10QSB

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-QSB

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
	OF THE SECURITIES EXCHANGE ACT OF 1934.

For the Quarterly Period Ended January 31, 2003

o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
	OF THE SECURITIES EXCHANGE ACT OF 1934.

For the Transition Period From       to

Commission file number 0-9922

EQUIDYNE CORPORATION

(Name of Small Business Issuer in Its Charter)

Delaware
(State or Other Jurisdiction of
Incorporation or Organization) 04-2608713
(I.R.S. Employer Identification No.)

11300 Sorrento Valley Road, Suite 255
San Diego, California (Address of principal executive offices)	92121 (Zip Code)

Issuer’s telephone number, including area code: (858) 587-7777

Check whether the issuer: (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities 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

The number of shares outstanding of the Company’s common stock as at February 28, 2003 was 14,984,803.

Transitional Small Business Disclosure Format (check one): [  ] YES   [X] NO

EQUIDYNE CORPORATION AND SUBSIDIARIES
QUARTERLY REPORT - FORM 10-QSB
THREE AND SIX MONTHS ENDED JANUARY 31, 2003

TABLE OF CONTENTS

		Page
	PART I
Item 1.	Consolidated Financial Statements	2
Item 2.	Management’s Discussion and Analysis or Plan of Operation	8
Item 3.	Controls and Procedures	12
	PART II
Item 1.	Legal Proceedings	12
Item 2.	Changes in Securities and Use of Proceeds	12
Item 3.	Defaults Upon Senior Securities	12
Item 4.	Submission of Matters to a Vote of Security Holders	12
Item 5.	Other Information	12
Item 6.	Exhibits and Reports on Form 8-K	13
	Signatures	13
	Certifications	14
	Exhibits	16

Forward Looking Statements

     Certain statements contained in this Quarterly Report and other written material and oral statements made from time to time by us do not relate strictly to historical or current facts. As such, they are considered “forward-looking statements” that provide current expectations or forecasts of future events. Such statements are typically characterized by terminology such as “believe,” “anticipate,” “should,” “intend,” “plan,” “will,” “expect,” “estimate,” “project,” “strategy” and similar expressions. Our forward-looking statements generally relate to the prospects for future sales of our products, the success of our international marketing activities, the success of our strategic corporate relationships, the adoption and use of needle-free technology and the success of our diversification activities. These statements are based upon assumptions and assessments made by our management in light of its experience and its perception of historical trends, current conditions, expected future developments and other factors our management believes to be appropriate. These forward-looking statements are subject to a number of risks and uncertainties, including the following: our ability to achieve profitable operations and to maintain sufficient cash to operate our business and meet our liquidity requirements: our ability to obtain financing, if required, on terms acceptable to us, if at all; the success of our research and development activities and our ability to obtain regulatory authorizations for developed products, if any; competitive developments affecting our current products; our ability to successfully attract strategic partners and to market both new and existing products domestically and internationally; difficulties or delays in manufacturing; trends toward managed care and health care cost containment; exposure to product liability and other types of lawsuits and regulatory proceedings; our ability to protect our intellectual property both domestically and internationally; governmental laws and regulations affecting domestic and foreign operations; our ability to identify and complete diversification opportunities; and the impact of acquisitions, divestitures, restructurings, product withdrawals and other unusual items. Except as required by applicable law, the Company undertakes no obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise.

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PART I - FINANCIAL INFORMATION

Item 1. CONSOLIDATED FINANCIAL STATEMENTS

EQUIDYNE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(dollars in thousands, except share amounts)

				January 31,			July 31,
				2003			2002
				(Unaudited)
Assets
Current Assets:
	Cash and cash equivalents			$	10,876		$	13,092
	Accounts receivable, net				36			52
	Inventories, net				168			234
	Deferred costs				12			20
	Deferred income taxes				2,467			1,921
	Refundable income taxes				3,446			3,446
	Prepaid and other current assets				240			64
		Total current assets			17,245			18,829
Property and equipment, net					105			133
Deposits					23			46
Patents, net					1,534			1,612
			Total assets	$	18,907		$	20,620
Liabilities & Stockholders’ Equity
Current Liabilities:
	Accounts payable			$	318		$	334
	Accrued liabilities				1,264			1,382
	Accrued income taxes				2,322			2,612
	Deferred revenue				16			26
		Total current liabilities			3,920			4,354
Commitments & Contingencies
Stockholders’ Equity:
	Common stock, $.10 par value; Authorized – 35,000,000 shares; issued – 16,481,903 shares at January 31, 2003 and July 31, 2002				1,648			1,648
	Additional paid-in capital				26,593			26,593
	Accumulated deficit				(7,941	)		(6,662	)
					20,300			21,579
	Treasury stock, at cost (1,497,100 shares)				(5,313	)		(5,313	)
		Total stockholders’ equity			14,987			16,266
			Total liabilities and stockholders’ equity	$	18,907		$	20,620

See accompanying notes.

2

EQUIDYNE CORPORATION AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)

		Three Months Ended						Six Months Ended
		January 31,						January 31,
		2003			2002			2003			2002
Net sales		$	29		$	124		$	51		$	405
Cost of goods sold			26			276			51			566
	Gross profit (loss)		3			(152	)		––			(161	)
Selling, general and administrative expenses			879			2,326			1,726			5,250
Research and development			90			171			171			295
Inventory write-down			—			295			––			295
Asset impairment and other restructure charges			––			5,361			––			5,511
	Total operating expenses		969			8,153			1,897			11,351
Operating loss			(966	)		(8,305	)		(1,897	)		(11,512	)
Interest and other income, net			24			111			77			345
Loss before income tax benefit			(942	)		(8,194	)		(1,820	)		(11,167	)
Income tax benefit			(279	)		(2,455	)		(541	)		(3,275	)
Net loss		$	(663	)	$	(5,739	)	$	(1,279	)	$	(7,892	)
Net loss per common share, basic		$	(0.05	)	$	(0.38	)	$	(0.09	)	$	(0.53	)
Net loss per common share, diluted		$	(0.05	)	$	(0.38	)	$	(0.09	)	$	(0.53	)

See accompanying notes.

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EQUIDYNE CORPORATION AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)

				Six Months Ended
				January 31,
				2003			2002
Operating activities:
Net loss				$	(1,279	)	$	(7,892	)
Adjustments to reconcile net loss to net cash used in operating activities:
	Depreciation and amortization				131			353
	Deferred income taxes				(546	)		(3,276	)
	Loss on sale of property and equipment				11			—
	Asset impairment and other restructure charges				––			5,278
	Changes in operating assets and liabilities:
		Accounts receivable			16			1
		Inventories			66			112
		Other assets			(165	)		(83	)
		Accounts payable and other current liabilities			(434	)		14
			Net cash used in operating activities		(2,200	)		(5,493	)
Investing activities:
Proceeds from held to maturity securities					––			7,207
Proceeds from sale of property and equipment					4			—
Purchase of property and equipment and deposits on tooling and equipment					(20	)		(1,518	)
			Net cash provided by (used in) investing activities		(16	)		5,689
Financing activities:					—			—
Increase (decrease) in cash and cash equivalents					(2,216	)		196
Cash and cash equivalents, beginning of period					13,092			15,405
Cash and cash equivalents, end of period				$	10,876		$	15,601
Supplemental cash flow information:
Income taxes paid				$	295		$	301
Non-cash transactions - exercise of stock options					––			3

See accompanying notes.

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EQUIDYNE CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

1. Description of Business and Summary of Significant Accounting Policies

Description of Business

     Equidyne Corporation (the “Company”) is a holding company, which since its formation in 1977, has invested in various medical device companies and technologies. The Company presently has three wholly-owned subsidiaries: Equidyne Systems, Inc. (“ESI”), a California corporation acquired in May 1998, Equidyne Holdings (“Holdings”), a Massachusetts Business Trust formed in August 2000, and Dynamic Dental Systems, Inc. (“DDS”), a Georgia corporation acquired in May 1998, which is currently inactive. ESI, since its formation in August 1993, has been engaged in developing, manufacturing and selling its patented, needle-free drug delivery systems, principally the reusable INJEX™ System. Since January 1999, the Company has focused on the development of ESI’s needle-free technologies. Other lines of business at that time were discontinued or divested.

     During fiscal 2002, the Company’s new executive management began an evaluation of the Company’s technologies, markets and production capabilities. They concluded that a change in the strategic focus of the Company was necessary as the Company’s production capabilities were not cost effective nor were its sales and marketing programs generating satisfactory results. The Company believed that more stockholder value could be created through licensing agreements and/or strategic partnerships with pharmaceutical, biotech, medical device or other interested companies. The Company believed its sales and marketing programs would be further enhanced by the progress the Company was making in developing disposable needle-free injection systems. In addition, the Company began evaluating various diversification strategies, including, but not limited to, investing in business opportunities not necessarily related to the medical device field. This evaluation is on-going.

Basis of Presentation

     The accompanying unaudited interim consolidated financial statements contain all adjustments (consisting of normal recurring adjustments) which are, in the opinion of management, necessary for a fair and accurate presentation of the Company’s financial position at January 31, 2003 and the results of its operations for the three and six-month periods ended January 31, 2003 and January 31, 2002. These interim financial statements should be read in conjunction with the Company’s audited consolidated financial statements and notes thereto included in its Annual Report on Form 10-KSB for the year ended July 31, 2002. Interim results are not necessarily indicative of those to be expected for the full year.

     The accompanying consolidated financial statements include the accounts of the Company and its subsidiaries. All material intercompany transactions have been eliminated.

Revenue Recognition

     The Company recognizes revenue in accordance with Staff Accounting Bulletin No. 101, “Revenue Recognition in Financial Statements”. The Company’s products are sold subject to rights of return of generally between 90 days and 180 days, as defined by the sales agreement. In addition, the Company’s INJEX System has a limited shelf life, and certain retailers and wholesalers can return these products to the Company up to six months beyond this expiration date. As a result of these rights of return and the current availability of historical trends in sales and product returns, the Company defers recognition of revenues and the related cost of inventory shipped until the expiration of all such rights of return. As of January 31, 2003 and July 31, 2002, deferred revenue was approximately $16,000 and $26,000, respectively. The related cost of the inventory shipped of approximately $12,000 and $20,000 at January 31, 2003 and July 31, 2002, respectively has also been deferred, to be recognized concurrent with the recognition of the related revenue.

5

Use of Estimates

     The preparation of financial statements in conformity with generally accepted accounting principles requires the Company’s management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.

Recent Accounting Pronouncements

     In July 2002, the Financial Accounting Standards Board (“FASB”) issued Statement No. 146, “Accounting for Costs Associated with Exit or Disposal Activities” (“FAS 146”). The standard requires companies to recognize costs associated with exit or disposal activities when they are incurred rather than at the date of a commitment to an exit or disposal plan. Examples of costs covered by the standard include lease termination costs and certain employee severance costs that are associated with a restructuring, discontinued operation, plant closing, or other exit or disposal activity. Previous accounting guidance was provided by Emerging Issue Task Force (“EITF”) Issue No. 94-3, “Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring).” FAS 146 replaces Issue No. 94-3. FAS 146 is to be applied prospectively to exit or disposal activities initiated after December 31, 2002. FAS 146 is not expected to have any material effect on the Company’s financial statements.

     On December 31, 2002, the FASB issued Statement No. 148, “Accounting for Stock-Based Compensation – Transition and Disclosure” (“FAS 148”), which amends Statement No. 123, “Accounting for Stock-Based Compensation” (“FAS 123”). FAS 148 provides alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based compensation. In addition, FAS 148 amends the disclosure requirements of FAS 123 to require more prominent and more frequent disclosures in financial statements of the effects of stock-based compensation. These expanded disclosures will be required for the Company’s third quarter ending April 30, 2003. The Company anticipates that it will continue to apply Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees.” Accordingly, the Company believes that the adoption of this standard will have no material impact on its financial position, results of operations or cash flows.

Reclassifications

     Certain reclassifications have been made to prior year amounts to conform to current year classifications.

2. Inventories

     Inventories consist of the following (in thousands):

	January 31,		July 31,
	2003		2002
Raw materials	$	52	$	96
Finished goods		116		138
	$	168	$	234

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3. Loss per Share

     Basic loss per share is based upon the weighted average number of common shares outstanding during the period. Diluted loss per share reflects the effect of dilutive securities, if any, principally stock options and warrants. Dilutive securities were not included in the calculation of diluted weighted average shares for the three and six months ended January 31, 2003 and 2002, due to their anti-dilutive effect. The following table sets forth the computation of basic and diluted loss per share (in thousands, except per share amounts):

	Three Months Ended						Six Months Ended
	January 31,						January 31,
	2003			2002			2003			2002
Net loss	$	(663	)	$	(5,739	)	$	(1,279	)	$	(7,892	)
Weighted-average shares		14,985			14,985			14,985			14,985
Net loss per share (Basic and Diluted)	$	(0.05	)	$	(0.38	)	$	(0.09	)	$	(0.53	)

4. Contingencies

     In the ordinary course of conducting its business, the Company has become subject to litigation and claims regarding various matters. There exists a reasonable possibility that the Company will not prevail in all cases. Although sufficient uncertainty exists in these cases to prevent the Company from determining the amount of its liability, if any, the ultimate exposure upon the resolution of any such litigation or claims is not expected to materially adversely affect the Company’s financial condition or results of operations.

5. Prior Year Asset Impairment and Other Restructure Charges

     In the six months ended January 31, 2002, the Company recorded $5.5 million in pre-tax charges ($5.4 million of such charges were recorded in the second quarter of the prior fiscal year) related to asset impairment losses. The charges principally related to a $5.3 million charge due to the impairment of value of certain non-operating assets (primarily its automated manufacturing equipment and tools) and approximately $0.2 million for employee severance and excess facility costs. Additionally, during the second quarter of fiscal 2002, the Company recorded a charge of $295,000, shown as a separate component of operating expenses in the caption “inventory write-down” in the accompanying Statement of Operations, resulting from the settlement of litigation with a former manufacturer of its injectors and reset boxes.

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Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

Overview

     Equidyne Corporation (the “Company”) is a holding company, which since its formation in 1977, has invested in various medical device companies and technologies. The Company presently has three wholly-owned subsidiaries: Equidyne Systems, Inc. (“ESI”), a California corporation acquired in May 1998, Equidyne Holdings (“Holdings”), a Massachusetts Business Trust formed in August 2000, and Dynamic Dental Systems, Inc. (“DDS”), a Georgia corporation acquired in May 1998, which is currently inactive. ESI, since its formation in August 1993, has been engaged in developing, manufacturing and selling its patented, needle-free drug delivery systems, principally the reusable INJEX™ System.

     From January 1999 to December 2001, the Company’s focus, through ESI, was centered on the sales, marketing and production of its reusable INJEX 30 and INJEX 50 Systems. The Company launched its INJEX 30 System to the U.S. diabetes market in July 2000, utilizing a direct sales force of more than 50 persons. Since this original launch, the Company entered into distribution agreements with several large distribution partners to expand distribution channels and obtained Generic Product Indicator (“GPI”) codes for the purpose of facilitating reimbursement through health insurance plans and pharmacy benefit managers. However, none of the Company’s sales and marketing efforts resulted in the volume of sales anticipated by the Company’s prior management. Since January 1999, other than the needle-free technology of ESI, the Company’s other lines of business at that time were discontinued or divested.

     In December 2001, the Company’s Board of Directors appointed Marcus R. Rowan, a director of the Company, as Chief Executive Officer and appointed Mark C. Myers, a consultant to the Company, as President. Mr. Myers was appointed to the Board of Directors in January 2002. New management concluded after an evaluation of the needle-free industry and the status of the Company’s competitors that a change in the strategic focus of the Company was necessary as the Company’s sales and marketing programs were not generating satisfactory results. The evaluation also determined that the Company’s research program should focus on continuing the development of disposable systems (both pre-filled and variable dosage devices) that could potentially serve as the basis for licensing agreements and/or strategic partnerships with pharmaceutical, biotech, medical device or other interested companies.

     While the Company is continuing sales of the INJEX 30 System into the diabetes market from its existing inventories, the Company has increased its efforts to develop strategic partnerships and licensing arrangements with pharmaceutical, biotech, medical device and other interested companies. Through an agreement with the Company’s former wholly-owned subsidiary, Rosch AG, the Company has participated in a licensing arrangement with Pharmacia AB for the worldwide use of the Injex System for human growth hormone treatment. In January 2003, Rosch AG declared bankruptcy under German law. The effects of the Rosch bankruptcy on the on-going revenues from the Pharmacia AB contract are not yet known. Nevertheless, the Company believes more stockholder value can be derived from licensing its intellectual property than from retail sales activities, and the focus of the Company has shifted from an exclusive focus on its reusable devices to one which places additional emphasis on technology development, licensing opportunities for the Company’s existing technology and evaluating other diversification opportunities for the Company. As part of this change in focus, the Company has postponed ramping up manufacturing of the INJEX 50 and disposable systems pending successful development of strategic partnerships or licensing arrangements designed to facilitate the introduction of these systems into the market.

     As a result of the Board’s decision to change the Company’s strategic direction, the Company recorded a pre-tax charge of $5.5 million principally related to asset impairment losses in the second quarter ended January 31, 2002. Since the second half of fiscal 2002, the Company has been evaluating various diversification strategies, including, but not limited to, investing in business opportunities not necessarily related to the medical device field. This evaluation is on-going.

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Results of Operations

     Consolidated net sales (“sales”) were $29,000 for the three months ended January 31, 2003 compared to $124,000 for the three months ended January 31, 2002, a decrease of $95,000, or 77%. Sales were $51,000 and $405,000 for the six months ended January 31, 2003 and 2002, respectively. The decrease in sales through the Company’s distribution partners (Rite-Aid and CVS) reflects the Company’s change in strategic focus described above and the cessation of advertising and co-marketing expenditures in the third quarter of the prior fiscal year. Such advertising and marketing expenditures had not proven to be effective in generating sales.

     Cost of sales for the three and six months ended January 31, 2003 was $24,000 and $51,000, respectively, as compared to $276,000 and $566,000, respectively in the three and six month periods in the 2002 fiscal year. This represents a decrease in cost of sales of 91% in each of the three and six month periods. The decrease in the current fiscal year was primarily the result of the decrease in sales volume. The low gross margin results from the production cost of the consumable components of the Company’s products (the polycarbonate plastic ampules and vial adapters) which is in excess of the respective selling prices both in the current and prior fiscal years, primarily resulting from low production volumes. Cost of sales for fiscal 2002 was further impacted by a write-down of the Company’s ampule and adapter inventories to reduce their respective carrying values to the lower of cost or selling price. However, the Company believes the high cost structure for production will continue until demand for its products enables it to achieve greater production volumes.

     Selling, general and administrative (“SG&A”) expenses for the three months ended January 31, 2003 were $879,000, compared to $2,326,000 for the three months ended January 31, 2002, a decrease of $1,447,000, or 62%. SG&A expenses in the six months ended January 31, 2003 were $1,726,000, a decrease of $3,524,000, or 67% from the $5,250,000 in the first six months of the prior fiscal year. The decrease in both the three and six month periods principally reflects lower total salary expense, recruiting and travel related costs resulting from the reductions of the Company sales force and other administrative staff between October 2001 and March 2002. The Company reduced its sales force by 18 sales representatives in October 2001 and made reductions in other administrative staff between January and March 2002. Total headcount was reduced from 47 employees in July 2001 to 10 employees as of January 2003. The current fiscal year also included the compensation of Mr. Rowan and Mr. Myers who were appointed as Chief Executive Officer and President, respectively in December 2001. The current quarter also included executive management bonuses of $187,000, an increase of $47,000 from the $140,000 incurred in the second quarter of the prior fiscal year. Advertising and co-marketing expenditures in the three and six month periods were reduced by $115,000 and $852,000, respectively, as compared to the prior fiscal year as a result of the aforementioned cessation of advertising and co-marketing activities. Consulting, outside services and other professional service expenditures decreased by approximately $472,000 from the second quarter in the prior fiscal year ($970,000 as compared to the first six months of the prior fiscal year) as the Company has scaled-back operations and changed its strategic focus and thus required fewer such services. Reductions included approximately $100,000 of audit and tax service costs and approximately $290,000 of consulting costs associated with a voluntary exchange program completed in the second quarter of fiscal 2002. In addition, depreciation and amortization expense for the second quarter decreased approximately $166,000 ($333,000 in the six months) as the result of the $5.3 million write-off of the Company’s manufacturing equipment in the second quarter of fiscal 2002. The second quarter of the prior fiscal year included a $120,000 bonus paid to Mr. Rowan for his services to the Board during the first five months of fiscal 2002.

     Research and development expenses decreased 48% to $90,000 for the three months ended January 31, 2003 from $171,000 for the three months ended January 31, 2002. Six-month expenditures for research and development decreased 42% to $171,000 from $295,000 in the prior year. The decrease in research and development was primarily the result of the Company performing fewer clinical trial tests during the current fiscal year than in the prior fiscal year. The Company continues its developmental efforts in fiscal 2003 to enhance its needle-free system offerings, particularly its disposable, single-use models, and a newly-designed glass-lined pre-filled ampule, which would allow the Company to have product offerings that could serve as

9

the basis for licensing agreements and/or strategic partnerships with pharmaceutical, biotech, medical device or other interested companies.

     In the six months ended January 31, 2002, the Company recorded $5.5 million in pre-tax charges ($5.4 million of such charges were recorded in the second quarter) related to asset impairment losses. The charges principally related to a $5.3 million loss due to the impairment of value of certain non-operating assets (primarily its automated manufacturing equipment and tools) and approximately $0.2 million for employee severance and excess facility costs. Also in the second quarter of fiscal 2002, the Company recorded a charge of $295,000, shown as a separate component of operating expenses in the caption “inventory write-down” in the accompanying Statement of Operations, resulting from the settlement of litigation with a former manufacturer of its injectors and reset boxes.

     The Company’s income tax benefit for the three and six-months ended January 31, 2003 were $279,000 and $541,000, respectively, as compared to $2,455,000 and $3,275,000 for the three and six months ended January 31, 2002. The tax benefits are based on the Company’s ability to carry back the operating losses incurred to recapture a portion of the taxes paid in fiscal year 2001.

Liquidity and Capital Resources

     At January 31, 2003, the Company had working capital of $13.3 million, compared to working capital of $14.5 million at July 31, 2002. The decrease of approximately $1.2 million resulted primarily from the net effect of the Company’s operating losses for the first six months of the current fiscal year.

     The Company believes that funds on hand, combined with cash generated from investment income and tax refunds, will be sufficient to finance operations and capital expenditures for the next twelve months. In addition, the Company may consider enhancing future growth through investments in or acquisitions of companies, technologies or products in related or other lines of business, as well as through expansion of the existing product lines. There is no assurance that management will find suitable opportunities or effect the necessary financial arrangements for such investments or provide the working capital needed for the acquired activities.

Significant Accounting Policies

     The Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States, which require the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the Consolidated Financial Statements, and revenues and expenses during the periods reported. Actual results could differ from those estimates. The Company believes the following are the critical accounting policies which could have the most significant effect on the Company’s reported results and require the most difficult, subjective or complex judgments by management.

Excess and Obsolete Inventory

     Inventories are stated at the lower of cost or market, with cost determined at a weighted average of purchased costs. In evaluating whether inventory is stated at the lower of cost or market, management considers such factors as the amount of inventory on hand, expiration dates, and the estimated time to sell such inventory. As appropriate, provisions are made to reduce inventories to their net realizable value. Historically, cost of inventories that potentially may not sell prior to expiration or are deemed of no commercial value have been written-off when identified.

Revenue Recognition

     The Company recognizes revenue in accordance with Staff Accounting Bulletin No. 101, “Revenue Recognition in Financial Statements”. The Company’s products are sold subject to rights of return of

10

generally between 90 days and 180 days, as defined by the sales agreement. In addition, the Company’s INJEX System has a limited shelf life, and certain retailers and wholesalers can return these products to the Company up to six months beyond this expiration date. As a result of these rights of return and the current availability of historical trends in sales and product returns, the Company defers recognition of revenues and the related cost of inventory shipped until the expiration of all such rights of return.

Impairment of Long-Lived Assets

     The Company periodically evaluates the carrying value of the unamortized balances of its long-lived assets (property and equipment and patents) to determine whether any impairment of these assets has occurred or whether any revision to the related amortization periods should be made. This evaluation is based on management’s projections of the undiscounted future cash flows associated with each class of asset. If management’s evaluation indicates that the carrying values of these assets were impaired, such impairment is recognized by a reduction of the applicable asset carrying value to its estimated fair value and expensed through operations.

Income Taxes

     In preparing the Company’s consolidated financial statements, management is required to estimate the Company’s income taxes in each of the jurisdictions in which it operates. This process involves estimating actual current tax liabilities together with assessing temporary differences resulting from differing treatment of items for tax and accounting purposes. These differences result in deferred tax assets and liabilities which are included within the consolidated balance sheet, as applicable. The Company’s deferred tax assets consist primarily of net operating losses carried back and the effects of certain reserves not yet deductible for tax purposes. Management will then assess the likelihood that deferred tax assets will be recovered from future taxable income, and, to the extent that it is believed that recovery is not more likely than not, a valuation allowance is established. Although the Company believes that Federal deferred tax assets will be realized via future carry back of operating losses, the Company determined that it does not have sufficient taxable income available for future carry back with respect to State income taxes. Therefore, the Company believes it was appropriate to record a valuation allowance against its State deferred tax assets. The State deferred tax assets are still available for the Company to use in the future to offset State taxable income, which would result in the recognition of a tax benefit and a reduction to the Company’s effective tax rate.

New Accounting Pronouncements

     In July 2002, the Financial Accounting Standards Board (“FASB”) has issued Statement No. 146, Accounting for Costs Associated with Exit or Disposal Activities (“FAS 146”). The standard requires companies to recognize costs associated with exit or disposal activities when they are incurred rather than at the date of a commitment to an exit or disposal plan. Examples of costs covered by the standard include lease termination costs and certain employee severance costs that are associated with a restructuring, discontinued operation, plant closing, or other exit or disposal activity. Previous accounting guidance was provided by Emerging Issue Task Force (“EITF”) Issue No. 94-3, “Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring).” FAS 146 replaces Issue No. 94-3. FAS 146 is to be applied prospectively to exit or disposal activities initiated after December 31, 2002. FAS 146 is not expected to have any material effect on the Company’s financial statements.

     On December 31, 2002, the FASB issued Statement No. 148, “Accounting for Stock-Based Compensation – Transition and Disclosure” (“FAS 148”), which amends Statement No. 123, “Accounting for Stock-Based Compensation” (“FAS 123”). FAS 148 provides alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based compensation. In addition, FAS 148 amends the disclosure requirements of FAS 123 to require more prominent and more frequent disclosures in financial statements of the effects of stock-based compensation. These expanded disclosures will be required for the Company’s third quarter ending April 30, 2003. The Company anticipates that it will continue to apply

11

Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees.” Accordingly, the Company believes that the adoption of this standard will have no material impact on its financial position, results of operations or cash flows.

Item 3. CONTROLS AND PROCEDURES

(a)  Evaluation of Disclosure Controls and Procedures.

The Company’s Chief Executive Officer and Chief Financial Officer have evaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as such term is defined in Rules 13(a) -14(c) and 15(d)-14(c) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”). Based on such evaluation, such officers have concluded that, as of the Evaluation Date, the Company’s disclosure controls and procedures are effective to ensure that such officers are alerted on a timely basis to material information relating to the Company (including its consolidated subsidiaries) required to be included in the Company’s reports filed or submitted under the Exchange Act and that such information is recorded, processed and reported as and when required.

(b)  Changes in Internal Controls.

Since the Evaluation Date, there have not been any significant changes in the Company’s internal controls or in other factors that could significantly affect such controls.

PART II – OTHER INFORMATION

Item 1. LEGAL PROCEEDINGS

                 In the ordinary course of conducting its business, the Company has become subject to litigation and claims regarding various matters. There exists a reasonable possibility that the Company will not prevail in all cases. Although sufficient uncertainty exists in these cases to prevent the Company from determining the amount of its liability, if any, the ultimate exposure upon the resolution of any such litigation or claims is not expected to materially adversely affect the Company’s financial condition or results of operations.

Item 2. CHANGES IN SECURITIES AND USE OF PROCEEDS

None.

Item 3. DEFAULTS UPON SENIOR SECURITIES

None.

Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDER

None.

Item 5. OTHER INFORMATION

                 In accordance with Section 10A(i)(2) of the Securities Exchange Act of 1934, as added by Section 202 of the Sarbanes-Oxley Act of 2002 (the “Act”), we are required to disclose the non-audit services approved by our Audit Committee to be performed by our independent accountants. Non-audit services are defined in the Act as services other than those provided in connection with an audit or a review of the financial statements of a company. During the second quarter ended January 31, 2003, the Audit Committee approved the engagement of King, Griffin & Adamson, P.C. for the preparation of federal and state income tax returns for fiscal year ended July 31, 2002.

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Item 6. EXHIBITS AND REPORTS ON FORMS 8-K

             (a)  Exhibits

See Index to Exhibits included in this quarterly report.

             (b)  Reports on Form 8-K:

On March 7, 2003 the Company filed a Report on Form 8-K related to change in its independent public accountants pursuant to a merger of its independent public accountants and another accounting and business services firm.

SIGNATURES

     In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

EQUIDYNE CORPORATION

(Registrant)

Dated: March 14, 2003	By:	/s/ Marcus R. Rowan
		Marcus R. Rowan Chief Executive Officer
	By:	/s/ Jeffery B. Weinress
		Jeffery B. Weinress Chief Financial Officer (principal financial and accounting officer)

13

CHIEF EXECUTIVE OFFICER CERTIFICATION

   I, Marcus R. Rowan, Chief Executive Officer of Equidyne Corporation, certify that:

1.	I have reviewed this quarterly report on Form 10-QSB of Equidyne Corporation (“Equidyne”);
2.	Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
3.	Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of Equidyne as of, and for, the periods presented in this quarterly report;
4.	Equidyne’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures and internal controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for Equidyne and have:

a)	designed such disclosure controls and procedures to ensure that material information relating to Equidyne, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
b)	evaluated the effectiveness of Equidyne’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and
c)	presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5. Equidyne’s other certifying officer and I have disclosed, based on our most recent evaluation, to Equidyne’s auditors and the audit committee of Equidyne’s board of directors:

a)	all significant deficiencies in the design or operation of internal controls which could adversely affect Equidyne’s ability to record, process, summarize and report financial data and have identified for Equidyne’s auditors any material weaknesses in internal controls; and
b)	any fraud, whether or not material, that involves management or other employees who have a significant role in Equidyne’s internal controls; and

6. Equidyne’s other certifying officer and I have indicated in this quarterly report whether or not there were any significant changes in Equidyne’s internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date: March 14, 2003.
	By:	/s/ Marcus R. Rowan Marcus R. Rowan Chief Executive Officer

14

CHIEF FINANCIAL OFFICER CERTIFICATION

     I, Jeffery B. Weinress, Chief Financial Officer of Equidyne Corporation, certify that:

1.	I have reviewed this quarterly report on Form 10-QSB of Equidyne Corporation (“Equidyne”);
2.	Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
3.	Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of Equidyne as of, and for, the periods presented in this quarterly report;
4.	Equidyne’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures and internal controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for Equidyne and have:

a)	designed such disclosure controls and procedures to ensure that material information relating to Equidyne, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
b)	evaluated the effectiveness of Equidyne’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and
c)	presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5. Equidyne’s other certifying officer and I have disclosed, based on our most recent evaluation, to Equidyne’s auditors and the audit committee of Equidyne’s board of directors:

a)	all significant deficiencies in the design or operation of internal controls which could adversely affect Equidyne’s ability to record, process, summarize and report financial data and have identified for Equidyne’s auditors any material weaknesses in internal controls; and
b)	any fraud, whether or not material, that involves management or other employees who have a significant role in Equidyne’s internal controls; and

6. Equidyne’s other certifying officer and I have indicated in this quarterly report whether or not there were any significant changes in Equidyne’s internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date: March 14, 2003.
	By:	/s/ Jeffery B. Weinress Jeffery B. Weinress Chief Financial Officer

15

EQUIDYNE CORPORATION

INDEX TO EXHIBITS

Exhibit No.	Description
99.1*	Certification by Marcus R. Rowan, Chief Executive Officer, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350).
99.2*	Certification by Jeffery B Weinress, Chief Financial Officer, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350).
* filed herewith

16 EX-99.1 3 a88445exv99w1.txt EXHIBIT 99.1 EXHIBIT 99.1 CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 (18 U.S.C. SECTION 1350) In connection with the Quarterly Report of Equidyne Corporation (the "Company") on Form 10-QSB for the period ended January 31, 2003 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Marcus R. Rowan, Chief Executive Officer, certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350), that based on my knowledge: (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Date: March 14, 2003 By: /s/ Marcus R. Rowan ------------------- Marcus R. Rowan Chief Executive Officer EX-99.2 4 a88445exv99w2.txt EXHIBIT 99.2 EXHIBIT 99.2 CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 (18 U.S.C. SECTION 1350) In connection with the Quarterly Report of Equidyne Corporation (the "Company") on Form 10-QSB for the period ended January 31, 2003 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Jeffery B. Weinress, Chief Financial Officer, certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350), that based on my knowledge: (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Date: March 14, 2003 By: /s/ Jeffery B. Weinress ----------------------- Jeffery B. Weinress Chief Financial Officer -----END PRIVACY-ENHANCED MESSAGE-----

EX-99.1

EXHIBIT 99.1

                            CERTIFICATION PURSUANT TO
                  SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
                            (18 U.S.C. SECTION 1350)

In connection with the Quarterly Report of Equidyne Corporation (the "Company")
on Form 10-QSB for the period ended January 31, 2003 as filed with the
Securities and Exchange Commission on the date hereof (the "Report"), I, Marcus
R. Rowan, Chief Executive Officer, certify, pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350), that based on my knowledge:

         (1) The Report fully complies with the requirements of Section 13(a) or
             15(d) of the Securities Exchange Act of 1934; and

         (2) The information contained in the Report fairly presents, in all
             material respects, the financial condition and results of
             operations of the Company.

Date: March 14, 2003
                                                 By: /s/ Marcus R. Rowan
                                                     -------------------
                                                     Marcus R. Rowan
                                                     Chief Executive Officer

EX-99.2

EXHIBIT 99.2

                            CERTIFICATION PURSUANT TO
                  SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
                            (18 U.S.C. SECTION 1350)

In connection with the Quarterly Report of Equidyne Corporation (the "Company")
on Form 10-QSB for the period ended January 31, 2003 as filed with the
Securities and Exchange Commission on the date hereof (the "Report"), I, Jeffery
B. Weinress, Chief Financial Officer, certify, pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350), that based on my knowledge:

         (1) The Report fully complies with the requirements of Section 13(a) or
             15(d) of the Securities Exchange Act of 1934; and

         (2) The information contained in the Report fairly presents, in all
             material respects, the financial condition and results of
             operations of the Company.

Date: March 14, 2003
                                                 By: /s/ Jeffery B. Weinress
                                                     -----------------------
                                                     Jeffery B. Weinress
                                                     Chief Financial Officer