DYXC DiaSys Corp (CE)

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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 (also see Risk Factors in Part I, Item 1A in the Company’s Form 10KSB for the year ended June 30, 2007).

The accompanying condensed consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business.  As shown in the consolidated financial statements and footnotes included in the Company's Annual Report on Form 10-KSB for the year ended June 30, 2007, during the years ended June 30, 2007 and 2006, the Company incurred net losses of $785,234 and $1,047,794, respectively, and, as of those dates, the Company's current liabilities exceeded its current assets by $1,046,323 and $865,105, respectively, and as of June 30, 2007 had an accumulated stockholders’ deficit from inception of $19,951,927.  These factors among others may indicate that the Company will be unable to continue as a going concern for a reasonable period of time.

FINANCIAL CONDITION:

Liquidity and Capital Resources:

The Company funds its working capital requirements primarily from its revenues from operations, loans from management and directors and the sale of securities. During the Quarter ended September 30, 2007, Mr. Morris Silverman, Chairman of the Board and Chief Financial Officer, continued his stock purchase agreement by acquiring 530,458 shares at a net purchase price of $53,007. The remaining $30,125 of investment to be funded under this agreement has been tendered in October, 2007.

The Company's continuation as a going concern is dependent upon its ability to generate sufficient cash flow to meet its obligations on a timely basis, to comply with the terms and covenants of its financing agreements, to obtain additional financing or refinancing as required, and ultimately to attain successful operations. Management is continuing its efforts to obtain additional funds so that the Company can meet its obligations and sustain operations. Management continues to focus on improving the Company's results of operations by seeking to increase sales globally and decreasing its cost structure to improve cash flows from operations to so that it can fund its working capital and other cash flow requirements. The Company is currently exploring alternative sources of capital. The Company has continued to engage B. Riley & Co. to find alternative financing to supplement its working capital as well as to explore strategic alternatives. Furthermore, if necessary, or conditions warrant, the Company may borrow additional funds from private individuals, including members of management should it become practical or advantageous to do so.

RESULTS OF OPERATIONS

Three Months Ended September 30, 2007 as Compared to the Three Ended September 30, 2006.

Net Sales:

The Company’s net sales for the three-month period ended September 30, 2007 decreased $90,659 or 23.2% compared to the same period of the prior year. The decrease in net sales for the three-month period was primarily due to delays in implementation of workstations in Mexico, as well as delays in obtaining final VLA testing of the veterinary Parasep product. The Company anticipates that it will be prepared to roll out the VLA standard at the Medica conference scheduled for Düsseldorf, Germany during mid-November. The Company has unshipped orders totaling $98,166 as of September 30, 2007 compared to $364,629 as of September 30, 2006.

Gross Profit and Gross Profit Margins:

Gross profit for the three-month period ended September 30, 2007 decreased 25.4 % from $210,578 to $157,143.  Gross profit margins for the three-month period decreased from the prior year from 53.8% to 52.3 % for the three-month period.   The decrease in gross profit dollars is a result of the decrease in sales from the same period in the previous year.  

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Selling, General & Administrative (SG&A Expense):

Selling, General and Administrative expenses for the three-month period ended September 30, 2007 decreased $60,404 from $289,289 to $228,885 or 20.88 % over the comparable prior period.   The decrease is attributable to the continuation of the management initiatives outlined in the Form 10-KSB filed for June 30, 2007.

Research and Development (R&D):

Research and Development expense for the three-month period ended September 30, 2007 decreased $31,639, or 78.24 % over the comparable prior period.  The decrease is the result of the continuation of the management initiatives outlined in the Form 10-KSB filed for June 30, 2007.

Interest Expense:

Interest expense increased $1,474 for the three-month period ended September 30, 2007 from $12,152 to $13,626 from the comparable prior period.

Net Loss:

For the three-month period ended September 30, 2007, net loss was $163,219, a decrease of $30,617 from the three-month period ended September 30, 2006.  The decrease in net loss was primarily due to the reduction of expenses as discussed above.