Marked To Show Changes
As filed with the Securities and Exchange Commission on July 15, 1997
Registration No. 0-21441
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
AMENDMENT NO. 1
to
FORM 10-SB / A
GENERAL FORM FOR REGISTRANTS OF SECURITIES OF SMALL
BUSINESS ISSUERS
Under Section 12(b) or (g) of the Securities Exchange Act of 1934
MEDISYS TECHNOLOGIES, INC.
(Name of Small Business Issuer in its charter)
Utah 72-1216734
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
9624 Brookline Avenue, Baton Rouge, Louisiana 70809
(Address of principal executive officers) (Zip Code)
Issuer s telephone number: (504) 926-0422
Securities to be registered under Section 12(b) of the Act:
Title of each class Name of each exchange on which
to be so registered each class is to be registered
N/A N/A
Securities to be registered under Section 12(g) of the Act:
Common Stock, par value $.0005 per share
(Title of Class)
<PAGE>
MEDISYS TECHNOLOGIES, INC.
FORM 10-SB
TABLE OF CONTENTS
PAGE
PART I
ITEM 1. Description of Business. . . . . . . . . . . . 3
ITEM 2. Management s Discussion and Analysis or
Plan of Operation. . . . . . . . . . . . . . 19
ITEM 3. Description of Property. . . . . . . . . . . . 22
ITEM 4. Security Ownership of Certain Beneficial
Owners and Management. . . . . . . . . . . . 23
ITEM 5. Directors, Executive Officers, Promoters
and Control Persons. . . . . . . . . . . . . 25
ITEM 6. Executive Compensation . . . . . . . . . . . . 28
ITEM 7. Certain Relationships and Related Transactions 30
ITEM 8. Description of Securities. . . . . . . . . . . 30
PART II
ITEM 1. Market Price of and Dividends on Registrant s
Common Equity and Other Shareholder Matters. 31
ITEM 2. Legal Proceedings. . . . . . . . . . . . . . . 32
ITEM 3. Changes in and Disagreements with Accountants. 32
ITEM 4. Recent Sales of Unregistered Securities. . . . 32
ITEM 5. Indemnification of Directors and Officers. . . 33
PART F/S
Financial Statements . . . . . . . . . . . . . 34
PART III
ITEM 1. Index to Exhibits. . . . . . . . . . . . . . . 70
ITEM 2. Description of Exhibits. . . . . . . . . . . . 70
Signatures . . . . . . . . . . . . . . . . . . 71
<PAGE>
PART I
ITEM 1. Description of Business
Medisys Technologies, Inc. ("Medisys" or the "Company") is a
development stage company with a focus on the delivery of
innovative, cost-effective products to the women s healthcare and
medical safety device markets. The Company is primarily addressing
the obstetrical market by developing a range of proprietary
products aimed at enhancing safety and reducing the cost associated
with the birthing process.
The Company was incorporated on March 17, 1983 under the laws
of the State of Utah as Whitewater Products, Ltd. and initially
engaged in the business of manufacturing and marketing sporting
goods, primarily sailboards. The Company subsequently ceased its
original business activity in 1985 and thereafter primarily
investigated and sought new business opportunities and was
reclassified as a development stage Company as of March 1, 1989.
On August 6, 1992, the Company acquired Medisys Technologies,
Inc., a Louisiana corporation ("Medisys-Louisiana"), engaged in the
business of developing a device for the assistance of childbirth
under a patent which was applied for in May 1990 and granted on
June 15, 1992. Pursuant to the terms of the
acquisition, the Company acquired all the issued and outstanding
shares of common stock of Medisys-Louisiana in exchange solely for
9,250,000 shares of the Company's authorized but previously
outstanding common stock, issued to the shareholders of Medisys-
Louisiana and their designees. Medisys-Louisiana became a wholly
owned subsidiary of the Company and the Company changed its
corporate name to Medisys Technologies, Inc. on August 6, 1992.
Prior to the acquisition, there was no affiliation between the
Company and Medisys-Louisiana, nor between the officers, directors
or principal shareholders of the two respective entities.
Immediately prior to the acquisition, the directors of the Company
were, H. DeWorth Williams (also President) and Janis Patterson
(also Secretary) and its principal shareholders (more than 10%)
were John and Nicki Price and Manatee Investments. For accounting
purposes, the transaction has been treated as a recapitalization of
the Company, or reverse acquisition, with Medisys-Louisiana deemed
the acquiror. Subsequent to the acquisition, all of the
Company s activities have been related to the development of
medical devices for use primarily in the women s healthcare and
medical safety device markets. For accounting purposes the
acquisition was treated as a recapitalization of Medisys-Louisiana
with Medisys-Louisiana as the acquiror (reverse acquisition).
Primary Products:
WOMEN S HEALTHCARE - SofCeps
The Company is the exclusive assignee of all rights in and to
certain United States patents for an obstetrical tractor (birth
assistance delivery device) known as SofCeps (Registered Trademark,
hereinafter "SofCeps") which, in part, is designed to replace
traditional steel obstetrical forceps and vacuum extractors used to
assist child birth. SofCeps is intended to offset the possible
negative obstetrical consequences of epidural anesthesia which may
slow or interrupt the descent of the fetus through the birth canal
and may also diminish maternal ability to produce voluntary and
involuntary contractions during delivery. SofCeps is a disposable
soft and thin double-walled multifiber braided axial gripping
cylinder which is placed over the fetal skull with a simple
application system. It is designed to uniformly distribute
assisting traction forces about the circumference and longitudinal
surface areas of the fetal skull.
The predecessor devices that SofCeps is designed to replace
are traditional steel obstetrical forceps and vacuum extractors and
the Company believes that maternal/fetal injuries associated with
the use of these predecessor devices will be reduced with the
adoption of this new alternative device. Maternal injuries
potentially caused by forceps, or by their improper use, range from
spiral lacerations of the pelvic floor and its associated
structures, to severe lacerations of the cervix resulting in
increased in-patient time, major surgical repair, incontinence,
sexual disorders, protracted discomfort, death, and substantial
increases in health care costs. Objective fetal injuries
potentially secondary to the use of forceps include minor "forceps
marks", fractures of the fetal skull, central nervous system (CNS)
deficit (cerebral palsy), severe mental retardation, blindness,
deafness, and death. Subjective injuries may include slowed
development of motor skills and learning disability. The use of
forceps when the fetus is at or above the midplane of the pelvis is
proscribed under current standards of care in the practice of
obstetrics.
The vacuum extractor was developed as an alternative to
traditional steel obstetrical forceps, but after over thirty years
of development its use still presents potential clinical problems.
The operative feature of the device is basically a suction cup
which is applied over the crown portion of the fetal skull where
traction forces are concentrated. Traction can result in hydraulic
transfer of traction forces through the fontanel to the
intracranial area. Off axis traction can result in the device
"popping" off the fetal skull with secondary rebound trauma being
transmitted to the intracranial area. Hematomas over the skull
have been noted secondary to the use of the vacuum extractor. Use
of both forceps and vacuum extractors requires a high degree of
skill and training.
When the mother opts for epidural anesthesia during delivery,
as most do, arrest or substantial delay of fetal descent in the
mid-pelvis range of the birth canal frequently occurs and the
obstetrician has no means available to beneficially promote
descent. In many cases delivery will be unduly prolonged and the
physician must resort to Cesarean section delivery. Unlike
traditional forceps, SofCeps can be applied when the fetus is at or
slightly above mid-pelvis of the birth canal, thereby providing the
obstetrician with an in place device to which traction can be
applied to offset the arrest or delay of descent. The Company
believes this will result in significant reductions in the rate of
Cesarean section deliveries secondary to arrest of fetal descent in
the mid-pelvis range.
The use of outlet forceps has become so much a part of normal
obstetrics that it is considered by some to be a part of a normal
delivery. Up to 1975, the use of forceps at all levels was
reported in the United States to be as high as 25% to 33 1/3%. By
1980, one study showed a 26.7% forceps use in "first child"
deliveries and over 15% in all deliveries. (Source: Notzon,
Francis C. International Differences in the Use of Obstetric
Interventions, Journal of American Medical Association
(JAMA), June 27, 1990-Vol. 263, No 24 U.S. Dept. of Health &
Human Services, National Center for Health Statistics National
Hospital Discharge Survey, 1990 Series 13: "Data from the National
Health Survey," No. 113). The Company estimates that the percent
of forceps deliveries in the United States today is somewhere
between 12% and 26%, depending on the region of the Country
surveyed. In recent years there has been a surge in Cesarean
section births in the United States. As the Cesarean section rate
increases, the use of obstetrical forceps tends to decrease.
Studies indicate that vacuum extractors delivery rates are roughly
equivalent to forceps delivery rates.
SofCeps combines centuries old non-obstetrical concepts with
modern medical and engineering technology. Using state of the art
braiding technology, a soft, thin mesh cylinder of synthetic fabric
is fabricated for application over the fetal head. Application is
accomplished with a simple and effective system which includes
accommodation for cephalic curvature. The application system is
then removed. After application, assisting traction is applied by
the physician to the portion of the cylinder which protrudes from
the vagina. A unique traction handle permits anterior, posterior,
or lateral traction as required to promote fetal descent. As
assisting traction is applied, the cylinder exerts uniform axial
gripping about the circumference of the fetal head. Unlike steel
forceps, gripping forces are not point concentrated but are spread
evenly over the fetal head and facial surfaces. Importantly,
traction can be applied concurrent with expulsive maternal
contractions thereby permitting efficient use of maternal reserves
of energy. The device has no edges which can cause lacerations
and, because it is much thinner than traditional forceps, it will
not exacerbate, and in many cases will offset, minimal
cephalo-pelvic disproportion (CPD) where the fetal head tightly
engages the birth canal. Because of the simplicity of the device,
the Company believes the average board certified obstetrician can
become proficient in its use within a nominal number of deliveries.
The device, including its application system, is disposable after
a single use.
The SofCeps birth assistance device is subject to market
introduction regulation by the Food and Drug Administration
("FDA"). Generally, all medical devices are subject to FDA
regulation under the Medical Device Amendments of the Federal Food,
Drug and Cosmetic Act. Medical devices are classified into one of
three categories, Class I, Class II or Class III, depending on
their intended use and upon the degree of regulation necessary to
provide reasonable assurance of their safety and effectiveness.
The Class into which any specific device is placed determines the
requirements that must be met before a manufacturer may distribute
the device in interstate commerce. Section 510(k) of the Medical
Device Amendments provides for a pre-market notification
requirement whereby manufacturers intending to market a new or
significantly modified device are required to submit a pre-market
notification to the FDA in order to establish substantial
equivalence in terms of safety and effectiveness to a device
already on the market in the United States prior to 1976, or to a
device marketed after that date that has been determined to be
"substantially equivalent." This notification is required to be
submitted at least ninety (90) days prior to introducing the device
into interstate commerce, or otherwise holding or offering the
device for commercial distribution. No prototype is required to be
submitted to the FDA, however, additional data from testing may be
requested.
Within 90 days of receipt of the pre-market notification, the
Center for Devices and Radiological Health ("CDRH") determines
whether the device is equivalent. If the CDRH determines that a
device is not equivalent, the manufacturer may resubmit the 510(k)
notification with new data, file a reclassification petition, or
submit a pre-market approval application ("PMA"). A PMA is
required instead of the Section 510(k) process only if the device
is held to be a Class III device. Class III devices are those
represented to be life-sustaining or life-supporting, are implanted
in the body, or present potential unreasonable risk of illness or
injury. Class III devices are subject to the more rigorous FDA
approval process which generally requires the completion of three
major steps. The first step involves the granting by the FDA of an
Investigational Device Exemption ("IDE") which permits the proposed
product to be used in controlled human clinical trials. Upon
completion of a sufficient number of clinical cases to determine
the safety and effectiveness of the proposed device for specific
indication, a PMA is then prepared and submitted to the FDA for
review. This extensive submission includes design, manufacturing,
quality control and clinical data to substantiate the proposed
device's compliance with FDA manufacturing regulations as well as
to support its medical effectiveness. Upon acceptance by the FDA
of the PMA, the third major step, a public review of the data by an
advisory panel of the FDA, industry and medical professionals takes
place. Prior to receiving final approval, a company is inspected
by the FDA to verify that its manufacturing procedures meet all
requirements of the FDA regulations.
The Company believes that the SofCeps device is "substantially
equivalent", as viewed by the FDA, to devices already marketed and
is therefore exempt from PMA. However, because the SofCeps device
involves the birthing of babies, the Company's approach has been
and remains determined to follow a protocol consistent with all FDA
guidelines and to complete all current, good manufacturing
practices as established by the FDA, prior to marketing the
product.
Comprehensive clinical testing of SofCeps began at Baylor
College of Medicine, Houston, Texas, in October 1993. Under a
protocol approved by the Baylor Human Investigative Review
Board ("IRB"), assessments of successive prototypal configurations
were made using term fetal demise infants in order to evaluate the
components and function of the device. During the first year of
testing, it was determined SofCeps presented little, if any, risk
of maternal injury. Traction testing on several stillborns
demonstrated that force more than sufficient to promote fetal
descent in the birth canal resulted in no objective evidence of
fetal head feature trauma and permitted clinical conclusion that
the device was very likely to be less injurious to a fetus than
traditional devices.
On April 6, 1995 a developmental milestone occurred when a
term stillborn was successfully delivered with the device. During
this procedure, application over the fetal head was accomplished
and the Company concluded the device was clinically effective in
assisting completion of the delivery. Several modifications of the
delivery system have been made and with the completion of a minimal
number of stillborn deliveries, the results expected from the Phase
One testing protocol were considered by the Company to have been
met. Application for approval of Phase Two protocol governing live
deliveries has begun. Internationally, clinical sites at the
Perinatal Institute in Bern, Switzerland, the Hospital Central in
Mexico, and the Kenyaatla National Hospital in Kenya have been
selected for consideration of live birth testing. In the United
States, a letter of intent has been signed with physicians at the
University of Maryland to begin live birth testing. Testing is
expected to commence in the fourth quarter of 1997, first in Mexico
and later in Switzerland and/or Kenya.
The approval process is impacted by both the FDA and the IRB
at each location conducting these clinical trials. Although there
is great variation in time required for approvals, in general these
similar type device applications have taken approximately 90 days.
It is anticipated that these applications will be made during the
fourth quarter of 1998 and that subsequent deliveries would occur
during the second or third quarter of 1998. The Company
anticipates that the overall FDA submission for approval will be
made in the last quarter of 1998 with FDA approval expected in
early 1999. The estimated cost of completed clinical trials is
approximately $400,000.
MEDICAL SAFETY DEVICES - COVERTIPTM
Medical device safety is a large and growing issue within the
healthcare community. The transfer of infectious diseases result
in enormous economic and social costs. With AIDS, Hepatitis and
other communicable disease, the possibility of accidental infection
is a critical issue to healthcare workers and professionals. The
Center for Disease Control (CDC) in Atlanta reports that for every
250 syringe injections an accidental needle stick occurs to the
person administering the injection. The cost for subsequent
mandatory testing is between 250 to 700 dollars. While the
incidence of AIDS contracted through accidental needle sticks is
low (less than 50 cases reported in the U.S. to date) the impact to
the individuals tested and the cost of both the testing and
treatment is enormous.
The current syringe market approaches 2.5 billion dollars in
the U.S. alone. Currently, safety syringes comprise a relatively
small portion, less than 10% of the total market. The desire to
use a safety syringe has been impeded by both cost and technique
requirements of currently available safety syringes. Current safety
syringes are 3-4 times the cost of standard syringes. Safety
syringe devices currently in the market are difficult to use and
require hospital training and ongoing inservice. These products
do not cover the needle prior to removal from the skin and can pose
a danger upon extraction from the patient.
In contrast to other safety syringes, the CoverTipTM device s
unique design covers the tip of the needle while under the
skin and locks in place protecting the healthcare worker during the
injection process and during disposal of the used syringe. Use of
the CoverTipTM requires no additional instruction. CoverTipTM is in
the final design stage with performance testing currently
underway.
The Company believes that substantial capital barriers may
preclude direct entry of the safety products by Medisys in the U.S.
Therefore, the Company will likely seek a license arrangement
or joint venture with a major medical company. Foreign
markets may offer similar opportunities and are being explored.
The Company has received inquiries concerning the CoverTipTM product
from the three largest suppliers of syringes in the United States
but has elected not to engage in active negotiation of any
licensing agreement until FDA filings are underway and product
testing is substantially complete.
The Company believes that the CoverTipTM safety device should
qualify for 510(K) FDA approval. This belief is founded on the
fact that to the best of the Company's knowledge all other safety
syringes are so classified by the FDA. The Company submitted a
510(K) Exemption From Pre-Market approval to the FDA on March 31,
1997. This approval process has historically taken 90 days once
the submission is filed and therefore, it is anticipated that
favorable approval by the FDA would occur in the third quarter of
1997. The cost to complete the approval process for the CoverTipTM
is estimated to be $150,000.
Other Opportunity Products
The Company is also presently developing or has developed
other products termed Other Opportunity Products which may
generate revenue for the company. A brief non-inclusive outline of
opportunity products available to the Company are as follows:
MEDISYS VETERINARY OBSTETRICAL TRACTOR
VETCEPSTM is a veterinary application of the SofCeps
obstetrical tractor. The Company enjoys patent protection for
veterinary application in bovine (cattle), ovine (sheep), and
equine (horse) obstetrics within its original patents. Development
thus far has been limited in large measure to the bovine
application because of its substantial potential market and because
it appears to offer an obvious solution to problems which arise
with the use of commonly used steel veterinary obstetrical fetlock
chains. The device has been successfully used on both foreleg
and hindleg to deliver live and stillborn calves. The Company
has sold approximately 100 units although sales were discontinued
in the first quarter of 1996 because the original product
design proved too large to accommodate the fetlock (leg) of the
majority of newborn calves. The Company has redesigned the
VETCEPSTM and in January 1997 reintroduced it to the veterinary
market in three different sizes which more closely accommodates the
majority of newborn calf fetlocks.
DISKLIPTM
DISKLIPTM ("DISKLIP") is a device used in connection with the
standard intravenous administering of medication ("I.V.") and to
secure other medical tubing. The DISKLIP is a simple, inexpensive,
one piece, disposable after single use device which is designed to
prevent inadvertent or accidental tug trauma to an I.V. site and to
afford the medical provider with an easier and more efficient means
of attaching other medical tubing. The Company believes that
DISKLIP will require little or no personnel training and will
result in savings in nursing time, reduction of instances of site
inflammation and irritation of vein walls (lumens), reduction of
instances of infiltration and veil wall puncture, reduction of risk
of sepsis, and reduction of patient discomfort. The Company's
expectations with regard to DISKLIP are currently being proven by
field testing consisting of actual patient use at several
hospitals in Mexico as well as application and wear on various
Company personnel. Testing has also included one market evaluation
by potential customers in the United States and Mexico. This
testing has revealed a need to improve the adhesive backing used in
the product, which has been improved to incorporate a "foam tape"
approach that allows for skin breathability and reduced allergic
reaction (hypoallergenic). Additional designs are being
constructed to accommodate various locations on the body where
medical tubing is applied and the Company is currently addressing
that need through additional research and development.
Backlog
The Company currently has no backlog of its products.
Market Analysis and Competition - SofCeps
The market for obstetrical products, both in the U.S. and
worldwide, is substantial. While declining birthrates are a factor
for consideration in western countries, even a slight decline
indicates a stable U.S. market of about 4 million births per year
for the next 10 years. Management believes that the rapidly
expanding population growth of third world and Pacific rim
countries represents a marketing opportunity for assisted delivery
devices and obstetrical products in general. The simple technology
that SofCeps employs will be of particular appeal in third world
countries and should offer strong market opportunities.
The primary assistance device in use today is stainless steel
obstetrical forceps. They were actually developed in the latter
part of the 16th Century. Actual traction is exerted slightly
below or underneath the mandible and is point concentrated.
Slippage of the forceps is almost invited because of natural
lubrication, refusal of the fetal skull to conform to existing
forceps design, and a myriad of variables which exist from one
fetal skull/pelvic relationship to another. Virtually every
forceps assisted delivery involves risk of injury to the mother and
the baby.
Stainless steel forceps apply a concentrated gripping force on
the fetal head which can result in a series of injuries from minor
"forceps marks" to skull fractures, central nervous system damage
and fetal death. The manipulation of the steel forceps in the
birth canal often causes maternal injuries ranging from spiral
lacerations of the pelvic floor to severe lacerations to the
cervix. In both instances, these injuries result in significantly
increased healthcare costs associated with post-delivery
complications and increased inpatient days.
Statistics have shown that forceps are used to assist up to
26% of vaginal deliveries. Injuries to the fetus range from minor
abrasions or "forceps marks" to skull fractures with massive brain
damage. The mother is at risk of lacerations of the cervix, which
can be life threatening, and the floor of the pelvis. Such
injuries are exhaustively dealt with in the medical literature and
the obstetrical community would welcome a device which promises a
significant reduction in maternal and fetal morbidity.
The only other significant attempt to introduce a new product
into this forceps arena has been the vacuum system. The vacuum
unit was patented in the late 1950s and in spite of
numerous attempts toward refinement, the approach still remains
plagued with disadvantages. The system grips the upper half of the
fetal skull with a suction device and traction is then applied.
Use of the system frequently results in hematoma over the fetal
skull as well as rebound trauma caused by the device popping off
the fetal skull. Once in place, the device precludes manual
rotation of the skull. Rotation is frequently required to ease
passage through the pelvis. Many obstetricians have experienced
difficulties because they resort to twisting on the extractor to
accomplish rotation. This can result in serious fetal injury.
For these and other reasons, the vacuum system has largely fallen
into disfavor and the majority of obstetricians have returned to
the use of traditional forceps.
1. Customer Characteristics
Potential customers for the SofCeps product varies. They
include obstetricians, hospitals and patients (consumers).
a. Obstetricians
The need for safe, reliable birth assistance creates a base
need for replacement of current devices. Documentation of
successful deliveries, with reduction of risk to both mother
and infant, will be a strong motivator influencing the
adoption of the SofCeps device by the obstetrical community as
well as hospitals (health care providers), and physicians.
b. Hospitals (Health Care Providers)
Management believes that obstetrical care is being
consolidated in communities to establish a cost effective
delivery system for this service. Hospitals are increasingly
under pressure to reduce costs, while maintaining quality of
care. SofCeps offers these healthcare providers the
opportunity to increase the quality of the delivery process,
while reducing the overall cost of care. An additional
opportunity is the economic potential for reduced malpractice
insurance and C-Section rates. As hospitals and health care
providers move toward captative care, the pressure to decrease
length of stay costs, while maintaining quality, will
increase.
c. Patients (Consumers)
Patients are increasingly aware of the need to reduce health
care costs, but at the same time are concerned over the
quality of care. Forceps use and the concept of vacuum
extractor assisted deliveries are innately unpleasant to the
average consumer. Therefore, management believes that the
SofCeps product, as well as other simple products produced by
the Company, represent viable alternatives to the general
consumer community, including women's health and pediatric
advocacy groups.
2. Competitive Evaluation
The competitive product situation for obstetrics includes
products that are a part of diversified health care corporations
with slight focus on obstetrics. In the device arena, products for
obstetrics are produced from divisions of various companies whose
products are broadly based in many areas of health care. Equipment
companies such as Utah Medical and Hewlett Packard market
monitoring equipment and diagnostic tools for obstetrics.
Advertised as the only company exclusively focused on women's
health issues, GynoPharma had a broad range of products primarily
pharmaceutical and over the counter drugs.
In the specific area of competition to SofCeps, instrument
manufacturers such as the Codman Division of Johnson & Johnson,
V. Muellar, and Weck manufacture obstetrical forceps in various
forms. Vacuum extractors are manufactured by Mityvac and others.
Instrument companies do not look at forceps as a major product
line, but can be expected to respond with alternative methods of
assisted delivery once the SofCeps product is introduced into the
market place. The same can be said for the vacuum extractor
companies.
3. Market Potential
As set forth herein, SofCeps is intended to be multi-
dimensional in use and is designed to be applied in a prophylactic
manner in all cases where mother and fetus do not present with
contraindications. Less than one half of section deliveries result
from maternal/fetal clinical presentation, that is inadequate
pelvic architecture, cephalo pelvic disproportion, vaso or
placenta-previa, etc., and one half of section deliveries are labor
related and perhaps preventable through use of a beneficial
obstetrical tractor.
The device is a totally new concept which the Company intends
to market on a worldwide basis. The market is limited only by the
eventual degree of acceptance in the obstetrical community and by
the number of live births in each given market area. The device is
disposable after a single use, so potential market volume repeats
on an annual basis. The degree of market penetration will depend
upon product acceptance and effectiveness of marketing efforts.
The medical marketplace is receptive to new products which can
provide better patient care, savings in medical costs, benefits to
the health care industry, and which represent advances in risk
reduction. The Company is poised to effectively demonstrate that
the device will meet the criteria of today's managed healthcare
marketplace.
There are no past or present medical comparables to SofCeps
and pricing is based on costs of manufacture and distribution,
including usual administrative items, as well as preliminary price
sensitivity analysis. The Company believes that a price of
approximately $300 per device will meet the requirements of the
managed care environment.
4. Non-Controllable Elements
With health care reform on a massive scale apparently
postponed for the foreseeable future, government intervention would
appear only to enhance the prospects for SofCeps as well as other
simple, easy to use, technologies of the Company. The managed care
companies should encourage the use of SofCeps, and economic studies
are planned in order to document the value.
The Company intends to participate in economic studies of
various products to demonstrate their positive cost outcome versus
standard care and other competitive methods for treatment. These
studies may be conducted from assessment of currently available
data and/or specific studies to demonstrate reduction in overall
cost through use of the Company's products. These studies are
anticipated to commence simultaneously with market introduction of
the various products and will take varying amounts of time to
complete based on their complexity. Although these studies are
proof statements to various benefits of the Company's products,
they are not anticipated to be critical to market introduction,
rather enhancements to each of the product's value to key decision
makers.
The greatest elements outside the Company's immediate
control would be the introduction of similar birth assist products
and the uncertainty of the FDA approval process.
5. Marketing Plan
The Company currently plans to market SofCeps on a direct
basis or through a co-marketing arrangement with supplemental sales
support from dedicated brokers. This approach is intended to
achieve appropriate marketing activity while minimizing selling
expenses. Internationally, the Company plans to distribute its
products worldwide through international market development
brokers.
The market for an effective delivery assistance device is
worldwide. Concurrent with development and refinement efforts, the
Company will employ comprehensive measures designed to apprise the
obstetrical world of what is forthcoming. Management will endeavor
to have customers ready and waiting when the device enters mass
production. These efforts have begun with public relations and
preliminary market communications which are underway.
Selling strategy will take a multi-focused approach centered
around the following customer groups:
During the final development stage, the Company will
communicate with Obstetricians via direct mail and convention
exposure at major obstetrics meetings to introduce the concept
idea of SofCeps. In addition, after successful live birth
clinical testing, educational seminars will be conducted on
the appropriate use of the SofCeps device by targeting the
thought leaders and volume delivery obstetrical centers.
Specific effort will be made to establish SofCeps advocates in
the top twenty markets nationally. Major benefits that
will be positioned to the obstetrician will include an
increase in patient care and potential for reduced malpractice
insurance.
Major obstetrical societies will be contacted and requests
made for endorsements of the SofCeps product vs. forceps use.
After product testing, the Company plans to commission a panel
of distinguished obstetricians as an advisory group to provide
broad input and endorsement support.
Obstetrical Nurses will be introduced to the product through
convention activity at major meetings, select targeted direct
mail to key association officers, and thought leaders within
the major metropolitan markets.
Providers/Hospitals - A direct selling strategy will be
employed to the top 200 obstetrical hospitals. In addition,
group purchasing organizations will be contacted for inclusion
of the SofCeps product into their "formulary." The major
selling appeal to providers is the potential to increase care
quality and the potential for reduction of C-Section rates and
malpractice occurrence.
While physician obstetricians will be the final users, the
device is considered a hospital supply item. Exclusively,
hospitals with obstetrical units will be the customers of the
Company.
Managed care organizations have established a list of
procedures which they feel are being excessively used within
the health care community. Included as one of the highest
within this list are C-Section rates. C-Sections currently
cost about $4,570 more than normal deliveries and there are
wide variations of occurrence by institution and geography.
Management believes that the use of SofCeps should generate a
net savings over C-Section delivery.
The Company s selling strategy will include contacting major
women's and children's advocacy organizations. The
development of a press kit for use in local areas where
SofCeps has been adopted for use will provide an efficient
tool for local media, physicians, and hospitals thereby
enhancing general media public relations.
Insurers - If SofCeps proves clinically successful and
produces a relatively short track record of safe and injury
free deliveries, the Company believes that medical malpractice
and health insurers will support the transitioning of insured
obstetricians from the continued use of forceps. A single
instance of infant brain damage can cost an insurer in excess
of $40 million dollars. A demonstration that SofCeps will
reduce the number of such instances will ingratiate insurers
and compel their collective assistance.
Women s Groups - In addition, the Company intends to advertise
and solicit various consumer periodicals that target a
predominantly female readership. By using the family
periodicals as communication tools, the message of the
benefits of a SofCeps delivery will be widespread.
Education - From a services standpoint, the Company intends to
provide user training through seminars, literature, clinical
video programs, and clinical workshops. Emphasis will
initially be placed on working through teaching hospitals in
the various geographic markets. Planning is underway for a
detailed and intense education program. Plans are to conduct
at least one seminar per month at strategic geographical areas
across the United States.
6. Advertising and Promotions
Initial promotional and market education activity has begun,
particularly targeted to each of the major customer groups. This
initiative has consisted of periodical news releases and
publication in a limited number of business and professional
publications about the Company in general, and SofCeps as a birth
assistance alternative concept. Further advertising and public
relations will be targeted to each category. For example, although
hospitals will be the purchasers, obstetrical physician users will
dictate whether the purchases are made which will require a blanket
effort to insure wide familiarity with the device within the
obstetrical community.
Medical literature, in this case the various obstetrical
journals, is a primary key in dissemination of new information to
individual obstetrical practitioners. Appropriate physician
authored informative articles will be provided to these journals
for publication and distribution to individual subscribers.
Results of human clinical trials are being reported with clinical
details of each delivery.
7. Product Warranties
The Company will attempt to develop reasonable warranties with
application of the SofCeps product and these will be contained in
the product package insert which will be included with every
SofCeps unit sold or distributed.
Market Analysis - CoverTipTM
Currently $2.5 billion of sales volume is generated with the
use of syringes in the United States with safety syringes purchases
during this annual period approximating $300 million of this
amount. The penetration rate of safety syringes is driven by
concern over the health of the doctors, nurses, and other
healthcare professionals as well as cost associated with their care
and the testing necessary in response to the occurrence of
accidental needle sticks. The rate of accidental needle stick
reported by the Center for Disease Control (CDC) was one occurrence
for every 250 injections made. Although the number of confirmed
cases of AIDS contracted accidental dirty needle sticks remains
small (less than 50 individuals) the occurrence of hepatitis and
other infectious diseases compounds the problem and cumulatively
results in tremendous cost, liability, long-term care and
productivity losses. Requirements for reporting all accidental
dirty needle sticks result in subsequent testing cost for each
event from between $250 -$700 .
Although there is support from the healthcare worker community
for safety syringes, there are still various obstacles such as
their higher cost, (3 to 5 times higher than standard syringes) as
well as the difficult technique changes necessary to use many of
these currently cumbersome devices. The inservice cost to train a
myriad of healthcare practitioners using syringes places an added
burden on the conversion rate due to the awkward nature of
currently existing safety syringes. Many of these products require
two-handed application techniques which can, at times, present
accidental stick opportunities.
Customer characteristics
Customers for the CoverTipTM safety syringe include all
healthcare workers, nurses, physicians, hospitals, clinics, managed
care organizations as well as insurers.
a. Doctors, nurses, and healthcare providers.
The desire to reduce the likelihood of an accidental dirty
needle stick is strong with all healthcare workers. Individuals
who have contracted AIDS, hepatitis and other life threatening
contagious disease have become advocates for the adoption of safety
devices within the healthcare community. These individuals and
organizations supporting healthcare worker safety provide impetus
for the use of safety syringes.
b. Hospitals.
The need to reduce the cost of testing associated with
accidental needle sticks as well as reduction in liability and in
negative publicity and pressure from healthcare worker
organizations are strong motivators to the hospital in adopting a
relatively low cost easy to use safety syringe.
c. Managed Care/Insurance
Managed Care organizations and Insurers assume the burden of
liability both for treatment and damages associated with accidental
needle sticks. These groups appear supportive of efforts to reduce
the incidence of infectious disease contracted by cross
contamination.
Competitive Evaluation
Within the syringe business in the United States, Becton -
Dickenson enjoys the largest market share position approximating
60% of the market. Sherwood Medical, a division of American Home
Products, has approximately 30% with the remainder of the market
divided among numerous private label as well as foreign companies
such as Terumo. The safety syringe market is sub-divided in
similar fashion. Over 450 patents have been issued on various
types of safety needles and/or syringes. In spite of the
proliferation of interest and effort to convert these products, the
difficulty in changing behavior of the application technique of the
healthcare worker as well as the prohibitive cost (three to five
times standard syringes) has inhibited the penetration of
safety syringes into the overall standard syringe marketplace.
On March 31, 1997, the Company submitted to the FDA a 510(K)
Exemption from Pre-Market approval for CoverTipTM.
The CoverTip safety syringe will address each of the major
issues associated with current safety syringes as well as provide
benefits over standard intramuscular (IM) syringes. While standard
syringes cost between $0.08 and $0.12 each, it is anticipated that
the CoverTip safety syringe will be priced at less than $0.20
each. Specific prices will be developed once full production plans
are implemented.
Because the CoverTip safety syringe requires no change in
technique and is currently identical in use to a standard syringe,
it will eliminate educational (inservice) requirements that
currently exist with many safety syringes on the market.
Additionally, due to the unique design of the CoverTip safety
syringe, the needle tip is actually protected prior to removal from
the patients skin. This greatly reduces any contaminated needle
exposure to the healthcare worker and offers an advantage to other
safety syringes that require extraction from the patient s skin
prior to implementation of various needle tip protection
methods.
Marketing Plan
Due to the large capital investment required to manufacture
multiple large quantities of the CoverTipTM product, the primary
strategy of the CoverTipTM selling campaign will be designed to
obtain a third party large company partner with the manufacturing
distribution resources and expertise needed to rapidly introduce a
product with this potentially enormous opportunity.
Patents and Trade Secrets
The Company has aggressively pursued obtaining patent rights
to those products which it anticipates marketing. The Company
already is the owner of seven U.S. patents (U.S. Patent
5,122,148, U.S. Patent 5,217,467, U.S. Patent 5,318,573, U.S.
Patent 5,460,611, U.S. Patent 5,496,283 U.S. Patent 5,573,539,
and U.S. Patent 5,593,413 ) for the Company's SofCeps,
COVERTIPTM, DISKLIPTM and VETCEPSTM devices. In addition,
a new U.S. patent application has been filed covering the latest
generation of the SofCeps. The Company has also pursued its
foreign patent applications relating to SofCeps in twenty countries
and has received a patent in Australia, number 66916. The
Company also has pending a U.S. patent applications covering
VETCEPSTM, the veterinarian version of SofCeps, which is approved
but not yet issued, and a U.S. patent application relating to the
DISKLIPTM I.V. tubing retainer, the first of which has been
approved.
The Company has filed six U.S. trademark applications
preserving its right to use the trademarks "SofCeps ", "VetCeps ",
the "Medisys " logo, "DisKlipTM", SofDermTM", and "CoverTipTM" to
identify the various Company products. As the Company proceeds
forward with the commercialization of these and other products,
U.S. and foreign trademark applications will be filed to protect
their product name.
The Company intends to obtain copyright protection on its
product packaging, instruction sheets, and such other Company
materials that the Company believes significant to warrant
procurement of copyrights.
The Company has obtained through its research and development
efforts during the past four years, a large body of trade secrets
relating to the design and construction of SofCeps. In addition,
the Company has obtained substantial proprietary business
information relating to the manufacturing costs, marketing and
selling of the Company's various products. For the three month
period ended March 31, 1997, the Company expended $193,395 for
research and development. Additionally, $496,446 was expended in
1996 and $255,486 in 1995.
Product Liability and Insurance
The Company may be exposed to potential product liability
claims by users of its products. The Company currently maintains
general business liability insurance limited to $1,000,000 coverage
per occurrence and in the aggregate. The Company's clinical
testing for human fetal demised deliveries has been through
St. Paul insurance Company with coverage limits of $5,000,000 per
occurrence and $15,000,000 aggregate coverage. The Company has
also obtained product liability insurance for the VetCepsTM product
from American Equity Insurance Company. The coverage limit on this
policy is $1,000,000 per occurrence with a $1,000,000 general
aggregate.
Government Regulation
All medical devices are subject to FDA regulation under the
Medical Device Amendments of the Federal Food, Drug and Cosmetic
Act. Prior to the Phase I testing of SofCeps, the Company applied
to the FDA for a 510(k) exemption from Pre Market Approval ("PMA")
for marketing the SofCeps device. PMA could require a lengthy
testing and approval process which would be costly to the
Company. The FDA has reviewed the Company's application and
testing protocol. Based on Phase I data, the Company was allowed
to continue its fetal demised clinical testing. An Investigational
Device Exemption ("IDE") Draft for Phase II testing has been
submitted to the Office of Device Evaluation (ODE/OB-GYN) for
review and comment. The Company has established a positive
dialogue with the FDA and believes that the IDE process will be
postured to proceed with Phase II testing when Phase I is
successfully completed. The Company intends to resubmit a 510(K)
application to the FDA concurrent with the accumulation of live
human clinical test data.
The Company believes that the CoverTipTM safety device should
qualify for 510(K) FDA approval and submitted an application
for exemption from PMA on March 31, 1997.
In the event of changes in existing regulations or adoption of
new regulations by the FDA, approval of the Company's products
could be delayed or prevented. The Company is not aware of
possible changes in existing regulations or proposed new
regulations that could have a possible adverse effect on the
Company.
Facilities
The Company leases office facilities consisting of
approximately 3,532 square feet located in Baton Rouge, Louisiana,
which is subject to an annual lease, renewable in December of
each year, with a monthly lease payment of $2,942. The office
is primarily devoted to product development, new product design and
administrative activities. Additionally, the Company leases 450
square feet of office space in Far Hills, new Jersey at a cost of
$1,000 per month. The Company believes that all of its initial
requirements for manufacturing, packaging, and storage will be met
by its contract manufacturers.
To support the development efforts without assuming fixed
costs, the Company has contracted with Hayes Medical, Inc. and
GVO, Inc. for engineering, design specification, prototype
manufacturing, cost projections and schedules. This association
will also aid the Company with the FDA s 510-K approvals as
well as SofCeps prototype development and testing.
The Company also presently contracts for laboratory facilities
with "TechniMark" in Clearwater, Florida to assemble its handmade
clinical devices of SofCeps as well as the production of VETCEPSTM.
Although not currently anticipated, future manufacturing may be
done by the Company itself which would most likely require further
financing.
Litigation
The Company is not a party to any material pending legal
proceedings and no such action by, or to the best of its knowledge,
against the Company has been threatened.
Employees
As of March 31, 1997 the Company employed 8 full-time
individuals, consisting of 3 executive officers and 5 office staff
personnel. In addition to its full-time employees, the Company
uses the services of certain consultants on a contract basis.
These consultants include, William D. Kiesel, a patent attorney and
director of the Company; Paul R. Radle, Jr., a CPA and director,
treasurer, and CFO of the Company; Clayton Simpson, a CPA and
Controller of the Company; Joel Faden, a FDA consultant; and
Coastline Financial Corporation ("Coastline"), financial
consultants. Mr. Kiesel is reimbursed for patent costs and
expenses only. Prior to 1996, Mr. Radle received restricted shares
of the Company s common stock as reimbursement for his services.
After January 1, 1996, Mr. Radle has been compensated on as hourly
basis. Mr. Simpson has been compensated on an hourly basis.
Mr. Faden will be compensated on an hourly basis as services
are needed. Coastline was contracted with to provide financial
consulting services to the Company and to assist in locating
potential funding sources. Shares of the Company's common stock
issued and to be issued to Coastline come from issued and
outstanding stock held by the founders of the Company. The formula
for determining the number of shares to be issued to Coastline was
developed through negotiations with the parties involved.
Additionally, Coastline receives a fee of $1,000 per month.
Shares of the Company's common stock received by Mr. Radle and
by Coastline Financial as described above are deemed to have been
transferred in private transaction without registration under the
Securities Act of 1933, as amended (the "Act"), and therefore, such
shares are restricted securities and may not be further transferred
without registration under the Act or an appropriate registration
therefrom. All certificates representing the respective shares
bear a restrictive legend.
ITEM 2. Management s Discussion and Analysis or Plan of
Operation
The following information should be read in conjunction with
the consolidated financial statements and notes thereto appearing
elsewhere in the Form 10-SB.
Results of Operations
Prior to the date hereof, the Company has been deemed a
development stage company primarily engaged in the research and
development of its childbirth assistance device its medical safety
devices and other medical products. The Company has only realized
minimal sales revenues from its veterinary birth assistance device
and has not marketed any of its other products.
Three Months ended March 31, 1997 Compared to Three Months Ended
March 31, 1996
The net loss for the first quarter of 1997 increased 68% to
$398,098 when compared to the corresponding 1996 period. This
result is primarily attributed to the Company s increased effort in
the development of its products.
Operating expenses for the first quarter of 1997 increased
84%, when compared to the corresponding 1996 period, primarily
attributed to increases in the following items: product
development (121% increase for the first quarter of 1997) due to
increased effort in the development of SofCeps and CoverTip, the
Company s flagship products; salaries (50% increase for the first
quarter of 1997) due to the addition of a Vice President and Chief
Operating Officer and annual salary increases; professional
services (919% increase to $26,548 for the first quarter of 1997)
due to additional costs associated with being a public reporting
company; general and administrative expenses (42% for the first
quarter of 1997) due to increases in consulting charges, contract
labor, and travel expenses.
Year Ended December 31, 1996 Compared to Year Ended December 31,
1995
The net loss for the year ending December 31, 1996 increased
28.89% to $1,498,725 when compared to the corresponding 1995
period. These results continue to be primarily attributable to the
Company s increased effort in the development of its products.
Operating expenses for the year ending December 31, 1996
increased 26.47% when compared to the corresponding 1995 period,
primarily attributed to increases in the following items: product
development (94.31% increase for the year ending December 31,
1996); salaries (39.85% increase for the year ending December 31,
1996) due to the addition of a Vice President and Chief Operating
Officer and annual salary increases; depreciation and amortization
(29.27% for the year ending December 31, 1996) due to the addition
of computer and office equipment; general and administrative
expenses (22.31% for the year ending December 31, 1996) due to
increases in contract labor, travel expenses, and expenses related
to the addition of an office in Far Hills, New Jersey. Interest
expense decreased 14.35% for the year ending December 31, 1996.
Professional services decreased 25.58%. This decrease was primarily
due to the addition of the Company s Chief Operating Officer to the
Company s staff. This individual was formerly a consultant to the
Company and became an employee on January 1, 1996.
Financing and Capital Resources
Since July 1992, the Company has incurred costs of $5,012,320
on operating expenses including product research and development,
organization and administration. For the three month period ended
March 31, 1997, the Company incurred costs of $435,196, and for the
years ended December 31, 1996 and 1995, the Company incurred costs
of $1,434,465 and $1,134,201, respectively. The Company has
previously raised funds through private placements of debt and
equity securities. Management has determined that the Company will
require approximately $7,000,000 in future funding which may be
accomplished through an offering or from internally generated
funds, although there can be no assurance that the Company will be
able to realize any of these funds. Future funding will be used to
complete SofCeps and COVERTIPTM development, begin preliminary
marketing and product production, assist development and marketing
of "opportunity products" to create a revenue stream, and for
production, sales, and marketing of SofCeps and COVERTIPTM.
The Company completed a private placement of its common stock
on December 17, 1996 having raised $2,013,500. Expenses related to
the private placement totaled $85,420. The Company issued
1,342,331 shares of common stock pursuant to the private placement
at a price of $1.50 per share. The Company also issued one stock
purchase warrant for each share of common stock issued. The
warrants constitute an option to buy, at a price of $1.50 per
share, unregistered shares of common stock for a period of four
years from date of issue of the common stock acquired through the
private placement. The issuance price of the common stock for the
private placement was determined by the Company s Board of
Directors. The Board took into consideration such things as the
current market price for its trading common stock at the time the
Private Placement was offered, shareholder dilution, and the
Company s current stage of development.
Net Operating Loss
Except for nominal revenues in 1996, , the Company has been
a non-revenue producing company which has accumulated
$5,091,041 of net operating losses as of March 31, 1997. These
net operating losses may be used to reduce taxable income and
income taxes in future years. Use of these losses to reduce future
income taxes will depend on the generation of sufficient taxable
income prior to the expiration of the net operating loss
carryforwards. The carryforwards will begin to expire in the year
2006. In the event of certain changes in control of the
Company, there will be an annual limitation on the amount of net
operating loss carryforwards which can be used.
Liquidity and Capital Resources
Historically, the Company s working capital needs have been
satisfied primarily through its financing activities including
private loans and raising capital through the sale of securities.
Working capital as of March 31, 1997 was a negative $224,227
compared to $198,112 at December 31, 1996. This decline in working
capital is primarily attributable to the decrease in cash of
$460,464. Working capital as of December 31, 1996 of $198,112
increased from a negative $470,270 as of December 31, 1995. The
improvement in working capital over 1995 is primarily attributable
to an increase in the Company s cash balances of $587,455 due to
the private placement of the Company s common stock and a decrease
of $162,595 in the current portion of notes payable.
Net cash used by operations for the first quarter of 1997 was
$428,729, compared to net cash used of $193,845 for the comparable
1996 period, primarily attributed to the increase in the net loss
from operations during the first quarter of 1997. Also, net cash
from financing activities during the first quarter of 1997 was
$28,930 compared to $177,394 for the comparable 1996 period,
primarily attributed to the sale of common stock. Net cash used by
operations for year ended December 31, 1996 was $1,223,232 compared
to net cash used of $728,626 for the comparable 1995 period,
primarily attributed to the increase in the net loss from
operations during 1996 period. Net cash from financing activities
for the year ended December 31, 1996 was $1,927,560 compared to
$853,420 for the comparable 1995 period, primarily due to the sale
of common stock.
The Company is currently in default on three notes payable to
various individuals totaling $43,908 as of March 31, 1997. One of
the three notes had called for monthly payments of $500 with the
balance being payable on March 1, 1996. The Company continues to
make the monthly payment of $500. None of the three note holders
have demanded repayment and the Company continues to accrue
interest on all outstanding notes payable.
The Company anticipates meeting its working capital needs
during the second quarter of 1997 with the cash reserves the
Company currently maintains. While the Company continues to pursue
the development of its products it is actively pursuing financing
to provide future working capital needs and to prepare for the
future marketing and sales activities related to its products.
Although management has not made any arrangements or definitive
agreements, the Company is contemplating the additional private
placement of securities and/or a public offering, although there
can be no assurance that the Company could successfully complete
any such offering. If sales revenue from the Company s products
under development are not adequate to fund the Company s future
operations and it is unable to secure financing from the sales of
its securities or from private lenders, the Company could
experience additional losses which could curtail the Company s
operations. The continuation as a going concern is directly
dependent upon the success of its future operations and ability to
obtain additional financing.
As of March 31, 1997 the Company had total assets of $706,885
and stockholders equity of $194,278. In comparison, as of
December 31, 1996 the Company had total assets of $1,051,500 and
total stockholders equity of $558,106. The 33% decrease in total
assets for the three month period ended March 31, 1997 is primarily
due to cash used in the Company s operating activities.
As of December 31, 1996 the Company's total assets of
$1,051,500 and stockholders equity of $558,106 compared to total
assets of $406,531 and total stockholders deficiency of $191,384
at December 31, 1995. The 158.65% increase in total assets for the
year ended December 31, 1996 is primarily due to cash realized from
the Company s financing activities.
Management believes that the Company has sufficient capital
resources to fund anticipated operations until some time in the
early third quarter of 1997. Unless the Company is able to begin
substantial sales of its products during the first half of 1997 or
is able to raise additional sales of corporate debt or equity
securities, the Company may encounter a cash flow shortage during
the second quarter of 1997. To overcome this potential cash flow
shortage, management intends to seek additional equity or debt
capital through private sources, although there can be no assurance
such funds will be available. As of the date hereof, the Company
has not entered into any firm agreements or understandings for the
raising of capital from private sources. If sales revenue from the
Company s products under development are not adequate to fund the
Company s future operations and it is unable to secure financing
from the sales of its securities or from private lenders, the
Company could experience additional losses which could curtail the
Company s operations. The continuation as a going concern is
directly dependent upon the success of its future operations and
ability to obtain additional financing.
In the opinion of management, inflation has not had a material
effect on the operations of the Company.
Risk Factors and Cautionary Statements
Forward-looking statements in this report are made pursuant to
the "safe harbor" provisions of the Private Securities Litigation
Reform Act of 1995. The Company wishes to advise readers that
actual results may differ substantially from such forward-looking
statements. Forward-looking statements involve risks and
uncertainties that could cause actual results to differ materially
from those expressed in or implied by the statements, including,
but not limited to, the following: the ability of the Company to
meet its cash and working capital needs, the ability of the Company
to complete development of its products, and other risks detailed
in the Company's periodic report filings with the Securities and
Exchange Commission.
ITEM 3. Description of Property
The information required by this Item 3, Description of
Property, is set forth in Item 1, Description of Business, of this
Form 10 - SB.
ITEM 4. Security Ownership of Certain Beneficial Owners and
Management
The following table sets forth information, to the best
knowledge of the Company, as of March 31, 1997, with respect to
each person known by the Company to own beneficially more than 5%
of the outstanding Common Stock, each director and all directors
and officers as a group.
Name and Address of Number of Shares Percentage
Beneficial Owner Beneficially Owned Ownership(1)
Gary E. Alexander * 1,275,893(2) 10.2%
9624 Brookline Avenue
Baton Rouge, LA 70809
Robert McNamee 1,205,826(3) 9.5%
1398 Oakley Drive
Baton Rouge, LA 70806
Jerry L. Phipps 1,215,826(4) 9.5%
7530 Old Sturbridge Ln.
Baton Rouge, LA 70806
William D. Kiesel * 1,201,813(5) 9.3%
2355 Drusilla Lane
Baton Rouge, LA 70809
Edward P. Sutherland * 877,900(6) 7.0%
9624 Brookline Avenue
Baton Rouge, LA 70809
Kerry Frey * 522,500(7) 4.2%
9624 Brookline Avenue
Baton Rouge, LA 70809
Paul R. Radle, Jr. * 160,000(8) 1.3%
9624 Brookline Avenue
Baton Rouge, LA 70809
Robert L. diBenedetto * 930,480(9) 7.3%
781 Colonial Drive
Baton Rouge, LA 70806
Jane Cooper * 7,600(10) .06%
9624 Brookline Avenue
Baton Rouge, LA 70809
Timothy Andrus * 1,500 .01%
9624 Brookline Avenue
Baton Rouge, LA 70809
Wade Fallin * 1,000 .01%
9624 Brookline Avenue
Baton Rouge, LA 70809
Directors and officers 7,399,338(11) 50.9%
as a group (8 persons)
* Director
** Unless otherwise indicated in the footnotes below, the Company
has been advised that each person above has sole voting power
over the shares indicated above.
(1) As of March 31, 1997, there were 12,345,340 shares of
common stock outstanding, which figure does not take
into consideration stock purchase warrants owned by
certain officers, directors and principal shareholders,
entitling the holders to purchase an aggregate of
2,195,431 shares of common stock and which are
currently exercisable. Therefore, for purposes of the table
above, as of March 31, 1997, 14,540,771 shares of
common stock are deemed to be issued and outstanding in
accordance with Rule 13d-3 adopted by the Securities and
Exchange Commission under the Securities Exchange Act of 1934,
as amended. Percentage ownership is calculated separately for
each person on the basis of the actual number of outstanding
shares as of March 31, 1997 and assumes the exercise
of stock purchase warrants held by such person (but
not by anyone else) exercisable within sixty days.
(2) Includes 167,000 shares which may be acquired by Mr. Alexander
pursuant to the exercise of stock purchase warrants
exercisable within sixty days at the average exercise price of
$1.59 per share.
(3) Includes 847,193 shares held in the name of Robert W. and
Geraldine McNamee and 358,633 shares which may be acquired by
Mr. McNamee pursuant to the exercise of stock purchase
warrants exercisable within sixty days at the average exercise
price of $3.31 per share.
(4) Includes 518,362 shares held in the name of Jerry L. and
Barbara D. Phipps and 473,632 shares which may be acquired
by Mr. Phipps pursuant to the exercise of stock purchase
warrants exercisable within sixty days at the average
exercise price of $2.91 per share.
(5) Includes 565,166 shares which may be acquired by Mr.
Kiesel pursuant to the exercise of stock purchase warrants
exercisable within sixty days at the average exercise
price of $2.61 per share, of which 300,000 warrants are
held in the name of Roy, Kiesel & Tucker and 100,000 warrants
are held in the name of Nu Vue Corp.
(6) Includes 350,000 shares held in the name of Diana B.
Sutherland, wife of Edward P. Sutherland, and 173,000
shares which may be acquired by Mr. Sutherland pursuant to the
exercise of stock purchase warrants exercisable
within sixty days at the average exercise price of $1.58 per
share.
(7) Includes 19,000 shares which may be acquired by Mr.
Frey pursuant to the exercise of stock purchase warrants
exercisable within sixty days at the average exercise
price of $2.47 per share.
(8) Includes 57,000 shares which may be acquired by Mr.
Radle pursuant to the exercise of stock purchase warrants
exercisable within sixty days at the average exercise
price of $1.81 per share.
(9) Includes 377,000 shares which may be acquired by Dr.
diBenedetto pursuant to the exercise of stock purchase
warrants exercisable within sixty days at the average exercise
price of $2.75 per share.
(11) Includes 5,000 shares which may be acquired by Ms. Cooper
pursuant to the exercise of stock purchase warrants
exercisable within sixty days at the average exercise price of
$4.25 per share.
(12) Includes 2,195,431 shares which may be acquired by the
Company's officers and directors pursuant to the exercise of
stock purchase warrants exercisable within sixty days
at exercise prices ranging from $1.57 to $4.25 per
share
ITEM 5. Directors, Executive Officers, Promoters and Control
Persons
Executive Officers and Directors
The executive officers and directors of the Company are as
follows:
Name Age Position
Edward P. Sutherland 50 President, Chief Executive Officer
and Director
Gary E. Alexander 52 Vice President, Chief Technology
Officer and Director
Kerry M. Frey 51 Vice President, Chief Operating
Officer and Director
Paul R. Radle, Jr. 42 Vice President, Chief Financial
Officer, Treasurer and Director
William D. Kiesel 52 Corporate Director and Secretary
Dr. Timothy Andurs 47 Director
Jane Cooper 42 Director
Dr. Robert L. diBenedetto69 Director
______________
All directors hold office until the next annual meeting of
stockholders and until their successors have been duly elected and
qualified. The Executive Committee of the Board of Directors, to
the extent permitted under Utah law, exercises all of the power and
authority of the Board of Directors in the management of the
business and affairs of the Company between meetings of the Board
of Directors. Each executive officers serves at the discretion of
the Board of Directors.
Directors are reimbursed for reasonable travel expenses
incurred related to attending meetings. Until such time as it
becomes economically feasible, Directors will not be paid any cash
compensation for serving on the Board. However, each member
receives 500 shares of the Company's common stock for each meeting
attended and an annual stock option for the purchase of 5,000
shares. Also, the Chairman receives an additional 200 shares per
meeting. Additionally, members of the Compensation Committee will
receive 100 shares per meeting with the Committee Chair receiving
150 shares. All shares issued to directors are deemed restricted
securities under the Act.
The four principal managers of the Company are:
EDWARD P. SUTHERLAND is the President/CEO and a co-founder of
the Company. Mr. Sutherland received a Bachelor of Arts Degree
from Louisiana State University in 1968, and a Juris Doctor Degree
from Louisiana State University in 1974. He was in private law
practice from 1974 until he co-founded the Company in 1992. Mr.
Sutherland has over 25 years of business, professional and
personnel management expertise in the private and public sector
including over five years of experience in forming, developing and
managing a start-up company in the medical R&D industry. His
background includes strategic planning, financing, administration,
policy formulation and execution, personnel education, general
office management, bookkeeping, taxation, and interface with
governmental agencies including FDA and SEC. While practicing as an
attorney, Mr. Sutherland also developed a comprehensive background
in hospital and medical practice, and product liability litigation.
GARY E. ALEXANDER is the Vice President, Chief Technical
Officer and co-founder of the Company. He is the principle
inventor of SofCeps. and most of the Company s other products and
is in charge of product research and development. Mr
Alexander received his Juris Doctor Degree in law from Louisiana
State University in 1976 and was engaged in private law practice
from 1976 to 1991, specializing in medical liability matters with
emphasis on obstetrics. In 1989, Mr. Alexander conceived the
SofCeps product and in 1990 began full time development of the
product. He has spent the last six years devoting himself to
invention, research, and developing of products for ultimate
commercialization. His broad based career began early in 1967
being named the number one Junior Salesman in the United States for
AM Corporation, a source data collection and conversion company.
Mr. Alexander has owned and operated several businesses in
building, general contracting, and construction equipment sales,
where he managed up to 75 employees and sub-contractors and managed
the materials flow accounting, invoicing, accounts payable and
receivable, and exclusive service contracts with major appliance
manufacturers. In connection with those businesses, he acquired
the special skills and expertise in engineering principles, design,
drawings, welding, carpentry, materials evaluation, electrical and
mechanical sciences which have led to his inventing successes. His
background in law resulted in multiple areas of business expertise
including the management of accounts in the real-estate sector, and
he has advised several manufacturing clients on both domestic and
international businesses contracts, research and development,
operations, sales and mergers. He has also served as advisor and
counsel for several financial institutions and has interfaced with
several governmental agencies including FDA and SEC and has
represented the SBA.
KERRY M. FREY, Vice President and Chief Operating Officer has
over 22 experience in the health care industry. Mr. Frey received
a Bachelor of Arts Degree from Southeastern Louisiana University in
1969. His background includes marketing and sales, as well as
general management. Mr. Frey was associated with Johnson and
Johnson Hospital Services for ten years in the development of
multi-company corporate marketing programs and services. He served
as Vice President of Marketing as well as VP of Sales. Mr. Frey
has coordinated strategic assessment of the dynamic healthcare
market, including managed care, integrated provider systems and
healthcare reform. He led the development of corporate value added
marketing programs for multi-hospital groups, large regional
hospital systems, surgical supply distributors and service
marketing programs for Johnson & Johnson in the professional
healthcare marketplace. Previous consulting assignments have
included integrated healthcare systems such as the General Health
System and the Florida Hospital; futuristic health delivery
planning with Walt Disney Development Company. He also consulted
for Qualitycare, Inc., a medical distributor company, and has
served on the boards of a medical software company, a start-up
minority distributor, and three other successful development stage
companies.
PAUL R. RADLE, JR. is the Company s Vice President, Chief
Financial Officer and Treasurer. Mr. Radle received from the
University of New Orleans a B.S. Degree in Accounting in 1978 and
was licensed to practice as a Certified Public Accountant in the
State of Louisiana in 1983. From 1974 to 1981, was employed by CNG
Producing Company serving in various accounting functions. From
1982 to 1995, Mr. Radle has served as Vice President, Finance for
Arrowhead Exploration Company, an independent oil and gas
exploration and production company. Mr. Radle s background
includes strategic planning, financial reporting, taxation, MIS,
and corporate administration. He is experienced in negotiating
contracts and agreements, performing business valuations and
economic analysis of business opportunities and investments. Mr.
Radle is a member of the Louisiana Society of CPA's, the American
Institute of CPA's, the Independent Petroleum Association of
American Tax Committee, and is a board member of the General Health
System Foundation and the Louisiana State University School of
Social Work.
The Company s Secretary and Consultant on Intellectual
Property is:
WILLIAM DAVID KIESEL is a Director and a co-founder of the
Company. During the past 25 years he has been actively engaged in
advising numerous start-up businesses. During that period he has
supported more that 100 start-up companies in all aspects of their
businesses, including structuring of R&D programs, financial
planning, management, as well as, marketing and sales of their new
products. These companies have varied in size and encompass
organizations offering a wide spectrum of products, including
medical devices and pharmaceutical products. In addition to his
current position with Medisys, he serves as the business manager of
his own 25 person patent law firm. He has also provided to his
clients fair market and liquidation s evaluations of patents,
trademarks, and other intellectual property. Mr. Kiesel received
from Louisiana State University a B.S. Degree in Mathematics in
1966, a M.S. Degree in Nuclear Engineering in 1970, and a Juris
Doctor Degree in law in 1970. Mr. Kiesel has been a registered
patent attorney and engaged in the private practice of law since
1971 specializing in patent law and related legal areas. Mr.
Kiesel has served as Adjunct Professor at the Louisiana State
University Law School teaching courses in Patent Law.
DR. TIMOTHY ANDRUS became a Director of the Company in
November 1996. He has over seventeen years experience as an
OB/GYN. Dr. Andrus has served as the Associate Director of Gulf
South Health Plans HMO for the past five years. Formerly he was the
Chief of Staff for Woman s Hospital, the seventh largest private
woman s hospital in the U.S., and currently he is on their Board
of Directors.
JANE COOPER became a director of the Company in May 1996.
Ms. Cooper is the founder, President, and CEO of Healthcare
Advantage, Inc., a regional managed care company headquartered in
New Orleans, Louisiana. Healthcare Advantage offers a variety of
managed care products including Advantage Health Plan, a commercial
HMO and a Medicare HMO, and serves over 325,000 members in eight
states. Originally from Wisconsin, Ms. Cooper attended Augustana
College for her undergraduate work and received her Master s Degree
from the University of Illinois. Since 1982 Ms. Cooper has worked
in the managed care industry and has been in managed care in New
Orleans since 1985. Ms. Cooper is on the executive Committee of
the Louisiana Managed Healthcare Association (LMHA) and is on the
Board of Directors and serves as Secretary of the American
Association of PPO s (AAPPO).
DR. ROBERT L. diBENEDETTO a director and co-founder of the
Company, received his Doctorate of Medicine in 1952 from the
Louisiana State University Medical School and served his internship
at Mercy Hospital from 1952 to 1953, and his residency in
Obstetrics and Gynecology at Charity Hospital, New Orleans,
Louisiana from 1956 to 1959. Dr. diBenedetto has been engaged in
the private practice of Obstetrics and Gynecology from 1959 to the
present and has recently received recognition as one of the top
fifty physicians in the United States. His hospital affiliations
include Woman's Hospital Foundation, Baton Rouge, Louisiana where
he has served as Chairman of the Board of Directors from 1984 to
1990, and he is also affiliated with Our Lady of the Lake Hospital,
Baton Rouge General Hospital and Earl K. Long Hospital. Dr.
diBenedetto is also currently President and CEO of the Louisiana
Medical Insurance Company, a major provider of medical malpractice
insurance. He also serves on the following committees: Chairman,
Dialogue with Congress; Area-wide Health Planning; Liaison with
Organized Specialties; Chairman, Maternal & Child Health; Member,
Committee on Professional Liability of American College of
Obstetrics and Gynecology; Member, Committee on Ethics of
American College of Obstetrics and Gynecology; Past Chairman,
Louisiana Delegation to American Medical Association. His
professional organizations include: Chairman & Legislative
Liaison, Louisiana Section of the American College of Obstetricians
and Gynecologists; Past Chairman, Louisiana Delegation to the
American Medical Association; South Central OB/GYN Society;
clinical Associate Professor of OB/GYN, L.S.U. School of Medicine -
New Orleans, Louisiana; American Fertility Society; Treasurer,
Louisiana Medical Political Action Committee.
ITEM 6. Executive Compensation
The Company has not had a bonus, profit sharing, or other
deferred compensation plan for the benefit of its employees,
officers or directors.
The following table sets forth all cash compensation actually
paid (and not deferred) by the Company for services rendered to the
Company for the years ended December 31, 1994, 1995 and 1996
to the Company s Chief Executive Officer, Chief Technical
Officer, and Chief Operating Officer.
<PAGE>
Summary Compensation Table
Other
Name and Annual All Other
Principal Position Year Salary(1) Bonus Compensa- Compensa-
tion tion(2)
Edward P. Sutherland,1994 $125,400 $ -0- $ -0- $ 2,000
President and CEO 1995 110,900 -0- -0- 25,253
1996 150,000 -0- -0- 35,415
Gary Alexander, 1994 119,900 -0- -0- 2,000
Vice President 1995 109,983 -0- -0- 24,543
and Chief 1996 108,000 -0- -0- 34,257
Technology Officer
Kerry M. Frey 1994 -0- -0- -0- -0-
Vice President and 1995 -0- -0- -0- 64,000
Chief Operating 1996 144,000 -0- -0- 47,136
Officer
(1) 1994 and 1995 "Salary" includes amounts that were deferred and not
paid as follows: Mr. Sutherland, $73,150 for 1994 and $18,000 for
1995; and Mr. Alexander, $69,942 for 1994 and $18,000 for 1995.
(2) 1995 and 1996 "All Other Compensation" includes amounts paid in
each respective year that relate to deferred salary and consulting
accruals from prior years as follows: Mr. Sutherland, $25,253 for
1995 and $35,415 for 1996; Mr. Alexander, $24,543 for 1995 and
$34,257 for 1996; and Mr. Frey, $29,250 for 1996. As of
December 31, 1996 the Company has accrued salaries and directors
fees of $85,851 as disclosed in Note 3 to the Consolidated Financial
Statements contained elsewhere in this Form 10-SB.
Employment Agreements
On January 12, 1993 the Company entered into three-year
employment agreements with each of Edward P. Sutherland, Gary E.
Alexander, and Jerry Phipps, pursuant to which they were to
receive annual salaries of $114,000, $109,000 and $57,800
respectively. These agreements have all expired.
In September 1996, the Company entered into new employment
contracts with Mr. Sutherland and Kerry M. Frey. Both agreements
acknowledge that since November 1, 1995, Messrs. Sutherland and
Frey had been working under an oral employment agreement and had
accrued part of their compensation. Therefore, the agreements were
effective as of November 1 1995 for Mr. Frey and January 1, 1996
for Mr. Sutherland and both agreements expire December 31, 1997.
Pursuant to the terms of Mr. Sutherland's agreement, for his
duties as President and Chief Executive Officer, he is to receive
a monthly base salary of $12,500. In addition, upon execution of
his agreement, Mr. Sutherland was to be paid all of his accrued
back salary. In the sole discretion of the Company, Mr. Sutherland
can be awarded additional monetary compensation based on
performance.
Mr. Frey is employed as the Vice President of Sales and
Marketing and Chief Operating Officer and will receive a base
monthly salary of $12,000. In addition, upon execution of his
agreement, Mr. Frey was to be paid $12,000 in consideration for
past services rendered. Further, the Company agreed to issue to
Mr. Frey a five year stock purchase warrant for the purchase of
2,000 shares of the Company's common stock at the exercise price of
$3.50 per share. In the sole discretion of the Company, Mr.
Frey can be awarded additional monetary compensation based on
performance.
ITEM 7. Certain Relationships and Related Transactions
On August 6, 1992 the Company, then known as Whitewater
Products, Ltd., entered into a certain Acquisition Agreement and
Plan of Reorganization (the "Agreement") with Medisys Technologies,
Inc., a privately held Louisiana corporation ("Medisys-Louisiana").
Prior to entering into the Agreement, the Company was engaged in
only minimal activities and Medisys-Louisiana was engaged in the
research and development of SofCeps. As per the terms of the
Agreement, the Company acquired all the issued and outstanding
shares of common stock of Medisys-Louisiana in exchange solely for
9,250,000 shares of the Company's authorized but previously
outstanding Common Stock, issued to the shareholders of
Medisys-Louisiana and their designees. Medisys-Louisiana became a
wholly owned subsidiary of the Company and the Company changed its
corporate name to Medisys Technologies, Inc., under the laws of the
State of Utah. For accounting purposes, the transaction has been
treated as a recapitalization of the Company, or reverse
acquisition, with Medisys-Louisiana deemed the acquiror. At
the time of the transaction, the Company had only nominal assets
and there was no substantive trading market for its securities.
Therefore, the value of the transaction and the number of shares
issued thereby was determined by mutual negotiation among the
parties.
The law firm of Roy, Kiesel & Tucker has been used for patent
work. William David Kiesel is a partner of Roy, Kiesel & Tucker
and is the Corporate Secretary and a Director of the Company. Mr.
Kiesel does not bill the Company for his time. However, other
attorneys at his firm do bill the Company for their time and the
Company does reimburse Roy, Kiesel & Tucker for expenses incurred
on the behalf of the Company.
ITEM 8. Description of Securities
Common Stock
The Company is authorized to issue 100,000,000 shares of
capital stock, par value $.0005 per share, of which
12,345,340 shares of Common Stock were issued and outstanding as
of March 31, 1997. All shares of Common Stock have equal rights
and privileges with respect to voting, liquidation and dividend
rights. Each share of Common Stock entitles the holder thereof to
(i) one non-cumulative vote for each share held of record on all
matters submitted to a vote of the stockholders; (ii) to
participate equally and to receive any and all such dividends as
may be declared by the Board of Directors out of funds legally
available thereof; and (iii) to participate pro rata in any
distribution of assets available for distribution upon liquidation
of the Company. Stockholders of the Company have no preemptive
rights to acquire additional shares of Common Stock or any other
securities. All outstanding shares of Common Stock are non-
assessable.
<PAGE>
PART II
ITEM 1. Market Price of And Dividends on the Registrant s Common
Equity and Other Shareholder Matters
No shares of the Company s Common Stock have been registered
with the Securities and Exchange Commission or any state securities
agency of authority. The Company s Common Stock has been traded in
the over-the-counter market and quotations are published on the
NASD Electronic Bulletin Board under the symbol "SCEP , and in the
National Quotation Bureau, Inc. "pink sheets" under Medisys
Technologies, Inc..
The following table sets forth the range of high and low bid
prices of the Common Stock for each calendar quarterly period since
the first quarter of 1994 as reported by the National Quotation
Bureau, Inc. ("NQB"). Prices reported by the NQB represent prices
between dealers, do not include retail markups, markdowns or
commissions and do not represent actual transactions.
High Low
1994
First Quarter $3.50 $2.00
Second Quarter 3.00 2.75
Third Quarter 2.25 2.00
Fourth Quarter 2.00 2.375
1995
First Quarter 1.75 1.00
Second Quarter 2.75 1.00
Third Quarter 2.00 0.75
Fourth Quarter 3.125 1.00
1996
First Quarter 4.1875 1.50
Second Quarter 5.125 3.875
Third Quarter 4.25 3.00
Fourth Quarter 3.25 1.87
1997
First Quarter 2.4375 1.125
Second Quarter(1) 1.9375 .875
(1) As of June 30, 1997.
As of June 30, 1997 there were approximately 450
holders of record of the Company s Common Stock, which figure
does not take into account those shareholders whose certificates
are held in the name of broker-dealers.
Dividend Policy
The Company has not declared or paid cash dividends or made
distributions in the past, and the Company does not anticipate that
it will pay cash dividends or make distributions in the foreseeable
future. The Company currently intends to retain and invest future
earnings to finance its operations.
ITEM 2. Legal Proceedings
There are presently no material pending legal proceedings to
which the Company or any of its subsidiaries is a party or to which
any of its property is subject and, to the best of its knowledge,
no such actions against the Company are contemplated of threatened.
ITEM 3. Changes in and Disagreements With Accountants
There have been no changes in or disagreements with
accountants.
ITEM 4. Recent Sales of Unregistered Securities
During 1994, 260,016 shares of restricted common stock were
issued to approximately 79 investors with proceeds of $1,236,583
through various private placements and in exchange for common
stock issued in settlement of shareholder loans.
During 1995, 627,937 shares of restricted common stock were
issued pursuant to Regulation S and other private placements
to approximately 38 investors with proceeds totaling
$659,876.
During April 1995, 100,000 shares of restricted common stock
were issued to an officer of the Company for services rendered.
An additional 21,939 shares were issued to other individuals in
payment of services rendered valued at $33,850. The Company also
issued 42,000 shares of common stock to 3 individuals for payment
of rent valued at $14,973.
During December 1995, the Company transferred 120,000 shares
in settlement of a note with a balance of $100,000 plus accrued
interest of $11,699. The shares were issued in the name of the
Company during 1994 as collateral for the loan.
The Company conducted a private placement of its common stock
during 1996. 1,342,331 shares of restricted common stock were sold
at $1.50 per share resulting in total cash proceeds of $2,013,500.
1,192,331 of the shares sold carry with them a warrant to purchase
one additional share of common stock at $1.50 per share.
Between May and December, 1996, the Company issued an
additional 36,769 shares of restricted common stock to officers,
directors, consultants, professionals and vendors for services
rendered. The shares were priced at the fair market value of the
common stock on the date the shares were issued and have been
valued at a total of $124,704 in the accompanying consolidated
financial statements for an average per share price of $3.39.
Also during 1996, warrants representing 40,000 and 1,700
shares of common stock were exercised at prices of $1.25 and $1.50
per share, respectively, generating cash proceeds to the Company
totaling $52,550.
In July 1996, 20,000 shares of restricted common stock were
issued by the Company as payment of a $50,000 note payable along
with accrued interest of $6,000 resulting in a per share price of
$2.80.
The Company issued 100,000 shares of restricted common stock
upon the exercise of common stock warrants representing the same
number of shares, having an exercise price of $1.75 per share.
Payment for the common stock was made with a non-interest bearing
four year promissory note. The related shares are being held by
the Company as collateral for the promissory note.
In the first quarter of 1997, the Company issued 7,400 shares
of common stock for services valued at $14,106 or $1.91 per share.
With respect to the issuance and/or sale of the aforementioned
shares, the Company relied on the exemption from registration
provided by Sections 4(2) and 4(6) of the Securities Act of 1933,
as amended (the "Act"), Regulation D Rule 506, and/or Regulation S
promulgated thereunder. The Company has also made available to
purchasers of its common stock its business plan and/or Private
Placement Memorandum. All of the shares issued to the
aforementioned persons bore restrictive legends preventing their
transfer except in accordance with the Act and the regulations
promulgated thereunder. In addition, stop transfer instructions
pertaining to these shares will be lodged with the Company s
transfer agent.
ITEM 5. Indemnification of Directors and Officers
As permitted by the provisions of the Utah Revised Business
Corporation Act (the "Utah Act"), the Company has the power to
indemnify an individual made a party to a proceeding because they
are or were a director, against liability incurred in the
proceeding, if such individual acted in good faith and in a manner
reasonably believed to be in, or not opposed to, the best interest
of the Company and, in a criminal proceeding, they had no
reasonable cause to believe their conduct was lawful.
Indemnification under this provision is limited to reasonable
expenses incurred in connection with the proceeding. The Company
must indemnify a director or officer who is successful, on the
merits of otherwise, in the defense of any proceeding or in defense
of any claim, issue, or matter in the proceeding, to which they are
a party to because they are or were a director of officer of the
Company, against reasonable expenses incurred by them in connection
with the proceeding or claim with respect to which they have been
successful. The Company s Articles of Incorporation empower the
Board of Directors to indemnify its officers, directors, agents, or
employees against any loss or damage sustained when acting in good
faith in the performance of their corporate duties.
The Company may pay for or reimburse reasonable expenses
incurred by a director, officer employee, fiduciary or agent of the
Company who is a party to a proceeding in advance of final
disposition of the proceeding provided the individual furnishes
the Company with a written affirmation that their conduct was in
good faith and in a manner reasonably believed to be in, or not
opposed to, the best interest of the Company, and undertake to
repay the advance if it is ultimately determined that they did not
meet such standard of conduct.
Also pursuant to the Utah Act, a corporation may set forth in
its articles of incorporation, by-laws or by resolution, a
provision eliminating or limiting in certain circumstances,
liability of a director to the corporation or its shareholders for
monetary damages for any action taken or any failure to take action
as a director. This provision does not eliminate or limit the
liability of a director (i) for the amount of a financial benefit
received by a director to which they are not entitled; (ii) an
intentional infliction of harm on the corporation or its
shareholders; (iii) for liability for a violation of Section
16-10a-842 of the Utah Act (relating to the distributions made in
violation of the Utah Act); and (iv) an intentional violation of
criminal law. To date, the Company has not adopted such a
provision in its Articles of Incorporation, By-Laws, or by
resolution. A corporation may not eliminate or limit the liability
of a director for any act or omission occurring prior to the date
when such provision becomes effective. The Utah Act also permits
a corporation to purchase and maintain liability insurance on
behalf of its directors, officers, employees, fiduciaries or
agents.
Transfer Agent
The Company has designated Interstate Transfer Co., 56 West
400 South, Suite 260, Salt Lake City, Utah 84101, as its transfer
agent.
PART F/S
The financial statements for Medisys Technologies, Inc. for
the fiscal year ended December 31, 1996 and 1995 have been
examined to the extent indicated in their reports by Jones, Jenson
& Company, independent certified public accountants, and have been
prepared in accordance with generally accepted accounting
principles and pursuant to Regulation S-B as promulgated by the
Securities and Exchange Commission and are included herein in
response to Item 15 of this Form 10-SB. Financial statements for
the period ending March 31, 1997 and 1996 included herewith have
not been audited and were prepared by the Company.
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Medisys Technologies, Inc. and Subsidiary
(Development Stage Companies)
Baton Rouge, Louisiana
We have audited the accompanying consolidated balance sheet of
Medisys Technologies, Inc. and Subsidiary (development stage
companies) as of December 31, 1996, and the related consolidated
statements of operations, stockholders' equity, and cash flows for
the years ended December 31, 1996, and 1995 and from inception on
January 21, 1991 through December 31, 1996. These consolidated
financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the
consolidated financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated
financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall consolidated
financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial
position of Medisys Technologies, Inc. and Subsidiary (development
stage companies) as of December 31, 1996, and the results of their
operations and their cash flows for the years ended December 31,
1996, and 1995 and from inception on January 21, 1991 through
December 31, 1996 in conformity with generally accepted accounting
principles.
The accompanying consolidated financial statements have been
prepared assuming that the Company will continue as a going
concern. As discussed in Note 10 to the consolidated financial
statements, the Company has incurred significant losses since
inception relating to its research and development efforts and has
had no significant operating revenues, all of which raise
substantial doubt about the Company's ability to continue as a
going concern. Management's plans in regard to these matters are
also described in Note 10. The consolidated financial statements
do not include any adjustments that might result from the outcome
of this uncertainty.
Jones, Jensen & Company
Salt Lake City, Utah
February 26, 1997
<PAGE>
MEDISYS TECHNOLOGIES, INC. AND SUBSIDIARY
(Development Stage Companies)
Consolidated Balance Sheet
ASSETS
December 31,
1996
CURRENT ASSETS
Cash $ 669,604
Inventory 8,571
Prepaid expenses 6,997
Total Current Assets 685,172
FIXED ASSETS
Leasehold improvements 2,195
Automobiles 67,950
Furniture and equipment 66,092
Leased equipment 10,010
Accumulated depreciation (79,934)
Total Fixed Assets 66,313
OTHER ASSETS
Security deposits 4,000
Patent and trademark costs, net (Note 1) 295,704
Organizational costs (Note 1) 311
Total Other Assets 300,015
TOTAL ASSETS $ 1,051,500
<PAGE>
MEDISYS TECHNOLOGIES, INC. AND SUBSIDIARY
(Development Stage Companies)
Consolidated Balance Sheet (Continued)
LIABILITIES AND STOCKHOLDERS' EQUITY
December 31,
1996
CURRENT LIABILITIES
Accounts payable $ 276,014
Accrued expenses (Note 3) 105,441
Payable-stockholders (Note 2) 45,981
Contracts payable - current portion (Note 4) 14,243
Notes payable (Note 5) 45,381
Total Current Liabilities 487,060
LONG-TERM DEBT
Contracts payable - less current portion (Note 4) 6,334
Total Long-Term Debt 6,334
TOTAL LIABILITIES 493,394
COMMITMENTS AND CONTINGENCIES (Note 6)
STOCKHOLDERS' EQUITY (Notes 7 and 8)
Common stock: 100,000,000 shares
authorized of $0.0005 par value,
12,337,940 shares issued and outstanding 6,167
Additional paid-in capital 5,429,958
Stock subscriptions receivable (Note 7) (175,000)
Deficit accumulated during the development stage(4,703,019)
Total Stockholders' Equity 558,106
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $1,051,500
<PAGE>
MEDISYS TECHNOLOGIES, INC. AND SUBSIDIARY
(Development Stage Companies)
Consolidated Statements of Operations
From
Inception on
January 21,
For the Years Ended 1991 through
December 31, December 31,
1996 1995 1996
REVENUES $ 2,182 $ 2,802 $ 4,984
OPERATING EXPENSES
Cost of product sold 1,267 574 1,841
Product research and development 496,446 255,486 1,684,588
Professional services 272,161 365,727 748,470
Salaries 290,857 207,980 1,038,906
Depreciation and amortization 25,548 19,763 100,079
General and administrative 348,186 284,671 1,003,240
Total Operating Expenses 1,434,465 1,134,201 4,577,124
OPERATING LOSS (1,432,283)(1,131,399) (4,572,140)
OTHER INCOME (EXPENSES)
Interest income 13,194 - 13,194
Interest expense (26,566) (31,016) (90,646)
Bad debt expense (53,070) (357) (53,427)
Total Other Income (Expenses) (66,442) (31,373) (130,879)
LOSS BEFORE INCOME TAXES (1,498,725)(1,162,772) (4,703,019)
INCOME TAXES - - -
NET LOSS $(1,498,725)$(1,162,772) $ (4,703,019)
NET LOSS PER SHARE OF COMMON STOCK$ (0.13 ) $ (0.10)
<PAGE>
MEDISYS TECHNOLOGIES, INC. AND SUBSIDIARY
(Development Stage Companies)
Consolidated Statements of Stockholders' Equity
Deficit
Accumulated
Additional During the
Common Stock Paid-In Development
Shares Amount Capital Stage
Balance, January 21, 1991 - $ - $ - $ -
Common stock issued for cash
during 1991 at $.0001
per share 8,100,000 4,050 (3,060) -
Net loss for the year ended
December 31, 1991 - - - (8,667)
Balance, December 31, 1991 8,100,000 4,050 (3,060) (8,667)
Effect of reverse acquisition1,768,500 884 (41,557) -
Private placement of common
stock for cash at $2.00
per share 250,000 125 499,875 -
Cancelled shares (418,500) (209) 209 -
Net loss for the year ended
December 31, 1992 - - - (269,551)
Balance, December 31, 1992 9,700,000 4,850 455,467 (278,218)
Issuance of common stock for
cash at an average price of
$2.21 per share 45,248 23 99,977 -
Common stock offering costs - - (4,970) -
Net loss for the year ended
December 31, 1993 - - - (802,338)
Balance, December 31, 1993 9,745,248 $ 4,873 $ 550,474 $(1,080,556)
<PAGE>
MEDISYS TECHNOLOGIES, INC. AND SUBSIDIARY
(Development Stage Companies)
Consolidated Statements of Stockholders' Equity (Continued)
Deficit
Accumulated
Additional During the
Common Stock Paid-In Development
Shares Amount Capital Stage
Balance, December 31, 1993 9,745,248 $ 4,873 $ 550,474 $(1,080,556)
Issuance of common stock for
cash at an average price
of $1.26 per share 60,016 30 75,581 -
Contributed capital by shareholders - - 513,812 -
Commons stock issued in settlement
of shareholder loans at
approximately $2.16 per share 200,000 100 431,495 -
Forgiveness of wages and fees
by shareholders - - 215,565 -
Common stock offering costs - - (97,791) -
Net loss for the year ended
December 31, 1994 - - - (960,966)
Balance, December 31, 1994 10,005,264 5,003 1,689,136 (2,041,522)
Issuance of common stock for cash
at an average price of $1.05
per share 627,937 314 659,562 -
Issuance of common stock for
services rendered at an average
price of $1.26 per share 121,939 61 153,789 -
Issuance of common stock for
prepaid rent at $0.35 per share 42,000 21 14,952 -
Sale of common stock options - - 431,800 -
Transfer of common stock in
settlement of debt - - 111,699 -
Net loss for the year ended
December 31, 1995 - - - (1,162,772)
Balance, December 31, 1995 10,797,140 $ 5,399 $3,060,938 $(3,204,294)
<PAGE>
MEDISYS TECHNOLOGIES, INC. AND SUBSIDIARY
(Development Stage Companies)
Consolidated Statements of Stockholders' Equity (Continued)
Deficit
Accumulated
Additional During the
Common Stock Paid-In Development
Shares Amount Capital Stage
Balance, December 31, 1995 10,797,140 $ 5,399 $3,060,938 $(3,204,294)
Issuance of common stock for
cash at a price of $1.50
per share 1,342,331 670 2,012,830 -
Common stock offering costs - - (85,420) -
Issuance of common stock for
consulting and professional
services rendered at an average
price of $3.39 per share 36,769 17 124,687 -
Issuance of common stock from
exercise of common stock
warrants at $1.50 and $1.25
per share 41,700 21 52,529 -
Issuance of common stock in
satisfaction of note payable
at $2.80 per share 20,000 10 55,990 -
Issuance of common stock for
warrants exercised at $1.75 per
share for subscription receivable 100,000 50 174,950 -
Common stock warrants issued for
extension of payable payment - - 33,454 -
Net loss for the year ended
December 31, 1996 - - - (1,498,725)
Balance, December 31, 1996 12,337,940 $ 6,167 $5,429,958 $(4,703,019)
<PAGE>
MEDISYS TECHNOLOGIES, INC. AND SUBSIDIARY
(Development Stage Companies)
Consolidated Statements of Cash Flows
From
Inception on
January 21,
For the Years Ended 1991 through
December 31, December 31,
1996 1995 1996
CASH FLOWS FROM OPERATING ACTIVITIES
Loss from operations $(1,498,725) $(1,162,772) $(4,703,019)
Adjustments to reconcile net income to net
cash provided (used) by operating activities:
Operating expenses paid by issuance of
common stock 124,704 183,867 308,571
Common stock options and warrants
for services 33,454 177,800 211,254
Depreciation and amortization 25,548 19,763 101,474
Allowance for doubtful accounts 53,070 - 53,070
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable 870 (513) -
(Increase) decrease in inventory (4,145) (4,426) (8,571)
(Increase) decrease in prepaid expenses 7,976 4,485 (6,997)
(Increase) decrease in loans
receivable - stockholders 5,007 (2,507) -
(Increase) decrease in security deposits (859) 10 (4,000)
(Increase) decrease in organizational costs - - (311)
Increase (decrease) in accounts payable 137,033 48,883 276,014
Increase (decrease) in accrued expenses (107,165) 6,784 105,441
Net Cash (Used) by Operating
Activities (1,223,232) (728,626) (3,667,074)
CASH FLOWS FROM INVESTING ACTIVITIES
Increase in patent costs (91,053) (64,778) (297,098)
Acquisition of subsidiary - - (40,673)
Purchase of fixed assets (25,820) (17,606) (83,847)
Net Cash (Used) by Investing Activities $(116,873) $ (82,384) $ (421,618)
<PAGE>
MEDISYS TECHNOLOGIES, INC. AND SUBSIDIARY
(Development Stage Companies)
Consolidated Statements of Cash Flows (Continued)
From
Inception on
January 21,
For the Years Ended 1991 through
December 31, December 31,
1996 1995 1996
CASH FLOWS FROM FINANCING ACTIVITIES
Payments of stock offering costs $ (60,100) $ (25,319) $ (90,389)
Proceeds from capital lease - - 10,010
Payments on capital lease (1,444) (2,178) (10,010)
Payments on contracts payable (13,132) (10,574) (41,823)
Borrowings from stockholders 42,782 3,199 490,470
Borrowings from notes payable - 10,000 338,500
Payment on loans payable - stockholders - - (20,984)
Payment on notes payable (106,596) (30,524) (137,119)
Stock subscriptions receivable - 9,984 (53,427)
Issuance of common stock 2,013,500 644,832 3,966,518
Proceeds from sale of stock options - 254,000 254,000
Proceeds from exercise of common
stock options 52,550 - 52,550
Net Cash Provided by Financing
Activities 1,927,560 853,420 4,758,296
NET INCREASE (DECREASE) CASH AND
CASH EQUIVALENTS 587,455 42,410 669,604
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 82,149 39,739 -
CASH AND CASH EQUIVALENTS AT END
OF PERIOD $669,604 $ 82,149 $ 669,604
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION
CASH PAID FOR
Income taxes $ - $ - $ -
Interest $ 9,932 $ 15,285 $ 43,180
NON CASH FINANCING ACTIVITIES
Purchase of automobiles on contract $ - $ - $ 62,400
Conversion of stockholder loans to
equity $ 56,000 $ 111,699 $ 599,294
Stock issued in payment of operating
expenses $ 124,704 $ 183,867 $ 308,571
<PAGE>
MEDISYS TECHNOLOGIES, INC. AND SUBSIDIARY
(Development Stage Companies)
Notes to the Consolidated Financial Statements
December 31, 1996 and 1995
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
a. Business Organization
The Company was incorporated on March 17, 1983 under the laws
of the State of Utah. The Company subsequently ceased its
original business activity in 1985 and thereafter primarily
investigated and sought new business opportunities and was
reclassified as a development stage Company as of March 1, 1989.
The Company has a wholly owned subsidiary (the Subsidiary)
which was incorporated in the State of Louisiana, on January 21,
1991, for the purpose of developing a device for the assistance
of childbirth under a patent which was applied for in May 1990
and granted on June 15, 1992.
The Subsidiary has been classified as a development stage
company since all activities to date have been related to the
development of a childbirth assistance device as well as other
medical devices.
On August 6, 1992 the Company acquired all of the outstanding
common stock of Medisys Technologies, Inc. (Medisys). For
accounting purposes the acquisition has been treated as a
recapitalization of Medisys with Medisys as the acquirer.
b. Fixed Assets
Fixed assets are stated at cost less accumulated depreciation.
Depreciation on equipment and furniture is provided using the
straight-line method over an expected useful life of five years.
c. Patent and Trademark Costs
The capitalized costs of obtaining patents consists of legal
fees and associated filing costs. These patent costs will be
amortized over the shorter of their legal or useful lives. The
Company has numerous patents in various stages of development
and the application process. Several patents have been granted
but are being developed further in a continuation-in-part (CIP)
status until the development of a commercial product is
complete, the related product has received FDA (Food and Drug
Administration) approval and is in a marketable condition ready
for sale. Once patents have been granted, FDA approval
obtained, and sales commenced, no further costs associated with
the patent are capitalized. As of December 31, 1996, the
Company did have one patented product for which sales have
commenced with the related costs being amortized over the
estimated useful life of the patent. Management has determined
that estimated future cash flows from this product will be
sufficient to recover the capitalized basis of the costs
associated with that patent. The other patents for which costs
have been capitalized are considered to have continued viability
according to management of the Company with no significant
events occurring which would impair the value of the capitalized
costs associated with the individual patents.
<PAGE>
MEDISYS TECHNOLOGIES, INC. AND SUBSIDIARY
(Development Stage Companies)
Notes to the Consolidated Financial Statements
December 31, 1996 and 1995
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
(Continued)
c. Patent and Trademark Costs (Continued)
The Company has also incurred costs associated with obtaining
trademarks related to the Company's existing and future
products. Those costs have been capitalized and will be
amortized over the estimated useful life of the trademarks once
approval has been received and usage begins. These trademarks
are considered to have continued viability according to
management with no significant events occurring which would
impair the value of the capitalized costs associated with the
trademarks.
d. Organization Costs
The Company's organization costs will be amortized over a 60
month period using the straight-line method when it begins its
principal activities.
e. Cash and Cash Equivalents
For purposes of financial statement presentation, the Company
considers all highly liquid investments with a maturity of three
months or less, from the date of purchase, to be cash
equivalents.
f. Income Taxes
No provision for federal income taxes has been made at December
31, 1996 and 1995 due to accumulated operating losses. The
minimum state franchise tax has been accrued.
The Company has accumulated approximately $4,692,943 of net
operating losses as of December 31, 1996, which may be used to
reduce taxable income and income taxes in future years. The use
of these losses to reduce future income taxes will depend on the
generation of sufficient taxable income prior to the expiration
of the net operating loss carryforwards. The carryforwards
expire as follows:
Year of Net Operating
Expiration Loss
2006 $8,667
2007 267,504
2008 800,372
2009 959,825
2010 1,159,850
2011 1,496,725
$4,692,943
In the event of certain changes in control of the Company, there
will be an annual limitation on the amount of net operating loss
carryforwards which can be used. The potential tax benefits of
the net operating loss carryforwards have been offset by a
valuation allowance of the same amount.
<PAGE>
MEDISYS TECHNOLOGIES, INC. AND SUBSIDIARY
(Development Stage Companies)
Notes to the Consolidated Financial Statements
December 31, 1996 and 1995
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
(Continued)
g. Principles of Consolidation
The consolidated financial statements include the accounts of
Medisys Technologies, Inc., (parent) and Medisys Technologies,
Inc. (Subsidiary) a wholly owned subsidiary. All significant
intercompany accounts and transactions have been eliminated in
consolidation.
h. Presentation of Consolidated Financial Statements
Certain balances for the prior period have been reclassified to
conform to the current year presentation.
i. Inventory
Inventory is carried at the lower of cost or market value using
the first-in first-out method.
j. Net Loss Per Share
Net loss per share is computed using the weighted average number
of common shares outstanding during each period. Pursuant to
the requirements of Securities and Exchange Commission Staff
Accounting Bulletin No. 83, common shares issued by the Company
during the twelve months immediately preceding the initial
public offering at a price below the initial public offering
price have been included in the calculation of the shares used
in computing net loss per share as if they were outstanding for
all periods presented. There are no common stock equivalents.
k. Forward Stock Split
On July 20, 1992 the subsidiary forward split its shares of
common stock on a 8,100 shares for 1 share basis. All
references to shares outstanding and earnings per share have
been restated on a retroactive basis.
l. Credit Risks
The Company maintains its cash accounts primarily in one bank
in Louisiana. The Federal Deposit Insurance Corporation insures
accounts to $100,000. The Company's accounts occasionally
exceed the insured amount. The Company also has $633,694 in a
money market fund with a brokerage house.
m. Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
<PAGE>
MEDISYS TECHNOLOGIES, INC. AND SUBSIDIARY
(Development Stage Companies)
Notes to the Consolidated Financial Statements
December 31, 1996 and 1995
NOTE 2 - PAYABLE - STOCKHOLDERS
From time to time the Company receives advances from certain
stockholders for the purpose of providing funds for the
Company's operating expenditures. The Company has also advanced
funds to stockholders. The outstanding balances of these
advances fluctuates during the year and do not have specific
repayment terms although the advances are generally considered
to be due or payable on demand. Accordingly, the related
receivable or payable has been reflected as current in the
accompanying consolidated financial statements. At December 31,
1996, there was a balance outstanding payable to stockholders
totaling $45,981.
NOTE 3 - ACCRUED EXPENSES
Accrued expenses at December 31, 1996 consist of the following:
Payroll taxes payable $ 1,318
Accrued salaries and directors fees 85,851
Accrued interest payable 4,636
Contract labor payable 13,636
$ 105,441
The accrued salaries and directors fees are to be paid over the
next 24 months or when the Company is adequately financed.
NOTE 4 - CONTRACTS PAYABLE
The Company has entered into purchase contracts for three
automobiles as follows:
Bank One, with total monthly payments of principal
and interest of $1,275, for 60 months, secured by the
automobiles. $ 20,577
The maturities of contracts payable are as follows:
1997 $ 14,243
1998 6,334
Thereafter -
$ 20,577
<PAGE>
MEDISYS TECHNOLOGIES, INC. AND SUBSIDIARY
(Development Stage Companies)
Notes to the Consolidated Financial Statements
December 31, 1996 and 1995
NOTE 5 - NOTES PAYABLE
Notes payable consisted of the following:
December 31,
1996
Note payable to Richard L. Apel, unsecured, dated
November 2, 1993 at 8%; principal and interest
due on August 18, 1994. $ 12,500
Note payable to Cynthia F. Vatz, unsecured, dated October
19, 1993 at 8%; principal and interest due on August 18,
1994. 12,500
Note payable to Abraham B. and Edele Eckstein, unsecured,
dated March 1, 1995 which replaces an October 6, 1993 note
at 8%; monthly payments of $500 commencing March 1, 1995
with a single balloon payment for the remaining balance plus
interest due on March 1, 1996. 20,381
Total 45,381
Less current portion (45,381)
Total Long-Term Portion $ -
These notes payable are in default. None of the related note
holders have demanded repayment and the Company is in the
process of negotiating repayment terms. The Company continues
to pay the $500 monthly installments on the one note payable to
Mr. and Mrs. Eckstein and continues to accrue interest on these
and all outstanding notes payable.
NOTE 6 - COMMITMENTS AND CONTINGENCIES
During 1996, the Company adopted a Simplified Employee Pension
(SEP) Plan. The Plan enables the Company to make an annual
discretionary contribution to be allocated to employees on a
prorata basis according to their compensation for the year. In
addition, employees have the option to make voluntary Retirement
Savings Contributions in amounts not to exceed 15% of their
annual compensation. The Company elected to not make a
contribution for the year ended December 31, 1996. The Company
has no other bonus, profit sharing or deferred compensation
plans for the benefit of its employees, officers or directors
except if discussed elsewhere.
On January 21, 1993, the Company entered into three-year
employment agreements with each of Edward P. Sutherland, Gary
Alexander, and Jerry Phipps. These contracts expired on January
21, 1996 and were not renewed. The Company entered into
employment agreements with Edward P. Sutherland and Kerry Frey
on September 3, 1996 and September 4, 1996, respectively,
pursuant to which they will receive annual salaries of $150,000
and $144,000, respectively. These employment agreements expire
on December 31, 1997.
Any additional compensation to these employees is to be in the
form of an annual cash bonus or the granting of stock options
at the discretion of the Board of Directors not to exceed 50%
of their annual compensation.
<PAGE>
MEDISYS TECHNOLOGIES, INC. AND SUBSIDIARY
(Development Stage Companies)
Notes to the Consolidated Financial Statements
December 31, 1996 and 1995
NOTE 6 - COMMITMENTS AND CONTINGENCIES (Continued)
On March 29, 1995 the Company entered into a contract with a
medical institution to perform a clinical study of the Company's
SofCepts product. The contract required that payments totaling
$247,262 be made by the Company to the medical institution for
testing services. During 1995, the contract was amended with
additional payments to be made based on services to be
performed. The contract was later terminated before its
completion. The Company had made payments of $265,465 for
services performed pursuant to the contract. The medical
institution has claimed an unpaid balance of $133,326 which the
Company disputes. The Company contends that the services
stipulated by the terms of the contract were not performed by
the medical institution and that no additional amounts are due
and payable related to this contract. No amount has been
accrued in the accompanying consolidated financial statements
related to this transaction. The Company intends to vigorously
contend any further claims with respect to this contract and
believes that the probability that the Company will be required
to make additional payments is remote.
On January 1, 1994, the Company entered into an agreement to
lease 3,532 square feet of office space. The lease has a term
of two years with an extension option for an additional two
years through December 31, 1997. The Company exercised the
option to lease the office facilities for 1997 at a cost of
$2,942 per month, including utilities, for a total annual cost
of $35,304.
On October 1, 1996, the Company entered into an agreement to
lease 450 square feet of office space in Far Hills, New Jersey
at a cost of $1,000 per month, including utilities, for an
annual cost of $12,000. The New Jersey lease has a term of ten
months through July 31, 1997.
NOTE 7 - COMMON STOCK
During the months of October and November 1993, the Company had
a private placement of restricted common stock. 45,248 shares
were issued, the proceeds of which totalled $100,000.
60,016 shares of common stock were issued during 1994 with
proceeds of $75,611 through a private placement.
In April 1994, the Company retired the stock of an officer and
reissued the shares in a private placement, with the total
proceeds of $513,812 being contributed to additional paid-in
capital.
During August 1994, 200,000 shares of common stock were issued
for cancellation of shareholder loans totalling $431,595.
During 1994, officers and directors of the Company determined
that the accrued salaries and fees owed them totaling $215,565,
would be forgiven and were converted to additional paid-in
capital.
<PAGE>
MEDISYS TECHNOLOGIES, INC. AND SUBSIDIARY
(Development Stage Companies)
Notes to the Consolidated Financial Statements
December 31, 1996 and 1995
NOTE 7 - COMMON STOCK (Continued)
During 1995, 627,937 shares of common stock were issued through
various private placements with cash proceeds of $659,876.
During April 1995, 100,000 shares of common stock, valued at
$120,000, were issued to an officer of the Company for services
rendered. An additional 21,939 shares were issued to other
individuals in payment of services rendered valued at $33,850.
The Company also issued 42,000 shares of common stock for
payment of rent valued at $14,973 for 1995.
During December 1995, the Company transferred 120,000 shares of
common stock in settlement of a note payable with a balance of
$100,000 plus accrued interest of $11,699. These shares had
been issued previously in the name of the Company as collateral
on notes payable.
The Company conducted a private placement of its common stock
during 1996. 1,342,331 shares of restricted common stock were
sold at $1.50 per share resulting in total cash proceeds of
$2,013,500. 1,192,331 of the shares sold carry with them a
warrant to purchase one additional share of common stock at
$1.50 per share (see Note 8). $85,420 of costs were incurred
in connection with this offering and have been deducted from
additional paid-in capital in the accompanying consolidated
financial statements.
Between May and December, 1996, the Company issued an additional
36,769 shares of restricted common stock to officers, directors,
consultants, professionals and vendors for services rendered.
The shares were priced at the fair market value of the common
stock on the date the shares were issued and have been valued
at a total of $124,704 in the accompanying consolidated
financial statements for an average per share price of $3.39.
During 1996, warrants representing 40,000 and 1,700 shares of
common stock were exercised at prices of $1.25 and $1.50 per
share, respectively, generating cash proceeds to the Company
totaling $52,550. See Note 8 regarding common stock warrants.
In July 1996, 20,000 shares of restricted common stock were
issued by the Company as payment of a $50,000 note payable along
with accrued interest of $6,000 resulting in a per share price
of $2.80.
The Company issued 100,000 shares of restricted common stock
upon the exercise of common stock warrants representing the same
number of shares, having an exercise price of $1.75 per share.
Payment for the common stock was made with a non-interest
bearing four year promissory note. The related shares are being
held by the Company as collateral for the promissory note. The
shares have ben reflected as issued and outstanding with a
corresponding $175,000 stock subscription receivable reflected
as a reduction of stockholders' equity.
<PAGE>
MEDISYS TECHNOLOGIES, INC. AND SUBSIDIARY
(Development Stage Companies)
Notes to the Consolidated Financial Statements
December 31, 1996 and 1995
NOTE 8 - COMMON STOCK WARRANTS
As of December 31, 1996, the Company had outstanding warrants
for the issuance of common stock as follows:
Number of Date Expiration Exercise Potential
Shares Issued Date Price Proceeds
777,750 1994 1997 $1.5625 - $2.50 $1,345,625
591,000 1995 1998-2005 $1.125 - $2.625 1,124,250
2,553,330 1996 1999-201 $1.00 - $4.25 6,600,388
$9,070,263
762,000 common stock warrants were issued to current and former
officers, directors and affiliates of the Company for incurring
personal liability for the Company's indebtedness. The exercise
price of these warrants was equal to the fair market value of
the underlying common stock.
Of the outstanding common stock warrants, 212,500 were issued to
holders of the Company's notes payable as collateral and also in
return for the extension of repayment terms. In November 1995,
300,000 common stock warrants were issued to the Company's
patent attorney for deferring payment of legal fees. The
exercise price of all of these warrants was equal to the fair
market value of the underlying common stock on the date the
common stock warrants were granted.
261,000 common stock warrants have been issued in return for
directors of the Company forfeiting their claim to director fees
from prior periods. In addition, officers, directors and
affiliates have been issued a total of 1,172,597 common stock
warrants in exchange for common stock which they surrendered and
were issued to an unrelated entity for their assistance in
raising equity capital for the Company. In both cases, the
exercise price of the warrants was equal to the fair market
value of the related common stock on the date the common stock
warrants were granted.
During the period August through December 1996, the Company
issued a total of 23,102 common stock warrants having exercise
prices between $1.00 and $3.50 per share at a time when the fair
market price of the underlying common stock was $2.75 to $3.50
per share. The aggregate difference between the exercise price
and fair market value of the common stock totaling $33,454 has
been reflected as professional services with a corresponding
charge to additional paid-in-capital.
<PAGE>
MEDISYS TECHNOLOGIES, INC. AND SUBSIDIARY
(Development Stage Companies)
Notes to the Consolidated Financial Statements
December 31, 1996 and 1995
NOTE 8 - COMMON STOCK WARRANTS(Continued)
During 1996, the Company conducted a private placement of its
common stock (see Note 7), wherein the purchaser of one share of
the Company's common stock also received a warrant to purchase
one additional share of common stock at $1.50 per share. The
Company issued 1,192,331 common stock warrants pursuant to this
private placement, 1,700 of which were exercised prior to
December 31, 1996 (See Note 7). Any difference between the
exercise price of the common stock warrants and the fair value
of the Company's common stock on the date the shares of common
stock were purchased has been included in the proceeds from the
sale of the common stock as part of additional paid-in capital.
NOTE 9 - COMMON STOCK OPTIONS
On September 15, 1995, the Company issued options for the
purchase of 508,000 shares of common stock to certain
shareholders, one of which is also an officer and director of
the Company. The Company received $254,000 of consideration for
the issuance of these options or $0.50 per share which enabled
the holders to acquire the 508,000 shares of common stock for
additional consideration totaling $76,000, or $0.15 per share.
The fair market value of the Company's common stock on the date
the options were purchased was $1.00 per share. The difference
between the option exercise price and the fair market value of
the Company's common stock relative to these options totaled
$177,800 or $0.35 per share and has been included as
compensation in the accompanying consolidated statement of
operations for the year ended December 31, 1995. The options
expired unexercised on December 15, 1995. Accordingly, the
proceeds from the sale of these options and the difference
between the option exercise and fair market value of the common
stock has been reflected as additional paid-in capital in the
accompanying consolidated financial statements with no shares of
common stock issued.
NOTE 10 - GOING CONCERN
The Company's consolidated financial statements have been
prepared using generally accepted accounting principles
applicable to a going concern which contemplates the realization
of assets and liquidation of liabilities in the normal course of
business. The Company has incurred significant losses since
inception, relating to its research and development efforts and
has had no significant operating revenues. In prior periods,
the Company has had substantial working capital and
stockholders' equity deficits. In 1996, the Company was able to
raise working capital through the private placement of its
common stock. However, cash flow projections show that the
Company's reserves are not adequate to cover its needs for 1997.
It is unlikely that the Company can complete its research and
development projects without additional funds. Management of
the Company plans to raise additional capital through a private
placement or a public offering of its common stock and the
Company anticipates generating additional revenue from increased
product sales.
<PAGE>
Medisys Technologies, Inc.
(a Development Stage Company)
Consolidated Financial Statements
March 31, 1997 and 1996
(Unaudited)
<PAGE>
MEDISYS TECHNOLOGIES, INC.
(A Development Stage Company)
Consolidated Balance Sheets
ASSETS
March 31, December 31,
1997 1996
(Unaudited)
CURRENT ASSETS
Cash $ 209,140 $ 669,604
Accounts receivable, net
of allowance for bad debt 29,273 -
Inventory 19,668 8,571
Prepaid expenses 27,832 6,997
Total Current Assets 285,913 685,172
FIXED ASSETS
Leasehold improvements 2,195 2,195
Automobiles 67,950 67,950
Furniture and equipment 76,729 66,092
Leased equipment 10,010 10,010
Accumulated depreciation (85,934) (79,934)
Total Fixed Assets 70,950 66,313
OTHER ASSETS
Security deposits 4,000 4,000
Patent costs 345,711 295,704
Organizational costs 311 311
Total Other Assets 350,022 300,015
TOTAL ASSETS $ 706,885 $1,051,500
<PAGE>
MEDISYS TECHNOLOGIES, INC.
(A Development Stage Company)
Consolidated Balance Sheets (Continued)
LIABILITIES AND STOCKHOLDERS' EQUITY
March 31, December 31,
1997 1996
(Unaudited)
CURRENT LIABILITIES
Accounts payable $ 286,160 $ 276,014
Accrued expenses (Note 3) 119,848 105,441
Loans payable-shareholders (Note 2) 45,981 45,981
Contracts payable - current
portion (Note 4) 14,243 14,243
Notes payable - current
portion (Note 5) 43,908 45,381
Total Current Liabilities 510,140 487,060
LONG-TERM DEBT
Contracts payable - less
current portion (Note 4) 2,467 6,334
Total Long-Term Debt 2,467 6,334
TOTAL LIABILITIES 512,607 493,394
COMMITMENTS (Note 6) - -
STOCKHOLDERS' EQUITY
Common stock: 100,000,000 shares
authorized of $0.0005 par value,
12,345,340 and 12,337,940 shares
issued and outstanding, respectively 6,173 6,167
Additional paid-in capital 5,464,222 5,429,958
Stock subscriptions receivable
(Note 7) (175,000) (175,000)
Deficit accumulated during the
development stage (5,101,117) (4,703,019)
Total Stockholders' Equity 194,278 558,106
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 706,885 $1,051,500
<PAGE>
MEDISYS TECHNOLOGIES, INC.
(A Development Stage Company)
Consolidated Statements of Operations
(Unaudited)
From
Inception on
January 21,
For the Three Months 1991 through
Ended March 31, March 31,
1997 1996 1997
REVENUES $38,873 $ 2,182 $ 43,857
OPERATING EXPENSES
Cost of product sold 7,880 1,256 9,721
Product development 193,395 87,595 1,877,983
Salaries 65,012 43,221 1,103,918
Professional services 26,548 2,605 775,018
Depreciation and amortization 6,021 6,021 106,100
General and administrative 136,340 96,287 1,139,580
Total Operating Expenses 435,196 236,985 5,012,320
OPERATING LOSS (396,323) (234,803) (4,968,463)
OTHER INCOME (EXPENSES)
Interest income 4,232 - 17,426
Interest expense (6,007) (2,623) (96,653)
Bad debt expense - - (53,427)
Total Other Income (Expense) (1,775) (2,623) (132,654)
LOSS BEFORE INCOME TAXE (398,098) (237,426) (5,101,117)
INCOME TAXES - - -
NET LOSS $(398,098)$(237,426)$(5,101,117)
NET LOSS PER SHARE OF
COMMON STOCK $ (0.03) $ (0.02)
<PAGE>
MEDISYS TECHNOLOGIES, INC.
(A Development Stage Company)
Consolidated Statements of Stockholders' Equity (Deficit)
Deficit
Accumulated
Additional During the
Common Stock Paid-In Development
Shares Amount Capital Stage
Balance, January 21, 1991 - $ - $ - $ -
Common stock issued during
1991 at $.0001 per share 8,100,000 4,050 (3,060) -
Net loss for the year ended
December 31, 1991 - - - (8,667)
Balance, December 31, 1991 8,100,000 4,050 (3,060) (8,667)
Effect of reverse acquisition 1,768,500 884 (41,557) -
Private placement of common
stock at $2.00 per share 250,000 125 499,875 -
Canceled shares (418,500) (209) 209 -
Net loss for the year ended
December 31, 1992 - - - (269,551)
Balance, December 31, 1992 9,700,000 4,850 455,467 (278,218)
Issuance of stock at an average
price of $2.21 per share 45,248 23 99,977 -
Payment of stock offering costs - - (4,970) -
Net loss for the year ended
December 31, 1993 - - - (802,338)
Balance, December 31, 1993 9,745,248 4,873 550,474 (1,080,556)
Issuance of stock at an average
price of $1.26 per share 60,016 30 75,581 -
Contributed capital by shareholders - - 513,812 -
Common stock issued in settlement
of shareholder loans at
approximately $2.16 per share 200,000 100 431,495 -
Forgiveness of wages and fees
by shareholders - - 215,565 -
Balance forward 10,005,264 $ 5,003 $1,786,927 $(1,080,556)
<PAGE>
MEDISYS TECHNOLOGIES, INC.
(A Development Stage Company)
Consolidated Statements of Stockholders' Equity (Deficit)
Deficit
Accumulated
Additional During the
Common Stock Paid-In Development
Shares Amount Capital Stage
Balance forward 10,005,264 $ 5,003 $1,786,927 $(1,080,556)
Payment of stock offering costs - - (97,791) -
Net loss for the year ended
December 31, 1994 - - - (960,966)
Balance, December 31, 1994 10,005,264 5,003 1,689,136 (2,041,522)
Issuance of stock at an average
price of $1.05 per share 627,937 314 659,562 -
Issuance of stock for services
rendered at an average price of
$1.26 per share 121,939 61 153,789 -
Issuance of common stock for
prepaid rent at $0.35 per share 42,000 21 14,952 -
Sale of common stock options - - 431,800 -
Transfer of stock in settlement of
debt - - 111,699 -
Net loss for the year ended
December 31, 1995 - - - (1,162,772)
Balance, December 31, 1995 10,797,140 5,399 3,060,938 (3,204,294)
Issuance of common stock for
cash at an average price of
$1.50 per share 1,342,331 670 2,012,830 -
Common stock offering costs - - (85,420) -
Issuance of common stock for
consulting and professional services
rendered at an average price of
$3.39 per share 36,769 17 124,687 -
Balance forward 12,176,240 $ 6,086 $5,113,035 $(3,204,294)
<PAGE>
MEDISYS TECHNOLOGIES, INC.
(A Development Stage Company)
Consolidated Statements of Stockholders' Equity (Deficit)
Deficit
Accumulated
Additional During the
Common Stock Paid-In Development
Shares Amount Capital Stage
Balance forward 12,176,240 $ 6,086 $ 5,113,035 $(3,204,294)
Issuance of common stock from
expense of common stock
warrants at $1.50 and $1.25
per share 41,700 21 52,529 -
Issuance of common stock in
satisfaction of note payable at
$2.80 per share 20,000 10 55,990 -
Issuance of common stock for
warrants exercised at $1.75 per
share for subscription
receivable 100,000 50 174,950 -
Common stock warrants issued for
extension of payable payment - - 33,454 -
Net loss for the year ended
December 31, 1996 - - - (1,498,725)
Balance, December 31, 1996 12,337,940 6,167 5,429,958 (4,703,019)
Issuance of stock for services
rendered at an average price
of $1.91 (unaudited) 7,400 6 14,100 -
Contribution of capital by
shareholders (unaudited) - - 20,164 -
Net loss for the three months
ended March 31, 1997 (unaudited) - - - (398,098)
Balance, March 31, 1997
(unaudited) 12,345,340 $ 6,173 $ 5,464,222 $ (5,101,117)
<PAGE>
MEDISYS TECHNOLOGIES, INC.
(A Development Stage Company)
Consolidated Statements of Cash Flows
(Unaudited)
From
Inception on
January 21,
For the Three Months 1991 Through
Ended March 31, March 31,
1997 1996 1997
CASH FLOWS FROM
OPERATING ACTIVITIES
Loss from operations $ (398,098) $ (237,426) $ (5,101,117)
Adjustments to reconcile net income
to net cash provided (used) by
operating activities:
Operating expenses paid by
issuance of common stock - - 308,571
Common stock options and warrants
For services - - 211,254
Depreciation and amortization 6,021 6,021 107,495
Allowance for doubtful accounts - - 53,070
Changes in operating assets and liabilities:
(Increase) decrease in accounts
receivable (29,273) 1,710 (29,273)
(Increase) decrease in inventory (11,097) (4,891) (19,668)
(Increase) decrease in prepaid
expenses (20,835) 7,487 (27,832)
(Increase) decrease in security deposits - - (4,000)
(Increase) decrease in organizational
costs - - (311)
Increase (decrease) in accounts
payable 10,146 42,716 286,160
Increase (decrease) in accrued
expenses 14,407 (9,462) 119,848
Net Cash (Used) by
Operating Activities (428,729) (193,845) (4,095,803)
CASH FLOWS FROM INVESTING ACTIVITIES
(Increase) decrease in patent costs (50,028) (14,616) (347,126)
Acquisition of subsidiary - - (40,673)
Purchase of fixed assets (10,637) (363) (94,484)
Net Cash (Used) by
Investing Activities $ (60,665) $ (14,979) $(482,283)
<PAGE>
MEDISYS TECHNOLOGIES, INC.
(A Development Stage Company)
Consolidated Statements of Cash Flows (Continued)
(Unaudited)
From
Inception on
January 21,
For the Three Months 1991 through
Ended March 31, March 31,
1997 1996 1997
CASH FLOWS FROM FINANCING ACTIVITIES
Payments of stock offering costs $ - $ - $ (90,389)
Proceeds from capital lease - - 10,010
Payments on capital lease - (1,015) (10,010)
Payments on contracts payable (3,867) (3,822) (45,690)
Borrowings from shareholders - 69,289 490,470
Payments on payable - stockholders - - (20,984)
Borrowings from notes payable - - 338,500
Payment on notes payable (1,473) (19,558) (138,592)
Stock subscriptions receivable - - (53,427)
Issuance of common stock 34,270 132,500 4,000,788
Proceeds from sale of stock options - - 254,000
Proceeds from exercise of common
stock options - - 52,550
Net Cash Provided by
Financing Activities 28,930 177,394 4,787,226
NET INCREASE (DECREASE)
CASH AND CASH EQUIVALENTS (460,464) (31,430) 209,140
CASH AND CASH EQUIVALENTS
AT BEGINNING OF PERIOD 669,604 82,149 -
CASH AND CASH EQUIVALENTS
AT END OF PERIOD $ 209,140 $ 50,719 $ 209,140
SUPPLEMENTAL DISCLOSURES
OF CASH FLOW INFORMATION
CASH PAID FOR
Income taxes $ - $ - $ -
Interest $ 6,007 $ 2,623 $ 49,187
NON CASH FINANCING ACTIVITIES
Purchase of automobiles on contract$ - $ - $ 62,400
Conversion of shareholder loans
to equity $ - $ - $ 599,294
Stock issued in payment of operating
expenses $ - $ - $ 308,571
<PAGE>
MEDISYS TECHNOLOGIES, INC.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
March 31, 1997 and 1996
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
a. Business Organization
The Company was incorporated on March 17, 1983 under the laws of
the State of Utah. The Company subsequently ceased its original
business activity in 1985 and thereafter primarily investigated and
sought new business opportunities and has been reclassified as a
development stage Company as of March 1, 1989.
The Company has a wholly owned subsidiary (the Subsidiary) which
was incorporated in the State of Louisiana on January 21, 1991,
for the purpose of developing a device for the assistance of
childbirth under a patent which was applied for in May 1990 and
granted on June 15, 1992.
The Subsidiary has been classified as a development stage company
since all activities to date have been related to the development
of the childbirth assistance device as well as other medical
devices.
On August 6, 1992 the Company acquired all of the outstanding
common stock of Medisys Technologies, Inc. (Medisys). For
accounting purposes the acquisition has been treated as a
recapitalization of Medisys with Medisys as the acquirer.
b. Fixed Assets
Fixed assets are stated at cost less accumulated depreciation.
Depreciation on equipment and furniture is provided using the
straight-line method over an expected useful life of five years.
c. Patent Costs
The capitalized costs of obtaining patents consists of legal fees
and associated filing costs. These patent costs will be amortized
over the shorter of their legal or useful lives. The Company has
numerous patents in various stages of development and the
application process. Several patents have been granted but are
being developed further in a continuation-in-part (CIP) status
until the development of a commercial product is complete, the
related product has received FDA (Food and Drug Administration)
approval and is in a marketable condition ready for sale. Once
patents have been granted, FDA approval obtained, and sales
commenced, no further costs associated with the patent are
capitalized. As of March 31, 1997, the Company did have one
patented product for which sales have commenced with the related
costs being amortized over the estimated useful life of the patent.
Management has determined that estimated future cash flows from
this product will be sufficient to recover the capitalized basis of
the costs associated with that patent. The other patents for which
costs have been capitalized are considered to have continued
viability according to management of the Company with no
significant events occurring which would impair the value of the
capitalized costs associated with the individual patents.
The Company has also incurred costs associated with obtaining
trademarks related to the Company's existing and future products.
Those costs have been capitalized and will be amortized over the
estimated useful life of the trademarks once approval has been
received and usage begins. These trademarks are considered to have
continued viability according to management with no significant
events occurring which would impair the value of the capitalized
costs associated with the trademarks.
<PAGE>
MEDISYS TECHNOLOGIES, INC.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
March 31, 1997 and 1996
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED)
d. Organization Costs
The Company's organization costs will be amortized over a 60 month
period using the straight-line method when it begins its principal
activities.
e. Cash and Cash Equivalents
For purposes of financial statement presentation, the Company
considers all highly liquid investments with a maturity of three
months or less, from the date of purchase, to be cash equivalents.
f. Income Taxes
No provision for federal income taxes is made at March 31, 1997 and
1996 due to operating losses. The minimum state franchise tax has
been accrued.
The Company has accumulated $5,091,041 of net operating losses as
of March 31, 1997, which may be used to reduce taxable income and
income taxes in future years. The use of these losses to reduce
future income taxes will depend on the generation of sufficient
taxable income prior to the expiration of the net operating loss
carryforwards. The carryforwards expire as follows:
Net Operating
Loss Year of Expiration
$ 8,667 2006
267,504 2007
800,372 2008
959,825 2009
1,159,850 2010
1,496,725 2011
398,098 2012
Total $ 5,091,041
In the event of certain changes in control of the Company, there
will be an annual limitation on the amount of net operating loss
carryforwards which can be used. The potential tax benefits of
the net operating loss carryovers have been offset by a valuation
allowance of the same amount.
g. Principles of Consolidation
The consolidated financial statements include the accounts of
Medisys Technologies, Inc., (Parent) and Medisys Technologies,
Inc. (Subsidiary), a wholly owned subsidiary. All significant
intercompany accounts and transactions have been eliminated in
consolidation.
h. Inventory
Inventory is carried at the lower of cost or market value using
the first-in first-out method.
<PAGE>
MEDISYS TECHNOLOGIES, INC.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
March 31, 1997 and 1996
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED)
i. Loss per Share
Earnings (loss) per share is computed using the weighted average
number of common shares outstanding during each period. Pursuant
to the requirements of Securities and Exchange Commission Staff
Accounting Bulletin No. 83, common shares issued by the Company
during the twelve months immediately preceding the initial public
offering at a price below the initial public offering price have
been included in the calculation of the shares used in computing
loss per share as if they were outstanding for all periods
presented. There are no common stock equivalents.
j. Forward Stock Split
On July 20, 1992 the Subsidiary forward split its shares of common
stock on a 8,100 shares for 1 share basis. All references to
shares outstanding and earnings per share have been restated on a
retroactive basis.
k. Credit Risks
The Company maintains its cash accounts primarily in one bank in
Louisiana. The Federal Deposit Insurance Corporation insures
accounts to $100,000. The Company's accounts occasionally exceed
the insured amount. The Company also has $137,926 in a money
market fund with a brokerage house.
l. Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
m. Unaudited Financial Statements
The accompanying unaudited financial statements include all of the
adjustments which in the opinion of management are necessary for
a fair presentation. All such adjustments are of a normal,
recurring nature.
NOTE 2 - PAYABLE - SHAREHOLDERS
From time to time the Company received loans from certain
shareholders for the purpose of providing funds for the Company's
operating expenditures. The Company has also advanced funds to
shareholders. The outstanding balances of these advances fluctuate
during the year and do not have specific repayment terms although
the advances are generally considered to be due or payable on
demand. Accordingly, the related receivable or payable has been
reflected as current in the accompanying consolidated financial
statements. At March 31, 1997, there was a balance outstanding
payable to stockholders totaling $45,981.
MEDISYS TECHNOLOGIES, INC.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
March 31, 1997 and 1996
NOTE 3 - ACCRUED EXPENSES
Accrued expenses consist of the following:
December 31,
1996
Payroll taxes payable $ 1,318
Accrued salaries and directors fees 85,851
Accrued interest payable 4,636
Contract labor payable 13,636
$ 105,441
The accrued salaries and directors fees are to be paid over the
next 24 months or when the Company is adequately financed.
NOTE 4 - CONTRACTS PAYABLE
The Company has entered into purchase contracts for three
automobiles as follows:
March 31,
1997
Bank One, with total monthly payments of
principal and interest of $1,275, for
60 months, secured by the automobiles. $ 16,710
The maturities of contracts payable are as follows:
1997 $ 10,376
1998 6,334
Thereafter -
$ 16,710
<PAGE>
MEDISYS TECHNOLOGIES, INC.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
March 31, 1997 and 1996
NOTE 5 - NOTES PAYABLE
Notes payable consisted of the following:
December 31, March 31,
1996 1997
Note payable to Richard L. Apel, unsecured,
dated November 2, 1993 at 8%, principal and
interest due on August 18, 1994. $ 12,500 $ 12,500
Note payable to Cynthia F. Vatz, unsecured, dated
October 19, 1993 at 8%, principal and interest due
on August 18, 1994. 12,500 12,500
Note payable to Abraham B. and Adele L. Eckstein,
unsecured, dated March 1, 1995 which replaces the
October 6, 1993 note, at 8%, monthly payments of
$500 commencing March 1, 1995 with a single
balloon payment for the remaining balance plus
interest due on March 1, 1996. 20,381 18,908
Total 45,381 43,908
Less current portion (45,381) (43,908)
Total Long-Term Portion $ - $ -
These notes are in default. None of the related note holders have
demanded repayment and the Company is in the process of negotiating
repayment terms. The Company continues to pay the $500 monthly
installments on the note payable to Mr. and Mrs. Eckstein and
continues to accrue interest on these and all outstanding notes
payable.
NOTE 6 - COMMITMENTS
During 1996, the Company adopted a Simplified Employee Pension
(SEP) Plan. The Plan enables the Company to make an annual
discretionary contribution to be allocated to employees on a pro
rata basis according to their compensation for the year. In
addition, employees have the option to make voluntary Retirement
Savings Contributions in amounts not to exceed 15% of their annual
compensation. The Company elected to not make a contribution for
the year ended December 31, 1996. The Company has no other bonus,
profit sharing or deferred compensation plans for the benefit of
its employees, officers or directors except if discussed elsewhere.
The Company entered into employment agreements with Edward P.
Sutherland and Kerry Frey on September 3, 1996 and September 4,
1996, respectively, pursuant to which they will receive annual
salaries of $150,000 and $144,000, respectively. These employment
agreements expire on December 31, 1997.
Any additional compensation to these employees is to be in the form
of an annual cash bonus or the granting of stock options at the
discretion of the Board of Directors not to exceed 50% of their
annual compensation.
<PAGE>
MEDISYS TECHNOLOGIES, INC.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
March 31, 1997 and 1996
NOTE 6 - COMMITMENTS (Continued)
On March 29, 1995 the Company entered into a contract with a
medical institution to perform a clinical study of the Company's
SofCeps product. The contract required that payments totaling
$247,262 be made by the Company to the medical institution for
testing services. During 1995, the contract was amended with
additional payments to be made based on services to be performed.
The contract was later terminated before its completion. The
Company had made payments of $265,465 for services performed
pursuant to the contract. The medical institution has claimed an
unpaid balance of $133,326 which the Company disputes. The Company
contends that the services stipulated by the terms of the contract
were not performed by the medical institution and that no
additional amounts are due and payable related to this contract.
No amount has been accrued in the accompanying consolidated
financial statements related to this transaction. The Company
intends to vigorously contend any further claims with respect to
this contract and believes that the probability that the Company
will be required to make additional payments is remote.
On January 1, 1994, the Company entered into an agreement to lease
3,532 square feet of office space. The lease has a term of two
years with an extension option for an additional two years through
December 31, 1997. The Company exercised the option to lease the
office facilities for 1997 at a cost of $2,942 per month, including
utilities, for a total annual cost of $35,304.
On October 1, 1996, the Company entered into an agreement to lease
450 square feet of office space in Far Hills, New Jersey at a cost
of $1,000 per month, including utilities, for an annual cost of
$12,000. The New Jersey lease has a term of ten months through
July 31, 1997.
NOTE 7 - COMMON STOCK
During the months of October and November 1993, the Company had a
private placement of restricted common stock. 45,248 shares were
issued, the proceeds of which totaled $100,000.
60,016 shares of common stock were issued during 1994 with proceeds
of $75,611 through a private placement.
In April 1994, the Company retired the stock of an officer and
reissued the shares in a private placement, with the total proceeds
of $513,812 being contributed to additional paid-in capital.
During August 1994, 200,000 shares of common stock were issued for
cancellation of shareholder loans totaling $431,595.
During 1994, officers and directors of the Company determined that
the accrued salaries and fees owed them totaling $215,565, would be
forgiven and were converted to additional paid-in capital.
During 1995, 627,937 shares of common stock were issued through
various private placements with cash proceeds of $659,876.
During April 1995, 100,000 shares of common stock, valued at
$120,000, were issued to an officer of the Company for services
rendered. An additional 21,939 shares were issued to other
individuals in payment of services rendered valued at $33,850. The
Company also issued 42,000 shares of common stock for payment of
rent valued at $14,973 for 1995.
<PAGE>
MEDISYS TECHNOLOGIES, INC.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
March 31, 1997 and 1996
NOTE 7 - COMMON STOCK (Continued)
During December 1995, the Company transferred 120,000 shares of
common stock in settlement of a note payable with a balance of
$100,000 plus accrued interest of $11,699. These shares had been
issued previously in the name of the Company as collateral on
notes payable.
The Company conducted a private placement of its common stock
during 1996. 1,342,331 shares of restricted common stock were sold
at $1.50 per share resulting in total cash proceeds of $2,013,500.
1,192,331 of the shares sold carry with them a warrant to purchase
one additional share of common stock at $1.50 per share (see Note
8). $85,420 of costs were incurred in connection with this
offering and have been deducted from additional paid-in capital in
the accompanying consolidated financial statements.
Between May and December, 1996, the Company issued an additional
36,769 shares of restricted common stock to officers, directors,
consultants, professionals and vendors for services rendered. The
shares were priced at the fair market value of the common stock on
the date the shares were issued and have been valued at a total of
$124,704 in the accompanying consolidated financial statements for
an average per share price of $3.39.
During 1996, warrants representing 40,000 and 1,700 shares of
common stock were exercised at prices of $1.25 and $1.50 per share,
respectively, generating cash proceeds to the Company totaling
$52,550. See Note 8 regarding common stock warrants.
In July 1996, 20,000 shares of restricted common stock were issued
by the Company as payment of a $50,000 note payable along with
accrued interest of $6,000 resulting in a per share price of $2.80.
The Company issued 100,000 shares of restricted common stock upon
the exercise of common stock warrants representing the same number
of shares, having an exercise price of $1.75 per share. Payment
for the common stock was made with a non-interest bearing four year
promissory note. The related shares are being held by the Company
as collateral for the promissory note. The shares have ben
reflected as issued and outstanding with a corresponding $175,000
stock subscription receivable reflected as a reduction of
stockholders' equity.
In the first quarter of 1997, the Company issued 7,400 shares of
common stock for services valued at $14,106 or $1.91 per share.
NOTE 8 - COMMON STOCK WARRANTS
As of December 31, 1996, the Company had outstanding warrants for
the issuance of common stock as follows:
Number of Date Expiration Exercise Potential
Shares Issued Date Price Proceeds
777,750 1994 1997 $1.5625 - $2.50 $ 1,345,625
591,000 1995 1998-2005 $1.125 - $2.625 1,124,250
2,553,330 1996 1999-2001 $1.00 - $4.25 6,600,388
4,590 1997 2002 $ 2.125 9,754
$ 9,080,017
<PAGE>
MEDISYS TECHNOLOGIES, INC.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
March 31, 1997 and 1996
NOTE 9 - COMMON STOCK OPTIONS
On September 15, 1995, the Company issued options for the purchase
of 508,000 shares of common stock to certain shareholders, one of
which is also an officer and director of the Company. The Company
received $254,000 of consideration for the issuance of these
options or $0.50 per share which enabled the holders to acquire the
508,000 shares of common stock for additional consideration
totaling $76,000, or $0.15 per share. The fair market value of the
Company's common stock on the date the options were purchased was
$1.00 per share. The difference between the option exercise price
and the fair market value of the Company's common stock relative to
these options totaled $177,800 or $0.35 per share and has been
included as compensation in the accompanying consolidated statement
of operations for the year ended December 31, 1995. The options
expired unexercised on December 15, 1995. Accordingly, the
proceeds from the sale of these options and the difference between
the option exercise and fair market value of the common stock has
been reflected as additional paid-in capital in the accompanying
consolidated financial statements with no shares of common stock
issued.
NOTE 10 - GOING CONCERN
The Company's consolidated financial statements have been prepared
using generally accepted accounting principles applicable to a
going concern which contemplates the realization of assets and
liquidation of liabilities in the normal course of business. The
Company has incurred significant losses since inception, relating
to its research and development efforts and has had no significant
operating revenues. In prior periods, the Company has had
substantial working capital and stockholders' equity deficits. In
1996, the Company was able to raise working capital through the
private placement of its common stock. However, cash flow
projections show that the Company's reserves are not adequate to
cover its needs for 1997. It is unlikely that the Company can
complete its research and development projects without additional
funds. Management of the Company plans to raise additional capital
through a private placement or a public offering of its common
stock and the Company anticipates generating additional revenue
from increased product sales.
<PAGE>
PART III
ITEM 1. Index to Exhibits
The following exhibits are filed with this Registration Statement:
Exhibit No. Exhibit Name
* 2.1 Acquisition Agreement and Plan of Reorganization.
* 3.1(i) Articles of Incorporation and all amendments
thereto ("P")
* 3.2(ii) By-Laws of Registrant ("P")
* 4.1 Specimen of Common Stock Certificate ("P")
* 10.1 Lease Agreement on Registrant s principal place of
business. ("P")
* 10.2 Contract of Employment with Edward P. Sutherland ("P")
* 10.3 Contract of Employment with Kerry M. Frey ("P")
* 21.1 Subsidiaries
* 27.1 Financial Data Schedule
_________
* Previously filed
ITEM 2. Description of Exhibits
See Item I above.
<PAGE>
SIGNATURES
In accordance with Section 12 of the Securities and Exchange
Act of 1934, the registrant caused this registration statement to
be signed on its behalf by the undersigned, thereunto duly
organized.
MEDISYS TECHNOLOGIES, INC.
(Registrant)
By: /S/ Edward P. Sutherland
Date: July 15, 1997 (Signature)
EDWARD P. SUTHERLAND, President
