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, 2001
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
Commission File Number: 33-13058-C
SURG II, INC.
(Name of small business issuer in its charter)
Minnesota 825 Southgate Plaza, 5001 W. 80th Street
(State of other jurisdiction of Bloomington, MN
incorporation or organization) (Address of principal executive offices)
58-1486040 55437
(I.R.S. Employer Identification Number) (Zip Code)
Issuer's telephone number (952) 830-1230
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, 2001 were $440,234.
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 28, 2002 was approximately $607,780.
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
March 29, 2002
DOCUMENTS INCORPORATED BY REFERENCE
NONE
This Form 10-KSB consists of 36 pages (including exhibits). The index
to exhibits is set forth on page 26.
ITEM 1. DESCRIPTION OF BUSINESS
General
Surg II, Inc. (the "Company"), a Minnesota corporation, was incorporated in
Minnesota in March 1984 under the name of Surgidyne, Inc., and is successor
by merger to a corporation of the same name that was incorporated in Georgia
in September 1982. In connection with the sale of substantially all of its
assets to Sterion Incorporated (f/k/a Oxboro Medical, Inc.), a Minnesota
corporation, on January 22, 2002, the Company changed its name to Surg II,
Inc. The Company's executive offices are located at 825 Southgate Plaza,
5001 W. 80th Street, Bloomington, Minnesota 55437 (952-830-1230).
Sale of Previous Business
Prior to the sale of substantially all of its assets to Sterion Incorporated,
the Company was in the business of the design, development, manufacture and
sale of specialty medical and surgical wound drainage products. The
Company's products included 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;
and other related disposable products. The Company sold substantially all
of its assets and certain liabilities to Sterion Incorporated on January 22,
2002 for $200,000. The purchase price was determined by arms-length
negotiations between the Company and Sterion Incorporated. As a result of
the asset sale, the Company currently has no operating business and no
employees.
Letter of Intent with Metalclad Corporation Regarding Sale of Capital Stock
On March 21, 2002, the Company signed a non-binding letter of intent with
Metalclad Corporation (NASDAQ: MTLC) to sell a majority ownership interest
in the Company's capital stock to Metalclad or its subsidiary for $3,000,000
through the sale of approximately 120,000,000 shares of the Company's
authorized but unissued shares of common stock. Under the terms of the
letter of intent, Metalclad Corporation will own approximately ninety
percent (90%) of the outstanding shares of common stock (including all
warrants as if converted) of the Company as a result of the stock purchase.
Metalclad Corporation provides insulation and asbestos abatement services,
primarily on the West Coast, to a wide range of industrial, commercial and
public agency clients. The anticipated operation of the Company, as well
as the board of director and officer positions, following such stock sale
has not yet been determined. One officer of the Company currently owns less
than one percent of the outstanding common stock of Metalclad Corporation.
The consummation of the sale of common stock to Metalclad Corporation is
contingent upon the occurrence of a number events, including completion of
due diligence by Metalclad Corporation. There is no assurance that the
Company will close on the sale of common stock to Metalclad Corporation.
If the Company does not close on the sale of common stock to Metalclad
Corporation it intends to continue to explore strategic opportunities for
raising capital for the Company.
ITEM 2. DESCRIPTION OF PROPERTY
Immediately following the sale of substantially all of its assets in
January 2002, the Company began using 825 Southgate Plaza, 5001 W. 80th
Street, Bloomington, Minnesota as its administrative headquarters. Management
considers that these offices are sufficient for its present operations. The
Minnesota Cooperation Office for Small Business and Job Creation, Inc.
provides this space to the Company for no charge. The Company anticipates
using this space through fiscal year 2002, with its use of the space to
terminate earlier if the Company completes its stock sale to Metalclad
Corporation.
ITEM 3. LEGAL PROCEEDINGS
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of shareholders of the Company during
the fourth quarter ended December 31, 2001.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's common stock is traded on the OTC Bulletin Board under the
symbol "SUGR." The following table sets forth for the fiscal period
indicated, the high and low bid prices for each quarter of the fiscal years
ended December 31, 2001 and December 31, 2000. These quotations reflect
inter-dealer prices, without retail mark-up, markdown, or commission and
may not represent actual transactions.
Bid Price Range
2001 2000
Fiscal Period High Low High Low
First Quarter $.187 $.10 $.51 $.16
Second Quarter $.187 $.04 .53 .13
Third Quarter $.10 $.04 .53 .18
Fourth Quarter $.09 $.04 .30 .07
On March 28, 2002, the bid price for the common shares as reported on the
OTC Bulletin Board was $0.10, and the Company had 385 holders of record of
its common shares.
The Company has not paid cash dividends on its common shares and does not
plan to pay cash dividends to its common shareholders in the immediate future.
On December 1, 1993, the Company's debenture holders elected to convert the
face value of the debentures into 1,600,000 shares of unregistered Series A
Preferred Stock at $.25 per share. Commencing January 1, 1994, the preferred
shareholders are entitled to a dividend equal to 3% of net sales. The dividend
in a given year is limited to 50% of the Company's net income. Cumulative
dividends cannot exceed $210,000. As of December 31, 2001 cumulative
dividends totaled approximately $20,300. All such cumulative dividends were
paid to the Series A Shareholders from the proceeds of the Company's asset
sale to Sterion Incorporated in the first quarter of fiscal year 2002.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
Overview: On January 22, 2002, pursuant to an agreement and shareholder
approval, the Company closed on the sale of substantially all of its net
operating assets. The sale resulted in a gain of approximately $13,000 with
gross cash proceeds of $200,000. After the sale, the Company has no sources
of revenue as the net operating assets sold represented substantially all of
its operations. The Company 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 former wound
drainage business. The Company hopes to utilize its remaining capital
structure to attract a business opportunity that will maximize potential
value to shareholders. On March 21, 2002, the Company signed a non-binding
letter of intent with Metalclad Corporation to sell a majority ownership
interest in the Company's common stock. However, there can be no assurance
that this transaction will close on terms acceptable to the Company.
Moreover, without a source of revenues, the Company's ability to continue
as a going concern is dependent on such a business combination or other
transaction occurring.
Results of Operations - 2001 compared to 2000
Sales. Sales for the fiscal year 2001 were $440,234 compared to $428,040 in
2000, an increase of approximately 3%. This small increase was primarily the
result of an increase in OEM sales including sales to one customer that had
not purchased any product for several years. The increase in OEM sales was
partially offset by a decrease in both international and domestic wound care
drainage product sales.
Gross Profit. Gross profit expressed as a percentage of sales increased
from approximately 21% for the year 2000 to 25% in 2001.This increase is
due primarily to fixed overhead being allocated over a slightly higher
volume of production. Additionally, the increased OEM sales in 2001 had a
slightly higher gross margin than other products. Overall, the amount
of cost of goods sold was relatively flat between years.
Operating Expenses. Operating expenses increased from $258,921 in 2000 to
$301,591 in 2001. This increase was primarily due to an increase in legal
and accounting fees associated with the proxy and related sale of net
assets. Other operating expenses remained relatively flat between years.
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 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 2000 (See Note 11).
Critical Accounting Policies
Our significant accounting policies are summarized in the footnotes to our
financial statements. Some of the most critical policies are discussed below.
As a matter of policy, we review our major assets for impairment. Our major
operating assets are accounts receivable and inventory. We have not
experienced significant bad debts expense and our reserve for doubtful
accounts of $4,200 should be adequate for any exposure to loss in our
December 31, 2001 accounts receivable. We have also established reserves
for slow moving and obsolete inventories and believe the reserve of $10,000
is adequate. We depreciate our furniture and equipment over their estimated
useful lives and we have not identified any items that are impaired.
Liquidity and Capital Resources
At December 31, 2001 the Company had a working capital deficit of $60,892
compared to working capital of $128,531 at December 31, 2000. The erosion
of working capital was primarily the result of the net loss for the year
coupled with increased levels of accounts payable.
The net cash used in operating activities for the year 2001 of $15,641 was
comprised of the net loss of $198,089 partially offset by non-cash expenses
of depreciation and amortization and a change in net operating assets
(primarily the increase in accounts payable). Net cash used in financing
activities was the result of payments made on the capital lease and note
payable obligations.
As discussed in the overview above, 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 a business combination or
other transaction. The Company hopes to utilize its remaining capital
structure to attract a business opportunity that will maximize potential
value to shareholders. However, there can be no assurance that the possible
sale of Company's common stock to Metalclad Corporation, as discussed above
and in Item 1, will actually close. Moreover, without a source of revenues,
the Company's ability to continue as a going concern is dependent on a
business combination or other transaction occurring. Without raising
additional debt or equity, the Company may be forced to cease any further
activities in the near term.
Recently Issued Accounting Pronouncements
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
obligations 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.
Forward-looking statements contained in this annual report on Form 10-KSB,
including without limitation in Management's Discussion and Analysis, are
made pursuant to the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995. Certain important factors could cause
results to differ materially from those anticipated by some statements made
herein. Investors are cautioned that all forward-looking statements involve
risks and uncertainties. A number of factors that could cause results to
differ materially are those discussed in our Annual Report on Form 10-KSB
and other recent filings with the Securities and Exchange Commission.
Additional factors that could cause results to differ materially include but
are not limited to, the Company's ability to consummate the sale of capital
stock to Metalclad Corporation or to identify, negotiate and consummate
another transaction that raises capital for the Company if the stock sale
to Metalclad Corporation is not completed. All such forward-looking
statements, whether written or oral, and whether made by or on behalf of the
Company are expressly qualified by these cautionary statements. In
addition, the Company disclaims any obligation to update forward-looking
statements to reflect events or circumstances after the date hereof.
Risk Factors
The Company may not consummate the sale of common stock to Metalclad
Corporation. There is no assurance that the Company will close on the sale
of common stock to Metalclad Corporation. If the Company does not close with
Metalclad Corporation it intends to continue to explore strategic
opportunities for raising capital for the Company. However, there can be no
assurance that the Company will be able to complete a transaction with
another operating business. Further, even if such a transaction is
completed with Metalclad Corporation or another operating business, there
can be no assurances that the market price of the Company's common stock
will improve.
The Company's current shareholders will be diluted if the Company
closes on the sale of common stock to Metalclad Corporation. The sale of
approximately 120,000,000 shares of the Company's common stock to
Metalclad Corporation will immediately reduce the percentage ownership of
our then current shareholders.
The Company's current shareholders may be diluted if the Company
is successful in its efforts to convert outstanding preferred stock into
common stock and to have all outstanding warrants exercised. The Company
intends to make a proposal to its preferred shareholders to convert each
share of preferred stock into two shares of common stock. In addition, the
Company intends to make a proposal to its warrant holders to exercise their
warrants such that a certain number of warrants will be cancelled in
exchange for shares of the Company's common stock, and no cash would be
paid for such exercise and exchange. The issuance of the Company's common
stock upon such preferred share conversions and warrant exercises may cause
our shareholders to incur substantial dilution in net book value per share
of common stock.
ITEM 7. FINANCIAL STATEMENTS
SURG II, INC. (Formerly known at 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 (Deficit) 12
Statements of Cash Flows 13
Notes to Financial Statements 14
__________________________________________________________________________
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
Surg II, Inc.
Bloomington, Minnesota
We have audited the accompanying balance sheets of Surg II, Inc. (formerly
known as Sugidyne, Inc.) as of December 31, 2001 and 2000, and the related
statements of operations, stockholders' equity (deficit), and cash flows 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 auditing standards generally
accepted in the United States of America. 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 Surg II, Inc. (formerly
known as Surgidyne, Inc.) as of December 31, 2001 and 2000, and the results
of its operations and its cash flows for the years then ended, in conformity
with accounting principles generally accepted in the United States of America.
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, subsequent to year-end, the Company sold substantially
all of its net operating assets. After the sale, the Company has no sources
of revenue. The Company is currently seeking additional equity or debt
financing to fund a business combination or other transaction. However,
there can be no assurance that such a transaction will occur and with no
sources of revenue, substantial doubt exists regarding the Company's
ability to continue as a going concern. Management's plans in regards 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
April 9, 2002
SURG II, INC. (Formerly known as Surgidyne, Inc.)
BALANCE SHEETS
____________________________________________________________________________
December 31, December 31,
2001 2000
____________________________________________________________________________
ASSETS
____________________________________________________________________________
Current Assets
Cash $ 8,150 $ 33,924
Accounts receivable, less
allowance for doubtful
accounts of $4,200 (Note 10) 44,734 31,002
Inventories (Note 3) 124,712 160,687
Prepaid expenses 12,243 11,913
Prepaid consulting expense (Note 11) - 38,635
____________________________________________________________________________
Total current assets 189,839 276,161
____________________________________________________________________________
Furniture and Equipment, at cost
(Notes 4 and 9) 353,917 353,917
Less accumulated depreciation and
amortization 338,003 328,673
____________________________________________________________________________
Total furniture and equipment 15,914 25,244
____________________________________________________________________________
Other Assets 3,627 8,140
____________________________________________________________________________
Total assets $ 209,380 $ 309,545
============================================================================
See Notes to the Financial Statements
____________________________________________________________________________
December 31, December 31,
2001 2000
____________________________________________________________________________
LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIT)
____________________________________________________________________________
Current Liabilities
Current maturities of capital lease $ 5,000 $ 4,590
Notes payable to officer and
director (Note 5) 8,474 8,474
Other demand notes payable (Note 5) 61,646 47,192
Accounts payable 119,210 33,582
Accrued liabilities (Note 6) 56,401 53,972
____________________________________________________________________________
Total current liabilities 250,731 147,810
____________________________________________________________________________
Capital lease obligation, less
current maturities (Note 9) 5,507 10,504
____________________________________________________________________________
Stockholders' Equity (Deficit)
(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 200,000,000 shares;
7,447,085 issued and outstanding 4,606,266 4,606,266
Accumulated deficit (5,053,124) (4,855,035)
____________________________________________________________________________
Total stockholders' equity (46,858) 151,231
____________________________________________________________________________
Total liabilities and
stockholders' equity $ 209,380 $ 309,545
============================================================================
SURG II, INC. (Formerly known as Surgidyne, Inc.)
STATEMENT OF OPERATIONS
____________________________________________________________________________
For years ended December 31, 2001 2000
____________________________________________________________________________
Net sales (Note 10) $ 440,234 $ 428,040
Cost of goods sold (Note 10) 331,658 336,364
____________________________________________________________________________
Gross profit 108,576 91,676
Operating expenses
Research and development 13,364 11,873
Sales and marketing 34,379 34,775
General and administrative 253,848 212,273
____________________________________________________________________________
Total operating expenses 301,591 258,921
____________________________________________________________________________
Operating loss (193,015) (167,245)
Other Income (expense)
Interest income 39 1,286
Interest expense (Note 5) (5,855) (5,180)
Other 742 37
____________________________________________________________________________
Net loss $ (198,089) $ (171,102)
============================================================================
Basic and diluted loss per
common share $ (0.03) $ (0.02)
============================================================================
Weighted average common
shares outstanding-basic
and diluted 7,447,085 7,020,833
============================================================================
See Notes to Financial Statements
SURG II, INC. (Formerly known as Surgidyne, Inc.)
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
_____________________________________________________________________________________
Years Ended December 31, 2001 and 2000
_____________________________________________________________________________________
Preferred Common Stock Accumulated
Stock Shares Amount Deficit Total
_____________________________________________________________________________________
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
_____________________________________________________________________________________
Net Loss - - - $ (198,089) $(198,089)
_____________________________________________________________________________________
Balance, December 31, 2001 $400,000 7,447,085 $4,606,266 $(5,053,124) $ (46,858)
_____________________________________________________________________________________
See Notes to Financial Statements.
SURG II, INC. (Formerly known as Surgidyne, Inc.)
STATEMENTS OF CASHFLOWS
______________________________________________________________________________
Years Ended December 31, 2001 2000
______________________________________________________________________________
Cash Flows from Operating Activities
Net loss $ (198,089) $ (171,102)
Adjustments to reconcile net
loss to net
Cash used in operating activities:
Depreciation and amortization 10,314 5,707
Amortization of prepaid consulting
expenses 38,635 54,089
Changes in assets and liabilities:
Accounts receivable (13,732) 19,665
Inventories 35,975 21,623
Prepaid expenses and
other assets 3,199 14,404
Accounts payable and
accrued expenses 108,057 (13,555)
_____________________________________________________________________________
Net cash used in operating
activities (15,641) (69,169)
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 (4,587) (4,397)
Payments on notes payable (5,546) (1,526)
Proceeds from issuance of common stock - 41,500
____________________________________________________________________________
Net cash provided by (used in)
financing activities (10,133) 35,577
Decrease in cash (25,774) (36,166)
____________________________________________________________________________
Cash:
Beginning 33,924 70,090
Ending $ 8,150 $ 33,924
============================================================================
Supplemental Disclosures of Cash
Flow Information
Cash payments for interest $ 7,587 $ 3,150
Supplemental Non Cash Investing
and Financing Activities
Conversion of accounts payable to
a note payable $ 20,000
Equipment acquired under
capital lease - $ 19,491
Warrant issued for prepaid
consulting services (Note 11) - $ 92,724
____________________________________________________________________________
See Notes to Financial Statements.
Note 1. Nature of Business and Significant Accounting Policies
Nature of Business: Immediately following the asset sale, see Note 2, the
Company changed its name from Surgidyne, Inc. to Surg II, Inc. (Company).
The 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, FOB shipping point. Shipping and handling charges
billed to customers are included in net sales, and shipping and handling costs
incurred by the Company are included in cost of goods sold.
Recent Pronouncements: 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 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.
Inventories: Inventories are stated at the lower of cost (first-in, first-
out method) or market.
Patents and Trademarks: Patent and trademark costs are included in other
assets 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 that some portion or all of the tax assets will not be
realized. Deferred tax assets and liabilities are adjusted for the effects
of changes in tax laws and rates on the date of enactment.
Fair Value of Financial Instruments: The fair value of the notes payable
are estimated based on interest rates for the same or similar debt 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 accounting principles generally accepted in the United States of
America 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. Basic and diluted loss per share are the same
in each year presented as the inclusion of the warrants to purchase common
stock (see Note 7) would have an anti-dilutive effect.
Note 2. Subsequent Event and Going Concern Considerations:
On January 22, 2002, pursuant to an agreement, the Company closed on the sale
of substantially all of its net operating assets. The sale resulted in gross
proceeds of $200,000 and a gain of approximately $13,000 after considering
total transaction costs of $70,000 including $55,000 that were incurred and
expensed in 2001. After the sale the Company has no sources of revenue as
the net operating assets sold represent substantially all of its operations.
The Company 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 former wound drainage business. The
Company hopes to utilize its remaining capital structure to attract a
business opportunity that will maximize potential value to shareholders.
On March 21, 2002 the Company signed a non-binding letter of intent with
Metaclad Corporation to sell a majority ownership in the Company's commons
stock. However, there can be no assurance that this transaction will occur.
Moreover, without a source of revenues, the Company's ability to continue
as a going concern is dependent on a business combination, additional equity
or debt financing, or other transaction occurring. The financial statements
do not reflect any adjustments that might be necessary should the Company
not remain as a going concern.
Pro Forma assets and liabilities at December 31, 2001, assuming the asset
sale had been completed at that date, not reflecting the subsequent payments
made on the remaining liabilities using the cash received, would be as
follows (In thousands):
Unaudited
__________________________
Pro Forma
Actual Adjustments Pro Forma
_____________________________________________________________________________
Cash $ 8 $ 200 $ 208
Accounts receivable 45 (45) -
Inventories 125 (125) -
Other current assets 12 - 12
_____________________________________________________________________________
Current assets 190 30 220
Other assets 3 (3) -
Furniture and equipment, net 16 (16) -
_____________________________________________________________________________
209 11 220
=============================================================================
Current maturities of
long-term debt and notes payable 75 (5) 70
Other current liabilities 176 (47) 129
_____________________________________________________________________________
251 (52) 199
Long-term debt 5 (5) -
_____________________________________________________________________________
Total liabilities 256 (57) 199
Stockholders'equity (deficit) (47) 68 21
_____________________________________________________________________________
$ 209 $ 11 $ 220
=============================================================================
Because the Company sold all of its net operating assets, on a pro forma
basis there would have been no sales in either 2001 or 2000, assuming the
transaction had been effective January 1, 2000.
Note 3. Inventories
Inventories consisted of the following:
2001 2000
___________________________________________________________________________
Component parts and subassemblies $ 64,218 $ 75,780
Work-in-Process 11,007 17,617
Finished Goods 59,487 77,290
Less Obsolescence Reserve (10,000) (10,000)
___________________________________________________________________________
$124,712 $160,687
Note 4. Furniture and Equipment
Furniture and equipment cost consists of the following:
2001 2000
___________________________________________________________________________
Furniture, fixtures and equipment $251,735 $251,735
Tooling and Molds 102,182 102,182
___________________________________________________________________________
$353,917 $353,917
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 $1,000 for both 2001 and 2000. This note was paid-off in full
in February 2002.
Other Notes Payable: In January 2002, the Company converted a portion of an
accounts payable balance to a demand note payable of $20,000, which has been
reflected as a note payable at December 31, 2001. In 1995, the Company
converted an accounts payable balance of $35,546 into a non-interest bearing
unsecured note payable due in a single installment on January 1, 1997. The
Company did not pay off the note on January 1, 1997 and as a result the note
is due on demand. $5,546 was paid on this note April 2001 leaving a balance
of $30,000. The Company also has a 12% demand note payable for $11,646.
All of these notes, with the exception of $20,000 note, were paid-off in
full during February 2002.
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 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. 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, 2001 and 2000 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.
Subsequent to year-end, the Board of Directors have approved a plan whereby
the current preferred shareholders may be accorded the right to convert each
share of preferred stock into two shares of common stock instead of the
current conversion rights of one to one.
Note 7. Stock Warrants
Warrants: The Company has granted warrants for the purchase of shares of the
Company's common stock to directors, medical advisors, employees and certain
debt and equity holders. The warrants are fully 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, 1999 40,000 $0.12
Granted 1,080,000 $0.17
____________________________________________________________________________
Outstanding at December 31, 2000 1,120,000 $0.17
Granted 35,000 $0.08
Expired (10,000) $0.07
____________________________________________________________________________
Outstanding at December 31, 2001 1,145,000 $0.17
============================================================================
Option and warrant grants to employees and directors are accounted for
following APB Opinion No. 25 and related interpretations. For 2001 and 2000,
there was no compensation expense recorded on the issuance of warrants to
employees/officers/directors as they were issued at or above the Company's
quoted market price.
Had compensation expense for the warrants to purchase shares of common stock
granted to employees/officers/directors been determined based on the fair
market value at the dates of grants 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:
____________________________________________________________________________
2001 2000
Net loss - as reported $ (198,089) $ (171 102)
Net loss - pro forma $ (200,800) $ (248,564)
Basic and diluted net loss per
share as reported $ (.03) ($.02)
Basic and diluted net loss
per share pro forma (.03) ($.04)
____________________________________________________________________________
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted average
assumptions used for grants in 2001 and 2000:
____________________________________________________________________________
2001 2000
____________________________________________________________________________
Expected dividend yield 0% 0%
Expected stock price volatility 225% 190%
Risk-free interest rate 4.8% 5.4%
Expected life of options (years) 4 4
____________________________________________________________________________
Weighted average fair value of options granted $0.08 $.16
============================================================================
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, 2001:
____________________________________________________________________________
Weighted
Average Weighted
Number Remaining Average
Exercise Of Units Contractual Exercise
Price Outstanding Life(Years) Price
____________________________________________________________________________
.07 20,000 1.5 .07
.08 35,000 4.5 .08
.17 1,080,000 3.5 .17
.08 10,000 2.5 .08
____________________________________________________________________________
1,145,000
____________________________________________________________________________
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,
2001 and 2000.
On January 22, 2002, the Company granted warrants to its legal counsel to
purchase a total of 200,000 shares of Company common stock. The warrants
are immediately exercisable at an exercise price of $0.04 per share and
have a five-year life. These warrants were granted for services performed
during January 2002 in connection with the sale of net assets (see Note 2).
Therefore, the Company will recognize an expense in that period for
approximately $10,000, the estimated fair value of warrants using the Black-
Scholes pricing model.
Note 8. Income Taxes
Deferred tax assets consist of the following:
____________________________________________________________________________
2001 2000
____________________________________________________________________________
Allowance for inventory Obsolescence $ 2,000 $ 2,000
____________________________________________________________________________
Other 7,000 2,000
____________________________________________________________________________
Net Operating Loss Carry forwards (NOL's) 1,390,000 1,640,000
____________________________________________________________________________
____________________________________________________________________________
Tax credit carry forwards 41,000 41,000
____________________________________________________________________________
Gross deferred tax assets 1,440,000 1,685,000
____________________________________________________________________________
Less valuation allowance 1,440,000 1,685,000
____________________________________________________________________________
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 and will
be further limited if the future sale of stock to Metaclad occurs, see Note 2.
These carry forwards and credits will expire as follows:
Net
Operating Tax Credit
Loss Carry- Carry-
Year Forwards Forwards
________________________________________________________________________
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 -
2016 180,000 -
________________________________________________________________________
$3,478,000 $41,000
________________________________________________________________________
Note. 9 Leases
Operating: The Company leases its office and warehouse facilities under an
operating lease which is on a month to month basis. The lease requires monthly
payments of $3,100. The Company also leases certain equipment under operating
leases. Total rent expense was approximately $38,000 in both 2001 and 2000.
Capital: The Company leases its computer equipment under a capital lease
agreement. As of December 31, 2001, 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, 2001 are as follows:
__________________________________________
2002 $ 5,760
2003 5,760
Total Minimum lease payments 11,520
__________________________________________
Less amount representing interest 1,013
Present value of minimum lease
payments using a discount rate
of 9.0 percent. 10,507
__________________________________________
Less: current maturities (5,000)
__________________________________________
Long-term portion $ 5,507
__________________________________________
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, 2001 and 2000 include sales to major
customers as follows:
Sales Percentage
_____________________________________________
Company 2001 2000
_____________________________________________
A* 21% 29%
B 16% 12%
C - 12%
_____________________________________________
Year End Receivable Balances
_____________________________________________
Company 2001 2000
_____________________________________________
A* $ - $ -
B 13,574 4,855
C - 5,314
_____________________________________________
*International customer, representing 48% and 62% of export sales in 2001
and 2000, respectively.
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 $192,400 and
$197,020 in 2001 and 2000 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 had a term of one year and provided 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 was recognized over the term of the agreement and $39,000 and
$54,000 was reflected as an operating expense in 2001 and 2000 respectively.
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 and Executive Officers
The following seven persons serve as directors and executive officers of
the Company:
Director
Name Age Position Since
Charles B. McNeil 72 Director, Executive Vice 1982
3115 Maplewood Road President and Treasurer
Wayzata, MN 55391
Theodore A. Johnson 61 Chief Executive Officer, 1985
825 Southgate Plaza Chief Financial Officer
5001 West 80th Street and Chairman of the Board
Bloomington, MN 55437
David B. Kaysen 52 Director 1988
825 Southgate Plaza
5001 West 80th Street
Bloomington, MN 55437
William F. Gearhart 54 Director and Secretary 1984
825 Southgate Plaza
5001 West 80th Street
Bloomington, MN 55437
Arthur W. Schwalm 69 Director 1984
825 Southgate Plaza
5001 West 80th Street
Bloomington, MN 55437
Vance D. Fiegel 48 Director 1995
2460 South Highway 100
St. Louis Park, MN 55416
David R. Knighton, M.D. 53 Director 1994
2460 South Highway 100
St. Louis Park, MN 55416
Charles B. McNeil, founder of the Company, has over 30 years experience in
the health care industry. He served as President of the Company from its
incorporation in 1982 until 1988. Since 1988 has served as Executive Vice
President of the Company, and since its incorporation he has served as
Treasurer of the Company. 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, has served as Chairman of the Board and Chief Executive
Officer since January 1995 and the Chief Financial Officer since 2001. Mr.
Johnson also serves as 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 one venture
capital fund and is also an active investor and advisor to a number of
emerging companies around the United States.
Vance D. Fiegel, 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. Mr. Fiegel previously served as President of the
Company from January 1995 through 2001.
David B. Kaysen, Director, is an experienced healthcare executive with over
20 years involvement in medical products sales and marketing. He is
currently President, CEO and a Director of Rehabilicare, Inc., a NASDAQ
listed company. He also serves as a board member of American Telecare, a
private company, and ZEVOX International, Inc., a NASDAQ listed company.
From 1991 to 1992 he served as Vice President of Emeritus Corporation.
From 1989 to 1991 he served as Vice President of Sales and Marketing for
VDM Corporation. From 1988 to 1989, he served as the President and CEO and
Director of Surg II, 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, has been Vice President Sales
and Marketing for Senorx, Inc. since 1999 and the Executive Vice President,
Marketing and Sales, for Micro Therapeutics, Inc. since 1997. He also
previously held positions as Vice President, Sales and Marketing for
Interventional Technologies, Inc.; Vice President Sales and Marketing for
Schneider (USA), Inc.; 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 from 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.
David R. Knighton, M.D., Director and Chairman of the Company's Medical/
Scientific Advisory Board, is currently a practicing vascular surgeon in the
Twin Cities. He is also the 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 an experienced basic science researcher in the field of wound repair and
wound healing angiogenesis.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
directors and executive officers, and persons who own more than ten percent
of a registered class of the Company's equity securities, to file the
Securities and Exchange Commission (the "SEC") initial reports of ownership
and reports of changes in ownership of common stock of the Company.
Officers, directors and greater than ten-percent shareholders are also
required by SEC regulation to furnish the Company with copies of all Section
16(a) reports they file. To the knowledge of the Company, during the fiscal
year ended December 31, 2001, all Section 16(a) filing requirements
applicable to the Company's directors, executive officers and greater than
ten-percent beneficial owners were timely filed.
ITEM 10. EXECUTIVE COMPENSATION
Cash Compensation
The following table sets forth the annual compensation paid or accrued by the
Company for services rendered during the years indicated to Charles B. McNeil,
the executive officer serving in the capacity of the Company's chief executive
officer (the "Named Executive Officer"). No executive officer of the Company,
including the Named Executive Officer, had compensation in excess of $100,000
during any of the fiscal years for which information is provided.
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 Payouts sation
_______________________________________________________________________________________
Charles B. McNeil 2001 $45,950 - $4,800 - - - -
(Executive Vice
President and
Treasurer.)
2000 $46,400 - $5,000 - - - -
1999 $43,284 - $4,800 - - - -
Stock Options
No options were granted to or exercised by the Named Executive Officer in
the year ended December 31, 2001.
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 March 29,
2002. Each shareholder has sole voting and investment power with respect to
the shares shown as beneficially owned, except as otherwise indicated in a
footnote.
Amount and Nature of
Name and Address of Beneficial Owner Beneficial Owner Percent of Class
_____________________________________________________________________________
All Directors and Officers as a group 1,928,354 24.1%
(7 people in group)
Charity, Inc.
6187 Heather Circle
Fridley, MN 55432 1,126,016 14.3%
Theodore A. Johnson
825 Southgate Plaza
5001 West 80th Street
Bloomington, MN 55437 722,875 9.4%
Charles B. McNeil
3115 Maplewood Road
Wayzata, MN 55391 648,839 8.5%
Arthur W. Schwalm
825 Southgate Plaza
5001 West 80th Street
Bloomington, MN 55419 356,640 4.7%
David R. Knighton, M.D.
2460 South Highway 100
St. Louis Park, MN 55416 200,000 2.6%
Vance D. Fiegel
2460 South Highway 100
St. Louis Park, MN 55416 - 0.0%
William F. Gearhart
825 Southgate Plaza
5001 West 80th Street
Bloomington, MN 55419 - 0.0%
David B. Kaysen
825 Southgate Plaza
5001 West 80th Street
Bloomington, MN 55419 - 0.0%
**********************
Includes 480,000 shares issuable pursuant to 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 an 80% shareholder.
Includes 400,000 shares of Series A convertible preferred stock. Mr.
Virgil Brenny is the administrator of Charity, Inc. and, therefore, he
holds the voting and investment power of these shares.
Includes 60,000 shares of Series A convertible preferred stock. Also
includes 200,000 shares issuable pursuant to warrants, which are
currently exercisable. Does not include 27,300 shares held by
Minnesota Cooperation Office, of which Mr. Johnson is President.
Includes 215,000 shares of common stock issuable pursuant to warrants,
which are currently exercisable.
Represents 65,000 shares issuable to EMBRO Corporation pursuant to
warrants which are currently exercisable; 135,000 shares of common
stock held by EMBRO Corporation, of which Dr. Knighton is an 80%
shareholder; and 20,000 shares of Series A convertible preferred stock.
Does not include any portion of the 135,000 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, 2001. Each shareholder has sole voting and investment
power with respect to the shares shown as beneficially owned, except as
otherwise indicated in a footnote.
Amount and Nature of
Name and Address of Beneficial Owner Beneficial Owner Percent of Class
________________________________________________________________________________
Charity, Inc
6187 Heather Circle
Fridley, MN 55432 400,000 25.0%
Samuel M. Joy
828 Ridge Place
Mendota Heights, MN 55118 140,000 8.8%
Dr. Demetre Nicoloff
C/o 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%
***********************
Includes 40,000 shares held in trust in the names of Dr. Bubrick's
children.
Potential Change of Control
As discussed in Item 1, on March 21, 2002, the Company signed a non-binding
letter of intent with Metalclad Corporation (NASDAQ: MTLC) to sell a
majority ownership interest in the Company's capital stock to Metalclad or its
subsidiary for $3,000,000 through the sale of approximately 120,000,000 shares
of the Company's authorized but unissued shares of common stock. Under the
terms of the letter of intent, Metalclad Corporation will own approximately
ninety percent (90%) of the outstanding shares of common stock (including
all warrants as if converted) of the Company as a result of the stock
purchase. One officer of the Company currently owns less than one percent
of the outstanding common stock of Metalclad Corporation. The anticipated
operation of the Company, as well as the board of directors and officer
positions, following such stock sale has not yet been determined.
The consummation of the sale of common stock to Metalclad Corporation is
contingent upon the occurrence of a number events, including completion of
due diligence by Metalclad Corporation. There is no assurance that the
Company will close on the sale of common stock to Metalclad Corporation. If
the Company does not close on the sale of common stock to Metalclad
Corporation, it intends to continue to explore strategic opportunities for
raising capital for the Company.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The following officers and directors of the Company were paid the
following amounts from the proceeds of the Company's asset sale to Sterion
Incorporated according to various contractual obligations that the Company
owed to them:
Name Approximate Amount Paid
Theodore A. Johnson $760
Dr. David Knighton $250
Arthur W. Schwalm $1,000
This amount represents the past due amount that was owed to Mr.
Johnson as a Series A Preferred Shareholder. The Company had an
obligation to pay Series A Shareholders certain royalty payments
when the Company was profitable. The Company owed this amount based
on certain profitable years in the late 1990's.
This amount represents the past due amount owed to Dr. Knighton as
a Series A Preferred Shareholder, as discussed in Note 1 above.
This amount represents the past due amount owed to Mr. Schwalm based
on his participation in a certain investment for the Company in the
early 1990's. The Company was to pay such investors certain royalty
payments based on sales of certain of the Company's product. No more
royalties will accrue for such investors, and their rights have
otherwise terminated.
In addition, Charles B. McNeil, an officer and director, was paid
$10,170 under a promissory note pursuant to which Mr. McNeil had loaned
$25,000 to the Company in the form of short-term notes payable bearing
interest at 10% annually. This amount paid to Mr. McNeil represents full
payment, including principal and interest, of the Company's obligations
under such promissory note. No additional amounts will accrue or be owed to
Mr. McNeil under such promissory note.
Messrs. Johnson and McNeil have warrants to purchase 200,000 and
215,000 shares, respectively, of the Company's 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 the Company's common stock at an
exercise price of $0.17. Each of these warrants expires on June 2, 2005.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
A. Exhibits required to be filed by Item 601 of Regulation S-B
are included as Exhibits to this report as follows.
3.1 Articles of Incorporation of the Company
3.2 Certificate of Designation of Series A Preferred Stock
3.3 Articles of Amendment to Articles of Incorporation,
effective as of January 23, 2002
3.4 Bylaws of the Company
4.1 Revised Form of Common Stock Certificate for the
Company (following name change)
10.1 Asset Purchase Agreement between Surgidyne, Inc.
(n/k/a Surg II, Inc.) and Oxboro Medical, Inc.
(n/k/a Sterion Incorporated) dated as of October 4,
2001, without exhibits and schedules
10.2 Amendment No. 1, dated as of November 29, 2001, to
the Asset Purchase Agreement between Surgidyne, Inc.
(n/k/a Surg II, Inc.) and Oxboro Medical, Inc.
(n/k/a Sterion Incorporated) dated as of October 4,
2001 (incorporated by reference to the Definitive
Proxy Statement filed by the Company on January 2,
2002)
10.3 Amendment No. 2, dated as of January 9, 2002, to
the Asset Purchase Agreement between Surgidyne, Inc.
(n/k/a Surg II, Inc.) and Oxboro Medical, Inc.
(n/k/a Sterion Incorporated) dated as of October 4,
2001
Incorporated by reference to Exhibits filed with
Registrants' 1987 Form 10-K under the Securities
and Exchange Act of 1934, file #33-130583C.
Incorporated by reference to Exhibits filed with
Registrants' 1987 Form 10-K under the Securities and
Exchange Act of 1934, file #33-130583C.
Incorporated by reference to Exhibits filed with the
Registrant's Definitive Proxy Statement filed on
January 2, 2002.
Incorporated by reference to Exhibit filed with the
Registrant's Form 8-K with a date of report of
January 22, 2002.
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
In accordance with Section 13 or 15(d) of the Securities and Exchange Act of
1934, the registrant has caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
SURG II, INC.
(Registrant)
/s/Theodore A. Johnson April 15, 2002
Theodore A. Johnson
Chief Executive Officer and Chairman of the Board of Directors
In accordance with 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 April 15, 2002
By: Charles B. McNeil
Executive Vice President, Treasurer and Director
/s/Theodore A. Johnson April 15, 2002
Theodore A. Johnson
Chief Executive Officer, Chief Financial Officer.
Chairman of the Board of Directors, Principal Accounting Officer
/s/David B. Kaysen April 15, 2002
By: David B. Kaysen
Director
_______________________ April __, 2002
By: Arthur W. Schwalm
Director
_______________________ April __, 2002
By: William F. Gearhart
Secretary and Director
/s/David R. Knighton April 15, 2002
By: David R. Knighton
Director
_______________________ April __, 2002
By: Vance D. Fiegel
Director
EXHIBIT 3.2
CERTIFICATE OF DESIGNATION, RIGHTS AND PREFERENCES
OF SERIES A CONVERTIBLE PREFERRED STOCK
SERIES A CONVERTIBLE PREFERRED STOCK
The powers, preferences, rights, restrictions, and other matters
relating to the Designated Preferred Stock are as follows:
1. Dividends.
(a) The holders of the Designated Preferred Stock shall be entitled
to receive dividends only when, as, and if declared by the Board of Directors
and such dividends shall be noncumulative. No dividends (other than those
payable solely in the Common Stock of the Corporation) shall be paid on any
Common Stock of the Corporation during any fiscal year of the Corporation
unless a dividend (including the amount of any dividends paid pursuant to
the above provisions of this Section 1) is paid with respect to all
outstanding shares of Designated Preferred Stock in an amount for each such
share of Designated Preferred Stock equal to or greater than the aggregate
amount of the dividends payable with respect to that number of shares of
Common Stock into which each such share of Designated Preferred Stock could
then be converted on the date the dividend is declared.
(b) In the event the Corporation shall declare a distribution
(other than any distribution described in Section 2) payable in securities
of other persons, evidences of indebtedness issued by the Corporation or
other persons, assets (excluding cash dividends) or options or rights to
purchase any such securities or evidences of indebtedness, then, in each
such case the holders of the Designated Preferred Stock shall be entitled to
a proportionate share of any such distribution as though the holders of the
Designated Preferred Stock were the holders of the number of shares of
Common Stock of the Corporation into which their respective shares of
Designated Preferred Stock are convertible as of the record date fixed for
the determination of the holders of Common Stock of the Corporation entitled
to receive such distribution.
2. Liquidation Preference.
(a) In the event of any liquidation, dissolution or winding up of
the Corporation, whether voluntary or involuntary, the holders of the Series
A Preferred Stock shall be entitled to receive, prior and in preference to any
distribution of any of the assets or surplus funds of the Corporation to the
holders of the Common Stock by reason of their ownership thereof, the amount
of $.25 per share (as adjusted for any stock dividends, combinations or
splits with respect to such shares) plus all accrued but unpaid dividends on
such share, for each share of Series A Preferred Stock then held by them. If
upon the occurrence of such event, the assets and funds thus distributed
among the holders of the Designated Preferred Stock shall be insufficient to
permit the payment to such holders of the full aforesaid preferential amount,
then the entire assets and funds of the Corporation legally available for
distribution shall be distributed ratably among the holders of the
Designated Preferred Stock in proportion to the preferential amount each
such holder is otherwise entitled to receive.
(b) After payment to the holders of the Preferred Stock of the
amounts set forth in Section 2(a) above, the entire remaining assets and
funds of the Corporation legally available for distribution, if any, shall
be distributed among the holders of the Common Stock and the Preferred
Stock in proportion to either the shares of Common Stock then held by them
or the shares of Common Stock which they then have the right to acquire
upon conversion of the shares of Preferred Stock then held by them into
the converted number of shares of Common Stock.
(c) Whenever the distribution provided for in this Section 2
shall be payable in securities or property other than cash, the value of
such distribution shall be the fair market value of such securities or
other property as determined in good faith by the Board of Directors.
3. Voting Rights.
Each holder of shares of the Designated Preferred Stock shall be
entitled to the number of votes equal to the number of shares of Common
Stock into which such shares of Designated Preferred Stock could be
converted and shall have voting rights and powers equal to the voting
rights and powers of the Common Stock (except as otherwise expressly
provided herein or as required by law, voting together with the Common
Stock as a single class) and shall be entitled to notice of any
stockholders' meeting in accordance with the Bylaws of the Corporation.
Fractional votes shall not, however, be permitted and any fractional
voting rights resulting from the above formula (after aggregating all
shares into which shares of Designated Preferred Stock held by each
holder could be converted) shall be rounded to the nearest whole number
(with one-half being rounded upward).
4. Conversion.
The holders of the Designated Preferred Stock shall have conversion
rights as follows (the "Conversion Rights"):
(a) Right to Convert. Each share of Series A Preferred Stock
shall be convertible, at the option of the holder thereof, at any time
after the date of issuance of such share, at the office of the Corporation
or any transfer agent for such stock, into such number of fully paid and
nonassessable shares of Common Stock as is determined by dividing $.25,
by the appropriate Conversion Price applicable to such share, determined
as hereinafter provided, in effect on the date the certificate is
surrendered for conversion. The price at which shares of Common Stock
shall be deliverable upon conversion of shares of the Series A Preferred
Stock (the "Series A Conversion Price") shall initially be $.25 per share
of Common Stock. Such initial Series A Conversion Price shall be adjusted
as hereinafter provided. The Series A Conversion Price is herein
sometimes referred to as the "Conversion Price".
(b) Automatic Conversion. Each share of Designated Preferred
Stock shall automatically be converted into shares of Common Stock at the
then effective Conversion Price in the event that the Corporation's Common
Stock is traded at $.50 or more (the "Automatic Conversion Price") for a
period of thirty or more trading days. Such Automatic Conversion Price
shall be proportionately increased or decreased in the event of stock
dividends, combinations, or subdivisions of stock. Furthermore, each
share of Designated Preferred Stock shall automatically be converted into
shares of Common Stock at the then effective Conversion Price when the
holders of the Designated Preferred Stock have received the cumulative
royalties specified in Section 2.3 of the Investors' Rights Agreement
between the Corporation and the Series A Shareholders dated November 23,
1993. In addition, in the event that the holders of two-thirds (2/3) or
more of any series of Series A Preferred Stock shall convert their shares
into Common Stock as provided in Section 4(a) above, then the remaining
outstanding Series A Preferred Stock of such series shall automatically
be converted into Common Stock in accordance with this Section 4(b).
For the purpose of this Section 4(b) the trading price shall be the mean
between the bid and asked price as reported in the Minneapolis Star
Tribune. Each holder of a share of Designated Preferred Stock so
converted shall be entitled to receive the full number of shares of
Common Stock into which such share of Designated Preferred Stock held
by such holder could be converted if such holder had exercised its
conversion right at the time of the closing of such public offering.
Upon such conversion, each holder of a share of Designated Preferred
Stock shall immediately surrender such share in exchange for appropriate
stock certificates representing a share or shares of Common Stock of the
Corporation.
(c) Mechanics of Optional Conversion.
(i) Before any holder of Designated Preferred Stock
shall be entitled to convert the same into shares of Common Stock,
the shall surrender the certificate or certificates therefor,
duly endorsed,at the office of the Corporation or of any transfer
agent for such stock, and shall give written notice to the
Corporation at such office that he elects to convert the same
and shall state therein the name or names in which he wishes
the certificate or certificates for shares of Common Stock to
be issued. The Corporation shall, as soon as practicable
thereafter, issue and deliver at such office to such holder of
Designated Preferred Stock, a certificate or certificates for
the number of shares of Common Stock to which he shall be
entitled as aforesaid. Such conversion shall be deemed to
have been made immediately prior to the close of business on the
date of surrender of the shares of Designated Preferred Stock to
be converted, and the person or persons entitled to receive the
shares of Common Stock issuable upon such conversion shall be
treated for all purposes as the record holder or holders of such
shares of Common Stock on such date.
(d) Adjustments to Conversion Price for Certain Diluting issues.
(i) Special Definitions. For purposes of this Section
4(d), the following definitions apply:
(A) "Options" shall mean rights, options, or
warrants to subscribe for, purchase or otherwise acquire
either Common Stock or Convertible Securities (defined below).
(B) "Original issue Date" shall mean the date on
which a share of Designated Preferred Stock was first issued.
(C) "Convertible Securities" shall mean any
evidences of indebtedness, shares (other than Common Stock
and Series A Preferred Stock) or other securities
convertible into or exchangeable for Common Stock.
(e) Adjustments to Conversion Prices for Stock Dividends and
for Combinations or Subdivisions of Common Stock. In the event that this
Corporation at any time or from time to time after the Original Issue Date
shall declare or pay, without consideration, any dividend on the Common
Stock payable in Common Stock or in any right to acquire Common Stock for
no consideration, or shall effect a subdivision of the outstanding shares
of Common Stock into a greater number of shares of Common Stock (by stock
split, reclassification or otherwise than by payment of a dividend in
Common Stock or in any right to acquire Common Stock), or in the event
the outstanding shares of Common Stock shall be combined or consolidated,
by reclassification or otherwise, into a lesser number of shares of
Common Stock, then the Conversion Price for the Designated Preferred
Stock in effect immediately prior to such event shall, concurrently with
the effectiveness of such event, be proportionately decreased or
increased, as appropriate. In the event that this Corporation shall
declare or pay, without consideration, any dividend on the Common Stock
payable in any right to acquire Common Stock for no consideration, then
the Corporation shall be deemed to have made a dividend payable in
Common Stock in an amount of shares equal to the maximum number of
shares issuable upon exercise of such rights to acquire Common Stock.
(f) Adjustments for Reclassification and Reorganization. If
the Common Stock issuable upon conversion of the Designated Preferred
Stock shall be changed into the same or a different number of shares of
any other class or classes of stock or other securities or assets,
whether by capital reorganization, reclassification, consolidation or
merger of the Corporation with another corporation, or the sale of all
or substantially all its assets to another corporation, or otherwise
(other than a subdivision or combination of shares provided for in
Section 4(e) above), then, as a condition of such reorganization,
reclassification, consolidation, merger or sale, lawful and adequate
provision shall be made whereby the holders of Designated Preferred
Stock shall thereafter have the right to receive upon the basis and
upon the terms and conditions specified herein and in lieu of the
shares of Common Stock of the Corporation immediately theretofore
receivable upon the conversion of Designated Preferred Stock, such
shares of stock, securities or assets as may be issued or payable
with respect to or in exchange for a number of outstanding shares
of such Common Stock equal to the number of shares of such Common
Stock immediately theretofore receivable upon the conversion of
Designated Preferred Stock had such reorganization, reclassification,
consolidation, merger or sale not taken place, plus all dividends
unpaid and accumulated or accrued thereon to the date of such
reorganization, reclassification, consolidation, merger or sale, and
in any such case appropriate provision shall be made with respect to
the rights and interests of the holders of Designated Preferred Stock
to the end that the provisions hereof (including without limitation
provisions for adjustments of the Conversion Price and of the number
of shares receivable upon the conversion of Designated Preferred
Stock) shall thereafter be applicable, as nearly as may be in
relation to any shares of stock, securities or assets thereafter
receivable upon the conversion of Designated Preferred Stock. The
Corporation shall not effect any such consolidation, merger or sale,
unless prior to the consummation thereof the successor corporation
(if other than the Corporation) resulting from such consolidation or
merger or the corporation purchasing such assets shall assume by
written instrument executed and mailed to the holders of Designated
Preferred Stock, at the last addresses of such holders appearing on
the books of the Corporation, the obligation to deliver to such holder
such shares of stock, securities or assets as, in accordance with the
foregoing provisions, such holder may be entitled to receive.
(g) No Impairment. The Corporation will not, by amendment
of its Articles of Incorporation or through any reorganization,
transfer of assets, consolidation, merger, dissolution, issue or sale
of securities or any other voluntary action, avoid or seek to avoid
the observance or performance of any of the terms to be observed or
performed hereunder by the Corporation, but will at all times in good
faith assist in the carrying out of all the provisions of this Section
4 and in the taking of all such action as may be necessary or
appropriate in order to protect the conversion rights of the holders
of the Designated Preferred Stock against impairment.
(h) Certificates as to Adjustments. Upon the occurrence
of each adjustment or readjustment of any Conversion Price pursuant
to this Section 4, the Corporation at its expense shall promptly
compute such adjustment or readjustment in accordance with the terms
hereof and prepare and furnish to each holder of Designated Preferred
Stock a certificate executed by the Corporation's President or Chief
Financial Officer setting forth such adjustment or readjustment and
showing in detail the facts upon which such adjustment or
readjustment is based. The Corporation shall, upon the written
request at any time of any holder of Designated Preferred Stock,
furnish or cause to be furnished to such holder a like certificate
setting forth (i) such adjustments and readjustments, (ii) the
Conversion Price for such series of Designated Preferred Stock at
the time in effect, and (iii) the number of shares of Common Stock
and the amount, if any, of other property which at the time would
be received upon the conversion of the Designated Preferred Stock.
(i) Reservation of Stock Issuable Upon Conversion. The
Corporation shall at all times reserve and keep available out of its
authorized but unissued shares of Common Stock, solely for the
purpose of effecting the conversion of the shares of the Designated
Preferred Stock, such number of its shares of Common Stock as shall
from time to time be sufficient to effect the conversion of all
outstanding shares of the Designated Preferred Stock; and if at any
time the number of authorized but unissued shares of Common Stock
shall not be sufficient to effect the conversion of all then
outstanding shares of the Designated Preferred Stock, the Corporation
will take such corporate action as may, in the opinion of its counsel,
be necessary to increase its authorized but unissued shares of Common
Stock to such number of shares as shall be sufficient for such
purpose, including, without limitation, engaging in best efforts to
obtain the requisite stockholder approval of any necessary amendment
to these Articles of Incorporation.
(j) Fractional Shares. No fractional share shall be
issued upon the conversion of any share or shares of Designated
Preferred Stock. All shares of Common Stock (including fractions
thereof) issuable upon conversion of more than one share of
Designated Preferred Stock by a holder thereof shall be aggregated
for purposes of determining whether the conversion would result in
the issuance of any fractional share. If, after the aforementioned
aggregation, the conversion would result in the issuance of a
fraction of a share of Common Stock, the Corporation shall, in lieu
of issuing any fractional share, pay the holder otherwise entitled
to such fraction a sum in cash equal to the fair market value of
such fraction on the date of conversion (as determined in good
faith by the Board of Directors).
(k) Notices. Any notice required by the provisions of
this Section 4 to be given to the holders of shares of Designated
Preferred Stock shall be deemed given if deposited in the United
States mail, postage prepaid, and addressed to each holder of
record at his address appearing on the books of the Corporation.
(l) Common Stock. The term "Common Stock" shall mean
and include the Corporation's presently authorized Common Stock
and shall also include any capital stock of any class of the
Corporation hereafter authorized which shall not be limited to a
fixed sum or percentage in respect of the rights of the holders
thereof to participate in dividends or in the distribution of
assets upon the voluntary or involuntary liquidation, dissolution
or winding up of the Corporation; provided that the shares
receivable pursuant to conversion of shares of Designated
Preferred Stock shall include shares designated as Common Stock
of the Corporation as of the date of issuance of such shares of
Designated Preferred Stock, or, in case of any reclassification
of the outstanding shares thereof, the stock, securities or
assets provided for in subparagraph (f) above.
EXHIBIT 3.3
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 22nd day of
January, 2002.
/s/ Theodore Johnson
By: Theodore A. Johnson
Its: Chairman of the Board of Directors
******************************************************************************
EXHIBIT 4.1
COMMON STOCK COMMON STOCK
[Company Logo] SURGIDYNE, INC.
["NAME CHANGED TO SURG II"
printed diagonally over "Surgidyne, Inc."]
INCORPORATED UNDER THE LAWS OF THE STATE OF MINNESOTA
86880Q 10 6
CUSIP XXXXXX XX X
See reverse for certain definitions
THIS CERTIFIES THAT is the owner and registered holder of
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
Countersigned and Registered:
WELLS FARGO BANK MINNESOTA, N.A.
Transfer Agent and Registrar
By
Authorized Signature
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
FULLY PAID AND NONASSESSABLE SHARES OF COMMON STOCK OF NO PAR VALUE OF
-------------=================SURGIDYNE, INC.=================-------------
transferable only on the books of the corporation by the holder hereof in
person or by a duly authorized attorney upon surrender of this certificate
properly endorsed. This Certificate is not valid unless countersigned by
the Transfer Agent and Registrar.
WITNESS the facsimile signatures of its duly authorized officers.
Dated:
/s/ William F. Gearhart /s/ Charles B. McNeil
SECRETARY PRESIDENT
[GREEN BORDER DESIGN AROUND THE STOCK CERTIFICATE]
*****************************************************************************
The following abbreviations, when used in the inscription on the face
of this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations.
TEN COM - as tenants in common UNIF GIFT MIN ACT - .......Custodian.......
(Cust) (Minor)
TEN ENT - as tenants by the enireties under Uniform Gifts to Minors
JT TEN - as joint tenants with right of
survivorship and not as tenants Act .........................
in common (State)
Additional abbreviations may also be used though not in the
above list.
For value received _____ hereby sells, assign and transfer unto
PLEASE INSERT SOCIAL SECUTIRY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
_____________________________________________________________________________
_____________________________________________________________________________
PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS OF ASSIGNEE
_____________________________________________________________________________
______________________________________________________________________SHARES
of the capital stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
_____________________________________________________________________Attorney
to transfer the said stock on the books of the within-named Corporation with
full power of substitution in the Premises.
Dated: _____________________________________
NOTICE THE SIGNATURE TO THIS AGREEMENT
MUST CORRESPOND WITH THE NAME AS
WRITTEN UPON THE FACE OF THE
CERTIFICATE IN EVERY PARTICULAR WITHOUT
ALTERATION OF ENLARGEMENT
OR ANY CHANGE WHATSOEVER
SIGNATURE GUARANTEED