1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
(Mark One)
/X/ ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED, EFFECTIVE
OCTOBER 7, 1996].
For the fiscal year ended April 27, 1997
OR
/ / TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [NO FEE REQUIRED].
For the transition period from __________ to _____________
Commission file number 20-8969
NOVAMETRIX MEDICAL SYSTEMS INC.
(Exact Name of Registrant as Specified in Its Charter)
Delaware 06-0977422
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
5 Technology Drive
Wallingford, Connecticut 06492
(Address of Principal Executive Offices) (Zip Code)
(Registrant's telephone number, including area code) (203) 265-7701
Securities registered under Section 12(b) of the Exchange Act:
Name of each exchange
Title of each class on which registered
------------------- -------------------
None None
Securities registered under Section 12(g) of the Exchange Act:
Common Stock,
$.01 par value Class A Warrants Class B Warrants
- -------------- ---------------- ----------------
(Title of class) (Title of class) (Title of class)
Page 1 of 36 pages
Exhibit Index at page E-1.
2
2
Indicate by check mark whether the registrant: (1) filed all reports
required to be filed by Section 13 or 15(d) of the Exchange Act during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes X No___
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. / /
State the aggregate market value of the voting and non-voting common stock
held by non-affiliates of the registrant. The aggregate market value shall be
computed by reference to the price at which the common equity was sold, or the
average bid and asked prices of such common equity, as of a specified date
within 60 days prior to the date of filing.
Aggregate market value as of July 1, 1997 .............$42,050,150
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date.
Common Stock, $.01 par value, as of July 1, 1997 ....... 7,246,652 shares
DOCUMENTS INCORPORATED BY REFERENCE
List hereunder the documents incorporated by reference herein and the Part
of the Form 10-K into which the document is incorporated:
Proxy Statement to be dated on or about August 22, 1997 -- Part III
3
3
ITEM 1. BUSINESS.
GENERAL
Organized in 1978, Novametrix Medical Systems Inc. (the "Company") is
engaged in the business of designing, developing, manufacturing and marketing
monitors and sensors which provide continuous and non-invasive measurements of a
patient's blood gas levels (oxygen and carbon dioxide) and respiratory mechanics
(lung pressure, flow and volume). The Company's current product line consists of
the following:
- Capnographs -- monitors which measure the level of exhaled carbon
dioxide.
- Pulse Oximeters -- monitors which measure arterial blood oxygen
saturation levels and pulse rates.
- Transcutaneous Blood Gas Monitors -- monitors which measure oxygen
and carbon dioxide levels through the skin.
- Respiratory Mechanics Monitors -- monitors which measure pressure,
flow and volume in a patient's airway and lungs.
- Reusable and disposable sensors and adapters, related accessories
and replacement parts.
The Company also produces several monitors which combine two or more of
the above parameters in a single device.
BLOOD GAS MONITORS
Levels of oxygen and carbon dioxide in the blood are important indicators
of the condition of critically ill or injured patients. These levels are
particularly important to doctors, nurses, therapists and other clinicians
during anesthesia in the operating room, the assessment of a patient in the
emergency room, the monitoring of a patient in the intensive care unit and
recovery room and throughout respiratory care applications. Healthy people have
a normal range of oxygen and carbon dioxide levels in their blood, lungs and
other tissue. Also, depending on a person's size and age, there is a range of
normal airway and lung pressure, flow and volume levels. By continuously
monitoring these ranges, a change in a patient's status can be detected at an
early stage and modified before serious deterioration in a patient's condition
occurs. In addition, if a patient's blood gas levels or respiratory mechanics
are outside their normal ranges, continuous monitoring provides healthcare
professionals with important information concerning the progress of the medical
treatment undertaken to restore them to within normal ranges.
4
4
Previously, the only methods of determining the body's oxygen and carbon
dioxide levels involved invasive techniques of withdrawing blood samples from a
patient's artery and waiting for laboratory analysis of the samples. The
Company's products offer healthcare providers the alternative of non-invasive,
continuous and immediate measurement of oxygen and carbon dioxide. The Company's
blood gas monitoring products utilize three different technologies, each of
which is suitable for different applications.
CAPNOGRAPH MONITORS. The Company's capnographs (or end-tidal carbon
dioxide monitors) provide a continuous, non-invasive measurement and display of
the amount of carbon dioxide in each breath exhaled by the patient. Clinically,
end-tidal carbon dioxide levels have been correlated to a patient's arterial
blood carbon dioxide levels. Measurement of these levels provides a simple,
non-invasive method of estimating the carbon dioxide levels of the patient.
Applications for capnographs include (i) intubation verification - the
verification of the introduction of an airway tube into the trachea (air tube)
rather than the esophagus (food tube) and the verification of an open and
unobstructed airway; (ii) extubation detection - the disclosure of the
accidental dislodging from the trachea of an airway tube; (iii) ventilation
management through the disclosure of ventilator malfunctions and the proper
adjustment of mechanical ventilation to match a patient's condition and needs;
and (iv) verification of the effectiveness of cardio-pulmonary resuscitation
(CPR).
The Company's capnographs utilize a form of infrared spectrometry (a
method of analyzing gas content by measuring the amount of infrared energy
absorbed) developed by the Company to measure levels of expired carbon dioxide
throughout the patient's respiratory cycle. These monitors provide both a
graphical and digital display of carbon dioxide levels and respiratory rate. The
reliability and accuracy of capnography have made its use a rapid indicator of
proper and continuous intubation, obstructions in the airway and pulmonary
efficiency in eliminating carbon dioxide. In addition, end-tidal carbon dioxide
and respiratory rate measurements facilitate proper and cost efficient
ventilator use. In recognition of its accurate measurement of clinically
significant facts, as well as the added degree of safety that it affords
patients, capnography has been recommended for use in the operating room by the
American Society of Anesthesiologists and in the intensive care unit by the
Society of Critical Care Medicine.
The Company recently introduced the TIDAL WAVE(TM) to its line of
mainstream capnographs. The TIDAL WAVE (measuring 8" high, 3" wide and 1 1/2"
deep and battery operated) is the first hand-held mainstream CO(2) monitor with
a graphical waveform on the market. Applications for this monitor include areas
outside the traditional bedside setting such as emergency medical services where
a smaller, portable monitor is required. The Company also has two bedside
capnographs: the CAPNOGARD(R), and the CO(2)SMO(R), a combined capnograph and
pulse oximeter. These "mainstream" (on the airway) capnographs are designed to
take measurements at the patient's airway through infrared measurements as
compared to "sidestream"
5
5
measurements of exhaled breath which involve the drawing of samples through
tubes connected to bedside monitors and which are susceptible to moisture and
other secretion contaminants. All models utilize a durable and solid-state
sensor developed by the Company. The TIDAL WAVE has a list sales price of
approximately $3,500 depending on configuration, the CAPNOGARD has a list sales
price of approximately $7,500 and the CO(2)SMO has a list sales price of
approximately $9,500.
PULSE OXIMETERS. The Company's pulse oximeters provide a continuous and
non-invasive measurement and display of pulse rate and arterial blood oxygen
saturation through the detection and measurement of infrared light absorbed by
hemoglobin in the blood. Reusable finger and multi-position sensors
(Y-Sensor(TM)) are available for adult, pediatric and neonatal applications and
eliminate the use of costly disposable sensors. Pulse oximeters have been
clinically demonstrated as safe, accurate and cost-effective for the
determination and trending of levels of blood oxygen saturation and pulse rates.
Applications for these monitors are widespread since the level of oxygen in a
patient's blood can be as important a vital sign of a patient's condition as the
patient's temperature, blood pressure, respiratory rate and electrocardiogram.
Pulse oximetry is used in many departments of the hospital, including the
operating room by anesthesiologists, emergency rooms and intensive care units by
nurses and respiratory therapists and neonatal intensive care units by
neonatologists. Additional applications include inter- and intra-hospital
transport situations and clinical applications in surgical centers, doctors'
offices and clinics during outpatient procedures.
The Company has a family of pulse oximeters designed to meet the
individual needs of clinicians in a variety of settings. Each oximeter utilizes
the Company's reusable Superbright(TM) sensors, which provide safe and accurate
results on all types of patients, including neonates (an infant less than 28
days old) and poorly perfused patients (patients with insufficient blood flow).
The Company's full-featured oximeter, the OXYPLETH(R) provides high visibility
of the plethysmographic waveform (a graphic display of arterial pulse, also
known as a plethysmogram) through the use of digital technology combined with
advanced software developed by the Company. The Model 515B and Model 515C (with
plethysmogram) pulse oximeters utilize the same basic technology and software as
our more expensive model to provide the same oxygen saturation and pulse rate
information but with fewer available added features.
This family of pulse oximeters also includes a battery operated hand-held
pulse oximeter, the SPO(2)T(Check)(TM). Measuring approximately 6" high, 4" wide
and 1 1/2" deep and weighing less than 1 pound, this monitor's lightweight
design and portability permits wide applications such as use in emergency
transport situations, doctors' offices, clinics during outpatient procedures and
performance of spot checks on patients in all areas of the hospital.
6
6
The OXYPLETH has a list sales price of approximately $3,000. The Model
515B, Model 515C and SPO(2)T(Check)(TM) have list sales prices of approximately
$2,000, $2,200 and $1,000, respectively.
TRANSCUTANEOUS BLOOD GAS MONITORS. The Company's transcutaneous (through
the skin) blood gas monitor provides continuous and non-invasive measurements of
oxygen and carbon dioxide levels in the skin tissue of patients. This monitor
utilizes dual parameter sensors attached to the patient's skin surface to
measure the amount of oxygen and carbon dioxide diffusing through the skin.
Based upon the magnitude of the diffusion of the blood gas molecules, the
monitor converts the sensor readings into a value corresponding to the oxygen or
carbon dioxide at the patient's skin surface and displays the information on the
monitor. Premature and other critically ill newborn infants are the primary
patients who benefit from the use of transcutaneous monitoring. In view of their
limited blood supply, frequent invasive blood sampling has been recognized as
traumatic and unsatisfactory for these patients. The Company intends to continue
to develop and enhance its transcutaneous blood gas monitor for neonatal and
adult use in intensive care and vascular medicine applications.
During fiscal 1997, the Company introduced the TCO(2)M(R) Model 860, a
new transcutaneous monitor. This monitor is a lightweight, portable unit with a
simple menu system which guides the user through set-up and operation. The
TCO(2)M is the first monitor of its kind to provide on-screen graphical trending
information allowing patient data to be reviewed directly at the bedside.
TCO(2)M accepts combination or single oxygen and carbon dioxide sensors for
optimum versatility and has a list sales price of approximately $6,500 to $8,500
depending on configuration.
RESPIRATORY MECHANICS MONITORS
The Company's newest respiratory mechanics monitor, the CO(2)SMO Plus(TM),
is the first monitor to combine respiratory mechanics with capnography and pulse
oximetry in one small package for continuous bedside monitoring of mechanically
ventilated patients. The CO(2)SMO Plus provides continuous, non-invasive
measurements of flow, pressure and volume in a patient's airway, as well as
measurements of other pulmonary mechanics, carbon dioxide elimination and
arterial oxygenation. Applications for this monitor include the clinical
management of proper pressure and flow of airway gases being delivered to a
mechanically ventilated patient's lungs, allowing therapists to wean a patient
from costly mechanical ventilation to spontaneous breathing at the clinically
appropriate time. The addition of the first combined mainstream CO(2)
adapter/flow sensor provides continuous measurements of pulmonary deadspace, the
portion of the patient's lungs that does not participate in gas exchange, and
CO(2) production, the volume of CO(2) exhaled by the patient, two parameters
never before available continuously at the bedside. The use of these parameters,
and the impact of each parameter on patient ventilation, provides the clinician
with important feedback to optimize the patient's care. Thus the use of
7
7
the CO(2)SMO Plus enhances patient care by minimizing the trauma, length of stay
and costs associated with mechanical ventilation.
Another new addition to the respiratory mechanics product line is the
Vent(Check)(TM) hand-held respiratory mechanics monitor. Vent(Check) measures
flow, pressure and volume at the airway and graphically displays flow and
pressure waveforms and loops, breath by breath. Measuring 8" high, 3" wide and 1
1/2" deep and battery operated, this monitor is designed for spot checking
mechanically ventilated patients and, when used during transport, provides an
additional level of safety for the patient.
Respiratory therapy and critical care departments with patients requiring
mechanical ventilation represent the primary users of the CO(2)SMO Plus and
Vent(Check).
The Company's VenTrak(R) Model 1550 respiratory mechanics monitor also
provides pressure, flow and volume measurements in a patient's airway, both
continuously and non-invasively. In addition, the VenTrak can be combined with
the Company's capnography technology for enhanced monitoring of mechanical
ventilation effectiveness and patient respiratory capabilities.
The CO(2)SMO Plus has a sales list price of approximately $10,995, the
Vent(Check) has a sales list price of approximately $3,250, and the VenTrak has
a sales list price of approximately $9,000 to $13,000 depending on its
configuration.
The Company also maintains the exclusive rights to patented technology for
the commercial manufacture and marketing of a family of disposable airway
sensors and a combined CO(2)/flow adapter.
SALES, MARKETING AND CUSTOMERS
The Company markets its products domestically and internationally directly
through salespersons and outside distributors to its customers, most of which
are hospitals. All of the Company's blood gas and respiratory mechanics products
are marketed primarily to hospitals for use in operating rooms, emergency rooms,
intensive care units, respiratory therapy departments, transport situations and
in other departments where critically ill or injured patients require
monitoring. The Company expects to further increase its marketing efforts to
physician groups and other healthcare facilities such as nursing homes, surgical
centers and outpatient clinics through the use of manufacturers' representatives
experienced in these marketplaces.
The Company also markets its products directly to original equipment
manufacturers (OEMs) which incorporate certain of the Company's products and
technologies in the manufacture of their own multi-parameter systems,
ventilators and other non-competing products. Generally, the Company sells its
products to OEM customers pursuant to long-term contracts which, in certain
cases, provide for the purchase of minimum quantities of products at specified
prices. The Company
8
8
assembles the products to be sold to OEM customers and, generally, also agrees
to provide maintenance and replacement parts. The Company continues to seek new
agreements with other OEM customers and additional agreements for other products
with its current customers. However, there can be no assurance that the Company
will be successful in obtaining other long-term OEM contracts.
The Company employs a 19-person direct United States sales force and also
utilizes six outside distributors in the United States to sell its products.
Typically, these distributors sell other medical instruments and products, but
do not sell products which compete directly with those offered by the Company.
In addition, the Company utilizes manufacturer's representatives to support
sales of its products in the non-hospital markets.
Internationally, the Company currently employs six sales and marketing
managers and has approximately 85 outside international distributors. The
Company markets its products in over 75 countries worldwide. The Company's
international net sales of products and services constituted 41%, 45% and 39% of
total net sales during Fiscal 1997, 1996 and 1995, respectively. The Company is
engaged in continuing efforts to improve and expand the international
distribution of its products and expects international sales to continue to
constitute a significant portion of total net sales.
Many of the countries into which the Company sells its products require
governmental approval for the sale of the Company's medical instruments. In most
countries which require approval, the approval process is shorter than that in
the United States and, generally, the Company shares the costs associated with
the approval process with its international distributors. The Company believes
it has all of the necessary approvals to sell the products which it currently
distributes internationally.
The Company's international sales are denominated in United States
dollars, which may be affected by exchange rate fluctuations. The Company
believes that prior fluctuations in the strength of the United States dollar
have had a minimal impact on its international sales.
No customer accounted for more than 10% of the Company's net sales in
Fiscal 1997, 1996 or 1995.
Advertising of the Company's products consists primarily of displays at
medical meetings and trade shows. The Company also advertises in trade journals
and periodicals and cooperates in the publication of technical papers written by
medical authorities in areas relating to the Company's products.
9
9
RESEARCH AND DEVELOPMENT
The Company's research and development activities are devoted to the
design and development of new monitor and sensor technologies and to the
development and enhancement of its existing products. The Company anticipates
offering new products in the future, however, there can be no assurance that the
Company will introduce new products in successive fiscal years. With the advent
of managed care and continuing healthcare cost containment efforts, these
research and development activities are focused on providing technology and
related products which measure and record medically necessary information in a
safe and cost-effective manner.
The Company's research and development activities presently are, and
during the foreseeable future are expected to be, devoted primarily to the
development and enhancement of the Company's existing products and technologies
and to the design and development of new products. For Fiscal 1997, 1996 and
1995, the Company incurred research and development costs aggregating
approximately $8,437,000, of which approximately $3,304,000 was attributable to
Fiscal 1997, $2,714,000 to Fiscal 1996 and $2,419,000 to Fiscal 1995. All of the
Company's research and development activities are sponsored by the Company.
The Company's Cascadia Technology Division, located in Redmond,
Washington, is principally engaged in research and development. The research and
development portion of expenses related to this division are included in the
amounts stated in the preceding paragraph.
PRODUCTION AND SERVICE
Substantially all of the components in the Company's products, including
those designed to the Company's specifications, are manufactured by others and
then assembled by the Company. The Company's assembly operations require a
variety of electronic and mechanical components and supplies, as well as
specialized equipment which the Company owns or leases.
The Company does not have any long-term contracts with any of its
suppliers and believes that the needed components and supplies are available
from alternate sources. The Company has not experienced any interruption of
production or deliveries of components, supplies or equipment. However, there
can be no assurance that the Company will continue to receive timely service or
that the Company would be able to find readily a substitute manufacturer if one
were needed on short notice. Interruption of the Company's sources of supply or
quality problems with the supplied components could have a material adverse
effect on the Company's business and financial position.
The Company provides maintenance service for its products through service
technicians who are employees of the Company and through independent service
10
10
representatives. The Company's products utilize modular components which have
been designed for maximum maintenance accessibility and ease of removal for
repair or replacement. The Company warrants its products against defects in
material and workmanship, including parts and labor, for one year or more,
except for certain non-capital items which the Company warrants for shorter
periods. The Company also offers extended warranty programs that may be
purchased by its customers. Historically, the Company's annual warranty expenses
have been immaterial.
BACKLOG
Except for orders pursuant to long-term OEM agreements, the Company ships
its products on a current basis and substantially all of the product backlog at
April 27, 1997 is expected to be shipped within its normal operating cycle. As
such, the Company does not consider its backlog to be a meaningful indicator of
future sales.
PATENTS, TRADEMARKS AND PROPRIETARY RIGHTS
The Company holds 26 U.S. patents and has pending applications for seven
additional U.S. patents. The Company's patents primarily cover its capnography
and flow technologies which the Company believes provide it with a competitive
advantage in the marketplace. Although the Company holds patents and has patents
pending related to certain of the Company's products, the Company does not
believe that its business as a whole is or will be materially dependent upon
patent protection of these products. However, the Company will continue to seek
patents as it deems advisable to protect its research and development and the
market for its products.
Due to extensive patent coverage in the medical electronics instruments
industry and the rapid rate of issuance of new patents, certain components of
the Company's products may involve infringement of existing patents. The Company
believes that any risks presently being assumed with respect to any possible
patent infringement are reasonable business risks similar to those being assumed
by other companies in the industry.
The Company is the owner of approximately 25 trademarks in the United
States including, Novametrix(R), CAPNOGARD(R), CAPNOSTAT(R), CO(2)SMO(R),
CO(2)SMO Plus(TM), Y-Sensor(TM), SPO(2)T(Check)(TM), OXYPLETH(R),
SuperBright(TM), VenTrak(R), PNEUMOGARD(R), TIDAL WAVE(TM), TCO2M(R) and
Vent(Check)(TM).
The Company relies on trade secrets and proprietary know-how, which it
will seek to protect, in part, by confidentiality agreements with certain of its
employees, suppliers and customers. However, there can be no assurance that the
Company's confidentiality agreements, when in place, will not be breached or
that the Company would have adequate remedies for any breach. There can be no
assurance that the Company's trade secrets or proprietary know-how will not
otherwise become known or be independently discovered by competitors.
11
11
COMPETITION
The electronic medical instrumentation industry is extremely competitive.
The Company considers the most significant competitive factors in its industry
to be product capability and performance (including reliability and ease of
use), price and terms of purchase, availability of prompt and effective
maintenance, and an ability to introduce new and improved products with
regularity. The Company believes that it competes effectively in each of these
areas.
While continuous, non-invasive blood gas monitors are presently available
from several of the Company's competitors, the Company believes that its
continuous, non-invasive blood gas monitors provide advantages over currently
available competing products in terms of accuracy, reliability and versatility.
The Company believes its respiratory mechanics monitors also compare favorably
with competitive models in terms of accuracy of measurement and reliability of
service. Additionally, the Company feels that what it believes to be the
technological superiority in size, performance, reliability and durability of
its products provides it with a competitive advantage.
The electronic medical instrumentation industry is characterized by rapid
technological changes and advances. Although the Company believes that its
products are technologically current, the development of new technologies or
refinements of existing ones could at any time make the Company's existing
products technologically or economically obsolete. Although the Company is not
aware of any pending technological developments that would be likely to
materially and adversely affect its business or financial position, there can be
no assurance that such developments will not occur at any time.
Although all of the Company's competitors do not market all of the
products which the Company markets, the Company estimates that it competes with
at least ten competitors. Such competitors vary in size from those which are
smaller than the Company to divisions or subsidiaries of multinational
corporations. There can be no assurance that the Company will be able to compete
successfully with its competitors, some of which also have extensive production
facilities, well-established marketing and service organizations and recognized
reputations in the electronic medical instrumentation industry and also have far
greater financial resources than the Company has or will have in the foreseeable
future.
PRODUCT LIABILITY AND INSURANCE COVERAGE
From time to time, the Company is subject to product liability claims,
suits and complaints incidental to its business. These claims, suits and
complaints are covered by insurance policies maintained by the Company, subject
to certain policy limits. In addition, certain of the Company's OEM agreements
require the Company to maintain certain levels of product liability insurance.
The Company currently
12
12
maintains product liability insurance in the amount of $5,000,000 with a $50,000
per occurrence deductible up to an aggregate annual deductible of $250,000. The
Company is not aware of any pending claims, suits or complaints, the disposition
of which, in the opinion of management, would have a material adverse effect
upon the Company's financial position, results of operations or liquidity. The
Company, however, could be materially adversely affected by successful product
liability claims, and there can be no assurance that the Company will have
sufficient resources to satisfy any liability resulting from claims not covered
by existing insurance policies.
REGULATION
The Company's products are subject to regulation in the United States and
in many of the foreign countries where the Company markets or seeks to market
its products.
Certain of the Company's products are "devices" within the meaning of a
1976 amendment to the Federal Food, Drug and Cosmetics Act. Under the amendment,
a manufacturer must obtain approval by the United States Food and Drug
Administration ("FDA") of certain new devices before they can be marketed in the
United States. The approval process requires that the safety and efficacy of
such devices be demonstrated by the manufacturer to the FDA. Under certain
circumstances, the cost of obtaining such pre-marketing approval may be high and
the process lengthy, and no assurance can be given that approval will be
obtained. All of the products currently marketed domestically by the Company
requiring pre-marketing approval from the FDA have been so approved.
In the future, certain other classes of medical devices may be required to
comply with industry-wide performance standards with respect to safety and
efficacy when these standards are promulgated by the FDA and internationally
recognized standards organizations (such as ISO and IEC). The FDA has not yet
developed industry-wide performance standards with respect to the safety and
effectiveness of those products manufactured by the Company which would be
subject to such standards. When and if these standards are adopted, the Company
will be required to submit data demonstrating compliance with the standards
(during which period the Company may be permitted to continue to market products
which have previously been approved by the FDA).
There can be no assurance that the Company's products will comply with the
applicable industry-wide performance standards when and if adopted or that the
Company will receive the requisite approvals to market any of its future
products. Any failure to receive approvals or non-compliance with performance
standards would have a material adverse effect on the Company's business and
financial position.
Underwriters' Laboratories, Inc. ("UL") has established safety standards
for patient-connective electrical apparatus. These standards, or their
equivalent, have
13
13
been adopted as purchase specifications by many hospitals. The Company has
obtained UL or equivalent approval with respect to certain of its products and
has applied or intends to apply for approval with respect to all its other
products to which these standards apply. In addition, state and municipal
testing agencies have imposed similar standards with which the Company's
products sold in particular areas may be required to comply. The Company does
not believe that compliance with these state and municipal standards will
involve significant expense.
Various countries in which the Company markets its products have
regulatory agencies which perform functions comparable to those of the FDA.
Compliance to international standards is a growing factor in conducting business
in such markets. Novametrix has obtained ISO 9001 (Quality System) and EN46001
(Quality System specific to medical device manufacturing) certification. By
certification to these standards, the Company is permitted to place a "CE" mark
on its products which indicates product compliance as specifically required by
the European marketplace. To date, foreign regulations have not adversely
affected the Company's business, however, there can be no assurance that any
such regulations will not have a material adverse effect on the Company's
business and financial condition in the future.
In the United States, the move toward managed care, and the growing
influence of managed care networks, hospital chains and hospital purchasing
groups, has had a major impact on the healthcare industry by accelerating the
trends toward shorter hospital stays, the use of outpatient facilities rather
than hospitalization and lowering annual cost increases for healthcare spending.
Additional cost saving changes could further impact hospitals, clinics and other
healthcare providers, which form the Company's customer base. These possible
changes could potentially reduce or further delay capital expenditures by these
providers, and could change the users and markets for the Company's products.
However, the acute care portion of a hospital (including the operating room and
intensive care unit) which is a significant market for the Company's products
should not be greatly affected by the trend toward the use of outpatient
facilities as such outpatient facilities generally care for patients who are not
critically ill. In addition, the trend toward managed competition may improve
sales of certain of the Company's non-disposable products which provide
substantial cost savings compared to similar disposable products sold by its
competitors, and may also improve sales of other Company products that improve
patient throughput and thereby result in shorter hospital stays.
Although the trend toward managed competition may have a positive impact
on the Company's business by providing increased coverage for medical procedures
utilizing the Company's products, thereby increasing demand for the Company's
products, it is not possible at this time to predict what, if any, further
changes in healthcare will occur.
14
14
EMPLOYEES
As of April 27, 1997, the Company had a total of 189 full-time employees,
consisting of 79 production personnel, 38 research and development personnel, 56
sales, marketing and service personnel and 16 administrative, managerial and
financial personnel. None of the Company's employees is covered by a collective
bargaining agreement. The Company considers its relationship with its employees
to be satisfactory.
15
15
ITEM 2. PROPERTIES.
The Company's main plant and executive offices are located at 5 Technology
Drive, Wallingford, Connecticut where it occupies approximately 53,000 square
feet of newly constructed office and manufacturing space under a twelve year
lease expiring in August 2008. The Company took occupancy of this facility in
August 1996 when it relocated from a smaller facility also located in
Wallingford, Connecticut. The lease provides for minimum annual lease payments
of $408,425, and contains one five-year renewal option and a purchase option
upon the commencement of the sixth year of the lease. The lease requires the
Company to pay for property taxes, insurance and repairs related to the
facility. The Company also rents approximately 6,000 square feet of warehouse
space at a nearby site in Wallingford, Connecticut at a cost of approximately
$2,500 per month.
The Company also leases a building in Redmond, Washington under a
three-year lease expiring March 2000, renewable for an additional three years,
and comprising approximately 7,000 square feet of space utilized for research
and development and manufacturing support. The lease provides for minimum annual
lease payments of $61,700 plus taxes, insurance and other expenses.
The Company believes that its facilities are well maintained, in good
operating condition and are adequate for its current needs.
ITEM 3. LEGAL PROCEEDINGS.
From time to time, the Company is a party to various legal proceedings
incidental to its business. The Company believes that none of these legal
proceedings will have a material adverse effect on the Company's consolidated
financial position, results of operations or liquidity.
See also "Patents, Trademarks and Proprietary Rights" and "Products
Liability and Insurance Coverage" under "Item 1. Business."
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS.
Not applicable.
16
16
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS.
The Company's common stock, $.01 par value (the "Common Stock"), trades on
the Nasdaq Stock Market under the symbol "NMTX". The following table sets forth
the range of high and low sales prices per share for the Common Stock for Fiscal
1996 and 1997.
High Sale Low Sale
--------- --------
FISCAL 1996
First Quarter........................... $6 1/4 $5
Second Quarter.......................... 5 1/2 4 5/8
Third Quarter........................... 8 4 5/8
Fourth Quarter.......................... 7 3/4 5 1/2
FISCAL 1997
First Quarter........................... $7 $4 7/8
Second Quarter.......................... 6 7/8 5
Third Quarter........................... 6 1/4 5
Fourth Quarter.......................... 6 1/8 4 1/2
On July 18, 1997, the last sale price of the Common Stock as reported on
the Nasdaq Stock Market was $9 1/4.
As of July 18, 1997, there were approximately 895 record holders of the
Common Stock. No dividends have been declared on the Common Stock since the
Company was organized. In addition, a loan agreement and a securities purchase
agreement to which the Company is a party and the Company's Certificate of
Designation of Series B Preferred Stock contain, among other provisions, various
covenants restricting the Company's ability to pay cash dividends to holders of
the Common Stock.
17
17
ITEM 6. SELECTED FINANCIAL DATA.
The following table sets forth selected financial and operating data of
the Company as of the end of each fiscal year and for each of the years in the
five-year period ended April 27, 1997.
April 27, April 28, April 30, May 1, May 2,
FOR YEAR ENDED 1997(1)(2) 1996(1)(3) 1995(1) 1994 1993
----------- ----------- ----------- ----------- -----------
Net Sales $28,253,750 $25,260,180 $24,032,101 $20,788,496 $19,888,304
Net Income 4,923,559 3,116,795 1,604,367 754,720 264,917
Net Income Per Share
Primary 0.60 0.39 0.21 0.11 0.04
Fully Diluted 0.59 0.39 0.21 0.11 0.04
Cash Dividends on
Common Stock -- -- -- -- --
AT YEAR END
Total Assets 27,224,432 18,823,362 16,605,981 15,270,682 15,530,584
Long-Term Debt 782,275 1,333,333 2,308,333 3,560,007 4,293,340
Redeemable Preferred
Stock 1,000,000 1,000,000 1,000,000 1,000,000 1,000,000
Stockholders' Equity 18,109,926 12,528,549 9,151,900 3,283,276 2,384,800
- ---------------
(1) The above data should be read in conjunction with the consolidated financial
statements and related notes set forth elsewhere herein and the discussion
under "Item 7, Management's Discussion and Analysis of Financial Condition
and Results of Operations."
(2) Net income includes deferred tax benefits of $4,030,000 ($0.49 per share
primary and $0.48 per share fully diluted) and non-recurring expenses of
$2,149,910 ($0.26 per share) pertaining to an attempted merger and related
proxy contest.
(3) Net income includes deferred tax benefits of $1,020,000, or $0.13 per share.
18
18
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
RESULTS OF OPERATIONS
YEAR ENDED APRIL 27, 1997 COMPARED TO YEAR ENDED APRIL 28, 1996
Net sales increased by approximately $3.0 million or 12% to approximately
$28.3 million for the fiscal year ended April 27, 1997 as compared to net sales
of approximately $25.3 million for the fiscal year ended April 28, 1996. Sales
to domestic, international and OEM (original equipment manufacturer) customers
all exhibited growth during Fiscal 1997 compared to the prior year. OEM sales
reflected substantially higher shipment levels to the Company's expanding OEM
customer base while product shipments to domestic and international markets
reflected more modest improvements over the previous year. In addition,
international orders received in Fiscal 1997 exceeded shipments by approximately
$550,000 creating a higher opening backlog for Fiscal 1998 than was available at
the start of the current fiscal year.
Cost of sales as a percentage of net sales was 43.6% for Fiscal 1997
compared to 43.3% for Fiscal 1996. The favorable impact of product cost
improvements was essentially offset by sales mix and manufacturing start-up
costs associated with the new products introduced during the second half of the
fiscal year. The Company continues to target gross margin improvements through
added production efficiencies and product cost reductions.
Research and Product Development ("R&D") expenses increased by 22% or
approximately $590,000 to $3,304,000 or 11.7% of net sales during the fiscal
year ended April 27, 1997 compared to R&D expenses of approximately $2,714,000
or 10.7% of sales during Fiscal 1996. Higher levels of salaries and related
fringe benefits, outside professional services and engineering project materials
were primarily responsible for the increase in R&D expenditures. R&D expenses
are expected to approximate 11.0% of net sales for Fiscal 1998 in conjunction
with the Company's product development objectives.
Selling, General and Administrative ("S,G&A") expenses increased by
approximately $170,000 or 2% to $9,307,000 for Fiscal 1997 as compared to
$9,137,000 for Fiscal 1996. S,G&A expenses as a percentage of net sales improved
to 32.9% in Fiscal 1997 compared to 36.2% in the prior fiscal year. Decreased
selling expenses related primarily to changes in international distribution and
decreased field service expenses were offset by increases in marketing related
salaries and fringe benefits and travel and entertainment expenses. General and
Administrative expenses increased 6% primarily as a result of higher legal costs
and salary and related fringe benefits.
19
19
Interest expense decreased by 13% or $37,000 to approximately $250,000 for
Fiscal 1997 as compared to approximately $287,000 for Fiscal 1996. Interest
expense associated with bank debt decreased by $54,000 as a result of lower
average debt levels during Fiscal 1997. Interest on capital lease obligations of
approximately $17,000 partially offset the decreased interest expense related to
bank debt.
During the third quarter of Fiscal 1997, the Company incurred
approximately $2,150,000 of non-recurring expenses associated with the attempted
acquisition of Andros Holding Inc. and a related proxy contest.
Income tax benefits increased to $4,000,000 for Fiscal 1997 compared to
$980,000 for Fiscal 1996. The increase resulted from a further reduction in
the net deferred tax asset valuation allowance of $3,864,000 due to the
continued improvement of the performance of the Company during Fiscal 1997.
Management believes it is more likely than not that these benefits will be
realized and will continue to evaluate whether further reductions in the
valuation allowance are warranted based on future operating performance and
other relevant factors. The Company will need to generate future taxable income
of approximately $14,500,000 to realize the deferred tax benefit recorded as of
April 27, 1997. Current income tax expense of $30,000 was recorded for Fiscal
1997 as compared to $40,000 for Fiscal 1996. For both periods, the income tax
expense pertaining to federal income taxes was calculated on an alternative
minimum tax basis after utilizing a portion of the Company's net operating loss
carryforwards.
YEAR ENDED APRIL 28, 1996 COMPARED TO YEAR ENDED APRIL 30, 1995
Net sales increased by approximately $1.2 million or 5% to approximately
$25.3 million for the fiscal year ended April 28, 1996 as compared to net sales
of approximately $24.0 million for the fiscal year ended April 30, 1995.
International sales grew by 17% for Fiscal 1996 while sales to OEM (Original
Equipment Manufacturers) customers increased by 24% as the Company expanded its
OEM customer base. While product sales to our domestic hospital markets were
approximately 6% higher for Fiscal 1996, overall domestic sales decreased by
approximately 8% due to reduced sales of the Company's products in the
non-hospital markets.
Cost of sales as a percentage of net sales improved to 43% for Fiscal 1996
from 44% for the prior fiscal year primarily due to favorable product mix.
Improved margins on international sales were partially offset by relatively
modest percentage increases in domestic hospital product cost of sales.
R&D expenses increased by 12% or approximately $295,000 to $2,714,000
during Fiscal 1996 as compared to $2,419,000 for Fiscal 1995. The increase
resulted primarily from higher levels of salaries and related fringe benefits
and outside professional services incurred in conjunction with the Company's
expanded product
20
20
development efforts, which were partially offset by reductions in engineering
supplies and materials.
S,G&A expenses increased by approximately 2% to $9,137,000 for Fiscal 1996
as compared to $8,978,000 for Fiscal 1995. Increased selling expenses associated
with higher levels of sales, particularly in the international area, were
partially offset by reduced marketing expenses. Increased salaries and related
fringe benefits in the marketing area were offset by decreased outside
professional services. General and Administrative expenses increased nearly 8%
during Fiscal 1996 primarily as a result of increased legal, external reporting
and recruitment expenses.
Interest expense during Fiscal 1996 decreased by 23% as a result of lower
debt levels primarily associated with the Company's public offering consummated
during the first quarter of Fiscal 1995 (June 1994), and scheduled principal
payments.
Current income tax expense of $40,000 for Fiscal 1996 was unchanged from
Fiscal 1995 and was calculated on an alternative minimum tax basis after
utilizing a portion of the Company's net operating loss carryforwards. In 1995
and prior years, the Company maintained a valuation allowance for the total
amount of net deferred tax assets related to tax credit carryforwards, net
operating loss carryforwards and temporary timing differences since management
believed that it was uncertain whether the tax benefits associated with these
assets would ultimately be realized. Because of the continued improvement in the
performance of the Company in 1996, management believed that it was more likely
than not that a portion of these benefits would have been realized and, in
accordance with the provisions of Statement of Financial Accounting Standards
No. 109, reduced the valuation allowance and recognized a benefit of $1,020,000
in the 1996 financial statements.
LIQUIDITY AND SOURCES OF CAPITAL
The Company requires adequate liquidity to support its working capital
requirements which are primarily inventory, accounts receivable and debt
service. Cash flow from operations has been and is expected to continue as the
principal source of the Company's working capital. The Company also has a
revolving credit facility to support fluctuations in its working capital
requirements and further believes that, if needed, additional funds could be
obtained from various sources on commercially reasonable terms. In addition,
approximately $5,600,000 of additional net proceeds may be realized upon the
exercise of Class A and Class B Warrants issued during June 1994, which are
redeemable by the Company under specified conditions.
At April 27, 1997 the Company had working capital of approximately
$10,831,000 and a current ratio of 2.5 to 1 compared to approximately $8,364,000
and 3.1 to 1, respectively, at April 28, 1996. The increase in working capital
of $2,467,000 was primarily caused by increases of approximately $2,150,000 in
21
21
deferred income taxes, $2,394,000 in accounts receivable, and $1,159,000 of
inventory partially offset by $1,621,000 of increases in accounts payable and
accrued expenses, and $1,670,000 of the short-term portion of the revolving
credit facility, as the majority of the revolver is expected to be repaid in
Fiscal 1998.
The Company's operating activities utilized net cash of approximately
$205,000 during Fiscal 1997 as compared to cash provided of approximately
$1,022,000 during Fiscal 1996. Cash payments of non-recurring expenses reflected
in Fiscal 1997 net income, which were associated with the attempted acquisition
and the related proxy contest costs, were partially responsible for the
reduction in cash provided by operating activities. Increases in accounts
receivable and inventory, which were largely offset by increases in accounts
payable and accrued expenses, also contributed to the decrease in cash.
As of April 27, 1997, the Company had additional borrowing capacity of
approximately $2,105,000 under its revolving credit facility subject to
eligibility requirements as provided by the Company's bank agreement, as amended
April 25, 1997 and approximately $5,600,000 of additional funds which may be
available from the exercise of warrants as described above. The Company believes
that available cash resources will be sufficient to fund cash requirements
during Fiscal 1998.
IMPACT OF INFLATION
The rate of inflation continues to have a marginal impact on the
operations of the Company. While management routinely assesses the possible
effects of inflation with respect to the Company's future business plans, the
rate of inflation is not expected to have a material impact upon the growth of
the Company during Fiscal 1998.
22
22
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
For information concerning this Item, see "Item 14. Exhibits, Financial
Statement Schedules, and Reports on Form 8-K."
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
23
23
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
DIRECTORS AND EXECUTIVE OFFICERS
Certain information with respect to the executive officers and directors
of the Registrant is set forth below:
Positions
Name with the Company Age
- ---- ---------------- ---
William J. Lacourciere Chairman of the Board, 57
President, Chief Executive
Officer and Director (Class C)
Joseph A. Vincent Executive Vice President, Chief 45
Operating Officer, Treasurer
and Secretary
Leslie E. Mace Vice President - Engineering 51
Philip F. Nuzzo Vice President - Marketing and 44
Product Development
Paul A. Cote Director (Class A) 67
Vartan Ghugasian Director (Class A) 52
Thomas M. Haythe Director (Class C) 57
Photios T. Paulson Director (Class B) 58
Steven J. Shulman Director (Class B) 45
William J. Lacourciere has been Chairman of the Board of the Company since
September 1991, Chief Executive Officer since February 1991, President since
August 1986 and a director since October 1982. He served as Chief Operating
Officer from March 1983 to February 1991. Mr. Lacourciere served as Executive
Vice President from March 1983 to August 1986. From October 1982 to March 1983,
he served as Executive Vice President - Marketing. From April 1980 to October
1982, Mr. Lacourciere served as Vice President - Domestic Sales.
Joseph A. Vincent, CMA was appointed Executive Vice President and Chief
Operating Officer of the Company in February 1997. Mr. Vincent served as Vice
President - Finance from August 1991 to February 1997 and as Chief Financial
Officer from April 1990 to February 1997. He has been Secretary since April 1990
24
24
and Treasurer since February 1991 and served as Controller from September 1984
to April 1990. Mr. Vincent held various positions with Picker International,
Inc. (a manufacturer of medical diagnostic instruments and supplies) from August
1974 until joining the Company in August 1983. Mr. Vincent was a director of the
Company from February 1994 to November 1996.
Leslie E. Mace has been Vice President - Engineering of the Company and
General Manager of the Company's Cascadia Division in Redmond, Washington since
March 1991. He served as Vice President of the Company's Cascadia Division from
May 1989 to March 1991. Mr. Mace served as Vice President, Chief Operating
Officer and Engineering Manager of Cascadia Technology Corporation, a Washington
corporation (research and development company), from prior to 1988 to April
1989.
Philip F. Nuzzo was appointed Vice President - Marketing and Product
Development of the Company in August 1996. He served as Director of Marketing
from February 1993 to August 1996, as Marketing Manager from July 1989 to
February 1993, and as Product Manager from January 1986 to July 1989. Prior to
joining Novametrix, Mr. Nuzzo, a licensed Respiratory Care Practitioner,
obtained his clinical experience with several hospitals including St. Joseph's
Hospital in Bellingham, Washington and LAC/USC Medical Center in Los Angeles,
California.
Paul A. Cote has been a director of the Company since November 1996. Mr.
Cote has been a practicing lawyer in Maine since 1955 and is the President and
Director of the law firm of Cote, Cote & Hamann. Mr. Cote was a member of the
Board of Directors of Secor Federal Savings & Loan, Birmingham, Alabama (1992 -
1993) and the Advisory Boards of Fleet Bank (1990-1992) and Northeast Bankshares
Association (later became Norstar and subsequently Fleet) (1975-1989).
Vartan Ghugasian has been a director of the Company since November 1996.
Dr. Ghugasian has been a practicing dentist in Massachusetts since 1972. Dr.
Ghugasian has enjoyed a number of academic appointments, including as an
Associate in Prosthetic Dentistry, Harvard School of Dental Medicine, from 1980
until 1993. Dr. Ghugasian is a director of the Karagheusian Commemorative
Corporation, New York, New York. Dr. Ghugasian is a member of the Novametrix 13D
Stockholders Group. See "Security Ownership of Certain Beneficial Owners" under
"Item 12, Security Ownership of Certain Beneficial Owners and Management."
Thomas M. Haythe has been a director of the Company since March 1978. He
has been a partner at the law firm of Haythe & Curley since prior to 1991. Mr.
Haythe also serves as a director of Isomedix Inc., a provider of commercial
sterilization services, Guest Supply, Inc., a provider of hotel guest room
amenities and accessories, Westerbeke Corporation, a manufacturer of marine
engine products and Ramsay Health Care, Inc., a provider of psychiatric
healthcare services.
25
25
Photios T. Paulson has been a director of the Company since July 1992. Mr.
Paulson has served as Vice President of bioAlliance, SA, a privately-held French
holding company, since January 1995, Chairman of bioMerieux Vitek Inc., a
manufacturer of clinical diagnostic systems, since July 1991 and as Senior
Adviser-Health Care Industry and International Investment Banking for Prudential
Securities Inc. since prior to 1991.
Steven J. Shulman has been a director of the Company since November 1993.
Mr. Shulman was recently named President and Chief Executive Officer of Prudent
ial HealthCare, one of the nation's ten largest healthcare providers. Mr.
Shulman previously served as President, Pharmacy & Disease Management Group of
Value Health, Inc., a provider of specialty managed care programs, from November
1995 to March 1997. Mr. Shulman served as Executive Vice President from April
1991 until September 1993, and Senior Vice President from prior to 1989 until
September 1993 of Value Health. From October 1990 through April 1991 he served
as the acting President and Chief Executive Officer of American PsychManagement,
Inc. a wholly-owned subsidiary of Value Health. Mr. Shulman has been a director
of Value Health since April 1991.Prior to 1989, Mr. Shulman held various
managerial positions at CIGNA Healthplan, Inc., a provider of group life and
health insurance, including managed care products. Mr. Shulman is also a
director of Ramsay Health Care, Inc., a provider of psychiatric healthcare
services.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's directors and executive officers, and persons who own more than ten
percent of the Company's Common Stock, to file with the Securities and Exchange
Commission initial reports of ownership and reports of changes in ownership of
Common Stock. Officers, directors and greater than ten percent stockholders are
required by Securities and Exchange Commission regulations to furnish the
Company with copies of all Section 16(a) reports they file.
To the Company's knowledge, based solely on a review of copies of such
reports furnished and confirmations that no other reports were required during
the fiscal year ended April 27, 1997, except as provided below, its directors,
executive officers and greater than percent stockholders complied with all
Section 16(a) filing requirements. Mr. Cote and Dr. Ghugasian were elected as
Directors of the Company at the 1996 Annual Meeting of Stockholders of the
Company and filed their initial reports of ownership on Form 3 in February 1997.
26
26
ITEM 11. EXECUTIVE COMPENSATION.
ADDITIONAL INFORMATION INCORPORATED BY REFERENCE
In addition to the information set forth below, certain information
concerning this item is provided under the captions "Compensation and Stock
Option Committee Interlocks and Insider Participation," "Performance Graph" and
"Report of the Compensation and Stock Option Committee" in the Proxy Statement
to be dated on or about August 22, 1997, which information is incorporated
herein by reference.
COMPENSATION OF EXECUTIVE OFFICERS
The following table sets forth information for the fiscal years ended
April 27, 1997, April 28, 1996 and April 30, 1995 concerning the compensation of
the Company's Chief Executive Officer and other executive officers of the
Company whose total annual salary and bonus exceeded $100,000 during the fiscal
year ended April 27, 1997.
SUMMARY COMPENSATION TABLE
Long Term
Compensation
Annual Compensation Awards
Name and Fiscal ---------------------- -------------- All Other
Principal Position Year Salary Bonus Stock Options Compensation (1)
- -------------------- ---- -------- ------- ------------- ----------------
William J. Lacourciere 1997 $220,192 $ 0 0 $3,155
Chairman of the Board, 1996 200,000 15,000 0 4,511
President and Chief 1995 200,000 25,000 30,000 4,478
Executive Officer
Joseph A. Vincent 1997 115,000 20,000 0 2,722
Chief Operating 1996 104,904 10,000 0 3,141
Officer, Executive 1995 100,000 15,000 20,000 2,651
Vice President,
Treasurer and
Secretary
Philip F. Nuzzo(2) 1997 110,780 0 0 2,447
Vice President - 1996 -- -- -- --
Marketing and Product 1995 -- -- -- --
Development
(1) Includes contributions made by the Company on behalf of the named executive
officers to the Company's Employee Stock Ownership Plan (the "ESOP"), the
Company's 401(k) Plan and a term life insurance plan.
27
27
(2) Mr. Nuzzo was appointed Vice President - Marketing and Product Development
of the Company effective August 1996.
The following table sets forth the number of options held by the executive
officers named in the Summary Compensation Table at April 27, 1997, the
aggregate market value, net of exercise price of such shares on the date of such
exercise for each such executive officer, and the number and value of options
held by such officers at April 27, 1997.
AGGREGATED OPTION EXERCISES IN THE FISCAL YEAR
ENDED APRIL 27, 1997 AND FISCAL YEAR END OPTION VALUES
Number of Unexercised Value of Unexercised
Securities Underlying In-the Money Options
Options at April 27, 1997 at April 27, 1997(1)
Shares -------------------------- ---------------------------
Acquired Value
Name on Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
- ---- ----------- -------- ----------- ------------- ----------- -------------
William J. Lacourcier - 0 - - 0 - 20,000 10,000 $27,500 $13,750
Joseph A. Vincent 45,000 $170,625(2) 13,333 6,667 18,333 9,167
Philip F. Nuzzo - 0 - - 0 - 28,833 6,667 68,190 9,167
- ---------------
(1) In-the-money options are those where the fair market value of the
underlying Common Stock exceeds the exercise price thereof. The value of
in-the-money options is determined in accordance with regulations of the
Securities and Exchange Commission by subtracting the aggregate exercise
price of the options from the aggregate year-end market value of the
underlying Common Stock.
(2) Value shown reflects the aggregate market value on the date of exercise for
the shares of Common Stock acquired, net of exercise price, determined
without regard to forfeiture restrictions to which such shares are subject
until March 20, 1998.
COMPENSATION OF DIRECTORS
The Company has a policy of paying its directors who are not employees of
the Company an annual fee of $7,500, $1,000 for each meeting of the Board of
Directors of the Company attended and $500 for each telephone and committee
meeting attended. Directors are also reimbursed for out-of-pocket expenses
incurred in attending meetings.
During Fiscal 1997 the non-employee Directors of the Company were granted
options to purchase Common Stock of the Company. Options for 25,000 shares have
been granted to each of Mr. Haythe, Mr. Paulson and Mr. Shulman and options for
10,000 shares have been granted to each of Mr. Cote and Dr. Ghugasian. All of
such options were granted with an exercise price equal to the market price of
the Common
28
28
Stock on the date of grant and become exercisable in one-third increments on the
first, second and third anniversaries of the date of grant.
EMPLOYMENT AGREEMENTS
The Company has entered into an employment agreement with Mr. Lacourciere.
The term of the employment agreement commenced as of June 1, 1988 and is
automatically extended on an annual basis, unless a notice of non-extension is
given by either party. The current term of the agreement, as so extended,
expires on December 31, 1997. The employment agreement provided for an initial
annual salary of $200,000, subject to increases based on increases in the
Consumer Price Index and additional increases at the discretion of the Board of
Directors. The salary under the employment agreement is currently $250,000 per
year. The agreement also provides, in the event of the termination of Mr.
Lacourciere's employment by the Company other than for cause, for a cash payment
to Mr. Lacourciere equal to three times his average annual cash compensation
during the five most recent taxable years of the Company ending before the date
of such termination, less $1,000. In the event Mr. Lacourciere's employment with
the Company is terminated at this time, such termination payment would be
approximately $581,000. In the event of the occurrence of certain change of
control events involving the Company without the approval of the Board of
Directors, Mr. Lacourciere may terminate his employment with the Company during
the one-year period following any such change of control event and such
termination of employment would entitle him to the same termination payment. In
the event the Board of Directors approves the change of control event, Mr.
Lacourciere may terminate his employment agreement with the Company during the
one-year period following any such change of control event; however, Mr.
Lacourciere will not be entitled to a termination payment.
29
29
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The stockholders (including any "group," as that term is used in Section
13(d)(3) of the Securities Exchange Act of 1934) who, to the knowledge of the
Board of Directors of the Company, owned beneficially more than five percent of
any class of the outstanding voting securities of the Company as of July 1,
1997, and their respective shareholdings as of such date (according to
information furnished by them to the Company), are set forth in the following
table. Except as indicated in the footnotes to the table, all of such shares are
owned with sole voting and investment power.
TITLE OF SHARES PERCENT
NAME AND ADDRESS CLASS BENEFICIALLY OWNED OF CLASS
- ---------------- ----- ------------------ --------
Novametrix 13D Stockholders Group Common 423,970 (1) 5.8%
184 Main Street
Lewiston, Maine 04243
Charles F. Manning, Jr., M.D. Common 575,338 (2) 7.9%
Group........................
1831 Ox Bottom Road
Tallahassee, Florida 32312
First Union Corporation...... Common 716,182 (3) 9.0%
One First Union Center Series B
Charlotte, North Carolina 28288 Preferred 40,000 (3) 100%
William J. Lacourciere....... Common 380,990 (4) 5.2%
5 Technology Drive
Wallingford, Connecticut 06492
(1) Information as to the Novametrix 13D Stockholders Group, is based upon
reports on Schedule 13D filed with the Commission by such Group. Such
reports indicate that such Group beneficially owns an aggregate of 423,970
shares, which includes 75,530 shares issuable on the exercise of currently
exercisable warrants.
(2) Information as to the Charles F. Manning, Jr., M.D. Group, is based upon
reports on Schedule 13D filed with the Commission by such Group. Such
reports indicate that such Group beneficially owns an aggregate of 575,338
shares, which includes 72,570 shares issuable on the exercise of currently
exercisable warrants.
(3) Consists of (i) 444,444 shares issuable upon the conversion of 40,000
shares of Series B Preferred Stock and (ii) 271,738 shares issuable upon
the exercise of currently exercisable warrants held by First Union
Corporation ("First Union"), which warrants will expire on May 23, 2000.
The Series B
30
30
Preferred Stock and warrants currently held by First Union as a result of
First Union's merger with First Fidelity Bancorporation consummated in
January 1996 were previously held by First Fidelity Bank, Connecticut
("FFB-CT"), a wholly owned subsidiary of First Fidelity Bancorporation.
Information as to the holdings of First Union is based upon a report on
Schedule 13D filed with the Commission by FFB-CT and Northeast Bancorp,
Inc., its parent corporation prior to the acquisition of FFB-CT by First
Fidelity Bancorporation.
(4) Includes (i) 5,887 shares held for the account of Mr. Lacourciere under the
ESOP, (ii) 1,000 shares issuable upon the exercise of Class A warrants and
1,000 shares issuable upon the exercise of Class B warrants held by Mr.
Lacourciere, which warrants are currently exercisable and will expire on
December 8, 1997 and December 8, 1999, respectively, and (iii) 30,000
shares issuable upon the exercise of currently exercisable options held by
Mr. Lacourciere.
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth, as of July 1, 1997, the number of shares
of the outstanding voting securities of the Company beneficially owned by each
of the Company's directors and each executive officer named in the Summary
Compensation Table, and all directors and executive officers as a group,
according to information furnished by such persons to the Company.
TITLE OF SHARES PERCENT
NAME AND ADDRESS CLASS BENEFICIALLY OWNED OF CLASS
- ---------------- ----- ------------------ --------
Paul A. Cote................... Common 90,695 (1) 1.2%
Director of the Company
Vartan Ghugasian............... Common 57,500 (2) *
Director of the Company
Thomas M. Haythe............... Common 116,540 (3) 1.6%
Director of the Company
William J. Lacourciere......... Common 380,990 (4) 5.2%
Chairman of the Board, President
and Chief Executive Officer of
the Company and Director of the
Company
Photios T. Paulson............. Common 15,500 (5) *
Director of the Company
Steven J. Shulman.............. Common 6,000 *
Director of the Company
Joseph A. Vincent.............. Common 71,116 (6) 1.0%
Executive Vice President, Chief
Operating Officer, Treasurer and
Secretary of the Company
Philip F. Nuzzo................ Common 39,262 (7) *
Vice President - Marketing and
Product Development
31
31
TITLE OF SHARES PERCENT
NAME AND ADDRESS CLASS BENEFICIALLY OWNED OF CLASS
- ---------------- ----- ------------------ --------
All directors and executive.... Common 810,613(1) (2) 10.9%
officers as a group (3) (4)
(nine persons) (5) (6)
(7) (8)
* Less than one percent.
(1) Includes 20,575 shares issuable upon the exercise of currently exercisable
warrants held by Mr. Cote, which warrants will expire on December 8, 1999.
(2) Includes 3,000 shares issuable upon the exercise of currently exercisable
warrants held by Dr. Ghugasian, which warrants will expire on December 8,
1997 and (ii) 1,000 shares issuable upon the exercise of currently
exercisable warrants held by Dr. Ghugasian, which warrants will expire on
December 8, 1999. Does not include shares beneficially owned by the other
members of the Novametrix 13D Group of which Dr. Ghugasian is a member.
(3) Includes (i) 14,844 shares issuable upon the exercise of currently
exercisable warrants held by Mr. Haythe, which warrants will expire on
December 31, 1997 and (ii) 10,744 shares issuable upon the exercise of
currently exercisable warrants held by Mr. Haythe, which warrants will
expire on March 10, 1999.
(4) Includes (i) 5,887 shares held for the account of Mr. Lacourciere under the
ESOP, (ii) 1,000 shares issuable upon the exercise of Class A warrants and
1,000 shares issuable upon the exercise of Class B warrants held by Mr.
Lacourciere, which warrants are currently exercisable and will expire on
December 8, 1997 and December 8, 1999, respectively, and (iii) 30,000
shares issuable upon the exercise of currently exercisable stock options
held by Mr. Lacourciere.
(5) Includes 10,000 shares issuable upon the exercise of currently exercisable
warrants held by Mr. Paulson, which warrants will expire on November 30,
2002.
(6) Includes (i) 3,158 shares held for the account of Mr. Vincent under the
ESOP, (ii) 200 shares issuable upon the exercise of Class A warrants and
200 shares issuable upon the exercise of Class B warrants held by Mr.
Vincent, which warrants are currently exercisable and will expire on
December 8, 1997 and December 8, 1999, respectively, and (iii) 20,000
shares issuable upon the exercise of currently exercisable stock options
held by Mr. Vincent.
(7) Includes (i) 2,545 shares held for the account of Mr. Nuzzo under the ESOP
and (ii) 35,500 shares issuable upon the exercise of currently exercisable
stock options held by Mr. Nuzzo.
(8) Includes (i) 1,475 shares held for the account of Leslie E. Mace, Vice
President - Engineering of the Company, under the ESOP and (ii) 12,000
shares issuable upon the exercise of currently exercisable stock options
held by Mr. Mace.
32
32
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Thomas M. Haythe, General Counsel and a director of the Company, is a
member of the law firm of Haythe & Curley, the Company's general counsel. It is
expected that Haythe & Curley will continue to render legal services to the
Company in the future.
33
33
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND
REPORTS ON FORM 8-K.
(a) 1. Consolidated Financial Statements:
Information with respect to this Item regarding the consolidated
financial statements is contained on page F-1 of this Annual Report on Form
10-K.
2. Consolidated Financial Statement Schedules
Information with respect to this Item regarding the consolidated
financial statement schedules is contained on page F-1 of this Annual Report on
Form 10-K.
3. Exhibits
Information with respect to this Item regarding Exhibits required to
be filed pursuant to Item 601 of Regulation S-K is contained in the attached
Index to Exhibits, which Exhibits are incorporated herein by reference. Exhibits
10(a), 10(b), 10(s), 10(t), 10(u), 10(y) and 10(gg) are the management contracts
and compensatory plans or arrangements required to be filed as part of this
Annual Report on Form 10-K.
(b) Reports on Form 8-K:
None.
(c) Exhibits:
Information with respect to this Item regarding Exhibits required to
be filed pursuant to Item 601 of Regulation S-K is contained in the attached
Index to Exhibits, which Exhibits are incorporated herein by reference. Exhibits
10(a), 10(b), 10(s), 10(t), 10(u), 10(y) and 10(gg) are the management contracts
and compensatory plans or arrangements required to be filed as part of this
Annual Report on Form 10-K.
(d) Consolidated Financial Statement Schedules:
Information with respect to this Item regarding the consolidated
financial statement schedule required by Regulation S-X which is excluded from
the
34
34
annual report to shareholders by Rule 14a-3(b) is contained on page S-1 in this
Annual Report on Form 10-K.
35
35
POWER OF ATTORNEY
The registrant and each person whose signature appears below hereby
appoint William J. Lacourciere and Jeffery A. Baird as attorneys-in-fact with
full power of substitution, severally, to execute in the name and on behalf of
the registrant and each such person, individually and in each capacity stated
below, one or more amendments to the annual report which amendments may make
such changes in the report as the attorney-in-fact acting deems appropriate and
to file any such amendment to the report with the Securities and Exchange
Commission.
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.
Dated: July 25, 1997
NOVAMETRIX MEDICAL SYSTEMS INC.
By/s/William J. Lacourciere
-----------------------------------
William J. Lacourciere
Chairman of the Board,
President, Chief Executive
Officer and Director
In accordance with the Exchange Act, this report has been signed
below by the following persons on behalf of the registrant and in the capacities
and on the dates indicated.
Dated: July 25, 1997
By/s/William J. Lacourciere
-----------------------------------
William J. Lacourciere
Chairman of the Board,
President, Chief Executive
Officer and Director
36
36
Dated: July 25, 1997
By/s/Jeffery A. Baird
-----------------------------------
Jeffery A. Baird
Chief Financial Officer and
Principal Accounting Officer
Dated: July 25, 1997
By/s/Paul A. Cote
-----------------------------------
Paul A. Cote
Director
Dated: July 25, 1997
By/s/Vartan Ghugasian
-----------------------------------
Vartan Ghugasian
Director
Dated: July 25, 1997
By/s/Thomas M. Haythe
-----------------------------------
Thomas M. Haythe
Director
Dated: July 25, 1997
By/s/Photios T. Paulson
-----------------------------------
Photios T. Paulson
Director
Dated: July 25, 1997
By
-----------------------------------
Steven J. Shulman
Director
37
Annual Report on Form 10-K
Item 8 -- Financial Statements
Item 14(a)(1) and (2) -- List of Financial Statements and
Financial Statement Schedule
Item 14(d) -- Financial Statement Schedule
Year ended April 27, 1997
Novametrix Medical Systems Inc.
Wallingford, Connecticut
38
Novametrix Medical Systems Inc.
Index to Financial Statements and Financial Statement Schedule
The report of Ernst & Young LLP, independent auditors, dated June 16, 1997, and
the following consolidated financial statements of Novametrix Medical Systems
Inc. are included in Item 8:
Consolidated Balance Sheets -- April 27, 1997 and April 28, 1996
Consolidated Statements of Income -- Years ended April 27, 1997, April 28,
1996 and April 30, 1995
Consolidated Statements of Shareholders' Equity -- Years ended April 27,
1997, April 28, 1996 and April 30, 1995
Consolidated Statements of Cash Flows -- Years ended April 27, 1997, April
28, 1996 and April 30, 1995
Notes to Consolidated Financial Statements -- April 27, 1997
The following consolidated financial statement schedule of Novametrix Medical
Systems Inc. is included in Item 14(d):
Schedule II -- Valuation and Qualifying Accounts
All other schedules for which provision is made in the applicable accounting
regulation of the Securities and Exchange Commission are not required under the
related instructions or are inapplicable and therefore have been omitted.
F-1
39
Report of Independent Auditors
Board of Directors
Novametrix Medical Systems Inc.
We have audited the accompanying consolidated balance sheets of Novametrix
Medical Systems Inc. as of April 27, 1997 and April 28, 1996, and the related
consolidated statements of income, shareholders' equity, and cash flows for the
years ended April 27, 1997, April 28, 1996 and April 30, 1995. Our audits also
included the financial statement schedule listed in the Index at Item 14(a).
These financial statements and schedule 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 in accordance with generally accepted auditing
standards. Those standards 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. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Novametrix Medical Systems Inc. at April 27, 1997 and April 28, 1996, and the
consolidated results of its operations and its cash flows for the years ended
April 27, 1997, April 28, 1996 and April 30, 1995, in conformity with generally
accepted accounting principles. Also, in our opinion, the related financial
statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
Ernst & Young LLP
Hartford, Connecticut
June 16, 1997
F-2
40
Novametrix Medical Systems Inc.
Consolidated Balance Sheets
APRIL 27, 1997 APRIL 28, 1996
---------------------------------
ASSETS
Current assets:
Cash and cash equivalents $ 236,808 $ 283,003
Accounts receivable, less allowance for losses of
$250,000 8,328,515 5,934,528
Inventories:
Finished products 1,741,426 1,357,610
Work in process 1,851,736 1,136,200
Materials 3,241,653 3,181,670
------------------------------
6,834,815 5,675,480
Deferred income taxes, net 2,450,000 300,540
Prepaid expenses and other current assets 313,220 131,843
------------------------------
Total current assets 18,163,358 12,325,394
Equipment, less accumulated depreciation and
amortization of $5,396,091 in 1997 and $5,019,466 in
1996 2,286,915 1,223,988
License, technology, patent and other costs, less
accumulated amortization of $3,675,242 in 1997 and
$3,177,539 in 1996 4,174,159 4,554,520
Deferred income taxes, net 2,600,000 719,460
------------------------------
$27,224,432 $18,823,362
==============================
F-3
41
APRIL 27, 1997 APRIL 28, 1996
----------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt and capital lease
obligations $ 2,974,380 $ 1,225,000
Accounts payable 2,058,142 1,243,490
Accrued expenses 2,299,709 1,492,990
---------------------------------
Total current liabilities 7,332,231 3,961,480
Long-term debt and capital lease obligations, less current
portion 782,275 1,333,333
Redeemable Preferred Stock, at redemption and
liquidation value 1,000,000 1,000,000
Shareholders' equity:
Common Stock, $.01 par value, authorized 20,000,000
shares 75,255 69,860
Additional paid-in capital 28,737,217 28,054,794
Retained-earnings (deficit) (8,215,508) (13,109,067)
Treasury stock (2,487,038) (2,487,038)
---------------------------------
18,109,926 12,528,549
---------------------------------
$ 27,224,432 $ 18,823,362
=================================
See accompanying notes.
F-4
42
Novametrix Medical Systems Inc.
Consolidated Statements of Income
YEAR ENDED
------------------------------------------------------------
APRIL 27, 1997 APRIL 28, 1996 APRIL 30, 1995
-------------------------------------------------------------
Revenues:
Net sales $28,253,750 $25,260,180 $24,032,101
Interest 7,912 13,988 11,303
-------------------------------------------------------------
28,261,662 25,274,168 24,043,404
Costs and expenses:
Cost of products sold 12,307,178 10,929,686 10,555,530
Research and product development 3,303,822 2,714,485 2,418,652
Selling, general and administrative 9,306,728 9,136,806 8,978,052
Interest 249,805 286,775 372,867
Non-recurring expenses 2,149,910
Other expense, net 20,660 69,621 73,936
-------------------------------------------------------------
27,338,103 23,137,373 22,399,037
-------------------------------------------------------------
Income before income taxes 923,559 2,136,795 1,644,367
Income tax (benefit) provision (4,000,000) (980,000) 40,000
-------------------------------------------------------------
Net income $ 4,923,559 $ 3,116,795 $ 1,604,367
=============================================================
Earnings per common share:
Primary $.60 $.39 $.21
Fully diluted $.59 $.39 $.21
See accompanying notes.
F-5
43
Novametrix Medical Systems Inc.
Consolidated Statements of Shareholders' Equity
COMMON STOCK PREFERRED STOCK
---------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
---------------------------------------------------------------------
Year ended April 30, 1995:
Balance at May 1, 1994 4,882,706 $48,827 60,000 $ 1,500,000
Issuance of stock 1,253,827 12,538
Stock issuance costs
Dividends on Preferred Stock ($.75 a share)
Reduction of deferred ESOP contributions
Net income
---------------------------------------------------------------------
Balance at April 30, 1995 6,136,533 61,365 60,000 1,500,000
Year ended April 28, 1996:
Issuance of stock 182,765 1,828
Stock issuance costs
Conversion of Preferred Stock 666,666 6,667 (60,000) (1,500,000)
Dividends on Preferred Stock ($.75 a share)
Net income
---------------------------------------------------------------------
Balance at April 28, 1996 6,985,964 69,860 - -
Year ended April 27, 1997:
Issuance of stock 539,575 5,395
Dividends on Preferred Stock ($.75 a share)
Net income
---------------------------------------------------------------------
Balance at April 27, 1997 7,525,539 $75,255 - $ -
=====================================================================
See accompanying notes.
F-6
44
ADDITIONAL RETAINED- DEFERRED TREASURY STOCK
PAID-IN EARNINGS ESOP ---------------------------------
CAPITAL DEFICIT CONTRIBUTIONS SHARES AMOUNT TOTAL
- -----------------------------------------------------------------------------------------------------------------------------
$22,012,966 $(17,691,479) $(100,000) (338,452) $(2,487,038) $ 3,283,276
5,291,754 5,304,292
(1,065,035) (1,065,035)
(75,000) (75,000)
100,000 100,000
1,604,367 1,604,367
- -----------------------------------------------------------------------------------------------------------------------------
26,239,685 (16,162,112) - (338,452) (2,487,038) 9,151,900
343,926 345,754
(22,150) (22,150)
1,493,333 -
(63,750) (63,750)
3,116,795 3,116,795
- -----------------------------------------------------------------------------------------------------------------------------
28,054,794 (13,109,067) - (338,452) (2,487,038) 12,528,549
682,423 687,818
(30,000) (30,000)
4,923,559 4,923,559
- -----------------------------------------------------------------------------------------------------------------------------
$28,737,217 $ (8,215,508) $ - (338,452) $(2,487,038) $18,109,926
=============================================================================================================================
45
Novametrix Medical Systems Inc.
Consolidated Statements of Cash Flows
YEAR ENDED
-----------------------------------------------------
APRIL 27, 1997 APRIL 28, 1996 APRIL 30, 1995
-----------------------------------------------------
OPERATING ACTIVITIES
Net income $ 4,923,559 $ 3,116,795 $ 1,604,367
Adjustments to reconcile net income to net cash
(used) provided by operating activities:
Deferred income tax benefit (4,030,000) (1,020,000)
Depreciation 487,952 428,186 495,389
Amortization 526,594 512,414 481,237
Changes in operating assets and liabilities:
Accounts receivable (2,393,987) (687,357) (911,337)
Inventories (1,159,335) (743,620) (352,851)
Prepaid expenses and other current
assets (181,377) (25,403) 281,043
Accounts payable 814,652 (419,460) 417,691
Accrued expenses 806,719 (139,808) (92,446)
---------------------------------------------------
Net cash (used) provided by operating activities (205,223) 1,021,747 1,923,093
INVESTING ACTIVITIES
Purchases of equipment (1,225,492) (518,761) (613,803)
Purchases of licenses, technology, patents and
other (146,233) (151,870) (710,826)
---------------------------------------------------
Net cash used by investing activities (1,371,725) (670,631) (1,324,629)
FINANCING ACTIVITIES
Proceeds from borrowings 1,420,000 2,500,000
Principal payments on borrowings (547,065) (600,000) (6,460,007)
Principal payment on customer advance (654,400)
Proceeds from sales of Common Stock, less
issuance costs 687,818 323,604 4,095,094
Dividends on Preferred Stock (30,000) (63,750) (75,000)
---------------------------------------------------
Net cash provided (used) by financing activities 1,530,753 (340,146) (594,313)
---------------------------------------------------
(Decrease) increase in cash and cash equivalents (46,195) 10,970 4,151
Cash and cash equivalents at beginning of year 283,003 272,033 267,882
---------------------------------------------------
Cash and cash equivalents at end of year $ 236,808 $ 283,003 $ 272,033
===================================================
See accompanying notes.
F-7
46
Novametrix Medical Systems Inc.
Notes to Consolidated Financial Statements
April 27, 1997
1. ACCOUNTING POLICIES
NATURE OF BUSINESS
Novametrix Medical Systems Inc. develops, manufactures and markets non-invasive
critical care monitors, sensors and accessories which are distributed worldwide
and provide continuous patient monitoring capabilities. The Company's current
product offering and future development plans utilize leading-edge technologies.
The Company markets its products domestically and internationally directly
through salespersons and outside distributors to its customers, most of which
are hospitals.
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of Novametrix Medical
Systems Inc. and its wholly-owned subsidiaries (collectively, the "Company").
All significant intercompany accounts and transactions are eliminated in
consolidation.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. While management believes that the estimates and
assumptions used in the preparation of the financial statements are appropriate,
actual results could differ from these estimates.
REVENUE RECOGNITION AND PRODUCT WARRANTY COSTS
Revenues from sales are recognized when products are shipped. The Company
generally warrants its products against defects for up to one year; costs
related thereto are recognized as incurred and are not material to the Company's
financial statements.
CASH EQUIVALENTS
All highly liquid investments with a maturity of three months or less when
purchased are considered cash equivalents.
INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out method) or
market.
F-8
47
Novametrix Medical Systems Inc.
Notes to Consolidated Financial Statements (continued)
1. ACCOUNTING POLICIES (CONTINUED)
EQUIPMENT
Equipment, including assets under capital lease obligations of $325,387 at April
27, 1997, is stated at cost, less accumulated depreciation and amortization.
Depreciation and amortization is computed over the estimated useful lives of the
assets using the straight-line method. Capital lease amortization is included in
depreciation expense.
FINANCIAL INSTRUMENTS
The carrying value of cash and cash equivalents, accounts receivable, accounts
payable and long-term debt approximates their fair value based on anticipated
cash flows and current market conditions.
LICENSE, TECHNOLOGY, PATENT AND OTHER COSTS
License, technology, patent and other costs are stated at cost, less accumulated
amortization. Amortization is computed by the straight-line method over periods
ranging from 3 to 17 years. The Company reviews license, technology, patent and
other costs for impairment whenever events or changes in circumstances indicate
that the carrying amount of the assets may not be recoverable. If such
impairment indicators are present, the Company recognizes a loss on the basis of
whether these amounts are fully recoverable from projected discounted cash flows
of the related product.
ADVERTISING COSTS
Advertising costs are generally expensed as incurred and are included in
selling, general and administrative expenses. Advertising costs were $385,749 in
1997, $364,148 in 1996 and $368,538 in 1995.
INCOME TAXES
Deferred income taxes are provided for temporary differences between the tax and
financial reporting bases of the Company's assets and liabilities based on
enacted tax rates applicable to the periods in which the differences are
expected to reverse.
F-9
48
Novametrix Medical Systems Inc.
Notes to Consolidated Financial Statements (continued)
1. ACCOUNTING POLICIES (CONTINUED)
EMPLOYEE BENEFIT PLANS
The Company has a noncontributory Employee Stock Ownership Plan ("ESOP") which
covers substantially all employees. Expense attributable to the ESOP amounted to
$11,628 in 1997, $14,068 in 1996 and $122,018 in 1995. At April 27, 1997, all
ESOP shares have been allocated to participants. ESOP shares not yet distributed
to participants (130,624) are treated as outstanding for the purpose of
computing earnings per share.
The Company has a defined contribution 401(k) savings plan which covers all
employees who meet the eligibility requirements, as defined. Participants can
contribute a percentage of their compensation, as defined by the plan agreement.
Matching contributions to the plan are determined annually by the Company and
are equal to a stated percentage of the amount contributed by the participants.
The expense related thereto was not material for fiscal years 1997, 1996 and
1995.
PER SHARE AMOUNTS
Earnings per common share amounts were computed by dividing net income by the
weighted-average number of shares of Common Stock and dilutive common stock
equivalents outstanding during the year. Common stock equivalents consist of the
Company's Preferred Stock, stock options, warrants and shares subscribed under
the Company's employee stock purchase plan. The computations of dilutive common
stock equivalents are based on the if-converted method for the Preferred Stock
and on the treasury stock method for the other common stock equivalents using
the average market price for the primary earnings per share computations and the
higher of average or year-end market price for the fully diluted earnings per
share computations. The weighted-average number of common shares and equivalents
for the primary and fully diluted earnings per share computations are 8,159,326
and 8,345,472, respectively, for 1997, 8,076,717 and 8,173,330, respectively,
for 1996 and 7,649,946 and 7,768,843, respectively, for 1995.
F-10
49
Novametrix Medical Systems Inc.
Notes to Consolidated Financial Statements (continued)
1. ACCOUNTING POLICIES (CONTINUED)
STOCK-BASED COMPENSATION
Effective in fiscal year 1996, the Company adopted Financial Accounting
Statement No. 123, "Accounting for Stock-Based Compensation." This statement
defines a fair value based method of accounting for employee stock compensation
plans. However, it also allows an entity to continue to measure compensation
cost for those plans in accordance with Accounting Principle Board (APB) Opinion
No. 25, "Accounting for Stock Issued to Employees." Under APB No. 25,
compensation cost is the excess, if any, of the quoted market price of the stock
at the grant date over the amount the employee must pay to acquire the stock.
The Company has elected to continue to account for its employee stock
compensation plans under APB No. 25. Pro forma disclosures of net earnings and
earnings per share, as if the fair value based method of accounting had been
applied, are presented in Note 4.
NON-RECURRING EXPENSES
During the third quarter of fiscal 1997, the Company's stockholders voted
against a proposed merger with Andros Holdings Inc. As a result, $2,149,910 of
merger and proxy related contest costs were expensed.
2. DEBT AND CAPITAL LEASE OBLIGATIONS
Long-term debt and capital lease obligations consist of:
APRIL 27, 1997 APRIL 28, 1996
-------------------------------------------
Term loan to bank $1,083,333 $1,583,333
Note payable to bank under revolving
credit agreement 2,395,000 975,000
Capital lease obligations 278,322
-------------------------------------------
3,756,655 2,558,333
Less current portion 2,974,380 1,225,000
-------------------------------------------
$ 782,275 $1,333,333
===========================================
F-11
50
Novametrix Medical Systems Inc.
Notes to Consolidated Financial Statements (continued)
2. DEBT (CONTINUED)
The Company's term loan to bank is payable in monthly installments of $41,667,
plus interest at the bank's base rate plus 1/2% (9.0% at April 27, 1997) through
June 1, 1999.
The Company's revolving credit agreement, as amended April 25, 1997, limits
borrowing to a maximum of $4,500,000 until November 1, 1997 and $3,500,000
thereafter until maturity or 75% of the Company's eligible accounts receivable,
as defined. The agreement expires on August 31, 1998 and bears interest at the
London Interbank Offered Rate ("LIBOR") plus 2.0% (7.69% at April 27, 1997).
Under the terms of the revolving credit agreement and term loan, the Company is
required to maintain certain financial ratios and minimum levels of working
capital and net worth, and is restricted, among other things, from the payment
of dividends on Common Stock, new borrowings, capital expenditures and mergers.
The obligations under capital leases are at fixed interest rates of 8.87% and
9.33% and are collateralized by the leased property.
Aggregate annual maturities of long-term debt and capital lease obligations as
of April 27, 1997 follow:
LONG-TERM CAPITAL
DEBT LEASES TOTAL
-------------------------------------------------------------------
1998 $2,895,000 $100,137 $2,995,137
1999 500,000 100,138 600,138
2000 83,333 64,974 148,307
2001 42,994 42,994
2002 14,331 14,331
-------------------------------------------------------------------
Total 3,478,333 322,574 3,800,907
Less: amounts representing interest on
capital leases
44,252 44,252
-------------------------------------------------------------------
$3,478,333 $278,322 $3,756,655
===================================================================
Substantially all tangible assets are pledged as collateral for the term loan
and note payable to bank; substantially all cash and cash equivalents are on
deposit with the bank.
F-12
51
Novametrix Medical Systems Inc.
Notes to Consolidated Financial Statements (continued)
2. DEBT (CONTINUED)
The Company paid interest of $248,734 in 1997, $292,328 in 1996 and $374,971 in
1995.
3. CAPITAL STOCK
The Preferred Stock is issuable in one or more series. The Board of Directors of
the Company is authorized to establish, among other things, the rate of
dividends payable, redemption rights and voting rights prior to issuance.
The Company has authorized 1,000,000 shares of $1.00 par value Preferred Stock
of which 50,000 shares are designated as Series A (none issued) and 120,000
shares are designated as Series B. The Preferred Stock, Series B carries a
liquidation preference of $25.00 per share (together with all accrued but unpaid
dividends) and an annual cumulative dividend of $.75 a share payable quarterly
in arrears. (The dividend is increased to $2.25 if certain covenants are not
met.)
On December 8, 1995, 60,000 shares of Preferred Stock, Series B were converted
into 666,666 shares of Common Stock. At April 27, 1997, 40,000 shares remain
outstanding and are held by the Company's primary lender, redeemable by the
Company under certain circumstances, convertible into 444,444 shares of the
Company's Common Stock and stated at their redemption and liquidation value as
"Redeemable Preferred Stock."
At April 27, 1997 there are 3,767,603 preferred share purchase rights
outstanding. Each right entitles the registered holder to purchase one
one-hundredth of a share of Preferred Stock, Series A, for $25.00 upon the
occurrence of certain specified "takeover" events. The rights are redeemable and
exchangeable only in certain specified circumstances. As of April 27, 1997, no
takeover events had occurred and no rights were exercisable.
On June 16, 1994, the Company completed a public offering for 550,000 "units"
with each unit consisting of two shares of Common Stock, and one redeemable
Class A Warrant and one redeemable Class B Warrant. The units were subsequently
split into their component parts on December 8, 1994. Each Class A Warrant is
exercisable into one share of Common Stock at an exercise price of $4.95. Each
Class B Warrant is exercisable into one share of Common Stock at an exercise
price of $5.85.
F-13
52
Novametrix Medical Systems Inc.
Notes to Consolidated Financial Statements (continued)
4. STOCK OPTIONS, STOCK PURCHASE PLAN AND WARRANTS
Activity relating to the Company's stock option plans follows:
1997 1996 1995
-------------------------------------------------------------------------------------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE
------------------------------------------------------------------------------------------------
Outstanding at
beginning of year 413,734 $3.59 413,367 $3.21 282,885 $2.05
Granted 115,000 5.72 55,000 5.00 225,000 4.31
Exercised (57,782) 2.43 (43,799) 2.05 (74,018) 1.61
Cancelled (13,334) 5.00 (10,834) 2.73 (20,500) 5.07
------------------------------------------------------------------------------------------------
Outstanding at end
of year 457,618 $4.23 413,734 $3.59 413,367 $3.21
================================================================================================
Options exercisable
at end of year 245,951 $3.44 212,067 $2.72 171,700 $1.83
================================================================================================
Exercise prices for options outstanding as of April 27, 1997 ranged from $1.00
to $6.00. The weighted average remaining contractual life of these options is
7.3 years.
At April 27, 1997, options for 25,001 shares have been authorized but not yet
granted under the Company's stock option plans.
The Company has an employee stock purchase plan expiring on December 31, 2002
for which 150,000 shares of Common Stock have been reserved. As of April 27,
1997, 63,667 shares of Common Stock had been issued under this plan.
F-14
53
Novametrix Medical Systems Inc.
Notes to Consolidated Financial Statements (continued)
4. STOCK OPTIONS, STOCK PURCHASE PLAN AND WARRANTS (CONTINUED)
The Company has redeemable Class A and Class B Warrants outstanding covering an
aggregate of 1,099,880 shares from the public offering completed on June 16,
1994 (see Note 3) and warrants for 55,000 units issued to the principal
underwriter (with each unit consisting of two shares of Common Stock, one Class
A Warrant and one Class B Warrant). The Company has also granted warrants to a
group of officers and directors, its general counsel, principal lender, key
employees and consultants to purchase shares of the Company's Common Stock. Data
relating to warrants outstanding at April 27, 1997 follows:
NUMBER OF SHARES
YEAR WARRANTS RANGE OF COVERED BY OUTSTANDING
GRANTED EXERCISE PRICES WARRANTS
- ------------------------------------------------------------------------------------------------------------
1988 $2.625 to $5.58 78,763
1989 $2.625 to $3.49 42,976
1990 $.89 to $1.81 237,068
1991 $1.84 163,043
1992 $.93 to $2.25 110,471
1993 $2.625 10,000
1994 $4.50 50,000
1995 $4.125 to $5.85 1,393,059
--------------------
2,085,380
====================
The warrants were granted at prices which equaled or exceeded the market price
of the Company's Common Stock at the date of grant. The warrants expire at
various dates from December 8, 1997 through June 20, 2004, and are all currently
exercisable. During 1997, an aggregate of 462,134 shares were exercised at
prices ranging from $.89 to $1.81 per share.
At April 27, 1997, there were 3,098,776 shares of Common Stock reserved for
issuance for: 1) the exercise of options and warrants; 2) purchases through the
Company's employee stock purchase plan; and 3) the conversion of Preferred
Stock.
F-15
54
Novametrix Medical Systems Inc.
Notes to Consolidated Financial Statements (continued)
4. STOCK OPTIONS, STOCK PURCHASE PLAN AND WARRANTS (CONTINUED)
The Company accounts for stock option grants under its stock-based compensation
plans and stock purchases under the employee stock purchase plan in accordance
with APB No. 25. Accordingly, no compensation cost has been recognized for stock
option grants since the options have exercise prices equal to the market value
of the Company's common stock at the date of grant. If compensation costs for
the Company's stock-based compensation plans had been determined based on the
fair value at the grant dates for 1997 and 1996 consistent with the method
prescribed by FAS No. 123, the Company's net income and earnings per common
share would have been adjusted to the pro forma amounts indicated below:
APRIL 27, 1997 APRIL 28, 1996
----------------------------------------------------
Pro forma net income $4,828,364 $3,096,819
Pro forma earnings per share:
Primary $.59 $.38
Fully diluted $.58 $.38
During the initial phase-in period, as required by FAS No. 123, the pro forma
amounts were determined based on the stock option grants and employee stock
purchases subsequent to May 1, 1995. Therefore, the pro forma amounts may not be
indicative of the effects of compensation cost on net income and earnings per
share in future years. Pro forma compensation cost relating to the stock options
is recognized over the 36 month vesting period. The fair value of each stock
option grant is estimated on the date of grant using the Black-Scholes option
pricing model with the following weighted average assumptions used for grants in
both fiscal 1997 and 1996: dividend yield of 0%; expected volatility of .294%;
risk free interest rate of 5%; and expected lives of ten years. The weighted
average fair value of stock options granted in fiscal 1997 and 1996 was $2.84
and $2.59, respectively.
5. CONTINGENCIES
The Company is a party to various legal proceedings incidental to its business.
Management believes that none of these legal proceedings will have a material
adverse effect on the Company's consolidated financial position, results of
operations or liquidity.
F-16
55
Novametrix Medical Systems Inc.
Notes to Consolidated Financial Statements (continued)
6. BUSINESS AND SIGNIFICANT CUSTOMERS
The Company considers that its products comprise a single business segment
within the medical instruments industry. The Company had export sales as
follows:
WESTERN
HEMISPHERE
(OTHER THAN
EUROPE THE U.S.) ASIA OTHER TOTAL
------------------------------------------------------------------------------------------------------
1997 $3,633,733 $3,386,274 $3,682,431 $741,442 $11,443,880
1996 4,498,005 2,949,055 3,076,383 814,325 11,337,768
1995 4,183,032 2,083,169 2,428,293 593,821 9,288,315
No one customer accounted for more than 10% of net sales in 1997, 1996 or 1995.
7. OPERATING LEASES
The Company has a noncancellable long-term operating lease for its main plant
and office facility which expires in 2008. The lease requires the Company to pay
for related property taxes and insurance, contains a renewal option for five
years, a purchase option upon commencement of the sixth year of the lease and
stipulates a general inflation escalation clause. In addition, the Company
leases certain equipment under various noncancellable long-term operating
leases. Future minimum annual lease payments for these long-term operating
leases for the next five years and thereafter are:
1998 $ 498,624
1999 465,521
2000 460,763
2001 408,425
2002 408,425
Thereafter 2,552,656
-------------
$4,794,414
=============
Total rental expense under operating leases was $554,272 in 1997, $398,076 in
1996 and $376,059 in 1995.
F-17
56
Novametrix Medical Systems Inc.
Notes to Consolidated Financial Statements (continued)
8. INCOME TAXES
The components of the Company's deferred income tax accounts follow:
FISCAL YEAR ENDED
1997 1996 1995
------------------------------------------------------------------------
Deferred tax assets:
Tax credits $ 656,900 $ 639,756 $ 526,671
Net operating loss carryforwards 3,907,427 4,413,335 5,255,267
Inventories - valuation allowance
and other 812,122 687,064 665,629
Other 267,621 166,528 227,051
------------------------------------------------------------------------
Total deferred tax assets 5,644,070 5,906,683 6,674,618
Valuation allowance for deferred
tax assets (506,141) (4,872,987) (6,652,586)
------------------------------------------------------------------------
5,137,929 1,033,696 22,032
Deferred tax liabilities 87,929 13,696 22,032
------------------------------------------------------------------------
Net deferred tax asset $5,050,000 $ 1,020,000 $ -
========================================================================
The (benefit) provision for income taxes consists of the following:
FISCAL YEAR ENDED
1997 1996 1995
-----------------------------------------------------------
Current tax expense $ 30,000 $ 40,000 $40,000
Deferred tax (benefit) (4,030,000) (1,020,000)
-----------------------------------------------------------
Income tax expense (benefit) $(4,000,000) $ (980,000) $40,000
===========================================================
F-18
57
Novametrix Medical Systems Inc.
Notes to Consolidated Financial Statements (continued)
8. INCOME TAXES (CONTINUED)
The provision for income taxes at the Company's tax rate differed from the
provision for income taxes at the statutory rate as follows:
FISCAL YEAR ENDED
1997 1996 1995
--------------------------------------------
Computed tax expense at expected
statutory rate $ 314,000 $ 727,000 $ 559,000
State taxes, net of federal effect (4,000) 3,000 2,000
Alternative minimum tax 37,000 40,000
Permanent items -- net effect 30,000 2,000 3,000
Utilization of net operating loss
carryforwards (476,000) (729,000) (564,000)
Reduction in valuation allowance (3,864,000) (1,020,000)
--------------------------------------------
$(4,000,000) $ (980,000) $ 40,000
============================================
At April 27, 1997 the Company had net operating loss carryovers for federal
income tax reporting purposes of approximately $11,475,000 of which $6,900,000
expires in 2005, $4,200,000 expires in 2006 and $375,000 expires in 2007. The
Company has unused research and other tax credits of approximately $657,000 at
April 27, 1997 which expire in varying amounts between 1998 and 2010. Such
credits will be reflected in operations when realized. The Company also has
approximately $70,000 in state net operating loss carryovers which expire in
1999.
SFAS No. 109 requires the reduction of the deferred tax asset by a valuation
allowance if, based on the weight of available evidence, it is more likely than
not that a portion or all of the deferred tax asset will not be realized. During
1997, the Company reduced its valuation allowance by $3,864,000 due to the
Company's continued improvement in earnings and increased probability of future
taxable income. Based on the weight of available evidence, in the opinion of the
Company's management, the Company will more likely than not generate sufficient
taxable income to fully utilize the net deferred tax asset recorded on the
balance sheet at April 27, 1997.
The amount of the net operating loss carryovers and credits for federal income
tax purposes which may be used in any future year may be limited under the
provisions of the Tax Reform Act of 1986. Also, a portion of the net operating
loss carryforward for federal income tax reporting purposes is attributable to
stock options, the tax benefit of which will be reflected as an adjustment to
additional paid-in capital when realized.
Income taxes paid in 1997, 1996 and 1995 were not significant.
F-19
58
Novametrix Medical Systems Inc.
Notes to Consolidated Financial Statements (continued)
9. QUARTERLY 1997 DATA (UNAUDITED)
QUARTER
-------------------------------------------------------- TOTAL
FIRST SECOND THIRD FOURTH YEAR
---------------------------------------------------------------------------
Net revenues $ 6,422,001 $ 6,591,346 $ 7,255,157 $ 7,993,158 $ 28,261,662
Gross profit 3,683,630 3,750,873 4,042,641 4,477,340 15,954,484
Research and
development
expenses 799,294 842,662 814,182 847,684 3,303,822
Selling, general and
administrative
expenses 2,277,154 2,264,158 2,342,447 2,422,969 9,306,728
Non-recurring
expenses 2,149,910 2,149,910
Income tax benefit (100,000) (100,000) (50,000) (3,750,000) (4,000,000)
Net income (loss) 647,874 696,158 (1,279,860) 4,859,387 4,923,559
Net earnings (loss)
per share (fully
diluted) $ .08 $ .08 $ (.16) $ .58 $ .59
10. RECENT ACCOUNTING PRONOUNCEMENT
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, "Earnings Per Share." The Statement
simplifies the standards for computing earnings per share (EPS) and makes them
comparable to international EPS standards. The Company will adopt this standard,
as required, in the first quarter of fiscal 1998. At that time, the Company will
be required to change the method currently used to compute earnings per share
and to restate all prior periods presented. Had this standard been adopted at
April 27, 1997, the Company would have reported primary earnings per share of
$.70, $.49 and $.27 for the years ended April 27, 1997, April 28, 1996 and April
30, 1995, respectively. The impact of Statement 128 on the calculation of fully
diluted earnings per share is not expected to be material.
F-20
59
Novametrix Medical Systems Inc. and Subsidiaries
Schedule II -- Valuation and Qualifying Accounts
April 27, 1997
- ---------------------------------------------------------------------------------------------------------------------------------
COL. A COL. B COL. C COL. D COL. E
ADDITIONS
BALANCE AT CHARGED TO CHARGED TO
BEGINNING OF COSTS AND OTHER BALANCE AT
DESCRIPTION PERIOD EXPENSES ACCOUNTS DEDUCTIONS END OF PERIOD
- ---------------------------------------------------------------------------------------------------------------------------------
Year ended April 27, 1997:
Allowance for doubtful accounts
deducted from accounts receivable $250,000 $29,000 $29,000 (1) $250,000
Year ended April 28, 1996:
Allowance for doubtful accounts
deducted from accounts receivable $250,000 $ 6,000 $ 6,000 (1) $250,000
Year ended April 30, 1995:
Allowance for doubtful accounts
deducted from accounts receivable $250,000 $15,000 $15,000 (1) $250,000
(1) Uncollectible accounts written off, net of recoveries.
S-1
60
Index to Exhibits(1)
Page
----
3(a) Certificate of Incorporation of the Company, as amended
(incorporated by reference to Exhibit 3(a) and 3(e) to the
Company's Registration Statement on Form SB-2 dated June 8, 1994). --
3(b) Certificate of Designation of Series A Preferred Stock of the
Company filed with the Secretary of State of the State of Delaware
on March 17, 1989 (incorporated by reference to Exhibit 3(b) to
the Company's Registration Statement on Form SB-2 dated June 8,
1994). --
3(c) Certificate of Designation of Series B Preferred Stock of the
Company filed with the Secretary of State of the State of Delaware
on August 29, 1991 (incorporated by reference to Exhibit 1 to the
Company's Current Report on Form 8-K dated August 29, 1992). --
3(d) By-Laws of the Company, as amended to date (incorporated by
reference to Exhibit 3(d) of the Company's Form 10-KSB for the
year ended April 28, 1996). --
10(a) Employment Agreement dated as of June 1, 1988 between the Company
and William J. Lacourciere, as amended (incorporated by reference
to Exhibit 10(a) to the Company's Registration Statement on Form
SB-2 dated June 8, 1994). --
10(b) Amendment dated as of August 1, 1988 to the Employment Agreement
between the Company and William J. Lacourciere (incorporated by
reference to Exhibit 10(b) to the Company's Registration Statement
on Form SB-2 dated June 8, 1994). --
- --------
(1) Copies of exhibits filed with this Annual Report on Form 10-K
or incorporated by reference herein do not accompany copies hereof
for distribution to stockholders of the Company. The Company will
furnish a copy of any of such exhibits to any stockholder
requesting the same for a nominal charge to cover duplicating
costs.
E-1
61
10(c) Warrant Certificate of the Company, the warrants evidenced thereby
exercisable commencing on December 29, 1989, together with
Schedule of substantially identical warrants (incorporated by
reference to Exhibit 10(c) to the Company's Form 10-KSB for the
year ended April 28, 1996). --
10(d) Warrant Certificate of the Company, the warrants evidenced thereby
exercisable commencing on May 23, 1990 (incorporated by reference
to Exhibit 10(d) to the Company's Form 10-KSB for the year ended
April 28, 1996). --
10(e) Warrant Certificate of the Company, the warrants evidenced thereby
exercisable commencing on September 15, 1988, together with
Schedule of substantially identical warrants (incorporated by
reference to Exhibit 10(e) to the Company's Registration Statement
on Form SB-2 dated June 8, 1994). --
10(f) First Amendment to Warrant Certificate of the Company dated as of
September 19, 1989, together with Schedule of substantially
identical amendments (incorporated by reference to Exhibit 10(f)
to the Company's Form 10-KSB for the year ended April 28, 1996). --
10(g) Warrant Certificate of the Company, the warrants evidenced thereby
exercisable commencing on May 1, 1989, together with Schedule of
substantially identical warrants (incorporated by reference to
Exhibit 10(g) to the Company's Registration Statement on Form SB-2
dated June 8, 1994). --
10(h) First Amendment to Warrant Certificate of the Company dated as of
September 19, 1989, together with Schedule of substantially
identical amendments (incorporated by reference to Exhibit 10(h)
to the Company's Form 10-KSB for the year ended April 28, 1996). --
10(i) Warrant Certificate of the Company, the warrants evidenced thereby
exercisable commencing on January 2, 1991 (incorporated by
reference to Exhibit 10(dd) to the Company's Registration
Statement on Form S-1 dated December 30, 1991). --
E-2
62
10(j) Form of Warrant Certificate of the Company, the warrants evidenced
thereby exercisable commencing on December 2, 1991 (incorporated
by reference to Exhibit 10(ee) to the Company's Registration
Statement on Form S-1 dated December 30, 1991). --
10(k) Rights Agreement dated as of March 14, 1989 between the Company
and The Connecticut Bank and Trust Company, N.A., as Rights Agent
("CBT"), which includes the form of Certificate of Designation
setting forth the terms of the Series A Preferred Stock, $1.00 par
value, as Exhibit A, the form of Right Certificate as Exhibit B
and the Summary of Rights to Purchase Preferred Shares as Exhibit
C (incorporated by reference to Exhibit 10(l) to the Company's
Registration Statement on Form SB-2 dated June 8, 1994). --
10(l) Amendment to Rights Agreement dated as of October 30, 1990 among
the Company, CBT and Mellon Bank, N.A. (incorporated by reference
to Exhibit 10(o) to the Company's Annual Report on Form 10-K for
the year ended April 28, 1991). --
10(m) Amendment to Rights Agreement dated as of August 29, 1991 between
the Company and Mellon Bank, N.A. (incorporated by reference to
Exhibit 10(p) to the Company's Registration Statement on Form S-1
dated December 30, 1991). --
10(p) Securities Purchase Agreement dated as of August 29, 1991 among
the Company, William W. Nicholson, Auric Partners Limited, a
Michigan limited partnership, and Union Trust Company
(incorporated by reference to Exhibit 2 to the Company's Current
Report on Form 8-K dated August 29, 1991). --
10(q) Third Amended and Restated Loan and Security Agreement dated as of
August 29, 1991 among the Company, NTC Technology Inc., a Delaware
corporation ("NTC"), and Union Trust Company (incorporated by
reference to Exhibit 3 to the Company's Current Report on Form 8-K
dated August 29, 1991). --
E-3
63
10(r) First Amendment to Third Amended and Restated Loan and Security
Agreement dated as of April 29, 1993 among the Company, NTC and
Union Trust Company (incorporated by reference to Exhibit 5(a) to
the Company's Current Report on Form 8-K dated April 28, 1993). --
10(s) 1979 Stock Option Plan, as amended (incorporated by reference to
Exhibit 10(ee) to the Company's Annual Report on Form 10-K for the
year ended May 2, 1993). --
10(t) 1990 Stock Option Plan (incorporated by reference to Exhibit
10(ff) to the Company's Annual Report on Form 10-K for the year
ended May 2, 1993). --
10(u) 1992 Employee Stock Purchase Plan (incorporated by reference to
Exhibit 10(gg) to the Company's Annual Report on Form 10-K for the
year ended May 2, 1993) (incorporated by reference to Exhibit
10(y) to the Company's Registration Statement on Form SB-2 dated
June 8, 1994). --
10(v) Form of Letter Agreement between the Company and Keane Securities
Co., Inc. ("Keane") pursuant to which Keane will act as finder for
the Company (incorporated by reference to Exhibit 10(z) to the
Company's Registration Statement on Form SB-2 dated June 8, 1994). --
10(w) Fourth Amended and Restated Loan and Security Agreement dated as
of June 16, 1994 among the Company, NTC and Union Trust Company
(incorporated by reference to Exhibit 10A to the Company's
Quarterly Report on Form 10-QSB for the three month period ended
July 31, 1994). --
10(x) Amendment to Securities Purchase Agreement dated as of June 16,
1994 among the Company, William W. Nicholson, Auric Partners
Limited and Union Trust Company (incorporated by reference to
Exhibit 10B to the Company's Quarterly Report on Form 10-QSB for
the three month period ended July 31, 1994). --
10(y) 1994 Stock Option Plan (incorporated by reference to Exhibit 4(i)
to the Company's Registration Statement on Form S-8, dated August
3, 1994). --
E-4
64
10(z) Form of Representative Warrant Agreement, certificate included
(incorporated by reference to Exhibit 4(a) to the Company's
Registration Statement on Form SB-2 dated June 8, 1994). --
10(aa) Form of Warrant Agreement, certificate included (incorporated by
reference to Exhibit 4(b) to the Company's Registration Statement
on Form SB-2 dated June 8, 1994). --
10(bb) Amendment No. 1 to Fourth Amended and Restated Loan and Security
Agreement dated as of July 26, 1995 among the Company, NTC and
First Fidelity Bank, formerly Union Trust Company (incorporated by
reference to Exhibit 10(ff) to the Company's Annual Report on Form
10-KSB for the year ended April 30, 1995). --
10(cc) Amendment No. 3 to Rights Agreement dated as of November 28, 1995
between the Company and Mellon Bank, N.A. (incorporated by
reference to Exhibit 10(cc) to the Company's Form 10-KSB for the
year ended April 28, 1996). --
10(dd) Lease dated January 4, 1996 between Nova Associates, L.L.C. and
the Company (incorporated by reference to Exhibit 10(dd) to the
Company's Form 10-KSB for the year ended April 28, 1996). --
10(ee) Amendment No. 2 to Fourth Amended and Restated Loan and Security
Agreement dated as of October 25, 1996 among the Company, NTC and
First Union Bank of Connecticut, formerly First Fidelity Bank. E-6
10(ff) Amendment No. 3 to Fourth Amended and Restated Loan and Security
Agreement dated as of April 25, 1997 among the Company, NTC and
First Union Bank of Connecticut. E-17
10(gg) Restricted Stock Agreement between the Company and Joseph A.
Vincent. E-29
11 Statement Re Computation of Per Share Earnings. E-35
21 Subsidiaries of the Company. E-36
23 Consent of Ernst & Young LLP, Independent Auditors. E-37
24 Power of Attorney (See "Power of Attorney" in Form 10-K). --
27 Financial Data Schedule. E-38
E-5