MEDISYS
TECHNOLOGIES,
INC.
[Logo]
1999 ANNUAL REPORT
SELECTED FINANCIAL INFORMATION
<TABLE>
CAPTION>
Statement of Operations Data:
1995 1996 1997 1998 1999
<S> <C> <C> <C> <C> <C>
Revenue. . . . . . . . . . . $ 2,802 $ 2,182 $ 97,634 $ 26,846 $ 2,716,819
Total operating expenses . . . 1,134,201 1,434,465 1,829,401 966,579 1,832,917
Operating (loss) . . . . . . (1,131,399) (1,432,283) (1,731,767) (939,733) (1,133,942)
Other income (expenses). . . . (31,373) (66,442) (360,922) (312,768) (450,899)
Net (loss) . . . . . . . . . (1,162,772) (1,498,725) (2,092,698) (1,252,501) (1,584,841)
Income (loss) per share. . . . (0.10) (0.13) (0.17) (0.09) (0.04)
Balance Sheet Data:
Working capital. . . . . . . $ 470,270 $ 198,112 $ (780,243) $ (790,026) $ (846,201)
Current assets . . . . . . . 107,068 685,172 55,687 847,342 983,844
Total assets . . . . . . . . 406,531 1,051,500 497,884 1,624,726 2,109,780
Current liabilities. . . . . 577,338 487,060 835,930 1,637,368 1,830,045
Long-term debt . . . . . . . 20,577 6,334 253,000 70,750 304,490
Stockholders equity (Deficit) (191,384) 558,106 (591,046) (83,392) (24,755)
</TABKE
United States Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-KSB
(Mark One)
[X] Annual Report Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
For the Fiscal Year Ended December 31, 1999
[ ] Transition Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Commission File Number 0-21441
MEDISYS TECHNOLOGIES, INC.
(Name of small business issuer in its charter)
Utah 72-1216734
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
144 Napoleon Street, Baton Rouge, Louisiana 70802
(Address of principal executive officers) (Zip Code)
Issuer's telephone number: (225) 343-8022
Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, par value $0.0005 per share
Check whether the issuer (1) filed all reports required to be filed
by Section 13 or 15(d) of the Exchange Act during the past 12
months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B contained in this form, and no
disclosure will be contained, to the best of registrant's
knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [ ]
State issuer's revenues for its most recent fiscal year.
$2,716,819
State the aggregate market value of the voting stock held by non-
affiliates computed by reference to the price at which the stock
was sold, or the average bid and asked prices of such stock, as of
a specified date within the past 60 days. $54,970,028 (Based on
price of $1.75 per share on April 12, 2000)
State the number of shares outstanding of each of the issuer's
classes of common equity, as of the latest practicable date.
Class Outstanding as of March 31, 2000
Common Stock, Par Value $0.0005 59,400,820
DOCUMENTS INCORPORATED BY REFERENCE
Transitional Small Business Disclosure Format. Yes [ ] No [X]
MEDISYS TECHNOLOGIES, INC.
TABLE OF CONTENTS
PART I
Item 1. Business . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Item 2. Properties . . . . . . . . . . . . . . . . . . . . . . . . . 19
Item 3. Legal Proceedings. . . . . . . . . . . . . . . . . . . . . . 19
Item 4. Submission of Matters to a Vote of Security
Holders. . . . . . . . . . . . . . . . . . . . . . . . . . 19
PART II
Item 5. Market for Registrant's Common Equity and
Related Stockholder Matters. . . . . . . . . . . . . . . 19
Item 6. Management's Discussion and Analysis of
Financial Condition and Results of Operations. . . . . . 21
Item 7. Financial Statements and Supplementary Data. . . . . . . . 24
Item 8. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure . . . . . . . . . 48
PART III
Item 9. Directors and Executive Officers of the
Registrant . . . . . . . . . . . . . . . . . . . . . . . 48
Item 10. Executive Compensation . . . . . . . . . . . . . . . . . . 53
Item 11. Security Ownership of Certain Beneficial
Officers and Management. . . . . . . . . . . . . . . . . 54
Item 12. Certain Relationships and Related Transactions . . . . . . 56
PART IV
Item 13. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K. . . . . . . . . . . . . . . . . . . 57
Signatures.. . . . . . . . . . . . . . . . . . . . . . . . 58
PART I
Item 1. Business
General Developments
Medisys Technologies, Inc. ("Company") was incorporated on
March 17, 1983 as Whitewater Products, Ltd. under the laws of the
State of Utah. On August 6, 1992, the Company acquired Medisys
Technologies, Inc., a Louisiana corporation formed in 1992 to
explore the potential for development of the SofCepsTM Birth
Assistance Safety Device concept, and changed its name to Medisys
Technologies, Inc.
In December of 1998, the Company acquired Phillips Pharmatec
Labs, Inc. ("Phillips"), which was expected to generate revenue for
some of the Company's patented products and from the complementary
healthcare product lines of Phillips and its customers.
In 1999, the Company was granted U.S. patents for the SofDrawTM
Fluid and Blood Collection safety device, the BxDrawTM Fine Needle
Biopsy Safety Device and the PreSafTM specialty intramuscular
injection safety syringe designed for the significant prefilled
syringe market. The Company owns a total of 19 patents covering
medical safety devices and other products that offer proprietary,
high-potential technology, and has 19 patent applications pending
for its medical devices in both the U.S. and overseas. To date, the
Company has invested approximately $9,600,000 in the development of
its proprietary ideas and patented intellectual property.
To take advantage of the new market opportunity created by
state safety needle laws introduced by California in 1998, the
Company adopted a strategy to focus on commercializing its
proprietary group of safety needle devices, including its patented
and current lead product, the CoverTipTM Hypodermic Safety Syringe.
The Company's principal executive and administrative offices
are located at 144 Napoleon Street, Baton Rouge, Louisiana 70802
and its telephone number is (225) 343-8022. The Company also
maintains a small operations office, which it rents in Far Hills,
New Jersey. Phillips conducts its independent manufacturing,
packaging, and related operations out of two buildings in Largo,
Florida. Phillips owns one of the buildings and leases the other.
Description of Business
Demand for healthcare products continues to be strong,
tempered by an ongoing focus on healthcare cost containment. The
Company is a diversified medical company with a business strategy
to design and develop medical device products that address concerns
of cost and safety. The Company believes that medical device
safety features, commanding a reasonable cost differential from
standard, non-safety devices, will ultimately lower the cost of
health care, enhance patient care and healthcare worker safety.
The Company's current business strategy is to commercialize
its lead product, the CoverTipTM Hypodermic Safety Syringe, and
develop other products in the Medisys sharps safety device
portfolio intended to reduce the occurrence of accidental
needlesticks in the healthcare workplace setting. These products
are similar in appearance, use and size to the standard non-safety
devices commonly used. The Company believes that its safety
medical devices can assist healthcare employers in meeting safety
standards established by the Occupational Safety and Health
Administration (OSHA) to help eliminate or minimize occupational
exposure to bloodborne pathogens. Each of these products
incorporates patented proprietary technology that enables a
healthcare professional to use standard operating technique,
providing fail-safe protection both during and after the medical
procedure. As part of the Company's strategy of maximizing its
investment in sharps safety device design and development, the
Company has developed various products, sizes and adaptations for
a range of medical diagnostic and treatment applications.
Phillips, a wholly owned subsidiary, operates as an
independent company to manufacture nutriceutical health products of
other companies on a contract basis.
MEDICAL DEVICE SAFETY
Management anticipates a growing market due to the conversion
to advanced safety protection devices that protect healthcare
workers against the potential danger from accidental needlesticks.
The transfer of infectious diseases from accidental needlesticks
result in enormous economic and social costs. The possibility of
accidental infection from AIDS (HIV), Hepatitis and other
communicable diseases is a critical issue for healthcare workers
(over 4 million in the U.S. alone), medical professionals, and
healthcare institutions.
Among the applications for needles in the medical setting are
the injection of drugs (hypodermic syringes) and the drawing of
blood and other bodily fluids (blood collection needles). Studies
have estimated that as many as 800,000 accidental needlestick occur
each year in the U.S. The rate of accidental needlesticks reported
by the Centers for Disease Control (CDC) was one occurrence for
every 250 injections made. Authorities believe that this number is
much higher because many incidents are not reported. The potential
for transmission of the Hepatitis C (HCV), Hepatitis B (HBV) and
the HIV (AIDS) viruses can occur from just one needlestick. The
potential cost of a single contaminated needlestick injury is
estimated between $250-$2,302 just for evaluation and testing.
While the incidence of AIDS contracted through accidental
needlesticks is low, the occurrence of Hepatitis and other
infectious diseases compounds the problem and cumulatively results
in high cost, liability, long-term care and productivity losses.
The impact among individual healthcare workers tested, and the cost
of both the testing and treatment, are enormous. For both Hepatitis
B virus and HIV infections, the primary source of exposure is,
according to the CDC, a contaminated dirty needlestick.
On September 30, 1998, Governor Pete Wilson of California
signed into law legislation that made California the first state in
the nation to require the use of safety needles to protect health
care workers from hazardous needlesticks. California created a
model for a national standard now endorsed by federal guidelines.
Tennessee, Maryland and Texas enacted legislation in 1999, followed
by New Jersey in January. Twenty-six other states and the District
of Columbia have introduced, or are drafting, safety needle
legislation.
Federal mandates for the use of sharps blunting systems for
syringes were established in November 1999. The U.S. Occupational
Safety and Health Administration (OSHA) revised its 1991 bloodborne
pathogens compliance directive to help minimize the serious health
risks faced by workers exposed to blood and other potentially
infectious materials, including HIV and the Hepatitis B and C
viruses. The new directive emphasizes the importance of an annual
review of an employer's bloodborne pathogens program and the use of
safer medical devices to help reduce needlesticks and other sharps
injuries. In response to the OSHA directive, the American Hospital
Association (AHA) issued an advisory statement urging its members
to comply with state regulations. The CDC also issued an Alert
recommending the use of devices with safety features, which are an
integral part of the device design, operate passively without
requiring user activation, cannot be deactivated, and remain
protective through the disposal procedure. The Company believes
that national attention on the compelling need to adopt safety
medical devices will focus increased attention on the Company's
products. The Company is in a strategic position to capitalize on
this demand because its portfolio of safety products uniquely meet
proposed safety requirements. As a result of these national
regulations and guidelines, the Company believes that the use of
safety needle products is likely to increase significantly.
The Safety Needle Syringe Market
The August 1998 Theta Report #850 on disposable medical
supplies reports that there were an estimated 6.6 billion syringes
sold in the U.S. in 1997. Theta forecasts that the U.S. market
will grow at an annual rate of between 6.8% and 7.3% through 2001,
with total syringe sales reaching 8.7 billion.
Historically, the needle market has been price competitive
with little differentiation between products. New regulatory
requirements, the economic pressures of avoiding product liability
suits, negative publicity and pressure from healthcare worker
organizations and medical safety advocates are strong motivators to
the healthcare industry to adopt a relatively low-cost, easy to-use
safety syringe. In addition to price, needle suppliers are now
competing for market share based on operating and safety features.
The Theta report suggests that in 2001, while having a 75% market
share, safety syringes will command more than a 66% selling price
premium over non-safety syringes. Theta predicts a 15% yearly U.S.
growth rate in safety blood collection devices. The target markets
for these devices include: 1) hospitals of all types (6,300 in the
U.S.), 2) private practitioners (600,000 plus in the U.S.), 3) home
healthcare providers, 4) clinics, 5) nursing homes, and 6) EMT
units. The global market has been estimated to be twice the size of
the U.S. market.
Until recent state legislation and more exacting regulatory
directives compelled the healthcare industry to consider the safety
aspects of medical devices, the industry was reluctant to convert
from standard syringes to safety syringes because of the added
costs and difficult technique changes necessary to use the
cumbersome devices now on the market. Safety devices currently in
the marketplace are more complicated to use than standard devices.
Typically, the operator must use a new methodology, either during
or after the injection process. Sleeve syringes are awkward to
use, provide inadequate protection and are susceptible to reuse by
intravenous drug users. Retractable syringes incorporate retraction
technology that requires some change in operating technique in
order to retract the needle permanently into the barrel. Some
products require two-handed application techniques, which actually
present accidental needlestick opportunities.
While unit cost is important, overall cost-in-use is critical
for adoption of safety devices. Not only do safety syringes on the
market cost more to produce than standard syringes, the in-service
cost to train healthcare practitioners to use safety syringes
places an added burden on the conversion rate. In all cases,
current devices force upon the operator a change of habit.
Activation studies indicate that, despite the potential danger of
standard syringes, healthcare workers find it difficult to change
long-held habits, especially in a fast-paced healthcare setting.
One study found that 25% of the needle injuries since 1993, when
the devices began being used by students, came from safety needle
devices. The extensive, round-the-clock in-service training
required to overcome the difficult technique changes necessary to
use many of these cumbersome devices must be factored in.
Despite the inadequacies of safety devices currently
available, the Company believes that the proliferation of interest
and effort to convert to safety needle products, legal
requirements, as well as the tremendous support from the healthcare
worker community will accelerate conversion to safety syringes. As
the safety syringe market begins to demonstrate some
differentiation, Management believes that CoverTipTM has superior
advantages to products currently in the marketplace and to those
about to be introduced. The main advantage of the Company's safety
syringe is its close similarity in use to a standard syringe. The
passive, one-handed activation of CoverTipTM offers superior
benefits to other available safety syringes. The Company cannot
forecast prices of its products, but the Company believes that its
safety devices have superior cost benefits and that its production
costs will fall below devices with more complicated retractable and
sleeve safety technologies and design.
CoverTipTM Hypodermic Syringe
The CoverTipTM Hypodermic Safety Syringe addresses each of the
major issues associated with current safety syringes and provides
benefits over standard intramuscular (IM) syringes. The
superiority of the CoverTipTM Safety Syringe dwells in its
conformity to unique, but simple, design criteria for safety, ease
of use and cost. First, the window of opportunity for an accidental
needlestick is virtually eliminated. The CoverTipTM device employs
a design that provides protection from the sharp needle tip prior
to withdrawal from the patient's skin, protecting the healthcare
worker during the drug delivery process, as well as during the
disposal of the used syringe. This eliminates any contaminated
needle exposure to the healthcare worker and offers an advantage
over other safety syringes that require extraction from the
patient's skin prior to implementation of various needle tip
protection methods. Single usage of the syringe is achieved by the
locking of the protective sheath.
Secondly, the device is easy to use with little or no
additional training for the health care worker. In contrast to
other safety syringes, the CoverTipTM device is identical to
conventional syringes, employing standard syringe usage technique
and requiring no costly instruction, medical in-service training,
or habit changes for the healthcare professional. The safety
feature is passive and automatic with no additional active steps
required of the operator. One-handed usage increases safety.
CoverTipTM is used just as any standard syringe with insertion of
the needle into the patient's skin and depression of the syringe
plunger to inject the medicine. As the syringe plunger is
depressed, it automatically engages a micro-thin safety sleeve that
slides down to cover the tip of the needle after penetration of the
skin and subsequent insertion of the medicinal fluid. The needle
blunting occurs prior to removal from the patient's skin, offering
added protection to the healthcare worker.
Third, the device is fail-safe by relying entirely on positive
mechanical action rather than on buttons, releases, springs,
vacuums, or other such complicated additional steps. Finally, the
design is economically acceptable, holding down production costs to
a reasonable level as compared to both safety devices and current
standard products. It is anticipated that the CoverTipTM safety
syringe will maintain reasonable margins as it reduces prices as
substantial market penetration and high volume production are
achieved.
PreSafTM Lever Fulcrum Hypodermic Syringe
PreSafTM is an intramuscular injection safety syringe designed
primarily for prefilled syringe application, which allows
medication to be injected into the patient directly from a pre-
filled vial. The pre-filled vial containing fluid medication is an
existing component used by many pharmaceutical manufacturers. These
applications typically include flu shots, pneumonia shots, AIDS
serums, and other epidemic treatment or prevention therapies. Like
CovertipTM, PreSafTM provides automatic passive protection before
withdrawal from the patient. A U.S. patent has been granted on this
product idea. Concept design is essentially complete. Prototypes
and clinical development should begin in the year 2000. This device
will be marketed as an OEM product and sold to pharmaceutical
distribution producers of prefilled syringes.
DIAGNOSTIC SHARPS SAFETY
Blood collection needles are used to obtain a sufficient
volume of blood for diagnostic procedures. The Company recognizes
that diagnostic sharps applications are a critical area of medical
device safety. These medical diagnostic products offer the
potential for premium margins due to their high cost of procedure,
unique presence in the market, and market specialization.
This market segment is largely unexplored and significantly
under-penetrated by safety device solutions and has less
competition and fewer economic barriers to entry than those
apparent in the hypodermic field. These products address a
somewhat different customer base than the hypodermic end-user.
Physicians and other more specialized technicians are the primary
end-users of diagnostic sharps instruments. The specialized and
professional aspects of these devices will offer high-margin
opportunity to the marketplace.
To fill the need for diagnostic sharps safety protection, the
Company has developed a line of devices with strong commercial
potential. These devices work with standard blood collection
needle accessories and are similar in appearance, size, and
performance to conventional devices. The primary difference is the
safety feature activated by the proprietary safety needle
mechanism. Some of these devices are ready to enter the final
phases of commercialization.
SofDrawTM
SofDrawTM is a blood/fluid collection syringe designed to
protect the clinician from an accidental self-puncture with a
contaminated needle during the collection of blood or bodily fluids
and through the transfer of fluids into vials for transport and
study. Current procedures use standard syringes, usually 15cc or
larger, as the operator either draws blood or aspirates fluid.
Fluid aspiration is typically performed by physicians or other
highly specialized technicians. In either case, the skin of the
patient is punctured and, after collection, the contaminated needle
is withdrawn with the sharp exposed. Transferring the fluid into
vials involves multiple opportunities for accidental self-puncture.
Importantly, intramuscular safety syringes, cannot be used because
the safety mechanisms rely at least in part on forward movement of
the syringe plunger/piston assembly, which would risk a
potentially fatal air embolism. This procedure requires its own
distinctive safety product since removing fluid from the body
relies on rearward movement of the syringe plunger/piston assembly.
The U.S. patent has been issued, all filings are current and
initial design development is complete through prototyping. A
510(k) application for marketing of the device should be filed with
the FDA when the working design is finalized in the year 2000.
Given the shared technology between this device and the CoverTipTM
syringe, a fast track clearance for marketing by the FDA is
reasonably anticipated by the Company. A Continuation in Part (CIP)
application to cover features allowing large volume drainage
without syringe barrel change is in process.
The Company intends to market this specialized product
directly to both OEM blood and fluid collection tray assemblers and
specialty markets, such as physicians and phlebotomists.
Orthopedists will be a specific target customer group for the use
of SofDrawTM during the drainage of knee and shoulder joints.
AmnioSafTM
This safety syringe device is designed to protect both the
physician and the fetus during amniocentesis. Protection of the
fetus is provided through reduction of the risks of eye, thorax,
cord, or placental puncture. Patent, development, and regulatory
status are similar to SofDrawTM. AmnioSafTM will be marketed to
obstetricians and gynecologists (OB/GYN) and will complement the
Women's Health aspects of the Medisys Medical Safety Product
portfolio.
VacuSafTM
This device, using CoverTipTM technology in combination with
an adapted passive energy source, covers and protects the sharp of
a blood collection needle while it is still in the vein. The
safety mechanism is activated and locked with the first use of a
vacuum specimen tube. The sharp is rendered safe prior to
withdrawal. The device provides protection to the user and waste
handlers and produces the added benefit of protecting the vein
lumens during the collection procedure. Version "Select" permits
selection of needle gauge for use with a single adaptive shroud,
while version "Fixed" is a pre-assembled unit, and safety
mechanism, fixed to the shroud. Final design concept is
essentially complete and working models have been fabricated. The
Company has a clear patent search and the U.S. patent application
is in progress and is anticipated to be ready for filing in 2000.
BxDrawTM
The Company was granted a U.S. patent for its BxDrawTM Fine
Needle Biopsy Safety Device in November 1999. BxDrawTM addresses the
safety needs of diagnostic surgeons (orthopedic and general
thoracic), radiologists, and other healthcare professionals, who
may become exposed to bloodborne pathogens during fine needle fluid
aspiration treatment. The Company believes that BxDrawTM is the
first safety device in this product category. It is a physician
specific device. The device provides user protection and reduces
risks of carcinogen cell "needle tracking". It also doubles as a
post procedure safe carrier for transport to pathology. Development
and regulatory status are similar to SofDrawTM.
BX-T-DrawTM OBTSN
"Obdurated Titanium Safety Needle." This device is designed
for use with MRI (Magnetic Resonance Imaging) placement to take a
tissue sample with a cutting needle. Concept design is complete
and the company has a clear patent search. An application for a
U.S. Patent will be filed when final design alternatives are
complete. As with the BX, the BX-T-DrawTM device should be
specialty marketed to Radiologists, Oncologists, general surgeons
and other diagnosticians.
CoverStikTM
This device permits safe collection of capillary blood. The
small cutting blade is passively and automatically retracted into
a protective housing concurrent with skin puncture. Applications
include checks for glucose levels, clotting, and blood gases. As
a system, CoverStikTM protects the user and eliminates reusable
carriers, which contaminate easily and are known sources of
pathogen transfer, particularly hepatitis. Conceptual design work
is complete. The Company has a clear patent search and will file
a patent application as soon as final design alternatives are
complete.
Manufacturing
Proceeds from the Company's financing commitments are being
used principally to begin the production and commercial launch of
CoverTipTM into an increasingly safety-conscious hospital supply
market. Monies will also fund the regulatory approval process and
prototype production of SofDrawTM, the Company's blood/fluid
collection safety syringe.
While industry capacity shortfalls will exist, the Company
believes a strategy of outsourcing manufacturing through
experienced syringe contract manufacturers will provide sufficient
product supply for successful commercialization of its safety
medical devices.
On January 19, 2000, the Company entered into a multi-phase,
proprietary agreement with Dispomedic 2000, a syringe manufacturer
based in Dimona, Israel, for the production of CoverTipTM. The
rapid response and large-volume capabilities of Dispomedic are
expected to provide the capacity necessary for the Company to play
a major role in the dramatically expanding safety syringe
marketplace. Under the general terms of the Agreement, Dispomedic
has been granted an initial committed contract to begin
manufacturing the safety syringe. In February 2000 Dispomedic
accepted a pre-paid purchase order from the Company to produce a
pilot quantity of syringes valued at $3 million.
Dispomedic has incentive-based options to acquire shares in
the Company in return for achieving 12-month production targets for
up to one billion of the Company's CoverTipTM safety syringes and
providing what management estimates to be up to an estimated $12
million in value in capital and manufacturing investments. Under
the Agreement, the Company initially provided a $500,000 cash
investment and was granted an option to purchase an interest in
Dispomedic. The Company subsequently elected not to exercise that
option. As part of the Agreement, Dispomedic will form a marketing
company, owned in part by the Company, for marketing and sales
outside North America.
As the first stage of the multi-phase Agreement, Dispomedic
has accepted a purchase order from The Company to manufacture a
pilot quantity of syringes, valued at $3 million, for direct sales.
This previously announced order, marked as prepaid, represents the
first capital investment by Dispomedic and a significant asset for
The Company. The order paves the way for our entry into the
marketplace to achieve a pilot commercial presence. Delivery of the
first shipment is anticipated by the second quarter of 2000.
Due to the large capital investment required to manufacture
multiple quantities of the CoverTipTM product, a later phase of the
CoverTipTM market introduction campaign may involve additional
third-party, big-company partners. The Company will explore joint
venture arrangements that can address the manufacturing and
marketing requirements effectively enough to gain significant
market share for the medical device product category. The Company
has identified over 20 large healthcare manufacturers as potential
strategic partners through joint venture or licensing agreements.
Marketing
On May 15, 1998, the Company received FDA 510(k) clearance to
market CoverTipTM. Simplicity of design with strong patent
protection should combine to make the product quickly available for
market with a long revenue life cycle. The Company is presently
pursuing specialty applications for CoverTipTM and has begun a pre-
market campaign in preparation for the customary market
introduction/evaluation of the hypodermic product application. A
carefully planned three phase market introduction will utilize
traditional and non-traditional distribution and marketing tactics.
The Company's strategy upon market launch is to pursue syringe
customers in states with legislation in place. Many healthcare
institutions are tied into buying groups, group purchasing
organizations (GPO's), which contract with major suppliers. Large
GPO's have traditionally awarded exclusive contracts to their
biggest suppliers, but they are responding to mounting pressures
for conversion to safety syringes by signing less exclusionary
contracts. Managed care organizations and insurers assume the
burden of liability both for treatment and damages associated with
accidental needlesticks. Recent GPO contracts contain provisions
permitting the GPO to evaluate safety devices and enter into
additional contracts with suppliers who have break-through
technologies. The Company believes that its safety devices will
qualify for GPO evaluation procedures.
In addition, the Company will target non-GPO hospital and
specialty customers, a potentially sizable niche market approaching
$100 million. Minimal market acceptance of CoverTipTM and its
companion patented safety needle devices in niche markets will
position The Company to acquire a competitive presence and brand
recognition as the larger institutional market converts to safety
products. As the superiority of the CoverTipTM device is validated
in niche markets, the Company will concurrently implement the GPO
test markets necessary for an upgrade to CoverTipTM in the high-
volume hospital market. This approach allows the Company to
prepare some mass-market sales while generating early revenue in
the niche markets.
The Company plans to market its medical safety device products
in the U.S. both through traditional and innovative independent
distribution channels and directly to end-users. These will
include Internet and direct marketing. Consulting marketing
specialists and the engagement of a medical device marketing agency
will augment the Company's marketing program. Sales of CoverTipTM
will be directed by sales specialists, who will be hired to
complement the efforts of sales brokers. Products will be shipped
both directly and by medical distribution companies. Specialty
sales and distribution personnel will be engaged to market to
clinics, physicians, outpatient and treatment centers.
Competition
The safety medical device market is highly competitive.
However, the advent of required safety protection will transform
companies to a comparison of the various safety devices available.
The Company believes that minimal market acceptance of CoverTipTM
and their other patented safety devices will place The Company in
a position to acquire a competitive presence in this marketplace.
The Company will compete in the U.S. with companies that
manufacture standard syringes and safety needles. Major competitors
have better name recognition in the market, longer operating
histories and are substantially larger and better financed than The
Company. Such competitors may use their economic strength to
influence the market to continue to buy their existing products.
One or more of these competitors also could use their resources to
improve their current products or develop additional products. New
competitors may arise and may develop products that compete with
the Company's products. In addition, new technologies may arise
which could lower or eliminate the demand for the Company's
products. The Company cannot predict the development of future
competitive products or companies.
SAFETY IN WOMEN'S HEALTH
While The Company has narrowed its strategic focus to Sharps
Safety in the short term, in the long term, the Company intends to
pursue completion of the design and development of its SofCepsTM and
AmnioSafTM Ob/Gyn safety devices as financial resources become
available.
Obstetrical Device Market
The market for obstetrical products, both in the United States
and worldwide, is substantial. While declining birthrates are a
factor for consideration in western countries, a stable growing
United States market of about 4 million births per year for the
next ten years is forecasted. Management believes that the rapidly
expanding population growth of third world and Pacific rim
countries represents a marketing opportunity for assisted delivery
devices and obstetrical products in general.
The standard assistance device in use today is stainless steel
obstetrical forceps. They were developed in the latter part of the
16th Century. Actual traction is exerted slightly below or
underneath the mandible and is point concentrated. Slippage of the
forceps is almost invited because of natural lubrication, refusal
of the fetal skull to conform to existing forceps design, and a
myriad of variables which exist from one fetal skull/pelvic
relationship to another. Virtually every forceps assisted delivery
involves risk of injury to the mother and the baby.
Stainless steel forceps apply a concentrated gripping force on
the fetal head which can result in a series of injuries from minor
"forceps marks" to skull fractures with massive brain damage,
central nervous system damage and fetal death. The manipulation of
the steel forceps in the birth canal often causes maternal injuries
ranging from spiral lacerations of the pelvic floor to severe
lacerations to the cervix. In both instances, these injuries
result in significantly increased healthcare costs associated with
post-delivery complications and increased inpatient days. Such
injuries are exhaustively dealt with in the medical literature and
the obstetrical community would most likely welcome a device that
promises a significant reduction in maternal and fetal morbidity.
The primary device for birth assistance today, and the only
other significant attempt to introduce a new product into this
forceps arena, has been the vacuum extractor system. The vacuum
unit was patented in the late fifties, and in spite of numerous
attempts toward refinement, Management believes that the approach
still remains plagued with disadvantages. The system grips the
upper half of the fetal skull with a suction device and traction is
then applied. Use of the system frequently results in hematoma
over the fetal skull as well as rebound trauma caused by the device
popping off the fetal skull. Once in place, the device precludes
manual rotation of the skull. Rotation is frequently required to
ease passage through the pelvis. Many obstetricians have
experienced difficulties because they resort to twisting on the
extractor to accomplish rotation. This can result in serious fetal
injury. For these and other reasons, the vacuum system is not the
instrument of choice for many obstetricians who continue the use of
traditional forceps.
SofCepsTM
The Company's primary women's health device is an obstetrical
tractor (birth assistance delivery device) known as SofCepsTM which,
in part, is designed to replace traditional steel obstetrical
forceps and vacuum extractors used to assist child birth. SofCepsTM
is intended to offset the possible negative obstetrical
consequences of epidural anesthesia which may slow or interrupt the
descent of the fetus through the birth canal and may diminish
maternal ability to produce voluntary and involuntary contractions
during delivery. SofCepsTM is a disposable soft and thin double-
walled multi-fiber braided axial gripping cylinder, which is placed
over the fetal skull with a simple application system. It is
designed to uniformly distribute assisting traction forces about
the circumference and longitudinal surface areas of the fetal
skull.
SofCepsTM is designed to replace traditional steel obstetrical
forceps and vacuum extractors. The Company believes that
maternal/fetal injuries associated with the use of these devices
will be reduced with the adoption of this new approach. Maternal
injuries caused by forceps range from spiral lacerations to severe
lacerations of the cervix resulting in increased in-patient time,
major surgical repair, incontinence, sexual disorders, protracted
discomfort, death, and substantial increases in health care costs.
Infant injuries due to the use of forceps include minor "forceps
marks", fractures of the fetal skull, central nervous system (CNS)
deficit (cerebral palsy), severe mental retardation, blindness,
deafness, and death. Injuries may also include slowed development
of motor skills and learning disability.
The vacuum extractor was developed as an alternative to
traditional steel obstetrical forceps, but after over thirty years
of use it still presents clinical problems. The operative feature
of the device is a suction cup that is applied over the crown
portion of the fetal skull where traction forces are concentrated.
Improper traction can result in the device "popping" off the fetal
skull with secondary rebound trauma being transmitted to the
intracranial area. Hematomas over the skull have been noted due to
the use of the vacuum extractor. Use of both forceps and vacuum
extractors require a high degree of skill and training.
The need for safe, reliable birth assistance creates a base
need for replacement of current devices. Potential customers for
the SofCepsTM product include obstetricians, managed care
organizations, hospitals and patients (consumers). The simple
technology that SofCepsTM employs will be of particular appeal in
third world countries and should offer strong market opportunities.
Clinical testing of SofCepsTM was conducted between October
1993 and the first quarter of 1998. During the first year of
testing, it was determined that SofCepsTM presented little, if any,
risk of maternal injury. In April of 1995 a term stillborn was
successfully delivered with the device. During this procedure,
application over the fetal head was accomplished and the Company
concluded the device was clinically effective in assisting
completion of the delivery. The long-term plan is to secure
adequate research and development capital and complete the final
commercial design of SofCepsTM.
Marketing
Management believes that obstetrical care is being
consolidated within communities to birthing centers to establish a
cost effective delivery system for this service. Hospitals are
increasingly under pressure to reduce costs, while maintaining
quality of care. SofCepsTM offers these healthcare providers the
opportunity to increase the quality of the delivery process, while
reducing the overall cost of care. An additional opportunity is
the economic potential for reduced malpractice insurance and C-
Section rates. Patients are increasingly aware of the need to
reduce health care costs, but at the same time are concerned over
the quality of care. Forceps use and the concept of vacuum
extractor assisted deliveries are innately unpleasant to the
average consumer. Therefore, management believes that the SofCepsTM
product, as well as other simple The Company products, represents
viable alternatives to the general consumer community, including
Women's health and pediatric advocacy groups. Managed care
organizations are interested in containing costs and directing cost
efficient products and procedures. Cost in use and potential
reduction of C-Section rates will position SofCepsTM to managed care
consideration.
SofCepsTM is intended to be multi-dimensional in use and is
designed to be applied in a prophylactic manner when mother and
fetus do not present contraindications. SofCepsTM is a totally new
concept that the Company intends to market on a worldwide basis.
The market is limited only by the eventual degree of acceptance in
the obstetrical community and by the number of live births in each
given market area. The device is disposable after a single use and
thus a potential market exists for repeat orders. The degree of
market penetration will depend upon product acceptance and
effectiveness of marketing efforts. The medical marketplace is
receptive to new products which can provide better patient care,
savings in medical costs, benefits to the health care industry, and
which represent advances in risk reduction.
Competition
The competitive product situation for obstetrics includes
products that are a part of diversified health care corporations
with slight focus on obstetrics. In the device arena, products for
obstetrics are produced from divisions of various companies whose
products are broadly based in many areas of health care.
Competition to SofCepsTM includes instrument manufacturers.
Instrument companies and vacuum extractor companies do not look at
these products as a major product line. However, they can be
expected to respond with alternative methods of assisted delivery
once the SofCepsTM product is introduced into the market place.
PHILLIPS PHARMATEC LABS, INC.
As a contract manufacturer of over-the-counter complementary
health care products, Phillips produces vitamins, mineral
supplements herbal therapy and diet aids. These products are
produced for customers under private labels and are packaged and
shipped from the Company's location in Largo, Florida. As a
separate and independently managed company, Phillips is in the
business of contract manufacturing. Currently, the business has
declined and is unprofitable.
PPL was acquired with the expectation that it would provide
The Company with the internal capability of assembling its own
proprietary products and other medical devices. This anticipation
was unfulfilled. Phillips did complete the set-up and preparation
for producing the Company's proprietary specialty product,
VetCepsTM. DisKlipTM and Re-TyTM have not been commercialized.
VetCepsTM Obstetrical Tractor
VetCepsTM is a veterinary application of the SofCepsTM
obstetrical tractor. The Company enjoys patent protection for
veterinary application in bovine (cattle), ovine (sheep), and
equine (horse) obstetrics within its original patents. This
product has been sold commercially in eight foreign countries and
the United States. Because of the shift of The Company to Sharp's
Safety, VetCepsTM is a candidate for joint venture or divestiture.
DisKlipTM
DisKlipTM is a latex free securement device used in connection
with the management of standard intravenous administration of
medication (IV) and other medical tubing and lines. DisKlipTM is
a simple and inexpensive disposable (single-use) securement device
designed to afford the medical provider with an easier, more
efficient means to attach and manage medical tubing.
The Company believes that DisKlipTM will require little or no
personnel training and will result in savings in nursing time,
reduction of instances of site inflammation and irritation of vein
walls (lumens), reduction of instances of infiltration and vein
wall puncture, reduction of risk of sepsis, and reduction of
patient discomfort.
The Company has limited hospital field-testing consisting of
actual patient use at several hospitals in the United States and in
Mexico. Additional designs were constructed to accommodate various
locations of the body such as: MultiKlip, for management of
multiple tubing/lines; KidKlip, a pediatric version and The Freedom
IV device, a retractable IV line management device. Market
sampling and testing were suspended as the Company shifted its
focus. DisKlipTM is also a candidate for joint venture or
divestiture, and preliminary discussions are currently underway.
Re-TyTM
Re-TyTM is a releasable, adjustable and reusable "cable tie"
product group that was developed originally to enhance the VetCepsTM
device. The Company has three designs: side release, top release
and enscoping; all of which are intended for out license to
industrial users.
Limited market sampling and testing of the top-release version
was conducted to determine the viability of the product in the
marketplace prior to manufacture and packaging. The shift in the
Company's focus made Re-Ty a candidate for joint venture or
divestiture.
Backlog
The Company has no backlog for any of its products but the
demand for needle safety products is anticipated to exceed supply.
PATENTS AND TRADE SECRETS
The Company owns 19 U.S. patents and one foreign patent
protecting the Company's SofCepsTM, CoverTipTM, SofDrawTM, Multi-
DrawTM, VetCeps, DisKlipTM, and Re-TyTM devices. These consist of
U.S. Patent numbers 5122148, 5217467, 5318573, 5460611, 5496283,
5573539, 5593413, 5632750, 5681290,5687455 (two device patents),
5720727, 5785662, 5836054, 5846228,5910146, 5964735, and 5993418.
The Company also owns one letters patent protecting the SofCepsTM
device (no. 669116) from Australia. Eleven of the issued patents
are being prosecuted internationally. Additionally, the Company
has pending a mix of seven original and/or CIP applications. The
Company also has a backlog of viable proprietary product concepts
that meet company development criteria.
The Company has filed six U.S. trademark applications
preserving its right to use the trademarks "SofCepsTM", "VetCeps",
the "Medisys " logo, "DisKlipTM", "SofDermTM", and "CoverTipTM". As
the Company proceeds forward with the commercialization of these
and other products, it will file U.S. and foreign trademark
applications to protect selected product names.
The Company intends to obtain copyright protection on its
product packaging, instruction sheets, and such other Company
materials that the Company believes significant to warrant
procurement of copyrights.
GOVERNMENT REGULATION
Generally, all medical devices are subject to FDA regulation
under the Medical Device Amendments of the Federal Food, Drug and
Cosmetic Act. Devices are classified into one of three categories;
Class I, Class II or Class III, depending on their intended use and
upon the degree of regulation necessary to provide reasonable
assurance of their safety and effectiveness. The class into which
any specific device is placed determines the requirements that must
be met before a manufacturer may distribute the device in
interstate commerce. Section 510(K) of the Medical Device
Amendments provides for a pre-market notification requirement.
Manufacturers intending to market a new or significantly modified
device must submit to the FDA a pre-market notification. This
notification must establish substantial equivalence in terms of
safety and effectiveness, to a device already on the market in the
United States prior to 1976, or to a device marketed after that
date that has been determined to be substantially equivalent. The
notification must be submitted at least 90 days prior to
introducing the device into interstate commerce, or otherwise
holding or offering the device for commercial distribution. No
prototype is required, however, additional data from testing may be
requested.
Within 90 days of receipt of the pre-market notification, the
Center for Devices and Radiological Health ("CDRH") determines
whether the device is "equivalent". If the device is deemed
equivalent, it can be marketed. If the CDRH determines that a
device is not equivalent, the manufacturer may resubmit the 510(k)
notification with new data, file a reclassification petition, or
submit a pre-market approval application ("PMA"). A PMA is
required instead of the Section 510(k) process only if the device
is held to be a Class III device. Class III devices are those
represented to be life-sustaining or life-supporting, are implanted
in the body, or present potential unreasonable risk of illness or
injury. Class III devices are subject to a more rigorous FDA
approval process that generally required the completion of three
major steps. The first step involves the granting by the FDA of an
Investigational Device Exemption ("IDE"), which permits the
proposed product to be used in controlled human clinical trials.
Upon completion of a sufficient number of clinical cases to
determine the safety and effectiveness of the proposed device for
specific indication, a PMA is then prepared and submitted to the
FDA for review. This extensive submission includes design,
manufacturing, quality control and clinical data to substantiate
the proposed device's compliance with FDA manufacturing regulations
as well as to support its medical effectiveness. Upon acceptance
by the FDA of the PMA, the third major step, a public review if the
data by an advisory panel of the FDA, industry and medical
professionals takes place. Prior to receiving final approval, a
company is inspected by the FDA to verify that its manufacturing
procedures meet all requirements of the FDA regulations.
The Company believes that all of its primary safety products
are "substantially equivalent" to devices already marketed and are
therefore exempt from PMA. However, the fact that the SofCepsTM
device involves the birthing of babies, the Company's approach has
been and remains determined to follow a protocol consistent with
all FDA guidelines and to complete all good manufacturing practices
prior to marketing the product.
A discussion of where the Company stands with regard to the
FDA process is included under each product heading.
Prior to Phase I testing of SofCepsTM, the Company applied to
the FDA for a 510(K) exemption from Pre Market Approval (PMA) for
marketing the SofCepsTM device. The reviewed the Company's
application and testing protocol. Based on Phase I data, the
Company was allowed to continue its fetal demised clinical testing.
Because of the Company's change of strategic focus, the Company has
suspended all FDA pursuits with regard to SofCepsTM.
The CoverTipTM safety device received 510(K) FDA clearance on
May 15, 1998. This allows the Company to market the CoverTipTM
device in the U.S. and provides a basis for approvals in other
international markets. The approval of the CoverTipTM device should
enhance the Company's ability to gain clearance for its other
complementary safety devices.
Other than the FDA, the Company does not believe that there
are any existing or probable governmental regulations that would
adversely affect the Company or its business.
PRODUCT LIABILITY AND LIABILITY INSURANCE
The Company may be exposed to potential product liability
claims by users of its products. Presently, only the VetCepsTM
product is in commerce, therefore, in the opinion of the Company,
there is no immediate exposure to product claims other than from
VetCepsTM. The Company currently maintains general business
liability insurance limited to $1,000,000 coverage per occurrence
and in the aggregate. The Company has initiated the underwriting
process for products liability insurance for the CoverTipTM safety
syringe.
All materials used in the Company's disposable products are
standard medical materials compatible with present methods of
hospital disposal in accordance with accepted practices and
applicable laws.
EMPLOYEES
As of February 1, 2000, the combined companies of The Company
and Phillips employed 40 individuals including part-time and full-
time employees, managerial staff and executive officers. The
Company anticipates adding management and employees in strategic
areas, especially marketing, as the Company draws closer to the
point of commercializing its various products.
In addition to its employees, The Company uses the services of
certain consultants on a contract basis. These consultants
include, William David Kiesel, a patent attorney and Director of
the Company; Carolyn Crochet, an accountant and bookkeeper; Joel
Faden, an FDA consultant; Gary Schneberger, a development and
manufacturing consultant; S/S Small Cap Network, consultant on
financial relations and public relations; KJS financial consultants
and Alex Consulting, investor relations.
Item 2. Properties
The Company leases office facilities consisting of
approximately 1,500 square feet located in Baton Rouge, Louisiana.
The lease calls for a monthly payment of $900 plus utilities and is
an annual lease renewable in October of each year. The office is
primarily devoted to administrative and financial activities.
Additionally, the Company leases office space in Far Hills, New
Jersey at a cost of $850 per month. The New Jersey office is
primarily used to oversee operations including marketing,
development and acquisition of new products. The Company believes
that all of its initial requirements for manufacturing, packaging,
and storage will be met by its contract with Dispomedic. Phillips
owns one of the buildings and leases the other. Both buildings are
located in Largo, Florida.
Item 3. 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 anticipates
that these defendants may 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.
The Company's subsidiary, Phillips Pharmatech Labs, Inc., is
a party to various routine 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.
Item 4. Submission of Matters to a Vote of Security Holders
The Company did not submit any matters to its shareholders
during the three month period ended December 31, 1999.
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters
The Company's Common Stock has been traded in the over-the-
counter market and quotations are published on the OTC Bulletin
Board under the symbol "SCEP", and in the National Quotation
Bureau, Inc. "pink sheets" under Medisys Technologies, Inc.
The following table sets forth the range of high and low bid
prices of the Common Stock for each calendar quarterly period since
the first quarter of 1998 as reported by the National Quotation
Bureau, Inc. ("NQB"). Prices reported by the NQB represent prices
between dealers, do not include retail markups, markdowns or
commissions and do not represent actual transactions.
High Low
1998
First Quarter .94 .31
Second Quarter .88 .28
Third Quarter .47 .15
Fourth Quarter .38 .16
1999
First Quarter .50 .13
Second Quarter .38 .17
Third Quarter .31 .15
Fourth Quarter .78 .12
2000
First Quarter (1) 3.50 .52
______________
(1) Through April 11, 2000.
As of March 31, 2000 there were approximately 547 holders of
record of the Company's Common Stock, which figure does not take
into account those shareholders whose certificates are held in the
name of broker-dealers. The Company estimates that in excess of
3,000 shareholders of the Company hold their shares in the name of
broker-dealers.
Dividend Policy
The Company has not declared or paid cash dividends or made
distributions in the past, and the Company does not anticipate that
it will pay cash dividends or make distributions in the foreseeable
future. The Company currently intends to retain and invest future
earnings to finance its operations.
Recent Sales of Unregistered Securities
A description of recent sales of unregistered securities can
be found in the Consolidated Statements of Stockholders' Equity and
Note 7 to the Consolidated Financial Statements, which can be found
elsewhere within this Form 10-KSB. Issuances of securities by the
Company were made in private transactions in reliance upon the
exemption from registration under the Securities Act of 1933, as
amended, provided by Section 4(2) thereunder.
Item 6. Management's Discussion and Analysis of Financial
Condition and Results of Operations
The following information should be read in conjunction with
the Consolidated Financial Statements and Notes thereto appearing
elsewhere in this Form 10-KSB.
Results of Operations
The net loss for the year ended December 31, 1999 ("1999") was
$1,603,621 compared to $1,252,501 for the corresponding 1998
period. The increased loss is primarily attributed to losses
incurred by the newly acquired Phillips.
Operating expenses for 1999 were $1,851,697 compared to
$961,183 for the 1998 period, a 91% increase primarily attributed
to the acquisition of Phillips and general business expenses.
Because available outside funding decreased until year-end 1999,
the Company used cash on hand and from the sale of its common stock
to pay for its ongoing research and development. Product research
and development expenses decreased 43% in 1999 to $217,277 from
$382,318 in 1998, due to less funding being available. Development
funds were focused and allocated primarily to CoverTipTM and other
safety products. Depreciation and amortization increase 522% in
1999 to $89,069 from $14,322 in 1998, also due to the acquisition
of Phillips.
Net Operating Losses
The Company has accumulated approximately $9,651,830 of net
operating loss carryforwards as of December 31, 1999, 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 2019. 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 year ended December 31, 1999 because the Company
believes the carryforward may expire unused. Accordingly, the
potential tax benefits of the loss carryforward is offset by a
valuation allowance of the same amount.
Liquidity and Capital Resources
In 1999, the Company realized net cash of $599,417 from
financing activities, primarily through the private issuance of
common stock. This compares to net cash of $ 310,347 in 1998, also
from the private placement of common stock and placement of
debentures with related parties.
Net cash used by operations for the 1999 was $246,756,
compared to net cash used of $231,691 for 1998. The increase in
net loss and issuance of common stock for cash in 1999 was
partially offset by the net increase in accounts payable in
1999.The Company used net cash by investing activities of $140,097
in 1998, primarily from the purchase of fixed assets and increase
in patent costs. This compared to net cash used of $5,351 in 1998.
The Company is currently technically in default on one note
payable to an individual totaling $12,500. This note holder has
not demanded repayment and the Company continues to accrue interest
on that outstanding note.
At December 31, 1999 the Company had total assets of
$2,105,780 and stockholders' deficit of $43,535. In comparison, at
December 31, 1998 the Company had total assets of $1,624,726 and
total stockholders' deficit of $83,392. The 30% increase in total
assets and increase in stockholders' deficit in 1999 is primarily
due to the acquisition of Phillips.
Management believes that the Company has sufficient capital
resources and commitments to fund anticipated operations beyond the
year 2000. The Company intends to seek additional equity or debt
capital through private sources and/or a public offering, although
there can be no assurance that the Company could successfully
complete any such offering. As of the date hereof, the Company has
entered into a firm agreement for the acquisition of up to $14
million of capital from private sources. Only if this investment
capital should fail for any reason to be realized, or if products
under development are not adequate to fund the Company's future
operations and it is unable to secure financing from the sales of
its securities or from private lenders, would the Company
reasonably experience additional losses, which could curtail the
Company's operations or postpone product development and expansion
plans. Phillips operates independently of the Company and is
supposed to fund itself through its own operations. The
continuation as a going concern of Phillips is directly dependent
upon the success of its future operations and its ability to obtain
additional financing.
In November 1999, the Company signed a subscription agreement
and arranged other private funding from a group of physicians and
other private investors to provide the Company with $1.5 million of
operating capital. By March 2000, the Company completed a total of
up to $14 million in additional potential financing commitments.
Initial proceeds are being used primarily to begin the production
and commercial launch of the Company's lead product, the CoverTipTM.
Additional funds, as realized will be used for the development of
SofDrawTM and other general corporate business.
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.
Recent Accounting Pronouncements
The Financial Accounting Standards Board ("FASB") has issued
SFAS No. 130, "Reporting Comprehensive Income" and SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related
Information." SFAS No. 130 establishes standards for reporting and
display of comprehensive income, its components and accumulated
balances. Comprehensive income is defined to include all changes
in equity except those resulting from investments by owners and
distributors to owners. Among other disclosures, SFAS No. 130
requires that all items that are required to be recognized under
current accounting standards as components of comprehensive income
be reported in a financial statement that displays with the same
prominence as other financial statements. SFAS No. 131 supersedes
SFAS No. 14 "Financial Reporting for Segments of a Business
Enterprise." SFAS No. 131 establishes standards on the way that
public companies report financial information about operating
segments in annual financial statements and requires reporting of
selected information about operating segments in interim financial
statements issued to the public. It also establishes standards for
disclosure regarding products and services, geographic areas and
major customers. SFAS No. 131 defines operating segments as
components of a company about which separate financial information
is available that is evaluated regularly by the chief operating
decision maker in deciding how to allocate resources and in
assessing performance.
SFAS 130 and 131 are effective for financial statements for
periods beginning after December 15, 1997 and requires comparative
information for earlier years to be restated. Management believes
that the implementation of the new standards will not have a
material effect on the Company's financial statements.
The FASB has also issued SFAS No 132. "Employers' Disclosures
about Pensions and other Postretirement Benefits," which
standardizes the disclosure requirements for pensions and other
Postretirement benefits and requires additional information on
changes in the benefit obligations and fair values of plan assets
that will facilitate financial analysis. SFAS No. 132 is effective
for years beginning after December 15, 1997 and requires
comparative information for earlier years to be restated, unless
such information is not readily available. Management believes the
adoption of this statement will have no material impact on the
Company's financial statements.
In June 1998, the FASB issued SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities" which requires
companies to record derivatives as assets or liabilities, measured
at fair market value. Gains or losses resulting from changes in
the values of those derivatives would be accounted for depending on
the use of the derivative and whether it qualifies for hedge
accounting. The key criterion for hedge accounting is that the
hedging relationship must be highly effective in achieving
offsetting changes in fair value or cash flows. SFAS No. 133 is
effective for all fiscal quarters of fiscal years beginning after
June 15, 1999. Management believes the adoption of this statement
will have no material impact on the Company's financial statements.
Item 7. Financial Statements and Supplementary Data
The Company's Consolidated Balance Sheet as of December 31,
1999 and the related Consolidated Statements of Operations,
Stockholders' Equity, and Cash Flows for the years ended December
31, 1999, and 1998 have all been examined to the extent indicated
in their report by Jones, Jensen & Company, independent Certified
Public Accountants, and have been prepared in accordance with
generally accepted accounting principals and pursuant to Regulation
S-B as promulgated by the Securities and Exchange Commission. The
aforementioned financial statements are included herein in response
to Item 7 of this Form 10-KSB.
MEDISYS TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
C O N T E N T S
Independent Auditors' Report . . . . . . . . . . . . . . . . 3
Consolidated Balance Sheet . . . . . . . . . . . . . . . . . 4
Consolidated Statements of Operations . . . . . . . . . . . 6
Consolidated Statements of Stockholders' Equity (Deficit). . 7
Consolidated Statements of Cash Flows . . . . . . . . . . . 9
Notes to Consolidated Financial Statements . . . . . . . . 11
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Medisys Technologies, Inc. and Subsidiaries
Baton Rouge, Louisiana
We have audited the accompanying consolidated balance sheet of
Medisys Technologies, Inc. and Subsidiaries as of December 31,
1999, and the related consolidated statements of operations,
stockholders' equity (deficit), and cash flows for the years ended
December 31, 1999 and 1998. These consolidated financial
statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the
consolidated financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the
consolidated financial statements. An audit also includes
assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall consolidated
financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial
position of Medisys Technologies, Inc. and Subsidiaries as of
December 31, 1999, and the results of their operations and their
cash flows for the years ended December 31, 1999 and 1998 in
conformity with generally accepted accounting principles.
Jones, Jensen & Company
Salt Lake City, Utah
April 11, 2000
MEDISYS TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Balance Sheet
ASSETS
December 31,
1999
CURRENT ASSETS
Cash $ 290,269
Accounts receivable, net (Note 1) 222,100
Accounts receivable, related parties 50,572
Advances 2,500
Inventory (Note 1) 396,601
Prepaid expenses 21,802
Total Current Assets 983,844
FIXED ASSETS (Note 1)
Computers and equipment 73,341
Machinery and equipment 301,087
Buildings and improvements 463,803
Furniture and equipment 50,248
Vehicles 19,915
Accumulated depreciation (314,751)
Total Fixed Assets 593,643
OTHER ASSETS
Deposits 36,039
Patent and trademark costs, net (Note 1) 492,254
Total Other Assets 528,293
TOTAL ASSETS $ 2,105,780
MEDISYS TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Balance Sheet (Continued)
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
December 31,
1999
CURRENT LIABILITIES
Accounts payable $ 924,490
Accrued expenses 261,786
Customer deposits 94,096
Payable - shareholders (Note 2) 140,758
Notes payable, current portion (Note 8) 56,695
Line of credit (Note 4) 250,000
Notes payable - shareholders (Note 6) 25,000
Debentures payable - related parties (Note 3) 92,000
Total Current Liabilities 1,844,825
LONG-TERM DEBT
Notes payable (Note 8) 304,490
Total Long-Term Debt 304,490
TOTAL LIABILITIES 2,149,315
COMMITMENTS AND CONTINGENCIES (Note 9)
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock: 100,000,000 shares
authorized of $0.0005 par value,
47,727,858 shares issued and outstanding 23,863
Additional paid-in capital 10,659,432
Stock subscriptions receivable (Note 5) (1,075,000)
Accumulated deficit (9,651,830)
Total Stockholders' Equity (Deficit) (43,535)
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) $ 2,105,780
MEDISYS TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
For the Years Ended
December 31,
1999 1998
REVENUES $ 2,716,819 $ 26,846
COST OF GOODS SOLD 2,017,844 5,396
GROSS MARGIN 698,975 21,450
OPERATING EXPENSES
Product research and development 230,075 382,318
Depreciation and amortization 89,069 14,322
Selling, general and administrative 1,532,553 564,543
Total Operating Expenses 1,851,697 961,183
OPERATING LOSS (1,152,722) (939,733)
OTHER INCOME (EXPENSES)
Gain on sale of asset - 1,475
Interest income 65 -
Interest expense (341,503) (312,213)
Bad debt expense (109,461) (2,030)
Total Other Income (Expenses) (450,899) (312,768)
LOSS BEFORE INCOME TAXES (1,603,621) (1,252,501)
INCOME TAXES - -
NET LOSS $ (1,603,621) $ (1,252,501)
BASIC LOSS PER SHARE (Note 1) $ (0.04) $ (0.09)
MEDISYS TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity (Deficit)
</TABLE>
<TABLE>
<CAPTION>
Additional Stock
Common Stock Paid-In Subscription Accumulated
Shares Amount Capital Receivable Deficit
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1997 13,120,810 $ 6,560 $ 6,373,102 $ (175,000) $
(6,795,708)
Common stock issued to acquire
Phillips Pharmatech Labs, Inc.
(Note 1) 15,602,147 7,801 25,687 - -
Common stock issued in satisfaction
of accrued wages and accounts
payables 2,448,767 1,224 978,284 - -
Common stock issued for services
rendered 881,255 441 307,843 - -
Common stock issued for cash at
$0.25 per share 546,666 273 169,727 - -
Common stock issued for interest
expense 760,112 380 268,495 - -
Additional common stock issued
for cash received in prior year 650,000 325 (325) - -
Net loss for the year ended
December 31, 1998 - - - - (1,252,501)
Balance, December 31, 1998 34,009,757 $ 17,004 $ 8,122,813 $(175,000)
$(8,048,209)
</TABLE>
<PAGE>
MEDISYS TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity Deficit) (Continued)
<TABLE>
<CAPTION>
Additional Stock
Common Stock Paid-In Subscription Accumulated
Shares Amount Capital Receivable Deficit
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1998 34,009,757 $ 17,004 $ 8,122,813 $ (175,000) $
(8,048,209)
Common stock issued for
subscription receivable 5,555,555 2,778 997,222 (1,000,000) -
Common stock issued for
services rendered 1,821,619 911 340,432 - -
Common stock issued for
accrued wages 324,477 162 89,838 - -
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 - - - - (1,603,621)
Balance, December 31, 1999 47,727,858 $ 23,863 $10,659,432 $(1,075,000)
$(9,651,830)
</TABLE>
MEDISYS TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the Years Ended
December 31,
1999 1998
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (1,603,621) $ (1,252,501)
Adjustments to reconcile net income to net cash
provided (used) by operating activities:
Common stock issued for services and interest 619,343 577,159
Depreciation and amortization 89,069 14,322
Bad debt expense 109,461 2,030
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable (36,612) 7,139
(Increase) decrease in accounts receivable - related
party (32,026) (2,857)
(Increase) decrease in inventory 36,105 15,719
(Increase) decrease in prepaid expenses 3,856 172
(Increase) decrease in deposits 5,726 3,165
(Increase) decrease in other assets (2,500) 2,561
Increase (decrease) in accounts payable 332,802 (43,684)
Increase (decrease) in accrued expenses 255,967 328,884
Increase (decrease) in customer deposits (22,104) 116,200
Net Cash (Used) by Operating Activities (244,534) (231,691)
CASH FLOWS FROM INVESTING ACTIVITIES
Cash received in purchase of subsidiary - 50,461
Increase in patent costs (31,473) (65,822)
Purchase of fixed assets (108,624) -
Disposal of fixed assets - 10,010
Net Cash (Used) by Investing Activities (140,097) (5,351)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from payable - shareholders 28,941 2,625
Payments on notes payable - shareholders (5,222) (4,278)
Payment on notes payable (55,437) -
Issuance of common stock 631,135 170,000
Proceeds from debentures - related parties - 142,000
Net Cash Provided by Financing Activities $ 599,417 $ 310,347
MEDISYS TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Continued)
For the Years Ended
December 31,
1999 1998
NET INCREASE (DECREASE) CASH AND
CASH EQUIVALENTS $ 214,786 $ 73,305
CASH AND CASH EQUIVALENTS AT
BEGINNING OF YEAR 75,483 2,178
CASH AND CASH EQUIVALENTS AT END
OF YEAR $ 290,269 $ 75,483
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION
CASH PAID FOR
Income taxes $ - $ -
Interest $ 55,887 $ 222
NON-CASH FINANCING ACTIVITIES
Stock issued for services and interest expense $ 619,343 $ 577,159
Stock issued in payment of accrued expenses and
accounts payable $ 90,000 $ 979,508
Stock issued to convert debentures payable $ 303,000 $ -
Stock issued for stock subscription receivable $1,000,000 $ -
Purchase of building by issuing a note payable $ 299,250 $ -
MEDISYS TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
December 31, 1999
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
a. Business Organization
The Company was incorporated on March 17, 1983 under the laws
of the State of Utah. The Company subsequently ceased its
original business activity in 1985 and thereafter primarily
investigated and sought new business opportunities and was
reclassified as a development stage company until December of
1998 when it acquired Phillips Pharmatech Labs, Inc.
The Company has a wholly-owned subsidiary Medisys
Technologies, Inc. (Medisys) which was incorporated in the
State of Louisiana, on January 21, 1991, for the purpose of
developing a device for the assistance of childbirth under a
patent which was applied for in May 1990 and granted on June
15, 1992.
Medisys has been classified as a development stage company
since all activities to date have been related to the
development of a childbirth assistance device as well as other
medical devices.
On August 6, 1992 the Company acquired all of the outstanding
common stock of Medisys. For accounting purposes the
acquisition has been treated as a recapitalization of Medisys
with Medisys as the acquirer.
Phillips Pharmatech Labs, Inc. (Phillips) was organized under
the laws of the State of Florida on December 13, 1994. It was
incorporated for the purpose of engaging in the manufacturing
and bottling of health supplements and other health related
and natural products.
On December 22, 1998, the Company completed an acquisition and
share exchange agreement whereby Medisys issued 15,602,147
shares of its common stock in exchange for all of the
outstanding common stock of Phillips. The shares issued by
Medisys represented 50% of the total shares of the Company's
common stock issued and outstanding immediately following the
acquisition. The acquisition is accounted for as a purchase
of Phillips.
b. Fixed Assets
Fixed assets are stated at cost less accumulated depreciation.
Expenditures for small tools, ordinary maintenance and repairs
are charged to operations as incurred. Major additions and
improvements are capitalized. Depreciation is computed using
the straight-line method over estimated useful lives as
follows:
Buildings and improvements 39 years
Furniture and fixtures 5 years
Computers and equipment 5 years
Machinery and equipment 5 to 7 years
Vehicles 5 years
Depreciation expense for the year ended December 31, 1999 was $87,781.
MEDISYS TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
December 31, 1999
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (Continued)
c. Patent and Trademark Costs
The capitalized costs of obtaining patents consists of legal
fees and associated filing costs. These patent costs will be
amortized over the shorter of their legal or useful lives.
The Company has numerous patents in various stages of
development and the application process. Several patents have
been granted but are being developed further in a
continuation-in-part (CIP) status until the development of a
commercial product is complete, the related product has
received FDA (Food and Drug Administration) approval and is in
a marketable condition ready for sale. Once patents have been
granted, FDA approval obtained, and sales commenced, no
further costs associated with the patent are capitalized. As
of December 31, 1999, the Company did have one patented
product for which sales have commenced with the related costs
being amortized over the estimated useful life (17 years) of
the patent. Management has determined that estimated future
cash flows from this product will be sufficient to recover the
capitalized basis of the costs associated with that patent.
The other patents for which costs have been capitalized are
considered to have continued viability according to management
of the Company with no significant events occurring which
would impair the value of the capitalized costs associated
with the individual patents.
The Company has also incurred costs associated with obtaining
trademarks related to the Company's existing and future
products. Those costs have been capitalized and will be
amortized over the estimated useful life of the trademarks
once approval has been received and usage begins. These
trademarks are considered to have continued viability
according to management with no significant events occurring
which would impair the value of the capitalized costs
associated with the trademarks.
Patent and trademark costs incurred are as follows:
December 31,
1999
Patents $ 485,552
Trademarks 11,961
Subtotal 497,513
Less accumulated amortization (5,259)
Total $ 492,254
Amortization expense for the year ended December 31, 1999 was $1,288.
d. Accounting Method
The Company's financial statements are prepared using the
accrual method of accounting. The Company has elected a
December 31 year end.
MEDISYS TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
December 31, 1999
NOTE 1 -ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
e. Cash and Cash Equivalents
For purposes of financial statement presentation, the Company
considers all highly liquid investments with a maturity of
three months or less, from the date of purchase, to be cash
equivalents.
f. Income Taxes
No provision for federal income taxes has been made at
December 31, 1999 due to accumulated operating losses. The
Company has accumulated $9,651,830 of net operating losses as
of December 31, 1999, which may be used to reduce taxable
income and income taxes in future years. The use of these
losses to reduce future income taxes will depend on the
generation of sufficient taxable income prior to the
expiration of the net operating loss carryforwards. The
carryforwards expire as follows:
Year of Net Operating
Expiration Loss
2006 $ 8,667
2007 269,551
2008 802,338
2009 960,966
2010 1,162,772
2011 1,498,725
2012 2,092,689
2018 1,252,501
2019 1,603,621
$ 9,651,830
In the event of certain changes in control of the Company,
there will be an annual limitation on the amount of net
operating loss carryforwards which can be used. The potential
tax benefits of the net operating loss carryforwards have been
offset by a valuation allowance of the same amount.
g. Principles of Consolidation
The consolidated financial statements include the accounts of
Medisys Technologies, Inc. (parent), Medisys Technologies,
Inc. (Medisys) a wholly owned subsidiary and Phillips
Pharmatech, Inc. (Phillips) a wholly-owned subsidiary. All
significant intercompany accounts and transactions have been
eliminated in consolidation.
h. Revenue Recognition
Revenue is recognized upon shipment of goods to the customer.
MEDISYS TECHNOLOGIES, INC. AND SUBSIDIARY
Notes to the Consolidated Financial Statements
December 31, 1999
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (Continued)
i. Inventory
Inventory is carried at the lower of cost or market value
using the first-in, first-out method. Inventory consisted of
the following at December 31, 1999:
Amount
Raw materials $ 376,449
Work-in-process 12,423
Finished goods 7,729
Total $ 396,601
j. Basic Loss Per Share
The computation of basic loss per share of common stock is
based on the weighted average number of shares outstanding
during the period of the financial statements as follows:
Loss Shares Per Share
(Numerator) (Denominator) Amount
For the year ended
December 31, 1999 $ (1,603,621) 37,399,687 $ (0.04)
For the year ended
December 31, 1998 $ (1,252,501) 14,596,423 $ (0.09)
Fully diluted earnings (loss) per share is not presented as
any common stock equivalents are antidilutive in nature.
k. Advertising
The Company follows the policy of charging the costs of
advertising to expense as incurred.
l. Credit Risks
Medisys maintains its cash accounts primarily in one bank in
Louisiana and Phillips maintains its cash accounts primarily
in one bank in Florida. The Federal Deposit Insurance
Corporation insures accounts to $100,000. The Company's
accounts occasionally exceed the insured amount.
MEDISYS TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
December 31, 1999
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (Continued)
m. Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those
estimates.
n. Accounts Receivable
Accounts receivable are shown net of the allowance for
doubtful accounts of $226,627 at December 31, 1999.
o. Change in Accounting Principle
In June 1998, the FASB issued SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities," which requires
companies to record derivatives as assets or liabilities,
measured at fair market value. Gains or losses resulting from
changes in the values of those derivatives would be accounted
for depending on the use of the derivative and whether it
qualifies for hedge accounting. The key criterion for hedge
accounting is that the hedging relationship must be highly
effective in achieving offsetting changes in fair value or
cash flows. SFAS No. 133 is effective for all fiscal quarters
of fiscal years beginning after June 15, 1999. The adoption of
this statement had no material impact on the Company's
financial statements.
NOTE 2 - PAYABLE - SHAREHOLDERS
From time to time Medisys and Phillips receive advances from
certain shareholders for the purpose of providing funds for
their respective operating expenditures. The companies also
advance funds to shareholders. The outstanding balances of
these advances fluctuates during the year and do not have
specific repayment terms although the advances are generally
considered to be due or payable on demand. Accordingly, the
related receivable or payable has been reflected as current in
the accompanying consolidated financial statements. At
December 31, 1999, the balance payable to shareholders totaled
$140,758, which includes $73,528 due from Phillips and $67,230
due from Medisys.
NOTE 3 - DEBENTURES PAYABLE - RELATED PARTIES
The Company also has notes payable (debentures) to various
shareholders in the aggregate of $92,000 at December 31, 1999.
The notes bear interest at 10% per annum, are secured by stock
and were due in 1999.
MEDISYS TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
December 31, 1999
NOTE 4 - LINE OF CREDIT
An analysis of the Phillips' line of credit with Nations Bank
as of December 31, 1999 is shown below:
Available
Line of Debt
Credit Outstanding
$ 250,000 $ 250,000
Borrowings under the line of credit are guaranteed by inventory
and accounts receivable of Phillips. Interest accrues at the bank's
prime rate plus 2.75% (9.50% at December 31, 1999).
NOTE 5 - STOCK SUBSCRIPTION RECEIVABLE
During 1999, the Company issued 5,555,555 shares of common
stock for $1,000,000. Payment for the common stock was made
with a non-interest bearing promissory note. Those shares are
being held in escrow as collateral until the note is paid. As
of December 31, 1999, $100,000 on the note had been paid.
During 1996, the Company issued 100,000 shares of restricted
common stock upon the exercise of common stock warrants
representing the same number of shares, having an exercise
price of $1.75 per share. Payment for the common stock was
made with a non-interest bearing four year promissory note.
The related shares are being held by the Company as collateral
for the promissory note. The shares have been reflected as
issued and outstanding with a corresponding $175,000 stock
subscription receivable reflected as a reduction of
stockholders' equity.
NOTE 6 - NOTES PAYABLE - SHAREHOLDERS
Notes payable - shareholders consisted of the following:
December 31,
1999
Note payable to Richard L. Apel, unsecured,
dated November 2, 1993 at 8%; principal and
interest delinquent since August 18, 1994. $ 12,500
Note payable to Cynthia F. Vatz, unsecured,
dated October 19, 1993 at 8%; principal and
interest delinquent since August 18, 1994. 12,500
Total 25,000
Less current portion (25,000)
Total long-term portion $ -
These notes payable are technically in default. None of the
related note holders have demanded repayment and the Company
is in the process of negotiating repayment terms (see Note 12).
MEDISYS TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
December 31, 1999
NOTE 7 - COMMON STOCK
During 1999, the Company issued 324,477 shares of its common
stock in satisfaction of accrued wages of $90,000. The
Company issued 1,435,000 shares of its common stock to convert
$303,000 of debentures payable. The Company issued 3,005,737
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. Finally, the Company issued 8,889
shares of its common stock from the exercise of warrants for
cash of $10,000.
During 1998, the Company issued 2,448,767 shares of its common
stock in satisfaction for accrued wages and accounts payable
of $979,508. The Company issued 881,255 shares of its common
stock for services. The services were valued at the trading
price of the common stock on the date the shares were issued.
The Company issued 546,666 shares of its common stock for cash
at $0.25 per share. The Company issued 760,112 for interest
expense of $268,875. The Company issued an additional 650,000
shares of its common stock to a shareholder to prevent
dilution of the shares previously issued to the shareholder.
NOTE 8 - NOTES PAYABLE
Notes payable at December 31, 1999 consisted of the following:
Note payable to Nations Bank, collateralized by a
vehicle of Phillips, interest at 8.99%, principal
and interest payments of $303 are due monthly,
matures on September 11, 2000. $ 2,079
Note payable to Nations Bank, collateralized by
equipment of Phillips, interest at 12.5%, principal
and interest payments of $450 are due monthly,
matures on November 4, 2002. 13,072
Note payable to Nations Bank, collateralized by certain
assets of Phillips, interest at the bank's prime rate
plus 2.25%, interest payments due monthly along with
principal payments of $3,333, matures on June 12, 2001. 54,993
Note payable to Nations Bank, collateralized by the
building of Phillips, interest at 7.75%, principal
and interest payments of $2,817 due monthly, matures
on February 18, 2014. 291,041
Total notes payable 361,185
Less: current portion (56,695)
Long-term notes payable $ 304,490
MEDISYS TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
December 31, 1999
NOTE 8 - NOTES PAYABLE (Continued)
Maturities of notes payable are as follows:
Year Ending
December 31, Amount
1999 $ 56,695
2000 31,062
2001 17,111
2002 13,482
2003 14,564
2004 and thereafter 228,271
Total $ 361,185
NOTE 9 - COMMITMENTS AND CONTINGENCIES
During 1996, the Company adopted a Simplified Employee Pension
(SEP) Plan. The Plan enables the Company to make an annual
discretionary contribution to be allocated to employees on a
prorata basis according to their compensation for the year.
In addition, employees have the option to make voluntary
Retirement Savings Contributions in amounts not to exceed 15%
of their annual compensation. The Company elected to not make
a contribution for the year ended December 31, 1999. The
Company has no other bonus, profit sharing or deferred
compensation plans for the benefit of its employees, officers
or directors except if discussed elsewhere.
The Company currently has employment contracts with Edward P.
Sutherland and Kerry Frey whereby they each will receive
salaries of $12,500 per month.
Any additional compensation to these employees is to be in the
form of an annual cash bonus or the granting of stock and/or
stock options at the discretion of the Board of Directors.
The cash bonus is not to exceed 50% of their annual
compensation and stock bonuses are not to exceed 100% of their
annual dispensation. However, additional compensation may be
awarded by the Board of Directors under the terms of the
employment contracts.
Phillips leases warehouse space at a rate of $3,766 per month
though January 2000. Medisys entered into a lease agreement
with a related party for its office space located in
Louisiana. The lease is for a period of one year at a rate of
$900 per month, expiring in September 2000.
MEDISYS TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
December 31, 1999
NOTE 10 - COMMON STOCK WARRANTS
As of December 31, 1999, the Company had outstanding warrants
for the issuance of common stock as follows:
Number of Date Expiration Exercise Estimated
Warrants Issued Dates Prices Proceeds
300,000 1995 2005 $ 2.6250 $ 787,500
2,684,432 1996 2000-2001 $ 1.0000 - $ 4.2500 6,506,741
977,737 1997 2000-2002 $ 0.6875 - $ 1.8750 1,188,211
5,383,155 1998 2000-2005 $ 0.2500 - $ 4.2500 10,012,835
1,514,525 1999 2001-2002 $ 0.4000 - $ 0.7500 748,263
10,859,849 $ 19,243,550
During 1999, the Company completed private placements of
common stock wherein the purchaser of one share of the
Company's common stock received one-half (1/2) a warrant to
purchase common stock at prices ranging from $0.50 to $0.75
per share. The Company issued 1,244,525 common stock warrants
pursuant to these private placements. The company also issued
270,000 common stock warrants as bonuses to certain officers
and directors of the Company exercisable at $0.40 per share.
During 1998, the Company conducted a private placement of its
common stock, wherein the purchaser of one share of the
Company's common stock also received a warrant to purchase one
additional share of common stock at $1.25 per share. The
Company issued 912,333 common stock warrants pursuant to this
private placement. The Company also issued 4,670,534 common
stock warrants (199,712 expired unexercised in 1999) to the
stockholders of Phillips pursuant to the acquisition agreement
redeemable at various prices depending on the expiration dates
of the warrants.
All common stock warrants issued in 1999 and 1998 had exercise
prices at or above the trading price of the shares.
MEDISYS TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
December 31, 1999
NOTE 11 - GOING CONCERN
The Company's consolidated financial statements have been
prepared using generally accepted accounting principles
applicable to a going concern which contemplates the
realization of assets and liquidation of liabilities in the
normal course of business. The Company has incurred
significant losses since inception, relating to its research
and development efforts and has had no significant operating
revenues until the acquisition of Phillips in December 1998.
In 1999, the Company was able to raise working capital through
the private placement of its common stock. The Company has
now closed a private placement of combined debt and equity of
up to $14,000,000 for operating capital of which $1,000,000
has been received in 2000. The Company believes cash flow
projections now show the Company's reserves should be adequate
to cover its operating needs as well as its needs for the
expansion of its research and development projects and for the
commercialization of its proprietary products. The Company
also expects to generate additional revenue from the sales of
its proprietary products.
NOTE 12 - SUBSEQUENT EVENTS
a. Debt Conversions
By March 31, 2000, the Company had converted the remaining
balance of debentures payable into common stock. The Company
issued 330,000 shares of its common stock for the conversion
of $92,000 of debentures payable - related parties.
On January 31, 2000, the Company converted the note payable of
$12,500 due to Richard Apel along with accrued interest into
common stock. The Company issued 8,500 shares to convert this
note.
b. Subscription Receivable
By March 31, 2000, the Company had received an additional
$450,000 as payment on the stock subscription receivable (see
Note 5).
c. Legal Issues
On March 16, 2000, Medisys filed a complaint against the
former shareholders of Phillips. The complaint alleges
various securities law violations and related claims in
connection with the 1998 acquisition of Phillips. Medisys is
seeking recission of the acquisition, damages and other
relief.
MEDISYS TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
December 31, 1999
NOTE 13 - SEGMENTS OF OPERATIONS
The Company operates in two segments. The Company researches
and develops medical products through the Medisys subsidiary.
The Company manufactures and bottles health supplements and
other health products through the Phillips subsidiary.
The Company's consolidated balance sheet and statement of
operations for the year ended December 31, 1999 are broken out
as follows:
Medisys Phillips Eliminations Totals
CURRENT ASSETS
Cash $ 245,305 $ 44,964 $ - $ 290,269
Accounts receivable, net - 222,100 - 222,100
Accounts receivable, related parties - 50,572 - 50,572
Advances 2,500 - - 2,500
Inventory 7,729 388,872 - 396,601
Prepaid expenses 21,328 474 - 21,802
Total Current Assets 276,862 706,982 - 983,844
FIXED ASSETS
Computers and equipment 42,535 30,806 - 73,341
Machinery and equipment - 301,087 - 301,087
Buildings and improvements 2,195 461,608 - 463,803
Furniture and equipment 34,410 15,838 - 50,248
Vehicles - 19,915 - 19,915
Accumulated depreciation (67,414) (247,337) - (314,751)
Total Fixed Assets 11,726 581,917 - 593,643
OTHER ASSETS
Deposits 835 35,204 - 36,039
Patent and trademark costs, net 492,254 - - 492,254
Total Other Assets 493,089 35,204 - 528,293
TOTAL ASSETS $ 781,677 $ 1,324,103 $ - $ 2,105,780
MEDISYS TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
December 31, 1999
NOTE 13 - SEGMENTS OF OPERATIONS (Continued)
Medisys Phillips Eliminations Totals
CURRENT LIABILITIES
Accounts payable $ 82,649 $ 841,841 $ - $ 924,490
Accrued expenses 229,164 32,622 - 261,786
Customer deposits - 94,096 - 94,096
Payable - shareholders 67,230 73,528 - 140,758
Notes payable, current portion - 56,695 - 56,695
Line of credit - 250,000 - 250,000
Notes payable - shareholders 25,000 - - 25,000
Debentures payable - related
parties 92,000 - - 92,000
Total Current Liabilities 496,043 1,348,782 - 1,844,825
LONG-TERM DEBT
Notes payable - 304,490 - 304,490
Total Long-Term Debt - 304,490 - 304,490
TOTAL LIABILITIES 496,043 1,653,272 - 2,149,315
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock 23,863 900 (900) 23,863
Additional paid in capital 10,625,944 - 33,488 10,659,432
Stock subscriptions receivable (1,075,000) - - (1,075,000)
Accumulated deficit (9,289,173) (330,069) (32,588) (9,651,830)
Total Stockholders' Equity
(Deficit) 285,634 (329,169) - (43,535)
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY
(DEFICIT) $ 781,677 $ 1,324,103 $ - $ 2,105,780
MEDISYS TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
December 31, 1999
NOTE 13 - SEGMENTS OF OPERATIONS (Continued)
Medisys Phillips Eliminations Totals
REVENUES $ 1,973 $ 2,714,846 $ - $ 2,716,819
COST OF GOODS SOLD 523 2,017,321 - 2,017,844
GROSS MARGIN 1,450 697,525 - 698,975
OPERATING EXPENSES
Product research and development 230,075 - - 230,075
Depreciation and amortization 14,627 74,442 - 89,069
Selling, general and
administrative 715,879 816,674 - 1,532,553
Total Operating Expenses 960,581 891,116 - 1,851,697
OPERATING LOSS (959,131) (193,591) - (1,152,722)
OTHER INCOME (EXPENSES)
Interest income 65 - - 65
Interest expense (282,547) (58,956) - (341,503)
Bad debt income (expense) 648 (110,109) - (109,461)
Total Other Income (Expenses) (281,834) (169,065) - (450,899)
LOSS BEFORE INCOME TAXES (1,240,965) (362,656) - (1,603,621)
INCOME TAXES - - - -
NET LOSS $(1,240,965) $ (362,656) $ - $(1,603,621)
Item 8. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
There have been no changes in or disagreements with
accountants.
PART III
Item 9. Directors and Executive Officers of the Registrant
The current Executive Officers and Directors of the Company
are as follows:
Edward P. Sutherland 53 Chairman, Chief Executive
Office, Treasurer and Director
Kerry M. Frey 54 President, Chief Operating
Officer and Director
Brett Phillips 39 Director (President of Phillips
Pharmatec)
William David Kiesel 55 Director
Dr. Robert L. diBenedetto 70 Medical Director and Director
Gary E. Alexander 55 Director
Dr. Timothy Andrus 50 Director
Carl Anderson 59 Director
Bill Morris 52 Director
Dr. Charles Potter 51 Director
All Directors hold office until the next annual meeting of
stockholders and until their successors have been duly elected and
qualified. The Executive Committee of the Board of Directors, to
the extent permitted under Utah law, exercises all of the power and
authority of the Board of Directors in the management of the
business and affairs of the Company between meetings of the Board
of Directors. Each executive officer serves at the discretion of
the Board of Directors.
MANAGEMENT
Mr. Edward P. Sutherland, Chief Executive Officer and Chairman
of the Board. Mr. Edward P. Sutherland co-founded the Company with
Mr. Alexander in 1992 and serves as Chief Executive Officer and
Chairman of the Board. In this role, he is instrumental in
developing strategic direction and implementing consolidation-
operating protocols. Together with Mr. Frey he has overseen the
evolution of the Company and is focused on the administration,
financial and legal aspects of the business.
Mr. Sutherland was in private law practice from 1974 until he
co-founded the Company in 1992. Mr. Sutherland has over 25 years
of business, professional and personnel management expertise in the
private and public sector including over six years of experience in
forming, developing and managing a start-up company in the medical
R&D industry. His background includes financing, administration,
policy formulation and execution, personnel education, general
office management, bookkeeping, taxation, and interface with
governmental agencies including the FDA and the Securities and
Exchange Commission (SEC). While practicing as an attorney, Mr.
Sutherland also developed a comprehensive background in hospital
and medical practice, and product liability litigation. Mr.
Sutherland received a Bachelor of Arts Degree from Louisiana State
University in 1968 and a Juris Doctor Degree from Louisiana State
University in 1974 and is currently admitted to practice law in New
York and in Louisiana.
Mr. Kerry M. Frey, President and Chief Operating Officer
Mr. Kerry M. Frey serves as the Company's President and Chief
Operating Officer. In this capacity, he is responsible for
developing and directing the Company's strategic plan of expansion
through internal growth and strategic acquisitions. In addition,
Mr. Frey has recognized a niche market strategic opportunity in the
medical device industry and will employ strategic and operational
experiences learned from 25 years of professional and healthcare
management expertise to locate and acquire profitable companies.
Mr. Frey became an Officer and a Director of the Company in November
1994.
Mr. Frey was associated with Johnson and Johnson for 21 years
in the development of multi-company corporate marketing programs
and services. He was a board member of Johnson & Johnson Hospital
Services and served as Vice President of Marketing as well as Vice
President of Sales. Mr. Frey has coordinated strategic assessment
of the healthcare market and led the development of corporate value
added marketing programs for Johnson and Johnson in the
professional healthcare marketplace. As President of Genesys
Consulting, assignments included integrated healthcare providers
such as the General Health System and the Florida Hospital;
futuristic health delivery planning with Walt Disney Development
Company and consulting for companies such as Smith Kline Beecham.
He has also served on the boards of a medical information systems
company and a start-up minority healthcare product distributor. Mr.
Frey received a Bachelor of Arts Degree from Southeastern Louisiana
University in 1969.
DIRECTORS
Mr. Gary Alexander, Director. Mr. Gary Alexander is the co-
founder of the Company and the principle inventor of most of the
Company's patented proprietary products. Recognizing the
tremendous opportunities in the obstetrics and sharps management
fields he invented and developed the Company's SofCepsTM and
CoverTipTM products among others. As the inventor of the Company's
patents on SofCepsTM and CoverTipTM products, a critical aspect of
Mr. Alexander's ongoing role is the growth and management of the
Company's vital patent portfolio.
Mr. Alexander was engaged in private law practice from 1976-
1991, specializing in medical liability matters with emphasis on
obstetrics. In addition, he has owned and operated several
businesses in building, general contracting, and construction
equipment sales. In connection with those businesses, he acquired
the special skills and expertise in engineering principles, design
and mechanical sciences, which have led to his inventing successes.
He has advised manufacturing clients on domestic and international
business contracts, research and development, operations, sales and
mergers. He has also served as advisor and counsel for several
financial institutions and has interfaced with government agencies
including FDA and SEC and has represented the SBA. Mr. Alexander
received his Jurist Doctor Degree in Law from Louisiana State
University in 1976
Dr. Robert L. diBenedetto, Director. Dr. diBenedetto, a
co-founder of the Company, received his Doctorate of Medicine in
1952 from the Louisiana State University Medical School and served
his internship at Mercy Hospital from 1952 to 1953, and his
residency in Obstetrics and Gynecology at Charity Hospital, New
Orleans, Louisiana from 1956 to 1959. Dr. diBenedetto has been
engaged in the private practice of Obstetrics and Gynecology from
1959 to the present and has recently received recognition as one of
the top fifty physicians in the United States. His hospital
affiliations include Woman's Hospital Foundation, Baton Rouge,
Louisiana where he has served as Chairman of the Board of Directors
from 1984 to 1990, and he is also affiliated with Our Lady of the
Lake Hospital, Baton Rouge General Hospital and Earl K. Long
Hospital. Dr. diBenedetto is a past President and CEO of the
Louisiana Medical Insurance Company, a major provider of medical
malpractice insurance. He also serves, or has served, on the
following committees: Chairman, Dialogue with Congress; Area-wide
Health Planning; Liaison with Organized Specialties; Chairman,
Maternal & Child Health; Member, Committee on Professional
Liability of American College of Obstetrics and Gynecology;
Member, Committee on Ethics of American College of Obstetrics and
Gynecology; Past Chairman, Louisiana Delegation to American
Medical Association. His professional organizations include:
Chairman & Legislative Liaison, Louisiana Section of the American
College of Obstetricians and Gynecologists; Past Chairman,
Louisiana Delegation to the American Medical Association; South
Central OB/GYN Society; clinical Associate Professor of OB/GYN,
L.S.U. School of Medicine - New Orleans, Louisiana; American
Fertility Society; Treasurer, Louisiana Medical Political Action
Committee.
William David Kiesel, Director. Mr. Kiesel was a co-founder
of the Company. During the past 25 years he has been actively
engaged in advising numerous start-up businesses. During that
period he has supported more that 100 start-up companies in all
aspects of their businesses, including structuring of R&D programs,
financial planning, management, as well as, marketing and sales of
their new products. These companies have varied in size, up to $50
million in sales, and encompass organizations offering a wide
spectrum of products, including medical devices and pharmaceutical
products. In addition to his current position with The Company, he
serves as the business manager of his own 25 person patent law
firm. He has also provided to his clients fair market and
liquidation's evaluations of patents, trademarks, and other
intellectual property.
Dr. Timothy Andrus, Director. Dr. Andrus became a Director of
the Company in November 1996. He received his Doctorate of
Medicine from the Louisiana State University Medical School in New
Orleans in 1975 and completed his residency in Obstetrics and
Gynecology there in 1979. He is Board Certified in Obstetrics and
Gynecology and has been in private practice for 16 years in Baton
Rouge La. Dr. Andrus served as Associate Medical Director of Gulf
South Health Plans HMO for five years. He was Chief of Staff of
Woman's Hospital in Baton Rouge in 1991, and currently serves on
the Board of Directors and as C.E.O. of Woman's Hospital, the
largest freestanding women's specialty hospital in the United
States. Dr. Andrus received an MBA from Louisiana State University
in Baton Rouge.
Dr. Charles Potter was appointed as an interim Director in
the fall of 1999. He received his training at Michigan State
University in Lansing, Michigan and at Washington University School
of Medicine in St. Louis, Missouri. He is Board-certified in
Otolaryngology and is in private practice in Springfield, Illinois.
Dr. Potter served for six years on the Board of Directors of
Springfield Clinic, which managed a budget in excess of $140
million and has acted as a consultant for several medical device
companies including Xomed, Smith & Nephew, Storz of St. Louis, and
Instrumentarium. Storz and Instrumentarium market medical devices
which bear Dr. Potter's name.
Mr. Brett Phillips, Director (President of Phillips
Pharmatec). Mr. Brett Phillips co-founded Phillips Pharmatec Labs,
Inc. with Dr. William Morris and Mr. Carl Anderson in 1994 and
serves a Chief Executive Officer and President. In this roll, he
is instrumental in developing strategic direction and implementing
manufacturing protocols.
Prior to founding Phillips, Mr. Phillips managed Energy
Factors a company that manufactures, distributes, and markets
pharmaceuticals under private label brands since 1986. While at
Energy Factors Mr. Phillips was responsible for generating annual
sales in excess of $8.5 million.
Mr. Phillips earned degrees in History and Business
Administration from the University of Tampa in 1984. In addition
to his company duties Mr. Phillips is a member of the National
Nutrition and Foods Association (NNFA), has acted as a consultant
to various firms in the pharmaceutical and nutritional markets, and
has testified as an expert witness for the Food and Drug
Administration.
Dr. William H. Morris, Director. Dr. Morris co-founded
Phillips Pharmatec Labs, Inc. along with Mr. Phillips and Mr.
Anderson in 1994 and will serve as a Pharmaceutical Advisor and
Director. In this capacity, he is responsible for developing, and
marketing new nutritional supplements to be manufactured by the
Company. In addition, he has been instrumental in developing both
strategic business planning and innovative marketing strategies for
Phillips.
Preceding his involvement with the Company, Dr. Morris was a
pharmacist and supervisor before opening his own pharmacy in 1976.
This successful business was sold to a leading national drug store
chain in 1989. In addition to managing his drug store, Dr. Morris
became involved with the nutritional supplement, cosmetic,
dermatological and over-the-counter drug industry. At this time
Dr. Morris founded National Dietary Research in 1983 to research
nutritional alternatives to health problems. Dr. Morris has
conducted extensive research in this field and developed numerous
nutritional supplements which are in the market today.
Dr. Morris earned a degree in Pharmacy with honors from Mercer
University in 1971. Subsequently, he studied Pharmacology and
Metabolism at the University of Georgia graduate school. In
addition to his Company duties Dr. Morris serves as a director on
numerous corporate boards and has been a member of the National
Community Pharmacist Association, Council for Responsible
Nutrition, and the Grocery Manufacturer's of America.
Carl Anderson, Director. Mr. Anderson co-founded Phillips
Pharmatec Labs, Inc. along with Mr. Phillips and Dr. Morris in 1994
and serves as a Director. In this capacity he carries out the
duties and responsibilities associated with a Directors position.
Additionally, Mr. Anderson will exploit past experiences in
developing effective direct sales, wholesale distribution,
pharmaceutical manufacturing, and other entrepreneurial activities.
Prior to his involvement with Phillips, Mr. Anderson was
employed for several years by U.S. Phosphoric Products Corporation
where he was Plant Service Laboratory supervisor. In this capacity,
he was responsible for the planning and activities of a number of
chemists and other personnel. Mr. Anderson resigned his position
in 1968 and has subsequently been active in various business
ventures including retail and wholesale distribution and
manufacture of pharmaceuticals and nutritional supplements. Mr.
Anderson earned a degree in Chemistry from North Carolina State
University.
Section 16(a) Beneficial Ownership Reporting Compliance
Each of the Company's officers and directors is required to
file a Form 5, Annual Statement of Changes in Beneficial Ownership,
on or before the 45th day after the end of the fiscal year. These
reports were timely prepared for filing and submission by the
individual directors to the Securities and Exchange Commission.
Compensation of Directors
Each member of the Board of Directors is compensated as
follows. Directors each receive $800 in stock per meeting attended
in person. The Chairman of the Board receives $1,000 in stock per
month and $1,800 in stock per meeting. The Secretary receives $600
in stock per month and $1,600 in stock per meeting. The committee
chairperson is paid an additional $300 in stock and committee
members receive $200 in stock per meeting. Issuance of the shares
is based on the closing bid price of the Company's shares on the
last day of the month following the meeting. Out of town
Directors are reimbursed for reasonable travel expenses.
Changes in Control
Control of the company changed substantially with the
acquisition of Phillips as is shown in the table under Item 10
below.
Item 10. Executive Compensation
The following table sets forth all cash compensation actually
paid (and not deferred) by the Company for services rendered to the
Company for the years ended December 31, 1997, 1998, and 1999 to
the Company's Chief Executive Officer and Chief Operating Officer.
The total compensation for the remaining Executive Officers is not
reported, as it did not meet the threshold for required reporting.
Summary Compensation Table
Name and Other
Principal Annual All Other
Position Year Salary(1) Bonus Compensation Compensation
Edward P. Sutherland 1997 56,621 -0- -0- 17,930
C.E.O. 1998 -0- -0- -0- -0-
1999 46,154 -0- -0- -0-
Kerry M. Frey, 1997 52,750 -0- -0- 19,644
President and 1998 -0- -0- -0- -0-
C.O.O. 1999 46,154 -0- -0- -0-
________________________
(1) As of December 31, 1999 the Company had accrued salaries.
Prior to fiscal 1999, these accruals were compromised and
deferred into the future for the issuance of 144 restricted
stock or for interest bearing notes.
Employment Agreements
The Company has entered into employment agreements with Edward
P. Sutherland and Kerry Frey respectively which call for no
increase in their base compensation, which has remained at $150,000
per year for the last three years, although the Company has been
unable to pay that salary in cash as contractually required. These
officers received no cash compensation in 1998 and greatly reduced
their cash compensation in 1999 so that the Company could maintain
operations. As noted above, they deferred all or part of their
cash compensation by accepting 144 restricted stock or interest-
bearing promissory notes as a compromise to the wage claims. The
note portion of the deferral was satisfied in early 2000. The
contracts also provide for expense and medical reimbursement and
other incentive based bonus compensation.
In addition to deferring compensation from April 1997 through
November 1999, these officers subscribed to several of the
Company's private placement offerings contributing cash directly
into company operations. This personal financial burden and income
loss was partially offset by the Board's directive to Messrs.
Sutherland and Frey that they should sell some of their personal
Company stock in 1999.
Item 11. Security Ownership of Certain Beneficial Owners and
Management
The following table sets forth information, to the best
knowledge of the Company, as of December 31, 1999, with respect to
each person known by the Company to own beneficially more than 5%
of the outstanding Common Stock, each director and all directors
and officers as a group.
Name and Address of Number of Shares Percentage of
Beneficial Owner Beneficially Owned(1) Ownership
Gary E. Alexander * 2,252,030(2) 3.8%
144 Napoleon Street
Baton Rouge, LA 70802
Carl Anderson * 6,548,798(3) 10.7%
19235 US Hwy 41 N.
Lutz, FL 33549
Brett Phillips * 7,307,389(4) 11.9%
8767 115th Avenue N.
Largo, FL 33773
Robert L. diBenedetto * 683,462(5) 1.1%
781 Colonial Drive
Baton Rouge, La 70806
William David Kiesel * 1,323,195(6) 2.2%
2355 Drusilla Lane
Baton Rouge, LA 70809
Edward P. Sutherland * 2,335,751(7) 3.9%
144 Napoleon Street
Baton Rouge, LA 70802
Kerry Frey * 2,008,127(8) 3.4%
144 Napoleon Street
Baton Rouge, LA 70802
Marilyn Morris 7,328,980(9) 11.9%
2804 Smitter Road
Tampa, FL 33618
Timothy Andrus * 480,219(10) .8%
144 Napoleon Street
Baton Rouge, LA 70802
Charles Potter* 7,295,617(11) 11.9%
1025 South 7th Street
Springfield, IL 62703
Directors and officers 37,563,568(12) 54.5%
as a group (9 persons)
* Director
** Unless otherwise indicated in the footnotes below, the Company
has been advised that each person above has sole voting power
over the shares indicated above.
(1) Share amounts for individuals are as of December 31, 1999, at
which time there was 43,817,289 shares of common stock
outstanding. As of March 31, 2000, there were 59,400,820
shares outstanding. These figures figure do not take into
consideration stock purchase warrants owned by certain
officers, directors and shareholders, entitling the holders
to purchase an aggregate of 9,574,193 shares of common stock
and which are currently exercisable. Therefore, for purposes
of the table above, as of the date hereof, 68,975,013 shares
of common stock are deemed to be issued and outstanding in
accordance with Rule 13d-3 adopted by the Securities and
Exchange Commission under the Securities Exchange Act of 1934,
as amended. Percentage ownership is calculated separately for
each person on the basis of the actual number of outstanding
shares as of March 31, 2000 and assumes the exercise of stock
purchase warrants held by such person (but not by anyone else)
exercisable within sixty days.
(2) Includes 226,800 shares which may be acquired by Mr. Alexander
pursuant to the exercise of stock purchase warrants
exercisable within sixty days at the average exercise price of
$1.41 per share.
(3) Includes 1,836,522 shares which may be acquired by Mr.
Anderson pursuant to the exercise of stock purchase warrants
exercisable within sixty days at the average exercise price of
$1.54 per share.
(4) Includes 2,100,509 shares which may be acquired by Mr.
Phillips pursuant to the exercise of stock purchase warrants
exercisable within sixty days at the average exercise price of
$1.54 per share.
(5) Includes 286,000 shares which may be acquired by Dr.
diBenedetto pursuant to the exercise of stock purchase
warrants exercisable within sixty days at the average exercise
price of $3.08 per share.
(6) Includes 546,166 shares which may be acquired by Mr. Kiesel
pursuant to the exercise of stock purchase warrants
exercisable within sixty days at the average exercise price of
$2.77 per share, of which 300,000 warrants are held in the
name of Roy, Kiesel & Tucker, 20,000 warrants are held in the
name of Nu Vue Corp. and shares are held by Mr. Kiesel for his
two sons in trust.
(7) Includes 225,940 shares held in the name of Diana B.
Sutherland, wife of Edward P. Sutherland, 50,000 shares held
by Diana B. Sutherland, trustee for James Sutherland, minor
son of Mr. Sutherland, and 349,000 shares which may be
acquired by Mr. Sutherland pursuant to the exercise of stock
purchase warrants exercisable within sixty days at the average
exercise price of $1.05 per share.
(8) Includes 237,400 shares which may be acquired by Mr. Frey
pursuant to the exercise of stock purchase warrants
exercisable within sixty days at the average exercise price of
$1.00 per share.
(9) Ms. Morris is the wife of Bill Morris, a director of the
Company. Includes 2,100,509 shares which may be acquired by
Ms. Morris pursuant to the exercise of stock purchase warrants
exercisable within sixty days at the average exercise price of
$1.54 per share. The Company has been advised that Ms. Morris
has sole voting power over the shares indicated above and
control over the warrants.
(10)Includes 206,982 shares which may be acquired by Dr. Andrus
pursuant to the exercise of stock purchase warrants
exercisable within sixty days at the average exercise price of
$ 50 per share.
(11) Includes 5,555,555 shares of stock held in escrow by the
Company which are released pro rata as the promissory note
for which they were issued is paid down. Also includes
1,684,305 warrants exercisable within sixty days at the
average exercise price of $.50 per share.
(12) Includes 9,574,193 shares which may be acquired by the
Company's officers and directors pursuant to the exercise of
stock purchase warrants exercisable within sixty days at
exercise prices ranging from $.0375 to $4.25 per share.
Item 12. Certain Relationships and Related Transactions
The law firm of Roy, Kiesel & Tucker has been used for patent
work. William David Kiesel is a partner of Roy, Kiesel & Tucker
and is the Corporate Secretary and a Director of the Company.
Mr. Kiesel and other attorneys at his firm bill the Company for
their time and the Company does reimburse Roy, Kiesel & Tucker for
expenses incurred on the behalf of the Company.
PART IV
Item 13. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
(a) Exhibits
2.1* Acquisition Agreement and Plan of Reorganization.
2.2** Acquisition and Share Exchange Agreement
3.1(i)* Articles of Incorporation and all amendments thereto
3.2(ii)* By-Laws of Registrant
4.1* Specimen of Common Stock Certificate
10.1* Lease Agreement on Registrant's principal place of business
21.1*** Subsidiaries
27 Financial Data Schedule
* Previously filed as Exhibit to Form 10-SB.
** Previously filed as Exhibit to Form S-8 filed October 15, 1998.
*** Previously filed as Exhibit to Form 10-KSB for December 31, 1998
(b) No Form 8-K was filed for the three month period ended
December 31, 1999.
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act,
the registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
MEDISYS TECHNOLOGIES, INC.
BY: /S/ Edward P. Sutherland
EDWARD P. SUTHERLAND
Chairman and Chief
Executive Officer
DATE: April 14, 2000
In accordance with the Exchange Act, this report has been
signed below by the following persons on behalf of the registrant
and in the capacities and on the dates indicated.
BY: /S/ Edward P. Sutherland
EDWARD P. SUTHERLAND
Chairman, Chief Executive
Officer and Director
DATE: April 14, 2000
BY: /S/ Gary E. Alexander
GARY E. ALEXANDER
Vice President, Chief
Technology Officer and
Director
DATE: April 14, 2000
BY: /S/ Kerry M. Frey
KERRY M. FREY
President, Chief
Operating Officer and
Director
DATE: April 14, 2000
BY: /S/ William David Kiesel
WILLIAM David KIESEL
Corporate Secretary and
Director
DATE: April 14, 2000
BY: /S/ Robert diBennedetto
Dr. Robert diBenedetto
Director
DATE: April 14, 2000
