SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange
Act of 1934
Filed by the Registrant [x]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
[x] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or
Section 240.14a-12
SURGIDYNE, INC.
(Name of Registrant as Specified In Its Charter)
Not Applicable
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[ ] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11.
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule
0-11 (Set forth the amount on which the filing fee is
calculated and state how it was determined):
4) Proposed maximum aggregate value of transaction:
5) Total Fee Paid:
[x] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting
fee was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid: $40.00. Calculated pursuant to
Rule 0-11(c)(2), based on the 1/50 of 1% of $200,000.
2) Form, Schedule or Registration Statement No.: Schedule PREM14A
3) Filing Party: Surgidyne, Inc.
4) Date Filed: October 12, 2001
Dear Shareholder:
The Board of Directors (the "Board") of Surgidyne, Inc. (the "Company"
or "Surgidyne") is pleased to announce that it has approved a sale of all of
its assets (except for cash and corporate records) to Oxboro Medical, Inc.
("Oxboro"), a Minnesota corporation (the "Asset Sale"). Oxboro has agreed
to purchase such assets pursuant to that certain Asset Purchase Agreement
dated October 4, 2001 and amended November 29, 2001 (the "Asset Agreement") in
exchange for $200,000 cash. The Company believes that such purchase price will
be paid out of Oxboro's current cash balance. This is the best offer that the
Company has received in several years of searching for a prospective buyer or
merger, and therefore, the Board has determined that this transaction is fair
to, and in the best interests of, the shareholders of the Company. Following
the Asset Sale, if approved, the Company plans to explore subsequent business
relationships with other entities in effort to further advance the interests
of the shareholders of the Company. As such, the Board unanimously
recommends that the shareholders vote in favor of the Asset Sale.
The Asset Sale is designed to permit the Company to pay in full certain
liabilities (accrued expenses and liabilities and royalties, professional
fees, employee and general administrative expenses) not assumed by Oxboro
and retain a modest cash balance of approximately $15,000 in order to
maintain the remaining public shell. In the event that the Company experiences
any significant delays in closing the Asset Sale, however, such cash balance
may be reduced. The Asset Sale also provides for on-going sales of and
support for, the Company's products to many of the Company's long-term,
loyal customers. The Company expects that Oxboro, with its significant
resources, will not only continue to sell and support the Company's current
products, but will expand the line as well.
The Company is currently seeking an existing private company with
significant resources and potential to merge into the Company's remaining
public shell. It is the Company's goal to secure as large a position as
possible in the newly merged company to enable the Company's shareholders
to benefit from the increased potential of such company.
In connection with the Asset Sale, the shareholders of the Company are
being asked to approve amendments to the Company's Articles of Incorporation,
as amended, to change the Company's name to Surg II, Inc. and, in order to
facilitate possible future financing and/or business combination transactions,
to increase the authorized shares of the Company from Twenty Million
(20,000,000) to Two-Hundred Million (200,000,000).
You are cordially invited to attend a special meeting of the
shareholders of the Company (the "Special Meeting") to vote on the
following: (i) to approve and adopt the Asset Sale in accordance with
the Asset Agreement; (ii) to approve an amendment to Articles of
Incorporation, as amended, to change the name of the Company to Surg II,
Inc.; and (iii) to approve an amendment to the Articles of Incorporation,
as amended, to increase the authorized shares of the Company to Two-Hundred
Million (200,000,000). Your Vote Is Very Important. Whether or not you
plan to attend the Special Meeting, please take the time to vote on the
proposals submitted by completing and mailing the enclosed proxy card to us.
Please sign, date and mail your proxy card indicating how you wish to vote.
If you fail to return your proxy card, the effect will be a vote "AGAINST"
the Asset Sale, the name change and the increase in the authorized shares.
The date, time and place for the Special Meeting is:
* Tuesday, January 22, 2002, at 10:00 a.m.(Minneapolis time)
* Southgate Plaza
5001 W. 80th Street
Suite 590
Bloomington, Minnesota
Telephone No. (763) 595-0665
The enclosed Proxy Statement provides detailed information about the
Asset Sale and the related proposals. You are encouraged to read the entire
Proxy Statement carefully.
Sincerely,
/s/Theodore A. Johnson
Chairman of the Board of Directors
Minneapolis, Minnesota
January 02, 2002
SURGIDYNE, INC.
9909 South Shore Drive
Minneapolis, Minnesota 55441
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
to be held on January 22, 2002
To the Shareholders of the Company:
Notice is hereby given that a special meeting (the "Special Meeting")
of the shareholders of Surgidyne, Inc. (the "Company" or "Surgidyne") will be
held at 10:00 a.m. (Minneapolis time) on Tuesday, January 22, 2002, at Southgate
Plaza, 5001 W. 80th Street, Suite 590, Bloomington, Minnesota, to consider and
vote on (a) a proposal to approve and adopt that certain Asset Purchase
Agreement dated October 4, 2001, and amended November 29, 2001 (the "Asset
Agreement"), pursuant to which the Company will sell all of its assets (except
for cash and corporate records) to Oxboro Medical, Inc. (the "Asset Sale"), (b)
a proposal to approve an amendment to the Company's Articles of Incorporation,
as amended, to change the name of the Company, and (c) a proposal to approve an
amendment to the Company's Articles of Incorporation, as amended, to increase
the number of authorized shares. Details of this transaction and other
important information are set forth in the accompanying Proxy Statement, which
the Board of Directors of the Company urges you to read carefully.
THE BOARD OF DIRECTORS OF THE COMPANY UNANIMOUSLY RECOMMENDS AN
AFFIRMATIVE VOTE FOR EACH PROPOSAL.
The Board of Directors of the Company has fixed the close of business
on December 17, 2001, as the record date for determination of shareholders
entitled to notice of, and to vote at, the Special Meeting and any
adjournment(s) or postponement(s) of the Special Meeting. A complete list of
the shareholders entitled to vote at the Special Meeting, or any adjournment(s)
or postponement(s) thereof, will be available at and during the Special
Meeting.
You have the unconditional right to revoke your proxy at any time
prior to its use at the Special Meeting by:
* attending the Special Meeting and voting in person,
* delivering to the Company, prior to the vote at the Special
Meeting, a duly executed proxy with a later date than your
original proxy, or
* giving written notice of revocation to the Company addressed
to Mr. Charles McNeil, Executive Vice President, Surgidyne,
Inc., 9909 South Shore Drive, Minneapolis, Minnesota, 55441,
prior to the vote at the Special Meeting.
If you return a proxy without specifying a choice on the proxy, the
proxy will be voted "FOR" each of the proposals to be voted on at the Special
Meeting. Additional information regarding the Special Meeting is included in
the attached Proxy Statement.
Under Minnesota law, the holders of shares of common stock of the
Company have the right to dissent from the Asset Sale and receive payment of
the fair value of their shares upon compliance with the Minnesota Business
Corporation Act (the "MBCA"). This right is explained more fully in the
section of the attached Proxy Statement entitled "Rights of Dissenting
Shareholders." Further, the dissenters' rights provisions of the MBCA are
attached to the Proxy Statement as Appendix D.
Whether or not you expect to attend the Special Meeting in person,
please complete, sign, date and return the accompanying proxy card without
delay in the enclosed postage prepaid envelope. The proxy is revocable and
will not be used if you are present and vote in person. If you receive more
than one proxy card because you own shares registered in different names, or
at different addresses, please sign and return each proxy card.
BY ORDER OF THE BOARD OF DIRECTORS
Minneapolis, Minnesota /s/ Theodore A. Johnson
January 02, 2002 Chairman of the Board of Directors
PROXY STATEMENT
SPECIAL MEETING OF SHAREHOLDERS
January 22, 2002
________________________________
This proxy statement ("Proxy Statement") is provided to you in
connection with a special meeting (the "Special Meeting") of the shareholders
of Surgidyne, Inc. (the "Company" or "Surgidyne"), that will be held at
10:00 a.m. (Minneapolis time) on Tuesday, January 22, 2002, at Southgate Plaza,
5001 W. 80th Street, Suite 590, Bloomington, Minnesota, and any adjournment
thereof. The accompanying proxy is being solicited by the Board of Directors
of the Company.
At the Special Meeting, you will be asked to approve (i) that certain
Asset Purchase Agreement, dated October 4, 2001, and amended November 29, 2001
(the "Asset Agreement"), pursuant to which the Company will sell substantially
all of its assets (the "Asset Sale") to Oxboro Medical, Inc. ("Oxboro"), (ii)
the amendment to the Company's Articles of Incorporation, as amended, to change
the name of the Company to Surg II, Inc., and (iii) the amendment of the
Company's Articles of Incorporation, as amended, to increase the authorized
capital stock to Two-Hundred Million (200,000,000) shares. The Board of
Directors (the "Board") of the Company unanimously recommends that you vote
"FOR" each proposal. By signing and returning the accompanying proxy, you
authorize Theodore A. Johnson, the Chairman of the Board (with the power to act
alone and with the power of substitution and revocation) to vote all of your
shares. Your proxy, if properly completed, signed and dated will be voted as
you have directed. Regardless of the size of your holdings, you are encouraged
to complete and return the proxy card so that your shares may be voted at the
meeting.
We are sending this Proxy Statement and the accompanying form of proxy
to you on or about January 02, 2002.
Only holders of record of shares of common stock ("Surgidyne Common
Stock") and Series A convertible preferred stock ("Surgidyne Preferred Stock")
of the Company at the close of business on December 17, 2001 (the "Record Date")
are entitled to vote at the meeting. Each share of Surgidyne Common Stock and
Surgidyne Preferred Stock is entitled to one vote. As of the Record Date, a
total of 9,047,085 shares of Surgidyne Common Stock, including shares of
Surgidyne Preferred Stock on an as-if converted 1:1 basis (collectively "Common
Equivalents"), were outstanding. A majority of the outstanding shares of
Surgidyne Common Stock and Surgidyne Preferred Stock entitled to vote,
represented in person or by proxy, is required for a quorum. Each of (i) the
Asset Agreement, (ii) the amendment to the Articles of Incorporation, as
amended, to change the name of the Company and (iii) the amendment to the
Articles of Incorporation, as amended, to increase the authorized number of
shares, must be approved by the holders of a majority of outstanding shares of
Surgidyne Common Stock and Surgidyne Preferred Stock.
SUMMARY TERM SHEET
This Summary Term Sheet may not contain all of the information that is
important to you. For a more complete understanding of the Asset Sale and the
other information contained in this Proxy Statement, you should read this
entire Proxy Statement carefully, as well as the additional documents to which
it refers.
THE SPECIAL MEETING
Date, Place and
Time of the Special
Meeting.........This Proxy Statement is furnished to holders of shares of
Surgidyne Common Stock and Surgidyne Preferred Stock for use at
the Special Meeting, and any adjournments or postponements
thereof. The Special Meeting will be held at 10:00 a.m.
(Minneapolis time) on Tuesday, January 22, 2002, at Southgate
Plaza, 5001 W. 80th Street, Bloomington, Minnesota. See the
"Notice of Special Meeting of Shareholders," accompanying this
Proxy Statement, and "The Special Meeting-General."
Record Date,
Quorum and Voting
at the Meeting..The Company has set December 17, 2001, as its Record Date for
determining those shareholders who are entitled to notice of
and to vote at the Special Meeting. The presence, in person or
by proxy, of the holders of a majority of the outstanding
shares of Surgidyne Common Stock and Surgidyne Preferred Stock
is necessary to constitute a quorum at the meeting. Approval
of the Asset Sale and amendments to the Company's Articles of
Incorporation, as amended, requires the affirmative vote of the
holders of a majority of all outstanding shares of Surgidyne
Common Stock and Surgidyne Preferred Stock (on an as-if
converted basis), voting as a single class. Each share of
Surgidyne Common Stock and Surgidyne Preferred Stock is
entitled to one vote. It is expected that all shares of
Surgidyne Common Stock and Surgidyne Preferred Stock
beneficially owned or controlled by the directors and officers
of the Company will be voted in favor of the Asset Sale. See
"The Special Meeting-Record Date; Shareholders Entitled to
Vote; Voting; Quorum."
THE PARTIES
Surgidyne.......Surgidyne, Inc., a Minnesota corporation, is a publicly held
corporation. The Surgidyne Common Stock is currently listed on
the over-the-counter bulletin board (the "OTCBB") under the
symbol "SGDN." Surgidyne designs, develops, manufactures and
markets specialty medical and surgical wound drainage products
used in hospital operating and emergency rooms. The principal
executive office of the Company are located at 9909 South Shore
Drive, Minneapolis, Minnesota, and its telephone number is
(763) 595-0665. See "Proposal 1: Approval of the Asset
Agreement-The Parties" and "Information Concerning The Company."
Oxboro..........Oxboro Medical, Inc., a Minnesota corporation, is a publicly
held corporation. The common stock of Oxboro currently trades
on the Nasdaq SmallCap Market under the symbol "OMED." Oxboro
develops, assembles and markets single-use disposable medical
supplies and medical and surgical devices, including, silicone
surgical loops, silicone and fabric surgical clamp covers,
surgical instrument protection guards, suture aid booties,
surgical instrument identification sheet and roll tape,
surgical instrument cleaning brushes and various holders and
organizers for surgical instruments used in the operating room.
Oxboro's wholly-owned subsidiary, Sterion, Inc., manufactures
and markets a proprietary line of surgical instrument
sterilization containers and related disposable supplies. The
principal executive office of Oxboro is located at 13828
Lincoln Street S.E., Ham Lake, Minnesota, and its telephone
number is (763) 755-9516. See "Proposal 1: Approval of the
Asset Agreement-The Parties"
THE ASSET SALE
Reasons for the
Asset Sale......The Company's sales have steadily declined since peaking in
1992, as the Company has been unsuccessful in its endeavors to
make the Company a successful, profitable business entity via
growth, merger or acquisition. Specifically, the Company has
been unsuccessful in its endeavors to enter into new markets
with existing products or to develop and bring new products to
market. During the last two years, the Company's accumulated
deficit has grown from $4,672,542 at September 30, 1999 to
$4,971,320 at September 30, 2001. During the same period,
total assets and stockholders' equity declined from $349,831
and $199,500 at September 30, 1999 to $204,876 and $34,946 at
September 30, 2001, respectively. At September 30, 2001, the
Company had working capital of only $12,708. The Company does
not have sufficient cash to pay its outstanding creditors. In
2001, the Company received notification from two of its
creditors that each such creditor intended to take legal action
unless paid in full. The Company has taken steps to avoid such
legal action and intends to pay each such creditor in full from
the proceeds of the Asset Sale. Prior to Oxboro, the Company
has been unsuccessful in finding an acceptable merger, business
combination or sale option, despite working with an investment
bank, as well as other parties in the business community. As
such, unless shareholders approve this transaction, the Company
believes that it will be forced to curtail or cease operations
and seek protection under Chapter 7 of the bankruptcy code.
See "Proposal 1: Approval of the Asset Agreement-Reasons for
the Asset Sale."
The Company believes that the Asset Sale will provide the
Company with sufficient cash to pay certain liabilities
(accrued expenses and liabilities and royalties, professional
fees, employee and general administrative expenses) that will
not be assumed by Oxboro and leave the Company with a modest
cash balance of approximately $15,000 to maintain the remaining
public shell. In the event that the Company experiences any
significant delays in closing the Asset Sale, however, such
cash balance may be reduced. As the Company is proposing to
sell substantially all of its assets, no operating business
will remain after the Asset Sale. The Company's balance sheet
following the Asset Sale will be comprised of the estimated
cash balance and an equal amount of equity and no other assets
or liabilities will remain. Additionally, the Company will not
generate any further revenues after the Asset Sale. See
"Proposal 1: Approval of the Asset Agreement-Reasons for the
Asset Sale."
The Company also believes that the Asset Sale will enable the
Company to seek a business combination or other transaction
with an opportunity that will be more attractive than the
Company's current wound drainage business. The Company hopes
to utilize its remaining capital structure to attract a
business opportunity that will maximize potential value to
shareholders. See "Proposal 1: Approval of the Asset
Agreement-Reasons for the Asset Sale."
Background of the
Asset Sale......In early 1997, Mr. Gary Copperud contacted Mr. Johnson and made
an offer to purchase the Company. At this time, Mr. Copperud
was not affiliated with Oxboro, but rather was seeking to
acquire the Company on his own behalf. Mr. Copperud
subsequently became a director of Oxboro in 1998. The offer
Mr. Copperud presented was a per share purchase price of
$0.025 for an aggregate purchase price of approximately
$180,000. Due to the Company's financial status and trading
price in the public market at that time, the Board of Directors
of the Company believed that the value of the Company was
higher and, therefore, the offer was too low. Mr. Johnson
presented a counter offer to Mr. Copperud of $0.07 per share,
a value between the bid and ask price for the Surgidyne Common
Stock as reported by the Minneapolis Star Tribune, which was
rejected by Mr. Copperud. Mr. Johnson and Mr. Copperud
attempted to continue negotiations but they could not reach a
mutually satisfactory price and, therefore, they elected not to
proceed with a transaction at that time. "Proposal 1:
Approval of the Asset Agreement-Background of the Asset Sale."
Following a number of unsuccessful attempts in locating an
acceptable merger, business combination or sale, in June, 2001,
Mr. Johnson and Mr. Copperud met again. This time, Mr.
Copperud met with Mr. Johnson as a member of the Board of
Directors of Oxboro. The meeting between Mr. Johnson and Mr.
Copperud focused on the potential acquisition of the Company by
Oxboro. Mr. Copperud suggested that Oxboro would purchase the
Company to compliment its own product line and, therefore,
recommended that Mr. Johnson meet with Mr. Berkley, the Chief
Executive Officer of Oxboro. Mr. Johnson and Mr. Berkley met
to discuss the framework of the potential transaction and
agreed to explore the possibility of a transaction with their
respective Boards of Directors. Ultimately, following some
negotiations, Oxboro presented the Company with a letter of
intent whereby Oxboro agreed to pay $200,000 for the Company's
assets. The Company believed, and continues to believe, that
such amounts would be paid from Oxboro's current cash balance.
"Proposal 1: Approval of the Asset Agreement-Background of the
Asset Sale."
After Mr. Johnson's meeting with Mr. Copperud, Mr. Johnson
analyzed a number of possible ways that the Company could be
valued, including as a multiple of revenue or a multiple of
asset book value. Mr. Johnson considered the Company's sales
of $130,064 as of March 31, 2001, and its asset book value of
$279,688 as of the same date. He wanted to justify the highest
possible valuation and considered that a range of 1/2 to 1 times
revenue or approximately $250,000 to $500,000 could be
reasonably justified. Mr. Johnson also concluded, based on such
analysis, that a multiple of 1 times the asset book value could
be justifiable. Despite such analysis, Mr. Johnson also
concluded, based on past experience and the current market
conditions, that a buyer might rationally offer a lower
multiple and that, given the Company's situation, a number
close to the low end established in his analysis was at least
worthy of additional consideration by the Board. It was always
important, however, to insure that the purchase price covered
at least substantially the Company's known liabilities.
Mr. Johnson and Mr. Berkley met to discuss the framework of
the potential transaction and agreed to explore the possibility
of a transaction with their respective Boards of Directors.
Ultimately, following some negotiations, Oxboro presented the
Company with a letter of intent whereby Oxboro agreed to pay
$200,000 for the Company's assets. The Company believed, and
continues to believe, that such amounts would be paid from
Oxboro's current cash balance. "Proposal 1: Approval of the
Asset Agreement-Background of the Asset Sale."
Board
Consideration...At a special meeting of the Company's Board of Directors on
August 13, 2001, Mr. Johnson presented the Oxboro proposal to
purchase of the assets of the Company. Mr. Johnson discussed
the numerous efforts to find another acceptable purchaser, the
letter of intent, his discussions with Oxboro, the unsuccessful
efforts of Equity Securities to locate potential purchasers and
the current declining sales and cash position of the Company.
In analyzing the proposed offer by Oxboro the Board discussed
all of the following:
* the lack of potential for future growth of the Company's
products due to a number of factors including lack of
funds;
* the likely inability to raise significant additional
capital;
* the current financial position of the Company, including
its poor cash and asset positions and its growing
liabilities balance (accounts and notes payable balances
which had increased by $11,419, from December 31, 2000
to June 30, 2001);
* the positives and negative aspects of selling just the
assets of the Company as opposed to all of the Company;
* the desire to seek a merger partner with a significant
business opportunity that could maximize existing
shareholder value; and
* the failure of the Company to find any better offers or
opportunities.
Mr. Johnson discussed with the Board his thoughts on whether
the proposed price was within normal parameters, based on his
past experience, using various valuation methods including
valuation as a multiple of sales or multiple of asset book
value. Mr. Johnson discussed with the Board how such analysis
compared to the discussions regarding price that Mr. Johnson
had previously had with Oxboro. Without giving specific
consideration to any method of valuation or giving greater
weight to any of the factors considered by the Board and
considering the Company's declining cash position, growing
accounts and notes payable, and lack of better alternatives,
and that the payment would be sufficient to repay at least
substantially all of the unassumed debt of the Company, the
Board agreed that the price presented was within an acceptable
range of prices utilizing revenue or asset book value valuation
multiples. The Board therefore authorized Mr. Johnson to
proceed with negotiation of a final agreement. The Company's
Board indicated its support for the objectives and
opportunities to enhance shareholder value and to protect the
fiduciary interests of the Company's creditors.
Although the Company did not hire a financial advisor to make a
recommendation regarding the fairness of the asset sale due to
the low value of the Company and the high cost of such
advisors, the Board believes that, given the Company's current
financial situation and the inability to find an acceptable
alternative for the past five years, the Asset Sale is fair to
the shareholders and adequately protects the interests of the
Company's creditors. This is especially true in light of the
fact that this offer is higher than any other offer received by
the Company through its several years of searching for a
prospective buyer or merger partner. As such, to enable the
Company to proceed with the Asset Sale, the letter of intent
was accepted by the Board of Directors. See "Proposal 1:
Approval of the Asset Agreement-Board Consideration."
Certain
Relationships...There are certain relationships between the Company and its
officers and directors that may be affected by the Asset Sale.
In particular, Mr. McNeil is currently owed $9,898, plus
interest, by the Company pursuant to a promissory note, and the
following directors, Messrs. Johnson and Schwalm and Dr.
Knighton, by virtue of either their status as preferred
shareholders or as common shareholders who participated in a
private offering in October 1990 which offered royalty rights,
are owed $762.33, $1,008.66 and $254.11, respectively, for
accrued expenses and royalties. Certain officers and directors,
Mr. Johnson and Mr. McNeil, have warrants to purchase 200,000
and 215,000 shares, respectively, of Surgidyne Common Stock at
an exercise price of $0.17 per share and EMBRO Corporation, a
corporation owned by two directors of the Company, Mr. Fiegel
and Dr. Knighton, has warrants to purchase 65,000 shares of
Surgidyne Common Stock at an exercise price of $0.17 per share.
These warrants will not be affected by this acquisition. See
"Proposal 1: Approval of the Asset Agreement-Certain
Relationships."
Mr. McNeil has entered into a Consulting Agreement with Oxboro
pursuant to which he will provide new product and business
development consulting services contacts and information for an
initial term of 180 "billable days" at a rate of $300 per
"billable day." See "Proposal 1: Approval of the Asset
Agreement-Certain Relationships."
As consideration for their agreement to stay with the Company
until the completion of the Asset Sale, the Company has agreed
to pay the three employees of the Company other than Mr. McNeil
a one-time bonus payment of $5,000 for an aggregate total of
$15,000. None of these employees will be employed by the
Company following the closing of the Asset Sale, however, the
Asset Agreement gives Oxboro the option of interviewing and
making an offer in writing of employment to such employees.
See "Proposal 1: Approval of the Asset Agreement-Certain
Relationships."
Effect of the Asset
Sale............The Company will receive $200,000 in cash in exchange for the
sale of all of the Company's assets (except for cash and
corporate records) and the assumption of substantially all
trade payables as well as most other liabilities. The Company
believes that such purchase price will be paid out of Oxboro's
current cash balance. The Company further believes that this
should allow the Company to pay in full certain liabilities
(accrued expenses and liabilities and royalties, professional
fees, employee and general administrative expenses) that have
not been assumed by Oxboro and retain a modest cash modest cash
balance of approximately $15,000 in order to maintain the
remaining public shell, as the Company currently intends to
maintain its status as a reporting company under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"). The use
of proceeds from the Asset Sale is summarized below under the
caption "Proposal 1: Approval of the Asset Agreement-Effect of
the Sale." In the event that the Company experiences any
significant delays in closing the Asset Sale, however, such
cash balance may be reduced. See "Proposal 1: Approval of the
Asset Agreement-Effect of the Asset Sale."
As the Company is proposing to sell substantially all of its
assets, no operating business will remain after the Asset Sale.
The Company's balance sheet following the Asset Sale will be
comprised of the estimated cash balance and an equal amount of
equity and no other assets or liabilities will remain.
Additionally, the Company will not generate any further
revenues after the Asset Sale. See "Proposal 1: Approval of
the Asset Agreement-Effect of the Asset Sale."
Reason for the
Name Change.....As part of the Asset Agreement the Company has agreed to change
its name to Surg II, Inc. See "Proposal 2: Amendment of
Articles to Change the Company Name" and Appendix C.
Reason for the
Increase in
Shares..........The Board of Directors of the Company believes it may need to
sell additional shares of the Company to one or more investors
in order to make the Company more attractive to a potential
merger partner or to obtain funds necessary to operate the
Company on a going forward basis. In addition, the Company
assumes that in the event that it is able to find a suitable
business partner with which to merger, the Company may need to
issue a large number of the Company's authorized but unissued
shares or otherwise recapitalize. The authorization of
additional shares will enable the Board to issue shares of one
or more classes of stock without notice to or approval of the
shareholders. Any such issuance could significantly dilute the
interests of the current shareholders. Additionally, an
increase in the number of authorized shares could be used by
the Board as an anti-takeover mechanism. See "Proposal 3:
Amendment of Articles to Increase Authorized Shares" and
Appendix C.
Recommendation
of the Board of
Directors....The Board of Directors of the Company has approved the Asset
Sale, name change and increase in number of shares authorized.
Further, the Board of Directors unanimously recommends that the
shareholders of the Company vote "FOR" each proposal. See
"Proposal 1: Approval of the Asset Agreement-Background of the
Asset Sale," "Proposal 1: Approval of the Asset Agreement-
Favorable Recommendation of the Company's Board of Directors,"
"Proposal 2: Amendment of the Articles to Change the Company
Name-Favorable Recommendation of the Company's Board of
Directors," and "Proposal 3: Amendment of the Articles to
Increase Authorized Shares-Favorable Recommendation of the
Company's Board of Directors."
Dissenter's
Rights..........Under the MBCA, the shareholders of the Company are entitled to
assert dissenters' rights. See "Rights of Dissenting
Shareholders."
THE ASSET AGREEMENT
Effective Time of
the Asset Sale..The Asset Sale will become effective at the time to be
specified in the Asset Agreement and is expected to close as
soon as practicable following a successful vote by the
shareholders of the Company. See "The Asset Agreement-General"
and Appendix A and Appendix B.
Conditions to the
Asset Sale......The Asset Sale will be completed only if:
* it is approved by the holders of a majority of the
outstanding shares of Surgidyne Common Stock and Surgidyne
Preferred Stock; and
* no event occurs that would either (i) prevent the
consummation of the transactions contemplated by the Asset
Agreement, or (ii) cause any of the transactions
contemplated by the Asset Agreement to be rescinded
following consummation of such transactions.
See "The Asset Agreement-Conditions to Consummation of Asset
Sale" and Appendix A.
Assets Sold and
Liabilities
Assumed.........All of the assets of the Company are being sold except the
Company's cash on hand and the Company's corporate records.
Oxboro will assume almost all liabilities, including all trade
and accounts payable and certain other trade and accounts
payable to be set forth on the closing payable sheet. The
Company believes that the Asset Sale will provide the Company
with sufficient cash to pay certain liabilities (accrued
expenses and liabilities and royalties, professional fees,
employee and general administrative expenses) that will not be
assumed by Oxboro and leave the Company with a modest cash
balance of approximately $15,000 to maintain the remaining
public shell. In the event that the Company experiences any
significant delays in closing the Asset Sale, however, such
cash balance may be reduced. As the Company is proposing to
sell substantially all of its assets, no operating business
will remain after the Asset Sale. The Company's balance sheet
following the Asset Sale will be comprised of the estimated
cash balance and an equal amount of equity and no other assets
or liabilities will remain. Additionally, the Company will not
generate any further revenues after the Asset Sale. See "The
Asset Agreement-General" and Appendix A.
Indemnification.The Company has agreed to provide to Oxboro indemnification
from all damages, losses, costs and expenses that it may suffer
as a result of certain items including, any unassumed
liabilities, breach of the representations and warranties in
the Asset Agreement and third party product claims for products
which were in inventory or sold prior to the closing on the
Asset Agreement. This indemnification is effective for one year
from the date of the closing and for a maximum of $20,000.
See "The Asset Agreement-Indemnification."
Amending or
Waiving Terms...At any time prior to the closing of the Asset Sale, the Company
and Oxboro may amend the Asset Agreement to the extent
permitted by law before or after the shareholders of the
Company vote on the Asset Sale. After the shareholders of the
Company approve the Asset Sale, applicable law may require that
subsequent amendments be approved by such shareholders. See
"The Asset Agreement-Amending or Waiving Terms of the Asset
Agreement."
Federal Income Tax
Consequences....The Asset Sale will be treated as a taxable sale of assets by
the Company under the Internal Revenue Code of 1986, as
amended, but will not result in any federal income tax
consequences to shareholders of the Company, other than
shareholders exercising dissenters' rights under the MBCA.
See "The Asset Agreement-Federal Income Tax Consequences."
Regulatory and
Third-Party
Approvals.......It is believed that no regulatory approvals or third-party
approvals are or will be required in connection with the Asset
Sale. See "The Asset Agreement-Regulatory and Third Party
Approvals."
TABLE OF CONTENTS
SUMMARY TERM SHEET i
THE SPECIAL MEETING i
THE PARTIES i
THE ASSET SALE ii
THE ASSET AGREEMENT vii
QUESTIONS AND ANSWERS 1
THE SPECIAL MEETING 6
General 6
Matters to Be Considered 6
Record Date; Shareholders Entitled to Vote; Voting; Quorum 6
Solicitation of Proxies 7
Revocation of Proxies 7
PROPOSAL 1: APPROVAL OF THE ASSET AGREEMENT 7
Background of the Asset Sale; Reasons for the Asset Sale 8
Background of the Asset Sale 9
Board Consideration 10
Certain Relationships 11
Effects of the Asset Sale 12
Favorable Recommendation of the Company's Board of Directors 13
Federal Income Tax Consequences 14
THE ASSET AGREEMENT 15
General 15
Representations and Warranties 16
Covenants 16
Conditions to Consummation of Asset Sale 16
Amending or Waiving Terms of the Asset Agreement 16
Indemnification 16
Expenses 17
Regulatory and Third-Party Approvals 17
Exhibits and Schedules 17
RIGHTS OF DISSENTING SHAREHOLDERS 17
INFORMATION CONCERNING THE COMPANY 18
General 18
Products 19
Marketing and Distribution 19
Suppliers 19
Competition 19
Government Regulation 20
Security Ownership of Certain Beneficial Owners and Management 20
Financial Statements 22
PROPOSAL 2: AMENDMENT OF ARTICLES TO CHANGE THE COMPANY NAME 22
Favorable Recommendation of the Company's Board of Directors 22
PROPOSAL 3: AMENDMENT OF ARTICLES TO INCREASE AUTHORIZED SHARES 22
Possible Effects of the Proposed Amendment 23
Favorable Recommendation of the Company's Board of Directors 24
OTHER BUSINESS 24
INCORPORATION BY REFERENCE 24
APPENDIX A: ASSET AGREEMENT A-1
APPENDIX B: AMENDMENT NO. 1 TO ASSET PURCHASE AGREEMENT B-1
APPENDIX C: ARTICLES OF AMENDMENT C-1
APPENDIX D: MBCA DISSENTERS' RIGHTS D-1
APPENDIX E: FORM 10-KSB FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000 E-1
APPENDIX F: INDEPENDENT AUDITOR'S REPORT F-1
APPENDIX G: FORM 10-QSB FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2001 G-1
APPENDIX H: FORM 10-QSB FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2001 H-1
APPENDIX I: FORM 10-QSB FOR THE QUARTERLY PERIOD ENDED
SEPTEMBER 30, 2001 I-1
QUESTIONS AND ANSWERS
This Question and Answer section highlights selected information from
this Proxy Statement and may not contain all of the information that is
important to you. For a more complete understanding of the Asset Sale and the
other information contained in this Proxy Statement, you should read this
entire Proxy Statement together with the Exhibits.
Where And When Is The Special Meeting?
The Special Meeting will be held at 10:00 a.m. (Minneapolis time), on
Tuesday, January 22, 2002, at Southgate Plaza, 5001 W. 80th Street, Suite 590,
Bloomington, Minnesota. See "The Special Meeting-General."
What Matters Will Be Voted Upon At The Special Meeting?
Shareholders of the Company are being asked to consider and vote on
three proposals: (i) approval of the Asset Agreement, (ii) approval of an
amendment to the Company's Articles of Incorporation, as amended, to change the
name of the Company to Surg II, Inc., and (iii) approval of an amendment to the
Company's Articles of Incorporation, as amended, to increase the authorized
capital stock of the Company to Two-Hundred Million (200,000,000) shares. See
"The Special Meeting-Matters to Be Considered."
Who Can Vote At The Special Meeting?
Holders of Surgidyne Common Stock and Surgidyne Preferred Stock at the
close of business on the Record Date, December 17, 2001, are entitled to notice
of and to vote at the Special Meeting. Each share of Surgidyne Common Stock
and each share of Surgidyne Preferred Stock is entitled to one vote. On the
Record Date, 9,047,085 shares of Surgidyne Common Stock, including Common
Equivalents, were outstanding. See "The Special Meeting-Record Date;
Shareholders Entitled to Vote; Voting; Quorum."
Why Should Surgidyne Sell Its Assets To Oxboro?
The Company's sales of wound drainage products used in hospital
operating and emergency rooms have steadily declined since peaking in 1992 at
approximately $1.2 million annually, as the Company has been unsuccessful in
its endeavors to make the Company a successful, profitable business entity via
growth, merger or acquisition. Specifically, the Company has been unsuccessful
in its endeavors to enter into new markets with existing products or to develop
and bring new products to market. During the last two years, the Company's
accumulated deficit has grown from $4,672,542 at September 30, 1999 to
$4,971,320 at September 30, 2001. During the same period, total assets and
stockholders' equity declined from $349,831 and $199,500 at September 30, 1999
to $204,876 and $34,946 at September 30, 2001, respectively. At September 30,
2001, the Company had working capital of only $12,708. The Company does not
have sufficient cash to pay its outstanding creditors. In 2001, the Company
received notification from two of its creditors that each such creditor
intended to take legal action unless paid in full. The Company has taken steps
to avoid such legal action and intends to pay each such creditor in full from
the proceeds of the Asset Sale. Prior to Oxboro, the Company has been
unsuccessful in finding an acceptable merger, business combination or sale
option, despite working with an investment bank, as well as other parties in
the business community. As such, unless the shareholders approve the Asset
Sale, the Company currently believes that it will be forced to curtail and
cease operations and seek protection under Chapter 7 of the bankruptcy code.
The Company has explored a number of options over the last five years
including merging with or selling its assets to another person or entity.
However, each of these other transactions failed to materialize for reasons
such as unacceptably low offer prices for the assets, lack of interest from
potential buyers or the possibility that the combined efforts of the parties
would be unable to secure the requisite equity capital on a going forward
basis. The Board of Directors of the Company believes that the Asset Sale to
Oxboro presents the best option to the Company at this point in time. The
Board believes the transaction is fair to, and in the best interests of, the
shareholders of Surgidyne and also adequately protects the interests of the
Company's creditors because the proceeds of the Asset Sale should allow the
Company to pay in full certain liabilities (accrued expenses and liabilities
and royalties, professional fees, employee and general administrative expenses)
not assumed by Oxboro and retain a modest cash balance of approximately
$15,000. In the event that the Company experiences any significant delays in
closing the Asset Sale, however, such cash balance may be reduced. Furthermore,
the remaining public shell would provide the Board with the potential ability
to locate a business combination or other opportunity with better potential
than the Company's current wound drainage business, thereby maximizing
shareholder value. See "Proposal 1: Approval of the Asset Agreement-Reasons
for the Asset Sale" and "Proposal 1: Approval of the Asset Agreement-
Background of the Asset Sale."
Who Is Oxboro?
Oxboro Medical, Inc. is a publicly held Minnesota corporation which
develops, assembles and markets single-use disposable medical supplies and
medical and surgical devices. Oxboro also manufactures and markets a
proprietary line of surgical instrument sterilization containers and related
disposable supplies through its Sterion, Inc. subsidiary. Oxboro's common
stock is currently trading on the Nasdaq SmallCap Market under the symbol
"OMED." See "Proposal 1: Approval of the Asset Agreement-The Parties."
What Will Be Received In Exchange For The Surgidyne Assets?
The Company will receive $200,000 in cash in exchange for the sale of
all of the Company's assets (except for cash and corporate records) and the
assumption of substantially all trade and other specified payables. The
Company believes that such purchase price will be paid out of Oxboro's current
cash balance. The Company further believes that this should allow the Company
to pay in full certain liabilities (accrued expenses and liabilities and
royalties, professional fees, employee and general administrative expenses)
that have not been assumed by Oxboro and retain a modest cash balance of
approximately $15,000 to maintain the remaining public shell. The use of
proceeds from the Asset Sale is summarized below under the caption "Proposal 1:
Approval of the Asset Agreement-Effect of the Sale." In the event that the
Company experiences any significant delays in closing the Asset Sale, however,
such cash balance may be reduced. See "Proposal 1: Approval of the Asset
Agreement-Effects of the Asset Sale."
How Was The Purchase Price Determined?
Prior to working with David Berkley, the Chief Executive Officer of
Oxboro, to determine a price, Mr. Johnson analyzed a number of possible ways
that the Company could be valued, including as a multiple of revenue or a
multiple of asset book value. Mr. Johnson considered the Company's sales of
$130,064 as of March 31, 2001, and its asset book value of $279,688 as of the
same date. Mr. Johnson wanted to justify the highest possible valuation and
considered that a range of 1/2 to 1 times revenue or approximately $250,000 to
$500,000 could be reasonably justified. Mr. Johnson also concluded, based on
such analysis, that a multiple of 1 times the asset book value could be
justifiable. Despite such analysis, Mr. Johnson also concluded, based on past
experience and the current market conditions, that a buyer might rationally
offer a lower multiple. It was always important, however, to insure that the
purchase price covered at least substantially the Company's known liabilities.
The purchase price was ultimately determined through arm's length
negotiation between Theodore A. Johnson, the Chairman of the Board of the
Company, and David Berkley, the Chief Executive Officer of Oxboro. Mr. Johnson
and the Board of Directors of the Company reached agreement on the purchase
price considering the Company's current book asset value, the lack of cash to
pay the Company's creditors, the decline of the Company's sales, the continuing
losses and shortage of working capital of the Company and the lack of any
suitable alternatives for the Company. The Company did not hire a financial
advisor in connection with the Asset Sale due to the low value of the Company
and the high cost of such advisors, however, the Board of Directors believes
that the Asset Sale is fair to the shareholders and adequately protects the
interests of the Company's creditors, given the Company's current financial
situation. See "Proposal 1: Approval of the Asset Agreement-Background of
the Asset Sale."
How Will I Be Taxed On The Asset Sale?
There should be no tax to individual shareholders in connection with
the sale of the assets. The material tax issues affecting dissenting
shareholders are discussed under "Proposal 1: Approval of the Asset Agreement-
Federal Income Tax Consequences." Regardless, all shareholders are urged to
consult their tax advisors to determine the effect of the Asset Sale under
federal tax law (or foreign tax law where applicable), and under their own
state and local tax laws.
Are There Any Conditions To The Asset Sale?
Yes. The Asset Sale will be completed only if: it is approved by the
holders of a majority of the outstanding shares of Surgidyne Common Stock and
Surgidyne Preferred Stock; and no event occurs that would either (i) prevent the
consummation of the transactions contemplated by the Asset Agreement, or (ii)
cause any of the transactions contemplated by the Asset Agreement to be
rescinded following consummation of such transactions. See "The Asset
Agreement-Conditions to Consummation of Asset Sale."
What Will Happen To Surgidyne After The Asset Sale?
As the Company is proposing to sell substantially all of its assets, no
operating business will remain after the Asset Sale. The Company's balance
sheet following the Asset Sale will be comprised of the estimated cash balance
and equity and no other assets or liabilities will remain. Additionally, the
Company will not generate any further revenues after the Asset Sale. The Board
of Directors of the Company intends to actively seek a business combination or
some other transaction that has the potential to increase the value to the
existing shareholders. See "Proposal 1: Approval of the Asset Agreement-
Effects of the Asset Sale."
Are Surgidyne Shareholders Entitled To Dissenters' Rights?
Yes, under the MBCA, the shareholders of the Company are entitled to
dissenters' rights. The rules governing the exercise of dissenters' rights
must be strictly complied with, otherwise the dissenters' rights of a
shareholder may be lost. For a description of these rights and how to satisfy
the requirements of the MBCA, see "Rights of Dissenting Shareholders" and
Appendix D.
Why Change The Name Of The Company?
As part of the Asset Agreement the Company has agreed to amend its
Articles of Incorporation, as amended, and change its name to Surg II, Inc.
See "Proposal 2: Amendment of Articles to Change the Company Name" and
Appendix C.
Why Increase The Number Of Shares Authorized?
The Board of Directors believes that it may need additional authorized
shares in order to facilitate a possible business combination and/or possible
fundraising needs following the Asset Sale. Approving the authorization of
additional shares will, however, enable the Board to issue shares of one or
more classes of stock without notice to or approval of the shareholders. Any
such issuance could significantly dilute the interests of the current
shareholders. Additionally, an increase in the number of authorized shares
could be used by the Board as an anti-takeover mechanism. See "Proposal 3:
Amendment of Articles to Increase Authorized Shares" and Appendix C.
What Quorum and Vote Are Required?
The presence, in person or by proxy, of the holders of a majority of
the outstanding shares of Surgidyne Common Stock and Surgidyne Preferred Stock
is necessary to constitute a quorum at the Special Meeting. Each Proposal must
be approved by the holders of a majority of the shares of Surgidyne Common
Stock and Surgidyne Preferred Stock (on an as-if converted basis) outstanding
on the Record Date voting as a single class. It is expected that all shares of
Surgidyne Common Stock and Surgidyne Preferred Stock beneficially owned or
controlled by the directors and officers of the Company will be voted in favor
of each of the proposals. See "The Special Meeting-Record Date; Shareholders
Entitled to Vote; Voting; Quorum."
How Does the Board of Directors Recommend That I Vote On Each Proposal?
The Board of Directors of the Company believes that the Asset Sale is
in the best interests of the Company and its shareholders and unanimously
recommends that the shareholders vote "FOR" each of the three proposals. See
"Proposal 1: Approval of the Asset Agreement; Favorable Recommendation of the
Company's Board of Directors;" "Proposal 2: Amendment of Articles to Change
the Company Name; Favorable Recommendation of the Company's Board of
Directors;" and "Proposal 3: Amendment of Articles to Increase Authorized
Shares; Favorable Recommendation of the Company's Board of Directors."
If I Send In My Proxy Card But Forget To Indicate My Vote, How Will My Shares
Be Voted?
If you sign and return your proxy card but do not indicate how to vote
your shares at the Special Meeting, the shares represented by your proxy will
be voted "FOR" each Proposal.
What Should I Do Now To Vote At The Special Meeting?
Sign, mark and mail your proxy card indicating your vote on the Asset
Sale in the enclosed return envelope as soon as possible, so that your shares
of Surgidyne Common Stock can be voted at the Special Meeting. You may also
vote by faxing a copy of your proxy card to the Company at (763) 595-0667,
prior to the vote at the Special Meeting. In the event that you vote by fax,
however, please also provide the Company with an original copy of such proxy
card.
May I Change My Vote After I Mail My Proxy Card?
Yes. You may change your vote at any time before your proxy is voted
at the Special Meeting. You can do this in three ways:
* You can send a written statement to Surgidyne stating that you
revoke your proxy, which to be effective must be received by
Surgidyne prior to the vote at the Special Meeting; or
* You can send a new proxy card to Surgidyne prior to the vote at the
Special Meeting, which to be effective must be dated after your
original proxy and received by Surgidyne prior to the vote at the
Special Meeting; or
* You can attend the Special Meeting and vote in person. Your
attendance alone will not revoke your proxy. You must attend the
Special Meeting and cast your vote at the Special Meeting.
You should send your revocation of a proxy or new proxy card to Mr.
Charles McNeil, Executive Vice President, at the address on the cover of this
Proxy Statement. See "The Special Meeting-Revocation of Proxies."
Whom Should I Call if I Have Questions?
If you have questions about anything discussed in the Proxy Statement
you may call Charles McNeil, Executive Vice President of the Company, at (763)
595-0665.
THE SPECIAL MEETING
General
This Proxy Statement is being furnished to the shareholders of the Company in
connection with the solicitation of proxies by the Board of Directors of the
Company for use at the Special Meeting to be held at 10:00 a.m. (Minneapolis
time) on Tuesday, January 22, 2002 at Southgate Plaza, 5001 W. 80th Street,
Suite 590, Bloomington, Minnesota, and at any adjournment or postponement.
This Proxy Statement and the accompanying form of proxy are being mailed to
shareholders on or about January 02, 2002.
Matters to Be Considered
At the Special Meeting, the holders of Surgidyne Common Stock and
Surgidyne Preferred Stock will consider and vote on the following:
a) a proposal unanimously recommended by the Board of Directors of
the Company to approve and adopt the Asset Agreement.
b) a proposal unanimously recommended by the Board of Directors of
the Company and as required by the Asset Agreement to amend the
Articles of Incorporation, as amended, to change the name of
the Company to Surg II, Inc.
c) a proposal unanimously recommended by the Board of Directors of
the Company to approve and adopt an amendment to the Articles
of Incorporation, as amended, of the Company to increase the
number of authorized shares of the Company to Two-Hundred
Million (200,000,000).
Record Date; Shareholders Entitled to Vote; Voting; Quorum
The Record Date for the determination of the holders of Surgidyne
Common Stock and Surgidyne Preferred Stock entitled to notice of and to vote at
the Special Meeting has been set for December 17, 2001. As of that date, there
were 9,047,085 shares of Surgidyne Common Stock and Common Stock Equivalents
outstanding. Each holder of Surgidyne Common Stock and Surgidyne Preferred
Stock is entitled to cast one vote per share, exercisable in person or by
properly executed proxy, for matters considered at the Special Meeting. Holders
of Surgidyne Common Stock and Surgidyne Preferred Stock will vote together as a
single class on all matters to be voted upon at the Special Meeting. The
presence, in person or by properly executed proxy, of the holders of a majority
of the outstanding shares of Surgidyne Common Stock and Surgidyne Preferred
Stock is necessary to constitute a quorum at the Special Meeting.
Shareholder approval of each Proposal requires the affirmative vote of
the holders of a majority of shares of Common Equivalents. Each proxy returned
to the Company will be voted in accordance with the instructions indicated
thereon. If no instructions are indicated, the shares will be voted "FOR" each
of the proposals. If an executed proxy is returned and the shareholder has
abstained from voting on any proposal, the shares represented by such proxy
will be considered present at the meeting for the purpose of determining the
quorum and for purposes of calculating the vote, but will not be considered to
have been voted in favor of such proposal. If an executed proxy is returned by
a broker holding shares in "street name" which indicates that the broker does
not have discretionary authority as to certain shares to vote on one or more
proposal, such shares will be considered present at the meeting for the purpose
of determining a quorum but will not be considered to be represented at the
meeting for purposes of calculating the vote with respect to such proposal.
As such, abstentions, broker non-votes and shares that are not represented in
person or by proxy will have the same effect as a vote "AGAINST" the approval
of each of the proposals.
APPROVAL OF EACH PROPOSAL REQUIRES THE AFFIRMATIVE VOTE OF THE HOLDERS
OF A MAJORITY OF ALL OUTSTANDING SHARES OF SURGIDYNE COMMON STOCK AND SURGIDYNE
PREFERRED STOCK.
Solicitation of Proxies
The Company will bear all expenses of the solicitation of proxies in
connection with the Proxy Statement, including the cost of preparing and
mailing the Proxy Statement. Officers and directors of the Company may solicit
proxies by telephone or electronic transmission and will receive no extra
compensation for their services.
Revocation of Proxies
A proxy given pursuant to this solicitation may be revoked by the
person giving such proxy at any time before the proxy is voted. Proxies may be
revoked in one of the three following ways: (a) by providing the Company with
a written statement prior to the vote at the Special Meeting which provides
that you revoke your proxy; (b) by sending a new proxy card to the Company,
which is dated after your original proxy and received prior to the vote at the
Special Meeting; or (c) by attending the Special Meeting and voting in person,
provided, however, that your attendance alone at the Special Meeting will not
revoke your proxy.
PROPOSAL 1: APPROVAL OF THE ASSET AGREEMENT
For your convenience, we have summarized the material aspects of the
Asset Sale. This summary is not a complete description. We encourage
you to refer to the section in this Proxy Statement entitled "The
Asset Agreement" and to read Appendix A and Appendix B.
The Parties
Surgidyne, Inc. Surgidyne, incorporated in Minnesota in 1984 as a
successor by merger to a corporation of the same name that was incorporated in
Georgia in September 1982, is a publicly held corporation. The Surgidyne
Common Stock is currently listed on the OTCBB under the symbol "SGDN."
Surgidyne designs, develops, manufactures and markets specialty medical and
surgical wound drainage products used in hospital operating and emergency
rooms. The principal executive office of the Company is located at 9909 South
Shore Drive, Minneapolis, Minnesota, and its telephone number is (763)
595-0665. See also "Information Concerning the Company."
Oxboro Medical, Inc. Oxboro, incorporated in Minnesota in 1978, is a
publicly held corporation. The common stock of Oxboro is currently traded on
the Nasdaq SmallCap Market under the symbol "OMED." Oxboro develops, assembles
and markets single-use disposable medical supplies and medical and surgical
devices. The principal medical products produced and sold by Oxboro include
silicone surgical loops, silicone and fabric surgical clamp covers, surgical
instrument protection guards, suture aid booties, surgical instrument
identification sheet and roll tape, surgical instrument cleaning brushes and
various holders and organizers for surgical instruments used in the operating
room. Oxboro's wholly-owned subsidiary, Sterion, Inc., which is located in
Jacksonville, Texas, manufactures and markets a proprietary line of surgical
instrument sterilization containers and related disposable supplies which are
used by hospitals, surgical centers and clinics worldwide. The principal
executive office of Oxboro is located at 13828 Lincoln Street S.E., Ham Lake,
Minnesota, and its telephone number is (763) 755-9516.
Reasons for the Asset Sale
The Company's sales have steadily declined since peaking in 1992 at
approximately $1.2 million annually. Sales for the nine-months ended September
30, 2001 were $347,256. Since 1992, the Company has been unsuccessful in its
endeavors to make the Company a successful, profitable business entity via
growth, merger or acquisition. Specifically, the Company has been unsuccessful
in its endeavors to enter into new markets with existing products or to develop
and bring new products to market.. As a result, the Board authorized
management to seek alternatives for maximizing shareholder value. Alternatives
to be explored included the possible merger with another company, the
acquisition of a product line or the sale of some or all of the Company's
assets.
As early as November 1996 the Company began exploring the possible sale
of its business to an entity interested in the wound drainage market. From
1997 to 2001 the Company, with assistance from two different local investment-
banking firms, held conversations with at least five other entities regarding
possible strategic alliances or combinations. In each case, the Company
entered into discussions regarding the possible sale to such other entity or
the possibility of combining with such other entity and raising additional
equity capital to fund the combined enterprise. The ultimate demise of each
these efforts, however, was due to the fact that either (i) the potential
partner/acquiror became uninterested in acquiring the Company's business, (ii)
the Company received an offer to be acquired or (iii) the combined efforts of
the parties could not successfully secure the equity capital they would need to
pursue the combined opportunity. None of the offers received throughout this
five-year process resulted in an offer in an amount equal to or greater than
the current Oxboro proposal.
In early 2000 the Company began discussions with two principals of a
small Minneapolis investment bank, Maven Securities, pursuant to which the
principals were to assist the Company in looking for potential merger or
acquisition candidates. During the time these discussions were being held,
Maven was acquired by Equity Securities Investments, Inc. ("Equity
Securities"), another small Minneapolis investment bank. In June 2000, the
Company signed an agreement with Equity Securities whereby Equity Securities
agreed to assist the Company in looking for a merger partner. Both the Company
and Equity Securities understood that a partner for the Company might include a
private company seeking a lower-cost way to utilize the public equity markets
without completing an initial public offering. Such agreement was for an
initial one-year term ending June 2, 2001, with either party having the ability
to terminate such agreement after such one-year term upon thirty days notice.
The agreement provided Equity Securities with the right to purchase 480,000
shares of Surgidyne Common Stock from certain members of the Board, Messrs.
Johnson and McNeil, and from EMBRO Corporation, a corporation owned by two
directors of the Company, Mr. Fiegel and Dr. Knighton, at a purchase price of
$.17 per share. See also "Background of the Asset Sale-Certain Relationships."
Additionally, Equity Securities was granted a five-year warrant to purchase up
to 600,000 shares at $.17 per share as full payment for its services. Equity
Securities identified several potential merger partners and presented such
options to the Company. Each of these prospects was deemed unacceptable to the
Company, however, due to a combination of their lack of profitability or
revenue prospects, perceived low growth potential and inadequate management.
As of the date of this Proxy Statement, neither the Company nor Equity
Securities has terminated their agreement, however, no potential partners have
been proposed by Equity Securities since April 20, 2001. The Company may use
Equity Securities to assist in finding a merger partner following the closing
of the Asset Sale.
During the last two years, the Company's accumulated deficit has grown
from $4,672,542 at September 30, 1999 to $4,971,320 at September 30, 2001.
During the same period, total assets and stockholders' equity declined from
$349,831 and $199,500 at September 30, 1999 to $204,876 and $34,946 at
September 30, 2001, respectively. At September 30, 2001, the Company had
working capital of only $12,708. As indicated above, the Company's financial
position has continued to worsen, with cash declining to $7,367 as of September
30, 2001. At this point, the Company does not have sufficient cash to pay its
outstanding creditors. In 2001, the Company received notification that two of
its creditors intended to take legal action unless paid in full. One such
creditor is the holder of a promissory note issued by the Company for amounts
loaned to the Company to be used as operating capital to fulfill contract
orders from a customer/supplier. Approximately $15,000 is currently owed on
such promissory note. Such creditor first notified the Company on June 24,
1998, and again notified the Company on April 14, 1999, that he intended to
take legal action unless paid in full. In April, 1999, the Company and such
creditor orally agreed that such creditor would be paid all amounts due out of
the proceeds from a transaction between the Company and another person or
entity. When no such transaction had been consummated, such creditor again
notified the Company on May 9, 2001, that he intended to take legal action
unless paid in full. In August, 2001, the Company made a payment of $5,000 to
such creditor and entered into an oral agreement whereby the Company agreed to
pay such creditor all amount due, plus attorneys' fees, out of the proceeds
from the Asset Sale. The second creditor, a former attorney, is currently owed
approximately $30,000 on a promissory note for legal services previously
rendered. Such creditor first informed the Company in March 2001 of his
intention to take legal action unless paid in full. In April, 2001, to satisfy
the bankruptcy attorney representing the firm of the Company's former attorney,
the Company made a payment of approximately $5,000 to such bankruptcy attorney
and the Company's former attorney assumed the balance of the promissory note.
The Company is not currently in default on such note but it does intend to pay
such note in full with the proceeds of the Asset Sale. The Board of Directors
has unanimously recommended approval of the sale to Oxboro because it is the
best offer received to date and inaction is not an option. The Board further
believes that unless shareholders approve this transaction, the Company will
be forced to curtail or cease operations and seek protection under Chapter 7
of the bankruptcy code.
Background of the Asset Sale
In early 1997, Mr. Gary Copperud contacted and met with Mr. Johnson to
inquire as to whether the Company was for sale. At the time of such meeting,
Mr. Copperud was an individual investor with an interest in acquiring a small
medical products company. Mr. Copperud had no prior relationship with Mr.
Johnson or the Company, nor was he affiliated with Oxboro at this time. Mr.
Copperud subsequently became a director of Oxboro in 1998. Mr. Copperud made
an offer to Mr. Johnson to buy the Company at the purchase price per share of
$.025 or an aggregate amount of approximately $180,000. At the time, given the
Company's financial status and its trading price in the public market, the
Company's Board of Directors believed the value of the Company was higher. As
such, Mr. Johnson made a counter offer of $0.07 per share, which represented a
value between the bid and ask price for the Surgidyne Common Stock, as reported
by the Minneapolis Star Tribune. Such counter-offer was rejected by Mr.
Copperud. Although Mr. Johnson and Mr. Copperud attempted to continue
negotiations, they ultimately could not reach a mutually satisfactory price for
the Company and, therefore, elected not to proceed with a transaction at that
time.
Following numerous unsuccessful attempts in locating an acceptable
partner with whom the Company could merge or combine or to whom the Company
could be sold, on June 8, 2001, Mr. Johnson again met with Mr. Copperud.
This time, Mr. Copperud met with Mr. Johnson as a member of the Board of
Directors of Oxboro. The meeting between Mr. Johnson and Mr. Copperud focused
on the potential acquisition by Oxboro of the assets of the Company. Although
the Company and Oxboro had no previous relationship, Mr. Copperud suggested that
Oxboro would purchase the assets of the Company to complement its own product
line. After further discussion, Mr. Copperud suggested that Mr. Johnson meet
with Mr. David Berkeley, the Chief Executive Officer of Oxboro.
After Mr. Johnson's meeting with Mr. Copperud, Mr. Johnson analyzed
both a potential multiple of book value or a potential multiple of revenues as
two possible ways for justifying the value of the Company. Mr. Johnson
considered the Company's sales of $130,036 for the quarter ended March 31, 2001,
and its asset book value of $279,688 as of the same date. He attempted to find
a rational reason to justify the highest possible valuation and considered that
a range of 1/2 to 1 times annual revenue (e.g. multiplying March 31, 2001 sales
by four to reach approximately $500,000 and therefore a range of $250,000 to
$500,000) could be reasonably justified and within the universe of possible
valuations. Mr. Johnson also concluded, based on such analysis, that a multiple
of 1 times the asset book value (or just over $250,000) could be justifiable.
Such analysis was based on Mr. Johnson's experience in working with companies
like the Company for twenty years. Despite such analysis, however, Mr. Johnson
also concluded, based on past experience and the current market conditions, that
a buyer might rationally offer a lower multiple and that, given the Company's
situation, a number close to the low end established in his analysis was at
least worthy of additional consideration by the Board. It was always important,
however, to insure that the purchase price covered at least substantially the
Company's known liabilities. Since such time, the book value has decreased 15%
($204,876 as of September 30, 2001) and the capital markets have generally
declined; as a result, Mr. Johnson does not believe the conclusion reached in
his analysis has been materially altered.
On July 20, 2001, Mr. Johnson met with Mr. Berkley and Mr. Fred Berg,
the Director of Marketing of Oxboro, to discuss the possible sale of the
Company's assets to Oxboro. Mr. Johnson, Mr. Berkley and Mr. Berg discussed
the framework of a potential transaction and agreed to further explore the
possibility of such a transaction with their respective Boards of Directors.
After the meeting, Mr. Berkley sent Mr. Johnson an initial letter of
intent that included a purchase price of $186,332. Following the receipt of
such initial letter of intent, Mr. Johnson met with Mr. Copperud to discuss the
offer and to express his belief that the proposed purchase price was too low.
Mr. Copperud offered to increase the purchase price to $200,000. As such,
following the conversation, a new letter of intent was presented whereby Oxboro
agreed to pay $200,000 for the Company's assets. The Company believed, and
continues to believe, that such purchase price will be paid out of Oxboro's
current cash balance.
Following the signing of a letter of intent by both companies, the
companies proceeded with the preparation of the Asset Agreement. Following
approval of the Asset Agreement by the respective Boards of Directors, the
parties executed the Asset Agreement on October 4, 2001. The Asset Agreement
was subsequently amended to clarify some ambiguous language regarding the
assumption of the Company's liabilities and also to provide additional time
prior to the closing given ongoing delay in finalizing this proxy solicitation
and the completion of related SEC review.
Board Consideration
At a special meeting of the Company's Board of Directors on August 13,
2001, Mr. Johnson presented the Oxboro proposal to purchase of the assets of
the Company. Mr. Johnson discussed the numerous efforts to find another
acceptable purchaser, the letter of intent, his discussions with Oxboro, the
unsuccessful efforts of Equity Securities to locate potential purchasers and
the current declining sales and cash position of the Company. In analyzing the
proposed offer by Oxboro the Board discussed all of the following:
(a) the lack of potential for future growth of the Company's products due
to a number of factors including lack of funds;
(b) the likely inability to raise significant additional capital;
(c) the current financial position of the Company, including its poor cash
and asset positions and its growing liabilities balance (accounts and
notes payable balances which had increased by $11,419, from December
31, 2000 to June 30, 2001);
(d) the Oxboro offer to purchase the Company's assets for $200,000,
which would enable the Company to pay its outstanding debts but
would also eliminate the Company's ability to generate revenue,
verses waiting for an offer from a party willing to purchase
the entire Company;
(e) the desire to seek a merger partner with a significant business
opportunity that could maximize existing shareholder value; and
(f) the failure of the Company to find any better offers or opportunities.
Mr. Johnson discussed with the Board his thoughts on whether the
proposed price was, based on his past experience, within normal parameters
using various valuation methods including valuation as a multiple of sales or
multiple of asset book value. Mr. Johnson discussed with the Board how such
analysis compared to the discussions regarding price that Mr. Johnson had
previously had with Oxboro. Without giving specific consideration to any
method of valuation or giving greater weight to any of the factors considered
by the Board and considering the Company's declining cash position, growing
accounts and notes payable, and lack of better alternatives, and that the
payment would be sufficient to repay at least substantially all of the
unassumed debt of the Company, the Board agreed that the price presented was
within an acceptable range of prices utilizing revenue or asset book value
valuation multiples. The Board therefore authorized Mr. Johnson to proceed
with negotiation of a final agreement. The Company's Board indicated its
support for the objectives and opportunities to enhance shareholder value and
to protect the fiduciary interests of the Company's creditors.
Although the Company did not hire a financial advisor to make a
recommendation regarding the fairness of the asset sale due to the low value of
the Company and the high cost of such advisors, the Board believes that, given
the Company's current financial situation and the inability to find an
acceptable alternative for the past five years, the Asset Sale is fair to the
shareholders and adequately protects the interests of the Company's creditors.
This is especially true in light of the fact that this offer is higher than
any other offer received by the Company through its several years of searching
for a prospective buyer or merger partner. As such, to enable the Company to
proceed with the Asset Sale, the letter of intent was accepted by the Board of
Directors.
Certain Relationships
In addition to the information set forth above, shareholders should be
aware of certain relationships between the Company and its officers and
directors that may be affected by the completion of this transaction. Mr.
McNeil is currently owed $9,898, plus interest by the Company pursuant to
promissory note. The Company plans to repay such amount out of the proceeds
from the Asset Sale.
The Company currently owes $36,468 in accrued expenses and royalties to
certain existing shareholders. Mr. Johnson and Dr. Knighton are 2 of the 26
preferred shareholders who are owed an aggregate of $20,328.70 because they
were entitled to a percentage of profits from two years in the late 1990's when
the Company was profitable. In the event that the Company is again profitable,
the preferred shareholders would continue to receive a percentage of profits
until the aggregate amount owed to such shareholders equals $60,000. Once the
preferred shareholders are owed an aggregate of $60,000, such right to receive
a percentage of profits will terminate. In addition, Mr. Schwalm is 1 of 15
common shareholders who are contractually entitled to an aggregate of
$16,138.60 in royalties, based on sales of certain of the Company's products
made by a strategic partner in the early 1990's. These contractual royalty
rights were available to any person who participated in a certain private
offering of the Company's common stock in 1990. Such rights are not
transferable, either with such shares of common stock purchased in the private
offering or otherwise, and no similar rights have subsequently been offered by
the Company. These rights have terminated and no additional royalties will
accrue.
The amounts owed to Mr. Johnson, Dr. Knighton and Mr. Schwalm, which
are expected to be paid out of the proceeds of the Asset Sale, are as set forth
in the table below:
Name Amount
Theodore Johnson $762.33
David Knighton, M.D. $254.11
Arthur Schwalm $1,008.66
Certain officers and directors, Mr. Johnson and Mr. McNeil, have
warrants to purchase 200,000 and 215,000 shares, respectively, of Surgidyne
Common Stock at an exercise price of $0.17 per share. Additionally, EMBRO
Corporation, a corporation owned by two directors of the Company, Mr. Fiegel
and Dr. Knighton, has warrants to purchase 65,000 shares of Surgidyne Common
Stock at an exercise price of $0.17. These warrants will not be affected by
this acquisition.
Mr. McNeil, the Executive Vice President of the Company, has entered
into a Consulting Agreement with Oxboro pursuant to which he will provide new
product and business development consulting services contacts and information
for an initial term of 180 "billable days." This initial term will
subsequently extend unless terminated and Mr. McNeil will be compensated at a
rate of $300 per "billable day." The Consulting Agreement contemplates that
Mr. McNeil will work approximately three "billable days" per calendar week.
A "billable day" is defined in the Consulting Agreement as a day worked,
whether or not consecutive, each day being at least six (6) hours in length.
In addition, depending on the timing of the closing, Mr. McNeil would be
entitled to some portion of the "Employee Expenses (Accrued Payroll and
Vacation)" which is detailed in the table set forth under "Effects of the Asset
Sale below." As of December 20, 2001 this amount is $3,588.26.
As consideration for their agreement to stay with the Company until the
completion of the Asset Sale, the Company has agreed to pay the three employees
of the Company other than Mr. McNeil, Mr. James Lannan, Ms. Marilee Douda and
Ms. Lillie McJimsey, a one-time bonus payment of $5,000 for an aggregate total
of $15,000. None of these employees will be employed by the Company following
the closing of the Asset Sale, however, Section 3.1 of the Asset Agreement
gives Oxboro the option of interviewing and making an offer in writing of
employment to Mr. Lannan, Ms. Douda and Ms. McJimsey.
In making it's decision to approve the transaction. the Board of
Directors of the Company did not consider the affect of the transaction on the
warrants held by officers, Mr. McNeil's consulting agreement or the Note held
by Mr. McNeil, but did give some consideration to the Company's potential
ability to pay a bonus to its employees.
Effects of the Asset Sale
The Company will receive $200,000 in cash in exchange for the sale of
all of the Company's assets (except for cash and corporate records) and the
assumption of substantially all trade payables as well as most other
liabilities. The Company believes that such purchase price will be paid out of
Oxboro's current cash balance. The Company further believes that this should
allow the Company to pay in full certain liabilities that will not have been
assumed by Oxboro and to retain a modest cash modest cash balance of
approximately $15,000 in order to maintain the remaining public shell, as the
Company currently intends to maintain its status as a reporting company under
the Exchange Act. Certain liabilities that will not be assumed by Oxboro
include: accrued expenses, liabilities and royalties; professional fees;
employee and general administrative expenses; and certain regulatory
certification expenses to be paid to TNO (a European certifying body) that
relate to the certification to use the CE mark on certain wound drainage
products that have approved for manufacture and sale into European countries
and that will be sold to Oxboro as part of the Asset Sale. In the event that
the Company experiences any significant delays in closing the Asset Sale,
however, such cash balance may be reduced. As the Company is proposing to
sell substantially all of its assets, no operating business will remain after
the Asset Sale. The Company's balance sheet following the Asset Sale will be
comprised of the estimated cash balance and equity and no other assets or
liabilities will remain. Additionally, the Company will not generate any
further revenues after the Asset Sale. The use of the proceeds from the Asset
Sale is summarized below (please see also "Certain Relationships"):
Amount
Accrued Expenses and Royalties $36,468
Note Holders (Estimated as of December 31, 2001) $55,564
Employee Bonuses $15,000
Account Payable (Excluded from those Assumed by Oxboro) $25,440
Estimated Transaction Expenses (Legal and Accounting) $28,000
Special Meeting Expenses (Printing, Mailing and
Transfer Agent) $ 6,000
Employee Expenses (Accrued Payroll and Vacation) $ 8,275
Equipment Expenses $ 6,900
Regulatory Certification Expenses $ 3,275
The Board of Directors of the Company has been actively seeking another
operating business for the Company to acquire, invest in or merge with, and
will continue to do so after the Asset Sale is completed. The Company has not
identified any specific potential partner at this time the Company has
discussed its plans with only three people with ties to companies which may be
candidates, though to date these discussions have been short and mere
explorations of interest. The Company cannot estimate at this time what form
such transaction might take or what consideration might be requested by
possible future potential partners. Further, there can be no assurances that
the Company will be able to complete a transaction with another operating
business. Further, even if a transaction is completed, there can be no
assurances that the market price of the Company's stock will improve.
Favorable Recommendation of the Company's Board of Directors
The Board of Directors of the Company after consideration of the
Company's financial position and lack of alternatives, believes that the terms
and conditions of the Asset Sale are fair from a financial point of view to the
shareholders of the Company and, further, that the Asset Sale is in the best
interests of the Company and its shareholders as it may create an opportunity
by which the Company may obtain needed capital and locate a more attractive
business opportunity. The Board of Directors has not requested or obtained a
third party evaluation of the fairness of the transaction.
THE BOARD OF DIRECTORS OF THE COMPANY HAS APPROVED THE ASSET
AGREEMENT AND UNANIMOUSLY RECOMMENDS THAT YOU VOTE IN FAVOR OF THE PROPOSAL TO
APPROVE AND ADOPT THE ASSET AGREEMENT. The members of the Board of Directors
of the Company intend to vote all shares of Surgidyne Common Stock and
Surgidyne Preferred Stock under their control in favor of such proposal.
Federal Income Tax Consequences
If a shareholder does not exercise dissenters' rights, there is no
federal income tax impact on the shareholder. The Company, however, expects to
recognize a gain or loss on the Asset Sale, generally on an asset-by-asset
basis. This gain will be equal to the cash the Company receives, plus the
liabilities Oxboro assumes, less the basis the Company has in the assets. The
Company expects that at least a portion of the gains with respect to the sale
of the assets will be absorbed by net operating loss ("NOL") carryforwards and
capital loss carryforwards available to the Company, except to the extent that
the Company is subject to the alternative minimum tax ("AMT"). NOL
carryforwards may be used only to offset 90% of income that is subject to the
AMT.
If a shareholder exercises dissenters' rights, the shareholder will
realize a gain or loss. The Company has summarized the federal income tax
consequences of exercising dissenters' rights under currently existing
provisions of the Code, the Treasury Regulations under the Code, applicable
judicial decisions and administrative rulings, all of which are subject to
change. Due to the complexity of the Code, the following discussion is limited
to the material federal income tax aspects of the Asset Sale for a shareholder
who properly exercises his or her dissenters' rights under the MBCA, who is a
citizen or resident of the United States and who, on the date of disposition of
the holder's shares of Surgidyne Common Stock, holds the shares as a capital
asset. The general tax principles discussed below are subject to retroactive
changes that may result from subsequent amendments to the Code. The following
discussion does not address the material federal income tax aspects of the
Asset Sale for any dissenting shareholder who is not a citizen or resident of
the United States. The following discussion does not address potential
foreign, state, local and other tax consequences, nor does it address the
effect on taxpayers subject to special treatment under the federal income tax
laws (such as life insurance companies, tax-exempt organizations, S
corporations, trusts and taxpayers subject to the alternative minimum tax).
In addition, the following discussion may not apply to dissenting shareholders
who acquired their shares upon the exercise of employee stock options or
otherwise as compensation, or to dissenting shareholders who acquired their
Surgidyne Common Stock upon conversion of Surgidyne Preferred Stock. All
shareholders are urged to consult their own tax advisors regarding the federal,
foreign, state and local tax consequences of the disposition of their shares in
the Asset Sale.
If a shareholder's stock interest in the Company is completely
terminated upon exercise of the dissenters' rights (taking into account the
constructive ownership rules), the redemption will qualify as a sale or
exchange (rather than as a dividend). Even if the shareholder's stock
interest in the corporation is not completely terminated upon exercise of
dissenters' rights (taking into account the constructive ownership rules), the
redemption will qualify as a sale or exchange (rather than as a dividend) if
the redemption (a) results in a substantially disproportionate reduction in the
shareholder's equity in the Company (as provided in Section 302 of the Code),
or (b) is not essentially equivalent to a dividend.
Accordingly, the federal income tax consequences to the Company's
shareholders who exercise dissenters' rights will generally be as follows:
(a) Assuming that the shares of Surgidyne Common Stock exchanged by
a dissenting shareholder for cash in connection with the Asset
Sale are capital assets in the hands of the dissenting
shareholder at the effective time (and the exchange is a sale
or exchange under Section 302 of the Code rather than as a
dividend), such dissenting shareholder may recognize a capital
gain or loss by reason of the consummation of the Asset Sale.
(b) The capital gain or loss, if any, will be long-term with
respect to shares of Surgidyne Common Stock held for more than
twelve months as of the effective time, and short-term with
respect to such shares held for twelve months or less.
(c) The amount of capital gain or loss to be recognized by each
dissenting shareholder will be measured by the difference
between the amount of cash received by such dissenting
shareholder in connection with the exercise of dissenters'
rights and such dissenting shareholder's adjusted tax basis in
the Surgidyne Common Stock at the effective time.
(d) An individual's long-term capital gain is subject to federal
income tax at a maximum rate of 20%, while any capital loss can
be offset only against other capital gains plus $3,000 of other
income in any tax year ($1,500 in the case of a married
individual filing a separate return). Capital losses in excess
of these limits can be carried forward to future years.
(e) A corporation's long-term capital gain is subject to federal
income tax at a maximum rate of 35%, while any capital loss can
be offset only against other capital gains in any tax year,
subject to the carryback and carryforward rules of the Code.
Cash payments made pursuant to the Asset Sale will be reported
to the extent required by the Code to dissenting shareholders
and the Internal Revenue Service. Such amounts will ordinarily
not be subject to withholding of U.S. federal income tax.
However, backup withholding of such tax at a rate of 31% may
apply to certain dissenting shareholders by reason of the
events specified in Section 3406 of the Code and the Treasury
Regulations promulgated thereunder, which include failure of a
dissenting shareholder to supply the Company or its agent with
such dissenting shareholder's taxpayer identification number.
Accordingly, Company dissenting shareholders (or other payees)
may be asked to provide the dissenting shareholder's taxpayer
identification number (social security number in the case of an
individual, or employer identification number in the case of
other dissenting shareholders of the Company) on a Form W-9 and
to certify that such number is correct. Withholding may also
apply to Company dissenting shareholders who are otherwise
exempt from such withholding, such as a foreign person, if such
person fails to properly document its status as an exempt
recipient. If requested by the Company, each dissenting
shareholder of the Company, and, if applicable, each other
payee, should complete and sign a Form W-9 to provide the
information and certification necessary to avoid backup
withholding, unless an applicable exemption exists and is
proved in a manner satisfactory to the Company.
The federal income tax consequences set forth above are for general
information only. Each holder of shares of Surgidyne Common Stock and
Surgidyne Preferred Stock is urged to consult his or her own tax advisor to
determine the particular tax consequences to such shareholder of the
transaction (including the applicability and effect of foreign, state, local
and other tax laws).
THE ASSET AGREEMENT
For your convenience, we are providing a summary of the material
provisions of the Asset Agreement. This summary is not a complete
description. We encourage you to read the Asset Purchase Agreement
in its entirety, attached hereto as Appendix A, and Amendment No.
1 to the Asset Purchase Agreement, attached hereto as Appendix B.
General
Upon consummation of the Asset Sale, the Company will sell all of its
assets, except cash on hand and the Company's corporate records, to Oxboro.
Oxboro will assume almost all liabilities, including all trade and accounts
payable and certain other trade and accounts payable to be set forth on the
closing payable sheet. The Asset Sale will become effective at the time to be
specified in the Asset Agreement and is expected to close as soon as
practicable following a successful vote by the shareholders of the Company.
Representations and Warranties
The Asset Agreement contains various customary representations and
warranties of each of the Company and Oxboro relating to, among other things,
the following matters (which representations and warranties are subject, in
certain cases, to specified exceptions): (a) organization, corporate powers
and qualification to do business; and (b) due authorization, execution,
delivery and performance of the Asset Agreement.
Covenants
Pursuant to the Asset Agreement and prior to the effective time, the
Company has agreed, except as expressly contemplated by the Asset Agreement or
as otherwise consented, that it: (a) will carry on its businesses in the
usual, regular and ordinary course; (b) will not dispose of or encumber any of
its properties or assets; and (c) will not take, agree to take or knowingly
permit to be taken any action or do or knowingly permit to be done anything in
the conduct of its business that would be contrary to or in breach of the terms
or provisions of the Asset Agreement or would cause any of the representations
or warranties contained therein to be or become untrue in any material respect.
The Company and Oxboro have further agreed to not issue any press
release or other information to the press or any third parties with respect to
the Asset Agreement or the transactions contemplated thereby without the prior
written consent of each other.
Conditions to Consummation of Asset Sale
Pursuant to the Asset Agreement, the respective obligations of the
Company and Oxboro to effect the Asset Sale are subject to the fulfillment at
or prior to the effective time of various conditions, including the following:
(a) the Asset Agreement shall have been approved and adopted by the affirmative
vote of the shareholders of the Company in accordance with applicable law; (b)
no suit or other legal proceeding shall have been commenced seeking to restrict
or prohibit the transactions contemplated by the Asset Agreement; (c) the
representations and warranties of the Company and Oxboro, respectively,
contained in the Asset Agreement shall be true and correct in all material
respects at and as of the effective time as if made at and as of such time,
except as affected by the transactions contemplated by the Asset Agreement; and
(d) the Company and Oxboro shall each have performed in all material respects
the obligations under the Asset Agreement required to be performed by it at or
prior to the effective time.
Amending or Waiving Terms of the Asset Agreement
At any time prior to the closing of the Asset Sale, the Company and
Oxboro may amend the Asset Agreement to the extent permitted by law before or
after the shareholders of the Company vote on the Asset Sale. After the
shareholders of the Company approve the Asset Sale, applicable law may require
that subsequent amendments be approved by such shareholders.
Indemnification
The Company and Oxboro have each agreed to, and shall immediately upon demand,
defend, indemnify and hold harmless the other from, against, and in respect of
any liabilities, penalties, interests, costs, expenses or other damages or
deficiencies incurred as a result of any misrepresentation, breach of warranty
or nonfulfillment of any agreement or covenant under the Asset Agreement. More
particularly, the Company has agreed to provide to Oxboro indemnification from
all damages, losses, costs and expenses that it may suffer as a result of
certain items including, but not limited to, any unassumed liabilities, breach
of the representations and warranties in the Asset Agreement and third party
product claims for products that were in inventory or sold prior to the
closing. No claims for indemnification may be brought by Oxboro in an aggregate
amount that exceeds $20,000. All claims by Oxboro must be brought on or before
the first anniversary of the closing of the transaction.
Expenses
Under the Asset Agreement, all costs and expenses incurred in
connection with the Asset Agreement and the transactions contemplated thereby
are to be paid by the party incurring such costs and expenses.
Regulatory and Third-Party Approvals
Each of the Company and Oxboro believe that no regulatory approvals or
third-party approvals are or will be required in connection with the Asset Sale
or the Asset Agreement.
Exhibits and Schedules
The exhibits and schedules to the Asset Agreement have not been included in
Attachment A. Shareholders and other persons interested in obtaining copies of
such exhibits and schedules may request the same by writing to Mr. Charles
McNeil, Executive Vice President, Surgidyne, Inc., 9909 South Shore Drive,
Minneapolis, Minnesota, 55441. Shareholders and other persons who request a
copy of the exhibits and schedules to the Asset Agreement will be asked to pay
the cost of photocopying and mailing such exhibits and schedules.
RIGHTS OF DISSENTING SHAREHOLDERS
Under the MBCA, the shareholders of the Company are entitled to
dissenters' rights with respect to the Asset Sale. The following
is a summary of your rights if you dissent. The summary is not a
complete description and, because the rules for preserving and
asserting dissenters' rights are very technical and strictly
enforced, it is very important that you read Sections
302A.471 and 302A.473 of the MBCA (the "Minnesota Dissenters'
Rights Statute"), which are attached hereto as Appendix D.
Under the MBCA, you have the right to dissent from the Asset Sale and,
subject to certain conditions provided for under the MBCA, to receive payment
for the fair value of your shares of stock of the Company immediately prior to
the Asset Sale. If the shareholders approve of the Asset Agreement,
shareholders will be bound by the terms of the Asset Agreement unless they
dissent by complying with all of the requirements of the Minnesota Dissenters'
Rights Statute. To demand such payment, you should carefully review the
Minnesota Dissenters' Rights Statute, and in particular the procedural steps.
IF YOU FAIL TO COMPLY PRECISELY WITH THESE PROCEDURAL REQUIREMENTS YOU WILL
LOSE YOUR RIGHT TO DISSENT.
If you wish to dissent, you must deliver to the Company, prior to the
vote on the Asset Agreement, a written notice of intent to demand payment for
your shares if the Asset Sale is effectuated. Such notice should be sent to
Surgidyne, Inc., Attn: Chuck McNeil, Executive Vice President, 9909 South
Shore Drive, Minneapolis, Minnesota, 55441. In addition, you must not vote to
approve the Asset Agreement. If you fail to deliver the notice on time or vote
to approve the Asset Agreement, you will not have any dissenters' rights. If
you return a signed proxy but do not specify a vote "AGAINST" approval of the
Asset Agreement or a direction to abstain, the proxy will be voted "FOR"
approval of the Asset Agreement, which will have th effect of waiving your
dissenters' rights.
If the Asset Agreement is approved at the Special Meeting, the Company
will deliver a written dissenters' notice to all of its shareholders who gave
timely notice of intent to demand payment and who did not vote in favor of the
Asset Agreement. The Company's notice will:
* state where the payment demand and certificates of certificated
shares must be sent in order to obtain payment and the date by which
they must be received;
* inform shareholders of uncertificated shares to what extent transfer
of the shares will be restricted after the payment demand is
received;
* supply a form for demanding payment and requiring the dissenting
shareholder to certify the date on which such shareholder acquired
his or her shares of stock of the Company; and
* be accompanied by a copy of the Minnesota Dissenters' Rights
Statute.
In order to receive fair value for your shares of stock of the Company,
you must demand payment within thirty days following the date of the Company's
notice, deposit your shares and provide the other information required by such
notice. The Company may restrict the transfer of shares from the date of the
demand for payment until the Asset Sale is completed; however, you retain all
other rights of a shareholder of the Company until those rights are canceled by
the Asset Sale.
Upon the completion of the Asset Sale, or upon receipt of the payment
demand (whichever is later), we must pay each dissenter who complies with the
Minnesota Dissenters' Rights Statute the amount we estimate to be the fair
value of the dissenter's shares of stock of the Company plus accrued interest,
except that the Company may withhold remittance from any person who was not a
shareholder on the date the Asset Sale was first announced to the public or who
is dissenting on behalf of a person who was not a beneficial owner on that
date. The payment must be accompanied by certain financial information
concerning the Company, a statement of our estimate of the fair value of the
shares, an explanation of the method used to reach the estimate, a brief
description of the procedure to demand supplemental payment, and a copy of the
Minnesota Dissenters' Rights Statute.
If you believe the amount remitted by us is less than fair value for
the shares of stock of the Company plus interest, you may notify the Company in
writing of your estimate of the fair value of the shares and the amount of
interest, and may demand additional payment, by following the procedures set
forth in the Minnesota Dissenters' Rights Statute.
INFORMATION CONCERNING THE COMPANY
General
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 the successor by
merger to a corporation of the same name that was incorporated in Georgia in
September 1982. The Company's executive offices are located at 9909 South
Shore Drive, Minneapolis, Minnesota, 55441 and the Company's telephone number
is (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.
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. Internationally, the Company's products are
sold through four dealers located in Canada, Puerto Rico, the United Kingdom
and Italy. The Company does not employ an outside sales force and is largely
dependent upon its dealers for sales and service to hospital accounts.
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. Management has determined that developing and
maintaining additional sources for all critical components is not cost
effective. The Company has no written agreements with its suppliers, other
than purchase orders.
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 350mm 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 patented Saber TM System features its unique bulb
evacuator, with an integral anti-reflux valve that mates to its 3C Collection
Unit for optimal infection control while providing simultaneous emptying and
reactivation.
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 unsafe
or 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
Company 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 for
products marketed to dealers in Europe.
Security Ownership of Certain Beneficial Owners and Management
The following table sets forth certain information regarding the
beneficial ownership of Surgidyne Common Stock and Surgidyne Preferred Stock as
of November 7, 2001 by (a) each person known by the Company to be the
beneficial owner of more than 5% of outstanding Surgidyne Common Stock or
Surgidyne Preferred Stock, (b) each director, and (c) all executive officers
and directors as a group.
Surgidyne Surgidyne
Common Stock Preferred Stock
Name Beneficially Percent of Beneficially Percent of
Owned Class Owned Class
Charity, Inc. 1,126,016(1) 16.0% 400,000 25.0%
6187 Heather Circle
Fridley, MN 55432
Theodore A. Johnson
825 Southgate Plaza
5001 West 80th Street
Bloomington, MN 55437 722,875(2) 7.5% 60,000 3.8%
Charles B. McNeil
3115 Maplewood Road
Wayzata, MN 55391 632,839(3) 6.0% -- --
Arthur W. Schwalm
9909 South Shore Drive
Plymouth, MN 55441 356,640 5.1% -- --
David R. Knighton, M.D.
2460 South Highway 100
St. Louis Park, MN 55416 200,000(4) 4.1% 20,000 1.3%
Vance D. Fiegel
2460 South Highway 100
St. Louis Park, MN 55416 --(5) 0.7% -- --
William F. Gearhart
9909 South Shore Drive
Plymouth, MN 55441 -- -- -- --
David B. Kaysen
9909 South Shore Drive
Plymouth, MN 55441 -- -- -- --
Samuel M. Joy
828 Ridge Place
Mendota Heights, MN 55118 -- -- 140,000 8.8%
Dr. Demetre Nicoloff
c/o National City Bank
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 -- -- 80,000 5.0%
Dr. Melvin P. Bubrick
5712 Long Brake Trail
Edina, MN 55345 -- -- 80,000(7) 5.0%
All Directors and
Officers of
SURGIDYNE
as a group (7 persons) 1,912,354(6) 24.2% 80,000 5.0%
(1)Includes 400,000 shares of Surgidyne Preferred Stock. Mr. Virgil Brenny is
the administrator of Charity, Inc. and, therefore, he holds the voting and
investment power of these shares.
(2)Includes 200,000 shares issuable pursuant to warrants that are currently
exercisable and 60,000 shares of Surgidyne Preferred Stock.
(3)Includes 215,000 shares issuable pursuant to warrants that are currently
exercisable.
(4)Represents 65,000 shares issuable to EMBRO Corporation pursuant to warrants
which are currently exercisable and 135,000 shares of Surgidyne Common Stock
held by EMBRO Corporation, of which Dr. Knighton is an 80% shareholder, and
20,000 shares of Surgidyne Preferred Stock.
(5)Does not include any of the shares held by EMBRO Corporation of which Mr.
Fiegel is a 20% shareholder.
(6)Includes 480,000 shares issuable pursuant to warrants that are currently
exercisable and 80,000 shares of Surgidyne Preferred Stock. Also includes
135,000 shares held by EMBRO Corporation, of which Dr. Knighton is and 80%
shareholder.
(7)Includes 40,000 shares held in trust in the names of Dr. Bubrick's children.
Financial Statements
The Company's audited financial statements as of December 31, 2000 and
December 31, 1999 are included in the Company's Annual Report on Form 10-KSB
for the fiscal year ended December 31, 2000, copy of which is attached hereto
as Appendix E. A signed copy of the Independent Auditor's Report that
accompanies the Annual Report on Form 10-KSB for the fiscal year ended
December 31, 2000 is attached hereto as Appendix F. The Company's unaudited
financial statements for the three-month periods ended March 31, 2001 and
March 31, 2000 are included in the Company's Quarterly Report on Form 10-QSB
for the quarterly period ended March 31, 2001, a copy of which is attached
hereto as Appendix G. The Company's unaudited financial statements for the
six-month periods ended June 30, 2001 and June 30, 2001 are included in the
Company's Quarterly Report on Form 10-QSB for the quarterly period ended June
30, 2001, a copy of which is attached hereto as Appendix H. The Company's
unaudited financial statements for the nine-month periods ended September 30,
2001 and September 30, 2001 are included in the Company's Quarterly Report on
Form 10-QSB for the quarterly period ended September 30, 2001, a copy of which
is attached hereto as Appendix I.
PROPOSAL 2: AMENDMENT OF ARTICLES TO CHANGE THE COMPANY NAME
The Company is also asking shareholders to approve an amendment to the
Company's Articles of Incorporation, as amended, to change the name of the
Company to Surg II, Inc. The Asset Agreement requires the Company to change
its name immediately following the closing date for the Asset Sale. Therefore,
upon consummation of the Asset Sale, and assuming approval of this proposal,
the Company will amend its articles to changes its name to Surg II, Inc. IN
THE EVENT THAT THE ASSET SALE IS NOT APPROVED, OR THE TRANSACTION DOES NOT
CLOSE , THE BOARD WILL NOT FILE THE AMENDMENT TO THE ARTICLES OF
INCORPORATION, AS AMENDED.
Favorable Recommendation of the Company's Board of Directors
The Board of Directors of the Company believes that the amendment of
the articles to change the name of the Company is in the best interests of
Surgidyne and its shareholders. THE BOARD OF DIRECTORS OF THE COMPANY HAS
APPROVED THE AMENDMENT TO THE ARTICLES OF INCORPORATION, AS AMENDED, AND
UNANIMOUSLY RECOMMENDS THAT YOU VOTE IN FAVOR OF THE PROPOSAL. The members of
the Board of Directors of the Company intend to vote all shares of stock of the
Company under their control in favor of such proposal.
PROPOSAL 3: AMENDMENT OF ARTICLES TO INCREASE AUTHORIZED SHARES
The Company is also asking the shareholders to approve an amendment to
the Company's Articles of Incorporation, as amended, to increase the number of
authorized shares to be issued from Twenty Million (20,000,000) to Two-Hundred
Million (200,000,000) shares. As of November 7, 2001, there were 7,447,085
shares of Surgidyne Common Stock issued and outstanding, an additional
1,145,000 shares of Surgidyne Common Stock reserved for issuance pursuant to
outstanding warrants with weighted average exercise price of approximately
$0.17 and an additional 1,600,000 shares of Surgidyne Common Stock reserved for
issuance pursuant to outstanding shares of Surgidyne Preferred Stock.
Additionally, as of November 7, 2001, all 1,600,000 shares of designated
Surgidyne Preferred Stock were issued and outstanding. As such, as of
November 7, 2001, there were 9,807,915 authorized but unissued and undesignated
shares available to be issued by the Company. Such shares are subject to
future designation of rights and preferences (including dividends or interest
rates, conversion prices, voting rights, redemption prices, maturity dates and
similar matters) in the discretion of the Company's Board of Directors.
Following the approval of this amendment to the Company's Articles of
Incorporation, as amended, there would be189,807,915 authorized but unissued
and undesignated shares available to be issued by the Company.
Upon advice of Equity Securities and other persons with knowledge of
financing and acquisitions, the Company's Board believes this increase will
provide it with the potential flexibility that may be necessary to facilitate
possible future financing and/or business combination transactions. The
Company does not have any current plans or proposals to use any specific
portion of the additional shares that would be authorized upon adoption of the
amendment. However, the Company does hope to find a private company to merge
with in order to provide the Company's shareholders with some potential value
for their shares. The Company would likely consider a variety of factors in
considering any potential transaction. Such factors would include the business
and revenue potential of the any proposed target company, the experience and
skills of its management, the size of the market for such company's products,
its historical financial performance and its anticipated future growth
prospects. In the event the Company is able to locate a business with which to
combine, the Company would likely have to issue significant additional shares
(of one or more classes) to such entity or to its shareholders and could also
be required to affect a significant recapitalization of the Company's
outstanding shares in order to successfully complete such a transaction. It is
likely that current stockholders would experience significant and immediate
dilution as a result of any such efforts.
Possible Effects of the Proposed Amendment
If the amendment to the Company's Articles of Incorporation, as
amended, to increase the number of authorized shares is approved, the Board
would have sole discretion to authorize the issuance of additional shares of
one or many classes of stock from time to time for any corporate purpose
without further action by the shareholders, except as required under Minnesota
or any other applicable laws or regulations. Securities issued by the Board
could have rights and preferences superior to existing shareholders, however,
all of the stock, by operation of Minnesota law, will be undesignated and
default to common shares unless and until future designation by the Board of
Directors of the Company. The Board does not have any current plans to issue
any securities with rights superior to existing shareholders. Current holders
of Surgidyne Common Stock have no preemptive or similar rights to purchase any
new issue of shares of Surgidyne Common Stock in order to maintain their
proportionate ownership interests in the Company. As such, the issuance of
any additional shares would likely dilute the voting power of the outstanding
shares of Surgidyne Common Stock and reduce the portion of the dividend and
liquidation proceeds payable to the holders of the outstanding shares of
Surgidyne Common Stock.
While the amendment to the Company's Articles of Incorporation, as
amended, to increase the number of authorized shares may be deemed to have some
potential anti-takeover effects, the Board is not currently aware of any
pending or potential offer or proposal for the acquisition of the Company or
its stock and the Company does not have any current plans to issue such stock
as preferred stock. In fact, as provided above, following the closing of the
Asset Sale, the Company hopes to find a private company to merge with in order
to provide the Company's shareholders with some value for their shares.
Further, the amendment to the Company's Articles of Incorporation, as amended,
to increase the number of authorized shares is not prompted by any specific
take-over or acquisition effort or threat.
Favorable Recommendation of the Company's Board of Directors
The Board of Directors of the Company believes that the amendment of
the articles to increase the number of authorized is in the best interests of
the Company and its shareholders because it may create an opportunity by which
the Company may obtain needed capital and find a more attractive business
opportunity. THE BOARD OF DIRECTORS OF THE COMPANY HAS APPROVED THE AMENDMENT
TO THE ARTICLES OF INCORPORATION, AS AMENDED, AND UNANIMOUSLY RECOMMENDS THAT
YOU VOTE IN FAVOR OF THE PROPOSAL. The members of the Board of Directors of
the Company intend to vote all shares of stock of the Company under their
control in favor of such proposal
OTHER BUSINESS
As of the date of this Proxy Statement, the Company knows of no other
business that may properly come before the Special Meeting. If any other
matters do in fact properly come before the meeting, however, the persons named
on the enclosed form of proxy will vote the proxies received in response to
this solicitation in accordance with their best judgment on such matters.
INCORPORATION BY REFERENCE
The following documents, copies of which are attached to this Proxy
Statement as Appendix E, Appendix F, Appendix G, Appendix H and Appendix I,
respectively, are being delivered to the shareholders of the Company together
with this Proxy Statement and are hereby incorporated by reference into this
Proxy Statement:
* The Company's Annual Report on Form 10-KSB for the fiscal year ended
December 31, 2000.
* A signed copy of the Independent Auditor's Report that accompanies the
Annual Report on Form 10-KSB for the fiscal year ended December 31,
2000.
* The Company's Quarterly Report on Form 10-QSB for the quarterly period
ended March 31, 2001.
* The Company's Quarterly Report on Form 10-QSB for the quarterly period
ended June 30, 2001.
* The Company's Quarterly Report on Form 10-QSB for the quarterly period
ended September 30, 2001.
Appendix A
ASSET PURCHASE AGREEMENT
This Asset Purchase Agreement (the "Agreement") is entered into as of
this 4th day of October, 2001 (the "Effective Date") by and between Oxboro
Medical, Inc. ("Buyer") and Surgidyne, Inc. ("Seller").
RECITALS:
A. Seller conducts a business (the "Business") which manufactures,
sells and distributes surgical drainage and/or fluid containment systems as
described on Exhibit A (the "Products").
B. Buyer desires to purchase and assume from Seller, and Seller
desires to sell and transfer to Buyer certain of the assets and liabilities of
Seller relating to the Business, upon the terms and subject to the conditions
set forth herein;
AGREEMENTS:
NOW, THEREFORE, in consideration of the foregoing, of the mutual
promises herein contained and of other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto,
intending to be legally bound, hereby agree as follows:
ARTICLE 1.
PURCHASE OF ASSETS; NO ASSUMPTION OF LIABILITIES
1.1. Purchase of Assets. Subject to the terms and conditions of this
Agreement, Seller agrees on the Closing Date (as defined in this Agreement) to
assign, sell, transfer, convey, and deliver to Buyer, and Buyer agrees on the
Closing Date to purchase from Seller, all of the assets and personal property of
Seller (excepting only the assets specifically identified as "Excluded Assets"
in Section 1.2 below) related to or used in the operation of the Business,
wherever the same may be located (collectively referred to as the "Purchased
Assets") as follows:
a. All furniture, equipment, machinery and tooling ("Equipment")
described in Exhibit 1.1(a) hereto;
b. All intangible personal property, business records, telephone
numbers, and customer lists and goodwill (together with all
documents, records, files, computer tapes or discs, or other
media on or in which the same may be evidenced or documented)
("Intangible Property"), including without limitation the
following:
(i) The corporate name of Seller and all assumed names
under which it conducts the Business;
(ii) All tradenames, trademarks or service mark
registrations and applications, common law trademarks,
copyrights and copyright registrations and applications
("Trademarks") as identified on Exhibit 1.1(b)(ii)
hereto and all goodwill associated therewith;
(iii) All domestic and foreign letters patent, patent
applications, and patent and know-how licenses
("Patents") as listed on Exhibit 1.1(b)(iii) hereto; and
(iv) All technology, know-how, trade secrets, manufacturing
processes, formulae, drawings, designs and computer
programs related to or used or useful in the Business,
and all documentary evidence thereof ("Technology") as
listed on Exhibit 1.1(b)(iv) hereto;
(v) All website and domain names, including without
limitation the domain name www.surgidyne.com;
(vi) All of Seller's business records and files, relating to
the Business and Purchased Assets, including, without
limitation, customer lists and records, sales
information, supplier records, cost and pricing
information, and other records and copies of such
records on whatever media such records or copies are
maintained (the "Business Records"); provided however
that Seller may keep a copy of such records as may be
necessary for purpose of government or similar record
keeping requirements.
c. All inventory, materials, supplies and work-in-progress as of
the Closing Date ("Inventory");
d. All accounts receivable reflected on the Seller's books as of
the Closing Date ("Receivables");
e. All licenses and permits, to the extent transferable ("Licenses
and Permits") as set forth in Exhibit 1.1(e) hereto;
f. All rights of Seller under contracts, agreements, commitments
and other arrangements relating to the Business to which Seller
is a party or is otherwise bound (the "Contracts"), listed on
Exhibit 1.1(f) hereto, including, without limitation, all
contracts:
(i) which restricts in any manner Seller's right to compete
with anyone in any part of the world or restricts
Seller's right to sell to or purchase from anyone;
(ii) for the payment or receipt of license fees or royalties
to or from any person or entity;
(iii) of brokerage, agency, representation, distribution, or
franchise;
(iv) for the advertisement, display or promotion of any of
the Products of the Seller;
(v) for service, consulting or management affecting any of
the Assets or the Business;
(vi) which is a guaranty, performance, bid or completion
bond, or surety or indemnification contract;
(vii) which requires the making of a charitable contribution;
or
(viii) which provides for the receipt or expenditure by Buyer
in excess of $15,000 at any time following the Closing
Date.
(ix) which the requirements for performance extend beyond
one (1) year from the date of this Agreement.
Notwithstanding the listing of contracts on Exhibit 1.1(f), only those
specifically designated thereon as a contract to be assumed by Buyer shall be
considered an Assumed Contract (collectively, the "Assumed Contracts").
1.2. Excluded Assets. Notwithstanding anything herein to the contrary,
Buyer does not purchase, and Seller does not sell, any of the following assets
("Excluded Assets"):
a. All cash or cash equivalents on hand or on deposit at any bank
as of the Closing Date.
b. Any interest in real property.
c. All claims or causes of action which seller may have relating
to Excluded Assets or relating to Excluded Liabilities.
d. Seller's corporate minute book, stock records, and similar
records, including financial records and tax returns.
e. All of Seller's rights in Contracts which are not Assumed
Contracts.
f. All assets in any of Seller's Employee Plans.
g. Seller's rights under this Agreement.
1.3. Assumption of Liabilities. On the Closing Date, Buyer hereby assumes
the following obligations and liabilities (the "Assumed Liabilities"):
a. All obligations arising from and after the Closing Date under
any contracts specifically identified in Schedule 1.1(f) as the
Assumed Contracts (provided that Buyer does not assume, and
Seller shall pay, all past-due obligations thereunder).
b. All trade accounts payable or other accounts payable of the
Seller which have been due for 120 days, but only in the
amounts (i) set forth on Exhibit 1.3(b) or (ii) set forth on
Closing Payables Sheet.
c. Any liabilities of Seller specifically identified on Exhibit
1.3(c) hereto, but only in the amounts set forth on Exhibit
1.3(c).
1.4. Exclusion of Liabilities. Except for the foregoing Assumed Contracts
and the Assumed Liabilities, Buyer shall not assume any liabilities,
obligations or undertakings of Seller of any kind or nature whatsoever, whether
fixed or contingent, known or unknown, determined or determinable, due or not
yet due ("Excluded Liabilities"). Without limiting the generality of the
foregoing sentence, the Excluded Liabilities include:
a. Liabilities or obligations arising out of an event that
occurred, Products sold or services performed by Seller, or
Seller's ownership of its assets or the operation of the
Business on or prior to, the Closing Date; provided, however,
that Buyer shall be responsible for delivering Products which
were sold prior to the Closing Date and for which Seller has
accepted and entered the order as of the Closing Date.
b. Liabilities and obligations of Seller for accrued audit fees,
accrued commissions, accrued payroll (including associated
employer taxes or employee withholdings), accrued insurance
premiums, and garnishments payable of the Business incurred by
Seller
c. Liabilities or obligations for foreign, federal, state, county,
local or other governmental taxes of Seller relating to the
operation of the Business or the ownership of the Assets on or
prior to the Closing Date;
d. Liabilities or obligations related to or arising out of any
Employee Plan, workers' compensation claim or any other
liabilities to employees or former employees of Seller;
e. Liabilities or obligations arising out of any litigation or
administrative or arbitration proceeding to which Seller is a
party or any claims by or against Seller arising from events or
facts existing on or prior to the Closing Date;
f. Liabilities or obligations resulting from any breach by Seller
on or prior to the Closing Date of any contract or agreement to
which the Seller is party or by which the Seller is bound,
including, without limitation, any Assumed Contract;
g. Liabilities or obligations resulting from any violation by
Seller, the Shareholders, or any employee, director or agent of
Seller, or any predecessor for which Seller may be liable, of
any applicable foreign, federal, state, county, local or other
governmental laws, decrees, ordinances or regulations, or any
permit, license, consent, certificate, approval or
authorization issued pursuant to such laws, decrees, ordinances
or regulations, including, without limitation, those applicable
to discrimination in employment, employment practices, wage and
hour, retirement, labor relations, occupational safety, health,
trade practices, environmental matters, competition, pricing,
product warranties, product liability and product advertising;
h. Liabilities or obligations to any investment banker, broker,
finder or other intermediary which has been retained by or is
authorized to act on behalf of Seller who may be entitled to or
may claim any fee or commission from Buyer in connection with
the transactions contemplated by this Agreement.
i. Liabilities or obligations (whether interest, principal, fees,
penalties or otherwise) of Seller (i) for borrowed money; (ii)
evidenced by bonds, debentures, notes or other similar
instruments, (iii) to pay the deferred purchase price of
property or services, except trade accounts payable arising in
the ordinary course of business, (iv) and any of the foregoing
guaranteed by Seller.
j. Liabilities or obligations relating to the Seller's Series A
Preferred Stock, whether arising before, on or after the
Closing Date.
k. Seller's obligations under this Agreement.
1.5. Sales and Use Tax. Buyer shall be responsible for payment of any sales
or use tax assessable with respect to the transactions herein.
ARTICLE 2.
PURCHASE PRICE AND PAYMENT OF PURCHASE PRICE
2.1 Purchase Price. The purchase price (the "Purchase Price") for the
Purchased Assets and the performance by Seller of its obligations under this
Agreement shall be Two Hundred Thousand Dollars ($200,000), payable to the
Seller in full in immediately available funds on the Closing Date.
2.2 Allocation of Purchase Price. The Purchase Price shall be allocated
among the Purchased Assets as set forth in Exhibit 2.2. The parties agree to
report this transaction for federal tax purposes in accordance with the
allocations set forth in Exhibit 2.2.
ARTICLE 3
EMPLOYEE MATTERS
3.1 Employees. During the period after the date of this Agreement, but
before the Closing Date, Buyer will have the option of interviewing and making
an offer in writing of employment at will to those employees listed on Exhibit
3.1 hereto (each, a "Selected Employee"). While Seller will cooperate with Buyer
to assist Buyer to hire and retain the services of all Selected Employees, Buyer
acknowledges and agrees that the Selected Employee has the final decision
whether to transfer with the Business and the failure of one or more Selected
Employee(s) to accept an offer of employment from Buyer shall not be deemed to
be a breach of this Agreement.
3.2 Benefits. Each Selected Employee will be covered under the Employee
Plans of Buyer available to other employees of Buyer who are employed in similar
categories of employment. Buyer shall offer each Selected Employee the
opportunity, as of the Closing Date, to participate in all of Buyer's Employee
Plans for which each such Selected Employee would be eligible under the
guidelines for such plans. Before the Closing Date, Buyer shall provide to the
Selected Employees summaries of the material terms and conditions of and
guidelines for Buyer's Employee Plans (including, but not limited to, medical
and dental insurance plans, life insurance plan, pension plan, savings plan,
short-term and long-term disability plans, employee stock ownership plan,
vacation plan and severance or termination plan).
ARTICLE 4
REPRESENTATIONS AND WARRANTIES
OF SELLER
Except as set forth in Exhibit 4 hereto, Seller makes the following
representations and warranties to Buyer with the intention that Buyer may rely
upon the same, and acknowledges that the same shall be true as of the Closing
Date (as if made at the Closing) and shall survive the Closing of this
transaction.
4.1 Organization. Seller is a corporation duly organized, validly existing
and in good standing under the laws of the State of Minnesota, has all requisite
corporate power and authority, corporate and otherwise, to own its properties
and assets and conduct the Business, as it is currently conducted. Seller does
not have any subsidiary and Seller is not a shareholder, partner or joint
venturer with any other person or legal entity. Seller has not failed to
qualify as a foreign corporation in any other state or states where such
failure may have a material adverse effect on the Business.
4.2 Corporate Authority. The Seller has all requisite power and authority
to enter into and perform this Agreement. The execution and delivery of this
Agreement and the consummation of the transactions contemplated in this
Agreement have been duly authorized by all requisite action of Seller's Board
of Directors and shareholders. This Agreement has been executed and delivered
by a duly authorized officer of Seller and is a valid and binding agreement of
the Seller, enforceable against them in accordance with its terms.
4.3 Financial Statements.
a. Financial Statements. Seller has furnished Buyer a true and
complete copy of its audited balance sheets and statements of
income for its fiscal years ended December 31, 1998, 1999, 2000,
and has furnished unaudited update thereof as of and for the
period ending June 30, 2001 (collectively the "Financial
Statements", all of which are attached as Schedule 4.3(a)
hereto). The audited Financial Statements have been prepared
in conformance with generally accepted accounting principles
and procedures applied on a basis consistent with prior periods
and will fairly present in all material respects the financial
condition of Seller as of the represented dates thereof and the
results of Seller's operations for the periods covered thereby.
For purposes of this Agreement, the Financial Statements shall
be deemed to include any notes thereto.
b. No Adverse Changes. Since June 30, 2001, there has not
occurred or arisen (whether or not in the ordinary course of
business, except subsection (iii) below): (i) any material
adverse change in the in the Business, Purchased Assets,
relationships with customers or suppliers, backlogs, sales,
income, profit margins, assets, liabilities or financial
condition of Seller, (ii) any change in Seller's accounting
methods or practices, (iii) any sale or transfer of any asset
or any amendment of any agreement of Seller whether or not in
the ordinary course of business, (iv) any loss of or damage to
the Purchased Assets due to abuse, misuse, fire, damage,
destruction or other casualty, whether or not covered by
insurance, affecting any of the Purchased Assets or any portion
of the Business (v) any labor trouble, (vi) to Seller's
knowledge any reasonably foreseeable increase in operating
costs of the Business not commensurate with increased
production, (vii) any material warranty or liability claims or
losses, or (viii) any other event or condition known to Seller
to have occurred or to exist which, singly or in the aggregate,
materially and adversely affect the Purchased Assets or the
Business.
c. Undisclosed Liabilities. Except as set forth on Schedule
4.3(c), Seller has no liabilities (whether known or unknown,
accrued, absolute, contingent or otherwise) for which Seller
would be liable in any single instance for more than $1000 or
in the aggregate more than $5000, that exist or arise out of
any transaction or state of facts existing on or prior to the
Closing Date other than as and to the extent reflected or
reserved against in the Financial Statements (none of which is
a liability for borrowed money (other than under current credit
facilities), breach of contract, breach of warranty, tort,
infringement or lawsuit).
4.4 Tax Reports, Returns and Payment. Seller has timely filed (subject to
extension) all federal and applicable state, local, and foreign tax or
assessment reports and returns of every kind required to be filed by Seller
with relation to the Business, including, without limitation, income tax, sales
and use tax, real estate tax, personal property tax and unemployment tax, and
has duly paid all taxes and other charges (including interest and penalties)
due to or claimed to be due by any taxing authorities. True and correct copies
of the reports and returns filed by Seller during the last three tax years have
been made available to Buyer. Where required, timely estimated payments or
installment payments of tax liabilities have been made to all governmental
agencies in amounts sufficient to avoid underpayment penalties or late payment
penalties applicable thereto. During the three (3) years preceding the Closing
Date, such income tax returns have not been subjected to any examination or
audit by governmental authorities.
4.5 Title to Assets. Other than the Excluded Assets and the employees of
the Business, the Purchased Assets constitute all property owned by Seller which
is necessary for the conduct of the Business as now conducted. Seller is the
sole owner of the Purchased Assets, except for the leased, licensed or lent
Equipment identified on Exhibit 1.1(a), and holds good and marketable title
thereto free and clear of all liens, charges, encumbrances or third party
claims or interests of any kind whatsoever.
4.6 Tangible Personal Property. All personal property included in the
Purchased Assets is in substantially the same operating condition as existed on
June 30, 2001, ordinary wear and tear excepted. Seller hereby assigns to Buyer
as of the Closing Date any and all warranties covering such property existing
as of the Closing Date.
4.7 Inventory. The Inventory reflected on Seller's books and records has
been valued at the lower of cost or market in accordance with generally
accepted accounting principles applied on a basis consistent with Seller's past
practices. In the twelve (12) months prior to the Closing Date, there has not
been a material change in the level of Seller's Inventory other than changes in
the ordinary course of business consistent with Seller's past practices. All
raw material and work-in-progress Inventory included in the Purchased Assets is
of a quality and quantity usable in the ordinary course of business.
4.8 Trademarks. Seller has filed the trademarks registrations for the
Trademarks listed on Exhibit 1.1(b)(ii). Exhibit 1.1(b)(ii) sets forth all
Trademarks owned, used by, accruing to the benefit of or necessary or useful to
the operation of the Business by Seller. The Trademarks and other names are
not licensed to or licensed from any other person or entity. Seller has not
received any notice or claim that Seller's title to or use of the Trademarks is
impaired, encumbered or invalid or is unenforceable by it. To the best of
Seller's knowledge, Seller's use of any Trademark does not infringe upon any
intellectual property rights held by any other person or entity. There is no
claim or action pending or threatened with respect to the Trademarks. There
has been no infringement or improper use of any Trademark by any third party.
4.9 Patents. Exhibit 1.1(b)(iii) sets forth all Patents owned, used by,
accruing to the benefit of or necessary or useful to the operation of the
Business by Seller. The Patents are not licensed to or licensed from any other
person or entity. Seller has not received any notice or claim that Seller's
title to or use of the Patents is impaired, encumbered or invalid or is
unenforceable by it. To the best of Seller's knowledge, Seller's use of any
Patent does not infringe upon any intellectual property rights held by any
other person or entity and there is no claim or action pending or threatened
with respect to the Patents. There has been no infringement or improper use of
any Patent by any third party.
4.10 Licenses and Permits. To the best of Seller's knowledge, Seller
possesses all necessary permits, licenses and approvals, governmental or
otherwise, without which it could not conduct the Business in its present form
and at its present location, all of which are listed on Exhibit 1.1(e). All of
the Licenses and Permits are valid and in good standing and Seller has not
received any notice that the Licenses and Permits will lapse or be terminated
by action of any governmental authority or otherwise. Except as set forth on
Exhibit 1.1(e), to the best of Seller's knowledge, all of the Licenses and
Permits are freely assignable and transferable to Buyer at the Closing and will
continue to be in full force and effect after such transfer.
4.11 Agreements, Contracts and Commitments.
a. Employee Plans. There is no liability that will be imposed
upon Buyer with respect to any Employee Plan. "Employee Plan"
means any pension, retirement, disability, medical, dental, or
other health insurance plan, life insurance or other death
benefit plan, profit sharing, deferred compensation, stock
option, bonus or other incentive plan, vacation benefit plan,
severance plan, or other employee benefit plan or arrangements
including, without limitation, any "pension plan" as defined in
Section 3(2) of the Employee Retirement Income Security Act of
1974, as amended ("ERISA"), and any "welfare plan" as defined
in Section 3(1) of ERISA, whether or not any of the foregoing
is funded, (i) to which Seller is a party or by which Seller is
bound; or (ii) with respect to which Seller has made any
payments or contributions since January 1, 1998, or may
otherwise have any liability (including any such plan or other
arrangement formerly maintained by Seller).
b. Union and Employment Contracts and Other Employment Matters.
(i) Seller is not a party to any collective bargaining
agreement or any other written employment agreement,
nor is Seller a party to any other contract or
understanding (oral or written) that contains any
severance pay liabilities or obligations, except for
accrued, unused vacation pay or accrued and unused sick
leave pay.
(ii) During the last three (3) years Seller has experienced
no work stoppages, walkouts or strikes or attempts by
its employees to organize a union.
(iii) Except as disclosed in Schedule 4.12(b)(iii) hereto,
there have been no employee or ex-employee lawsuits or
claims, or any claims of unfair labor practices or the
like, in the past three (3) years.
d. Breach. Seller has performed in all material respects all
obligations required to be performed by Seller to date under
each Assumed Contract; and neither Seller nor, to the knowledge
of Seller, any other party is in default under any Assumed
Contract. No event has occurred which after the giving of
notice or the lapse of time or otherwise would constitute a
default under, or result in a breach of by Seller of any
Assumed Contract.
e. Copies of Contracts; Terms and Binding Effect. Exhibit 1.1(f)
contains an accurate and complete list of all Contracts. True,
complete and correct copies of all Assumed Contracts have been
delivered to Buyer or are attached to the Schedules where
required by this Agreement; there are no amendments to or
modifications of, or agreements of the parties relating to,
any such Assumed Contracts which have not been delivered to
Buyer; and each such Assumed Contract is considered valid and
binding on Seller to it in accordance with its respective terms
(except as such enforceability may be limited by the effect of
bankruptcy, insolvency or similar laws affecting creditor
rights generally or by general principles of equity).
4.12 Insurance. Seller maintains the insurance identified in Schedule 4.12.
4.13 Litigation and Related Matters.
a. Except as set forth on Schedule 4.13, there are no claims
(including, without limitation, workers' compensation claims),
action, suits, inquiries, investigations, or proceedings
pending or threatened or imminent, relating to the Seller, the
Purchased Assets, any portion of the Business, any of the
Assumed Liabilities or the transactions contemplated by this
Agreement, and, to the best knowledge of Seller, there is no
basis for any such claim, action or proceeding. Seller has
complied in all material respects with all statutes, laws and
regulations, orders, rules, regulations and requirements
("Laws") applicable to it, the Business, or the Purchased
Assets, including Laws relating to environmental matters and
Laws promulgated by governmental or other authorities, relating
to the Purchased Assets and the operation of the Business.
Without limiting the generality of the foregoing, Seller has not
used or stored hazardous, toxic or contaminating wastes or
substances on any real property or discharged or released any
such substances upon any real property, including, but not
limited to, underground injection of such substances, in
violation of any environmental Laws for which Seller would be
liable in any single instance for more than $1000 or in the
aggregate more than $5000.
b. Seller is not subject to any material existing judgment, order,
decree, or other action affecting the operation of the Business
or the Purchased Assets or which would prevent, impede, or make
illegal the consummation of the transactions contemplated in
this Agreement, or which would have a material adverse effect on
Seller or on the Business or any of the Purchased Assets.
c. No legal actions have been commenced against Seller with respect
to the Business or the Purchased Assets within the three (3)
years prior to the Closing Date.
4.14 Customers. Except as provided in Schedule 4.14, no single customer of
Seller accounted for more than ten percent (10%) of Seller's revenues in the
Business during the fiscal year ending prior to the date of this Agreement.
Seller has received no written notice that any customer intends to cease doing
business with Seller or materially alter the amount of business or terms upon
which it does with Seller.
4.15 Products. To the best of Seller's knowledge, all Products sold by
Seller conform in all material respects to all applicable laws, ordinances,
regulations, trade and industry standards, contract specifications and
descriptive material or advertisements associated with the Products. Schedule
4.15 discloses all written claims received by Seller within the last three years
based upon alleged breach of product warranty, strict liability in tort, or any
other allegation of liability arising from Seller's sale of goods, including
Products (hereafter collectively referred to as "Product Liability Claims").
4.16 Conflicts; Required Consents. Except as provided in Schedule 4.16,
neither the execution and delivery of this Agreement by Seller nor compliance
by Seller with the terms and provisions of this Agreement will (a) conflict
with or result in a breach of (i) any of the terms, conditions or provisions of
the Articles of Incorporation, Bylaws or other governing instruments of Seller,
(ii) any judgment, order, decree or ruling to which the Seller is a party,
(iii) any injunction of any court or governmental authority to which either of
them is subject, or (iv) any Assumed Contract; or (b) require the affirmative
consent or approval of any third party other than the approval of Seller's
shareholders.
4.17 Binding Obligation. This Agreement constitutes the legal, valid and
binding obligation of Seller in accordance with the terms hereof. Seller is not
subject to any charter, mortgage, lien, lease, agreement, contract, instrument,
law, rule, regulation, order, judgment or decree, or any other restriction of
any kind or character, which would prevent the consummation of the transactions
contemplated in this Agreement.
4.18 Maintenance of Business. Since June 30, 2001, Seller has conducted the
Business only in the usual and ordinary manner, including:
a. timely payment and discharge of all bills and monetary
obligations and timely and proper performance of all of its
obligations and commitments under all Assumed Contracts;
b. preservation and maintenance of its Business assets, including
customer, vendor and employee relationships consistent with
past practices;
c. processing or shipment of any customer orders in a manner
consistent with ordinary business practices.
Further, since June 30, 2001, Seller has not:
d. to its knowledge, created or suffered to exist any Encumbrances
with respect to any of the Purchased Assets which has not been
discharged;
e. sold or transferred any assets of a type similar to the
Purchased Assets, except for sales of inventory in the ordinary
course of its business;
f. made any change in the conduct or nature of the Business;
g. changed any method of accounting; or
h. waived any rights that are the subject of this Agreement.
4.19 Receivables. A schedule of all of Seller's receivables is attached
hereto as Schedule 4.19. Except for any reserves shown on Schedule 4.19, to
the best of Seller's knowledge, all of the receivables are collectible within
90 days of the date hereof.
4.20 Absence of Certain Business Practices. Neither Seller nor any officer,
employee or agent of Seller, nor any other person acting on its behalf, has
directly or indirectly, within the past five years given or agreed to give any
gift or similar benefit to any customer, supplier, governmental employee or
other person who is or may be in a position to help or hinder the Business (or
assist Seller in connection with any actual or proposed transaction) which (i)
would subject Seller to any damage or penalty in any civil, criminal or
governmental litigation or proceeding, or (ii) if not continued in the future,
would materially adversely affect the Assets of the Business, or the prospects
of the Business or which would subject Seller to suit or penalty in any private
or governmental litigation or proceeding.
4.21 Disclosure. No material representation or warranty in this Agreement
or in any certificate, schedule, statement or other document furnished or to be
furnished pursuant hereto or in connection with the transactions contemplated
hereby contains or will contain any untrue statement of a material fact or
omits or will omit to state any material fact required to be stated herein or
therein or necessary to make the statements herein or therein not misleading.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer makes the following representations and warranties to Seller with
the intention that Seller may rely upon the same, and acknowledges that the same
shall be true as of the Closing Date (as if made at the Closing) and shall
survive the Closing of this transaction.
5.1 Organization. Buyer is a corporation, duly organized, validly existing
in good standing under the laws of the State of Minnesota, and has all requisite
corporate power and authority, corporate and otherwise, to own its properties
and conduct the business in which it is presently engaged.
5.2 Corporate Authority. Buyer has all requisite power and authority to
enter into and perform this Agreement. The execution and delivery of this
Agreement and the consummation of the transactions contemplated in this
Agreement have been duly authorized by all requisite action of Buyer's Board of
Directors and shareholders. This Agreement has been executed and delivered by
a duly authorized officer of Buyer and is a valid and binding agreement of the
Buyer, enforceable against them in accordance with its terms.
5.3 Breaches of Contracts; Required Consents. Neither the execution and
delivery of this Agreement by Buyer, nor compliance by Buyer with the terms and
provisions of this Agreement, will (a) conflict with or result in a breach of:
(i) any of the terms, conditions or provisions of the Articles of
Incorporation, Bylaws or other governing instruments of Buyer, (ii) any
judgment, order, decree or ruling to which the Buyer is a party, (iii) any
injunction of any court or governmental authority to which it is subject, or
(iv) any agreement, contract or commitment listed on any Exhibit hereto and
which is material to the financial condition of Buyer; or (b) require the
affirmative consent or approval of any third party.
5.4 Binding Obligation. This Agreement constitutes the legal, valid and
binding obligation of Buyer in accordance with the terms hereof. Buyer is not
subject to any charter, mortgage, lien, lease, agreement, contract, instrument,
law, rule, regulation, order, judgment or decree, or any other restriction of
any kind or character, which would prevent the consummation of the transactions
contemplated in this Agreement.
5.5 Disclosure. No material representation or warranty in this Agreement
or in any certificate, schedule, statement or other document furnished or to be
furnished pursuant hereto or in connection with the transactions contemplated
hereby contains or will contain any untrue statement of a material fact or
omits or will omit to state any material fact required to be stated herein or
therein or necessary to make the statements herein or therein not misleading.
ARTICLE 6
CONDITIONS PRECEDENT TO CLOSING
6.1 Conditions Precedent to Obligations of Seller. The obligations of
Seller under this Agreement are subject to fulfillment prior to or at the
Closing of each of the following conditions, unless waived in writing by Seller:
a. Representations and Warranties. Each of the representations
and warranties made by Buyer in this Agreement or in any
instrument, schedule, certificate or writing delivered by Buyer
pursuant to this Agreement, shall be true and correct when made
and shall be true and correct at and as of the Closing Date as
though such representation and warranties were made or given on
and as of the Closing Date. Buyer shall have performed or
complied with all obligations and covenants required by this
Agreement to be performed or complied with by Buyer by the
Closing Date. Seller shall have received a certificate signed
by the appropriate officer of Buyer to the foregoing effect.
b. Absence of Certain Legal Proceedings. No suit or other legal
proceeding shall have been commenced seeking to restrict or
prohibit the transactions contemplated by this Agreement.
c. Other Matters. Buyer shall have delivered the documents
required under Section 7.3.
d. Preservation of Business. Seller shall use commercially
reasonable efforts to preserve intact its business organization
and goodwill, keep available the services of its respective
officers and employees and maintain satisfactory relationships
with those persons having business relationships with it.
e. Opinion of Counsel. Seller shall have received a legal opinion
of Lindquist & Vennum, P.L.L.P, counsel to Buyer, dated the
Closing Date, that all action required to be taken under
Buyer's Articles of Incorporation, Bylaws or otherwise, by any
of Buyer's Board of Directors or shareholders, has been duly
and validly taken to authorize the execution, delivery and
performance of this Agreement and the transactions contemplated
thereby
6.2 Conditions Precedent to Obligations of Buyer. The obligations of Buyer
under this Agreement are subject to fulfillment prior to or at Closing of each
of the following conditions, unless waived in writing by Buyer:
a. Representations and Warranties. Each of the representations
and warranties made by Seller in this Agreement, or in any
instrument, schedule, certificate or writing delivered by
Seller pursuant to this Agreement, shall be true and correct
when made and as of the Closing Date. Seller shall have
performed or complied with all obligations and covenants
required by this Agreement to be performed or complied with
by Seller by the Closing Date. Buyer shall have received a
certificate signed by the appropriate officer of Seller to the
foregoing effect.
b. Approvals; Absence of Certain Legal Proceedings. All required
approvals or consents shall have been obtained by Seller and no
suit or other legal proceeding shall have been commenced seeking
to restrict or prohibit the transactions contemplated by this
Agreement.
c. Corporate Authorization. All action required by law, Seller's
Articles of Incorporation, Bylaws or otherwise to be taken by
the Boards of Directors and shareholders of Seller to authorize
the execution, delivery and performance of this Agreement and
the transactions contemplated thereby shall have been duly and
validly taken.
d. Opinion of Counsel. Buyer shall have received a legal opinion
of Gray, Plant, Mooty, Mooty & Bennett, P.A., counsel to
Seller, dated the Closing Date, that all action required to be
taken under Seller's Articles of Incorporation, Bylaws or
otherwise, by any of the Seller's Board of Directors or
shareholders , has been duly and validly taken to authorize
the execution, delivery and performance of this Agreement and
the transactions contemplated thereby
e. Other Matters. Seller shall have delivered the documents
required under Section 7.2.
ARTICLE 7
CLOSING
7.1 Closing. The closing of the transaction contemplated by this Agreement
("Closing") shall be held at the offices of Lindquist & Vennum P.L.L.P., 4200
IDS Center, Minneapolis, MN 55402 no later than 9:00 a.m. on November 30, 2001,
but effective at the close of business on such date (the "Closing Date");
provided, Buyer may set a Closing Date earlier than November 30, 2001, upon
five (5) days' written notice to Seller. Such date of Closing shall be
referred to herein as the "Closing Date."
7.2 Seller's Deliveries. Seller agrees to execute and/or deliver the
following documents to Buyer at the Closing:
a. All certificates, schedules, exhibits, and attachments in
completed form and specifying the information required by the
provisions of this Agreement.
b. A certificate of the Secretary of Seller certifying as to (i) a
copy of resolutions of the Seller's Board of Directors which
authorize the execution, delivery and performance of this
Agreement as having been duly adopted and as being in full
force and effect on the Closing Date, (ii) a copy of
resolutions of the shareholders of Seller which authorize this
Agreement and the transactions contemplated herein as having
been duly adopted and as being in full force and effect on the
Closing Date, (iii) a copy of the Seller's Articles of
Incorporation as certified by the Secretary of State of
Minnesota in effect as of the Closing Date, and (iv) a true and
correct copy of the Seller's Bylaws in effect as of the Closing
Date.
c. A certificate of good standing of Seller certified by the
Secretary of State of Minnesota as of no more than two (2) days
prior to the Closing Date.
d. A Bill of Sale, a Trademark Assignment and instruments of
assignment and transfer for the sale of the Purchased Assets.
f. Amendment to Seller's Articles of Incorporation changing
Seller's name, in form complete and adequate for filing.
g. All necessary consents under the Assumed Contracts.
h. A copy of the Consulting Agreement between Buyer and Charles B.
McNeil, in the form of Exhibit A.
i. A schedule of those accounts payable or trade payables incurred
in the ordinary course and consistent with past practice, from
the date hereof to the Closing Date (the "Closing Payables
Sheet") as agreed to by Buyer and only in the amounts set forth
on the Closing Payables Sheet.
j. A certificate (the "Closing Receivables Certificate") by an
officer of Seller, dated as of the Closing Date, certifying
that, except for any reserves shown thereon and to the best of
Seller's knowledge, all of the Receivables are collectible
within 90 days of the Closing Date.
k. Such other documents as Buyer may reasonably request for the
purpose of assigning, transferring, granting, conveying, and
confirming to Buyer or reducing to its possession, any and all
assets, property and rights to be assigned, conveyed, or
transferred pursuant to the terms of this Agreement.
7.3 Buyer's Deliveries. Buyer agrees to execute and/or deliver the
following to Seller at the Closing:
a. The Purchase Price.
b. Consulting Agreement with Charles B. McNeil in the form of
Exhibit A.
c. A certificate of the Secretary of Buyer certifying as to (i) a
copy of resolutions of the Buyer's Board of Directors which
authorize the execution, delivery and performance of this
Agreement as having been duly adopted and as being in full
force and effect on the Closing Date, (ii) a copy of the
Buyer's Articles of Incorporation as certified by the Secretary
of State of Minnesota in effect as of the Closing Date, and
(iii) a true and correct copy of the Buyer's Bylaws in effect
as of the Closing Date.
d. Such other documents as Seller reasonably may request to carry
out the transactions contemplated under this Agreement.
ARTICLE 8
POST CLOSING OBLIGATIONS
8.1 Further Documents and Assurances. At any time and from time to time
after the Closing Date, each party shall, upon request of another party,
execute, acknowledge and deliver all such further and other assurances and
documents, including such documents as may be necessary or appropriate to
perfect title in the Intellectual Property in Buyer, and will take such action
consistent with the terms of this Agreement, as may be reasonably requested to
carry out the transactions contemplated herein and to permit each party to
enjoy its rights and benefits hereunder. If requested by Buyer, Seller further
agrees to prosecute or otherwise enforce in their own respective names for the
benefit of Buyer, any claim, right or benefit transferred by this Agreement
that may require prosecution or enforcement in Seller's name.
8.2 Payment of Debts and Liabilities. Seller shall pay all of its
liabilities and debts which have arisen on or prior to the Closing Date, except
for the Assumed Liabilities and amounts which Seller contests in good faith and
to which it maintains an adequate reserve.
8.3 Insurance. For a period of one year, Seller shall maintain its current
product liability insurance for the benefit of Buyer as an additional insured
to provide for coverage of losses or liability relating to Products sold prior
to the Closing Date and Products sold after the Closing Date which were
finished goods Inventory as of the Closing Date.
ARTICLE 9
INDEMNIFICATION
9.1 Survival of Representations, Warranties and Agreements. The
representations, warranties and agreements contained in this Agreement or in
any certificate delivered pursuant to this Agreement shall survive the Closing
Date and remain in full force and effect after the Closing Date for a period of
one (1) year.
9.2 Indemnification by Seller. For a period of one (1) year and subject to
Section 9.6, Seller shall indemnify and hold Buyer harmless at all times from
and after the date of this Agreement, against and in respect of all damages,
losses, costs and expenses (including reasonable attorney fees) which Buyer may
suffer or incur in connection with any of the following:
a. Any claim, demand, action or proceeding asserted by a creditor
of Seller or respecting any liabilities of Seller that are
included in the Excluded Liabilities.
b. The material breach of any of the representations, warranties
or covenants of Seller in this Agreement.
c. Any and all claims by third parties arising out of Seller's
conduct of the Business or use or ownership of any assets,
including Purchased Assets, on or prior to the Closing Date.
d. Third party product liability claims filed within twelve
months following the Closing Date concerning products
manufactured by Seller which are finished goods included in the
Inventory on the Closing Date and sold in the Business after
the Closing Date.
e. Any reasonable costs and expenses associated with defending
against any of the foregoing claims, liabilities, obligations,
costs, damages, losses and expenses.
9.3 Indemnification by Buyer. Buyer shall indemnify and hold Seller
harmless at all times from and after the date of this Agreement, against and in
respect of all damages, losses, costs and expenses (including reasonable
attorney fees) which Seller may suffer or incur in connection with any of the
following:
a. Any claim, demand, action or proceeding asserted by any third
party respecting any liabilities that are included in the
Assumed Liabilities.
b. All claims by third parties arising out of the conduct of the
Business or use or ownership of any of the Purchased Assets
from and after the Closing (including, without limitation, any
product liability claims concerning Products which are sold by
Buyer from and after the Closing Date, unless covered by
Section 9.1(d)).
c. The breach of any of the representations, warranties or
covenants of Buyer in this Agreement.
d. Any costs and expenses associated with defending against any of
the foregoing claims, liabilities, obligations, costs, damages,
losses and expenses.
9.4 Cooperation; Notice. In the event a party hereto (the "Indemnifying
Party") is indemnifying the other party hereto (the "Indemnified Party"), the
Indemnified Party agrees to provide the Indemnifying Party such cooperation,
information or assistance as the Indemnifying Party may reasonably request.
The Indemnified Party shall give notice to the Indemnifying Party of each
matter, claim, demand, fact or other circumstances upon which a claim for
indemnification ("Claim") under this Article 9 is based. Such notice shall
contain, with respect to each Claim, such facts and information as are then
reasonably available, and the specific basis for indemnification hereunder.
9.5 Defense of Claims. The Indemnifying Party shall have the right to
assume defense of and to settle any Claim asserted by a third party against the
Indemnified Party with counsel reasonably acceptable to the Indemnified Party
so long as the Indemnifying Party is diligently defending such Claim; provided
that the Indemnified Party may, at its expense, participate in such proceeding.
The Indemnifying Party shall not settle any Claim without the consent of the
Indemnified Party (which consent shall not be unreasonably withheld,
conditioned or delayed), unless such settlement requires no admission of
liability on the part of the Indemnified Party and no assumption of any
obligation or monetary payment for which the Indemnified Party has not been
fully indemnified and protected against. The Indemnified Party may not settle
any Claim for which it may seek indemnification from an Indemnifying Party
without the Indemnifying Party's consent, such consent not to be unreasonably
withheld,
conditioned or delayed.
9.6 Limitation; Insurance Offset. Notwithstanding anything in Section 9.2
or 9.3, in no event shall Buyer have or assert any claim against Seller, and in
no event shall Seller be liable to Buyer for any damages, losses, costs and
expenses (including reasonable attorney fees) in an amount in excess of
$20,000. Further, any losses calculated for purposes of Sections 9.2 or 9.3
shall take into account any offsetting proceeds from insurance paid because of
such losses to an Indemnified Party, provided that (a) the insurance proceeds
are paid to the Indemnified Party without dispute or challenge by the insurer
and (b) the Indemnified Party shall have no obligation to contest any
determination by any insurer.
ARTICLE 10
GENERAL
10.1 Public Announcements. None of the parties to this Agreement shall
issue or make any press release or other public statements with respect to this
Agreement or the transactions described herein to employees, customers,
distributors, suppliers or other persons except and unless such release,
statement or announcement has been jointly approved by the parties (which
approval shall not be unreasonably withheld or delayed), except as may be
required by applicable law (including, but not limited to the Securities
Exchange Act of 1934) or by obligations pursuant to any listing agreement with
any securities market or any securities market regulations. If any party is
so required to issue or make a press release, public statement or other
announcement, such party shall inform the other party prior to issuing or
making any such press release, public statement or announcement and shall
reasonably consult with the other party regarding the content thereof if
practicable.
10.2 Counterparts. This Agreement may be executed in counterparts and by
different parties on different counterparts with the same effect as if the
signatures thereto were on the same instrument. This Agreement shall be
effective and binding upon all parties to this Agreement at such time as all
parties have executed a counterpart of this Agreement.
10.3 Notices. Any notice or other communication required or permitted
hereunder shall be in writing and shall be deemed to have been given, when
received, if personally delivered, and, three days after deposited, if placed
in the U.S. mails for delivery by registered or certified mail, return receipt
requested, postage prepaid, addressed to the address of the respective party
as stated under such party's signature space on this Agreement. Addresses may
be changed by written notice given pursuant to this Section.
10.4 Successors and Assigns. This Agreement shall be binding upon and inure
to the benefit of the parties to this Agreement and their successors or
assigns.
10.5 Expenses. Except as otherwise provided herein, each party hereto shall
each bear and pay for its own costs and expenses incurred by it or on its
behalf in connection with the transactions contemplated hereby, including,
without limitation, all fees and disbursements of lawyers, accountants,
financial consultants, brokers or finders incurred through the Closing Date.
10.6 Headings and Construction. The descriptive headings of the several
Articles and Sections of this Agreement and of the several Exhibits to this
Agreement are inserted for convenience only and do not constitute a part of
this Agreement. This Agreement shall not be construed against either party
since each party has negotiated its provisions and contributed to its
drafting.
10.7 Entire Agreement; Modification and Waiver. This Agreement, together
with the Exhibits and the related written agreements specifically referred to
herein, represents the only agreement among the parties concerning the subject
matter hereof and supersedes all prior agreements, whether written or oral,
relating thereto. No purported amendment, modification or waiver of any
provision hereof shall be binding unless set forth in a written document signed
by all parties (in the case of amendments or modifications) or by the party to
be charged thereby (in the case of waivers). Any waiver shall be limited to
the provision hereof and the circumstance or event specifically made subject
thereto and shall not be deemed a waiver of any other term hereof or of the
same circumstance or event upon any recurrence thereof.
10.8 Jurisdiction. The parties agree that the forum for any controversy
arising under this Agreement shall be exclusively in the State of Minnesota.
10.9 Governing Law. This Agreement and the legal relations between the
parties shall be governed by and construed in accordance with the laws of the
State of Minnesota (without giving effect to principles of conflict of law
thereof).
10.10 Attorneys Fees. Subject to Section 9.6, in an action to enforce a
party's rights hereunder, the prevailing party shall be entitled to recover
its cost and expenses (including attorneys' fees, whether or not suit is
brought) from the other party.
10.11 Benefit. Nothing in this Agreement, expressed or implied, is intended
to confer on any person other than the parties to this Agreement or their
respective successors or assigns, any rights, remedies, obligations or
liabilities under or by reason of this Agreement.
10.12 Mediation.
a. Any dispute, controversy or claim arising out of this
agreement, or the interpretation, application, breach,
termination or validity thereof, including any claim of
inducement by fraud or otherwise, shall, before submission to
arbitration in accordance with the following Section of this
Agreement, first be mediated through non-binding mediation in
accordance with the Model Procedures for the Mediation of
Business Disputes promulgated by the Center for Public
Resources ("CPR") then in effect, except where those rules
conflict with these provisions, in which case these provisions
control. The mediation shall be conducted in Minneapolis,
Minnesota and shall be attended by a senior executive with
authority to resolve the dispute from each of the operating
companies that are parties.
b. The mediator shall be an attorney specializing in business
litigation who has at least 15 years of experience as a lawyer
with a law firm or corporation of over 10 lawyers or was a
judge of a court of general jurisdiction and who shall be
appointed from the list of neutrals maintained by CPR.
c. The parties shall promptly confer in an effort to select a
mediator by mutual agreement. In the absence of such an
agreement, the mediator shall be selected from a list
generated by CPR with each party having the right to
exercise challenges for cause and two peremptory challenges
within 72 hours of receiving the CPR list.
d. The mediator shall confer with the parties to design procedures
to conclude the mediation within no more than 45 days after
initiation. Under no circumstances shall the commencement of
arbitration under Section 11.13 below be delayed more than 45
days by the mediation process specified herein.
e. Each party agrees to toll all applicable statutes of limitation
during the mediation process and not to use the period or
pendency of the mediation to disadvantage the other party
procedurally or otherwise. No statements made by either side
during the mediation may be used by the other during any
subsequent arbitration.
f. Each party has the right to pursue provisional relief from any
court, such as attachment, preliminary injunction, replevin,
etc., to avoid irreparable harm, maintain the status quo, or
preserve the subject matter of the arbitration, even though
mediation has not been commenced or completed.
10.13 Arbitration of Disputes.
a. Any dispute, claim or controversy arising from or related in
any way to this Agreement or the interpretation, application,
breach, termination or validity thereof, including any claim of
inducement of this Agreement by fraud or otherwise, will be
submitted for resolution to arbitration pursuant to the
commercial arbitration rules then pertaining of the CPR,
except where those rules conflict with these provisions, in
which case these provisions control. The arbitration will be
held in Minneapolis, Minnesota.
b. The panel shall consist of one arbitrator chosen from the CPR
Panels of Distinguished Neutrals who is a lawyer specializing
in business litigation with at least 15 years experience with
a law firm or corporation of over 10 lawyers or was a judge of
a court of general jurisdiction.
c. The parties agree to cooperate (1) to obtain selection of the
arbitrator within 30 days of initiation of the arbitration, (2)
to meet with the arbitrator within 30 days of selection and (3)
to agree at that meeting or before upon procedures for
discovery and as to the conduct of the hearing which will
result in the hearing being concluded within no more than 9
months after selection of the arbitrator and in the award being
rendered within 60 days of the conclusion of the hearings, or
of any post-hearing briefing, which briefing will be completed
by both sides with 20 days after the conclusion of the
hearings. In the event no such agreement is reached, the CPR
will select an arbitrator, allowing appropriate strikes for
reasons of conflict or other cause and three peremptory
challenges for each side. The arbitrator shall set a date for
the hearing, commit to the rendering of the award within 60
days of the conclusion of the evidence at the hearing, or of
any post-hearing briefing (which briefing will be completed by
both sides in no more than 20 days after the conclusion of the
hearings), and provide for discovery according to these time
limits, giving recognition to the understanding of the parties
hereto that they contemplate reasonable discovery, including
document demands and depositions, but that such discovery be
limited so that the time limits specified herein may be met
without undue difficulty. In no event will the arbitrator
allow either side to obtain more than a total of 40 hours of
deposition testimony from all witnesses, including both fact
and expert witnesses. To that end each of the parties hereto
agrees to pursue no more than the following discovery in the
aggregate from all parties and non-parties to the action: a
total of no more than 20 requests for documents (including
subparts) set forth in no more than two separately served
document demands; a total of no more than 20 interrogatories
(including subparts) set forth in no more than two separately
served sets of interrogatories. In the event multiple hearing
days are required, they will be scheduled consecutively to the
greatest extent possible.
d. The arbitrator shall render its award following the substantive
law of Minnesota. The arbitrator shall render an opinion
setting forth findings of fact and conclusions of law with the
reasons therefor stated. A transcript of the evidence adduced
at the hearing shall be made and shall, upon request, be made
available to either party.
e. To the extent possible, the arbitration hearings and award will
be maintained in confidence.
f. The United States District Court for the District of Minnesota
may enter judgment upon any award. In the event the panel's
award exceeds $5 million in monetary Damages or includes or
consists of equitable relief, then the court shall vacate,
modify or correct any award where the arbitrators' findings of
fact are clearly erroneous, and/or where the arbitrators'
conclusions of law are erroneous; in other words, it will
undertake the same review as if it were a federal appellate
court reviewing a district court's findings of fact and
conclusions of law rendered after a bench trial. An award for
less than $5 million in Damages and not including equitable
relief may be vacated, modified or corrected only upon the
grounds specified in the Federal Arbitration Act. The parties
consent to the jurisdiction of the above-specified Court for
the enforcement of these provisions, the entry of judgment on
any award, and the vacatur, modification and correction of any
award as above specified. In the event such Court lacks
jurisdiction, then any court having jurisdiction of this
matter may enter judgment upon any award and provide the same
relief, and undertake the same review, as specified herein.
g. Each party has the right before or during the arbitration to
seek and obtain from the appropriate court provisional remedies
such as attachment, preliminary injunction, replevin, etc. to
avoid irreparable harm, maintain the status quo, or preserve
the subject matter of the arbitration.
h. EACH PARTY HERETO WAIVES ITS RIGHT TO TRIAL OF ANY ISSUE BY
JURY.
i. EACH PARTY HERETO WAIVES ANY CLAIM TO PUNITIVE OR EXEMPLARY
DAMAGES FROM THE OTHER.
j. EACH PARTY HERETO WAIVES ANY CLAIM OF CONSEQUENTIAL DAMAGES
FROM THE OTHER.
[Signatures to Asset Purchase Agreement on next page]
Each of the parties hereto has caused this Asset Purchase Agreement to
be executed in the manner appropriate to each, all as of the day and year first
above written.
OXBORO MEDICAL, INC.
By: /s/David Berkley
David Berkley, President
SURGIDYNE, INC.
By: /s/ Theodore A. Johnson
Theodore A. Johnson, Chairman of the Board
Appendix B
AMENDMENT NO. 1 TO ASSET PURCHASE AGREEMENT
THIS AMENDMENT NO. 1 TO ASSET PURCHASE AGREEMENT, is dated as of
November 29, 2001, by and between Surgidyne, Inc., a Minnesota corporation
("Seller") and Oxboro Medical, Inc., a Minnesota corporation (the "Company").
WITNESSETH
WHEREAS, Seller and the Company have entered into an Asset Purchase
Agreement, dated as of October 4, 2001 (the "Agreement"); and
WHEREAS, the parties to the Agreement wish to amend the Agreement to
change the date for closing of the transactions contemplated by the Agreement
and to make a clarification regarding accounts payable.
NOW, THEREFORE, in connection with and in consideration of the premises
and the mutual agreements and covenants hereinafter set forth, and for other
good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged and intending to be legally bound hereby, Seller,
Acquisition and the Company hereby agree as follows:
1. Capitalized terms used but not otherwise defined herein shall have the
same meanings as in the Agreement.
2. Section 7.1 is hereby amended to read in its entirety:
7.1 Closing. The closing of the transaction contemplated by this
Agreement ("Closing") shall be held at the offices of Lindquist
& Vennum P.L.L.P., 4200 IDS Center, Minneapolis, MN 55402 at
9:00 a.m. on January 15, 2002 or at such other time or place as
the parties may mutually agree, but effective at the close of
business on such date (the "Closing Date"). Seller
specifically acknowledges that time is of the essence in the
Closing of this Agreement.
3. Section 1.3(b) is hereby amended to read in its entirety:
b. All (i) current trade accounts payable and (ii) other accounts
payable of Seller which have been due in excess of 120 days in
the amounts set forth on Exhibit 1.3(b) or on the Closing
Payables Sheet.
4. Except as modified herein, all of the terms and conditions of the
Agreement remain unchanged and in full force and effect and are hereby
ratified as of the date hereof by the parties hereto. In the event of
a conflict in the terms of the Agreement and this Amendment No. 1, the
terms of this Amendment No. 1 shall control.
5. This Amendment No. 1 to the Agreement may be executed in counterpart
signature pages, each of which shall be deemed an original, and all
such counterparts constitute but one instrument.
6. Any provision of the Agreement may be further amended or waived, but
only if in writing and signed by each party to this Amendment No. 1 to
the Agreement, in the case of an amendment, or in the case of waiver,
in writing and signed by the party against whom the waiver is to be
effective.
[Remainder of page intentionally left blank.]
IN WITNESS WHEREOF, the parties hereto have duly executed this
Amendment No. 1 to the Agreement as of the day and year first above written.
OXBORO MEDICAL, INC.
By: /s/ J. David Berkley
Name: J. David Berkley
Title: President
SURGIDYNE, INC.
By: /s/ Theodore Johnson
Name: Theodore Johnson
Title: Chairman of the Board
Appendix C
ARTICLES OF AMENDMENT
TO THE
ARTICLES OF INCORPORATION, AS AMENDED
OF
SURGIDYNE, INC.
The undersigned, the Chairman of the Board of Directors of Surgidyne,
Inc., a Minnesota business corporation (the "Corporation") organized under the
provisions of Minnesota Statutes, Chapter 302A, hereby certifies that at a
meeting of the shareholders of the Corporation held on January 22, 2002, the
shareholders of the Corporation duly amended the Articles of Incorporation of
the Corporation, as amended, pursuant to Chapter 302A by amending Article I
and Article III thereof to read in its entirety as follows:
ARTICLE I.
NAME.
The name of this corporation is Surg II, Inc.
ARTICLE III.
AUTHORIZED SHARES
The aggregate number of shares that this Corporation has authority to
issue is Two-Hundred Million (200,000,000) shares having no par value. Unless
otherwise designated, all shares issued shall be designated as common shares.
Each holder of common shares shall be entitled to one vote for each common
share standing in his name on the books of the Corporation. The Board of
Directors is authorized to adopt, by an affirmative vote of a majority of the
directors present at a duly called meeting, a resolution or resolutions
providing for the establishment of a class or series of authorized shares of
the Corporation, setting forth the designation of and number of shares
constituting the class or series of fixing the relative rights and preferences
of the class or series. The Board of Directors may grant preemptive rights
with respect to some or all of the shares not designated common shares.
IN WITNESS WHEREFORE, I have hereunto set my hand this ______ day of
January, 2002.
______________________________
By: Theodore A. Johnson
Its: Chairman of the Board of Directors
Appendix D
MINNESOTA BUSINESS CORPORATION ACT
302A. 471. Rights of dissenting shareholders
Subdivision 1. Actions creating rights. A shareholder of a
corporation may dissent from, and obtain payment for the fair value of the
shareholder's shares in the event of, any of the following corporate actions:
(a) An amendment of the articles that materially and adversely
affects the rights or preferences of the shares of the
dissenting shareholder in that it:
(1) alters or abolishes a preferential right of the shares;
(2) creates, alters, or abolishes a right in respect of the
redemption of the shares, including a provision respecting
a sinking fund for the redemption or repurchase of the
shares;
(3) alters or abolishes a preemptive right of the holder of the
shares to acquire shares, securities other than shares, or
rights to purchase shares or securities other than shares;
(4) excludes or limits the right of a shareholder to vote on a
matter, or to cumulate votes, except as the right may be
excluded or limited through the authorization or issuance
of securities of an existing or new class or series with
similar or different voting rights; except that an amendment
to the articles of an issuing public corporation that
provides that section 302A.671 does not apply to a control
share acquisition does not give rise to the right to obtain
payment under this section;
(b) A sale, lease, transfer, or other disposition of all or
substantially all of the property and assets of the
corporation, but not including a transaction permitted without
shareholder approval in section 302A.661, subdivision 1, or a
disposition in dissolution described in section 302A.725,
subdivision 2, or a disposition pursuant to an order of a
court, or a disposition for cash on terms requiring that all or
substantially all of the net proceeds of disposition be
distributed to the shareholders in accordance with their
respective interests within one year after the date of
disposition;
(c) A plan of merger, whether under this chapter or under chapter
322B, to which the corporation is a party, except as provided
in subdivision 3;
(d) A plan of exchange, whether under this chapter or under chapter
322B, to which the corporation is a party as the corporation
whose shares will be acquired by the acquiring corporation,
expect as provided in subdivision 3; or
(e) Any other corporate action taken pursuant to a shareholder vote
with respect to which the articles, the bylaws, or a resolution
approved by the board directs that dissenting shareholders may
obtain payment for their shares.
Subd. 2. Beneficial owners. (a) A shareholder shall not assert
dissenters' rights as to less than all of the shares registered in the name of
the shareholder, unless the shareholder dissents with respect to all the shares
that are beneficially owned by another person but registered in the name of the
shareholder and discloses the name and address of each beneficial owner on
whose behalf the shareholder dissents. In that event, the rights of the
dissenter shall be determined as if the shares as to which the shareholder has
dissented and the other shares were registered in the names of different
shareholders.
(b) The beneficial owner of shares who is not the shareholder may
assert dissenters' rights with respect to shares held on behalf
of the beneficial owner, and shall be treated as a dissenting
shareholder under the terms of this section and section
302A.473, if the beneficial owner submits to the corporation at
the time of or before the assertion of the rights a written
consent of the shareholder.
Subd. 3. Rights not to apply. (a) Unless the articles, the bylaws, or
a resolution approved by the board otherwise provide, the right to obtain
payment under this section does not apply to a shareholder of (1) the surviving
corporation in a merger with respect to shares of the shareholder that are not
entitled to be voted on the merger and are not canceled or exchanged in the
merger or (2) the corporation whose shares will be acquired by the acquiring
corporation in a plan of exchange with respect to shares of the shareholder
that are not entitled to be voted on the plan of exchange and are not exchange
in the plan of exchange.
(b) If a date is fixed according to section 302A.445, subdivision
1, for the determination of shareholders entitled to receive
notice of and to vote on an action described in subdivision 1,
only shareholders as of the date fixed, and beneficial owners
as of the date fixed who hold through shareholders, as provided
in subdivision 2, may exercise dissenter's rights.
Subd. 4. Other rights. The shareholders of a corporation who have a
right under this section to obtain payment for their shares do not have a right
at law or in equity to have a corporate action described in subdivision 1 set
aside or rescinded, except when the corporate action is fraudulent with regard
to the complaining shareholder or the corporation.
302A.473. Procedures for asserting dissenters' rights
Subdivision 1. Definitions. (a) For purposes of this section, the
terms defined in this subdivision have the meaningS given them.
(b) "Corporation" means the issuer of the shares held by a
dissenter before the corporate action referred to in section
302A.471, subdivision 1 or the successor by merger of that
issuer.
(c) "Fair value of the shares" means the value of the shares of a
corporation immediately before the effective date of the
corporate action referred to in section 302A.471, subdivision 1.
(d) "Interest" means interest commencing five days after the
effective date of the corporate action referred to in section
302A.471, subdivision 1, up to and including the date of
payment, calculated at the rate provided in section 549.09
for interest on verdicts and judgments.
Subd. 2. Notice of action. If a corporation calls a shareholder
meeting at which any action described in section 302A.471, subdivision 1 is to
be voted upon, the notice of the meeting shall inform each shareholder of the
right to dissent and shall include a copy of section 302A.471 and this section
and a brief description of the procedure to be followed under these sections.
Subd. 3. Notice of dissent. If the proposed action must be approved
by the shareholders, a shareholder who is entitled to dissent under section
302A.471 and who wishes to exercise dissenters' rights must file with the
corporation before the vote on the proposed action a written notice of intent
to demand the fair value of the shares owned by the shareholder and must not
vote the shares in favor of the proposed action.
Subd. 4. Notice of procedure; deposit of shares. (a) After the
proposed action has been approved by the board and, if necessary, the
shareholders, the corporation shall send to all shareholders who have complied
with subdivision 3 and to all shareholders entitled to dissent if no
shareholder vote was required, a notice that contains:
(1) The address to which a demand for payment and
certificates of certificated shares must be sent in
order to obtain payment and the date by which they must
be received;
(2) Any restrictions on transfer of uncertificated shares
that will apply after the demand for payment is
received;
(3) A form to be used to certify the date on which the
shareholder, or the beneficial owner on whose behalf
the shareholder dissents, acquired the shares or an
interest in them and to demand payment; and
(4) A copy of section 302A.471 and this section and a
brief description of the procedures to be followed
under these sections.
(b) In order to receive the fair value of the shares, a dissenting
shareholder must demand payment and deposit certificated shares
or comply with any restrictions on transfer of uncertificated
shares within 30 days after the notice required by paragraph
(a) was given, but the dissenter retains all other rights of a
shareholder until the proposed action takes effect.
Subd. 5. Payment; return of shares. (a) After the corporate action
takes effect, or after the corporation receives a valid demand for payment,
whichever is later, the corporation shall remit to each dissenting shareholder
who has complied with subdivisions 3 and 4 the amount the corporation estimates
to be the fair value of the shares, plus interest, accompanied by:
(1) The corporation's closing balance sheet and statement
of income for a fiscal year ending not more than 16
months before the effective date of the corporate
action, together with the latest available interim
financial statements;
(2) An estimate by the corporation of the fair value of the
shares and a brief description of the method used to
reach the estimate; and
(3) A copy of section 302A.471 and this section, and a
brief description of the procedure to be followed in
demanding supplemental payment.
(b) The corporation may withhold the remittance described in
paragraph (a) from a person who was not a shareholder on the
date the action dissented from was first announced to the
public or who is dissenting on behalf of a person who was not
a beneficial owner on that date. If the dissenter has complied
with subdivisions 3 and 4, the corporation shall forward to the
dissenter the materials described in paragraph (a), a statement
of the reason for withholding the remittance, and an offer to
pay to the dissenter the amount listed in the materials if the
dissenter agrees to accept that amount in full satisfaction.
The dissenter may decline the offer and demand payment under
subdivision 6. Failure to do so entitles the dissenter only to
the amount offered. If the dissenter makes demand,
subdivisions 7 and 8 apply.
(c) If the corporation fails to remit payment within 60 days of the
deposit of certificates or the imposition of transfer
restrictions on uncertificated shares, it shall return all
deposited certificates and cancel all transfer restrictions.
However, the corporation may again give notice under
subdivision 4 and require deposit or restrict transfer at a
later time.
Subd. 6. Supplemental payment; demand. If a dissenter believes that
the amount remitted under subdivision 5 is less than the fair value of the
shares plus interest, the dissenter may give written notice to the corporation
of the dissenter's own estimate of the fair value of the shares, plus interest,
within 30 days after the corporation mails the remittance under subdivision 5,
and demand payment of the difference. Otherwise, a dissenter is entitled only
to the amount remitted by the corporation.
Subd. 7. Petition; determination. If the corporation receives a
demand under subdivision 6, it shall, within 60 days after receiving the
demand, either pay to the dissenter the amount demanded or agreed to by the
dissenter after discussion with the corporation or file in court a petition
requesting that the court determine the fair value of the shares, plus
interest. The petition shall be filed in the county in which the registered
office of the corporation is located, except that a surviving foreign
corporation that receives a demand relating to the shares of a constituent
domestic corporation shall file the petition in the county in this state in
which the last registered office of the constituent corporation was located.
The petition shall name as parties all dissenters who have demanded payment
under subdivision 6 and who have not reached agreement with the corporation.
The corporation shall, after filing the petition, serve all parties with a
summons and copy of the petition under the rules of civil procedure.
Nonresidents of this state may be served by registered or certified mail or
by publication as provided by law. Except as otherwise provided, the rules of
civil procedure apply to this proceeding. The jurisdiction of the court is
plenary and exclusive. The court may appoint appraisers, with powers and
authorities the court deems proper, to receive evidence on and recommend the
amount of the fair value of the shares. The court shall determine whether the
shareholder or shareholders in question have fully complied with the
requirements of this section, and shall determine the fair value of the shares,
taking into account any and all factors the court finds relevant, computed by
any method or combination of methods that the court, in its discretion,
sees fit to use, whether or not used by the corporation or by a dissenter.
The fair value of the shares as determined by the court is binding on all
shareholders, wherever located. A dissenter is entitled to judgment in cash
for the amount by which the fair value of the shares as determined by the
court, plus interest, exceeds the amount, if any, remitted under subdivision
5, but shall not be liable to the corporation for the amount, if any, by which
the amount, if any, remitted to the dissenter under subdivision 5 exceeds the
fair value of the shares as determined by the court, plus interest.
Subd. 8. Costs; fees; expenses. (a) The court shall determine the
costs and expenses of a proceeding under subdivision 7, including the
reasonable expenses and compensation of any appraisers appointed by the court,
and shall assess those costs and expenses against the corporation, except that
the court may assess part or all of those costs and expenses against a
dissenter whose action in demanding payment under subdivision 6 is found to be
arbitrary, vexatious, or not in good faith.
(b) If the court finds that the corporation has failed to comply
substantially with this section, the court may assess all fees
and expenses of any experts or attorneys as the court deems
equitable. These fees and expenses may also be assessed
against a person who has acted arbitrarily, vexatiously, or
not in good faith in bringing the proceeding, and may be
awarded to a party injured by those actions.
(c) The court may award, in its discretion, fees and expenses to
an attorney for the dissenters out of the amount awarded to the
dissenters, if any.
Appendix E
FORM 10-KSB FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000
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, 2000
[ ] 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, 2000 were
$428,040.
The aggregate market value of the common stock held by non-
affiliates of the Registrant based upon the closing of the
common stock sale price on the OTC bulletin board system
on March 16, 2001 was approximately $660,000. For purposes
of this calculation, all Directors and Executive Officers
of the Registrant have been deemed affiliates.
7,447,085 Shares of Common Stock, no par value, were
outstanding at December 31, 2000
DOCUMENTS INCORPORATED BY REFERENCE
NONE
This Form 10-KSB consists of 25 pages (including exhibits).
The index To exhibits is set forth on page 7
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 that 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.
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. Internationally, the Company's
products are sold through four dealers located in Canada, Puerto Rico,
the United Kingdom, and Italy. The Company does not employ an outside
sales force and is largely dependent upon its dealers for sales and
service to hospital accounts.
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 u 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. Management has determined
that developing and maintaining additional sources for all critical
components is not cost effective. The Company has no written
agreements 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
The Company experience significant revenue reductions in 2000 as
compared to 1999 due to loss and material reductions in purchases
by major customers. Its largest dealer, Chirmed SpA, exclusive
dealer for Italy, reduced purchases by 26%, $42,775, in 2000 as
compared to 1999. The Company's largest OEM account terminated
its contract manufacturing with the Company, resulting in a
revenue loss of $80,762 for 2000 as compared to 1999. Some other
major dealer customers also purchased less in year 2000 adversely
affecting the Company's revenues.
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, 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 350mm 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 patented Saber TM System features its unique bulb
evacuator, with an integral anti-reflux valve that mates to its
3C Collection Unit for optimal infection control while providing
simultaneous emptying and reactivation.
Research and Development
The Company incurred research and development expenditures of
$11,873 and $14,671 for the years ended December 31, 2000 and
1999, respectively. The Company expects to maintain similar
development expenditures in 2001.
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 unsafe or 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 Company 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 for products marketed to dealers in Europe.
Employees
At December 31, 2000, the Company employed 4 full-time persons.
None of the Company's employees are represented by a labor union.
The Company has experienced 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. Management
considers that this property is sufficient for its present
operations.
ITEM 3. LEGAL PROCEEDINGS
The Company has one pending legal matter as of December 31, 2000
regards to a note payable. As of December 31, 2000 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. At
December 31, 2000 the entire amount due is recorded.
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, 2000.
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. These quotations reflect
inter-dealer prices, without retail mark-up, markdown, or
commission and may not represent actual transactions.
Bid PriceRange
2000 1999
Fiscal Period High Low High Low
First Quarter $.51 $.16 $.15 $.07
Second Quarter .53 .13 .25 .19
Third Quarter .53 .18 .50 .24
Fourth Quarter .30 .07 .38 .22
On December 31, 2000, the bid price for the common shares as
reported in the local over-the-counter market was $ .125
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
1,6000,000 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, 2000 cumulative dividends
totaled $ 20,329.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
Results of Operations - 2000 compared to 1999
Sales. Sales for the fiscal year 2000 were $428,040 compared to
$633,584 in 1999, a decrease of approximately 32%. Of the
$205,616 decrease in sales 42% is due to the loss of a single
OEM account, 21% is due to reduced purchases by Chirmed and
26% 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. 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 39% for the year 1999 to 21% in
2000. This decrease is due primarily to fixed overheads being
allocated over a much smaller volume of production. Also, the
Company had increased costs of components and labor.
Additionally, the loss of sales to the one OEM customer
contributed to lower gross margins.
Operating Expenses. Operating expenses increased from $199,425
in 1999 to $258,921 in 2000. This increase was primarily due
to a $16,721 increase in legal and accounting fees (with
increased accounting fees of $12,648 being attributed to
the new SEC regulations effective in the year 2000), and
$54,089 for the amortization expense of the consulting
agreement signed in June. (See Note 5).
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 sale in 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.
Liquidity and Capital Resources At December 31, 2000 the Company
had working capital of $128,351 compared to working capital of
$171,083 at December 31, 1999.
The net cash used in operating activities for the year 2000 was
$69,169 compared to $59,026 provided by operating activities in
1999. The increase in cash used was primarily due to the net
loss of $171,102, which was partially offset by depreciation
and amortization of $59,796.
The ability of the Company to continue as a going concern and
it's 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 be
manufactured for the Company on an OEM basis without incurring
any 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 generates profitable operations. Increased sales volumes
in 2001 depend largely on increased business from contract
manufacturing and increased sales from existing and new products.
Consulting Agreement: As stated in Note 11 of the interim
financial statements, on June 2, 2000, the Company retained
Equity Securities Investments, Inc. (the Consultants) 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 Securities and Exchange Commission issued Staff Accounting
Bulletin No. 101 on Revenue Recognition (SAB 101) in December
of 1999. SAB 101 was effective for the Company in the fourth
quarter of 2000. SAB 101 provides further guidance on revenue
recognition and established criteria that must be met to
recognize revenue. In addition, the SAB addresses whether
revenue should be presented gross or net and provides guidance
on the disclosures registrants should make about their revenue
recognition policies and the impact of events and trends on
revenue. Management believes that the adoption of SAB 101 has
had no significant effect on the Company's financial statements.
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
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, 2000 and 1999, and the related statements
of operations, stockholders' equity, and the cash flow for the
years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility
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, 2000 and 1999, 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 financial statements, the Company is dependent
upon obtaining additional debt or equity financing to fund future
development and operations, which raises substantial 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 1, 2001
SURGIDYNE INC.
BALANCE SHEETS
December 31, December 31,
2000 1999
ASSETS
Current Assets $33,924 $70,090
Accounts Receivable less allowance for
doubtful accounts of $4,200 31,002 50,667
Inventories (Note 3) 160,687 182,310
Prepaid Expenses 11,913 26,317
Prepaid Consulting Expense 38,635 -
Total Current Assets 276,161 329,384
Furniture and Equipment at cost
(Notes 4 and 9) 353,917 333,396
Less accumulated depreciation
And amortization 328,673 323,759
Total Furniture and Equipment 25,244 9,637
Other Assets
Patents and trademarks, net of
accumulated amortization of
$18,773 in 2000 and $17,980
in 1999 4,611 3,860
Deposits 3,529 3,529
Total other assets 8,140 7,389
Total assets $309,545 $346,410
LIABILITIES AND STOCKHOLDERS' EQUITY
December 31, December 31,
2000 1999
Current Liabilities
Current maturities of capital lease $4,590 $-
Notes payable to officer and
director (Note 5) 8,474 10,000
12% demand note payable (Note 5) 11,646 11,646
Non-interest bearing demand
note payable (Note 5) 35,546 35,546
Accounts payable 33,582 45,135
Accrued liabilities (Note 6) 53,972 55,974
Total current liabilities 147,810 158,301
Capital lease obligation, less
current maturities (Note 9) 10,504 -
Stockholders' Equity (Notes 6 and 7)
Series A Preferred stock, at
liquidation value,
authorized 1,600,000
shares; 1,600,000 shares
issued and outstanding 400,000 400,000
Common stock, no par value;
authorized 18,400,000 shares;
issued, issuable and
outstanding; 7,447,085 and
7,017,085 4,606,266 4,472,042
Accumulated deficit (4,855,035) (4,683,933)
Total stockholders' equity 151,231 188,109
Total liabilities and
stockholders' equity $309,545 $346,410
SURGIDYNE, INC.
STATEMENT OF OPERATIONS
For years ended December 31, 2000 1999
Net sales (Note 10) $428,040 $633,584
Cost of goods sold (Note 10) 336,364 389,476
Gross profit 91,675 244,108
Operating expenses
Research and development 11,873 14,671
Sales and marketing 34,775 31,199
General and administrative 212,273 152,841
Total operating expenses 258,921 198,711
Operating income (loss) (167,246) 45,397
Other Income (expense)
Interest income 1,286 1,604
Interest expense (Note 5) (5,180) (3,250)
Other 39 -
Net income (loss) $(171,102) $43,751
Net income attributable to common
shareholders:
Net income (loss) (171,102) 43,751
Preferred stock dividend- (19,008)
(171,102) 24,743
Basic and diluted income (loss) per
common share $(0.02) $ -
Weighted average common shares
outstanding-basic 7,020,833 7,017,085
Weighted average common shares
outstanding-diluted 7,020,833 8,743,731
See Notes to Financial Statements
SURGIDYNE, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
Years Ended December 31, 1999 and 2000
Preferred Common Stock Accumulated
Stock Shares Amount Deficit Total
Balance December
31, 1998 $400,000 7,017,085 $4,472,042 $(4,708,676) $163,366
Dividends on
Preferred 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
Issuance of Common
Stock, (net
of expenses
of $1,500) - 430,000 41,500 - 41,500
Issuance of Warrants
for Services
(Note 11) - - 92,724 - 92,724
Net Loss - - - (171,102) (171,102)
Balance, December
31, 2000 $400,000 7,447,085 $4,606,266 $(4,855,035) $151,231
See Notes to Financial Statements.
SURGIDYNE, INC.
STATEMENT OF CASHFLOWS
Years Ended December 31, 2000 1999
Cash Flows from Operating Activities
Net income (loss) $(171,102) $43,751
Adjustments to reconcile net
income (loss) to net
Cash provided by (used in)
operating activities:
Depreciation and amortization 5,707 2,887
Amortization of prepaid
consulting expenses 54,089 -
Changes in assets and liabilities:
Accounts receivable 19,665 31,539
Inventories 21,623 (10,024)
Prepaid expenses 14,404 (13,363)
Accounts payable and
accrued expenses (13,555) 4,236
Net cash provided by
(used in) operating
activities (69,169) 59,026
Cash Flows from Investing Activities
Additions to patents and trademarks (1,544) -
Purchase of Furniture and Equipment (1,030) -
Net cash used in investing
activities (2,574) -
Cash Flows from Financing Activities
Payments on capital lease obligation (4,397) -
Payments on notes payable (1,526) -
Proceeds from issuance of
common stock 41,500 -
Net cash provided by
financing activities 33,577 -
Increase (decrease)
in cash (36,166) 59,026
Cash:
Beginning 70,090 11,064
Ending $33,924 $70,090
Supplemental Disclosures of Cash
Flow Information
Cash payments for interest $3,150 $817
Supplemental Non Cash Investing and
Financing Activities
Equipment acquired under
capital lease $19,491 -
Warrant issued for prepaid
consulting services (Note 5) $92,724 -
See Notes to Financial Statements.
SURGIDYNE, INC,
NOTES TO FINANCIAL STATEMENTS
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 upon shipment
of the product to the customer. The Securities and Exchange
Commission has issued Staff Accounting Bulletin No. 101
(SAB 101), which provides guidance on revenue recognition
and establishes criteria that must be met to recognize
revenue. In addition, SAB 101 addresses whether revenue
should be presented gross or net and provides guidance on
the disclosures registrants should make about their revenue
recognition policies and the impact of events and trends on
revenue. The accompanying financial statements comply with
the provisions of SAB 101.
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 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.
Accounting of Long-Lived Assets: The Company reviews its furniture
and equipment and other long-lived assets periodically to determine
potential impairment by comparing the carrying value of the assets
with the estimated future net undiscounted cash flows expected to
result from the use of the assets, including cash flows from
disposition. Should the sum of the expected future net cash
flows be less than the carrying value, the Company would recognize
an impairment loss at that date. An impairment loss would be
measured by comparing the amount by which the carrying value
exceeds the fair value (estimated discounted future cash flows
or appraised value) of the long-lived assets.
Income Taxes: Deferred taxes are provided on an asset and 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 the
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 having the same or similar remaining maturities
and collateral requirements. 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 reporting period. Actual results could differ from those estimates.
Basic and Diluted Income (Loss) 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 their effect
is anti-dilutive thereby reducing the loss or increasing the
income per common share.
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 be
manufactured for the Company on an OEM basis without incurring
any capital or development costs on the part of the Company.
SURGIDYNE, INC,
NOTES TO FINANCIAL STATEMENTS
Long-term liquidity is dependent upon the attainment of the
short-term factors discussed above and greater sales volume
that generates profitable operations. Increased sales volumes
in 2001 depend largely on increased business from contract
manufacturing and 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.
Note 3. Inventories
Inventories consisted of the following:
2000 1999
Component parts and
subassemblies $75,780 $81,182
Work-in-Process 17,617 12,235
Finished Goods 77,290 98,893
Less Obsolescence Reserve (10,000) (10,000)
$160,687 $182,310
Note 4. Furniture and Equipment
Furniture and equipment cost consists of the following:
2000 1999
Furniture, fixtures
and equipment $251,735 $232,244
Tooling and Molds 102,182 101,152
$353,917 $333,396
Note 5. Notes Payable
Notes Payable to Related Parties: The Company has short-term notes
payable outstanding with a certain officer and director which bear
interest at 10%. The principal is due in annual installments
limited to 50% of the audited net income each year until paid
in full. Related party interest expense was approximately $1,025
for both 2000 and1999.
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 non-pay off the note on January 1, 1997 and as a
result the note is due on demand. The Company also has a 12%
demand note payable for $11,646.
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
liabilities at both December 31, 2000 and 1999 include $20,329
of dividends payable under the preferred stock.
The preferred shares are convertible into common shares on a one
for one basis, subject to certain anti-dilutive adjustments. The
preferred stock is automatically 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
Incentive Stock Options: The Company maintains a 1986 Incentive
Stock Option Plan. The plan provides for issuance of up to 195,000
shares of common stock to selected management and other key
employees of the Company.
Under the Plan, the exercise price cannot be less than 100% of the
fair market value of the common stock on the date the option is
granted. Options are fully vested upon issuance and are exercisable
over a five-year period from date of grant. At December 31, 2000
and 1999 no options were outstanding.
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 exercisable upon issuance and expire in varying amounts
through 2005. Information with respect to warrant activity is
summarized as follows.
Weighted
Average
Exercise
Shares Price
Outstanding at
December 31, 1998 345,000 $0.19
Granted 10,000 $0.28
Cancelled (315,000) $0.20
Outstanding at
December 31, 1999 40,000 $0.12
Granted 1,080,000 $0.17
Outstanding at
December 31, 2000 1,120,000 $0.17
Option and warrant grants to employees and directors are
accounted for following APB Opinion No. 25 and related
interpretations. For 2000 and 1999, there was no compensation
expense recorded on the issuance of warrants to officers/directors
as they were issued at or above the Company's quoted market
price. Compensation costs in 1999 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 for 1999.
Had compensation expense for the warrants to purchase 480,000
shares of common stock granted to officers/directors in 2000
been determined based on the fair market value at the date
the dates of grants in 2000 consistent with the provisions of
SFAS No. 123, the Company's net loss and basic and diluted
loss per share would have been changed to the following pro
forma amounts:
2000
Net loss - as reported $(171 102)
Net loss - pro forma $(248,564)
Basic and diluted net loss per share -
as reported ($.02)
Basic and diluted net loss per share -
pro forma ($.04)
The fair market value of each warrant grant was estimated on
the date of grant using the Black-Scholes option-pricing model
with the following weighted average assumptions used for grants
in 2000: no dividends, risk free interest rate of 5.4%,
expected lives of 4 years, and a volatility of 190%. Using
those assumptions, the weighted average fair value was $0.16
per share.
Option and warrant grants to non-employees are accounted for under
FASB Statement No. 123 based on the grant date fair values.
The following table summarizes information about warrants outstanding
as of December 31, 2000:
Weighted
Average Weighted
Number Remaining Average
Exercise Of Units Contractual Exercise
Price Outstanding Life(Years) Price
.07 40,000 2 .07
.17 1,080,000 4.5 .17
1,120,000
Of the warrants issued in 2000, 480,000 were issued to
Directors/Officers with the remaining being issued pursuant
to a consulting agreement. (See Note 11) All outstanding
warrants are exercisable as of December 31, 2000 and 1999.
Note 8. Income Taxes
Deferred tax assets consist of the following:
2000 1999
Allowance for inventory
Obsolescence $ 2,000 $ 2,100
Other 2,000 2,200
Net Operating Loss
Carry forwards 980,000 1,045,000
Tax credit carry forwards 4,600 18,300
Gross deferred tax assets 988,600 1,067,600
Less valuation allowance 988,600 1,067,600
Net deferred tax assets $ - $ -
The Company has federal net operating loss and tax credit carry
forwards which are available to reduce taxable income as 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
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 -
2015 173,000 -
$4,117,000 $4,600
Note. 9 Leases
Operating: 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 2000 and 1999.
Minimum rental commitments under non-cancelable operating leases as
of December 31, 2000:
Year
2000 $33,800
2001 31,000
$64,800
Capital: The Company leases its computer equipment under a capital
lease agreement. As of December 31,2000, the assets capitalized
under the capital lease and related accumulated amortization were
approximately $19,500 and $4,400 respectively.
Approximate annual future minimum lease payments under the capital
lease at December 31, 2000 are as follows:
2001 $5,760
2002 5,760
2003 5,760
Total Minimum lease payments 17,280
Less amount representing interest 2,186
Present value of minimum lease
payments using a discount rate
of 9.0 percent. 15,094
Less: current maturities (4,590)
Long -term portion $ 10,504
Note 10. Major Customers, Suppliers and Export
Sales
The Company operates in one business segment, the manufacture and
sales of specialty medical and surgical wound drainage products.
Major customers: Net Sales for the year ended December 31, 2000 and
1999 include sales to major customers as follows:
Sales Percentage
Company 2000 1999
A* 29% 26%
B 12% 10%
C 12% 9%
Year End Receivable Balances
Company 2000 1999
A* $ - $ -
B 4,855 23,633
C 5,314 11,269
*International customer, representing 62% of export sales in
both 2000 and 1999.
Major 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. 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
$197,019 and $257,405 in 2000 and 1999 respectively.
Note 11. 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 the
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
$54,049 has been reflected as an operating expense as of December
31, 2000.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
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 71 Director, Executive 1982
3115 Maplewood Road Vice President and
Wayzata, MN 55391 Treasurer
Theodore A. Johnson 60 Chief Executive Officer 1985
825 Southgate Plaza And Chairman
5001 West 80th Street
Bloomington, MN 55437
David B. Kaysen 51 Director 1988
9909 South Shore Drive
Plymouth, MN 55441
William F. Gearhart 53 Director and Secretary 1984
9909 South Shore Drive
Plymouth, MN 55441
Arthur W. Schwalm 68 Director 1984
9909 South Shore Drive
Plymouth, MN 55441
Vance D. Fiegel 47 President and Director 1995
2460 South Highway 100
St. Louis Park, MN 55416
David R. Knighton, M.D. 52 Director 1994
2460 South Highway 100
St. Louis Park, MN 55416
* These directors will serve until the next annual meeting of
the shareholders.
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 incorporation 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 Corporation, 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 and active investor and advisor to
a number of emerging companies around the United States.
Vance D. Fiegal, President and Director since January 1995, is also
Chief Operating Officer and the Director of Research at Embro
Corporation, a biomedical 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 President and CEO of Rehabilicare,
Inc. From 1991 to 1992 her served as Vice President 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 Marketing 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 President of Competitive Business Strategies,
a developer of strategic planning software, and Vice President
of Alpha Business Group, Inc., a business consulting 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.
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
Long-Term Compensation
Annual Compensation
Other Securities All
Annual Restricted Underlying Other
Name and Principal Compen- Stock Options/ LTIP Compen-
Position Year Salary Bonus Sation Award(s) SARs Payoutssation
Charles B. McNeil
(Exec. Vice Pres.) 2000 $46,400 - $5,000 $ - - $ - $ -
1999 $43,284 - 4,800 - - - -
1998 $35,000 - 4,800 - - - -
1997 $35,000 - 4,800 - - - -
* Vance D. Fiegel is employed by the Company part-time, and although
Theodore A. Johnson, who is a non-employee of the Company, has the
title of CEO, Charles B. McNeil has served in that capacity. Mr.
Johnson does not receive compensation from the Company.
The following table provides information with respect to option/SAR
grants for the year ended December 31, 2000.
Number of
Securities % of Total Options/
Underlying SARs Granted to
Options/SARsEmployees in fiscal Exercise or Base
Name Granted (#) Year Price ($/Sh) Expiration Date
Charles B. McNeil - - $ - -
The following table provides information with respect to stock
option exercises in fiscal 2000 by the names executive officers
and the value of such officers' unexercised options at December
31, 2000.
Aggregate Option Exercises in Last Fiscal Year and Year-End Option Values
Shares Number of
Acquired Unexercised Options
On Value 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.
ITEM 11. SECURITY OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table presents certain information with respect to each
shareholder 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, 2000. Each shareholder 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) 1,702,354 24.2%
Charity, Inc.
6187 Heather Circle
Fridley, MN 55432 1,126,016 16.0%
Theodore A. Johnson
825 Southgate Plaza
5001 West 80th Street
Bloomington, MN 55437 522,875 7.5%
Charles B. McNeil
3115 Maplewood Road
Wayzata, MN 55391 417,838 6.0%
Arthur W. Schwalm
9909 South Shore Drive
Plymouth, MN 55441 356,640 5.1%
David R. Knighton, M.D.
2460 South Highway 100
St. Louis Park, MN 55416 291,000 4.1%
Vance D. Fiegel
2460 South Highway 100
St. Louis Park, MN 55416 50,000 0.7%
William F. Gearhart
9909 South Shore Drive
Plymouth, MN 55441 - 0.0%
David B. Kaysen
9909 South Shore Drive
Plymouth, MN 55441 - 0.0%
**********************
Includes 185,000 shares issuable pursuant to options and warrants,
which are currently exercisable, and 80,000 shares of Series A
convertible preferred stock. Also includes 135,000 shares held
by EMBRO Corporation, of which Dr. Knighton is and 80% shareholder.
Includes 400,000 shares of Series A convertible preferred stock.
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.
Includes 135,000 shares issuable pursuant to warrants which are
currently exercisable and 20,000 shares of Series A convertible
preferred stock. Also includes 135,000 shares of common stock
held by EMBRO Corporation, of which Dr. Knighton is an 80%
shareholder.
Represents 50,000 shares issuable pursuant warrants which are
currently exercisable. Does not include any portion of the
200,000 shares stock held by EMBRO Corporation, of which Mr.
Fiegel is a 20% shareholder.
The following table represents certain information with respect
to each shareholder 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, 2000. Each
shareholder 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
Charity, Inc
6187 Heather Circle
Fridley, MN 55432 400,000 25.0%
Samuel M. Joy
828 Ridge Place
Medota Heights, MN 55118 140,000 8.8%
Dr. Demetre Nicoloff
C/o National City Bank
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 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%
***********************
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 of
these notes as of December 31, 2000 and December 31, 1999 was
$8,474.
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 Sugidyne,
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.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities and Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
SURGIDYNE, INC.
(Registrant)
/s/ Vance D. Fiegel March 31, 2001
By: Vance D. Fiegel
President and Principal Accounting Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
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 31, 2001
By: Charles B. McNeil
Executive Vice President, Treasurer and Director
/s/ Theodore A. Johnson March 31, 2001
Theodore A. Johnson
Chief Executive Officer and Chairman of the Board of Directors
/s/ David B. Kaysen March 31, 2001
By: David B. Kaysen
Director
/s/ Arthur W. Schwalm March 31, 2001
Arthur W. Schwalm
Director
/s/William F. Gearhart March 31, 2001
By: William F. Gearhart
Secretary and Director
/s/ David R. Knighton March 31, 2001
By: David R. Knighton
Director
Appendix F
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, 2000 and 1999, and the related statements of operations,
stockholders' equity, and the cash flow for the years then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility 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, 2000 and 1999, 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
financial statements, the Company is dependent upon obtaining additional debt
or equity financing to fund future development and operations, which raises
substantial 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 1, 2001
Appendix G
FORM 10-QSB FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2001
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, 2001
_____ 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 if 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
7,447,085 shares of Common Stock, no par value, outstanding
at March 31, 2001
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
March 31, December 31,
2001(unaudited) 2000
ASSETS
Current Assets
Cash $ 46,866 $ 33,924
Accounts receivable, less
allowance for doubtful
accounts of $4,200 38,381 31,002
Inventories (Note 2) 135,104 160,687
Prepaid expenses (Note 5) 27,407 50,548
Total current assets 247,758 276,161
Furniture and Equipment,
at cost (Note 3) 353,917 353,917
Less accumulated depreciation
and amortization 329,880 328,673
Total furniture and equipment 24,037 25,244
Other Assets
Patents and trademarks, net
of accumulated amortization
of $19,020 in 2001 and
$18,774 in 2000 4,365 4,611
Deposits 3,529 3,529
Total other assets 7,894 8,140
Total assets $ 279,688 $ 309,545
See Notes to Financial Statements.
SURGIDYNE, INC.
BALANCE SHEETS (continued)
March 31, December 31,
2001 (unaudited) 2000
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Current maturities of capital
Lease $ 4,692 $ 4,590
Notes payable to officers
and directors 8,474 8,474
12% demand note payable 11,646 11,646
Non-interest bearing demand
note payable 35,546 35,546
Accounts payable 45,806 33,582
Accrued expenses 60,985 53,972
Total current liabilities 167,149 147,810
Capital lease obligation, less
current maturities 9,294 10,504
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
7,447,085 shares 4,606,266 4,606,266
Accumulated deficit (4,903,021) (4,855,035)
Total stockholders' equity 103,245 151,231
Total liabilities and
stockholders' equity $ 279,688 $ 309,545
See Notes to Financial Statements
SURGIDYNE, INC.
STATEMENTS OF OPERATIONS (UNAUDITED)
March 31, March 31,
Three Months Ended 2001 2000
Net sales $ 130,064 $ 118,215
Cost of goods sold 93,828 92,218
Gross profit 36,236 25,997
Operating expenses
Research and development 3,548 2,889
Sales and marketing 9,333 7,733
General and administrative 70,203 51,178
Total operating expenses 83,084 61,800
Operating loss (46,848) (35,803)
Other Income (expense)
Interest income 14 741
Interest expense (1,185) (1,101)
Other 32 -
Net loss $ (47,987) $ (36,163)
Basic and diluted
loss per common share $ 0.01) $ (0.01)
Weighted average common
shares outstanding-basic 7,447,085 7,017,085
Weighted average common
shares outstanding-diluted 7,447,085 7,017,085
See Notes to Financial Statements
SURGIDYNE, INC.
STATEMENTS OF CASH FLOWS (UNAUDITED)
March 31, March 31,
Three Months Ended 2001 2000
Cash Flows from Operating Activities
Net loss $ (47,987) $ (36,163)
Adjustments to reconcile net
loss to net
Cash provided by operating activities:
Depreciation and amortization 1,454 1,481
Amortization of prepaid
consulting expenses 23,181 -
Changes in assets and liabilities:
Accounts receivable (7,379) 25,303
Inventories 25,584 (7,575)
Prepaid expenses (39) 11,588
Accounts payable and
Accrued expenses 19,237 16,235
Net cash provided by
operating activities 14,051 10,869
Cash Flows from Financing Activities
Payments on capital lease
Obligation (1,109) (1,216)
Net cash used in financing
Activities (1,109) (1,216)
Increase in cash 12,942 9,653
Cash:
Beginning 33,924 70,090
Ending $ 46,866 $ 79,743
Supplemental Disclosures of Cash Flow Information
Cash payments for interest $ 623 $ 498
Supplemental Disclosures of Non-cash
Investing and Financing Activities
Equipment acquired under capital
Lease $ - $ 19,491
See Notes to Financial Statements
SURGIDYNE, INC.
NOTES TO FINANCIAL STATEMENTS (unaudited)
Note. 1 Financial Statements
The Balance Sheet as of March 31, 2001, the Statements of
Operations for the three-month periods ended March 31, 2001
and March 31, 2000, and the Statements of Cash Flows for
the three-month periods ended March 31, 2001 and March 31,
2000 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, 2001;
the results of operations for the three month periods
ended March 31, 2001 and March 31, 2000 and the statements
of cash flows for the three month periods ended March 31,
2001 and March 31, 2000 have been made. The Balance Sheet
at December 31, 2000 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, 2000.
Note 2. Inventories
Inventories consisted of the following:
March 31, December 31,
2001 2000
Component parts and
Subassemblies $ 78,259 $ 75,780
Work in process 23,904 17,687
Finished goods 42,941 77,290
Less obsolescence reserve (10,000) (10,000)
$ 135,104 $ 160,687
Note 3. Furniture and Equipment
Furniture and equipment consisted of the following:
March 31, December 31,
2001 2000
Furniture, fixtures and
Equipment $ 251,735 $ 251,735
Tooling and molds 102,182 102,182
$ 353,917 $ 353,917
Note. 4 Net Earnings (Loss) Per Share
Because the Company has incurred a loss in all periods
presented, 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 such 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 $23,181
is reflected as an operating expense for the three-
month period ending March 31, 2001.
ITEM 2. Management's Discussion and Analysis or Plan
of Operations
Results of Operations - 2001 compared to 2000
Sales. Sales for the first three months of fiscal
2001 were $130,064, compared to $118,215 in fiscal
2000, an increase of approximately 10%. This increase
was primarily related to an increase in sales volume.
Gross Profit. Gross profit expressed as a percentage
of sales increased from approximately 22% for the
first three months of 2000 to approximately 28% for
the same period in 2001 due primarily to a change in
the mix of products sold during this period.
Operating Expenses. Operating expenses increased
from $61,800 for the three-month period ended March
31, 2001 to $83,084 for the same period in 2000.
This increase was primarily the result of the
amortization expense of $23,181 for the consulting
agreement signed in June of 2000 (See Note 5). This
amortization expense offset a slight decrease in
other operating expenses.
Liquidity and Capital Resources
At March 31, 2001 the Company had working capital of
$84,326 compared to $128,351 at December 31, 2000.
The cash flows provided by operating activities for
the first three months of 2001 were $14,051.
The ability of the Company to continue as a going
concern and it's short-term liquidity is dependent
upon obtaining additional debt and/or equity
financing to fund future development and operations.
The Company 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 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 generates profitable operations.
Increased sales volumes in 2001 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.
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 March 31, 2001.
-----------------------
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 02, 2001 /s/ Vance D. Fiegel
By: Vance D. Fiegel
President and Principal
Accounting Officer
Appendix H
FORM 10-QSB FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2001
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, 2001
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
7,447,085 shares of Common Stock, no par value,
outstanding at June 30, 2001
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
June 30, December 31,
2001 (unaudited) 2000
ASSETS
Current Assets
Cash $ 21,595 $33,924
Accounts receivable,
less allowance for
doubtful accounts of
$4,200 39,368 31,002
Inventories (Note 2) 126,816 160,687
Prepaid expenses (Note 5) 17,621 50,548
Total current assets 205,400 276,161
Furniture and Equipment,
at cost (Note 3) 353,917 353,917
Less accumulated
depreciation and
amortization 331,088 328,673
Total furniture and
Equipment 22,829 25,244
Other Assets
Patents and trademarks,
net of accumulated
amortization of
$19,266 in 2001
and $18,774 in 2000 4,119 4,611
Deposits 3,529 3,529
Total other assets 7,648 8,140
Total assets $ 235,877 $ 309,545
See Notes to Financial Statements.
SURGIDYNE, INC.
BALANCE SHEETS (continued)
June 30, December 31,
2001 (unaudited) 2000
LIABILITIES AND
STOCKHOLDERS' EQUITY
Current Liabilities
Current maturities
of capital lease $ 4,382 $ 4,590
Notes payable to
officers and directors 8,474 8,474
12% demand note payable 11,646 11,646
Non-interest bearing
demand note payable 30,000 35,546
Accounts payable 43,877 33,582
Accrued expenses 58,669 53,972
Total current
Liabilities 157,048 147,810
Capital lease obligation,
less current maturities 8,470 10,504
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
7,447,085 shares 4,606,266 4,606,266
Accumulated deficit (4,935,907) (4,855,035)
Total stockholders'
Equity 70,359 151,231
Total liabilities
and stockholders'
equity $ 235,877 $ 309,545
See Notes to Financial Statements
SURGIDYNE, INC.
STATEMENTS OF OPERATIONS (UNAUDITED)
Three months ended Six months ended
June 30 June 30 June 30 June 30
2001 2000 2001 2000
Net sales $ 96,036 $ 125,823 $ 226,099 $ 244,038
Cost of
goods sold 71,804 84,026 165,632 176,245
Gross profit 24,232 41,797 60,467 67,793
Operating expenses
Research and
Development 3,414 2,829 6,962 5,719
Sales and
Marketing 7,981 9,822 17,315 17,556
General and
Administrative 45,068 46,827 115,271 98,002
Total operating
Expenses 56,463 59,478 139,548 121,277
Operating loss (32,231) (17,681) (79,081) (52,984)
Other Income(expense)
Interest income 12 417 26 1,158
Interest expense (1,322) (1,518) (2,507) (2,619)
Other 658 - 690 -
Net loss $ (32,883)$ (18,782)$ (80,872)$ (54,945)
Basic and diluted (loss)
per common
share 0.00 0.00 (0.01) 0.00
Weighted average common
Shares outstanding-
Basic 7,447,085 7,017,085 7,447,085 7,017,085
See Notes to Financial Statements
SURGIDYNE, INC.
STATEMENTS OF CASH FLOWS (UNAUDITED)
Six months ended
June 30, 2001 June 30, 2000
Cash Flows from Operating Activities
Net loss $ (80,872) $ (54,945)
Adjustments to reconcile
(loss)to net
Cash used in operating
activities:
Depreciation and
Amortization 2,907 2,877
Amortization of
prepaid consulting
expenses 38,635 7,727
Changes in assets
and liabilities:
Accounts receivable (8,366) (2,610)
Inventories 33,871 (693)
Prepaid expenses (5,708) 14,621
Accounts payable and
accrued expenses 14,992 (8,992)
Net cash used in
operating activities (4,541) (42,015)
Cash Flows from Financing Activities
Payments on capital lease
obligation (2,242) (2,260)
Payments on notes payable (5,546) (1,526)
Net cash used in financing
activities (7,787) (3,786)
Decrease in cash (12,329) (45,801)
Cash:
Beginning 33,924 70,090
Ending $ 21,595 $ 24,289
Supplemental Disclosures of Cash Flow Information
Cash payments for interest$ 1,383 $ 640
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 June 30, 2001, the
Statement of Operations for the three and six
month periods ended June 30, 2001 and June 30,
2000, and the Statement of Cash Flows for the
six month periods ended June 30, 2001 and
June 30, 2000 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, 2001;
the results of operations for the three and
six month periods ended June 30, 2001 and June
30, 2000 and the statement of cash flows for
the six month periods ended June 30, 2001 and
June 30, 2000 have been made. The Balance
Sheet at December 31, 2000 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, 2000.
Note 2. Inventories
Inventories consisted of the following:
June 30, December 31,
2001 2000
Component parts and
Subassemblies $ 62,009 $ 75,780
Work in process 9,801 17,617
Finished goods 65,006 77,290
Less obsolescence
reserve (10,000) (10,000)
$126,816 $ 160,687
Note 3. Furniture and Equipment
Furniture and equipment consisted of the following:
June 30, December 31,
2001 2000
Furniture, fixtures and
Equipment $ 251,735 $ 251,735
Tooling and molds 102,182 102,182
$ 353,917 $ 353,917
Note 4. Basic and Diluted Income (Loss) Per
Share
Because the Company has incurred a loss in all
periods presented, 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 all periods presented.
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 had a term of one year
and provided 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 was recognized over the
term of the agreement, which expired in the current
quarter, and approximately $16,000 and 38,600
has been reflected as an operating expense for
the three and six-month periods ended June 30, 2001.
Note 6. Recently Issued Accounting Standards:
In June 1998, the Financial Accounting Standards
Board (FASB) issued SFAS No. 133, Accounting
for Derivative Instruments and Hedging Activities.
This statement requires companies to record
derivatives on the balance sheet as assets and
liabilities, measured at fair value. Gains or
losses resulting from changes in the values of
those derivatives would be accounted for depending
on the use of the derivative and whether they
qualify for hedge accounting. In July 1999, the
FASB issued SFAS No. 137, delaying the effective
date of SFAS No. 133 for one year, to fiscal
years beginning after June 15, 2000. The
Company has determined there is no effect of
implementing SFAS No. 133 on its financial
position or the results of its operations.
In June 2001, the Financial Accounting Standards
Board finalized SFAS No. 141, Business Combinations,
and SFAS No. 142, Goodwill and Other Intangible
Assets. These pronouncements provide that business
combinations initiated after June 30, 2001, be
accounted for using the purchase method and that
goodwill be reviewed for impairment rather that
amortized. The Company does not believe the
adoption of these pronouncements will have a
material effect on its financial position or
results of operations.
ITEM 2. Management's Discussion and Analysis
or Plan of Operations
Results of Operations - 2001 compared to 2000
Sales. Sales for the first six months of fiscal
2001 were $226,099 compared to $244,038 in fiscal
2000, a decrease of approximately 7%. Sales for
the three months ended June 30, 2001 were $96,036
compared to $125,826 in the same period of
2000, a decrease of approximately 24%.
Gross Profit. Gross profit expressed as a
percentage of sales remained relatively consistent
for the first six months of 2000 and 2001 at
approximately 27%. Gross profit in dollars
fell in the second quarter as a result of the
lower sales volume.
Operating Expenses. Operating expenses increased
from $121,277 for the six-month period ended
June 30, 2000 to $139,548 for the same period in
2001. This increase was primarily the result of
the amortization expense of approximately $39,000
for the consulting agreement signed in June of
2000 (See Note 5). This amortization expense
more than offset a decrease in other operating
expenses.
Liquidity and Capital Resources
At June 30, 2001 the Company had working
capital of $48,352 compared to $128,351 at
December 31, 2000.
Net cash used in operating activities for the
six months ended June 30, 2001 was $4,541,
consisting of a net loss of $80,872, adjusted
for non-cash items of depreciation, amortization
and warrant expense totaling $41,452, plus a
net positive change in working capital components
of $34,789.
The ability of the Company to continue as a going
concern and it's short-term liquidity is dependent
upon obtaining additional debt and/or equity
financing to fund future development and operations.
The Company 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 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 generates
profitable operations. Any increased sales volumes
will 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.
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, 2001.
-----------------------
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 3, 2001
/s/ Vance D. Fiegel
By: Vance D. Fiegel
President and Principal Accounting Officer
Appendix I
FORM 10-QSB FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2001
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, 2001
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
7,447,085 shares of Common Stock, no par value, outstanding at
September 30, 2001
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,
2001 (unaudited) 2000
ASSETS
Current Assets
Cash $ 7,367 $ 33,924
Accounts receivable, less
allowance for doubtful
accounts of $4,200 65,759 31,002
Inventories (Note 2) 89,664 160,687
Prepaid expenses (Note 5) 13,062 50,548
Total current assets 175,852 276,161
Furniture and Equipment,
at cost (Note 3) 353,917 353,917
Less accumulated depreciation
and amortization 332,295 328,673
Total furniture and equipment 21,622 25,244
Other Assets
Patents and trademarks,
net of accumulated amortization
of $19,512 in 2001 and $18,547
in 2000 3,873 4,611
Deposits 3,529 3,529
Total other assets 7,402 8,140
Total assets $ 204,876 $ 309,545
See Notes to Financial Statements.
SURGIDYNE, INC.
BALANCE SHEETS (continued)
September 30, December 31,
2001 (unaudited) 2000
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Current Maturities of
Capital Lease $ 4,907 $ 4,590
Notes payable to officers
and directors 8,474 8,474
12% demand note payable 11,646 11,646
Non-interest bearing
demand note payable 30,000 35,546
Accounts payable 50,041 33,582
Accrued expenses 58,076 53,972
Total current liabilities 163,144 147,810
Capital lease obligation,
less current maturities 6,786 10,504
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
7,447,085 4,606,266 4,606,266
Accumulated deficit (4,971,320) (4,855,035)
Total stockholders' equity 34,946 151,231
Total liabilities and
stockholders' equity $ 204,876 $ 309,545
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
2001 2000 2001 2000
Net sales $ 121,156 $ 100,889 $ 347,256 $ 344,927
Cost of goods
sold 108,926 95,031 274,558 271,276
Gross profit 12,230 5,858 72,698 73,651
Operating expenses
Research and
development 3,224 2,823 10,185 8,541
Sales and
marketing 8,534 8,825 25,849 25,307
General and
administrative 34,737 59,768 150,008 158,845
Total operating
expenses 46,495 71,416 186,042 192,693
Operating loss (34,265) (65,558) (113,344) (119,042)
Other Income (expense)
Interest income 11 97 37 1,255
Interest expense (1,199) (1,334) (3,709) (3,953)
Other 39 20 730 20
Net loss $ (35,414) $ (66,775) $ (116,286) $ (121,720)
Basic and
diluted income
(loss) per
common share $ 0.00 $ 0.01 $ (0.02) $ (0.02)
Weighted average
common shares
outstanding-
basic 7,447,085 7,017,085 7,447,085 7,017,085
Weighted average
common shares
outstanding-
diluted 7,447,085 7,017,085 7,447,085 7,017,085
See Notes to Financial Statements
SURGIDYNE, INC.
STATEMENTS OF CASH FLOWS (UNAUDITED)
Nine months ended
September 30, 2001 September 30, 2000
Cash Flows from Operating Activities
Net loss $ (116,286) $ (121,721)
Adjustments to reconcile
net loss to net
Cash used in operating
activities:
Depreciation and
amortization 4,360 4,273
Amortization of prepaid
consulting expenses 38,636 30,908
Changes in assets and
liabilities:
(Increase) decrease in:
Accounts receivable (34,757) 23,936
Inventories 71,023 4,728
Prepaid expenses (1,149) 17,782
Increase (decrease) in:
Accounts payable and
accrued expenses 20,563 (2,805)
Net cash used in operating
activities (17,610) (42,899)
Cash Flows from Financing Activities
Payments on capital lease
obligation (3,401) (3,329)
Payments on notes payable (5,546) (1,526)
Net cash used in financing
activities (8,947) (4,855)
Decrease in cash (26,557) (47,754)
Cash:
Beginning 33,924 70,090
Ending $ 7,367 $ 22,336
Supplemental Disclosures
of Cash Flow Information
Cash payments for interest $ 7,011 1,309
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, 2001, the Statement of
Operations for the three and nine month periods ended September
30, 2001 and September 30, 2000, and the Statement of Cash
Flows for the nine month periods ended September 30, 2001
and September 30, 2000 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, 2001;
the results of operations for the three and nine month periods
ended September 30, 2001 and September 30, 2000 and the
statement of cash flows for the nine month periods ended
September 30, 2001 and September 30, 2000 have been made.
The Balance Sheet at December 31, 2000 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, 2000.
Note 2. Inventories
Inventories consisted of the following:
September 30, December 31,
2001 2000
Component parts and
subassemblies $ 31,882 $ 75,780
Work in process 13,283 17,617
Finished goods 54,499 77,290
Less obsolescence
reserve (10,000) (10,000)
$ 89,664 $160,687
Note 3. Furniture and Equipment
Furniture and equipment consisted of the following:
September 30, December 31,
2001 2000
Furniture, fixtures
and equipment $ 252,235 $ 252,235
Tooling and molds 101,152 101,152
$ 353,917 $ 353,917
Note 4. Basic and Diluted Income (Loss) Per Share
Because the Company has incurred a loss in all periods
presented 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 all periods presented.
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 had a term of one year and
provided the Consultant with a warrant to purchase
600,000 shares of Company common stock at a price of
$0.17 per share. The warrant issued was fully exercisable
and vested on the date of issuance. The Company valued
this warrant using the Black-Scholes pricing model,
which resulted in a value of approximately $93,000.
The expense was recognized over the term of the
agreement, which expired in June 2001, and approximately
$38,600 has been reflected as an operating expense
for the nine-month period ended September 30, 2001.
Note 6. Recently Issued Accounting Standards
In July 2001 FAS 141, Business Combinations, and FAS 142
Goodwill and Other Intangible Assets, were issued. These
pronouncements provide that all business combinations
initiated after June 30, 2001 be accounted for using
the purchase method and that goodwill be reviewed for
impairment rather than amortized, beginning on January
1, 2002. The Company does not believe that the adoption
of these pronouncements will have a material effect on
its financial statements. Any business combination
transactions in the future would be accounted for under
this new guidance.
In September 2001, the FASB issued Statement 143, Asset
Retirement Obligations. This Statement addresses
financial accounting and reporting for obligation
associated with the retirement of tangible long-lived
assets and the associated asset retirement costs. The
Statement will be effective for the Company's fiscal
year ending December 2003. The Company does not
believe that the adoption of this pronouncement
will have a material effect on its financial statements.
In August 2001, the FASB issued Statement 144, Accounting
for Impairment or Disposal of Long-Lived Assets. This
Statement addresses financial accounting and reporting
for the impairment or disposal of long-lived assets.
The Statement will be effective for the Company's
fiscal year ending December 2002. The Company does
not believe that the adoption of this pronouncement
will have a material effect on its financial statements.
Note 7. Liquidity
During the nine months ended September 30, 2001, the
Company's working capital fell to $12,708, a reduction
of over $115,000. During the same period, the Company
sustained a net loss of approximately $116,000.
During the past year the Company has been attempting
to find a suitable merger partner. However, during
the quarter ended September 30, 2001, it became
increasingly clear to management that the best, if
not only, opportunity for the Company to pay off its
creditors and maintain its corporate structure is to
affect an outright sale of its operating assets. The
Company has negotiated what management believes to
be a fair offer from another medical products company.
A purchase agreement has been signed by both parties,
subject to shareholder approval, to sell substantially
all of its operating assets to this third party. After
the sale, if it occurs, the company estimates it will
have enough cash to pay off certain of the liabilities
that would not be assumed by the purchaser and after
which would be left with a small cash balance. This
cash would be used by the Company to maintain its
capital structure and seek a business combination or
other transaction. The company would be left with no
other operating assets and as a result would have no
sales or other operating activities. However, there
can be no assurance that shareholder approval for the
asset sale can be obtained. Accordingly, if such
approval is not obtained or if for other reasons
the sale does not occur, the company could be forced
to curtail operations and or consider filing for
bankruptcy. The financial statements do not contain
any adjustments that might arise if the Company
ceases to be a going concern. See Management's
Discussion and Analysis for further information.
ITEM 2. Management's Discussion and
Analysis or Plan of Operations
Results of Operations - 2001 compared to 2000
Sales. Sales for the first nine months of fiscal year
2001 were $347,256 compared to $344,927 in fiscal 2000.
While international and domestic wound drainage product
sales continued their decline, their sales losses were
offset by an increase in OEM sales including significant
sales to one customer that had not purchased any product
for several years. Sales for the three months ended
September 2001 were $121,156 compared to $100,889 for
three months ended September 30, 2000. Fifty percent of
this increase was due to sales to this same OEM customer,
with the balance being due to modest increases in
international sales being partially offset by sales
losses in domestic sales. There can be no assurance
that OEM sales will continue at their current level.
Gross Profit. Gross profit, expressed as a percentage
of sales, for the nine months ended September 2001 were
comparable to the gross profits for the first nine
months of 2000. While gross profits for the three month
period ended September 30 2001 were higher than the
gross profits for the same period of 2000, they were
still only about 50% of average for recent years. The
overall low margins are primarily attributed to the
low through put in production, combined with higher
purchase prices, which are the result of continued
low levels of sales of the wound drainage devices.
Operating Expenses. Operating expenses remained
essentially flat at $186,042 for the nine-month
period ended September 30, 2001 versus $192,693
for the same period in 2000. The operating expenses
for the three months ended September 2001 were
$46,495 compared to $71,414 for the same period
in 2000. This reduction of $24,921 is primarily
due to the expiration of the monthly expense of
$7782 for the amortization of the consulting
agreement signed in June 2000 and ended June 2001.
(See Note 5)
Liquidity and Capital Resources
At September 30, 2001 the Company had working capital
of $12,708 compared to $128,251 at December 31, 2000.
The net cash used in operating activities for the
first nine months of 2001 was $17,611, primarily
due to the net loss of $116,286, which was partially
offset by depreciation and amortization of $42,995
and a net positive change in working capital components
of $55,680. This positive change in working capital
components for cash flow purposes is primarily the
result of a reduction in inventory along with an
increase in accounts payable.
During the past year the Company has been attempting
to find a suitable merger candidate or buyer. However,
during the quarter ended September 30, 2001, it became
increasingly clear to management that the best, if not
only, opportunity for the Company to pay off its
creditors and maintain its corporate structure is
to affect an outright sale of its operating assets.
During this period, the Company had what it believes
to be a fair offer for purchase of the operating
assets of the Company by another medical products
company. The Company is preparing to obtain shareholder
approval to sell substantially all its operating assets
to a third party. However, there can be no assurance
that shareholder approval for the asset sale can be
obtained. Accordingly, if such approval is not
obtained or if for other reasons the sale does not
occur, the company could be forced to curtail
operations and or consider filing for bankruptcy.
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. The agreement
with the Consultant has not been terminated. However,
in the past 18 months, the Consultant has not been
able to identify any acceptable potential merger
candidates or potential buyers for the Company.
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 September 30, 2001.
-----------------------
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, 2001 /s/ Theodore Johnson
By: Theodore Johnson
Chairman of the Board &
Principal Accounting Officer
REVOCABLE PROXY CARD
SURGIDYNE, INC.
SPECIAL MEETING OF SHAREHOLDERS
JANUARY 22, 2002
THIS PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Theodore A. Johnson, with the power to
act alone and with full power of substitution, to act as attorney and proxy for
the undersigned to vote all shares of common stock or preferred stock of the
Corporation which the undersigned is entitled to vote at the Special Meeting of
Shareholders (the "Meeting"), to be held on January 22, 2002, at Southgate
Plaza, located at, 5001 W. 80th Street, Suite 590, Bloomington, Minnesota
at 10:00 a.m. Minneapolis, Minnesota time, and at any and all adjournments
thereof, as specified on the reverse side of this proxy.
THIS PROXY WILL BE VOTED AS DIRECTED, BUT IF NO INSTRUCTIONS ARE
SPECIFIED, THIS PROXY WILL BE VOTED FOR THE APPROVAL OF THE PROPOSAL TO APPROVE
THE ASSET PURCHASE AGREEMENT DATED OCTOBER 4, 2001 PURSUANT TO WHICH THE COMPANY
WILL SELL ALL OF ITS ASSETS TO OXBORO MEDICAL, INC., FOR THE PROPOSAL TO APPROVE
THE AMENDMENT TO THE COMPANY'S ARTICLES OF INCORPORATION, AS AMENDED, TO CHANGE
THE NAME OF THE COMPANY, AND FOR THE PROPOSAL TO APPROVE AN AMENDMENT TO THE
COMPANY'S ARTICLES OF INCORPORATION, AS AMENDED, TO INCREASE THE NUMBER OF
AUTHORIZED SHARES FROM 20,000,000 TO 200,000,000. IF ANY OTHER BUSINESS IS
PRESENTED AT SUCH MEETING, THIS PROXY WILL BE VOTED BY THOSE NAMED IN THIS PROXY
IN THEIR BEST JUDGMENT. AT THE PRESENT TIME, THE BOARD OF DIRECTORS KNOWS OF NO
OTHER BUSINESS TO BE PRESENTED AT THE MEETING.
(Continued on reverse side)
The Board of Directors recommends a vote "FOR" each of the proposals
listed below:.
I. TO APPROVE THE ASSET PURCHASE FOR AGAINST ABSTAIN
AGREEMENT PURSUANT TO WHICH THE
COMPANY WILL SELL ALL OF ITS [ ] [ ] [ ]
ASSETS TO OXBORO MEDICAL, INC
II. TO APPROVE THE AMENDMENT TO FOR AGAINST ABSTAIN
THE COMPANY'S ARTICLES OF
INCORPORATION, AS AMENDED, TO [ ] [ ] [ ]
CHANGE THE NAME OF THE
COMPANY TO SURG ii
III. TO APPROVE THE AMENDMENT TO THE FOR AGAINST ABSTAIN
COMPANY'S ARTICLES OF
INCORPORATION, AS AMENDED, TO [ ] [ ] [ ]
INCREASE THE NUMBER OF
AUTHORIZED SHARES FROM 20,000,000
TO 200,000,000
In their discretion, the proxies are authorized to vote on any other
business that may properly come before the Meeting or any adjournment thereof.
Should the undersigned be present and elect to vote at the Meeting or at
any adjournment thereof, and after notification to the Secretary of the
Corporation at the Meeting of the shareholder's decision to terminate this
Proxy, then the power of such attorneys and proxies shall be deemed termi-
nated and of no further force and effect.
The undersigned acknowledges receipt from the Corporation, prior to the
execution of this Proxy, Notice of the Annual Meeting and a Proxy Statement
dated January 02, 2002.
Signatures(s) Date