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, 2001
( ) 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 #)
81 West Main 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
Act of 1934 during the preceding 12
months (or for such shorter period that the registrant was required to
ile such
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:
As of November 19, 2001, the Company had 7,364,909 common shares outstanding.
DiaSys Corporation
PART 1 - FINANCIAL INFORMATION
Item 1 . Financial Statements
DIASYS CORPORATION & SUBSIDIARY
CONSOLIDATED BALANCE SHEET
ASSETS
September 30, 2001 June 30, 2001
(Unaudited) (Audited)
CURRENT ASSETS:
Cash and equivalents $ 948,163 $ 1,198,707
Accounts receivable, less allowance for
doubtful accounts of $190,000 624,919 707,001
Finance receivables, net 145,848 148,807
Inventories 533,192 511,837
Prepaid expenses and other current assets 94,698 118,994
Total Curent Assets 2,346,820 2,685,346
EQUIPMENT, FURNITURE AND FIXTURES, LESS
ACCUMULATED DEPRECIATION 267,424 318,548
OTHER ASSETS:
Computer software, less accumulated amortization 8,893 11,823
Patents, less accumulated amortization 2,467,010 2,503,479
Deferred acquisition and offering costs 9,669 9,668
Other Assets - Non-Current 67,153 58,501
Long-term finance receivables, net 108,914 121,593
Total Assets $ 5,275,883 $ 5,708,958
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 217,296 $ 296,684
Due to Bank 0 14,143
Total Current Liabilities 217,296 310,827
STOCKHOLDERS' EQUITY:
Preferred stock $.001 par value:
Authorized 100,000 shares, 1,770
shares outstanding at 9/30/01
and 1,890 outstanding at 6/30/01 2 2
Common stock $.001 par value:
Authorized 99,900,000 shares,
outstanding 7,164,909 at 9/30/01
and 6,874,597 outstanding at 6/30/01 7,165 6,875
Additional paid-in-capital 15,241,725 15,249,592
Accumulated deficit (10,186,412) (9,842,312)
Accumulated other comprehensive loss (3,893) (16,026)
Total Stockholders' Equity 5,058,587 5,398,131
Total Liabilities and Stockholders' Equity $ 5,275,883 $ 5,708,958
DIASYS CORPORATION & SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended, September 30,
2001 2000
NET SALES $ 489,436 $ 364,464
COST OF GOODS SOLD 173,220 109,200
GROSS PROFIT 316,216 255,264
OPERATING EXPENSES:
Selling 268,358 228,043
General and administrative 267,312 178,922
Research and development 134,527 120,034
670,197 526,999
LOSS FROM OPERATIONS (353,981) (271,735)
INTEREST INCOME 10,881 32,608
NET LOSS BEFORE TAXES (343,100) (239,127)
TAXES 1,000 0
NET LOSS $ (344,100) $ (239,127)
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 7,060,775 6,285,053
BASIC AND DILUTED LOSS PER COMMON SHARE $ (0.05) $ (0.04)
DIASYS CORPORATION & SUBSIDIARY
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(UNAUDITED)
Common Stock Preferred Stock Paid-in- Other Accumulated
Shares Par Shares Par Capital Comprehensive Deficit
Value Value Loss
BALANCE, JUNE 30, 2001 6,874,597 $ 6,875 1,890 $ 2 $15,249,592 $(16,026) $(9,842,312)
Conversion of 120 shares of
preferred stock to 290,312
shares of common stock 290,312 290 (120) - (7,867) - -
Foreign Currency Translation
adjustment - - - - - 12,133 -
Net Loss(F1) -- -- -- -- - -- (344,100)
BALANCE SEPTEMBER 30, 2001 7,164,909 $ 7,165 1,770 $ 2 $15,241,725 $ (3,893) $(10,186,412)
(1) Comprehensive loss, i.e., net loss plus other comprehensive income (loss) totals $(331,967) in 2001 and $(239,127) in 2000.
DIASYS CORPORATION & SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
Three Months Ended, September 30,
2001 2000
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (344,100) $ (239,127)
Adjustments to reconcile net loss to net cash flows from
operating activities:
Amortization of patents and software 43,994 9,825
Depreciation of equipment, furniture and fixtures 47,900 8,450
Changes in operating assets and liabilities:
Accounts receivable 82,082 (86,314)
Inventories (21,355) 14,710
Prepaid expenses and other current assets 24,296 (822)
Other Assets (8,652) -
Accounts payable and accrued expenses (93,531) 96,813
Net cash flows from operating activities (269,366) (196,465)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of equipment, furniture and fixtures 3,224 (5,666)
Costs of patents (4,595) (14,321)
Deferred acquisition and offering costs (1) (33,875)
Payment for purchase of Intersep Ltd. - (500,000)
Increase in finance receivables 15,638 (113,168)
Net cash flows from investing activities 14,266 (667,030)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from the issuance of preferred stock (7,577) (2,170)
Net cash flows from financing activities (7,577) (2,170)
EFFECT OF FOREIGN CURRENCY TRANSLATION ON CASH 12,133 -
NET CHANGE IN CASH AND EQUIVALENTS (250,544) (865,665)
CASH AND EQUIVALENTS, BEGINNING OF YEAR 1,198,707 2,415,256
CASH AND EQUIVALENTS, END OF YEAR $ 948,163 $ 1,549,591
NOTES TO FINANCIAL STATEMENTS
Note 1. Nature of the Business and Basis of the Presentation:
Nature of the Report: The accompanying consolidated financial
statements include the accounts of DiaSys Corporation and Intersep
Ltd. from the date of acquisition on September 30, 2000. 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. Intersep Ltd. Acquisition:
In September 2000, the Company acquired all of the capital stock
of Intersep Ltd., an England based manufacturer and distributor of
consumable laboratory products, reagents and test kits. The Company
paid $531,980 at closing plus 297,131 shares of common stock at
$8.1842 per share. Additional consideration of up to $2,400,000 in
share compensation payable in buyer common shares may be made
based on pre-tax profits for the years ending December 31, 2001,
2002 and 2003.
The acquisition was accounted for under the purchase method of
accounting and, accordingly, the results of operations are included in the
financial statements as of the date of acquisition, and the assets and
liabilities were recorded based upon the fair values at date of acquisition.
The Company has allocated the excess purchase price over the fair value
of net tangible assets acquired to patents. In accounting for the acquisition
of Intersep, the Company recorded approximately $2,650,000 in patents,
which are being amortized on a straight-line basis over the estimated
useful life of twenty years.
The following unaudited pro forma information has been prepared
assuming that the acquisition of Intersep, Ltd. had taken place at the
beginning of the respective periods presented. The pro forma financial
information is not necessarily indicative of the combined results that
would have occurred had the acquisition taken place at the beginning
of the period, nor is it necessarily indicative of results that may occur
in the future.
Pro Forma for the quarter ended September 30,
2001 2000
Revenue $ 489,436 $ 636,264
Loss from operations (353,981) (185,813)
Net Loss (344,100) (155,931)
Loss per share (0.05) (0.03)
Note 3. Stock Options
The Company accounts for stock option grants using the intrinsic
value based method prescribed by APB Opinion No. 25. Since the exercise
price equaled or exceeded the estimated fair value of the underlying shares
at the date of grant, no compensation was recognized in 2001.
Had compensation cost been based upon the fair value of the option on
the date of grant, as prescribed by SFAS No. 123, the Company's pro forma
net loss and net loss per share would have been approximately $(540,026)
$(0.08) per share at September 30, 2001, using the Black-Scholes option
pricing model.
FINANCIAL CONDITION:
Liquidity and Capital Resources:
As of September 30, 2001, the Company had cash and equivalents of
$948,163 compared to $1,198,707 at June 30, 2001. The decrease in cash
and equivalents was primarily due to continued expenditures for sales and
marketing related activities and expenses related to the acquisition of DiaSys
Europe.
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 $124,972 or 34% to $489,436
for the quarter ended September 30, 2001 compared to $364,464 for the
same period last year. The increase in Net Revenue was due to continued
implementation of the Company's strategic growth plan.
Gross Profit and Gross Profit Margins:
Gross profit increased to $316,216 for the period ended September
30, 2001, up from $255,264 compared to the same period last year.
Gross profit percentage decreased to 65% for the period from 70% for the
same period last year. The decrease reflects the effect of parent/subsidiary
consolidation of operations: DiaSys Europe sells product primarily through
independent, third party distributors where lower gross profit margins are off
set by lower sales and operation costs. The Company has implemented
several measures to increase the gross profit margins of DiaSys Europe,
including an increase in the price of some items and the elimination of
several non-proprietary products. The Company expects gross profit to
increase due to these measures and continued growth in sales.
Selling General And Administrative (SG&A):
SG&A increased $128,705 or 32% to $535,670 for the period ended
September 30, 2001 up from $406,695 for the same period last year. The
increase in SG&A was mainly due to the consolidation of expenses of the
DiaSys UK subsidiary and amortization of patents acquired at the acquisition.
Research And Development (R&D):
R&D expenses increased $14,493 or 12% to $134,527 for the period
ended September 30, 2001, up from $120,034 for the same period last year.
The increase in R&D reflects our continued pursuit of the development of the
Company's intellectual property.
Net (Loss):
Net loss increased $104,973 or 44% to $344,100 for the period ended
September 30, 2001, up from $239,127 for the same period last year. The
increase in loss was mainly attributable to the increase in SG&A as noted
above. The Company believes that its net loss will decrease as the Intersep
acquisition and related selling plans are implemented.
PART II OTHER INFORMATION
Item 1. Legal Proceedings:
As previously disclosed the Company won an arbitration award
from Intelligent Medical Imaging, Inc. (IMI). Due to the worsening financial
condition of IMI, the company subsequently agreed to a $325,000 final
settlement of the award. On November 29, 1999, 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. An undetermined sum of
money has been set aside by the Bankruptcy Court for distribution to
unsecured creditors of which the Company is one.
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. Under the Agreement,
the investors purchased all of as of November 17, 2000.
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 19, 2001
Todd M. DeMatteo,
President and Chief Executive Officer
Diane J. Sentner
Director of Finance and Chief Financial Officer