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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM-10QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: September 30, 1997
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE EXCHANGE ACT
For the transition period N/A to N/A
Commission File number: 0-24974
DIASYS CORPORATION
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(Exact name of small business issuer as specified in its charter)
DELAWARE 06-1339248
- --------------------------------- ----------------------
(State or other jurisdiction (I.R.S. Employer ID #)
of incorporation or organization)
49 LEAVENWORTH STREET, WATERBURY, CT 06702
------------------------------------------
(Address of principal executive offices)
203-755-5083
-----------------------------------------------
(Issuer's Telephone number including area code)
NONE
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(Former name, address and/or fiscal year if changed from last report)
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirement for the past 90
days:
YES X NO
--- ---
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant has filed all documents and reports required
to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934
subsequent to the distribution of securities under a plan confirmed by a court:
YES NO
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS:
State the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: NOVEMBER 10, 1997
COMMON STOCK: 2,414,200
WARRANTS: 565,800
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<PAGE>
<TABLE>
DIASYS CORPORATION
(A Development Stage Company)
BALANCE SHEET
<CAPTION>
September 30 June 30
1997 1997
----------- -----------
(Unaudited) (Audited)
<S> <C> <C>
ASSETS
Current Assets
Cash and equivalents ................................... $ 782,421 $ 1,123,486
Accounts Receivable, less allowance for doubtful
accounts of $19,000 at 9/30/97 and $345,031
at 6/30/97 ........................................... 89,078 197,763
Inventories ............................................ 443,041 366,106
Prepaid expenses and other assets ...................... 19,353 19,353
----------- -----------
Total Current Assets ............................ 1,333,893 1,706,708
----------- -----------
Equipment, Furniture and Fixtures less
accumulated depreciation ............................. 75,491 79,866
Patent, less accumulated amortization .................. 65,065 72,914
Deferred Offering Cost ................................. 26,728 14,003
----------- -----------
TOTAL ASSETS .................................... $ 1,501,177 $ 1,873,491
=========== ===========
LIABILITIES AND STOCKHOLDER EQUITY
Current Liabilities
Accounts Payable ...................................... 134,211 124,910
Accrued Expenses ...................................... 0 388
----------- -----------
Total Current Liabilities ....................... 134,211 125,298
----------- -----------
Stockholder's Equity
Common Stock $.001 par value: Authorized 10,000,000,
issued 2,414,200 at 9/30/97 and 2,364,000
at 6/30/97 ........................................... 2,414 2,364
Additional Paid in Capital ............................. 6,050,536 5,802,036
Deficit Accumulated during the development stage ....... (4,685,984) (4,056,207)
----------- -----------
Total Stockholder's Equity ...................... 1,366,966 1,748,193
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS EQUITY ....... $ 1,501,177 $ 1,873,491
=========== ===========
</TABLE>
<PAGE>
<TABLE>
DIASYS CORPORATION
(A Development Stage Company)
STATEMENT OF OPERATIONS
(Unaudited)
<CAPTION>
March 27,
Three Three 1992 Date of
Months months inception
ended ended through
September 30 September 30 September 30
1997 1996 1997
------------ ------------ ------------
<S> <C> <C> <C>
Sales of workstations and Related supplies ........... 102,141 77,875 1,351,528
Rental/Lease Revenue ................................. 6,513 3,992 32,818
--------- --------- ----------
Net sales ............................................ 108,654 81,867 1,384,346
Cost of Goods Sold ................................... 32,674 25,298 458,244
--------- --------- ----------
Gross Profit ......................................... 75,980 56,569 926,102
% of Gross Profit .................................... 69.93% 69.10% 66.90%
OPERATING EXPENSES
Selling ........................................... 226,678 215,091 2,285,761
General & Admin ................................... 134,312 85,005 1,767,066
Investment banking advisory services .............. 247,500 0 765,000
Research/Development .............................. 107,170 71,142 1,157,341
--------- --------- ----------
715,660 371,238 5,975,168
--------- --------- ----------
Income (Loss) from operations ........................ (639,680) (314,669) (5,049,066)
Interest expense to stockholders and related party.... 0 0 (4,500)
Interest income ...................................... 9,901 50,999 367,580
--------- --------- ----------
Net Income (Loss) .................................... (629,779) (263,670) (4,685,986)
========= ========= ==========
Number of Common and common equivalent
shares deemed outstanding .......................... 2,414,200 2,364,000 2,364,200
========= ========= ==========
Net Loss per Common and Common
equivalent share: Primary .......................... ($0.26) ($0.12)
===== =====
</TABLE>
<PAGE>
<TABLE>
DIASYS CORPORATION
(A Development Stage Company)
STATEMENT OF CASH FLOWS
(Unaudited)
<CAPTION>
For the For the
three months three months
Ended Ended
September 30 September 30
1997 1996
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Loss ............................................... ($ 629,779) ($ 263,670)
Adjustments to reconcile net loss to net cash flows from
operating activities
Investment Banking Advisory Services ............... 247,500 0
Amortization of patents ............................ 7,850 5,550
Depreciation of equipment, furniture & fixtures .... 4,375 3,000
Changes in operating assets and liabilities
Accounts Receivable ................................ 108,686 (25,061)
Inventory .......................................... (76,935) (52,401)
Prepaid expenses and other current assets .......... 0 (4,237)
Accounts payable and accrued expenses .............. 8,913 (6,386)
Net cash flows from operating activities ............... (329,390) (343,205)
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of equipment, furniture and fixtures ......... 0 (1,695)
Net Cash flows from investing activities ............... 0 0
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Offering costs ......................................... (11,675) 0
Net Cash flows from financing activities ............... (11,675) 0
---------- ----------
NET CHANGE IN CASH AND EQUIVALENTS ....................... (341,065) (344,900)
CASH AND EQUIVALENTS-BEG. OF PERIOD ...................... 1,123,486 2,772,468
---------- ----------
CASH AND EQUIVALENTS-END OF PERIOD ....................... $ 782,421 $2,427,568
========== ==========
SUPPLEMENTAL CASH FLOW ACTIVITIES
Interest paid ........................................ $0 $0
Income taxes paid .................................... $0 $0
NON CASH FINANCING ACTIVITIES
Issuance of common stock for investment
Banking Advisory Services .......................... $ 300,000 $0
</TABLE>
<PAGE>
<TABLE>
DIASYS CORPORATION
(A Development Stage Company)
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
<CAPTION>
Deficit
Accumulated
Common Stock During the
---------------------- Paid-in Development
Shares Par Value Capital Stage
--------- --------- ---------- -----------
<S> <C> <C> <C> <C>
BALANCE JUNE 30, 1997 .............................. 2,364,000 $2,364 $5,802,036 $(4,056,207)
YEAR ENDED JUNE 30, 1998:
Issuance of common stock for Investment Banking
Advisory Services at $5.75 per share ............. -- -- 172,500 --
Issuance of common stock for Investment Banking
Advisory Services at $6.00 per share,
50,000 shares issued ............................. 50,000 50 74,950 --
Exercise of 200 warrants at $5.25 per share ........ 200 .2 1,050 --
Net Loss ........................................... -- -- -- (629,779)
--------- -------- ---------- -----------
BALANCE SEPT. 30, 1997 ............................. 2,414,200 $2,414.2 $6,050,536 $(4,685,986)
========= ======== ========== ===========
</TABLE>
<PAGE>
DIASYS CORPORATION
(A Developmental Stage Company)
NOTES TO FINANCIAL STATEMENTS
PART I
NOTE 1. NATURE OF THE BUSINESS AND BASIS OF THE PRESENTATION:
NATURE OF THE REPORT: THE BALANCE SHEET FOR THE END OF THE PRECEDING FISCAL
YEAR HAS BEEN DERIVED FROM THE COMPANY'S LAST AUDITED BALANCE SHEET AND IS
PROVIDED FOR COMPARATIVE PURPOSES. ALL OTHER FINANCIAL STATEMENTS ARE UNAUDITED.
IN THE OPINION OF MANAGEMENT, ALL ADJUSTMENTS, WHICH INCLUDE ONLY NORMAL
RECURRING ADJUSTMENTS NECESSARY TO FAIRLY PRESENT THE FINANCIAL POSITION,
RESULTS OF OPERATIONS AND CHANGES IN CASH FLOWS FOR ALL PERIODS PRESENT, HAVE
BEEN MADE. THE RESULTS OF OPERATIONS FOR INTERIM PERIODS ARE NOT NECESSARILY
INDICATIVE OF THE OPERATING RESULTS FOR THE FULL YEAR.
CERTAIN STATEMENTS CONTAINED HEREIN ARE NOT BASED ON HISTORICAL FACTS, BUT
ARE FORWARD LOOKING STATEMENTS THAT ARE BASED UPON NUMEROUS ASSUMPTIONS ABOUT
FUTURE CONDITIONS THAT COULD PROVE NOT TO BE ACCURATE. ACTUAL EVENTS,
TRANSACTIONS AND RESULTS MAY MATERIALLY DIFFER FROM THE ANTICIPATED EVENT,
TRANSACTIONS OR RESULTS DESCRIBED IN SUCH STATEMENTS. THE COMPANY'S ABILITY TO
CONSUMMATE SUCH TRANSACTIONS AND ACHIEVE SUCH EVENTS OR RESULTS IS SUBJECT TO
CERTAIN RISKS AND UNCERTAINTIES. SUCH RISKS AND UNCERTAINTIES INCLUDE, BUT ARE
NOT LIMITED TO, THE EXISTENCE OF DEMAND FOR AND ACCEPTANCE OF THE COMPANY'S
PRODUCTS AND SERVICES, REGULATORY APPROVALS AND DEVELOPMENTS, ECONOMIC
CONDITIONS, THE IMPACT OF COMPETITION AND PRICING RESULTS OF FINANCING EFFORTS
AND OTHER FACTORS AFFECTING THE COMPANY'S BUSINESS THAT ARE BEYOND THE COMPANY'S
CONTROL. THE COMPANY UNDERTAKES NO OBLIGATION AND DOES NOT INTEND TO UPDATE,
REVISE OR OTHERWISE PUBLICLY RELEASE THE RESULT OF ANY REVISIONS TO THESE
FORWARD-LOOKING STATEMENTS THAT MAY BE MADE TO REFLECT FUTURE EVENTS OR
CIRCUMSTANCES.
<PAGE>
PART II
DiaSys Corporation (the "Company") was organized in 1992 in the State of
Connecticut and effected a statutory merger into a Delaware Corporation of the
same name in 1993. The Company's first product family is the "R/S" series
workstations used to automate and standardize routine urine sediment analysis
conducted in hospitals, private clinics and physician group practices. The "R/S"
series has three workstations products, each serving distinct market segments.
In addition to the "R/S" series of workstations, the Company in May of 1996
announced its "FE" family of products. The "FE" series is designed to automate,
standardize and reduce the cost of microscopic analysis of fecal concentrates.
The target market for the "FE" series of products for fecal concentrates and the
"R/S" series of urine sediment workstations are substantially the same.
The Company is in its developmental stage and since its inception on March
27, 1992 has engaged in organizational activities, development of several
proprietary products, and establishment of sales and distribution channels. As
planned, the Company has operated at a loss since its inception.
In January of 1995, the Company completed its initial public offering
("Offering) of 1,000,000 shares of its Common Stock, par value $.001 ("Common
Shares") and 500,000 Common Stock Purchase warrants, each exercisable at a fixed
price into one Common Share ("Warrants"). The Company received net proceeds
after expenses of $3,961,179 from the Offering. In addition, on February 2,
1995, the Company's underwriter exercised its option to purchase 130,000
additional Common Shares and 70,000 Warrants from the Company pursuant to an
over-allotment option granted to the underwriter as part of the Offering. The
Company received an additional $561,425 in net proceeds from the exercise.
Accordingly, the Company realized $5,735,500 in proceeds from its Offering with
net proceeds after expenses of $4,522,604.
On July 24, 1997 the Company filed a post effective amendment consisting of
566,000 shares of Common Stock, par value $.001 (the "Common Stock"), issuable
upon the exercise of 566,000 Redeemable Common Share Purchase Warrants, (the
"Redeemable Warrants'). The Redeemable Warrants were issued in connection with a
public offering of the Company's securities in January 1995. Each Redeemable
Warrant entitles the registered holder thereof to purchase one share of Common
Stock at a price of $7.00 per share, subject to adjustment in certain
circumstances. On January 3, 1997 the Board of Directors of the Company approved
the extension of the 566,000 publicly traded redeemable warrants to July 10,
1997. On May 21, 1997 the Board of Directors of the Company reduced the exercise
prices of the Redeemable Warrants for the remainder of their term to $5.25 per
share. On July 3, 1997, the Board of Directors of the Company approved the
extension of the expiration date of the 566,000 publicly traded Redeemable
Warrants from July 10, 1997 to October 10, 1997; and, on October 7, 1997 the
Board of Directors approved a further extension of the expiration date from
October 10, 1997 to April 10, 1998.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULT'S OF OPERATION:
OVERVIEW:
DiaSys Corporation ("the Company") was organized in 1992 in the State of
Connecticut and effected a statutory merger into a Delaware Corporation of the
same name in 1993. Since inception, the Company has engaged primarily in
organizational activities and implementing its strategic product development and
distribution plan.
PRODUCT STRATEGY:
The Company's product strategy is to develop workstation products and
systems that improve accuracy and reduce the costs to perform routine medical
testing procedures.
"R/S" SERIES: The Company's first family of products is the "R/S" series of
urine sediment workstations. These workstations increase the accuracy,
productivity and safety of the numerous laboratories which routinely analyze
urine sediment. The "R/S" family is comprised of three models: The R/S 1000
serves the needs of laboratories conducting fewer than 20 urine tests at a time
such as doctor office laboratories, out patient clinics, and "stat" labs where
accuracy, standardization and quick turnaround are of utmost
<PAGE>
importance. The R/S 2000 serves mid-sized laboratories such as general
hospitals. The R/S 2003 accommodates high volume laboratories such as clinical
reference labs.
Users of the "R/S" series workstations include hospital laboratories performing
as few as 10 urine tests per day and clinical laboratory chains performing in
excess of 10,000 urine tests per night. The "R/S" series workstations have also
been the subject of numerous favorable evaluations and publications including
the JOURNAL OF LABORATORY MEDICINE, AMERICAN CLINICAL LABORATORY magazine,
EUROPEAN CLINICAL LABORATORY magazine, and COLLEGE OF AMERICAN PATHOLOGY TODAY.
The "R/S" series workstations are the preferred practice for major
laboratory networks such as SmithKline Beecham, and was recently profiled in
1997 SPINOFF, the annual report of technology published by the National
Aeronautical And Space Administration (NASA).
"FE" SERIES: The Company's fourth workstation product, the FE-2, is the
first of a new family of products designed by the Company for use in
microbiology. More specifically, the FE-2 is a counter top instrument which
automates and reduces the cost of microscopic analysis of fecal concentrates.
Microscopic analysis of feces is performed by thousands of hospital, public
health and private commercial laboratories world wide in order to detect the
presence of ova (eggs), cysts, and parasites in the lower intestinal tract of
humans and animals. The presence of such organisms is critical to the proper
care of the patient. The test is non-invasive, can be performed on an
out-patient basis, and quickly provides confirmatory results.
The FE-2 increases the level of safety and precision by automating the
aspiration, resuspension, staining or diluting, transfer, presentation and
disposal of fecal concentrates. It also eliminates the need and cost of
disposable pipettes, microscope slides, and cover slips. The FE-2 reduces
analysis time and increases accuracy by establishing strict physical parameters
of the viewing area. Moreover, since the fecal concentrate is contained in and
manipulated through a sealed system, the technologist is no longer exposed to
prolonged inhalation of the noxious nature of the fecal material.
ADDITIONAL PRODUCT DEVELOPMENT: The Company is aggressively developing
several additional workstation products for its current markets and for
additional market applications.
SALES PLAN:
NORTH AMERICA: The Company sells and services its workstation-products
through its headquarter offices in Waterbury, CT and eight (8) regional sales
offices located throughout the United States and Canada. Each sales office is
staffed by a manager and each manager is responsible for coordinating sales
efforts with the dealers and independent sales representatives in and for the
region. The regional sales offices are supported by a manager of marketing
information systems, a director of strategic accounts, a customer service
technician and a newly appointed vice president of sales and marketing, each
located at the Company's headquarter office.
Each sales manager earns a base salary and an incentive bonus based upon
achievement of a quarterly and annual sales quota.
Independent sales representatives are given non-exclusive territories and
compensated on a commission basis only. Dealers are generally provided with
non-overlapping territories and are compensated by purchasing product against an
established discount schedule. Independent sales representatives and dealers do
not generally occupy the same sales territory.
Sales in North America are facilitated by a series of marketing programs
which include telemarketing, direct mail campaigns, advertising in key trade
journals, participation in technical workshops, and exhibitions at national
trade shows.
INTERNATIONAL: The Company is commencing distribution operations in Europe,
South America, Central America, China and parts of Pacific-Asia. The Company has
appointed a country manager in England and another in Japan to assist with and
oversee European and Pacific-Asian operations, respectively. Neither country
manager is an employee of the Company and each is compensated on a percentage of
territorial sales only.
<PAGE>
The Company has installed workstations in Ireland, Italy, Spain, Belgium,
France, Switzerland, Portugal, Mexico, Brazil, Bolivia, Qatar and Luxembourg.
The Company has started to implement its distribution plan for Japan, Taiwan and
Singapore.
STRATEGIC RELATIONSHIPS:
BAYER INC: On June 27, 1996 the Company entered into a strategic
cooperation agreement with Bayer Inc. of Canada. Under the agreement, Bayer's
Health Care Division and the Company will jointly market their urine analysis
workstations to hospitals and clinical reference laboratories in Canada. The two
companies have also agreed to engage in joint product development if and as
mutually advisable. Bayer Inc. is the Canadian subsidiary of the health care
giant Bayer A.G. headquartered in Germany.
OTHER SIGNIFICANT CONTRACTS: The Company has established a number of
important relationships with large scale customers. These relationships include:
SmithKline Beecham Clinical Laboratories; Mid-Atlantic Group Network of Shared
Services, Inc. (MAGNET); Kaiser Permanente, Southern California region; and,
AmeriNet, Inc. of St. Louis Missouri.
PROPRIETARY RIGHTS:
PATENTS: The Company has been granted two patents from the United States
Department of Commerce: one effective May 28, 1992; the other, February 28,
1995. The first patent pertains to the concept and overall function of the "R/S"
series workstation. The second patent pertains to the unique and novel features
of the optical slide assembly.
The Company was also granted patent protection in Taiwan effective
September 10, 1993 and in Australia effective December 16, 1994.
On February 18, 1997, the Company announced that its technology was granted
patent protection in Austria, Belgium, Denmark, England, France, Germany,
Greece, Ireland, Italy, Luxembourg, Monaco, the Netherlands, Portugal, Spain,
Sweden, Switzerland, Liechtenstein, and Singapore.
The Company is pursuing similar patents in Japan, Canada and Brazil.
The Company has applied for patent protections for its FE-2 fecal
concentrate workstation and other novel inventions.
TRADE NAMES: The Company has five applications pending for trade names:
three in the United States, one in Europe and one in Japan.
MANUFACTURING:
The Company manufactures and tests all of its own workstation products
against drawings and other documentation devised by the Company's Engineering
Department. It is the Company's plan to promote self sufficiency and exclusive
dominion over its workstation products.Management believes that it has taken
those steps necessary and appropriate to build the Company's foundation for long
term growth and viability.
FINANCIAL CONDITION:
The Company's financial condition was adversely and materially effected by
what the Company believes was a wrongful and deliberate breach by a third party
of a certain agreement to purchase multiple workstations from the Company. As
previously disclosed, the Company announced on November 19, 1996, that it
entered into a product integration agreement ("Agreement") with Intelligent
Medical Imaging, Inc. (NASD: IMII). Under the Agreement, IMI was to purchase 200
of the Company's workstation products by June 30, 1997 and integrate such
products into IMI's new core laboratory workstation for further resale by IMI to
its customers. On March 27, 1997 the Company completed delivery
<PAGE>
of the first 100 workstations to IMI. The remaining 100 units were pending the
assignment of a delivery date. On June 16, 1997, IMI advised the Company that it
was rejecting all workstations as non-conforming under the terms of the
Agreement. On July 3, 1997 and following several communications between the
parties, the Company notified IMI that it had suspended the Agreement pending
the resolution of the outstanding disputes including any issues of conformity of
goods and non-payment for the goods delivered. On July 17, 1997, IMI notified
the Company that it had terminated the IMI agreement due to the Company's
alleged breach(es) of the Agreement.
The Company believes that it did not breach the Agreement; and in that
connection, is pursuing its remedies against IMI. The Company believes that it
will ultimately prevail in any such action. To maintain its fiscal
responsibility, however, the Compnay elected to write down to "0" the receivable
of $391,091 owed to the Company at June 30, 1997 by IMI under the Agreement and
to reposses 94 of the 100 units delivered under the Agreement.
LIQUIDITY AND CAPITAL RESOURCES:
As of September 30, 1997 the Company had cash and equivalents of $782,421 a
decrease of $341,065 from $1,123,486 as of June 30, 1997. The decrease in cash
and equivalents was primarily due to continued expenditures for sales-related
activities, new product marketing, and new product development.
The Company's inventory increased by $76,935 from $366,106 as of June 30,
1997 to $443,041 as of September 30, 1997. The increase in inventory was due
primarily to the return to inventory of 94 units of R/S 2003 manufactured by the
Company for Intelligent Medical Imaging Inc. (See FINANCIAL CONDITION above).
The Company's financial statements for the three months ended September 30,
1997 have been prepared on a going concern basis which contemplates the
realization of assets and settlement of liabilities and commitments in the
normal course of business.
Management has both instituted and is instituting revenue raising and
cost-cutting measures which it believes is sufficient to meet its liquidity
demands for the next twelve months. The Company is also seeking additional
financing through the exercise of its outstanding warrants.
RESULTS OF OPERATIONS
NET REVENUE AND BACKLOG:
The Company's Net Revenue increased by $26,787 for the three month period
ended September 30, 1997 as compared to the same period in the previous year.
Management expects that Net Revenue will increase as the Company continues
to implement its strategic growth plan.
GROSS PROFIT:
The Company's gross profit (Net Revenue less cost of goods sold) increased
by $19,411 for the three month period ended September 30, 1997. The Company's
gross profit percentage (gross profit divided by Net Revenue) increased for the
three month period ended September 30, 1997 from 69.1% to 69.9%. Management
believes that gross margins and gross margin percentages will continue to
increase when the combined savings realized through greater economies of scale
and further success of the Company's strategic growth plan are fully realized.
SELLING GENERAL AND ADMINISTRATIVE (SG&A):
For the three month period ended September 30, 1997, the Company's expenses
increased from $300,096 to $608,490 over the same three month period in 1996, an
increase of $308,394 or 102.8%.
The increase in SG&A expenses was primarily "non-cash" and due to the
effect of a certain investment banking relationship ("Agreement") made with
Lester Morse, Esq. P.C., as assigned to WR Consulting, Inc. ("Investment
Banker"). Under the terms of the Agreement, the Investment Banker provides the
Company with the following services and/or undertake the following tasks, as the
case may be, ("Services"):
a. Attract and maintain reputable market makers of and for the Company's
common stock and common stock purchase warrants;
<PAGE>
b. Posture and present the Company in the investment community through
means including but not limited to: (i) implementation of a national
investor relations program; (ii) assistance with format, layout,
presentation and timeliness of the Company's financial results in each
Annual Report to Shareholders, press release, proxy statement and
report on form 10-K and 10-Q; (iii) attraction of media and trade
publication coverage of the Company and/or its products; and, (iv)
arranging and managing presentation of the Company by its senior
management to strategic members of the investment community such as
brokers, stockholders, financial analysts, other investment bankers,
and institutions; and,
c. Assist the Company with implementing its strategic plan including but
not limited to: (i) design and development of merger and acquisition
(M&A) strategies; (ii) identification and introduction of M&A
candidates for such strategies; (iii) analysis of M&A proposals and
counter-proposals; (iv) development and implementation of a cash
investment and management program; (v) analysis of and advice in
relation to the Company's anticipated cash needs; and, (vi)
identification and introduction to potential joint venture and/or
trading partners.
In return for Services, the Company agreed to issue to the Investment
Banker 120,000 shares of the Company's common stock of which 60,000 shares have
been issued to Morse and 60,000 shares have been issued to WR Consulting. Under
applicable accounting principles, the stock has been valued at $5.75 per share
and is recognized as a "non-cash" SG&A expense of $172,500 for each of the four
quarters commencing October 1, 1996 and ending September 30, 1997.
In July 1997, WR Consulting notified the Company that the recent
developments with IMI greatly and adversely impacted WR's ability to adequately
perform its services under a certain investment banking agreement with the
Company, and that WR would have to devote substantially more time and resources
necessary to build an environment of higher liquidity and investor awareness. WR
thereafter required 50,000 additional shares of common stock as compensation or
they would opt to rescind the transaction. In light of the damaging effect of
IMI's press release(s), the Company elected to issue the additional 50,000
shares to WR as required. The stock has been valued at $6.00 per share and is
recognized as an additional "non cash" SG&A expense of $75,000 for each of the
four quarters commencing July 1, 1997. The Company is not required to issue any
additional shares. The Investment Banker is entitled to no other compensation
for Services under its Agreement.
Without the effect of the Agreement, SG&A expenses would have increased
from $300,096 to $360,990 for the three month period ended September 30, 1997
compared to the same three month period in 1996. The increase in SG&A expenses
for the period ended September 30, 1997 was due primarily to: (i) increased
legal fees associated with the termination of the IMI agreement; (ii) wages and
benefits associated with two additional employees; (iii) increased sales
administration and sales related travel.
RESEARCH AND DEVELOPMENT:
For the three month period ended September 30, 1997, research and
development expenses increased from $71,142 to $107,170 over the same three
month period for 1996, an increase of $36,028 or 50.6%.
Increases in research and development expenses over the above period were
directly related to: (i) purchase of materials for the prototype of two new
workstation products; and, (ii) wages and benefits associated with two
additional development engineers.
NET (LOSS) OR GAIN:
The Company reported a net loss of $629,779 for the three month period
ended September 30, 1997 compared to a net loss of $263,670 for the same period
ended September 30, 1996.
Management attributes the increase in net loss to expenses associated with:
(i) the "non-cash" effect of the investment banking relationship described in
SELLING GENERAL AND ADMINISTRATIVE (SG&A) above; (ii) wages and benefits
<PAGE>
associated with four additional employees over the comparable period; (iii)
increased sales related travel; and, (iv) increased legal fees associated with
the termination of the product integration agreement with IMI.
Without the effect of the investment banking relationship described in
SELLING, GENERAL AND ADMINISTRATIVE (SG&A) the Company would have reported a net
loss for the three month period ended September 30, 1997 of $382,279 compared to
a net loss of $263,670 for the same period ended September 30, 1996.
Management anticipated a loss for the three month period ended September
30, 1997 as part of the Company's over-all strategic business plan.
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereto duly
authorized.
DIASYS CORPORATION
/s/ TODD M. DeMATTEO
---------------------------------------
Date: November 10, 1997 Todd M. DeMatteo
President, Chief Executive Officer
/s/ MICHAEL F. PRIMINI
---------------------------------------
Michael F. Primini
Vice President/Finance & Administration
and Chief Financial Officer
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