FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES AND EXCHANGE ACT OF 1934
For quarterly period ended January 31, 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 number 0-11571
AEQUITRON MEDICAL, INC.
(Exact name of small business issuer as specified in its charter)
MINNESOTA 41-1359703
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
14800 28th Avenue North
Plymouth, Minnesota 55447
(Address of principal executive offices)
(Zip Code)
612/557-9200
(Issuer's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 and 15(d) of the
Securities and Exchange Act of 1934 during the preceding 12 months
(or for such shorter periods that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Common Stock, $.01 Par Value--4,842,800 Shares as of January 31,
1995
INDEX
AEQUITRON MEDICAL, INC.
Part I. Financial Information Page No.
Item 1. Financial Statements.
Condensed Consolidated Balance Sheets--
January 31, 1995 and April 30, 1994. 3-4
Condensed Consolidated Statements of
Income for the Nine Months ended
January 31, 1995 and 1994. 5
Condensed Consolidated Statements of
Cash Flows for the Nine Months ended
January 31, 1995 and 1994. 6
Notes to Consolidated Financial Statements
- January 31, 1995. 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 8-10
Part II. Other Information
Item 1. Legal Proceedings 11
Item 2. Changes in Securities 11
Item 3. Defaults Upon Senior Securities 11
Item 4. Submission of Matters to a Vote of
Security Holders 11
Item 5. Other Information 11
Item 6. Exhibits and Reports on Form 8-K 11-12
Signatures 13
PART I. FINANCIAL INFORMATION
AEQUITRON MEDICAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
January 31, April 30,
1995 1994
(Unaudited)
ASSETS
Current Assets:
Cash $ 4,340,700 $ 2,375,200
Accounts receivable 5,014,300 4,036,600
Inventories 2,780,400 2,669,600
Prepaid expenses 356,400 298,200
Deferred income taxes 582,300 624,100
Total Current Assets $13,074,100 $10,003,700
Property and equipment
Buildings 650,900 648,700
Equipment 4,153,600 4,396,600
Leasehold improvements 26,800 26,800
4,831,300 5,072,100
Less allowances for depreciation (3,390,600) (3,601,400)
1,440,700 1,470,700
Other Assets
Goodwill, net of accumulated
amortization of $2,448,000 at
January 31, 1995 and $2,232,000
at April 30, 1994 1,861,500 2,077,500
Demonstration, evaluation and
rental equipment 914,900 1,178,300
Other assets 41,700 587,800
2,818,100 3,843,600
Total Assets $17,332,900 $15,318,000
AEQUITRON MEDICAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (CON'T)
January 31, April 30,
1995 1994
(Unaudited)
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 931,600 $ 915,900
Employee compensation 1,180,300 589,200
Commissions payable 546,500 421,200
Other liabilities and accrued
expenses 1,021,800 1,252,400
Current maturities of long-term
debt 20,500 54,200
Income taxes payable 58,800 -
Total Current Liabilities 3,759,500 3,232,900
Long-term debt 69,300 85,700
Shareholders' Equity:
Preferred stock, no par value per
share; authorized 4,000,000; issued
and outstanding - none
Common stock, par value $.01 per
share; authorized 15,000,000
shares; issued January 31, 1995--
4,842,800 shares; April 30, 1994--
4,792,600 shares 48,400 47,900
Additional paid-in capital 5,940,100 5,834,500
Retained earnings 7,515,600 6,117,000
13,504,100 11,999,400
Total Liabilities & Shareholders'
Equity $17,332,900 $15,318,000
AEQUITRON MEDICAL, INC.
CONDENSED CONSOLIDATED STATEMENT OF INCOME
(Unaudited)
Three Months Ended January 31, Nine Months Ended January 31,
1995 1994 1995 1994
% of % of % of % of
Amount Sales Amount Sales Amount Sales Amount Sales
Net sales $ 7,298,900 100.0% $6,864,200 100.0% $23,461,200 100.0% $19,242,800 100.0%
Cost of sales 3,363,000 46.1% 3,274,000 47.7% 10,685,600 45.5% 9,559,700 49.7%
3,935,900 53.9% 3,590,200 52.3% 12,775,600 54.5% 9,683,100 50.3%
Operating Expenses:
Selling & marketing 1,495,600 20.5% 1,501,500 21.9% 4,525,200 19.3% 4,323,000 22.5%
General & administrative 1,148,500 15.7% 955,200 13.9% 3,763,000 16.0% 3,200,700 16.6%
Research & development 586,900 8.0% 458,800 6.7% 2,390,400 10.2% 1,332,600 6.9%
Interest 1,300 0.0% 5,500 0.1% 23,800 0.1% 23,900 0.1%
Other income (80,000) (1.0)% (40,400) (0.6)% (219,700) (0.9)% (98,900) (0.5)%
Disposal of oxygen
concentrator product line 0 0.0% 0 0.0% 0 0.0% 750,000 3.9%
Total $ 3,152,300 43.2% $2,880,600 42.0% $10,482,700 44.7% $ 9,531,300 49.5%
Income before cumulative
effect of accounting change 783,600 10.7% 709,600 10.3% 2,292,900 9.8% 151,800 0.8%
Income taxes 305,600 4.2% 325,800 4.7% 894,300 3.8% 88,800 0.5%
Income before cumulative
effect of accounting change 478,000 6.5% 383,800 5.6% 1,398,600 6.0% 63,000 0.3%
Cumulative effect of change
in method of accounting for
income taxes 0 0.0% 0 0.0% 0 0.0% (92,600) (0.5%)
Net income (loss) $ 478,000 6.5% $ 383,800 5.6% $ 1,398,600 6.0% $ (29,600) (0.2%)
Earnings per share:
Income before cumulative
effect of accounting change $.09 $.08 $.27 $.01
Cumulative effect of accounting
change $.00 $.00 $.00 ($.02)
Net income (loss) per share $.09 $.08 $.27 ($.01)
Weighted average number
of shares outstanding 5,165,100 4,797,600 5,093,300 4,776,300
AEQUITRON MEDICAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
NINE MONTHS ENDED JANUARY 31,
1995 1994
OPERATING ACTIVITIES
Net income (loss) $1,398,600 $ (29,600)
Adjustments to reconcile to net
cash provided by operating
activities:
Depreciation 364,500 346,900
Amortization of goodwill and
other intangible assets 762,000 280,300
Provision for losses on
accounts receivable 67,400 131,100
Provision for deferred
income taxes 48,100 (152,600)
Loss on sale of assets 9,100 5,100
Change in operating assets
and liabilities:
Accounts receivable (1,045,100) 81,500
Inventories (110,800) 695,600
Rental equipment 263,400 23,400
Accounts payable 15,800 101,200
Other assets and liabilities $ 480,000 $ (413,300)
NET CASH PROVIDED BY OPERATIONS $2,253,000 $1,896,200
INVESTING ACTIVITIES
Purchases of property, plant
and equipment (351,000) (250,000)
Proceeds from disposals of
property and equipment 7,500 1,300
Increase in other assets 0 (500,000)
NET CASH USED IN
INVESTING ACTIVITIES $ (343,500) $ (748,700)
FINANCING ACTIVITIES
Proceeds from short term borrowings - 394,000
Payments on short term borrowings - (394,000)
Reductions of long term debt (50,100) (108,200)
Net proceeds from exercise of stock
options and sales of common stock 106,100 11,400
NET CASH PROVIDED BY
FINANCING ACTIVITIES $ 56,000 $ (96,800)
NET INCREASE IN CASH $1,965,500 $1,050,700
CASH AT BEGINNING OF PERIOD $2,375,200 $ 136,600
CASH AT END OF PERIOD $4,340,700 $1,187,300
AEQUITRON MEDICAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
January 31, 1995
NOTE A--BASIS OF PRESENTATION
The accompanying unaudited condensed financial statements have been
prepared in accordance with generally accepted accounting
principles for interim financial information and with the
instructions to Form 10-Q and Rule 10-01 of Regulation S-X.
Accordingly, they do not include all of 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 month period ended January 31, 1995 are not
necessarily indicative of the results that may be expected for the
year ended April 30, 1995. For further information, refer to the
financial statements and footnotes thereto included in the
Company's annual report on Form 10-KSB for the year ended April 30,
1994.
NOTE B--INVENTORIES
The major classes of inventories consist of the following:
January 31, April 30,
1995 1994
Raw Materials $1,424,100 $1,517,700
Work In Progress 890,900 707,400
Finished Goods 465,400 444,500
$2,780,400 $2,669,600
AEQUITRON MEDICAL, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of operations for the third quarter ended January 31, 1995,
versus the third quarter ended January 31, 1994, and analysis of
financial condition as of January 31, 1995 compared to the fiscal
year ended April 30, 1994.
RESULTS OF OPERATIONS
Net Sales
Net sales for the quarter ended January 31, l995, totaled
$7,298,900, which represents a 6.3% increase from the $6,864,200 in
net sales reported for the comparable period of the prior year.
Sales of $23,461,200 for the current nine months represent a 21.9%
increase from the $19,242,800 in net sales for the comparable
period of a year ago.
The sales results reflect an increase in both the apnea monitor and
ventilator product lines domestically and the ventilator line
internationally. These increases are attributable to a higher
domestic demand (one competitor discontinued manufacturing units
domestically) for the ventilator as well as a continuing
requirement from the Company's German-based OEM distributor,
Dragerwerk. The monitor has had increased demand as customers
replace non-memory units with memory and Abbey Healthcare Group has
made significant monitor purchases to replace rented units. Sales
for these product lines are expected to exceed prior year levels
for the remainder of the year.
The Company's Crow River Industries subsidiary sales for the
current nine months represent a 17.7% increase for the comparable
period of the prior year. Crow River sales are expected to remain
strong for the balance of the fiscal year.
Cost of Sales
Gross margins as a percentage of net sales for the quarter ended
January 31, 1995, increased to 53.9% from 52.3% for same period in
fiscal 1994. For the nine months ended January 31, 1995, gross
margins increased to 54.5% from 50.3% for the same period a year
ago. The increase in gross margin is the result of increased
production levels in each product line for the first nine months,
a charge of $150,000 related to a product recall during the first
quarter of fiscal 1994 and the favorable effect of the
discontinuation of the lower margin oxygen concentrator product
line. Margin levels are expected to remain at current levels for
the balance of the fiscal year.
Operating Expenses
Selling and marketing expense for the quarter ended January 31,
l995, decreased $5,900, or .4% compared to the third quarter of
last year. As a percentage of net sales, these expenses decreased
to 20.5% from 21.9% last year. On a year to date basis, selling
and marketing expense increased $202,200 and represented 19.3% of
net sales for the current nine months compared to 22.5% for the
same period last year. The significant decrease as a percentage of
sales reflects the effect of the 21.9% increase in sales. Fixed
sales and marketing expenses are expected to continue at the
current level for the remainder of the fiscal year.
General and administrative expense for the quarter ended January
31, l995, increased $193,300, or 20.2%, over the third quarter of
last year. As a percentage of sales, expenses for the quarter
increased to 15.7% from 13.9% for the same period last year. On a
year to date basis, general and administrative expenses increased
$562,300 and represent 16.0% of net sales compared to 16.6% for the
comparable period last year. The increase for the quarter and year
to date is due to higher professional service costs and additional
employee benefits incurred in fiscal 1995 as compared to fiscal
1994. The rise in professional expenses is the result of internal
company-wide programs to improve productivity and operations.
General and administrative expenses are also expected to remain at
current levels for the remainder of the fiscal year.
Research and development expense for the quarter ended January 31,
l995, increased $128,100, or 27.9%, compared to the same period
last year. For the nine months ended January 31, 1995, expenses
increased $1,057,800 as compared to the first nine months of fiscal
1994. As a percentage of net sales, expenses increased to 8.0%
from 6.7% for the quarter and 10.2% from 6.9% for the current nine
month period. The increase in research and development expense for
the quarter and year to date reflects additional product
development project expenses. The year to date expense also
includes a one-time charge of $500,000 in connection with the
termination of a license agreement with Adahan, Inc. Research and
development expenditures are expected to decrease for the balance
of the fiscal year as expenses related to the license agreement
cease and the replacement project development expenses are expected
to be less than prior levels.
Interest expense for the quarter ended January 31, l995, decreased
by $4,200 from the third quarter of fiscal 1994. On a year to date
basis, interest expenses were level with the comparable period last
year. Interest expense is expected to remain at its current level
for the remainder of the fiscal year. Other income for the quarter
increased by $39,600 and $120,800 for the current nine months
compared to the same period last year. The increase is due to
additional earnings on investments and accounts payable discounts.
Net Income Comparison
Net income for the quarter ended January 31, l995 was $478,000,
which represents a $94,200 increase from the net income reported
for the third quarter last year. Net income for the nine months
ended January 31, 1995, was $1,398,600 compared to a loss of
$29,600 for the same period last year. Net income for the three
and nine months ended January 31, 1995, was $.09 and $.27 per
share, respectively, compared to net income of $.08 and a net loss
of $.01 per share for the comparable periods last year. The
effective tax rate of 39% for the nine months ended January 31,
1995, was slightly lower than recent historical levels due to
increased earnings lessening the impact of non-deductible goodwill.
LIQUIDITY AND CAPITAL RESOURCES
Cash increased to $4,340,700 at January 31, 1995, from $2,375,200
at April 30, 1994. Operating activities provided net cash of
$2,253,000 during the nine months ended January 31, 1995, compared
to $1,896,200 for the comparable prior year nine month period.
During the first nine months of fiscal 1995, the Company used
$50,100 to pay down long-term debt and $351,000 to purchase capital
equipment. These funds were provided from operations by a decrease
in rental inventory and other assets with an increase in accounts
payable and other liabilities for a total of $759,200 and were
offset by an increase in accounts receivable and inventory of
$1,155,900. Capital equipment expenditures for the balance of the
fiscal year are expected to be approximately $375,000.
The Company renewed its existing line of credit, which matured on
September 30, 1994. The Company believes that internally generated
funds and existing borrowing potential will provide sufficient
working capital to meet all anticipated cash needs and capital
equipment requirements for the foreeseable future.
PART II
Item 1. Legal Proceedings
On January 18, 1995, Adahan, Inc. of Israel served on the
Company a Demand for Arbitration in New York City under
the rule of the American Arbitration Association. Adahan
is seeking $21,650,000 in loss of anticipated royalty
payments and $500,000 for failure to pay for delivery of
special tooling. Adahan is also requesting an injunction
against the Company from using the know-how or technology
received from Adahan and the return of miscellaneous
property. The Company intends to file an answer and
counterclaim seeking a refund of the $500,000 paid to
Adahan plus expenses incurred on the project due to
product inadequacies and documentation substantially
below that required for submission to the FDA.
Item 2. Changes in Securities
No changes have been made in any registered securities.
Item 3. Defaults on Senior Securities
No event constituting a default has occurred with respect
to any senior security of the Company.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of securities holders
during the third quarter of fiscal year 1995.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit 11 is filed with this Form 10-Q.
(b) No reports on Form 8-K were filed during the
quarter ended January 31, 1995.
Pursuant to the requirements of the Securities and Exchange Act of
1934 the registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
AEQUITRON MEDICAL, INC.
(Registrant)
Dated: March 8, 1995 By/s/ James B. Hickey, Jr.
James B. Hickey, Jr.
President and Chief Executive Officer
Dated: March 8, l995 By/s/ William M. Milne
William M. Milne
Chief Financial Officer