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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-KSB
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934 [FEE REQUIRED] FOR THE FISCAL YEAR ENDED DECEMBER 31, 1994
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED] FOR THE TRANSITION PERIOD FROM
TO
COMMISSION FILE NO. 0-20039
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MEDIVATORS, INC.
(Name of Small Business Issuer in Its Charter)
MINNESOTA 00-0000000
(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Identification No.)
Organization)
XXXXXX PLAZA SOUTH,
0000 000XX XXXXXX XXX,
XXXXXX XXXXX, XXXXXXXXX
(Address of principal 55009
executive offices) (Zip code)
Registrant's telephone number, including area code: (000) 000-0000
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Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Series A Common Stock, $0.01 par value.
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Indicate by check xxxx 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 ____
Check if there is no disclosure of delinquent filers pursuant to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. / /
Issuer's revenues for its most recent fiscal year: $3,309,524.
As of March 24, 1995, 3,849,836 shares of the Registrant's Series A Common
Stock and 2,000 shares of Series B 10% Cumulative Redeemable Convertible Common
Stock were outstanding. The aggregate market value of the Series A Common Stock
held by non-affiliates of the registrant on such date, based upon the last sale
price of the Series A Common Stock as reported by The Nasdaq Small Cap Market on
March 24, 1995, was approximately $7,699,672. For purposes of this computation,
affiliates of the registrant are deemed only to be the registrant's executive
officers and directors.
Transitional Small Business Disclosure Format (check one): Yes ____ No X
Portions of the Proxy Statement for the Annual Meeting of Shareholders of
the registrant, which will be filed with the Securities and Exchange Commission
within 120 days after the end of the Registrant's fiscal year, are incorporated
by reference in Part III of this report.
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PART I
ITEM 1. BUSINESS
GENERAL
MediVators, Inc. ("MediVators" or the "Company") designs, manufactures and
markets endoscopic infection control equipment and medical waste disposal
equipment and related supplies. As of December 31, 1994, the Company had sold
approximately 990 endoscope disinfection systems. The Company's disinfection
systems are used for disinfecting flexible endoscopes which are slender,
tubular, fiber optic medical devices inserted into the body through the mouth or
rectum to allow visual examination of hollow organs such as the stomach and
colon. The endoscope market has been growing rapidly over the last five years as
a cost effective alternative to exploratory surgery. Endoscopes are now commonly
used in doctors' offices, hospitals and clinics and must be thoroughly cleaned
and disinfected after each use. As a result of the expanded use of endoscopes,
the U.S. Centers for Disease Control ("CDC"), the American Society for
Gastrointestinal Endoscopy and the Society of Gastrointestinal Nurses and
Associates, Inc. have adopted guidelines for endoscope disinfection. The
Company's disinfection systems are intended to enable users of flexible
endoscopes to comply with these guidelines.
MediVators' first endoscope disinfection system, the XXX Disinfector, was
developed by the Mayo Clinic and is manufactured and marketed by the Company
pursuant to an exclusive license granted by Mayo Foundation for Medical
Education and Research ("Mayo Foundation") which expires in 2005. The Company's
DSD-91, a microprocessor controlled dual scope disinfection system, received FAS
clearance on March 15, 1994.
In January 1992, MediVators, through a wholly-owned subsidiary, Disposal
Sciences, Inc. ("DSI") acquired the assets of National Syringe Disposal, Inc.,
which manufactured and marketed the DSI-100 compact sharps disposal system for
medical sharps such as syringes, scalpels and razors. The DSI-100 system
provides point-of-use destruction and decontamination of most types of
disposable medical sharps waste. The Company redesigned the DSI-100 into the
DSI-107 to improve capacity and reliability. The redesigned DSI-107 is primarily
suitable for low volume users such as medical offices.
DSI has completed development of the DSI System 2000 Infectious Medical
Waste Disposal System, a higher-volume system that is intended for hospital use.
The DSI System 2000 Infectious Medical Waste Disposal System is a centralized
disposal unit that will handle filled medical sharps collection devices and
rigid plastics.
MedFab, the Company's custom plastic machining and assembly division, began
operations in April 1992. MedFab has enabled the Company to lower its cost on
the plastic enclosures for its endoscope disinfection system and is contributing
to general revenues by performing work for third party customers.
ENDOSCOPE DISINFECTION MARKET
The number of endoscope procedures has increased dramatically in the last
decade due to the relative cost effectiveness as compared to exploratory
surgery. Originally designed for diagnostic procedures, the technology has
evolved to accomplish a number of therapeutic procedures. Endoscopes in current
use include gastroscopes (used to study the stomach), colonscopes (used to view
the colon and the large intestine), sigmoidoscopes (used to study the sigmoid
area of the large intestine and the rectum), duodenoscope (used to view the
duodenum, the first part of the small intestine), and bronchoscopes (used for
viewing the bronchial tubes).
As endoscopes have become more widely used, there has been increased
attention given to procedures for cleaning, disinfecting and sterilizing these
instruments between uses. "Cleaning" refers to the physical removal of organic
material or soil from objects and is designed to remove, rather than to kill,
micro-organisms. "Disinfection" refers to a process that uses germicidal
chemical agents designed to destroy the potential infection ability of
micro-organisms. "Sterilization" refers to the
2
physical or chemical process used to eliminate virtually all viable microbes
from an object. Sterilization is typically carried out in a hospital using steam
under pressure, liquid or gaseous chemicals or dry heat. If an endoscope is not
properly cleaned, disinfected or sterilized between uses, there is an increased
likelihood that micro-organisms can be transmitted from one person to another.
In November 1985, the CDC published "CDC Guidelines for Handwashing and
Hospital Environmental Control, 1985" (the "CDC Guidelines"). These guidelines
recommended that "semi-critical items," or items, such as endoscopes, that come
in contact with intact mucous membranes but do not ordinarily penetrate body
surfaces, be subjected to a "high-level disinfection process." Such a process,
the CDC Guidelines reported, could be expected to destroy vegetative
micro-organisms. The CDC Guidelines noted that a "meticulous physical
precleaning, followed by an appropriate high-level disinfection treatment gives
the user a reasonable degree of assurance that the items are free of pathogens."
The CDC Guidelines also recommend that endoscopes such as laparoscopes
(endoscopes used to view the abdominal cavity), arthroscopes and other scopes
which enter normally sterile tissue should be subjected to a sterilization
procedure after each use, or at least to high level disinfection if
sterilization is not feasible.
Endoscopes can be manually cleaned and disinfected, however, there are many
problems with the uniformity of cleaning procedures, personnel exposure to
disinfectant fumes and disinfectant residue levels in the endoscope. The Company
believes that more thorough disinfection is achieved through the use of
endoscope disinfection equipment. The level of disinfection to be achieved
depends upon many factors, principally contact time, temperature, type and
concentration of the active ingredients of the chemical disinfectant and the
nature of the microbe contamination. The chemical disinfectant to be used in a
disinfecting process will be selected by hospital personnel based on the object
to be disinfected, the hospital facilities and the disinfectants available.
DISINFECTION EQUIPMENT
The Company's currently-marketed products are the XXX Disinfector, which is
53 inches high, contained in a polyvinyl chloride plastic enclosure and is free
standing or can be mounted on a wall; and the DSD-91, which received FDA
clearance of its 510(k) premarket notification in March 1994, and is a
microprocessor controlled dual endoscope disinfection system. The DSD-91 will
disinfect two endoscopes at a time, can be used on a wider variety of endoscopes
and is programmable by the user. The Company also has developed a new single
scope disinfection unit, the SSD, which is based upon the same design as the
DSD-91. The Company expects that the two new disinfectors will replace the XXX
Disinfector as the Company's primary product.
After cleaning, an endoscope is placed in the reservoir of the disinfector
which then disinfects the endoscope by pumping disinfectant throughout the
endoscope, including the endoscopes channels. The disinfector is a delivery
system to ensure that the endoscope, including the channels, will be exposed to
the disinfectant for the recommended period of time. The disinfector is operated
by medical personnel such as gastrointestinal assistants. Minimal training is
required to operate the disinfector.
The Company believes the disinfectors offer several advantages over manual
immersion in disinfectants. The disinfectors are designed to pump disinfectant
through all channels of the endoscope, thus exposing all areas of the endoscope
to the disinfectant. This process can also inhibit the build up of residue in
the channels. In addition, the entire disinfecting process can be completed with
minimal participation by the operator, freeing the operator for other tasks,
reducing the exposure of personnel to the toxic chemicals used in the
disinfection process and reducing the risk of infectious diseases. The
disinfectors also reduce risk of inconsistent manual disinfecting.
The Company also sells disinfectors and disinfectors components to
international distributors, who manufacture and assemble disinfectors for sale
primarily in Canada and Europe. International sales comprised 26% and 30% of the
Company's sales in 1994 and 1993, respectively.
3
RELATED DISINFECTION PRODUCTS
The Company is also marketing one other related disinfection product:
Sterapore Ultramicrofilter.
The Sterapore Ultramicrofilter is marketed primarily as an accessory to its
disinfectors for providing a pyrogen-free water rinse after each disinfection
cycle. CDC Guidelines promulgated by the Society of Gastroenterology Nurses and
Associates, Inc. recommended a sterile water rinse of endoscopes. The Company
imports the Sterapore Ultramicrofilter under an unwritten distribution
arrangement. Although the Company believes that its arrangement is an exclusive
one, the absence of a written distribution agreement means that the manufacturer
can terminate the Company as its distributor without notice or grant others the
right to distribute this product.
DISPOSAL SCIENCES, INC.
In January 1992, MediVators, through its wholly owned subsidiary DSI,
acquired the assets of National Syringe Disposal, Inc. ("NSD"), including the
DSI-100 compact sharps disposal system. The Company paid $524,584 in cash to or
for the account of NSD and issued 125,844 shares of the Company's Series A
Common Stock to NSD. The Company will pay NSD 20% of DSI's pre-tax profits, if
any, related to the acquisition of NSD, in the years ending December 31, 1992
through 1996, up to an aggregate maximum payment of $2,000,000, payable in cash
or Series A Common Stock at the option of NSD. No payments were due to NSD based
on results since acquisition through December 31, 1994.
The Company has redesigned the DSI-100 into the DSI-107 compact sharps
disposal system to increase capacity and improve reliability. The system
provides point-of-use destruction and decontamination of most types of
disposable medical sharps waste including syringes, scalpels, razors and IV
needles. The redesigned DSI-107 is primarily suitable for low volume users such
as medical offices. DSI is considering seeking alternative distribution routes
for the DSI-107, including distribution through the Company's network of
independent manufacturer's representatives, entering into a distribution
agreement with a third party, or the license sale of the DSI-107 product line to
a third party. DSI has not entered into any agreements relating to the DSI-107
to date.
DSI also has completed development of the DSI System 2000 Infectious Medical
Waste Disposal System, a higher-volume system that is intended for hospital use.
The DSI System 2000 Infectious Medical Waste Disposal System is a centralized
disposal unit that will handle filled medical sharps collection devices and
rigid plastics.
The most common approach to disposal of sharps waste is to put the waste in
a disposable container, aggregate and accumulate the material in a central
location, transport the material to an off-site location and incinerate or bury
the material. In contrast, the Company's approach is to destroy and
decontaminate the material at the point of use; thereby eliminating the
potential spread of infection which occurs during the accumulation and
aggregation process, the expense of disposable containers, and the expense and
liability associated with transportation and off-site destruction, and the
negative environmental impact.
The DSI-107 sharps disposal system is comprised of a portable and reusable
collection device and a process unit. The collection device is a hand held
plastic container into which sharps are deposited by the user, eliminating
unnecessary handling. Once full, the collection device is taken to the nearby
process unit and the sharps waste is emptied into the process unit, without
human contact, through an interlock mechanism between the collection device and
the process unit. Using grinding and a dry heat sterilization process, the
process unit produces, in approximately one hour, a sterile solid plastic
cylindrical-shaped "puck" from the sharps waste.
The DSI System 2000 Infectious Medical Waste Disposal System is a second
generation, higher capacity device, designed to dispose of medical sharps and
plastic medical disposable products. The sharps collection container is placed
directly into the DSI System 2000 Infectious Medical Waste
4
Disposal System without emptying the container. The system decontaminates and
reduces the volume of the foregoing materials by about 80%. It is intended
primarily for medical waste management but may have commercial applications as
well.
The DSI System 2000 Infectious Medical Waste Disposal System was submitted
to independent labs for compliance testing to OSHA, EPA, Odor TUV, UL and cUL
standards. The system has successfully passed all testing. The system has also
received efficacy testing clearance in approximately 33 states to date.
CUSTOMERS AND MARKETING
DISINFECTION PRODUCTS. The Company believes that the primary customers for
its disinfection products are accredited hospitals. There are approximately
6,000 accredited hospitals in the United States according to the American
Hospital Association Guide to the Health Care Field.
The Company's products are marketed by independent manufacturers'
representatives throughout the United States, each of whom has an exclusive
territory and is trained on the Company's products. These representatives also
market products of other manufacturers. The Company has distribution agreements
with manufacturing representatives in Canada, Brazil, Australia, France, Italy,
Spain and the United Kingdom covering much of Western Europe.
The Company directs its marketing efforts toward gastrointestinal assistants
and infection control personnel at hospitals and clinics, as well as physicians
using endoscopes, including gastroenterologists, colon and rectal surgeons,
urologists and family practitioners.
During the year ended December 31, 1994 sales to one customer represented
11% of total sales. During the year ended December 31, 1993, sales to two
customers represented 20% of total sales. Total export sales, primarily to
European and Canadian customers, comprised 26% and 30% of the Company's total
sales during the years ended December 31, 1994 and 1993, respectively.
SHARPS DISPOSAL EQUIPMENT. DSI believes that the primary customers for the
DSI-107 sharps disposal system will be small hospitals, group medical practices,
non-hospital based healthcare facilities including nursing homes, surgical
centers, home healthcare facilities, dentist and correctional facilities. The
DSI System 2000 Infectious Medical Waste Disposal System is designed primarily
for use in hospitals.
COMPETITION
GENERAL. The medical products industry is intensely competitive and is
characterized by rapid technological change, accompanying product obsolescence
and the introduction of competitive products offering improved features at lower
prices. Advances by the Company's competitors or others could at any time
require the Company to attempt to modify or change its products in order to
compete effectively disinfection equipment.
DISINFECTION PRODUCTS. The Company believes its primary competitors in the
sale of endoscope disinfectors include Unitrol, Key Med, Inc., Olympus
Corporation (which is a principal manufacturer of endoscopes), Xxxx, Steris
Corporation and Custom Ultrasonics. Some of these companies are more established
and have greater resources than the Company and, in addition to endoscope
disinfectors, may sell a broader variety of related products.
MEDICAL WASTE DISPOSAL SYSTEMS. DSI competes with companies that sell
special devices for the destruction of sharps and companies that provide
products for the destruction and decontamination of other medical wastes.
Several companies offer products which either destroy or decontaminate
sharps waste near point-of-use. These approaches may range from grinding to
chemical baths. The Company believes that none of these approaches currently
include free-standing units which are capable of destroying and decontaminating
at point-of-use, and that such devices are significantly more expensive than the
DSI-107 system.
5
The products which are employed in the destruction and decontamination of
rigid plastics, sharps and other plastic medical disposables compete with the
DSI System 2000 Infectious Medical Waste Disposal System. They range from
grinders, to chemical baths, to incinerators, to dry heat and autoclaves. The
Company knows of no competitive products which provide the performance features
of the DSI System 2000 Infectious Medical Waste Disposal System at a comparable
cost. The Company believes those which are known to perform similar functions
are significantly greater in cost.
RESEARCH AND DEVELOPMENT
In 1994 the Company cut back on its research and development efforts. It
terminated the MediFlex operation in December 1993 and completed the design of
the DSI System 2000 Infectious Medical Waste Disposal System. Research and
development expenditures in 1994 were $305,442, compared to $955,549 in 1993 and
$332,291 in 1992.
The Company plans to continue research and development on its existing
product lines, but does not expect anything as large as the MediFlex project.
GOVERNMENT REGULATIONS
MEDICAL DEVICES. The United States Food and Drug Administration ("FDA"),
pursuant to the Medical Device Amendments of 1976 to the Food, Drug and Cosmetic
Act, amended in 1990 (the "Act"), and regulations thereunder, regulates the
testing, manufacturing, packaging, distribution and marketing of medical devices
in the United States, including the products manufactured by MediVators, Inc.
Comparable agencies in certain foreign countries also regulate the Company's
activities.
The FDA classifies medical devices intended for human use into three
categories, depending upon the degree of regulatory control deemed appropriate
with respect to each device. The Company's products are Class II and Class III
devices for which market approval can be obtained under Section 510(k)
procedures, which require demonstration of substantial equivalency to existing
products in the market. FDA regulations provide that a manufacturer may not
market a device until the FDA notifies the manufacturer that it has a 510(k)
notification. The FDA has the authority to require recall of products in the
event of a defect. In addition, the Company may voluntarily recall products if
necessary.
The Act also requires compliance with specific manufacturing and quality
assurance standards. The FDA has published regulations defining good
manufacturing practices to provide that each step of the manufacturing process
for any device is controlled to maximize the probability that the finished
product meets all quality and design specifications. The regulations also
require that each manufacturer establish a quality assurance program by which
the manufacturer monitors the manufacturing process and maintains records which
show compliance with the FDA regulations and the manufacturer's written
specifications and procedures relating to the devices. The FDA makes unannounced
inspections of medical device manufacturers and may issue reports or citations
where the manufacturer has failed to comply with appropriate regulations and
procedures.
Compliance with the provisions of the Act and the FDA's regulations is
time-consuming and expensive. The Company believes it is in material compliance
with the provisions of the Act and regulations under the Act. The Company
maintains customer complaint files and conducts periodic audits to assure
compliance with the FDA regulations. The manufacturing and quality control
procedures are documented to ensure that production meets the required
standards. The Company actively participates in trade association efforts to
review, comment on, and affect the scope of proposed legislation. Federal, state
and foreign regulations regarding the manufacture and sale of the Company's
products are subject to change. The Company cannot predict what impact, if any,
such changes might have on its business.
In March 1994 the Company received FDA clearance of its 510(k) premarket
notification for DSD-91 Disinfector.
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In October 1989, the Company received a letter from the FDA in which the
Company was advised that 510(k) pre-market notifications had not been submitted
for the XXX Channel Sampling Kit or Sterapore Ultramicrofilter (sales of which
have not constituted a material part of the Company's revenues), and that
certain modifications made to the XXX Disinfector may require an additional
510(k) pre-market notification. The Company has been unable to determine whether
prior management responded to such letter or, if so, the content of such
response. The Company has not received any further notice from the FDA regarding
the issues raised in the 1989 letter. If the FDA were to determine that these
products were or are being sold without appropriate clearance, the FDA could
take enforcement action, including seizure of the product in question, seeking
an injunction against further sales of the subject product and seek substantial
civil or criminal penalties against the Company and its officers. Any such
enforcement action could have a material adverse effect on the Company.
MEDICAL WASTE. Regulations affecting the generation, handling and disposal
of infectious waste span many jurisdictions. These wastes are regulated as solid
or hazardous wastes under various federal, state and local environmental laws
and regulations. Moreover, many jurisdictions are taking steps to develop
specific regulations for such waste. The United States Congress, with the
Medical Waste Tracking of 1988, mandated that a federal program to track such
wastes be implemented by the United States Environmental Protection Agency.
Additionally, a substantial majority of states now have infectious waste laws
and regulations, according to the Federal Office of Technology Assessment.
Finally, local regulations can dramatically impact the location of disposal
facilities.
The Medical Waste Tracking Act required the Environmental Protection Agency
to establish regulations concerning the tracking of all aspects of medical waste
treatment and disposal in designated states. In particular, all regulated
medical waste must be segregated and packaged in specially marked and labeled
containers prior to shipment for disposal off-site. Any regulated medical waste
transported off-site must be accompanied by a Medical Waste Tracking form which
identifies the generator of the waste, intermediate handlers and transporters
and the disposal facility. Under the Act, the hospital or medical facility
remain liable for the contaminated waste throughout this process including the
transportation and destruction of the waste. The Medical Waste Tracking Act has
effectively made disposal of medical waste, including sharps, much more
expensive by increasing the hospital's or medical facility's liability,
paperwork and man-hours required to legally process medical waste. Infectious
waste treated on-site is exempted from the tracking requirements except that
hospital's operating incinerators must report the quantity of the waste burned.
State and local medical disposal laws vary. Accordingly, DSI will be
required to present each individual governing body with the efficacy test
results of the DSI System 2000 Infectious Waste Disposal System and to request
permission to distribute in that jurisdiction.
LICENSE AGREEMENTS/PATENTS AND PROPRIETARY RIGHTS
XXX DISINFECTOR. The Company manufactures and sells the XXX Disinfector
pursuant to an exclusive worldwide license agreement with Mayo Foundation. Under
the license agreement, Mayo Foundation owns all patent rights and know-how with
respect to the XXX Disinfector. The license agreement expires December 31, 2005.
Under the License Agreement related to the XXX Disinfector (the "Disinfector
License Agreement"), the Company must pay a royalty equal to five percent (5%)
of the net revenues received by the Company from sales of the XXX Disinfector
and enhancements or improvements to the XXX Disinfector. The Company intends to
pay the Mayo Foundation a royalty on revenues from sales of the DSD-91. Such
royalty payments are due quarterly, together with related reports of sales. The
Mayo Foundation has the right to terminate the Disinfector License Agreement if
the Company fails to pay minimum royalties of $75,000 per year.
The Disinfector License Agreement specifically excludes any warranty by Mayo
Foundation as to the validity or scope of its proprietary rights in the XXX
Disinfector. Any and all action taken to obtain
7
patents or other intellectual property protection for the XXX Disinfector is the
Company's responsibility and any patent obtained inures to Mayo Foundation. Mayo
Foundation has obtained one U.S. patent related to certain features of the XXX
Disinfector, but there is no assurance that this patent will provide any
meaningful competitive advantage. Mayo Foundation has no obligation to defend
the validity or scope of such patent. Therefore, if any claim is brought by or
against the Company, the Company will have to defend the patent and may bear all
of the costs of doing so. There can be no assurance that such patent will be
upheld if legally challenged or that such patent will provide any protection
against competitor's products which, although not infringing upon such patent,
may be in direct competition with the XXX Disinfector. Further, there can be no
assurance that any patents which may be obtained in the future on any of the
Company's products will provide any significant protection or be of commercial
benefit to the Company or that their validity will not be challenged.
Under the Disinfector License Agreement, the Company is obligated to adhere
to a general marketing plan pursuant to which the Company is to emphasize sales
to key teaching or teaching affiliated hospitals in major markets, attend
meetings of endoscopy professions, monitor sales activities and performance of
sale representative, engage an international sales firm with representatives or
distributors in foreign markets and perform other marketing activities.
The Disinfector License Agreement provides that Mayo Foundation may
terminate such agreement if the Company defaults in the payment of any royalty
or the making of any required report, breaches any covenant or makes a false
report, and fails to remedy such default, breach or report within ten days after
written notice thereof from Mayo Foundation.
PATENTS
MediVators holds patents in the United States in certain of its products and
processes and has other patents pending. These patents expire between the years
2005 and 2012. Licenses held on patents for disinfectors are through the Mayo
Foundation for Medical Education and Research. The Company considers its patents
to be important but not indispensable to its business. Although the Company
generally seeks patent protection when possible, the Company relies to a greater
degree on the technical expertise and know-how of its personnel than on its
patents to maintain its competitive position. There is no assurance that any
patents held or secured by the Company will provide any protection or commercial
or competitive benefit to the Company. There is also no assurance that the
Company's products will not infringe upon patents held by others.
MANUFACTURING AND SUPPLIERS
The Company currently manufactures or assembles all its products, except the
Sterapore Ultramicrofilter, in Xxxxxx Falls, Minnesota. The Company has certain
components and subassemblies manufactured by other firms. All final assembly,
testing, quality control and shipping is done at the Company's facility in
Xxxxxx Falls. The Company also sells disinfector components to international
distributors for the manufacture and assembly of disinfectors for international
sale.
ITEM 2. PROPERTIES
The Company's manufacturing facility is located in approximately 28,000
square feet of office/ warehouse space in Xxxxxx Falls, Minnesota. This space is
part of a building owned by Xxxxxx X. Xxxxxx, the Company's chairman of the
board. This facility is leased to the Company pursuant to an oral agreement on a
month-to-month basis at a monthly rental of $9,022, and remains at that amount
as of March 31, 1995.
ITEM 3. LEGAL PROCEEDINGS
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to security holders during the fourth
quarter of the fiscal year 1994.
8
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Company's Series A Common Stock is traded in the over-the-counter market
on The Nasdaq Small Cap Market under the symbol "MVAT". The Series B Common
Stock is not listed on any public trading market. The following table sets
forth, for the periods indicated, the high and low closing bid as reported by
Nasdaq. The quotations in the over-the-counter market reflect inter-dealer
prices, without retail markup, markdown or commissions and may not necessarily
represent actual transactions.
HIGH BID LOW BID
----------- -----------
1993
First Quarter............................................................ 3 1/2 2 5/8
Second Quarter........................................................... 2 5/8 1 3/4
Third Quarter............................................................ 2 3/8 2 1/8
Fourth Quarter........................................................... 2 3/8 2
1994
First Quarter............................................................ 3 2 1/16
Second Quarter........................................................... 3 1/4 2 1/2
Third Quarter............................................................ 3 3/8 2 1/8
Fourth Quarter........................................................... 3 1/8 1 5/8
1995
First Quarter (through March 24, 1995)................................... 3 1/4 1 7/8
As of March 24, 1995, there were approximately 216 shareholders of Class A
Common Stock and 1 holder of Class B Common Stock of record, not including
shareholders who beneficially own Series A Common Stock held in nominee or
street name. The last reported sale price of the Series A Common on March 24,
1995 was $2.00.
The Company has never paid cash dividends on its Common Stock. The Company
currently intends to retain any earnings for use in its operations and does not
anticipate paying cash dividends in the foreseeable future.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
1994 COMPARED WITH 1993
SALES
In 1994, sales were $3,309,524, an increase of 15% over the prior year. The
increase in sales is largely attributable to initial sales of the DSI System
2000 Infectious Medical Waste Disposal System. Disinfector sales were relatively
stable.
YEAR ENDED 1994 YEAR ENDED 1993
--------------- ---------------
MediVators, Inc............................................ $ 2,903,966 $ 2,887,214
Disposal Sciences, Inc..................................... 405,558 848
--------------- ---------------
Total Sales............................................ $ 3,309,524 $ 2,888,062
In March 1995 the Company signed a distribution agreement with Sun Medical,
Inc. covering the DSI System 2000 Infectious Medical Waste Disposal System in
eleven western states.
GROSS MARGINS
Gross profit was $1,106,455 in 1994, or 33% of sales compared to $953,900 in
1993, which was 33% of sales. The profit margin remained stable.
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OPERATING EXPENSES
Selling, general and administrative expenses were $1,554,973 in 1994, or 47%
of sales, a decrease of 5% from 1993. This was a result of cost containment
measures by the Company and the elimination of the MediFlex operation.
The Company expects that expenses relating to the DSD-91 and the DSI System
2000 Infectious Medical Waste Disposal System may result in increased selling
expenses in 1995.
Research and development expense was $305,442 in 1994, a decrease of
$650,107 from 1993. This reduction is a result of the termination of the
MediFlex operation in 1993, and the completion of the DSI System 2000 Infectious
Medical Waste Disposal System.
NON-OPERATING INCOME (EXPENSE)
Interest (expense) was ($6,308) in 1994 compared to an interest income of
$24,816 in 1993. The drop in interest income resulted from having less cash
invested and interest expense on a note payable in 1994.
NET INCOME (LOSS)
The company had a net loss of ($736,420) or ($.22) per weighted average
common share outstanding in 1994 compared to a net loss of ($1,569,610) or
($.55) per weighted average common share outstanding in 1993. The decrease in
the net loss is primarily attributable to the termination of MediFlex research
and development activities.
1993 COMPARED WITH 1992
The Company had sales in 1993 of $2,888,062, a 43% increase over the prior
year. The increase in sales is largely attributable to sales to MedFab's third
party customers. Disinfector sales were relatively flat in 1993. The Company
attributes the lack of growth in disinfector sales primarily to its inability to
market the new generation DSD-91 dual scope disinfector in the United States
prior to FDA clearance. The Company received FDA clearance of the DSD-91
disinfector in March 1994.
Gross profit was $953,900 in 1993 or 33% of sales compared to $788,138 or
39% of sales in 1992. The decrease in gross profit margin is due to a larger
portion of the Company's sales being generated by MedFab's operation. MedFab's
products typically have a lower margin than the Company's other products. In
addition, the Company experienced lowered selling prices for the XXX Disinfector
in 1993, which contributed to the decrease in gross margin.
Selling, general and administrative expenses were $1,627,731 in 1993, an
increase of 3% over 1992.
Research and development expense was $955,549 in 1993, an increase of
$623,258 over the prior year. Research and development expenses in 1993 included
approximately $530,000 for development of the DSI System 2000 Infectious Medical
Waste Disposal System and the redesign of the DSI-107, approximately $307,000
for MediFlex research and development, and approximately $119,000 for additional
FDA-required testing on the DSD-91 disinfector.
Interest income was $24,816 in 1993 compared to an interest income of
$106,160 in 1992. The drop in interest income resulted from having less cash
invested.
The Company had a net loss of $(1,569,610) in 1993 compared to net loss of
($1,058,979) in the previous year. The net loss was primarily attributable to
the cost of funding the research and development activities of DSI and MediFlex,
and the Company's inability to market the DSD-91 disinfector in the United
States prior to FDA clearance.
CAPITAL RESOURCES AND LIQUIDITY
SERIES B 10% CUMULATIVE REDEEMABLE CONVERTIBLE COMMON STOCK
In November, 1993, and January 1994, the Company completed a private
placement of an aggregate 125,950 shares of Series B 10% Cumulative Redeemable
Convertible Common Stock (the "Series B Shares") at $6.30 per share, with net
proceeds to the Company of approximately $674,682.
10
The Series B shares are convertible at any time at the option of the holder
into three shares of Series A Common Stock and two warrants, each to purchase
one share of Series A Common Stock at an exercise price of $5.00 per share until
December 31, 1998. The Series B shares have a liquidation preference of $6.30
per share and are entitled to vote with Series A Common Stock (one vote per
share). The Series B shares bear a 10% annual dividend until conversion, payable
solely in shares of Series A common stock; the dividend accumulates but is not
payable except upon conversion of the Series B shares.
During 1994 and through March 24, 1995, 123,950 Series B shares were
converted into an aggregate 399,032 shares of Series A Common Stock and Series B
Warrants exercisable for an aggregate 247,900 shares of Series A Common Stock.
The conversions were registered pursuant to a registration statement on Form S-3
that was declared effective by the SEC on July 19, 1994, and by the State of
Minnesota on August 31, 1994. As of March 24, 1995, an aggregate 2,000 Series B
Shares remained outstanding, which, plus then-accrued dividends, were
convertible into approximately 6,733 shares of Series A Common Stock and Series
B Warrants exercisable to purchase an aggregate 4,000 shares of Series A Common
Stock.
LIQUIDITY
At December 1, 1994, working capital was $2,772,467, an increase of $694,665
from December 31, 1993. The increase is due to the private placements in early
1994. The Company's working capital includes parts and components inventories in
support of products with limited sales history, primarily the DSI-107 product
line where formal distribution agreements are presently in process. Provisions
for excess or obsolete inventories are made based on management's assessment of
expected future demand. Management believes that such inventories are fully
recoverable based on expressions of customer interest during the pre-market
phase and distributors' estimates of potential product demand. In January 1995,
$50,001 of a $290,000 note payable was converted into an aggregate 23,810 shares
of common stock. The Company repaid the remaining $239,999 in March 1995.
The Company has experienced recurring losses from operations primarily as a
result of high research and development costs and delays in bringing certain
products to market. These matters have combined to strain liquidity and
financial resources available to the Company. While the Company had net working
capital of approximately $2.8 million and stockholders' equity of approximately
$3.6 million at December 31, 1994, available cash is limited and may not be
sufficient to fund ongoing obligations unless profitable operations are attained
or additional sources of financing are found. The report of the independent
public accountants on the Company's financial statements contains an explanatory
second paragraph regarding the Company's ability to continue as a going concern.
Wish FDA approval of the dual disinfector product line in March, 1994 and
the completion of product development of the DSI System 2000 Infectious Medical
Waste Disposal System in October, 1994, and the Company entering into domestic
and international distribution agreements for the DSI System 2000 in 1995, the
Company expects to reduce the amount of cash used in operating activities. The
Company's loss decreased in 1994 and, in the fourth quarter of 1994, the Company
reported results at approximately a break-even level. In the opinion of
management, the Company's improved operating results will increase the prospects
of attracting any additional sources of funds from investors or lenders that may
be required. The Company's ability to continue as a going concern is dependent
upon the Company's ability to reduce the amount of cash used in operating
activities to improve its liquidity and to obtain addtional debt or equity
financing. The Company continues to explore additional sources of financing with
potential investors and financial institutions, but there can be no assurance
that additional financing will be obtained. The issuance of additional equity
would have a dilutive effect on existing shareholders.
11
ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
PAGE
-----
Index to Financial Statements.............................................................................. 12
Report of Independent Accountants.......................................................................... 13
Consolidated Balance Sheet as of December 31, 1994 and 1993................................................ 14
Consolidated Statement of Operations for the years ended December 31, 1994 and 1993........................ 15
Statements of Stockholders' Equity for the years ended December 31, 1994 and 1993.......................... 16
Statements of Cash Flows for the years ended December 1994 and 1993........................................ 17
Notes to Consolidated Financial Statements................................................................. 18
12
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
and Stockholders of
MediVators, Inc.
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations, of stockholders' equity and of cash flows
present fairly, in all material respects, the financial position of MediVators,
Inc. and its subsidiary at December 31, 1994 and 1993, and the results of their
operations and their cash flows for the years then ended in conformity with
generally accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company has suffered recurring losses and uses
significant cash in its operations; consequently the Company may need to seek
additional financing to continue to fund operations. These factors raise
substantial doubt about the Company's ability to continue as a going concern.
Management's evaluation of this situation is described in Note 1. The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
Price Waterhouse LLP
Minneapolis, Minnesota
March 29, 1995
13
MEDIVATORS, INC.
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1994 AND 1993
ASSETS
1994 1993
----------- -----------
CURRENT ASSETS:
Cash and cash equivalents....................................... $ 509,680 $ 391,326
Accounts receivable, net of allowance for doubtful accounts of
$7,500......................................................... 1,176,298 628,816
Inventories..................................................... 1,650,843 1,382,264
Prepaid expenses and other current assets....................... 190,234 169,219
----------- -----------
Total current assets.......................................... 3,527,055 2,571,625
----------- -----------
Property and equipment, net....................................... 643,371 665,912
Goodwill, net of accumulated amortization of $190,295 and $144,276
respectively..................................................... 96,183 144,275
Other assets...................................................... 46,162 48,174
----------- -----------
$ 4,312,771 $ 3,429,986
----------- -----------
----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Note payable to stockholder..................................... $ 290,000 $ --
Accounts payable................................................ 306,964 372,716
Accrued compensation............................................ 111,469 77,542
Accrued royalties............................................... 26,708 28,031
Other accrued expenses.......................................... 19,447 15,534
----------- -----------
Total current liabilities..................................... 754,588 493,823
----------- -----------
Commitments and contingencies (Note 9)
STOCKHOLDERS' EQUITY:
Series B 10% cumulative redeemable convertible common stock, par
value $.01; authorized 500,000 shares; issued and outstanding
21,500 and 100,100 shares, respectively........................ 114,829 522,667
Series A common stock, par value $.01; authorized 10,000,000
shares; issued and outstanding 3,758,850 and 2,846,494 shares,
respectively................................................... 37,588 28,465
Additional paid-in capital...................................... 7,744,515 5,999,860
Deferred compensation........................................... (10,000) (22,500)
Accumulated deficit............................................. (4,328,749) (3,592,329)
----------- -----------
3,558,183 2,936,163
----------- -----------
$ 4,312,771 $ 3,429,986
----------- -----------
----------- -----------
See Notes to Consolidated Financial Statements.
14
MEDIVATORS, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
YEARS ENDED DECEMBER 31, 1994 AND 1993
1994 1993
------------- --------------
Net sales.......................................................................... $ 3,309,524 $ 2,888,062
Cost of goods sold................................................................. 2,203,069 1,934,162
------------- --------------
Gross profit................................................................... 1,106,455 953,900
Selling, general and administrative................................................ 1,544,973 1,627,731
Research and development........................................................... 305,442 955,549
Other (income) expense............................................................. (13,848) 41,765
Interest expense (income).......................................................... 6,308 (24,816)
Minority interest in losses of subsidiary.......................................... (76,719)
------------- --------------
Net loss....................................................................... $ (736,420) $ (1,569,610)
------------- --------------
------------- --------------
Loss per common share.......................................................... $ (.22) $ (.55)
------------- --------------
------------- --------------
Weighted average common shares outstanding..................................... 3,308,694 2,846,494
------------- --------------
------------- --------------
See Notes to Consolidated Financial Statements.
15
MEDIVATORS, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1994 AND 1993
SERIES B 10%
CUMULATIVE
REDEEMABLE
CONVERTIBLE SERIES A
COMMON STOCK COMMON STOCK ADDITIONAL
-------------------- -------------------- PAID-IN DEFERRED ACCUMULATED
SHARES AMOUNT SHARES AMOUNT CAPITAL COMPENSATION DEFICIT TOTAL
--------- --------- --------- --------- ---------- ------------- ------------ -----------
Balance, December 31,
1992...................... 2,846,494 $ 28,465 $5,999,860 $ (30,000) $(2,022,719) $ 3,975,606
Sale of Series B common
stock (net of offering
costs
of $107,963)............ 100,100 $ 522,667 522,667
Compensation expense..... 7,500 7,500
Net loss................. (1,569,610) (1,569,610)
--------- --------- --------- --------- ---------- ------------- ------------ -----------
Balance, December 31,
1993...................... 100,100 522,667 2,846,494 28,465 5,999,860 (22,500) (3,592,329) 2,936,163
Sales of Series A common
stock (net of offering
costs
of $80,350)............. 580,500 5,805 1,195,620 1,201,425
Sale of Series B common
stock (net of offering
costs
of $10,840)............. 25,850 152,015 152,015
Conversion of Series B
common stock into
Series A common stock... (104,450) (559,853) 335,606 3,356 556,497
Compensation expense..... 5,000 5,000
Forfeiture of deferred
compensation............ (3,750) (38) (7,462) 7,500
Net loss................. (736,420) (736,420)
--------- --------- --------- --------- ---------- ------------- ------------ -----------
Balance, December 31
1994...................... 21,500 $ 114,829 3,758,850 $ 37,588 $7,744,515 $ (10,000) $(4,328,749) $ 3,558,183
--------- --------- --------- --------- ---------- ------------- ------------ -----------
--------- --------- --------- --------- ---------- ------------- ------------ -----------
See Notes to Consolidated Financial Statements.
16
MEDIVATORS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1994 AND 1993
1994 1993
-------------- --------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss........................................................................ $ (736,420) $ (1,569,610)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation.................................................................. 213,174 207,152
Amortization.................................................................. 50,104 155,610
Minority interest in losses of subsidiary..................................... (76,719)
Changes in assets and liabilities:
Accounts receivable......................................................... (547,482) 20,826
Inventories................................................................. (268,579) (64,666)
Other current assets........................................................ (16,015) 72,219
Current liabilities......................................................... (29,235) 81,441
-------------- --------------
Net cash used in operating activities..................................... (1,334,453) (1,173,747)
-------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment............................................. (190,633) (45,512)
Decrease in certificates of deposit............................................. 1,037,220
-------------- --------------
Net cash (used in) provided by investing activities....................... (190,633) 991,708
-------------- --------------
-------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of note payable.......................................... 290,000
Net proceeds from sale of Series B common stock................................. 152,015 522,667
Net proceeds from sale of Series A common stock................................. 1,201,425
-------------- --------------
Net cash provided by financing activities................................. 1,643,440 522,667
-------------- --------------
-------------- --------------
Increase in cash and cash equivalents............................................. 118,354 340,628
Cash and cash equivalents:
Beginning....................................................................... 391,326 50,698
-------------- --------------
Ending.......................................................................... $ 509,680 $ 391,326
-------------- --------------
-------------- --------------
See Notes to Consolidated Financial Statements
17
MEDIVATORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS
The Company manufactures and markets medical devices and related products
which are used for disinfecting flexible endoscopes, fabricates and assembles
various plastic assemblies and products, and manufactures and markets sharps
disposal equipment.
LIQUIDITY AND FINANCIAL RESOURCES
The Company has experienced recurring losses from operations primarily as a
result of high research and development costs and delays in bringing certain
products to market. These matters have combined to strain liquidity and
financial resources available to the Company.
While the Company has net working capital of approximately $2.8 million and
stockholders' equity of approximately $3.6 million at December 31, 1994,
available cash is limited and may not be sufficient to fund ongoing obligations
unless profitable operations are attained or additional sources of financing are
found.
With FDA approval of the dual disinfector product line in March, 1994 and
the completion of product development of the DSI 2000 sharps disposal system in
October, 1994, the Company expects to reduce the amount of cash used in
operating activities and ultimately generate positive cash flows. The Company's
loss decreased in 1994 and, in the fourth quarter of 1994, the Company reported
results at approximately a break-even level. In the opinion of management, the
Company's improved operating results will increase the prospects of attracting
any additional sources of funds from investors or lenders that may be required.
As a result, the Company believes that sufficient financial resources will be
available to continue as a going concern.
CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiary. Intercompany balances and transactions are
eliminated.
CASH AND CASH EQUIVALENTS
Cash equivalents are highly liquid marketable securities with original
maturities of three months or less. Cash and cash equivalents include
certificates of deposit totalling $200,000 at December 31, 1994.
INVENTORIES
Inventories are stated at the lower of cost or market on a first-in,
first-out basis. Provisions for excess or obsolete inventories are made based on
management's assessment of expected future demand for various products. As a
result of delays in bringing certain products to market, there is limited sales
history for such products and, accordingly, estimates of future demand involve a
high degree of judgment.
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost less accumulated depreciation.
Depreciation is provided using the straight-line method over the estimated
useful lives of the assets.
GOODWILL
Goodwill represents the excess cost over the fair value of net assets
acquired in business combinations accounted for under the purchase method.
Goodwill is amortized on a straight-line basis over the periods estimated to be
benefitted, currently not exceeding five years. The recoverability of
unamortized goodwill is assessed on an ongoing basis by comparing undiscounted
future cash flows from operations to net book value.
18
MEDIVATORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 1 -- NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
RESEARCH AND DEVELOPMENT
Expenditures for research and development are expensed as incurred.
INCOME TAXES
Income taxes are accounted for by use of the liability method.
LOSS PER COMMON SHARE
Loss per common share is computed by dividing the Company's net loss by the
average number of Series A shares of common stock and common stock equivalents
outstanding during the year. Common stock equivalents consist of stock options,
warrants and Series B shares. Series B common stock is a senior security which
is considered to be a common stock equivalent and is only included in shares
outstanding in those periods where its inclusion would have a dilutive effect.
Common stock equivalents are not included in weighted average common shares in
periods in which their inclusion would be anti-dilutive.
POST-RETIREMENT BENEFITS
The Company does not currently provide post-retirement benefits.
NOTE 2 -- DISCONTINUED LINE OF BUSINESS
In October, 1992, the Company and certain individuals formed an 80% owned
subsidiary primarily involved in the development of diagnostic and therapeutic
endoscopic systems. In December, 1993, the operations of this business were
discontinued and the related assets and liabilities were liquidated. The
Company's share of losses, after offset of the minority shareholders' interest,
was $306,876 during the year ended December 31, 1993.
NOTE 3 -- INVENTORIES
Inventories at December 31 are comprised of the following:
1994 1993
------------- -------------
Raw material.............................................................. $ 1,006,115 $ 796,015
Work-in-process........................................................... 258,721 78,397
Finished goods............................................................ 386,007 507,852
------------- -------------
$ 1,650,843 $ 1,382,264
------------- -------------
------------- -------------
NOTE 4 -- PROPERTY AND EQUIPMENT
Property and equipment is comprised as follows at December 31:
1994 1993
------------- -------------
Machinery and equipment................................................... $ 744,295 $ 603,641
Office equipment.......................................................... 218,465 196,930
Leasehold improvements.................................................... 204,992 200,501
Vehicles.................................................................. 88,552 65,103
------------- -------------
1,256,304 1,066,175
Less: Accumulated depreciation............................................ (612,933) (400,263)
------------- -------------
$ 643,371 $ 665,912
------------- -------------
------------- -------------
NOTE 5 -- NOTE PAYABLE TO STOCKHOLDER
At December 31, 1994, the Company has a $290,000 note payable to a
corporation which is also a stockholder. The outstanding principal balance is
payable on April 1, 1995, bears interest at 10% and
19
MEDIVATORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 5 -- NOTE PAYABLE TO STOCKHOLDER (CONTINUED)
is convertible, at the option of the holder, into 138,095 shares of Series A
common stock. In January, 1995 the stockholder converted $50,000 of the note
payable into 23,810 shares of Series A common stock.
NOTE 6 -- SERIES B 10% CUMULATIVE REDEEMABLE CONVERTIBLE COMMON STOCK
During 1993 and 1994, the Company issued a total of 100,100 and 25,850
shares, respectively, of Series B 10% cumulative redeemable convertible common
stock at $6.30 per share. The Series B shares are convertible at any time at the
option of the holder into three shares of Series A common stock and two
warrants, each to purchase one share of Series A common stock at an exercise
price of $5.00 per share until December 31, 1998.
The Series B shares have a liquidation perference of $6.30 per share and are
entitled to vote with a Series A common stock (one vote per share). The Series B
shares bear a 10% annual dividend until conversion, payable solely in shares of
Series A common stock; the dividend accumulates but will not be payable except
upon conversion of the Series B shares. At conversion of the Series B shares,
accumulated and unpaid dividends will convert automatically into additional
shares of Series A common stock at a conversion price based upon the fair market
value of the Series A shares immediately preceding the conversion date.
During 1994, 104,450 shares of Series B common stock, plus accumulated
dividends, were converted into 335,606 shares of Series A common stock and
associated warrants to purchase 208,900 Series A shares. In 1995, 19,500 Series
B shares, plus accumulated dividends, were converted into 63,421 shares of
Series A common stock and associated warrants to purchase 39,000 Series A
shares.
The Company, in its sole discretion, may redeem the Series B shares at a
redemption price of $7.00 per share provided that the Company's Series A common
stock has traded at a price in excess of $6.00 per share on 20 of the 30 trading
days immediately preceding the date of redemption notice. Holders of Series B
shares will have 30 days after notice of redemption to determine whether to
convert or redeem their shares.
NOTE 7 -- COMMON STOCK OPTIONS AND STOCK WARRANTS
The Company has a stock option plan (Plan) which permits granting of both
qualified and nonqualified Series A common stock options to employees. Under the
Plan, the Board of Directors is authorized to grant up to 550,000 shares of
Series A common stock and establish the terms and conditions of all stock
options granted. At December 31, 1994, a total of 316,500 stock options were
outstanding under the Plan. In addition to options granted under the Plan, the
Board of Directors has granted 262,500 non-qualified Series A common stock
options to certain employees. Options have been granted at an option price per
share equal to or greater than the fair value at the date of the grant. The
options generally vest over a three to five year period and expire after seven
to ten years.
20
MEDIVATORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 5 -- NOTE PAYABLE TO STOCKHOLDER (CONTINUED)
The table below summarizes all stock option activity:
NUMBER OF EXERCISE PRICE
SHARES PER SHARE
---------- ---------------
Outstanding at December 31, 1992.......................................... 417,750 $ 2.00 - $2.13
Granted................................................................. 85,000 $ 2.00 - $2.13
----------
Outstanding at December 31, 1993.......................................... 502,750 $ 2.00 - $2.13
Granted................................................................. 107,500 $1.63
Cancelled............................................................... (31,250) $ 2.00 - $2.13
----------
Outstanding at December 31, 1994.......................................... 579,000 $ 1.63 - $2.13
----------
----------
Exercisable at December 31, 1994.......................................... 422,375
----------
----------
The Company has also granted warrants to purchase shares of Series A and
Series B common stock, at or above fair market value, to certain unrelated
entities. At December 31, 1994, outstanding common stock warrants are as
follows:
PURCHASE
DESCRIPTION SHARES PRICE EXPIRATION DATE
------------------------------------------------------------ --------- ----------- -------------------
Series A common stock....................................... 150,000 $ 4.20 September, 1995
Series A common stock....................................... 208,900 $ 5.00 December, 1998
Series B common stock....................................... 12,595 $ 7.56 January, 1999
NOTE 8 -- INCOME TAXES
For purposes of the tax return, the Company has net operating loss
carryforwards of approximately $3,900,000 which expire in the years ending
December 31, 2000 through 2008. In the event of additional capital stock
issuances, these carryforwards may be subject to limitations pursuant to Section
382 of the Internal Revenue Code.
For financial reporting purposes, the Company has approximately $3,900,000
of available loss carryforwards and net temporary differences. At existing tax
rate the future benefit approximates $1,600,000. A valuation allowance has been
established for the entire net tax benefit associated with all carryforwards and
temporary differences at December 31, 1994 as their realization is not assured.
The composition of expected future tax benefits at December 31, 1994 is as
follows:
Loss carryforward...................................................... $ 1,441,000
Temporary differences:
Inventory -- obsolescence reserve.................................... 30,000
Inventory -- uniform capitalization.................................. 76,000
Depreciation and amortization........................................ (14,000)
Other, net........................................................... 67,000
-----------
1,600,000
Less: Valuation allowance.............................................. (1,600,000)
-----------
$ 0
-----------
-----------
NOTE 9 -- COMMITMENTS AND CONTINGENCIES
OPERATING LEASES
The Company leases office and production facilities on a month-to-month
basis from an officer and stockholder. Total rent expense included in the
statement of operations for the years ended December 31, 1994 and 1993 was
approximately $108,000 and $100,000, respectively.
21
MEDIVATORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 5 -- NOTE PAYABLE TO STOCKHOLDER (CONTINUED)
LICENSE AGREEMENT
Under the terms of an exclusive license agreement with the Mayo Foundation
for Medical Education and Research, the Company is required to pay royalties
associated with sales of disinfectors. The duration of the agreement is 15 years
from 1990, or the life of the related patent, whichever is greater. Minimum
royalty payments of $75,000 are required for each license year.
CONTINGENCY
In conjunction with the 1992 acquisition of a sharps disposal business, the
Company agreed to pay contingent consideration, not to exceed $2 million, based
on profits of the acquired company for the period from acquisition through 1996.
No contingent purchase consideration is due to the Seller based on results since
acquisition through December 31, 1994.
NOTE 10 -- SIGNIFICANT CUSTOMERS AND EXPORT SALES
During the year ended December 31, 1994, sales to one customer represented
11% of total sales. During the year ended December 31, 1993, sales to two
customers represented 20% of total sales. Total export sales, primarily to
European and Canadian customers, comprised 26% and 30% of the Company's total
sales during the years ended December 31, 1994 and 1993, respectively. Amounts
due from international customers comprised approximately 28% of accounts
receivable at December 31, 1994.
22
PART III
ITEM 9. DIRECTORS; EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT OF THE REGISTRANT
ITEM 10. EXECUTIVE COMPENSATION
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Items 9, 10, 11, and 12 are incorporated by reference to the Proxy Statement
for the Annual Meeting of Shareholders of the Company scheduled to be held in
June 1995.
PART IV
ITEM 13. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a)(1) Financial Statements
The Financial Statements, notes thereto and Independent Auditor's Report
thereon are included in Part II, Item 7 of this report.
(a)(2) Exhibits
3A.Articles of Incorporation of the Company, as amended.
3B.By-Laws of the Company, incorporated herein by reference to Exhibit 3B to
the Company's Registration Statement on Form S-18, File No. 33-41859C.
4A.Certificate of Designation of Series B 10% Cumulative Redeemable
Convertible Voting Common Stock Setting Forth the Powers, Preferences,
Rights, Qualifications, Limitations, and Restrictions of Such Series of
Common Stock, incorporated herein by reference to Exhibit 4A to the
Company's report on Form 10-KSB for the fiscal year ended December 31,
1993.
10AExclusive License Agreement by and between Mayo Foundation for Medical
Education and Research (formerly Mayo Medical Resources) and the Company
regarding the XXX Disinfector dated April 1, 1986, together with the
First Amendment thereto dated May 26, 1988 and the Second Amendment
thereto dated as of January 1, 1990, incorporated herein by reference to
Exhibit 10A to the Company's Registration Statement on Form S-18, File
No. 33-41859C.
10BExclusive License Agreement by and between Mayo Foundation for Medical
Evaluation and Research and the Company regarding the XXX Culture Kit
dated as of June 8, 1988, together with the First Amendment thereto dated
as of January 1, 1990, incorporated herein by reference to Exhibit 10B to
the Company's Registration Statement on Form S-18, File No. 33-41859C.
10CExclusive License Agreement with Mayo Foundation for Medical Education
and Research and the Company regarding the XXX Storage Rack dated as of
June 8, 1988 and the First Amendment thereto dated as of January 1, 1990,
incorporated herein by reference to Exhibit 10C to the Company's
Registration Statement on Form S-18, File No. 33-41859C.
10DEmployment Agreement by and between Xxxxxx X. Xxxxxx and the Company
dated as of June 15, 1991, incorporated herein by reference to Exhibit
10D to the Company's Registration Statement on Form S-18, File No.
33-41859C.*
23
10EEmployment Agreement by and between Xxxxxx X. Xxxxxxxxxx and the Company
dated as of June 15, 1991, incorporated herein by reference to Exhibit
10E to the Company's Registration Statement on Form S-18, File No.
33-41859C.*
10FForm of Restricted Stock Agreement by and between the Company and each of
Xxxxxx X. Xxx Xxxxxxxx and Xxxxxx X. Xxxxxxx dated as of July 19, 1991,
incorporated herein by reference to Exhibit 10F to the Company's
Registration Statement on Form S-18, File No. 33-41859C.*
10GForm of Stock Option Agreement by and between the Company and each of
Xxxxxx X. Xxx Xxxxxxxx and Xxxxxx X. Xxxxxxx dated as of July 19, 1991,
incorporated herein by reference to Exhibit 10G to the Company's
Registration Statement on Form S-18, File No. 33-41859C.*
10HAsset Purchase Agreement by and among Disposal Sciences, Inc., a
Minnesota corporation which is a wholly-owned subsidiary of Company,
Company, and National Syringe Disposal Incorporated d/b/a Disposal
Sciences, Inc., a Colorado corporation, incorporated herein by reference
to Exhibit 2 to the Company's Current Report on Form 8-K dated January
21, 1992.
10IPlacement Agent Warrant to Purchase Series B Cumulative Convertible
Common Stock of MediVators, Inc., as of January 25, 1994, incorporated
herein by reference to Exhibit 10M to the Company's report on Form 10-KSB
for the fiscal year ended December 31, 1993.
10JPlacement Agency Agreement by and between the Company and Xxxxxxx Xxxxxxx
Xxxxxx Xxxxx & Xxxxxx, Incorporated dated September 15, 1993,
incorporated herein by reference to Exhibit 10N to the Company's report
on Form 10-KSB for the fiscal year ended December 31, 1993.
10KCorporate Finance Consulting Agreement between the Company and Xxxxxxx
Xxxxxxx Xxxxxx Xxxxx & Xxxxxx, Incorporated dated November 12, 1993,
incorporated herein by reference to Exhibit 10O to the Company's report
on Form 10-KSB for the fiscal year ended December 31, 1993.
10LConvertible Promissory Note in the principal amount of $290,000 dated
March 31, 1994, incorporated by reference to Exhibit 10P to the Company's
report on Form 10-QSB for the quarter ended March 31, 1994.
10MSecurity Agreement by and between MediVators, Inc. and Pharmaceutical
Innovators Ltd., dated March 31, 1994, incorporated by reference to
Exhibit 10Q to the Company's report on Form 10-QSB for the quarter ended
March 31, 1994.
10N1991 Stock Option and Compensation Plan as amended. Incorporated by
reference to Exhibit 10P to the Company's Registration Statement on Form
S-3, File No. 33-79764.
10O1993 Director Stock Option Plan. Incorporated by reference to Exhibit 10Q
to the Company's Registration Statement on Form S-3, File No. 33-79764.
21 List of Subsidiaries incorporated by reference to Exhibit 21 to the
Company's report on Form 10-KSB for the fiscal year ended December 31,
1993.
(b) Reports on Form 8-K
The Company filed no reports on Form 8-K during the fourth quarter of fiscal
year 1994.
------------------------
* Management Compensatory Plan or Arrangement
24
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
MEDIVATORS, INC.
REGISTRANT
By ______/s/_DONALD L. STURTEVANT_____
Xxxxxx X. Xxxxxxxxxx
CHIEF EXECUTIVE OFFICER AND
PRESIDENT
Date: March 29, 1994
In accordance with Section 13 or 15(d) of the Exchange Act, this report has
been signed below by the following persons on behalf of the registrant and in
the capacities indicated.
NAME TITLE DATE
------------------------------------------------------ ------------------------------------- ------------------
Chairman of the Board, Chief
XXXXXX X. XXXXXX Financial Officer (Principal
Xxxxxx X. Xxxxxx Financial and Accounting Officer) March 29, 1995
and Director
Chief Executive Officer (Principal
XXXXXX X. XXXXXXXXXX Executive Officer), President and March 29, 1995
Xxxxxx X. Xxxxxxxxxx Director
XXXXXX X. XXX XXXXXXXX
Xxxxxx X. Xxx Xxxxxxxx Director March 29, 1995
XXXXXX X. XXXXXXX
Xxxxxx X. Xxxxxxx Director March 29, 1995
25
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-QSB
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1995
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 NO. 0-20039
------------------------
MEDIVATORS, INC.
(Exact Name of Small Business Issuer as Specified in Its Charter)
MINNESOTA 00-0000000
(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Identification No.)
Organization)
XXXXXX XXXXX XXXXX, XXXXXXX 00 XXXXX, XXXXXX XXXXX, XX
00000
(Address of principal executive office and zip code)
Issuer's telephone number, including area code: (000) 000-0000
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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 at least the past 90 days. Yes
_X_ No ____
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
At November 14, 1995 there were outstanding 3,872,486 shares of Series A
Common Stock, $0.01 par value, and 2,000 shares of Series B 10% Cumulative
Redeemable Convertible Common Stock, $0.01 par value.
Transitional Small Business Disclosure: Yes ____ No X
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
MEDIVATORS, INC.
FORM 10-QSB INDEX
SEPTEMBER 30, 1995
Part I: Financial Information
Financial Statements
Unaudited Consolidated Balance Sheets -- September 30, 1995 and December 31, 1994............. 3
Item 1.
Unaudited Consolidated Statements of Operations for the Three Month Periods and Nine Month
Periods Ended September 30, 1995 and 1994..................................................... 4
Unaudited Consolidated Statements of Cash Flows for the Nine Month Period Ended September 30,
1995 and 1994................................................................................. 5
Notes to Unaudited Consolidated Financial Statements.......................................... 6
Management's Discussion and Analysis of Financial Condition and Results of Operations......... 7
Item 2.
Part II: Other Information............................................................................. 9
Item 1. Legal Proceedings............................................................................. 9
Item 4. Submission of Matters to a Vote of Security Holders...........................................
Item 6. Exhibits and Reports on Form 8-K.............................................................. 9
MEDIVATORS, INC.
CONSOLIDATED BALANCE SHEET
UNAUDITED
ASSETS
SEPTEMBER DECEMBER
30, 31,
1995 1994
----------- -----------
CURRENT ASSETS:
Cash and cash equivalents....................................... $ 94,240 $ 509,680
Accounts receivable, net of allowance for doubtful accounts of
$105,000 and $7,500, respectively.............................. 608,277 1,176,298
Inventories..................................................... 1,367,840 1,650,843
Prepaid expenses and other current assets....................... 56,973 190,234
----------- -----------
Total current assets.......................................... 2,127,330 3,527,055
----------- -----------
Property and equipment, net....................................... 470,438 643,371
Goodwill, net..................................................... 96,183
Other assets...................................................... 46,301 46,162
----------- -----------
$ 2,644,069 $ 4,312,771
----------- -----------
----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Note payable.................................................... $ 290,000
Accounts payable................................................ $ 394,702 306,964
Accrued compensation............................................ 89,970 111,469
Accrued royalties............................................... 22,685 26,708
Other accrued expenses.......................................... 42,275 19,447
----------- -----------
Total current liabilities..................................... 549,632 754,588
----------- -----------
Commitments
STOCKHOLDERS' EQUITY:
Series B 10% cumulative redeemable convertible common stock, par
value $.01; authorized 500,000 shares; issued and outstanding
2,000 and 21,500 shares, respectively.......................... 10,310 114,829
Series A common stock, par value $.01; authorized 10,000,000
shares; issued and outstanding 3,872,486 and 3,758,850 shares,
respectively................................................... 38,725 37,588
Additional paid-in capital...................................... 7,947,397 7,744,515
Deferred compensation........................................... (6,250) (10,000)
Accumulated deficit............................................. (5,895,745) (4,328,749)
----------- -----------
2,094,437 3,558,183
----------- -----------
$ 2,644,069 $ 4,312,771
----------- -----------
----------- -----------
See Notes to Consolidated Financial Statements.
3
MEDIVATORS, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
UNAUDITED
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------------ ------------------------------
1995 1994 1995 1994
--------------- ------------- --------------- -------------
Net sales......................................... $ 786,590 $ 750,832 $ 2,333,730 $ 2,199,290
Cost of sales..................................... 505,609 535,888 1,404,043 1,525,309
--------------- ------------- --------------- -------------
Gross profit.................................. 280,981 214,944 929,687 673,981
--------------- ------------- --------------- -------------
Selling, general and administrative............... 1,547,884 523,322 2,333,274 1,195,357
Research and development.......................... 95,754 94,117 241,469 250,764
Other expense (income), net....................... (367) (3,494) (78,060) (5,432)
--------------- ------------- --------------- -------------
1,643,271 613,945 2,496,683 1,440,689
--------------- ------------- --------------- -------------
Net (loss).................................... $ (1,362,290) $ (399,001) $ (1,566,996) $ (766,708)
--------------- ------------- --------------- -------------
--------------- ------------- --------------- -------------
Net (loss) per share.............................. $ (.35) $ (.12) $ (.41) $ (.24)
--------------- ------------- --------------- -------------
--------------- ------------- --------------- -------------
Weighted average common shares outstanding........ 3,858,573 3,465,134 3,846,073 3,192,561
--------------- ------------- --------------- -------------
--------------- ------------- --------------- -------------
See Notes to Consolidated Financial Statements.
4
MEDIVATORS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
UNAUDITED
NINE MONTHS ENDED
SEPTEMBER 30,
1995 1994
-------------- --------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss........................................................................ $ (1,566,996) $ (766,708)
Adjustments to reconcile net (loss) to net cash used by operating activities:
Depreciation and amortization................................................. 282,854 186,178
Gain of sale of investments................................................... (79,500)
Changes in assets and liabilities:
Accounts receivable......................................................... 568,021 (233,113)
Inventories................................................................. 283,003 (291,174)
Other assets and liabilities................................................ 146,305 (38,018)
-------------- --------------
Net cash used in operating activities..................................... (366,313) (1,142,835)
-------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment............................................. (10,128) (163,972)
Proceeds from sale of investment................................................ 151,500
-------------- --------------
Net cash used in investing activities..................................... 141,372 (163,972)
-------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of note payable.......................................... 290,000
Proceeds from sale of Series A common stock..................................... 49,500 1,203,300
Proceeds from sale of Series B common stock..................................... 152,015
Redemption of note payable...................................................... (239,999)
-------------- --------------
Net cash provided by financing activities................................. (190,499) 1,645,315
-------------- --------------
(Decrease) increase in cash............................................... (415,440) 338,508
Cash and cash equivalents:
Beginning....................................................................... 509,680 391,326
-------------- --------------
Ending.......................................................................... $ 94,240 $ 729,834
-------------- --------------
-------------- --------------
SUPPLEMENTAL SCHEDULE OF NON-CASH ACTIVITY
Note payable converted to Series A common stock................................... $ 50,001
See Notes to Consolidated Financial Statements
5
MEDIVATORS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
The accompanying unaudited consolidated financial statements have been
prepared in accordance with the instructions to Form 10-QSB and do not include
all the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary for a
fair presentation have been included.
Operating results for the nine months ended September 30, 1995 are not
necessarily indicative of the results that may be expected for the year 1995.
These statements should be read in conjunction with the audited financial
statements and related notes included in the Company's 10-KSB filed for the year
ended December 31, 1994.
6
MEDIVATORS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
SALES
Revenues for the nine months ended September 30, 1995 were $2,333,730, a 6%
increase from the comparable period of 1994.
Revenues for the three months ended September 30, 1995 were $786,590, a 5%
increase from the comparable period of 1994.
The increase in revenues in the third quarter 1995 as compared to the third
quarter 1994 can be primarily attributable to an increased marketing effort on
the DSD-91 disinfector. Domestic sales of the disinfector line increased 8% and
international sales of the disinfector line increased 61%. MedFab sales remained
consistent with 1994 levels.
GROSS MARGINS
Gross margins for the nine months ended September 30, 1995 were 40%. This is
higher than the 31% gross margins for the comparable period in 1994.
Gross margins for the three months ended September 30, 1995 were 36%. This
is higher than the 29% gross margins for the comparable period in 1994.
The increase in margins is primarily attributable to higher selling prices
and cost efficiencies due to higher quantity production compared to 1994.
OPERATING EXPENSES
Operating expenses were $2,574,743, or 110% of sales, for the nine months
ended September 30, 1995, compared to operating expenses of $1,446,121, 66% of
sales, for the nine months ended September 30, 1994.
Operating expenses were $1,643,638, or 209% of sales, for the three months
ended September 30, 1995, compared to operating expenses of $617,439, or 82% of
sales, for the three months ended September 30, 1994.
The increase in operating expenses of $1,026,199 during the third quarter is
primarily attributable to certain non-recurring expenses related to the
Company's DSI products.
Strained financial resources resulted in an inability to develop effective
distribution channels for the Company's DSI products. As a result, the future
salability of these products is uncertain. During the third quarter, the Company
recorded additional provisions for slow-moving DSI inventory and wrote off DSI
related goodwill and other assets, which totalled approximately $903,000.
NON-OPERATING INCOME AND (EXPENSE)
Non-operating income for the nine months ended September 30, 1995 was
$78,060, compared with non-operating income of $5,432 for the comparable period
in 1994.
Non-operating income for the three months ended September 30, 1995 was $367
compared with non-operating income of $3,494 for the comparable period in 1994.
The increase in the non-operating income for the nine month period was due to
the gain on the sale of an investment in the second quarter 1995.
7
MEDIVATORS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NET INCOME (LOSS)
Net income (loss) for the nine months ended September 30, 1995 was
($1,566,996) or ($.41) per weighted average number of common shares outstanding
compared with ($766,708) or ($.24) per weighted average number of common shares
outstanding for the nine months ended September 30, 1994.
Net income (loss) for the three months ended September 30, 1995 was
($1,362,290) or ($.35) per weighted average number of common shares outstanding
compared with ($399,001) or ($.12) per weighted average number of common shares
outstanding for the three months ended September 30, 1994. Net loss was affected
as a result of certain non-recurring expenses related to the Company's DSI
products as discussed above.
LIQUIDITY AND CAPITAL RESOURCES
LIQUIDITY
At September 30, 1995, the Company had cash in the amount of $94,240, a
decrease of $415,440 over cash available at December 31, 1994. At September 30,
1995, working capital was $1,577,698, an decrease of $1,194,769 from December
31, 1994. The decrease in cash can be attributed to operating losses and the
repayment of the $290,000 convertible working capital loan. $50,001 was
converted into an aggregate 23,810 shares of Series A Common Stock and $239,999
was repaid in March 1995.
The Company has experienced, and continues to experience, recurring losses
from operations. The Company requires financing to continue future operations.
The Company has signed a merger agreement with Cantel Industries, Inc., whereby,
pursuant to the agreement, Cantel has agreed to provide up to $190,000 to the
Company on a secured loan basis at the prime rate plus two percent. The loan
must be repaid over nine amortized installments beginning March 1, 1996. Such
loan will provide cash for operations through the merger. If the merger is not
completed additional financing will be required. There can be no assurance that
such financing will be available, or, if available, will be on terms favorable
to the Company or its stockholders. The report of the independent public
accountants on the Company's financial statements for the year ended December
31, 1994 contained an explanatory second paragraph regarding the Company's
ability to continue as a going concern.
8
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
See the Company's report on Form 10-KSB for the fiscal year ended December
31, 1994 for a description of pending legal proceedings. There were no material
developments in any pending legal proceedings in the quarter ended September 30,
1995.
ITEM 5. OTHER ITEMS
On November 15, 1995, MediVators, Inc. and Cantel Industries announced they
have entered into a merger agreement whereby Cantel will acquire MediVators.
Under the terms of the agreement, upon consummation of the merger, each share of
MediVators stock will be exchanged for .2571 shares of Cantel stock. When
consummated, the merger would result in the stockholders of MediVators owning
approximately 998,000 shares of Cantel stock, which represents approximately a
26 percent equity interest in Cantel.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(b) No reports on form 8-K Current Report were filed during the quarterly
period ended September 30, 1995.
9
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
MediVators, Inc.
(Registrant)
/s/ XXXXXX X. XXXXXX
--------------------------------------------------------------------------------
Xxxxxx X. Xxxxxx
Chairman of Board and
Chief Financial Officer
(Principal Financial and
Accounting Officer)
/s/ XXXXXX X. XXXXXXXXXX
--------------------------------------------------------------------------------
Xxxxxx X. Xxxxxxxxxx
Chief Executive Officer and President
(Principal Executive Officer)
Date: November 17, 1995
