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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 June 30, 2003
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 June 30, 2003, 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)
June 30, September 30,
ASSETS 2003 2002
----------- -----------
Current assets - Prepaid expenses $ - $ 868
----------- -----------
Property and equipment - at cost
Furniture and fixtures - 42,750
------------ -----------
- 42,750
Less accumulated depreciation - 42,709
------------ -----------
- 41
------------ -----------
Other Assets
Investment in unconsolidated subsidiaries - 160,461
Security Deposit - 238
----------- ----------
- 160,699
----------- ----------
TOTAL ASSETS $ - $ 161,608
=========== ==========
LIABILITIES and STOCKHOLDERS' EQUITY (DEFICIENCY)
Current liabilities
Accounts payable $ 5,000 $ 43,099
Accrued payroll and withholdings - 167,942
----------- -----------
Total current liabilities 5,000 211,041
Due to BICO 1,954,936 2,630,184
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 June 30, 2003 and
Sep. 30, 2002 229,801 229,801
Additional paid-in capital 32,144,821 30,018,353
Warrants 13,192,156 15,318,624
Deficit accumulated during the development stage(47,526,714) (48,246,395)
----------- -----------
(1,959,936) (2,679,617)
----------- -----------
TOTAL LIABILITIES AND
STOCKHOLDERS'EQUITY (DEFICIENCY) $ - $ 161,608
=========== ===========
The accompanying notes are an integral part of this statement.
3
Diasense, Inc.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF OPERATIONS
For the nine months ended For the three months ended From July 5, 1989
June 30, June 30, (inception) thru
2003 2002 2003 2002 June 30, 2003
--------- --------- ---------- ----------- ----------------
Research and development expenses $ - $ - $ - $ - $ 10,556,405
General and administrative expenses 96,173 304,481 - 35,036 16,876,759
Warrant extensions - - - - 17,890,676
Technology and patent rights acquired - - - - 2,650,000
Interest expense - - - - 11,725
Loss on unconsolidated subsidiaries - 214,054 - 1,285 575,412
Impairment Loss - - - - 690,124
Amortization of Goodwill - - - - 535,057
Other income (284,974) (46,575) - (15,525) (1,042,997)
Other expense - - - - 37,405
Gain from sale of MicroIslet Stock (530,880) - - - (1,283,852)
---------- --------- ----------- -------------- ---------------
Net income (loss) $ 719,682 $ (471,960) $ - $ (20,796) $(47,496,714)
========== ========= =========== ============= ===============
Net income (loss) per common share $ 0.03 $ (0.02) $ - $ (0.00) $ (2.31)
========== ========= =========== ============= ===============
The accompanying notes are an integral part of this statement.
4
Diasense, Inc.
(A Development Stage Company)
CONSOLIDATED STATEMENT OF CASH FLOWS
For the nine months ended For the three months ended From July 5, 1989
June 30, June 30, June 30, June 30, (inception) thru
2003 2002 2003 2002 June 30, 2003
------------------------- ---------------------------- ------------------
Cash flows from operating activities:
Net income (loss) $ 719,681 $ (471,960) $ - $ (20,796) $ (47,496,714)
Adjustments to reconcile net loss to net
cash used by operating activities:
Depreciation 41 2,497 - 81 90,047
Amortization - - - - 535,057
Impairment loss - - - - 704,491
Gain on sale of MicroIslet stock (530,880) - - - (1,283,852)
Loss on unconsolidated subsidiaries - 214,054 - 1,285 575,412
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 (3,957) - 4,342 -
Decrease (increase) in rec. due from
BICO subsidiaries - - - - -
Increase (decrease)in accounts payable (38,099) 28,431 - - 5,000
Increase (decrease) in accrued payroll
and withholdings (167,942) 122,171 - (11,164) -
Increase in other assets 239 - - - -
---------- --------- --------- ----------- ----------------
Net cash provided for (used in)
operating activities (16,092) (108,764) - (26,252) (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 - 108,764 - 26,252 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) 108,764 - 26,252 30,006,711
---------- --------- --------- ----------- ----------------
Net decrease in cash and cash equiv. - - - - -
Cash and cash equivalents at beg of period - - - - -
---------- --------- ------------ ----------- ---------------
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
Article 10-01 of 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,
2002.
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 Income (Loss) Per Common Share
Net income (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 June 30,
2003 and June 30, 2002, 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, 2003, 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 20,554,352 for the period from July
5, 1989 (inception) to June 30, 2003.
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 nine months ended June
30, 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 June 30, 2003
and has a significant accumulated deficit as of June 30,
2003, 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.
Effective January 1, 2002, Fred E. Cooper, former CEO and
Anthony J. Feola, Diasense's former Chief Operating Officer,
agreed to waive any rights to compensation through December
31, 2002. In July 2002, both Mssrs. Cooper and Feola
resigned as both officers and directors of BICO and all of
BICO's affiliates including Diasense.
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 - Lease
In December 1998 Diasense sold its building and leased it
back under an agreement which required monthly rent of
$5,750 for five years beginning on January 1, 1999.
Minimum rental payments under this lease are $69,000 for
each of the fiscal years ending on September 30, 2002 and
2003 and $17,250 for the final three months of the lease
concluding December 31, 2003. Diasense paid a security
deposit of $17,250 upon entering into this lease
agreement. At June 30, 2003 the security deposit had been
used to partially offset the amount due on this lease.
Subsequent to June 30, 2003 Diasense and the landlord
agreed to settle all obligations under this lease for a
total payment of $5,000.
NOTE G - Other Income
Other income for the nine months ended June 30, 2003
includes $269,449 in forgiveness of debt and $15,525 of
rental income from BICO for office space.
NOTE H - 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 BI"CO 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 nine months ended June 30,
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.
During the nine months ended June 30, 2002, funds were
transferred to Diasense from BICO to provide working
capital. Theses funds were used in operating activities.
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
General and administrative expenses totaled $96,172
during the nine months ended June 30, 2003 as compared to
$304,481 during the six months ended June 30, 2002. The
decrease resulted primarily from the cessation of our
operations due to cash shortages.
In the three months ended December 31, 2002, 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 June 30, 2003
includes $269,449 in forgiveness of debt and $15,225 of
rental income. Other income for the three and six months
ended June 30, 2002 consists of $15,525 and $46,575 of
rental income respectively. The rental income for all
periods was from BICO and its subsidiaries for office space.
We had losses from our unconsolidated subsidiaries,
Diabecore Medical and MicroIslet, during the three and nine
month periods ended March 31, 2002.
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
Chief Executive Officer
and Director (principal
executive officer,
principal financial
officer and principal
accounting officer)