SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended June 30, 1998
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Commission file number 33-56574
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DIASENSE, INC.
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(Exact name of registrant as specified in its charter)
Pennsylvania 25-1605848
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(State of other jurisdiction (IRS Employer
of incorporation or organization) Identification no.)
2275 Swallow Hill Road, Bldg. 2500; Pittsburgh, PA 15220
--------------------------------------------------------
(Address of principal executive offices) ( Zip Code)
(412) 279-9740
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Registrant's telephone number, including area code
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
As of June 30, 1998, 22,980,051 shares of Diasense, Inc. common
stock, par value $.01 were outstanding.
<PAGE>1
DIASENSE, INC.
(A Development Stage Company)
Consolidated Balance Sheets
June 30, September 30,
ASSETS 1998 1997
(Unaudited) (Note)
----------- -----------
Current assets
Cash and cash equivalents $ 130 $ 1,871,070
Due from BICO 1,388,072 -
Notes receivable - related parties 125,000 -
Interest receivable - related parties 3,225 -
Prepaid expenses 2,064 13,698
----------- -----------
Total current assets 1,518,491 1,884,768
Property and equipment - at cost
Building and improvements 236,663 236,663
Furniture and fixtures 42,750 42,750
----------- -----------
279,413 279,413
Less accumulated depreciation 66,125 55,938
------------ -----------
213,288 223,475
----------- -----------
Other assets
Deposit on inventory 1,000,000 1,000,000
----------- -----------
TOTAL ASSETS $ 2,731,779 $ 3,108,243
=========== ===========
LIABILITIES and STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable $ 18,467 $ 9,433
Other accrued liabilities 54,916 12,986
----------- -----------
Total current liabilities 73,383 22,419
Stockholders' equity
Preferred stock, 1,000,000 shares authorized, none issued
Common stock, 40,000,000 shares of $.01 par value
authorized; issued and outstanding
22,980,051 at Jun. 30, 1998 and
22,979,051 at Sep. 30, 1997 229,801 229,791
Additional paid-in capital 26,892,071 26,888,581
Warrants 19,823,223 17,928,223
Deficit accumulated during the
development stage (44,286,699) (41,960,771)
----------- -----------
2,658,396 3,085,824
TOTAL LIABILITIES AND ----------- -----------
STOCKHOLDERS' EQUITY $ 2,731,779 $ 3,108,243
=========== ===========
[FN]
Note: The Balance Sheet at September 30, 1997 has been derived from audited
financial statement at that date.
See notes to the financial statement.
<PAGE>2
DIASENSE, INC.
(A Development Stage Company)
<TABLE>
Consolidated Statement of Operations
(Unaudited)
<CAPTION>
For the six months ended For the three months ended From July 5, 1989
June 30, June 30, (inception) through
1998 1997 1998 1997 June 30, 1998
------------------------- -------------------------- -------------------
</CAPTION>
<S> <C> <C> <C> <C> <C>
Research and development expenses $ - $ - $ - $ - $ 10,556,405
General and administrative expenses 464,152 846,417 160,206 212,775 11,712,453
Warrant extensions 1,895,000 5,586,375 1,870,000 299,375 19,782,908
Technology and patent rights acquired 13,080 - - - 2,663,080
Interest expense - - - - 10,529
Other income (46,304) (40,019) (10,631) (10,684) (506,081)
Other expense - - - - 37,405
-------------------------- -------------------------- -------------------
Net loss $ (2,325,928) $ (6,392,773) $ (2,019,575) $ (501,466) $(44,256,699)
=========== =========== =========== =========== ===================
Net loss per common share $ (0.10) $ (0.28) $ (0.09) $ (0.02) $ (2.39)
=========== =========== =========== =========== ===================
See notes to the financial statements.
</TABLE>
<PAGE>3
<TABLE>
DIASENSE, INC.
(A Development Stage Company)
Statement of Cash Flows
(Unaudited)
<CAPTION>
For the nine months ended For the three months ended From July 5,1989
June 30, June 30, (Inception) thru
1998 1997 1998 1997 June 30, 1998
------------------------ -------------------------- ----------------
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities
Net Loss $ (2,325,928) $(6,392,773) $ (2,019,575) $ (501,466) $ (44,256,699)
Adjustments to reconcile net loss to net
cash used by operating activites:
Depreciation 10,187 10,218 3,396 3,395 66,125
Stock in exchange for services - - - - 138,950
Stock issued for License and Marketing Agreement - - - - 80,000
Warrent extensions 1,895,000 5,586,375 1,870,000 299,375 19,782,908
Inventory Deposit-BICO - - - - (1,000,000)
Decrease (Increase) in prepaid expenses 11,634 (546) 2,954 (9,051) (2,064)
Increase in payable due to BICO - - - - 10,500,000
Increase (Decrease) in accounts payable 9,034 10,007 (13,405) (7,773) 18,467
Decrease in accrued liabilities 41,930 24,913 41,950 24,933 54,916
------------ ------------ ------------ ------------ ----------------
Net cash (used) in operating activities (358,143) (761,806) (114,680) (190,587) (14,617,397)
Cash flows from investing activities:
Purchase of property and equipment - - - - (279,413)
Note Receivable (125,000) - - - (125,000)
Interest Receivable (3,225) - - - (3,225)
------------ ------------ ------------ ------------- ---------------
Net cash (used) in investing activities (128,225) - - - (407,638)
Cash flows from financing activities:
Advances to BICO (2,780,531) (1,625,646) (55,628) (104,095) (6,890,392)
Repayment of advances to BICO 1,392,459 1,348,240 145,452 228,779 6,068,906
Proceeds from issuance of common stock 3,500 (94,500) - - 10,971,834
Proceeds from issuance of common stock to BICO - - - - 4,200,000
Proceeds from warrants exercised - - - - 118,066
Proceeds from treasury stock - - - - (35,000)
Proceeds from Regulation S - - - - 288,751
Proceeds from issuance of notes payable - - - - 303,000
-------------- -------------- ------------- ------------ ---------------
Net cash provided by financing activities (1,384,572) (371,906) 89,824 124,684 15,025,165
-------------- -------------- ------------- ------------ ---------------
Net increase (decrease) in cash and cash equiv. (1,870,940) (1,133,712) (24,856) (65,903) 130
Cash and cash equivalents at beginning of period 1,871,070 1,143,312 24,986 75,503 -
-------------- -------------- ------------- ------------ ---------------
Cash and cash equivalents at end of period $ 130 $ 9,600 $ 130 $ 9,600 $ 130
============== ============== ============= ============ ===============
See notes to the financial statements.
</TABLE>
<PAGE> 4
DIASENSE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - Basis of Presentation
The accompanying financial statements of Diasense, Inc.
(the "Company") have been prepared in accordance with
generally accepted accounting principles for interim
financial information, and with the instructions to Form 10-
Q and Rule 10-O Regulation S-X. Accordingly, they do not
include all of the information and footnotes required by
generally accepted accounting principles for complete
financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been
included. For further information, refer to the financial
statements and footnotes included in the Company's annual
report on Form 10-K for the fiscal year ended September 30,
1997.
NOTE B - Organization
The Company was incorporated on July 5, 1989 as a
wholly owned subsidiary of Biocontrol Technology, Inc.
(BICO). BICO owns 52% of the stock of the Company as of
June 30, 1998. Diasense is currently developing a
noninvasive glucose sensor (Sensor). The sensor would use
electromagnetic technology to measure blood without
requiring the user to take a blood sample.
NOTE C - Net Loss Per Common Share
Net loss per common share is based on the weighted
average number of outstanding common shares which amounted
to 22,981,773 and 22,979,150 for the periods ended June 30,
1998 and June 30, 1997, respectively. The loss per share
does not include common stock equivalents since the effect
would be anti-dilutive.
From July 5, 1989 (inception) to June 30, 1998, net
loss per common share is based on the weighted average number
of common shares outstanding and the number of common shares
issuable on the exercise of 1,708,000 warrants issued in
1992; reduced by 488,000 common shares that were assumed to
have been purchased with the proceeds from the exercise of
the warrants at an assumed price of $3.50 per share. The
inclusion of the warrants in the loss per share calculation
is required by the rules of the Securities and Exchange
Commission relative to the initial registration statement
which included the Company's financial statements through the
period ended March 31, 1993. The registration statement
became effective July 19, 1993. The weighted average number
of common shares including the effect of the conversion of
the warrants amounted to 18,508,961 for the period from July
5, 1989 (inception) to June 30, 1998.
<PAGE> 5
DIASENSE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
NOTE D - Legal Proceedings
During April 1998, the Company and its affiliates were
served with subpoenas by the U.S. Attorneys'office for the
U.S. District Court for the Western District of Pennsylvania.
The subpoenas requested certain corporate, financial and
scientific documents and the Company has provided documents
for such requests. The class action lawsuit which names the
Company and certain officers and directors as defendants is
pending in the U.S. District Court for the Western District
of Pennsylvania. The action has been certified as a class
action, and remains in the pre-trial pleading stage pursuant
to consent of all the parties.
Management's Discussion and Analysis of Financial Condition
and Cash Flows
Liquidity and Capital Resources
Cash decreased from $1,871,070 at September 30, 1997,
to $130 at June 30, 1998. This decrease was primarily
attributable to the Company's $358,143 net cash flow used by
operations and $1,388,072 net advances to BICO.
Results of Operations
There were no research and development expenses during
the nine month period ended June 30, 1998 and 1997 due to
the agreed-upon suspension of billings by Diasense and BICO
pursuant to the Research and Development Agreement.
General and Administrative expenses decreased during
the third quarter from $212,775 for the three month period
ended June 30, 1997 to $160,206 for the three month period
ended June 30, 1998 and decreased from $846,417 for the nine
month period ended June 30, 1997 to $464,152 for the nine
month period ended June 30, 1998. The decrease was
primarily due to continued reductions in administrative
staff along with administrative overhead.
Other income during the third quarter decreased from
$10,684 for the three month period ended June 30, 1997 to
$10,631 for the three month period ended June 30, 1998 and
increased from $40,019 for the nine month period ended June
30, 1997 to $46,304 for the nine month period ended June 30,
1998. Other income is primarily rental income received
from leasing office space to BICO. The fluctuations are the
results of interest earned from investments during each
period.
<PAGE> 6
PART II -- OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 2. Changes in Securities
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
Item 6. Reports on Form 8-K
None.
<PAGE> 7
SIGNATURES
Pursuant to the requirements 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 on this 14th day of August, 1998.
DIASENSE, INC.
By /s/ Fred E. Cooper
Fred E. Cooper
President and Director (principal
executive officer, principal financial
officer and principal accounting
officer)
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-END> JUN-30-1998
<CASH> 130
<SECURITIES> 0
<RECEIVABLES> 1,516,297
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,518,491
<PP&E> 279,413
<DEPRECIATION> 66,125
<TOTAL-ASSETS> 2,731,779
<CURRENT-LIABILITIES> 73,383
<BONDS> 0
0
0
<COMMON> 229,801
<OTHER-SE> 2,428,595
<TOTAL-LIABILITY-AND-EQUITY> 2,731,779
<SALES> 0
<TOTAL-REVENUES> 46,304
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 2,372,232
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,325,928)
<EPS-PRIMARY> (.10)
<EPS-DILUTED> 0
</TABLE>
