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, 2000
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 of organization) Identification Number)
9909 South Shore Drive, Minneapolis, MN 55441
(Address of principal executive offices)
(763) 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
periods 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
June 30, 2000.
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
June 30, December 31,
2000 (unaudited) 1999
ASSETS
Current Assets
Cash $ 24,289 $ 70,090
Accounts receivable,
less allowance for doubtful
accounts of $4,200 53,277 50,667
Inventories (Note 2) 183,003 182,310
Prepaid expenses 11,696 26,317
Prepaid consulting
expense (Note 5) 84,997 -
Total current assets 357,262 329,384
Furniture and Equipment,
at cost (Note 3) 352,887 333,396
Less accumulated depreciation
and amortization 326,258 323,759
Total furniture and equipment 26,629 9,637
Other Assets
Patents and trademarks, net of
accumulated amortization of
$18,169 in 2000 and $17,980 in 1999 3,482 3,860
Deposits 3,529 3,529
Total other assets 7,011 7,389
Total assets $ 390,902 $ 346,410
See Notes to Financial Statements.
<PAGE>
SURGIDYNE, INC.
BALANCE SHEETS (continued)
June 30, December 31,
2000 (unaudited) 1999
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Notes payable to officers and directors $ 8,474 $ 10,000
12% demand note payable 11,646 11,646
Non-interest bearing demand note payable 35,546 35,546
Accounts payable 39,183 45,135
Accrued expenses 52,934 55,974
Total current liabilities 147,783 158,301
Capital lease obligation,
less current maturities 17,231 -
Stockholders' Equity
Series A Preferred stock,
authorized 1,600,000 shares;
$400,000 liquidation preference,
1,600,000 shares
Issued and outstanding 400,000 400,000
Common stock, no par value;
authorized 18,400,000 shares;
Issued and outstanding 7,017,085 4,564,766 4,472,042
Accumulated deficit (4,738,878) (4,683,933)
Total stockholders' equity 225,888 188,109
Total liabilities and
stockholders' equity $ 390,902 $ 346,410
See Notes to Financial Statements
<PAGE>
SURGIDYNE, INC.
STATEMENTS OF OPERATIONS (UNAUDITED)
Three months ended Six months ended
June 30 June 30 June 30 June 30
2000 1999 2000 1999
Net sales $ 125,823 $ 196,294 $ 244,038 $ 325,073
Cost of goods sold 84,026 118,023 176,245 193,138
Gross profit 41,797 78,271 67,793 131,935
Operating expenses
Research and development 2,829 2,805 5,719 5,653
Sales and marketing 9,822 9,063 17,556 15,690
General and administrative 46,827 53,780 98,002 94,205
Total operating expenses 59,478 65,648 121,277 115,548
Operating income (loss) (17,681) 12,623 (52,984) 16,387
Other Income (expense)
Interest income 417 301 1,158 427
Interest expense (1,518) (831) (2,619) (1,723)
Other - 45 - 710
Net income (loss) $ (18,782) $ 12,138 $ (54,945) $ 15,801
Basic and diluted income
(loss) per common
share $ 0.00 $ 0.00 $ (0.01) $ 0.00
Weighted average common
shares outstanding-
basic 7,01,7085 7,01,7085 7,017,085 7,017,085
Weighted average common
shares outstanding-
diluted 7,017,085 9,165,554 7,017,085 8,909,319
See Notes to Financial Statements
<PAGE>
SURGIDYNE, INC.
STATEMENTS OF CASH FLOWS (UNAUDITED)
Six months ended
June 30, 2000 June 30, 1999
Cash Flows from Operating Activities
Net income (loss) $ (54,945) $ 15,801
Adjustments to reconcile net
income (loss) to net cash provided
by (used in) operating activities:
Depreciation and amortization 2,877 1,523
Amortization of prepaid consulting
expenses 7,727 -
Changes in assets and liabilities:
(Increase) decrease in:
Accounts receivable (2,610) (19)
Inventories (693) (10,036)
Prepaid expenses 14,621 1,872
Increase (decrease) in:
Accounts payable and accrued
expenses (8,992) 30,919
Net cash provided by (used in)
operating activites (42,015) 40,060
Cash Flows from Financing Activities
Payments on capital lease obligation (2,260) -
Payments on notes payable (1,526) -
Net cash used in financing activities (3,786) -
Increase (decrease) in cash (45,801) 40,060
Cash:
Beginning 70,090 11,064
Ending $ 24,289 $ 51,124
Supplemental Disclosures of Cash Flow Information
Cash payments for interest $ 640 $ 516
Equipment acquired under capital
lease $ 19,491 -
Warrant issued for consulting
services (Note 5) $ 92,724 -
See Notes to Financial Statements
<PAGE>
SURGIDYNE, INC.
NOTES TO FINANCIAL STATEMENTS (unaudited)
Note 1. Financial Statements
The Balance Sheet as of June 30, 2000, the Statement of Operations for the three
and six month periods ended June 30, 2000 and June 30, 1999, and the Statement
of Cash Flows for the six month periods ended June 30, 2000 and June 30, 1999
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, 2000; the results of
operations for the three and six month periods ended June 30, 2000 and June 30,
1999 and the statement of cash flows for the six six month periods ended June
30, 2000 and June 30, 1999 have been made. The Balance Sheet at December 31,
1999 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. These interim financial financial
statements should be read in conjunction with the Company's annual financial
statements and related notes there to included in the Company's form 10-KSB for
the year ended December 31, 1999.
Note 2. Inventories
Inventories consisted of the following:
June 30, December 31,
2000 1999
Component parts and
Subassemblies $ 85,338 $ 81,182
Work in process 17,499 12,235
Finished goods 90,166 98,893
Less obsolescence reserve (10,000) (10,000)
$ 183,003 $ 182,310
Note 3. Furniture and Equipment
Furniture and equipment consisted of the following:
June 30, December 31,
2000 1999
Furniture, fixtures and
Equipment $ 251,735 $ 232,244
Tooling and molds 101,152 101,152
$ 352,887 $ 333,396
Note 4. Basic and Diluted Income (Loss) Per Share
Because the Company has incurred a loss in the three and six-month periods ended
June 30, 2000 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 these periods.
Note 5. Consulting Agreement
On June 2, 2000, the Company retained Equity Securities Investments, Inc. (the
Consultant) to advise and assist the Company in evaluating strategic
opportunities including a possible sale or merger. However, there can be no ass-
urance that these activities will result in a proposal acceptable to the Company
or that any transaction will be completed.
The consulting agreement has a term of one year and provides the Consultant with
a warrant to purchase 600,000 shares of Company common stock at a price of $0.17
per share. The Company valued this warrant using the Black-Scholes pricing
model, which resulted in a value of approximately $93,000. The expense is being
recognized over the term of the agreement and approximately $7,800 has been
reflected as an operating expense for the three and six-month periods ended June
30, 2000.
ITEM 2. Management's Discussion and Analysis or Plan of Operations
Results of Operations - 2000 compared to 1999
Sales. Sales for the first six months of fiscal 2000 were $244,038 compared to
$325,073 in fiscal 1999, a decrease of approximately 25%. Sales for the three
months ended June 30, 2000 were $125,829 compared to $196,294 in the same period
of 1999, a decrease of approximately 36%. This decrease is primarily attributed
to decreases in contract manufacturing revenues to one OEM customer. Contract
manufacturing revenues for the first six months of 2000 decreased by approx-
imately $54,470, $27,049 for the three for the three months ended June 30, 2000.
This decrease was partially offset by increased international product sales for
the same period.
Gross Profit. Gross profit expressed as a percentage of sales decreased from
approximately 41% for the first six months of 1999 to approximately 27% for the
same period in 2000 due primarily to decreases in OEM sales to one customer and
increases in international product sales. OEM sales to this one customer
yielded a larger gross profit and enabled the Company to absorb overhead costs
in a more efficient manner. Increases in international sales have also affected
gross profit since international product sales traditionally have a lower gross
profit.
Operating Expenses. Operating expenses increased from $49,900 for the six-month
period ended June 30, 1999 to $61,800 for the same period in 2000. This increase
was due to increases in legal and accounting fees accompanied with increased
salary expenses. Sales and marketing, and research and development costs
reflected little or no change between the two periods.
Liquidity and Capital Resources
At June 30, 2000 the Company had working capital of $209,479 compared to
$171,083 at December 31, 1999.
The cash flows used in operating activities for the first six months of 2000
were $42,015, primarily due to the net loss of $54,945, which was partially
offset by depreciation and amortization of $2,877, and a net positive change in
operating assets and liabilities of $2,326.
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.
The ability of the Company to continue as a going concern and its short-term
liquidity is dependent upon obtaining additional debt and/or equity financing to
fund future development and operations. 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
2000 depend largely on increased business from contract manufacturing, and
increased sales from existing and new products.
Consulting Agreement: As stated in Note 5 of the interim financial statements,
on June 2, 2000, the Company retained Equity Securities Investments, Inc. (the
Consultant) to advise and assist the Company in evaluating strategic
opportunities including a possible sale or merger. However, there can be no
assurance that these activities will result in a proposal acceptable to the
Company or that any transaction will be completed.
Seasonality: The Company is not subject to any significant seasonal factors.
Market Risk and Impact of Inflation: We do not believe that we have any
significant risks related to interest rate fluctuations. We also believe that
inflation has not had a material impact on our results of operations. We cannot
assure you that future inflation will not have an adverse impact on our
operations results and financial condition.
Forward-looking statement
This document includes forward-looking statements based on current expectations.
Actual results may differ materially. These forward-looking statements involve
a numbers of risks and uncertainties including, but not limited to, the receipt
and shipping of new orders for the Company's current products; the timely
introduction and market acceptance of new products and research and development
funding at the levels required.
<PAGE>
PART III. 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 June 30, 2000.
-----------------------
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: August 10, 2000 /s/ Vance D. Fiegel
By: Vance D. Fiegel
President and Principal
Accounting Officer
