SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
For the Quarterly Period Ended September 30, 1996
Commission File Number 1-11831
SABRATEK CORPORATION
(Exact name of registrant as specified in its charter)
36-3700639
DELAWARE
(State or Other Jurisdiction of Incorporation or Organization)
5601 West Howard Street
Niles, Illinois 60714
(Address of Principal Executive Offices, Including Zip Code)
(847) 647-2760
(Registrant's Telephone Number, Including Area Code)
Indicate by check mark whether the registrants (1) have filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 (the "Exchange Act") during the preceding 12 months (or for such shorter
period that the registrants were required to file such reports), and (2) have
been subject to such filing requirements for the past 90 days.
Yes X No
As of November 1, 1996, 8,089,924 shares of Sabratek Corporation's Common Stock
were outstanding.
<PAGE>
SABRATEK CORPORATION
FORM 10-Q
For the Quarterly Period Ended September 30, 1996
TABLE OF CONTENTS
PART I FINANCIAL INFORMATION
Page
Item 1. Financial Statements
Balance Sheet
September 30, 1996 (Unaudited) and December 31, 1995.... 3
Statements of Operations
Three and Nine Months Ended September 30, 1996 and
September 30, 1995 (Unaudited).......................... 4
Statements of Cash Flows
Nine Months Ended September 30, 1996 and
September 30, 1995 (Unaudited).......................... 5
Notes to Financial Statements (Unaudited)............... 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations..................... 9
PART II OTHER INFORMATION....................................... 13
- 2 -
<PAGE>
SABRATEK CORPORATION
BALANCE SHEETS
(In thousands, except share data)
<TABLE>
<CAPTION>
September 30,
1996 December 31,
(Unaudited) 1995
----------- ----
ASSETS
<S> <C> <C>
Cash and cash equivalents $ 9,504 $8
Short-term investment in marketable securities 6,981 -
Receivables:
Trade, net of allowance for doubtful accounts of
$110,412 and $187,969 at September 30, 1996 and
December 31, 1995, respectively 4,911 766
Due from related party 865 576
Other 121 -
-------- --------
Total receivables 5,897 1,342
------- ------
Inventories 3,991 1,825
Other current assets 483 51
-------- -------
Total current assets 26,856 3,226
------- ------
Property, plant and equipment, net 821 902
Long-term investment in marketable securities 3,006 -
Other 96 51
--------- -------
Total assets $30,779 $4,179
======= ======
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Short term debt $ 168 $621
Current portion of capital lease obligation 151 151
Current portion of long-term debt 2 3
Accounts payable 1,500 2,377
Accrued expenses:
Payroll & commissions 700 191
Warranty 206 229
Other 64 287
Deferred rent 32 32
Deferred revenue 81 125
Due to affiliated company 229 312
--------- -------
Total current liabilities 3,133 4,328
-------- ------
Long-term capital lease obligation 11 149
Long-term debt 3 2,362
Accrued interest - 161
--------- -------
Total liabilities 3,147 7,000
------- ------
Stockholders' equity (deficit)
Convertible preferred stock, issued and outstanding;
1,768,129 at December 31, 1995 - 18
Common stock, issued and outstanding; 8,064,209 at
September 30, 1996, 1,718,458 at December 31, 1995 81 17
Deferred compensation grant options - -
Additional paid-in capital 42,357 10,709
Note receivable from stockholder - (113)
Deferred compensation (18) -
Accumulated deficit (14,788) (13,452)
--------- --------
Total stockholders' equity (deficit) 27,632 (2,821)
-------- ---------
$30,779 $4,179
======= =======
</TABLE>
See accompanying notes to financial statements.
- 3 -
<PAGE>
SABRATEK CORPORATION
STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------------------------------------------------------------------------------
1996 1995 1996 1995
-------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $4,874 $ 640 $11,589 $ 2,633
Cost of sales 2,487 552 5,832 2,008
-------------------------------------------------------------------------------------------
Gross margin 2,387 88 5,757 625
Selling, general and
administrative expenses 2,275 1,497 5,528 4,924
-------------------------------------------------------------------------------------------
Operating income (loss) 112 (1,409) 229 (4,299)
-------------------------------------------------------------------------------------------
Other income (expense):
Interest income 330 4 345 10
Interest expense (48) (60) (285) (93)
Stock appreciation rights - - (1,628) -
Other - (21) 3 (64)
-------------------------------------------------------------------------------------------
Net income (loss) $ 394 $(1,486) $(1,336) $(4,446)
===========================================================================================
Weighted average shares
outstanding 9,072 4,130 7,163 3,993
===========================================================================================
Net income (loss) per share $ 0.04 $ (0.36) $ (0.19) $ (1.11)
===========================================================================================
</TABLE>
See accompanying notes to financial statements.
- 4 -
<PAGE>
SABRATEK CORPORATION
STATEMENTS OF CASH FLOWS
(In thousands)
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
--------------------------------------------------------
September 30, September 30,
1996 1995
--------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities
Net loss $(1,336) ($4,446)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation and amortization 231 127
Deferred compensation 2 -
Stock appreciation rights expense 1,628 -
Provision for bad debts 46 114
Changes in assets and liabilities
Receivables (4,477) (134)
Deferred revenue (75) 125
Inventories (2,166) (684)
Advances to stockholders - 125
Accounts payable (877) 814
Accrued expenses 263 158
Due to affiliated company (83) (92)
Other (431) 30
--------------------------------------------------------
Net cash used in operating activities (7,275) (3,863)
--------------------------------------------------------
Cash flows from investing activities:
Purchases of property, plant and equipment (196) (505)
Purchase of marketable securities (9,987) -
--------------------------------------------------------
Net cash used in investing activities (10,183) (505)
--------------------------------------------------------
Cash flows from financing activities:
Proceeds from issuance of short-term debt 168 218
Repayment of short-term debt (621) -
Repayment of long-term debt (351) (2)
Proceeds from issuance of long-term debt 1,570 1,775
Payment of stock appreciation rights (1,628) -
Payments of capital lease obligations, net (138) (107)
Proceeds of capital lease, net - 185
Proceeds from issuance of stock, net 27,954 1,999
--------------------------------------------------------
Net cash provided by financing activities 26,954 4,068
--------------------------------------------------------
Increase (decrease) in cash 9,496 (300)
Cash and cash equivalents at beginning of year 8 765
--------------------------------------------------------
Cash and cash equivalents at end of year $9,504 $ 465
========================================================
</TABLE>
See accompanying notes to financial statements.
- 5 -
<PAGE>
SABRATEK CORPORATION
NOTES TO FINANCIAL STATEMENTS
September 30, 1996
(UNAUDITED)
(1) Financial Statements
The financial statements included herein have been prepared by the Company,
without audit, and include all adjustments of a normal recurring nature which
are, in the opinion of management, necessary for fair presentation of the
results of operations for the three month and nine month periods ended September
30, 1996 and 1995 pursuant to the rules and regulations of the Securities and
Exchange Commission. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules and
regulations, although the Company believes that the disclosures in these
financial statements are adequate to make the information presented not
misleading. These financial statements should be read in conjunction with the
Company's financial statements and the notes thereto included in the Company's
Form S-1 Registration Statement (No. 333-3866) filed by the Company with the
Securities and Exchange Commission. The results of operations for the nine
months ended September 30, 1996 are not necessarily indicative of the results
that may be expected for the year ending December 31, 1996.
(2) Initial Public Offering
In June, 1996, the Company completed an initial public offering of 2,875,000
shares of Common Stock, par value $0.01, at a price of $10.00, with proceeds to
the Company of $26,737,500 after underwriters' discounts and commissions. The
Company's shares are traded on the Nasdaq National Market under the symbol
"SBTK."
(3) Cash and Cash Equivalents
Cash and cash equivalents represent funds in demand deposits, money market
accounts and short-term bond mutual funds. Also included are U.S. Treasury Bills
and U.S. Treasury Notes to the extent they mature within ninety days.
(4) Short-term and Long-term Investment in Marketable Securities
The following table summarizes short-term and long-term investments in
marketable securities as of September 30, 1996:
- 6 -
<PAGE>
Less than 1-2
(in thousands) 1 Year Years Total
--------- ----- -----
U.S. Treasury Bills $4,981 $ - $4,981
U.S. Treasury Notes 2,000 3,006 5,006
---------------------------------------
$6,981 $3,006 $9,987
=======================================
The above securities are classified as available-for-sale and are reported at
fair value. As of the balance sheet date, fair value approximated cost, whereby
no unrealized gain or loss has been recorded.
(5) Long-term Debt
Immediately following the initial public offering, subordinated debentures in
the principal amount of $350,000, plus remaining interest, were repaid.
Approximately $26,530 of interest was paid in the form of 5,574 shares of Common
Stock, as originally provided for in certain debentures.
Upon the closing of the initial public offering, convertible subordinated
debentures in the principal amount of $3,012,793, along with accrued interest
thereon of $337,680, were converted into 1,202,965 shares of Common Stock.
Certain debentures provided for a conversion premium that substantially reduced
the stated conversion price.
(6) Series A Preferred Stock
Upon the closing of the initial public offering, all 1,768,129 shares of
outstanding Series A Preferred Stock were converted into 1,838,113 shares of the
Company's Common Stock, including anti-dilutive adjustments.
(7) Warrants
On June 27, 1996 a warrant was exercised for 9,454 shares of Common Stock
providing proceeds to the Company of $45,000.
(8) Supplemental Disclosures of Cash Flow Information
Cash paid for interest during the nine month period ended September 30, 1996 was
$81,704.
In February, 1996, the Company issued 124,488 shares of Common Stock in
satisfaction of accrued liabilities in the amount of $592,500 for services
rendered in 1995.
During the nine months ended September 30, 1996, the Company retired aggregate
long-term debt principal of $3,597,793 and satisfied accrued interest
obligations on long-term debt of $364,210, in exchange for 1,331,451 shares of
Common Stock, in aggregate.
- 7 -
<PAGE>
(9) Stock Options
During the three month period ended September 30, 1996, stock options were
granted for 55,000 shares of Common Stock under the Sabratek Corporation Amended
and Restated 1993 Stock Option Plan, at an exercise price equal to the fair
market value on the date of grant. The stock options vest over a multi-year
period.
(10) Weighted Average Shares
Weighted average shares outstanding for the three month period ended September
30, 1996 are calculated on a fully diluted basis applying the treasury-stock
method for options and warrants outstanding.
Weighted average shares outstanding for the nine month period ended September
30, 1996 are calculated pursuant to Securities and Exchange Commission Staff
Accounting Bulletin No. 83 for stock options and warrants outstanding and
pro-rated based on the date of the initial public offering. Other Common Stock
equivalent shares from stock options and warrants are excluded from the
computation because their effect is anti-dilutive.
- 8 -
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The Company
Sabratek Corporation (the "Company" or "Sabratek") develops, produces
and markets technologically advanced, user friendly, interactive therapeutic and
diagnostic medical systems designed specifically to meet the needs of the
alternate-site health care market. The Company's multitherapy infusion and other
systems reduce operating costs while improving the delivery and quality of care,
allowing high-acuity patients to be treated in alternate-site settings.
Sabratek's proprietary MediVIEW (TM) health care information system provides
remote programming as well as real-time diagnostic and therapeutic data capture
capabilities, allowing caregivers to monitor patient compliance more effectively
and allowing providers to develop outcome analyses and optimal clinical
protocols. The Company has designed its integrated hardware and software system
to permit providers to achieve cost-effective movement of patients along the
continuum of alternate-site health care settings.
Sabratek's revenues are currently derived from sales of its
multi-therapy infusion pumps, related disposables and accessories, Pumpmaster IV
pump diagnostic device and MediVIEW software and peripherals, all of which make
up the Sabratek Seamless Delivery System. The Company is in the process of
expanding the products that are offered under the MediVIEW software platform
with the strategy of creating a "virtual" hospital room, where high-acuity
patients can receive high-quality, cost effective care outside of the
traditional hospital setting.
Sabratek's strategy focuses specifically on the alternate-site health
care market, which it believes will continue to experience significant growth as
managed care payors continue to move patients to the lowest-cost care setting.
Such growth may be attributed to increasing cost-containment pressures, along
with advances in medical technology, that have transitioned the delivery of
health care away from the traditional acute-care setting to more cost-effective
sites. The alternate-site market includes, among other things, the provision of
services rendered in various settings, including the patient's residence,
sub-acute care facilities, nursing homes, outpatient clinics, dialysis centers
and hospice facilities. The Company currently markets its products domestically
to national, regional and local alternate-site health care providers through a
direct sales force and a network of specialized alternate-site medical products
distributors. The Company also markets its products internationally through
distributors in Europe, Asia, South America and the Middle East.
The following narrative discusses the results of operations, liquidity
and capital resources for Sabratek Corporation.
Results of Operations
Three Months Ended September 30, 1996 vs. Three Months Ended September 30,1995
and Nine Months Ended September 30,1996 vs. Nine Months Ended September 30,1995
- -------------------------------------------------------------------------------
Net Sales. Net sales increased to $4.9 million for the three month
period ended September 30, 1996 as compared to $640,000 for the three month
period ended September 30, 1995, an increase of 661%. Net sales for the nine
month period ended September 30, 1996 were $11.6 million as
- 9 -
<PAGE>
compared to $2.6 million for the nine month period ended September 30, 1995, an
increase of $9.0 million, or 346%. Approximately $5.7 million of the increase
during the nine month period ended September 30, 1996 is attributable to
incremental sales volume of the 3030 Stationary Pump and related disposables to
regional and national accounts in the alternate-site health care market. The
balance of the increase for the nine month period ended September 30, 1996
resulted from the addition of the 6060 Ambulatory Pump, disposables and related
products first introduced in the fourth quarter of 1995.
Cost of Sales. Cost of sales increased $1.9 million to $2.5 million for
the three months ended September 30, 1996 as compared to $552,000 for the three
months ended September 30, 1995, an increase of 350%. Cost of sales for the nine
month period ended September 30, 1996 was $5.8 million as compared to $2.0
million for the nine months ended September 30, 1995, an increase of $3.8
million, or 190%. The increase for both comparative periods was primarily
attributable to incremental sales volume.
Gross Margin. Gross margin for the three month period ended September
30, 1996 was $2.4 million as compared to $88,000 for the three month period
ended September 30, 1995, an increase of $2.3 million. For the nine month
periods ended September 30, 1996 and 1995, gross margins were $5.8 million and
$625,000, respectively. Gross margin as a percent of sales was 49% for the three
months ended September 30, 1996 as compared to 14% for the three months ended
September 30, 1995. For the nine months ended September 30, 1996 and 1995, gross
margins as a percent of sales were 50% and 24%, respectively. The increase in
gross margin, both absolute and as a percent of sales, was due primarily to
increased sales volume and the variable contribution margin thereon and,
secondarily, to higher average pricing levels.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $778,000 to $2.3 million for the three months
ended September 30, 1996 as compared to $1.5 million for the three months ended
September 30, 1995, an increase of 52%. Selling, general and administrative
expenses for the nine month period ended September 30, 1996 were $5.5 million as
compared to $4.9 million for the nine month period ended September 30, 1995. As
a percent of sales for the three month periods ended September 30, 1996 and
1995, selling, general and administrative expenses were 47% and 234%,
respectively. Expansion of the Company's sales and clinical support staff
represented incremental expenses of approximately $1.1 million during the nine
month period ended September 30, 1996 as compared to the nine month period ended
September 30, 1995, which was partly offset by the absence of financing,
marketing, and development consulting fees incurred during the comparative
period of 1995.
Operating Income (Loss). The Company reported operating income of
$112,000 for the three months ended September 30, 1996 as compared to an
operating loss of $1.4 million for the three months ended September 30, 1995.
For the nine month period ended September 30, 1996, the Company reported
operating income of $229,000 versus an operating loss of $4.3 million for the
nine month period ended September 30, 1995. The primary factors in achieving
operating profitability, as discussed above, are the addition of the 6060
Ambulatory Pump product line in the fourth quarter of 1995 and increased volume
of existing products in the comparative periods.
- 10 -
<PAGE>
Interest Income. Interest income increased to $330,000 for the three
month period ended September 30, 1996 from $4,000 for the three month period
ended September 30, 1995. For the nine month period ended September 30, 1996,
interest income increased to $345,000 from $10,000 for the nine month period
ended September 30, 1995. The substantial increase for both comparative periods
is due to the investment interest on unused proceeds from the Company's initial
public offering in June, 1996.
Interest Expense. Interest expense decreased $12,000 to $48,000 for the
three months ended September 30, 1996 as compared to $60,000 for the three
months ended September 30, 1995. For the nine month periods ended September 30,
1996 and 1995, interest expense was $285,000 and $93,000, respectively. The
decrease during the three month period ended September 30, 1996 is attributable
to the repayment and conversion of substantially all long-term debt of the
Company subsequent to the Company's initial public offering in June, 1996.
Income Tax Provision. Due to net losses for the nine month periods
ended September 30, 1996 and 1995, the Company did not incur any federal or
state income tax liability for such periods. The Company currently has a net
operating loss carryforward in excess of $13 million; however, utilization of
such depends on future earnings and will be subject to annual limitations as a
result of changes that have occurred in the Company's ownership.
Net Income (Loss). Net income for the three months ended September 30,
1996 was $394,000 as compared to a net loss of $1.5 million for the three months
ended September 30, 1995. Net income for the three months ended September 30,
1996 was achieved primarily as a result of increased unit sales volume of new
and existing products and the corresponding contribution margin thereon. The net
loss for the nine months ended September 30, 1996 was $1.3 million versus a net
loss of $4.4 million for the nine month period ended September 30, 1995. The
nine month period ended September 30, 1996 includes a non-recurring charge for
stock appreciation rights of $1.6 million.
Liquidity and Capital Resources
In June, 1996, the Company completed an initial public offering with
proceeds of $26,737,500, after underwriters' discounts and commissions. As of
September 30, 1996, unused proceeds were invested in U.S. Treasury Bills, U.S.
Treasury Notes, a short-term bond mutual fund as well as a money market account.
As of September 30, 1996, the Company had approximately $19,491,000 in
cash, cash equivalents, short-term and long-term marketable securities and had
net working capital of approximately $23,723,000. The Company terminated its
credit facility with Sterling Business Credit during the three month period
ended September 30, 1996. It is the Company's intention to secure a more
favorable credit facility in the near future; however, due to the dynamic nature
and inherent uncertainties of economic and credit markets, there can be no
assurance that such intentions will be realized.
The Company used cash in its operations of approximately $7.3 million
for the nine month period ended September 30, 1996. Cash used in operations for
the period exceeds the Company's
- 11 -
<PAGE>
operating results for the same period due, primarily, to the growth in trade
accounts receivable and inventories as a result, respectively, of actual and
anticipated growth in sales volume.
The Company believes that its financial assets will be sufficient to
fund its operations for the foreseeable future. Further liquidity and capital
resources could be adversely influenced by certain factors including the
Company's dependence on a relatively new customer base, regulatory or
legislative changes pertaining to health care, product liability exposure
regarding the delivery of medication, dependence on future product development,
and others. There can be no assurance that the Company will not require
additional financing and may, in the future, seek additional funds through bank
facilities, debt or equity offerings and to the extent such additional financing
is not available, the Company could suffer material adverse effects to its
financial condition and the results of its operations.
- 12 -
<PAGE>
PART II
OTHER INFORMATION
All of the information which would be required in response to
Items 1, 2, 4 and 5 is incorporated by reference to the Company's Registration
Statement on Form S-1, declared effective by the United States Securities and
Exchange Commission on June 21, 1996 (File No. 333-3866).
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit Page Number Incorporation
Number Description of Documents (if applicable) by Reference
(if applicable)
<S> <C> <C>
3(i) Articles of Incorporation +
3(ii) ByLaws +
10 Material contracts +
11.1 Statement re: computation of per share earnings 15
27 Financial Data Schedule 16
</TABLE>
+ Incorporated by reference to the Company's Registration Statement on Form
S-1, declared effective by the Commission on June 21, 1996 (File No.
333-3866).
(b) Sabratek Corporation has not filed any reports on Form 8-K during the
quarterly period ended September 30, 1996.
- 13 -
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SABRATEK CORPORATION
Date: November 13, 1996 By:/s/ K. Shan Padda
K. Shan Padda
Chairman and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed by the undersigned, in his capacity as the principal
financial officer of the registrant.
Date: November 13, 1996 By:/s/ Stephen L. Holden
Stephen L. Holden
Principal Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed by the undersigned, in his capacity as the chief
accounting officer of the registrant.
Date: November 13, 1996 By:/s/ Scott Skooglund
Scott Skooglund
Chief Accounting Officer
- 14 -
STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
---------------------------------------------------------------------------------------------
September 30, September 30, September 30, September 30,
1996 1995 1996 1995
---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net income (loss) in
thousands $394 ($1,486) ($1,336) ($4,446)
=============================================================================================
Weighted average common
shares outstanding 5,023,131 1,408,945 3,199,202 1,514,147
Weighted average preferred
shares outstanding
assuming conversion 1,838,113 1,838,113 1,838,113 1,596,223
Effect of conversion of
convertible subordinated
debentures 1,202,965 - 1,202,965 -
Additional shares pursuant
to SAB 83 - 883,052 922,599 883,052
Additional shares for
options and warrants
outstanding under treasury-
stock method 1,007,339 - - -
---------------------------------------------------------------------------------------------
9,071,548 4,130,110 7,162,879 3,993,422
=============================================================================================
$0.04 ($0.36) ($0.19) ($1.11)
=============================================================================================
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 9,503,549
<SECURITIES> 9,987,012
<RECEIVABLES> 5,886,707
<ALLOWANCES> 110,412
<INVENTORY> 3,990,680
<CURRENT-ASSETS> 26,855,507
<PP&E> 1,285,340
<DEPRECIATION> 464,175
<TOTAL-ASSETS> 30,778,563
<CURRENT-LIABILITIES> 3,133,072
<BONDS> 13,668
0
0
<COMMON> 80,642
<OTHER-SE> 27,631,823
<TOTAL-LIABILITY-AND-EQUITY> 30,778,563
<SALES> 11,513,948
<TOTAL-REVENUES> 11,588,948
<CGS> 5,750,531
<TOTAL-COSTS> 5,832,048
<OTHER-EXPENSES> 5,527,531
<LOSS-PROVISION> 46,048
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 229,369
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,335,512)
<EPS-PRIMARY> (0.19)
<EPS-DILUTED> 0
</TABLE>
