9
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, 2005
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, 2005, 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 2005 2004
----------- -----------
Current assets
Cash $ 3,747 $ -
Other Assets
Investment - -
----------- ----------
TOTAL ASSETS $ 3,747 $ -
=========== ==========
LIABILITIES and STOCKHOLDERS' EQUITY (DEFICIENCY)
Current liabilities
Accounts payable $ 5,000 $ 5,000
Accrued interest on demand notes 75,096 -
Demand notes payable to majority shareholder 1,987,936 1,954,936
----------- -----------
Total current liabilities 2,068,032 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, 2005 and
Sep. 30, 2004 229,801 229,801
Additional paid-in capital 43,061,189 41,509,499
Warrants 2,275,788 3,827,478
Deficit accumulated during the development stage(47,631,063) (47,526,714)
----------- -----------
(2,064,285) (1,959,936)
----------- -----------
TOTAL LIABILITIES AND
STOCKHOLDERS'EQUITY (DEFICIENCY) $ 3,747 $ -
=========== ===========
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
2005 2004 2005 2004 March 31, 2005
--------- --------- ---------- ----------- ----------------
Research and development expenses $ - $ - $ - $ - $ 10,556,405
General and administrative expenses 29,253 - 22,835 - 16,906,012
Warrant extensions - - - - 17,890,676
Technology and patent rights acquired - - - - 2,650,000
Interest expense 75,096 - 34,749 - 86,821
Loss on unconsolidated subsidiaries - - - - 575,412
Impairment Loss - - - - 690,124
Amortization of Goodwill - - - - 535,057
Other income - - - - (1,042,997)
Other expense - - - - 37,405
Gain from sale of MicroIslet Stock - - - - (1,283,852)
---------- --------- ----------- -------------- ---------------
Net Loss $(104,349) $ - $ (57,584) $ - $(47,601,063)
========== ========= =========== ============= ===============
Net Loss per common share $ (0.00) $ - $ (0.00) $ - $ (2.27)
========== ========= =========== ============= ===============
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
2005 2004 2005 2004 March 31, 2005
------------------------- ---------------------------- ------------------
Cash flows from operating activities:
Net loss $(104,349) $ - $(57,584) $ - $ (47,601,063)
Adjustments to reconcile net loss to net
cash used by operating activities:
Depreciation - - - - 90,047
Amortization - - - - 535,057
Impairment loss - - - - 704,491
Gain on sale of MicroIslet stock - - - - (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 in accrued interest 75,096 - 34,749 - 75,096
Increase in accounts payable - - - - 5,000
---------- --------- --------- ----------- ----------------
Net cash used in operating activities (29,253) - (22,835) - (29,276,271)
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 - - - - 2,070,726
Increasein notes rec-related parties - - - - (125,000)
Increasein interest rec-related parties - - - - (13,538)
---------- --------- --------- ----------- ----------------
Net cash used in investing activities - - - - (759,693)
Cash flows from financing activities:
Proceeds from notes payable 33,000 - 26,000 - 33,000
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 - - - - (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 financing activities 33,000 - 26,000 - 30,039,711
---------- --------- --------- ----------- ----------------
Net increase in cash and cash equiv. 3,747 - 3,165 - 3,747
Cash and cash equivalents at beg of period - - 582 - -
---------- --------- --------- ----------- ----------------
Cash and cash equivalents at end
of period $ 3,747 $ - $ 3,747 $ - $ 3,747
========== ========= ========= =========== ===============
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 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, 2004.
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 infrared 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 - Income (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,
2005 and March 31, 2004, 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, 2005, 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 20,961,798 for the period from July
5, 1989 (inception) to March 31, 2005
NOTE D - Operations
In April 2005, Diasense resumed development of the Sensor
but 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.
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, 2005
and has a significant accumulated deficit as of March 31,
2005, raising substantial doubt about its ability to
continue as a going concern. Since 1997, Diasense had 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 - Note Payble to Majority Shareholder
In connection with the purchase of the 52% ownership of
Diasense by Dominion Assets, LLC. from BICO, an intercompany
payable of $1,954,936 from Diasense to BICO was assigned to
Dominion Assets, LLC. (Dominion). 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. During the six months ended
March 31, 2005, Dominion loaned Diasense an additional
$33,000 to provide funding for general and administrative
expenses. This amount is also payable on demand with
interest accrued at a rate of 8%.
DIASENSE, INC.
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,
2005 of $33,000 came from advances on a demand loan from our
majority shareholder, Dominion Assets, LLC (Dominion). We do
not know if Dominion will continue to be willing or able to
continue financing our operations.
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. As a result, we had to stop all our activity.
However in April 2005 we resumed development of the Sensor but
we have not as yet achieved a commercially marketable product.
If we are not able to obtain additional financing from
Dominion or other outside sources,we will not be able to continue
operations.
Results of Operations
We did not have any operations during the three and six
month period ended March 31, 2005.
General and administrative expenses totaled $22,835 and
$29,253 during the three and six month period ended March
31, 2005. The increase resulted primarily from efforts to
bring our financial reporting current and to restore certain
patent rights.
Interest expense of $34,749 and $75,096 was recognized
in the three and six month periods ended March 31, 2005 as a
result of the accrual of interest on our demand note
obligations to our majority shareholder (Dominion Assets,
LLC.) We had no interest bearing obligations for the
corresponding periods in our prior fiscal year.
Subsequent Event
In May 2005 we sold our entire interest in Diabecore
Medical Inc. (Diabecore) back to Diabecore for a total
purchase price of $73,500 (Canadian). We received 75% of the
sale price ($42,999 US) in May 2005.
DIASENSE, INC.
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 13th day of May 2005.
DIASENSE, INC.
By /s/ Anthony Paterra
Anthony Paterra
Chief Executive Officer and
Director (principal
executive officer, principal
financial officer and
principal accounting
officer)