##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-QSB

(Mark One)

xbox   QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934

For the quarterly period ended September 30, 2002

box   TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT.

For the transition period from _________ to _________

Commission File Number 0-16686



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SURG II, INC.

(Name of small business issuer as specified in its charter)


|                                                                         |  |                                                   
|------------------------------------------------------------------------ |  | --------------------------------------------------
|Minnesota
(State or other jurisdiction of
incorporation of organization) |  | 58-1486040
(I.R.S. Employer
Identification Number)

800 Nicollet Mall, Suite 2690, Minneapolis MN 55402
(Address of principal executive offices)

(612) 333-0614
(Issuers telephone number)

Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
periods that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days. xbox   YES   box   NO

4,348,720 shares of Common Stock, $.01 par value, were outstanding at
November 1, 2002

Transitional Small Business Disclosure Format.     box    YES   xbox   NO





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TABLE OF CONTENTS



|                                                 |                                                                                          |                                           |  |  |  |  |  | 
|------------------------------------------------ | ---------------------------------------------------------------------------------------- | ----------------------------------------- |  |  |  |  |  | 
|PART I                                          
|FINANCIAL INFORMATION                           
|                                                 | ITEM 1. FINANCIAL STATEMENTS                                                            
|                                                 |                                                                                          | BALANCE SHEETS                           
|                                                 |                                                                                          | STATEMENTS OF OPERATIONS (UNAUDITED)     
|                                                 |                                                                                          | STATEMENTS OF CASH FLOWS (UNAUDITED)     
|                                                 |                                                                                          | NOTES TO FINANCIAL STATEMENTS (unaudited)
|                                                 | ITEM 2. Managements Discussion and Analysis of Financial Condition or Plan of Operation
|                                                 | PART II. OTHER INFORMATION                                                              
|                                                 | Item 1. Legal Proceedings                                                               
|                                                 | Item 2. Changes in Securities and Use of Proceeds                                       
|                                                 | Item 3. Defaults Upon Senior Securities                                                 
|                                                 | Item 4. Submission of Matters to a Vote of Security Holders                             
|                                                 | Item 5. Other Information                                                               
|                                                 | Item 6. Exhibits and Reports on Form 8-K                                                
|SIGNATURES                                      
|CERTIFICATIONS                                  
|Certification Pursuant to 18 U.S.C. Section 1350
|Certification Pursuant to 18 U.S.C. Section 1350



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##### Table of Contents



SURG II, INC.

TABLE OF CONTENTS

|                              |                                                                                                      |  |      |    | 
|----------------------------- | ---------------------------------------------------------------------------------------------------- |  | ---- | -- | 
|                              |                                                                                                      |  | Page
|                              |                                                                                                      |  |     
|PART I. FINANCIAL INFORMATION |                                                                                                      |  |      |   
|                              | Item 1. Financial Statements:                                                                        |  |      |    | 
|                              | Balance Sheets as of September 30, 2002 (unaudited) and
December 31, 2001 (audited)                  |  |      | 3  | 
|                              | Statements of Operations for the Three and Nine Months Ended
September 30, 2002 and 2001 (unaudited) |  |      | 4  | 
|                              | Statements of Cash Flows for the Nine Months Ended
September 30, 2002 and 2001 (unaudited)           |  |      | 5  | 
|                              | Notes to financial statements (unaudited)                                                            |  |      | 6  | 
|                              | Item 2. Managements Discussion and Analysis or Plan of Operation                                    |  |      | 7  | 
|PART II. OTHER INFORMATION    |                                                                                                      |  |      |   
|                              | Item 2. Changes in Securities and Use of Proceeds                                                    |  |      | 9  | 
|                              | Item 6. Exhibits and Reports on 8-K                                                                  |  |      | 10 | 
|SIGNATURES AND CERTIFICATIONS |                                                                                                      |  | 10   |   

2



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##### Table of Contents






PART I




FINANCIAL INFORMATION




ITEM 1. FINANCIAL STATEMENTS




SURG II, INC.
BALANCE SHEETS

|                                                  |                                                                                                                                                                    |                                      |                                                      |                      |           |                  |           |                |         |         |         | 
|------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------ | ------------------------------------ | ---------------------------------------------------- | -------------------- | --------- | ---------------- | --------- | -------------- | ------- | ------- | ------- | 
|                                                  |                                                                                                                                                                    |                                      |                                                      |                      |           | September 30,    |           | December 31,  
|                                                  |                                                                                                                                                                    |                                      |                                                      |                      |           | 2002 (unaudited) |           | 2001 (audited)
|                                                  |                                                                                                                                                                    |                                      |                                                      |                      |           |                  |           |               
|ASSETS                                            |                                                                                                                                                                    |                                      |                                                      |                      |           |                  |           |               
|Current Assets                                    |                                                                                                                                                                    |                                      |                                                      |                      |           |                  |           |               
|                                                  | Cash                                                                                                                                                               |                                      | $                                                    | 3,198,681            |           |                  | $         | 8,150          |        
|                                                  | Accounts receivable, less allowance for doubtful
accounts of $4,200 as ofDecember 31, 2001                                                                         |                                      |                                                      |                     |           |                  |           | 44,734         |        
|                                                  | Inventory                                                                                                                                                          |                                      |                                                      |                     |           |                  |           | 124,712        |        
|                                                  | Prepaid expenses                                                                                                                                                   |                                      |                                                      | 13,500               |           |                  |           | 12,243         |        
|                                                  |                                                                                                                                                                    |                                      |                                                      |                      |           |                 
|                                                  |                                                                                                                                                                    |                                      |                                                      | Total current assets |           |                  | 3,212,181 |                |         |         | 189,839 | 
|                                                  |                                                                                                                                                                    |                                      |                                                      |                      |           |                 
|Furniture and Equipment, at cost                  |                                                                                                                                                                    |                                      |                                                     |                      |           |                  | 353,917   |               
|                                                  | Less accumulated depreciation and amortization                                                                                                                     |                                      |                                                      |                     |           |                  |           | 338,003        |        
|                                                  |                                                                                                                                                                    |                                      |                                                      |                      |           |                 
|                                                  |                                                                                                                                                                    |                                      | Total furniture and equipment                        |                      |           |                 |           |                |         | 15,914  |        
|                                                  |                                                                                                                                                                    |                                      |                                                      |                      |           |                 
|Other Assets                                      |                                                                                                                                                                    |                                      |                                                      |                      |           |                  |           |               
|                                                  | Patents and trademarks, net of accumulated
amortization of $19,020 as ofDecember 31, 2001                                                                          |                                      |                                                      |                     |           |                  |           | 3,627          |        
|                                                  |                                                                                                                                                                    |                                      |                                                      |                      |           |                 
|                                                  |                                                                                                                                                                    |                                      |                                                      | Total assets         |           | $                | 3,212,181 |                |         | $       | 209,380 | 
|                                                  |                                                                                                                                                                    |                                      |                                                      |                      |           |                 
|LIABILITIES AND STOCKHOLDERS EQUITY (DEFICIT)    |                                                                                                                                                                    |                                      |                                                      |                      |           |                  |           |               
|Current Liabilities                               |                                                                                                                                                                    |                                      |                                                      |                      |           |                  |           |               
|                                                  | Current maturities of capital lease obligation                                                                                                                     |                                      | $                                                    |                     |           |                  | $         | 5,000          |        
|                                                  | Notes payable to officers and directors                                                                                                                            |                                      |                                                      |                     |           |                  |           | 8,474          |        
|                                                  | Other notes payable                                                                                                                                                |                                      |                                                      |                     |           |                  |           | 61,646         |        
|                                                  | Accounts payable                                                                                                                                                   |                                      |                                                      | 40,573               |           |                  |           | 119,210        |        
|                                                  | Accrued expenses                                                                                                                                                   |                                      |                                                      |                     |           |                  |           | 56,401         |        
|                                                  |                                                                                                                                                                    |                                      |                                                      |                      |           |                 
|                                                  |                                                                                                                                                                    | Total current liabilities            |                                                      |                      | 40,573    |                  |           |                | 250,731 |        
|                                                  |                                                                                                                                                                    |                                      |                                                      |                      |           |                 
|Capital Lease Obligation, Less Current Maturities |                                                                                                                                                                    |                                      |                                                     |                      |           |                  | 5,507     |               
|                                                  |                                                                                                                                                                    |                                      |                                                      |                      |           |                 
|Stockholders Equity (Deficit)                    |                                                                                                                                                                    |                                      |                                                      |                      |           |                  |           |               
|                                                  | Series A preferred stock, 1,600,000 shares authorized;
$400,000 liquidationpreference, 1,600,000 shares
issued and outstanding as of December 31, 2001             |                                      |                                                      |                     |           |                  |           | 400,000        |        
|                                                  | Common stock, $.01 par value; 5,000,000 shares authorized;
4,348,720 and186,177 issued and outstanding as of September 30,
2002 and December 31,2001, respectively |                                      |                                                      | 43,487               |           |                  |           | 1,862          |        
|                                                  | Additional paid-in capital                                                                                                                                         |                                      |                                                      | 8,212,779            |           |                  |           | 4,604,404      |        
|                                                  | Accumulated deficit                                                                                                                                                |                                      |                                                      | (5,084,658           | )         |                  |           | (5,053,124     | )      
|                                                  |                                                                                                                                                                    |                                      |                                                      |                      |           |                 
|                                                  |                                                                                                                                                                    | Total stockholders equity (deficit) |                                                      |                      | 3,171,608 |                  |           |                | (46,858 | )      
|                                                  |                                                                                                                                                                    |                                      |                                                      |                      |           |                 
|                                                  |                                                                                                                                                                    |                                      | Total liabilities and stockholders equity (deficit) |                      | $         | 3,212,181        |           |                | $       | 209,380 |        
|                                                  |                                                                                                                                                                    |                                      |                                                      |                      |           |                 

See Notes to Financial Statements

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SURG II, INC.
STATEMENTS OF OPERATIONS (UNAUDITED)

|                       |                                |                          |                                                             |        |                    |           |                   |        |              |         |              |         |         |           |         |         |         |          |  
|---------------------- | ------------------------------ | ------------------------ | ----------------------------------------------------------- | ------ | ------------------ | --------- | ----------------- | ------ | ------------ | ------- | ------------ | ------- | ------- | --------- | ------- | ------- | ------- | -------- | -
|                       |                                |                          |                                                             |        | Three Months Ended |           | Nine Months Ended
|                       |                                |                          |                                                             |        |                    |           |                  
|                       |                                |                          |                                                             |        | September 30       |           | September 30      |        | September 30 |         | September 30
|                       |                                |                          |                                                             |        | 2002               |           | 2001              |        | 2002         |         | 2001        
|                       |                                |                          |                                                             |        |                    |           |                   |        |              |         |             
|Net Sales              |                                | $                        |                                                            |        |                    | $         | 121,156           |        |              | $       | 33,133       |         |         | $         | 347,256 |        
|Cost of Goods Sold     |                                |                          |                                                            |        |                    |           | 108,926           |        |              |         | 31,524       |         |         |           | 274,558 |        
|                       |                                |                          |                                                             |        |                    |           |                   |        |              |         |              |        
|                       |                                | Gross profit             |                                                             |        |                   |           |                   |        | 12,230       |         |              |         | 1,609   |           |         |         | 72,698  |         
|Operating Expenses     |                                |                          |                                                             |        |                    |           |                   |        |              |         |              |         |         |           |         |        
|                       | Research and development       |                          |                                                             |       |                    |           |                   | 3,224  |              |         |              | 1,026   |         |           |         | 10,185  |        
|                       | Sales and marketing            |                          |                                                             |       |                    |           |                   | 8,534  |              |         |              | 2,977   |         |           |         | 25,849  |        
|                       | General and administrative     |                          |                                                             | 23,507 |                    |           |                   | 34,737 |              |         |              | 115,073 |         |           |         | 150,008 |        
|                       |                                |                          |                                                             |        |                    |           |                   |        |              |         |              |        
|                       |                                | Total operating expenses |                                                             |        | 23,507             |           |                   |        | 46,495       |         |              |         | 119,076 |           |         |         | 186,042 |         
|                       |                                |                          |                                                             |        |                    |           |                   |        |              |         |              |        
|                       |                                |                          | Operating loss                                              |        |                    | (23,507   | )                 |        |              | (34,265 | )            |         |         | (117,467  | )       |         |         | (113,344 | )
|Other Income (Expense) |                                |                          |                                                             |        |                    |           |                   |        |              |         |              |         |         |           |         |        
|                       | Net gain on sale of net assets |                          |                                                             |       |                    |           |                   |       |              |         |              | 62,125  |         |           |         |        |        
|                       | Interest income                |                          |                                                             | 17,419 |                    |           |                   | 11     |              |         |              | 23,490  |         |           |         | 37      |        
|                       | Interest expense               |                          |                                                             |       |                    |           |                   | (1,199 | )            |         |              | (210    | )       |           |         | (3,709  | )      
|                       | Other                          |                          |                                                             |       |                    |           |                   | 39     |              |         |              | 528     |         |           |         | 730     |        
|                       |                                |                          |                                                             |        |                    |           |                   |        |              |         |              |        
|                       |                                |                          | Net loss                                                    |        | $                  | (6,088    | )                 |        | $            | (35,414 | )            |         | $       | (31,534   | )       |         | $       | (116,286 | )
|                       |                                |                          |                                                             |        |                    |           |                   |        |              |         |              |        
|                       |                                |                          | Basic and diluted loss per
commonshare                      |        | $                  | (0.00     | )                 |        | $            | (0.19   | )            |         | $       | (0.02     | )       |         | $       | (0.62    | )
|                       |                                |                          |                                                             |        |                    |           |                   |        |              |         |              |        
|                       |                                |                          | Weighted average common
sharesoutstanding-basic
and diluted |        |                    | 4,014,969 |                   |        |              | 186,177 |              |         |         | 1,922,532 |         |         |         | 186,177  |  
|                       |                                |                          |                                                             |        |                    |           |                   |        |              |         |              |        

See Notes to Financial Statements

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SURG II, INC.
STATEMENTS OF CASH FLOWS (UNAUDITED)

|                                                                        |                                                                                 |                                                                         |                                                     |                                       |         |                   |         |               |        |         |         |  
|----------------------------------------------------------------------- | ------------------------------------------------------------------------------- | ----------------------------------------------------------------------- | --------------------------------------------------- | ------------------------------------- | ------- | ----------------- | ------- | ------------- | ------ | ------- | ------- | -
|                                                                        |                                                                                 |                                                                         |                                                     |                                       |         | Nine Months Ended
|                                                                        |                                                                                 |                                                                         |                                                     |                                       |         |                  
|                                                                        |                                                                                 |                                                                         |                                                     |                                       |         | September 30,     |         | September 30,
|                                                                        |                                                                                 |                                                                         |                                                     |                                       |         | 2002              |         | 2001         
|                                                                        |                                                                                 |                                                                         |                                                     |                                       |         |                   |         |              
|Cash Flows from Operating Activities                                    |                                                                                 |                                                                         |                                                     |                                       |         |                   |         |              
|                                                                        | Net loss                                                                        |                                                                         | $                                                   | (31,534                               | )       |                   | $       | (116,286      | )     
|                                                                        | Adjustments to reconcile net loss to net
cash provided by operating activities: |                                                                         |                                                     |                                       |         |                   |         |               |       
|                                                                        |                                                                                 | Net gain on sale of net assets                                          |                                                     |                                       | (62,125 | )                 |         |               |       |        
|                                                                        |                                                                                 | Depreciation and amortization                                           |                                                     |                                       |        |                   |         |               | 4,360  |        
|                                                                        |                                                                                 | Amortization of prepaid consulting expenses                             |                                                     |                                       |        |                   |         |               | 38,636 |        
|                                                                        |                                                                                 | Non-cash compensation                                                   |                                                     |                                       | 10,000  |                   |         |               |       |        
|                                                                        |                                                                                 | Changes in assets and liabilities, net of effect of sale of net assets: |                                                     |                                       |         |                   |         |               |        |        
|                                                                        |                                                                                 |                                                                         |                                                     | Accounts receivable                   |         |                   | 6,267   |               |        |         | (34,757 | )
|                                                                        |                                                                                 |                                                                         |                                                     | Inventory                             |         |                   | 6,474   |               |        |         | 71,023  |  
|                                                                        |                                                                                 |                                                                         |                                                     | Prepaid expenses                      |         |                   | (1,257  | )             |        |         | (1,149  | )
|                                                                        |                                                                                 |                                                                         |                                                     | Accounts payable and accrued expenses |         |                   | (56,400 | )             |        |         | 20,563  |  
|                                                                        |                                                                                 |                                                                         |                                                     |                                       |         |                  
|                                                                        |                                                                                 |                                                                         | Net cash used in operating activities               |                                       |         | (128,575          | )       |               |        | (17,610 | )      
|                                                                        |                                                                                 |                                                                         |                                                     |                                       |         |                  
|Cash Flows from Investing Activities                                    |                                                                                 |                                                                         |                                                     |                                       |         |                   |         |              
|                                                                        | Net proceeds from sale of net assets                                            |                                                                         |                                                     | 149,226                               |         |                   |         |              |       
|                                                                        |                                                                                 |                                                                         |                                                     |                                       |         |                   |         |               |       
|Cash Flows from Financing Activities                                    |                                                                                 |                                                                         |                                                     |                                       |         |                   |         |              
|                                                                        | Net proceeds from sale of common stock                                          |                                                                         |                                                     | 3,240,000                             |         |                   |         |              |       
|                                                                        | Payments on notes payable                                                       |                                                                         |                                                     | (70,120                               | )       |                   |         | (5,546        | )     
|                                                                        | Payments on capital lease obligation                                            |                                                                         |                                                     |                                      |         |                   |         | (3,401        | )     
|                                                                        |                                                                                 |                                                                         |                                                     |                                       |         |                  
|                                                                        |                                                                                 |                                                                         | Net cash provided by (used in) financing activities |                                       |         | 3,169,880         |         |               |        | (8,947  | )      
|                                                                        |                                                                                 |                                                                         |                                                     |                                       |         |                  
|                                                                        |                                                                                 |                                                                         | Increase (decrease) in cash                         |                                       |         | 3,190,531         |         |               |        | (26,557 | )      
|Cash:                                                                   |                                                                                 |                                                                         |                                                     |                                       |         |                   |         |              
|                                                                        | Beginning                                                                       |                                                                         |                                                     | 8,150                                 |         |                   |         | 33,924        |       
|                                                                        |                                                                                 |                                                                         |                                                     |                                       |         |                  
|                                                                        | Ending                                                                          |                                                                         | $                                                   | 3,198,681                             |         |                   | $       | 7,367         |       
|                                                                        |                                                                                 |                                                                         |                                                     |                                       |         |                  
|Supplemental Disclosures of Cash Flow Information                       |                                                                                 |                                                                         |                                                     |                                       |         |                   |         |              
|                                                                        | Cash payments for interest                                                      |                                                                         | $                                                   | 6,105                                 |         |                   | $       | 7,011         |       
|Supplemental Disclosures of Non-cash Investing and Financing Activities |                                                                                 |                                                                         |                                                     |                                       |         |                   |         |              
|                                                                        | Conversion of preferred stock to common stock                                   |                                                                         | $                                                   | 400,000                               |         |                   | $       |              |       

See Notes to Financial Statements

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SURG II, INC.




NOTES TO FINANCIAL STATEMENTS (unaudited)

Note 1. Financial Statements:

The accompanying unaudited financial statements of Surg II, Inc. (the
Company) have been prepared in accordance with accounting principles
generally accepted in the United States of America for interim financial
information and the instructions to Form 10-QSB. Accordingly they do not
include all of the information and footnotes required by accounting principles
generally accepted in the United States of America. In the opinion of
management all adjustments, consisting of normal recurring items, necessary for
a fair presentation have been included. Operating results for the three and
nine months ended September 30, 2002 are not necessarily indicative of the
results that may be expected for the year ending December 31, 2002. These
financial statements should be read in conjunction with the financial
statements and footnotes thereto included in the Companys Annual Report on
Form 10-KSB for the year ended December 31, 2001.

Note 2. Sale of Net Operating Assets:

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 $9,000 after considering total
transaction costs of $104,000 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 anticipates utilizing its remaining capital structure to attract a
business opportunity with potential value to shareholders, see Note 3.
However, there can be no assurance that a business combination or similar
transaction will occur. The Company currently has no continuing operations.

A summary of the asset sale is as follows:

|                                   |              |   |         |        | 
|---------------------------------- | ------------ | - | ------- | ------ | 
|Proceeds                           |              | $ | 200,000 |       
|Transaction costs                  |              |   | 104,000 |       
|                                   |              |   |        
|                                   | Net proceeds |   | $       | 96,000 | 
|Less net book value of assets sold |              |   | (87,102 | )     
|                                   |              |   |        
|                                   | Gain         |   | $       | 8,898  | 
|                                   |              |   |        

The actual gain recorded in the statements of operations for the nine months
ended September 30, 2002 was approximately $62,000 as $55,000 of the total
transaction costs of $104,000 were incurred and expensed in 2001. The net
proceeds of approximately $150,000 reflected in the accompanying September 30,
2002 statement of cash flows is comprised of the gross proceeds received of
$200,000 less the transaction costs incurred and expensed in 2002 of
approximately $50,000.

A summary of the assets sold and liabilities assumed is as follows:

|                        |                 |   |         |        | 
|----------------------- | --------------- | - | ------- | ------ | 
|Accounts receivable     |                 | $ | 38,467  |       
|Inventories             |                 |   | 118,238 |       
|Other assets            |                 |   | 3,627   |       
|Furniture and equipment |                 |   | 15,914  |       
|Long-term debt          |                 |   | (10,506 | )     
|Accounts payable        |                 |   | (78,638 | )     
|                        |                 |   |        
|                        | Net assets sold |   | $       | 87,102 | 
|                        |                 |   |        

Because the Company sold all of its net operating assets, on a pro forma basis
there would have been no sales in any period presented, assuming the
transaction had been effective January 1, 2001.

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Note 3. Sale of Capital Stock to Entrx Corporation (formerly Metalclad Corporation):

On May 30, 2002, Entrx Corporation (Entrx) acquired 3,625,000 shares of
common stock, constituting approximately 90% of the outstanding shares of the
Company for $3,000,000 invested into the Company.

On September 25, 2002, Entrx acquired an additional 357,142 shares of common
stock for $300,000 invested into the Company.

Note 4. Reverse Stock Split

On September 23, 2002, the Companys Board of Directors approved a reverse
stock split of the Companys common stock at a ratio of one-for-40 and a change
in the par value from none to $.01 per share. The reverse split and change in
par value became effective with respect to shareholders of record at the close
of business on October 4, 2002. In lieu of fractional shares, shareholders
will receive a cash payment. Stockholders equity has been restated to give
retroactive recognition of the reverse split and change in par value for all
periods presented by reclassifying to additional paid-in capital the amount in
excess of the par value of the outstanding shares. All references to common
share and per common share amounts for all periods presented have been
retroactively restated to reflect this reverse split.

Note 5. Net Loss Per Share:

The loss per share amounts for the three and nine months ended September 30,
2002 and September 30, 2001 were computed by dividing the net loss by the
weighted average shares outstanding during the applicable period. Dilutive
common equivalent shares have not been included in the computation of diluted
loss per share because their inclusion would be antidilutive. Anti-dilutive
common equivalent shares issuable based on future exercise of stock warrants
could potentially dilute basic and diluted earnings per share in subsequent
periods.

All stock warrants were anti-dilutive as of September 30, 2002 and 2001.

Note 6. Subsequent Event:

On October 18, 2002, Entrx paid a dividend to its shareholders of record as of
October 11, 2002 of one share of Surg IIs $0.01 par value common stock for
each 2 shares of Entrx common stock held.




ITEM 2. Managements Discussion and Analysis of Financial Condition or Plan of
Operation

All statements, other than statements of historical fact, included in this Form
10-QSB, including without limitation the statements under Managements
Discussion and Analysis of Financial Condition and Results of Operations are,
or may be deemed to be, forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934. Such forward-looking statements involve
assumptions, known and unknown risks, uncertainties, and other factors which
may cause the actual results, performance or achievements of Surg II, Inc. to
be materially different from any future results, performance or achievements
expressed or implied by such forward-looking statements contained in this Form
10-QSB. Such potential risks and uncertainties include, without limitation,
the ability of the Company to acquire a business enterprise and other risk
factors detailed herein and in other of the Companys filings with the
Securities and Exchange Commission. The forward-looking statements are made as
of the date of this Form 10-QSB and the Company assumes no obligation to update
the forward-looking statements or to update the reasons actual results could
differ from those projected in such forward-looking statements. Therefore,
readers are cautioned not to place undue reliance on these forward-looking
statements.

Results of Operations  Three and Nine Months Ended September 30, 2002 and 2001

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 $9,000 with
gross cash proceeds of

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$200,000. See Note 2 to the financial statements for further information.
After the sale the Company has no sources of revenue as the net operating
assets sold represented substantially all of its operations. On May 30, 2002,
Entrx Corporation (Entrx), an unrelated company, acquired 3,625,000 shares of
common stock, constituting approximately 90% of the outstanding shares of the
Company for $3,000,000 invested into the Company, and on September 25, 2002
acquired an additional 357,142 share for $300,000 invested into the Company.

Sales.There were no sales for the three months ended September 30, 2002
compared with sales of $121,000 for the comparable period in 2001. Sales for
the nine months ended September 30, 2002 were $33,000, compared to $347,000 for
the same period in 2001, a decrease of approximately 90%. These decreases were
primarily related to the sale of net assets, as sales activity ceased after
January 22, 2002.

Cost of Goods Sold and Gross Profit.Due to the sale of the net assets, there
was no cost of goods sold for the three months ended September 30, 2002 and
cost of goods sold was $32,000 for the nine months ended September 30, 2002.
For the three and nine months ended September 30, 2001 cost of goods sold was
$109,000 and $275,000, respectively. Gross profit expressed as a percentage of
sales was approximately 10% for the three months ended September 30, 2001 and
was 5% for the nine months ended September 30, 2002 compared to 21% for the
same period in 2001. The decreases were due primarily to less sales volume in
2002 over which to spread certain fixed manufacturing costs.

Operating Expenses.Operating expenses decreased from $46,000 for the
three-month period ended September 30, 2001 to $24,000 for the three-month
period ended September 30, 2002, a 49% decrease. For the nine months ended
September 30, 2002, operating expenses were $119,000 compared to $186,000 for
the nine months ended September 30, 2001, a 36% decrease. The decreases were
primarily the result of the sale of net assets, as operating activities ceased
after January 22, 2002.

Interest Income and Expense.Net interest income for the three and nine months
ended September 30, 2002 was $17,000 and $23,000, respectively, as compared to
net interest expense of $1,000 and $4,000 for the three and nine months ended
September 30, 2001, respectively. The increase in net interest income is
primarily the result of higher cash balances due to the sale of common stock to
Entrx Corporation.

Net Loss.As a result of the above factors, the Company experienced a net loss
of $6,000, or $0.00 per share, and $32,000, or $0.02 per share, for the three
and nine months ended September 30, 2002, respectively, compared with a net
loss of $35,000, or $0.19 per share, and $116,000, or $0.62 per share, for the
three and nine months ended September 30, 2001.

Liquidity and Capital Resources:

The Company is seeking to acquire a business which the Company believes would
be expected to have potential for growth. The Company has been seeking such
businesses, and has been negotiating with various parties for such an
acquisition. The Company will continue to engage in such negotiations, and
will publicly announce any definitive agreement entered into for the
acquisition of any new business shortly after reaching such an agreement.

As of September 30, 2002, the Company had working capital of $3,172,000
compared to a working capital deficit of $61,000 as of December 31, 2001. The
increase in working capital was primarily the result of the net proceeds from
the sale of common stock to Entrx Corporation.

For the nine month period ended September 30, 2002, the net cash used in
operating activities was $129,000 compared with net cash used in operating
activities of $18,000 for the nine months ended September 30, 2001. The
negative cash flows from operating activities were primarily the result of
funding operating losses. In addition, during the nine months ended September
30, 2002, the Company used cash to decrease accounts payable and accrued
expenses. These uses were partially offset by non-cash compensation expense and
decreases in accounts receivable and inventory. During the nine months ended
September 30, 2001, in addition to the use of cash to fund operating losses an
increase in accounts receivable also used cash. These uses were partially
offset by a decrease in inventory, an increase in accounts payable and accrued
expenses and non-cash expenses for amortization of prepaid consulting.

Net proceeds from investing activities provided $149,000 of cash for the nine
months ended September 30, 2002 due to the net proceeds received from the net
asset sale.

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Financing activities provided $3,170,000 of cash for the nine months ended
September 30, 2002 and used $9,000 of cash for the nine months ended September
30, 2001. Net proceeds from the sale of common stock, offset by payments on
notes payable, was the source of the financing funds provided in 2002. For the
nine months ended September 30, 2001 payments on notes payable used $6,000 of
cash and payments on the capital lease obligation used $3,000 of cash.

As discussed above, the Company anticipates utilizing its remaining capital
structure to attract a business opportunity that will maximize potential value
to shareholders. However, there can be no assurance that a business
combination or similar transaction will occur. The Company currently has no
continuing operations. Management believes that its cash should be sufficient
to satisfy its cash requirements for the next twelve months.

Critical Accounting Policies

Our significant accounting policies are described in Note 1 to the financial
statements included in our annual report for the year ended December 31, 2001.
The accounting policies used in preparing our interim 2002 condensed financial
statements are the same as those described in our annual report.

Recently Issued Accounting Pronouncements

In October 2002, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 147, Acquisitions of
Certain Financial Institutions. SFAS No. 147 is effective October 1, 2002.
The Company believes the adoption of SFAS No. 147 will not have a material
effect on the Companys financial position or results of operations.




PART II. OTHER INFORMATION




Item 1. Legal Proceedings

None




Item 2. Changes in Securities and Use of Proceeds

On September 25, 2002, Entrx acquired an additional 357,142 shares of
common stock for $300,000 invested into the Company.

On October 4, 2002, the Company reverse split its no par value common
stock one share for each forty shares held. At the same time, the Company
changed the par value of its common stock from none to $.01 per share.




Item 3. Defaults Upon Senior Securities

Not Applicable




Item 4. Submission of Matters to a Vote of Security Holders

None




Item 5. Other Information

None

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Item 6. Exhibits and Reports on Form 8-K



| |    |  |                     |                                                                                                                        
| | -- |  | ------------------- | -----------------------------------------------------------------------------------------------------------------------
| | a) |  | Exhibits            |                                                                                                                        
|
| |    |  | 99.1                | Certification Pursuant to 18
U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|
| |    |  | 99.2                | Certification Pursuant to 18
U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|
| | b) |  | Reports on Form 8-K
|
| |    |  |                     |                                                                                                                        

On July 16, 2002 the Company filed a Form 8-K disclosing that it had
engaged Virchow, Krause & Company, LLP to audit its financial statements for
the year ending December 31, 2002.




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.

|      |  |                  |  |                                                                           
|----- |  | ---------------- |  | --------------------------------------------------------------------------
|      |  |                  |  | SURG II, INC                                                              
|     
|     
|     
|     
|      |  |                  |  |                                                                           
|     
|     
|     
|     
|Date: |  | November 7, 2002 |  | /s/ Kenneth W. Brimmer                                                    
|      |  |                  |  |                                                                           
|      |  |                  |  | By: Kenneth W. Brimmer
President and Chief Executive Officer              
|     
|     
|     
|     
|      |  |                  |  |                                                                           
|     
|     
|     
|     
|Date: |  | November 7, 2002 |  | /s/ Brian D. Niebur                                                       
|      |  |                  |  |                                                                           
|      |  |                  |  | By: Brian D. Niebur
Chief Financial Officer
(Principal Accounting Officer)




CERTIFICATIONS

I, Kenneth W. Brimmer, certify that:

1. I have reviewed this quarterly report on 10-QSB of Surg II, Inc.;

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 the
registrant as of, and for, the periods presented in this quarterly report;

4. The registrants other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:



| | a) |  | designed such disclosure controls and procedures to ensure that
material information relating to the registrant, 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 the registrant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. The registrants other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrants auditors and the audit
committee of registrants board of directors (or persons performing the
equivalent function):

10



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##### Table of Contents





| | a) |  | all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrants
ability to record, process, summarize and report financial data and
have identified for the registrant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 the registrants
internal controls; and                                                                                                                                        

6. The registrants other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in 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: |  | November 7, 2002 |  | /s/ Kenneth W. Brimmer                                      
|      |  |                  |  |                                                             
|      |  |                  |  | By: Kenneth W. Brimmer
President and Chief Executive Officer

I, Brian D. Niebur, certify that:

1. I have reviewed this quarterly report on 10-QSB of Surg II, Inc.;

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 the
registrant as of, and for, the periods presented in this quarterly report;

4. The registrants other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:



| | a) |  | designed such disclosure controls and procedures to ensure that
material information relating to the registrant, 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 the registrant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. The registrants other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrants auditors and the audit
committee of registrants board of directors (or persons performing the
equivalent function):



| | a) |  | all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrants
ability to record, process, summarize and report financial data and
have identified for the registrant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 the registrants
internal controls; and                                                                                                                                        

6. The registrants other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in 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: |  | November 7, 2002 |  | /s/ Brian D. Niebur                        
|      |  |                  |  |                                            
|      |  |                  |  | By: Brian D. Niebur
Chief Financial Officer

11