UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of The
Securities Exchange Act of 1934
For the Quarter Ended September 30, 1997
[ ] Transition Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Commission File Number 0-21441
MEDISYS TECHNOLOGIES, INC.
(Exact name of small business issuer as specified 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)
Issuer s telephone number: (504) 926-0422
Check whether the issuer (1) filed all reports required to be
filed by Section 13 or 15(d) of the Exchange Act during the past 12
months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the
issuers classes of common equity, as of the latest practicable
date:
Class Outstanding as of September 30, 1997
Common Stock, 12,613,881
Par Value $0.0005 per value
Transitional Small Business Disclosure Format (check one):
Yes [ ]; No [ X ]
<PAGE>
MEDISYS TECHNOLOGIES, INC.
TABLE OF CONTENTS
PART I
Item 1. Financial Statements . . . . . . . . . . . 3
Item 2. Management s Discussion and Analysis or Plan
of Operation . . . . . . . . . . . . . . . 20
PART II
Item 1. Legal Proceedings. . . . . . . . . . . . . 22
Item 2. Changes in Securities. . . . . . . . . . . 23
Item 3. Defaults Upon Senior Securities. . . . . . 23
Item 4. Submissions of Matters to a Vote of Security
Holders. . . . . . . . . . . . . . . . . . 23
Item 5. Other Information. . . . . . . . . . . . . 23
Item 6. Exhibits and Reports on Form 8-K . . . . . 23
SIGNATURES . . . . . . . . . . . . . . . . . . . . . 24
<PAGE>
PART I
Item 1. Financial Statements
The following unaudited Financial Statements for the period
ended September 30, 1997, have been prepared by the Company.
Medisys Technologies, Inc.
(a Development Stage Company)
Consolidated Financial Statements
September 30, 1997 and 1996
<PAGE>
MEDISYS TECHNOLOGIES, INC.
(A Development Stage Company)
Consolidated Balance Sheets
ASSETS
September 30, December 31,
1997 1996
(Unaudited)
CURRENT ASSETS
Cash $ 59,293 $ 669,604
Accounts receivable, net of
allowance for bad debt 9,700 -
Inventory 75,727 8,571
Prepaid expenses 26,470 6,997
Total Current Assets 171,190 685,172
FIXED ASSETS
Leasehold improvements 2,195 2,195
Automobiles - 67,950
Furniture and equipment 76,945 66,092
Leased equipment 10,010 10,010
Accumulated depreciation (33,441) (79,934)
Total Fixed Assets 55,709 66,313
OTHER ASSETS
Security deposits 4,000 4,000
Patent costs 395,376 295,704
Organizational costs 311 311
Total Other Assets 399,687 300,015
TOTAL ASSETS $ 626,586 $1,051,500
<PAGE>
MEDISYS TECHNOLOGIES, INC.
(A Development Stage Company)
Consolidated Balance Sheets (Continued)
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
September 30, December 31,
1997 1996
(Unaudited)
CURRENT LIABILITIES
Accounts payable $ 303,261 $ 276,014
Accrued expenses (Note 3) 246,758 105,441
Loans payable-shareholders (Note 2) 45,981 45,981
Contracts payable - current portion
(Note 4) - 14,243
Notes payable - current portion (Note 5)42,001 45,381
Total Current Liabilities 638,001 487,060
LONG-TERM DEBT
Notes payable (Note 11) 190,000 6,334
Total Long-Term Debt 190,000 6,334
TOTAL LIABILITIES 828,001 493,394
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock: 100,000,000 shares
authorized of $0.0005 par value,
12,613,881 and 12,337,940 shares
issued and outstanding, respectively 6,307 6,167
Additional paid-in capital 5,760,485 5,429,958
Stock subscriptions receivable
(Note 7) (175,000) (175,000)
Deficit accumulated during the
development stage (5,793,207) (4,703,019)
Total Stockholders' Equity (Deficit)(201,415) 558,106
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY (DEFICIT) $ 626,586 $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 For the Nine Months 1991 through
Ended September 30, Ended September 30, September 30,
1997 1996 1997 1996 1997
REVENUES $ 20,436 $ - $ 83,886 $ 2,182 $ 88,870
OPERATING EXPENSES
Cost of product sold 4,037 - 17,596 1,256 19,437
Product development 109,045 152,300 494,241 367,649 2,178,829
Salaries 73,783 78,914 213,113 193,781 1,252,019
Professional services 13,843 26,573 67,597 48,084 816,067
Depreciation and
amortization 3,021 6,021 12,063 18,063 112,142
General and
administrative 95,010 54,206 375,499 201,875 1,378,739
Total Operating
Expenses 298,739 318,014 1,180,109 830,708 5,757,233
OPERATING LOSS (278,303) (318,014) (1,096,223) (828,526) (5,668,363)
OTHER INCOME
(EXPENSES)
Gain on sale of assets 4,348 - 13,043 - 13,043
Interest income 63 - 5,850 - 19,044
Interest expense (449) (509) (12,858) (6,211) (103,504)
Bad debt expense - - - - (53,427)
Total Other Income
(Expense) 3,962 (509) 6,035 (6,211) (124,844)
LOSS BEFORE INCOME
TAXES (274,341) (318,523) (1,090,188) (834,737) (5,793,207)
INCOME TAXES - - - - -
NET LOSS $(274,341) $(318,523) $(1,090,188) $(834,737) $(5,793,207)
NET LOSS PER SHARE
OF COMMON STOCK $ (0.02) $ (0.03) $ (0.09) $ (0.07)
<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 (418,50) (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)
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 $1.02 per share (unaudited) 145,941 74 149,327 -
Issuance of stock for cash at
$1.25 to $1.50 per share
(unaudited) 130,000 66 164,934 -
Common stock warrants issued
for services (unaudited) - - 16,266 -
Net loss for the nine months
ended September 30, 1997
(unaudited) - - - (1,090,188)
Balance, September 30, 1997
(unaudited) 12,613,881 $ 6,307 $5,760,485 $(5,793,207)
<PAGE>
MEDISYS TECHNOLOGIES, INC.
(A Development Stage Company)
Consolidated Statements of Cash Flows
(Unaudited)
From
Inception on
January 21,
For the Three Months For the Nine Months 1991 through
Ended September 30, Ended September 30, September 30,
1997 1996 1997 1996 1997
CASH FLOWS FROM
OPERATING ACTIVITIES
Loss from operation s $(274,341)$(318,523)$(1,090,188)$(834,737)$(5,793,207)
Adjustments to reconcile net
income to net cash provided
(used) by operating activities:
Operating expenses paid by
issuance of common stock 23,827 - 146,334 - 454,905
Common stock options and
warrants for services - - - - 211,254
Depreciation and
amortization 3,021 6,021 12,063 18,063 113,537
Allowance for doubtful
accounts - - - - 53,070
Gain on sale of assets (4,348) - (13,043) - (13,043)
Changes in operating assets
and liabilities:
(Increase) decrease in
accounts receivable 11,884 - (9,700) (1,981) (9,700)
(Increase) decrease in
inventory (18,571) (4,668 ) (67,156 (13,473) (75,727)
(Increase) decrease in
prepaid expenses - - (19,473) 14,973 (26,470)
(Increase) decrease in
security deposits - - - - (4,000)
(Increase) decrease in
organizational cost - - - - (311)
Increase (decrease) in
accounts payable (1,943) (121,347) 27,247 (109,783) 303,261
Increase (decrease) in
accrued expenses 102,954 96,142 141,317 56,393 246,758
Net Cash (Used) by
Operating Activities (157,517) (342,375) (872,599) (870,545) (4,539,673)
CASH FLOWS FROM
INVESTING ACTIVITIES
Sale of equipment 8,482 - 25,109 - 25,109
(Increase) decrease in
patent costs (18,315) (32,194) (102,714) (58,986) (399,812)
Acquisition of subsidiary - - - - (40,673)
Purchase of fixed assets - (13,748) (10,420) (18,125) (94,267)
Net Cash (Used) by
Investing Activities $ (9,833) $(45,942) $ (88,025) $(77,111) $ (509,643)
<PAGE>
MEDISYS TECHNOLOGIES, INC.
(A Development Stage Company)
Consolidated Statements of Cash Flows (Continued)
(Unaudited)
From
Inception on
January 21,
For the Three Months For the Nine Months 1991 through
Ended September 30, Ended September 30, September 30,
1997 1996 1997 1996 1997
CASH FLOWS FROM
FINANCING ACTIVITIES
Payments of stock
offering costs $ - $(53,350) $ - $ (53,350) $ (90,389)
Proceeds from capital
lease - - - - 10,010
Payments on capital lease - - - (1,444) (10,010)
Payments on contracts
payable (4,281) (3,822) (20,577) (11,466) (62,400)
Borrowings from
shareholders (2,500) 4,331 - 71,796 490,470
Payments on payable -
stockholders - - - (24,007) (20,984)
Borrowings from notes
payable 190,000 - 190,000 - 528,500
Payment on notes payable (1,152) (53,586) (3,380) (159,766) (140,499)
Stock subscriptions
receivable - - - - (53,427)
Issuance of common stock - 812,999 184,270 1,963,499 4,150,788
Proceeds from sale of
stock options - - - - 254,000
Proceeds from exercise of
common stock options - - - - 52,550
Net Cash Provided by
Financing Activities 182,067 706,572 350,313 1,785,262 5,108,609
NET INCREASE (DECREASE)
CASH AND CASH EQUIVALENTS 14,717 318,255 (610,311) 837,606 59,293
CASH AND CASH EQUIVALENTS
AT BEGINNING OF PERIOD 44,576 601,500 669,604 82,149 -
CASH AND CASH EQUIVALENTS
AT END OF PERIOD $59,293 $919,755 $ 59,293 $919,755 $ 59,293
SUPPLEMENTAL DISCLOSURES
OF CASH FLOW INFORMATION
CASH PAID FOR
Income taxes $ - $ - $ - $ - $ -
Interest $ 449 $ 509 $ 12,858 $ 6,211 $ 56,038
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 $23,827 $ - $ 146,334 $ - $ 454,905
<PAGE>
MEDISYS TECHNOLOGIES, INC.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
September 30, 1997 (unaudited) and December 31, 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 September 30, 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
September 30, 1997 (unaudited) and December 31, 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 September 30, 1997
and December 31, 1996 due to operating losses. The minimum state
franchise tax has been accrued.
The Company has accumulated $5,790,207 of net operating losses as
of September 30, 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
269,551 2007
802,338 2008
960,966 2009
1,162,772 2010
1,498,725 2011
1,087,188 2012
Total $ 5,790,207
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
September 30, 1997 (unaudited) and December 31, 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.
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 September 30, 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
September 30, 1997 (unaudited) and December 31, 1996
NOTE 3 - ACCRUED EXPENSES
Accrued expenses consist of the following:
September 30, December 31,
1997 1996
Payroll taxes payable $ 813 $ 1,318
Accrued salaries and directors fees 202,627 85,851
Accrued interest payable 6,156 4,636
Contract labor payable 37,162 13,636
$ 246,758 $ 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:
September 30, December 31,
1997 1996
Bank One, with total monthly payments of
principal and interest of $1,275, for
60 months, secured by the automobile. $ - $ 20,577
The maturities of contracts payable are as follows:
1997 $ - $ 14,243
1998 - 6,334
Thereafter - -
$ - $ 20,577
<PAGE>
MEDISYS TECHNOLOGIES, INC.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
September 30, 1997 (unaudited) and December 31, 1996
NOTE 5 - NOTES PAYABLE
Notes payable consisted of the following:
September 30, December 31,
1997 1996
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. 17,001 20,381
Total 42,001 45,381
Less current portion (42,001) (45,381)
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
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.
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
September 30, 1997 (unaudited) and December 31, 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
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 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
September 30, 1997 (unaudited) and December 31, 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 been
reflected as issued and outstanding with a corresponding $175,000
stock subscription receivable reflected as a reduction of
stockholders' equity.
In the first nine months of 1997, the Company issued 145,941 shares
of common stock for services valued at $149,401 or $1.02 per share.
The Company also issued 120,000 shares at $1.25 per share and
10,000 shares at $1.50 per share for cash proceeds of $165,000.
NOTE 8 - COMMON STOCK WARRANTS
As of September 30, 1997, 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
445,739 1997 2000-2002 $ 1.00 - 1.50 554,489
$ 9,624,752
<PAGE>
MEDISYS TECHNOLOGIES, INC.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
September 30, 1997 (unaudited) and December 31, 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 securities
and the Company anticipates generating additional revenues from
increased product sales.
NOTE 11 - NOTES PAYABLE
The Company has issued notes payable in the amount of $190,000.
The notes bear interest at 10% per annum and are due eighteen
months from the dates they were issued. The notes are convertible
to common stock at various rates of exchange.
<PAGE>
Item 2. Management s Discussion and Analysis or Plan of Operation
Results of Operations
The net loss for the three month period ended September 30,
1997 ("third quarter of 1997") decreased 14% to $274,341 when
compared to the corresponding 1996 period, primarily due to the
Company's decrease in product development expenses during the 1997
period. Net loss for the nine month period ended September 30,
1997 ("first nine months of 1997") increased 31% to $1,090,188 when
compared to the corresponding 1996 period due to year-to-date
increases of product development expenses of 34%.
Revenues of $20,436 for the third quarter of 1997 compared to
no sales for the third quarter of 1996, and increased to $83,886
for the first nine months of 1997 compared to $2,182 for the
corresponding 1996 period. These increases are attributed to
initial sales of the Company's VetCeps product.
Cost of product sold increased to $4,037 for the third quarter
of 1997 compared to zero for the third quarter of 1996, and
increased to $17,596 for the first nine months of 1997 compared to
$1,256 for the corresponding 1996 period. These increases are also
attributed to initial sales of the Company's VetCeps product.
Product development costs for the third quarter and first nine
months of 1997 were $109,145 and $494,241, respectively, compared
to $152,300 and $367,649 for the comparable 1996 periods. The 28%
decrease for the third quarter of 1997 was due to a reduction of
operating capital and the corresponding reduction of all
expenditures. The 34% increase for the first nine months of 1997
is due to increased effort in the development of SofCeps and
CoverTip , the Company's flagship products.
Salaries for the third quarter and first nine months of 1997
were $73,783 and $213,113, respectively, compared to $78,914 and
$193,781 for the comparable 1996 periods. The 7% decrease for the
third quarter of 1997 was due to the voluntary accrual of salaries
by management. The 10% increase for the first nine months of 1997
is attributed to the addition of a Vice President and Chief
Operating Officer and annual salary increases for other personnel.
Professional services decreased 48% to $13,843 for the third
quarter of 1997 and increased 41% to $67,597 for the first nine
months of 1997 when compared to the respective 1996 periods. The
year-to-date increase relates to additional costs associated with
becoming a reporting company under the Securities Exchange Act of
1934, as amended. The third quarter decrease reflects the
additional expenses realized in the third quarter of 1996 when the
Company started its registration process.
Depreciation and amortization decreased to $3,021 for the
third quarter of 1997 compared to $6,021 for the third quarter of
1996, and decreased to $12,063 for the first nine months of 1997
compared to $18,063 for comparable 1996 period. These decreases
are attributable to the sale of two company automobiles.
General and administrative costs for the third quarter and
first nine months of 1997 were $95,010 and $375,499, respectively,
compared to $54,206 and $201,875 for the comparable 1996 periods.
The 75% and 86% increases for the third quarter and first nine
months of 1997, respectively, also relate to costs associated with
becoming a reporting company.
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 September 30, 1997 was a negative $466,811
compared to a positive $198,112 at December 31, 1996. This decline
in working capital is primarily attributable to the decrease in
cash of $610,311 during this period.
Net cash used by operating activities for the third quarter of
1997 was $157,517 compared to net cash used of $342,375 for the
comparable 1996 period. This decrease in cash used is attributable
to the payment of operating expenses with common stock rather than
cash payments in the third quarter of 1997, the voluntary accrual
of wages by management, increases in accounts payable and other
accrued expenses, and the smaller net loss. Net cash used by
operating activities for the first nine months of 1997 was $872,599
compared to $870,545 for the 1996 period. This small change is due
to the increase in the loss from operations during the first nine
months of 1997 and effectively offset by the increase in accounts
payable and the payment of operating expenses with common stock
instead of cash. Also, net cash from financing activities during
the third quarter and first nine months of 1997 was $182,067 and
$350,313, respectively, compared to $706,572 and $1,785,262 for the
respective comparable 1996 periods, primarily due to the sale of
common stock in the 1996 periods.
The Company anticipates meeting its working capital needs into
the remainder of fiscal 1997 with the cash reserves which the
Company currently maintains, with additional financing and from
sales. Although the Company continues to pursue the development of
its products, it may be dependent upon additional outside financing
and is actively pursuing such in order to provide future working
capital needs and to prepare for the future marketing and sales
activities related to its products. 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 September 30, 1997 the Company had total assets of
$626,586 and stockholders' deficit of $201,415. In comparison, as
of December 31, 1996 the Company had total assets of $1,051,500 and
total stockholders' equity of $558,106. The 40% decrease in total
assets during the first nine months of 1997 is primarily due to
cash used in the Company's operating activities.
In the opinion of management, inflation has not had a material
effect on the operations of the Company.
Management believes that the Company has sufficient capital
resources to fund anticipated operations until some time in the
late fourth quarter of 1997. Unless the Company is able to begin
substantial sales of its products during the fourth quarter of 1997
and first quarter of 1998 ,or is able to raise additional sales of
corporate debt or equity securities, the Company may encounter a
cash flow shortage during the first quarter of 1998. 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.
PART II
Item 1. Legal Proceedings
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.
<PAGE>
Item 2. Changes in Securities
Recent Sales of Unregistered Securities
During the third quarter of 1997, the Company issued 24,111
shares of common stock pursuant to resolution by the Board of
Directors. An aggregate of 15,700 shares were issued to various
Board members and employees as directors' fees and additional
compensation, respectively. The average value of these shares on
the date of issue was $1.10 per share, for a aggregate value of
$137,915. The remaining 8,741 shares were issued to various
contractors for services rendered to the Company valued at $1.04
per share, for an aggregate of $9,104. No shares were sold for
cash during the third quarter of 1997. The issuances of the shares
were pursuant to private transactions and were made in reliance on
the exemption from registration provided by Section 4(2) of the
Securities Act of 1933, as amended. A complete description of
recent sales of unregistered securities can be found in the
Consolidated Statements of Stockholders Equity and Note 7 to the
Consolidated Financial Statements.
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 3. Defaults Upon Senior Securities
This Item is not applicable to the Company.
Item 4. Submissions of Matters to a Vote of Security Holders
This Item is not applicable to the Company.
Item 5. Other Information
This Item is not applicable to the Company.
Item 6. Exhibits and Reports on Form 8-K
No report filed on Form 8-K was filed by the Company during
the three month period ended September 30, 1997.
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the
registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
MEDISYS TECHNOLOGIES, INC.
BY: /S/ Edward P. Sutherland
(Signature)
EDWARD P. SUTHERLAND
President, Chief
Executive Officer
DATE: November 12, 1997
BY: /S/ Gary Alexander
(Signature)
GARY ALEXANDER
Treasurer
DATE: November 12, 1997
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL
INFORMATION EXTRACTED FROM THE MEDISYS
TECHNOLOGIES, INC. FINANCIAL STATEMENTS FOR THE
PERIOD ENDED SEPTEMBER 30, 1997 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 59,293
<SECURITIES> 0
<RECEIVABLES> 9,700
<ALLOWANCES> 0
<INVENTORY> 75,727
<CURRENT-ASSETS> 171,190
<PP&E> 89,150
<DEPRECIATION> 33,441
<TOTAL-ASSETS> 626,586
<CURRENT-LIABILITIES> 638,001
<BONDS> 190,000
0
0
<COMMON> 6,307
<OTHER-SE> 5,760,485
<TOTAL-LIABILITY-AND-EQUITY> 626,586
<SALES> 83,886
<TOTAL-REVENUES> 83,886
<CGS> 17,596
<TOTAL-COSTS> 1,180,109
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 12,858
<INCOME-PRETAX> (1,090,188)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,090,188)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,090,188)
<EPS-PRIMARY> (.09)
<EPS-DILUTED> (.09)
</TABLE>
