31
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
[X]ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number 33-19583
ZEVEX INTERNATIONAL, INC.
(Name of Small Business Issuer as specified in its charter)
Nevada
87-
04628
07
(State or other jurisdiction of
(I.R.S. Employer
incorporation or organization)
Identification No.)
5175 Greenpine Drive,
Salt Lake City, Utah
(Zip Code)
84123
(Address of principal executive offices)
Issuers telephone number, including area code: (801) 264-1001
Securities Registered Pursuant to Section 12(b) of the
Exchange Act: None
Securities registered pursuant to Section 12(g) of the Exchange
Act: None
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
regestrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes:
X No:
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 Issuers
knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10KSB or any
amendment to this form 10KSB: X
The Issuers revenues for the fisccal year ended December 31,
1995 were $5,295,762
The aggragate market value of the Companys voting stock held
by nonaffiliates computed with reference to the average bid and
asked prices for such stock in the over-the-counter market as
qoted on the OTC Bulletin Board on February 12, 1996, was
approximately $2,876,000.
DOCUMENTS INCORPORATED BY REFERENCE
List hereunder the following documents if incorporated by
reference and the part of the form 10K (e.g., Part I, Part II,
etc.) into which the document is incorporated: (1) any annual
report to security holders; (2) any proxy or information
statement; (3) any prospectus filed pursuant to rule 424(b) or
(c) under the Securities Act of 1933, as amended:
(1) Four copies of the proxy statement with respect to the
Companys Annual Meeting of Shareholders held on June 1, 1995 are
included in Part IV.
_________________________________________________________________
___________________________
TABLE OF CONTENTS
_________________________________________________________________
____________________________
Item Number and Caption
Page
PART I
1. Business
4
2. Properties
9
3. Legal Proceedings
10
4. Submission of Matters to a
Vote of Security Holders
10
PART II
5. Market for Companys Common Stock
and Related Stockholder Matters
11
6. Managements Discussion and Analysis of
Financial Condition and Results of Operation
11
7. Financial Statements and Supplementary Data
16
8. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
16
PART III
9. Directors and Executive Officers of Company
17
10. Executive Compensation
18
11. Security Ownership of Certain Beneficial Owners
and Management
22
12. Certain Relationships and Related Transactions
22
PART IV
13. Exhibits, Financial Statement Schedules
and Reports on Form 8-K
24
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
28
PART I
ITEM 1. BUSINESS
Introduction
ZEVEX International, Inc. (the "Company") is engaged in
manufacturing and marketing operations through its wholly-owned
subsidiary, ZEVEX, Inc. The Company was originally incorporated
under the laws of Nevada on December 30, 1987, under the name
Downey Industries, Inc. ZEVEX, Inc. was originally incorporated
in Utah in November 1986, under the name Ultronix, Inc., and
subsequently changed its name to ZEVEX, Inc. in May, 1987. Unless
the context otherwise requires, the terms "ZEVEX" and "Company"
as used throughout this report refer to both ZEVEX International,
Inc., a Nevada corporation, and its wholly-owned subsidiary
ZEVEX, Inc., a Utah corporation.
The Company designs, manufactures, markets and sells custom
and standard products utilizing ultrasonic transducers and
related signal processing instrumentation. The Companys products
are sold primarily to original equipment manufacturers ("OEMs")
serving the medical, industrial and aerospace instrumentation
markets. In most cases, the Companys design and engineering
staffs work closely with the customer to design and develop a
custom product which will perform the function desired by the
customer. The Companys products range in complexity from simple
ultrasonic transducers which convert electrical energy to sound
waves, to electronic instrumentation systems which embody
ultrasonic technology.
The Technology
Ultrasonic transducers are used to convert electrical energy
to acoustic energy or sound waves in predetermined configurations
and intensities depending upon the specific application. The
acoustic energy generated by the transducer is then utilized to
perform a variety of functions involving either the transmission
of sound waves as a power source or the transmission and
reception of sound waves to provide interpretative data. In one
application, the Companys transducers are used to drive precision
surgical instruments, causing a cutting tip or needle to
oscillate or vibrate at rates exceeding 50,000 times per second.
In applications, transducers are coupled with signal processing
equipment in order to transmit sound waves to or through a
particular material or liquid. A signal processing circuit then
records and interprets the pattern and frequency of returning
sound waves to make determinations about the characteristics of
the subject material. Such devices are used to detect the
presence of air bubbles in liquids and monitor fluid levels in
vessels.
The Company designs and manufactures transducers of a
variety of sizes which can be incorporated by an OEM into a final
instrument or piece of equipment. The Companys ultrasonic
process control products are designed to be mounted outside
surgical tubing and containers and do not contain moving parts,
which offer advantages in terms of non-invasive application,
service and durability. As the Company has grown, its emphasis
has shifted away from the performance of engineering services to
the higher margin manufacturing operations. In addition, the
Company has developed and is developing its own products to
augment its OEM business.
Product Applications
Custom products account for most of the Companys sales. The
Companys custom products serve a variety of applications in the
medical, industrial and aerospace instrumentation markets. In
the development of custom products, the Company generally accepts
primary responsibility for product design, having received input
and output specifications from the potential customer. In most
cases, prototypes are developed and delivered to the customer for
evaluation before a firm order for production quantities is
placed. The Company places a strong emphasis on developing a
working relationship between its own engineering staff and the
engineering staff of a potential customer during the product
development phase.
Ophthalmic Surgical Products. The Company manufactures
piezoelectric handpieces, control circuits, and
instrumentation employed in surgical procedures for the
removal of cataracts, called phacoemulsification. The
handpieces utilize ultrasonic energy to cause a needle
located at the tip of the handpiece to oscillate at a
high frequency. During the procedure, the surgeon
holds the handpiece and inserts the needle through a
small incision in the eye. The actuation of the needle
causes fragmentation of the cataract tissue at the tip,
which is emulsified and aspirated through ports in the
handpiece. The phacoemulsification procedure has led
to the treatment of cataracts as an out-patient
procedure. Sales of phacoemulsification products
accounted for approximately 40% of the Companys
revenues in 1995, and 57% in 1994.
Air Bubble Detectors. The Company manufactures a
line of ultrasonic air bubble detectors which are non-
invasive devices used to continuously detect the
presence of air bubbles in fluids through most sizes
and types of medical tubing. Each system consists of a
pair of ultrasonic transducers encapsulated in a sensor
housing, accompanied by a single compact circuit board.
Certain of these circuits have been approved for use in
medical infusion systems by the TUV Product Service of
Germany, which is a technical control organization
responsible for product safety in Europe.
The sensor is configured to meet the tubing size
and packaging requirements of the particular customer.
The sensor is clamped on the tubing in an arrangement
which does not restrict flow, yet requires no acoustic
couplant for operation. This dry-coupling arrangement
is favored in the medical operating environment for its
simplicity and the ability to reuse sensors with many
disposable tubing sets. The use of the sensors on the
exterior of the tubing also eliminates concerns with
respect to contamination of the fluids and the need to
sterilize the sensor housing. The system operates by
causing one transducer to project ultrasonic energy or
sound waves across the path of the fluid in the tube.
A second transducer acts as a receiver which monitors
the transmission of the ultrasonic energy across the
fluid path. When a bubble of critical size passes
between the transducers, the path of acoustic energy is
interrupted and detected, and a signal is sent by the
interface circuit to the instrument controller which in
turn shuts down the infusion pump to prevent the bubble
from entering the patient. The Companys bubble
detectors have been configured for microbore infusion
tubing sizes as small as 1/16 inch in diameter and for
cardiotomy tubing as large as 1/2 inch in diameter.
Bubbles as small as a few microliters can be detected
and detection thresholds can be set to sizes required
by the specific application. The system logic features
fault detection capability and the interface can be
configured to meet the requirements of the user.
Detectors are designed to operate at both high and low
fluid rates and with fluids that vary greatly in
density and opacity. Sales of air bubble detectors
account for approximately 56% of the Companys revenues
in 1995, and 38% in 1994.
Ultrasonic Liquid Level Detection Systems. These
systems provide a simple and accurate means for
measuring and monitoring liquid levels in both
industrial and medical applications. The systems
contain no moving parts and require little power for
operation. A system typically consists of an
ultrasonic transducer and a microprocessor-controlled
signal processing circuit. The circuit drives the
transducer which projects a pulse of ultrasonic energy
from the bottom of the vessel toward the surface of the
liquid. At the liquid to air (or gas) interface, the
ultrasonic pulse is reflected and returns to the
transducer, which now acts as a receiver. By precisely
timing the echo from the surface, an accurate
measurement of the liquid level can be made. Through
the use of modern microprocessor technology,
calibration factors can be used to enhance system
accuracy and to convert level data to useful volume
information.
Since the system makes and averages hundreds of
measurements each second, it is capable of producing
relatively high statistical accuracies. This
continuous inventory management feature is particularly
useful in environments where tank leak detection is
required. In industrial applications, the transducer
housing is manufactured from materials designed to
resist harsh chemical environments and to operate while
immersed in hydrocarbon products, organics and water.
Level gauging systems are used in the medical operating
environment to continuously detect liquid levels in
blood oxygenators, cardiotomy reservoirs and similar
vessels. In these applications, the transducer
attaches to the exterior of the vessel at the bottom
and projects and receives the ultrasonic energy through
the plastic wall, which may vary in composition,
rigidity and thickness. In medical applications, the
product assists in process control during critical
operations so that medical personnel can attend to
other activities. Sales of liquid level detectors have
accounted for less than 5% of the Companys revenues
during each of the last two fiscal years.
Bottlewatch Liquid Level Indicators. Bottlewatch
noninvasively monitors liquid levels in bottles of
balanced salt solutions which are used extensively in
cataract and retinal surgery. Balanced salt solution
is required to nourish and support the delicate
structure of the eye during ocular surgery, the
depletion of which can complicate surgery, or in the
worst case, lead to irreparable damage to the patients
eye. When the liquid level drops below the user
specified position of the Bottlewatch, audible and
visible alarms are immediately activated. Bottlewatch
is the first proprietary product to be trademarked and
marketed under the ZEVEX name, and worldwide
distribution was successfully established during 1995.
Bottlewatch accounted for less than 1% of the Companys
revenue in 1995.
Manufacturing
The Companys products are assembled and tested at its
manufacturing facility in Salt Lake City, Utah. In most cases,
the manufacturing process begins with technical drawings and
specifications produced in cooperation with the customer. Once
the preliminary design has been completed, a prototype is
manufactured and further design refinements and adjustments are
made based on the performance of the prototype. Following
completion of final design specifications, the Company orders the
required electronic components (primarily integrated circuits,
capacitors and resistors), piezoelectric ceramic, molded plastic
and stainless steel housings, and other items from qualified
suppliers of such items. The Company has found that the
materials required for the manufacture of its products are
available from several different sources of supply and the
Company is not dependent on any single supplier or group of
suppliers.
The component parts and raw materials required for the
Companys products are shipped to the Companys manufacturing
facility by the various suppliers. There, the products are
assembled by hand in an assembly line format by the Companys
manufacturing personnel. The Company believes the combination of
an adequate supply of labor and its in-house training programs
will enable it to continue to meet its requirements.
The performance of the Companys products is validated by
subjecting them to tests at various points in the production
process as well as to a final test by the quality assurance
staff. Completed products are then shipped to the OEMs or end
users. The Company accepts standard purchase order forms from
its customers, the terms of which may vary based on negotiations
with the customers. Payment terms are generally net 30 days and
the Company generally warrants that its standard products will be
free from defects for a period of at least 14 months from the
date of manufacture.
Marketing
The Company markets its products directly to its customers
in the United States and Europe through its sales staff. In
addition to the marketing organization, the Company uses its
technical engineering and design staffs to assist in the
marketing effort. The Company seeks to market opportunities or
product types with component functions which could benefit by
incorporating ultrasonic components. The Company then identifies
and contacts manufacturers or prospective manufacturers of the
particular product types. The sales and marketing staff acts as
liaison between the potential customer and the Companys design
and engineering staffs. During 1993, and continuing through
1995, the Company undertook research and development activities
to produce prototype products which it believed would fill
certain specialized market niches. The Company completed its
development of the Bottlewatch product and launched its sale of
the product in October of 1995. When and if other such products
are successfully completed, the Company will commence efforts to
market the completed products to OEMs and potential end users.
Backlog
At December 31, 1995, the Company had a backlog of orders
for manufactured transducers and electronic components of
$3,091,000, as compared to backlogs at December 31, 1994 and
1993, of $2,359,000 and $1,133,000, respectively. As of February
19, 1996, the Company had a backlog of $3,419,000. For purposes
of the above figures, backlog includes all orders received by
customers pursuant to purchase orders which have not been
completed and shipped by the Company. Some of the orders
included in the backlog may be canceled or modified by customers
without significant penalty. In addition, since customers may
place orders for delivery at various times throughout the year,
and because of the possibility of customer changes in delivery
schedules or cancellation of orders, the Companys backlog as of
any particular date may not be a reliable indicator of future
sales.
Customers
The Company currently sells its products to approximately 80
different customers, although a small number of customers account
for a significant portion of the Companys total sales. In the
1995 fiscal year, two customers accounted for approximately 56%
of the Companys total sales. These customers were IVAC
Corporation and Allergan Medical Optics, each of whom accounted
for in excess of 10% of the Companys total sales. Neither of
these customers has any affiliation with or relationship to the
Company. The loss of any of such major customers or a
significant reduction in the volume of their orders for the
Companys products may be anticipated to have a materially adverse
impact on the Companys operations.
Sales to foreign customers accounted for approximately 7%
and 4% of net sales during the 1995 and 1994, respectively. All
of such foreign sales were made to customers in Europe and the
Middle East and were billed and paid for in U.S. dollars. The
Companys export sales are subject to certain risks common to all
export activities, such as governmental regulation, tariffs or
other trade barriers.
Research and Development
During 1995, the Company continued independent research and
development activities with respect to the design and development
of new and improved products, spending $502,255 in 1995 and
$419,278 in 1994. In 1995 and 1994 respectively research and
development costs represented approximately 9.5% and 12.6% of the
Companys net sales. The Companys research and development
efforts during 1995 were devoted to several projects, one of
which is for use in surgical monitoring applications, and for
which the Company has received a patent and trademark. In
October the Company Launched the BottleWatch product at the
American Academy of Ophthalmology in Atlanta.
Following the market release of Bottlewatch, ZEVEX has
continued to invest in research and development of proprietary
medical products for niche applications. Research and
development is ongoing on two products, one is a surgical
instrument and the other a fluid delivery device. Both of the
products are medical instruments requiring unique disposable
components which will also be provided by ZEVEX.
All research and development is expensed as incurred. At
December 31, 1995, the Company employed three employees in full-
time research and development capacities and utilized the efforts
of its other design and engineering staffs in connection with
certain research and development projects.
Regulation
The Company supplies products to original equipment
manufacturers for incorporation into final products. Many of
these end products constitute "medical devices" which are
regulated by the Food and Drug Administration ("FDA") under a
number of statutes, including the Food and Drug and Cosmetic Act
and the regulations promulgated thereunder. Since the Companys
medical products are currently limited to manufacturing
components for sale to OEMs, those OEMs have responsibility for
obtaining regulatory approval from the FDA and various state
agencies with respect to the marketing and sale of such products.
However, as a contract manufacturer of medical devices, the
Company is required to register with the FDA and meet quality
control and manufacturing procedures set forth in the FDA
regulations with respect to good manufacturing practices ("GMP").
The Companys facilities are subject to periodic inspection by the
FDA to monitor compliance with these regulations and the Company
is subject to certain FDA mandated record keeping requirements.
The Company believes that it currently meets all material GMP
requirements respecting the manufacture of its products.
Competition
Because most of the products the Company produces are
component products which are incorporated in a wide variety of
medical and industrial products, it faces extensive and varied
competition. Some of the Companys competitors have substantially
greater financial, marketing, manufacturing, engineering and
management resources than the Company. The ultrasonic
instrumentation industry includes large original equipment
manufacturers who manufacture exclusively for their own use and
several independent manufacturers such as the Company who
manufacture exclusively for sale to others. The Company believes
its current share of the total ultrasonic products and
instrumentation market is very small. The Company believes that
the primary factors of competition in the industry are quality,
on-time delivery, price and performance, and the Company attempts
to be competitive in each of those areas.
Patents and Trademarks
The Company has applied for six patents and four trademarks
as of December 31, 1995 on products developed by the Company. To
date the Company has received one patent on the Bottlewatch
product as well as the registered world wide Bottlewatch
trademark. The current status of the remaining patents is
patent pending. The Company also believes that rapidly changing
technology makes its continued success dependent upon the
technical competence and creative skills of its personnel. If
the Companys research and development activities should result in
a new technology, product or application which the Company
believes is patentable and with respect to which patent
protection appears to be justified, the Company anticipates that
it will continue to file additional necessary patent
applications.
Employees
The Company employs a total of 71 persons, including its
three executive officers. Of such employees, 12 are employed in
administrative capacities, 4 in sales, 25 in engineering and
design and 30 in manufacturing. The Companys employees are not
represented by a collective bargaining organization and the
Company believes its relationship with its employees to be good.
ITEM 2. PROPERTIES
The Companys executive offices and manufacturing facilities
are located in a 18,150 square foot facility at 5175 Greenpine
Drive, Salt Lake City, Utah 84123. The space is leased from an
unrelated third party pursuant to a written lease which expires
in April 1997. The Company currently pays $8,732 per month in
rent.
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to any material pending legal
proceedings, and to the best knowledge of the Company, no such
proceedings have been threatened.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the Companys second quarter of the year ending
December 31, 1995, matters submitted to a vote of the security
holders of the Company were to reelect the current members of the
Companys board of directors, and the selection of the Companys
auditors to be affirmed. The vote from ballots and proxies
tallied for the each member proposed to the board of directors
and the selection of the Companys auditors were 970,792 shares
voted For, zero shares voted Against, and zero shares Abstained
from voting. All proposals were approved by a majority of the
issued and outstanding shares of Companys common stock.
PART II
ITEM 5. MARKET FOR COMPANYS COMMON STOCK AND
RELATED STOCKHOLDER MATTERS
The Companys common stock is traded in the over-the-counter
market, in the "pink sheets" published by the National Quotation
Bureau, and is listed on the OTC Bulletin Board under the symbols
"ZVXI" and "ZVXIU." The market for the Companys common stock must
be characterized as a limited market due to the relatively low
trading volume and the small number of brokerage firms acting as
market makers.
The following table sets forth, for the periods indicated,
certain information with respect to the high and low bid quotations
for the Common Stock as reported by a market maker for the Companys
common stock. The quotations represent inter-dealer quotations
without retail markups, markdowns or commissions and may not
represent actual transactions. No assurances can be given that the
prices for the Companys securities will be maintained at their
present levels.
High Bid High Bid Low Bid Low Bid
Common Units Common Units
Fiscal Year 1994
First Quarter $4.50 $4.75 $3.75 $4.00
Second Quarter $3.75 $4.00 $2.75 $3.00
Third Quarter $3.25 $3.25 $2.50 $2.50
Fourth Quarter $3.25 $3.25 $2.00 $2.00
Fiscal Year 1995
First Quarter $3.75 $3.75 $2.50 $2.50
Second Quarter $4.00 $4.00 $2.75 $2.75
Third Quarter $3.25 $3.50 $2.25 $2.25
Fourth Quarter $4.00 $4.25 $3.25 $3.20
On February 14, 1996, the high bid and low asked prices for
the Companys shares as quoted on the OTC Bulletin Board were
$4.00 and $4.75 for common stock and $4.12 and $4.75, for units
respectively.
The Companys transfer agent reported that as of February 1,
1996, there were 1,365,716 shares of the Companys common stock
issued and outstanding held by approximately 580 holders of
record, including shares held of record by brokerage firms and
clearing corporations on behalf of their customers.
No cash dividends have been paid on the Companys securities,
and the Company does not anticipate paying any cash dividends in
the foreseeable future. The Company did declare on March 8,
1995, a stock dividend to sharholders of record on March 15,
1995, to be paid on April 3, 1995.
ITEM 6. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
General
The Company designs, manufactures, markets and sells custom
and standard products utilizing ultrasonic transducers and
related signal processing instrumentation. The Companys products
are sold primarily to original equipment manufacturers ("OEMs")
serving the medical, industrial and aerospace instrumentation
markets. In most cases, the Companys design and engineering
staffs work closely with the customer to design and develop a
custom product which will perform the function desired by the
customer. The Companys products range in complexity from simple
ultrasonic transducers which convert electrical energy to sound
waves, to transducers coupled with advanced drive circuits and
signal processing systems which are capable of signal generation,
signal detection and analysis of electrical wave forms.
As detailed below, in each of the previous three years
individual customers accounted for significant percentages of
total revenue so fluctuations in the timing and size of orders
from such major customers resulted in changes in the Companys
results of operation. As a result of the foregoing, the Company
experiences variations in operating results from quarter to
quarter, and the results of operations for a specific quarter
should not be considered indicative of the results that may be
achieved for longer periods. As the Company increases the number
of products manufactured and the proportion of products based on
its own technologies, it expects that the quarterly fluctuations
experienced in the past may moderate.
Selected Financial Data
The selected financial data set forth below with respect to
the Consolidated Statements of Income for the years ended
December 31, 1995, 1994 and 1993 are derived from the
Consolidated Financial Statements included elsewhere herein and
are qualified by reference to such financial statements and the
notes thereto. The selected financial data with respect to the
Consolidated Statements of Income for the years ended December
31, 1992 and 1991 are derived from the Consolidated Financial
Statements of the Company for the years then ended and are
qualified by reference to such financial statements and the notes
thereto.
Fiscal Year Ended
December 31
1995 1994 1993 1992 1991
Statement of
Operations Data
Sales 5,295, 3,332, 3,115, 2,435, 2,571,
762 437 878 979 597
Gross Profit 2,230, 1,315, 1,515, 1,078, 1,209,
209 767 806 753 615
Selling, general 1,324, 1,023, 775,76 629,96 504,11
and 749 988 0 0 0
administrative
expenses
Research and 502,25 419,27 198,80 194,05 93,502
development 5 8 4 7
expenses
Other (40,64 (36,12 (37,09 (16,87 (11,54
(income)/expenses 9) 7) 6) 5) 9)
Provisions 127,05 (66,70 196,94 81,510 224,10
(credit) for 5 9) 0 4
taxes
Net income (loss) 316,80 (24,66 381,39 190,10 399,44
0 2) 8 1 8
Net income (loss) .24 (.02) .36 .20 .45
per share
Weighted average 1,305, 1,130, 1,060, 938,12 888,26
shares 812 609 430 5 2
outstanding
Results of Operations
The following table sets forth, for the periods indicated,
the relative percentages that certain items in the income
statement bear to net sales.
Year Ended December 31
Income Statement Data -- Percentage
of Net Sales
1995 1994 1993 1992 1991
Sales 100.0% 100.0% 100.0% 100.0% 100.0%
Gross Profit 42.1% 39.5% 48.6% 44.3% 47.0%
Selling, general 25.0% 30.7% 24.9% 25.8% 19.6%
and
administrative
expenses
Operating income 17.1% 8.8% 23.7% 18.5% 27.5%
Research and 9.5% 12.6% 6.4% 8.0% 3.6%
development
expenses
Other (0.8)% (1.1)% (1.1)% (0.7)% (0.5)%
(income)/expenses
Income (loss) 8.4% (2.7)% 18.6% 11.2% 24.4%
before taxes
Provisions 2.4% (2.0)% 6.3% 3.3% 8.7%
(credit) for
taxes
Net income (loss) 6.0% (.7)% 12.3% 7.9% 15.7%
The Companys sales increased to $5,295,762 in 1995 from
$3,332,437 in 1994, an increase of approximately 59%. During
1995 and 1994, 56% and 65%, of total revenues resulted from sales
to two customers and three customers respectively, two of which
were major customers in both years. Since the Companys products
are primarily sold to OEMs as components for incorporation into
products manufactured by them, demand for the Companys products
is affected by the demand for the final products manufactured by
the OEMs, which is beyond the control of the Company. Management
attributes the increase in sales to an increase in demand for the
Companys products during 1995 and anticipates that the demand
will continue during 1996. The Companys customers have no
contractual or other obligation to purchase products from the
Company, and no assurances can be given that orders from any
customer will increase or remain at current levels or that they
will not decline.
The Companys gross profit as a percentage of sales was 42.1%
in 1995, as compared to 39.5% in 1994. Management attributes the
increase mainly to the reeingineering and fixturing currently
being developed by the company.
During 1994, the Companys general and administrative
expenses increased to $1,324,749 or 25.0% of total sales as
opposed to $1,023,988 or 30.7% of total sales in 1994. The
increased expenses resulted from the Companys decision to
increase the size of its operations by expanding the size of the
physical facilities, which in turn increased rental, utility and
related expenses. The Company also improved customer service by
expanding its sales, marketing and customer service staff,
established more elaborate internal production and management
controls and documentation, and expanded quality assurance
procedures. The Company also had an increase in legal costs
associated with patent and trademank costs as well as increases
in expenses related to employees such as insurance, taxes and
pension benefits. The Company believes that general and
administrative expenses in 1996 as related to sales will continue
at approximately the same rate as in the previous two years.
The Company continued research and development activities
independent of engineering conducted on behalf of its customers
in an effort to develop new Company owned technologies and
products in areas where the Company perceived a demand. (See
"BUSINESS: Research and Development.") The Company invested
$502,255 in 1995 and $419,278 in 1994 directly in new research
and development projects.
Operating income increased to $905,460, or 17.1% of net
sales, in 1995 from $291,780, or 8.8% of net sales, in 1994.
Similarly, the Company had a net income of $316,800 or 6.0% of
net sales, in 1995 compared to a net loss of $24,622 or (.7)% of
net sales, in 1994. These increases during 1995 as compared to
1994 are principally due to the costs addressed previously as
well as the Companys product mix delivered during the year.
Liquidity and Capital Resources
During 1995, the $316,800 net income from operating
activities created net cash of $214,361 as the Company funded an
increase in accounts receivable, inventories and work in progress
for future sale. Operating activities during 1994 used net cash
of $461,721 as the Company funded an increase in accounts
receivable and inventories.
The Companys purchases of new research, production, testing
equipment and tooling increased to $237,331 in 1995 from $136,744
in 1994. The increase in purchases of equipment is primarily due
to upgrading the Companys production fixturing, tooling and
research and engineering capabilities in 1995. The Company
expects to spend approximately $240,000 in 1996 for additional
manufacturing equipment as well as for normal replacement of old
equipment. The Company also anticipates spending approximately
$500,000 in additional research and development expenses during
1996.
Financing activities used nominal amounts of cash during
each of the preceding three years for interest on long-term
indebtedness.
The Companys working capital at December 31, 1995, was
$2,528,418, as compared to $2,269,944 and $2,304,984 at December
31, 1994 and 1993 respectively. The portion of working capital
represented by cash at such dates was $870,333, $864,332 and
$1,462,979 respectively. The Company utilizes substantial
portions of its cash from time to time to fund its operations
including increases in inventories, accounts receivable and work
in progress in connection with various customer orders. It is
anticipated that the Companys current working capital will meet
the Companys working capital requirements for current sales
volumes.
Inflation and Changing Prices
The Company has not been, and in the near term is not
expected to be, materially affected by inflation or changing
prices.
ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Companys financial statements for the fiscal years ended
December 31, 1995 and 1994, are included beginning at page 27
which follows the signature page.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF COMPANY
The directors and executive officers of the Company are as
follows. Each of the officers and directors also holds the same
offices with ZEVEX, Inc.
Name Age Position
Dean G. Constantine 43 President, Chief Executive Officer and
Director
David J. McNally 34 Vice President, Director of Marketing
and Director
Phillip L.McStotts 38 Chief Financial Officer,
Secretary/Treasurer and Director
James L. Holden 32 Manager of Engineering and Director
Bradly A. Oldroyd 38 Director
Darla R. Gill 44 Director
*The term of office of each director is one year and until
their successor is elected at the Companys annual
shareholders meeting and is qualified, subject to removal by
the shareholders. The term of office for each officer is for
one year and until a successor is elected at the annual
meeting of the board of directors and is qualified, subject
to removal by the board of directors.
Certain biographical information with respect to each of
such persons is set forth below.
Dean G. Constantine, is a founder of the Company and has
served as an executive officer and director since its inception.
Prior to joining the Company, he was employed by EDO Corporation,
Western Division, in Salt Lake City, Utah, from October 1985 to
September 1987, and from January 1971, to June 1983. During his
nearly fifteen years of employment with EDO Corporation, Mr.
Constantine had various responsibilities including project
supervision, management of engineering for commercial and
industrial transducers, and research and development. From July
1983, through October 1985, Mr. Constantine was employed as an
engineering specialist at Northrop Corporation-Electro Mechanical
Division, Anaheim, California, where his responsibilities
included engineering project management and applications
engineering.
David J. McNally, is a founder of the Company and has served
as an executive officer and director since its inception. Prior
to joining the Company, he was employed by EDO Corporation in
Salt Lake City, Utah as a marketing manager of transducers from
October 1985 to September 1987. From June 1984 to October 1985,
Mr. McNally was employed by Physical Acoustics Corporation, a
Princeton, New Jersey based manufacturer of acoustic testing
systems, as its regional sales manager for the Southeastern
United States. From June 1983, to June 1984, he was employed by
Hercules, Inc., in Magna, Utah, as an advanced methods
development engineer. Mr. McNally received a Bachelor of Science
Degree in Mechanical Engineering from LaFayette College in May
1983, and a Master of Business Administration Degree from the
University of Utah in June 1992.
Phillip L. McStotts, is a founder of the Company and has
served as an executive officer and director since its inception.
He is also self employed, and has been since October 1986, as
president of Phillip L. McStotts C.P.A., a professional
corporation. From May 1985 to September 1986, he was employed as
an accountant with the Salt Lake City firm of Chachas &
Associates, where he was tax manager. He has also worked in the
tax departments of the regional accounting firms of Pearson, Del
Prete & Company and Petersen, Sorensen & Brough. Mr. McStotts
received a Bachelor of Science Degree in Accounting from
Westminster College in May 1980, and received an Master of
Business Administration Degree in Taxation from Golden Gate
University in May 1982.
James L. Holden, has been a director of the Company since
January, 1991, and has been the Companys manager of engineering
since 1988. Prior to joining the Company, he was employed by EDO
Corporation, Western Division from March 1984, to March 1988,
where he developed tactical sonar systems for use in undersea
warfare. Mr. Holden received a Bachelor of Science degree in
Electrical Engineering from the University of Utah in 1986, and
has completed post-graduate course work at the University of Utah
in the design of medical ultrasound instrumentation.
Bradly A. Oldroyd, has been a director of the Company since
October, 1991. He is the founder, president and principal
shareholder of Pinnacle Management Group, a Salt Lake City-based
personnel services firm. He is also a member of the faculty of
the University of Phoenix campus in Salt Lake City where he
teaches management and marketing courses in undergraduate and
graduate programs. Mr. Oldroyd received a Bachelor of Science
degree in Marketing from Utah State University in 1981, and a
Master of Business Administration Degree from the University of
Utah in 1982.
Darla R. Gill, is the founder and President of Momentum
Medical Corp., a Salt Lake City-based manufacturer and
distributor of home health care products. Ms. Gill is also sole
proprietor of DRG Enterprises, a consulting company specializing
in marketing, sales and new product development. Ms. Gill was a
founder of Merit Medical Systems, Inc. in Salt Lake City and
served until 1992 as Executive Vice President and Director. She
was also previously employed by Utah Medical Products, Inc. where
she served as Vice President of Marketing and Sales. Ms. Gill
also currently serves as a Director of the Board of NYB
Corporation in Salt Lake City. Ms. Gill graduated from the
University of Phoenix with a Bachelors Degree in Business
Administration in 1988.
ITEM 10. EXECUTIVE COMPENSATION
General
The Companys executive officers and directors receive
compensation in the form of salaries, bonuses, benefits realized
under the Companys 401(k) plan, ESOP plan and stock options
granted under the 1993 ZEVEX Stock Option and Stock Award plan.
The board of directors has appointed a compensation committee
which consists of Bradly Oldroyd and Darla Gill to address the
compensation of executive officers and directors. The Company
has not entered into employment agreements with its executive
officers and compensation levels are determined by the board of
directors on an annual basis.
Compensation of Executive Officers
The following table sets forth the cash compensation paid by
the Company to each of the Companys executive officers during the
three year period ended December 31.
SUMMARY COMPENSATION TABLE
Long Term
Compensation
Annua Awards Payouts
l
Compe
nsati
on
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Othe Restri All
r cted
Name and Annu Stock LTIP Other
al
Principal Yea Salar Bonus Comp Awards Optio Payou Comp.
Position r y . ns ts
Dean G. 199 $64,1 $10,1 $5,2 0 0 0 0
Constantine 5 14 02 61
CEO and 199 $61,2 $10,0 $5,1 0 0 0 0
President 4 38 00 62
199 $54,1 $ $3,7 0 0 0 0
3 96 0 42
David J. 199 $64,1 $10,1 $5,2 0 0 0 0
McNally 5 14 02 61
Vice President 199 $61,2 $10,0 $5,1 0 0 0 0
4 38 00 62
199 $54,1 $ $3,7 0 0 0 0
3 96 0 42
Phillip L. 199 $64,1 $10,1 $5,2 0 0 0 0
McStotts 5 14 02 61
Secretary/Trea 199 $61,2 $10,0 $5,1 0 0 0 0
surer 4 38 00 62
199 $54,1 $ $3,7 0 0 0 0
3 96 0 42
The Other Annual Compensation listed in the above table is
contribution by the officer into a deferred compensation 401(K)
plan.
Options Grants in Last Fiscal Year
No options were granted to the persons listed in the Summary
Compensation Table during the year ended December 31, 1995.
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-
End Option Values
The following table sets forth the options exercised during
the year ended December 31, 1995, by each executive officer of
the Company and the value of options held by such persons at year
end.
(a) (b) (c) (d)
(e)
Value of
Number of Unexercised
Unexercised In-the-Month
Options at Options at
FY-End FY-End
Shares
Name and
Acquired Value Exercisable/
Exercisable/
Principal Position
on Exercise Realized Unexercisable Unexercisable
Dean G. Constantine
President
0 0 5,400/0
0/0
David J. McNally
Vice President
0 0 5,400/0
0/0
Phillip J. McStotts
Secretary/Treasurer
0 0 5,400/0
0/0
The unexercised options listed above were granted on
December 17, 1992 and expire on December 16, 2001. The
exercise price on the above options is $5.00.
Compensation of Directors
The Company pays each director who is not an employee
of the Company or its subsidiary a directors fee of $50 per
board of directors meeting attended by them. Directors who
are employees of the Company receive no additional
compensation for serving as directors or attending meetings
of directors. During 1995, and as of the date hereof,
Bradly Oldroyd and Darla Gill are the only directors
receiving compensation under this arrangement.
During 1995, Darla Gill was paid $1,750 as a consultant
for the Company on various projects.
Stock Option Plan
In 1993, the Company established and the shareholders
approved the 1993 Stock Option and Stock Award Plan under
which the Company could grant options to purchase up to
200,000 shares of the Companys Common Stock (subject to
adjustment for such matters as stock splits and stock
dividends) which may be incentive stock options within the
meaning of section 422A of the Internal Revenue Code of
1986, as amended, or options which do not qualify as
incentive stock options. The Option Plan also provides for
grant of stock appreciation rights and stock awards to
eligible participants, subject to forfeiture restrictions.
The Option Plan may be administered by the board of
directors of the Company or by a committee appointed by the
board of directors. The board, or the committee if and when
appointed, will interpret the Option Plan, its rules and
regulations, and the instruments evidencing the restrictions
imposed upon stock sold under the Option Plan, and will make
all determinations deemed necessary or advisable for
administration of the Option Plan. During 1994, 19,000
options were granted under the plan.
In connection with the underwriting of the Companys
1993 public offering of Units, the Company agreeed that for
a period of three years subsequent to the date of the
prospectus for the offering (April 29, 1993), it would not
grant any stock options without the prior written consent of
the underwriter except that the Company may grant incentive
stock options for up to 100,000 shares of the Companys
common stock to persons who are not directors of the Company
without the underwriter consent.
Profit Sharing Plan
During 1991, the Company established a qualified 401(k)
profit sharing plan. Eligible employees may defer a portion
of their salary. At the discretion of the board of
directors, the Company may make a matching contribution of
an additional amount of up to four percent of eligible
employee deferrals and a discretionary amount to be
determined by the board of directors each year. Employees
are fully vested after seven years. Contributions to the
plan for the year ended December 31, 1995, 1994, 1993 and
1992 were $45,997, $35,436, $22,981 and $34,223,
respectively.
Employee Stock Ownership Plan
In 1993, the Company established and the shareholders
approved the Employee Stock Ownership Plan (ESOP). The ESOP
is a defined contribution plan, and benefits are payable
under the ESOP only to the extent of Company contributions
and earnings of the ESOP. The ESOP has no minimum funding
requirements and the Companys Board of Directors has sole
discretion to determine the amounts to be contributed.
Contributions by the Company will be invested primarily in
Common Stock of the Company by the trustees appointed for
the ESOP or in savings accounts, certificates of deposit,
higher grade short term securities, equity stocks, bonds,
other investments or cash. Employees are fully vested after
seven years. Contributions to the plan for the year ended
December 31, 1995, 1994 and 1993, were $33,750, $0 and
$16,650, respectively.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS
AND MANAGEMENT
The following table sets forth, as of February 15,
1996, the number of shares of the Companys common stock, par
value $0.04, owned of record or beneficially by each of the
executive officers and directors of the Company and by all
directors as a group. Such persons are the only persons
known to the Company to be the beneficial owner of 5% or
more of the issued and outstanding shares of the Companys
common stock. As of such date, the Company had a total of
1,365,716 shares of common stock issued and 1,365,716
outstanding.
Number of Percent
Name Shares of Class
Owned(1)(4)
Dean G. Constantine 257,400(2) 18.77%
David J. McNally 245,598 (2) 17.91%
Phillip L. McStotts 152,400(2) 11.11%
James L. Holden 39,000(3) 2.79%
Bradly A. Oldroyd 0 .00%
Darla R. Gill 480 .00%
All Officers and Directors
as a Group (5 persons) 694,878(2)(3) 49.13%
(1) Unless otherwise indicated, all shares are held
beneficially and of record by the person indicated.
(2) Includes options to purchase up to 5,400 shares of
Common Stock held by each of Messrs. Constantine,
McNally and McStotts.
(3) Includes options to purchase up to 31,500 shares of
Common Stock held by Mr. Holden.
(4) Does not include or give affect to any outstanding
warrants.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
See Compensation of Directors
PART IV
ITEM 13 EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND
REPORTS ON FORM 8-K
Financial Statements
The following financial statements are included
immediately following this report.
Page
No.
Independent Auditors Report
29
Consolidated Balance Sheets
30
Consolidated Statements of Operations
31
Consolidated Statements of Stockholders Equity
32
Consolidated Statements of Cash Flows
33
Schedule of Noncash Activities
34
Notes to Consolidated Financial Statements
35
Exhibits
SEC
Exhibit Reference
No. No. Title of Document
Location
1 3 Articles of
Incorporation Incorporated By Reference*
2 3 Bylaws
Incorporated By Reference*
3 10 Industrial Lease
Agreement Incorporated By Reference*
Dated September 22,
1987
4 10 ZEVEX 1991 Stock Option
Plan Incorporated By Reference*
5 10 ZEVEX 401(K) Profit
Sharing Plan Incorporated By Reference*
6 10 ZEVEX 1993 Stock Option
And Incorporated By Reference(a)
Stock Award Plan
7 10 ZEVEX Employee Stock
Ownership Incorporated By Reference(a)
Plan
*Incorporated by reference from Registrants annual report on
Form 10-K for the fiscal year ended December 31, 1992, dated
February 15, 1993.
(a)Incorporated by reference from Registrants annual report
on Form 10-K for the fiscal year ended December 31, 1993,
dated March 25, 1994.
Reports on Form 8-K
During the last quarter of the fiscal year ended
December 31, 1995, the Company filed no reports on form 8-K.
Pursuant to the requirements of section 13 or 15(d) of
the Securities Exchange of 1934, as amended, the Company has
duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
ZEVEX INTERNATIONAL, INC.
Dated: March 25, 1996
By
By
Phillip L. McStotts
Dean G. Constantine
Principal Financial Officer
Principal Executive Officer
Pursuant to the requirements of section 13 or 15(d) of
the Securities Exchange of 1934, as amended, the Company has
duly caused this report to be signed on its behalf by the
following persons on behalf of the Company and in the
capacities and on the dates indicated.
Name Title
Date
President
March 25, 1996
Dean G. Constantine and Director
Vice President
March 25, 1996
David J. McNally and Director
Secretary,
Treasurer March 25, 1996
Phillip L. McStotts and Director
Director
March 25, 1996
James L. Holden
Director
March 25, 1996
Bradly A. Oldroyd
Director
March 25, 1996
Darla R. Gill
Supplemental Information to be Furnished With Reports Filed
Pursuant to Section 15(d) of the Act by Companys Which Have
Not Registered Securities Pursuant to Section 12 of the Act
Included with this report are four copies of the proxy
statement with respect to the Companys Annual Meeting of
Shareholders held on June 1, 1995.
ZEVEX INTERNATIONAL, INC.
AND SUBSIDIARY
CONSOLIDATED FINANCIAL STATEMENTS
WITH
INDEPENDENT AUDITORS REPORT
For The Three Years Ended December 31, 1995
ZEVEX INTERNATIONAL, INC. AND SUBSIDIARY
TABLE OF CONTENTS
Page
Independent Auditors Report
29
Consolidated Balance Sheets
30
Consolidated Statements of Operations
31
Consolidated Statements of Stockholders Equity
32
Consolidated Statements of Cash Flows
33
Notes to Consolidated Financial Statements
35
INDEPENDENT AUDITORS REPORT
To the Board of Directors and Stockholders
of Zevex International, Inc.
We have audited the accompanying consolidated balance sheets of
Zevex International, Inc. and Subsidiary as of December 31, 1995
and 1994, and the related consolidated statements of operations,
stockholders equity, and cash flows for the years then ended.
These consolidated financial statements are the responsibility of
the Companys management. Our responsibility is to express an
opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether
the consolidated financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the
consolidated financial statements. An audit also includes
assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the consolidated
financial position of Zevex International, Inc. and Subsidiary as
of December 31, 1995 and 1994, and the results of their
operations and their cash flows for the years then ended in
conformity with generally accepted accounting principles.
Salt Lake City, Utah
February 12, 1996
ZEVEX INTERNATIONAL, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
December 31, 1995 and 1994
ASSETS
1995
1994
Current Assets:
Cash $ 870,333
$ 864,332
Accounts receivable 1,209,794
851,879
Inventories 791,960
691,065
Prepaid expenses --
16,235
Income tax refunds --
115,846
Employee advances 2,835
4,294
Total current assets 2,874,922
2,543,651
Property and equipment -
at cost, less accumulated depreciation
of $460,215 and $209,519 363,771
276,163
Other assets 8,682
4,215
Total Assets $ 3,247,375
$ 2,824,029
LIABILITIES AND STOCKHOLDERS EQUITY
Current Liabilities:
Accounts payable $ 191,562
$ 192,222
Accrued expenses 96,206
81,485
Income taxes payable 58,735
- --
Total current liabilities 346,503
273,707
Deferred taxes --
- --
Stockholders Equity:
Common stock, $.04 par value, authorized
5,000,000 shares, issued 1,365,716 and
1,138,109 shares in 1995 and 1994 54,629
45,525
Additional paid-in capital 1,344,833
1,344,833
Retained earnings 1,501,410
1,193,714
2,900,872
2,584,072
Treasury Stock, 7,500 shares at cost --
(33,750)
Total stockholders equity 2,900,872
2,550,322
Total Liabilities and Stockholders Equity $ 3,247,375
$ 2,824,029
The accompanying notes are an integral part
of the consolidated financial statements.
ZEVEX INTERNATIONAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
For The Three Years Ended December 31, 1995
1995 1994
1993
Revenues:
Sales $ 5,295,762 $ 3,332,437
$ 3,115,878
Cost of sales 3,065,553 2,016,670
1,600,072
Gross profit 2,230,209 1,315,767
1,515,806
Selling, general and
administrative expenses 1,324,749 1,023,987
775,760
Operating income 905,460 291,780
740,046
Other Income (Expense):
Interest income 40,829 36,127
37,168
Interest expense -- --
(72)
Loss on retirement of equipment (179) --
- --
Research and development (502,255) (419,278)
(198,804)
Income (loss) before (provision) benefit
for income taxes 443,855 (91,371)
578,338
(Provision) benefit for income taxes (127,055) 66,709
(196,940)
Net Income (Loss) $ 316,800 $ (24,662)
$ 381,398
Net Income (Loss) Per Common Share $ .2426 $ (.0218)
$ .3597
Weighted Average Number of
Common Shares Outstanding 1,305,812 1,130,609
1,060,430
The accompanying notes are an integral part
of the consolidated financial statements.
ZEVEX INTERNATIONAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
For The Three Years Ended December 31, 1995
Additional
Common Stock Paid-In Retained
Treasury
Shares Amount Capital Earnings
Stock Total
Balances at December
31, 1992 37,525,000 $ 37,525 $ 352,239 $ 836,978
$ -- $1,226,742
Reverse stock split 40:1
(March 16, 199 (36,586,891) -- -- --
- -- --
Issuance of common stock
and warrants 200,000 8,000 992,594
- -- -- 1,000,000
Acquisition of treasury
stock -- -- -- --
(50,400) (50,400)
Contribution of treasury
stock to employee stock
ownership plan -- -- --
- -- 16,650 16,650
Net income for the year
ended December 31, 1993 -- -- --
381,398 -- 381,398
Balances at
December 31, 1993 1,138,109 45,525 1,344,833
1,218,376 (33,750) 2,574,984
Net (loss) for the year
ended December 31, 1994 -- -- --
(24,662) -- (24,662)
Balances at
December 31, 1994 1,138,109 45,525 1,344,833
1,193,714 (33,750) 2,550,322
Contribution of treasury
stock to employee stock
ownership plan -- -- -- --
33,750 33,750
Common stock dividend 227,607 9,104 -- (9,104)
- -- --
Net income for the year
ended December 31, 1995 -- -- -- 316,800
- -- 316,800
Balances at
December 31, 1995 1,365,716 $ 54,629 $1,344,833 $1,501,410
$ -- $2,900,872
The accompanying notes are an integral part
of the consolidated financial statements
. ZEVEX INTERNATIONAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
For The Three Years Ended December 31, 1995
1995 1994
1993
Cash Flows from Operating Activities:
Net income (loss) $ 316,800 $ (24,662)
$ 381,398
Adjustments to reconcile net cash
provided by operating activities:
Depreciation expense 153,523 128,672
69,595
Deferred tax expense -- --
(4,800)
Loss on retirement of equipment 979 --
- --
Change in asset and liability accounts:
(Increase) in accounts receivable (357,915) (110,044)
(346,442)
(Increase) in inventories (100,895) (276,529)
(128,698)
(Increase) decrease in employee advances 1,459
976 (2,020)
(Increase) decrease in prepaid expenses 16,235
1,398 (17,633)
(Increase) decrease in income tax refunds 115,846
(115,846) --
(Increase) in other assets (4,467)
32,520 53,754
Increase in accrued expenses 14,721
22,140 21,768
(Decrease) in pension plan payable --
(6,700) (8,502)
Increase (decrease) in income
taxes payable 58,735
(111,340) 91,830
Net cash flows provided (used) by
operating activities 214,361
(461,721) 110,250
Cash Flows from Investing Activities:
Acquisition of equipment (242,110)
(136,744) (217,168)
Cash Flows from Financing Activities:
Acquisition of treasury stock -- -
- - (33,750)
Repurchase of common stock by Company 33,750 -
- - --
Proceeds from issuance of common stock
and warrants -- -
- - 1,000,594
Net cash flows provided by
financing activities 33,750 -
- - 966,844
Net increase (decrease) in cash 6,001
(598,465) 859,926
Cash and cash equivalents
at beginning of period 864,332
1,462,797 602,871
Cash and cash equivalents
at end of period $ 870,333 $
864,332 $1,462,797
The accompanying notes are an integral part
of the consolidated financial statements.
ZEVEX INTERNATIONAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
For The Three Years Ended December 31, 1995
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
1995 1994 1993
Cash paid during the
year for:
Interest paid $ 438 $ -- $
72
Income taxes paid $ 19,200 $156,499 $
85,600
Schedule of Non Cash Financing Activities:
Issuance of common stock
stock dividend
227,607 shares $ 9,104 $ -- $ --
The accompanying notes are an integral part
of the consolidated financial statements.
ZEVEX INTERNATIONAL, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1995
1. Summary of Significant Accounting Policies
a. Business Information
The Company was incorporated under the laws of the State of
Nevada on December 30, 1987. The Company was originally
incorporated as Downey Industries, Inc. and changed its name to
Zevex International, Inc. on August 15, 1988. The Company
develops and manufactures electronic components, transducers
and transformers.
b. Principles of Consolidation
The consolidated financial statements include the accounts of
Zevex International, Inc. (Company) and its wholly-owned
subsidiary Zevex, Inc. All significant inter company balances
and transactions have been eliminated in the consolidation.
c. Inventories
Inventories are accounted for at the lower of cost or market by
using the first-in, first-out method, which prices the
inventories at the most current purchase cost.
d. Property and Equipment
Property and equipment are stated at cost less accumulated
depreciation. Depreciation is provided over expected useful
lives of five or seven years on accelerated methods, which
provide for more depreciation expense in the early years of the
estimated life of the asset.
Major replacements which extend the useful lives of equipment
are capitalized and depreciated over the remaining useful life.
Normal maintenance and repair items are charged to costs and
expenses as incurred.
e. Bad Debts
Management believes that all accounts receivable as of December
31, 1995 and 1994, were fully collectible; therefore, no
allowance for doubtful accounts was recorded.
f. Cash and Cash Equivalents
For purposes of preparing the statements of cash flows, the
Company considers all certificates of deposit and highly liquid
debt instruments purchased with a maturity of three months or
less to be cash equivalents.
Notes to the consolidated financial statements - continued
g. Concentration of Credit Risk
The Company extends credit to many of its customers. The
Companys clients are located throughout the United States and
Europe. The Company performs ongoing credit evaluations of
customers and requires no collateral on accounts receivable.
h. Net Income (Loss) Per Share
The computation of net income (loss) per share of common stock
is computed by dividing net income (loss) for the period by the
weighted average number of shares outstanding during the
period. Common stock equivalents which dilute earnings per
share were not taken into consideration in the calculation
because they had no material impact. The number of common
shares and per share amounts presented in the accompanying
consolidated financial statements have been adjusted to reflect
the effects of a forty-to-one stock split in March 1994 (see
Note 10.a). The accompanying financial statement gives effect
to this action on a retroactive basis.
2. Cash Accounts
At December 31, 1995 and 1994, the Companys cash consists of the
following:
1995
1994
Checking and Money Market $ 54,977 $
121,795
Savings 815,355
742,537
$ 870,332 $
864,332
The Company maintains its cash balances in two separate financial
institutions. At December 31, 1995 and 1994 the Company had
$715,355 and $759,337 in excess of federally insured limits for
deposits.
3. Inventories
Inventories consist of the following at December 31, 1995 and 1994:
1995
1994
Work in Progress $ 227,154 $
228,860
Materials 982,640
462,205
$ 1,209,794 $
691,065
Notes to the consolidated financial statements - continued
4. Property and Equipment
At December 31, 1995 and 1994, property and equipment consists of the
following:
1995 1994
Machinery and equipment $ 341,929 $
317,973
Furniture and fixtures 271,868
255,304
Vehicles 4,500
3,400
Tooling costs 165,260
- --
Leasehold improvements 40,429
37,677
823,986
614,354
Less: accumulated depreciation 460,215
338,191
Property and equipment - net $ 363,771 $
276,163
Depreciation expense for the years ended December 31, 1995, 1994 and
1993 amounted to $153,523, $128,672 and $69,595 respectively.
5. Lease Commitments
The Company and its subsidiary occupy an administrative and
manufacturing facility under the terms of an operating lease
agreement.
Lease expense of $74,551, $54,508, and $48,132 has been charged to
operations for the years ended December 31, 1995, 1994 and 1993,
respectively. The lease expires in April 1997.
The following is a schedule by years of future minimum lease payments
required under the non-cancelable operating leases:
1996 $ 104,784
1997 34,927
Total $ 139,711
6. Income Taxes
The (provision) benefit for income taxes is made, at Federal and
State statutory rates, based on earnings reported in the financial
statements for the amount of income taxes payable currently.
Deferred income taxes are created from the Company using different
depreciation methods for tax purposes. The (provision) benefit for
income taxes consists of the following:
1995 1994
1993
Current taxes:
Federal $(153,228) $ 21,480
$(188,032)
State (22,440) 3,790
(28,589)
R & D credit 48,613 41,439
19,681
Deferred taxes:
Federal -- --
- --
State -- --
- --
(Provision) benefit for
income taxes $(127,055) $ 66,709
$(196,940)
Notes to the consolidated financial statements - continued
The actual tax (expense) benefit differs from the 34% Federal
statutory rate as follows:
1995 1994
1993
Expected tax (expense) benefit
at Federal rate $(153,461) $ 31,066
$(196,635)
State income tax (expense)
benefit, net of federal
benefit (16,064) 3,280
(20,583)
Research & development credit 48,613 41,439
19,680
Non-deductible expenses (5,366) (9,076)
(570)
Other (777) --
1,168
Total (provision) benefit
for income taxes $(127,055) $ 66,709
$(196,940)
7. Major Customers
The Company had sales to certain customers in 1995, 1994 and 1993
which represented 10% or more of total sales. In 1995, 56% of total
sales were derived from two customers (32% and 24%). In 1994, 65% of
total sales were derived from three customers (43%, 12% and 10%) and
in 1993, 73% of total sales were derived from five customers (23%,
16%, 13%, 11% and 10%).
8. Research and Development Costs
Costs of planning, designing and related engineering expenditures
are charged to expense when incurred. During the years ended
December 31, 1995, 1994, and 1993 the Company expensed $502,255,
$419,278 and $198,804, respectively. These costs are included in
selling, general and administrative expenses in the consolidated
statements of operations.
9. Employee Benefit Plans
During 1991, the Company established a qualified 401(k) profit
sharing plan. Eligible employees may defer a portion of their salary.
At the discretion of the Board of Directors, the Company may make a
matching contribution of an additional amount up to four percent (4%)
of eligible employees deferrals and a discretionary amount to be
determined each year by the Board of Directors. Employees are fully
vested after seven years. Contributions to the plan for the year
ended December 31, 1995, 1994 and 1993 was $77,037, $35,436 and
$22,981, respectively. The Company shows a payable to the plan of
$9,718, $ -- and $6,700, at December 31, 1995, 1994 and 1993,
respectively.
Notes to the consolidated financial statements - continued
10. Stockholders Equity
a. Reverse Stock Split
On March 16, 1993, the Company effected a 1-for-40 reverse split on
its issued and outstanding shares of common stock which reduced the
number of outstanding shares
from 37,500,000 shares to 938,109 shares. The Company also changed
its authorized capital from 200,000,000 shares of common stock, par
value $0.001, to 5,000,000
shares of common stock, par value $0.04. Such actions were
implemented by an amendment to the Companys Articles of Incorporation
filed with the Nevada Secretary of State on March 16, 1993.
b. Issuance of Common Stock
On May 10, 1993 the Company completed a firm commitment public
offering of 200,000 units at $6 per unit of common stock. The net
proceeds from the sale were $1,000,594 after deducting underwriting
commissions and expenses of $156,000 and direct offering costs of
$43,606.
Each unit consists of one post-split share of common stock, par
value $0.04, and one common stock purchase warrant. The warrants are
exercisable for a period of three years commencing on October 29,
1993, at a price of $7.00 per share during the first year of the
exercise period, $7.50 per share during the second year, and $8.00
per share during the third year. The warrants may not be exercised
in the absence of an effective registration statement pertaining to
the shares of common stock issuable upon exercise of the warrants
(the "warrant shares") and the Company is only obligated to file a
registration statement with respect to the warrant shares under
certain conditions. The warrants are detachable from the units, but
the warrants and common stock are still traded as a unit. The
warrants are subject to redemption by the Company upon thirty days
advance notice at a price of $0.01 per warrant at any time that a
current registration statement pertaining to the warrant shares is
effective.
On March 8, 1995, the Company declared a 20% stock dvidend payable
on April 3, 1995 to all shareholders of record on March 23, 1995.
The warrants included in the Company units will be adjusted as a
result of the stock dividend so that the number of shares subject to
warrants will be increased by 20% and the exercise price(s) of the
warrant will be proportionally reduced. The exercise price(s) of the
warrants after the dividend was $6.25 until October 29, 1995, when
they increased to an exercise price of $6.67 until they expire on
October 29, 1996.
11. Employees Stock Ownership Plan
Effective October 14, 1993, the Company adopted an Employee Stock
Ownership Plan which covers all employees who are over the age of 21,
has been employed for at least 90 days and who provides at least
1,000 hours of service. Full vesting will occur after seven years of
service or upon normal retirement at 65 years of age. Contributions
to the plan are at the discretion of the Board of Directors with no
minimum annual funding requirements. Contributions to plan will be
primarily made with common stock of the Company.
Notes to the consolidated financial statements - continued
The Company made a contribution to the plan for the year ended
December 31, 1995 of 7,500 units with a cost of $33,750. The Company
had previously made a contribution to the plan for the year ended
December 31, 1993 of 3,700 units of the Companys common stock and
warrants with a cost of $16,650. No contribution was made for the
year ended December 31, 1994.
12. Stock Option Plan
The Company has a stock option plan (1991 plan) under which certain
key employees have the option to purchase 2,000,000 shares of the
Companys common stock at a
price determined by the committee. Such price may be more, equal
to, or less than the current market price of the Companys common
stock. No option shall be granted under this plan after December 31,
1995.
During 1992, 1,000,000 shares were granted under this plan at an
option price of $.15 per share. During 1991, 1,000,000 shares were
granted under this plan at an option price of $0.02375 per share. At
December 31, 1995, 1994 and 1993, none of the option shares granted
had been exercised.
Effective October 14, 1993, the Company adopted the 1993 Stock
Option Plan (the "Plan"). The plan authorizes the grant to key
employees, and consultants, including officers and directors who are
also employees, of options to purchase up to 200,000 shares of the
Companys common stock (subject to adjustment for such matters as
stock splits and stock dividends), which may be incentive stock
options within the meaning of section 422A of the Internal Revenue
code of 1986, as amended, or options which do not qualify as
incentive stock options. The plan also provides for the grant of
stock appreciation rights and stock awards to eligible participants,
subject to forfeiture restrictions. The plan will be administered by
the Board of Directors of the Company or by a committee appointed by
the Board of Directors. The Board, or the committee if and when
appointed, will interpret the plan, its rules and regulations, and
the instruments evidencing the restrictions imposed upon the stock
sold under the plan, and will make all the determinations deemed
necessary or advisable for administration of the plan.
Options issued under the plan which are intended to qualify as
incentive stock options within the meaning of section 422A of the
Internal Revenue Code will be subject to certain restrictions and
conditions including the following: the exercise price may not be
less than the fair market value of the common stock on the date of
grant; no incentive options may be granted to any person who holds
more than 10% of the Companys issued and outstanding shares unless
the exercise price is at least 110% of the fair market value of the
common stock on the date of grant and the term of the option is for
five years or less; the aggregate fair market value of the common
stock with respect to which incentive stock options are exercisable
for the first time by an employee during any calendar year may not
exceed $100,000; the right to exercise an option terminates three
months after the termination of employment unless the employee dies
or is disabled; and the options may not be transferred except by will
or the laws of decent and distribution.
During 1994, 19,000 shares were granted under this plan at an option
price of $3.00 per share. None of the shares granted were exercised
as of December 31, 1995 and 1994.
Notes to the consolidated financial statements - continued
In connection with the underwriting of the Companys 1993
public offering of units, the Company agreed that for a
period of three years subsequent to the date of the
prospectus for the offering (April 29, 1993), it would not
grant any stock options without the prior written consent of
the underwriter except that the Company may grant incentive
stock options for up to 100,000 shares of the Companys
common stock to persons who are not directors of the Company
without the underwriters consent.
13. Repurchase of Common Stock Units
The Company repurchased 11,200 units of outstanding common
stock for $50,400. The Company subsequently contributed all
11,200 units to the Employees Stock Ownership Plan (see Note
11).
