As Filed with the Securities and Exchange Commission on June 8,2000
Registration No. 333-35598
================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 1
to
FORM SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
MEDISYS TECHNOLOGIES, INC.
(Name of small business issuer in its charter)
Utah 3841 72-1216734
(State or other (Primary Standard Industrial (I.R.S. Employer
jurisdiction of Classification Code Number) Identification Number)
incorporation or
organization)
144 Napoleon Street, Baton Rouge, Louisiana, 70802
(225) 343-8024
(Address and telephone number of principal executive offices)
144 Napoleon Street, Baton Rouge, Louisiana, 70802
(Address of principal place of business or intended principal place of business)
Edward P. Sutherland
Medisys Technologies, Inc.
144 Napoleon Street
Baton Rouge, Louisiana, 70802
(225) 343-8024
(Name, address and telephone number of agent for service)
Copy to:
Leonard E. Neilson, Esq.
Leonard E. Neilson, P.C.
8160 South Highland Drive, Suite 209
Sandy, Utah 84093
Approximate date of proposed sale to the public: As promptly as
practicable after the effective date of this Registration Statement.
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering: [ ]
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check he following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering: [ ]
If this Form is a post-effective amendment filed pursuant to Rule
462(d) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering: [ ]
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box:[ ]
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<CAPTION>
CALCULATION OF REGISTRATION FEE
Proposed Proposed
Maximum Maximum Amount of
Title each class of Amount to Offering Aggregate Registra-
Securities be Price Per Offering tion
to be Registered Registered Share Price Fee(1)
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<S> <C> <C> <C> <C>
Common stock issuable 5,000,000 $1.00 $5,000,000 $1,320.50
upon conversion of 6% shares(3) per
Convertible Debenture share(2)(3)
========================================= ================== ================== ==================== =================
Common stock issuable 125,000 $2.00 per $ 250,000 $ 66.00
upon exercise of common shares share
stock purchase warrants
========================================= ================== ================== ==================== =================
Common stock issuable 7,125,000 $1.00 $7,125,000 $1,881.00
under line of credit shares(4) per
share(2)
========================================= ================== ================== ==================== =================
Common stock issuable 1,125,000 $2.00 $2,250,000 $ 594.00
upon exercise of common shares per share
stock purchase warrants
by Treadstone Investments
Limited
========================================= ================== ================== ==================== =================
Common stock issuable 500,000 $ 2.00 $1,000,000 $ 264.00
upon exercise of common shares per share
stock purchase warrants
by Jesup & Lamont
Securities Corporation
========================================= ================== ================== ==================== =================
Common stock offered by 7,000,000 $1.00 (2) $7,000,000 $1,848.00
Dispomedic 2000 per share
========================================= ================== ================== ==================== =================
TOTAL FEE $5,973,00(5)
</TABLE>
(1) The fee with respect to these shares and as required by Section 6(b) of
the Securities Act of 1933, as amended, (the "Securities Act"), has
been calculated pursuant to Rule 457(c) under the Securities Act and
based upon the last sale price per share of the Issuer's common stock
on a date within five (5) days prior to the date of filing this
Registration Statement, as reported by the OTC Bulletin Board.
(2) Estimated solely for purposes of calculating the registration fee and
base on the last sale price per share on April 24, 2000.
(3) Estimated 3,000,000 shares issuable upon conversion of $2,000,000
aggregate principal amount of 6% Convertible Secured Debentures at a
conversion price for each share equal to the lower of (a) 85% of the
market price of our common stock at the conversion date, or (b) $2.00
per share. The estimated amount allows for a possible decrease in the
market price.
(4) Estimated 7,125,000 shares issuable pursuant to our equity line of
credit agreement with Treadstone Investments Limited.
(5) A fee of $9,118.50 was previously paid upon the initial filing of the
registration statement.
The Registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
<PAGE>
PRELIMINARY PROSPECTUS SUBJECT TO COMPLETION
PROSPECTUS
MEDISYS TECHNOLOGIES, INC.
20,875,000 Shares of Common Stock
This prospectus may be used only in connection with the following
resales of common stock of Medisys Technologies, Inc.:
o 5,000,000 shares may be offered and sold, from time to time,
by AMRO International, S.A., who will originally receive all
or a portion of these shares upon conversion of the $2,000,000
principal amount of our 6% Convertible Debentures due August
31, 2001 (the "Debentures") and our Convertible Debentures and
Warrants Purchase Agreement with AMRO, or as payment of
principal and accrued interest on these debentures
o an additional 125,000 shares may be offered and sold, from
time to time, by AMRO, who will originally receive these
shares upon exercise of warrants
o 7,125,000 shares may be offered and sold, from time to time,
by Treadstone Investments Limited, who will originally receive
all or a portion of these shares pursuant to the exercise of
put options under our equity line of credit agreement with
Treadstone
o an additional 1,125,000 shares may be offered and sold, from
time to time, by Treadstone, who will originally receive these
shares upon exercise of warrants
o 500,000 shares may be issued by Jesup & Lamont Securities
corporation, who will originally receive these shares upon
exercise of warrants
o 7,000,000 may be offered and sold, from time to time, by
Dispomedic 2000, who originally received these shares pursuant
to our manufacturing agreement with Dispomedic on January 19,
2000
We refer to AMRO, Treadstone, Dispomedic, Jesup & Lamont and other
stockholders who may offer and sell shares of our common stock under this
prospectus as "Selling Stockholders."
Pursuant to our equity line of credit agreement with Treadstone,
beginning on the date the registration statement, of which this prospectus forms
a part, is declared effective by the SEC and for a period of eighteen months
thereafter, subject to certain conditions we may from time to time, in our sole
discretion, sell or "put" shares of our common stock to Treadstone. Thereafter,
Treadstone may resell these shares pursuant to this prospectus. Treadstone is an
"underwriter" within the meaning of the securities Act in connection with these
sales.
We will not receive any proceeds from the sale of shares by the Selling
Stockholders. However, we will receive the benefit of reducing our debt upon the
conversion of the convertible debentures and we will receive funds upon the
issuance of shares under the equity line of credit agreement and upon exercise
of the warrants.
Our common stock currently trades on the OTC Bulletin Board under the
symbol "SCEP." The last reported selling price on June 6, 2000 was $1.00.
Investing in our common stock involves risks which are described in the
"risk Factors" section beginning on page 8 of this Prospectus.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
The date of this Prospectus is June __, 2000
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TABLE OF CONTENTS
Page
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Prospectus Summary................................................... 3
Risk Factors......................................................... 8
Use of Proceeds......................................................14
Market Prices and Dividends..........................................14
Management's Discussion and Analysis of Financial
Condition and Results of Operations................................15
Business.............................................................20
Management...........................................................38
Certain Transactions.................................................43
Description of Common Stock..........................................43
Shares Eligible for Future Sale......................................45
Plan of Distribution.................................................47
Selling Stockholders.................................................48
Legal Matters........................................................50
Experts..............................................................50
Consolidated Financial Statements.................................F-1 - F-41
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You should rely only on the information contained in this prospectus.
We have not authorized any other person to provide you with different
information. This prospectus is no an offer to sell, nor is it seeking an offer
to buy, theses securities in any state where the offer or sale is not permitted.
The information in this prospectus is complete and accurate as of the date on
the front cover, but the information may have changed since that date.
All references in this prospectus to "we," "us" and "our" refer to
Medisys Technologies, Inc., unless indicated otherwise.
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<PAGE>
PROSPECTUS SUMMARY
This summary highlights selected information from this prospectus, but
does not contain all of the information that may be important to you. This
prospectus includes specific terms of this offering, information about our
business and financial data. We encourage you to read this prospectus in its
entirety, particularly the "Risk Factors" and financial statements and notes,
before making an investment decision.
WHAT WE DO
We are a diversified medical company which designs and develops medical
device products for use in the healthcare industry. Currently, we are
concentrating on commercializing the CoverTip(TM) Hypodermic Safety Syringe. We
are also developing other products intended to reduce the occurrence of
accidental needlesticks in the healthcare workplace. These products are similar
in appearance, use and size to standard non-safety devices commonly used and
offer a range of medical diagnostic and treatment applications. Our new products
are in various stages of development and include:
o PreSafTM, a safety syringe designed for use with pre- filled
medicines for syringes;
o SofDrawTM, a blood/fluid collection syringe designed to
protect the user from an accidental self-puncture with a
contaminated needle;
o AmnioSafTM, a safety syringe device designed to protect both
the physician and the fetus during amniocentesis.
o VacuSafTM, a device using CoverTipTM technology in combination
with an adapted passive energy source that covers and protects
the sharp of a blood collection needle while it is still in
the vein.
o BxDrawTM, a fine needle biopsy safety device, used during fine
needle fluid aspiration treatment.
o BX-T-DrawTM (OBTSN), an obdurated titanium safety needle
designed for use with MRI (Magnetic Resonance Imaging)
placement to take a tissue sample with a cutting needle.
o CoverStikTM, a device that permits safe collection of
capillary blood.
In addition to CoverTipTM and related safety products, we may also
decide to complete the design and development of other products summarized
below:
o SofCepsTM is an obstetrical tractor (birth assistance delivery
device) designed, in part, to replace traditional steel
obstetrical forceps and vacuum extractors used to assist child
birth. SofCepsTM is intended to offset the possible negative
obstetrical consequences related to assisted childbirth. Based
on our research and testing, we believe SofCepsTM can reduce
maternal/fetal injuries associated with the use of alternative
devices.
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<PAGE>
o VetCepsTM Obstetrical Tractor is a veterinary application of
the SofCepsTM. VetCepsTM is patented for veterinary
application in bovine (cattle), ovine (sheep), and equine
(horse) obstetrics. We have had minimal sales of VetCepsTM.
o DisKlipTM is a latex free, disposable securement device
designed to provide an easier, more efficient means of
attaching medical tubing used in intravenous administration of
medication (IV) and other medical tubing and lines.
o Re-TyTM is a releasable, adjustable and reusable "cable tie"
developed originally to enhance the VetCepsTM device. We have
three designs; side release, top release and enscoping. We
have conducted only limited market sampling and testing of the
top-release version.
In December 1998 we acquired a wholly owned subsidiary, Phillips Pharmatec Labs,
Inc., which manufactured nutriceutical health products of other companies on a
contract basis. Phillips ceased operations in May 2000 and is believed to be
insolvent. We have initiated legal action against the founders of Phillips
seeking, among other things, recission of the acquisition.
In order to fund our current activities and to secure necessary
additional funding for the development of our current and planned products, we
have entered into various agreements. During the first quarter of 2000, we took
the following actions to provide current and future funding:
o On February 28, 2000, we entered into the Convertible
Debentures and Warrants Purchase Agreement providing for the
issuance of $2,000,000 face value 6% Convertible Debentures
due August 31, 2001.
o On February 28, 2000, we entered into an equity line of credit
agreement with Treadstone to provide private equity financing
for a period of up to eighteen months from the effective date
of the registration statement to which this prospectus
relates. As soon as practicable after the effectiveness of the
registration statement, most likely within two weeks, we plan
to draw down the maximum initial amount permitted under the
equity line. We expect to continue to effect subsequent
drawdowns of the applicable maximum amount available under the
equity line approximately every 30 days, or as we deem prudent
and necessary based upon our corporate needs.
Our principal executive and administrative offices are located at 144
Napoleon Street, Baton Rouge, Louisiana 70802, and our telephone number is (225)
343-8022.
--------------
OUR BUSINESS STRATEGY
Our current strategy is to commercialize the CoverTipTM and develop
other related safety products. We believe our safety medical devices can assist
healthcare employers in meeting safety standards, established by the
Occupational Safety and Health Administration (OSHA) and other state and federal
agencies, intended to help eliminate or minimize occupational exposure to
bloodborne pathogens. Each product incorporates patented proprietary technology
enabling the healthcare professional to use standard operating techniques.
Proper use of our products can provide fail-safe protection to the user both
during and after the medical procedure. As part of our strategy of maximizing
its investment in sharps safety device design and development, Medisys has
developed various products, sizes and adaptations for a range of medical
diagnostic and treatment applications.
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<PAGE>
Because of our concentration on safety products, we have de- emphasized
development of our obstetrical assist products. We are continuing development on
a limited basis, and will increase development as funds are available or
consider, if practical, divesting one or more of these products.
--------------
SELLING STOCKHOLDERS
AMRO, Treadstone, Dispomedic and other Selling Stockholders may offer
and sell shares under this prospectus.
On February 28, 2000, we completed the offering to AMRO of $1,000,000
face value 6% Convertible Debentures Due August 31, 2001. An additional $500,000
was completed with the filing of our registration statement, of which this
prospectus is a part. A final $500,000 will be completed within five days of the
effectiveness of the registration statement. Debenture holders have the option,
at any time, until maturity, to convert the principal amount of their Debenture,
or any portion of the principal amount, into shares of our common stock. The
conversion price for each share shall be equal to the lower of (a) 85% of the
market price at the conversion date or (b) $2.00. AMRO also received stock
purchase warrants allowing them to purchase 125,000 shares of our common stock
at the exercise price of $2.00 per share. Jesup and Lamont received similar
options to purchase 75,000 shares.
On February 28, 2000, we entered into an equity line of credit
agreement with Treadstone to provide private financing for a period of up to
eighteen months from the effective date of the registration statement to which
this prospectus relates. Treadstone also received stock purchase warrants
allowing them to purchase 1,125,000 shares of our common stock at the exercise
price of $2.00 per share. Jesup and Lamont received similar options to purchase
425,000 shares.
As a provision of Debenture and line of credit agreement, we agreed to
file a registration statement with the SEC for the purpose of registering the
shares of common stock (i) into which the Debentures are convertible, (ii)
underlying the warrants, and (iii) which will be issued pursuant to the credit
line.
This prospectus also relates to 7,000,000 shares held by Dispomedic.
These shares were issued by us pursuant to a manufacturing agreement with
Dispomedic on January 19, 2000.
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<PAGE>
CONVERTIBLE DEBENTURES
This prospectus relates to shares of our common stock issuable to the
Selling Stockholders upon the conversion of $2,000,000 principal amount of 6%
Convertible Debentures. The following table sets forth the total amount of
shares issuable from conversion if all Debentures are converted at various
prices of our common stock, based upon the formula for conversion and without
taking into consideration interest and penalty. You should note that there is no
minimum price at which Debentures can be converted. Accordingly, if the price of
our stock declines, we will be obligated to issue more shares upon conversion of
Debentures. See "Description of Securities - Convertible Debentures and Stock
Purchase Warrants."
Conversion Number
Current Price(1) Price(2) of Shares
------------- ---------- ----------
$0.50 $0.425 4,705,882
$0.75 $0.6375 3,137,255
$1.00 $0.85 2,352,941
$1.50 $1.275 1,568,627
$2.00 $1.70 1,176,471
$2.50 $2.00(3) 1,000,000
-------------
(1) Assumed current market price of common stock at time of
conversion.
(2) Based on 85% of current market price.
(3) Maximum offering price.
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<TABLE>
<CAPTION>
THE OFFERING
<S> <C>
Securities offered by the
Selling Stockholders .......................... 20,875,000 shares of our common stock
Offering Price................................. Determined at the time of sale by
the Selling Stockholders
Common Stock Outstanding
Before Offering:............................. 59,063,995 shares(1)
Common Stock Outstanding
After Offering:.............................. 72,938,995 shares(2)
OTC Bulletin Board Symbol Common Stock: "SCEP"
Use of Proceeds................................ We will not receive any proceeds from
sales by the Selling Stockholders.
Risk Factors................................... The common stock offered involve a
high degree of risk and immediate
substantial dilution and should not be
purchased if you cannot afford the
loss of your entire investment.
Before purchasing any securities
offered, you should review carefully
and consider all information contained
in this prospectus, particularly the
items set forth under "Risk Factors."
</TABLE>
(1) Includes 7,000,000 shares of common stock presently issued and
outstanding and owned by Dispomedic, but does not include:
o 3,000,000 shares of common stock issuable upon conversion of
the 6% Convertible Debentures due August 31, 2001;
o 200,000 shares of common stock issuable upon exercise of
warrants issued as part of the Debentures on February 28,
2000;
o 7,125,000 shares of common stock issuable upon exercise of put
options under the equity line of credit agreement with
Treadstone; and
o 1,550,000 shares of common stock issuable upon exercise of
warrants issued as part of the equity line of credit agreement
on February 28, 2000.
(2) Assumes Debentures are converted into 3,000,000 shares of common stock,
7,125,000 shares are issued under the equity line of credit agreement,
and all warrants are exercised.
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RISK FACTORS
A purchase of our common stock is speculative and involves a high
degree of risk. You should consider carefully the following risks, together with
all other information included in this prospectus, before you decide to buy our
common stock. Please keep these risks in mind when reading this prospectus,
including any forward-looking statements appearing in this prospectus. If any of
the following risks actually occurs, our business, financial condition or
results of operations would likely suffer materially. As a result, the trading
price of our common stock may decline and you could lose all or part of the
money you paid to buy our common stock.
Risks Relating to Our Business
Our extremely limited operating history makes it difficult to
evaluate our business and prospects
We commenced operations in 1992 and only recently began to market and
sell our products. Most of our sales have been derived from our subsidiary,
Phillips Pharmatec Labs, Inc., acquired in December 1999. However, Phillips has
ceased operations and we have instituted legal action against the founders of
Phillips seeking, among other things, recission of the acquisition. Accordingly,
you have limited information about with which to evaluate our business,
strategies and performance and an investment in our common stock.
We have a history of losses and anticipate future losses
We have accumulated net operating losses of approximately $15.0 million
through March 31, 2000 and expect to incur net losses in the future. We had a
net loss of approximately 4.5 million for the three months ended March 31, 2000,
$1.7 million for the fiscal year ended December 31, 1999 and approximately $1.3
million for the year ended December 31, 1998. We anticipate continuing to incur
significant research and development, sales and marketing and general and
administrative expenses and, as a result, we will need to generate higher
revenues to achieve and sustain profitability. We cannot be certain we will
realize sufficient revenues to achieve profitability.
If our products are not accepted by the market, our revenues will
decline
Most of our products are in the development stage and we have only
recently introduced our first products to the market. Market acceptance of our
products is critical to our future success. Factors that may affect the market
acceptance of our products include:
o market acceptance of safety syringe and related product
technology;
o the features, performance, and cost of using our products;
o availability of competing products and technologies;
o the success and development of our marketing and distribution
channels;
o the quality of our customer service and support of our
products; and
o development of improved and new products to keep pace with
competitors.
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<PAGE>
Failure of our existing or future products to achieve and maintain
meaningful levels of market acceptance would materially adversely affect our
business, financial condition and results of operations.
Our operating results are likely to fluctuate significantly and cause
our stock price to be volatile which could cause the value of your investment in
our company to decline
Our quarterly or annual operating results are likely to fluctuate
significantly in the future due to a variety of factors, many of which are
outside of our control. If our operating results do not meet the expectations of
securities analysts, the trading price of our common stock could significantly
decline which may cause the value of your investment in our company to decline.
Some of the factors that could affect our quarterly or annual operating results
or impact the market price of our common stock include:
o our ability to develop, manufacture, market and support our
products and product enhancements;
o the timing and amount of, or cancellation or rescheduling of,
orders for our products, particularly large orders from key
customers;
o our ability to retain key management, sales and marketing and
engineering personnel;
o announcements, new product introductions and price reductions
in products offered by our competitors;
o our ability to obtain sufficient supplies of sole or limited
source components for our products;
o a decrease in the average selling prices of our products;
o changes in costs of components which we include in our
products; and
o the mix of products that we sell and the mix of distribution
channels through which they are sold.
Due to these and other factors, quarterly or annual revenues, expenses
and results of operations could vary significantly in the future, and
period-to-period comparisons should not be relied upon as indications of future
performance.
Because we currently depend on a single family of products, any decline
in demand for those products may harm our operating results
We presently expect to derive substantially all of our revenues from
our healthcare safety products, primarily the CoverTipTM device in the near
future. The market may not continue to demand our current products, and we may
not be successful in marketing any new or enhanced products. Any reduction in
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<PAGE>
the demand for our current products or our failure to successfully develop or
market and introduced new or enhanced products could materially adversely affect
our business, financial condition and results of operations.
If we lose key personnel, we may be unable to successfully operate our
business
We depend on the continued contributions of our executive officers and
other technical personnel to work effectively as a team, to execute our business
strategy and to manage our personnel. The loss of key personnel or their failure
to work effectively could have a material adverse effect on our business,
financial condition and results of operations.
If we are unable to attract and retain additional qualified personnel,
our future business may suffer
Our business strategy will require us to attract and retain additional
qualified technical and marketing personnel. We may experience difficulty in
recruiting qualified personnel, which is an intensely competitive and time
consuming process. We may not be able to attract and retain the necessary
personnel to accomplish our business objectives as our business develops and
grows. Accordingly, we may experience constraints that will adversely affect our
ability to satisfy future customer demand in a timely fashion or to support our
customers and operations. This could cause an adverse effect on our business,
financial condition and results of operations.
Our limited ability to protect our intellectual property may prevent us
from retaining our competitive advantage
Our future success and our ability to compete are dependent, in part,
upon our proprietary technology. Taken as a whole, we believe our intellectual
property rights are significant and any failure to adequately protect our
proprietary rights could result in our competitors offering similar products,
potentially resulting in loss of a competitive advantage and decreased revenues.
In addition, the laws of many foreign countries do not protect our intellectual
property to the same extent as the laws of the United States. Also, it may be
possible for unauthorized third parties to copy or reverse engineer aspects of
our products, develop similar technology independently or otherwise obtain and
use information that we regard as proprietary. Furthermore, policing the
unauthorized use of our products is difficult. Litigation may be necessary in
the future to enforce our intellectual property rights, to protect our trade
secrets or patents that we may obtain, or to determine the validity and scope of
the proprietary rights of others. Such litigation could result in substantial
costs and diversion of resources and could have a material adverse effect on our
future operating results.
Intellectual property claims against us can be costly and restrict our
business
The healthcare products industry is characterized by the existence of a
large number of patents and frequent litigation based on allegations of patent
infringement. As the number of entrants in our market increases and the
functionality of our products is enhanced and overlaps with the products of
other companies, we may become subject to claims of infringement or
misappropriation of the intellectual property rights of others. Any claims
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<PAGE>
asserting that our products infringe or may infringe proprietary rights of third
parties, if determined adversely to us, could have a material adverse effect on
our business, financial condition or results of operations. Any claims, with or
without merit, could be time-consuming, result in costly litigation, divert the
efforts of our technical and management personnel, cause product shipment delays
or require us to enter into royalty or licensing agreements, any of which could
have a material adverse effect upon our operating results. Legal action claiming
patent infringement may be commenced against us. We cannot assure you that we
would prevail in such litigation given the complex technical issues and inherent
uncertainties in patent litigation. In the event a claim against us was
successful, and we could not obtain a license to the relevant technology on
acceptable terms or license a substitute technology or redesign to avoid
infringement, this could have a material adverse effect on our business,
financial condition and results of operations.
Additional required capital may not be available
To date, we have financed our operations through cash from the sale of
our stock, debt instruments and by borrowing money. If we do not generate enough
cash from operations to finance our business in the future, we will need to
raise additional funds through public or private financing. Selling additional
stock could dilute the equity interests of our stockholders. If we borrow more
money, we will have to pay interest and may also have to agree to restrictions
that limit our operating flexibility. We may not be able to obtain funds needed
to finance our operations at all or may be able to obtain them only on
unattractive terms.
Competition could render our services uncompetitive
The market for our products is highly competitive and rapidly changing.
We believe we face such competition on a local, regional and international
basis. The new products we are developing will bring us into further competition
with various companies. Additional competitors may also enter the market and
competition may intensify. Although we believe our products are better than
those offered by our competitors, they may be able to narrow or eliminate the
differences.
We are engaged in litigation with Phillips Pharmatec Labs which could
adversely affect our business
On March 16, 2000, we filed a lawsuit against the founders and
principals of Phillips. Our suit alleges, among other things, various securities
law violations by the defendants and related claims in connection with our
acquisition of Phillips in December 1998. Among the remedies we are seeking is
recission of the acquisition. In May 2000, Phillips ceased operations. Certain
defendants in the lawsuit have filed a derivative action lawsuit against us and
our current directors. As a result of these actions, we may incur significant
legal costs and related expenses. Because it is early in the legal process, we
are unable to assess the probable outcome or the possible effect on our
business, particularly with Phillips ceasing operations. Phillips accounted for
almost all of our sales in 1999 and represents a significant portion of our year
2000 sales. Because we no longer have revenues from Phillips, we will have to
rely solely on revenues from our existing products, which have generated only
minimal revenues in the past.
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<PAGE>
Risks relating to ownership of our common stock
The price of our common stock after this offering may be lower
than the price you pay
Although our stock is currently traded on the OTC Bulletin Board, there
is no assurance that an active market will continue. If you purchase shares of
our common stock in this offering, you will pay a price established by the
current market place. The price of our common stock that will prevail in the
market after this offering may be higher or lower than the price you pay.
Purchasers of the shares offered hereby will suffer immediate
and substantial dilution in the value of your investment
You will incur immediate and substantial dilution in the net tangible
book value of common stock based on the current market price of $1.00, and
assuming all of the Debentures and warrants are converted to common stock and
the equity line of credit is fulfilled. There are no limits on the maximum
number of shares that may be issued on conversion of the Debentures. The lower
the stock price at the time of conversion, the more shares the Debenture holders
will receive which will increase dilution. Also, to the extent that Debenture
and warrant holders convert their securities and then sell the underlying shares
into the market, the price of our shares may decrease due to the additional
shares in the market.
We do not intend to pay dividends
To date, we have never declared or paid any cash dividends on shares of
our common stock. We currently intend to retain our future earnings for growth
and development of our business and, therefore, we do not anticipate paying any
dividends in the foreseeable future. See "Dividend Policy".
Our executive officers, directors and principal stockholders own a
significant percentage of our company and will be able to exercise significant
influence over our company, which could have a material and adverse effect on
the market price of our common stock
After this offering and assuming all of the shares of common stock to
which this prospectus relates are issued, our executive officers, directors and
principal stockholders and their affiliates will together control approximately
65.1% of our outstanding common stock. As a result, these stockholders, if they
act together, will be able to control all matters requiring stockholder
approval, including the election of directors and approval of significant
corporate transactions, and will continue to have significant influence over our
affairs. This concentration of ownership may have the effect of delaying,
preventing or deterring a change in control, could deprive our stockholders of
an opportunity to receive a premium for their common stock as part of a sale and
might affect the market price of our common stock.
The market price of our common stock may drop significantly when the
restrictions on resale by our existing securityholders lapse
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Following this offering, we will have approximately 72,938,995 shares
of common stock outstanding, premised on conversion of all the Debentures and
issuance of shares under the equity line at the current price level.
Approximately 48,665,995 shares, or 67%, of our outstanding common stock will be
subject to restrictions on resale under United States securities laws. As these
restrictions on resale end, the market price of our common stock could drop
significantly if holders of these shares sell them or are perceived by the
market as intending to sell them. These sales also may make it difficult for us
to sell equity securities in the future at a time and price that we deem
appropriate. See "Shares Eligible for Future Sale."
Possible "Penny Stock" Regulation
Trading of our common stock on the OTC Bulletin Board may be subject to
certain provisions of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), commonly referred to as the "penny stock" rule. A penny stock
is generally defined to be any equity security that has a market price less than
$5.00 per share, subject to certain exceptions. If our stock is deemed to be a
penny stock, trading in our stock will be subject to additional sales practice
requirements on broker-dealers. These may require a broker dealer to:
o make a special suitability determination for purchasers of
penny stocks;
o receive the purchaser's written consent to the transaction
prior to the purchase; and
o deliver to a prospective purchaser of a penny stock, prior to
the first transaction, a risk disclosure document relating to
the penny stock market.
Consequently, penny stock rules may restrict the ability of
broker-dealers to trade and/or maintain a market in our common stock. Also, many
prospective investors may not want to get involved with the additional
administrative requirements which have a material adverse effect on the trading
of our shares.
CAUTIONARY STATEMENT REGARDING FORWARD LOOKING-STATEMENTS
This prospectus, including the sections entitled "Summary," "Risk
Factors," "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Business," contains forward-looking statements.
These statements relate to future events or our future financial performance and
involve known and unknown risks and uncertainties. These factors may cause our
company's or our industry's actual results, levels of activity, performance or
achievements to be materially different from those expressed or implied by the
forward-looking statements. These risks and other factors include those listed
under "Risk Factors" and elsewhere in this prospectus. In some cases, you can
identify forward-looking statements by terminology such as "may," "will"
"should," "expects," "intends," "plans," anticipates," "believes," "estimates,"
"predicts," "potential," "continue," or the negative of these terms or other
comparable terminology.
These statements are only predictions. Although we believe that the
expectations reflected in the forward-looking statements are reasonable, we
cannot guarantee future results, levels of activity, performance or
achievements.
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USE OF PROCEEDS
We will not receive any proceeds from the sale of common stock by the
Selling Stockholders. Upon conversion of the Debentures, we will benefit from
the cessation of indebtedness represented by the Debentures in the principal
amount of $2,000,000 and interest on the Debentures that is accruing at the rate
of 6% per annum.
We will receive proceeds from shares of common stock to be issued
pursuant to the line of credit and upon exercise of warrants. If all of the
warrants are exercised we would receive $3,500,000, and if the equity line of
credit is fulfilled, based upon the current market price of our common stock, we
would realize proceeds of approximately $7,387,350. We have estimated offering
expenses at $102,000. In that event, we expect to use substantially all of the
net proceeds for general corporate purposes, including working capital, research
and development and expansion of sales and marketing activities. The amounts we
actually expend for such working capital and other purposes may vary
significantly and will depend on a number of factors including, but not limited
to, the actual net proceeds received, the amount of our future revenues and
other factors described under "Risk Factors." Accordingly, our management will
retain broad discretion in the allocation of the net proceeds of this offering.
A portion of the net proceeds may also be used to acquire or invest in
complementary businesses, technologies, product lines or products. We have no
current plans, agreements or commitments with respect to any such transaction
and, currently, we are not actively engaged in any negotiations with respect to
any such transaction. Pending such uses, the net proceeds of this offering will
be invested in short-term, interest-bearing, investment grade securities or
guaranteed obligations of the U.S. government.
PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY
Our common Stock has traded in the over-the-counter market and
quotations published on the OTC Bulletin Board under the symbol "SCEP" since
1992. The following table sets forth the high and low bid prices of our common
stock for periods indicated as reported by the National Quotation Bureau, Inc.
On June 6, 2000, the last reported sales price of our common stock on the OTC
Bulletin Board was $1.00 per share.
High Low
---- ---
1998
First Quarter .94 .31
Second Quarter .88 .28
Third Quarter .47 .15
Fourth Quarter .38 .16
1999
First Quarter .50 .13
Second Quarter .38 .17
Third Quarter .31 .15
Fourth Quarter .78 .12
2000
First Quarter 3.50 .52
Second Quarter(1) 1.94 .56
--------------
(1) Through June 6, 2000.
We have never declared or paid any cash dividends on our common stock.
We currently intend to retain all of our earnings, if any, for use in our
business and do not anticipate paying any cash dividends on our common stock in
the foreseeable future. Instead, we intend to retain and invest any earnings in
our business.
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CAPITALIZATION
The following table sets forth our capitalization as of March 31, 2000
on an actual basis. You should read this table together with the Consolidated
Financial Statements and accompanying Notes that we include later in this
prospectus.
March 31, 20000
-----------------
(Unaudited)
Cash..................................................$ 1,315,550
============
Long-term debt........................................ 1,000,000
Stockholders' equity (deficit)
Common stock: 100,000,000 shares
authorized of $0.0005 par value,
59,004,773 shares issued and
outstanding..................................... 29,502
Additional paid-in capital............................ 15,825,362
Stock subscriptions receivable ....................... (675,000)
Accumulated deficit................................... (14,283,179)
----------
Total Stockholders' Equity (Deficit) ............ (1,067,815)
----------
Total capitalization.............................$ 1,870,228
============
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION
The following discussion and analysis of the financial condition and
results of operations should be read in conjunction with the consolidated
financial statements and notes thereto appearing elsewhere in this prospectus.
Overview
We are a diversified medical company that designs and develops medical
safety devices and other products for use in the healthcare industry. We
currently have 19 patent applications pending for our medical devices in both
the U.S. and overseas. Our primary focus presently is commercializing the
CoverTipTM Hypodermic Safety Syringe. Prior to its ceasing operations in May
2000, our wholly owned subsidiary, Phillips Pharmatec Labs, was a contract
manufacturer of over-the-counter complementary health care products. Phillips
produced vitamins, mineral supplements herbal therapy and diet aids for
customers under private labels.
Since 1992, we have concentrated on the research and development of
various medical safety devices. We began marketing our initial products in 1997,
but revenues have been only nominal. We have incurred operating losses and net
losses for each year since our formation in 1992. For the years ended December
31, 1998 and 1999, and the three month period ended March 31, 2000, we
experienced net cash outflow for operating and investment activities. At March
31, 2000, we had an accumulated deficit of $14,283,179.
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We intend to substantially increase our operating and capital
expenditures in an effort to complete development of and market our various
medical safety products. We expect to continue to incur material operating
losses, net losses and net operating cash outflows during this development
period. Our losses and net operating cash outflows are expected to continue and
increase until we have successfully marketed one or more of our products.
We acquired Phillips in December 1998 expecting it would provide us
with the internal capability of assembling our own proprietary products and
other medical devices. We also anticipated that Phillips would generate revenue
from its complementary healthcare product lines and its customers base.
On May 18, 2000, Phillips ceased all operations and we believe it to be
insolvent. Accordingly, we have eliminated the operations of Phillips from our
financial results and financial statements for the three month period ended
March 31, 2000 have been retroactively restated to reflect this event. We have
established a reserve for discontinued operations of $1,726,923 which consists
of net liabilities in excess of recoverable assets at March 31, 2000.
We have instituted legal action against the founders of Phillips. In
that lawsuit, we allege various securities law violations and related claims in
connection with our acquisition of Phillips. In addition to damages and other
relief, we are seeking recission of the acquisition. See "Business - Legal
Proceedings." Accordingly, we cannot predict the future of the legal proceedings
and whether Phillips will remain a subsidiary.
Results of Operations
Comparison of three months ended March 31, 2000 and 1999
Revenues. Without Phillips' results, we had only nominal revenues of
$623 for first quarter of 2000 ended March 31, 2000, compared to $1,773 for the
comparable 1999 period. We do not expect a significant increase in revenues
until we begin full commercial marketing of one or more of our products, which
is expected for introduction in the fourth quarter of 2000.
Net operating loss. Our net operating loss for the first quarter of
2000 was $3,011,940 compared to a loss of $183,602 for the first quarter of
1999. This increased loss is due to the significant increases in product
research and development and selling, general and administrative expenses during
the 2000 period.
Product research and development expenses. During the first quarter of
2000, we expended $1,639,435 for product research and development, a sharp
increase from the $42,651 expended in the 1999 period. The increase is due to
finalizing the CoverTipTM technology in preparation for commercial release and
to secure additional intellectual property rights.
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Selling, general and administrative. Our selling, general and
administrative expenses increased to $1,368,594 for the first quarter of 2000
compared to $138,042 for the first quarter of 1999. This increase is due
primarily to stock issued for services, salaries and warrants being issued below
current market price.
Interest expense. Our interest expense increased from $30,052 for the
first quarter of 1999 to $162,000 for the first quarter of 2000. This 439%
increase in is primarily due to conversion discount on debentures issued.
Loss from discontinued operations. Because of the Phillips closure, we
recognized a loss from discontinued operations of $1,379,954 for the first
quarter of 2000, resulting in a net loss for the quarter of $4,547,349, or $0.09
per share.
Prior to ceasing operations, Phillips had net sales of $300,431 for the
first quarter of 2000 compared with $717,112 for the same period in 1999. Cost
of sales decreased to $267,480 for the first quarter of 2000 from $502,821 in
the 1999 period, reflecting the decrease in sales. General and administrative
expenses decreased to $172,775 for the first quarter of 2000 from $182,162 in
the 1999 first quarter. Phillips also recorded a loss on the write down of
assets or $1,212,418 for the first quarter of 2000 related to its ceasing
operations. Phillips' net loss for the first quarter of 2000 was $1,379,954
compared to net income of $7,818 for the 1999 period. We have not completed an
assessment of whether the operations may recommence or what further potential
material losses may occur as a result of the Phillips closing.
Net operating loss carryforward. As of March 31, 2000, we have
accumulated approximately $15,000,000 of net operating loss carryforwards. This
amount may be offset against taxable income and income taxes in future years.
The loss carryforwards expire in the year 2020. We have not reported any tax
benefit in our financial statements for the year ended December 31, 1999 or the
quarter ended March 31, 2000 because we believe the carryforward may expire
unused.
Comparison of 1999 and 1998
Revenues. Our revenues in 1998 were $26,846 and increased to $2,716,819
in 1999. This increase in revenues was due almost exclusively to the acquisition
of Phillips and the inclusion of its revenues in 1999. Because of the pending
litigation and the closing of Phillips, we will not realize future revenues from
Phillips.
Gross margin. Our gross margin increased from $21,450 in 1998 to
$698,975 in 1999. This increase in gross margin was also attributed to the
acquisition of Phillips. Because of the uncertainty associated with Phillips, we
cannot predict the future trend in gross margin.
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Product research and development expenses. Our expenditures on product
research and development were $382,318 in 1998 and decreased to $230,075 in
1999. This 43% decline in 1999 was due to less funding being available until
late in 1999. Our development funds were focused and allocated primarily to
CoverTipTM and other safety products. Because of the infusion of cash in late
1999 and early 2000, we anticipate a significant increase in 2000 for product
research and development.
Depreciation and amortization. Our depreciation and amortization
expense was $14,322 in 1998 and increased 522% to $89,069 in 1998. Nearly all of
the increase in 1999 is attributed to the acquisition of Phillips and expenses
related to its plant and equipment.
Selling, general and administrative. Our selling, general and
administrative expenses were $564,543 in 1998 and increased 171% in to
$1,616,553 in 1999. Approximately 84% of this increase in attributed to the
acquisition of Phillip. Excluding Phillips, our selling, general and
administrative expenses increased approximately 27% in 1999 due to an increase
in the number of directors and an increase in outside contractor commitments. As
we develop our products and commence marketing new products in 2000, we expect
these expenses to increase accordingly.
Interest expense. Our interest expense increased from $312,213 in 1998
to $341,503 in 1999. This 9% increase in 1999 is due primarily to debt services
related to Phillips. As we continue to borrow funds to finance our product
development, we expect interest expense to increase modestly.
Net loss. Our net loss in 1998 totaled $1,252,501 and increased to
$1,687,621 in 1999. Most of our net loss in 1999 is attributed to our continued
development of our products and related expenses, and only nominal revenues
realized. Phillips contributed $362,656 to our net loss in 1999.
Liquidity and Capital Resources
We have financed our operations primarily with proceeds from stock
issuances and borrowings. At March 31, 2000, we had cash of $1,315,550 compared
to $290,269 at December 31, 1999. Working capital at March 31 2000 was a
negative $590,596 compared to negative working capital of $860,981 at December
31, 2000.
Net cash provided by our financing activities in 1999 and 1998 was
$599,417 and $310,347, respectively. This cash primarily resulted from the sale
of common stock and proceeds from debentures. In February 2000 we realized
$1,000,000 from the issuance of Debentures to which this prospectus relates. We
received an additional $500,000 in May 2000 and will receive another $500,000
from Debentures upon effectiveness of our registration statement. We anticipate
that these funds will help finance our operations for the remainder of fiscal
2000. Additionally, we have the equity line of credit to draw upon for funds as
required.
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Net cash used by our operating activities in 1999 and 1998 was $244,534
and $231,691, respectively. This is attributed primarily to our net loss in both
1999 and 1998. These results were partially offset by the issuance of common
stock for services and interest in 1999 of $703,343, and in 1998 of $577,159.
Net cash used by operating activities for the first quarter of 2000 was
$1,081,243 compared to $41,737 for the 1999 first quarter. This is primarily
attributed to the increased net loss for the 1999 period. The results were
partially offset by the $1,903,711 in common stock issued for services and
interest, and $1,212,418 realized from writing down assets from discontinued
operations during the first quarter of 2000.
Net cash used from investing activities in 1999 and 1998 was $140,097
and $5,351 respectively. The 1999 results are primarily attributed to the
purchase of fixed assets and increase in our patent costs. For the first quarter
of 2000, net cash used was $21,821 compared to $10,016 for the 1999 period. The
2000 results are also due to the purchase of fixed assets and increase in patent
costs.
We are currently technically in default on one note payable to an
individual totaling $12,500. This note holder has not demanded repayment and we
continue to accrue interest on that outstanding note.
At March 31, 2000, we had total assets of $1,870,228 and a
stockholders' deficit $1,067,815. In comparison, at December 31, 1999, we had
total assets of $2,105,780 and stockholders' deficit of $43,535. The decrease in
total assets for the quarter is primarily due to writing down of assets,
although partially offset by the increase in cash.
We believe that the net proceeds from the sale of the Debentures in
February 2000, together with our existing cash and other funding commitments,
will be sufficient to fund our operating losses, capital expenditures and
working capital requirements through 2000. We anticipate that in the future we
may seek additional equity or debt capital through private sources and/or a
public securities offering. However, there can be no assurance that we will
successfully secure new funding or complete any such offering. Other that the
Debentures and our line of credit agreement, we do not have other definitive
agreements for new financing.
In November 1999, we signed a subscription agreement and arranged other
private funding from a group of physicians and other private investors to
provide up to $1.5 million of operating capital. By March 2000, we completed a
total of up to $14 million in additional potential financing commitments.
Initial proceeds are being used primarily to begin the production and commercial
launch of the CoverTipTM. Additional funds, as realized will be used for the
further development of CoverTipTM, PreSafTM, SofDrawTM and other general
corporate business.
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We anticipate that we will increase development and marketing of our
products as funding is realized. We also believe that because of the ongoing
litigation concerning Phillips, we cannot accurately predict the impact that
Phillips will have on our 2000 operations.
In our opinion, inflation has not had a material effect on our
operations.
Recent Accounting Pronouncements
The Financial Accounting Standards Board has 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. It requires that all items required to be recognized under current
accounting standards as components of comprehensive income, be reported in a
financial statement with the same prominence as other financial statements. SFAS
No. 131 establishes standards as to how public companies report financial
information about operating segments in annual financial statements. It requires
reporting of selected information about operating segments in interim financial
statements issued to the public and establishes standards for disclosure
regarding products and services, geographic areas and major customers.
Implementation of the new standards did not have a material effect on our
financial statements.
SFAS No 132. Employers' Disclosures about Pensions and Other
Postretirement Benefits," standardizes disclosure requirements for pensions and
other postretirement benefits. It requires additional information on changes in
the benefit obligations and fair values of plan assets that will facilitate
financial analysis. Adoption of this statement did not have a material impact on
the our financial statements.
SFAS No. 133, Accounting for Derivative Instruments and Hedging
Activities 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. We believe the
adoption of this statement will have no material impact on our financial
statements.
BUSINESS
In 1992, we acquired Medisys Technologies, Inc., a private Louisiana
corporation created initially to develop the SofCepsTM Birth Assistance Safety
Device concept. Since 1992, we have become a diversified medical company that
designs and develops medical device products for use in the healthcare industry.
We presently have several medical safety devices in various stages of
development. Our current emphasis is on the commercialization of the CoverTipTM
Hypodermic Safety Syringe.
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In December 1998, we acquired 100% of the outstanding capital stock of
Phillips Pharmatec Labs, Inc., a contract manufacturer of over-the-counter
complementary health care products. Phillips operated as an independent company
that manufactured nutriceutical health products of other companies on a contract
basis. In addition to Phillips' ability to produce vitamins, mineral
supplements, herbal therapy and diet aids under private labels, we believed that
the acquisition would provide the internal capability of assembling our own
proprietary products and other medical devices. However, Phillips incurred
substantial losses and has ceased operations. We are presently involved in
litigation with the founders of Phillips to rescind the acquisition.
Industry Overview
We believe the demand for existing and newly developed healthcare
products continues to be strong, with an emphasis on containment of healthcare
cost. Our strategy is to design and develop medical device products that address
concerns of cost and safety. We further believe that medical device safety
features, commanding a reasonable cost differential from standard, non-safety
devices, will ultimately lower the cost of health care, enhance patient care and
healthcare worker safety.
Currently, we are emphasizing the development of the CoverTipTM and
other related products that are intended to reduce the occurrence of accidental
needlesticks in the healthcare workplace. We believe that our safety medical
devices can assist healthcare employers in meeting new safety standards
established by the Occupational Safety and Health Administration (OSHA) and
legislation in various states.
We anticipate a growing market due to the conversion to advanced safety
protection devices that protect healthcare workers against the potential danger
from accidental needlesticks. The transfer of infectious diseases from
accidental needlesticks result in enormous economic and social costs. The
possibility of accidental infection from AIDS (HIV), Hepatitis and other
communicable diseases is a critical issue for healthcare workers, medical
professionals, and healthcare institutions. There are over over 4 million
healthcare workers in the United States alone.
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Among the many applications for needles in the medical setting are the
injection of drugs (hypodermic syringes) and the drawing of blood and other
bodily fluids (blood collection needles). Recent studies estimate that as many
as 800,000 accidental needlestick occur each year in the United States. The rate
of accidental needlesticks reported by the Centers for Disease Control (CDC) was
one occurrence for every 250 injections made. We believe that this number is
much higher because many incidents are not reported. The potential for
transmission of the Hepatitis C (HCV), Hepatitis B (HBV) and the HIV (AIDS)
viruses can occur from just one needlestick. The potential cost of a single
contaminated needlestick injury is estimated between $250 and $2,302 just for
evaluation and testing.
Although the incidence of AIDS contracted through accidental
needlesticks is low, the occurrence of Hepatitis and other infectious diseases
compounds the problem and cumulatively results in high cost, liability,
long-term care and productivity losses. For both Hepatitis B virus and HIV
infections, the primary source of exposure is, according to the CDC, a
contaminated dirty needlestick.
On September 30, 1998, California enacted legislation that made it the
first state in the nation to require the use of safety needles to protect health
care workers from hazardous needlesticks. California created a model for a
national standard now endorsed by federal guidelines. Tennessee, Maryland
and Texas enacted legislation in 1999, followed by New Jersey, Minnesota, West
Virginia, Michigan and Georgia in 2000. Twenty-four other states and the
District of Columbia have introduced, or are drafting, safety needle
legislation.
Federal mandates for the use of sharps blunting systems for syringes
were established in November 1999. OSHA revised its 1991 bloodborne pathogens
compliance directive to help minimize the serious health risks faced by workers
exposed to blood and other potentially infectious materials, including HIV and
the Hepatitis B and C viruses. The new directive emphasizes the importance of an
annual review of an employer's bloodborne pathogens program and the use of safer
medical devices to help reduce needlesticks and other sharps injuries. In
response to the OSHA directive, the American Hospital Association (AHA) issued
an advisory statement urging its members to comply with state regulations. The
CDC also issued an alert recommending the use of devices with safety features,
which are an integral part of the device design, operate passively without
requiring user activation, cannot be deactivated, and remain protective through
the disposal procedure. We believe that national attention on the compelling
need to adopt safety medical devices will focus increased attention on our
products. We further believe that the use of safety needle products is likely to
increase significantly over the next several years.
The Safety Needle Syringe Market
The August 1998 Theta Report #850 on disposable medical supplies
estimates that 6.6 billion syringes were sold in the United States in 1997.
Theta forecasts that the U.S. market will grow at an annual rate of between 6.8%
and 7.3% through 2001, with total syringe sales reaching 8.7 billion units.
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Historically, the needle market has been priced competitive with little
differentiation between products. New regulatory requirements, economic
pressures to avoid product liability suits, negative publicity and pressure from
healthcare worker organizations and medical safety advocates are strong
motivators to the healthcare industry to adopt a relatively low-cost,
easy-to-use safety syringe. In addition to price, needle suppliers are now
competing for market share based on operating and safety features. The Theta
report suggests that in 2001, while having a 75% market share, safety syringes
will command more than a 66% selling price premium over non-safety syringes.
Theta predicts a 15% yearly U.S. growth rate in safety blood collection devices.
The target markets for these devices include: (1) hospitals of all types (6,300
in the U.S.); (2) private practitioners (600,000 plus in the U.S.); (3) home
healthcare providers; (4) clinics; (5) nursing homes; and (6) EMT units. The
global market has been estimated to be twice the size of the U.S. market.
Until recent state legislation and more exacting regulatory directives
compelled the healthcare industry to consider the safety aspects of medical
devices, the industry was reluctant to convert from standard syringes to safety
syringes because of the added costs and difficult technique changes necessary to
use the cumbersome devices now on the market. Safety devices currently in the
marketplace are more complicated to use than standard devices. Typically, the
operator must use a new methodology, either during or after the injection
process. Sleeve syringes are awkward to use, provide inadequate protection and
are susceptible to reuse by intravenous drug users. Retractable syringes
incorporate retraction technology that requires some change in operating
technique in order to retract the needle permanently into the barrel. Some
products require two-handed application techniques, which actually present
accidental needlestick opportunities.
While unit cost is important, overall cost-in-use is critical for
adoption of safety devices. Not only do safety syringes on the market cost more
to produce than standard syringes, the in-service cost to train healthcare
practitioners to use safety syringes places an added burden on the conversion
rate. In all cases, current devices force upon the operator a significant change
of habit. Activation studies indicate that, despite the potential danger of
standard syringes, healthcare workers find it difficult to change long-held
habits, especially in a fast-paced healthcare setting. One study found that 25%
of the needle injuries since 1993, when the devices began being used by
students, came from safety needle devices. The extensive, round-the-clock
in-service training required to overcome the difficult technique changes
necessary to use many of these cumbersome devices must be factored in.
Despite the inadequacies of safety devices currently available, we
believes that the proliferation of interest and effort to convert to safety
needle products, legal requirements, as well as the tremendous support from the
healthcare worker community will accelerate conversion to safety syringes. As
the safety syringe market begins to demonstrate some differentiation, we believe
that CoverTipTM has advantages to products currently in the marketplace and to
those about to be introduced. The primary advantage of our safety syringe is its
close similarity in use to a standard syringe. The passive, one-handed
activation of CoverTipTM offers superior benefits to other available safety
syringes. We cannot forecast prices of the CoverTipTM product, but we believe
that its safety devices have superior cost benefits and that its production
costs will fall below devices with more complicated retractable and sleeve
safety technologies and design.
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Diagnostic Sharps Safety
Blood collection needles are used to obtain a sufficient volume of
blood for diagnostic procedures. We recognize that diagnostic sharps
applications are a critical area of medical device safety. These medical
diagnostic products offer the potential for increased margins due to their high
cost of procedure, unique presence in the market, and market specialization.
Based on our research, we believe that this market segment is largely
unexplored and under-penetrated by safety device solutions. We further believe
that there is 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. Radiologists, surgeons and other
physicians and specialized technicians are the primary end-users of diagnostic
sharps instruments. The specialized and professional aspects of these devices
will offer high-margin opportunity to the marketplace.
Obstetrical Devices
The market for obstetrical products, both in the United States and
worldwide, is substantial. Although declining birthrates are a factor for
consideration in western countries, we anticipate a stable growing United States
market in the foreseeable future. We believe 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 standard 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 that promises a significant reduction in maternal and fetal
morbidity.
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The primary device for birth assistance today, and the only other
significant attempt to introduce a new product into this forceps arena, has been
the vacuum extractor system. The vacuum unit was patented in the late fifties,
and in spite of numerous attempts toward refinement, Management believes 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.
Our Products
Medical Safety Devices
Our primary focus is the development of sharps safety devices that
provide protection to the healthcare professional both during and after medical
procedures. Accordingly, we are developing various products, sizes and
adaptations for a range of medical diagnostic and treatment applications. Our
lead product is the CoverTipTM Hypodermic Safety Syringe.
CoverTipTM Hypodermic Safety Syringe
The CoverTipTM addresses each of the major issues associated with
current safety syringes while providing benefits over standard intramuscular
(IM) syringes. We believe that the CoverTipTM is superior to safety syringes
because of its conformity to unique, but simple, design criteria for safety,
ease of use and cost.
We further believe that the CoverTipTM virtually eliminates the
opportunity for an accidental needlestick. First, the CoverTipTM employs a
design that provides protection from the sharp needle tip prior to withdrawal
from the patient's skin, protecting the healthcare worker during the drug
delivery process, as well as during the disposal of the used syringe. This
eliminates any contaminated needle exposure to the healthcare worker and offers
an advantage over other safety syringes that require extraction from the
patient's skin prior to implementation of various needle tip protection methods.
Single usage of the syringe is achieved by the locking of the protective sheath.
Secondly, the device is easy to use with little or no additional
training for the healthcare worker. In contrast to other safety syringes, the
CoverTipTM is identical to conventional syringes, employing standard syringe
usage technique. Further, the CoverTipTM requires no costly instruction, medical
in-service training, or habit changes for the healthcare professional. The
safety feature is passive and automatic with no additional active steps required
of the operator. One-handed usage increases safety. CoverTipTM is used just as
any standard syringe with insertion of the needle into the patient's skin and
depression of the syringe plunger to inject the medicine. As the syringe plunger
is depressed, it automatically engages a micro-thin safety sleeve that slides
down to cover the tip of the needle after penetration of the skin and subsequent
insertion of the medicinal fluid. The needle blunting occurs prior to removal
from the patient's skin, offering added protection to the healthcare worker.
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Third, the device is more reliable because it relies entirely on
positive mechanical action rather than on buttons, releases, springs, vacuums,
or other such complicated additional steps. Finally, the design is economically
acceptable, holding down production costs to a reasonable level as compared to
both safety devices and current standard products. It is anticipated that the
CoverTipTM safety syringe will maintain reasonable margins for medical devices
as it reduces prices as substantial market penetration and high volume
production are achieved.
On May 15, 1998, we received FDA 510(k) clearance to market CoverTipTM.
We are presently pursuing specialty applications for CoverTipTM and have begun a
pre-market campaign in preparation for the customary market
introduction/evaluation of the product.
PreSafTM Lever Fulcrum Hypodermic Syringe
PreSafTM is an intramuscular injection safety syringe designed
primarily for prefilled syringe application. PreSafTM allows medication to be
injected into the patient directly from a pre- filled vial. The pre-filled vial
containing fluid medication is an existing component used by many pharmaceutical
manufacturers. These applications typically include flu shots, pneumonia shots,
AIDS serums, and other epidemic treatment or prevention therapies. Like
CovertipTM, PreSafTM provides automatic passive protection before withdrawal
from the patient. We have received a U.S. patent on this product idea. Concept
design is essentially complete. Prototypes and clinical development should begin
by the fourth quarter of 2000. This device will be marketed as an OEM product
and sold to pharmaceutical distribution producers of prefilled syringes.
Diagnostic Sharps Safety
We have developed, or are developing, a variety of devices with
commercial potential. These devices work with standard blood collection needle
accessories and are similar in appearance, size, and performance to conventional
devices. The primary difference is the safety feature activated by the
proprietary safety needle mechanism. 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, as the operator either draws blood or aspirates fluid. Fluid
aspiration is typically performed by physicians or other highly specialized
technicians. In either case, the skin 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 which would risk 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.
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The U.S. patent has been issued, all filings are current and initial
design development is complete through prototyping. A 510(k) application for
marketing of the device should be filed with the FDA when the working design is
finalized in the year 2000. Given the shared technology between this device and
the CoverTipTM syringe, we anticipate a fast track clearance for marketing by
the FDA, although this cannot be assured. A Continuation in Part (CIP)
application to cover features allowing large volume drainage without syringe
barrel change is in process.
We intend to market this specialized product directly to both OEM blood
and fluid collection tray assemblers and specialty markets, such as physicians
and phlebotomists. Orthopedists will be a specific target customer group for the
use of SofDrawTM during the drainage of knee and shoulder joints.
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 aspects of the Medisys Medical Safety Product portfolio.
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. 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. We have obtained a clear
patent search and the U.S. patent application is in progress and is anticipated
to be ready for filing in the second quarter of 2000, although this cannot be
assured.
BxDrawTM Fine Needle Biopsy Safety Device
We were granted a U.S. patent for the BxDrawTM in November 1999.
BxDrawTM addresses the safety needs of diagnostic surgeons, such as orthopedic
and general thoracic surgeons, radiologists, and other healthcare professionals,
who may become exposed to bloodborne pathogens during fine needle fluid
aspiration treatment. We believe that BxDrawTM is the first safety device in
this product category. It is a physician specific device. 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.
BX-T-DrawTM OBTSN (Obdurated Titanium Safety Needle)
The BX-T-DrawTM is designed for use with MRI (Magnetic Resonance
Imaging) placement to take a tissue sample with a cutting needle. Concept design
is complete and we have obtained a clear patent search. We will file a U.S.
Patent application when final design alternatives are complete. This is
anticipated in approximately the third quarter of 2000. As with the BX, the
BX-T- DrawTM device will be specialty marketed to Radiologists, Oncologists,
general surgeons and other diagnosticians.
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CoverStikTM
The CoverStikTM permits safe collection of capillary blood. A 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.
We have obtained a clear patent search and will file a patent application as
soon as final design alternatives are complete.
Obstetrical Device Market
Although we are presently concentrating on the development and
marketing of the CoverTipTM and related products, we intend to pursue completion
of the design and development of the SofCepsTM and AmnioSafTM Ob/Gyn safety
devices as financial resources become available. However, there can be no
assurance that another company will not complete development of a similar
product and file for patents before us.
SofCepsTM
Our primary women's health device is an obstetrical tractor birth
assistance delivery device known as SofCepsTM. SofCepsTM was designed, in part,
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. In many instances, anesthesia
may slow or interrupt fetal descent through the birth canal and diminish the
ability to produce voluntary and involuntary contractions during delivery.
SofCepsTM is a disposable, soft and thin double-walled multi-fiber 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 is designed to replace traditional steel obstetrical forceps
and vacuum extractors. We believe 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.
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The need for safe, reliable birth assistance creates a base need for
replacement of current devices. Potential customers for the SofCepsTM product
include obstetricians, managed care organizations, hospitals and patients
(consumers). The simple technology that SofCepsTM employs will be of particular
appeal in third world countries and should offer strong market opportunities.
Clinical testing of SofCepsTM was conducted between October 1993 and
the first quarter of 1998. During the first year of testing, it was determined
that SofCepsTM presented little, if any, risk of maternal injury. In April of
1995 a term stillborn was successfully delivered with the device. During this
procedure, application over the fetal head was accomplished and we concluded the
device was clinically effective in assisting completion of the delivery.
Remaining design improvements are necessary to offer obstetricians an easy and
safe application system. The long-term plan is to secure adequate research and
development capital and complete the final commercial design of SofCepsTM.
Other Products
VetCepsTM Obstetrical Tractor
VetCepsTM is a veterinary application of the SofCepsTM obstetrical
tractor. We enjoys patent protection for veterinary application in bovine
(cattle), ovine (sheep), and equine (horse) obstetrics within its original
patents. This product has been sold commercially in eight foreign countries and
the United States. Because we are presently emphasizing the development of our
sharp's safety devices, VetCepsTM is a candidate for joint venture or
divestiture.
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.
We believe that DisKlipTM requires little or no personnel training and
will result in savings in nursing time. Additional designs were 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. We have suspended market sampling and
testing while we concentrate on other products. DisKlipTM is also a candidate
for joint venture or divestiture.
Re-TyTM
Re-TyTM is a releasable, adjustable and reusable "cable tie" product
group that was developed originally to enhance the VetCepsTM device. We have
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 was
conducted to determine the viability of the product in the marketplace prior to
manufacture and packaging. Because of the shift in our primary focus, we believe
Re-TyTM may be a candidate for joint venture or divestiture.
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Manufacturing
CoverTipTM
As we realize adequate funds from our financing commitments, we intend
to commence production and commercial launch of CoverTipTM. We also anticipate
using funds to complete the regulatory approval process and prototype production
of PreSafTM and SofDrawTM.
We believe that the manufacturing of our products should be outsourced
through experienced syringe contract manufacturers. This, we further believe,
will provide sufficient product supply for successful commercialization of our
safety medical devices.
On January 19, 2000, we entered into a multi-phase, proprietary
agreement with Dispomedic 2000, a syringe manufacturer based in Dimona, Israel,
for the production of CoverTipTM. We believe that Dispomedic has rapid response
and large-volume capabilities that will provide the capacity necessary for us to
expand into the safety syringe marketplace. Under the general terms of the
agreement, Dispomedic has been granted an initial committed contract to begin
manufacturing the CoverTipTM.
Dispomedic also holds incentive-based options to acquire shares of our
common stock in return for achieving 12-month production targets for up to one
million of our CoverTipTM safety syringes. Under the agreement, we initially
provided a $500,000 cash payment to Dispomedic and we were granted an option to
purchase an interest in the company. We subsequently elected not to exercise
that option. As a further term of the agreement, Dispomedic will form a
marketing company, owned in part by us, for marketing and sales outside North
America.
As the first stage of the multi-phase agreement, Dispomedic accepted a
purchase order from us to manufacture a pilot quantity of syringes, valued at $3
million, for direct sales. This previously announced order, marked as prepaid,
represents the first capital investment by Dispomedic and a significant asset
for us. The order allows us to achieve a pilot commercial presence in the
marketplace. Delivery of the first shipment is anticipated during the second
quarter of 2000.
Due to the large capital investment required to manufacture multiple
quantities of the CoverTipTM product, a later phase of the CoverTipTM market
introduction campaign may involve additional third-party, big-company partners.
We may explore joint venture arrangements that can address the manufacturing and
marketing requirements effectively enough to gain significant market share for
the medical device product category.
Marketing
Our present multi-phase marketing strategy for CoverTipTM is to pursue
syringe customers in states that have safety syringe legislation in place. Many
healthcare institutions are tied into buying groups, group purchasing
organizations (GPO's), which contract with major suppliers. Large GPO's have
traditionally awarded exclusive contracts to their biggest suppliers, but they
are responding to mounting pressures for conversion to safety syringes by
signing less exclusionary contracts. Managed care organizations and insurers
assume the burden of liability both for treatment and damages associated with
accidental needlesticks. Recent GPO contracts contain provisions permitting the
GPO to evaluate safety devices and enter into additional contracts with
suppliers who have break-through technologies. We believe that our safety
devices will qualify for GPO evaluation procedures, although this cannot be
assured.
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In addition, we intend to target non-GPO hospital and specialty
customers, a potentially sizable niche market. Minimal market acceptance of
CoverTipTM and its companion patented safety needle devices in niche markets
will position us to acquire a competitive presence and brand recognition as the
larger institutional market converts to safety products. As the superiority of
the CoverTipTM device is validated in niche markets, we will concurrently
implement the GPO test markets necessary for an upgrade to CoverTipTM in the
high-volume hospital market. This approach allows us to prepare some mass-market
sales while generating early revenue in the niche markets.
We plan to market our medical safety device products in the U.S. both
through traditional and innovative independent distribution channels and
directly to end-users. These will include Internet and direct marketing. We will
augment our marketing program with consulting marketing specialists and the
engagement of a medical device marketing agency. Sales of CoverTipTM will be
directed by sales specialists, who will be hired to complement the efforts of
sales brokers. Products will be shipped both directly and by medical
distribution companies. Specialty sales and distribution personnel will be
engaged to market to clinics, physicians, outpatient and treatment centers.
Competition
We face competition from many companies with significantly greater
financial resources, well established brand names and large customer bases. We
believe that the advent of required safety device legislation will enhance
comparisons of the various safety devices available by the end users. For the
near term our principal product will be the CoverTipTM we will be competing with
several major manufacturers such as Becton Dickenson Kendall and Tyco.
We believe that the principal competitive factors in our market
include:
o comparative price and general customer acceptance of increased
cost of safety devices;
o actual usage experience of various devices and acceptability
of users, primarily nurses; and
o production capability of various manufacturers and the
Backlog
We presently do not have a backlog for any of our products and do not
foresee a backlog in the immediate future.
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Patents and Trade Secrets
We own 19 U.S. patents and one foreign patent protecting the SofCepsTM,
CoverTipTM, SofDrawTM, Multi-DrawTM, VetCepsTM, DisKlipTM, and Re-TyTM devices.
These consist of U.S. Patent numbers 5122148, 5217467, 5318573, 5460611,
5496283, 5573539, 5593413, 5632750, 5681290,5687455 (two device patents),
5720727, 5785662, 5836054, 5846228,5910146, 5964735, and 5993418. We also own
one letters patent protecting the SofCepsTM device (no. 669116) from Australia.
Eleven of the issued patents are being prosecuted internationally.
Additionally, we have pending a mix of seven original and/or CIP applications.
We have filed six U.S. trademark applications preserving its right to
use the trademarks "SofCepsTM", "VetCepsTM", the "Medisys(R)" logo, "DisKlipTM",
"SofDermTM", and "CoverTipTM". As we proceed with the commercialization of these
and other products, we will file U.S. and foreign trademark applications to
protect selected product names.
We intend to obtain copyright protection on our product packaging,
instruction sheets, and such other materials that we believe are 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 that 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
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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 meet all requirements of the FDA
regulations.
We believe that all of our primary safety products are "substantially
equivalent" to devices already marketed and are therefore exempt from PMA.
However, the fact that the SofCepsTM device involves the birthing of babies, our
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.
Prior to Phase I testing of SofCepsTM, we applied to the FDA for a
510(K) exemption from Pre Market Approval (PMA) for marketing the SofCepsTM
device. The reviewed our application and testing protocol. Based on Phase I
data, we were allowed to continue its fetal demised clinical testing. Because of
our change of strategic focus, we have suspended all FDA pursuits with regard to
SofCepsTM.
The CoverTipTM safety device received 510(K) FDA clearance on May 15,
1998. This allows us 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 our ability to gain clearance for its other
complementary safety devices.
Other than the FDA, we do not believe that there are any existing or
probable governmental regulations that would adversely affect us or our
business.
Product Liability and Liability Insurance
We may be exposed to potential product liability claims by users of its
products. Presently, only the VetCepsTM product is in commerce, therefore, we
believe there is no immediate exposure to product claims other than from
VetCepsTM. We currently maintain general business liability insurance limited to
$1,000,000 coverage per occurrence and in the aggregate. We have obtained
products liability insurance with $5,000,000 limits for the CoverTipTM safety
syringe.
All materials used in our disposable products are standard medical
materials compatible with present methods of hospital disposal in accordance
with accepted practices and applicable laws.
Employees
As of May 31, 2000, we had 7 employees. This includes part-time and
full-time employees, managerial staff and executive officers. With the closing
of Phillips, all of its employees were terminated. We anticipate adding
management and employees in strategic areas, especially marketing, as we draw
closer to the point of commercializing our various products.
In addition to our employees, we use the services of certain consultants on a
contract basis. These consultants include, among others, a patent attorney,
accountant and bookkeeper, an FDA consultant; development and manufacturing
consultant, public relations / investor relations consultants, and marketing and
sales consultants.
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Legal Proceedings
On March 16, 2000, we 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 us from the defendants of Phillips Pharmatec Labs, Inc.
We are seeking recission of the acquisition, damages and other relief. We
believe that the suit filed is in the best interests of the shareholders and
that it should not interfere with our focus and business.
On May 9, 2000, Messrs. Anderson, Morris and Phillips, defendants in
the above action, filed a derivative action lawsuit against us and our current
directors (United States District Court, Middle District of Florida - case no.
8:00CV905-T 24F). The complaint alleges corporate waste in the form of excessive
salaries and bonuses and other alleged wastes related to Phillips, and seeks
injunctive relief and damages. We have not yet responded to the complaint and
have not determined whether the action could cause us material damages.
Phillips is also a party to various legal proceedings. These primarily
involve commercial claims and one action involves a former employee. We cannot
predict with certainty the outcome of these claims against Phillips or whether
the actions, if determined adversely, would not have a material adverse effect
on our business or financial condition.
Convertible Debenture Financing
On February 28, 2000, we completed the offering to AMRO of $1,000,000
face value 6% Convertible Debentures Due August 31, 2001. An additional $500,000
was completed upon the filing of our registration statement, of which this
prospectus is a part. A final $500,000 will be completed upon effectiveness of
the registration statement. Debenture holders have the option, at any time,
until maturity, to convert the principal amount of their Debenture, or any
portion of the principal amount into shares of our common stock. The conversion
price for each share shall be equal to the lower of (a) 85% of the market price
at the conversion date or (b) $2.00. We will recognize additional interest
expense of $300,000 due to the 15% discount to market price. Because there is no
minimum price for conversion, if our stock price declines we must issue more
shares upon conversion.
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As a provision of the Debentures, we also issued to AMRO stock purchase
warrants to acquire 125,000 shares of our common stock at the exercise price of
$2.00 per share. The warrants expire on February 23, 2003. The warrants contain
provisions to protect against dilution by adjustment of the exercise price and
the number of shares issuable under them upon the occurrence of certain events.
These events include a merger, consolidation, disposition of assets, stock split
or reverse stock split, stock dividend or recapitalization. The exercise of the
warrants is payable either in cash or by cashless exercise. In that event, the
number of shares issuable pursuant to the warrant having a market value (as
determined using the then-current market price of the common stock) at the time
of exercise equal to the aggregate exercise price, are canceled as payment of
the exercise price. We also issued Jesup & Lamont warrants to purchase 75,000
shares of common stock under the same terms as those issued to AMRO.
The Debenture was not registered under the Securities Act and,
therefore, the Debentures, warrants and underlying shares of common stock are
deemed "restricted securities." As a provision of the Debenture, we agreed to
file a registration statement with the SEC for the purpose of registering the
shares of common stock into which the Debentures are convertible and underlying
the warrants. We are further obligated to register sufficient shares to
accommodate conversion at a reduced market price from current levels.
Accordingly, we must register at least 200% of the shares issuable upon
conversion of the Debentures base upon the conversion price in effect on the day
prior to the filing date.
This prospectus, which is part of our registration statement, relates
to the offer of these shares of common stock by the Selling Stockholders into
the public market. All expenses associated with the sale of shares of common
stock by the Selling Stockholders will be paid by the Selling Stockholders.
Upon conversion of the Debentures and warrants into common stock and
registration for resale of such common stock, Selling Stockholders' shares will
be free of the restrictions, other than restrictions under the Securities Act
with respect to persons who may be deemed to be our affiliates.
Line of Credit
On February 28, 2000, we entered into an equity line of credit
agreement with Treadstone to provide private equity financing for a period of up
to eighteen months from the effective date of the registration statement to
which this prospectus relates. Under the terms of the line of credit agreement,
we may, from time to time, in our sole discretion, exercise the option to sell
(put) shares of our common stock to Treadstone at a price per share equal to 85%
of the average market price during the valuation period related to a particular
put. The valuation period is the period of twenty-one days beginning fifteen
trading days before the trading date on which a put notice is delivered to us,
and ending five trading days after such date.
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Treadstone, at its sole discretion, may purchase up to an additional
50% of the maximum put amount during any individual put period by giving notice
to us. The maximum put amount means, as to any individual put date, 4.5% of the
weighted average price of our common stock for the three month period prior to
the put date, multiplied by the total trading volume for that three month
period. There is a mandatory twenty days between put dates, the time when we can
put shares to Treadstone, unless waived by Treadstone.
As a provision of the line of credit agreement, we issued to Treadstone
stock purchase warrants to acquire 1,125,000 shares of our common stock at the
exercise price of $2.00 per share. The warrants expire on February 25, 2003. We
also issued to Jesup & Lamont warrants to acquire 425,000 shares of our common
stock at the exercise price of $2.00 per share. All of the warrants contain
provisions to protect against dilution and for cashless exercise identical to
the warrants issued in conjunction with the Debentures.
The equity line of credit agreement provides that Treadstone shall
purchase up to 6,000,000 shares and we must register for resale the common stock
issuable under the line of credit and exercise of warrants. Under the agreement,
we are required to register 8,250,000 shares to accommodate the line of credit
shares, warrant shares, and any additional shares that may be issued if
Treadstone exercises certain options.
Registration enables Treadstone to resell its common stock from time to
time in the market or in privately-negotiated transactions. We will prepare and
file amendments and supplements to the registration statement as may be
necessary in order to keep the registration statement effective as long as
Treadstone holds shares of our stock or until such shares can be sold pursuant
to an appropriate exemption from registration. We have agreed to bear certain
expenses (other than broker discounts and commissions, if any), including
Treadstone's legal fees not to exceed $15,000 plus $1,500 per closing of a put.
As soon as practicable after the effectiveness of the registration
statement, most likely within two weeks, we plan to draw down the maximum
initial amount permitted under the equity line. Based on the three-month average
price of our stock of $1.4485 per share and our three-month trading volume of
7,544,500 shares at of June 6, 2000, we would be entitled to approximately
$418,000 in connection with our first drawdown. We expect to continue to effect
subsequent drawdowns of the applicable maximum amount available under the equity
approximately every 30 days, or as we deem prudent and necessary based upon our
corporate needs.
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Our ability to put shares of our common stock to Treadstone is subject
to certain conditions and limitations, including, but not limited to the
following:
o the registrations statement, of which this prospectus is a
part, must have previously become effective and shall remain
effective on the date of each put;
o our representations and warranties to Treadstone set forth in
the equity line of credit agreement must be true and correct
in all material respects as of the date of each put;
o no statute, rule, regulation, executive order, decree, ruling
or injunction shall be in effect that prohibits, nor any
action, suit or proceeding shall be in progress, pending or
threatened that seeks to enjoin or prohibit, the transactions
contemplated under the equity line of credit agreement, or
otherwise has a material adverse effect on our business,
operations, properties or financial condition;
o at the time of a put, there shall have been no material
adverse change in our business, operations, properties,
prospects or financial condition, except as disclosed in our
reports filed with the SEC pursuant to the Exchange Act; and
o our common stock shall not have been delisted from its
principal market (currently the OTC Bulletin Board) nor
suspended from trading.
We cannot assure you that we will satisfy all conditions required under
the equity line agreement with Treadstone, or that we will be able to sell any
shares to Treadstone thereunder.
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Both AMRO and Treadstone (or any other underwriter) have the right to
review this prospectus, the registration statement, and our records and
properties to obtain information about us and the accuracy of this registration
statement and prospectus. AMRO and Treadstone have the opportunity to comment on
the registration statement and prospectus, but Treadstone is not entitled to
reject a put by us based on their review. AMRO and Treadstone may be entitled to
indemnification by us for any lawsuits based on language in this prospectus with
which they do not agree.
MANAGEMENT
Executive Officers and Directors
Our executive officers and directors, their ages and positions held as
of May 31, 2000, are as follows:
Name Age Position
---- --- --------
Edward P. Sutherland............. 53 Chairman, Chief Executive
Officer, Treasurer and Director
Kerry M. Frey.................... 54 President, Chief Operating
Officer and Director
William David Kiesel............. 55 Director
Dr. Robert L. diBenedetto........ 70 Medical Director and Director
Dr. Timothy Andrus............... 50 Director
Dr. Charles Potter............... 51 Director
Currently we have six members on our board of directors. Each of these
directors will hold office until the next annual meeting of our stockholders.
Each director holds office until that director's successor is elected and
qualified.
Mr. Edward P. Sutherland has served as a director and Chairman of the
board of directors since 1992. In addition, he served as President from 1992 to
1998. Mr. Sutherland was a co-founder of our company in 1992. Mr. Sutherland was
in private law practice from 1974 until he co-founded our company in 1992. 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 and is
currently admitted to practice law in New York and in Louisiana.
Kerry M. Frey has served as a director since 1994 and has been our
President and Chief Operating Officer since 1998. Prior to joining our company,
Mr. Frey was associated with Johnson and Johnson for 21 years where he served as
a vice president of sales and marketing. Mr. Frey received a Bachelor of Arts
Degree from Southeastern Louisiana University in 1969.
Dr. Robert L. diBenedetto was a co-founder of our company in 1992 and
has since been a director. He received his Doctorate of Medicine in 1952 from
the Louisiana State University Medical School. Dr. diBenedetto has been engaged
in the private practice of Obstetrics and Gynecology from 1959 to the present.
He is also affiliated with Our Lady of the Lake Hospital, Baton Rouge General
Hospital and Earl K. Long Hospital.
William David Kiesel was a co-founder of our company in 1992 and has
since been a director. During the past 25 years he has been actively engaged in
advising numerous start-up businesses. His services include that of structuring
research and development programs, financial planning, management, marketing and
sales of new products. Mr. Kiesel presently serves as the business manager of
his own patent law firm.
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Dr. Timothy Andrus became a director of our 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
currently serves on the Board of Directors of Woman's Hospital. Dr. Andrus also
received an MBA from Louisiana State University in Baton Rouge.
Dr. Charles Potter was appointed as an interim Director in the fall of
1999. He received his training at Michigan State University in Lansing, Michigan
and at Washington University School of Medicine in St. Louis, Missouri. He is
Board-certified in Otolaryngology and is in private practice in Springfield,
Illinois.
Committees of the Board of Directors
Our compensation committee was appointed in 1999 and currently consists
of Dr. Andrus and David Kiesel. The compensation committee reviews and evaluates
the salaries and incentive compensation of our management and key employees. All
decisions of the compensation committee are currently subject to the review and
approval of our board of directors.
Our audit committee presently consists of Dr. Potter, Dr. diBenedetto
and Mr. Kiesel. It is responsible for reviewing the scope of annual audits,
considering specific problems and questions that arise during the course of
audits, monitoring the adequacy of accounting and audit controls, and such other
functions as the board of directors may from time to time delegate to it. Our
audit committee must report to the board of directors when asked to do so.
Our executive committee consists of Messrs. Sutherland, Frey and Kiesel
and is authorized to exercise the powers of the board during intervals between
board meetings. A nominating committee consisting of Dr. Potter, Mr. Frey and
Dr. Andrus, reviews the qualifications of potential candidates for the board,
evaluates the performance of incumbent directors and recommends to the board
nominees for election to the board at the annual meeting of stockholders.
Director Compensation
We currently do not provide cash compensation, other than reimbursement
of expenses, to any member of our board of directors. However, we do compensate
directors with shares of our common stock as follows:
o each member of the board of directors receives $800 in stock
per meeting attended in person;
o the Chairman of the board receives $1,000 in stock per month
and $1,800 in stock per meeting;
o the Secretary receives $600 in stock per month and $1,600 in
stock per meeting; and
o each committee chairperson is paid an additional $300 in stock
and committee members receive $200 in stock per meeting.
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Issuance of the shares is based on the closing bid price of the our
shares on the last day of the month following the meeting. Out of town directors
are reimbursed for reasonable travel expenses. Board compensation policies are
reviewed annually.
Executive Compensation
The following table sets forth the cash compensation paid by us to our
chief executive and chief operating officer for the past three fiscal years.
<TABLE>
<CAPTION>
Summary Compensation Table
Name and Other
Principal Annual All Other
Position Year Salary(1) Bonus Compensation Compensation
-------- ---- --------- ----- ------------ -------------
<S> <C> <C> <C> <C> <C>
Edward P. Sutherland 1997 56,621 -0- -0- 17,930
C.E.O. 1998 -0- -0- -0- -0-
1999 46,154 -0- -0- -0-
Kerry M. Frey, 1997 52,750 -0- -0- 19,644
President and 1998 -0- -0- -0- -0-
C.O.O. 1999 46,154 -0- -0- -0-
</TABLE>
------------------------
(1) As of December 31, 1999 we have accrued salaries. Prior to
fiscal 1999, these accruals were compromised and deferred into
the future for the issuance of shares of our common stock or
for interest bearing notes.
Employment Agreements
We have entered into employment agreements with Edward P. Sutherland
and Kerry Frey, each providing for an annual base salary of $150,000. The
agreements call for annual increases for each of the next two years. This base
salary has remained constant for the last three years. However, we have been
unable to pay the salaries in full and no cash salary was paid in 1998. Messrs.
Sutherland and Frey have agreed to defer all or part of their cash compensation
by accepting shares of our common stock or interest- bearing promissory notes as
a compromise to wage claims. The note portion of the deferral was satisfied in
early 2000. Their contracts also provide for expense and medical reimbursement
and other incentive based bonus compensation.
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STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth beneficial ownership of our common stock
as of May 15, 2000, by (1) each person known by us to own beneficially more than
5% of the our common stock; (2) each director who owns shares of our common
stock; and (3) all directors and executive officers as a group.
Name and Address of Number of Shares Percentage of
Beneficial Owner Beneficially Owned(1) Ownership
---------------- --------------------- ---------
Timothy Andrus * 880,705(2) 1.5%
144 Napoleon Street
Baton Rouge, LA 70802
Robert L. diBenedetto * 711,464(3) 1.1%
781 Colonial Drive
Baton Rouge, La 70806
Kerry Frey * 2,009,917(4) 3.4%
144 Napoleon Street
Baton Rouge, LA 70802
William David Kiesel * 2,733,508(5) 4.6%
2355 Drusilla Lane
Baton Rouge, LA 70809
Charles Potter * 6,249,978(6) 10.3%
1025 South 7th Street
Springfield, IL 62703
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Name and Address of Number of Shares Percentage of
Beneficial Owner Beneficially Owned(1) Ownership
---------------- --------------------- ---------
Edward P. Sutherland * 2,161,418(7) 3.6%
144 Napoleon Street
Baton Rouge, LA 70802
Dispomedics 2000(8) 7,000,000 11.9%
1291 Mettler Road
Huntington Valley,
PA 19006
Carl Anderson 6,642,322(9) 10.9%
19235 US Hwy 41 N.
Lutz, FL 33549
Marilyn Morris 7,395,320(10) 12.1%
2804 Smitter Road
Tampa, FL 33618
Brett Phillips 5,435,987(11) 8.9%
8767 115th Avenue N.
Largo, FL 33773
Directors and officers 36,484,424(12) 53.0%
as a group (6 persons)
------------------------------
* Director
** Unless otherwise indicated in the footnotes below, we believe that each
person above has sole voting power over the shares indicated above.
(1) Share amounts for individuals are as of May 15, 2000, at which
time there was 59,063,995 shares of common stock outstanding. These
figures figure do not take into consideration stock purchase warrants
owned by certain officers, directors and shareholders, entitling the
holders to purchase an aggregate of 9,739,242 shares of common stock
and which are currently exercisable. Therefore, for purposes of the
table above, as of the date hereof, 68,803,237 shares of common stock
are deemed to be issued and outstanding in accordance with Rule 13d-3
of 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 May 15, 2000 and
assumes the exercise of stock purchase warrants held by such person
(but not by anyone else) exercisable within sixty days.
(2) Includes 211,149 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 $ 50 per share.
(3) Includes 276,000 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 $3.08 per share.
(4) Includes 147,400 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 $1.00 per share.
(5) Includes 946,166 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 $2.77 per share, of which 300,000
warrants are held in the name of Roy, Kiesel & Tucker, and shares are
held by Mr. Kiesel for his two sons in trust.
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(6) Includes 5,555,555 shares of stock held in escrow by us, which shares
are released pro rata as the promissory note for which they were issued
is paid down. Also includes 1,684,305 warrants exercisable within sixty
days at the average exercise price of $.50 per share.
(7) Includes 225,940 shares held in the name of Diana B. Sutherland, wife
of Edward P. Sutherland, 50,000 shares held by Diana B. Sutherland,
trustee for James Sutherland, minor son of Mr. Sutherland, and 259,000
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 $1.05 per share.
(8) Dispomedics 2000 is a subsidiary of Sun Group, LLC.
(9) Includes 1,839,878 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 $1.54
per share.
(10) Ms. Morris is the wife of Bill Morris, a former director. Includes
2,073,272 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 $1.54 per share. We have been advised
that Ms. Morris has sole voting power over the shares indicated above
and control over the warrants.
(11) Includes 2,075,272 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 $1.54 per share.
(12) Includes 9,512,442 shares which may be acquired by our officers and
directors pursuant to the exercise of stock purchase warrants
exercisable within sixty days at exercise prices ranging from $.0375 to
$4.25 per share.
CERTAIN TRANSACTIONS
During the last two fiscal years, some of our executive officers or
directors have engaged in the following transactions with us.
We have used the services of the law firm Roy, Kiesel & Tucker for
patent work. William David Kiesel is a partner of Roy, Kiesel & Tucker and is
our corporate secretary and one of our directors. Mr. Kiesel and other attorneys
at his firm bill us for their time and we reimburse Roy, Kiesel & Tucker for
expenses incurred on our behalf.
DESCRIPTION OF COMMON STOCK
Common Stock
We are authorized to issue 100,000,000 shares of common stock. As of
June 6, 2000, there were 59,063,995 shares of common stock outstanding and held
of record by 547 stockholders.
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All of our shares of common stock have equal rights and privileges with
respect to voting, liquidation and dividend rights. Each share of common stock
entitles the holder thereof to (1) one non-cumulative vote for each share held
of record on all matters submitted to a vote of the stockholders; (2) to
participate equally and to receive any and all such dividends as may be declared
by the board of directors; and (3) to participate pro rata in any distribution
of assets available for distribution upon our liquidation. Our stockholders have
no preemptive rights to acquire additional shares of common stock or any other
securities. All outstanding shares of common stock are, and the shares offered
in this prospectus will be upon issuance and sale, fully paid and
non-assessable.
Registration Rights
Under the terms of the Debentures and the equity line of credit
agreement, AMRO, Treadstone and Jesup & Lamont have registration rights for
their shares of common stock derived from those agreements. Additionally, we
granted limited registration rights to Dispomedic in connection with our
manufacturing agreement with them. Accordingly, this prospectus and the
registration statement to which it relates, includes the shares of common stock
of AMRO, Treadstone and Jesup & Lamont derived from their respective agreements,
and the 7,000,000 shares of Dispomedics.
Indemnification Matters
As permitted by the provisions of Utah law, we have the power to
indemnify an individual made a party to a proceeding because they are or were a
director of our company, against liability incurred in the proceeding, provided
such individual acted in good faith and in a manner reasonably believed to be
in, or not opposed to, our best interest and, in a criminal proceeding, they had
no reasonable cause to believe their conduct was unlawful. Indemnification under
this provision is limited to reasonable expenses incurred in connection with the
proceeding. We must indemnify a director or officer who is successful, on the
merits of otherwise, in the defense of any proceeding or in defense of any
claim, issue, or matter in the proceeding, to which they are a party to because
they are or were a director or officer of our company, against reasonable
expenses incurred by them in connection with the proceeding or claim with
respect to which they have been successful. Our Articles of Incorporation
empower the board of directors to indemnify our officers, directors, agents, or
employees against any loss or damage sustained when acting in good faith in the
performance of their corporate duties.
We may pay for or reimburse reasonable expenses incurred by a director,
officer employee, fiduciary or agent of ours who is a party to a proceeding in
advance of final disposition of the proceeding provided the individual furnishes
us with a written affirmation that their conduct was in good faith and in a
manner reasonably believed to be in, or not opposed to, our best interest, and
undertake to repay the advance if it is ultimately determined that they did not
meet such standard of conduct.
Also pursuant to Utah law, a corporation may set forth in its articles
of incorporation, by-laws or by resolution, a provision eliminating or limiting
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in certain circumstances, liability of a director to the corporation or its
shareholders for monetary damages for any action taken or any failure to take
action as a director. This provision does not eliminate or limit the liability
of a director (i) for the amount of a financial benefit received by a director
to which they are not entitled; (ii) an intentional infliction of harm on the
corporation or its shareholders; (iii) for liability for a violation relating to
the distributions made in violation of Utah law; and (iv) an intentional
violation of criminal law. To date, we have not adopted such a provision in our
Articles of Incorporation, By-Laws, or by resolution. A corporation may not
eliminate or limit the liability of a director for any act or omission occurring
prior to the date when such provision becomes effective. Utah law also permits a
corporation to purchase and maintain liability insurance on behalf of its
directors, officers, employees, fiduciaries or agents. We do maintain directors'
and officers' insurance against certain liabilities.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers or persons controlling us as
described above, we have been advised that in the opinion of the SEC such
indemnification is against public policy as expressed in the Securities Act and
is therefore, unenforceable.
Amendment of Articles of Incorporation
Except as otherwise provided in our articles of incorporation, any
amendment to our certificate of incorporation must first be approved by a
majority of the board of directors and thereafter, approved by a majority of the
total votes eligible to be cast by holders of our voting stock with respect to
such amendment.
By-Law Provisions
Our By-Laws provide that a special meeting of stockholders may be
called by the board of directors or by holders of a majority of our outstanding
shares. Further, only those matters included in the notice of the special
meeting may be considered or acted upon at that special meeting, unless
otherwise provided by law. In addition, our By-Laws include advance notice and
informational requirements and time limitations on any director nomination or
any new proposal which a stock holder wishes to make at an annual meeting of
stockholders.
Transfer Agent
The transfer agent for our common stock is Interstate Transfer Company,
6084 South 900 East, Suite 101, Salt Lake City, Utah 84121, and its telephone
number is (801) 281-9746.
SHARES ELIGIBLE FOR FUTURE SALE
If our current stockholders sell substantial amounts of our common
stock, including shares issued upon the exercise of outstanding options and/or
warrants, in the public market following this offering, the market price of our
common stock could fall. These sales also might make it more difficult for us to
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sell equity or equity-related securities in the future at a time and price that
we deem appropriate.
Upon completion of this offering, we will have outstanding an aggregate
of approximately 72,938,995 shares of our common stock, assuming all of the
shares offered by this prospectus are issued. All of the shares sold in this
offering will be freely tradeable without restriction or further registration
under the Securities Act, unless such shares are purchased by "affiliates" as
that term is defined in Rule 144 under the Securities Act. Of the balance of the
shares to be outstanding, approximately 10,400,000 shares are held by public
shareholders and may also be freely traded without restriction. This leaves
41,500,000 shares eligible for future sale in the public market as follows:
Date Number of Shares
---- ----------------
After the date of this prospectus. 21,392,000 shares
After 180 days from the date 1,013,365 shares
of this prospectus (subject, in some
cases, to volume limitations).
At various times after 180 days 17,094,635 shares
from the date of this prospectus.
Lock- Up Agreements. None of our officers and directors or other
stockholders have signed lock-up agreements restricting their ability to
transfer or dispose of, directly or indirectly, any shares of our common stock
Rule 144. In general, under Rule 144 as currently in effect, beginning
90 days after the date of this prospectus, a person who has beneficially owned
shares of our common stock for at least one year would be entitled to sell
within any three-month period a number of shares that does not exceed the
greater of
o 1% Of the number of shares of our common stock then
outstanding, which will equal approximately 709,390 shares
immediately after this offering; or
o the average weekly trading volume of our common stock on a
national securities exchange and/or reported through the
automatic quotation system of a registered securities
association during the four calendar weeks preceding the
filing of a notice on Form 144 with respect to that sale.
Sales under Rule 144 are also subject to manner of sale provisions and
notice requirements and to the availability of current public information about
us.
Rule 144(k). Under Rule 144(k), a person who is not deemed to have been
one of our affiliates at any time during the three months preceding a sale, and
who has beneficially owned the shares proposed to be sold for at least two
years, including the holding period of any prior owner other than an affiliate,
is entitled to sell those shares without complying with the manner of sale,
public information, volume limitation or notice provisions of Rule 144.
Therefore, unless otherwise restricted, Rule 144(k) shares may be sold
immediately upon the completion of this offering. None of the shares of common
stock that will be outstanding after completion of this offering will be
eligible to be sold under Rule 144(k) until at least May 2002.
As of June 6, 2000, there were outstanding warrants to purchase an
aggregate of 9,739,242 shares of our common stock at exercise prices ranging
from $.0375 to $4.25 per share, all of which are presently exercisable. Shares
of our common stock issued upon conversion of these warrants would be eligible
for sale under Rule 144 one year after the holders exercises the warrant and
makes full payment for the shares.
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PLAN OF DISTRIBUTION
We will not receive any of the proceeds from the sale of common stock
by the holders. Upon conversion of the Debentures, we will have benefitted from
the cessation of the indebtedness represented by the Debentures in the amount of
$2,000,000. We could also benefit from funds received pursuant to the line of
credit and upon exercise of warrants. We will bear all costs relating to the
registration of the common stock offered by this prospectus, including printing,
accounting, legal and filing fees. Such costs are estimated by us to be
approximately $102,000.
This Prospectus relates to the offer and sale by Selling Stockholders
of our common stock. Selling Stockholders will be able to sell their shares of
common stock, from time to time, in any of several ways including, without
limitation; (1) one or more market transactions at the prevailing market prices
and terms; (2) in negotiated transactions; (3) block sales; or (4) individual
sales. Sales by Selling Stockholders will be without the payment of any
underwriting discounts or commissions, except for usual and customary selling
commissions paid to brokers or dealers. Selling Stockholders also may sell such
shares of common stock from time to time as permissible under Rule 144
promulgated under the Securities Act, if applicable.
We do not know for certain how or when Selling Stockholders will choose
to make such sales. However, each Selling Stockholder must represent to us that
he or she currently has no plans, proposals, arrangements or understandings with
any potential sales agent with respect to participating in the distribution of
the common stock. Each Selling Stockholder has further represented that no
securities selected dealer agreement or similar agreement is intended to be used
with respect to the offering and sale of the common stock. Also, as currently
contemplated, any sale of our common stock will take place in an ordinary
brokerage transaction, without any placement or other agent and for normal and
customary brokerage fees and/or commissions.
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Selling Stockholders (other that Treadstone) may be deemed to be
underwriters with respect to the shares sold by them, and Treadstone is an
underwriter with respect to any shares sold by it. Broker-dealers who act in
connection with the sale of the common stock may also be deemed to be
underwriters. Profits on any resale of the common stock as a principal by these
broker-dealers, and any commissions received by the broker-dealers, may be
deemed underwriting discounts and commissions under the Securities Act of 1933.
Pursuant to our equity line of credit agreement with Treadstone,
beginning on the date the registration statement, of which this prospectus forms
a part, is declared effective by the SEC and for a period of eighteen months
thereafter, subject to certain conditions we may from time to time, in our sole
discretion, sell or "put" shares of our common stock to Treadstone. Thereafter,
Treadstone may resell these shares pursuant to this prospectus. Other than the
equity line of credit agreement, we do not have any material relationship with
Treadstone.
SELLING STOCKHOLDERS
On February 28, 2000, we completed the offering to AMRO of $1,000,000
face value 6% Convertible Debentures Due August 31, 2001. An additional $500,000
was completed upon the filing of our registration statement and the final
$500,000 will be funded upon effectiveness of the registration statement.
Holders of the Debentures have the option, to convert the principal amount of
their Debenture into shares of our common stock. We also issued warrants to AMRO
and Jesup & Lamont to purchase 200,000 shares of our common stock at the
exercise price of $2.00 per share.
On February 28, 2000, we entered into the equity line of credit with
Treadstone to provide financing for a period of up to eighteen months from the
effective date of the registration statement. As Treadstone provides funds upon
the exercise of put options, it receives shares of our common stock. As a
provision of that agreement, we issued warrants to Treadstone and Jesup & Lamont
to purchase an aggregate of 1,550,000 shares of our common stock at the exercise
price of $2.00 per share.
Pursuant to the Debenture and line of credit, we agreed to file a
registration statement with the SEC for the purpose of registering the shares of
common stock issued under the agreements and upon exercise of into which the
Debentures are convertible and upon exercise of the warrants. This prospectus
relates to the offer of common stock by the Selling Stockholders into the public
market. All expenses associated with the sale of shares of common stock by the
Selling Stockholders will be paid by the Selling Stockholders.
Following effectiveness of our registration statement, the Selling
Stockholders' shares will be free of restrictions, other than restrictions under
the Securities Act with respect to persons who may be deemed to be affiliates of
ours.
The Selling Stockholders may sell their respective shares of common
stock: (1) directly through broker-dealers acting as agents for them; or (2) to
broker-dealers who may purchase shares as principal and thereafter sell the
shares from time to time in negotiated transactions or otherwise. Such
broker-dealer, if any, may receive compensation in the form of discounts,
concessions or commissions from the Selling Stockholders and/or the purchasers
-48-
<PAGE>
for whom such broker-dealers may act as agents or to whom they may sell as
principals or both. Compensation as to a particular broker-dealer may be in
excess of customary commissions.
The Selling Stockholders, broker-dealers and any other persons, if any,
acting in connection with such sale of the shares of common stock, might be
deemed "underwriters" within the meaning of Section 2(11) of the Securities Act.
Any commission received by them or discounts or concessions allowed to such
persons, and any profits received on the resale of the shares may be deemed to
be underwriting discounts and commissions under the Securities Act. The shares
of our common stock covered by this prospectus may, in the future, also be sold
under Rule 144 instead of under this Prospectus. There is no assurance that the
Selling Stockholders will sell any or all or the securities offered hereby.
The Selling Stockholders have been advised by us that during the time
each is engaged in distribution of the securities covered by this Prospectus,
each must comply with Rule 10b-5 and Regulation M under the Exchange Act, and
pursuant thereto: (1) each must not engage in any stabilization activity in
connection with our securities; (2) each must furnish each broker through which
securities covered by this Prospectus may be offered the number of copies of
this Prospectus which are required by each broker; and (3) each must not bid for
or purchase any of our common stock or attempt to induce any person to purchase
any of our common stock other than as permitted under the Exchange Act. Any
Selling Stockholders who may be "affiliated purchasers" of us as defined in
Regulation M, have been further advised that pursuant to Securities Exchange Act
Release 34-38067 (December 20, 1996), they must coordinate their sales under
this prospectus with each other and with us for purposes of Regulation M. None
of the Selling Stockholders has been an officer, director or otherwise an
affiliate of our company during the last three years.
The following table sets forth as of the date hereof, certain
information regarding the beneficial ownership of our common stock, or the right
to convert Debentures into our common stock, by each Selling Stockholder. Except
as otherwise noted, the persons shown in the table have sole voting and
investment power with respect to the shares. These Selling Stockholders are
presented together in this table for convenience of presentation only.
<TABLE>
<CAPTION> Number
Beneficial Ownership Prior to Offering of shares
Name Number of Shares Percent of Class(1)(2) To Be Sold
---- ---------------- ---------------------- ----------
<S> <C> <C> <C>
AMRO International, S.A..................... 5,125,000(3) 7.0% 5,125,000
Treadstone Investments Limited 8,250,000(4) 11.3% 8,250,000
Dispomedic 2000............................. 7,000,000 9.6% 7,000,000
Jesup and Lamont Securities
Corporation................................ 500,000 .6% 500,000
--------- ----- ----------
Totals............................ 20,875,000 28.6% 20,875,000
========== ===== ==========
</TABLE>
-49-
<PAGE>
(1) Total outstanding shares includes 59,063,995 shares issued and
outstanding as of June 6, 2000 plus the maximum number of shares being
offered by AMRO, Treadstone and Jesup and Lamont.
(2) Computation of percentages is based on conversion of all Debentures and
warrants by Selling Shareholders and maximum number of shares issued
under the line of credit. However, the percentage does not take into
account: (i) shares issued for interest or penalty upon conversion of
Debentures; (ii) shares issuable upon exercise of various warrants and
stock options held by certain other individuals at various prices; or
(iii) additional shares of common stock that may be issued upon
conversion of certain other convertible securities, either presently
outstanding or that may be issued in the future. See "Description of
Securities", and "Risk Factors."
(3) Based on conversion by AMRO of $2,000,000 face value of Debentures into
approximately 5,000,000 shares of common stock at $.40 per share. This
price is less than the current estimated conversions price of $.85 per
share as per the terms of the Debentures, based on 85% of the market
price of $1.00 per share at the close on June 6, 2000
(4) Based upon the maximum shares plus options being put to Treadstone and
exercise of all warrants.
LEGAL MATTERS
The validity of the common stock offered hereby will be passed
upon for us by Leonard E. Neilson, P.C., Attorney at Law.
EXPERTS
The financial statements as of December 31, 1999 included in this prospectus
have been so included in reliance on the report of Jones, Jensen and Company
(now known as H J & Associates, LLC), independent accountants, given on the
authority of said firm as experts in auditing and accounting. We have prepared
the unaudited financial statements for the period ended March 31, 2000.
WHERE YOU CAN FIND MORE INFORMATION
We have filed a registration statement on Form SB-2 with the Securities
and Exchange Commission, or the SEC, for the stock offered by this prospectus.
This prospectus does not include all of the information contained in the
registration statement. You should refer to the registration statement for
additional information about us, our common stock and this offering, including
the full texts of the exhibits, some of which have been summarized in this
prospectus.
-50-
<PAGE>
We are subject to the reporting requirements of the Securities Exchange
Act of 1934 and, in accordance with that Act, we file reports, proxy statements
and other information with the SEC. We intend to furnish our stockholders with
annual reports containing financial statements audited by independent
accountants, quarterly reports containing unaudited financial statements for the
first three quarters of each fiscal year, and other periodic reports as we may
deem appropriate or as we may be required by law.
You may inspect and copy our registration statement, reports and other
information at the SEC's public reference room at Room 1024, Judiciary Plaza,
450 Fifth Street, N.W., Washington, D.C. 20549. You may obtain information about
the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330.
The SEC also maintains an Internet site that contains our registration
statement, reports and other information that was filed electronically. The
address of the SEC's Internet site is "http://www.sec.gov."
-51-
<PAGE>
MEDISYS TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
F-1
<PAGE>
MEDISYS TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
<PAGE>
<TABLE>
<CAPTION>
C O N T E N T S
<S> <C>
Independent Auditors' Report ............................................................................. F-3
Consolidated Balance Sheet ............................................................................... F-4
Consolidated Statements of Operations .................................................................... F-6
Consolidated Statements of Stockholders' Equity (Deficit)................................................. F-7
Consolidated Statements of Cash Flows .................................................................... F-9
Notes to Consolidated Financial Statements .............................................................. F-11
</TABLE>
F-2
<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, 1999, and the related
consolidated statements of operations, stockholders' equity (deficit), and cash
flows for the years ended December 31, 1999 and 1998. 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, 1999, and the results of
their operations and their cash flows for the years ended December 31, 1999 and
1998 in conformity with generally accepted accounting principles.
/s/Jones, Jensen & Company
--------------------------
Jones, Jensen & Comapany
Salt Lake City, Utah
April 11, 2000
F-3
<PAGE>
MEDISYS TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Balance Sheet
ASSETS
------
December 31,
1999
------------------
CURRENT ASSETS
Cash $ 290,269
Accounts receivable, net (Note 1) 222,100
Accounts receivable, related parties 50,572
Advances 2,500
Inventory (Note 1) 396,601
Prepaid expenses 21,802
------------------
Total Current Assets 983,844
------------------
FIXED ASSETS (Note 1)
Computers and equipment 73,341
Machinery and equipment 301,087
Buildings and improvements 463,803
Furniture and equipment 50,248
Vehicles 19,915
Accumulated depreciation (314,751)
------------------
Total Fixed Assets 593,643
------------------
OTHER ASSETS
Deposits 36,039
Patent and trademark costs, net (Note 1) 492,254
------------------
Total Other Assets 528,293
------------------
TOTAL ASSETS $ 2,105,780
==================
The accompanying notes are an integral part of these
consolidated financial statements.
F-4
<PAGE>
<TABLE>
<CAPTION>
MEDISYS TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Balance Sheet (Continued)
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
----------------------------------------------
December 31,
1999
------------------
<S> <C>
CURRENT LIABILITIES
Accounts payable $ 924,490
Accrued expenses 261,786
Customer deposits 94,096
Payable - shareholders (Note 2) 140,758
Notes payable, current portion (Note 8) 56,695
Line of credit (Note 4) 250,000
Notes payable - shareholders (Note 6) 25,000
Debentures payable - related parties (Note 3) 92,000
------------------
Total Current Liabilities 1,844,825
------------------
LONG-TERM DEBT
Notes payable (Note 8) 304,490
------------------
Total Long-Term Debt 304,490
------------------
TOTAL LIABILITIES 2,149,315
------------------
COMMITMENTS AND CONTINGENCIES (Note 9)
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock: 100,000,000 shares
authorized of $0.0005 par value,
47,055,644 shares issued and outstanding 23,527
Additional paid-in capital 10,743,768
Stock subscriptions receivable (Note 5) (1,075,000)
Accumulated deficit (9,735,830)
------------------
Total Stockholders' Equity (Deficit) (43,535)
------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) $ 2,105,780
==================
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-5
<PAGE>
<TABLE>
<CAPTION>
MEDISYS TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
For the Years Ended
December 31,
----------------------------------
1999 1998
----------------- -----------------
<S> <C> <C>
REVENUES $ 2,716,819 $ 26,846
COST OF GOODS SOLD 2,017,844 5,396
----------------- -----------------
GROSS MARGIN 698,975 21,450
----------------- -----------------
OPERATING EXPENSES
Product research and development 230,075 382,318
Depreciation and amortization 89,069 14,322
Selling, general and administrative 1,616,553 564,543
----------------- -----------------
Total Operating Expenses 1,935,697 961,183
----------------- -----------------
OPERATING LOSS (1,236,722) (939,733)
----------------- -----------------
OTHER INCOME (EXPENSES)
Gain on sale of asset -- 1,475
Interest income 65 --
Interest expense (341,503) (312,213)
Bad debt expense (109,461) (2,030)
----------------- -----------------
Total Other Income (Expenses) (450,899) (312,768)
----------------- -----------------
LOSS BEFORE INCOME TAXES (1,687,621) (1,252,501)
----------------- -----------------
INCOME TAXES -- --
----------------- -----------------
NET LOSS $ (1,687,621) $ (1,252,501)
================= =================
BASIC LOSS PER SHARE (Note 1) $ (0.05) $ (0.09)
================= =================
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-6
<PAGE>
<TABLE>
<CAPTION>
MEDISYS TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity (Deficit)
Common Stock Additional Stock
---------------------------- Paid-In Subscription Accumulated
Shares Amount Capital Receivable Deficit
-------------- --------------- ------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C>
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)
-------------- --------------- ------------- ---------------- ----------------
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-7
<PAGE>
<TABLE>
<CAPTION>
MEDISYS TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity (Deficit) (Continued)
Common Stock Additional Stock
---------------------------- Paid-In Subscription Accumulated
Shares Amount Capital Receivable Deficit
-------------- -------------- -------------- ---------------- ----------------
<S> <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>
The accompanying notes are an integral part of these
consolidated financial statements.
F-8
<PAGE>
<TABLE>
<CAPTION>
MEDISYS TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the Years Ended
December 31,
---------------------------------------
1999 1998
----------------- -----------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (1,687,621) $ (1,252,501)
Adjustments to reconcile net income to net cash
provided (used) by operating activities:
Common stock issued for services and interest 703,343 577,159
Depreciation and amortization 89,069 14,322
Bad debt expense 109,461 2,030
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable (36,612) 7,139
(Increase) decrease in accounts receivable - related
party (32,026) (2,857)
(Increase) decrease in inventory 36,105 15,719
(Increase) decrease in prepaid expenses 3,856 172
(Increase) decrease in deposits 5,726 3,165
(Increase) decrease in other assets (2,500) 2,561
Increase (decrease) in accounts payable 332,802 (43,684)
Increase (decrease) in accrued expenses 255,967 328,884
Increase (decrease) in customer deposits (22,104) 116,200
----------------- -----------------
Net Cash (Used) by Operating Activities (244,534) (231,691)
----------------- -----------------
CASH FLOWS FROM INVESTING ACTIVITIES
Cash received in purchase of subsidiary -- 50,461
Increase in patent costs (31,473) (65,822)
Purchase of fixed assets (108,624) -
Disposal of fixed assets -- 10,010
----------------- -----------------
Net Cash (Used) by Investing Activities (140,097) (5,351)
----------------- -----------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from payable - shareholders 28,941 2,625
Payments on notes payable - shareholders (5,222) (4,278)
Payment on notes payable (55,437) -
Issuance of common stock 631,135 170,000
Proceeds from debentures - related parties -- 142,000
----------------- -----------------
Net Cash Provided by Financing Activities $ 599,417 $ 310,347
----------------- -----------------
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-9
<PAGE>
<TABLE>
<CAPTION>
MEDISYS TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Continued)
For the Years Ended
December 31,
---------------------------------------
1999 1998
----------------- -----------------
<S> <C> <C>
NET INCREASE (DECREASE) CASH AND
CASH EQUIVALENTS $ 214,786 $ 73,305
CASH AND CASH EQUIVALENTS AT
BEGINNING OF YEAR 75,483 2,178
----------------- -----------------
CASH AND CASH EQUIVALENTS AT END
OF YEAR $ 290,269 $ 75,483
================= =================
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION
CASH PAID FOR
Income taxes $ -- $ --
Interest $ 55,887 $ 222
NON-CASH FINANCING ACTIVITIES
Stock issued for services and interest expense $ 703,343 $ 577,159
Stock issued in payment of accrued expenses and
accounts payable $ 90,000 $ 979,508
Stock issued to convert debentures payable $ 303,000 $ --
Stock issued for stock subscription receivable $ 1,000,000 $ --
Purchase of building by issuing a note payable $ 299,250 $ --
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-10
<PAGE>
MEDISYS TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
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.
The Company has a wholly-owned subsidiary Medisys Technologies,
Inc. (Medisys) which was incorporated in the State of Louisiana,
on January 21, 1991, for the purpose of developing a device for
the assistance of childbirth under a patent which was applied for
in May 1990 and granted on June 15, 1992.
Medisys has been classified as a development stage company since
all activities to date have been related to the development of a
childbirth assistance device as well as other medical devices.
On August 6, 1992 the Company acquired all of the outstanding
common stock of Medisys. For accounting purposes the acquisition
has been treated as a recapitalization of Medisys with Medisys as
the acquirer.
Phillips Pharmatech Labs, Inc. (Phillips) was organized under the
laws of the State of Florida on December 13, 1994. It was
incorporated for the purpose of engaging in the manufacturing and
bottling of health supplements and other health related and
natural products.
On December 22, 1998, the Company completed an acquisition and
share exchange agreement whereby Medisys issued 15,602,147 shares
of its common stock in exchange for all of the outstanding common
stock of Phillips. The shares issued by Medisys represented 50% of
the total shares of the Company's common stock issued and
outstanding immediately following the acquisition. The acquisition
is accounted for as a purchase of Phillips.
b. Fixed Assets
Fixed assets are stated at cost less accumulated depreciation.
Expenditures for small tools, ordinary maintenance and repairs are
charged to operations as incurred. Major additions and
improvements are capitalized. Depreciation is computed using the
straight-line method over estimated useful lives as follows:
Buildings and 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, 1999 was
$87,781.
F-11
<PAGE>
MEDISYS TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
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)
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, 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:
December 31,
1999
-----------------
Patents $ 485,552
Trademarks 11,961
-----------------
Subtotal 497,513
Less accumulated amortization (5,259)
-----------------
Total $ 492,254
=================
Amortization expense for the year ended December 31, 1999 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.
F-12
<PAGE>
MEDISYS TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
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 December
31, 1999 due to accumulated operating losses. The Company has
accumulated $9,651,830 of net operating losses as of December 31,
1999, 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 1,603,621
-----------------
$ 9,651,830
=================
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.
F-13
<PAGE>
MEDISYS TECHNOLOGIES, INC. AND SUBSIDIARY
Notes to the Consolidated Financial Statements
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. Inventory consisted of the
following at December 31, 1999:
Amount
Raw materials $ 376,449
Work-in-process 12,423
Finished goods 7,729
----------------
Total $ 396,601
================
j. Basic Loss Per Share
The computation of basic loss per share of common stock is based
on the weighted average number of shares outstanding during the
period of the financial statements as follows:
<TABLE>
<CAPTION>
Loss Shares Per Share
(Numerator) (Denominator) Amount
------------------ ------------------ ------------------
<S> <C> <C> <C>
For the year ended
December 31, 1999 $ (1,687,621) 37,152,674 $ (0.05)
================== ================== ==================
For the year ended
December 31, 1998 $ (1,252,501) 14,596,423 $ (0.09)
================== ================== ==================
</TABLE>
Fully diluted earnings (loss) per share is not presented as any
common stock equivalents are antidilutive in nature.
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 and Phillips maintains its cash accounts primarily in
one bank in Florida. The Federal Deposit Insurance Corporation
insures accounts to $100,000. The Company's accounts occasionally
exceed the insured amount.
F-14
<PAGE>
MEDISYS TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
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 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 $226,627 at 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.
NOTE 2 - PAYABLE - SHAREHOLDERS
From time to time Medisys and Phillips receive advances from
certain shareholders for the purpose of providing funds for their
respective operating expenditures. The companies also advance
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, 1999, the balance payable to
shareholders totaled $140,758, which includes $73,528 due from
Phillips and $67,230 due from Medisys.
NOTE 3 - DEBENTURES PAYABLE - RELATED PARTIES
The Company also has notes payable (debentures) to various
shareholders in the aggregate of $92,000 at December 31, 1999. The
notes bear interest at 10% per annum, are secured by stock and
were due in 1999.
F-15
<PAGE>
MEDISYS TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
December 31, 1999
NOTE 4 - LINE OF CREDIT
An analysis of the Phillips' line of credit with Nations Bank as
of December 31, 1999 is shown below:
Available
Line of Debt
Credit Outstanding
-------------------- --------------------
$ 250,000 $ 250,000
==================== ====================
Borrowings under the line of credit are guaranteed by inventory
and accounts receivable of Phillips. Interest accrues at the
bank's prime rate plus 2.75% (9.50% at December 31, 1999).
NOTE 5 - 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 December 31,
1999, $100,000 on the note had been paid.
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
<TABLE>
<CAPTION>
Notes payable - shareholders consisted of the following:
December 31,
1999
-----------------
<S> <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
-----------------
Total 25,000
Less current portion (25,000)
-----------------
Total long-term portion $ --
=================
</TABLE>
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 (see Note 12).
F-16
<PAGE>
MEDISYS TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
December 31, 1999
NOTE 7 - 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 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 881,255 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 546,666 shares of its common stock for cash at $0.25 per
share. The Company issued 760,112 for interest expense of
$268,875. 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.
<TABLE>
<CAPTION>
NOTE 8 - NOTES PAYABLE
<S> <C>
Notes payable at December 31, 1999 consisted of the following:
Note payable to Nations Bank, collateralized by a vehicle of
Phillips, interest at 8.99%, principal and interest payments of
$303 are due monthly,
matures on September 11, 2000. $ 2,079
Note payable to Nations Bank, collateralized by equipment of
Phillips, interest at 12.5%, principal and interest payments of
$450 are due monthly,
matures on November 4, 2002. 13,072
Note payable to Nations Bank, collateralized by certain assets of
Phillips, 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. 54,993
Note payable to Nations Bank, collateralized by the building
of Phillips, interest at 7.75%, principal and interest
payments of $2,817 due monthly, matures on February 18, 2014. 291,041
-----------------
Total notes payable 361,185
Less: current portion (56,695)
-----------------
Long-term notes payable $ 304,490
=================
</TABLE>
F-17
<PAGE>
MEDISYS TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
December 31, 1999
NOTE 8 - NOTES PAYABLE (Continued)
Maturities of notes payable are as follows:
Year Ending
December 31, Amount
----------------- -----------------
1999 $ 56,695
2000 31,062
2001 17,111
2002 13,482
2003 14,564
2004 and thereafter 228,271
-----------------
Total $ 361,185
=================
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, 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 to exceed 50% of their annual compensation and stock
bonuses are not to exceed 100% of their annual dispensation.
However, additional compensation may be awarded by the Board of
Directors under the terms of the employment contracts.
Phillips 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 $900 per month, expiring
in September 2000.
F-18
<PAGE>
MEDISYS TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
December 31, 1999
<TABLE>
<CAPTION>
NOTE 10 - COMMON STOCK WARRANTS
As of December 31, 1999, the Company had outstanding warrants for
the issuance of common stock as follows:
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
5,383,155 1998 2000-2005 $ 0.2500 - $4.2500 10,012,835
1,514,525 1999 2001-2002 $ 0.4000 - $0.7500 748,263
-------------------- ------------------
10,859,849 $ 19,243,550
==================== ==================
</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.
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 (199,712
expired unexercised in 1999) to the stockholders of Phillips
pursuant to the acquisition agreement redeemable at various prices
depending on the expiration dates of the warrants.
All common stock warrants issued in 1999 and 1998 had exercise
prices at or above the trading price of the shares.
F-19
<PAGE>
MEDISYS TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
December 31, 1999
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 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 $1,000,000 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 commercialization of
its proprietary products. The Company also expects to generate
additional revenue from the sales of its proprietary products.
NOTE 12 - SUBSEQUENT EVENTS
a. Debt Conversions
By March 31, 2000, the Company had converted the remaining balance
of debentures payable into common stock. The Company issued
330,000 shares of its common stock for the conversion of $92,000
of debentures payable - related parties.
On January 31, 2000, the Company converted the note payable of
$12,500 due to Richard Apel along with accrued interest into
common stock. The Company issued 8,500 shares to convert this
note.
b. Subscription Receivable
By March 31, 2000, the Company had received an additional $450,000
as payment on the stock subscription receivable (see Note 5).
c. Convertible Debentures
The Company received a $2,000,000 face value 6% convertible
debenture due August 31, 2001. $1,000,000 of the debenture was
received on February 28, 2000. An additional $500,000 will be
received within five days of the filing of the registration
statement and the final $500,000 will be received within five days
of when the registration statement becomes effective. 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 in the amount of $300,000 during 2000. The
Company also issued warrants to purchase 125,000 shares of the
Company's common stock at an exercise price of $2.00 per share.
d. 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.
F-20
<PAGE>
MEDISYS TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
December 31, 1999
NOTE 12 - SUBSEQUENT EVENTS (Continued)
e. Legal Issues
On March 16, 2000, Medisys filed a complaint against the former
shareholders of Phillips. The complaint alleges various
securities law violations and related claims in connection with
the 1998 acquisition of Phillips. Medisys is seeking recission of
the acquisition, damages and other relief.
NOTE 13 - SEGMENTS OF OPERATIONS
The Company operates in two segments. The Company
researches and develops medical products through the Medisys
subsidiary. The Company manufactures and bottles health
supplements and other health products through the Phillips
subsidiary.
The Company's consolidated balance sheet and
statement of operations for the year ended December 31, 1999 are
broken out as follows:
<TABLE>
<CAPTION>
Medisys Phillips Eliminations Totals
----------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
CURRENT ASSETS
Cash $ 245,305 $ 44,964 $ -- $ 290,269
Accounts receivable, net -- 222,100 -- 222,100
Accounts receivable, related parties -- 50,572 -- 50,572
Advances 2,500 -- -- 2,500
Inventory 7,729 388,872 -- 396,601
Prepaid expenses 21,328 474 -- 21,802
----------- ----------- ---------- -----------
Total Current Assets 276,862 706,982 -- 983,844
----------- ----------- ---------- -----------
FIXED ASSETS
Computers and equipment 42,535 30,806 -- 73,341
Machinery and equipment -- 301,087 -- 301,087
Buildings and improvements 2,195 461,608 -- 463,803
Furniture and equipment 34,410 15,838 -- 50,248
Vehicles -- 19,915 -- 19,915
Accumulated depreciation (67,414) (247,337) -- (314,751)
----------- ----------- ---------- -----------
Total Fixed Assets 11,726 581,917 -- 593,643
----------- ----------- ---------- -----------
OTHER ASSETS
Deposits 835 35,204 -- 36,039
Patent and trademark costs, net 492,254 -- -- 492,254
----------- ----------- ---------- -----------
Total Other Assets 493,089 35,204 -- 528,293
----------- ----------- ---------- -----------
TOTAL ASSETS $ 781,677 $ 1,324,103 $ -- $ 2,105,780
=========== =========== ========== ===========
</TABLE>
21
<PAGE>
MEDISYS TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
December 31, 1999
<TABLE>
<CAPTION>
NOTE 13 - SEGMENTS OF OPERATIONS (Continued)
Medisys Phillips Eliminations Totals
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
CURRENT LIABILITIES
Accounts payable $ 82,649 $ 841,841 $ -- $ 924,490
Accrued expenses 229,164 32,622 -- 261,786
Customer deposits -- 94,096 -- 94,096
Payable - shareholders 67,230 73,528 -- 140,758
Notes payable, current portion -- 56,695 -- 56,695
Line of credit -- 250,000 -- 250,000
Notes payable - shareholders 25,000 -- -- 25,000
Debentures payable - related
parties 92,000 -- -- 92,000
------------ ------------ ------------ ------------
Total Current Liabilities 496,043 1,348,782 -- 1,844,825
------------ ------------ ------------ ------------
LONG-TERM DEBT
Notes payable -- 304,490 -- 304,490
------------ ------------ ------------ ------------
Total Long-Term Debt -- 304,490 -- 304,490
------------ ------------ ------------ ------------
TOTAL LIABILITIES 496,043 1,653,272 -- 2,149,315
------------ ------------ ------------ ------------
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock 23,527 900 (900) 23,527
Additional paid in capital 10,710,280 -- 33,488 10,743,768
Stock subscriptions receivable (1,075,000) -- -- (1,075,000)
Accumulated deficit (9,373,173) (330,069) (32,588) (9,735,830)
------------ ------------ ------------ ------------
Total Stockholders' Equity
(Deficit) 285,634 (329,169) -- (43,535)
------------ ------------ ------------ ------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY
(DEFICIT) $ 781,677 $ 1,324,103 $ -- $ 2,105,780
============ ============ ============ ============
</TABLE>
F-22
<PAGE>
<TABLE>
<CAPTION>
MEDISYS TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
December 31, 1999
NOTE 13 - SEGMENTS OF OPERATIONS (Continued)
Medisys Phillips Eliminations Totals
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
REVENUES $ 1,973 $ 2,714,846 $ -- $ 2,716,819
COST OF GOODS SOLD 523 2,017,321 -- 2,017,844
----------- ----------- ----------- -----------
GROSS MARGIN 1,450 697,525 -- 698,975
----------- ----------- ----------- -----------
OPERATING EXPENSES
Product research and development 230,075 -- -- 230,075
Depreciation and amortization 14,627 74,442 -- 89,069
Selling, general and administrative 799,879 816,674 -- 1,616,553
----------- ----------- ----------- -----------
Total Operating Expenses 1,044,581 891,116 -- 1,935,697
----------- ----------- ----------- -----------
OPERATING LOSS (1,043,131) (193,591) -- (1,236,722)
----------- ----------- ----------- -----------
OTHER INCOME (EXPENSES)
Interest income 65 -- -- 65
Interest expense (282,547) (58,956) -- (341,503)
Bad debt income (expense) 648 (110,109) -- (109,461)
----------- ----------- ----------- -----------
Total Other Income (Expenses) (281,834) (169,065) -- (450,899)
----------- ----------- ----------- -----------
LOSS BEFORE INCOME TAXES (1,324,965) (362,656) -- (1,687,621)
INCOME TAXES -- -- -- --
----------- ----------- ----------- -----------
NET LOSS $(1,324,965) $ (362,656) $ -- $(1,687,621)
=========== =========== =========== ===========
</TABLE>
F-23
<PAGE>
Medisys Technologies, Inc.
Consolidated Financial Statements
March 31, 2000
(Unaudited)
F-24
<PAGE>
MEDISYS TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
ASSETS
------
March 31, December 31,
2000 1999
----------- -----------
(Unaudited)
CURRENT ASSETS
Cash $ 1,315,550 $ 290,269
Accounts receivable, net (Note 1) 340 222,100
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 1,347,447 983,844
----------- -----------
FIXED ASSETS (Note 1)
Computers and equipment 54,455 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 (70,948) (314,751)
----------- -----------
Total Fixed Assets 20,112 593,643
----------- -----------
OTHER ASSETS
Deposits 835 36,039
Patent and trademark costs, net (Note 1) 501,834 492,254
----------- -----------
Total Other Assets 502,669 528,293
----------- -----------
TOTAL ASSETS $ 1,870,228 $ 2,105,780
=========== ===========
F-25
<PAGE>
<TABLE>
<CAPTION>
MEDISYS TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Balance Sheets (Continued)
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
----------------------------------------------
March 31, December 31,
2000 1999
------------ ------------
(Unaudited)
CURRENT LIABILITIES
<S> <C> <C>
Accounts payable $ 70,328 $ 924,490
Customer deposits -- 94,096
Accrued expenses 109,836 261,786
Payable - shareholders (Note 2) 18,456 140,758
Notes payable - current portion (Note 8) -- 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 1,938,043 1,844,825
------------ ------------
LONG-TERM DEBT
Notes and debentures payable (Note 8) 1,000,000 304,490
------------ ------------
Total Long-Term Debt 1,000,000 304,490
------------ ------------
TOTAL LIABILITIES 2,938,043 2,149,315
------------ ------------
COMMITMENTS AND CONTINGENCIES (Note 7)
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock: 100,000,000 shares
authorized of $0.0005 par value, 59,004,773 and
47,055,644 shares issued and outstanding, respectively 29,502 23,527
Additional paid-in capital 15,825,362 10,743,768
Stock subscriptions receivable (Note 4) (675,000) (1,075,000)
Prepaid expenses (Note 7) (1,964,500) --
Accumulated deficit (14,283,179) (9,735,830)
------------ ------------
Total Stockholders' Equity (Deficit) (1,067,815) (43,535)
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY (DEFICIT) $ 1,870,228 $ 2,105,780
============ ============
</TABLE>
F-26
<PAGE>
MEDISYS TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
(Unaudited)
For the Three Months Ended
March 31,
------------------------------
2000 1999
----------- -----------
REVENUES $ 623 $ 1,773
----------- -----------
OPERATING EXPENSES
Cost of sales 679 403
Product research and development 1,639,435 42,651
Depreciation and amortization 3,855 4,279
Selling, general and administrative 1,368,594 138,042
----------- -----------
Total Operating Expenses 3,012,563 185,375
----------- -----------
OPERATING LOSS (3,011,940) (183,602)
----------- -----------
OTHER INCOME (EXPENSES)
Interest income 6,545 252
Interest expense (162,000) (30,052)
----------- -----------
Total Other Income (Expenses) (155,455) (29,800)
----------- -----------
LOSS FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES (3,167,395) (213,402)
INCOME TAXES -- --
----------- -----------
LOSS FROM CONTINUING OPERATIONS (3,167,395) (213,402)
INCOME (LOSS) FROM DISCONTINUED
OPERATIONS (Note 11) (1,379,954) 7,818
----------- -----------
NET LOSS $(4,547,349) $ (205,584)
=========== ===========
BASIC LOSS PER SHARE (Note 1)
Loss from continuing operations $ (0.06) $ (0.01)
Loss from discontinued operations (0.03) 0.00
----------- -----------
Basic Loss Per Share $ (0.09) $ (0.01)
=========== ===========
F-27
<PAGE>
<TABLE>
<CAPTION>
MEDISYS TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity (Deficit)
Additional Stock
Common Stock Paid-In Subscription Prepaid Accumulated
Shares Amount Capital Receivable Expenses Deficit
-------------- ------------- ------------ ------------ -------------- -------
<S> <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>
F-28
<PAGE>
<TABLE>
<CAPTION>
MEDISYS TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity (Deficit) (Continued)
Additional Stock
Common Stock Paid-In Subscription Prepaid Accumulated
Shares Amount Capital Receivable Expenses Deficit
-------------- ------------- ------------ ------------ -------------- -------
<S> <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) 2,783,464 1,392 1,902,319 -- -- --
Cash received on stock
subscription receivable (unaudited) -- -- -- 400,000 -- --
Warrants issued below
market value (unaudited) -- -- 142,775 -- -- --
Conversion discount on
debentures (see Note 10) (unaudited) -- -- 150,000 -- -- --
Common stock issued for
prepaid services (unaudited) 5,500,000 2,750 1,961,750 -- (1,964,500) --
Net loss for the three months
ended March 31, 2000 (unaudited) -- -- -- -- -- (4,547,349)
------------ ------------ ------------ ------------ ------------ ------------
Balance, March 31, 2000 (unaudited) 59,004,773 $ 29,502 $ 15,825,362 $ (675,000) $ (1,964,500) $ (14,283,179)
============ ============ ============ ============ ============ ============
</TABLE>
F-29
<PAGE>
<TABLE>
<CAPTION>
MEDISYS TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)
For the Three Months Ended
March 31,
---------------------------
2000 1999
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C>
Net loss $(4,547,349) $ (205,584)
Adjustments to reconcile net income to net cash
used by operating activities:
Common stock issued for services and interest 1,903,711 78,786
Assets written down from discontinued operations 1,212,418 --
Depreciation and amortization 3,855 4,279
Warrants issued below market value 142,775 --
Conversion discount on debentures 150,000 --
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable (340) 1,960
(Increase) decrease in inventory -- (2,564)
(Increase) decrease in deposits -- (4,000)
Increase (decrease) in accounts payable 5,479 3,224
Increase (decrease) in accrued expenses (119,328) 89,979
Increase (decrease) in reserve for discontinued operations 167,536 (7,817)
----------- -----------
Net Cash Used by Operating Activities (1,081,243) (41,737)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Increase in patent costs (9,902) (10,016)
Purchase of fixed assets (11,919) --
----------- -----------
Net Cash Used by Investing Activities (21,821) (10,016)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds (payments) from payable - shareholders (8,774) 4,570
Proceeds from the issuance of common stock 1,098,750 28,000
Proceeds from the exercise of warrants 83,333 --
Proceeds from debentures payable 1,000,000 --
----------- -----------
Net Cash Provided by Financing Activities $ 2,173,309 $ 32,570
----------- -----------
</TABLE>
F-30
<PAGE>
<TABLE>
<CAPTION>
MEDISYS TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Continued)
(Unaudited)
For the Three Months Ended
March 31,
-----------------------
2000 1999
---------- ----------
<S> <C> <C>
NET INCREASE (DECREASE) CASH AND
CASH EQUIVALENTS $1,070,245 $ 19,183
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 245,305 25,022
---------- ----------
CASH AND CASH EQUIVALENTS AT END
OF PERIOD $1,315,550 $ 5,839
========== ==========
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION
CASH PAID FOR
Income taxes $ -- $ --
Interest $ 19,646 $ 7,157
NON-CASH FINANCING ACTIVITIES
Stock issued for services and interest expense $1,903,711 $ 138,786
Stock issued in payment of accrued expenses and
accounts payable $ -- $ 60,000
Stock issued to convert debentures and notes payable $ 144,500 $ --
Stock issued for prepaid expenses $1,964,500 $ --
</TABLE>
F-31
<PAGE>
MEDISYS TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
March 31, 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.
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 three months ended March 31, 2000 and
1999 was $3,533 and $3,957, respectively.
F-32
<PAGE>
MEDISYS TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
March 31, 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>
March 31, December 31,
2000 1999
----------------- -----------------
(Unaudited)
<S> <C> <C>
Patents $ 495,454 $ 485,552
Trademarks 11,961 11,961
----------------- -----------------
Subtotal 507,415 497,513
Less accumulated amortization (5,581) (5,259)
----------------- -----------------
Total $ 501,834 $ 492,254
================= =================
</TABLE>
Amortization expense for the three months ended March 31, 2000 and
1999 was $322.
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.
F-33
<PAGE>
MEDISYS TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
March 31, 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 March 31,
2000 due to accumulated operating losses. The Company has
accumulated approximately $15,000,000 of net operating losses as
of March 31, 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 4,547,349
-----------------
$ 14,283,179
=================
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.
F-34
<PAGE>
MEDISYS TECHNOLOGIES, INC. AND SUBSIDIARY
Notes to the Consolidated Financial Statements
March 31, 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 Three Months Ended
March 31,
----------------------------------------
2000 1999
------------------ ------------------
Basic loss per share from continuing operations:
<S> <C> <C>
Income (loss) - numerator $ (3,167,395) $ (213,402)
Shares - denominator 53,409,477 34,502,734
Per share amount $ (0.06) $ (0.01)
Basic loss per share from discontinued operations:
Income (loss) - numerator $ (1,379,954) $ 7,818
Shares - denominator 53,409,477 34,502,734
Per share amount $ (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 and Phillips maintains its cash accounts primarily in
one bank in 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 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.
F-35
<PAGE>
MEDISYS TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
March 31, 2000 and December 31, 1999
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
n. Accounts Receivable
Accounts receivable are shown net of the allowance for doubtful
accounts of $-0- at March 31, 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. Reclassification
Certain reclassifications have been made to the December 31,1999
balance sheet to conform to the current period's presentation.
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 March 31,
2000, the balance payable to shareholders totaled $18,456. At
December 31, 1999, the balance payable to shareholders totaled
$67,230.
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 March 31,
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.
F-36
<PAGE>
MEDISYS TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
March 31, 2000 and December 31, 1999
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 March 31,
2000, $500,000 on the note had been paid.
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
Notes payable - shareholders consisted of the following:
<TABLE>
<CAPTION>
March 31, 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.
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.
F-37
<PAGE>
MEDISYS TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
March 31, 2000 and December 31, 1999
NOTE 6 - COMMON STOCK (Continued)
During 2000, the Company issued 738,500 shares of its common stock
in satisfaction for debentures and notes payable of $144,500. The
Company issued 2,783,464 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.
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.
F-38
<PAGE>
MEDISYS TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
March 31, 2000 and December 31, 1999
NOTE 7 - COMMITMENTS AND CONTINGENCIES (Continued)
Legal Issues (Continued)
------------
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 March 31,
2000, $300,000 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 March 31, 2000.
NOTE 8 - CONVERTIBLE DEBENTURES
The Company received a $2,000,000 face value 6% convertible
debenture due August 31, 2001. $1,000,000 of the debenture was
received on February 28, 2000 which represents the balance due at
March 31, 2000. An additional $500,000 will be received within
five days of the filing of the registration statement and the
final $500,000 will be received within five days of when the
registration statement becomes effective. 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
$150,000 has been expensed during the three months ended March 31,
2000. The Company also issued warrants to purchase 125,000 shares
of the Company's common stock at an exercise price of $2.00 per
share.
F-39
<PAGE>
MEDISYS TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
March 31, 2000 and December 31, 1999
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
3,298,002 2000 2003 $ 0.5000 - $2.0000 4,551,710
-------------------- ------------------
13,969,018 $ 23,711,927
==================== ==================
</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.
F-40
<PAGE>
MEDISYS TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
March 31, 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 $1,000,000 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 - SUBSEQUENT EVENTS
On May 18, 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 March 31, 2000. No tax benefit has been
attributed to the discontinued operations.
<TABLE>
<CAPTION>
March 31,
-------------------------------------
2000 1999
----------------- ------------------
<S> <C> <C>
NET SALES $ 300,431 $ 717,112
----------------- ------------------
OPERATING EXPENSES
Cost of sales 267,480 502,821
General and administrative 172,775 182,162
Depreciation 20,066 17,154
----------------- ------------------
Total Operating Expenses 460,321 702,137
----------------- ------------------
INCOME (LOSS) FROM OPERATIONS (159,890) 14,975
----------------- ------------------
OTHER INCOME (EXPENSES)
Loss on write down of assets (1,212,418) -
Interest expense (7,646) (7,157)
----------------- ------------------
Total Other Income (Expense) (1,220,064) (7,157)
----------------- ------------------
INCOME (LOSS) BEFORE INCOME TAXES (1,379,954) 7,818
INCOME TAXES - -
----------------- ------------------
INCOME (LOSS) FROM
DISCONTINUED OPERATIONS $ (1,379,954) $ 7,818
================= ==================
</TABLE>
F-41
<PAGE>
June __, 2000
MEDISYS TECHNOLOGIES, INC.
20,875,000 Shares of Common Stock
-------------------
PROSPECTUS
-------------------
We have not authorized any dealer, sales person or other person to give you
written information other than this prospectus or to make representations as to
matters not stated in this prospectus. You must not rely on unauthorized
information. This prospectus is not an offer to sell these securities or our
solicitation of your offer to buy the securities in any jurisdiction where that
would not be permitted or legal. Neither the delivery of this prospectus nor any
sales made hereunder after the date of this prospectus shall imply that the
information contained in this prospectus or the affairs of Medisys Technologies,
Inc. have not changed since that date.
<PAGE>
MEDISYS TECHNOLOGIES, INC.
Part II
Item 24. Indemnification of Directors and Officers
As permitted by the provisions of Utah law, we have the power
to indemnify an individual made a party to a proceeding because they are or were
a director of our company, against liability incurred in the proceeding,
provided such individual acted in good faith and in a manner reasonably believed
to be in, or not opposed to, our best interest and, in a criminal proceeding,
they had no reasonable cause to believe their conduct was unlawful.
Indemnification under this provision is limited to reasonable expenses incurred
in connection with the proceeding. We must indemnify a director or officer who
is successful, on the merits of otherwise, in the defense of any proceeding or
in defense of any claim, issue, or matter in the proceeding, to which they are a
party to because they are or were a director or officer of our company, against
reasonable expenses incurred by them in connection with the proceeding or claim
with respect to which they have been successful. Our Articles of Incorporation
empower the board of directors to indemnify our officers, directors, agents, or
employees against any loss or damage sustained when acting in good faith in the
performance of their corporate duties.
We may pay for or reimburse reasonable expenses incurred by a director,
officer employee, fiduciary or agent of ours who is a party to a proceeding in
advance of final disposition of the proceeding provided the individual furnishes
us with a written affirmation that their conduct was in good faith and in a
manner reasonably believed to be in, or not opposed to, our best interest, and
undertake to repay the advance if it is ultimately determined that they did not
meet such standard of conduct.
Also pursuant to Utah law, a corporation may set forth in its articles
of incorporation, by-laws or by resolution, a provision eliminating or limiting
in certain circumstances, liability of a director to the corporation or its
shareholders for monetary damages for any action taken or any failure to take
action as a director. This provision does not eliminate or limit the liability
of a director (i) for the amount of a financial benefit received by a director
to which they are not entitled; (ii) an intentional infliction of harm on the
corporation or its shareholders; (iii) for liability for a violation relating to
the distributions made in violation of Utah law; and (iv) an intentional
violation of criminal law. To date, we have not adopted such a provision in our
S-1
<PAGE>
Articles of Incorporation, By-Laws, or by resolution. A corporation may not
eliminate or limit the liability of a director for any act or omission occurring
prior to the date when such provision becomes effective. Utah law also permits a
corporation to purchase and maintain liability insurance on behalf of its
directors, officers, employees, fiduciaries or agents. We do maintain directors'
and officers' insurance against certain liabilities.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers or persons controlling us as
described above, we have been advised that in the opinion of the SEC such
indemnification is against public policy as expressed in the Securities Act and
is therefore, unenforceable.
Item 25. Other Expenses of Issuance and Distribution
Filing fee under the Securities Act
of 1933........................................ $ 2,500
Accountants' fees and expenses................... 7,500
Legal fees and expenses.......................... 75,000
Printing ........................................ 10,000
Transfer agent and registrar fees
and expenses(1).................................. 2,000
Miscellaneous.................................... 5,000
-------
Total............................... $ 102,000
========
Item 26. Recent Sales of Unregistered Securities
The following table sets forth information relating to all previous
sales of securities by the Registrant within the past three years that were not
registered under the Securities Act of 1933, as amended.
<TABLE>
<CAPTION>
Date
of Sale Name of Purchaser Type Number Consideration
------- ----------------- ---- ------ -------------
<S> <C> <C> <C> <C>
1/5/97 to 8 directors (a) 38,600 Directors fees valued at
11/25/97 $1.33 per share
5/15/97 Christopher Boniol (a) 10,000 Private placement for cash
of $15,000
6/11/97 I.V. Jeansonne (a) 120,000 Private placement for cash
of $150,000
6/11/97 Steve Katznelson (a) 30,000 Adjustment of former
purchase valued at $1.23 per
share
7/9/97 Rachel Dunn (a) 5,000 Services rendered valued at
$1.33 per share
7/28/97 3 persons (a) 2,631 Services rendered valued at
$1.33 per share
7/28/97 Stan R. Aaron (a) 2,540 Services rendered valued at
$1.33 per share
8/20/97 Susan Schoch (a) 2,000 Services rendered valued at
$1.33 per share
8/26/97 Tiffiny Babin (a) 1,000 Services rendered valued at
$1.33 per share
9/16/97 Abraham Eckstein (a) 8,572 Satisfaction of note payable
for $6,686
9/22/97 Clayton Simpson (a) 500 Services rendered valued at
$1.33 per share
10/14/97 Kimberly Jordan (a) 1,000 Services rendered valued at
$1.33 per share
10/16/97 Susan Schoch (a) 2,000 Services rendered valued at
$1.33 per share
10/16/97 Joel S. Fadan (a) 5,000 Consulting services rendered
valued at $1.33 per share
</TABLE>
S-2
<PAGE>
<TABLE>
<CAPTION>
Date
of Sale Name of Purchaser Type Number Consideration
------- ----------------- ---- ------ -------------
<S> <C> <C> <C> <C>
10/16/97 Roy, Kiesel & Tucker (a) 200,624 Legal services rendered
valued at $1.33 per share
12/17/97 Stan R. Aaron (a) 3,278 Services rendered valued at
$1.33 per share
12/29/97 Shannon Properties (a) 36,000 Payment of rent valued at
$18,000
1/20/98 to Directors (a) 114,753 Compensation for directors
12/1/98 valued at $.35 per share
4/22/98 Ed Sutherland (a) 82,979 Deferred compensation and
loans valued at $.354 per
share
4/22/98 Kerry Frey (a) 79,660 Deferred compensation and
loans valued at $.354 per
share
4/22/98 Gary Alexander (a) 59,745 Deferred compensation and
loans valued at $.354 per
share
6/18/98 & KJS Investments (a) 346,666 Private placement for cash
10/12/98 of $112,500
8/31/98 Paul Radke (a) 7,800 Deferred compensation and
loans valued at $.354 per
share
10/12/98 4 directors (a) 529,928 Deferred compensation and
loans valued at $.354 per
share
11/30/98 Wishard, Ltd. (a) 100,000 Private placement for cash
of $32,500
12/14/98 Steve Katznelson (a) 650,000 Adjustment of former
purchase valued at $.25 per
share
12/17/98 Shareholders of Phillips (a) 15,602,147 Acquisition of Phillips
Pharmatec Labs valued at
$6,379,662
12/21/98 Employees and contractors (a) 766,501 Services rendered valued at
$$.35 per share
12/28/98 Dr. Timothy Andrus (a) 100,000 Private placement for cash
of $25,000
12/31/98 Directors and employees (a) 2,448,767 Accrued wages value at $.35
per share
1/1/99 Ed Sutherland (a) 135,199 Deferred compensation
valued at $per share
1/1/99 Kerry Frey (a) 135,199 Deferred compensation
valued at $.277 per share
1/1/99 Gary Alexander (a) 54,079 Deferred compensation
valued at $.277 per share
1/1/99 to 5 directors (a) 1,184,118 Interest expense, deferred
3/1/99 compensation and bonuses
valued at $278,000
1/19/99 to Directors (a) 399,330 Compensation for directors
11/3/99 valued at $.20 per share
1/19/99 Employees (a) 1,722,289 Services rendered valued at
$.20 per share
1/19/99 2 investors (a) 8,889 Exercise of warrant at
$1.125 per share
10/21/99 Charles Potter (a) 5,555,555 Private placement for note
and cash of $1,000,000
11/1/99 to 17 accredited investors (a) 3,388,443 Private placement for cash
12/31/99 of $.154 per share
thru 1999 10 Debenture holders (a) 1,435,000 Conversion of debenture
valued at $.211 per share
1/13/00 5 accredited investors (a) 188,500 Conversion of debentures and
notes valued at $192,500
1/14/00 4 warrant holders (a) 188,833 Exercise of warrants for
cash of $83,333
1/17/00 to 23 accredited investors (a) 3,288,322 Private placement for cash
2/10/00 of $688,750
1/19/00 Dispomedic (a) 7,000,000 Manufacturing agreement
valued at $12,000,000
2/28/00 & AMRO International, SA (b) - $1,500,000 convertible
5/3/00 debenture for cash
1/13/00 to Directors and employees (a) 1,342,322 Services rendered and
4/4/00 directors fees value at
$420,000
</TABLE>
S-3
<PAGE>
(a) Common Stock.
(b) 6% Convertible Debentures Due August 31, 2000 (the "Debentures") in the
face amount of $1,500,000 which can ultimately be converted into shares
of Common Stock.
With respect to the issuance and/or sale of the aforementioned
securities, the Registrant relied on the exemptions from registration provided
by Sections 4(2) and 4(6) of the Securities Act for the issuance of shares for
services rendered and for cash, and on the exemption from registration provided
by Section 3(a)(9) for the conversion of debentures. All securities issued to
the aforementioned persons bore restrictive legends preventing their transfer
except in accordance with the Securities Act and the regulations promulgated
thereunder. In addition, stop transfer instructions pertaining to these shares
have been or will be lodged with the Registrant's transfer agent.
Item 27. Exhibits
(a) The following exhibits are filed with this Registration
Statement:
Exhibit No. Exhibit Name
----------- ------------
3.1* Articles of Incorporation and all amendment
3.2* By-Laws
4.1* Specimen of common stock certificate
5 Opinion of Leonard E. Neilson, P.C.
10.1* Lease agreement - principal place of business
10.2* Employment contract with Edward P. Sutherland
10.3* Employment contract with Kerry M. Frey
10.4** Convertible Debentures and Warrant Purchase Agreement and
accompanying documents
10.5** Private Equity Line of Credit Agreement and accompanying
documents
21** Subsidiaries
23.1 Consent of H J & Associates, LLC, Independent Certified
Public Accountants
23.2 Consent of Leonard E. Neilson, P.C. (included in
Exhibit 5)
27 Financial Data Schedule
------------------
* Previously filed as Exhibit to Form 10-SB
** Previously filed as Exhibit to Form SB-2 filed
May 1, 2000
(b) Financial Statement Schedules for Registrant.
Schedules other than those listed above are omitted for the
reason that they are not required or are not applicable, or
the required information is shown in the financial statements
or notes therein.
S-4
<PAGE>
Item 28. Undertakings
(a) The undersigned small business issuer hereby undertakes:
(1) To file, during any period in which it offers or sells
securities, a post-effective amendment to this registration statement
to:
(i) Include any prospectus required by Section
10(a)(3) of the Securities Act;
(ii) Reflect in the prospectus any facts or
events which, individually or together represent a
fundamental change in the information in the
registration statement; and
(iii) Include any additional or changed material
information on the plan of distribution.
(2) For determining liability under the Securities Act, treat
each post-effective amendment as a new registration statement of the
securities offered, and the offering of the securities as at that time
to be the initial bona fide offering.
(3) File a post effective amendment to remove from
registration any of the securities that remain unsold at the end of the
offering.
(b) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 (the "Securities Act") may be permitted to directors,
officers and controlling persons of the small business issuer pursuant to the
foregoing provisions, or otherwise, the small business issuer has been advised
that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the small business issuer of
expenses incurred or paid by a director, officer or controlling person of the
small business issuer in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the small business issuer will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
(c) If the issuer relies on Rule 430A under the Securities
Act, the small business issuer will:
(1) For determining any liability under the Securities Act
treat the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained
in a form of prospectus filed by the
Registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the
Securities Act shall be deemed to be a part of this registration
statement as of the time the Commission declared it effective.
(2) For determining any liability under the Securities Act,
that each post-effective amendment that contains a form of prospectus
as a new registration statement for the securities offered in the
registration statement, and that offering of the securities at that
time as the initial bona fide offering of those securities.
S-5
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
the requirements of filing on Form SB-2 and authorized this Registration
Statement to be signed on its behalf by the undersigned, in the City of Baton
Rouge, State of Louisiana, on this 8th day of June 2000.
MEDISYS TECHNOLOGIES, INC.
(REGISTRANT)
BY: /S/ EDWARD P. SUTHERLAND
------------------------
EDWARD P. SUTHERLAND
Chairman and Chief
Executive Officer
In accordance with the requirements of the Securities Act of 1933, this
Registration Statement was signed by the following persons in the capacities and
on the dates indicated.
BY: /S/ EDWARD P. SUTHERLAND
-------------------------
EDWARD P. SUTHERLAND
Chairman, Chief Executive
Officer and Director
DATE: June 8, 2000
BY: /S/ KERRY M. FREY
-------------------
KERRY M. FREY
President, Chief
Operating Officer and
Director
DATE: June 8, 2000
BY: /S/ William David Kiesel
-------------------------
WILLIAM David KIESEL
Corporate Secretary and
Director
DATE: June 8, 2000
BY: /S/ ROBERT DIBENNEDETTO
-----------------------
Dr. Robert diBenedetto
Director
DATE: June 8, 2000
S-7
