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 March 31, 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 May 12, 1998
Transitional Small Business Disclosure Format. YES X NO
<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)
March 31, December 31,
1998 1997
ASSETS
Current Assets
Cash $ 33,072 $ 46,724
Accounts receivable, less allowance for
doubtful accounts of $4,200 30,565 43,024
Inventories (Note 2) 182,967 170,359
Prepaid expenses 12,019 14,405
Total current assets 258,623 274,512
Furniture and Equipment, at cost (Note 3) 333,396 333,396
Less accumulated depreciation 317,093 315,441
Total furniture and equipment 16,303 17,955
Other Assets
Patents and trademarks, net of accumulated
amortization of $15,271 in 1998 and
$14,679 in 1997 6,569 7,161
Deposits 3,529 3,529
Total other assets 10,098 10,690
Total assets $ 285,024 $ 303,157
See Notes to Financial Statements.
<PAGE>
SURGIDYNE, INC.
BALANCE SHEETS (Continued)
(Unaudited)
March 31, 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
Current maturities of long-term debt 2,170 3,129
Accounts payable 46,575 42,111
Accrued expenses 33,969 38,243
Total current liabilities 139,906 140,675
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 (4,726,924) (4,709,560)
Total stockholders' equity 145,118 162,482
Total liabilities and
stockholders' equity $ 285,024 $ 303,157
See Notes to Financial Statements.
<PAGE>
SURGIDYNE, INC.
STATEMENTS OF OPERATIONS
(Unaudited)
March 31, March 31,
Three Months Ended 1998 1997
Net sales $ 106,900 $ 144,718
Cost of goods sold 70,579 99,878
Gross profit 36,321 44,840
Operating expenses
Research and development 4,990 4,106
Sales and marketing 6,884 6,692
General and administrative 41,717 45,881
Total operating expenses 53,591 56,679
Operating loss (17,270) (11,839)
Other income (expense)
Interest income 288 458
Interest expense (1,107) (1,093)
Other 725 460
Net loss $ (17,364) $ (12,014)
Basic and diluted loss per share $ .00 $ .00
Weighted average common
shares outstanding 7,017,085 7,017,085
See Notes to Financial Statements.
<PAGE>
SURGIDYNE, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
March 31, March 31,
Three Months Ended 1998 1997
Cash Flows from Operating Activities
Net loss $ (17,364) $ (12,014)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 2,244 2,310
Changes in assets and liabilities:
(Increase) decrease in:
Accounts receivable 12,459 31,103
Inventories (12,608) (19,837)
Prepaid expenses 2,386 1,752
Increase (decrease) in:
Accounts payable and accrued expenses 190 (7,505)
Net cash used in operating activities (12,693) (4,191)
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 (959) (487)
Net cash used in financing activities (959) (487)
Decrease in cash (13,652) (6,622)
Cash:
Beginning 46,724 66,941
Ending $ 33,072 $ 60,319
Supplemental Disclosures of Cash Flow Information
Cash payments for interest $ 249 $ 235
See Notes to Financial Statements.
<PAGE>
SURGIDYNE, INC.
NOTES TO FINANCIAL STATEMENTS
Note 1. Financial Statements
The Balance Sheet as of March 31, 1998, the Statement of Operations for the
three month periods ended March 31, 1998 and March 31, 1997, and the Statement
of Cash Flows for the three month periods ended March 31, 1998 and March 31,
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 March 31, 1998; the
results of operations for the three month periods ended March 31, 1998 and
March 31, 1997, and the statement of cash flows for the three month periods
ended March 31, 1998 and March 31, 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:
March 31, December 31,
1998 1997
Component parts and
subassemblies $ 98,919 $ 97,767
Work in process 19,917 18,561
Finished goods 74,131 64,031
Less obsolescence reserve (10,000) (10,000)
$ 182,967 $ 170,359
Note 3. Furniture and Equipment
Furniture and equipment consisted of the following:
March 31, 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 out-
standing 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 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. Basic per-share amounts are computed,
generally, by dividing net income or loss by the weighted-average number of
common shares outstanding. 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 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 Operations
Results of Operations - 1998 compared to 1997
Sales. Sales for the first three months of fiscal 1998 were $106,900, approx-
imately a 26% decrease in sales for the same period in fiscal 1997. This
decrease is primarily attributed to decreases in contract manufacturing revenues
to one OEM customer combined with decreases in Bulb sales. Contract manufactur-
ing revenues for the first three months of fiscal 1998 decreased $25,000 as
compared to the same period in fiscal 1997. Bulb sales for the first three
months of fiscal 1998 decreased approximately $10,500 as compared to the same
period in fiscal 1997.
Gross Profit. Gross profit expressed as a percentage of sales increased from
approximately 31% for the first three months of fiscal 1997 to approximately 34%
for the same period in fiscal 1998. This increase is primarily due to changes
in the Company's product sales mix and a decrease in manufacturing variances
which are normally absorbed in the cost of goods sold. Manufacturing variances
decreased approximately $6,000 in 1998 compared to the first three months of
1997.
Operating Expenses. Operating expenses decreased from $56,679 for the three
month period ended March 31, 1997 to $53,591 for the same period in fiscal 1998.
The decrease is primarily attributed to an overall reduction of other general
and administrative costs. Total general and administrative costs decreased from
$45,881 for the three months of fiscal 1997 to $41,717 for the three months of
fiscal 1998.
Liquidity and Capital Resources
At March 31, 1998 the Company had working capital of $118,717 compared to
$133,837 at December 31, 1997.
The cash flows utilized by operating activities for the first three months of
fiscal 1998 were $12,693, primarily due to the net loss of $17,364 combined with
an increase in inventories of $12,608, partially offset by decreases in accounts
receivable and prepaid expenses of $12,459 and $2,386 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 fourth quarter of 1998 and the
first quarter of 1999. These efforts will require additional debt and/or equity
financing for inventory and marketing expenses in 1998 and 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 and new products.
By June 14, 1998 the Company is required to obtain a CE mark in order to
continue selling their product in Europe. At present the Company is in the
process of obtaining the CE mark. The estimated cost of obtaining the CE mark
is $20,000. However, there is no assurance that the Company can accomplish this
without uninterrupted sales of product to the European market.
<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 filled during the three
month period ended March 31, 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, thereunto duly
authorized.
SURGIDYNE, INC.
(Registrant)
Date May 12, 1998 /s/ Vance D. Fiegel
Vance D. Fiegel
President and Principal
Accounting Officer
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