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 June 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
August 11, 1997
<PAGE>
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>
BALANCE SHEETS
(Unaudited)
June 30, December 31,
1997 1996
ASSETS
Current Assets
Cash and cash equivalents $ 43,558 $ 66,941
Accounts receivable, less allowance for
doubtful accounts of $4,200 in 1997
and $4,700 in 1996 46,519 86,339
Inventories (Note 2) 208,629 198,461
Prepaid expenses 14,981 16,465
Total current assets 313,687 368,206
Furniture and Equipment, at cost (Note 3) 330,636 328,692
Less accumulated depreciation 310,458 306,926
Total furniture and equipment 20,178 21,766
Other Assets
Patents and trademarks, net of accumulated
amortization of $13,496 in 1997 and
$12,312 in 1996 8,344 9,528
Deposits 3,529 3,529
Total other assets 11,873 13,057
Total assets $ 345,738 $ 403,029
See Notes to Financial Statements.
<PAGE>
SURGIDYNE, INC.
BALANCE SHEETS (Continued)
(Unaudited)
June 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
Accounts payable 55,817 68,486
Current maturities of long-term debt 39,021 38,711
Accrued expenses 30,162 38,648
Total current liabilities 146,646 167,491
Long-Term Liabilities
Long-term debt 1,310 3,129
Stockholders' Equity
Series A Preferred stock, authorized
1,600,000 shares; $400,000 liquidation
preference, 1,600,000 shares issued and
outstanding in 1997 and 1996 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 (4,674,260) (4,639,633)
Total stockholders' equity 197,782 232,409
Total liabilities and
stockholders' equity $ 345,738 $ 403,029
See Notes to Financial Statements.
<PAGE>
SURGIDYNE, INC.
STATEMENTS OF OPERATIONS
(Unaudited)
Three and Six Months June 30 June 30 June 30 June 30
Ended 1997 1996 1997 1996
OPERATIONS
Net sales $ 106,290 $ 154,089 $ 251,008 $ 284,178
Cost of goods sold 87,876 118,416 187,754 211,967
Gross profit 18,414 35,673 63,254 72,211
Operating expenses
Research and development 6,892 3,268 10,998 4,574
Sales and marketing 5,978 8,662 12,670 15,059
General and administrative 29,169 38,659 75,050 78,022
Total operating expenses 42,039 50,589 98,718 97,655
Operating loss (23,625) (14,916) (35,464) (25,444)
Other income (expense)
Interest income 443 414 901 639
Interest expense (1,077) (1,658) (2,170) (4,959)
Other 1,646 270 2,106 1,650
Net income (loss) $ (22,613) $ (15,890) $ (34,627) $ (28,114)
Net income (loss)
per share $ (.00) $ (.00) $ (.00) $ (.00)
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
June 30, June 30,
Six Months Ended 1997 1996
Cash Flows from Operating Activities
Net loss $ (34,627) $ (28,114)
Adjustments to reconcile net income
to net cash provided by (used) in
operating activities:
Depreciation and amortization 4,716 5,225
Changes in assets and liabilities:
(Increase) decrease in:
Accounts receivable 39,820 10,197
Inventories (10,168) 9,949
Prepaid expenses 1,484 (811)
Decrease in:
Accounts payable and accrued
expenses (21,155) (7,353)
Net cash provided by (used) in
operating activities (19,930) (10,907)
Cash Flows used in Investing Activities
Capital expenditures (1,944) -
Net cash used in investing activities (1,944) 0
Cash Flows from Financing Activities
Payments on capital leases payable (1,509) (3,212)
Proceeds from private placement - 25,000
Payments on notes payable - -
Net cash provided by (used) in
financing activities (1,509) 21,788
Increase (decrease) in cash and
cash equivalents (23,383) 10,881
Cash and Cash Equivalents:
Beginning 66,941 43,297
Ending $ 43,558 $ 54,178
Supplemental Disclosures of Cash Flow Information
Cash payments for interest $ 445 $ 1,344
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 June 30, 1997, the Statement of Operations for the three
and six month periods ended June 30, 1997 and June 30, 1996, and the Statement
of Cash Flows for the six month periods ended June 30, 1997 and June 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 June 30, 1997; the results of
operations for the three and six month periods ended June 30, 1997 and June 30,
1996, and the statement of cash flows for the six month periods ended June 30,
1997 and June 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:
June 30, December 31,
1997 1996
Component parts and
subassemblies $113,767 $ 100,098
Work in process 16,601 23,146
Finished goods 88,261 85,217
Less obsolescence reserve (10,000) (10,000)
$ 208,629 $ 198,461
Note 3. Furniture and Equipment
Furniture and equipment consisted of the following:
June 30, December 31,
1997 1996
Furniture, fixtures and
equipment $ 232,244 $ 230,300
Tooling and molds 98,392 98,392
$ 330,636 $ 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.
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. All other entities are required to
present basic and diluted 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 - 1997 compared to 1996
Sales. Sales revenues for the three and six month periods ended June 30, 1997
were $106,290 and $251,008, respectively, or approximately 31% less than sales
for the same three month period in 1996 and 12% less than sales for the same six
month period in fiscal 1996.
The three and six month decreases are attributed to reductions from both
domestic and international product line revenues. The Company is feeling 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 have decreased 45% and 29%
respectively for the three and six month periods ended June 30, 1997, and
Discrete Drain revenues, which have decreased 45% and 30% respectively for the
three and six month periods ended June 30, 1997.
Gross Profit. Gross profit expressed as a percentage of sales decreased from
approximately 23% for the three month period ended June 30, 1996 to
approximately 17% for the same period in fiscal 1997 due to a decrease in sales
resulting in less overhead absorption for the period.
Gross profit expressed as a percentage of sales was approximately 25% for the
first six months of both fiscal 1997 and 1996. This is attributed to a similar
sales mix and product cost for both periods.
Operating Expenses. Operating expenses decreased from $50,589 for the three
months ended June 30, 1996 to $42,039 for the same period in fiscal 1997. This
is attributed to decreases in professional fees recognized during the three
month period in fiscal 1997, offset by an increase in Research and Development
expenses.
Operating expenses increased from $97,655 for the six month period ended
June 30, 1996 to $98,718 for the same period in fiscal 1997. This small
increase is primarily attributed to an increase in medical insurance premiums.
Liquidity and Capital Resources
At June 30, 1997 the Company had working capital of $167,041 compared to
$200,715 at December 31, 1996.
Cash flows used in operating activities for the first six months of fiscal 1997
were $19,930, primarily due to the net loss of $34,627 combined with a decrease
in accounts payable of $21,155 offset by a decrease in accounts receivable of
$39,820.
The Company has adequate short-term liquidity to manufacture and sell its
existing product line for the next twelve months. 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 with a full line of lower priced bulb evacuators and drains,
and is actively seeking additional international distributors in countries that
are important markets for these products. The Company is also seeking to
partner with a large domestic supplier of medical products to increase sales of
the Company's products in the U.S. market. Additionally, the Company plans to
add a 400ml evacuator with PVC drains to its line of suction drainage products.
This addition will enable the Company to offer a full line of products
equivalent to the market leaders, both domestically and world markets. These
endeavors, if successful, should allow the Company to expand its market and
product niche with minimal capital investment.
<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 six
month period ended June 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, there unto duly
authorized.
SURGIDYNE, INC.
(Registrant)
Date August 11, 1997 /s/ Vance D. Fiegel
Vance D. Fiegel
President and Principal
Accounting Officer
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