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 SECURITIES EXCHANGE ACT
OF 1934
For the Quarterly Period Ended September 30, 1997
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
Commission File Number 33-13058-C
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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 filed by 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
7,017,085 shares of Common Stock, no par value, outstanding at
November 12, 1997
Transitional Small Business Disclosure Format. YES X NO
<PAGE>
PART I - FINANCIAL INFORMATION
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
<PAGE>
SURGIDYNE, INC.
BALANCE SHEETS
(Unaudited)
September 30, December 31,
1997 1996
ASSETS
Current Assets
Cash and cash equivalents $ 43,206 $ 66,941
Accounts receivable, less allowance for
doubtful accounts of $4,200 in 1997 and
$4,700 in 1996 38,881 86,339
Inventories (Note 2) 192,830 198,461
Prepaid expenses 7,573 16,465
Total current assets 282,490 368,206
Furniture and Equipment, at cost (Note 3) 333,396 328,692
Less accumulated depreciation 312,272 306,926
Total furniture and equipment 21,124 21,766
Other Assets
Patents and trademarks, net of accumulated
amortization of $14,088 in 1997 and $12,312
in 1996 7,752 9,528
Deposits 3,529 3,529
Total other assets 11,281 13,057
Total assets $ 314,895 $ 403,029
See Notes to Financial Statements.
<PAGE>
SURGIDYNE, INC.
BALANCE SHEETS (Continued)
(Unaudited)
September 30, December 31,
1997 1996
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Notes payable to officers and
directors (Note 4) $ 10,000 $ 10,000
12% demand note payable 11,646 11,646
Current maturities on long-term debt 39,188 38,711
Accounts payable 43,945 68,486
Accrued expenses 31,278 38,648
Total current liabilities 136,057 167,491
Long-Term Debt 335 3,129
Stockholders' Equity
Series A Preferred stock, authorized
1,600,000 shares; $400,000 liquidation
preference 400,000 400,000
Common stock, no par value; authorized
18,400,000 shares; issued and outstanding
7,017,085 in 1997 and 1996 4,472,042 4,472,042
Accumulated deficit (4,693,539) (4,639,633)
Total stockholders' equity 178,503 232,409
Total liabilities and
stockholders' equity $ 314,895 $ 403,029
See Notes to Financial Statements.
<PAGE>
SURGIDYNE, INC.
STATEMENTS OF OPERATIONS
(Unaudited)
Sept. 30 Sept. 30 Sept. 30 Sept. 30
Three and Nine Months Ended 1997 1996 1997 1996
Net sales $112,913 $167,637 $363,921 $451,815
Cost of goods sold 90,991 106,789 278,746 318,754
Gross profit 21,922 60,848 85,175 133,061
Operating expenses
Research and development 4,888 4,108 15,886 8,682
Sales and marketing 6,879 6,762 19,550 21,821
General and administrative 31,283 37,126 106,333 115,149
Total operating expenses 43,050 47,996 141,769 145,652
Operating income (loss) (21,128) 12,852 (56,594) (12,591)
Other income (expense)
Interest income 345 499 1,245 1,138
Interest expense (1,077) (1,463) (3,246) (6,422)
Other 2,581 36 4,689 1,687
Net income (loss) $(19,279) $11,924 $(53,906) $(16,188)
Net income (loss) per share $ - $ - $ (.01) $ -
Weighted average common
shares outstanding 7,017,085 7,017,085 7,017,085 6,886,702
See Notes to Financial Statements.
<PAGE>
SURGIDYNE, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
Sept. 30, Sept. 30,
Nine Months Ended 1997 1996
Cash Flows from Operating Activities
Net loss $(53,906) $(16,188)
Adjustments to reconcile net income to net
cash provided by (used) in operating activities:
Depreciation and amortization 7,122 7,587
Changes in assets and liabilities:
(Increase) decrease in:
Accounts receivable 47,458 36,570
Inventories 5,631 (16,092)
Prepaid expenses 8,892 (2,183)
Decrease in:
Accounts payable and accrued expenses (31,911) (795)
Net cash provided by (used) in operating
activities (16,714) 8,899
Cash Flows used in Investing Activities
Capital expenditures (4,704) -
Net cash used in investing activities (4,704) -
Cash Flows from Financing Activities
Payments on capital leases payable (2,317) (3,948)
Proceeds from private placement - 25,000
Net cash provided by (used) in financing
activities (2,317) 21,052
Increase (decrease) in cash and cash
equivalents (23,735) 29,951
Cash and Cash Equivalents:
Beginning 66,941 43,297
Ending $ 43,206 $ 73,248
Supplemental Disclosures of Cash Flow Information
Cash payments for interest $ 645 $ 1,821
Supplemental Schedule of Noncash Financing Activities
Accrued expenses exchanged for common shares
subscribed $ - $ 7,737
Notes payable exchanged for common shares
subscribed - 9,605
See Notes to Financial Statements.
<PAGE>
SURGIDYNE, INC.
NOTES TO FINANCIAL STATEMENTS
Note 1. Financial Statements
The Balance Sheet as of September 30, 1997, the Statement of Operations for the
three and nine month periods ended September 30, 1997 and September 30, 1996,
and the Statement of Cash Flows for the nine month periods ended September 30,
1997 and September 30, 1996 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, 1997; the results of operations for the three and nine month
periods ended September 30, 1997 and September 30, 1996, and the statement of
cash flows for the nine month periods ended September 30, 1997 and September 30,
1996 have been made. The Balance Sheet at December 31, 1996 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,
1997 1996
Component parts and
subassemblies $105,922 $100,098
Work in process 26,345 23,146
Finished goods 70,563 85,217
Less obsolescence reserve (10,000) (10,000)
$192,830 $198,461
Note 3. Furniture and Equipment
Furniture and equipment consisted of the following:
September 30, December 31,
1997 1996
Furniture, fixtures and
equipment $232,244 $230,300
Tooling and molds 101,152 98,392
$333,396 $328,692
Note 4. Notes Payable
Notes payable to related parties: The Company has short-term notes payable
outstanding with a certain officer and director which bears interest at an
interest rate of prime plus two percent. The interest rate will be adjusted
every six months on June 30 and December 31. Currently the interest rate is
10.25% annually. The $10,000 is due in annual installments limited to 50% of
the audited net income each year until paid in full.
Notes payable to unrelated parties: The Company has a 12% short-term note
payable. The Company has paid $38,354 in principal on the note and the balance
of $11,646 is due on demand.
Long-term debt: In 1995, the Company converted an accounts payable balance of
$35,546 into a non-interest bearing unsecured note payable due in a single
installment on January 1, 1997. The Company did not pay-off the note on January
1, 1997 and as a result the note is due on demand. To date the noteholder has
not demanded payment.
Note 5. Issued but not yet Adopted Accounting Standard
The FASB has issued Statement No. 128, Earnings Per Share, which supersedes
APB Opinion No. 15. Statement No. 128 requires the presentation of earnings per
share by all entities that have common stock or potential common stock, such as
options, warrants and convertible securities, outstanding that trade in a public
market. Those entities that have only common stock outstanding are required to
present basic earnings per-share amounts. Diluted per-share amounts assume the
conversion, exercise or issuance of all potential common stock instruments
unless the effect is to reduce a loss or increase the income per common share
from continuing operations. All entities required to present per-share amounts
must initially apply Statement No. 128 for annual and interim periods ending
after December 15, 1997. Earlier application is not permitted.
The adoption of Statement No. 128 would have had
no effect on reported earnings (loss) per share.
<PAGE>
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results of Operations
Sales. Sales revenues for the three and nine month periods ended September 30,
1997 were $112,913 and $363,921, respectively, or approximately 33% and 20% less
than sales for the same three and nine month periods in 1996.
The three month decrease is attributed to reductions from both the Company's
product line revenue and contract manufacturing revenue. These decreases were
23% and 66% respectively for the three month period ended September 30, 1997.
The nine month decrease is attributed to a 25% reduction in product line
revenues partially offset by a 11% increase in contract manufacturing revenues
for the nine months ended September 30, 1997.
The Company is experiencing the impact of increased international pricing
pressures and domestic pressures by hospitals to curb spending. As a result the
Company is experiencing an impact primarily on Varidyne Canister Kit revenues,
which decreased 14% and 24% for the three and nine periods ended September 30,
1997, Discrete Drain revenues, which decreased 17% and 25% respectively for the
three and nine month periods ended September 30, 1997 and Bulb Evacuator Kit
revenues, which decreased 53% and 27% respectively for the three and nine months
ended September 30, 1997.
The three month decrease in contract manufacturing revenues is a result of the
completion of a contract with a major Original Equipment Manufacturer (OEM)
customer in the second quarter.
Gross profit. Gross profit expressed as a percentage of sales decreased from
approximately 36% for the three month period ended September 30, 1996 to
approximately 19% for the same period in fiscal 1997 due primarily to a decrease
in product sales resulting in less overhead absorption for the period.
Gross profit expressed as a percentage of sales decreased from approximately 30%
for the first nine months of fiscal 1996 to approximately 23% for the same
period in 1997 for the same reason.
Operating Expenses. Operating expenses decreased from $47,996 for the three
month period ended September 30, 1996 to $43,050 for the same period in 1997.
Operating expenses decreased from $145,652 for the nine month period ended
September 30, 1996 to $141,769 for the same period in 1997. Both the three month
and nine month decreases are primarily attributed to decreases in professional
fees, other outside services and postage.
<PAGE>
Liquidity and Capital Resources
At September 30, 1997 the Company had working capital of $146,433 compared to
$200,715 at December 31, 1996.
Cash flows used in operating activities for the first nine months of fiscal 1997
were $16,714, primarily due to the net loss of $53,906 combined with a decrease
in accounts payable of $31,911, partially offset by decreases in accounts
receivables and prepaid expenses of $47,458 and $8,892 respectively.
The Company is seeking an equity infusion within the next twelve months to
assure its short-term liquidity and ability to manufacture and sell its existing
product line and also allow the Company to expand its product line. The
Company is incorporating a new line of lower cost silicone drains into its
product offering which makes its bulb evacuator and drain products more
competitive in both domestic and export markets. The Company is increasing
its export marketing effort by actively seeking additional international
distributors in countries that are important markets for these products.
Additionally, the Company plans to add a 400ml evacuator with PVC drains to its
line of suction drainage products as well as some other compatible hospital
products. These additions will enable the Company to offer a more extensive
line of products equivalent to the market leaders, both domestically and in
world markets. These endeavors, if successful, will allow the Company to expand
its market and product niche significantly.
<PAGE>
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 filed during the nine month
period ended September 30, 1997.
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SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
SURGIDYNE, INC.
(Registrant)
Date November 12, 1997 /s/ Vance D. Fiegel
Vance D. Fiegel
President and Principal
Accounting Officer
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