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, 1996
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 registrant 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--4,885,700 Shares as of March 12,
1996
INDEX
AEQUITRON MEDICAL, INC.
Part I. Financial Information Page No.
Item 1. Financial Statements.
Condensed Consolidated Balance Sheets--
January 31, 1996 and April 30, 1995. 3-4
Condensed Consolidated Statements of
Income for the Nine Months ended
January 31, 1996 and 1995. 5
Condensed Consolidated Statements of
Cash Flows for the Nine Months ended
January 31, 1996 and 1995. 6
Notes to Condensed Consolidated Financial
Statements - January 31, 1996. 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
Signatures 12
Exhibit 11 Computation of Per Share Earnings 13
PART I. FINANCIAL INFORMATION
AEQUITRON MEDICAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
January 31, April 30,
1996 1995
(Unaudited)
ASSETS
Current Assets:
Cash $ 1,253,300 $ 4,986,800
Accounts receivable 8,075,200 4,311,200
Inventories 4,513,100 3,071,100
Prepaid expenses 582,200 336,100
Deferred income taxes 642,600 606,100
Total Current Assets $15,066,400 $13,311,300
Property and equipment
Buildings 699,900 652,600
Equipment 4,483,900 3,930,900
Leasehold improvements 32,600 26,800
5,216,400 4,610,300
Less allowances for depreciation (3,344,200) (2,901,400)
1,872,200 1,708,900
Other Assets
Goodwill, net of accumulated
amortization of $2,888,500 at
January 31, 1996 and $2,520,000
April 30, 1995 3,709,100 1,789,500
Demonstration, evaluation and
rental equipment 1,116,800 1,133,600
Patents 708,300 -
Non-compete agreement 271,400 -
5,805,600 2,923,100
Total Assets $22,744,200 $17,943,300
AEQUITRON MEDICAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (CON'T)
January 31, April 30,
1996 1995
(Unaudited)
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Note payable $ 2,800 $ -
Accounts payable 1,083,400 1,161,100
Employee compensation 1,225,800 1,104,900
Commissions payable 827,700 543,200
Other liabilities and accrued
expenses 1,368,200 1,075,000
Current maturities of long-term
debt 390,000 38,300
Income taxes payable 88,200 -
Total Current Liabilities 4,986,100 3,922,500
Long-term debt 1,995,700 64,000
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, 1996--
4,885,700 shares; April 30, 1995
-- 4,848,500 shares 48,800 48,500
Additional paid-in capital 5,932,200 5,933,700
Retained earnings 9,781,400 7,974,600
Total shareholders' equity 15,762,400 13,956,800
Total Liabilities & Shareholders'
Equity $22,744,200 $17,943,300
AEQUITRON MEDICAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
NINE MONTHS ENDED JANUARY 31,
1996 1995
OPERATING ACTIVITIES:
Net income $1,806,800 $1,398,600
Adjustments to reconcile to net
cash provided by (used in)
operating activities:
Depreciation 445,700 364,500
Amortization of goodwill and
other intangible assets 442,000 762,000
Provision for losses on
accounts receivable 89,200 67,400
Provision for deferred
income taxes (36,500) 48,100
Loss on sale of assets 300 9,100
Changes in operating assets
and liabilities:
Accounts receivable (3,853,200) (1,045,100)
Inventories 132,500 (110,800)
Rental equipment 111,400 263,400
Accounts payable (77,800) 15,800
Other assets & liabilities 65,700 480,000
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES (873,900) 2,253,000
INVESTING ACTIVITIES:
Purchases of property, plant
and equipment (362,100) (351,000)
Proceeds from disposal of equipment 7,400 7,500
Purchase of sleep diagnostic
product line (4,790,000) -
NET CASH USED IN INVESTING ACTIVITIES (5,144,700) (343,500)
FINANCING ACTIVITIES:
Repayments of short term debt (13,800) -
Proceeds from long term borrowings 2,500,000 -
Repayments of long term debt (199,900) (50,100)
Proceeds from exercise of stock options 130,900 106,100
Purchases & retirement of common stock (132,100) -
NET CASH PROVIDED BY FINANCING
ACTIVITIES 2,285,100 56,000
NET INCREASE (DECREASE) IN CASH (3,733,500) 1,965,500
CASH AT BEGINNING OF PERIOD 4,986,800 2,375,200
CASH AT END OF PERIOD $1,253,300 $4,340,700
AEQUITRON MEDICAL, INC.
CONDENSED CONSOLIDATED STATEMENT OF INCOME
(Unaudited)
Three Months Ended January 31, Nine Months Ended January 31,
1996 1995 1996 1995
% of % of % of % of
Amount Sales Amount Sales Amount Sales Amount Sales
Net sales $9,111,400 100.0% $7,298,900 100.0% $28,382,000 100.0% $23,461,200 100.0%
Cost of sales 4,044,600 44.4% 3,363,000 46.1% 12,747,600 44.9% 10,685,600 45.5%
Gross profit 5,066,800 55.6% 3,935,900 53.9% 15,634,400 55.1% 12,775,600 54.5%
Operating Expenses:
Selling & marketing 2,233,200 24.5% 1,495,600 20.5% 6,085,700 21.4% 4,525,200 19.3%
General & administrative 1,476,000 16.2% 1,148,500 15.7% 4,397,000 15.5% 3,763,000 16.0%
Research & development 807,800 8.9% 586,900 8.0% 2,384,900 8.4% 2,390,400 10.2%
Interest 52,200 0.6% 1,300 0.0% 171,300 .6% 23,800 0.1%
Other income (88,700) (1.0)% (80,000) (1.0)% (272,400) (0.9)% (219,700) (0.9)%
Total 4,480,500 49.2% 3,152,300 43.2% $12,766,500 45.0% $10,482,700 44.7%
Income before income taxes 586,300 6.4% 783,600 10.7% 2,867,900 10.1% 2,292,900 9.8%
Income taxes 216,800 2.4% 305,600 4.2% 1,061,100 (3.7)% 894,300 3.8%
Net income $ 369,500 4.0% $ 478,000 6.5% $ 1,806,800 6.4% $ 1,398,600 6.0%
Earnings per share:
Net income per share $ .07 $ .09 $ .34 $ .27
Weighted average number
of shares outstanding 5,442,800 5,165,100 5,389,500 5,093,300
AEQUITRON MEDICAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
January 31, 1996
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, 1996 are not
necessarily indicative of the results that may be expected for the
year ended April 30, 1996. For further information, refer to the
financial statements and footnotes thereto included in the
Company's annual report on Form 10-K for the year ended April 30,
1995.
NOTE B--INVENTORIES
The major classes of inventories consist of the following:
January 31, April 30,
1996 1995
Raw Materials $2,795,700 $1,594,300
Work In Progress 1,287,600 854,500
Finished Goods 429,800 622,300
$4,513,100 $3,071,100
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, 1996,
versus the third quarter ended January 31, 1995, and analysis of
financial condition as of April 30, 1995.
RESULTS OF OPERATIONS
Net Sales
Net sales for the quarter ended January 31, l996, totaled
$9,111,400, which represents a 24.8% increase from the $7,298,900
in net sales reported for the comparable period of the prior year.
Sales of $28,382,000 for the current nine months represent a 21.0%
increase from the $23,461,200 in net sales for the comparable
period of a year ago.
The increased sales are due in part to the newly acquired sleep
diagnostic product line in addition to increased domestic
ventilator sales. Sales of apnea monitors were less than expected.
Third quarter sales of the Company's subsidiary, Crow River
Industries, were at prior year levels. The Company expects
ventilator, Crow River and sleep diagnostic product sales to
increase for the remainder of the fiscal year.
Cost of Sales
Gross margins as a percentage of net sales for the quarter ended
January 31, 1996, increased to 55.6% from 53.9% for same period in
fiscal 1995. For the nine months ended January 31, 1996, gross
margins increased to 55.1% from 54.5% when compared with the same
period a year ago. The increase in gross margin is the result of
product mix and increased production efficiency and the effect of
the additional sleep diagnostic product line on the fixed overhead.
Margin levels are expected to remain at current levels for the
balance of the fiscal year.
Operating Expenses
Selling and marketing expenses for the quarter ended January 31,
l996 increased $737,600, or 49.3%, over the third quarter of last
year. As a percentage of net sales, these expenses increased to
24.5% from 20.5% last year. On a year to date basis, selling and
marketing expenses increased $1,560,500 and represented 21.4% of
net sales for the current nine months compared to 19.3% for the
same period last year. The significant increase in expenses
reflects the additional cost of the sleep diagnostics product line
as this product line is not only sold through the Company's current
independent sales representatives but also through direct employee
sales personnel. The third quarter also reflects additional
expenses related to a new product introduction. Sales and
marketing expenses as a percentage of sales are expected to remain
at current levels for the remainder of the fiscal year.
General and administrative expenses for the quarter ended January
31, l996, increased $327,500, or 28.5%, over the third quarter of
last year. As a percentage of sales, expenses for the quarter
increased to 16.2%, from 15.7% for the same period last year. On
a year to date basis, general and administrative expenses increased
$634,000 and represent 15.5% of net sales, compared to 16.0% for
the comparable period last year. The increase in expenses for the
quarter is due to increased professional fees generally and costs
incurred in the settlement of the Adahan litigation. The increase
in expenses year to date reflects the costs associated with the
addition of the sleep diagnostic product line including
amortization of goodwill, patents and covenants-not-to-compete,
additional insurance and employee benefits, and additions to the
human resources staff. General and administrative expenses are
expected to remain at current levels for the remainder of the
fiscal year.
Research and development expenses for the quarter ended January 31,
l996, increased $220,900, or 37.6%, compared to the same period
last year. For the nine months ended January 31, 1996, expenses
decreased $5,500, as compared to the first nine months of fiscal
1995. As a percentage of net sales, expenses increased to 8.9%
from 8.0% for the quarter, and decreased to 8.4% from 10.2% for the
current nine month period. The decrease in research and
development expense year to date reflects a one-time charge
expensed during the second quarter of fiscal 1995. After taking
into account the one-time charge in fiscal 1995 for the
cancellation of the Adahan license agreement, research and
development expenditures experienced a net increase in fiscal 1996
for both the quarter and year to date. Research and development
expenditures may increase marginally for the balance of the fiscal
year as new product development projects continue.
Interest expense for the quarter ended January 31, l996, increased
by $50,900 from the third quarter of fiscal 1995. On a year to
date basis, interest expense increased $147,500, or 619.7%, from
the comparable period last year. The increase for the current
quarter and year to date is a direct result of an additional
$2,500,000 in long-term borrowings used to finance the acquisition
of the sleep diagnostic product line. Other income year to date
increased $52,700 from the same period last year reflecting the
additional funds available for investing activities prior to the
sleep diagnostic product line acquisition and additional earnings
from prompt pay discounts.
Net Income
Net income for the quarter ended January 31, l996 was $369,500
which represents a $108,500 decrease compared with the same period
a year ago. Net income per share for the three months and nine
months ended January 31, 1996 was $.07 and $.34 per share,
respectively, compared to $.09 and $.27 per share for the
comparable periods last year. The effective tax rate of 37% for
the nine months ended January 31, 1996, was slightly lower than
recent historical levels due to increased earnings which reduced
the impact of non-deductible goodwill.
LIQUIDITY AND CAPITAL RESOURCES
Cash at January 31, 1996 was $1,253,300. Operating activities used
cash of $873,900 during the first nine months ended January 31,
1996 compared to providing cash of $2,253,000 for the comparable
prior year nine month period.
The reduction in operating cash flows resulted primarily from an
increase in accounts receivable of $3,853,200, due to new sleep
diagnostic product sales and increases in other product sales. The
Company paid $4,790,000 for the purchase of the sleep diagnostics
product line from CNS, Inc. This purchase price was financed by a
long-term debt borrowing of $2,500,000, and the balance in cash.
The company used $199,900 to reduce long-term debt and an
additional $362,100 to purchase capital equipment. Capital
equipment expenditures for the balance of the fiscal year are
expected to be approximately $500,000.
The maturity date of the Company's line of credit is October 31,
1996. The Company believes that its internally generated funds and
existing borrowing potential will provide sufficient working
capital to meet its commitments for the foreseeable future.
PART II
Item 1. Legal Proceedings
On December 13, 1995, the Company, through a mediation session
held at the American Arbitration Association's New York, New
York offices, settled the arbitration claim made against it by
Adahan, Inc. of Israel related to payments under a license
agreement for $45,000. The original arbitration claim asked
for $22.1 million.
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 1996.
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, 1996.
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 13, 1996 By /s/ James B. Hickey, Jr.
James B. Hickey, Jr.
President and Chief
Executive Officer
Dated: March 13, l996 By /s/ William M. Milne
William M. Milne
Chief Financial Officer