MARKED TO SHOW CHANGES
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 1 TO
FORM 10-QSB/A
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of The
Securities Exchange Act of 1934
For the Quarter Ended March 31, 2000
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Commission File Number 0-21441
MEDISYS TECHNOLOGIES, INC.
(Exact name of small business issuer as specified in its charter)
Utah 72-1216734
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
144 Napoleon Street, Baton Rouge, Louisiana, 70802
(address of principal executive officers)
Issuer's telephone number: (225) 343-8024
9624 Brookline Avenue, Baton Rouge, Louisiana, 70809
(former address of principal executive officers)
Check whether the issuer (1) filed all reports required to be
filed by Section 13 or 15(d) of the Exchange Act during the past 12
months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the
issuers classes of common equity, as of the latest practicable
date:
Class Outstanding as of March 31, 2000
Common Stock, 59,004,773
Par Value $0.0005 per value
Transitional Small Business Disclosure Format (check one):
Yes [ ]; No [ X ]
MEDISYS TECHNOLOGIES, INC.
TABLE OF CONTENTS
Page
PART I
Item 1. Financial Statements . . . . . . . . . . . . . . . . 3
Item 2. Management's Discussion and Analysis or Plan
of Operation . . . . . . . . . . . . . . . . . . . . 21
PART II
Item 1. Legal Proceedings. . . . . . . . . . . . . . . . . . 24
Item 2. Changes in Securities and Use of Proceeds. . . . . . 25
Item 3. Defaults Upon Senior Securities. . . . . . . . . . . 25
Item 4. Submissions of Matters to a Vote of Security
Holders. . . . . . . . . . . . . . . . . . . . . . . 25
Item 5. Other Information. . . . . . . . . . . . . . . . . . 26
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . 26
SIGNATURES . . . . . . . . . . . . . . . . . . . . . 27
PART I
Item 1. Financial Statements
The following unaudited Financial Statements for the period
ended March 31, 2000, have been prepared by the Company.
Medisys Technologies, Inc.
Consolidated Financial Statements
March 31, 2000 and December 31, 1999
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
MEDISYS TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Balance Sheets (Continued)
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
March 31, December 31,
2000 1999
(Unaudited)
CURRENT LIABILITIES
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
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)
MEDISYS TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity (Deficit)
<TABLE>
<CAPTION>
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>
MEDISYS TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity (Deficit) (Continued)
<TABLE>
<CAPTION>
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>
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
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
MEDISYS TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Continued)
(Unaudited)
For the Three Months Ended
March 31,
2000 1999
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 $ -
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.
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:
March 31, December 31,
2000 1999
(Unaudited)
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
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.
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.
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
For the Three Months Ended
March 31,
2000 1999
Basic loss per share from continuing operations:
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
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.
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.
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:
March 31, December 31,
2000 1999
(Unaudited)
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 $ - $ -
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.
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.
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.
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:
Number of Date Expiration Exercise Estimated
Warrants Issued Dates Prices Proceeds
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
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.
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.
March 31,
2000 1999
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
Item 2. Management's Discussion and Analysis or Plan of Operation
Results of Operations
On May 18, 2000, Phillips Pharmatec Labs, Inc. ("Phillips"), a wholly owned
subsidiary of Medisys Technologies, Inc. (the"Company"), ceased all
operations. Accordingly, the Company has eliminated the operations of
Phillips from its financial results and its financial statements have
been retroactively restated to reflect this event. The Company has
established a reserve for discontinued operations of $1,726,923 which
consists of net liabilities in excess of recoverable assets at March 31,
2000.
Without Phillips' results, the Company had only nominal revenues of
$623 for the for the three month period ("first quarter") ended March 31, 2000
compared to $1,773 for the comparable 1999 period. The Company does not
expect a significant increase in revenues until it begins full
commercial marketing of one or more of its products, which is expected
for introduction in the fourth quarter of 2000. During the first
quarter of 2000, the Company 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. 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, primarily due to stock issued for services,
salaries and warrants issued below current market price.
The operating loss for the first quarter of 2000 was $3,011,940 compared
to a loss of $183,602 for the 1999 period. This is attributed to increased
research and development costs, stock issued for services, product
manufacturing and increased general and administrative expenses. Also,
interest expense increased to $162,000 for the first quarter of 2000
compared to $30,052, primarily due to conversion discount on debentures
issued. Because of the Phillips closure, the Company 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. The Company has 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.
Liquidity and Capital Resources
The Company has historically derived its working capital from
financing activities, including private loans and raising capital
through the sale of securities. Working capital at March 31, 2000 was
a negative $590,596 compared to a negative $860,981 at December
31, 1999. Cash used by operating activities for the first quarter of
2000 was $1,081,243, compared to $41,737 for the 1999 period. This is
primarily attributed to the net loss for the quarter and was partially
offset by common stock issued for services and interest of $1,903,711
and the $1,212,418 write down from Phillips discontinuing operations.
Also during the first quarter of 2000, the Company realized $2,173,309
from financing activities, primarily due to $1,098,750 realized from the
sale of common stock and $1,000,000 from the issuance of a convertible
debenture.
At March 31, 2000, the Company had cash of $1,315,550 compared to
$290,269 at December 31, 1999. The increase in cash is due to
the sale of stock and issuance of the debenture. Also at March 31,
2000, the Company had total assets of $1,870,228 and stockholders'
deficit of $1,067,815. In comparison, at December 31, 1999 the Company
had total assets of $2,105,780 and total stockholders' deficit of
$43,535. The increase in stockholders' deficit is directly related to
the discontinued operations of Phillips.
Management believes that the Company has sufficient capital
resources and commitments to fund anticipated operations through the end
of 2000.
The Company intends to acquire additional equity or debt capital
through private sources and/or a public offering, although there can be
no assurance that the Company could successfully complete any such
offering. Through March 31, 2000, the Company entered into a firm
agreement for the acquisition of up to $14 million of capital from
private sources. Through May 15, 2000, the Company had realized
$1,500,000 of this funding. Initial proceeds are being used primarily
to begin the production and commercial launch of the Company's lead
product, the CoverTipTM, and for general corporate expenses. Additional
funds, as realized, will be used for the development of SofDrawTM ,
PreSafTM and other general corporate business.
If additional funding is not realized or if the Company is unable
to commercially market its products under development, it could
experience a further need for cash during fiscal 2000. In this event,
the Company could experience further losses and may be forced to curtail
operations or postpone product development and expansion plans. The
Company's continuation as a going concern is directly dependent upon
its ability to market its products under development and to realize
additional funds from its current financing.
Net Operating Loss
The Company has accumulated approximately $15,000,000 of net
operating loss carryforwards as of March 31, 2000, which may be offset
against taxable income and income taxes in future years. The use of
these losses to reduce future income taxes will depend on the generation
of sufficient taxable income prior to the expiration of the net
operating loss carryforwards. The carry-forwards expire in the year
2020. In the event of certain changes in control of the Company, there
will be an annual limitation on the amount of net operating loss
carryforwards which can be used. No tax benefit has been reported in
the financial statements for the period ended March 31, 2000 because
there is a 50% or greater chance that the carryforward will not be used.
Accordingly, the potential tax benefit of the loss carryforward is
offset by a valuation allowance of the same amount.
Inflation
In the opinion of management, inflation has not had a material
effect on the operations of the Company.
Year 2000
The Year 2000 issue results from a computer industry-wide practice
of representing years with only two digits instead of four. Beginning
in the year 2000, date code fields need to accept four digit entries to
distinguish twenty-first century dates from twentieth century dates
(2000 or 1900). As a result, computer systems and/or software used by
many companies needed to be upgraded to comply with such Year 2000
requirements.
Through March 31, 2000, the Company has not experienced any
significant problems associated with the Year 2000 issue nor has it been
made aware of or experienced date related problems with any third-party
software. Although it appears that the Year 2000 issue will not have a
significant adverse effect on the Company, it continues to monitor the
Year 2000 compliance of its internal systems. Undetected errors in its
internal systems that may be discovered in the future could have a
material adverse effect on its business, operating results or financial
condition.
Risk Factors and Cautionary Statements
Forward-looking statements in this report are made pursuant to the
"safe harbor" provisions of the Private Securities Litigation Reform Act
of 1995. The Company wishes to advise readers that actual results may
differ substantially from such forward-looking statements. Forward-
looking statements involve risks and uncertainties that could cause
actual results to differ materially from those expressed in or implied
by the statements, including, but not limited to, the following: the
ability of the Company to secure additional financing, the development
of the Company's existing and new products, the potential market for the
Company's products, competitive factors, and other risks detailed in the
Company's periodic report filings with the Securities and Exchange
Commission.
PART II
Item 1. Legal Proceedings
On March 16, 2000, the Company filed a Complaint against Brett
Phillips, Elbert Carl Anderson, William H. Morris, Marilyn Morris and
Barbara Larkins in the United States District Court in and for the
Middle District of Louisiana, alleging various securities law violations
and related claims in connection with the 1998 acquisition by the
Company from the defendants of Phillips Pharmatech Labs, Inc. The
Company is seeking recission of the acquisition, damages and other
relief. The Company anticipated that these defendants would file
various retaliatory claims. The Company believes that the suit filed is
in the best interests of the shareholders and that it should not
interfere with the core focus and business of the Company.
On May 9, 2000, E. Carl Anderson, William Morris and Brett
Phillips, filed a derivative action lawsuit in the United States
District Court, Middle District of Florida, case number 8:00CV905-T 24F,
against the Company and the current directors of the Company. The
action was filed by Messrs. Anderson, Morris and Phillips acting by and
in behalf of the Company. The complaint alleges corporate waste in the
form of excessive salaries and bonuses and other alleged wastes related
to Phillips. The complaint seeks injunctive relief and damages. Each
of the plaintiffs in this action is also a defendant in the lawsuit
previously filed by the Company on March 16, 2000 referenced above. 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.
Item 2. Changes in Securities and Use of Proceeds
During the three month period ended March 31, 2000, the Company
issued an aggregate of 11,949,129 shares of authorized, but previously
unissued common stock. Of this amount, (i) 2,783,464 shares were issued
in exchange for services rendered valued at $.68 per share; (ii)
2,888,332 shares were issued for cash of $698,750, or $0.24 per share;
(iii) 5,500,000 shares were issued for prepaid service involving the
acquisition of manufacturing capabilities for the CoverTipTM safety
syringe, valued at $0.36 per share; (iv) 188,833 shares issued upon
exercise of common stock warrants at an average of $0.44 per share; and
(v) 588,500 shares for the conversion of debentures and notes payable
and valued at $0.25 per share. Proceeds realized from the cash sales
for general Company operations including reduction of debt, and
developing and initial marketing of the CoverTipTM.
The above issuances of shares were made in private transactions to
persons having received information concerning the Company and its
business operations. Accordingly, the Company relied upon the exemption
from registration under the Securities Act of 1933, as amended (the
"Act"), provided by Sections 4(2) and 3(a)(9) of the Act.
Item 3. Defaults Upon Senior Securities
This Item is not applicable to the Company.
Item 4. Submissions of Matters to a Vote of Security Holders
This Item is not applicable to the Company.
Item 5. Other Information
This Item is not applicable to the Company.
Item 6. Exhibits and Reports on Form 8-K
No reports on Form 8-K were filed by the Company during the three
month period ended March 31, 2000.
SIGNATURES
In accordance with the requirements of the Exchange Act, the
registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
MEDISYS TECHNOLOGIES, INC.
BY: /S/ Edward P. Sutherland
EDWARD P. SUTHERLAND
Chairman, Chief Executive
Officer, Treasurer and
Director
DATE: June 12, 2000
BY: /S/ Kerry Frey
KERRY FREY
President, Chief Operating and
Director
DATE: June 12, 2000
