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, 2002
( ) TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE EXCHANGE ACT
For the transition period NA to NA
Commission File number: 024974
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
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: XXX Yes No
As of November 14, 2002, the Company had 10,674,971 common shares outstanding.
Transitional Small Business Disclosure Format (check one): Yes No X
DiaSys Corporation
Table of Contents
Part I. FINANCIAL INFORMATION Page
Item 1. Financial Statements
Balance Sheet at September 30, 2002 (unaudited) 3
Statement of Operations and Accumulated Deficit for
Three Months Ended September 30, 2002 and
September 30, 2001 (unaudited) 4
Consolidated Statement of Changes in Stockholders'
Equity and Other Comprehensive Loss for the Three
Months Ended September 30, 2002 5
Statements of Cash flows of the Three Months Ended
September 30, 2002 and September 30, 2001 (unaudited) 6
Notes to Financial Statements (unaudited) 7
Item 2. Management's Discussion and Analysis of Financial
Conditions and Results of Operation 8
Item 3. Procedures and Controls 9
PART II. OTHER INFORMATION 9
Item 1. Legal Proceedings 9
Item 6. Exhibits and Reports on Form 8-K 9
Signatures 10
Exhibit Index 12
PART 1 FINANCIAL INFORMATION
Item 1 . Financial Statements
DIASYS CORPORATION & SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
ASSETS
September 30, June 30,
2002 2002
(Unaudited) (Audited)
CURRENT ASSETS:
Cash and cash equivalents $ 6,472 $544,192
Accounts receivable, less allowance
for doubtful accounts of $190,000 920,972 759,485
Finance receivables, net 221,330 200,059
Inventories 557,505 543,083
Prepaid expenses and other current assets 98,583 107,504
Total Current Assets 1,804,862 2,154,323
EQUIPMENT, FURNITURE AND FIXTURES, LESS
ACCUMULATED DEPRECIATION 254,891 249,087
OTHER ASSETS:
Computer software, less accumulated
Amortization 7,249 8,917
Patents, less accumulated amortization 2,363,788 2,379,530
Deferred acquisition costs 9,668 9,668
Other 64,871 73,885
Long-term finance receivables, net 126,283 106,115
Total Assets $ 4,631,612 $4,981,525
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued
Expenses $ 674,085 $ 724,426
Total Current Liabilities 674,085 724,426
COMMITMENTS AND CONTINGENCIES (NOTE 3)
STOCKHOLDERS' EQUITY:
Common stock $.001 par value:
Authorized 99,900,000 shares, issued
and outstanding 10,674,971 shares 10,675 10,675
Additional paid in capital 15,703,492 15,708,306
Foreign currency translation 38,129 21,808
Accumulated deficit (11,794,769) (11,483,690)
Total Stockholders' Equity 3,957,527 4,257,099
Total Liabilities and
Stockholders' Equity $ 4,631,612 $4,981,525
See accompanying notes to consolidated financial statements
DIASYS CORPORATION & SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended, September 30,
2002 2001
NET SALES $ 672,721 $ 489,436
COST OF GOODS SOLD 238,166 173,220
GROSS PROFIT 434,555 316,216
OPERATING EXPENSES:
Selling 329,498 268,358
General and administrative 305,782 267,312
Research and development 114,212 134,527
749,492 670,197
LOSS FROM OPERATIONS (314,937) (353,981)
INTEREST INCOME 3,858 10,881
LOSS BEFORE INCOME TAXES (311,079) (343,100)
INCOME TAXES - 1,000
NET LOSS $ (311,079) $ (344,100)
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 10,674,971 7,060,775
BASIC AND DILUTED LOSS PER COMMON SHARE $ (0.03) $ (0.05)
See accompanying notes to consolidated financial statements
DIASYS CORPORATION & SUBSIDIARY
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY AND
OTHER COMPREHENSIVE LOSS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2002
(UNAUDITED)
Common Stock Paid in Foreign Accumulated Total Other
Shares Par Value Capital Currency Deficit Stockholders Compre-
Translation Equity hensive
Loss
BALANCE JUNE 30,2002 10,674,971 $10,675 $15,708,306 21,808 $(11,483,390) $4,257,099 -
Additional issuance
costs - - (4,814) - - (4,814) -
Foreign currency
translation adjustment - - - 16,321 - 16,321 16,321
Net Loss - - - - (311,079) (311,079) (311,079)
Total comprehensive
loss _________- ______- __________-_ _____-_ ___________- _________- $(294,758)
BALANCE SEPTEMBER 30,
2002 10,674,971 $10,675 $15,703,492 $38,129 $(11,794,769) $3,957,527
See accompanying notes to consolidated financial statements
DIASYS CORPORATION & SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Three Months Ended, September 30,
2002 2001
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(311,079) $(344,100)
Adjustments to reconcile net loss to net
cash flows used in operating activities:
Amortization of patents and software 26,294 43,994
Depreciation of equipment,
furniture and fixtures 9,482 47,900
Changes in operating assets and liabilities:
Accounts receivable (161,487) 82,082
Inventories (14,422) (21,355)
Prepaid expenses and other current assets 8,921 24,296
Other assets 9,014 (8,652)
Accounts payable and accrued expenses (50,341) (93,531)
Net cash flows used in operating
activities (483,618) (269,366)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of equipment, furniture and
fixtures (15,286) 3,224
(Increase) decrease in finance receivables (41,439) 15,638
Costs of patents (8,238) (4,595)
Costs of computer software (646) -
Deferred acquisition - (1)
Net cash flows (used in) provided by
investing activities (65,609) 14,266
CASH FLOWS FROM FINANCING ACTIVITIES:
Additional issuance of common stock (4,814) -
Additional issuance of preferred stock - (7,577)
Net cash flows used in financing
activities (4,814) (7,577)
EFFECT OF FOREIGN CURRENCY TRANSLATION
ON CASH 16,321 12,133
NET DECREASE IN CASH AND CASH EQUIVALENTS (537,720) (250,544)
CASH AND CASH EQUIVALENTS, BEGINNING
OF PERIOD 544,192 1,198,707
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 6,472 $ 948,163
See accompanying notes to consolidated financial statements
DIASYS CORPORATION & SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2002
Note 1. Basis of the Presentation:
The accompanying unaudited consolidated financial statements include the
accounts of DiaSys Corporation and DiaSys Europe Limited its wholly owned
subsidiary. The consolidated balance sheet for the end of the preceding
fiscal year has been derived from the Company's last audited consolidated
balance sheet contained in the Company's Form 10-KSB and is provided for
comparative purposes. All other consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-QSB and
Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all
adjustments, which include only normal recurring adjustments necessary to
fairly present the consolidated financial position, results of operations and
changes in cash flows for all periods present, have been made. Operating
results for the three-month period ended September 30, 2002 are not
necessarily indicative of the results that may be expected for the year ending
June 30, 2003. For further information, refer to the consolidated financial
statements and footnotes included in the Company's annual report on Form 10-
KSB for the year ended June 30, 2002.
Note 2. 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 the three months ended September 30,
2002.
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 $(938,432) and $(0.09) per
share at September 30, 2002, using the Black-Scholes option pricing model.
Note 3. Legal Proceedings
In 1999, the Company and its now subsidiary entered into separate, concurrent
multiple-year sales agreements with a distributor based in Istanbul Turkey.
The distribution agreements were made with Lenta Teshis Orunleri Ticaret ve
Sanayi Ltd. St. and its affiliates and subsidiaries ("Lenta"). Under the
agreements, Lenta purchased a total of $383,781 worth of products over two
years for which it paid the Company and its subsidiary a total of $139,901.
On December 19, 2001, following numerous discussions, the Company and Lenta
executed an Agreement of Payment pursuant to which Lenta acknowledged its debt
of $262,042 and agreed to pay the monies owed in ten equal monthly
installments. On January 17, 2002, the Company and Lenta (together with
Lenta's affiliates and subsidiaries) entered into a new distribution agreement
through which Lenta was authorized to sell and service the Company's products
in Turkey so long as Lenta, its affiliates and subsidiaries, continued to make
timely payments under the above Agreement, the terms of which were restated in
the distribution agreement.
In January 2002, Lenta made two wire transfers to the Company totaling
$22,000, which was $4,204 less than the first installment required under the
agreement. Lenta made no additional wire transfers or payments thereafter
despite numerous telefaxed promises made by Ali Ipyurt, Lenta's General
Manager. On April 9, 24, and 29, 2002 the Company informed Lenta by telefax
that if Lenta could not bring its installment obligations to date by May 1,
2002, the Company would have no choice but to terminate the distribution
agreement for breach of contract, name a new distributor in the territory and
proceed against Lenta for collection and costs. On May 21, 2002 the Company,
having received no additional funds from Lenta, terminated the distribution
agreement and put Lenta on notice that the Company would commence legal
recourse in both the United States and Turkey under the terms of the
distribution agreement. The Company has started the legal process against
Lenta and taken a reserve of 50% or $120,000 against the Lenta receivable.
The Company's management will review the sufficiency of the reserve on a
quarterly basis based on the progress of its collection activities.
On June 8, 2002, the Company appointed a new distributor in Turkey, Ekin
Medical, who has ordered and received $150,000 worth of the Company's
products.
Note 4. Subsequent Events
On October 1, 2002 the Company announced that had received $70,000 in initial
stocking orders from Merck Centroamericana SA under the terms of a two-year
sales and service agreement between the parties. Merck will distribute DiaSys
products in Guatemala, Honduras and Nicaragua.
Note 5. Income Taxes
For income tax reporting purposes, the Company has a December 31 year-end.
The Company has a federal net operating loss carryforward of approximately
$10,100,000 at June 30, 2002 (including net losses for the six months ended
June 30, 2002), which can be used to offset future federal taxable income
through 2022. The Company has a United Kingdom net operating loss
carryforward of approximately $100,000 at June 30, 2002, which can be used to
offset future taxable income.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANICAL CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital Resources:
As of September 30, 2002, the Company had cash and cash equivalents of $6,472
compared to $544,192 at June 30, 2002. The decrease in cash and cash
equivalents was due to the timing in collection of several large international
receivables where net terms are typically 60-to-90 days, including a
receivable of approximately $250,000 from the Company's strategic business
partner in Guangzhou, China. The Company also uses cash to fund its
operations.
Based on cash, collection of receivables, and improving sales, management
believes that it will have sufficient funds and resources on hand to discharge
its obligations as they become due for at least the next 12 months.
RESULTS OF OPERATIONS
Three Months Ended September 30, 2002 as Compared to the Three Months Ended
September 30, 2001.
Net Revenue:
The Company's net revenue increased $183,285 to $672,721, or 37.4%, for the
quarter ended September 30, 2002 compared to $489,436 for the same period of
the prior year. The increase in net revenue was due to continued
implementation of the Company's strategic selling plan expanding business
throughout Europe, Pacific Asia and Latin America.
Gross Profit and Gross Profit Margins:
Gross profit increased $118,339 to $434,555, or 37.4%, for the period ended
September 30, 2002, up from $316,216 compared to the same period of the prior
year. Gross profit percentage of 65% remained essentially unchanged. The
increase in gross profit is the direct result of increased sales. The
consistent gross profit margin was the result of controlled manufacturing
costs. The Company expects its gross profits and gross profit margins to
increase as sales increase, especially through the Company's newly constituted
sales team and domestic sales network.
Selling General And Administrative (SG&A):
SG&A increased $99,610 or 18.6% to $635,280 for the period ended September 30,
2002, up from $535,670 for the same period last year. The increase in SG&A
was mainly due to an increase in American and European sales personnel and
sales related travel, worldwide.
Research And Development (R&D):
R&D expenses remained essentially unchanged at $114,212 for the period ended
September 30, 2002, compared to $134,527 for the same period last year.
Net (Loss):
Net loss decreased $33,021 to $311,079, or 9.6%, during the period ended
September 30, 2002, down from $344,100 for the same period of the prior year.
The decrease in loss was attributable to increased sales and continued expense
control. The Company expects its net loss to continue to decrease as it
implements its strategic growth plan.
ITEM 3. PROCEDURES AND CONTROLS
Within the 90 days prior to the date of this report, the Company carried out
an evaluation, under the supervision and with the participation of the
Company's management, including the Company's Chief Executive Officer and
Chief Financial Officer its principal executive officer and principal
financial officer, of the effectiveness of the design and operation of the
Company's disclosure controls and procedures pursuant to Exchange Act Rule
13a-14. Based upon that evaluation, the Chief Executive Officer and Chief
Financial Officer concluded that the Company's disclosure controls and
procedures are effective in timely alerting them to material information
required to be included in our periodic Securities and Exchange Commission
filings. There were no significant changes in the Company's internal controls
or in other factors that could significantly affect these controls subsequent
to the date of their evaluation.
This Quarterly Report on Form 10-QSB contains statements which constitute
forward-looking statements within the meaning of Section 21E of the Securities
Exchange Act of 1934. 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.
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS:
See Note 4 to the Company's financial statements for quarter ended September
30, 2002
ITEM 6. EXHIBITS AND REPORTS ON FOR 8-K
(a) Exhibits filed with this report:
(b) Exhibit No. Description
99.1 Certification Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002-Chief Executive Officer
99.2 Certification Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002-Chief Financial Officer
We filed a Form 8-K on July 12, 2002, announcing the issuance of common stock
and warrants in the private placement completed on June 28, 2002.
SIGNATURES
In accordance with the requirements of the Exchange Act of 1934, the
Registrant caused this report to be signed on its behalf by the undersigned,
thereto duly authorized.
DIASYS CORPORATION
Date: November 14, 2002 /S/ Todd M. DeMatteo
Todd M. DeMatteo,
President and Chief Executive Officer
Date: November 14, 2002 /s/ Diane J. Sentner
Diane J. Sentner
Director of Finance and
Chief Financial Officer
CERTIFICATION
I, Todd M. DeMatteo, Chief Executive Officer of DiaSys Corporation certify
that:
1.I have reviewed this quarterly report on Form 10-QSB, DiaSys Corporation;
2.Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact or omit to
state a material fact necessary to make the statements made, in light of
the circumstances under which such statements were made, not misleading
with respect to the period covered by this quarterly report;
3.Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in the
quarterly report;
4.The registrants other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures as
defined in Exchange Act Rules 13a-14 and 15d-14 for the registrant and we
have:
a)designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b)evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report; and
c)presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the evaluation date;
5.The Registrant's other certifying officers and I have disclosed, based on
our most recent evaluation to the registrant's auditors and the audit
committee of registrant's board of directors:
a)all significant deficiencies in the design or operations of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls.
6.The registrant's other certifying officers and I have indicated in the
quarterly report whether or not there were significant changes in the
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant deficiencies
and material weaknesses.
Date: November 14, 2002 _/s/Todd M. DeMatteo
Todd M. DeMatteo
President and Chief Executive Officer
CERTIFICATION
I, Diane J. Sentner, certify that:
1.I have reviewed this quarterly report on Form 10-QBS, DiaSys Corporation;
2.Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact or omit to
state a material fact necessary to make the statements made, in light of
the circumstances under which such statements were made, not misleading
with respect to the period covered by this quarterly report;
3.Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in the
quarterly report;
4.The registrants other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures as
defined in Exchange Act Rules 13a-14 and 15d-14 for the registrant and we
have:
a)designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b)evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report; and
c)presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the evaluation date;
5.The Registrant's other certifying officers and I have disclosed, based on
our most recent evaluation to the registrant's auditors and the audit
committee of registrant's board of directors:
a)all significant deficiencies in the design or operations of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls.
6.The registrant's other certifying officers and I have indicated in the
quarterly report whether or not there were significant changes in the
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant deficiencies
and material weaknesses.
Date: November 14, 2002 /s/ Diane J. Sentner
Diane J. Sentner
Chief Financial Officer
EXHIBT INDEX
Number Exhibit
99.1 Certification Pursuant to Section 906 of the Sarbane-Oxley Act
of 2002 Chief Executive Officer
99.2 Certification Pursuant to Section 906 of the Sarbane-Oxley Act
of 2002 Chief Financial Officer
EXHIBIT 99.1
CERTIFICATION PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002
In connection with the quarterly Report on Form 10-QSB of DiaSys Corporation
(the "Company") for the quarterly period ended September 30, 2002 as filed
with the Securities and Exchange Commissions on the date hereof (the
"Report"), I, Todd M. DeMatteo, Chief Executive Officer of the Company,
certify, pursuant to section 906 of the Sarbanes-Oxley Act of 2002 that:
(1)the Report fully complies with the requirements of section 13(a)
or 15(d) of the Securities Exchange Act of 1934; and
(2)the information contained in the Report fairly presents, in all
material respects, the financial conditions and results of operations
of the Company
/s/Todd M. DeMatteo
Todd M. DeMatteo
Chief Executive Officer
November 14, 2002
EXHIBIT 99.2
CERTIFICATION PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002
In connection with the quarterly Report on Form 10-QSB of DiaSys Corporation
(the "Company") for the quarterly period ended September 30, 2002 as filed
with the Securities and Exchange Commissions on the date hereof (the
"Report"), I, Diane J. Sentner, Chief Financial Officer of the Company,
certify, pursuant to section 906 of the Sarbanes-Oxley Act of 2002 that:
(1)the Report fully complies with the requirements of section 13(a)
or 15(d) of the Securities Exchange Act of 1934; and
(2)the information contained in the Report fairly presents, in all
material respects, the financial conditions and results of operations
of the Company
/s/Diane J. Sentner
Diane J. Sentner
Chief Financial Officer
November 14, 2002
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