UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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: DECEMBER 31, 1997
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( ) 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
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(Address of principal executive offices)
203-755-5083
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(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 XX 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: FEBRUARY 10, 1998
-----------------
COMMON STOCK: 2,414,250
WARRANTS: 565,800
<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 INFORMATION AND FOOTNOTE DISCLOSURE NORMALLY INCLUDED IN FINANCIALS
PREPARED IN ACCORDANCE WITH GENERALLY ACCEPTED ACCOUNTING PRINCIPLES HAVE BEEN
OMITTED. THE CONDENSED FINANCIAL STATEMENTS SHOULD BE READ IN CONJUNCTION WITH
THE FINANCIAL STATEMENTS AND NOTES THERETO INCLUDED IN THE COMPANY'S ANNUAL
REPORT TO SHAREHOLDERS FOR THE YEAR ENDED JUNE 30, 1997.
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
<PAGE>
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 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
<PAGE>
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.
The Company has installed workstations in Portugal, Spain, France,
Belgium/Luxembourg, Italy, Switzerland, Israel, Qatar, Mexico, Brazil, and
Bolivia. The Company has started to implement its distribution plan for Japan,
Taiwan and Singapore.
STRATEGIC RELATIONSHIPS:
BAYER CORPORATION: On December 29, 1997, the Company announced that it
entered into a Strategic Cooperation Agreement with the Diagnostics Division of
Bayer Corporation, the United States subsidiary of the international chemical
and health care conglomerate, Bayer AG headquartered in Germany. Under the
Cooperation Agreement, Bayer and DiaSys recommend and refer each other's
urinalysis workstations to hospital and commercial laboratory customers in the
United States. The companies also confer on account strategy and provide unified
network standardization plans through Bayer at the request of the customer. Each
company installs and services its own equipment.
BAYER INCORPORATED: 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 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 PERMENENTE, 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 four applications pending for trade names: two
in the United States, one in Europe and one in Japan. The Company was recently
granted trademark protection for the name "UriZyme" which is an enzyme-based
reagent used in the routine maintenance of the Company's workstation products.
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
<PAGE>
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 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.
On February 11, 1998 the Company announced a change to the trading symbols of
its publicly traded common stock from DIYS to DIYSC, and for its common stock
purchase warrants from DIYSW to DIYWC. The Company's common stock and common
stock purchase warrants will continue to be listed on the Nasdaq SmallCap Market
via a temporary exception from the net tangible asset requirement which the
Company failed to meet as of June 30, 1997. The Company complied with all other
aspects and criteria. The Company was granted the temporary exception from the
net tangible asset standard based upon the Company's plan to resume compliance
in the near future. The Company believes that it will meet these conditions,
however, there can be no assurances that it will do so. The exception will
expire on March 13, 1998. In the event that the Company is deemed to have met
the terms of the exception, it shall continue to be listed on The Nasdaq
SmallCap Market. In the event that the Company should cease to be listed on The
Nasdaq SmallCap Market, the securities may continue to be listed in the
OTC-Bulletin Board.
LIQUIDITY AND CAPITAL RESOURCES:
As of December 31, 1997 the Company had cash and equivalents of $336,173, a
decrease of $787,313 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 $68,029 from $366,106 as of June 30, 1997
to $434,135 as of December 31, 1997. The increase in inventory was due primarily
to the accounting effect of 94 units of R/S 2003 returned by IMI (See FINANCIAL
CONDITION above). The returned units are all new and unused. They are valued at
their original cost of goods plus incremental costs if any needed to make them
"resellable".
Management believes that the Company will require approximately $1,000,000 in
additional funding for operations for the ensuing 12 month period. Management is
pursuing a plan to secure such financing which includes exercise of its publicly
traded common stock purchase warrants and /or private placement. Management
believes that its plan will be successful although there can be no assurances
that such plan will succeed.
<PAGE>
RESULTS OF OPERATIONS
NET REVENUE AND BACKLOG:
The Company's Net Revenue decreased by $19,175 and increased by $7,612 for the
three month and six month periods ended December 31, 1997 as compared to the
same periods in the previous year. Management expects that Net Revenue will
increase as the Company shrugs off the adverse effects of the IMI publicity (See
FINANCIAL CONDITION above) and continues to implement its strategic growth plan.
GROSS PROFIT:
The Company's gross profit and margins were essentially unchanged at 70.57% and
70.27% for the three month and six month periods ended December 31, 1997,
respectfully. Management believes that gross margins and gross margin
percentages will continue to increase as 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 December 31, 1997, the Company's expenses
decreased from $594,614 to $440,232 over the same three month period in 1996, a
decrease of $154,382 or 26.0%. The decrease in SG&A expenses was due primarily
to the completion of the Company's obligations under 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;
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 was valued at $5.75 per share and
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 contemporaneous
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
<PAGE>
release(s), the Company elected to issue the additional 50,000 shares to WR as
required. The stock was valued at $6.00 per share and 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.
For the six month period ended December 31, 1997, the Company's SG&A expenses
increased from $894,710 to $1,048,722 over the same six month period in 1996, an
increase of $154,012 or 17.2%.
The increase in SG&A expense is "non cash" in nature and is a result of the
accounting effect for the issuance of the additional 50,000 shares to WR
Consulting (see "AGREEMENT" above).
Without the effect of the Agreement, SG&A expenses would have decreased from
$422,114 to $365,232 over the same three month period for 1996, and remained
essentially unchanged from $722,210 to $726,222 over the same six month period
in 1996.
RESEARCH AND DEVELOPMENT:
For the three month period ended December 31, 1997, research and development
expenses increased from $78,901 to $113,840 over the same three month period for
1996, an increase of $34,939 or 44.3%. For the six month period ended December
31, 1997, research and development expense increased from $150,043 to $221,010
over the same six month period for 1996, an increase of $70,967 or 47.3%.
Increases in research and development expenses over the above periods 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 (i) $461,352 for the three month period ended
December 31, 1997 compared to a net loss of $570,824 for the same period ended
December 31, 1996; and (ii) $1,090,080 for the six month period ended December
31, 1997 compared to a net loss of $834,494 for the same period ended December
31, 1996.
Management attributes the decrease in net loss for the three month period ended
December 31, 1997 to the reduction of the "non cash" expense associated with the
investment banking agreement relationship as described in SELLING GENERAL AND
ADMINISTRATIVE (SG&A) above.
Management attributes the increase in net loss for the six month period to
expenses associated with: (i) the "non-cash" effect of the investment banking
relationship described in SELLING GENERAL AND ADMINISTRATIVE (SG&A) above; (ii)
increased expenses for research and development; and, (iii) 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 December 31, 1997 of $386,352 compared to a net
loss of $398,324 for the same period ended December 31, 1996, and a net loss for
the six month period ended December 31, 1997 of $767,580 compared to a net loss
of $661,994 for the same period ended December 31, 1996.
Management anticipated a loss for the three and six month period ended December
31, 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
Date: February 13, 1998 Todd M. DeMatteo
----------------------------------
President, Chief Executive Officer
Michael F. Primini
--------------------------------------
Vice President/Finance & Administration
and Chief Financial Officer
<PAGE>
DIASYS CORPORATION
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEET
DECEMBER 31, JUNE 30,
1997 1997
ASSETS (UNAUDITED) (AUDITED)
------- ---------- ---------
Current Assets
Cash and equivalents ............................. $ 336,173 $1,123,486
Accounts Receivable, less allowance for
doubtful accounts of $19,000 at 12/31/97 and
$345,031 at 6/30/97 ............................. 142,971 197,763
Inventories ...................................... 434,135 366,106
Prepaid expenses and other assets ................ 19,353 19,353
---------- ----------
Total Current Assets ............. 932,632 1,706,708
---------- ----------
Equipment, Furniture and Fixtures less accumulated
depreciation ..................................... 78,534 79,866
Patent, less accumulated amortization ............. 59,514 72,914
Deferred Offering Cost ............................ 26,728 14,003
---------- ----------
TOTAL ASSETS ............................ $1,097,408 $1,873,491
========== ==========
LIABILITIES AND STOCKHOLDER EQUITY
----------------------------------
Current Liabilities
Accounts Payable ................................. 114,840 124,910
Accrued Expenses ................................. 641 388
---------- ----------
Total Current Liabilities ............... 115,481 125,298
---------- ----------
Stockholder's Equity
Common Stock $.001 par value:Authorized
10,000,000, issued 2,414,250 at 12/31/97
and 2,364,000 at 6/30/97 ........................ 2,414 2,364
Additional Paid in Capital ....................... 6,125,798 5,802,036
Deficit Accumulated during the development stage . (5,146,285) (4,056,207)
---------- ----------
Total Stockholder's Equity .............. 981,927 1,748,193
-------- ----------
TOTAL LIABILITIES AND
STOCKHOLDERS EQUITY .................... $1,097,408 $1,873,491
========== ==========
<PAGE>
DIASYS CORPORATION
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
March 27,
Six Six Three Three 1992 date of
months months months months inception
ended ended ended ended through
December 31, December 31, December 31, December 31, December 31,
1997 1996 1997 1996 1997
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Sales of workstations and
Related supplies .................... 219,886 215,512 117,745 137,637 1,469,273
Rental/Lease Revenue ................. 13,013 9,775 6,500 5,783 39,318
---------- ---------- ---------- ---------- ----------
Net sales ............................ 232,899 225,287 124,245 143,420 1,508,591
Cost of Goods Sold ................... 69,240 68,038 36,566 42,740 494,810
---------- ---------- ---------- ---------- ----------
Gross Profit ......................... 163,659 157,249 87,679 100,680 1,013,781
% of Gross Profit .................... 70.27% 69.80% 70.57% 70.20% 67.20%
OPERATING EXPENSES
Selling ............................ 478,859 473,365 252,181 258,274 2,537,942
General & Administrative ........... 247,363 248,845 113,051 163,840 1,880,117
Investment banking advisory services 322,500 172,500 75,000 172,500 840,000
Research/Development ............... 221,010 150,043 113,480 78,901 1,271,181
---------- ---------- ---------- ---------- ----------
1,269,732 1,044,753 554,072 673,515 6,529,240
---------- ---------- ---------- ---------- ----------
Income(Loss)
from operations .................... (1,106,073) (887,504) (466,393) (572,835) (5,515,459)
Interest expense to stockholders
and related party .................. 0 0 0 0 (4,500)
Interest income ...................... 15,993 53,010 5,041 2,011 373,672
---------- ---------- ---------- ---------- ----------
Net Income(Loss) ..................... (1,090,080) (834,494) (461,352) (570,824) (5,146,287)
========== ======== ======== ======== ==========
Number of Common and common equivalent
shares deemed outstanding ........... 2,414,250 2,270,000 2,414,250 2,300,000
========= ========= ========= =========
Net Loss per Common and Common
equivalent share: Primary .......... ($0.45) ($0.37) ($0.19) ($0.25)
====== ====== ====== ======
</TABLE>
<PAGE>
DIASYS CORPORATION
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
For the For the
six months six months
Ended Ended
December 31, December 31,
1997 1996
----------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Loss ......................................... ($1,090,080) ($834,494)
Adjustments to reconcile net loss to net
cash flows from operating activities
Investment Banking Advisory Services .......... 322,500 172,500
Amortization of patents ....................... 13,400 11,100
Depreciation of equipment, furniture &
fixtures ..................................... 8,500 6,000
Changes in operating assets and liabilities
Accounts Receivable ........................... 54,792 (92,841)
Inventory ..................................... (68,029) (61,247)
Prepaid expenses and other current assets ..... 0 (4,237)
Accounts payable and accrued expenses ......... (9,817) 50,328
Net cash flows from operating activities ......... (768,734) (752,891)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of equipment, furniture and fixtures ... (7,168) (20,209)
Net Cash flows from investing activities ......... (7,168) 0
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Offering Costs ................................... (11,412)
Net Cash flows from financing activities ......... (11,412) 0
--------- ---------
NET CHANGE IN CASH AND EQUIVALENTS .................. (787,314) (773,100)
CASH AND EQUIVALENTS-BEG. OF PERIOD ................. 1,123,486 2,772,468
--------- ---------
CASH AND EQUIVALENTS-END OF PERIOD .................. $ 336,172 $1,999,368
========== ==========
SUPPLEMENTAL CASH FLOW ACTIVITIES
Interest paid ................................. $ 0 $ 1,885
Income taxes paid ............................. $ 0 $ 0
NON CASH FINANCING ACTIVITIES
Issuance of common stock for investment
Banking Advisory Services .................. $ 300,000 $ 345,000
</TABLE>
<PAGE>
DIASYS CORPORATION
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Deficit
Accumulated
Common Stock During the
------------ Paid-in Development
Shares Par Value Capital Stage
------ --------- --------- ------------
<S> <C> <C> <C> <C>
BALANCE JUNE 30,1995 ...................................... 2,240,000 $2,240 $5,209,660 $(1,012,606)
YEAR ENDED JUNE 30,1996:
Net Loss ............................................... -- -- -- (1,039,026)
--------- ------ ---------- -----------
BALANCE, JUNE 30, 1996 .................................... 2,240,000 2,240 5,209,660 (2,051,632)
YEAR ENDED JUNE 30, 1997:
Issuance of common stock for Investment Banking
Advisory Services at $5.75 per share,
120,000 shares issued .................................. 120,000 120 517,380 --
Exercise of 4,000 warrants at $7.00 per share ............. 4,000 4 27,996 --
Issuance of common stock for directors
services rendered ...................................... -- -- 47,000 --
Net Loss .................................................. -- -- -- (2,004,575)
--------- ----- ---------- -----------
BALANCE SEPT. 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, 120,000
shares issued .......................................... -- -- 172,500 --
Issuance of common stock for Investment Banking
Advisory Services at $6.00 per share, 50,000
shares issued .......................................... 50,000 50 149,950 --
Exercise of 250 warrants at $5.25 per share ............... 250 -- 1,050 --
Net Loss .................................................. -- -- -- (1,090,080)
--------- ----------- ----------- -----------
BALANCE SEPT. 30, 1997 .................................... 2,414,250 $ 2,414 $ 6,125,798 $(5,146,287)
========= =========== =========== ===========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-END> DEC-31-1997
<CASH> 336
<SECURITIES> 0
<RECEIVABLES> 162
<ALLOWANCES> (19)
<INVENTORY> 434
<CURRENT-ASSETS> 933
<PP&E> 124
<DEPRECIATION> (45)
<TOTAL-ASSETS> 1,097
<CURRENT-LIABILITIES> 115
<BONDS> 0
0
0
<COMMON> 2
<OTHER-SE> 980
<TOTAL-LIABILITY-AND-EQUITY> 1,097
<SALES> 220
<TOTAL-REVENUES> 233
<CGS> 69
<TOTAL-COSTS> 1,270
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (1,090)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,090)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,090)
<EPS-PRIMARY> (.45)
<EPS-DILUTED> (.45)
</TABLE>
