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, 2000
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT.
Commission File Number 33-13058-C
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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
September 30, 2000
Transitional Small Business Disclosure Format.
YES X NO
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
SURGIDYNE, INC.
BALANCE SHEETS
September 30, December 31,
2000 (unaudited) 1999
ASSETS
Current Assets
Cash $ 22,336 $ 70,090
Accounts receivable, less allowance for
doubtful accounts of $4,200 26,731 50,667
Inventories (Note 2) 177,582 182,310
Prepaid expenses 8,536 26,317
Prepaid consulting expense (Note 5) 61,816 -
Total current assets 297,001 329,384
Furniture and Equipment, at cost (Note 3) 352,887 333,396
Less accumulated depreciation and
amortization 327,466 323,759
Total furniture and equipment 25,421 9,637
Other Assets
Patents and trademarks, net of accumulated
amortization of $18,547 in 2000 and
$17,980 in 1999 3,293 3,860
Deposits 3,529 3,529
Total other assets 6,822 7,389
Total assets $ 329,244 $ 346,410
See Notes to Financial Statements.
SURGIDYNE, INC.
BALANCE SHEETS (continued)
September 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 42,123 45,135
Accrued expenses 56,180 55,974
Total current liabilities 153,969 158,301
Capital lease obligation, less current maturities 16,162 -
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
8,400,000 shares;
Issued and outstanding 7,017,085 4,564,766 4,472,042
Accumulated deficit (4,805,653) (4,683,933)
Total stockholders' equity 159,113 188,109
Total liabilities and
stockholders' equity $ 329,244 $ 346,410
See Notes to Financial Statements
SURGIDYNE, INC.
STATEMENTS OF OPERATIONS (UNAUDITED)
Three months ended Nine months ended
September 30 September 30 September 30 September 30
2000 1999 2000 1999
Net sales $ 100,889 $ 177,430 $ 344,927 $ 502,503
Cost of goods sold 95,031 100,924 271,276 294,063
Gross profit 5,858 76,506 73,651 208,440
Operating expenses
Research and development 2,823 5,658 8,541 11,315
Sales and marketing 8,825 6,499 25,307 22,188
General and administrative 59,768 43,867 158,845 138,069
Total operating expenses 71,416 56,024 192,693 171,572
Operating income(loss) (65,558) 20,482 (119,042) 36,868
Other Income (expense)
Interest income 97 466 1,255 894
Interest expense (1,334) (686) (3,953) (2,408)
Other 20 70 20 780
Net income (loss) $ (66,775) $ 20,332 $ (121,720) $ 36,134
Basic and diluted
income(loss) per
common share $ 0.00 $ 0.00 $ (0.01) $ 0.00
Weighted average
Common shares
outstanding-basic 7,017,085 7,017,085 7,017,085 7,017,085
Weighted average common
shares outstanding-
diluted 7,017,085 8,717,470 7,017,085 8,751,390
See Notes to Financial Statements
SURGIDYNE, INC.
STATEMENTS OF CASH FLOWS (UNAUDITED)
Nine months ended
September 30, 2000 September 30,1999
Cash Flows from Operating Activities
Net income (loss) $ (121,721) $ 36,134
Adjustments to reconcile net income(loss) to net
Cash provided by (used in) operating activities:
Depreciation and amortization 4,273 2,196
Amortization of prepaid consulting expenses 30,908 -
Changes in assets and liabilities:
(Increase) decrease in:
Accounts receivable 23,936 35,188
Inventories 4,728 3,981
Prepaid expenses 17,782 2,300
Increase (decrease) in:
Accounts payable and accrued expenses (2,805) 15,274
Net cash provided by (used in)
operating activites (42,899) 95,073
Cash Flows from Financing Activities
Payments on capital lease obligation (3,329) -
Payments on notes payable (1,526) -
Net cash used in financing activities (4,855) -
Increase (decrease) in cash (47,754) 95,073
Cash:
Beginning 70,090 11,064
Ending $ 22,336 $ 106,137
Supplemental Disclosures of Cash Flow Information
Cash payments for interest $ 1,309 $ 589
Equipment acquired under capital lease 19,491 -
Warrant issued for consulting services (Note 5) $ 92,724 -
See Notes to Financial Statements
SURGIDYNE, INC.
NOTES TO FINANCIAL STATEMENTS (unaudited)
Note 1. Financial Statements
The Balance Sheet as of September 30, 2000, the Statement of Operations for
the three and nine month periods ended September 30, 2000 and September
30, 1999, and the Statement of Cash Flows for the nine month periods ended
September 30, 2000 and September 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 September 30, 2000; the results of
operations for the three and six month periods ended September 30, 2000 and
September 30, 1999 and the statement of cash flows for the nine month periods
ended September 30, 2000 and September 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 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:
September 30, December 31,
2000 1999
Component parts and
Subassemblies $ 92,336 $ 81,182
Work in process 24,464 12,235
Finished goods 70,782 98,893
Less obsolescence reserve (10,000) (10,000)
$ 177,582 $ 182,310
Note 3. Furniture and Equipment
Furniture and equipment consisted of the following:
September 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 nine-month
periods ended September 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 assurance 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 $23,346 has been reflected as an operating expense for the
three-month period and $31,128 for the nine-month period ended September
30, 2000.
Note 6. Revenue Recognition
In 1999, the staff of the Securities and Exchange Commission issued
Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial
Statements". SAB No. 101 summarizes some of the staff's interpretations of
the application of generally accepted accounting principles to revenue
recognition. The Company will adopt SAB No. 101 when required in the fourth
quarter of 2000. Management believes the adoption of SAB No. 101 will not
have a significant affect on its financial statements.
ITEM 2. Management's Discussion and Analysis or Plan of Operations
Results of Operations - 2000 compared to 1999
Sales. Sales for the first nine months of fiscal 2000 were $344,927 compared
to $502,503 in fiscal 1999, a decrease of approximately 31%. Sales for the
three months ended September 30, 2000 were $100,889 compared to $177,430 in
the same period of 1999, a decrease of approximately 43%. Of the $157,576
decrease in nine-month sales, 49% is due to the loss of a single OEM account,
and 37% is due to a loss in domestic revenues from sales of its VariDyne
Vacuum Controllers and disposable Canister Kits. The reduced canister sales
can be attributed to the loss of a major hospital account combined with a
somewhat lower use rate by some of the hospital accounts. Of the $76, 541
decrease in the three months sales, 33.5% is due to the loss of the single
OEM account, while 33% of the loss is due to reduced purchases by its Italian
dealer, and the balance is due to a general decrease in purchases of the
Company's products.
Gross Profit. Gross profit expressed as a percentage of sales decreased from
approximately 41% for the first nine months of 1999 to approximately 21% 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 $171,572 for the
nine-month period ended September 30, 1999 to $192,693 for the same period
in 2000. This increase was primarily due to a $13,559 increase in legal and
accounting fees (with increased accounting fees of $10,713 being attributed
to the new SEC regulations effective in the year 2000), and a monthly expense
of $7782 for the amortization of the consulting agreement signed in June.
(See Note 5)
Liquidity and Capital Resources
At September 30, 2000 the Company had working capital of $143,032 compared to
$171,083 at December 31, 1999.
The net cash used in operating activities for the first nine months of 2000 was
$42,877, primarily due to the net loss of $121,720, which was partially offset
by depreciation and amortization of $35,181 and a net positive change
in working capital components of $43,640.
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.
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.
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.
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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 13, 2000 /s/ Vance D. Fiegel
By: Vance D. Fiegel
President and
Principal Accounting Officer
