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, 1999
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 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
7,017,085 shares of Common Stock, no par value, outstanding at
November 11, 1999
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)
September 30, December 31,
1999 1998
ASSETS
Current Assets
Cash $106,137 $11,064
Accounts receivable, less allowance for
doubtful accounts of $4,200 in 1999
and 1998 47,018 82,206
Inventories (Note 2) 168,305 172,286
Prepaid expenses 10,654 12,954
Total current assets 332,114 278,510
Furniture and Equipment, at cost (Note 3) 333,396 333,396
Less accumulated depreciation 323,257 321,806
Total furniture and equipment 10,139 11,590
Other Assets
Patents and trademarks, net of accumulated
amortization of $17,791 in 1999 and
$17,046 in 1998 4,049 4,794
Deposits 3,529 3,529
Total assets $ 349,831 $ 298,423
See Notes to Financial Statements.
<PAGE>
BALANCE SHEETS (Continued)
(Unaudited)
September 30, December 31,
1999 1998
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Notes payable to officers and directors $10,000 $10,000
12% demand note payable 11,646 11,646
Non-interest bearing demand note payable 35,546 35,546
Accounts payable 33,155 42,412
Accrued expenses 59,984 35,453
Total current liabilities 150,331 135,057
Stockholders' Equity
Series A Preferred stock, authorized
1,600,000 shares; $400,000 liquidation
preference, 1,600,000 shares issued
and outstanding in 1999 and 1998 400,000 400,000
Common stock, no par value; authorized
18,400,000 shares; issued and out-
standing 7,017,085 in 1999 and 1998 4,472,042 4,472,042
Accumulated deficit (4,672,542) (4,708,676)
Total stockholders' equity 199,500 163,366
Total liabilities and
stockholders' equity $349,831 $298,423
<PAGE>
STATEMENTS OF OPERATIONS
(Unaudited)
Sept. 30 Sept. 30 Sept. 30 Sept. 30
Three and Nine Months Ended 1999 1998 1999 1998
Net sales $177,430 $151,088 $502,503 $386,472
Cost of goods sold 100,925 104,647 294,063 268,226
Gross profit 76,505 46,441 208,440 118,246
Operating expenses
Research and development 5,662 3,959 11,315 17,977
Sales and marketing 6,498 7,114 22,188 20,449
General and administrative 43,864 32,521 138,069 109,468
Total operating expenses 56,024 43,594 171,572 147,894
Operating income (loss) 20,481 2,847 36,868 (29,648)
Other income (expense)
Interest income 467 85 894 559
Interest expense (685) (1,001) (2,408) (3,277)
Other 70 2,297 780 3,057
Net income (loss) $20,333 $ 4,228 $36,134 $(29,309)
Income (loss) per common
share-basic $ .00 $ .00 $ .01 $ (.00)
Income (loss) per common
share-diluted $ .00 $ .00 $ .00 $ (.00)
Weighted average common
shares outstanding-
basic 7,017,085 7,017,085 7,017,085 7,017,085
Weighted average common
shares outstanding-
diluted 8,717,470 8,617,085 8,751,390 7,017,085
See Notes to Financial Statements.
<PAGE>
STATEMENTS OF CASH FLOWS
(Unaudited)
Sept. 30, Sept. 30,
Nine Months Ended 1999 1998
Cash Flows from Operating Activities
Net income (loss) $ 36,134 $ (29,309)
Adjustments to reconcile net income (loss)
to net cash used in operating activities:
Depreciation and amortization 2,196 6,569
Changes in assets and liabilities:
(Increase) decrease in:
Accounts receivable 35,188 (8,877)
Inventories 3,981 2,303
Prepaid expenses 2,300 4,808
Increase (decrease) in:
Accounts payable and accrued expenses 15,274 776
Net cash provided by (used) in operating
activities 95,073 (23,730)
Cash Flows from Investing Activities
Capital expenditures - -
Net cash used in investing activities - -
Cash Flows from Financing Activities
Payments on capital leases payable - (2,878)
Net cash used in financing activities - (2,878)
Increase (decrease) in cash 95,073 (26,608)
Cash:
Beginning 11,064 46,724
Ending $ 106,137 $ 20,116
Supplemental Disclosures of Cash Flow Information
Cash payments for interest $ 589 $ 675
See Notes to Financial Statements.
<PAGE>
SURGIDYNE, INC.
NOTES TO FINANCIAL STATEMENTS
Note 1. Financial Statements
The Balance Sheet as of September 30, 1999, the Statement of Operations for the
three and nine month periods ended September 30, 1999 and September 30, 1998,
and the Statement of Cash Flows for the nine month periods ended September 30,
1999 and September 30, 1998 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, 1999; the results of operations for the three and nine month
periods ended September 30, 1999 and September 30, 1998, and the statement of
cash flows for the nine month periods ended September 30, 1999 and September 30,
1998 have been made. The Balance Sheet at December 31, 1998 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,
1999 1998
Component parts and
subassemblies $ 85,921 $ 96,097
Work in process 13,024 17,454
Finished goods 79,360 68,735
Less obsolescence reserve (10,000) (10,000)
$168,305 $172,286
Note 3. Furniture and Equipment
Furniture and equipment consisted of the following:
September 30, December 31,
1999 1998
Furniture, fixtures and
equipment $232,244 $232,244
Tooling and molds 101,152 101,152
$333,396 $333,396
Note 4. Net Earnings (Loss) Per Share
Because the Company has incurred a loss in the nine month period ended September
30, 1998, 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 for that period.
<PAGE>
ITEM 2. Management's Discussion and Analysis or Plan of Operations Results of
Operations
Sales. Sales revenues for the three and nine month periods ended September 30,
1999 were $177,430 and $502,503, respectively, or approximately 17% and 30% more
than sales for the same three and nine month periods in 1998.
Both the three month and nine month increases are primarily attributed to
increases in international product sales and the sales to one domestic Original
Equipment Manufacturer (OEM) customer. For the nine month period the Company
has experienced increases in all revenue areas, including international,
domestic (both distributor and direct sales) and OEM sales.
Gross profit. Gross profit expressed as a percentage of sales increased from
approximately 31% for the three month period ended September 30, 1998 to
approximately 43% for the same period in fiscal 1999 due primarily to increases
in product and OEM sales resulting in a more efficient overhead absorption for
the period.
Gross profit expressed as a percentage of sales increased from approximately 31%
for the first nine months of fiscal 1998 to approximately 41% for the same
period in 1999 for the same reason.
Operating Expenses. Operating expenses increased from $43,594 for the three
month period ended September 30, 1998 to $56,024 for the same period in fiscal
1999. The increase is primarily attributed to a $15,000 accrual the Company
elected to make for expenses regarding implementation of the Company's new Y2K
compatible computer system.
Operating expenses increased from $147,894 for the nine month period ended
September 30, 1998 to $171,572 for the same period in 1999 for the same reason.
Year 2000 Compliance
The Company believes that the only significant issue regarding its internal
compliance for the Year 2000 ("Y2K") is the replacement of the Company's
financial software package and the upgrade of computer hardware systems. The
Company plans to implement its Y2K compatible system by November 30, 1999. The
Company will acquire compliant computer hardware and software systems at an
estimated cost of $20,000. There are no critical issues regarding compliance
for the year 2000 for the products manufactured by the Company. At this time,
the Company believes that its most likely worst case scenario is that the
Company could experience a delay in receipt of needed inventory items and/or the
Company could experience a delay of payment in its accounts receivable.
Furthermore, Y2K problems involving third parties may have a negative impact on
our suppliers and customers, the general economy or the ability of businesses to
receive essential services such as telecommunications, utilities and banking.
Any such occurrence could adversely affect the Company.
The Company's contingency plan is to implement manual operating systems as may
be required. The plan assures that the Company's critical business processes
can be expected to continue to function on January 1, 2000 and beyond. The plan
is intended to mitigate both internal risks as well as potential risks in the
Company's supply chain. The Company is building larger than normal (60 to 90
day) inventories of disposable products to accommodate stockpile ordering or
interruption in raw material deliveries.
Liquidity and Capital Resources
As of September 30, 1999 the Company had working capital of $181,783 compared to
$143,453 at December 31, 1998.
Cash flows provided by operating activities for the first nine months of fiscal
1999 were $95,073, primarily due to net income of $36,134 combined with a
decrease in accounts receivable of $35,188, and an increase in accrued expenses
of $15,274.
Long-term liquidity is dependent upon the continued growth of sales volumes that
generate profitable operations.
<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, 1999.
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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 11, 1999 /s/ Vance D. Fiegel
Vance D. Fiegel
President and Principal
Accounting Officer
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