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, 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
May 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)
March 31, December 31,
1999 1998
ASSETS
Current Assets
Cash $ 48,291 $ 11,064
Accounts receivable, less
allowance for doubtful
accounts of $4,200 39,631 82,206
Inventories (Note 2) 183,458 172,286
Prepaid expenses 17,372 12,954
Total current assets 288,752 278,510
Furniture and Equipment,
at cost (Note 3) 333,396 333,396
Less accumulated depreciation 322,289 321,806
Total furniture and equipment 11,107 11,590
Other Assets
Patents and trademarks, net of
accumulated amortization of
$17,413 in 1999 and $17,046
in 1998 4,427 4,794
Deposits 3,529 3,529
Total other assets 7,956 8,323
Total assets $ 307,815 $ 298,423
See Notes to Financial Statements.
<PAGE>
SURGIDYNE, INC.
BALANCE SHEETS (Continued)
(Unaudited)
March 31, December 31,
1999 1998
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Note payable to officer and
director $ 10,000 $ 10,000
12% demand note payable 11,646 11,646
Non-interest bearing demand note
payable 35,546 35,546
Accounts payable 45,418 42,412
Accrued expenses 38,177 35,453
Total current liabilities 140,787 135,057
Stockholders' Equity
Series A Preferred stock,
authorized 1,600,000 shares;
$400,000 liquidation preference,
1,600,000 shares issued and out-
standing 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 (4,705,014) (4,708,676)
Total stockholders' equity 167,028 163,366
Total liabilities and
stockholders' equity $ 307,815 $ 298,423
See Notes to Financial Statements.
<PAGE>
SURGIDYNE, INC.
STATEMENTS OF OPERATIONS
(Unaudited)
March 31, March 31,
Three Months Ended 1999 1998
Net sales $ 128,779 $ 106,900
Cost of goods sold 75,115 70,579
Gross profit 53,664 36,321
Operating expenses
Research and development 2,848 4,990
Sales and marketing 6,628 6,884
General and administrative 40,424 41,717
Total operating expenses 49,900 53,591
Operating Income (loss) 3,764 (17,270)
Other income (expense)
Interest income 126 288
Interest expense (892) (1,107)
Other 664 725
Net income (loss) $ 3,662 $ (17,364)
Basic and diluted income (loss) per
common share $ .00 $ .00
Weighted average common shares
outstanding - basic 7,017,085 7,017,085
Weighted average common shares
outstanding - diluted 8,653,085 7,017,085
See Notes to Financial Statements.
<PAGE>
SURGIDYNE, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
March 31, March 31,
Three Months Ended 1999 1998
Cash Flows from Operating Activities
Net income (loss) $ 3,662 $ (17,364)
Adjustments to reconcile net income
(loss) to net cash provided by
(used in) operating activities:
Depreciation and amortization 850 2,244
Changes in assets and liabilities:
(Increase) decrease in:
Accounts receivable 42,575 12,459
Inventories (11,172) (12,608)
Prepaid expenses (4,418) 2,386
Increase (decrease) in:
Accounts payable and accrued
expenses 5,730 190
Net cash provided by (used in)
operating activities 37,227 (12,693)
Cash Flows used in Investing Activities
Capital expenditures - -
Net cash used in investing
activities - -
Cash Flows from Financing Activities
Payments on capital leases payable - (959)
Net cash used in financing
activities - (959)
Increase (decrease) in cash 37,227 (13,652)
Cash:
Beginning 11,064 46,724
Ending $ 48,291 $ 33,072
Supplemental Disclosures of Cash Flow Information
Cash payments for interest $ 292 $ 249
See Notes to Financial Statements.
<PAGE>
SURGIDYNE, INC.
NOTES TO FINANCIAL STATEMENTS
Note 1. Financial Statements
The Balance Sheet as of March 31, 1999, the Statement of Operations for the
three month periods ended March 31, 1999 and March 31, 1998, and the Statement
of Cash Flows for the three month periods ended March 31, 1999 and March 31,
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 March 31, 1999; the
results of operations for the three month periods ended March 31, 1999 and March
31, 1998, and the statement of cash flows for the three month periods ended
March 31, 1999 and March 31, 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
future financial conditions or operating results.
Note 2. Inventories
Inventories consisted of the following:
March 31, December 31,
1999 1998
Component parts and
subassemblies $ 93,592 $ 96,097
Work in process 19,876 17,454
Finished goods 79,990 68,735
Less obsolescence reserve (10,000) (10,000)
$ 183,458 $ 172,286
Note 3. Furniture and Equipment
Furniture and equipment consisted of the following:
March 31, 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 one interim period, 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 - 1999 compared to 1998
Sales. Sales for the first three months of fiscal 1999 were $128,779, an
increase of approximately 20% compared to sales for the same period in fiscal
1998. This increase is primarily attributed to increases in contract
manufacturing revenues to one OEM customer. Contract manufacturing revenues for
the first three months of fiscal 1999 increased in excess of $20,000 as compared
to the same period in 1998.
Gross Profit. Gross profit expressed as a percentage of sales increased from
approximately 34% for the first three months of fiscal 1998 to approximately 42%
for the same period in 1999 due primarily to increases in OEM sales to one
customer. OEM sales to this customer yield a larger gross profit and enable the
Company to absorb overhead costs in a more efficient manner.
Operating Expenses. Operating expenses decreased from $53,591 for the three
month period ended March 31, 1998 to $49,900 for the same period in 1999. The
decrease is primarily attributed to a reduction in research and development
costs. Total research and development costs decreased from $4,990 for the three
months ended March 31, 1998 to $2,848 for the three months ended March 31, 1999,
this decrease is attributed 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 hardware systems. The Company is planning
to implement its Y2K compatible system by September 30, 1999. The Company will
acquire compliant computer software systems at an estimated cost of $10,000.
The Company also plans to obtain new Y2K compliant computer hardware via a three
year equipment lease. There are no critical issues regarding compliance for the
year 2000 for 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 September 1999.
Liquidity and Capital Resources
At March 31, 1999 the Company had working capital of $147,965 compared to
$143,453 at December 31, 1998.
The cash flows provided by operating activities for the first three months of
1999 were $37,227, primarily due to a decrease in accounts receivable of
$42,575, and an increase in accounts payable of $5,730. These changes were
partially offset by an $11,172 increase in inventories.
The Company plans 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 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 throughout 1999 depend largely on increased business
from contract manufacturing, and increased sales from existing and new 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 filled during the three month
period ended March 31, 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, thereunto duly
authorized.
SURGIDYNE, INC.
(Registrant)
Date May 14, 1999 /s/ Vance D. Fiegel
Vance D. Fiegel
President and Principal
Accounting Officer
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