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, 1997
Commission File Number 1-11831
SABRATEK CORPORATION
(Exact name of registrant as specified in its charter)
36-3700639
(I.R.S. Employer Identification Number)
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 October 31, 1997, 10,212,838 shares of Sabratek Corporation's Common Stock
were outstanding.
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SABRATEK CORPORATION
FORM 10-Q
For the Quarterly Period Ended September 30, 1997
TABLE OF CONTENTS
PART I FINANCIAL INFORMATION
Page
Item 1. Financial Statements
Balance Sheets
September 30, 1997 (Unaudited) and December 31, 1996........... 3
Statements of Operations
Three Months and Nine Months Ended September 30, 1997
and 1996 (Unaudited)........................................... 4
Statements of Cash Flows
Nine Months Ended September 30, 1997 and 1996 (Unaudited)...... 5
Notes to Financial Statements (Unaudited)...................... 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.......................................... 10
PART II OTHER INFORMATION
Item 1. Legal Proceedings.............................................. 15
Item 2. Changes In Securities.......................................... 15
Item 4. Submission of Matters to a Vote of Security Holders............ 15
Item 6. Exhibits and Reports on Form 8-K............................... 16
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SABRATEK CORPORATION
BALANCE SHEETS
(In thousands, except share data)
September 30, December 31,
1997 1996
------------ ------------
ASSETS (Unaudited)
Current assets:
<S> <C> <C>
Cash & cash equivalents $18,501 $ 10,447
Short-term investments in marketable securities 4,003 4,352
Receivables:
Trade, net of allowance for doubtful accounts
of $404 and $146 at September 30, 1997
and December 31, 1996, respectively 14,622 8,305
Other 307 125
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Total receivables 14,929 8,430
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Inventories 10,720 5,049
Other current assets 1,159 586
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Total current assets 49,312 28,864
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Property, plant and equipment, net 3,034 1,775
Notes receivable 117 200
Intangible assets, net 11,390 41
Long-term investments in marketable securities 2,003 2,012
Other 97 59
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$65,953 $32,951
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term debt $ - $ 168
Current portion of capital lease obligation 43 132
Current portion of long-term debt 2 3
Accounts payable 1,780 2,247
Accrued expenses:
Payroll & commissions 1,793 1,265
Warranty 291 236
Other 316 86
Due to affiliated company 123 140
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Total current liabilities 4,348 4,277
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Long-term capital lease obligation 7 23
Long-term obligations 148 1
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Total liabilities 4,503 4,301
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Stockholders' equity:
Common stock, par value $.01, issued and 102 82
outstanding; 10,209,779 at September 30, 1997,
8,196,981 at December 31, 1996
Additional paid-in capital 70,877 42,891
Deferred compensation (14) (17)
Unrealized gains 44 4
Accumulated deficit (9,559) (14,310)
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Total stockholders' equity 61,450 28,650
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$65,953 $32,951
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See accompanying notes to financial statements
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SABRATEK CORPORATION
STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(UNAUDITED)
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------------------------------------------------------
1997 1996 1997 1996
------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $11,751 $ 4,874 $29,065 $11,589
Cost of sales 5,231 2,487 12,416 5,832
------------------------------------------------------------------------
Gross margin 6,520 2,387 16,649 5,757
Selling, general and administrative expenses 4,757 2,275 12,663 5,528
------------------------------------------------------------------------
Operating income 1,763 112 3,986 229
------------------------------------------------------------------------
Other income (expense):
Interest income 374 330 931 345
Interest expense (16) (48) (37) (285)
Stock appreciation rights - - - (1,628)
Other - - (32) 3
------------------------------------------------------------------------
Net income (loss) before taxes 2,121 394 4,848 (1,336)
Provision for income taxes 42 - 97 -
------------------------------------------------------------------------
Net income (loss) 2,079 394 4,751 (1,336)
========================================================================
Weighted average shares outstanding 11,586 9,072 10,433 7,163
========================================================================
Net income (loss) per share $ 0.18 $ 0.04 $ 0.46 ($ 0.19)
========================================================================
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See accompanying notes to financial statements.
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SABRATEK CORPORATION
STATEMENTS OF CASH FLOWS
(In thousands)
(UNAUDITED)
Nine Months Ended
---------------------------------------------------
September 30 September 30,
1997 1996
---------------------------------------------------
Cash flows from operating activities:
<S> <C> <C>
Net income (loss) $ 4,751 $ (1,336)
Adjustments to reconcile net income (loss) to
net cash used in operating activities:
Depreciation and amortization 697 231
Deferred compensation 3 2
Stock appreciation rights expense - 1,628
Non-cash expense 179 -
Provision for bad debts 198 46
Changes in assets and liabilities
Receivables (5,983) (4,477)
Other receivable (182) -
Deferred revenue 35 (75)
Inventories (5,658) (2,166)
Accounts payable (1,019) (877)
Accrued expenses 513 263
Due to affiliated company (25) (83)
Other (595) (431)
---------------------------------------------------
Net cash used in operating activities (7,086) (7,275)
---------------------------------------------------
Cash flows from investing activities:
Purchase of property, plant, equipment (1,399) (196)
Purchase of intangible assets (7,108) -
Proceeds (purchase) of marketable securities, net 398 (9,987)
Purchase of Rocap, Inc., net of cash acquired (1,433) -
Collection of notes receivable, net 83 -
---------------------------------------------------
Net cash used in investing activities (9,459) (10,183)
---------------------------------------------------
Cash flows from financing activities:
Proceeds from issuance of short-term debt - 168
Repayment of short-term debt (319) (621)
Repayment of long-term debt (1) (351)
Proceeds from issuance of long-term debt - 1,570
Payment of stock appreciation rights - (1,628)
Payments of capital lease, net (105) (138)
Proceeds from exercise of stock options and warrants 3,419 -
Proceeds from issuance of stock, net 21,605 27,954
---------------------------------------------------
Net cash provided by financing activities 24,599 26,954
---------------------------------------------------
Increase in cash 8,054 9,496
Cash and cash equivalents at beginning of period 10,447 8
---------------------------------------------------
Cash and cash equivalents at end of period $ 18,501 $ 9,504
===================================================
</TABLE>
See accompanying notes to financial statements
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SABRATEK CORPORATION
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1997 and 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, 1997 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 10-K filed by the Company with the Securities and Exchange Commission for
the year ended December 31, 1996. The results of operations for the three month
and nine month periods ended September 30, 1997 are not necessarily indicative
of the results that may be expected for the year ending December 31, 1997.
(2) Acquisition
On February 25, 1997, the Company purchased substantially all of the
assets of Rocap, Inc., a Massachusetts corporation ("Rocap"), which produces and
markets pre-packaged injectable prescription pharmaceuticals and pre-filled
flush syringes. Terms of the purchase are summarized as follows:
1) $100,000 in cash.
2) Forgiveness of $300,000 in debt owed to the Company as evidenced
by a bridge loan agreement entered into on January 15, 1997.
3) $2,900,000 in common stock of the Company, valued at 131,593
shares.
4) Assumption of $257,218 in net liabilities.
Using the purchase method of accounting, the purchase price was
allocated to assets acquired and liabilities assumed based on their estimated
fair values. This treatment resulted in the excess of the purchase price over
the estimated fair value of net tangible assets acquired being recorded as
goodwill of $4,564,062. The results of operations acquired have been included in
the statement of operations since the date of acquisition.
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(3) Public Offering
In April, 1997, the Company completed a public offering for 1,291,486
primary shares of common stock and 176,574 shares of common stock by and for the
account of existing stockholders at a price to the public of $18.00. Net
proceeds to the Company were $21,604,652.
(4) Intangible Assets
Intangible assets are shown net of amortization and include goodwill,
prepaid license fees, and certain costs necessary to secure intellectual
property.
In July, 1997, the Company entered into a licensing agreement with a
non-affiliated company. Under the terms of the agreement, the Company will pay
up to $7 million for a 15-year technology license. The Company also entered into
an option agreement with the non-affiliate's shareholders which gives Sabratek
the right to purchase the company beginning in the fourth quarter of 1999.
In August, 1997, the Company entered into a supply and distribution
agreement with a non-affiliated company. Under the terms of the agreement, the
Company will pay $4 million for the 10-year exclusive rights to certain
products. The Company also entered into an option agreement with the non-
affiliate's shareholders which gives Sabratek the right to purchase the company
in the future. Under certain circumstances, the non-affiliate's shareholders
have the right, exercisable no earlier than the second quarter of 1999, to
require the Company to purchase their shares of the non-affiliate.
(5) Supplemental Disclosures of Cash Flow Information
Cash paid for interest during the nine month periods ended September
30, 1997 and 1996 was $20,325 and $81,704, respectively.
(6) Stock Options
During the nine month period ended September 30, 1997, the Company issued
491,685 shares, in aggregate, of common stock upon the exercise of stock options
pursuant to the Sabratek Corporation Amended and Restated 1993 Stock Option Plan
(the "Plan"). The option exercises resulted in proceeds to the Company of
$2,971,632, in aggregate.
Options for a total of 1,671,904 shares of common stock were granted during
the nine month period pursuant to the 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.
(7) Warrants
During the nine month period ended September 30, 1997, the Company issued
105,517 shares, in aggregate, of common stock upon the exercise of warrants. The
warrant exercises resulted in proceeds to the Company of $446,890, in aggregate.
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(8) Credit Facility
In March, 1997, the Company entered into a bank credit agreement which
matures in April, 1999, and provides for up to $9.5 million of available
borrowing at the bank's prime rate. As of September 30, 1997, no funds have been
borrowed under the agreement.
(9) Foreign Currency Hedging
In September, 1997, the Company initiated a hedging program through the
use of forward contracts to minimize foreign currency fluctuation exposure. The
aggregate U.S. dollar amount of the contracts is $2,953,004 and such contracts
expire at various dates through September, 1998.
(10) Weighted Average Shares
Weighted average shares outstanding for the three month and nine month
periods ended September 30, 1997 are calculated on a fully diluted basis
applying the treasury-stock method for options and warrants outstanding.
Weighted average shares outstanding for the three month and nine month
periods 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.
(11) Recent Accounting Pronouncements
In February, 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings Per
Share" ("EPS"). Implementation of SFAS No. 128 is required for the periods
ending after December 15, 1997. The standard establishes new methods for
computing and presenting EPS and replaces the presentation of primary and
fully-diluted EPS with basic and diluted EPS. The new methods under this
standard are not expected to have a significant impact on the Company's EPS
amounts.
In June, 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive
Income." The Company is required to adopt the new standard for periods ending
after fiscal 1997. This statement establishes standards for reporting and
display of comprehensive income and its components in a full set of general
purpose financial statements. The standard requires all items that are required
to be recognized under accounting standards as components of comprehensive
income be reported in a financial statement that is displayed in equal
prominence with the other financial statements. The standard is not expected to
have a material impact on the Company's current presentation of income.
In June, 1997, the Financial Accounting Standards Board also issued
Statement of Financial Accounting Standards No. 131, "Disclosures about Segments
of an Enterprise and Related Information." The Company is required to adopt this
new standard for periods ending after fiscal 1997. This statement establishes
standards for the way companies are to report information about operating
segments. It also
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establishes standards for related disclosures about products and services,
geographic areas, and major customers. The Company is currently evaluating the
impact of this standard on its financial statements.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
The Company's founding vision and strategic focus is the creation of a
virtual hospital room for the alternate-site health care market. From its
inception in 1989 through mid-1992, the Company was in its development stage and
engaged primarily in research and development, product engineering and
activities related to obtaining clearance from the FDA for its first product,
the 3030 Stationary Pump. The Company has six years of operating history and,
although profitable since the third quarter of 1996, experienced significant
operating losses from its inception through mid-1996. Upon receiving FDA
clearance for the 3030 Stationary Pump in mid-1992, the Company focused its
efforts on creating a domestic and international sales and marketing network, as
well as a manufacturing capability, to assist in the distribution of its first
product to the alternate-site health care market. Concurrent with these sales
and marketing activities, the Company continued to fund the research,
development and regulatory clearance activities of other device and software
products.
The Company commercially launched the 6060 Ambulatory Pump and related
disposable supplies in late 1995 and both MediVIEW and the PumpMaster(R) in late
1996. Since then, the Company has continued its sales and marketing activities
domestically and internationally for the distribution of its products and
continued to fund the research and development of additional products. On
February 25, 1997, the Company acquired substantially all the assets of Rocap
which produces and markets pre- packaged injectable prescription pharmaceuticals
and pre-filled flush syringes. In addition, the Company derives revenues from
the servicing of products and sale of accessories and extended warranties.
The Company sells its products both directly to alternate-site and
acute-care providers, as well as to third-party distributors. The Company's
distributors and customers may purchase several months of inventory at any one
time which may cause fluctuations in quarterly revenues. The Company also
markets and sells its products internationally and, as a result, its revenues
may be affected by fluctuations in exchange rates. Failure to obtain regulatory
approval for the distribution of new products domestically or in international
markets, or adverse regulatory changes, may also affect the revenues of the
Company.
The Company has entered into strategic partnerships, including Unitron
and GDS, which provide components of the virtual hospital room. Management
intends to pursue additional acquisition and partnering opportunities in order
to further accelerate the development of the virtual hospital room.
Results of Operations
Three Months Ended September 30, 1997 vs. Three Months Ended September 30, 1996
and Nine Months Ended September 30, 1997 vs. Nine Months Ended September 30,
1996
Net sales. Net sales increased $6.9 million to $11.8 million for the
three month period ended September 30, 1997 as compared to $4.9 million for the
three month period ended September 30, 1996, an increase of 141%. Net sales for
the nine month period ended September 30, 1997 increased $17.5 million to $29.1
million as compared to $11.6 million for the nine month period ended September
30, 1996, an increase of 151%. The increase is attributable to several factors;
incremental unit sales volume of the 3030 Stationary Pump and 6060 Ambulatory
Pump and their respective disposables, an increase
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in the average per unit selling price due to a higher ratio of direct sales
versus dealer sales, the addition of the Rocap product line in February, 1997,
the addition of the MediVIEW(R) and PumpMaster(R) products, and the addition of
certain licensed products from GDS Technology, Inc.
Cost of Sales. Cost of sales increased $2.7 million to $5.2 million for
the three month period ended September 30, 1997 as compared to $2.5 million for
the three month period ended September 30, 1996, an increase of 110%. Cost of
sales increased $6.6 million to $12.4 million for the nine month period ended
September 30, 1997 as compared to $5.8 million for the nine month period ended
September 30, 1996, an increase of 113%. The increase for the three month period
and the nine month period is primarily attributable to direct product costs
associated with incremental unit sales volume of the 3030 and 6060 infusion
pumps and related disposables, as well as the addition of the Rocap product
line. To a lessor extent, the increase for the three month and nine month
periods is attributable to costs relating to the expansion of production
capacity.
Gross Margin. Gross margin increased $4.1 million to $6.5 million for
the three month period ended September 30, 1997 as compared to $2.4 million for
the three month period ended September 30, 1996, an increase of 173%. Gross
margin increase $10.8 million to $16.6 million for the nine month period ended
September 30, 1997 as compared to $5.8 million for the nine month period ended
September 30, 1996, an increase of 189%. The increase for the three and nine
month periods is due primarily to the incremental unit sales volume and the per
unit contribution thereon, including the allocation of fixed manufacturing costs
over a greater number of units. Also contributing to the increase were higher
average pricing levels and a more favorable product mix of the 6060 Ambulatory
Pump units to 3030 Stationary Pump units. Gross margin as a percent of sales
increased to 56% and 57% for the three month and nine month periods ended
September 30, 1997, respectively, as compared to 49% and 50%, respectively, for
the three month and nine month periods ended September 30, 1996.
Selling General and Administrative Expenses. Selling, general and
administrative expenses increased $2.5 million to $4.8 million for the three
month period ended September 30, 1997 as compared to $2.3 million for the three
month period ended September 30, 1996, an increase of 109%. Selling, general and
administrative expenses increased $7.2 million to $12.7 million for the nine
month period ended September 30, 1997 as compared to $5.5 million for the nine
month period ended September 30, 1996, an increase of 129%. The increase for the
three month and nine month periods is due primarily to the expansion of the
Company's direct sales force and clinical support staff and the associated
travel thereby as well as greater aggregate commissions paid in conjunction with
higher net sales. Contributing also to the increase for the three month and nine
month periods ended September 30, 1997 was the assumption of expenses relating
to the Rocap product line, the addition of administrative and management
personnel, as well as the expansion of the Niles, Illinois facility. Expenses
relating to SIMS Deltec, Inc. litigation were approximately $249,000 and
$533,000 for the three month and nine month periods ended September 30, 1997,
respectively. There were no SIMS Deltec litigation expenses in 1996. Selling,
general and administrative expenses as a percent of sales decreased to 40% and
44%, respectively for the three month and nine month periods ended September 30,
1997 as compared to 47% and 48%, respectively, for the three month and nine
month periods ended September 30, 1996.
Operating Income. Operating income increased to $1.8 million for the
three month period ended September 30, 1997 as compared to $112,000 for the
three month period ended September 30, 1996, an increase of 1,474%. Operating
income increased to $4.0 million for the nine month period ended September 30,
1997 as compared to $229,000 for the nine month period ended September 30, 1996,
an
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increase of 1,641%. Operating income as a percent of sales increased to 15% and
14% for the respective three month and nine month periods ended September 30,
1997 as compared to 2% for both the three month and nine month periods ended
September 30, 1996. The increase in operating income is due primarily to
incremental gross margin generated by increased unit sales volume of new and
existing products, as described above.
Interest Income. Interest income increased to $374,000 for the three
month period ended September 30, 1997 as compared to $330,000 for the three
month period ended September 30, 1996. Interest income increased to $931,000 for
the nine month period ended September 30, 1997 as compared to $345,000 for the
nine month period ended September 30, 1996. The increase for the three month and
nine month periods ended September 30, 1997 is attributable to a higher average
amount of cash available for investment as compared to that of the comparative
periods ended September 30, 1996. The Company completed a secondary public
offering in April, 1997 which resulted in proceeds to the Company of
approximately $22 million, after underwriting discounts and commissions. In
June, 1996, the Company completed an initial public offering which resulted in
proceeds to the company of approximately $26.7 million, after underwriting
discounts and commissions.
Interest Expense. Interest expense decreased to $16,000 for the three
month period ended September 30, 1997 as compared to $48,000 for the three month
period ended September 30, 1996. Interest expense decreased to $37,000 for the
nine month period ended September 30, 1997 as compared to $285,000 for the nine
month period ended September 30, 1996. The decrease for the three month period
ended September 30, 1997 is attributable to the pay down of certain capital
leases and debt obligations. The decrease for the nine month period ended
September 30, 1997 is primarily attributable to the conversion of all
convertible debt outstanding at the Company's initial public offering in June,
1996.
Stock Appreciation Rights Expense. No stock appreciation rights expense
is recorded for the three and nine month periods ended September 30, 1997 as
compared to $1.6 million for the nine month period ended September 30, 1996. The
stock appreciation rights expense for the nine month period ended September 30,
1996 was non-recurring.
Provision for Income Taxes. The provision for income taxes of $42,000
and $97,000, respectively, for the three month and nine month periods ended
September 30, 1997 reflect an effective rate for Alternative Minimum Tax. The
Company expects net operating loss carryforwards to offset pretax income for its
1997 tax year. Due to net losses for the three month and nine month periods
ended September 30, 1996, the Company did not incur any federal or state income
tax liability for the period.
Net Income. Net income increased to $2.1 million for the three month
period ended September 30, 1997 as compared to $394,000 for the three month
period ended September 30, 1996, an increase of 428%. Net income was $4.8
million for the nine month period ended September 30, 1996 as compared to a net
loss of $1.3 million for the nine month period ended September 30, 1996. Net
income for the three month and nine month periods ended September 30, 1997 was
achieved primarily as a result of incremental gross margin generated by
increased unit sales volume of new and existing products, as discussed above.
Also contributing to net income for the nine month period ended September 30,
1997 was the increase in interest income due to the investment of excess cash.
The nine month period ended September 30, 1996 included the non-recurring charge
for stock appreciation rights of $1.6 million.
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Liquidity and Capital Resources
In April, 1997, the Company completed a public offering with proceeds
of approximately $22 million, after underwriters' discounts and commissions. As
of September 30, 1997, cash balances were invested in U.S. Treasury Bills, U.S.
Treasury Notes, certificates of deposit, commercial paper and a money market
account.
As of September 30, 1997, the Company had approximately $24.5 million
in cash, cash equivalents, short-term and long-term investments in marketable
securities, and had net working capital of approximately $45.0 million. In
March, 1997, the Company entered into a credit agreement with a financial
institution with up to $9.5 million of available borrowing. As of October 31,
1997, no borrowing has been made under the credit agreement.
The Company used cash in its operations of approximately $7.1 million
for the nine months ended September 30, 1997. Cash used in operations for the
period exceeds the Company's operating income for the same period due,
primarily, to the growth in trade accounts receivable and inventories as a
result of actual and anticipated growth in sales volume.
During the third quarter of 1997, the Company entered into strategic
partnerships with Unitron and GDS. The Company's agreements with Unitron and GDS
could require the Company to pay up to $11.0 million in cash license fees, in
aggregate. In addition, should the Company decide to exercise its right to
acquire either Unitron or GDS, such acquisitions could require additional
outlays of cash.
In September, 1997, the Company initiated a hedging program through the
use of forward contracts to minimize foreign currency fluctuation exposure. The
aggregate U.S. dollar amount of the contracts is $2,953,004 and such contracts
expire at various dates through September, 1998.
Future 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, 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.
Recent Developments
In July, 1997, the Company entered into a licensing agreement with
Unitron Medical Communications, Inc. ("Unitron"), a privately held company which
has developed its Medical Oriented Operating Network ("MOON(TM)"), a proprietary
clinical patient information management network. Under the terms of this
agreement, the Company will pay Unitron up to $7 million for a 15-year
technology license for use of the continuous, real-time monitoring and reporting
software which is a component of MOON(TM). The Company also entered into an
option agreement with the Unitron shareholders which gives Sabratek the right to
purchase Unitron beginning in the fourth quarter of 1999. The Company intends to
combine its proprietary MediVIEW(R) medical device management and telemedicine
software with Unitron's clinical patient information management network. The
Company believes that this
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combination is likely to accelerate the realization of the data management
aspects of the virtual hospital room.
In August, 1997, the Company entered into a supply and distribution
agreement with GDS Technology, Inc. ("GDS"), a privately held medical device
company. Under the terms of this agreement, the Company will pay GDS $4 million
for the 10-year exclusive rights to certain diagnostic products, including the
GDS Stat-Site(sm) point of care diagnostic testing device and related
disposables for use in the alternate-site health care market. The Company also
entered into an option agreement with the GDS shareholders which gives Sabratek
the right to purchase GDS in the future. Under certain circumstances the GDS
shareholders have the right, exercisable no earlier than the second quarter of
1999, to require the Company to purchase their shares of GDS. The Company
intends to integrate the GDS Stat-Site(sm) system and the data that it provides
with its other Sabratek medical devices in order to enhance its capabilities to
serve the alternate-site health care market.
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PART II
OTHER INFORMATION
Item 1. Legal Proceedings
On February 5, 1997, SIMS Deltec filed a complaint in the
United States District Court for the District of Minnesota alleging that
Sabratek's manufacture, use and/or sale of the MediVIEW(R) software in
conjunction with its infusion pumps infringes on a patent entitled "Systems and
Methods of Communicating with Ambulatory Medical Devices Such as Drug Delivery
Devices" previously issued to SIMS Deltec. Subsequently, SIMS Deltec filed other
pleadings that raised additional claims against Sabratek and three of its
employees including trade secret misappropriation, unfair competition and
interference with SIMS Deltec's customers. SIMS Deltec seeks injunctive relief,
unspecified monetary damages and costs. In addition, SIMS Deltec filed for a
preliminary injunction against Sabratek seeking to prevent on a preliminary
basis Sabratek's manufacture and sale of the MediVIEW(R) system. On August 4,
1997, the District Court denied the motion for preliminary injunction. The
Company and the individual defendants intend to vigorously defend against the
allegations made by SIMS Deltec. Protracted litigation or an adverse outcome in
this matter could have a material adverse impact on the Company's business,
financial condition and results of operations.
In addition, Sabratek has filed a complaint against SIMS
Deltec in the United States District Court for the Northern District of Illinois
alleging that SIMS Deltec employees have made misstatements about Sabratek's
products. Sabratek has stated claims under the Federal Lanham Act to stop SIMS
Deltec's improper disparagement and has requested preliminary and permanent
injunctive relief, monetary damages and costs.
Item 2. Changes In Securities
During the period covered by this report, the Company issued
the following securities without registration under the Securities Act of 1933,
as amended.
From July 10, 1997 to August 18, 1997, the Company issued
10,483 shares of common stock upon the exercise of warrants not covered by a
registration statement. The Company received proceeds of approximately $48,425
upon the exercise of such warrants. All such issuances of common stock were
exempt from registration pursuant to Section 4(2) of the Securities Act of 1933,
as amended.
Item 4. Submission of Matters to a Vote of Securityholders
(a) At the Annual Meeting of Stockholders held on June 10, 1997, the
following directors were elected:
FOR WITHHELD
--- --------
Francis V. Cook, M.D. 7,837,610 110,474
L. Peter Smith 7,837,610 110,474
Edson W. Spencer, Jr. 7,837,610 110,474
- 15 -
<PAGE>
(b) At the Annual Meeting of Stockholders held on June 10, 1997, the
following resolutions were passed:
(i) RESOLVED, that the Company adopt the Amendment to the Amended and
Restated 1993 Stock Option Plan to provide for the issuance of options to
purchase up to 3,800,000 shares of Common Stock and to otherwise amend the
Plan to conform to Section 16 of the Securities Exchange Act of 1934, as
amended, and the rules promulgated thereunder as now in effect.
(ii) RESOLVED, that the Company adopt the 1997 Employee Stock Purchase
Plan.
<TABLE>
<CAPTION>
Shares Voted
Shares Voted For Against Shares Abstained Broker Non-Votes
---------------- ------- ---------------- ----------------
<S> <C> <C> <C> <C>
Resolution (i) 4,940,672 1,568,820 947,853 526,739
Resolution (ii) 7,395,782 17,060 44,503 526,739
</TABLE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
<TABLE>
<CAPTION>
Page Incorporation
Exhibit Number (if by Reference
Number Description of Documents applicable) (if applicable)
------ ------------------------ ----------- ---------------
<S> <C> <C> <C>
3.1 Articles of Incorporation +
3.2 ByLaws +
10.1 Agreement with Americorp Financial, Inc. re: Leasing +
Services, dated March 22, 1995
10.1.1 Amendment, dated September 16, 1996, to Agreement +++
with Americorp Financial, Inc.
10.2 Agreement with Clintec Nutrition Company re: +
Development Agreement, dated September 1, 1995
10.3 Intentionally Omitted
10.4 Intentionally Omitted
10.5 Distributorship Agreement with CO-Medical, Inc., +
dated February 17, 1992
10.6 Distributorship Agreement with Clinical Technology +
Inc., dated August 1, 1992
10.7 Intentionally Omitted
10.8 Intentionally Omitted
10.9 Distributorship Agreement with Advanced Medical, +
Inc., dated September 1, 1991
- 16 -
<PAGE>
Page Incorporation
Exhibit Number (if by Reference
Number Description of Documents applicable) (if applicable)
------ ------------------------ ----------- ---------------
10.10 Distributorship Agreement with Healthcare +
Technology, dated October 9, 1991
10.11 Intentionally Omitted
10.12 Intentionally Omitted
10.13 Pump Contract with Chartwell Home Therapies, dated +
November 22, 1993
10.14 Sales Agreement with Pharmacy Corporation of +
America, dated March 17, 1995
10.15 Sales & Marketing Agreement with Alpha +
Group, dated November 6, 1995
10.16 Foreign Distributorship Agreement with MED-O-GEN +
INC., dated September 22, 1995
10.17 Foreign Distributorship Agreement with Yoon Duk +
Separation Technology, dated April 17, 1995
10.18 Foreign Distributorship Agreement with Upwards +
Biosystems Ltd., dated March 8, 1995
10.19 Foreign Distributorship Agreement with Grupo Grifols, +
S.A., dated September 17, 1993
10.20 Foreign Distributorship Agreement with JMS +
Company, dated March 22, 1996
10.21 Foreign Distributorship Agreement with Brasimpex +
10.22 Foreign Distributorship Agreements with Medicare (s) +
PTE LTD., dated February 10, 1995
10.23 Intentionally Omitted
10.24 Intentionally Omitted
10.25 Master Lease Agreement with Comdisco, Inc., dated +
August 9, 1994
10.26 Stock Option Plan +
10.27 Lease for Real Property located at 5601 West Howard, +
Niles, Illinois, dated as of May 31, 1994
10.27.1 Amendment, dated October 30, 1996, to Lease for Real +++
Property located at 5601 West Howard, Niles, Illinois
10.28 Employment Agreement for K. Shan Padda +
10.29 Employment Agreement for Anil Rastogi +
10.30 Asset Purchase Agreement, dated February 25, 1997, ++
by and among Sabratek Corporation; Rocap, Inc. and
Elliott Mandell
10.31 Employment Agreement for Stephen L. Holden ++++
- 17 -
<PAGE>
Page Incorporation
Exhibit Number (if by Reference
Number Description of Documents applicable) (if applicable)
------ ------------------------ ----------- ---------------
10.32 Employment Agreement for Elliott Mandell ++
10.33 Lease Agreement for property located at 11 Sixth ++++
Road, Woburn, Massachusetts, dated February 1, 1997
10.34 Lease Agreement for property located at 5 Constitution ++++
Way, Woburn, Massachusetts, dated June 26, 1995
10.35 Lease Agreement for property located at 1629 Prime +++++
Court, Suite 100, Orlando, Florida, dated March 11,
1997
11.1 Statement re: computation of per share earnings E-1
27 Financial Data Schedule E-2
</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).
++ Incorporated by reference to the Company's Current Report on Form 8-K filed
with the Commission on March 11, 1997.
+++ Incorporated by reference to the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1996 filed with the Commission on March
31, 1997.
++++ Incorporated by reference to the Company's Registration Statement on Form
S-1, declared effective by the Commission on April 4, 1997 (File No.
333-23437).
+++++Incorporated by reference to the Company's Quarterly Report on Form 10-Q
for the quarter ended March 31, 1997 filed with the Commission on May 15,
1997.
(b) Reports on Form 8-K
The Company's current report on Form 8-K, dated February 25, 1997
(filed March 12, 1997), is incorporated herein by this reference.
- 18 -
<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 12, 1997 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 12, 1997 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 12, 1997 By: /s/ Scott Skooglund
-----------------------------
Scott Skooglund
Chief Accounting Officer
- 19 -
EXHIBIT 11.1
<TABLE>
<CAPTION>
STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
Three Months Ended Nine Months Ended
-------------------------------------------------------------------------------------------
Sept. 30, 1997 Sept. 30, 1996 Sept. 30, 1997 Sept. 30, 1996
-------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net income (loss) in
thousands $ 2,079 $394 $ 4,751 ($1,336)
===========================================================================================
Weighted average common
shares outstanding 10,105,888 5,023,131 9,405,102 3,199,202
Weighted average preferred
shares outstanding - 1,838,113 - 1,838,113
Effect of conversion of
convertible subordinated
debentures - 1,202,965 - 1,202,965
Additional shares pursuant to
SAB 83 - - - 922,599
Additional shares for options
and warrants outstanding
under treasury-stock method 1,479,890 1,007,339 1,027,602 -
-------------------------------------------------------------------------------------------
11,585,778 9,071,548 10,432,704 7,162,879
===========================================================================================
$0.18 $0.04 $0.46 ($0.19)
===========================================================================================
</TABLE>
- E-1 -
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
Appendix A to Item 601(c) of Regulation S-K
Commercial and Industrial Companies
Article 5 of Regulation S-X
(amount in dollars)
</LEGEND>
<CIK> 0001012480
<NAME> Sabratek Corporation
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 18,501,489
<SECURITIES> 6,005,940
<RECEIVABLES> 15,025,579
<ALLOWANCES> 403,659
<INVENTORY> 10,719,894
<CURRENT-ASSETS> 49,311,823
<PP&E> 4,145,484
<DEPRECIATION> 1,111,839
<TOTAL-ASSETS> 65,952,638
<CURRENT-LIABILITIES> 4,347,729
<BONDS> 0
0
0
<COMMON> 102,098
<OTHER-SE> 61,347,734
<TOTAL-LIABILITY-AND-EQUITY> 65,952,638
<SALES> 29,065,177
<TOTAL-REVENUES> 29,065,177
<CGS> 12,416,243
<TOTAL-COSTS> 12,416,243
<OTHER-EXPENSES> 7,992,241
<LOSS-PROVISION> 197,509
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 3,985,930
<INCOME-TAX> 96,953
<INCOME-CONTINUING> 4,848,221
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,751,619
<EPS-PRIMARY> 0.46
<EPS-DILUTED> 0
</TABLE>
