. Mr. Mead's agreement includes a period of non-competition for one year
following termination of employment.
The Company has an employment contract with the Senior Vice President and
Chief Technology Officer, Mr. Turner that was signed November 2, 1988. This
agreement provides that Mr. Turner's salary will be based upon a reasonable
mutual agreement. Additionally, in the case of non-voluntary termination, Mr.
BSD Medical Corporation 2000 10-KSB Page 19
<PAGE>
Turner will receive severance pay for a one-year period, which includes an
extension of all employee rights, privileges, and benefits, including medical
insurance. The one-year severance pay will be an average of Mr. Turner's salary
for the immediate twelve-month period prior to termination. The agreement also
requires the Company to pay Mr. Turner any accrued unused vacation at the time
of termination. BSD is also obligated to pay Mr. Turner $1,000 (or the
equivalent value in stock options) for newly issued patents (this compensation
is halved if multiple inventors are involved). Mr. Turner's agreement includes a
period of non-competition for one year following termination of employment. This
non-competition agreement may be extended by BSD for up to an additional four
years by written notification and continuing severance payments for the
additional years of extension (as defined for the first year) if the
non-competition obligation is extended.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information as of November 1, 2000,
with respect to the beneficial ownership of the outstanding Common Stock by (i)
each person known to management of the Company to own beneficially more than 5%
of the outstanding Common Stock, (ii) all directors and named executive officers
of the Company, and (iii) all executive officers and directors as a group:
<TABLE>
<CAPTION>
Name and Address of Shares of Common Stock Percentage of Common Stock
Beneficial Owner Beneficially Owned (1) Ownership (2)
--------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Dr. Gerhard W. Sennewald 6,784,459(3) 38.59%
c/o Medizin-Technik GmbH
Augustenstrasse 27
D-80333 Munich, Germany
Paul F. Turner 1,995,871(4) 11.31%
4466 Sunset Circle
Bountiful, UT 84010
John E. Langdon 1,295,010(5) 7.42%
2501 Parkview Drive, Suite 500
Fort Worth, TX 76102
Hyrum A. Mead 40,000(6) *
202 Coventry Lane
North Salt Lake, UT 84054
Michael Nobel 63,873(7) *
Magnetkameran MRAB
Skeppsbron 28
S-111 30 Stockholm, Sweden
J. Gordon Short, M.D. 125,873(8) *
c/o Brevis Corporation
3310 South 2700 East
Salt Lake City, UT 84109
All executive officers and directors as 9,010,076(9) 50.40%
a group (5) persons)
</TABLE>
BSD Medical Corporation 2000 10-KSB Page 20
<PAGE>
* Less than 1.0%.
(1) Unless otherwise noted and subject to community property laws, where
applicable, the persons named in the table above possess sole voting and
investment power with respect to all shares shown to be beneficially owned by
them.
(2) Shares not outstanding but deemed beneficially owned by virtue of the right
of a person or member of a group to acquire them within 60 days are treated as
outstanding only when determining the amount and percent owned by such person or
group.
(3) Includes 117,065 shares subject to options. Does not include 500,000 shares
held by Dr. Sennewald's spouse, for which he disclaims beneficial ownership.
(4) Includes 180,953 shares subject to options.
(5) Includes 351,862 shares owned directly by Mr. Langdon. The remaining shares
are held in trusts for which Mr. Langdon is Trustee. Does not include 50,000
shares held by Mr. Langdon's spouse, for which he disclaims beneficial
ownership.
(6) All 40,000 shares are subject to options
(7) Includes 20,000 shares subject to options.
(8) Includes 55,000 shares subject to options.
(9) Includes 413,018 shares subject to options.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
The following exhibits are filed as part of this report or are hereby
incorporated by reference as indicated:
Exhibit
Number Description
3.1 Certificate of Incorporation. Incorporated by reference to Exhibit 3.1
of the BSD Medical Corporation Registration Statement on Form S-1,
filed October 16, 1986.
3.2 By-Laws. Incorporated by reference to Exhibit 3.2 of the BSD Medical
Corporation Registration Statement on Form S-1, filed October 16,
1986.
4.1 Specimen Common Stock Certificate. Incorporated by reference to
Exhibit 4 of the BSD Medical Corporation Registration Statement on
Form S-1, filed October 16, 1986.
BSD Medical Corporation 2000 10-KSB Page 21
<PAGE>
10.1 Transfer of Trade Secrets Agreement dated December 7, 1979, among BSD
Medical Corporation, Vitek, Incorporated and Ronald R. Bowman.
Incorporated by reference to Exhibit 10.6 of the BSD Medical
Corporation Registration Statement on Form S-1, filed October 16,
1986.
10.2 Volume Purchase Agreement dated June 6, 1986, between BSD Medical
Corporation and Luxtron Corporation. Incorporated by reference to
Exhibit 10.9 of the BSD Medical Corporation Registration Statement on
Form S-1, filed October 16, 1986.
10.3 Second Addendum to Exclusive Transfer of Trade Secrets Agreement dated
April 2, 1987. Incorporated by reference to Exhibit 10 of the BSD
Medical Corporation Form 10-K, filed April 8, 1988.
10.4 License Agreement between BSD Medical Corporation and EDAP Technomed,
Inc., dated July 3, 1996. Incorporated by reference to Exhibit 10 of
Form 8-K, filed August 7, 1996.
10.5 Terms of Engagement between BSD Medical Corporation and Ambient
Capital dated November 26, 1996. Incorporated by reference to Exhibit
10 of Form 10-QSB filed February 27, 1997.
10.6 Stock Purchase Agreement dated October 31, 1997, by and among
TherMatrx, Inc., BSD Medical Corporation, Oracle Strategic Partners,
L.P., and Charles Manker. filed
10.7 BSD Medical Corporation 1998 Director Stock Plan. Incorporated by
reference to Exhibit A of the BSD Medical Corporation Schedule 14A,
filed July 27, 1998.
10.8 BSD Medical Corporation 1998 Stock Incentive Plan. Incorporated by
reference to Exhibit B of the BSD Medical Corporation Schedule 14B,
filed July 27, 1998.
10.9 Consulting agreement between de Jong & Associates and BSD Medical
Corporation dated July 1, 2000. Incorporated by reference to Exhibit
10 on Form 8-K, filed July 19, 2000.
16 Letter on changes in certifying accountant. Incorporated by reference
to Exhibit 16 of the BSD Medical Corporation Form 8-K/A, filed
September 23, 1997.
27 Financial Data Schedule.
99 The financial statements for the fiscal year ended September 30, 2000,
of TherMatrx, Inc., a significant subsidiary reported on the equity
method, and the report of independent certified public accountants.
(b) Reports on Form 8-K
The Company filed a report on Form 8-K on July 19, 2000, which
reported a consulting agreement between BSD Medical Corporation and de
Jong & Associates.
BSD Medical Corporation 2000 10-KSB Page 22
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
BSD MEDICAL CORPORATION
Date: November 24, 1999 By: /s/ Hyrum A. Mead
__________________________
Hyrum A. Mead
President and Member of the Board of Directors
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Date: November 24, 1999 By: /s/ Paul F. Turner
________________________
Paul F. Turner
Chairman of the Board, Chief Technology
Officer, and Senior Vice President of
Research
Date: November 24, 1999 By: /s/ Hyrum A. Mead
________________________
Hyrum A. Mead
President and Member of the Board of Directors
Date: November 24, 1999 By: /s/ Gerhard W. Sennewald
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Dr. Gerhard W. Sennewald
Member of the Board of Directors
Date: November 24, 1999 By: /s/ J. Gordon Short
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Dr. J. Gordon Short
Member of the Board of Directors
Date: November 24, 1999 By: /s/ Michael Nobel
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Dr. Michael Nobel
Member of the Board of Directors
