SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT
OF 1934 [Fee Required]
For the fiscal year ended May 31, 1997
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE
ACT OF 1934 [No Fee Required]
For the transition period from _____ to _______
COMMISSION FILE NUMBER: 0-13187
NOVACON CORPORATION
(Name of small business issuer in its charter)
DELAWARE 13-3074570
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5451 HILLTOP AVENUE NO., SAINT PAUL, MN 55042
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (651) 704-9160
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
COMMON STOCK, $.01 PAR VALUE
(Title of class)
Check whether the issuer(1)has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or
for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past
90 days. Yes [ ] No[X]
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by referenced in Part III of this Form
10-KSB or any amendment to this Form 10-KSB. [ ]
The issuer's revenues for the fiscal year ended May 31, 1997 were
$76,509.
As of May 31, 1997, 10,722,904 shares of the issuer's Common Stock were
deemed outstanding, and the aggregate market value of the Common Stock of the
issuer (based upon the average of the closing bid and asked prices of the
Common Stock at that date), excluding outstanding shares beneficially owned
by the directors and executive officers was approximately $96,732.
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the following document are incorporated herein by reference:
Part III -- The Registrant's Information Statement for its 1997 Annual Meeting
(the "1996 Statement") to the extent specific sections are referred to herein.
Exhibit Index is located at page 35
Transitional Small Business Disclosure Format (Check one): Yes [ ] No [X]
PART I
This Annual Report on Form 10-KSB contains statements that are forward-
looking, including statements relating to anticipated operating results,
growth, financial resources, the development of new markets, the development,
regulatory approval, manufacture, distribution, and commercial acceptance of
new products and new applications for Novacon's existing product lines.
Investors are cautioned that, although Novacon believes that its expectations
are based on reasonable assumptions, forward-looking statements involve risks
and uncertainties which may affect Novacon's business and prospects, including
changes in economic and market conditions, acceptance of Novacon's products by
the health care and reimbursement communities, health care legislation and
regulation, new developments in pain management therapy, administrative and
regulatory approval and related considerations, competitive developments,
maintenance of strategic alliances and other factors discussed under the
caption In addition Novacon expects to have a high concentration of business
with one major customer, but has not yet begun shipments. Reductions in
prospective shipments to this customer will substantially reduce Novacon's
ability to continue business operations. These risks and uncertainties include,
but are not limited to, Novacon's ability to obtain substantial working capital
and the risks and uncertainties described in "Risk Factors" in this Report.
ITEM 1. DESCRIPTION OF BUSINESS
History, Discontinued Business Operations and Recent Corporate Events
Discontinued Business Operations. Novacon Corporation ("Novacon" or the
"Company"), formerly known as Cardio-Pace Medical, Inc., was organized in
April 1981 to develop, manufacture and market its proprietary Durapluse(tm)
cardiac pacemaker and accessory products. Although the Company achieved sales
of its pacemaker medical device and accessories products, it did not achieve
profitability. The Company suspended manufacturing the cardiac pacemaker in
1990. During 1985, the Company entered into an agreement with Qinling
Semiconductor Company to establish Qinming Medical, Inc., a Sino-American
joint venture in Baoji, China, for the manufacture and distribution of cardiac
pacemakers and accessory products, which are still manufactured and distributed
in China. In 1992 the Company sold its 49% interest in the joint venture to
Qinming.
Current Business Operations. Novacon designs, develops, manufactures
and markets low-cost, disposable elastomeric infusion pumps for pain management
and is developing other applications for its elastomeric infusion pump
technology. Substantially all of the Company's revenues since 1995 have been
derived from the sale of elastomeric infusion pumps that are designed to
deliver small quantities of pain medication at a nominally constant flow rate.
Novacon's elastomeric infusion pumps, marketed as the dib(tm) Drug Infusion
Balloon Pump, are authorized by the United States FDA for sale in the United
States for epidural, intravenous and percutaneous infusion of a wide range of
medications, including narcotic and non-narcotic anesthetics, chemotherapy
agents and antibiotics. Novacon believes that its elastomeric infusion pump
technology is well suited for the delivery of a number of anesthesia and pain
medication drugs that are difficult to administer, including drugs that
require site-specific delivery or require a profiled delivery pattern.
Risk Factors
Cautionary Factors That May Affect Future Results. Certain statements
contained in this Annual Report by Novacon do not relate strictly to historical
or current facts. As such, they are considered "forward-looking statements"
which provide current expectations or forecasts of future events. Such
statements can be identified by the use of terminology such as "anticipate,"
"believe," "estimate," "expect," "intend," "may," "could," "possible," "plan,"
"project," "will," "forecast" and similar words or expressions. Novacon's
forward-looking statements generally relate to its growth strategies, financial
results, product development and regulatory approval programs, and sales
efforts, including the proposed acquisition of Santerra Medical Technologies,
Inc. One must carefully consider forward-looking statements and understand
that such statements involve a variety of risks and uncertainties, known and
unknown, and may be affected by inaccurate assumptions. Consequently, no
forward-looking statement can be guaranteed and actual results may vary
materially. It is not possible to foresee or identify all factors affecting
Novacon's forward-looking statements and investors therefore should not
consider any list of such factors to be an exhaustive statement of all risks,
uncertainties or potentially inaccurate assumptions. Novacon undertakes no
obligation to update any forward-looking statement.
Although it is not possible to create a comprehensive list of all
factors that may cause actual results to differ from Novacon's forward-looking
statements, such factors include, among others, (i) trends toward managed care,
healthcare cost containment and other changes in government and private sector
initiatives, in the U.S. and other countries in which Novacon does business,
that are placing increased emphasis on the delivery of more cost-effective
medical therapies; (ii) the trend of consolidation in the medical device
industry as well as among customers of medical device manufacturers, resulting
in more significant, complex and long-term contracts than in the past and
potentially greater pricing pressures; (iii) the difficulties and uncertainties
associated with the lengthy and costly new product development and foreign and
domestic regulatory approval processes, such as delays, difficulties or
failures in achieving acceptable clinical results or obtaining foreign or FDA
marketing clearances, which may result in lost market opportunities or postpone
or preclude product commercialization; (iv) efficacy or safety concerns with
respect to marketed products, whether scientifically justified or not, that may
lead to product recalls, withdrawals or declining sales; (v) changes in
governmental laws, regulations and accounting standards and the enforcement
thereof that may be adverse to Novacon; (vi) increased public interest in recent
years in product liability claims for implanted medical devices; (vii) other
legal factors including environmental concerns and patent disputes with
competitors; (viii) agency or government actions or investigations affecting
the industry in general or Novacon in particular; (ix) the development of new
products or technologies by competitors, technological obsolescence and other
changes in competitive factors; (x) risks associated with maintaining and
expanding international operations; (xi) business acquisitions, dispositions,
discontinuations or restructurings by Novacon; (xii) the integration of
businesses acquired by Novacon; and (xiii) economic factors over which Novacon
has no control, including changes in inflation, foreign currency rates and
interest rates. More detailed discussions of many of these factors are
including in the following sections.
Novacon notes these factors as permitted by the Private Securities Litigation
Reform Act of 1995.
Substantial, Continuing Operating Losses. Novacon has incurred operating
losses for the fiscal years ended May 31, 1997, 1996, 1995 and 1994 in the
amounts of approximately $(123,155), $(125,081), $(219,880), and $(152,537),
respectively, and there is no assurance that substantial operating losses will
not continue indefinitely. Novacon has incurred an accumulated deficit since
its inception of approximately $(8,662,814) as of May 31, 1997. In the event
Novacon is unable to eliminate continuing operating losses and acquire
substantial new working capital, Novacon's business operations will cease and
its stockholders will lose their entire investment.
Working Capital Deficit. As of the fiscal year ended May 31, 1997,
Novacon had a stockholders' deficit of approximately $46,151. At that date,
the company's liabilties were approximately $186,534 and exceeded its assets
of approximately $140,383 by approximately $46,151. Although approximately
$100,000 of the company's debt represented accrued salaries payable to David
P. Lang, Novacon had a working capital deficit of approximately $55,524.
Novacon immediately requires substantial working capital for which there is
no assurance. In the event Novacon is unable to acquire substantial new
working capital, Novacon's business operations may cease and its stockholders
may lose their entire investment.
Government Regulation and Other Related Matters. Government and private
sector initiatives to limit the growth of health care costs, including price
regulation and competitive pricing, are continuing in many countries where
Novacon expects to conduct business, including the United States. These
changes are causing the marketplace to put increased emphasis on the delivery
of more cost-effective medical therapies. Although Novacon believes it is
well positioned to respond to changes resulting from this worldwide trend
toward cost containment, the uncertainty as to the outcome of any proposed
legislation or changes in the marketplace precludes Novacon from predicting
the impact these changes may have on future operating results.
In keeping with the increased emphasis on cost effectiveness in health
care delivery, the current trend among hospitals and other customers of
medical device manufacturers is to consolidate into larger purchasing groups
to enhance purchasing power. The medical device industry has also been
consolidating rapidly, partly in order to offer a broader range of products to
large purchasers. As a result, transactions with customers are more
significant, more complex and tend to involve more long-term contracts than in
the past. This enhanced purchasing power may also increase the pressure on
product pricing, although management is unable to estimate the potential impact
at this time.
In the United States, the Food and Drug Administration (the "FDA"), among
other governmental agencies, is responsible for regulating the introduction of
new medical devices, including laboratory and manufacturing practices, labeling
and record-keeping for medical devices, and review of manufacturers' required
reports of adverse experience to identify potential problems with marketed
medical devices. The FDA can ban certain medical devices, detain or seize
adulterated or misbranded medical devices, order repair, replacement, or refund
of such devices, and require notification of health professionals and others
with regard to medical devices that present unreasonable risks of substantial
harm to the public health. The FDA may also enjoin and restrain certain
violations of the Food, Drug and Cosmetic Act and the Safe Medical Devices Act
pertaining to medical devices, or initiate action for criminal prosecution of
such violations. Moreover, the FDA administers certain controls over the
export of such devices from the United States. All of the medical devices
that Novacon markets, or expects to market are in a category for which the FDA
has implemented stringent clinical investigation and pre-market clearance
requirements. Any delay or acceleration experienced by Novacon in obtaining
regulatory approvals to conduct clinical trials or in obtaining required market
clearances may affect Novacon's operations or the market's expectations for the
timing of such events and, consequently, the market price for Novacon's common
stock.
Medical device laws are also in effect in many of the countries in which
Novacon will do business outside the United States. These range from
comprehensive device approval requirements for some or all of Novacon's medical
device products to requests for product data or certifications. The number and
scope of these requirements are increasing.
In the early 1990's the review time by the FDA to clear medical devices
for commercial release lengthened and the number of clearances, both of 510(k)
submissions and pre-market approval applications ("PMA's"), decreased. In
response to public and congressional concern, the FDA Modernization Act of 1997
was adopted with the intent of bringing better definition to the clearance
process. Although it is expected that the 1997 Act will result in improved
cycle times for product clearance, there can be no assurance that the FDA
review process will not involve delays or that clearances will be granted on
a timely basis.
Novacon is also subject to various environmental laws and regulations
both within and outside the United States. The operations of the company, like
those of other medical device companies, involve the use of substances
regulated under environmental laws, primarily in manufacturing and
sterilization processes. While it is difficult to quantify the potential impact
of compliance with environmental protection laws, management believes that such
compliance will not have a material impact on the company's financial position,
results of operations or liquidity.
Competition and Industry. Novacon sells therapeutic medical devices in
the United States and expects to sell around the world. In the product lines
in which Novacon competes, the company faces a mixture of competitors ranging
from large multi-national industrial manufacturers to national or regional
manufacturers that offer a limited selection of products. In addition, the
company faces competition from providers of alternative medical therapies such
as pharmaceutical companies. Important factors to Novacon's customers will
include product reliability and performance, product technology that provides
for improved patient benefits, product price, and breadth of product lines and
related product services provided by the manufacturer. Major shifts in
industry market share have occurred in connection with product problems,
physician advisories and safety alerts, reflecting the importance and risks
of product quality in the medical device industry.
Market complexity continues to intensify in the medical device industry.
Factors such as buyer groups, government reimbursement systems for health care
costs, relative patent portfolios, government regulation (including the
regulatory approval process for medical devices), a more rigorous enforcement
climate at the FDA, health care reform, product liability litigation and the
rapid rate of technological change are increasingly important considerations
for existing medical device manufacturers and any potential entrants to the
industry such as Novacon.
Litigation. The medical device industry has been characterized by
extensive litigation regarding patents and other intellectual property rights,
and companies in the medical device industry have employed intellectual
property litigation to gain a competitive advantage. The defense and
prosecution of intellectual property suits, USPTO interference proceedings and
related legal and administrative proceedings are both costly and time-consuming.
Litigation may be necessary to enforce patents issued to Novacon to protect
trade secrets or know-how owned by it or to determine the enforceability,
scope and validity of the proprietary rights of others. Any litigation or
interference proceedings may result in expense to Novacon and delay and/or
adversely affect its marketing efforts. Any adverse determination in
litigation or interference proceedings to which Novacon may become a party
could subject it to significant liabilities to third parties, could prevent
Novacon from selling its medical device products, which would have a material
adverse effect on the company's business, financial condition and results of
operations.
Company Medical Device Products May Be Dependent On Third-Party Payor
Approvals. United States health care providers, including hospitals and
physicians, that purchase medical devices generally rely on third party payors,
principally federal Medicare, state Medicaid and private health care insurance
plans, to reimburse all or part of the costs and fees associated with the
procedures performed using these devices. Novacon's success will depend upon,
among other things, the ability of health care providers to obtain
satisfactory reimbursement from third party payors for medical procedures in
which the company's medical device products are used. Third party payors may
deny reimbursement if they determine that a prescribed device has not received
appropriate regulatory clearances or approvals, is not used in accordance with
cost-effective treatment methods as determined by the payor, or is
experimental, unnecessary or inappropriate. If FDA clearance or approval were
received, third party reimbursement would also depend upon decisions by the
United States Health Care Financing Administration for Medicare, as well as
individual health maintenance organizations, private insurers and other
payors. Reimbursements in international markets vary significantly by country
and by region within some countries, and reimbursement approvals may be
obtained on a country-by-country basis. Many international markets have
government managed health care systems that control reimbursement for new
devices and procedures. In most markets, there are private insurance systems
as well as government-managed systems. There can be no assurance that
reimbursement for Novacon's product lines will be available or, if available,
that such reimbursement will be available in sufficient amounts in the United
States or international markets under either government or private
reimbursement systems, or that physicians will support and advocate
reimbursement for procedures using the company's product lines. Failure by
hospitals and physicians and other users of Novacon's product lines to obtain
reimbursement from third party payors or changes in government and private
party payor policies toward reimbursement for procedures employing Novacon's
product lines would have a material adverse effect on the Company's business,
financial condition and results of operations. Moreover, Novacon is unable to
predict what additional legislation or regulation, if any, relating to the
health care industry or third party coverage and reimbursement may be enacted
in the future, or what effect such legislation or regulation would have on the
Company.
Dependence on Non-Binding Strategic Marketing Alliances; Need to
Establish Alliances. Novacon's business strategy depends in significant part
on establishing successful strategic alliances with a variety of key companies
within the medical device distribution industry. Among the types of alliances
contemplated by Novacon's business strategy are supply arrangements with
surgeons and physicians, healthcare institutions, health care maintenance
organizations, and third-party reimbursement firms. Novacon expects to
commence negotiating strategic alliances of this nature in the immediate
future. However, there is no assurance that such relationships will be
achieved, or if achieved that they produce the benefits anticipated by
Novacon. Moreover, Novacon believes that establishing strategic alliances
is critical to the success of its business, and there is no assurance that
it will be successful in doing so. In addition, Novacon expects most of its
strategic alliances will not be covered by binding contracts, contain no
minimum purchase commitments and may be subject to unilateral termination by
such strategic partners, and there is no assurance as to the future success
or significance of such alliances, if any. Also, some strategic alliances
may require Novacon to share control over its marketing programs. In order
to support increased levels of sales in the future and to augment its long-
term competitive position, Novacon anticipates that it will be required to
make significant expenditures in sales and marketing.
Risks Associated with International Sales. International sales will account
for a substantial portion of Novacon's revenues in the foreseeable future.
A number of risks are inherent in international transactions. International
sales may be limited or disrupted by the imposition of government controls,
export license requirements, economic or political instability, trade
restrictions, changes in tariffs or difficulties in staffing and management.
Additionally, fluctuations in currency exchange rates as well as increases
in duty rates may adversely affect Novacon's business, financial condition
and results of operations and difficulties in obtaining export licenses. The
financial condition, expertise and performance of Novacon's future
international sub-distributors could affect sales of its product lines
internationally and could have a material adverse effect on Novacon's
business, financial condition and results of operations. The proposed
international nature of Novacon's business also subjects it and its
representatives, agents and sub-distributors to laws and regulations of
international jurisdictions in which they operate or in which Novacon's
product lines may be sold. The regulation of medical devices in a number
of such jurisdictions, particularly in the European Union, continues to
develop, and there can be no assurance that new laws or regulations will
not have an adverse effect on Novacon's business, financial condition and
results of operations. Foreign regulatory agencies often establish product
standards different from the United States and any inability to obtain
foreign regulatory approvals on timely basis could have a material adverse
effect on the company's international business and its financial condition
and results of operations.
Risks Associated with Growth of Business; Scale-up Risks. If Novacon's
line of medical products achieve commercial success, the growth of Novacon's
business, including its internal operations, will place significant demands
on the systems and management of the company. Such business growth will
result in additional personnel needs and an increased level of responsibility
for management personnel. To manage its growth effectively, Novacon will be
required to continue to expand and improve its internal operations and systems
(including logistics, management information systems, accounting systems and
sales and marketing) and to expand and manage its employee base. Novacon
will have to add key managers, and there is no assurance as to the rate at
which such managers will be effectively assimilated into its business or
operate effectively as a management team. Novacon will also be required to
effectively expand and manage the independent contractors that it may have
to use to distribute its medical device products in the future. Novacon's
inability to manage growth effectively could have a material adverse effect
on its operating results.
Certain Marketing and Sales Risks. Novacon may make arrangements with
its customers who will generally allow their customers, in the event of a
price decrease, credit equal to the difference between the price originally
paid for products and the new decreased price on products in the customers'
inventories on the date of the price decrease. When a price decrease is
anticipated, Novacon will be required to establish reserves for amounts
estimated to be reimbursed to qualifying customers. There can be no
assurance that these reserves will be sufficient or that any future returns
or price protection charges will not have a material adverse effect on
Novacon's results of operations, particularly because future results will be
heavily dependent on recently introduced products for which Novacon has
little or no operating history. In addition, customers generally will have
the right to return excess inventory within specified time periods. Any
build-up of inventory at Novacon or in its distribution channels that does
not sell through to end-users could have a material adverse effect on its
operating results and financial condition.
Novacon from time to time may experience product defects and product
returns. There can be no assurance that Novacon will not experience quality
or reliability problems in the future that have an adverse effect on its
business or financial results.
Novacon expects to market its products through product distributors.
Novacon will grant credit to its customers, and a substantial portion of
outstanding accounts receivable will be due from time to time from
distributors. If any one or a group of these customers' receivable balances
should be deemed uncollectible, it would have a material adverse effect on
Novacon's results of operations and financial condition.
Product Liability Claims. Novacon operates in an industry susceptible
to significant product liability claims. In recent years, there has been an
increased public interest in product liability claims for implanted medical
devices. These claims may be brought by individuals seeking relief for
themselves or, increasingly, by groups seeking to represent a class. Product
liability claims may be asserted against the company in the future relative
to events not known to management at the present time. Novacon presently
maintains no product liability insurance and there is no assurance that it
will be able to acquire product liability insurance with adequate coverage
terms, if at all. Consequently, any claims that may be asserted against
Novacon would have a material adverse effect on the company.
Dividends Not Likely. Novacon has not paid any dividends on its capital
stock since its incorporation and does not intend to pay any cash dividends
in the foreseeable future.
Dependence On Key Executive Management. Novacon's success will depend
in large part upon the services of David P. Lang and other key employees.
The loss of the services of one or more key executives, and particularly
Mr. Lang, could have a material adverse effect on Novacon. Novacon's success
will also depend in significant part upon its ability to attract and retain
highly skilled management, marketing and other personnel. Competition for
such personnel in the medical device industry is intense, and the company
expects difficulty in finding sufficient numbers of qualified professional
and marketing personnel. There can be no assurance that Novacon will be
successful in attracting and retaining the quantity and quality of personnel
that it needs.
Novacon does not presently maintain key-man life insurance on its
principal executives; however, it intends to secure such insurance during
1998. However, there is no assurance that the proceeds from such insurance,
if any, would be adequate to identify and employ a successor and to
compensate Novacon for the loss of such key executive.
Limited Public Trading Market And No Assurance Of Ability To Resell
Company Common Stock. There is no assurance that any public market for the
company's Common Stock will not be volatile. There have been periods of
extreme fluctuation in the stock markets that, in many cases, were unrelated
to the operating performance of, or announcements concerning, the issuers
of the affected securities. Securities of issuers having relatively limited
capitalization or securities recently offered in a public offering or being
publicly traded are particularly susceptible to change based on short-term
trading strategies of certain investors. Accordingly, there can be no
assurance that stockholders will be able to resell the shares of company
Common Stock at any price.
Although Novacon's Common Stock is eligible for public trading, it may
be relevant for company stockholders that Novacon's Common Stock be eligible
for inclusion on the NASDAQ Small-Cap Market(r). Under the current adopted
rules of the National Association of Securities Dealers, Inc. ("NASD"), in
order to qualify for initial quotation of securities on NASDAQ, a company,
among other things, must have at least $4,000,000 in total assets, 1,000,000
shares in the public float, $5,000,000 in market value of public float and a
minimum bid of $4.00 per share. For continued listing, a company, among
other things, must have $2,000,000 in total assets, 500,000 shares in the
public float, $1,000,000 in market value of public float and a minimum bid
price of $1.00 per share.
Generally, holders of securities not eligible for NASDAQ Small-Cap
Market(r) inclusion may have difficulty in selling their securities should
they desire to do so. In such event, due to the low price of the securities,
many brokerage firms will not effect transactions in such securities and it
is unlikely that any bank or financial institution will accept such
securities as collateral, which would have an adverse effect in developing
or sustaining any market for such securities.
The SEC has adopted regulations which generally define "penny stock"
to be any equity security that has a market price (as defined) less than
$5.00 per share or an exercise price less than $5.00 per share, subject to
certain exceptions. During periods when Novacon's Common Stock does not
qualify for inclusion on the NASDAQ Small-Cap Market or is removed therefrom,
the Common Stock may become subject to rules that impose additional sales
practice requirements on broker-dealers who sell such securities to persons
other than established customers and accredited investors (generally those
with assets in excess of $1,000,000 or annual income exceeding $200,000, or
$300,000 together with their spouse). For transactions covered by these
rules, the broker dealer must make a special suitability determination for
the purchase of such securities and have received the purchaser's written
consent to the transaction prior to the purchase. Additionally, for any
transaction involving a penny stock, unless exempt, the rules require the
delivery, prior to the transaction, of a disclosure schedule prepared by the
SEC relating to the penny stock market. The broker-dealer also must disclose
the commissions payable to both the broker dealer and the registered
representative, current quotations for the securities and, if the broker-
dealer is the sole market-maker, the broker-dealer must disclose this fact
and the broker-dealer's presumed control over the market. Finally, monthly
statements must be sent disclosing recent price information for the penny
stock held in the account and information on the limited market in penny
stocks. Consequently, the "penny stock" rules may restrict the ability of
broker-dealers to sell Novacon's securities and may affect the ability of
company stockholders to sell such securities in the secondary market.
Recently, the SEC has proposed regulations which, if adopted, will
impose additional sales practice requirements on broker-dealers who sell
securities whose issuers are not subject to the periodic reporting requirements
of the Securities Exchange Act of 1934, as amended. For transactions covered
by these proposed rules, the broker dealer must undertake special actions with
respect to the market of such stocks. Consequently, these proposed rules may
restrict the ability of broker-dealers to sell Novacon's securities and may
affect the ability of purchasers to sell their shares in the secondary market.
Business Strategy
Novacon's primary business goal will be to achieve consistent growth in
revenues and profitability through medical device product distribution.
The keys to its success will be fivefold:
Identify and consummate affiliations with medical device design and
manufacturing partners that possess innovative medical device technology;
Secure timely medical device marketing approvals from applicable
government regulatory agencies;
Structure effective medical device marketing and distribution a
lliances;
Stay rigidly focused on the company philosophy of minimizing research
and development expenditures; and
Invest company resources primarily in product fulfillment, not medical
device development.
Novacon's business strategy is to design, develop, manufacture and
market medical devices for pain management and other medical conditions.
Novacon's focus has been, and for the foreseeable future will continue to be,
on pain management. Novacon plans, however, to diversify its medical device
products to treat other medical conditions, which Novacon believes also offer
significant future market opportunities. To achieve these objectives, Novacon
is pursuing the following business strategy:
Expand the Market for Elastomeric Infusion Pumps. Novacon believes that,
once Innovasive Devices rolls out its Freedom(tm) medical device, there will
be a further increase in the use of elastomeric infusion pump therapy.
Clinical results have shown that utilizing elastomeric infusion pumps is an
effective way to provide pain management, and as a result Novacon believes
that it has a significant opportunity to expand the market for its
elastomeric infusion pumps. Since the benefits of utilizing elastomeric
infusion pumps for pain management is a relatively recent development, Novacon
intends to focus its marketing efforts on educating physicians, patients and
third-party payors as to the benefits of elastomeric infusion pumps over
conventional electrical/mechanical infusion pumps. Novacon also intends to
expand the market for its elastomeric infusion pumps by enhancing its selling
efforts internationally and entering additional geographic areas.
Continue Product Innovation. Novacon is currently developing enhancements to
its elastomeric infusion pump with the addition of a rate adjustable infusion
device and alternative protective covers for various applications and infusion
environments. The Ranger(tm) rate adjustable elastomeric infusion pump affords
the clinician the option of selecting and changing flow rates at anytime during
the infusion procedure.
Seek and Expand Strategic Alliances. Novacon intends to continue efforts to
expand the market for its elastomeric infusion pump products through strategic
alliances with key partners.
Medical Device Products
Elastomeric Infusion Pumps
Novacon's elastomeric infusion pumps are medical devices used to infuse
drug solutions into a patient at a controlled rate using elastomeric pressure
to propel the solution through either an epidural catheter or an intravenous
tubing line. Novacon's infusion pumps are small and lightweight, and are
designed to be worn under the patient's clothing, on a belt, in a pocket or
elsewhere in order not to interfere with normal daily activities. Novacon
manufactures and sells 15 elastomeric infusion pump models with medication
capacities ranging from 20ml to 200ml and infusion durations ranging from 0.5
hours to 200 hours. Novacon's elastomeric infusion pumps deliver medication at
a constant flow rate throughout the designated medication infusion period.
Novacon believes that its elastomeric infusion pumps offer a cost-
effective infusion system alternative to electro/mechanical infusion pumps.
Novacon acquired rights to manufacture and market the dib(tm) infusion
balloon pump technology from DIB International Company, Ltd., Tokyo, Japan,
in February, 1993. The term of the agreement is five years.
Pain Management Therapies. Novacon's primary business is currently directed
at the epidural (spinal column) management of pain associated with labor and
delivery, surgery, and cancer. dib(tm) is also used for morphine trials to
qualify patients for permanent, implantable infusion systems. Toward this
end, Novacon manufactures and markets its infusion pump systems for delivery
of powerful narcotic drugs such as morphine, fentanyl, and bupivicaine and
chemotherapy agents such as 5FU.
dib(tm) Drug Infusion Balloon Pumps. Novacon's dib(tm) Drug Infusion
Balloon systems are designed to provide the patient with an easy, comfortable
and flexible means of epidural or intravenous infusion. They are generally
worn by the patient attached to a belt, placed in a pocket, strapped to an
arm or worn on a cord around the neck. The dib(tm) Drug Infusion Balloon
pumps accurately deliver throughout a prescribed delivery period a controlled
profile of pain medication to meet individual patient needs. The pain
medication is delivered from the elastomeric infusion pump through either an
epidural catheter inserted into the spinal column or an intravenous tubing
set. The dib(tm) pump is loaded by syringe injection through a one-way
filling port of the prescribed amount of drug solution into an enclosed
silicone balloon reservoir. The medication solution, now under elastomeric
pressure inside the silicone balloon, is released to flow when the outflow
three-way stopcock is opened. The solution is metered through an in-line,
ceramic, micro-flow regulator that, depending on the dib(tm) model, will
accurately control flow rates at 0.5 ml/hr, 1 ml/hr, 2 ml/hr, 4 ml/hr, and
10 ml/hr.
Novacon's dib(tm) Infusion Balloon Pumps are prescribed by physicians
for both hospital and at-home use. Most dib(tm) Infusion Balloon Pumps are
used in a hospital setting for epidural infusion applications. When a dib(tm)
Infusion Balloon Pump is prescribed for at-home use, a nurse typically assists
in teaching the patient how to use the pump. After the infused medicine is
exhausted a patient typically returns to the physician's office for removal
of the catheter or tubing set and the infusion pump or acquisition of a new
infusion pump with medication. Attachment and removal of catheters and tubing
sets are normally undertaken by trained personnel. While Novacon believes that
its elastomeric infusion pumps significantly improve the quality of life of
their users and are relatively easy to use, physicians do not prescribe
external infusion pumps for certain patients because the pumps are a
relatively sophisticated means of delivering medication and some patients may
not have the motivation and ability to understand and correctly use them.
Also some patients, particularly in their teenage and early adult years, may
object to pumps because they do not like the idea of having a device attached
to their bodies. Moreover, elastomeric infusion pumps may not be appropriate
for certain patients because of considerations of medication capacity, flow
rate and adjustability concerns.
Novacon believes that its success in the future will depend on continuing
to enhance its existing products and developing new products for pain treatment
management and other medical conditions.
Novacon is developing a series of elastomeric infusion pumps to address
delivery requirements for alternative applications, including MRI (magnetic
resonance imaging) sedation for nervous and claustrophobic patients. While
Novacon believes that such new applications for its elastomeric infusion pumps
may represent a significant opportunity for the future, its efforts in the
area are at a preliminary stage, and no assurance can be that the development
of such new applications for Novacon's elastomeric infusion pumps will be
successful or that such applications will be approved by the FDA or other
regulatory authorities. In addition, many of the new applications may involve
new drugs which themselves must be approved by the FDA in addition to the
approval required for the use of Novacon's elastomeric infusion pump systems
to deliver the drugs.
Research and Product Development
Elastomeric Infusion Pumps
Novacon's research and development activities are primarily related to
prototype development of alternative applications for its elastomeric infusion
pump technology. Novacon obtains its product ideas from health care
professionals whose opinions on products are actively solicited through field
visits and personal relationships. No research and development expenses were
incurred during fiscal 1997.
Supplies and Manufacturing
Elastomeric Infusion Pumps
Novacon purchases from outside vendors all of the elastomeric infusion
pump components and various services used in the manufacture of its products.
The purchased items are produced to its specifications and in many instances
to its designs, except for the balloon/shaft assembly and ceramic flow
controller purchased from DIB International Company, Ltd., which is the owner
of this patented technology and sole source supplier. Novacon then assembles
the components into finished products.
Novacon relies on single sources for certain critical components,
including the balloon/shaft assembly and ceramic flow controller, as well as
a sole source subcontract arrangement for sterilization services. The loss
of any of these critical sole source vendors could have a material adverse
effect on the Company's business, financial condition and results of
operations.
The principal components used in the manufacture of its elastomeric
infusion pumps are the balloon/shaft assembly and ceramic flow controller
purchased from DIB International Company, Ltd., which is the owner of this
patented technology and sole source supplier. The continuing availability of
these components is critical to Novacon's elastomeric infusion pump business
because no other similar technology is presently available to the Company.
The availability of such components affects Novacon's ability to fill
customers' orders on a timely basis. Moreover, an interruption of Novacon's
relationship with DIB International Company, Ltd. would have a material
adverse effect on the companies operations and financial condition.
The other components used in the manufacture of the elastomeric infusion pumps
are generally available from multiple sources. The availability of such
components could affect Novacon's ability to fill customer's orders on a
timely basis. However, Novacon believes that the interruption of its
relationships with such suppliers would not have a material adverse effect
over the long-term, as such components are available from other suppliers.
Novacon does not assemble its elastomeric infusion pumps. It outsources
the assembly with firms specializing in contract medical manufacturing.
Contract medical manufacturing services are generally available from multiple
sources and although interruption of its relationships with such firms could
effect Novacon's ability to fill customer's orders on a timely basis, Novacon
believes that the interruption of its relationships with such suppliers would
not have a material adverse effect over the long-term.
Competition
Elastomeric Infusion Pumps
At present Novacon considers its primary competition in the pain management
market for its disposable infusion pump systems to be permanent, external
electro/mechanical infusion pumps. The Company competes against electro/
mechanical infusion pump technology primarily by educating doctors, nurses,
managed care organizations and other third-party payers about the cost
effective and patient-comfort advantages of disposable infusion pump therapy
over electro/mechanical infusion pumps.
In the sale of its elastomeric infusion pumps for pain management, Novacon
believes presently that no other disposable, elastomeric infusion pump
companies have FDA approval for the epidural infusion of drugs. However,
several large medical products companies such as Baxter Healthcare
Corporation, Abbott Laboratories, Inc., and I-Flow Corporation manufacture
and distribute functionally similar disposable infusion pumps for intravenous
pain management and other therapies, including antibiotic, chemotherapy and
nutrient infusions. Baxter and I-Flow compete directly in the at-home
antibiotic market. Novacon never has, nor does it intend in the future, to
enter this high volume, price driven market segment. Although such
competitive infusion pumps have similar function, Novacon believes that its
dib(tm) flow accuracy and biomaterial (latex free) composition provide the
optimum compatibility for a broad range of narcotic and non-narcotic drugs.
Novacon competes with other pump makers primarily on the basis of product
design, quality and utility, customer service and price. There can be no
assurance that past, current and potential makers of competitive pumps, all of
which may have substantially greater financial, technical, marketing and other
resources than Novacon, will not become more significant factors in the future.
Novacon believes that it may be faced with additional competition in the near
future.
Numerous companies, all of which have substantially greater financial,
technical, manufacturing, marketing and other resources than Novacon, are
attempting to develop a variety of products for pain management. Some of
these products are infusion systems, both electro/mechanical and infusion
pumps. The distribution of infusion pumps is a highly competitive business.
All of these companies have substantially greater resources than Novacon.
Moreover, the health care industry generally, and the provider segment in
particular, has experienced, and is expected to continue to experience,
consolidation. This trend could produce additional competitors having larger
and substantially greater resources than Novacon. Competitive pressure could
cause Novacon to lose or fail to gain market share or experience significant
price erosion. Novacon competes on the basis of customer service,
convenience, product availability and price.
A number of companies and medical researchers are pursuing new delivery
devices, delivery technologies, procedures, drugs and bioengineered
therapeutics for pain management treatment. If successful, these technologies
and/or medical procedures could have a material adverse effect on Novacon's
business, financial condition and results of operations and could possibly
render Novacon's products obsolete.
Patents, Proprietary Rights and Trademarks
Novacon owns no patents to protect technology, inventions and
improvements that it considers important to the development of its business.
However, its has a non-exclusive license to utilize the balloon/shaft assembly
and ceramic flow controller purchased from DIB International Company, Ltd.,
which is the owner of this patented technology under a number of patents.
Moreover, Novacon relies primarily on trade secrets and know-how with respect
to its infusion pump products.
Novacon owns no trademarks. The Company relies on certain trade secrets and
proprietary know-how that it seeks to protect, in part, through
confidentiality agreements with its employees and consultants. There can be
no assurances that any unprotected information will not also be developed by
others.
Government Regulation
Clinical testing, manufacture and sale of Novacon's products are subject
to regulation by numerous governmental authorities, principally the FDA and
corresponding state agencies. Novacon s required to register as a medical
device manufacturer with the FDA. Novacon is subject to inspection on a
routine basis by the FDA for compliance with the FDA's Quality Systems
Regulation ("QSR"). These regulations impose certain procedural and
documentation requirements upon Novacon with respect to manufacturing and
quality assurance activities.
Under the Federal Food, Drug and Cosmetic Act (the "Act"), as amended,
medical devices are classified into one of three classes (i.e., Class I, II,
or III) on the basis of the controls necessary to reasonably ensure their
safety and effectiveness. Safety and effectiveness can reasonably be assured
for Class I devices through general controls (e.g., labeling, premarket
notification and adherence to QSRs) and for Class II devices through the use
of general and special controls (e.g., performance standards, postmarket
surveillance, patient registries, and FDA guidelines). Generally, Class III
devices are those which must receive PMA by the FDA to ensure their safety
and effectiveness (e.g., life-sustaining, life-supporting and implantable
devices, or new devices which have been found not to be substantially
equivalent to legally marketed Class I or Class II devices).
Before a new device can be introduced to the market, the manufacturer
generally must obtain FDA clearance through either a 510(k) premarket
notification or a PMA. A 510(k) clearance will be granted if the submitted
data establishes that the proposed device is "substantially equivalent" to a
legallymarketed Class I or Class II medical device, or to a pre-amendment
Class III medical device for which the FDA has not called for PMAs.
Generally an application for 510(k) clearance only requires submission of a
file, including design, manufacturing, test and marketing information,
including labeling. However, in some cases the FDA requires clinical trials
under an IDE (as defined below), even for products to be cleared under the
510(k) process. There can be no assurance that Novacon will obtain 510(k)
premarket clearance for any of the devices for which it may file a 510(k)
notice. The FDA may determine that the proposed device is not substantially
equivalent, or that additional data are needed before a substantial
equivalence determination can be made. A "not substantially equivalent"
determination, or a request for additional data, could delay the market
introduction of new products that fall into this category and could have a
material adverse effect on Novacon's business, financial condition and
results of operations.
The FDA currently regulates disposable infusion pumps as Class II
devices. Disposable infusion pumps have generally qualified for clearance
under Section 510(k), although certain features of advanced pumps may require
clinical validation. Novacon's elastomeric infusion pumps have all been
cleared by the FDA pursuant to the Section 510(k) premarket notification
process. Modifications or enhancements to Novacon's products that are cleared
through the 510(k) process that could significantly affect safety or
effectiveness will require new submissions. There can be no assurance that
the FDA will approve new 510(k) notifications for any of these modifications.
Novacon does not currently manufacture or market Class III medical devices
or devices requiring PMA filings with the FDA. However, should any of the
Company's future products be accorded PMA filing requirements, compliance
with the following procedures is mandatory. A PMA must be filed if the
proposed device is not substantially equivalent to a legally marketed device
or if it is a pre-amendment Class III device for which the FDA has called
for PMAs.
In order to obtain a PMA, a device that poses a significant risk to
patients must undergo clinical evaluation under an Investigational Device
Exemption ("IDE") that is granted by the FDA to permit testing of the
device ina limited number of humans in clinical trials conducted at a
restricted group of clinical sites. In addition to obtaining from the FDA
an IDE approval to conduct a clinical trial, the sponsor of the
investigational research must also obtain approval for the clinical research
from an institutional review board or committee established for this
purpose by each medical center where the trials will be conducted.
Clinical trials leading to a PMA are intensive and costly activities that
usually extend over two or more years. As the clinical trial progresses
under an IDE, the FDA may at certain milestones allow expansion of the scope
of the trial to allow additional patients or additional clinical sites or both.
Clinical trial results are presented to the FDA in a PMA application.
In addition to the results of clinical investigations, the applicant must
submit other information relevant to the safety and efficacy of the device
and/or the drug, including the results of non-clinical tests, a full
description of the device and its components, a full description of the
methods, facilities and controls used for manufacturing, and proposed
labeling. Such submissions are extremely detailed and complex, often
involving thousands of pages. The FDA staff then reviews the submitted
application and determines whether or not to accept the application for
filing. There is no assurance that either the safety or efficacy data in
these submissions will be deemed sufficiently complete and adequate by the
FDA, and if they are not, a final determination by the FDA could be delayed
while additional trials are performed or the project could be abandoned.
Such trials would add significant new costs to such a program, which would
have a material adverse effect on Novacon's business, financial condition and
results of operations.
If accepted for filing, the applications are further reviewed first by
the FDA staff and, if appropriate, subsequently by an FDA scientific advisory
panel comprised of physicians and others with expertise in the relevant field.
A public meeting is held before the advisory panel in which the PMA
application is reviewed and discussed. The scientific advisory panel then
issues a recommendation of approval or denial to the FDA or recommends
approval with conditions. Although the FDA is not bound by the opinion of
the advisory panel, the FDA tends to give considerable weight to panel
recommendations. If the FDA's evaluations of the application are favorable,
the FDA will subsequently publish an order approving the PMA application.
Interested parties can file comments on the order and seek further FDA review.
Although by statute the FDA is granted 180 days in which to review a PMA
NDA and either approve or disapprove it, in practice the FDA has often taken
much longer. Generally, during the review, the FDA will request additional
data and the applicant will agree to extend the review time. The FDA will make
an initial assessment as to whether the PMA is sufficiently complete for review
and may require the development and submission of additional data or analyses.
The PMA processing in the past has typically lasted more than a year from the
time of filing, and in some cases several years, but the FDA is being
pressured to meet its statutory timelines. Many such reviews are now being
completed within six months, but others are not, and there is no assurance
when or if an application will be approved.
New PMA applications or PMA supplements are required for certain
modifications to a device that is approved through the PMA process.
Supplements to a PMA application often require submission of the same type of
information as for a PMA application except that the supplement is limited
to information needed to support any changes from the product covered by the
original PMA application and may not require the submission of clinical data
or the convening of an advisory committee and corresponding review.
The PMA processes can be expensive, uncertain and lengthy, and a number
of devices for which PMA approval has been sought have never been approved for
marketing. There can be no assurance that Novacon will be able to obtain
necessary regulatory approvals or clearances on a timely basis or at all for
any of its products under development, and delays in receipt of or failure to
receive such approvals, the loss of previously received approvals, or failure
to comply with existing or future regulatory requirements would have a
material adverse effect on Novacon's business, financial condition and results
of operations.
Approvals restrict devices to specifically labeled uses. The FDA
actively enforces regulations prohibiting marketing of products for
unapproved uses. The FDA also conducts inspections to determine whether
Novacon conforms with QSR, and subsequent QSR inspections will continue after
the FDA approval.
Failure to comply with applicable regulatory requirements can result in,
among other things, fines, injunctions, civil penalties, failure of the
government to grant premarket clearance or premarket approval of devices or
drugs, delays or suspensions or withdrawals of approvals, seizures or recalls
of products, operating restrictions and criminal prosecutions. Changes in
existing requirements or adoption of new requirements could have a material
adverse effect on Novacon's business, financial condition and results of
operations.
The FDA can withdraw a PMA approval if new evidence or new information
shows the device is no longer safe or effective, or if the FDA discovers that
the PMA contains any untrue statement of material fact. Other reasons
justifying withdrawal of a PMA by the FDA include, but are not limited to,
failure to maintain required records or to file records and reports, new
questions regarding manufacturing, and whether labeling is false or misleading.
There can be no assurance that the necessary approvals for the use of
new generations of Novacon's elastomeric infusion pumps will be granted by
the FDA or other authorities on a timely basis or at all, and delays in
receipt of or failure to receive such approvals, or the loss of previously
received approvals, could result in significant delays, substantial costs or
even the cessation of operations relating to a product or group of products,
and any of these could have a material adverse effect on the business,
financial condition and results of operations of Novacon.
Exports of products subject to 510(k) notification requirements, but not
yet cleared to market, are permitted without FDA export approval, provided
that certain requirements are met. Unapproved products subject to PMA
requirements must receive prior FDA export approval unless they are approved
for use by any member country of the EU and certain other countries, including
Australia, Canada, Israel, Japan, New Zealand, Switzerland and South Africa,
in which case they can be exported to any country without prior FDA approval.
International sales are subject to foreign government regulation, the
requirements of which vary substantially from country to country. The time
required to obtain approval by a foreign country may be longer or shorter
than that required for FDA approval, and the requirements may differ. A
medical device company must obtain the CE Mark prior to sale within the EU of
certain medical devices, including implantable products. During this process,
the sponsor must demonstrate compliance with ISO manufacturing and quality
requirements. As is the case with QSR inspections in the U.S., inspections
by various foreign bodies will continue in the EU on a periodic basis after
receipt of the CE Mark.
Novacon also is subject to numerous federal, state and local laws
relating to such matters as safe working conditions, manufacturing practices,
environmental protection, fire hazard control and disposal of hazardous or
potentially hazardous substances. Additionally, Novacon must comply with
various FDA, and in some cases Federal Trade Commission, requirements for
design, safety, advertising, labeling, record keeping and reporting of adverse
experiences with the use of a product. There can be no assurance that Novacon
will not be required to incur significant costs to comply with such laws and
regulations in the future or that such laws or regulations will not have a
material adverse effect upon Novacon's ability to do business.
Third Party Reimbursement
In the U.S., Novacon's products are generally purchased directly by
physicians, physician groups, hospitals, and/or dealers. There is widespread
concern that health care market initiatives in the U.S. may lead third-party
payors to decline or further limit reimbursement. The extent to which third-
party payors may determine that use of Novacon's products will save costs or
will at least be cost effective is highly uncertain, and it is possible that
they will merely focus on the lower initial costs associated with injection
therapy or will otherwise limit reimbursement for infusion pumps or other
products developed by Novacon. Because of uncertainties regarding the
possible health care reform measures that could be proposed in the future
and initiatives to reduce costs by private payors, Novacon cannot predict
whether reimbursement for its products will be affected or, if affected,
the extent of any effect. The unavailability of third-party coverage or the
inadequacy of reimbursement for Novacon's products would materially and
adversely affect its business, financial condition and results of operations.
Product Liability
Novacon's business involves the inherent risk of product liability
claims. Novacon does not presently maintain product liability insurance, nor
there can be no assurance that insurance coverage will be available on terms
acceptable to Novacon or that such coverage will be adequate for liabilities
actually incurred.
Employees
As of May 31, 1997, Novacon employed 2 full-time persons: David P. Lang,
Chief Executive Officer and President; and John D. Lang, Manager, Operations.
Additionally, the company engages consultants from time-to-time for marketing,
regulatory and other business matters. As the company's operations expand it
expects to employ an administrative assistant, one or more product managers,
regulatory/legal counsel and part-time warehouse staff as circumstances
warrant during the next 24 months. None of the Company's employees are
expected to be subject to collective bargaining agreements.
ITEM 2. DESCRIPTION OF PROPERTY
Novacon leases approximately 500 square feet of administrative office
space in Lake Elmo, Minnesota, from David P. Lang, Novacon's Chairman and Chief
Executive Officer, on a $500 monthly rental basis. Novacon believes its space
requirements for the foreseeable future are adequate.
ITEM 3. LEGAL PROCEEDINGS
Novacon is not presently a party to any material pending legal
proceedings. Novacon may be subject from time to time to various legal
proceedings, including product liability and employment claims, which arise in
the ordinary course of its business. Novacon believes that such proceedings,
individually or in the aggregate, would likely have a material adverse effect
on its business or financial condition.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMN EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's common stock is traded on the NASDAQ OTCBB (Bulletin Board)
market under the symbol "NVCN". Novacon common stock began trading publicly
in January, 1985 following its initial public stock offering. Trading in the
Company's common stock was de-listed to OTCBB (Bulletin Board) in 1987. The
following table shows for the period indicated the high and low quotations
per share of common stock. These OTCBB (Over-the-Counter-Bulletin Board)
quotations reflect inter-dealer prices, without retail mark-up, mark-down or
commissions and may not necessarily represent actual transactions.
Common Stock
HIGH LOW
1996
Fourth Quarter Ended May 31, 1997........................ $ .01 .01
Third Quarter Ended February 28 1997...................... .01 .01
Second Quarter Ended November 30, 1996.................... .01 .01
First Quarter Ended August 30, 1996....................... .01 .01
1995
Fourth Quarter Ended May 31, 1996......................... $ .02 .01
Third Quarter Ended February 28, 1996.................... .01 .01
Second Quarter Ended November 30,1995..................... .01 .01
First Quarter Ended August 30, 1995....................... .01 .01
Record Holders
The last reported sale price of the Common Stock on the Nasdaq Bulletin
Board on May 31, 1997 was $0.01. As of May 31, 1997, there were approximately
1,250 stockholders of record of the Company's Common Stock.
Dividends
Novacon has never declared or paid any cash dividends on its Common
Stock. Novacon currently intends to retain all available funds for use in its
business and therefore does not anticipate paying any cash dividends in the
foreseeable future. Any future determination relating to dividend policy
will be made in the discretion of the Board of Directors of the Company and
will depend on a number of factors, including the future earnings, capital
requirements, financial condition and future prospects of Novacon and such
other factors as the Board of Directors may deem relevant.
ITEM 6. SELECTED FINANCIAL DATA
The following table summarizes certain selected financial data, which
should be read in conjunction with the Company's financial statements and
notes thereto included elsewhere herein and with "MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS." The selected
consolidated financial data as of May 31, 1997, 1996, 1995 and 1994, have
been derived from the audited financial statements of Novacon Corporation.
Year Ended Year Ended Year Ended Year Ended
May 31,1997 May 31,1996 May 31,1995 May 31,1994
STATEMENT OF OPERATIONS:
REVENUES $ 76,509 77,083 22,016 0
COST OF GOODS SOLD 43,016 28,098 21,563 0
GROSS PROFIT 33,493 48,985 453 0
OPERATING EXPENSES
Selling, G & A 156,648 174,066 220,333 152,537
OPERATING INCOME (LOSS) (123,155) (125,081) (219,880) (152,537)
INTEREST INCOME (EXPENSE) (9,371) (6,293) (3,249) (15,433)
EXTRAORDINARY ITEM - 36,145 480,321 670,964
NET INCOME (LOSS) (132,526) (95,229) 257,192 502,984
NET INCOME (LOSS) PER SHARE $ (0.01) (0.01) 0.02 0.05
WEIGHTED AVERAGE SHARES 10,722,904 10,722,904 10,612,748 9,779,404
OUTSTANDING
CASH FLOW DATA:
Cash flow from (used in)
Operations (137,050) (140,564) (153,676) 415,800
Cash flow used in
investing activities 185,475 128,799 71,894 (429,000)
Cash flow from (used in)
financing activities (93,410) 56,838 56,838 63,722
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
General
Novacon designs, develops, manufactures, and markets disposable
elastomeric infusion pumps for pain management and other developing infusion
therapies. Substantially all the Company's sales revenues since 1994 have
been generated by sales of these infusion pumps. The Company recorded
extraordinary income associated with the sale of its equity interest in
Qinming Medical, Inc. (a Chinese-American joint venture), royalties, and
gains on debt extinguishments of $36,145, $480,321, $670,964, and $376,572
during fiscal 1996, 1995, 1994, and 1993, respectively. No extraordinary
items were recorded during fiscal 1997.
The Company's series of Dib(tm) infusion pumps are FDA authorized for
full commercial distribution in the United States and are indicated for a
wide range of epidural and intravenous infusion of drugs. These indications
include obstetrical anesthesia (labor & delivery), post-operative and chronic
pain management, morphine trials, chemotherapies, and antibiotic infusions.
Management believes the versatility and accuracy of its models position the
Company to take advantage of emerging, new applications for ambulatory drug
infusion regimens.
Novacon intends to pursue strategic alliances with larger marketing
organizations that specialize in products associated with these new
applications for the Company's infusion pump line. Management believes the
Company's growth is critically dependent on identifying and promoting new
medical applications for its expanding line of ambulatory infusion pumps.
Management expects to continue its practice of out-sourcing manufacturing,
packaging and sterilization services. The marketing and distribution of its
infusion pump line has been conducted through a local network of independent
distributors specializing in general anesthesia products. In the future,
management plans to organize its marketing and distribution of specific, new
pump applications through multiple, nationwide medical firms with products and
expertise specializing in the emerging applications.
The Company has an accumulated deficit of $8,662,814 as of May 31, 1997
and has incurred annual operating losses for the past five years. If the
Company does not achieve an operating profit during 1998, it may be unable to
continue in business. See Note 2, Financial Statements.
Product development and manufacturing operations have focused on
disposable elastomeric infusion pumps. Future development of the infusion pump
product line will focus upon improving the existing technology for its current
use in pain management treatment and the utilization of this technology for
the treatment of other medical conditions.
Results of Operations
The following discussion sets forth for the years indicated the
percentage relationship to net sales of certain items in the Company's
statements of operations and the percentage changes in the dollar amounts of
such items on a comparative basis for the three fiscal years ended May 31,
1997:
Fiscal Year 1997 and Fiscal Year 1996:
Net Sales. Net sales decreased 1% in 1997 over 1996 to $76,509 from $77,083.
Cost of Sales and Operating Expenses. Cost of sales increased 53% in 1997 over
1996 to $43,016 from $28,098, or 56% and 36% of net sales, respectively. As
a percentage of net sales, selling and general and administrative expenses in
1997 were 205% or $156,648, which included no research and development
expenses.
Fiscal Year 1996 and Fiscal Year 1995:
Net Sales. Net sales increased 350% in 1996 over 1995 to $77,083 from $22,016.
Cost of Sales and Operating Expenses. Cost of sales increased 30% in 1996 over
1995 to $28,098 from $21,563, or 36% and 98% of net sales, respectively. As a
percentage of net sales, selling and general and administrative expenses in
1996 were 226% or $174,006, which included no research and development expenses.
Fiscal Year 1995 and Fiscal Year 1994
Net Sales. Net sales commenced in 1995 to $22,016. There was no sales revenue
in 1994.
Cost of Sales and Operating Expenses. Cost of sales in 1995 was $$21,516, or 98%
of net sales. As a percentage of net sales, selling and general and
administrative expenses in 1995 were 1000% or $220,333, which included no
research and development expenses.
Extraordinary income. The Company recorded extraordinary income during 1995
of $480,321.
Liquidity and Capital Resources
Novacon has financed its operations in recent years primarily through cash
flows from operations and loans from a director. The Company has not secured
any equity funding since its initial public offering in 1985 and a secondary
offering in 1987. In 1996 the Company obtained $30,000 from three individuals
through the issuance of convertible promissory notes. No additional funding
was secured during 1997.
Capital expenditures were less than $2,500 for fiscal 1997, 1996 and 1995,
respectively. The Company's 1997 and 1996 capital expenditures included
computer and software equipment.
Management believes that the Company's current level of cash and cash
equivalents are not sufficient to meet its needs for working capital and
capital expenditures for the next twelve months. The Company's recurring
losses, negative cash flow from operations and net working capital deficiency
raise substantial doubt about its ability to continue as a going concern
without internal restructuring and obtaining additional capital. The 1997
financial statements do not include any adjustments that might result from the
outcome of this uncertainty. Furthermore, the majority of the Company
purchases of raw materials are paid for in the Japanese yen currency. The
exchange rate between the U.S. dollar and the Japanese yen has demonstrated
serious volatility over the past years, which could have an adverse affect on
the Company's effort to achieve profitable operations. The Company's ability
to continue operations is dependent upon its ability to obtain additional
capital and working capital, which is subject to and will depend upon numerous
factors, including an increase in sales for existing and new applications for
the Company's infusion pump product line and achievement of profitable
operations.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE
Not Applicable.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS
The following financial statements of Novacon Corporation are included
in Item 8:
Balance Sheet for the years ended May 31, 1997 and 1996.............page 27
Statement of operations for the years ended May 31, 1997 and 1996...page 28
Statement of Changes in Shareholder Equity (Deficit)................page 29
Notes to Financial Statements.......................................page 31
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not Applicable
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information with respect to Directors and Executive Officers of the
Company is incorporated by reference to the Company's definitive Information
Statement for its annual meeting of stockholders to be filed with the
Securities and Exchange Commission (the "Information Statement").
ITEM 11. EXECUTIVE COMPENSATION
Information with respect to this item is incorporated by reference to the
Company's Information Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information with respect to this item is incorporated by reference to the
Company's Information Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
Information with respect to this item is incorporated by reference to the
Company's Information Statement.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES, AND REPORTS ON FORM 8-KSB
(a) 1. FINANCIAL STATEMENTS
See index to financial statements under Item 8, on page 23 for a list of
all financial statements filed as part of this report.
2. FINANCIAL STATEMENT SCHEDULES
All other schedules are omitted because they are not applicable, not
required, or because the required information is included in the financial
statements or notes thereto.
3. EXHIBITS REQUIRED TO BE FILED BY ITEM 601 OF REGULATION S-K
The following exhibits are filed as part of this Annual Report on Form
10-KSB or are incorporated herein by reference:
[list]
(b) 1. REPORTS ON FORM 8-KSB
None.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Action of 1934, as amended, the registrant has duly caused this
Report to be signed on its behalf by the undersigned, thereunto duly
authorized.
NOVACON CORPORATION
Date: April 4, 2000 By: /s/ David P. Lang
------------------------------------
David P. Lang, Chairman of the Board,
Chief Executive Officer (Principal
Executive Officer), Chief Financial
Officer (Principal Financial and
Accounting Officer)
______________
David P. Lang
Director
April 4, 2000
NOVACON CORPORATION
FINANCIAL STATEMENTS
FOR THE YEARS ENDED
MAY 31, 1997 and 1996
NOVACON CORPORATION
BALANCE SHEET
For the years ended May 31, 1997 and 1996
ASSETS
1997 1996
Current assets:
Cash $ 571 45,556
Accounts Receivable 25,999 15,017
Inventory 75,484 71,525
Other current assets (Note 3) 28,956 188,433
Total current assets 131,010 320,531
Property and Equipment (Note 4) 9,373 8,866
Contract Receivable (Note 3) - 28,956
Total assets $ 140,383 358,353
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current Liabilities:
Notes Payable-related parties (Note 5) 17,200 92,260
Notes payable-third parties (Note 6) 30,000 18,350
Accounts payable 31,327 20,863
Accrued compensation and payroll taxes 100,764 99,243
Other accrued expenses - 11,262
Total Current Liabilities 186,534 241,978
Notes Payable-third parties (Note 6) - 30,000
Total Liabilities 186,534 271,978
Commitments (Note 7)
Shareholders' equity (deficit)
Common stock, $.01 par value,
15,000,000 shares authorized,
10,722,904 shares issued, and outstanding 107,229 107,229
Paid-in capital 8,509,434 8,509,434
Accumulated deficit (8,662,814) (8,530,288)
Total shareholders' equity (deficit) (46,151) 86,375
Total liabilities &
shareholders' equity (deficit) 140,383 358,353
See accompanying notes to financial statements
NOVACON CORPORATION
STATEMENT OF OPERATIONS
(unaudited)
For the years ended May 31, 1997 and 1996
1997 1996
Net sales $ 76,509 77,083
Cost of Goods Sold 43,016 28,098
Gross profit 33,493 48,985
General & Administrative expenses 156,648 174,066
Loss from operations (123,155) (125,081)
Other income (expenses) (9,371) (6,293)
Extraordinary item (Note 9) - 36,145
Net loss (132,526) (95,229)
Per share data:
Loss per share of common stock: $(0.01) (0.01)
Weighted average number of
shares outstanding 10,722,904 10,722,904
See accompanying notes to financial statements
NOVACON CORPORATION
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT)
For the years ended May 31, 1997 and 1996
Total
Additional Shareholders'
Common Stock Paid-in Accumulated Equity
Shares Amount Capital Deficit (Deficit)
Balances at
May 31, 1995 10,722,904 $107,229 $8,509,434 $(8,435,059) $181,604
Net loss - - - (95,229) (95,229)
Balances at
May 31, 1996 10,722,904 $107,229 $8,509,434 $(8,530,288) $ 86,375
Net loss (132,566) (132,526)
Balances at
May 31, 1997 10,722,904 $107,229 $8,509,434 $(8,662,814) $(46,151)
See accompanying notes to financial statements
NOVACON CORPORATION
STATEMENT OF CASH FLOWS
For the years ended May 31, 1997 and 1996
1997 1996
Cash flows from operating activities:
Net Income (loss) $ (132,526) (95,229)
Adjustments to reconcile net loss to
Net cash used in operating activities:
Extraordinary item - (36,145)
Accumulated depreciation 1,951 1,666
(Increase) decrease in assets:
Accounts receivable (10,982) (11,996)
Inventory (3,959) (34,471)
Deferred financing costs - -
Other current assets 500 3,919
Prepaid inventory - -
(Increase (decrease) in liabilities:
Accounts payable 10,464 (48,346)
Accrued expenses (2,458) 80,038
Net cash used in operating activities: (137,050) (140,564)
Cash flows from investing activities:
Payments received on contract receivable 187,933 132,111
Purchase of property and equipment (2,458) (3,312)
Net cash provided by investing activities: 185,475 128,799
Cash flows from financing activities:
Net issuance (repayment) of notes
payable-related parties (75,060) 8,488
Net issuance (repayment) of notes
payable-third parties (18,350) 48,350
Net cash used in financing (93,410) 56,838
Increase (decrease) in cash) (44,985) 45,073
Cash - beginning of year 45,556 483
Cash - end of year 571 45,556
During 1996:
The Company extinguished $36,145 of accounts payable, resulting in
extraordinary income of $36,145.
See accompanying notes to financial statements
NOVACON CORPORATION
NOTES TO FINANCIAL STATEMENTS
For the years ended May 31, 1997 and 1996
Note 1: Significant Accounting Policies
Nature of Organization:
Novacon Corporation manufactures and distributes disposable, elastomeric
infusion pumps designed for hospital and home applications in pain management,
chemotherapy and antibiotics. The Company has a non-exclusive United States
manufacturing and marketing agreement with the Japanese developer of the
proprietary technology used in the design of these pumps.
Accounts Receivable:
The Company considers its accounts receivable to be fully collectible;
accordingly, no allowance for doubtful accounts is required. If amounts
become uncollectible, they will be charged to operations when that
determination is made.
Inventory:
Inventory was recorded at the lower of cost (determined on a first-in, first-
out basis) or market. Inventory on hand consisted of both finished goods and
raw material components.
Property and Equipment:
Property and equipment is stated at cost. Depreciation is computed using
straight-line methods and is expensed based upon the estimated useful lives
of the assets.
Income Taxes:
Income taxes are provided for the tax effects of transactions reported in the
financial statements and consist of taxes currently due plus deferred taxes,
if any. Deferred taxes represent the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes.
Use of Estimates:
The preparation of financial statements requires management to make certain
estimates and assumptions about the future outcome of current transactions
which may affect the reporting and disclosure of these transactions.
Accordingly, actual results could differ from those estimates used in the
preparation of these financial statements.
Net Income (loss) Per Share:
The net income (loss) per share was computed based on the weighted average
number of shares outstanding during the year without taking into effect
outstanding options as their effect would be anti-dilutive.
Note 2: Continued Existence and Management's Plan
During 1997, the Company incurred a net loss of $132,526 and a negative cash
flow from operations of $137,050, resulting in a working capital deficit of
$55,524 and an accumulated deficit totaling $8,662,814 at May 31, 1997.
Given these circumstances and the Company's expected cash requirements in
1998, significant internal restructuring and additional capital investment
will be necessary to sustain the Company's operations.
In these regards, the Company expects its new distribution alliances will
substantially increase sales. Management plans to expand indications for use
of the Company's infusion pumps with several new product offerings.
Successful execution of these plans may result in profitable operations.
In the event that management's plans as described above are not successful,
the Company may be forced to delay or curtail its new product development
activities or be forced to further reduce its inventory and distribution
operations. The financial statements do not contain any adjustments which
might be necessary if the Company is unable to continue as a going concern.
Note 3: Contract Receivable
Contract receivable consisted of the balance owed to the Company from the
1992 sale of its 49% interest in a Chinese joint venture, QM Medical, Inc.,
to its 51% owner, Qinling Semiconductor Factory. The contract receivable is
guaranteed by Changling Machine Factory. Pursuant to the contract, the
Company received $187,933 and 132,111 in 1997 and 1996, respectively. The
final payment of $28,956 was received by the Company in November, 1997.
Note 4: Property and Equipment
Property and equipment consisted of the following at May 31:
Office equipment $8,479
Computer equipment 5,397
Less accumulated depreciation (4,503)
Property and equipment, net $9,373
Depreciation expense was $1,951 and $1,666 in 1997 and 1996, respectively.
Note 5: Notes Payable-Related Parties
Notes payable-related parties consisted of various notes payable to an
officer/shareholder. The notes bear interest at variable rates from 0% to
15%, are unsecured and due upon demand.
Note 6: Notes Payable-Third Parties
Notes payable-third parties consisted of the following at May 31:
Convertible notes payable-interest bearing at 18%, unsecured and due in
November, 1997 and March, 1998. The notes are convertible into 300,000 shares
of common stock at the option of the note holder at maturity or until paid
in full.
1997 1996
Convertible Notes payable-18% $ 30,000 $ 30,000
Interest due inNovember, 1997 and
March, 1998. Notes are convertible
Into 300,000 shares of common stock
At the option of the noteholder at
Maturity or until paid in full
Other notes payable-interest bearing
at rates from 10%-12%, unsecured and
ue in June, 1996 - 18,350
Total notes payable-
Third parties $ 30,000 $ 48,350
Note 7: Commitments
The Company's stock option plan provides for the grant of options to purchase
up to a maximum of 650,000 shares of common stock. The purchase price of
incentive stock options granted may not be less than the fair market value of
the common stock on the date of the grant. Non-statutory stock options may
not have a purchase price less than the par value of the stock issued on the
date of the grant. The Plan expires in August, 1998.
As of May 31, 1997, the Company had 500,000 non-qualified options outstanding
to an officer/director at an exercise price of $.09 per share. The option
expires in December, 1997.
During fiscal 1997, no shares of common stock were purchased through the
exercise of options.
Note 8: Significant Suppliers and Customers
During 1997 and 1996, the Company purchased substantially all its component
inventory of infusion balloon/shaft assemblies and related supplies from a
Japanese corporation. Total purchases from this supplier aggregated $29,002
and $51,291 in 1997 and 1996, respectively.
During 1997, the Company made sales to four customers representing
approximately 11%, 17%, 25% and 28% of total sales. In 1996, the Company made
sales to three cyustomers representing approximately 12%, 21% and 30% of sales.
Note 9: Income taxes
At May 31, 1997, the Company had net operating loss carryforwards as follows
for income tax purposes:
Carryforward Net Operating
Expires Loss
May 31 Carryforwards
1998 843,681
1999 1,195,200
2000 1,756,188
2001 2,387,027
2002 803,884
2003 531,839
2004 83,377
2005 762,681
2007 45,923
2011 22,000
2012 131,000
Total $ 8,562,800
The utilization of the carryforwards is dependent upon the ability to generate
sufficient taxable income during the carryforward period. In addition,
utilization of these carryforwards may be limited due to ownership changes as
defined in the Internal Revenue Code
NOVACON CORPORATION
INDEX TO EXHIBITS
I. Schedule 14C Information.....................................page 36
II. Information Statement for 1997 Shareholders' Meeting........page 38
SCHEDULE 14C INFORMATION
Proxy Statement Pursuant to Section 14(c) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant /X/
Filed by a party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.14a-12
Novacon Corporation
- -------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- ------------------------------------------------------------------------------
Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11
(1) Title of each class of securities to which transaction applies:
------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
------------------------------------------------------------------------
(5) Total fee paid:
------------------------------------------------------------------------
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
------------------------------------------------------------------------
(3) Filing Party:
------------------------------------------------------------------------
(4) Date Filed:
------------------------------------------------------------------------
Exhibit II
October 8, 1997
Dear Stockholder:
You are cordially invited to attend the 1997 Annual Meeting of
Stockholders of Novacon Corporation. The meeting will be held on Wednesday,
November 19, 1996, at 4:00 p.m. local time at 2116 Second Avenue South,
Minneapolis, Minnesota 55404. We suggest that you carefully read the enclosed
Notice of Annual Meeting and Information Statement.
We hope that you will be able to attend the Annual Meeting. However,
whether or not you plan to attend, we urge you to complete, sign, date and
return the enclosed proxy card in the enclosed envelope in order to make
certain that your shares will be represented at the Annual Meeting.
Very truly yours,
David P. Lang
Chief Executive Officer and President
NOVACON CORPORATION
5451 Hilltop Avenue
Lake Elmo, Minnesota 55042-9539
--------------------------------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
November 19, 1997
---------------------------------------------------
TO OUR STOCKHOLDERS:
Please take notice that the Annual Meeting of the Stockholders of Novacon
Corporation, a Delaware corporation (the "Company"), will be held at 2116
Second Avenue South, Minneapolis, Minnesota 55404, on Wednesday, November 19,
1997, at 4:00 p.m. Minneapolis time, to consider and vote upon the following
matters:
1. Election of three directors to serve a one-year term, or until their
respective successors are elected and qualified.
2. To ratify the appointment of Silverman Olson Thorvilson & Kaufmann, Ltd.,
as the Company's independent auditors for the current fiscal year ending May
31, 1998.
3. To transact such other business as may be properly brought before the Annual
Meeting or any adjournments thereof.
The Board of Directors of the Company has fixed the close of business on
October 24, 1997, as the record date for the determination of stockholders
entitled to notice of and to vote at the Annual Meeting. The transfer books
of the Company will not be closed.
Stockholders who do not expect to be present personally at the Annual
Meeting are urged to complete, date, sign, and return the accompanying Proxy
in the enclosed, self-addressed envelope. The Board of Directors of the
Company sincerely hopes, however, that all stockholders who can attend the
Annual Meeting will do so. It is important that your shares be represented and
voted at the Annual Meeting. If you are not able to attend the Annual Meeting,
please return your completed Proxy at your earliest convenience.
BY THE ORDER OF THE BOARD OF DIRECTORS
John D. Lang, Secretary
Dated: October 8, 1997
NOVACON CORPORATION
5451 Hilltop Avenue
Lake Elmo, Minnesota 55042
------------------------------------------
INFORMATION STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
November 19, 1997
------------------------------------------
INTRODUCTION
The Annual Meeting of Stockholders of Novacon Corporation (the
"Company") will be held on Wednesday, November 19, 1997, at 4:00 p.m. local
time at 2116 Second Avenue South, Minneapolis, Minnesota 55404, or at any
adjournments thereof (the "Annual Meeting"), for the purposes set forth in
the Notice of Meeting.
A proxy card is enclosed for your use. You are not being solicited on
behalf of the Board of Directors to sign and return the enclosed proxy card
in favor of management. However, if you are not able to attend the Annual
Meeting, please return your completed proxy card in the accompanying envelope
at your earliest convenience. No postage is required if mailed within the
United States. The cost of the preparation, assembly and mailing of the
Information Statement, as well as the cost of forwarding such material to the
beneficial owners of Common Stock, will be borne by the Company. The Company
may reimburse brokers, banks, and others holding shares in their names for
others for the costs of forwarding proxy material to, and obtaining Proxies
from, beneficial owners.
The person giving the enclosed Proxy has the power to revoke it at any
time prior to the convening of the Annual Meeting. Revocation must be in
writing, signed in exactly the same manner as the Proxy, and dated.
Revocations of Proxy will be honored if received at the offices of the
Company, addressed to John D. Lang, Secretary, on or before November 7, 1997.
In addition, on the day of the meeting, prior to the convening thereof,
revocations may be delivered to the tellers, who will be seated at the door of
the meeting room. Revocation may also be effected by delivery prior to
commencement of the meeting of an executed, later dated Proxy. Unless revoked,
all properly executed Proxies received in time will be voted.
Proxies not revoked will be voted in accordance with the choice specified
by stockholders on the Proxies. Proxies which are signed but which lack any
such specification will not be voted. If a stockholder abstains from voting as
to any matter, then the shares held by such stockholder shall be deemed present
at the meeting for purposes of determining a quorum and for purposes of
calculating the vote with respect to such matter, but shall not be deemed to
have been voted in favor of such matter. Abstentions, therefore, as to any
proposal will have the same effect as votes against such proposal. If a broker
turns in a "non-vote" Proxy, indicating a lack of voting instruction by the
beneficial holder of the shares and lack of discretionary authority on the part
of the broker to vote on a particular matter, then the shares covered by such
non-vote Proxy shall be deemed present at the meeting for purposes of
determining a quorum but shall not be deemed to be represented at the meeting
for purposes of calculating the vote required for approval of such matter.
The Annual Report of the Company on Form 10-KSB, including financial
statements, for the fiscal year ended May 31, 1997 is being mailed with this
notification. Copies of this Information Statement and Proxies will first be
mailed to stockholders beginning on or about October 15, 1997.
VOTING OF SHARES
Only stockholders of record at the close of business on October 24, 1997
are entitled to notice of and to vote at the Annual Meeting or any adjournment
thereof. As of that date, there were issued and outstanding 10,722,904 shares
of Common Stock of the Company, the only class of securities of the Company
entitled to vote at the meeting. Each stockholder of record is entitled to
one vote for each share registered in his or her name as of the record date.
The Articles of Incorporation of the Company do not grant stockholders the
right to vote cumulatively for the election of directors. No stockholder will
have appraisal rights or similar dissenter's rights as a result of any matters
expected to be voted on at the meeting. The presence in person or by proxy of
holders of a majority of shares of the Common Stock entitled to vote at the
Annual Meeting will constitute a quorum for the transaction of business.
PRINCIPAL STOCKHOLDERS AND BENEFICIAL OWNERSHIP OF MANAGEMENT
The following table sets forth certain information as of October 1, 1997
derived from the Company's records or provided by the holders with respect to
the stock ownership of all persons known by the Company to be beneficial owners
of more than five percent of its outstanding Common Stock, all directors and
nominees to become directors, all Named Executive Officers (as defined herein),
and all officers and directors of the Company as a group. Except where
otherwise indicated, all persons have sole voting power and sole investment
power with respect to the shares indicated:
NAME AND ADDRESS OF NUMBER OF SHARES PERCENTAGE
BENEFICIAL OWNER OWNED (1)(2) OF CLASS
- ------------------------------------------------------------------------------
David P. Lang 1,049,731 9.8%
5451 Hilltop Avenue
Lake Elmo, Minnesota 55042
Kevin D. Burns, Pharm.D. 15,000 (3) <1%
1100 Dove Court
Chanhassen, MN 55317
Paul D. Rieff 15,000 (3) <1%
8/F Wyler Centre 1
200 Tai Lin Pai Road
Kwai Chung, NT, Hong Kong
All officers and directors 1,079,731 10%
as a group (3 persons)
(1) As of October 1, 1997, unless noted. Unless otherwise noted, all of the
shares shown are held by individuals or entities possessing sole voting power
and investment power with respect to such shares.
(2) Shares not outstanding but deemed beneficially owned by virtue of the
right of a person or member of a group to acquire them within 60 days are
treated as outstanding only when determining the amount and percent owned by
such person or group.
(3) Includes stock option as a Director
ELECTION OF DIRECTORS
(Proposal No. 1)
Nomination
The Company's Articles of Incorporation provide that the Board of Directors
shall consist of not less than three or more than seven members, as determined
from time to time by the Board. Directors serve a one-year term. At the 1997
Annual Meeting, three directors will be elected to hold office for a term
expiring at the Annual Meeting of stockholders to be held in 1998, and until
his successor has been elected and qualified, or until his death, resignation,
or removal, if earlier.
David P. Lang has been nominated by the Board of Directors for reelection.
Paul D. Rieff and Kevin D. Burns have been nominated for election to the
Board. Unless instructed not to vote for the election of the nominee, the
Proxies will vote to elect the nominees named above. If the nominee is not a
candidate for election at the meeting, which is not currently anticipated, the
Proxies may vote for such other person as they, in their discretion, may
determine.
Certain information regarding the nominees and the continuing director of
the Company is set forth below:
Nominees For Director (Term Expiring In 1998)
David P. Lang, age 51, has been the Chief Executive Officer, President
and Chief Financial Officer of Novacon Corporation since April 1986. Mr. Lang
has held international marketing management positions with Medtronic Europe,
S.A., Paris, France (a subsidiary of Medtronic, Inc.) (1970 to 1975); Medical
Europe GmbH, Munich, Germany (a subsidiary of Medical, Inc. (1975 to 1977),
Cyberex Corporation (1979-1981), and Novacon (1982 to present). Mr. Lang has
over 15 years experience of doing business in China, having negotiated the
first Sino-American medical electronics joint venture in 1985; he has lectured
at the University of Minnesota and taught Chinese and international business
courses at Metropolitan State University. He is also Vice Chairman, Qinming
Medical, Inc. Mr. Lang is a graduate of Harvard College, B.A., 1968.
Paul D. Rieff, age 61, has been Managing Director of Asia Cardiovascular
Products (ACP), Hong Kong, a wholly-owned subsidiary of Getz Bros. & Co., Inc.,
San Francisco, CA since 1985. ACP is a multinational distributor of
cardiovascular medical devices in the Austral-Asian region. Mr. Rieff has
held previous international management positions with several medical device
manufacturers, including Medtronic, Inc., and Medical, Inc. Mr. Rieff is a
graduate of the University of Minnesota, B.A. 1959.
Kevin D. Burns, Pharm.D., age 36, is Director of Special Projects for the
Clinical Services Department at In Home Health, Inc., a publicly-held company
in Minnetonka, MN. From 1988 to 1991, Dr. Burns was Minneapolis Pharmacy
Manager for Critical Care America, Inc., and from 1986 to 1988 he was a
clinical pharmacist at Caremark Homecare, formerly an affiliate of Baxter
Healthcare Corporation. Dr. Burns served as a Clinical Assistant Professor
at the University of Minnesota College of Pharmacy from 1986 to 1993
Meetings And Committees Of The Board Of Directors
During fiscal 1997, the Board of Directors held one meeting.
The Company presently has no committees, but intends to form a
compensation committee and audit committee after the seating of the Board of
Directors following the Annual Meeting to consist of non-employee directors.
Compensation To Directors
Directors' Fees and Bonuses. For services rendered in fiscal 1997, no
member of the Company's Board of Directors received any fees or other
compensation. During fiscal 1998, The Company does not intend to pay any cash
compensation to its Directors.
Stock Options/Consulting Fees To Directors. The Company intends to grant
stock options for 15,000 shares to each elected Board member except David P.
Lang during fiscal year 1998.
EXECUTIVE COMPENSATION
The following table sets forth certain information regarding compensation
paid during each of the Company's last three fiscal years to the Company's
current chief executive officer (the "Named Executive Officers"). No other
executive officer had total annual compensation in fiscal 1997 (based on
salary and bonus) exceeding $100,000.
Summary Compensation Table
Name and Annual Compensation Long-Term All Other
Principal Position Year Salary($) Compensation Compensation
David P. Lang 1997 75,000 0 0
Chief Executive 1996 75,000 0 0
Officer 1995 75,000 0 0
Options Grants and Exercises During Fiscal 1997
The Company granted no options to Named Executive Officers during fiscal
1997, nor were any options exercised. The Company does not have any
outstanding stock appreciation rights or stock options.
COMPLIANCE WITH REPORTING REQUIREMENTS OF EXCHANGE ACT
Section 16 of the Securities Exchange Act of 1934, and the rules
promulgated thereunder, requires the Company's officers, directors, and
holders of 10% or more of its outstanding Common Stock to file certain reports
with the Securities and Exchange Commission. To the Company's best knowledge,
based solely on information provided to it by the reporting individuals, all
of the reports required to be filed by these individuals have been filed.
RATIFICATION OF AUDITORS
(Proposal No. 2)
To ratify the appointment of Silverman Olson Thorvilson & Kaufmann, Ltd., as
the Company's independent auditors for the current fiscal year ending May 31,
1998. Silverman Olson Thorvilson & Kaufmann, Ltd. has served as the
Company's principal independent accountants to audit the Company's financial
statements for the fiscal years 1992 through 1995. The Company is not
required to have its financial statements audited for the fiscal year 1997
because of insufficient revenues. However, representatives of Silverman
Olsen Thorvilson & Kaufmann are expected to be present at the Annual Meeting
and will have the opportunity to make a statement, if they desire to do so,
and to respond to appropriate questions. The Company has engaged Silverman
Olsen Thorvilson & Kaufmann, Ltd. to conduct the audit of the Company's
financial statements for the current fiscal year.
OTHER MATTERS
The Board of Directors is not aware that any matter other than those
described in the Notice will be presented for action at the meeting.
STOCKHOLDER PROPOSALS FOR 1998 ANNUAL MEETING
All stockholder proposals intended to be presented at the 1998 Annual
Stockholders' Meeting must be received by the Company at its offices on or
before July 31, 1998.
In addition, a stockholder must give notice to the Company prior to
July 31, 1998, of any proposal which such stockholder intends to raise at the
1998 Annual Meeting. If the Company receives notice of such proposal after
July 31, 1998, the persons named in the proxy solicited by the Company's Board
of Directors for the 1998 Annual Meeting may exercise discretionary voting
powers with respect to such proposal.
REPORT ON FORM 10-KSB
A copy of the Company's Annual Report on Form 10-KSB for the fiscal year
ended May 31, 1997, accompanies the Notice of Annual Meeting and Information
Statement.
It is important that Proxies be returned promptly. Stockholders who do
not plan to attend the meeting in person are urged to complete, sign, date,
and forward the Proxy by return mail.
BY THE ORDER OF THE BOARD OF DIRECTORS
October 8, 1997 John D. Lang, Secretary
NOVACON COPRORATION
ANNUAL MEETING OF STOCKHOLDERS
WEDNESDAY, November 19, 1997
4:00 PM
PROXY
THIS PROXY IS FOR USE AT THE ANNUAL MEETING ON NOVEMBER 19, 1997.
IF NO CHOICE IS SPECIFIED FOR A PROPOSAL, THE PROXY WILL NOT BE VOTED.
By signing the proxy, you revoke all prior proxies and vote your shares on
the matters shown on the reverse side at the Annual Meeting and all
adjournments.
SEE REVERSE FOR VOTING INSTRUCTIONS
1. Election of directors for Vote FOR Vote WITHHELD
term ending in 1998:
David P. Lang [ ] [ ]
Kevin D. Burns [ ] [ ]
Paul D. Rieff [ ] [ ]
2. Ratification of Auditors [ ] [ ]
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED AS DIRECTED OR, IF NO DIRECTION
IS GIVEN, IT WILL NOT BE VOTED.
Address Change? Mark Box [ ]
Indicate changes below: Dated: _______________,1997
Signature(s) in Box
________________________
Print Last Name ______________________
______________________
Please sign exactly as your name(s) appear on Proxy. Trustees, administrators,
etc., should include title and authority. Corporations should provide full
name or corporation and title of authorized officer signing the proxy.
