-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, JkofMDZ8bUZ2ZOLG6e8IRCNmyMBGg+hFGAkwglFc/+/AbKtJfX3kGtr7uVDoVVyn 8+oG9nbDhNJ8zfOmZRP35g== 0000891554-97-000511.txt : 19970520 0000891554-97-000511.hdr.sgml : 19970520 ACCESSION NUMBER: 0000891554-97-000511 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970331 FILED AS OF DATE: 19970515 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: ONGARD SYSTEMS INC CENTRAL INDEX KEY: 0000888428 STANDARD INDUSTRIAL CLASSIFICATION: PLASTICS, FOIL & COATED PAPER BAGS [2673] IRS NUMBER: 841149380 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB SEC ACT: 1934 Act SEC FILE NUMBER: 000-20432 FILM NUMBER: 97606731 BUSINESS ADDRESS: STREET 1: 2323 DELGANY ST CITY: DENVER STATE: CO ZIP: 80216 BUSINESS PHONE: 3032932090 MAIL ADDRESS: STREET 1: 40 COMMERCE DRIVE STREET 2: 40 COMMERCE DRIVE CITY: HAUPPAUGE STATE: NY ZIP: 11788 10QSB 1 QUARTERLY REPORT UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-QSB (X) Quarterly report under section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period ended March 31, 1997. or ( ) Transition report under section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from ___________to_____________. Commission File Number: 0-20432. ONGARD SYSTEMS, INC. (Exact name of registrant as specified in its charter) Delaware 84-1149380 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 40 Commerce Drive, Hauppauge, NY 11788 (Address of principal executive office) (Zip Code) Registrant's telephone number, including area code: (516) 231-8989 2323 Delgany Street, Denver, Colorado 80216 (Former name, former address and former fiscal year, if changed since last report) Check whether the issuer: (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 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 the past 90 days. Yes__X__ No_____ State the number of shares outstanding of each of the issuer's classes of common equity, as of March 31, 1997: 6,613,722 Transitional Small Business Disclosure Format: Yes_____ No__X__ PART I. ITEM 1. FINANCIAL STATEMENTS ONGARD SYSTEMS, INC. CONSOLIDATED BALANCE SHEETS March 31 December 31 1997 1996 ASSETS (Unaudited) (Audited) - ------ ----------- ----------- CURRENT ASSETS: Cash and cash equivalents $ 50,539 $ 885,552 Restricted cash 50,000 50,000 Trade accounts receivable, net of allowance of $40,000, respectively 797,949 744,856 Inventory, net 2,326,453 2,102,380 Prepaid expenses and other 278,751 203,712 ---------- ---------- Total current assets 3,503,692 3,986,500 ---------- ---------- PROPERTY AND EQUIPMENT, net 1,752,538 1,836,056 ---------- ---------- EQUIPMENT UNDER OPERATING LEASES, net 233,333 237,594 ---------- ---------- OTHER ASSETS: Excess cost over net tangible assets acquired, net 2,236,833 2,268,788 Intangible and other assets, net 307,593 303,359 Deposits 92,048 95,241 ---------- ---------- Total other assets 2,636,474 2,667,388 ---------- ---------- TOTAL ASSETS $8,126,037 $8,727,538 ========== ========== The accompanying notes are an integral part of these financial statement 2 ONGARD SYSTEMS, INC. CONSOLIDATED BALANCE SHEETS
March 31 December 31 LIABILITIES AND STOCKHOLDERS' EQUITY 1997 1996 - ------------------------------------ ---- ---- (Unaudited) (Audited) CURRENT LIABILITIES: Trade accounts payable $ 963,772 $ 541,604 Accrued liabilities 1,298,341 1,242,257 Capital leases payable 186,992 186,741 Customer deposits 251,113 221,359 Current portion of notes payable 101,139 98,847 ------------ ------------ Total current liabilities 2,801,357 2,290,808 ------------ ------------ CAPITAL LEASES PAYABLE, NET OF CURRENT PORTION 152,643 198,051 NONCURRENT TRADE ACCOUNTS PAYABLE 83,498 109,520 Total liabilities $ 3,037,498 $ 2,598,379 ------------ ------------ STOCKHOLDERS' EQUITY: Convertible Series A Preferred stock; $.001 par value, 3,000,000 shares authorized, 253,292 issued and outstanding at March 31, 1997 and December 31, 1996, aggregate liquidation preference of $ 1,013,168 $ 778,167 $ 778,167 Series B Redeemable Preferred Stock, no par value; 100 shares issued and outstanding at March 31, 1997 and December 31, 1996 10 10 Common stock; $.001 par value, 25,000,000 shares authorized, 6,613,722 shares issued and outstanding at March 31, 1997 and December 31, 1996 6,614 6,614 Additional paid-in capital 30,212,161 30,212,161 Deferred compensation (442,125) (589,500) Accumulated deficit (25,466,288) (24,278,293) ------------ ------------ Total stockholders' equity $ 5,088,539 $ 6,129,159 ------------ ------------ TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 8,126,037 $ 8,727,538 ============ ============
The accompanying notes are an integral part of these financial statements. 3 ONGARD SYSTEMS, INC. CONSOLIDATED STATEMENTS OF OPERATIONS Three Months Ended March 31 ----------------------- 1997 1996 ---- ---- (Unaudited) (Unaudited) REVENUES $ 1,288,324 $ 727,750 COST OF SALES 1,307,750 887,289 ----------- ----------- Operating margin (deficit) (19,246) (159,539) ----------- ----------- COSTS AND EXPENSES: Sales & marketing 495,404 425,756 General and administrative 376,125 734,166 Research and development 26,067 68,396 Deferred compensation 147,375 145,314 Depreciation and amortization 109,428 73,946 ----------- ----------- Total expenses 1,154,399 1,447,578 ----------- ----------- LOSS FROM OPERATIONS (1,173,645) (1,607,117) INTEREST INCOME 6,148 41,628 OTHER INCOME 351 1,292 INTEREST EXPENSE (18,777) (186,448) OTHER EXPENSES (2,072) (10,794) ----------- ----------- NET LOSS $(1,187,995) $(1,761,439) =========== =========== NET LOSS PER SHARE $ (.18) $ (.32) =========== =========== WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING 6,613,722 5,515,190 =========== =========== The accompanying notes are an integral part of these financial statements. 4 ONGARD SYSTEMS, INC. CONSOLIDATED STATEMENT OF CASH FLOWS
Three Months Ended March 31 --------------------- 1997 1996 ---- ---- (Unaudited) (Unaudited) CASH FLOWS USED IN OPERATING ACTIVITIES: Net Loss $(1,187,995) $(1,761,439) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization and non-cash interest 174,484 260,268 Compensation expense related to stock options 147,375 145,312 Allowance for doubtful accounts -- (5,118) Changes in assets and liabilities: (Increase) in restricted cash -- (1,770) (Increase) in accounts receivable (53,093) (11,649) (Increase) in inventory (224,073) (441,624) (Increase ) in prepaid expenses (75,039) (177,985) Decrease (increase) in deposits 3,193 (60,746) Increase (decrease) in customer deposits 29,754 (11,237) Increase (decrease) in accounts payable and accrued liabilities 467,62 (32,882) ----------- ----------- Net cash used in operating activities (717,768) (2,098,870) ----------- ----------- CASH FLOWS USED IN INVESTING ACTIVITIES: Purchase of property and equipment (16,441) (139,265) Increase in patent, patents pending and trademark (10,240) (17,568) ----------- ----------- Net cash used in investing activities $ (26,681) $ (156,833) ----------- -----------
The accompanying notes are an integral part of these financial statements. 5 ONGARD SYSTEMS, INC. CONSOLIDATED STATEMENT OF CASH FLOWS
Three Months Ended March 31 ----------------------------- 1997 1996 ---- ---- (Unaudited) (Unaudited) CASH FLOWS FROM FINANCING ACTIVITIES: Repayment of notes payable Bank $ -- $ (141,948) Payment of capital lease obligations (54,558) (41,072) Payment of leasehold improvements financed by owner (36,006) -- Net proceeds from issuance of common stock -- 4,548,802 ----------- ----------- Net cash provided by (used in) financing activities (90,564) 4,365,782 ----------- ----------- NET INCREASE (DECREASE) IN CASH (835,013) 2,110,079 CASH and cash equivalents, beginning of year 885,552 3,693,303 ----------- ----------- CASH and cash equivalents, end of the period $ 50,539 $ 5,803,382 ----------- ----------- SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid for interest $ 17,555 $ 30,583 =========== =========== SUPPLEMENTAL SCHEDULE OF NON-CASH FINANCING AND INVESTING ACTIVITIES: Stock Subscription Receivable -- $ 513,719 Leasehold improvements financed by owner $ 22,902 $ 350,000 Acquisition of equipment through capital leases $ 9,401 $ 431,112 Reclassification of finished goods inventory to equipment, currently under lease $ -- $ 116,584
6 ONGARD SYSTEMS, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 1. BASIS OF PRESENTATION The information in this Form 10-QSB includes the results of the Company and its wholly-owned subsidiary, OnGard Sterilization Technology ("OST"), for the periods ended March 31, 1997 and 1996. The data is unaudited, but includes all adjustments including the elimination of intercompany accounts and transactions which are, in the opinion of management, necessary for a fair presentation of the interim periods presented. The accounting policies utilized in the preparation of financial information are the same as set forth in the Company's annual financial statements and should be read in conjunction with the Company's Form 10-KSB. Certain prior period balances have been reclassified to conform to the current period classification. Results of operations for the three months ended March 31, 1997 may not necessarily be indicative of the full year results. 2. CONVERTIBLE DEBENTURE TRANSACTION In April 1997, the Company completed the documentation for $1.5 million (gross proceeds) from the sale of convertible debentures (the "Debentures"), and anticipates the funding will occur in May 1997. The Debentures are convertible into common stock of the Company in $50,000 denominations at any time after a 45-day restriction period at a price equal to the then fair market value of the common stock less 22-1/2%, or the common stock price at the funding date, whichever is lower. The Debentures bear interest at the rate of 6% per annum until conversion; such interest is payable quarterly in cash or common stock of the Company, at the Company's option. The Debentures mature five years from issuance, at which time any remaining amounts convert to common stock. The Company granted warrants to the placement agrent equal to 10% of the funds raised at the exercise price described above and paid placement fees of approximately 10% of the funds raised. The Company will record the value of the guaranteed discount from market price provided to the Debenture holders as non-cash interest expense over the period from issuance to the earlist conversion date. 3. INVENTORY Inventory consists of the following: March 31, 1997 December 31, 1996 -------------- ----------------- Raw materials $1,424,260 $1,356,476 Work in process 697,936 629,280 Finished goods 164,257 116,624 ----------- ---------- $ 2,326,453 $2,102,380 =========== ========== 7 4. PROPERTY AND EQUIPMENT AND INTANGIBLE AND OTHER ASSETS Property and equipment, at cost, consist of the following: March 31, 1997 December 31, 1996 -------------- ----------------- Furniture and fixtures $ 87,545 $ 86,080 Leasehold improvements 812,475 784,140 Machinery and equipment 2,098,343 2,079,400 --------- --------- 2,998,363 2,949,620 Less accumulated depreciation (1,245,825) (1,113,564) and amortization ---------- ---------- $1,752,538 $1,836,056 ========== ========== Intangible and other assets, at cost, consist of the: March 31, 1997 December 31, 1996 -------------- ----------------- Patents and trademarks $ 348,393 $338,150 Other intangible assets 20,000 20,000 ---------- -------- 368,393 358,150 Less accumulated amortization (60,800) (54,791) ---------- -------- $ 307,593 $303,359 ========== ======== 5. DEBT GUARANTEE FEE Debt guarantee fees reflected the estimated fair value of 600,000 warrants issued to the guarantor of the Company's $2.5 million bank indebtedness in exchange for the guarantee. The amount was amortized over the term of the note, the period from October 1995 through maturity in April 1996, as a non-cash charge against earnings which was included in interest expense (Note 6). The Company obtained an investment banking opinion for the fair value assigned to the first 400,000 warrants granted, and applied the same value for the subsequent 200,000 warrants which were granted under the same terms and conditions. The guarantee fee was fully amortized upon the repayment of the debt in April 1996. The Company will also record similar charges for the value of the 375,000 warrants granted to the guarantors in conjunction with a new credit facility committed in April 1997 with funding anticipated in May 1997. (Note 6). 8 6. DEBT In October 1994, the Company entered into a $1.5 million term loan with a bank which was facilitated by a third party guarantor. The interest on the loan was at the prime rate plus 2% and provided for a 36 month amortization schedule with a balloon payment at the end of one and a half years from inception. In April and May 1995, the guarantor of the $1.5 million note and another guarantor ("the guarantors") facilitated an additional $1.0 million in indebtedness with the same bank. Two notes of $500,000 each were executed with the principal amount due in April 1996; interest was payable monthly. In exchange for their guarantees, the Company granted the guarantors options to acquire a total of 200,000 shares at an exercise price of $4.00 per share (Note 5). These two notes bear interest at 11%. The three notes were paid in full in April, 1996, in accordance with the maturity payment terms described above. In April 1997 the Company obtained a commitment for a new credit facility with a bank, which was facilitated by the same two guarantors of the previous bank borrowing. The credit line of $1.0 million bears intrest at the LIBOR rate plus 2%, and matures twelve months from inception. The Company secured the credit facility with all of its tangible and intangible assets. In exchange for their guarantees the Company granted the guarantors 375,000 warrants to purchase OnGard common stock at a price of $2 per share or the price per share at the closing date, whichever is lower. The Company expects the documentation will be completed and funding available in May 1997. The Company will record the fair value of the warrants granted as a non-cash fee, included as interest expense, and amortized over the life of the loan. 7. WARRANTS The Company has issued warrants in connection with the securities transactions which have financed its operations since its initial public offering, other than its September 1995 private placement described in Note 2. Warrants included with the Company's initial public offering expired on April 30, 1996 and generated $6.0 million in gross proceeds from their exercise. Warrant prices and expiration periods of remaining warrants vary but key terms, shown below, are included in each transaction. The Company has excluded the dilution impact of both the convertible debenture and related warrants, and guarantors 1997 warrants (both will be completed during May 1997) until the actual exercise price, which is subject to certain events, can be determined (Note 2 and Note 6). A summary of the key warrant terms, Company calculation of dilution adjusted prices and shares at March 31, 1997 and potential maximum gross proceeds to the Company are as follows: 9
Class A Guarantor's Underwriter's Class B Warrants Warrants Warrants Warrants Total -------- -------- -------- -------- ----- Number of shares 228,571 (b) 600,000 250,000 375,000 1,453,571 Original price $6.00 $4.00 $3.50-$9.45 $6.00 -- Dilution adjusted shares 268,341 692,780 345,260 428,531 1,734,912 Dilution adjusted price $5.20 $3.41- $3.57 $3.01-$6.25 $5.23-$5.31 -- Maximum potential gross $1.4 $2.4 $1.6 $2.3 $7.7 proceeds ($ millions)(a) Expiration date 4-20-97, 10-24-99, 08-11-97, 2-28-98 7-18-97 5-31-00 07-20-97 Redemption provision Yes No No Yes
(a) There is no assurance that the full amount, if any, of these proceeds will be received by the Company in the future. (b) Number of shares have been adjusted to reflect 71,429 exercised warrants. PART I. ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following table sets forth, for the periods indicated, certain items from the Company's Statements of Operations expressed as a percentage of revenues. Three Months Ended March 31 -------------- 1997 1996 ---- ---- Revenues 100.0% 100.0% Cost of sales 101.5 121.9 ----- ----- Operating Margin (deficit) (1.5) (21.9) ----- ----- Operating Expenses: General and administrative 29.2 100.8 Sales and marketing 38.5 58.5 Depreciation and amortization 8.5 10.2 Deferred compensation 11.4 20.0 Research and development 2.0 9 .4 ----- ----- Total 89.6 198.9 ----- ----- Loss from operations (91.1) (220.8) Interest and other expenses (1.7) (27.3) Interest and other income .5 5.9 ----- ----- Net loss (92.3)% (242.2)% ----- ----- 10 Three months ended March 31, 1997 compared to three months ended March 31, 1996 Revenues for the three months ended March 31, 1997 increased 77% or $560,000 from $728,000 to $1,288,000 in the same period in 1996. Excluding revenues of $21,000 in 1996 from a divested product line, revenues increased 82%. The increase is primarily attributable to the Company's equipment business line which doubled from the prior year. Operating margin improved to a deficit of $19,000 (a deficit of 2% of revenues) for the three months ended March 31, 1997 compared to a deficit of $160,000 (22% of revenues) for the same period in 1996. The improvement in margin resulted in part from a increase in revenues of $560,000 described above, offset partially by an increase in the level of overhead costs associated with engineering and quality control which were required to upgrade the performance and quality of the equipment product line. Revenues, which were insufficient to offset fixed factory overhead, resulted in a slight operating margin deficiency. General and administrative expenses decreased $358,000, or 49% from $734,000 to $376,000 for the respective three month periods ended March 31, 1997 and 1996. The decrease is the result of cost containment measures in a broad category of expenses including, legal, professional fees, travel and office supplies, as well as expenditures incurred for relocation in the quarter ended March 1996 which were not recurring. Deferred compensation, the non-cash charges which reflect the difference between market and exercise prices of stock options granted, increased $2,000 from $145,000 to $147,000 in the respective quarters ended March 31, 1997, and 1996 Sales and marketing expenses increased $69,000 to $495,000 in the three months ended March 31, 1997 versus $426,000 in the comparable period in 1995, or 16% . The Company has increased its direct selling efforts, including manpower and collateral materials, in its equipment product line. Research and development expenses decreased $42,000 to $26,000 from $68,000, a 62% decrease, for the first quarter ended March 31, 1997 to the comparable quarter in 1996. The decrease relates to the completion of Autopak(R) development, and of the Company's compact sterilizer product line. Interest expense decreased from $186,000 to $19,000 for the comparable quarters ended March 31, 1997 and 1996, a decrease of 167,000 or 90%. This results from the payment in full of the Company's bank line, on April 15, 1996 offset by increases for interest related to assets financed by capital leases. Liquidity and Capital Resources The Company's working capital at March 31, 1997 decreased to $702,000 from $1,696,000 at December 31, 1996. Cash and cash equivalents were $51,000 at March 31, 1997 versus $886,000 at December 31, 1996. Accounts receivable increased $53,000 to $798,000 at March 31, 1997, from $745,000 at December 31, 1996. Inventory increased, net, $224,000 to $2,326,000 at March 31, 1997 from $2,102,000 at December 31, 1996. 11 Successful completion of the Company's initial public offering in 1992 provided funds to expand development efforts for the Company's existing product line and continue product enhancement and expansion. The Company had raised additional funds through various private transactions since that date, however, as working capital at December 31, 1994 amounted to a deficit of $1,032,000, it became necessary for the Company to obtain additional funds. In order to align its capital structure and working capital deficiency, on September 29, 1995, the Company completed a private placement (the "September 1995 Private Placement") of the sale of 2,204,021 shares of the Company's common stock at a price of $3.50 per share aggregating gross proceeds of $7,714,000. Pursuant to the September 1995 Private Placement the Company registered such Common Shares issued in this placement. The Company also sold 100 shares of its Series B Redeemable Preferred Limited Voting Stock (the "Series B preferred stock") in the September 1995 Private Placement. Provided that the holders of the Series B preferred stock own in the aggregate at least 5% of the Company's Common Stock, the holders of the Series B preferred stock were granted the right to elect one member to the Company's Board of Directors, which they exercised effective December 24, 1995. The Company had also previously generated funds through $2.5 million in notes payable to a bank which had been facilitated by third party guarantors (Note 6). The notes called for a 36 month amortization schedule and a balloon payment at the end of one-and-a-half years in April, 1996. The balloon payment ($1,622,000) was paid in full from the Company's cash position in April, 1996. In addition, the Company obtained funds through the exercise of outstanding Common Stock Purchase Warrants. These warrants were to expire on August 15, 1995, but were initially extended until December 31, 1995 and thereafter until March 29, 1996 and April 30, 1996. Through the exercise of Common Stock Purchase Warrants, the Company generated $6.0 million in gross proceeds through the expiration date of the Common Stock Purchase Warrants, April 30, 1996. Most recently, in April 1997, the Company obtained a commitment for a $1.0 bank line of credit facilitated by the guarantors who had facilitated the Company's previous bank line. The line bears interest at the LIBOR rate plus 2% and matures twelve months from inception. The Company provided the guarantors with warrants to purchase 375,000 shares of common stock at a price of $2 or the price at the closing date, whichever is lower. The Company expects the closing date and funds to become available in May 1997. The Company also obtained a commitment for the sale of $1.5 million in convertible debentures. The Debentures are convertible into common stock at a price equal to the lower of (i) the fair market value at the closing date less 22 1/2 percent or (ii) the price at the funding date. The debentures are convertible after a 45 day restriction period. Interest on the debentures of 6% per annum is payable in cash or common stock at the Company's option. The Company anticipates funding during May 1997. Although the Company has been successful to date in obtaining sources of financing sufficient to meet current trade obligations and other expenses and to enable it to pursue its business plans generally, there is no assurance it will be successful in this regard in the future. Furthermore, there can be no assurance that the Company will be successful in securing other funds or, that if successful, such funds will be adequate to fund the Company's operations until it is able to generate cash from operations sufficient to sustain its ongoing operations without additional external sources of capital. 12 Government Regulation The Company's existing and planned products are or may be subject to regulation by the FDA pursuant to the provisions of the Federal Food, Drug, and Cosmetic Act ("FDC Act"). Under the FDC Act, several, if not all, of the Company's infection control products, sterilization medical packaging and sterilization supplies are subject to regulation as medical devices. Medical devices are classified into either Class I, II or III. Class I and II devices are not expressly approved by the FDA. However, pursuant to section 510(k) of the FDC Act, the manufacturer or distributor of a Class I or II device that is initially introduced commercially on or after May 28, 1976 must notify the FDA of its intent commercially to introduce the device through the submission of a premarket notification (a "510(k) notice"). Before commercial distribution can commence, the FDA must review the 510(k) notice and clear the device for commercial distribution. The FDA normally has 90 days to review the 510(k) notice and grant or deny clearance to market on the basis that it is substantially equivalent to a device marketed before May 28, 1976. Alternatively, the FDA may postpone a final decision and require the submission of additional information, which may include clinical data. If additional information is required, review and clearance of a 510(k) notice may be significantly delayed. In order to clear a Class I or II device for marketing, the FDA must determine, from the information contained in the 510(k) notice, that the device is "substantially equivalent" to one or more Class I or II devices that are legally marketed in the United States. If a device is not considered "substantially equivalent," it is regulated as a Class III medical device. In general, a Class III medical device must be expressly approved by the FDA for commercial distribution pursuant to the submission of a Premarket Approval Application ("PMA"). A PMA must contain, among other information, substantial information about the manufacture of the device and data from adequate and well controlled clinical trials that demonstrate that the device is both safe and effective. The PMA approval process is substantially more complex and lengthy than the 510(k) premarket notification process. Once a PMA is submitted, it may take 16-24 months, or longer, for the FDA review and approval, if such approval is granted at all. A medical device, whether cleared for marketing under the 510(k) pathway or pursuant to a PMA approval, is subject to ongoing regulatory oversight by the FDA to ensure compliance with regulatory requirements, including, but not limited to, product labeling requirements and limitations, including those related to promotion and marketing efforts, Current Good Manufacturing Practice requirements, record keeping and medical device (adverse reaction) reporting. FDA regulatory oversight also applies to the Company's sterile medical packaging products, which are used by other companies in packaging their own medical devices. Generally, FDA acceptance of the suitability of such packaging products is made in the context of regulatory submissions of other companies concerning the device to be packaged. Thus, the Company requires no separate FDA clearance or approval of these packaging products. Within this framework, the principal regulatory responsibilities of the Company for its sterile medical packaging products are to ensure that the packaging products are manufactured in conformity with Current Good Manufacturing Practice requirements. Although the Company believes that all of its manufacturing activities are in conformity with Current Good Manufacturing Practice requirements, there can be no guarantee of compliance. 13 Historically, the FDA has not exercised device regulatory authority over some types of infection control products, such as sharps containers or mailer packages, including those used in the Company's mail-back system, and has allowed companies to begin commercial introduction (on or after May 28, 1976) of these types of products without a 510(k) clearance. On February 3, 1994, the FDA issued a written policy statement which allowed manufacturers of sharps containers a "discretionary period" of 180 days (until August 2, 1994) to continue marketing their products already in distribution (introduced on or after May 28, 1976) without the benefit of 510(k) clearance provided that required 501(k) notices are submitted to FDA prior to the conclusion of the discretionary period. Manufacturers of sharps containers also must comply with FDA device listing and establishment registration requirements. The FDA has indicated that there is no change in its regulatory posture toward the mailer packages used in the mail-back system and that it does not intend to regulate this product as a medical device. There can, however, be no assurance that the FDA will maintain its current regulatory posture toward the mailing package. OnGard submitted all but one of the 510(k) notices during 1994. In June 1994, the Company received notification that all of its 510(k) submittals for sharps containers had been approved and cleared for marketing. The Company has an additional submittal for one of its sharps containers which the FDA had advised it to withhold until the others had cleared, which it is now preparing for submission. The Company has also received a 510(k) notice for its submission of AutoPak(R). 14 PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K. One on May 6, 1997, Item 5 - Other Events, reflecting the resignation of certain directorss of OnGard's Board. 15 SIGNATURE In accordance with to the requirements of the Exchange Act, the registrant has caused this report to be signed on its behalf by the undersigned thereunto duly authorized. ON-GARD SYSTEMS, INC. Dated: May 14, 1997 PHIL B. KART ---------------------------------------------- Phil B. Kart Vice President and Principal Financial Officer 16 EX-27 2
5 3-MOS DEC-31-1997 MAR-31-1997 100,539 0 837,949 40,000 2,326,453 3,503,692 2,998,363 (1,245,825) 8,126,037 2,801,357 0 0 778,177 30,218,775 (25,908,413) 8,126,037 1,288,324 1,288,324 1,307,750 1,307,750 1,154,399 0 18,777 (1,187,995) 0 (1,187,995) 0 0 0 (1,187,995) (.18) 0
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