UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of The
Securities Exchange Act of 1934
For the Quarter Ended March 31, 1998
[ ] Transition Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Commission File Number 0-21441
MEDISYS TECHNOLOGIES, INC.
(Exact name of small business issuer as specified in its charter)
Utah 72-1216734
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
9624 Brookline Avenue, Baton Rouge, Louisiana, 70809
(address of principal executive officers)
Issuer s telephone number: (504) 926-0422
Check whether the issuer (1) filed all reports required to be
filed by Section 13 or 15(d) of the Exchange Act during the past 12
months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUER S
State the number of shares outstanding of each of the
issuers classes of common equity, as of the latest practicable
date:
Class Outstanding as of March 31, 1998
Common Stock, 13,120,810
Par Value $0.0005 per value
Transitional Small Business Disclosure Format (check one):
Yes [ ]; No [ X ]
<PAGE>
MEDISYS TECHNOLOGIES, INC.
TABLE OF CONTENTS
Page
PART I
Item 1. Financial Statements . . . . . . . . . . . 3
Item 2. Management s Discussion and Analysis or Plan
of Operation . . . . . . . . . . . . . . . 22
PART II
Item 1. Legal Proceedings. . . . . . . . . . . . . 24
Item 2. Changes in Securities. . . . . . . . . . . 24
Item 3. Defaults Upon Senior Securities. . . . . . 24
Item 4. Submissions of Matters to a Vote of Security
Holders. . . . . . . . . . . . . . . . . . 24
Item 5. Other Information. . . . . . . . . . . . . 24
Item 6. Exhibits and Reports on Form 8-K . . . . . 24
SIGNATURES . . . . . . . . . . . . . . . . . . . . . 25
<PAGE>
PART I
Item 1. Financial Statements
The following unaudited Financial Statements for the period
ended March 31, 1998, have been prepared by the Company.
Medisys Technologies, Inc.
(a Development Stage Company)
Consolidated Financial Statements
March 31, 1998
<PAGE>
MEDISYS TECHNOLOGIES, INC. AND SUBSIDIARY
(Development Stage Companies)
Consolidated Balance Sheets
ASSETS
March 31, December 31,
1998 1997
(Unaudited)
CURRENT ASSETS
Cash $ 11,736 $ 2,178
Accounts receivable, net (Note 1) 7,442 11,005
Inventory (Note 1) 6,493 21,004
Prepaid expenses 21,500 21,500
Loans to officers 2,500 -
Total Current Assets 49,671 55,687
FIXED ASSETS
Leasehold improvements 2,195 2,195
Furniture and equipment 76,946 76,946
Leased equipment 10,010 10,010
Accumulated depreciation (55,007) (51,050)
Total Fixed Assets 34,144 38,101
OTHER ASSETS
Deferred offering costs 2,250 2,250
Security deposits 4,000 4,000
Patent and trademark costs,
net (Note 1) 397,997 397,535
Organizational costs (Note 1) 311 311
Total Other Assets 404,558 404,096
TOTAL ASSETS $ 488,373 $ 497,884
<PAGE>
MEDISYS TECHNOLOGIES, INC. AND SUBSIDIARY
(Development Stage Companies)
Consolidated Balance Sheets (Continued)
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
March 31, December 31,
1998 1997
(Unaudited)
CURRENT LIABILITIES
Accounts payable $ 369,851 $ 391,257
Accrued expenses (Note 3) 482,354 361,092
Payable-stockholders (Note 2) 49,081 49,081
Notes payable (Note 4) 33,222 34,500
Total Current Liabilities 934,508 835,930
LONG-TERM DEBT
Notes payable - less current portion
(Note 2) 350,000 253,000
Total Long-Term Debt 350,000 253,000
TOTAL LIABILITIES 1,284,508 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 6,560
Additional paid-in capital 6,373,102 6,373,102
Stock subscriptions receivable
(Note 6) (175,000) (175,000)
Deficit accumulated during the
development stage (7,000,797) (6,795,708)
Total Stockholders' Equity (Deficit) (796,135) (591,046)
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY (DEFICIT) $ 488,373 $ 497,884
<PAGE>
MEDISYS TECHNOLOGIES, INC. AND SUBSIDIARY
(Development Stage Companies)
Consolidated Statements of Operations
(Unaudited)
From
Inception on
For the January 21,
Three Months Ended 1991 through
March 31, March 31,
1998 1997 1998
REVENUES $ 19,993 $ 38,873 $ 122,611
OPERATING EXPENSES
Cost of product sold 4,561 7,880 36,199
Product research and development 75,625 193,395 2,351,842
Professional services 27,830 26,548 1,250,563
Salaries 58,800 65,012 1,432,426
Depreciation and amortization 3,957 6,021 133,329
General and administrative 53,181 136,340 1,426,120
Total Operating Expenses 223,954 435,196 6,630,479
OPERATING LOSS (203,961) (396,323) (6,507,868)
OTHER INCOME (EXPENSES)
Gain on sale of asset - - 13,042
Interest income - 4,232 19,045
Interest expense (1,128) (6,007) (470,916)
Bad debt expense - - (54,100)
Total Other Income (Expenses) (1,128) (1,775) (492,929)
LOSS BEFORE INCOME TAXES (205,089) (398,098) (7,000,797)
INCOME TAXES - - -
NET LOSS $(205,089) $ (398,098) $(7,000,797)
NET LOSS PER SHARE OF COMMON STOCK $ (0.15) $ (0.13)
<PAGE>
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 200,000 100 431,495 -
approximately $2.16 per share
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)
Net loss for the three months ended
March 31, 1998 (Unaudited) - - - (205,089)
Balance, March 31, 1998
(Unaudited) 13,120,810 $ 6,560 $6,373,102 $(7,000,797)
<PAGE>
MEDISYS TECHNOLOGIES, INC. AND SUBSIDIARY
(Development Stage Companies)
Consolidated Statements of Cash Flows
From
Inception on
For the January 21,
Three Months Ended 1991 through
March 31, March 31,
1998 1997 1998
CASH FLOWS FROM OPERATING
ACTIVITIES
Loss from operations $ (205,089) $ (398,098) $(7,000,797)
Adjustments to reconcile net income to
net cash provided (used) by operating
activities:
Operating expenses paid by issuance
of common stock - - 1,165,806
Common stock options and warrants
for services - - 211,254
Depreciation and amortization 3,957 6,021 133,329
Allowance for doubtful accounts - - 53,718
Changes in operating assets and
liabilities:
(Increase) decrease in accounts
receivable 3,563 (29,273) (8,090)
(Increase) decrease in inventory 14,511 (11,097) (6,493)
(Increase) decrease in prepaid expenses - (20,835) (21,500)
(Increase) decrease in other assets - - (2,250)
(Increase) decrease in loans
receivable - stockholders (2,500) - (2,500)
(Increase) decrease in security deposits - - (4,000)
(Increase) decrease in organizational costs - - (311)
Increase (decrease) in accounts payable (21,406) 10,146 369,851
Increase (decrease) in accrued expenses 121,262 14,407 482,354
Net Cash (Used) by Operating Activities (85,702) (428,729) (4,629,629)
CASH FLOWS FROM INVESTING ACTIVITIES
Increase in patent costs (462) (50,028) (399,391)
Acquisition of subsidiary - - (40,673)
Purchase of fixed assets - (10,637) (94,700)
Disposal of fixed assets - - 11,166
Net Cash (Used) by Investing Activities $ (462) $ (60,665) $ (523,598)
<PAGE>
MEDISYS TECHNOLOGIES, INC. AND SUBSIDIARY
(Development Stage Companies)
Consolidated Statements of Cash Flows (Continued)
From
Inception on
For the January 21,
Three Months Ended 1991 Through
March 31, March 31,
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 - (3,867) (62,400)
Borrowings from stockholders 97,000 - 590,570
Borrowings from notes payable - - 338,500
Payment on loans payable - stockholders - - (20,984)
Payment on notes payable (1,278) (1,473 ) (142,555)
Stock subscriptions receivable - - (53,427)
Issuance of common stock - 34,270 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 95,722 28,930 5,164,963
NET INCREASE (DECREASE) CASH AND
CASH EQUIVALENTS 9,558 (460,464) 11,736
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 2,178 669,604 -
CASH AND CASH EQUIVALENTS AT END
OF PERIOD $ 11,736 $ 209,140 $ 11,736
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION
CASH PAID FOR
Income taxes $ - $ - $ -
Interest $ - $ 6,007 $ 56,898
NON CASH FINANCING ACTIVITIES
Purchase of automobiles on contract $ - $ - $ 62,400
Conversion of stockholder loans
to equity $ - $ - $ 599,294
Stock issued in payment of operating
expenses $ - $ - $1,165,806
<PAGE>
MEDISYS TECHNOLOGIES, INC. AND SUBSIDIARY
(Development Stage Companies)
Notes to the Consolidated Financial Statements
March 31, 1998 and 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 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 March 31, 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. AND SUBSIDIARY
(Development Stage Companies)
Notes to the Consolidated Financial Statements
March 31, 1998 and 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 has been made at March 31,
1998 and 1997 due to accumulated operating losses. The minimum
state franchise tax has been accrued.
The Company has accumulated approximately $6,988,721 of net
operating losses as of March 31, 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. 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
2013 205,089
$ 6,988,721
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
March 31, 1998 and 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. AND SUBSIDIARY
(Development Stage Companies)
Notes to the Consolidated Financial Statements
March 31, 1998 and 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 March 31,
1998, there was a balance outstanding payable to stockholders
totaling $49,081
The Company also has notes payable to various shareholders in
the aggregate of $350,000. The notes bear interest at 10% per
annum, are unsecured and are due in 1999.
NOTE 3 - ACCRUED EXPENSES
Accrued expenses at March 31, 1998 consist of the following:
Payroll taxes payable $ 206
Accrued salaries and directors fees 412,627
Finance charge 9,799
Accrued expenses - other 59,722
$ 482,354
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
March 31, 1998 and 1997
NOTE 4 - NOTES PAYABLE
Notes payable consisted of the following: March 31,
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. 8,222
Total 33,222
Less current portion (33,222)
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. AND SUBSIDIARY
(Development Stage Companies)
Notes to the Consolidated Financial Statements
March 31, 1998 and 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 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 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. AND SUBSIDIARY
(Development Stage Companies)
Notes to the Consolidated Financial Statements
March 31, 1998 and 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. AND SUBSIDIARY
(Development Stage Companies)
Notes to the Consolidated Financial Statements
March 31, 1998 and 1997
NOTE 7 - COMMON STOCK WARRANTS
As of March 31, 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 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
March 31, 1998 and 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 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 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>
Item 2. Management s Discussion and Analysis or Plan of Operation
Results of Operations
The net loss for the three month period ended March 31, 1998
("first quarter of 1998") decreased 48% to $205,961 when compared
to the $396,323 loss for the corresponding 1997 period, primarily
due to the Company's 61% decrease in product research and
development expenses and 61% decrease in general and administrative
expenses during the 1998 period.
Revenues of $19,993 for the first quarter of 1998 decreased
49% from $38,873 for the first quarter of 1997, attributed to a
lack of capital to expand the marketing of products that were
initially introduced in the first quarter of 1997. Cost of product
sold decreased to $4,561 for the first quarter of 1998 compared to
$7,880 for the first quarter of 1997 attributed to the decrease in
overall sales.
Product research and development costs for the third quarter
of 1998 were $75,000 compared to $193,395 for the comparable 1997
period, due to a reduction of operating capital and the
corresponding reduction of all expenditures. Salaries for the
first quarter of 1998 were $58,800 compared to $65,012 for the
comparable 1997 period, a 10% decrease due to a reduction in staff.
General and administrative costs for the first quarter of 1998 were
$53,181 compared to $136,350 for the comparable 1997 period, a 61%
decreases due primarily to the reduction in operating and personnel
costs and expenses.
Liquidity and Capital Resources
Historically, the Company's working capital needs have been
satisfied primarily through its financing activities including
private loans and raising capital through the sale of securities.
Working capital as of March 31, 1998 was a negative $884,837
compared to a negative $780,243 at December 31, 1997. This decline
in working capital is primarily attributable to the 34% increase in
accrued expenses during this period, mostly accrued salaries and
directors' fees.
Net cash used by operating activities for the first quarter of
1998 was $85,702 compared to net cash used of $428,729 for the
comparable 1997 period. This decrease in cash used is attributable
to the decrease in loss from operations and the increase in accrued
expenses during the first quarter of 1998. Also, net cash used by
investing activities was $462 for the first quarter of 1998
compared to $60,665 for the first quarter of 1997, due primarily to
increases in patent costs and the purchase of fixed assets during
the 1997 period. Net cash provided by financing activities during
the first quarter of 1998 was $95,722 compared to $28,930 for the
comparable 1997 period, primarily due to borrowings from
stockholders during the 1998 period.
The Company is currently technically in default on three notes
payable to various individuals totaling $33,222. 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 March 31, 1998 the Company had total assets of $488,373
and stockholders' deficit of $796,135. 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 third 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
quarter of 1998. Unless the Company is able to substantially
increase current sales of its products during early 1998 or is able
to raise additional sales of corporate debt or equity securities,
the Company may encounter a cash flow shortage during the third
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.
In the opinion of management, inflation has not had a material
effect on the operations of the Company.
<PAGE>
Risk Factors and Cautionary Statements
Forward-looking statements in this report are made pursuant to
the "safe harbor" provisions of the Private Securities Litigation
Reform Act of 1995. The Company wishes to advise readers that
actual results may differ substantially from such forward-looking
statements. Forward-looking statements involve risks and
uncertainties that could cause actual results to differ materially
from those expressed in or implied by the statements, including,
but not limited to, the following: the ability of the Company to
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.
PART II
Item 1. Legal Proceedings
The Company is not a party to any material pending legal
proceedings and no such action by, or to the best of its knowledge,
against the Company has been threatened.
Item 2. Changes in Securities
This Item is not applicable to the Company.
Item 3. Defaults Upon Senior Securities
This Item is not applicable to the Company.
Item 4. Submissions of Matters to a Vote of Security Holders
This Item is not applicable to the Company.
Item 5. Other Information
This Item is not applicable to the Company.
Item 6. Exhibits and Reports on Form 8-K
No report on Form 8-K was filed by the Company during the
three month period ended March 31, 1998.
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the
registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
MEDISYS TECHNOLOGIES, INC.
BY: /S/ Edward P. Sutherland
(Signature)
EDWARD P. SUTHERLAND
Chairman, Chief Executive
Officer
DATE: May 21, 1998
BY: /S/ Gary Alexander
(Signature)
GARY ALEXANDER
Vice President, Chief
Technology Officer and
Treasurer
DATE: May 21, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL
INFORMATION EXTRACTED FROM THE MEDISYS
TECHNOLOGIES, INC. FINANCIAL STATEMENTS FOR THE
PERIOD ENDED MARCH 31, 1998 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 11,736
<SECURITIES> 0
<RECEIVABLES> 8,090
<ALLOWANCES> 648
<INVENTORY> 6,493
<CURRENT-ASSETS> 49,671
<PP&E> 89,151
<DEPRECIATION> 55,007
<TOTAL-ASSETS> 488,373
<CURRENT-LIABILITIES> 934,508
<BONDS> 350,000
0
0
<COMMON> 6,560
<OTHER-SE> 6,373,102
<TOTAL-LIABILITY-AND-EQUITY> 488,373
<SALES> 19,993
<TOTAL-REVENUES> 19,993
<CGS> 4,561
<TOTAL-COSTS> 223,954
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,128
<INCOME-PRETAX> (205,089)
<INCOME-TAX> 0
<INCOME-CONTINUING> (205,089)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (205,089)
<EPS-PRIMARY> (.15)
<EPS-DILUTED> (.15)
</TABLE>
