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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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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 May 2, 1999
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.
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(Exact Name of Registrant as Specified in Its Charter)
Delaware 06-0977422
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
5 Technology Drive
Wallingford, Connecticut 06492
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(Address of Principal Executive Offices) (Zip Code)
(203) 265-7701
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(Registrant's telephone number, including area code)
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 B Warrants
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(Title of class) (Title of class)
Page 1 of 131 pages
Exhibit Index at page E-1.
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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, 1999....... $31,557,579
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, 1999 ..... 7,946,346 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 27, 1999 -- Part III
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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, cardiac output parameters and respiratory
mechanics. 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.
- Volumetric CO(2) Monitors - devices which utilize the integration of
CO(2) and airway flow to provide significant new parameters such as
airway deadspace and CO(2) elimination.
- Non-Invasive Cardiac Output Monitor -- a monitor which measures
cardiac output through the breath.
- 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.
Levels of oxygen and carbon dioxide ("CO(2)") 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 CO(2) levels in their blood, lungs and other
tissue. Previously, the only methods of determining the body's oxygen and CO(2)
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 CO(2). The Company's blood
gas monitoring products utilize three different technologies, each of which is
suitable for different applications.
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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.
CAPNOGRAPH MONITORS. The Company's capnographs (or end-tidal CO(2)
monitors) provide a continuous, non-invasive measurement and display of the
amount of CO(2) in each breath exhaled by the patient. Clinically, end-tidal
CO(2) levels have been correlated to a patient's arterial blood CO(2) levels.
Measurement of these levels provides a simple, non-invasive method of estimating
the CO(2) 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 CO(2) throughout
the patient's respiratory cycle. These monitors provide both a graphical and
digital display of CO(2) 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 CO(2). In addition, end-tidal CO(2) 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's TIDAL WAVE(TM) monitor (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. During fiscal 1999, the
Company introduced the TIDAL WAVE Sp, a hand-held monitor which offers the
customer both capnography and pulse oximetry. 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" 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
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WAVE and TIDAL WAVE Sp have a list sales price of approximately $2,800 and
$3,800, respectively, depending on configuration, the CAPNOGARD has a list
sales price of approximately $6,000 and the CO(2)SMO has a list sales price of
approximately $8,000.
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 new battery operated
hand-held pulse oximeters, the Models 512 and 513. The monitors measure
approximately 4" high, 2" wide and 1" deep and weigh less than 1 pound. The
lightweight design and portability of these monitors permit wide applications
throughout the hospital, as well as in non-hospital locations including
doctors' offices, clinics and homecare.
The Company also offers a unique Sensor Management Program designed to
reduce hospital operating costs. Under the program, typically three years or
longer, hospitals are able to achieve significant operating cost reductions by
switching from disposable oximetry sensors to Novametrix reusable sensors. The
program capitates (or limits) contract expenditures while providing the
hospital with new pulse oximetry monitors, sensors, and accessories, each of
which is warranted over the life of the contract.
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The OXYPLETH has a list sales price of approximately $3,000. The Models
515B, 515C, 512 and 513 have list sales prices of approximately $2,000, $2,200,
$1,000 and $1,000, respectively.
VOLUMETRIC CO(2) MONITORS. The Company's CO(2)SMO Plus!(TM) is the
first monitor to integrate airway flow measurements 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 including CO(2)
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) elimination (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 the CO(2)SMO Plus! enhances patient care by minimizing the
trauma, length of stay and costs associated with mechanical ventilation. The
CO(2)SMO Plus! has a list price of approximately $11,000.
NON-INVASIVE CARDIAC OUTPUT (NICO(TM)) MONITOR. The Company's newest
monitor, NICO, is the first device to non-invasively measure cardiac output (the
work performed by the heart) using the indirect Fick partial rebreathing
technique. NICO offers several advances including "hands off" automatic
continuous operation, completely non-invasive techniques and easy to use
functionality. Although cardiac output is the best indicator of heart function,
it has not been routinely monitored in patients undergoing general surgery
because available techniques were too invasive (risky), costly or technically
difficult.
The original Fick method, which requires invasive measurements and
labor-intensive manual tasks, is a well-accepted standard reference technique
used to evaluate all other means of determining cardiac output. Until now, the
Fick method has been too difficult to use in most clinical practice
circumstances such as surgical operating rooms and intensive care units. NICO
uses the Fick principle applied to CO(2) produced by the body and eliminated
through gas exchange in the lungs.
NICO provides a continuous display of cardiovascular monitoring
variables including cardiac output, stroke volume, cardiac index and heart rate.
In addition, NICO provides real time displays of other physiologic variables
including CO(2) elimination, end
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tidal CO(2), respiration, oxygen saturation, heart rate and respiratory
mechanics parameters based on measurements of capnography, airway flow and
pulse oximetry.
Clinical applications of this new device include monitoring patients
during surgery (in the operating room), in the emergency room and in the
intensive care unit. It provides a needed alternative to the conventional
invasive procedure for monitoring cardiac output, (thermodilution), which
requires insertion of a catheter through the heart and into the pulmonary artery
(PA). Patient safety can be enhanced by eliminating the documented hazards of PA
catheters which include infection, embolism and heart or lung tissue damage. By
eliminating the costs, risks and complications associated with the use of PA
catheters, NICO is dramatically simpler and less costly to utilize. Further,
since NICO is non-invasive and easy to operate, the use of this technology may
be expanded to other applications where it was previously deemed too risky or
costly.
The NICO system and rebreathing sensor are covered by numerous patents
and patents pending. The NICO monitor has a list price of approximately $12,000.
TRANSCUTANEOUS BLOOD GAS MONITORS. The Company's transcutaneous
(through the skin) blood gas monitor provides continuous and non-invasive
measurements of oxygen and CO(2) 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 CO(2) 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 CO(2)
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 TCO(2)M(R) Model 860 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 CO(2) sensors for optimum
versatility and has a list sales price of approximately $6,500 to $8,500
depending on configuration.
RESPIRATORY MECHANICS MONITORS. Respiratory mechanics monitors provide
continuous information on a patient's ventilatory status to help prevent
Barotrauma (lung rupture) and other complications associated with mechanical
ventilation.
Vent[check](TM) (Ventcheck), a hand-held respiratory mechanics
monitor, 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,
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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 Vent[check].
The Company's VenTrak(R) Model 1550 respiratory mechanics monitor also
provides pressure, flow and volume 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 Vent[check] has a list sales price of approximately $2,000 and the
VenTrak has a list sales price of approximately $9,000 to $13,000 depending upon
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
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 is expanding its marketing efforts to
physician groups, nursing homes, surgical centers, outpatient clinics, other
healthcare facilities and the homecare market through the use of private label
agreements and specialty distributors experienced in these marketplaces.
The Company also markets its products 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 assembles 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 26-person direct United States sales force and
also utilizes two outside distributors throughout 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
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Company utilizes manufacturer's representatives to support sales of its
products in the non-hospital markets.
Internationally, the Company currently employs four sales and marketing
managers and has approximately 85 outside international distributors. The
Company markets its products in over 75 countries. The Company's international
net sales of products and services constituted 37%, 41% and 41% of total net
sales during fiscal 1999, 1998 and 1997, 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 U.S. dollars,
which may be affected by exchange rate fluctuations. The Company believes that
fluctuations in the strength of the U.S. dollar have had a minimal impact on
its international sales during prior fiscal years. However, economic
uncertainties and currency devaluations against the U.S. dollar in the Pacific
Rim region during the latter part of fiscal 1998 and into fiscal 1999
negatively affected the Company's sales. The Company is continuing its efforts
to maximize business opportunities in that region as it monitors economic
events.
No customer accounted for more than 10% of the Company's net sales in
fiscal 1999, 1998 or 1997.
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.
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
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enhancement of the Company's existing products and technologies and to the
design and development of new products. For fiscal 1999, 1998 and 1997, the
Company incurred research and development costs aggregating approximately
$10,784,000, of which approximately $3,958,000 was attributable to fiscal 1999,
$3,522,000 was attributable to fiscal 1998 and $3,304,000 was attributable to
fiscal 1997. 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, to a lesser extent,
through independent service 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
generally warrants its products against defects in material and workmanship,
including parts and labor, for up to one year. The costs related thereto are
recognized as incurred and are not material to the Company's financial
statements. The Company also enters into multi-year sales agreements under
which the estimated repair costs are provided for at the time of sale. The
Company also offers extended warranty programs that may be purchased by its
customers.
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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 May 2, 1999 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 29 U.S. patents and has pending applications for
22 additional U.S. patents. The Company's patents primarily cover its
capnography and respiratory 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 28 trademarks in the United
States including, but not limited to, Novametrix(R), CAPNOGARD(R),
CAPNOSTAT(R), CO(2)SMO(R), CO(2)SMO Plus!(TM), NICO(TM), Y-Sensor(TM),
SPO(2)T[check], OXYPLETH(R), SuperBright(TM), VenTrak(R), PNEUMOGARD(R),
TIDAL WAVE(TM), TCO(2)M(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.
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.
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While the Company's line of monitoring products is generally available
from several of its competitors, the Company believes that its monitors provide
advantages over currently available competing products in terms of accuracy,
reliability and versatility. Additionally, the Company feels that what it
believes to be the technological superiority in size, performance 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 by the Company's competitors 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,
recognized reputations in the electronic medical instrumentation industry
and/or 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 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.
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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
the Federal Food, Drug and Cosmetics Act. Under that Act, 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 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 obtaining certification to
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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.
Changes within the United States healthcare market continue at a rapid
pace. The move toward managed care, and the growing influence of managed care
networks, hospital group purchasing organizations ("GPOs"), integrated delivery
networks ("IDNs") and hospital cooperatives, have had a major impact on the
healthcare industry by accelerating trends toward shorter hospital stays, the
use of outpatient facilities rather than hospitalization and by lowering annual
cost increases for healthcare spending. Today, hospitals in general have
expanded their efforts toward reducing operating costs and improving cost
controls as well as managing the purchase price of goods and services.
Additional cost saving changes, consolidation and restructuring could further
influence decision-making by hospitals, clinics and other healthcare providers,
which form the Company's customer base. These possible changes could
potentially reduce or 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.
EMPLOYEES
As of May 2, 1999, the Company had a total of 214 full-time employees,
consisting of 94 production personnel, 40 research and development personnel,
63 sales, marketing and service personnel and 17 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.
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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 office and manufacturing space under a twelve year lease
expiring in August 2008. 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 leases a building in Redmond, Washington under a
three-year lease expiring in 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 "Product
Liability and Insurance Coverage" under "Item 1. Business."
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
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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(R) under the symbol "NMTX". The following table sets
forth the range of high and low sales prices per share for the Common Stock for
each of fiscal 1999 and 1998.
High Sale Low Sale
--------- --------
FISCAL 1999
First Quarter.................... $8 7/16 $6 1/8
Second Quarter................... 6 1/2 3 13/16
Third Quarter.................... 7 1/4 4 7/8
Fourth Quarter................... 6 5/16 3 1/8
FISCAL 1998
First Quarter.................... $9 1/2 $5 1/8
Second Quarter................... 11 1/16 7 1/8
Third Quarter.................... 8 1/4 6
Fourth Quarter................... 9 5 3/4
On July 23, 1999, the last sale price of the Common Stock as reported
on The Nasdaq Stock Market(R) was $5.00.
As of July 1, 1999, there were approximately 765 record holders of the
Common Stock. No dividends have been declared on the Common Stock since the
Company was organized. In addition, loan agreements to which the Company is a
party contain, among other provisions, various covenants restricting the
Company's ability to pay cash dividends to holders of the Common Stock.
In addition, the Company has Class B Warrants that trade on The Nasdaq
Stock Market(R) under the symbol "NMTXZ". The Warrants are each exercisable
into one share of Common Stock at an exercise price of $5.85 and are scheduled
to expire on December 8, 1999. The Warrants are callable by the Company under
specified circumstances.
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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 May 2, 1999.
May 2, May 3 April 27, April 28, April 30,
FOR YEAR ENDED 1999 (1) 1998(1) 1997(1) 1996 1995
-------- ------- ------- ---- ----
Net Sales $32,864,673 $31,561,144 $28,253,750 $25,260,180 $24,032,101
Income Before Income Taxes
and Non-recurring Expenses 2,870,367 3,951,598 3,073,469 2,136,795 1,644,367
Net Income(2)(3) 2,066,667 2,903,598 4,923,559 3,116,795 1,604,367
Net Income Per Share(2)(3)
Basic 0.25 0.35 0.70 0.50 0.27
Diluted 0.24 0.31 0.59 0.38 0.21
Cash Dividends on Common
Stock - - - - -
AT YEAR END
Total Assets 35,975,874 31,001,896 27,224,432 18,823,362 16,605,981
Working Capital 15,233,539 18,602,648 10,831,127 8,363,914 6,411,756
Long-Term Debt 2,254,071 90,881 782,275 1,333,333 2,308,333
Redeemable Preferred Stock - - 1,000,000 1,000,000 1,000,000
Stockholders' Equity 24,655,944 27,032,439 18,109,926 12,528,549 9,151,900
- ----------------------
(1) The above data should be read in conjunction with the consolidated
financial statements, related notes and other financial information set
forth elsewhere herein.
(2) Includes income tax benefits of $4,030,000 ($0.58 per basic share and
$0.49 per diluted share) and $1,020,000 ($0.17 per basic share and
$0.12 per diluted share), respectively, for fiscal 1997 and fiscal 1996
as a result of a reduction in the Company's net deferred tax asset
valuation allowance.
(3) Fiscal 1997 net income includes non-recurring expenses of $2,149,910
($0.31 per basic share and $0.26 per diluted share) pertaining to an
attempted merger and related proxy context.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
YEAR ENDED MAY 2, 1999 COMPARED TO YEAR ENDED MAY 3, 1998
The Company reported net income of $2.1 million or $0.24 per diluted
share for the fiscal year ended May 2, 1999 compared to net income of
approximately $2.9 million or $0.31 per diluted share for the fiscal year ended
May 3, 1998. Sales shortfalls to international and OEM (original equipment
manufacturer) customers, combined with increased investment in research and
development ("R&D") and sales and marketing to support the Company's new
products and the growing domestic effort, were the primary cause for the
reduction in earnings.
Net sales increased approximately $1.3 million or 4% to approximately
$32.9 million for the fiscal year ended May 2, 1999 compared to approximately
$31.6 million for the fiscal year ended May 3, 1998. The increase in sales, led
by significant growth in domestic sales which resulted primarily from an
increase in pulse oximetry sales, was partially offset by reductions in
international sales and sales to OEM customers primarily due to the impact of
global economic conditions.
Cost of sales as a percentage of net sales was 41.3% for fiscal 1999
compared to 42.4% for fiscal 1998 led by the improvement in domestic sales. The
improvement in the cost of sales percentage resulted primarily from favorable
product and market mix in fiscal 1999 compared to the prior year. Management is
continuing to focus on product cost reductions through increased automation,
improved product design and process efficiencies.
R&D expenses increased by approximately $435,000 or 12% to
approximately $3,958,000 for fiscal 1999 compared to approximately $3,523,000
for fiscal 1998. The increase is primarily attributable to higher expenditures
for salaries and related fringe benefits associated with increased R&D
personnel which was partially offset by lower levels of expenditures for
engineering materials. R&D spending, which approximated 12% of net sales for
fiscal 1999, is expected to approximate 10% to 11% of net sales in fiscal 2000
on about the same level of spending as fiscal 1999 but on the higher level of
expected sales.
Selling, General & Administrative ("S,G&A") expenses increased by
approximately $1,723,000 or 16% to approximately $12,321,000 for fiscal 1999
compared to approximately $10,598,000 for fiscal 1998. The vast majority of the
increase was related to increased expenditures associated with the expansion of
domestic sales including salaries and related fringe benefits, employee and
dealer commissions, outside consulting and travel and entertainment expenses.
Marketing expenses, including salaries and related fringe benefits, outside
professional services and travel and entertainment
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expenses also accounted for a portion of the increase in S,G&A expense.
Decreased international sales and marketing expenses,including commissions on
reduced sales volume and marketing promotional costs, partially offset the
increase in overall S,G&A expense.
Interest expense increased approximately $99,000 to approximately
$212,000 for fiscal 1999 compared to approximately $113,000 for fiscal 1998.
During fiscal 1999, the Company entered into new debt agreements with its bank
primarily to finance the Company's purchase of its treasury stock and for
general working capital requirements.
Income tax expense was approximately $804,000 during fiscal 1999
compared to approximately $1,048,000 for fiscal 1998 which reflected the lower
earnings. The Company's effective tax rate of 28% for fiscal 1999 was below the
statutory rate as a result of benefits derived from R&D tax credits, the
Company's Foreign Sales Corporation and a further reduction in the deferred tax
valuation allowance. Management believes that current levels of pre-tax
earnings will be sufficient to generate approximately $11,000,000 of future
taxable income required to utilize the deferred tax benefit recorded as of May
2, 1999. Management expects the effective tax rate to approximate 31% to 33%
for fiscal 2000.
On July 1, 1999, the Company announced that it had restated its
quarterly results for the first three quarters of fiscal 1999 to adjust revenue
and related costs and expenses in those periods. The restatements, which were
completed on July 14, 1999, reflected adjustments as a result of modifications
to the accounting treatment for sales financing arrangements which the Company
entered into with customers, and the reversal of certain dealer sales where
products were ultimately returned to the Company due to cancellation of dealer
orders by end users.
YEAR ENDED MAY 3, 1998 COMPARED TO YEAR ENDED APRIL 27, 1997
Fiscal 1998 operating results compared favorably to the prior year. Net
income for the year ended May 3, 1998 was $2.9 million or $0.31 per diluted
share compared to reported net income for the prior year ended April 27, 1997
of $4.9 million or $0.59 per diluted share. The prior year, however, contained
a benefit of $4.0 million from a reduction in the Company's net deferred tax
asset valuation allowance and approximately $2.1 million of non-recurring
expenses. On a comparable, fully-taxed basis excluding the non-recurring
expenses, earnings would have been approximately $2.1 million or $0.25 per
diluted share for the year ended April 27, 1997.
Net sales increased by approximately $3.3 million or 12% to
approximately $31.6 million for the fiscal year ended May 3, 1998 compared to
approximately $28.3 million for the fiscal year ended April 27, 1997. The
growth in sales was primarily led by an increase in domestic sales and sales to
OEM customers. Sales to international customers reflected a modest improvement
for fiscal 1998 compared to fiscal 1997 as growth was slowed primarily by
economic uncertainties in the Pacific Rim region.
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Cost of sales as a percentage of net sales was 42.4% for fiscal 1998
compared to 43.6% for fiscal 1997. The improvement in the cost of sales
percentage resulted primarily from favorable sales mix and higher gross margins
associated with the Company's newer products. Management planned to continue to
focus on product cost reductions through increased utilization of automated
equipment, improved product design and reductions in purchase price for
materials.
R&D expenses increased by approximately $219,000 or 7% to $3,523,000
for fiscal 1998 compared to R&D expenses of approximately $3,304,000 during
fiscal 1997. Increased expenditures for salaries and related fringe benefits
were partially offset by reduced expenses for outside professional services. In
accordance with the Company's product development plans, R&D spending was
expected to continue to approximate 11% of sales for fiscal 1999.
S,G&A expenses increased by approximately $1,291,000 or 14% to
$10,598,000 for fiscal 1998 compared to $9,307,000 for fiscal 1997.
Approximately 63% of the increase was related to higher sales and marketing
expenses and pertains to increased sales and marketing salaries, commissions
and related fringe benefits, marketing promotional costs, and travel and
entertainment expenses. The balance of the S,G&A increase was related to
increased administrative expenses including salaries and related fringe
benefits, outside professional services and general insurance.
Interest expense decreased by approximately $137,000 or 55% to $113,000
for fiscal 1998 compared to approximately $250,000 for fiscal 1997. During
fiscal 1998, the Company repaid its term loan, revolving line-of-credit
facility and a capital lease obligation resulting in lower interest expense.
Income tax expense increased to $1,048,000 during fiscal 1998 from a
net benefit of $4,000,000 recorded during fiscal 1997. The prior year benefit
resulted from a reduction in the net deferred tax asset valuation allowance.
The Company's effective tax rate for fiscal 1998 was 26.5% which was less than
the statutory rate as a result of benefits received from the Company's Foreign
Sales Corporation, R&D tax credits, and a further reduction in the Company's
deferred tax valuation allowance.
LIQUIDITY AND CAPITAL RESOURCES
Working capital at May 2, 1999 was approximately $15.2 million compared
to approximately $18.6 million at May 3, 1998. The reduction in working capital
of approximately $3.4 million was primarily attributable to certain long-term
sales financing arrangements entered into during fiscal 1999, the purchase of
treasury stock, and increased expenditures for the purchase of technology and
capital equipment.
Cash used in operations was approximately $228,000 for fiscal 1999
compared to cash provided of approximately $1,697,000 for fiscal 1998. A
reduction in income before income taxes, depreciation and amortization and
increases in inventory and
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accounts and notes receivable, partially offset by increases in accounts
payable and accrued expenses, were primarily responsible for the decrease.
$6,200,000 of funds were provided from the proceeds of a term loan and
revolving credit agreement consummated during fiscal 1999 with the Company's
lender. The proceeds were primarily used to purchase 960,903 shares of the
Company's Common Stock at a cost of $4,655,072 and to support general working
capital requirements. As of May 2, 1999, there were 231,895 shares authorized
for purchase under the stock repurchase plan which expires August 24, 1999.
Cash provided from operations is expected to be the Company's principal
source of working capital for fiscal 2000. Additional funds are available under
the Company's revolving credit agreement which expires in August 2001. In
addition, approximately $3,300,000 may potentially be realized from the
exercise of the Company's Class B Warrants which are callable under specified
conditions, exercisable at $5.85 per share and expire on December 8, 1999.
Further, management believes that additional funds will continue to be
available on commercially acceptable terms.
MARKET RISK
The Company's revolving credit facility and term loan agreements are
based upon the London Interbank Offered Rate ("LIBOR") and, as such, are
sensitive to changes in interest rates. To mitigate the impact of interest rate
fluctuations on a portion of this debt, the Company entered into an interest
rate swap agreement to hedge a notional amount equal to the remaining principal
balance on the term loan. The Company believes that the interest rate swap
agreement limits interest rate risk if interest rates should fluctuate. If
interest rates should change by 2% in fiscal 2000 from those rates in effect at
May 2, 1999, assuming no change in the outstanding debt balance and considering
the effects of the Company's interest rate swap agreement, the effect on
interest expense would be immaterial. These amounts are determined by
considering the hypothetical interest rates on the Company's borrowing cost and
interest rate swap agreement. This analysis does not consider the effects of
actions management would take if interest rates were to fluctuate by such a
significant degree. The sensitivity analysis also assumes no changes in the
Company's financial structure. The agreement had no material effect on interest
expense during fiscal 1999.
SUBSEQUENT EVENT
On June 30, 1999, the Company acquired Children's Medical Ventures,
Inc., a privately owned developer and marketer of neonatal and pediatric
products and services for the amount of $8,700,000 in cash and a five-year
warrant to purchase 25,000 shares of the Company's common stock at an exercise
price of $4.6325 per share. The acquisition including transaction costs was
financed with the proceeds of a $4,800,000 five-year term loan agreement with
the Company's primary bank which bears interest at LIBOR plus 1.8% and a
$4,800,000 five-year term loan with another bank which bears interest at LIBOR
plus 1.6%. In addition, the Company expanded its revolving credit agreement
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with its primary lender to $6,000,000 for general working capital purposes and
extended the expiration date to August 2001.
RECENT ACCOUNTING PRONOUNCEMENT
In April 1998, the AICPA issued Statement of Position (SOP) 98-5,
"Reporting on the Costs of Start-up Activities". The SOP, which is effective
for the Company beginning May 3, 1999, requires that certain costs capitalized
prior thereto be written-off and any future start-up costs be expensed as
incurred. As of May 2, 1999, there were approximately $329,000 of unamortized
start-up costs which will be written-off as a cumulative effect of an
accounting change during the Company's first quarter of fiscal year 2000. The
Company estimates the impact of adopting this SOP will result in a reduction of
fiscal 2000 earnings of approximately $224,000.
YEAR 2000 COMPLIANCE
Year 2000 compliance is a potentially significant issue for most, if
not all companies, the impact of which cannot be predicted with any degree of
certainty. The risk to the Company resulting from the failure of its own
systems or those of third parties with which it does business to attain Year
2000 readiness is similar to that of other manufacturing firms or business
enterprises. The risks include, but are not limited to, disruptions in
transacting or processing information, disruptions in the supply of materials
from major vendors and delays in shipment to customers due to their Year 2000
non-compliance. The Company has established a Year 2000 program dedicated to
assessing the potential impact on its business, results of operations and
financial condition. The Company has conducted a thorough review of its
installed base of monitoring equipment and has determined that its current
products are Year 2000 compliant. The results of the Company's examination have
been posted on its web site for its customers to review. During fiscal 1999,
the Company completed the installation of a new fully-integrated operating
system and has recently completed an upgrade of its communication systems to
achieve Year 2000 compliance. To date the Company has capitalized approximately
$375,000 to upgrade its operating and information systems and does not expect
to incur additional capital or non-capital expenditures of a material amount
for Year 2000 compliance purposes. As a result of these expenditures,
management believes that the Year 2000 issue will not pose significant
operational problems for its internal operating systems. The Company has also
contacted its major suppliers to assess their Year 2000 readiness and is
continuing to address this issue with other suppliers and third parties with
which the Company conducts business. While the Company has not identified any
Year 2000 issues as a result of this effort, the Company cannot be certain that
its suppliers will obtain Year 2000 readiness and is developing contingency
plans to mitigate exposure resulting from non-compliance including considering
the substitution of those suppliers that provide an unacceptable response.
However, it would be impractical for the Company to attempt to address all
potential Year 2000 problems of its suppliers and other third parties. The
Company will continue to refine its contingency plans as conditions warrant.
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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 2000.
***************
This Annual Report on Form 10-K contains certain forward-looking
statements about the Company's products and projected operating results.
Shareholders and potential investors are cautioned that such statements are
predictions and that actual events or results may vary significantly. 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 delay or loss of business.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information required by this item is included in Item 7,
Management's Discussion and Analysis of Financial Condition and Results of
Operations under the caption "Market Risk."
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.
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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:
Name Positions Age
- ---- with the Company ---
----------------
William J. Lacourciere Chairman of the Board,
President, Chief Executive Officer
and Director (Class C) 59
Joseph A. Vincent Executive Vice President, Chief
Operating Officer, Treasurer and
Secretary 47
Leslie E. Mace Vice President - Engineering 53
Philip F. Nuzzo Vice President - Marketing and
Product Development 46
Jeffery A. Baird Corporate Controller, Chief
Financial Officer 45
Paul A. Cote Director (Class A) 69
Vartan Ghugasian Director (Class A) 54
Thomas M. Haythe Director (Class C) 59
John P. Mahoney Director (Class B) 51
Photios T. Paulson Director (Class B) 60
Steven J. Shulman Director (Class B) 48
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
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from April 1990 to February 1997. He has been Secretary since April 1990 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.
Jeffery A. Baird was appointed Chief Financial Officer in February
1997. He has served as Controller since February 1993 and has held various
positions since joining the Company in 1988. Prior to his employment at
Novametrix, Mr. Baird was employed at Philips Medical Systems, Inc., a
manufacturer of diagnostic medical imaging equipment.
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 Northeast Bankshare Association (later became Norstar and
subsequently Fleet) (1975-1989). He also served on the advisory boards of
Norstar and Fleet banks (1990-1992).
Vartan Ghugasian has been a director of the Company since November
1996. Dr. Ghugasian has been a practicing dentist in Massachusetts since 1972
specializing in prosthodontics. Dr. Ghugasian has enjoyed a number of academic
appointments, including as an associate in prosthetic dentistry, Harvard
University School of Dental Medicine from 1980 until 1993 and Director of
Pre-Clinical Studies at Tufts University School of Dental Medicine from 1974 to
1980. Dr. Ghugasian has also served as a director of the Karagheusian
Commemorative Corporation, New York, New York.
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 Guest Supply, Inc., a provider of hotel
guest room amenities, accessories and products, Westerbeke Corporation, a
manufacturer of marine engine products, and Ramsay Youth Services, Inc., a
provider of youth and educational services.
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John P. Mahoney has been a director of the Company since October 1997.
Dr. Mahoney has served as a staff pathologist with Pathology Associates, Inc.
(pathology group providing services in surgical, cytologic, clinical and
forensic pathology) from 1981 to 1994 and since 1996. During such time, Dr.
Mahoney has served as Chief of Staff, Tallahassee Community Hospital;
President, Capital Medical Society; and Associate Medical Examiner, State of
Florida, District II. From 1987 to 1995, Dr. Mahoney was President and Chief
Executive Officer of Health Enterprises, Inc., a holding company that included
a 62,000 member health maintenance organization, which was merged with Coastal
Physicians Group in 1995. Dr. Mahoney is a member of the Manning 13D
Stockholders Group. See "Security Ownership of Certain Beneficial Owners" under
"Item 12, Security Ownership of Certain Benefit Owners and Management."
Photios T. Paulson has been a director of the Company since July 1992.
Mr. Paulson has served as Vice President of bioMerieux Alliance, 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 Advisor-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 serves as President and Chief Executive Officer of Prudential
HealthCare, one of the nation's ten largest healthcare providers. Mr. Shulman
was a founder and director of Value Health, Inc., a provider of specialty
managed care programs, from 1987 to 1997. During that time he served as
President of the Pharmacy and Disease Management Group as well as Executive
Vice President. Prior to 1989, Mr. Shulman was President of the East Central
Division 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.
For additional information concerning this item, see text under caption
"Compliance with Section 16(a) of the Securities Exchange Act of 1934" in the
Proxy Statement, which information is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION.
For information concerning this item, see text under the captions
"Executive Compensation," "Compensation of Directors," "Employment Agreements,"
"Compensation and Stock Option Committee Interlocks and Insider Participation,"
"Performance Graph" and "Report of the Compensation and Stock Option Committee"
in the Proxy Statement, which information is incorporated herein by reference.
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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
For information concerning this item, see text under the captions
"Security Ownership of Certain Beneficial Owners" and "Security Ownership of
Management" in the Proxy Statement, which information is incorporated herein by
reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
For information concerning this item, see text under the caption
"Certain Relationships and Related Transactions" in the Proxy Statement, which
information is incorporated herein by reference.
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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), 10(gg), 10(ii)
and 10(kk) 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:
The Company did not file any Current Reports on Form 8-K during
the quarter ended May 2, 1999. Subsequent to May 2, 1999, the Company did file
on July 15, 1999 a Current Report on Form 8-K related to the acquisition of
Children's Medical Ventures, Inc.
(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), 10(gg), 10(ii),
10(kk) and 10(ll) 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 Schedule:
Information with respect to this Item regarding the consolidated
financial statement schedule required by Regulation S-X which is excluded from
the annual report to shareholders by Rule 14a-3(b) is contained on page S-1 in
this Annual Report on Form 10-K.
29
29
POWER OF ATTORNEY
The Registrant and each person whose signature appears below hereby
appoint each of 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 this Annual Report on
Form 10-K which amendments may make such changes in this Report as the
attorney-in-fact acting in the premises deems appropriate and to file any such
amendment to this Report with the Securities and Exchange Commission.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Dated: July 30, 1999
NOVAMETRIX MEDICAL SYSTEMS INC.
By/s/William J. Lacourciere
---------------------------------------
William J. Lacourciere
Chairman of the Board,
President, Chief Executive
Officer and Director
Pursuant to the requirements of the Securities Exchange Act of 1934,
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 30, 1999
By/s/William J. Lacourciere
---------------------------------------
William J. Lacourciere
Chairman of the Board,
President, Chief Executive
Officer and Director
30
30
Dated: July 30, 1999
By/s/Jeffery A. Baird
---------------------------------------
Jeffery A. Baird
Chief Financial Officer and
Principal Accounting Officer
Dated: July 30, 1999
By/s/Paul A. Cote
---------------------------------------
Paul A. Cote
Director
Dated: July 30, 1999
By/s/Vartan Ghugasian
---------------------------------------
Vartan Ghugasian
Director
Dated: July 30, 1999
By/s/Thomas M. Haythe
---------------------------------------
Thomas M. Haythe
Director
Dated: July 30, 1999
By/s/John P. Mahoney
---------------------------------------
John P. Mahoney
Director
Dated: July 30, 1999
By/s/Photios T. Paulson
---------------------------------------
Photios T. Paulson
Director
Dated: July 30, 1999
By/s/Steven J. Shulman
---------------------------------------
Steven J. Shulman
Director
31
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 May 2, 1999
Novametrix Medical Systems Inc.
Wallingford, Connecticut
32
Novametrix Medical Systems Inc.
Index to Financial Statements and Financial Statement Schedule
The report of Ernst & Young LLP, independent auditors, dated July 1, 1999, and
the following consolidated financial statements of Novametrix Medical Systems
Inc. are included in Item 8:
Consolidated Balance Sheets--May 2, 1999 and May 3, 1998
Consolidated Statements of Income--Years ended May 2, 1999, May 3, 1998 and
April 27, 1997
Consolidated Statements of Shareholders' Equity--Years ended May 2, 1999,
May 3, 1998 and April 27, 1997
Consolidated Statements of Cash Flows--Years ended May 2, 1999, May 3, 1998
and April 27, 1997
Notes to Consolidated Financial Statements--May 2, 1999
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
33
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 May 2, 1999 and May 3, 1998, and the related
consolidated statements of income, shareholders' equity, and cash flows for the
years ended May 2, 1999, May 3, 1998 and April 27, 1997. 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 and schedule 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 May 2, 1999 and May 3, 1998, and the
consolidated results of its operations and its cash flows for the years ended
May 2, 1999, May 3, 1998 and April 27, 1997, 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.
/S/ERNST & YOUNG LLP
Hartford, Connecticut
July 1, 1999
F-2
34
Novametrix Medical Systems Inc.
Consolidated Balance Sheets
MAY 2, 1999 MAY 3, 1998
---------------------------------
ASSETS
Current assets:
Cash and cash equivalents $ 269,399 $ 1,783,596
Accounts receivable, less allowance for losses of
$250,000 11,613,251 9,712,814
Current portion of notes receivable 380,003
Inventories:
Finished products 4,193,808 3,624,385
Work in process 1,224,991 1,777,028
Materials 3,933,648 2,471,521
---------------------------------
9,352,447 7,872,934
Deferred income taxes, net 1,768,688 2,414,000
Prepaid expenses and other current assets 915,610 697,880
---------------------------------
Total current assets 24,299,398 22,481,224
Notes receivable, less current portion 1,501,118
Equipment, less accumulated depreciation and
amortization of $6,913,927 in 1999 and $6,031,517 in
1998 3,682,126 2,596,209
License, technology, patent and other costs, less
accumulated amortization of $3,982,188 in 1999 and
$3,566,574 in 1998 4,544,432 3,954,797
Deferred income taxes, net 1,948,800 1,969,666
---------------------------------
$ 35,975,874 $ 31,001,896
=================================
See accompanying notes.
F-3
35
MAY 2, 1999 MAY 3, 1998
---------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of debt and capital lease obligation $ 3,836,810 $ 33,901
Accounts payable 2,384,925 1,883,234
Accrued expenses 2,844,124 1,961,441
---------------------------------
Total current liabilities 9,065,859 3,878,576
Long-term debt and capital lease obligation, less
current portion 2,254,071 90,881
Shareholders' equity:
Common Stock, $.01 par value, authorized 20,000,000
shares; issued 9,232,659 shares in 1999 and
9,174,355 shares in 1998 92,327 91,744
Additional paid-in capital 34,965,970 34,754,643
Retained-earnings (deficit) (3,260,243) (5,326,910)
Treasury stock; 1,299,355 shares in 1999 and 338,452
shares in 1998 (7,142,110) (2,487,038)
---------------------------------
24,655,944 27,032,439
---------------------------------
$ 35,975,874 $ 31,001,896
=================================
F-4
36
Novametrix Medical Systems Inc.
Consolidated Statements of Income
YEAR ENDED
--------------------------------------------------
MAY 2, 1999 MAY 3, 1998 APRIL 27, 1997
--------------------------------------------------
Revenues:
Net sales $ 32,864,673 $ 31,561,144 $ 28,253,750
Interest 113,491 45,761 7,912
--------------------------------------------------
32,978,164 31,606,905 28,261,662
Costs and expenses:
Cost of products sold 13,568,836 13,377,206 12,307,178
Research and product development 3,957,760 3,522,687 3,303,822
Selling, general and administrative 12,320,693 10,597,621 9,306,728
Interest 212,365 113,246 249,805
Non-recurring expenses 2,149,910
Other expense, net 48,143 44,547 20,660
--------------------------------------------------
30,107,797 27,655,307 27,338,103
--------------------------------------------------
Income before income taxes 2,870,367 3,951,598 923,559
Income tax provision (benefit) 803,700 1,048,000 (4,000,000)
--------------------------------------------------
Net income $ 2,066,667 $ 2,903,598 $ 4,923,559
==================================================
Earnings per common share:
Basic $.25 $.35 $.70
Diluted $.24 $.31 $.59
See accompanying notes.
F-5
37
Novametrix Medical Systems Inc.
Consolidated Statements of Shareholders' Equity
ADDITIONAL RETAINED-
COMMON STOCK PAID-IN EARNINGS
----------------------
SHARES AMOUNT CAPITAL (DEFICIT)
-------------------------------------------------------------
Year ended April 27, 1997:
Balance at April 28, 1996 6,985,964 $ 69,860 $ 28,054,794 $(13,109,067)
Issuance of stock 539,575 5,395 682,423
Dividends on Preferred Stock ($.75 a share) (30,000)
Net income 4,923,559
-------------------------------------------------------------
Balance at April 27, 1997 7,525,539 75,255 28,737,217 (8,215,508)
Year ended May 3, 1998:
Issuance of stock 1,204,372 12,045 4,734,204
Tax benefit related to stock option
exercises 287,666
Conversion of Redeemable Preferred
Stock 444,444 4,444 995,556
Dividends on Preferred Stock ($.75 a
share) (15,000)
Net income 2,903,598
-------------------------------------------------------------
Balance at May 3, 1998 9,174,355 91,744 34,754,643 (5,326,910)
Year ended May 2, 1999:
Issuance of stock 58,304 583 193,380
Tax benefit related to stock option
exercises 17,947
Purchase of Common Stock for treasury
Net income 2,066,667
-------------------------------------------------------------
Balance at May 2, 1999 9,232,659 $ 92,327 $ 34,965,970 $ (3,260,243)
=============================================================
TREASURY STOCK
---------------------------
SHARES AMOUNT TOTAL
----------------------------------------------
Year ended April 27, 1997:
Balance at April 28, 1996 (338,452) $(2,487,038) $ 12,528,549
Issuance of stock 687,818
Dividends on Preferred Stock ($.75 a share) (30,000)
Net income 4,923,559
-----------------------------------------------
Balance at April 27, 1997 (338,452) (2,487,038) 18,109,926
Year ended May 3, 1998:
Issuance of stock 4,746,249
Tax benefit related to stock option
exercises 287,666
Conversion of Redeemable Preferred
Stock 1,000,000
Dividends on Preferred Stock ($.75 a
share) (15,000)
Net income 2,903,598
-----------------------------------------------
Balance at May 3, 1998 (338,452) (2,487,038) 27,032,439
Year ended May 2, 1999:
Issuance of stock 193,963
Tax benefit related to stock option
exercises 17,947
Purchase of Common Stock for treasury (960,903) (4,655,072) (4,655,072)
Net income 2,066,667
-----------------------------------------------
Balance at May 2, 1999 (1,299,355) $(7,142,110) $ 24,655,944
===============================================
See accompanying notes.
F-6
38
Novametrix Medical Systems Inc.
Consolidated Statements of Cash Flows
YEAR ENDED
--------------------------------------------------
MAY 2, 1999 MAY 3, 1998 APRIL 27, 1997
--------------------------------------------------
OPERATING ACTIVITIES
Net income $ 2,066,667 $ 2,903,598 $ 4,923,559
Adjustments to reconcile net income to net cash
(used) provided by operating activities:
Deferred income tax expense (benefit) 686,700 954,000 (4,030,000)
Depreciation 882,410 635,426 487,952
Amortization 501,500 524,092 526,594
Changes in operating assets and liabilities:
Accounts and notes receivable (3,781,558) (1,384,299) (2,393,987)
Inventories (1,750,741) (1,038,119) (1,159,335)
Prepaid expenses and other current assets (217,730) (384,660) (181,377)
Accounts payable 501,691 (174,908) 814,652
Accrued expenses 882,683 (338,268) 806,719
--------------------------------------------------
Net cash (used) provided by operating activities (228,378) 1,696,862 (205,223)
INVESTING ACTIVITIES
Purchases of equipment (1,699,674) (944,720) (1,225,492)
Purchases of licenses, technology, patents and other (1,091,135) (304,730) (146,233)
--------------------------------------------------
Net cash used by investing activities (2,790,809) (1,249,450) (1,371,725)
FINANCING ACTIVITIES
Revolving line of credit, net 3,200,000
Proceeds from term loan 3,000,000 1,420,000
Principal payments on term loan and capital lease
obligation (233,901) (3,631,873) (547,065)
Issuance of Common Stock 193,963 4,746,249 687,818
Purchase of Common Stock for treasury (4,655,072)
Dividends on Preferred Stock (15,000) (30,000)
--------------------------------------------------
Net cash provided by financing activities 1,504,990 1,099,376 1,530,753
--------------------------------------------------
(Decrease) increase in cash and cash equivalents (1,514,197) 1,546,788 (46,195)
Cash and cash equivalents at beginning of year 1,783,596 236,808 283,003
--------------------------------------------------
Cash and cash equivalents at end of year $ 269,399 $ 1,783,596 $ 236,808
==================================================
See accompanying notes.
F-7
39
Novametrix Medical Systems Inc.
Notes to Consolidated Financial Statements
May 2, 1999
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. The Company also markets its products to original
equipment manufacturers ("OEM's") which incorporate certain of the Company's
products and technologies into the manufacture of their own products.
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 generally 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. The Company provides for the estimated costs to
repair products under multi-year agreements at the time of sale.
CASH EQUIVALENTS
All highly liquid investments with a maturity of three months or less when
purchased are considered cash equivalents. These investments are valued at
cost, which approximates fair value.
F-8
40
Novametrix Medical Systems Inc.
Notes to Consolidated Financial Statements (continued)
1. ACCOUNTING POLICIES (CONTINUED)
INTEREST RATE SWAPS
The Company enters into interest rate swap agreements to reduce the impact of
changes in interest rates on its floating rate debt. These agreements involve
the exchange of amounts based on the London Interbank Offered Rate ("LIBOR")
for amounts based on a fixed interest rate over the life of the agreement,
without an exchange of the notional amount upon which the payments are based.
The differential to be paid or received as interest rates change is accrued and
recognized as an adjustment to interest expense. The related amount payable or
receivable from counter parties is included in accrued expenses. The fair value
of these agreements is not recognized in the financial statements.
INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out method) or
market.
CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to concentrations of
credit risk consist primarily of cash equivalents, notes receivable and trade
receivables. The Company places its cash equivalents with high credit-quality
financial institutions and has established guidelines that seek to maintain
safety and liquidity. The Company's customer base consists of a large number of
diverse customers. The Company performs ongoing credit evaluations of its
customers and does not require collateral. The Company provides for potential
credit losses; such losses have not been significant and have been within
management's expectations.
LONG-LIVED ASSETS
Equipment, including assets purchased under a capital lease obligation of
$175,480 at May 2, 1999 and May 3, 1998, are 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.
F-9
41
Novametrix Medical Systems Inc.
Notes to Consolidated Financial Statements (continued)
1. ACCOUNTING POLICIES (CONTINUED)
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 long-lived assets 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 asset or product.
ADVERTISING COSTS
Advertising costs are generally expensed as incurred and are included in
selling, general and administrative expenses. Advertising costs were $603,670
in 1999, $494,330 in 1998 and $385,749 in 1997.
DEFERRED INCOME TAXES
Deferred income taxes are provided on temporary differences between the tax and
financial reporting bases of assets and liabilities based on enacted tax rates
applicable to the periods in which the differences are expected to reverse.
EMPLOYEE BENEFIT PLANS
The Company has a defined contribution 401(k) savings plan which covers all
employees who meet the eligibility requirements, as defined. Participants may
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
1999, 1998 and 1997.
The Company maintains an Employee Stock Ownership Plan ("ESOP") under which all
shares have previously been allocated to participants. The 116,954 shares held
by the ESOP in participant accounts are treated as outstanding for the purpose
of computing earnings per share. Expenses pertaining to the ESOP were not
material for fiscal years 1999, 1998 and 1997.
F-10
42
Novametrix Medical Systems Inc.
Notes to Consolidated Financial Statements (continued)
1. ACCOUNTING POLICIES (CONTINUED)
EARNINGS PER SHARE
Basic and diluted earnings per share are calculated in accordance with
Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings per
Share."
STOCK-BASED COMPENSATION
The Company accounts for its employee stock compensation 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. As required by SFAS No. 123,
"Accounting for Stock-Based Compensation," 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 5.
NON-RECURRING EXPENSES
During 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. NOTES RECEIVABLE
During fiscal 1999, the Company sold products in exchange for long-term
non-interest bearing notes receivable, generally payable over a period of eight
years. The Company has imputed interest on these notes based upon its estimated
incremental borrowing rate. In addition, the Company has notes receivable from
various officers and directors. These notes bear interest at the Applicable
Federal Rate, as defined (4.84% at May 2, 1999), and provide for quarterly
interest payments until the third anniversary of the note at which time the
principal is due. Notes receivable at May 2, 1999 consist of:
Notes exchanged for product sales ($1,792,815 face amount,
less unamortized discount of $318,679) $ 1,474,136
Officer and director notes receivable 272,100
Other 134,885
--------------
1,881,121
Less current portion 380,003
--------------
$ 1,501,118
==============
F-11
43
Novametrix Medical Systems Inc.
Notes to Consolidated Financial Statements (continued)
3. DEBT AND CAPITAL LEASE OBLIGATION
Debt and capital lease obligation consist of:
MAY 2, 1999 MAY 3, 1998
----------------------------
Note payable to bank under revolving credit agreement $ 3,200,000 $ -
Term loan payable to bank 2,800,000 -
Capital lease obligation 90,881 124,782
----------------------------
6,090,881 124,782
Less current portion 3,836,810 33,901
----------------------------
$ 2,254,071 $ 90,881
============================
The Company's revolving credit agreement, as amended December 11, 1998, limits
borrowing to a maximum of $5,000,000. The agreement expires August 31, 2000 and
bears interest at LIBOR plus 0.98% (5.88% at May 2, 1999). The Company pays an
availability fee, as defined, equal to 0.125% of the unused available principal
under the revolving credit agreement.
The Company's term loan payable to bank is due in monthly installments of
$50,000, plus interest at LIBOR plus 1.4% (6.30% at May 2, 1999) through
November 30, 2003.
During fiscal 1999 and pursuant to the term loan agreement, the Company entered
into an interest rate swap transaction agreement to hedge a notional amount
equal to the remaining principal balance on the term loan. The rate is fixed at
6.77% and the agreement expires November 2003. The Company believes the
interest rate swap transaction agreement limits the substantial risk should
interest rates rise. The interest rate swap agreement had no material effect on
interest expense in fiscal 1999.
Under the terms of the term loan and revolving credit agreement (the
"Facilities"), the Company is required to maintain certain financial ratios and
minimum levels of working capital and net worth. Borrowings under the
Facilities are secured by the Company's business assets.
The capital lease obligation is at a fixed interest rate of 8.87% and is
collateralized by the leased property.
F-12
44
Novametrix Medical Systems Inc.
Notes to Consolidated Financial Statements (continued)
3. DEBT AND CAPITAL LEASE OBLIGATION (CONTINUED)
Aggregate annual maturities of debt and the capital lease obligation as of
May 2, 1999 follow:
LONG-TERM CAPITAL
DEBT LEASE TOTAL
---------------------------------------
2000 $ 3,800,000 $ 42,994 $ 3,842,994
2001 600,000 42,994 642,994
2002 600,000 14,331 614,331
2003 600,000 600,000
2004 400,000 400,000
-----------------------------------------
Total 6,000,000 100,319 6,100,319
Less amount representing interest on
capital lease 9,438 9,438
-----------------------------------------
$ 6,000,000 $ 90,881 $ 6,090,881
=========================================
The Company paid interest under its bank debt agreements and capital lease
obligation of $172,768 in 1999, $135,921 in 1998 and $248,734 in 1997.
The carrying amounts of the financing arrangements approximate their fair
values.
4. CAPITAL STOCK
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 Series B shares have been fully issued
and converted to Common Stock. 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.
At May 2, 1999 there are 7,933,304 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 May 2, 1999, no takeover events had
occurred and no rights were exercisable.
During fiscal 1999, the Company purchased 960,903 shares of its Common Stock
for $4,655,072 under its stock repurchase programs. At May 2, 1999, there are
231,895 remaining shares authorized for repurchase.
F-13
45
Novametrix Medical Systems Inc.
Notes to Consolidated Financial Statements (continued)
5. STOCK OPTIONS, STOCK PURCHASE PLAN AND WARRANTS
On October 14, 1997, the Company's shareholders approved the Novametrix Medical
Systems Inc. 1997 Long Term Incentive Plan (the "Incentive Plan") which
provides for the granting of nonqualified or incentive stock options,
restricted stock awards, stock appreciation rights and performance awards to
any employee, director or consultant. The Company reserved 500,000 shares of
its Common Stock for issuance under the Incentive Plan. The Company also has a
limited number of remaining issuable stock options from stock option plans
authorized during previous years.
Activity relating to the Company's stock option plans follows:
FISCAL YEAR ENDED
--------------------------------------------------------------------
1999 1998 1997
--------------------------------------------------------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE
--------------------------------------------------------------------
Outstanding at
beginning of year 709,953 $5.94 457,618 $4.23 413,734 $3.59
Granted 65,000 5.03 278,000 8.50 115,000 5.72
Exercised (9,000) 2.83 (20,665) 2.93 (57,782) 2.43
Cancelled (7,500) 5.44 (5,000) 4.38 (13,334) 5.00
====================================================================
Outstanding at
end of year 758,453 $5.07 709,953 $5.94 457,618 $4.23
====================================================================
Options exercisable
at end of year 476,453 $5.01 343,619 $3.95 245,951 $3.44
====================================================================
Options outstanding as of May 2, 1999 had exercise prices as follows: 362,953
options ranging from $1.00 to $5.00 and 395,500 options ranging from $5.50 to
$6.31. The weighted average remaining contractual life of these options is 6.8
years.
During fiscal 1999, the Company repriced 250,000 options with an exercise price
of $9.125 and 50,000 options with an exercise price of $7.625 to $6.3125, the
fair value of the Company's Common Stock on the date of repricing.
At May 2, 1999, options for 194,501 shares have been authorized but not yet
granted under the Company's stock option plans.
F-14
46
Novametrix Medical Systems Inc.
Notes to Consolidated Financial Statements (continued)
5. STOCK OPTIONS, STOCK PURCHASE PLAN AND WARRANTS (CONTINUED)
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 May 2, 1999,
97,569 shares of Common Stock had been issued under this plan.
The Company has redeemable Class B Warrants outstanding covering an aggregate
of 566,785 shares. The warrants, each exercisable into one share of Common
Stock at an exercise price of $5.85, are scheduled to expire on December 8,
1999. They are callable by the Company under certain circumstances and traded
on The NASDAQ Stock Market(R) under the symbol NMTXZ. The Company's outstanding
warrants also include warrants previously granted to directors, its general
counsel and consultants to purchase shares of the Company's Common Stock. Data
relating to warrants outstanding at May 2, 1999 follows:
FISCAL YEAR WARRANTS RANGE OF NUMBER OF SHARES COVERED
GRANTED EXERCISE PRICES BY OUTSTANDING WARRANTS
---------------------------------------------------------------------------------------
1990 $.89 to $1.81 162,814
1992 $.93 1,776
1993 $2.625 10,000
1995 $4.125 to $5.85 639,964
---------------------------
814,554
===========================
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 1999 through June 2004, and are all currently
exercisable. During fiscal 1999, an aggregate of 32,763 warrants were exercised
at prices ranging from $.89 to $4.60 per share and 47,000 warrants were
cancelled.
At May 2, 1999, there were 1,819,939 shares of Common Stock reserved for the
issuance and exercise of options and warrants, and purchases through the
Company's employee stock purchase plan.
F-15
47
Novametrix Medical Systems Inc.
Notes to Consolidated Financial Statements (continued)
5. STOCK OPTIONS, STOCK PURCHASE PLAN AND WARRANTS (CONTINUED)
If compensation costs for the Company's stock-based compensation plans had been
determined based on the fair value at the grant dates for 1999, 1998 and 1997
consistent with the method prescribed by SFAS No. 123, the Company's net income
and earnings per common share would have been adjusted to the pro forma amounts
indicated below:
FISCAL YEAR ENDED
---------------------------------------------------
1999 1998 1997
----------------- ---------------- ----------------
Pro forma net income:
Basic $1,576,060 $2,546,338 $4,798,364
Diluted 1,576,000 2,561,338 4,828,364
Pro forma earnings per share:
Basic $.19 $.31 $.69
Diluted .18 .27 .58
During the initial phase-in period, as required by SFAS No. 123, the pro forma
amounts were determined based on the stock option grants and employee stock
purchases subsequent to April 30, 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 for grants in fiscal 1999, 1998 and 1997: dividend yield of 0%;
expected volatility of .892% in 1999, .524% in 1998 and .294% for 1997; risk
free interest rate of 6% in 1999 and 5% in 1998 and 1997; and expected life of
ten years. The weighted average fair value of stock options granted in fiscal
1999, 1998 and 1997 was $4.45, $5.84 and $2.84, respectively.
F-16
48
Novametrix Medical Systems Inc.
Notes to Consolidated Financial Statements (continued)
6. EARNINGS PER SHARE
FISCAL YEAR ENDED
1999 1998 1997
------------------------------------------
NUMERATOR
Net income $ 2,066,667 $ 2,903,598 $ 4,923,559
Preferred stock dividends (15,000) (30,000)
------------------------------------------
Numerator for basic earnings per share 2,066,667 2,888,598 4,893,559
Effect of dilutive securities:
Preferred Stock dividends 15,000 30,000
------------------------------------------
Numerator for diluted earnings per share $ 2,066,667 $ 2,903,598 $ 4,923,559
==========================================
DENOMINATOR
Denominator for basic earnings per share:
Weighted average shares outstanding 8,299,707 8,147,451 6,993,161
Effect of dilutive securities:
Employee stock options and warrants 296,455 1,045,661 852,589
Convertible Preferred Stock 180,892 444,444
------------------------------------------
Dilutive potential common shares 296,455 1,226,553 1,297,033
------------------------------------------
Denominator for diluted earnings per share 8,596,162 9,374,004 8,290,194
==========================================
Basic earnings per share $ .25 $ .35 $ .70
==========================================
Diluted earnings per share $ .24 $ .31 $ .59
==========================================
Certain options and warrants to purchase 919,285, 250,000 and 680,000 shares of
the Company's Common Stock outstanding in 1999, 1998 and 1997, respectively,
were not included in the computation of diluted earnings per share because
their exercise price was greater than the average market price of the common
shares and, therefore, their inclusion would have been antidilutive.
7. 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-17
49
Novametrix Medical Systems Inc.
Notes to Consolidated Financial Statements (continued)
8. 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:
2000 $ 646,797
2001 575,699
2002 497,928
2003 458,848
2004 414,860
Thereafter 1,735,806
--------------
$ 4,329,938
==============
Total rental expense under operating leases was $687,219 in 1999, $702,438 in
1998 and $554,272 in 1997.
9. INCOME TAXES
The components of the Company's deferred income tax accounts follow:
FISCAL YEAR ENDED
1999 1998 1997
--------------------------------------------------
Deferred income tax assets:
Tax credits $ 1,079,585 $ 971,545 $ 656,900
Net operating loss carryforwards 1,976,314 3,033,564 3,907,427
Inventories - valuation
allowance and other 734,492 646,692 812,122
Other 190,058 163,096 267,621
--------------------------------------------------
Total deferred income tax assets 3,980,449 4,814,897 5,644,070
F-18
50
Novametrix Medical Systems Inc.
Notes to Consolidated Financial Statements (continued)
9. INCOME TAXES (CONTINUED)
FISCAL YEAR ENDED
1999 1998 1997
--------------------------------------------------
Valuation allowance for deferred
income tax assets $ (158,780) $ (328,428) $ (506,141)
--------------------------------------------------
3,821,669 4,486,469 5,137,929
Less deferred income tax
liabilities 104,181 102,803 87,929
--------------------------------------------------
Net deferred income tax assets $ 3,717,488 $ 4,383,666 $ 5,050,000
================ ================ ================
The provision (benefit) for income taxes consists of the following:
FISCAL YEAR ENDED
1999 1998 1997
--------------------------------------------------
Current tax expense:
Federal $ 78,000 $ 89,000 $ 22,000
State 39,000 5,000 8,000
--------------------------------------------------
117,000 94,000 30,000
Deferred tax expense (benefit):
Federal 685,700 930,000 (4,036,000)
State 1,000 24,000 6,000
--------------------------------------------------
686,700 954,000 (4,030,000)
--------------------------------------------------
Income tax provision (benefit) $ 803,700 $ 1,048,000 $ (4,000,000)
==================================================
F-19
51
Novametrix Medical Systems Inc.
Notes to Consolidated Financial Statements (continued)
9. 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
1999 1998 1997
-----------------------------------------------
Computed tax expense at expected
statutory rate $ 975,925 $ 1,343,543 $ 314,000
Benefit of foreign sales corporation (60,629) (113,000)
State taxes, net of federal effect 26,465 19,000 (4,000)
Permanent items--net effect 63,689 63,392 30,000
Utilization of net operating loss
carryforwards (476,000)
Tax credits (32,102) (87,222)
Reduction in valuation allowance (169,648) (177,713) (3,864,000)
-----------------------------------------------
$ 803,700 $ 1,048,000 $ (4,000,000)
===============================================
At May 2, 1999, the Company had net operating loss carryovers for federal
income tax reporting purposes of approximately $5,813,000 of which $1,243,000
expires in 2005, $4,195,000 expires in 2006 and $375,000 expires in 2007. The
Company has unused research and other tax credits of approximately $1,080,000
at May 2, 1999 which expire in varying amounts between 2000 and 2014.
During 1999, 1998 and 1997, the Company reduced its valuation allowance due to
the increased likelihood that the Company will generate sufficient taxable
income to fully utilize the net deferred tax asset recorded at the end of each
reporting period.
Income taxes paid in 1999, 1998 and 1997 were not significant.
F-20
52
Novametrix Medical Systems Inc.
Notes to Consolidated Financial Statements (continued)
10. SUBSEQUENT EVENT
On June 30, 1999, the Company acquired 100% of the capital stock of Children's
Medical Ventures, Inc. (ChMV), a privately owned developer and marketer of
neonatal and pediatric care products and services. The purchase price was
comprised of cash of $8.7 million and a warrant to purchase 25,000 shares of
the Company's common stock at an exercise price of $4.3625 per share. The
purchase price was financed with two term loans aggregating $9.6 million. The
acquisition will be accounted for as a purchase; accordingly, the purchase
price will be allocated to the underlying assets and liabilities based on their
respective estimated fair values at the date of acquisition.
Concurrent with the acquisition, the Company amended and restated its bank
Facilities (See Note 3). Under the amended and restated agreement with its
primary lender, the Company borrowed an additional $4.8 million in the form of
a term loan, increased the amount of credit available under the revolving
credit agreement from $5 million to $6 million and extended the maturity date
to August 2001. In addition, the Company entered into a new term loan agreement
with another bank for $4.8 million which expires July 1, 2004. Pursuant to the
terms of the amended and restated bank Facilities and the new term loan
agreement, the Company is required, among other things, to maintain certain
financial ratios and maintain minimum levels of working capital and net worth,
and is restricted from the payment of dividends.
11. RECENT ACCOUNTING PRONOUNCEMENT
In April 1998, the AICPA issued Statement of Position (SOP) 98-5, "Reporting on
the Costs of Start-up Activities." The SOP, which is effective for the Company
beginning May 3, 1999, requires start-up costs capitalized prior thereto to be
written-off and any future start-up costs to be expensed as incurred. The
unamortized balance of start-up costs (approximately $329,000 as of May 2,
1999) will be written-off as a cumulative effect of an accounting change as of
May 3, 1999. The Company estimates the impact of adopting this SOP will result
in a reduction of fiscal 2000 earnings of approximately $224,000.
In June 1997, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." This Statement
establishes the accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts and for
hedging activities. It requires recognition of all derivatives as either assets
or liabilities measured at their fair value. Depending on the intended use of
the derivative, changes in fair value will be reported in the period of change
as either a component of earnings or a component of other comprehensive income.
The Company has not quantified the impact of adoption on its financial
statements. The Statement is effective for the Company's 2002 fiscal year.
F-21
53
Novametrix Medical Systems Inc.
Notes to Consolidated Financial Statements (continued)
12. REPORTABLE SEGMENTS
The Company is domiciled in the United States and operates in one industry
segment--the design, manufacture and marketing of non-invasive monitors,
sensors and accessories. The Company's products are marketed domestically and
internationally with no one customer accounting for more than 10% of net sales.
The Company has earned revenue from sales to customers in the following
geographic locations:
1999 1998 1997
----------------------------------------------
United States $ 20,608,666 $ 18,565,126 $ 16,809,870
Europe 4,484,675 5,075,086 3,299,928
Asia 3,234,864 2,892,071 3,682,431
Western Hemisphere (other than U.S.) 3,437,907 3,496,434 3,386,274
Other 1,098,561 1,532,427 1,075,247
----------------------------------------------
$ 32,864,673 $ 31,561,144 $ 28,253,750
==============================================
F-22
54
Novametrix Medical Systems Inc.
Notes to Consolidated Financial Statements (continued)
13. QUARTERLY DATA (UNAUDITED)
On July 1, 1999, the Company announced that it had restated its condensed
consolidated financial statements for each of the unaudited first three
quarterly periods ended January 31, 1999. The restatements reflected
adjustments as a result of modifications to the accounting treatment for sales
financing arrangements which the Company entered into with customers during the
first three quarters of fiscal 1999, and the reversal of certain dealer sales
where products were ultimately returned to the Company due to cancellation of
dealer orders by end users.
FIRST QUARTER SECOND QUARTER THIRD QUARTER FOURTH
-----------------------------------------------------------------------
AS REPORTED RESTATED AS REPORTED RESTATED AS REPORTED RESTATED QUARTER
--------------------------------------------------------------------------------------
1999
Revenues $7,672,209 $7,027,885 $8,407,763 $8,134,062 $8,606,113 $8,087,894 $9,728,323
Gross profit 4,982,081 4,280,011 4,888,680 4,817,398 4,905,109 4,449,756 5,862,163
Research and
development
expenses 912,146 912,146 1,066,771 1,066,771 1,058,077 1,058,077 920,766
Selling, general and
administrative
expenses 2,932,206 2,796,390 2,757,544 2,751,801 3,270,606 3,243,319 3,529,183
Income tax provision 239,000 155,600 289,000 270,500 131,000 11,200 366,400
Net income 612,939 400,085 742,611 695,572 336,964 28,698 942,312
Diluted earnings
per share $0.07 $0.04 $0.09 $0.08 $0.04 $0.00 $0.12
1998
Revenues $7,366,461 $7,505,960 $7,378,240 $9,356,244
Gross profit 4,252,009 4,227,530 4,070,839 5,679,321
Research and
development
expenses 860,157 851,156 884,429 926,945
Selling, general and
administrative
expenses 2,538,974 2,495,182 2,433,411 3,130,054
Income tax provision 236,000 211,000 208,000 393,000
Net income 523,858 626,788 534,995 1,217,957
Diluted earnings
per share $0.06 $0.07 $0.06 $0.13
F-23
55
Novametrix Medical Systems Inc. and Subsidiaries
Schedule II--Valuation and Qualifying Accounts
May 2, 1999
COL. A COL. B COL. C COL. D COL. E
- ---------------------------------------------------------------------------------------------------------------------------------
ADDITIONS
----------------------------------
BALANCE AT CHARGED TO
BEGINNING OF COSTS AND CHARGED TO BALANCE AT END
DESCRIPTION PERIOD EXPENSES OTHER ACCOUNTS DEDUCTIONS OF PERIOD
- -----------------------------------------------------------------------------------------------------------------------------------
Year ended May 2, 1999:
Allowance for doubtful accounts deducted
from accounts receivable $ 250,000 $ 12,000 $ 12,000 $ 250,000
================================= =================================
Year ended May 3, 1998:
Allowance for doubtful accounts deducted
from accounts receivable $ 250,000 $ 29,000 $29,000 (1) $ 250,000
================================= =================================
Year ended April 27, 1997:
Allowance for doubtful accounts deducted
from accounts receivable $ 250,000 $ 29,000 $29,000 (1) $ 250,000
================================= =================================
(1) Uncollectible accounts written off, net of recoveries.
S-1
56
Index to Exhibits*
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(e) Amendment to By-Laws of the Company effective September 30, 1997 (incorporated by --
reference to Exhibit 3(e) of the Company's Form 10-QSB for the quarter ended
November 2, 1997).
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).
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).
- --------
* 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
57
Index to Exhibits
(Continued)
Page
----
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).
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).
E-2
58
Index to Exhibits
(Continued)
Page
----
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).
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).
E-3
59
Index to Exhibits
(Continued)
Page
----
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).
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 (incorporated by reference to Exhibit
10(ee) to the Company's Form 10-KSB for the year ended April 27, 1997).
E-4
60
Index to Exhibits
(Continued)
Page
----
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
(incorporated by reference to Exhibit 10(ff) to the Company's Form 10-KSB for the
year ended April 27, 1997).
10(gg) Restricted Stock Agreement between the Company and Joseph A. Vincent --
(incorporated by reference to Exhibit 10(gg) to the Company's Form 10-KSB for the
year ended April 27, 1997).
10(hh) Stockholders Agreement between the Company and the Charles F. Manning, Jr., M.D., --
Group dated as of September 30, 1997 (incorporated by reference to Exhibit 10(hh)
of the Company's Form 10-QSB for the quarter ended November 2, 1997).
10(ii) Amendment dated as of November 24, 1997 to Employment Agreement dated as of June --
1, 1988 between the Company and William J. Lacourciere (incorporated by reference
to Exhibit 10(ii) of the Company's Form 10-Q for the quarter ended February 1,
1998).
10(jj) Amendment No. 4 to Fourth Amended and Restated Loan and Security Agreement dated --
as of January 1, 1998 among the Company, NTC and First Union Bank of Connecticut
(incorporated by reference to Exhibit 10(jj) of the Company's Form 10-K for the
year ended May 3, 1998).
10(kk) 1997 Long Term Incentive Plan (incorporated by reference to Exhibit A of the --
Company's Proxy Statement for the Annual Meeting held October 14, 1997).
10(ll) Form of Promissory Note under the Novametrix Medical Systems Inc. Director and --
Senior Officer Stock Retention Program (incorporated by reference to Exhibit
10(ll) of the Company's Form 10-Q/A for the quarter ended January 2, 1999).
10(mm) Stock Purchase Agreement dated as of June 30, 1999 by and among the Company, --
Children's Medical Ventures, Inc. ("ChMV") and the Stockholders of ChMV
(incorporated by reference to Exhibit 10(mm) of the Company's Current Report of
Form 8-K dated July 15, 1999).
10(nn) 1998 Loan Agreement dated as of August 1, 1998 among the Company, NTC and First E-7
Union National Bank.
10(oo) Amended and Restated 1998 Loan Agreement dated as of October 9, 1998 among the E-18
Company, NTC and First Union National Bank.
E-5
61
Index to Exhibits
(Continued)
Page
----
10(pp) Second Amended and Restated 1998 Loan Agreement dated as of December 11, 1998 E-31
among the Company, NTC and First Union National Bank.
10(qq) 1999 Amended and Restated Loan Agreement dated as of June 30, 1999 among the E-44
Company, NTC, ChMV and First Union National Bank.
10(rr) Loan Agreement dated as of June 30, 1999 among the Company, NTC, ChMV and Webster E-60
Bank.
21 Subsidiaries of the Company. E-74
23.1 Consent of Ernst & Young LLP, Independent Auditors. E-75
24 Power of Attorney (See "Power of Attorney" in Form 10-K). --
27 Financial Data Schedule. E-76
E-6