1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended August 3, 1997
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________________ to _________________.
Commission file number 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 Identification No.)
incorporation or organization)
5 Technology Drive, Wallingford, CT 06492
(Address of principal executive offices) (zip code)
Registrant's telephone number, including area code: (203) 265-7701
__________________________________________________________________________
(Former name, former address and former fiscal year if
changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES __X__ NO _____
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
Common Stock, $0.01 par value: 7,603,998 shares issued and outstanding as of
August 31, 1997
Page 1 of 16
Index to Exhibits at Page 14
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NOVAMETRIX MEDICAL SYSTEMS INC.
INDEX
PAGE
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (Unaudited)
Condensed Consolidated Statements of Income -
Quarters ended August 3, 1997 and July 28, 1996 3
Condensed Consolidated Balance Sheets -
August 3, 1997 and April 27, 1997 4
Condensed Consolidated Statements of Cash Flows -
Quarters ended August 3, 1997 and July 28, 1996 6
Notes to Condensed Consolidated Financial Statements -
August 3, 1997 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 9
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 12
SIGNATURES 13
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PART I - FINANCIAL INFORMATION
NOVAMETRIX MEDICAL SYSTEMS INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
QUARTER ENDED QUARTER ENDED
AUGUST 3, 1997 JULY 28, 1996
-------------- -------------
Net sales $7,366,461 $ 6,422,001
Costs and expenses:
Cost of products sold 3,114,452 2,738,371
Research and product development 860,157 799,294
Selling, general and administrative 2,538,974 2,277,154
Interest 84,307 52,290
Other expense, net 8,713 7,018
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6,606,603 5,874,127
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INCOME BEFORE INCOME TAXES 759,858 547,874
Income tax provision (benefit) 236,000 (100,000)
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NET INCOME $ 523,858 $ 647,874
========== ===========
Earnings per common share
(Primary and fully diluted): $ 0.06 $ 0.08
========== ===========
See accompanying notes.
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NOVAMETRIX MEDICAL SYSTEMS INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
ASSETS AUGUST 3, 1997 APRIL 27, 1997
------ -------------- --------------
CURRENT ASSETS
Cash and cash equivalents $ 256,030 $ 236,808
Accounts receivable, less
allowance for losses of $250,000 6,530,528 8,328,515
Other receivables 996,707
Inventories:
Finished products 1,732,012 1,741,426
Work in process 2,453,495 1,851,736
Materials 3,464,161 3,241,653
------------ ------------
7,649,668 6,834,815
Deferred income taxes, net 2,450,000 2,450,000
Prepaid expenses and other current assets 373,488 313,220
------------ ------------
TOTAL CURRENT ASSETS 18,256,421 18,163,358
Equipment 7,875,818 7,683,006
Less: accumulated depreciation (5,534,912) (5,396,091)
------------ ------------
2,340,906 2,286,915
License, technology, patent and other costs 7,501,959 7,849,401
Less: accumulated amortization (3,476,305) (3,675,242)
------------ ------------
4,025,654 4,174,159
Deferred income taxes, net 2,379,000 2,600,000
------------ ------------
$ 27,001,981 $ 27,224,432
============ ============
See accompanying notes
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NOVAMETRIX MEDICAL SYSTEMS INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) - (CONTINUED)
LIABILITIES AND SHAREHOLDERS' EQUITY AUGUST 3, 1997 APRIL 27, 1997
- ------------------------------------ -------------- --------------
CURRENT LIABILITIES
Current portion of long-term debt and
capital lease obligations $ 1,757,280 $ 2,974,380
Accounts payable 2,068,070 2,058,142
Accrued expenses 1,195,975 2,299,709
------------ ------------
TOTAL CURRENT LIABILITIES 5,021,325 7,332,231
Long-term debt and capital lease obligations,
less current portion 587,061 782,275
Redeemable Preferred Stock, $1 par value,
40,000 shares at redemption and liquidation value 1,000,000 1,000,000
SHAREHOLDERS' EQUITY
Common Stock, $.01 par value, authorized
20,000,000 shares, issued 7,937,950
at August 3, 1997 and 7,525,539 at April 27, 1997,
including 338,452 Treasury shares 79,380 75,255
Additional paid-in capital 30,500,403 28,737,217
Retained-earnings (deficit) (7,699,150) (8,215,508)
Treasury stock (2,487,038) (2,487,038)
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20,393,595 18,109,926
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$ 27,001,981 $ 27,224,432
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See accompanying notes.
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NOVAMETRIX MEDICAL SYSTEMS INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
QUARTER QUARTER
ENDED ENDED
AUGUST 3, 1997 JULY 28, 1996
-------------- -------------
OPERATING ACTIVITIES
Net income $ 523,858 $ 647,874
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation 138,822 94,330
Amortization 133,808 130,836
Deferred income taxes 221,000 (115,000)
Increases (decreases) in cash flows as
a result of changes in operating assets
and liabilities:
Accounts receivable 1,851,238 (689,764)
Inventories (814,853) 35,976
Prepaid expenses and other current assets (60,268) (177,658)
Accounts payable 9,928 (39,720)
Accrued expenses (1,103,734) 330,002
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NET CASH PROVIDED BY OPERATING
ACTIVITIES 899,799 216,876
INVESTING ACTIVITIES
Purchases of equipment (192,813) (98,443)
Purchases of license, technology, patents and other (38,554) (34,419)
----------- ---------
NET CASH USED BY INVESTING ACTIVITIES (231,367) (132,862)
FINANCING ACTIVITIES
Principal payments on borrowings (1,412,314) (125,000)
Dividends on Preferred Stock (7,500) (7,500)
Net proceeds from sales of Common Stock 770,604 62,300
----------- ---------
NET CASH USED BY FINANCING ACTIVITIES (649,210) (70,200)
----------- ---------
INCREASE IN CASH AND CASH EQUIVALENTS 19,222 13,814
Cash and cash equivalents at beginning of period 236,808 283,003
----------- ---------
Cash and cash equivalents at end of period $ 256,030 $ 296,817
=========== =========
See accompanying notes
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NOVAMETRIX MEDICAL SYSTEMS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
AUGUST 3, 1997
NOTE 1 -- BASIS OF PRESENTATION: The accompanying unaudited condensed
consolidated financial statements of Novametrix Medical Systems Inc. (the
"Company") have been prepared in accordance with generally accepted accounting
principles for interim financial information and with the instructions to Form
10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of
the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary for a
fair presentation have been included. Due to the Company's 52/53 week fiscal
year reporting structure ending on the Sunday closest to April 30th, the quarter
ended August 3, 1997 contained fourteen weeks as compared to thirteen weeks for
the quarter ended July 28, 1996. Operating results for the quarter ended August
3, 1997 are not necessarily indicative of the results that may be expected for
the year ending May 3, 1998. For further information, refer to the consolidated
financial statements and footnotes thereto included in the Company's annual
report on Form 10-K for the year ended April 27, 1997.
NOTE 2 -- PER SHARE AMOUNTS: Earnings per common share amounts for both primary
and fully diluted calculations are $0.06 and $0.08, respectively, for the
quarters ended August 3, 1997 and July 28, 1996. The weighted average number of
common shares and common stock equivalents for the primary and fully diluted
earnings per share computations are 8,504,419 and 9,237,966, respectively, for
August 3, 1997 and 8,161,052 and 8,208,744, respectively, for July 28, 1996.
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 period. 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 period ending market price for the fully diluted
earnings per share computations.
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 and makes them
comparable to international standards. The Company will adopt this standard, as
required, in the third quarter of fiscal 1998, at which time it 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 August 3, 1997,
the Company would have reported primary earnings per share of $0.07 and $0.10,
respectively, for the quarters ended August 3, 1997 and July 28, 1996. The
impact of Statement No. 128 on the calculation of fully diluted earnings per
share would not have been material.
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NOTE 3 -- OTHER RECEIVABLES: As of August 3, 1997, the Company recorded a
receivable from its transfer agent of $996,707, representing the proceeds from
the exercise of 201,355 Class A Warrants. These proceeds, received by the
Company subsequent to the end of the first quarter, have been classified on the
balance sheet as Other Receivables.
NOTE 4 -- CONTINGENCIES: The Company is a party to various legal proceedings
generally incidental to its business. Management believes that none of such
legal proceedings will have a material adverse effect on the Company's
consolidated financial position, results of operations or liquidity.
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NOVAMETRIX MEDICAL SYSTEMS INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Operating results for the first quarter ended August 3, 1997 improved
compared to the three months ended July 28, 1996. On a comparable, fully
diluted, fully taxed basis, net income rose to approximately $524,000 or $0.06
per share for the first quarter of fiscal 1998 from approximately $362,000 or
$0.04 per share for the first quarter of fiscal 1997. While reported net income
for the first quarter of fiscal 1997 was approximately $648,000 or $0.08 per
fully diluted share, net income for this period included net deferred tax
benefits of $100,000 as compared to $236,000 of income tax expense for the first
quarter of fiscal 1998. Pre-tax profit margins increased to 10.3% from 8.5% when
comparing the first quarter of fiscal 1998 to the first quarter of the prior
fiscal year. Due to the Company's 52/53 week fiscal year calendar, first quarter
1998 results included 14 weeks as compared to 13 weeks for the first quarter of
fiscal 1997.
Net sales for the first quarter of fiscal 1998 increased 15% to
approximately $7,366,000 compared to approximately $6,422,000 for the first
quarter of fiscal 1997. The increase in overall sales was primarily led by an
increase in sales to original equipment manufacturers (OEMs) and international
customers. Domestic sales declined by 3% compared to the prior year partially
due to the Company's transition to its new products.
Cost of products sold as a percentage of net sales was approximately 42.3%
for the first quarter of fiscal 1998 which was basically unchanged from the
42.6% reported for the first quarter of fiscal 1997. The Company is continuing
its ongoing efforts to enhance its gross margins through product cost reductions
and production efficiencies.
Research and product development expenses increased by approximately
$61,000 or 8% for the first quarter of fiscal 1998 compared to the first quarter
of fiscal 1997. The increase was primarily due to higher levels of salaries and
related fringe benefits, partially offset by reduced fees for outside
professional services, and lower expenditures for supplies and materials. Such
increases were anticipated in connection with the Company's fiscal 1998 business
objectives.
Selling, general and administrative ("S,G&A") expenses increased
approximately $262,000 or 11% to approximately $2,539,000 or 34% of revenues for
the first quarter of fiscal 1998 compared to approximately $2,277,000 or 35% of
revenues for the first quarter of fiscal 1997. Increased marketing expenses,
including salaries and related fringe benefits, and promotional expenditures
primarily related to new product launches, accounted for approximately 60% of
the increase in S,G, & A expenses. Higher G&A expenses including salaries and
related fringe benefits contributed to the balance of the increase.
Interest expense increased by approximately $32,000 or 61% for the quarter
ended August 3, 1997 as compared to the quarter ended July 28, 1996. Increased
average borrowings outstanding under the
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Company's revolving credit facility primarily associated with increased
inventory requirements and non-recurring costs pertaining to the Company's
attempted merger and related proxy contest, as well as interest associated with
capital lease obligations, were primarily responsible for the increase in
interest expense. Lower bank term debt levels partially offset the increased
borrowings against the Company's revolving credit agreement.
Income taxes of $236,000 for the quarter ended August 3, 1997 are recorded
on a fully taxed basis as compared to the prior year which included $15,000 of
income tax expense and a $115,000 deferred tax benefit as a result of a
reduction in the deferred tax asset valuation allowance. As a result of
reductions in the valuation allowance during fiscal 1996 and fiscal 1997
totaling $1,020,000 and $3,864,000, respectively, the Company began recording
income tax expense on a fully-taxed basis for financial reporting purposes
during the first quarter of fiscal 1998. Due to significant net operating loss
carryforwards for federal income tax purposes, the Company expects income taxes
payable to be minimal for fiscal 1998.
Except for orders pursuant to long-term OEM agreements, the Company
traditionally ships its products on a current basis. As such, the Company does
not consider its backlog levels to be a meaningful indicator of future sales.
LIQUIDITY AND SOURCES OF CAPITAL
The Company's working capital grew by approximately $2,404,000 to
$13,235,000 at August 3, 1997 compared to $10,831,000 at April 27, 1997.
Increases in inventory of approximately $815,000 and other receivables of
$997,000 and decreases in accrued expenses of $1,104,000 and the revolving
credit facility of $1,175,000, were partially offset by decreases in accounts
receivable of $1,798,000. The Company's current ratio increased to 3.6 to 1 at
August 3, 1997 from 2.5 to 1 at April 27, 1997.
Approximately $900,000 of cash was provided by operations for the three
months ended August 3, 1997 compared to $217,000 of cash provided for the three
months ended July 28, 1996. Decreases in accounts receivable, partially offset
by increases in inventory and payments of accrued expenses, were primarily
responsible for the improvement in operating cash flows. An increase in income
before taxes, depreciation, and amortization of approximately $259,000 also
contributed to improved operating cash flows.
Financing activities included approximately $1,412,000 of payments toward
the Company's bank term debt and revolving credit facility for the quarter ended
August 3, 1997 as compared to approximately $125,000 of payments issued during
the first quarter of the prior year. These payments were funded by approximately
$771,000 of proceeds from the exercise of options and warrants and improvements
in accounts receivable performance.
The Company expects cash from operations to adequately fund its planned
operating requirements for the balance of fiscal 1998 and that additional funds,
if needed, could be obtained from the unused portion of the Company's revolving
credit facility, the exercise of the warrants associated with the June 1994
public offering, or from other available sources on commercially reasonable
terms.
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This Quarterly Report contains forward-looking statements about the
Company's projected operating results. The Company's ability to achieve its
projected results is dependent upon a variety of factors, many of which are
outside of management's control, including without limitation, an unanticipated
slowdown in the healthcare industry, unanticipated technological developments
which affect the competitiveness of the Company's products, or an unanticipated
loss of business. The Company does not intend to update publicly any of the
forward-looking statements contained herein.
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PART II- OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K.
(a) Exhibits: The exhibits required to be filed as part of the
Quarterly Report on Form 10-Q are listed in the attached Index to
Exhibits.
(b) Reports on Form 8-K: There were no reports on Form 8-K during the
quarter ended August 3, 1997.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
NOVAMETRIX MEDICAL SYSTEMS INC.
Dated: September 15, 1997 s/WILLIAM J. LACOURCIERE
---------------------------------------
William J. Lacourciere
Chairman of the Board,
President and
Chief Executive Officer
Dated: September 15, 1997 s/JEFFERY A. BAIRD
---------------------------------------
Jeffery A. Baird
Chief Financial Officer and
Principal Accounting Officer
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INDEX TO EXHIBITS
PAGE
11 Statement Re: Computation of Per Share Earnings 15
27 Financial Data Schedule 16
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