FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1999
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)
DELAWARE 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 and 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 July 15, 1998, the
Company had outstanding 3,420,326 shares of common stock, par value $0.001 per
share.
<PAGE>
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 June 30, 1999, and December 31, 1998, and the related statements
of operations and cash flows for the respective three month and six month
periods ended June 30, 1999 and 1998. In the opinion of the Company's
management, 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-K for the year ended
December 31, 1998.
<PAGE>
ZEVEX INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
<S> <C> <C> <C>
June 30 Dec. 31
1999 1998
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 2,517,136 $ 7,960,511
Restricted cash for sinking
fund payment on IDB 35,292 182,049
Accounts receivable 4,501,957 3,435,181
Inventories 5,742,421 5,574,394
Marketable securities 956,517 1,598,032
Deferred income taxes 181,648 249,251
Prepaid expenses
59,350 65,561
Total current assets 13,994,321 19,064,979
Property and equipment, net 5,548,552 5,505,643
Patents and trademarks, net 137,490 139,792
Goodwill, net 8,700,729 8,998,006
Other assets
17,270 52,559
$ 28,398,362 $ 33,760,979
LIABILITIES & STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,176,955 $ 1,076,110
Other accrued expenses 678,298 684,952
Income taxes payable 252,138 50,891
Bank lines of credit 149,000 541,993
Current portion of long-term debt
361,761 5,042,000
Total current liabilities 2,618,152 7,395,946
Deferred income taxes 98,128 97,228
Industrial development bond 1,700,000 1,800,000
Convertible debt, long-term 4,350,000 4,350,000
Other long-term liabilities -- 3,270
Stockholders' equity:
Common stock, $.001 par value: authorized
10,000,000 shares, issued 3,420,326 and 3,418,876
respectively for June 1999 and Dec. 1998 3,420 3,419
Additional paid in capital 16,211,967 17,381,793
Less: Treasury stock (50,790) (50,790)
Unrealized loss on marketable securities, net (53,700) (147,309)
Retained earnings
3,521,185 2,927,422
Total stockholders' equity 19,632,082 20,114,535
$ 28,398,362 $ 33,760,979
</TABLE>
See accompanying notes.
<PAGE>
ZEVEX INTERNATIONAL, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Three months ended Six months ended
June 30, June 30,
1999 1998 1999 1998
------------------- ----------------- ------------------- --------------------
(unaudited) (unaudited) (unaudited) (unaudited)
Revenue:
Product sales $ 5,079,335 $ 2,765,873 $ 9,377,562 $ 4,904,424
Engineering services 402,069 333,480 765,295 382,640
----------------- ------------------ ------------------- --------------------
Total revenue 5,481,404 3,099,353 10,142,857 5,287,064
Cost of sales 2,991,430 1,582,604 5,378,537 2,860,027
----------------- ------------------ ------------------- --------------------
Gross profit 2,489,974 1,516,749 4,764,320 2,427,037
Operating expenses:
General and administrative 1,028,428 750,695 2,073,380 1,283,022
Selling and marketing 579,292 294,472 1,107,735 592,689
Goodwill Amortization 154,206 -- 308,412 --
Research and development 169,683 51,890 298,745 155,974
----------------- ------------------ ------------------- --------------------
Total operating expenses 1,931,609 1,097,057 3,788,272 2,031,685
Operating income 558,365 419,692 976,048 395,352
Other income (expense):
Interest income 33,821 155,850 88,590 269,065
Interest expense (115,104) (27,646) (220,134) (44,414)
Unrealized gain on
marketable securities -- 11,718 87,903 74,214
----------------- ------------------ ------------------- --------------------
Income before provision for
income taxes 477,082 559,614 932,407 694,217
Provision for taxes (171,087) (212,333) (338,644) (231,928)
----------------- ------------------ ------------------- --------------------
Net income $ 305,995 $ 347,281 $ 593,763 $ 462,289
================= ================== =================== ====================
Basic net income per share $ .09 $ .11 $ .17 $ .14
================= ==================
=================== ====================
Weighted average shares
outstanding 3,413,371 3,297,688 3,412,777 3,289,312
================= ==================
=================== ====================
Diluted net income per share .09 .10 .17 .13
================= ==================
=================== ====================
Diluted weighted average shares
outstanding 3,430,125 3,654,132 3,439,283 3,652,666
================= ================== =================== ====================
</TABLE>
<PAGE>
ZEVEX INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Six months ended
June 30,
1999 1998
--------------- ---------------
(unaudited) (unaudited)
Cash flows from operating activities
Net income $ 593,763 $ 462,289
Adjustments to reconcile net income to net cash (used in) Provided by operating
activities:
Depreciation and amortization 665,078 220,386
Benefit for deferred income taxes 68,503 20,203
Unrealized gain (loss) on marketable securities 93,609 (74,214)
Changes in operating assets and liabilities:
(Decrease) increase in restricted cash for sinking
fund payment on industrial development bond 146,757 (52,261)
(Increase) in accounts receivable (1,066,776) (543,307)
(Increase) in inventories (168,027) (345,686)
Decrease (increase) in marketable securities 641,515 (264,140)
Decrease in prepaid expenses 6,211 17,352
Decrease in other assets 35,289 --
Increase (decrease) in accounts payable 100,845 (69,858)
Increase (decrease) in accrued liabilities (9,924) (2,865)
Increase (decrease) in income taxes payable 201,247 (269,864)
--------------- ---------------
Net cash (used in) provided by operating activities 1,308,090 (901,965)
Cash flows from investing activities
Purchase of property and equipment (406,138) (925,951)
Additions to patents and trademarks (2,270) (12,684)
--------------- ---------------
Net cash used in investing activities (408,408) (938,635)
Cash flows from financing activities
Repurchase of common stock warrants (1,175,000) --
Payment on debt of business acquisitions (4,680,239)
Proceeds from exercise of stock options 5,175 13,410
Proceeds from exercise of warrants -- 105,000
Purchase of treasury stock -- (50,790)
Repayment/proceeds on bank line of credit (392,993) --
Repayment of industrial development bond (100,000) (100,000)
--------------- ---------------
Net cash (used in) provided by financing activities (6,343,057) (32,380)
--------------- ---------------
Net decrease in cash and cash equivalents (5,443,375) (1,872,980)
Cash and cash equivalents at beginning of period 7,960,511 2,260,426
--------------- ---------------
Cash and cash equivalents at end of period $ 2,517,136 $ 387,446
=============== ===============
</TABLE>
<PAGE>
ZEVEX INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1999
1. Summary of Significant Accounting Policies
Description of Organization and Business
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. In November
1997 the Company reincorporated into Delaware. During 1998, the Company's
operations consisted of the business of its wholly-owned subsidiary, ZEVEX, Inc.
In December 1998, the Company acquired an additional product line and completed
the acquisition of two additional subsidiaries, Aborn Electronics, Inc. and
JTech Medical Industries, Inc. The Company and its subsidiaries design and
manufacture advanced medical devices, including surgical systems, device
components, and sensors for medical and industrial technology companies. The
Company and its subsidiaries also design, manufacture, and market their own
medical devices using proprietary technologies. The Company's design and
manufacturing service customers are primarily medical technology companies,
which sell the Company's systems and devices under private labels or incorporate
the Company's devices into their products.
Principles of Consolidation
The consolidated balance sheet at June 30, 1999 and December 31, 1998 includes
the accounts of ZEVEX International, Inc. (Company) and its wholly-owned
operating subsidiaries, ZEVEX, Inc., Aborn Electronics, Inc., and JTech Medical
Industries, Inc. The consolidated statement of operations excludes the results
of Aborn and JTech for June 30, 1998, because these two acquisitions were
consummated effective as of December 31, 1998. At June 30, 1998, the
consolidated financial statements include the accounts of ZEVEX International,
Inc. (Company) and its wholly-owned operating subsidiary ZEVEX, Inc. All
significant intercompany balances and transactions have been eliminated in
consolidation.
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 10-Q of Regulation S-X. 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 1998 Annual Report on SEC Form 10-K.
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. Bank Line of Credit
The Company renewed its line of credit arrangement with a financial institution
for $5 million. The line matures on May 31, 2000. The line of credit is
collateralized by accounts receivable and inventory and bears interest at the
prime rate, 7.75% at June 30, 1999 and December 31, 1998. The Company's balance
on its line of credit was $149,000 at June 30, 1999 and $441,993 at December 31,
1998. Under the line of credit agreement, the Company is restricted from
declaring cash dividends. In addition, the Company's line of credit contains
certain financial covenants. As of June 30, 1999, the Company was in compliance
with these financial covenants.
In addition, JTech had a line of credit with a financial institution for
$150,000. The line bore interest at the prime rate plus 1% (8.75% at December
31, 1998) that matured on March 15, 1999 and was not renewed. The balance under
this line of credit was $100,000 at December 31, 1998. The line of credit was
collateralized by all of the assets of JTech and contained certain covenants.
JTech was in compliance with the debt covenants at December 31, 1998.
3. Repurchase of Common Stock
On June 14, 1999, the Company repurchased 470,0000 outstanding Common Stock
Warrants for $1,175,000. On February 4, 1998, the Company repurchased 6,700
shares of outstanding Common Stock for $50,790. The Company anticipates that all
the shares will be contributed to the Employees' Stock Ownership Plan.
4. Related Party Transactions
On December 31, 1998, the Company acquired JTech pursuant to a Stock Purchase
Agreement among the Company and the four shareholders of JTech (the "JTech Stock
Purchase"). Leonard C. Smith, one of the selling JTech shareholders, received
$1,257,900 in cash and a convertible debenture in connection with the JTech
Stock Purchase. The convertible debenture, in the principal amount of
$1,290,000, is due January 6, 2002 and is convertible at Mr. Smith's option
during the period from January 6, 2000 to January 6, 2002 at $11 per share.
JTech also entered into an Employment Agreement with Leonard C. Smith, dated
December 31, 1998, which provides that Mr. Smith serve as President of JTech for
three years at a salary of $100,000 per year. Pursuant to the employment
agreement, Mr. Smith also received an option to purchase 40,000 shares of the
Company's common stock, vesting over four years, at $4.875 per share, the
closing price of such stock on Nasdaq on the date of the JTech Stock Purchase.
Mr. Smith was appointed to fill a vacancy on the Company's Board of Directors,
effective April 26, 1999. Mr. Smith's term on the Board will expire at the 2001
annual meeting of shareholders.
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 paid an initial fee of
$50,000, and pay $10,000 per month for two years. The agreement expired in April
1999. In addition, these certain stockholders have the right to nominate one
director to the Company's Board of Directors. The certain stockholders exercised
this right with its nomination of Kirk Blosch in June 1998. Mr. Blosch is
serving a 3-year term as a director, which term expires at the annual meeting of
shareholders in June 2002.
5. Comprehensive Income
Effective January 1, 1998, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 130, "Reporting Comprehensive Income". SFAS No. 130
requires that all items recognized under accounting standards as components of
comprehensive income be reported in an annual financial statement that is
displayed with the same prominence as other annual financial statements. This
statement also requires that an entity classify items of other comprehensive
income by their nature in an annual financial statement. Other comprehensive
income may include foreign currency translation adjustments, and unrealized
gains and losses on marketable securities classified as available-for-sale. For
the six months ending June 30, 1999, SFAS No. 130 would have required the
Company to show comprehensive income of $93,609 (net of tax effect) higher than
net income reported on the Company's financial statements.
6. Inventories
Inventories consist of the following at June 30, 1999 and December 31, 1998:
<TABLE>
<CAPTION>
<S> <C> <C>
June 1999 December 1998
---------------------------------------
Materials $ 2,798,940 $ 3,156,276
Work in Progress 2,203,982 1,831,112
Finished goods, including completed subassemblies
739,499 587,006
=======================================
$ 5,742,421 $ 5,574,394
=======================================
</TABLE>
7. Net Income Per Common Share
Basic net income per common share is calculated by dividing net income for the
period by the weighted-average number of the Company's common shares
outstanding.
Diluted net income per common share includes the dilutive effect of options in
the weighted-average number of the Company's common shares outstanding as
calculated using the treasury stock method.
<PAGE>
- - -------------------------------------------------------------------------------
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
- - -------------------------------------------------------------------------------
Results of Operations
The Company's revenues for the second quarter of 1999 increased to $5,481,404,
from $3,099,353 for the second quarter of 1998, an increase of approximately 77%
for the three months ended June 30, 1999. For the first six months of 1999,
revenues increased 92% to $10,142,857 from $5,287,064 for the six months ended
1998. During the first six months of 1999, 14% of total revenues resulted from
sales to one customer, who was not a major customer in 1998, compared to 57% of
total revenues for the first three months of 1998, from sales to three
customers. Sales of the Company's proprietary enteral feeding products line
accounted for approximately 32% of the total revenues for the second quarter of
1999, compared to 14% for the second quarter of 1998. Sales of the Company's
proprietary JTech product line, accounted for approximately 13% of the total
revenues for the second quarter of 1999. Fifty-six percent of the Company's
revenues in the second quarter 1999 were products, which are manufactured for
and sold to OEM customers, who market the final product. Fifty-one percent of
the first six months revenues were sold to OEM customers, who market the final
product. The Company's manufacturing revenue growth depends upon growth in
demand for systems, devices and instruments manufactured by ZEVEX, and ZEVEX's
ability to acquire additional manufacturing service contracts from medical
technology companies. ZEVEX's contract manufacturing customers have complete
control over the marketing and sales of products that ZEVEX manufactures for
them. ZEVEX has no ability to increase demand for instruments that it
manufactures for its contract-manufacturing customers. 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 45% for
the three months ended June 30, 1999, as compared to 49% for 1998. Gross profits
for six months were 47% for 1999 and 46% for 1998. Management attributes the
decrease in the second quarter mainly to lower margin engineering services and
instrument proto-type manufacturing. Management attributes the increase for the
six-month period to an increase in revenues relating to the Company's
proprietary products.
Selling, general and administrative expenses for the three months ended June 30,
1999, increased $562,553, from $1,045,167 in 1998 to $1,607,720 in 1999. For six
months ended June 30, 1999, selling, general and administrative increased
$1,305,404 from $1,875,711 in 1998 to $3,181,115 in 1999. Increased expenses
resulted from the Company's continuing growth, which has resulted primarily from
the acquisitions of JTech and Aborn. An expanded sales and marketing effort also
increased staffing, travel, advertising and administrative expenses related to
the enteral feeding and JTech product lines. 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 1999 will
continue at approximately the same percentage of sales 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. For the three months ended June 30, 1999, research and
development expenses were $169,683, compared to $51,890 in 1998. For six months
ended June 30, 1999, research and development expenses were $298,745, compared
to $155,974 for 1998. Significant fluctuations experienced in research and
development are due to the timing of the Company's research projects. Expenses
incurred during the second quarter 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 intends to continue this investment for the
foreseeable future. Research and development expenses will continue at
approximately the same percentage as in the previous two years.
Net income decreased to $305,995, approximately 5.6% of revenues, for the three
months ended June 30, 1999, from $347,281, approximately 11.2% of revenues, in
1998. Net income for six months ended June 30, 1999, increased to $593,763, 5.9%
of revenues, from $462,289, 8.7% of 1998 revenues. The increase in net income
for the six months ending June 30, 1999, as compared to the six months ending
June 30, 1998, is principally due to increased revenues generated by the
Company.
As of June 30, 1999, the Company's backlog of customer orders was $5,645,000, as
compared to $5,696,000 on June 30, 1998. Management estimates that approximately
80% of the backlog will ship before December 31, 1998.
Liquidity and Capital Resources
During the three months and six months ended June 30, 1999, the Company produced
$305,995 and $593,763 in net income respectively from operating activities,
compared to net incomes of $347,281 and $462,289, respectively, for the three
months and six months ended June 30, 1998. Cash decreased by $5,443,375 for the
six months ending June 30, 1999, as the Company made payments on debt incurred
with business acquisitions and the repurchase of common stock warrants and
continued to fund an increase in accounts receivable and inventories, as well as
purchases related to property, plant and equipment.
The Company's investment in property, patents from new research, production,
test equipment and tooling was $406,138 for the six months ended June 30, 1999,
compared to $925,951 in 1998. Total expenditures for equipment were primarily
due to upgrading the Company's research, design and engineering capabilities as
well as normal replacement of engineering and production equipment and tooling.
The Company expects to spend approximately $100,000 for the remainder of 1999
for additional manufacturing equipment, as well as for normal replacement of old
equipment. The Company also anticipates approximately $400,000 of additional
research and development expenses during 1998.
The Company's working capital at June 30, 1999 was $11,376,169, compared to
$16,967,379 at June 30, 1998. The decrease in working capital is primarily due
to the payments on debt related to the acquisitions completed in December 1998,
as described in the Acquisition section of the Notes to Consolidated Financial
Statements in the Company's Annual Report on SEC Form 10-K. The portion of
working capital represented by cash at such dates was $2,517,136 and $387,446,
respectively. The Company however had in addition to the cash balance on June
30, 1998, $10,352,999 in short term, investment grade, interest bearing
investments. The Company uses substantial portions of its cash from time to time
to fund its operations, including increases in inventories, accounts receivable
and work in process in connection with various customer orders, as well as
acquisitions of additional technologies and product complementary to the
Company's current technologies and products. The Company feels its working
capital is sufficient for operations for the next twelve months.
Year 2000 Compliance
Many existing computer programs, worldwide, use only the last two digits to
refer to a year. Such computer programs may not properly recognize a year
beginning with "20" instead of the current "19". If not corrected, many computer
applications could fail or create incorrect results. This phenomena is often
referred to as the "Year 2000" or "Y2K" problem. There is substantial concern
that if the Year 2000 problem is not adequately addressed, there may be
widespread problems with computer applications in all areas of use, potentially
affecting the global economy.
If the Company's internal systems and products do not correctly recognize date
information when the year changes to 2000, there could be an adverse impact on
the Company's operations. Additionally, if the Company's supplier, customers,
and other parties experience Y2K difficulties, the Company could be adversely
affected. The Company is continuing the process of assessing and correcting
potential Year 2000 problems with the Company's operations.
State of Readiness
With regard to its information systems (financial, supply, inventory, order,
office support, etc.) the Company has developed and begun implementing a plan to
convert all necessary systems to be ready for the year 2000. Approximately 95%
of the necessary systems have been determined to be Y2K compliant by the
Company, or have been upgraded to new systems which are certified by the
manufacturer as Year 2000 compliant. Completion of correction or upgrading of
the remaining necessary systems is expected by October 1, 1999.
With regard to its non-information system operations, the Company is in the
process of reviewing and correcting Y2K problems in the following areas:
products currently manufactured by the Company; manufacturing and engineering
systems; and building systems. This review is approximately 97% complete and the
Company has been able to correct or plans to correct prior to 2000 each material
Y2K issue identified in the review.
With regard to potential Y2K issues for the Company's major material suppliers,
the Company is in the process of communicating with such parties. Although not
all major suppliers have indicated their Y2K compliance, the Company has not yet
identified any major supplier that believes it will be unable to operate due to
Y2K problems in 2000. Generally, the Company has alternative sources for
supplies in the event a supplier experiences such difficulties and the Company
does not presently anticipate material difficulties in obtaining materials due
to suppliers' Y2K problems.
With regard to major customers, the Company has had communications with such
parties and is reviewing responses regarding the Companies Y2K compliance. To
date, the Company has insufficient information from such parties to determine
the potential impact on the Company if such parties experience Y2K difficulties.
With regard to third-party utilities and services (for example, telephone
electrical, bankcard processing and shipping services), the Company has no plans
to evaluate the Y2K readiness of such providers.
Cost to Address Y2K Issues
As of August 1, 1999, the Company has spent approximately $190,000 in hardware
and software expenses to upgrade or correct Y2K problems with the Company's
internal systems. The Company currently expects to incur approximately an
additional $10,000 in costs for further upgrades and corrections. These costs
include, however, costs to upgrade and replace systems that the Company would
otherwise would have done in the normal course of business. The estimated costs
are based on management's best projections but there can be no guarantee that
these forecasts will be achieved and actual results could differ materially from
those anticipated. Company management anticipates that these costs will be
funded through operating cash flows. The Company has not yet been able to
estimate the costs it may incur as a result of its suppliers and customers
experiencing Y2K difficulties.
Risk of the Company's Y2K Issues
The Company anticipates that the material risks related to its information and
non-information systems will be timely mitigated by current efforts being made
by the Company to identify and correct internal Y2K problems. However, there is
no guarantee that the Company will successfully identify or correct all Y2K
problems in a timely manner. For example, due to the inherent limitations of
real-time clock devices and system BIOS in the Company's manufacturing equipment
or building systems, continued review and testing could uncover additional
problems. In some cases, problems may be unforeseen, and occur regardless of the
testing and review that is done.
Other major Y2K risks for the Company arise from the potential for major
customers to experience financial or operational difficulties resulting from Y2K
problems. If such customers reduce their orders for the Company's products or
services, the Company's operations could be adversely affected.
Additionally, a major potential Y2K risk to the Company's operations is service
disruption from third-party providers that supply telephone, electrical, banking
and shipping services. Any disruption of these critical services would hinder
the Company's ability to receive, process and ship orders.
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. Please refer to the
Company's SEC Form 10-K for its fiscal year ended December 31, 1998, for
additional cautionary statements.
<PAGE>
PART II
Item 1. Legal Proceedings - None.
Item 2. Changes in Securities and Use of Proceeds - None.
Item 3. Defaults upon Senior Securities - None.
Item 4. Submission of Matters to a Vote of Security Holders
Matters submitted at the annual meeting of shareholders held June 2, 1999, were
to obtain the vote of shareholders to elect Phillip L. McStotts, Darla R. Gill
and Kirk Blosch as directors of the Company to serve a three-year terms, ratify
the appointment by the Board of Directors, for Ernst & Young, LLP, certified
public accountants, as the independent auditors for the year ended December 31,
1998, and to approve the Company's 1999 Stock Option Plan. All of these matters
were approved by the shareholders. For further details see ZEVEX International,
Inc. proxy statement filed with the Securities and Exchange Commission on or
about April 29, 1999.
Item 5. Other Information - None.
Item 6. Exhibits and Reports on Form 8-K - None.
- - -------------------------------------------------------------------------------
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: August 13, 1999
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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