SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2004
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 001-1296
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
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act) Yes No [ X ]
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 22, 2004, the
Company had outstanding 3,400,964 shares of common stock, par value $0.001 per
share.
PART I
FINANCIAL INFORMATION
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ITEM 1. FINANCIAL STATEMENTS REQUIRED BY FORM 10-Q
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ZEVEX International, Inc. ("ZEVEX" or the "Company") files herewith balance
sheets of ZEVEX as of June 30, 2004, and December 31, 2003, and the related
statements of operations and cash flows for the respective three month and six
month periods ended June 30, 2004 and 2003. In the opinion of ZEVEX' management,
the financial statements reflect all adjustments, all of which are normal
recurring adjustments, necessary to fairly present the financial condition of
ZEVEX 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 ZEVEX and the notes thereto included in the Annual
Report of ZEVEX on Form 10-K for the year ended December 31, 2003.
ZEVEX INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
June 30, December 31,
2004 2003
ASSETS (unaudited)
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Current assets
Cash and cash equivalents $ 635,862 $ 668,089
Designated cash for sinking fund payment on industrial
development bond 45,667 95,277
Accounts receivable, net of allowance for doubtful
accounts of $155,000 and $185,000 3,682,617 3,830,341
Other receivable 35,500 1,200,000
Inventories 3,576,744 4,114,567
Marketable securities 96,000 88,000
Income taxes receivable 442,209 442,548
Prepaid expenses and other current assets 62,774 115,457
Total current assets 8,577,373 10,554,279
Property and equipment, net 4,597,602 4,799,120
Patents, trademarks and other intangibles, net 335,805 330,277
Goodwill, net 4,048,264 4,048,264
Other assets 12,156 145
Total assets $ 17,571,200 $19,732,085
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable $ 1,255,435 $ 1,540,700
Other accrued liabilities 782,464 525,071
Deferred revenue 14,043 538,770
Bank line of credit - 1,810,970
Current portion of industrial development bond 100,000 100,000
Current portion of other long-term debt 51,819 50,430
Current portion of capital leases 40,833 122,950
Total current liabilities 2,244,594 4,688,891
Industrial development bond 1,200,000 1,300,000
Other long-term debt 793,347 819,608
Stockholders' equity
Common stock; $.001 par value, 10,000,000
authorized shares, 3,440,197 issued and 3,400,964
outstanding at June 30, 2004 and December 31, 2003 3,440 3,440
Additional paid in capital 16,290,452 16,290,452
Unrealized gain on marketable securities 11,067 3,067
Treasury stock, 39,233 shares (at cost) at
June 30, 2004 and December 31, 2003 (89,422) (89,422)
Accumulated deficit (2,882,278) (3,283,951)
Total stockholders' equity 13,333,259 12,923,586
Total liabilities and stockholders' equity $ 17,571,200 $19,732,085
ZEVEX INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
Three months ended Six months ended
June 30, June 30,
2004 2003 2004 2003
(unaudited) (unaudited) (unaudited) (unaudited)
---------------------------- ------------- -------------
---------------------------- ------------- -------------
Revenue:
Product sales $ 5,878,725 $ 6,215,092 $ 11,993,257 $ 12,039,787
Engineering services 345,272 614,701 439,444 1,438,190
Total revenue 6,223,997 6,829,793 12,432,701 13,477,977
Cost of sales 3,793,241 4,138,176 7,675,649 8,006,409
Gross profit 2,430,756 2,691,617 4,757,052 5,471,568
Operating expenses:
General and administrative 1,268,273 935,412 2,158,974 1,968,869
Selling and marketing 745,004 1,167,120 1,542,450 2,200,783
Research and development 179,115 534,412 565,643 908,043
Total operating expenses 2,192,392 2,636,944 4,267,067 5,077,695
Operating income 238,364 54,673 489,985 393,873
Other income (expense):
Interest and other income 3,070 1,018 4,856 6,246
Interest expense (48,542) (98,699) (89,553) (183,770)
Income (loss) before income taxes 192,892 (43,008) 405,288 216,349
(Provision) benefit for income taxes - 14,901 (3,615) (67,020)
Net income (loss) $ 192,892 $ (28,107) $ 401,673 $ 149,329
Basic net income (loss) per share $ 0.06 $ (0.01) $ 0.12 $ 0.04
Weighted average shares outstanding 3,400,964 3,400,964 3,400,964 3,400,964
Diluted net income (loss) per share $ 0.06 $ (0.01) $ 0.12 $ 0.04
Diluted weighted average shares outstanding 3,438,380 3,400,964 3,448,263 3,422,366
ZEVEX INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six months ended
June 30, June 30,
2004 2003
(unaudited) (unaudited)
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Cash flows from operating activities
Net income $ 401,673 $ 149,329
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation and amortization 427,211 808,159
Deferred income taxes - (86,114)
Changes in operating assets and liabilities
Designated cash for sinking fund payment
on industrial development bond 49,610 48,836
Accounts receivable 147,724 (381,003)
Inventories 537,823 713,680
Prepaid expenses and other assets 103,766 117,404
Accounts payable (285,265) (394,439)
Accrued and other liabilities 257,393 63,561
Deferred revenue (412,024) -
Income taxes receivable/payable 339 153,134
Net cash provided by operating activities 1,228,250 1,192,547
Cash flows from investing activities
Purchase of property and equipment (213,490) (275,348)
Additions of patents and trademarks (17,731) (35,045)
Proceeds from other receivable from sale of business 988,703 -
Net cash provided by (used in) investing activities 757,482 (310,393)
Cash flows from financing activities
Principal payments on capital lease and long-term debt (106,989) (793,730)
Payments on business and product line acquisition debt - (1,738,970)
Payments on industrial development bond (100,000) (100,000)
Net (payments on) proceeds from bank line of credit (1,810,970) 2,331,298
Net cash used in financing activities (2,017,959) (301,402)
Net decrease in cash and cash equivalents (32,227) 580,752
Cash and cash equivalents at beginning of period 668,089 -
Cash and cash equivalents at end of period $ 635,862 $ 580,752
ZEVEX INTERNATIONAL, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2004
1. Description of Organization and Business and 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 in Delaware. The Company, through its divisions
and subsidiaries, engages in the business of designing, manufacturing and
distributing medical devices. The Therapeutics division manufactures and markets
enteral nutrition delivery devices. The Applied Technology division designs and
manufactures advanced medical components and systems for medical technology
companies. Until December 31, 2003 when it was sold, the Physical Evaluation
division manufactured and marketed industry-leading physical evaluation testing
systems.
On December 31, 2003, the Company completed the sale of its Physical Evaluation
business. The transaction was accomplished by the sale of all the issued and
outstanding capital stock of JTech Medical Industries, Inc., ("JTech"), a wholly
owned subsidiary of the Company. The transaction was effected by a Stock
Purchase Agreement (the "Stock Purchase Agreement") dated December 31, 2003 by
and between the Company and a former employee, officer and director of the
Company (see Note 3).
For additional information regarding the Company, refer to its 2003 Annual
Report on SEC Form 10-K.
Principles of Consolidation
The consolidated financial statements as of June 30, 2004 include the accounts
of ZEVEX International, Inc. (the Company) and its wholly owned operating
subsidiary ZEVEX, Inc. For the period ended June 30, 2003, the consolidated
statement of operations also included the accounts of the Company's wholly owned
operating subsidiary, JTech. As discussed above and in Note 3, JTech was sold
effective December 31, 2003. All significant intercompany balances and
transactions have been eliminated in consolidation.
Basis of Presentation
The accompanying consolidated financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information along with the instructions to Form 10-Q. 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 2003 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 may not be indicative of
the results of operations to be expected for a full year.
Reclassifications
Certain prior year amounts have been reclassified to conform to the current year
presentation.
Stock Based Compensation
The Company follows the intrinsic value method of accounting as prescribed by
APB No. 25 to account for employee stock options. No stock-based employee
compensation cost has been recorded in net income, as all options granted had an
exercise price equal to or greater than the market value of the underlying
common stock on the date of grant.
Had compensation expense for options under the Company's two stock-based
compensation plans been determined based on the fair value of the options at the
grant dates for awards under those plans consistent with SFAS No. 123, the
Company's net income and earnings per share would have been adjusted to the pro
forma amounts for the three months and six months ended June 30 as indicated
below:
Three months ended Six months ended
------------------------------- --------------------------------
June 30, 2004 June 30, 2003 June 30, 2004 June 30, 2003
--------------- --------------- ---------------- ---------------
Net (loss) income as reported $ 192,892 $ (28,107) $ 401,673 $ 149,329
Less: Stock compensation expense determined
under the fair value method, net of related
tax effects 159,133 83,844 284,368 182,479
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--------------- --------------- ---------------- ---------------
Pro forma net (loss) income $ 33,759 $ (111,951) $ 117,305 $ (33,150)
=============== =============== ================ ===============
=============== =============== ================ ===============
(Loss) earnings per share:
Basic - as reported $ .06 $ (.01) $ .12 $ .04
Basic - pro forma $ .01 $ (.03) $ .03 $ (.01)
Diluted - as reported $ .06 $ (.01) $ .12 $ .04
Diluted - pro forma $ .01 $ (.03) $ .03 $ (.01)
2. Debt
The Company maintains a line of credit arrangement with a financial institution.
The line was reduced from $6 million to $3 million on March 10, 2004. The line
of credit matures on May 29, 2005. The line of credit is collateralized by
accounts receivable and inventory and bears interest at the prime rate, which
was 4.25% at June 30, 2004 and 4% on December 31, 2003. The Company's balance on
its line of credit was $0 at June 30, 2004 and $1,810,970 at December 31, 2003.
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, 2004, the Company was in compliance with
these financial covenants.
On April 18, 2001, the Company entered into a Term Loan Agreement with a bank
for the amount of $1,000,000. The agreement is secured by the Company's
manufacturing facility. The note was due on May 15, 2003. The Term Loan
Agreement which was renegotiated effective May 15, 2003, is now due May 15, 2008
and is being amortized over a thirteen-year term, at an interest rate of 5.4%.
The Company owed $845,166 on the Term Loan Agreement at June 30, 2004.
3. Related Party Transactions
On December 31, 2003, the Company completed the sale of its Physical Evaluation
business. The transaction was accomplished through the sale of all the issued
and outstanding capital stock of JTech, previously a wholly owned subsidiary of
the Company. The transaction was effected by a Stock Purchase Agreement dated
December 31, 2003 by and between the Company and Mr. Leonard C. Smith, a former
employee, officer and director of the Company, for a purchase price of $1.2
million, which was recorded as an "other receivable" at December 31, 2003. Cash
of $1,129,500 was received on January 15, 2004, $35,000 was received on June 11,
2004, with the remainder to be paid when the Company satisfies certain
obligations to JTech as set forth in the Stock Purchase Agreement. Such
obligations include the requirement to deliver inventory, upon completion of
production, and certain other equipment. Deferred revenue of $324,000 was
recorded related to these obligations, of which approximately $196,000 was
recognized in the first quarter 2004 in product sales in the consolidated
statement of operations and of which approximately $113,000 was recorded in
other income offset by associated costs of $113,000. Additionally, pursuant to
the Stock Purchase Agreement, the Company may receive additional payments from
the purchaser based upon specifically identified JTech product sales in 2004 and
2005.
4. Comprehensive Income
For the three months and six months ended June 30, 2004, the Company had
comprehensive income of $193,692 and $409,673. For the three months and six
months ended June 30, 2003, the Company did not have any additional elements of
comprehensive income. Therefore, comprehensive income equaled net income.
5. Inventories
Inventories consist of the following:
June 30, 2004 December 31, 2003
-------------------------------------------------
Materials $ 1,945,288 $ 2,144,926
Work in progress 338,510 504,921
Finished goods, including completed subassemblies 1,292,946 1,464,720
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$ 3,576,744 $ 4,114,567
=================================================
6. 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. For the three months ended June 30,
2004 and June 30, 2003, 599,500 option shares and 611,550 option shares were not
included because they were antidilutive. For the six months ended June 30, 2004
and June 30, 2003, 554,500 option shares and 616,550 option shares were not
included because they were antidilutive.
7. Business Segments
Through December 31, 2003 the Company operated in three business segments:
Therapeutics, Physical Evaluation, and Applied Technology. The Therapeutics
segment includes the manufacture and sale of feeding pumps, and disposable sets
tubes used by patients who require direct gastrointestinal nutrition therapy
(also called enteral feeding). The Physical Evaluation segment included the
manufacture and sale of stand-alone and computerized products that measure
isolated muscle strength, joint range of motion and sensation. In the Applied
Technology segment, the Company provides design and manufacturing services to
medical device companies who, in turn, sell the Company's components and systems
under private labels or incorporate them into their products. The Company
evaluates the performance of the segments through gross profit, less selling and
marketing expenses, and research and development expenses (or contribution
margin). The Company does not allocate general and administrative expenses by
segment. General and administrative expenses are included in Corporate and
Unallocated amounts indicated below.
On December 31, 2003, the Company completed the sale of its Physical Evaluation
business (See Note 3).
Segment information for the three months ended June 30, 2004 (in thousands)
follows:
Physical Applied Corporate and
Therapeutics Evaluation Technology Unallocated Total
--------------- --------------- --------------- -------------- -------------
--------------- --------------- --------------- -------------- -------------
Revenue $ 3,366 n/a $ 2,858 $ -- $ 6,224
Cost of sales 2,109 n/a 1,684 -- 3,793
--------------- --------------- --------------- -------------- -------------
--------------- --------------- --------------- -------------- -------------
Gross profit 1,257 n/a 1,174 -- 2,431
Selling and marketing 665 n/a 80 -- 745
Research and development 108 n/a 71 -- 179
--------------- --------------- --------------- -------------- -------------
--------------- --------------- --------------- -------------- -------------
Contribution margin 484 n/a 1,023 -- 1,507
General and administrative -- n/a -- 1,268 1,268
Other (income)/expenses -- n/a -- 46 46
Provision for income taxes -- n/a -- -- --
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Net income $ 193
=============
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Total assets $ 558 n/a $ 4,048 $ 12,965 $ 17,571
=============== =============== =============== ============== =============
Included in the segment assets disclosed above are specifically identified fixed
assets and goodwill. All assets other than those specifically identified fixed
assets and goodwill are included in Corporate and Unallocated. The only
specifically identified fixed assets include nutritional pumps and tooling,
which are included in the Therapeutics segment. All other fixed assets are used
jointly by the segments. Goodwill represents approximately $4,048,000 in Applied
Technology.
Segment information for the three months ended June 30, 2003 (in thousands)
follows:
Physical Applied Corporate and
Therapeutics Evaluation Technology Unallocated Total
--------------- --------------- --------------- -------------- -------------
--------------- --------------- --------------- -------------- -------------
Revenue $ 3,532 $ 846 $ 2,452 $ -- $ 6,830
Cost of sales 2,200 413 1,525 -- 4,138
--------------- --------------- --------------- -------------- -------------
--------------- --------------- --------------- -------------- -------------
Gross profit 1,332 433 927 -- 2,692
Selling and marketing 666 396 105 -- 1,167
Research and development 196 264 75 -- 535
--------------- --------------- --------------- -------------- -------------
--------------- --------------- --------------- -------------- -------------
Contribution margin 470 (227) 747 -- 990
General and administrative -- -- -- 935 935
Other (income)/expenses -- -- -- 98 98
Provision for income taxes -- -- -- (15) (15)
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Net income $ (28)
=============
=============
Total assets $ 2,830 $ 5,199 $ 4,048 $ 16,152 $ 28,229
=============== =============== =============== ============== =============
Prior to the second quarter of 2003, the Company also included accounts
receivable and inventory in segment assets. However, due to changes in the
accumulation of the Company's financial information, accounts receivable and
inventory are no longer tracked separately by segment.
Included in the segment assets disclosed above are specifically identified fixed
assets and goodwill. Goodwill represents approximately $842,000 in Therapeutics,
$5,199,000 in Physical Evaluation, and $4,048,000 in Applied Technology.
Segment information for the six months ended June 30, 2004 (in thousands)
follows:
Physical Applied Corporate and
Therapeutics Evaluation Technology Unallocated Total
--------------- --------------- --------------- -------------- -------------
--------------- --------------- --------------- -------------- -------------
Revenue $ 6,361 n/a $ 6,072 $ -- $ 12,433
Cost of sales 3,959 n/a 3,717 -- 7,676
--------------- --------------- --------------- -------------- -------------
--------------- --------------- --------------- -------------- -------------
Gross profit 2,402 n/a 2,355 -- 4,757
Selling and marketing 1,370 n/a 172 -- 1,542
Research and development 308 n/a 258 -- 566
--------------- --------------- --------------- -------------- -------------
--------------- --------------- --------------- -------------- -------------
Contribution margin 724 n/a 1,925 -- 2,649
General and administrative -- n/a -- 2,159 2,159
Other (income)/expenses -- n/a -- 85 85
Provision for income taxes -- n/a -- 4 4
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-------------
Net income $ 401
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=============
Segment information for the six months ended June 30, 2003 (in thousands)
follows:
Physical Applied Corporate and
Therapeutics Evaluation Technology Unallocated Total
--------------- --------------- --------------- -------------- -------------
--------------- --------------- --------------- -------------- -------------
Revenue $ 6,881 $ 1,607 $ 4,990 $ -- $ 13,478
Cost of sales 4,414 635 2,957 -- 8,006
--------------- --------------- --------------- -------------- -------------
--------------- --------------- --------------- -------------- -------------
Gross profit 2,467 972 2,033 -- 5,472
Selling and marketing 1,217 776 208 -- 2,201
Research and development 319 440 149 -- 908
--------------- --------------- --------------- -------------- -------------
--------------- --------------- --------------- -------------- -------------
Contribution margin 931 (244) 1,676 -- 2,363
General and administrative -- -- -- 1,969 1,969
Other (income)/expenses -- -- -- 178 178
Provision for income taxes -- -- -- 67 67
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-------------
Net income $ 149
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=============
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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This Management's Discussion and Analysis of Financial Condition and Results of
Operations ("MD&A") and other parts of this Form 10-Q contain 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"). In some cases, such forward-looking
statements may be identified by the use of words such as "estimate," "believe,"
"project," "anticipate" and similar expressions, together with other discussion
of future trends or results, are intended to identify forward-looking
statements. Such statements, which include our statements about the level of
anticipated expenses during 2004 and our liquidity position 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 and we disclaim any
obligation to update them. All of these forward-looking statements are based on
estimates and assumptions made by our management, 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 us not to
achieve the benefits contemplated herein, or otherwise cause our 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 our growth and operating strategies; (iii) loss
or retirement of key members of management; (iv) increase in interest rates of
our cost of borrowing, or a default under any material debt agreement; (v)
adverse state or federal legislation or regulation that increases the cost of
compliance, or adverse findings by a regulator with respect to existing
operations; (vi) loss of customers; (vii) inability to achieve future sales;
(viii) the unavailability of sufficient funds for operations or capital
expenditures; and (ix) inability to introduce new products as planned. Many of
such factors are beyond our control. Please refer to our SEC Form 10-K for the
fiscal year ended December 31, 2003 for additional cautionary statements.
Overview
Through our divisions and subsidiaries, we engage in the business of designing,
manufacturing, and distributing medical devices. Our Therapeutics division
manufactures and markets enteral nutrition delivery devices. Our Applied
Technology division designs and manufactures advanced medical components and
systems for original equipment manufacturers ("OEM's"). Until its sale on
December 31, 2003, our Physical Evaluation division manufactured and marketed
industry-leading physical evaluation testing systems. Please refer to Note 7 of
the Unaudited Consolidated Financial Statements for discussion of our business
segments.
We entered the enteral nutrition delivery segment of the home health care market
in 1996 with the introduction of the EnteraLite(R) ambulatory enteral feeding
pump, which continues to gain acceptance due to its superior mobility and
state-of-the-art features. We believe that by improving the convenience of
nutrition delivery, the EnteraLite(R) and future products we can contribute to
better clinical outcomes and improved quality of life for enteral patients
Domestic sales of our EnteraLite(R) product line grew by approximately 3% in the
second quarter of 2004, and 5% during the first six months of 2004, compared to
the second quarter and first six months of 2003.
The products of our Therapeutics division include ambulatory enteral feeding
pumps and related disposable sets for mobile patients, as well as stationary
enteral feeding pumps and disposable sets. We entered the home health care
segment of the enteral nutrition delivery market in 1996 with the introduction
of the EnteraLite(R) ambulatory enteral feeding pump, which continues to gain
acceptance due to its superior mobility and state-of-the-art features. We
believe that by improving the convenience of nutrition delivery, the
EnteraLite(R) can contribute to better clinical outcomes and improved quality of
life for enteral patients. Domestic sales of our EnteraLite(R) product line grew
by approximately 3% in the second quarter of 2004, and 5% during the first six
months of 2004, compared to the second quarter and first six months of 2003.
At the time of the 1998 acquisition of the Nutrition Medical line of stationary
enteral feeding pumps and the 2000 acquisition of the Nestle USA, Inc. enteral
nutrition delivery business, we intended to aggressively expand into the
long-term care market for enteral feeding delivery products. After several years
of downward competitive pricing pressure in this market segment, our revenue has
decreased by over 50%, which includes a decrease in revenue of approximately
$300,000 for the second quarter of 2004 and $400,000 for the first six months of
2004, compared to the second quarter and first six months of 2003.
Since 1987, we have been a contract manufacturer providing design and
manufacturing services to medical companies who sell our components and systems
under private label, primarily incorporating our core technologies of
ultrasound, fluid delivery, and optoelectronics. This business is conducted
through our Applied Technology division. Applied Technology division revenue
increased 17% during the second quarter of 2004, and 22% during the first six
months of 2004, compared to the second quarter and first six months of 2003.
Last year, in response to the changing marketplaces of our business segments, we
evaluated our business opportunities and refocused on our core market offerings
of ambulatory enteral feeding and our specialized contract manufacturing
services. We established a lean manufacturing philosophy, including the
transition from batch processing to continuous flow production, developed a
business model with market development strategies designed to capitalize on
profitable business opportunities, and we sold the Physical Evaluation business
in December 2003.
The sale of our Physical Evaluation business was accomplished by the sale of all
the issued and outstanding capital stock of JTech Medical Industries, Inc. our
wholly-owned operating subsidiary. The transaction was effected by a Stock
Purchase Agreement dated December 31, 2003 by and between us and Mr. Leonard C.
Smith, a former employee, officer and director of ZEVEX. Please refer to Note 3
in the Unaudited Consolidated Financial Statements for discussion of the sale.
On July 22, 2004, we executed several strategic agreements with Numico Trading
B.V., a Netherlands corporation ("NTBV"), Nutricia International B.V., a
Netherlands corporation ("Nutricia", and, together with "NTBV", "Numico").
Nutricia and NTBV are wholly-owned subsidiaries of Royal Numico N.V., a
Netherlands corporation, which is a world leader in the manufacturing and
marketing of clinical nutrition products and related equipment and accessories.
Under the terms of these agreements, Numico will become the exclusive
distributor of certain ZEVEX enteral feeding pumps in over thirty countries,
including parts of Africa, Asia, Australia, Europe, The Pacific Rim, and South
America (the "Territory"). Also, we will become the exclusive manufacturer and
supplier to Numico of all clinical nutrition delivery pumps and accessories that
are or will be commercialized and placed or sold by Numico within the Territory.
We also entered into a maintenance and service agreement where we will become
the exclusive authorized service provider for repair and maintenance services
for certain enteral feeding pumps that are placed, sold, or distributed by
Numico in parts of the Territory. The term of these agreements are perpetual
but, may be terminated at any time on or after January 1, 2008, by either party
by giving notice to the other party of its intention to do so. After such notice
these agreements shall terminate two years from the date of such notice. We
anticipate that the combined impact of the distribution, manufacturing and
service components of these agreements will increase revenue by more than $7.0
million annually, beginning in 2005. This would represent growth of 27% over the
Company's 2003 revenue (including revenue from the divested Physical Evaluation
division), and 56% growth over the Company's 2003 Therapeutics division revenue.
Results of Operations
Revenue for the Applied Technology and Therapeutics divisions increased by 4%
during the second quarter of 2004, compared to the second quarter of 2003.
Revenue for these two divisions was $6,223,998 during the second quarter of
2004, compared to $5,984,313 for the second quarter of 2003. These comparisons
do not include revenue from the Physical Evaluation division, which was sold on
December 31, 2003. Revenue in the second quarter of 2003 from the Physical
Evaluation division was $845,480.
The increase in revenue over last year's second quarter, excluding the Physical
Evaluation business, is largely due to a 17% increase in Applied Technology
division revenue. Specifically, surgical handpiece and sensor revenue increased
26%, and medical systems revenue increased by approximately $500,000 for the
quarter. These increases more than offset lower engineering revenue, as certain
programs have now moved from engineering to manufacturing. Within the
Therapeutics division, EnteraLite feeding pump and disposable set revenue
increased 3%, but this growth only partially offset a 33% decrease in stationary
disposable set revenue, while our international revenue held steady. Overall,
sales for the Therapeutics division declined approximately 5% during the second
quarter of 2004, compared to the second quarter of 2003.
Revenue for the Applied Technology and Therapeutics divisions was $12,432,701
during the first six months of 2004, compared to $11,871,809 for the first six
months of 2003, an increase of 5% for 2004 compared to 2003. This comparison
does not include revenue from the Physical Evaluation division, which was sold
on December 31, 2003. Revenue in the first six months of 2003 from the Physical
Evaluation division was $1,606,168.
The increase in revenue over last year's first six months, excluding the
Physical Evaluation business, is largely due to a 22% increase in Applied
Technology division revenue. Specifically, surgical handpiece and sensor revenue
increased 27%, and medical systems revenue increased by approximately $1,400,000
for the first six months of 2004. These increases more than offset lower
engineering revenue, as certain programs have now moved from engineering to
manufacturing. Approximately $255,000 of Applied Technology systems revenue
growth was generated by the sale of products manufactured for JTech, the
Physical Evaluation business that was sold at year-end under a Stock Purchase
Agreement. Within the Therapeutics division, EnteraLite feeding pump and
disposable set revenue increased 5%, but this growth only partially offset a 23%
decrease in stationary disposable set revenue and a 20% decrease in
international enteral products revenue. Overall, sales for the Therapeutics
division declined approximately 8% during the first six months of 2004, compared
the first six months of 2003.
Applied Technology contract manufactured products generated 46% of total revenue
during the second quarter of 2004, and our proprietary Therapeutics products
generated 54% of revenue during the second quarter. Excluding revenue from the
Physical Evaluation business which has since been sold, Applied Technology
revenue was 41% of total revenue for the second quarter of 2003 and our
proprietary Therapeutics products generated 59% of revenue. If sales from the
Physical Evaluation division were included in this comparison, proprietary
product revenue would have represented 64% of total revenue and Applied
Technology revenue would have been 36% of total revenue in the second quarter of
2003. During the second quarters of 2004 and 2003, no single customer accounted
for over 10% of our revenue.
Applied Technology contract manufactured products generated 49% of total revenue
during the first six months of 2004, and our proprietary Therapeutics products
generated 51% of revenue during the first six months. Excluding revenue from the
Physical Evaluation business which has since been sold, Applied Technology
revenue was 42% of total revenue for the first six months of 2003 and our
proprietary Therapeutics products generated 58% of revenue. If sales from the
Physical Evaluation division were included in this comparison, proprietary
product revenue would have represented 63% of total revenue and Applied
Technology revenue would have been 37% of total revenue in the first six months
of 2003. During the first six months of 2004 and 2003, no single customer
accounted for over 10% of our revenue.
Our gross profit as a percentage of revenue was approximately 39% for the second
quarter of 2004, compared to 39% for the second quarter of 2003. Gross profit as
a percentage of revenue was approximately 38% for the first six months of 2004,
compared to 41% for the first six months of 2003. We attribute the decrease in
gross profit percentage in the first six months of 2004 compared to the second
quarter of 2003 to the product mix delivered during the quarters, including
sales from the Physical Evaluation division in 2003.
Depreciation and amortization expenses decreased to $212,918 in the second
quarter 2004 from $405,052 in the second quarter of 2003, and $427,211 in the
first six months 2004 from $808,159 in the first six months of 2003. The
decrease is primarily due the impairment loss recorded on assets in 2003,
resulting in a subsequent decline in depreciation expense.
Selling, general and administrative expenses decreased during the second quarter
of 2004 to $2,013,277, as compared to $2,102,532 for the second quarter of 2003,
and decreased during the first six months of 2004 to $3,701,424, as compared to
$4,169,652 for the first six months of 2003. The decrease is primarily related
to reduction in personnel from the sale of the Physical Evaluation business,
although the decrease was offset in the second quarter of 2004 due to
non-recurring legal expenses incurred in the amount of approximately $280,000 in
the negotiations and drafting of the strategic distribution, manufacturing, and
services agreements with Royal Numico N.V. as previously discussed.
We invested $179,115 in the research and development of new products during the
second quarter of 2004, compared to $534,412 in the second quarter of 2003. For
the six months ended June 30, 2004, we invested $565,643 in research and
development, compared to $908,043 for the six months ended June 30, 2003. In the
second quarter of 2004, research and development costs represented approximately
3% of our revenue, compared to 8% in the second quarter of 2003. The decrease in
research and development cost is primarily due to decrease in developments costs
related to the Physical Evaluation division in 2003. We are continuing our
efforts to develop and introduce new proprietary products and are currently
planning at least one new product introduction during the fiscal year.
Additionally, we are investing in developing proprietary component technologies
for our contract manufacturing business. We expect research and development
costs to be approximately 6% of revenue during 2004.
Operating income increased to $238,364, 4% of revenue in the second quarter of
2004, compared to $54,673, 1% of revenue in the second quarter of 2003, and
increased to $489,985, 4% of revenue in the first six months of 2004, compared
to $393,873, 3% of revenue in the second quarter of 2003 due to the factors
described above. Net income increased to $192,892, 3% of revenue in the second
quarter of 2004, compared to a net loss of $28,107, in the second quarter of
2003. During the first six months of 2004 net income increased 169% to $401,673,
3% of revenue, compared to net income of $149,329, 1% of revenue in the first
six months of 2003. The increase in net income during 2004, as compared to 2003,
is due to the factors noted above, as well as a decrease in interest expense, as
the Company has reduced its debt during the past year, the reduction in research
and development costs, and the realization of a deferred tax asset valuation
allowance (see below).
We had income tax expense of $0 in the second quarter of 2004, compared to an
income tax benefit of $14,901 for the second quarter of 2003, and income tax
expense of $3,615 for the first six months of 2004, compared to income tax
expense of $67,020 for the first six months of 2003. The decrease in tax expense
in 2004 from 2003 is due to the reversal of part of our deferred tax asset
valuation allowance in the second quarter and the first six months of 2004. We
expect that we will be able to realize a portion of the deferred tax valuation
allowance related to net operating loss carry forwards in 2004, thereby
resulting in a partial reversal of the related valuation allowance.
At June 30, 2004 and December 31, 2003, we had net current deferred tax assets
of $0. Realization of our gross deferred tax assets is dependent on our ability
to generate taxable income in the year the assets are realized. Under FAS 109
Accounting for Income Taxes, guidance has been issued relating to cumulative
losses in recent years. Under this guidance, when there is a cumulative pretax
loss for financial reporting for the current and two preceding years and a
company does not have objective planning strategies designed to realize its
deferred tax assets, generally no deferred tax asset should be recognized. In
following this guidance management established a full valuation allowance for
all deferred tax assets in 2003. We are allowed to realize a portion of the
valuation allowance as we have taxable income. Due to the taxable income
generated by us, approximately $60,000 of the valuation allowance was realized
in the second quarter and $143,000 for the first six months of 2004.
As of June 30, 2004, our backlog of customer orders was $3,337,000, as compared
to $5,046,000 on June 30, 2003. We estimate that approximately 95% of the
backlog will be shipped before December 31, 2004. Our backlog is for contract
manufacturing only and can be significantly affected by the timing of annual or
semi-annual purchase orders placed by our customers.
Liquidity and Capital Resources
Our primary sources of liquidity have consisted of cash flow from operations,
borrowings under our revolving line of credit and other financial arrangements
described below. In prior years, we also have increased working capital through
the issuance of stock and we may do so in the future.
Cash flows provided by operating activities for the first six months of 2004
were $1,228,250, compared to $1,192,547 for the first six months of 2003. In the
first six months of 2004, cash provided by operating activities was primarily
associated with net income, our continued reduction in inventories and our
improved collection procedures, offset by decreases in deferred revenue. In the
first six months of 2003, cash provided by operating activities was primarily
associated with net income and our continued reduction of inventories as we
continued to stream-line our purchasing and manufacturing processes.
Our working capital at June 30, 2004 was $6,332,779, compared to $7,210,694 at
June 30, 2003. The portion of working capital represented by cash at such dates
was $635,862 and $580,752 respectively. The ratio of current assets to current
liabilities increased to 3.82 at June 30, 2004, from 2.59 at June 30, 2003.
We have a $3,000,000 open line of credit arrangement with a financial
institution. The line matures on May 29, 2005. The line of credit is
collateralized by accounts receivable and inventories, and bears interest at the
financial institution's prime rate, 4.25% at June 30, 2004. We owed $0 on the
line of credit at June 30, 2004 and $1,810,970 at December 31, 2003. We expect
to renew the line of credit before its expiration.
On March 15, 2001, we entered into a Secured Financing Agreement with a bank for
the amount of $1,500,000. The agreement was secured by our existing base of
enteral feeding pumps, which were purchased from Nestle and are now manufactured
by us. The proceeds from the agreement were used to reduce our line of credit
balance. The agreement had a 36-month term, was due on February 15, 2004, and
bore interest at a rate of 8.24%. We paid off the financing agreement in March
2003, primarily using proceeds from our line of credit in the amount of
$589,998.
On April 18, 2001, we entered into a Term Loan Agreement with a bank for the
amount of $1,000,000. The agreement is secured by our manufacturing facility.
The proceeds from the Promissory Note were used to reduce the balance on our
line of credit. The note was due on May 15, 2003. The Term Loan Agreement which
was renegotiated effective May 15, 2003, is now due May 15, 2008 and is being
amortized over a thirteen-year term at an interest rate of 5.4%. We owed
$845,166 on the Term Loan Agreement at June 30, 2004.
In 1997, we completed construction of our new 51,000 square foot headquarters
and manufacturing facility. The cost of this undertaking was $2,591,177. In
1996, we negotiated a $2.0 million Industrial Development Bond ("IDB") to
finance this construction. As of June 30, 2004, the remaining principal balance
on the IBD was $1,300,000. During the first six months of 2004, the interest
paid monthly ranged from 1.06% to 1.33% (APR).
In conjunction with certain 1998 business acquisitions, we issued convertible
debentures in the aggregate amount of $5,447,188. The final payments on the
debentures were made in January 2003 for $788,970 and in March 2003 for
$950,000, primarily using proceeds from our line of credit.
Purchases of leasehold improvements to our facilities, tooling and new
engineering, production and testing equipment totaled $213,490 for the first six
months of 2004, compared to $275,348 for the first six months of 2003. We expect
to spend approximately $350,000 during the remainder of 2004 for additional
manufacturing equipment and software, for normal replacement of aging equipment,
and manufacturing tooling related to our proprietary products.
Our expected principal liquidity requirements are working capital, investments
in capital expenditures, and debt reduction. We believe our sources of liquidity
are sufficient for operations during the coming twelve months. These sources
include our projected cash from operations and, if necessary, draws from our
existing revolving line of credit.
Off Balance Sheet Items
We have no off-balance sheet items.
Critical Accounting Policies and Estimates
In response to the SEC's Release numbers 33-8040 "Cautionary Advice Regarding
Disclosure About Critical Accounting Policies" and 33-8056, "Commission
Statement about Management's Discussion and Analysis of Financial Condition and
Results of Operations," we have identified the following critical accounting
policies that affect the more significant judgments and estimates used in the
preparation of the consolidated financial statements. The preparation of the
consolidated financial statements in conformity with accounting principles
generally accepted in the United States requires us to make estimates and
judgments that affect our reported amounts of assets and liabilities, revenues
and expenses, and related disclosures. Our significant accounting policies are
included in our Annual Report on Form 10-K for the year ended December 31, 2003.
We evaluate our estimates and judgments on an on-going basis. We base our
estimates on historical experience and on assumptions that we believe to be
reasonable under the circumstances. Our experience and assumptions form the
basis for our judgments about the carrying value of assets and liabilities that
are not readily apparent from other sources. Actual results may vary from what
we anticipate and different assumptions or estimates about the future could
change our reported results. We believe the following accounting policies are
the most critical to us, in that they are material to the portrayal of our
financial statements and they require our most difficult, subjective, or complex
judgments in the preparation of our consolidated financial statements:
Allowance for Doubtful Accounts
As a general policy, collateral is not required for accounts receivable;
however, we periodically monitor the need for an allowance for doubtful accounts
based upon expected collections of accounts receivable, historical bad debt
rates, and specific identification of uncollectible accounts. Based on these
factors, we record an allowance to provide for accounts that we believe may not
be ultimately collectable. Additionally, customers' financial condition and
credit worthiness are regularly evaluated. Historically losses on collections
have not been material. As of June 30, 2004, we have recorded an allowance for
bad debts of $155,014, approximately 4% of accounts receivable.
Product and Inventory Obsolescence
Rapid change and technological innovation characterize the marketplace for
medical products. As a result, we and our customers are subject to the risk of
product and inventory obsolescence, whether from prolonged development,
government approval cycles, or the development of improved products or processes
by competitors. In addition, the marketplace could conclude that the task for
which a customer's medical product was designed is no longer an element of a
generally accepted diagnostic or treatment regimen. Accordingly, we write down
inventory that we believe is in excess or obsolete. Inventories are stated at
the lower of cost or market; cost is determined using the first-in, first-out
method. As of June 30, 2004, we have reduced inventory by the amount of
$275,000, which is approximately 7% of gross inventories.
Sales Returns and Warranty
We record a provision for estimated sales returns and allowances and warranty
reserve on products we have sold. These estimates are based on historical sales
returns and warranty expenses and other known factors. If the historical data we
use to calculate these estimates does not properly reflect future returns and
warranty expenses, revenue could be overstated or understated and expenses could
be understated or overstated. We have recorded a sales return and warranty
expense allowance in the amount of $85,000 as of June 30, 2004.
Revenue Recognition
We recognize revenue from products sold directly to end customers when
persuasive evidence of an arrangement exists, the price is fixed and
determinable, shipment is made and title has passed, and collectibility is
reasonably assured. If such criteria are not met, revenue is deferred.
Contracts to perform engineering design and product development services are
generally performed on a time and materials basis. Revenue generally is
recognized as milestones are achieved.
We accounted for revenue from software transactions pursuant to SOP No. 97-2,
Software Revenue Recognition, as amended by SOP No. 98-4 and SOP No. 98-9. SOP
No. 97-2 requires that revenue recognized from software arrangements be
allocated to each element of the arrangement based on the relative fair values
of the elements, such as software products, upgrades, enhancements,
post-contract customer support, installation, or training. Under SOP No. 97-2,
the determination of fair value is based on objective evidence, which is
specific to the vendor. If such evidence of fair value for each element of the
arrangement does not exist, all revenue from the arrangement is deferred until
such time that evidence of fair value does exist or until all elements of the
arrangement are delivered. As of December 31, 2003 we sold our Physical
Evaluation business and no longer sell software or related services.
Impairment
We have made acquisitions in the past that included a significant amount of
fixed assets, goodwill, and other intangible assets. The cost of the acquired
companies was allocated first to identifiable assets based on estimated fair
values. Intangible assets consist of goodwill, contracts, patents, and licenses.
Effective in 2002, goodwill is no longer amortized but is subject to an annual
(or, under certain circumstances, more frequent) impairment test, based on a
comparison of the carrying value of the goodwill and the fair value of the
respective business unit. Other intangible assets continue to be amortized over
their useful lives and also will be subject to an impairment test. Estimated
fair value is typically less than values based on undiscounted operating
earnings because fair value estimates include a discount factor in valuing
future cash flows. There are many assumptions and estimates underlying the
determination of an impairment loss. Another estimate using different, but still
reasonable, assumptions could produce a significantly different result.
Therefore, impairment losses could be recorded in the future. We completed our
annual impairment test as required by FAS 142, no impairment was indicated.
Currently, we assess the impairment of fixed assets and identifiable intangibles
whenever events or changes in circumstances indicate that the carrying value may
not be recoverable. Factors we consider important that could trigger an
impairment review include the following:
o A significant underperformance relative to expected historical or projected
future operating results; o A significant change in the manner of how we use the
acquired asset or the strategy for our overall business; o A significant
negative industry or economic trend.
When we determine that one or more of the above indicators of impairment exist,
we evaluate the carrying amounts of the affected assets. The evaluation, which
involves significant management judgment, is based on various analyses including
cash flow and profitability projections. To the extent such projections indicate
that future undiscounted cash flows are not sufficient to recover the carrying
amounts of the related long-lived assets, the carrying amount of the underlying
assets will be reduced, with the reduction charged to expense, so that the
carrying amount is equal to fair value, primarily based on future discounted
cash flows, using a discount rate determined by management to be commensurate
with the risk inherent in our current business model.
Net intangible assets and goodwill amounted to approximately $4.4 million as of
June 30, 2004. Net fixed assets amounted to approximately $4.6 million as of
June 30, 2004.
Income Taxes
Income taxes are recorded based on the liability method, which requires
recognition of deferred tax assets and liabilities based on differences between
financial reporting and tax bases of assets and liabilities measured using
enacted tax rates and laws that are expected to be in effect when the
differences are expected to reverse. A valuation allowance is recorded to reduce
our deferred tax asset to an amount that is more likely than not to be realized,
as determined based on our analyses of projected taxable income, including tax
strategies available to generate future taxable income. Our analyses of future
taxable income are subject to a wide range of variables, many of which involve
our estimates, and therefore our deferred tax asset may not be ultimately
realized. As of June 30, 2004 a full valuation has been recorded for all
deferred tax assets.
Other
As part of a nationwide investigation into billing practices associated with
enteral nutrition delivery products, particularly in regard to billing practices
for pumps and disposable delivery sets, on July 2, 2001, the U.S. Office of
Inspector General (OIG), served a subpoena on the ZEVEX, Inc. subsidiary.
According to published reports, the investigation involved most manufacturers,
distributors and health care service providers in the United States enteral pump
industry and similar subpoenas were served on many of those parties. The
subpoena requested documents relating to our enteral pump customers, marketing
and billing practices. We responded to the subpoena. Since October of 2001 we
have not been contacted further by the OIG, although we understand the
investigation is proceeding and we intend to cooperate with the investigation
when contacted again. At this time we are uncertain as to any future impact this
investigation will have on our operations or financial position.
- -------------------------------------------------------------------------------
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE
ABOUT MARKET RISK
- -------------------------------------------------------------------------------
For quantitative and qualitative disclosures about market risk affecting ZEVEX,
see Item 7A, "Quantitative and Qualitative Disclosures About Market Risk," of
our Annual Report on Form 10-K for the fiscal year ended December 31, 2003,
which is incorporated herein by reference. Our exposure to market risk has not
changed materially since December 31, 2003.
- -------------------------------------------------------------------------------
ITEM 4. CONTROLS AND PROCEDURES
- -------------------------------------------------------------------------------
Our management, including our CEO and CFO, has evaluated the effectiveness of
our "disclosure controls and procedures" (the controls and other procedures for
recording, processing, summarizing, and reporting on a timely basis the
information required to be disclosed in the periodic reports that we file with
the U.S. Securities and Exchange Commission) as of the end of the second
quarter. Based on that evaluation, and subject to the limitations noted below,
our management concluded that our disclosure controls and procedures are
effective to ensure that material information about us and our subsidiaries is
made known to management by others in our company on a timely basis for
preparation of our periodic reports. While we believe our disclosure controls
and procedures are effective, we note that controls and procedures, no matter
how well conceived and operated, can provide only reasonable, not absolute,
assurance that the objectives of the controls and procedures are met. There are
inherent limitations, including the possibility that judgments in
decision-making can be faulty, that breakdowns can occur because of a simple
error or mistake, or that a person may circumvent the controls. Also, because of
the inherent limitations in a cost-effective control system, misstatements due
to error or fraud may occur and not be detected.
There has been no change in our internal control over financial reporting that
occurred during the second fiscal quarter that has materially affected, or is
reasonably likely to materially affect, our internal control over financial
reporting.
PART II
OTHER INFORMATION
- -------------------------------------------------------------------------------
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- -------------------------------------------------------------------------------
ZEVEX held its Annual Meeting of the Shareholders on May 24, 2004. At the Annual
Meeting, John T. Lemley and Richard L. Shanaman were elected to serve for a
three-year term expiring at the 2007 Annual Meeting. The following table
summarizes the tabulation for each director nominee.
- ---------------------------- -------------------------- -------------------------- --------------------------
Director nominee Votes cast For Votes Against Votes Abstained
- ---------------------------- -------------------------- -------------------------- --------------------------
- ---------------------------- -------------------------- -------------------------- --------------------------
John T. Lemley 3,077,984 0 69,520
- ---------------------------- -------------------------- -------------------------- --------------------------
- ---------------------------- -------------------------- -------------------------- --------------------------
Richard L. Shanaman 3,077,984 0 69,520
- ---------------------------- -------------------------- -------------------------- --------------------------
Directors whose three-year term of office continued after the meeting were:
David B. Kaysen, Phillip L. McStotts, and Dan M. Robertson, whose term expires
at the 2005 Annual Meeting and David J. McNally and Bradly A. Oldroyd, whose
term expires at the 2006 Annual Meeting, No other matters were voted upon at the
meeting.
- -------------------------------------------------------------------------------
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* Amended Bylaws March 31, 2002 Form 10-Q
filed May 10, 2002
31.01 Rule 13a-14(a)/15d-14(a)
Certification of Chief Executive Officer
31.02 Rule 13a-14(a)/15d-14(a)
Certification of Chief Financial Officer
32.01 Section 1350 Certification of Chief Executive Officer
32.02 Section 1350 Certification of Chief Financial Officer
(b) Reports on Form 8-K
Item(s) Reported Date Filed
Item 9 - Regulation FD Disclosure March 30, 2004
* 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-K. 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.
- -------------------------------------------------------------------------------
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: July 29, 2004
By /s/ David J. McNally
--------------------------
David J. McNally, CEO
(Chief Executive Officer)
By /s/ Phillip L. McStotts
------------------------------
Phillip L. McStotts, Secretary
(Principal Financial Officer)
Exhibit 31.01
CERTIFICATION OF CHIEF EXECUTIVE OFFICER,
AS REQUIRED BY SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002.
I, David J. McNally, certify that:
1. I have reviewed this quarterly report on Form 10-Q of ZEVEX International,
Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the statements
made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as
of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I, are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the period in
which this report is being prepared;
b) Evaluated the effectiveness of the registrant's disclosure controls
and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this report based on such evaluation; and
c) Disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the registrant's
most recent fiscal quarter (the registrant's fourth fiscal quarter in
the case of an annual report) that has materially affected, or is
reasonably likely to materially affect, the registrant's internal
control over financial reporting; and
5. The registrant's other certifying officer(s) and I have disclosed, based on
our most recent evaluation of internal control over financial reporting, to the
registrant's auditors and the audit committee of registrant's board of directors
(or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design
or operation of internal controls over financial reporting which are
reasonably likely to adversely affect the registrant's ability to
record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal control over financial reporting.
Dated: July 29, 2004
By /s/ David J. McNally
--------------------------
David J. McNally, CEO
(Chief Executive Officer)
Exhibit 31.02
CERTIFICATION OF CHIEF FINANCIAL OFFICER,
AS REQUIRED BY SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002.
I, Phillip L. McStotts, certify that:
1. I have reviewed this quarterly report on Form 10-Q of ZEVEX International,
Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the statements
made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as
of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I, are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the period in
which this report is being prepared;
b) Evaluated the effectiveness of the registrant's disclosure controls
and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this report based on such evaluation; and
c) Disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the registrant's
most recent fiscal quarter (the registrant's fourth fiscal quarter in
the case of an annual report) that has materially affected, or is
reasonably likely to materially affect, the registrant's internal
control over financial reporting; and
5. The registrant's other certifying officer(s) and I have disclosed, based on
our most recent evaluation of internal control over financial reporting, to the
registrant's auditors and the audit committee of registrant's board of directors
(or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design
or operation of internal controls over financial reporting which are
reasonably likely to adversely affect the registrant's ability to
record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal control over financial reporting.
Dated: July 29, 2004
By /s/ Phillip L. McStotts
-----------------------------
Phillip L. McStotts, CFO
(Chief Financial Officer)
EXHIBIT 32.01
CERTIFICATION OF CHIEF EXECUTIVE OFFICER,
AS REQUIRED BY SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002.
I, David J. McNally, hereby certify pursuant to 18 U.S.C. Section 1350 adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 that:
(i) The accompanying quarterly report on Form 10-Q for the quarter
ended June 30, 2004, fully complies with the requirements of Section 13(a) or
Section 15(d) of the Securities Exchange Act of 1934, as amended; and
(ii) The information contained in such report fairly presents, in all
material respects, the financial condition and results of operations of ZEVEX
International, Inc.
Dated: July 29, 2004
By /s/ David J. McNally
David J. McNally, CEO
(Chief Executive Officer)
This certification accompanies the above-described Report on Form 10-Q pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the
extent required by such Act, be deemed filed by the Company for purposes of
Section 18 of the Securities Exchange Act of 1934, as amended.
EXHIBIT 32.02
CERTIFICATION OF CHIEF FINANCIAL OFFICER,
AS REQUIRED BY SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002.
I, Phillip L. McStotts, hereby certify pursuant to 18 U.S.C. Section 1350
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 that:
(i) The accompanying quarterly report on Form 10-Q for the quarter
ended June 30, 2004, fully complies with the requirements of Section 13(a) or
Section 15(d) of the Securities Exchange Act of 1934, as amended; and
(ii) The information contained in such report fairly presents, in all
material respects, the financial condition and results of operations of ZEVEX
International, Inc.
Dated: July 29, 2004
By /s/ Phillip L. McStotts
Phillip L. McStotts, CFO
(Chief Financial Officer)
This certification accompanies the above-described Report on Form 10-Q pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the
extent required by such Act, be deemed filed by the Company for purposes of
Section 18 of the Securities Exchange Act of 1934, as amended.