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, 1998
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
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 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, 1998
<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,
1998 1997
ASSETS
Current Assets
Cash and cash equivalents $ 36,382 $ 46,724
Accounts receivable, less allowance for
doubtful accounts of $4,200 in 1998 and 1997 38,903 43,024
Inventories (Note 2) 173,205 170,359
Prepaid expenses 11,555 14,405
Total current assets 260,045 274,512
Furniture and Equipment, at cost (Note 3) 333,396 333,396
Less accumulated depreciation 318,664 315,441
Total furniture and equipment 14,732 17,955
Other Assets
Patents and trademarks, net of accumulated amort-
ization of $15,863 in 1998 and $14,679 in 1997 5,977 7,161
Deposits 3,529 3,529
Total other assets 9,506 10,690
Total assets $ 284,283 $ 303,157
See Notes to Financial Statements.
<PAGE>
BALANCE SHEETS (Continued)
(Unaudited)
June 30, December 31,
1998 1997
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
Non-interest bearing demand note payable (Note 4) 35,546 35,546
Accounts payable 61,373 42,111
Current maturities of long-term debt 1,211 3,129
Accrued expenses 35,562 38,243
Total current liabilities 155,338 140,675
Stockholders' Equity
Series A Preferred stock, authorized 1,600,000
shares; $400,000 liquidation preference,
1,600,000 shares issued and outstanding in
1998 and 1997 400,000 400,000
Common stock, no par value; authorized
18,400,000 shares; issued and outstanding
7,017,085 in 1998 and 1997 4,472,042 4,472,042
Accumulated deficit (4,743,097) (4,709,560)
Total stockholders' equity 128,945 162,482
Total liabilities and
stockholders' equity $ 284,283 $ 303,157
See Notes to Financial Statements.
<PAGE>
STATEMENTS OF OPERATIONS
(Unaudited)
June 30 June 30 June 30 June 30
Three and Six Months Ended 1998 1997 1998 1997
OPERATIONS
Net sales $ 128,484 $ 106,290 $ 235,384 $ 251,008
Cost of goods sold 93,000 87,876 163,579 187,754
Gross profit 35,484 18,414 71,805 63,254
Operating expenses
Research and development 9,028 6,892 14,018 10,998
Sales and marketing 6,451 5,978 13,335 12,670
General and administrative 35,230 29,169 76,947 75,050
Total operating expenses 50,709 42,039 104,300 98,718
Operating loss (15,225) (23,625) (32,495) (35,464)
Other income (expense)
Interest income 186 443 474 901
Interest expense (1,169) (1,077) (2,276) (2,170)
Other 35 1,646 760 2,106
Net loss $ (16,173) $ (22,613) $ (33,537) $ (34,627)
Net loss per share $ (.00) $ (.00) $ (.00) $ (.00)
Weighted average common
shares outstanding 7,017,085 7,017,085 7,017,085 7,017,085
See Notes to Financial Statements.
<PAGE>
STATEMENTS OF CASH FLOWS
(Unaudited)
June 30, June 30,
Six Months Ended 1998 1997
Cash Flows from Operating Activities
Net loss $ (33,537) $ (34,627)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 4,407 4,716
Changes in assets and liabilities:
(Increase) decrease in:
Accounts receivable 4,121 39,820
Inventories (2,846) (10,168)
Prepaid expenses 2,850 1,484
Increase (decrease) in:
Accounts payable and accrued
expenses 16,581 (21,155)
Net cash used in operating activities (8,424) (19,930)
Cash Flows used in Investing Activities
Capital expenditures - (1,944)
Net cash used in investing activities - (1,944)
Cash Flows from Financing Activities
Payments on capital leases payable (1,918) (1,509)
Net cash used in financing activities (1,918) (1,509)
Decrease in cash and cash equivalents (10,342) (23,383)
Cash and Cash Equivalents:
Beginning 46,724 66,941
Ending $ 36,382 $ 43,558
Supplemental Disclosures of Cash Flow Information
Cash payments for interest $ 551 $ 445
See Notes to Financial Statements.
<PAGE>
SURGIDYNE, INC.
NOTES TO FINANCIAL STATEMENTS
Note 1. Financial Statements
The Balance Sheet as of June 30, 1998, the Statement of Operations for the three
and six month periods ended June 30, 1998 and June 30, 1997, and the Statement
of Cash Flows for the six month periods ended June 30, 1998 and June 30, 1997
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, 1998; the results of
operations for the three and six month periods ended June 30, 1998 and June 30,
1997, and the statement of cash flows for the six month periods ended June 30,
1998 and June 30, 1997 have been made. The Balance Sheet at December 31, 1997
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,
1998 1997
Component parts and
subassemblies $ 101,183 $ 97,767
Work in process 15,086 18,561
Finished goods 66,936 64,031
Less obsolescence reserve (10,000) (10,000)
$ 173,205 $ 170,359
Note 3. Furniture and Equipment
Furniture and equipment consisted of the following:
June 30, December 31,
1998 1997
Furniture, fixtures and
equipment $ 232,244 $ 232,244
Tooling and molds 101,152 101,152
$ 333,396 $ 333,396
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 10%.
The balance of $10,000 is due in annual installments limited to 50% of the
audited net income each year until paid in full.
Other note payable: 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: Net Loss Per Share
The Company has adopted "Statement of Financial Accounting Standards No. 128,
Earnings Per Share." 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.
As required by the Statement, the Company has restated all prior year per share
information for the interim periods to conform to the Statement. Because the
Company has incurred a loss in both interim periods, the inclusion of potential
common shares in the calculation of diluted loss per-share would have an anti-
dilutive effect. Therefore, Basic and Diluted loss per-share amounts are the
same in each year.
<PAGE>
ITEM 2. Management's Discussion and Analysis or Plan of Operation
Results of Operations - 1998 compared to 1997
Sales. Sales revenues for the three and six month periods ended June 30, 1998
were $128,484 and $235,384, respectively, or approximately 21% more than sales
for the same three month period in 1997 and 6% less than sales for the same six
month period in fiscal 1997.
The three month increase is attributed to increases in international sales.
International sales increased approximately $25,000 compared to the same period
last year.
The six month decrease is primarily attributed to decreases in contract
manufacturing revenues to one OEM customer offset by increases in international
product sales. Compared to the same period last year, contract revenues
decreased approximately $33,700 while international sales increased by
approximately $21,900.
Gross Profit. Gross profit, expressed as a percentage of sales, increased from
approximately 17% and 25% for the three and six month periods ended June 30,
1997 to approximately 28% and 31% for the three and six month periods ended June
30, 1998, respectively. These increases are primarily attributed to changes in
the Company's product sales mix and decreases in manufacturing variances which
are normally absorbed in the cost of goods sold. Manufacturing variances
decreased approximately $13,500 and $19,500 for the three and six month periods
ended June 30, 1998, respectively.
Operating Expenses. Operating expenses increased from $42,039 for the three
months ended June 30, 1997 to $50,709 for the same period in fiscal 1998. This
is primarily attributed to increases in outside contract services required to
obtain the CE certification mark. Effective June 14, 1998 only medical devices
bearing the CE mark can be shipped to countries in the European Community.
Operating expenses increased from $98,718 for the six month period ended June
30, 1997 to $104,300 for the same period in fiscal 1998. This is primarily
attributed to increases in outside contract services offset by decreases in
property and liability insurance premiums.
Liquidity and Capital Resources
At June 30, 1998 the Company had working capital of $104,707 compared to
$133,837 at December 31, 1997.
Cash flows used in operating activities for the first six months of fiscal 1998
were $8,424, primarily due to the net loss of $33,537 offset by an increase in
accounts payable of $16,581 and decreases of $4,121 and $2,850 in accounts
receivable and prepaid expenses respectively.
The Company is planning to expand its line of related wound drainage products by
sourcing new products from low cost overseas manufacturers. These products are
expected to be available for marketing during the first quarter of 1999. These
efforts will require additional debt and/or equity financing for inventory and
marketing expenses in 1999.
Long-term liquidity is dependent upon the attainment of the short-term factors
discussed above and greater sales volumes that generate profitable operations.
Increased sales volumes in 1998 depend largely on increased business from
contract manufacturing, and increased sales from existing products.
The Company obtained the CE mark certification on July 22, 1998 allowing the
Company to ship its closed wound drainage devices to European customers.
<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, 1998.
---------------------
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, 1998 /s/ Vance D. Fiegel
Vance D. Fiegel
President and Principal
Accounting Officer
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