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 September 30, 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.)
4314 ZEVEX Park Lane, Salt Lake City, 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 YEARSIndicate 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
October 27, 1997, the Company had outstanding 2,063,826 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 September 30, 1997, and December 31,
1996, and the related statements of operations and cash flows for
the respective three month and nine month periods ended September
30, 1997 and 1996. In the opinion of the Company's management, the
financialstatements 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.
CONSOLIDATED BALANCE SHEETS
ASSETS
Sept 30 Dec 31
1997 1996
Current assets:
Cash and cash equivalents $ 135,699 $ 2,085,055
Cash --restricted 50,306 --
Accounts receivable 1,835,011 1,429,521
Inventories 3,341,095 1,344,297
Marketable securities 210,921 203,109
Deferred offering cost 154,694 --
Deferred income taxes 113,161 --
Prepaid expenses 9,064 46,808
Total current assets 5,849,951 5,108,790
Property and equipment, net 3,887,302 1,207,034
Patents and trademarks 75,656 49,357
Other assets 755 3,489
$ 9,813,664 $ 6,368,670
LIABILITIES & STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 855,147 $ 339,023
Other accrued expenses 339,584 188,878
Income taxes payable 267,379 0
Bank line of credit 700,000 60,108
Current portion of
industrial development bond 100,000 0
Total current liabilities 2,262,110 588,009
Deferred income taxes 40,367 79,212
Industrial development bond 1,900,000 2,000,000
Stockholders equity:
Common stock, $.04 par value:
authorized 5,000,000
shares, issued 1,495,716
and 2,063,826
shares, respectively 82,553 59,829
Additional paid in capital 3,270,884 1,794,633
Retained earnings 2,257,750 1,846,987
Total stockholders equity 5,611,187 3,701,449
$ 9,813,664 $ 6,368,670
ZEVEX INTERNATIONAL, INC.
STATEMENTS OF OPERATIONS
For three For three For nine For nine
months months months months
ended ended ended ended
9/30/96 9/30/97 9/30/96 9/30/97
(unadited) (unaudited) (unaudited)
Revenue:
Product
sales $1,205,674 $2,437,734 $3,513,581 $5,534,205
Engineering
sales 127,356 59,391 364,674 777,285
Cost of
sales 732,085 1,534,365 2,121,740 3,475,154
Gross
profit 600,945 962,760 1,756,515 2,836,336
Operating expenses:
General
and
administra-
tive 261,332 473,105 83,115 1,198,499
Selling
and
marketing 121,638 194,960 381,508 528,417
Research and
development 114,521 63,749 360,335 521,870
Total operating
expenses 497,491 731,814 1,574,958 2,248,786
Operating
income 103,454 230,946 181,557 587,550
Other income (expense):
Interest
income 8,078 4,532 35,804 66,367
Interest
expense -- (18,918) -- (56,381)
Unrealized gain on
marketable
securities -- 7,812 -- 7,812
Income before
provision for
income
taxes 111,532 224,372 217,361 605,348
Provision for
taxes (58,369) (96,134) (74,651) (194,585)
Net
income $53,163 $128,238 $142,710 $410,763
Income per
share $ .04 $ .06 $ .10 $ .18
Weighted
average shares
outstanding 1,365,716 2,063,826 1,365,716 2,315,802
ZEVEX INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine months ended
September 30,
1996 1997
(unaudited)
Cash flows from operating activities
Net income $ 142,710 $ 410,763
Adjustments to reconcile net income to
net cash
provided by operating activities:
Depreciation and amortization 156,570 177,021
Benefit for deferred
income taxes -- (152,006)
Unrealized gain on marketable
securities -- (7,812)
Changes in operating assets
and liabilities:
Increase in restricted
cash for sinking
fund payment on industrial
development bond -- (50,306)
Decrease (increase) in accounts
receivable 346,859 (405,490)
Increase in inventories (664,780) (1,996,798)
Increase in deferred
offering costs -- (154,694)
(Increase) decrease
in prepaid expenses (48,348) 37,744
Decrease in other
assets -- 2,734
Increase in
accounts payable 153,042 516,124
Increase in
accrued liabilities 5,932 150,706
(Decrease) increase in
income taxes payable (58,735) 267,379
Net cash provided by
(used in) operating
activities 33,250 (1,204,635)
Cash flows from investing activities
Purchase of
property and equipment (429,835) (2,854,004)
Addition of patents
and trademarks -- (29,584)
Net cash used in
investing activities (429,835) (2,883,588)
Cash flows from financing activities
Proceeds from issuance
of common stock -- 1,498,975
Proceeds from bank
line of credit -- 700,000
Repayment of bank
line of credit -- (60,108)
Net cash provided by
financing activities -- 2,138,867
Net decrease in cash
and cash equivalents (396,585) (1,949,356)
Cash and cash equivalents
at beginning of
period 870,333 2,085,055
Cash and cash equivalents
at end of period $ 473,748 $ 135,699
ZEVEX INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1997
1. Basis of Presentation
The accompanying financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial
information and with the instructions to Form 10Q of Regulation S-K.
Accordingly, certain information and footnote disclosures normally
included in complete financial statements have been condensed or omitted.
These financial statements should be read in conjunction with the financial
statements and footnotes thereto included in the Company's 1996 Annual
Report and Form 10-KSB.
In the opinion of management, all adjustments (consisting of normal and
recurring adjustments) considered necessary for a fair presentation have been
included. The results of operations for interim periods are not indicative
of the results of operations to be expected for a full year.
2. Inventories
Inventories consist of the following:
December 31 September 30
1996 1997
Materials $ 936,938 $ 2,223,633
Work in progress 292,423 957,860
Finished goods,
including completed
subassemblies 114,936 159,602
$ 1,344,297 $ ,341,095
3. Bank Line of Credit
On September 29, 1996, the Company renewed its arrangement with a
financial institution for a line of credit which may not exceed $1,000,000,
with the Company's total indedtedness not to exceed $3,024,658.
The line of credit matures on May 31, 1998. The line is collateralized
by accounts receivable, inventory and property and equipment and
bears interest at a rate of prime plus 1%, 9.50% at September 30,
1997. The Company owes $700,000 on the line of credit
at September 30, 1997. Under the current line of credit agreement,
the Company is restricted from declaring cash dividends.
4. Stockholders' Equity
Private Placement
On February 12, 1997, the Company completed a private placement
offering for $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 issued shares and shares
underlying
the warrants are entitled to registration rights for a period of
five years from completion of the offering.
Stock Option Plan
In September 1997, the Board of Directors consolidated its
previous three stock option plans into one plan and established the
Amended 1993 Stock Option Plan (the "Stock Option Plan"). There are
currently 600,000 shares of common stock authorized for issuance
under the Stock Option Plan, subject to adjustment for such matters
as stock splits and stock dividends.
The Stock Option Plan provides for the grant of incentive stock
options, stock appreciation rights and stock awards to eligible
participants and may be administered by the Board of Directors or by
the Compensation Committee.
On September 30, 1997, the Company granted a total of 210,000
options with an exercise price of $16.44 to three
officers/directors. The options vest ratably over a four year period
from the grant date.
All options granted under the Stock Option Plan expire after
five to seven years from the grant date and become exercisable no
later than four years from the grant date.
5. Related Party Transactions
On April 15, 1997, the Company entered into a consulting
agreement with another company owned by certain stockholders to
provide services related to strategic planning, public relations,
financing and potential acquisition of new products or companies.
Under the consulting agreement, the Company must pay an initial fee
of $50,000 and $10,000 per month for two years.
6. Subsequent Event
The Offering
In September 1997, the board of directors authorized management
of the Company to file a Registration Statement on Form S-1 with the
Securities and Exchange Commission permitting the Company to sell up
to 1,591,500 shares of common stock to the public (the "Offering").
In conjunction with the offering, the board of directors authorized,
subject to stockholder approval, the reincorporation of the Company
into Delaware. In connection with the reincorporation, the Company
will adopt an Amended and Restated Certificate of Incorporation
which provides that the Company will be authorized to issue
2,000,000 shares of $.001 par value preferred stock and 10,000,000
shares of $.001 par value common stock.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
___________________________________________________________________
Results of Operations
The Company's revenues for the third quarter of 1997 increased to
$2,497,125, from $1,333,030 for the third quarter of 1996, an
increase of approximately 87%. For the first nine months of 1997,
the Company's revenues increased to $6,311,490, from $3,878,255 for
the first nine months of 1996, an increase of approximately 63%.
During the first nine months of 1997, 67% of total revenues resulted
from sales to four customers, three of whom were major customers in
1996. Most of 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 demand for the final products
manufactured by the OEMs, which is beyond the Company's control. 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 revenues was
approximately 39% for the third quarter of 1997, as compared to 45%
for the third quarter of 1996. For the nine months ended September
30, 1997, the Company's gross profit as a percentage of revenues was
45%, as compared to 45% for nine months ended September 30, 1996.
Selling, general and administrative expenses for the quarter ended
September 30, 1997, increased from $382,970 in 1996, to $668,065 in
1997. For the nine months ended September 30, 1997, selling,
general and administrative expenses increased from $1,214,623 in
1996, to $1,726,916 in 1997. Management attributes the increase in
these expenses to increased legal expenses and fees associated with
the Company's listing on the American Stock Exchange, increased
payroll and related employee expenses, insurance, and tax costs.
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 third quarter of 1997, research and development expenses were
$63,749 compared to $114,521 during the third quarter of 1996.
Research and development expenses were $521,820 for the first nine
months of 1997, compared to $360,335 for the first nine months of
1996. Expenses incurred during the first nine months were for the
continued development of new applications of the Company's
ultrasound technology, and proprietary products. Management
believes investing in research and development will serve the
Company's future well, and will continue these expenses for at least
the next several quarters.
Operating income for the third quarter of 1997 increased to
$230,946, approximately 9% of revenues, from $103,454,
approximately 7% of revenues, in 1996. For the nine months
ending September 30, operating income increased to $587,550,
approximately 9% of revenues, in 1997, from $181,557,
approximately 5% of revenues, in 1996.
Net income increased to $128,238, approximately 5% of revenues,
in the third quarter of 1997, from $53,163, approximately 4% of
revenues, in the third quarter of 1996. Net income increased
to $410,763, 7% of revenues, for the first nine months of 1997,
from $142,710, approximately 4% of revenues in the first nine
months of 1996. The increases in net income during 1997 as
compared to 1996 are principally due to increased demand for
the Company's products and services, and the mix of product
delivered during that period.
As of September 30, 1997 the Company's backlog of customer
orders was $7,726,000, compared to $4,357,000 on September
30, 1996. Management estimates that approximately 45% of the
backlog will ship before
December 31, 1997.
Liquidity and Capital Resources
During the quarter and nine months ending September 30, 1997,
the Company produced $128,238, and $410,763 in net income
respectively from operating activities. During the quarter
and nine months ending September 30 1996, the Company had net
incomes of $53,163 and $142,710 respectively from operating
activities. Cash decreased by $1,949,356 for the nine months
ending September 30, 1997 as the Company continued to fund an
increase in accounts receivable and inventories of work-in
process, as well as construction of its new manufacturing
facility, and the purchase of new equipment.
The Company's investment in the construction of its new
facility and purchases of new research, production, test
equipment and tooling was $2,854,004 for the first nine
months of 1997. In 1996, the Company negotiated a $2,000,000
Industrial Development Bond to finance the construction of a
new 51,000 square foot headquarters and manufacturing
facility. On October 29, 1996, the Company completed a
transaction in the amount of $50,000 cash and 130,000 shares
of unregistered Common Stock of the Company for the purchase
of approximately 3.7 acres of land in Salt Lake City, Salt
Lake County, Utah, for the purpose of constructing a
manufacturing facility.
The Company's working capital at September 30, 1997, was
$3,587,841, compared to $2,403,056 at September 30, 1996.
The increase is primarily attributed to income from
operations and the private placement that was completed in
February, 1997. The portion of working capital represented
by cash at such dates was $135,699 and $473,748,
respectively.
Cautionary Statement for Purposes of "Safe Harbor Provisions"
of the Private Securities Litigation Reform Act of 1995
When used in this report, the words "estimate," "believe,"
"project" and similar expressions, together with other
discussion of future trends or results, are intended to
identify forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended (the
"Securities Act") and Section 21E of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"). Such
statements are subject to certain risks and uncertainties,
including those discussed below, that could cause actual
results to differ materially from those projected. These
forward-looking statements speak only as of the date hereof.
All of these forward-looking statements are based on
estimates and assumptions made by management of the Company,
which although believed to be reasonable, are inherently
uncertain and difficult to predict. Therefore, undue
reliance should not be placed upon such estimates. There can
be no assurance that the benefits anticipated in these
forward-looking statements will be achieved. The following
important factors, among others, could cause the Company not
to achieve the benefits contemplated herein, or otherwise
cause the Company's results of operations to be adversely
affected in future periods: (i)continued or increased
competitive pressures from existing competitors and new
entrants; (ii)unanticipated costs related to the Company's
growth and operating strategies; (iii)loss or retirement of
key members of management; (iv)increase in interest rates of
the Company's cost of borrowing, or a default under any
material debt agreement; (vi)prolonged labor disruption;
(viii)deterioration in general of regional economic
conditions; (ix)adverse state or federal legislation or
regulation that increases the cost of compliance, or adverse
findings by a regulator with respect to existing operations;
(x)loss of customers;(xi)adverse determinations in connection
with pending or future litigation or other material claims
and judgments against the Company; (xii)inability to achieve
future sales; and (xiii)the unavailability of funds for
capital expenditures. Many of such factors are beyond the
control of the Company.
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: November 14, 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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