UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of The
Securities Exchange Act of 1934
For the Quarter Ended September 30, 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.)
144 Napoleon Street, Baton Rouge, Louisiana, 70802
(address of principal executive officers)
Issuer's telephone number: (225) 343-8024
9624 Brookline Avenue, Baton Rouge, Louisiana, 70809
(former address of principal executive officers)
Check whether the issuer (1) filed all reports required to be
filed by Section 13 or 15(d) of the Exchange Act during the past 12
months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the
issuers classes of common equity, as of the latest practicable
date:
Class Outstanding as of September 30, 1998
Common Stock, 13,177,903
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. . . . . . . . . . . . . . . . . . 26
Item 2. Changes in Securities. . . . . . . . . . . . . . . . 26
Item 3. Defaults Upon Senior Securities. . . . . . . . . . . 26
Item 4. Submissions of Matters to a Vote of Security
Holders. . . . . . . . . 26
Item 5. Other Information. . . . . . . . . . . . . . . . . . 26
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . 26
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . 27
<PAGE>
PART I
Item 1. Financial Statements
The following unaudited Financial Statements for the period
ended September 30, 1998, have been prepared by the Company.
Medisys Technologies, Inc.
(a Development Stage Company)
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>
Item 2. Management's Discussion and Analysis or Plan of Operation
Results of Operations
The net loss for the three month period ended September 30,
1998 ("third quarter of 1998") decreased 35% to $178,592 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 $5,826
on product development for the quarter compared to $109,045
expended in the 1997 period. Also contributing to the decrease in
net loss was the 53% decrease in general and administrative
expenses due to the reduction in operating and personnel costs and
expenses. These decreases were partially offset by the 59%
increase in salaries attributed to an increase in salaries deferred
to a later period.
Net loss for the nine month period ended September 30, 1998
("first nine months of 1998") decreased 46% to $588,932 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
(83%) and general and administrative expenses (63%), and was
partially offset by the 131% increase in professional services
attributed to outsourcing previously contracted services.
Revenues decreased to $975 (95%) for the third quarter of
1998 compared to $20,436 for the third quarter of 1997, and
decreased to $24,350 (71%) for the first nine months of 1998
compared to $83,886 for the corresponding 1997 period. These
decreases are attributed to a lack of adequate capital for
marketing and advertising.
The Company did not expend any money for cost of products
sold during the third quarter of 1998 and expended only $4,037 for
the third quarter of 1997. Cost of product sold decreased to
$5,332 for the first nine months of 1998 compared to $17,596 for
the corresponding 1997 period. These decreases are directly
attributed to the decrease in sales.
Liquidity and Capital Resources
Historically, the Company's working capital needs have been
satisfied primarily through its financing activities including
private loans and raising capital through the sale of securities.
Working capital as of September 30, 1998 was a negative $1,114,040
compared to a negative $780,243 at December 31, 1997. This decline
in working capital is primarily attributable to the 92% increase in
accrued expenses during this period, mostly accrued salaries and
directors' fees.
Net cash used by operating activities for the first quarter
and first nine months of 1998 was $10,801 and $186,447,
respectively, compared to net cash used of $157,517 and $872,599
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 $54,610 and $58,171 for the
first quarter and first nine months of 1998, respectively compared
to $9,833 and $88,025 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
third quarter of 1998 decreased 82% to $32,900 from the third
quarter of 1997, primarily due to the 82% decrease in borrowings
from notes payable. Net cash provided by financing activities for
the first nine months of 1998 decreased 28% to $250,930 from the
first nine months on 1997, primarily due to the issuance of common
stock during the 1997 period and partially offset by and a 38%
increase in borrowings from notes payable in the first nine months
of 1998.
The Company is currently technically in default on three notes
payable to various individuals totaling $30,222. 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 September 30, 1998 the Company had total assets of
$532,015 and stockholders' deficit of $1,140,854. 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
third 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 September 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 nine month
period ended September 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.
Inflation
In the opinion of management, inflation has not had a material
effect on the operations of the Company.
Recent Developments
On October 1, 1998 the Company entered into a Letter of Intent
with Phillips Pharmatec Labs, Inc., a Florida corporation ("PPL"),
related to the intended acquisition by the Company of one hundred
percent (100%) of the issued and outstanding shares of capital
stock of PPL. In reliance upon and pursuant to the basic terms of
the Letter of Intent, the Company and PPL intend to execute an
Acquisition and Share Exchange Agreement (the "Agreement") whereby
PPL will assign all title and interest and obligations in that
business to the Company in exchange for shares of the Company's
common stock equal to 50% of the outstanding shares of the Company.
The Agreement will simultaneously provide for the purchase of all
the issued and outstanding capital stock of PPL from Brett
Phillips, Marilyn Morris, Carl Anderson and Ronnie Anderson.
The acquisition is contingent upon 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. 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. Upon the
mutual consent of each of the Boards of Directors of the Company
and PPL, this contingent for raising funding may be waived.
Phillips Pharmatec Labs, Inc., (PPL) was founded in December,
1994, by Brett Phillips and two other major stockholders. PPL is
currently organized as a subchapter S corporation in the State of
Florida and is located in Largo, Florida. The prime goal of PPL 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. PPL acts as a
contract manufacturer with the expanded capability of manufacturing
and/or assembling product lines consistent with the types of
products developed by the Company. This acquisition will offer the
Company production packaging, labeling and shipping capabilities
for medical devices as well as PPL nutritional products.
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.
<PAGE>
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
On October 15, 1998, the Company filed a report on Form 8-K
reporting under Item 2 the proposed acquisition of Phillips
Pharmatec Labs, Inc.
<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
EDWARD P. SUTHERLAND
Chairman, Chief Executive Officer
DATE: November 20, 1998
BY: /S/ Gary Alexander
GARY ALEXANDER
Vice President, Chief Technology
Officer and Treasurer
DATE: November 20, 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 SEPTEMBER 30, 1998 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 8,490
<SECURITIES> 0
<RECEIVABLES> 2,164
<ALLOWANCES> 648
<INVENTORY> 1,516
<CURRENT-ASSETS> 43,829
<PP&E> 89,075
<DEPRECIATION> 62,921
<TOTAL-ASSETS> 532,015
<CURRENT-LIABILITIES> 1,157,869
<BONDS> 515,000
0
0
<COMMON> 6,588
<OTHER-SE> 6,412,198
<TOTAL-LIABILITY-AND-EQUITY> 532,015
<SALES> 24,350
<TOTAL-REVENUES> 24,350
<CGS> 5,332
<TOTAL-COSTS> 610,689
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,850
<INCOME-PRETAX> (588,932)
<INCOME-TAX> 0
<INCOME-CONTINUING> (588,592)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (588,592)
<EPS-PRIMARY> (.05)
<EPS-DILUTED> (.05)
</TABLE>
