1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- ----- EXCHANGE ACT OF 1934 For the quarterly period ended September 30,
1995
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- ----- EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________
Commission file number -0-16061
CRITICARE SYSTEMS, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 39-1501563
--------------------------------------------------------------------------
(State or other jurisdiction (IRS Employer Identification No.)
of incorporation or organization)
20925 Crossroads Circle, Waukesha, Wisconsin 53186
------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number including area code (414) 798-8282
-----------------
N/A
-------------------------------------------------------------------------
Former name, former address and former fiscal year, if changed since last
report.
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
------ ------
Number of shares outstanding of each class of the registrant's classes of
common stock as of November 14, 1995: Class A Common Stock 6,712,218 shares.
2
CRITICARE SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1995 AND JUNE 30, 1995
(UNAUDITED)
September 30, June 30,
1995 1995
-------------------- ---------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 1,625,657 $ 2,398,278
Accounts receivable 8,415,793 8,608,340
Other receivables 469,679 279,458
Inventory 6,753,272 6,639,805
Prepaid expenses 243,046 166,972
------------- -------------
Total current assets 17,507,447 18,092,853
------------- -------------
PROPERTY, PLANT AND EQUIPMENT - NET 7,171,248 6,918,024
------------- -------------
INVESTMENTS 300,000 300,000
------------ -------------
OTHER ASSETS:
License and patents - net 98,767 108,373
Goodwill - net 41,978 49,178
------------- -------------
Total other assets 140,745 157,551
------------- -------------
TOTAL $ 25,119,440 $ 25,468,428
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 2,421,785 $ 2,661,558
Accrued liabilities:
Compensation and commissions 550,008 714,171
Income taxes (5,545) 21,800
Product warranties 360,000 375,000
Other 775,559 726,765
Current maturities of long-term debt 186,779 191,818
------------- -------------
Total current liabilities 4,288,586 4,691,112
------------- -------------
LONG-TERM DEBT, less current maturities 3,603,808 3,646,867
------------- -------------
STOCKHOLDERS' EQUITY
Preferred stock
Common stock 268,489 267,889
Additional paid-in capital 10,916,810 10,884,910
Retained earnings 6,058,573 5,994,455
Cumulative translation adjustments (16,826) (16,805)
------------- -------------
Total stockholders' equity 17,227,046 17,130,449
------------- -------------
TOTAL $ 25,119,440 $25,468,428
============= =============
See condensed notes to consolidated financial statements.
Page 2 of 9
3
CRITICARE SYSTEMS, INC.
CONSOLIDATED INCOME STATEMENTS
THREE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994
(UNAUDITED)
1995 1994
---- ----
NET SALES $6,958,330 $6,534,339
COST OF GOODS SOLD 3,646,439 3,217,604
---------- ----------
GROSS PROFIT 3,311,891 3,316,735
---------- ----------
OPERATING EXPENSES:
Marketing 2,172,878 2,204,990
Research, development and engineering 515,828 366,289
Administrative 441,534 481,677
---------- ----------
Total 3,130,240 3,052,956
---------- ----------
INCOME FROM OPERATIONS 181,651 263,779
---------- ----------
OTHER INCOME (EXPENSE):
Interest expense (97,034) (94,292)
Interest income 22,501 38,268
Equity in loss of investments (15,000)
---------- ----------
Total (74,533) ( 71,024)
---------- ----------
INCOME BEFORE INCOME TAXES 107,118 192,755
---------- ----------
INCOME TAX PROVISION 43,000 77,000
---------- ----------
NET INCOME $ 64,118 $ 115,755
========== ==========
EARNINGS PER COMMON SHARE:
Primary $ 0.01 $ 0.02
Fully diluted 0.01 0.02
========== ==========
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING
Primary 6,709,485 6,791,494
Fully diluted 6,764,236 6,791,494
---------- ----------
See condensed notes to consolidated financial statements.
Page 3 of 9
4
CRITICARE SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994
(UNAUDITED)
1995 1994
---- ----
OPERATING ACTIVITIES:
Net income $ 64,118 $ 115,755
Adjustments to reconcile net income to net
cash (used in) provided by operating activities:
Depreciation 135,698 153,696
Amortization 16,806 27,871
Equity in loss of investments 15,000
Changes in assets and liabilities:
Accounts receivable 192,547 42,800
Other receivables (190,221) 7,524
Inventories (113,467) (441,636)
Prepaid expenses (76,074) 7,566
Accounts payable (239,794) 274,545
Accrued liabilities (157,714) 40,992
--------- ----------
Net cash (used in) provided by operating activities (368,101) 244,113
--------- ----------
INVESTING ACTIVITIES-
Purchases of property, plant and equipment (388,922) (67,428)
--------- ----------
Net cash used in investing activities (388,922) (67,428)
--------- ----------
FINANCING ACTIVITIES:
Principal payments on long-term debt (48,098) (51,242)
Proceeds from the exercise of stock options 32,500 _
---------- ----------
Net cash used in financing activities (15,598) (51,242)
---------- ----------
NET (DECREASE) INCREASE IN CASH AND
CASH EQUIVALENTS (772,621) 125,443
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 2,398,278 3,452,369
--------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 1,625,657 $ 3,577,812
=========== ===========
See condensed notes to consolidated financial statements.
Page 4 of 9
5
CRITICARE SYSTEMS, INC.
Condensed Notes to Consolidated Financial Statements
(Unaudited)
1. BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared by Criticare
Systems, Inc. (the "Company") pursuant to the rules and regulations of the
Securities and Exchange Commission ("SEC") and, in the opinion of the Company,
include all adjustments necessary for a fair statement of results for each
period shown. Certain information and footnote disclosures normally included
in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such SEC rules
and regulations. The Company believes that the disclosures made are adequate
to prevent the financial information given from being misleading. It is
suggested that these financial statements be read in conjunction with the
financial statements and notes thereto included in the Company's latest annual
report and previously issued Form 10-K.
2. Cash Equivalents
The Company considers all investments with purchased maturities of less than
three months to be cash equivalents.
3. Inventory Valuation
Inventory is stated at the lower of cost or market, with cost determined on the
first-in, first-out method. Components of inventory consisted of the following
at September 30, 1995 and June 30, 1995, respectively:
September 30, June 30,
1995 1995
---------- -------------
Component parts $3,035,605 $2,996,313
Work in process 1,279,513 1,138,060
Finished units 2,438,154 2,505,432
---------- ----------
Total inventories $6,753,272 $6,639,805
========== ==========
Page 5 of 9
6
CRITICARE SYSTEMS, INC.
Condensed Notes to Consolidated Financial Statements
(Unaudited)
4. Property, Plant and Equipment
Property, plant and equipment consist of the following:
September 30, June 30,
1995 1995
---------- -------------
Land and building $ 4,525,000 $4,525,000
Machinery and equipment 1,643,144 1,586,177
Furniture and fixtures 879,695 859,182
Demonstration and loaner monitors 1,699,549 1,402,841
Production tooling 1,222,766 1,208,032
---------- ----------
Property, plant and equipment - cost 9,970,154 9,581,232
Less accumulated depreciation
2,798,906 2,663,208
----------- -----------
Property, plant and equipment - net $7,171,248 $6,918,024
========== ==========
5. Investments
Investments consist of the following:
September 30, June 30,
1995 1995
-------- --------
Intercare Technologies, Inc. $300,000 $300,000
Immtech International, Inc. - -
-------- --------
Total investments $300,000 $300,000
======== ========
The Company, through its wholly owned subsidiary Criticare Biomedical, Inc.,
has agreed to purchase from Marquette Venture Partners II, L.P. and MVP II
Affiliates Fund, L.P. (collectively, "Sellers"), two entities which are not
affiliated with the Company, 1,000,000 shares of the Series A Preferred Stock
and 1,200,000 shares of the Series B Preferred Stock of Immtech International,
Inc.("Immtech") and a promissory note payable by Immtech in the principal
amount of $50,000 pursuant to the terms of a certain Purchase and Sale
Agreement as amended or to be amended. In consideration of the
Page 6 of 9
7
CRITICARE SYSTEMS, INC.
Condensed Notes to Consolidated Financial Statements
(Unaudited)
Immtech stock and Note, the Company has agreed to issue to the Sellers 333,154
shares of the Company's Common Stock and Criticare Biomedical has agreed to
issue a subordinated promissory note, secured solely by the Immtech stock and
note, in the principal amount of $1,240,000. The principal balance of the note
is payable on the earlier of (a) the seventh anniversary of the date of the
note; (b) the closing date of an initial public offering of the stock of
Immtech or any sale of the Immtech stock by Criticare Biomedical; or (c) the
Company purchasing any additional Immtech stock. The note bears interest at 7%
per annum. No interest is payable during the first 12 months of the note and
thereafter interest is to be paid quarterly in arrears. When the proposed
transaction is completed, the Company will own approximately 35% of the
outstanding common stock of Immtech on a fully diluted and as converted basis.
This transaction could result in a significant amount of purchased research and
development which, depending on the allocation of the purchase price, would be
charged to expense upon consummation of the agreement. The purchase is
expected to close during the second quarter of fiscal 1996.
Page 7 of 9
8
CRITICARE SYSTEMS, INC.
Management's Discussion and Analysis of
Results of Operations and Financial Condition
Three Months Ended September 30, 1995 and 1994
Results of Operations
Net sales for the three months ended September 30, 1995 increased 6% to $7.0
million from $6.5 million for the same period in fiscal 1995. The increase in
sales is due to improved sales in the International division. This increase is
due primarily to sales of blood pressure and combination blood pressure and
oximetry monitors. These monitors were introduced during the second quarter of
fiscal 1995.
The gross profit percentage decreased from 51% for the quarter ended September
30, 1994 to 48% for the quarter ended September 30, 1995. The decrease in
gross profit can be attributed to continued price competition.
Operating expenses increased approximately $77,000, or 3%, for the quarter
ended September 30, 1995 when compared with the same period in fiscal 1995.
Research, development and engineering expenses for the quarter ended September
30, 1995 increased approximately $150,000, or 41%, when compared to the same
period in fiscal 1995. This increase relates to expenses incurred for digital
oximetry, vital signs monitors and telemetry projects designed for the changing
health care environment. The increased expenses for research, development and
engineering were partially offset by reductions in marketing and administrative
expenses.
Non-operating expenses were $74,533 and $71,024 for the three months ended
September 30, 1995 and 1994, respectively. The slight increase in
non-operating expenses is due to a reduction in interest income resulting from
lower invested cash balances during the three months ended September 30, 1995
when compared to the same period in fiscal 1995.
Net income of $64,118 for the three months ended September 30, 1995 represents
a decrease from the net income of $115,755 recorded for the three months ended
September 30, 1994. This decreased profitability is due to decreased gross
margins combined with an increase in operating expenses resulting from the
significantly increased research, development and engineering activities.
Page 8 of 9
9
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(b) The registrant filed no reports on Form 8-K during the quarter
ended September 30, 1995.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CRITICARE SYSTEMS, INC.
(Registrant)
Date 11/14/95 BY /s/ Richard J. Osowski
- ------------------------ -----------------------
Richard J. Osowski
Vice President - Finance
(Chief Accounting Officer and
Duly Authorized Officer)
Page 9 of 9