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, 2000
( ) 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
(State or other jurisdiction of incorporation or organization)
06-1339248
(I.R.S. Employer ID #)
49 Leavenworth Street, Waterbury, CT 06702
(Address of principal executive offices)
203-755-5083
(Issuer's Telephone number including area code)
None
(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:
XXX 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 10, 2000.
Common Stock: 6,062,780
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 contained
in the Company's Form 10-KSB 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.
Footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been omitted in
accordance with the published rules and regulations of the Securities and
Exchange commission. These financial statements should be read in
conjunction with the financial statements and notes thereto included in the
Company' Form 10-KSB for the most recent fiscal 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 was awarded damages of $335,000 in a
certain arbitration action against Intelligent Medical Imaging, Inc. (NASD:
IMII OB). Subsequent to the award, IMI filed for bankruptcy protection
against the Company and numerous other creditors. The Company has submitted
its claim to the bankruptcy court and has been approved as one of IMI's
unsecured creditors. In light of IMI's insolvency, the Company has elected
not to recognize a receivable in this matter, and to recognize any payment as
and when received.
Note 3. Stock Split
On February 25, 2000, the Board of Directors of DiaSys Corporation authorized a
two-for-one common stock split to stockholders of record on March 8, 2000. The
stock split has been retroactively reflected in the accompanying financial
statements.
DIASYS CORPORATION
BALANCE SHEETS
March 31 June 30
2000 1999
(Unaudited) (Audited)
ASSETS
Cash and equivalents $ 875,728 $ 724,415
Accounts Receivable, less allowance for
Doubtful accounts of $19,000 425,228 225,839
Finance Receivables, net 191,135 106,027
Inventories 320,312 322,364
Prepaid expenses and other assets 78,150 59,019
Total Current Assets 1,890,554 1,437,664
EQUIPMENT, FURNITURE AND FIXTURES,
LESS ACCUMULATED DEPRECIATION 121,107 123,197
OTHER ASSETS:
Computer software, less
accumulated amortization 45,169 43,458
Patent, less accumulated amortization 61,352 61,113
Long term finance receivables, net 153,338 105,716
Other Assets 3,739 -
Total Assets $2,275,258 $1,771,148
LIABILITIES AND STOCKHOLDER EQUITY
Current Liabilities
Accounts payable and
accrued expenses $ 153,437 $ 107,120
COMMITMENTS
STOCKHOLDER'S EQUITY
Preferred Stock $.001 par value: 1 -
Authorized 100,000 shares,
1,000 shares outstanding
as of March 31, 2000
Common Stock $.001 par value:
Authorized 99,900,000 shares,
outstanding 6,062,780 at March 31,
2000 and 6,012,280
at June 30, 1999 6,063 6,154
Additional Paid in Capital 9,804,838 8,764,051
Accumulated deficit (7,689,081) (7,106,537)
Total Stockholder's Equity 2,121,821 1,664,028
TOTAL LIABILITIES AND
STOCKHOLDERS EQUITY $2,275,258 $1,771,148
DIASYS CORPORATION
STATEMENTS OF OPERATIONS
(Unaudited)
Nine Months Three Months
Ended March 31 Ended March 31
2000 1999 2000 1999
NET SALES $ 762,215 $ 422,751 $ 234,236 $ 179,008
COST OF GOODS SOLD 208,591 95,529 79,361 32,140
GROSS PROFIT 553,624 327,222 154,875 146,868
% of Net Sales 73% 77% 66% 82%
OPERATING EXPENSES
Selling 519,261 556,675 159,620 172,393
General and Administrative 395,966 343,331 194,564 54,522
Research and development 237,756 222,339 73,418 40,624
Total Operating Expenses 1,152,983 1,122,345 427,602 267,539
LOSS FROM
OPERATIONS (599,359) (795,123) (272,727) (120,671)
OTHER INCOME 16,813 63,653 875 23,756
NET LOSS $(582,546) $(731,470) $(271,852) $(96,915)
WIEGHTED AVERAGE OF COMMON
SHARES OUTSTANDING 6,062,780 6,010,610 6,062,780 6,012,280
BASIC AND DILUTED LOSS
PER COMMON SHARE ($0.10) ($0.12) ($0.04) ($0.02)
DIASYS CORPORATION
STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended March 31, 2000
1999 1998
CASH FLOWS FROM
OPERATING ACTIVITIES
Net Loss ($582,546) ($731,470)
Adjustments to reconcile net loss
to net cash flows from operating
activities:
Amortization of patents 11,000 24,000
Depreciation of equipment,
furniture & fixtures 18,000 16,000
Changes in operating assets
and liabilities
Account Receivables (284,498) (173,586)
Inventory 2,052 (29,126)
Prepaid expenses and other
current assets (19,131) (67,474)
Accounts payable and accrued
expenses 46,317 24,270
Net cash flows from operating
activities (808,806) (937,386)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of equipment,
furniture and fixtures (15,908) (14,245)
Increase in finance receivables (47,622) -
Cost of computer software (1,711) -
Cost of Patents (11,238) (31,212)
Other Assets (3,739) -
Net Cash flows from
investing activities (80,218) (45,457)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of
common stock and warrants 1,040,337 48,125
Net Cash flows from
financing activities 1,040,337 48,125
NET CHANGE IN CASH AND EQUIVALENTS 151,313 (934,718)
CASH AND EQUIVALENTS
BEGINNING OF PERIOD 724,415 2,001,569
CASH AND EQUIVALENTS
END OF PERIOD $ 875,728 $1,066,851
DIASYS CORPORATION
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Common Stock Preferred Stock Paid-in Accumulated
Shares Par Shares Par Capital Deficit
BALANCE,
December 31,199 6,017,780 $6,018 - - $8,783,483 $(7,417,230)
Exercise of
30,000 options 30,000 30 - - 125,970 -
Exercise of
15,000 options 15,000 15 - - 53,423 -
Sale of
Preferred Stock - - 1,000 1 841,962 -
Net Loss (271,852)
BALANCE,
March 31, 2000 6,062,780 $6,063 1,000 $1 $9,804,838 $(7,689,081)
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 completed its initial public offering on January
10, 1995 and trades on NASDAQ under the symbol "DIYS".
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.
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 CytoSys: 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 at the meeting of the Clinical Laboratory Management Association (CLMA)
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. 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 six
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 Field Service
Coordinator, 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 March 31, 2000 there were over 180 customers using Bayer/DiaSys systems in
North America.
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.
Government Contracts: The Company has been awarded two supply contracts: (i)
one by the General Services Administration (GSA), and (ii) one by the Veteran's
Association. The GSA contract allows government agencies to purchase
workstations, and the Federal Supply Schedule (FSS) allows the network of
Veteran's Hospitals to lease workstations on a "cost-per-test" basis,
circumventing the need for the capital budgeting process.
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 March 31, 2000 Hua Sin has
ordered 107 "R/S" urine sediment workstations, 65 of which have or in the
process of being 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 March 31, 2000 Lenta has: (i)
ordered fifty (50) R/S series urine sediment workstations of which twenty (20)
have been delivered; and (ii) ten (10) FE-2 workstations for fecal concentrates,
all of which have been delivered.
Other Significant Contracts: The Company has established a number of other
important relationships with large-scale national laboratory networks and
buying groups. The Company's workstations are used in multiple sites in each
of the five largest commercial laboratory networks in the nation.
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
Neither the Company nor its products were adversely affected by the year 2000
(Y2K) problem.
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
suppliers for its critical raw part and subassembly materials.
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, 2000, the Company had cash and equivalents of $875,728
compared to $226,173 at December 31, 1999. The increase in cash and
equivalents was mainly due to the sale of 1,000 shares of convertible
preferred of which the Company received net proceeds before legal and
accounting costs of $895,000. Additionally, the Company received total
proceeds of $179,438 from the exercise of warrants and options. (see OTHER
INFORMATION , below.)
Based on cash and continuing operations, 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:
The Company's net revenue increased 31% to $234,236 for the third quarter 2000
from $179,008 for the same period last year. Revenue increased 80% to $762,215
for the nine-months ending March 31, 2000 from $422,751 for the same period
last year. The increase in Net Revenue was due to continued implementation of
the Company's sales programs.
Gross Profit:
Gross profit margins decreased to 66% for the third quarter 2000 from 82%
compared to the same period last year. The Company's nine-month gross profit
margin decreased to 73% from 77% compared to the same period last year. Gross
profit margins decreased in the third quarter due to increased manufacturing
costs associated with the expense of two "R/S" subassemblies. Management
expects gross profit margins to increase as the two subassemblies are brought
to full production.
Selling General And Administrative (SG&A):
For the three-month period ending March 31, 2000, SG&A increased to $354,184
from $226,915 for the same period last year. This increase was mainly due to
certain unusual legal and accounting fees of approximately $80,000 associated
with the Company's merger and acquisition plan.
For the nine-month period ending March 31, 2000, SG&A remained essentially flat
at $915,227 compared to $900,006 for the same period last year.
Research And Development (R&D):
R&D expenses increased to $73,418 for the third quarter 2000 from $40,624 for
the same period last year. The increase was due to higher costs associated with
the Company's new product development.
R&D expenses increased slightly to $237,756 for the nine-months ending March 31,
2000 from $222,339 for the same period last year.
Net (Loss):
Net loss increased to $271,852 for the third quarter 2000 from $96,915 for the
same period last year. The increase in loss was mainly due to certain unusual
legal and accounting fees of approximately $80,000 associated with the Company's
merger and acquisition plan.
Net loss decreased to $582,546 for the nine-month period ending March 31, 2000
from $731,470 for the same period last year. Management attributes the
decrease in net loss to increased sales, continued cost control of the
Company's operating expenses, and lower acquisition-related expenses.
PART II OTHER INFORMATION
Item 1. Legal Proceedings:
As previously disclosed, the Company was awarded damages of $335,000 in a
certain arbitration action against Intelligent Medical Imaging, Inc. (NASD:
IMII OB). Subsequent to the award, IMI filed for bankruptcy protection
against the Company and numerous other creditors. The Company has submitted
its claim to the bankruptcy court and has been approved as one of IMI's
unsecured creditors. In light of IMI's insolvency, the Company has elected
not to recognize a receivable in this matter, and to recognize any payment as
and when received.
Item 5. Other Information:
On February 7, 2000, Registrant entered into an Agreement pursuant to which it
agreed to sell up to 4,000 Series "A" Convertible Preferred Shares (the
"Preferred") and accompanying 5 year warrants (the "Warrants") to purchase
common shares, to two unaffiliated accredited investors, B.H. Capital
Investments, L.P. and Excalibur Limited Partnership, both of Toronto, Ontario,
Canada. The terms of the Preferred are as provided for in Certificate of
Designations filed with the Secretary of the State of Delaware. The
Agreement provides that the investors will purchase the Preferred and
Warrants in three tranches: the first tranche of $1 million on February 7,
2000; the second tranche of $1 million, provided certain conditions are met,
60 days after a registration statement filed by the Registrant with the
Securities and Exchange Commission (the "SEC") registering the common shares
underlying the Preferred and the Warrants, is declared "Effective" by the SEC
(the "Effective Date"); and the third tranche of $2 million, provided certain
conditions are met, 90 days after the Effective Date. Accordingly, on February 7
, 2000, the Registrant received gross proceeds of $1 million and sold and
issued 1,000 Preferred, convertible into 100,000 common shares, subject to
adjustment, and 23,762 Warrants, subject to adjustment, having an exercise
price of $13.8875 per share.
On February 8, 2000, the Company received proceeds of $126,000 from the exercise
of 15,000 warrants issued on January 10, 1995 to the Company's underwriter
pursuant to the underwriting agreement between Tasin & Company and the Company
with respect to the Company's initial public offering. Additionally, on March 9,
2000, the Company received proceeds of $53,438 from the exercise of 7,500
Options.
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: March 15, 2000
Todd M. DeMatteo,
President and Chief Executive Officer
Marshall A. Smith
Vice President and Chief Financial Officer
