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: MARCH 31, 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
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(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: MAY 15, 1999
COMMON STOCK: 3,006,140
<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).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; and on
December 15, 1998 the Arbiters found that IMI in fact 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
hearingscheduled for May 5, 1999.On or about April 15, 1999, IMI filed its
annual report with the Securities and Exchange Commission on report form 10-K.On
April 28, 1999, the parties, based upon such report agreed to postpone the
hearing until such time as and if IMI's financial solvency is known.
<PAGE>
DIASYS CORPORATION
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEET
<TABLE>
<CAPTION>
MARCH 31, JUNE 30,
1999 1998
ASSETS (UNAUDITED) (AUDITED)
----------- -----------
Current Assets
<S> <C> <C>
Cash and equivalents $ 1,066,851 $ 2,001,569
Accounts Receivable, less allowance for doubtful accounts
of $19,000 175,089 112,044
Finance Receivables, net 56,952 33,151
Inventories 419,267 390,141
Prepaid expenses and other assets 82,837 15,363
----------- -----------
Total Current Assets 1,800,996 2,552,268
----------- -----------
Equipment, Furniture and Fixtures less accumulated depreciation 80,489 82,244
Patent, less accumulated amortization 60,690 53,478
Long term finance receivables, net 142,492 55,752
----------- -----------
Total Assets $ 2,084,667 $ 2,743,742
=========== ===========
LIABILITIES AND STOCKHOLDER EQUITY
Current Liabilities
Accounts payable and accrued expenses $ 80,424 $ 56,154
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 3,006,140 at 3/31/99
and 2,998,640 at 6/30/98 3,007 2,999
Additional Paid in Capital 8,767,557 8,719,440
Deficit Accumulated during the development stage (6,766,321) (6,034,851)
----------- -----------
Total Stockholder's Equity 2,004,243 2,687,588
----------- -----------
TOTAL LIABILITIES AND
STOCKHOLDERS EQUITY $ 2,084,667 $ 2,743,742
=========== ===========
</TABLE>
<PAGE>
DIASYS CORPORATION
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
MARCH 27,
NINE NINE THREE THREE 1992 DATE OF
MONTHS MONTHS MONTHS MONTHS INCEPTION
ENDED ENDED ENDED ENDED THROUGH
MAR. 31, MAR. 31, MAR. 31, MAR. 31, MAR. 31,
1999 1998 1999 1998 1999
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Sales of workstations and
Related supplies 407,035 318,724 174,347 98,838 2,069,437
Rental/Lease Revenue 15,716 17,328 4,661 4,315 64,371
---------- ---------- ---------- ---------- ----------
Net sales 422,751 336,052 179,008 103,153 2,133,808
Cost of Goods Sold 95,529 99,310 32,140 30,070 673,026
---------- ---------- ---------- ---------- ----------
Gross Profit 327,222 236,742 146,868 73,083 1,460,782
% of Gross Profit 77.4% 70.5% 82.0% 70.9% 68.5%
OPERATING EXPENSES
Selling 556,675 700,544 172,393 221,685 3,558,358
General & Administrative 343,331 333,693 54,522 86,330 2,460,666
Investment banking advisory services 0 397,500 0 75,000 990,000
Research/Development 222,339 284,437 40,624 63,427 1,678,770
---------- ---------- ---------- ---------- ----------
1,122,345 1,716,174 267,539 446,442 8,687,794
---------- ---------- ---------- ---------- ----------
Income(Loss)
from operations (795,123) (1,479,432) (120,671) (373,359) (7,227,012)
Interest expense to stockholders
and related party 0 0 0 0 (4,500)
Interest income 63,653 26,621 23,756 10,628 465,191
---------- ---------- ---------- ---------- ----------
Net Income(Loss) (731,470) (1,452,811) (96,915) (362,731) (6,766,321)
========== ========== ========== ========== ==========
Weighted average number of
outstanding 3,005,305 2,655,750 3,006,140 2,655,750 3,006,140
========== ========== ========== ========== ==========
Net Loss per Common share:
Basic and diluted ($0.24) ($0.55) ($0.03) ( $0.14)
========== ========== ========== ==========
</TABLE>
<PAGE>
DIASYS CORPORATION
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE FOR THE
NINE MONTHS NINE MONTHS
ENDED ENDED
MAR. 31, MAR. 31,
1999 1998
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C>
Net Loss ($ 731,470) ($1,452,811)
Adjustments to reconcile net loss to net cash flows from
operating activities
Investment Banking Advisory Services 0 397,500
Amortization of patents 24,000 18,950
Depreciation of equipment, furniture & fixtures 16,000 12,626
Changes in operating assets and liabilities
Account and Finance Receivables (173,586) 28,250
Inventory (29,126) (124,778)
Prepaid expenses and other current assets (67,474) (950)
Accounts payable and accrued expenses 24,270 (17,711)
----------- -----------
Net cash flows from operating activities (937,386) (1,138,924)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of equipment, furniture and fixtures (14,245) (20,090)
Cost of Patents (31,212) (7,668)
----------- -----------
Net Cash flows from investing activities (45,457) (27,758)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Offering Costs 0 (29,651)
Net Proceed from exercise of warrants 48,125 1,088,063
----------- -----------
Net Cash flows from financing 48,125 1,058,412
----------- -----------
NET CHANGE IN CASH AND EQUIVALENTS (934,718) (108,270)
CASH AND EQUIVALENTS-BEG. OF PERIOD 2,001,569 1,123,486
----------- -----------
CASH AND EQUIVALENTS-END OF PERIOD $ 1,066,851 $ 1,015,216
=========== ===========
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)
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 30,1998 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 -- -- -- (731,470)
----------- ----------- ----------- -----------
BALANCE, MARCH 31, 1999 3,006,140 $ 3,007 $ 8,767,557 $(6,766,321)
=========== =========== =========== ===========
</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.
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 RESULTS
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. 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
<PAGE>
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 and with and by 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 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 BIOTECHNIQUE, one of the world's
leading research magazines. The Company expects to release the CytoCounter to
North America later 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
retained a Sales Agent in England and Japan to assist with and oversee European
and Pacific-Asian operations, respectively. Both Sales Agents 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 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.
As of April 1, 1999, there were over 100 Bayer/DiaSys systems installed in North
America.
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.
HUA SIN SCIENCE CO., LTD: On April 27, 1999, the Company announced that it
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, and in that
connection Hua Sin has ordered sixty (60) R/S 2003 urine sediment workstations.
DiaSys delivered twenty (20) R/S 2003 workstations against the order on May 6,
1999.
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 Federal Supplier's Schedule by the General
Services Administration (GSA) of the United States of America. The Company is
continuously seeking and negotiating additional strategic relationships, both
domestic and abroad.
<PAGE>
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
domestic 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 two 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"
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.
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 March 31, 1999, the Company had cash and equivalents of $1,066,851, a
decrease of $934,718 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 increased by $29,126 from $390,141 as of June 30, 1998
to $419,267 as of March 31, 1999. The increase was due to product mix in
relation to projected sales .
Management believes that due its current cash position, increasing sales and
continued cost control, it will have sufficient funds to meet its obligations
when due for more than the next twelve months.
<PAGE>
RESULTS OF OPERATIONS
NET REVENUE AND BACKLOG:
The Company's three-month and nine-month period net Revenue increased by
$78,855, and $86,699, 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 success of its over-all sales program.
GROSS PROFIT:
The Company's three-month and nine-month gross profit (Net Revenue less cost of
goods sold) increased by $73,785 and $90,480 respectively, compared to the same
periods for the prior year. The Company's three-month and nine-month gross
profit percentage (Gross profit divided by Net Revenue) increased from 70.9% to
82.1% and from 70.5% to 77.4%. compared to the same prior year periods. The
increase in gross profits and gross profit percentage is due to: (i) increased
sales and, (ii) continued control of purchasing and manufacturing costs.
SELLING GENERAL AND ADMINISTRATIVE (SG&A):
For the three month period ended March 31, 1999, the Company's expenses
decreased from $383,015 to $226,915 over the same three month period in 1998, a
decrease of $156,100 or 40.8%. 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; (ii) a reduction in legal and underwriting
expenses associated with the Company's warrant offering; and, (iii) continued
cost control.
For the nine month period ended March, 31, 1999, the Company's SG&A expenses
decreased from $1,431,737 to $900,006 over the same nine month period in 1998, a
decrease of $531,731 or 37.1%. 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) a decrease in sales related travel expenses due to
assumption by headquarter personnel of the travel arrangements function; and,
(iii) continued cost controls.
RESEARCH AND DEVELOPMENT:
For the three month period ended March 31, 1999, research and development
expenses decreased from $63,427 to $40,624 over the same three month period for
1998. For the nine month period ended March 31, 1999, research and development
expenses decreased from $284,437 to $222,339 over the same nine month period for
1998.
NET (LOSS):
The Company reported a net loss of $96,915 for the three month period ended
March 31, 1999 down from a net loss of $362,731 for the same period in 1998. For
the nine month period ended March 31, 1999 the Company reported a net loss of
$731,470 also down from a net loss of $1,452,811 for the same period in 1998.
Net loss was therefore reduced by 73.3% and 49.6% for the three and six month
periods respectively ended March 31, 1999, compared to the same periods of the
prior year. Management attributes the decrease in net loss primarily to: (i) the
completion of the Company's obligations under the Investment banking
relationship described in SELLING GENERAL AND ADMINISTRATIVE (SG&A) above; (ii)
resumption of focus on the Company's business following successful arbitration
of the Company's legal rights against Intelligent Medical Imaging In. (see LEGAL
PROCEEDINGS below); (iii) increased success of the Company's over-all sales
program; and, (iv) continued cost control.
Management anticipated a loss for the three and nine months period ended March
31, 1999 as part of the Company's over-all strategic business plan.
<PAGE>
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; and,
on December 15, 1998 the Arbiters found that IMI in fact 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
scheduled for May 5, 1999. On or about April 15, 1999, IMI filed its annual
report with the Securities and Exchange Commission on report form 10-K. On April
28, 1999, the parties based upon such report agreed to postpone the hearing
until such time as and if IMI's financial solvency is known.
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: May 15, 1999 Todd M. DeMatteo, President,
Chief Executive Officer
Michael F. Primini
Vice President/Finance & Administration
and Chief Financial Officer
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