SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-KSB
(Mark One)
X ANNUAL REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT
OF 1934 For the Fiscal Year Ended December 31, 1999
___ TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
Commission File Number: 33-13058-C
SURGIDYNE, INC.
(Name of small business issuer in its charter)
Minnesota
(State of other jurisdiction of incorporation or organization)
58-1486040
(I.R.S. Employer Identification Number)
9909 South Shore Drive
Minneapolis, MN
(Address of principal executive offices)
55441
(Zip Code)
Issuer's telephone number (763) 595-0665
Securities registered pursuant to Section 12(b) of the Act:
NONE
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, no par value
(Title of class)
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
Check if disclosure of delinquent filers in response to Item 405 of Regulation
S-B contained is not in this form, and no disclosure will be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. X
Issuer's revenues for the year ended December 31, 1999 were $633,584.
The aggregate market value of the voting stock held by non-affiliates of the
Registrant as of December 31, 1999 was approximately $1,223,000 (based on a
price of $.22 per share, the bid price of the local over-the-counter market.)
For purposes of this calculation, all Directors and Executive Officers of the
Registrant have been deemed affiliates.
Shares of Common Stock, no par value, were outstanding at December 31, 1999
DOCUMENTS INCORPORATED BY REFERENCE
NONE
This Form 10-KSB consists of 24 pages (including exhibits). The index
to exhibits is set forth on page 23.
<PAGE>
ITEM 1. DESCRIPTION OF BUSINESS
General
Surgidyne, Inc. (the "Company"), a Minnesota corporation designs, develops,
manufactures and markets specialty medical and surgical wound drainage products.
The Company was incorporated in Minnesota in March, 1984, and is successor by
merger to a corporation of the same name which was incorporated in Georgia in
September, 1982. The Company's executive offices are located at 9909 South
Shore Drive, Minneapolis, Minnesota 55441 (763-595-0665)
Products
The Company's currents product lines are comprised of VariDyne microelectronic
A.C./D.C. battery powered suction systems with disposable drainage/collection
products for postoperative and other suction drainage applications, disposable
SABER and S-VAC 100 bulb evacuators for postoperative closed wound suction
drainage along with other related disposable products. The Company also sells
some of its disposable wound drainage components on an original equipment
manufacturer (OEM) basis. Additionally, the Company provides contract assembly
and packaging services for disposable medical and related products.
In 2000 the Company plans to expand its' line to include additional manual
evacuators and drains for closed wound suction drainage. During 2000 the Company
would also like to expand OEM and contact manufacturing.
Marketing and Distribution
The Company's basic products are sold through a network of independent dealers,
with eight domestic dealers and four international dealers. The Company sells
directly to hospital accounts in the United States in areas without dealer
representation. The Company does not employ and outside sales force and is
largely dependent upon its dealers for sales and service to hospital accounts.
Internationally, the Company's products are sold through four dealers located in
Canada, Puerto Rico, the United Kingdom, and Italy.
The Company's business is not seasonal in nature. The Company typically does not
provide extended payment terms to customers and, has had satisfactory
collections of accounts receivable. Sales are usually made on a net 30-day
basis. Sales orders from the exclusive dealer in Italy are done by irrevocable
letter of credit in U.S. dollars or are prepaid by bank wire transfer.
Suppliers
The Company purchases all components for its products from outside suppliers and
has some components manufactured to its specification. The Company is dependent
upon such suppliers for a readily available supply of necessary components. The
Company has single sources of supply for some of its critical components. Man-
agement has determined that developing and maintaining additional sources for
all critical components is not cost effective. The Company has no written agree-
ments with its suppliers, other than purchase orders.
Most suppliers sell to the Company on standard credit terms, while some sell on
a collect-on-delivery basis.
Patents and Trademarks
The Company has a patent covering its SABER Bulb Evacuator. There can be no
assurance that this patent will be of material benefit to the Company.
Major Customers
Net sales to international customers for the years ended December 31, 1999 and
1998 totaled $257,405 and $227,320 respectively, representing approximately 41%
and 40% of the Company's sales. Chirmed, S.R.L., located in Sassari, Italy
accounted for 26% and 28% of total net sales for 1999 and 1998, respectively.
Snap Laboratories, Inc., an OEM customer, accounted for 13% and 9% of total net
sales in 1999 and 1998, respectively. Forth Medical, Ltd., located in Berkshire,
England accounted for 10% and 9% of total net sales in 1999 and 1998,
respectively. The loss or material reduction of business from any of these
major customers could adversely affect future net sales levels.
<PAGE>
Competition
The hospital market for disposable suction drainage products is highly price
competitive. One company, Stryker Corporation, an orthopedic product company,
markets battery powered suction drainage systems, including both wound and
orthopedic drainage and auto transfusion products. A number of other companies
market disposable closed suction wound drainage products including Allegiance
Healthcare, Zimmer, Inc., Johnson and Johnson, and C.R. Bard. The Company's
products are designed to provide significant enhancements to existing products
in its specific market niches.
The Company's Varidyne system is the only battery powered system with variable
and controllable vacuum up to 350 mm Hg and is the only system with a closed
infection control system for emptying. Such a system protects healthcare
providers from cross contamination resulting from infectious pathogens in wound
exudates.
The Company's Saber bulb evacuator is the only such infection control system
with an integral anti-reflux valve and closed system for simultaneous emptying
and reactivation.
Research and Development
The Company incurred research and development expenditures of $14,671 and
$20,676 for the years ended December 31, 1999 and 1998, respectively. The Comp-
any expects to maintain similar development expenditures in 2000.
Government Regulation
The Company's products are classified as Class I and II medical devices under
the Medical Device Amendment to the Federal Food, Drug, and Cosmetic Act (the
"Act"). As such they are subject to regulation by the United States Food and
Drug Administration (FDA), which has the power to approve medical devices
before sales, remove medical devices from the marketplace if found to be un-
safe of ineffective, and control plant conditions to assure product quality.
No government approval, other than FDA pre-market approval, is required for sale
and use of the Company's products in the United States and Puerto Rico. The
has FDA 510(k) exemption for all marketed products, including Varidyne Vacuum
Controllers and collection systems, SABER and S-VAC 100 Bulb Evacuators. The
Varidyne Vacuum Controller Models 140 and 350, used in conjunction with the CSA
approved Model 2007 battery charger, have been approved by the Canadian
Standards Association.
The Company's products required the CE mark for European markets as of June 14,
1998. The Company received CE mark certification July 22, 1998, valid for three
years, for products marketed to dealers in Europe.
Employees
At December 31, 1999, the Company employed 5 full-time persons. None of the
Company's employees are represented by a labor union. The Company has exper-
ienced no work stoppages and believes that its employee relations are good.
ITEM 2. DESCRIPTION OF PROPERTY
The Company's administrative headquarters, research and development, production
and warehousing operations are located in a single building in Minneapolis,
Minnesota, The facility comprises approximately 6,400 square feet, which the
Company leases for approximately $2,800 per month through November 2001. Manage-
ment considers that this property is sufficient for its present operations.
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
The Company has one pending legal matter as of December 31, 1999 in regards to a
demand promissory note due. As of December 31, 1999 the holder of the note had
declared bankruptcy and contacted the Company regarding the payment of this
currently due note payable of approximately $36,000. Both parties are currently
negotiating the settlement of the amount to be paid by the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of shareholders during the fourth quarter
ended December 31, 1999.
<PAGE>
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The following table sets forth for the fiscal period indicated, the high and low
bid prices as reported in the local over-the-counter market in Minneapolis,
Minnesota, by RJ Steichen & Company. These quotations reflect inter-dealer
prices, without retail mark-up, markdown, or commission and may not represent
actual transactions.
Bid Price Range
Fiscal Period 1999 1998
High Low High Low
First Quarter $.15 $.07 $.08 $.03
Second Quarter .25 .19 .10 .03
Third Quarter .50 .24 .10 .03
Fourth Quarter .38 .22 .10 .03
On December 31, 1999, the bid price for the common shares as reported in the
local over-the-counter market value was $.22 per share and the Company had
396 holders of record of its common shares. Although the shares are reported in
the local over-the-counter market, there was limited sales activity.
The Company has not paid cash dividends on its common shares and does not plan
to pay cash dividends to its shareholders in the immediate future. On December
1, 1993, the Company's debenture holders elected to convert the face value of
the debentures into 1,600,000 shares of unregistered Series A preferred stock at
$.25 per share. Commencing January 1, 1994, the preferred shareholders are
entitled to a dividend equal to 3% of net sales. The dividend in a given year
is limited to 50% of the Company's net income cumulative dividends cannot exceed
$210,000.
As of December 31, 1999 cumulative dividends totaled $20,329.
<PAGE>
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
Results of Operations - 1999 compared to 1998
Net Sales. Net sales for the year ended December 31, 1999 increased by $60,530
as compared to the same period in 1998. International sales increased by
$30,085 due to increased sales to Europe. Domestic OEM sales increased by
$20,975, due primarily to one customer.
Gross Profit. Gross profit, expressed as a percentage of sales, increased from
35% in 1998 to 39% in 1999. This increase is due primarily to increased OEM
production. OEM production during 1999 yielded a higher gross profit for the
Company as compared to international and domestic dealer sales. The overall
increase in volume also allowed the Company to operate at a lower rate of
overhead cost absorption per unit manufactured as compared to 1998.
Operating Expenses. Operating expenses remained relatively flat between years.
Results of Operations - 1998 compared to 1997
Net Sales. Net sales for the year ended December 31, 1998 increased by $86,293
as compared to the same period in 1997. Sales to Europe increased $85,254 pri-
marily due to the Company obtaining the CE mark for its products marketed to
countries in the European community.
Gross Profit. Gross profit, expressed as a percentage of sales, increased from
23% in 1997 to 35% in 1998. This increase is due to increased production and a
lower absorption of overhead per unit manufactured.
Operating Expenses. Operating expenses increased from $180,379 in 1997 to
$197,786 in 1998. This increase is primarily due to the costs incurred by the
Company in connection with obtaining CE mark certification in July 1998.
Liquidity and Capital Resources
At December 31, 1999 the Company had working capital of $171,083 compared to
working capital of $143,453 at December 31, 1998. In 1999, net cash provided by
operating activities was $59,026 compared to $32,531 used in operating
activities in 1998. The positive cash flow from operating activities resulted
primarily from the Company's profitability as well as a favorable change in net
working capital elements. The Company used no cash in financing activities
during 1999 compared to $3,129 in 1998.
In 1995, the Company converted an accounts payable balance of $35,546 into a
non-interest bearing unsecured note payable due in one installment on January
1, 1997. The Company did not pay-off the note on January 1, 1997 and as a
result, the note is currently due on demand. The Company is currently
negotiating with the holder of the note in an effort to settle the amount out-
standing.
In January 2000, the Company implemented new computer equipment and software.
This equipment and software was needed to convert the Company's enterprise wide
computer system into a system that is fully Year 2000 compliant. The company
entered into a lease agreement for the system, which requires monthly payment of
approximately $480 through February 2004.
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. The Company has made changes to its cur
rent product lines and plans to add additional products in order to offer a more
complete and competitive line. These products will be manufactured for the
Company on an OEM basis without incurring any major capital or development costs
on the part of the Company.
<PAGE>
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 in 2000 depend largely on increased sales from existing
and new products.
Forward-looking Statements
Statements contained in this report regarding the Company's future operations,
performance and results, and anticipated liquidity are forward-looking and
therefore subject to certain risks and uncertainties.
ITEM 7. FINANCIAL STATEMENTS
SURGIDYNE, INC.
CONTENTS PAGE
INDEPENDENT AUDITOR'S REPORT ON FINANCIAL STATEMENTS 8
FINANCIAL STATEMENTS
Balance Sheets 9
Statements of Operations 11
Statements of Stockholders' Equity 12
Statements of Cash Flows 13
Notes to Financial Statements 14
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
Surgidyne, Inc.
Plymouth, Minnesota
We have audited the accompanying balance sheets of Surgidyne, Inc. as of
December 31, 1999 and 1998, and the related statements of operations, stock
holders' equity, and the cash flow for the years then ended. These financial
statements are the responsibility of the Company's management. Our responsib-
ility is to express an opinion on these financial statements based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Surgidyne, Inc. as of December
31, 1999 and 1998, and the results of its operations and its cash flows for the
years then ended, in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 2 to the fin-
ancial statements, the Company is dependent upon obtaining additional debt or
equity financing to fund future development and operations, which raises sub-
stantial doubt about its ability to continue as a going concern. Management's
plans in regard to these matters are also described in Note 2. The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
McGLADREY & PULLEN, LLP
Minneapolis, Minnesota
March 01, 2000
<PAGE>
SURGIDYNE, INC.
BALANCE SHEETS
December 31 1999 1998
ASSETS
Current Assets
Cash $ 70,090 $ 11,064
Accounts receivable, less allowance
for doubtful accounts of $4,200
(Note 10) 50,667 82,206
Inventories (Note 3) 182,310 172,286
Prepaid expenses 26,317 12,954
Total current assets 329,384 278,510
Furniture and Equipment, at cost (Note 4) 333,396 333,396
Less accumulated depreciation 323,759 321,806
9,637 11,590
Other Assets
Patents, trademarks, and other, net of
accumulated amortization of $17,980
in 1999 and $17,046 in 1998 3,860 4,794
Deposits 3,529 3,529
7,389 8,323
TOTAL ASSETS $ 346,410 $ 298,423
<PAGE>
December 31 1999 1998
LIABILITIES AND STOCKHOLDER'S 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 (Note 5) 35,546 35,546
Accounts payable 45,135 42,412
Accrued expenses 55,974 35,453
Total current liabilities 158,301 135,057
Commitments and Contingencies (Notes 2 and 9)
Stockholders' Equity (Notes 6 and 7)
Series A Preferred stock, 1,600,000 shares
authorized and issued $400,000 liquid-
ation preference 400,000 400,000
Common stock, no par value; authorized
18,400,000 shares; issued and out-
standing 7,017,085 shares 4,472,042 4,472,042
Accumulated deficit (4,683,933) (4,708,676)
188,109 163,366
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $ 346,410 $ 298,423
See Notes to Financial Statements.
<PAGE>
SURGIDYNE, INC.
STATEMENT OF OPERATIONS
Years Ended December 31, 1999 1998
Net sales (Note 10) $ 633,584 $ 573,054
Cost of goods sold 389,476 372,895
Gross profit 244,108 200,159
Operating expenses
Research and development 14,671 20,676
Sales and marketing 31,199 29,927
General and administrative 152,841 147,184
Total operating expenses 198,711 197,797
Operating income 45,397 2,372
Other income (expense)
Interest income 1,604 695
Interest expense (Note 5) (3,250) (1,300)
Net income $ 43,751 $ 1,767
Net income attributable to common shareholders:
Net income $ 43,751 $ 1,767
Preferred stock dividend (19,008) (883)
$ 24,743 $ 884
Basic and diluted income per common
share $ - $ -
Weighted average common shares out-
standing - basic 7,017,085 7,017,085
Weighted average common shares out-
standing - diluted 8,743,731 7,817,085
See Notes to Financial Statements
<PAGE>
SURGIDYNE, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
Years Ended December 31, 1999 and 1998
Preferred Common Stock Accumulated
Stock Shares Amount Deficit Total
Balance
December 31, 1997 $ 400,000 7,017,085 $ 4,472,042 $ (4,709,560) $ 162,482
Dividends on pre-
ferred stock - - - (883) (883)
Net income - - - 1,767 1,767
Balance
December 31, 1998 $ 400,000 7,017,085 $ 4,472,042 $ (4,708,676) $ 163,366
Dividends on pre-
ferred stock - - - (19,008) (19,008)
Net income - - - 43,751 43,751
Balance
December 31, 1999 $ 400,000 7,017,085 $ 4,472,042 $ (4,683,933) $ 188,109
See Notes to Financial Statements.
<PAGE>
SURGIDYNE, INC.
STATEMENTS OF CASHFLOWS
Years Ended December 31, 1999 1998
Cash Flows From Operating Activities
Net income $ 43,751 $ 1,767
Adjustments to reconcile net income
to net cash provided by (used) in
operating activities:
Depreciation and amortization 2,887 8,732
Changes in assets and liabilities
(Increase) decrease in:
Accounts receivable 31,539 (39,182)
Inventories (10,024) (1,927)
Prepaid expenses (13,363) 1,451
Increase (decrease) in:
Accounts payable and accrued
expenses 4,236 (3,372)
Net cash provided by (used) in
operating activities 59,026 (32,531)
Cash Flows from Investing Activities - -
Cash Flows from Financing Activities
Principal payments on long-term debt - (3,129)
Increase (decrease) in cash 59,026 (35,660)
Cash
Beginning 11,064 46,724
Ending $ 70,090 $ 11,064
Supplemental Disclosures of Cash Flow Information
Cash payments for interest $ 817 $ 832
Non Cash Financing Activity
Accrual of preferred stock
dividends $ 19,008 $ 883
See Notes to Financial Statements.
<PAGE>
Note 1. Nature of Business and Significant Accounting Policies
Nature of Business: Surgidyne, Inc. (Company) designs, develops, manufactures
and markets specialty medical and surgical wound drainage products, The Company
sells its products primarily on a credit basis throughout the United States and
Europe.
A summary of the Company's significant accounting policies follows:
Revenue Recognition: The Company recognizes revenue, including revenue from
contract manufacturing, upon shipment to the customer.
Inventories: Inventories are stated at the lower of cost (first-in, first-out
method) or market.
Patents and Trademarks: Patent and trademark costs have been capitalized and are
being amortized over 17 years using the straight-line method.
Furniture and Equipment: Depreciation is provided for on the straight-line
method over estimated useful lives of three to five years.
Research and Development Costs: Expenditures for research and development
activities, whether performed by the Company or performed by outside parties
under contract, are charged to operations as incurred.
Income Taxes: Deferred taxes are provided on a liability method whereby deferred
tax assets are recognized for deductible temporary differences and operating
loss and tax credit carry forwards and deferred tax liabilities are recognized
for taxable temporary differences. Temporary differences are the differences
between the reported amounts of assets and liabilities and their tax bases.
Deferred tax assets are reduced by a valuation allowance when, in the opinion of
management, it is more likely than not that some portion or all of the tax
assets will not be realized. Deferred tax assets and liabilities are adjusted
for the effects of changes in tax laws and rates on the date of enactment.
Fair Value of Financial Instruments: The fair value of the notes payable are
estimated based on interest rates for the same or similar debt offered to the
Company having the same or similar remaining maturities and collateral require-
ments. The carrying amount of these obligations approximates fair value.
Management Estimates: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the report-
ing period. Actual results could differ from those estimates.
Basic and Diluted Income per Share: Basic per-share amounts are computed,
generally by dividing net income or loss by the weighted average number of
common shares outstanding. Diluted per-share amounts assume the conversion,
exercise or issuance of all potential common stock instruments unless the effect
is anti-dilutive thereby reducing the loss or increasing the income per common
share.
The weighted-average number of shares of common stock used to compute the basic
income per share was increased by 1,600,00 and 800,000 shares for the years
ended December 31, 1999 and December 31, 1998 respectively for the assumed conv-
ersion of the preferred stock in computing the diluted per share data.
Note 2. Going Concern
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. The Company has made changes to its
current product lines and plans to add additional products in order to offer
a more complete and competitive line. These products will by manufactured for
the Company on an OEM basis without incurring any major capital or development
costs on the part of the Company.
Long-term liquidity is dependent upon the attainment of the short-term factors
discussed above and greater sales volume that generate profitable operations.
Increased sales volumes in 2000 depend largely on increased sales from existing
and new products. The financial statements do not reflect any adjustments that
might be necessary should the Company not remain a going concern.
<PAGE>
Note 3. Inventories
Inventories consisted of the following:
1999 1998
Component parts and subassemblies $ 81,182 $ 96,097
Work-in-process 12,235 17,454
Finished goods 98,893 68,735
Less obsolescence reserve (10,000) (10,000)
$ 182,310 $ 172,286
Note 4. Furniture and Equipment
Furniture and equipment consisted of the following:
1999 1998
Furniture, fixtures and equipment $ 232,244 $ 232,244
Tooling and Molds 101,152 101,152
$ 333,396 $ 333,396
Note 5. Notes Payable
Notes Payable to Related Parties: The Company has short-term notes payable out-
standing with a certain officer and director which bears interest at 10%. The
balance of $10,000 is due in annual installments limited to 50% of the audited
net income each year until paid in full. Related party interest expense was app-
roximately $1,025 for both 1999 and 1998.
Other Notes Payable: In 1995, the Company converted an accounts payable balance
of $35,546 into a non-interest bearing unsecured note payable due in a single
installment on January 1, 1997. The Company did not pay off the note on January
1, 1997 and as a result the note is due on demand. The Company is currently
negotiating with the holder of the note in an effort to settle the amount out-
standing. The Company also has a 12% demand note payable for $11,646. This
interest-bearing note is the remaining principal for a $50,000 promissory note.
Note 6. Series A Preferred Stock
On December 1, 1993, certain debenture holders elected to convert the face value
of the debentures into 1,600,000 shares of unregistered Series A preferred stock
at $.25 per share. The preferred shareholders are entitles to a dividend equal
to 3% of net sales. The dividend in a given year is limited to 50% of the
Company's net income. Cumulative dividends cannot exceed $210,000. In 1999, 1998
and 1995, the Company accrued $19,008, $884 and $437 respectively for dividends
on net income. Accrued expenses at December 31, 1999 and 1998 include $20,329
and $1,321, respectively, of dividends payable under the preferred stock.
The preferred stock is convertible into common stock on a one for one basis,
subject to certain anti-dilutive adjustments. The preferred stock is automatic-
ally convertible into common stock upon the occurrence of any of the following:
* The Company's common stock price is traded at a bid price of $.50 or more
for thirty consecutive trading days.
* The preferred shareholders have received the cumulative dividends specified
above.
* Two-thirds of the preferred shareholders elect to convert their preferred
stock.
Note 7. Stock Options and Warrants
Warrants: The Company has granted warrants for the purchase of shares of the
Company's common stock to directors, medical advisors, employees and certain
debt and equity holders. The warrants are fully vested upon issuance and expire
in varying amounts through 2004. Information with respect to warrant activity is
summarized as follows.
Weighted
Average
Exercise
Shares Price
Outstanding at December 31, 1997 910,000 $.19
Granted 10,000 .07
Cancelled (575,000) .18
Outstanding at December 31, 1998 345,000 .19
Granted 10,000 .28
Cancelled (315,000) .20
Outstanding at December 31, 1999 40,000 $.12
Option and warrant grants to employees are accounted for following APB Opinion
No. 25 and related interpretations. For 1999 and 1998, there was no compensation
expense recorded on the issuance of warrants as they were issued at or above
quoted market prices. Compensation costs as determined using the fair value
method required by FASB Statement No. 123 did not vary significantly from the
cost under APB Opinion No. 25, and, accordingly, the pro forma information
required by Statement No. 123 has not been presented.
<PAGE>
Option and warrant grants to non-employees are accounted for under FASB State-
ment No. 123 based on the grant date fair values.
The following table summarizes information about warrants outstanding as of
December 31, 1999:
Weighted
Average Weighted
Range of Number Remaining Average
Exercise Of Units Contractual Exercise
Price Outstanding Life(Years) Price
$.07 30,000 2.5 $.07
.28 10,000 4.5 .28
40,000 3.0 $.12
All warrants are exercisable as of December 31, 1999. At December 31, 1998 there
were 345,000 warrants exercisable with a weighted average exercise price of
$.19.
Note 8. Income Taxes
Deferred tax assets consisted of the following:
1999 1998
Allowance for inventory
Obsolescence $ 2,100 $ 2,000
Other 2,200 2,000
Net Operating Loss
Carry forwards 1,045,000 1,127,000
Tax credit carry forwards 18,300 42,000
Gross deferred tax assets 1,067,600 1,173,000
Less valuation allowance 1,067,600 1,173,000
Net deferred tax assets $ - $ -
During the year ended December 31, 1999 the Company had a valuation allowance of
$1,067,600 on deferred tax assets to reduce the total to an amount that manage-
ment believes will ultimately be realized.
The Company's income tax benefit (expense) differed from the statutory federal
rate as follows:
1999 1998
Statutory rate applied to income
before tax $ 8,600 $ 600
Utilization of Net Operating Loss
Carry forwards (8,600) (600)
$ - $ -
The Company has federal net operating loss and tax credit carry forwards at
December 31, 1999 which are available to reduce income taxes payable in future
years, subject to potential limitations due to changes in ownership. These carry
forwards and credits will expire as follows:
Net
Operating Tax Credit
Loss Carry- Carry-
Year Forwards Forwards
2000 $ 226,000 $ 13,700
2001 819,000 4,600
2002 1,128,000 -
2003 995,000 -
2004 407,000 -
2005 144,000 -
2006 4,000 -
2007 - -
2008 164,000 -
2009 187,000 -
2010 21,000 -
2011 3,000 -
2012 72,000 -
$ 4,170,000 $ 18,300
Note. 9 Lease
The Company leases its office and warehouse facilities under a non-cancelable
operating lease. The lease requires monthly payments of $2,828 through November
2001. The Company also leases certain equipment under operating leases. Total
rent expense was approximately $38,000 in both 1999 and 1998.
Minimum rental commitments under non-cancelable operating leases as of December
31, 1999:
Non-cancelable
Operating
Year Lease
2000 $ 34,000
2001 31,000
$ 65,000
<PAGE>
In January 2000, the Company entered into a lease agreement covering certain
computer equipment. The lease requires monthly payments of approximately $480
through February 2004.
Note 10. Major Customers, Suppliers and Export
Sales
Major customers: Net Sales for the year ended December 31, 1999 and 1998 include
sales to major customers as follows:
Sales Percentage
Company 1999 1998
A* 26% 28%
B 13% 9%
C 10% 9%
Year End Receivable Balances
Company 1999 1998
A* $ 7,113 $ -
B 28 23,633
C 15,704 11,269
*International customer, representing 64% and 70% of export sales in 1999 and
1998 respectively.
Major Suppliers: The Company purchases all components for its products from out-
side suppliers and has some components manufactured to its specification. The
Company is dependent upon such suppliers for a readily available supply of
necessary components.
The Company has single sources of supply for some of its critical components.
Management has determined that developing and maintaining additional sources for
critical components is not cost effective.
Export Sales: Net export sales to international customers were $257,405 and
$227,320 in 1999 and 1998 respectively.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None
<PAGE>
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.
Directors
The following seven persons serve as directors of the Company:
Director
Name Age Position Since
Charles B. McNeil 70 Director, Executive Vice 1982
3115 Maplewood Road President and Treasurer
Wayzata, MN 55391
Theodore A. Johnson 59 Chief Executive Officer 1985
825 Southgate Plaza And Chairman
5001 West 80th Street
Bloomington, MN 55437
David B. Kaysen 50 Director 1988
9909 South Shore Drive
Plymouth, MN 55441
William F. Gearhart 52 Director and Secretary 1984
9909 South Shore Drive
Plymouth, MN 55441
Arthur W. Schwalm 67 Director 1984
9909 South Shore Drive
Plymouth, MN 55441
Vance D. Fiegel 46 President and Director 1995
2460 South Highway 100
St. Louis Park, MN 55416
David R. Knighton, M.D. 51 Director 1994
2460 South Highway 100
St. Louis Park, MN 55416
* These directors will serve until the next annual meeting of the shareholders.
<PAGE>
Charles B. McNeil, founder of the Company, has over 30 years experience in the
health care industry. He has served as Executive Vice President of the Company
for the past ten years and served as President of the Company from its incorp-
oration in 1982 until 1988. He previously served as Vice President and General
Manager of the Inmed and Bittner Medical and Home Health Division of Inmed Corp-
oration, Norcross, Georgia. Prior to joining Inmed, he was employed for 16 years
by Davol, Inc., Providence, Rhode Island, where he directed product development
for seven years. New products he successfully developed at Davol include
numerous disposable surgical devices such as the Reliavac Closed Suction Device,
surgical drains and disposable surgical suction devices.
Theodore A. Johnson, Chairman of the Board and Chief Executive Officer since
January 1995 is also President, CEO and Director of the Minnesota Cooperation
Office for Small Business and Job Creation, Inc. (MCO), a non-profit corporation
formed in 1979 to foster job creation through assisting the start-up and growth
of innovative, technological ventures in Minnesota. Prior to joining MCO, Mr.
Johnson spent eight years at Control Data Corporation and twelve years at DATA
100 Corporation in a number of different technical, marketing and management
positions. He currently serves as Chairman of the Board of International
Lottery and Totalizator Systems, Inc., a NASDAQ listed company in California. In
addition, he serves on the boards of directors of three private companies and
two venture capital funds and is also an active investor and advisor to a number
of emerging companies around the United States.
Vance D. Fiegel, President and Director since January 1995, is also Chief
Operating Officer and the Director of Research at Embro Corporation, a bio-
medical research and development company specializing in wound healing products
and vascular devices. At Embro, he directs corporate operations and new product
development. He is founder of Embro as well as the National Reparative Medicine
Foundation where he serves as Director and Executive Vice President. Prior to
founding Embro, Mr. Fiegel held various positions at the University of
Minnesota, ultimately directing research in the field of wound healing where he
has published over fifty papers in national and international journals.
David B. Kaysen, Director, is an experienced healthcare executive with over 20
years involvement in medical products sales and marketing. He is currently Pres-
ident and CEO of Rehabilicare, Inc. From 1991 to 1992 her served as Vice Pres-
ident of Emeritus Corporation. From 1989 to 1991 he served as Vice President of
Sales and Marketing for HDM Corporation. From 1988 to 1989, he served as the
President and CEO and Director of Surgidyne, Inc. From 1986 to 1988, Mr. Kaysen
was Vice President of Marketing for Red Line/XVIIIB Medi Mart, Minneapolis,
Minnesota.
William F. Gearhart, Director and Secretary, is Vice President Sales and Market-
ing for Schneider (USA), Inc. He was previously Director of Marketing for St.
Jude Medical, and Director of Sales and Marketing for the clinical division of
Sandoz Nutrition Corporation. Mr. Gearhart was President and COO of Med
Ventures, Inc. from 1987 to 1990, and form 1985 to 1987 was Chairman and Pres-
ident of Competitive Business Strategies, a developer of strategic planning
software, and Vice President of Alpha Business Group, Inc., a business consult-
ing service to start-up medical companies.
Arthur W. Schwalm, Director, was founder of Cardiac Pacemakers, Inc. (CPI) in
1972 and served as President and Chief Executive Officer for 10 years. CPI was
sold to Eli Lilly in 1978. Mr. Schwalm served as Chairman of the Board until
1983. Mr. Schwalm also serves on the board of directors of Orthofix. He is an
active investor in a number of new ventures, primarily in the medical device
area.
David R. Knighton, M.D., Director and Chairman of the Company's
Medical/Scientific Advisory Board. He is currently a practicing vascular surgeon
in the Twin Cities, Medical Director of the Institute for Reparative Medicine
and President and CEO of Embro, Inc. Dr. Knighton founded Curative Technologies,
Inc., an international wound healing company, which specializes in formation and
management of Wound Care Centers. In addition to his recognized expertise in
clinical wound care, Dr. Knighton is and experienced basic science researcher in
the field of wound repair and wound healing angiogenesis.
<PAGE>
ITEM 10. EXECUTIVE COMPENSATION
The following table sets forth the cash compensation paid or accrued by the
Company for services rendered during the years indicated to its executive
officer serving in the capacity as the CEO.
SUMMARY COMPENSATION TABLE
Annual Compensation Long-Term Compensation
Other Securities All
Name Annual Restricted Underlying Other
and Principal Compen- Stock Options/ LTIP Compen-
Position Year Salary Bonus sation Award(s) SARs Payouts sation
Charles
B. McNeil
(Exec.
Vice Pres.) 1999 $43,284 $ - $4,800 - - $ - $ -
1998 35,000 - 4,800 - - - -
1997 35,000 - 4,800 - - - -
* Vance D. Fiegel does not draw a salary from the Company, and although Theodore
A. Johnson, who is a non-employee of the Company, has the title of CEO,
Charles B. McNeil has served in that capacity. Mr. Johnson does not receive
compensation from the Company.
The following table provides information with respect to option/SAR grants fro
the year ended December 31, 1999.
Number of Securities % of Total Options/
Underlying SARs Granted to Exercise
Options/SARs Employees in fiscal or Base Expiration
Name Granted (#) Year Price ($/Sh) Date
Charles
B. McNeil - - $ - -
The following table provides information with respect to stock option exercises
in fiscal 1999 by the names executive officers and the value of such officers'
unexercised options at December 31, 1999.
Aggregate Option Exercises in Last Fiscal Year
and Year-End Option Values
Shares Number of Value of unexercised
Acquire Unexercised Options in-the-money
On Value At Year-End options at year-end
Name Exercise Realized Exercisable Un-Exercisable Exercisable Un-Exercisable
Charles
B. McNeil - $ - - - $ - $ -
Compensation of Directors
The Company does not provide cash remuneration to its directors.
<PAGE>
ITEM 11. SECURITY OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table presents certain information with respect to each share-
holder known by the Company to own beneficially 5% or more of its outstanding
common shares (which includes the assumed conversion of the Series A preferred
stock) and for each Director and Officer as of December 31, 1999. Each share-
holder has sole voting and investment power with respect to the shares shown as
beneficially owned, except as otherwise indicated in a footnote.
Name and Address of Amount and Nature of
Beneficial Owner Beneficial Owner Percent of Class
All Directors and Officers
as a group (7 people in group) 1,997,354 (1) 23.2%
Charity, Inc.
6187 Heather Circle
Fridley, MN 55432 1,126,016 (2) 12.5%
Theodore A. Johnson
825 Southgate Plaza
5001 West 80th Street
Bloomington, MN 55437 786,875 (3) 9.1%
Charles B. McNeil
3115 Maplewood Road
Wayzata, MN 55391 632,839 7.3%
Arthur W. Schwalm
9909 South Shore Drive
Plymouth, MN 55441 356,640 4.1%
David R. Knighton, M.D.
2460 South Highway 100
St. Louis Park, MN 55416 221,000 (4) 2.6%
Vance D. Fiegel
2460 South Highway 100
St. Louis Park, MN 55416 50,000 (5) 0.6%
**********************
(1) Includes 80,000 shares of Series A convertible preferred stock. Also
includes 200,000 shares held by EMBRO Corporation, of which Dr. Knighton is
and 80% shareholder.
(2) Includes 400,000 shares of Series A convertible preferred stock.
(3) Includes 60,000 shares of Series A convertible preferred stock. Does not
include 27,300 shares held by Minnesota Cooperation Office, of which Mr.
Johnson is President.
(4) Includes 20,000 shares of Series A convertible preferred stock. Also
includes 200,000 shares of common stock held by EMBRO Corporation, of which
Dr. Knighton is an 80% shareholder.
(5) Does not include any portion of the 200,000 shares stock held by EMBRO Corp-
oration, of which Mr. Fiegel is a 20% shareholder.
<PAGE>
The following table represents certain information with respect to each share-
holder known by the Company to own beneficially 5% or more of its outstanding
Series A Preferred Stock shares and for each Director and Officer as of December
31, 1999. Each shareholder has sole voting and investment power with respect to
the shares shown as beneficially owned, except as otherwise indicated in a foot-
note.
Name and Address Amount and Nature of
of Beneficial Owner Beneficial Owner Percent of Class
Charity, Inc.
6187 Heather Circle
Fridley, MN 55432 400,000 25.0%
Samuel M. Joy
828 Ridge Place
Mendota Heights, MN 55118 140,000 8.8%
Dr. Demetre Nicoloff
c/o Paine Webber
Account number 50-1580-04
75 South Fifth Street
Minneapolis, MN 55402 120,000 7.5%
Eugene T. and Joan L. Plitt
S76 West 12816 Cambridge Court
Muskego, WI 53150 100,000 6.3%
John M. Metcalfe
6565 Word Parkway
Melbourne Village, FL 32904-3636 80,000 5.0%
Dr. Melvin P. Bubrick
5712 Long Brake Trail
Edina, MN 55345 80,000 (1) 5.0%
Theodore A. Johnson
825 Southgate Plaza
5001 West 80th Street
Bloomington, MN 55437 60,000 3.8%
David R. Knighton, M.D.
2460 South Highway 100
St. Louis Park, MN 55416 20,000 1.3%
All Directors and Officers as a group 80,000 5.0%
***********************
(1) Includes 40,000 shares held in trust in the names of Dr. Bubrick's children.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In 1991, Theodore A. Johnson, Arthur W. Schwalm, and Charles B. McNeil each
loaned the Company $25,000 in the form of short-term notes payable bearing
interest at 15%. The aggregate balance outstanding under these notes as of
December 31, 1999 and December 31, 1998 was $10,000.
<PAGE>
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
A. Exhibits required to be filed by Item 601(a) of Regulation S-B are included
as Exhibits to this report as follows.
3.1 Articles of Incorporation of Surgidyne, Inc. (including Articles of
Merger). (1)
3.2 Bylaws of Surgidyne Inc. (1)
4.1 Private Placement Offering Statement of Terms for Convertible
Subordinated Debenture Offering. (2)
4.2 Form of 12% Convertible Subordinated Debenture for Convertible
Subordinated Debenture Offering. (2)
4.3 Form of 10% Convertible Subordinated Debenture for Convertible
Subordinated Debenture Offering. (2)
4.4 Form of Convertible Subordinated Debenture Agreement for Convertible
Subordinated Debenture Offering. (2)
4.5 Form of Amendment to Convertible Subordinated Debenture Agreement for
Convertible Subordinated Debenture Offering, dated November 28, 1989. (3)
4.6 Common Stock Purchase Warrant dated December 22, 1988, issued to Samuel
M. Joy for the purchase of 21, 600 shares at a price of $0.01 per
share. (2)
4.7 Common Stock Purchase Warrant dated December 28, 1989 issued to Samuel
M. Joy for the purchase of 5,400 shares at a price of $0.01 per share.(2)
4.8 Form of Amendment to Convertible Subordinated Debenture Agreement for
Convertible Subordinated Debenture Offering, dated June 05, 1990. (4)
4.9 1990 Private Placement Offering Memorandum. (4)
10.1 Lease dated August 23, 1985 between Technology Park Associates and
Surgidyne, Inc. for the office and warehouse space located at 9600 West
76th Street, Eden Prairie, Minnesota, as amended. (1)
10.2 Lease dated January 30, 1989 between Medical Incorporated and Surgidyne,
Inc. for the office and warehouse space located at 9605 West Jefferson
Trail, Inver Grove Heights, Minnesota. (2)
10.3 1984 Stock Option Plan. (1)
10.4 1986 Stock Option Plan. (1)
10.5 Selling Agency Agreement dated October 12, 1988 between Surgidyne, Inc.
and Samuel M. Joy. (2)
10.6 Employment Agreement dated September 11, 1989 between Surgidyne, Inc. and
Thomas J. McEvoy. (3)
10.7 Lease dated August 1, 1990 between Omnicor, Inc. and Surgidyne, Inc. for
the office and warehouse space located at 9605 West Jefferson Trail,
Inver Grove Heights, Minnesota. (4)
10.8 Development and license agreement and Manufacturing Agreement dated
October 09, 1990 with Baxter Healthcare Corporation. (4)
10.9 Lease dated August 01, 1991 between Omnicor, Inc. and Surgidyne, Inc. for
office and warehouse space located at 9605 Jefferson Trail, Inver Grove
Heights, Minnesota. (5)
10.10 Lease dated June 21, 1994 between Medicine Lake Properties of Plymouth
and Surgidyne, Inc. for office and warehouse space located at 9909 South
Shore Drive, Minneapolis, Minnesota. (6)
10.11 Purchase and sale of Assets and Restated Manufacturing Agreements dated
August 24, 1993 with Baxter Healthcare Corporation. (7)
10.12 Promissory note dated June 14, 1994 between Robert D, Furst, Jr. and
Surgidyne, Inc. (8)
(1) Incorporated by reference to Exhibits filed with Registrants' 1987 Form
10-K under the Securities and Exchange Act of 1934, file #33-130583C.
(2) Incorporated by reference to Exhibits filed with Registrants' 1988 Form
10-K under the Securities and Exchange Act of 1934, file #33-130583C.
(3) Incorporated by reference to Exhibits filed with Registrants' 1989 Form
10-K under the Securities and Exchange Act of 1934, file #33-130583C.
(4) Incorporated by reference to Exhibits filed with Registrants' 1990 Form
10-K under the Securities and Exchange Act of 1934, file #33-130583C.
(5) Incorporated by reference to Exhibits filed with Registrants' 1991 Form
10-K under the Securities and Exchange Act of 1934, file #33-130583C.
(6) Incorporated by reference to Exhibits file with Registrants' Form 10-QSB
for the quarter ended June 25, 1994 under the Securities and Exchange Act
of 1934, file #33-13058-C.
(7) Incorporated by reference to Exhibits file with Registrants' Form 10-QSB
for the quarter ended September 24, 1994 under the Securities and Exchange
Act of 1923, file #33-13058-C.
(8) Incorporated by reference to Exhibits file with Registrants' Form 10-QSB
for the quarter ended June 30, 1994 under the Securities and Exchange Act
of 1934, file #33-13058-C.
B. Reports on Form 8-K.
No Reports on Form 8-K were filed during the last quarter of the fiscal year
covered by this report.
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
SURGIDYNE, INC.
(Registrant)
/s/ Vance D. Fiegel March 30, 2000
By: Vance D. Fiegel
President and Principal Accounting Officer
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
/s/ Charles B. McNeil March 30, 2000
By: Charles B. McNeil
Executive Vice President, Treasurer and Director
/s/ Theodore A. Johnson March 30, 2000
By: Theodore A. Johnson
Chief Executive Officer and Chairman of the Board of Directors
/s/ David B. Kaysen March 30, 2000
By: David B. Kaysen
Director
/s/ Arthur W. Schwalm March 30, 2000
By: Arthur W. Schwalm
Director
/s/William F. Gearhart March 30, 2000
By: William F. Gearhart
Secretary and Director
/s/ David R. Knighton March 30, 2000
By: David R. Knighton
Director
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