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 December 31, 1995
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- ----- EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number -0-16061
CRITICARE SYSTEMS, INC.
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(Exact name of registrant as specified in its charter)
Delaware 39-1501563
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(State or other jurisdiction (IRS Employer Identification No.)
of incorporation or organization)
20925 Crossroads Circle, Waukesha, Wisconsin 53186
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number including area code (414) 798-8282
N/A
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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 February 12, 1996: Class A Common Stock 7,096,272 shares.
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CRITICARE SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1995 AND JUNE 30, 1995
(UNAUDITED)
December 31, June 30,
ASSETS 1995 1995
------------ ------------
CURRENT ASSETS:
Cash and cash equivalents $1,108,387 $2,398,278
Accounts receivable 9,517,923 8,608,340
Other receivables 346,952 279,458
Inventory 7,459,944 6,639,805
Prepaid expenses 176,391 166,972
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Total current assets 18,609,597 18,092,853
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PROPERTY, PLANT AND EQUIPMENT - NET 7,118,817 6,918,024
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INVESTMENTS 300,000 300,000
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OTHER ASSETS:
License and patents - net 96,667 108,373
Goodwill - net 34,778 49,178
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Total other assets 131,445 157,551
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TOTAL $26,159,859 $25,468,428
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LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 3,535,046 $ 2,661,558
Accrued liabilities:
Compensation and commissions 664,829 714,171
Income taxes 37,355 21,800
Product warranties 350,000 375,000
Other 842,488 726,765
Current maturities of long-term debt 188,104 191,818
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Total current liabilities 5,617,822 4,691,112
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LONG-TERM DEBT, less current maturities 4,793,509 3,646,867
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STOCKHOLDERS' EQUITY
Preferred stock
Common stock 281,815 267,889
Additional paid-in capital 11,799,484 10,884,910
Retained earnings 3,684,054 5,994,455
Cumulative translation adjustments (16,825) (16,805)
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Total stockholders' equity 15,748,528 17,130,449
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TOTAL $26,159,859 $25,468,428
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See condensed notes to consolidated financial statements.
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CRITICARE SYSTEMS, INC.
CONSOLIDATED INCOME STATEMENTS
SIX MONTHS ENDED DECEMBER 31, 1995 AND 1994
(UNAUDITED)
1995 1994
----------- -----------
NET SALES $15,694,342 $13,997,414
COST OF GOODS SOLD 8,022,563 7,051,889
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GROSS PROFIT 7,671,779 6,945,525
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OPERATING EXPENSES:
Marketing 5,063,968 4,596,247
Research, development and engineering 1,184,470 835,771
Administrative 955,011 945,978
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Total 7,203,449 6,377,996
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INCOME FROM OPERATIONS 468,330 567,529
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OTHER INCOME (EXPENSE):
Interest expense (196,855) (187,567)
Interest income 38,124 90,593
Equity in loss of investments (2,500,000) (30,000)
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Total (2,658,731) (126,974)
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INCOME (LOSS) BEFORE INCOME TAXES (2,190,401) 440,555
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INCOME TAX PROVISION 120,000 172,000
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NET INCOME (LOSS) $(2,310,401) $ 268,555
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EARNINGS (LOSS) PER COMMON SHARE:
Primary $ (0.34) $ 0.04
Fully diluted (0.34) 0.04
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WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING
Primary 6,723,233 6,730,389
Fully diluted 6,723,233 6,730,389
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See condensed notes to consolidated financial statements.
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CRITICARE SYSTEMS, INC.
CONSOLIDATED INCOME STATEMENTS
THREE MONTHS ENDED DECEMBER 31, 1995 AND 1994
(UNAUDITED)
1995 1994
----------- -----------
NET SALES $8,736,012 $7,463,075
COST OF GOODS SOLD 4,376,124 3,834,285
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GROSS PROFIT 4,359,888 3,628,790
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OPERATING EXPENSES:
Marketing 2,891,090 2,391,257
Research, development and engineering 668,642 469,482
Administrative 513,477 464,301
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Total 4,073,209 3,325,040
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INCOME FROM OPERATIONS 286,679 303,750
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OTHER INCOME (EXPENSE):
Interest expense (99,821) (93,275)
Interest income 15,623 52,325
Equity in loss of investments (2,500,000) (15,000)
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Total (2,584,198) (55,950)
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INCOME (LOSS) BEFORE INCOME TAXES (2,297,519) 247,800
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INCOME TAX PROVISION 77,000 95,000
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NET INCOME (LOSS) $(2,374,519) $ 152,800
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EARNINGS (LOSS) PER COMMON SHARE:
Primary $ (0.35) $ 0.02
Fully diluted (0.35) 0.02
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WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING
Primary 6,723,233 6,730,389
Fully diluted 6,723,233 6,730,389
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See condensed notes to consolidated financial statements.
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CRITICARE SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED DECEMBER 31, 1995 AND 1994
(UNAUDITED)
1995 1994
---- ----
OPERATING ACTIVITIES:
Net (loss) income $(2,310,401) $ 268,555
Adjustments to reconcile net income to net
cash (used in) provided by operating activities:
Depreciation 279,595 296,640
Amortization 26,106 62,551
Equity in loss of investments 2,500,000 30,000
Changes in assets and liabilities:
Accounts receivable (909,583) 303,501
Other receivables (67,494) (49,680)
Inventories (820,139) (1,757,094)
Prepaid expenses (9,419) 19,556
Accounts payable 873,469 1,216,293
Accrued liabilities (307,065) 152,236
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Net cash (used in) provided by operating activities (744,931) 542,558
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INVESTING ACTIVITIES-
Purchases of property, plant and equipment (480,388) (216,667)
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Net cash used in investing activities (480,388) (216,667)
FINANCING ACTIVITIES:
Principal payments on long-term debt (97,072) (97,237)
Proceeds from the exercise of stock options 32,500 _
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Net cash used in financing activities (64,572) (97,237)
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NET (DECREASE) INCREASE IN CASH AND
CASH EQUIVALENTS (1,289,891) 228,654
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 2,398,278 3,452,369
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CASH AND CASH EQUIVALENTS, END OF PERIOD $ 1,108,387 $ 3,681,023
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See condensed notes to consolidated financial statements.
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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 December 31, 1995 and June 30, 1995, respectively:
December 31, June 30,
1995 1995
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Component parts $3,021,464 $2,996,313
Work in process 1,525,919 1,138,060
Finished units 2,912,561 2,505,432
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Total inventories $7,459,944 $6,639,805
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CRITICARE SYSTEMS, INC.
Condensed Notes to Consolidated Financial Statements
(Unaudited)
4. Property, Plant and Equipment
Property, plant and equipment consist of the following:
December 31, June 30,
1995 1995
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Land and building $4,525,000 $4,525,000
Machinery and equipment 1,679,714 1,586,177
Furniture and fixtures 884,080 859,182
Demonstration and loaner monitors 1,642,342 1,402,841
Production tooling 1,330,484 1,208,032
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Property, plant and equipment - cost 0,061,620 9,581,232
Less accumulated depreciation 2,942,803 2,663,208
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Property, plant and equipment - net $7,118,817 $6,918,024
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5. Investments
Investments consist of the following:
December 31, June 30,
1995 1995
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Intercare Technologies, Inc. $300,000 $300,000
Immtech International, Inc. - -
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Total investments $300,000 $300,000
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During the second quarter of fiscal 1996, the Company, through its wholly owned
subsidiary Criticare Biomedical, Inc., purchased 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.
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CRITICARE SYSTEMS, INC.
Condensed Notes to Consolidated Financial Statements
(Unaudited)
The acquisition price has been assigned a value of $2,500,000 based upon a
preliminary estimate by Company management of the fair value of the
consideration given by the Company. In consideration of the Immtech stock and
Note, the Company issued to the Sellers 333,154 shares of the Company's Common
Stock and Criticare Biomedical has issued 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. In accordance with applicable accounting rules, the
purchase price was allocated to research and development and charged to expense
upon the consummation of the agreement. The Company currently owns
approximately 35% of the outstanding common stock of Immtech on a fully diluted
and as converted basis. The investment in Immtech is accounted for using the
equity method.
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CRITICARE SYSTEMS, INC.
Management's Discussion and Analysis of
Results of Operations and Financial Condition
Six Months Ended December 31, 1995 and 1994
Results of Operations
Net sales for the six months ended December 31, 1995 increased 12% to $15.7
million from $14.0 million for the same period in fiscal 1995. Sales increased
in all three divisions. The Domestic Hospital sales increase is due primarily
to improved Maestro ECG telemetry sales and the introduction of the "Scholar",
which represents the Company's next generation of monitoring products. The
Alternate Care and International sales improvement is attributable to increased
oximetry and blood pressure monitor sales. The International sales improvement
was also favorably impacted by the introduction of the "Scholar II", a vital
signs monitor.
The gross profit percentage decreased from 50% for the six months ended
December 31, 1994 to 49% for the six months ended December 31, 1995. The
decrease in gross profit can be attributed to continued price competition
primarily in the International division.
Operating expenses increased approximately $825,000, or 13%, for the six months
ended December 31, 1995 when compared with the same period in fiscal 1995.
Marketing expenses increased approximately $468,000, or 10%, when compared to
the same period in fiscal 1995. The increase in marketing expenses relates to
increased commissions resulting from the increased sales and additional
promotional expenses related to the new product introductions. As a percentage
of sales, marketing expenses decreased to 32% for the six months ended December
31, 1995 from 33% for the same period in fiscal 1995. Research, development
and engineering expenses for the six months ended December 31, 1995 increased
approximately $349,000, or 42%, when compared to the same period in fiscal
1995. This increase relates to expenses incurred in connection with new
product development, primarily new vital signs monitors, telemetry projects and
digital oximetry designed for the changing health care environment.
Non-operating expenses were $2,658,731 and $126,974 for the six months ended
December 31, 1995 and 1994, respectively. The December 31, 1995 amount
includes the $2,500,000 write-off recorded upon the acquisition of additional
stock in Immtech. The write-off relates to the allocation of the purchase
price to research and development which must be expensed.
The net loss of $2,310,401 for the six months ended December 31, 1995 compares
to net income of $268,555 recorded for the six months ended December 31, 1994.
The change reflects the write-off recorded related to the Immtech acquisition.
If the effect of the Immtech transaction was excluded, net income for the six
months ended December 31, 1995 would be $189,599.
Page 9 of 11
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CRITICARE SYSTEMS, INC.
Management's Discussion and Analysis of
Results of Operations and Financial Condition
Three Months Ended December 31, 1995 and 1994
Results of Operations
Net sales for the three months ended December 31, 1995 increased 17% to $8.7
million from $7.5 million for the same period in fiscal 1995. Sales increased
in all three divisions. The Domestic Hospital sales increase is due to
improved sales of the Maestro telemetry systems and the introduction of the
"Scholar" monitor. Alternate Care sales improvement is attributable to
increased sales of oximeters and the Model 1100 vital signs monitor.
International sales were favorably impacted by the introduction of "Scholar
II".
The gross profit percentage improved to 50% for the quarter ended December 31,
1995 from 49% for the quarter ended December 31, 1994. The improvement is due
primarily to improved margins on ECG telemetry sales and decreased
manufacturing spending.
Operating expenses increased approximately $748,000, or 23%, for the quarter
ended December 31, 1995 when compared with the same period in fiscal 1995.
Marketing expenses for the quarter ended December 31, 1995 increased
approximately $500,000, or 21%, when compared to the same period in 1995. This
increase in marketing expenses relates to increased commissions resulting from
the increased sales and additional promotional expenses related to new product
introductions. Research, development and engineering expenses for the quarter
ended December 31, 1995 increased approximately $199,000, or 42%, when compared
to the same period in fiscal 1995. This increase relates to expenses incurred
in connection with new product development, primarily new vital signs monitors
and telemetry projects designed for the changing health care environment.
Non-operating expenses were $2,584,198 and $55,950 for the three months ended
December 31, 1995 and 1994, respectively. The December 31, 1995 amount
includes the $2,500,000 write-off recorded upon the acquisition of additional
stock in Immtech.
The net loss of $2,374,519 for the three months ended December 31, 1995
compares to net income of $152,800 recorded for the three months ended December
31, 1994. This change is due to the write-off recorded related to the Immtech
transaction. If the effect of the Immtech transaction was excluded, net income
for the three months ended December 31, 1995 would be $125,481.
The Company believes its marketing and research and development activities and
other capital and liquidity requirements will be satisfied by cash generated
from operations and periodic utilization of a commerical line of credit of up
to $4,000,000 currently in place.
Page 10 of 11
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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 December 31, 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 02/14/96 BY
---------------- ---------------------------------
Richard J. Osowski
Vice President - Finance
(Chief Accounting Officer and
Duly Authorized Officer)
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