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: SEPTEMBER 30, 1999
[_] 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
-----------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
DELAWARE 06-1339248
- ------------------------------- ----------------------
(State or other jurisdiction of (I.R.S. Employer ID #)
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 _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: OCTOBER 15, 1999
COMMON STOCK: 3,008,890
<PAGE>
DIASYS CORPORATION
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). IMI SUBSEQUENTLY BREACHED 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. ON
DECEMBER 15, 1998 THE ARBITERS FOUND THAT IMI IN FACT BREACHED THE AGREEMENT AND
COMMITTED LIABLE AGAINST DIASYS. IN A COMPROMISE VERDICT, THE ARBITERS AWARDED
DIASYS DAMAGES OF $10,000 FOR LIABLE AND REQUESTED THE COMPANY TO PREPARE A
CALCULATION OF DAMAGES FOR BREACH OF CONTRACT BASED UPON AN EQUATION PROVIDED BY
THE ARBITERS. GIVEN THE COSTS OF CONTINUED LITIGATION AND THE COMPANY'S
ASSESSMENT OF IMI'S FINANCIAL CONDITION, THE COMPANY AGREED TO STIPULATED
DAMAGES OF $325,000 IN ADDITION TO THE INITIAL AWARD OF $10,000. THE STIPULATION
PROVIDES FOR AN IMMEDIATE PAYMENT OF $10,000 BY IMI TO THE COMPANY, AND MONTHLY
INSTALLMENT OF $10,000 EACH COMMENCING ON OCTOBER 1, 1999. THE STIPULATION ALSO
PROVIDES THAT IMI WILL BE RELIEVED FROM FURTHER PAYMENTS IF IT MAKES EACH OF THE
FIRST 17 MONTHLY INSTALLMENTS ON TIME. THE STIPULATION FURTHER PROVIDES FOR
ACCELERATED PAYMENTS TO THE COMPANY IN THE EVENT THAT IMI SHOULD RECEIVE
ADDITIONAL FUNDING. AS OF OCTOBER 1, 1999 IMI WAS CURRENT IN ITS PAYMENTS. THE
COMPANY HAS ELECTED NOT TO RECOGNIZE THE TOTAL IMI RECEIVABLE, BUT TO RECORD IMI
PAYMENTS AS RECEIVED.
2
<PAGE>
DIASYS CORPORATION
BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30 JUNE 30
1999 1999
ASSETS (UNAUDITED) (AUDITED)
----------- -----------
<S> <C> <C>
Current Assets
Cash and equivalents $ 517,068 $ 724,415
Accounts Receivable, less allowance for doubtful accounts
of $19,000 263,941 225,839
Finance Receivables, net 110,602 106,027
Inventories 299,951 322,364
Prepaid expenses and other assets 83,792 59,019
----------- -----------
Total Current Assets 1,275,354 1,437,664
----------- -----------
EQUIPMENT, FURNITURE AND FIXTURES, LESS
ACCUMULATED DEPRECIATION 124,899 123,197
OTHER ASSETS:
Computer software, less accumulated amortization 43,458 43,458
Patent, less accumulated amortization 59,743 61,113
Long term finance receivables, net 115,149 105,716
----------- -----------
TOTAL ASSETS $ 1,618,603 $ 1,771,148
=========== ===========
LIABILITIES AND STOCKHOLDER EQUITY
Current Liabilities
Accounts payable and accrued expenses $ 90,009 $ 107,120
COMMITMENTS
STOCKHOLDER'S EQUITY
Preferred Stock $.001 par value:
Authorized 100,000 shares, no shares issued
Common Stock $.001 par value:
Authorized 10,000,000 shares, issued 3,008,890
at 9/30/99 and 3,256,140 at 6/30/99 of which
250,000 were cancelled on September 30, 1999 3,010 3,257
Additional Paid in Capital 8,786,491 8,767,308
Accumulated deficit (7,260,907) (7,106,537)
----------- -----------
Total Stockholder's Equity 1,528,594 1,664,028
----------- -----------
TOTAL LIABILITIES AND
STOCKHOLDERS EQUITY $ 1,618,603 $ 1,771,148
=========== ===========
</TABLE>
3
<PAGE>
DIASYS CORPORATION
STATEMENTS OF OPERATIONS
(UNAUDITED)
THREE MONTHS ENDED SEPTEMBER 30,
--------------------------------
1999 1998
---------- ----------
NET SALES 225,804 66,362
COST OF GOODS SOLD 80,882 25,505
---------- ----------
GROSS PROFIT 144,922 40,857
OPERATING EXPENSES
Selling 153,727 203,173
General and Administrative 74,700 151,782
Research and development 81,304 95,663
---------- ----------
309,731 450,618
---------- ----------
LOSS FROM OPERATIONS (164,809) (409,761)
INTEREST INCOME 10,437 20,830
---------- ----------
NET LOSS (154,372) (388,931)
========== ==========
WEIGHTED AVERAGE OF COMMON
SHARES OUTSTANDING 3,256,140 3,006,140
BASIC AND DILUTED LOSS PER COMMON
SHARE ($.05) ($0.13)
========== ==========
4
<PAGE>
DIASYS CORPORATION
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30,
--------------------------------
1999 1998
---------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Loss ($154,372) ($388,931)
Adjustments to reconcile net loss to net cash flows from
operating activities
Amortization of patents 7,000 9,000
Depreciation of equipment, furniture & fixtures 6,000 6,000
Changes in operating assets and liabilities
Account Receivables (38,102) 102
Inventory 22,413 4,227
Prepaid expenses and other current assets (29,348) (1,913)
Accounts payable and accrued expenses (17,111) 36,986
---------- -----------
Net cash flows from operating activities (203,520) (334,529)
---------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of equipment, furniture and fixtures (7,703) (1,800)
Long term receivables, net (9,433) 0
Cost of Patents (5,629) (24,856)
---------- -----------
Net Cash flows from investing activities (22,765) (26,656)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of common stock
and warrants 18,938 48,125
---------- -----------
Net Cash flows from financing 18,938 48,125
---------- -----------
NET CHANGE IN CASH AND EQUIVALENTS (207,347) (313,060)
CASH AND EQUIVALENTS-BEG. OF PERIOD 724,415 2,001,569
---------- -----------
CASH AND EQUIVALENTS-END OF PERIOD $ 517,068 $ 1,688,569
========== ===========
SUPPLEMENTAL CASH FLOW ACTIVITIES
Interest paid $ -- $ --
Income taxes paid $ -- $ --
</TABLE>
5
<PAGE>
DIASYS CORPORATION
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK
-------------------------- PAID-IN ACCUMULATED
SHARES PAR VALUE CAPITAL DEFICIT
--------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
BALANCE JUNE 30,1999 3,256,140 $ 3,257 $ 8,767,308 $(7,106,537)
YEAR ENDED JUNE 30, 2000:
Cancellation of 250,000 shares of common
stock for investment banking advisory
services (250,000) (250) 250
Exercise of 1,500 options 1,500 2 11,434 --
Exercise of 1,250 options 1,250 1 7,499 --
Net Loss -- -- -- (154,372)
--------- ----------- ----------- -----------
BALANCE, SEPTEMBER 30, 1999 3,008,890 $ 3,010 $ 8,786,491 $(7,260,909)
========= =========== =========== ===========
</TABLE>
6
<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. 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"). On July 24, 1997, the
Company filed a post effective amendment consisting of 566,000 Common Shares,
issued upon the exercise the outstanding Warrants ("Redeemable Warrants").
552,640 Redeemable Warrants were exercised as of April 10, 1998, their
expiration date.
Since its inception, the Company has: (i) developed and patented several new
proprietary technologies; (ii) erected the infrastructure needed to support
manufacturing and global distribution operations; (iii) established market and
technical acceptance of its initial products among the medical laboratory
community; (iv) attracted significant strategic selling partners in major
markets; and, (v) implemented a plan for long term market penetration. As such,
the Company has operated at a loss.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULT'S
OF OPERATION:
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.
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, Clinical Lab
Products magazine, 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, Bayer Incorporated in Canada, and Hua Sin
Science Co. LTD, the exclusive distributor of BAYER's urinalysis instruments in
China (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 hospitals, 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.
7
<PAGE>
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 and non-human fluids. Work with cultured cells often
requires a precise knowledge of the cell count both to standardize conditions
and to carry out quantitative experiments. The Company expects to release this
product to market upon receipt of FDA clearance.
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. North America is organized into five
distinct sales regions. 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. 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 earns a base salary, commissions and bonuses based upon
achievement of monthly, quarterly and yearly sales quota objectives. The Company
does not rely on independent sales representatives and/or dealers to promote
and/or distribute the Company's workstations in North America. 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 promotes and sells its workstations through
distributors in parts of Europe, Central America, China and parts of
Pacific-Asia. European operations are supported by a Country Manager based in
England. The Country Manager is paid a monthly retainer and an incentive based
upon achievement of certain goals. He is not an employee of the Company. Chinese
and Pacific Asian operations are managed by local distributors under the
direction and guidance of the Company's President.
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 realize sales of its workstations through its
strategic relationship with Bayer. The Company's activities have also assisted
Bayer with the sale of its urine chemistry analyzers.
As of September 30, 1999 there were over 135 customers using Bayer/DiaSys
systems in North America.
8
<PAGE>
BAYER INCORPORATED: On June 27, 1996 the Company entered into a strategic
cooperation agreement with Bayer Inc., the Canadian subsidiary of the
international and health care giant, Bayer AG (Germany). 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. The parties renewed their agreement for an additional two
years on June 30, 1999.
HUA SIN SCIENCE CO., LTD: Effective March 1, 1999 the Company entered into a
multi-year sales and service agreement with Hua Sin Science Co. LTD, located in
Guangzhou China. Hua Sin manufactures and distributes instruments and reagents
to China's 60,000 hospital and medical laboratories. Hua Sin is also the
exclusive distributor of BAYER's CLINITEK series urine chemistry analyzers in
China. The Company officially commenced joint operations with Hua Sin in
Guangzhou during the week of April 12, 1999. As of September 30, 1999 Hua Sin
has ordered sixty (60) R/S 2003 urine sediment workstations, 42 of which have
been delivered.
LENTA, LTD: Effective August, 1 1999, the Company entered into a multiple year
Sales and Service agreement with Lenta Teshis Orunleri Ticaret ve Sanayi Ltd.
St, (Lenta). Lenta is a leading distributor of urinalysis and diagnostic
equipment with headquarter officers in Istanbul and 14 correspondent offices
throughout Turkey. The Company officially commenced joint operations with Lenta
on September 7, 1999 in Istanbul. As of September 30, 1999 Lenta has ordered
fifty (50) R/S series urine sediment workstations, 20 of which have been
delivered. Lenta has also commenced promotion of the Company's FE-2 workstations
for fecal concentrates.
OTHER SIGNIFICANT CONTRACTS: The Company has established a number of important
relationships with large scale customers. These relationships include:
SMITHKLINE BEECHAM CLINICAL LABORATORIES; KAISER PERMANENTE,; AMERINET INC.;
MID-ATLANTIC GROUP NETWORK OF SHARED SERVICES, INC. (MAGNET); and, THE PURCHASE
CONNECTION. The Company has also been awarded a Federal Supply Schedule by the
GENERAL SERVICES ADMINISTRATION (GSA) of the United States of America. The
Company is continuously seeking and negotiating additional strategic
relationships, both domestically and abroad.
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. The Company has additional applications for patents pending, both
domestically and abroad.
TRADE NAMES: The Company has been granted trade name protection for DiaSys,
UriZyme (an enzyme based cleaning material) and Uriprep, (a repair and
maintenance kit). The Company has additional applications pending for trade
names in the United States, Europe and Pacific Asia.
YEAR 2000 COMPLIANCE
The Company believes that it will not be adversely affected by the year 2000
(Y2K) problem. The Company has specifically and purposefully designed its
hardware and software so as not to be 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.
9
<PAGE>
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 September 30, 1999, the Company had cash and equivalents of $517,067, a
decrease of $207,348 from $724,415 as of June 30, 1999. The decrease in cash and
equivalents was primarily due to continued expenditures for sales and
marketing-related activities and new product development.
The Company's inventory decreased by $22,413 from $322,634 as of June 30, 1999
to $299,951 as of September 30, 1999. The decrease was primarily due to
increased sales.
Based on cash, receivables, and sales, management believes that it has
sufficient funds and resources on hand to discharge its obligations as they
become due for at least the next 12 months.
RESULTS OF OPERATIONS
NET REVENUE AND BACKLOG:
The Company's Net Revenue increased by 240.3% or $159,442 from $66,362 for the
three month period ended September 30, 1998 to $225,804 for the three month
period ended September 30, 1999. The increase in Net Revenue was due to
continued implementation of the Company's sales program.
GROSS PROFIT:
The Company's gross profit (Net Revenue less cost of goods sold) increased by
$104,065 from $40,857 for the three month period ended September 30, 1998 to
$144,922 for the three month period ended September 30, 1999. The Company's
three-month gross profit percentage (Gross profit divided by Net Revenue)
increased from 61.6% to 64.2% compared to the same prior year periods. The
increase in gross profits and gross profit percentage is due to: (i) an increase
in manufacturing efficiency caused by the increase in sales; and, (ii) continued
control of purchasing and manufacturing costs.
SELLING GENERAL AND ADMINISTRATIVE (SG&A):
For the three month period ended September 30, 1999, the Company's expenses
decreased from $356,955 to $228,427 over the same three month period in 1998, a
decrease of $128,528 or 38.5%. The decrease in SG&A expenses was due to: (i) a
decrease in legal fees associated with the Company's arbitration action against
Intelligent Medical Imaging, Inc., (see LEGAL PROCEEDINGS, below.); and, (ii)
continued cost control.
10
<PAGE>
RESEARCH AND DEVELOPMENT:
For the three month period ended September 30, 1999 research and development
expenses decreased from $95,663 to $81,304 over the same three month period for
1998. In addition, the Company capitalized $5,590 in connection with the cost of
parts and subassemblies needed to construct certain non-commercially available
testing equipment specific to the Company's product development plans.
NET (LOSS):
The Company reported a net loss of $154,372 for the three month period ended
September 30, 1999, a 60% reduction from the net loss of $388,931 for the same
period in 1998. Management attributes the decrease in net loss to increased
sales and continued cost control.
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). IMI subsequently breached 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. On
December 15, 1998 the Arbiters found that IMI in fact breached the Agreement and
committed liable against DiaSys. In a compromise verdict, the arbiters awarded
DiaSys damages of $10,000 for liable and requested the Company to prepare a
calculation of damages for breach of contract based upon an equation provided by
the arbiters. Given the costs of continued litigation and the Company's
assessment of IMI's financial condition, the Company agreed to stipulated
damages of $325,000 in addition to the initial award of $10,000. The stipulation
provides for an immediate payment of $10,000 by IMI to the Company, and monthly
installment of $10,000 each commencing on October 1, 1999. The stipulation also
provides that IMI will be relieved from further payments if it makes each of the
first 17 monthly installments on time. The stipulation further provides for
accelerated payments to the Company in the event that IMI should receive
additional funding. As of October 1, 1999 IMI was current in its payments. The
Company does not recognize a receivable for the judgement but records payments
as received.
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: November 15, 1999 Todd M. DeMatteo President,
Chief Executive Officer
Michael F. Primini
Vice President/Finance & Administration
and Chief Financial Officer
11
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-END> SEP-30-1999
<CASH> 517
<SECURITIES> 0
<RECEIVABLES> 283
<ALLOWANCES> (19)
<INVENTORY> 300
<CURRENT-ASSETS> 1,275
<PP&E> 228
<DEPRECIATION> (103)
<TOTAL-ASSETS> 1,619
<CURRENT-LIABILITIES> 90
<BONDS> 0
0
0
<COMMON> 3
<OTHER-SE> 1,529
<TOTAL-LIABILITY-AND-EQUITY> 1,619
<SALES> 226
<TOTAL-REVENUES> 226
<CGS> 81
<TOTAL-COSTS> 310
<OTHER-EXPENSES> 0
<INTEREST-EXPENSE> 0
<LOSS-PROVISION> 0
<INCOME-PRETAX> (154)
<INCOME-TAX> 0
<INCOME-CONTINUING> (154)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (154)
<EPS-BASIC> (.05)
<EPS-DILUTED> (.05)
</TABLE>
