MEDISYS
TECHNOLOGIES,
INC.
1998 ANNUAL REPORT
<PAGE>
SELECTED FINANCIAL INFORMATION
<TABLE>
Statement of Operations Data:
<CAPTION>
1994 1995 1996 1997 1998
<S> <C> <C> <C> <C> <C>
Revenue. . . . . . . . . . . $ - $ 2,802 $ 2,182 $ 97,634 $ 26,846
Total operating expenses . . 934,436 1,134,201 1,434,465 1,829,401
966,579
Operating (loss) . . . . . . (934,436) (1,131,399) (1,432,283) 1,731,767)
(939,733)
Other income (expenses). . . (26,530) (31,373) (66,442) (360,922)
(312,768)
Net (loss) . . . . . . . . . (960,966) (1,162,772) (1,498,725) (2,092,698)
(1,252,501)
Income (loss) per share. . . (0.10) (0.10) (0.13) (0.17) (.09)
Balance Sheet Data:
Working capital. . . . . . . $ (498,174) $ 470,270 $ 198,112 $ (780,243) $
(790,026)
Current assets . . . . . . . 46,724 107,068 685,172 55,687 847,342
Total assets . . . . . . . . 258,257 406,531 1,051,500 497,884 1,624,726
Current liabilities. . . . . 544,898 577,338 487,060 835,930 1,637,368
Long-term debt . . . . . . . 124,153 20,577 6,334 253,000 70,750
Stockholders equity (Deficit) (410,794) (191,384) 558,106 (591,046)
(83,392)
</TABLE>
<PAGE>
United States Securities and exchange commission
Washington, D.C. 20549
FORM 10-KSB
(Mark One)
[X] Annual Report Pursuant to Section 13 or 15(d) of The
Securities Exchange Act of 1934
For the Fiscal Year Ended December 31, 1998
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Commission File Number 0-21441
MEDISYS TECHNOLOGIES, INC.
(Name of small business issuer 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) (Zip Code)
Issuer's telephone number: (225) 343-8022
Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, par value $0.0005 per share
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 [ ]
Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B contained in this form, and no
disclosure will be contained, to the best of registrant's
knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [ ]
State issuer's revenues for its most recent fiscal year. $26,846
State the aggregate market value of the voting stock held by non-
affiliates computed by reference to the price at which the stock
was sold, or the average bid and asked prices of such stock, as of
a specified date within the past 60 days. $4,598.834 (Based on
price of $.375 per share on April 13, 1999)
State the number of shares outstanding of each of the issuer's
classes of common equity, as of the latest practicable date.
Class Outstanding as of January 20, 1999
Common Stock, Par Value $0.0005 34,009,757
DOCUMENTS INCORPORATED BY REFERENCE
Transitional Small Business Disclosure Format. Yes [ ] No [X]
<PAGE>
MEDISYS TECHNOLOGIES, INC.
TABLE OF CONTENTS
PART I
Item 1. Business . . . . . . . . . . . . . . . . . . . . . . . . . 3
Item 2. Properties . . . . . . . . . . . . . . . . . . . . . . . . 22
Item 3. Legal Proceedings. . . . . . . . . . . . . . . . . . . . . 22
Item 4. Submission of Matters to a Vote of Security
Holders. . . . . . . . . . . . . . . . . . . . . . . . . . 23
PART II
Item 5. Market for Registrant's Common Equity and
Related Stockholder Matters. . . . . . . . . . . . . . . . 23
Item 6. Management's Discussion and Analysis of
Financial Condition and Results of Operations. . . . . . . 24
Item 7. Financial Statements and Supplementary Data. . . . . . . . 28
Item 8. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure . . . . . . . . . . 48
PART III
Item 9. Directors and Executive Officers of the
Registrant . . . . . . . . . . . . . . . . . . . . . . . . 48
Item 10. Executive Compensation . . . . . . . . . . . . . . . . . . 52
Item 11. Security Ownership of Certain Beneficial Officers
and Management . . . . . . . . . . . . . . . . . . . . . . 53
Item 12. Certain Relationships and Related Transactions . . . . . . 55
PART IV
Item 13. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K. . . . . . . . . . . . . . . . . . . . 56
Signatures.. . . . . . . . . . . . . . . . . . . . . . . . 57
<PAGE>
PART I
Item 1. Business
Medisys Technologies, Inc. ("Medisys" or the "Company") was
incorporated on March 17, 1983 as Whitewater Products, Ltd. under
the laws of the State of Utah. On August 6, 1992, the Company
acquired Medisys Technologies, Inc., a Louisiana corporation formed
in 1992 to explore the potential for development of The SofCeps
Birth Assistance Safety Device concept, and changed it name to
Medisys Technologies, Inc. Following the acquisition, the Company
began operations as a development stage research and development
company.
In December of 1998, Medisys acquired Phillips Pharmatec Labs,
Inc. ("Phillips") which added revenue and manufacturing capability
to Medisys for some of its patented products and the complimentary
healthcare product lines of Phillips and its customers along with
significant key personnel.
In March of 1999, Medisys signed a letter of intent to acquire
Health Care Direct Services, Inc. and affiliates. Management
believes that this acquisition will 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.
The Company has invested approximately $7,000,000 in the
development of its proprietary ideas and patented intellectual
property. In 1998, the Company reduced its debt by approximately
$1,1000,000 primarily through equity investment of four of its
Board Members, Gary Alexander, Kerry Frey, William David Kiesel,
and Edward Sutherland.
The principal Executive and Administrative offices of Medisys
are leased and located at 144 Napoleon Street, Baton Rouge,
Louisiana 70802 and its telephone number is (225) 343-8022.. The
Company also maintains a small operations office which it rents in
Far Hills, New Jersey. Phillips Pharmatec Labs, Inc. conducts its
manufacturing, packaging, and related operations out of two
buildings in Largo, Florida. One of the buildings is owned by
Phillips and one is leased. Health Care Direct Services operates
from two locations in Lutz and Tampa, Florida.
Today, Medisys Technologies, Inc is a diversified medical
company which employs a multidivisional integrated business
strategy. The Company owns 15 patents covering safety devices and
other products that offer proprietary, high potential technology
that is on the brink of' substantial commercialization. Medisys
develops, manufactures and markets quality products which improve
safety, nutrition and patient care. These products can be
effectively sold using the management discipline of' market driven
business units (MDBU's).
The Company presently operates three market driven business
units as synergistic independent divisions. The "Medical Device
Division" concentrates on the commercialization of specialized
medical devices in markets within large growing categories of
medical care. The product focus is on medical safety within the
specific market segments of "Sharps Protection" and "Women's
Health". The Company's patented products within these areas
provide a base for creating complementary multi-product specialized
business units.
The "Manufacturing "Division provides the Company with the
internal capability of manufacturing its own proprietary products
and other medical devices. Consistent with the overall Company
philosophy, this division operates as an independent MDBU which
produces substantial revenue through the manufacture of selected
complementary health products of other companies on a contract
basis.
The Company also anticipates creating a "Marketing Division"
which will operate as an independent MDBU to provide the Company
with marketing resources to access certain niche markets for its
medical devices.
The Business Units
MEDICAL DEVICE SAFETY
Medical device safety is a large and growing issue within the
healthcare community. The transfer of infectious diseases result
in enormous economic and social costs. With AIDS (HIV), Hepatitis
and other communicable disease, the possibility of accidental
infection is a critical issue to healthcare workers and medical
professionals. Approximately one million needle sticks are
reported each year among healthcare workers with the probability of
many more going unreported. The potential for transmission of the
hepatitis C (HCV), hepatitis B (HBV) and the HIV (AIDS) viruses can
occur from just one needle stick and the potential cost of a single
contaminated needle stick injury is estimated between $250-$2,302
just for evaluation and testing. The Centers for Disease Control
and Prevention ("CDC") reports 54 documented cases and 114 possible
cases of healthcare workers who acquired HIV on the job as of
December 1997. While the incidence of AIDS contracted through
accidental needle sticks is low, the impact to the individuals
tested and the cost of both the testing and treatment is enormous.
For both hepatitis B virus and HIV infections, the primary source
of exposure was, according to the CDC, is a contaminated dirty
needle stick.
On September 30, 1998, Governor Pete Wilson of California
signed legislation that will make California the first state in the
nation to require the use of safety needles to protect health care
workers from hazardous needle sticks. With this new legislation,
California is creating a model for national standard that will lead
to a safer workplace for medical and public safety workers
nationwide. National mandates for the use of sharps blunting
systems for syringes are likely within the next two years.
HYPODERMIC SHARPS SAFETY
CoverTipTM Hypodermic Syringe
The current syringe market annually approaches 2.5 billion
dollars in the United States alone. Currently, the State of
Tennessee has followed California and become the second state to
adopt safety syringe legislation. Safety syringes comprise less
than 30% of the total market. The desire to use a safety syringe
has been impeded by both cost and technique requirements of
currently available safety syringes. Current safety syringes are
four to ten times the cost of standard syringes. Safety syringe
devices currently in the market are difficult to use and require
hospital training and ongoing in service. These products do not
cover the needle prior to removal from the skin and can pose danger
upon extraction from the patient.
In contrast to other safety syringes, the Medisys CoverTipTM
device employs a unique but simple design which covers the tip of
the needle while in the patient's skin and locks in place
protecting the healthcare worker during the injection process as
well as during disposal of the used syringe. There is virtually no
difference in the use of CoverTipTM and in standard non-safety
syringe units which translates into minimal medical user training
and lower overall product cost. CoverTipTM provides needle tip
safety that is easy to use at reasonable cost.
The Company received U.S. Food and Drug Administration (FDA)
510K clearance to market the CoverTipTM safety syringe on May 15,
1998. Medisys is presently pursuing specialty applications for
CoverTipTM and has begun a pre-market campaign in preparation for
a limited market introduction of the hypodermic product application
beginning in California.
PreSafTM Lever Fulcrum Hypodermic Syringe
PreSafTM is an intramuscular injection safety syringe designed
primarily for prefilled syringe application. These applications
typically include flu shots, pneumonia shots, AIDS serums, and
other epidemic treatment or prevention therapies. Like CovertipTM,
but in a different fashion, it provides automatic passive
protection before withdrawal from the patient. The Company has a
clear patent search. The U.S. Patent has been applied for and is
pending. Concept design is essentially complete. Prototypes and
clinical development will begin after patent approval is received.
This device will be marketed as an OEM product and sold to
pharmaceutical distribution producers of pre-filled syringes.
DIAGNOSTIC SHARPS SAFETY
Medisys recognizes that diagnostic sharps applications are a
critical area of medical device safety. This segment is largely
unexplored and significantly under-penetrated by safety device
solutions and has less competition and fewer economic barriers to
entry than those apparent in the hypodermic field. These products
address a somewhat different customer base than the hypodermic end
user in that physicians and other more specialized technicians are
the primary care givers who use diagnostic sharps instruments. The
specialized and professional aspects of these devices will offer
high margin opportunity to the marketplace.
To fill this need for sharps safety protection, Medisys has
developed a line of devices with more commercial potential than its
hypodermic syringe line. Some of these devices are ready to enter
the final phases of commercialization.
SofDrawTM
SofDrawTM is a blood/fluid collection syringe designed to
protect the clinician from an accidental self puncture with a
contaminated needle during the collection of blood or bodily fluids
and through the transfer of fluids into vials for transport and
study. Current procedures use standard syringes, usually 15cc or
larger. The operator is either drawing blood or aspirating fluid.
Fluid aspiration is typically performed by physicians or other
highly specialized technicians. In either case, the body of the
patient is punctured and, after collection, the contaminated needle
is withdrawn with the sharp exposed. Transferring the fluid into
vials involves multiple opportunities for accidental self puncture.
Importantly, intramuscular safety syringes, cannot be used because
the safety mechanisms rely at least in part on forward movement of
the syringe plunger/piston assembly. Achieving activation of the
safety feature would run the risk of a potentially fatal air
embolism. This procedure requires its own distinctive safety
product since removing fluid from the body relies on rearward
movement of the syringe plunger/piston assembly.
The U.S. Patent has been issued, all filings are current and
initial design development is complete through prototyping. A 510K
application for marketing of the device with the FDA will be filed
when the working design is finalized. Given the shared technology
between this device and CoverTipTM syringe, a fast track clearance
for marketing by the FDA is reasonably anticipated by Medisys. A
Continuation in Part (CIP) application to cover features allowing
large volume drainage without syringe barrel change is in process.
The Company intends to market this specialized product
directly to both OEM blood and fluid collection tray assemblers and
specialty markets such as physicians arid phlebotomists.
Orthopedists will be a specific target customer group for the use
of SofDrawTM during the drainage of knee and shoulder joints.
VacuSafTM
This device, using CoverTipTM technology in combination with
an adapted passive energy source, covers and protects the sharp of
a blood collection needle while it is still in the vein. The
safety mechanism is activated and locked with the first use of a
vacuum specimen tube and the sharp is rendered safe prior to
withdrawal. The device provides protection to the user and waste
handlers and produces the added benefit of protecting the vein
lumens during the collection procedure. Version "Select" permits
selection of needle gauge for use with a single adaptive shroud
while version "Fixed" is a pre-assembled unit, and safety
mechanism, fixed to the shroud. Final design concept is
essentially complete and working models have been fabricated. The
Company has a clear patent search and the U.S. patent application
is in progress and is anticipated to be ready for filing in 1999.
A moderate volume test site has agreed to perform clinical trials
as soon as clinical prototypes can be produced.
The marketing direction of this device has not been finalized.
Potential options are specialty sales to phlebotomists or as a
license/OEM product for the major IV catheter manufacturers.
BxDrawTM
This device is both a fine or coarse needle biopsy safety
syringe. It is a physician specific device. The U.S. patent has
been verbally approved and the Company has receipt of a formal
"Notice of Allowability." The device provides user protection and
reduces risks of carcinogen cell "needle tracking". It also
doubles as a post procedure safe carrier for transport to
pathology. Development and regulatory status are similar to
SofDrawTM.
BXDrawTM addresses the needs of the diagnostic surgeon
(orthopedic, General Thoracic) and/or Radiologist and it is
anticipated that it will be sold directly by Medisys to this
specialized segment.
BX-T-DrawTM OBTSN
"Obdurated Titanium Safety Needle." This device is designed
for use with MRI (Magnetic Resonance Imaging) placement to take a
tissue sample with a cutting needle. Concept design is complete
and the company has a clear patent search. An application for a
U.S. Patent will be filed when final design alternatives are
complete. As with the BX, the BX-T-DrawTM device should be
specialty marketed to Radiologists, Oncologists, general surgeons
and other diagnosticians.
CoverStikTM
This device permits safe collection of capillary blood. The
small cutting blade is passively and automatically retracted into
a protective housing concurrent with skin puncture. Applications
include checks for glucose levels, clotting, and blood gases. As
a system, CoverStikTM protects the user and eliminates reusable
carriers, which contaminate easily and are known sources of
pathogen transfer, particularly hepatitis. Conceptual design work
is complete. The Company has a clear patent search and will file
a patent application as soon as final design alternatives are
complete.
The CoverStikTM marketing plan is to sell directly to Lab and
Respiratory Therapy as well as to the OEM market to diagnostic
companies.
SAFETY IN WOMEN'S HEALTH
SofCepsTM
The Company's primary women's health device is an obstetrical
tractor (birth assistance delivery device) known as SofCepsTM which,
in part, is designed to replace traditional steel obstetrical
forceps and vacuum extractors used to assist child birth. SofCepsTM
is intended to offset the possible negative obstetrical
consequences of epidural anesthesia which may slow or interrupt the
descent of the fetus through the birth canal and may diminish
maternal ability to produce voluntary and involuntary contractions
during delivery. SofCepsTM is a disposable soft and thin double-
walled multifiber braided axial gripping cylinder, which is placed
over the fetal skull with a simple application system. It is
designed to uniformly distribute assisting traction forces about
the circumference and longitudinal surface areas of the fetal
skull.
SofCepsTM
The devices that SofCepsTM is designed to replace are
traditional steel obstetrical forceps and vacuum extractors. The
Company believes that maternal/fetal injuries associated with the
use of these devices will be reduced with the adoption of this new
approach. Maternal injuries caused by forceps range from spiral
lacerations to severe lacerations of the cervix resulting in
increased in-patient time, major surgical repair, incontinence,
sexual disorders, protracted discomfort, death, and substantial
increases in health care costs. Infant injuries due to the use of
forceps include minor "forceps marks", fractures of the fetal
skull, central nervous system (CNS) deficit (cerebral palsy),
severe mental retardation, blindness, deafness, and death.
Injuries may also include slowed development of motor skills and
learning disability.
The vacuum extractor was developed as an alternative to
traditional steel obstetrical forceps, but after over thirty years
of use it still presents clinical problems. The operative feature
of the device is a suction cup that is applied over the crown
portion of the fetal skull where traction forces are concentrated.
Improper traction can result in the device "popping" off the fetal
skull with secondary rebound trauma being transmitted to the
intracranial area. Hematomas over the skull have been noted due to
the use of the vacuum extractor. Use of both forceps and vacuum
extractors require a high degree of skill and training.
Clinical testing of SofCepsTM began in October 1993. During the
first year of testing, it was determined that SofCepsTM presented
little, if any, risk of maternal injury. Traction testing on
several stillborns demonstrated no evidence of fetal trauma and
permitted clinical conclusion that the device was very likely to be
less injurious to a fetus than traditional devices.
On April 6, 1995 a developmental milestone occurred when a
term stillborn was successfully delivered with the device. During
this procedure, application over the fetal head was accomplished
and the Company concluded the device was clinically effective in
assisting completion of the delivery. Several modifications of the
SofCepsTM delivery system have been made and with the completion of
a minimal number of stillborn deliveries, the results expected from
the Phase One testing protocol were considered completed by the
Company.
Application for approval of Phase Two protocol governing live
deliveries has begun. More testing was planned in the fourth
quarter of 1997 and the first quarter of 1998. An interruption of
the research and development capital needed to refine the clinical
prototypes to a final commercial design has delayed these clinical
studies. Internationally, clinical sites at the Perinatal
Institute in Bern, Switzerland, the Hospital Central in Mexico, and
the Kenyata National Hospital in Kenya were selected for live birth
testing. This testing has not commenced at present, but is
anticipated to begin first in Mexico and later in Switzerland
and/or Kenya with the acquisition of adequate research and
development capital and completion of final commercial design.
AmnioSafTM
This safety syringe device is designed to protect both the
physician and the fetus during amniocentesis. Protection of the
fetus is provided through reduction of the risks of eye, thorax,
cord, or placental puncture. Patent, development, and regulatory
status are similar to SofDrawTM.
AmnioSafTM will be marketed to obstetricians and gynecologists
(OB/GYN) and will complement the Women's Health focus of Medisys as
well as Medical Safety.
THE MANUFACTURING DIVISION
The Manufacturing Division (Phillips Pharmatec Labs, Inc.)
provides the Company with the internal capability of assembling its
own proprietary products and other medical devices. The
manufacturing division is dedicated to expanding its contract
manufacturing capability in order to substantially increase the
revenue position of Medisys and to enhance the growth potential of
the Company. Currently, this business unit is profitable with
opportunities for internal growth as well as new strategic
acquisitions.
OTC Contract Manufacturing
As a contract manufacturer of over-the-counter complementary
health care products, Phillips produces vitamins, mineral
supplements herbal therapy and diet aids. These products are
produced for customers under private labels and are packaged and
shipped from the Company's location in Largo, Florida.
The first step in the manufacturing of an order can involve
either compounding ingredients using client-specific formulas, or
the use of premixed combinations. Currently, clients specify the
ingredients to be mixed, and the Company performs the process. The
Company plans for an onsite laboratory in which original
formulation can be created and tested, allowing Phillips to further
capture more revenue from each order.
The second step in the manufacturing process involves product
formation. Typically, the health and diet supplements are taken
orally by end-user customers; thus the Company prepares the product
in either a tablet or capsule form. This is accomplished with
high-speed encapsulators and minimal manpower. Powdered bulk
products, such as dietary supplements, are typical products as
well. To further increase revenue, Phillips plans to add more
liquid and paste medications to their present product mix.
The last step in the manufacturing process includes packaging,
labeling and shipping. The labeling process involves the placement
of the clients' private name brand on the supplement container.
Device Assembly and Manufacture
The acquisition of Phillips provided additional revenue and
also gave Medisys an immediate capability to begin assembly and
manufacture of some of its proprietary products. Phillips also
provides the future capability, through achievable expansion, to
transition into the manufacture of the Medical Safety Products.
Phillips has completed the set up and preparation for
producing two of the Company's proprietary specialty products.
These products will also be marketed by the Marketing Division
(HCDS) which is pending acquisition by the Company.
Medisys Specialty Products that are being produced and
commercialized through the newly established manufacturing and
marketing divisions are:
Vetceps Obstetrical Tractor
VetCeps is a veterinary application of the SofCepsTM
obstetrical tractor. The Company enjoys patent protection for
veterinary application in bovine (cattle), ovine (sheep), and
equine (horse) obstetrics within its original patents. Development
thus far has been limited in large measure to the bovine
application because of its substantial potential market. The device
has been successfully used on both foreleg and hind leg to deliver
live and stillborn calves. This product is now being sold
commercially in eight foreign countries and the United States.
DisKlipTM
DisKlipTM is a latex free securement device used in connection
with the management of standard intravenous administration of
medication (IV) and other medical tubing and lines. DisKlipTM is a
simple and inexpensive disposable (single-use) securement device
designed to afford the medical provider with an easier, more
efficient means to attach and manage medical tubing.
The Company believes that DisKlipTM will require little or no
personnel training and will result in savings in nursing time,
reduction of instances of site inflammation and irritation of vein
walls (lumens), reduction of instances of infiltration and vein
wall puncture, reduction of risk of sepsis, and reduction of
patient discomfort.
The Company has limited hospital field-testing consisting of
actual patient use at several hospitals in the United States and in
Mexico. Additional designs are being constructed to accommodate
various locations of the body such as: MultiKlip, for management of
multiple tubing/lines; KidKlip, a pediatric version and The Freedom
IV device, a retractable IV line management device. Market
sampling and testing will be initiated to determine the viability
of the product in the marketplace prior to assembly.
Re-TyTM
Re-TyTM is a releasable, adjustable and reusable "cable tie"
product group that was developed originally to enhance the VetCeps
device. The Company has three designs: side release, top release
and enscoping; all of which are intended for out license to
industrial users.
Limited market sampling and testing of the top-release version is
being conducted to determine the viability of the product in the
marketplace prior to manufacture and packaging.
OTC PRODUCTS
There is a growing trend among "baby boomers" toward
alternatives to traditional medicine recognized as big business in
the Health Care industry. The use of complimentary health care
products such as vitamins and dietary and nutritional supplements,
has created a niche industry in Health Care that is growing at an
increasing rate. Sales nationwide have increased consistently
since 1994 and annual growth rates for vitamins and mineral
supplements are expected to surpass 7% annually through the year
2000.
Over The Counter complementary health care products also
represent a rapidly growing market. According to the
Non-prescription Drug Manufactures Association (NDMA), over six
hundred products are now available on the over-the-counter basis.
The Food and Drug Administration (FDA) began a review process in
1972, in which they have been identifying well-established
prescription drugs which could be switched to over-the-counter
status. In 1976, six popular drugs switched from prescription to
over the counter status. In 1986, sixty-five medications switched,
and the trend is expected to increase in the foreseeable future.
Studies show that consumers self-treat medical problems four
times more often than health care professionals do. It is estimated
that sixty to ninety percent of all illness is now treated
initially with self-care, including self-treatment with over-the-
counter drugs.
As a contract manufacturer of over-the-counter complimentary
health care products, Phillips produces vitamins, mineral
supplements herbal therapy and diet aids. Phillips does not
currently manufacture any products under its own label.
Occasionally, customers will ship liquids, tablet and capsules to
the Company in bulk for packaging and labeling.
The Company's present product mix consist of 50% capsules, 25%
bulk powder, 10% liquids 10% other and 5% tablets. To increase
margins and attract new customers Phillips plans to have a product
mix that consists of 25% tablets, 25% liquids, 17% capsules 17%
bulk powder and 17% other. These products are produced for
customers under private labels and are packaged and shipped from
the Company's location in Largo, Florida.
THE MARKETING DIVISION
The Company's Marketing Division (Health Care Direct Services,
Gulf Coast Media and Direct Distribution) (acquisitions pending)
will operate as an independent MDBU to provide the Company with
marketing resources to access high opportunity niche markets for
its medical devices with marketing, distribution and direct sales
capabilities for the complimentary health products manufactured by
the Company and its customers.
In March of 1999, Medisys signed a letter of intent to acquire
Health Care Direct Services, Inc. ("HCDS") and affiliates. This
provides the Company with the marketing capability to begin
commercializing many of its proprietary devices as well as the
complementary health care products of Phillips and its customers.
In keeping with its ongoing acquisition strategy, the Company
believes that HCDS will potentially enhance the revenue position of
Medisys.
MANUFACTURING PLAN
The Company intends to contract the production of its products
through internal divisions and/or third party vendors. By having
the company manufacturing business operate as a stand alone
contract manufacturer, Medisys has internal production resources
available that are profit centers through the business generated
with outside customers.
CoverTipTM
Market Analysis
Currently $2.5 billion of annual sales volume is generated
with the use of syringes in the United States with safety syringes
purchases approximating $300 million of this amount. The
penetration rate of safety syringes is driven by concern over the
health of the doctors, nurses, and other healthcare professionals
as well as cost associated with their care and the testing
necessary in response to the occurrence of accidental needle
sticks.
Significant regulations in California require the use of
needle safety devices by August 1, 1999. Tennessee and
approximately twenty other states are considering similar
legislation. Federal requirements are anticipated within the next
year.
The rate of accidental needle stick reported by the Center for
Disease Control (CDC) was one occurrence for every 250 injections
made. Although the number of confirmed cases of AIDS contracted
accidental dirty needle sticks remains small (less than 100
individuals) the occurrence of hepatitis and other infectious
diseases compounds the problem and cumulatively results in high
cost, liability, long-term care and productivity losses.
Requirements for reporting all accidental dirty needle sticks
result in subsequent testing cost alone for each event from between
$250 and $2,302.
Although there is substantial support from legal requirements,
the healthcare worker community and medical safety advocates for
safety syringes, there are still various obstacles to other devices
currently available. These include higher cost, from three to five
times standard syringes, as well as the difficult technique changes
necessary to use many of these cumbersome devices. The in service
cost to train a myriad of healthcare practitioners using syringes
places an added burden on the conversion rate due to the awkward
nature of currently existing safety syringes. Many of these
products require two-handed application techniques which can, at
times, present accidental stick opportunities.
The problem has become so well recognized, that on September
30, 1998, Governor Pete Wilson of California signed into law
legislation to require the use of safety needles to protect health
care workers from hazardous needle sticks. Under the bill,
California Health Care Employers were required to begin to shift to
safe needle devices by January 15, 1999. The Company believes that
this is an important first step toward FDA and OSHA mandates for
safe needle devices throughout the United States.
1. Customer characteristics:
Customers for the CoverTipTM safety syringe include all
healthcare workers, nurses, physicians, hospitals, clinics, managed
care organizations as well as insurers.
a. Doctors, nurses, and healthcare providers.
The desire to reduce the likelihood of an accidental dirty
needle stick is strong with all healthcare workers.
Individuals who have contracted AIDS, hepatitis and other life
threatening contagious disease have become advocates for the
adoption of safety devices within the healthcare community.
These individuals and organizations supporting healthcare
worker safety provide impetus for the use of safety syringes
and legislation requiring safety products.
b. Hospitals.
The need to reduce the cost of testing associated with
accidental needle sticks, reduce potential liability and
negative publicity, and pressure from healthcare worker
organizations are strong motivators for hospitals to adopt a
relatively low cost easy to use safety syringe. State and
Federal requirements for safety devices will cause hospitals
to search for products that offer safety and reasonable cost
as well as medical staff acceptance.
c. Managed Care/Insurance
Managed Care organizations and insurers assume the burden of
liability both for treatment and damages associated with
accidental needle sticks. These groups appear supportive of
efforts to reduce the incidence of infectious disease
contracted by cross contamination but are sensitive to cost
issues. Presentations of compelling cost in use studies will
be needed to gain managed care product support.
2. Competitive Evaluation:
Within the syringe business in the United States, Becton -
Dickenson enjoys the largest market share position of approximating
60% of the market. Sherwood Medical, a division of Tyco Industries
has approximately 30% with the remainder of the market which is
divided among numerous private label as well as foreign companies
such as Terumo. The safety syringe market is sub-divided in
similar fashion. Over 450 patents have been issued on various
types of safety needles and/or syringes. Despite the interest and
effort to convert to these products, difficulty in changing
behavior of the application technique as well as the prohibitive
cost, from three to ten times standard syringes, has inhibited the
penetration of safety syringes into the overall standard syringe
marketplace. However, the advent of required safety protection
will transform companies to a comparison of the various safety
devices available. The Company believes that minimal market
acceptance of CovertipTM and their other patented safety devices
will place Medisys in a position to acquire a competitive presence
in this marketplace.
3. Marketing Plan:
Due to the large capital investment required to manufacture
large quantities of the CoverTipTM safety syringe, the Company's
selling strategy will ultimately be to obtain a third party large
company partner. This partner will need manufacturing and
distribution resources and expertise to rapidly introduce a product
into the marketplace.
The CoverTipTM safety syringe addresses each of the major
issues associated with current safety syringes and provides
benefits over standard intramuscular (IM) syringes. Standard
syringes cost between $0.06 and $0.12 each and it is anticipated
that the CoverTipTM safety syringe will be priced at less than $0.20
each after substantial market penetration and high volume
production are achieved. Specific costs will be developed once
full production plans are implemented. Other safety syringes
currently cost between $0.25 and $0.75 and have use and technique
limitations.
Because the CoverTipTM safety syringe requires no change in
technique, and is currently identical in use to a standard syringe,
it will eliminate educational (inservice) requirements that
currently exist with many safety syringes on the market.
Additionally, because of the unique design of the CoverTipTM, the
needle tip is actually protected prior to removal from the
patient's skin. This greatly reduces any contaminated needle
exposure to the healthcare worker and offers an advantage to other
safety syringes that require extraction from the patient's skin
prior to implementation of various needle tip protection methods.
Medical diagnostic products are used by physicians and other
medical professionals. These products offer the potential for
premium margins due to their high cost of procedure, unique
presence in the market, and market specialization.
SofCepsTM
Market Analysis
The market for obstetrical products, both in the United States
and worldwide, is substantial. While declining birthrates are a
factor for consideration in western countries, a stable growing
United States market of about 4,000,000 births per year for the
next ten years is forecasted. Management believes that the rapidly
expanding population growth of third world and Pacific rim
countries represents a marketing opportunity for assisted delivery
devices and obstetrical products in general. The simple technology
that SofCepsTM employs will be of particular appeal in third world
countries and should offer strong market opportunities.
The primary assistance device in use today is stainless steel
obstetrical forceps. They were developed in the latter part of the
16th Century. Actual traction is exerted slightly below or
underneath the mandible and is point concentrated. Slippage of the
forceps is almost invited because of natural lubrication, refusal
of the fetal skull to conform to existing forceps design, and a
myriad of variables which exist from one fetal skull/pelvic
relationship to another. Virtually every forceps assisted delivery
involves risk of injury to the mother and the baby.
Stainless steel forceps apply a concentrated gripping force on
the fetal head which can result in a series of injuries from minor
"forceps marks" to skull fractures with massive brain damage,
central nervous system damage and fetal death. The manipulation of
the steel forceps in the birth canal often causes maternal injuries
ranging from spiral lacerations of the pelvic floor to severe
lacerations to the cervix. In both instances, these injuries
result in significantly increased healthcare costs associated with
post-delivery complications and increased inpatient days. Such
injuries are exhaustively dealt with in the medical literature and
the obstetrical community would most likely welcome a device which
promises a significant reduction in maternal and fetal morbidity.
The only other significant attempt to introduce a new product
into this forceps arena has been the vacuum system. The vacuum
unit was patented in the late fifties and in spite of numerous
attempts toward refinement, management feels that the approach
still remains plagued with disadvantages. The system grips the
upper half of the fetal skull with a suction device and traction is
then applied. Use of the system frequently results in hematoma
over the fetal skull as well as rebound trauma caused by the device
popping off the fetal skull. Once in place, the device precludes
manual rotation of the skull. Rotation is frequently required to
ease passage through the pelvis. Many obstetricians have
experienced difficulties because they resort to twisting on the
extractor to accomplish rotation. This can result in serious
fetal injury. For these and other reasons, the vacuum system is
not the instrument of choice for many obstetricians who continue
the use of traditional forceps.
1. Customer Characteristics
Potential customers for the SofCepsTM product include
obstetricians, managed care organizations, hospitals and patients
(consumers).
a. Obstetricians
The need for safe, reliable birth assistance creates a base
need for replacement of current devices. Documentation of
successful deliveries, with reduction of risk to both mother
and infant, will be a strong motivator influencing the
adoption of SofCepsTM by the obstetrical community. The
American College of Obstetrics and Gynecology (ACOG) has
28,000 members.
b. Hospitals (Health Care Providers)
Management believes that obstetrical care is being
consolidated within communities to birthing centers to
establish a cost effective delivery system for this service.
Hospitals are increasingly under pressure to reduce costs,
while maintaining quality of care. SofCepsTM offers these
healthcare providers the opportunity to increase the quality
of the delivery process, while reducing the overall cost of
care. An additional opportunity is the economic potential for
reduced malpractice insurance and C-Section rates.
c. Patients (Consumers)
Patients are increasingly aware of the need to reduce health
care costs, but at the same time are concerned over the
quality of care. Forceps use and the concept of vacuum
extractor assisted deliveries are innately unpleasant to the
average consumer. Therefore, management believes that the
SofCepsTM product, as well as other simple Medisys products,
represent viable alternatives to the general consumer
community, including Women's health and pediatric advocacy
groups.
2. Managed Care (Insurers)
Managed care organizations are interested in containing costs
and directing cost efficient products and procedures. Cost in use
and potential reduction of C Section rates will position SofcepsTM
to managed care consideration.
3. Competitive Evaluation
The competitive product situation for obstetrics includes
products that are a part of diversified health care corporations
with slight focus on obstetrics. In the device arena, products for
obstetrics are produced from divisions of various companies whose
products are broadly based in many areas of health care. Equipment
companies such as Utah Medical and Hewlett Packard market
monitoring equipment and diagnostic tools for OB. Competition to
SofCepsTM includes instrument manufacturers such as the Codman
Division of Johnson & Johnson, V. Muellar, and Weck manufacture
obstetrical forceps in various forms. Vacuum extractors are
manufactured by Utah Medical, Columbia and others. Instrument
companies and vacuum extractor companies do not look at these
products as a major product line. However, they can be expected to
respond with alternative methods of assisted delivery once the
SofCepsTM product is introduced into the market place.
4. Market Potential
SofCepsTM is intended to be multi-dimensional in use and is
designed to be applied in a prophylactic manner when mother and
fetus do not present contraindications. SofCepsTM is a totally new
concept which the Company intends to market on a worldwide basis.
The market is limited only by the eventual degree of acceptance in
the obstetrical community and by the number of live births in each
given market area. The device is disposable after a single use and
thus a potential market exists for repeat orders. The degree of
market penetration will depend upon product acceptance and
effectiveness of marketing efforts. The medical marketplace is
receptive to new products which can provide better patient care,
savings in medical costs, benefits to the health care industry, and
which represent advances in risk reduction. The Company is poised
to effectively demonstrate that the device will meet the criteria
of today's managed healthcare marketplace.
There are no past or present medical comparables to SofCepsTM
and pricing is based on costs of manufacture and distribution,
including usual administrative items, as well as preliminary price
sensitivity analysis. Medisys believes that a price of
approximately $150 per device will meet the requirements of the
managed care environment.
5. Non-Controllable Elements
With significant health care reform apparently postponed for
the foreseeable future, government intervention would appear only
to enhance the prospects for SofCepsTM as well as other Medisys
technologies. The managed care companies should encourage the use
of SofCepsTM and economic studies are planned in order to document
the value of the SofcepsTM device.
The Company intends to participate in economic studies of
various products to demonstrate their positive cost outcome versus
standard care and other competitive methods of treatment. These
economic studies may be conducted from assessment of currently
available data and/or specific studies to demonstrate reduction in
overall cost through use of Medisys products. These studies are
anticipated to commence simultaneously with market introduction of
the various products and take varying amounts of time to complete
based on their complexity. Although these studies support various
benefits of the Company's products, they are not deemed critical to
market introduction, rather enhancements to each of the product's
value to key decision makers. The greatest elements outside
immediate control would be the introduction of similar birth assist
products and the uncertainty of the FDA approval process.
6. Marketing Plan
The Company currently plans to market SofCepsTM on a direct
basis or through a co-marketing arrangement with supplemental sales
support from specialized sales representatives. This approach is
intended to achieve appropriate marketing activity while minimizing
selling expenses. The Company plans to distribute Medisys
products worldwide through international market development
brokers.
Concurrent with development and refinement efforts, the
Company will employ comprehensive measures designed to apprise the
obstetrical community of what is forthcoming. Management will
endeavor to have customers ready and waiting when the device enters
mass production. These efforts have begun with public relations
and preliminary market communications which are underway.
Selling strategy will take a multi-focused approach centered
around the following customer groups:
a. During the final development stage the Company will
communicate with Obstetricians via direct mail and convention
exposure at major OB meetings to introduce the concept idea of
SofCepsTM. In addition, after successful live birth clinical
testing, educational seminars will be conducted on the
appropriate use of SofCepsTM by targeting the thought leaders
and volume delivery obstetrical centers. Specific effort will
be made to establish SofCepsTM advocates in the top 20 markets
nationally. Major benefits that will be positioned to the
obstetrician will include an increase in patient care and
potential for reduced malpractice insurance.
b. Major obstetrical societies will be contacted and
requests made for endorsements of the SofCepsTM product versus
forceps use.
c. After product testing, the Company plans to commission
a panel of distinguished obstetricians as an advisory group to
provide broad input and endorsement support.
d. Obstetrical Nurses will be exposed to the product
through convention activity at major meetings, select targeted
direct mail to key association officers, and thought leaders
within the major metropolitan markets.
e. Providers/Hospitals. A direct selling strategy will
be employed to the top 200 obstetrical hospitals. In
addition, group purchasing organizations will be contacted for
inclusion of the SofCepsTM product into their "formulary." The
major selling appeal to providers is the potential to increase
care quality and the potential for reduction of C-Section
rates and malpractice occurrence.
f. Although physician obstetricians will be the final
users, the device is considered a hospital supply item.
Exclusively, hospitals with obstetrical units will be the
customers of the Company.
g. Managed care organizations have established a list of
procedures which they feel are being excessively used within
the health care community. Included as one of the highest
within this list are C-Section rates. C-Sections currently
cost about $4,570 more than normal vaginal deliveries and
there are wide variations of occurrence by institution and
geography. Management believes that the use of SofCepsTM
should generate a net savings over C-Section delivery.
h. The Company's selling strategy will include contacting
major women's and children's advocacy organizations. The
development of a press kit for use in local areas where
SofCepsTM has been adopted for use will provide an efficient
tool for local media, physicians, and hospitals thereby
enhancing general media public relations.
i. Insurers. If SofCepsTM proves clinically successful
and produces a relatively short track record of safe and
injury free deliveries, the Company believes that medical
malpractice and health insurers will support the transitioning
of insured obstetricians from the continued use of forceps.
A single instance of infant brain damage can cost an insurer
in excess of $40 million dollars. A demonstration that
SofCepsTM will reduce the number of such instances will
ingratiate insurers and compel their collective assistance.
j. Women's Groups. The Company intends to advertise and
solicit various consumer periodicals that target a
predominantly female readership. By using the family
periodicals as communication tools, the message of the
benefits of a SofCepsTM delivery will be widespread.
k. Education. The Company intends to provide user
training through seminars, literature, clinical video
programs, and clinical workshops. Emphasis will initially be
placed on working through teaching hospitals in the various
geographic markets. Planning is underway for a detailed and
intense education program. Plans are to conduct at least one
seminar per month at strategic geographical areas across the
United States.
7. Advertising and Promotions:
The Company has commenced initial public relations and market
education activity. This initiative consists of periodical news
releases and publication in a limited number of business and
professional publications about the Company in general. Further
advertising and public relations will be targeted to each category.
For example, even though hospitals will be the purchasers,
obstetrical physician users will dictate whether the purchases are
made. This will require a blanket effort to insure wide
familiarity with the device within the obstetrical community.
Medical literature, in this case the various obstetrical
journals, is a primary key in dissemination of new information to
individual obstetrical practitioners. Appropriate physician
authored informative articles will be provided to these journals
for publication and distribution to individual subscribers.
Results of human clinical trials are being reported with clinical
details of each delivery.
8. Product Warranties
The Company intends to develop reasonable warranties with
application of the SofCepsTM product. These warranties will be
contained in the product package insert which will be included with
every SofCepsTM unit sold or distributed.
Backlog
The Company has no backlog for any of its products.
PATENTS AND TRADE SECRETS
The Company owns fourteen U.S. patents and one foreign patent
protecting the Company's SofCepsTM, CoverTipTM, SofDrawTM, Multi-
DrawTM VetCeps, DisKlipTM, and Re-TyTM devices. These consists of
U.S. Patent numbers 5122148, 5217467, 5318573, 5460611, 5496283,
5573539, 5593413, 5632750, 5681290,5687455 (two device patents),
5785662, 5836054, 5846228 and 5720727. The Company also owns one
letters patent protecting the SofCepsTM device (no. 669116) from
Australia. Eleven of the issued patents are being prosecuted
internationally. Additionally, the Company has pending a mix of
seven original and/or CIP applications. The Company also has a
backlog of viable proprietary product concepts which meet company
development criteria.
The Company has filed six U.S. trademark applications
preserving its right to use the trademarks "SofCepsTM", "VetCeps",
the "Medisys " logo, "DisKlipTM", "SofDermTM", and "CoverTipTM". As
the Company proceeds forward with the commercialization of these
and other products, it will file U.S. and foreign trademark
applications to protect product names.
The Company intends to obtain copyright protection on its
product packaging, instruction sheets, and such other Company
materials that the Company believes significant to warrant
procurement of copyrights.
GOVERNMENT REGULATION
Generally, all medical devices are subject to FDA regulation
under the Medical Device Amendments of the Federal Food, Drug and
Cosmetic Act. Devices are classified into one of three categories;
Class I, Class II or Class III, depending on their intended use and
upon the degree of regulation necessary to provide reasonable
assurance of their safety and effectiveness. The class into which
any specific device is placed determines the requirements that must
be met before a manufacturer may distribute the device in
interstate commerce. Section 510(K) of the Medical Device
Amendments provides for a pre-market notification requirement.
Manufacturers intending to market a new or significantly modified
device, must submit to the FDA a pre-market notification. This
notification must establish substantial equivalence in terms of
safety and effectiveness, to a device already on the market in the
United States prior to 1976, or to a device marketed after that
date that has been determined to be substantially equivalent. The
notification must be submitted at least 90 days prior to
introducing the device into interstate commerce, or otherwise
holding or offering the device for commercial distribution. No
prototype is required, however, additional data from testing may be
requested.
Within 90 days of receipt of the pre-market notification, the
Center for Devices and Radiological Health ("CDRH") determines
whether the device is "equivalent". If the device is deemed
equivalent, it can be marketed. If the CDRH determines that a
device is not equivalent, the manufacturer may resubmit the 510(K)
notification with new data, file a reclassification petition, or
submit a pre-market approval application ("PMA"). A PMA is
required instead of the Section 510(K) process only if the device
is held to be a Class III device. Class III devices are those
represented to be life-sustaining or life-supporting, are implanted
in the body, or present potential unreasonable risk of illness or
injury. Class III devices are subject to a more rigorous FDA
approval process which generally required the completion of three
major steps. The first step involves the granting by the FDA of an
Investigational Device Exemption ("IDE") which permits the proposed
product to be used in controlled human clinical trials. Upon
completion of a sufficient number of clinical cases to determine
the safety and effectiveness of the proposed device for specific
indication, a PMA is then prepared and submitted to the FDA for
review. This extensive submission includes design, manufacturing,
quality control and clinical data to substantiate the proposed
device's compliance with FDA manufacturing regulations as well as
to support its medical effectiveness. Upon acceptance by the FDA
of the PMA, the third major step, a public review if the data by an
advisory panel of the FDA, industry and medical professionals takes
place. Prior to receiving final approval, a company is inspected
by the FDA to verify that its manufacturing procedures meets all
requirements of the FDA regulations.
The Company believes that both of its primary safety products
are "substantially equivalent" to devices already marketed and are
therefore exempt from PMA. However, the fact that the SofCeps_
device involves the birthing of babies, the Company's approach has
been and remains determined to follow a protocol consistent with
all FDA guidelines and to complete all good manufacturing practices
prior to marketing the product.
A discussion of where the Company stands with regard to the
FDA process is included under each product heading.
Prior to Phase I testing of SofCepsTM, the Company applied to
the FDA for a 510(K) exemption from Pre Market Approval (PMA) for
marketing the SofCepsTM device. PMA could require a lengthy testing
and approval process. The FDA has reviewed the Company's
application and testing protocol. Based on Phase I data, the
Company was allowed to continue its fetal demised clinical testing.
An Investigational Device Exemption (IDE) Draft for Phase II
testing has been submitted to the Office of Device Evaluation
(ODE/OB-GYN) for review and comment. The Company has established
a positive dialogue with the FDA and believes that the IDE process
will be postured to proceed with Phase II testing when Phase I is
successfully completed. The Company intends to resubmit a 510(K)
application to the FDA concurrent with the accumulation of live
human clinical test data.
The CoverTipTM safety device received 510(K) FDA clearance on
May 15, 1998. This allows the Company to market the CoverTipTM
device in the U.S. and provides a basis for approvals in other
international markets. The approval of the CoverTipTM device should
enhance the Company's ability to gain clearance for its other
safety devices.
Other than the FDA, the Company does not believe that there
are any existing or probable governmental regulations that would
adversely affect the Company or its business.
PRODUCT LIABILITY AND LIABILITY INSURANCE
The Company may be exposed to potential product liability
claims by users of its products. Presently, only the Vetceps
product is in commerce, therefore, in the opinion of the Company,
there is no immediate exposure to product claims other than from
Vetceps The Company currently maintains general business liability
insurance limited to $1,000,000 coverage per occurrence and in the
aggregate. Additionally, the Company has obtained product
liability insurance for the VetCeps product from American Equity
Insurance Company. The coverage limit on this policy is $1,000,000
per occurrence with a $1,000,000 general aggregate. Due to a
reduction in the dollar volume of sales, this coverage has been
suspended until active marketing is funded.
All materials used in Medisys disposable products are standard
medical materials compatible with present methods of hospital
disposal in accordance with accepted practices and applicable laws.
The Company's clinical testing for human use has been through
St. Paul insurance Company with coverage limits of $5,000,000 per
occurrence and $15,000,000 aggregate coverage.
Product liability insurance is also maintained on the products
manufactured by Phillips.
EMPLOYEES
As of March 1, 1999, the consolidated companies of Medisys
employed 46 individuals including part time and full time
employees, managerial staff and executive officers. In addition to
its employees, the Company uses the services of certain consultants
on a contract basis. These consultants include, William David
Kiesel, a patent attorney and Director of the Company; Carolyn
Crochet, an accountant and bookkeeper; Joel Faden, an FDA
consultant; George Lombardi, a CFO/Accounting/Consultant KJS
financial consultants and Eastern Capital Consultants. Mr. Kiesel
is reimbursed for patent costs and expenses only. Ms. Crochet is
compensated on an hourly basis. Mr. Faden and Mr. Lombardi are
compensated on an hourly basis, as services are needed. The
financial and capital consultants are compensated only on a results
produced basis.
Item 2. Properties
The Company leases office facilities consisting of
approximately 1,500 square feet located in Baton Rouge, Louisiana.
The lease calls for a monthly payment of $835 plus utilities and is
an annual lease renewable in October of each year. The office is
primarily devoted to administrative and financial activities.
Additionally, the Company leases office space in Far Hills, New
Jersey at a cost of $850 per month. The New Jersey office is
primarily used to oversee operations including marketing,
development and acquisition of new products. The Company believes
that all of its initial requirements for manufacturing, packaging,
and storage will be met by its acquisition of Phillips Pharmatec or
by other contract manufacturers. The Phillips facilities are
described hereinabove under the heading "The Manufacturing
Division."
Item 3. 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. In December 1998, the
Company issued a proxy statement attaching only unaudited financial
statements of Phillips, its acquired subsidiary, and on February
16, 1999, The Company voluntarily agreed to sign the entry of an
informal cease and desist order by the agreeing to send audited
statements to its shareholders and to more carefully follow the
proxy rules in the future.
Item 4. Submission of Matters to a Vote of Security Holders
The acquisition of Phillips Pharmatec and a provision to give
the Board of Directors the authority to reverse split the stock in
their discretion, if deemed appropriate in the future were
submitted to a vote of the Company's Securities Holders on December
22, 1998 held in Baton Rouge, Louisiana, pursuant to notice and
after the filing of a proxy statement with the commission and
mailing to the shareholders of record more than 10 days thereafter.
Both proposals were passed by more than 90% of the shares who were
present in person or by proxy. More than 70% of the total shares
outstanding were represented at the meeting, therefore the
proposals were approved by more than 60% of the total number of
shares outstanding as of the record date.
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters
The Company's Common Stock has been traded in the over-the-
counter market and quotations are published on the OTC Bulletin
Board under the symbol "SCEP", and in the National Quotation
Bureau, Inc. "pink sheets" under Medisys Technologies, Inc.
The following table sets forth the range of high and low bid
prices of the Common Stock for each calendar quarterly period since
the first quarter of 1997 as reported by the National Quotation
Bureau, Inc. ("NQB"). Prices reported by the NQB represent prices
between dealers, do not include retail markups, markdowns or
commissions and do not represent actual transactions.
High Low
1997
First Quarter 2.44 1.12
Second Quarter 1.94 .87
Third Quarter 1.47 .56
Fourth Quarter 1.19 .44
1998
First Quarter .94 .31
Second Quarter .88 .28
Third Quarter .47 .15
Fourth Quarter .38 .16
1999
First Quarter(1) .50 .13
______________
(1) Through March 31, 1999.
As of December 31, 1998 there were approximately 460 holders
of record of the Company's Common Stock, which figure does not take
into account those shareholders whose certificates are held in the
name of broker-dealers. The Company estimates that in excess of
1,000 shareholders of the Company hold their shares in the name of
broker-dealers.
Dividend Policy
The Company has not declared or paid cash dividends or made
distributions in the past, and the Company does not anticipate that
it will pay cash dividends or make distributions in the foreseeable
future. The Company currently intends to retain and invest future
earnings to finance its operations.
Recent Sales of Unregistered Securities
A description of recent sales of unregistered securities can
be found in the Consolidated Statements of Stockholders' Equity and
Note 7 to the Consolidated Financial Statements which can be found
elsewhere within this Form 10-KSB. Issuances of securities by the
Company were made in reliance upon the exemption from registration
under the Securities Act of 1933, as amended, provided by
Section 4(2) thereunder.
Item 6. Management's Discussion and Analysis of Financial
Condition and Results of Operations
The following information should be read in conjunction with
the Consolidated Financial Statements and Notes thereto appearing
elsewhere in this Form 10-KSB.
Results of Operations
The net loss for the year ended December 31, 1998 decreased
$840,188 to $1,252,501 when compared to the corresponding 1997
period. These results are primarily attributed to the costs
associated with the Company's effort to finalize development of its
products.
Operating expenses for the year ended December 31, 1998
("1998") decreased $792,034 when compared to the corresponding 1997
period, primarily attributed to decreases for 1998 in the following
items: product research and development (45% decrease) reflecting
the Company's completion of development of new and existing
products; and general and administrative expenses (50% decrease)
due to reduction in staff and in general business expenses. Because
available funding decreased in 1998, the Company used both cash and
its common stock to pay for its ongoing research and development.
Available development funds were focused and allocated primarily to
CoverTipTM and other safety products.
Liquidity and Capital Resources
Historically, the Company's working capital needs have been
satisfied through its financing activities including private loans
and raising capital through the sale of securities. Working
capital as of December 31, 1998 was a negative $790,026 as compared
to working capital of a negative $780,243 as of December 31, 1997.
The slight decrease in working capital from 1997 to 1998 is
primarily attributable to the 51% increase in accounts payable,
127% increase in payables to shareholders, customer deposits of
$116,200, a line of credit of $250,000 and a debentures payable to
related parties of $395,000. These increases were mostly offset by
the increase in cash from $2,178 in 1997 to $75,483 in 1998, the
increase in accounts receivable from $11,005 in 1997 to $294,949 in
1998, the increase in inventory from $21,004 in 1997 to $432,706 in
1998, together with a decrease in accrued expenses from $361,257 in
1997 to $95,819 in 1998. Also, a portion of the debentures were
retired in the first quarter of 1999 which will further increase
working capital.
The Company raised approximately $142,000 in cash and cash
commitments in 1998 though a convertible debenture. This debenture
was subscribed to by the Company's officers and directors and five
other investors. The proceeds from the debenture plus VetCeps
revenue has provided the capital to continue the Company's
operations.
Net cash used by operations for the year ended December 31,
1998 decreased to $231,691 compared to net cash used of $876,853
for the comparable 1997 period. This decrease is attributed to the
decrease in net loss for 1998, the issuance of common stock for
services rendered and increase in deferred expenses. Net cash from
financing activities for the year ended December 31, 1998 was
$310,347 compared to $310,945 for the comparable 1997 period.
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 December 31, 1998 the Company had total assets of
$1,624,726 and stockholders' deficit of $83,392. In comparison, as
of December 31, 1997 the Company had total assets of $497,884 and
total stockholders' deficit of $591,046. The 226% increase in
total assets for the year ended December 31, 1998 is primarily due
to the acquisition of Phillips Pharmatec.
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 fourth quarter of 1998. 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, or complete its intended mergers or
acquisitions, the Company may encounter a cash flow shortage during
the second 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 not entered into any firm agreements or
understandings for the raising of capital from public or private
sources. The Company has signed a letter of intent to acquire a
marketing company which has substantial positive cash flow. 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.
In the opinion of management, inflation has not had a material
effect on the operations of the Company.
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.
Recent Accounting Pronouncements
The Financial Accounting Standards Board ("FASB") has issued
Statement of Financial Accounting Standard ("SFAS") No. 128,
"Earnings Per Share" and Statement of Financial Accounting
Standards No. 129 "Disclosures of Information About an Entity's
Capital Structure." SFAS No. 128 provides a different method of
calculating earnings per share than is currently used in accordance
with Accounting Principles Board Opinion No. 15, "Earnings Per
Share." SFAS No. 128 provides for the calculation of "Basic" and
"Dilutive" earnings per share. Basic earnings per share includes
no dilution and is computed by dividing income available to common
shareholders by the weighted average number of common shares
outstanding for the period. Diluted earnings per share reflects
the potential dilution of securities that could share in the
earnings of an entity, similar to fully diluted earnings per share.
SFAS No. 129 establishes standards for disclosing information about
an entity's capital structure. SFAS No. 128 and SFAS No. 129 are
effective for financial statements issued for periods ending after
December 15, 1997. Their implementation is not expected to have a
material effect on the financial statements.
The FASB has also issued SFAS No. 130, "Reporting
Comprehensive Income" and SFAS No. 131, "Disclosures about Segments
of an Enterprise and Related Information." SFAS No. 130 establishes
standards for reporting and display of comprehensive income, its
components and accumulated balances. Comprehensive income is
defined to include all changes in equity except those resulting
from investments by owners and distributors to owners. Among other
disclosures, SFAS No. 130 requires that all items that are required
to be recognized under current accounting standards as components
of comprehensive income be reported in a financial statement that
displays with the same prominence as other financial statements.
SFAS No. 131 supersedes SFAS No. 14 "Financial Reporting for
Segments of a Business Enterprise." SFAS No. 131 establishes
standards on the way that public companies report financial
information about operating segments in annual financial statements
and requires reporting of selected information about operating
segments in interim financial statements issued to the public. It
also establishes standards for disclosure regarding products and
services, geographic areas and major customers. SFAS No. 131
defines operating segments as components of a company about which
separate financial information is available that is evaluated
regularly by the chief operating decision maker in deciding how to
allocate resources and in assessing performance.
SFAS 130 and 131 are effective for financial statements for
periods beginning after December 15, 1997 and requires comparative
information for earlier years to be restated. Management believes
that the implementation of the new standards will not have a
material effect on the Company's financial statements.
The FASB has also issued SFAS No 132. "Employers' Disclosures
about Pensions and other Postretirement Benefits," which
standardizes the disclosure requirements for pensions and other
Postretirement benefits and requires additional information on
changes in the benefit obligations and fair values of plan assets
that will facilitate financial analysis. SFAS No. 132 is effective
for years beginning after December 15, 1997 and requires
comparative information for earlier years to be restated, unless
such information is not readily available. Management believes the
adoption of this statement will have no material impact on the
Company's financial statements.
In June 1998, the FASB issued SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities" which requires
companies to record derivatives as assets or liabilities, measured
at fair market value. Gains or losses resulting from changes in
the values of those derivatives would be accounted for depending on
the use of the derivative and whether it qualifies for hedge
accounting. The key criterion for hedge accounting is that the
hedging relationship must be highly effective in achieving
offsetting changes in fair value or cash flows. SFAS No. 133 is
effective for all fiscal quarters of fiscal years beginning after
June 15, 1999. Management believes the adoption of this statement
will have no material impact on the Company's financial statements.
Item 7. Financial Statements and Supplementary Data
The Company's Consolidated Balance Sheet as of December 31,
1998 and the related Consolidated Statements of Operations,
Stockholders' Equity, and Cash Flows for the years ended December
31, 1998, and 1997 have all been examined to the extent indicated
in their report by Jones, Jensen & Company, independent Certified
Public Accountants, and have been prepared in accordance with
generally accepted accounting principals and pursuant to Regulation
S-B as promulgated by the Securities and Exchange Commission. The
aforementioned financial statements are included herein in response
to Item 7 of this Form 10-KSB.
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Medisys Technologies, Inc. and Subsidiaries
Baton Rouge, Louisiana
We have audited the accompanying consolidated balance sheet of
Medisys Technologies, Inc. and Subsidiaries as of December 31,
1998, and the related consolidated statements of operations,
stockholders' equity (deficit), and cash flows for the years ended
December 31, 1998 and 1997. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the
consolidated financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated
financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall consolidated
financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial
position of Medisys Technologies, Inc. and Subsidiaries as of
December 31, 1998, and the results of their operations and their
cash flows for the years ended December 31, 1998 and 1997 in
conformity with generally accepted accounting principles.
The accompanying consolidated financial statements have been
prepared assuming that the Company will continue as a going
concern. As discussed in Note 11 to the consolidated financial
statements, the Company has incurred significant losses since
inception relating to its research and development efforts and has
had no significant operating revenues until the acquisition of
Phillips Pharmatech Labs, Inc. in December 1998, which raises doubt
about the Company's ability to continue as a going concern.
Management's plans in regard to these matters are also described
in Note 11. The consolidated financial statements do not include
any adjustments that might result from the outcome of this
uncertainty.
Jones, Jensen & Company
Salt Lake City, Utah
March 31, 1999
<PAGE>
MEDISYS TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Balance Sheet
ASSETS
December 31,
1998
CURRENT ASSETS
Cash $ 75,483
Accounts receivable, net (Note 1) 294,949
Due from related party 18,546
Inventory (Note 1) 432,706
Prepaid expenses 25,658
Total Current Assets 847,342
FIXED ASSETS
Computers and equipment 72,061
Machinery and equipment 293,850
Leasehold improvements 65,445
Furniture and equipment 49,249
Vehicles 19,915
Accumulated depreciation (226,970)
Total Fixed Assets 273,550
OTHER ASSETS
Security deposits 41,765
Patent and trademark costs, net (Note 1) 462,069
Total Other Assets 503,834
TOTAL ASSETS $ 1,624,726
<PAGE>
MEDISYS TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Balance Sheet (Continued)
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
December 31,
1998
CURRENT LIABILITIES
Accounts payable $ 591,688
Accrued expenses 95,819
Customer deposits 116,200
Payable - shareholders (Note 2) 111,817
Notes payable, current portion (Note 8) 46,622
Line of credit (Note 4) 250,000
Notes payable - shareholders (Note 6) 30,222
Debentures payable - related parties (Note 3) 395,000
Total Current Liabilities 1,637,368
LONG-TERM DEBT
Notes payable (Note 8) 70,750
Total Long-Term Debt 70,750
TOTAL LIABILITIES 1,708,118
COMMITMENTS AND CONTINGENCIES (Note 9)
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock: 100,000,000 shares
authorized of $0.0005 par value,
34,009,757 shares issued and outstanding 17,004
Additional paid-in capital 8,122,813
Stock subscriptions receivable (Note 5) (175,000)
Accumulated deficit (8,048,209)
Total Stockholders' Equity (Deficit) (83,392)
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) $ 1,624,726
<PAGE>
MEDISYS TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
For the Years Ended
December 31,
1998 1997
REVENUES $ 26,846 $ 97,634
OPERATING EXPENSES
Cost of product sold 5,396 29,797
Product research and development 382,318 654,629
Depreciation and amortization 14,322 27,898
General and administrative 564,543 1,117,077
Total Operating Expenses 966,579 1,829,401
OPERATING LOSS (939,733) (1,731,767)
OTHER INCOME (EXPENSES)
Gain on sale of asset 1,475 13,042
Interest income - 5,851
Interest expense (312,213) (379,142)
Bad debt expense (2,030) (673)
Total Other Income (Expenses) (312,768) (360,922)
LOSS BEFORE INCOME TAXES (1,252,501) (2,092,689)
INCOME TAXES - -
NET LOSS (1,252,501) (2,092,689)
OTHER COMPREHENSIVE INCOME - -
NET COMPREHENSIVE LOSS $ (1,252,501) $ (2,092,689)
BASIC LOSS PER SHARE OF COMMON STOCK (Note 1) $ (0.09) $ (0.17)
FULLY DILUTED LOSS PER SHARE (Note 1) $ (0.06) $ (0.13)
<PAGE>
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, 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 - -
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)
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)
<PAGE>
MEDISYS TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the Years Ended
December 31,
1998 1997
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (1,252,501) $ (2,092,689)
Adjustments to reconcile net income to net cash
provided (used) by operating activities:
Common stock issued for services and interest 577,159 857,235
Depreciation and amortization 14,322 27,898
Bad debt expense 2,030 648
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable 7,139 (11,653)
(Increase) decrease in due from related party (2,857) -
(Increase) decrease in inventory 15,719 (12,433)
(Increase) decrease in prepaid expenses 172 (14,503)
(Increase) decrease in deposits 3,165 -
(Increase) decrease in other assets 2,561 (2,250)
Increase (decrease) in accounts payable (43,684) 115,243
Increase (decrease) in accrued expenses 445,084 255,651
Net Cash (Used) by Operating Activities (231,691) (876,853)
CASH FLOWS FROM INVESTING ACTIVITIES
Cash received in purchase of subsidiary 50,461 -
Increase in patent costs (65,822) (101,831)
Purchase of fixed assets - (10,853)
Disposal of fixed assets 10,010 11,166
Net Cash (Used) by Investing Activities (5,351) (101,518)
CASH FLOWS FROM FINANCING ACTIVITIES
Payments of stock offering costs - (85,420)
Payments on contracts payable - (20,577)
Borrowings from stockholders 2,625 3,100
Payments on shareholder loans (4,278) -
Payment on notes payable - (4,158)
Issuance of common stock 170,000 165,000
Proceeds from debentures - related parties 142,000 253,000
Net Cash Provided by Financing Activities $ 310,347 $ 310,945
<PAGE>
MEDISYS TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Continued)
For the Years Ended
December 31,
1998 1997
NET INCREASE (DECREASE) CASH AND
CASH EQUIVALENTS $ 73,305 $ (667,426)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF YEAR 2,178 669,604
CASH AND CASH EQUIVALENTS AT END
OF YEAR $ 75,483 $ 2,178
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION
CASH PAID FOR
Income taxes $ - $ -
Interest $ 222 $ 13,718
NON-CASH FINANCING ACTIVITIES
Stock issued for services and interest expense $ 577,159 $ 857,235
Stock issued in payment of accrued expenses and
accounts payable $ 979,508 $ -
<PAGE>
MEDISYS TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
December 31, 1998 and 1997
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
a. Business Organization
The Company was incorporated on March 17, 1983 under the
laws of the State of Utah. The Company subsequently ceased
its original business activity in 1985 and thereafter
primarily investigated and sought new business
opportunities and was reclassified as a development stage
company 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:
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 year ended December 31, 1998 was $13,034.
<PAGE>
MEDISYS TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
December 31, 1998 and 1997
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:
December 31,
1998
Patents $ 454,079
Trademarks 11,961
Subtotal 466,040
Less accumulated amortization (3,971)
Total $ 462,069
Amortization expense for the year ended December 31, 1998 was $1,288.
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.
<PAGE>
MEDISYS TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
December 31, 1998 and 1997
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.
<PAGE>
MEDISYS TECHNOLOGIES, INC. AND SUBSIDIARY
Notes to the Consolidated Financial Statements
December 31, 1998 and 1997
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 at December 31, 1998:
Amount
Raw materials $ 400,185
Work-in-process 27,236
Finished goods 5,285
Total $ 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 $153,199 at December 31, 1998.
<PAGE>
MEDISYS TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
December 31, 1998 and 1997
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.
The Company also adopted Statement of Financial Accounting
Standards (SFAS) No. 130, "Reporting Comprehensive Income"
during the year ended December 31, 1998. SFAS No. 130
established standards for reporting and display of
comprehensive income (loss) and its components (revenues,
expenses, gains and losses) in a full set of general
purpose financial statements. This statement requires that
an enterprise classify items of other comprehensive income
by their nature in a financial statement and display the
accumulated balance of other comprehensive income
separately from retained earnings and additional paid-in
capital in the equity section of a balance sheet. SFAS No.
130 is effective for fiscal years beginning after December
15, 1997. The Company has retroactively applied the
provisions of this new standard by showing the other
comprehensive income (loss) for all years presented.
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 December 31, 1998, the balance
payable to shareholders totaled $111,817.
NOTE 3 - DEBENTURES PAYABLE - RELATED PARTIES
The Company also has notes payable (debentures) to various
shareholders in the aggregate of $395,000 at December 31,
1998. The notes bear interest at 10% per annum, are
unsecured and are due in 1999. The notes payable have
accrued interest of $32,650 at December 31, 1998. Interest
expense to shareholders was $32,650 during the year ended
December 31, 1998.
<PAGE>
MEDISYS TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
December 31, 1998 and 1997
NOTE 4 - LINE OF CREDIT
An analysis of the line of credit with Nations Bank as of 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:
December 31,
1998
Note payable to Richard L. Apel, unsecured, dated November 2,
1993 at 8%; principal and interest delinquent since August
18, 1994. $ 12,500
Note payable to Cynthia F. Vatz, unsecured, dated October
19, 1993 at 8%; principal and interest delinquent since
August 18, 1994. 12,500
Note payable to Abraham B. and Edele Eckstein, unsecured,
dated March 1, 1995 which replaces an October 6, 1993 note
at 8%; monthly payments of $500 commencing March 1, 1995
with a single balloon payment for the remaining balance plus
interest delinquent since March 1, 1996. 5,222
Total 30,222
Less current portion (30,222)
Total long-term portion $ -
<PAGE>
MEDISYS TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
December 31, 1998 and 1997
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.
NOTE 8 - NOTES PAYABLE
Notes payable at December 31, 1998 consisted of the following:
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. $ 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. 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. 94,989
Total notes payable 117,372
Less: current portion (46,622)
Long-term notes payable $ 70,750
<PAGE>
MEDISYS TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
December 31, 1998 and 1997
NOTE 8 - NOTES PAYABLE (Continued)
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.
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.
<PAGE>
MEDISYS TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
December 31, 1998 and 1997
NOTE 9 - COMMITMENTS AND CONTINGENCIES (Continued)
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.
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.
<PAGE>
MEDISYS TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
December 31, 1998 and 1997
NOTE 10 - COMMON STOCK WARRANTS (Continued)
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.
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 $365,424 of interest expense to
shareholders in the year ended December 31, 1997. This
balance is comprised of the issuance of 407,226 shares of
common stock valued at $356,323 in exchange for not calling
the notes payable due and accrued interest payable of
$9,101. (See also Notes 2, 3 and 7)
<PAGE>
MEDISYS TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
December 31, 1998 and 1997
NOTE 13 - SUBSEQUENT EVENTS
a. Building Purchase
In February 1999, Phillips purchased the office building it
occupies in Largo, Florida. This building was purchased for
a price of $399,000. A mortgage of $299,250 was taken out
with Nations Bank in order to finance the purchase.
b. Debenture Conversion
In February 1999, the Company converted the debentures due
in January 1999 to common stock. The Company issued
460,000 shares of its common stock in payment of $115,000
of debt. The shares were issued on the basis of four
shares for each dollar of debt.
NOTE 14 - 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)
<PAGE>
MEDISYS TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
December 31, 1998 and 1997
NOTE 14 - CONSOLIDATED PROFORMA STATEMENTS OF OPERATIONS (Continued)
For the Year Ended
December 31, 1997
Proforma Proforma
Medisys Phillips Adjustments Combined
Revenues $ 97,634 $3,621,413 $ - $ 3,719,047
Cost of products sold 29,797 2,701,070 - 2,730,867
Gross Margin 67,837 920,343 - 988,180
Product research and development 654,629 - - 654,629
Depreciation and amortization 27,898 52,899 - 80,797
General and administrative 1,117,077 832,942 - 1,950,019
Total Operating Expenses 1,799,604 885,841 - 2,685,445
Operating Loss (1,731,767) 34,502 - (1,697,265)
Gain on sale of asset 13,042 - - 13,042
Interest income 5,851 - - 5,851
Interest expense (379,142) (40,138) - (419,280)
Bad debt expense (673) (46,152) - (46,825)
Total Other Income (Expense) (360,922) (86,290) - (447,212)
Net Loss $(2,092,689) $ (51,788) $ - $(2,144,477)
<PAGE>
Item 8. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
There have been no changes in or disagreements with
accountants.
PART III
Item 9. Directors and Executive Officers of the Registrant
The Executive Officers and Directors of the Company are as
follows:
Edward P. Sutherland 52 Chairman, Chief Executive Officer
and Director
Kerry M. Frey 53 President, Chief Operating
Officer and Director
Brett Phillips 38 President of Phillips Division
and Director
William David Kiesel 54 Director
Dr. Robert L. diBenedetto 69 Medical Director and Director
Gary E. Alexander 54 Treasurer, Chief Technology
Officer and Director
Dr. Timothy Andrus 49 Director
Carl Anderson 58 Director
Bill Morris 51 Director
All Directors hold office until the next annual meeting of
stockholders and until their successors have been duly elected and
qualified. The Executive Committee of the Board of Directors, to
the extent permitted under Utah law, exercises all of the power and
authority of the Board of Directors in the management of the
business and affairs of the Company between meetings of the Board
of Directors. Each executive officers serves at the discretion of
the Board of Directors.
MANAGEMENT
Mr. Edward P. Sutherland, Chief Executive Officer and Chairman
of the Board. Mr. Edward P. Sutherland co-founded the Company with
Mr. Alexander in 1992 and serves as Chief Executive Officer and
Chairman of the Board. In this role, he is instrumental in
developing strategic direction and implementing consolidation-
operating protocols. Together with Mr. Frey he has overseen the
evolution of the Company and is focused on the administration,
financial and legal aspects of the business.
Mr. Sutherland was in private law practice from 1974 until he
co-founded the Company in 1992. Mr. Sutherland has over 25 years
of business, professional and personnel management expertise in the
private and public sector including over six years of experience in
forming, developing and managing a start-up company in the medical
R&D industry. His background includes financing, administration,
policy formulation and execution, personnel education, general
office management, bookkeeping, taxation, and interface with
governmental agencies including the FDA and the Securities and
Exchange Commission (SEC). While practicing as an attorney, Mr.
Sutherland also developed a comprehensive background in hospital
and medical practice, and product liability litigation. Mr.
Sutherland received a Bachelor of Arts Degree from Louisiana State
University in 1968 and a Juris Doctor Degree from Louisiana State
University in 1974.
Mr. Kerry M. Frey, President and Chief Operating Officer
Mr. Kerry M. Frey serves as the Company's President and Chief
Operating Officer. In this capacity, he is responsible for
developing and directing the Company's strategic plan of expansion
through internal growth and strategic acquisitions. In addition,
Mr. Frey has recognized a niche market strategic opportunity in the
medical device industry and will employ strategic and operational
experiences learned from 25 years of professional and healthcare
management expertise to locate and acquire profitable companies.
Mr. Frey became an Officer and a Director of the Company in November
1994.
Mr. Frey was associated with Johnson and Johnson for 21 years in
the development of multi-company corporate marketing programs and
services. He was a board member of Johnson & Johnson Hospital Services
and served as Vice President of Marketing as well as Vice President of
Sales. Mr. Frey has coordinated strategic assessment of the healthcare
market and led the development of corporate value added marketing
programs for Johnson and Johnson in the professional healthcare
marketplace. As President of Genesys Consulting, assignments included
integrated healthcare providers such as the General Health System and
the Florida Hospital; futuristic health delivery planning with Walt
Disney Development Company and consulting for companies such as Smith
Kline Beecham. He has also served on the boards of a medical
information systems company and a start-up minority healthcare product
distributor. Mr. Frey received a Bachelor of Arts Degree from
Southeastern Louisiana University in 1969.
Mr. Brett Phillips, Vice President and President of Phillips
Division. Mr. Brett Phillips co-founded Phillips Pharmatech Labs, Inc.
with Dr. William Morris and Mr. Carl Anderson in 1994 and serves a
Chief Executive Officer and President. In this roll, he is
instrumental in developing strategic direction and implementing
manufacturing protocols. Mr. Phillips has specific expertise in
contract manufacturing of over-the-counter pharmaceuticals that create
efficiencies leading to lower cost, higher revenue and improved
customer satisfaction. With Mr. Phillips leadership and direction
Phillips has grown from a $54,000 investment into a company generating
$2.8 million in 1998.
Prior to founding Phillips Pharmatech Labs, Inc., Mr. Phillips
managed Energy Factors a company that manufactures, distributes, and
markets pharmaceuticals under private label brands since 1986. While
at Energy Factors Mr. Phillips was responsible for generating annual
sales in excess of $8.5 million.
Mr. Phillips earned degrees in History and Business
Administration from the University of Tampa in 1984. In addition to
his company duties Mr. Phillips is a member of the National Nutrition
and Foods Association (NNFA), has acted as a consultant to various
firms in the pharmaceutical and nutritional markets, and has testified
as an expert witness for the Food and Drug Administration.
Mr. Gary Alexander, Chief Technical Officer and Vice President.
Mr. Gary Alexander is the Vice President, Chief Technical Officer and
co-founder of the Company and the principle inventor of most of the
Company's patented proprietary products. Recognizing the tremendous
opportunities in the obstetrics and sharps management fields he
invented and developed the Company's SofCepsTM and CoverTipTM products
among others. As the inventor of the Company's patents on SofCepsTM and
CoverTipTM products, a critical aspect of Mr. Alexander's ongoing role
is the growth and management of the Company's vital patent portfolio.
Mr. Alexander was engaged in private law practice from 1976-1991,
specializing in medical liability matters with emphasis on obstetrics.
In addition, he has owned and operated several businesses in building,
general contracting, and construction equipment sales. In connection
with those businesses, he acquired the special skills and expertise in
engineering principles, design and mechanical sciences, which have led
to his inventing successes. He has advised manufacturing clients on
domestic and international business contracts, research and
development, operations, sales and mergers. He has also served as
advisor and counsel for several financial institutions and has
interfaced with government agencies including FDA and SEC and has
represented the SBA. Mr. Alexander received his Jurist Doctor Degree
in Law from Louisiana State University in 1976
Dr. William H. Morris, Pharmaceutical Advisor and Director.
Dr. Morris co-founded Phillips Pharmatec Labs, Inc. along with Mr.
Phillips and Mr. Anderson in 1994 and will serve as a Pharmaceutical
Advisor and Director. In this capacity, he is responsible for
developing, and marketing new nutritional supplements to be
manufactured by the Company. In addition, he has been instrumental in
developing both strategic business planing and innovative marketing
strategies for Phillips.
Preceding his involvement with the Company, Dr. Morris was a
pharmacist and supervisor before opening his own pharmacy in 1976.
This successful business was sold to a leading national drug store
chain in 1989. In addition to managing his drug store, Dr. Morris
became involved with the nutritional supplement, cosmetic,
dermatological and over-the-counter drug industry. At this time Dr.
Morris founded National Dietary Research in 1983 to research
nutritional alternatives to health problems. Dr, Morris has conducted
extensive research in this field and developed numerous nutritional
supplements which are in the market today.
Dr. Morris earned a degree in Pharmacy with honors from Mercer
University in 1971. Subsequently, he studied Pharmacology and
Metabolism at the University of Georgia graduate school. In addition
to his Company duties Dr. Morris serves as a director on numerous
corporate boards and has been a member of the National Community
Pharmacist Association, Council for Responsible Nutrition, and the
Grocery Manufacturer's of America.
Carl Anderson, Director. Mr. Anderson co-founded Phillips
Pharmatec along with Mr. Phillips and Dr. Morris in 1994 and will serve
as a Director. In this capacity he carries out the duties and
responsibilities associated with a Directors position. Additionally,
Mr. Anderson will exploit past experiences in developing effective
direct sales, wholesale distribution, pharmaceutical manufacturing, and
other entrepreneurial activities.
Prior to his involvement with Phillips, Mr. Anderson was employed
for several years by U.S. Phosphoric Products Corporation where he was
Plant Service Laboratory supervisor. In this capacity, he was
responsible for the planning and activities of a number of chemists and
other personnel. Mr. Anderson resigned his position in 1968 and has
subsequently been active in various business ventures including retail
and wholesale distribution and manufacture of pharmaceuticals and
nutritional supplements. Mr. Anderson earned a degree in Chemistry from
North Carolina State University.
Dr. Robert L. diBenedetto, Director. Dr. diBenedetto, a
co-founder of the Company, received his Doctorate of Medicine in 1952
from the Louisiana State University Medical School and served his
internship at Mercy Hospital from 1952 to 1953, and his residency in
Obstetrics and Gynecology at Charity Hospital, New Orleans, Louisiana
from 1956 to 1959. Dr. diBenedetto has been engaged in the private
practice of Obstetrics and Gynecology from 1959 to the present and has
recently received recognition as one of the top fifty physicians in the
United States. His hospital affiliations include Woman's Hospital
Foundation, Baton Rouge, Louisiana where he has served as Chairman of
the Board of Directors from 1984 to 1990, and he is also affiliated
with Our Lady of the Lake Hospital, Baton Rouge General Hospital and
Earl K. Long Hospital. Dr. diBenedetto is also currently President and
CEO of the Louisiana Medical Insurance Company, a major provider of
medical malpractice insurance. He also serves on the following
committees: Chairman, Dialogue with Congress; Area-wide Health
Planning; Liaison with Organized Specialties; Chairman, Maternal &
Child Health; Member, Committee on Professional Liability of American
College of Obstetrics and Gynecology; Member, Committee on Ethics of
American College of Obstetrics and Gynecology; Past Chairman,
Louisiana Delegation to American Medical Association. His professional
organizations include: Chairman & Legislative Liaison, Louisiana
Section of the American College of Obstetricians and Gynecologists;
Past Chairman, Louisiana Delegation to the American Medical
Association; South Central OB/GYN Society; clinical Associate
Professor of OB/GYN, L.S.U. School of Medicine - New Orleans,
Louisiana; American Fertility Society; Treasurer, Louisiana Medical
Political Action Committee.
William David Kiesel, Director. Mr. Kiesel was a co-founder of
the Company. During the past 25 years he has been actively engaged in
advising numerous start-up businesses. During that period he has
supported more that 100 start-up companies in all aspects of their
businesses, including structuring of R&D programs, financial planning,
management, as well as, marketing and sales of their new products.
These companies have varied in size, up to $50 million in sales, and
encompass organizations offering a wide spectrum of products, including
medical devices and pharmaceutical products. In addition to his
current position with Medisys, he serves as the business manager of his
own 25 person patent law firm. He has also provided to his clients
fair market and liquidation's evaluations of patents, trademarks, and
other intellectual property.
Dr. Timothy Andrus, Director. Dr. Andrus became a Director of
the Company in November, 1996. He received his Doctorate of Medicine
from the Louisiana State University Medical School in New Orleans in
1975 and completed his residency in Obstetrics and Gynecology there in
1979. He is Board Certified in Obstetrics and Gynecology and has been
in private practice for 16 years in Baton Rouge La. Dr. Andrus served
as Associate Medical Director of Gulf South Health Plans HMO for five
years. He was Chief of Staff of Woman's Hospital in Baton Rouge in
1991, and currently serves on the Board of Directors of Woman's
Hospital, the largest freestanding women's specialty hospital in the
United States. Dr. Andrus received an MBA from Louisiana State
University in Baton Rouge.
Section 16(a) Beneficial Ownership Reporting Compliance
Each of the Company's officers and directors is required to file
a Form 5, Annual Statement of Changes in Beneficial Ownership, on or
before the 45th day after the end of the fiscal year. These reports
have been filed and submitted to the Securities and Exchange
Commission.
Compensation of Directors
Each member of the Board of Directors is compensated as follows.
Directors each receive $1,000 in stock per meeting attended in person.
The Chairman of the Board receives $1,000 in stock per month and $1,800
in stock per meeting. The Secretary receives $600 in stock per month
and $1,400 in stock per meeting. The committee chair person is paid
an additional $300 in stock and committee members receive $200 in stock
per meeting. Issuance of the shares is based on the closing bid price
of the Company's shares on the last day of the month following the
meeting. Out of town Directors are reimbursed for reasonable travel
expenses.
Changes in Control
Control of the company changed substantially with the Acquisition
of Phillips Pharmatec as is shown in the tables below.
Item 10. Executive Compensation
The following table sets forth all cash compensation actually
paid (and not deferred) by the Company for services rendered to the
Company for the years ended December 31, 1996, 1997, and 1998 to the
Company's Chief Executive Officer, Chief Technical Officer, and Chief
Operating Officer. The total compensation for the remaining Executive
Officers is not reported as it did not meet the threshold for required
reporting.
Summary Compensation Table
Name and Other All Other
Principal Year Salary Bonus Annual Compensation
Position
Edward P. Sutherland 1996 150,000 -0- -0- 33,315
C.E.O. 1997 56,621 -0- -0- 17,930
1998 -0- -0- -0- -0-
Gary Alexander, 1996 108,000 -0- -0- 34,257
C.T.O. 1997 43,771 -0- -0- 17,865
1998 -0- -0- -0- -0-
Kerry M. Frey, 1996 144,000 -0- -0- 45,553
President and 1997 52,750 -0- -0- 19,644
C.O.O. 1998 -0- -0- -0- -0-
________________________
(1) As of December 31, 1998 the Company had accrued salaries and
directors fees of as disclosed in Note 3 to the Consolidated
Financial Statements contained elsewhere in this
Form 10-KSB. Prior to 1998, these accruals were compromised
and deferred for the issuance of 144 restricted stock.
Employment Agreements
The Company entered into employment agreements with Edward P.
Sutherland and Kerry Frey respectively which have expired. The Company
is currently negotiating employment agreements with Edward P.
Sutherland, Kerry M. Frey, and Phillips Pharmatec is negotiating with
Brett Phillips.
No salaries, wages or bonuse have been paid to any of the
officers since April 1997. The officers have voluntarily deferred
their salaries and bonuses on a month to month basis. In addition, the
officers subscribed to the Company's private placement debenture and
paid in to the Company a combined total of $110,000.
Item 11. Security Ownership of Certain Beneficial Owners and
Management
The following table sets forth information, to the best knowledge
of the Company, as of December 31, 1998, with respect to each person
known by the Company to own beneficially more than 5% of the
outstanding Common Stock, each director and all directors and officers
as a group.
Name and Address of Number of Shares Percentage Number of Average
Beneficial Owner Beneficially Owned Ownership(1) Warrants Owned Exercise
Price
Gary E. Alexander * 1,488,635(2) 4% 205,800 $1.61
144 Napoleon Street
Baton Rouge, LA 70802
Carl Anderson * 6,000,412(3) 17% 1,319,793 1.94
19235 US Hwy 41 N.
Lutz, FL 33549
Brett Phillips * 6,757,557(4) 9% 1,556,842 1.94
8767 115th Avenue N.
Largo, FL 33773
Robert L. diBenedetto * 961,480(5) 3% 407,000 2.64
781 Colonial Drive
Baton Rouge, La 70806
William David Kiesel * 1,669,108(6) 5% 655,166 2.42
2355 Drusilla Lane
Baton Rouge, LA 70809
Edward P. Sutherland * 1,838,211(7) 5% 243,000 1.58
144 Napoleon Street
Baton Rouge, LA 70802
Kerry Frey * 1,650,559(8) 5% 87,400 1.79
144 Napoleon Street
Baton Rouge, LA 70802
Marilyn Morris 6,757,557(9) 19% 1,556,842 1.94
2804 Smitter Road
Tampa, FL 33618
Timothy Andrus * 179,411(10) .5% 44,982 1.14
144 Napoleon Street
Baton Rouge, LA 70802
Directors and officers
as a group (9 persons) 27,302,930(11) 68% 6,076,825 2.49
* Director
** Unless otherwise indicated in the footnotes below, the Company
has been advised that each person above has sole voting power
over the shares indicated above.
(1) As of December 31, 1998, there were 34,009,757 shares of common
stock outstanding, which figure does not take into consideration
stock purchase warrants owned by certain officers, directors and
shareholders, entitling the holders to purchase an aggregate of
9,794,,972 shares of common stock and which are currently
exercisable. Therefore, for purposes of the table above, as of
the date hereof, 43,804,729 shares of common stock are deemed to
be issued and outstanding in accordance with Rule 13d-3 adopted
by the Securities and Exchange Commission under the Securities
Exchange Act of 1934, as amended. Percentage ownership is
calculated separately for each person on the basis of the actual
number of outstanding shares as of December 31, 1998 and assumes
the exercise of stock purchase warrants held by such person (but
not by anyone else) exercisable within sixty days.
(2) Includes 205,800 shares which may be acquired by Mr. Alexander
pursuant to the exercise of stock purchase warrants exercisable
within sixty days at the average exercise price of $1.61 per
share.
(3) Includes 1,319,793 shares which may be acquired by Mr. Anderson
pursuant to the exercise of stock purchase warrants exercisable
within sixty days at the average exercise price of $1.94 per
share.
(4) Includes 1,556,842 shares which may be acquired by Mr. Phillips
pursuant to the exercise of stock purchase warrants exercisable
within sixty days at the average exercise price of $1.94 per
share.
(5) Includes 407,000 shares which may be acquired by Dr. diBenedetto
pursuant to the exercise of stock purchase warrants exercisable
within sixty days at the average exercise price of $2.64 per
share.
(6) Includes 655,166 shares which may be acquired by Mr. Kiesel
pursuant to the exercise of stock purchase warrants exercisable
within sixty days at the average exercise price of $2.42 per
share, of which 300,000 warrants are held in the name of Roy,
Kiesel & Tucker and 10,000 warrants are held in the name of Nu
Vue Corp.
(7) Includes 349,600 shares held in the name of Diana B. Sutherland,
wife of Edward P. Sutherland and 243,000 shares which may be
acquired by Mr. Sutherland pursuant to the exercise of stock
purchase warrants exercisable within sixty days at the average
exercise price of $1.58 per share.
(8) Includes 87,400 shares which may be acquired by Mr. Frey pursuant
to the exercise of stock purchase warrants exercisable within
sixty days at the average exercise price of $1.79 per share.
(9) Ms. Morris is the wife of Bill Morris, a director of the Company.
Includes 1,556,842 shares which may be acquired by Ms. Morris
pursuant to the exercise of stock purchase warrants exercisable
within sixty days at the average exercise price of $1.94 per
share. The Company has been advised that Ms. Morris has sole
voting power over the shares indicated above and control over the
warrants.
10) Includes 44,982 shares which may be acquired by Dr. Andrus
pursuant to the exercise of stock purchase warrants exercisable
within sixty days at the average exercise price of $1.14 per
share.
(11) Includes 6,076,825 shares which may be acquired by the Company's
officers and directors pursuant to the exercise of stock purchase
warrants exercisable within sixty days at exercise prices ranging
from $.06875 to $4.25 per share.
Item 12. Certain Relationships and Related Transactions
The law firm of Roy, Kiesel & Tucker has been used for patent
work. William David Kiesel is a partner of Roy, Kiesel & Tucker and
is the Corporate Secretary and a Director of the Company. Mr. Kiesel
does not bill the Company for his time. However, other attorneys at
his firm do bill the Company for their time and the Company does
reimburse Roy, Kiesel & Tucker for expenses incurred on the behalf of
the Company.
<PAGE>
PART IV
Item 13. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K.
(a) Exhibits
*2.1 Acquisition Agreement and Plan of Reorganization.
**2.2 Acquisition and Share Exchange Agreement
*3.1(i) Articles of Incorporation and all amendments thereto
*3.2(ii) By-Laws of Registrant
*4.1 Specimen of Common Stock Certificate
*10.1 Lease Agreement on Registrant's principal place of
business
21.1 Subsidiaries
27 Financial Data Schedule
* Previously filed as Exhibit to Form 10-SB.
** Previously filed as Exhibit to Form S-8 filed October 15, 1998.
(b) On October 15, 1998, the Company filed a report on Form S-8
reporting under Item 2 the execution of a letter of intend dated
October 1, 1998 to acquire Phillips Pharmatec Labs, Inc.
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) 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 and Chief
Executive Officer
DATE: April 14, 1999
In accordance with the Exchange Act, this report has been signed
below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.
BY: /S/ Edward P. Sutherland
EDWARD P. SUTHERLAND
Chairman, Chief Executive
Officer and Director
DATE: April 14, 1999
BY: /S/ Gary E. Alexander
GARY E. ALEXANDER
Vice President, Chief
Technology Officer and
Director
DATE: April 14, 1999
BY: /S/ Kerry M. Frey
KERRY M. FREY
President, Chief Operating
Officer and Director
DATE: April 14, 1999
BY: /S/ William David Kiesel
WILLIAM David KIESEL
Corporate Secretary and
Director
DATE: April 14, 1999
BY: /S/ Brett Phillips
BRETT PHILLIPS
Director
DATE: April 14, 1999
