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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, 1998
( ) 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 ororganization)
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_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: FEBRUARY 10, 1999
COMMON STOCK: 3,006,140
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<PAGE>
DIASYS CORPORATION
(A DEVELOPMENTAL STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
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.
NOTE 2. LEGAL PROCEEDINGS:
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). FOLLOWING DELIVERY OF CERTAIN PRODUCTS
ORDERED BY IMI, IMI REJECTED THE GOODS AS NON CONFORMING AND TERMINATED THE
AGREEMENT. ON JANUARY 12, 1998, THE COMPANY SERVED IMI A FORMAL NOTICE AND
REQUEST FOR ARBITRATION SEEK $2.7 MILLION IN DAMAGES. IMI COUNTER CLAIMED FOR
DAMAGES OF $2.1 MILLION. THE MATTER WAS SUBMITTED TO ARBITRATION ON OCTOBER 5,
1998; AND ON DECEMBER 15, 1998 THE ARBITERS FOUND THAT IMI BREACHED THE
AGREEMENT. THE ARBITERS ALSO DISMISSED IMI'S COUNTERCLAIMS. THE ARBITERS HAVE
REQUESTED THE COMPANY TO PREPARE PROOF OF CERTAIN DAMAGES FOR PRESENTATION AT A
HEARING YET TO BE SCHEDULED.
<PAGE>
DIASYS CORPORATION
(A DEVELOPMENT STAGE COMPANY)
<TABLE>
<CAPTION>
BALANCE SHEET
DECEMBER 31 JUNE 30
1998 1998
----------- -----------
ASSETS (UNAUDITED) (AUDITED)
Current Assets
<S> <C> <C>
Cash and equivalents $ 1,313,917 $ 2,001,569
Accounts Receivable, less allowance for doubtful accounts
of $19,000 119,754 112,044
Finance Receivables, net 56,952 33,151
Inventories 378,605 390,141
Prepaid expenses and other assets 25,062 15,363
----------- -----------
Total Current Assets 1,894,290 2,552,268
----------- -----------
Equipment, Furniture and Fixtures less accumulated depreciation 75,826 82,244
Patent, less accumulated amortization 60,335 53,478
Long term finance receivables, net 142,492 55,752
----------- -----------
TOTAL ASSETS $ 2,172,943 $ 2,743,742
=========== ===========
LIABILITIES AND STOCKHOLDER EQUITY
Current Liabilities
Accounts payable and accrued expenses $ 71,510 $ 56,154
COMMITMENTS
Stockholder's Equity
Preferred Stock $.001 par value:
Authorized 10,000,000 shares, no shares issued
Common Stock $.001 par value:
Authorized 10,000 shares, issued 2,998,640 shares at 6/30/98
and 3,006,140 at 12/31/98 3,007 2,999
Additional Paid in Capital 8,767,557 8,719,440
Deficit Accumulated during the development stage (6,669,131) (6,034,851)
----------- -----------
Total Stockholder's Equity 2,101,433 2,687,588
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS EQUITY $ 2,172,943 $ 2,743,742
=========== ===========
</TABLE>
<PAGE>
DIASYS CORPORATION
(A DEVELOPMENT STAGE COMPANY)
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS
(UNAUDITED)
MARCH 27,
SIX SIX THREE THREE 1992 DATE OF
MONTHS MONTHS MONTHS MONTHS INCEPTION
ENDED ENDED ENDED ENDED THROUGH
DEC. 31 DEC. 31 DEC. 31 DEC. 31 DEC. 31
1998 1997 1998 1997 1998
--------- --------- --------- --------- ------------
<S> <C> <C> <C> <C> <C>
Sales of workstations and Related supplies 232,389 219,886 169,861 117,745 1,895,089
Rental/Lease Revenue 11,354 13,013 7,519 6,500 59,710
--------- --------- --------- --------- ----------
Net sales 243,743 232,899 177,380 124,245 1,954,799
Cost of Goods Sold 63,388 69,240 37,883 36,566 640,885
--------- --------- --------- --------- ----------
Gross Profit 180,355 163,659 139,497 87,679 1,313,914
% of Gross Profit 74.0% 70.37% 78.6% 70.6% 67.2%
OPERATING EXPENSES
Selling 384,282 478,859 181,109 252,181 3,385,965
General & Administrative. 288,538 247,363 136,755 113,051 2,405,872
Investment banking advisory services 0 322,500 0 75,000 990,000
Research/Development 181,715 221,010 86,052 113,840 1,638,146
--------- --------- --------- --------- ----------
854,535 1,269,732 403,916 554,072 8,419,983
--------- --------- --------- --------- ----------
Income (Loss) from operations (674,180) (1,106,073) (264,419) (466,393) (7,106,069)
Interest expense to stockholders and related party 0 0 0 0 (4,500)
Interest income 39,898 15,993 19,067 5,041 441,438
--------- --------- --------- --------- ----------
Net Income (Loss) (634,282) (1,090,080) (245,352) (461,352) (6,669,131)
========= ========= ========= ========= ==========
Weighted average number of outstanding 3,005,050 2,414,250 3,006,140 2,414,200 3,006,140
========= ========= ========= ========= ==========
Net Loss per Common share:
Basic and diluted ($0.21) ($0.45) ($0.08) ( $ 0.19)
========= ========= ========= =========
</TABLE>
<PAGE>
DIASYS CORPORATION
(A DEVELOPMENT STAGE COMPANY)
<TABLE>
<CAPTION>
STATEMENT OF CASH FLOWS
(UNAUDITED)
FOR THE FOR THE
SIX MONTHS SIX MONTHS
ENDED ENDED
DEC. 31 DEC. 31
1998 1997
----------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Loss ($ 634,282) ($1,090,080)
Adjustments to reconcile net loss to net cash flows
from operating activities
Investment Banking Advisory Services 0 322,500
Amortization of patents 18,000 13,400
Depreciation of equipment, furniture & fixtures 12,000 8,500
Changes in operating assets and liabilities
Account and Finance Receivables (118,251) 54,792
Inventory 11,536 (68,029)
Prepaid expenses and other current assets (9,699) 0
Accounts payable and accrued expenses 15,356 (9,817)
----------- ----------
Net cash flows from operating activities (705,340) (768,734)
----------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of equipment, furniture and fixtures (5,581) (7,168)
Cost of Patents (24,856) 0
----------- ----------
Net Cash flows from investing activities (30,437) (7,168)
----------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Offering Costs 0 (11,412)
Net Proceed from exercise of warrants 48,125 0
----------- ----------
Net Cash flows from financing 48,125 (11,412)
----------- ----------
NET CHANGE IN CASH AND EQUIVALENTS (687,652) (787,314)
CASH AND EQUIVALENTS-BEG. OF PERIOD 2,001,569 1,123,486
----------- ----------
CASH AND EQUIVALENTS-END OF PERIOD $ 1,313,917 $ 336,172
=========== ==========
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 $ 0 $ 300,000
</TABLE>
<PAGE>
DIASYS CORPORATION
(A DEVELOPMENT STAGE COMPANY)
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY DEFICIT
ACCUMULATED
DURING THE
COMMON STOCK PAID-IN DEVELOPMENT
---------------------------
SHARES PAR VALUE CAPITAL STAGE
------ --------- ------- -----------
<S> <C> <C> <C> <C>
BALANCE JUNE 30,1998 2,998,640 $ 2,999 $8,719,440 $(6,034,851)
YEAR ENDED JUNE 30,1999:
Exercise of 5,000 options at $6.00 5,000 5 29,995
Exercise of 2,500 options at $7.25 2,500 3 18,122
Net Loss -- -- -- (634,282)
--------- -------- ---------- -----------
BALANCE, DEC. 31, 1998 3,006,140 $ 3,007 $8,767,557 $(6,669,133)
========= ======== ========== ===========
</TABLE>
<PAGE>
PART I
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 workstation products, each serving distinct market segments. In
addition to urinalysis, the Company manufacturers workstations which 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 expects to announce additional workstation products designed to automate
and standardize the testing of most human and some non-human fluids.
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
the Company's initial public offering in January 1995 and subsequently amended
as to the expiration date and exercise price. Each Redeemable Warrant as amended
entitled the registered holder thereof to purchase one share of Common Stock at
a price of $4.50 per share, subject to adjustment in certain circumstances. Any
Redeemable Warrant unexercised as of April 10, 1998 expired. As of April 10,
1998, 552,640 Redeemable Warrants were exercised. Accordingly, the Company
received $2,497,068 in proceeds from the exercise of such Warrants.
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 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.
<PAGE>
Users of the "R/S" series workstations include: (i) large scale clinical
laboratory chains performing in excess of 20,000 urine tests per night; (ii)
major medical centers performing hundreds of urine tests per day; and, (iii)
local hospital laboratories performing as few as 100 tests per week. 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, College Of American
Pathology Today, and Urinalysis News.
The "R/S" series workstations are the preferred practice for major laboratory
networks such as SmithKline Beecham and Kaiser Permanente (California), and was
profiled in 1997 Spinoff, the annual report of technology published by the
National Aeronautical And Space Administration (NASA).
The Company has also entered into a strategic cooperation agreement regarding
the promotion and sale of its "R/S" series workstations with and by Bayer
Corporation in the United States and with and by Bayer Incorporated in Canada
(See: STRATEGIC RELATIONSHIPS below).
"FE" SERIES: The Company's fourth workstation product, the FE-2, is the first
of a 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.
THE CYTOCOUNTER: The Company has developed a new methodology for cell
counting, sorting and analysis for research applications, especially with regard
to the study of human diabetes. Work with cultured cells often requires a
precise knowledge of the cell count both to standardize conditions and to carry
out quantitative experiments. Although not yet released to market, the
CytoCounter has been successfully tested in Germany and is the subject of a
favorable scholarly article published in one of the world's leading research
magazines. The Company expects to release the CytoCounter this year.
ADDITIONAL PRODUCT DEVELOPMENT: The Company is developing several additional
workstation products which automate and standardize routine analysis of human
and non-human fluids, one of which is currently being tested in Germany. Each
workstation is or will be designed to increase the precision and reduce the cost
of performing an otherwise labor intensive, manually oriented laboratory
procedure.
SALES PLAN:
NORTH AMERICA: The Company sells and services its workstation-products through
its headquarters offices in Waterbury, CT and four decentralized locations
throughout the United States and Canada. Each sales office is staffed by a
manager and each manager is responsible for sales and service of the Company's
products in his/her region or area. North American sales efforts are supported
by a manager of field service, a director of strategic accounts and a marketing
associate each located at the Company's headquarters office.
Each sales manager and area director earns a base salary, increasing commissions
based upon achievement of sales quota and an incentive bonus based upon; (i)
producing a specified level of net operating profit for the region; (ii)
displacing competition with the Company's workstation products; (iii)
implementing network standardization programs for laboratory networks and
affiliations; and, (iv) promoting the Company's workstation products as part of
a system with Bayer Corporation (see: STRATEGIC RELATIONSHIPS below).
<PAGE>
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 has retained a Sales Agent in Japan
to assist with and oversee European and Pacific-Asian operations, respectively.
The country manager is not an employee of the Company. The country manager and
Sales Agent are paid a monthly retainer and incentive bonus based upon
achievement of certain goals.
The Company has installed workstations in Portugal, Spain, France,
Belgium/Luxembourg, Italy, Switzerland, Israel, Qatar, Mexico, Brazil, and
Bolivia. The Company has also to implemented its distribution plan for China,
Japan, Taiwan and Singapore.
STRATEGIC RELATIONSHIPS:
BAYER CORPORATION: The Company has 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. The Company has started to recognize sales of its workstations
through its strategic relationship with Bayer, and selling activity across the
United States has increased dramatically. The Company's activities have also
assisted Bayer with the sale of its urine chemistry analyzers. The Company
believes that sales of its workstations will increase following the formal
launch of this program by Bayer scheduled for mid February, 1999.
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; Quest Diagnostics; Kaiser Permanente,
(California); AmeriNet Inc. of St. Louis Missouri; Mid-Atlantic Group Network of
Shared Services, Inc. (MAGNET); and, the Purchase Connection of California.
The Company has also been awarded a supplier's contract by the General Services
Administration (GSA) of the United States of America.
PROPRIETARY RIGHTS:
PATENTS: The Company has been granted numerous patents on its "R/S" and "FE"
series technology. Three such patents have been issued by the United States
Department of Commerce both on the concept and specific architecture of the
Company's urine and feces workstation products. The Company has also been
granted similar patent protection in Canada, Brazil, Japan, Singapore, Taiwan,
Austria, Belgium, Denmark, England, France, Germany, Greece, Ireland, Italy,
Luxembourg, Liechtenstein, Monaco, the Netherlands, Portugal, Spain, Sweden and
Switzerland.
<PAGE>
TRADE NAMES: The Company has been granted trade name protection for UriZyme,
an enzyme based cleaning material and Uriprep, a repair and maintenance kit. The
Company has two additional applications pending for trade names in the United
States, Europe and Japan.
YEAR 2000 COMPLIANCE:
The Company believes that it will not be adversely affected by the "year 2000"
problem. The Company's workstation products use microprocessors which are not
date dependent. The Company's internal information systems are LANed, PC-based
and run on highest revision level DOS and/or Window programs. The Company
conducted a formal survey of its suppliers and service providers requesting
certifications that they are or will be year 2000 compliant. Any non-compliant
vendor will be disqualified from future business. The Company has developed
alternate year 2000 compliant vendors for its critical raw material and supplies
for any non-compliant vendors.
MANUFACTURING AND WARRANTY OBLIGATION:
The Company internally designs and manufactures its workstation products. The
Company purchases sub-assemblies and parts designed according to Company
specifications, and assembles and final tests the sub-assemblies and parts
within its own facility. The Company has developed alternate qualified vendors
for its critical raw material and supplies that could fulfill its requirements
if needed. Implementation of the plan has resulted in higher manufacturing
quality, reduced lead-time-to-delivery and reduced costs in manufacturing.
The Company provides its customers with a one year "swap out" warranty against
defects in parts or workmanship on all new or refurbished units from the date of
delivery, generally defined as FOB, DiaSys. This means that in the event a unit
fails from a defect in parts and/or workmanship during the warranty period, the
Company will replace the unit with a new or refurbished unit at the Company's
option. For service after the initial year of warranty, the Company offers an
optional extended warranty protection plan, a service plan, and also provides
repair and service at an hourly rate plus parts. The Company experiences minimal
additional costs associated with its warranty obligations.
FINANCIAL CONDITION:
LIQUIDITY AND CAPITAL RESOURCES:
As of December 31, 1998 the Company had cash and equivalents of $1,313,917, a
decrease of $687,652 from $2,001,569 as of June 30, 1998. The decrease in cash
and equivalents was primarily due to: (i) Legal fees and expenses incurred by
the Company in pursuing its rights and remedies against Intelligent Medical
Imaging Inc. (see LEGAL PROCEEDINGS below); and, (ii) continued expenditures for
sales and marketing-related activities and new product development.
The Company's inventory decreased by $11,536 from $390,141 as of June 30, 1998
to $378,605 as of December 31, 1998.
Management believes that it has sufficient funds to meet its obligations when
due for more than the next twelve months.
RESULTS OF OPERATIONS:
NET REVENUE AND BACKLOG:
The Company's three-month and six-month period net Revenue increased by $53,135
and $10,844, respectively, compared to the same periods for the prior year. The
increases in Net Revenue was due to: (i) resumption of focus on the Company's
business following successful arbitration of the Company's legal rights against
Intelligent Medical Imaging Inc. (see LEGAL PROCEEDINGS below); and, (ii)
increased Bayer-related sales (see STRATEGIC RELATIONSHIPS above).
<PAGE>
GROSS PROFIT:
The Company's three-month and six-month gross profit (Net Revenue less cost of
goods sold) increased by $51,818 and $16,696 respectively, compared to the same
periods for the prior year. The Company's three-month and six-month gross profit
percentage (Gross profit divided by Net Revenue) increased from 70.6% to 78.7%
and from 70.3% to 74.0%. compared to the same prior year periods. Management
attributes the increase in gross profits and gross profit percentage to
increased sales and continued control of overhead costs.
SELLING GENERAL AND ADMINISTRATIVE (SG&A):
For the three month period ended December 31, 1998, the Company's expenses
decreased from $440,232 to $317,864 over the same three month period in 1997, a
decrease of $122,368 or 27.8%. The decrease in SG&A expenses was due to: (i) the
completion of the Company's obligations under a certain investment banking
relationship made with Lester Morse, Esq. P.C., as assigned to WR Consulting,
Inc. expiring on December 31, 1998; and (ii) continued cost control.
For the six month period ended December 31, 1998, the Company's SG&A expenses
decreased from $1,048,722 to $672,820 over the same six month period in 1997, a
decrease of $375,902 or 35.8%. The decrease in SG&A expenses was due primarily
to: (i) the completion of the Company's obligation under a certain investment
banking relationship made with Lester Morse, Esq. P.C., as assigned to WR
Consulting, Inc.; and, (ii) continued cost control.
RESEARCH AND DEVELOPMENT:
For the three month period ended December 31, 1998, research and development
expenses decreased from $113,840 to $86,052 over the same three month period for
1997. For the six month period ended December 31, 1998, research and development
expenses decreased from $221,010 to $181,715 over the same six month period for
1997.
NET (LOSS) OR GAIN:
The Company reported a net loss of $245,352 for the three month period ended
December 31, 1998, down from a net loss of $461,352 for the same period in 1997.
For the six month period ended December 31, 1998, the Company reported a net
loss of $634,282, also down from a net loss of $1,090,080 for the same period in
1997. Net loss was therefore reduced by 46.8% and 41.8% for the three and six
month periods respectively ended December 31, 1998, compared to the same periods
of the prior year. Management attributes the decrease in net loss primarily to:
(i) the "non-cash" effect of the investment banking relationship described in
SELLING GENERAL AND ADMINISTRATIVE (SG&A) above; and, (ii) continued cost
control.
Management anticipated a loss for the three and six month periods ended December
31, 1998 as part of the Company's over-all strategic business plan.
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS:
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). Following delivery of certain products
ordered by IMI, IMI rejected the goods as non conforming and terminated the
agreement. On January 12, 1998, the Company served IMI a formal notice and
request for arbitration seeking $2.7 million in damages. IMI counter claimed for
damages of $2.1 million. The matter was submitted to arbitration on October 5,
1998; and, on December 15, 1998 the Arbiters found that IMI breached the
Agreement. The arbiters also dismissed IMI's counterclaims. The Arbiters
have requested the Company to prepare proof of certain damages for presentation
at a hearing yet to be scheduled.
<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: February 15, 1999 Todd M. DeMatteo
President, Chief Executive Officer
/s/ MICHAEL F. PRIMINI
-------------------------------------------
Michael F. Primini
Vice President/Finance & Administration
and Chief Financial Officer
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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<PERIOD-END> DEC-31-1998
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<PP&E> 148
<DEPRECIATION> (72)
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0
0
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<TOTAL-LIABILITY-AND-EQUITY> 2,173
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