FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from
.................to.................
Commission file number 33-19583
ZEVEX INTERNATIONAL, INC.
(Exact name of registrant as specified in charter)
NEVADA
87-0462807
(State or other jurisdiction of
(I.R.S. Employer
incorporation or organization)
Identification No.)
5175 Greenpine Drive, Murray, Utah
84123
(Address of principal executive offices)
(Zip Code)
(801) 264-1001
(Registrant's telephone number, including area code)
Not Applicable
(Former name, former address, and former fiscal year, if changed since
last report)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by section 13 or 15(d) of the Securities
Exchange Act of 1934 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 [ X ] No
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Indicate by check mark whether the registrant has filed all documents
and reports required to be filed by Sections 12, 13 or 15(d) of the
Securities Exchange Act of 1934 subsequent to the distribution of
securities under a plan confirmed by a court.
Yes [ ] No [ ] Not Applicable [ X ]
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date. As of May
8, 1997, the Company had outstanding 1,995,716 shares of common stock,
par value $0.04 per share.
PART I
FINANCIAL INFORMATION
______________________________________________________________________
ITEM 1. FINANCIAL STATEMENTS REQUIRED BY FORM 10-Q
______________________________________________________________________
ZEVEX International, Inc. (the "Company"), files herewith balance
sheets of the Company as of March 31, 1997, and December 31, 1996, and
the related statements of operations and cash flows for the respective
three month periods ended March 31, 1997 and 1996. In the opinion of
management of the Company, the financial statements reflect all
adjustments, all of which are normal recurring adjustments, necessary
to fairly present the financial condition of the Company for the
interim periods presented. The financial statements included in this
report on Form 10-Q should be read in conjunction with the audited
financial statements of the Company and the notes thereto included in
the annual report of the Company on Form 10-KSB for the year ended
December 31, 1996.
ZEVEX INTERNATIONAL, INC. & SUBSIDIARY
Balance Sheet
-Unaudited-
ASSETS
Mar 31 Dec 31
1997 1996
CURRENT ASSETS
Cash in Banks 2,225,531 2,085,055
Accounts Receivable 1,800,145 1,429,521
Employee Advances 5,076 5,350
Tax Refunds 0 41,458
Work-In-Process 1,496,709 1,344,297
Marketable Securities 203,109 203,109
Total Current Assets 5,730,570 5,108,790
OTHER ASSETS
Net Property & Equipment 2,344,504 1,207,034
Patents and Trademarks 48,508 49,357
Deposits 3,489 3,489
Total Other Assets 2,396,501 1,259,880
TOTAL ASSETS 8,127,071 6,368,670
LIABILITIES & STOCKHOLDERS' EQUITY LIABILITIES
Accounts Payable 535,631 339,023
Other Accrued Expenses 273,980 188,878
Income Taxes Payable 61,261 0
Bank Line of Credit 0 60,108
Total Current Liabilities 870,872 588,009
Long-Term Debt 2,000,000 2,000,000
Deferred Taxes 79,212 79,212
Total Long-Term Debt 2,079,212 2,079,212
STOCKHOLDERS' EQUITY
Common Stock 5,000,000 shares
authorized at $0.04 par value
issued and outstanding 1,495,716
shares in 1995 and 1,995,716
shares in 1996 79,829 59,829
Capital in Excess of Par Value 3,024,633 1,794,633
Retained Earnings 2,072,525 1,846,987
Total Stockholders' Equity 5,176,987 3,701,449
TOTAL LIABILITIES &
STOCKHOLDERS' EQUITY 8,127,071 6,368,670
ZEVEX INTERNATIONAL, INC. & SUBSIDIARY
Statement of Operations
For Three For Three
Months Ended Months Ended
3/31/96 3/31/97
REVENUES
Sales 2,211,105 1,267,607
Cost of Sales 1,172,675 713,306
Gross Profit 1,038,430 554,301
General Expenses
Marketing, G&A 544,801 357,218
Research and Devel. 185,627 114,228
Operating Income 308,002 82,855
Other Income 37,077 13,084
Interest Expense ( 16,822) 0
Provision for Taxes ( 102,719) ( 12,613)
Net Income (Loss) 225,538 83,326
Income Per Share .1284 .0610
Weighted Average
Shares Outstanding 1,756,827 1,365,716
ZEVEX INTERNATIONAL, INC. & SUBSIDIARY
Statement of Cash Flows
For the three months ended March 31, 1997
and March 31, 1996
Mar 31 Mar 31
1997 1996
Cash Flows from
Operating Activities:
Net income (loss) 225,538 83,326
Noncash revenue and
expense adjustments:
Depreciation 82,209 46,860
Change in assets
and liability accounts:
(Increase) decrease
in accounts receivable (370,624) 188,803
(Increase) decrease in
work-in-process (152,412) (301,234)
(Increase) decrease in
deposits 0 2,500
(Increase) decrease
tax refunds 41,458 0
(Increase) decrease in
employee advances 274 (1,250)
Increase (decrease) in
accounts payable 196,608 170,564
Increase (decrease) in
accrued expenses 85,102 15,737
Increase (decrease) in
provision for taxes 61,261 (35,489)
Increase (decrease) in
bank line of credit (60,108) 0
Net Cash flows used for
operating activities 109,306 169,817
Cash flows from investing activities:
Purchase of
property & equipment (1,218,830) (189,473)
Cash flows from financing activities:
Proceeds from issuance of
common stock 1,250,000 0
Net increase (decrease)
in cash 140,476 ( 19,656)
Cash at
beginning of period 2,085,055 870,333
Cash at end of period 2,225,531 850,677
ZEVEX INTERNATIONAL, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1997
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.
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. Machinery and Equipment
Machinery 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 incurred.
Upon retirement or disposal of property, plant or equipment, the
costs and related accumulated depreciation amounts are eliminated
and any gain or loss is included in operation in the year of
disposition.
Notes to the financial statements - continued
D. Work In Process
Work in process is stated at the lower of cost (first-in, first-
out method) or market value.
E. Bad Debts
The Company accounts for bad debts using the direct write off
method. Accounts are written off when deemed uncollectible.
F. Net Income Per Share
The computation of net income per share of common stock is
computed by dividing net income 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.
2. Business Combination
On August 11, 1988, the Company acquired the outstanding stock of
ZEVEX, Inc., a manufacturer and producer of acoustic and electronic
equipment for special applications, in exchange for 600,000 shares of
its common stock. This business combination has been accounted for in
a manner similar to a pooling-of-interests.
3. Income Taxes
Provision 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, less any prepayment
deposits. The provision for income taxes at March 31, 1997 and March
31, 1996 consists of the following:
1997 1996
Federal income taxes $ 51,952 $ 7,816
State income taxes 9,309 4,797
Provision for income tax $ 61,261 $ 12,613
========== ==========
4. Major Customers
The Company distributes its products directly and is not dependent
upon any single customer. However, sales to three customers for the
three months ending March 31, 1997, each represented 10% or more of
total sales.
______________________________________________________________________
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
______________________________________________________________________
Results of Operations
The Company's sales increased to $2,211,105 in the first quarter of
1997 from $1,267,607 in the first quarter of 1996, an increase of
approximately 75% for the three months ending March 1997. During the
first three months of 1996, 74% of total revenues resulted from sales
to three customers, all of whom were major customers in 1995. Since
the Company's products are sold to OEMs as components for
incorporation into products manufactured by them, demand for the
Company's products is affected by the demand for the final products
manufactured by the OEMs, which is beyond the control of 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 Company's gross profit as a percentage of sales was 47% in the
first quarter of 1997, as compared to 43% in the first quarter of
1996. Management does not expect any significant changes in cost of
sales during 1997 with the product mix which is expected to be
delivered.
Selling, general and administrative expenses for the quarter ended
March 31, 1997 increased $187,583, from $357,218 in the first quarter
of 1996 to $544,801 in the first quarter of 1997. Increased expenses
resulted from the Company's continuing expansion. An increase in the
size of ZEVEX's physical facilities increased rental, utility and
related expenses incurred. An expanded sales and marketing effort
increased staffing, travel, advertising and administrative expenses
related to the introduction of the EnteraLite(registered) feeding
pump. The Company also had an increase in expenses related to
employees such as insurance, taxes and pension benefits. The Company
believes that general and administrative expenses in 1997 as related
to sales will continue at approximately the same percentage as in the
previous two years.
Research and development expenses vary from quarter to quarter
depending on the number and nature of pending research and development
projects and their various stages of completion. During the first
quarter of 1997 research and development expenses were $185,627
compared to $114,228 during the first quarter of 1996. The expenses
incurred during the first quarter were for the continued development
of several proprietary products and new applications of the Company's
ultrasound technology. In addition, the Company funded research and
development on behalf of its customers, in an effort to develop new
technologies and products in areas where there is a perceived demand.
Management believes investment in research and development will serve
the Company's future well, and will continue these expenses at the
current rate for at least the next several quarters.
Net income increased to $225,538, or 10.2% of net sales, in the first
quarter of 1997, from $83,326, or 6.6% of net sales, in the first
quarter of 1996. The increase in net income percentage during 1997 as
compared to 1996 is principally due to the increase in sales and
related expenses for the current year.
As of March 31, 1997 the Company's backlog of customer orders was
$4,732,000, as compared to $2,808,000 on March 31, 1996. Management
estimates that approximately 90% of the backlog will ship before
December 31, 1997.
Liquidity and Capital Resources
The Company generated net income of $308,002 from operations for
the first quarter of 1997. As a result of increased expenditures
for inventories, accounts receivable, financing, and work in
progress for future sale, the Company used total cash of
$109,306. Operating activities during the first quarter of 1996
created net cash of $169,817 on net income of $83,326.
The Company's purchases of facilities, new research, production,
testing equipment and tooling increased to $1,218,830 for the
first quarter of 1997, from $189,473 in 1996. The Company paid
$1,129,892 toward its new manufacturing facility. Total
expenditures for equipment of $88,938 were primarily due to
upgrading the Company's production fixturing, tooling and
research and engineering capabilities. The Company expects to
spend approximately $240,000 in 1997 for additional manufacturing
equipment as well as for normal replacement of old equipment.
The Company also anticipates spending approximately $600,000 in
additional research and development expenses during 1997. It is
estimated that overhead increases related to the new
manufacturing facility will increase by approximately $6,000 per
month as compared to the rent currently being paid by the
Company.
In 1996, the Company negotiated a $2,000,000 Industrial
Development Bond to finance a land acquisition and construction
of a new 51,000 square foot headquarters and manufacturing
facility. On October 29, 1996, the Company completed a
transaction for the amount of $50,000 cash and 130,000 shares of
unregistered stock of the Company for the purchase of
approximately 3.7 acres of land within Murray City, Salt Lake
County, Utah, for the purpose of constructing a manufacturing
facility with an unrelated party. The Company expects to spend
approximately $2,500,000 on the new manufacturing facility to be
completed in 1997.
The Company's working capital at March 31, 1997, was $4,859,698,
as compared to $2,471,632 at March 31, 1996. Increase in working
capital is primarily due to the $2,000,000 industrial development
bond obtained by the company for financing the new manufacturing
facility, and the private placement agreement outlined below.
The portion of working capital represented by cash at such dates
was $2,225,531, and $850,677 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.
On December 16, 1996, the Company entered into a Private
Placement memorandum agreement to offer, on a best efforts basis,
$1,250,000 of its securities which consist of 500,000 units at a
price of $2.50 per unit. Each unit consists of one share of
common stock and a warrant to purchase one share of common stock
at a price of $3.50 per share. The offering was sold directly by
the Company through its officers and directors. The offering
successfully closed on February 12, 1997. The offering proceeds
will be used for general corporate purposes.
On December 11, 1996, the Company entered into a $500,000 open
line of credit arrangement with a financial institution. The
line is due May 31, 1997. The line of credit is collateralized
by accounts receivable rights and bears interest at a rate of
prime plus 1%. The Company owes $0 on the line of credit at
March 31, 1997.
.
PART II
OTHER INFORMATION NOT APPLICABLE AT THIS TIME
Item 1. Legal Proceedings
Item 2. Changes in Securities
Item 3. Defaults upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
______________________________________________________________________
SIGNATURES
______________________________________________________________________
Pursuant to the requirements of the Securities Exchange Act of 1934,
as amended, the Registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
ZEVEX INTERNATIONAL, INC.
Dated: May 12, 1997 By /s/ Dean G. Constantine
Dean G. Constantine, President
By /s/ Phillip L. Mcstotts
Phillip L. McStotts, Secretary
(Principal Financial Officer)
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<PERIOD-END> MAR-31-1997
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<SECURITIES> 203,109
<RECEIVABLES> 1,800,145
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