U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10 - QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended November 30, 2005
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)
Issuer's telephone number: (801) 972-5555
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15 (d) of the Exchange Act during the past 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 whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act.) Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
As of November 30, 2005, there were 20,543,963 shares of the Registrant's common
stock, $0.001 par value per share, outstanding.
Transitional Small Business Disclosure Format (Check one): Yes [ ] No [X]
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements-
BSD MEDICAL CORPORATION
Condensed Balance Sheet
(Unaudited)
Assets November 30,
------ 2005
-----------------
Current assets:
Cash and cash equivalents $ 158,235
Available-for-sale securities 18,255,878
Receivables, net of allowance for doubtful accounts of $42,500 599,747
Related party receivables 25,374
Inventories, net 1,291,219
Deferred tax asset 107,000
Other current assets 155,492
-----------------
Total current assets 20,592,945
Property and equipment, net 274,440
Patents, net 22,659
-----------------
$ 20,890,044
=================
Liabilities and Stockholders' Equity
-------------------------------------
Current liabilities:
Accounts payable $ 347,245
Accrued expenses 353,672
Income taxes payable 1,752,469
Deferred revenue 4,434
-----------------
Total current liabilities 2,457,820
Deferred tax liability 8,000
-----------------
Total liabilities 2,465,820
-----------------
Stockholders' equity:
Preferred stock, $.001 par value; 10,000,000 authorized,
no shares issued and outstanding -
Common stock, $.001 par value; authorized 40,000,000 shares; issued
20,543,963 shares and outstanding 20,519,632 shares 20,545
Additional paid-in capital 24,404,264
Deferred compensation (360,600)
Common stock in treasury 24,331 shares, at cost (234)
Other comprehensive loss (24,539)
Accumulated deficit (5,615,212)
-----------------
Net stockholders' equity 18,424,224
-----------------
$ 20,890,044
=================
See accompanying notes to financial statements.
1
BSD MEDICAL CORPORATION
Condensed Statements of Operations
(Unaudited)
Three Months
Ended:
---------------------------------
November November
30, 2005 30, 2004
-------------- ---------------
Sales and service $ 509,881 $ 250,779
Related party sales and service 11,286 7,154
-------------- ---------------
Total revenues 521,167 257,933
-------------- ---------------
Costs and expenses:
Cost of sales 352,244 266,063
Cost of sales to related parties 5,256 4,308
Research and development 230,165 182,513
Selling, general and administrative 1,054,114 380,500
-------------- ---------------
Total costs and expenses 1,641,779 833,384
-------------- ---------------
Operating loss (1,120,612) (575,451)
Other income:
Interest income 244,623 70,592
Other income 5,882,925 523
-------------- ---------------
Total other income 6,127,548 71,115
-------------- ---------------
Net income (loss) before income taxes 5,006,936 (504,336)
Income tax expense 1,870,693 -
-------------- ---------------
Net income (loss) $ 3,136,242 $ (504,336)
============== ===============
Net income (loss) per common share - basic $ .15 $ (.03)
============== ===============
Net income (loss) per common share - diluted $ .13 $ (.03)
============== ===============
Weighted average number of shares outstanding
Basic 20,513,000 20,041,000
-------------- ---------------
Diluted 22,145,000 20,041,000
-------------- ---------------
See accompanying notes to financial statements.
2
BSD MEDICAL CORPORATION
Condensed Statements of Cash Flows
(Unaudited)
Three Months
Ended:
-----------------------------------
November November
30, 2005 30, 2004
--------------- ---------------
Cash flows from operating activities:
Net income (loss) $ 3,136,242 $ (504,336)
Adjustments to reconcile net income (loss) to net cash used in
operating activities:
Depreciation and amortization 34,309 9,043
Stock compensation expense 945 30,000
Gain on sale of investment in TherMatrx (5,882,925) -
Amortization of deferred compensation 36,650 9,508
(Increase) decrease in:
Receivables (121,441) (51,902)
Inventories (156,866) (53,672)
Deferred tax asset (8,000) -
Other current assets (22,751) (3,350)
Increase (decrease) in:
Accounts payable 234,432 34,752
Accrued expenses 105,296 -
Income taxes payable 1,770,602 (151,907)
Deferred revenue (2,894) (10,114)
--------------- ---------------
Net cash used in operating activities $ (876,401) (691,978)
--------------- ---------------
Cash flows from investing activities:
Proceeds from sale of investment in TherMatrx 5,882,925 -
Purchase of available-for-sale securities (5,698,833) -
Purchase of property and equipment (133,435) (21,040)
--------------- ---------------
Net cash provided by (used in) investing activities 50,657 (21,040)
Cash flows from by financing activities-
Proceeds from sale of common stock 75,305 41,250
--------------- ---------------
Decrease in cash and cash equivalents (750,440) (671,768)
Cash and cash equivalents, beginning of period 908,674 9,697,154
--------------- ---------------
Cash and cash equivalents, end of period $ 158,235 $ 9,025,386
=============== ===============
Supplemental Disclosure of Cash Flow Information
------------------------------------------------
o The Company paid no cash for interest during the three months ended
November 30, 2005 and 2004 and $108,091 and $0 for income taxes during
the three months ended November 30, 2005 and 2004.
o The Company issued 170,000 and 100,000 stock options during the three
month periods ended November 30, 2005 and 2004, respectively, which
resulted in an increase to Deferred Compensation of $ 326,550 and
$15,750, respectively.
o The Company had an income tax benefit from the exercise of stock
options of $258,892 during the period ended November 30, 2005, which
was recorded as an increase to additional paid-in capital and a
reduction in income taxes payable.
o The Company had an unrealized loss of $61,478 during the period ended
November 30, 2005 on available-for-sale securities.
3
BSD MEDICAL CORPORATION
Notes to Condensed Financial Statements
Note 1. Basis of Presentation
The Condensed Balance Sheet as of November 30, 2005, the Condensed
Statements of Operations and the Condensed Statements of Cash Flows for the
three months ended November 30, 2005 and 2004 have been prepared by the Company
without audit. In the opinion of management, all adjustments to the books and
accounts (which include only normal recurring adjustments) necessary to present
fairly the financial position, results of operations, and cash flows of the
Company have been made.
Certain information and footnote disclosures normally included in
condensed financial statements prepared in accordance with U.S. generally
accepted accounting principles have been condensed or omitted. The results of
operations for the three month period ended November 30, 2005 is not necessarily
indicative of the results to be expected for the full year.
Note 2. Net Income (Loss) Per Common Share
The computation of basic earnings per common share is based on the
weighted average number of shares outstanding during the period. The computation
of diluted earnings per common share is based on the weighted average number of
shares outstanding during the period plus the weighted average common stock
equivalents which would arise from the exercise of stock options outstanding
using the treasury stock method and the average market price per share during
the period. When common stock equivalents are anti-dilutive, they are not
included.
The shares used in the computation of the Company's basic and diluted
earnings per share are reconciled as follows:
Three Months Ended November 30,
----------------------------------
2005 2004
---- ----
Weighted average number of
shares outstanding - basic 20,513,000 20,041,000
Dilutive effect of stock options 1,632,000 -
---------------- -----------------
Weighted average number of
shares outstanding - diluted 22,145,000 20,041,000*
================ =================
* Stock options were not included in the 2004 calculation since they would be
anti-dilutive in that year.
4
Note 3. Related Party Transactions
During the three months ended November 30, 2005 and November 30, 2004,
the Company had sales of $11,286 and $7,154, respectively, to an entity
controlled by a significant stockholder and member of the Board of Directors.
These related party transactions represent 2% and 3% of total sales.
At November 30, 2005, receivables include $25,374 due from this entity.
Note 4. Stock-Based Compensation
The Company accounts for stock options granted to employees under the
recognition and measurement principles of Accounting Principles Board Opinion
No. (APB 25), Accounting for Stock Issued to Employees, and related
Interpretations, and has adopted the disclosure-only provisions of Statement of
Financial Accounting Standards (SFAS) No. 123, Accounting for Stock-Based
Compensation. Accordingly, the difference between the exercise price and the
fair market value of the stock on the grant date has been recognized in the
financial statements as expense. Had the Company's stock options been accounted
for based on the fair value method of SFAS No. 123, the results of operations
would have been reduced to the pro forma amounts indicated below for the three
months ended November 30:
2005 2004
-----------------------------
Net income (loss) - as reported $ 3,136,242 $ (504,336)
Add: Stock-based employee compensation
expense included in reported
net income, net of related tax effects 36,650 15,750
Deduct: Stock-based employee compensation
expense determined under fair value based
method for all awards, net of related taxes (158,738) (103,089)
-----------------------------
Net income (loss) - pro forma $ 3,014,154 $ (591,675)
-----------------------------
Basic net income (loss) per share - as reported $ .15 (.03)
-----------------------------
Diluted net income (loss) per share - as reported $ .13 $ (.03)
-----------------------------
Basic net income (loss) per share - pro forma .14 (.03)
-----------------------------
Diluted net income per share - pro forma $ .13 -
-----------------------------
The fair value of each stock option granted for the three months ended
November 30, 2005 and 2004 is estimated on the date of grant using the
Black-Scholes option pricing model using the following assumptions:
-----------------------------
2005 2004
-----------------------------
Expected dividend yield $ - $ -
Expected stock price volatility 75.5% 83%
Risk-free interest rate 4.02% 3.32%
Expected life of options 4.8 years 10 years
The weighted average fair value of options granted during the three
months ended November 30, 2005 and 2004 was $3.75 and $1.20, respectively.
5
Note 5. Gain on Sale of Investment in TherMatrx
On July 15, 2004, the Company's investment in an unconsolidated
subsidiary (TherMatrx) was sold to American Medical Systems, Inc. (AMS). The
Company's portion of the initial payment from this sale, received in fiscal
2004, was approximately $9 million, with additional payments contingent on the
quarterly sales of TherMatrx through the fourth calendar quarter of 2005. During
the quarter ended November 30, 2005, the Company received an additional payment
from the sale of TherMatrx of $5,882,925, to bring the total received to date as
November 30, 2005 to $21,409,756. This amount is recorded as a gain and has been
reflected in "Other income" in the Statement of Operations.
Note 6. Subsequent Event
On December 2, 2005 the Company received an additional payment of
approximately $5.7 million from the earnout of TherMatrx, Inc. The amount of the
payment was based on the level of sales of TherMatrx products during the third
calendar quarter of 2005. This brings the total payments collected by BSD from
the sale of TherMatrx to over $27 million. This payment will be reflected in
"other income" in the Company's Statement of Operations for the quarter ending
February 28, 2006.
6
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
This Management's Discussion and Analysis of Financial Condition and
Results of Operations and other parts of this report contain forward-looking
statements that involve risks and uncertainties. Forward-looking statements can
also be identified by words such as "anticipates," "expects," "believes,"
"plans," "predicts," and similar terms. Forward-looking statements are not
guarantees of future performance and our actual results may differ significantly
from the results discussed in the forward-looking statements. Factors that might
cause such differences include, but are not limited to; those discussed in the
subsections entitled "Forward-Looking Statements" below. The following
discussion should be read in conjunction with our consolidated financial
statements and notes thereto included in this report. We assume no obligation to
revise or update any forward-looking statements for any reason, except as
required by law.
General
We develop, manufacture, market and service systems that deliver
precision-focused radio frequency (RF) and microwave energy into diseased sites
of the body, heating them to specified temperatures as required by a variety of
medical therapies. Our business objectives currently are to commercialize our
products developed for the treatment of cancer and to further expand our
developments to treat other diseases and medical conditions.
While our primary developments to date have been cancer treatment
systems, we also pioneered the use of microwave thermal therapy for the
treatment of symptoms associated with enlarged prostate, and we are responsible
for much of the technology that has successfully created a substantial new
medical industry using that therapy. In accordance with our strategic plan, we
sold our interest in TherMatrx, Inc., the company established to commercialize
our technology to treat enlarged prostate symptoms, to provide what we project
to be over a $30 million payout in funding that we can utilize for
commercializing our systems used in the treatment of cancer and in achieving
other business objectives.
In spite of the advances in cancer treatment technology, over 40% of
cancer patients continue to die from the disease in the United States, and
cancer has now surpassed heart disease as the number one killer from all causes
of death in the United States. Commercialization of our systems used to treat
cancer (the BSD-2000 and BSD-500 families of products) is our most immediate
business objective. Our cancer therapy systems are used in combination with
existing cancer treatments to kill cancer with heat while boosting the
effectiveness of radiation and chemotherapy through a number of biological
mechanisms. Current and targeted cancer treatment sites for our systems include
cancers of the prostate, breast, chestwall, head, neck, bladder, cervix,
colon/rectum, esophagus, liver, pancreas, brain, bone, stomach and lung,
including soft tissue sarcoma, melanoma, carcinoma, and basal cell carcinoma.
Our BSD-2000 systems are used to non-invasively treat cancers located
deeper in the body, and are designed to be companions to the estimated 7,500
linear accelerators used to treat cancer through radiation globally and in
combination with chemotherapy treatments. Our BSD-500 systems treat cancers on
or near the body surface and those that can be approached through body orifices
such as the throat, the rectum, etc., or through interstitial treatment in
combination with interstitial radiation (brachytherapy). BSD-500 systems can be
used as companions to our BSD-2000 systems, to the estimated 2,500 brachytherapy
systems installed and with chemotherapy treatments.
We have received FDA approval to market our commercial version of the
BSD-500 and are in the late stages of preparing our submission for FDA approval
to sell the BSD-2000 in the United States. We have designed our cancer treatment
systems such that together they are capable of providing complementary therapy
for treatment of most solid tumors located in the body.
7
Our common stock trades on the American Stock Exchange ("AMEX") under
the symbol "BSM."
Our accumulated deficit since inception decreased from $8,751,454 as of
August 31, 2005 to $5,615,212 as of November 30, 2005 due to net income recorded
during the three months ended November 30, 2005. We recorded after tax net
income for the first three months of fiscal 2006 of $3,136,242.
We recognize revenue from the sale of cancer treatment systems, the
sale of parts and accessories related to the cancer treatment systems, the sale
of software license rights, the providing of manufacturing services, training
and support services. Product sales were $445,825 and $215,458 for the three
months ended November 30, 2005 and 2004, respectively. Service revenue was
$75,341 and $42,475 for the three months ended November 30, 2005 and 2004,
respectively.
In the first quarter of fiscal 2006, we earned $509,881 or 98%, of our
revenue from sales to unrelated parties. These revenues consisted of product
sales of $445,825, consulting services of $4,645, service contracts of $5,594,
probes of $17,923 and other miscellaneous revenue of $35,894.
Cost of sales for the first quarter of fiscal 2006, include raw
materials and labor costs of $222,728 and overhead of $134,772. Research and
development expenses include expenditures for new product development and
development of enhancements to existing products.
Critical Accounting Policies and Estimates
------------------------------------------
The following is a discussion of our critical accounting policies and
estimates that management believes are material to an understanding of our
results of operations and which involve the exercise of judgment or estimates by
management.
Revenue Recognition. Revenue from the sale of cancer treatment systems
is recognized when a purchase order has been received, the system has been
shipped, the selling price is fixed or determinable, and collection is
reasonably assured. Most system sales are F.O.B. shipping point; therefore,
shipment is deemed to have occurred when the product is delivered to the
transportation carrier. Most system sales do not include installation. If
installation is included as part of the contract, revenue is not recognized
until installation has occurred, or until any remaining installation obligation
is deemed to be perfunctory. Some sales of cancer treatment systems may include
training as part of the sale. In such cases, the portion of the revenue related
to the training, calculated based on the amount charged for training on a
stand-alone basis, is deferred and recognized when the training has been
provided. The sales of our cancer treatment systems do not require specific
customer acceptance provisions and do not include the right of return, except in
cases where the product does not function as warranted by us. We provide a
reserve allowance for estimated returns. To date, returns have not been
significant.
Revenue from manufacturing services is recorded when an agreement with
the customer exists for such services, the services have been provided, and
collection is reasonably assured. Revenue from training services is recorded
when an agreement with the customer exists for such training, the training
services have been provided, and collection is reasonably assured. Revenue from
service support contracts is recognized on a straight-line basis over the term
of the contract.
Our revenue recognition policy is the same for sales to both related
parties and non-related parties. We provide the same products and services under
the same terms for non-related parties as with related parties. Sales to
distributors are recognized in the same manner as sales to end-user customers.
Deferred revenue and customer deposits payable include amounts from service
contracts as well as cash received for the sales of products, which have not
been shipped.
Inventory Reserves. As of November 30, 2005, we recorded a reserve for
potential inventory impairment of $80,000. We periodically review our inventory
levels and usage, paying particular attention to slower-moving items. We have
8
projected no orders to be placed with us for TherMatrx systems, and do not
project a requirement for any inventory impairment based on this decline.
Product Warranty. We provide product warranties on our BSD-500 and
BSD-2000 systems. These warranties vary from contract to contract, but generally
consist of parts and labor warranties for one year from the date of sale. To
date, expenses resulting from such warranties have not been material. We record
a warranty expense at the time of each sale. This reserve is estimated based on
prior history of service expense associated with similar units sold in the past.
Allowance for Doubtful Accounts. We provide our customers with payment
terms that vary from contract to contract. Our allowance for doubtful accounts
at November 30, 2005 was $42,500. Bad debt expense for the period ended November
30, 2005 was $0. We perform ongoing credit evaluations of our customers and
maintain allowances for possible losses. Allowance estimates are recorded on a
customer-by-customer basis and are determined based on the age of the
receivable, compliance with payment terms, and prior history with existing
clients.
Results of Operations
---------------------
Three Months Ended November 30, 2005 Compared to the Three Months Ended November
30, 2004
Revenue. Revenue for the three months ended November 30, 2005 was
$521,167 compared to $257,933 for the three months ended November 30, 2004, an
increase of $263,234, or approximately 102%. The increase in total revenue was
primarily due to an increase in sales to unrelated parties. Our revenue can
fluctuate significantly from period to period because our sales, to date, have
been based upon a relatively small number of systems, the sales price of each
being substantial enough to greatly impact revenue levels in the periods in
which they occur. Sales of a few systems can cause a large change in our revenue
from period to period.
Related Party Revenue. We earned $11,286, or approximately 2%, of our
revenue in the three months ended November 30, 2005 from sales to related
parties as compared to $7,154 or 3%, in the three months ended November 30,
2004. All of the related party revenue in the 2005 period was from sales of
component parts to Medizin-Technik. Sales to Medizin-Technik may fluctuate
significantly from period to period because our sales, to date, have been based
upon a relatively small number of systems, the sales price of each being
substantial enough to greatly impact revenue levels in the periods in which they
occur. Sales of a few systems can cause a large change in the revenue from
period to period.
Non-related Party Revenue. In the three months ended November 30, 2005,
we earned $509,881or 98%, of our revenue from sales to unrelated parties, as
compared to approximately $250,779, or 97%, for the three months ended November
30, 2004. These revenues consisted of product sales of $445,825, consulting
services of $4,645, service contracts of $5,594, probes of $17,923 and other
miscellaneous revenue of $35,894.
Gross Profit. Gross profit for the three months ended November 30, 2005
was $163,667 or 31.4% as compared to $(12,438), or (5)%, of total product sales
for the three months ended November 30, 2004. Because we have not had employee
layoffs due to the specialized nature of our employees and because of the fixed
costs associated with production, as our sales declined in the fiscal 2005
period, it resulted in an increase in our costs for inventory and a decline in
gross profit percentage. As sales volumes increased, our employees were more
utilized, thus increasing our gross profit percentage for the three months ended
November 30, 2005.
Selling General and Administrative Expenses. Selling, general and
administrative expenses increased to $1,054,114 in the three months ended
November 30, 2005, from $380,500 for the three months ended November 30, 2004,
an increase of $673,614 or 177%. This increase was primarily due to an increase
in sales and marketing costs of $413,853 supporting new product sales. We also
incurred higher consulting costs related to preparation of FDA submissions,
higher legal and accounting costs and an increase in compensation expense
related the issuance of stock options. Payroll costs also increased as a result
of wage and salary raises, the addition of new employees and fewer BSD employees
working as consultants for TherMatrx.
9
Research and Development Expenses. Research and development expenses
were $230,165 for the three months ended November 30, 2005, as compared to
$182,513 for the three months ended November 30, 2004, an increase of $47,652,
or 26%, primarily due to an increase in payroll and consulting costs. Research
and development expenses for the period ended November 30, 2005 related
primarily to new product developments and the conversion of systems software to
foreign languages for international use.
Interest income. Interest income increased to $244,623 for the three
months ended November 30, 2005 as compared to $70,592 for the three months ended
November 30, 2004 due to the significantly higher levels of cash and
available-for-sale securities resulting from the sale of our investment in
TherMatrx.
Net income (loss). The increase in net income for the three months
ended November 30, 2005 was $3,136,242 after an income tax expense of
$1,870,693, as compared with a net loss of $504,336 for the three months ended
November 30, 2004. The increase in the net income was primarily due to a payment
of $5,882,925 received during the period ended November 30, 2005 from the sale
of our investment in TherMatrx and the increase in interest income.
Liquidity and Capital Resources
-------------------------------
Our accumulated deficit since inception decreased from $8,751,454 as of
August 31, 2005 to $5,615,212 as of November 30, 2005, due to net income
recorded during the first three months of fiscal 2006. We have historically
financed our operations through cash from operations, licensing of technological
assets, issuance of common stock and through the sale of our investment in
TherMatrx. We have received additional payments and expect to receive additional
payments-- as a result of the sale of our TherMatrx shares. These payments were
contingent on the product sales that TherMatrx achieved through December 31,
2005. We believe these payments and the payments yet to be received will
contribute significantly to our future capital resources.
During the three months ended November 30, 2005, we used $876,401 in
operating activities. The cash used in operating activities was mainly the
result of net income of $3,136,242, adjusted by an increase in income taxes
payable of $1,770,602, an increase in accrued expenses of $105,296, an increase
in accounts receivable of $121,441, and an increase in inventory of $156,866.
Our investing activities for the three months ended November 30, 2005 generated
net cash of $50,656, relating mainly to the proceeds received from the sale of
our investment in TherMatrx, offset by the purchase of certain property and
equipment of $133,435. Total cash decreased from $908,674 at August 31, 2005 to
$158,235 at November 30, 2005, primarily as a result of cash used in operations
and an increase in investments.
We expect to use the payments from the sale of our TherMatrx shares,
including any contingent payments, for general corporate purposes, including the
sales and marketing effort for our FDA approved cancer therapy products,
supporting the FDA application for our cancer therapy products under
investigational status, the development of new products used in medical therapy
and the possibility of acquiring new companies or technology.
We expect to incur additional expenses related to the commercial
introduction of our systems, due to additional participation at trade shows,
expenditures on publicity, additional travel, increased sales salaries and
commissions and other related expenses. In addition, we anticipate that we will
incur increased expenses related to seeking governmental and regulatory
approvals for our products, during fiscal 2006 in excess of fiscal 2005.
We believe our current cash, investments and cash received from the
sale of our TherMatrx shares will be sufficient to finance our operations
through fiscal 2006.
10
FORWARD-LOOKING STATEMENTS
With the exception of historical facts, the statements contained in
sections entitled "Management's Discussion and Analysis of Financial Condition
and Results of Operations" are forward-looking statements within the meaning of
the Private Securities Litigation Reform Act of 1995, which reflect our current
expectations and beliefs regarding our future results of operations, performance
and achievements. These statements are subject to risks and uncertainties and
are based upon assumptions and beliefs that may or may not materialize. These
forward-looking statements include, but are not limited to, statements
concerning:
o our anticipated financial performance and business plan;
o our expectations regarding the commercial introduction of our
systems;
o our expectations and efforts regarding receipt of FDA approvals
relating to the BSD-2000 system;
o our technological developments for the BSD-500 and BSD-2000
systems;
o our ability to successfully develop our technology for new
applications and the expense of such developments;
o our development or acquisition of new technologies;
o our estimation of our portion of the total payout from this sale
of TherMatrx;
o the amount of expenses we will incur for the commercial
introduction of our systems;
o the amount of expenses we will incur for governmental and
regulatory, including FDA, approvals;
o our expectation that related party revenue will continue to be a
significant portion of our total revenue;
o our belief that sales of BSD-500 and BSD-2000 systems will
increase through our future sales and marketing efforts;
o our assumption that we will receive contingent payments, and the
amount of such payments, in connection with the sale of our
ownership in TherMatrx to AMS; and
o our anticipated use of proceeds from the sale of our investment in
TherMatrx to AMS.
We wish to caution readers that the forward-looking statements and our
operating results are subject to various risks and uncertainties that could
cause our actual results and outcomes to differ materially from those discussed
or anticipated, including the factors set forth in the section entitled "Risk
Factors" included in our Annual Report on Form 10-KSB for the year ended August
31, 2005 and our other filings with the Securities and Exchange Commission. We
also wish to advise readers not to place any undue reliance on the
forward-looking statements contained in this report, which reflect our beliefs
and expectations only as of the date of this report. We assume no obligation to
update or revise these forward-looking statements to reflect new events or
circumstances or any changes in our beliefs or expectations, other than as
required by law.
Item 3. Controls and Procedures
a. Evaluation of disclosure controls and procedures.
Under the supervision and with the participation of our management,
including our principal executive officer and principal financial
officer, we evaluated the effectiveness of the design and operation of
our disclosure controls and procedures (as defined in Rule 13a-15(e) or
15d-15(e) under the Securities Exchange Act of 1934 (the "Exchange
Act")). Based upon that evaluation, the principal executive officer and
principal financial officer concluded that, as of the end of the period
covered by this report, our disclosure controls and procedures were not
effective and adequately designed to ensure that information required
to be disclosed by us in the reports we file or submit under the
Exchange Act is recorded, processed, summarized and reported within the
time periods specified in applicable rules and forms. In connection
with the completion of its review of our financial statements for the
fiscal quarter ended November 30, 2005, Tanner LC identified
deficiencies that existed in the design or operation of our internal
control over financial reporting. The deficiencies related to the
preparation and appropriate presentation of the statement of cash
flows, the provision for income taxes and related income tax footnote
disclosures, and the appropriate accounting for stock options issued
for services. These deficiencies were detected in the review process
and have been appropriately recorded and disclosed in this Form 10-QSB.
We are in the process of improving our internal control over financial
reporting and accounting for stock-based compensation and income taxes
and related disclosures in an effort to remediate these deficiencies
through improved supervision and training of our accounting staff.
These deficiencies have been disclosed to our audit committee and to
our auditors. Additional effort is needed to fully remedy these
deficiencies and we are continuing our efforts to improve and
strengthen our control processes and procedures. Our management, audit
committee, and directors will continue to work with our auditors and
other outside advisors to ensure that our controls and procedures are
adequate and effective.
b. Changes in internal controls.
During the fiscal quarter covered by this report, there has been no
change in our internal control over financial reporting (as defined in
Rule 13a-15(f) or 15d-15(f) under the Exchange Act) that has materially
affected, or is reasonably likely to materially affect, our internal
control over financial reporting.
12
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
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. Exhibits
The following exhibits are filed as part of this report:
Exhibit No. Description of Exhibit
----------- ----------------------
31.1 Certification Required Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
31.2 Certification Required Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
32.1 Certification Required Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
32.2 Certification Required Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
13
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
BSD Medical Corporation, the registrant, has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
BSD MEDICAL CORPORATION
Date: January 17, 2006 /s/ Hyrum A. Mead
-----------------
President (principal executive officer)
Date: January 17, 2006 /s/ Dennis E. Bradley
---------------------
Controller (principal financial officer)
14