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, 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 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 12, 1999
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)
June 30, December 31,
1999 1998
ASSETS
Current Assets
Cash $ 51,124 $ 11,064
Accounts receivable, less allowance for
doubtful accounts of $4,200 82,225 82,206
Inventories (Note 2) 182,322 172,286
Prepaid expenses 11,082 12,954
Total current assets 326,753 278,510
Furniture and Equipment, at cost (Note 3) 333,396 333,396
Less accumulated depreciation 322,773 321,806
Total furniture and equipment 10,623 11,590
Other Assets
Patents and trademarks, net of accumulated
amortization of $17,602 in 1999 and
$17,046 in 1998 4,238 4,794
Deposits 3,529 3,529
Total other assets 7,767 8,323
Total assets $ 345,143 $ 298,423
See Notes to Financial Statements.
<PAGE>
SURGIDYNE, INC.
BALANCE SHEETS (Continued)
(Unaudited)
June 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 49,191 42,412
Accrued expenses 59,593 35,453
Total current liabilities 165,976 135,057
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 outstanding
7,017,085 in 1999 and 1998 4,472,042 4,472,042
Accumulated deficit (4,692,875) (4,708,676)
Total stockholders' equity 179,167 163,366
Total liabilities and
stockholders' equity $ 345,143 $ 298,423
See Notes to Financial Statements.
<PAGE>
SURGIDYNE, INC.
STATEMENTS OF OPERATIONS
(Unaudited)
June 30, June 30, June 30, June 30,
Three and Six Months Ended 1999 1998 1999 1998
OPERATIONS
Net sales $ 196,294 $ 128,484 $ 325,073 $ 235,384
Cost of goods sold 118,023 93,000 193,138 163,579
Gross profit 78,271 35,484 131,935 71,805
Operating expenses
Research and development 2,805 9,028 5,653 14,018
Sales and marketing 9,063 6,451 15,690 13,335
General and administrative 53,780 35,230 94,205 76,947
Total operating expenses 65,648 50,709 115,548 104,300
Operating income (loss) 12,623 (15,225) 16,387 (32,495)
Other income (expense)
Interest income 301 186 427 474
Interest expense (831) (1,169) (1,723) (2,276)
Other 45 35 710 760
Net income (loss) $ 12,138 $ (16,173) $ 15,801 $ (33,537)
Basic and diluted income
(loss) per common share $ .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 9,165,554 7,017,085 8,909,319 7,017,085
See Notes to Financial Statements.
<PAGE>
SURGIDYNE, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
June 30, June 30,
Six Months Ended 1999 1998
Cash Flows from Operating Activities
Net income (loss) $ 15,801 $ (33,537)
Adjustments to reconcile net income (loss)
to net cash provided by (used in)
operating activities:
Depreciation and amortization 1,523 4,407
Changes in assets and liabilities:
(Increase) decrease in:
Accounts receivable (19) 4,121
Inventories (10,036) (2,846)
Prepaid expenses 1,872 2,850
Increase (decrease) in:
Accounts payable and accrued expenses 30,919 16,581
Net cash provided by (used in)
operating activities 40,060 (8,424)
Cash Flows used in Investing Activities
Capital expenditures - -
Net cash used in investing activities - -
Cash Flows from Financing Activities
Payments on capital leases payable - (1,918)
Net cash used in financing activities - (1,918)
Increase (decrease) in cash 40,060 (10,342)
Cash:
Beginning 11,064 46,724
Ending $ 51,124 $ 36,382
Supplemental Disclosures of Cash Flow Information
Cash payments for interest $ 516 $ 551
See Notes to Financial Statements.
<PAGE>
SURGIDYNE, INC.
NOTES TO FINANCIAL STATEMENTS
Note 1. Financial Statements
The Balance Sheet as of June 30, 1999, the Statement of Operations for the three
and six month periods ended June 30, 1999 and June 30, 1998, and the Statement
of Cash Flows for the six month periods ended June 30, 1999 and June 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 June 30, 1999; the results of
operations for the three and six month periods ended June 30, 1999 and June 30,
1998, and the statement of cash flows for the six month periods ended June 30,
1999 and June 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:
June 30, December 31,
1999 1998
Component parts and
subassemblies $ 89,202 $ 96,097
Work in process 18,414 17,454
Finished goods 84,706 68,735
Less obsolescence
reserve (10,000) (10,000)
$ 182,322 $ 172,286
Note 3. Furniture and Equipment
Furniture and equipment consisted of the following:
June 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 three and six month periods ended
June 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 those periods.
<PAGE>
ITEM 2. Management's Discussion and Analysis or Plan of Operation
Results of Operations - 1999 compared to 1998
Sales. Sales revenues for the three and six month periods ended June 30, 1999
were $196,294 and $325,073, respectively, or respective increases of
approximately 53% and 38% compared to sales for the same periods in 1998.
Both the three month and six month increases are primarily attributed increases
in international product sales and the sales to one domestic OEM customer.
For the six 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 28% and 31% for the three and six month periods ended June 30,
1998 to approximately 40% and 41% for the three and six month periods ended June
30, 1999, respectively. These increases are primarily attributed to increases
in OEM sales to one customer. OEM sales to this customer yield a greater gross
profit and enable the Company to absorb overhead costs in a more efficient
manner.
Operating Expenses. Operating expenses increased from $50,709 for the three
months ended June 30, 1998 to $65,648 for the same period in fiscal 1999. This
increase is primarily attributed to a $16,000 accrual the Company elected to
make for expenses regarding the annual regulatory review of the CE mark and
implementation of the Company's Y2K system.
Operating expenses increased from $104,300 for the six month period ended June
30, 1998 to $115,548 for the same period in fiscal 1999. This increase is due
primarily to the same factors discussed regarding the three month period, offset
by decreases in Research and Development expenditures due to a reduction in
salary expense.
Year 2000 Compliance
The Company believes that the only significant issue regarding its internal
compliance for the Year 2000 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 software systems at an estimated cost of
$10,000. There are no critical issues regarding compliance for the year 2000
regarding products manufactured by Surgidyne. At this time, the Company
believes that its most reasonably, 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 in the receipt of payment on 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 is working to prepare a contingency plan so 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. A contingency plan is to
be substantially finalized by October, 1999.
Liquidity and Capital Resources
At June 30, 1999 the Company had working capital of $160,777 compared to
$143,453 at December 31, 1998.
The cash flows provided by operating activities for the first six months of 1999
were $40,060, primarily due to net income of $15,801 and a $30,919 increase in
accounts payable and accrued expenses. These increases were partially offset by
a $10,036 increase in inventories.
Long-term liquidity is dependent upon the continued growth of sales volumes that
generate profitable operations. Increased sales volumes in 1999 depend largely
on increased business from contract manufacturing, and increased sales from
existing products.
<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, 1999.
---------------------
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 12, 1999 /s/ Vance D. Fiegel
Vance D. Fiegel
President and Principal
Accounting Officer
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