Commission File No. 0-21441
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
Filed by Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement
[ ] Confidential for use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or
Section 240.14a-12
MEDISYS TECHNOLOGIES, INC.
(Name of Registrant as Specified in its Charter)
MEDISYS TECHNOLOGIES, INC.
(Name of Person Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act
Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction
applies: n/a
(2) Aggregate number of securities to which transaction
applies: n/a
(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11: n/a.
(4) Proposed maximum aggregate value of transaction: n/a
(5) Total fee paid: -0-
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by
Exchange Act Rule 0-11(a)(2) and identify the filing for
which the offsetting fee was paid previously. Identify the
previous filing by registration statement number, or the
Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date filed:
<PAGE>
MEDISYS TECHNOLOGIES, INC.
144 Napolean Street
Baton Rouge, LA 70802
December 4, 1998
Dear Medisys Shareholder:
You are cordially invited to attend the Special Meeting of
Shareholders of Medisys Technologies, Inc. on Wednesday. December
16, 1998, at 10:30 a.m. local time at the Day's Inn (Dogwood
Room) located at 10245 Airline Highway, Baton Rouge, Louisiana.
Those matters expected to be acted upon at the meeting are
described in detail in the attached Notice of Special Meeting of
Shareholders and Proxy Statement.
All shareholders are cordially invited to attend the Meeting
in person. Your participation at this meeting is very important,
regardless of the number of shares you hold. Whether or not you
plan to attend the meeting, please complete, date, sign and
return the accompanying proxy promptly in the enclosed envelope.
If you attend the meeting, you may revoke your proxy and vote
your shares in person.
We look forward to seeing you at the Meeting.
Sincerely,
Edward P. Sutherland
Chairman and Chief Executive
Officer
<PAGE>
MEDISYS TECHNOLOGIES, INC.
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD DECEMBER 16, 1998
To our Shareholders:
NOTICE is hereby given that on Wednesday, December 16, 1998,
Medisys Technologies, Inc. (the "Company") will hold a Special
Meeting of Shareholders (the "Meeting") at the Day's Inn (Dogwood
Room) located at 10245 Airline Highway, Baton Rouge, Louisiana.
The Meeting will begin at 10:30 a.m. local time. At the Meeting,
shareholders will be asked:
1. To consider and vote upon the proposal to acquire
Phillips Pharmatec Labs, Inc., a Florida corporation, in
exchange solely for shares of the Company's common stock;
2. To consider and vote upon the proposal to effect a
reverse stock split of the Company's issued and
outstanding common stock on a one (1) shares for five (5)
shares basis.
Only shareholders of record at the close of business on
December 1, 1998 are entitled to notice of and to vote at the
Meeting and any adjournments thereof.
* PLEASE SIGN, DATE AND RETURN THE ENCLOSED PROXY IMMEDIATELY TO
ASSURE THAT YOUR SHARES ARE REPRESENTED AT THE SPECIAL MEETING
OF SHAREHOLDERS
By Order of the Board of Directors,
William David Kiesel, Secretary
Baton Rouge, Louisiana
December 4, 1998
<PAGE>
TABLE OF CONTENTS
Page
PROXY STATEMENT. . . . . . . . . . . . . . . . . . . . . . . . . 1
SPECIAL MEETING OF SHAREHOLDERS. . . . . . . . . . . . . . . . . 1
Matters to be Considered at the Meeting. . . . . . . . . . . . 1
Record Date and Voting Securities. . . . . . . . . . . . . . . 1
Revocability of Proxies. . . . . . . . . . . . . . . . . . . . 2
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT. . . . . . . . . . . . . . . . . . . . . . . . . . . 2
SUMMARY OF PROPOSALS TO ACQUIRE PHILLIPS AND EFFECT
REVERSE STOCK SPLIT . . . . . . . . . . . . . . . . . . . . . . 4
Proposals to be Voted Upon at the Meeting. . . . . . . . . . . 4
Acquisition of Phillips. . . . . . . . . . . . . . . . . . . . 5
Reasons for the Acquisition. . . . . . . . . . . . . . . . . . 5
Terms of the Acquisition . . . . . . . . . . . . . . . . . . . 6
Lack of Opinions, Appraisals and Reports . . . . . . . . . . . 7
Effect of Shareholder Approval of Proposal 1 . . . . . . . . . 7
Effect of Shareholder Rejection of Proposal 1. . . . . . . . . 7
Proposal to Effect Reverse Stock Split . . . . . . . . . . . . 8
No Dissenting Shareholder Rights . . . . . . . . . . . . . . . 8
INFORMATION ABOUT THE COMPANY. . . . . . . . . . . . . . . . . . 8
Background . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Primary Products . . . . . . . . . . . . . . . . . . . . . . . 9
Other Products . . . . . . . . . . . . . . . . . . . . . . . . 16
Backlog. . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Market Analysis. . . . . . . . . . . . . . . . . . . . . . . . 17
Patents and Trade Secrets. . . . . . . . . . . . . . . . . . . 24
Product Liability and Insurance. . . . . . . . . . . . . . . . 25
Government Regulations . . . . . . . . . . . . . . . . . . . . 25
Employees. . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Properties . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Legal Proceedings. . . . . . . . . . . . . . . . . . . . . . . 27
MARKET FOR COMPANY'S COMMON STOCK. . . . . . . . . . . . . . . . 27
Dividend Policy. . . . . . . . . . . . . . . . . . . . . . . . 28
MEDISYS TECHNOLOGIES, INC. - MANAGEMENT'S DISCUSSION
AND ANALYSIS. . . . . . . . . . . . . . . . . . . . . . . . . . 28
Risk Factors and Cautionary Statements . . . . . . . . . . . . 32
PROPOSED ACQUISITION OF PHILLIPS . . . . . . . . . . . . . . . . 32
Description of Business of Phillips. . . . . . . . . . . . . . 33
MANAGEMENT OF PHILLIPS . . . . . . . . . . . . . . . . . . . . . 34
Shareholders of Phillips . . . . . . . . . . . . . . . . . . . 35
Conduct of Business After the Acquisition. . . . . . . . . . . 35
Terms of the Acquisition . . . . . . . . . . . . . . . . . . . 35
Conditions of the Acquisition. . . . . . . . . . . . . . . . . 35
No Dissenting Shareholder Rights . . . . . . . . . . . . . . . 36
Status of Federal Securities Regulations . . . . . . . . . . . 36
Federal Tax Consequences . . . . . . . . . . . . . . . . . . . 36
Accounting Treatment of Acquisition. . . . . . . . . . . . . . 36
Lack of Opinions, Appraisals and Reports . . . . . . . . . . . 37
Interests of Certain Persons in the Acquisition. . . . . . . . 37
PROPOSAL 1 - ACQUISITION OF PHILLIPS PHARMATEC
LABS, INC.. . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Effect of Shareholder Approval of Proposal 1 . . . . . . . . . 38
Effect of Shareholder Rejecti0on of Proposal 1 . . . . . . . . 38
Board of Director Recommendation and Required
Shareholder Vote. . . . . . . . . . . . . . . . . . . . . . . 38
<PAGE>
Page
PROPOSAL 2 - REVERSE STOCK SPLIT . . . . . . . . . . . . . . . . 38
Effect of Shareholder Approval of Proposal 2 . . . . . . . . . 38
Effect of Shareholder Rejection of Proposal 2. . . . . . . . . 39
Board of Director Recommendation and Required
Shareholder Vote. . . . . . . . . . . . . . . . . . . . . . . 39
OTHER MATTERS. . . . . . . . . . . . . . . . . . . . . . . . . . 39
ANNUAL REPORTS TO SHAREHOLDERS . . . . . . . . . . . . . . . . . 39
SHAREHOLDERS PROPOSAL. . . . . . . . . . . . . . . . . . . . . . 39
GENERAL. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
ATTACHMENTS
Form of Acquisition and Share Exchange Agreement
Audited Financial Statements - Medisys Technologies, Inc. - for
the Years ended December 31, 1997 and 1996
Unaudited Financial Statements - Medisys Technologies, Inc. -
for the period ended September 30, 1998
Unaudited Financial Statements - Phillips Pharmatecx Labs, Inc.
- for the Year ended December 31, 1997
Proforma Financial Information - Medisys Technologies, Inc. -
September 30, 1998
<PAGE>
MEDISYS TECHNOLOGIES, INC.
144 Napoleon Street
Baton Rouge, LA 70802
PROXY STATEMENT
SPECIAL MEETING OF SHAREHOLDERS
To Be Held December 16, 1998
This Proxy Statement is furnished in connection with the
solicitation of proxies for use at the Special Meeting of
Shareholders (the "Meeting") of Medisys Technologies, Inc. (the
"Company") to be held on Wednesday, December 16, 1998 at 10:30 a.m.
local time, at the Day's Inn (Dogwood Room) located at 10245
Airline Highway, Baton Rouge, Louisiana, and at any and all
adjournments thereof. The accompanying proxy is solicited by the
Board of Directors of the Company and is revocable by the
shareholder anytime before it is voted. For more information
concerning the procedure for revoking the proxy see "General".
This Proxy Statement is first being mailed to shareholders on or
about December 4, 1998.
Matters to be Considered at the Meeting
Shareholders will be asked to consider and act upon two proposals
at the Meeting. The first proposal is to acquire Phillips
Pharmatec Labs, Inc., a privately held Florida corporation
("Phillips"), in exchange for shares of Company common stock which
will represent approximately 50% of the total outstanding shares
following the acquisition. The second proposal is to effect a
reverse stock split of the Company's issued and outstanding common
stock on a one (1) shares for five (5) shares basis. The reverse
stock split, if approved, will be effective prior to the issuance
of shares for the acquisition of Phillips.
The matters to be considered at the Meeting have great
significance to the shareholders because, if approved, the Company
will proceed to acquire Phillips. If the acquisition is
consummated, the current shareholders of Phillips will own
approximately 50% of the Company's common stock outstanding (post-
split). Also, it is anticipated that certain principals of
Phillips will become directors of the Company following the
acquisition. Further, if the one share for five shares reverse
stock split is approved and effected, the total number of shares
owned by each shareholder will be reduced by one-fifth.
Shareholders are urged to carefully consider the information
presented in this Proxy Statement.
Record Date and Voting Securities
The Company's securities entitled to vote at the Meeting consist
of common stock, par value $.0005 per share. Only shareholders of
record at the close of business on December 1, 1998 are entitled to
notice of and to vote at the Meeting. At the record date, the
Company had outstanding 15,555,260 shares of common stock which
were owned by approximately 424 shareholders.
Each holder of record of common stock on the record date is
entitled to one vote per share on each proposal presented at the
Meeting, exercisable in person or by proxy. The presence in person
or by proxy of a majority of the outstanding shares of common stock
entitled to vote is necessary to constitute a quorum at the
Meeting. Assuming a quorum is present, the affirmative vote of the
holders of a majority of the shares of common stock issued and
outstanding present in person or represented by proxy is required
for approval of each proposal to be voted upon at the Meeting.
Any properly executed proxy returned to the Company will be voted
in accordance with the instructions indicated on thereon. If no
instructions are marked with respect to the matters to be acted
upon, each such proxy will be voted in accordance with the
recommendations of the Board of Directors set forth in this Proxy
Statement.
Abstentions will be treated as present and entitled to vote at
the Meeting. Therefore, abstentions will be counted in determining
whether a quorum is present and will have the effect of a vote
against a matter. A broker non-vote on a matter (i.e., shares held
by brokers or nominees as to which instructions have not been
received from the beneficial owners or persons entitled to vote and
as to which the broker or nominee does not have discretionary power
to vote on a particular matter) is considered not entitled to vote
on that matter and, therefore, will not be counted in determining
whether a quorum is present or whether a matter requiring approval
of a majority of the shares present and entitled to vote has been
approved.
Revocability of Proxies
Any proxy given pursuant to this solicitation may be revoked by
the person giving it at any time before its use by delivering to
the Secretary of the Company a written notice of revocation or a
duly executed proxy bearing a later date or by attending the
Meeting and voting in person.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information, to the best knowledge
of the Company, as of December 1, 1998, 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, officers
and principal shareholders as a group.
Name and Address of Number of Shares Percentage Number of Average
Beneficial Owner Beneficially Owned Ownership(1) Warrants Exercise
Before After Owned Price
Acquisition
Gary E. Alexander *
144 Napoleon Street
Baton Rouge, LA 70802 1,158,083(2) 7% 4% 227,800 $1.29
Robert McNamee
1398 Oakley Drive
Baton Rouge, LA 70806 1,205,826(3) 8% 4% 358,653 3.31
Jerry Phipps
7530 Old Sturbridge Ln.
Baton Rouge, LA 70806 1,103,826(4) 7% 4% 361,632 3.33
Robert L. diBenedetto *
781 Colonial Drive
Baton Rouge, La 70806 874,680(5) 6% 3% 320,000 2.91
William D. Kiesel *
2355 Drusilla Lane
Baton Rouge, LA 70809 1,221,713(6) 8% 4% 575,166 2.54
Edward P. Sutherland *
144 Napoleon Street
Baton Rouge, LA 70802 1,229,749(7) 8% 4% 286,000 1.26
Kerry Frey *
144 Napoleon Street
Baton Rouge, LA 70802 1,184,740(8) 8% 4% 157,400 1.26
Jane Cooper *
144 Napoleon Street
Baton Rouge, LA 70802 12,200(9) .1% .05% 5,000 4.25
Timothy Andrus *
144 Napoleon Street
Baton Rouge, LA 70802 73,149(10) .5% .3% 51,149 1.17
Directors and officers
as a group (7 persons) 5,754,314(11) 33% 17% 1,622,515 2.05
________________
* 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 December 1, 1998, there were 15,555,260 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 2,342,800 shares of common
stock and which are currently exercisable. Therefore, for
purposes of the table above, as of the date hereof, 17,898,060
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 December 1, 1998 and assumes the exercise of
stock purchase warrants held by such person (but not by anyone
else) exercisable within sixty days.
2. Includes 227,800 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
$1.29 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 361,632 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
$3.33 per share.
5. Includes 320,000 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 $2.91 per share.
6. Includes 575,166 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
$2.54 per share, of which 300,000 warrants are held in the
name of Roy, Kiesel & Tucker and 90,000 warrants are held in
the name of Nu Vue Corp.
7. Includes 307,363 shares held in the name of Diana B.
Sutherland, wife of Edward P. Sutherland and 286,000 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 $1.26 per share.
8. Includes 157,400 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
$1.26 per share.
9. 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.
10. Includes 51,149 shares which may be acquired by Dr. Andrus
pursuant to the exercise of stock purchase warrants
exercisable within sixty days at the average exercise price of
$1.17 per share.
11. Includes 2,342,800 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 $.6875 to $4.25 per share.
SUMMARY OF PROPOSAL TO ACQUIRE PHILLIPS
AND EFFECT REVERSE STOCK SPLIT
The following summary is intended only to highlight certain
information contained in this Proxy Statement. This summary is not
meant to be a complete statement of all of the features or effects
of the proposal to acquire Phillips as set forth in Proposal 1, or
of the proposed reverse stock split as set forth in Proposal 2.
This summary is qualified in its entirety by the more detailed
information contained in this Proxy Statement and the documents
attached hereto. Shareholders are urged to read this Proxy
Statement and the documents attached hereto in their entirety.
Proposals to Be Voted Upon at the Meeting
Shareholders are being asked to vote on proposals to
(1) acquire Phillips in exchange solely for shares of the Company's
common stock, and (2) effect a reverse stock split of the Company's
issued and outstanding shares on a one (1) share for five (5)
shares basis.
Acquisition of Phillips
The Company has entered into a Letter of Intent with Phillips
relating to the proposed acquisition of Phillips by the Company, in
exchange for shares of the Company's common stock (the
"Acquisition"). The Acquisition is contingent upon the Company
raising between $3,000,000 and $5,000,000 in primary funding and
upon acquiring interim financing of approximately $200,000.
However, this contingency may be waived at the discretion and upon
the approval of the Board of Directors of each party. Upon
completion of the proposed Acquisition, Phillips will be a wholly-
owned subsidiary of the Company.
Phillips, located in Largo, Florida, manufactures and packages
over-the-counter health and dietary products for other companies to
distribute and sell under private labels. Product types produced
by Phillips include vitamins, mineral supplements, herbal therapy,
and diet aids. Phillips acts as a contract manufacturer with the
expanded capability of manufacturing and/or assembling product
lines consistent with the types of products developed by Medisys.
Reason For the Acquisition
The Company is a specialized medical device company
participating in markets within large growing categories of medical
care. The Company acquires and develops proprietary products for
commercialization grouped in those identified markets which can be
efficiently exploited using management disciplines of market driven
business units. The Company is in various stages of development of
various products and has commenced marketing, on a limited basis,
one of its products.
Management believes that the Acquisition will benefit the
Company because it will realize immediate operating revenues from
Phillip Pharmatec's ongoing business. Also, the production,
packaging, labeling and shipping capabilities of Phillips may be
used for the manufacturing and marketing of the Company's medical
devices as they are developed. Management further believes that
the Acquisition will increase the Company's total assets, increase
revenues and earnings and eventually assist the Company in
marketing its products. Phillips realized approximately $3,800,000
in revenues in calendar 1996 with net income of $66,000, and
revenues for calendar year 1997 of $3,653,290 with a net income of
$17,212.
If the Acquisition is completed, the Company's shareholders
will suffer significant dilution in their percentage ownership of
the Company's issued and outstanding common stock. The Company's
current shareholders now own 100% of the total shares of the
Company's common stock issued and outstanding. If the Acquisition
is completed, the Company's current shareholders will own 50% of
the total shares then issued and outstanding. Current shareholders
of Phillips will own 50% of the total shares then issued and
outstanding. All percentages are based upon post-split numbers
assuming the shareholders approve the proposed one share for five
shares reverse stock split. Thus, following the Acquisition the
current shareholders of Phillips may have effective voting control
over the Company. Shareholders of the Company may experience
additional dilution if the proposed funding is accomplished by the
sale of additional common stock. Inasmuch as the Company's
shareholders have no right to cumulative voting, the current
shareholders of Phillips may also be able to elect all directors of
the Company. The Company's directors will have the authority to
declare or not declare dividends, to authorize the issuance of
additional shares of the Company's securities for acquisitions or
for other corporate purposes and to control all aspects of the
Company's business operations subject to any rights granted to
shareholders under Utah corporate law.
The Board of Directors believes that the general terms of the
Acquisition, as set forth in the Letter of Intent, are in the best
interests of the Company and its shareholders and recommends that
shareholders vote in favor of Proposal 1. Management believes that
if Proposal 1 is adopted by the Company's shareholders and if the
Acquisition is completed, the Company will have much greater
prospects for future success. The Company's Board of Directors who
hold shares of the Company's common stock have informed the Company
that they intend to vote for Proposal 1.
Terms of the Acquisition
The Acquisition is contingent upon the Company raising between
$3,000,000 and $5,000,000 in primary funding and upon acquiring
interim financing of approximately $200,000. The Company is
presently exploring the possibility of a private placement of
securities to secure the cash required as interim funding. The
Company is also exploring various options for raising the primary
funding including a possible public offering of securities.
However, as of the date hereof the Company has not entered into any
firm agreement or understanding for the raising of capital from any
public or private source. The obligation for the Company to
complete funding may be waived at the discretion and upon approval
of the Board of Directors of each party.
If the Acquisition is completed, all Phillips common shares
owned by Phillips shareholders will be converted into shares of the
Company's common stock. Currently, there are 300 shares of Phillips
common stock issued and outstanding. The Company and Phillips have
agreed that the number of shares of the Company's common stock to
be issued to the Phillips shareholders will represent 50% of the
total shares of the Company's common stock issued and outstanding
immediately following the Acquisition. Therefore, the 300 shares
of Phillips common stock will be converted into approximately
3,111,052 shares (post-split) of the Company's common stock if the
Acquisition is closed. The number of shares of the Company's
common stock to be issued in the Acquisition was arbitrarily
determined by the parties but such factors as book value, tax loss
carry forward, historical revenues, cash flow and earnings and
potential growth were considered by the Boards of Directors of the
Company and Phillips in reaching an agreement.
There are currently 15,555,260 shares of the Company's common
stock issued and outstanding. Anticipating that the one share for
five shares reverse split is effected as proposed, this would
result in approximately 3,111,052 shares of the Company's common
stock outstanding, without giving effect to the rounding-up of
fractional shares. Accordingly, approximately 3,111,052 shares of
common stock will be issued to Phillips shareholders, which will
represent 50% of the total outstanding shares immediately following
the Acquisition. Any additional Company shares that may be issued
upon the exercise of outstanding options or warrants or in future
sales of share, will not be taken into consideration in determining
the number of shares to be issued. However, Phillips shareholders
will also be issued warrants or options equal in number, exercise
price and exercise date to all of the Company's warrants
outstanding on the date of the closing of the acquisition.
Lack of Opinions, Appraisals and Reports
No unaffiliated representative has been retained to act on
behalf of the Company or Phillips for the purposes of negotiating
the terms of the Acquisition or preparing a report concerning its
fairness. The Company has not solicited or obtained any appraisal,
report or opinion by any outside party regarding the Acquisition.
The Board of Director s chose not to retain the services of an
investment advisor, because it believed the cost of such services
would be excessive relative to the size of the transaction and for
the reasons set forth herein.
Effect of Shareholder Approval of Proposal 1
If Proposal 1 is adopted by the Company's shareholders, the
Board of Directors intends to proceed with the Acquisition.
Provided the Company fulfills the contingency of securing the
necessary interim and primary funding, the Company will acquire
Phillips through the issuance of approximately 3,111,052 shares of
the Company's common stock to the shareholders of Phillip Pharmatec
and also options or warrants equal in number and terms to all of
the Company's warrants outstanding on the closing of the
Acquisition.
Effect of Shareholder Rejection of Proposal 1
If Proposal 1 is not adopted by the Company's shareholders,
the Company will not proceed with its plans to acquire Phillips and
will continue with its current operations. In such event, the
Company may ultimately seek alternative acquisitions or
investments. However, the Company may not be able to effect an
acquisition of an operating company in the future or be able to
secure additional funding in order to continue operations.
Proposal to Effect Reverse Stock Split
The Company is proposing that the shareholders approve the one
share for five shares reverse split of the issued and outstanding
shares of common stock. Presently there are 15,555,260 shares of
common stock issued and outstanding. If the reverse split is
effected as proposed, there would be approximately 3,111,052 shares
of the Company's common stock outstanding, without giving effect to
the rounding-up of fractional shares. All shares to be issued
pursuant to the Acquisition would be post-split.
Management believes that by effecting the reverse stock split,
the Company will have fewer shares outstanding which may result in
a public stock price per share in a more desirable range which is
perceived as beneficial to the public market. Also, with fewer
shares outstanding, the Company would most likely be able to make
future acquisitions and/or financings on more favorable terms to
the Company.
No Dissenting Shareholder Rights
Neither the Acquisition nor any other matter to be acted upon
at the Meeting create any dissenting shareholders rights under the
Utah Revised Business Corporation Act.
INFORMATION ABOUT THE COMPANY
The Company is a diversified medical company. It's strategy
is to concentrate on commercialization in markets within large
growing categories of medical care where it can maintain a
competitive advantage. The Company develops and acquires
proprietary products grouped in markets which can be efficiently
exploited using the management discipline of "market driven
business units" (MDBU's). Management believes that significant
opportunity exists in building a market driven company that
consolidates product opportunities within large target business
segments thereby developing marketing leverage in substantial
"niche" markets.
The Medical Device Group is focused on medical safety within
the specific market segments of "Sharps Management," "Lifeline
Management" and "Women's Health." The Company's patented products
within these areas provide a substantial base for creating
complimentary multi-product specialized business units.
The medical device industry is characterized by many small
companies with sales which do not have product synergy to leverage
cost or generate market impact. Many products do not meet the
large scale criteria of the major medical device companies and
are, therefore, available for acquisition. In addition to
commercializing its own proprietary ideas, the Company will
identify, acquire and commercialize carefully selected
opportunities grouped into specialized business units. The units
can deliver cost effective, competitive advantages that may be
marketed effectively.
The Company targets niche market segments which are not the
focus of multi-national companies. By participating in large
growing markets with a bundle of specialty proprietary devices, the
Company can build a substantial business presence while minimizing
the risk of competition. By adapting existing technology to
innovative uses and avoiding a dependence on future technology, the
Company reduces the risk and expense of regulatory development
inherent with new inventions.
Background
The Company was incorporated on March 17, 1983 under the laws
of the State of Utah as Whitewater Products, Ltd. On August 6,
1992, the Company acquired Medisys Technologies, Inc., a Louisiana
corporation, engaged in the business of developing a device for the
assistance of childbirth under a patent which was granted on June
15, 1992. Subsequent to the acquisition, all of the Company's
activities have been related to the development of medical devices
for use primarily in the field of Medical Safety. For accounting
purposes the acquisition was treated as a recapitalization of
Medisys-Louisiana with Medisys-Louisiana as the acquirer (reverse
acquisition). The acquisition was perfected by a share exchange.
The Company changed its name to Medisys Technologies, Inc.
Since 1992, the Company has invested over $6,000,000 in the
development of its proprietary ideas several of which are
commercialized or pending market introduction.
Primary Products:
MEDICAL "SHARPS" SAFETY - CoverTip
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.
Approximately one million needle sticks are reported each year
among healthcare workers with the probability of many more going
unreported. The potential for transmission of the hepatitis C
(HCV), hepatitis B (HBV) and the HIV (AIDS) viruses can occur from
just one needle stick and the potential cost of a single
contaminated needle stick injury is estimated between $205 and
$2,302 just for evaluation. While the incidence of AIDS contracted
through accidental needle sticks is low (CDC is aware of 54
documented cases and 114 possible cases of healthcare workers who
acquired HIV on the job as of December 1997), the impact to the
individuals tested and the cost of both the testing and treatment
is enormous. For both hepatitis B virus and HIV infections, the
primary source of exposure was, according to the (CDC) Centers for
Disease Control and Prevention, a needle stick.
The current syringe market approaches 2.5 billion dollars in
the U.S. alone. Currently, safety syringes comprise a relatively
small portion, less than 20% 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 CoverTip device's
unique design covers the tip of the needle while in the skin and
locks in place protecting the healthcare worker during the
injection process and disposal of the used syringe. Use of the
CoverTip requires no additional instruction.
The Company believes that substantial capital barriers may
inhibit direct entry of safety products in the United States.
Therefore, the Company has adopted a strategy of developing a
marginal market presence while seeking a license arrangement with
a major medical company. Foreign markets offer similar
opportunities and potential market partners are being explored.
The Company has received inquiries concerning the CoverTip product
from the three largest suppliers of syringes in the United States
as well as a major health product company. Medisys is also
pursuing specialty applications for CoverTip and a limited market
introduction of the product.
On March 23, 1998 the Company submitted additional elective
test data to the Food and Drug Administration ("FDA") to support
its effort to obtain a 510(K) Exemption from Pre-Market approval
for CoverTip. These tests of over 500 syringe animal injections
were rated "excellent" by the investigators and achieved all test
goals. On May 15, 1998, the Company received U.S. Food and Drug
Administration (FDA) 510K clearance to market the CoverTip safety
syringe.
The Company is developing other safety products including:
PreSaf LeverFulcrum
This is an intramuscular injection safety syringe designed
primarily for the prefilled syringe application. These
applications typically include flu shots, pneumonia shots, AIDS
serums, and other epidemic treatment or prevention therapies. Like
CoverTip, but in a different fashion, it provides automatic
passive protection before withdrawal from the patient. The Company
has a clear patent search and a US Patent has been applied for and
patent is pending. Concept design is essentially complete.
Prototypal and clinical development will begin after patent
approval is received. This device will be marketed as an OEM
product and sold to producers of prefilled syringes.
SofDraw
SofDraw is a blood/fluid collection safety syringe. Although
it mechanically differs from CoverTip it does share essential
technology. Like CoverTip, SofDraw is a simple passive device
which automatically protects the user by covering the sharp prior
to withdrawal. Other than with phlebotomy, the device will
primarily be used by physicians in such procedures as thoracic,
pulmonary, abdominal, and orthopedic joint drainage. The device
can be procedure specific configured. Its safety technology is
also adaptable to drainage catheters. The US patent was approved
several months ago with all essential claims being allowed and the
Company expects to receive the final patent during 1998. Also, all
foreign filings are current. Design development is complete
through prototyping. A 510K application for the market of the
device with the FDA will be filed when the working design is
completed. Given the shared technology between this device and
CoverTip, a fast track clearance for marketing by the FDA is
reasonably anticipated. A Continuation in Part (CIP) application to
cover features allowing large volume drainage without syringe
barrel change is in process.
The Company intends to market this specialized product
directly to both OEM blood and fluid collection tray assemblers and
specialty markets such as physicians and phlebotomists.
VacuSaf
This device, using CoverTip technology in combination with
an adapted passive energy source, covers and protects the sharp
point of a blood collection needle while it is still in the vein.
The safety mechanism is activated and locked with the first use of
a vacuum specimen tube and the sharp is rendered safe prior to
withdrawal. The device provides protection to the user and waste
handlers and produces the added benefit of protecting the vein
lumens during the collection procedure. Version "Select" permits
selection of needle gauge for use with a single adaptive shroud.
Version "Fixed" is a unit pre-assembled with one of several needle
gauges with the given needle, and safety mechanism, fixed to the
shroud. Final design concept is essentially complete and working
models have been fabricated. The Company has a clear patent search
and the U.S. patent application is in progress and is anticipated
to be ready for filing in August of 1998. A moderate volume test
site has agreed to perform clinical trials as soon as clinical
prototypes can be produced.
The marketing direction of VacuSaf has not been finalized.
Options include specialty sales to phlebotomists or a license /OEM
product for the major IV manufacturers.
BxDraw
This device is a fine or coarse needle biopsy safety syringe.
It is a physician only use device. The US patent has been verbally
approved and the Company expects receipt of a formal "Notice of
Allowability" soon. The device provides user protection and
reduces risks of carcinogen cell "needle tracking". It also
doubles as a post procedure safe carrier for transport to
pathology. Development and regulatory status are similar to
SofDraw
BXDraw addresses the needs of the diagnostic surgeon
(orthopedic, General Thoraic) and/or Radiologist and will be sold
directly by Medisys to this specialized segment.
BX-T-Draw OBTSN
The "Obdurated Titanium Safety Needle" designed for use with
MRI (Magnetic Resonance Imaging) placement to take a tissue sample
with a cutting needle. Concept design is complete and the company
has a clear patent search. An application for a US Patent will be
filed when final design alternatives are complete.
Like the BxDraw, the BX-T-Draw will be specialty marketed to
Radiologists, Oncologists, general surgeons and other
diagnosticians.
CoverStik
This device permits safe collection of capillary blood. The
small cutting blade is passively and automatically retracted into
a protective housing concurrent with skin puncture. Applications
include checks for glucose levels, clotting, and blood gases. As
a system, CoverStik protects the user and eliminates reusable
carriers which contaminate easily and are known sources of pathogen
transfer, particularly hepatitis. Conceptual design work is
complete. The Company has a clear patent search and will file a
patent application as soon as final design alternatives are
complete.
The CoverStik marketing plan is to sell directly to Lab and
Respiratory Therapy as well as OEM. The device to diagnose
companies such as Smith Kline Beecham and Scientific Products.
SAFETY IN WOMEN'S HEALTH
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. SofCeps is
designed, in part, 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 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.
SofCeps is designed to replace 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. 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. Also, 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.
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. These tests 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 still born 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. Deliveries were planned in the Phase
Two program for the fourth quarter of 1997 and the first quarter of
1998. An interruption of the research and development capital
needed to refine the clinical prototypes to a final commercial
design has delayed these clinical studies. Internationally,
clinical sites at the Perinatal Institute in Bern, Switzerland, the
Hospital Central in Mexico, and the Kenyata National Hospital in
Kenya were selected for consideration of live birth testing. This
testing has not commenced, but is anticipated to begin first in
Mexico and later in Switzerland and/or Kenya upon the acquisition
of adequate research and development capital and completion of
final commercial design. In the United States, a letter of intent
was signed with physicians at the University of Maryland to begin
live birth testing when the final commercial prototype is achieved.
The Company is exploring possible acquisition of an existing
intrauterine pressure device and a vacuum extraction cup, as
further products for the women's health category.
AmnioSaf
This safety syringe device is designed to protect both the
physician and the fetus during amniocentesis. Protection of the
fetus is provided through reduction of the risks of eye, thorax,
cord, or placental puncture. Patent, development, and regulatory
status are similar to SofDraw.
AmnioSaf will be marketed to obstetrics and gynecology
(OB/GYN) and will complement the Women's Health focus of Medisys as
well as Medical Safety.
LIFELINE MANAGEMENT
DisKlip
DisKlip ("DisKlip") is a latex free securement device used
in connection with the management of standard intravenous
administration of medication (IV) and other medical tubing and
lines.
DisKlip is a simple and inexpensive disposable (single-use)
securement device designed to afford the medical provider with an
easier, more efficient means to attach and manage 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 vein
wall puncture, reduction of risk of sepsis, and reduction of
patient discomfort.
The Company's expectations with regard to DisKlip have been
verified by multi-hospital field testing. This field testing
consisted of actual patient use at several hospitals in the United
States as well as application and wear by various Medisys
personnel. It also included one market evaluation by potential
customers in the Unites States. The adhesive backing has been
improved to incorporate a "foam tape" approach that allows for skin
breathability and reduced allergic (hypoallergenic) reaction.
Additional designs are being constructed to accommodate
various locations of the body. These designs include
(i) MultiKlip, for management of multiple tubing/lines, and
(ii) KidKlip, a pediatric version and The Freedom IV device, a
retractable IV line management device. The Company is currently
addressing other needs through additional research and development.
Other Products:
In order to reasonably assure a continual stream of new
products for the future of the Company, Medisys continues to
analyze the market for development of proprietary practical
healthcare concepts.
The Company is also presently investigating and developing
other opportunity products which should generate additional
revenue. Medisys plans to outlicense or establish potential
separate business units for these other products. An example of
products available to the Company is as follows:
VetCeps Obstetrical Tractor
VetCeps 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
has been limited in large measure to the bovine application. This
is due to its substantial potential market and because VetCeps
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. This product is now being
sold commercially. The Company introduced the device generating
sales of approximately 100 units during 1996 to test market
VetCeps . Sales were discontinued in the first quarter of 1996
because the original product proved to be too large to accommodate
the fetlock (leg) of the majority of newborn calves. Subsequently
the product was redesigned and is now available in three different
sizes to more closely accommodate the majority of newborn calves.
The device was reintroduced to the veterinary market in February
1997 and achieved sales of approximately $100,000 in 1997. The
Company is presently seeking capital to pursue a comprehensive
marketing plan to substantially accelerate VetCeps sales. A
separate business and marketing plan has been developed for
VetCeps .
Re-Ty
Re-Ty is a releasable, adjustable and reusable "cable tie"
product group developed originally to enhance VetCeps . The
Company has three designs: side release, top release and enscoping;
all of which are intended for out license to industrial users.
Backlog
The Company has no backlog of the VetCeps , veterinary birth
assistance device.
Market Analysis
CoverTip
Currently $2.5 billion of annual 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 100 individuals) the occurrence of hepatitis and
other infectious diseases compounds the problem and cumulatively
results in high cost, liability, long-term care and productivity
losses. Requirements for reporting all accidental dirty needle
sticks result in subsequent testing cost alone for each event from
between $250 and $1,020.
Although there is support from the healthcare worker community
for safety syringes, there are still various obstacles. These
include higher cost, from three to five times standard syringes, as
well as the difficult technique changes necessary to use many of
these 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.
1. Customer characteristics
Customers for the CoverTip 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, reduce potential liability and
negative publicity, and pressure from healthcare worker
organizations are strong motivators for hospitals to adopt 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.
2. Competitive Evaluation
Within the syringe business in the United States, Becton -
Dickenson enjoys the largest market share position of approximating
60% of the market. Sherwood Medical, a division of Tyco Industries
has approximately 30% with the remainder of the market which is
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. Despite the interest and
effort to convert to these products, difficulty in changing
behavior of the application technique as well as the prohibitive
cost, from three to five times standard syringes, has inhibited the
penetration of safety syringes into the overall standard syringe
marketplace. On March 28, 1998 the Company submitted additional
clinical testing to support its application for 510(K) Exemption
from Pre-Market approval for CoverTip to the FDA. On May 15, 1998
Medisys received 510(K) clearance to market CoverTip.
3. Marketing Plan
Due to the large capital investment required to manufacture
large quantities of the CoverTip product, the Company's selling
strategy will be to obtain a third party large company partner.
This partner will need manufacturing and distribution resources and
expertise to rapidly introduce a product into the marketplace.
The CoverTip safety syringe addresses each of the major
issues associated with current safety syringes and provides
benefits over standard intramuscular (IM) syringes. Standard
syringes cost between $0.06 and $0.12 each and it is anticipated
that the CoverTip safety syringe will be priced at less than $0.20
each. Specific costs 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, because of the unique design of the CoverTip, 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.
Market Analysis
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 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.
Statistics have shown that forceps are used to assist up to
26% of vaginal deliveries. 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
with massive brain damage, 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. Such injuries are exhaustively dealt
with in the medical literature and the obstetrical community would
most likely 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 fifties and in spite of numerous
attempts toward refinement, management feels that 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, managed care organizations, 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 SofCeps 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 capitated 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 Medisys products,
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 OB. 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.
Competition to SofCeps includes 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 and vacuum extractor companies do not look at forceps as
a major product line. However, they can be expected to respond
with alternative methods of assisted delivery once the SofCeps
product is introduced into the market place.
3. Market Potential
SofCeps is intended to be multi-dimensional in use and is
designed to be applied in a prophylactic manner when mother and
fetus do not present contraindications. Less than one-half of
section deliveries result from maternal/fetal clinical presentation
such as inadequate pelvic architecture, cephalo pelvic
disproportion, vaso or placenta-previa. Also, one-half of section
deliveries are labor related and perhaps preventable through use of
a beneficial obstetrical tractor.
SofCeps 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 and thus a potential market exists
for repeat orders. 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. Medisys believes that a price of
approximately $300 per device will meet the requirements of the
managed care environment.
4. Non-Controllable Elements
With significant health care reform apparently postponed for
the foreseeable future, government intervention would appear only
to enhance the prospects for SofCeps as well as other Medisys
technologies. 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 of treatment. These
economic studies may be conducted from assessment of currently
available data and/or specific studies to demonstrate reduction in
overall cost through use of Medisys products. These studies are
anticipated to commence simultaneously with market introduction of
the various products and take varying amounts of time to complete
based on their complexity. Although these studies support various
benefits of the Company's products, they are not deemed critical to
market introduction, rather enhancements to each of the product's
value to key decision makers. The greatest elements outside
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 specialized sales representatives. This approach is
intended to achieve appropriate marketing activity while minimizing
selling expenses. The Company plans to distribute Medisys
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:
a. During the final development stage the Company will
communicate with Obstetricians via direct mail and convention
exposure at major OB 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 SofCeps by targeting the thought leaders
and volume delivery obstetrical centers. Specific effort will
be made to establish SofCeps advocates in the top 20 markets
nationally. Major benefits that will be positioned to the
obstetrician will include an increase in patient care and
potential for reduced malpractice insurance.
b. Major obstetrical societies will be contacted and
requests made for endorsements of the SofCeps product versus
forceps use.
c. After product testing, the Company plans to commission a
panel of distinguished obstetricians as an advisory group to
provide broad input and endorsement support.
d. Obstetrical Nurses will be exposed 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.
e. 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.
f. Although 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.
g. 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.
h. 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.
i. 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.
j. Women's Groups. 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.
K. Education. 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
The Company has commenced initial public relations and market
education activity. This initiative consists of periodical news
releases and publication in a limited number of business and
professional publications about the Company in general. Further
advertising and public relations will be targeted to each category.
For example, even though hospitals will be the purchasers,
obstetrical physician users will dictate whether the purchases are
made. This 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 intends to develop reasonable warranties with
application of the SofCeps product. These warranties will be
contained in the product package insert which will be included with
every SofCeps unit sold or distributed.
Patents and Trade Secrets
The Company has aggressively pursued obtaining patent rights
to products it anticipates marketing. The Company is already the
owner of twelve U.S. patents protecting the Company's SofCeps,
CoverTip, VetCeps , DisKlip, and Re-Ty devices. These consists
of U.S. Patent numbers 5122148, 5217467, 5318573, 5460611, 5496283,
5573539, 5593413, 5632750, 5681290,5687455 (two device patents),
and 5720727. The Company also owns one letters patent protecting
the SofCeps device (no. 669116) from Australia. Eleven of the
issued patents are being prosecuted internationally. Three
additional U.S. patent applications have resulted in notices of
allowability pursuant to which issue fees have been paid, and the
Company expects receipt of the final patents shortly. These
patents will cover the Company's SofDraw, Multi-Draw, and a third
design (Enscoping) of the Re-Ty line of fastener products and will
bring the total of issued U.S. Patents to fifteen. Additionally,
the Company has pending a mix of seven original and/or CIP
applications. The Company also has a backlog of viable proprietary
product concepts which meet company development criteria.
The Company has filed six U.S. trademark applications
preserving its right to use the trademarks "SofCeps", "VetCeps ",
the "Medisys " logo, "DisKlip", SofDerm", and "CoverTip". As
the Company proceeds forward with the commercialization of these
and other products, it will file U.S. and foreign trademark
applications to protect product names.
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 five 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.
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.
Additionally, the Company has obtained product liability
insurance for the VetCeps 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
Generally, all medical devices are subject to FDA regulation
under the Medical Device Amendments of the Federal Food, Drug and
Cosmetic Act. 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.
Manufacturers intending to market a new or significantly modified
device, must submit to the FDA a pre-market notification. This
notification must 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. The
notification must be submitted at least 90 days prior to
introducing the device into interstate commerce, or otherwise
holding or offering the device for commercial distribution. No
prototype is required, 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 device is deemed
equivalent, it can be marketed. 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 a more rigorous FDA
approval process which generally required 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 if 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 meets all
requirements of the FDA regulations.
The Company believes that both of its primary safety products
are "substantially equivalent" to devices already marketed and are
therefore exempt from PMA. However, the fact that 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 good manufacturing practices
prior to marketing the product.
A discussion of where the Company stands with regard to the
FDA process is included under each product heading.
Prior to 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. 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 CoverTip safety device received 510(K) FDA clearance on
May 15, 1998. This allows the Company to market the CoverTip
device in the U.S. and provides a substantial basis for approvals
in other international markets.
Other than the FDA, the Company does not believe that there
are any existing or probable governmental regulations that would
adversely affect the Company or its business.
All materials used in Medisys disposable products are standard
medical materials compatible with present methods of hospital
disposal in accordance with accepted practices and applicable laws.
Employees
As of March 31, 1998 the Company employed six full-time
individuals, consisting of three executive officers, one VetCeps
general manager and two 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;
Carolyn Crochet, an accountant and bookkeeper; Joel Faden, an FDA
consultant; and KJS financial consultants. Mr. Kiesel is
reimbursed for patent costs and expenses only. Gary Schneberger is
a full-time engineering and development consultant who is
compensated on an hourly basis, plus expenses. Ms. Crochet is
compensated on an hourly basis. Mr. Faden is compensated on an
hourly basis as services are needed.
Properties
The Company leases office facilities consisting of
approximately 1,500 square feet located in Baton Rouge, Louisiana.
The lease calls for a monthly payment of $800 plus utilities and is
an annual lease renewable in October of each year. The office is
primarily devoted to product development, new product design,
VetCeps assembly and marketing, and administrative activities.
Additionally, the Company leases 450 square feet of office space in
Far Hills, New Jersey at a cost of $1,200 per month. The Company
believes that all of its initial requirements for manufacturing,
packaging, and storage will be met by its contract manufacturers.
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.
MARKET FOR COMPANY'S COMMON STOCK
The Company's Common Stock IS 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 1996 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
1996
First Quarter 4.18 1.50
Second Quarter 5.12 3.87
Third Quarter 4.25 3.00
Fourth Quarter 3.25 1.87
1997
First Quarter 2.44 1.12
Second Quarter 1.94 .87
Third Quarter 1.47 .56
Fourth Quarter 1.19 .44
1998
First Quarter .94 .31
Second Quarter .88 .28
Third Quarter .47 .15
Fourth Quarter(1) .38 .16
___________________________
1. Through December 1, 1998
As of December 1, 1998 there were approximately 424 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. The Company estimates that in excess of
1,000 shareholders of the Company hold their shares 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.
MEDISYS TECHNOLOGIES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
The following information should be read in conjunction with
the Consolidated Financial Statements and Notes thereto appearing
elsewhere herein.
Years ended December 31, 1997 and 1996
Results of Operations
The net loss for the year ended December 31, 1997 increased
40% to $2,092,689 when compared to the corresponding 1996 period.
These results continue to be primarily attributed to the costs
associated with the Company's increased effort to develop its
products.
Operating expenses for the year ended December 31, 1997
("1997") increased 28% when compared to the corresponding 1996
period, primarily attributed to increases for 1997 in the following
items: cost of product sold (from $1,267 in 1996 to $29,797 in
1997) related to the marketing of the Company's initial product;
product research and development (32% increase) reflecting the
Company's continuing development of new and existing products;
professional services (74% increase) due to payments made in the
Company's stock for services rendered; and general and
administrative expenses (7% increase) due to normal increases in
general business expenses. This increase was partially offset by
the 7% decrease in salaries due to a reduction of staff. Because
available funding decreased in 1997, the Company used both cash and
its common stock to pay for its ongoing research and development.
Available development funds were focused and allocated primarily to
VetCeps , CoverTip , and other safety products, DisKlip and
Re-Ty .
Prior to 1997, work on products under development was
performed in-house, with the exception of prototype work performed
by TechniMark, Inc. in Clearwater, Florida.
Liquidity and Capital Resources
The Company raised over $400,000 in cash and cash commitments
in 1997 though a convertible debenture. This debenture was
subscribed to by the Company's officers and directors and five
other investors. The proceeds from the debenture plus VetCeps
revenue has provided the capital to continue the Company's
operations.
Net cash used by operations for the year ended December 31,
1997 decreased to $876,853 compared to net cash used of $1,223,232
for the comparable 1996 period. This decrease is attributed to the
issuance of common stock for services rendered and increase in
deferred expenses, partially offset by the increased loss in 1997.
Net cash from financing activities for the year ended December 31,
1997 was $310,945 compared to $1,927,560 for the comparable 1996
period, primarily due to the decreased sale of common stock
in 1997.
Three and Six Month Periods Ended June 30, 1998 and 1997
The net loss for the three month period ended June 30, 1998
("second quarter of 1998") decreased 51% to $205,215 when compared
to the corresponding 1997 period, primarily due to a reduction of
available operating capital and corresponding reduction for all
expenditures. The Company expended only $4,250 on product
development for the quarter compared to $191,801 expended in the
1997 period. Also contributing to the decrease in net loss was the
51% decrease in salaries and due to a reduction in staff and the
74% decrease in general and administrative expenses due to the
reduction in operating and personnel costs and expenses. These
decreases were partially offset by the 348% increase in
professional services attributed to outsourcing previously
contracted services.
Net loss for the six month period ended June 30, 1998 ("first
half of 1998") decreased 50% to $410,340 when compared to the
corresponding 1997 period, also due to the reduction of available
operating capital. This reduction in available capital also
resulted in decreases in product development (79%), salaries (32%),
and general and administrative expenses (68%), and was partially
offset by the 178% increase in professional services.
Revenues decreased to $3,382 (86%) for the second quarter of
1998 compared to $24,577 for the second quarter of 1997, and
decreased to $23,375 (63%) for the first half of 1998 compared to
$63,450 for the corresponding 1997 period. These decreases are
attributed to a lack of adequate capital for marketing and
advertising.
Cost of product sold decreased to $771 for the second quarter
of 1998 compared to $5,679 for the second quarter of 1997, and
decreased to $5,332 for the first half of 1998 compared to $13,559
for the corresponding 1997 period. These decreases are directly
attributed to decrease in sales. Depreciation and amortization
increased to $7,912 for the second quarter of 1998 compared to
$3,021 for the second quarter of 1997, and decreased to $11,869 for
the first half of 1998 compared to $9,042 for comparable 1997
period.
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 June 30, 1998 was a negative $920,106
compared to a negative $780,243 at December 31, 1997. This decline
in working capital is primarily attributable to the 63% increase in
accrued expenses during this period, mostly accrued salaries and
directors' fees, partially offset by the 16% decrease in accounts
payable.
The Company raised over $400,000 in cash and cash commitments
in 1997 though a convertible debenture. This debenture was
subscribed to by the Company's officers and directors and five
other investors. The proceeds from the debenture plus VetCeps
revenue has provided the capital to continue the Company's
operations.
Net cash used by operations for the year ended December 31,
1997 decreased to $876,853 compared to net cash used of $1,223,232
for the comparable 1996 period. This decrease is attributed to the
issuance of common stock for services rendered and increase in
deferred expenses, partially offset by the increased loss in 1997.
Net cash from financing activities for the year ended December 31,
1997 was $310,945 compared to $1,927,560 for the comparable 1996
period, primarily due to the decreased sale of common stock
in 1997.
Net cash used by operating activities for the second quarter
and first six months of 1998 was $92,444 and $175,646,
respectively, compared to net cash used of $286,353 and $715,082
for the respective 1997 period. This decrease in cash used is
attributable to the decrease in loss from operations and the
increase in accrued expenses during the 1998 periods. Also, net
cash used by investing activities was $3,099 and $3,561 for the
second quarter and first half of 1998, respectively compared to
$$3,561 and $78,192 for the respective 1997 periods, due primarily
to significant increases in patent costs during the 1997 periods.
Net cash provided by financing activities during the second quarter
of 1998 decreased 10% to $124,808 from the second quarter of 1997,
primarily due to an increase in borrowings from note notes payable.
Net cash provided by financing activities for the first half of
1998 increased 30% to $218,030 from the first half on 1997, also
due to borrowings from notes payable.
The Company is currently technically in default on three notes
payable to various individuals totaling $31,722. One of the three
notes calls for monthly payments of $500 which the Company
continues to pay. Neither of the other two note holders have
demanded repayment and the Company continues to accrue interest on
all outstanding notes payable.
As of June 30, 1998 the Company had total assets of $515,542
and stockholders' deficit of $962,262. In comparison, as of
December 31, 1997 the Company had total assets of $497,884 and
total stockholders' deficit of $591,046.
Management believes that the Company has sufficient capital
resources and commitments to fund anticipated operations until some
time in the fourth quarter of 1998. Management estimates that its
current level of operations require approximately $40,000 per month
in cash based upon average monthly cash flows during the first and
second quarters of 1998. Unless the Company is able to
substantially increase current sales of its products during the
remainder 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 fourth quarter of 1998. The Company intends to
seek additional equity or debt capital through private sources
and/or a public offering, although there can be no assurance that
the Company could successfully complete any such offering. As of
the date hereof, the Company has not entered into any firm
agreements or understandings for the raising of capital from public
or 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.
Net Operating Loss
The Company has accumulated approximately $7,000,000 of net
operating loss carryforwards as of June 30, 1998, which may be
offset against 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
carry-forwards expire in the year 2013. 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. No tax benefit has been reported in the financial
statements for the year ended December 31, 1997 or six month period
ended June 30, 1998 because there is a 50% or greater chance that
the carryforward will not be used. Accordingly, the potential tax
benefit of the loss carryforward is offset by a valuation allowance
of the same amount.
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 Proxy Statement 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 secure additional financing, the development of the
Company's existing and new products, the potential market for the
Company's products, competitive factors, and other risks detailed
in the Company's periodic report filings with the Securities and
Exchange Commission.
PROPOSED ACQUISITION OF PHILLIPS
On October 1, 1998 the Company entered into a Letter of Intent
with Phillips related to the intended acquisition by the Company of
one hundred percent (100%) of the issued and outstanding shares of
common stock of Phillips. In reliance upon and pursuant to the
basic terms of the Letter of Intent, the Company and Phillips
intend to execute an Acquisition and Share Exchange Agreement (the
"Agreement") whereby Phillips will assign all title and interest
and obligations in that business to the Company in exchange for
Company common stock equal to 50% of the outstanding shares of the
Company plus options or warrants. The Agreement will
simultaneously provide for the purchase of all the issued and
outstanding common stock of Phillips from Brett Phillips, Marilyn
Morris, Carl Anderson and Ronnie Anderson. Upon completion of the
acquisition, Phillips will become a wholly owned subsidiary of the
Company.
The acquisition is contingent upon the Company raising between
$3,000,000 and $5,000,000 in primary funding and upon acquiring
interim financing of approximately $200,000. In order to secure
the cash required as interim funding, the Company intends to
complete a private placement of stock. However, this contingency
may be waived at the discretion and upon the approval of the Board
of Directors of each party. As of the date hereof, the Company has
not entered into any firm agreement or understanding for the
raising of capital from any public or private source.
Description of Business of Phillips
Phillips was founded in December, 1994, by Brett Phillips and
two other major shareholders. Phillips is currently organized as
a Subchapter S corporation in the State of Florida and is located
in Largo, Florida. The prime goal of Phillips is the
manufacturing, forming, and packaging of over-the-counter health
and dietary products for other companies to distribute and sell
under private labels. Major product types are vitamins, mineral
supplements, herbal therapy, and diet aids. Phillips acts as a
contract manufacturer with the expanded capability of manufacturing
and/or assembling product lines consistent with the types of
products developed by Medisys.
Phillips is headquartered in Largo, Florida and operates out
of two separate buildings. The main building is a 10,000 sq. foot
multipurpose facility housing the principal offices with production
and shipping capabilities. The second building is a 15,000 sq. foot
warehouse that is used for warehousing raw materials and also has
production and shipping capabilities.
As a contract manufacturer of over-the-counter
pharmaceuticals, Phillips produces vitamins, mineral supplements,
herbal therapy and diet aids. These products are produced for
customers under private labels and are packaged and shipped from
Largo, Florida.
The first step in the manufacturing of an order can involve
either compounding ingredients using client-specific formulas, or
the use of premixed combinations. Currently, clients specify the
ingredients to be mixed, and Phillips performs the process.
Phillips plans for an onsite laboratory in which original
formulation can be created and tested, allowing it to further
capture more revenue from each order.
The second step in the manufacturing process involves product
formation. Typically, the health and diet supplements are taken
orally by end-user customers. Thus Phillips prepares the product
in either a tablet or capsule form. This is accomplished with
high-speed encapsulators and minimal manpower. Powdered bulk
products, such as dietary supplements, are typical products as
well. Phillips plans to add more liquid and paste medications to
their present product mix.
The last step in the manufacturing process includes packaging,
labeling and shipping. The labeling process involves the placement
of the clients' private name brand on the supplement container.
Phillips does not currently manufacture any products under its own
label. Occasionally, customers will ship liquids, tablet and
capsules to Phillips in bulk for packaging and labeling.
Phillips' present product mix consist of 50% capsules, 25%
bulk powder, 10% liquids 10% other and 5% tablets. To increase
margins and attract new customers Phillips plans to have a product
mix that consists of 25% tablets, 25% liquids, 17% capsules 17%
bulk powder and 17% other.
MANAGEMENT OF PHILLIPS
Following the completion of the Acquisition it is anticipated
that Brett Phillps, Carl Anderson and William H. Morris, currently
directors of Phillips, will become directors of the Company.
Brett Phillips, CEO and President
Brett Phillips co-founded the Company with Dr. William Morris
and Carl Anderson in 1994 and serves a Chief Executive Officer and
President. In this roll, he is instrumental in developing
strategic direction and implementing manufacturing protocols. Mr.
Phillips has specific expertise in contract manufacturing of over-
the-counter pharmaceuticals that create efficiencies leading to
lower cost, higher revenue and improved customer satisfaction.
Prior to founding Phillips, Mr. Phillips managed Energy Factors a
company that manufactures, distributes, and markets pharmaceuticals
under private label brands since 1986. Mr. Phillips earned degrees
in History and Business Administration from the University of Tampa
in 1984. In addition to his company duties Mr. Phillips is a
member of the National Nutrition and Foods Association (NNFA), has
acted as a consultant to various firms in the pharmaceutical and
nutritional markets, and has testified as an expert witness for the
Food and Drug Administration.
Dr. William H. Morris, Pharmaceutical Advisor and Director
Dr. Morris co-founded the Company along with Mr. Phillips and
Mr. Anderson in 1994 and serves as a Pharmaceutical Advisor and
Director. In this capacity, he is responsible for developing,
testing and marketing new nutritional supplements to be
manufactured by the Company. In addition, he has been instrumental
in developing both strategic business planning and marketing for
Phillips. Preceding his involvement with the Company, Dr. Morris
was employed by national and regional drug stores before opening
his own store in 1976. This business was sold to a leading
national drug store chain in 1989. In addition to managing his
drug store, Dr. Morris became involved with the nutritional
supplement, cosmetic, dermatological and over-the-counter drug
industry. At this time Dr. Morris founded National Dietary
Research in 1983 to research nutritional alternatives to health
problems. Dr., Morris has conducted extensive research in this
field and developed numerous nutritional supplements which are in
the market today. Dr. Morris earned a degree in Pharmacology with
honors from Mercer University in 1971. Subsequently, he earned an
advanced degree in Pharmacology and Metabolism from the University
of Georgia. In addition to his Company duties Dr. Morris serves as
a director on numerous corporate boards and is a present member of
the Rotary Club, the National Community Pharmacist Association,
Council for Responsible Nutrition, and the Grocery Manufacturer's
of America.
Carl Anderson, Director
Mr. Anderson co-founded the Company along with Mr. Phillips
and Dr. Morris in 1994 and serves as a Director. In this capacity
he carries out the duties and responsibilities associated with a
Directors position. Additionally, Mr. Anderson will exploit past
experiences in developing effective direct sales, wholesale
distribution, pharmaceutical manufacturing, and others. Prior to
his involvement with Phillips, Mr. Anderson was employed for
several years by U.S. Phosphoric Products Corporation where he was
supervisor of plant service laboratories. In this capacity, he was
responsible for the planning and activities of the plants chemist
and chemical engineers. Mr. Anderson resigned his position in 1968
and has subsequently been active in various business ventures in
the wholesale distribution and pharmaceutical manufacturing
industries. Mr. Anderson earned a degree in Chemistry from North
Carolina State University in 1965
Shareholders of Phillips
Currently, there are four shares of Phillips common stock
issued and outstanding. If the Acquisition is completed, the
shares of Phillips will be converted into approximately 3,111,052
shares of the Company's common stock (post-split). The following
table sets froth information about the shares of the Company's
common stock which will be owned by the current shareholders of
Phillips if the Acquisition is completed and the one share for five
shares reverse stock split is effected.
Company Shares Percent of
Shareholder To be Owned Outstanding
Carl Anderson 725,912 11.7%
Barbara Larkins 311,106 5.0%
Marilyn Morris 1,037,017 16.7%
Brett Phillips 1,037,017 16.7%
Conduct of Business After the Acquisition
It is expected that following the completion of the
Acquisition, the business and operations of the Company currently
conducted will be continued substantially as they are now being
conducted. Additionally, the Company will operate Phillips as a
wholly owned subsidiary.
Terms of the Acquisition
Under the terms of the Acquisition as proposed, the
shareholders of Phillips will exchange all of their shares of
Phillips common stock to the Company in exchange for Company common
stock equal to 50% of the outstanding shares of the Company. Upon
completion of the acquisition, Phillips will become a wholly owned
subsidiary of the Company.
Conditions of the Acquisition
The acquisition is contingent upon the Company raising between
$3,000,000 and $5,000,000 in primary funding and upon acquiring
interim financing of approximately $200,000. In order to secure
the cash required as interim funding, the Company intends to
complete a private placement of stock. However, this contingency
may be waived at the discretion and upon the approval of the Board
of Directors of each party. As of the date hereof, the Company has
not entered into any firm agreement or understanding for the
raising of capital from any public or private source.
No Dissenting Shareholder Rights
Neither the Acquisition nor any other matter to be acted upon
at the Meeting create any dissenting shareholders rights under the
Utah Revised Business Corporation Act.
Status of Federal Securities Regulations
The shares of the Company's common stock to be issued upon the
effectiveness of the Acquisition to the shareholders of Phillips
will not be registered under the Securities Act of 1933, as amended
(the "Act"), in reliance upon the exemption provided by Section
4(2) of the Act as a transaction not involving any public offering
and under applicable state securities laws. Such non-public
offering is in part based upon the investment representations of
the recipients of the shares. The shares to be issued upon the
Acquisition will be "restricted securities" within the meaning of
the Act and will not be transferrable without further compliance
with the registration requirements of the Act or establishment of
an exemption from such requirements. Neither the Company nor
Phillips has received an opinion of legal counsel with regard to
the availability of such exemption, and no assurance can be given
that the Securities and Exchange Commission and/or the securities
administrators of certain states would concur that the Section 4(2)
exemption and equivalent state non-public offering/private offering
exemptions are available for the transaction.
Federal Tax Consequences
The transaction contemplated by the Acquisition and Share
Exchange Agreement is intended to qualify as a reorganization under
Section 368(a)(1) of the Internal Revenue Code of 1986, as amended,
and if so qualified, will not result in the recognition of any
taxable gain or loss by either the Company, Interwest Medical, or
the shareholders of either. The Company will acquire Phillips only
if it can acquire substantially all of the outstanding shares
thereof. Neither the Company nor Phillips has applied for a tax
ruling with respect to the Acquisition, nor have they obtained an
opinion of counsel with respect to the Acquisition. Therefore, no
assurances can be given that the expected tax result will be
achieved in the proposed transaction.
Accounting Treatment of Acquisition
The Company anticipates that the Acquisition will be effected
as a reverse acquisition for accounting purposes and in such event,
for accounting purposes only, Phillips will be deemed to be the
acquiring and surviving company and the Company will be deemed to
be the acquiree. Attached to this Proxy Statement are the
historical financial statements of Phillips and pro forma financial
statements which give effect to the anticipated accounting
treatment of the Acquisition wherein Phillips is deemed to be the
acquiring company.
Lack of Opinions, Appraisals and Reports
No unaffiliated representative has been retained to act solely
on behalf of the Company or Phillips for the purposes of
negotiating the terms of the Acquisition or preparing a report
concerning its fairness. The Company has not solicited or obtained
any appraisal, report or opinion by any outside party regarding the
Acquisition. The Board of Directors chose not to retain the
services of an investment advisor, because it believed the cost of
such services would be excessive relative to the size of the
transaction and for the reasons set forth herein.
Interests of Certain Persons in the Acquisition
The Company is not aware of any interest, direct or indirect,
in the proposed Acquisition by any director or officer of the
Company, other than that of a shareholder.
PROPOSAL 1
ACQUISITION OF PHILLIPS PHARMATEC LABS, INC.
The Company's Board of Directors has unanimously approved and
recommends that the shareholders approve the acquisition of
Phillips Pharmatec Labs, Inc. The Acquisition is contingent upon
the Company raising between $3,000,000 and $5,000,000 in primary
funding and upon acquiring interim financing of approximately
$200,000. Shareholders must be aware that this contingency may be
waived at the discretion and upon the approval of the Board of
Directors of each party. As of the date hereof the Company has not
entered into any firm agreement or understanding for the raising of
capital from any public or private source.
If the Acquisition is completed, all Phillips common shares
owned by Phillips shareholders will be converted into shares of the
Company's common stock. Currently, there are 300 shares of Phillips
common stock issued and outstanding. The Company and Phillips have
agreed that the number of shares of the Company's common stock to
be issued to the Phillips shareholders will represent 50% of the
total shares of the Company's common stock issued and outstanding
immediately following the Acquisition. Therefore, all 300 shares
of Phillips common stock will be converted into approximately
3,111,052 shares (post-split) of the Company's common stock if the
Acquisition is closed.
The number of shares of the Company's common stock to be
issued in the Acquisition was arbitrarily determined by the parties
but such factors as book value, tax loss carry forward, historical
revenues, cash flow and earnings and potential growth were
considered by the Boards of Directors of the Company and Phillips
in reaching an agreement. There are currently 15,555,260 shares of
the Company's common stock issued and outstanding. If the one
share for five shares reverse split is effected as proposed, this
would result in approximately 3,111,052 shares of the Company's
common stock outstanding, without giving effect to the rounding-up
of fractional shares. Accordingly, approximately 3,111,052 shares
of common stock and certain options or warrants will be issued to
Phillips shareholders, which will represent 50% of the total
outstanding shares immediately following the Acquisition. Any
additional Company shares that may be issued upon the exercise of
outstanding options or warrants or in future sales of share, will
not be taken into consideration in determining the number of shares
to be issued.
Effect of Shareholder Approval of Proposal 1
If Proposal 1 is adopted by the Company's shareholders, the
Board of Directors intends to proceed with the Acquisition.
Provided the Company fulfills the contingency of securing the
necessary interim and primary funding, the Company will acquire
Phillips through the issuance of approximately 3,111,052 shares of
the Company's common stock to the shareholders of Phillip.
Effect of Shareholder Rejection of Proposal 1
If Proposal 1 is not adopted by the Company's shareholders,
the Company will not proceed with its plans to acquire Phillips and
will continue with its current operations. In such event, the
Company may ultimately seek alternative acquisitions or
investments. However, the Company may not be able to effect an
acquisition of an operating company in the future or be able to
secure additional funding.
Board of Director Recommendation and Required Shareholder Vote
The Board of Directors recommends a vote FOR the proposed
acquisition of Phillips pursuant to the terms set forth herein.
Approval of this proposal requires the favorable vote of the
holders of a majority of the Company's common stock, present in
person or by proxy and entitled to vote at the meeting.
PROPOSAL 2
REVERSE STOCK SPLIT
The Company's Board of Directors has unanimously approved and
recommends that the shareholders approve the proposed one (1) share
for Five (5) shares reverse stock split of the Company's current
issued and outstanding common stock. The reverse stock split will
be effected on a date to be determined at the discretion of the
Board of Directors. Following the reverse stock split and prior to
any further action to be taken at the Meeting, including issuance
of shares pursuant to the Acquisition, the Company will have a
total of approximately 3,111,052 shares of common stock
outstanding, without giving effect to the rounding of fractional
shares. No fractional shares will be issued, rather any fractions
resulting from the split will be rounded up to the next whole
share.
Effect of Shareholder Approval of Proposal 2
If Proposal 2 is adopted by the Company's shareholders, the
Board of Directors will effect the stock split on a date subsequent
to the Meeting. The Company intends to proceed with the reverse
stock split regardless of whether the Acquisition is closed.
Effect of Shareholder Rejection of Proposal 2
If Proposal 2 is not adopted by the Company's shareholders, it
would be necessary to revise the terms of the Acquisition to
reflect share amounts as they would be without a split. If the
Acquisition is completed without a reverse stock split, the
significantly larger amount of shares that would be outstanding may
have an adverse effect on the price of the Company's common stock
in the public market.
Board of Director Recommendation and Required Shareholder Vote
The Board of Directors recommends a vote FOR the proposed
reverse stock split on a one share for five shares basis. Approval
of this proposal requires the favorable vote of the holders of a
majority of the Company's common stock, present in person or by
proxy and entitled to vote at the meeting.
OTHER MATTERS
The Board of Directors is not aware of any other matters to be
presented for action at the Meeting. However, if any other matter
is properly presented, it is the intention of the person named in
the enclosed form of proxy to vote in accordance with their
judgment on such matter.
ANNUAL REPORTS TO SHAREHOLDERS
The Company's Annual Report to Shareholders, including
financial statements for the fiscal year ended December 31, 1997 is
available upon request through the Corporate Office.
SHAREHOLDERS PROPOSAL
It is anticipated that the Company's fiscal 1999 Annual
Meeting of Shareholders will be held on or about May 12, 1999.
Shareholders who intend to present proposals at such Annual Meeting
must submit their proposals to the Secretary of the Company on or
before January 5, 1999.
GENERAL
The costs of soliciting proxies will be paid by the Company.
In addition to the use of the mails, proxies may be personally
solicited by directors, officers or regular employees of the
Company (who will not be compensated separately for their services)
by mail, telephone, telegraph, cable or personal discussion. The
Company will also request banks, brokers, and other custodians,
nominees and fiduciaries to forward proxy materials to the
beneficial owners of stock held of record by such persons and
request authority for the execution of proxies. The Company will
reimburse such entities for reasonable out-of-pocket expenses
incurred in handling proxy materials for the beneficial owners of
the Company's Common Stock.
Any proxy given pursuant to this solicitation may be revoked
by the person giving it at any time before it is voted by
delivering to the Secretary of the Company a written notice of
revocation bearing a later date than the proxy, by duly executing
a subsequent proxy relating to the same shares, or by attending the
Meeting and voting in person. Attendance at the Meeting will not
in itself constitute revocation of a proxy unless the shareholder
votes their shares of Common Stock in person at the Meeting. Any
notice revoking a proxy should be sent to the Secretary of the
Company, William D. Kiesel, at Medisys Technologies, Inc., 144
Napoleon Street, Baton Rouge, Louisiana 70802.
All shares represented at the Meeting by a proxy will be voted
in accordance with the instructions specified in that proxy.
Proxies received and marked "Abstain" as to any particular
proposal, will be counted in determining a quorum, however, such
proxies will not be counted for the vote on that particular
proposal. A majority of the shares represented at the meeting is
required to ratify any proposal presented. If no instructions are
marked with respect to the matters to be acted upon, each proxy
will be voted FOR the matter to be voted upon.
Please complete, date, sign and return the accompanying proxy
promptly.
IT IS IMPORTANT THAT PROXIES BE RETURNED PROMPTLY. WE URGE
YOU TO COMPLETE, DATE, SIGN AND RETURN THE ACCOMPANYING PROXY, NO
MATTER HOW LARGE OR SMALL YOUR HOLDING MAY BE.
By Order of the Board of Directors
William D. Kiesel
Secretary
Baton Rouge, Louisiana
December 4, 1998
<PAGE>
Attachments:
Form of Acquisition and Share Exchange Agreement
Audited Financial Statements - Medisys Technologies, Inc. -
for the Years ended December 31, 1997 and 1996
Unaudited Financial Statements - Medisys Technologies, Inc. -
for the period ended September 30, 1998
Unaudited Financial Statements - Phillips Pharmatecx Labs,
Inc. - for the Year ended December 31, 1997
Proforma Financial Information - Medisys Technologies, Inc. -
September 30, 1998
<PAGE>
ATTACHMENT 1
ACQUISITION AND SHARE EXCHANGE AGREEMENT
THIS ACQUISITION AGREEMENT (hereinafter the "Agreement") is
made and entered into as of the 20th day of October, 1998, by and
among MEDISYS TECHNOLOGIES, INC., a Utah corporation (hereinafter
"MEDISYS"); PHILLIPS PHARMATEC LABS, INC., a Florida corporation
(hereinafter "PHILLIPS"); and the individual shareholders of
PHILLIPS as set forth on the signature page herein (collectively
referred to as "SHAREHOLDERS" and individually as "SHAREHOLDER").
RECITALS
WHEREAS, MEDISYS desires to acquire all of the issued and
outstanding shares of Phillips common stock in exchange for shares
of authorized but previously unissued Medisys common stock, par
value One Twentieth of a Cent ($.0005) per share (the "Medisys
Common Stock"), in an amount to be determined as set forth herein;
WHEREAS, SHAREHOLDERS desire to exchange all of their shares
of Phillips common stock for shares of Medisys Common Stock and
other consideration; and
NOW, THEREFORE, in consideration of the premises and mutual
representations, warranties and covenants herein contained, the
parties hereby agree as follows:
ARTICLE I
ACQUISITION AND EXCHANGE OF SHARES
Section 1.1 Acquisition and Plan of Reorganization.
The parties hereby agree that Medisys shall acquire
all of the issued and outstanding shares of Phillips, in
exchange for the number of shares of authorized but
previously unissued shares of Medisys Common Stock, par
value $.0005 per share, equal to 50% of the total number
of shares of Medisys Common Stock issued and outstanding
upon the closing of this agreement and including all
shares to be issued hereunder.
Section 1.2 Issuance of Shares.
(l) Upon the closing of this Agreement, Medisys shall
cause to be issued and delivered to SHAREHOLDERS or
their designees, stock certificates representing the
required number of shares of Medisys common stock
(post-split as per Section 1.4 below).
(m) The shares of Medisys Common Stock to be issued to
SHAREHOLDERS hereunder shall be authorized but
previously unissued shares of Medisys common stock,
and shall be issued to SHAREHOLDERS or their designees
in the respective amounts set forth adjacent to each
SHAREHOLDER'S name on the signature page hereof.
(n) All shares of Medisys Common Stock to be issued
hereunder are deemed "restricted securities" as
defined by Rule 144 of the Securities Act of 1933 (the
1933 Act"), and SHAREHOLDERS or their designees shall
represent that they are acquiring said shares for
investment purposes only and without the intent to
make a further distribution of the shares. All shares
of Medisys Common Stock to be issued to SHAREHOLDERS
or their designees under the terms of this Agreement
shall be issued pursuant to an exemption from the
registration requirements of the 1933 Act, under
Section 4(2) of the 1933 Act and the rules and
regulations promulgated thereunder.
Section 1.3 Closing.
The closing of this Agreement and the transactions
contemplated hereby (the "Closing") shall take place on
the ____ day of __________, 19____ (the "Closing Date"),
at a time and place to be mutually agreed upon by the
parties hereto, and shall be subject to the provisions of
Article X of this Agreement. At the closing:
(a) SHAREHOLDERS shall deliver to Medisys all stock
certificates representing all of the issued and
outstanding shares of Phillips common stock, duly
endorsed, so as to make Medisys the sole holder
thereof, free and clear of all claims and
encumbrances;
(b) MEDISYS shall deliver to SHAREHOLDERS or their
designees, stock certificates representing the
aggregate number shares of Medisys common stock
required by this Agreement and which certificates
shall bear a standard restrictive legend in the form
customarily used with restricted securities;
(c) MEDISYS shall deliver an Officer's Certificate as
described in Section 9.1 and 9.2 hereof, dated the
Closing Date, that all representations, warranties,
covenants and conditions set forth herein by Medisys
are true and correct as of, or have been fully
performed and complied with by, the Closing Date; and
(d) Phillips shall deliver an Officer's Certificate as
described in Sections 8.1 and 8.2 hereof, date the
Closing Date, that all representations, warranties,
covenants and conditions set forth herein by Phillips
are true and correct as of, or have been fully
performed and complied with by, the Closing Date;
Section 1.4 Medisys Special Meeting of Shareholders.
In anticipation of this Agreement and prior to the
Closing Date, Medisys shall have taken all necessary and
requisite action to call for a Special Meeting of
Shareholders to be held on or before November 19, 1998,
in order to transact the following business:
(a) To ratify this Agreement and all transactions
contemplated hereby;
(b) To ratify the proposal whereby the current issued
and outstanding shares of Medisys common stock will be
reverse split on a one (1) share for five (5) shares
basis;
Section 1.5 Consummation of Transaction.
If at the Closing, no condition exists which would
permit any of the parties to terminate this Agreement, or
a condition then exists and the party entitled to
terminate because of that condition elects not to do so,
then the transactions herein contemplated shall be
consummated upon such date, and then and thereupon,
Medisys will file the necessary documents that may be
required by the State of Utah.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF MEDISYS
MEDISYS hereby represents, warrants and agrees that:
Section 2.1 Organization of Medisys.
Medisys is a corporation duly organized, validly
existing and in good standing under the laws of the State
of Utah, is duly qualified and in good standing as a
foreign corporation in every jurisdiction in which such
qualification is necessary, and has the corporate power
and authority to own its properties and assets and to
transact the business in which it is engaged. There are
no corporations or other entities with respect to which
(i) Medisys owns any of the outstanding stock or other
interest except with respect to the outstanding agreement
to form a private company owned 50% by Medisys for the
future development of "SofCeps" birth assistance device,
or (ii) Medisys may be deemed to be in control because of
factors or relationships other that the quantity of stock
or other interest owned. Medisys has all requisite
corporate power and authority to execute and deliver this
Agreement and to consummate the transactions contemplated
hereby. This Agreement is the legal, valid and binding
obligation of Medisys, enforceable against Medisys in
accordance with its respective terms except to the extent
that such enforcement may be limited by applicable
bankruptcy, insolvency and other similar laws affecting
creditors' rights generally.
Section 2.2 Capitalization of Medisys.
The authorized capital stock of Medisys consists of
100,000,000 shares of common stock, par value One
Twentieth of a Cent ($.0005) per share, of which ________
shares are presently issued and outstanding. Immediately
following the proposed one share for five shares reverse
stock split, there will be approximately _________ shares
of common stock outstanding prior to the issuance of
shares to shareholders as contemplated herein. All
issued and outstanding shares of Medisys common stock
have been duly authorized and validly issued and are
fully paid and non-assessable. There are certain
options, warrants, rights, calls, commitments or
agreements which obligate Medisys to issue shares of its
capital stock and security representing the right to
purchase or otherwise receive any such stock which have
been fully disclosed to Phillips and which Phillips
hereby acknowledges and accepts are not included in the
calculation of the 50% number of shares to be issued at
closing. However, in addition to the Shares to be issued
hereunder, Medisys agrees to issue to SHAREHOLDERS
collectively, as designated, warrants and/or options
equal in number, exercise price, terms and exercise date
as are duly exercisable and outstanding on the date of
closing. Shares of Medisys common stock to be issued
pursuant to this Agreement, when so issued, will be duly
authorized, validly issued, fully paid and non-
assessable.
Section 2.3 Charter Documents.
Complete and correct copies of the Articles of
Incorporation and By-Laws of Medisys and all amendments
thereto, have been or will be delivered upon request to
Phillips prior to the Closing, and certified copies of
the Phillips Articles of Incorporation and By-Laws are
annexed hereto as Exhibit 2.3 and by this reference made
a part hereof.
Section 2.4 Financial Statements.
Medisys's financial statements dated _______ __,
19__, for the period ending _________ __, 19___ a copy of
which is annexed hereto as Exhibit 2.4 and by this
reference made a part hereof, are true and complete in
all material respects, having been prepared in accordance
with generally accepted accounting principles applied on
a consistent basis for the periods covered by such
statements, and fairly present, in accordance with
generally accepted accounting principles, the financial
condition of Medisys, and results of its operations for
the periods covered thereby. Except as otherwise
disclosed to Phillips in writing and as set forth herein,
there has been no material adverse change in the business
operations, assets, properties, prospects or condition
(financial or otherwise) of Medisys taken as a whole from
that reflected in the financial statements referred to in
this Section 2.4, or which Phillips based its decision to
enter into this Agreement.
Section 2.5 Absence of Certain Changes or Events.
Since the date of the Medisys financial report for
the period ending ___________ __, 19__ and except as
disclosed otherwise or by addendum and except in the
normal cause of business, Medisys has not (i) issued or
sold any promissory note, stock, bond, option or other
corporate security of which it was an issuer or other
obligor, (ii) discharged or satisfied any lien or
encumbrance or paid any obligation or liability, absolute
or contingent, direct or indirect, (iii) incurred or
suffered to be incurred any liability or obligation
whatsoever, (iv) caused or permitted any lien,
encumbrance or security interest to be created or arise
on or in any of its properties or assets, (v) declared or
made any dividend, payment or distribution to stock
holders or purchased or redeemed or agreed to purchase or
redeem any shares of its capital stock, (vi) reclassified
its shares of capital stock, or (vii) entered into any
agreement or transaction except in connection with the
execution and performance of this Agreement.
Section 2.6 Assets and Liabilities.
Medisys has good and marketable title to all of its
assets and property, free and clear of any and all liens,
claims and encumbrances, except as may be otherwise
explicitly set forth herein. As of date hereof, Medisys
does not have any debts, liabilities or obligations of
any nature, whether accrued, absolute, contingent, or
otherwise, whether due or to become due, that are not
fully reflected in the Medisys Balance Sheet date
_________ __, 19__, except as may be explicitly set forth
herein.
Section 2.7. Tax Returns and Payments.
All of Medisys's tax returns (federal, state, city,
county or foreign) which are required by law to be filed
on or before the date of this Agreement, have been or
will be duly filed or extended with the appropriate
governmental authority. Medisys has paid all taxes to be
due on said returns, any assessments made against Medisys
and all other taxes, fees and similar charges imposed on
Medisys by any governmental authority (other than those,
the amount or validity of which is being contested in
good faith by appropriate proceedings). No tax liens
have been filed and no claims are being assessed with
respect to any such taxes, fees or other similar charges.
Section 2.8 Contracts.
Medisys is not a party to or bound by any contract
or commitment, whether written or oral, except as
otherwise disclosed herein or which have been previously
disclosed as requested by Phillips.
Section 2.9 Required Authorizations.
There have been or will be timely filed, given
obtained or taken, all applications, notices, consents,
approvals, orders, registrations, qualifications waivers
or other actions of any kind required by virtue of
execution and delivery of this Agreement by Medisys or
the consummation by it of the transactions contemplated
hereby.
Section 2.10 Compliance with Law and Government Regulations.
Medisys is in compliance with and is not in
violation of, applicable federal, state, local or foreign
statutes, laws and regulations (including without
limitation, any applicable building, zoning or other law,
ordinance or regulation) affecting its properties or the
operation of its business.
Section 2.11 Litigation.
There is no litigation, arbitration, proceeding or
investigation pending or threatened to which Medisys is
a party or which may result in any material change in the
business or condition, financial or otherwise, of Medisys
or in any of its properties or assets, or which might
result in any liability on the part of Medisys, or which
questions the validity of this Agreement or of any action
taken or to be taken pursuant to or in connection with
the provisions of this Agreement, and to the best
knowledge of Medisys, there is no basis for any such
litigation, arbitration, proceeding or investigation.
Section 2.12 Investigation of Financial Condition.
In addition to making available for review by
Phillips all financial statements, books and records of
Medisys, and without in any manner reducing or otherwise
mitigating the representations contained herein, Phillips
shall have the opportunity to meet with Medisys's
accountants and attorneys to discuss the financial
condition of Medisys and to make whatever further
independent investigation deemed necessary and prudent.
Section 2.13 Trade Names and Rights.
Medisys owns and uses trade marks, service marks,
trade names and patents in its business. No other person
owns any trade mark, trade mark registration or
application, service mark, trade name, copyright, or
copyright registration or application, the use of which
is necessary or contemplated in connection with the
operation of Medisys's business.
Section 2.14 Governmental Consent.
No consent, approval, authorization or order of, or
registration, qualification, designation, declaration or
filing with, any governmental authority on the part of
Medisys is required in connection with the execution and
delivery of this Agreement or the carrying out of any
transactions contemplated hereby.
Section 2.15 Authority.
Medisys and its shareholders have, or prior to the
closing will have, approved this Agreement and the
transactions contemplated hereby and duly authorized the
execution and delivery hereof. Medisys has full power,
authority and legal rights to enter into this Agreement
and to consummate the transactions contemplated hereby,
and all corporate action necessary to authorize the
execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby has
been duly and validly taken. The execution and delivery
of this Agreement, the consummation of the transactions
contemplated hereby and compliance by Medisys with the
provisions hereof will not (a) conflict with or result in
a breach of any provisions of, or constitute a default
(or an event which, with notice or lapse of time or both,
would constitute a default) under, or result in the
creation of any lien, security interest, charge or
encumbrance upon any of the properties or assets of
Medisys under, any of the terms, conditions or provisions
of the Articles of Incorporation or By-Laws of Medisys,
or any note, bond, mortgage, indenture, license, lease,
agreement or any instrument or obligation to which
Medisys is party or by which it is bound; or (b) violate
any order, writ, injunction, decree, statute, rule or
regulation applicable to Medisys or any of its properties
or assets.
Section 2.16 Full Disclosure.
None of the representations and warranties made by
Medisys herein, or in any exhibit, certificate or
memorandum furnished or to be furnished by Medisys, on
its behalf pursuant hereto, contains or will contain any
untrue statement of material fact, or omits any material
fact, the omission of which would be misleading.
ARTICLE III
COVENANTS OF MEDISYS
Section 3.1 Conduct Prior to the Closing.
Between the date hereof and the Closing:
(a) Except within the regular course of business and for
those transactions contemplated by this Agreement,
Medisys will not enter into any material agreement,
contract or commitment, whether written or oral, or
engage in any material transaction, without the
consent of Phillips.
(b) Medisys will not declare any dividends or
distribution with respect to its capital stock or
amend its Articles of Incorporation or By-Law, without
the prior consent of Phillips;
(c) Medisys will not authorize, issue, sell, purchase or
redeem any shares of its capital stock without the
prior written consent of Phillips;
(d) Medisys will comply with all requirements which
federal or state law may impose on it with respect to
this Agreement and the transactions contemplated
hereby, and will promptly cooperate with and furnish
information to Phillips in connection with any such
requirements imposed upon the parties hereto in
connection therewith;
(e) Except within the regular cause of business, Medisys
will not incur any indebtedness for money borrowed, or
issue or sell any debt securities, incur or suffer to
be incurred any liability or obligation of any nature
whatsoever, or cause or permit any lien, encumbrance
or security interest to be created or arise on or in
any of its properties or assets, acquire or dispose of
fixed assets, change employment terms, enter into any
material or long-term contract, guarantee obligations
of any third party, settle or discharge any balance
sheet receivable for less than its stated amount to
enter into any other transaction other than in the
regular course of business, except to comply with the
terms of this Agreement, without the consent of
Phillips;
(f) Medisys shall grant to Phillips and its counsel,
accountants and other representatives, full access
during normal business hours during the period prior
to the Closing to all its respective properties,
books, contracts, commitments and records and, during
such period, furnish promptly to Phillips and such
representatives all information relating to Medisys as
Phillips may reasonably request; and
(g) Except for the transactions contemplated by this
Agreement, Medisys will conduct its business in the
normal course, and shall not sell, pledge or assign
its assets without the prior written consent of
Phillips.
Section 3.2 Affirmative Covenants.
Prior to Closing, Medisys will do the following:
(a) Use its best efforts to accomplish all actions
necessary to consummate this Agreement, including
satisfaction of all the conditions contained in this
Agreement;
(b) Promptly notify Phillips in writing of any material
adverse change in the financial condition, business,
operations or key personnel of Medisys, any breach of
its representations or warranties contained herein,
and any material contract, agreement, license or other
agreement which, if in effect on the date of this
Agreement, should have been included in this Agreement
or in an exhibit annexed hereto and made a part
hereof;
(c) Obtain approval of this Agreement from its
shareholders, if such action is required;
(d) Reverse split, and promptly after the Closing, issue
and deliver to Phillips or its designees the number of
shares of Medisys Common Stock required hereunder;
(e) Enter into and obtain a minimum of 2 year employment
contract from Kerry M. Frey and Edward P. Sutherland
for the continued running of the company's affairs;
and
(f) Take all other necessary corporate actions to
accomplish those items set forth in Section 1.4
hereof.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PHILLIPS AND SHAREHOLDERS
PHILLIPS (and SHAREHOLDERS, but only insofar as they may have
personal knowledge because of their capacity as Corporate Officers
and/or Directors or because a particular provision is personal to
each SHAREHOLDER) hereby represent, warrant and agrees, that:
Section 4.1 Organization of Phillips.
Phillips is a corporation duly organized, validly
existing and in good standing under the laws of the State
of Florida and is duly qualified and in good standing in
every jurisdiction in which such qualification is
necessary. Unless otherwise set forth in the Phillips
Business Plan, its financial statements, or as otherwise
set forth in Exhibit 4.1 annexed hereto, there are no
corporations or other entities with respect to which (i)
Phillips owns any of the outstanding stock or other
interest, or (ii) Phillips may be deemed to be in control
because of factors or relationships other than the
percentage of outstanding stock or other interest owned
in such entity. Phillips has all requisite corporate
power and authority to enter into this Agreement and to
consummate the transactions contemplated hereby.
Section 4.2. Charter Documents.
Complete and correct copies of the Articles of
Incorporation and By-Laws of Phillips and all amendments
thereto, have been or will be delivered to Medisys prior
to the Closing.
Section 4.3 Financial Statements/Assets and Liabilities.
Phillips's financial statements for the period ended
___________, a copy of which is annexed hereto as Exhibit
4.3 and by this reference made a part hereof, are true
and complete in all material respects, having been
prepared in accordance with generally accepted accounting
principles applied on a consistent basis for the periods
covered by such statements, and fairly present the
financial condition of Phillips and results of its
operations for the periods covered thereby. Phillips has
good and marketable title to all of its assets and
property to be acquired by Medisys by way of Shareholders
lending all of their outstanding shares of common stock
to Medisys hereunder, except assets sold in the ordinary
course of business, free and clear of any and all
mortgages, pledge, liens, charges, claims, security
interests, encumbrances or restrictions, except as may be
otherwise set forth herein or in its financial
statements. Except as otherwise disclosed to Medisys in
writing and as set forth herein and in Exhibit 4.3, and
other than according to the ordinary and usual course of
Phillip's business, consistent with practice (a) Phillips
has engaged only in its routine daily business since the
date of its financial statements, and (b) there has not
been any material adverse change in the business
operations, assets, properties, prospects or condition
(financial or otherwise) of Phillips taken as a whole,
from that reflected in the financial statements referred
to in this Section 4.3. Any material undisclosed
obligation or liability of Phillips will be assumed by
Phillips and Shareholders. All buildings, property and
equipment of Phillips are in good condition and repair,
reasonable wear and tear excepted. Phillips has not
been, to the knowledge of any officer of Phillips,
threatened with any action or proceeding under any
building or zoning ordinance, regulation or law.
Section 4.4 Tax Returns and Payments.
All of Phillips's tax returns (federal, state, city,
county or foreign) which are required by law to be filed
on or before the date of this Agreement, have been duly
filed or extended with the appropriate governmental
authority. Phillips has paid all taxes to be due on said
returns, any assessments made against Phillips and all
other taxes, fees and similar charges imposed on Phillips
by any governmental authority (other than those, the
amount or validity of which is being contested in good
faith by appropriate proceedings). No tax liens have
been filed and no claims are being assessed with respect
to any such taxes, fees or other similar charges.
Section 4.5 Required Authorizations.
There have been or will be timely filed, given,
obtained or taken, all applications, notices, consents,
approvals, orders, registrations, qualifications waivers
or other actions of any kind required by virtue of
execution and delivery of this Agreement by Phillips or
the consummation by it of the transactions contemplated
hereby.
Section 4.6 Compliance with Law and Government Regulations.
Phillips, is in compliance with all applicable
statutes, regulations, decrees, orders, restrictions,
guidelines and standards, whether mandatory or voluntary,
affecting its properties and operations, imposed by the
United States of America, and any state or foreign county
or government to which Phillips is subject.
Section 4.7 Litigation.
There is no litigation, arbitration, proceeding or
investigation pending or threatened to which Phillips is
a party or which may result in any material change in the
business or condition, financial or otherwise, of
Phillips or in any of its properties or assets, or which
might result in any liability on the part of Phillips, or
which questions and validity of this Agreement or of any
action taken or to be taken pursuant to or in connection
with the provisions of this Agreement, and to the best
knowledge of Phillips, there is no basis for any such
litigation, arbitration, proceeding or investigation.
Section 4.8 Investigation of Financial Condition.
In addition to making available for review by
Medisys certain corporate documents, books and records of
Phillips, and without in any manner reducing or otherwise
mitigating the representations contained herein, Medisys
shall have the opportunity to meet with Phillips's
accountants and attorneys to discuss the financial
condition of Phillips and to make whatever further
independent investigation reasonably deemed necessary and
prudent.
Section 4.9. Trade Names and Rights.
If applicable, Exhibit 4.9 annexed hereto and by
this reference made a part hereof, contains a complete
list of all trademarks, service marks, trademark and
service mark registrations, applications and licenses
with respect to the foregoing owned or held by Phillips.
Phillips has no knowledge of any facts and nothing has
come to its attention that would lead it to believe that
is has infringed or misappropriated or is infringing upon
any trademark, copyright, patent or other similar right
of any person. No claim relating thereto is pending or
to the knowledge of Phillips is threatened.
Section 4.10 Employee Benefit Plans.
Phillips represents that unless otherwise act forth
by an exhibit annexed hereto as Exhibit 4.10, there are
not now nor have there ever been any bonus, deferred
compensation, incentive compensation, stock purchase,
stock option, severance or termination pay,
hospitalization or other medical, life or other
insurance, supplemental unemployment benefits, profit-
sharing, pension, or retirement plan, program agreement
or arrangement, other employee benefit plan, program,
agreement or arrangement (other than arrangements
involving the payment of wages), sponsored, maintained or
contributed to or required to be contributed to by
Phillips or any of its subsidiaries or by any trade or
business, whether or not incorporated (an "ERISA
Affiliate") that together with Phillips or any of its
subsidiaries would be deemed a "single employer" within
the meaning of Section 4 1 (a) (14) of the Employee
Retirement Income Security Act of 1974, as amended, and
the rules and regulations promulgated thereunder
("ERISA"), for the benefit of any current or former
employee, director or officer of Phillips or any of its
subsidiaries or any ERISA Affiliate whether formal or
informal and whether legally binding or not with respect
to which Phillips or any of its subsidiaries or any ERISA
Affiliate has or may in the future have any liability or
obligation to contribute or make payments or any kind.
Section 4.11 Environmental Matters.
There are no actions, proceedings or investigations
pending or, to the actual knowledge of Phillips,
threatened before any federal or state environmental
regulatory body, or before any federal or state court,
alleging noncompliance by Phillips with the Comprehensive
Environmental Response, Compensation and Liability Act of
1990 ("CERCLA") or any other Environmental Laws. To the
actual knowledge of Phillips: (i) there is no reasonable
basis for the institution of any action, proceeding or
investigation against Phillips under any Environmental
Law: (ii) Phillips is not responsible under any
Environmental Law for any release by any person at or in
the vicinity of real property of any hazardous substance
(as defined by CERCLA), caused by the spilling, leaking,
pumping, pouring, emitting, emptying, discharging,
injecting, escaping, loaching, dumping or disposing of
any such hazardous substance into the environment; (iii)
Phillips is not responsible for any costs of any remedial
action required by virtue of any release of any toxic or
hazardous substance, pollutant or contaminant into the
environment including, without limitation, costs arising
from security fencing, alternative water supplies,
temporary evacuation and housing and other emergency
assistance undertaken by any environmental regulatory
body: (iv) Phillips is in material compliance with all
applicable Environmental Laws; and (v) no real property
used, owned, managed or controlled by Phillips contains
any toxic or hazardous substance including, without
limitation, any asbestos, PCBs or petroleum products or
byproducts in any for, the presence, location or
condition of which (a) violates oil and gas industry.
For purposes of this Agreement, "Environmental Laws"
shall mean any federal, state, local or municipal
statute, ordinance or regulation, or order, ruling or
other decision of any court, substances (as defined in
CERCLA) into the environment.
Section 4.12 Legal Proceedings and History.
Phillips and SHAREHOLDERS, each individually
warranting their personal affairs only, hereby represent
that, unless otherwise disclosed herein or by a written
attachment hereto, no officer, director or affiliate of
Phillips nor any principal shareholder or any other
person receiving a portion or all of the Medisys Shares
to be issued hereunder, shall have been, within the past
five years; a party to any bankruptcy petition against
such person or against any business of which such person
was affiliated; convicted in a criminal proceeding or
subject to a pending criminal proceeding (excluding
traffic violations and other minor offenses; subject to
any order, judgment or decree, not subsequently reversed,
suspended or vacated, of any court of competent
jurisdiction, permanently or temporarily enjoining,
barring, suspending or otherwise limiting their
involvement in any type of business, securities or
banking activities; or found by a court of competent
jurisdiction in a civil action, by the Securities
Exchange Commission or the Commodity Futures Trading
Commission to have violated a federal or state securities
or commodities law, and the judgment has not been
reversed, suspended or vacated.
Section 4.13 Governmental Consent.
No consent, approval, authorization or order of, or
registration, qualification, designation, declaration or
filing with, any governmental authority on the part of
Phillips is required in connection with the execution and
delivery of this Agreement or the carrying out of any
transactions contemplated hereby.
Section 4.14 Authority.
Phillips and its SHAREHOLDERS representing no less
than one hundred percent (100%) of the issued and
outstanding shares of Phillips common stock of record as
of ________ __, 19__, have, or prior to the closing will
have, approved this Agreement and duly authorized the
execution and delivery hereof. Shareholders have duly
authorized Phillips to conclude and execute this
Agreement in their stead and to act on behalf of Phillips
and SHAREHOLDERS in relation to this Agreement and the
transactions contemplated hereunder. Phillips has full
power, authority and legal right to enter into this
Agreement and to consummate the transactions contemplated
hereby, and all corporate action necessary to authorize
the execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby has
been duly and validly taken. The execution and delivery
of this Agreement, the consummation of the transactions
contemplated hereby and compliance by Phillips with the
provisions hereof will not (a) conflict with or result in
a breach of any provisions of, or constitute a default
(or an event which, with notice or lapse of time or both,
would constitute a default) under, or result in the
creation of any lien, security interest, charge or
encumbrance upon any of the properties or assets of
Phillips under, any of the terms, conditions or
provisions of the Articles of Incorporation or By-Laws of
Phillips, or any note, bond, mortgage, indenture,
license, agreement or any instrument or obligation to
which Phillips is party or by which it is bound; or (b)
violate any order, writ, injunction, decree, statute,
rule or regulation applicable to Phillips or any of its
properties or assets.
Section 4.15 Ownership of Shares.
Shareholders collectively and each SHAREHOLDER
individually represents to Medisys that they are the
owners of all the shares of Phillips common stock to be
transferred by shareholders to Medisys under the
Agreement, and that they have full power and authority to
transfer such shares to Medisys hereunder, and that such
shares are free and clear of any liens, charges,
mortgages, pledges or encumbrances and that such shares
are not subject to any claims as to the ownership
thereof, or any rights, powers or interest therein, by
any third party.
Section 4.16 Investment Purpose.
Shareholders collectively and each SHAREHOLDER
individually represents that they, or their designees,
are acquiring the shares of Medisys common stock to be
issued hereunder for investment purposes only and not
with a view for further distribution or resale.
Phillips, SHAREHOLDER and each SHAREHOLDER individually
further represents and acknowledges that the Medisys
shares issued hereunder are "restricted securities" and
may not be sold, traded or otherwise transferred without
registration under the 1933 Act or exemption therefrom.
Section 4.17 Full Disclosure.
None of the representations and warranties made by
Phillips herein, or in any exhibit, certificate or
memorandum furnished or to be furnished by Medisys, on
its behalf, contains or will contain any untrue statement
of material fact, or omit any material fact, the omission
of which would be misleading.
ARTICLE V
COVENANTS OF PHILLIPS
Section 5.1 Conduct Prior to the Closing.
Between the date hereof and the Closing:
(a) Phillips will not enter into any material agreement,
contract or commitment, whether written or oral, or
engage in any transaction, without the consent of
Medisys;
(b) Phillips will not declare any dividends or
distributions with respect to its capital stock or
amend its Articles of Incorporation or By-Laws,
without the prior consent of Medisys;
(c) Except within the regular course of business,
Phillips will not incur any indebtedness for money
borrowed or issue to sell any debt securities, or
incur or suffer to be incurred any liability or
obligation of any nature whatsoever, or cause or
permit any lien, encumbrance or security interest to
be created or arise on or in any of its properties or
assets, without the consent of Medisys;
(d) Phillips will comply with all requirements which
federal or state law may impose on it with respect to
this Agreement and the transactions contemplated
hereby, and will promptly cooperate with and furnish
information to Medisys in connection with any such
requirements imposed upon the parties hereto in
connection therewith; and
(e) Phillips shall grant to Medisys and its counsel,
accountants and other representatives, full access
during normal business hours during the period prior
to the Closing to all its respective properties,
books, contracts, commitments and records and, during
such period, furnish promptly to Medisys and such
representatives all information relating to Phillips
as Medisys may reasonably request.
Section 5.2 Affirmative Covenants.
Prior to Closing, Phillips will do the following:
(a) Obtain the approval of its Board of Directors to
proceed with this Agreement;
(b) Use its best efforts to accomplish all actions
necessary to consummate this Agreement, including
satisfaction of all the conditions contained in this
Agreement;
(c) Promptly notify Medisys in writing of any materially
adverse change in the financial condition, business,
operations or key personnel of Phillips, any breach of
its representations or warranties contained herein,
and any material contract, agreement, license or other
agreement which, if in effect on the date of this
Agreement, should have been included in this
Agreement; and
(d) Enter into a contract with Brett Phillips for a
minimum of 2 years to continue to manage and run the
manufacturing business of Phillips which is to be
operated in the future as a division of Medisys;
(e) The principal shareholders of Phillips further agree
to provide appropriate marketing support from
PhillipsGulf to enhance the sales and marketing of all
Medisys products and Business Units. This marketing
support will be in the form of telemarketing, direct
mail or other direct marketing services as agreed upon
by both parties;
(f) In addition, Carl Anderson, Bill Morris and Brett
Phillips shall agree to maintain a non-compensated
consultant role for a period to commence from the date
of this Agreement through December 31, 2000.
ARTICLE VI
ADDITIONAL AGREEMENTS
Section 6.1 Expenses.
Whether or not the transactions contemplated in this
Agreement are consummated, all costs and expenses
incurred in connection with this Agreement and the
transactions contemplated hereby shall be paid by the
party incurring such expense or as otherwise agreed to
herein.
Section 6.2 Brokers and Finders.
In connection with this Agreement and the
transactions contemplated hereunder, the parties have
agreed that certain fees and expenses are to be paid to
certain individuals who have been instrumental to the
consummation of this Agreement. It is therefore agreed
that a sum equal to 1% of the total Dollar amount
received by Medisys in financing (except for "interim"
financing which shall be 10%) and 600,000 shares of the
Company's authorized but previously unissued common stock
be delivered to KJS Investments or its designee, and as
per the terms and conditions set forth in the contract
annexed hereto as Exhibit _____and by this reference
made a part hereof. Each of the parties represents, as
to itself that with the exception of KJS no agent,
broker, investment banker or other firm or person is or
will be entitled to any broker's or finder's fee or any
other commission or similar fee in connection with any of
the transactions contemplated by this Agreement without
the consent of both parties to this Agreement. The cash
to be disbursed in accordance with this paragraph 6-2
shall be allocated from the contingent capital raised.
The equity portion shall be new issue, restricted shares
of Medisys issued prior to the contemplated reverse split
(so that if reversed 1 for 5 the number of shares issued
shall be 120,000 shares) and shall be apportioned so that
Phillips and SHAREHOLDERS collectively and Medisys will
share the dillutive effect equally.
Section 6.3 Necessary Actions.
Subject to the terms and conditions herein provided,
each of the parties hereto agree to use all reasonable
efforts to take, or cause to be taken, all action, and to
do, or cause to be done, all things necessary, proper and
advisable under applicable laws and regulations to
consummate and make effective the transactions
contemplated by this Agreement. In the event at any time
after the Closing, any further action is necessary or
desirable to carry out the purposes of this Agreement,
the proper officers and/or directors of Medisys or
Phillips, as the case may be, shall take all such
necessary action.
Section 6.4 Indemnification.
(a) Phillips and SHAREHOLDERS agree to defend and hold
Medisys harmless against and in respect of any and all
claims, demands, losses, costs, expenses, obligations,
liabilities, damages, recoveries and deficiencies,
including interest, penalties, and reasonable attorney
fees, that they shall incur or suffer, which arise out
of, result from or relate to any material breach of,
or failure by Phillips to perform any of its
respective representations, warranties, covenants and
agreements in this Agreement or in any exhibit or
other instrument furnished or to be furnished by
Phillips under this Agreement.
(b) Medisys agrees to defend and hold Phillips and
SHAREHOLDERS harmless against and in respect of any
and all claims, demands, losses, costs, expenses,
obligations, liabilities, damages, recoveries and
deficiencies, including interest, penalties, and
reasonable attorney fees, that they shall incur or
suffer, which arise out of, result from or relate to
any material breach of, or failure by Medisys to
perform any of its respective representations,
warranties, covenants and agreements in this Agreement
or in any exhibit or other instrument furnished or to
be furnished by Medisys under this Agreement.
Section 6.5 Confidentiality.
All parties hereto agree to keep confidential this
Agreement and all information and documents relating to
this Agreement until such time as the Agreement and the
transactions contemplated hereunder are made public by
means of an appropriate press release or by any other
means reasonably assured to make such information
publicly available.
ARTICLE VII
CONDITIONS PRECEDENT TO OBLIGATIONS OF THE PARTIES
The obligations of the parties under this Agreement are
subject to the fulfillment and satisfaction of each of the
following conditions:
Section 7.1 Legal Action.
No preliminary or permanent injunction or other
order by any federal or state court which prevents the
consummation of this Agreement or any of the transactions
contemplated by this Agreement shall have been issued and
remain in effect.
Section 7.2 Absence of Termination.
The obligations to consummate the transactions
contemplated hereby shall not have been canceled pursuant
to Article X hereof.
Section 7.3 Required Approvals.
Medisys and Phillips shall have received all such
approvals, consents, authorizations or modifications as
may be required to permit the performance by Medisys and
Phillips of the respective obligations under this
Agreement, and the consummation of the transactions
herein contemplated, whether from governmental
authorities or other persons, and Medisys and Phillips
shall each have received any and all permits and
approvals from any regulatory authority having
jurisdiction required for the lawful consummation of this
Agreement.
Section 7.4 Blue Sky Compliance.
There shall have been obtained any and all permits,
approvals and consents of the Securities or "Blue-Sky"
Commissions of any jurisdictions, and of any other
governmental body or agency, which counsel for Medisys
may reasonably deem necessary or appropriate so that
consummation of the transactions contemplated by this
Agreement may be in compliance with the applicable laws.
<PAGE>
ARTICLE VIII
CONDITIONS PRECEDENT TO OBLIGATIONS OF MEDISYS
All obligations of Medisys under the Agreement are
subject to the fulfillment and satisfaction by Phillips
and SHAREHOLDERS prior to or at the time of the Closing,
of each of the following conditions, any one or more of
which may be waived by Medisys.
Section 8.1 Representations and Warranties True at the Closing.
All representatives and warranties of Phillips and
SHAREHOLDERS contained in this Agreement will be true and
correct at and as of the time of the Closing, and
Phillips shall have delivered to Medisys a certificate,
dated the date of the Closing, to such effect and in the
form and substance satisfactory to Medisys, and signed,
in the case of Phillips by its President and Secretary.
Section 8.2 Performance.
The obligations of Phillips and SHAREHOLDERS to be
performed on or before the Closing pursuant to the terms
of this Agreement shall have been duly performed at such
time, and Phillips and SHAREHOLDERS shall have delivered
to Medisys, a certificate, dated the date of the Closing,
to such effect and in form and substance satisfactory to
Medisys.
Section 8.3 Authority.
All action required to be taken by, or on the part
of Phillips and SHAREHOLDERS to authorize the execution,
delivery and performance of this Agreement by Phillips
and the consummation of the transactions contemplated
hereby, shall have been duly and validly taken.
Section 8.4 Absence of Certain Changes or Events.
There shall not have occurred, since the date
hereof, any adverse change in the business, condition,
(financial or otherwise), assets or liabilities of
Phillips or any event or condition of any character
adversely affecting Phillips, and it shall have delivered
to Medisys, certificates, dated the date of the Closing,
to such effect and in form and substance satisfactory to
Medisys and signed, in the case of Phillips, by its
President and Secretary.
Section 8.5 Acceptance by Phillips Shareholders.
The holders of record as of __________ __, 19___ of
an aggregate of not less than one hundred percent (100%)
of the issued and outstanding shares of common stock of
Phillips have agreed to exchange their shares for shares
of Medisys common stock specified herein.
ARTICLE IX
CONDITIONS PRECEDENT TO OBLIGATIONS OF PHILLIPS
AND SHAREHOLDERS
All obligations of Phillips and SHAREHOLDERS under this
Agreement are subject to the fulfillment and satisfaction
by Medisys, prior to or at the time of Closing, of each
of the following conditions, any one or more of which may
be waived by Phillips and shareholders.
Section 9.1. Representations and Warranties True at the Closing.
All representations and warranties of Medisys
contained in this Agreement will be true and correct at
and as of the time of the Closing, and Medisys shall have
delivered to Phillips a certificate, dated the date of
the Closing, to such effect and in the form and substance
satisfactory to Phillips, and signed, in the case of
Medisys, by its President and Secretary.
Section 9.2 Performance.
Each of the obligations of Medisys to be performed
on or before the Closing pursuant to the terms of this
Agreement shall have been duly performed at the time of
the Closing, and Medisys shall have delivered to Phillips
a certificate, dated the date of the Closing, to such
effect and in form and substance satisfactory to
Phillips, and signed, in the case of Medisys, by its
President and Secretary.
Section 9.3 Authority.
All action required to be taken by, or on the part
of Medisys, to authorize the execution, delivery and
performance of this Agreement by Medisys, and the
consummation of the transactions contemplated hereby
shall be duly and validly taken.
Section 9.4 Absence of Certain Changes or Events.
There shall not have occurred, since the date
hereof, any adverse change in the business, condition,
(financial or otherwise), assets or liabilities of
Medisys or any event or condition of any character
adversely affecting Medisys and it shall have delivered
to Phillips, certificates, dated the date of the Closing,
to such effect and in form and substance satisfactory to
Phillips and signed, in the case of Medisys, by its
President and Secretary.
Section 9.5 Financing.
Medisys will have obtained an agreement for
financing between $3 million and $5 million dollars.
ARTICLE X
TERMINATION
Section 10.1 Termination.
Notwithstanding anything herein or elsewhere to the
contrary, this Agreement may be terminated:
(a) By mutual agreement of the parties hereto at any
time prior to the Closing;
(b) By the board of directors of Medisys at any time
prior to the Closing if:
(i) a condition to performance by Medisys under
this Agreement or a covenant of Phillips or
SHAREHOLDERS contained herein shall not be
fulfilled on or before the time of the Closing or
at such other time and date specified for the
fulfillment for such covenant or condition; or
(ii) a material default or breach of this
Agreement shall be made by Phillips or
SHAREHOLDERS; or
(iii) if the Closing shall not have taken place
on or prior to ________ __, 19__.
(c) By the board of directors of Phillips or by
SHAREHOLDERS at any time prior to the Closing if:
(i) a condition to Phillips or SHAREHOLDERS'
performance under this Agreement or a covenant of
Medisys contained in this Agreement shall not be
fulfilled on or before the Closing or at such
other time and date specified for the fulfillment
of such covenant or conditions;
(ii) a material default or breach of this
Agreement shall be made by Medisys; or
(iii) if the Closing shall not have taken place
on or prior to __________ __, 19__.
Section 10.2 Effect of Termination.
If this Agreement is terminated, this Agreement,
except as to Sections 11.1, 11.2, shall no longer be of
any force or effect and there shall be no liability on
the part of any party or its respective directors,
officers or stockholders; provided however, that in the
case of a termination without cause by a party or a
termination pursuant to Sections 10.1(b)(i) or
10.2(c)(i) hereof because of a prior material default
under or a material breach of this Agreement by another
party, the damages which the aggrieved party or parties
may recover from the defaulting party or parties shall in
no event exceed the amount of out-of-pocket costs and
expenses incurred by such aggrieved party or parties in
connection with this Agreement.
ARTICLE XI
MISCELLANEOUS
Section 11.1 Cost and Expenses.
All costs and expenses incurred in connection with
this Agreement will be paid by the party incurring such
expenses. In the event of any termination of this
Agreement pursuant to Section 10.1, subject to the
provisions of Section 11.2, Medisys, Phillips and
SHAREHOLDERS will each bear their own respective
expenses.
Section 11.2 Extension of Time: Waivers.
At any time prior to the Closing date:
(a) Medisys may (i) extend the time for the performance
of any of the obligations or other acts of Phillips
and SHAREHOLDERS, (ii) waive any inaccuracies in the
representations and warranties of Phillips or
SHAREHOLDERS contained herein or in any document
delivered pursuant hereto by Phillips and SHAREHOLDERS
and (iii) waive compliance with any of the agreements
or conditions contained herein to be performed by
Phillips and SHAREHOLDERS. Any agreement on the part
of Medisys to any such extension or waiver shall be
valid only if set forth in an instrument, in writing,
signed on behalf of Medisys.
(b) Phillips and SHAREHOLDERS may (i) extend the time
for the performance of any of the obligations or other
acts of Medisys, (ii) waive any inaccuracies in the
representations and warranties of Medisys contained
herein or in any document delivered pursuant hereto by
Medisys and (iii) waive compliance with any of the
agreements or conditions contained herein to be
performed by Medisys. Any agreement on the part of
Phillips and SHAREHOLDERS to any such extension or
waiver shall be valid only if set forth in an
instrument, in writing, signed on behalf of Phillips
and shareholders.
Section 11.3 Notices.
Any notice to any party hereto pursuant to this
Agreement shall be given by Certified or Registered Mail,
addressed as follows:
MEDISYS TECHNOLOGIES, INC.
144 Napoleon Street
Baton Rouge, LA 70802
PHILLIPS PHARMATEC LABS, INC.
8767 115th Avenue, North
Largo, FL 33773
Additional notices are to be given as to each party, at
such other address as should be designated in writing complying as
to delivery with the terms of this Section 11.3. All such notices
shall be effective when sent, addressed as aforesaid.
Section 11.4 Parties in Interest.
This Agreement shall inure to the benefit of and be
binding upon the parties hereto and the respective
successors and designees. Nothing in this Agreement is
intended to confer, expressly or by implication, upon any
other person any rights or remedies under or by reason of
this Agreement.
Section 11.5 Counterparts.
This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original
and together shall constitute one document. The delivery
by facsimile of an executed counterpart of this Agreement
shall be deemed to be an original and shall have the full
force and effect of an original executed copy.
Section 11.6 Severability.
The parties hereto agree and affirm that none of the
provisions herein is dependent upon the validity of any
other provision, and if any part of this Agreement is
deemed to be unenforceable, the remainder of the
Agreement shall remain in full force and effect.
Section 11.7 Headings.
The Article and Section headings are provided herein
for convenience or reference only and do not constitute
a part of this Agreement.
Section 11.8 Governing Law.
This Agreement shall be governed by the laws of the
State of Utah. Any action to enforce the provisions of
this Agreement shall be brought in a court of competent
jurisdiction in the State of Utah and in no other place.
Section 11.9 Survival of Representations and Warranties.
All terms, conditions, representations and
warranties set forth in this Agreement or in any
instrument, certificate, opinion, or other writing
providing for in it, shall survive the Closing and the
delivery of the shares of Medisys common stock
transferred hereunder at the Closing, regardless of any
investigation made by or on behalf of any of the parties
hereto.
Section 11.10 Assignability.
This Agreement shall not be assignable by any of the
parties hereto without the prior written consent of the
other parties.
Section 11.11 Amendment.
This Agreement may be amended with the approval of
the board of directors of Medisys and Phillips and by
SHAREHOLDERS at any time before or after approval thereof
by stockholders of Medisys, if required, and Phillips and
shareholders; but after such approval by the Medisys
shareholders, no amendment shall be made which
substantially and adversely changes the terms hereof.
This Agreement may not be amended except by an
instrument, in writing, signed on behalf of each of the
parties hereto.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed and
delivered this Agreement in a manner legally binding upon them as
of the date first above written.
"MEDISYS"
MEDISYS TECHNOLOGIES, INC. ATTEST:
By:_____________________________ ___________________________
Its: President Secretary
"PHILLIPS"
PHILLIPS PHARMATEC LABS, INC. ATTEST:
By:_____________________________ ___________________________
Its: President Secretary
"SHAREHOLDERS" MEDISYS Common Stock to be
Issued
________________________________
Barbara Larkins
________________________________
Marilyn Morris
________________________________
Brett Phillips
________________________________
Carl Anderson
<PAGE>
CERTIFICATE
OF
PHILLIPS PHARMATEC LABS, INC.
The undersigned, _________________ and __________________, hereby certify
that they are the President and Secretary respectively, of Phillips Pharmatec
Labs, Inc., a Florida corporation ("Phillips"), and further certify as follows:
1. That the representations and warranties of Phillips contained in
the Acquisition Agreement and Plan of Reorganization (the "Agreement") by
and among Medisys Technologies, Inc., a Utah corporation, Phillips and
the shareholders of Phillips, are true and correct at and as of the date
hereof.
2. The obligations and covenants of Phillips to be performed and
observed on or before the Closing as defined in the Agreement, have been
duly performed and observed.
3. Except as otherwise disclosed in the Agreement, there has not
occurred since the date thereof any adverse change in the business,
condition (financial or otherwise), assets or liabilities of Phillips or
any event or condition of any character adversely affecting Phillips.
IN WITNESS WHEREOF, the undersigned have hereunto set their hands as of
this ______ day of _______________, 19___.
PHILLIPS PHARMATEC LABS, INC.
By:______________________________________
______________, President
By:______________________________________
_______________, Secretary
<PAGE>
CERTIFICATE
OF
MEDISYS TECHNOLOGIES, INC.
The undersigned, _________________ and __________________, hereby certify
that they are the President and Secretary respectively, of Medisys Technologies,
Inc., a Utah corporation ("Medisys"), and further certify as follows:
1. That the representations and warranties of Medisys contained in
the Acquisition Agreement and Plan of Reorganization (the "Agreement")
by and among Medisys Technologies, Inc., a Utah corporation, Phillips and
the shareholders of Phillips, are true and correct at and as of the date
hereof.
2. The obligations and covenants of Medisys to be performed and
observed on or before the Closing as defined in the Agreement, have been
duly performed and observed.
3. Except as otherwise disclosed in the Agreement, there has not
occurred since the date thereof any adverse change in the business,
condition (financial or otherwise), assets or liabilities of Medisys or
any event or condition of any character adversely affecting Medisys.
IN WITNESS WHEREOF, the undersigned have hereunto set their hands as of
this ______ day of _______________, 19___.
MEDISYS TECHNOLOGIES, INC.
By:______________________________________
Kerry M. Frey, President
By:______________________________________
William David Kiesel, Secretary<PAGE>
MEDISYS TECHNOLOGIES, INC.
AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Medisys Technologies, Inc. and Subsidiary
(Development Stage Companies)
Salt Lake City, Utah
We have audited the accompanying consolidated balance sheet of Medisys
Technologies, Inc. and Subsidiary (development stage companies) as of
December 31, 1997, and the related consolidated statements of operations,
stockholders' equity (deficit), and cash flows for the years ended
December 31, 1997, and 1996 and from inception on January 21, 1991
through December 31, 1997. 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, 1997, and the results of their operations and their
cash flows for the years ended December 31, 1997, and 1996 and from
inception on January 21, 1991 through December 31, 1997 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 9 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 9. 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
April 9, 1998
<PAGE>
MEDISYS TECHNOLOGIES, INC. AND SUBSIDIARY
(Development Stage Companies)
Consolidated Balance Sheet
ASSETS
December 31,
1997
CURRENT ASSETS
Cash $ 2,178
Accounts receivable, net (Note 1) 11,005
Inventory (Note 1) 21,004
Prepaid expenses 21,500
Total Current Assets 55,687
FIXED ASSETS
Leasehold improvements 2,195
Furniture and equipment 76,946
Leased equipment 10,010
Accumulated depreciation (51,050)
Total Fixed Assets 38,101
OTHER ASSETS
Deferred offering costs 2,250
Security deposits 4,000
Patent and trademark costs, net (Note 1) 397,535
Organizational costs (Note 1) 311
Total Other Assets 404,096
TOTAL ASSETS $ 497,884
<PAGE>
MEDISYS TECHNOLOGIES, INC. AND SUBSIDIARY
(Development Stage Companies)
Consolidated Balance Sheet (Continued)
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
December 31,
1997
CURRENT LIABILITIES
Accounts payable $ 391,257
Accrued expenses (Note 3) 361,092
Payable-stockholders (Note 2) 49,081
Notes payable (Note 4) 34,500
Total Current Liabilities 835,930
LONG-TERM DEBT
Notes payable - less current portion (Note 2) 253,000
Total Long-Term Debt 253,000
TOTAL LIABILITIES 1,088,930
COMMITMENTS AND CONTINGENCIES (Note 5)
STOCKHOLDERS' EQUITY (DEFICIT) (Notes 6 and 7)
Common stock: 100,000,000 shares
authorized of $0.0005 par value,
13,120,810 shares issued and outstanding 6,560
Additional paid-in capital 6,373,102
Stock subscriptions receivable (Note 6) (175,000)
Deficit accumulated during the development stage(6,795,708)
Total Stockholders' Equity (Deficit) (591,046)
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) $497,884
<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,
1997 1996 1997
REVENUES $ 97,634 $ 2,182 $ 102,618
OPERATING EXPENSES
Cost of product sold 29,797 1,267 31,638
Product research and development 654,629 496,446 2,339,217
Professional services 474,263 272,161 1,222,733
Salaries 271,720 290,857 1,310,626
Depreciation and amortization 27,898 25,548 129,372
General and administrative 371,094 348,186 1,372,939
Total Operating Expenses 1,829,401 1,434,465 6,406,525
OPERATING LOSS (1,731,767) (1,432,283) (6,303,907)
OTHER INCOME (EXPENSES)
Gain on sale of asset 13,042 - 13,042
Interest income 5,851 13,194 19,045
Interest expense (379,142) (26,566) (469,788)
Bad debt expense (673) (53,070) (54,100)
Total Other Income (Expenses) (360,922) (66,442) (491,801)
LOSS BEFORE INCOME TAXES (2,092,689) (1,498,725) (6,795,708)
INCOME TAXES - - -
NET LOSS $(2,092,689) $(1,498,725) $(6,795,708)
NET LOSS PER SHARE OF COMMON STOCK$ (0.17) $ (0.13)
MEDISYS TECHNOLOGIES, INC. AND SUBSIDIARY
(Development Stage Companies)
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 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 acquisition 1,768,500 884 (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 (Deficit) (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 (Deficit) (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 Stockholders' Equity (Deficit) (Continued)
Deficit
Accumulated
Additional During the
Common Stock Paid-In Development
Shares Amount Capital Stage
Balance, December 31, 1996 12,337,940 $ 6,167 $5,429,958 $(4,703,019)
Issuance of common stock for
cash at an average price of
$1.27 per share 130,000 65 164,935 -
Common stock offering costs - - (85,420) -
Issuance of common stock in
satisfaction of note payable
at $0.78 per share 8,572 4 6,718 -
Issuance of common stock for
consulting and professional
services rendered at an
average price of $1.33 per
share 644,298 324 856,911 -
Net loss for the year ended
December 31, 1997 - - - (2,092,689)
Balance, December 31, 1997 13,120,810 $ 6,560 $6,373,102 $(6,795,708)
<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,
1997 1996 1997
CASH FLOWS FROM OPERATING
ACTIVITIES
Loss from operations $(2,092,689) $(1,498,725) $(6,795,708)
Adjustments to reconcile net
income to net cash provided (used)
by operating activities:
Operating expenses paid by
issuance of common stock 857,235 124,704 1,165,806
Common stock options and
warrants for services - 33,454 211,254
Depreciation and amortization 27,898 25,548 129,372
Allowance for doubtful accounts 648 53,070 53,718
Changes in operating assets
and liabilities:
(Increase) decrease in accounts
receivable (11,653) 870 (11,653)
(Increase) decrease in inventory (12,433) (4,145) (21,004)
(Increase) decrease in prepaid
expenses (14,503) 7,976 (21,500)
(Increase) decrease in other assets (2,250) - (2,250)
(Increase) decrease in loans
receivable - stockholders - 5,007 -
(Increase) decrease in security deposits - (859) (4,000)
(Increase) decrease in organizational
costs - - (311)
Increase (decrease) in accounts
payable 115,243 137,033 391,257
Increase (decrease) in accrued
expenses 255,651 (107,165) 361,092
Net Cash (Used) by Operating
Activities (876,853) (1,223,232) (4,543,927)
CASH FLOWS FROM INVESTING ACTIVITIES
Increase in patent costs (101,831) (91,053) (398,929)
Acquisition of subsidiary - - (40,673)
Purchase of fixed assets (10,853) (25,820) (94,700)
Disposal of fixed assets 11,166 - 11,166
Net Cash (Used) by Investing
Activities $ (101,518) $(116,873) $ (523,136)
<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,
1997 1996 1997
CASH FLOWS FROM FINANCING ACTIVITIES
Payments of stock offering costs $ (85,420) $ (60,100) $ (175,809)
Proceeds from capital lease - - 10,010
Payments on capital lease - (1,444) (10,010)
Payments on contracts payable (20,577) (13,132) (62,400)
Borrowings from stockholders 3,100 42,782 493,570
Borrowings from notes payable - - 338,500
Payment on loans payable - stockholders - - (20,984)
Payment on notes payable (4,158) (106,596) (141,277)
Stock subscriptions receivable - - (53,427)
Issuance of common stock 165,000 2,013,500 4,131,518
Proceeds from sale of stock options 253,000 - 507,000
Proceeds from exercise of common stock
options - 52,550 52,550
Net Cash Provided by Financing
Activities 310,945 1,927,560 5,069,241
NET INCREASE (DECREASE) CASH AND
CASH EQUIVALENTS (667,426) 587,455 2,178
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 669,604 82,149 -
CASH AND CASH EQUIVALENTS AT END
OF PERIOD $ 2,178 $ 669,604 $ 2,178
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION
CASH PAID FOR
Income taxes $ - $ - $ -
Interest $ 13,718 $ 9,932 $ 56,898
NON CASH FINANCING ACTIVITIES
Purchase of automobiles on contract $ - $ - $ 62,400
Conversion of stockholder loans to
equity $ - $ 56,000 $ 599,294
Stock issued in payment of operating
expenses $857,235 $ 124,704 $1,165,806
<PAGE>
MEDISYS TECHNOLOGIES, INC. AND SUBSIDIARY
(Development Stage Companies)
Notes to the Consolidated Financial Statements
December 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 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, 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.
<PAGE>
MEDISYS TECHNOLOGIES, INC. AND SUBSIDIARY
(Development Stage Companies)
Notes to the Consolidated Financial Statements
December 31, 1997 and 1996
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, 1997 and 1996 due to accumulated operating losses. The
minimum state franchise tax has been accrued.
The Company has accumulated approximately $6,783,632 of net
operating losses as of December 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:
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
2012 2,090,689
$6,783,632
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, 1997 and 1996
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 medical products held for sale which are 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.
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, 1997 and 1996
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
(Continued)
n. Accounts Receivable
Accounts receivable are shown net of the allowance for doubtful
accounts of $648.
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,
1997, there was a balance outstanding payable to stockholders
totaling $49,081
The Company also has notes payable to various shareholders in
the aggregate of $253,000. The notes bear interest at 10% per
annum, are unsecured and are due in 1999.
NOTE 3 - ACCRUED EXPENSES
Accrued expenses at December 31, 1997 consist of the following:
Payroll taxes payable $ 673
Accrued salaries and directors fees 307,627
Accrued interest payable 9,101
Contract labor payable 2,873
Finance charge 11,615
Accrued expenses - other 29,203
$ 361,092
The accrued salaries and directors fees are to be paid over the
next 24 months or when the Company is adequately financed.
<PAGE>
MEDISYS TECHNOLOGIES, INC. AND SUBSIDIARY
(Development Stage Companies)
Notes to the Consolidated Financial Statements
December 31, 1997 and 1996
NOTE 4 - NOTES PAYABLE
Notes payable consisted of the following: December 31,
1997
Note payable to Richard L. Apel, unsecured, dated
November 2, 1993 at 8%; principal and interest
delinquent since August 18, 1994. $ 12,500
Note payable to Cynthia F. Vatz, unsecured, dated October
19, 1993 at 8%; principal and interest delinquent since
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 delinquent since March 1, 1996. 9,500
Total 34,500
Less current portion (34,500)
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. 8,572 shares of common stock
were issued in partial payment of this note in 1997.
NOTE 5 - 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, 1997. 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 expired
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, 1997 and 1996
NOTE 5 - 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 expired on July
31, 1997.
NOTE 6 - 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, 1997 and 1996
NOTE 6 - 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 7). $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 7 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.
During 1996, the Company also 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.
During 1997, the Company issued 10,000 shares of its common
stock and 120,000 shares for cash at $1.50 and $1.25 per share,
respectively. The Company issued 8,572 shares of its common
stock in partial settlement of a note payable and accrued
interest of $6,722. The Company issued a total of 644,298
shares of its common stock for services. The services were
valued at the trading price of the shares when they were issued.
<PAGE>
MEDISYS TECHNOLOGIES, INC. AND SUBSIDIARY
(Development Stage Companies)
Notes to the Consolidated Financial Statements
December 31, 1997 and 1996
NOTE 7 - COMMON STOCK WARRANTS
As of December 31, 1997, the Company had outstanding warrants
for the issuance of common stock as follows:
Number of Date Expiration Exercise Estimated
Shares Issued Date Price Proceeds
557,000 1994 1998 $ 1.5625 $ 870,313
591,000 1995 1998-2005 $1.125 - $2.625 1,124,250
2,711,584 1996 1999-2001 $ 1.00 - $4.25 7,009,476
739,821 1997 1999-2002 $ 1.00 - $1.875 1,063,493
$10,067,532
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 1997, 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.
All common stock warrants issued in 1997 had exercise prices at
or above the trading price of the shares.
<PAGE>
MEDISYS TECHNOLOGIES, INC. AND SUBSIDIARY
(Development Stage Companies)
Notes to the Consolidated Financial Statements
December 31, 1997 and 1996
NOTE 7 - 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 8 - 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 9 - 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.
AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1998 and December 31, 1997
<PAGE>
MEDISYS TECHNOLOGIES, INC.
(A Development Stage Company)
Consolidated Balance Sheets
ASSETS
September 30, December 31,
1998 1997
(Unaudited)
CURRENT ASSETS
Cash $ 8,490 $ 2,178
Accounts receivable, net of allowance for bad debt 1,516 11,005
Inventory 6,131 21,004
Prepaid expenses 21,500 21,500
Due from related party 6,192 -
Total Current Assets 43,829 55,687
FIXED ASSETS
Leasehold improvements 2,195 2,195
Furniture and equipment 76,870 76,946
Leased equipment 10,010 10,010
Accumulated depreciation (62,921) (51,050)
Total Fixed Assets 26,154 38,101
OTHER ASSETS
Deferred offering costs 2,250 2,250
Security deposits 4,000 4,000
Patent and trademark costs, net (Note 1) 455,782 397,535
Organizational costs - 311
Total Other Assets 462,032 404,096
TOTAL ASSETS $532,015 $497,884
<PAGE>
MEDISYS TECHNOLOGIES, INC.
(A Development Stage Company)
Consolidated Balance Sheets (Continued)
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
September 30, December 31,
1998 1997
(Unaudited)
CURRENT LIABILITIES
Accounts payable $385,734 $391,257
Accrued expenses (Note 3) 693,432 361,092
Payable-stockholders (Note 2) 48,481 49,081
Notes payable (Note 4) 30,222 34,500
Total Current Liabilities 1,157,869 835,930
LONG-TERM DEBT
Notes payable (Note 2) 515,000 253,000
Total Long-Term Debt 515,000 253,000
TOTAL LIABILITIES 1,672,869 1,088,930
COMMITMENTS AND CONTINGENCIES (Note 5)
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock: 100,000,000 shares
authorized of $0.0005 par value,
13,177,903 and 13,120,810 shares
issued and outstanding, respectively 6,588 6,560
Additional paid-in capital 6,412,198 6,373,102
Stock subscriptions receivable (Note 6) (175,000) (175,000)
Deficit accumulated during the development stage(7,384,640) (6,795,708)
Total Stockholders' Equity (Deficit) (1,140,854) (591,046)
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY (DEFICIT) $ 532,015 $ 497,884
<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,
1998 1997 1998 1997 1998
REVENUES $ 975 $ 20,436 $ 24,350 $ 83,886 $ 126,968
OPERATING EXPENSES
Cost of product sold - 4,037 5,332 17,596 36,970
Product development 5,826 109,045 85,451 494,241 2,361,918
Salaries 117,500 73,783 212,601 213,113 1,671,726
Professional services 6,815 13,843 156,445 67,597 1,293,679
Depreciation and
amortization 4,268 3,021 12,182 12,063 141,243
General and
administrative 44,433 95,010 138,678 375,499 1,511,678
Total Operating
Expenses 178,842 298,739 610,689 1,180,109 7,017,214
OPERATING LOSS (177,867) (278,303) (586,339) (1,096,223) (6,890,246)
OTHER INCOME
(EXPENSES)
Gain on sale of assets - 4,348 - 13,043 13,043
Interest income - 63 - 5,850 19,044
Interest expense (725) (449) (2,593) (12,858) (472,381)
Bad debt expense - - - - (54,100)
Total Other Income
(Expense) (725) 3,962 (2,593) 6,035 (494,394)
LOSS BEFORE INCOME
TAXES (178,592) (274,341) (588,932) (1,090,188) (7,384,640)
INCOME TAXES - - - - -
NET LOSS $(178,592) $(274,341) $(588,932) $(1,090,188) $(7,384,640)
NET LOSS PER SHARE
OF COMMON STOCK $ (0.01) $ (0.02) $ (0.05) $ (0.09)
<PAGE>
MEDISYS TECHNOLOGIES, INC.
(A Development Stage Company)
Consolidated Statements of Stockholders' Equity (Deficit)
Deficit
Accumulated
Additional Stock During the
Common Stock Paid-In Subscription Development
Shares Amount Capital Receivable 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 Stock During the
Common Stock Paid-In Subscription Development
Shares Amount Capital Receivable 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 Stock During the
Common Stock Paid-In Subscription Development
Shares Amount Capital Receivable 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 (175,000) -
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 (175,000) (4,703,019)
Issuance of common
stock for cash at an
average price of
$1.27 per share 130,000 65 164,935 - -
Common stock offering
costs - - (85,420) - -
Issuance of common stock
in satisfaction of note
payable at $0.78
per share 8,572 4 6,718 - -
Issuance of common stock
for consulting and
professional services
rendered at an average
price of $1.33 per
share 644,298 324 856,911 - -
Net loss for the year
ended December 31, 1997 - - - - (2,092,689)
Balance, December 31,
1997 13,120,810 $ 6,560 $ 6,373,102 $(175,000) $(6,795,708)
<PAGE>
MEDISYS TECHNOLOGIES, INC.
(A Development Stage Company)
Consolidated Statements of Stockholders' Equity (Deficit)
Deficit
Accumulated
Additional Stock During the
Common Stock Paid-In Subscription Development
Shares Amount Capital Receivable Stage
Balance, December 31,
1997 13,120,810 $ 6,560 $ 6,373,102 $(175,000) $(6,795,708)
Issuance of common
stock in satisfaction
of notes payable at
$0.34 per share
(unaudited) 57,093 28 19,225 - -
Common stock warrants
issued for satisfaction
of notes payable at $0.52
per warrant (unaudited) - - 19,871 - -
Net loss for the nine
months ended September
30, 1998 (unaudited) - - - - (588,932)
Balance, September 30,
1998 (unaudited) 13,177,903 $ 6,588 $ 6,412,198 $(175,000) $(7,384,640)
<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,
1998 1997 1998 1997 1998
CASH FLOWS FROM
OPERATING ACTIVITIES
Net loss $(178,592)$(274,341)$(588,932)$(1,090,188)$(7,384,640)
Adjustments to reconcile
net loss to net cash
(used) by
operating activities:
Operating expenses
paid by issuance of
common stock - 23,827 - 146,334 1,165,806
Common stock options and
warrants for services - - - - 211,254
Depreciation and
amortization 4,268 3,021 12,182 12,063 141,243
Allowance for doubtful
accounts - - - - 53,718
Gain on sale of assets - (4,348) - (13,043) -
Changes in operating assets
and liabilities:
(Increase) decrease in
accounts receivable 1,358 11,884 9,489 (9,700) (2,164)
(Increase) decrease in
inventory - (18,571) 14,873 (67,156) (6,131)
(Increase) decrease in
prepaid expenses - - - (19,473) (21,500)
(Increase) decrease in
other assets - - - - (2,250)
(Increase decrease in loan
receivable - stockholders - - - - (6,192)
(Increase) decrease in
security deposits - - - - (4,000)
Increase (decrease)
in accounts payable 56,652 (1,943) 33,601 27,247 424,858
Increase (decrease)
in accrued expenses 105,513 102,954 332,340 141,317 693,432
Net Cash (Used) by
Operating Activities (10,801) (157,517) (186,447) (872,599) (4,736,566)
CASH FLOWS FROM
INVESTING ACTIVITIES
Sale of equipment 76 8,482 76 25,109 11,242
Patent costs (54,686) (18,315) (58,247) (102,714) (457,176)
Acquisition of subsidiary - - - - (40,673)
Purchase of fixed assets - - - (10,420) (94,700)
Net Cash (Used) by
Investing Activities $(54,610) $ (9,833) $(58,171) $ (88,025) $(581,307)
<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,
1998 1997 1998 1997 1998
CASH FLOWS FROM
FINANCING ACTIVITIES
Payments of stock
offering costs $ - $ - $ - $ - $(175,809)
Proceeds from capital
lease - - - - 10,010
Payments on capital
lease - - - - (10,010)
Payments on contracts
payable - (4,281) - (20,577) (62,400)
Borrowings from
shareholders - (2,500) (6,192) - 590,570
Payments on payable -
stockholders (600) - (600) - (21,584)
Borrowings from notes
payable 35,000 190,000 262,000 190,000 503,500
Payment on notes
payable (1,500) (1,152) (4,278) (3,380) (145,555)
Stock subscriptions
receivable - - - - (53,427)
Issuance of common stock - - - 184,270 4,131,518
Proceeds from sale of
stock options - - - - 507,000
Proceeds from exercise
of common stock options - - - - 52,550
Net Cash Provided by
Financing Activities 32,900 182,067 250,930 350,313 5,326,363
NET INCREASE (DECREASE)
CASH AND CASH
EQUIVALENTS (32,511) 14,717 6,312 (610,311) 8,490
CASH AND CASH EQUIVALENTS
AT BEGINNING OF PERIOD 41,001 44,576 2,178 669,604 -
CASH AND CASH EQUIVALENTS
AT END OF PERIOD $ 8,490 $ 59,293 $ 8,490 $ 59,293 $ 8,490
SUPPLEMENTAL DISCLOSURES
OF CASH FLOW INFORMATION
CASH PAID FOR
Income taxes $ - $ - $ - $ - $ -
Interest $ 725 $ 449 $ 6,427 $ 12,858 $ 63,325
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 $ 1,165,806
Stock issued for debt$ - $ - $ 19,253 $ - $ 19,253
Warrants issued for
debt $ - $ - $ 19,871 $ - $ 19,871
<PAGE>
MEDISYS TECHNOLOGIES, INC.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
September 30, 1998 (unaudited) and December 31, 1997
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 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
September 30, 1998, 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.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
September 30, 1998 (unaudited) and December 31, 1997
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 is made at September
30, 1998 and 1997 due to operating losses. The minimum
state franchise tax has been accrued.
The Company has accumulated approximately $7,000,000 of net
operating losses as of September 30, 1998, 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.
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.
<PAGE>
MEDISYS TECHNOLOGIES, INC.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
September 30, 1998 (unaudited) and December 31, 1997
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 medical products held for sale which are
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.
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.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
September 30, 1998 (unaudited) and December 31, 1997
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
(Continued)
n. Accounts Receivable
Accounts receivable are shown net of the allowance for
doubtful accounts of $648.
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 September 30, 1998, there was a
balance outstanding payable to stockholders totaling
$48,481.
The Company also has notes payable to various shareholders
in the aggregate of $515,000. The notes bear interest at
10% per annum, are unsecured and are due in 1999.
NOTE 3 - ACCRUED EXPENSES
Accrued expenses at September 30, 1998 consist of the
following:
Payroll taxes payable $ 1,284
Accrued salaries and directors fees 622,627
Finance charge 9,799
Accrued expenses - other 59,722
$ 693,432
The accrued salaries and directors fees are to be paid over
the next 24 months or when the Company is adequately
financed.
<PAGE>
MEDISYS TECHNOLOGIES, INC.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
September 30, 1998 (unaudited) and December 31, 1997
NOTE 4 - NOTES PAYABLE
Notes payable consisted of the following: September 30,
1998
Note payable to Richard L. Apel, unsecured, dated
November 2, 1993 at 8%; principal and interest
delinquent since August 18, 1994. $ 12,500
Note payable to Cynthia F. Vatz, unsecured, dated October
19, 1993 at 8%; principal and interest delinquent since
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 delinquent since March 1, 1996. 5,222
Total 30,222
Less current portion (30,222)
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.
8,572 shares of common stock were issued in partial payment
of this note in 1997.
NOTE 5 - 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, 1997. 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 expired 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, 1998 (unaudited) and December 31, 1997
NOTE 5 - 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 1998 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
expired on July 31, 1997.
NOTE 6 - 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.
<PAGE>
MEDISYS TECHNOLOGIES, INC.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
September 30, 1998 (unaudited) and December 31, 1997
NOTE 6 - 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 7). $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 7 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.
During 1996, the Company also 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.
During 1997, the Company issued 10,000 shares of its common
stock and 120,000 shares for cash at $1.50 and $1.25 per
share, respectively. The Company issued 8,572 shares of
its common stock in partial settlement of a note payable
and accrued interest of $6,722. The Company issued a total
of 644,298 shares of its common stock for services. The
services were valued at the trading price of the shares
when they were issued.
<PAGE>
MEDISYS TECHNOLOGIES, INC.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
September 30, 1998 (unaudited) and December 31, 1997
NOTE 6 - COMMON STOCK (Continued)
During 1998, the company issued 57,093 shares of its common
stock at an average price of $0.34 per share, for partial
settlement of accounts payable.
NOTE 7 - COMMON STOCK WARRANTS
As of September 30, 1998, the Company had outstanding
warrants for the issuance of common stock as follows:
Number of Date Expiration Exercise Estimated
Shares Issued Date Price Proceeds
557,000 1994 1998 $ 1.5625 $ 870,313
591,000 1995 1998-2005 $ 1.125 - $2.625 1,124,250
2,711,584 1996 1999-2001 $ 1.00 - $4.25 7,009,476
739,821 1997 1999-2002 $ 1.00 - $1.875 1,063,493
$10,067,532
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 fo
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 1997, 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.
All common stock warrants issued in 1997 had exercise
prices at or above the trading price of the shares.
MEDISYS TECHNOLOGIES, INC.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
September 30, 1998 (unaudited) and December 31, 1997
NOTE 7 - 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 6).
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.
During 1998, the Company issued 38,152 common stock
warrants at a price of $0.52 for partial settlement of
accounts payable.
NOTE 8 - 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 9 - 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 1998. 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>
PHILLIPS PHARMATECH LABORATORIES, INC.
FINANCIAL STATEMENTS
DECEMBER 31, 1997
(UNAUDITED)
<PAGE>
PHILLIPS PHARMATECH LABORATORIES, INC.
Balance Sheet
December 31, 1997
(Unaudited)
ASSETS
CURRENT ASSETS
Cash $ 87,506
Accounts receivable, net (Note 1) 370,646
Inventory (Note 1) 362,097
Prepaid expenses 6,946
Total Current Assets 827,195
PROPERTY AND EQUIPMENT - NET (Notes 1 and 2) 305,806
OTHER ASSETS
Deposits 39,330
Organizational costs, net (Note 1) 1,500
Total Other Assets 40,830
TOTAL ASSETS $ 1,173,831
<PAGE>
PHILLIPS PHARMATECH LABORATORIES, INC.
Balance Sheet (Continued)
December 31, 1997
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 611,076
Due to related parties (Note 4) 57,249
Notes payable - current portion (Note 3) 329,589
Total Current Liabilities 997,914
LONG-TERM DEBT
Notes payable - less current portion (Note 3) 18,412
Total Long-Term Debt 18,412
TOTAL LIABILITIES 1,016,326
STOCKHOLDERS' EQUITY
Common stock: 1,000 shares authorized of $1.00 par value,
900 shares issued and outstanding 900
Retained earnings 156,605
Total Stockholders' Equity 157,505
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,173,831
<PAGE>
PHILLIPS PHARMATECH LABORATORIES, INC.
Statement of Operations
For the Year Ended December 31, 1997
(Unaudited)
REVENUES $ 3,653,291
OPERATING EXPENSES
Cost of product sold 2,684,548
Salaries 294,828
Professional services 27,829
Depreciation and amortization 55,710
General and administrative 540,031
Total Operating Expenses 3,602,946
INCOME FROM OPERATIONS 50,345
OTHER EXPENSES
Interest expense (33,133)
Total Other Expenses (33,133)
NET INCOME $ 17,212
BASIC INCOME PER SHARE $ 19.12
BASIC AVERAGE NUMBER OF SHARES OUTSTANDING 900
<PAGE>
PHILLIPS PHARMATECH LABORATORIES, INC.
Statement of Stockholders' Equity
December 31, 1997
(Unaudited)
Common Stock Retained
Shares Amount Earnings
Balance, December 31, 1996 900 $ 900 $ 139,393
Net income for the year ended
December 31, 1997 - - 17,212
Balance, December 31, 1997 900 $ 900 $ 156,605
<PAGE>
PHILLIPS PHARMATECH LABORATORIES, INC.
Statement of Cash Flows
For the Year Ended December 31, 1997
(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 17,212
Adjustments to reconcile net income to net cash used in
operating activities:
Depreciation and amortization 55,710
Changes in operating assets and liabilities:
Deposits (4,183)
Accounts receivable (48,319)
Inventory 102,089
Prepaid expenses 1,675
Accounts payable (7,303)
Organizational cost (1,500)
Due to related parties (632)
Net Cash Used in Operating Activities 114,749
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment (69,867)
Net Cash Used In Investing Activities (69,867)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from line of credit 14,290
Net Cash Provided by Financing Activities 14,290
NET (DECREASE) IN CASH AND CASH EQUIVALENTS 59,172
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 28,334
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 87,506
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for:
Interest $ 33,133
Income taxes $ -
PHILLIPS PHARMATECH LABORATORIES, INC.
Notes to the Financial Statements
December 31, 1997
(Unaudited)
NOTE 1 - NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
Organization
Phillips Pharmatech Laboratories, Inc. (the "Company")
manufactures, on a contract basis, vitamins, minerals,
other dietary supplements and pharmaceuticals. The
Company was incorporated in State of Florida on December
12, 1994.
Accounts Receivable
Accounts receivable consists of trade receivables and
$20,868 in an allowance for doubtful accounts.
Organizational Costs
Organizational costs consist of legal fees and are being
amortized using the straight-line method over five years.
Inventory
Inventory consists of purchased product (powders and
liquids), capsules and bottles and are stated at the
lower of cost or market. Cost is determined on an
average cost basis.
Property and Equipment
Property and equipment are recorded at cost.
Depreciation is provided on the straight-line method over
the estimated useful lives of the related assets, which
range from 5 to 39 years.
Income Taxes
The Company has elected to be treated as an S Corporation
for income tax purposes. Accordingly, no income taxes or
tax benefits are recorded by the Company since such taxes
or tax benefits associated with the Company's operations
are reported by the shareholders on their individual
income tax returns.
Advertising
The Company charges the cost of advertising to operations
as such costs are incurred. The Company incurred
advertising costs of approximately $3,075 during the year
ended December 31, 1997.
Accounting Method
The Company's financial statements are prepared using the
accrual method of accounting. The Company has selected a
calendar year end.
<PAGE>
PHILLIPS PHARMATECH LABORATORIES, INC.
Notes to the Financial Statements
December 31, 1997
(Unaudited)
NOTE 1 - NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (Continued)
Basic Income Per Share
The computation of basic income per share of common stock
is based on the weighted average number of shares
outstanding during the period of the financial
statements.
Use of 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.
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. Such
adjustments are of a normal recurring nature.
NOTE 2 - PROPERTY AND EQUIPMENT
Property and equipment at December 31, 1997 consist of the following:
Machinery and equipment $ 291,500
Leasehold improvements 63,250
Computers and office equipment 29,056
Furniture and fixtures 859
384,665
Less accumulated depreciation (78,859)
Net Property and Equipment $ 305,806
<PAGE>
PHILLIPS PHARMATECH LABORATORIES, INC.
Notes to the Financial Statements
December 31, 1997
(Unaudited)
NOTE 3 - NOTES PAYABLE
At December 31, 1997, notes payable consisted of the following:
Demand bank line of credit due in aggregate monthly
installments of interest at prime plus 2.75%, secured
by all assets of the Company. Renewable on a yearly
basis. $ 329,589
Note payable for equipment, due in aggregate
monthly installments of $450, with interest
at 14.4%, maturing December 2002, secured
by equipment. 18,412
Total notes payable 348,001
Less current portion (329,589)
Notes payable - long term $ 18,412
Future maturities of notes payable are as follows:
Year ending June 30,
1998 $ 329,589
1999 5,400
2000 5,400
2001 5,400
2002 2,212
$ 348,001
NOTE 4 - RELATED PARTY TRANSACTIONS
The due to related parties balance of $57,249 at December
31, 1997 represents unsecured advances from the
shareholders bearing interest at 10% annually which are
due on demand.
PHILLIPS PHARMATECH LABORATORIES, INC.
Notes to the Financial Statements
December 31, 1997
(Unaudited)
NOTE 5 - CONCENTRATIONS OF CREDIT RISK:
During the six months ended December 31, 1997, the
Company derived revenues from customers which
individually exceeded 10% of total revenues. They are
approximately as follows:
Percentage
of Total
Revenues
Customer 1 22%
Customer 2 18%
Customer 3 11%
NOTE 6 - LEASE ACTIVITIES
The Company leases office and warehouse space in Largo,
Florida under non-cancelable operating leases expiring
through January 15, 1999. Under the terms of both
leases, the annual rental amount will increase 4% per
year over the previous base rentals. The Company also
leases vehicles under non-cancelable operating leases
expiring through June 30, 2000. The Company leases
operating equipment on a month-to-month basis.
Total rent expense associated with these operating leases
was approximately $89,000 for the year ended December 31, 1997.
Future minimum lease payments required under these agreements are
as follows:
Year Ending December 31,
1998 $ 54,085
1999 17,736
2001 8,868
Total $ 80,689
<PAGE>
MEDISYS TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED PROFORMA FINANCIAL STATEMENTS
September 30, 1998
<PAGE>
MEDISYS TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Proforma Balance Sheet
September 30, 1998
ASSETS
Medisys Proforma
Technologies, Phillips Adjustments
Inc. and Pharmatech, Increase Proforma
Subsidiaries Inc. (Decrease) Consolidated
CURRENT ASSETS
Cash $ 8,490 $ 110 $ - $ 8,600
Accounts receivable, net 1,516 400,864 - 402,380
Inventory 6,131 438,876 - 445,007
Prepaid expenses 21,500 28,911 - 50,411
Loans to officers 6,192 - - 6,192
Total Current Assets 43,829 868,761 - 912,590
FIXED ASSETS
Leasehold improvements 2,195 63,250 - 65,445
Furniture and equipment 76,870 311,415 - 388,285
Leased equipment 10,010 - - 10,010
Other - 44,354 - 44,354
Accumulated depreciation (62,921) (136,670) - (199,591)
Total Fixed Assets 26,154 282,349 - 308,503
OTHER ASSETS
Deferred offering costs 2,250 - - 2,250
Security deposits 4,000 - - 4,000
Patent and trademark costs, net 455,782 - - 455,782
Deposits - 41,130 - 41,130
Organizational costs - 450 - 450
Total Other Assets 462,032 41,580 - 503,612
TOTAL ASSETS $ 532,015 $ 1,192,690 $ - $ 1,724,705
<PAGE>
MEDISYS TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Proforma Balance Sheet (Continued)
June 30, 1998
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Medisys Proforma
Technologies, Phillips Adjustments
Inc. and Pharmatech, Increase Proforma
Subsidiaries Inc. (Decrease) Consolidated
CURRENT LIABILITIES
Bank overdraft $ - $ 14,163 $ - $ 14,163
Accounts payable 385,734 387,665 25,000 798,399
Accrued expenses 693,432 - - 693,432
Payable-stockholders 48,481 60,111 - 108,592
Notes payable 30,222 - - 30,222
Total Current Liabilities 1,157,869 461,939 25,000 1,644,808
LONG-TERM DEBT
Notes payable - less current
portion 515,000 377,998 - 892,998
Total Long-Term Debt 515,000 377,998 - 892,998
TOTAL LIABILITIES 1,672,869 839,937 25,000 2,537,806
COMMITMENTS AND
CONTINGENCIES
STOCKHOLDERS' EQUITY
(DEFICIT)
Common stock: 100,000,000
shares authorized of $0.0005
par value, 6,222,104 shares
issued and outstanding,
respectively 6,588 900 (4,377) 3,111
Additional paid-in capital 6,412,198 - 331,230 6,743,428
Stock subscriptions receivable (175,000) - - (175,000)
Retained earnings (deficit) (7,384,640) 351,853 (351,853) (7,384,640)
Total Stockholders' Equity
(Deficit) (1,140,854) 352,753 (25,000) (813,101)
TOTAL LIABILITIES AND
STOCKHOLDERS EQUITY
(DEFICIT) $ 532,015 $1,192,690 $ - $1,724,705
<PAGE>
MEDISYS TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Statement of Operations
September 30, 1998
(Unaudited)
Medisys Proforma
Technologies, Phillips Adjustments
Inc. and Pharmatech, Increase Proforma
Subsidiaries Inc. (Decrease) Consolidated
REVENUES $ 24,350 $ 2,220,240 $ - $ 2,244,590
OPERATING EXPENSES
Cost of product sold 5,332 1,447,580 - 1,452,912
Product development 85,451 - - 85,451
Salaries 212,601 199,395 - 411,996
Professional services 156,445 12,760 - 169,205
Depreciation and amortization 12,182 30,000 - 42,182
General and administrative 138,678 305,933 - 444,611
Total Operating Expenses 610,689 1,995,668 - 2,606,357
OPERATING (LOSS) INCOME (586,339) 224,572 - (361,767)
OTHER EXPENSES
Interest expense (2,593) (29,324) - (31,917)
Total Other Expense (2,593) (29,324) - (31,917)
LOSS BEFORE INCOME TAXES (588,932) 195,248 - (393,684)
INCOME TAXES - - - -
NET (LOSS) INCOME $ (588,932) $ 195,248 $ - $ (393,684)
<PAGE>
MEDISYS TECHNOLOGIES, INC. AND SUBSIDIARIES
Summary of Assumptions and Disclosures
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
a. Business Organization
Medisys Technologies, Inc. (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.
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 Company has entered into an agreement to acquire 100%
of the shares of Phillips Pharmatech Labs, Inc. (Phillips)
for approximately 3,111,052 shares of the Company's common
stock. The acquisition will be accounted for as a purchase
of Phillips.
The acquisition is contingent upon the Company raising
between $3,000,000 and $5,000,000 in primary funding and
upon acquiring interim financing of approximately $200,000.
If the acquisition is completed, all Phillips common shares
owned by Phillips shareholders will be converted into
shares of the Company's common stock. The Company and
Phillips have agreed that the number of shares of the
Company's common stock to be issued to the Phillips
shareholders will represent 50% of the total shares of the
Company's common stock issued and outstanding immediately
following the acquisition. Therefore, the 900,000 shares
of Phillips common stock will be converted into
approximately 3,111,052 shares (post-split) of the
Company's common stock.
There are currently 15,555,260 shares of the Company's
common stock issued and outstanding. Anticipating that a
one share for five shares reverse split is effected as
proposed, this would result in approximately 3,111,052
shares of the Company's common stock outstanding prior to
the acquisition, without giving effect to the rounding-up
of fractional shares.
Also, Phillips shareholders will also be issued warrants or
options equal in number, exercise price and exercise date
to all of the Company's warrants outstanding on the date of
the closing of the acquisition.
<PAGE>
MEDISYS TECHNOLOGIES, INC. AND SUBSIDIARIES
Summary of Assumptions and Disclosures
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
(Continued)
a. Business Organization (Continued)
1. Record the purchase of Phillips Parmatech Labs through the issuance
of 3,111,052 shares of common stock:
Common stock $ 1,556
Additional paid-in capital (1,556)
Total $ -
2. Record the estimated costs of the merger:
Accounts payable $ 25,000
Additional paid-in capital (25,000)
Total $ -
3. Record a 1 share for 5 shares reverse split of Medisys Technologies
and Subsidiaries:
Common stock $ (5,033)
Additional paid-in capital 5,033
Total $ -
4. Eliminate the equity of Phillips Pharmatech Labs, Inc.:
Common stock $ (900)
Additional paid-in capital 352,753
Deficit accumulated during the
development stage (351,853)
Total $ -
<PAGE>
MEDISYS TECHNOLOGIES, INC.
9624 Brookline Avenue, Baton Rouge, Louisiana 70809
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
PROXY
The undersigned hereby constitutes and appoints Edward P.
Sutherland, Chairman/CEO of Medisys Technologies, Inc., with power
of substitution, the proxies of the undersigned to attend the
special meeting of the shareholders of Medisys Technologies, Inc.
on December 16, 1998, and any adjournment thereof, and to vote the
stock of the corporation standing in the name of the undersigned.
1. Proposal to acquire Phillips Pharmatec Labs, Inc., a
Florida corporation, in exchange solely for shares of the
Company's common stock;
[ ] FOR [ ] AGAINST [ ] ABSTAIN
2. Proposal to effect a reverse stock split of the Company's
issued and outstanding common stock on a one (1) shares
for five (5) shares basis.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
This proxy, when properly executed, will be voted in the
manner directed herein by the undersigned shareholder. IF NO
SPECIFIC DIRECTIONS ARE GIVEN, THIS PROXY WILL BE VOTED FOR
PROPOSALS 1, AND 2.
________________________ ________________________
Print Name Signature of Shareholder
________________________ _________________________
Number of Shares Signature if Held Jointly
_________________________
Date
Please sign exactly as name appears on the certificate or
certificates representing shares to be voted by this proxy. When
signing as executor, administrator, attorney, trustee or guardian,
please give full titles as such. If a corporation, please sign in
full corporate name by president or other authorized officer. If a
partnership, please sign in partnership name by authorized persons.
