DiaSys Reports Results for Quarter Ended Dec. 31, 2003.

Business Editors

WATERBURY, Conn.--(BUSINESS WIRE)--Feb. 17, 2004

DiaSys Corporation (AMEX: DYX)

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.

FINANCIAL CONDITION:

Liquidity and Capital Resources:

The Company funds its working capital requirements primarily from its revenues from operations. In addition, during the nine months ended December 31, 2003, the Company issued an aggregate of $910,000 of promissory notes and a $50,000 unsecured debenture in consideration for amounts loaned to the Company by certain members of management and other individuals. To date, a total of $690,000 in principal amount of these promissory notes has been converted into shares of common stock of the Company. The Company does not currently have, nor does it currently plan on entering into, any financing arrangements with any financial institutions and intends to continue to fund its working capital requirements from its revenues from operations. However, if necessary or conditions warrant, the Company may borrow additional funds from private individuals, including members of management, or enter into financing arrangements with financial institutions should it become practical or advantageous to do so. The Company has no other outstanding debt other than customary trade payables.

Management believes that it has sufficient funds and resources on hand to discharge its obligations for at least the next twelve months. This determination is based on the current backlog status of and anticipated ship dates of same. The Company had unshipped orders totaling $206,921 as of December 31, 2003.

As of December 31, 2003, the Company had cash and cash equivalents of $30,618 compared to $72,019 at June 30, 2003.

RESULTS OF OPERATIONS

Three and Six Months Ended December 31, 2003 as Compared to the Three and Six Months Ended December 31, 2002.

Net Sales:

The Company's net sales for the six-month period ended December 31, 2003 decreased $523,333 to $827,779, or 38.7%, compared to the same period of the prior year. The decrease in net sales was primarily due to the following factors: (i) the Severe Acute Respiratory Syndrome ("SARS") outbreak in Asia, curtailed business to South East Asia, where the Company's largest distributor is located; (ii) various tenders for the Company's products were delayed by a number of prospective European Community new-member countries in accordance with European Community law, these delays are expected to continue through March 31, 2004; and (iii) the Company terminated its domestic sales force on April 1, 2003, due to an unprofitable domestic sales model which re-organization extended through the quarter ended December 31, 2003. The Company's partner in South East Asia has subsequently indicated that it will resume orders to DiaSys Corporation at an increased level from last years sales on an annualized basis.

Gross Profit and Gross Profit Margins:

Gross profit for the three-month period ended December 31, 2003 decreased 37.1% from $420,956 to $266,428. Gross profit margins for the three-month period decreased from the prior year from 62.1% to 57.5% for the three-month period. Gross profit for the six-month period ended December 31, 2003 decreased 43.1% from $855,512 to $486,893. Gross profit margins for the six-month period decreased from the prior year from 63.3% to 58.8% for the six-month period. The Company's gross profit was adversely impacted by the decrease in sales for the quarter ended December 31, 2003. The Company expects its gross profits and gross profit margins to increase as sales increase, thereby reducing excess capacity in the manufacturing area. DiaSys Corporation has now rectified inefficiencies in raw material purchasing practices and the scheduling of production by integrating comprehensive reporting between departments both in the United States and at DiaSys Europe, the Company's wholly owned subsidiary in England. Effective January 2004, DiaSys Corporation has raised the list prices for its urinalysis by and parasitology workstations by 38% and 18% respectively.

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

For the three-month period ended December 31, 2003, SG&A decreased $81,445 or 9.7% from $836,958 to $755,513 over the comparable prior period. The decrease in SG&A was due to a reduction in legal fees that were associated with the filing of Form 13D (non-recurring event) during the second quarter of fiscal year ending June 30, 2003.

Research And Development (R&D):

R&D expenses for the three-month period ended December 31, 2003 decreased 64.1% to $42,228 compared to $117,560 for the same period last year. The decrease in research and development is due to a temporary suspension of current research and development activities to decrease costs and re-organize research and development priorities within the Company. The Company is now increasing its research and development activities focusing on both improvements to its existing products and the introduction of new products.

Interest Expense:

Interest expense increased $22,949 for the three-month period ended December 31, 2003 and $58,263 for the six-month period ended December 31, 2003 from no interest expense in the comparable prior period. The increase was the result of the recording of additional interest and fees associated with the former CEO's promissory note during the three-month period ended December 31, 2003 and a beneficial conversion feature of a note payable during the previous three-month period.

Net Loss:

For the three-month period ended December 31, 2003, net loss increased $25,073 to $554,263 up from $529,180 for the same period of the prior year. The increase in net loss was due to the reduction of sales in the period. The Company expects the net loss to decrease due to several factors. The Company will start to fill production orders for South East Asia as indicated by Hua-Sin, the Company's trading partner, at a rate that exceeds last years sales figures. DiaSys Corporation will be introducing a new consumable product that will sell in conjunction with its urinalysis workstations. New member countries that have now joined the European Community will enable the Company to begin marketing its products there during this calendar year. Direct sales in the United States have been re-organized and the Company is now staffing its domestic sales department.