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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 March 31, 2004
Commission file number 33-56574
DIASENSE, INC.
(Exact name of registrant as specified in its charter)
Pennsylvania 25-1605848
(State or 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) 279-1059
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 No X
As of March 31, 2004, 22,980,051 shares of Diasense,
Inc. common stock, par value $.01 were outstanding.
2
DIASENSE,INC.
(A Development Stage Company)
Consolidated Balance Sheets
(Unaudited)
March 31, September 30,
ASSETS 2004 2003
----------- -----------
Current assets $ - $ -
Other Assets
Investment - -
----------- ----------
TOTAL ASSETS $ - $ -
=========== ==========
LIABILITIES and STOCKHOLDERS' EQUITY (DEFICIENCY)
Current liabilities
Accounts payable $ 5,000 $ 5,000
Due to BICO 1,954,936 1,954,936
----------- -----------
Total current liabilities 1,959,936 1,959,936
Commitment and Contingencies
Stockholders' equity (deficiency)
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 March 31, 2004 and
Sep. 30, 2003 229,801 229,801
Additional paid-in capital 37,418,637 33,327,775
Warrants 7,918,340 12,009,202
Deficit accumulated during the development stage(47,526,714) (47,526,714)
----------- -----------
(1,959,936) (1,959,936)
----------- -----------
TOTAL LIABILITIES AND
STOCKHOLDERS'EQUITY (DEFICIENCY) $ - $ -
=========== ===========
The accompanying notes are an integral part of this statement.
3
Diasense, Inc.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF OPERATIONS
For the six months ended For the three months ended From July 5, 1989
March 31, March 31, (inception) thru
2004 2003 2004 2003 March 31, 2004
--------- --------- ---------- ----------- ----------------
Research and development expenses $ - $ - $ - $ - $ 10,556,405
General and administrative expenses - 96,173 - 2,147 16,876,759
Warrant extensions - - - - 17,890,676
Technology and patent rights acquired - - - - 2,650,000
Interest expense - - - - 11,725
Loss on unconsolidated subsidiaries - - - - 575,412
Impairment Loss - - - - 690,124
Amortization of Goodwill - - - - 535,057
Other income - (284,974) - (269,449) (1,042,997)
Other expense - - - - 37,405
Gain from sale of MicroIslet Stock - (530,880) - - (1,283,852)
---------- --------- ----------- -------------- ---------------
Net income (loss) $ - $ 719,682 $ - $ 267,302 $(47,496,714)
========== ========= =========== ============= ===============
Net income (loss) per common share $ - $ 0.03 $ - $ .01 $ (2.29)
========== ========= =========== ============= ===============
The accompanying notes are an integral part of this statement.
4
Diasense, Inc.
(A Development Stage Company)
CONSOLIDATED STATEMENT OF CASH FLOWS
For the six months ended For the three months ended From July 5, 1989
March 31, March 31, March 31, March 31, (inception) thru
2004 2003 2004 2003 March 31, 2004
------------------------- ---------------------------- ------------------
Cash flows from operating activities:
Net income (loss) $ - $ 719,681 $ - $ 267,302 $ (47,496,714)
Adjustments to reconcile net loss to net
cash used by operating activities:
Depreciation - 41 - - 90,047
Amortization - - - - 535,057
Impairment loss - - - -
704,491
Gain on sale of MicroIslet stock - (530,880) - - (1,283,852)
Loss on unconsolidated subsidiaries - - - - 575,412
Stock issued in exchange for services - - - - 138,950
Stk issued for License & Marketing Agreement - - - - 80,000
Warrants issued for services - - - - 513,915
Warrant extensions - - - - 17,890,676
Inventory deposit - BICO - - - - (1,000,000)
(Increase) decrease in prepaid expenses - 868 - 1,260 -
Decrease (increase) in rec. due from
BICO subsidiaries - - - - -
Increase (decrease)in accounts payable - (38,099) - (101,507) 5,000
Increase (decrease) in accrued payroll
and withholdings - (167,942) - (167,942) -
Increase in other assets - 239 - - -
---------- --------- --------- ----------- ----------------
Net cash provided for (used in)
operating activities - (16,092) - (887) (29,247,018)
Cash flows from investing activities:
Disposal of property and equipment - - - - 175,000
Purchase of property and equipment - - - - (279,413)
Investment - MicroIslet - - - - (1,600,000)
Investment - Diabecore - - - - (987,468)
Proceeds from sale of MicroIslet stock - 691,340 - - 2,070,726
Increasein notes rec-related parties - - - - (125,000)
Increasein interest rec-related parties - - - - (13,538)
---------- --------- --------- ----------- ----------------
Net cash used in investing activities - 691,340 - - (759,693)
Cash flows from financing activities:
Advances to BICO - - - - (7,498,369)
Repayment of advances to BICO - - - - 9,203,493
Advances from BICO, net - - - - 14,496,167
Repayment of advances from BICO - (675,248) - - (2,041,231)
Proceeds from issuance of common stock - - - - 10,971,834
Proceeds from issuance of common stk to BICO - - - - 4,200,000
Proceeds from warrants exercised - - - - 118,066
Purchase from treasury stock - - - - (35,000)
Proceeds from Regulation S - - - - 288,751
Proceeds from issuance of notes payable - - - - 303,000
---------- --------- --------- ----------- ----------------
Net cash provided by (used in)financing
activities - (675,248) - - 30,006,711
---------- --------- --------- ----------- ----------------
Net decrease in cash and cash equiv. - - - (887) -
Cash and cash equivalents at beg of period - - - 887 -
---------- --------- --------- ----------- ----------------
Cash and cash equivalents at end
of period $ - $ - $ - $ - $ -
========== ========= ========= =========== ===============
The accompanying notes are an integral part of this statement.
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 10-01 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,
2003.
NOTE B - Organization
The Company was incorporated on July 5, 1989 as a
wholly-owned subsidiary of BICO, Inc. (parent). BICO owned
approximately 52% of the stock of the Company until July 23,
2004 when BICO sold its entire ownership interest to
Dominion Assets, LLC. The Company s activities have been
focused on developing a noninvasive glucose sensor (Sensor).
The sensor would use electromagnetic technology to measure
glucose levels in blood without requiring the user to take a
blood sample. However, all of these activities were
curtailed when BICO ceased operations and filed for Chapter
11 bankruptcy in March 2003.
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 22,980,051 and 22,980,051 for the periods ended March 31,
2004 and March 31, 2003, respectively. The loss per share
does not include common stock equivalents since the effect
would be anti-dilutive.
From July 5, 1989 (inception) to March 31, 2004, 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 20,740,877 for the period from July
5, 1989 (inception) to March 31, 2004.
NOTE D - Operations
Diasense has discontinued development of the Sensor and has
not, as yet, achieved a commercially marketable product. The
ability of Diasense to continue in existence is dependent on
its having sufficient financial resources to restore and
maintain operations, to complete the research and
development necessary to successfully bring the Sensor to
market, and for marketplace acceptance. Diasense has no
other commercial products and is dependent on the successful
development of the Sensor technology. Diasense has had no
sales of its common stock over the last five fiscal years.
Until BICO s bankruptcy in March 2003, Diasense s operations
were funded by advances from BICO. The proceeds from the
sale of MicroIslet stock, during the six months ended March
31, 2003, were used to reduce the amount payable to BICO.
Diasense is in the development stage, and accordingly, it
has presented cumulative information on results of
operations, cash flows, and changes in stockholders equity
since inception.
Diasense has incurred significant losses and negative cash
flows from operations from inception through March 31, 2004
and has a significant accumulated deficit as of March 31,
2004, raising substantial doubt about its ability to
continue as a going concern. Since 1997, Diasense has been
financially dependent upon BICO and therefore BICO s ability
to raise money through its stock sales to support its
operations. With the curtailment of funding from BICO due to
BICO s bankruptcy in March 2003, Diasense will be required
to find other funding in order to continue as a going
concern. The Company plans to liquidate assets to the extent
necessary to continue operations.
NOTE E - Investments
In December 2002, Diasense sold its remaining 706,679 shares
of MicroIslet common stock for $691,340. Again of $530,879
was recognized as a result of this sale. $561,340 of the
proceeds from the sale was used to reduce the amount owed by
Diasense to BICO.
NOTE F - Other Income
Other income for the six months ended March 31, 2003
includes $269,449 in forgiveness of debt and $15,525 of
rental income from BICO for office space.
NOTE G - Subsequent Events
On July 23, 2004, BICO sold its entire ownership interest
(approximately 52%) to Dominion Assets, LLC.
In connection with this transaction, the intercompany
payable from Diasense to BICO was assigned to Dominion
Assets, LLC. This liability was documented by a note payable
on demand without interest.
After demand for payment was made by Dominion Assets, LLC
the demand note was amended effective September 28, 2004.
Under the terms of the amended demand note Diasense now owes
a principle amount of $1,954,936 with interest calculated at
a rate of 8% per annum. The indebtedness is collateralized
by all of Diasense s assets. Dominion Assets, LLC agreed to
the amendment.
On September 29, 2004, Diasense entered into a non-
circumvention and consulting fee agreement with Keith R.
Keeling, President of Dominion Assets, LLC (Diasense s
majority shareholder). Under the terms of the agreement Mr.
Keeling will assist in the sale of Diasense assets and will
receive upon funding of any such sale a fee equal to 5% of
the sale proceeds. Diasense agreed to work exclusively
through Mr. Keeling in connection with its sales of assets.
Management's Discussion and Analysis of Financial Condition
and Cash Flows
Liquidity and Capital Resources
Our entire funding for the six months ended March 31,
2003 of $691,340 came from the sale of our remaining shares
of MicroIslet stock in the three months ended December 31,
2003. We used $675,248 to repay advances previously received
from BICO. The remaining cash was used to pay accounts
payable.
Because we still don t have any revenue sources, we
will have to find additional financing that we ll use to
finance development of, and proceed to manufacture, our
noninvasive glucose sensor. In prior years, we were
dependent upon BICO to support all our sensor-related
activity, but BICO discontinued our funding in 2002, filed
bankruptcy in March 2003 and sold its interest in our
Company in May 2004. We ve had to stop all our activity, and
we won t be able to re-start it unless we can raise our own
money. If we are not able to obtain additional financing of
approximately $100,000 we will not be able to resume
operations.
Results of Operations
We did not have any operations during the six months
ended March 31, 2004.
General and administrative expenses totaled $96,172
during the six months ended March 31, 2003. The decrease
resulted primarily from the cessation of our operations due
to cash shortages.
In the three months ended March 31, 2003, we recognized
a gain of $530,880 when we sold our remaining MicroIslet
stock. Those funds were used primarily to offset the amounts
we owe BICO.
Other income for the six months ended March 31, 2003
includes $269,449 in forgiveness of debt and $15,225 of
rental income from BICO.
Other Significant Events
In connection with the purchase of the 52% ownership of
Diasense on July 23, 2004 by Dominion Assets, LLC from BICO.
The intercompany payable from Diasense to BICO was assigned
to Dominion Assets, LLC. This liability was documented by a
note payable on demand without interest.
After demand for payment was made by Dominion Assets,
LLC. The demand note was amended effective September 28,
2004. Under the terms of the amended demand note, Diasense
now owes a principle amount of $1,954,936 with interest
calculated at a rate of 8% per annum. The indebtedness is
collateralized by all of Diasense s assets. Dominion Assets,
LLC agreed not to demand payment for a period of 180 days
following the effective date of the amendment.
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.
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 7th day of January 2005.
DIASENSE, INC.
By /s/ Anthony Paterra
Anthony Paterra
CEO and Director
(principal
executive officer,
principal financial
officer and principal
accounting officer)