UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
X QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIESEXCHANGE ACT OF
1934
For the Quarterly Period Ended September 30, 1996
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGEACT
Commission File Number 33-13058-C
- - - ---------------------
SURGIDYNE, INC.
(Name of small business issuer in its charter)
Minnesota 58-1486040
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
9909 South Shore Drive, Minneapolis, MN 55441
(Address of principal executive offices)
(612) 595-0665
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filedby Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days.
X YES NO
4,537,913 shares of Common Stock, no par value, outstanding at
September 30, 1996
Transitional Small Business Disclosure Format. YES X NO
ITEM 1. FINANCIAL STATEMENTS
SURGIDYNE, INC.
CONTENTS PAGE
FINANCIAL STATEMENTS
Balance sheets 3
Statements of operations 5
Statements of cash flows 6
Notes to financial statements 7
BALANCE SHEETS
(Unaudited)
September30,December 31,
1996 1995
ASSETS
Current Assets
Cash and cash equivalents $73,248 $43,297
Accounts receivable, less allowance for
doubtful accounts of $4,672 in 1996 and
$4,450 in 1995 69,666 106,236
Inventories (Note 2) 183,747 167,655
Prepaid expenses 6,611 4,428
Total current assets 333,272 321,616
Furniture and Equipment, at cost (Note 3) 348,057 360,257
Less accumulated depreciation 305,206 312,244
Total furniture and equipment 42,851 48,013
Other Assets
Patents and trademarks, net of accumulated
amortization of $31,650 in 1996 and $29,725
in 1995 9,670 12,095
Deposits 3,529 3,529
Total other assets 13,199 15,624
Total assets $ 389,322 $385,253
See Notes to Financial Statements.
SURGIDYNE, INC.
BALANCE SHEETS (Continued)
(Unaudited)
September30,December 31,
1996 1995
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Notes payable to officers and directors (Note 4)$10,000 $19,605
Demand notes payable to unrelated parties 11,646 11,646
Accounts payable 60,692 62,509
Current maturities on long-term debt 41,100 6,406
Accrued expenses 31,558 38,274
Total current liabilities 154,996 138,440
Long-Term Liabilities
Long-term debt 0 38,641
Stockholders' Equity
Series A Preferred stock, authorized 1,600,000 shares;
$400,000 liquidation preference, 1,600,000 shares
issued and outstanding in 1996 and 1995 400,000 400,000
Common stock, no par value; authorized 18,400,000 shares;
issued and outstanding 4,537,913 in 1996 and1995
4,286,086 4,286,086
Common stock subscriptions; 2,479,413 shares subscribed in 1996
and 1,914,853 in 1995 185,956 143,614
Accumulated deficit (4,637,716) (4,621,528)
Total stockholders' equity 234,326 208,172
Total liabilities and stockholders' equity $389,322 $385,253
See Notes to Financial Statements.
STATEMENTS OF OPERATIONS
(Unaudited)
Sept. 30 Sept. 30 Sept. 30 Sept.30
Three and Nine Months Ended 1996 1995 1996 1995
OPERATIONS
Net sales $167,637$179,459 $451,815$530,636
Cost of goods sold 106,789105,639 318,754 315,567
Gross profit 60,848 73,820 133,061 215,069
Operating expenses
Research and development 4,108 0 8,682 10,902
Sales and marketing 6,762 5,321 21,821 40,566
General and administrative 37,126 31,017 115,149 129,972
Total operating expenses 47,996 36,338 145,652 181,440
Operating profit/(loss) 12,852 37,482 (12,591) 33,629
Other income (expense)
Interest income 499 61 1,138 102
Interest expense (1,463) (2,048) (6,422) (8,079)
Other 36 363 1,687 1,488
Net income (loss) $11,924 $35,858 $(16,188)$27,140
Weighted average common
shares outstanding 7,017,326 6,079,149 6,886,702 5,582,529
See Notes to Financial Statements.
STATEMENTS OF CASH FLOWS
Sept. 30, Sept.30,
Nine Months Ended 1996 1995
Cash Flows from Operating Activities
Net loss $(16,188) $27,140
Adjustments to reconcile net income to net
cash provided by (used) in operating activities:
Depreciation and amortization 7,587 9,667
Changes in assets and liabilities:
(Increase) decrease in:
Accounts receivable 36,570 (21,314)
Inventories (16,092) 27,232
Prepaid expenses (2,183) -
Decrease in:
Accounts payable and accrued expenses (8,584) (38,510)
Net cash provided by (used) in operating
activities 8,899 4,215
Cash Flows used in Investing Activities
Capital expenditures - (9,240)
Net cash used in investing activities 0 (9,240)
Cash Flows from Financing Activities
Payments on capital leases payable (3,948) (4,816)
Proceeds from private placement 25,000 89,225
Payments on notes payable - (38,354)
Net cash provided by (used) in
financing activities 21,052 46,055
Increase (decrease) in cash and
cash equivalents 29,951 41,030
Cash and Cash Equivalents:
Beginning 43,297 11,921
Ending $73,248 $52,951
Supplemental Disclosures of Cash Flow Information
Cash payments for interest $ 1,821 $ 8,260
Supplemental Schedule of Noncash Financing Activities
Accrued expenses exchanged for common shares
subscribed $ 7,737 $ 12,253
Notes payable exchanged for common
shares subscribed 9,605 38,011
See Notes to Financial Statements.
NOTES TO FINANCIAL STATEMENTS
Note 1. Financial Statements
The Balance Sheet as of September 30, 1996, the
Statement of Operations for the three and nine
month periods ended September 30, 1996 and
September 30, 1995, and the Statement of Cash
Flows for the nine month periods ended September
30, 1996 and September 30, 1995 have been
prepared by the Company without audit. In the
opinion of management, all adjustments
(consisting solely of normal, recurring
adjustments) necessary to present fairly the
financial position at September 30, 1996; the
results of operations for the three and nine
month periods ended September 30, 1996 and
September 30, 1995, and the statement of cash
flows for the nine month periods ended September
30, 1996 and September 30, 1995 have been made.
The Balance Sheet at December 31, 1995 has been
taken from the audited financial statements at
that date. Results of operations for the interim
periods are not necessarily indicative of the
full fiscal year.
Note 2 Inventories
Inventories consisted of the following:
September 30, December 31,
1996 1995
Component parts and
subassemblies $ 126,206 $ 110,229
Work in process 4,645 10,489
Finished goods 62,896 56,937
Less obsolescence reserve (10,000) (10,000)
$ 183,747 $ 167,655
Note 3. Furniture and Equipment
Furniture and equipment consisted of the following:
September 30, December 31,
1996 1995
Furniture, fixtures and
equipment $ 230,300 $ 230,300
Tooling and molds 117,757 117,757
Automobiles - 12,200
$ 348,057 $ 360,257
Note 4. Notes Payable
Notes payable to related parties: The Company
converted $9,605 of a short-term note outstanding
with a related party to common stock and has
reissued the remaining $10,000 at an interest
rate of prime plus two percent. The interest
rate will be adjusted every six months on June 30
and December 31. As of June 30, 1996 no
adjustment was required to the interest rate and
the interest rate continues to be 10.25%
annually.
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations - 1996 compared to 1995
Sales. Sales revenues for the nine and three month periods ended September
30, 1996 were $451,815 and $167,637, respectively, or approximately 15% and
7% less than sales for the same nine and three month periods in 1995.
The nine and three month decreases are attributed primarily to reduced
revenues from Baxter. Baxter accounted for approximately $8,000 of revenues
during the first nine months of 1996 compared to over $80,000 in the first
nine months of 1995. Baxter has discontinued sales of the Company's product
and future revenues from Baxter are not anticipated.
Excluding Baxter sales revenues for both 1996 and 1995, sales revenues for
the nine and three month periods ended September 30, 1996 decreased 1% and
increased 2%, respectively, compared to the same periods for 1995.
Gross profit. Gross profit expressed as percentage of sales decreased from
approximately 41% for the first nine months of fiscal 1995 to approximately
30% for the same period in 1996. This reduction was primarily due to the
decrease in revenues from Baxter. The Baxter revenues had a significantly
higher gross profit than other revenues, as sales were comprised of both
royalty and manufacturing revenues.
Gross profit expressed as percentage of sales decreased from approximately
41% for the three month period ended September 30, 1995 to approximately 36%
for the same period in 1996 primarily for the same reason.
With the expansion of its contract manufacturing the Company has increased
the gross profit expressed as a percentage of sales from 25% for the six
months ended June 30,1996 to 30% for the nine months ended September 30,
1996. The Company believes this trend will continue through the remainder
of 1996 and into 1997.
Operating Expenses. Operating expenses decreased from $181,440 for the nine
month period ended September 30, 1995 to $145,652 for the same period in 1996.
This decrease is primarily attributed to a decrease of approximately $35,000
in salaries and wages, employee benefits and payroll taxes.
Operating expenses increased from $36,338 for the three month period ended
September 30, 1995 to $47,996 for the same period in 1996. This increase is
attributed to the addition of one full-time employee and increases in
professional fees.
Liquidity and Capital Resources
At September 30, 1996 the Company had working capital of $178,276 compared
to $183,176 at December 31, 1995.
Cash flows provided by operating activities for the first nine months of
fiscal 1996 were $8,899, primarily due to the $36,570 decrease in accounts
receivables, partially offset by the year to date net loss of $16,188 and a
$16,092 increase in inventories. Cash flows from financing activities were
provided by payments on notes payable and capital leases and $25,000 of
proceeds from the Company's private placement.
The Company believes it has adequate short-term liquidity to manufacture and
sell its existing product line for the next twelve months. The Company is
analyzing opportunitiesin product extensions to its lines of closed wound
suction drainage products. The Company hopes to complete its analysis and
prepare a product development plan for inclusion in its business plan by the
1st quarter of 1997. The Company's strategy is to identify the best
opportunities for development of related products requiring modest capital
requirements and providing optimal return on the Company's investment.
Further funding may be required for the development, production, and
marketing of any identified product opportunities.
Statements regarding the Company's operations, performance and results,
discussed herein are forward-looking and therefore are subject to certain
risks and uncertainties, including those discussed previously and factors
which may from time to time be included in information incorporated herein
by reference. In addition, any forward looking information regarding the
operations of the Company will be subject to the Company's product sales mix
of contract manufacturing vs. the Company's primary product line and the
timing and related resources required to introduce new Company product lines.
PART II. OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K
(b) Reports on Form 8-K
No reports on Form 8-K were filled during the nine month
period ended September 30, 1996.
---------------------
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, there unto
duly authorized.
SURGIDYNE, INC.
(Registrant)
Date November 8, 1996 /s/ Vance D. Fiegel
Vance D. Fiegel
President and Principal Accounting
Officer
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