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 September 30, 2000
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 001-12965
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 November 1, 2000, the
Company had outstanding 3,439,364 shares of common stock, par value $0.001 per
share.
<PAGE>
See accompanying notes.
<PAGE>
PART I
FINANCIAL INFORMATION
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ITEM 1. FINANCIAL STATEMENTS REQUIRED BY FORM 10-Q
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ZEVEX International, Inc. (the "Company") files herewith balance sheets of the
Company as of September 30, 2000 and December 31, 1999, and the related
statements of operations and cash flows for the respective three month and nine
month periods ended September 30, 2000 and 1999. 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, 1999.
<PAGE>
ZEVEX INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
September 30 December 31
2000 1999
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 223,102 $ 3,383,544
Restricted cash for sinking
fund payment on IDB 64,113 86,549
Accounts receivable 8,022,067 5,843,229
Inventories 8,908,357 5,119,291
Marketable securities 2,391,087 3,224,817
Other current assets 21,633 26,859
Prepaid expenses
40,302 33,554
Total current assets 19,670,661 17,717,843
Property and equipment, net 7,453,791 5,333,577
Patents, trademarks and acquisition costs, net 350,604 349,354
Goodwill, net 11,242,695 10,642,304
Other assets
41,242 6,611
$ 38,758,993 $ 34,049,689
LIABILITIES & STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,397,012 $ 1,134,946
Other accrued expenses 600,212 731,852
Income taxes payable 72,444 957,309
Bank lines of credit 3,588,170 1,613,453
Current portion of long-term debt 2,221,921 1,234,483
Deferred income taxes 110,276
34,375
Total current liabilities 8,914,134 5,782,319
Deferred income taxes -- 6,648
Industrial development bond 1,600,000 1,700,000
Convertible debt, long-term 5,440,275 5,470,000
Other long-term liabilities 443,488 --
Stockholders' equity:
Common stock, $.001 par value; 10,000,000 shares authorized;
3,439,364 and 3,420,726 issued and outstanding shares at
September 30,
2000 and December 31, 1999, respectively 3,439 3,421
Additional paid in capital 16,288,288 16,212,966
Unrealized gain on marketable securities, net 297,158 331,484
Retained earnings
5,772,211 4,542,851
Total Stockholders' equity 22,361,096 21,090,722
$ 38,758,993 $ 34,049,689
</TABLE>
<PAGE>
ZEVEX INTERNATIONAL, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Three months ended Nine months ended
September 30, September 30,
2000 1999 2000 1999
------------------- ----------------- ------------------- --------------------
(unaudited) (unaudited) (unaudited) (unaudited)
Revenue:
Product sales $ 7,524,412 $ 4,970,055 $ 21,871,850 $ 14,347,617
Engineering services 202,309 718,076 550,517 1,483,371
------------------ ------------------ ------------------ --------------------
Total revenue 7,726,721 5,688,131 22,422,367 15,830,988
Cost of sales 4,763,286 3,167,330 13,713,722 8,545,867
------------------ ------------------ ------------------ --------------------
Gross profit 2,963,435 2,520,801 8,708,645 7,285,121
Operating expenses:
General and administrative 1,192,049 983,154 3,643,673 3,056,534
Selling and marketing 753,854 593,599 1,988,017 1,701,334
Goodwill amortization 144,583 156,904 414,849 465,316
Research and development 187,392 160,068 547,605 458,813
----------------- ------------------ ------------------- --------------------
Total operating expenses 2,277,878 1,893,725 6,594,144 5,681,997
Operating income 685,557 627,076 2,114,501 1,603,124
Other income (expense):
Interest and other income 2,696 11,235 85,535 99,825
Interest expense (159,055) (106,896) (456,911) (327,030)
Gain on sale of
marketable securities -- -- 298,048
Unrealized gain on
marketable securities -- -- -- 87,903
------------------ ------------------ ------------------ --------------------
Income before provision for
income taxes 529,198 531,415 2,041,173 1,463,822
Provision for income taxes (172,369) (199,674) (811,813) (538,318)
------------------ ------------------ ------------------ --------------------
Net income $ 356,829 $ 331,741 $ 1,229,360 $ 925,504
================== ================== ================== ====================
Basic net income per share $ .10 $ .10 $ .36 $ .27
================== ================== ================== ====================
Weighted average shares
outstanding 3,439,326 3,413,813 3,433,052 3,413,140
================== ================== ================== ====================
Diluted net income per share .10 .10 .33 .27
================== ================== ================== ====================
Diluted weighted average shares
outstanding 3,647,866 3,433,988 3,689,081 3,435,485
================== ================== ================== ====================
</TABLE>
ZEVEX INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Nine months ended
September 30,
2000 1999
--------------- ---------------
(unaudited) (unaudited)
Cash flows from operating activities
Net income $ 1,229,360 $ 925,504
Adjustments to reconcile net income to net cash (used in)
provided by operating activities:
Depreciation and amortization 1,230,578 1,007,637
Deferred income taxes (62,129) 105,461
Unrealized loss on marketable securities -- 116,559
Realized gain on marketable securities (298,048) --
Changes in operating assets and liabilities:
Decrease in restricted cash for sinking fund payment
on industrial development bond 22,436 121,304
Increase in accounts receivable (2,178,838) (1,540,787)
Decrease in trading securities 313,993 618,565
Increase in inventories (3,789,066) (493,115)
(Increase) decrease in prepaid expenses (6,748) 2,305
(Increase) decrease in other assets (29,405) 48,095
Increase in accounts payable 1,262,066 708,592
Increase (decrease) in accrued and other liabilities 433,769 (211,947)
(Decrease) increase in income taxes payable (884,865) 289,736
--------------- ---------------
Net cash (used in) provided by operating activities (2,756,897) 1,697,909
Cash flows from investing activities
Purchase of property and equipment (1,344,911) (426,770)
Additions of patents and trademarks (21,430) (2,270)
Purchase of product line (2,586,092) --
Redemption of available-for-sale marketable securities 763,039 --
--------------- ---------------
Net cash used in investing activities (3,189,394) (429,040)
Cash flows from financing activities
Payments on debt related to business acquisitions (1,164,208) (4,936,076)
Issuance of debt related to product line acquisition 2,000,000 --
Repurchase of common stock warrants -- (1,175,000)
Repayment on industrial development bond (100,000) (100,000)
Proceeds from/(repayment) on bank line of credit 1,974,717 163,299
Proceeds from exercise of stock options 75,340 5,175
--------------- --- ---------------
Net cash provided by (used in) financing activities 2,785,849 (6,042,602)
--------------- ---------------
Net decrease in cash and cash equivalents (3,160,442) (4,773,733)
Cash and cash equivalents at beginning of period 3,383,544 7,960,511
--------------- ---------------
Cash and cash equivalents at end of period $ 223,102 $ 3,186,778
=============== ===============
Supplemental disclosure:
Non-cash activities
Unrealized loss on available-for-sale marketable securities $ 54,746 --
</TABLE>
<PAGE>
ZEVEX INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2000
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. In April 2000, the Company completed a
transaction with Nestle Clinical Nutrition, a division of Nestle USA, to acquire
Nestle USA's installed base of approximately 20,000 stationary enteral pumps and
will replace Nestle as the supplier of disposable sets, feeding tubes, and
accessories to such base. The Company and its subsidiaries design and
manufacture advanced medical devices, including surgical systems, device
components, and sensors for other companies. 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. The Company and its subsidiaries also
design, manufacture, and market their own medical devices using proprietary
technologies.
Principles of Consolidation
The consolidated balance sheets at September 30, 2000 and December 31, 1999
include the accounts of ZEVEX International, Inc. (Company) and its wholly-owned
operating subsidiaries, ZEVEX, Inc., Aborn Electronics, Inc., and JTech Medical
Industries, 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 along
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 1999 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.
New Accounting Pronouncements
In December 1999, the Securities and Exchange Commission issued Staff Accounting
Bulletin (SAB) 101, Revenue Recognition in Financial Statements. The effective
date of SAB 101 is the fourth quarter of the fiscal year beginning after
December 15, 1999. The SAB clarifies proper methods of revenue recognition given
certain circumstances surrounding sales transactions. The Company continues to
evaluate the impact of SAB 101, but believes it is in compliance with the
provision of the SAB and, accordingly, does not expect SAB 101 to have a
material effect on its financial statements. In 1998, the Financial Accounting
Standards Board issued SFAS No. 133, "Accounting for Derivatives Instruments and
Hedging Activities," which was subsequently amended by SFAS No. 137 "Accounting
for Derivatives Financial Instruments and Hedging Activities - Deferral of the
Effective Date of SFAS No. 133" and SFAS No. 138 "Accounting for Certain
Derivatives Instruments and Certain Hedging Activities." SFAS establishes
accounting and reporting standards requiring that every derivative instrument,
including certain derivative instruments embedded in other contracts, be
recorded in the balance sheet as either an asset or liability measured at its
fair value. The statement also requires that changes in the derivative's fair
value be recognized in earnings unless specific hedge accounting criteria are
met. SFAS No. 133, as amended by SFAS No. 137 and SFAS No. 138, is effective for
all fiscal quarters beginning after June 15, 2000. The Company has adopted SFAS
No. 133 this quarter. The adoption of SFAS No. 133 did not have a material
impact on the Company's financial condition or results of operations.
2. Bank Line of Credit
The Company increased its line of credit arrangement with a financial
institution from 5 million to availability of $7 million. The line matures on
May 29, 2001. The line of credit is collateralized by accounts receivable and
inventory and bears interest at the prime rate, 9.5% at September 30, 2000 and
8.5% at December 31, 1999. The Company's balance on its line of credit was
$3,558,170 at September 30, 2000 and $1,613,453 at December 31, 1999. 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.
3. Repurchase of Common Stock
On June 14, 1999, the Company repurchased 470,0000 outstanding Common Stock
Warrants for $1,175,000. In December 1999, the Company repurchased 10,000 shares
of outstanding Common Stock for $45,731 which the Company 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. On
April 3, 2000 Mr. Smith received $73,594 in cash and a convertible debenture in
the principal amount of $73,594, in connection with the earn-out portion of the
JTech Stock Purchase. The convertible debenture, is due March 31, 2002 and is
convertible at Mr. Smith's option during the period from March 31, 2000 to March
31, 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 at least $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. Mr. Smith was appointed President of
the Company as well as President of ZEVEX, Inc. on September 1, 2000.
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 three months and nine months ending September 30, 2000, the Company's
comprehensive income (loss) was $18,810 and ($34,326) (net of tax effect) higher
(lower) than net income reported on the Company's financial statements. For the
three months and nine months ending September 30, 1999, the Company's
comprehensive income was $22,950 and $116,559 (net of tax effect) higher than
net income reported on the Company's financial statements.
6. Inventories
Inventories consist of the following:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Sept. 30, 2000 December 31, 1999
------------------------------------------
Materials $ 4,956,589 $ 2,228,174
Work in Progress 2,142,211 1,867,894
Finished goods, including completed subassemblies 1,809,557 1,023,223
==========================================
$ 8,908,357 $ 5,119,291
==========================================
</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>
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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Results of Operations
The Company's revenues for the third quarter ended September 30, 2000 increased
to $7,726,721 from $5,688,131 for the third quarter of 1999, an increase of
approximately 36%. For the first nine months of 2000, revenues increased 42% to
$22,422,367 from $15,830,988 for the nine months ended September 30, 1999. Sales
of the Company's manufactured proprietary enteral feeding products line
accounted for approximately 48% of the total revenues for the third quarter of
2000, compared to 38% for the third quarter of 1999, and 41% for the first nine
months of 2000, compared to 35% for the nine months ended September 30, 1999.
The increase in both revenue dollars and percentage of revenues was largely due
to the acquisition of the enteral nutrition delivery device product line of
Nestle Clinical Nutrition, which was completed on April 6, 2000. Sales of the
Company's proprietary JTech product line, accounted for approximately 8% of the
total revenues for the third quarter of 2000 compared to 14% for the third
quarter of 1999, and 13% for the first nine months of 2000, compared to 14% for
the nine months ended September 30, 1999. Forty-four percent of the Company's
revenues in the third quarter 2000, and 48% for the first nine months of 2000
compared to 49% for the third quarter of 1999, 48% for the first nine months of
2000 were from products manufactured for and sold to OEM customers, who market
the final product. During the first nine months of 2000, 24% of total revenues
resulted from sales to two OEM customers, one of which was a major customer in
1999, compared to 13% of total revenues for the first nine months of 1999, from
sales to one customer. 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.
With the completion of the acquisition of the Nestle enteral delivery device
product line, the Company no longer sells stationary feeding pumps to Nestle.
Instead, the Company anticipates it will generate more revenue than that
expected from such pump sales to Nestle from the sale of disposable devices to
users of the approximately 20,000 feeding pumps acquired from Nestle. The pumps
acquired from Nestle are being used by persons and businesses that have an
obligation to buy disposable products from the Company while they are using the
pumps. Additionally, the Company plans to place more stationary feeding pumps
with new users (at little or no cost to the user) under similar arrangements
where the pump users commit to buy disposable products from the Company while
using the pumps.
The Company's gross profit as a percentage of revenues was approximately 38% for
the three months ended September 30, 2000 as compared to 44% for 1999. Gross
profit for the nine months ended September 30, 2000 was approximately 39%
compared to 46% for the same period in 1999. Management attributes the decrease
in gross profit percentage year over year to several matters, including startup
costs related to bringing in-house the manufacturing of the Enteral EZ enteral
feeding pump, the servicing of the Nestle N2200 pumps acquired as mentioned
above, which included labor, tooling and setup costs for non-recurring
engineering (NRE), the lower margin product line acquired from Nestle, higher
distribution costs related to the acquired Nestle product than anticipated, and
a shift in the revenue mix of its products to lower margin complete OEM system
instrumentation shipped during the third quarter and the first nine months of
2000.
Selling, general and administrative expenses for the three months ended
September 30, 2000 increased $369,150, from $1,576,753 in 1999 to $1,945,903 in
2000. For the nine months ended September 30, 2000 selling, general and
administrative expenses increased $873,822 from $4,757,868 in 1999 to $5,631,690
in 2000. Increased expenses resulted from the Company's continuing growth, an
expanded sales effort, customer relations and marketing effort, and increased
staffing, travel, advertising and administrative expenses related to the
Company's proprietary clinical nutrition delivery product line and JTech product
lines. The Company also incurred expenses related to the acquisition of the
Nestle enteral feeding delivery product line which closed April 6, 2000.
Expenses included increasing the number of customer service and administrative
personnel needed by the Company to handle the increased volume of orders from
the Nestle transaction. 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 2000 as related to sales 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 September 30, 2000, research
and development expenses were $187,392 compared to $160,068 in 1999. For the
nine months ended September 30, 2000, research and development expenses were
$547,605 compared to $458,813 in 1999. Expenses incurred during the third
quarter and for the nine months ended September 30, 2000 were for the continued
development of new applications of the Company's ultrasound technology, clinical
nutrition and JTech 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. Management currently
anticipates that research and development expenses will continue during 2000 at
approximately the same percentage of revenues as in the previous two years.
For the three months ended September 30, 2000 the Company had net income of
$356,829, 4.6% of revenues, compared to net income of $331,741, or 5.8% of
revenues, for the three months ended September 30, 1999. Net income for the nine
months ended September 30, 2000, increased to $1,229,360, or 5.5% of revenues,
from $925,504, or 5.8% of revenues for the nine months ended September 30, 1999.
The increase in net income during the third quarter of 2000, as compared to the
third quarter of 1999, is principally due to increased revenues. The increase in
net income during the first nine months of 2000, as compared to the first nine
months of 1999, is due to increased revenues and partially due to the gain on
the sale of securities that were received as payment from customers on previous
system design contracts.
As of September 30, 2000, the Company's backlog of customer orders was
$5,732,000, as compared to $5,247,000 on September 30, 1999. Management
estimates that approximately 60% of the backlog will be shipped before December
31, 2000. The Company's backlog is for contract manufacturing only and can be
drastically affected by the timing of annual or semi-annual purchase orders
placed by its customers.
Liquidity and Capital Resources
During the three months and nine months ended September 30, 2000, the Company
produced net income of $356,829 and $1,229,360, respectively, compared to net
income of $331,741 and $925,504 for the three months and nine months ended
September 30, 1999. Cash decreased by $3,160,422 for the nine months ending
September 30, 2000, as the Company made payments on short-term notes related to
JTech and Aborn acquisition earn-outs, made necessary tax payments, continued to
fund an increase in accounts receivable and inventories, as well as purchases of
plant equipment and software.
The Company's investment in property, patents from new research, production,
test equipment, tooling, software, and the assets acquired from Nestle USA as
described previously was $3,952,433 for the nine months ended September 30,
2000, compared to $429,040 for the nine months ended September 30, 1999. Total
expenditures for equipment and software of $1,344,911 in the first nine months
of 2000 were primarily due to expenditures of approximately $480,000 for a new
accounting and MRP system including hardware and software, $330,000 for
upgrading and providing the Company with new research, design, and engineering
equipment and $530,000 for new stationary enteral feeding pumps. Total
expenditures for the Nestle acquisition were $2,586,092, which included
stationary enteral feeding pumps, tooling, patent license, customer lists and
pump bilateral agreements. The Company expects to spend approximately $100,000
for the remainder of 2000 for additional manufacturing equipment and software,
as well as for normal replacement of old equipment. The Company also anticipates
approximately $150,000 of additional research and development expenses during
2000.
On March 29, 2000, the Company entered into an agreement to acquire certain
assets from Nestle USA, Inc. relating to Nestle's enteral nutrition delivery
devices. The purchase was completed on April 6, 2000 for a purchase price that
will range from $1.5 million to approximately $2.7 million, depending upon sales
generated by the acquired assets during the 12 months following the closing of
the purchase, plus the actual cost of inventory acquired by the Company which
was approximately $1,200,000. Upon closing, cash of $500,000 was paid, with an
additional $1 million due six months from closing which was paid on October 5,
2000. The remainder of the purchase price will be settled upon resolution of
contingencies within the purchase agreement. The Company also anticipates
spending approximately $200,000 for the manufacturing of stationary enteral
feeding pumps during the remainder of 2000. These pumps will be leased, rented
or placed as part of arrangements in which pump users will agree to periodically
purchase related disposable products from the Company for use with the pumps.
The Company's working capital at September 30, 2000 was $10,756,527 compared to
$11,935,524 at December 31, 1999. The portion of working capital represented by
cash at such dates was $223,102 and $3,383,544, respectively. 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. The Company feels its working capital
is sufficient for operations for the next twelve months.
<PAGE>
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; (v) prolonged labor disruption; (vi) deterioration, in general, of
regional economic conditions; (vii) adverse state or federal legislation or
regulation that increases the cost of compliance, or adverse findings by a
regulator with respect to existing operations; (viii) loss of customers; (ix)
adverse determinations in connection with pending or future litigation or other
material claims and judgments against the Company; (x) inability to achieve
future sales; and (xi) 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, 1999 for
additional cautionary statements.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE
ABOUT MARKET RISK
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No significant changes in market risk have occurred since December 31, 1999.
Please refer to the Company's SEC Form 10-K for its fiscal year ended December
31, 1999 for additional discussions on market risks.
<PAGE>
PART II
Item 1. Legal Proceedings - None.
Item 2. Changes in Securities and Use of Proceeds.
During the period ending September 30, 2000, there were 18,688 shares of Common
Stock issued pursuant to exercise of stock options by employees of the Company.
The exercise price on such shares ranged from $2.50 to $5.00 per share. The
shares issued upon exercise of the options were issued pursuant to the exemption
from registration under SEC Rule 505.
Item 3. Defaults upon Senior Securities - None.
Item 4. Submission of Matters to a Vote of Security Holders - None.
Item 5. Other Information - None.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
The following exhibits are attached hereto or are incorporated herein
by reference as indicated in the table below:
Exhibit Location if other
No. Title of Document than attached hereto
3.01* Certificate of Incorporation Amendment No. 1 to Form S-1,
filed October 24, 1997
3.02* Bylaws 1997 Form 10-K
27.1 Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Company during the
quarter ended September 30, 2000.
* Denotes exhibits specifically incorporated in this Form 10-Q by reference to
other filings of the Company pursuant to the provisions of Securities and
Exchange Commission rule 12b-32 and Regulation S-B, Item 10(f)(2). These
documents are located under File No. 001-10287 at, among other locations, the
Securities and Exchange Commission, Public Reference Branch, 450 5th St., N.W.,
Washington, D.C. 20549.
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SIGNATURES
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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 10, 2000
By /s/ David J. McNally
David J. McNally, CEO
(Chief Executive Officer)
By /s/ Phillip L. McStotts
Phillip L. McStotts, Secretary
(Principal Financial Officer)
