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, 1998
[ ] 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, 1998 were $61,740.
As of May 31, 1998, 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 $193,463.
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the following document are incorporated herein by reference:
Part III -- The Registrant's Information Statement for its 1998 Annual
Meeting (the "1998 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, 1998, 1997, 1996 and
1995 in the amounts of approximately $(102,712), $(123,155), $(125,081),
and $(219,880), 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 $(8,765,526) as
of May 31, 1998. 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, 1998,
Novacon had a stockholders' deficit of approximately $148,863. At that date,
the company's liabilities were approximately $266,580 and exceeded its assets
of approximately $117,717 by approximately $148,863. Although approximately
$172,000 of the company's debt represented accrued salaries payable to
David P. Lang, Novacon had a working capital deficit of approximately
$159,716. 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, r 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 1999. 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
alliances;
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 1998.
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
Company's 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
legally marketed 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 in a 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, 1998, 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 600 square feet of administrative office
space in Lake Elmo, Minnesota, from David P. Lang, Novacon's Chairman and
Chief Executive Officer, on a $700 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, 1998......................... $ .02 .01
Third Quarter Ended February 28 1998...................... .02 .01
Second Quarter Ended November 30, 1997.................... .01 .01
First Quarter Ended August 30, 1997....................... .01 .01
1995
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
Record Holders
The last reported sale price of the Common Stock on the Nasdaq Bulletin
Board on May 31, 1998 was $0.02. As of May 31, 1998, 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, 1998, 1997, 1996 and 1995, have
been derived from the audited financial statements of Novacon Corporation.
Year Ended Year Ended Year Ended Year Ended
May 31,1998 May 31,1997 May 31,1996 May 31,1995
STATEMENT OF OPERATIONS:
REVENUES $ 61,740 76,509 77,083 22,016
COST OF GOODS SOLD 24,314 43,016 28,098 21,563
GROSS PROFIT 37,426 33,493 48,985 453
OPERATING EXPENSES
Selling, G & A 135,421 156,648 174,066 220,333
OPERATING INCOME (LOSS) (97,995) (123,155) (125,081) (219,880)
INTEREST INCOME (EXPENSE) (4,717) (9,371) (6,293) (3,249)
EXTRAORDINARY ITEM - - 36,145 480,321
NET INCOME (LOSS) (102,712) (132,526) (95,229) 257,192
NET INCOME (LOSS) PER SHARE $ (0.01) (0.01) (0.01) 0.02
WEIGHTED AVERAGE SHARES 10,722,904 10,722,904 10,722,904 10,612,748
OUTSTANDING
CASH FLOW DATA:
Cash flow from (used in)
Operations 7,120 (137,050) (140,564) (153,676)
Cash flow used in
investing activities (1,480) 185,475 128,799 71,894
Cash flow from (used in)
financing activities (5,500) (93,410) 56,838 56,838
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 1998.
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 $8,765,526 as of May 31, 1998
and has incurred annual operating losses for the past five years. If the
Company does not achieve an operating profit during 1999, 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, 1998:
Fiscal Year 1998 and Fiscal Year 1997
Net Sales. Net sales decreased 19% in 1998 over 1997 to $61,740 from $76,509.
Cost of Sales and Operating Expenses. Cost of sales decreased 43% in 1998
over 1997 to $24,314 from $43,016.
As a percentage of net sales, selling and general and administrative expenses
were 219%, which included research and development expenses of $8,000, or
13% of sales.
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.
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 1998.
Capital expenditures were less than $2,500 for fiscal 1998, 1997 and 1996,
respectively. The Company's 1998 and 1997 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 1998
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, 1998 and 1997...........page 27
Statement of operations for the years ended May 31, 1998 and 1997.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:
Registrant's Information Statement for 1998 Annual Meeting
(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, 1998 and 1997
NOVACON CORPORATION
BALANCE SHEET
For the years ended May 31, 1998 and 1997
ASSETS
1998 1997
Current assets:
Cash $ 711 571
Accounts Receivable 13,800 25,999
Inventory 91,653 75,484
Other current assets (Note 3) 700 28,956
Total current assets 106,864 131,010
Property and Equipment (Note 4) 10,853 9,373
Contract Receivable (Note 3) - -
Total assets 117,717 140,383
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current Liabilities:
Notes Payable-related parties (Note 5) 4,700 17,200
Notes payable-third parties (Note 6) 37,000 30,000
Accounts payable 52,169 31,327
Accrued compensation and payroll taxes 172,711 100,764
Other accrued expenses - -
Total Current Liabilities 266,580 186,534
Notes Payable-third parties (Note 6) - -
Total Liabilities 266,580 186,534
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 (8,765,526) (8,662,814)
Total shareholders' equity (deficit) (148,863) (46,151)
Total liabilities &
shareholders' equity (deficit) 117,717 140,383
See accompanying notes to financial statements
NOVACON CORPORATION
STATEMENT OF OPERATIONS
(unaudited)
For the years ended May 31, 1998 and 1997
1998 1997
Net sales $ 61,740 76,509
Cost of Goods Sold 24,314 43,016
Gross profit 37,426 33,493
General & Administrative expenses 135,421 156,648
Loss from operations (97,995) (123,155)
Other income (expenses) (4,717) (9,371)
Extraordinary item (Note 9) - -
Net loss (102,712) (132,526)
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, 1998 and 1997
Total
Additional Shareholders'
Common Stock Paid-in Accumulated Equity
Shares Amount Capital Deficit (Deficit)
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)
Net loss (102,712) (102,712)
Balances at
May 31, 1998 10,722,904 $107,229 $8,509,434 $(8,765,526) $(148,863)
See accompanying notes to financial statements
NOVACON CORPORATION
STATEMENT OF CASH FLOWS
For the years ended May 31, 1998 and 1997
1998 1997
Cash flows from operating activities:
Net Income (loss) $ (102,712) (132,526)
Adjustments to reconcile net loss to
Net cash used in operating activities:
Extraordinary item - -
Accumulated depreciation - 1,951
(Increase) decrease in assets:
Accounts receivable 41,155 (10,982)
Inventory (16,169) (3,959)
Deferred financing costs - -
Other current assets - 500
Prepaid inventory - -
(Increase (decrease) in liabilities:
Accounts payable 10,837 10,464
Accrued expenses 74,009 (2,458)
Net cash used in operating activities: 7,120 (137,050)
Cash flows from investing activities:
Payments received on contract receivable - 187,933
Purchase of property and equipment (1,480) (2,458)
Net cash provided by investing activities: (1,480) 185,475
Cash flows from financing activities:
Net issuance (repayment) of notes
payable-related parties (4,500) (75,060)
Net issuance (repayment) of notes
payable-third parties (1,000) (18,350)
Net cash used in financing (5,500) (93,410)
Increase (decrease) in cash) 140 (44,985)
Cash - beginning of year 571 45,556
Cash - end of year 711 571
See accompanying notes to financial statements
NOVACON CORPORATION
NOTES TO FINANCIAL STATEMENTS
For the years ended May 31, 1998 and 1997
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 1998, the Company incurred a net loss of $102,712, resulting in a
working capital deficit of $159,716 and an accumulated deficit totaling
$8,765,526 at May 31, 1998. Given these circumstances and the Company's
expected cash requirements in 1999, 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. No
payments were received during fiscal 1998.
Note 4: Property and Equipment
Property and equipment consisted of the following at May 31:
Office equipment $8,479
Computer equipment 6,877
Less accumulated depreciation (4,503)
Property and equipment, net $10,853
Depreciation expense was $0 and $1,951 in 1998 and 1997, 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.
1998 1997
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 expired in December, 1997.
During fiscal 1998, no shares of common stock were purchased through the
exercise of options. Additionally, there were no incentive stock options
issued or outstanding as of May 31, 1998.
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 $27,350
and $29,002 in 1998 and 1997, respectively.
During 1998, the Company made sales to three customers representing
approximately 13%, 23% and 25% of total sales. In 1997, the Company made
sales to four customers representing approximately 11%, 17%, 25% and 28%
of total sales.
Note 9: Income taxes
At May 31, 1998, the Company had net operating loss carryforwards as follows
for income tax purposes:
Carryforward Net Operating
Expires Loss
May 31 Carryforwards
1999 1,195,200
2000 1,756,188
2001 2,387,027
2002 803,884
2003 531,839
2004 83,377
2005 762,681
2006 45,923
2007 22,000
2008 131,000
2009 125,000
2010 95,000
2011 133,000
2012 102,000
Total $ 8,174,119
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 1998 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 15, 1998
Dear Stockholder:
You are cordially invited to attend the 1998 Annual Meeting of
Stockholders of Novacon Corporation. The meeting will be held on Wednesday,
November 25, 1998, 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 25, 1998
---------------------------------------------------
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 25, 1998, 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, 1999.
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 23, 1998, 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 15, 1998
NOVACON CORPORATION
5451 Hilltop Avenue
Lake Elmo, Minnesota 55042
------------------------------------------
INFORMATION STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
November 25, 1998
------------------------------------------
INTRODUCTION
The Annual Meeting of Stockholders of Novacon Corporation (the "Company")
will be held on Wednesday, November 25, 1998, 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 16, 1998.
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, 1998 is being mailed with this
notification. Copies of this Information Statement and Proxies will first be
mailed to stockholders beginning on or about October 20, 1998.
VOTING OF SHARES
Only stockholders of record at the close of business on October 23, 1998
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, 1998
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, 1998, 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 1999)
David P. Lang, age 52, 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 62, 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 1998, 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 1998, no
member of the Company's Board of Directors received any fees or other
compensation. During fiscal 1999, 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 1998 (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 1998 75,000 0 0
Chief Executive 1997 75,000 0 0
Officer 1996 75,000 0 0
Options Grants and Exercises During Fiscal 1998
The Company granted no options to Named Executive Officers during fiscal
1998, 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,
1999. 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 1998
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 1999 ANNUAL MEETING
All stockholder proposals intended to be presented at the 1999 Annual
Stockholders' Meeting must be received by the Company at its offices on or
before July 31, 1999.
In addition, a stockholder must give notice to the Company prior to
July 31, 1999, of any proposal which such stockholder intends to raise at the
1999 Annual Meeting. If the Company receives notice of such proposal after
July 31, 1999, the persons named in the proxy solicited by the Company's Board
of Directors for the 1999 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, 1998, 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 15, 1998 John D. Lang, Secretary
NOVACON COPRORATION
ANNUAL MEETING OF STOCKHOLDERS
WEDNESDAY, November 25, 1998
4:00 PM
PROXY
THIS PROXY IS FOR USE AT THE ANNUAL MEETING ON NOVEMBER 25, 1998.
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 1999:
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: _______________,1998
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.
