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 June 30, 1999
[ ] 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 June 30, 1999
Common Stock, 35,304,818
Par Value $0.0005 per value
Transitional Small Business Disclosure Format (check one):
Yes [ ]; No [ X ]
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 and Use of Proceeds. . . . . . 26
Item 3. Defaults Upon Senior Securities. . . . . . . . . . . 26
Item 4. Submissions of Matters to a Vote of Security
Holders. . . . . . . . . 27
Item 5. Other Information. . . . . . . . . . . . . . . . . . 27
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . 27
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . 28
PART I
Item 1. Financial Statements
The following unaudited Financial Statements for the period
ended June 30, 1999, have been prepared by the Company.
Medisys Technologies, Inc.
Consolidated Financial Statements
June 30, 1999 and December 31, 1998
MEDISYS TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
ASSETS
June 30, December 31,
1999 1998
CURRENT ASSETS (Unaudited)
Cash $ - $ 75,483
Accounts receivable, net (Note 1) 400,995 294,949
Due from related party 2,857 18,546
Inventory (Note 1) 460,052 432,706
Prepaid expenses 23,289 25,658
Total Current Assets 887,193 847,342
FIXED ASSETS
Buildings 398,358 -
Computers and equipment 73,341 72,061
Machinery and equipment 299,337 293,850
Leasehold improvements 66,165 65,445
Furniture and equipment 46,120 49,249
Vehicles 19,915 19,915
Accumulated depreciation (255,186) (226,970)
Total Fixed Assets 648,050 273,550
OTHER ASSETS
Security deposits 45,765 41,765
Patent and trademark costs, net (Note 1) 491,739 462,069
Total Other Assets 537,504 503,834
TOTAL ASSETS $ 2,072,747 $ 1,624,726
MEDISYS TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Balance Sheets (Continued)
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
June 30, December 31,
1999 1998
(Unaudited)
CURRENT LIABILITIES
Cash overdraft $ 83,613 $ -
Accounts payable 789,706 591,688
Accrued expenses 193,773 95,819
Due to related party 25,000 -
Customer deposits - 116,200
Payable - shareholders (Note 2) 148,634 111,817
Notes payable, current portion (Note 8) 57,313 46,622
Line of credit (Note 4) 250,000 250,000
Notes payable - shareholders (Note 6) 30,222 30,222
Debentures payable - related parties (Note 3) 280,000 395,000
Total Current Liabilities 1,858,261 1,637,368
LONG-TERM DEBT
Notes payable (Note 8) 330,111 70,750
Total Long-Term Debt 330,111 70,750
TOTAL LIABILITIES 2,188,372 1,708,118
COMMITMENTS AND CONTINGENCIES (Note 9)
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock: 100,000,000 shares authorized
of $0.0005 par value, 35,304,818 and 34,009,757
shares issued and outstanding, respectively 17,652 17,004
Additional paid-in capital 8,480,451 8,122,813
Stock subscriptions receivable (Note 5) (175,000) (175,000)
Accumulated deficit (8,438,728) (8,048,209)
Total Stockholders' Equity (Deficit) (115,625) (83,392)
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY (DEFICIT) $ 2,072,747 $ 1,624,726
MEDISYS TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
(Unaudited)
For the For the
Three Months Ended Six Months Ended
June 30, June 30,
1999 1998 1999 1998
REVENUES $ 810,271 $ 3,382 $ 1,529,156 $ 23,375
COST OF GOODS SOLD 535,592 771 1,038,816 5,332
GROSS MARGIN 274,679 2,611 490,340 18,043
OPERATING EXPENSES
Product research and development 33,749 4,250 76,400 79,625
Depreciation and amortization 6,783 7,912 28,216 11,869
General and administrative 411,660 194,960 731,864 335,021
Total Operating Expenses 452,192 207,122 836,480 426,515
OPERATING LOSS (177,513) (204,511) (346,140) (408,472)
OTHER INCOME (EXPENSES)
Interest income - - 252 -
Interest expense (7,422) (740) (44,631) (1,868)
Total Other Income (Expenses) (7,422) (740) (44,379) (1,868)
LOSS BEFORE INCOME TAXES (184,935) (205,251) (390,519) (410,340)
INCOME TAXES - - - -
NET LOSS $ (184,935) $(205,251) $(390,519) $(410,340)
BASIC LOSS PER SHARE OF
COMMON STOCK (Note 1) $ (0.00) $ (0.02) $ (0.01) $ (0.03)
FULLY DILUTED LOSS PER
SHARE (Note 1) $ (0.00) $ (0.01) $ (0.01) $ (0.02)
MEDISYS TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity (Deficit)
Additional Stock
Common Stock Paid-In Subscription Accumulated
Shares Amount Capital Receivable Deficit
Balance, December 31, 1997 13,120,810 $ 6,560 $6,373,102 $(175,000)$(6,795,708)
Common stock issued to
acquire Phillips Pharmatech
Labs, Inc. (Note 1) 15,602,147 7,801 25,687 - -
Common stock issued in
satisfaction of accrued
wages and accounts payables 2,448,767 1,224 978,284 - -
Common stock issued for
services rendered 881,255 441 307,843 - -
Common stock issued for
cash at $0.25 per share 546,666 273 169,727 - -
Common stock issued for
interest expense 760,112 380 268,495 - -
Additional common stock
issued for cash received
in prior year 650,000 325 (325) - -
Net loss for the year ended
December 31, 1998 - - - - (1,252,501)
Balance, December 31, 1998 34,009,757 17,004 8,122,813 (175,000) (8,048,209)
Common stock issued for
services rendered (unaudited) 222,577 111 70,175 - -
Common stock issued for
accrued wages (unaudited) 324,477 162 89,838 - -
Common stock issued for
interest expense (unaudited) 84,118 42 29,958 - -
Issuance of common stock from
exercise of common stock
warrants at $1.125 per share
(unaudited) 8,889 5 9,995 - -
Common stock issued for cash at
$0.22 per share (unaudited) 195,000 98 42,902 - -
Common stock issued to convert
debentures at $0.25 per share
(unaudited) 460,000 230 114,770 - -
Net loss for the six months
ended June 30,1999 (unaudited) - - - - (390,519)
Balance, June 30, 1999
(unaudited) 35,304,818 $17,652 $8,480,451 $(175,000)$(8,438,728)
MEDISYS TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)
For the For the
Three Months Ended Six Months Ended
June 30, June 30,
1999 1998 1999 1998
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(184,935) $(205,251) $(390,519) $(410,340)
Adjustments to reconcile net income
to net cash provided (used) by
operating activities:
Common stock issued for services
and interest 21,500 - 100,286 -
Depreciation and amortization 6,783 7,912 28,216 11,869
Changes in operating assets and liabilities:
(Increase) decrease in accounts
receivable (48,769) 4,568 (106,046) 8,131
(Increase) decrease in due from
related party (2,857) - 15,689 -
(Increase) decrease in inventory (6,690) 362 (27,346) 14,873
(Increase) decrease in prepaid expenses - - 2,369 -
(Increase) decrease in deposits - - (4,000) -
Increase (decrease) in cash overdraft 83,613 - 83,613 -
Increase (decrease) in accounts
payable 13,918 (1,645) 198,018 (23,051)
Increase (decrease) in accrued
expenses 92,114 105,565 187,954 226,827
Increase (decrease) in due to
related party 10,568 - 25,000 -
Increase (decrease) in customer
deposits - - (116,200) -
Net Cash (Used) by Operating
Activities (14,755) (88,489) (2,966) (171,691)
CASH FLOWS FROM INVESTING ACTIVITIES
Increase in patent costs (20,298) (7,054) (30,314) (7,516)
Purchase of fixed assets (101,754) - (102,822) -
Net Cash (Used) by Investing
Activities (122,052) (7,054) (133,136) (7,516)
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings from shareholders 34,572 130,000 36,817 227,000
Payment on notes payable (17,422) (5,192) (29,198) (8,970)
Issuance of common stock 25,000 - 53,000 -
Net Cash Provided by Financing
Activities $ 42,150 $ 124,808 $ 60,619 $ 218,030
MEDISYS TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Continued)
(Unaudited)
For the For the
Three Months Ended Six Months Ended
June 30, June 30,
1999 1998 1999 1998
NET INCREASE (DECREASE) CASH AND
CASH EQUIVALENTS $ (94,657) $ 29,265 $ (75,483) $ 38,823
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 94,657 11,736 75,483 2,178
CASH AND CASH EQUIVALENTS AT END
OF PERIOD $ - $ 41,001 $ - $ 41,001
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION
CASH PAID FOR
Income taxes $ - $ - $ - $ -
Interest $ 7,422 $ 3,079 $ 14,579 $ 5,702
NON-CASH FINANCING ACTIVITIES
Stock issued for services and
interest expense $ 21,500 $ - $ 100,286 $ -
Stock issued for accrued wages $ 30,000 $ - $ 90,000 $ -
Stock issued for debt $ - $ 19,253 $ - $ 19,253
Warrants issued for debt $ - $ 19,871 $ - $ 19,871
Note payable issued for building $ 398,358 $ - $ 398,358 $ -
MEDISYS TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
June 30, 1999 and December 31, 1998
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 until December of 1998 when it acquired Phillips
Pharmatech Labs, Inc.
The Company has a wholly-owned subsidiary Medisys
Technologies, Inc. (Medisys) 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.
Medisys 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. For accounting
purposes the acquisition has been treated as a
recapitalization of Medisys with Medisys as the acquirer.
Phillips Pharmatech Labs, Inc. (Phillips) was organized
under the laws of the State of Florida on December 13,
1994. It was incorporated for the purpose of engaging in
the manufacturing and bottling of health supplements and
other health related and natural products.
On December 22, 1998, the Company completed an acquisition
and share exchange agreement whereby Medisys issued
15,602,147 shares of its common stock in exchange for all
of the outstanding common stock of Phillips. The shares
issued by Medisys represented 50% of the total shares of
the Company's common stock issued and outstanding
immediately following the acquisition. The acquisition is
accounted for as a purchase of Phillips.
b. Fixed Assets
Fixed assets are stated at cost less accumulated
depreciation. Expenditures for small tools, ordinary
maintenance and repairs are charged to operations as
incurred. Major additions and improvements are
capitalized. Depreciation is computed using the straight-
line method over estimated useful lives as follows:
Buildings and leasehold improvements 39 years
Furniture and fixtures 5 years
Computers and equipment 5 years
Machinery and equipment 5 to 7 years
Vehicles 5 years
Depreciation expense for the six months ended June 30, 1999 was $27,572.
MEDISYS TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
June 30, 1999 and December 31, 1998
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
c. Patent and Trademark Costs
The capitalized costs of obtaining patents consists of
legal fees and associated filing costs. These patent costs
will be amortized over the shorter of their legal or useful
lives. The Company has numerous patents in various stages
of development and the application process. Several
patents have been granted but are being developed further
in a continuation-in-part (CIP) status until the
development of a commercial product is complete, the
related product has received FDA (Food and Drug
Administration) approval and is in a marketable condition
ready for sale. Once patents have been granted, FDA
approval obtained, and sales commenced, no further costs
associated with the patent are capitalized. As of December
31, 1998, the Company did have one patented product for
which sales have commenced with the related costs being
amortized over the estimated useful life (17 years) of the
patent. Management has determined that estimated future
cash flows from this product will be sufficient to recover
the capitalized basis of the costs associated with that
patent. The other patents for which costs have been
capitalized are considered to have continued viability
according to management of the Company with no significant
events occurring which would impair the value of the
capitalized costs associated with the individual patents.
The Company has also incurred costs associated with
obtaining trademarks related to the Company's existing and
future products. Those costs have been capitalized and
will be amortized over the estimated useful life of the
trademarks once approval has been received and usage
begins. These trademarks are considered to have continued
viability according to management with no significant
events occurring which would impair the value of the
capitalized costs associated with the trademarks.
Patent and trademark costs incurred are as follows:
June 30, December 31,
1999 1998
(Unaudited)
Patents $ 484,393 $ 454,079
Trademarks 11,961 11,961
Subtotal 496,354 466,040
Less accumulated amortization (4,615) (3,971)
Totals $ 491,739 $ 462,069
Amortization expense for the six months ended June 30, 1999
was $644.
d. Accounting Method
The Company's financial statements are prepared using the
accrual method of accounting. The Company has elected a
December 31 year end.
MEDISYS TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
June 30, 1999 and December 31, 1998
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
e. Cash and Cash Equivalents
For purposes of financial statement presentation, the
Company considers all highly liquid investments with a
maturity of three months or less, from the date of
purchase, to be cash equivalents.
f. Income Taxes
No provision for federal income taxes has been made at
December 31, 1998 due to accumulated operating losses. The
Company has accumulated approximately $8,048,209 of net
operating losses as of December 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 269,551
2008 802,338
2009 960,966
2010 1,162,772
2011 1,498,725
2012 2,092,689
2013 1,252,501
$ 8,048,209
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.
g. Principles of Consolidation
The consolidated financial statements include the accounts
of Medisys Technologies, Inc. (parent), Medisys
Technologies, Inc. (Medisys) a wholly owned subsidiary and
Phillips Pharmatech, Inc. (Phillips) a wholly-owned
subsidiary. All significant intercompany accounts and
transactions have been eliminated in consolidation.
h. Revenue Recognition
Revenue is recognized upon shipment of goods to the customer.
MEDISYS TECHNOLOGIES, INC. AND SUBSIDIARY
Notes to the Consolidated Financial Statements
June 30, 1999 and December 31, 1998
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (Continued)
i. Inventory
Inventory is carried at the lower of cost or market value
using the first-in, first-out method. Inventory consisted
of the following:
June 30, December 31,
1999 1998
(Unaudited)
Raw materials $ 437,966 $ 400,185
Work-in-process 11,336 27,236
Finished goods 10,750 5,285
Totals $ 460,052 $ 432,706
j. Basic and Fully Diluted Loss Per Share
The basic loss per share of common stock is based on the
weighted average number of shares issued and outstanding
during the period of the consolidated financial statements.
Shares to be issued from warrants and options and the
conversion of debentures have been included in the
computation of the fully diluted loss per share.
k. Advertising
The Company follows the policy of charging the costs of
advertising to expense as incurred.
l. Credit Risks
The Company maintains its cash accounts primarily in two
banks in Louisiana and Florida. 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.
n. Accounts Receivable
Accounts receivable are shown net of the allowance for
doubtful accounts of $117,167 and $153,199 at June 30, 1999
and December 31, 1998, respectively.
MEDISYS TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
June 30, 1999 and December 31, 1998
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (Continued)
o. Change in Accounting Principle
The Company adopted Statement of Financial Accounting
Standards (SFAS) No. 128, "Earnings Per Share" during the
year ended December 31, 1998. In accordance with SFAS No.
128, diluted earnings per share must be calculated when an
entity has convertible securities, warrants, options, and
other securities that represent potential common shares.
The purpose of calculating diluted earnings (loss) per
share is to show (on a pro forma basis) per share earnings
or losses assuming the exercise or conversion of all
securities that are exercisable or convertible into common
stock and that would either dilute or not affect basic EPS.
As permitted by SFAS No. 128, the Company has retroactively
applied the provisions of this new standard by showing the
fully diluted loss per common share for all years
presented.
p. Unaudited Consolidated Financial Statements
The accompanying unaudited consolidated financial
statements include all of the adjustment which, in the
opinion of management, are necessary for a fair
presentation. Such adjustments are of a normal, recurring
nature.
NOTE 2 - PAYABLE - SHAREHOLDERS
From time to time the Company receives advances from
certain shareholders for the purpose of providing funds for
the Company's operating expenditures. The Company has also
advanced funds to shareholders. The outstanding balances
of these advances 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 June 30, 1999 and December 31,
1998, the balance payable to shareholders totaled $148,634
and $111,817, respectively.
NOTE 3 - DEBENTURES PAYABLE - RELATED PARTIES
The Company also has notes payable (debentures) to various
shareholders in the aggregate of $280,000 and $395,000 at
June 30, 1999 and December 31, 1998, respectively. The
notes bear interest at 10% per annum, are unsecured and are
due in 1999. In February 1999, the Company issued 460,000
shares of its common stock in payment of $115,000 of
debentures payable. The shares were issued on the basis of
four shares for each dollar of debt.
MEDISYS TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
June 30, 1999 and December 31, 1998
NOTE 4 - LINE OF CREDIT
An analysis of the line of credit with Nations Bank as of
June 30, 1999 and December 31, 1998 is shown below:
Available
Line of Debt
Credit Outstanding
$ 250,000 $ 250,000
Borrowings under the line of credit are guaranteed by the
Company's inventory and accounts receivable. Interest
accrues at the bank's prime rate plus 2.75% (9.50% at
December 31, 1998).
NOTE 5 - STOCK SUBSCRIPTION RECEIVABLE
During 1996, the Company issued 100,000 shares of
restricted common stock upon the exercise of common stock
warrants representing the same number of shares, having an
exercise price of $1.75 per share. Payment for the common
stock was made with a non-interest bearing four year
promissory note. The related shares are being held by the
Company as collateral for the promissory note. The shares
have been reflected as issued and outstanding with a
corresponding $175,000 stock subscription receivable
reflected as a reduction of stockholders' equity.
NOTE 6 - NOTES PAYABLE - SHAREHOLDERS
Notes payable - shareholders consisted of the following:
June 30, December 31,
1999 1998
(Unaudited)
Note payable to Richard L. Apel, unsecured,
dated November 2, 1993 at 8%; principal and
interest delinquent since August 18, 1994. $ 12,500 $ 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 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 5,222
Totals 30,222 30,222
Less current portion (30,222) (30,222)
Total long-term portion $ - $ -
MEDISYS TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
June 30, 1999 and December 31, 1998
NOTE 6 - NOTES PAYABLE - SHAREHOLDERS (Continued)
These notes payable are technically in default. None of
the related note holders have demanded repayment and the
Company is in the process of negotiating repayment terms.
The Company continues to pay the $500 monthly installments
on the note payable to Mr. and Mrs. Eckstein and continues
to accrue interest on these and all outstanding notes
payable. 8,572 shares of common stock were issued in
partial payment of the Eckstein note in 1997.
NOTE 7 - COMMON STOCK
During 1998, the Company issued 2,448,767 shares of its
common stock in satisfaction for accrued wages and accounts
payable of $979,508. The Company issued 457,056 shares of
its common stock for services. The services were valued at
the trading price of the common stock on the date the
shares were issued. The Company issued 100,000 shares of
its common stock for cash at $0.25 per share. The Company
issued an additional 650,000 shares of its common stock to
a shareholder to prevent dilution of the shares previously
issued to the shareholder.
During 1999, the Company issued 222,577 shares of its
common stock for services. The services were valued at the
trading price of the common stock on the date the shares
were issued. The Company issued 8,889 shares of its common
stock from the exercise of common stock warrants at $1.125
per share. The Company issued 195,000 shares of its common
stock for cash at approximately $0.22 per share or $43,000.
The Company issued 324,477 shares of its common stock in
payment of accrued wages at approximately $0.28 per share
or $90,000.
NOTE 8 - NOTES PAYABLE
Notes payable consisted of the following:
June 30, December 31,
1999 1998
(Unaudited)
Note payable to Nations Bank, collateralized by a
vehicle of the Company, interest at 8.99%, principal
and interest payments of $303 are due monthly,
matures on September 11, 2000. $ 3,972 $ 5,865
Note payable to Nations Bank, collateralized by
equipment of the Company, interest at 12.5%,
principal and interest payments of $450 are due
monthly, matures on November 4, 2002. 14,845 16,518
Note payable to Nations Bank, collateralized by
certain assets of the Company, interest at the
bank's prime rate plus 2.25%, interest payments
due monthly along with principal payments of
$3,333, matures on June 12, 2001. 74,991 94,989
Note payable to Nations Bank, collateralized by
building and property of the Company, interest at
7.75%, principal and interest payments of $2,836
due monthly, matures in December 2013. 293,616 -
Total notes payable $ 387,424 $117,372
MEDISYS TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
June 30, 1999 and December 31, 1998
NOTE 8 - NOTES PAYABLE (Continued)
June 30, December 31,
1999 1998
(Unaudited)
Total notes payable $ 387,424 $ 117,372
Less: current portion (57,313) (46,622)
Long-term notes payable $ 330,111 $ 70,750
Maturities of notes payable are as follows:
Year Ending
December 31, Amount
1999 $ 46,622
2000 46,608
2001 19,490
2002 4,652
2003 -
2004 and thereafter -
Total $ 117,372
NOTE 9 - 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, 1998. 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 currently has employment contracts with Edward
P. Sutherland and Kerry Frey whereby they each will receive
salaries of $12,500 per month. The Company also entered
into an independent consulting contract with Gary Alexander
pursuant to which he will receive $5,000 per month.
Any additional compensation to these employees is to be in
the form of an annual cash bonus or the granting of stock
and/or stock options at the discretion of the Board of
Directors not to exceed 50% of their annual compensation.
MEDISYS TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
June 30, 1999 and December 31, 1998
NOTE 9 - 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 contest 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.
Phillips currently leases its office on a month-to-month
basis at $3,784 per month. Subsequent to year end,
Phillips purchased the office building and as a result, the
lease was terminated (see Note 13). Phillips also leases
warehouse space at a rate of $3,766 per month though
January 2000.
Medisys entered into a lease agreement with a related party
for its office space located in Louisiana. The lease is
for a period of one year at a rate of $835 per month,
expiring in September 1999.
NOTE 10 - COMMON STOCK WARRANTS
As of December 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
516,000 1995 1999-2005 $ 1.1250 - $2.6250 $ 1,030,500
2,718,368 1996 1999-2001 $ 1.0000 - $4.2500 6,552,489
977,737 1997 2000-2002 $ 0.6875 - $1.8750 1,188,211
5,582,867 1998 1999-2005 $ 0.2500 - $4.2500 10,273,860
9,794,972 $ 19,045,060
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.
MEDISYS TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
June 30, 1999 and December 31, 1998
NOTE 10 - COMMON STOCK WARRANTS (Continued)
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 1998 and 1997 had
exercise prices at or above the trading price of the
shares.
During 1998, the Company conducted a private placement of
its common stock, 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 $1.25 per share.
The Company issued 912,333 common stock warrants pursuant
to this private placement. The Company also issued
4,670,534 common stock warrants to the stockholders of
Philips pursuant to the acquisition agreement redeemable at
various prices depending on the expiration dates of the
warrants.
MEDISYS TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
June 30, 1999 and December 31, 1998
NOTE 11 - 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 until the acquisition of Phillips in
December 1998. In prior periods, the Company has had
substantial working capital and stockholders' equity
deficits. In 1998, 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 the
expansion of its research and development projects in 1999.
It is unlikely that the Company can complete these research
and development projects without additional funds. In the
past, the Company has been able to generate sufficient
capital to cover its operating needs and plans to raise
additional capital through a private placement or a public
offering of its common stock or through additional mergers
and acquisitions. The Company also expects to generate
additional revenue from increased product sales including
the products of Phillips.
NOTE 12 - RELATED PARTY TRANSACTIONS
The Company has incurred $30,000 of interest expense to
shareholders during the six months ended June 30, 1999.
This balance is comprised of the issuance of 84,118 shares
of common stock valued at $30,000 for taking stock instead
of cash for payment of their compensation. (See also Notes
2, 3 and 7)
MEDISYS TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
June 30, 1999 and December 31, 1998
NOTE 13 - CONSOLIDATED PROFORMA STATEMENTS OF OPERATIONS
The historical information contained herein has been
consolidated on a proforma basis. The purchase of Phillips
on December 22, 1998 is described in Note 1. The purchase
has been presented as though it were effective January 1,
1998 and 1997. All significant accounting policies for
Phillips are the same as the Company's as defined in Note 1.
For the Year Ended
December 31, 1998
Proforma Proforma
Medisys Phillips Adjustments Combined
Revenues $ 26,846 $ 2,777,766 $ - $ 2,804,612
Cost of products sold 5,396 1,949,919 - 1,955,315
Gross Margin 21,450 827,847 - 849,297
Product research and development 382,318 - - 382,318
Depreciation and amortization 14,322 66,224 - 80,546
General and administrative 564,543 725,845 - 1,290,388
Total Operating Expenses 961,183 792,069 - 1,753,252
Operating Loss (939,733) 35,778 - (903,955)
Gain on sale of asset 1,475 - - 1,475
Interest expense (312,213) (44,251) - (356,464)
Bad debt expense (2,030) (4,936) - (6,966)
Total Other Income (Expense) (312,768) (49,187) - (361,955)
Net Loss $(1,252,501) $ (13,409) $ - $ (1,265,910)
Item 2. Management's Discussion and Analysis or Plan of Operation
Results of Operations
The net loss for the three month period ("second quarter") and
six month period ("first half) ended June 30, 1999 decreased to
$184,935 and $390,519, respectively, from $205,251 and $410,340 for
the corresponding 1998 periods. This decrease in net loss reflects
the first six months of operations following the Company's
acquisition of Phillips Pharmatec Labs, Inc. ("Phillips"). The
Company's revenues for the second quarter and first half of 1999
increased to $810,271 and $1,529,156, respectively, compared to
$3,382 and $23,375 for the corresponding 1998 periods. Revenues
were primarily generated by Phillips. Cost of goods sold rose to
$535,592 and $1,038,816 for the second quarter and first half of
1999, respectively, compared to $771 and $5,332 for the
corresponding 1998 periods.
Product research and development costs for the second quarter
of 1999 increased 694% to $33,749 due to increased focus on
commercialization of the Company's safety products. However,
product research and development costs for the first half of 1999
decreased 4% to $76,400 due to a reduction of operating capital and
the corresponding reduction of all expenditures during the first
quarter. General and administrative costs for the second quarter
and first half of 1999 increased 111% (to $411,660) and 118% (to
$731,864), respectively, compared to the 1998 periods, also
attributed to the acquisition of Phillips.
Liquidity and Capital Resources
Historically, the Company's working capital needs have been
satisfied primarily through its financing activities, including
private loans and raising capital through the sale of securities.
Working capital as of June 30, 1999 was a negative $971,068
compared to a negative $790,026 at December 31, 1998. This 23%
decrease in working capital is primarily attributed to the $83,613
cash overdraft at June 30, 1999, and increases during the period in
accounts payable (33%), accrued expenses (102%), and shareholder
payables (33%). These results were partially offset by the
reduction of $116,200 due to a related party, the 29% decrease in
debentures payable to related parties, and the 36% increase in
accounts receivable. The decrease in debentures payable resulted
from the conversion of $115,000 of debt into 460,000 shares of the
Company's common stock during the first quarter of 1999. Other
results are due to the acquisition and subsequent operations
of Phillips.
Net cash used by operating activities for the second quarter
and first half of 1999 was $14,755 and $2,966, respectively,
compared to net cash used of $88,489 and $171,691 for the
comparable 1998 periods. These results are primarily due to the
decrease in net loss for the 1999 periods, increases in accounts
payable and accrued expenses, and the payment of services and
interest with shares of the Company's common stock.
Net cash used by investing activities was $122,052 and
$133,136 for the second quarter and first half of 1999,
respectively, compared to net cash used of $7,054 and $7,516 for
the corresponding 1998 periods. These results are primarily due to
the purchase of fixed assets in 1999. Net cash provided by
financing activities during the second quarter and first half of
1999 was $42,150 and $60,619, respectively, compared to $124,808
and $218,030 for the comparable 1998 periods. This was due to a
decrease from the significant borrowing from stockholders
during 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. One of the two notes is currently in
negotiations and the other note holder has not demanded repayment.
The Company continues to accrue interest on all outstanding notes
payable.
As of June 30, 1999 the Company had total assets of $2,072,747
and stockholders' deficit of $115,625. In comparison, as of
December 31, 1998 the Company had total assets of $1,624,726 and
total stockholders' deficit of $83,392.
Management believes that the Company has sufficient capital
resources and commitments to fund anticipated operations in 1999.
The acquisition of Phillips Pharmatec has improved the Company's
financial status. Phillips basically funds itself through
operations and management estimates that its current level of
operations require approximately $50,000 in additional operating
capital per month in cash based upon average monthly cash flows
during the first quarter of 1999. Unless the Company is able to
substantially increase current sales of its products during early
1999, or is able to raise funds from the sale of corporate debt or
equity securities, the Company may encounter a cash flow shortage
during the third quarter of 1999. 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 entered into an agreement for raising
capital from a private source in the amount of $1,000,000. The
Company signed a letter of intent to acquire a marketing company
with a positive cash flow. However, consummation of this
acquisition is considered doubtful at this time. 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 or postpone product development and
expansion plans. 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 $8,048,209 of net
operating loss carryforwards as of December 31, 1999, 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 2014. 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, 1998 or six month period
ended June 30, 1999 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
In March of 1999, Medisys signed a letter of intent to acquire
Health Care Direct Services, Inc. and affiliates. Management
believe that this acquisition might add revenue to the Company and
give Medisys the marketing capability necessary to begin
commercialization of many of its proprietary devices and
complimentary health care products of Phillips and its customers.
As of the date hereof, negotiations are still progressing although
no definitive agreement has been entered. Due diligence has
resulted in management becoming less optimistic as to the potential
value of concluding the acquisition.
Year 2000
Year 2000 issues may arise if computer programs have been
written using two digits (rather than four) to define the
applicable year. In such case, programs that have time-sensitive
logic may recognize a date using "00" as the year 1900 rather than
the year 2000, which could result in miscalculations or system
failures.
The Company has completed its assessment of the Year 2000
issue and believes that any costs of addressing the issue will not
have a material adverse impact on the Company's financial position.
The Company believes that its existing accounting computer systems
and software will not need to be upgraded to mitigate the Year 2000
issues. The Company has not incurred any costs associated with its
assessment of the Year 2000 problem. In the event that Year 2000
issues impact the Company's accounting operations and other
operations aided by its computer system, the Company believes, as
part of a contingency plan, that it has adequate personnel to
perform those functions manually until such time that any Year 2000
issues are resolved.
The Company believes that third parties with whom it has
material relationships will not materially be affected by the Year
2000 issues as those third parties are relatively small entities
which do not rely heavily on information technology ("IT") systems
and non-IT systems for their operations. However, if the Company
and third parties upon which it relies are unable to address any
Year 2000 issues in a timely manner, it could result in a material
financial risk to the Company, including loss of revenue and
substantial unanticipated costs. Accordingly, the Company plans to
devote all resources required to resolve any significant Year 2000
issues in a timely manner.
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 and Use of Proceeds
During the three month period ended June 30, 1999, the Company
issued an aggregate of 309,107 shares of authorized, but previously
unissued common stock. Of this amount, the Company issued 122,905
shares to four (4) persons in exchange for services rendered to the
Company, and 111,202 shares for deferral of accrued wages valued at
$27,500. The Company realized $15,000 in gross proceeds from the
sale of shares for cash. These funds were used for general
operating expenses.
The above issuances of shares were made in private
transactions to persons possessing knowledge of the Company and
its business operations. Accordingly, the Company relied upon the
exemption from registration under the Securities Act of 1933, as
amended (the "Act"), provided by Section 4(2) of the Act.
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
On Wednesday, May 12, 1999, pursuant to proper notice to
stockholders, the Company held its Annual Meeting of Stockholders
at the Holiday Inn-East, Baton Rouge, Louisiana. At the Meeting,
the following incumbent directors were elected by the indicated
vote to serve as directors until the next Annual Meeting of
Stockholders or until their successors are elected and qualified.
Nominee For Against Abstain
Edward P. Sutherland 25,820,770 -0- 100
Gary Alexander 25,820,770 -0- 100
Kerry M. Frey 25,820,770 -0- 100
William D. Kiesel 25,820,770 -0- 100
Dr. Timothy Andrus 25,815,770 -0- 5,100
Brett Phillips 25,815,770 -0- 5,100
Dr. Robert L. diBenedetto 25,820,770 -0- 100
Carl Anderson 24,227,049 1,588,721 5,100
Bill Morris 25,815,770 -0- 5,100
In addition to the election of directors, the following
business was brought before and voted upon at the Annual Meeting of
Stockholders:
Stockholders ratified the appointment of Jones, Jensen &
Company as independent auditors for the Company's fiscal year
ending December 31, 1999 by a vote of 25,820,870 for, -0- against,
and -0- abstaining.
Item 5. Other Information
This Item is not applicable to the Company.
Item 6. Exhibits and Reports on Form 8-K
On April 8, 1999, the Company filed an amendment to its report
on Form 8-K reporting under Item 2 and Item 7 the acquisition by
the Company of Phillips Pharmatec Labs, Inc. and the requisite
financial statements related to such acquisition.
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, Treasurer and
Director
DATE: August 18, 1999
BY: /S/ Kerry Frey
KERRY FREY
President, Chief
Operating and
Director
DATE: August 18, 1999
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<ARTICLE> 5
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL
INFORMATION EXTRACTED FROM THE MEDISYS
TECHNOLOGIES, INC. FINANCIAL STATEMENTS FOR THE
PERIOD ENDED JUNE 30, 1999 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
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<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 518,162
<ALLOWANCES> 117,167
<INVENTORY> 460,052
<CURRENT-ASSETS> 887,193
<PP&E> 903,236
<DEPRECIATION> 255,186
<TOTAL-ASSETS> 2,072,747
<CURRENT-LIABILITIES> 1,858,261
<BONDS> 330,111
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<COMMON> 17,652
<OTHER-SE> 8,480,451
<TOTAL-LIABILITY-AND-EQUITY> 2,072,747
<SALES> 1,529,156
<TOTAL-REVENUES> 1,529,156
<CGS> 1,038,816
<TOTAL-COSTS> 836,480
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 44,379
<INCOME-PRETAX> (390,519)
<INCOME-TAX> 0
<INCOME-CONTINUING> (390,519)
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<NET-INCOME> (390,519)
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