Call me skeptical. Call me foolish -- with a small f. Some of my detractors have some stronger names to call me. But I turn a jaded eye toward companies that are press release-generating machines, even when they seem to inch toward improvement.
Such is the case with BSD Medical
That hasn't stopped BSD Medical from touting every move it makes, from trotting out old press releases as something new to updating the number of page hits on its patient website. When I last discussed the company's outrageous valuation back in April, there already were 14 releases in 2007. It has put out an additional 13 since. What it doesn't do is put out a press release announcing its earnings -- ever.
There's probably a good reason for that. Despite what could be described as marginal improvement, the company is still losing money from its operations and relies on some suspect sources of revenue. The numbers still don't seem to add up.
BSD Medical recently reported that its sales were up almost 34% in the latest quarter to $953,000. Remarkably, sales to unrelated parties grew 64% to $432,000. That's big news because related-party transactions accounted for more than half of BSD Medical's revenue last quarter. A German company owned by one of its directors, Gerhard Sennewald, was just about the only one that had been buying its products, and on much better terms than those given to unrelated customers. Gross margins on sales to the director were 46.3%, compared with 54.6% gross margins on products sold to unrelated customers. Still, he accounts for more than half of revenue.
Yet that hasn't moved him to pay his bills any faster. In fact, accounts receivable for the director -- who is also a controlling shareholder of BSD Medical, with a 32% stake in the company -- jumped 66% in the quarter, compared with an increase of 24% for unrelated customer receivables.
Profits remain elusive, with the company reporting a net loss of $630,000. As fellow Fool Rich Smith has noted, BSD Medical hasn't made an operating profit in more than a decade.
Hyperthermia may in fact be a cancer treatment of the future. There are a number of studies that suggest it's effective, though survival rates do not show marked improvement, if any. Yet with operations that are still bleeding cash, and a reliance on related customers who get sweet deals but don't pay up too quickly, it looks like BSD Medical's investors could get frustrated quickly.
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