UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of The
Securities Exchange Act of 1934
For the Quarter Ended September 30, 2000
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Commission File Number 0-21441
MEDISYS TECHNOLOGIES, INC.
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(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 September 30, 2000
Common Stock, 60,419,254
Par Value $0.0005 per value
Transitional Small Business Disclosure Format (check one):
Yes [ ]; No [ X ]
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<CAPTION>
MEDISYS TECHNOLOGIES, INC.
TABLE OF CONTENTS
Page
----
PART I
<S> <C> <C>
Item 1. Financial Statements........................................................ 3
Item 2. Management's Discussion and Analysis or Plan
of Operation................................................................ 22
PART II
Item 1. Legal Proceedings........................................................... 25
Item 2. Changes in Securities and Use of Proceeds................................... 26
Item 3. Defaults Upon Senior Securities............................................. 27
Item 4. Submissions of Matters to a Vote of Security
Holders..................................................................... 27
Item 5. Other Information........................................................... 27
Item 6. Exhibits and Reports on Form 8-K............................................ 27
SIGNATURES.................................................................. 28
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PART I
Item 1. Financial Statements
The following unaudited Financial Statements for the period ended
September 30, 2000, have been prepared by the Company.
Medisys Technologies, Inc.
Consolidated Financial Statements
September 30, 2000 and December 31, 1999
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MEDISYS TECHNOLOGIES, INC. AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Balance Sheets
ASSETS
------
September 30, December 31,
2000 1999
----------- -----------
(Unaudited)
CURRENT ASSETS
Cash $ 834,803 $ 290,269
Accounts receivable, net (Note 1) 357 222,100
Accounts receivable, related parties -- 50,572
Advances 2,500 2,500
Inventory (Note 1) 7,729 396,601
Prepaid expenses 46,328 21,802
----------- -----------
Total Current Assets 891,717 983,844
----------- -----------
FIXED ASSETS (Note 1)
Computers and equipment 59,931 73,341
Machinery and equipment -- 301,087
Buildings and improvements 2,195 463,803
Furniture and fixtures 37,410 50,248
Vehicles -- 19,915
Accumulated depreciation (80,540) (314,751)
----------- -----------
Total Fixed Assets 18,996 593,643
----------- -----------
OTHER ASSETS
Deposits 35,835 36,039
Patent and trademark costs, net (Note 1) 566,278 492,254
----------- -----------
Total Other Assets 602,113 528,293
----------- -----------
TOTAL ASSETS $ 1,512,826 $ 2,105,780
=========== ===========
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MEDISYS TECHNOLOGIES, INC. AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Balance Sheets (Continued)
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
----------------------------------------------
September 30, December 31,
2000 1999
------------ ------------
(Unaudited)
CURRENT LIABILITIES
<S> <C> <C>
Accounts payable $ 77,495 $ 924,490
Customer deposits -- 94,096
Accrued expenses 124,730 261,786
Payable - shareholders (Note 2) 18,456 140,758
Notes payable - current portion -- 56,695
Notes payable - shareholders (Note 5) 12,500 25,000
Line of credit -- 250,000
Reserve for discontinued operations (Note 11) 1,726,923 --
Debentures payable - related parties (Note 3) -- 92,000
------------ ------------
Total Current Liabilities 1,960,104 1,844,825
------------ ------------
LONG-TERM DEBT
Notes payable -- 304,490
Debentures payable (Note 8) 1,380,000 --
------------ ------------
Total Long-Term Debt 1,380,000 304,490
------------ ------------
TOTAL LIABILITIES 3,340,104 2,149,315
------------ ------------
COMMITMENTS AND CONTINGENCIES (Note 7)
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock: 100,000,000 shares
authorized of $0.0005 par value, 60,419,254 and
47,055,644 shares issued and outstanding, respectively 30,209 23,527
Additional paid-in capital 17,114,782 10,743,768
Treasury stock (Note 4) (450,000) --
Stock subscriptions receivable (Note 4) (175,000) (1,075,000)
Prepaid expenses (Note 7) (1,964,500) --
Accumulated deficit (16,382,769) (9,735,830)
------------ ------------
Total Stockholders' Equity (Deficit) (1,827,278) (43,535)
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY (DEFICIT) $ 1,512,826 $ 2,105,780
============ ============
</TABLE>
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<CAPTION>
MEDISYS TECHNOLOGIES, INC. AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Statements of Operations
(Unaudited)
From
Inception of the
Development
Stage on
For the For the April 1,
Three Months Ended Nine Months Ended 2000 Through
September 30, September 30, September 30,
--------------------------------------------------------------------------
2000 1999 2000 1999 2000
--------------- ---------------- -------------- -------------- ----------------
<S> <C> <C> <C> <C> <C>
REVENUES $ -- $ -- $ 660 $ 1,908 $ 37
--------------- ---------------- -------------- -------------- ----------------
OPERATING EXPENSES
Cost of sales -- -- 679 403 --
Product research and development 156,388 33,750 2,063,774 110,150 424,339
Depreciation and amortization 5,224 4,122 14,091 11,004 10,236
Selling, general and administrative 543,983 213,885 2,817,037 474,224 1,448,443
--------------- ---------------- -------------- -------------- ----------------
Total Operating Expenses 705,595 251,757 4,895,581 595,781 1,883,018
--------------- ---------------- -------------- -------------- ----------------
OPERATING LOSS (705,595) (251,757) (4,894,921) (593,873) (1,882,981)
--------------- ---------------- -------------- -------------- ----------------
OTHER INCOME (EXPENSES)
Interest income 16,708 65 34,074 317 27,529
Interest expense (26,838) (168,997) (355,358) (199,696) (193,358)
--------------- ---------------- -------------- -------------- ----------------
Total Other Income (Expenses) (10,130) (168,932) (321,284) (199,379) (165,829)
--------------- ---------------- -------------- -------------- ----------------
LOSS FROM CONTINUING
OPERATIONS BEFORE INCOME
TAXES (715,725) (420,689) (5,216,205) (793,252) (2,048,810)
INCOME TAXES -- -- -- -- --
--------------- ---------------- -------------- -------------- ----------------
LOSS FROM CONTINUING
OPERATIONS (715,725) (420,689) (5,216,205) (793,252) (2,048,810)
LOSS FROM DISCONTINUED
OPERATIONS (Note 11) (7,328) (43,380) (1,430,734) (61,336) (50,780)
--------------- ---------------- -------------- -------------- ----------------
NET LOSS $ (723,053) $ (464,069) $ (6,646,939) $ (854,588) $ (2,099,590)
=============== ================ ============== ============== ================
BASIC LOSS PER SHARE (Note 1)
Loss from continuing operations $ (0.01) $ (0.01) $ (0.09) $ (0.02) --
Loss from discontinued operations (0.00) (0.00) (0.02) (0.00) --
--------------- ---------------- -------------- -------------- ---------------
Basic Loss Per Share $ (0.01) $ (0.01) $ (0.11) $ (0.02) --
=============== ================ ============== ============== ===============
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<CAPTION>
MEDISYS TECHNOLOGIES, INC. AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Statements of Stockholders' Equity (Deficit)
Common Stock Additional Stock
------------------------- Paid-In Treasury Subscription Prepaid Accumulated
Shares Amount Capital Stock Receivable Expenses Deficit
------------- ----------- ------------- ----------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1998 34,009,757 $ 17,004 $ 8,122,813 $ - $ (175,000) $ - $ (8,048,209)
Common stock issued for
subscription receivable 5,555,555 2,778 997,222 - (1,000,000) - -
Common stock issued for
services rendered 2,121,619 1,061 424,282 - - - -
Common stock issued for
accrued wages 324,477 162 89,838 - - - -
Common stock canceled (972,214) (486) 486 - - - -
Common stock issued to
convert debentures payable 1,435,000 717 302,283 - - - -
Issuance of common stock
from exercise of common
stock warrants 8,889 5 9,995 - - - -
Common stock issued for
interest expense 1,184,118 592 277,408 - - - -
Common stock issued for cash 3,388,443 1,694 519,441 - - - -
Cash received on stock
subscription receivable - - - - 100,000 - -
Net loss for the year ended
December 31, 1999 - - - - - - (1,687,621)
------------- ----------- ------------- ----------- ------------- ------------ --------------
Balance, December 31, 1999 47,055,644 $ 23,527 $ 10,743,768 $ - $ (1,075,000) $ - $ (9,735,830)
------------- ----------- ------------- ----------- ------------- ------------ --------------
</TABLE>
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<CAPTION>
MEDISYS TECHNOLOGIES, INC. AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Statements of Stockholders' Equity (Deficit) (Continued)
Common Stock Additional Stock
------------------------- Paid-In Treasury Subscription Prepaid Accumulated
Shares Amount Capital Stock Receivable Expenses Deficit
------------- ----------- ------------- ----------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1999 47,055,644 $ 23,527 $ 10,743,768 $ - $ (1,075,000) $ - $ (9,735,830)
Common stock issued for cash
(unaudited) 2,888,332 1,444 697,306 - - - -
Issuance of common stock
from exercise of common
stock warrants (unaudited) 188,833 95 83,238 - - - -
Common stock issued to
convert debentures and
notes payable (unaudited) 588,500 294 144,206 - - - -
Common stock issued for
services rendered (unaudited) 3,301,337 1,651 2,415,757 - - - -
Cash received on stock
subscription receivable
(unaudited) - - - - 450,000 - -
Repurchase common stock for
stock subscription
receivable
(unaudited) - - - (450,000) 450,000 - -
Warrants issued below
market value (unaudited) - - 142,775 - - - -
Conversion discount on
debentures (see Note 10)
(unaudited) - - 300,000 - - - -
Common stock issued for
prepaid services (unaudited) 5,500,000 2,750 1,961,750 - - (1,964,500) -
Common stock issued
for accrued
interest (unaudited) 9,316 5 6,425 - - - -
Common stock issued to convert
debentures payable (unaudited) 887,292 443 619,557 - - - -
Net loss for the
nine months ended
September 30, 2000 (unaudited) - - - - - - (6,646,939)
----------- ----------- ------------- ----------- ------------- ------------ --------------
Balance, September 30, 2000
(unaudited) 60,419,254 $ 30,209 $ 17,114,782 $ (450,000) $ (175,000) $ (1,964,500) $ (16,382,769)
=========== =========== ============= =========== ============= ============ ==============
</TABLE>
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<CAPTION>
MEDISYS TECHNOLOGIES, INC. AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Statements of Cash Flows
(Unaudited)
From
nception of the
Development
For the For the Stage on
Three Months Ended Nine Months Ended April 1,
September 30, September 30, 2000 Through
-------------------------- -------------------------- September 30,
2000 1999 2000 1999 2000
--------------- ---------------- -------------- --------------- ----------------
CASH FLOWS FROM OPERATING
ACTIVITIES
<S> <C> <C> <C> <C> <C>
Net loss $ (723,053) $ (464,069) $ (6,646,939) $ (854,588) $ (2,099,590)
Adjustments to reconcile
net income
to net cash used by
operating activities:
Common stock issued
for services
and interest 166,825 269,935 2,417,408 370,221 513,697
Assets written down from
discontinued operations - - 1,212,418 - -
Depreciation and amortization 5,224 4,122 14,091 11,004 10,236
Loss on disposal of assets - 719 - 3,772 -
Warrants issued
below market value - - 142,775 - -
Conversion discount
on debentures - - 300,000 - 150,000
Changes in operating assets and
liabilities:
(Increase) decrease in accounts
receivable 251 327 (357) 2,475 (17)
(Increase) decrease
in inventory - - - (2,564) -
(Increase) decrease
in prepaids and
deposits (60,000) - (60,000) (4,000) (60,000)
Increase (decrease) in
accounts payable 61,021 24,498 12,646 45,046 7,167
Increase (decrease)
in accrued expenses 24,104 89,616 (98,004) 270,149 21,324
Increase (decrease)
in reserve
for discontinued operations - 43,380 167,536 61,136 -
--------------- ---------------- -------------- --------------- ----------------
Net Cash Used by Operating
Activities (525,628) (31,472) (2,538,426) (97,349) (1,457,183)
--------------- ---------------- -------------- --------------- ----------------
CASH FLOWS FROM INVESTING
ACTIVITIES
Increase in patent costs (27,038) (7,275) (74,990) (37,589) (65,088)
Purchase of fixed assets (3,000) - (20,395) - (8,476)
--------------- ---------------- -------------- --------------- ----------------
Net Cash Used by
Investing Activities (30,038) (7,275) (95,385) (37,589) (73,564)
--------------- ---------------- -------------- --------------- ----------------
CASH FLOWS FROM FINANCING
ACTIVITIES
Proceeds (payments) from payable
- shareholders - 36,754 (8,774) 57,524 -
Proceeds from the issuance of
common stock - - 698,750 43,000 -
Payments received on
stock subscription
receivable - - 450,000 - 50,000
Proceeds from the
exercise of warrants - - 83,333 10,000 -
Proceeds from debentures payable - - 2,000,000 - 1,000,000
--------------- ---------------- -------------- --------------- ----------------
Net Cash Provided by Financing
Activities $ - $ 36,754 $ 3,223,309 $ 110,524 $ 1,050,000
--------------- ---------------- -------------- --------------- ----------------
</TABLE>
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<CAPTION>
MEDISYS TECHNOLOGIES, INC. AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Statements of Cash Flows (Continued)
(Unaudited)
From
Inception of the
Development
For the For the Stage on
Three Months Ended Nine Months Ended April 1,
September 30, September 30, 2000 Through
-------------------------- -------------------------- September 30,
2000 1999 2000 1999 2000
--------------- ---------------- -------------- --------------- ----------------
<S> <C> <C> <C> <C> <C>
NET INCREASE (DECREASE)
CASH AND CASH EQUIVALENTS $ (555,666) $ (1,993) $ 589,498 $ (24,414) $ (480,747)
CASH AND CASH EQUIVALENTS
AT BEGINNING OF PERIOD 1,390,469 2,601 245,305 25,022 1,315,550
--------------- ---------------- -------------- --------------- ----------------
CASH AND CASH EQUIVALENTS
AT END OF PERIOD $ 834,803 $ 608 $ 834,803 $ 608 $ 834,803
=============== ================ ============== =============== ================
SUPPLEMENTAL DISCLOSURES
OF CASH FLOW INFORMATION
CASH PAID FOR
Income taxes $ - $ - $ - $ - $ -
Interest $ - $ - $ 28,520 $ 699 $ 8,874
NON-CASH FINANCING ACTIVITIES
Stock issued for services and
interest expense $ 166,825 $ 269,935 $ 2,417,408 $ 370,221 $ 513,697
Stock issued in payment of
accrued expenses and
accounts payable $ 6,430 $ - $ 6,430 $ 90,000 $ 6,430
Stock issued to convert
debentures and notes payable $ 620,000 $ - $ 764,500 $ 115,000 $ 620,000
Stock issued for prepaid expenses $ - $ - $ 1,964,500 $ - $ -
Repurchase of common stock by
canceling stock subscription
receivable $ - $ - $ 450,000 $ - $ 450,000
</TABLE>
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<PAGE>
MEDISYS TECHNOLOGIES, INC. AND SUBSIDIARIES
(A Development Stage Company)
Notes to the Consolidated Financial Statements
September 30, 2000 and December 31, 1999
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Business Organization
The Company was incorporated on March 17, 1983 under the laws of
the State of Utah. The Company subsequently ceased its original
business activity in 1985 and thereafter primarily investigated
and sought new business opportunities and was reclassified as a
development stage company until December of 1998 when it acquired
Phillips Pharmatech Labs, Inc. (Phillips). The Company reentered
the development stage effective April 1, 2000 as a result of
Phillips ceasing all operations (see Note 11).
The Company has a wholly-owned subsidiary Medisys Technologies,
Inc. (Medisys) which was incorporated in the State of Louisiana,
on January 21, 1991, for the purpose of developing a device for
the assistance of childbirth under a patent which was applied for
in May 1990 and granted on June 15, 1992.
Medisys has been classified as a development stage company since
all activities to date have been related to the development of a
childbirth assistance device as well as other medical devices.
On August 6, 1992 the Company acquired all of the outstanding
common stock of Medisys. For accounting purposes the acquisition
has been treated as a recapitalization of Medisys with Medisys as
the acquirer.
Phillips Pharmatech Labs, Inc. (Phillips) was organized under the
laws of the State of Florida on December 13, 1994. It was
incorporated for the purpose of engaging in the manufacturing and
bottling of health supplements and other health related and
natural products.
On December 22, 1998, the Company completed an acquisition and
share exchange agreement whereby Medisys issued 15,602,147 shares
of its common stock in exchange for all of the outstanding common
stock of Phillips. The shares issued by Medisys represented 50% of
the total shares of the Company's common stock issued and
outstanding immediately following the acquisition. The acquisition
is accounted for as a purchase of Phillips.
b. Fixed Assets
Fixed assets are stated at cost less accumulated depreciation.
Expenditures for small tools, ordinary maintenance and repairs are
charged to operations as incurred. Major additions and
improvements are capitalized. Depreciation is computed using the
straight-line method over estimated useful lives as follows:
Leasehold improvements 5 years
Furniture and fixtures 5 years
Computers and equipment 5 years
Depreciation expense for the nine months ended September 30, 2000
and 1999 was $13,125 and $10,038, respectively.
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MEDISYS TECHNOLOGIES, INC. AND SUBSIDIARIES
(A Development Stage Company)
Notes to the Consolidated Financial Statements
September 30, 2000 and December 31, 1999
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
c. Patent and Trademark Costs
The capitalized costs of obtaining patents consists of legal fees
and associated filing costs. These patent costs will be amortized
over the shorter of their legal or useful lives. The Company has
numerous patents in various stages of development and the
application process. Several patents have been granted but are
being developed further in a continuation-in-part (CIP) status
until the development of a commercial product is complete, the
related product has received FDA (Food and Drug Administration)
clearance and is in a marketable condition ready for sale. Once
patents have been granted, FDA approval obtained, and sales
commenced, no further costs associated with the patent are
capitalized. As of December 31, 1999, the Company did have one
patented product for which sales have commenced with the related
costs being amortized over the estimated useful life (17 years) of
the patent. Management has determined that estimated future cash
flows from this product will be sufficient to recover the
capitalized basis of the costs associated with that patent. The
other patents for which costs have been capitalized are considered
to have continued viability according to management of the Company
with no significant events occurring which would impair the value
of the capitalized costs associated with the individual patents.
The Company has also incurred costs associated with obtaining
trademarks related to the Company's existing and future products.
Those costs have been capitalized and will be amortized over the
estimated useful life of the trademarks once approval has been
received and usage begins. These trademarks are considered to have
continued viability according to management with no significant
events occurring which would impair the value of the capitalized
costs associated with the trademarks.
Patent and trademark costs incurred are as follows:
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<CAPTION>
September 30, December 31,
2000 1999
----------------- -----------------
(Unaudited)
<S> <C> <C>
Patents $ 560,542 $ 485,552
Trademarks 11,961 11,961
----------------- -----------------
Subtotal 572,503 497,513
Less accumulated amortization (6,225) (5,259)
----------------- -----------------
Total $ 566,278 $ 492,254
================= =================
</TABLE>
Amortization expense for the nine months ended September 30, 2000
and 1999 was $966.
d. Accounting Method
The Company's financial statements are prepared using the accrual
method of accounting. The Company has elected a December 31 year
end.
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MEDISYS TECHNOLOGIES, INC. AND SUBSIDIARIES
(A Development Stage Company)
Notes to the Consolidated Financial Statements
September 30, 2000 and December 31, 1999
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
e. Cash and Cash Equivalents
For purposes of financial statement presentation, the Company
considers all highly liquid investments with a maturity of three
months or less, from the date of purchase, to be cash equivalents.
f. Income Taxes
No provision for federal income taxes has been made at September
30, 2000 due to accumulated operating losses. The Company has
accumulated approximately $15,000,000 of net operating losses as
of September 30, 2000, which may be used to reduce taxable income
and income taxes through 2020. 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.
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.
i. Inventory
Inventory is carried at the lower of cost or market value using
the first-in, first-out method.
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MEDISYS TECHNOLOGIES, INC. AND SUBSIDIARY
(A Development Stage Company)
Notes to the Consolidated Financial Statements
September 30, 2000 and December 31, 1999
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
j. Basic Loss Per Share
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<CAPTION>
For the For the
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------------------------------------------------------------
2000 1999 2000 1999
---------------- --------------- --------------- ----------------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
Basic loss per share from
continuing operations:
<S> <C> <C> <C> <C>
Income (loss) - numerator $ (715,725) $ (420,689) $ (5,216,205) $ (793,252)
Shares - denominator 59,743,216 35,765,811 57,513,760 35,181,141
Per share amount $ (0.01) $ (0.01) $ (0.09) $ (0.02)
Basic loss per share from
discontinued operations:
Income (loss) - numerator $ (7,328) $ (43,380) $ (1,430,734) $ (61,336)
Shares - denominator 59,743,216 35,765,811 57,513,760 35,181,141
Per share amount $ (0.00) $ (0.00) $ (0.02) $ (0.00)
</TABLE>
The basic loss per share of common stock is based on the weighted
average number of shares issued and outstanding during the period
of the financial statements. Shares to be issued from warrants and
options are not included in the computation because they would
have an antidilutive effect on the net loss per common share.
k. Advertising
The Company follows the policy of charging the costs of
advertising to expense as incurred.
l. Credit Risks
Medisys maintains its cash accounts primarily in one bank in
Louisiana. The Federal Deposit Insurance Corporation insures
accounts to $100,000. The Company's accounts occasionally exceed
the insured amount.
-14-
<PAGE>
MEDISYS TECHNOLOGIES, INC. AND SUBSIDIARIES
(A Development Stage Company)
Notes to the Consolidated Financial Statements
September 30, 2000 and December 31, 1999
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
m. Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management of
the Company and its Subsidiaries to make estimates and assumptions
that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ
from those estimates.
n. Accounts Receivable
Accounts receivable are shown net of the allowance for doubtful
accounts of $-0- at September 30, 2000 and December 31, 1999.
o. Change in Accounting Principle
In June 1998, the FASB issued SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities," which requires
companies to record derivatives as assets or liabilities, measured
at fair market value. Gains or losses resulting from changes in
the values of those derivatives would be accounted for depending
on the use of the derivative and whether it qualifies for hedge
accounting. The key criterion for hedge accounting is that the
hedging relationship must be highly effective in achieving
offsetting changes in fair value or cash flows. SFAS No. 133 is
effective for all fiscal quarters of fiscal years beginning after
June 15, 1999. The adoption of this statement had no material
impact on the Company's financial statements.
p. Unaudited Consolidated Financial Statements
The accompanying unaudited consolidated financial statements
include all of the adjustments which, in the opinion of
management, are necessary for a fair presentation. Such
adjustments are of a normal recurring nature.
NOTE 2 - PAYABLE - SHAREHOLDERS
From time to time, the Company receives advances from certain
shareholders. The company also advances funds to shareholders. The
outstanding balances of these advances fluctuates during the year
and do not have specific repayment terms although the advances are
generally considered to be due or payable on demand. Accordingly,
the related receivable or payable has been reflected as current in
the accompanying consolidated financial statements. At September
30, 2000, the balance payable to shareholders totaled $18,456. At
December 31, 1999, the balance payable to shareholders totaled
$140,758.
-15-
<PAGE>
MEDISYS TECHNOLOGIES, INC. AND SUBSIDIARIES
(A Development Stage Company)
Notes to the Consolidated Financial Statements
September 30, 2000 and December 31, 1999
NOTE 3 - DEBENTURES PAYABLE - RELATED PARTIES
The Company also has notes payable (debentures) to various
shareholders in the aggregate of $-0- and $92,000 at September 30,
2000 and December 31, 1999, respectively. The balance of $92,000
was converted into 180,000 shares of common stock during the first
quarter of 2000.
NOTE 4 - STOCK SUBSCRIPTION RECEIVABLE
During 1999, the Company issued 5,555,555 shares of common stock
for $1,000,000. Payment for the common stock was made with a
non-interest bearing promissory note. Those shares were being held
in escrow as collateral until the note was to be paid. As of June
30, 2000, $550,000 on the note had been paid and the balance of
$450,000 was forgiven by the Company in order to repurchase
1,000,000 of the shares of common stock (the Company also received
900,000 common stock warrants). These shares are being held by the
Company as treasury stock.
During 1996, the Company issued 100,000 shares of restricted
common stock upon the exercise of common stock warrants
representing the same number of shares, having an exercise price
of $1.75 per share. Payment for the common stock was made with a
non- interest bearing four year promissory note. The related
shares are being held by the Company as collateral for the
promissory note. The shares have been reflected as issued and
outstanding with a corresponding $175,000 stock subscription
receivable reflected as a reduction of stockholders' equity.
NOTE 5 - NOTES PAYABLE - SHAREHOLDERS
Notes payable - shareholders consisted of the following:
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
------------------ ------------------
(Unaudited)
<S> <C> <C>
Note payable to Richard L. Apel, unsecured, dated
November 2, 1993 at 8%; principal and interest
delinquent since August 18, 1994. $ - $ 12,500
Note payable to Cynthia F. Vatz, unsecured, dated
October 19, 1993 at 8%; principal and interest
delinquent since August 18, 1994. 12,500 12,500
------------------ ------------------
Total 12,500 25,000
Less current portion (12,500) (25,000)
------------------ ------------------
Total long-term portion $ - $ -
================== ==================
</TABLE>
The note payable is technically in default. The related note
holder has not demanded repayment however the Company is
continuing in the process of locating this shareholder and
negotiating repayment terms.
-16-
<PAGE>
MEDISYS TECHNOLOGIES, INC. AND SUBSIDIARIES
(A Development Stage Company)
Notes to the Consolidated Financial Statements
September 30, 2000 and December 31, 1999
NOTE 6 - COMMON STOCK
During 1999, the Company issued 324,477 shares of its common stock
in satisfaction of accrued wages of $90,000. The Company issued
1,435,000 shares of its common stock to convert $303,000 of
debentures payable. The Company issued 3,305,737 shares of its
common stock for services and interest expense. The shares issued
for services and interest were valued at the trading price of the
common stock on the date the shares were issued. The Company
issued 3,388,443 shares of its common stock for cash of $521,135.
The Company issued 8,889 shares of its common stock from the
exercise of warrants for cash of $10,000. Finally, certain
officers and directors of the Company canceled 972,214 shares of
common stock and the shares were reissued to convert a portion of
the debentures payable.
During 2000, the Company issued 588,500 shares of its common stock
in satisfaction for debentures and notes payable of $144,500. The
Company issued 3,301,337 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 896,608
shares of its common stock to convert debentures and accrued
interest of $620,000 and $6,430, respectively. 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 designed not to exceed 50% of their annual compensation
and stock bonuses are designed not 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
2001.
-17-
<PAGE>
MEDISYS TECHNOLOGIES, INC. AND SUBSIDIARIES
(A Development Stage Company)
Notes to the Consolidated Financial Statements
September 30, 2000 and December 31, 1999
NOTE 7 - COMMITMENTS AND CONTINGENCIES (Continued)
Legal Issues
On March 16, 2000, the Company filed a Complaint against Brett
Phillips, Elbert Carl Anderson, William H. Morris, Marilyn Morris
and Barbara Larkins in the United States District Court in and for
the Middle District of Louisiana, alleging various securities law
violations and related claims in connection with the 1998
acquisition by the Company from the defendants of Phillips
Pharmatech Labs, Inc. The Company is seeking recission of the
acquisition, damages and other relief. The Company anticipated
that these defendants would file various retaliatory claims. The
Company believes that the suit filed is in the best interests of
the shareholders and that it should not interfere with the core
focus and business of the Company.
On May 9, 2000, E. Carl Anderson, William Morris and Brett
Phillips, filed a derivative action lawsuit in the United States
District Court, Middle District of Florida, cash number
8:00CV905-T 24F against the Company and the current directors of
the Company. The action was filed by Messrs. Anderson, Morris and
Phillips acting by and in behalf of the Company. The complaint
alleges corporate waste in the form of excessive salaries and
bonuses and other alleged wastes related to Phillips. The
Complaint seeks injunctive relief and damages. Each of the
plaintiffs in this action is also a defendant in the lawsuit
previously filed by the Company on March 16, 2000 referenced
above. The Company has not yet responded to the complaint and has
not determined whether the action could cause material damages to
the Company.
On August 24, 2000, a Magistrate for the United States District
Court, Middle District of Florida, in the action brought by
Plaintiffs Carl Anderson, William Morris and Brett Phillips
against various directors of Medisys Technologies, Inc., issued a
39 page Report and Recommendation to the Federal District Court
Judge. The Report followed an Evidentiary Hearing held before the
Magistrate on Plaintiffs' Motion for Preliminary Injunction,
Defendants' Motion to Dismiss the Derivative Claims and
Defendants' Motion to Dismiss Plaintiff Anderson's Individual
claim. The Report recommended that the Federal District Court
Judge deny Plaintiffs' Motion for Preliminary Injunction and grant
Defendants' Motion to Dismiss the Derivative Claims and further
dismiss Plaintiff Anderson's Individual Claim. All parties were
then permitted to file written responses with the Court before the
Report and Recommendation was submitted to the Federal District
Judge for final ruling. The parties now await the Federal District
Court Judge's final ruling on the Magistrate's recommendations to
dismiss.
On October 11, 2000, the United States District Court for the
District of Utah, Central Division, in the litigation brought by
Medisys Technologies, Inc. against various defendants, including
Carl Anderson, William Morris and Brett Philips, concluded a two
day Evidentiary Hearing on Plaintiff's Motion for Preliminary
Injunction which sought an Order restraining the defendants from
trading shares acquired as a result of the acquisition of Phillips
Pharmatech Labs from the Defendants. At the conclusion of the
hearing, the Judge denied Plaintiff's motion for preliminary
injunctive relief. The Court will hear additional Motions in this
matter as the case proceeds to a trial on the merits of the claim.
-18-
<PAGE>
MEDISYS TECHNOLOGIES, INC. AND SUBSIDIARIES
(A Development Stage Company)
Notes to the Consolidated Financial Statements
September 30, 2000 and December 31, 1999
NOTE 7 - COMMITMENTS AND CONTINGENCIES (Continued)
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.
Phillips has filed for protection under chapter 7 of the United
States Bankruptcy Code in the United States Bankruptcy Court of
the Middle District of Florida, Tampa Division.
Manufacturing Agreement
On January 19, 2000, the Company entered into a manufacturing
agreement for the production of the Company's patented syringes.
The Company has agreed to pay $500,000 cash and issue 7,000,000
shares of its common stock as part of the agreement. At June 30,
2000, $500,000 had been paid and 1,500,000 shares had been
released from escrow as payment. The remaining 5,500,000 shares
have been issued and have been classified as a prepaid expense
because the services had not yet been performed at September 30,
2000.
NOTE 8 - CONVERTIBLE DEBENTURES
The Company received a $2,000,000 face value 6% convertible
debenture due August 31, 2001. The conversion price of the
debentures is the lower of 85% of the market price of the
Company's common stock at the conversion date or $2.00. The
conversion discount of 15% has been charged to interest expense in
the amount of $300,000. The Company converted $620,000 of the
debenture into common stock by issuing 887,292 shares during the
third quarter of 2000. The balance of the debenture at September
30, 2000 was $1,380,000. The Company also issued warrants to
purchase 300,000 shares of the Company's common stock at an
exercise price of $2.00 per share.
NOTE 9 - COMMON STOCK WARRANTS
As of September 30, 2000, the Company had outstanding warrants for
the issuance of common stock as follows:
<TABLE>
<CAPTION>
Number of Date Expiration Exercise Estimated
Warrants Issued Dates Prices Proceeds
-------------------- --------------- ---------------- ---------------------- ------------------
<S> <C> <C> <C> <C> <C>
300,000 1995 2005 $2.6250 $ 787,500
2,684,432 1996 2000-2001 $ 1.0000 - $4.2500 6,506,741
977,737 1997 2000-2002 $ 0.6875 - $1.8750 1,188,211
5,194,322 1998 2000-2005 $ 0.2500 - $4.2500 9,929,502
1,514,525 1999 2001-2002 $ 0.4000 - $0.7500 748,263
3,316,752 2000 2003 $ 0.5000 - $2.0000 4,561,085
-------------------- ------------------
13,987,768 $ 23,721,302
==================== ==================
</TABLE>
-19-
<PAGE>
MEDISYS TECHNOLOGIES, INC. AND SUBSIDIARIES
(A Development Stage Company)
Notes to the Consolidated Financial Statements
September 30, 2000 and December 31, 1999
NOTE 9 - COMMON STOCK WARRANTS (Continued)
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.
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 (which discontinued operations in
2000, see Note 11). In 1999, the Company was able to raise
working capital through the private placement of its common
stock. The Company has now closed a private placement of combined
debt and equity of up to $14,000,000 for operating capital of
which $2,000,000 has been received in 2000. The Company believes
cash flow projections now show the Company's reserves should be
adequate to cover its operating needs as well as its needs for
the expansion of its research and development projects and for
the initial commercialization of its proprietary products. The
Company also expects to generate additional revenue from the
sales of its proprietary products.
-20-
<PAGE>
MEDISYS TECHNOLOGIES, INC. AND SUBSIDIARIES
(A Development Stage Company)
Notes to the Consolidated Financial Statements
September 30, 2000 and December 31, 1999
NOTE 11 - DISCONTINUED OPERATIONS
Effective April 1, 2000, Phillips ceased all operations. The
following is a summary of the loss from discontinued operations
resulting from the elimination of the operations of Phillips. The
financial statements have been retroactively restated to reflect
this event. The Company has established a reserve for discontinued
operations of $1,726,923 which consists of net liabilities in
excess of recoverable assets at September 30, 2000. No tax benefit
has been attributed to the discontinued operations.
<TABLE>
<CAPTION>
September 30,
-------------------------------------
2000 1999
----------------- ------------------
(Unaudited) (Unaudited)
<S> <C> <C>
NET SALES $ 300,431 $ 2,230,870
----------------- ------------------
OPERATING EXPENSES
Cost of sales 267,480 1,513,304
General and administrative 223,555 719,321
Depreciation 20,066 30,668
----------------- ------------------
Total Operating Expenses 511,101 2,263,293
----------------- ------------------
LOSS FROM OPERATIONS (210,670) (32,423)
----------------- ------------------
OTHER INCOME (EXPENSES)
Other income - 4,463
Loss on write down of assets (1,212,418) -
Interest expense (7,646) (33,376)
----------------- ------------------
Total Other Income (Expense) (1,220,064) (28,913)
----------------- ------------------
LOSS BEFORE INCOME TAXES (1,430,734) (61,336)
INCOME TAXES - -
----------------- ------------------
LOSS FROM DISCONTINUED OPERATIONS $ (1,430,734) $ (61,336)
================= ==================
</TABLE>
-21-
<PAGE>
Item 2. Management's Discussion and Analysis or Plan of Operation
Results of Operations
On May 18, 2000, Medisys Technologies, Inc. (the"Company") announced
that its wholly owned subsidiary, Phillips Pharmatec Labs, Inc. ("Phillips"),
had ceased all operations. Accordingly, the Company has eliminated the
operations of Phillips from its financial results and its financial statements
have been retroactively restated to reflect this event. The Company has
established a reserve for discontinued operations of $1,726,923 which consists
of net liabilities in excess of recoverable assets at September 30, 2000.
Without Phillips' results, the Company had no revenues for the three
month period ("third quarter") and six month period ended September 30, 2000.
The Company also had only nominal revenues for the comparable 1999 periods upon
elimination of Phillips' results. The Company does not expect a significant
increase in revenues until it begins full commercial marketing of one or more of
its products, which is expected for introduction in the fourth quarter of 2000.
During the third quarter and first nine months of 2000, the Company
expended $156,388 and $2,063,774, respectively, for product research and
development, compared to $33,750 and $110,150 for the same 1999 periods. The
increase during the first nine months of 2000 is due to finalizing the
CoverTipTM technology in preparation for commercial release, development,
manufacturing and marketing resources and to secure additional intellectual
property rights. Selling, general and administrative expenses for the third
quarter and first nine months of 2000 were $543,983 and $2,817,037,
respectively, compared to $213,885 and $474,224 for the respective 1999 periods.
The increases in the 2000 periods are primarily due to stock being issued for
services and salaries and warrants being issued below current market price.
The operating loss for the third quarter and first nine months of 2000
was $715,725 and $5,216,205, respectively, compared to losses of $420,689 and
$793,252 for the same 1999 periods. The increased loss during the 2000 periods
is attributed to increased research and development costs, stock issued for
services, product manufacturing and increased general and administrative
expenses.
Interest expense for the third quarter and first nine months of 2000
was $26,838 and $355,358, respectively, compared to $168,997 and $199,696 for
the same 1999 periods. The 2000 increases are due to conversion discount on
debentures issued. Because of the Phillips closure, the Company recognized a
loss from discontinued operations of $7,328 and $1,430,734 for the third quarter
and first nine months of 2000, respectively. Comparatively, the Company
recognized a loss from discontinued operations of $43,380 and $61,336 for the
third quarter and first nine months of 1999. The net loss for the third quarter
and first nine months of 2000 was $723,053 and $6,646,939, compared to $464,069
and $854,588 for the 1999 periods.
-22-
<PAGE>
Although Phillips has discontinued operations, it had net sales of
$300,431 for the first nine months of 2000 compared with $2,230,870 for the
first nine months of 1999. Cost of sales decreased to $267,480 for the first
nine months of 2000 from $1,513,304 for the comparable 1999 period, reflecting
the decrease in sales. General and administrative expenses decreased to $223,555
for the first nine months of 2000 from $719,321 in the first nine months of
1999. Phillips also recorded a loss on the write down of assets or $1,212,418
during the first nine months of 2000 related to its ceasing operations.
Phillips' net loss for the first nine months of 2000 was $1,430,734 compared to
a net loss of $61,336 for the 1999 period.
Phillips has filed for protection under Chapter 7 of the United States
Bankruptcy Code in the Untied States Bankruptcy Court of the Middle District of
Florida, Tampa Division (file no. 0009224-8G7).
Liquidity and Capital Resources
The Company has historically derived its working capital from financing
activities, including private loans and raising capital through the sale of
securities. Working capital at September 30, 2000 was a negative $1,068,387
compared to a negative $860,981 at December 31, 1999. Cash used by operating
activities for the third quarter and first nine months of 2000 was $525,628 and
$2,538,426, respectively, compared to cash used of $31,472 and $97,349 for the
same 1999 periods. The increase in cash used during the 2000 periods was due to
the increased net loss. The results were partially offset by common stock being
issued for services and interest of $166,825 and $2,417,408 during the third
quarter and first nine months of 2000, respectively, and the $1,212,418 write
down from Phillips discontinuing operations in first nine months of 2000.
During the third quarter and first nine months of 2000, the Company
realized $0 and 3,223,309, respectively, from financing activities. This was
primarily due to $698,750 realized from the sale of common stock and $2,000,000
from the issuance of convertible debentures during the first nine months of
2000. Also during the first nine months of 2000 the Company realized $450,000
from payments received on stock subscriptions.
At September 30, 2000, the Company had cash of $834,803 compared to
$290,269 at December 31, 1999. The increase in cash is due to the sale of stock
and issuance of debentures. Also at September 30, 2000, the Company had total
assets of $1,512,826 and stockholders' deficit of $1,827,278. 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.
-23-
<PAGE>
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. In the
first quarter of 2000, the Company entered into a firm agreement for the
acquisition of up to $14 million of capital from private sources. Through
September 30, 2000, the Company had realized $2,000,000 of this funding and an
additional $350,000 through October 31, 2000. Initial proceeds are being used
primarily to begin the production and commercial launch of the Company's lead
product, the CoverTipTM, and for the development of VacuSafTM, SofDrawTM,
PreSafTM and for other general corporate purposes.
If additional funding is not realized or if the Company is unable to
commercially market its products under development, it could experience a
further need for cash during fiscal 2000. In this event, the Company could
experience further losses and may be forced to curtail operations or postpone
product development and expansion plans. The Company's continuation as a going
concern is directly dependent upon its ability to market its products under
development and to realize additional funds from its current financing.
Net Operating Loss
The Company has accumulated approximately $15,000,000 of net operating
loss carryforwards as of September 30, 2000, which may be offset against taxable
income and income taxes in future years. The use of these losses to reduce
future income taxes will depend on the generation of sufficient taxable income
prior to the expiration of the net operating loss carryforwards. The
carry-forwards expire in the year 2020. In the event of certain changes in
control of the Company, there will be an annual limitation on the amount of net
operating loss carryforwards which can be used. No tax benefit has been reported
in the financial statements for the period ended September 30, 2000 because
there is a 50% or greater chance that the carryforward will not be used.
Accordingly, the potential tax benefit of the loss carryforward is offset by a
valuation allowance of the same amount.
-24-
<PAGE>
Inflation
In the opinion of management, inflation has not had a material effect
on the operations of the Company.
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.
In connection with the above action, the Company filed with the Third
District Court, Salt Lake County, Utah, an action seeking an injunction to
prevent the sale and/or transfer of shares of the Company's common stock by
various defendants in the Company's suit and other parties. On June 28, 2000,
the Utah Court issued an injunction and order enjoining from transfer
approximately 13,500,000 shares of the Company's common stock held by the
various defendants and others. The Company believes that it is vital to the
success of its lawsuit to prevent certain persons from selling and/or
transferring shares prior to the resolution of the action. Pursuant to the
Court's order, the aforementioned shares are to be deemed "restricted
securities" and all certificates representing said share shall bear an
appropriate restrictive legend. The injunction expired on August 22, 2000.
The defendants in the Louisiana lawsuit filed a motion to dismiss the
action based upon a provision in the 1998 acquisition agreement giving exclusive
jurisdiction of the agreement to the State of Utah. On August 22, 2000, the
Court granted defendants' motion dismissing the Louisiana action, without
prejudice. On August 23, 2000, the Company re-filed the action in the United
States District Court for the District of Utah, Central Division.
On May 9, 2000, E. Carl Anderson, William Morris and Brett Phillips,
filed a derivative action lawsuit in the United States District Court, Middle
District of Florida, case number 8:00CV905-T 24F, against the Company and the
current directors of the Company. The action was filed by Messrs. Anderson,
Morris and Phillips acting by and in behalf of the Company. The complaint
alleges corporate waste in the form of excessive salaries and bonuses and other
alleged wastes related to Phillips. The complaint seeks injunctive relief and
damages. Each of the plaintiffs in this action is also a defendant in the
lawsuit previously filed by the Company on March 16, 2000 referenced above. On
August 17, 2000, the District Court in Florida held a hearing and took under
advisement a motion by the Company to dismiss the entire proceeding, and a
motion by the plaintiffs for injunctive relief to call for a new election of
directors. The Company has not determined whether the action could cause
material damages to the Company.
-25-
<PAGE>
On August 24, 2000, a Magistrate for the United States District Court,
Middle District of Florida, in the action brought by Plaintiffs Carl Anderson,
William Morris and Brett Phillips against various director of Medisys
Technologies, Inc., issued a 39 page Report and Recommendation to the Federal
District Court Judge. The Report followed an Evidentiary Hearing held before the
Magistrate on Plaintiffs' Motion for Preliminary Injunction, Defendants' Motion
to Dismiss the Derivative Claims and Defendants' Motion to Dismiss Plaintiff
Anderson's Individual claim. The Report recommended that the Federal District
Court Judge deny Plaintiffs' Motion for Preliminary Injunction and grant
Defendants' Motion to Dismiss the Derivative Claims and further dismiss
Plaintiff Anderson's Individual Claim. All parties were then permitted to file
written responses with the Court before the Report and Recommendation was
submitted to the Federal District Judge for final ruling. The parties now await
the Federal District Court Judge's final ruling on the Magistrate's
recommendations to dismiss.
On October 11, 2000, the United States District Court for the District
of Utah, Central Division, in the litigation brought by Medisys Technologies,
Inc. against various defendants, including Carl Anderson, William Morris and
Brett Phillips, concluded a two day Evidentiary Hearing on Plaintiff's Motion
for Preliminary Injunction which sought an Order restraining the Defendants from
trading shares acquired as a result of the acquisition of Phillips Pharmatech
Labs from the Defendants. At the conclusion of the hearing, the Judge denied
Plaintiff's motion for preliminary injunctive relief. The Court will hear
additional Motions in this matter as the case proceeds to a trial on the merits
of the claim.
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 September 30, 2000, the Company
issued an aggregate of 1,100,631 shares of authorized, but previously unissued
common stock. Of this amount, (i) 204,023 shares were issued in exchange for
services rendered valued at $1.4831 per share; and (ii) 896,608 shares for the
conversion of debentures and notes payable and valued at $.7112 per share.
Proceeds realized from the cash sales for general Company operations including
reduction of debt, and developing and initial marketing of the CoverTipTM.
26
<PAGE>
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
On August 23, 2000, the Company filed a report on Form 8-K reporting
under Item 5 that on August 22, 2000, a Louisiana Court dismissed the Company's
lawsuit against certain defendants relating to the acquisition of Phillips.
On October 23, 2000, the Company filed a report on Form 8-K reporting
under Item 5 that on August 24, 2000, a Magistrate for the United States
District Court, Middle District of Florida, in the action brought by certain
plaintiffs against various director of the Company, issued a Report and
Recommendation to the Federal District Court Judge. The Form 8-K also reported
that on October 11, 2000, the United States District Court for the District of
Utah, Central Division, in the litigation brought by the Company against various
defendants concluded a two day Evidentiary Hearing and denied Plaintiff's Motion
for Preliminary Injunction seeking an Order restraining the Defendants from
trading shares acquired as a result of the acquisition of Phillips. These
actions are more completely described in Part II, Item 1 above.
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<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
MEDISYS TECHNOLOGIES, INC.
BY: /S/ EDWARD P. SUTHERLAND
------------------------------
EDWARD P. SUTHERLAND
Chairman, Chief Executive
Officer, Treasurer and
Director
DATE: November 14, 2000
BY: /S/ KERRY FREY
---------------------------
KERRY FREY
President, Chief Operating
Officer and Director
DATE: November 14, 2000
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