UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of The Securities
Exchange Act of 1934
For the Quarter Ended June 30, 2000
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Commission File Number 0-21441
MEDISYS TECHNOLOGIES, INC.
(Exact name of small business issuer as specified in its charter)
Utah 72-1216734
------------------------------- --------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
144 Napoleon Street, Baton Rouge, Louisiana, 70802
(address of principal executive officers)
Issuer's telephone number: (225) 343-8024
9624 Brookline Avenue, Baton Rouge, Louisiana, 70809
(former address of principal executive officers)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes [X] No [
]
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuers classes
of common equity, as of the latest practicable date:
Class Outstanding as of June 30, 2000
--------------------------- -------------------------------
Common Stock, 59,318,623
Par Value $0.0005 per value
Transitional Small Business Disclosure Format (check one):
Yes [ ]; No [X]
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<CAPTION>
MEDISYS TECHNOLOGIES, INC.
TABLE OF CONTENTS
Page
----
PART I
<S> <C>
Item 1. Financial Statements........................................................ 3
Item 2. Management's Discussion and Analysis or Plan
of Operation................................................................ 21
PART II
Item 1. Legal Proceedings........................................................... 24
Item 2. Changes in Securities and Use of Proceeds................................... 26
Item 3. Defaults Upon Senior Securities............................................. 26
Item 4. Submissions of Matters to a Vote of Security
Holders..................................................................... 26
Item 5. Other Information........................................................... 27
Item 6. Exhibits and Reports on Form 8-K............................................ 27
SIGNATURES.................................................................. 28
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PART I
Item 1. Financial Statements
The following unaudited Financial Statements for the period ended June
30, 2000, have been prepared by the Company.
Medisys Technologies, Inc.
Consolidated Financial Statements
June 30, 2000 and December 31, 1999
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MEDISYS TECHNOLOGIES, INC. AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Balance Sheets
ASSETS
------
June 30, December 31,
2000 1999
----------- -----------
(Unaudited)
CURRENT ASSETS
Cash $ 1,390,469 $ 290,269
Accounts receivable, net (Note 1) 608 222,100
Accounts receivable, related parties -- 50,572
Advances 2,500 2,500
Inventory (Note 1) 7,729 396,601
Prepaid expenses 21,328 21,802
----------- -----------
Total Current Assets 1,422,634 983,844
----------- -----------
FIXED ASSETS (Note 1)
Computers and equipment 59,931 73,341
Machinery and equipment -- 301,087
Buildings and improvements 2,195 463,803
Furniture and fixtures 34,410 50,248
Vehicles -- 19,915
Accumulated depreciation (75,638) (314,751)
----------- -----------
Total Fixed Assets 20,898 593,643
----------- -----------
OTHER ASSETS
Deposits 835 36,039
Patent and trademark costs, net (Note 1) 539,562 492,254
----------- -----------
Total Other Assets 540,397 528,293
----------- -----------
TOTAL ASSETS $ 1,983,929 $ 2,105,780
=========== ===========
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MEDISYS TECHNOLOGIES, INC. AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Balance Sheets (Continued)
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
----------------------------------------------
June 30, December 31,
2000 1999
------------ ------------
(Unaudited)
CURRENT LIABILITIES
<S> <C> <C>
Accounts payable $ 16,474 $ 924,490
Customer deposits -- 94,096
Accrued expenses 107,056 261,786
Payable - shareholders (Note 2) 18,456 140,758
Notes payable - current portion -- 56,695
Notes payable - shareholders (Note 5) 12,500 25,000
Line of credit -- 250,000
Reserve for discontinued operations (Note 11) 1,726,923 --
Debentures payable - related parties (Note 3) -- 92,000
------------ ------------
Total Current Liabilities 1,881,409 1,844,825
------------ ------------
LONG-TERM DEBT
Notes payable -- 304,490
Debentures payable (Note 8) 2,000,000 --
------------ ------------
Total Long-Term Debt 2,000,000 304,490
------------ ------------
TOTAL LIABILITIES 3,881,409 2,149,315
------------ ------------
COMMITMENTS AND CONTINGENCIES (Note 7)
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock: 100,000,000 shares
authorized of $0.0005 par value, 59,318,623 and
47,055,644 shares issued and outstanding, respectively 29,659 23,527
Additional paid-in capital 16,322,077 10,743,768
Treasury stock (Note 4) (450,000) --
Stock subscriptions receivable (Note 4) (175,000) (1,075,000)
Prepaid expenses (Note 7) (1,964,500) --
Accumulated deficit (15,659,716) (9,735,830)
------------ ------------
Total Stockholders' Equity (Deficit) (1,897,480) (43,535)
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY (DEFICIT) $ 1,983,929 $ 2,105,780
============ ============
</TABLE>
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<CAPTION>
MEDISYS TECHNOLOGIES, INC. AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Statements of Operations
(Unaudited)
From
Inception of the
Development
Stage on
For the For the April 1,
Three Months Ended Six Months Ended 2000 Through
June 30, June 30, June 30,
2000 1999 2000 1999 2000
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
REVENUES $ 37 $ 135 $ 660 $ 1,908 $ 37
----------- ----------- ----------- ----------- -----------
OPERATING EXPENSES
Cost of sales -- -- 679 403 --
Product research and development 267,951 33,749 1,907,386 76,400 267,951
Depreciation and amortization 5,012 2,603 8,867 6,882 5,012
Selling, general and administrative 904,460 122,297 2,273,054 260,339 904,460
----------- ----------- ----------- ----------- -----------
Total Operating Expenses 1,177,423 158,649 4,189,986 344,024 1,177,423
----------- ----------- ----------- ----------- -----------
OPERATING LOSS (1,177,386) (158,514) (4,189,326) (342,116) (1,177,386)
----------- ----------- ----------- ----------- -----------
OTHER INCOME (EXPENSES)
Interest income 10,821 -- 17,366 252 10,821
Interest expense (166,520) (647) (328,520) (30,699) (166,520)
----------- ----------- ----------- ----------- -----------
Total Other Income (Expenses) (155,699) (647) (311,154) (30,447) (155,699)
----------- ----------- ----------- ----------- -----------
LOSS FROM CONTINUING
OPERATIONS BEFORE INCOME
TAXES (1,333,085) (159,161) (4,500,480) (372,563) (1,333,085)
INCOME TAXES -- -- -- -- --
----------- ----------- ----------- ----------- -----------
LOSS FROM CONTINUING
OPERATIONS (1,333,085) (159,161) (4,500,480) (372,563) (1,333,085)
LOSS FROM DISCONTINUED
OPERATIONS (Note 11) (43,452) (25,774) (1,423,406) (17,956) (43,452)
----------- ----------- ----------- ----------- -----------
NET LOSS $(1,376,537) $(184,935) $(5,923,886) $ (390,519) $(1,376,537)
=========== =========== =========== =========== ===========
BASIC LOSS PER SHARE (Note 1)
Loss from continuing operations $ (0.02) $ (0.00) $ (0.08) $ (0.01) --
Loss from discontinued operations (0.00) (0.00) (0.03) (0.00) --
----------- ----------- ----------- ----------- -----------
Basic Loss Per Share $ (0.02) $ (0.00) $ (0.11) $ (0.01) --
=========== =========== =========== =========== ===========
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<CAPTION>
MEDISYS TECHNOLOGIES, INC. AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Statements of Stockholders' Equity (Deficit)
Additional Stock
Common Stock Paid-In Treasury Subscription Prepaid Accumulated
Shares Amount Capital Stock Receivable Expenses Deficit
------------- ----------- ------------- ------ ------------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1998 34,009,757 $ 17,004 $ 8,122,813 $-- $ (175,000) $-- $(8,048,209)
Common stock issued for
subscription receivable 5,555,555 2,778 997,222 -- (1,000,000) -- --
Common stock issued for
services rendered 2,121,619 1,061 424,282 -- -- -- --
Common stock issued for
accrued wages 324,477 162 89,838 -- -- -- --
Common stock canceled (972,214) (486) 486 -- -- -- --
Common stock issued to
convert debentures payable 1,435,000 717 302,283 -- -- -- --
Issuance of common stock
from exercise of common
stock warrants 8,889 5 9,995 -- -- -- --
Common stock issued for
interest expense 1,184,118 592 277,408 -- -- -- --
Common stock issued for cash 3,388,443 1,694 519,441 -- -- -- --
Cash received on stock
subscription receivable -- -- -- -- 100,000 -- --
Net loss for the year ended
December 31, 1999 -- -- -- -- -- -- (1,687,621)
------------- ----------- ------------- ------ ------------- ------------ --------------
Balance, December 31, 1999 47,055,644 $ 23,527 $10,743,768 $-- $(1,075,000) $-- $(9,735,830)
------------- ----------- ------------- ------ ------------- ------------ --------------
</TABLE>
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<CAPTION>
MEDISYS TECHNOLOGIES, INC. AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Statements of Stockholders' Equity (Deficit) (Continued)
Common Stock Paid-In Treasury Subscription Prepaid Accumulated
Shares Amount Capital Stock Receivable Expenses Deficit
------------- ----------- ------------- --------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1999 47,055,644 $ 23,527 $10,743,768 $ -- $(1,075,000) $ -- $ (9,735,830)
Common stock issued for cash
(unaudited) 2,888,332 1,444 697,306 -- -- -- --
Issuance of common stock
from exercise of common
stock warrants (unaudited) 188,833 95 83,238 -- -- -- --
Common stock issued to
convert debentures and
notes payable (unaudited) 588,500 294 144,206 -- -- -- --
Common stock issued for
services rendered (unaudited) 3,097,314 1,549 2,249,034 -- -- -- --
Cash received on stock
subscription receivable
(unaudited) -- -- -- -- 450,000 -- --
Repurchase common stock for
stock subscription receivable
(unaudited) -- -- -- (450,000) 450,000 -- --
Warrants issued below
market value (unaudited) -- -- 142,775 -- -- -- --
Conversion discount on
debentures (see Note 10)
(unaudited) -- -- 300,000 -- -- -- --
Common stock issued for
prepaid services (unaudited) 5,500,000 2,750 1,961,750 -- -- (1,964,500) --
Net loss for the six months ended
June 30, 2000 (unaudited) -- -- -- -- -- -- (5,923,886)
------------- ----------- ------------- --------- ---------- ------------ ------------
Balance, June 30, 2000 (unaudited) 59,318,623 $ 29,659 $16,322,077 $ (450,000) $ (175,000) $(1,964,500) $(15,659,716)
------------- ----------- ------------- --------- ---------- ------------ ------------
</TABLE>
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<CAPTION>
MEDISYS TECHNOLOGIES, INC. AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Statements of Cash Flows
(Unaudited)
From
Inception of the
Development
Stage on
For the For the April 1,
Three Months Ended Six Months Ended 2000 Through
June 30, June 30, June 30,
2000 1999 2000 1999 2000
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES
Net loss $(1,376,537) $ (184,934) $(5,923,886) $ (390,518) $(1,376,537)
Adjustments to reconcile net income
to net cash used by operating activities:
Common stock issued for services
and interest 346,872 21,500 2,250,583 100,286 346,872
Assets written down from
discontinued operations -- -- 1,212,418 -- --
Depreciation and amortization 5,012 2,603 8,867 6,882 5,012
Loss on disposal of assets -- 3,053 -- 3,053 --
Warrants issued below market value -- -- 142,775 -- --
Conversion discount on debentures 150,000 -- 300,000 -- 150,000
Changes in operating assets and
liabilities:
(Increase) decrease in accounts
receivable (268) 188 (608) 2,148 (268)
(Increase) decrease in inventory -- -- -- (2,564) --
(Increase) decrease in deposits -- -- -- (4,000) --
Increase (decrease) in accounts
payable (53,854) 17,324 (48,375) 20,548 (53,854)
Increase (decrease) in accrued
expenses (2,780) 90,553 (122,108) 180,532 (2,780)
Increase (decrease) in reserve
for discontinued operations -- 25,573 167,536 17,756 --
----------- ----------- ----------- ----------- -----------
Net Cash Used by Operating
Activities (931,555) (24,140) (2,012,798) (65,877) (931,555)
----------- ----------- ----------- ----------- -----------
CASH FLOWS FROM INVESTING
ACTIVITIES
Increase in patent costs (38,050) (20,298) (47,952) (30,314) (38,050)
Purchase of fixed assets (5,476) -- (17,395) -- (5,476)
----------- ----------- ----------- ----------- -----------
Net Cash Used by Investing Activities (43,526) (20,298) (65,347) (30,314) (43,526)
----------- ----------- ----------- ----------- -----------
CASH FLOWS FROM FINANCING
ACTIVITIES
Proceeds (payments) from payable
- shareholders -- 16,200 (8,774) 20,770 --
Proceeds from the issuance of
common stock -- 25,000 698,750 43,000 --
Payments received on stock subscription
receivable 50,000 -- 450,000 -- 50,000
Proceeds from the exercise of warrants -- -- 83,333 10,000 --
Proceeds from debentures payable 1,000,000 -- 2,000,000 -- 1,000,000
----------- ----------- ----------- ----------- -----------
Net Cash Provided by Financing
Activities $ 1,050,000 $ 41,200 $ 3,223,309 $ 73,770 $ 1,050,000
----------- ----------- ----------- ----------- -----------
</TABLE>
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<CAPTION>
MEDISYS TECHNOLOGIES, INC. AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Statements of Cash Flows (Continued)
(Unaudited)
From
From
Inception of the
Development
Stage on
For the For the April 1,
Three Months Ended Six Months Ended 2000 Through
June 30, June 30, June 30,
2000 1999 2000 1999 2000
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
NET INCREASE (DECREASE)
CASH AND CASH EQUIVALENTS $ 74,919 $ (3,238) $1,145,164 $ (22,421) $ 74,919
CASH AND CASH EQUIVALENTS
AT BEGINNING OF PERIOD 1,315,550 5,839 245,305 25,022 1,315,550
----------- ----------- ----------- ----------- -----------
CASH AND CASH EQUIVALENTS
AT END OF PERIOD $1,390,469 $ 2,601 $1,390,469 $ 2,601 $ 1,390,469
----------- ----------- ----------- ----------- -----------
SUPPLEMENTAL DISCLOSURES
OF CASH FLOW INFORMATION
CASH PAID FOR
Income taxes $ -- $ -- $ -- $ -- $ --
Interest $ 8,874 $ 647 $ 28,520 $ 699 $ 8,874
NON-CASH FINANCING ACTIVITIES
Stock issued for services and
interest expense $ 346,872 $ 21,500 $2,250,583 $ 100,286 $ 346,872
Stock issued in payment of
accrued expenses and
accounts payable $ -- $ 30,000 $ -- $ 90,000 $ --
Stock issued to convert
debentures and notes payable $ -- $ -- $ 144,500 $ 115,000 $ --
Stock issued for prepaid expenses $ -- $ -- $1,964,500 $ -- $ --
Repurchase of common stock by
canceling stock subscription
receivable $ 450,000 $ -- $ 450,000 $ -- $ 450,000
</TABLE>
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MEDISYS TECHNOLOGIES, INC. AND SUBSIDIARIES
(A Development Stage Company)
Notes to the Consolidated Financial Statements
June 30, 2000 and December 31, 1999
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. (Phillips). The Company reentered
the development stage effective April 1, 2000 as a result of
Phillips ceasing all operations (see Note 11).
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 5 years
Furniture and fixtures 5 years
Computers and equipment 5 years
Depreciation expense for the six months ended June 30, 2000 and
1999 was $8,223 and $6,238, respectively.
-11-
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MEDISYS TECHNOLOGIES, INC. AND SUBSIDIARIES
(A Development Stage Company)
Notes to the Consolidated Financial Statements
June 30, 2000 and December 31, 1999
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)
clearance 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, 1999, 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:
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
----------------- -----------------
(Unaudited)
<S> <C> <C>
Patents $ 533,504 $ 485,552
Trademarks 11,961 11,961
----------------- -----------------
Subtotal 545,465 497,513
Less accumulated amortization (5,903) (5,259)
----------------- -----------------
Total $ 539,562 $ 492,254
================= =================
</TABLE>
Amortization expense for the six months ended June 30, 2000 and
1999 was $644.
d. Accounting Method
The Company's financial statements are prepared using the accrual
method of accounting. The Company has elected a December 31 year
end.
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MEDISYS TECHNOLOGIES, INC. AND SUBSIDIARIES
(A Development Stage Company)
Notes to the Consolidated Financial Statements
June 30, 2000 and December 31, 1999
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 June 30,
2000 due to accumulated operating losses. The Company has
accumulated approximately $15,000,000 of net operating losses as
of June 30, 2000, 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
2018 1,252,501
2019 1,687,621
2020 5,923,886
-----------------
$ 15,659,716
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.
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MEDISYS TECHNOLOGIES, INC. AND SUBSIDIARY
(A Development Stage Company)
Notes to the Consolidated Financial Statements
June 30, 2000 and December 31, 1999
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.
j. Basic Loss Per Share
<TABLE>
<CAPTION>
For the For the
Three Months Ended Six Months Ended
June 30, June 30,
----------------------------------------------------------------------------
2000 1999 2000 1999
---------------- --------------- --------------- ----------------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Basic loss per share from
continuing operations:
Income (loss) - numerator $ (1,333,085) $ (159,161) $ (4,500,480) $ (372,563)
Shares - denominator 59,139,358 35,225,320 56,380,556 34,883,961
Per share amount $ (0.02) $ (0.00) $ (0.08) $ (0.01)
Basic loss per share from
discontinued operations:
Income (loss) - numerator $ (43,452) $ (25,774) $ (1,423,406) $ (17,956)
Shares - denominator 59,139,358 35,225,320 56,380,556 34,883,961
Per share amount $ (0.00) $ (0.00) $ (0.03) $ (0.00)
</TABLE>
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 financial statements. Shares to be issued from warrants and
options are not included in the computation because they would
have an antidilutive effect on the net loss per common share.
k. Advertising
The Company follows the policy of charging the costs of
advertising to expense as incurred.
l. Credit Risks
Medisys maintains its cash accounts primarily in one bank in
Louisiana. The Federal Deposit Insurance Corporation insures
accounts to $100,000. The Company's accounts occasionally exceed
the insured amount.
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<PAGE>
MEDISYS TECHNOLOGIES, INC. AND SUBSIDIARIES
(A Development Stage Company)
Notes to the Consolidated Financial Statements
June 30, 2000 and December 31, 1999
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
m. Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management of
the Company and its Subsidiaries 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 $-0- at June 30, 2000 and December 31, 1999.
o. Change in Accounting Principle
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. The adoption of this statement had no material
impact on the Company's financial statements.
p. Unaudited Consolidated Financial Statements
The accompanying unaudited consolidated financial statements
include all of the adjustments which, in the opinion of
management, are necessary for a fair presentation. Such
adjustments are of a normal recurring nature.
NOTE 2 - PAYABLE - SHAREHOLDERS
From time to time, the Company receives advances from certain
shareholders. The company also advances funds to shareholders. The
outstanding balances of these advances fluctuates during the year
and do not have specific repayment terms although the advances are
generally considered to be due or payable on demand. Accordingly,
the related receivable or payable has been reflected as current in
the accompanying consolidated financial statements. At June 30,
2000, the balance payable to shareholders totaled $18,456. At
December 31, 1999, the balance payable to shareholders totaled
$140,758.
-15-
<PAGE>
MEDISYS TECHNOLOGIES, INC. AND SUBSIDIARIES
(A Development Stage Company)
Notes to the Consolidated Financial Statements
June 30, 2000 and December 31, 1999
NOTE 3 - DEBENTURES PAYABLE - RELATED PARTIES
The Company also has notes payable (debentures) to various
shareholders in the aggregate of $-0- and $92,000 at June 30, 2000
and December 31, 1999, respectively. The balance of $92,000 was
converted into 180,000 shares of common stock during the first
quarter of 2000.
NOTE 4 - STOCK SUBSCRIPTION RECEIVABLE
During 1999, the Company issued 5,555,555 shares of common stock
for $1,000,000. Payment for the common stock was made with a
non-interest bearing promissory note. Those shares are being held
in escrow as collateral until the note is paid. As of June 30,
2000, $550,000 on the note had been paid and the balance of
$450,000 was forgiven by the Company in order to repurchase
1,000,000 of the shares of common stock (the Company also received
900,000 common stock warrants). These shares are being held by the
Company as treasury stock.
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 5 - NOTES PAYABLE - SHAREHOLDERS
<TABLE>
<CAPTION>
Notes payable - shareholders consisted of the following:
June 30, December 31,
2000 1999
------------------ ------------------
(Unaudited)
<S> <C> <C>
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 12,500
------------------ ------------------
Total 12,500 25,000
Less current portion (12,500) (25,000)
------------------ ------------------
Total long-term portion $ - $ -
================== ==================
</TABLE>
The note payable is technically in default. The related note
holder has not demanded repayment however the Company is in the
process of locating this shareholder and negotiating repayment
terms.
-16-
<PAGE>
MEDISYS TECHNOLOGIES, INC. AND SUBSIDIARIES
(A Development Stage Company)
Notes to the Consolidated Financial Statements
June 30, 2000 and December 31, 1999
NOTE 6 - COMMON STOCK
During 1999, the Company issued 324,477 shares of its common stock
in satisfaction of accrued wages of $90,000. The Company issued
1,435,000 shares of its common stock to convert $303,000 of
debentures payable. The Company issued 3,305,737 shares of its
common stock for services and interest expense. The shares issued
for services and interest were valued at the trading price of the
common stock on the date the shares were issued. The Company
issued 3,388,443 shares of its common stock for cash of $521,135.
The Company issued 8,889 shares of its common stock from the
exercise of warrants for cash of $10,000. Finally, certain
officers and directors of the Company canceled 972,214 shares of
common stock and the shares were reissued to convert a portion of
the debentures payable.
During 2000, the Company issued 588,500 shares of its common stock
in satisfaction for debentures and notes payable of $144,500. The
Company issued 3,097,314 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 2,888,332
shares of its common stock for cash at approximately $0.24 per
share. Finally, the Company issued 188,833 shares of its common
stock from the exercise of warrants for cash of $83,333.
NOTE 7 - 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, 1999. 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.
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. The cash
bonus is not designed to exceed 50% of their annual compensation
and stock bonuses are not designed to exceed 100% of their annual
compensation. However, additional compensation may be awarded by
the Board of Directors under the terms of the employment
contracts.
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 $900 per month, expiring in September
2000.
-17-
<PAGE>
MEDISYS TECHNOLOGIES, INC. AND SUBSIDIARIES
(A Development Stage Company
Notes to the Consolidated Financial Statements
June 30, 2000 and December 31, 1999
NOTE 7 - COMMITMENTS AND CONTINGENCIES (Continued)
Legal Issues
------------
On March 16, 2000, the Company filed a Complaint against Brett
Phillips, Elbert Carl Anderson, William H. Morris, Marilyn Morris
and Barbara Larkins in the United States District Court in and for
the Middle District of Louisiana, alleging various securities law
violations and related claims in connection with the 1998
acquisition by the Company from the defendants of Phillips
Pharmatech Labs, Inc. The Company is seeking recission of the
acquisition, damages and other relief. The Company anticipated
that these defendants would file various retaliatory claims. The
Company believes that the suit filed is in the best interests of
the shareholders and that it should not interfere with the core
focus and business of the Company.
On May 9, 2000, E. Carl Anderson, William Morris and Brett
Phillips, filed a derivative action lawsuit in the United States
District Court, Middle District of Florida, cash number
8:00CV905-T 24F against the Company and the current directors of
the Company. The action was filed by Messrs. Anderson, Morris and
Phillips acting by and in behalf of the Company. The complaint
alleges corporate waste in the form of excessive salaries and
bonuses and other alleged wastes related to Phillips. The
Complaint seeks injunctive relief and damages. Each of the
plaintiffs in this action is also a defendant in the lawsuit
previously filed by the Company on March 16, 2000 referenced
above. The Company has not yet responded to the complaint and has
not determined whether the action could cause material damages to
the Company.
Phillips is a party to various other legal proceedings. These
primarily involve commercial claims and one action involves a
former employee. The Company cannot predict the outcome of these
lawsuits, legal proceedings and claims with certainty.
Nevertheless, the Company believes that the outcome of all of
these proceedings, even if determined adversely, would not have a
material adverse effect on the Company's business or financial
condition. There is a possibility that due to Phillips
discontinuing its operations, both Phillips and the Company could
be the subject of future actions.
Manufacturing Agreement
-----------------------
On January 19, 2000, the Company entered into a manufacturing
agreement for the production of the Company's patented syringes.
The Company has agreed to pay $500,000 cash and issue 7,000,000
shares of its common stock as part of the agreement. At June 30,
2000, $500,000 had been paid and 1,500,000 shares had been
released from escrow as payment. The remaining 5,500,000 shares
have been issued and have been classified as a prepaid expense
because the services had not yet been performed at June 30, 2000.
-18-
<PAGE>
MEDISYS TECHNOLOGIES, INC. AND SUBSIDIARIES
(A Development Stage Company)
Notes to the Consolidated Financial Statements
June 30, 2000 and December 31, 1999
NOTE 8 - CONVERTIBLE DEBENTURES
The Company received a $2,000,000 face value 6% convertible
debenture due August 31, 2001. The conversion price of the
debentures is the lower of 85% of the market price of the
Company's common stock at the conversion date or $2.00. The
conversion discount of 15% will be charged to interest expense and
$300,000 has been expensed during the six months ended June 30,
2000. The Company also issued warrants to purchase 300,000 shares
of the Company's common stock at an exercise price of $2.00 per
share.
NOTE 9 - COMMON STOCK WARRANTS
As of March 31, 2000, the Company had outstanding warrants for the
issuance of common stock as follows:
<TABLE>
<CAPTION>
Number of Date Expiration Exercise Estimated
Warrants Issued Dates Prices Proceeds
-------------------- --------------- ---------------- ---------------------- ------------------
<S> <C> <C> <C> <C> <C>
300,000 1995 2005 $2.6250 $ 787,500
2,684,432 1996 2000-2001 $ 1.0000 - $4.2500 6,506,741
977,737 1997 2000-2002 $ 0.6875 - $1.8750 1,188,211
5,194,322 1998 2000-2005 $ 0.2500 - $4.2500 9,929,502
1,514,525 1999 2001-2002 $ 0.4000 - $0.7500 748,263
3,316,752 2000 2003 $ 0.5000 - $2.0000 4,561,085
-------------------- ------------------
13,987,768 $ 23,721,302
==================== ==================
</TABLE>
During 1999, the Company completed private placements of common
stock wherein the purchaser of one share of the Company's common
stock received one-half (1/2) a warrant to purchase common stock
at prices ranging from $0.50 to $0.75 per share. The Company
issued 1,244,525 common stock warrants pursuant to these private
placements. The Company also issued 270,000 common stock warrants
as bonuses to certain officers and directors of the Company
exercisable at $0.40 per share. All common stock warrants issued
in 1999 had exercise prices at or above the trading price of the
shares.
During the first quarter of 2000, the Company completed private
placements of common stock wherein the purchaser of one share of
the Company's common stock received one- half (1/2) a warrant to
purchase common stock at prices ranging from $0.50 to $0.75 per
share, which was at or above the trading price of the shares. The
Company issued 1,444,166 common stock warrants pursuant to these
private placements. The Company also issued 103,836 common stock
warrants as additional compensation for services rendered during
the quarter exercisable at $0.50 per share. These warrants were
issued at $1.375 below the trading price of the shares on the date
of issuance and the difference has been expensed in the current
period. Finally, an additional 1,625,000 warrants to purchase
common stock of the Company at an exercise price of $2.00 per
share were issued as additional compensation for the financing
arrangement entered into during the quarter. These warrants were
issued at exercise prices at or above the trading price of the
shares.
-19-
<PAGE>
MEDISYS TECHNOLOGIES, INC. AND SUBSIDIARIES
(A Development Stage Company)
Notes to the Consolidated Financial Statements
June 30, 2000 and December 31, 1999
NOTE 10 - 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 1999, the Company was able to
raise working capital through the private placement of its common
stock. The Company has now closed a private placement of combined
debt and equity of up to $14,000,000 for operating capital of
which $2,000,000 has been received in 2000. The Company believes
cash flow projections now show the Company's reserves should be
adequate to cover its operating needs as well as its needs for
the expansion of its research and development projects and for
the initial commercialization of its proprietary products. The
Company also expects to generate additional revenue from the
sales of its proprietary products.
NOTE 11 - DISCONTINUED OPERATIONS
Effective April 1, 2000, Phillips ceased all operations. The
following is a summary of the loss from discontinued operations
resulting from the elimination of the operations of Phillips. The
financial statements have been retroactively restated to reflect
this event. The Company has established a reserve for discontinued
operations of $1,726,923 which consists of net liabilities in
excess of recoverable assets at June 30, 2000. No tax benefit has
been attributed to the discontinued operations.
<TABLE>
<CAPTION>
June 30,
----------------------------------------------
2000 1999
----------------- ------------------
(Unaudited) (Unaudited)
<S> <C> <C>
NET SALES $ 300,431 $ 1,527,248
----------------- ------------------
OPERATING EXPENSES
Cost of sales 267,480 1,038,413
General and administrative 216,226 471,525
Depreciation 20,066 21,334
----------------- ------------------
Total Operating Expenses 503,772 1,531,272
----------------- ------------------
LOSS FROM OPERATIONS (203,341) (4,024)
----------------- ------------------
OTHER INCOME (EXPENSES)
Loss on write down of assets (1,212,418) -
Interest expense (7,646) (13,932)
----------------- ------------------
Total Other Income (Expense) (1,220,064) (13,932)
----------------- ------------------
LOSS BEFORE INCOME TAXES (1,423,405) (17,956)
INCOME TAXES - -
----------------- ------------------
LOSS FROM DISCONTINUED OPERATIONS $ (1,423,405) $ (17,956)
================= ==================
</TABLE>
-20-
<PAGE>
Item 2. Management's Discussion and Analysis or Plan of Operation
Results of Operations
On May 18, 2000, Medisys Technologies, Inc. (the"Company") announced
that its wholly owned subsidiary, Phillips Pharmatec Labs, Inc. ("Phillips"),
had ceased all operations. Accordingly, the Company has eliminated the
operations of Phillips from its financial results and its financial statements
have been retroactively restated to reflect this event. The Company has
established a reserve for discontinued operations of $1,726,923 which consists
of net liabilities in excess of recoverable assets at June 30, 2000.
Without Phillips' results, the Company had only nominal revenues for
the three month period ("second quarter") and six month period ended June 30,
2000. The Company also had only nominal revenues for the comparable 1999 periods
upon elimination of Phillips' results. The Company does not expect a significant
increase in revenues until it begins full commercial marketing of one or more of
its products, which is expected for introduction in the fourth quarter of 2000.
During the second quarter and first half of 2000, the Company expended
$267,951 and $1,907,386, respectively, for product research and development,
compared to $33,749 and $76,400 for the same 1999 periods. The increase during
the first half of 2000 is due to finalizing the CoverTipTM technology in
preparation for commercial release, development, manufacturing and marketing
resources and to secure additional intellectual property rights. Selling,
general and administrative expenses for the second quarter and first half of
2000 were $904,460 and $2,273,054, respectively, compared to $122,297 and
$260,339 for the respective 1999 periods. The increases in the 2000 periods are
primarily due to stock being issued for services and salaries and warrants being
issued below current market price.
The operating loss for the second quarter and first half of 2000 was
$1,177,386 and $4,189,326, respectively, compared to losses of $158,514 and
$1,177,386 for the same 1999 periods. The increased loss during the 2000 periods
is attributed to increased research and development costs, stock issued for
services, product manufacturing and increased general and administrative
expenses.
Interest expense for the second quarter and first half of 2000 was
$166,520 and $328,520, respectively, compared to $647 and $166,520 for the same
1999 periods. The 2000 increases are due to conversion discount on debentures
issued. Because of the Phillips closure, the Company recognized a loss from
discontinued operations of $43,452 and $1,423,406 for the second quarter and
-21-
<PAGE>
first half of 2000, respectively. Comparatively, the Company recognized a loss
from discontinued operations of $25,774 and $17,956 for the second quarter and
first half of 1999. The net loss for the second quarter and first half of 2000
was $1,376,537 and $5,923,886, compared to $184,935 and $390,519 for the 1999
periods.
Although Phillips has discontinued operations, it had net sales of
$300,431 for the first half of 2000 compared with $1,527,248 for the first half
of 1999. Cost of sales decreased to $267,480 for the first half of 2000 from
$1,038,413 for the comparable 1999 period, reflecting the decrease in sales.
General and administrative expenses decreased to $216,226 for the first half of
2000 from $471,525 in the first half of 1999. Phillips also recorded a loss on
the write down of assets or $1,212,418 during the first half of 2000 related to
its ceasing operations. Phillips' net loss for the first half of 2000 was
$1,423,405 compared to a net loss of $17,956 for the 1999 period.
Phillips has filed for protection under Chapter 7 of the United States
Bankruptcy Code in the Untied States Bankruptcy Court of the Middle District of
Florida, Tampa Division (file no. 0009224-8G7).
Liquidity and Capital Resources
The Company has historically derived its working capital from financing
activities, including private loans and raising capital through the sale of
securities. Working capital at June 30, 2000 was a negative $458,775 compared to
a negative $860,981 at December 31, 1999. Cash used by operating activities for
the second quarter and first half of 2000 was $931,555 and $2012,798,
respectively, compared to cash used of $24,140 and $65,877 for the same 1999
periods. The increase in cash used during the 2000 periods was due to the
increased net loss. The results were partially offset by common stock being
issued for services and interest of $346,872 and $2,250,583 during the second
quarter and first half of 2000, respectively, and the $1,212,418 write down from
Phillips discontinuing operations in first half of 2000. Also during the second
quarter and first half of 2000, the Company realized $1,050,000 and 3,223,309,
respectively, from financing activities. This was primarily due to $698,750
realized from the sale of common stock and $2,000,000 from the issuance of
convertible debentures during the first half of 2000.
At June 30, 2000, the Company had cash of $1,390,469 compared to $290,269 at
December 31, 1999. The increase in cash is due to the sale of stock and issuance
of debentures. Also at June 30, 2000, the Company had total assets of $1,983,929
and stockholders' deficit of $1,897,480. In comparison, at December 31, 1999 the
Company had total assets of $2,105,780 and total stockholders' deficit of
$43,535. The increase in stockholders' deficit is directly related to the
discontinued operations of Phillips.
-22-
<PAGE>
Management believes that the Company has sufficient capital resources
and commitments to fund anticipated operations through the end of 2000.
The Company intends to acquire 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. During
the first quarter of 2000, the Company entered into a firm agreement for the
acquisition of up to $14 million of capital from private sources. Through June
30, 2000, the Company had realized $2,000,000 of this funding. Initial proceeds
are being used primarily to begin the production and commercial launch of the
Company's lead product, the CoverTipTM, and for the development of VacuSafTM,
SofDrawTM, PreSafTM and for other general corporate purposes.
If additional funding is not realized or if the Company is unable to
commercially market its products under development, it could experience a
further need for cash during fiscal 2000. In this event, the Company could
experience further losses and may be forced to curtail operations or postpone
product development and expansion plans. The Company's continuation as a going
concern is directly dependent upon its ability to market its products under
development and to realize additional funds from its current financing.
Net Operating Loss
The Company has accumulated approximately $15,000,000 of net operating
loss carryforwards as of June 30, 2000, which may be offset against taxable
income and income taxes in future years. The use of these losses to reduce
future income taxes will depend on the generation of sufficient taxable income
prior to the expiration of the net operating loss carryforwards. The
carry-forwards expire in the year 2020. In the event of certain changes in
control of the Company, there will be an annual limitation on the amount of net
operating loss carryforwards which can be used. No tax benefit has been reported
in the financial statements for the period ended June 30, 2000 because there is
a 50% or greater chance that the carryforward will not be used. Accordingly, the
potential tax benefit of the loss carryforward is offset by a valuation
allowance of the same amount.
Inflation
In the opinion of management, inflation has not had a material effect
on the operations of the Company.
Year 2000
The Year 2000 issue results from a computer industry-wide practice of
representing years with only two digits instead of four. Beginning in the year
2000, date code fields need to accept four digit entries to distinguish
twenty-first century dates from twentieth century dates (2000 or 1900). As a
result, computer systems and/or software used by many companies needed to be
upgraded to comply with such Year 2000 requirements.
Through June 30, 2000, the Company has not experienced any significant
problems associated with the Year 2000 issue nor has it been made aware of or
experienced date related problems with any third-party software. Although it
appears that the Year 2000 issue will not have a significant adverse effect on
the Company, it continues to monitor the Year 2000 compliance of its internal
systems. Undetected errors in its internal systems that may be discovered in the
future could have a material adverse effect on its business, operating results
or financial condition.
-23-
<PAGE>
Risk Factors and Cautionary Statements
Forward-looking statements in this report are made pursuant to the
"safe harbor" provisions of the Private Securities Litigation Reform Act of
1995. The Company wishes to advise readers that actual results may differ
substantially from such forward-looking statements. Forward-looking statements
involve risks and uncertainties that could cause actual results to differ
materially from those expressed in or implied by the statements, including, but
not limited to, the following: the ability of the Company to secure additional
financing, the development of the Company's existing and new products, the
potential market for the Company's products, competitive factors, and other
risks detailed in the Company's periodic report filings with the Securities and
Exchange Commission.
PART II
Item 1. Legal Proceedings
On March 16, 2000, the Company filed a Complaint against Brett
Phillips, Elbert Carl Anderson, William H. Morris, Marilyn Morris and Barbara
Larkins in the United States District Court in and for the Middle District of
Louisiana, alleging various securities law violations and related claims in
connection with the 1998 acquisition by the Company from the defendants of
Phillips Pharmatech Labs, Inc. The Company is seeking recission of the
acquisition, damages and other relief. The Company anticipated that these
defendants would file various retaliatory claims. The Company believes that the
suit filed is in the best interests of the shareholders and that it should not
interfere with the core focus and business of the Company.
On May 9, 2000, E. Carl Anderson, William Morris and Brett Phillips,
filed a derivative action lawsuit in the United States District Court, Middle
District of Florida, case number 8:00CV905-T 24F, against the Company and the
current directors of the Company. The action was filed by Messrs. Anderson,
Morris and Phillips acting by and in behalf of the Company. The complaint
alleges corporate waste in the form of excessive salaries and bonuses and other
alleged wastes related to Phillips. The complaint seeks injunctive relief and
damages. Each of the plaintiffs in this action is also a defendant in the
lawsuit previously filed by the Company on March 16, 2000 referenced above. On
August 17, 2000, the District Court in Florida held a hearing and took under
advisement a motion by the Company to dismiss the entire proceeding, and a
motion by the plaintiffs for injunctive relief to call for a new election of
directors. The Company has not determined whether the action could cause
material damages to the Company.
-24-
<PAGE>
In connection with the Company's March 16, 2000 lawsuit, it filed with
the Third District Court, Salt Lake County, Utah, an action seeking an
injunction to prevent the sale and/or transfer of shares of the Company's common
stock by various defendants in the Company's suit and other parties. On June 28,
2000, the Utah Court issued an injunction and order enjoining from transfer
approximately 13,500,000 shares of the Company's common stock held by the
various defendants and others. The Company believes that it is vital to the
success of its lawsuit to prevent certain persons from selling and/or
transferring shares prior to the resolution of the action. Pursuant to the
Court's order, the aforementioned shares are to be deemed "restricted
securities" and all certificates representing said share shall bear an
appropriate restrictive legend. The injunction is set to expire on August 22,
2000.
Phillips is a party to various other legal proceedings. These primarily
involve commercial claims and one action involves a former employee. The Company
cannot predict the outcome of these lawsuits, legal proceedings and claims with
certainty. Nevertheless, the Company believes that the outcome of all of these
proceedings, even if determined adversely, would not have a material adverse
effect on the Company's business or financial condition. There is a possibility
that due to Phillips discontinuing its operations, both Phillips and the Company
could be the subject of future actions.
Item 2. Changes in Securities and Use of Proceeds
During the three month period ended June 30, 2000, the Company issued
an aggregate of 11,949,129 shares of authorized, but previously unissued common
stock. Of this amount, (i) 2,783,464 shares were issued in exchange for services
rendered valued at $.68 per share; (ii) 2,888,332 shares were issued for cash of
$698,750, or $0.24 per share; (iii) 5,500,000 shares were issued for prepaid
service involving the acquisition of manufacturing capabilities for the
CoverTipTM safety syringe, valued at $0.36 per share; (iv) 188,833 shares issued
upon exercise of common stock warrants at an average of $0.44 per share; and (v)
588,500 shares for the conversion of debentures and notes payable and valued at
$0.25 per share. Proceeds realized from the cash sales for general Company
operations including reduction of debt, and developing and initial marketing of
the CoverTipTM.
The above issuances of shares were made in private transactions to
persons having received information concerning the Company and its business
operations. Accordingly, the Company relied upon the exemption from registration
under the Securities Act of 1933, as amended (the "Act"), provided by Sections
4(2) and 3(a)(9) of the Act.
During 1999, the Company issued 5,555,555 shares of common stock for
$1,000,000, pursuant to a non-interest bearing promissory note executed by Dr.
Charles Potter. The shares were to be held in escrow as collateral until the
note is paid. As of June 30, 2000, $550,000 on the note had been paid and the
balance of $450,000 was forgiven by the Company. In connection with forgiving
the note, 1,000,000 shares of common stock and 900,000 common stock warrants
were returned to the Company and are being held by the Company as treasury
shares.
-25-
<PAGE>
Item 3. Defaults Upon Senior Securities
This Item is not applicable to the Company.
Item 4. Submissions of Matters to a Vote of Security Holders
On Wednesday, May 10, 2000, pursuant to proper notice to stockholders,
the Company held its Annual Meeting of Stockholders at the AmeriSuites Hotel,
Baton Rouge, Louisiana. At the Meeting, the following incumbent directors were
elected, by the indicated vote, to serve as directors until the next Annual
Meeting of Stockholders or until their successors are elected and qualified.
Nominee For Against Abstain
------- ---------- --------- ---------
Edward P. Sutherland 41,620,545 5,486,221 8,234,472
Kerry M. Frey 41,622,545 5,786,221 8,234,473
William D. Kiesel 41,622,545 5,786,221 8,234,473
Dr. Timothy Andrus 41,622,545 5,786,221 8,234,473
Dr. Robert L. diBenedetto 41,622,545 5,786,221 8,234,473
Dr. Charles Potter 41,622,545 5,786,221 8,234,473
In addition to the election of directors, shareholders ratified the
appointment of H J & Associates, LLP, formerly Jones, Jensen & Company, as
independent auditors for the Company's fiscal year ending December 31, 2000 by a
vote of 47,420,510 for, 24,045 against, and 8,194,684 abstaining.
At the meeting, Carl Anderson, at the time an incumbent director,
requested that he be permitted to submit an alternate slate of directors.
Because no prior notice, either by proxy or otherwise, had been given to the
Company or to shareholders, Mr. Anderson's request was not honored. However, the
Chairman of the Meeting determined that a record be made of what the vote would
be if the alternate slate of directors was voted upon. Accordingly, Mr. Anderson
nominated William L. Morris and Michael Leverso as directors, the nominations
were seconded and voted on by the shareholders in attendance and by proxies. The
results were as follows:
<TABLE>
<CAPTION>
Nominee For Against Abstain
------- ---------- ---------- ---------
<S> <C> <C> <C>
William L. Morris 13,957,530 41,622,545 -0-
Michael Leverso 13,957,530 41,622,545 -0-
The results of the vote, if proxies
were excluded, was as follows:
Nominee For Against Abstain
------- ---------- ---------- ---------
William L. Morris 8,234,473 16,623,552 -0-
Michael Leverso 8,234,473 16,623,552 -0-
</TABLE>
-26-
<PAGE>
Item 5. Other Information
This Item is not applicable to the Company.
Item 6. Exhibits and Reports on Form 8-K
On July 21, 2000, the Company filed a report on Form 8-K reporting
under Item 5 that on June 28, 2000, a Utah Court issued an injunction and order
enjoining from transfer approximately 13,500,000 shares of the Company's common
stock. The action is in connection with certain litigation described in Part II,
Item 1 above.
-27-
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
MEDISYS TECHNOLOGIES, INC.
BY: /S/ EDWARD P. SUTHERLAND
------------------------------
EDWARD P. SUTHERLAND
Chairman, Chief Executive
Officer, Treasurer and
Director
DATE: August 21, 2000
BY: /S/ KERRY FREY
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KERRY FREY
President, Chief Operating
Officer and Director
DATE: August 21, 2000
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